Oblicon Compilation of Cases

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

A.

LAW

1. 2. 3. 4. 5. 6.

LEUNG BEN VS. O’BRIEN, 38 PHIL 182 PELAYO VS. LAURON, 12 PHIL 453 NIKKO HOTEL VS. REYES, 452 SCRA 532 ST. MARY’S ACADEMY VS. CARPITANOS, FEB. 6, 2002 REGINO VS. PANGASINAN COLLEGE, NOV. 18, 2004 COSMO ENTERTAINMENT VS. LA VILLE, AUG. 20, 2004

LEUNG BEN; plaintiff, VS. P. J. O’BRIEN, JAMES A. OSTRAND and GEO. R. HARVEY, Judges of First Instance of the City of Manila, defendants April 6, 1918 FACTS: On December 12, 1917, an action was instituted in the Court of First Instance of Manila by P.J. O’Brien to recover of Leung Ben the sum of P15,000, all alleged to have been lost by the plaintiff to the defendant in a series of gambling, banking, and percentage games conducted during the two or three months prior to the institution of the suit. The plaintiff asked for an attachment against the property of the defendant, on the ground that the latter was about to depart from the Philippines with intent to defraud his creditors. This attachment was issued. The provision of law under which this attachment was issued requires that there should be a cause of action arising upon contract, express or implied. The contention of the petitioner is that the statutory action to recover money lost at gaming is not such an action as is contemplated in this provision, and he insists that the original complaint shows on its face that the remedy of attachment is not available in aid thereof; that the Court of First Instance acted in excess of its jurisdiction in granting the writ of attachment; that the petitioner has no plain, speedy, and adequate remedy by appeal or otherwise; and that consequently the writ of certiorari supplies the appropriate remedy for this relief. ISSUE: Whether or not the statutory obligation to restore money won at gaming is an obligation arising from contract, express or implied. RULING:

Yes. In permitting the recovery money lost at play, Act No. 1757 has introduced modifications in the application of Articles 1798, 1801, and 1305 of the Civil Code. The first two of these articles relate to gambling contracts, while article 1305 treats of the nullity of contracts proceeding from a vicious or illicit consideration. Taking all these provisions together, it must be apparent that the obligation to return money lost at play has a decided affinity to contractual obligation; and the Court believes that it could, without violence to the doctrines of the civil law, be held that such obligations is an innominate quasi-contract.

RULING: No. The Court held that the rendering of medical assistance is one of the obligations to which spouses are bound by mutual support, expressly determined by law and readily demanded. Therefore, there was no obligation on the part of the in-laws but rather on the part of the husband who is not a party. Thus, decision affirmed.

It is however, unnecessary to place the decision on this ground. In the opinion of the Court, the cause of action stated in the complaint in the court below is based on a contract, express or implied, and is therefore of such nature that the court had authority to issue the writ of attachment. The application for the writ of certiorari must therefore be denied and the proceedings dismissed. LAW AS A SOURCE OF OBLIGATION ARTURO PELAYO, plaintiff-appellant VS. MARCELO LAURON, defendant-appellee 12 Phil 453 January 12, 1909

LAW AS A SOURCE OF OBLIGATION

FACTS: On November 23, 1906, Arturo Pelayo, a physician, filed a complaint against Marcelo and Juana Abella. He alleged that on October 13, 1906 at night, Pelayo was called to the house of the defendants to assist their daughter-in-law who was about to give birth to a child. Unfortunately, the daughter-in-law died as a consequence of said childbirth. Thus, the defendant refuses to pay. The defendants argue that their daughter-in-law lived with her husband independently and in a separate house without any relation, that her stay there was accidental and due to fortuitous event. ISSUE: Whether or not the defendants should be held liable for the fees demanded by the plaintiff upon rendering medical assistance to the defendants’ daughter-in-law.

ASI CORPORATION, plaintiff-appellant VS. EVANGELISTA, defendant-appellee February 14, 2008 FACTS: Private respondent Evangelista contracted Petitioner ASJ Corporation for the incubation and hatching of eggs and by products owned by Evangelista Spouses. The contract includes the scheduled payments of the service of ASJ Corporation that the amount of installment shall be paid after the delivery of the chicks. However, the ASJ Corporation detained the chicks because Evangelista Spouses failed to pay the installment on time. ISSUE:

Whether or not the detention of the alleged chicks valid and recognized under the law? RULING: No, because ASJ Corporation must give due to the Evangelista Spouses in paying the installment, thus, it must not delay the delivery of the chicks. Thus, under the law, they are obliged to pay damages with each other for the breach of the obligation. Therefore, in a contract of service, each party must be in good faith in the performance of their obligation, thus when the petitioner had detained the hatched eggs of the respondents spouses, it is an implication of putting prejudice to the business of the spouses due to the delay of paying installment to the petitioner.

latter did not able to pay the installment, Davalon continued the payment but when he became insolvent, he said that the motorcycle was taken by Quiamco’s men. However, after several years, the petitioner Ramas together with policemen took the motorcycle without the respondent’s permit and shouted that the respondent Quiamco is a thief of motorcycle. Respondent then filed an action for damages against petitioner alleging that petitioner is liable for unlawful taking of the motorcycle and utterance of a defamatory remark and filing a baseless complaint. Also, petitioners claim that they should not be held liable for petitioner’s exercise of its right as seller-mortgagee to recover the mortgaged motorcycle preliminary to the enforcement of its right to foreclose on the mortgage in case of default. ISSUE: Whether or not the act of the petitioner is correct. RULING:

LAW AS A SOURCE OF OBLIGATION

RAMAS, plaintiff-appellant VS. QUIAMCO, defendant-appellee December 6, 2006 FACTS: Quiamco has amicably settled with Davalan, Gabutero and Generoso for the crime of robbery and that in return, the three had surrendered to Quiamco a motorcycle with its registration. However, Atty. Ramas has sold to Gabutero the motorcycle in installment but when the

No. The petitioner being a lawyer must know the legal procedure for the recovery of possession of the alleged mortgaged property in which said procedure must be conducted through judicial action. Furthermore, the petitioner acted in malice and intent to cause damage to the respondent when even without probable cause, he still instituted an act against the law on mortgage.

LAW AS A SOURCE OF OBLIGATION NIKKO HOTEL MANILA GARDEN AND RUBY LIM VS. ROBERTO REYES a.k.a. “AMAY BISAYA” 2005 Feb 28 G.R. No. 154259

FACTS: In the evening of October 13, 1994, while drinking coffee at the lobby of Hotel Nikko, respondent was invited by a friend, Dr. Filart to join her in a party in celebration of the birthday of the hotel’s manager. During the party and when respondent was lined-up at the buffet table, he was stopped by Ruby Lim, the Executive Secretary of the hotel, and asked to leave the party. Shocked and embarrassed, he tried to explain that he was invited by Dr. Filart, who was herself a guest. Not long after, a Makati policeman approached him and escorted him out of her party.

Code. Necessarily, neither can her employer, Hotel Nikko, be held liable as its liability springs from that of its employees.

Ms. Lim admitted having asked respondent to leave the party but not under the ignominious circumstances painted by Mr. Reyes, that she did the act politely and discreetly. Mindful of the wish of the celebrant to keep the party intimate and exclusive, she spoke to the respondent herself when she saw him by the buffet table with no other guests in the immediate vicinity. She asked him to leave the party after he finished eating. After she had turned to leave, the latter screamed and made a big scene.

Without proof of any ill-motive on her part, Ms. Lim’s act cannot amount to abusive conduct.

When a right is exercised in a manner which does not conform with the norms enshrined in Article 19 and results in damage to another, a legal wrong is thereby committed for which the wrongdoer must be responsible. Article 21 states that any person who willfully causes loss or injury to another in a manner that is contrary to morals, good customs or public policy shall compensate the latter for the damage.

The maxim “Volenti Non Fit Injuria” (self-inflicted injury) was upheld by the Court, that is, to which a person assents is not esteemed in law as injury, that consent to injury precludes the recovery of damages by one who has knowingly and voluntarily exposed himself to danger.

Dr. Filart testified that she did not want the celebrant to think that she invited Mr. Reyes to the party. LAW AS A SOURCE OF OBLIGATION Respondent filed an action for actual, moral and/or exemplary damages and attorney’s fees. The lower court dismissed the complaint. On appeal, the Court of Appeals reversed the ruling of the trial court, consequently imposing upon Hotel Nikko moral and exemplary damages and attorney’s fees. On motion for reconsideration, the Court of Appeals affirmed its decision. Thus, this instant petition for review. ISSUES: Whether or not Ms. Ruby Lim is liable under Articles 19 and 21 of the Civil Code in asking Mr. Reyes to leave the party as he was not invited by the celebrant thereof and whether or not Hotel Nikko, as the employer of Ms. Lim, be solidarily liable with her. RULING: The Court found more credible the lower court’s findings of facts. There was no proof of motive on the part of Ms. Lim to humiliate Mr. Reyes and to expose him to ridicule and shame. Mr. Reyes’ version of the story was unsupported, failing to present any witness to back his story. Ms. Lim, not having abused her right to ask Mr. Reyes to leave the party to which he was not invited, cannot be made liable for damages under Articles 19 and 21 of the Civil

ST. MARY’S ACADEMY, petitioner, VS. WILLIAM CARPITANOS and LUCIA S. CARPITANOS, GUADA DANIEL, JAMES DANIEL II, JAMES DANIEL, SR., and VIVENCIO VILLANUEVA, respondents February 6, 2002 FACTS: From February 13 to 20, 1995, defendant-appellant St. Mary’s Academy of Dipolog City conducted an enrollment drive for the school year 1995-1996. As a student of St. Mary’s Academy, Sherwin Carpitanos was part of the campaigning group. Accordingly, Sherwin, along with other high school students were riding in a Mitsubishi jeep owned by defendant Vivencio Villanueva on their way to Larayan Elementary School, Larayan, Dapitan City. The jeep was driven by James Daniel II then 15 years old and a student of the same school. Allegedly, the latter drove the jeep in a reckless manner and as a result the jeep turned turtle. Sherwin Carpitanos died as a result of the injuries he sustained from the accident. The trial court ordered the defendants, St. Mary’s Academy principally liable and the parents of James Daniel as subsidiarily liable for damages.

The Court of Appeals affirmed the decision of the trial court. The Court of Appeals held petitioner St. Mary’s Academy liable for the death of Sherwin Carpitanos under Articles 218 and 219 of the Family Code, pointing out that petitioner was negligent in allowing a minor to drive and in not having a teacher accompany the minor students in the jeep. ISSUE: Whether or not the appellant St. Mary’s Academy is principally liable for damages for the death of Sherwin.

A.

CONTRACTS

1. 2. 3. 4. 5. 6.

TSPI, INC., VS. TSPOC EMPLOYEES UNION 545 S 215 REGINO VS. CA, NOVEMBER 18, 1992 PSBA VS. CA, FEB. 4, 1992 COSMO ENTERTAINMENT VS. LA VILLE, 20 AUGUST 2004 AYALA CORP. VS. ROSA DIANA REALTY, 346 SCRA 663 BRICKTOWN DEVELOPMENT VS. AMOR TIERRA DEVELOPMENT, 239 SCRA 126 PILIPINAS HINO VS. CA, 338 SCRA 355

7.

RULING: No. Under Article 219 of the Family Code, if the person under custody is a minor, those exercising special parental authority are principally and solidarily liable for damages caused by the acts or omissions of the unemancipated minor while under their supervision, instruction, or custody. However, for petitioner to be liable, there must be a finding that the act or omission considered as negligent was the proximate cause of the injury caused because the negligence must have a causal connection to the accident. Respondents Daniel spouses and Villanueva admitted that the immediate cause of the accident was not the negligence of petitioner or the reckless driving of James Daniel II, but the detachment of the steering wheel guide of the jeep. Hence, liability for the accident, whether caused by the negligence of the minor driver or mechanical detachment of the steering wheel guide of the jeep, must be pinned on the minor’s parents primarily. The negligence of petitioner St. Mary’s Academy was only a remote cause of the accident. Between the remote cause and the injury, there intervened the negligence of the minor’s parents or the detachment of the steering wheel guide of the jeep. Considering that the negligence of the minor driver or the detachment of the steering wheel guide of the jeep owned by respondent Villanueva was an event over which petitioner St. Mary’s Academy had no control, and which was the proximate cause of the accident, petitioner may not be held liable for the death resulting from such accident.

SOURCES OF OBLIGATIONS

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

FACTS: TSPI Corporation entered into a Collective Bargaining Agreement with the corporation Union for the increase of salary for the latter’s members for the year 2000 to 2002 starting from January 2000. thus, the increased in salary was materialized on January 1, 2000. However, on October 6, 2000, the Regional Tripartite Wage and production Board raised daily minimum wage from P 223.50 to P 250.00 starting November 1, 2000. Conformably, the wages of the 17 probationary employees were increased to P250.00 and became regular employees therefore receiving another 10% increase in salary. In January 2001, TSPIC implemented the new wage rates as mandated by the CBA. As a result, the nine employees who were senior to the 17 recently regularized employees, received less wages. On January 19, 2001, TSPIC’s HRD notified the 24 employees who are private respondents, that due to an error in the automated payroll system, they were overpaid and the overpayment would be deducted from their salaries starting February 2001. The Union on the other hand,

asserted that there was no error and the deduction of the alleged overpayment constituted diminution of pay. ISSUE: Whether the alleged overpayment constitutes diminution of pay as alleged by the Union.

Regino, an underprivileged, failed to purchase the tickets because of her status as well as that project was against her religious belief, thus, she was not allowed to take the final examination by her two professors. ISSUE: Was the refusal of the university to allow Regino to take the final examination valid?

RULING: Yes, because it is considered that Collective Bargaining Agreement entered into by unions and their employers are binding upon the parties and be acted in strict compliance therewith. Thus, the CBA in this case is the law between the employers and their employees. Therefore, there was no overpayment when there was an increase of salary for the members of the union simultaneous with the increasing of minimum wage for workers in the National Capital Region. The CBA should be followed thus, the senior employees who were first promoted as regular employees shall be entitled for the increase in their salaries and the same with lower rank workers.

RULING: No, the Supreme Court declared that the act of PCST was not valid, though, it can impose its administrative policies, necessarily, the amount of tickets or payment shall be included or expressed in the student handbooks given to every student before the start of the regular classes of the semester. In this case, the fund raising project was not included in the activities to be undertaken by the university during the semester. The petitioner is entitled for damages due to her traumatic experience on the acts of the university causing her to stop studying sand later transfer to another school.

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

FACTS: Petitioner Kristine Regino was a poor student enrolled at the Pangasinan College of Science and Technology. Thus, a fund raising project pertaining to a dance party was organized by PCST, requiring all its students to purchase two tickets in consideration as a prerequisite for the final exam.

CONTRACT AS A SOURCE OF OBLIGATION PHILIPPINE SCHOOL OF BUSINESS ADMINISTRATION, ET AL. petitioners, VS. COURT OF APPEALS, HON. REGINA ORDOÑEZ-BENITEZ, SEGUNDA R. BAUTISTA, and ARSENIA D. BAUTISTA, respondents

February 4, 1992 FACTS: Carlitos Bautista was a third year student at the Philippine School of Business Administration. Assailants, who were not members of the schools academic community, while in the premises of PSBA, stabbed Bautista to death. This incident prompted his parents to file a suit against PSBA and its corporate officers for damages due to their alleged negligence, recklessness and lack of security precautions, means and methods before, during and after the attack on the victim. The defendants filed a motion to dismiss, claiming that the compliant states no cause of action against them based on quasi-delicts, as the said rule does not cover academic institutions. The trial court denied the motion to dismiss. Their motion for reconsideration was likewise dismissed, and was affirmed by the appellate court. Hence, the case was forwarded to the Supreme Court. ISSUE: Whether or not PSBA is liable for the death of the student. RULING: Because the circumstances of the present case evince a contractual relation between the PSBA and Carlitos Bautista, the rules on quasi-delict do not really govern. A perusal of Article 2176 shows that obligations arising from quasi-delicts or tort, also known as extra-contractual obligations, arise only between parties not otherwise bound by contract, whether express or implied. However, this impression has not prevented this Court from determining the existence of a tort even when there obtains a contract. Article 2180, in conjunction with Article 2176 of the Civil Code, establishes the rule in in loco parentis. Article 2180 provides that the damage should have been caused or inflicted by pupils or students of the educational institution sought to be held liable for the acts of its pupils or students while in its custody. However, this material situation does not exist in the present case for, as earlier indicated, the assailants of Carlitos were not students of the PSBA, for whose acts the school could be made liable. But it does not necessarily follow that PSBA is absolved form liability. When an academic institution accepts students for enrollment, there is established a contract between them, resulting in bilateral obligations which

both parties is bound to comply with. For its part, the school undertakes to provide the student with an education that would presumably suffice to equip him with the necessary tools and skills to pursue higher education or a profession. This includes ensuring the safety of the students while in the school premises. On the other hand, the student covenants to abide by the school's academic requirements and observe its rules and regulations. Failing on its contractual and implied duty to ensure the safety of their student, PSBA is therefore held liable for his death. Petition denied.

CONTRACT AS A SOURCE OF OBLIGATION COSMO ENTERTAINMENT MANAGEMENT, INC., Petitioner, VS. LA VILLE COMMERCIAL CORPORATION, Respondent G.R. No. 152801 20 August 2004 FACTS: The respondent, La Ville Commercial Corporation, is the registered owner of a parcel of land covered by Transfer Certificate of Title (TCT) No. 174250 of the Registry of Deeds of Makati City together with the commercial building thereon situated at the corner of Kalayaan and Neptune Streets in Makati City. On March 17, 1993, it entered into a Contract of Lease with petitioner Cosmo Entertainment Management, Inc. over the subject property for a period of seven years with a monthly rental of P250 per square meter of the floor area of the building and a security deposit equivalent to three monthly rentals in the amount of P447,000 to guarantee the faithful compliance of the terms and conditions of the lease agreement. Upon execution of the contract, the petitioner took possession of the subject property. The petitioner, however, suffered business reverses and was constrained to stop operations in September 1996. Thereafter, the petitioner defaulted in its rental payments. Consequently, on February 1, 1997, the respondent made a demand on the petitioner to vacate the premises as well as to pay the accrued rentals plus interests which, as of January 31, 1997, amounted to P740,478.91. In reply to the demand, the petitioner averred that its unpaid rentals amounted to P698,500 only and since it made a security deposit of P419,100 with the respondent, the said amount should be applied to the unpaid rentals; hence, the outstanding accounts payable would only be P279,400. The respondent

requested that the interest charges be waived and it be given time to find a solution to its financial problems. After negotiations between the parties failed, the respondent, on May 27, 1997, reiterated its demand on the petitioner to pay the unpaid rentals as well as to vacate and surrender the premises to the respondent. When the petitioner refused to comply with its demand, the respondent filed with the Metropolitan Trial Court (MeTC) of Makati City. The petitioner, in its answer to the complaint, raised the defense that, under the contract, it had the right to sublease the premises upon prior written consent by the respondent and payment of transfer fees. However, the respondent, without any justifiable reason, refused to allow the petitioner to sublease the premises. After due proceedings, the MeTC rendered judgment in favor of the respondent. ISSUE: Whether or not the contention of the petitioner is tenable. RULING: While petitioner pleads that a liberal, not literal, interpretation of the rules should be our policy guidance, nevertheless procedural rules are not to be disdained as mere technicalities. They may not be ignored to suit the convenience of a party. Adjective law ensures the effective enforcement of substantive rights through the orderly and speedy administration of justice. Rules are not intended to hamper litigants or complicate litigation. But they help provide for a vital system of justice where suitors may be heard in the correct form and manner, at the prescribed time in a peaceful though adversarial confrontation before a judge whose authority litigants acknowledge. Public order and our system of justice are well served by a conscientious observance of the rules of procedure. In any case, the Court is convinced that the findings and conclusions of the court a quo and the RTC are in order. These courts uniformly found that, under the terms of the contract of lease, the respondent, as the owner-lessor of the premises, had reserved its right to approve the sublease of the same. The petitioner, having voluntarily given its consent thereto, was bound by this stipulation. And, having failed to pay the monthly rentals, the petitioner is deemed to have violated the terms of the contract, warranting its ejectment from the leased premises. The Court finds no cogent reason to depart from this

factual disquisition of the courts below in view of the rule that findings of facts of the trial courts are, as a general rule, binding on this Court. The petition is DENIED. CONTRACT AS A SOURCE OF OBLIGATION AYALA CORPORATION VS. ROSA DIANA REALTY 346 SCRA 633 FACTS: In April 1976, appellant-petitioner entered into a transaction with Manuel Sy and Sy Ka Kieng where former sold a lot in Salcedo Village in Makati. The deed of sale had some encumbrances contained in the Special Conditions of Sale (SCS) and Deed of Restrictions (DR), which should be followed by the vendees. The stipulations in the SCS are: a building proposal must be submitted to Ayala which must be in accordance with the DR, the construction of the building must be completed on or before 1979, and that there will be no resale of the lot. The DR specified the limits in height and floor area of the building to be constructed. However, Sy and Kieng, failed to build a building but nonetheless with the permission of Ayala, the vendees sold the said lot to the respondent, Rosa Diana Realty. Respondent Company agreed to abode by the SCS and the DR stipulations. Prior to the construction, Rosa Diana submitted a building plan to Ayala complying with the DR but it also passed a different building plan to the building administrator of Makati, which did not comply with the stipulations in the DR. While the building, “The Peak,” was being constructed, Ayala filed a case praying that: 1) Rosa Diana, be compelled to comply with the DR and build the building in accordance with the building plan submitted to Ayala; or 2) on the alternative, the rescission of the deed of sale. The trial court ruled in favor of the respondent and thus, Rosa Diana was able to complete the construction of “The Peak.” Undeterred, Ayala filed before the Register of Deeds (RD) of Makati a cause of annotation lis pendens. RD refused to grant Ayala such registration for in the lower court; the case is of personal action for a specific performance and/or rescission. However, the Land Registration Authority (LRA) reversed RD’s ruling. The appellate court upheld the RD’s ruling stating that the case before the trial court is a personal action for

the cause of action arises from the alleged violation of the DR. The trial court sustained the respondent’s point saying that Ayala was guilty of abandonment and/or estoppels due to its failure to enforce the terms of the DR and SCS against Sy and Kieng. Ayala discriminately chose which obligor would be made to follow certain conditions, which is not fair and legal. On appeal, the CA affirmed the lower court’s ruling. Hence, this petition. ISSUE: Whether or not Rosa Diana committed a breach of contract. RULING: Yes, the Supreme Court ruled that Rosa Diana committed a breach of contract by submitting a building plan to Ayala complying with the DR and submitting a different building plan to the building administrator of Makati, which did not comply with the stipulations in the DR. Contractual Obligations between parties have the force of law between them and absent any allegation that the same are contrary to law, morals, good customs, public order or public policy, they must complied with in good faith. Thus, the assailed decision of the Court of Appeals is reversed and set aside.

CONTRACT AS A SOURCE OF OBLIGATION BRICKTOWN DEVELOPMENT CORP. and MARIANO Z. VERALDE VS. AMOR TIERRA DEVELOPMENT CORPORATION and the HON. COURT OF APPEALS G.R. No. 112182 December 12, 1994 239 SCRA 127 FACTS: Bricktown Development Corporation, represented by its President and copetitioner Mariano Z. Velarde, executed two Contracts to Sell in favor of Amor

Tierra Development Corporation, represented in these acts by its Vice-President, Moises G. Petilla, covering a total of 96 residential lots at the Multinational Village Subdivision, La Huerta, Parañaque, Metro Manila. The total price of P21,639,875.00 was stipulated to be paid by private respondent in such amounts and maturity dates, as follows: P2,200,000.00 on 31 March 1981; P3,209,968.75 on 30 June 1981; P4,729,906.25 on 31 December 1981; and the balance of P11,500,000.00 to be paid by means of an assumption by private respondent of petitioner corporation's mortgage liability to the Philippine Savings Bank or, alternately, to be made payable in cash. On date, March 31, 1981, the parties executed a Supplemental Agreement, providing that private respondent would additionally pay to petitioner corporation the amounts of P55,364.68, or 21% interest on the balance of down payment for the period from 31 March to 30 June 1981, and of P390,369.37 representing interest paid by petitioner corporation to the Philippine Savings Bank in updating the bank loan for the period from 01 February to 31 March 1981. Private respondent was only able to pay petitioner corporation the sum of P1,334,443.21. However, the parties continued to negotiate for a possible modification of their agreement, but nothing conclusive happened. And on October 12, 1981, petitioner’s counsel sent private respondent a “Notice of Cancellation of Contract” because of the latter’s failure to pay the agreed amount. Several months later, private respondent’s counsel, demanded the refund of private respondent's various payments to petitioner corporation, allegedly "amounting to P2,455,497.71," with interest within fifteen days from receipt of said letter, or, in lieu of a cash payment, to assign to private respondent an equivalent number of unencumbered lots at the same price fixed in the contracts. When the demand was not heeded, Amor Tierra filed an action with the court a quo which rendered a decion in its favor. The decision of the lower court was affirmed in toto by the Court of Appeals. Hence, this petition. ISSUE: Whether or not the contract was properly rescinded. Whether or not Bricktown properly forfeited the payments of Amor Tierra. RULING: The contract between Bricktown and Amor Tierra was validly rescinded because of the failure of the latter to pay the agreed amounts stipulated in the contract on the proper date even after the sixty-days grace period. Furthermore, the records showed that private respondent corporation paid less

than the amount agreed upon. The Supreme Court also added that such cancellation must be respected. It may also be noteworthy to add that in a contract to sell, the non-payment of the purchase price can prevent the obligation to convey title from acquiring any obligatory force. On the second issue, the Supreme Court ruled that since the private respondent did not actually possessed the property under the contract, the petitioner is then ordered to return to private respondent the amount remitted. However, to adjudge any interest payment by petitioners on the amount to be thus refunded, private respondent should not be allowed to totally free itself from its own breach.

CONTRACT AS A SOURCE OF OBLIGATION PILIPINAS HINO, INC. VS. COURT of APPEALS G. R. No. 126570 August 18, 2000 338 SCRA 355 FACTS: On or about August 14, 1989, a contract of lease was entered into between Pilipinas Hino, Inc. and herein respondents, under which the respondents, as lessors, leased real property located at Bulacan to Pilipinas Hino, Inc. for a term of two years from August 16, 1989 to August 15, 1991. Pursuant to the contract of lease, petitioner deposited with the respondents the amount of P400,000.00 to answer repairs and damages that may be caused by the lessee on the leased premises during the period of lease.

(respondents) the option to rescind the same upon failure of the buyer to pay any of the first six installments with the corresponding obligation to return to the buyer the amount paid by the buyer in excess of the down payment as stated in paragraphs 7 and 9 of the Memorandum of Agreement. Pilipinas Hino, Inc. remitted on August 10, 1990 to the respondents the amount of P1,811,000.00 as down payment. Subsequently, petitioner paid the first and second installments in the amount of P1,800,000.00 and P5,250,000.00, respectively, totaling the down payment of P7,050,000.00. Unfortunately, petitioner failed to pay the third installment and subsequent installments. Respondents decided to rescind and terminate the contract and promised to return to petitioner all the amounts paid in excess of the down payment after deducing the interest due from third to sixth installments, inclusive. From the amount of P7,050,000.00 due to be returned to the petitioner, respondents deducted P924,000.00 as interest and P220,000.00 as rent for the period from February 15 to March 15, 1991, returning to the petitioner the amount of P5,906,000.00 only. After trial, the lower court rendered judgment stating that the petitioner has no cause of action to demand the return of the balance of the deposits in the amount P140,000.00 and the respondents have the legal right to demand accrued interest on the unpaid installments in the amount of P924,00.00. The Court of Appeals affirmed the decision of the trial court. Hence, this petition. ISSUE: Whether or not the petitioner is entitled to demand the balance of the deposits in the amount of P140,000.00 and to the return of the amount of P924,000.00.

After the expiration of the contract, the petitioner and respondents made a joint inspection of the premises to determine the extent of damages thereon. Both agreed that the cost or repairs would amount to P60,000.00 and that the amount of P340,000.00 shall be returned to petitioner. However, respondents returned only the amount of P200,000.00 leaving a balance of P140,000.00. Notwithstanding repeated demands, respondents averred that the true and actual damage amounted to P298,738.90.

RULING: The Supreme Court held that the petitioner failed to prove his first cause of action that the damages to the leased property amounted to more than P60,000.00. In contrast, respondents were able to prove their counterclaim that the damage to the leased property amounted to P338,732.50, as testified by their witness who is an experienced contractor. The trial court did not hold petitioner liable for the whole amount of P384,732.50, but only for the amount of P200,000.00.

On August 10, 1990, petitioner and respondents entered into a contract to sell denominated as Memorandum of Agreement to sell whereby the latter agreed to sell to the former the leased property in the amount of P45,611,000.00. The said Memorandum of Agreement to sell granted the owner

On the other hand, the Supreme Court held that both lower and appellate court failed to consider paragraph 9 contained in the same memorandum of agreement entered into by the parties. Said paragraphs provides in very clear terms that “when the owner exercise their option to forfeit the down payment,

they shall return to the buyer any amount paid by the buyer in excess of the down payment with no obligation to pay interest thereon.” The private respondents’ withholding of the amount corresponding to the interest violated the specific and clear stipulation in paragraph 9 of the said memorandum. The parties are bound by their agreement. Hence, the decision of the Court of Appeals is modified in that private respondent is ordered to return to the petitioner the amount of P924,000.00 representing the accrued interest for the unpaid installments and the decision appealed is affirmed in all other respects.

B.

QUASI – CONTRACTS

1.

TITAN-IKEDA CONNSTRUUCTION VS. PRIMETOWN PROPERTY, 544 S 466 PADCOM CONDOMINIUM VS. ORTIGAS, MAY 9, 2002 MC ENGINEERING VS. CA, 380 SCRA 116 BPI VS. PIÑEDA, 156 SCRA 404 STATE INVESTMENT VS. CA, 198 SCRA 392

2. 3. 4. 5.

respondent had allegedly constructed almost one third of the project as weel as selling some units to third persons unknown to the petitioner. Integrated Inc. took over the project, thus the petitioner is demanding for the return of its advanced payment in the amount of P2, 000,000.00 as weel as the keys of the unit. ISSUE: Whether or not the petitioner is entitled to damages. RULING: No, because in a contract necessarily that there is a meeting of the minds of the parties in which this will be the binding law upon them. Thus, in a reciprocal obligation. Both parties are obliged to perform their obligation simultaneously and in good faith. In this case, petitioner, TitanIkeda can not recover damages because it was found out there was no solutio indebiti or mistake in payment in this case since the latter is just entitled to the actual services it rendered to the respondent and thus it is ordered to return the condominium units to the respondent. QUASI-CONTRACT AS A SOURCE OF OBLIGATION PADCOM CONDOMINIUM CORPORATION, petitioner, VS. ORTIGAS CENTER ASSOCIATION, INC., respondent G.R. No. 146807 May 9, 2002 382 SCRA 222

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

FACTS: The respondent Primetown Property Corporation entered into contract weith the petitioner Titan-Ikeda Construction Corporation for the structural works of a 32-storey prime tower. After the construction of the tower, respondent again awarded to the petitioner the amount of P 130,000,000.00 for the tower’s architectural design and structure. Howevere, in 1994, the respondent entered inot a contract of sale of the tower in favor of the petitioner in a manner called full-swapping. Since the

FACTS: Petitioner PADCOM CONDOMINIUM CORPORATION (PADCOM) bought a land from Tierra Development Corporation with terms and conditions among which is that the transferee and its successor-in-interest must become members of an Association for realty owners and long-term lessees at Ortigas Center. The Ortigas Center Association (OCA) which was subsequently formed levies membership dues of P2,700.00 per month to all members. Petitioner refused to pay the membership dues on the ground that it did not become automatic

member of the Association when it bought the land. Herein respondent OCA filed a civil case for recovery of the amounts due, which was dismissed by the Regional Trial Court and reversed on appeal. Petitioner PADCOM appealed for review on certiorari at the Supreme Court. ISSUE: Whether or not petitioner PADCOM can be compelled to become a member of the OCA and thus pay the membership dues based on the condition of the Deed of Sale. RULING: PADCOM became automatically a member of the OCA by virtue of the conditions of the Deed of Sale attached to its Title of the property. By voluntarily buying the land with the conditions, it subscribed to such conditions which gave rise to a quasi-contract between it and the OCA. Therefore, it could not avoid payment of the membership dues without violating the underlying principles of quasi-contract – which provides that certain lawful, unilateral, and voluntary act gives rise to a juridical relation between the parties to the end that no one shall be unjustly enriched of benefited at the expense of others. Petition denied for lack of merit.

QUASI-CONTRACT AS A SOURCE OF OBLIGATION MC ENGINEERING, INC. VS. THE COURT OF APPEALS, GERENT BUILDERS, INC. and STRONGHOLD INSURANCE CO., INC., G.R. No. 104047 April 3, 2002 380 SCRA 116 FACTS: On October 29, 1984, Mc Engineering, Inc. and Surigao Coconut Development Corporation signed a contract for the restoration of the latter’s building, land improvement, electrical, and mechanical equipment located at Lipata, Surigao City, which was damaged by typhoon Nitang. The agreed

consideration was P5,150,000.00 of which P2,500,000.00 was for the restoration of the damaged buildings and land improvement, while the P3,000,000.00 was for the restoration of the electrical and mechanical works. The next day, on October 30, 1984 defendant Mc Engineering and plaintiff Gerent Builders, Inc. entered into an agreement wherein defendant subcontracted to plaintiff the restoration of the buildings and land improvement phase of its contract with Sucodeco but defendant retained for itself the restoration of the electrical and mechanical works. The subcontracted work covered the restoration of the buildings and improvement for P1,665,000.00. Two (2) months later, on December 3, 1984, Sucodeco and defendant Mc Engineering entered into an agreement amending provision No. VII, par 1 of their contract dated October 29, 1984, by increasing the price of the civil works from P2,250,000.00 to P3,104,851.51, or an increase of P854,851.51, with the express proviso that ‘except for the amendment above specified, all the other provisions of the original contract shall remain the same’. The civil work aspect consisting of the building restoration and land improvement from which plaintiff would get P1,665,000.00 was completed and the corresponding certificate of acceptance was executed, but the electrical works were cancelled. On January 2, 1985, plaintiff received from defendant the amount of P1,339,720.00 as full payment of the sub-contract price, after deducting earlier payments made by defendant to plaintiff, as evidenced by the affidavit executed by plaintiff’s president, Mr. Narciso C. Roque wherein the latter acknowledged complete satisfaction for such payment on the basis of the Statement of Account which plaintiff had earlier forwarded to defendant. Nevertheless, plaintiff is still claiming from defendant the sum of P632,590.13 as its share in the adjusted contract cost in the amount of P854,851.51, alleging that the sub-contract is subject to the readjustment provided for in Section VII of the agreement, and also the sum of P166,252.00 in payment for additional electrical and civil works outside the scope of the subcontract. Petitioner refused to pay respondent Gerent. ISSUE: Whether or not respondent Gerent Builders, Inc. can claim a share in the adjusted contract cost between petitioner and Surigao Coconut Development Corporation basing its claim from its assertion that the quitclaim executed by plaintiff-appellant is vitiated with fraud. RULING:

Gerent Builders, Inc. cannot claim for a share in the adjusted contract cost between petitioner and Sucodeco because petitioner was under no obligation to disclose to respondent Gerent, a subcontractor, any price increase in petitioner’s main contract with Sucodeco. Respondent Gerent is not a party to the main contract. The subcontract between petitioner and respondent Gerent does not require petitioner to disclose to Gerent any price increase in the main contract. The non-disclosure by petitioner of the price increase cannot constitute fraud or breach of any obligation on the part of petitioner.

Inc., placing the supervision and management of the aforementioned vessels in the hands of GACET, Inc., which was to run for a period of six (6) months, renewable at the will of the parties, without however, terminating the booking agency of Interocean Shipping Corporation. Likewise, under the terms of said Management Contract, the Peoples Bank and Trust Company was designated as depository of all revenues coming from the operation of the subject vessels thereby enabling it to control all expenses of GACET, Inc., since they win all be drawn against said deposit.

Moreover, the record shows that the P139,720.30 representing final and full payment of the subcontract price was paid by petitioner to respondent Gerent based on the statement of account Gerent itself prepared and submitted to petitioner.

During the period comprising March 16, 1967 and August 25, 1967, GACET and Interocean in performing their obligations under said Management Contract, contracted the services of herein plaintiff-appellee, Benjamin Pineda doing business under the name and style "Pioneer Iron Works," to carry out repairs, fabrication and installation of necessary parts in said vessels in order to make them seaworthy and in good working operation. Accordingly, repairs on the vessels were made. Labor and materials supplied in connection therewith, amounted to P84,522.70, P18,141.75 of which was advanced by Interocean, thereby leaving a balance of P62,095.95. For this balance, Interocean issued three checks and the third one for P 17,377.57. When these checks were however presented to the drawee, Peoples Bank and Trust Company, they were dishonored as defendant Interocean stopped payment thereon.

QUASI-CONTRACT AS A SOURCE OF OBLIGATION BANK OF THE PHILIPPINE ISLANDS VS. BENJAMIN PINEDA G.R. No. L-62441 156 SCRA 404 FACTS: Southern Industrial Project (SIP) and/or Bacong purchased the vessels SS "Southern Comet," SS "Southern Express" and SS "Southern Hope," thru financing furnished by defendant Peoples Bank and Trust Company, now the Bank of the Philippine Islands. To secure the payment of whatever amounts maybe disbursed for the aforesaid purpose, the said vessels were mortgaged to Peoples Bank and Trust Company. For the operation of the said vessels, these were placed under the booking agency of defendant Interocean Shipping Corporation, with the undertaking that the freight revenues from their charter and operation shall be deposited with the Trust Department of Peoples Bank and Trust Company and that disbursements made there from shall be covered by vouchers bearing the approval of SIP. As Peoples Bank and Trust Company and SIP were not satisfied with the amount of revenues being deposited with the said Bank, it being suggested that diversions thereof were being made, Gregorio A. Concon of SIP and/or Bacong and Roman Azanza of Peoples Bank and Trust Company, organized S.A. Gacet, Inc. to manage and supervise the operation of the vessels with Ezekiel P. Toeg as the manager thereof. Accordingly, on August 15, 1966, a Management Contract was entered into between SIP and GACET,

Meanwhile and by reason of the inability of SIP and/or Bacong to pay their mortgage indebtedness which was past due since 1964, the mortgagee Peoples Bank and Trust Company threatened to foreclose the mortgage on said vessels. In order to avoid the inconvenience and expense of imminent foreclosure proceedings, SIP and/or Bacong sold said vessels to Peoples Bank by way of dacion en pago. On October 1, 1968, plaintiff instituted the present action (Civil Case No. 74379) before the Court of First Instance of Manila, seeking to recover from SIP, GACET, Interocean and the Peoples Bank and 'Trust Company the principal sum of P62,095.92 with interests thereon from the respective dates of each repair order until the same is fully paid, which amount was allegedly the total unpaid balance of the cost of repairs, fabrication and installation of necessary parts carried out by the said plaintiff on the a forenamed vessels. Answering the complaint, defendants Peoples Bank and Trust Co., now Bank of P.I. and Southern Industrial Projects, Inc. (SIP) alleged that the abovementioned claim is the personal responsibility of Interocean Shipping Corporation and/or Gacet, Inc. and deny liability thereof Defendant Bacong Shipping Company, S.A.

The trial court rendered a decision dismissing the compliant against defendants Interocean Shipping Corporation and Gacet, Inc. QUASI-CONTRACT AS A SOURCE OF OBLIGATION

Defendants Bank of P.I. and Southern Industrial Projects, Inc. appealed to the Court of Appeals but the latter, finding the aforequoted decision to be in accordance with law and the evidence, affirmed the same. ISSUE: Whether or not People's Bank, now Bank of P.I. being the purchaser of said vessels, is jointly and severally liable for the outstanding balance of said repairs, admittedly a lien on the properties in question. RULING: There is no question that at the time subject obligation was incurred, defendant Southern industrial Projects, Inc. owned the vessels although mortgaged to People's Bank and Trust Company. Hence, the former as owner is liable for the costs of repairs made on the vessels. On the other hand, Interocean Shipping Corporation and S.A. Gacet undeniably mere agents of the owner, a disclosed principal, cannot be held liable for repairs made on the vessels to keep them in good running condition in order to earn revenue, there being no showing that said agents exceeded their authority. In view of the foregoing facts, it was aptly stated by the trial court and affirmed by the Court of Appeals that when the parties executed the deed of "Confirmation of Obligation" they really intended to confirm and acknowledge the existing obligations for the purpose of the buyer assuming liability therefore and charging them to the seller after proper accounting, verification and set offs have been made. Indeed, there is merit in the trial court's view that if there was no intention on the part of People's Bank (now Bank of P.I.) to assume responsibility y for these obligations at the time of the sale of the vessels, there is no sense in executing said Deed of Confirmation together with the deeds of sale and the stipulations there under would be pointless. Finally, it is indisputable that the repairs made on the vessels ultimately redounded to the benefit of the new owner for without said repairs, those vessels would not be seaworthy. Under Art. 2142 of the Civil Code, such acts "give rise to the juridical relation of quasi-contract to the end that no one shall be unjustly enriched or benefited at the expense of another."

STATE INVESTMENT VS. COURT OF APPEALS 198 SCRA 392 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 P120,000.00. Prior to the execution of the pledge, respondent spouses Jose and Marcelina Aquino signed an agreement with petitioner State for the latter’s purchase of receivables amounting to P375,000.00. When the 1st Account 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 the 2 nd Account. This new loan was secured by the same pledge agreement executed in relation to the 1 st Account. When the new loan 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 which it had extended to the spouses Jose and Marcelina Aquino has remained unpaid. On 29, June 1984, Atty. Rolando Salonga sent to respondent spouses a Notice of Notarial Sale stating that upon request of State and by virtue of the pledge agreement, he would sell at public auction the shares of stock pledged to State. This prompted respondents to file a case before the Regional Trial Court of Quezon City alleging that the intended foreclosure sale was illegal because from the time the obligation under the 2nd Account became due, they had been able and willing to pay the same, but petitioner had insisted that respondents pay even the loan account of Jose and Marcelino Aquino, which had not been secured by the pledge. It was further alleged that their failure to pay their loan was excused because the Petitioner State itself had prevented the satisfaction of the obligation. On January 29, 1985, the trial court rendered a decision in favor of the plaintiff ordering State to immediately release the pledge and to deliver to respondents the share of stock upon payment of the loan. The CA affirmed in toto the decision of the trial court. ISSUES:

Whether or not the phrase “upon payment” in the trial court’s decision means upon payment of spouses’ loan in the principal amount of P110,000.00 alone without interest, penalties and other charges. Whether or not the conditions to be complied with by the debtor desirous of being released from his obligation in cases where the creditor unjustly refuses to accept payment have been met by the spouses Aquino. RULING: Anent the 1st issue, NO. The phrase “upon payment” as held by the Supreme Court means upon payment of the amount of P110,000.000 plus seventeen percent (17%) per annum regular interest computed from the time of maturity of the plaintiffs’ loan and until full payment of such principal and interest to defendants. For respondent spouses to continue in possession of the principal of the loan amounting to P110,000.00 and to continue to use the same after maturity of the loan without payment of regular or monetary interest, would constitute unjust enrichment on the part of the respondent spouses at the expense of petitioner State even though the spouses had not been guilty of mora. With respect to the 2nd issue, NO. The conditions had not been complied with. Article 1256 of the civil code states that: “ 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 consignation of the thing or sum due.” Where the creditor unjustly refuses to accept payment, the debtor desirous of being released from his obligation must comply with two (2) conditions, viz: (a) tender of payment; and (b) consignation of the sum due. 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. In the instant case, respondent spouses Aquino, while they are properly regarded as having made a written tender of payment to petitioner state, failed to consign in court the amount due at the time of the maturity of the 2nd Account No. It follows that their obligation to pay principal-cum-regular or monetary interest under the terms and conditions of the said Account was not extinguished by such tender of payment alone.

SOURCES OF OBLIGATIONS:

D.

DELICTS

1. 2. 3. 4. 5. 6. 7. 8.

PEOPLE VS. MALICSI, 543 S 93 PEOPLE VS. SIA, NOV. 21, 2001 PEOPLE VS. DOCTOLERO, AUG. 20, 2001 PEOPLE VS. ABULENCIA, AUG. 22, 2001 BERMUDEZ VS. MELECIO- HERRERA, FEB. 26, 1988 PEOPLE VS. RELOVA, MAR, 6, 1987 MANANTAN VS. CA, JAN. 29, 2001 PEOPLE VS. BAYOTAS, 236 SCRA 239

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

alleged in the information but the prosecution failed to do so. Since it is not included, four counts of simple rape should be undertaken. The penalty imposed then should be reclusion perpetua. The appellate court also correctly affirmed the award by the trial court of P200,000.00 for moral damages. Moral damages are automatically granted to rape victim. However, the award of civil indemnity is reduced to P200,000.00 in the amount of P50,000.00 for each count of simple rape is automatically granted.

DELICT AS A SOURCE OF OBLIGATION PEOPLE OF THE PHILIPPINES, plaintiff-appellee, VS. ROSAURO SIA y DICHOSO, JOHNNY BALALIO y DEZA, JIMMY PONCE y TOL and JOHN DOE @ PEDRO MUÑOZ (at large), accused-appellants G.R. No. 137457 2001 Nov 21 FACTS: The taxi was taken from the garage and driven by its regular driver, Christian Bermudez, at about 6:00 a.m. on August 23, 1995. The taxi was last seen at the vicinity of the Pegasus Night Club at about 10:30 p.m. on the said date with the passenger who is the accused Rosauro Sia. Accused Rosauro Sia appears to have tipped driver Christian Bermudez to service him the following day in the morning and to be paid P150.00 per hour which was apparently accepted because Rosauro gave instructions to accused Johnny Balalio and Jimmy Ponce to wait for him (Christian) that following morning. When Christian returned to Sia’s residence he was told to come back in the afternoon. When Christian returned in the afternoon, he was asked to get inside. As soon as he alighted from the taxi, his hands were tied by Johnny Balalio and was handed to a certain “Pedro”, the accused Peter Doe who has not been arrested. Christian was taken to accused Rosauro and shortly afterwards, the latter was seen lugging with him a big carton box from which blood was dripping. Accused Jimmy Ponce saw Rosauro hand the carton-wrapped lifeless body of Christian inside the carnapped FX taxi. Before leaving with the lifeless body of Christian loaded in the taxi, accused Sia gave P3,000.00 each to Jimmy Ponce, Johnny Balalio and “Pedro” and admonished them not to say anything about what happened. The ring taken from Christian was given to accused Jimmy Ponce by Rosauro Sia.

On August 26, 1995, the lifeless body of Christian Bermudez was found and retrieved from a fishpond in Meycauayan, Bulacan. This fact was broadcast over the radio and, after hearing the same, Agripina Bermudez went to see the lifeless body retrieved from the fishpond and confirmed it to be that of Christian, whom she claims is her eldest son who was earning about P650.00 a day as a taxi driver. ISSUE: Whether or not the trial court is correct in awarding the damages to the heirs of the victim. RULING: The Court finds no reason to reverse the ruling of the court a quo insofar as the crimes were committed. Anent the civil indemnity award, this Court finds the amount of P50,000.00 as death indemnity proper, following prevailing jurisprudence and in line with controlling policy. Award of civil indemnity may be granted without any need of proof other than the death of the victim. The victim’s heirs are likewise entitled to moral damages, pegged at P50,000.00 by controlling case law, taking into consideration the pain and anguish of the victim’s family brought about by his death. However, the award of P200,000.00 as burial and other expenses incurred in connection with the death of the victim must be deleted. The records are bereft of any receipt or voucher to justify the trial court’s award of burial and other expenses incurred in connection with the victim’s death. The trial court was correct in awarding damages for loss of earning capacity despite the non-availability of documentary evidence. Damages representing net earning capacity have been awarded by the Court based on testimony in several cases. However, the amount of the trial court’s award needs to be recomputed and modified accordingly. In determining the amount of lost income, the following must be taken into account: (1) the number of years for which the victim would otherwise have lived; and (2) the rate of the loss sustained by the heirs of the deceased. The second variable is computed by multiplying the life expectancy by the net earnings of the deceased, meaning total earnings less expenses necessary in the creation of such earnings or income less living and other incidental expenses. Considering that there is no proof of living expenses of the deceased, net earnings are computed at fifty percent (50%) of the gross earnings. The formula used by this Court in computing loss of earning capacity is:

Net Earning Capacity = [2/3 x (80 – age at time of death) x (gross annual income – reasonable and necessary living expenses)] In this case, the Court notes that the victim was 27 years old at the time of his death and his mother testified that as a driver of the Tamaraw FX taxi, he was earning P650.00 a day. Hence, the damages payable for the loss of the victim’s earning capacity is computed thus: Gross Annual Earnings = P650 x 261 working days in a year = Net Earning Capacity

= 2/3 x (80-27) x [P169,650.00 – P84,825.00] =

=

P169,650.00

35.33 x 84,825.00

P2,996,867.20

Based on the foregoing computation, the award of the trial court with regard to lost income is thus modified accordingly.

DELICT AS A SOURCE OF OBLIGATION PEOPLE OF THE PHILIPPINES, plaintiff-appellee, VS. CARLOS DOCTOLERO, SR., accused-appellant G.R. No. 131866 2001 Aug 20 FACTS: On November 20, 1996 at around 7:00 in the evening, Vicente Ganongan Jr. and Roderick Litorco went to their friends’ boarding house on Honeymoon Road, Baguio City. Thereat, Vicente Ganongan, Roderick Litorco, Regie Daodaoan, Rex Tabanganay, Jeffrey Alimani and Florencio Dagson agreed to drink gin in Sangatan Store. After two (2) hours, the group decided to go home. They went down Honeymoon road towards Rimando road to get a taxi for Litorco. Upon noticing that Litorco could not carry himself, they decided to bring him to their boarding house. Dagson assisted Litorco and walked ahead of Ganongan, Daodaoan, Tabanganay and Alimani. As the latter four neared the

Garcia store along Honeymoon road, Carlos Garcia, with three companions, told them to stop, pointing a gun at them. Hearing the commotion, Dagson who was walking about 5 to 7 meters ahead with Litorco rushed to the boarding house and sought help. When Dagson came back, he was with Oliver Alimani, Arman Alimani and Dexter Daggay. When they arrived, they saw Garcia pointing a gun at the group of Ganongan, Daodaoan, Tabanganay and Jeffrey Alimani. Oliver Alimani approached Garcia who in turn pointed his gun at Oliver and identified himself as barangay kagawad. At this time, Carlos Doctolero Sr. was standing at the edge of Honeymoon road. He then put his arm over Daodaoan’s shoulder. Daoadaoan shoved Doctolero’s hand and retreated. Doctolero stepped back and fired twice at Daodaoan but missed. Tabanganay asked Daodaoan if he was hit and upon answering that he was not, Tabanganay shouted at his friends to run. When Ganongan turned around to run, Doctolero fired at him, hitting him twice. Oliver Alimani came to Ganongan’s aid when the latter yelled that he was hit. Thereafter, they hailed a taxi and rushed Ganongan to Saint Louis University Hospital where he expired. Accused-appellant was convicted of murder after appreciating the aggravating circumstance of treachery. He was sentenced to suffer the penalty of reclusion perpetua and was ordered to indemnify the heirs of Ganongan the amounts of P50,000.00 as civil indemnity, P227,808.00 as actual damages, and P300,000.00 as moral damages plus costs. ISSUE: Whether or not the accused was guilty of murder and the damages awarded to the heirs were proper. RULING: No. Since treachery was not proven to be resent in this case, the court deemed it proper to convict the accused of the crime of homicide, instead of murder thus damages were reduced to P112,413.40 representing funeral expenses, which were duly proven and covered by receipts. Expenses relating to the 9th day, 40th day and 1st year anniversaries cannot be considered in the award of actual damages as these were incurred after a considerable lapse of time from the burial of the victim. With respect to the award of moral damages, the same is reduced to P50,000.00 in accordance with existing jurisprudence

DELICT AS A SOURCE OF OBLIGATION PEOPLE OF THE PHILIPPINES, plaintiff-appellee, VS. ROLLY ABULENCIA Y COYOS, defendant-appellant 2001 Aug 22 G.R. No. 138403 FACTS: It is established from the testimony of prosecution witness Reynaldo Garcia, Jr. that he met the appellant in the morning of that fateful day of August 4, 1998 and later, both engaged in a drinking spree; that they slept on the papag of Garcia’s house in the afternoon of that day; that the victim Rebelyn, was also in the same house at that time; that after waking up, the appellant left the house at about 5:30 o’clock in the afternoon to buy dilis in the nearby store located 40 meters away, the victim tagging along; that the appellant and Rebelyn never returned; that in the evening of the same day, the appellant surrendered to Mayor Sevilleja, reporting that he was with the victim when the latter allegedly fell from the bridge after he “accidentally tripped (napatid) her” off; that the appellant admitted having raped the victim in a tape interview by Dennis Mojares, another prosecution witness; that the victim was found dead the following morning floating at the Colobong creek near the Aburido bridge; and that the autopsy conducted on her cadaver shows that she was sexually abused and, thereafter, brutally killed. After the trial on the merits, the court a quo rendered its decision dated March 16, 1999, convicting accused Rolly Abulencia of the crime as charged and to suffer the penalty of death, to be implemented in the manner provided for by law. Ordering the accused to indemnify the heirs of Rebelyn Garcia, the sum of P75,000.00 damages, and another sum of P20,000.00 for exemplary damages plus P6,425.00 as actual damages. ISSUE: Whether or not the court a quo’s award of civil liability is reasonable based on the circumstances of the crime and whether circumstancial evidence is sufficient to warrant a conviction. RULING: With regard to the civil indemnity, the trial court awarded only P75,000.00. Current jurisprudence has fixed at P100,000.00 the civil indemnity in cases of rape with homicide, which is fully justified and properly commensurate with the seriousness of that special complex crime.

As regards to the sufficiency of circumstantial evidence to warrant conviction, the Court held that the absence of direct evidence, however, does not preclude the conviction of a person accused of the complex crime of rape with homicide. Circumstantial evidence can be as potent as direct evidence to sustain a conviction provided that there is a concurrence of all the requisites prescribed in Section 5, Rule 133 of the Revised Rules on Evidence, thus: “Circumstantial Evidence, when sufficient.- Circumstantial evidence is sufficient for conviction if: (a) There is more than one circumstance; (b) The facts from which the inferences are derived are proven; and (c) The combination of all the circumstances is such as to produce a conviction beyond a reasonable doubt.” Likewise this Court has held that an accused can be convicted based on circumstantial evidence if the circumstances proven constitute an unbroken chain which leads to a fair and reasonable conclusion pointing to the accused, to the exclusion of all others, as the guilty person. Thus, the appealed decision convicting Rolly Abulencia of the crime of rape with homicide and sentencing him to suffer the penalty of death, is affirmed with modification insofar as the civil aspect is concerned. Appellant is thus ordered to pay the heirs of Rebelyn Garcia P100,000.00 as civil indemnity; P50,000.00 as moral damages; P25,000.00 as exemplary damages; and P6,425.00 as actual damages.

DELICT AS A SOURCE OF OBLIGATION REYNALDO BERMUDEZ, SR., and, ADONITA YABUT BERMUDEZ, petitioners-appellants, VS. HON. JUDGE A. MELENCIO-HERRERA, DOMINGO PONTINO y TACORDA and CORDOVA NG SUN KWAN, respondents-appellees February 26, 1988 FACTS: A cargo truck, driven by Domingo Pontino and owned by Cordova Ng Sun Kwan, bumped a jeep on which Rogelio, a six-year old son of plaintiffsappellants, was riding. The boy sustained injuries which caused his death. As a result, Criminal Case No. 92944 for Homicide Through Reckless Imprudence was filed against Domingo Pontino. Plaintiffs-appellants filed on July 27, 1969 in the said criminal case "A Reservation to File Separate Civil Action."

On July 28, 1969, the plaintiffs-appellants filed a civil case for damages against Domingo Pontino y Tacorda and Cordova Ng Sun Kwan.

acquittal extinguishes the civil liability of the accused only when it includes a declaration that the facts from which the civil liability might arise did not exist.

Finding that the plaintiffs instituted the action "on the assumption that defendant Pontino's negligence in the accident of May 10, 1969 constituted a quasi-delict," the trial court stated that plaintiffs had already elected to treat the accident as a "crime" by reserving in the criminal case their right to file a separate civil action. That being so, the trial court decided to order the dismissal of the complaint against defendant Cordova Ng Sun Kwan and to suspend the hearing of the case against Domingo Pontino until after the criminal case for Homicide Through Reckless Imprudence is finally terminated.

DELICT AS A SOURCE OF OBLIGATION

ISSUE: Whether or not the present action is based on quasi-delict under the Civil Code and therefore could proceed independently of the criminal case for homicide thru reckless imprudence. RULING: In cases of negligence, the injured party or his heirs has the choice between an action to enforce the civil liability arising from crime under Article 100 of the Revised Penal Code and an action for quasi-delict under Article 21762194 of the Civil Code. If a party chooses the latter, he may hold the employer solidarily liable for the negligent act of his employee, subject to the employer's defense of exercise of the diligence of a good father of the family. In the case at bar, the action filed by appellant was an action for damages based on quasi-delict. The fact that appellants reserved their right in the criminal case to file an independent civil action did not preclude them from choosing to file a civil action for quasi-delict. The appellant precisely made a reservation to file an independent civil action. In fact, even without such a reservation, the Court allowed the injured party in the criminal case which resulted in the acquittal of the accused to recover damages based on quasi-delict. It does not follow that a person who is not criminally liable is also free from civil liability. While the guilt of the accused in a criminal prosecution must be established beyond reasonable doubt, only a preponderance of evidence is required in a civil action for damages (Article 29, Civil Code). The judgment of

PEOPLE OF THE PHILIPPINES, petitioner, VS. THE HONORABLE BENJAMIN RELOVA, and MANUEL OPULENCIA, respondents G.R. No. L-45129 March 6, 1987 FACTS: On 1 February 1975, members of the Batangas City Police together with personnel of the Batangas Electric Light System, equipped with a search warrant issued by a city judge of Batangas City, searched and examined the premises of the Opulencia Carpena Ice Plant and Cold Storage owned and operated by the private respondent Manuel Opulencia. The police discovered that electric wiring, devices and contraptions had been installed, without the necessary authority from the city government, and "architecturally concealed inside the walls of the building" owned by the private respondent. These electric devices and contraptions were, in the allegation of the petitioner "designed purposely to lower or decrease the readings of electric current consumption in the electric meter of the said electric plant." During the subsequent investigation, Manuel Opulencia admitted in a written statement that he had caused the installation of the electrical devices "in order to lower or decrease the readings of his electric meter." On 24 November 1975, an Assistant City Fiscal of Batangas City filed before the City Court of Batangas City an information against Manuel Opulencia for violation of Ordinance No. 1, Series of 1974, Batangas City. A violation of this ordinance was, under its terms, punishable by a fine "ranging from Five Pesos (P5.00) to Fifty Pesos (P50.00) or imprisonment, which shall not exceed thirty (30) days, or both, at the discretion of the court."

The accused Manuel Opulencia pleaded not guilty. On 2 February 1976, he filed a motion to dismiss the information upon the grounds that the crime there charged had already prescribed and that the civil indemnity there sought to be recovered was beyond the jurisdiction of the Batangas City Court to award which was dismissed by the judge. Fourteen (14) days later, on 20 April 1976, the Acting City Fiscal of Batangas City filed before the Court of First Instance of Batangas, Branch II, another information against Manuel Opulencia, this time for theft of electric power under Article 308 in relation to Article 309, paragraph (1), of the Revised Penal Code. Before he could be arraigned thereon, Manuel Opulencia filed a Motion to Quash, dated 5 May 1976, alleging that he had been previously acquitted of the offense charged in the second information and that the filing thereof was violative of his constitutional right against double jeopardy. By Order dated 16 August 1976, the respondent Judge granted the accused's Motion to Quash and ordered the case dismissed. ISSUES: Whether or not Manuel Opulencia can be tried for violation of the Revised Penal Code after acquittal from the violation of an ordinance due to prescription which were based from the same act and whether or not he may still be held liable civilly. RULING: The Supreme Court held that the accused was placed in double jeopardy, hence, could not be tried in the criminal case. However, the civil liability aspects of this case are another matter. Because no reservation of the right to file a separate civil action was made by the Batangas City electric light system, the civil action for recovery of civil liability arising from the offense charged was impliedly instituted with the criminal action both before the City Court of Batangas City and the Court of First Instance of Batangas. The extinction of criminal liability whether by prescription or by the bar of double jeopardy does not carry with it the extinction of civil liability arising from the offense charged. In the present case, accused Manuel Opulencia freely admitted during the police investigation having stolen electric current through the installation and use of unauthorized electrical connections or devices. While the accused pleaded not guilty before the City Court of Batangas City, he did not deny having

appropriated electric power. However, there is no evidence in the record as to the amount or value of the electric power appropriated by Manuel Opulencia, the criminal informations having been dismissed both by the City Court and by the Court of First Instance (from which dismissals the Batangas City electric light system could not have appealed) before trial could begin. Accordingly, the related civil action which has not been waived expressly or impliedly, should be remanded to the Court of First Instance of Batangas City for reception of evidence on the amount or value of the electric power appropriated and converted by Manuel Opulencia and rendition of judgment conformably with such evidence.

DELICT AS A SOURCE OF OBLIGATION MANANTAN VS. COURT OF APPEALS 350 SCRA 387 January 29, 2001 FACTS: On June 1, 1983, the Provincial Fiscal of Isabela filed an information charging petitioner Manantan with reckless imprudence resulting to homicide, allegedly committed on or about the 25th day of September 1982, in the municipality of Santiago, Isabela. The said accused being then the driver and person-in-charge of an automobile bearing Plate No. NGA-816 willfully and unlawfully drove and operated the same while along the Daang Maharlika of the said municipality, in a negligent manner causing the automobile to sideswipe a passenger jeepney, thereby causing the said automobile to turn turtle twice resulting to the death Ruben Nicolas passenger of the said automobile. In its decision dated June 30, 1988, promulgated on August 4, 1988, the trial court decided the criminal case in favor of Manantan. Subsequently, the private respondent spouses Nicolas filed their notice of appeal on the civil aspect of the trial court’s judgment. The Nicolas spouses prayed that the decision appealed from be modified and that the appellee be ordered to pay indemnity and damages. On its decision, the Court of Appeals decided in favor of the private respondents. In finding petitioner civil liability, the court a quo noted that at the time the accident occurred, Manantan was in a state of intoxication, due to his having consume all in all a total amount of at least twelve bottles of beer between 9 a.m. to 11 p.m.

The petitioner moved for reconsideration but the appellate court denied the motion. ISSUE: Whether or not the acquittal of the accused also extinguished his civil liability. RULING: NO. Our law recognizes two kinds of acquittal, with different effects on the civil liability of the accused. First is an acquittal on the ground that the accused is not the author of the act or omission complained of as a felony. This instance closes the door to civil liability, for a person who has been found not to be the perpetrator of any act or omission cannot and can never be held liable for such act or omission. There being no delict, civil liability ex delicto is out of the question, and the civil action, if any, which will be instituted must be based on ground other than the delict complained of. The second instance is an acquittal based on reasonable doubt on the guilt of the accused. In this case, even if the guilt of the accused has not been satisfactorily established, he is not exempt from civil liability which may be proved by preponderance of evidence only. In the case at bar, the accused’s acquittal is based on reasonable doubt. The decision of the trial court did not state in clear and equivocal terms that petitioner was not recklessly imprudent or negligent. Hence, impliedly, the trial court acquitted him on reasonable doubt. Since civil liability is not extinguished in criminal cases if the accused acquittal is based on reasonable doubt, the decision of the Court of Appeals finding that the defendant is civilly liable for his negligent and reckless act of driving his car which was the proximate cause of the vehicular accident, and sentenced him to indemnify plaintiff-appellants in the amount of P74,400.00 for the death of Ruben Nicolas.

DELICT AS A SOURCE OF OBLIGATION PEOPLE OF THE PHILIPPINES, plaintiff-appellee, VS. ROGELIO BAYOTAS Y CORDOVA, accused-appellant G.R. No. 102007

Sept. 2, 1994 236 SCRA 239 FACTS: Rogelio Bayotas was charged with rape and eventually convicted on June 19, 1991. While the appeal was pending, Bayotas died. The Supreme Court dismissed the criminal aspect of the appeal; however, it required the SolicitorGeneral to comment with regard to Bayotas’ civil liability arising from his commission of the offense charged. In his comment, the Solicitor-General expressed his view that the death of accused-appellant did not extinguish his civil liability as a result of his commission of the offense charged. This comment was opposed by the counsel of accused-appellant, arguing that the death of the accused while judgment of the conviction is pending appeal extinguishes both criminal and civil penalties, he cited in support and invoked the ruling of the Court of Appeals in People v. Castillo, which was held that the civil obligation in a criminal case takes root in the criminal responsibility and therefore civil liability is extinguished if accused should die before final judgment is rendered. ISSUE: Whether or not the death of the accused pending appeal of his conviction extinguishes his civil liability. RULING: Yes, the death of the accused pending appeal of his conviction extinguishes his civil liability because tire liability is based solely on the criminal act committed. Corollarily, the claim for civil liability survives notwithstanding the death of the accused, if the same may also be predicted as one source of obligation other than delict. Moreover, when a defendant dies before judgment becomes executory, 'there cannot be any determination by final judgment whether or not the felony upon which the civil action might arise exists,' for the simple reason that `there is no party defendant.' The Rules of Court state that a judgment in a criminal case becomes final 'after the lapse of the period for perfecting an appeal or when the sentence has been partially or totally satisfied or served, or the defendant has expressly waived in writing his right to appeal.' In addition, where the civil liability does not exist independently of the criminal responsibility, the extinction of the latter by death, ipso facto extinguishes the former, provided, of course, that death supervenes before final

judgment. As in this case, the right to institute a separate civil action is not reserved, the decision to be rendered must, of necessity, cover 'both the criminal and the civil aspects of the case.' The accused died before final judgment was rendered, thus, he is absolved of both his criminal and civil liabilities based solely on delict or the crime committed. Appeal dismissed.

the road at high speed, and there was no showing that Barredo exercised the diligence of a good father of a family. Barredo’s theory of defense is that Fontanilla’s negligence being punishable by the Revised Penal Code, that his liability as employer is only subsidiary liable but Fontanilla was sued for civil liability, hence, Barredo claims that he can not be held liable. ISSUE: Whether or not complainant’s liability as employer of Fontanilla was only subsidiary and not as primarily and directly responsible under Article 1903 of the Civil Code.

SOURCES OF OBLIGATIONS E.

QUASI-DELICTS

1. 2. 3. 4. 5. 6. 7. 8.

BARREDO VS. GARCIA, 73 PHIL 607 DY TEBAN VS. CHING, 543 S 560 SAFEGUARD SECURITY VS. TANGCO, 511 S 67 VILLANUEVA VS. DOMINGO, 438 S 485 CALALAS VS. CA, 31 MAY 2000 LUDO AND LUYM CORP. VS. CA, FEB. 1, 2001 THERMOCHEM VS. NAVAL, OCT. 30, 2000 PICART VS. SMITH, 37 PHIL 813

FAUSTO BARREDO VS. SEVERINO GARCIA and TIMOTEO ALMARIO G.R. No. 48006 July 08, 1942 73 PHIL 607 FACTS: On May 3, 1936, there was a head-on collision between a taxi of the Malate Taxi driven by Fontanilla and a carretela guided by Dimapilis. The carretela was overturned and a passenger, 16-year-old boy Garcia, suffered injuries from which resulted to his death. A criminal action was filed against Fontanilla, and he was convicted. The court in the criminal case granted the petition to reserve the civil action against Barredo, the proprietor of the Malate Taxi and the employer of Fontanilla, making him primarily and directly responsible under culpa aquiliana. It was undisputed that Fontanilla’s negligence was the cause of the accident as he was driving on the wrong side of

RULING: No, the Supreme Court ruled that complainant’s liability is not only subsidiary but also primary liability. The Court affirmed the decision of the Court of Appeals which ruled that the liability sought to be imposed upon Barredo in this action is not a civil obligation arising from a felony, but an obligation imposed in Article 1903 of the Civil Code by reason of his negligence in the selection or supervision of his servant or employee. QUASI-DELICT OR CULPA AQUILIANA is a separate legal institution under the Civil Code and is entirely distinct and independent from a delict or crime as punished under the Revised Penal Code (RPC). In this jurisdiction, the same negligent act causing damage may produce civil liability (subsidiary) arising from a crime under Art. 103 of the RPC; or create an action for the quasi delict or culpa aquiliana (primary) and the parties injured are free to choice which course to take. In the instant case, the negligent act of Fontanilla produced two liabilities of Barredo. First, a subsidiary one because of the civil liability of Fontanilla arising from the latter’s criminal negligence; and second, Barredo’s primary and direct responsibility arising from his presumed negligence as an employer in the selection of his employees or their supervision, under Art. 1903 of the Civil Code. The parties instituted an action for damages under Art. 1903 of the Civil Code. Barredo was found guilty of negligence for carelessly employing Fontanilla, who had been caught several times for violation of the Automobile Law and speeding violation. Thus, the petition is denied. Barredo must indemnify plaintiffs under the provisions of Art. 1903 of the Civil Code.

QUASI-DELICT AS A SOURCE OF OBLIGATION

DY TEBAN VS. LIBERTY FOREST G.R No. 161803. February 4, 2008 FACTS: A Prime Mover Trailer suffered a tire blow out during the night of its travel at a national highway. The trailer was owned by the respondent Liberty Forest. The driver allegedly put earl warning devices but the only evidence being witnessed was a banana trunks and candles. Since the car was placed at the right wing of the road, thus it cause the swerving of a Nissan van owned by the petitioner when a passenger bus was coming in between the trailer. The Nissan van owner claimed for damages against the respondent. The trial court found that the proximate cause of the three –way accident is the negligence and carelessness of driver of the respondent . However reversed the decision of the trial court. ISSUE: Whether there was negligence on the part of the respondent. RULING: Yes. There was negligence on the part of the respondent when the latter failed to put and used an early warning device because it was found out that there was no early warning device being prescribed by law that was used by the driver in order to warn incoming vehicle. Furthermore, the proximate cause of the accident was due to the position of the trailer where it covered a cemented part of the road, thus confused and made trick way for other vehicles to pass by. Thus the respondent is declared liable due to violation of road rules and regulations.

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

QUASI-DELICT AS A SOURCE OF OBLIGATION

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

QUASI-DELICT AS A SOURCE OF OBLIGATION

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

QUASI-DELICT AS A SOURCE OF OBLIGATION

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

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

cluster, respondent did not show persuasively other possible causes of the damage. LUDO AND LUYM CORPORATION, petitioner, VS. COURT OF APPEALS, GABISAN SHIPPING LINES, INC. and/or ANSELMO OLASIMAN, respondents. G.R. No. 125483 February 1, 2001 351 SCRA 35 FACTS: Private respondent Anselmo Olasiman, as captain, was maneuvering the ship MV Miguela owned by respondent Gabisan Shipping lines, at the pier owned by petitioner Ludo and Luym Corporation when it rammed the pile cluster damaging it and deforming the cable wires wound around it. In an action for recovery of damages filed by Petitioner, the Regional Trial Court ruled against respondents for incompetence and negligence. In an appeal the Court of Appeals reversed the lower court’s decision, saying that the petitioner’s witness Naval was incompetent to testify on the negligence of the crew and that petitioner’s evidence did not positively identify that MV Miguela caused the damage. Thus, petitioner filed this petition for review. ISSUE: Whether or not the private respondents are responsible for the damage done to the pier by the ship based on the doctrine of RES IPSA LOQUITOR. RULING: The Supreme Court sustained the Regional Trial Court decision partly on the ground that the incompetence of eyewitness Naval was not an assigned error at the appellate court. The doctrine of RES IPSA LOQUITOR says that when the thing that causes the damage is in the control and management of the respondent, and in the ordinary course of things the accident does not happen if those who have the management use proper care, it affords reasonable evidence, in the absence of explanation, that the accident arose from want of care. The principle applies here. The MV Miguela was in the exclusive control of respondent Olasiman, and aside from petitioner’s witness testimony that the vessel rammed the pile

Therefore, respondents were responsible for the damage. Petition granted and the decision of the Regional Trial Court reinstated.

is

QUASI-DELICT AS A SOURCE OF OBLIGATION THERMOCHEM INCORPORATED and JEROME O. CASTRO, petitioners, VS. LEONORA NAVAL and THE COURT OF APPEALS, respondents G.R. No. 131541 2000 Oct 20 FACTS: On May 10, 1992, at around 12:00 o'clock midnight, Eduardo Edem was driving a "Luring Taxi" along Ortigas Avenue, near Rosario, Pasig, going towards Cainta. Prior to the collision, the taxicab was parked along the right side of Ortigas Avenue, not far from the Rosario Bridge, to unload a passenger. Thereafter, the driver executed a U-turn to traverse the same road, going to the direction of EDSA. At this point, the Nissan Pathfinder traveling along the same road going to the direction of Cainta collided with the taxicab. The point of impact was so great that the taxicab was hit in the middle portion and was pushed sideward, causing the driver to lose control of the vehicle. The taxicab was then dragged into the nearby Question Tailoring Shop, thus, causing damage to the said tailoring shop, and its driver, Eduardo Eden, sustained injuries as a result of the incident. Private respondent, as owner of the taxi, filed a damage suit against petitioner, Thermochem Incorporated, as the owner of the Nissan Pathfinder, and its driver, petitioner Jerome Castro. After trial, the lower court adjudged petitioner Castro negligent and ordered petitioners, jointly and severally, to pay private respondent actual, compensatory and exemplary damages plus attorney's fees and costs of suit. On appeal, the Court of Appeals affirmed the judgment of the court a quo. Hence, this petition for review on certiorari. ISSUE: Whether or not the petitioners are liable based on quasi-delict.

RULING: Yes. The Court held that the driver of the oncoming Nissan Pathfinder vehicle was liable and the driver of the U-turning taxicab was contributorily liable. From petitioner Castro's testimonial admissions, it is established that he was driving at a speed faster than 50 kilometers per hour. But as he allegedly stepped on the brake, it locked causing his Nissan Pathfinder to skid to the left and consequently hit the taxicab. The sudden malfunction of the vehicle's brake system is the usual excuse of drivers involved in collisions which are the result of speedy driving. Malfunction or loss of brake is not a fortuitous event. The owner and his driver are presumed to know about the conditions of the vehicle and is duty bound to take care thereof with the diligence of a good father of the family. A mechanically defective vehicle should avoid the streets. Moreover, the record shows that the Nissan Pathfinder was on the wrong lane when the collision occurred. This was a disregard of traffic safety rules. The law considers what would be reckless, blameworthy or negligent in a man of ordinary diligence and prudence and determines liability by that. As mentioned earlier, the driver of the taxi is contributorily liable. U-turns are not generally advisable particularly on major streets. The driver of the taxi ought to have known that vehicles coming from the Rosario bridge are on a downhill slope. Obviously, there was lack of foresight on his part, making him contributorily liable. Considering the contributory negligence of the driver of private respondent's taxi, the award of P47,850.00, for the repair of the taxi, should be reduced in half. All other awards for damages are deleted for lack of merit.

QUASI-DELICT AS A SOURCE OF OBLIGATION PICART VS. SMITH 37 PHIL 813 FACTS: Plaintiff was riding on his pony across the bridge. Before he had gotten half-way across, the defendant approached from the opposite direction in an automobile. As the defendant neared the bridge, he saw the plaintiff and blew

his horn to give warning. The plaintiff heard the warning signal but instead of going to the let, he pulled the pony closely up against the railing on the right side of the bridge. He averred that he thought he did not have sufficient time to get over the other side. As the automobile approached, the defendant guided it toward the plaintiff, without diminution to speed, assuming the horseman would move to the other side. When he had gotten quite near, there being no possibility o the horse getting across to the other side, the defendant quickly turned his car sufficiently to the right to escape hitting the horse. However, the horse was still hit and died while the rider was thrown off violently. ISSUE: Whether the defendant was negligent in maneuvering his car giving rise to a civil obligation. RULING: Yes. The Court held that the control of the situation has shifted to the defendant when the incident occurred. At first, he has the right to assume that the horse and rider would pass over to the other side but as he moved to the center, it was demonstrated that this would not be done. It was then his duty to bring his car to an immediate stop or, seeing that there were no other person on the bridge, to take the other side and ass sufficiently far away from the horse to avoid the danger of collision. Instead of doing this, the defendant ran straight on until he was almost upon the horse. When the defendant exposed the horse and rider to this danger he was negligent in the eye of the law. Conduct is said to be negligent when a prudent man in the position of the tortfeasor would have foreseen that an effect harmful to another was sufficiently probable to warrant his foregoing the conduct or guarding against its consequences. Applying this test to the conduct of the defendant, it is clear that negligence is established. A prudent man, laced in the position o the defendant, would have recognized that the course which he was pursuing was fraught with risk, and would therefore have foreseen harm to the horse and rider as a reasonable consequence of that course. Under these circumstances the law imposed on the defendant the duty to guard against the threatened harm. The plaintiff on the other hand was guilty of antecedent negligence in planting himself on the wrong side o the road. The negligent acts of the two arties were not contemporaneous, since the negligence of the defendant succeeded the negligence of the plaintiff by an appreciable interval. Under these circumstances, the law is that the person who has the last fair chance to avoid the impending harm and fails to do is chargeable wit the consequences, without reference to the prior negligence of the other party.

In sum, though the plaintiff was guilty of negligence or being on the wrong side of the bridge, the defendant was civilly liable as he had fair chance to avoid the accident.

NATURE AND EFFECT OF OBLIGATIONS POSITIVE PERSONAL OBLIGATIONS / TO DO 1. 2.

FRANCISCO VS. CA, 401 SCRA 594 TANGUILING VS. CA, 266 SCRA 78

SPOUSES LORENZO G. FRANCISCO and LORENZA D. FRANCISCO, petitioners, VS. HONORABLE COURT OF APPEALS, and BIENVENIDO C. MERCADO, respondents April 25, 2003 401 SCRA 594 FACTS: On 3 February 1984, the spouses Lorenzo and Lorenza Francisco and Engineer Bienvenido C. Mercado entered into a Contract of Development for the development into a subdivision of several parcels of land in Pampanga. Respondent committed to complete the construction within 27 months. Respondent also advanced P200,000.00 for the initial expenses of the development work. In return, respondent would receive 50% of the total gross sales of the subdivision lots and other income of the subdivision. Respondent also enjoyed the exclusive and irrevocable authority to manage, control and supervise the sales of the lots within the subdivision. On 5 August 1986, respondent secured from the Human Settlements Regulatory Commission ("HSRC") an extension of time to finish the subdivision development until 30 July 1987. On 8 August 1986, petitioners instructed respondent to stop selling subdivision lots and collecting payments from lot buyers.

On 20 January 1987, petitioners granted respondent an authority to resume the sale of subdivision lots and the collection of payments subject to the following conditions: (1) all collections shall be deposited in a joint account with China Banking Corporation, San Fernando, Pampanga branch; (2) withdrawals shall be limited to 50% of the total collections or to respondent's share, which can only be used for development expenses, and any withdrawal shall be subject to the approval of petitioners; (3) only Franda Village Subdivision receipts, duly countersigned by petitioners, shall be used; (4) collections shall be subject to a weekly or monthly audit; and (5) any violation of these conditions shall result in the automatic cancellation of the authority. Respondent filed an action to rescind the contract on the ground that conditional authority issued by petitioners violated the Contract. Petitioners countered that respondent breached the Contract by failing to finish the subdivision within the 27 months agreed upon, and therefore respondent was in delay. Petitioners also alleged that respondent sold one subdivision lot to two different buyers. The trial Court ruled that the petitioners breached the Contract by: (1) hiring Rosales to do development work on the subdivision within the 27-month period exclusively granted to respondent; (2) interfering with the latter’s development work; and (3) stopping respondent from managing the sale of lots and collection of payments. Because petitioners were the first to breach the Contract and even interfered with the development work, the trial court declared that respondent did not incur delay even if he completed only 28% of the development work. Further, the HSRC extended the Contract up to July 1987. Since the Contract had not expired at the time respondent filed the action for rescission, petitioners’ defense that respondent did not finish the development work on time was without basis. The Court of Appeals affirmed the decision. ISSUE: Whether or not the respondent incurred delay in not finishing the work in the stipulated time. RULING: The Supreme Court finds no merit in petitioner’s claim that respondent incurred delay in the performance of his obligation under the Contract. At that

time, the law authorized HSRC to grant extensions of time for completion of subdivision projects. The law provides that delay may exist when the obligor fails to fulfill his obligation within the time expressly stipulated. In this case, the HSRC extended the period for respondent to finish the development work until 30 July 1987. Respondent did not incur delay since the period granted him to fulfill his obligation had not expired at the time respondent filed the action for rescission on 27 February 1987. Moreover petitioners hampered and interfered with respondent’s development work. Petitioners also stopped respondent from selling lots and collecting payments from lot buyers, which was the primary source of development funds. In effect, petitioners rendered respondent incapable, or at least made it difficult for him, to develop the subdivision within the allotted period. In reciprocal obligations, neither party incurs in delay if the other does not comply or is not ready to comply with what is incumbent upon him. It is only when one of the parties fulfills his obligation that delay by the other begins. Respondent’s failure to submit the monthly report cannot serve as sufficient basis for the cancellation of the Contract. The cancellation of a contract will not be permitted for a slight or casual breach. Only a substantial and fundamental breach, which defeats the very object of the parties in making the contract, will justify a cancellation. In the instant case, the development work continued for more than two years despite the lack of a monthly report.

POSITIVE PERSONAL OBLIGATIONS / TO DO JACINTO TANGUILIG doing business under the name and style J.M.T. ENGINEERING AND GENERAL MERCHANDISING, petitioner. VS. COURT OF APPEALS and VICENTE HERCE JR., respondents G.R. No. 117190 January 2, 1997 266 SCRA 78 FACTS: Sometime in April 1987, petitioner entered into a contract with herein private respondent to construct windmill for the latter. After some negotiations they agreed on the construction of the windmill for a consideration of P60,000.00

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 P30,000.00 and an installment payment of P15,000.00, leaving a balance of P15,000.00. On 14 March 1988, due to the refusal and failure of respondent to pay the balance, petitioner filed a complaint to collect the amount. However, private respondent claimed that petitioner did not build a deep well so he was not entitled for payment and also such windmill was defective and was easily destroyed by a typhoon. Petitioner, on the other hand, denied the inclusion of the construction of a deep well in their contract and besides the destruction of the windmill is due to a force majeure. In finding for plaintiff, the trial court held that the construction of the deep well was not part of the windmill project as evidenced clearly by the letter proposals submitted by petitioner to respondent. The defects and the construction were not also clearly proven by the respondent. However, Court of Appeals reversed the trial court. It construction of the deep well was included in the agreement because the term "deep well" was mentioned in both proposals. reconsideration having been denied by the Court of Appeals, seeks relief from the Supreme Court.

ruled that the of the parties His motion for petitioner now

ISSUES: Whether or not petitioner is obliged to construct the deep well and is obliged to repair the windmills. RULING: On the first issue, the Supreme Court held that petitioner is not obliged to construct the deep well, sustaining the trial court to be correct that said deep well is not stipulated in their contract. Notably, nowhere in either proposal is the installation of a deep well mentioned, even remotely. Neither is there an itemization or description of the materials to be used in constructing the deep well. There is absolutely no mention in the two (2) documents that a deep well pump is a component of the proposed windmill system. In order for a party to claim exemption from liability by reason of fortuitous event under 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: (a) the cause of the breach of the obligation must be independent of the will of the debtor; (b) the event must be either unforeseeable or unavoidable; (c) the event must be such

as to render it impossible for the debtor to fulfill his obligation in a normal manner; and, (d) the debtor must be free from any participation in or aggravation of the injury to the creditor. Petitioner failed to show that the collapse of the windmill was due solely to a fortuitous event. Interestingly, the evidence does not disclose that there was actually a typhoon on the day the windmill collapsed. Petitioner merely stated that there was a "strong wind." But a strong wind in this case cannot be fortuitous, unforeseeable or unavoidable. On the contrary, a strong wind should be present in places where windmills are constructed, otherwise the windmills will not turn.

Deed of assignment of Hereditary Rights except Florentino Zaragoza and Alberta Zaragoza-Morgan. On December 13, 1969, petitioner entered into a compromise agreement with the Zaragozas and Periquets. The trial court approved the compromise agreement. Also, an order for adjudication and transfer of the residue of the estate to petitioner was issued. On May 16, 1970, Felix Francisco filed an action to annul the Assignment of Hereditary Rights he executed in favor of petitioner. The action for annulment was based on gross misrepresentation and fraud, grave abuse of confidence, mistake and undue influence and lack of cause and/or consideration in the execution of the challenged Deed of Assignment. The trial court declared the Assignment of Hereditary Rights executed by Francisco in favor of Periquet Jr. valid and binding.

BREACH OF OBLIGATIIONS: CAUSES AND EFFECTS 1. 2.

PERIQUET VS. CA, 238 SCRA 697 LEGASPI OIL VS. CA, 224 SCRA 213

PERIQUET JR. VS. COURT OF APPEALS 238 SCRA 697 FACTS: Spouses Fernando Periquet and Petra Francisco were left childless so they took in a son out of wedlock of Maria, Petra’s sister. The boy was given the name Fernando Periquet Jr., though he was not legally adopted. On March 20, 1966, Fernando Periquet died. He left a will wherein he named his wife Petra as his universal heir. Accordingly, Petra instituted a Special Proceeding for probate of her deceased spouse’s will. Unfortunately, Petra died after only four months and eighteen days later. Prior to her untimely death, she asked her lawyer to prepare her last will and testament. Petra left her estate to petitioner and provided for certain legacies to her brother, sister and children of her deceased siblings. However, she died before she could sign it. On August 3,1966, Felix Francisco executed a document of Assignment of Hereditary Rights in favor of Periquet Jr. other intestate heirs also executed a

On appeal, the then Intermediate Appellate Court annulled and rescinded the Assignment of Hereditary Rights. A motion for reconsideration was denied for lack of merit. ISSUES: Whether or not the CA erred in disregarding and ignoring the trial court’s strong and substantial findings of fact that no fraud, deception, gross misrepresentation or undue influence attended the execution and signing of the Deed of Assignment of Hereditary Rights. Whether or not the Intermediate Appellate Court erred in disregarding the trial court’s strong and substantial findings of fact that no fraud, deception, gross misrepresentation or undue influence attended the execution and signing of the deed of Assignment. Whether or not the Intermediate Appellate Court erred in disturbing and setting aside the Compromise Agreement.

RULING: Anent the 1st issue, YES. No fraud was employed by herein petitioner. Felix Francisco could not be considered to have been deceived into signing the subject deed of assignment. The kind of fraud that will vitiate a

contract refers to those insidious words or machinations resorted to by one of the contracting parties to induce the other to enter into a contract which without them he would not have agreed to. It must have a determining influence on the consent of the victim. The will of the victim, in effect, is maliciously vitiated by means of a false appearance of reality. In the case at bench, manifestations of fraud are non-existent. Resultantly, the Assignment of Hereditary Rights executed by Felix Francisco in favor of herein petitioner is valid and effective. Furthermore, the allegations of fraud, deception, gross misrepresentation, or undue influence were not established by full, clear and convincing evidence. The finding of the trial court as to its existence or non-existence is final and cannot be reviewed save only when the finding id clearly shown to be erroneous. Anent the 2nd issue, YES. The fraud that vitiates a contract refers to those insidious words or machinations resorted to by one of the contracting parties to induce the other to enter into a contract which without them he would not have agreed to. In the case at bench, no such fraud was employed by herein petitioner. Clearly, Felix Francisco executed the document voluntarily and freely basing it on the Trial Court’s findings. The finding of the Trial Court as to the existence of fraud is final and cannot be reviewed save only when the finding is clearly shown to be erroneous. rd

Anent the 3 issue, YES. It cannot be denied that a compromise agreement was entered into by the parties in that case in order to end the suit already filed in court. The same was approved by the court, cannot and should not be disturbed except for vices of consent or forgery, it being the obvious purpose of such compromise agreement to settle, once and for all, the claims of the parties, and bar all future disputes and controversies thereon. BREACH OF OBLIGATIIONS: CAUSES AND EFFECTS (Art. 1167, CC) LEGASPI OIL CO., INC., petitioner, VS. THE COURT OF APPEALS and BERNARD OSERAOS, respondents G.R. No. 96505 July 1, 1993 224 SCRA 213 FACTS:

Respondent Bernard Oseraos acting through his authorized agents, had several transactions with appellee Legaspi Oil Co. for the sale of copra to the latter. The price at which appellant sells the copra varies from time to time, depending on the prevailing market price when the contract is entered into. One of his authorized agents, Jose Llover, had previous transactions with appellee for the sale and delivery of copra. The records show that he concluded a sale for 70 tons of copra at P95.00 per 100 kilos on May 27, 1975 and another sale for 30 tons of P102.00 per 100 kilos on September 23, 1975. Subsequently, on November 6, 1975, another designated agent signed a contract in behalf of appellant for the sale of 100 tons of copra at P79.00 per 100 kilos with delivery terms of 25 days effective December 15, 1975. At this point, it must be noted that the price of copra had been fluctuating (going up and down), indicating its unsteady position in the market. On February 16, 1976, appellant's agent Jose Llover signed a contract for the sale of 100 tons of copra at P82.00 per 100 kilos with delivery terms of 20 days effective March 8, 1976. As compared to appellant's transaction on November 6, 1975, the current price agreed upon is slightly higher than the last contract. In all these contracts though, the selling price had always been stated as "total price" rather than per 100 kilos. However, the parties have understood the same to be per 100 kilos in their previous transactions. After the period to deliver had lapsed, appellant sold only 46,334 kilos of copra thus leaving a balance of 53,666 kilos as per running account card. Accordingly, demands were made upon appellant to deliver the balance with a final warning embodied in a letter dated October 6, 1976, that failure to deliver will mean cancellation of the contract, the balance to be purchased at open market and the price differential to be charged against appellant. On October 22, 1976, since there was still no compliance, appellee exercised its option under the contract and purchased the undelivered balance from the open market at the prevailing price of P168.00 per 100 kilos, or a price differential of P86.00 per 100 kilos, a net loss of P46,152.76 chargeable against appellant. The petitioner then filed a complaint against private respondent for breach of a contract and for damages. The trial court held Oseraos liable for damages amounting to P48,152.76. The Appellate Court ordered the dismissal of the case on appeal. Hence, the instant petition for review on certiorari. ISSUE: Whether or not private respondent Oseraos is liable for damages arising from fraud or bad faith in deliberately breaching the contract of sale entered into by the parties.

RULING: Yes. The private respondent is guilty of fraud in the performance of his obligation under the sales contract whereunder he bound himself to deliver to petitioner 100 metric tons of copra within twenty (20) days from March 8, 1976. However within the delivery period, Oseraos delivered only 46,334 kilograms of copra to petitioner, leaving an undelivered thus a balance of 53,666 kilograms. Petitioner made repeated demands upon private respondent to comply with his contractual undertaking to deliver the balance of 53,666 kilograms but private respondent elected to ignore the same. In a letter dated October 6, 1976, petitioner made a final demand with a warning that, should private respondent fail to complete delivery of the balance of 53,666 kilograms of copra, petitioner would purchase the balance at the open market and charge the price differential to private respondent. Still private respondent failed to fulfill his contractual obligation to deliver the remaining 53,666 kilograms of copra. On October 22, 1976, since there was still no compliance by private respondent, petitioner exercised its right under the contract and purchased 53,666 kilograms of copra, the undelivered balance, at the open market at the then prevailing price of P168.00 per 100 kilograms, a price differential of P86.00 per 100 kilograms or a total price differential of P46,152.76. In general, fraud may be defined as the voluntary execution of a wrongful act, or a wilfull omission, knowing and intending the effects which naturally and necessarily arise from such act or omission; the fraud referred to in Article 1170 of the Civil Code of the Philippines is the deliberate and intentional evasion of the normal fulfillment of obligation; it is distinguished from negligence by the presence of deliberate intent, which is lacking in the latter. The conduct of private respondent clearly manifests his deliberate fraudulent intent to evade his contractual obligation for the price of copra had in the meantime more than doubled from P82.00 to P168 per 100 kilograms. Under Article 1170 of the Civil Code of the Philippines, those who in the performance of their obligation are guilty of fraud, negligence, or delay, and those who in any manner contravene the tenor thereof, are liable for damages. Pursuant to said article, private respondent is liable for damages. In case of fraud, bad faith, malice, or wanton attitude, the guilty party is liable for all damages, which may be reasonably attributed to the nonperformance of the obligation. On account of private respondent's deliberate breach of his contractual obligation, petitioner was compelled to buy the balance

of 53,666 kilos of copra in the open market at the then prevailing price of P168 per 100 kilograms thereby paying P46,152.76 more than he would have paid had private respondent completed delivery of the copra as agreed upon. Thus, private respondent is liable to pay respondent the amount of P46,152.76 as damages. Thus, petition granted. The trial court ruling reinstated. BREACH OF OBLIGATIIONS: DEFAULT (Mora) (Art. 1169, CC) TITAN-IKEDA CONSTRUCTION VS. PRIMETOWN PROPERTY 544 S 466 FACTS:

In 1992, respondent Primetown Property Group, Inc. awarded the contract for the structural works of its 32-storey Makati Prime Tower (MPT) to petitioner Titan-Ikeda Construction and Development Corporation. In September 1995, respondent engaged the services of Integratech, Inc. (ITI), an engineering consultancy firm, to evaluate the progress of the project. In its report, ITI informed respondent that petitioner, at that point, had only accomplished 31.89% of the project (or was 11 months and six days behind schedule). Meanwhile, petitioner and respondent were discussing the possibility of the latter’s take over of the project’s supervision. Despite ongoing negotiations, respondent did not obtain petitioner’s consent in hiring ITI as the project’s construction manager. Neither did it inform petitioner of ITI’s September 7, 1995 report. Subsequently, both parties agreed that Primetown will take over the project. Petitioner then demanded for the payment due him in relation to its partial performance of its obligation. For failure of Primetown to pay despite repeated demands, petitioner filed a case for specific performance against Primetown. Meanwhile, Primetown demanded reimbursement for the amount it spent in having the project completed. ISSUE: Whether or not Titan-Ikeda is responsible for the project’s delay.

possession of the bank, and requesting a reply within five days. PNB MADECOR received a similar notice.

RULING: It was found that because respondent modified the MPT's architectural design, petitioner had to adjust the scope of work. Moreover, respondent belatedly informed petitioner of those modifications. It also failed to deliver the concrete mix and rebars according to schedule. For this reason, petitioner was not responsible for the project's delay. Mora or delay is the failure to perform the obligation in due time because of dolo (malice) or culpa (negligence). A debtor is deemed to have violated his obligation to the creditor from the time the latter makes a demand. Once the creditor makes a demand, the debtor incurs mora or delay. Respondent never sent petitioner a written demand asking it to accelerate work on the project and reduce, if not eliminate, slippage. In view of the foregoing, we hold that petitioner did not incur delay in the performance of its obligation.

NECESSITY OF DEMAND: EXTRAJUDICIAL OR JUDICIAL PNB MADECOR VS. GERARDO C. UY G.R. No. 129598 August 15, 2001 363 SCRA 128 FACTS: Guillermo Uy, doing business under the name G.U. Enterprises, assigned to respondent Gerardo Uy his receivables due from Pantranco North Express Inc. (PNEI) amounting to P4,660,558.00. The deed of assignment included sales invoices containing stipulations regarding payment of interest and attorney’s fees. Thus, Uy filed with the RTC a collection suit with an application for the issuance of a writ of preliminary attachment against PNEI. A writ of preliminary attachment was issued on January 26, 1995, commanding the sheriff “to attach the properties of the defendant, real or personal, and/or (of) any person representing the defendant” in such amount as to cover Gerardo Uy’s demand. On January 27, 1995, the sheriff issued a notice of garnishment addressed to the Philippine National Bank (PNB) attaching the “goods, effects, credits, monies and all other personal properties” of PNEI in the

Petitioner then submitted a position paper stating that PNB MADECOR is a creditor of PNEI with respect to the P8,784,227.48 and at the same time its debtor with respect to the P7,884,000.00, PNB MADECOR and PNEI are therefore creditors and debtors of each other and by force of the law on compensation, both obligations of PNB MADECOR and PNEI are already considered extinguished to the concurrent amount or up to P7,884,000.00 so that PNEI is still obligated to pay PNB MADECOR the amount of P900,227.48 Uy filed an omnibus motion opposing PNB MADECOR’s claim of compensation in which the latter argued that the letter of PNEI on September 28, 1984 was not a demand letter but merely a request for the implementation of the arrangement for set-off receivables. Therefore, PNEI did not earn an interest of 18% annually. ISSUE: Whether or not the letter of PNEI on September 28, 1984 to PNB MADECOR was a demand letter. RULING: The Supreme Court observed that petitioner’s obligation to PNEI appears to be payable on demand. Petitioner is obligated to pay the amount stated in the promissory note upon receipt of a notice to pay from PNEI. Henceforth, if petitioner fails to pay after such notice, the obligation will earn an interest of 18 percentum per annum. The records showed that the letter was not a demand letter but one that merely informed petitioner of the conveyance of a certain portion of its obligation to PNEI per a dacion en pago arrangement between PNEI and PNB, and the unpaid balance of obligation after deducting the amount conveyed to PNB. The letter only connotes that PNEI was advising petitioner to settle the matter of implementing the earlier arrangement with PNB.

WHEN DEMAND NOT NECESSARY 1. 2. 3.

BARZAGA VS. CA, 268 S 105 TANGUILING VS, CA, 266 SCRA 78 TAYAG VS. CA, 219 SCRA 480

4.

PERIQUET VS. CA, 238 SCRA 697 WHEN DEMAND NOT NECESSARY

IGNACIO BARZAGA, petitioner, VS. COURT OF APPEALS and ANGELITO ALVIAR, respondents G.R. No. 115129 February 12, 1997 268 SCRA 105 FACTS: Petitioner Ignacio Barzaga bought from the hardware store of respondent Angelito Alviar construction materials for the niche of his wife scheduled for internment on December 24, 1990. He paid for the materials purchased but the circumstances of delivery with the specific date (December 22), time (8 A.M.), and place (Memorial Cemetery, Dasmarinas) were not indicated in the invoice receipts but were verbally acknowledged by the store attendant. Respondent was not able to deliver the materials on the specified date and time which resulted to the delay in the construction of the niche and consequently to the delay in the internment of petitioners wife. The delay caused the inability of the petitioner to accede to the dying wishes of his wife that she be buried on the 24 th of the month. She was buried 2 and ½ days later, after Christmas. ISSUE: Whether or not the respondent is liable for damages due to his nonperformance of his obligation to deliver the materials on the specified date and time. RULING: Yes, private respondent is liable for damages. Respondent’s contention in the appellate court that he did not incur delay in the performance of his obligation to deliver the thing sold to petitioner since the time of delivery was not indicated in the invoice receipt covering the sale could not be sustained in view of the positive verbal commitment of the respondent’s employee. It was no longer necessary to indicate the time of delivery. Respondent was negligent and incurred delay in the performance of his contractual obligations. Respondent had no right to manipulate petitioner’s timetable and substitute it with his own. Therefore, he is liable for moral damage for causing further anguish and pain, and suffering to the family of petitioner especially during Christmas day, and for exemplary damages for not performing his obligation under the business contract.

TANGUILIG v. COURT of APPEALS G. R. No. 117190 January 2, 1997 266 SCRA 78 FACTS: In April 1987, petitioner Jacinto Tanguilig, ( 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 P60,000.00 with a one-year guaranty from the date of completion and acceptance by Herce, Jr. of the project. Pursuant to the agreement, Herce, Jr. paid Tanguilig a down payment of P30,000.00 and an installment payment of P15,000.00, leaving a balance of P15,000.00. On March 14, 1988, due to the refusal and failure of respondent to pay the balance, petitioner filed a complaint to the collect the amount. In his Answer before the trial court, Herce, Jr. denied the claim saying that he had already paid the amount to San Pedro General Merchandising, Inc. which the windmill was to be connected. Since the deep well formed part of the system, the payment Herce, Jr. tendered to SPGMI should be credited his account by Tanguilig. Respondent also averred that assuming he owed petitioner a balance of P15,000.00, this should be offset by the defects in the windmill which caused the structure to collapse after a strong wind hit hteir place. Tanguilig denied that the construction of a deep well was included in the agreement to build the windmill sytem, for the contract price of P60,000.00 was solely for the windmill assembly and its installation, exclusive of other incidental materials needed for the project. Tanguilig 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. He also contended that the collapse was attributable to a typhoon, a force majeure, which relieved him of any liability. ISSUE: Whether or not the petitioner is under obligation to reconstruct the windmill after it collapsed

RULING: The Supreme Court held that when the windmill failed to function properly, it becomes incumbent upon the petitioner to institute the proper repairs in accordance with the guaranty stated in the contract. Hence, respondent cannot be said to have incurred in delay; instead it is the petitioner who should bear the expenses for the reconstruction of the windmill. Thus, the Supreme Court ruled that respondent Herce, Jr. should pay petitioner Tanguilig the balance of P15,000.00 and likewise ordered petitioner Tanguilig to reconstruct subject defective windmill system, in accordance with the one-year guaranty.

vendor’s obligation to the Philippine Veterans Bank, the vendee paid only the sum of P6,926.41 while the difference of the indebtedness came from Celerina Labuguin. Moreover, petitioners asserted that not a single centavo of the P27,000.00 representing the remaining balance was paid to them. Because of the apprehension that the heirs of Juan Galicia, Sr. are disavowing the contract inked by their predecessor, private respondent filed the complaint for specific performance.

WHEN DEMAND NOT NECESSARY

RULING: Both the trial and appellate courts were correct in sustaining the claim of private respondent anchored on estopped or waiver by acceptance of delayed payments under Article 1235 of the Civil Code in that:

JOSEFINA TAYAG, RICARDO GALICIA, TERESITA GALICIA, EVELYN GALICIA, JUAN GALICIA, JR. and RODRIGO GALICIA, petitioners, VS. COURT OF APPEALS and ALBRIGIDO LEYVA, respondents G.R. No. 96053 March 3, 1993 219 SCRA 418 FACTS: The deed of conveyance executed on May 28, 1975 by Juan Galicia, Sr., prior to his demise in 1979, and Celerina Labuguin, in favor of Albrigido Leyva involving the undivided one-half portion of a piece of land situated at Poblacion, Guimba, Nueva Ecija is the subject matter of the present litigation between the heirs of Juan Galicia, Sr. who assert breach of the conditions as against private respondent’s claim anchored on full payment and compliance with the stipulations thereof. The court of origin which tried the suit for specific performance filed by private respondent on account of the herein petitioner’s reluctance to abide by the covenant, ruled in favor of the vendee while respondent court practically agreed with the trial court except as to the amount to be paid to petitioners and the refund to private respondent are concerned. There is no dispute that the sum of P3,000.00 listed as first installment was received by Juan Galicia, Sr. According to petitioners, of the P10,000.00 to be paid within ten days from execution of the instrument, only P9,707.00 was tendered to, and received by, them on numerous occasions from May 29, 1975, up to November 3, 1979. Concerning private respondent’s assumption of the

ISSUE: Whether or not private respondent correctly anchored on estopped or waiver by acceptance of delayed payments.

“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.” considering that the heirs of Juan Galicia, Sr. accommodated private respondently by accepting the latter’s delayed payments not only beyond the grace periods but also during the pendency of the case for specific performance. Indeed, the right to rescind is not absolute and will not be granted where there has been substantial compliance by partial payments. By and large, petitioners’ actuation is susceptible of but one construction-that they are now estopped from reneging from their commitment on account of acceptance of benefits arising from overdue accounts of private respondent. Now, as to the issue of whether payments had in fact been made, there is no doubt that the second installment was actually paid to the heirs of Juan Galicia, Sr. due to Josefina Tayag’s admission in judicio that the sum of P10,000.00 was fully liquidated. It is thus erroneous for petitioners to suppose that “the evidence in the records do not support this conclusion”. A contrario, when the court of origin, as well as the appellate court, emphasized the frank representation along this line of Josefina Tayag before the trial court, petitioners chose to remain completely mute even at this stage despite the opportunity accorded to them, for clarification. Consequently, the prejudicial aftermath of Josefina Tayag’s spontaneous reaction may no longer be obliterated on the basis of estoppel.

Insofar as the third item of the contract is concerned, it may be recalled that respondent court applied Article 1186 of the Civil Code on constructive fulfillment which petitioners claim should not have been appreciated because they are the obliges while the proviso in point speaks of the obligor. But, petitioners must concede that in a reciprocal obligation like a contract of purchase, both parties are mutually obligors and also obliges, and any of the contracting parties may, upon non-fulfillment by the other privy of his part of the prestation, rescind the contract or seek fulfillment (Article 1191, Civil Code). Petitioners argue that there was no valid tender of payment nor consignation of the sum of P18,520.00 which they acknowledge to have been deposited in court on January 22, 1981 five years after the amount of P27,000.00 had to be paid. This suggestion ignores the fact that consignation alone produced the effect of payment in the case at bar because it was established that two or more heirs of Juan Galicia, Sr. claimed the same right to collect. Moreover, petitioners did not bother to refute the evidence on hand that, aside from the P18,520.00. These two figures representing private respondent’s payment of the fourth condition amount to P32,428.25, less the P3,778.77 paid by petitioners to the bank, will lead us to the sum of P28,649.48 or a refund of P1,649.48 to private respondent as overpayment of the P27,000.00 balance. WHEN DEMAND NOT NECESSARY DR. FERNANDO PERIQUET, JR., VS. HONORABLE FOURTH CIVIL CASES DIVISION OF THE INTERMEDIATE APPELLATE COURT and the HEIRS OF THE LATE FELIX R. FRANCISCO G.R. No. 69996 December 5, 1994 238 SCRA 697

FACTS:

Spouses Fernando Periquet and Petra Francisco were left childless so they took in a son out of wedlock of Maria, Petra’s sister. The boy was given the name Fernando Periquet Jr., though he was not legally adopted.

On March 20, 1966, Fernando Periquet died. He left a will wherein he named his wife Petra as his universal heir. Accordingly, Petra instituted a Special Proceeding for probate of her deceased spouse’s will. Unfortunately, Petra died after only four months and eighteen days later. Prior to her untimely death, she asked her lawyer to prepare her last will and testament. Petra left her estate to petitioner and provided for certain legacies to her brother, sister and children of her deceased siblings. However, she died before she could sign it. On August 3,1966, Felix Francisco executed a document of Assignment of Hereditary Rights in favor of Periquet Jr. other intestate heirs also executed a Deed of assignment of Hereditary Rights except Florentino Zaragoza and Alberta Zaragoza-Morgan. On December 13, 1969, petitioner entered into a compromise agreement with the Zaragozas and Periquets. The trial court approved the compromise agreement. Also, an order for adjudication and transfer of the residue of the estate to petitioner was issued. On May 16, 1970, Felix Francisco filed an action to annul the Assignment of Hereditary Rights he executed in favor of petitioner. The action for annulment was based on gross misrepresentation and fraud, grave abuse of confidence, mistake and undue influence and lack of cause and/or consideration in the execution of the challenged Deed of Assignment. The trial court declared the Assignment of Hereditary Rights executed by Francisco in favor of Periquet Jr. valid and binding. On appeal, the then Intermediate Appellate Court annulled and rescinded the Assignment of Hereditary Rights. A motion for reconsideration was denied for lack of merit. ISSUE: Whether or not the findings of the Court of Appeals that the assignment of hereditary rights executed by Felix Francisco in favor of petitioner is void due to fraud, deception, gross misrepresentation, or undue influence should be sustained. RULING: The decision of the Court of Appeals was reversed and set aside for the kind of fraud that will vitiate a contract refers to those insidious words or

machinations resorted to by one of the contracting parties to induce the other to enter into a contract which without them he would not have agreed to. In the case at bench, no such fraud was employed by herein petitioner. Resultantly, the assignment of hereditary rights executed by Felix Francisco in favor of herein petitioner is valid and effective. And since, Felix is not a party to the compromise agreement; he cannot be blinded by the same.

MORA SOLVENDI: EFFECTS RIZAL COMMERCIAL BANKING CORPORATION VS. COURT OF APPEALS and FELIPE LUSTRE G.R. No. 133107 March 25, 1999 305 SCRA 449 FACTS: On March 10, 1993, private respondent Atty. Felipe Lustre purchased a Toyota Corolla from Toyota Shaw, Inc. for which he made a down payment of P164,620.00, the balance of the purchase price to be paid in 24 equal monthly installments. Private respondent thus issued 24 postdated checks for the amount of P14, 976.00 each. The first was dated April 10, 1991; subsequent checks were dated every 10th day of each succeeding month. To secure the balance, private respondent executed a promissory note and a contract of chattel mortgage over the vehicle in favor of Toyota Shaw, Inc. The contract of chattel mortgage, in paragraph 11 thereof, provided for an acceleration clause stating that should the mortgagor default in the payment of any installment, the whole amount remaining unpaid shall become due. In addition, the mortgagor shall be liable for 25% of the principal due as liquidated damages. On March 14, 1991, Toyota Shaw, Inc. assigned all its rights and interests in the chattel mortgage to petitioner Rizal Commercial Banking Corporation (RCBC). All the checks dated April 10, 1991 to January 10, 1993 were thereafter encashed and debited by RCBC from private respondent's account, except for RCBC Check No. 279805 representing the payment for August 10, 1991, which was unsigned. Previously, the amount represented by RCBC Check No. 279805

was debited from private respondent's account but was later recalled and recredited, to him. Because of the recall, the last two checks, dated February 10, 1993 and March 10, 1993, were no longer presented for payment. This was purportedly in conformity with petitioner bank's procedure that once a client's account was forwarded to its account representative, all remaining checks outstanding as of the date the account was forwarded were no longer presented for patent. On the theory that respondent defaulted in his payments, the check representing the payment for August 10, 1991 being unsigned, petitioner, in a letter dated January 21, 1993, demanded from private respondent the payment of the balance of the debt, including liquidated damages. The latter refused, prompting petitioner to file an action for replevin and damages before the Pasay City Regional Trial Court (RTC). Private respondent, in his Answer, interposed a counterclaim for damages. The RTC dismissed the petition. Likewise, the petition for appeal was denied by the Court of Appeals. The Court of Appeals stated that the "default" was not a case of failure to pay. ISSUE: Whether or not petitioner’s claim is meritorious. RULING: No. Petitioner's conduct, in the light of the circumstances of this case, can only be described as mercenary. Petitioner had already debited the value of the unsigned check from private respondent's account only to re-credit it much later to him. Thereafter, petitioner encashed checks subsequently dated, and then abruptly refused to encash the last two. More than a year after the date of the unsigned check, petitioner, claiming delay, demanded from private respondent payment of the value of said check and that of the last two checks, including liquidated damages. As pointed out by the trial court, this whole controversy could have been avoided if only petitioner bothered to call up private respondent and ask him to sign the check. Good faith, not only in compliance with its contractual obligations, but also in observance of the standard in human relations, for every person "to act with justice, give everyone his due, and observe honesty and good faith." behooved the bank to do so. Failing thus, petitioner is liable for damages caused to private respondent. These include moral damages for the mental anguish, serious anxiety, besmirched reputation, wounded feelings and social humiliation suffered by the latter.

MORA ACCEPIENDI: EFFECTS STATE INVESTMENT VS. COURT OF APPEALS 198 SCRA 392 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 P120,000.00. Prior to the execution of the pledge, respondent spouses Jose and Marcelina Aquino signed an agreement with petitioner State for the latter’s purchase of receivables amounting to P375,000.00. When the 1st Account 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 the 2 nd Account. This new loan was secured by the same pledge agreement executed in relation to the 1 st Account. When the new loan 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 which it had extended to the spouses Jose and Marcelina Aquino has remained unpaid. On 29, June 1984, Atty. Rolando Salonga sent to respondent spouses a Notice of Notarial Sale stating that upon request of State and by virtue of the pledge agreement, he would sell at public auction the shares of stock pledged to State. This prompted respondents to file a case before the Regional Trial Court of Quezon City alleging that the intended foreclosure sale was illegal because from the time the obligation under the 2nd Account became due, they had been able and willing to pay the same, but petitioner had insisted that respondents pay even the loan account of Jose and Marcelino Aquino, which had not been secured by the pledge. It was further alleged that their failure to pay their loan was excused because the Petitioner State itself had prevented the satisfaction of the obligation. On January 29, 1985, the trial court rendered a decision in favor of the plaintiff ordering State to immediately release the pledge and to deliver to respondents the share of stock upon payment of the loan. The CA affirmed in toto the decision of the trial court. ISSUE:

Whether or not the conditions to be complied with by the debtor desirous of being released from his obligation in cases where the creditor unjustly refuses to accept payment have been met by the spouses Aquino. RULING: NO. The conditions had not been complied with. Article 1256 of the civil code states that: “ 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 consignation of the thing or sum due.” Where the creditor unjustly refuses to accept payment, the debtor desirous of being released from his obligation must comply with two (2) conditions, viz: (a) tender of payment; and (b) consignation of the sum due. 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. In the instant case, respondent spouses Aquino, while they are properly regarded as having made a written tender of payment to petitioner state, failed to consign in court the amount due at the time of the maturity of the 2 nd Account No. It follows that their obligation to pay principal-cum-regular or monetary interest under the terms and conditions of the said Account was not extinguished by such tender of payment alone.

COMPENSATIO MORAE - EFFECTS 1. 2. 3. 4. 5.

BPI INVESTMENT VS. CA, 377 S 117 LEAÑO VS. CA, 369 SCRA 36 HEIRS OF BACUS VS. CA, 371 SCRA 295 INTEGRATED PACKING VS. CA, 333 SCRA 170 LAFORTEZA VS. MACHUCA, 333 SCRA 643

BPI INVESTMENT CORPORATION vs. HON. COURT OF APPEALS G.R. No. 133632. FEBRUARY 15, 2002 FACTS:

Frank Roa obtained a loan at an interest rate of 16 1/4% per annum from Ayala Investment and Development Corporation (AIDC), predecessor of petitioner BPIIC for the construction of a house on his lot. Said house and lot were mortgaged to AIDC to secure the loan. Sometime in 1980, Roa sold the house and lot to private respondents ALS and Antonio Litonjua. They paid P350,000 in cash and assumed the P500,000 balance of Roa’s indebtedness with AIDC. The latter, however, was not willing to extend the old interest rate to private respondents and proposed to grant them a new loan of P500,000 to be applied to Roa’s debt and secured by the same property, at an interest rate of 20% per annum. In June 1984, BPIIC instituted foreclosure proceedings against private respondents on the ground that they failed to pay the mortgage indebtedness. Private respondents on the other hand alleged that they were not in arrears in their payment, but in fact made an overpayment as of June 30, 1984. ISSUE: Whether or not petitioner may be held liable for moral and exemplary damages. RULING: Petitioner claims that it should not be held liable for moral and exemplary damages for it did not act maliciously when it initiated the foreclosure proceedings. It merely exercised its right under the mortgage contract because private respondents were irregular in their monthly amortization. Private respondents counter that BPIIC was guilty of bad faith and should be liable for said damages because it insisted on the payment of amortization on the loan even before it was released. Further, it did not make the corresponding deduction in the monthly amortization to conform to the actual amount of loan released, and it immediately initiated foreclosure proceedings when private respondents failed to make timely payment. But as admitted by private respondents themselves, they were irregular in their payment of monthly amortization. Thus, we can not properly declare BPIIC in bad faith. Consequently, we should rule out the award of moral and exemplary damages. However, in our view, BPIIC was negligent in relying merely on the entries found in the deed of mortgage, without checking and correspondingly adjusting its records on the amount actually released to private respondents and the date when it was released. Such negligence

resulted in damage to private respondents, for which an award of nominal damages should be given in recognition of their rights which were violated by BPIIC. For this purpose, the amount of P25,000 is sufficient. Lastly, we sustain the award of P50,000 in favor of private respondents as attorney’s fees since they were compelled to litigate.

COMPENSATIO MORAE - EFFECTS LEAÑO VS. COURT OF APPEALS 369 SCRA 36 FACTS: On November 13, 1985, private respondent Hermogenes Fernando, as vendor and petitioner Carmelita Leaño, as vendee entered into a contract regarding the sale of a piece of land located at Baliuag, Bulacan. Petitioner Leaño agreed to pay the total purchase price of P 107,750.00. Further, P10,000.00 was agreed as a down payment and the balance of P96,975.00 shall be paid within the period of 10 years at a monthly amortization of P1,747.30 to commence on December 7, 1985 with interest of 18% per annum based on balances. It was also provided in the contract that there is a grace period of one month within which to make payments, together with the one corresponding to the month of grace. Should the month of grace expire without the installments for both months having been satisfied, an interest of 18% per annum will be charged on the unpaid installments. Further, should the period of 90 days elapse from the expiration of the grace period without the overdue and unpaid installments having been paid with the corresponding interests up to that date, the vendor Fernando was authorized to declare the cancellation of the contract and dispose of the parcel of land. The payments and all other improvements made on the premises shall be considered as rents paid for the use and occupation of the premises and as liquidated damages. Eventually, the contract was executed and Leaño made several payments in lump sum. She constructed thereafter a house on the lot valued at P800,000.00. The last payment she tendered was on April 1, 1989.

The trial court on September 16, 1991 rendered a decision on an ejectment case filed by respondent Fernando, ordering Leaño to vacate the premises and to pay P250.00 per month by way of compensation for the use and occupation of the property from May 27, 1991 until the petitioner vacated the premises, attorney’s fees and cost of the suit. A writ of execution was thereafter issued on August 24, 1993. On September 27, 1993, the petitioner filed with the RTC of Bulacan a compliant of specific performance with preliminary injunction. Petitioner assailed the decision of the municipal trial court that it was violative of her right to due process and for being in contrary with the intentions of RA 6552 regarding the protection of buyers of lots on installments. She further deposited the amount of P18,000.00 with the clerk of court to cover the balance of the total cost of the contested lot. She also posted a cash bond of P50,000.00 and on November 4, 1993, the trial court issued a writ of preliminary injunction on the assailed decision of the municipal trial court. On February 6, 1995, the trial court rendered a decision favoring the petitioner, making the preliminary injunction permanent, ordering the plaintiff to pay the defendant P103,090.70 corresponding to the outstanding obligation under the contract executed which consists of the principal together with interest and surcharges, plus interest thereon at the rate of 18% per annum in accordance with the contract’s provision, ordering the defendant to pay the plaintiff P10,000.00 by way of attorney’s fees and costs of suit. On February 21, 1995, Fernando filed a motion for reconsideration and the supplement thereto. According to the trial court, the transaction was an absolute sale, making the petitioner the owner of the contested lot upon actual and constructive delivery thereof. Therefore, Fernando was divested of ownership and cannot recover the same unless the contract is rescinded pursuant to Article 1592 of the Civil Code which requires a judicial or notarial demand. Since there had been no rescission, petitioner cannot be evicted. Regarding the issue of delay, the trial court pointed out that the plaintiff defaulted in the payment of the amortization due and therefore she should be liable for the payment of the interest and penalties. The trial court disregarded the petitioner’s claim that she gave a down payment of P10,000.00 at the time of the execution of the contract. The trial

court relied on the statement of account and the summary prepared by the respondent to determine the liability of the petitioner for the payment of the liabilities and penalties. The trial court held that the petitioner’s consignation on the amount of P18,000.00 did not produce a legal effect since it was not undertaken in accordance with Articles 1176, 1177 and 1178 of the Civil Code. The Court of Appeals affirmed in toto the trial court’s decision; hence, this petition. ISSUES: 1. Whether or not the transaction was an absolute and not a conditional sale. 2. Whether or not there was proper cancellation of the contract to sell. 3. Whether or not there was delay on the petitioner’s part in the payment of the monthly amortization. RULING: 1. NO, the transaction was not an absolute sale; rather, it was a conditional sale. The very intention of the parties was to reserve the ownership of the land in the seller (Fernando) until the buyer has paid the total purchase price. First, the contract to sell makes the sale, cession and conveyance “subject to conditions” set forth on the contract. Second, what was transferred was possession and not ownership. Finally, the land is covered by the Torrens title, the act of registration of the deed of sale was the operative act that could transfer ownership over the lot. No deed could be registered in the case at bar since as stipulated in the contract, such deed shall be executed upon completion of payment by Leaño. In a contract to sell real property on installments, full payment of the purchase price is a positive suspensive condition and the failure of the payment is not a breach but rather shall be an event that will prevent the obligation of the seller to convey the title from acquiring any obligatory force. The transfer of ownership and title would occur after full payment of the price. In the case at bar, Leaño did not pay the installments after April 1, 1989, which prevented the obligation of Fernando to convey the property. It brought into effect the cancellation provision of the contract. Article 1592 of the Civil Code is inapplicable in the case at bar. But the provisions of RA 6552 (The Realty Installment Buyer Protection Act) governs the case at bar which recognizes the right of the seller to cancel the contract upon non-payment of an installment by the buyer. 2. NO, there was no proper cancellation of the contract to sell.

Leaño did not pay the installments after April 1, 1989, which prevented the obligation of Fernando to convey the property. It brought into effect the cancellation provision of the contract. Nevertheless, what is controlling is not Article 1592 of the Civil Code but the provisions of RA 6552 (The Realty Installment Buyer Protection Act) which recognizes not only the right of the seller to cancel the contract upon non-payment off an installment by the buyer but also rights of the buyer in case of cancellation. Although the ejectment case operated as the notice of cancellation required under the provisions of RA 6552, petitioner was not given the cash surrender value of the payments that she made; hence, there was no actual cancellation of the contract. Consequently, petitioner Leaño may still reinstate the contract by updating the account during the grace p[period and before actual cancellation. 3. YES, there was delay on the petitioner’s part to pay the monthly amortizations. Article 1169 of the Civil Code provides that in reciprocal obligations, neither party incurs in delay if the other does not comply or is not ready to comply in a proper manner with what is incumbent upon him. From the moment one of the parties fulfills his obligation, delay by the other begins. Since respondent Fernando performed his part of the obligation by allowing Leaño to have possession over the property and the latter not having paid the monthly amortization in accordance with the terms of the contract, the petitioner incurred delay and therefore is liable for damages. The Court affirmed the decision of the appellate court, in toto.

exclusive and irrevocable right to buy 2,000 square meters of the property within five (5) years from the year of the effectivity of the contract at P200 per square meter the rate of which shall be proportionately adjusted depending on the peso rate against the US dollar, which at the time of the execution of the contract was P14.00. On March 15, 1990, the Duray spouses signified their intention to Roque Bacus, one the decedent’s heirs, that they were willing and ready to purchase the property under the option to buy clause. On March 30, 1990, due to the heirs’ refusal to sell the property to the respondents, Duray’s adverse claim was annotated by the Register of Deeds of Cebu. On April 5, 1990, Duray filed a complaint for specific performance against the heirs of the decedent with the Lupon Tagapamayapa of their barangay, asking that he be allowed to purchase the land agreed upon in the contract with the decedent. Having failed to come to an agreement, the private respondents filed a complaint before the trial court, praying that the heirs: a) execute a deed of sale over the subject property in favor of them; b) receive the payment of the purchase price; and c) pay the damages. Petitioners alleged that prior to the death of the decedent, respondents conveyed to them their lack of interest to but the subject land for want of sufficient funds. They even requested the respondents to pay in full the purchase price but the respondents refused. On October 30, 1990, private respondents manifested in court that they caused the issuance of a cashier’s check in the amount of P 650,000 payable too petitioners at anytime upon demand. On August 31, 1991, trail court rendered its decision, favoring the private respondents. On appeal, the Court of appeals denied the motion of the petitioners.

COMPENSATIO MORAE - EFFECTS HEIRS OF BACUS VS. COURT OF APPEALS 371 SCRA 295 FACTS: On June 1, 1984, Luis Bacus leased to private respondent Faustino Duray a parcel of agricultural land in Talisay, Cebu for 6 years, ending May 31, 1990. The contract contained an option to buy clause where the lessee had the

Petitioners ratiocinated that they cannot be compelled to sell the disputed property by virtue of the nonfulfillment of the obligation under the option contract of the private respondents. Respondents argued that the petitioners are unclear if Rule 65 or 45 of the Rules of Court govern their petition. Further, that questions of fact, which were actually raised by the petitioners, cannot be entertained by the Supreme Court in a petition for review.

Nonetheless, if the claim must be under Rule 45, the respondents opted to exercise their option to buy as contained in the contract.

due course by the petitioners unless there is delivery of the sum of money. As there was no compliance with what was incumbent upon the petitioners under the option to but, private respondents had not incurred in delay when the cashier’s check was issued even after the contract expired.

ISSUES: 1. Whether or not when the respondents opted to buy the property, were they already required to deliver the money or consign it in court before the execution of the deed of transfer.

The instant petition is denied and the Court of Appeal’s decision is affirmed.

2. Whether or not the private respondents incurred in delay when they did not deliver the purchase price or consign it in court or before the expiration of the contract. RULING: 1. NO, the petitioners were not required to deliver the money or consign it in court. 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 an option to buy, the payment of the purchase price by the creditor is contingent upon the execution and delivery of a deed of sale by the debtor. In the case at bar, the respondents were not yet obliged to make actual payment. Consequently, since the obligation was not yet due, consignation in court of the purchase price was not yet required. 2. NO, the private respondents did not incur delay when they did not deliver the purchase price or consign it in court or before the expiration of the contract. Consignation is the act of depositing the thing due with the court or judicial authorities whenever the creditor cannot accept or refuses to accept payment and it requires a prior tender of payment. Petitioners’ contention that private respondents failed to comply with their obligation under the option to buy because they failed to actually deliver the purchase price or consign it in court before the contract expired is not tenable. Ergo, the private respondents did not incur any delay when they did not yet deliver payment or make consignation before the expiration of the contract. In reciprocal obligations, neither party incurs 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 begins. In the case at bar, as early as March 15, 1990, respondents communicated with the petitioners that they intended to exercise their exclusive right to buy the parcel of land stipulated in the contract but which was not given

COMPENSATIO MORAE - EFFECTS INTEGRATED PACKAGING CORPORATION VS. COURT OF APPEALS 333 SCRA 170 FACTS: Petitioner Integrated Packaging Corporation (Integrated) entered into an agreement with private respondent Fil-Anchor paper Co., Inc. (Fil-Anchor) regarding the delivery of 3, 450 reams of printing papers in a staggered basis from May to October 1979. Then, Integrated entered into a contract with Philippine Appliance Corporation (Philacor) for the printing of a minimum of 300, 000 copies of books. Out of the 3, 450 reams that were supposed to be delivered, Fil-Anchor delivered only 1,097; so petitioner demanded immediate delivery of the rest of the reams of paper. Fil-Anchor consequently delivered P766,101.00 worth of printing papers to which Integrated encountered difficulties in its payment. The former made a formal demand from the latter to settles its outstanding account. Integrated made a partial payment totaling to P 97,200.00. Integrated once again entered into an additional printing contract with Philacor but failed to comply with what is incumbent upon it. Hence, Philacor demanded compensation from Integrated for the delay and damages it suffered on account of petitioner’s non-compliance with what was agreed upon in their contract. Consequently, Fil-Anchor filed a collection suit against petitioner totaling to P 766,101.70 which represents the unpaid purchase price of the printing paper bought by Integrated. Integrated denied the material allegations of the complaint and by way of a counterclaim, it alleged that respondent breached when it failed to deliver 2,875 reams despite demand which made petitioner suffer actual damages and failed to realized expected profits.

COMPENSATIO MORAE - EFFECTS Eventually, the lower court rendered its judgment after due hearing and trial. It ordered Integrated to pay P763,101.70 while it also ordered Fil-Anchor to pay Integrated moral damages and compensatory damages of P790,324.30 for the unrealized income of Integrated when Fil-Anchor failed to deliver the reams of papers it needed for the printing of books. However, the CA affirmed the decision of the lower court with respect only to Integrated liabilities and not with Fil-Anchor’s liability to pay moral and compensatory damages. ISSUES: Whether or not private respondent violated the order agreement. Whether or not private respondent is liable for petitioner’s breach of contract with Philacor. RULING: Anent the 1st issue, NO. The transaction between the parties is a contract of sale whereby Fil-Anchor obligates itself to deliver printing paper to Integrated which, in turn, binds itself to pay a sum of money. Both parties conceded that the order agreement gives rise to reciprocal obligations such that the obligation of one is dependent upon the obligation of the other. Reciprocal obligations are to be performed simultaneously, so that the performance of one is conditioned upon the simultaneous fulfillment of the other. Fil-Anchor undertakes to deliver printing paper of various quantities subject to petitioner’s corresponding obligation to pay, on a maximum 90-day credit, for the materials. Petitioner Integrated did not fulfill its side of the contract as its last payment in August 1981 could only cover materials covered by delivery invoices dated September and October of 1980. Consequently, Fil-Anchor’s suspension of its deliveries to petitioner whenever the latter failed to pay on time is legally justified. Fil-Anchor has the right to cease making further delivery; hence, it did not violate the order agreement. On the contrary, it was Integrated which breached the agreement as it failed to pay on time the materials delivered by private respondent. Anent the 2nd issue, NO. Fil-Anchor cannot be held liable under the contracts entered into by petitioner with Philacor because it is not a party to said agreements. It is also not a contract pour autriu. The contracts could not affect third persons like private respondent because of the basic civil law principle of relativity of contracts which provides that contracts can only bind the parties who entered into it, and it cannot favor or prejudice a third person, even if he is aware of such contract and has acted with knowledge thereof.

ROBERTO Z. LAFORTEZA, GONZALO Z. LAFORTEZA, MICHAEL Z. LAFORTEZA, DENNIS Z. LAFORTEZA, and LEA Z. LAFORTEZA, petitioners, VS. ALONZO MACHUCA, respondent June 16, 2000 G.R. No. 137552 333 SCRA 643 FACTS: On August 2, 1988, Lea Zulueta-Laforteza executed a Special Power of Attorney in favor of defendants Roberto Z. Laforteza and Gonzalo Z. Laforteza, Jr., appointing both as her Attorney-in-fact authorizing them jointly to sell the subject house and lot property and sign any document for the settlement of the estate of the late Francisco Q. Laforteza. Likewise on the same day, Michael Z. Laforteza executed a Special Power of Attorney in favor of Roberto and Gonzalo Jr., likewise, granting the same authority. Both agency instruments contained a provision that in any document or paper to exercise authority granted, the signature of both attorneys-in-fact must be affixed. Dennis Laforteza also executed Special Power of Attorneys on different dates. In the exercise of the above authority, on January 20, 1989, the heirs of the late Francisco Q. Laforteza represented by Roberto and Gonzalo entered into a Memorandum of Agreement (Contract to Sell) with Alonzo Machuca over the subject property for the sum of Six Hundred Thirty Thousand Only (P630,000.00) to be payable as stipulated: P30,000 upon signing the agreement and the remaining P600,000 upon issuance of the new certificate of title in the name of the late Francisco Q. Laforteza and upon execution of an extra-judicial settlement of the decedent’s estate with sale in favor of the plaintiff. On June 20, 1989, the defendant was able to pay P30,000 as stipulated in the agreement. On September 18, 1989, defendants sent letter informing the defendant his obligation to pay the remaining balance to be due after thirty (30) days, and the reconstituted title, which the defendant received on the same date, of which on October 18, 1983, asked for an extension until November 15, 1989. Roberto, assisted by a lawyer, was the one who affirmed said request, but not Gonzalo. On November 20, 1989, defendant informed the heirs that Roberto had the payment for the balance, but said heirs refused to accept said payment. Roberto declared the property not for sale for failure to comply with the contractual obligations, and the agreement rescinded by the plaintiff-heirs.

Defendant insisted tender of payment but when the defendants refused to accept such, an action for specific performance was filed in court. The trial court ruled in favor of the defendant. When the petitioner-heirs appealed this to the Court of Appeals, the decision was rendered against them. So, an appeal to the Supreme Court was made. ISSUE: Whether or not the rescission of the agreement for failure by the private respondent to fulfill his obligations was validly done. RULING: The Supreme Court ruled in the negative. The issuance of the new certificate of title in the name of the late Francisco Laforteza and the execution of an extrajudicial settlement of his estate was not a condition which determined the perfection of the contract of sale. Petitioners’ contention that since the condition was not met, they no longer had an obligation to proceed with the sale of the house and lot is unconvincing. The petitioners fail to distinguish between a condition imposed upon the perfection of the contract and a condition imposed on the performance of an obligation. Failure to comply with the first condition results in the failure of a contract, while the failure to comply with the second condition only gives the other party the option either to refuse to proceed with the sale or to waive the condition. Thus, Art. 1545 of the Civil Code states: "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. If the other party has promised that the condition should happen or be performed, such first mentioned party may also treat the nonperformance of the condition as a breach of warranty. Where the ownership in the things has not passed, the buyer may treat the fulfillment by the seller of his obligation to deliver the same as described and as warranted expressly or by implication in the contract of sale as a condition of the obligation of the buyer to perform his promise to accept and pay for the thing." In the case at bar, there was already a perfected contract. The condition was imposed only on the performance of the obligations contained therein. Considering however that the title was eventually "reconstituted" and that the petitioners admit their ability to execute the extrajudicial settlement of their father’s estate, the respondent had a right to demand fulfillment of the petitioners’ obligation to deliver and transfer ownership of the house and lot.

The Supreme Court did not subscribe to the petitioners’ view that the Memorandum Agreement was a contract to sell. There is nothing contained in the MOA from which it can reasonably be deduced that the parties intended to enter into a contract to sell, i.e. one whereby the prospective seller would explicitly reserve the transfer of title to the prospective buyer, meaning, the prospective seller does not as yet agree or consent to transfer ownership of the property subject of the contract to sell until the full payment of the price, such payment being a positive suspensive condition, the failure of which is not considered a breach, casual or serious, but simply an event which prevented the obligation from acquiring any obligatory force. There is clearly no express reservation of title made by the petitioners over the property, or any provision which would impose non-payment of the price as a condition for the contract’s entering into force. Although the memorandum agreement was also denominated as a "Contract to Sell", it held that the parties contemplated a contract of sale. A deed of sale is absolute in nature although denominated a conditional sale in the absence of a stipulation reserving title in the petitioners until full payment of the purchase price. In such cases, ownership of the thing sold passes to the vendee upon actual or constructive delivery thereof. The mere fact that the obligation of the respondent to pay the balance of the purchase price was made subject to the condition that the petitioners first deliver the reconstituted title of the house and lot does not make the contract a contract to sell for such condition is not inconsistent with a contract of sale. The property in dispute, being an immovable property, is governed by Article 1592 of the NCC, which needs the judicial or notarial act for its rescission. It is not disputed that the petitioners did not make a judicial or notarial demand for rescission. The November 20, 1989 letter of the petitioners informing the respondent of the automatic rescission of the agreement did not amount to a demand for rescission, as it was not notarized. It was also made five days after the respondent’s attempt to make the payment of the purchase price. This offer to pay prior to the demand for rescission is sufficient to defeat the petitioners’ right under article 1592 of the Civil Code. Besides, the Memorandum Agreement between the parties did not contain a clause expressly authorizing the automatic cancellation of the contract without court intervention in the event that the terms thereof were violated. A seller cannot unilaterally and extrajudicially rescind a contract of sale where there is no express stipulation authorizing him to extrajudicially rescind. Neither was there a judicial demand for the rescission thereof.

Thus, when the respondent filed his complaint for specific performance, the agreement was still in force inasmuch as the contract was not yet rescinded. At any rate, considering that the six-month period was merely an approximation of the time it would take to reconstitute the lost title and was not a condition imposed on the perfection of the contract and considering further that the delay in payment was only thirty days which was caused by the respondents justified but mistaken belief that an extension to pay was granted to him, the Court agreed with the CA’s ruling that the delay of one month in payment was a mere casual breach that would not entitle the respondents to rescind the contract. RESCISSION of a contract will not be permitted for a slight or casual breach, but only such substantial and fundamental breach as would defeat the very object of the parties in making the agreement.

DOLO INCIDENTE – EFFECTS: 1. 2.

INTERNATIONAL CORPORAL BANK VS. GUECO, 351 SCRA 516 REPUBLIC VS. COURT OF TAX APPEALS, 366 SCRA 516

the unpaid balance for the car loan which was lowered to P154,000.00 after negotiations and recomputations. As a result of the non-payment of the reduced amount on that date, the car was detained within the bank’s compound. On August 28, 1995, Dr. Gueco further renegotiated for the reduction of the outstanding loan to P150,000.00. On August 29, 1995, Dr. Gueco delivered a manager’s check in the amount of P150,000.00 but the car was not released because of his refusal to sign the JOINT Motion to Dismiss. After several demand letters and meetings with bank representatives, the respondents initiated a civil action for damages which was dismissed for lack of merit. On appeal, the RTC ruled in favor of the Spouses, pointing out that there was a meeting of the minds between the petitioner and the respondents as to the reduction of the amount of indebtedness and the release of the car but said agreement did not include the signing of the Joint Motion to Dismiss as a condition sine qua non for the effectivity of the compromise. On appeal, the Court of Appeals affirmed in toto the lower court’s decision. Hence, the petitioner comes to the Supreme Court by way of certiorari.

INTERNATIONAL CORPORATE BANK VS. GUECO 351 SCRA 516 FACTS: Respondents Gueco Spouses obtained a loan form petitioner International Corporate Bank (now Union Bank of the Philippines) to obtain a car. In consideration thereof, the Spouses executed promissory notes which were payable in monthly installments and chattel mortgage over the car to serve as security for the notes. The Spouses defaulted in the payment of the installments and consequently, the petitioner filed on August 7, 1995 a civil action for “Sum of Money with Prayer for a Writ of Replivin.” On August 25, 1995, Dr. Gueco was served summons and was fetched by the sheriff and representative of the bank for a meeting in the bank premises. The bank demanded payment of the amount of P184,000.00 which represents

ISSUES: Whether or not there was no agreement with respect to the execution of the Joint Motion to Dismiss as a condition for the compromise agreement. Whether or not the respondents should be granted moral, exemplary damages and attorney’s fees. Whether or not the Court of Appeals erred in holding that the petitioner return the subject car to the respondents, without making any provision for the issuance of the new manager’s/ cashier’s check by the respondents in favor of the petitioner in lieu of the original cashier’s check that already became stale. RULING: 1. NO, there was no agreement with respect to the execution of the Joint Motion to Dismiss as a condition for the compromise agreement.

Petitioner has the burden of proof that the oral compromise entered into by the parties included the stipulation that the parties would joint file a motion to dismiss. Factual findings of the lower court and the appellate court found no evidence to acknowledge the contestation of the petitioner bank that there was indeed such an agreement. Further, the only findings was that the agreement between the parties was merely regarding the lowering of the price and not anent the Joint Motion to Dismiss. 2. NO, the respondents are not entitled to the damages awarded by the Court of Appeals. In awarding the damages, both the trial and appellate courts found out that there was fraud, when in the findings of the Supreme Court, there was none. Fraud is the deliberate intention to cause damage or prejudice. It is the voluntary execution of a wrongful act, or the willful omission. Knowing and intending the effects which naturally and necessarily arise from such act or omission. There was no fraud on the part of the petitioner bank in requiring the respondent to sign the joint motion to dismiss.

3. YES, the Court of Appeals committed the error anent the 3rd issue.

Respondents contend that the petitioner should return the car or its value and that the latter, due to its own negligence, should suffer the loss occasioned of the fact that the check had become stale. Respondents aver that the delivery of the manager’s check produced the effect of payment; thus, petitioner was negligent in opting not to deposit or use said check. The Court is not persuaded.

A stale check is one which has not been presented for payment within a reasonable time after its issue. It is valueless, and should not be paid. In the case at bar, the check involved is not an ordinary bill of exchange but a manager’s check which is drawn by the bank manager upon the bank itself. In this case, the Gueco spouses have not alleged or shown that they or the bank which issued the manager’s check has suffered damage or loss by the delay or non-presentment. There is no doubt that the petitioner bank held on the check and refused to encash the same because of the controversy surrounding the signing of the joint motion to dismiss. Hence, the Court is of the opinion that there is no bad faith or negligence. Premises considered, the decision of the Court of appeals affirming the Trial court’s decision is set aside. Respondents are further ordered to pay the original obligation amounting to P150,000 to the petitioner upon surrender or

cancellation of the manager’s check in the latter’s possession, afterwhich, petitioner is to return the subject motor vehicle in good working condition. DOLO INCIDENTE – EFFECTS: REPUBLIC OF THE PHILIPPINES, represented by the COMMISSIONER OF CUSTOMS, petitioner, VS. THE COURT OF TAX APPEALS and AGFHA, INCORPORATED, respondents Oct 23, 2000 G.R. No. 139050 FACTS: FIL-JAPAN, a shipping agent, requested for an amendment of the Inward Foreign Manifest so as to correct the name of the consignee from that of GQ GARMENTS, Inc., to that of AGFHA, Inc. when its shipment’s Inward Foreign Manifest stated that the bales of cloth were consigned to GQ GARMENTS, Inc., while the Clean Report of Findings issued by the Societe Generale de Surveilance mention AGFHA, Incorporated, to be the consignee. FIL-JAPAN forwarded to AGFHA, Inc., the amended Inward Foreign Manifest which the latter, in turn, submitted to the MICP Law Division. The MICP indorsed the document to the Customs Intelligence Investigation Services (CIIS). The CIIS placed the subject shipment under hold on the ground that GQ GARMENTS, Inc., could not be located in its given address and was thus suspected to be a fictitious firm. Forfeiture proceedings under the Tariff and Customs Code were initiated. AGFHA, Inc.’s motion for intervention contending that it is the lawful owner and actual consignee of the subject shipment was granted. After hearing, the Collector of Customs came up with a draft decision ordering the lifting of the warrant of seizure and detention on the basis of its findings that GQ GARMENTS, Inc., was not a fictitious corporation and that there was a valid waiver of rights over the bales of cloth by GQ GARMENTS, Inc., in favor of AGFHA, Inc. The draft decision was submitted to the Deputy Commissioner for clearance and approval, who, in turn, transmitted it to the CIIS for comment. The CIIS opposed the draft decision, insisting that GQ GARMENTS, Inc., was a fictitious corporation and that even if it did exist, its president, John Barlin, had no authority to waive the right over the subject shipment in favor of AGFHA, Inc. The Deputy Commissioner then rejected the draft decision of the Collector of Customs.

GQ GARMENTS, Inc., and AGFHA, Inc., filed a joint motion for reconsideration. Convinced that the evidence presented established the legal existence of GQ GARMENTS, Inc., and finding that a resolution passed by the Board of Directors of GQ GARMENTS, Inc., ratified the waiver of its president, the Collector of Customs in another draft decision granted the joint motion. The Office of the Commissioner of Customs, however, disapproved the new draft decision and denied the release of the goods. In deference to the directive of the Commissioner, the District Collector of Customs ordered the forfeiture of the shipment. AGFHA, Inc., interposed an appeal to the Office of the Commissioner of Customs but was dismissed. AGFHA, Inc., therefore, filed a petition for review with the Court of Tax Appeals questioning the forfeiture of the bales of textile cloth. Finding merit in the plea of appellants, the Court of Tax Appeals granted the petition and ordered the release of the goods to AGFHA, Inc., however, the Commissioner of Customs then challenged before the Court of Appeals the decision of the tax court but was dismissed for lack of merit. The appellate court ruled that the Bureau of Customs has failed to satisfy its burden of proving fraud on the part of the importer or consignee. The Court of Appeals attributed the error in indicating GQ GARMENTS, Inc., instead of AGFHA, Inc., in the Inward Foreign Manifest as being the consignee of the subject shipment to the shipping agent. It also noted the finding of the tax court that GQ GARMENTS, Inc., was, in fact, a registered importer. The BOC instituted the instant petition for review under Rule 45 of the Revised Rules of Court assailing the affirmance by the Court of Appeals of the tax court's decision. ISSUE: Whether or not AGFHA, Inc. committed fraud in the importation of bales of cloth. RULING: The requisites for the forfeiture of goods under the Tariff and Customs Code are: (a) the wrongful making by the owner, importer, exporter or consignee of any declaration or affidavit, or the wrongful making or delivery by the same person of any invoice, letter or paper - all touching on the importation or exportation of merchandise; (b) the falsity of such declaration, affidavit, invoice, letter or paper; and (c) an intention on the part of the importer/consignee to evade the payment of the duties due. Petitioner asserts that all of these requisites are present in this case. It contends that it did not presume fraud, rather the events positively point to the

existence of fraud. On the other hand, AGFHA, Inc. maintains that there has only been an inadvertent error and not an intentional wrongful declaration by the shipper to evade payment of any tax due. Fraud must be proved to justify forfeiture. It must be actual, amounting to intentional wrong-doing with the clear purpose of avoiding the tax. Mere negligence is not equivalent to the fraud contemplated by law. What is here involved is an honest mistake, not even directly attributable to private respondent, which will not deprive the government of its right to collect the proper tax. The Collector of Customs, Court of Tax Appeals and the Court of Appeals are unanimous in concluding that no fraud has been committed by AGFHA, Inc. in the importation of the bales of cloth. Therefore, the forfeiture cannot be justified. Petition denied. Decision affirmed.

NEGLIGENCE AS A QUESTION OF FACT 1. 2. 3. 4.

YAMBAO VS. ZUÑIGA, 18 SCRA 266 SMITH BELL DODWELL SHIPPING VS. BORJA, 383 SCRA 341 ILUSORIO VS. CA, 393 SCRA 89 NPC VS. CA, 161 SCRA 334

YAMBAO VS. ZUÑIGA 418 SCRA 266 FACTS: On May 6, 1992 at around 3:30 P.M, the bus owned by petitioner Cecilia Yambao was being driven by her driver, one Ceferino G. Venturina along EDSA. Suddenly, the bus bumped Herminigildo Zuñiga, a pedestrian. Such was the force of the impact that the left side of the front windshield of the bus was cracked. Zuñiga was rushed to the Quezon City General Hospital where he was given medical attention, but due to the massive injuries sustained, he succumbed shortly thereafter.

A complaint against petitioner and her driver for damages was filed at the Regional Trial Court of Malolos City. In her answer, the petitioner vehemently denied the material allegations of the complaint. She tried to shift the blame upon the victim, theorizing that Herminigildo bumped into her bus, while avoiding an unidentified woman who was chasing him. Furthermore, she alleged that she was not liable for any damages because she exercised the proper diligence of a good father of a family both in the selection and supervision of her bus driver. The trial court rendered its decision holding petitioner and her driver liable for the untimely death of Zuñiga and to indemnify his legal heirs, the herein respondents. The Court of Appeals affirmed the said decision of the RTC. Petitioner duly moved for reconsideration, but her motion was denied for lack of merit. ISSUE: Whether or not the petitioner exercised the diligence of a good father of a family in the selection and supervision of her employees thus absolving her from any liability. RULING: YES. Whether a person is negligent or not is a question of fact. It was Venturina’s reckless and imprudent driving of petitioner’s bus, which is the proximate cause of the victim’s death. It is thus evident that petitioner did not exercise the diligence of a good father of a family in the selection and supervision of her employees. The law governing petitioner’s liability, as the employer of bus driver Venturina is Article 2180 of the Civil Code. The “diligence of a good father” means diligence in the selection and supervision of employees. Thus, when an employee, while performing his duties, causes damage to persons or property due to his own negligence, there arises the juris tantum presumption that the employer is negligent, either in the selection of the employee or in the supervision over him after the selection. The presumption juris tantum that there was negligence in the selection of her bus driver remains unrebutted.

SMITH BELL DODWELL SHIPPING AGENCY CORPORATION VS. CATALINO BORJA and INTERNATIONAL TO WAGE AND TRANSPORT CORPORATION G.R. No. 143008 June 10, 2002 383 SCRA 341 FACTS: On September 23, 1987, Smith Bell filed a written request with the Bureau of Customs for the attendance of the latter’s inspection team on vessel M/T King Family which was due to arrive at the port of Manila on September 24, 1987. The vessel contained 750 metric tons of alkyl benzene and methyl methacrylate monomer. On the same day, Supervising Customs Inspector Manuel Ma. D. Nalgan instructed respondent Catalino Borja to board said vessel and perform his duties as inspector upon the vessel’s arrival until its departure. At that time, Borja was a customs inspector of the Bureau of Customs. At about 11 o’clock in the morning on September 24, 1987, while M/T King Family was unloading chemicals unto two (2) barges owned by ITTC, a sudden explosion occurred setting the vessels afire. Upon hearing the explosion, Borja, who was at that time inside the cabin preparing reports, ran outside to check what happened. Again, another explosion was heard. Seeing the fire and fearing for his life, he hurriedly jumped over board to save himself. However, the water was likewise on fire due mainly to the spilled chemicals. Despite the tremendous heat, Borja swam his way for one hour until he was rescued by the people living in the squatters’ area and sent to San Juan De Dios Hospital. After weeks of intensive care at the hospital, his attending physician diagnosed Borja was diagnosed to be permanently disabled due to the incident. Thus, he made demands against Smith Bell and ITTC for the damages caused by the explosion. However, both denied liabilities and attributed to each other negligence.

Having failed to rebut the legal presumption of negligence in the selection and supervision of her driver is responsible for damages, the basis of the liability being the relationship of pater familias or on the employer’s own negligence.

After hearing, the trial court ruled in favor of respondent Borja and held petitioner liable for damages and loss of income. On appeal, the same ruling was also upheld. Hence this petition.

NEGLIGENCE AS A QUESTION OF FACT

ISSUE: Whether or not the RTC and the Court of Appeals labored under a misapprehension of facts regarding the negligence committed.

RULING: Petitioner avers that both lower courts labored under a misapprehension of the facts. It claims that the documents adduced in the RTC conclusively revealed that the explosion that caused the fire on M/T King Family had originated from the barge ITTC-101. However, the Supreme Court find no cogent reason to overturn factual findings of the RTC and the Court of Appeals since such findings were supported by substantial evidences. Negligence is a conduct that creates undue risk of harm to another. It is the failure to observe that degree of care, precaution and vigilance that the circumstances justly demand, whereby that other person suffers injury. Petitioner’s vessel was carrying chemical cargo -- alkyl benzene and methyl methacrylate monomer. While knowing that their vessel was carrying dangerous inflammable chemicals, its officers and crew failed to take all the necessary precautions to prevent an accident. Petitioner was, therefore, negligent. The three elements of QUASI-DELICT are: 1. damages suffered by the plaintiff, 2. fault or negligence of the defendant, and 3. the connection of cause and effect between the fault or negligence of the defendant and the damages inflicted on the plaintiff. All these elements were established in this case. As a result of the fire and the explosion during the unloading of the chemicals from petitioner’s vessel, Respondent Borja suffered the following damage: and injuries: (1) chemical burns of the face and arms; (2) inhalation of fumes from burning chemicals; (3) exposure to the elements while floating in sea water for about three (3) hours; (4) homonymous hemianopsia or blurring of the right eye [which was of] possible toxic origin; and (5) cerebral infract with neovascularization, left occipital region with right sided headache and the blurring of vision of right eye. Wherefore, the Petition is partly granted. The assailed Decision is AFFIRMED with the following MODIFICATIONS: petitioner is ordered to pay the heirs of the victim damages in the amount of P320,240 as loss of earning capacity, moral damages in the amount of P100,000, plus another P50,000 as attorney’s fees.

NEGLIGENCE AS A QUESTION OF FACT ILUSORIO VS. COURT OF APPEALS G. R. No. 139130 November 27, 2002 393 SCRA 89 FACTS: Ramon Ilusorio is a prominent businessman, was the Managing Director of Multinational Investment Bancorporation and the Chairman and/or President of several other corporations he was a depositor in good standing of respondent bank, the Manila Banking Corporation. As he was then running about 20 corporations, and was going out of the country a number of times, petitioner entrusted to his secretary, Katherine Eugenio, his credit cards and checkbook with blank checks. Eugenio was able to encash and deposit to her personal account about seventeen checks drawn against the respondent bank. Petitioner did not bother to check his statement of account until a business partner apprised him that he saw Eugenio use his credit cards. Petitioner immediately fired his secretary and filed a criminal case against her for estafa thru falsification. Respondent bank also lodged a complaint for estafa thru falsification against Eugenio on the basis of petitioner’s statement that his signatures in the checks were forged. Petitioner then requested the respondent bank to credit back and restore to its account the value of the checks which were wrongfully encashed but the respondent bank refused. Thus, petitioner filed the instant case. In addition, Manila Bank also sought the expertise of the National Bureau Investigation in determining the genuineness of the signatures appearing on the checks. However, in a letter, the NBI informed the trial court that they could not conduct the desired examination since the standard specimens were not sufficient for purposes of rendering a definitive opinion. The NBI then suggested that petitioner be asked to submit seven or more additional standard signatures; however, the petitioner failed to comply with this request. After evaluating the evidence on both sides, the trial court dismissed the case for lack of sufficient basis. On appeal, the Court of Appeals affirmed the decision of the trial court. ISSUE: Whether or not the respondent bank was negligent in not determining the genuineness of the signatures of the petitioner on the checks.

RULING: The Supreme Court held that it was the petitioner, not the bank, who was negligent. Negligence is the omission to do something which a reasonable man, guided by those considerations which ordinarily regulate the conduct of human affairs, would do, or the doing of something which a prudent and reasonable man would do. In the present case, it appears that petitioner accorded his secretary unusual degree of trust and unrestricted access to his credit cards, passbooks, check books, bank statements, including custody and possession of cancelled checks and reconciliation of accounts. Petitioner’s failure to examine his bank statements appears as the proximate cause of his own damage. Petitioner failed to examine his bank statements not because he was prevented by some cause in not doing so, but because he did not pay sufficient attention to the matter. In view of Article 2179 of the New Civil Code, when the plaintiff’s own negligence was the immediate and proximate cause of his injury, no recovery could be had for damages. Hence, the petition is dismissed.

NEGLIGENCE AS A QUESTION OF FACT NATIONAL POWER CORPORATION VS. COURT OF APPEALS 161 SCRA 334 G.R. No. L-47379 May 16, 1988

reservoir of the Angat Dam was rising perilously at the rate of sixty (60) centimeters per hour. To prevent an overflow of water from the dam, since the water level had reached the danger height of 212 meters above sea level, the defendant corporation caused the opening of the spillway gates”. The appellate court sustained the findings of the trial court that the evidence preponderantly established the fact that due to the negligent manner with which the spillway gates of the Angat Dam were opened, an extraordinary large volume of water rushed out of the gates, and hit the installations and construction works of ECI at the Ipo Site with terrific impact as a result of which the latter’s stockpile of materials and supplies, camp facilities and permanent structures and accessories were either washed away, lost or destroyed. ISSUE: Whether or not NAPOCOR is exempt from liability because the lost or deterioration of ECI’s facilities was due to fortuitous event. RULING: It is clear from the CA”S ruling that the petitioner NPC was undoubtedly negligent because it opened the spillway gates of the Angat Dam only at the height of typhoon “Welming” when it knew very well that it was safer to have opened the same gradually and earlier, as it was also undeniable that NPC knew of the coming typhoon at least four days before it actually struck. And even though the typhoon was an act of God or what we may call force majeure, NPC cannot escape liability because its negligence was the proximate cause of the loss and damage. Petitions dismissed. Decision affirmed.

FACTS: On August 4, 1964, plaintiff Engineering Construction, Inc., being a successful bidder, executed a contract in Manila with National Waterworks and Sewerage Authority (NAWASA), whereby the former undertook to furnish all tools, labor, equipment, and materials (not furnished by Owner), and to construct the proposed 2nd Ipo-Bicti Tunnel, Intake and Outlet Structures, and Appurtenant Structures, and Appurtenant Features, at Norzagaray, Bulacan, and to complete said works within eight hundred (800) calendar days from the date the Constructor receives the formal notice to proceed. The record shows that on November 4, 1967, typhoon “Welming” hit Central Luzon, passing trough the defendant’s Angat Hydro-electric Project and Dam at Ipo, Norzagaray, Bulacan. Strong winds struck the project area, and heavy rains intermittently fell. Due to the heavy downpour, the water in the

CULPA CONTRACTUAL 1. 2. 3. 4. 5. 6. 7. 8.

MUAJE-TUAZON VS. WENPHIL, 511 S 521 RCPI VS. VERCHEZ, 481 S 384 VICTORY LINER VS. GAMMAD, 444 S 355 FGU VS. SARMIENTO, 386 S 312 LRTA VS. NATIVIDAD, 397 S 75 RODZSSEN VS. FAR EAST BANK, 357 S 618 UNIVERSITY OF THE EAST VS. JADER, FEB. 17, 2000 BAYNE ADJUSTERS VS. CA, 323 SCRA 231

MUAJE-TUAZON vs. WENPHIL G.R. No. 162447. DECEMBER 27, 2006 FACTS: Petitioners Annabelle M. Tuazon and Almer R. Abing worked as branch managers of the Wendy's food chains. In Wendy’s “Biggie Size It! Crew Challenge" promotion contest, branches managed by petitioners won first and second places, respectively. Because of its success, respondent had a second run of the contest from April 26 to July 4, 1999. The Meycauayan branch won again. The MCU Caloocan branch failed to make it among the winners. Before the announcement of the third round winners, management received reports that as early as the first round of the contest, the Meycauayan, MCU Caloocan, Tandang Sora and Fairview branches cheated. An internal investigation ensued. Petitioners were summoned to the main office regarding the reported anomaly. Petitioners denied there was cheating. Immediately thereafter, petitioners were notified, in writing, of hearings and of their immediate suspension. Thereafter, petitioners were dismissed. ISSUE: Is the respondent guilty of illegal suspension and dismissal in the case at bench? RULING: There is no denying that petitioners were managerial employees. They executed management policies, they had the power to hire personnel and assign them tasks; and discipline the employees in their branch. They recommended actions on employees to the head office.Article 212 (m) of the Labor Code defines a managerial employee as one who is vested with powers or prerogatives to lay down and execute management policies and/or hire, transfer, suspend, lay-off, recall, discharge, assign or discipline employees. Consequently, as managerial employees, in the case of petitioners, the mere existence of grounds for the loss of trust and confidence justify their dismissal. Pursuant to our ruling in Caoile v. National Labor Relations Commission, as long as the employer has a reasonable ground to believe that the managerial employee concerned is responsible for the purported misconduct, or the nature of his participation renders him unworthy of the trust and confidence demanded by his position, the managerial employee can be dismissed. In the present case, the tape receipts presented by respondents showed that there were anomalies committed in the branches managed by the petitioners. On the principle of respondeat superior or command responsibility alone, petitioners may be held liable for negligence in the performance of their

managerial duties, unless petitioners can positively show that they were not involved. Their position requires a high degree of responsibility that necessarily includes unearthing of fraudulent and irregular activities. Their bare, unsubstantiated and uncorroborated denial of any participation in the cheating does not prove their innocence nor disprove their alleged guilt. Additionally, some employees declared in their affidavits that the cheating was actually the idea of the petitioners. CULPA CONTRACTUAL RCPI vs. VERCHEZ G.R. No. 164349. JANUARY 31, 2006 FACTS: Editha Hebron Verchez (Editha) was confined in the hospital due to an ailment. Her daughter Grace immediately went to the Sorsogon Branch of RCPI whose services she engaged to send a telegram to her sister Zenaida. As three days after RCPI was engaged to send the telegram to Zenaida no response was received from her, Grace sent a letter to Zenaida, this time thru JRS Delivery Service, reprimanding her for not sending any financial aid. Immediately after she received Grace’s letter, Zenaida, along with her husband left for Sorsogon. On her arrival at Sorsogon, she disclaimed having received any telegram. The telegram was finally delivered to Zenaida 25 days later. On inquiry from RCPI why it took that long to deliver it, RCPI claimed that delivery was not immediately effected due to the occurrence of circumstances which were beyond the control and foresight of RCPI. ISSUE: Whether or not RCPI is negligent in the performance of its obligation. RULING: Article 1170 of the Civil Code provides: Those who in the performance of their obligations are guilty of fraud, negligence, or delay, and those who in any manner contravene the tenor thereof, are liable for damages. In culpa contractual, the mere proof of the existence of the contract and the failure of its compliance justify, prima facie, a corresponding right of relief. The law,

recognizing the obligatory force of contracts, will not permit a party to be set free from liability for any kind of misperformance of the contractual undertaking or a contravention of the tenor thereof. Considering the public utility of RCPI’s business and its contractual obligation to transmit messages, it should exercise due diligence to ascertain that messages are delivered to the persons at the given address and should provide a system whereby in cases of undelivered messages the sender is given notice of nondelivery. Messages sent by cable or wireless means are usually more important and urgent than those which can wait for the mail. RCPI argues, however, against the presence of urgency in the delivery of the telegram, as well as the basis for the award of moral damages. RCPI’s arguments fail. For it is its breach of contract upon which its liability is, it bears repeating, anchored. Since RCPI breached its contract, the presumption is that it was at fault or negligent. It, however, failed to rebut this presumption. For breach of contract then, RCPI is liable to Grace for damages. RCPI’s liability as an employer could of course be avoided if it could prove that it observed the diligence of a good father of a family to prevent damage.

CULPA CONTRACTUAL VICTORY LINER, INC. vs. GAMMAD G.R. No. 159636. NOVEMBER 25, 2004 FACTS: Marie Grace Pagulayan-Gammad was on board an air-conditioned Victory Liner bus bound for Tuguegarao, Cagayan from Manila. At about 3:00 a.m., the bus while running at a high speed fell on a ravine which resulted in the death of Marie Grace and physical injuries to other passengers. On May 14, 1996, respondent heirs of the deceased filed a complaint for damages arising from culpa contractual against petitioner. In its answer, the petitioner claimed that the incident was purely accidental and that it has always exercised extraordinary diligence in its 50 years of operation. ISSUE: Whether petitioner should be held liable for breach of contract of carriage.

RULING: Petitioner was correctly found liable for breach of contract of carriage. A common carrier is bound to carry its passengers safely as far as human care and foresight can provide, using the utmost diligence of very cautious persons, with due regard to all the circumstances. In a contract of carriage, it is presumed that the common carrier was at fault or was negligent when a passenger dies or is injured. Unless the presumption is rebutted, the court need not even make an express finding of fault or negligence on the part of the common carrier. This statutory presumption may only be overcome by evidence that the carrier exercised extraordinary diligence. In the instant case, there is no evidence to rebut the statutory presumption that the proximate cause of Marie Grace’s death was the negligence of petitioner. Hence, the courts below correctly ruled that petitioner was guilty of breach of contract of carriage.

CULPA CONTRACTUAL FGU INSURANCE CORP. vs. G.P. SARMIENTO TRUCKING CORPORATION G.R. No. 141910. AUGUST 6, 2002 FACTS: G.P. Sarmiento Trucking Corporation (GPS) undertook to deliver refrigerators aboard one of its Isuzu truck, driven by Lambert Eroles, from the plant site of Concepcion Industries, Inc. to the Central Luzon Appliances in Dagupan City. While the truck was traversing the north diversion road along McArthur highway in Barangay Anupol, Bamban, Tarlac, it collided with an unidentified truck, causing it to fall into a deep canal, resulting in damage to the cargoes. FGU Insurance Corporation (FGU), an insurer of the shipment, paid to Concepcion Industries, Inc., the value of the covered cargoes. FGU, in turn, being the subrogee of the rights and interests of Concepcion Industries, Inc., sought reimbursement of the amount it had paid to the latter from GPS. Since the trucking company failed to heed the claim, FGU filed a complaint for damages and breach of contract of carriage against GPS and its driver Lambert

Eroles. Respondents asserted that that the cause of damage was purely accidental. ISSUE: Whether or not GPS is liable for damages arising from negligence. RULING: In culpa contractual, upon which the action of petitioner rests as being the subrogee of Concepcion Industries, Inc., the mere proof of the existence of the contract and the failure of its compliance justify, prima facie, a corresponding right of relief. Respondent trucking corporation recognizes the existence of a contract of carriage between it and petitioner and admits that the cargoes it has assumed to deliver have been lost or damaged while in its custody. In such a situation, a default on, or failure of compliance with, the obligation – in this case, the delivery of the goods in its custody to the place of destination - gives rise to a presumption of lack of care and corresponding liability on the part of the contractual obligor the burden being on him to establish otherwise. GPS has failed to do so. Respondent driver, without concrete proof of his negligence or fault, may not himself be ordered to pay petitioner. The driver, not being a party to the contract of carriage between petitioner and defendant, may not be held liable under the agreement. A contract can only bind the parties who have entered into it or their successors who have assumed their personality or their juridical position. Petitioner’s civil action against the driver can only be based on culpa aquiliana, which, unlike culpa contractual, would require the claimant for damages to prove negligence or fault on the part of the defendant.

CULPA CONTRACTUAL LRTA vs. NAVIDAD G.R. No. 145804. FEBRUARY 6, 2003

On 14 October 1993, in the evening, Nicanor Navidad, then drunk, entered the EDSA LRT station. While Navidad was standing on the platform near the LRT tracks, Junelito Escartin, the security guard assigned to the area approached Navidad. A misunderstanding or an altercation between the two apparently ensued that led to a fist fight. No evidence, however, was adduced to indicate how the fight started or who, between the two, delivered the first blow or how Navidad later fell on the LRT tracks. At the exact moment that Navidad fell, an LRT train, operated by petitioner Rodolfo Roman, was coming in. Navidad was struck by the moving train, and he was killed instantaneously. The widow of Nicanor, along with her children, filed a complaint for damages against Junelito Escartin, Rodolfo Roman, the LRTA, the Metro Transit Organization, Inc. (Metro Transit), and Prudent for the death of her husband. LRTA and Roman filed a counterclaim against Navidad and a cross-claim against Escartin and Prudent. Prudent, in its answer, denied liability and averred that it had exercised due diligence in the selection and supervision of its security guards.

ISSUE: Who, if any, is liable for damages in relation to the death of Navidad? RULING: The foundation of LRTA’s liability is the contract of carriage and its obligation to indemnify the victim arises from the breach of that contract by reason of its failure to exercise the high diligence required of the common carrier. In the discharge of its commitment to ensure the safety of passengers, a carrier may choose to hire its own employees or avail itself of the services of an outsider or an independent firm to undertake the task. In either case, the common carrier is not relieved of its responsibilities under the contract of carriage. Regrettably for LRTA, as well as perhaps the surviving spouse and heirs of the late Nicanor Navidad, this Court is concluded by the factual finding of the Court of Appeals that “there is nothing to link Prudent to the death of Navidad, for the reason that the negligence of its employee, Escartin, has not been duly proven. There being, similarly, no showing that petitioner Rodolfo Roman himself is guilty of any culpable act or omission, he must also be absolved from liability.

FACTS: CULPA CONTRACTUAL

CULPA CONTRACTUAL RODZSSEN SUPPLY CO. INC. VS. FAR EAST BANK & TRUST CO. GR No. 109087 May 9, 2001 357 SCRA 618 FACTS: Petitioner Rodzssen Supply opened a letter of credit with respondent Far East Bank for the payment of 5 loaders bought by petitioner from Ekman and Co. The letter of credit had a validity of 30 days to expire February 15, 1979 but was subsequently extended to October 16, 1979. Three of the loaders were delivered to the petitioner and was paid by respondent. The two remaining loaders were delivered to the petitioner belatedly but were still accepted by petitioner on the ground that it was bound to do so under the trust receipt arrangement with respondent bank. The bank paid the two remaining loaders five months after the expiration of the credit on March 1980. Petitioner refused to pay the P76,000 for the two loaders since the bank paid for them beyond the expiration of the letter of credit. Both the RTC and the CA ruled for the respondent. Thus, this petition for review. ISSUE: Is the petitioner liable to pay respondent bank when the bank paid Ekman only after 5 months beyond the expiration of the letter of credit? RULING: Yes. While respondent bank was negligent in paying the P76,000 to Ekman within the validity of the letter of credit, petitioner voluntarily accepted the late delivery of the equipment and used it for 3 years before respondent demanded payment, without verifying the status of ownership or possession of the loaders. By acknowledging receipt of the loaders, petitioner impliedly accepted its obligation to pay the respondent bank even when the bank paid for the delivery by Ekman after the expiration of the letter of credit. When both parties are equally negligent in the performance of their obligations under a contract, the fault of one cancels the negligent of the other. Their rights and obligations may then be determined equally under the law proscribing the unjust enrichment.

UNIVERSITY OF THE EAST, VS. ROMEO A. JADER, 2000 Feb 17 G.R. No. 132344 FACTS: Plaintiff was enrolled in the defendants' College of Law from 1984 up to 1988. In the first semester of his last year (School year 1987-1988), he failed to take the regular final examination in Practice Court I for which he was given an incomplete grade. He enrolled for the second semester as fourth year law student and on February 1, 1988 he filed an application for the removal of the incomplete grade given him by Professor Carlos Ortega which was approved by Dean Celedonio Tiongson after payment of the required fee. He took the examination on March 28, 1988. On May 30, 1988, Professor Carlos Ortega submitted his grade. It was a grade of five (5). The plaintiff's name appeared in the Tentative List of Candidates for graduation for the Degree of Bachelor of Laws (LL.B) as of Second Semester (1987-1988) with the following annotation: "JADER ROMEO A. Def. Conflict of Laws - x-1-87-88, Practice Court I - Inc., 1-87-88. C-1 to submit transcript with S.O. In the invitation for graduation the name of the plaintiff appeared as one of the candidates. At the foot of the list of the names of the candidates there appeared however the following annotation: This is a tentative list. Degrees will be conferred upon these candidates who satisfactorily complete requirements as stated in the University Bulletin and as approved of the Department of Education, Culture and Sports. The plaintiff attended the investiture ceremonies during the program of which he went up the stage when his name was called. He tendered a blow-out that evening. And there were pictures taken too during the blow-out. He thereafter prepared himself for the bar examination. He took a leave of absence without pay from his job from April 20, 1988 to September 30, 1988 and enrolled at the pre-bar review class in Far Eastern University. Having

learned of the deficiency, he dropped his review class and was not able to take the bar examination. Consequently, respondent sued petitioner for damages alleging that he suffered moral shock, mental anguish, serious anxiety, besmirched reputation, wounded feelings and sleepless nights when he was not able to take the 1988 bar examinations arising from the latter's negligence. He prayed for an award of moral and exemplary damages, unrealized income, attorney's fees, and costs of suit. ISSUE: Whether or not respondent can claim damages from petitioner school. RULING: It is the contractual obligation of the school to timely inform and furnish sufficient notice and information to each and every student as to whether he or she had already complied with all the requirements for the conferment of a degree or whether they would be included among those who will graduate. Although commencement exercises are but a formal ceremony, it nonetheless is not an ordinary occasion, since such ceremony is the educational institution's way of announcing to the whole world that the students included in the list of those who will be conferred a degree during the baccalaureate ceremony have satisfied all the requirements for such degree. Prior or subsequent to the ceremony, the school has the obligation to promptly inform the student of any problem involving the latter's grades and performance and also most importantly, of the procedures for remedying the same.

person/persons who may be affected by his act or omission can support a claim for damages.

CULPA CONTRACTUAL BAYNE ADJUSTERS AND SURVEYORS, INC. VS. COURT OF APPEALS AND INSURANCE COMPANY OF NORTH AMERICA 323 SCRA 231

The college dean is the senior officer responsible for the operation of an academic program, enforcement of rules and regulations, and the supervision of faculty and student services. He must see to it that his own professors and teachers, regardless of their status or position outside of the university, must comply with the rules set by the latter. The negligent act of a professor who fails to observe the rules of the school, for instance by not promptly submitting a student's grade, is not only imputable to the professor but is an act of the school, being his employer.

FACTS: On May 1987, Colgate Palmolive Philippines imported alkyl benzene from Japan valued at US $255,802.88. It is insured with private respondent Insurance Company of North America. Petitioner was contracted by the consignee to supervise the proper handling and discharge of the cargo from the chemical tanker to the receiving barge until the cargo is pumped into the consignee’s shore tank. When the cargo arrived, the pumping operation commenced at 2020 hours of June 27, 1987. Nevertheless, the pumping was interrupted for several times due to mechanical problems with the pump. When the pump broke down once again at about 1300 hours, the petitioner’s surveyors left the premises without leaving any instruction with the barge foremen what to do in event that the pump becomes operational again. No other surveyor was left in the premises and the assigned surveyor did not seal the valves to the tank to avoid unsupervised pumping of the cargo. Consignee asked petitioner to send surveyor to conduct tank sounding. Thus, the petitioner sent Armando Fontilla, a cargo surveyor, not a liquid bulk surveyor. Then after, it was agreed that operation would resume the following day at 1030 hours. Fontanilla tried to inform bargemen and surveyor about the agreement but he could not find them so he left the premises. When the bargemen arrived, they found that the valves of the tank are open and resumed pumping operation in the absence of any instruction from the surveyor. The following morning, undetermined amount of alkyl benzene was lost due to overflow.

The University should have practiced what it inculcates in its students, more specifically the principle of good dealings enshrined in Articles 19 and 20 of the Civil Code. Educational institutions are duty-bound to inform the students of their academic status and not wait for the latter to inquire from the former. The conscious indifference of a person to the rights or welfare of the

Consignee filed a claim with the insurance company. A conference transpired which the petitioner, consignee and Claimsmen Adjustment Company attended. The compromise quantity of the alkyl benzene, which was lost, was 67.649 MT. The insurance company agreed to pay consignee the net amount of P84, 609.53. Consequently, the insurance company instituted action for collection of money as subrogee of the consignee after failure to extra judicially

settles the manner with Bayne Adjusters. Both the trial and appellate court rendered a decision adverse to the petitioner for its failure to comply Standard Operating Procedure for Handling Liquid Bulk Cargo. ISSUE: Whether or not the petitioner is liable for the loss of a certain amount of alkyl benzene. RULING: Yes. The negligence of the obligor in the performance of the obligation renders him liable for damages for the resulting loss suffered by the obligee. The Supreme Court did not find that the trial court erred in holding the petitioner liable because of its failure to exercise due diligence which is governed by the Standard Operation Procedure in Handling Liquid Bulk Survey. Although the cessation of the pumping operation in this case was not voluntarily requested by the pumping operation in this case was not voluntarily requested by the pumping operation in this case was not voluntarily requested by the consignee, but was due to mechanical problems with the pump, there is greater reason to comply with the SOP. The petitioner assigned surveyor disregarded SOP and left the pump site without leaving any instruction or directive with the barge pump operators. The petition was dismissed.

CULPA CONTRACTUAL CULPA ACQUILIANA 1. 2. 3.

DELSAN TRANSPORT VS. C & A CONSORTIUM, OCT. 1, 2003 PCIB VS. CA, 350 SCRA 446 SMC VS. HEIRS OF OUANA VS. CA, JULY 4, 2002

DELSAN TRANSPORT LINES, INC., petitioner, VS. C & A CONSTRUCTION, INC., respondent G.R. No. 156034 October 1, 2003

FACTS: Respondent C & A Construction, Inc. was engaged by the National Housing Authority (NHA) to construct a deflector wall at the Vitas Reclamation Area in Vitas, Tondo, Manila. The project was completed in 1994 but it was not formally turned over to NHA. On October 9, 1994, M/V Delsan Express, a ship owned and operated by petitioner Delsan Transport Lines, Inc., anchored at the Navotas Fish Port for the purpose of installing a cargo pump and clearing the cargo oil tank. At around 12:00 midnight of October 20, 1994, Captain Demetrio T. Jusep of M/V Delsan Express received a report from his radio head operator in Japan that a typhoon was going to hit Manila in about eight (8) hours. At approximately 8:35 in the morning of October 21, 1994, Capt. Jusep tried to seek shelter at the North Harbor but could not enter the area because it was already congested. At 10:00 a.m., Capt. Jusep decided to drop anchor at the vicinity of Vitas mouth, 4 miles away from a Napocor power barge. At that time, the waves were already reaching 8 to 10 feet high. Capt. Jusep ordered his crew to go full ahead to counter the wind which was dragging the ship towards the Napocor power barge. To avoid collision, Capt. Jusep ordered a full stop of the vessel. He succeeded in avoiding the power barge, but when the engine was re-started and the ship was maneuvered full astern, it hit the deflector wall constructed by respondent. The trial court ruled that petitioner was not guilty of negligence because it had taken all the necessary precautions to avoid the accident. Applying the “emergency rule”, it absolved petitioner of liability because the latter had no opportunity to adequately weigh the best solution to a threatening situation. It further held that even if the maneuver chosen by petitioner was a wrong move, it cannot be held liable as the cause of the damage sustained by respondent was typhoon “Katring”, which is an act of God. On appeal to the Court of Appeals, the decision of the trial court was reversed and set aside. It found Capt. Jusep guilty of negligence in deciding to transfer the vessel to the North Harbor only at 8:35 a.m. of October 21, 1994 and thus held petitioner liable for damages. ISSUE: Whether or not petitioner is solidarily liable under Article 2180 of the Civil Code for the quasi-delict committed by Capt. Jusep. RULING: The Court of Appeals was correct in holding that Capt. Jusep was negligent in deciding to transfer the vessel only at 8:35 in the morning of October 21, 1994.

As early as 12:00 midnight of October 20, 1994, he received a report from his radio head operator in Japan that a typhoon was going to hit Manila after 8 hours. This, notwithstanding, he did nothing, until 8:35 in the morning of October 21, 1994, when he decided to seek shelter at the North Harbor, which unfortunately was already congested. The finding of negligence cannot be rebutted upon proof that the ship could not have sought refuge at the North Harbor even if the transfer was done earlier. It is not the speculative success or failure of a decision that determines the existence of negligence in the present case, but the failure to take immediate and appropriate action under the circumstances. Capt. Jusep, despite knowledge that the typhoon was to hit Manila in 8 hours, complacently waited for the lapse of more than 8 hours thinking that the typhoon might change direction. He cannot claim that he waited for the sun to rise instead of moving the vessel at midnight immediately after receiving the report because of the difficulty of traveling at night. The hour of 8:35 a.m. is way past sunrise. Furthermore, he did not transfer as soon as the sun rose because, according to him, it was not very cloudy and there was no weather disturbance yet. When he ignored the weather report notwithstanding reasonable foresight of harm, Capt. Jusep showed an inexcusable lack of care and caution which an ordinary prudent person would have observed in the same situation. Had he moved the vessel earlier, he could have had greater chances of finding a space at the North Harbor considering that the Navotas Port where they docked was very near North Harbor. Even if the latter was already congested, he would still have time to seek refuge in other ports. The instant petition is denied. CULPA ACQUILIANA PHILIPPINE COMMERCIAL INTERNATIONAL BANK (formerly INSULAR BANK OF ASIA AND AMERICA), petitioner, VS. COURT OF APPEALS and FORD PHILIPPINES, INC. and CITIBANK, N.A., respondents 2001 Jan 29 350 SCRA 446 FACTS: The consolidated petitions herein involve several fraudulently negotiated checks. The original actions a quo were instituted by Ford Philippines to recover

from the drawee bank, CITIBANK, N.A. (Citibank) and collecting bank, Philippine Commercial International Bank (PCIBank), the value of several checks payable to the Commissioner of Internal Revenue, which were embezzled allegedly by an organized syndicate. G.R. Nos. 121413 and 121479 are twin petitions for review of the March 27, 1995 Decision of the Court of Appeals in CA-G.R. CV No. 25017, entitled Ford Philippines, Inc. vs. Citibank, N.A. and Insular Bank of Asia and America (now Philippine Commercial International Bank), and the August 8, 1995 Resolution ordering the collecting bank, Philippine Commercial International Bank, to pay the amount of Citibank Check No. SN-04867. In G.R. No. 128604, petitioner Ford Philippines assails the October 15, 1996 Decision of the Court of Appeals and its March 5, 1997 Resolution in CAG.R. No. 28430 entitled "Ford Philippines, Inc. vs. Citibank, N.A. and Philippine Commercial International Bank," affirming in toto the judgment of the trial court holding the defendant drawee bank, Citibank, N.A., solely liable to pay the amount of P12,163,298.10 as damages for the misapplied proceeds of the plaintiff’s Citibank Check Numbers SN-10597 and 16508. ISSUE: Whether or not the petitioner Ford has the right to recover from the collecting bank (PCIBank) and the drawee bank (Citibank) the value of the checks intended as payment to the Commissioner of Internal Revenue. RULING: In G.R. Nos. 121413 and 121479, the Court held that banking business requires that the one who first cashes and negotiates the check must take some precautions to learn whether or not it is genuine. And if the one cashing the check through indifference or other circumstance assists the forger in committing the fraud, he should not be permitted to retain the proceeds of the check from the drawee whose sole fault was that it did not discover the forgery or the defect in the title of the person negotiating the instrument before paying the check. For this reason, a bank which cashes a check drawn upon another bank, without requiring proof as to the identity of persons presenting it, or making inquiries with regard to them, cannot hold the proceeds against the drawee when the proceeds of the checks were afterwards diverted to the hands of a third party. In such cases the drawee bank has a right to believe that the cashing bank (or the collecting bank) had, by the usual proper investigation, satisfied itself of the authenticity of the negotiation of the checks. Thus, one who

encashed a check which had been forged or diverted and in turn received payment thereon from the drawee, is guilty of negligence which proximately contributed to the success of the fraud practiced on the drawee bank. The latter may recover from the holder the money paid on the check. Having established that the collecting bank’s negligence is the proximate cause of the loss, the Court concludes that PCIBank is liable in the amount corresponding to the proceeds of Citibank Check No. SN-04867. In G.R. No. 128604, the pro-manager of San Andres Branch of PCIBank, Remberto Castro, received Citibank Check Numbers SN 10597 and 16508. He passed the checks to a co-conspirator, an Assistant Manager of PCIBank’s Meralco Branch, who helped Castro open a Checking account of a fictitious person named "Reynaldo Reyes." Castro deposited a worthless Bank of America Check in exactly the same amount of Ford checks. The syndicate tampered with the checks and succeeded in replacing the worthless checks and the eventual encashment of Citibank Check Nos. SN 10597 and 16508. The PCIBank Pro-manager, Castro, and his co-conspirator Assistant Manager apparently performed their activities using facilities in their official capacity or authority but for their personal and private gain or benefit. A bank holding out its officers and agents as worthy of confidence will not be permitted to profit by the frauds these officers or agents were enabled to perpetrate in the apparent course of their employment; nor will it be permitted to shirk its responsibility for such frauds, even though no benefit may accrue to the bank therefrom. For the general rule is that a bank is liable for the fraudulent acts or representations of an officer or agent acting within the course and apparent scope of his employment or authority. And if an officer or employee of a bank, in his official capacity, receives money to satisfy an evidence of indebtedness lodged with his bank for collection, the bank is liable for his misappropriation of such sum. But in this case, responsibility for negligence does not lie on PCIBank’s shoulders alone. The evidence on record shows that Citibank as drawee bank was likewise negligent in the performance of its duties. Citibank failed to establish that its payment of Ford’s checks were made in due course and legally in order. Citibank should have scrutinized Citibank Check Numbers SN 10597 and 16508 before paying the amount of the proceeds thereof to the collecting bank of the BIR. One thing is clear from the record: the clearing stamps at the back of Citibank Check Nos. SN 10597 and 16508 do not bear any initials. Citibank failed to notice and verify the absence of the clearing stamps. Had this been duly examined, the switching of the worthless checks to Citibank

Check Nos. 10597 and 16508 would have been discovered in time. For this reason, Citibank had indeed failed to perform what was incumbent upon it, which is to ensure that the amount of the checks should be paid only to its designated payee. The fact that the drawee bank did not discover the irregularity seasonably, in our view, constitutes negligence in carrying out the bank’s duty to its depositors. The point is that as a business affected with public interest and because of the nature of its functions, the bank is under obligation to treat the accounts of its depositors with meticulous care, always having in mind the fiduciary nature of their relationship. Thus, invoking the doctrine of comparative negligence, the Court is of the view that both PCIBank and Citibank failed in their respective obligations and both were negligent in the selection and supervision of their employees resulting in the encashment of Citibank Check Nos. SN 10597 and 16508. Thus, the Court is constrained to hold them equally liable for the loss of the proceeds of said checks issued by Ford in favor of the CIR.Time and again, the Court has stressed that banking business is so impressed with public interest where the trust and confidence of the public in general is of paramount importance such that the appropriate standard of diligence must be very high, if not the highest, degree of diligence. A bank’s liability as obligor is not merely vicarious but primary, wherein the defense of exercise of due diligence in the selection and supervision of its employees is of no moment. Banks handle daily transactions involving millions of pesos. By the very nature of their work the degree of responsibility, care and trustworthiness expected of their employees and officials is far greater than those of ordinary clerks and employees. Banks are expected to exercise the highest degree of diligence in the selection and supervision of their employees. Thus the Decision and Resolution of the Court of Appeals in CA-G.R. CV No. 25017, are affirmed. PCIBank, is declared solely responsible for the loss of the proceeds of Citibank Check No. SN 04867 in the amount P4,746,114.41, which shall be paid together with six percent (6%) interest thereon to Ford Philippines Inc. from the date when the original complaint was filed until said amount is fully paid. However, the Decision and Resolution of the Court of Appeals in CA-G.R. No. 28430 are MODIFIED as follows: PCIBank and Citibank are adjudged liable for and must share the loss, (concerning the proceeds of Citibank Check Numbers SN 10597 and 16508 totalling P12,163,298.10) on a fifty-fifty ratio, and each bank is ORDERED to pay Ford Philippines Inc. P6,081,649.05, with six percent (6%) interest thereon, from the date the complaint was filed until full payment of said amount.

CULPA ACQUILIANA

SAN MIGUEL CORPORATION, petitioner, VS. HEIRS OF SABINIANO INGUITO, and JULIUS OUANO, respondents 2002 Jul 4 G.R. No. 141716 FACTS: SMC entered into a Time Charter Party Agreement (TCPA) with Julius Ouano, of J. Ouano Marine Services. Under the terms of the agreement, SMC chartered the M/V Doña Roberta for a period of two years for the purpose of transporting SMC’s beverage products from its Mandaue City plant to various points in Visayas and Mindanao. The TCPA provided, among others, that the Ouano, the owner, warrants that the vessel is seaworthy and that there shall be no employer-employee relations between the owner and/or its vessel’s crew on one hand and the charterer on the other. The crew of the vessel shall continue to be under the employ, control and supervision of the owner. Consequently, damage or loss that may be attributable to the crew, including loss of the vessel used shall continue to be the responsibility of, and shall be borne, by the owner; the owner further covenants to hold the charterer free from all claims and liabilities arising out of the acts of the crew and the condition of the vessel; the owner shall be responsible to the charterer for damages and losses arising from the incompetence and/or negligence of, and/or the failure to observe the required extra-ordinary diligence by the crew. On November 11, 1990, SMC issued sailing orders to the Master of the MN Doña Roberta, Captain Inguito. Inguito obtained the necessary sailing clearance from the Philippine Coast Guard. The vessel left Mandaue City at 6:00 a.rn. of November 12. At 4:00 a.m., typhoon Ruping was spotted. At 7:00 a.m., SMC Radio Operator Moreno contacted Inguito through the radio and advised him to take shelter. Inguito replied that they will proceed since the typhoon was far away from them, and that the winds were in their favor. At 2:00 p.m., Moreno again communicated with Inguito and advised him to take shelter. The captain responded that they can manage. Moreno again contacted Inguito at 4:00 p.m. and reiterated the advice that it will be difficult to take shelter after passing Balicasag Island because they were approaching an open sea. Still, the captain refused to heed his advice.

At 11:40 p.m, Moreno made a series of calls to the M/V Doña Roberta but he failed to get in touch with anyone in the vessel. At 1:15 a.m. of November 13, Inguito called Moreno over the radio and requested him to contact the son of Julius Ouano because they needed a helicopter to rescue them. At 2:30 a.m. of November 13, 1990, the M/V Doña Roberta sank. Out of the 25 officers and crew on board the vessel, only five survived. On November 24, 1990, Julius Ouano, in lieu of the captain who perished in the sea tragedy, filed a Marine Protest. The heirs of the deceased captain and crew, as well as the survivors, of the ill-fated M/V Doña Roberta filed a complaint for tort against SMC and Julius Ouano before the RTC. Julius Ouano alleged that the proximate cause of the loss of the vessel and its officers and crew was the fault and negligence of SMC, which had complete control and disposal of the vessel as charterer and which issued the sailing order for its departure despite being forewarned of the impending typhoon. Thus, he prayed that SMC indemnify him for the cost of the vessel and the unrealized rentals and earnings thereof. SMC argued that the proximate cause of the sinking was Ouano’s breach of his obligation to provide SMC with a seaworthy vessel duly manned by competent crew. SMC interposed counterclaims against Ouano for the value of the cargo lost in the sea tragedy. The trial court ruled that the proximate cause of the loss of the M/V Doña Roberta was attributable to SMC and was ordered and sentenced to pay to the heirs of the deceased crew. The CA modified the decision appealed from, declaring defendant-appellants SMC and Julian C. Ouano jointly and severally liable to plaintiffs-appellees, except to the heirs of Capt. Inguito. ISSUE: Whether or not the finding of the appellate court was in order. RULING: Under the terms of the TCPA between the parties, the charterer, SMC, should be free from liability for any loss or damage sustained during the voyage, unless it be shown that the same was due to its fault or negligence. The evidence does not show that SMC or its employees were amiss in their duties. SMC’s Radio Operator Moreno, who was tasked to monitor every shipment of its cargo, zealously contacted and advised Capt. Inguito to take shelter from typhoon Ruping. In contrast to the care exercised by Moreno, Rico Ouano tried to communicate with the captain only after receiving the S.O.S. message. Neither

Ouano nor his son was available during the entire time that the vessel set out and encountered foul weather. Considering that the charter was a contract of affreightment, the shipowner had the clear duty to ensure the safe carriage and arrival of goods transported on board its vessels. More specifically, Ouano expressly warranted in the TCPA that his vessel was seaworthy. For a vessel to be seaworthy, it must be adequately equipped for the voyage and manned with a sufficient number of competent officers and crew. The proximate cause of the sinking of the vessel was the gross failure of the captain of the vessel to observe due care and to heed SMC’s advice to take shelter. Gilbert Gonsaga, Chief Engineer of Doña Roberta, testified that the ship sank at 2:30 in the early morning of November 13th. On the other hand, from the time the vessel left the port of Mandaue at six o’clock in the morning, Captain Sabiniano Inguito was able to contact the radio operator of SMC. He was fully apprised of typhoon "Ruping" and its strength. Due diligence dictated that at any time before the vessel was in distress, he should have taken shelter in order to safeguard the vessel and its crew. Ouano is vicariously liable for the negligent acts of his employee, Capt. Inguito. Under Articles 2176 and 2180 of the Civil Code, owners and managers are responsible for damages caused by the negligence of a servant or an employee, the master or employer is presumed to be negligent either in the selection or in the supervision of that employee. This presumption may be overcome only by satisfactorily showing that the employer exercised the care and the diligence of a good father of a family in the selection and the supervision of its employee. Ouano miserably failed to overcome the presumption of his negligence. He failed to present proof that he exercised the due diligence of a bonus paterfamilias in the selection and supervision of the captain of the M/V Doña Roberta. Hence, he is vicariously liable for the loss of lives and property occasioned by the lack of care and negligence of his employee. SMC is not liable for the losses. The contention that it was the issuance of the sailing order by SMC which was the proximate cause of the sinking is untenable. The fact that there was an approaching typhoon is of no moment. It appears that on one previous occasion, SMC issued a sailing order to the captain of the M/V Doña Roberta, but the vessel cancelled its voyage due to typhoon. Likewise, it appears from the records that SMC issued the sailing order on November 11, 1990, before typhoon "Ruping" was first spotted at 4:00 a.m. of November 12, 1990. Consequently, Ouano should answer for the loss of lives and damages suffered by the heirs of the officers and crew who perished on board the M/V Doña Roberta, except Captain Sabiniano Inguito. The award of damages granted

by the CA is affirmed only against Ouano, who should also indemnify SMC for the cost of the lost cargo, in the total amount of P10,278,542.40.

Solidary Employee

vs.

Independent

Liability

of

Employer

and/or

1. MERCURY DRUG VS. SPOUSES HUANG, 22 JUNE 2007 2. MENDOZA VS. SORIANO, 8 JUNE 2007 3. CEREZO VS. TUAZON, 426 S 167

MERCURY DRUG CORPORATION VS. HUANG GR No. 172122 June 22, 2007 FACTS: Petitioner Mercury Drug is the registered owner of a six-wheeler 1990 Mitsubishi Truck. It has in its employ petitioner Rolando Del Rosario as driver. Respondent spouses Richard and Carmen Huang are the parents of respondent Stephen Huang and own the red 1991 Toyota Corolla. These two vehicles figured in a road accident. At the time of the accident, petitioner Del Rosario only had a Traffic Violation Receipt. A driver’s license had been confiscated because he had been previously apprehended for reckless driving. Respondent Stephen Huang sustained massive injuries to his spinal cord, head, face and lung. He is paralyzed for life from his chest down and requires continuous medical and rehabilitation treatment. Respondent’s fault petitioner Del Rosario for committing gross negligence and reckless imprudence while driving, and petitioner Mercury Drug for failing to exercise the diligence of a good father of a family in the selection and supervision of its driver. The trial court found Mercury Drug and Del Rosario jointly and severally liable to pay respondents. The Court of Appeals affirmed the said decision. ISSUE:

Whether or not petitioner Mercury Drug is liable for the negligence of its employee. RULING: Article 2176 and 2180 of the Civil Code provide: “Whoever by act or omission causes damage to another, there being fault or negligence, is obliged to pay for the damages done. Such fault or negligence, if there is no pre-existing contractual relationship between the parties, is called a quasi-delict and is governed by the provisions of this Chapter.” “The obligation imposed by article 2176 is demandable not only for one’s own acts or omissions, but also for those of persons for whom one is responsible.” The liability of the employer under Article 2180 is direct and immediate. It is not conditioned on a prior recourse against the negligent employee, or a prior showing of insolvency of such employee. It is also joint and solidary with the employee. To be relieved f the liability, petitioner should show that it exercised the diligence of a good father of a family, both in the selection of the employee and in the supervision of the performance of his duties. In this case, the petitioner Mercury Drug does not provide for backup driver for long trips. As the time of the accident, Del Rosario has been driving for more than thirteen hours, without any alternate. Moreover, Del Rosario took the driving test and psychological exam for the position of Delivery Man and not as Truck Man. With this, petitioner Mercury Drug is liable jointly and severally liable to pay the respondents. Solidary vs. Independent Liability of Employer and/or Employee

MENDOZA VS. SORIANO GR No. 164012 June 8, 2007 FACTS:

Sonny Soriano, while crossing Commonwealth Avenue near Luzon Avenue, was hit by a speeding Tamaraw FX driven by Lomer Macasasa. Soriano was thrown five meters away, while the vehicle stopped some 25 meters from the point of impact. Gerard Villaspin, one of Soriano’s companions, asked Macasasa to bring Soriano to the hospital, but the first flee. Respondent’s wife and daughter filed a complaint for damages against Macasasa and petitioner Flordeliza Mendoza, the registered owner of the vehicle. Petitioner Mendoza contends that she was not liable since as owner of the vehicle, she had exercised the diligence of a good father of a family over her employee. Macasas. The trial court dismissed the complaint against Macasasa and Mendoza. It found Soriano negligent for crossing not in the pedestrian overpass. The Court of Appeals, on the other hand, reversed the assailed decision of the lower court. ISSUE: Whether or not petitioner is liable for damages. RULING: While the appellate court agreed that Soriano was negligent, it also found Macasasa negligent for speeding, such that he was unable to avoid hitting the victim. It observed that Soriano’s own negligence did not preclude recovery for damages from Macasasa’s negligence. It further held that since petitioner failed to present evidenced to the contrary and conformably with Article 2180 of the Civil Code, the presumption of negligence of the employer in the selection and supervision of employees stood. The records show that Macasasa violated two traffic rules under the Land Transportation and Office Code. Under Article 2185 of the Civil Code, a person driving a motor vehicle is presumed negligent if at the time of the mishap, he was violating traffic regulations. Further, under Article 2180, employers are liable for the damages caused by their employees acting within the scope of their assigned tasks. The liability arises due to the presumed negligence of the employers in supervising their employees unless they prove that they observed all the

diligence of a good father of a family to prevent the damage. In this case petitioner is held primarily and solidarily liable for the damages caused by Macasasa. However, Article 2179 states that “when the plaintiff’s own negligence was the immediate and proximate cause of his injury, he cannot recover damages. But if his negligence was only contributory, the immediate and proximate cause of the injury being the defendant’s lack of due care, the plaintiff may recover damages, but the court shall mitigate the damages awarded. Ruling that Soriano was guilty of contributory negligence for not using the pedestrian overpass, 20% reduction of the amount of the damages awarded was awarded to petitioner.

Solidary vs. Independent Liability of Employer and/or Employee

CEREZO VS. TUAZON GR No. 141538 March 23, 2004 FACTS: Country Bus Lines passenger bus collided with a tricycle. Tricycle driver Tuazon filed a complaint for damages against Mrs. Cerezo, as owner of the bus line, her husband Attorney Juan Cerezo, and bus driver Danilo A. Foronda. After considering Tuazon’s testimonial and documentary evidence, the trial court ruled in Tuazon’s favor. The trial court made no pronouncement on Foronda’s liability because there was no service of summons on him. The trial court did not hold Atty. Cerezo liable as Tuazon failed to show that Mrs. Cerezo’s business benefited the family, pursuant to Article 121(3) of the Family Code. The trial court held Mrs. Cerezo solely liable for the damages sustained by Tuazon arising from the negligence of Mrs. Cerezo’s employee, pursuant to Article 2180 of the Civil Code.

ISSUE: Whether petitioner is solidarily liable. RULING: Contrary to Mrs. Cerezo’s assertion, Foronda is not an indispensable party to the case. An indispensable party is one whose interest is affected by the court’s action in the litigation, and without whom no final resolution of the case is possible. However, Mrs. Cerezo’s liability as an employer in an action for a quasi-delict is not only solidary, it is also primary and direct. Foronda is not an indispensable party to the final resolution of Tuazon’s action for damages against Mrs. Cerezo. The responsibility of two or more persons who are liable for a quasidelict is solidary. Where there is a solidary obligation on the part of debtors, as in this case, each debtor is liable for the entire obligation. Hence, each debtor is liable to pay for the entire obligation in full. There is no merger or renunciation of rights, but only mutual representation. Where the obligation of the parties is solidary, either of the parties is indispensable, and the other is not even a necessary party because complete relief is available from either. Therefore, jurisdiction over Foronda is not even necessary as Tuazon may collect damages from Mrs. Cerezo alone. Moreover, an employer’s liability based on a quasi-delict is primary and direct, while the employer’s liability based on a delict is merely subsidiary. The words “primary and direct,” as contrasted with “subsidiary,” refer to the remedy provided by law for enforcing the obligation rather than to the character and limits of the obligation. Although liability under Article 2180 originates from the negligent act of the employee, the aggrieved party may sue the employer directly. When an employee causes damage, the law presumes that the employer has himself committed an act of negligence in not preventing or avoiding the damage. This is the fault that the law condemns. While the employer is civilly liable in a subsidiary capacity for the employee’s criminal negligence, the employer is also civilly liable directly and separately for his own civil negligence in failing to exercise due diligence in selecting and supervising his employee. The idea that the employer’s liability is solely subsidiary is wrong.

To hold the employer liable in a subsidiary capacity under a delict, the aggrieved party must initiate a criminal action where the employee’s delict and corresponding primary liability are established. If the present action proceeds from a delict, then the trial court’s jurisdiction over Foronda is necessary. However, the present action is clearly for the quasi-delict of Mrs. Cerezo and not for the delict of Foronda. Thus, the petition was denied ordering the defendant Hermana Cerezo to pay the plaintiff.

Presumption of Fault/Negligence of Employer

VIRON TRANSPORTATION CO., INC. VS. DELOS SANTOS GR No. 54080 November 22, 2000 FACTS: Defendant Alberto delos Santos was the driver of defendant Rudy Samidan of the latter’s vehicle, a Forward Cargo Truck. At about 12:30 in the afternoon, he was driving said truck along the National Highway within the vicinity of Gerona, Tarlac. The Viron Bus, driven by Wilfredo Villanueva, tried to overtake his truck, and he swerved to the right shoulder of the highway, but as soon as he occupied the right lane of the road, the cargo truck which he was driving was hit by the Viron bus on its left front side, as the bus swerved to his lane to avoid an incoming bus on its opposite direction. With the driver of another truck dealing likewise in vegetables, Dulnuan, the two of them and the driver of the Viron bus proceeded to report the incident to the Police Station. Both the RTC and the CA rendered its decision in favor of the private respondents. ISSUE:

Whether the employer is liable to the negligence of his employee. RULING: As employers of the bus driver, the petitioner is, under Article 2180 of the Civil Code, directly and primarily liable for the resulting damages. The presumption that they are negligent flows from the negligence of their employee. That presumption, however, is only jusris tantum, not juris et de jure. Their only possible defense is that they exercised all the diligence of a good father of a family to prevent the damage. In fine, when the employee causes damage due to his own negligence while performing his own duties, there arises the juris tantum presumption that the employer is negligent, rebuttable only by proof of observance of the diligence of a good father of a family. Petitioner, through its witnesses, failed to rebut such legal presumption of negligence in the selection and supervision of employees, thus, petitioner as the employer is responsible for damages, the basis of the liability being the relationship of pater familias or on the employer’s own negligence. Hence, with the allegations and subsequent proof of negligence against the bus driver of petitioner, petitioner (employer) is liable for damages.

Proof of Employee’s Fault/Negligence 1. MERCURY DRUG VS. BAKING, 523 S 184 2. SAFEGUARD SECURITY VS. TANGCO, 511 S 67 3. PLEYTO VS. LOMBOY, 432 S 329

MERCURY DRUG CORPORATION VS. BAKING GR No. 57435 May 25, 2007 FACTS:

Sebastian Baking, respondent, went to the clinic of Dr. Cesar Sy for a medical check-up. Dr. Sy gave respondent two medical prescriptions – Diomicron for his blood sugar and Benalize tablets for his triglyceride. Respondent then proceeded to petitioner Mercury Drug Corporation (Alabang Branch) to buy the prescribed medicines. However, the saleslady misread the prescription Diamicron as a prescription for Dormicum. Unaware that what was given to him was the wrong medicine, respondent took one pill of dormicum on three consecutive days. On the third day he took the medicine, and he figured in a vehicular accident. The car he was driving collided with the car of one Jose Peralta. Respondent fell asleep while driving he could not remember anything about the collision nor felt its impact. Suspecting that the tablet he took may have bearing on his physical and mental state at the time of the collision, respondent returned to Dr. Sy. Upon being shown the medicine, Dr. Sy was shocked to find that what was sold to him was Dormicum, instead of the prescribed Diamicron The RTC and CA rendered their decision in favor of respondent. ISSUE:

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

Proof of Employee’s and Negligence

Whether petitioner was negligent, and if so, whether such negligence was the proximate cause of respondent’s accident.

SAFEGUARD SECURITY V. TANGCO GR No. 165732 December 14, 2006

RULING: Article 2176 states that “whoever by act or omission causes damage to another, there being fault or negligence, is obliged to pay for the damages done. Such fault or negligence, if there is no pre-existing contractual relationship between the parties, is called a quasi-delict…” Obviously, petitioner’s employee was grossly negligent in selling respondent domicrum, instead of the prescribed diamicron. Considering that a fatal mistake could be a matter of life and death for a buying patient, the employee should have been very cautious in dispensing medicines. Petitioner contends that the proximate cause of the accident was respondent’s negligence in driving. The court disagrees. The accident could have not occurred had petitioner’s employee been careful in reading the prescription.

FACTS: Evangeline Tangco (Evangeline) went to Ecology Bank, Katipunan Branch, Quezon City, to renew her time deposit per advise of the bank's cashier as she would sign a specimen card. Evangeline, a duly licensed firearm holder with corresponding permit to carry the same outside her residence, approached security guard Pajarillo, who was stationed outside the bank, and pulled out her firearm from her bag to deposit the same for safekeeping. Suddenly, Pajarillo shot Evangeline with his service shotgun hitting her in the abdomen instantly causing her death. Respondent filed a complaint for damages against Pajarillo for negligently shooting Evangeline and against Safeguard for failing to

observe the diligence of a good father of a family to prevent the damage committed by its security guard. Petitioners denied the material allegations in the complaint and alleged that Safeguard exercised the diligence of a good father of a family in the selection and supervision of Pajarillo; that Evangeline's death was not due to Pajarillo's negligence as the latter acted only in self-defense. The RTC found respondents to be entitled to damages. It rejected Pajarillo's claim that he merely acted in self-defense. The RTC also found Safeguard as employer of Pajarillo to be jointly and severally liable with Pajarillo. It ruled that while it may be conceded that Safeguard had perhaps exercised care in the selection of its employees, particularly of Pajarillo, there was no sufficient evidence to show that Safeguard exercised the diligence of a good father of a family in the supervision of its employee. ISSUES: 1. Whether Pajarillo is guilty of negligence in shooting Evangeline; and 2. Whether Safeguard should be held solidarily liable for the damages awarded to respondents. RULING: ARTICLE 2176. Whoever by act or omission causes damage to another, there being fault or negligence, is obliged to pay for the damage done. Such fault or negligence, if there is no pre-existing contractual relation between the parties is called a quasi-delict and is governed by the provisions of this Chapter. Safeguard contends that it cannot be jointly held liable since it had adequately shown that it had exercised the diligence required in the selection and supervision of its employees. It claims that it had required the guards to undergo the necessary training and to submit the requisite qualifications and credentials which even the RTC found to have been complied with; that the RTC erroneously found that it did not exercise the diligence required in the supervision of its employee. Safeguard further claims that it conducts monitoring of the activities of its personnel, wherein supervisors are assigned to routinely check the activities of the

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

Did petitioner observed the proper diligence of a good father of a family? Proof of Employee’s and Negligence

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

RULING: The negligence and fault of appellant driver is manifest. He overtook the tricycle despite the oncoming car only fifty (50) meters away from him. Defendant-appellant’s claim that he was driving at a mere 30 to 35 kilometers per hour does not deserve credence as it would have been easy to stop or properly maneuver the bus at this speed. The speed of the bus, the drizzle that made the road slippery, and the proximity of the car coming from the opposite direction were duly established by the evidence. The speed at which the bus traveled, inappropriate in the light of the aforementioned circumstances, is evident from the fact despite the application of the brakes, the bus still bumped the tricycle, and then proceeded to collide with the incoming car with such force that the car was pushed beyond the edge of the road to the ricefield. In the present case, petitioners presented several documents in evidence to show the various tests and pre-qualification requirements imposed upon petitioner Pleyto before his hiring as a driver by PRBL. However, no documentary evidence was presented to prove that petitioner PRBL exercised due diligence in the supervision of its employees, including Pleyto. Citing precedents, the Court of Appeals opined, In order that the defense of due diligence in the selection and supervision of employees may be deemed sufficient and plausible, it is not enough for the employer to emptily invoke the existence of company guidelines and policies on hiring and supervision. As the negligence of the employee gives rise to the presumption of negligence on the part of the employer, the latter has the burden of proving that it has been diligent not only in the selection of employees but also in the actual supervision of their work. The mere allegation of the existence of hiring procedures and supervisory policies without anything more is decidedly not sufficient to overcome such presumption.

Proof of Due Diligence

1. VIRON VS. DE LOS SANTOS, supra 2. SYKL VS. BEGASA, 414 S 237 3. YAMBAO VS. ZUNIGA, 418 S 266

VIRON TRANSPORTATION CO., INC. VS. DELOS SANTOS GR No. 54080 November 22, 2000 FACTS: Defendant Alberto delos Santos was the driver of defendant Rudy Samidan of the latter’s vehicle, a Forward Cargo Truck. At about 12:30 in the afternoon, he was driving said truck along the National Highway within the vicinity of Gerona, Tarlac. The Viron Bus, driven by Wilfredo Villanueva, tried to overtake his truck, and he swerved to the right shoulder of the highway, but as soon as he occupied the right lane of the road, the cargo truck which he was driving was hit by the Viron bus on its left front side, as the bus swerved to his lane to avoid an incoming bus on its opposite direction. With the driver of another truck dealing likewise in vegetables, Dulnuan, the two of them and the driver of the Viron bus proceeded to report the incident to the Police Station. Both the RTC and the CA rendered its decision in favor of the private respondents. ISSUE: Whether the employer is liable to the negligence of his employee. RULING: As employers of the bus driver, the petitioner is, under Article 2180 of the Civil Code, directly and primarily liable for the resulting damages. The presumption that they are negligent flows from the negligence of their employee. That presumption, however, is only jusris tantum, not juris et de jure. Their only possible defense is that

they exercised all the diligence of a good father of a family to prevent the damage. In fine, when the employee causes damage due to his own negligence while performing his own duties, there arises the juris tantum presumption that the employer is negligent, rebuttable only by proof of observance of the diligence of a good father of a family. Petitioner, through its witnesses, failed to rebut such legal presumption of negligence in the selection and supervision of employees, thus, petitioner as the employer is responsible for damages, the basis of the liability being the relationship of pater familias or on the employer’s own negligence. Hence, with the allegations and subsequent proof of negligence against the bus driver of petitioner, petitioner (employer) is liable for damages.

Proof of Due Diligence

SYKL VS. BEGASA GR No. 149149 October 23, 2003 FACTS: Respondent Salvador Begasa and his three companions flagged down a passenger jeepney driven by Joaquin Espina and owned by Aurora Pisuena. While respondent was boarding the passenger jeepney (his right foot already inside while his left foot still on the boarding step of the passenger jeepney), a truck driven by Elizalde Sablayan and owned by petitioner Ernesto Syki bumped the rear end of the passenger jeepney. Respondent fell and fractured his left thigh bone. Respondent filed a complaint for damages for breach of common carrier’s contractual obligations and quasi-delict against Aurora Pisuena, the owner of the passenger jeepney;, herein petitioner Ernesto Syki, the owner of the truck;, and Elizalde Sablayan, the driver of the truck. After hearing, the trial court dismissed the complaint against Aurora Pisuena, the owner and operator of the passenger jeepney, but ordered

petitioner Ernesto Syki and his truck driver, Elizalde Sablayan, to pay respondent Salvador Begasa, jointly and severally ISSUE: 1. Whether or not petitioner is liable for the act of his employee. 2. Whether he exercised the diligence of a good father of a family. RULING: 1. Article 2180 of the Civil Code provides: Employers shall be liable for the damages caused by their employees and household helpers acting within the scope of their assigned tasks, even though the former are not engaged in any business or industry. From the above provision, when an injury is caused by the negligence of an employee, a legal presumption instantly arises that the employer was negligent, either or both, in the selection and/or supervision of his said employee duties. The said presumption may be rebutted only by a clear showing on the part of the employer that he had exercised the diligence of a good father of a family in the selection and supervision of his employee. If the employer successfully overcomes the legal presumption of negligence, he is relieved of liability. In other words, the burden of proof is on the employer. 2. The question is: how does an employer prove that he had indeed exercised the diligence of a good father of a family in the selection and supervision of his employee. Making proof in its or his case, it is paramount that the best and most complete evidence is formally entered. In the case at bar, while there is no rule which requires that testimonial evidence, to hold sway, must be corroborated by documentary evidence, inasmuch as the witnesses’ testimonies dwelt on mere generalities, we cannot consider the same as sufficiently persuasive proof that there was observance of due diligence in the selection and supervision of employees. Petitioner’s attempt to prove its “deligentissimi patris familias” in the selection and supervision of employees through oral evidence must fail as it was unable to buttress the same with any other evidence, object or documentary, which might obviate the apparent biased nature of the testimony.

In the selection of prospective employees, employers are required to examine them as to their qualifications, experience, and service records. On the other hand, with respect to the supervision of employees, employers should formulate standard operating procedures, monitor their implementation, and impose disciplinary measures for breaches thereof. To establish these factors in a trial involving the issue of vicarious liability, employers must submit concrete proof, including documentary evidence. The employer must not merely present testimonial evidence to prove that he had observed the diligence of a good father of a family in the selection and supervision of his employee, but he must also support such testimonial evidence with concrete or documentary evidence. The reason for this is to obviate the biased nature of the employer’s testimony or that of his witnesses. In this case, petitioner’s evidence consisted entirely of testimonial evidence. He testified that before he hired Elizalde Sablayan, he required him to submit a police clearance in order to determine if he was ever involved in any vehicular accident. He also required Sablayan to undergo a driving test with conducted by his mechanic, Esteban Jaca. Petitioner claimed that he, in fact, accompanied Sablayan during the driving test and that during the test, Sablayan was taught to read and understand traffic signs like “Do Not Enter,” “One Way,” “Left Turn,” and “Right Turn.” Petitioner’s mechanic, Esteban Jaca, on the other hand, testified that Sablayan passed the driving test and had never figured in any vehicular accident except the one in question. He also testified that he maintained in good condition all the trucks of petitioner by checking the brakes, horns and tires thereof before leaving for providing hauling services. Petitioner, however, never presented the alleged police clearance given to him by Sablayan, nor the results of Sablayan’s driving test. Petitioner also did not present records of the regular inspections that his mechanic allegedly conducted. In sum, the sole and proximate cause of the accident was the negligence of petitioner’s driver who, as found by the lower courts, did not slow down even when he was already approaching a busy intersection within the city proper. The passenger jeepney had long stopped to pick up respondent and his three companions and, in fact, respondent was

already partly inside the jeepney, when petitioner’s driver bumped the rear end ofrear-ended it. Since the negligence of petitioner’s driver was the sole and proximate cause of the accident, in the present case, petitioner is liable, under Article 2180 of the Civil Code, to pay damages to respondent Begasa for the injuries sustained by latter.

The petitioner vehemently denied the material allegations of the complaint. She tried to shift the blame for the accident upon the victim, theorizing that Herminigildo bumped into her bus, while avoiding an unidentified woman who was chasing him. She further alleged that she was not liable for any damages because as an employer, she exercised the proper diligence of a good father of a family, both in the selection and supervision of her bus driver. ISSUE: Whether or not petitioner observed the diligence of a good father of a family, so as not to be liable for the act committed by her employee? RULING:

Proof of Due Diligence

YAMBAO VS. ZUNIGA GR No. 146173 December 11, 2003 FACTS: The bus owned by the petitioner was being driven by her driver, one Ceferino G. Venturina along the northbound lane of Epifanio delos Santos Avenue (EDSA). With Venturina was the bus conductor, Fernando Dumaliang. Suddenly, the bus bumped Herminigildo Zuñiga, a pedestrian. Such was the force of the impact that the left side of the front windshield of the bus was cracked. Zuñiga was rushed to the Quezon City General Hospital where he was given medical attention, but due to the massive injuries sustained, he succumbed shortly thereafter. Private respondents, as heirs of the victim, filed a Complaint against petitioner and her driver, Venturina, for damages. The complaint essentially alleged that Venturina drove the bus in a reckless, careless and imprudent manner, in violation of traffic rules and regulations, without due regard to public safety, thus resulting in the victim’s premature death.

It held that this was a case of quasi-delict, there being no preexisting contractual relationship between the parties. The court a quo then found the petitioner directly and primarily liable as Venturina’s employer pursuant to Article 2180 of the Civil Code as she failed to present evidence to prove that she has observed the diligence of a good father of a family in the selection and supervision of her employees. Art. 2180 states that “the obligation imposed by Article 2176 is demandable not only for one’s own acts or omissions, but also for those of persons for whom one is responsible” Employers shall be liable for the damages caused by their employees and household helpers acting within the scope of their assigned tasks, even though the former are not engaged in any business or industry. Petitioner contends that as an employer, she observed the proper diligence of a good father of a family, both in the selection and supervision of her driver and therefore, is relieved from any liability for the latter’s misdeed. To support her claim, she points out that when Venturina applied with her as a driver in January 1992, she required him to produce not just his driver’s license, but also clearances from the National Bureau of Investigation (NBI), the Philippine National Police, and the barangay where he resides. She also required him to present his Social Security System (SSS) Number prior to accepting him for employment. She likewise stresses that she inquired from Venturina’s

previous employer about his employment record, and only hired him after it was shown to her satisfaction that he had no blot upon his record. In sum, petitioner’s liability to private respondents for the negligent and imprudent acts of her driver, Venturina, under Article 2180 of the Civil Code is both manifest and clear. Petitioner, having failed to rebut the legal presumption of negligence in the selection and supervision of her driver, is responsible for damages, the basis of the liability being the relationship of pater familias or on the employer’s own negligence. Quasi-delictual liability even in the existence of a contract between parties 1. REGINO VS. PANGASINAN COLLEGES, supra 2. YHT VS CA, 451 S 638

REGINO VS. PANGASINAN COLLEGES GR No. 156109 November 18, 2004 FACTS: Petitioner Khristine Rea M. Regino was a first year computer science student at Respondent Pangasinan Colleges of Science and Technology (PCST). In February 2002, PCST held a fund raising campaign dubbed the “Rave Party and Dance Revolution,” the proceeds of which were to go to the construction of the school’s tennis and volleyball courts. Each student was required to pay for two tickets at the price of P100 each. The project was allegedly implemented by recompensing students who purchased tickets with additional points in their test scores; those who refused to pay were denied the opportunity to take the final examinations. Financially strapped and prohibited by her religion from attending dance parties and celebrations, Regino refused to pay for the tickets. On March 14 and March 15, 2002, the scheduled dates of the final examinations in logic and statistics, her teachers -- Respondents Rachelle A. Gamurot and Elissa Baladad -- allegedly disallowed her from taking the tests. ISSUE:

Whether or not the purchased of the tickets are mandatory and are part of the contract between school and student. RULING: Reciprocity of the School-Student Contract The school-student relationship is also reciprocal. Thus, it has consequences appurtenant to and inherent in all contracts of such kind -it gives rise to bilateral or reciprocal rights and obligations. The school undertakes to provide students with education sufficient to enable them to pursue higher education or a profession. On the other hand, the students agree to abide by the academic requirements of the school and to observe its rules and regulations. The terms of the school-student contract are defined at the moment of its inception -- upon enrolment of the student. Standards of academic performance and the code of behavior and discipline are usually set forth in manuals distributed to new students at the start of every school year. Further, schools inform prospective enrollees the amount of fees and the terms of payment. In practice, students are normally required to make a down payment upon enrollment, with the balance to be paid before every preliminary, midterm and final examination. Their failure to pay their financial obligation is regarded as a valid ground for the school to deny them the opportunity to take these examinations. The foregoing practice does not merely ensure compliance with financial obligations; it also underlines the importance of major examinations. Failure to take a major examination is usually fatal to the students’ promotion to the next grade or to graduation. Examination results form a significant basis for their final grades. These tests are usually a primary and an indispensable requisite to their elevation to the next educational level and, ultimately, to their completion of a course. Thus, students expect that upon their payment of tuition fees, satisfaction of the set academic standards, completion of academic requirements and observance of school rules and regulations, the school would reward them by recognizing their “completion” of the course enrolled in.

PCST imposed the assailed revenue-raising measure belatedly, in the middle of the semester. It exacted the dance party fee as a condition for the students’ taking the final examinations, and ultimately for its recognition of their ability to finish a course. The fee, however, was not part of the school-student contract entered into at the start of the school year. Hence, it could not be unilaterally imposed to the prejudice of the enrollees. Quasi-delictual liability even in the existence of a contract between parties

YHT REALTY VS. CA GR. No. 126780 February 17, 2005 FACTS: McLoughlin arrived from Australia and registered with Tropicana. He rented a safety deposit box as it was his practice to rent a safety deposit box every time he registered at Tropicana in previous trips. As a tourist, McLoughlin was aware of the procedure observed by Tropicana relative to its safety deposit boxes. The safety deposit box could only be opened through the use of two keys, one of which is given to the registered guest, and the other remaining in the possession of the management of the hotel. When a registered guest wished to open his safety deposit box, he alone could personally request the management who then would assign one of its employees to accompany the guest and assist him in opening the safety deposit box with the two keys. However, when he returned coming from a trip, he noticed that his money in the envelope was lacking and that the jewelries were gone. ISSUE: Whether petitioner is liable for the loss of the personal properties of respondent. RULING:

Under Article 1170 of the New Civil Code, those who, in the performance of their obligations, are guilty of negligence, are liable for damages. Article 2180 provides that the owners and managers of an establishment or enterprise are likewise responsible for damages caused by their employees in the service of the branches in which the latter are employed or on the occasion of their functions. Also, this Court has ruled that if an employee is found negligent, it is presumed that the employer was negligent in selecting and/or supervising him for it is hard for the victim to prove the negligence of such employer. Thus, given the fact that the loss of McLoughlin’s money was consummated through the negligence of Tropicana’s employees in allowing Tan to open the safety deposit box without the guest’s consent, both the assisting employees and YHT Realty Corporation itself, as owner and operator of Tropicana, should be held solidarily liable. Art. 2003. The hotel-keeper cannot free himself from responsibility by posting notices to the effect that he is not liable for the articles brought by the guest. Any stipulation between the hotel-keeper and the guest whereby the responsibility of the former as set forth in Articles 1998 to 2001 is suppressed or diminished shall be void. The hotel business like the common carrier’s business is imbued with public interest. The twin duty constitutes the essence of the business. The law in turn does not allow such duty to the public to be negated or diluted by any contrary stipulation in so-called “undertakings” that ordinarily appear in prepared forms imposed by hotel keepers on guests for their signature. In the case at bar, the responsibility of securing the safety deposit box was shared not only by the guest himself but also by the management since two keys are necessary to open the safety deposit box. Without the assistance of hotel employees, the loss would not have occurred. Thus, Tropicana was guilty of concurrent negligence in allowing Tan, who was not the registered guest, to open the safety deposit box of McLoughlin, even assuming that the latter was also guilty of negligence in allowing another person to use his key. To rule otherwise would result in undermining the safety of the safety deposit boxes in hotels for the management will be given imprimatur to allow any person, under the pretense of being a family member or a visitor of the guest, to have access to the safety deposit box without fear of any liability that will

attach thereafter in case such person turns out to be a complete stranger. This will allow the hotel to evade responsibility for any liability incurred by its employees in conspiracy with the guest’s relatives and visitors. Medical Malpractice/ Medical Negligence Cases 1. 2. 3. 4. 5.

RAMOS VS. CA, 321 S 584 REYES VS. SISTERS OF MERCY, 3 OCTOBER 2000 NOGALES VS. CAPITOL MEDICAL CENTER, 511 S 204 PROFESSIONAL SERVICES VS. AGANA, 513 S 478 PROFESSIONAL SERVICES VS. CA, 544 S 170

RAMOS VS. CA GR No. 124354 December 29, 1999 FACTS: Plaintiff Erlinda Ramos was a robust woman Except for occasional complaints of discomfort due to pains allegedly caused by the presence of a stone in her gall bladder. Because the discomforts somehow interfered with her normal ways, she sought professional advice. She was advised to undergo an operation for the removal of a stone in her gall bladder. Through the intercession of a mutual friend, Dr. Buenviaje she and her husband Rogelio met for the first time Dr. Orlino one of the defendants in this case, on June 10, 1985. They agreed that their date at the operating table at the DLSMC (another defendant. Dr. Hosaka decided that she should undergo a "cholecystectomy" operation after examining the documents (findings from the Capitol Medical Center, FEU Hospital and DLSMC) presented to him. Rogelio E. Ramos, however, asked Dr. Hosaka to look for a good anesthesiologist. Dr. Hosaka, in turn, assured Rogelio that he will get a good anesthesiologist. Dr. Hosaka charged a fee of P16,000.00, which was to include the anesthesiologist's fee and which was to be paid after the operation. A day before the scheduled date of operation, she was admitted at one of the rooms of the DLSMC, located along E. Rodriguez Avenue, Quezon City. At around 7:30 A.M. of June 17, 1985 and while still in her room, she was prepared for the operation by the hospital staff. Her sister-in-law, Herminda Cruz, who was the Dean of the College of Nursing at the Capitol

Medical Center, was also there for moral support. Herminda was allowed to stay inside the operating room. At around 9:30 A.M., Dr. Gutierrez reached a nearby phone to look for Dr. Hosaka who was not yet in Dr. Gutierrez thereafter informed Herminda Cruz about the prospect of a delay in the arrival of Dr. Hosaka. Herminda then went back to the patient who asked, "Mindy, wala pa ba ang Doctor"? The former replied, "Huwag kang mag-alaala, darating na iyon. Thereafter, Herminda went out of the operating room and informed the patient's husband, Rogelio, that the doctor was not yet around. At about 12:15 P.M., Herminda Cruz, who was inside the operating room with the patient, heard somebody say that "Dr. Hosaka is already here." She then saw people inside the operating room "moving, doing this and that, preparing the patient for the operation" As she held the hand of Erlinda Ramos, she then saw Dr. Gutierrez intubating the hapless patient. She thereafter heard Dr. Gutierrez say, "ang hirap ma-intubate nito, mali yata ang pagkakapasok. O lumalaki ang tiyan", because of the remarks of Dra. Gutierrez, she focused her attention on what Dr. Gutierrez was doing. She thereafter noticed bluish discoloration of the nailbeds of the left hand of the hapless Erlinda even as Dr. Hosaka approached her. She then heard Dr. Hosaka issue an order for someone to call Dr. Calderon, another anesthesiologist. After Dr. Calderon arrived at the operating room, she saw this anesthesiologist trying to intubate the patient. The patient's nailbed became bluish and the patient was placed in a trendelenburg position - a position where the head of the patient is placed in a position lower than her feet which is an indication that there is a decrease of blood supply to the patient's brain. Immediately thereafter, she went out of the operating room, and she told Rogelio E. Ramos "that something wrong was happening". Dr. Calderon was then able to intubate the patient. Meanwhile, Rogelio, who was outside the operating room, saw a respiratory machine being rushed towards the door of the operating room. He also saw several doctors rushing towards the operating room. When informed by Herminda Cruz that something wrong was happening, he told her (Herminda) to be back with the patient inside the operating room. Herminda immediately rushed back, and saw that the patient was still in trendelenburg position. At almost 3:00 P.M. of that fateful day, she saw the patient taken to the Intensive Care Unit (ICU). Doctors Gutierrez and Hosaka were also asked by the hospital to explain what happened to

the patient. The doctors explained that the patient had bronchospasm. Erlinda Ramos stayed at the ICU for a month. About four months thereafter the patient was released from the hospital. ISSUE: 1. Whether the respondent doctors are negligent. 2. Whether the respondent doctors and the hospital are solidarily liable. RULING: Res ipsa loquitur is a Latin phrase which literally means "the thing or the transaction speaks for itself." The phrase "res ipsa loquitur" is a maxim for the rule that the fact of the occurrence of an injury, taken with the surrounding circumstances, may permit an inference or raise a presumption of negligence, or make out a plaintiff's prima facie case, and present a question of fact for defendant to meet with an explanation At the time of submission, Erlinda was neurologically sound and, except for a few minor discomforts, was likewise physically fit in mind and body. However, during the administration of anesthesia and prior to the performance of cholecystectomy she suffered irreparable damage to her brain. Thus, without undergoing surgery, she went out of the operating room already decerebrate and totally incapacitated. Obviously, brain damage, which Erlinda sustained, is an injury which does not normally occur in the process of a gall bladder operation. In fact, this kind of situation does not happen in the absence of negligence of someone in the administration of anesthesia and in the use of endotracheal tube. Normally, a person being put under anesthesia is not rendered decerebrate as a consequence of administering such anesthesia if the proper procedure was followed. Furthermore, the instruments used in the administration of anesthesia, including the endotracheal tube, were all under the exclusive control of private respondents, who are the physicians-in-charge. Likewise, petitioner Erlinda could not have been guilty of contributory negligence because she was under the influence of anesthetics which rendered her unconscious.

With regard to Dra. Gutierrez, we find her negligent in the care of Erlinda during the anesthesia phase. As borne by the records, respondent Dra. Gutierrez failed to properly intubate the patient. The Court finds that she omitted to exercise reasonable care in not only intubating the patient, but also in not repeating the administration of atropine without due regard to the fact that the patient was inside the operating room for almost three (3) hours. For after she committed a mistake in intubating the patient, the patient's nailbed became bluish and the patient, thereafter, was placed in trendelenburg position, because of the decrease of blood supply to the patient's brain. The evidence further shows that the hapless patient suffered brain damage because of the absence of oxygen in her (patient's) brain for approximately four to five minutes which, in turn, caused the patient to become comatose. On the part of Dr. Orlino Hosaka, this Court finds that he is liable for the acts of Dr. Perfecta Gutierrez whom he had chosen to administer anesthesia on the patient as part of his obligation to provide the patient a `good anesthesiologist', and for arriving for the scheduled operation almost three (3) hours late. On the part of DLSMC (the hospital), this Court finds that it is liable for the acts of negligence of the doctors in their `practice of medicine' in the operating room. Moreover, the hospital is liable for failing through its responsible officials, to cancel the scheduled operation after Dr. Hosaka inexcusably failed to arrive on time. In having held thus, this Court rejects the defense raised by defendants that they have acted with due care and prudence in rendering medical services to plaintiff-patient. For if the patient was properly intubated as claimed by them, the patient would not have become comatose. And, the fact that another anesthesiologist was called to try to intubate the patient after her (the patient's) nailbed turned bluish, belie their claim. Furthermore, the defendants should have rescheduled the operation to a later date. This, they should have done, if defendants acted with due care and prudence as the patient's case was an elective, not an emergency case. Wherefore judgment is rendered in favor of the plaintiffs and against the defendants. Accordingly, the latter are ordered to pay, jointly and severally.

Medical Malpractice/ Medical Negligence Cases

REYES VS. SISTERS OF MERCY HOSPITAL GR No. 130547 October 3, 2000 FACTS: Jorge Reyes was taken to the Mercy Community Clinic. He was attended to by respondent Dr. Marlyn Rico, a resident physician and admitting physician on duty, who gave Jorge a physical examination and took his medical records. Typhoid fever was then prevalent in the locality. Suspecting that Jorge could be suffering from this disease, Dr. Rico ordered a Widal Test, a standard test for typhoid fever, to be performed on Jorge. The results of the test from which Dr. Rico concluded that Jorge was positive for typhoid fever. As her shift was only up to 5:00 p.m., Dr. Rico indorsed Jorge to respondent Dr. Marivie Blanes. Dr. Blanes also took the physical examination of Jorge. Antibiotics being the accepted treatment for typhoid fever, she ordered that a compatibility test with the antibiotic chloromycetin be done on Jorge. As she did not observe any adverse reaction, she ordered the first 500 mg. of said antibiotic. At around 1:00 in the morning, Dr. Blanes was called as Jorge’s temperature rose to 41 degrees and then valium was administered. However, the patient did not respond to the treatment and slipped into cyanosis, a bluish or purplish discoloration of the skin or mucous membrane due to deficient oxygenation of the blood. At around 2:00 a.m. Jorge died. ISSUES: Whether the death of Jorge Reyes was due to or caused by the negligence, carelessness, imprudence, and lack of skill or foresight on the part of the defendants. RULING:

Petitioner’s action is for medical malpractice. It is a form of negligence which consists in the failure of the physician or surgeon to apply to his practice of medicine that degree of care and skill which is ordinarily employed by the profession. Four elements involve in medical negligence cases, namely: duty, breach, injury, and proximate causation. In this case, there is no doubt that physician-patient relationship existed between respondent doctors and Jorge Reyes. It is breach of this duty which constitutes actionable malpractice. As to this aspect of medical malpractice, the determination of reasonable level of care and breach thereof, expert testimony is essential. The petitioner presented Dr. Vacalares, Chief Pathologist of the Northern Mindanao Training Hospital, Cagayan de Oro, who performed the autopsy of Jorge. He testified that Jorge did not die of typhoid fever but of shock undetermined, which could be due to allergic reaction or chloromycetin overdose. The court was not persuaded. Although Dr. Vacalares may have had extensive experience in performing autopsies, he admitted that he had yet to do one on the body of a typhoid victim at the time he conducted the post mortem of Jorge. It is also plain from his testimony that he treated only about three cases of typhoid fever. On the other hand, the two doctors presented by respondents clearly were experts on the subject. They vouched for the correctness of Dr. Rico’s diagnosis. Dr. Gotiong, a diplomate whose specialization is infectious diseases and microbiology and an associate professor at the Southern University College of Medicine and the Gullas College of Medicine, testified that he has already treated over a thousand cases of typhoid fever. According to him a case of typhoid fever is suspected using the widal test, if the 1:320 results of the said test has been presented to him. As to the treatment of the disease, he stated that chloromycetin was the drug of choice. He also explained that despite the measures taken by respondents and the intravenous administration of the two doses of chloromycetin, complications of the disease could not be discounted. Dr. Marilyn did not depart from the reasonable standard recommended by the experts as she in fact observed the due care required under the circumstances. Though the widal test is not conclusive, it remains a standard diagnostic test for typhoid fever and, in the present case, a greater accuracy through repeated testing was rendered unobtainable by the early death of the patient. The results of the widal

test and the patient’s history of fever with chills for five days, taken with the fact that typhoid fever was then prevalent, were sufficient to give upon any doctor of reasonable skill the impression that the patient had typhoid fever.

Medical Malpractice/ Medical Negligence Cases

NOGALES VS. CAPITOL MEDICAL CENTER GR No. 45641 December 19, 2006 FACTS: Pregnant with her fourth child, Corazon Nogales was under the exclusive prenatal care of Dr. Estrada. While Corazon was on her lat trimester of pregnancy, Dr. Estrada noted an increase in her blood pressure and development of leg edema indicating preeclampsia, which is dangerous complication of pregnancy. When Corazon started to experience mild labor, he and her husband, prompted to see Dr. Estrada at his home. After examining Corazon, he advised her to immediate admission to the Capitol Medical Center. Upon admission at the CMC, Rogelio Nogales executed and signed the Consent on Admission and Agreement and Admission Agreement. Then Corazon was brought to the labor room. Dr. Uy, a resident physician, conducted an internal examination of Corazon and notified Dr. Estrada of her findings. Dr. Estrada ordered for 10 mg. of valium to be administered immediately by intramascular injection. Later he ordered that start of intravenous administration of syntocinon admixed with dextrose, 5% in lactated Ringers’ solution, at the rate of eight to ten micro-drops per minute. Dr. Enriquez, an anesthesiologist, was notified of Corazon’s admission. Subsequently he asked if Dr. Estrada needed his service but the latter refused. Despite refusal he stayed to observe Corazon’s condition. Corazon’s water bag ruptured spontaneously and started to experience convulsions. Dr. Estrada ordered the injectionof ten grams of

magnesium sulfate. However, Dr. Villaflor, who is assisting Dr. Estrada, administered only 2.5 grams of magnesium sulfate. Dr. Estrada applied low forceps to extract the baby. The baby came out in a weak and injured condition and consequently had to be intubated and resuscitated. Corazon began to manifest moderate vaginal bleeding which rapidly became profuse. Dr. Estrada ordered blood typing and cross matching with bottled blood. Dr. Espinola, head of the Obstetrics-Gynecology Department of the CMC, was apprised of Corazon’s condition by telephone. Upon being informed of Corazon’s profuse bleeding, Dr. Espinola ordered immediate hysterectomy. Dr. Espinola, due to the inclement weather, arrived about an hour late. he examined the patient but despite his efforts Corazon died. Petitioners filed a case against CMC personnel and physicians on the ground that they were negligent in the treatment and management of Corazon’s condition and charged CMC with negligence in the selection and supervision of defendant physicians and hospital staff. After more than 11 years the Trial Court rendered its judgment finding Dr. Estrada solely liable for damages. ISSUE: Whether CMC is vicariously liable for the negligence of Dr. Estrada. RULING: In general, a hospital is not liable for the negligence of an independent contractor-physician. However, the hospital may be held liable if the physician is the “ostensible” agent of the hospital. This exception is also known as the “doctrine of apparent authority”. Under the doctrine of apparent authority a hospital can be held vicariously liable for the negligent act of a physician providing care at eh hospital, regardless of whether the physician is an independent contractor, unless the patient knows, or should have known, that the physician is an independent contractor. The doctrine of apparent authority involves two factors to determine the liability of an independent contractor-physician. First factor focuses on the hospital’s manifestations and is sometimes described as an inquiry whether the hospital acted in a manner which would lead a responsible

person to conclude that the individual who was alleged to be negligent was an employee or agent of the hospital. The second factor focuses on the patient’s reliance. It is sometimes characterized as an inquiry on whether the plaintiff acted in reliance upon the conduct of the hospital or its agent, consistent with ordinary care and prudence. In this case, CMC impliedly held out Dr. Estrada as a member of its medical staff. First, CMC granted staff privileges to Dr. Estrada when it extended its medical staff and facilities. Upon request to admit Corazon, through its personnel, readily accommodated the patient and updated Dr. Estrada of the patient’s condition. Second, CMC made Rogelio sign a consent forms printed in CMC letterhead. And third, Dr. Estrada’s referral to Dr. Espinola, who then was the Head of the Obstetrics and Gynecology Department of CMC. Wherefore the court finds respondent Capitol Medical Center vicariously liable for the negligence of Dr. Oscar Estrada. Medical Malpractice/ Medical Negligence Cases

PROFESSIONAL SERVICES VS. AGANA GR No. 126467 February 11, 2008 FACTS: On April 04, 1984, Natividad Agana was admitted at the Medical City General Hospital because of difficulty of bowel movement and bloody anal discharge. Dr. Ampil diagnosed her to be suffering from “cancer of the sigmoid”. Thus, Dr. Ampil, assisted by the medical staff of Medical City, performed a surgery upon her. During the surgery, he found that the malignancy in her sigmoid area had spread to her left ovary, necessitating the removal of certain portions of it. Thus, Dr. Ampil obtained the consent of Natividad’s husband to permit Dr. Fuentes to perform hysterectomy upon Natividad. Dr. Fuentes performed and completed the hysterectomy. Afterwards, Dr. Ampil took over, completed the operation and closed the incision. The operation, however, appeared to be flawed as the attending nurses entered in the corresponding Record of Operation that there were 2 lacking sponge and announced that it was searched by the surgeon but to no avail.

After a couple of days, Natividad complained excruciating pain in her anal region. She consulted both Dr. Ampil and Dr. Fuentes. They told her that the pain was the natural consequence of the surgical operation performed upon her. Dr. Ampil recommended that she consult an oncologist to treat the cancerous nodes which were not removed. Natividad and her husband went to the US to seek further treatment. After 4 months she was told that she was free of cancer. They then flew back to the Philippines. Two weeks thereafter , Natividad’s daughter found a piece of gauze protruding from her vagina. Dr. Ampil saw immediately informed. He proceeded to Natividad’s house where he extracted by hand a piece of gauze. Natividad sought the treatment of Polymedic General Hospital thereat Dr. Gutierrez detected a foreign object in her vagina - a foul-smelling gauze which infected her vaginal vault. A recto-vaginal fistula had formed in her reproductive organ which forced stool to excrete in her vagina. Another surgical operation was performed upon her. Spouses Agana filed a complaint against PSI (owner of Medical City), Dr. Ampil and Dr. Fuentes. The Trial Court found the respondents jointly and severally liable. The CA affirmed said decision with modification that Dr. Fuentes was dismissed. ISSUE: Whether the Court of Appeals erred in absolving Dr. Fuentes of any liability. RULING: It was duly established that Dr. Ampil was the lead surgeon during the operation of Natividad. He requested the assistance of Dr. Fuentes only to perform hysterectomy when he (Dr. Ampil) found that the malignancy in her sigmoid area had spread to her left ovary. Dr. Fuentes performed the surgery and thereafter reported and showed his work to Dr. Ampil. The latter examined it and finding everything to be in order, allowed Dr. Fuentes to leave the operating room. Dr. Ampil then resumed operating on Natividad. He was about to finish the procedure when the attending nurses informed him that two pieces of gauze were missing. A "diligent search" was conducted, but the misplaced gauzes were not

found. Dr. Ampil then directed that the incision be closed. During this entire period, Dr. Fuentes was no longer in the operating room and had, in fact, left the hospital. Under the "Captain of the Ship" rule, the operating surgeon is the person in complete charge of the surgery room and all personnel connected with the operation. Their duty is to obey his orders. As stated before, Dr. Ampil was the lead surgeon. In other words, he was the "Captain of the Ship." That he discharged such role is evident from his following conduct. Clearly, the control and management of the thing which caused the injury was in the hands of Dr. Ampil, not Dr. Fuentes. Here, the negligence was proven to have been committed by Dr. Ampil and not by Dr. Fuentes.

Medical Malpractice/ Medical Negligence Cases

PROFESSIONAL SERVICES, INC. VS. COURT OF APPEALS GR No. 126297 February 11, 2008

After a couple of days, Natividad complained excruciating pain in her anal region. She consulted both Dr. Ampil and Dr. Fuentes. They told her that the pain was the natural consequence of the surgical operation performed upon her. Dr. Ampil recommended that she consult an oncologist to treat the cancerous nodes which were not removed. Natividad and her husband went to the US to seek further treatment. After 4 months she was told that she was free of cancer. They then flew back to the Philippines. Two weeks thereafter , Natividad’s daughter found a piece of gauze protruding from her vagina. Dr. Ampil saw immediately informed. He proceeded to Natividad’s house where he extracted by hand a piece of gauze. Natividad sought the treatment of Polymedic General Hospital thereat Dr. Gutierrez detected a foreign object in her vagina - a foul-smelling gauze which infected her vaginal vault. A recto-vaginal fistula had formed in her reproductive organ which forced stool to excrete in her vagina. Another surgical operation was performed upon her. Spouses Agana filed a complaint against PSI (owner of Medical City), Dr. Ampil and Dr. Fuentes. The Trial Court found the respondents jointly and severally liable. The CA affirmed said decision with modification that Dr. Fuentes was dismissed.

FACTS:

ISSUE:

On April 04, 1984, Natividad Agana was admitted at the Medical City General Hospital because of difficulty of bowel movement and bloody anal discharge. Dr. Ampil diagnosed her to be suffering from “cancer of the sigmoid”. Thus, Dr. Ampil, assisted by the medical staff of Medical City, performed a surgery upon her. During the surgery, he found that the malignancy in her sigmoid area had spread to her left ovary, necessitating the removal of certain portions of it. Thus, Dr. Ampil obtained the consent of Natividad’s husband topermit Dr. Fuentes to perform hysterectomy upon Natividad. Dr. Fuentes performed and completed the hysterectomy. Afterwards, Dr. Ampil took over, completed the operation and closed the incision. The operation, however, appeared to be flawed as the attending nurses entered in the corresponding Record of Operation that there were 2 lacking sponge and announced that it was searched by the surgeon but to no avail.

Whether there is an employee-employer relationship in order to hold PSI solidary liable. RULING: PSI contends that the proximate cause of Natividad’s injury was Dr. Ampil’s negligence and that there is no employee-employer relationship between them because Dr. Ampil is only a consultant of the said hospital. The court held that there is an employee-employer relationship between hospital and their attending and visiting physician. After a physician is accepted, either as a visiting or attending consultant, he is normally required to attend clinicopathological conferences, conduct bedside rounds for clerks, interns and residents, moderate grand rounds and patient audits and perform other tasks and responsibilities, for the privilege of being able to maintain a clinic in the hospital, and/or privilege

of admitting patients into the hospital. The physician’s performance is generally evaluated and if said physician falls short of the minimum standards he is normally terminated. In the said case, the hospital has a control over its attending or visiting physician. In general, a hospital is not liable for the negligence of an independent contractor-physician. However, the hospital may be held liable if the physician is the “ostensible” agent of the hospital. This exception is also known as the “doctrine of apparent authority”. The doctrine of apparent authority involves two factors to determine the liability of an independent contractor-physician. First factor focuses on the hospital’s manifestations and is sometimes described as an inquiry whether the hospital acted in a manner which would lead a responsible person to conclude that the individual who was alleged to be negligent was an employee or agent of the hospital. The second factor focuses on the patient’s reliance. It is sometimes characterized as an inquiry on whether the plaintiff acted in reliance upon the conduct of the hospital or its agent, consistent with ordinary care and prudence. In this case, it has been proven that the two factors were present. The hospital indeed made it appear that Dr. Ampil was its employee when they advertise and displayed his name in the directory at the lobby of the said hospital and that Natividad relied on such knowledge that Dr. Ampil was indeed an employee of the hospital. Wherefore PSI and Dr. Ampil are liable jointly and severally.

Plaintiff asks for damages for defendant’s alleged malicious prosecution of a criminal case of theft of electricity against him, for plaintiff’s filing of a charge of violation of P.D. 401 as amended after dismissal of the theft case, the filing of a damage suit against him before the RTC of Cebu City which was dismissed and the filing of another damage suit before the same Cebu RTC which is still pending. Damages are also being sought for defendant’s removal of Electric Meter, but this is a subject matter of a case pending before Branch 13 of this Court and therefore said court retains jurisdiction over the said cause of action. The RTC held that while the City Prosecutor, and later the Secretary of Justice, concluded that there was no probable cause for the crime of theft, this did not change the fact that plaintiff made an illegal connection for electricity. A person’s right to litigate should not be penalized by holding him liable for damages. On October 1, 2003, the CA affirmed the decision of the RTC. It concluded that the evidence on hand showed good faith on the part of DLPC in filing the subject complaints. It pointed out that Diaz had been using the electrical services of DLPC without its consent. As to the effect of the compromise agreement, the CA ruled that it did not bar the filing of the criminal action. Thus, under the principle of damnum absque injuria, the legitimate exercise of a person’s right, even if it causes loss to another, does not automatically result in an actionable injury. Diaz, now petitioner, comes before this Court in this petition for review on certiorari ISSUES:

Malicious Prosecution 1. DIAZ VS. DAVAO LIGHT, 4 APRIL 2007 2. YASONNA VS. DE RAMOS, 440 S 154

DIAZ VS. DAVAO LIGHT GR No. 160959 April 2, 2007 FACTS:

1. Whether or not the compromise agreement entered into between DLPC and Diaz barred the former from instituting further actions; and 2. Whether or not DLPC acted in bad faith in instituting the criminal cases against Diaz RULING: The petition is without merit. Petitioner insists that the compromise agreement as well as the decision of the CA already settled the controversies between them; yet, DLPC instituted the theft case against Diaz, and worse, instituted another action for violation of P.D. 401, as amended by B.P. Blg. 876. Thus, the only conclusion that can be inferred

from the acts of DLPC is that they were designed to harass, embarrass, prejudice, and ruin him. He further avers that the compromise agreement completely erased litigious matters that could necessarily arise Moreover, Diaz asserts that the evidence he presented is sufficient to prove the damages he suffered by reason of the malicious institution of the criminal cases. The court does not agree. Article 2028 of the Civil Code defines a compromise as a contract whereby the parties, by making reciprocal concessions, avoid litigation or put an end to one already commenced. The purpose of compromise is to settle the claims of the parties and bar all future disputes and controversies. However, criminal liability is not affected by compromise for it is a public offense which must be prosecuted and punished by the Government on its own motion, though complete reparation should have been made of the damages suffered by the offended party. A criminal case is committed against the People, and the offended party may not waive or extinguish the criminal liability that the law imposes for the commission of the offense. Moreover, a compromise is not one of the grounds prescribed by the Revised Penal Code for the extinction of criminal liability. On the other hand, malicious prosecution has been defined as an action for damages brought by or against whom a criminal prosecution, civil suit or other legal proceeding has been instituted maliciously and without probable cause, after the termination of such prosecution, suit, or other proceeding in favor of the defendant therein. It is an established rule that in order for malicious prosecution to prosper, the following requisites must be proven by petitioner: (1) the fact of prosecution and the further fact that the defendant (respondent) was himself the prosecutor, and that the action finally terminated with an acquittal; (2) that in bringing the action, the prosecutor acted without probable cause; and (3) that the prosecutor was actuated or impelled by legal malice, that is, by improper or sinister motive. The foregoing are necessary to preserve a person’s right to litigate which may be emasculated by the undue filing of malicious prosecution cases. From the foregoing requirements, it can be inferred that malice and want of probable cause must both be clearly established to justify an award of damages based on malicious prosecution. DLPC was not motivated by malicious intent or by a sinister design to unduly harass petitioner, but only by a well-founded anxiety to protect its rights.

Respondent DLPC cannot therefore be faulted in availing of the remedies provided for by law. Malicious Prosecution

YASOÑA VS. DE RAMOS GR No. 156339 October 6, 2004 FACTS: Aurea Yasoña and her son, Saturnino, went to the house of Jovencio de Ramos to ask for financial assistance in paying their loans to Philippine National Bank (PNB), otherwise their residential house and lot would be foreclosed. Inasmuch as Aurea was his aunt, Jovencio acceded to the request. They agreed that, upon payment by Jovencio of the loan to PNB, half of Yasoñas’ subject property would be sold to him. Jovencio paid Aurea’s bank loan. As agreed upon, Aurea executed a deed of absolute sale in favor of Jovencio over half of the lot consisting of 123 square meters. Thereafter, the lot was surveyed and separate titles were issued by the Register of Deeds of Sta. Cruz, Laguna in the names of Aurea and Jovencio Twenty-two years later, in August 1993, Aurea filed an estafa complaint against brothers Jovencio and Rodencio de Ramos on the ground that she was deceived by them when she asked for their assistance in 1971 concerning her mortgaged property. In her complaint, Aurea alleged that Rodencio asked her to sign a blank paper on the pretext that it would be used in the redemption of the mortgaged property On February 21, 1994, Assistant Provincial Prosecutor Rodrigo B. Zayenis dismissed the criminal complaint for estafa for lack of evidence. On account of this dismissal, Jovencio and Rodencio filed a complaint for damages on the ground of malicious prosecution. They alleged that the filing of the estafa complaint against them was done with malice and it caused irreparable injury to their reputation, as Aurea knew fully well that she had already sold half of the property to Jovencio.

ISSUE:

ULPA CRIMINAL

Whether or not the filing of the criminal complaint for estafa by petitioners against respondents constituted malicious prosecution?

PEOPLE VS. DE LOS SANTOS G.R. No. 131588 March 27, 2001 355 SCRA 415

RULING: To constitute “malicious prosecution,” there must be proof that the prosecution was prompted by a sinister design to vex or humiliate a person, and that it was initiated deliberately by the defendant knowing that his charges were false and groundless. Concededly, the mere act of submitting a case to the authorities for prosecution does not make one liable for malicious prosecution. In this case, the records show that the sale of the property was evidenced by a deed of sale duly notarized and registered with the local Register of Deeds. After the execution of the deed of sale, the property was surveyed and divided into two portions. Separate titles were then issued in the names of Yasoña and Jovencio. Since 1973, Jovencio had been paying the realty taxes of the portion registered in his name. In 1974, Aurea even requested Jovencio to use his portion as bond for the temporary release of her son who was charged with malicious mischief. Also, when Aurea borrowed money from the Rural Bank of Lumban in 1973 and the PNB in 1979, only her portion was mortgaged. All these pieces of evidence indicate that Aurea had long acknowledged Jovencio’s ownership of half of the property. Furthermore, it was only in 1993 when petitioners decided to file the estafa complaint against respondents. If petitioners had honestly believed that they still owned the entire property, it would not have taken them 22 years to question Jovencio’s ownership of half of the property. Malicious prosecution, both in criminal and civil cases, requires the elements of (1) malice and (2) absence of probable cause.These two elements are present in the present controversy. The complaint for estafa was dismissed outright as the prosecutor did not find any probable cause against respondents. A suit for malicious prosecution will prosper where legal prosecution is carried out without probable cause.

FACTS: As part of the Special Counter Insurgency Operation Unit Training held at Camp Damilag, Manolo Fortich, Bukidnon, several members of the Philippine National Police were undergoing an “endurance run” on October 5, 1995 which started at 2:20 am. The PNP trainees were divided into three columns and were wearing black t-shirts, bl;ack short pants, and green and black combat shoes. There were two rear guards assigned to each rear column. Their duty was to jog backwards facing the oncoming vehicles and give hand signals for other vehicles. From Alae to Maitum Highway, Puerto, Cagayan de Oro City, about 20 vehicles passed them, all of which slowed down and took the left portion of the road when signaled to do so. While they were negotiating Maitum Highway, they saw an Isuzu Elf truck coming at high speed towards them. The vehicle lights were in the high beam. At a distance of 100 meters, the rear security guards started waving their hands for the vehicle to take the other side of the road, but the vehicle just kept its speed, apparently ignoring their signals and coming closer and closer to them. The rear guards told their co-trainees to “retract”. The guards jumped in different directions. They saw their co-trainees being hit by the said vehicle, falling like dominoes one after the other. Some were thrown, and others were overrun by the vehicle. The driver, Glenn de los Santos did not reduce his speed even after hitting the first and second columns. After arraignment and trial, the court convicted accused-appellant guilty of complex crime of multiple murder, multiple frustrated murder and multiple attempted murder, with the use of motor vehicle as the qualifying circumstance. ISSUE: Whether or not the incident was a product of a malicious intent on the part of accused-appellant RULING:

The Supreme Court held that the incident, tragic though it was in the light of the number of persons killed and seriously injured, was an accident than of a malicious intent on Glenn’s part. Glenn showed an inexcusable lack of precaution. Since the place of the incident was foggy and dark, he should have observed due care in accordance with the conduct of a reasonably prudent man, such as by slackening his speed, applying his brakes, or turning to the left side even if it would mean entering the opposite lane. Wherefore, the Supreme Court convicted Glenn de Los Santos of one complex crime of reckless imprudence resulting in multiple homicide with serious physical injuries and less serious physical injuries and sentenced him to suffer an indeterminate penalty of four years of prision correccional, as minimum, to 10 years of prision mayor, as maximum; and 10 counts of reckless imprudence resulting in slight physical injuries and sentenced for each count, to the penalty of 2 months of arresto mayor. The awards of death indemnity for each group of heirs of trainees are reduced to P50,000, and the awards in favor of other victims are deleted.

but he subsequently instructed his banker not to give due course to his application for a letter of credit and that for reasons only known to the defendant, he fails and refuses to open the necessary letter of credit to cover payment of the goods ordered by him. After some time, herein defendant failed to comply with his obligation, and several demands were made by petitioner so as to reinforce such contract, and even communicated if defendant would like to rescind contract, but said defendant did not reply to such demands. The defendant even used as a defense that the petitioner was delayed in delivering the taximeters when the former was apprehended by U.S. Navy Exchange for not complying with their agreement. As a consequence, petitioner filed a case against the defendant but respondent judge dismissed such petition in a minute order for lack of cause of action. ISSUE: Whether or not petitioner has a cause of action against the defendant for the latter’s contravention of the terms of contract. RULING: Article 1170 of the Civil Code provides:

CONTRAVENTION OF THE TERMS VICTORINO D. MAGAT, petitioner, VS. HON. LEO D. MEDIALDEA and SANTIAGO A. GUERRERO, respondents G.R. No. L-37120 April 20, 1983 FACTS: Sometime in September 1972, the defendant entered into a contract with the U.S. Navy Exchange, Subic Bay, Philippines, for the operation of a fleet of taxicabs, each taxicab to be provided with the necessary taximeter and a radio transceiver for receiving and sending of messages from mobile taxicab to fixed base stations within the Naval Base at Subic Bay, Philippines. Since herein petitioner is known of his good reputation as a businessman, the defendant, through his agent, entered into a contract with the former. In said contract, the defendant must open a letter of credit in favor of the petitioner, since the latter would also engage a foreign company for such taximeter. Defendant and his agent have repeatedly assured plaintiff herein of the defendant's financial capabilities to pay for the goods ordered by him and in fact he accomplished the necessary application for a letter of credit with his banker,

“Those who in the performance of their obligation are guilty of fraud, negligence, or delay, and those who in any manner contravene the tenor thereof are liable for damages.” The phrase "in any manner contravene the tenor" of the obligation includes any ilicit act or omission which impairs the strict and faithful fulfillment of the obligation and every kind of defective performance. The damages which the obligor is liable for includes not only the value of the loss suffered by the obligee [daño emergente] but also the profits which the latter failed to obtain [lucro cesante]. If the obligor acted in good faith, he shall be liable for those damages that are the natural and probable consequences of the breach of the obligation and which the parties have foreseen or could have reasonably foreseen at the time the obligation was constituted; and in case of fraud, bad faith, malice or wanton attitude, he shall be liable for all damages which may be reasonably attributed to the non-performance of the obligation. The same is true with respect to moral and exemplary damages. The applicable legal provisions on the matter, Articles 2220 and 2232 of the Civil Code, allow the award of such damages in breaches of contract where the defendant acted in bad faith. To our mind, the complaint sufficiently alleges bad faith on the part of the defendant. In fine, the Supreme Court held that on the

basis of the facts alleged in the complaint, the court could render a valid judgment in accordance with the prayer thereof.

SPECIFIC PERFORMANCE: NECESSITY (Art. 1165, CC) 1. 2.

In the agreement, it was stipulated that payment could be made even after ten (10) years from execution provided that the vendee paid 12% interest. The stipulation of the parties constitute the law between them, thus court have no alternative but to enforce them as agreed upon and written. Thus, the Supreme Court ruled that the Court of Appeals did not commit an error in deciding this issue.

VDA. DE MISTICA VS. NAGUIAT, 418 SCRA 73 CO VS. CA, AUG. 17, 1999 SPECIFIC PERFORMANCE: NECESSITY (Art. 1165, CC) VDA DE MISTICA VS. NAGUAIT 418 SCRA 73

FACTS: Eulalio Mistica, predecessor-in-interest of herein petitioner, is the owner of the parcel of land which was leased to respondent Bernardinio Naguiat. Mistica entered into a contract to sell with respondent over a portion of the aforementioned lot containing an area of 200 square meters. This agreement was reduced to writing in a document. Pursuant to said agreement, respondent gave a down payment of P2,000. He made another partial payment of P1,000 on February 8, 1980. He failed to make any payments thereafter. Mistica died sometime in October 1986. On December 4,1991, petitioner filed a complaint for rescission alleging, among others that the failure and refusal of respondent to pay the balance of the purchase price constitute a violation of the contract which established her to rescind the same. That respondent have been in possession of the subject matter, should be ordered to vacate and surrender possession of the same. ISSUE: Whether or not the Court of Appeals erred in the application of Article 1191 of the Civil Code, as it ruled that there is no breach of obligation in spite of the lapse of their stipulated period and the failure of the respondent to pay. RULING: NO. The failure of respondent to pay the value of the purchase price within ten (10) years from execution of the deed did not amount to a substantial breach.

SPS. HENRY CO AND ELIZABETH CO AND MELODY CO, petitioners, VS. COURT OF APPEALS AND MRS. ADORACION CUSTODIO, represented by her Attorney-in-fact, TRINIDAD KALAGAYAN, respondents Aug 17, 1999 G.R. No. 112330 FACTS: On October 9, 1984, the spouses Co entered into a verbal contract with Custodio for her purchase of the their house and lot worth $100,000.00. One week thereafter, and shortly before she left for the United States she paid amounts of $1,000.00 and P40,000.00 as earnest money, in order that the same may be reserved for her purchase, said earnest money to be deducted from the total purchase price. The purchase price of $100,000.00 is payable in two payments $40,000.00 on December 4, 1984 and the balance of $60,000.00 on January 5, 1985. On January 25, 1985, although the period of payment had already expired, she paid to the defendant Melody Co in the United States, the sum of $30,000.00, as partial payment of the purchase price. Spouses Co’s counsel, Atty. Leopoldo Cotaco, wrote a letter to the plaintiff dated March 15, 1985, demanding that she pay the balance of $70,000.00 and 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. Atty. Estrella O. Laysa, counsel of Custodio, wrote a letter to Atty. Leopoldo Cotaco informing him that Custodio ‘is now ready to pay the remaining balance to complete the sum of $100,000.00, the agreed amount as selling price’ and on October 24, 1986, plaintiff filed the instant complaint.” The trial court ruled in favor of Custodio and ordered the spouses Co to refund the amount of $30,000.00. Not satisfied with the decision, the spouses

Co appealed to the Court of Appeals, which affirmed the decision of the RTC. Hence, this appeal. ISSUE: Whether or not the Court of Appeals erred in ordering the Cos to return the $30,000.00 paid by Custodio pursuant to the “option” granted to her. RULING: An option is a contract granting a privilege to buy or sell within an agreed time and at a determined price. It is a separate and distinct contract from that which the parties may enter into upon the consummation of the option. It must be supported by consideration. However, the March 15, 1985 letter sent by the COS through their lawyer to Custodio reveals that the parties entered into a perfected contract of sale and not an option contract. A contract of sale is a consensual contract and is perfected at the moment there is a meeting of the minds upon the thing which is the object of the contract and upon the price. From that moment the parties may reciprocally demand performance subject to the provisions of the law governing the form of contracts. The elements of a valid contract of sale under Article 1458 of the Civil Code are (1) consent or meeting of the minds; (2) determinate subject matter; and (3) price certain in money or its equivalent. As evidenced by the March 15, 1985 letter, all three elements of a contract of sale are present in the transaction between the petitioners and respondent. Custodio’s offer to purchase the Beata property, subject of the sale at a price of $100,000.00 was accepted by the Cos. Even the manner of payment of the price was set forth in the letter. Earnest money in the amounts of US$1,000.00 and P40,000.00 was already received by the Cos. Under Article 1482 of the Civil Code, earnest money given in a sale transaction is considered part of the purchase price and proof of the perfection of the sale. Despite the fact that Custodio’s failure to pay the amounts of US$40,000.00 and US$60,000.00 on or before December 4, 1984 and January 5, 1985 respectively was a breach of her obligation under Article 1191 of the Civil Code, the Cos did not sue for either specific performance or rescission of the contract. The Cos were of the mistaken belief that Custodio had lost her “option” over the Beata property when she failed to pay the remaining balance of $70,000.00 pursuant to their August 8, 1986 letter. In the absence of an express stipulation authorizing the sellers to extrajudicially rescind the contract

of sale, the Cos cannot unilaterally and extrajudicially rescind the contract of sale. Accordingly, Custodio acted well within her rights when she attempted to pay the remaining balance of $70,000.00 to complete the sum owed of $100,000.00 as the contract was still subsisting at that time. When the Cos refused to accept said payment and to deliver the Beata property, Custodio immediately sued for the rescission of the contract of sale and prayed for the return of the $30,000.00 she had initially paid. Under Article 1385 of the Civil Code, 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. This principle has been applied to rescission of reciprocal obligations under Article 1191 of the Civil Code. The Court of Appeals therefore did not err in ordering the Cos to return the amount of $30,000.00 to Custodio after ordering the rescission of the contract of sale over the property. 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. Petition denied. Decision affirmed.

RIGHT TO RESOLVE/RESCIND: REQUISITES 1. UFC VS. CA, 33 S 1

2. 3. 4. 5. 6. 7. 8. 9.

UP VS. DELOS ANGELES, 35 S 102 FRANCISCO VS. DEAC CONST. INC., 543 S 644 CANNU VS. GALANG, 459 S 80 VILLANUEVA VS. ESTATE OF GONZAGA, 498 S 285 PAGUYO VS. ASTORGA, 470 S 33 CASINO VS. CA, 470 S 57 CARRASCOSO VS. CA, 477 S 666 GOLDENROD VS. CA, 299 S 141

UNIVERSAL FOOD CORPORATION VS. CA L-29155 February 22, 1971

RULING: The Court concluded that what was actually ceded and transferred was only the use of the Mafran sauce formula. The fact that the trademark "Mafran" was duly registered in the name of the petitioner pursuant to the Bill of Assignment, standing by itself alone, to borrow the petitioner's language, is not sufficient proof that the respondent Francisco was supposedly obligated to transfer and cede to the petitioner the formula for Mafran sauce and not merely its use. For the said respondent allowed the petitioner to register the trademark for purposes merely of the "marketing of said project."

FACTS: The petitioner contends that (a) under the terms of the Bill of Assignment, exh. A, the respondent Magdalo V. Francisco ceded and transferred to the petitioner not only the right to the use of the formula for Mafran sauce but also the formula itself, because this, allegedly, was the intention of the parties; (b) that on the basis of the entire evidence on record and as found by the trial court, the petitioner did not dismiss the respondent Francisco because he was, and still is, a member of the board of directors, a stockholder, and an officer of the petitioner corporation, and that as such, had actual knowledge of the resumption of production by the petitioner, but that despite such knowledge, he refused to report back for work notwithstanding the petitioner's call for him to do so; (c) that the private respondents are not entitled to rescind the Bill of Assignment; and (d) that the evidence on record shows that the respondent Francisco was the one not ready, willing and able to comply with his obligations under the Bill of Assignment, in the sense that he not only irregularly reported for work but also failed to assign, transfer and convey to the petitioner of the said deed of conveyance. ISSUE: Whether respondent Francisco ceded to the petitioner merely the use of the formula for Mafran sauce and not the formula itself.

RIGHT TO RESOLVE/RESCIND: REQUISITES

UNIVERSITY OF THE PHILIPPINES VS. DELOS ANGELES L-28602 September 29, 1970 FACTS: UP and ALUMCO entered into a logging agreement under which the latter was granted exclusive authority, for a period starting from the date of the agreement to 31 December 1965, extendible for a further period of five (5) years by mutual agreement, to cut, collect and remove timber from the Land Grant, in consideration of payment to UP of royalties, forest fees, etc.; that ALUMCO cut and removed timber therefrom but, as of 8 December 1964, it had incurred an unpaid account of P219,362.94, which, despite repeated demands, it had failed to pay; that after it had received

notice that UP would rescind or terminate the logging agreement, ALUMCO executed an instrument, entitled "Acknowledgment of Debt and Proposed Manner of Payments," dated 9 December 1964, which was approved by the president of UP. ALUMCO continued its logging operations, but again incurred an unpaid account, for the period from 9 December 1964 to 15 July 1965, in the amount of P61,133.74, in addition to the indebtedness that it had previously acknowledged. That on 19 July 1965, petitioner UP informed respondent ALUMCO that it had, as of that date, considered as rescinded and of no further legal effect the logging agreement that they had entered in 1960. That before the issuance of the aforesaid preliminary injunction UP had taken steps to have another concessionaire take over the logging operation, and the concession was awarded to Sta. Clara Lumber Company, Inc. ISSUE:

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.

RIGHT TO RESOLVE/RESCIND: REQUISITES

Whether petitioner U.P. can treat its contract with ALUMCO rescinded, and may disregard the same before any judicial pronouncement to that effect. RULING: Respondent ALUMCO contended, and the lower court, in issuing the injunction order of 25 February 1966. apparently sustained it (although the order expresses no specific findings in this regard), that it is only after a final court decree declaring the contract rescinded for violation of its terms that U.P. could disregard ALUMCO's rights under the contract and treat the agreement as breached and of no force or effect. UP and ALUMCO had expressly stipulated in the "Acknowledgment of Debt and Proposed Manner of Payments" that, upon default by the debtor ALUMCO, the creditor (UP) has "the right and the power to consider the Logging Agreement dated 2 December 1960 as rescinded without the necessity of any judicial suit." "There is nothing in the law that prohibits the parties from entering into agreement that violation of the terms of the contract would cause cancellation thereof, even without court intervention. In other words, it is not always necessary for the injured party to resort to court for rescission of the contract."

FRANCISCO VS. DEAC CONSTRUCTION, INC. GR No. 171312 February 4, 2008 FACTS: Spouses Francisco obtained the services of DEAC Construction, Inc. to construct a 3-storey residential building with mezzanine and roof deck on their lot for a contract price of 3.5M. as agreed upon, a downpayment of 2M should be paid upon signing of the construct of construction, and the remaining balance of 1.5M was to be paid in two equal installments. To undertake the said project, DEAC engaged the services of a subcontractor, Vigor Construction and Development Corporation, but allegedly without the spouses’ knowledge and consent. Even prior to the execution of the contract, spouses Francisco had paid the downpayment. However, the said construction commenced although DEAC had not yet obtained the necessary building permit for the proposed construction and that the contractor deviated from the approved plans.

Spouses Francisco demanded DEAC to comply with the approved plan, otherwise, they would be compelled to invoke legal remedies. Work stoppage was issued against Lino Francisco pursuant to the previous Notice of Violations. The plaintiffs then file civil case for Rescission of Contract and Damages against DEAC. ISSUE: Whether or not spouses Francisco may rescind the contract. RULING: Article 1191 of the Civil Code provides that the power to rescind obligations is implied in reciprocal ones, in case one of the obligors should not comply with what is incumbent upon him. The rescission referred to in this article, more appropriately referred to a resolution, is not predicated on injury to economic interests on the part of the party plaintiff, but of breach of faith by the defendant which is violative of the reciprocity between the parties. Given the fact that the construction in this case is already 75% complete, that trial court was correct in ordering partial rescission of the portion of the construction. Equitable considerations justify rescission of the portion of the obligation which has not been delivered RIGHT TO RESOLVE/RESCIND: REQUISITES

SPS. FELIPE AND LETICIA CANNU versus SPS. GIL AND FERNANDINA GALANG AND NATIONAL HOME MORTGAGE FINANCE CORPORATION G.R. No. 139523 2005 May 26 FACTS: Respondents-spouses Gil and Fernandina Galang obtained a loan from Fortune Savings & Loan Association for P173,800.00 to purchase a house and lot located at Pulang Lupa, Las Piñas, in the names of

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

Rescission or, more accurately, resolution, of a party to an obligation under Article 1191 is predicated on a breach of faith by the other party that violates the reciprocity between them. Art. 1191 states that the power to rescind obligations is implied in reciprocal ones, in case one of the obligors should not comply with what is incumbent upon him. The injured party may choose between the fulfillment and the rescission of the obligation, with the payment of damages in either case. He may also seek rescission, even after he has chosen fulfillment, if the latter should become impossible. The court shall decree the rescission claimed, unless there be just cause authorizing the fixing of a period. Rescission will not be permitted for a slight or casual breach of the contract. Rescission may be had only for such breaches that are substantial and fundamental as to defeat the object of the parties in making the agreement. The question of whether a breach of contract is substantial depends upon the attending circumstances and not merely on the percentage of the amount not paid. Thus, the petitioners’ failure to pay the remaining balance of P45,000.00 is substantial. Even assuming arguendo that only said amount was left out of the supposed consideration of P250,000.00, or eighteen percent thereof, this percentage is still substantial. Their failure to fulfill their obligation gave the respondents-spouses Galang the right to rescission. Also, there was no waiver on the part of petitioners to demand the rescission of the Deed of Sale with Assumption of Mortgage. The fact that respondents-spouses accepted, through their attorney-in-fact, payments in installments does not constitute waiver on their part to exercise their right to rescind the Deed of Sale with Assumption of Mortgage. Adelina Timbang merely accepted the installment payments as an accommodation to petitioners since they kept on promising they would pay. However, after the lapse of considerable time (18 months from last payment) and the purchase price was not yet fully paid, respondentsspouses exercised their right of rescission when they paid the outstanding balance of the mortgage loan with NHMFC. It was only after petitioners

stopped paying that respondents-spouses moved to exercise their right of rescission. The subsidiary character of the action for rescission applies to contracts enumerated in Articles 1381 of the Civil Code. However, the contract involved in the case is not one of those mentioned therein. The provision that applies in the case at bar is Article 1191. Rescission under Article 1191 is a principal action, while rescission under Article 1383 is a subsidiary action. The former is based on breach by the other party that violates the reciprocity between the parties, while the latter is not. In the case at bar, the reciprocity between the parties was violated when petitioners failed to fully pay the balance of P45,000.00 to respondents-spouses and their failure to update their amortizations with the NHMFC. Therefore, the Spouses Gil and Fernandina Galang are ordered to return the partial payments made by petitioners in the amount of P165,312.47.

RIGHT TO RESOLVE/RESCIND: REQUISITES

GENEROSO VILLANUEVA and RAUL VILLANUEVA JR.. versus ESTATE OF GERARDO GONZAGA/ MA. VILLA GONZAGA in her capacity as Administratrix G.R. No. 15731 2006 August 09 FACTS: On January 15, 1990, petitioners Generoso Villanueva and Raul Villanueva, Jr., business entrepreneurs engaged in the operation of transloading stations and sugar trading, and respondent Estate of Gerardo L. Gonzaga, represented by its Judicial Administratrix, respondent Ma. Villa J. Gonzaga, executed a MOA.

As stipulated in the agreement, petitioners introduced improvements after paying P291,600.00 constituting sixty (60%) percent of the total purchase price of the lots. Petitioners then requested permission from respondent Administratrix to use the premises for the next milling season. Respondent

refused on the ground that petitioners cannot use the premises until full payment of the purchase price. Petitioners informed respondent that their immediate use of the premises was absolutely necessary and that any delay will cause them substantial damages. Respondent remained firm in her refusal, and demanded that petitioners stop using the lots as a transloading station to service the Victorias Milling Company unless they pay the full purchase price. In a letter-reply dated April 5, 1991, petitioners assured respondent of their readiness to pay the balance but reminded respondent of her obligation to redeem the lots from mortgage with the Philippine National Bank (PNB). Petitioners gave respondent ten (10) days within which to do so. On April 10, 1991, respondent Administratrix wrote petitioners informing them that the PNB had agreed to release the lots from mortgage. She demanded payment of the balance of the purchase price. Enclosed with the demand letter was the PNB’s letter of approval dated April 8, 1991. Petitioners demanded that respondent show the clean titles to the lots first before they pay the balance of the purchase price. Respondent merely reiterated the demand for payment. Petitioners stood pat on their demand. On May 28, 1991, respondent Administratrix executed a Deed of Rescission rescinding the MOA. In their Letter dated June 13, 1991, petitioners, through counsel, formally demanded the production of the titles to the lots before they pay the balance of the purchase price. The demand was ignored. Consequently, on June 19, 1991, petitioners filed a complaint against respondents for breach of contract, specific performance and damages before the RTC-Bacolod City. The trial court decided the case in favor of respondents. Petitioners filed a petition for review before the Court of Appeals. The Court of Appeals affirmed the trial court’s decision but deleted the award for moral damages on the ground that petitioners were not guilty of bad faith in refusing to pay the balance of the purchase price. ISSUE: Whether there is legal, or even a factual, ground for the rescission of the Memorandum of Agreement. RULING: There is no legal basis for the rescission. The remedy of rescission under Art. 1191 of the Civil Code is predicated on a breach of faith by the other party that violates the reciprocity between them. The court have held in numerous cases that the remedy does not apply to contracts to sell.

In Santos v. Court of Appeals, in a contract to sell, title remains with the vendor and does not pass on to the vendee until the purchase price is paid in full. Thus, in a contract to sell, the payment of the purchase price is a positive suspensive condition. Failure to pay the price agreed upon is not a mere breach, casual or serious, but a situation that prevents the obligation of the vendor to convey title from acquiring an obligatory force. This is entirely different from the situation in a contract of sale, where non-payment of the price is a negative resolutory condition. The effects in law are not identical. In a contract of sale, the vendor has lost ownership of the thing sold and cannot recover it, unless the contract of sale is rescinded and set aside. In a contract to sell, however, the vendor remains the owner for as long as the vendee has not complied fully with the condition of paying the purchase price. If the vendor should eject the vendee for failure to meet the condition precedent, he is enforcing the contract and not rescinding it. The MOA between petitioners and respondents is a conditional contract to sell. Ownership over the lots is not to pass to the petitioners until full payment of the purchase price. Petitioners’ obligation to pay, in turn, is conditioned upon the release of the lots from mortgage with the PNB to be secured by the respondents. Although there was no express provision regarding reserved ownership until full payment of the purchase price, the intent of the parties in this regard is evident from the provision that a deed of absolute sale shall be executed only when the lots have been released from mortgage and the balance paid by petitioners. Since ownership has not been transferred, no further legal action need have been taken by the respondents, except an action to recover possession in case petitioners refuse to voluntarily surrender the lots.

The records show that the lots were finally released from mortgage in July 1991. Petitioners have always expressed readiness to pay the balance of the purchase price once that is achieved. Hence, petitioners should be allowed to pay the balance now, if they so desire, since it is established that respondents’ demand for them to pay in April 1991 was premature. However, petitioners may not demand production by the respondents of the titles to the lots as a condition for their payment. It was not required under the MOA. The MOA merely states that petitioners shall pay the balance “upon approval by the PNB of the release of the lots” from mortgage. Petitioners may not add further conditions now. Obligations arising from contracts have the force of law between the contracting parties and should be complied with in good faith.

Thus, the petiotion is GRANTED, an the assailed decision is REVERSED and SET ASIDE.

RIGHT TO RESOLVE/RESCIND: REQUISITES

SPOUSES DOMINGO and LOURDES PAGUYO versus Pierre Astorga and St. Andrew Realty, Inc. G.R. No. 130982 2005 September 16 FACTS: Spouses Domingo Paguyo and Lourdes Paguyo, were the owners of a small five-storey building known as the Paguyo Building located at Makati Avenue, corner Valdez Street, Makati City. The lot on which the Paguyo Building stands was the subject of Civil Case wherein the RTC of Makati City, Branch 57, rendered a decision on 20 January 1988 approving a Compromise Agreement made between the Armases and the petitioners. The compromise agreement provided that in consideration of the total sum of One Million Seven Hundred Thousand Pesos (P1,700,000.00), the Armases committed to execute in favor of petitioners a deed of sale and/or conveyance assigning and transferring unto said petitioners all their rights and interests over the parcel of land containing an area of 299 square meters. In order for the petitioners to complete their title and ownership over the lot in question, there was an urgent need to make complete payment to the Armases, which at that time stood at P917,470.00 considering that petitioners had previously made partial payments to the Armases. On 29 November 1988, in order to raise the much needed amount, petitioner Lourdes Paguyo entered into an agreement captioned as Receipt of Earnest Money with respondent Pierre Astorga, for the sale of the former’s property consisting of the lot which was to be purchased from the Armases, together with the improvements thereon, particularly,

the existing building known as the Paguyo Building. However, contrary to their express representation with respect to the subject lot, petitioners failed to comply with their obligation to acquire the lot from the Armas family despite the full financial support of respondents. Nevertheless, the parties maintained their business relationship under the terms and conditions of the above-mentioned Receipt of Earnest Money. On 12 December 1988, petitioners asked for and were given by respondents an additional P50,000.00 to meet the former’s urgent need for money in connection with their construction business. Thus, on 5 January 1989, the parties executed the four documents in question namely, the Deed of Absolute Sale of the Paguyo Building, the Mutual Undertaking, the Deed of Real Estate Mortgage, and the Deed of Assignment of Rights and Interest. Simultaneously with the signing of the four documents, respondents paid petitioners the additional amount of P500,000.00. Thereafter, the respondents renamed the Paguyo Building into GINZA Bldg. and registered the same in the name of respondent St. Andrew Realty, Inc. at the Makati Assessor’s Office after paying accrued real estate taxes in the total amount of P169,174.95. On 06 October 1989, petitioners filed a Complaint for the rescission of the Receipt of Earnest Money with the undertaking to return the sum of P763,890.50. They also sought the rescission of the Deed of Real Estate Mortgage, the Mutual Undertaking, the Deed of Absolute Sale of Building, and the Deed of Assignment of Rights and Interest. After trial, the RTC ruled in favor of respondents. The petition for preliminary injunction is denied, and the court ordered the plaintiff spouses Domingo and Lourdes Paguyo to pay the defendants Pierre Astorga and St. Andrew Realty, Inc. on their counterclaim. On appeal, the Court of Appeals affirmed the decision of the trial court ISSUE: Did the Court of Appeals err in upholding the trial court’s decision denying petitioners’ complaint for rescission? RULING:

No. The right to rescind a contract involving reciprocal obligations is provided for in Article 1191 of the Civil Code. Article 1191 states: The power to rescind obligations is implied in reciprocal ones, in case one of the obligors should not comply with what is incumbent upon him. The injured party may choose between the fulfillment and the rescission of the obligation, with the payment of damages in either case. He may also seek rescission, even after he has chosen fulfillment, if the latter should become impossible. The court shall decree the rescission claimed, unless there be just cause authorizing the fixing of a period. Moreover, Articles 1355 and 1470 of the Civil Code state: Art. 1355. Except in cases specified by law, lesion or inadequacy of cause shall not invalidate a contract, unless there has been fraud, mistake or undue influence. Art. 1470. Gross inadequacy of price does not affect a contract of sale, except as may indicate a defect in the consent, or that the parties really intended a donation or some other act or contract. Petitioners failed to prove any of the instances mentioned in Articles 1355 and 1470 of the Civil Code, which would invalidate, or even affect, the Deed of Sale of the Building and the related documents. Indeed, there is no requirement that the price be equal to the exact value of the subject matter of sale. In sum, petitioners pray for rescission of the Deed of Sale of the building and offer to repay the purchase price after their liquidity position would have improved and after respondents would have refurbished the building, updated the real property taxes, and turned the building into a profitable business venture. The court stated however that, it will not allow itself to be an instrument to the dissolution of contract validly entered into, for a party should not, after its opportunity to enjoy the benefits of an agreement, be allowed to later disown the arrangement when the terms thereof ultimately would prove to operate against its hopeful expectations. WHEREFORE, the Decision of the Court of Appeals is AFFIRMED with MODIFICATION. RIGHT TO RESOLVE/RESCIND: REQUISITES

BIENVENIDO M. CASIÑO, JR. versus THE COURT OF APPEALS and OCTAGON REALTY DEVELOPMENT CORPORATION G.R. No. 133803 2005 September 16 FACTS: On October 2, 1991, respondent Octagon Realty Development Corporation, filed a complaint for rescission of contract with damages against petitioner Bienvenido M. Casiño, Jr., owner and proprietor of the Casiño Wood Parquet and Sanding Services, relative to the parties’ agreement for the supply and installation by petitioner of narra wood parquet ordered by respondent. In its complaint, respondent alleges that on December 22, 1989, it entered into a contract with petitioner for the supply and installation by the latter of narra wood parquet (kiln dried) to the Manila Luxury Condominium Project, of which respondent is the developer, for a total price of P1,158,487.00; that the contract stipulated that full delivery by petitioner of labor and materials was in May 1990; that in accordance with the terms of payment in the contract, respondent paid to petitioner the amount P463,394.50, representing 40% of the total contract price; that after delivering only 26,727.02 sq. ft. of wood parquet materials, petitioner incurred in delay in the delivery of the remainder of 34,245.98 sq. ft.; that petitioner misrepresented to respondent that he is qualified to do the work contracted when in truth and in fact he was not and, furthermore, he lacked the necessary funds to execute the work as he was totally dependent on the funds advanced to him by respondent; that due to petitioner’s unlawful and malicious refusal to comply with its obligations, respondent incurred actual damages in the amount of P912,452.39 representing estimated loss on the new price, unliquidated damages and cost of money; that in order to minimize losses, the respondent contracted the services of Hilvano Quality Parquet and Sanding Services to complete the petitioner’s unfinished work, respondent thereby agreeing to pay the latter P1,198,609.30.

However, petitioner avers that the manner of payment, period of delivery and completion of work and/or full delivery of labor and materials were modified; that the delivery and completion of the work could not be done upon the request and/or representations by the respondent because he failed to make available and/or to prepare the area in a suitable manner for the work contracted, preventing the petitioner from complying with the delivery schedule under the contract; that petitioner delivered the required materials and performed the work despite these constraints; that the respondent failed to pay the petitioner’s second and third billings for deliveries and work performed in the sum of P105,425.68, which amount the petitioner demanded from the respondent with the warning of suspension of deliveries or rescission for contract for non-payment; that it was the respondent who failed to prepare the area suitable for the delivery and installation of the wood parquet, respondent who advised or issued orders to the petitioner to suspend the delivery and installation of the wood parquet, which created a storage problem for the petitioner.

The petitioner therefore, has failed to comply with his prestations under his contract with respondent, the latter is vested by law with the right to rescind the parties’ agreement, conformably with Article 1191 of the Civil Code. However, the right to rescind a contract for non-performance of its stipulations is not absolute. The general rule is that rescission of a contract will not be permitted for a slight or casual breach, but only for such substantial and fundamental violations as would defeat the very object of the parties in making the agreement. Contrary to petitioner’s asseveration, the breach he committed cannot, by any measure, be considered as “slight or casual”. For petitioner’s failure to make complete delivery and installation way beyond the time stipulated despite respondent’s demands, is doubtless a substantial and fundamental breach, more so when viewed in the light of the large amount of money respondent had to pay another contractor to complete petitioner’s unfinished work.

ISSUE: Whether or not the rescission of the contract by the private respondent is valid. RULING: Under the contract, petitioner and respondent had respective obligations, i.e., the former to supply and deliver the contracted volume of narra wood parquet materials and install the same at respondent’s condominium project by May, 1990, and the latter, to pay for said materials in accordance with the terms of payment set out under the parties’ agreement. But while respondent was able to fulfill that which is incumbent upon it by making a downpayment representing 40% of the agreed price upon the signing of the contract and even paid the first billing of petitioner, the latter failed to comply with his contractual commitment. For, after delivering only less than one-half of the contracted materials, petitioner failed, by the end of the agreed period, to deliver and install the remainder despite demands for him to do so. Thus, it is petitioner who breached the contract.

Likewise, contrary to petitioner’s claim, it cannot be said that he had no inkling whatsoever of respondent’s recourse to rescission. True, “the act of a party in treating a contract as cancelled or resolved on account of infractions by the other party must be made known to the other”. In the case, however, petitioner cannot feign ignorance of respondent’s intention to rescind, fully aware, as he was, of his noncompliance with what was incumbent upon him, not to mention the several letters respondent sent to him demanding compliance with his obligation. It is thus proper that respondent acted well within its rights in unilaterally terminating its contract with petitioner and in entering into a new one with a third person in order to minimize its losses, without prior need of resorting to judicial action. WHEREFORE, the petition is DENIED and the assailed Decision and Resolution of the appellate court AFFIRMED.

RIGHT TO RESOLVE/RESCIND: REQUISITES

FERNANDO CARRASCOSO JR. versus COURT OF APPEALS, LAURO LEVISTE, as Director and Minority Stockholder and On Behaf of Other Stockholders of El Dorado Plantation Inc. and EL DORADO PLANTATION, INC., represented by one of its minority stockholders, Lauro P. Leviste G.R. No. 123672 & G. R. No. 164489 December 14, 2005 FACTS: El Dorado Plantation, Inc. (El Dorado) was the registered owner of a parcel of land with an area of approximately 1,825 hectares covered by Transfer Certificate of Title (TCT) No. T-93 situated in Sablayan, Occidental Mindoro. On February 15, 1972, at a special meeting of El Dorado’s Board of Directors, a Resolution was passed authorizing Feliciano Leviste, then President of El Dorado, to negotiate the sale of the property and sign all documents and contracts bearing thereon. El Dorado, through Feliciano Leviste, sold the property to Fernando O. Carrascoso, Jr. Under the Deed of Sale, Carrascoso was to pay the full amount of the purchase price on March 23, 1975. On March 24, 1972, Carrascoso and his wife Marlene executed a Real Estate Mortgage] over the property in favor of Home Savings Bank (HSB) to secure a loan in the amount of P1,000,000.00. Of this amount, P290,000.00 was paid to Philippine National Bank to release the mortgage priorly constituted on the property and P210,000.00 was paid to El Dorado pursuant to the terms and conditions of the Deed of Sale. On May 18, 1972, the real estate mortgage in favor of HSB was amended to include an additional three year loan of P70,000.00 as requested by the spouses Carrascoso. However, the 3-year period for Carrascoso to fully pay for the property on March 23, 1975 passed without him having complied therewith. In the meantime, on July 11, 1975, Carrascoso and the Philippine Long Distance Telephone Company (PLDT), through its President Ramon Cojuangco, executed an Agreement

to Buy and Sell whereby the former agreed to sell 1,000 hectares of the property to the latter at a consideration of P3,000.00 per hectare or a total of P3,000,000.00. Lauro Leviste, a stockholder and member of the Board of Directors of El Dorado, called the attention of the Board to Carrascoso’s failure to pay the balance of the purchase price of the property amounting to P1,300,000.00. Lauro’s desire to rescind the sale was reiterated in two other letters addressed to the Board. Jose P. Leviste, as President of El Dorado, later sent a letter of February 21, 1977 to Carrascoso informing him that in view of his failure to pay the balance of the purchase price of the property, El Dorado was seeking the rescission of the March 23, 1972 Deed of Sale of Real Property. For the failure of Carrascoso to give his reply, Lauro and El Dorado finally filed a complaint for rescission of the Deed of Sale. They also sought the cancellation of TCT No. T-6055 in the name of Carrascoso and the revival of TCT No. T-93 in the name of El Dorado, free from any liens and encumbrances. In the meantime, Carrascoso, as vendor and PLDT, as vendee forged on April 6, 1977 a Deed of Absolute Sale over the 1,000 hectare portion of the property subject of their July 11, 1975 Agreement to Buy and Sell. In turn, PLDT, by Deed of Absolute Sale conveyed the aforesaid 1,000 hectare portion of the property to its subsidiary, PLDT Agricultural Corporation (PLDTAC), for a consideration of P3,000,000.00, the amount of P2,620,000.00 of which was payable to PLDT upon signing of said Deed, and P380,000.00 to Carrascoso upon issuance of title to PLDTAC. On July 31, 1978, PLDT and PLDTAC filed an Urgent Motion for Intervention which was granted by the trial court. PLDT and PLDTAC thereupon filed their Answer In Intervention with Compulsory Counterclaim and Crossclaim against Carrascoso. The RTC dismissed the complaint. Carrascoso, PLDT and PLDTAC filed their respective appeals to the Court of Appeals. The appellate court reversed the decision of the trial court. Thereafter, different motions and actions were done by both parties. ISSUE: Whether or not the rescission is valid.

RULING: The right of rescission of a party to an obligation under Article 1191 is predicated on a breach of faith by the other party who violates the reciprocity between them. A contract of sale is a reciprocal obligation. The seller obligates itself to transfer the ownership of and deliver a determinate thing, and the buyer obligates itself to pay therefor a price certain in money or its equivalent. The non-payment of the price by the buyer is a resolutory condition which extinguishes the transaction that for a time existed, and discharges the obligations created thereunder. Such failure to pay the price in the manner prescribed by the contract of sale entitles the unpaid seller to sue for collection or to rescind the contract. In the case at bar, El Dorado already performed its obligation through the execution of the March 23, 1972 Deed of Sale of Real Property which effectively transferred ownership of the property to Carrascoso. The latter, on the other hand, failed to perform his correlative obligation of paying in full the contract price in the manner and within the period agreed upon. The terms of the Deed are clear and unequivocal: Carrascoso was to pay the balance of the purchase price of the property amounting to P1,300,000.00 plus interest thereon at the rate of 10% per annum within a period of three (3) years from the signing of the contract on March 23, 1972. When Jose Leviste informed him that El Dorado was seeking rescission of the contract by letter of February 21, 1977, the period given to him within which to fully satisfy his obligation had long lapsed. The El Dorado Board Resolution and the Affidavit of Jose Leviste interposing no objection to Carrascoso’s mortgaging of the property to any bank did not have the effect of suspending the period to fully pay the purchase price, as expressly stipulated in the Deed, pending full payment of any mortgage obligation of Carrascoso.

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

those which it built prior to the annotation of the notice of lis pendens and those which it introduced subsequent thereto. WHEREFORE, the petitions are DENIED.

RIGHT TO RESOLVE/RESCIND: REQUISITES

GOLDENROD, INC. vs. COURT OF APPEALS BARRETTO & SONS, INC., PIO BARRETTO REALTY DEVELOPMENT, INC., and ANTHONY QUE G.R. No. 126812 1998 Nov 24 FACTS: Pio Barretto and Sons, Inc. (BARRETTO & SONS) owned forty-three parcels of registered land with a total area of 18,500 square meters located at Carlos Palanca St., Quiapo, Manila, which were mortgaged with the United Coconut Planters Bank (UCPB). In 1988, the obligation of the corporation with UCPB remained unpaid making foreclosure of the mortgage imminent. Goldenrod, Inc. (GOLDENROD), offered to buy the property from BARRETTO & SONS. When the term of existence of BARRETTO & SONS expired, all its assets and liabilities including the property located in Quiapo were transferred to respondent Pio Barretto Realty Development, Inc. Petitioner's offer to buy the property resulted in its agreement with respondent BARRETTO REALTY that petitioner would pay P24.5 million representing the outstanding obligations of BARRETTO REALTY with UCPB on 30 June 1988, the deadline set by the bank for payment; and P20 million which was the balance of the purchase price of the property to be paid in installments within a 3-year period with interest at 18% per annum. However, petitioner did not pay UCPB the P24.5 million loan obligation of BARRETTO REALTY on the deadline set for payment. It asked for an extension of one month or up to 31 July 1988 to settle the obligation, which the bank granted. Moreover, petitioner again requested another extension of sixty days to pay the loan, but the bank demurred.

In the meantime BARRETTO REALTY was able to cause the reconsolidation of the forty-three titles covering the property subject of the purchase into two titles covering Lots 1 and 2. The reconsolidation of the titles was made pursuant to the request of petitioner in its letter to private respondents on 25 May 1988. Respondent BARRETTO REALTY allegedly incurred expenses for the reconsolidation amounting to P250,000.00. On 30 August 1988 Alicia P. Logarta, President of Logarta Realty and Development Corporation, which acted as agent and broker of petitioner, wrote private respondent Anthony Que informing him on behalf of petitioner that it could not go through with the purchase of the property due to circumstances beyond its fault ( the denial by UCPB of its request for extension of time to pay the obligation). On 31 August 1988 respondent BARRETTO REALTY sold to Asiaworld Trade Center Phils., Inc., Lot 2, one of the two consolidated lots, for the price of P23 million. On 13 October 1988 respondent BARRETTO REALTY executed a deed transferring by way of "dacion" the property reconsolidated as Lot 1 in favor of UCPB, which in turn sold the property to ASIAWORLD for P24 million. Sometime after the said sale, Logarta again wrote respondent Que demanding the return of the earnest money to GOLDENROD, but to no avail. Petitioner then filed a complaint with the RTC of Manila against private respondents for the return of the amount of P1 million and the payment of damages including lost interests or profits. ISSUE: Whether or not the petitioner's extrajudicial rescission of its agreement with private respondents was valid. RULING: Under Art. 1482 of the Civil Code, whenever earnest money is given in a contract of sale, it shall be considered as part of the purchase price and as proof of the perfection of the contract. Petitioner clearly stated without any objection from private respondents that the earnest

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

petitioner's payment of P1,000,000.00 and at the same time appropriate the proceeds of the second sale made to another.

EFFECTS OF RESOLUTION/RESCISSION 1. 2. 3. 4. 5. 6. 7. 8.

SERRANO VS. CA, 417 SCRA 415 GIL VS. CA, 411 SCRA 18 REYES VS. LIM, 408 SCRA 560 ONG VS. TIU, FEB. 1, 2002 EQUATORIAL REALTY VS. MAYFAIR THEATER, 370 SCRA 56 VELARDE VS. CA, 361 SCRA 56 ASUNCION VS. EVANGELISTA, OCT. 13, 1999 UY VS. CA, SEPT. 9, 1999

LORETA SERRANO vs. COURT OF APPEALS and LONG LIFE PAWNSHOP, INC. G.R. No. 45125 1991 Apr 22 FACTS: Sometime in early March 1968, petitioner Loreta Serrano bought some pieces of jewelry for P48,500.00 from Niceta Ribaya. However, when petitioner was in need of money, she instructed her private secretary, Josefina Rocco, to pawn the jewelry. Josefina then went to private respondent Long Life Pawnshop, Inc. ("Long Life"), pledged the jewelry for P22,000.00 with its principal owner and General Manager, Yu An Kiong, and then absconded with said amount and the pawn ticket. The pawnshop ticket issued to Josefina Rocco stipulated that it was redeemable "on presentation by the bearer." Three months later, Gloria Duque and Amalia Celeste informed Niceta Ribaya that a pawnshop ticket issued by private respondent was

being offered for sale. They told Niceta the ticket probably covered jewelry once owned by the latter which jewelry had been pawned by one Josefina Rocco. Suspecting that it was the same jewelry she had sold to petitioner, Niceta informed the latter of this offer and suggested that petitioner go to the Long Life pawnshop to check the matter out. Petitioner claims she went to private respondent pawnshop, verified that indeed her missing jewelry was pledged there and told Yu An Kiong not to permit anyone to redeem the jewelry because she was the lawful owner thereof. Petitioner claims that Yu An Kiong agreed. On 9 July 1968, petitioner went to the Manila Police Department to report the loss, and a complaint first for qualified theft and later changed to estafa was subsequently filed against Josefina Rocco. Thereafter, a member of the Manila Police went to the pawnshop, showed Yu An Kiong petitioner's report and left the latter a note asking him to hold the jewelry and notify the police in case someone should redeem the same. However, the next day, Yu An Kiong permitted one Tomasa de Leon, exhibiting the appropriate pawnshop ticket, to redeem the jewelry. On 4 October 1968, petitioner filed a complaint for damages against private respondent Long Life for failure to hold the jewelry and for allowing its redemption without first notifying petitioner or the police. Hon. Luis B. Reyes, rendered a decision in favor of petitioner. The decision was however reversed on appeal and the complaint dismissed by the public respondent Court of Appeals.

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

ISSUE: Whether or not the Court of Appeals committed reversible error in rendering its Decision. RULING: Having been notified by petitioner and the police that jewelry pawned to it was either stolen or involved in an embezzlement of the proceeds of the pledge, private respondent pawnbroker became duty bound to hold the things pledged and to give notice to petitioner and the police of any effort to redeem them. Such a duty was imposed by Article

PERLA PALMA GIL, VICENTE HIZON, JR., and ANGEL PALMA GIL VS. HON. COURT OF APPEALS, HEIRS OF EMILIO MATULAC, CONSTANCIO MAGLANA, AGAPITO PACETES & The REGISTER OF DEEDS OF DAVAO CITY G.R. No. 127206 September 12, 2003 411 SCRA 19 FACTS: Concepcion Palma Gil, and her sister, Nieves Palma Gil, married to Angel Villarica, were the co-owners of a parcel of commercial land with an area of 829

square meters in Davao City. The spouses Angel and Nieves Villarica had constructed a two-storey commercial building on the property. On October 13, 1953, Concepcion filed a complaint against her sister Nieves with the then Court of First Instance of Davao City for specific performance, to compel the defendant to cede and deliver to her an undivided portion of the said property with an area of 256.2 square meters. After due proceedings, the court rendered judgment on April 7, 1954 in favor of Concepcion, ordering the defendant to deliver to the plaintiff an undivided portion of the said property with an area of 256.2 square meters. Nieves appealed to the Court of Appeals which affirmed the assailed decision. The court issued a writ of execution. Nieves, however, refused to execute the requisite deed in favor of her sister. On April 27, 1956, the court issued an order authorizing ex-officio Sheriff Eriberto Unson to execute the requisite deed of transfer to the plaintiff over an undivided portion of the property with a total area of 256.2 square meters. Instead of doing so, the sheriff had the property subdivided into four lots namely, Lot 59-C-1, with an area of 218 square meters; Lot 59-C-2, with an area of 38 square meters; Lot 59-C-3, with an area of 14 square meters; and Lot 59-C-4, with an area of 560 square meters, all covered by a subdivision plan. The sheriff thereafter executed a Deed of Transfer to Concepcion over Lot 59-C-1 and Lot 59-C-2 with a total area of 256.2 square meters. On October 24, 1956, Concepcion executed a deed of absolute sale over Lot 59-C-1 in favor of Iluminada Pacetes for a purchase price of P21,600.00 upon which P7,500.00 is to be paid upon signing of the contract and the balance of P14,100.00 to be paid upon delivery of the Title. On March 16, 1966, spouses Iluminada Pacetes and Agapito Pacetes executed a deed of absolute sale over the disputed lots in favor Constancio Maglana. And on April 22, 1980, Maglana ewecuted a deed of sale in favor of Emilio Matulac for the purchase price of P150,000.00. And on August 4, 1959, Concepcion died, leaving all her obligations to her heirs including the petitioners. On June 11, 1993, the trial court rendered judgment in favor of the defendants. The trial court ruled that this Court had affirmed, in G.R. No. 85538 and G.R. No. L-60690, the sales of the property from Concepcion Palma Gil to Iluminada Pacetes, then to Constancio Maglana and to Emilio Matulac; hence, the trial court was barred by the rulings of the Court. The plaintiffs appealed to the Court of Appeals which affirmed the latter’s decision.

ISSUE: Whether or not the trial court erred in not declaring the sale of the properties in question from Iluminada Pacetes to Constancio Maglana, thence, from Constancio Maglana to Emilio Matulac NULL and VOID for there was delay incurred by Concepcion in not delivering the Title of the subject lands to Pacetes. RULING: Article 1191 in tandem with Article 1592 of the New Civil Code are central to the issues at bar. Under the last paragraph of Article 1169 of the New Civil Code, in reciprocal obligations, neither party incurs in delay if the other does not comply or is not ready to comply in a proper manner with what is incumbent upon him. From the moment one of the parties fulfills his obligation, delay in the other begins. Thus, reciprocal obligations are to be performed simultaneously so that the performance of one is conditioned upon the simultaneous fulfillment of the other. The right of rescission of a party to an obligation under Article 1191 of the New Civil Code is predicated on a breach of faith by the other party that violates the reciprocity between them. The petitioners therefore, as successors-in-interest of the vendor, are not the injured parties entitled to a rescission of the deed of absolute sale. It was Concepcion’s heirs, including the petitioners, who were obliged to deliver to the vendee a certificate of title over the property under the latter’s name, free from all liens and encumbrances within 120 days from the execution of the deed of absolute sale on October 24, 1956, but had failed to comply with the obligation. Furthermore, the consignation by the vendee of the purchase price of the property is sufficient to defeat the right of the petitioners to demand for a rescission of the said deed of absolute sale. The petition for review was denied for lack of merit.

EFFECTS OF RESOLUTION/RESCISSION SERRANO VS. COURT OF APPEALS 417 SCRA 415

FACTS Petitioners spouses Arturo and Niceta Serrano are the owners of the parcel of land and the house constructed thereon located in Quezon City and a parcel of land located in Quezon City. The couple mortgaged said properties in favor of Government Service Insurance System (GSIS) for a security loan of P50,000. They were able to pay P18,000 on 1969. On the same year, the spouses Serrano as vendors and respondents spouses Emilio and Evelyn Geli as vendees executed a deed of absolute sale with partial assumption of the mortgage for the price of P70,000. Spouses Geli paid the amount of P38,000 and the balance of P32,000 to be paid to GSIS. Emilio Geli and his children, respondents herein, failed to settle the amount to the GSIS. Petitioners filed a complaint for the rescission of the deed of absolute sale with partial assumption of mortgage on September 6, 1984. The trial court rendered a decision ordering rescission of the deed. Emilio and petitioners appealed the decision to the Court of Appeals (CA). The GSIS foreclosed the mortgage during the pendency of the appeal. A certificate of sale over the property was issued in favor of the GSIS it being the highest bidder. In 1987, Emilio paid the redemption price of P67,701.84 to GSIS. Accordingly, the GSIS executed a deed of transfer and turned over to Emilio the transfer certificate title (TCT) without informing Serrano and the CA. In 1991, the CA dismissed Emilio and petitioners’ appeal for failure to pay the requisite docket fees which became final and executory. On February 15, 1994, the court granted the motion for execution of the trial court’s September 6, 1984 decision upon the motion of the petitioners which was not implemented. Defendant filed a motion to quash on September 6, 1996 claming for the first time that he had redeemed the said properties from GSIS in 1988 which was denied by the court. The trial court issued an alias writ of execution upon issuance of order granting petitioners’ motion. The petitioners filed with the CA a petition for certiorari and/or prohibition praying for the nullification of the trial court orders. CA issued an order restraining the implementation of the alias writ of execution and the notice to vacate issued by the trial court. CA on May 12, 1998 granted the respondents’ motion.

ISSUE: Whether or not the trial court’s September 6, 1984 judgment ordering the rescission of the deed of absolute sale with partial assumption of mortgage executed by petitioners and respondents is proper. RULING: YES. The payment by Emilio of the redemption price to the GSIS was made pending appeal by the respondents from the trial court’s order and concealed said payment to petitioners. The respondents’ appealed the decision before the CA which was subsequently dismissed for failure to pay the requisite docket fees. Neither did respondents file any motion for reconsideration for the dismissal of the appeal. Consequently, the trial court’s decision became final and executory. With the rescission of the deed of sale, the rights of Emilio Geli under said deed to redeem the property had been extinguished. The petitioners cannot even be compelled to subrogate the respondents to their right under the real estate mortgage over the property which the petitioners executed in favor of GSIS since the payment of the redemption price was made without the knowledge of the petitioners. The respondents, however, are entitled to be reimbursed by the petitioners to the extent that the latter were benefited. In sum, respondents are obliged to vacate the subject property. The decision of the CA is reversed and set aside. The petitioners are obliged to return the amount of P67,701.04 to be deducted from the amount due the petitioners under said trial court’s decision.

EFFECTS OF RESOLUTION/RESCISSION REYES VS. LIM G. R. No. 134241 August 11, 2003 408 SCRA 560 FACTS: Petitioner David Reyes, as seller, and Jose Lim, as buyer, entered into a contract to sell a parcel of land located along F.B. Harrison Street, Pasay City on November 7, 1994. Harrison Lumber occupied the property as lessee with a monthly rental of P35,000.00. The contract provided that the total consideration

for the purchase of the property is P28,000,000.00 and upon signing of the contract, P10,000,000.00 should be paid as down payment. The balance of P18,000,000.00 shall be paid at a bank designated by the buyer but upon the complete vacation of all the tenants or occupants of the property. The contract also provided that in the event, the tenants or occupants of the premises shall not vacate the premises on March 8, 1995, the vendee shall withhold the payment of the balance of P18,000,000.00 and the vendor agrees to pay a penalty of 4% per month to the vendee based on the down payment of P10,000,000.00 until the complete vacation of the premises by the tenants. Petitioner claimed that he had informed Harrison Lumber to vacate the property before the end of January 1995. Reyes also informed Chuy Cheng Keng and Harrison Lumber that if they failed to vacate by March 8, 1995, he would hold them liable for the penalty of P400,000.00 a month as provided in the contract to sell. His complaint also alleged that Lim connived with Harrison Lumber not to vacate the property until the P400,000.00 monthly penalty would have accumulated and equaled the unpaid purchase price of P18,000,000.00. Keng and Harrison Lumber denied that Lim had connived with them. Harrison Lumber alleged that Reyes approved their request for an extension of time to vacate the property and that as of March 1995, it had already started transferring some of its merchandise to its new business location in Malabon. On the other hand, Lim filed his Answer stating that he was ready and willing to pay the balance of the purchase price on or before March 8, 1995. Lim requested a meeting with Reyes through the latter’s daughter but Reyes kept postponing them. On March 9, 1995, Reyes offered to return the P10 million down payment to Lim because Reyes was having problems in removing the lessee from the property. Lim rejected Reyes’ offer and proceeded to verify the status of Reyes’ title to the property. He learned that Reyes had already sold the property to Line One Foods Corporation on March 1, 1995 for P16,782,480. Lim also denied conniving with Keng and Harrison Lumber. On November 2, 1995, Reyes filed a Motion for Leave to File Amended Complaint due to the filing by Lim of a complaint for estafa against Reyes as well as an action for specific performance and nullification of sale and title plus damages before another trial court. Meanwhile, Lim prayed for the cancellation of the Contract to Sell and for the issuance of writ of preliminary attachment against Reyes but the court denied the writ. Lim requested on March 6, 1997 in open court that Reyes be

ordered to deposit the P10 million down payment with the cashier of the trial court and the court granted this motion. The trial court denied Reyes’ motion to set aside the order dated March 6, 1997. On October 3, 1997, the court denied Reyes’ motion for reconsideration and ordered Reyes to deposit the P10 million down payment on or before October 30, 1997. Reyes file a petition for certiorari with the Court of Appeals but the appellate court dismissed the petition for lack of merit. ISSUE: Whether or not the petitioner should deposit the P10 million down payment to the custody of the trial court as an effect of rescission of the Contract to Sell RULING: The Supreme Court held that an action for rescission could prosper only if the party demanding rescission can return whatever he may be obliged to restore should the court grant the rescission. The trial court in the exercise of its equity jurisdiction may validly order the deposit of P10 million down payment in court. The purpose of the exercise of equity jurisdiction in this case is to prevent unjust enrichment and to ensure restitution. Reyes is seeking rescission of the Contract to Sell. To subscribe top Reyes’ contention will unjustly enrich Reyes at the expense of Lim. Reyes sold to Line One Foods Corporation the property. Reyes cannot claim ownership of the P10 million down payment because Reyes had already sold to another buyer the property for which Lim made the down payment. The Supreme Court find the equities weigh heavily in favor of Lim, who paid the P10 million down payment in good faith only to discover later that Reyes had subsequently sold the property to another buyer. Hence, the appealed decision of the appellate court is affirmed and the petition is dismissed. EFFECTS OF RESOLUTION/RESCISSION

ONG YONG, JUANITA TAN ONG, WILSON T. ONG, ANNA L. ONG, WILLIAM T. ONG, WILLIE T. ONG, And JULIE ONG ALONZO, petitioners, VS. DAVID S. TIU, CELY Y. TIU, MOLY YU GAW, BELEN SEE YU, D. TERENCE Y. TIU,

JOHN YU, LOURDES C. TIU, INTRALAND RESOURCES DEVELOPMENT CORP., MASAGANA TELAMART, INC., REGISTER OF DEEDS OF PASAY CITY, And the SECURITIES AND EXCHANGE COMMISSION, respondents G.R. No. 144476 February 1, 2002 FACTS: The Masagana Citimall, a commercial complex owned and managed by the First Landlink Asia Development Corporation (FLADC) was threatened with incompletion when its owner found in its financial distress in the amount of P190M for being indebted to the Philippine National Bank (PNB). FLADC was then fully owned by the Tiu Group composed of David S. Tiu, Cely Y. Tiu, Moly Yu Gaw, Belen See Yu, D. Terence Y. Tiu, John Yu and Lourdes C. Tiu. In order to recover from its floundering finances, the Ong Group composed of Ong Yong, Juanita Tan Ong, Wilson T. Ong, Anna L. Ong, William T. Ong and Julie Ong Alonzo, were invited by the Tius to invest in FLADC. Hence, the execution of a Pre-Subscription Agreement by and between the Tiu and Ong Groups on August 15, 1994. By the Pre-Subscription Agreement, both parties agreed to maintain equal shareholdings in FLADC with the Ongs investing cash while the Tius contributing property. Specifically, the Ongs were to subscribe to 1 million shares of FLADC at a par value of P100.00 per share while the Tius were to subscribe to 549,800 shares more of FLADC at a par value of P100.00 per share over and above their previous subscription of 450,200 shares in order to complete a subscription of 1 million shares. Commensurate to their proposed subscriptions, the Ongs were to pay P100,000,000.00 in cash, while the Tius were to contribute the properties by way of separate Deeds of Assignments. The controversy between the two parties arose when the Ongs refused to credit the number of FLADC shares in the name of Masagana Telamart, Inc. commensurate to its 1,902.30 square meter property contribution; also when they refused to credit the number of FLADC shares in favor of the Tius commensurate to their 151 square meter property contribution; and when David S. Tiu and Cely Y. Tiu were proscribed from assuming and performing their duties as Vice-President and Treasurer, respectively of FLADC. These became the basis of the Tius' unilateral rescission of the Pre-Subscription Agreement on February.

ISSUE: Whether Court of Appeals erred in ruling that the ‘Pre-Subscription Agreement’ of the parties may be rescinded under Article 1191 of the New Civil Code. RULING: No. The Court of Appeals did not err in ruling that the "Pre-Subscription Agreement" of the parties dated August 15, 1994 may be rescinded under Article 1191 of the New Civil Code.The Ongs illustrate reciprocity in the following manner: In a contract of sale, the correlative duty of the obligation of the seller to deliver the property is the obligation of the buyer to pay the agreed price. In the case at bar, the correlative obligation of the Tius to let the Ongs have and exercise the functions of the positions of President and Secretary is the obligation of the Ongs to let the Tius have and exercise the functions of VicePresident and Treasurer. Moreover, the Ongs are now estopped from denying the applicability of Art. 1191 to the present controversy. the Ongs allege that rescission is applicable only to reciprocal obligations and the "Pre-Subscription Agreement" does not provide for reciprocity, hence, the remedy of rescission is not available. The Ongs cited the case of Songcuan vs. IAC, to illustrate their point that "As in the Songcuan case, there are here two (2) separate and distinct obligations each independent of the other the obligation to subscribe to, and to pay, 50% of the increased capital stock of FLADC; and the obligation to install the Ongs and the Tius as members of the Board of Directors and to certain corporate positions, but only after the Ongs and the Tius have subscribed each to 50% of the increased capital stock of FLADC." In this petition, in lieu of Art. 1191, the Ongs invoke Articles 1156 and 1159 of the New Civil Code which state – "Art. 1156.

An obligation is a juridical necessity to give, to do or not to do.

"Art. 1159. Obligations arising from contracts have the force of law between the contracting parties and should be complied with in good faith." and that should there be any violation, those who failed to fulfill their obligations should be required to perform their obligations under the agreement.Contrary to the Ongs' assertion, the Songcuan case does not apply squarely to this case. In the Songcuan case, the Court ruled that Art. 1191 to rescind the right of

the Alviars to repurchase does not apply because their corresponding obligations can hardly be called reciprocal because the obligation of the Alviars to lease to Songcuan the subject premise arises only after the latter had reconveyed the realties to them. On the other hand, in the instant case, the obligations of the two (2) groups to pay 50% of the increased capital stock of FLADC and to install them as members of the Board of Directors and to certain corporate positions are simultaneous and arise upon the execution of the pre-subscription agreement. The Ongs illustrate reciprocity in the following manner: In a contract of sale, the correlative duty of the obligation of the seller to deliver the property is the obligation of the buyer to pay the agreed price. In the case at bar, the correlative obligation of the Tius to let the Ongs have and exercise the functions of the positions of President and Secretary is the obligation of the Ongs to let the Tius have and exercise the functions of Vice-President and Treasurer.

EFFECTS OF RESOLUTION/RESCISSION EQUATORIAL REALTY DEVELOPMENT, INC. VS. MAYFAIR THEATER, INC. GR No. 133879 November 21, 2001 FACTS: In June 1967, Carmelo & Bauerman, Inc. entered into a Contract of Lease with Mayfair Theater for a parcel of land with 2-storey building for 20 years. Two years later in March, 1969, Carmelo entered into a second Contract with Mayfair for another portion of the property also for 20 years. In both contracts, Mayfair was given the right-of-first refusal to purchase the properties. However, on July 30, 1978, within the 20-year period, Carmelo sold the same properties to Equatorial for P11,300,000. Mayfair sued Equatorial for specific performance and annulment of the Deed of Absolute Sate with Carmelo. The trial court ruled in favor of Mayfair but was reversed by the CA. The Supreme Court, however, upheld the trial court, for which Mayfair filed a motion for execution. The Deed of Absolute Sale was rescinded and the lot was registered in the name of Mayfair. However, in September 1997, Equatorial filed a collection suit for a sum of money against Mayfair claiming payment of rentals or reasonable compensation for the use of the properties AFTER its lease contracts had expired. The trial court ruled in favor Mayfair holding that the Deed of Absolute Sale in the mother

case DID NOT confer on Equatorial any vested or residual property rights. Hence, the present case. ISSUES: 1. Did Equatorial obtain rights to the property when it entered into Deed of Absolute Sale with Carmelo and hence, entitled to the fruits thereof? 2.

Is the right of first refusal granted to Mayfair through the lease contracts with Carmelo superior to that of Equatorial, and therefore a bar to the consummation of the Deed of Absolute Sale between Carmelo and Equatorial?

RULING: 1. No. Equatorial did not obtain right of ownership over the property when it entered into the Deed of Absolute Sale. Ownership of the property which the buyer acquires only upon the delivery of the thing to him. There is delivery if the thing sold is placed in the control and possession of the vendee. While the execution of a public instrument of sale is recognized by law as the equivalent of delivery of the thing sold, such constructive or symbolic delivery, being only presumptive, is deemed negated by the failure of the vendee to take actual possession of the property sold. Since Mayfair was in actual possession of the property by virtue of the lease contract with Carmelo, there was no consummation of the sale, and therefore, Equatorial did not get ownership right (real right). 2. The Deed of Absolute Sale entered into by Carmelo and Equatorial was a violation of the right of first refusal granted by Carmelo to Mayfair. The execution of the deed of absolute sale as a form of constructive delivery is a legal fiction. It holds true only if there is no legal impediment that may prevent the passing of the property from the vendor to the vendee. The right of first refusal held by Mayfair was such legal impediment. Therefore, there was no transfer of ownership from Camelot to Equatorial. Dissenting opinion: The Deed of Absolute Sale was deemed a rescissible contract and should remain valid until rescinded. Since the Deed was not actually rescinded in the decision of the mother case, then it was valid until it is rescinded in a proper court decision. Since there was no actual rescission of the contract, then

Equatorial was deemed the own of the property from the signing of the Deed to the time the property was legally transferred to Mayfair. EFFECTS OF RESOLUTION/RESCISSION Spouses MARIANO Z. VELARDE and AVELINA D. VELARDE VS. COURT OF APPEALS, DAVID A. RAYMUNDO and GEORGE RAYMUNDO 2001 Jul 11 G.R. No. 108346 FACTS: David Raymundo is the absolute and registered owner of a parcel of land, together with the house and other improvements thereon, located at 1918 Kamias St., Dasmariñas Village, Makati and covered by TCT No. 142177. Defendant George Raymundo is David’s father who negotiated with plaintiffs Avelina and Mariano Velarde for the sale of said property, which was, however, under lease. On August 8, 1986, a Deed of Sale with Assumption of Mortgage was executed by defendant David Raymundo, as vendor, in favor of plaintiff Avelina Velarde, as vendee, with terms and conditions one of which is: ‘That as part of the consideration of this sale, the VENDEE hereby assumes to pay the mortgage obligations on the property herein sold in the amount of ONE MILLION EIGHT HUNDRED THOUSAND PESOS (P1,800,000.00), Philippine currency, in favor of Bank of the Philippine Islands, in the name of the VENDOR, and further agrees to strictly and faithfully comply with all the terms and conditions appearing in the Real Estate Mortgage signed and executed by the VENDOR in favor of BPI, including interests and other charges for late payment levied by the Bank, as if the same were originally signed and executed by the VENDEE. The Vendee herby agreed that until such time as her assumption of the mortgage obligations on the property purchased is approved by the mortgagee bank, the Bank of the Philippine Islands, she shall continue to pay the said loan in accordance with the terms and conditions of the Deed of Real Estate Mortgage in the name of Mr. David A. Raymundo, the original Mortgagor. And further agrees That, in the event there is violation in any of the terms and conditions of the said Deed of Real Estate Mortgage, that the downpayment of P800,000.00, plus all payments made with the Bank of the Philippine Islands on the mortgage

loan, shall be forfeited in favor of Mr. David A. Raymundo, as and by way of liquidated damages, without necessity of notice or any judicial declaration to that effect, and Mr. David A Raymundo shall resume total and complete ownership and possession of the property sold by way of Deed of Sale with Assumption of Mortgage, and the same shall be deemed automatically cancelled and be of no further force or effect, in the same manner as if (the) same had never been executed or entered into. Plaintiffs were advised that the Application for Assumption of Mortgage with BPI was not approved. This prompted plaintiffs not to make any further payment. Defendants, thru counsel, wrote plaintiffs informing the latter that their non-payment to the mortgage bank constituted non-performance of their obligation Plaintiffs, thru counsel, responded, that they are willing to pay the balance in cash not later than January 21, 1987 provided: (a) there is deliver actual possession of the property to her not later than January 15, 1987 for her immediate occupancy; (b) defendant cause the release of title and mortgage from the Bank of P.I. and make the title available and free from any liens and encumbrances; and (c) defendant must execute an absolute deed of sale in plaintiff’s favor free from any liens or encumbrances not later than January 21, 1987. On January 8, 1987, defendants sent plaintiffs a notarial notice of cancellation/rescission of the intended sale of the subject property allegedly due to the latter’s failure to comply with the terms and conditions of the Deed of Sale with Assumption of Mortgage ISSUE: Whether or not rescission should be granted in the case at bar.

RULING: The right of rescission of a party to an obligation under Article 1191 of the Civil Code is predicated on a breach of faith by the other party who violates the reciprocity between them. The breach contemplated in the said provision is the obligor’s failure to comply with an existing obligation. When the obligor cannot comply with what is incumbent upon it, the obligee may seek rescission and, in

the absence of any just cause for the court to determine the period of compliance, the court shall decree the rescission. In the present case, private respondents validly exercised their right to rescind the contract, because of the failure of petitioners to comply with their obligation to pay the balance of the purchase price. Indubitably, the latter violated the very essence of reciprocity in the contract of sale, a violation that consequently gave rise to private respondents’ right to rescind the same in accordance with law. True, petitioners expressed their willingness to pay the balance of the purchase price one month after it became due; however, this was not equivalent to actual payment as would constitute a faithful compliance of their reciprocal obligation. Moreover, the offer to pay was conditioned on the performance by private respondents of additional burdens that had not been agreed upon in the original contract. Thus, it cannot be said that the breach committed by petitioners was merely slight or casual as would preclude the exercise of the right to rescind. In the instant case, the breach committed did not merely consist of a slight delay in payment or an irregularity; such breach would not normally defeat the intention of the parties to the contract. Here, petitioners not only failed to pay the P1.8 million balance, but they also imposed upon private respondents new obligations as preconditions to the performance of their own obligation. In effect, the qualified offer to pay was a repudiation of an existing obligation, which was legally due and demandable under the contract of sale. Hence, private respondents were left with the legal option of seeking rescission to protect their own interest.

EFFECTS OF RESOLUTION/RESCISSION ASUNCION VS. EVANGELISTA G.R. No. 133491 October 13, 1999 316 SCRA 848 FACTS: Private respondent has been operating a piggery since 1970, which was under the trade name of Embassy Farms. In 1981, private respondent’s wife,

together with three others, organized Embassy Farms, Inc. and registered it with the Securirties and Exchange Commission. Private respondent was the majority stockholder of the corporation, president and chief executive officer. On September 9, 1980, he borrowed P500,000.00 from Paluwagan ng Bayan Savings and Loan Association to use as working capital for the farm. He executed a real estate mortgage on three of his properties as security for the loan. On November 4, 1981, he mortgaged ten titles more in favor of PAIC Savings and Mortgage Bank as security for another loan in the amount of P1,712,000.00. On February 16, 1982, he obtained another loan in the amount of P844,625.78 from Mercator Finance Corporation. It was secured by a real estate mortgage on five other landholdings of private respondent, all situated in Bulacan. However, he defaulted in his loan payments. By June 1984, private respondent debt had ballooned to almost six million pesos in overdue principal payments, interests, penalties and other financial charges. On August 2, 1984, petitioner and private respondent executed a Memorandum of Agreement that states that petitioner will pay all of the loans of respondent provided that the latter will transfer the title of the farm and properties, which were mortgaged in favor of the petitioner. The petitioner was able to pay partially the loans of respondent from the three creditors as compliance to the MOA. For his part, private respondent was obligated under the MOA to execute, sign, and deliver any and all documents necessary for the transfer and conveyance of the mortgaged properties as well as of the farm. However, more than a year after signing the MOA, the landholdings of the respondent still remained titled in his name. Neither did he inform said mortgages of the transfer of his lands. On April 10, 1986, petitioner filed in the RTC a compliant for rescission of the MOA with a prayer for damages. The trial court ruled in favor of the private respondent. On July 12, 1994, a copy of the decision of the trial court was sent by registered mail to petitioner’s counsel however, unknown to petitioner, his counsel died while the case was pending. On February 2, 1998, CA affirmed the decision of the trial court and ordered its immediate execution. Petitioner’s motion for reconsideration was likewise denied. ISSUE: Whether or not rescission of the MOA is a valid remedy for the petitioner. RULING:

Yes. Article 1191 of the Civil Code governs the situation where there is non-compliance by one party in case of reciprocal obligations. The Supreme Court found that private respondent failed to perform his substantial obligations under the MOA. Hence, petitioner sought the rescission of the agreement and ceased infusing capital into the piggery business of private respondent. He later justified his refusal to execute any deed of sale and deliver the certificates of stock by accusing petitioner of having failed to assume his debts. The Court holds that the respondent’s insistence that petitioner execute a formal assumption of mortgage independent and separate from his own execution of a deed of cases is legally untenable, considering that a recorded real estate mortgage is a lien inseparable from the property mortgaged and until discharged, it follows the property. The Court holds, in fine, that the MOA entered into by petitioner and private respondent should indeed be rescinded. The respondent appellate court erred in assessing damages against petitioner for his refusal to fully pay private respondent’s overdue loans. Such refusal was justified, considering that private respondent was the first to refuse to deliver to petitioner the lands and certificates of stock that were the consideration for the almost 6M in debt that petitioner was to assume and pay. The effect of rescission is also provided in Article 1385 of the Civil Code. The instant petition was granted. Decisions of the lower and appellate courts were reversed and set aside. The MOA entered into by the parties is declared rescinded.

EFFECTS OF RESOLUTION/RESCISSION

UY VS. COURT OF APPEALS 314 SCRA 69 September 9, 1999 FACTS:

Petitioners William Uy and Rodel Roxas are agents authorized to sell eight (8) 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, NHA approved the acquisition of the said parcels of land 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 lands, 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 that the remaining area is located at an active landslide area and therefore, not suitable for development into a housing project. NHA eventually cancelled the sale over the remaining three (3) parcels of land. On March 9, 1992, petitioners filed a complaint for damages. After trial, the RTC of Quezon City rendered the cancellation of contract to be justified and awarded P1.255 million as damages in favor of petitioners. Upon appeal by petitioners, the Court of Appeals reversed the decision and entered a new one dismissing the complaint including the award of damages. The motion for reconsideration having been denied, petitioners seek relief from this court contending, inter alia, that the CA erred in declaring that NHA had any legal basis to rescind the subject sale. ISSUE: Whether or not the contention of petitioner is correct. RULING: NO. Petitioners confuse the cancellation of the contract by the NHA as a rescission of the contract under Article 1191 of the Civil Code. The right to rescission is predicated on a breach of faith by the other party that violates the reciprocity between them. The power to rescind is given to the injured party. In this case, the NHA did not rescind the contract. Indeed, it did not have the right to do so for the other parties to the contract, the vendors did not commit any breach of their obligation. The NHA did not suffer any injury. The cancellation was not therefore a rescission under Article 1191. Rather, it was based on the negation of the cause arising from the realization that the lands, which were the objects of the sale, were not suitable for housing.

damages; e. thirty percent (30%) as attorney’s fees of whatever amount that can be collected by the plaintiff; and f. the costs of the suit. KINDS OF DAMAGES: 1. 2. 3.

VICTORY LINER VS. HEIRS, 394 SCRA 520 GSIS VS. LABUNG-DEANG, 365 SCRA 341 BPI INVESTMENT VS. D.G. CARREON, 371 SCRA 58

VICTORY LINER, INC. petitioner, VS. HEIRS OF ANDRES MALECDAN, respondents 2002 Dec 27 G.R. No. 154278 394 SCRA 520 FACTS: Andres Malecdan was a 75 year-old farmer. On July 15, 1994, at around 7:00 p.m., while Andres was crossing the National Highway on his way home from the farm, a Dalin Liner bus on the southbound lane stopped to allow him and his carabao to pass. However, as Andres was crossing the highway, a bus of petitioner Victory Liner, driven by Ricardo C. Joson, Jr., bypassed the Dalin Bus. In so doing, respondent hit the old man and the carabao on which he was riding. As a result, Andres Malecdan was thrown off the carabao, while the beast toppled over. The Victory Liner bus sped past the old man, while the Dalin bus proceeded to its destination without helping him. The incident was witnessed by Andres Malecdan’s neighbor, Virgilio Lorena, who was resting in a nearby waiting shed after working on his farm. Malecdan sustained a wound on his left shoulder, from which bone fragments protruded. He was taken by Lorena and another person to the district hospital where he died a few hours after arrival. The carabao also died soon afterwards. Lorena executed a sworn statement before the police authorities. Subsequently, a criminal complaint for reckless imprudence resulting in homicide and damage to property was filed against the Victory Liner bus driver Ricardo Joson, Jr. Private respondents brought the suit for damages in the RTC which found the driver guilty of gross negligence in the operation of his vehicle and Victory Liner, Inc. also guilty of gross negligence in the selection and supervision of Joson, Jr. Petitioner and its driver were held liable jointly and severally for damages as follows: a. P50,000.00 as death indemnity; b. P88,339.00 for actual damages; c. P200,000.00 for moral damages; d. P50,000.00 as exemplary

On appeal, the decision was affirmed by the Court of Appeals, with the modification that the award of attorney’s fees was fixed at P50,000.00. ISSUES: 1. Whether or not the CA erred in affirming the appealed decision of the RTC granting P200,000.00 as moral damages which is double the P100,000.00 as prayed for by the private respondents in their complaint and in granting actual damages not supported by official receipts and spent way beyond the burial of the deceased victim. 2. Whether or not the affirmation by the CA of the appealed decision of the RTC granting the award of moral and exemplary damages and attorney’s fees which were not proved and considering that there is no finding of bad faith and gross negligence on the part of the petitioner was not established, is in accord with law and jurisprudence. RULING: The Court found the appealed decision to be in order. Article 2176 provides: “Whoever by act or omission causes damage to another, there being fault or negligence, is obliged to pay for the damage done. Such fault or negligence, if there is no pre-existing contractual relation between the parties, is called a quasi-delict and is governed by the provisions of this Chapter.” Article 2180 provides for the solidary liability of an employer for the quasi-delict committed by an employee. The responsibility of employers for the negligence of their employees in the performance of their duties is primary and, therefore, the injured party may recover from the employers directly, regardless of the solvency of their employees. Employers may be relieved of responsibility for the negligent acts of their employees acting within the scope of their assigned task only if they can show that "they observed all the diligence of a good father of a family to prevent damage." For this purpose, they have the burden of proving that they have indeed exercised such diligence, both in the selection of the employee and in the supervision of the performance of his duties. In the selection of prospective employees, employers are required to examine them as to their qualifications, experience and service records. With

respect to the supervision of employees, employers must formulate standard operating procedures, monitor their implementation and impose disciplinary measures for breaches thereof. These facts must be shown by concrete proof, including documentary evidence. In the instant case, petitioner presented the results of Joson, Jr.’s written examination, actual driving tests, x-ray examination, psychological examination, NBI clearance, physical examination, hematology examination, urinalysis, student driver training, shop training, birth certificate, high school diploma and reports from the General Maintenance Manager and the Personnel Manager showing that he had passed all the tests and training sessions and was ready to work as a professional driver. However, the trial court noted that petitioner did not present proof that Joson, Jr. had nine years of driving experience. Petitioner also presented testimonial evidence that drivers of the company were given seminars on driving safety at least twice a year. However, the trial court noted that there is no record of Joson, Jr. ever attending such a seminar. Petitioner likewise failed to establish the speed of its buses during its daily trips or to submit in evidence the trip tickets, speed meters and reports of field inspectors. The finding of the trial court that petitioner’s bus was running at a very fast speed when it overtook the Dalin bus and hit the deceased was not disputed by petitioner. Thus it was held that the trial court did not err in finding petitioner to be negligent in the supervision of its driver Joson, Jr. To justify an award of actual damages, there should be proof of the actual amount of loss incurred in connection with the death, wake or burial of the victim. Receipts showing expenses incurred some time after the burial of the victim, such as expenses relating to the 9th day, 40th day and 1st year death anniversaries are not to be taken accounted for. In this case, the trial court awarded P88,339.00 as actual damages. While these were duly supported by receipts, these included the amount of P5,900.00, the cost of one pig which had been butchered for the 9th day death anniversary of the deceased. The item cannot be allowed. The award of P200,000.00 for moral damages was reduced. The trial court found that the wife and children of the deceased underwent "intense moral suffering" as a result of the latter’s death. Under Art. 2206 of the Civil Code, the spouse, legitimate children and illegitimate descendants and ascendants of the deceased may demand moral damages for mental anguish by reason of the death of the deceased. Under the circumstances of this case an award of P100,000.00 would be in keeping with the purpose of the law in allowing moral damages.

The award of P50,000.00 for indemnity is in accordance with current rulings of the Court. Art. 2231 provides that exemplary damages may be recovered in cases involving quasi-delicts if the defendant acted with gross negligence. Exemplary damages are imposed not to enrich one party or impoverish another but to serve as a deterrent against or as a negative incentive to curb socially deleterious actions. In this case, petitioner’s driver Joson, Jr. was grossly negligent in driving at such a high speed along the national highway and overtaking another vehicle which had stopped to allow a pedestrian to cross. Worse, after the accident, Joson, Jr. did not stop the bus to help the victim. Under the circumstances, the trial court’s award of P50,000.00 as exemplary damages was proper.

EFFECTS OF RESOLUTION/RESCISSION GOVERNMENT SERVICE INSURANCE SYSTEM VS. SPOUSES GONZALO and MATILDE LABUNG-DEANG G.R. No. 135644 September 17, 2001 365 SCRA 341 FACTS: Sometime in December 1969, the spouses Deang obtained a housing loan from the GSIS in the amount of eight thousand five hundred pesos (P8,500.00). Under the agreement, the loan was to mature on December 23, 1979. The loan was secured by a real estate mortgage constituted over the spouses’ property. As required by the mortgage deed, the spouses Daeng deposited the owner’s duplicate copy of the title with the GSIS. On January 19, 1979, eleven (11) months before the maturity of the loan, the spouses Deang settled their debt with the GSIS and requested for the release of the owner’s duplicate copy of the title since they intended to secure a loan from a private lender and use the land covered by it as collateral security for the loan of fifty thousand pesos (P50,000.00) which they applied for with one Milagros Runes. They would use the proceeds of the loan applied for the renovation of the spouses’ residential house and for business. However, personnel of the GSIS were not able to release the owner’s duplicate of the title as it could not be found despite diligent search.

Satisfied that the owner’s duplicate copy of the title was really lost, in 1979, GSIS commenced the reconstitution proceedings with the Court of First Instance of Pampanga for the issuance of a new owner’s copy of the same. On June 22, 1979, GSIS issued a certificate of release of mortgage. On June 26, 1979, after the completion of judicial proceedings, GSIS finally secured and released the reconstituted copy of the owner’s duplicate of Transfer Certificate of Title No. 14926-R to the spouses Deang. On July 6, 1979, the spouses Deang filed with the Court of First Instance, Angeles City a complaint against GSIS for damages, claiming that as result of the delay in releasing the duplicate copy of the owner’s title, they were unable to secure a loan from Milagros Runes, the proceeds of which could have been used in defraying the estimated cost of the renovation of their residential house and which could have been invested in some profitable business undertaking. The trial court rendered decision in favor of the spouses Labung-Deang. The Court of Appeals also affirmed the decision of the lower court. ISSUE: Whether or not GSIS is liable for damages. RULING: Under the facts, there was a pre-existing contract between the parties. GSIS and the spouses Deang had a loan agreement secured by a real estate mortgage. The duty to return the owner’s duplicate copy of title arose as soon as the mortgage was released. Negligence is obvious as the owners’ duplicate copy could not be returned to the owners. Thus, GSIS is liable for damages.

Temperate damages may be granted on the amount of P20, 000.00 as a reasonable amount considering that GSIS spent for the reconstitution of the owners’ duplicate copy of the title. Wherefore the petition is denied.

EFFECTS OF RESOLUTION/RESCISSION BPI INVESTMENT CORPORATION, petitioner, VS. D. G. CARREON COMMERCIAL CORPORATION, DANIEL G. CARREON, AURORA J. CARREON, AND JOSEFA M. JECIEL, respondents 2001 Nov 29 371 SCRA 58 FACTS: Petitioner BPI Investment Corporation (BPI Investments), formerly known as “Ayala Investment and Development Corporation,” was engaged in money market operations. Respondent D. G. Commercial Corporation was a client of petitioner and started its money market placements in September, 1978. The individual respondents, spouses Daniel and Aurora Carreon and Josefa M. Jeceil also placed with BPI Investments their personal money in money market placements.

First, in a breach of contract, moral damages are not awarded if the defendant is not shown to have acted fraudulently or with malice or bad faith. The fact that the complainant suffered economic hardship or worries and mental anxiety is not enough.

On April 21, 1982, BPI Investments wrote respondents Daniel Carreon and Aurora Carreon, demanding the return of the overpayment of P410,937.09. The respondents asserted that there was no overpayment and asked for time to look for the papers. Upon the request of BPI Investments, the spouses Daniel and Aurora Carreon sent to BPI Investments a proposed memorandum of agreement, dated May 7, 1982.

Second, actual damages cannot be awarded as there is no factual basis for such award. Actual damages to be compensable must be proven by clear evidence. A court cannot rely on “speculation, conjecture or guess work” as to the fact and amount of damages, but must depend on actual proof.

The agreement provided that respondent company, in the spirit of goodwill, agreed to temporarily reimburse BPI the amount of P410,937.09 while the said controversy (transactions of the placement) would be checked within five years.

On the other hand, it is also apparent that the spouses Deang suffered financial damage because of the loss of the owners’ duplicate copy of the title.

On May 10, 1982, BPI Investments, without responding to the memorandum and proposal of D. G. Carreon filed with the Court of First Instance of Rizal, Branch 36, Makati, a complaint for recovery of a sum of money against

D. G. Carreon with preliminary attachment. On May 14, 1982, the trial court issued an order for preliminary attachment after submission of affidavit of merit to support the petition, and the posting of a bond in the amount of P200,000.00. However, on October 8, 1982, the trial court lifted the writ of attachment. On October 28, 1982, BPI Investments moved for reconsideration, but the trial court denied the motion after finding the absence of double payment to the defendants. On July 30, 1982, respondents D. G. Carreon filed with the trial court an answer to the complaint, with counterclaim. D.G. Carreon asked for compensatory damages in an amount to be proven during the trial; spouses Daniel and Aurora Carreon asked for moral damages of P1,000,000.00 because of the humiliation, great mental anguish, sleepless nights and deterioration of health due to the filing of the complaint and indiscriminate and wrongful attachment of their property, especially their residential house and payment of their money market placement of P109,283.75. Josefa Jeceil asked for moral damages of P500,000.00, because of sleepless nights and mental anguish, and payment of her money market placement of P73,857.57; all defendants claimed for exemplary damages and attorney’s fees of P100,000.00. On May 25, 1993, the trial court rendered a decision dismissing both the complaint and the counterclaim. Both parties appealed. On July 19,1996, the Court of Appeals affirmed the dismissal of the complaint but reversed and set aside the dismissal of the counterclaim thereby awarding respondents damages amounting to more than P5M in sum. ISSUE: Whether or not respondents are entitled to damages as awarded by Court of Appeals. RULING: No. The Court found petitioner not guilty of gross negligence in the handling of the money market placement of respondents. “Gross negligence implies a want or absence of or failure to exercise slight care or diligence, or the entire absence of care. It evinces a thoughtless disregard of consequences without exerting any effort to avoid them.” However, while petitioner BPI Investments may not be guilty of gross negligence, it failed to prove by clear and convincing evidence that D. G. Carreon indeed received money in excess of what was due them. “The alleged payments in the complaint were admitted by plaintiff itself to be withdrawals

from validly issued commercial papers, duly verified and signed by at least two authorized high-ranking officers of BPI Investments.” The law on exemplary damages is found in Section 5, Chapter 3, Title XVIII, Book IV of the Civil Code. These are imposed by way of example or correction for the public good, in addition to moral, temperate, liquidated, or compensatory damages. They are recoverable in criminal cases as part of the civil liability when the crime was committed with one or more aggravating circumstances; in quasi-delicts, if the defendant acted with gross negligence; and in contracts and quasi-contracts, if the defendant acted in a wanton, fraudulent, reckless, oppressive, or malevolent manner. BPI Investments did not act in a wanton, fraudulent, reckless, oppressive, or malevolent manner, when it asked for preliminary attachment. It was just exercising a legal option. The sheriff of the issuing court did the execution and the attachment. Hence, BPI Investments is not to be blamed for the excessive and wrongful attachment. The award of moral damages and attorney’s fees is also not in keeping with existing jurisprudence. Moral damages may be awarded in a breach of contract when the defendant acted in bad faith, or was guilty of gross negligence amounting to bad faith, or in wanton disregard of his contractual obligation. Finally, with the elimination of award of moral damages, so must the award of attorney’s fees be deleted. ”There is no doubt, however, that the damages sustained by respondents were due to petitioner’s fault or negligence, short of gross negligence. Temperate or moderate damages may be recovered when the court finds that some pecuniary loss has been suffered but its amount cannot, from the nature of the case, be proved with certainty. The Court deems it prudent to award reasonable temperate damages to respondents under the circumstances. As to the claim for payment of the money market placement of Josefa Jeceil, the trial court may release the deposited amount of P73,857.57 to petitioner as the consignation was not proper or warranted. Thus, the decision of the Court of Appeals is affirmed with modification. The award of moral, compensatory and exemplary damages and attorney’s fees are deleted. BPI Investments is ordered to pay to the estate of Daniel G. Carreon and Aurora J. Carreon the money market placement of P109,238.75, with legal interest of twelve (12%) percent per annum from June 3, 1982, until fully paid; to pay the estate of Josefa M. Jeceil, the money market placement in the amount of P73,857.57, with legal interest at twelve (12%) percent per annum from maturity

on July 12, 1982, until fully paid. The petitioner may withdraw its deposit from the lower court at its peril. BPI Investments is likewise ordered to pay temperate damages to the estate of the late Daniel G. Carreon in the amount of P300,000.00, and to the estate of Aurora J. Carreon in the amount of P300,000.00, and to the estate of Josefa M. Jeceil in the amount of P150,000.00. REMEDIES IN CASE OF BREACH: ACCION PAULIANA KHE HONG CHENG VS. COURT OF APPEALS 355 SCRA 701 G.R. No. 144169 March 28, 2001 FACTS: Petitioner Khe Hong Cheng, is the owner of Butuan Shipping Lines. Its vessel M/V Prince Eric was used by Philippine Agricultural Trading Corporation to ship 3,400 bags of Copra at Masbate for delivery to Dipolog. The shipment was covered by a marine insurance policy issued by American Home Insurance Company (eventually Philam). However, M/V Prince Eric sank, which resulted to the total loss of the shipment. Insurer Philam paid the amount of P 354,000.00, which is the value of the copra, to Philippine Agricultural Trading Corporation. American Home was thereby subrogated unto the rights of the consignee and filed a case to recover money paid to the latter, based on breach of common carriage. While the case was pending, Khe Hong Cheng executed deeds of donations of parcels of land in favor of his children. As a consequence of a favorable judgment for American Home, a writ of execution to garnish Khe Hong Cheng’s property was issued. But the writ of execution could not be implemented because Cheng’s property were already transferred to his children. Consequently, American filed a case for the rescission of the deeds of donation executed by petitioner in favor of children on the ground that they were made in fraud of his creditors. Petitioner answered that the action should be dismissed for it already prescribed. Petitioner posited that the registration of the donation was on December 27, 1989 and such constituted constructive notice. And since the complaint was filed only in 1997, more than four (4) years after registration, the action is thereby barred by prescription. ISSUES:

Whether or not the action for the rescission of the deed of donation has prescribed, and whether or not accion pauliana/ rescission of the deed of donation is proper. RULING: NO for the first issue. Although the Civil Code provides that “The action to claim rescission must be commenced within four (4) years” is silent as to where the prescriptive period would commence, the general rule is such shall be reckoned from the moment the cause of action accrues; i.e., the legal possibility of bringing the action. Since accion pauliana is an action of last resort after all other legal remedies have been exhausted and have been proven futile, in the case at bar, it was only in February 25, 1997, barely a month from discovering that petitioner Khe Hong Cheng had no other property to satisfy the judgment award against him that the action for rescission accrued. So the contention of Khe Hong Cheng that the action accrued from the time of the constructive notice; i.e., December 27, 1989, the date that the deed of donation was registered, is untenable. YES for the second issue. For an accion pauliana to accrue, the following requisites must concur: first, the plaintiff asking for rescission has a credit prior to the alienation, although demandable late. Second, that the debtor has made a subsequent contract conveying a patrimonial benefit to a third person. Third, that the creditor has no other legal remedy to satisfy his claim; but would benefit by rescission of the conveyance to the third person. Fourth, that the act being impugned is fraudulent, and fifth, that the third person who received the property conveyed, if by onerous title, has been an accomplice in the fraud. All the above enumerated elements are presents in the case at bar.

FORTUITOUS EVENTS/ CASO FORTUITO – REQUISITES 1. 2. 3.

SICAM VS. JORGE, 8 AUGUST 2007 HUIBONHOA VS. CA, DEC. 14, 1999 ACE AGRO VS. CA, 266 SCRA 429

ROBERTO C. SICAM and AGENCIA de R.C. SICAM, INC. versus LULU V. JORGE and CESAR JORGE

G.R. NO. 159617

August 8, 2007

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

steps to secure and protect the pledged items and should take steps to insure itself against the loss of articles which are entrusted to its custody as it derives earnings from the pawnshop trade which petitioners failed to do and that robberies and hold-ups are foreseeable risks in that those engaged in the pawnshop business are expected to foresee. ISSUE: Whether petitioners are liable for the loss of the pawned articles in their possession. RULING: Fortuitous events by definition are extraordinary events not foreseeable or avoidable. It is therefore, not enough that the event should not have been foreseen or anticipated, as is commonly believed but it must be one impossible to foresee or to avoid. The mere difficulty to foresee the happening is not impossibility to foresee the same. To constitute a fortuitous event, the following elements must concur: (a) the cause of the unforeseen and unexpected occurrence or of the failure of the debtor to comply with obligations must be independent of human will; (b) it must be impossible to foresee the event that constitutes the caso fortuito or, if it can be foreseen, it must be impossible to avoid; (c) the occurrence must be such as to render it impossible for the debtor to fulfill obligations in a normal manner; and, (d) the obligor must be free from any participation in the aggravation of the injury or loss. The burden of proving that the loss was due to a fortuitous event rests on him who invokes it. And, in order for a fortuitous event to exempt one from liability, it is necessary that one has committed no negligence or misconduct that may have occasioned the loss. It has been held that an act of God cannot be invoked to protect a person who has failed to take steps to forestall the possible adverse consequences of such a loss. One's negligence may have concurred with an act of God in producing damage and injury to another; nonetheless,

showing that the immediate or proximate cause of the damage or injury was a fortuitous event would not exempt one from liability. When the effect is found to be partly the result of a person's participation -- whether by active intervention, neglect or failure to act -- the whole occurrence is humanized and removed from the rules applicable to acts of God. Petitioner Sicam had testified that there was a security guard in their pawnshop at the time of the robbery and that when he started the pawnshop business in 1983, he thought of opening a vault with the nearby bank for the purpose of safekeeping the valuables but was discouraged by the Central Bank since pawned articles should only be stored in a vault inside the pawnshop. The very measures which petitioners had allegedly adopted show that to them the possibility of robbery was not only foreseeable, but actually foreseen and anticipated. The testimony, in effect, contradicts petitioners’ defense of fortuitous event. Moreover, petitioners failed to show that they were free from any negligence by which the loss of the pawned jewelry may have been occasioned. Robbery per se, just like carnapping, is not a fortuitous event. It does not foreclose the possibility of negligence on the part of herein petitioners. The presentation of the police report of the Parañaque Police Station on the robbery committed based on the report of petitioners' employees is not sufficient to establish robbery. Such report also does not prove that petitioners were not at fault. Also, the robbery in this case took place in 1987 when robbery was already prevalent and petitioners in fact had already foreseen it as they wanted to deposit the pawn with a nearby bank for safekeeping. Thus, petitioners are negligent in securing their pawnshop.

FORTUITOUS EVENTS/ CASO FORTUITO – REQUISITES

FLORENCIA T. HUIBONHOA, petitioner, VS. COURT OF APPEALS, Spouses Rufina G. Lim and ANTHONY LIM, LORETA GOJOCCO CHUA and Spouses SEVERINO and PRISCILLA GOJOCCO, respondents December 14, 1999 G.R. No. 95897 FACTS: On June 8, 1983, Florencia T. Huibonhoa entered into a memorandum of agreement with siblings Rufina Gojocco Lim, Severino Gojocco and Loreta Gojocco Chua stipulating that Florencia T. Huibonhoa would lease from them (Gojoccos) three (3) adjacent commercial lots at Ilaya Street, Binondo, Manila, described as lot nos. 26-A, 26-B and 26-C, covered by Transfer Certificates of Title Nos. 76098, 80728 and 155450, all in their (Gojoccos') names. On June 30, 1983, pursuant to the said memorandum of agreement, the parties inked a contract of lease of the same three lots for a period of fifteen (15) years commencing on July 1, 1983 and renewable upon agreement of the parties. Subject contract was to enable the lessee, Florencia T. Huibonhoa, to construct a "four-storey reinforced concrete building with concrete roof deck, according to plans and specifications approved by the City Engineer's Office." The parties agreed that the lessee could let/sublease the building and/or its spaces to interested parties under such terms and conditions as the lessee would determine and that all amounts collected as rents or income from the property would belong exclusively to the lessee. The lessee undertook to complete construction of the building "within eight (8) months from the date of the execution of the contract of lease." The parties also agreed that upon the termination of the lease, the ownership and title to the building thus constructed on the said lots would automatically transfer to the lessor, even without any implementing document therefor. Real estate taxes on the land would be borne by the lessor while that on the building, by the lessee, but the latter was authorized to advance the money needed to meet the lessors' obligations such as the payment of real estate taxes on their lots. The lessors would deduct from the monthly rental due all such advances made by the lessee. The construction of the building was not met on the date agreed upon due to the assassination of the then Senator Benigno Aquino Jr. It was claimed that increase in the value of the materials was a fortuitous event, which the lower courts did not consider as such.

ISSUE: Whether or not the assassination of Senator Benigno Aquino Jr., which caused inflation, was a fortuitous event. RULING: The Supreme Court found no merit in petitioner’s submission that the assassination of the late Senator Benigno Aquino, Jr. was a fortuitous event that justified a modification of the terms of the lease contract. A fortuitous event is that which could not be foreseen, or which even if foreseen, was inevitable. To exempt the obligor from liability for a breach of an obligation due to an "act of God", the following requisites must concur: (a) the cause of the breach of the obligation must be independent of the will of the debtor; (b) the event must be either unforeseeable or unavoidable; (c) the event must be such as to render it impossible for the debtor to fulfill his obligation in a normal manner; and (d) the debtor must be free from any participation in, or aggravation of the injury to the creditor. In the case under scrutiny, the assassination of Senator Aquino may indeed be considered a fortuitous event. However, the said incident per se could not have caused the delay in the construction of the building. What might have caused the delay was the resulting escalation of prices of commodities including construction materials. Be that as it may, there is no merit in Huibonhoa's argument that the inflation borne by the Filipinos in 1983 justified the delayed accrual of monthly rental, the reduction of its amount and the extension of the lease by three (3) years. Inflation is the sharp increase of money or credit or both without a corresponding increase in business transaction. There is inflation when there is an increase in the volume of money and credit relative to available goods resulting in a substantial and continuing rise in the general price level. While it is of judicial notice that there has been a decline in the purchasing power of the Philippine peso, this downward fall of the currency cannot be considered unforeseeable considering that since the 1970's we have been experiencing inflation. It is simply a universal trend that has not spared our country. Conformably, this Court upheld the petitioner's view in Occena v. Jabson that even a worldwide increase in prices does not constitute a sufficient cause of action for modification of an instrument. It is only when an extraordinary inflation supervenes that the law affords the parties a relief in contractual obligations. In Filipino Pipe and Foundry Corporation v. NAWASA, the Court explained extraordinary inflation thus:

"Extraordinary inflation exists when 'there is a decrease or increase in the purchasing power of the Philippine currency which is unusual or beyond the common fluctuation in the value of said currency’, and such decrease or increase could not have been reasonably foreseen or was manifestly beyond the contemplation of the parties at the time of the establishment of the obligation.” No decrease in the peso value of such magnitude having occurred, Huibonhoa has no valid ground to ask this Court to intervene and modify the lease agreement to suit her purpose. As it is, Huibonhoa even failed to prove by evidence, documentary or testimonial, that there was an extraordinary inflation from July 1983 to February 1984. Although she repeatedly alleged that the cost of constructing the building doubled from P6 million to P12 million, she failed to show by how much, for instance, the price index of goods and services had risen during that intervening period. An extraordinary inflation cannot be assumed. Hence, for Huibonhoa to claim exemption from liability by reason of fortuitous event under Art. 1174 of the Civil Code, she must prove that inflation was the sole and proximate cause of the loss or destruction of the or, in this case, of the delay in the construction of the building. Having failed to do so, Huibonhoa's contention is untenable. Pathetically, if indeed a fortuitous event deterred the timely fulfillment of Huibonhoa's obligation under the lease contract, she chose the wrong remedy in filing the case for reformation of the contract. Instead, she should have availed of the remedy of recission of contract in order that the court could release her from performing her obligation under Arts. 1266 and 1267 of the Civil Code, so that the parties could be restored to their status prior to the execution of the lease contract.

FORTUITOUS EVENTS/ CASO FORTUITO – REQUISITES ACE-AGRO DEVELOPMENT CORP. VS. CA 266 SCRA 429 FACTS: Petitioner Ace-Agro Development Corporation and private respondent Cosmos Bottling Corporation entered into a service contract covering the period from January 1, 1990 to December 31, 1990. According to the agreement, the former shall clean soft drink bottles and repair wooden shells for private

respondent. The service contract was suspended on account of a fire on April 25, 1990 which destroyed the area where petitioner did its work.

which relieved the parties of their respective obligations but did not stop the running of the period of their contract.

Respondent terminated the service contract due to the fire. Petitioner sent several letters for reconsideration, which the respondent willingly considered through its letters dated August 29, 1990 and November 7, 1990 directing petitioner to resume its work. Petitioner, however, refused to continue its work on two reasons. First, the August 29 letter did not allow them to resume their work on respondent’s premises which will be quite costly for them. Second, petitioner requested for an extension of two (2) months for their contract on account of the fire which the respondent did not heed into.

EFFECTS OF FORTUITOUS EVENT UPON OBLIGATIONS 1. 2. 3. 4. 5. 6. 7. 8.

ISSUES: 1. Whether or not force majeure or fortuitous event is present in the case. 2. Whether or not the respondet was justified in unilaterally terminating the contract due to a fortuitous event. 3. Whether or not the fortuitous event allows the extension of a contract. RULING: 1. YES. Pursuant to Article 1174 of the Civil Code, “Except in cases expressly specified by 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.” The requisites for an event to be considered a fortuitous event are as follows: First, the cause of breach must be independent of the will of the obligor. Second, the event must be unforeseeable or inevitable. Third, the event must be such as to render it impossible for the debtor to fulfill his obligation in a normal manner. And fourth, the debtor must be free from any participation in, or aggravation of, the injury to the creditor. In this case, all the mentioned requisites are present.

2. NO. The fortuitous event that happened in this case could not warrant a termination of the service contract; but rather, it only temporarily suspends the performance of the obligation. The unilateral termination therefore shifted on petitioner’s part when it unreasonably refused to continue its services.

3. NO.

Fortuitous events do not automatically warrant an extension for the period of a contract, especially that this case is one which has a resolutory condition. The fact is that the contract was subject to a resolutory period

DIOQUINO VS. LAUREANO, 33 SCRA 65 BACHELOR EXPRESS VS. CA, 193 S 216 VASQUEZ VS. CA, 138 SCRA 558 YOBIDO VS. CA, OCT. 17, 1997 JUNTILLA VS. FONTANAR, 136 SCRA 625 PHILAMGEN INSURANCE VS. MGG MARINE, MAR 8 , 2002 MINDEZ VS. MORILLO, MAR. 12, 2002 NAPOCOR VS. PHILLIP BROS, 369 SCRA 626

PEDRO DIOQUINO, plaintiff-appellee, VS. FEDERICO LAUREANO, AIDA DE LAUREANO, and JUANITO LAUREANO, defendants-appellants 33 SCRA 65 FACTS: Petitioner Dioquino met respondent Laureano at the MVO office when the former went to register his car at the said office. Respondent was a patrol officer of the MVO office and at the time was waiting for a jeepney to take him to the office of the Provincial Copmmander. Petitioner requested respondent to introduce him to one of the clerks in the MVO office, who could facilitate the registration of his car and the request was graciously attended to. Afterwards, respondent rode on the car of petitioner with petitioner’s driver to the office of the provincial commander. Along the way, some mischievous boys stoned the car and its windshield was broken. Respondent chased and was able to catch one of the boys and took him to petitioner. The petitioner, however, did not file charges against the boy and his parents because the stone throwing was merely accidental and due to force majeure. Respondent refused to pay the windshield himself, even after petitioner tried to settle and even asked respondent’s wife to convince her husband, since the same due to force majeure. Petitioner prevailed in the trial court. Hence, this appeal to the Court was filed.

ISSUE: Whether or not the respondent is liable for the broken windshield of petitioner’s car. RULING: The damage to the windshield caused by the mischievous boys was a fortuitous event resulting in a loss, which must be borne by the owner of the car. Article 1174 of the Civil Code provides that if the nature of the obligation requires the assumption risk, compels the conclusion that in the absence of a legal provision or an express covenant, “no one should be held to account for fortuitous cases.” Where the risk is quite evident such that the possibility of danger is not only foreseeable, but also actually foreseen, then it could be said that the nature of the obligation is such that a party could rightfully be deemed to have assumed it. It is not enough therefore that the event should not have been foreseen or anticipated, but it must be one impossible to foresee or to avoid in order that a party may be said to have assumed the risk resulting from the nature of the obligation itself. In the case, there is no assumption of risk by the borrower of a car to respond to damages for the broken windshield caused by an accidental stonethrowing incident by boys playing along the road. Decision reversed as to the liability of respondent. EFFECTS OF FORTUITOUS EVENT UPON OBLIGATIONS

Bachelor Express vs CA GR. NO. 85691, July 31, 1990 FACTS: On 1 August 1980, Bus 800, owned by Bachelor Express, Inc. and driven by Cresencio Rivera, came from Davao City on its way to Cagayan de Oro City passing Butuan City. While at Tabon-Tabon, Butuan City, the

bus picked up a passenger. About 15 minutes later, a passenger at the rear portion suddenly stabbed a PC soldier which caused commotion and panic among the passengers. When the bus stopped, passengers Ornominio Beter and Narcisa Rautraut were found lying down the road, the former already dead as a result of head injuries and the latter also suffering from severe injuries which caused her death later. The passenger-assailant alighted from the bus and ran toward the bushes but was killed by the police. Thereafter, the heirs of Ornomino Beter and Narcisa Rautraut (Ricardo Beter and Sergia Beter are the parents of Ornominio while Teofilo Rautraut and Zotera Rautraut are the parents of Narcisa) filed a complaint for “sum of money” against Bachelor Express, its alleged owner Samson Yasay, and the driver Rivera. After due trial, the trial court issued an order dated 8 August 1985 dismissing the complaint. The CA however reversed the RTC decision. ISSUES: 1. Whether or not the case at bar is within the context of force majeure. 2. Should the petitioner be absolved from liability for the death of its passengers? RULING: The sudden act o the passenger who stabbed another passenger in the bus is within the context of force majeure. However, in order that a common carrier may be absolved from liability in case of force majeure, it is not enough that the accident was caused by force majeure. The common carrier must still proves that it was not negligent in causing the injuries resulting from such accident. Considering the factual findings in this case, it is clear that petitioner has failed to overcome the presumption of fault and negligence found in the law governing common carriers. The argument that the petitioners are not insurers of their passengers deserves no merit in view of the failure of the petitioners to observe extraordinary diligence in transporting safely the passengers to their destination as warranted by law.

EFFECTS OF FORTUITOUS EVENT UPON OBLIGATIONS

VASQUEZ VS. COURT OF APPEALS 138 SCRA 558 FACTS: A vessel sailed from Manila to Cebu despite the knowledge by the captain and officers that a typhoon was building up somewhere in Mindanao. When it passed Tanguigui Island, the weather suddenly changed and the vessel struck a reef, sustained leaks and eventually sunk. The ship sunk with the children of the petitioners who sued for damages before the CFI of Manila, which was granted. Respondents defense of force majeure to extinguish its liability were not entertained. On appeal, the judgment was reversed. ISSUE: Whether or not the defense of force majeure is tenable. RULING: NO. A fortuitous event is constituted by the following: 1) The event must be independent of the human will; 2) the occurrence must render it impossible for the debtor to fulfill the obligation in a normal manner; and 3) the obligor must be free of participation in the aggravation of the injury suffered by the obligee or if it could be foreseen, it must have been impossible to avoid. There must be an entire exclusion of human agency from the cause of the injury or loss. Such is not the case at bar. The vessel still proceeded even though the captain already knew that they were within the typhoon zone and despite the fact that they were kept posted about the weather conditions. They failed to exercise that extraordinary diligence required from them, explicitly mandated by the law, for the safety of the passengers. EFFECTS OF FORTUITOUS EVENT UPON OBLIGATIONS YOBIDO VS. COURT OF APPEALS 281 SCRA 01 G.R. No. 113003 Oct. 17, 1997 FACTS:

On April 26, 1988, spouses Tito and Leny Tumboy and their minor children named Ardee and Jasmin, boarded at Mangagoy , Surigao Del Sur, a Yobido Liner bus bound for Davao City. Along Picop Road in Km. 17, Sta.Maria, Agusan del Sur, the left front tire of the bus exploded. The bus fell into a ravine around three (3) feet from the road and struck a tree. The incident resulted in the death of 28-year-old Tito Tumboy and physical injuries to other passengers. On Nov. 21, 1988, a complaint for breach of contract of carriage, damages and attorney’s fees was filed by Leny and her children against Alberta Yobido, the owner of the bus, and Cresencio Yobido, its driver, before the Regional Trial Court of Davao City. When the defendants therein filed their answer to the complaint, they raised the affirmative defense of caso fortuito. They also filed a third-party complaint against Philippine Surety and Insurance, Inc. This third-party defendant filed an answer with compulsory counterclaim. At the pre-trial conference, the parties agreed to a stipulation of facts. On August 29, 1991, the lower court rendered a decision dismissing the action for lack of merit. On the issue of whether or not the tire blowout was a caso fortuito, it found that “the falling of the bus to the cliff was a result of no other outside factor than the tire bolw-out.” It held that the ruling in the La Mallorca and Pampanga Bus Co. v. De Jesus that a tire blowout is a “mechanical defect of the conveyance or a fault in its equipment which was easily discoverable if the bus had been subjected to a more thorough or rigid check-up before it took to the road that morning” is inapplicable to this case. It reasoned out that in said case. It reasoned out that in said case, it was found that the blowout was caused by the established fact that the inner tube of the left front tire “was pressed between the inner circle of the left wheel and the rim which had slipped out of the left wheel “. In this case, however,” the cause of the explosion remains a mystery until at present.” As such, the court added, the tire blowout was “a caso fortuito which is completely an extraordinary circumstance independent of the will” of the defendants who should be relieved of “whatever liability the plaintiffs may have suffered by reason of the explosion pursuant to Article 1174 of the Civil Code.” ISSUE: Whether or not the Trial Court erred in their findings that the tire blowout was a caso fortuito. RULING: On August 23, 1193, the Court of Appeals rendered the decision reversing the decision of the trial court. Article 1755 provides that “(a) common carrier is bound to carry the passenger safely as far as human care and foresight can provide, using the utmost diligence very cautious persons, with a due regard for

all the circumstances”. Accordingly, in culpa contractual, once a passenger dies or is injured, the carrier is presumed to have been at fault or to have acted negligently. The disputable presumption may only be overcome by evidence that the carrier had observed extraordinary diligences as prescribed by Articles 1733, 1755 and 1756 of the Civil Code or that the injury of the passenger was due to fortuitous event. Consequently, the court need make an express finding of fault or negligence on the part of the carrier to hold it responsible for damages sought by the passenger. The decision of the Court of Appeals was affirmed subject to the modification that petitioners shall, in addition to the monetary awards therein, be liable for the award of exemplary damages in the amount of P20,000.00. EFFECTS OF FORTUITOUS EVENT UPON OBLIGATIONS ROBERTO JUNTILLA VS. CLEMENTE FONTANAR 136 SCRA 625 G.R. No. L-45637 FACTS: The plaintiff was a passenger of the public utility jeepney on the course of the trip from Danao City to Cebu City. The jeepney was driven by defendant Berfol Camoro. It was registered under the franchise of defendant Clemente Fontanar but was actually owned by defendant Fernando Banzon. When the jeepney reached Mandaue City, the right rear tire exploded causing the vehicle to turn turtle. The plaintiff who was sitting at the front seat was thrown out of the vehicle and momentarily lost consciousness. When he came to his senses, he found that he had a lacerated wound on his right palm and injuries on his left arm, right thigh and on his back. Because of his shock and injuries, he went back to Danao City but on the way, he discovered that his "Omega" wrist watch was lost. Upon his arrival in Danao City, he immediately entered the Danao City Hospital to attend to his injuries, and also requested his father-in-law to proceed immediately to the place of the accident and look for the watch. In spite of the efforts of his father-in-law, the wrist watch could no longer be found.

NO. The accident was not due to a fortuitous event. There are specific acts of negligence on the part of the respondents. The passenger jeepney turned turtle and jumped into a ditch immediately after its right rear tire exploded. It was running at a very high speed before the accident and was overloaded. The petitioner stated that there were three (3) passengers in the front seat and fourteen (14) passengers in the rear. While the tire that blew-up was still good because the grooves were still visible, this does not make the explosion of the tire a fortuitous event. No evidence was presented to show that the accident was due to adverse road conditions or that precautions were taken by the jeepney driver to avert possible accidents. The blowing-up of the tire, therefore, could have been caused by too much air pressure and aggravated by the fact that the jeepney was overloaded and speeding at the time of the accident. The accident was caused either through the negligence of the driver or because of mechanical defects in the tire. Common carriers are obliged to supervise their drivers and ensure that they follow rules and regulations such as not to overload their vehicles, not to exceed safe and legal speed limits, and to know the correct measures to take when a tire blows up. The source of a common carrier's legal liability is the contract of carriage, and by entering into the said contract, it binds itself to carry the passengers safely as far as human care and foresight can provide, using the utmost diligence of a very cautious person, with a due regard for all the circumstances. The driver and the owner of the vehicle are liable for damages.

ISSUE: Whether or not the accident that happened was due to a fortuitous event, thereby, absolving the respondents from any obligation. RULING:

EFFECTS OF FORTUITOUS EVENT UPON OBLIGATIONS THE PHILIPPINE AMERICAN GENERAL INSURANCE CO., INC, VS. MGG MARINE SERVICES, INC. and DOROTEO GAERLAN

2002 Mar 8 G.R. No. 135645 FACTS: On March 1, 1987, San Miguel Corporation insured several beer bottle cases with an aggregate value of P5,836,222.80 with petitioner Philippine American General Insurance Company. The cargo were loaded on board the M/V Peatheray Patrick-G to be transported from Mandaue City to Bislig, Surigao del Sur. After having been cleared by the Coast Guard Station in Cebu the previous day, the vessel left the port of Mandaue City for Bislig, Surigao del Sur on March 2, 1987. The weather was calm when the vessel started its voyage. The following day, March 3, 1987, M/V Peatheray Patrick-G listed and subsequently sunk off Cawit Point, Cortes, Surigao del Sur. As a consequence thereof, the cargo belonging to San Miguel Corporation was lost. Subsequently, San Miguel Corporation claimed the amount of its loss from petitioner. The Court of Appeals observed respondents from any liability because the cargo was lost due to a fortuitous event; strong winds and huge waves caused the vessel to sink. ISSUE: Whether the loss of the cargo was due to the occurrence of a natural disaster, and if so, whether such natural disaster was the sole and proximate cause of the loss or whether private respondents were partly to blame for failing to exercise due diligence to prevent the loss of the cargo. RULING: Common carriers, from the nature of their business and for reasons of public policy, are mandated to observe extraordinary diligence in the vigilance over the goods and for the safety of the passengers transported by them. Owing to this high degree of diligence required of them, common carriers, as a general rule, are presumed to have been at fault or negligent if the goods transported by them are lost, destroyed or if the same deteriorated. The parties do not dispute that on the day the M/V Peatheray Patrick-G sunk, said vessel encountered strong winds and huge waves ranging from six to ten feet in height. The vessel listed at the port side and eventually sunk at Cawit Point, Cortes, Surigao del Sur.

In the case at bar, it was adequately shown that before the M/V Peatheray Patrick-G left the port of Mandaue City, the Captain confirmed with the Coast Guard that the weather condition would permit the safe travel of the vessel to Bislig, Surigao del Sur. Thus, he could not be expected to have foreseen the unfavorable weather condition that awaited the vessel in Cortes, Surigao del Sur. It was the presence of the strong winds and enormous waves which caused the vessel to list, keel over, and consequently lose the cargo contained therein. The appellate court likewise found that there was no negligence on the part of the crew of the M/V Peatheray Patrick-G. Since the presence of strong winds and enormous waves at Cortes, Surigao del Sur on March 3, 1987 was shown to be the proximate and only cause of the sinking of the M/V Peatheray Patrick-G and the loss of the cargo belonging to San Miguel Corporation, private respondents cannot be held liable for the said loss.

EFFECTS OF FORTUITOUS EVENT UPON OBLIGATIONS MINDEZ RESOURCES DEVELOPMENT VS. MORILLO 379 SCRA 144 March 12, 2002 FACTS: On February 1991 a verbal agreement was entered into between Ephraim Morillo and Mindex Resources Corporation fro the lease of the former’s 6x6 10wheeler cargo truck for use in Mindex’s mining operations in Oriental Mindoro at a stipulated rental of P300.00 per hour for a minimum of 8 hours a day or a total of P2,400.00 daily. Mindex was paying its rentals until April 10, 1991. On April 11, unidentified persons burned the truck while it was parked unattended at San Teodoro, Oriental Mindoro due to mechanical trouble. Upon learning the burning incident, Morillo offered to sell the truck to Mindex but the latter refused. Instead, it replaced the vehicle’s burned tires and had it towed to a shop for repair and overhauling. On April 15, 1991, Morillo sent a letter to Mindex proposing that he will entrust the said vehicle in the amount of P275,000.00 that is its cost price without charging for the encumbrance of P76,800.00. Mindex responded by a hand written letter expressing their reservations on the above demands due to their tight financial situation. However, he made counter offers which state that they will pay the rental of the 6x6 truck in the amount of P76,000.00, repair and overhaul the truck on their own expenses and return it to Morillo on good running condition after repair. April 18, Morillo replied that he will relinquish to Mindex the damaged truck; that he is amenable

to receive the rental in the amount of P76, 000.00; and that Mindex will pay P50,000.00 monthly until the balance of P275,000.00 is fully paid. Except for his acceptance of the proffered P76,000.00 unpaid rentals. Morillo’s stand has not been changed as he merely lowered the first payment on the P275,000.00 valuation of the truck from P150,000.00 to P50,000.00. The parties had since remain intransigent and so on August, Morillo pulled out the truck from the repair shop of Mindex and had it repaired elsewhere for which he spent the amount of P132,750.00. The RTC found petitioner responsible fro the destruction of loss of the leased 6x6 truck and ordered it to pay respondent P76,000.00 as balance of the unpaid rental for the 6x6 truck with interest of 12%, P132,750.00 representing the cost of repair and overhaul of the truck with interest of 12% until fully paid; and P20,000.00 as attorney’s fees. The appellate court sustained RTC’s finding. The CA found petitioner was not without fault for the loss and destruction of the truck and thus liable therefore. However, it modified the 12% interest on the P76,000.00 rentals and P132,750.00 repair cost to 6% per annum form June 22, 1994 to the date of finality of the said decision. It affirmed the award of attorney’s fees. ISSUE: Whether or not the CA is correct in finding the petitioner liable due to negligence and cannot be exonerated due to the defense of fortuitous event. RULING: YES. As stated by the Court of Appeals, “the burning of the subject truck was impossible to foresee, but not impossible to avoid. Mindex could have prevented the incident by immediately towing the truck to a motor shop for repair. In this case, petitioner was found negligent and thus liable for the loss or destruction of the leased truck. Article 1174 of the Civil Code states that, “No person shall be responsible for a fortuitous event that could not be foreseen or, though foreseen, was inevitable. In other words, there must be an exclusion of human intervention form the cause of injury on loss.” In this case, the petitioner is contributory negligent to the incident. Decision was denied. Deleting attorney’s fees, modified the RTC and CA’s decision.

EFFECTS OF FORTUITOUS EVENT UPON OBLIGATIONS NATIONAL POWER CORPORATION VS. PHILIPP BROTHERS OCEANIC, INC. G.R. No. 126204 November 20, 2001 369 SCRA 629 FACTS: On May 14, 1987, the National Power Corporation (NAPOCOR) issued invitations to bid for the supply and delivery of 120,000 metric tons of imported coal for its Batangas Coal-Fired Thermal Power Plant in Calaca, Batangas. The Philipp Brothers Oceanic, Inc. (PHIBRO) prequalified and was allowed to participate as one of the bidders. After the public bidding was conducted, PHIBRO’s bid was accepted. NAPOCOR’s acceptance was conveyed in a letter dated July 8, 1987, which was received by PHIBRO on July 15, 1987. On July 10, 1987, PHIBRO sent word to NAPOCOR that industrial disputes might soon plague Australia, the shipment’s point of origin, which could seriously hamper PHIBRO’s ability to supply the needed coal unless a “strike-free” clause is incorporated in the charter party or the contract of carriage. In order to hasten the transfer of coal, PHIBRO proposed to NAPOCOR that they equally share the burden of a “strike-free” clause. NAPOCOR refused. On August 6, 1987, PHIBRO received from NAPOCOR a confirmed and workable letter of credit. Instead of delivering the coal on or before the thirtieth day after receipt of the Letter of Credit, as agreed upon by the parties in the July contract, PHIBRO effected its first shipment only on November 17, 1987. Consequently, in October 1987, NAPOCOR once more advertised for the delivery of coal to its Calaca thermal plant. PHIBRO participated anew in this subsequent bidding but its application was denied for not meeting the minimum requirements. However, PHIBRO found that the real reason for the disapproval was its purported failure to satisfy NAPOCOR’s demand for damages due to the delay in the delivery of the first coal shipment. Thus, PHIBRO filed an action for damages with application for injunction against NAPOCOR with the Regional Trial Court, Branch 57, Makati City. In its complaint, PHIBRO alleged that NAPOCOR’s act of disqualifying it in the October 1987 bidding and in all subsequent biddings was tainted with malice and bad faith. PHIBRO prayed for actual, moral and exemplary damages and attorney’s fees.

On the other hand NAPOCOR averred that the strikes in Australia could not be invoked as reason for the delay in the delivery of coal because PHIBRO itself admitted that as of July 28, 1987 those strikes had already ceased. Furthermore, NAPOCOR claimed that due to PHIBRO’s failure to deliver the coal on time, it was compelled to purchase coal from ASEA at a higher price. NAPOCOR claimed for actual damages in the amount of P12,436,185.73, representing the increase in the price of coal, and a claim of P500,000.00 as litigation expenses. On January 16, 1992, the trial court rendered a decision in favor of PHIBRO. Unsatisfied, NAPOCOR elevated the case to the Court of Appeals which affirmed in toto the latter’s decision. Hence, this present petition. ISSUE: Whether or not the lower court erred in holding that PHIBRO’s delay in the delivery of imported coal was due to force majeure. RULING: It was disclosed from the records of the case that what prevented PHIBRO from complying with its obligation under the July 1987 contract was the industrial disputes which besieged Australia during that time. The Civil Code provides that no person shall be responsible for those events which could not be foreseeen, or which, though foreseen, were inevitable. This means that when an obligor is unable to fulfill his obligation because of a fortuitous event or force majeure, he cannot be held liable for damages for non-performance. In addition to the above legal precept, it is worthy to note that PHIBRO and NAPOCOR explicitly agreed in Section XVII of the “Bidding Terms and Specifications that “neither seller (PHIBRO) nor buyer (NAPOCOR) shall be liable for any delay in or failure of the performance of its obligations, other than the payment of money due, if any such delay or failure is due to Force Majeure.” “Strikes” then are undoubtedly included in the force majeure clause of the Bidding Terms and Specifications.

TRANSMISSIBILITY OF RIGHTS AND OBLIGATIONS 1. 2.

UNION BANK VS. SANTIBANEZ, 452 S 228 SAN AGUSTIN VS. CA, 371 SCRA 348

3.

PROJECT BUILDERS, INC. VS. CA, 358 SCRA 626

UNION BANK OF THE PHILIPPINES versus EDMUND SANTIBAÑEZ and FLORENCE SANTIBAÑEZ ARIOLA G.R. No. 149926 2005 Feb 23 FACTS: On May 31, 1980, the First Countryside Credit Corporation (FCCC) and Efraim M. Santibañez entered into a loan agreement in the amount of P128,000.00. The amount was intended for the payment of the purchase price of one unit Ford 6600 Agricultural All-Purpose Diesel Tractor. In view thereof, Efraim and his son, Edmund, executed a promissory note in favor of the FCCC, the principal sum payable in five equal annual amortizations of P43,745.96 due on May 31, 1981 and every May 31st thereafter up to May 31, 1985. On December 13, 1980, the FCCC and Efraim entered into another loan agreement, this time in the amount of P123,156.00. It was intended to pay the balance of the purchase price of another unit of Ford 6600 Agricultural All-Purpose Diesel Tractor, with accessories, and one unit Howard Rotamotor Model AR 60K. Again, Efraim and his son, Edmund, executed a promissory note for the said amount in favor of the FCCC. Aside from such promissory note, they also signed a Continuing Guaranty Agreement for the loan dated December 13, 1980. Sometime in February 1981, Efraim died, leaving a holographic will. Subsequently in March 1981, testate proceedings commenced before the RTC of Iloilo City. On April 9, 1981, Edmund, as one of the heirs, was appointed as the special administrator of the estate of the decedent. During the pendency of the testate proceedings, the surviving heirs, Edmund and his sister Florence Santibañez Ariola, executed a Joint Agreement dated July 22, 1981, wherein they agreed to divide between themselves and take possession of the three tractors; that is, two tractors for Edmund and one tractor for Florence. Each of them was to assume the

indebtedness of their late father to FCCC, corresponding to the tractor respectively taken by them. On August 20, 1981, a Deed of Assignment with Assumption of Liabilities was executed by and between FCCC and Union Savings and Mortgage Bank, wherein the FCCC as the assignor, among others, assigned all its assets and liabilities to Union Savings and Mortgage Bank. Demand letters for the settlement of his account were sent by petitioner Union Bank of the Philippines (UBP) to Edmund, but the latter failed to heed the same and refused to pay. Thus, on February 5, 1988, the petitioner filed a Complaint for sum of money against the heirs of Efraim Santibañez, Edmund and Florence, before the RTC of Makati City. ISSUE: 1. Whether in testate succession, there can be no valid partition among the heirs. 2. Whether or not the heirs’ assumption of the indebtedness of the deceased is binding. 3. Whether or not the petitioner can hold the heirs liable on the obligation of the deceased. RULING: 1. In testate succession, there can be no valid partition among the heirs until after the will has been probated. The law enjoins the probate of a will and the public requires it, because unless a will is probated and notice thereof given to the whole world, the right of a person to dispose of his property by will may be rendered nugatory. It presupposes that the properties to be partitioned are the same properties embraced in the will. The court then agrees with the appellate court that the provisions stated in the will is an all-encompassing provision embracing all the properties left by the decedent which might have escaped his mind at that time he was making his will, and other properties he may acquire thereafter. This being so, any partition involving the said tractors among the heirs is not valid. The joint agreement executed by Edmund and Florence, partitioning the tractors among themselves, is invalid, specially

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

TRANSMISSIBILITY OF RIGHTS AND OBLIGATIONS

SAN AGUSTIN VS. COURT OF APPEALS 371 S 348 FACTS:

On February 11, 1974, the Government Service Insurance System (GSIS) sold to Macaria Vda de Caiquep, a parcel or residential land located in Pasig City, part of the GSIS Low Cost Housing Project evidenced by a Deed of Absolute Sale. On February 19, 1974, the Register of Deeds of Rizal issued in the name of Caiquep, Transfer Certificate of Title. The next day, Caiquep sold the subject lot to private respondent Maximo Menez. Sometime in 1979, for being suspected as a subversive, military men ransacked Menez's’ house in Rizal. He surrendered to the authorities and was detained for two years. When released, another order for his arrest was issued so he hid in Mindanao for another four years or until March 1984. In December 1990, he discovered that the subject TCT was missing. He consulted a lawyer but the latter did not act immediately on the matter. Upon consulting a new counsel, an Affidavit of Loss was filed with the Register of Deeds and a certified copy of TCT was issued. Private respondent also declared the property for tax purposes and obtained a certification thereof from the Assessor’s office. His search for the registered owner to different parts of the country failed prompting the former to file a petition for the issuance of owner’s duplicate copy to replace the lost one. During the hearing, only Menez and counsel were present because the Register of Deeds and the Provincial Prosecutor were not notified. The trial court granted his petition after Menez presented his evidence ex parte. San Agustin claimed this was the first time he became aware of the case of his aunt Ma. Vda de Caiquep and the present occupant of the property. He filed A Motion to Reopen Reconstitution Proceedings but RTC denied said motion. Petitioner moved for motion for reconsideration but was again denied. ISSUE: Whether or not petitioner is bound by the contract entered into by his predecessor-in-interest. RULING: Yes, petitioner is bound by contracts entered into by his predecessor’s-ininterest. Heirs are bound by contracts entered into by their predecessors-ininterest. In this case, the GSIS has not filed any action for the annulment of Deed of Absolute Sale of the lot the latter sold to Caiquep, nor the forfeiture of the lot in question. In the Court’s view, the contract of sale remains valid between the parties, unless and until annulled in the proper suit filed by the rightful party, the GSIS. For now, the said contract of sale is binding upon the heirs of Macaria Vda de Caiquep., including petitioner who alleges to be one of her heirs, in line with the

rule that heirs are bound by contracts entered into by their predecessors-ininterest.

TRANSMISSIBILITY OF RIGHTS AND OBLIGATIONS PROJECT BUILDERS, INC., GALICANO A. CALAPATIA, JR., and LEANDRO ENRIQUEZ, petitioners, vs. THE COURT OF APPEALS and INDUSTRIAL FINANCE CORPORATION, respondents 2001 Jun 19 358 SCRA 626 FACTS: On August 21, 1975, plaintiff and defendant PBI entered into an agreement whereby it was agreed that plaintiff would provide a maximum amount of P2,000,000.00 against which said defendant would discount and assign to plaintiff on a ‘with recourse non-collection basis’ its (PBI’s) accounts receivable under the contracts to sell specified in said agreement. Eventually, the same parties entered into an agreement whereby it was agreed that PBI’s credit line with plaintiff be increased to P5,000,000.00. It was stipulated that the credit line of P5,000,000.00 granted includes the amount already assigned/discounted.Against the above-mentioned ‘credit line,’ defendant PBI discounted with plaintiff on different dates accounts receivables with different maturity dates from different condominium-unit buyers. The total amount of receivables discounted by defendant PBI is P7,986,815.38 and consists of twenty accounts. Of such receivables amounting to P7,986,815.38 plaintiff released to defendant PBI the amount of P4,549,132.72 and the difference of P3,437,682.66 represents the discounting fee or finance fee. To secure compliance with the terms and conditions of the agreement defendants executed a Deed of Real Estate Mortgage in favor of plaintiff. When defendants allegedly defaulted in the payment of the subject account, plaintiff foreclosed the mortgage and plaintiff was the highest bidder in the amount of P3,500,000.00. The foreclosed property was redeemed a year later but after application of the redemption payment, plaintiff claims that there is still a deficiency in the amount of P1,323,053.08. A collection suit was then filed by IFC against PBI. However, PBI denied liability alleging that IFC has no case or right of action because the obligation is fully paid out of the proceeds of foreclosure sale of its property. Further, it

alleged that a proper accounting of the transaction between the parties will show that it is the IFC who is liable to PBI. The trial court dismissed the complaint but the Court of Appeals reversed it. It ordered PBI to pay IFC the deficiency in the amount of P1,237,802.48 and the monetary interests. ISSUE: Whether or not said Republic Act No. 5980 should govern the transaction between petitioners and private respondent which in reality was bilateral, not trilateral, and respondent financing company was not really subrogated in the place of the supposed seller or assignor. RULING: The assignment of the contracts to sell falls within the purview of the Act. The term credit has been defined to - "(c) x x x mean any loan, mortgage, deed of trust, advance, or discount; any conditional sales contract, any contract to sell, or sale or contract of sale of property or service, either for present or future delivery, under which, part or all of the price is payable subsequent to the making of such sale or contract; any rental-purchase contract; any option, demand, lien, pledge, or other claim against, or for the delivery of, property or money, any purchase, or other acquisition of or any credit upon the security of, any obligation or claim arising out of the foregoing; and any transaction or series of transactions having a similar purpose or effect.” An assignment of credit is an act of transferring, either onerously or gratuitously, the right of an assignor to an assignee who would then be capable of proceeding against the debtor for enforcement or satisfaction of the credit. The transfer of rights takes place upon perfection of the contract, and ownership of the right, including all appurtenant accessory rights, is thereupon acquired by the assignee. The assignment binds the debtor only upon acquiring knowledge of the assignment but he is entitled, even then, to raise against the assignee the same defenses he could set up against the assignor. Where the assignment is on account of pure liberality on the part of the assignor, the rules on donation would likewise be pertinent; where valuable consideration is involved, the assignment partakes of the nature of a contract of sale or purchase. Upon an assignment of a contract to sell, the assignee is effectively subrogated in place of the assignor and in a position to enforce the contract to sell to the same extent as the assignor could.

An insistence of petitioners that the subject transaction should be considered a simple loan since private respondent did not communicate with the debtors, condominium unit buyers, to collect payment from them, is untenable. In an assignment of credit, the consent of the debtor is not essential for its perfection, his knowledge thereof or lack of it affecting only the efficaciousness or inefficaciousness of any payment he might make. The assignment, it might be pointed out, was "with recourse," and default in the payment of installments had been duly established when petitioner corporation foreclosed on the mortgaged parcels of land. The resort to foreclosure of the mortgaged properties did not preclude private respondent from collecting interest from the assigned Contracts To Sell from the time of foreclosure to the redemption of the foreclosed property. The imposition of interest was a mere enforcement or exercise of the right to the ownership of the credit or receivables which the parties stipulated in the 1976 financing agreement. Thus -"f. That the Assignor shall comply with all the terms and conditions specified on the said Contracts to Sell, executed by the assignor and its individual purchaser or customers, and assigned/discounted to Assignee.” One of the provisions in the contracts to sell, subject matter of the assignment agreement, related to the imposition of interest in the event of default by the debtor in the payment of installments, to wit: "All payments shall be made on or before their respective due dates without necessity of demand therefor, and failure to make such payments on time shall entitle the Developer to charge interest at the rate of one percent (1%) per month without prejudice to the other remedies available to the Developer.” As owner of the account receivables, private respondent was impressed with the entitlement over such interest payment.

REQUISITES OF CONDITIONAL OBLIGATIONS (Art. 1179, CC) DEVELOPMENT BANK OF THE PHILIPPINES, petitioner, VS. COURT OF APPEALS, Sps. NORMY D. CARPIO and CARMEN ORQUISA; Sps. ROLANDO D. CARPIO and RAFAELA VILLANUEVA; Sps. ELISEO D. CARPIO and ANUNCIACION del ROSARIO; LUZ C. REYES, MARIO C. REYES, JULIET REYES-RUBIN, respondents 1996 September 20 G.R. No. 118180 262 SCRA 245

FACTS: Private respondents were the original owner of a parcel of agricultural land covered by a TCT, with an area of 113,695 square meters, more or less. On 30 May 1977, Private respondents mortgaged said land to petitioner. When private respondents defaulted on their obligation, petitioner foreclosed the mortgage on the land and emerged as sole bidder in the ensuing auction sale. Consequently, a TCT was eventually issued in petitioner's name. On 6 April 1984 petitioner and private respondents entered into a Deed of Conditional Sale wherein petitioner agreed to reconvey the foreclosed property to private respondents. The Deed provided, among others, that: “the VENDEES offered to repurchase and the VENDOR agreed to sell the above-described property, subject to the terms and stipulations as hereinafter stipulated, for the sum of SEVENTY THREE THOUSAND SEVEN HUNDRED ONLY (P73,700.00), with a down payment of P8,900.00 and the balance of P64,800 shall be payable in six (6) years on equal quarterly amortization plan at 18% interest per annum. The first quarterly amortization of P4,470.36 shall be payable three months from the date of the execution of the documents and all subsequent amortization shall be due and payable every quarter thereafter. . .that, upon completion of the payment herein stipulated and agreed, the Vendor agrees to deliver to the Vendee/s(,) his heirs, administrators and assigns(,) a good and sufficient deed of conveyance covering the property, subject matter of this deed of conditional sale, in accordance with the provision of law.” On 6 April 1990, upon completing the payment of the full repurchase price, private respondents demanded from petitioner the execution of a Deed of Conveyance in their favor. Petitioner then informed private respondents that the prestation to execute and deliver a deed of conveyance in their favor had become legally impossible in view of Sec. 6 of Rep. Act 6657 (the Comprehensive Agrarian Reform Law or CARL) approved 10 June 1988, and Sec. 1 of E.O. 407 issued 10 June 1990. Aggrieved, private respondents filed a complaint for specific performance with damages against petitioner before the RTC. The trial court rendered judgment ordering defendant to execute and deliver unto plaintiffs a deed of final sale of there land subject of their deed of conditional sale. Dissatisfied, petitioner appealed to the CA, still insisting that its obligation to execute a Deed of Sale in favor of private respondents had become a legal impossibility and that the non-impairment clause of the Constitution must yield

to the demands of police power. petitioner's appeal.

The CA rendered judgment dismissing

ISSUE: Whether or not the petitioner’s prestation to execute and deliver a deed of conveyance in favor of private respondents had become legally impossible in view of Sec. 6 of Rep. Act 6657 (the Comprehensive Agrarian Reform Law or CARL) approved 10 June 1988, and Sec. 1 of E.O. 407 issued 10 June 1990. RULING: If the obligation depends upon a suspensive condition, the demandability as well as the acquisition or effectivity of the rights arising from the obligation is suspended pending the happening or fulfillment of the fact or event which constitutes the condition. Once the event which constitutes the condition is fulfilled resulting in the effectivity of the obligation, its effects retroact to the moment when the essential elements which gave birth to the obligation have taken place. Applying this precept to the case, the full payment by the appellee on April 6, 1990 retracts to the time the contract of conditional sale was executed on April 6, 1984. From that time, all elements of the contract of sale were present. Consequently, the contract of sale was perfected. As such, the said sale does not come under the coverage of R.A. 6657. Despite the mandate of Sec. 1, R.A. 6657, appellant continued to accept the payments made by the appellant until it was fully paid on April 6, 1990. All that the appellant has to do then is to execute the final deed of sale in favor of the appellee. Obligations arising from contracts have the force of law between the contracting parties and should be complied with in good faith. E.O. 407 can neither affect appellant's obligation under the deed of conditional sale. Under the said law, appellant is required to transfer to the Republic of the Philippines "all lands foreclosed" effective June 10, 1990. Under the facts obtaining, the subject property has ceased to belong to the mass of foreclosed property failing within the reach of said law. The property has already been sold to herein appellees even before the said E.O. has been enacted. On this same reason, the Court held that they need not delve on the applicability of DBP Circular No. 11. The Court ruled in favor of private respondents. In conditional obligations, the acquisition of rights, as well as the extinguishment or loss of those already acquired, shall depend upon the happening of the event which constitutes the condition. The deed of conditional sale between petitioner and private respondents was executed on 6 April 1984. Private respondents had religiously

paid the agreed installments on the property until they completed payment on 6 April 1990. Petitioner, in fact, allowed private respondents to fulfill the condition of effecting full payment, and invoked Section 6 of Rep. Act 6657 only after private respondents, having fully paid the repurchase price, demanded the execution of a Deed of Sale in their favor. The Court ruled that the trial court and CA have correctly ruled that neither Sec. 6 of Rep. Act 6657 nor Sec. 1 of E.O. 407 was intended to impair the obligation of contract petitioner had much earlier concluded with private respondents. Petitioner cannot invoke the last paragraph of Sec. 6 of Rep. Act 6657 to set aside its obligations already existing prior to its enactment. In the first place, said last paragraph clearly deals with "any sale, lease, management contract or transfer or possession of private lands executed by the original landowner." The original owner in this case is not the petitioner but the private respondents. Petitioner acquired the land through foreclosure proceedings but agreed thereafter to reconvey it to private respondents, albeit conditionally. Sec. 6 of Rep. Act 6657 in its entirety deals with retention limits allowed by law to small landowners. Since the property here involved is more or less ten (10) hectares, it is then within the jurisdiction of the Department of Agrarian Reform (DAR) to determine whether or not the property can be subjected to agrarian reform. But this necessitates an entirely differently proceeding.

G.R. No. 131784 19 September 1999 314 SCRA 585 FACTS: On December 1, 1983, Paula Cruz together with the plaintiffs heirs of Thomas and Paula Cruz, entered into a Contract of Lease/Purchase with the defendant, Felix L. Gonzales, the sole proprietor and manager of Felgon Farms, of a half-portion of a 'parcel of land containing an area of 12 hectares, more or less, and an accretion of 2 hectares, more or less, situated in Rodriguez Town, Province of Rizal. The contract of Lease/Purchase contains the following provisions: '1.......The terms of this Contract is for a period of one year upon the signing thereof. After the period of this Contract, the LESSEE shall purchase the property on the agreeable price of One Million Pesos (P1,000,000.00) payable within Two (2) Years period with an interest of 12% per annum subject to the devalued amount of the Philippine Peso, according to the following schedule of payment: Upon the execution of the Deed of Sale 50% - and thereafter 25% every six (6) months thereafter, payable within the first ten (10) days of the beginning of each period of six (6) months.

While DBP committed egregious error in interpreting Sec. 6 of RA 6657, the same is not equivalent to gross and evident bad faith when it refused to execute the deed of sale in favor of private respondents.

'2.......The LESSEE shall pay by way of annual rental an amount equivalent to Two Thousand Five Hundred (P2,500.00) Pesos per hectare, upon the signing of this contract on Dec. 1, 1983.

The petition was DENIED, and the decision of the CA was AFFIRMED with the MODIFICATION that attorney's fees and nominal damages awarded to private respondent were DELETED.

'9.......The LESSORS hereby commit themselves and shall undertake to obtain a separate and distinct T.C.T. over the herein leased portion to the LESSEE within a reasonable period of time which shall not in any case exceed four (4) years, after which a new Contract shall be executed by the herein parties which shall be the same in all respects with this Contract of Lease/Purchase insofar as the terms and conditions are concerned.

SUSPENSIVE CONDITIONS – MEANING 1. 2. 3.

GONZALES VS. HEIRS, 314 SCRA 585 INSULAR LIFE VS. YOUNG, 373 SCRA 626 DIRECT FOUNDERS VS. LAVINA, 373 SCRA 645

FELIX L. GONZALES, petitioner, VS. THE HEIRS OF THOMAS and PAULA CRUZ, herein represented by ELENA C. TALENS, respondents

The defendant Gonzales paid the P2,500.00 per hectare or P15,000.00 annual rental on the half-portion of the property in accordance with the second provision of the Contract of Lease/Purchase and thereafter took possession of the property, installing thereon the defendant Jesus Sambrano as his caretaker. The defendant Gonzales did not, however, exercise his option to purchase the property immediately after the expiration of the one-year lease on November 30, 1984. He remained in possession of the property without paying the purchase price provided for in the Contract of Lease/Purchase and without paying any further rentals thereon.

A letter was sent by one of the plaintiffs-heirs Ricardo Cruz to defendant Gonzales informing him of the lessors' decision to rescind Contract of Lease/Purchase due to a breach thereof committed by defendant. The letter also served as a demand on the defendant to vacate premises within 10 days from receipt of said letter.

the the the the

The defendant Gonzales refused to vacate the property and continued possession thereof. The property subject of the Contract of Lease/Purchase is currently the subject of an Extra-Judicial Partition. Title to the property remains in the name of the plaintiffs' predecessors-in-interest, Bernardina Calixto and Severo Cruz. Alleging breach of the provisions of the Contract of Lease/Purchase, the plaintiffs filed a complaint for recovery of possession of the property - subject of the contract with damages, both moral and compensatory and attorney's fees and litigation expenses. ISSUE: Whether or not the trial court gravely erred in holding that plaintiffsappellants could not validly rescind and terminate the lease/purchase contract and thereafter to take possession of the land in question and eject therefrom defendants-appellees. RULING: Alleging that petitioner has not purchased the property after the lapse of one year, respondents seek to rescind the Contract and to recover the property. Petitioner, on the other hand, argues that he could not be compelled to purchase the property, because respondents have not complied with paragraph nine, which obligates them to obtain a separate and distinct title in their names. He contends that paragraph nine was a condition precedent to the purchase of the property. Both the trial court and the Court of Appeals (CA) interpreted this provision to mean that the respondents had obliged themselves to obtain a TCT in the name of petitioner-lessee. The trial court held that this obligation was a condition precedent to petitioner's purchase of the property. Since respondents had not performed their obligation, they could not compel petitioner to buy the parcel of land. The CA took the opposite view, holding that the property should be purchased first before respondents may be obliged to obtain a TCT in the name of petitioner-lessee-buyer.

As earlier noted, petitioner disagrees with the interpretation of the two courts and maintains that respondents were obligated to procure a TCT in their names before he could be obliged to purchase the property in question. Basic is the rule in the interpretation of contracts that if some stipulation therein should admit of several meanings, it shall be understood as bearing that import most adequate to render it effectual. Considering the antecedents of the ownership of the disputed lot, it appears that petitioner's interpretation renders clause nine most effectual. The record shows that at the time the contract was executed, the land in question was still registered in the name of Bernardina Calixto and Severo Cruz, respondents' predecessors-in-interest. There is no showing whether respondents were the only heirs of Severo Cruz or whether the other half of the land in the name of Bernardina Calixto was adjudicated to them by any means. In fact, they admit that extrajudicial proceedings were still ongoing. Hence, when the Contract of Lease/Purchase was executed, there was no assurance that the respondents were indeed the owners of the specific portion of the lot that petitioner wanted to buy, and if so, in what concept and to what extent. Thus, the clear intent of the ninth paragraph was for respondents to obtain a separate and distinct TCT in their names. This was necessary to enable them to show their ownership of the stipulated portion of the land and their concomitant right to dispose of it. Absent any title in their names, they could not have sold the disputed parcel of land. SUSPENSIVE CONDITIONS: MEANING INSULAR LIFE ASSURANCE COMPANY, LTD., INSULAR SAVINGS BANK and JACINTO D. JIMENEZ VS. ROBERT YOUNG, GABRIEL LA'O II, ARTHUR TAN, LOPE JUBAN, JR., MARIA LOURDES ONGPIN, ANTONIO ONGPIN, ELSIE DIZON, YOLANDA BAYER, CECILIA VIRAY, MANUEL VIRAY and JOSE VITO BORROMEO 2002 Jan 16 G.R. No. 140964 FACTS: In December, 1987, respondent Robert Young, together with his associates and co-respondents, acquired by purchase Home Bankers Savings and Trust Co., now petitioner Insular Savings Bank ("the Bank," for brevity), from

the Licaros family for P65,000,000.00. Young and his group obtained 55% equity in the Bank, while Jorge Go and his group owned the remaining 45%. However, Araneta backed out from the intended sale and demanded the return of his downpayment. On October 1, 1991, Insular Life and Insular Life Pension Fund formally informed Young of their intention to acquire 30% and 12%, respectively, of the Bank's outstanding shares, subject to due diligence audit and proper documentation. On October 9, 1991, Insular Life and Young, authorized to represent the other stockholders, entered into a Memorandum of Agreement (MOA), wherein Insular Life and its Pension Fund agreed to purchase 830,860 common shares and 311,572 common shares, respectively, for a total consideration of P198,000,000.00. Under its terms, the MOA is subject to Young's representations and warranties that, as of September 30, 1991, the Bank has (a) a total outstanding paid-in capital of P157,714,900.00, (b) a total net worth of P114,801,539.00, and (c) total loans with doubtful recovery of P60,000,000.00. The MOA is also subject to these "condition precedents": (1) Young shall infuse additional capital of P50,000,000.00 into the Bank, and (2) Insular Life and its Pension Fund shall undertake a due diligence audit on the Bank to determine whether the provision for P60,000,000.00 doubtful account made by Young is sufficient. On October 21, 1991, Young signed a letter prepared by Atty. Jacinto Jimenez, counsel of Insular Life, addressed to Mr. Vicente R. Ayllon, Chairman of the Bank's Board of Directors, stating that due to business reverses, he shall not be able to pay his obligations under the Credit Agreement between him and Insular Life. Consequently, Young "unconditionally and irrevocably waive(s) the benefit of the period" of the loan (up to December 26, 1991) and Insular "may consider (his) obligations thereunder as defaulted." He likewise interposes no objection to Insular Life's exercise of its rights under the said agreement. Forthwith, Insular Life instructed its counsel to foreclose the pledge constituted upon the shares. The latter then sent Young a notice informing him of the sale of the shares in a public auction scheduled on October 28, 1991, and in the event that the shares are not sold, a second auction sale shall be held the next day, October 29. From October 31, 1991 to December 27, 1991, Insular Life invested a total of P325,000,000.00 in the Bank. Meanwhile, on November 27, 1991, its Board of Directors, during its meeting, accepted the resignation of Young as President. On January 7, 1992, Young and his associates filed with the Regional Trial Court

(RTC), Branch 142, Makati City, a complaint against the Bank, Insular Life and its counsel, Atty. Jacinto Jimenez, petitioners, for annulment of notarial sale, specific performance and damages, docketed as Civil Case No. 92-049. The complaint alleges, inter alia, that the notarial sale conducted by petitioner Atty. Jacinto Jimenez is void as it does not comply with the requirement of notice of the second auction sale; that Young was forced by the officers of Insular Life to sign letters to enable them to have control of the Bank; that under the MOA, Insular Life should apply the purchase price of P198,000,000.00 (corresponding to the 55% of the outstanding capital stock of the Bank) to Young's loan of P200,000,000.00 and pay the latter P162,000,000.00, representing the remaining 45% of its outstanding capital stock, which must be set-off against the loans of the other respondents. ISSUE: Whether or not the respondent court erred in declaring the MOA dated October 9, 1991 valid and enforceable between the parties despite respondent Young's failure to comply with the terms and conditions thereof. RULING: Contrary to the findings of the Court of Appeals, the foregoing provisions of the MOA negate the existence of a perfected contract of sale. The MOA is merely a contract to sell since the parties therein specifically undertook to enter into a contract of sale if the stipulated conditions are met and the representation and warranties given by Young prove to be true. The obligation of petitioner Insular Life to purchase, as well as the concomitant obligation of Young to convey to it the shares, are subject to the fulfillment of the conditions contained in the MOA. Once the conditions, representation and warranties are satisfied, then it is incumbent upon the parties to perform their respective obligations under the contract. Conversely, in the event that these conditions are not met or complied with, no obligation on the part of either party arises. This is in accord with Article 1181 of the Civil Code which provides that "(i)n conditional obligations, the acquisition of rights, as well as the extinguishment or loss of those already acquired, shall depend upon the happening of the event which constitutes the condition." And when the obligation assumed by a party to a contract is expressly subjected to a condition, the obligation cannot be enforced against him unless the condition is complied with. Here, the MOA provides that Young shall infuse additional capital of P50,000,000.00 into the Bank. It likewise specifies the warranty given by Young that the doubtful accounts of petitioner Bank amounted to P60,000,000.00 only.

However, records show that Young failed to infuse the required additional capital. Moreover, the due diligence audit shows that Young was involved in fraudulent schemes like check-kiting which amounted to a staggering P344,000,000.00. This belies his representation that the doubtful accounts of petitioner Bank amounted only to P60,000,000.00. As a result of these anomalous transactions, the reserves of the Bank were depleted and it had to undergo a ten-year rehabilitation plan under the supervision of the Central Bank. Significantly, respondents do not dispute petitioners’ assertion that Young committed fraud, misrepresented the warranties and failed to comply with his obligations under the MOA. Accordingly, no right in favor of Young's arose and no obligation on the part of Insular Life was created. Since no sale transpired between the parties, the Court of Appeals erred in concluding that Insular Life purchased 55% of the total shares of the Bank under the MOA. Consequently, its findings that the debt of Young has been fully paid and that Insular Life is liable to pay for the remaining 45% equity have no basis. It must be emphasized that the MOA did not convey title of the shares to Insular Life. If ever there was delivery of the said shares to Insular Life, it was because they were pledged by Young to Insular Life under the Credit Agreement. It would be unfair on the part of Young to demand compliance by Insular Life of its obligations when he himself was remiss in his own. Neither can he feign ignorance of the stipulation in the MOA since it is presumed that he read the same and was satisfied with its provisions before he affixed his signature therein. The fact that no deed of sale was subsequently executed by the parties confirms the conclusion that no sale transpired between them. SUSPENSIVE CONDITIONS: MEANING DIRECT FUNDERS HOLDINGS CORPORATION, petitioner, VS. JUDGE CELSO D. LAVIÑA, PRESIDING JUDGE OF RTC- Pasig City, Branch 71 and KAMBIAK Y. CHAN, JR., respondents January 16, 2002 G. R. No. 141851 FACTS: Herein petitioner was granted with a writ of possession. During the hearing for the issuance of temporary restraining order filed by herein private respondent, it was made clear to the respondent Judge that the property in

question was occupied by the petitioner by virtue of a writ of possession issued by the Regional Trial Court of Pasig, Branch 157 in LRC Case No. R-5475 in a petition for the issuance of writ of possession thereof way back on October 23, 1997. Despite the lawful order of a coordinate and co-equal court, the respondent Judge, presiding Regional Trial Court of Pasig, Branch 71, issued the questioned orders to restore possession to private respondent Chan, alleging an obviously grave abuse of discretion, tantamount to lack of jurisdiction. On the same date on December 8, 1997, the temporary restraining order (TRO) was issued, the Court Sheriff IV Cresencio Rabello, Jr. implemented the TRO and submitted the Return on December 9, 1997. Then, on January 21, 1998, the respondent Judge issued the questioned order granting the issuance of a writ of preliminary injunction who subsequently denied the petitioner’s motion to dismiss and supplemental motion to dismiss and the very urgent motion for reconsideration on February 16, 1998. On May 29, 1998, the motion for inhibition and the motion to dissolve the writ of preliminary injunction were also denied. On August 5, 1998, petitioner filed with the Court of Appeals a petition for certiorari and prohibition assailing the trial court’s issuance of a writ of preliminary injunction. On September 28, 1999, the Court of Appeals promulgated a decision dismissing the petition ruling that the trial court had jurisdiction to issue the injunction that did not interfere with the writ of possession of a coordinate court. On October 19, 1999, petitioner filed with the Court of Appeals a motion for reconsideration of the decision. On February 2, 2000, the Court of Appeals denied petitioner’s motion stating that the arguments advanced were “mere reiteration and restatements of those contained in their pleadings. Hence, this appeal to the Supreme Court. ISSUE: Who between petitioner and respondent Kambiak Y. Chan, Jr. has a better right to the possession of the subject property? RULING: The Supreme Court ruled in favor of petitioner. It found that the conditional sale agreement is officious and ineffectual. First, it was not consummated. Second, it was not registered and duly annotated on the Transfer Certificate of Title (No. 12357) covering the subject property. Third, it was executed about eight (8) years after the execution of the real estate mortgage over the subject property.

To emphasize, the mortgagee (United Savings Bank) did not give its consent to the change of debtor. It is a fundamental axiom in the law on contracts that a person not a party to an agreement cannot be affected thereby. Worse, not only was the conditional sale agreement executed without the consent of the mortgagee-creditor, United Savings Bank, the same was also a material breach of the stipulations of the real estate mortgage over the subject property. The conditions of the conditional sale agreement were not fulfilled, hence, respondent’s claim to the subject property was as heretofore stated ineffectual. Article 1181 of the Civil Code reads:

On December 4, 1991, petitioner filed a complaint for rescission alleging that the failure and refusal of respondents to pay the balance of the purchase price constitutes a violation of the contract which entitles her to rescind the same; 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 P200.00 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.

“Art. 1181. In conditional obligations, the acquisition of rights, as well as the extinguishments or loss of those already acquired, shall depend upon the happening of the event which constitutes the condition.”

On the other hand, respondents contended that the contract couldn’t 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. Bernardino 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. As counterclaim, respondents pray for moral damages in the amount of P50,000.00; exemplary damages in the amount of P30,000.00; attorney’s fees in the amount of P10,000.00 and other litigation expenses.

POTESTATIVE SUSPENSIVE CONDITIONS 1. 2. 3.

VDA. DE MISTICA VS. NAGUIAT, 418 SCRA 73 HERMOSA VS. LONGARA, 93 PHIL 971 TRILLANA VS. QUEZON COLLEGES, 93 PHIL 383

FIDELA DEL CASTILLO Vda. DE MISTICA, petitioner, VS. Spouses BERNARDINO NAGUIAT and MARIA PAULINA GERONA-NAGUIAT, respondents December 11, 2003 G.R. No. 137909 418 SCRA 73 FACTS: Eulalio Mistica, predecessor-in-interest of herein petitioner, is the owner of a parcel of land, and a portion thereof was leased to Bernardino sometime in 1970. On April 5, 1979, Eulalio Mistica entered into a contract to sell with Bernardino over a portion of the aforementioned lot containing an area of 200 square meters. This agreement was reduced to writing in a Kasulatan. Pursuant to said agreement, Bernardino gave a downpayment of P2,000.00 and another partial payment of P1,000.00 on February 7, 1980. However, he failed to make any payments thereafter. Eulalio Mistica died sometime in October 1986.

The trial court dismissed the complaint and ordered the petitioner to pay the respondents attorney’s fee and the cost of suit while ordering the respondents to pay the heirs of the petitioner the balance of the purchase price and reconveyance of the extra area of 58 square meters from the land in question. Disallowing rescission, the Court of Appeals held that respondents did not breach the Contract of Sale. It explained that the conclusion of the ten-year period was not a resolutory term, because the Contract had stipulated that payment, with interest of 12 percent, could still be made if respondents failed to pay within the period. Petitioner did not disprove the allegation of respondents that they had tendered payment of the balance of the purchase price during her husband’s funeral, which was well within the ten-year period. Moreover, rescission would be unjust to respondents, because they had already transferred the land title to their names. The proper recourse, the CA held, was to order them to pay the balance of the purchase price, with 12 percent interest. As to the matter of the extra 58 square meters, the CA held that its reconveyance was

no longer feasible, because it had been included in the title issued to them. The appellate court ruled that the only remedy available was to order them to pay petitioner the fair market value of the usurped portion. ISSUE: Whether or not there is a potestative suspensive condition in the Kasulatan. RULING: 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. 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. 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. If petitioner would like to impress upon the Court that the parties intended otherwise, she has to show competent proof to support her contention. Instead, she argues that the period cannot be extended beyond ten years, because to do so would convert the buyer’s obligation to a purely potestative obligation that would annul the contract under Article 1182 of the Civil Code. 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. Indeed, to allow the fulfillment of conditions to depend exclusively on the debtor’s will would be to sanction illusory obligations. The Kasulatan does not allow such thing. First, nowhere is it stated in the Deed that payment of the purchase price is dependent upon whether respondents want to pay it or not. Second, the fact that they already made partial payment thereof only shows that the parties intended to be bound by the Kasulatan.

HERMOSA VS. LONGARA 93 PHIL 971 FACTS: Intestate Fernando Hermosa, Sr. asked for three (3) credit advances from respondent Epifanio M. Longara. Two (2) of said credit advances were made during his lifetime and in his favor and in his son while the last credit was made after his death and in favor of his grandson. Evidences show that said credits were asked by the intestate “on condition that their payment should be made by him, as soon as he receives funds derived from the sale of his property in Spain.” After the intestate’s death and upon authorization of the probate court, the administration of the intestate’s property, his wife, sold the property and the same was paid for subsequently. As a consequence, respondent filed an action for the payment of the aforesaid credits which was upheld by the lower court and by the Court of Appeals. However, the same was contested by herein petitioners, heirs of the intestate, on the ground that the obligation contracted by the intestate was subject to a condition exclusively dependent upon the will of the debtor condicion potestiva and therefore null and void, in accordance with article 1115 of the Old Civil Code. ISSUE: Whether or not the condition made in the obligation is a purely suspensive condition dependent or potestative upon the exclusive will of the debtor. RULING: NO, the condition of the obligation was that the payment was to be made “as soon as he (obligor) receives funds from the sale of his property in Spain.” The will to sell on the part of the debtor (intestate) was present in fact or presumed legally to exist although the price and other condition thereof were still within his discretion and final approval. But in addition to this acceptability of the sale to him (obligor), there were still other conditions that had to concur to effect the sale, mainly that of the presence of a buyer, ready, able and willing to purchase the property under the condition demanded by the vendor.

Affirmed with the modification that the payment for the extra 58-square meter lot included in respondents’ title is deleted. POTESTATIVE SUSPENSIVE CONDITIONS (Art. 1182, CC) POTESTATIVE SUSPENSIVE CONDITIONS (Art. 1182, CC)

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

POSITIVE SUSPENSIVE CONDITIONS 1. 2.

VISAYAN SAWMILL VS. CA, 219 SCRA 378 LEANO VS. CA, 369 SCRA 36

VISAYAN SAWMILL COMPANY, INC. VS. COURT of APPEALS G.R. No. 83851. March 3, 1993 219 SCRA 378 FACTS: On May 1, 1983, RJH Trading and Visayan Sawmill Company, Inc. entered into a sale involving scrap iron located at the stockyard of petitioner company at Cawitan, Sta. Catalina, Negros Oriental, subject to the condition that RJH Trading will open a leter of credit in the amount of P250,000 in favor of petitioner company on or before May 15, 1983. This is evidenced by a contract entitled “Purchase and Sale of Scrap Iron” duly signed by both parties. RJH Trading started to dig and gather scrap iron at the defendantappellant’s premises until May 30 when Visayan Sawmill Company Inc. allegedly directed private respondent to desist from pursuing the work in view of an alleged case filed against private respondent by a certain Alberto Pursuelo. However, on May 23, 1983, petitioner company alleged that they sent a telegram to private respondent canceling the contract of sale because of failure of the latter to comply with the conditions. On May 24, 1983, RJH Trading informed petitioner company by telegram that the letter of credit was opened May 12, 1983 at BPI main office in Ayala, but that the transmittal was delayed. On May 26, 1983, petitioner company received a letter of advice from the Dumaguete City Branch of the BPI. On July 19, 1983, RJH Trading sent a series of telegrams stating that the case filed against him by Pursuelo had been dismissed and demanding that petitioner company comply with the Deed of Sale, otherwise a case will be filed against them. Petitioner company’s counsel on July 20, 1983 informed private respondent’s counsel that petitioner company is unwilling to continue with the sale due to private respondent’s failure to comply with essential preconditions of the contract. Private respondent filed an action for specific performance and damages with the trial court.

The trial court rendered its decision in favor of the private respondent. The petitioner appealed from said decision to the Court of Appeals; however, the appellate court affirmed with modification the decision of the lower court. Hence, this petition. ISSUE: Whether or not the private respondent’s non-compliance with essential precondition justified the cancellation of the contract. RULING: The Supreme Court held that the nature of the transaction between the petitioner company and the private respondent is a mere contract to sell, and not a contract of sale. The petitioner company’s obligation is subject to a positive suspensive condition, which is the private respondent’s opening, making or indorsing of an irrevocable and unconditional letter of credit. The failure of the private respondent to comply with the positive suspensive condition cannot even be considered a breach but simply an event that prevented the obligation of petitioner company to convey title from acquiring binding force. Hence, the petition is granted and the assailed decision is reversed. POSITIVE SUSPENSIVE CONDITIONS (Art. 1184, CC) LEANO VS. COURT OF APPEALS 369 SCRA 36 G.R. No.129018 Nov. 15, 2001 FACTS: On November 13, 1985, Hermogenes Fernando, as vendor and Carmelita Leano, as vendee executed a contract to sell involving a piece of land, Lot No. 876-B, with an area of 431 square meters, located at Sto.Cristo, Baliuag, Bulacan. In the contract, Carmelita Leano bound herself to pay Hermogenes Fernandez the sum of one hundred and fifty pesos (P107,750.00) as the total purchase price of the lot. The contract also provided for a grace period of one month within which to make payments, together with the one corresponding the month of grace. Should the month of grace be expired without the installments for both months

having been satisfied, an interest of 18% per annum will be charged on the unpaid installments. Should a period of (90) ninety days elapse from the expiration of the grace period without the overdue and unpaid installments having been paid with the corresponding interests up to that date, respondent Fernando, as vendor, was authorized to declare the contract cancelled and to dispose of the parcel of land, as if the contract had not been entered into. The payments made, together with all the improvements made on the premises, shall be considered as rents paid for the use and occupation of the premises and as liquidated damages. After the execution of the contract, Carmelita Leano made several payments in lump sum. Thereafter, she constructed a house on the lot valued at P800,000.00. The last payment that she made was on April 1, 1989. On September 16, 1991, the Trial Court rendered a decision in an ejectment case earlier filed by respondent Fernando ordering petitioner to vacate the premises and to pay P250.00 per month by way of compensation for the use and occupation of the property from May 27,1991 until she vacated the premises, attorney’s fees and costs of the suit. On August 24, 1993, the trial court issued a writ of execution which was duly served on petitioner Leano. On November 4, 1993, 1993, after petitioner Leano posted acash bond of P50000.00, the trial court issued a writ of preliminary injunction to stay the enforcement of the decision of the municipal trial court. ISSUE: Whether or not the petitioner was in delay the payment of the monthly amortizations. RULING: While the contract provided that the total purchase price shall be paid in monthly installments by claiming that the ten-year period, the same contract specified that the purchase price shall be paid in monthly installments for which the corresponding penalty shall be imposed in case of default. Petitioner Leano cannot ignore the provision on payment of monthly installments by claiming that the ten-year period within which to pay has not elapsed. Article 1169 of the Civil Code provides that in reciprocal obligations, neither party incurs in delay if the other does not comply or is not ready to comply 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.

among others that the matter of the claim of Intervenor Lina becomes a money claim to be filed in the estate of the late Sandejas, Sr.

In the case at bar, respondent Fernando performed his part of the obligation by allowing petitioner Leano to continue in possession and use of the property. Clearly, when petitioner Leano did not pay the monthly amortization in accordance with the terms and conditions of the contract, she was in delay and liable for damages. However, the default committed by the petitioner Leano in respect of the obligation could be compensated by the interest and surcharges imposed upon her under the contract in question. Petition denied, judgment affirmed in toto.

The lower court issued an Order directing the counsel for the four heirs and other heirs of Teresita R. Sandejas to move for the appointment of a new administrator within fifteen (15) days from receipt of this Order.

EFFECTS OF NON-FULFILLMENT OF SUSPENSIVE CONDITION HEIRS OF SANDEJAS, petitioners VS. LINA, respondent 351 SCRA 183 GR NO. 141634 FACTS: Eliodoro Sandejas, Sr. filed a petition in the lower court praying that letters of administration be issued in his favor for the settlement of the estate of his wife, Remedios R. Sandejas. On July 1, 1981, Letters of Administration were issued by the lower court appointing him as administrator of the estate of the decedent. The records of the letter of administration given to Sandejas, however, were burned when the Manila City Hall was destroyed by fire. Thus, Sandejas Sr. filed a Motion for Reconstitution of the records, which motion was granted. An Omnibus Pleading for motion to intervene and petition-in-intervention was filed by respondent Lina alleging among others that he and Administrator Sandejas Sr., in his capacity as seller, bound and obligated himself, his heirs, administrators, and assigns, to sell forever and absolutely and in their entirety parcels of land which formed part of the estate. Consequently, the lower court issued an Order granting the intervention of respondent Lina. Sandejas Sr. filed a Manifestation alleging among others that the administrator, Eliodoro P. Sandejas, Sr., died in Canada. He also alleged,

Heirs Sixto, Roberto, Antonio and Benjamin, all surnamed Sandejas, filed a Motion for Reconsideration and the appointment of another administrator, Mr. Sixto Sandejas in lieu of respondent Lina stating that it was only lately that Mr. Sixto Sandejas, a son and heir, expressed his willingness to act as a new administrator. Thereafter, respondent Lina filed his Manifestation and Counter Motion alleging that he had no objection to the appointment of Sixto Sandejas as administrator provided that Sixto Sandejas be also appointed as administrator of the intestate estate of his father, Eliodoro P. Sandejas, Sr. The lower court granted the said Motion and substituted Alex Lina with Sixto Sandejas as petitioner in the said Petitions. After the payment of the administrator's bond and approval thereof by the court, Administrator Sixto Sandejas took his oath as administrator of the estate of the deceased Remedios R. Sandejas and Eliodoro P. Sandejas and was likewise issued Letters of Administration on the same. On November 29, 1993, Intervenor filed an Omnibus Motion to approve the deed of conditional sale executed between Plaintiff-in-lntervention Lina and Elidioro Sandejas, Sr. on June 7, 1982; to compel the heirs of Remedios Sandejas and Eliodoro Sandejas, Sr. thru their administrator, to execute a deed of absolute sale in favor of Intervenor Lina pursuant to said conditional deed of sale to which the administrator filed a Motion to Dismiss and/or Opposition to said omnibus motion. The lower court granted intervenor's Motion but was overturned by the Court of Appeals. ISSUE: Whether or not Eliodoro P. Sandejas Sr. is legally obligated to convey title to the property referred to in the subject document which was found to be in the nature of a contract to sell - where the suspensive condition set forth therein, was not complied with. RULING:

Petitioners argue that the CA erred in ordering the conveyance of the disputed 3/5 of the parcels of land, despite the nonfulfillment of the suspensive condition -- court approval of the sale. They assert that because this condition had not been satisfied, their obligation to deliver the disputed parcels of land was converted into a money claim. Petitioners admit that the agreement between the deceased Eliodoro Sandejas Sr. and respondent was a contract to sell, in which case the payment of the purchase price is a positive suspensive condition. The vendor's obligation to convey the title does not become effective in case of failure to pay. On the other hand, the agreement between Eliodoro Sr. and respondent is subject to a suspensive condition -- the procurement of a court approval, not full payment. There was no reservation of ownership in the agreement. Petitioners were supposed to deed the disputed lots over to respondent. They could do this upon the court's approval, even before full payment. Hence, their contract was a conditional sale, rather than a contract to sell. When a contract is subject to a suspensive condition, its birth or effectivity can take place only if and when the condition happens or is fulfilled. Thus, the intestate court's grant of the Motion for Approval of the sale filed by respondent resulted in petitioners' obligation to execute the Deed of Sale of the disputed lots in his favor. The condition having been satisfied, the contract was perfected. Henceforth, the parties were bound to fulfill what they had expressly agreed upon.

PERIOD OR TERM, MEANING AND DEFINITION 1. CIR VS. PRIMETOWN, 28 AUGUST 2007 as compared to 2. NAMARCO VS. TECSON, 139 P 584

CIR VS PRIMETOWN GR No. 162155. August 28, 2007 FACTS: On March 11, 1999, Gilbert Yap, vice chair of respondent Primetown Property Group, Inc., applied for the refund or credit of income tax respondent paid in 1997. According to Yap, because respondent suffered losses, it was not liable for income taxes. Nevertheless, respondent paid its quarterly corporate income tax and remitted creditable withholding tax

from real estate sales to the BIR in the total amount of P26,318,398.32. Therefore, respondent was entitled to tax refund or tax credit. On May 13, 1999, revenue officer Elizabeth Y. Santos required respondent to submit additional documents to support its claim. Respondent complied but its claim was not acted upon. Thus, on April 14, 2000, it filed a petition for review in the Court of Tax Appeals (CTA). On December 15, 2000, the CTA dismissed the petition as it was filed beyond the two-year prescriptive period for filing a judicial claim for tax refund or tax credit. Respondents now assail that decision for dismissal of the CTA. ISSUE: What is the expiration period for the filing of the action? RULING: Both Article 13 of the Civil Code and Section 31, Chapter VIII, Book I of the Administrative Code of 1987 deal with the same subject matter — the computation of legal periods. Under the Civil Code, a year is equivalent to 365 days whether it be a regular year or a leap year. Under the Administrative Code of 1987, however, a year is composed of 12 calendar months. Needless to state, under the Administrative Code of 1987, the number of days is irrelevant. There obviously exists a manifest incompatibility in the manner of computing legal periods under the Civil Code and the Administrative Code of 1987. For this reason, we hold that Section 31, Chapter VIII, Book I of the Administrative Code of 1987, being the more recent law, governs the computation of legal periods. Lex posteriori derogat priori. Following this formula, respondent’s petition (filed on April 14, 2000) was filed on the last day of the 24th calendar month from the day respondent filed its final adjusted return. Hence, it was filed within the reglementary period. PERIOD OR TERM, MEANING AND DEFINITION

compared to NAMARCO vs Tecson GR No. L-29131. August 27, 1969

DISTINCTIONS: CONDITION VS. PERIOD/TERM

FACTS: On a previous court case, the CFI rendered judgment: (a) Ordering the defendants Miguel D. Tecson and Alto Surety Insurance Co., Inc. to pay jointly and severally plaintiff PRATRA the sum of P7,200.00 plus 7% interest from May 25, 1960 until the amount is fully paid, plus P500.00 for attorney's fees, and plus costs; (b) ordering defendant Miguel D. Tecson to indemnify his codefendant Alto Surety & Insurance Co., Inc. on the cross-claim for all the amounts it would be made to pay in this decision, in case defendant Alto Surety & Insurance Co., Inc. pay the amount adjudged to plaintiff in this decision. From the date of such payment defendant Miguel D. Tecson would pay the Alto Surety & Insurance Co., Inc., interest at 12% per annum until Miguel D. Tecson has fully reimbursed plaintiff of the said amount. Defendant Miguel Tecson seeks the dismissal of the complaint on the ground of lack of jurisdiction and prescription. This case was filed exactly on December 21, 1965 but more than ten years have passed a year is a period of 365 days (Art. 13, CCP). Plaintiff forgot that 1960, 1964 were both leap years so that when this present case was filed it was filed two days too late. ISSUE: Should the complaint be dismissed on the grounds of prescription? RULING: In the language of this Court, in People vs. Del Rosario, with the approval of the Civil Code of the Philippines (Republic Act 386) ... we have reverted to the provisions of the Spanish Civil Code in accordance with which a month is to be considered as the regular 30-day month ... and not the solar or civil month," with the particularity that, whereas the Spanish Code merely mentioned "months, days or nights," ours has added thereto the term "years" and explicitly ordains that "it shall be understood that years are of three hundred sixty-five days." The decision was affirmed.

1. 2. 3. 4.

BERG VS. MAGDALENA ESTATES, 92 P 110 LIRAG VS. CA, 63 SCRA 375 DAGUHOY VS. PONCE, 96 PHIL 15 VICTORIA PLANTERS VS. VICTORIA MILLING, 97 PHIL 110

BERG VS. MAGDALENA ESTATES 92 PHIL 110 FACTS: This is an action for partition of the property known as Crystal Arcade situated in the City of Manila. The complaint avers that plaintiff and defendant are co-owners of said property, the former being the owner of one-third interest and the latter of the remaining two-thirds. The division is asked because plaintiff and defendant are unable to agree upon the management of the property and upon the partition thereof. Defendant answered setting up a special defense and counterclaim. As a special defense, defendant claims that on September 22, 1943, it sold to plaintiff one-third of the property in litigation subject to the express condition that should either vendor or vendee decide to sell his undivided share, the party selling would grant to the other party first an irrevocable option to purchase the same at the seller’s price. It avers that in January 1946, plaintiff fixed the sum of P200,000 as the price of said share and offered to sell it to defendant, which offer was accepted and for the payment of said price plaintiff gave defendant a period of time which, including the extensions granted would expire on May 31, 1947. Defendant claims that in spite of its acceptance of the offer, plaintiff refused to accept the payment of the price, and for this refusal defendant suffered damages in the amount of P100,000. For these reasons, defendant asks for specific performance. ISSUE: Whether or not the obligation is one subject to a term. RULING: NO, rather, the obligation is rather subject to a condition. Under Article 1125 of the old Civil Code, obligations with a term, for the fulfillment of which a day certain has been fixed, shall be demandable only when the day arrives. A

day certain is understood to be that which must necessarily arrive, even though it is not known when. In order that an obligation may be with a term, it is, therefore, necessary that it should arrive, sooner or later; otherwise, if its arrival is uncertain, the obligation is conditional. Viewing in this light the clause on which defendant relies for the enforcement of its right to buy the property, it would seem that it is not a term, but a condition. Considering the first alternative, that is, until defendant shall have obtained a loan from the National City Bank of New York, it is clear that the granting of such loan is not definite and cannot be held to come within the terms “day certain.” And if it is considered that the period given was until such time as defendant could raise money from other sources, then it is also to be indefinite and contingent, and so it is also a condition and not a term within the meaning of the law. In any event, it is apparent that the fulfillment of the condition contained in this second alternative is made to depend upon defendant’s exclusive will, and viewed in this light, the plaintiff’s obligation to sell did not arise, for, under article 1115 of the old Civil Code, “when the fulfillment of the condition depends upon the exclusive will of the debtor the conditional obligation shall be void.”

Mills, Inc. As of May 11, 1960, plaintiff received a salary of P400.00 and allowance of P100.00 per month. Plaintiff's tenure of employment, per defendant Lirag Textile Mills, Inc.'s above letter of May 9, 1960 was to be 'for an indefinite period, unless sooner terminated by reason of voluntary resignation or by virtue of a valid cause or causes'. On March 4, 1960, per letter of defendant Lirag Textile Mills, Inc. of that date, signed by its Executive Vice President and General Manager, plaintiff was advised that effective November 15, 1960 he (Alcantara) was promoted to the position of Assistant Administrative Officer. Subsequently, on July 22, 1961, defendant Lirag Textile Mills, Inc. wrote plaintiff (Alcantara) a letter advising him that because the company 'has suffered some serious reverses, both in terms of pecuniary loss and in market opportunities,' the company was terminating his services and effecting his separation from defendant corporation effective at the close of working hours of August 22, 1961. Because of this, plaintiff Alcantara filed a complaint before the Regional Trial Court against defendant Lirag Textile Mills Inc. for illegal dismissal as in accordance with the employment contract between herein then plaintiff and then defendant.

DISTINCTIONS: CONDITION VS. PERIOD/TERM

LIRAG TEXTILE MILLS, INC. and FELIX K. LIRAG vs.COURT OF APPEALS and CRISTAN ALCANTARA G.R. No. L-30736 April 14, 1975 FACTS: On May 11, 1960 and for sometime prior and subsequent thereto, defendant Felix Lirag was a member of the Board of Directors of the Philippine Chamber of Industries; and for about two months, more or less, prior to May 11, 1960, plaintiff Cristina Alcantara worked in a temporary capacity with defendant Lirag Textile Mills, Inc. During this same period of time, defendant Felix Lirag was a director and Chairman of the Board of Directors of defendant Lirag Textile Mills, Inc. On May 9, 1960, defendant Lirag Textile Mills, Inc. wrote a letter to plaintiff (Alcantara) advising him that, effective May 11, 1960, his temporary designation as Technical Assistant to the Administrative Officer was made permanent and as Assistant to the Administrative Officer of the Lirag Textile

Respondent Court of Appeals affirmed the decision of the lower court in Civil Case No. 6884 principally its conclusion that the trial court did not commit any error in its evaluation of the evidence when it found that it was not true that petitioner Lirag Textile Mills (then defendant) suffered pecuniary loss and in market opportunities which it used as a justification to terminate the services of plaintiff Alcantara; that it was not also true that the latter suffered from lack of skill; that, therefore, there was a violation of the written contract of employment executed by and between petitioners and private respondent Alcantara; that petitioner (then defendant) Felix Lirag was responsible for inducing private respondent Alcantara to leave his employment with the Philippine Chamber of Industries where he was holding a permanent position and to accept employment with petitioner (then defendant) Lirag Textile Mills; and that appellee Alcantara was correctly awarded moral damages and attorney's fees. ISSUE: Whether or not there has been a violation of the written contract for a period of employment between petitioner and private respondent. RULING:

The contract of employment was for an indefinite period as it shall continue without ending, subject to a resolutory period, unless sooner terminated by reason of voluntary resignation or by virtue of a valid cause or causes (the resolutory period). There is an indefinite period of time for employment agreed upon by and between petitioners and the private respondent, subject only to the resolutory period agreed upon which may end the indeterminate period of employment, namely voluntary resignation on the part of private respondent Alcantara or termination of employment at the option of petitioner Lirag Textile Mills, but for a "valid cause or causes". It necessarily follows that if the petitioner-employer Lirag Textile Mills terminates the employment without a "valid cause or causes", as it admittedly did, it committed a breach of the contract of employment executed by and between the parties. The measure of an employer's liability provided for in Republic Act 1052, as amended by R. A. 1787, is solely intended for contracts of employment without a stipulated period. It cannot possibly apply as a limitation to an employer's liability in cases where the employer commits a breach of contract by violating an indefinite period of employment expressly agreed upon through his wrongful act of terminating said employment without any valid cause or causes, which act may even amount to bad faith on the employer's part. The "indefinite period" of employment expressly agreed upon by and between the parties in this case is really a resolutory period because the employment is bound to terminate on a future "day certain" such as the employee's resignation or employer's termination of employment upon a valid cause or causes, like death of the employee or termination of employer's corporate existence, although it may not be known when. It is clear that petitioner Lirag Textile Mills, Inc. violated the contract of employment with private respondent Alcantara when the former terminated his services without a valid cause. The act was attended with bad faith and deceit because said petitioner made false allegations of a supposed valid cause knowing them to be false, thus making itself liable for payment of actual, moral and exemplary damages, plus attorneys fees to private respondent Alcantara. Petitioner Lirag Textile Mills, Inc. cannot with impunity be allowed the absolute and unilateral power to terminate without valid cause a contract of employment with a definite period it voluntarily entered into merely on the basis of its whim or caprice and under the false pretense of financial distress. DISTINCTIONS: CONDITION VS. PERIOD/TERM

DAGUHOY ENTERPRISES, INC. VS. PONCE 96 Phil 15 FACTS: In the year 1950, defendant-appellant Domingo Ponce was chairman and manager and his son Buhay M. Ponce was secretary-treasurer of the plaintiff corporation Daguhoy Enterprises, Inc. On June 24, Rita L. Ponce, wife of Domingo, executed in favor of plaintiff corporation a deed of mortgage over a parcel of land including the improvements thereon to secure the payment of a loan of P5, 000 granted to her by said corporation, payable within six years with interests at 12% annum. On March 10, 1951, Rita L. Ponce with the consent of her husband Domingo executed another mortgage deed amending the first one, whereby the loan was increased from P5,000 to P6,190, the terms and conditions of the mortgage remaining the same. Rita and Domingo presented the two mortgage deeds for registration in the office of the register of deeds for registrations in the office of the register of deeds, but the said register advised the two to cure the defects and furnish the necessary data. Instead of complying with the suggestion and requirements, the two withdrew the two mortgage deeds and then mortgaged the same parcel of land in favor of the Rehabilitation Finance Corporation (RFC) to secure a loan. Potenciano Gapol, the majority stockholder in the corporation, upon learning that the deeds of mortgage were not registered and that they were withdrawn from the office of the register of deeds and the land covered by the two deeds was again mortgaged to RFC, he filed a civil case against the respondents, not only for the amount of the loan of P6,190 but for other sums, possibly on the theory that the loan in question was granted by Domingo and Buhay as officers of the corporation. To account for the amount of the loan, Domingo and his son filed in court a check of RFC in the amount of P6,190 and an interesr of P266.10 in favor of the company. Thereafter, Gapol petitioned the court for permission to withdraw the amounts as payment of the loan. But because the defendants opposed said petition, the court denied it. Gapol, agreeing to the cancellation of the mortgage as soon as the amounts are withdrawn and deposited with the Bank of America, in the name of the company, filed a second petition for withdrawal. However, the defendants failed to agree, thus it was again denied.

ISSUE: Whether or not the sum in the form of an RFC check and some interest deposited in the civil case may be withdrawn to satisfy the judgment and to pay the loan of P6,190 and part of the interest due. RULING:

undertakings of such central and the planters and the terms and conditions under which the sugar cane produced by said planters would be milled in the event of the construction of such sugar central by Ossorio. Such central was in fact constructed by said Ossorio in Manapla, Negros Occidental, through the North Negros Sugar Co., Inc., where after the standard form of milling contracts were executed.

Yes. Although the original loan of P5,000 including the increase of P1,190 was payable within six years from June 1950 and so did not become due and payable until 1956, the trial court held that under article 1198 of the Civil Code, the debtor lost the benefit of the period by reason of her failure to give the security in the form of the two deeds of mortgage and register them, including defendant’s act in withdrawing said two deeds from the office of the register of deeds and then mortgaging the same property in favor of the RFC; and so the obligation became pure and without any condition and consequently, the loan became due and immediately demandable. Likewise, even if the defendants had already deposited a certain amount in favor of the corporation, they are not yet relieved from the payment of interests from the time of the deposit because the loan is not yet paid.

The parties cannot stipulate as to the milling contracts executed by the planters by Victorias, Negros Occidental, other than as follows: 1) a number of them executed such milling contracts with the North Negros Sugar Co., Inc.; 2) while a number of them executed milling contracts with the Victorias Milling Co., Inc., which was likewise organized by Miguel J. Ossorio and which had constructed another Central at Victorias, Negros Occidental. The North Negros Sugar Co., Inc. had its first milling during the 1918-1919 crop years, and the Victorias Milling Co., had its first milling during the 1921-1922 crop year. Subsequent millings took place every successive crop year thereafter, except the 6-year period, comprising 4 years of the last World War II and 2 years of post-war reconstruction of respondent's central at Victorias, Negros Occidental.

DISTINCTIONS: CONDITION VS. PERIOD/TERM

VICTORIAS PLANTERS VS. VICTORIAS MILLING 97 PHIL. 318 FACTS From 1917 to 1934, the sugar cane planters Manapla and Cadiz, Negros Occidental, executed identical milling contracts, under which the sugar central "North Negros Sugar Co. Inc." would mill the sugar produced by the sugar cane planters of the Manapla and Cadiz districts. The sugar cane planters of Manapla and Cadiz, Negros Occidental had executed with Miguel J. Ossorio, a contract whereby Ossorio was given a period up to December 31, 1916 within which to make a study of and decide whether he would construct a sugar central or mill with a capacity of milling 300 tons of sugar cane every 24 hours and setting forth the mutual obligations and

After the liberation, the North Negros Sugar Co., Inc. did not reconstruct its destroyed central at Manapla, Negros Occidental, and in 1946, it advised the North Negros Planters Association, Inc. that it had made arrangements with the respondent Victorias Milling Co., Inc. for said respondent corporation to mill the sugar cane produced by the planters of Manapla and Cadiz holding milling contracts with it. Thus, after the war, all the sugar cane produced by the planters of petitioner associations, in Manapla, Cadiz, as well as in Victorias, who held milling contracts, were milled in only one central, that of the respondent corporation at Victorias. Beginning with the year 1948, and in the following years, when the planters-members of the North Negros Planters Association, Inc. considered that the stipulated 30-year period of their milling contracts executed in the year 1918 had already expired and terminated in the crop year 19471948, and the planters-members of the Victorias Planters Association, Inc. likewise considered the stipulated 30-year period of their milling contracts, as having likewise expired and terminated in the crop year 1948-1949, under the pertinent provisions of the standard milling contract. Notwithstanding the repeated representations made by the herein petitioners with the respondent corporation, the herein respondent has refused and still refuses to accede to the same, contending that under the provisions of the milling contract. ISSUE:

Whether or not the trial court erred in rendering its disputed decision, favoring the petitioner.

up for what they failed to deliver during those trying years, the fulfillment of which was impossible, if granted, would in effect be an extension of the term of the contracts entered into by and between the parties.

RULING: NO. obligation.

Fortuitous event relieves the obligor from fulfilling a contractual

The fact that the contracts make reference to "first milling" does not make the period of thirty (30) years one of thirty (30) milling years. The term "first milling" used in the contracts under consideration was for the purpose of reckoning the thirty-year period stipulated therein. Even if the thirty-year period provided for in the contracts be construed as milling years, the deduction or extension of six (6) years would not be justified. At most on the last year of the thirty-year period stipulated in the contracts the delivery of sugar cane could be extended up to a time when all the amount of sugar cane raised and harvested should have been delivered to the appellant's mill as agreed upon. Further, the parties stipulated that in the event of flood, typhoon, earthquake, or other force majeure, war, insurrection, civil commotion, organized strike, etc., the contract shall be deemed suspended during said period, does not mean that the happening of any of those events stops the running of the period agreed upon. It only relieves the parties from the fulfillment of their respective obligations during that time — the planters from delivering sugar cane and the central from milling it. In order that the central, the herein appellant, may be entitled to demand from the other parties the fulfillment of their part in the contracts, the latter must have been able to perform it but failed or refused to do so and not when they were prevented by force majeure such as war. To require the planters to deliver the sugar cane which they failed to deliver during the four (4) years of the Japanese occupation and the two (2) years after liberation when the mill was being rebuilt is to demand from the obligors the fulfillment of an obligation which was impossible of performance at the time it became due. Nemo tenetur ad impossibilia. The obligee not being entitled to demand from the obligors the performance of the latter’s part of the contracts under those circumstances cannot later on demand its fulfillment. The performance of what the law has written off cannot be demanded and required. The prayer that the plaintiffs be compelled to deliver sugar cane to the appellant for six (6) years more to make

POTESTATIVE PERIOD 1. 2. 3.

JESPAJO REALTY VS. CA, 390 SCRA 27 BORROMEO VS. CA, 47 SCRA 65 GONZALES VS. JOSE, 66 PHIL 369

JESPAJO REALTY CORPORATION, petitioner, VS. HON. COURT OF APPEALS, TAN TE GUTIERREZ and CO TONG, respondents 390 SCRA 27 FACTS: The subject of this controversy is an apartment building owned by Jespajo Realty Corporation. Said corporation, represented by its President, Jesus L. Uy, entered into separate contracts of lease with Tan Te Gutierrez and Co Tong. The lease period shall be effective as of February 1, 1985 and shall continue for an indefinite period provided the lessee is up-to-date in the payment of his monthly rentals. The lessee may, at his option, terminate this contract any time by giving sixty (60) days prior written notice of termination to the lessor. However, violation of any of the terms and conditions of this contract shall be a sufficient ground for termination thereof by the lessor. For the duration of the contract, the lessee agrees to an automatic 20% yearly increase in the monthly rentals. On January 2, 1990, the lessor corporation sent a written notice to the lessees informing them of the formers’ intention to increase the monthly rentals on the occupied premises to P3,500.00 monthly effective February 1, 1990. The lessees through its counsel in a letter dated March 10, 1990 manifested their opposition alleging that the same is in contravention of the terms of the contract of lease as agreed upon. Due to the opposition and the failure of the lessees to pay the increased monthly rentals in the amount of P3,500.00, the lessor through its counsel in a letter dated April 10, 1990 demanded that the lessees vacate the premises and pay the amount of P7,000.00 corresponding to the months of February and March, 1990.

The lessees exerted effort to pay the rentals due for the months of February and March 1990 at the monthly rate stipulated in the contract but was refused by the lessor so that on May 2, 1990, they instituted before the Metropolitan Trial Court of Manila, Branch 16 a case for consignation. The trial judge in the consignation case issued an order allowing the plaintiffs therein to deposit with the City Treasurer of Manila the amount of P33,480.28 for Co Tong and the amount of P32,710.32 for Tan Te Gutierrez representing their respective rentals for thirteen (13) months from February, 1990 to January, 1991. More than six (6) months from the filing of the case for consignation, the lessor instituted an ejectment suit against the lessees before the Metropolitan Trial Court of Manila Branch 20. The court in its decision dismissed the ejectment suit for lack of merit. Regional Trial Court is constrained to reverse the appealed decision and ordered another judgment to be entered in favor of appellant. This was, however, reversed by the Court of Appeals ISSUE: Whether or not the subject contract of lease did not provide for a definite period hence it falls under the ambit of Art. 1687 of the NCC, making the agreement effective on a month-to-month basis since rental payments are made monthly RULING: No. The Court held that Art. 1687 finds no application in the case at bar. The lease contract between petitioner and respondents is with a period subject to a resolutory condition. Art. 1687 provides that if the period for the lease has not been fixed, it is understood to be from year to year, if the rent agreed upon is annual; from month to month, if it is monthly; from week to week, if the rent is weekly; and from day to day, if the rent is to be paid daily. However, even though a monthly rent is paid, and no period for the lease has been set, the courts may fix a longer term for the lease after the lessee has occupied the premises for over one year. If the rent is weekly, the courts may likewise determine a longer period after the lessee has been in possession for over six months. In case of daily rent, the courts may also fix a longer period after the lessee has stayed in the place for over one month. The wording of the agreement is unequivocal: “The lease period shall continue for an indefinite period provided the lessee is up-to-

date in the payment of his monthly rentals.” The condition imposed in order that the contract shall remain effective is that the lessee is up-to-date in his monthly payments. It is undisputed that the lessees Gutierrez and Co Tong religiously paid their rent at the increasing rate of 20% annually. The agreement between the lessor and the lessees are therefore still subsisting, with the original terms and conditions agreed upon, when the petitioner unilaterally increased the rental payment to more than 20% or P3,500.00 a month. POTESTATIVE PERIOD BORROMEO VS. CA 47 SCRA 65 FACTS: Before the year 1933, Jose A. Villamor was a distributor of lumber belonging to Mr. Miller who was the agent of the Insular Lumber Company in Cebu City. Defendant being a friend and former classmate of plaintiff, Borromeo, used to borrow from the latter certain amounts from time to time. On one occasion with some pressing obligation to settle with Mr. Miller, defendant borrowed from plaintiff a large sum of money for which he mortgaged his land and house in Cebu City. Mr. Miller filed civil action against the defendant and attached his properties including those mortgaged to plaintiff, inasmuch as the deed of mortgage in favor of plaintiff could not be registered because it was not properly drawn up. Plaintiff then pressed the defendant for the settlement of his obligation, but defendant instead offered to execute a document promising to pay his indebtedness even after the lapse of ten (10) years. Liquidation was made and defendant was found to be indebted to plaintiff in the sum of P7,220, for which defendant signed a promissory note on November 29, 1933 with interest at the rate of 12% per annum, agreeing to pay-“as soon as I have money.” The note further stipulates that defendant “hereby relinquish, renounce, or otherwise waive my rights to the prescriptions established by our Code of Civil Procedure for the collection or recovery of the above sum of P7,220.” ISSUE: Whether or not prescription extinguished the obligation. RULING:

NO. The obligation in this case is one which is subject to a potestative condition, one which is dependent solely on the will of the debtor. The statement “as soon as I have money” is the condition which is dependent on the debtor’s will. Although this condition is void, it has been relied upon by the creditor resulting to the delayed filing of the action. Prescription in this case cannot be applied strictly for it will result to grave injustice on the part of the creditor. For as was also made clear therein, there had been since then verbal requests on the part of the creditor made to the debtor for the settlement of the loan. Furthermore, plaintiff did not file any complaint against the defendant within ten (10) years from the execution of the document as there was no property registered in defendant’s name who furthermore assured him that he could collect even after the lapse of ten years. The debtor is therefore liable for the amount of the obligation plus interests.

“If the obligation does not specify a term, but it is to be inferred from its nature and circumstances that it was intended to grant the debtor time for its performance, the period of the term shall be fixed by the court”. The action to ask the court to fix the period has already prescribed in accordance with section 43 (1) of the Code of Civil Procedure. This period of prescription is ten (10) years, which has already elapsed from the execution of the promissory notes until the filing of the action on June 1, 1934. The action which should be brought in accordance with Article 1128 is different from the action for the recovery of the amount of the notes, although the effects of both are the same, being, like other civil actions, subject to the rules of prescription.

OBLIGATIONS WITH A TERM OR PERIOD: EFFECTS POTESTATIVE PERIOD (Art. 1180 in rel to Art. 1197, CC) 1. 2. 3. GONZALES VS. JOSE 66 PHIL 369 FACTS: Defendant Florentino de Jose executed two (2) promissory notes on June 22, 1922 and September 13, 1922 in favor of plaintiff Benito Gonzales. The two (2) promissory notes were both worded as follows: “I promise to pay Mr. Benito Gonzalez the sum of P (amount) as soon as possible.” Defendant appealed from the decision of the Court of First Instance of Manila ordering him to pay the plaintiff the sum of P547.95 within thirty (30) days from the date of notification of said decision, plus the costs. The defendant interposed the defense of prescription because the action was not filed by the plaintiff within the prescriptive period prescribed by law. ISSUE: Whether or not the action has already prescribed. RULING: NO. The words “as soon as possible” in the promissory notes denote that such is an obligation subject to a potestative condition. Article 1128 of the Civil Code provides:

4. 5. 6. 7. 8. 9.

BALUYOT VS. POBLETE, 514 S 370 MALAYAN REALTY VS. UY, 10 NOVEMBER 2006 KASAPIAN NG MANGGAGAWA NG COCA-COLA VS. CA, 487 S 487 SANTOS-VENTURA VS. SANTOS, 441 SCRA 472 MELOTINDOS VS. TOBIAS, 391 SCRA 299 LL AND COMPANY VS. HUANG, 378 SCRA 612 BRENT SCHOOL VS. ZAMORA, FEB. 5, 1990 LIM VS. PEOPLE, NOV. 21, 1984 PACIFIC BANKING VS. CA, MAY 5 1989

BALUYUT VS POBLETE GR No. 144435. February 6, 2007 FACTS: On July 20, 1981, Guillermina Baluyut, mortgaged her house to secure a loan in the amount of PhP850,000.00 from the spouses Eulogio and Salud Poblete. The load was set to mature in one month. After a month had passed, she was unable to pay her indebtedness which led the spouses to extrajudicially foreclose the mortgage. The property was then

sold on Auction to the Poblete spouses who asked Baluyut to vacate the premises. Baluyut instead filed an action for annulment of mortgage. His claim was rejected by the RTC and the CA. Petitioner claims that based on the testimony of Atty. Edwina Mendoza that the maturity of the loan which she incurred is only for one year. ISSUE: Is petitioner’s contention tenable? RULING: Evidence of a prior or contemporaneous verbal agreement is generally not admissible to vary, contradict or defeat the operation of a valid contract. In the instant case, aside from the testimony of Atty. Mendoza, no other evidence was presented to prove that the real date of maturity is one year. The terms that were thusly reduced to writing is deemed to contain all the terms agreed upon and no evidence of such terms can be admitted other than the contents of the agreement itself. The promissory note is the law between petitioner and private respondents and it clearly states that the loan shall mature in one month from date of the said Promissory Note.

OBLIGATIONS WITH A TERM OR PERIOD: EFFECTS

MALAYAN REALTY VS UY GR No. 163763. November 10, 2006 FACTS: Malayan Realty, Inc. (Malayan), is the owner of an apartment unit known as 3013 Interior No. 90 (the property), located at Nagtahan Street, Sampaloc, Manila. In 1958, Malayan entered into a verbal lease contract with Uy Han Yong (Uy) over the property at a monthly rental of P262.00. The monthly rental was increased yearly starting 1989, and by 2001, the monthly rental was P4,671.65.

On July 17, 2001, Malayan sent Uy a written notice informing him that the lease contract would no longer be renewed or extended upon its expiration on August 31, 2001, and asking him to vacate and turn over the possession of the property within five days from August 31, 2001, or on September 5, 2001. Despite Uy’s receipt of the notice on June 18, 2001, he refused to vacate the property, prompting Malayan to file before the Metropolitan Trial Court (MeTC) of Manila a complaint for ejectment, docketed as Civil Case No. 171256, and was raffled to Branch 3 thereof. The Court ruled in favor of Uy and granted an extension period of five years. ISSUE: Is respondent Uy entitled to a grant of extension by the Court? RULING: The 2nd paragraph of Article 1687 provides that in the event that the lessee has occupied the leased premises for over a year, the courts may fix a longer term for the lease. The power of the courts to establish a grace period is potestative or discretionary, depending on the particular circumstances of the case. Thus, a longer term may be granted where equities come into play, and may be denied where none appears, always with due deference to the parties’ freedom to contract. In the present case, respondent has remained in possession of the property from the time the complaint for ejectment was filed on September 18, 2001 up to the present time. Effectively, respondent’s lease has been extended for more than five years, which time is, under the circumstances, deemed sufficient as an extension and for him to find another place to stay.

OBLIGATIONS WITH A TERM OR PERIOD: EFFECTS

KASAPIAN NG MANGGAGAWA NG COCA-COLA VS CA

GR No. 159828. April 19, 2006 FACTS: On June 1998, a Collective Bargaining Agreement which was in effect between petitioner union and private respondent company expired. With the intervention of the NCMB Administrator, on December 26, 1998, both parties executed and signed a MOA providing for salary increases and other economic and non-economic benefits. As part of the MOA, 61 employees were regularized. Consequently, petitioner demanded the payment and benefits of the newly regularized employees retroactive to December 1, 1998. Petitioner then demanded renegotiation of the CBA which private respondent refused. On December 9, 1999, despite the pendency of petitioner’s complaint before the NLRC, private respondent closed its Manila and Antipolo plants resulting in the termination of employment of 646 employees. The affected employees were considered on paid leave from December 9, 1999 to February 29, 2009 and were paid their corresponding salaries. The Petitioners amended their complaint to include union busting, illegal dismissal, etc. ISSUE: Is the closure of the Manila and Antipolo plants valid? RULING: Under Article 280 of the Labor Code, all those who have been with the company for one year by said date must automatically be considered regular employees by operation of law. The 61 employees all qualify as regular employees by this provision. The characterization of the employee’s services as no longer necessary or sustainable, and therefore properly terminable, is an exercise of business judgment on the part of the employer. The wisdom or soundness of such characterizing or decision is not subject to discretionary review on the part of the Labor Arbiter nor of the NLRC so long, of course, as violation of law or merely arbitrary and malicious action is not shown. As found by the NLRC, the private respondent’s decision to close the plant was a result of a study conducted which established that the most prudent course of action for the private respondent was to stop operations in said plants and transfer production

to other more modern and technologically advanced plants of private respondent. OBLIGATIONS WITH A TERM OR PERIOD: EFFECTS

SANTOS VENTURA HOCORMA FOUNDATION, INC., Petitioner, VS. ERNESTO V. SANTOS and RIVERLAND, INC., Respondents November 4, 2000 G.R. No. 153004 FACTS: Ernesto V. Santos and Santos Ventura Hocorma Foundation, Inc. (SVHFI) were the plaintiff and defendant, respectively, in several civil cases filed in different courts in the Philippines. On October 26, 1990, the parties executed a Compromise Agreement which amicably ended all their pending litigations. The pertinent portions of the Agreement read as follows: 1. Defendant Foundation shall pay Plaintiff Santos P14.5 Million in the following manner: a) P1.5 Million immediately upon the execution of this agreement; and, b) the balance of P13 Million shall be paid, whether in one lump sum or in installments, at the discretion of the Foundation, within a period of not more than two (2) years from the execution of this agreement; provided, however, that in the event that the Foundation does not pay the whole or any part of such balance, the same shall be paid with the corresponding portion of the land or real properties subject of the aforesaid cases and previously covered by the notices of lis pendens, under such terms and conditions as to area, valuation, and location mutually acceptable to both parties; but in no case shall the payment of such balance be later than two (2) years from the date of this agreement; otherwise, payment of any unpaid portion shall only be in the form of land aforesaid; 2. Immediately upon the execution of this agreement (and [the] receipt of the P1.5 Million), plaintiff Santos shall cause the dismissal with prejudice of Civil Cases Nos. 88-743, 1413OR, TC-1024, 45366 and 18166 and voluntarily withdraw the appeals in Civil Cases Nos. 4968 (C.A.-G.R. No. 26598) and 8845366 (C.A.-G.R. No. 24304) respectively and for the immediate lifting of the aforesaid various notices of lis pendens on the real properties aforementioned

(by signing herein attached corresponding documents, for such lifting); provided, however, that in the event that defendant Foundation shall sell or dispose of any of the lands previously subject of lis pendens, the proceeds of any such sale, or any part thereof as may be required, shall be partially devoted to the payment of the Foundation’s obligations under this agreement as may still be subsisting and payable at the time of any such sale or sales; XXX 5. Failure of compliance of any of the foregoing terms and conditions by either or both parties to this agreement shall ipso facto and ipso jure automatically entitle the aggrieved party to a writ of execution for the enforcement of this agreement. In compliance with the Compromise Agreement, respondent Santos moved for the dismissal of the aforesaid civil cases. He also caused the lifting of the notices of lis pendens on the real properties involved. For its part, petitioner SVHFI, paid P1.5 million to respondent Santos, leaving a balance of P13 million. Subsequently, petitioner SVHFI sold to Development Exchange Livelihood Corporation two real properties, which were previously subjects of lis pendens. Discovering the disposition made by the petitioner, respondent Santos sent a letter to the petitioner demanding the payment of the remaining P13 million, which was ignored by the latter. Meanwhile, on September 30, 1991, the Regional Trial Court of Makati City, Branch 62, issued a Decision approving the compromise agreement. On October 28, 1992, respondent Santos sent another letter to petitioner inquiring when it would pay the balance of P13 million. There was no response from petitioner. Consequently, respondent Santos applied with the Regional Trial Court of Makati City, Branch 62, for the issuance of a writ of execution of its compromise judgment dated September 30, 1991. The RTC granted the writ. Thus, on March 10, 1993, the Sheriff levied on the real properties of petitioner, which were formerly subjects of the lis pendens. Petitioner, however, filed numerous motions to block the enforcement of the said writ. The challenge of the execution of the aforesaid compromise judgment even reached the Supreme Court. All these efforts, however, were futile. On November 22, 1994, petitioner’s real properties located in Mabalacat, Pampanga were auctioned. In the said auction, Riverland, Inc. was the highest bidder for P12 million and it was issued a Certificate of Sale covering the real

properties subject of the auction sale. Subsequently, another auction sale was held on February 8, 1995, for the sale of real properties of petitioner in Bacolod City. Again, Riverland, Inc. was the highest bidder. The Certificates of Sale issued for both properties provided for the right of redemption within one year from the date of registration of the said properties. On June 2, 1995, Santos and Riverland Inc. filed a Complaint for Declaratory Relief and Damages alleging that there was delay on the part of petitioner in paying the balance of P13 million. They further alleged that under the Compromise Agreement, the obligation became due on October 26, 1992, but payment of the remaining P12 million was effected only on November 22, 1994. Thus, respondents prayed that petitioner be ordered to pay legal interest on the obligation, penalty, attorney’s fees and costs of litigation. Furthermore, they prayed that the aforesaid sales be declared final and not subject to legal redemption. In its Answer, petitioner countered that respondents have no cause of action against it since it had fully paid its obligation to the latter. It further claimed that the alleged delay in the payment of the balance was due to its valid exercise of its rights to protect its interests as provided under the Rules. Petitioner counterclaimed for attorney’s fees and exemplary damages. On October 4, 1996, the trial court rendered a Decision dismissing herein respondents’ complaint and ordering them to pay attorney’s fees and exemplary damages to petitioner. Respondents then appealed to the Court of Appeals. The appellate court reversed the ruling of the trial court. ISSUE: Whether or not the Court of Appeals was correct in its decision, reversing the trial court’s decision, regarding the legal interest of herein respondents on aforementioned properties. RULING: The Supreme Court held the decision of the Court of Appeals correct. A compromise is a contract whereby the parties, by making reciprocal concessions, avoid litigation or put an end to one already commenced. It is an agreement between two or more persons, who, for preventing or putting an end to a lawsuit, adjust their difficulties by mutual consent in the manner which they agree on, and which everyone of them prefers in the hope of gaining, balanced by the danger of losing. The general rule is that a compromise has upon the parties the effect and authority of res judicata, with respect to the matter definitely stated therein, or which by implication from its terms should be

deemed to have been included therein. This holds true even if the agreement has not been judicially approved.

demandable. Furthermore, the obligation is liquidated because the debtor knows precisely how much he owes and when he should pay the amount due.

In the case at bar, the Compromise Agreement was entered into by the parties on October 26, 1990. It was judicially approved on September 30, 1991. Applying existing jurisprudence, the compromise agreement as a consensual contract became binding between the parties upon its execution and not upon its court approval. From the time a compromise is validly entered into, it becomes the source of the rights and obligations of the parties thereto. The purpose of the compromise is precisely to replace and terminate controverted claims. In accordance with the compromise agreement, the respondents asked for the dismissal of the pending civil cases. The petitioner, on the other hand, paid the initial P1.5 million upon the execution of the agreement. This act of the petitioner showed that it acknowledges that the agreement was immediately executory and enforceable upon its execution. As to the remaining P13 million, the terms and conditions of the compromise agreement are clear and unambiguous.

The second requisite is also present. Petitioner delayed in the performance. It was able to fully settle its outstanding balance only on February 8, 1995, which is more than two years after the extra-judicial demand. Moreover, it filed several motions and elevated adverse resolutions to the appellate court to hinder the execution of a final and executory judgment, and further delay the fulfillment of its obligation.

The two-year period must be counted from October 26, 1990, the date of execution of the compromise agreement, and not on the judicial approval of the compromise agreement on September 30, 1991. When respondents wrote a demand letter to petitioner on October 28, 1992, the obligation was already due and demandable. When the petitioner failed to pay its due obligation after the demand was made, it incurred delay. Article 1169 of the New Civil Code provides:

Third, the demand letter sent to the petitioner on October 28, 1992, was in accordance with an extra-judicial demand contemplated by law. Verily, the petitioner is liable for damages for the delay in the performance of its obligation. This is provided for in Article 1170 of the New Civil Code. When the debtor knows the amount and period when he is to pay, interest as damages is generally allowed as a matter of right. The complaining party has been deprived of funds to which he is entitled by virtue of their compromise agreement. The goal of compensation requires that the complainant be compensated for the loss of use of those funds. This compensation is in the form of interest. In the absence of agreement, the legal rate of interest shall prevail. The legal interest for loan as forbearance of money is 12% per annum to be computed from default, i.e., from judicial or extrajudicial demand under and subject to the provisions of Article 1169 of the Civil Code.

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. OBLIGATIONS WITH A TERM OR PERIOD: EFFECTS Delay as used in this article is synonymous to default or mora which means delay in the fulfillment of obligations. It is the non-fulfillment of the obligation with respect to time. In order for the debtor to be in default, it is necessary that the following requisites be present: (1) that the obligation be demandable and already liquidated; (2) that the debtor delays performance; and (3) that the creditor requires the performance judicially or extrajudicially. In the case at bar, the obligation was already due and demandable after the lapse of the two-year period from the execution of the contract. The twoyear period ended on October 26, 1992. When the respondents gave a demand letter on October 28, 1992, to the petitioner, the obligation was already due and

MANUEL D. MELOTINDOS VS. MELECIO TOBIAS, represented by JOSEFINA PINEDA G.R. No. 146658 28 October 2002 391 SCRA 299 FACTS: Eighty-seven-year old petitioner, Atty. Manuel D. Melontindos, was the lessee of the ground floor of a house in Malate, Manila. He had been renting the

place since 1983 on a month-to-month basis from its owner, respondent Melecio Tobias, who was then residing in Canada. Sometime in the last quarter of 1995, owing to his sickly mother who needed constant medical attention and filial care, respondent demanded from petitioner either to pay an increased rate of monthly rentals or else to vacate the place so he and his mother could use the house during her regular medical check-up in Manila. For two (2) years nothing came out of the demand to vacate, hence, in 1997 respondent insisted upon raising the rental fee once again. On 1 June 1998 respondent asked petitioner to restore the premises to him for some essential repairs of its dilapidated structure. This time he did not offer petitioner anymore the option to pay higher rentals. The renovation of the house was commenced but had to stop midway because petitioner refused to vacate the portion he was occupying and worse he neglected to pay for the lease for four (4) months from May to August 1998. Hence for the second time, or on 19 October 1998, respondent demanded the payment of the rental arrears as well as the restoration of the house to him. On 3 February 1999, since petitioner was insisting on keeping possession of the house but did not pay the rental for January 1999, although he had settled the arrears of four (4) months, respondent was compelled to file a complaint for ejectment. The MeTC of Manila decided the ejectment complaint in favor of respondent and ordered petitioner to vacate the leased premises and to pay rental arrears in the amount of P60,000.00 as of December 1998 and P6,000.00 for every month thereafter until he finally restored possession thereof to respondent plus attorney’s fees of P15,000.00 and the costs of suit. The RTC of Manila upheld in toto the MeTC Decision and denied the subsequent motion for reconsideration for failure to set the date of hearing thereof not later than ten (10) days from its filing. Petitioner’s recourse to the Court of Appeals by petition for review was also unsuccessful since the assailed Decision was affirmed in its entirety as the ensuing motion for reconsideration thereof was denied for late filling, i.e., the motion was filed only on 30 October 2000 beyond the fifteen (15) – day period from his receipt of the CA Decision on 9 October 2000 as shown by the registry return receipt. ISSUE: Whether or not the lower courts erred in their rulings. RULING:

It is not only the evidence on record but petitioner’s pleadings themselves that confirm his default in paying the rental fees for more than three (3) months in 1999 and 1998 prior to the filing of the ejectment complaint. There is also sufficient basis for the courts a quo to conclude that respondent desperately needed the property in good faith for his own family and for the repair and renovation of the house standing thereon. These facts represent legal grounds to eject a tenant. The Petition for Review is DENIED for lack of merit.

OBLIGATIONS WITH A TERM OR PERIOD: EFFECTS LL AND COMPANY DEVELOPMENT AND AGRO-INDUSTRIAL CORPORATION, petitioner, VS. HUANG CHAO CHUN AND YANG TUNG FA, respondents Mar 7, 2000 G.R. No. 142378 378 SCRA 612 FACTS: The case originated from an unlawful detainer case filed by petitioner before the trial court alleging that respondents Huang Chao Chun and Yang Tung Fa violated their amended lease contract over a 1,112 square meter lot it owns, when they did not pay the monthly rentals thereon in the total amount of P4,322,900.00. It also alleged that the amended lease contract already expired on September 16, 1996 but respondents refused to surrender possession thereof plus the improvements made thereon, and pay the rental arrearages despite repeated demands. The parties entered into the amended lease contract sometime in August 1991. The same amended the lease contract previously entered into by the parties on August 8, 1991. Respondent were joined by the Tsai Chun International Resources Inc. in their answer to the Complaint, wherein they alleged that the actual lessee is the corporation. Respondents and the corporation denied petitioner’s allegations. The MTC dismissed the case. The MTC ruled that the lessees could extend the contract entered into by the parties unilaterally for another five years for reasons of justice and equity. It also ruled that the corporation’s failure to pay the monthly rentals as they fell due was justified by the fact that petitioner refused to honor the basis of the rental increase as stated in their Lease

Agreement. This was affirmed by the RTC. It also held that the parties had a reciprocal obligation: unless and until petitioner presented “the increased realty tax,” private respondents were not under any obligation to pay the increased monthly rental. The decision was likewise affirmed by the Court of Appeals. ISSUE: Whether or not the court could still extend the term of the lease, after its expiration. RULING: In general, the power of the courts to fix a longer term for a lease is discretionary. Such power is to be exercised only in accordance with the particular circumstances of a case: a longer term to be granted where equities demanding extension come into play; to be denied where none appear -- always with due deference to the parties’ freedom to contract. Thus, courts are not bound to extend the lease. Article 1675 of the Civil Code excludes cases falling under Article 1673 from those under Article 1687. Article 1673 provides among others, that the lessor may judicially eject the lessee upon the expiration of “the period agreed upon or that, which is fixed for the duration of the leases.” Where no period has been fixed by the parties, the courts, pursuant to Article 1687, have the potestative authority to set a longer period of lease. In the case, the Contract of Lease provided for a fixed period of five (5) years -- “specifically” from September 16, 1991 to September 15, 1996. Because the lease period was for a determinate time, it ceased, by express provision of Article 1669 of the Civil Code, “on the day fixed, without need of a demand.” Here, the five-year period expired on September 15, 1996, whereas the Complaint for ejectment was filed on October 6, 1996. Because there was no longer any lease that could be extended, the MeTC, in effect, made a new contract for the parties, a power it did not have. As stated in Bacolod-Murcia Milling v. Banco Nacional Filipino, “It is not the province of the court to alter a contract by construction or to make a new contract for the parties; its duty is confined to the interpretation of the one which they have made for themselves, without regard to its wisdom or folly, as the court cannot supply material stipulations or read into contract words which it does not contain.” Furthermore, the extension of a lease contract must be made before the term of the agreement expires, not after. Upon the lapse of the stipulated

period, courts cannot belatedly extend or make a new lease for the parties, even on the basis of equity. Because the Lease Contract ended on September 15, 1996, without the parties reaching any agreement for renewal, respondents can be ejected from the premises. On the other hand, respondents and the lower courts argue that the Contract of Lease provided for an automatic renewal of the lease period. Citing Koh v. Ongsiaco and Cruz v. Alberto, the MeTC -- upheld by the RTC and the CA -- ruled that the stipulation in the Contract of Lease providing an option to renew should be construed in favor of and for the benefit of the lessee. This ruling has however, been expressly reversed in Fernandez v. CA and was recently reiterated in Heirs of Amando Dalisay v. Court of Appeals. Thus, pursuant to Fernandez, Dalisay and Article 1196 of the Civil Code, the period of the lease contract is deemed to have been set for the benefit of both parties. Its renewal may be authorized only upon their mutual agreement or at their joint will. Its continuance, effectivity or fulfillment cannot be made to depend exclusively upon the free and uncontrolled choice of just one party. While the lessee has the option to continue or to stop paying the rentals, the lessor cannot be completely deprived of any say on the matter. Absent any contrary stipulation in a reciprocal contract, the period of lease is deemed to be for the benefit of both parties. In the instant case, there was nothing in the aforesaid stipulation or in the actuation of the parties that showed that they intended an automatic renewal or extension of the term of the contract. First, demonstrating petitioner’s disinterest in renewing the contract was its letter dated August 23, 1996, demanding that respondents vacate the premises for failure to pay rentals since 1993. As a rule, the owner-lessor has the prerogative to terminate the lease upon its expiration. Second, in the present case, the disagreement of the parties over the increased rental rate and private respondents’ failure to pay it precluded the possibility of a mutual renewal. Third, the fact that the lessor allowed the lessee to introduce improvements on the property was indicative, not of the former’s intention to extend the contract automatically, but merely of its obedience to its express terms allowing the improvements. After all, at the expiration of the lease, those improvements were to “become its property.” As to the contention that it is not fair to eject respondents from the premises after only five years, considering the value of the improvements they introduced therein, suffice it to say that they did so with the knowledge of the risk -- the contract had plainly provided for a five-year lease period.

Parties are free to enter into any contractual stipulation, provided it is not illegal or contrary to public morals. When such agreement, freely and voluntarily entered into, turns out to be disadvantageous to a party, the courts cannot rescue it without crossing the constitutional right to contract. They are not authorized to extricate parties from the necessary consequences of their acts, and the fact that the contractual stipulations may turn out to be financially disadvantageous will not relieve the latter of their obligations. Petition granted. Decision set aside. Respondents ordered to vacate the premises, to restore peaceful possession thereof to petitioner, and to pay accrued rentals.

OBLIGATIONS WITH A TERM OR PERIOD: EFFECTS BRENT SCHOOL VS. ZAMORA 181 SCRA 702 FACTS: The root of the controversy at bar is an employment contract in virtue of which Doroteo R. Alegre as engaged as athletic director by Brent School, Inc. at a yearly compensation of P20,000. The contract fixed a specific term for its existence, five (5) years, i.e., from July 18, 1971, the date of execution of the agreement, to July 17, 1976. Subsequent subsidiary agreements dated March 15, 1973, August 28, 1973, and September 14, 1974 reiterated the same terms and conditions, including the expiry date, as those contained in the original contract. Some three (3) months before the expiration of the stipulated period, or more precisely on April 20, 1976, Alegre was given a copy of the report filed by Brent School with the Department of Labor advising of the termination of his services effective on July 16, 1976. Alegre objected to this termination of his employment contending that since his services were necessary and desirable in the usual business of his employer, and his employment had lasted for five (5) years, he had acquired the status of a regular employee and could not be removed except for valid cause.

ISSUE: Whether or not Alegre’s contention is tenable. RULING: NO. The provisions of the Labor Code recognize the existence and legality of term employments. The case at bar is one which involves term employment. Therefore, Alegre’s employment was terminated upon the expiration of his last contract with Brent School on July 16, 1976 without the necessity of any notice. The advance written advice given the Department of Labor with copy to said petitioner was a mere reminder of the impending expiration of his contract, not a letter of termination, nor an application for clearance to terminate which needed the approval of the Department of Labor to make the termination of his services effective. In any case, such clearance should properly have been given, not denied. OBLIGATIONS WITH A TERM OR PERIOD: EFFECTS LOURDES VALERIO LIM VS. PEOPLE OF THE PHILIPPINES G.R. No. L-34338 November 21, 1984 133 SCRA 333 FACTS: On January 10, 1966, Lim (Appellant) went to the house of Maria Ayroso and proposed to sell Ayroso's tobacco. Ayroso agreed to the proposition of the appellant to sell her tobacco consisting of 615 kilos at P1.30 a kilo. The appellant was to receive the overprice for which she could sell the tobacco. Of the total value of P799.50, the appellant had paid to Ayroso only P240.00, and this was paid on three different times. Demands for the payment of the balance of the value of the tobacco were made upon the appellant by Ayroso, and particularly by her sister, Salud Bantug. Salud Bantug further testified that she had gone to the house of the appellant several times, but the appellant often eluded her; and that the 'camarin' of the appellant was empty. Although the appellant denied that demands for payment were made upon her, it is a fact that on October 19, 1966, she wrote a letter to Salud Bantug stating that she could not pay in full the amount of P799.50 because it is also hard to demand payment from her “suki” in the market of Cabanatuan. Pursuant to this letter, the appellant sent a money order for P100.00 on October 24, 1967, and another for P50.00 on March 8, 1967; and she paid P90.00 on April 18, 1967 or a

total of P240.00. As no further amount was paid, the complainant filed a complaint against the appellant for estafa.

Clarkin, then President of Pepsi-Cola Bottling Co. in Manila, for financial assiatance.

ISSUE: Whether or not the Article 1197 of the Civil Code can be applied in this case

On July 15, 1956, Joseph Hart and Clarkin signed a Memorandum of Agreement. Due to financial difficulties, Insular Farms, Inc. borrowed from Pacific Banking Corporation sometime in July 1956. On July 31, 1956, Insular Farms, Inc. executed a Promissory Note of P250,000 to the bank payable on or before July 1957. Such note provided that upon default in the payment of any installment when due, all other installments shall become due and payable. This loan was effected and the money released without any security except for the Continuing Guaranty, executed on July 18, 1956, of John Clarkin, who owned seven and half percent of the capital stock of the bank and his wife Helen. Unfortunately, the business floundered; nevertheless, petitioner Pacific Banking Corporation and its then Executive Vice President, petitioner Chester Babst, did not demand payment for the initial July 1957 installment nor of the entire obligation, but instead opted for more collateral in addition to the guaranty of Clarkin. As the business further deteriorated, Hart agreed to Clarkin’s proposal that all Insular Farms shares of stocks be pledged to petitioner bank in lieu of additional collateral and to insure and extension of the period to pay the July 1957 installment. On March 3, 1958, Pacific Farms, Inc. was organized to engage in the same business as Insular Farms, Inc. The next day, Pacific Banking Corporation, through petitioner Chester Babst wrote Insular Farms, Inc. giving the latter 48 hours to pay its entire obligation.

RULING: NO. It is clear in the agreement that the proceeds of the sale of the tobacco should be turned over to the complainant as soon as the same was sold, or, that the obligation was immediately demandable as soon as the tobacco was disposed of. Hence, Article 1197 of the New Civil Code, which provides that the courts may fix the duration of the obligation if it does not fix a period, does not apply. Anent the argument that petitioner was not an agent because the agreement does not say that she would be paid the commission if the goods were sold, the fact that appellant received the tobacco to be sold at P1.30 per kilo and the proceeds to be given to complainant as soon as it was sold, strongly negates transfer of ownership of the goods to the petitioner. The agreement constituted her as an agent with the obligation to return the tobacco if the same was not sold. OBLIGATIONS WITH A TERM OR PERIOD: EFFECTS PACIFIC BANKING CORPORATION VS. COURT of APPEALS G. R. No. 45656 May 5, 1989 173 SCRA 102 FACTS: On April 15, 1955, private respondents Joseph and Eleanor Hart discovered an area consisting of 480 hectares of tidewater land in Tambac, Gulf of Lingayen which had great potential for the cultivation of fish and saltmaking. They organized Insular Farms, Inc., applied for and after eleven months, obtained a lease from the Department of Agriculture for a period of 25 years, renewable for another 25 years. Joseph Hart approached businessman John

On March 7, 1958, Hart received a notice that the pledged shared of stocks of Insular Farms, Inc. would be sold at public auction on March 10, 1958 to satisfy Insular Farms’ obligation. Hart filed a complaint for reconveyance and damages with prayer for a writ of preliminary injunction and the Court of First Instance granted the writ. However, upon petitions for dissolution of preliminary injunction filed by the petitioners PBC and Babst, the court lifted the writ of preliminary injunction. On March 20, 1958, respondent Hart received a notice from PBC signed by Babst that the shares of stocks on Insular Farms Inc. will be sold at public auction on March 21, 1958. On March 21, 1958, PBC sold the 1, 000 shares of stocks of Insular Farms to Pacific Farms. The latter then sold its shares of stocks to its own stockholders, who constituted themselves as stockholders of Insular Farms and then resold back to Pacific Farms Inc. all of Insular Farms assets except for a certificate of public convenience to operate an ice plant. On September 28, 1959, Hart filed another case for recovery of sum of money comprising his investments and earnings. The trial court rendered a decision ordering Pacific Farms Inc. to pay Joseph Hart for unpaid salaries and for loans made by private respondents to

Insular Farms, Inc. the private respondents, dissatisfied with the decision, appealed to the Court of Appeals. The appellate court modified the lower court’s decision, directing Pacific Banking Corporation to pay Joseph Hart P100,000.00, subject to reimbursement from Babst. ISSUES: Whether or not the sale by the petitioner bank of the shares of stocks of private respondent on March 21, 1958 is valid since the shares of stocks had been pledged to insure an extension of the period to pay the July installment. Whether or not the Court may fix a period in the parties’ agreement to extend the payment of the loan, including the installment which was due on or before July 1957 it being imprecise.

RULING: The Supreme Court held that since there was an agreement to extend indefinitely the payment of the installment of P50,000.00 in July 1957 as provided in the promissory note, consequently, petitioner Pacific Banking Corporation was precluded form enforcing the payment of the said installment of July 1957, before the expiration of the indefinite period of extension, which period had to be fixed by the court as provided in Article 1197 of the Civil Code. Hence, the disputed foreclosure and subsequent sale was premature. Wherefore, the petition is dismissed. YES. In case the period of extension is not precise, the provisions of Article 1197 of the Civil Code should apply. The pledge executed as collateral security no longer contained a provision on installment due on or before July 1957. The pledge constituted on February 19, 1958 on the shares of stocks of Insular was sufficient consideration for the extension, considering that pledge was additional collateral required by the Pacific in addition to the continuing guaranty of Carkin. Even the ledge did not provide for dates of payment of installments; or any fixed date for maturity of the whole indebtedness. Accordingly, the date of maturity of the indebtedness should be as may be determined by the court under Article 1197 of the Civil Code. ALTERNATIVE OBLIGATION: MEANING AND DEFINITION 1.

AGONCILLO VS. JAVIER, 38 PHIL 124

2.

ONG GUAN VS. CENTURY, 46 PHIL 592 AGONCILLO VS. JAVIER 38 PHIL 124

FACTS: On February 27 1904, Anastasio Alano, Jlose Alano and Florencio Alano executed in favor of the plaintiff, Dra. Marcela Marino a document stipulating that the Alanos as testamentary heirs of deceased Rev. Anastacio Cruz, would pay the sum of P2,730.50 within one (1) year with interest of 12 percent per annum representing the amount of debt incurred by Cruz. Moreover, the agreement provided that the Alanos are to convey the house and lot bequeathed to them by Cruz in the event of failure to pay the debt in money at its maturity. No part of interest or principal due has been paid except the sum of P200 paid in 1908 by Anastacio Alano. In 1912, Anastasio died intestate. On August 8, 1914, CFI of Batangas appointed Crisanto Javier as administrator of Anastasio’s estate. On March 17, 1916, the plaintiffs filed the complaint against Florencio, Jose and Crisanto praying that unless defendants pay the debt for the recovery of which the action was brought, they be required to convey to plaintiffs the house and lot described in the agreement, that the property be appraised and if its value is found to be less than the amount of the debt, with accrued interest at the stipulation rate, judgment be rendered in favor of the plaintiffs for the balance. ISSUE: Whether or not the agreement that the defendant-appellant, at the maturity of the debt, will pay the sum of the money lent by the appellees or will transfer the rights to the ownership and possession of the house and lot bequeathed to the former by the testator in favor of the appellees, is valid. RULING: YES, this stipulation is valid because it is simply an alternative obligation, which is expressly allowed by law. The agreement to convey the house and lot on an appraised value in the event of failure to pay the debt in money at its maturity is valid. It is simply an undertaking that if debt is not paid in money, it will be paid in another way. The agreement is not open to the objection that the agreement is pacto comisorio. It is not an attempt to permit the creditor to declare the forfeiture of the security upon the failure of the debtor to pay at its maturity. It is simply provided that if the debt is not paid in money, it shall be paid by the transfer of the property at a valuation. Such an agreement

unrecorded, creates no right in rem, but as between the parties, it is perfectly valid and specific performance by its terms may be enforced unless prevented by the creation of superior rights in favor of third persons. The contract is not susceptible of the interpretation that the title to the house and lot in question was to be transferred to the creditor ipso facto upon the mere failure of the debtors to pay the debt at its maturity. The obligations assumed by the debtors were in the alternative, and they had the right to elect which they would perform. The conduct of parties shows that it was not their understanding that the right to discharge the obligation by the payment of the money was lost to the debtors by their failure to pay the debt at its maturity. The plaintiff accepted the payment from Anastacio in 1908, several years after the debt matured. It is quite clear therefore that under the terms of the contract, and the parties themselves have interpreted it, the liability of the defendant as to the conveyance of the house and lot is subsidiary and conditional, being dependent upon their failure to pay the debt in money. It must follow therefore that if the action to recover the debt was prescribed, the action to compel a conveyance of the house and lot is likewise barred, as the agreement to make such conveyance was not an independent principal undertaking, but merely a subsidiary alternative pact relating to the method by which the debt must be paid. ALTERNATIVE OBLIGATION: MEANING AND DEFINITION ONG GUAN CUAN AND THE BANK OF THE PHILIPPINE ISLANDS, Plaintiff-appellees VS. CENTURY INSURANCE COMPANY, defendant-appelant 46 SCRA 592 GR No. 22738 46 P 592 FACTS: A building of plaintiff Ong Guan Cuan was insured with defendant Century Insurance Company (Century) against fire for P30,000 as well as the merchandise therein for P15,000. On February 28 1923, the building and the merchandise were burned while the policies issued were in force. Under the conditions of the policies, the defendant may at its option reinstate or replace the destroyed property instead of paying for the amount of the loss and that it is not bound to reinstate exactly or completely the damaged property.

Century proposed reconstruction of the house destroyed but plaintiff denied that the new house which will be constructed would be smaller and of materials of lower kind than those employed in the construction of the house which was destroyed. Plaintiff filed a complaint compelling defendant to pay the sum of P45,000, the value of the insurance of the building and the merchandise. On April 19, 1924, the CFI of Iloilo City rendered judgment in favor of the plaintiff. Hence the defendant appealed from the judgment and prayed that it be permitted to rebuild the house as provided in the conditions of the insurance policies. ISSUE: Whether or not defendant Century may be allowed to rebuild the house as its option instead of payment of the insured value as stipulated in the insurance policies. RULING: NO. The conditions in the insurance policies that the parties entered into allowed Century to either pay the insured value of the house, or rebuild it making the obligation of the company an alternative one. In alternative obligations, the debtor, Century, must notify the creditor of his election stating which of the two prestations it is disposed to fulfill. The objective is to give the creditor opportunity to give consent or deny the election of the debtor. Only after said notice shall election take legal effect when consented by the creditor (Article 120 Civil Code) or if impugned by the latter when declared proper by a competent court. In the instant case, appellant company did not give formal notice of its election to rebuild the house and the proposed reconstruction of the house was rejected by the creditor. In alternative obligations, the value of the prestations must be equivalent or similar in value to each other. The proposed rebuilding of the house by the insurance company would be of lesser value than the other prestation. The petitioner would build a smaller house and of materials of lower kind than those employed in the construction of the burned house. The other prestation is payment of the amount of P45,000 corresponding to the value of the burned building (P30, 000) and the value of the merchandise burned (P15,000). Therefore, the only recourse of the insurer is to pay the stipulated value of the insurance policy.

ALTERNATIVE OBLIGATIONS: EFFECTS: AS TO DEBTOR: RIGHT OF CHOICE/ELECTION: NATURE AND LIMITATIONS (Art. 1200, 1202-1203, CC) LEGARDA VS. MIAILHE 88 S 637

FACTS: On June 3, 1944, plaintiffs filed a complaint against the original defendant William J.B. Burke, alleging defendant’s unjustified refusal to accept payment in discharge of a mortgage indebtedness in his favor, and praying that the latter be order (1) to receive the sum of P75,920.83; (2) to execute the corresponding deed of release of mortgage, and; (3) to pay damages in the sum of P1,000. The Court then decided in favor of plaintiff Legarda. After the war and the subsequent defeat of the Japanese occupants, defendant filed a case in court claiming that plaintiff Clara de Legarda violated her agreement with defendant, by forcing to deposit worthless Japanese military notes when they originally agreed that the interest was to be condoned until after the occupation and that payment was rendered either in Philippine or English currency. Defendant was later substituted upon death by his heir Miailhe and the Courts judged in defendant’s favor. Plaintiff now assails said decision. ISSUE: Is the tender of payment by plaintiff valid? RULING: On February 17, 1943, the only currency available was the Philippine currency, or the Japanese Military notes, because all other currencies, including the English, were outlawed by a proclamation issued by the Japanese Imperial Commander on January 3, 1942. The right to election ceased to exist on the date of plaintiff’s payment because it had become legally impossible. And this is so because in alternative obligations there is no right to choose undertakings that are impossible or illegal. In other words, the obligation on the part of the debtor to pay the mortgage indebtedness has since then ceased to be alternative. It appears therefore, that the tender of payment in Japanese Military notes

was a valid tender because it was the only currency permissible at the time and its payment was tantamount to payment in Philippine currency. However, payment with the clerk of court did not have any legal effect because it was made in certified check, and a check does not meet the requirements of legal tender. Therefore, her consignation did not have the effect of relieving her from her obligation of the defendant. ALTERNATIVE OBLIGATION: EFFECTIVITY OF CHOICE (Art. 12012, CC) REYES VS. MARTINEZ 55 Phil 493 FACTS: Estanislao Reyes filed an action before the Court of First Instance of Laguna against the Martinez heirs upon four several causes of action in which the plaintiff seeks to recover five parcels of land, containing proximately one thousand coconut trees, and to obtain a declaration of ownership in his favor as against the defendants with respect to said parcels; to recover from the defendants the sum of P9,377.50, being the alleged proceeds of some coconut trees; to recover from the defendants the sum of P43,000, as alleged value of the proceeds of the lands involved in the receivership in the case of Martinez vs. Grano, to which the plaintiff supposes himself to be entitled, but which have gone, so he claims, to the benefit of the defendants in said receivership and lastly, to recover the sum of the P10,000 from the defendants as damages resulting from their improper meddling in the administration of the receivership property. The plaintiff has been laboring along for several years in an unsuccessful legal battle with the defendants, springing from his claim to be the owner of the property involved in the receivership. This cause of action is founded upon the contract and the claim put forth by the plaintiff is to have the five parcels adjudge to him in lieu of another parcel formerly supposed to contain one thousand trees between him and certain of the Martinez heirs. By this contract, Reyes was to be given the parcel described in clause 8, but in a proviso to said clause, the parties contracting with Reyes agreed to assure to him certain other land containing an equivalent number of trees in case he should so elect. The litigation shows that the plaintiff elected to take and hold the parcel described in clause 8, and his right thereto has all along been recognized in the dispositions made by the court with respect to said land. Thus, Reyes must be taken to have

elected to take that particular parcel and he is now estopped from asserting a contrary election to take the five parcels of land described in his complaint. However, the title of the parcel is in the heirs of Inocente Martinez and it does not appear that they have transferred said title to Reyes. ISSUE: Whether or not Reyes is entitled to the damages against the party’s signatory to the contract of March 5, 1921 for the value of the said property. RULING: Yes. The claim of the defendants to the interest of P8,000 from July 31, 1926 cannot be conceded as the judgment itself bears interest at the lawful rate from the date the same was rendered. The Martinez heirs are ordered to procure the sufficient deed conveying to appellant Estanislao Reyes the parcels of land mentioned in paragraph 8 of the contract. The judgment against Reyes in favor of the Martinez heirs is enjoined. ALTERNATIVE VS. FACULTATIVE OBLIGATION QUIZANA VS. REDUGERIO 94 PHIL. 922 FACTS: This is an appeal to the Court from a decision rendered by the Court of the First Instance of Marinduque, wherein the defendant Gaudencio Redugerio was to pay the plaintiff Martina Quizana the sum of P550 with the interest from the time of the filing of the complaint and from an order of the same court denying a motion of the defendant for the reconsideration of the judgment on the ground that they were deprived of their day in court. There were actionable documents attached to the complaint signed by the defendant-appellant spouses Redugerio and Pastrado on October 4, 1948 and containing the provision that Quizana is to be paid on January 1949 and in case of failure, they will mortgage the coconut plantation in Sta. Cruz, Marinduque. The defendants admitted that they offered the transfer of possession but was eventually refused by the petitioner. So eventually, the defendants appealed in the CFI which set the hearing on August 16, 1951.

However, the counsel for defendants presented an “urgent motion for continuance” for the date of hearing coincides with his appearance in two (2) criminal cases previously set for trial before hearing on the aforesaid date. The motion was not acted upon until the day of the trial. The CFI denied the motion for continuance, and in the absence of defendants, rendered its questioned decision. ISSUE: Whether or not the trial court was correct in ignoring the 2 nd part of the written obligation and solely basing its decision on the last part of the 1 st part; i.e., that payment should have been made on January 21, 1949. RULING: YES, the acceptance of plaintiff of the written obligation without objection and protest and the fact that he kept and based his action therein, are concrete and positive proof that he agreed and consented to all the terms, including the paragraph on the constitution of the mortgage. Article 1206 provides: When only one prestation has been agreed upon but the obligation may render substitution, the obligation is facultative obligation. The defendant-appellant shall present a duly executed deed of mortgage over the property in the written obligation, with a period of payment to be agreed upon by the parties with the approval of the court. JOINT OBLIGATIONS: HOW CREATED ALIPIO VS. COURT OF APPEALS 341 SCRA 441 FACTS: Respondent Romeo Jaring was the lessee of a 14.5 hectares fishpond in Barilto, Bataan. The lease was for a period of five (5) years ending September 12, 1990. On June 19, he subleased the fishpond for the remaining period of his lease to the spouses Placido and Purita Alipio and the spouses Bienvenido and Remedons Manuel. The stipulated amount of the rent was P 485,600.00 payable in two (2) installments of P300,00.00 and P185,600 with second installment

falling due on June 30, 1989. contract.

Each of the four sublease parties signed the

The first installment was duly paid, but the second installment the sub lessees only satisfied a portion thereof, leaving an unpaid of P50,600.00. Despite due demand, the lessees failed to comply with their obligation so that on October 13,1989 private respondent sued Alipio and Manuel spouses for the collection of the said amount before the RTC, and in the alternative, he prayed for the rescission of the sublease contract should the defendant failed to pay the balance. Petitioner Purita moved to dismiss the case on the ground that her husband had passed away on December 1988. She based her action on Rule 3 Section 31 of 1964 Rules of Court. ISSUE: Whether or not a creditor can sue the surviving spouses for the collection of debt which is owned by the conjugal partnership of gains, and not in a proceeding for the settlement of the estate of the decedent. RULING: NO, creditor cannot sue the surviving spouse of a decedent in an ordinary proceeding for the collection of the sum of money chargeable against the conjugal partnership and that the proper remedy is for him to file a claim in the settlement of the estate of the decedent. Article 161(1) states that: All debts and obligation contracted by the husband for the benefits of the conjugal partnership, and those contracted by the wife, also for the same purpose, in the cases where she may legally bind the partnership. When petitioner’s husband died, their conjugal partnership was automatically dissolved and debts chargeable against it are to be paid in the settlement of estate proceeding in accordance with Rule 73 Section 2: When marriage dissolved by death of the husband or wife, the community property shall be inventoried, administered and liquidated, and the debts thereof paid in the testate or intestate proceeding of the deceased spouse. If both spouses have died, the conjugal partnership shall be liquidated in the testate or intestate proceeding of either.

EFFECTS OF JOINT OBLIGATIONS PH CREDIT CORPORATION, petitioner, VS. COURT OF APPEALS and CARLOS M. FARRALES, respondents 2001 Nov 22 370 SCRA 441 FACTS: I. CA-G.R. SP NO. 23324 PH Credit Corp., filed a case against Pacific Lloyd Corp., Carlos Farrales, Thomas H. Van Sebille and Federico C. Lim, for sum of money. After service of summons upon the defendants, they failed to file their answer within the reglementary period, hence they were declared in default. Judgment is rendered in favor of plaintiff PH Credit Corporation. After the aforesaid decision has become final and executory, a Writ of Execution was issued and consequently implemented by the assigned Deputy Sheriff. Personal and real properties of defendant Carlos M. Farrales were levied and sold at public auction wherein PH Credit Corp. was the highest bidder. Motion for the issuance of a writ of possession was filed and the same was granted. Petitioner claims that she, as a third-party claimant with the court below, filed an ‘Urgent Motion for Reconsideration and/or to Suspend the Order dated October 12, 1990’, but without acting there[on], respondent Judge issued the writ of possession on October 26, 1990. She claims that the actuations of respondent Judge was tainted with grave abuse of discretion. Respondent Judge issued an order considering the assailed Order as well as the writ of possession as ‘of no force and effect’ thus the issue here has become moot and academic. II. CA-G.R. SP NO. 25714 Petitioner claims that the respondent Judge’s Order dated January 31, 1991 was tainted with grave abuse of discretion based on the following grounds: “1. Respondent Judge refused to consider as “waived” private respondent’s objection that his obligation in the January 31, 1984 decision was merely joint and not solidary with the defendants therein. According to petitioner, private respondent assailed the levy on execution twice in 1984 and once in 1985 but not once did the latter even mention therein that his obligation was joint for failure of the dispositive portion of the decision to indicate that it was solidary. Thus, private respondent must be deemed to have waived that objection, petitioner concludes.

“2. The redemption period after the auction sale of the properties had long lapsed so much [so] that the purchaser therein became the absolute owner thereof. Thus, respondent Judge allegedly abused his discretion in setting aside the auction sale after the redemption period had expired. “3. Respondent Judge erred in applying the presumption of a joint obligation in the face of the conclusion of fact and law contained in the decision showing that the obligation is solidary.” The Court of Appeals affirmed the trial court’s ruling declaring null and void (a) the auction sale of Respondent Ferrales’ real property and (b) the Writ of Possession issued in consequence thereof. It held that, pursuant to the January 31, 1984 Decision of the trial court, the liability of Farrales was merely joint and not solidary. Consequently, there was no legal basis for levying and selling Farrales’ real and personal properties in order to satisfy the whole obligation. ISSUE: Whether or not the Court of Appeals erred when it disregarded the body of the decision and concluded that the obligation was merely a joint obligation due to the failure of the dispositive portion of the decision dated 31 January 1984 to state that the obligation was joint and solidary. RULING: No. A solidary obligation is one in which each of the debtors is liable for the entire obligation, and each of the creditors is entitled to demand the satisfaction of the whole obligation from any or all of the debtors. On the other hand, a joint obligation is one in which each debtors is liable only for a proportionate part of the debt, and the creditor is entitled to demand only a proportionate part of the credit from each debtor. The well-entrenched rule is that solidary obligations cannot be inferred lightly. They must be positively and clearly expressed. A liability is solidary “only when the obligation expressly so states, when the law so provides or when the nature of the obligation so requires.” In the dispositive portion of the January 31, 1984 Decision of the trial court, the word solidary neither appears nor can it be inferred therefrom. The fallo merely stated that the following respondents were liable: Pacific Lloyd Corporation, Thomas H. Van Sebille, Carlos M. Farrales and Federico C. Lim. Under the circumstances, the liability is joint, as provided by the Civil Code, which we quote:“ Art. 1208. If from the law, or the nature or the wording of the obligations to which the preceding article refers[,] the contrary does not appear, the credit or debt shall be presumed to be divided into as many equal shares as

there are creditors or debtors x x x.” Hence the execution must conform with that which is ordained or decreed in the dispositive portion of the decision. Petitioner maintains that the Court of Appeals improperly and incorrectly disregarded the body of the trial court’s Decision, which clearly stated as follows: “To support the Promissory Note, a Continuing Suretyship Agreement was executed by the defendants, Federico C. Lim, Carlos M. Farrales and Thomas H. Van Sebille, in favor of the plaintiff corporation, to the effect that if Pacific Lloyd Corporation cannot pay the amount loaned by plaintiff to said corporation, then Federico C. Lim, Carlos M. Farrales and Thomas H. Van Sebille will hold themselves jointly and severally together with defendant Pacific Lloyd Corporation to answer for the payment of said obligation.” The only exception when the body of a decision prevails over the fallo is when the inevitable conclusion from the former is that there was a glaring error in the latter, in which case the body of the decision will prevail. In this instance, there was no clear declaration in the body of the January 31, 1984 Decision to warrant a conclusion that there was an error in the fallo. Nowhere in the former can we find a definite declaration of the trial court that, indeed, respondent’s liability was solidary. If petitioner had doubted this point, it should have filed a motion for reconsideration before the finality of the Decision of the trial court. SOLIDARY OBLIGATIONS: HOW CREATED 1. 2. 3. 4.

CDCP VS. ESTRELLA, 501 S 228 REPUBLIC GLASS CORP. VS. QUA, 30 JULY 2004 INDUSTRIAL MANAGEMENT VS. NLRC, 331 SCRA 640 METRO MANILA TRANSIT VS. CA, JUNE 21, 1993

CDCP VS ESTRELLA GR No. 147791. September 8, 2006 FACTS: On December 29, 1978, respondents Rebecca G. Estrella and her granddaughter, Rachel E. Fletcher, boarded in San Pablo City, a BLTB bus bound for Pasay City. However, they never reached their destination because their bus was rammed from behind by a tractor-truck of CDCP in

the South Expressway. The strong impact pushed forward their seats and pinned their knees to the seats in front of them. They regained consciousness only when rescuers created a hole in the bus and extricated their legs from under the seats. They suffered physical injuries as a result. Thereafter, respondents filed a Complaint for damages against CDCP, BLTB, Espiridion Payunan, Jr. and Wilfredo Datinguinoo before the Regional Trial Court of Manila, Branch 13. ISSUE: Are the accused jointly or solidarily liable? RULING: The case filed by respondents against petitioner is an action for culpa aquiliana or quasi-delict under Article 2176 of the Civil Code. The liability for the negligent conduct of the subordinate is direct and primary, but is subject to the defense of due diligence in the selection and supervision of the employee. In the instant case, the trial court found that petitioner failed to prove that it exercised the diligence of a good father of a family in the selection and supervision of Payunan, Jr. It is well-settled in Fabre, Jr. v. Court of Appeals, that the owner of the other vehicle which collided with a common carrier is solidarily liable to the injured passenger of the same. The Peitition was thusly DENIED. SOLIDARY OBLIGATIONS: HOW CREATED

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

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

SOLIDARY OBLIGATIONS: HOW CREATED INDUSTRIAL MANAGEMENT VS. NLRC 331 SCRA 640 FACTS: In September 1984, private respondents Enrique Sulit, Socorro Mahinay, Esmeralco Pegarido, Tita Bacusimo, Nierre, Virginia Bagus, Nemenzo, Dariogo and Roberto filed a complaint with the DOLE, Regional Arbitration Branch No.111 in Cebu City against Filipinas Carbon Mining Corp, Genardo Sicaty, Gonzales, Dhin Gin, Lo Kuan Chin petitioner Industrial Management Development Corporation for payment of separation pay and unpaid wages. Labor Arbiter judgment-ordering Filipinas, Gonzales, Lo Kuan Chin to pay complainant Enrique Sulit total amount of P82,800.00. On September 3, 1987 petitioner filed a motion to quash alias writ of execution and set aside decision alleging among that the alias writ of execution altered and charged the tenor of the decision by charging the liability of therein respondent from joint to solidary by the insertion of the words ‘and/or’ between Gonzales and Filipinas. ISSUE: Whether or not the petitioner’s liability pursuant to the decision of the labor arbiter dated March 10, 1987 is solidary. RULING: NO, the liability pursuant to the decision of the labor arbiter dated March 10, 1987 should be as it is hereby, considered joint and petitioner’s payment which has been accepted considered as full satisfaction of its liability, without the prejudice to the enforcement of the awards against the other five respondents in the said case. A solidary or joint and several obligations is one in which each debtor is liable for the entire obligation and each creditor is entitled to demand the obligation. In a joint obligation each obligor answers only a part of the whole liability and to each obligation belong only a part of the correlative rights. There is solidary liability only when the obligation expressly so states, when the law so provides or when the nature of the obligation so required.

When it is not provided in a judgment that the defendant are liable to pay jointly and severally a certain sum of money, none of them may be compelled to satisfy in full said judgment. SOLIDARY OBLIGATIONS: HOW CREATED METRO MANILA TRANSIT CORPORATION, petitioner, VS. THE COURT OF APPEALS and NENITA CUSTODIO, respondents. Jun 21, 1993 G.R. No. 104408 FACTS: Plaintiff-appellant Nenita Custodio boarded as a passenger of a public utility jeepney, then driven by defendant Agudo Calebag and owned by his codefendant Victorino Lamayo, bound for her work at Dynetics Incorporated located in Bicutan, Taguig, Metro Manila, where she then worked as a machine operator. While the passenger jeepney was travelling at along DBP Avenue, Bicutan, Taguig, Metro Manila another fast moving vehicle, a Metro Manila Transit Corp. (MMTC) bus driven by defendant Godofredo C. Leonardo bound for its terminal at Bicutan. As both vehicles approached the intersection of DBP Avenue and Honeydew Road they failed to slow down and slacken their speed; neither did they blow their horns to warn approaching vehicles. As a consequence, a collision between them occurred. The collision impact caused plaintiff-appellant Nenita Custodio to hit the front windshield of the passenger jeepney and was thrown out therefrom, falling onto the pavement unconscious with serious physical injuries. She was brought to the Medical City Hospital where she regained consciousness only after 1 week. Thereat, she was confined for 24 days, and as a consequence, she was unable to work for three and one half months 3 1/2. Defendants denied all the material allegations in the complaint and pointed an accusing finger at each other as being the party at fault for the negligence in the failure to exercise due diligence in the selection and supervision of their respective employees. By order of the trial court, defendant Calebag was declared in default for failure to file an answer. Trial ensued after no amicable settlements were made. The trial court found both drivers of the colliding vehicles concurrently negligent for non-observance of appropriate traffic rules and regulations and for failure to take the usual precautions when approaching an intersection. As joint tortfeasors, both drivers, as well as defendant Lamayo, were held solidarily liable for damages sustained by plaintiff Custodio.

June 26, 1996 Plaintiff's motion to have that portion of the trial court's decision absolving MMTC from liability reconsidered having been denied for lack of merit, an appeal was filed by her with respondent appellate court. After consideration of the appropriate pleadings on appeal and finding the appeal meritorious, the Court of Appeals modified the trial court's decision by holding MMTC solidarily liable with the other defendants for the damages awarded by the trial court because of their concurrent negligence, hence, this appeal. ISSUE: Whether or not the appellate court erred in holding that MMTC should be solidary liable with the other defendants. RULING: No, the appellate court did not err in its decision. Whether or not the diligence of a good father of a family has been observed by petitioner is a matter of proof which under the circumstances in the case at bar has not been clearly established. It is not felt by the Court that there is enough evidence on record as would overturn the presumption of negligence, and for failure to submit all evidence within its control, assuming the putative existence thereof; petitioner MMTC must suffer the consequences of its own inaction and indifference. The mere formulation of various company policies on safety without showing that they were being complied with is not sufficient to exempt petitioner from liability arising from negligence of its employees. It is incumbent upon petitioner to show that in recruiting and employing the erring driver the recruitment procedures and company policies on efficiency and safety were followed. As joint tortfeasors, all defendants, including MMTC will be solidarily liable for damages awarded by the trial court. Decision affirmed.

FACTS: Petitioner, together with Gregorio Pantanosas Jr., and Rene Naybe, had their obligations arouse from the signing of a promissory note amounting to P50, 000 holding themselves jointly and severally liable to private respondent Philippine Bank of Communications, Cagayan de Oro City branch. The promissory note was due on May 5, 1983. The promissors failed to fulfill their obligations despite demand by the bank. As a consequence, an action to collect was filed with the court but was dismissed due to failure to prosecute. Said dismissal was reconsidered by the trial court and later ordered the sheriff to serve the summons. On January 27, 1987, the lower court dismissed the case against defendant Pantanosas as prayed for by the private respondent herein. Meanwhile, only the summons addressed to petitioner was served as the sheriff learned that defendant Naybe had gone to Saudi Arabia. Petitioner argued that said promissory note has vitiated his consent through fraud and deceit which was later corroborated by Pantanosas for he only signed for the amount of P5,000 on one of the copies of the promissory note, and not the alleged amount, to buy chainsaw. He also claimed that since the liabilities of Pantanosas and Naybe, his co-promissors, had extinguished, his should also be extinguished, as provided for by Article 2080 of the Civil Code on guarantors. The Regional Trial Court and the Court of Appeals rejected his petitions and so a petition for review on certiorari was filed with the Supreme Court. ISSUE: Whether or not the petitioner is solidary co-maker of the promissory note in issue and not merely a guarantor.

ACTIVE SOLIDARITY OR MUTUAL AGENCY: EFFECTS 1. 2.

INCIONG VS. CA, 257 SCRA 578 PHILIPPINE BLOOMING MILLS VS. CA, OCT. 15, 2003

BALDOMERO INCIONG, JR., petitioner, VS. COURT OF APPEALS and PHILIPPINE BANK OF COMMUNICATIONS, respondents G.R. No. 96405

RULING: The Supreme Court held that the petitioner signed the promissory note as a solidary co-maker and not as a guarantor. A solidary or joint and several obligation is one in which each debtor is liable for the entire obligation, and each creditor is entitled to demand the whole obligation. On the other hand, Article 2047 of the Civil Code states: “By guaranty a person, called the guarantor, binds himself to the creditor to fulfill the obligation of the principal debtor in case the latter should fail to do so.”

If a person binds himself solidarily with the principal debtor, the provisions of Section 4, Chapter 3, Title I of this Book shall be observed. In such a case the contract is called a suretyship. While a guarantor may bind himself solidarily with the principal debtor, the liability of a guarantor is different from that of a solidary debtor. Thus, Tolentino explains: “A guarantor who binds himself in solidum with the principal debtor under the provisions of the second paragraph does not become a solidary co-debtor to all intents and purposes. There is a difference between a solidary co-debtor and a fiador in solidum (surety). The latter, outside of the liability he assumes to pay the debt before the property of the principal debtor has been exhausted, retains all the other rights, actions and benefits which pertain to him by reason of the fiansa; while a solidary co-debtor has no other rights than those bestowed upon him in Section 4, Chapter 3, Title I, Book IV of the Civil Code.” Section 4, Chapter 3, Title I, Book IV of the Civil Code states the law on joint and several obligations. Under Art. 1207 thereof, when there are two or more debtors in one and the same obligation, the presumption is that the obligation is joint so that each of the debtors is liable only for a proportionate part of the debt. There is a solidary liability only when the obligation expressly so states, when the law so provides or when the nature of the obligation so requires. Because the promissory note involved in this case expressly states that the three signatories therein are jointly and severally liable, any one, some or all of them may be proceeded against for the entire obligation. The choice is left to the solidary creditor to determine against whom he will enforce collection. Consequently, the dismissal of the case against Judge Pontanosas may not be deemed as having discharged petitioner from liability as well. As regards Naybe, suffice it to say that the court never acquired jurisdiction over him. Petitioner, therefore, may only have recourse against his co-makers, as provided by law. ACTIVE SOLIDARITY OR MUTUAL AGENCY: EFFECTS PHILIPPINE BLOOMING MILLS VS. COURT OF APPEALS 413 SCRA 445 OCTOBER 15, 2003 FACTS:

Alfredo Ching (Ching) was the Senior Vice President of Philippine Blooming Mills, Inc. (PBM). In his personal capacity and not as a corporate officer, Ching signed a Deed of Suretyship dated 21 July 1977 binding himself solidarily liable together with the debtor PBM. On March 24 and August 6 1980, Traders Royal Bank (TRB) granted PBM letters of Credit on application of Ching in his capacity as Senior Vice President of PBM. Ching later accomplished and delivered to TRB trust receipts, which acknowledged receipt in trust for TRB of the merchandise subject of the letters of credit. Under the trust receipts, PBM had the right to sell the merchandise for cash with the obligation to turn over the entire proceeds of the sale to TRB as payment of PBM’s indebtedness. Ching further executed an Undertaking for each trust receipt, which uniformly granted the TRB the right to take possession of the goods at any time to protect the TRB’s interests. On 27 April 1981, PBM obtained a P3, 500,000 trust loan from TRB. Ching signed as co-maker in the notarized Promissory Note evidencing said loan. PBM defaulted in its payment of the two (2) trust receipts as well as the trust loan. On 1 April 1982, PBM and Ching filed a petition for suspension of payments with the Securities and Exchange Commission (SEC). The petition sought to suspend payment of PBM’s obligations and prayed that the SEC allow PBM to continue its normal business operations free from the interference of its creditors. One of the listed creditors of PBM was TRB. On 9 July 1982, the SEC placed all of PBM’s assets, liabilities, and obligations under the rehabilitation receivership of Kalaw, Escaler and Associates. On 13 May 1983, ten months after the SEC placed PBM under rehabilitation receivership, TRB filed with the trial court a complaint for collection against PBM and Ching. TRB asked the trial court to order defendants to pay solidarily the indebtedness of PBM. On 25 May 1983, TRB moved to withdraw the complaint against PBM on the ground that the SEC had already placed PBM under receivership. The trial court thus dismissed the complaint against PBM.

On 23 July 1983, PBM and Ching also moved to dismiss the complaint on the ground that the trial court had no jurisdiction over the subject matter of the case. PBM and Ching invoked the assumption of jurisdiction by the SEC over all of PBM’s assets and liabilities. The trial court denied the motion to dismiss with respect to Ching and affirmed its dismissal of the case with respect to PBM. The trial court stressed that TRB was holding Ching liable under the Deed of Suretyship. As Ching’s obligation was solidary, the trial court ruled that TRB could proceed against Ching as surety upon default of the principal debtor PBM. Upon the trial court’s denial of his Motion for Reconsideration, Ching filed a Petition for Certiorari and Prohibition before the Court of Appeals. The appellate court granted Ching’s petition and ordered the dismissal of the case. The appellate court ruled that SEC assumed jurisdiction over Ching and PBM to the exclusion of courts or tribunals of coordinate rank. TRB assailed the Court of Appeal’s decision before the Supreme Court. In Traders Royal Bank v. Court of Appeals, the highest tribunal upheld the TRB and ruled that Ching was merely a nominal party in the SEC case. Creditors may sue individual sureties of debtor corporations, like Ching, in a separate proceeding before regular courts despite the pendency of a case before the SEC involving the debtor corporation. In his Answer dated 6 November 1989, Ching denied liability as surety and accommodation co-maker of PBM. He claimed that the SEC had already issued a decision approving a revised rehabilitation plan for PBM’s creditors. He further claimed that even as a surety, he has the right to the defenses personal to PBM. Thus, his liability as surety would attach only if, after the rehabilitation of payments scheduled under the rehabilitation plan, there would remain a balance of PBM’s debt to TRB. The trial court ruled that Ching is liable to TB under the Deed of Suretyship. On appeal, the Court of Appeals affirmed the decision of the lower court. The Court of Appeals denied Ching’s Motion for Reconsideration for lack of merit. ISSUES: Whether or not Ching is liable for obligations PBM contracted after the execution of the Deed of Suretyship.

Whether or not Ching’s liability is limited to the amount stated in PBM’s rehabilitation plan. RULING: Ching is liable for credit obligations contracted by PBM against TRB before and after the execution of the 21 July 1977 Deed of Suretyship. This is evident from the tenor of the deed itself, referring to amounts PBM “may now be indebted or may hereafter become indebted” to TRB. The law expressly allows a suretyship for “future debts” as provided for in Article 2053 of the Civil Code. Under the Civil Code, a guaranty may be given to secure even future debts; the amount of which may not be known at the time the guaranty is executed. A continuing guaranty is one which is not limited to a single transaction, but which contemplates a future course of dealing, covering a series of transactions, generally for an indefinite time or until revoked. Anent the second issue, in granting the loan to PBM, TRB required Ching’s surety precisely to insure full recovery of the loan in case PBM becomes insolvent or fails to pay in full. Ching cannot invoke Article 1222 of the Civil Code. Thus, Ching cannot use PBM’s failure to pay in full as justification for his own reduced liability to TRB. TRB, as creditor, has the right under the surety to proceed against Ching for the entire amount of PBM’s loan. This is clear from Article 1216 of the Civil Code, which states that: “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.”

EFFECTS OF PASSIVE SOLIDARITY/MUTUAL GUARANTY 1. ESPARWA SECURITY VS. LICEO DE CAGAYAN, 508 S 373 2. DIMAYUGA VS. PCIB, AUG. 5, 1991 2. CERNA VS. CA, MAR. 30, 1993

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

FACTS: On 1 December 1997, Eparwa and LDCU, entered into a Contract for Security Services. On 21 December 1998, 11 security guards (“security guards”) whom Eparwa assigned to LDCU from 1 December 1997 to 30 November 1998, filed a complaint before the NLRC Regional Arbitration Branch No. 10 in Cagayan de Oro City. The complaint was filed against both Eparwa and LDCU for underpayment of salary, legal holiday pay, 13th month pay, rest day, service incentive leave, night shift differential, overtime pay, and payment for attorney’s fees. The Labor Arbiter found that the security guards are entitled to wage differentials and premium for holiday and rest day work. The Labor Arbiter held Eparwa and LDCU solidarily liable pursuant to Article 109 of the Labor Code. LDCU filed an appeal before the NLRC. LDCU agreed with the Labor Arbiter’s decision on the security guards’ entitlement to salary differential but challenged the propriety of the amount of the award. LDCU alleged that security guards not similarly situated were granted uniform monetary awards and that the decision did not include the basis of the computation of the amount of the award. Eparwa also filed an appeal before the NLRC. For its part, Eparwa questioned its liability for the security guards’ claims and the awarded cross-claim amounts. The NLRC found that the security guards are entitled to wage differentials and premium for holiday and rest day work. Although the NLRC held Eparwa and LDCU solidarily liable for the wage differentials and premium for holiday and rest day work, the NLRC did not require Eparwa to reimburse LDCU for its payments to the security guards. Eparwa and LDCU again filed separate motions for partial reconsideration. In its Resolution NLRC declared that although Eparwa and LDCU are solidarily liable to the security guards for the monetary award, LDCU alone is ultimately liable. LDCU filed a petition for certiorari before the appellate court assailing the NLRC’s decision. The appellate court granted LDCU’s petition and reinstated the Labor Arbiter’s decision. The appellate court also allowed LDCU to claim reimbursement from Eparwa. The appellate court denied Eparwa’s motion for reconsideration.Hence, this petition.

ISSUE: Is LDCU alone ultimately liable to the security guards for the wage differentials and premium for holiday and rest day pay? RULING: Articles 106, 107 and 109 of the Labor Code read: Art. 106. Contractor or subcontractor. — Whenever an employer enters into a contract with another person for the performance of the former’s work, the employees of the contractor and of the latter’s subcontractor, if any, shall be paid in accordance with the provisions of this Code.Article 107. Indirect employer. — The provisions of the immediately preceding Article shall likewise apply to any person, partnership, association or corporation which, not being an employer, contracts with an independent contractor for the performance of any work, task, job or project. Article 109. Solidary liability. — The provisions of existing laws to the contrary notwithstanding, every employer or indirect employer shall be held responsible with his contractor or subcontractor for any violation of any provision of this Code. For purposes of determining the extent of their civil liability under this Chapter, they shall be considered as direct employers. This joint and several liability of the contractor and the principal is mandated by the Labor Code to assure compliance of the provisions therein including the statutory minimum wage [Article 99, Labor Code]. The contractor is made liable by virtue of his status as direct employer. The principal, on the other hand, is made the indirect employer of the contractor’s employees for purposes of paying the employees their wages should the contractor be unable to pay them. This joint and several liability facilitates, if not guarantees, payment of the workers’ performance of any work, task, job or project, thus giving the workers ample protection as mandated by the 1987 Constitution. For the security guards, the actual source of the payment of their wage differentials and premium for holiday and rest day work does not matter as long as they are paid. This is the import of Eparwa and LDCU’s solidary liability. Creditors, such as the security guards, may collect from anyone of the solidary debtors. Solidary liability does not mean that, as between themselves, two solidary debtors are liable for only half of the payment.

LDCU’s ultimate liability comes into play because of the expiration of the Contract for Security Services. There is no privity of contract between the security guards and LDCU, but LDCU’s liability to the security guards remains because of Articles 106, 107 and 109 of the Labor Code. Eparwa is already precluded from asking LDCU for an adjustment in the contract price because of the expiration of the contract, but Eparwa’s liability to the security guards remains because of their employeremployee relationship. In lieu of an adjustment in the contract price, Eparwa may claim reimbursement from LDCU for any payment it may make to the security guards. However, LDCU cannot claim any reimbursement from Eparwa for any payment it may make to the security guards. Hence, the petition is granted.

EFFECTS OF PASSIVE SOLIDARITY/MUTUAL GUARANTY CARLOS DIMAYUGA, petitioner, VS. PHILIPPINE COMMERCIAL & INDUSTRIAL BANK and COURT OF APPEALS, respondents Aug 5, 1999 G.R. No. 42542 FACTS: Petitioner is the defendant-appellant in a case for collection of sum of money against whom the decision was rendered by the trial court on May 28, 1974. Plaintiff, who is now the respondent in the instant petition, is a banking institution and is the creditor of petitioner. On February 6, 1962, petitioner borrowed from the plaintiff the sum of P10,000.00 as evidenced by a promissory note executed and signed by Pedro Tanjuatco and Carlos Dimayuga. The indebtedness was to be paid on May 7, 1962 with interest at the rate of 10% per annum in case of non-payment at maturity as evidenced by and in accordance with the terms and conditions of the promissory note executed jointly and severally by defendants. Carlos Dimayuga bound himself to pay jointly and severally with Pedro Tanjuatco interest at the rate of 10% per annum on the said amount of P10,000.00 until fully paid. Moreover, both undertook to "jointly and severally authorize the respondent Philippine Commercial and Industrial Bank, at its option to apply to the payment of this note any and all funds, securities or other real or personal property of value which hands (sic) on deposit or otherwise belonging to anyone or all of us."

Upon the default of the promissors to pay, bank filed a complaint for the collection of a sum of money. Defendant Carlos Dimayuga, now petitioner, however, had remitted to the respondent the P4,000.00 by way of partial payments made from August 1, 1969 to May 7, 1970 as evidenced by corresponding receipts thereto. These payments were nevertheless applied to past interests, charges and partly on the principal. The trial court held the defendants jointly and severally liable to pay the plaintiff the sum of P9,139.60 with interest at 10% per annum until fully paid plus P913.96 as attorneys' fees and costs against defendants. Petitioner then filed a motion alleging that since Pedro Tanjuatco died on December 23, 1973, the money claim of the respondents should be dismissed and prosecuted against the estate of the late Pedro Tanjuatco as provided in Sec. 5, Rule 86, New Rules of Court. The trial court denied the motion for lack of merit. On appeal, the Court of Appeals dismissed the appeal for failure of the Record on Appeal to show on its face that the appeal was timely perfected. ISSUE: Whether or not the money claim of PCIB should be dismissed and prosecuted against the estate of the late Tanjuatco. RULING: From the evidence presented, there can be no dispute that Carlos Dimayuga bound himself jointly and severally with Pedro C. Tanjuatco, now deceased, to pay the obligation with PCIB in the amount of P10,000.00 plus 10% interest per annum. In addition, as above stated, in case of non-payment, they undertook among others to jointly and severally authorize respondent bank, at its option to apply to the payment of this note, any and all funds, securities, real or personal properties, etc. belonging to anyone or all of them. Otherwise stated, the promissory note in question provides in unmistakable language that the obligation of petitioner Dimayuga is joint and several with Pedro C. Tanjuatco. It is well settled under the law and jurisprudence that when the obligation is solidary, the creditor may bring his action in toto against the debtors obligated in solidum. As expressly allowed by Article 1216 of the Civil Code, the creditor may proceed against any one of the solidary debtors or some or all of them simultaneously. "Hence, there is nothing improper in the creditor's filing of an action against the surviving solidary debtors alone, instead of instituting a proceeding for the settlement of the estate of the deceased debtor wherein his

claim could be filed." The notice is undoubtedly left to the solidary creditor to determine against whom he will enforce collection. Court of Appeals decision reversed and set aside. affirmed.

ISSUE: Whether or not petitioner is a co-debtor of Delgado; hence, liable to pay the loan contracted by Delgado.

Trial court decision

EFFECTS OF PASSIVE SOLIDARITY/MUTUAL GUARANTY CERNA VS. COURT OF APPEALS 220 SCRA 517 MARCH 30, 1993 FACTS: Celerino Delgado and Conrad Leviste entered into a loan agreement on or about October 16, 1972, which was evidenced by a promissory note. On the same date, Delgado executed a chattel mortgage over a jeep owned by him. And acting as the attorney-in-fact of herein petitioner, Manolo P. Cerna (petitioner), he also mortgaged a “Taunus” car owned by the latter. The period lapsed without Delgado paying the loan. This prompted Leviste to file a collection suit against Delgado and petitioner as solidary debtors. Petitioner filed a motion to dismiss. The grounds cited in the Motion were lack of cause of action and the death of Delgado. Anent the latter, petitioner claimed that the claim should be filed in the proceedings for the settlement of the estate of Delgado as the action did not survive Delgado’s death. Moreover, he also stated that since Leviste already opted to collect on the note, he could no longer foreclose the mortgage. The trial court denied the motion to dismiss. The petitioner then filed a special civil action for certiorari, mandamus, and prohibition with preliminary injunction on the ground that the respondent judge committed grave abuse of discretion. However, the Court of Appeals denied the petition because herein petitioner failed to prove the death of Delgado and the consequent settlement of the latter’s estate. On February 18, 1977, petitioner filed his second motion to dismiss. The trial court again denied the said motion. Petitioner filed a motion to reconsider the said order but this was denied. Then, petitioner filed another petition for certiorari and prohibition with the Court of Appeals. The respondent court dismissed the petition. The respondent court hold petitioner and Delgado were solidary debtors.

RULING: NO, petitioner is not a co-debtor of Delgado. Nowhere did it appear in the promissory note that petitioner was a co-debtor. Article 1311 of the Civil Code is clear that “contracts take effect only between the parties…” Moreover, Article 1207 of the Civil Code states that “there is solidary liability only when the obligation expressly so states, or when the law or nature of the obligation so requires.” It was clear that petitioner had no part in the contract. It was Delgado alone who signed the said agreement. Thus, nowhere could it be seen from the agreement that petitioner was solidarily bound with Delgado for the payment of the loan. There is also no legal provision nor jurisprudence in our jurisdiction which makes a third person who secures the fulfillment of another’s obligation by mortgaging his own property solidarily bound with the principal obligor. A chattel mortgage may be an “accessory contract” to a contract of loan, but that fact alone does not make a third-party mortgagor solidarily bound with the principal debtor in the fulfilling of the principal obligation that is, to pay the loan. The signatory of the principal contract remains to be primarily bound. It is only upon the default of the latter that the creditor may have recourse on the mortgagors by foreclosing the mortgaged properties in lieu of an action for recovery of the amount of the loan. And the liability of the third-party mortgagors extends only to the property mortgaged. Should there be any deficiency, the creditor has recourse on the principal debtor. INDIVISIBLE OBLIGATIONS: CONVENTIONAL

KINDS OF INDIVISIBILITY:

NATURAL, LEGAL OR

NATIVIDAD P. NAZARENO, MAXIMINO P. NAZARENO, JR. VS. COURT OF APPEALS, ESTATE OF MAXIMINO A. NAZARENO, SR., ROMEO P. NAZARENO and ELIZA NAZARENO G.R. No. 138842 October 18, 2000 343 SCRA 637 FACTS: Maximino Nazareno, Sr. and Aurea Poblete were husband and wife. Aurea died on April 15, 1970, while Maximino, Sr. died on December 18, 1980. They had five children, namely, Natividad, Romeo, Jose, Pacifico, and Maximino, Jr.

Natividad and Maximino, Jr. are the petitioners in this case, while the estate of Maximino, Sr., Romeo, and his wife Eliza Nazareno are the respondents. During their marriage, Maximino Nazareno, Sr. and Aurea Poblete acquired properties in Quezon City and in the Province of Cavite. Upon the reorganization of the courts in 1983, the case was transferred to the RTC of Naic, Cavite. Romeo was appointed administrator of his father’s estate. In the course of the intestate proceedings, Romeo discovered that his parents had executed several deeds of sale conveying a number of real properties in favor of his sister, Natividad. One of the deeds involved six lots in Quezon City which were allegedly sold by Maximino, Sr., with the consent of Aurea, to Natividad on January 29, 1970 for the total amount of P47,800.00. Among the lots covered by the above Deed of Sale is Lot 3-B which is registered under TCT No. 140946. This lot had been occupied by Romeo, his wife Eliza, and by Maximino, Jr. since 1969. Unknown to Romeo, Natividad sold Lot 3-B on July 31, 1982 to Maximino, Jr., for which reason the latter was issued TCT No. 293701 by the Register of Deeds of Quezon City. When Romeo found out about the sale to Maximino, Jr., he and his wife Eliza locked Maximino, Jr. out of the house. On August 4, 1983, Maximino, Jr. brought an action for recovery of possession and damages with prayer for writs of preliminary injunction and mandatory injunction with the RTC of Quezon City. On December 12, 1986, the trial court ruled in favor of Maximino, Jr. In CA-G.R. CV No. 12932, the CA affirmed the decision of the trial court. On June 15, 1988, Romeo in turn filed, on behalf of the estate of Maximino, Sr., the present case for annulment of sale with damages against Natividad and Maximino, Jr. The case was filed in the RTC of Quezon City. Romeo sought the declaration of nullity of the sale made on January 29, 1970 to Natividad and that made on July 31, 1982 to Maximino, Jr. on the ground that both sales were void for lack of consideration. On March 1, 1990, Natividad and Maximino, Jr. filed a third-party complaint against the spouses Romeo and Eliza. They alleged that Lot 3, which was included in the Deed of Absolute Sale of January 29, 1970 to Natividad, had been surreptitiously appropriated by Romeo by securing for himself a new title in his name. They alleged that Lot 3 is being leased by the spouses Romeo and Eliza to third persons. In the trial court, it rendered a decision declaring the nullity of the Deed of Sale dated January 29, 1970 except as to lots 3, 3-b, 13 and 14 which had passed on to third persons. On motion for reconsideration, the trial court modified its decision. On appeal to the Court of Appelas, the decision of the trial court was modified in the sense that the titles to Lot 3 (in the name of Romeo Nazareno) and Lot 3-B ( in the name of Maximino Nazareno, Jr.), as well as to

Lots 10 and 11 were cancelled and ordered restored to the estate of Maximino, Sr. ISSUE: Whether or not the the Deed of Absolute Sale on January 29, 1970 is an indivisible contract founded on an indivisible obligation RULING: An obligation is indivisible when it cannot be validly performed in parts, whatever may be the nature of the thing which is the object thereof. The indivisibility refers to the prestation and not to the object thereof. In the present case, the Deed of Sale of January 29, 1970 supposedly conveyed the six lots to Natividad. The obligation is clearly indivisible because the performance of the contract cannot be done in parts; otherwise the value of what is transferred is diminished. Petitioners are therefore mistaken in basing the indivisibility of a contract on the number of obligors. The decision of the Court of Appeals is AFFIRMED.

KINDS OF PENALTIES: 1. 2.

ALONZO VS. SAN JUAN, 451 SCRA 45 DAVID VS. CA, 316 SCRA 710 AURELIO P. ALONZO and TERESITA A. SISON VS. JAIME and PERLITA SAN JUAN G. R. No. 137549 February 11, 2005 451 SCRA 45

FACTS: Petitioners Alonzo and Sison alleged that they are the registered owners of a parcel of land located at Lot 3, Block 11, M. Agoncillo St., Novaliches, Quezon City, evidenced by TCT No. 152153. At around June 1996, petitioners discovered that a portion on the left side of the parcel of land was occupied by the respondents San Juan, without their knowledge or consent. A demand letter was sent to the respondents requiring them to vacate the said premises, but they refused to comply. Petitioners then filed a complaint against the

respondents. During the pendency of the case, the parties agreed to enter into a Compromise Agreement which the trial court approved in a judgment by compromise dated May 7, 1997. In the Compromise Agreement, it was expressly stipulated that should any two of the installments of the purchase price be not paid by the respondents, the said agreement shall be considered null and void. Alleging that the respondents failed to abide by the provisions of the Compromise Agreement by their failure to pay the amounts due thereon, petitioners then filed an Amended Motion for Execution. Petitioners alleged that the respondents failed to pay the installments for July 31, 1997 and August 31, 1997 on their due dates, thus the Compromise Agreement submitted by the parties became null and void. With this, the trial court found no reason to direct the issuance of the writ of execution and denied the petitioners’ Amended Motion for Execution. Petitioners filed their motion for reconsideration to which the respondents opposed. The trial court likewise denied the petitioners’ motion for reconsideration. ISSUE: Whether or not the petitioners have a right to enforce the provision on Compromise Agreement by asking for the issuance of a writ of execution because of the failure of the respondents to pay. RULING: The Supreme Court held that the items 11 and 12 of the Compromise Agreement provided, in clear terms, that in case of failure to pay on the part of the respondents, they shall vacate and surrender possession of the land that they are occupying and the petitioners shall be entitled to obtain immediately from the trial court the corresponding writ of execution for the ejectment of the respondents. This provision must be upheld, because the Agreement supplanted the complaint itself. When the parties entered into a Compromise Agreement, the original action for recovery of possession was set aside and the action was changed to a monetary obligation. Once approved judicially, the Compromise Agreement cannot and must not be disturbed except for vices of consent or forgery. For failure of the respondents to abide by the judicial compromise, petitioners are vested with the absolute right under the law and the agreement to enforce it by asking for the issuance of the writ of execution. Doctrinally, a Compromise Agreement is immediately final and executory. Petitioners’ course of action, asking for the issuance of a writ of execution was in accordance with the very stipulation in the agreement that the lower court could not change. Hence, the petition is granted. KINDS OF PENALTIES:

JESUS T. DAVID, petitioner. VS. THE COURT OF APPEALS HON. EDGARDO P. CRUZ, MELCHOR P. PENA AND VALENTIN AFABLE, JR. respondents G.R. NO. 115821 OCTOBER 13, 1999 FACTS: The RTC of Manila, Branch 27, with Judge Ricardo Diaz, then presiding, issued a writ of attachment over real properties covered by TCT Nos. 80718 and 10281 of private respondents. In his decision Judge Diaz ordered private respondent Afable to pay petitioner until fully paid. Respondent Afable appealed to the Court of Appeals and then to the Supreme Court. In both instances, the decision of the lower court was affirmed. Entries of judgment were made and the record of the case was remanded to Branch 27 presided at that time by respondent Judge Cruz. Petitioners elevated said orders to the Court of Appeals in a petition for certiorari, prohibition and mandamus. However, respondent appellate court dismissed the petiton. ISSUE: Whether or not respondent appellate court erred in affirming the respondent Judge’s order for the payment of simple interest only rather than the compounded interest. RULING: Petitioner insists that in computing the interest due should be computed at 6% on the principal sum pursuant to Article 2209 and then interest on the legal interest should also be computed in accordance with the language of article 2212 of the Civil Code. In view of this means Compound interest. In cases where no interest had been stipulated by the parties, no accrued conventional interest could further earn interest upon judicial demand. The instant petition is denied. The decision of the Court of Appeals is affirmed. OBLIGATIONS WITH A PENAL CLAUSE: PENALTIES VS. INTEREST 1. MACALALAG VS. PEOPLE, 511 S 400 2. TAN VS. CA, 367 S 571 3. EASTERN SHIPPING VS. CA, 234 S 78

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

ISSUE: Whether petitioner`s payments over and above the value of the said checks would free her from criminal liability. RULING: The Court argued that, “Even if we agree with petitioner Macalalag that the interests on her loans should not be imputed to the face value of the checks she issued, petitioner Macalalag is still liable for Violation of Batas Pambansa Blg. 22. Petitioner Macalalag herself declares that before the institution of the two cases against her, she has made a total payment of P156,000.00. Applying this amount to the first check (No. C-889835), what will be left is P56,000.00, an amount insufficient to cover her obligation with respect to the second check. As stated above, when Estrella presented the checks for payment, the same were dishonored on the ground that they were drawn against a closed account. Despite notice of dishonor, petitioner Macalalag failed to pay the full face value of the second check issued. Only a full payment of the face value of the second check at the time of its presentment or during the five-day grace period15 could have exonerated her from criminal liability. A contrary interpretation would defeat the purpose of Batas Pambansa Blg. 22, that of safeguarding the interest of the banking system and the legitimate public checking account user,16 as the drawer could very well have himself exonerated by the mere expediency of paying a minimal fraction of the face value of the check. Hence, the Petition is denied. OBLIGATIONS WITH A PENAL CLAUSE: PENALTIES VS. INTEREST TAN VS. COURT OF APPEALS 367 SCRA 571 GR NO. 116285 FACTS: On May 14, 1978, petitioner Antonio Tan obtained two loans in the total amount of four million pesos from respondent Cultural Center of the Philippines (CCP), evidenced by 2 promissory notes with maturity dates on May 14, 1979

and July 6, 1979, respectively. Petitioner defaulted but later he had the loans restructured by respondent CCP. Petitioner accordingly executed a promissory note on August 31, 1979 in the amount of P3,411,421.32 payable in five (5) installments. Petitioner however, failed to pay any of the supposed installments and again offered another mode of paying restructured loan which respondent CCP refused to consent. On May 30, 1984, respondent wrote petitioner demanding the full payment, within ten (10) days, from receipt of the letter, of the latter’s restructured loan which as of April 30, 1984 amounted to P6, 088,735. On August 29, 1984, respondent CCP filed with the RTC of Manila a complaint for a collection of a sum of money. Eventually, petitioner was ordered to pay said amount, with 25% thereof as attorney’s fees and P500, 000.00 as exemplary damages. On appeal, the Court of Appeals, reduced the attorney’s fees to 5% of the principal amount to be collected from petitioner and deleted the exemplary damages. Still unsatisfied with the decision, petitioner seeks for the deletion of the attorney’s fees and the reduction of the penalties. ISSUE: Whether or not interests and penalties may be both awarded. RULING: YES. Article 1226 of the New Civil Code provides that in obligations with a penal clause, the penalty shall substitute the indemnity for damages and the payment of interests in case of non-compliance, if there is no stipulation to the contrary. Nevertheless, damages shall be paid if the obligor refuses to pay the penalty or is guilty of fraud in the fulfillment of the obligation. The penalty may be enforced only when it is demandable in accordance with the provisions. In the case at bar, the promissory note expressly provides for the imposition of both interest and penalties in case of default on the part of the petitioner in the payment of the subject restructured loan. Since the said stipulation has the force of law between the parties and does not appear to be inequitable or unjust, it must be respected. OBLIGATIONS WITH A PENAL CLAUSE: PENALTIES VS. INTEREST

EASTERN SHIPPING INES, INC vs. HON. COURT OF APPEALS G.R. No. 97412 Jul 12, 1994

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

1. When the obligation is breached, and it consists in the payment of a sum of money, i.e., a loan or forbearance of money, the interest due should be that which may have been stipulated in writing. Furthermore, the interest due shall itself earn legal interest from the time it is judicially demanded. In the absence of stipulation, the rate of interest shall be 12% per annum to be computed from default, i.e., from judicial or extrajudicial demand under and subject to the provisions of Article 1169 23 of the Civil Code. 2. When a obligation, not constituting a loan or forbearance of money, is breached, an interest on the amount of damages awarded may be imposed at the discretion of the court at the rate of 6% per annum. No interest, however, shall be adjudged on unliquidated claims or damages except when or until the demand can be established with reasonable certainty. Accordingly, where the demand is established with reasonable certainty, the interest shall begin to run from the time the claim is made judicially or extrajudicially (Art. 1169, Civil Code) but when such certainty cannot be so reasonably established at the time the demand is made, the interest shall begin to run only from the date of the judgment of the court is made (at which time the quantification of damages may be deemed to have been reasonably ascertained). 3. When the judgment of the court awarding a sum of money becomes final and executory, the rate of legal interest, whether the case falls under paragraph 1 or paragraph 2, above, shall be 12% per annum from such finality until its satisfaction, this interim period being deemed to be by then an equivalent to a forbearance of credit. ESCALATION CLAUSE VS. ACCELERATION CLAUSE 1. PCI VS. NG SHEUNG NGOR, 541 S 223 2. NSBC VS. PNB, 435 S 565 3. POLOTAN VS. CA, 296 S 247

Bank, Aimee Yu and Ben Apas, Defendants” for Annulment and/or Reformation of Documents and Contracts. Respondents Antonio A. Bellones and Generoso B. Regalado are the sheriffs in Branches 9 and 16, respectively, of the RTC of Cebu City. For garnishing accounts maintained by Equitable PCI Bank, Inc. (EPCIB) at Citibank, N.A., and Hongkong and Shanghai Bank Corporation (HSBC), allegedly in violation of Section 9(b) of Rule 39 of the Rules of Court, a complaint for grave abuse of authority was filed by Atty. Paulino L. Yusi against Sheriffs Antonio A. Bellones and Generoso B. Regalado. There was an offer of other real property by petitioner. ISSUE: Did respondents violate the Rules of Court? RULING: By serving notices of garnishment on Citibank, N.A., HSBC and PNB, Sheriff Regalado violated EPCIB’s right to choose which property may be levied upon to be sold at auction for the satisfaction of the judgment debt. Thus, it is clear that when EPCIB offered its real properties, it exercised its option because it cannot immediately pay the full amount stated in the writ of execution and all lawful fees in cash, certified bank check or any other mode of payment acceptable to the judgment obligee. In the case at bar, EPCIB cannot immediately pay by way of Manager’s Check so it exercised its option to choose and offered its real properties. With the exercise of the option, Sheriff Regalado should have ceased serving notices of garnishment and discontinued their implementation. This is not true in the instant case. Sheriff Regalado was adamant in his posture even if real properties have been offered which were sufficient to satisfy the judgment debt.

PCI vs Ng Shueng Ngor A.M. No. P-05-1973. March 18, 2005 FACTS: Complainant EPCIB is the defendant in Civil Case No. CEB-26983 before the Regional Trial Court (RTC), Branch 16, Cebu City, entitled, “Ng Sheung Ngor, doing business under the name and style ‘Ken Marketing,’ Ken Appliance Division, Inc. and Benjamin Go, Plaintiffs, vs. Equitable PCI

ESCALATION CLAUSE VS. ACCELERATION CLAUSE

NEW SAMPAGUITA BUILDERS CONSTRUCTION, INC. (NSBCI) and Spouses EDUARDO R. DEE and ARCELITA M. DEE VS. PHILIPPINE NATIONAL BANK 2004 Jul 30 G.R. No. 148753 435 SCRA 565 FACTS: On February 11, 1989, Board Resolution No. 05, Series of 1989 was approved by Petitioner NSBCI authorizing the company to x x x apply for or secure a commercial loan with the PNB in an aggregate amount of P8.0M, under such terms agreed by the Bank and the NSBCI, using or mortgaging the real estate properties registered in the name of its President and Chairman of the Board Petitioner Eduardo R. Dee as collateral; and authorizing petitioner-spouses to secure the loan and to sign any and all documents which may be required by Respondent PNB, and that petitioner-spouses shall act as sureties or co-obligors who shall be jointly and severally liable with Petitioner NSBCI for the payment of any [and all] obligations. On August 15, 1989, Resolution No. 77 was approved by granting the request of Respondent PNB thru its Board NSBCI for an P8 Million loan broken down into a revolving credit line of P7.7M and an unadvised line of P0.3M for additional operating and working capital to mobilize its various construction projects. The loan of Petitioner NSBCI was secured by a first mortgage on the following: a) three (3) parcels of residential land located at Mangaldan, Pangasinan; b) six (6) parcels of residential land situated at San Fabian, Pangasinan; and c) a residential lot and improvements thereon located at Mangaldan. The loan was further secured by the joint and several signatures of Petitioners Eduardo Dee and Arcelita Marquez Dee, who signed as accommodation-mortgagors since all the collaterals were owned by them and registered in their names. Moreover Petitioner NSBCI executed three promissory notes. In addition, petitioner corporation also signed the Credit Agreement dated August 31, 1989 relating to the ‘revolving credit line’ of P7.7 Million x x x and the Credit Agreement dated September 5, 1989 to support the ‘unadvised line’ of P300,000.00. On September 6, 1991, Petitioner Eduardo Dee wrote the PNB Branch Manager reiterating his proposals for the settlement of Petitioner NSBCI’s past due loan account amounting to P7,019,231.33. Petitioner Eduardo Dee later tendered four (4) post-dated Interbank checks aggregating P1,111,306.67 in favor of Respondent PNB

Upon presentment, however, x x x check nos. 03500087 and 03500088 dated September 29 and October 29, 1991 were dishonored by the drawee bank and returned due to a ‘stop payment’ order from petitioners. On November 12, 1991, PNB’s Mr. Carcamo wrote Petitioner Eduardo Dee informing him that unless the dishonored checks were made good, said PNB branch ‘shall recall its recommendation to the Head Office for the restructuring of the loan account and refer the matter to its legal counsel for legal action. Petitioners did not heed respondent’s warning and as a result, the PNB Dagupan Branch sent demand letters to Petitioner NSBCI at its office address at 1611 ERDC Building, E. Rodriguez Sr. Avenue, Quezon City, asking it to settle its past due loan account. Petitioners nevertheless failed to pay their loan obligations within the time frame given them and as a result, Respondent PNB filed with the Provincial Sheriff of Pangasinan at Lingayen a Petition for Sale. The sheriff foreclosed the real estate mortgage and sold at public auction the mortgaged properties of petitioner-spouses, with Respondent PNB being declared the highest bidder for the amount of P10,334,000.00. Petitioners refused to pay the above deficiency claim which compelled Respondent PNB to institute the instant Complaint for the collection of its deficiency claim. ISSUE: Whether or not the escalation clause is valid and whether or not it is violative of the principle of mutuality of contracts. RULING: In each drawdown, the Promissory Notes specified the interest rate to be charged: 19.5 percent in the first, and 21.5 percent in the second and again in the third. However, a uniform clause therein permitted respondent to increase the rate “within the limits allowed by law at any time depending on whatever policy it may adopt in the future x x x,” without even giving prior notice to petitioners. The Court holds that petitioners’ accessory duty to pay interest did not give respondent unrestrained freedom to charge any rate other than that which was agreed upon. No interest shall be due, unless expressly stipulated in writing. It would be the zenith of farcicality to specify and agree upon rates that could be subsequently upgraded at whim by only one party to the agreement. The “unilateral determination and imposition” of increased rates is “violative of the principle of mutuality of contracts ordained in Article 1308 of the Civil Code.” One-sided impositions do not have the force of law between the parties, because such impositions are not based on the parties’ essential equality.

Although escalation clauses are valid in maintaining fiscal stability and retaining the value of money on long-term contracts, giving respondent an unbridled right to adjust the interest independently and upwardly would completely take away from petitioners the “right to assent to an important modification in their agreement” and would also negate the element of mutuality in their contracts. The clause cited earlier made the fulfillment of the contracts “dependent exclusively upon the uncontrolled will” of respondent and was therefore void. Besides, the pro forma promissory notes have the character of a contract d’adhésion, “where the parties do not bargain on equal footing, the weaker party’s the debtor’s participation being reduced to the alternative ‘to take it or leave it.’”

ESCALATION CLAUSE VS. ACCELERATION CLAUSE

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

aggregate amount of P33,819.84 which had become due and demandable. Demands for payment made against petitioner proved futile. Hence, private respondent filed a Complaint for Collection of Sum of Money against petitioner before the lower court. ISSUE: Is petitioner liable for payment of credit charges plus interest and service charges? RULING: A contract of adhesion is one in which one of the contracting parties imposes a ready-made form of contract which the other party may accept or reject, but cannot modify. One party prepares the stipulation in the contract, while the other party merely affixes his signature or his “adhesion” thereto, giving no room for negotiation and depriving the latter of the opportunity to bargain on equal footing. Nevertheless, these types of contracts have been declared as binding as ordinary contracts, the reason being that the party who adheres to the contract is free to reject it entirely. In this case, petitioner, in effect, claims that the subject contract is one-sided in that the contract allows for the escalation of interests, but does not provide for a downward adjustment of the same in violation of Central Bank Circular 905. Admittedly, the second paragraph of the questioned proviso which provides that “the Cardholder hereby authorizes Security Diners to correspondingly increase the rate of such interest in the event of changes in prevailing market rates x x x” is an escalation clause. However, it cannot be said to be dependent solely on the will of private respondent as it is also dependent on the prevailing market rates. Escalation clauses are not basically wrong or legally objectionable as long as they are not solely potestative but based on reasonable and valid grounds. Obviously, the fluctuation in the market rates is beyond the control of private respondent. REDUCTION OF CONVENTIONAL PENALTIES

1. PNB VS. ESCINA, 544 S 608 2. IMPERIAL VS. JAUCIAN, 427 SCRA 517

3. 4. 5. 6. 7.

PABUGAIS VS. SAHIJWANI, 423 SCRA 596 LO VS. CA, 411 SCRA 523, SEPT. 23, 2003 LIGUTAN VS. CA, FEB. 12, 2002 PASCUAL VS. RAMOS, 384 S 105 FIRST METRO INVESTMENT VS. ESTE DEL SOL, 369 SCRA

99 8. DOMEL TRADING VS. CA, 315 SCRA 13 9. MEDEL VS. CA, 299 S 481 10. REFORMINA VS. TOMOL, 139 SCRA 260, OCT. 11, 1985

PNB VS. ENCINA 544 S 608

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

It should be definitively ruled in this regard that the Usury Law had been rendered legally ineffective by Resolution No. 224 dated 3 December 1982 of the Monetary Board of the Central Bank, and later by Central Bank Circular No. 905 which took effect on 1 January 1983 and removed the ceiling on interest rates for secured and unsecured loans regardless of maturity. The effect of these circulars is to allow the parties to agree on any interest that may be charged on a loan. The virtual repeal of the Usury Law is within the range of judicial notice which courts are bound to take into account. After all, the fundamental tenet is that the law is deemed part of the contract. Thus, the trial court was correct in ruling that the second cause of action was without basis. REDUCTION OF CONVENTIONAL PENALTIES IMPERIAL VS. JAUCIAN 427 SCRA 517 2004 Apr 14 FACTS: The present controversy arose from a case for collection of money, filed by Alex A. Jaucian against Restituta Imperial, on October 26, 1989. The complaint alleges, inter alia, that defendant obtained from plaintiff six (6) separate loans for which the former executed in favor of the latter six (6) separate promissory notes and issued several checks as guarantee for payment. When the said loans became overdue and unpaid, especially when the defendant’s checks were dishonored, plaintiff made repeated oral and written demands for payment. The loans were covered by six (6) separate promissory notes executed by defendant. The face value of each promissory notes is bigger [than] the amount released to defendant because said face value already included the interest from date of note to date of maturity. Said promissory notes indicate the interest of 16% per month, date of issue, due date, the corresponding guarantee checks issued by defendant, penalties and attorney’s fees. The trial court’s clear and detailed computation of petitioner’s outstanding obligation to respondent was affirmed by the CA for being convincing and satisfactory. However, the CA held that without judicial inquiry, it was improper for the RTC to rule on the constitutionality of Section 1, Central Bank Circular No. 905, Series of 1982.

ISSUES: Whether or not the penalties charged per month is in the guise of hidden interest.

equitably, when the principal obligation has been partly or irregularly complied with. Upon this premise, we hold that the RTC’s reduction of attorney’s fees -from 25 percent to 10 percent of the total amount due and payable -- is reasonable.

Whether or not the reduction of attorney’s fees by the RTC is reasonable. REDUCTION OF CONVENTIONAL PENALTIES RULING: Iniquitous and unconscionable stipulations on interest rates, penalties and attorney’s fees are contrary to morals. Consequently, courts are granted authority to reduce them equitably. If reasonably exercised, such authority shall not be disturbed by appellate courts. Article 1229 of the Civil Code states thus: “The judge shall equitably reduce the penalty when the principal obligation has been partly or irregularly complied with by the debtor. Even if there has been no performance, the penalty may also be reduced by the courts if it is iniquitous or unconscionable.” In exercising this power to determine what is iniquitous and unconscionable, courts must consider the circumstances of each case. What may be iniquitous and unconscionable in one may be totally just and equitable in another. In the present case, iniquitous and unconscionable was the parties’ stipulated penalty charge of 5 percent per month or 60 percent per annum, in addition to regular interests and attorney’s fees. Also, there was partial performance by petitioner when she remitted P116,540 as partial payment of her principal obligation of P320,000. Under the circumstances, the trial court was justified in reducing the stipulated penalty charge to the more equitable rate of 14 percent per annum.The Promissory Note carried a stipulation for attorney’s fees of 25 percent of the principal amount and accrued interests. Strictly speaking, this covenant on attorney’s fees is different from that mentioned in and regulated by the Rules of Court. “Rather, the attorney’s fees here are in the nature of liquidated damages and the stipulation therefor is aptly called a penal clause.” So long as the stipulation does not contravene the law, morals, public order or public policy, it is binding upon the obligor. It is the litigant, not the counsel, who is the judgment creditor entitled to enforce the judgment by execution. Nevertheless, it appears that petitioner’s failure to comply fully with her obligation was not motivated by ill will or malice. The twenty-nine partial payments she made were a manifestation of her good faith. Again, Article 1229 of the Civil Code specifically empowers the judge to reduce the civil penalty

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

ISSUES: (1) Whether or not there was a valid consignation; and (2) Whether or not petitioner can withdraw the amount consigned as a matter of right? RULING: The petition for review is denied. Petitioner’s tender of payment is valid. The amount consigned however can no longer be withdrawn because respondent’s prayer in his answer that the amount consigned be awarded to him is equivalent to an acceptance of the consignation, which has the effect of extinguishing petitioner’s obligation. The amount consigned with the trial court can no longer be withdrawn by petitioner because respondent’s prayer in his answer that the amount consigned be awarded to him is equivalent to an acceptance of the consignation, which has the effect of extinguishing petitioner’s obligation. Moreover, petitioner failed to manifest his intention to comply with the “Agreement And Undertaking” by delivering the necessary documents and the lot subject of the sale to respondent in exchange for the amount deposited. Withdrawal of the money consigned would enrich petitioner and unjustly prejudice respondent.

REDUCTION OF CONVENTIONAL PENALTIES

ANTONIO LO, petitioner, VS. THE HON. COURT OF APPEALS AND NATIONAL ONIONS GROWERS COOPERATIVE MARKETING ASSOCIATION, INC., respondents FACTS: At the core of the present controversy are two parcels of land measuring a total of 2,147 square meters, with an office building constructed thereon. Petitioner acquired the subject parcels of land in an auction sale on November 9, 1995 for P20,170,000 from the Land Bank of the Philippines (Land Bank). Private

respondent National Onion Growers Cooperative Marketing Association, Inc., an agricultural cooperative, was the occupant of the disputed parcels of land under a subsisting contract of lease with Land Bank. The lease was valid until December 31, 1995. Upon the expiration of the lease contract, petitioner demanded that private respondent vacate the leased premises and surrender its possession to him. Private respondent refused on the ground that it was, at the time, contesting petitioner’s acquisition of the parcels of land in question in an action for annulment of sale, redemption and damages. Petitioner filed an action for ejectment before the MTC. He asked, inter alia, for the imposition of the contractually stipulated penalty of P5,000 per day of delay in surrendering the possession of the property to him. On September 3, 1996, the trial court decided the case in favor of petitioner. On appeal to the RTC, the MTC decision was affirmed in toto. The CA rendered its assailed decision affirming the decision of the trial court, with the modification that the penalty imposed upon private respondent for the delay in turning over the leased property to petitioner was reduced from P 5,000 to P 1000 per day. ISSUE: Whether or not the Court of Appeals erred in reducing the penalty awarded by the trial court, the same having been stipulated by the parties. RULING: No. Generally, courts are not at liberty to ignore the freedom of the parties to agree on such terms and conditions as they see fit as long as they are not contrary to law, morals, good customs, public order or public policy. Nevertheless, courts may equitably reduce a stipulated penalty in the contract if it is iniquitous or unconscionable, or if the principal obligation has been partly or irregularly complied with. This power of the courts is explicitly sanctioned by Article 1229 of the Civil Code which provides: Article 1229. The judge shall equitably reduce the penalty when the principal obligation has been partly or irregularly complied with by the debtor. Even if there has been no performance, the penalty may also be reduced by the courts if it is iniquitous or unconscionable. The question of whether a penalty is reasonable or iniquitous is addressed to the sound discretion of the court and depends on several factors, including, but not limited to, the following: the type, extent and purpose of the penalty, the nature of the obligation, the mode of breach and its consequences, the supervening realities, the standing and relationship of the parties.

In this case, the stipulated penalty was reduced by the appellate court for being unconscionable and iniquitous. Petition denied; CA decision affirmed.

REDUCTION OF CONVENTIONAL PENALTIES LIGUTAN VS. COURT OF APPEALS 376 SCRA 561 FEBRUARY 12, 2002 FACTS: Petitioners Tolomeo Ligutan and Leonidas dela Llana obtained on May 11, 1981 a loan in the amount of P120,000.00 from respondent Security Bank and Trust Company. Petitioners executed a promissory note binding themselves, jointly and severally, to pay the sum borrowed with an interest of 15.189% per annum upon maturity and to pay a penalty of 5% every month on the outstanding principal and interest in case of default. In addition, petitioners agreed to pay 10% of the total amount due by way of attorney’s fees if the matter were indorsed to a lawyer for collection or if a suit were instituted to enforce payment. The obligation matured on September 8, 1981; the bank, however, granted an extension but only until December 29, 1981. When petitioners defaulted on their obligation, the bank filed on November 3, 1982 with the RTC a complaint for recovery of the due amount. On September 5, 1988, the trial court ruled in favor of the bank. It ordered the petitioners to pay, jointly and severally, the sum of P114,416.00 with interest thereon at the rate of 15.189% per annum, 2% service charge and 5% per month penalty charge, commencing on May 20, 1982 until fully paid. The CA affirmed it but deleted the 2% service charge pursuant to Central Bank Circular No. 783. Not fully satisfied with the decision, both parties moved for reconsideration. Petitioners prayed for the reduction of the 5% penalty for being unconscionable. The bank asked that the payment of interest and penalty be commenced not from the date of filing of complaint but from the time of default as so stipulated in the contract of the parties. On October 28, 1998, the CA resolved the two (2) motions granting the prayer of the bank that the payment of interest and penalty be commenced on the date when the obligation became due and on the other hand held that a penalty of 3% per month or 36% per annum would suffice.

The petitioner, before the Court, contended, among others that the 15.189% interest and the penalty of 3% per month or 36% per annum imposed by private respondent bank on petitioner’s loan obligation are still manifestly exorbitant, iniquitous and unconscionable. Respondent bank, which did not take an appeal, would, however, have it that the penalty sought to be deleted by petitioners was even insufficient to fully cover and compensate for the cost of money brought about by the radical devaluation and decrease in the purchasing power of the peso. ISSUE: Whether or not the penalty is reasonable and not iniquitous. RULING: NO, the penalty is not unreasonable. The Court held that the question of whether a penalty is reasonable or iniquitous can be partly subjective and partly objective. Its resolution would depend on such factors as, but not necessarily confide to, the type, extent and purpose of the penalty, the nature of the obligation, the mode of breach and its consequences, the supervening realities, the standing and relationship of the parties, and the like, the application of which, by and large, is addressed to the sound discretion of the court. In Rizal Commercial Banking Corp. v. Court of Appeals, for example, the Court has tempered the penalty charges after taking into account the debtor’s pitiful situation and its offer to settle the entire obligation with the creditor bank. The stipulated penalty might likewise be reduced when a partial or irregular payment is made by the payment. The stipulated penalty might even be deleted such as when there has been substantial performance in good faith by the obligor, when the penalty clause itself suffers from fatal infirmity, and when exceptional circumstances so exist as to warrant it. In the case at bar, given the circumstances, not to mention the repeated acts of breach by petitioners of their contractual obligation, this Court sees no cogent ground to change the ruling of the appellate court. REDUCTION OF CONVENTIONAL PENALTIES PASCUAL VS. RAMOS 384 S 105

FACTS:

Ramos alleged that on 3 June 1987, for and in consideration of P150,000, the Spouses Pascual executed in his favor a Deed of Absolute Sale with Right to Repurchase over two parcels of land and the improvements thereon located in Bambang, Bulacan, Bulacan. This document was annotated at the back of the title. The Pascuals did not exercise their right to repurchase the property within the stipulated oneyear period; hence, Ramos prayed that the title or ownership over the subject parcels of land and improvements thereon be consolidated in his favor. In their Answer, the Pascuals admitted having signed the Deed of Absolute Sale with Right to Repurchase for a consideration of P150, 000 but averred that what the parties had actually agreed upon and entered into was a real estate mortgage. They further alleged that there was no agreement limiting the period within which to exercise the right to repurchase and that they had even overpaid Ramos. The trial court found that the transaction between the parties was actually a loan in the amount of P150,000, the payment of which was secured by a mortgage of the property covered by TCT No. 305626. It also found that the Pascuals had made payments in the total sum of P344,000, and that with interest at 7% per annum, they had overpaid the loan by P141,500. Accordingly, in its Decision of 15 March 1995 the trial court ruled in favor of the defendants. The Pascuals interposed the following defenses: (a) the trial court had no jurisdiction over the subject or nature of the petition; (b) Ramos had no legal capacity to sue; (c) the cause of action, if any, was barred by the statute of limitations; (d) the petition stated no cause of action; (e) the claim or demand set forth in Ramos’s pleading had been paid, waived, abandoned, or otherwise extinguished; and (f) Ramos has not complied with the required confrontation and conciliation before the barangay. The Court of Appeals affirmed in toto the trial court’s Orders of 5 June 1995 and 7 September 1995. ISSUE: Whether or not the contract entered into is a contract of loan.

RULING: The Pascuals are actually raising as issue the validity of the stipulated interest rate. It must be stressed that they never raised as a defense or as basis for their counterclaim the nullity of the stipulated interest. While overpayment was alleged in the Answer, no ultimate facts which constituted the basis of the overpayment was alleged. In their pretrial brief, the Pascuals made a long list of issues, but not one of them touched on the validity of the stipulated interest rate. Their own evidence clearly shows that they have agreed on, and have in fact paid interest at, the rate of 7% per month. After the trial court sustained petitioners’ claim that their agreement with RAMOS was actually a loan with real estate mortgage, the Pascuals should not be allowed to turn their back on the stipulation in that agreement to pay interest at the rate of 7% per month. The Pascuals should accept not only the favorable aspect of the court’s declaration that the document is actually an equitable mortgage but also the necessary consequence of such declaration, that is, that interest on the loan as stipulated by the parties in that same document should be paid. Besides, when Ramos moved for a reconsideration of the 15 March 1995 Decision of the trial court pointing out that the interest rate to be used should be 7% per month, the Pascuals never lifted a finger to oppose the claim. Admittedly, in their Motion for Reconsideration of the Order of 5 June 1995, the Pascuals argued that the interest rate, whether it be 5% or 7%, is exorbitant, unconscionable, unreasonable, usurious and inequitable. However, in their Appellants’ Brief, the only argument raised by the Pascuals was that Ramos’s petition did not contain a prayer for general relief and, hence, the trial court had no basis for ordering them to pay Ramos P511,000 representing the principal and unpaid interest. It was only in their motion for the reconsideration of the decision of the Court of Appeals that the Pascuals made an issue of the interest rate and prayed for its reduction to 12% per annum. It is a basic principle in civil law that parties are bound by the stipulations in the contracts voluntarily entered into by them. Parties are free to stipulate terms and conditions which they deem convenient provided they are not contrary to law, morals, good customs, public order,

or public policy. The interest rate of 7% per month was voluntarily agreed upon by Ramos and the Pascuals. There is nothing from the records and, in fact, there is no allegation showing that petitioners were victims of fraud when they entered into the agreement with Ramos. Neither is there a showing that in their contractual relations with Ramos, the Pascuals were at a disadvantage on account of their moral dependence, ignorance, mental weakness, tender age or other handicap, which would entitle them to the vigilant protection of the courts as mandated by Article 24 of the Civil Code. REDUCTION OF CONVENTIONAL PENALTIES FIRST METRO INVESTMENT petitioner, VS. ESTE DEL SOL MOUNTAIN RESERVE, INC, respondent 369 SCRA 99 FACTS: Petitioner FMIC granted respondent Este del Sol a loan of Seven Million Three Hundred Eighty-Five Thousand Five Hundred Pesos (P7,385,500.00) to finance the construction and development of the Este del Sol Mountain Reserve, a sports/resort complex project. Under the terms of the Loan Agreement, the proceeds of the loan were to be released on staggered basis. Interest on the loan was pegged at sixteen (16%) percent per annum based on the diminishing balance. The loan was payable in thirty-six (36) equal and consecutive monthly amortizations to commence at the beginning of the thirteenth month from the date of the first release in accordance with the Schedule of Amortization. In case of default, an acceleration clause was, among others, provided and the amount due was made subject to a twenty (20%) percent one-time penalty on the amount due and such amount shall bear interest at the highest rate permitted by law from the date of default until full payment thereof plus liquidated damages at the rate of two (2%) percent per month compounded quarterly on the unpaid balance and accrued interests together with all the penalties, fees, expenses or charges thereon until the unpaid balance is fully paid, plus attorney’s fees equivalent to twenty-five (25%) percent of the sum sought to be recovered, which in no case shall be less than Twenty Thousand Pesos (P20,000.00) if the services of a lawyer were hired. In accordance with the terms of the Loan Agreement, respondent Este del Sol executed several

documents as security for payment, among them, (a) a Real Estate Mortgage and (b) individual Continuing Suretyship agreements by co-respondents Valentin S. Daez, Jr., et al. Respondent Este del Sol also executed, as provided for by the Loan Agreement, an Underwriting Agreement whereby petitioner FMIC shall underwrite on a best-efforts basis the public offering of 120,000 common shares of respondent Este del Sol’s capital stock for a one-time underwriting fee of P200,000.00. The Underwriting Agreement also provided that for supervising the public offering of the shares, respondent Este del Sol shall pay petitioner FMIC an annual supervision fee of 200,000.00 per annum for a period of four consecutive years. The Underwriting Agreement also stipulated for the payment by respondent Este del Sol to petitioner FMIC a consultancy fee of P332,500.00 per annum for a period of four consecutive years. Simultaneous with the execution of and in accordance with the terms of the Underwriting Agreement, a Consultancy Agreement was also executed on January 31, 1978 whereby respondent Este del Sol engaged the services of petitioner FMIC for a fee as consultant to render general consultancy services. Since respondent Este del Sol failed to meet the schedule of repayment in accordance with a revised Schedule of Amortization, it appeared to have incurred a total obligation of P12,679,630.98 per the petitioner’s Statement of Account dated June 23, 1980. Accordingly, petitioner FMIC caused the extrajudicial foreclosure of the real estate mortgage on June 23, 1980. At the public auction, petitioner FMIC was the highest bidder of the mortgaged properties for P9,000,000.00. Failing to secure from the individual respondents, the payment of the alleged deficiency balance, petitioner instituted the instant collection suit to collect the alleged deficiency balance of P6,863,297.73 plus interest thereon at 21% percent per annum from June 24, 1980 until fully paid, and 25% percent thereof as and for attorney’s fees and costs. The trial court rendered its decision in favor of petitioner FMIC. reversed the challenged decision of the trial court.

CA

ISSUE: Whether or not the appellate court erred in reversing the decision of the trial court as regards to the payment of penalties. RULING: No. First, Central Bank Circular No. 905 did not repeal nor in any way amend the Usury Law but simply suspended the latter’s effectivity. Thus, retroactive application of a Central Bank Circular cannot, and should not, be presumed. Second, several facts and circumstances taken altogether show that

the Underwriting and Consultancy Agreements were simply cloaks or devices to cover an illegal scheme employed by petitioner FMIC to conceal and collect excessively usurious interest. The Underwriting and Consultancy Agreements which were executed and delivered contemporaneously with the Loan Agreement on January 31, 1978 were exacted by petitioner FMIC as essential conditions for the grant of the loan. An apparently lawful loan is usurious when it is intended that additional compensation for the loan be disguised by an ostensibly unrelated contract providing for payment by the borrower for the lender’s services which are of little value or which are not in fact to be rendered, such as in the instant case. In this connection, Article 1957 of the New Civil Code clearly provides that: “Art. 1957. Contracts and stipulations, under any cloak or device whatever, intended to circumvent the laws against usury shall be void. The borrower may recover in accordance with the laws on usury.” In usurious loans, the entire obligation does not become void because of an agreement for usurious interest; the unpaid principal debt still stands and remains valid but the stipulation as to the usurious interest is void, consequently, the debt is to be considered without stipulation as to the interest. Thus, the Court agrees with the factual findings and conclusion of the appellate court, wherein it held that the stipulated penalties, liquidated damages and attorney’s fees, excessive, iniquitous and unconscionable. Accordingly, the 20% penalty on the amount due and 10% of the proceeds of the foreclosure sale as attorney’s fees would suffice to compensate the appellee, especially so because there is no clear showing that the appellee hired the services of counsel to effect the foreclosure; it engaged counsel only when it was seeking the recovery of the alleged deficiency. Attorney’s fees as provided in penal clauses are in the nature of liquidated damages. So long as such stipulation does not contravene any law, morals, or public order, it is binding upon the parties. Nonetheless, courts are empowered to reduce the amount of attorney’s fees if the same is “iniquitous or unconscionable.”[46] Articles 1229 and 2227 of the New Civil Code provide that: Art. 1229. The judge shall equitably reduce the penalty when the principal obligation has been partly or irregularly complied with by the debtor. Even if there has been no performance, the penalty may also be reduced by the courts if it is iniquitous or unconscionable. Art. 2227. Liquidated damages, whether intended as an indemnity or a penalty, shall be equitably reduced if they are iniquitous or unconscionable.

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

REDUCTION OF CONVENTIONAL PENALTIES DOMEL TRADING CORPORATION, petitioner, VS. HONORABLE COURT OF APPEALS and NDC-NACIDA RAW MATERIALS, CORPORATION, respondents September 22, 1999 G.R. No. 84813 FACTS: On June 3, 1981, private respondent NDC-NACIDA Raw Materials Corporation (NNRMC) ordered from petitioner Domel Trading Corporation (DOMEL) 22,000 bundles of buri midribs at P16.00 per bundle to be delivered within 30 working days from the date of the opening of a letter of credit. On June 4, 1981, private respondent again ordered 300,000 pieces of rattan poles at P9.65 per piece for a total price of P2,895,000.00, also to be delivered within 60 days from the date of the opening of a letter of credit. The specifications and provisions of both transactions, which served as their agreement, were printed in two separate purchase orders. In accordance with their agreement, NNRMC, on July 9, 1981, opened a letter of credit with Philippine National Bank (PNB) in favor of DOMEL in the amount of P1,997,000.00 to cover its order for 206,943 pieces of rattan poles. On July 13, 1981, NNRMC opened another letter of credit in favor of DOMEL in the amount of P1,236,000.00 to cover the price of 93,057 pieces of rattan poles and 22,000 bundles of buri midribs. In violation of their agreement, DOMEL failed to deliver the buri midribs and rattan poles within the stipulated period. Thus, on September 23, 1981, DOMEL and NNRMC agreed to restructure the latter’s purchase orders in a Memorandum of Agreement. Under the agreement, NNRMC extended the expiry date of its two letters of credit to November 5, 1981. It also reduced the

quantity of the rattan poles from 300,000 to only 100,000 pieces while the quantity of buri midribs remained at 22,000 bundles. Further, DOMEL undertook to deliver the goods on or before October 31, 1981. However, no deliveries were again made on the said date. Consequently, demands were made by NNRMC on January 19, 1982 for the payment of damages, which demands were ignored by DOMEL. Hence, NNRMC filed a complaint for damages before the Regional Trial Court of Pasig. After trial, judgment was rendered in favor of plaintiff and against defendant. Both DOMEL and NNRMC assail the above-quoted decision in separate petitions which have been consolidated before this Court. Based on the pleadings submitted by the parties, this Court has resolved to give due course to the petition and decides the same. DOMEL submits it has not breached its contractual obligation to NNRMC inasmuch as it was the fault of the latter for not inspecting and examining the rattan poles as well as the buri midribs already shipped by the suppliers and stored in the former’s warehouse. In short, DOMEL claims that NNRMC must first inspect the ordered items before delivery could be made. ISSUE: Whether or not the decision of the Court of Appeals in CA-G.R. CV No. 08952 which modified the decision of the lower court granting private respondent’s prayer for damages, was correct. RULING: While the Supreme Court did not agree with the Court of Appeals that the failure of NNRMC to conduct the inspection mitigated DOMEL’s liability for liquidated damages, nevertheless, it agreed in the reduction of the amount of liquidated damages to only P150,000.00. The amount of P2,000.00 as penalty for every day of delay is excessive and unconscionable. Article 1229 of the Civil Code states, thus:“The judge shall equitably reduce the penalty when the principal obligation has been partly or irregularly complied with by the debtor. Even if there has been no performance, the penalty may also be reduced by the courts if it is iniquitous or unconscionable.” Article 2227 of the Civil Code likewise states, thus: “Liquidated damages, whether intended as an indemnity or a penalty, shall be equitably reduced if they are iniquitous or unconscionable.”

In determining whether a penalty clause is “iniquitous and unconscionable,” a court may very well take into account the actual damages sustained by a creditor who was compelled to sue the defaulting debtor, which actual damages would include the interest and penalties the creditor may have had to pay on its own from its funding source. In this case, NNRMC was only able to prove that it incurred the amounts of P5,995.83 as opening charges on the two Letters of Credit and an additional P1,911.85 as amendment charges on the same Letters of Credit. Other than that, NNRMC failed to prove it had suffered actual damages resulting from the nondelivery of the specified buri midribs and rattan poles. In fact, what it allegedly suffered are what it calls “Foregone Interest Income” and “Foregone Profit” from the two Letters of Credit. Such could not be considered as actual damages. The Court agreed with the following observation of the Court of Appeals: “Necessarily, We discern some merit in the second assignment of error. The trial court erred in holding the appellant liable for P908,966.72 in damages. The said unitemized amounts and various types of damages is too much and has to be reduced within reasonable limits. As already elaborated upon in connection with the first assignment of error, the amount of liquidated damages has to be lessened to P150,000.00. But the charges of P5,995.83 and P1,911.85 on the two letters of credit involved should be reimbursed by appellant. As regards the alleged forgone profits of P206,943.00 testified on by Jose Victorioso as the profit appellee could have realized had appellant been able to supply the goods in question, we consider such amount of expected profit highly conjectural and speculative. The aforesaid testimony regarding the matter of profits is utterly lacking of the requisite details on how such huge amount of profits could be made possible. Plaintiff-appellee’s witness did not detail out how such huge amount of gain could have been derived from the would-be exportation of buri midribs and rattan poles. Well-entrenched is the doctrine that actual, compensatory and consequential damages must be proved, and cannot be presumed. If, as in this case, the proof adduced thereon is flimsy and insufficient, no damages will be allowed. Verily, the testimonial evidence on alleged unrealized profits earlier referred to is not enough to warrant the award of damages appealed from. It is too scanty, vague and unspecified to induce faith and reliance. Absent the needed quantum of proof, We are of the sense that, apart from the aforestated amount of liquidated damages and reimbursement of the charges paid by appellee for the unutilized letters of credit, no other damages can be granted.”

REDUCTION OF CONVENTIONAL PENALTIES MEDEL VS COURT OF APPEALS 299 S 481

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

date. Consequently, demands were made by NNRMC on January 19, 1982 for the payment of damages, which demands were ignored by DOMEL. Hence, NNRMC filed a complaint for damages before the Regional Trial Court of Pasig. After trial, judgment was rendered in favor of plaintiff and against defendant. Both DOMEL and NNRMC assail the above-quoted decision in separate petitions which have been consolidated before this Court. Based on the pleadings submitted by the parties, this Court has resolved to give due course to the petition and decides the same. DOMEL submits it has not breached its contractual obligation to NNRMC inasmuch as it was the fault of the latter for not inspecting and examining the rattan poles as well as the buri midribs already shipped by the suppliers and stored in the former’s warehouse. In short, DOMEL claims that NNRMC must first inspect the ordered items before delivery could be made. ISSUE: Whether or not the decision of the Court of Appeals in CA-G.R. CV No. 08952 which modified the decision of the lower court granting private respondent’s prayer for damages, was correct. RULING: While the Supreme Court did not agree with the Court of Appeals that the failure of NNRMC to conduct the inspection mitigated DOMEL’s liability for liquidated damages, nevertheless, it agreed in the reduction of the amount of liquidated damages to only P150,000.00. The amount of P2,000.00 as penalty for every day of delay is excessive and unconscionable. Article 1229 of the Civil Code states, thus:“The judge shall equitably reduce the penalty when the principal obligation has been partly or irregularly complied with by the debtor. Even if there has been no performance, the penalty may also be reduced by the courts if it is iniquitous or unconscionable.” Article 2227 of the Civil Code likewise states, thus: “Liquidated damages, whether intended as an indemnity or a penalty, shall be equitably reduced if they are iniquitous or unconscionable.”

In determining whether a penalty clause is “iniquitous and unconscionable,” a court may very well take into account the actual damages sustained by a creditor who was compelled to sue the defaulting debtor, which actual damages would include the interest and penalties the creditor may have had to pay on its own from its funding source. In this case, NNRMC was only able to prove that it incurred the amounts of P5,995.83 as opening charges on the two Letters of Credit and an additional P1,911.85 as amendment charges on the same Letters of Credit. Other than that, NNRMC failed to prove it had suffered actual damages resulting from the nondelivery of the specified buri midribs and rattan poles. In fact, what it allegedly suffered are what it calls “Foregone Interest Income” and “Foregone Profit” from the two Letters of Credit. Such could not be considered as actual damages.

REDUCTION OF CONVENTIONAL PENALTIES

MEDEL VS CA G.R. No. 131622 November 27, 1998 FACTS: The Medel spouses obtained several loans of which they were unable to pay in full. On July 23, 1986, Servando and Leticia with the latter's husband, Dr. Rafael Medel, consolidated all their previous unpaid loans totaling P440,000.00, and sought from Veronica another loan in the amount of P60,000.00, bringing their indebtedness to a total of P500,000.00, payable on August 23, 1986. They executed a promissory note indicating payment for the balance. On maturity of the loan, the borrowers failed to pay the indebtedness of P500,000.00, plus interests and penalties, evidenced by the above-quoted promissory note. On February 20, 1990, Veronica R.

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

REFORMINA VS. TOMOL 139 SCRA 260 OCTOBER 11, 1985

FACTS: This is a Petition for Review on certiorari of the Resolution of the Hon. respondent Judge Valeriano P. Tomol, Jr. of the then Court of First Instance of Cebu-Branch XI, an action for Recovery of Damages for injury to Person and Loss of Property. The petitioners prayed for the setting aside of the said Resolution and for a declaration that the judgment in their favor should bear legal interest at the rate of twelve (12%) percent per annum pursuant to Central Bank Circular No. 416 dated July 29, 1974. The appellate court affirmed the decision but made certain modifications. The said decision having become final on October 24, 1980, the case was remanded to the lower court for execution and this is where the controversy started. In the computation of the "legal interest" decreed in the judgment sought to be executed, petitioners claim that the "legal interest" should be at the rate of twelve (12%) percent per annum, invoking in support of their aforesaid submission, Central Bank of the Philippines Circular No. 416. Upon the other hand, private respondents Shell and Michael, Incorporated insist that said legal interest should be at the rate of six (6%) percent per annum only, pursuant to and by authority of Article 2209 of the New Civil Code in relation to Articles 2210 and 2211 thereof. ISSUE: Whether or not the petition is with merit. RULING: No. The petition is devoid of merit. Consequently, its dismissal is in order. Central Bank Circular No. 416 which took effect on July 29, 1974 was issued and promulgated by the Monetary Board pursuant to the authority granted to the Central Bank by P.D. No. 116, which amended Act No. 2655, otherwise known as the Usury Law. Acting pursuant to this grant of authority, the Monetary Board increased the rate of legal interest from that of six (6%) percent per annum originally allowed under Section I of Act No. 2655 to twelve (12%) percent per annum. It will be noted that Act No. 2655 deals with interest on (1) loans; (2) forbearances of any money, goods, or credits; and (3) rate allowed in judgments.Hence, not all money judgments are included in the said act. The judgments spoken of and referred to are Judgments in litigations involving loans or forbearance of any 'money, goods or credits. Any other kind of monetary judgment which has nothing to do with, nor involving loans or forbearance of any money, goods or credits does not fall within the coverage of the said law for it is not within the ambit of the authority granted to the Central Bank. The Monetary

Board may not tread on forbidden grounds. It cannot rewrite other laws. That function is vested solely with the legislative authority. It is axiomatic in legal hermeneutics that statutes should be construed as a whole and not as a series of disconnected articles and phrases. In the absence of a clear contrary intention, words and phrases in statutes should not be interpreted in isolation from one another. A word or phrase in a statute is always used in association with other words or phrases and its meaning may thus be modified or restricted by the latter. The instant petition is without merit, the same is DISMISSED with costs against petitioners. MEANING OF PAYMENT / PERFORMANCE (ART. 1232-1261, CC) SONNY LO, petitioner, vs. KJS ECO-FORMWORK SYSTEM PHIL., INC., respondent 2003 Oct 8 G.R. No. 149420 413 SCRA 182 FACTS: Respondent KJS ECO-FORMWORK System Phil., Inc. is a corporation engaged in the sale of steel scaffoldings, while petitioner Sonny L. Lo, doing business under the name and style San’s Enterprises, is a building contractor. On February 22, 1990, petitioner ordered scaffolding equipments from respondent worth P540,425.80. He paid a downpayment in the amount of P150,000.00. The balance was made payable in ten monthly installments. Respondent delivered the scaffoldings to petitioner. Petitioner was able to pay the first two monthly installments. His business, however, encountered financial difficulties and he was unable to settle his obligation to respondent despite oral and written demands made against him. On October 11, 1990, petitioner and respondent executed a Deed of Assignment, whereby petitioner assigned to respondent his receivables in the amount of P335,462.14 from Jomero Realty Corporation. However, when respondent tried to collect the said credit from Jomero Realty Corporation, the latter refused to honor the Deed of Assignment because it claimed that petitioner was also indebted to it. On November 26, 1990,

respondent sent a letter to petitioner demanding payment of his obligation, but petitioner refused to pay claiming that his obligation had been extinguished when they executed the Deed of Assignment. Consequently, on January 10, 1991, respondent filed an action for recovery of a sum of money against the petitioner before the Regional Trial Court of Makati, Branch 147, which was docketed as Civil Case No. 91-074. During the trial, petitioner argued that his obligation was extinguished with the execution of the Deed of Assignment of credit. Respondent, for its part, presented the testimony of its employee, Almeda Bañaga, who testified that Jomero Realty refused to honor the assignment of credit because it claimed that petitioner had an outstanding indebtedness to it. On August 25, 1994, the trial court rendered a decision dismissing the complaint on the ground that the assignment of credit extinguished the obligation. Respondent appealed the decision to the Court of Appeals. On April 19, 2001, the appellate court rendered a decision reversing the appealed Decision and enters judgment ordering defendant-appellee Sonny Lo to pay the plaintiff-appellant KJS ECO-FORMWORK SYSTEM PHILIPPINES, INC. Three Hundred Thirty Five Thousand Four Hundred Sixty-Two and 14/100 (P335,462.14) with legal interest of 6% per annum from January 10, 1991 (filing of the Complaint) until fully paid and attorney’s fees equivalent to 10% of the amount due and costs of the suit. In finding that the Deed of Assignment did not extinguish the obligation of the petitioner to the respondent, the Court of Appeals held that (1) petitioner failed to comply with his warranty under the Deed; (2) the object of the Deed did not exist at the time of the transaction, rendering it void pursuant to Article 1409 of the Civil Code; and (3) petitioner violated the terms of the Deed of Assignment when he failed to execute and do all acts and deeds as shall be necessary to effectually enable the respondent to recover the collectibles. Petitioner filed a motion for reconsideration of the said decision, which was denied by the Court of Appeals. Hence, this petition for review. ISSUE: Whether or not the Court Of Appeals erred in holding that the deed of assignment did not extinguish petitioner’s obligation on the wrong notion that petitioner failed to comply with his warranty thereunder.

RULING: The petition is without merit. An assignment of credit is an agreement by virtue of which the owner of a credit, known as the assignor, by a legal cause, such as sale, dacion en pago, exchange or donation, and without the consent of the debtor, transfers his credit and accessory rights to another, known as the assignee, who acquires the power to enforce it to the same extent as the assignor could enforce it against the debtor. Corollary thereto, in dacion en pago, as a special mode of payment, the debtor offers another thing to the creditor who accepts it as equivalent of payment of an outstanding debt. In order that there be a valid dation in payment, the following are the requisites: (1) There must be the performance of the prestation in lieu of payment (animo solvendi) which may consist in the delivery of a corporeal thing or a real right or a credit against the third person; (2) There must be some difference between the prestation due and that which is given in substitution (aliud pro alio); (3) There must be an agreement between the creditor and debtor that the obligation is immediately extinguished by reason of the performance of a prestation different from that due. The undertaking really partakes in one sense of the nature of sale, that is, the creditor is really buying the thing or property of the debtor, payment for which is to be charged against the debtor’s debt. As such, the vendor in good faith shall be responsible, for the existence and legality of the credit at the time of the sale but not for the solvency of the debtor, in specified circumstances. Hence, it may well be that the assignment of credit, which is in the nature of a sale of personal property, produced the effects of a dation in payment which may extinguish the obligation. However, as in any other contract of sale, the vendor or assignor is bound by certain warranties. More specifically, the first paragraph of Article 1628 of the Civil Code provides: The vendor in good faith shall be responsible for the existence and legality of the credit at the time of the sale, unless it should have been sold as doubtful; but not for the solvency of the debtor, unless it has been so expressly stipulated or unless the insolvency was prior to the sale and of common knowledge. From the above provision, petitioner, as vendor or assignor, is bound to warrant the existence and legality of the credit at the time of the sale or assignment. When Jomero claimed that it was no longer indebted to petitioner since the latter also had an unpaid obligation to it, it essentially meant that its obligation to petitioner has been extinguished by compensation. In other words,

respondent alleged the non-existence of the credit and asserted its claim to petitioner’s warranty under the assignment. Therefore, it behooved on petitioner to make good its warranty and paid the obligation. Furthermore, the Court found that petitioner breached his obligation under the Deed of Assignment, to wit: And the ASSIGNOR further agrees and stipulates as aforesaid that the said ASSIGNOR, his heirs, executors, administrators, or assigns, shall and will at times hereafter, at the request of said ASSIGNEE, its successors or assigns, at his cost and expense, execute and do all such further acts and deeds as shall be reasonably necessary to effectually enable said ASSIGNEE to recover whatever collectibles said ASSIGNOR has in accordance with the true intent and meaning of these presents. The decision of the Court of Appeals was affirmed with modification that upon finality of the Decision, the rate of legal interest shall be 12% per annum, inasmuch as the obligation shall thereafter become equivalent to a forbearance of credit. The award of attorney’s fees is DELETED for lack of evidentiary basis. REQUISITES OF PAYMENT/PERFORMANCE PHILIPPINE NATIONAL BANK, petitioner, VS. COURT OF APPEALS and LORETO TAN, respondents April 02, 1996 G.R. No. 108630 256 SCRA 44 FACTS: Private respondent Loreto Tan is the owner of a parcel of land in Bacolod City. Expropriation proceedings were instituted by the government against private respondent Tan and other property owners before a trial court in Negros Occidental. Tan filed a motion requesting issuance of an order for the release to him of the expropriation price of P32,480.00. The trial court required petitioner PNB-Bacolod Branch to release to Tan the amount of P32,480.00 deposited with it by the government. Through its Assistant Branch Manager Juan Tagamolila, PNB issued a manager's check for P32,480.00 and delivered the same to one Sonia Gonzaga without Tan's knowledge, consent or authority. Sonia Gonzaga deposited it in her account with Far East Bank and Trust Co. (FEBTC) and later on withdrew the said amount.

Private respondent Tan subsequently demanded payment in the amount of P32,480.00 from petitioner, but the same was refused on the ground that petitioner had already paid and delivered the amount to Sonia Gonzaga on the strength of a Special Power of Attorney (SPA) allegedly executed in her favor by Tan. When he failed to recover the amount from PNB, private respondent filed a motion with the court to require PNB to pay the same to him. Petitioner filed an opposition contending that Sonia Gonzaga presented to it a copy of the May 22, 1978 order and a special power of attorney by virtue of which petitioner delivered the check to her. The petitioner was directed by the court to produce the said special power of attorney thereat. However, petitioner failed to do so. The court decided that there was need for the matter to be ventilated in a separate civil action and thus private respondent filed a complaint with the Regional Trial Court in Bacolod City against petitioner and Juan Tagamolila, PNB's Assistant Branch Manager, to recover the said amount. In its defense, petitioner contended that private respondent had duly authorized Sonia Gonzaga to act as his agent. Tagamolila, in his answer, stated that Sonia Gonzaga presented a Special Power of Attorney to him but borrowed it later with the promise to return it, claiming that she needed it to encash the check. The petitioner likewise filed a third-party complaint against the spouses Nilo and Sonia Gonzaga praying that they be ordered to pay private respondent the amount of P32,480.00. However, for failure of petitioner to have the summons served on the Gonzagas despite opportunities given to it, the thirdparty complaint was dismissed. The trial court rendered judgment ordering petitioner and Tagamolila to pay private respondent jointly and severally the amount of P32,480.00 with legal interest, damages and attorney's fees. Both petitioner and Tagamolila appealed the case to the Court of Appeals. However, the appellate court dismissed Tagamolila's appeal for failure to pay the docket fee within the reglementary period. The appellate court subsequently affirmed the trial court’s decision. ISSUE: Whether or not payment was made to Loreto Tan. RULING: There is no question that no payment had ever been made to private respondent as the check was never delivered to him. When the court ordered petitioner to pay private respondent the amount of P32,480.00, it had the

obligation to deliver the same to him. Under Art. 1233 of the Civil Code, a debt shall not be understood to have been paid unless the thing or service in which the obligation consists has been completely delivered or rendered, as the case may be. The burden of proof of such payment lies with the debtor. In the instant case, neither the SPA nor the check issued by petitioner was ever presented in court. The testimonies of petitioner's own witnesses regarding the check were conflicting. Tagamolila testified that the check was issued to the order of "Sonia Gonzaga as attorney-in-fact of Loreto Tan," while Elvira Tibon, assistant cashier of PNB, stated that the check was issued to the order of "Loreto Tan." Furthermore, contrary to petitioner's contention that all that is needed to be proved is the existence of the SPA, it is also necessary for evidence to be presented regarding the nature and extent of the alleged powers and authority granted to Sonia Gonzaga; more specifically, to determine whether the document indeed authorized her to receive payment intended for private respondent. Considering that the contents of the SPA are also in issue here, the best evidence rule applies. Hence, only the original document, which has not been presented at all, is the best evidence of the fact as to whether or not private respondent indeed authorized Sonia Gonzaga to receive the check from petitioner. In the absence of such document, petitioner's arguments regarding due payment must fail. Decision affirmed with the modification that the award by the trial court of P5,000.00 as attorney's fees is reinstated.

CITIBANK vs. SABENIANO G.R.No. 156132, October 16, 2006 FACTS: Petitioner Citibank is a banking corporation duly authorized under the laws of the USA to do commercial banking activities n the Philippines. Sabeniano was a client of both Petitioners Citibank and FNCB Finance. Respondent filed a complaint against petitioners claiming to have substantial deposits, the proceeds of which were supposedly deposited automatically and directly to respondent’s account with the petitioner Citibank and that allegedly petitioner refused to despite repeated demands. Petitioner alleged that respondent obtained several loans from the former and in default, Citibank exercised its right to set-off respondent’s outstanding loans with her deposits and money. RTC declared the act illegal, null and void and ordered the petitioner to refund the amount plus interest, ordering Sabeniano, on the other hand to pay Citibank her indebtedness. CA affirmed the decision entirely in favor of the respondent. ISSUE: Whether petitioner may exercise its right to set-off respondent’s loans with her deposits and money in Citibank-Geneva RULING:

OBLIGATIONS TO PAY MONEY: EFFECTS OF INFLATION 1. 2. 3. 4. 5. 6.

CITIBANK VS. SABENIANO, 504 S 378 TELENGTON BROS VS. US LINES, 583 S 458 CF SHARP VS. NORTHWEST AIRLINES, 381 S 314 PADILLA VS. PAREDES, 328 SCRA 434 TIBAJIA VS. CA, 223 S 163 DBP VS CA, 494 S 25

Petition is partly granted with modification. 1. Citibank is ordered to return to respondent the principal amount of P318,897.34 and P203,150.00 plus 14.5% per annum 2. The remittance of US $149,632.99 from respondent’s CitibankGeneva account is declared illegal, null and void, thus Citibank is ordered to refund said amount in Philippine currency or its equivalent using exchange rate at the time of payment.

3. Citibank to pay respondent moral damages of P300,000, exemplary damages for P250,000, attorney’s fees of P200,000. 4. Respondent to pay petitioner the balance of her outstanding loans of P1,069,847.40 inclusive off interest.

OBLIGATIONS TO PAY MONEY: EFFECTS OF INFLATION

The Supreme Court found as erroneous the trial court’s decision as affirmed y the Court of Appeals. The Court holds that there has been an extraordinary inflation within the meaning of Article 1250 of the Civil Code. There is no reason for ordering the payment of an obligation in an amount different from what has been agreed upon because of the purported supervention of an extraordinary inflation. The assailed decision is affirmed with modification that the order for re-computation as of the date of payment in accordance with the provisions of Article 1250 of New Civil Code is deleted.

TELENGTAN BROTHERS and SONS vs. UNITED STATES LINES G.R.No. 132284,February 28,2006 OBLIGATIONS TO PAY MONEY: EFFECTS OF INFLATION

FACTS: Petitioner is a domestic corporation while US Lines is a foreign corporation engaged in overseas shipping. It was made applicable that consignees who fail to take delivery of their containerized cargo within the 10-day free period are liable to pay demurrage charges. On June 22, 1981, US Lines filed a suit against petitioner seeking payment of demurrage charges plus interest and damages. Petitioner incurred P94,000 which the latter refused to pay despite repeated demands. Petitioner disclaims liability alleging that it has never entered into a contract nor signed an agreement to be bound by it. RTC ruled that petitioner is liable to respondent and all be computed as of the date of payment in accordance with Article 1250 of the Civil Code. CA affirmed the decision. ISSUE: Whether the re-computation of the judgment award in accordance with Article 1250 of the Civil Code proper RULING:

CF SHARP VS. NORTHWEST AIRLINES 381 SCRA 314 FACTS: On May 9, 1974, respondent, through its Japan Branch, entered an International Passenger Sales Agency Agreement with petitioner, authorizing the latter to sell its air transport tickets. Petitioner, however, failed to remit the proceeds of the ticket sales, for which reason the respondent filed a collection suit against petitioner before the Tokyo District Court. The said court ordered petitioner to pay respondent including damages for the delay. Unable to execute the decision in Japan, respondent filed a case to enforce said judgment with the regional trial court of Manila which dismissed the case. This was affirmed by the Court of Appeals, and was subsequently partly affirmed by the Supreme Court. CF Sharp was then ordered to pay Northwest so that the RTC issued a writ of execution of decision ruling that Sharp is to pay Northwest the sum of 83,158,195 yen at the exchange rate prevailing on the date of the foreign judgment plus 6% per annum until fully paid, 6% damages and 6% interest.

An appeal, the Court of Appeals reduced the interest and it ruled that the basis of the conversion of petitioner’s liability in its peso equivalent should be the prevailing rate at the time of payment and not the rate on the date of the foreign judgment. ISSUE: Whether or not the basis for the payment of the amount due is the value of the currency at the time of the establishment of the obligation. RULING: NO, the rule that the value of currency at the time of the establishment of the obligation shall be the basis of payment finds application only when there is an official pronouncement or declaration of the existence of an extraordinary inflation or deflation. Hence, petitioners contention that Article 1250 of the Civil Code which provides that “in case of an extra ordinary inflation or deflation of the currency stipulated should supervene, the value of the currency at the time of establishment of the obligation shall be the basis of payment, unless there is an agreement to the contrary” shall apply in this case is untenable.

OBLIGATIONS TO PAY MONEY ALBERT R. PADILLA VS. SPOUSES FLORESCO PAREDES and ADELINA PAREDES, and THE HONORABLE COURT OF APPEALS G.R. No. 124874 March 17, 2000 328 SCRA 434 FACTS: On October 20, 1988, petitioner Albert R. Padilla and private respondents Floresco and Adelina Paredes entered into a contract to sell involving a parcel of land in San Juan, La Union. At that time, the land was untitled although private respondents were paying taxes thereon. Under the contract, petitioner undertook to secure title to the property in private respondents' names. Of the P312,840.00 purchase price, petitioner was to pay a downpayment of

P50,000.00 upon signing of the contract, and the balance was to be paid within ten days from the issuance of a court order directing issuance of a decree of registration for the property. On December 27, 1989, the court ordered the issuance of a decree of land registration for the subject property. The property was titled in the name of private respondent Adelina Paredes. Private respondents then demanded payment of the balance of the purchase price. Petitioner then made several payments to private respondents, some even before the court issued an order for the issuance of a decree of registration and they also offered to pay the land through a check. Still, petitioner failed to pay the full purchase price even after the expiration of the period set. In a letter dated February 14, 1990, private respondents, through counsel, demanded payment of the remaining balance, with interest and attorney's fees, within five days from receipt of the letter. Otherwise, private respondents stated they would consider the contract rescinded. On February 28, 1990, petitioner made a payment of P100,000.00 to private respondents, still insufficient to cover the full purchase price. Shortly thereafter, in a letter dated April 17, 1990 private respondents offered to sell to petitioner one-half of the property for all the payments the latter had made, instead of rescinding the contract. If petitioner did not agree with the proposal, private respondents said they would take steps to enforce the automatic rescission of the contract. Petitioner did not accept private respondents' proposal. Instead, in a letter dated May 2, 1990, he offered to pay the balance in full for the entire property, plus interest and attorney's fees. Private respondents refused the offer. On May 14, 1990, petitioner instituted an action for specific performance against private respondents, alleging that he had already substantially complied with his obligation under the contract to sell. He also averred that he had already spent P190,000.00 in obtaining title to the property, subdividing it, and improving its right-of-way. The lower court decided in favor of the petitioners stating that the breach committed was only casual and slight but the Court of Appeals reversed the ruling and favored respondents’ rescission of the contract to sell. ISSUE: Whether or not the payment made by petitioner is one which is contemplated on the contract.

RULING: Petitioner’s offer to pay is clearly not the payment contemplated in the contract. While he might have tendered payment through a check, this is not considered payment until the check is encashed. Besides, a mere tender of payment is not sufficient. Consignation is essential to extinguish petitioner's obligation to pay the purchase price. The Supreme Court also affirmed the decision of the Court of Appeals where the respondents have the right to rescind the contract on the ground that there is failure on the part of the petitioners to pay the balance within ten days upon the conveyance of the Court of the Title of Land to respondents. Thus, private respondents are under no obligation, and may not be compelled, to convey title to petitioner and receive the full purchase price.

The ruling applies the statutory provisions which lay down the rule that a check is not legal tender and that a creditor may validly refuse payment by check, whether it be a manager’s check, cashier’s or personal check. The decision of the court of Appeals is affirmed. OBLIGATIONS TO PAY MONEY

DEVELOPMENT BANK OF THE PHILIPPINES APEEALS G.R.No. 138703,June 30, 2006

v. COURT OF

FACTS: OBLIGATIONS TO PAY MONEY

SPOUSES TIBAJIA v. COURT OF APPEALS and EDEN TAN G. R. No. 100290, June 4, 1993 FACTS: A suit of collection of sum of money was filed by Eden Tan against the spouses. A writ of attachment was issued, the Deputy Sheriff filed a return stating that a deposit made by Tibajia in the amount of P442,750 in another case, had been garnished by him. RTC ruled in favor of Eden Tan and ordered the spouses to pay her an amount in excess of P3,000,000. Court of Appeals modified the decision by reducing the amount for damages. Tibajia Spouses delivered to Sheriff Bolima the total money judgment of P398483.70. Tan refused to accept the payment and insisted that the garnished funds be withdrawn to satisfy the judgment obligation. ISSUE: Whether or not payment by means of check is considered payment in legal tender

In March 1968, DBP granted to private respondents an industrial loan in the amount of P2,500,000 – P500,000 n cash and P2,000,000 in DBP Progress Bank. It was evidenced by a promissory note and secured by a mortgage executed by respondents over their present and future properties. Another loan was granted by DBP in the for of a 5-year revolving guarantee to P1,700,000. In 1975, the outstanding accounts wth DBP was restructured in view of failure to pay. Amounting to P4,655,992.35 were consolidated into a single account. On the other hand, all accrued interest and charges due amounting to P3,074,672.21 were denominated as “ Notes Taken for Interests” and evidenced by a separate promissory note. For failure to comply with its obligation, DBP initiated foreclosure proceedings upon its computation that respondent’s loans were arrears by P62,954,473.68. Respondents contended that the collection was unconscionable if not unlawful or usurious . RTC, as affirmed by the CA, ruled in favor of the respondents. ISSUE: Whether the prestation to collect by the DBP is unconscionable or usurious RULING:

RULING:

It cannot be determined whether DBP in fact applied an interest rate higher than what is prescribed under the law. Assuming it did exceed 12% in addition to the other penalties stipulated in the note, this should be stricken out for being usurious. The petition is partly granted. Decision of the court of Appeals is reversed and set aside. The case is remanded o the trial court for the determination of the total amount of the respondent’s obligation based on the promissory notes, according to the interest rate agreed upon by the parties on the interest rate of 12% per annum, whichever is lower. INSTRUMENTS/EVIDENCES OF CREDIT

is obvious that Metrobank was remiss in the duty and violated that fiduciary relationship with its clients as it appeared that there are material alterations on the check that are visble to the naked eye but the bank failed to detect such. Petition is denied. Court of Appeals decision is affirmed with modification that exemplary damages in the amount of P50,000 be awarded. OBLIGATIONS TO PAY MONEY: EFFECTS OF INFLATION 1. ALMEDA VS. BATHALA MKTNG., 542 S 470 2. PCI VS. NG SHEUNG NGOR, 541 S 223

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

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

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

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

INTEGRITY OF PRESTATION / SUBSTANTIAL PAYMENT OBLIGATIONS TO PAY MONEY: EFFECTS OF INFLATION

EQUITABLE PCI BANK, YU and APAS v. NG SHEUNG NGOR G.R.NO. 171545, December 19, 2007 FACTS: On October 7, 2001, respondents Ngor and Go filed an action for amendment and/or reformation of documents and contracts against Equitable and its employees. They claimed that they were induced by the bank to avail of its peso and dollar credit facilities by offering low interests so they accepted and signed Equitable’s proposal. They alleged that they were unaware that the documents contained escalation clauses granting Equitable authority to increase interest without their consent. These were rebutted by the bank. RTC ordered the use of the 1996 dollar exchange rate in computing respondent’s dollar-denominated loans. CA granted the Bank’s application for injunction but the properties were sold to public auction. ISSUE: Whether or not there was an extraordinary deflation RULING:

SIMPLICIO PALANCA VS. ULYSSIS GUIDES joined by her husband LORENZO GUIDES February 28, 2005 452 SCRA 461 FACTS: On August 23, 1983, Simplicio Palanca executed a Contract to Sell a parcel of land on installment with a certain Josefa Jopson for P11, 250.00. Jopson paid the petitioner in the amount of P1, 650 as her down payment, leaving a balance of P9, 600.00. Sometime in December 1983, Jopson assigned and transferred all her rights and interests over the property in question in favor of the respondent Ulyssis Guides. In the deed of transfer, respondent undertook to assume the balance of Jopson’s account and to pay the same in accordance with the terms and conditions of the Contract to Sell. After reimbursing Jopson P1,650.00, respondent acquired possession of the lot and paid petitioner the stipulated amortizations which were in turn acknowledged by petitioner through receipts issued in the name of respondent. Believing that she had fully paid the purchase price of the lot, respondent verified the status of the lot with the Register of Deeds, only to find out that title thereto was not in the name of the petitioner as it was covered by Transfer Certificate of Title No. 105742 issued on 26 September 1978 in the name of a certain Carissa T. de Leon. Respondent went to petitioner’s office to secure the title to the lot, but petitioner informed her that she could not as she still had unpaid accounts. Thereafter, respondent, through

a lawyer, sent a letter to petitioner demanding compliance with his obligation and the release of the title in her name. As petitioner did not heed her demands, respondent, joined by her husband, filed a Complaint for specific performance with damages. Petitioner sought the dismissal of the complaint on the ground of respondent’s alleged failure to comply with the mandatory requirement of Presidential Decree (P.D.) No. 1508. Respondent alleged that she paid petitioner P14,880.00, which not only fully settled her obligation to him, but in fact overpaid it by P3,620.00. In addition, she claimed that petitioner charged her devaluation charges and illegal interest. At the pre-trial in 1989, both parties admitted that Jopson assigned her rights over the property in favor of respondent and respondent paid petitioner the subsequent monthly amortizations on installments. Petitioner likewise acknowledged the payments made by respondent as stated in the statement of accounts initiated by its manager, Oscar Rivera. On November 1996, the trial court rendered its decision ordering the petitioner to execute in favor of the respondent a Deed of Sale. The petitioner appealed to the Court of Appeals; however, it affirmed the decision of the lower court. ISSUE: Whether or not the petitioner has a right to claim for unpaid charges as stipulated in the contract from the private respondent. RULING: The Supreme Court held that primarily preventing petitioner from recovering the amounts claimed from respondent is the effective waiver of these charges. Assuming that said charges are due, petitioner waived the same when he accepted respondent’s payments without qualification, without any specific demand for the individual charges he now seeks to recover. The same goes true for the alleged forfeiture of the down payment made by Jopson. From its own Statements of Accounts and Payments Made, petitioner credited to respondent’s account the P1,650.00 down payment paid by Jopson at the commencement of the contract. There is no indication that he informed respondent of the alleged forfeiture, much more demanded the payment again of the amount previously paid by Jopson. Art. 1235 of the Civil Code which provides that “When the obligee accepts the performance, knowing its incompleteness or irregularity, and without expressing any protest or objection, the obligation is deemed fully complied with,” is in point. Thus, when petitioner accepted respondent’s installment payments despite the alleged charges incurred by the latter, and without any showing that he protested the irregularity of such payment, nor

demanded the payment of the alleged charges, respondent’s liability, if any for said charges, is deemed fully satisfied. The petition is denied.

WHO MAY DEMAND PAYMENT 1. 2. 3.

PCIB VS. CA, 481 S 127 LAGON VS. HOOVEN COMALCO, 349 SCRA 363 BPI VS. CA, 232 SCRA 302

PCIB v. COURT OF APPEALS G.R. NO. 121989 January 31, 2006 FACTS: PCIB and MBC were joint bidders in a foreclosure sale held of assorted mining machinery and equipment previously mortgaged to them by Philippine Iron Mines. Atlas agreed to purchase some of these properties and the sale was evidenced by a Deed of Sale with a downpayment of P12,000,000 and the balance of P18,000,000 payable in 6 monthly installments. In compliance with the contract, Atlas issued HongKong and shanghai Bank check amounting to P12,000,000. Atlas paid to NAMAWU the amount of P4,298,307.77 in compliance with the writ of garnishment issued against Atlas to satisfy the judgment in favor of NAMAWU. Atlas alleged that there was overpayment, hence the suit against PCIB to obtain reimbursement. PCIB contended that Atlas still owed P908,398.75 because NAAWU had been partially paid in the amount of P601,260.00. RTC ruled against Atlas to pay P908,398.75 to PCIB. CA reversed the decision. ISSUE: Whether atlas had complied with its obligation to PCIB RULING:

While the original amount sought to be garnished was P4,298,307,77, the partial payment of P601,260 naturally reduced it to P3,697,047.77 Atlas overpaid NAMAWU, thus the remedy if Atlas would be to proceed against NAAWU nut not against PCIB in relation to article 1236 of the Civil Code The petition is partly granted.CA decision is reversed and set aside and in lieu thereof Atlas is ordered to pay PCIB the sum of P146,058.96, with the legal interest commencing from the time of first demand on August 22, 1985.

WHO MAY DEMAND PAYMENT, CREDITOR’S RIGHT OF PAYMENT (Art. 1240, CC) JOSE V. LAGON, petitioner, vs. HOOVEN COMALCO INDUSTRIES, INC., respondent

G.R. No. 135657 January 17, 2001 349 SCRA 363

FACTS: Petitioner Jose V. Lagon is a businessman and owner of a commercial building in Tacurong, Sultan Kudarat. Respondent HOOVEN on the other is a domestic corporation known to be the biggest manufacturer and installer of aluminum materials in the country with branch office at E. Quirino Avenue, Davao City. Sometime in April 1981 Lagon and HOOVEN entered into two (2) contracts, both denominated Proposal, whereby for a total consideration of P104, 870.00 HOOVEN agreed to sell and install various aluminum materials in Lagon’s commercial building in Tacurong, Sultan Kudarat. Upon execution of the contracts, Lagon paid HOOVEN P48,000.00 in advance. Lagon, in his answer, denied liability and averred that HOOVEN was the party guilty of breach of contract by failing to deliver and install some of the materials specified in the proposals; that as a consequence he was compelled to procure the undelivered materials from other sources; that as regards the materials duly delivered and installed by HOOVEN, they were fully paid. He

counterclaimed for actual, moral, exemplary, temperate and nominal damages, as well as for attorney’s fees and expenses of litigation. ISSUE: Whether or not all the materials specified in the contracts had been delivered and installed by respondent in petitioner’s commercial building in Tacurong, Sultan Kudarat. RULING: Firstly, the quantity of materials and the amounts sated in the delivery receipts do not tally with those in the invoices covering them, notwithstanding that, according to HOOVEN OIC Alberto Villanueva, the invoices were based merely on the delivery receipts. Secondly, the total value of the materials as reflected in all the invoices is P117, 329.00 while under the delivery receipts it is only P112, 870.50, or a difference of P4,458.00 Even more strange is the fact that HOOVEN instituted the present action for collection of sum of money against Lagon only on 24 February 1987, or more than five (5) years after the supposed completion of the project. Indeed, it is contrary to common experience that a creditor would take its own sweet time in collecting its credit, more so in this case when the amount involved is not miniscule but substantial. All the delivery receipts did not appear to have been signed by petitioner or his duly authorized representative acknowledging receipt of the materials listed therein. A closer examination of the receipts clearly showed that the deliveries were made to a certain Jose Rubin, claimed to be petitioner’s driver, Armando Lagon, and a certain bookkeeper. Unfortunately for HOOVEN, the identities of these persons were never been established, and there is no way of determining now whether they were indeed authorized representatives of petitioner. WHEREFORE, the assailed Decision of the Court of Appeals dated 28 April 1997 is MODIFIED. Petitioner Jose V. Lagon is ordered to pay respondent Hooven Comalco Industries, Inc., P6, 377.66 representing the value of the unpaid materials admittedly delivered to him. On the other hand, respondent is ordered to pay petitioner P50,000.00 as moral damages, P30,000.00 as attorney’s fees and P46,554.50 as actual damages and litigation expenses.

WHO MAY DEMAND PAYMENT, CREDITOR’S RIGHT OF PAYMENT (Art. 1240, CC) BANK OF THE PHILIPPINE ISLANDS VS. COURT OF APPEALS 232 SCRA302 G.R. NO. 104612 MAY 10, 1994

RULING: Yes, for both issues. Regarding the first, the Holdout Agreement conferred on CBTC the power, not the duty, to set off the loan from the account subject of the Agreement. When BPI demanded payment of the loan from Eastern, it exercised its right to collect payment based on the promissory note, and disregarded its option under the Holdout Agreement. Therefore, its demand was in the correct order.

FACTS: Private respondents Eastern Plywood Corporation and Benigno Lim as officer of the corporation, had an “AND/OR” joint account with Commercial Bank and Trust Co (CBTC), the predecessor-in-interest of petitioner Bank of the Philippine Islands. Lim withdraw funds from such account and used it to open a joint checking account (an “AND” account) with Mariano Velasco. When Velasco died in 1977, said joint checking account had P662,522.87. By virtue of an Indemnity Undertaking executed by Lim and as President and General Manager of Eastern withdrew one half of this amount and deposited it to one of the accounts of Eastern with CBTC.

Regarding the second issue, BPI was the debtor and Eastern was the creditor with respect to the joint checking account. Therefore, BPI was obliged to return the amount of the said account only to the creditor. When it allowed the withdrawal of the balance of the account by the heirs of Velasco, it made the payment to the wrong party. The law provides that payment made by the debtor to the wrong party does not extinguish its obligation to the creditor who is without fault or negligence. Therefore, BPI was still liable to the true creditor, Eastern.

Eastern obtained a loan of P73,000.00 from CBTC which was not secured. However, Eastern and CBTC executed a Holdout Agreement providing that the loan was secured by the “Holdout of the C/A No. 2310-001-42” referring to the joint checking account of Velasco and Lim.

PAYMENT – WHO MUST PAY: DEBTOR

Meanwhile, a judicial settlement of the estate of Velasco ordered the withdrawal of the balance of the account of Velasco and Lim. Asserting that the Holdout Agreement provides for the security of the loan obtained by Eastern and that it is the duty of CBTC to debit the account of respondents to set off the amount of P73,000 covered by the promissory note, BPI filed the instant petition for recovery. Private respondents Eastern and Lim, however, assert that the amount deposited in the joint account of Velasco and Lim came from Eastern and therefore rightfully belong to Eastern and/or Lim. Since the Holdout Agreement covers the loan of P73,000, then petitioner can only hold that amount against the joint checking account and must return the rest. ISSUE: Whether BPI can demand the payment of the loan despite the existence of the Holdout Agreement and whether BPI is still liable to the private respondents on the account subject of the withdrawal by the heirs of Velasco.

AUDION ELECTRIC CO., INC., VS. NATIONAL LABOR RELATIONS COMMISSION and NICOLAS MADOLID 1999 Jun 17 G.R. No. 106648 FACTS: From the position paper and affidavit corroborated by oral testimony, it appears that complainant was employed by respondent Audion Electric Company on June 30, 1976 as fabricator and continuously rendered service assigned in different offices or projects as helper electrician, stockman and timekeeper. He has rendered thirteen (13) years of continuous, loyal and dedicated service with a clean record. On August 3, complainant was surprised to receive a letter informing him that he will be considered terminated after the turnover of materials, including respondents’ tools and equipments not later than August 15, 1989. Complainant claims that he was dismissed without justifiable cause and due process and that his dismissal was done in bad faith which renders the dismissal illegal. For this reason, he claims that he is entitled to reinstatement with full backwages. He also claims that he is entitled to moral and exemplary damages. He includes payment of his overtime pay, project allowance,

minimum wage increase adjustment, proportionate 13th month pay and attorney’s fees. ISSUES: Whether or not the respondent NLRC committed grave abuse of discretion amounting to lack or excess of jurisdiction when it ruled that private respondent was a regular employee and not a project employee; Whether or not petitioner was denied due process when all the money claims of private respondent, i.e. overtime pay, project allowances, salary differential, proportionate 13th month pay, moral and exemplary damages as well as attorney’s fees, were granted. RULING: Respondent’s assigning complainant to its various projects did not make complainant a project worker. As found by the Labor Arbiter, ‘it appears that complainant was employed by respondent as fabricator and or projects as helper electrician, stockman and timekeeper.’ Simply put, complainant was a regular non-project worker. Private respondent’s employment status was established by the Certification of Employment dated April 10, 1989 issued by petitioner which certified that private respondent is a bonafide employee of the petitioner from June 30, 1976 up to the time the certification was issued on April 10, 1989. The same certificate of employment showed that private respondent’s exposure to their field of operation was as fabricator, helper/electrician, stockman/timekeeper. This proves that private respondent was regularly and continuously employed by petitioner in various job assignments from 1976 to 1989, for a total of 13 years. The alleged gap in employment service cited by petitioner does not defeat private respondent’s regular status as he was rehired for many more projects without interruption and performed functions which are vital, necessary and indispensable to the usual business of petitioner. Petitioner failed to present such employment contract for a specific project signed by private respondent that would show that his employment with the petitioner was for the duration of a particular project. Moreover, notwithstanding petitioner’s claim in its reply that in taking interest in the welfare of its workers, petitioner would strive to provide them with more continuous work by successively employing its workers, in this case, private respondent, petitioner failed to present any report of termination. Petitioner should have submitted or filed as many reports of termination as there

were construction projects actually finished, considering that private respondent had been hired since 1976. The failure of petitioner to submit reports of termination supports the claim of private respondent that he was indeed a regular employee. The Court finds no grave abuse of discretion committed by NLRC in finding that private respondent was not a project employee. Private respondent clearly specified in his affidavit the specific dates in which he was not paid overtime pay, that is, from the period March 16, 1989 to April 3, 1989 amounting to P765.63, project allowance from April 16, 1989 to July 31, 1989 in the total amount of P255.00, wage adjustment for the period from August 1, 1989 to August 14, 1989 in the amount of P256.50 and the proportionate 13th month pay for the period covering January to May 1988, November-December 1988, and from January to August 1989. This same affidavit was confirmed by private respondent in one of the scheduled hearings where he moved that he be allowed to present his evidence ex-parte for failure of petitioner or any of his representative to appear thereat. On the other hand, petitioner submitted its unverified Comment to private respondent’s complaint stating that he had already satisfied the unpaid wages and 13th month pay claimed by private respondent, but this was not considered by the Labor Arbiter for being unverified. Petitioner failed to rebut the claims of private respondent. It failed to show proof by means of payroll or other evidence to disprove the claim of private respondent. Petitioner was given the opportunity to cross-examine private respondent yet petitioner forfeited such chance when it did not attend the hearing, and failed to rebut the claims of private respondent. However, the award of moral and exemplary damages must be deleted for being devoid of legal basis. Moral and exemplary damages are recoverable only where the dismissal of an employee was attended by bad faith or fraud, or constituted an act oppressive to labor, or was done in a manner contrary to morals, good customs or public policy. The person claiming moral damages must prove the existence of bad faith by clear and convincing evidence for the law always presumes good faith. It is not enough that one merely suffered sleepless nights, mental anguish, serious anxiety as the result of the actuations of the other party. Invariably, such action must be shown to have been willfully done in bad faith or with ill-motive, and bad faith or ill motive under the law cannot be presumed but must be established with clear and convincing evidence. Private respondent predicated his claim for such damages on his own

allegations of sleepless nights and mental anguish, without establishing bad faith, fraud or ill motive as legal basis therefor.

P954,000 plus interest. There was no delay since there was no demand.

Private respondent not being entitled to award of moral damages, an award of exemplary damages is likewise baseless. Where the award of moral and exemplary damages is eliminated, so must the award for attorney’s fees be deleted. Private respondent has not shown that he is entitled thereto pursuant to Art. 2208 of the Civil Code.

ISSUE: Whether or not respondent incurred delay in performing its obligation under the contract of sale

WHEREFORE, the challenged resolutions of the respondent NLRC are hereby AFFIRMED with the MODIFICATION that the awards of moral and exemplary damages and attorney’s fees are DELETED.

RULING:

WHERE PAYMENT MUST BE MADE LORENZO SHIPPING VS. BJ MARTHEL 443 S 163

By accepting the cylinders when they were delivered to the warehouse, petitioner waived the claimed delay in the delivery of said items. Supreme Court geld that time was not of the essence. There having been no failure on the part of the respondent to perform its obligations, the power to rescind the contract is unavailing to the petitioner. Petition is denied. Court of appeals decision is affirmed.

November 19, 2004 FACTS: Petitioner Lorenzo Shipping is engaged in coastwise shipping and owns the cargo M/V Dadiangas Express. BJ Marthel is engaged in trading, marketing an dselling various industrial commodities. Lorenzo Shipping ordered for the second time cylinder lines from the respondent stating the term of payment to be 25% upon delivery, the balance payable in 5 bi-monthly equal installments, no again stating the date of the cylinder’s delivery. It was allegedly paid through post dated checks but the same was dishonored due to insufficiency of funds. Despite due demands by the respondent, petitioner falied contending that time was of the essence in the delivery of the cylinders and that there was a delay since the respondent committed said items “ within two months after receipt of fir order”. RTC held respondents bound to the quotation with respect to the term of payment, which was reversed by the Court of appeals ordering appellee to pay appellant

SPECIAL FORMS OF PAYMENT: A. DACION EN PAGO / DATION IN PAYMENT 1. 2. 3. 4.

ESTANISLAO VS. EAST-WEST BANKING CORP., 544 S 369 AQUINTEY VS. TIBONG, 511 S 414 VDA. DE JAYME VS. CA, 390 SCRA 380 CALTEX VS. IAC, NOV. 13, 1992

SPOUSES RAFAEL ESTANISLAO v. EASTWEST BANKING CORPORATION G.R. No. 178537,February 11, 2008 FACTS:

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

FACTS: On May 6, 1999, petitioner Aquintey filed before RTC Baguio, a complaint for sum of money and damages against respondents. Agrifina alleged that Felicidad secured loans from her on several occasions at monthly interest rates of 6% to 7%. Despite demands, spouses Tibong failed to pay their outstanding loans of P773,000,00 exclusive of interests. However, spouses Tiong alleged that they had executed deeds of assignment in favor of Agrifina amounting to P546,459 and that their debtors had executed promissory notes in favor of Agrifina. Spouses insisted that by virtue of these documents, Agrifina became the new collector of their debts. Agrifina was able to collect the total amount of P301,000 from Felicdad’s debtors. She tried to collect the balance of Felicidad and when the latter reneged on her promise, Agrifina filed a complaint in the office of the barangay for the collection of P773,000.00. There was no settlement. RTC favored Agrifina. Court of Appeals affirmed the decision with modification ordering defendant to pay the balance of total indebtedness in the amount of P51,341,00 plus 6% per month. ISSUE:

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

AQUINTEY v. SPOUSES TIBONG G.R. No. 166704,December 20, 2006

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

SPECIAL FORMS OF PAYMENT: DATION EN PAGO/ DATION IN PAYMENT

VDA. DE JAYME VS. CA 390 SCRA 380 2002 Oct 4 FACTS: On January 8, 1973, the spouses Graciano and Mamerta Jayme entered into a Contract of Lease with George Neri, president of Airland Motors Corporation (now Cebu Asiancars Inc.), covering one-half of Lot 2700 owned and registered to the former. The lease was for twenty (20) years. The terms and conditions of the lease contract stipulated that Cebu Asiancars Inc. may use the leased premises as a collateral to secure payment of a loan which Asiancars may obtain from any bank, provided that the proceeds of the loan shall be used solely for the construction of a building which, upon the termination of the lease or the voluntary surrender of the leased premises before the expiration of the contract, shall automatically become the property of the Jayme spouses (the lessors). In October 1977, Asiancars obtained a loan of P6,000,000 from the Metropolitan Bank and Trust Company. The entire Lot 2700 was offered as one of several properties given as collateral for the loan. As mortgagors, the spouses signed a Deed of Real Estate Mortgage dated November 21, 1977 in favor of MBTC. It stated that the deed was to secure the payment of a loan obtained by Asiancars from the bank. Meeting financial difficulties and incurring an outstanding balance on the loan, Asiancars conveyed ownership of the building on the leased premises to MBTC, by way of "dacion en pago." The building was valued at P980,000 and the amount was applied as partial payment for the loan. There still remained a balance of P2,942,449.66, which Asiancars failed to pay. Eventually, MBTC extrajudicially foreclosed the mortgage. A public auction was held on February 4, 1981. MBTC was the highest bidder for P1,067,344.35. A certificate of sale was issued and was registered with the Register of Deeds on February 23, 1981. Meanwhile, Graciano Jayme died, survived by his widow Mamerta and their children. As a result of the foreclosure, Graciano’s heirs filed a civil complaint, in January of 1982, for Annulment of Contract with Damages with Prayer for Issuance of Preliminary Injunction, against respondent Asiancars, its officers and incorporators and MBTC. Later, in 1999, Mamerta Jayme also passed away.

The trial court ruled that the REM is valid and binding upon the Jaymes. The CA affirmed with modifications. Both the trial and appellate courts found that no fraud attended the execution of the deed of mortgage. The Motion for Reconsideration was denied. ISSUE: Whether or not the dacion en pago by Asiancars in favor of MBTC is valid and binding despite the stipulation in the lease contract that ownership of the building will vest on the Jaymes at the termination of the lease. RULING: YES. The alienation of the building by Asiancars in favor of MBTC for the partial satisfaction of its indebtedness is valid. The ownership of the building had been effectively in the name of the lessee-mortgagor (Asiancars), though with the provision that said ownership be transferred to the Jaymes upon termination of the lease or the voluntary surrender of the premises. The lease was constituted on January 8, 1973 and was to expire 20 years thereafter, or on January 8, 1993. The alienation via dacion en pago was made by Asiancars to MBTC on December 18, 1980, during the subsistence of the lease. At this point, the mortgagor, Asiancars, could validly exercise rights of ownership, including the right to alienate it, as it did to MBTC. Dacion en pago is the delivery and transmission of ownership of a thing by the debtor to the creditor as an accepted equivalent of the performance of the obligation. It is a special mode of payment where the debtor offers another thing to the creditor who accepts it as equivalent of payment of an outstanding debt. The undertaking really partakes in one sense of the nature of sale, that is the creditor is really buying the thing or property of the debtor, payment for which is to be charged against the debtor’s debt. As such, the essential elements of a contract of sale, namely, consent, object certain, and cause or consideration must be present. In its modern concept, what actually takes place in dacion en pago is an objective novation of the obligation where the thing offered as an accepted equivalent of the performance of an obligation is considered as the object of the contract of sale, while the debt is considered as the purchase price. In any case, common consent is an essential prerequisite, be it sale or novation, to have the effect of totally extinguishing the debt or obligation. Private respondent MBTC is ordered to pay petitioners rentals in the total amount of P602,083.33, with six (6) percent interest per annum until fully paid.

Thus, on September 13, 1982, private respondent filed a complaint against petitioner in the Regional Trial Court of Manila, to collect the sum of P510,550.63.00. SPECIAL FORMS OF PAYMENT: DATION EN PAGO/ DATION IN PAYMENT CALTEX (PHILIPPINES), INC., petitioner, VS. The INTERMEDIATE APPELLATE COURT and ASIA PACIFIC AIRWAYS, INC., respondents November 13, 1992 G.R. No. 72703 FACTS: On January 12, 1978, private respondent Asia Pacific Airways Inc. entered into an agreement with petitioner Caltex (Philippines) Inc., whereby petitioner agreed to supply private respondent's aviation fuel requirements for two (2) years, covering the period from January 1, 1978 until December 31, 1979. Pursuant thereto, petitioner supplied private respondent's fuel supply requirements. As of June 30, 1980, private respondent had an outstanding obligation to petitioner in the total amount of P4,072,682.13, representing the unpaid price of the fuel supplied. To settle this outstanding obligation, private respondent executed a Deed of Assignment dated July 31, 1980, wherein it assigned to petitioner its receivables or refunds of Special Fund Import Payments from the National Treasury of the Philippines to be applied as payment of the amount of P4,072,683.13 which private respondent owed to petitioner. On February 12, 1981, pursuant to the Deed of Assignment, Treasury Warrant No. B04708613 in the amount of P5,475,294.00 representing the refund to respondent of Special Fund Import Payment on its fuel purchases was issued by the National Treasury in favor of petitioner. Four days later, on February 16, 1981, private respondent, having learned that the amount remitted to petitioner exceeded the amount covered by the Deed of Assignment, wrote a letter to petitioner, requesting a refund of said excess. Petitioner, acting on said request, made a refund in the amount of P900,000.00 plus in favor of private respondent. The latter, believing that it was entitled to a larger amount by way of refund, wrote petitioner anew, demanding the refund of the remaining amount. In response thereto, petitioner informed private respondent that the amount not returned (P510,550.63) represented interest and service charges at the rate of 18% per annum on the unpaid and overdue account of respondent from June 1, 1980 to July 31, 1981.

Petitioner (defendant in the trial court) filed its answer, reiterating that the amount not returned represented interest and service charges on the unpaid and overdue account at the rate of 18% per annum. It was further alleged that the collection of said interest and service charges is sanctioned by law, and is in accordance with the terms and conditions of the sale of petroleum products to respondent, which was made with the conformity of said private respondent who had accepted the validity of said interest and service charges. On November 7, 1983, the trial court rendered its decision dismissing the complaint, as well as the counterclaim filed by defendant therein. Private respondent (plaintiff) appealed to the Intermediate Appellate Court (IAC). On August 27, 1985, a decision was rendered by the said appellate court reversing the decision of the trial court, and ordering petitioner to return the amount of P510,550.63 to private respondent. ISSUE: Whether or not there is a valid dation in payment in this case. RULING: The Supreme Court ruled that the Deed of Assignment executed by the parties on July 31, 1980 is not a dation in payment and did not totally extinguish respondent's obligations as stated therein. The then Intermediate Appellate Court ruled that the three (3) requisites of dacion en pago are all present in the instant case, and concluded that the Deed of Assignment of July 31, 1980) constitutes a dacion in payment provided for in Article 1245 of the Civil Code which has the effect of extinguishing the obligation, thus supporting the claim of private respondent for the return of the amount retained by petitioner. The Supreme Court, speaking of the concept of dation in payment, in the case of Lopez vs. Court of Appeals, among others, stated: "'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."

From the above, it is clear that a dation in payment does not necessarily mean total extinguishment of the obligation. The obligation is totally extinguished only when the parties, by agreement, express or implied, or by their silence, consider the thing as equivalent to the obligation. In the instant case, the then Intermediate Appellate Court failed to take into account the express recitals of the Deed of Assignment. "That Whereas, ASSIGNOR has an outstanding obligation with ASSIGNEE in the amount of P4,072,682.13 as of June 30, 1980, plus any applicable interest on overdue account. Now therefore in consideration of the foregoing premises, ASSIGNOR by virtue of these presents, does hereby irrevocably assign and transfer unto ASSIGNEE any and all funds and/or Refund of Special Fund Payments, including all its rights and benefits accruing out of the same, that ASSIGNOR might be entitled to, by virtue of and pursuant to the decision in BOE Case No. 80-123, in payment of ASSIGNOR's outstanding obligation plus any applicable interest charges on overdue account and other avturbo fuel lifting and deliveries that ASSIGNOR may from time to time receive from the ASSIGNEE, and ASSIGNEE does hereby accepts such assignment in its favor." Hence, it could easily be seen that the Deed of Assignment speaks of three (3) obligations (1) the outstanding obligation of P4,072,682.13 as of June 30, 1980; (2) the applicable interest charges on overdue accounts; and (3) the other avturbo fuel lifting and deliveries that assignor (private respondent) may from time to time receive from assignee (Petitioner). As aptly argued by petitioner, if it were the intention of the parties to limit or fix respondent's obligation to P4,072.682.13, they should have so stated and there would have been no need for them to qualify the statement of said amount with the clause "as of June 30, 1980 plus any applicable interest charges on overdue account" and the clause "and other avturbo fuel lifting and deliveries that ASSIGNOR may from time to time receive from the ASSIGNEE". The terms of the Deed of Assignment being clear, the literal meaning of its stipulations should control. In the construction of an instrument where there are several provisions or particulars, such a construction is, if possible, to be adopted as will give effect to all. Likewise, the then Intermediate Appellate Court failed to take into consideration the subsequent acts of the parties which clearly show that they did not intend the Deed of Assignment to totally extinguish the obligation: (1) After the execution of the Deed of Assignment on July 31, 1980, petitioner continued to charge respondent with interest on its overdue account up to January 31,

1981. This was pursuant to the Deed of Assignment which provides for respondent's obligation for "applicable interest charges on overdue account". The charges for interest were made every month and not once did respondent question or take exception to the interest; and (2) In its letter of February 16, 1981, respondent addressed the following request to petitioner: In order to judge the intention of the contracting parties, their contemporaneous and subsequent acts shall be principally considered (Art. 1253, Civil Code). The foregoing subsequent acts of the parties clearly show that they did not intend the Deed of Assignment to have the effect of totally extinguishing the obligations of private respondent without payment of the applicable interest charges on the overdue account. Finally, the payment of applicable interest charges on overdue account, separate from the principal obligation of P4,072,682.13 was expressly stipulated in the Deed of Assignment. The law provides that "if the debt produces interest, payment of the principal shall not be deemed to have been made until the interests have been covered." (Art. 1253, Civil Code).

PAYMENT BY CESSION OR ASSIGNMENT

ANTONIO LO, petitioner, VS. THE HON. COURT OF APPEALS AND NATIONAL ONIONS GROWERS COOPERATIVE MARKETING ASSOCIATION, INC., respondents FACTS: At the core of the present controversy are two parcels of land measuring a total of 2,147 square meters, with an office building constructed thereon. Petitioner acquired the subject parcels of land in an auction sale on November 9, 1995 for P20,170,000 from the Land Bank of the Philippines (Land Bank). Private respondent National Onion Growers Cooperative Marketing Association, Inc., an agricultural cooperative, was the occupant of the disputed parcels of land under a subsisting contract of lease with Land Bank. The lease was valid until December 31, 1995. Upon the expiration of the lease contract, petitioner demanded that private respondent vacate the leased premises and surrender its possession to him. Private respondent refused on the ground that it was, at the

time, contesting petitioner’s acquisition of the parcels of land in question in an action for annulment of sale, redemption and damages. Petitioner filed an action for ejectment before the MTC. He asked, inter alia, for the imposition of the contractually stipulated penalty of P5,000 per day of delay in surrendering the possession of the property to him. On September 3, 1996, the trial court decided the case in favor of petitioner. On appeal to the RTC, the MTC decision was affirmed in toto. The CA rendered its assailed decision affirming the decision of the trial court, with the modification that the penalty imposed upon private respondent for the delay in turning over the leased property to petitioner was reduced from P 5,000 to P 1000 per day. ISSUE: Whether or not the Court of Appeals erred in reducing the penalty awarded by the trial court, the same having been stipulated by the parties. RULING: No. Generally, courts are not at liberty to ignore the freedom of the parties to agree on such terms and conditions as they see fit as long as they are not contrary to law, morals, good customs, public order or public policy. Nevertheless, courts may equitably reduce a stipulated penalty in the contract if it is iniquitous or unconscionable, or if the principal obligation has been partly or irregularly complied with. This power of the courts is explicitly sanctioned by Article 1229 of the Civil Code which provides:

1. 2. 3. 4.

ASI CORP., VS. EVANGELISTA, 545 S 300 PACULDO VS. REGALADO, 345 SCRA 134 CBC VS. CA, 265 SCRA 327 MOBIL VS. CA, 272 SCRA 523

ASI CORP and ANTONIO SAN JUAN EVANGELISTA

v. SPOUSES EFREN

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

Article 1229. The judge shall equitably reduce the penalty when the principal obligation has been partly or irregularly complied with by the debtor. Even if there has been no performance, the penalty may also be reduced by the courts if it is iniquitous or unconscionable.

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

The question of whether a penalty is reasonable or iniquitous is addressed to the sound discretion of the court and depends on several factors, including, but not limited to, the following: the type, extent and purpose of the penalty, the nature of the obligation, the mode of breach and its consequences, the supervening realities, the standing and relationship of the parties.

RULING:

In this case, the stipulated penalty was reduced by the appellate court for being unconscionable and iniquitous. Petition denied; CA decision affirmed. APPLICATION OF PAYMENTS

Respondents’ offer to partially satisfy their accounts is not enough to extinguish their obligation. Respondents cannot substitute or apply as their payment the value of the chicks and by-products they expect to derive because it is necessary that all the debts be paid for the same kind. The petition is partly granted. The Court of Appeals decision is modified.

subject of the lease contract. On the same day, respondent also filed a complaint for ejectment against petitioner. APPLICATION OF PAYMENTS PACULDO VS. REGALADO 345 SCRA 134 FACTS: On December 27, 1990, petitioner Nereo Paculdo and respondent Bonifacio Regalado entered into a contract of lease over a parcel of land with a wet market building, located at Fairview Park, Quezon City. The contract was for twenty five (25) years, commencing on January 1, 1991 and ending on December 27, 2015. For the first five (5) years of the contract beginning December 27, 1990, Nereo would pay a monthly rental of P450,000, payable within the first five (5) days of each month with a 2% penalty for every month of late payment. Aside from the above lease, petitioner leased eleven (11) other property from the respondent, ten (10) of which were located within the Fairview compound, while the eleventh was located along Quirino Highway Quezon City. Petitioner also purchased from respondent eight (8) units of heavy equipment and vehicles in the aggregate amount of Php 1, 020,000. On account of petitioner’s failure to pay P361, 895.55 in rental for the month of May, 1992, and the monthly rental of P450, 000.00 for the months of June and July 1992, the respondent sent two demand letters to petitioner demanding payment of the back rentals, and if no payment was made within fifteen (15) days from the receipt of the letter, it would cause the cancellation of the lease contract. Without the knowledge of petitioner, on August 3, 1992, respondent mortgaged the land subject of the lease contract, including the improvements which petitioner introduced into the land amounting to P35, 000,000.00, to Monte de Piedad Savings Bank, as a security for a loan. On August 12, 1992, and the subsequent dates thereafter, respondent refused to accept petitioner’s daily rental payments. Subsequently, petitioner filed an action for injunction and damages seeking to enjoin respondents from disturbing his possession of the property

The lower court rendered a decision in favor of the respondent, which was affirmed in toto by the Court of Appeals. ISSUE: Whether or not the petitioner was truly in arrears in the payment of rentals on the subject property at the time of the filing of the complaint for ejectment. RULING: NO, the petitioner was not in arrears in the payment of rentals on the subject property at the time of the filing of the complaint for ejectment. As found by the lower court there was a letter sent by respondent to herein petitioner, dated November 19, 1991, which states that petitioner’s security deposit for the Quirino lot, be applied as partial payment for his account under the subject lot as well as to the real estate taxes on the Quirino lot. Petitioner interposed no objection, as evidenced by his signature signifying his conformity thereto. Meanwhile, in an earlier letter, dated July 15, 1991, respondent informed petitioner that the payment was to be applied not only to petitioner’s accounts under the subject land and the Quirino lot but also to heavy equipment bought by the latter from respondent. Unlike in the November letter, the July letter did not contain the signature of petitioner. Petitioner submits that his silence is not consent but is in fact a rejection. As provided in Article 1252 of the Civil Code, the right to specify which among his various obligations to the same creditor is to be satisfied first rest with the debtor. In the case at bar, at the time petitioner made the payment, he made it clear to respondent that they were to be applied to his rental obligations on the Fairview wet market property. Though he entered into various contracts and obligations with respondent, all the payments made, about P11,000,000.00 were to be applied to rental and security deposit on the Fairview wet market property. However, respondent applied a big portion of the amount paid by petitioner to the satisfaction of an obligation which was not yet due and demandable- the payment of the eight heavy equipments.

Under the law, if the debtor did not declare at the time he made the payment to which of his debts with the creditor the payment is to be applied, the law provided the guideline; i.e. no payment is to be applied to a debt which is not yet due and the payment has to be applied first to the debt which is most onerous to the debtor. The lease over the Fairview wet market is the most onerous to the petitioner in the case at bar. Consequently, the petition is granted.

APPLICATION OF PAYMENTS CHINA BANKING CORPORATION, ATTYS. REYNALDO M. CABUSORA and RENATO C. TAGUIAM, petitioners, VS. COURT OF APPEALS, HON. PEDRO T. SANTIAGO, SPS. SO CHING and CRISTINA SO, and NATIVE WEST INTERNATIONAL TRADING CORP., respondents 1996 December 05 G.R. No. 121158

Eight days before the foreclosure sale, however, private respondents filed a complaint with the Regional Trial Court for accounting with damages and with temporary restraining order against petitioners alleging several grounds, including Violation of Article 1308 of the Civil Code. On April 7, 1993, the trial court issued a temporary restraining order to enjoin the foreclosure sale. Petitioners moved for reconsideration, but it was denied in an Order dated September 23, 1993. To annul the trial court's Orders of April 28, 1993 and September 23, 1993, petitioners elevated the case through certiorari and prohibition before public respondent Court of Appeals. In a decision dated January 17, 1995, respondent Court of Appeals held that Administrative Circular No. 3 is the governing rule in extra-judicial foreclosure of mortgage, which circular petitioners however failed to follow, and with respect to the publication of the notice of the auction sale, the provisions of P.D. No. 1079 is the applicable statute, which decree petitioners similarly failed to obey. Respondent Court of Appeals did not pass upon the other issues and confined its additional lengthy discussion on the validity of the trial court's issuance of the preliminary injunction, finding the same neither capricious nor whimsical exercise of judgment that could amount to grave abuse of discretion. The Court of Appeals accordingly dismissed the petition, as well as petitioners' subsequent motion for reconsideration. Hence, the instant petition under Rule 45 of the Rules of Court reiterating the grounds raised before respondent court. ISSUE: Whether or not there was a correct application of payment in this case.

FACTS: China Banking Corporation (China Bank) extended several loans to Native West International Trading Corporation (Native West) and to So Ching, Native West's president. Native West in turn executed promissory notes in favor of China Bank. So Ching, with the marital consent of his wife, Cristina So, additionally executed two mortgages over their properties, viz., a real estate mortgage executed on July 27, 1989 covering a parcel of land situated in Cubao, Quezon City, under TCT No. 277797, and another executed on August 10, 1989 covering a parcel of land located in Mandaluyong, under TCT No. 5363. The promissory notes matured and despite due demands by China Bank neither private respondents Native West nor So Ching paid. Pursuant to a provision embodied in the two mortgage contracts, China Bank filed petitions for the extra-judicial foreclosure of the mortgaged properties before Notary Public Atty. Renato E. Taguiam for TCT No. 277797, and Notary Public Atty. Reynaldo M. Cabusora for TCT No. 5363, copies of which were given to the spouses So Ching and Cristina So. After due notice and publication, the notaries public scheduled the foreclosure sale of the spouses' real estate properties on April 13, 1993.

RULING: An important task in contract interpretation is the ascertainment of the intention of the contracting parties which is accomplished by looking at the words they used to project that intention in their contract, i.e., all the words, not just a particular word or two, and words in context, not words standing alone. Indeed, Article 1374 of the Civil Code, states “the various stipulations of a contract shall be interpreted together, attributing to the doubtful ones that sense which may result from all of them taken jointly." Applying the rule, we find that the parties intent is to constitute the real estate properties as continuing securities liable for future obligations beyond the amounts of P6.5 million and P3.5 million respectively stipulated in the July 27, 1989 and August 10, 1989 mortgage contracts. Thus, while the "whereas" clause initially provides that "the mortgagee has granted, and may from time to time hereafter grant to the mortgagors . . . credit facilities not exceeding six million five hundred thousand pesos only (P6,500,000.00)" yet in the same clause it provides that "the mortgagee had required the mortgagor(s) to give collateral security for the

payment of any and all obligations heretofore contracted/incurred and which may thereafter be contracted/incurred by the mortgagor(s) and/or debtor(s), or any one of them, in favor of the mortgagee" which qualifies the initial part and shows that the collaterals or real estate properties serve as securities for future obligations. The first paragraph which ends with the clause, "the idea being to make this deed a comprehensive and all embracing security that it is" supports this qualification. Similarly, the second paragraph provides that "the mortgagee may take further advances and all sums whatsoever advanced by the mortgagee shall be secured by this mortgagee . . ." And although it was stated that "[t]he said credit shall extend to any account which shall, within the said limit of P6,500,000.00 exclusive of interest", this part of the second sentence is again qualified by its succeeding portion which provides that "this mortgage shall stand as security for all indebtedness of the mortgagor(s) and/or debtor(s), or any one of them, at any and all times outstanding . . ." Again, under the third paragraph, it is provided that "the mortgagee may from time to time grant the mortgagor(s)/debtor(s) credit facilities exceeding the amount secured by this mortgage . . ." The fourth paragraph, in addition, states that ". . . all such withdrawals, and payments, whether evidenced by promissory notes or otherwise, shall be secured by this mortgage" which manifestly shows that the parties principally intended to constitute the real estate properties as continuing securities for additional advancements which the mortgagee may, upon application, extend. It is well settled that mortgages given to secure future advancements or loans are valid and legal contracts, and that the amounts named as consideration in said contracts do not limit the amount for which the mortgage may stand as security if from the four corners of the instrument the intent to secure future and other indebtedness can be gathered. The allegations stated are a clear admission that they were unable to settle to the fullest their obligation. Foreclosure is valid where the debtors, as in this case, are in default in the payment of their obligation. The essence of a contract of mortgage indebtedness is that a property has been identified or set apart from the mass of the property of the debtor-mortgagor as security for the payment of money or the fulfillment of an obligation to answer the amount of indebtedness, in case of default of payment. It is a settled rule that in a real estate mortgage when the obligation is not paid when due, the mortgagee has the right to foreclose the mortgage and to have the property seized and sold in view of applying the proceeds to the payment of the obligation. In fact, aside from the mortgage contracts, the promissory notes executed to evidence the loans also authorize the mortgagee to foreclose on the mortgages. Thus: . . . CHINA BANKING CORPORATION is hereby authorized to sell at public or private

sales such securities or things of value for the purpose of applying their proceeds to such payments. And while private respondents aver that they have already paid ten million pesos, an allegation which has still to be settled before the trial court, the same cannot be utilized as a shield to enjoin the foreclosure sale. A mortgage given to secure advancements, is a continuing security and is not discharged by repayment of the amount named in the mortgage, until the full amount of the advancements are paid.

APPLICATION OF PAYMENTS MOBIL OIL PHILIPPINES, INC., and CALTEX (PHILS.), INC., petitioners VS. HON. COURT OF APPEALS and CONTINENTAL CEMENT CORPORATION, respondents G.R. No. 103052 23 May 2003 FACTS: The petition for review on certiorari in the case at bar seeks the reversal of the decision of the Court of Appeals, affirming that 2 of the Regional Trial Court (RTC), Branch 101, of Quezon City, which found herein petitioners Mobil Oil Philippines, Inc., and Caltex Philippines, Inc., jointly and severally liable to private respondent Continental Cement Corporation in the amount of eight million pesos (P8,000,000.00) for actual damages, plus ten percent (10%) thereof by way of attorney’s fees, for having delivered water-contaminated bunker fuel oil to the serious prejudice and damage of the cement firm. Sometime in May 1982, petitioner Mobil Oil Philippines, Inc. (MOPI), a firm engaged in the marketing of petroleum products to industrial users, entered into a supply agreement with private respondent Continental Cement Corporation (CCC), a cement producer, under which the former would supply the latter’s industrial fuel oil (IFO) or bunker fuel oil (BFO) requirements. MOPI extended to CCC an unsecured credit line of P2,000,000.00 against which CCC’s purchases of oil could initially be charged.

MOPI had a “hauling contract” with Century Freight Services (CFS) whereby CFS undertook the delivery of Mobil products to designated consignees of MOPI. During the period starting from 12 July to 07 October 1982, MOPI made a total of sixty-seven deliveries of BFO, each delivery consisting of 20,000 liters, to CCC’s cement factory in Norzagaray, Bulacan. On 08 October 1982, CCC discovered that what should have been MOPI’s 20,000 BFO delivery to CCC’s Norzagaray plant, through CFS’s lorry truck, was, in fact, pure water. CCC at once informed MOPI of this anomaly and of its intention to meanwhile hold in abeyance all payments due to MOPI on its previous deliveries until such time as the parties would have ascertained that those deliveries were not themselves adulterated. CCC suggested that MOPI’s storage tank in the Norzagaray plant be likewise investigated for possible contamination. Alleging in the complaint it ultimately filed with the RTC that its factory equipment broke down from 19 to 22 September 1982 due to the utilization of the water-contaminated BFO supplied by MOPI; that on 23 September 1982, its plant operations had to be stopped completely; and that it was able to resume operations only after essential repairs had been undertaken on 02 October 1982; CCC sought to recover consequential damages from MOPI. In answer, MOPI averred that CCC had accepted each delivery of BFO in accordance with the procedure for testing and acceptance of BFO deliveries; that it was only on 08 October 1982 that CCC brought to its attention the alleged anomalous delivery of 20,000 liters of BFO under invoice No. 47587 through Mariano Rivera’s lorry truck; that when the delivery was being inspected by CCC’s representatives, the truck driver and helper fled; that Rivera acknowledged full liability for such delivery; that Rivera promised to pay the amount of P42,730.00 for the 20,000 liters of BFO delivered; and that MOPI agreed to the water draining activity solely for the purpose of maintaining good business relations with CCC but not to admit any liability therefore. In its compulsory counterclaim, MOPI claimed that CCC had an outstanding obligation to it, as of 30 November 1982, in the amount of P1,096,238.51, and that as a consequence of the “frivolous and malicious suit: which besmirched MOPI’s reputation, it suffered moral damages of not less than P10,000,000.00, exemplary damages of the same amount, and the incurrence of attorney’s fees. ISSUES: Whether or not Petitioner Mobil is stopped from claiming that no Mobil BFO remained unused by Continental on 22 October 1982; and that the deliveries of BFO made by Mobil to Continental before 8 October 1982 were not contaminated with water.

Whether or not Petitioners can be held liable for the contaminated BFO delivered on 8 October 1982 on the ground that Country Freight Service, as carrier-hauler, was an agent of Mobil. RULING: The claim that the Court of Appeals “conveniently made an inference that the subject Continental storage tank contained Mobil BFO deliveries only because Mobil and Continental agreed to jointly examine the same, “and that the appellate court had so misapprehended the facts, is unacceptable. The factual finding that deliveries previous to 08 October 1982 were adulterated BFO was supported by the 22 October 1982 “joint undertaking.” This document, witnessed and signed by representatives of both MOPUI and CCC, clearly showed that a “detailed verification of water contained on all BFO delivered by MOBIL OIL PHILS., INC., except those that have already been used in cement operation by CCC,: was undertaken. Implicit from this statement was that there still was at the time an availability of BFO in the storage tank designated by CCC for past Mobil deliveries. The same could be said of the second water draining process, evidence by the second “joint undertaking.” Although done without the participation of MOPI, the latter, nonetheless, was notified of the “counting” thrice, the last of which had indicated that failure on MOPI’s part to send a representative would be tantamount to a waiver of its right to participate therein. The appellate court may not thus be faulted for holding that petitioners and barred from questioning the results of water draining processes conducted on the MOPI tank in the CCC plant site, in the same manner that MOPI may not belatedly question the testing procedure theretofore adopted. MOPI cannot be allowed to turn its back to its own acts (or inactions) to the prejudice of CCC, which, in good faith, relied upon MOPI’s conduct. CFS was the contractor of MOPI, not CCC, and the contracted price of the BFO that CCC paid to MOPI included hauling charges. The presumption laid down under Article 1523 of the Civil Code that delivery to the carrier should be deemed to be delivery to the buyer would have no application where, such as in this case, the sale itself specifically called for delivery by the seller to the buyer at the latter’s place of business. WHEREFORE, the herein questioned decision of the Court of Appeals in AFFIRMED in toto. Costs against petitioners.

TENDER OF PAYMENT OR CONSIGNATION

RULING:

1. 2. 3. 4. 5. 6.

In the instant case, records show that Lawilao filed the petition for consignation against the bank in Civil Case without notifying the Benos. Hence, Lawilao failed to prove their offer to pay the balance, even before the filing of the consignation case. Lawilao never notified the Benos. Thus, as far as the Benos are concerned, there was no full and complete payment of the contract price which gives them the right to rescind. Petition is granted. Court of Appeals decision is reversed and set aside, that the Pacto de Retro Sale is rescinded and petitioner are ordered to return the amount of P150,000 to respondents.

BENOS VS. LAWILAO, 509 S 549 PEOPLE’S INDUSTRIAL VS. CA, OCT. 24, 1997 ETERNAL GARDENS VS. CS, DEC. 9, 1997 RAYOS VS. REYES, 398 SCRA 24 CEBU INTERNATIONAL VS. CA, 316 SCRA 488 DE MESA VS. CA, OCT. 19, 1999

SPOUSES JAIME BENOS v. SPOUSES GREGORIO LAWILAO G.R. No. 172259, December 5, 2006 FACTS: On February 11,1999, petitioner-spouses Benos and respondent Lawilao executed a Pacto de Retro Sale where Benos sold their lot and the building erected thereon for P300,000, onehalf of which to be paid in cash to the Benos and the other half to be paid to the bank to pay off the loans of the Benos which was secured by the same lot and building. Under the contract, Benos could redeem the property within 18 months from the date of execution by returning the contract price, otherwise, the sale would become irrevocable. After paying the P150,000, Lawilao took possession of the property, restructured it twicw, eventually the loan become due and demandable. On August 14, 2000, a son of Benos and Lawilao paid the bankl but the bank refused. Lawilao filed for consignation against the bank and deposited the amount of P159,000.00. RTC declared Lawilao of the ownership of the subject property, which was affirmed by the Court of Appeals. ISSUE: Whether or not the contract of Pacto de Retro Sale be rescinded by the petitioner

TENDER OF PAYMENT OR CONSIGNATION PEOPLE'S INDUSTRIAL AND COMMERCIAL CORPORATION, petitioner VS. COURT OF APPEALS and MAR-ICK INVESTMENT CORPORATION, respondents. Oct 24, 1997 G.R. No. 112733 FACTS: Private respondent Mar-ick Investment Corporation is the exclusive and registered owner of Mar-ick Subdivision in Barrio Buli, Cainta, Rizal. On May 29, 1961, private respondent entered into six agreements with petitioner People's Industrial and Commercial Corporation sell to petitioner six subdivision lots. Five of the agreements, involving similarly stipulate that the petitioner agreed to pay private respondent for each lot, the amount of P7,333.20 with a down payment of P480.00. The balance of P6,853.20 shall be payable in 120 equal monthly installments of P57.11 every 30th of the month, for a period of ten years. With respect to Lot No. 8, the parties agreed to the purchase price of P7,730.00 with a down payment of P506.00 and equal monthly installments of P60.20. After ten years, however, petitioner still had not fully paid for the six lots; it had paid only the down payment and eight installments, even after private

respondent had given petitioner a grace period of four months to pay the arrears. As of May 1, 1980, the total amount due to private respondent under the contract was P214,418.00. In his letter of March 30, 1980 to Mr. Tomas Siatianum, who signed the agreements for petitioner, private respondent's counsel protested petitioner's encroachment upon a portion of its subdivision. It added that petitioner had failed to abide by its promise to remove the encroachment, or to purchase the lots involved "at the current price or pay the rentals on the basis of the total area occupied, all within a short period of time." It also demanded the removal of the illegal constructions on the property that had prejudiced the subdivision and its neighbors. After a series of negotiations between the parties, they agreed to enter into a new contract to sell 8 involving seven lots. The contract stipulates that the previous contracts involving the same lots "have been cancelled due to the failure of the purchaser to pay the stipulated installments." It states further that the new contract was entered into "to avoid litigation, considering that the purchaser has already made use of the premises since 1981 to the present without paying the stipulated installments." The parties agreed that the contract price would be P423,250.00 with a down payment of P42,325.00 payable upon the signing of the contract and the balance of P380,925.00 payable in forty-eight equal monthly amortization payments of P7,935.94. The new contract bears the date of October 11, 1983 but neither of the parties signed it. Thereafter, Tomas Siatianum issued the checks in the total amount of P37,642.72 to private respondent. Private respondent received but did not encash those checks. Instead filed in the trial court a complaint for accion publiciana de posesion against petitioner and Tomas Siatianum, as president and majority stockholder of petitioner. The lower court rendered a decision finding that the original agreements of the parties were validly cancelled in accordance with provision No. 9 of each agreement. The parties did not enter into a new they did not sign the draft contract. Receipt by private respondent of the five checks could not amount to perfection of the contract because private respondent never encashed and benefited from those checks, they represented the deposit under the new contract because petitioner failed to prove that those were monthly installments that private respondent refused to accept. Thus, the fact that the parties tried to negotiate a new Contract indicated that they considered the first contract as "already cancelled." This decision was affirmed by the Court of Appeals.

ISSUE: Whether there was a tender of payment and consignation in the case. RULING: The parties' failure to agree on a fundamental provision of the contract was aggravated by petitioner's failure to deposit the installments agreed upon. Neither did it attempt to make a consignation of the installments. As held in the Adelfa Properties case: "The mere sending of a letter by the vendee expressing the intention to pay, without the accompanying payment, is not considered a valid tender of payment. Besides, a mere tender of payment is not sufficient to compel private respondents to deliver the property and execute the deed of absolute sale. It is consignation which is essential in order to extinguish petitioner's obligation to pay the balance of the purchase price. The rule is different in case of an option contract or in legal redemption or in a sale with right to repurchase, wherein consignation is not necessary because these cases involve an exercise of a right or privilege (to buy, redeem or repurchase) rather than the discharge of an obligation, hence tender of payment would be sufficient to preserve the right or privilege. This is because the provisions on consignation are not applicable when there is no obligation to pay. A contract to sell, as in the case before us, involves the performance of an obligation, not merely the exercise of a privilege or a right. Consequently, performance or payment may be effected not by tender of payment alone but by both tender and consignation." In the case, petitioner did not lift a finger towards the performance of the contract other than the tender of down payment. There is no record that it even bothered to tender payment of the installments or to amend the contract to reflect the true intention of the parties as regards the number of lots to be sold. Indeed, by petitioner's inaction, private respondent may not be judicially enjoined to validate a contract that the former appeared to have taken for granted. As in the earlier agreements, petitioner ignored opportunities to resuscitate a contract to sell that were rendered moribund and inoperative by its inaction. Petition denied. Decision affirmed. TENDER OF PAYMENT OR CONSIGNATION ETERNAL GARDENS MEMORIAL PARK CORPORATION

VS. COURT OF APPEALS and NORTH PHILIPPINE UNION MISSION OF THE SEVENTH DAY ADVENTIST 1997 Dec 9 G.R. No. 124554 FACTS: Petitioner EGMPC and private respondent NPUM entered into a Land Development Agreement dated October 6, 1976. Under the agreement, EGMPC was to develop a parcel of land owned by NPUM into a memorial park subdivided into lots. The parties further agreed that EGMPC had the obligation to remit monthly to NPUM forty percent (40%) of its net gross collection from the development of a memorial park on property owned by NPUM. It also provides for the designation of a depository/trustee bank to act as the depository/trustee for all funds collected by EGMPC. Later, two claimants of the parcel of land surfaced Maysilo Estate and the heirs of a certain Vicente Singson Encarnacion. EGMPC thus filed an action for interpleader against Maysilo Estate and NPUM. The Singson heirs in turn filed an action for quieting of title against EGMPC and NPUM. From these two cases, several proceedings ensued. One such case, from the interpleader action, EGMPC assailed the appellate court's resolution requiring "petitioner Eternal Gardens [to] deposit whatever amounts are due from it under the Land Development Agreement with a reputable bank to be designated by the respondent court." The trial court dismissed the cases and the appellate court affirmed insofar as it dismissed the claims of the intervenors, including the Maysilo Estate, and the titles of NPUM to the subject parcel of land were declared valid; and the trial court's decision favor of the Singson heirs was reversed and set aside. Through the resolution issued by the Supreme Court resolution, the Court of Appeals proceeded with the disposition of the case and required the parties to appear at a scheduled hearing on June 16, 1994, "with counsel and accountants, as well as books of accounts and related records,' to determine the remaining accrued rights and liabilities of said parties." The accounting of the parties' respective obligations was referred to the Court's Accountant, Mrs. Carmencita Angelo, with the concurrence of the parties, to whom the documents were to be submitted. NPUM prepared and submitted a Summary of Sales and Total Amounts Due based on the following documents it likewise submitted to the court. However, EGMPC did not submit any document whatsoever to aid the appellate court in its mandated task. Thus, the appellate

court declared that EGMPC has waived its right to present the records and documents necessarily for accounting, and that it will now proceed "to the mutual accounting required to determine the remaining accrued rights and liabilities of the said parties…and that the Court will proceed to do what it is required to do on the basis of the documents submitted by the NPUMC. Ms. Angelo submitted her Report dated January 31, 1995, to which the appellate court required the parties to comment on. EGMPC took exception to the appellate court's having considered it to have waived its right to present documents. Considering EGMPC's arguments, the court set a hearing date where NPUM would present its documents "according to the Rules [of Court], and giving the private respondent [EGMPC] the opportunity to object thereto." ISSUE: Whether or not EGMPC is liable for interest because there was still the unresolved issue of ownership over the property subject of the Land Development Agreement of October 6, 1976. RULING: The Supreme Court held that the argument is without merit. EGMPC under the agreement had the obligation to remit monthly to NPUM forty percent (40%) of its net gross collection from the development of a memorial park on property owned by NPUM. It also provides for the designation of a depository/trustee bank to act as the depository/trustee for all funds collected by EGMPC. There was no obstacle, legal or otherwise, to the compliance by EGMPC of this provision in the contract, even on the affectation that it did not know to whom payment was to be made. Even disregarding the agreement, EGMPC cannot "suspend" payment on the pretext that it did not know who among the subject property's claimants was the rightful owner. It had a remedy under the New Civil Code of the Philippines to give in consignation the amounts due, as these fell due. Consignation produces the effect of payment. The rationale for consignation is to avoid the performance of an obligation becoming more onerous to the debtor by reason of causes not imputable to him. For its failure to consign the amounts due, EGMPC’s obligation to NPUM necessarily became more onerous as it became liable for interest on the amounts it failed to remit. Thus, the Court of Appeals correctly held Eternal Gardens liable for interest at the rate of twelve percent (12%). The withholding of the amounts due under the agreement was tantamount to a forbearance of money.

TENDER OF PAYMENT OR CONSIGNATION SPOUSES TEOFILO and SIMEONA RAYOS, and GEORGE RAYOS VS. DONATO REYES, SATURNINO REYES, TOMASA R. BUSTAMANTE and TORIBIA R. CAMELO G.R. No. 150913 February 20, 2003 398 SCRA 25 FACTS: At stake in this petition for review is the ownership of 3 parcels of unregistered land with an area of approximately 130,947 square meters situated in Brgy. Sapa, Burgos, Pangasinan, the identities of which are not disputed. The 3 parcels were formerly owned by the spouses Francisco and Asuncion Tazal who on 1 September 1957 sold them for P724.00 to respondents’ predecessor-in-interest, one Mamerto Reyes, with right to repurchase within 2 years from date thereof by paying to the vendee the purchase price and all expenses incident to their reconveyance. After the sale the vendee a retro took physical possession of the properties and paid the taxes thereon. The otherwise inconsequential sale became controversial when 2 of the 3 parcels were again sold on 24 December 1958 by Francisco Tazal for P420.00 in favor of petitioners’ predecessor-in-interest Blas Rayos without first availing of his right to repurchase the properties. In the meantime, on 1 September 1959 the conventional right of redemption in favor of spouses Francisco and Asuncion Tazal expired without the right being exercised by either the Tazal spouses or the vendee Blas Rayos. After the expiration of the redemption period, Francisco Tazal attempted to repurchase the properties from Mamerto Reyes by asserting that the 1 September 1957 deed of sale with right of repurchase was actually an equitable mortgage and offering the amount of P724.00 to pay for the alleged debt. But Mamerto Reyes refused the tender of payment and vigorously claimed that their agreement was not an equitable mortgage. On 9 May 1960 Francisco Tazal filed a complaint with the Court of First Instance of Pangasinan against Mamerto Reyes for the declaration of the 1

September 1957 transaction as a contract of equitable mortgage. He also prayed for an order requiring defendant Mamerto Reyes to accept the amount of P724.00 which he had deposited on 31 May 1960 with the trial court as full payment for his debt, and canceling the supposed mortgage on the 3 parcels of land with the execution of the corresponding documents of reconveyance in his favor. Defendant denied plaintiff’s allegations and maintained that their contract was a sale with right of repurchase that had long expired. On 22 June 1961 Francisco Tazal again sold the third parcel of land previously purchased by Mamerto Reyes to petitioner-spouses Teofilo and Simeona Rayos for P400.00. On 1 July 1961 petitioner-spouses bought from Blas Rayos for P400.00 the 2 lots that Tazal had sold at the first instance to Mamerto Reyes and thereafter to Blas Rayos. Curiously, these contracts of sale in favor of petitioner-spouses were perfected while the aforementioned case was pending before the trial court. ISSUE: Whether or not the consignation made by the petitioners is valid. RULING: In order that consignation may be effective the debtor must show that (a) there was a debt due; (b) the consignation of the obligation had been made because the creditor to whom a valid tender of payment was made refused to accept it; (c) previous notice of the consignation had been given to the person interested in the performance of the obligation; (d) the amount due was placed at the disposal of the court; and, (e) after the consignation had been made the person interested was notified thereof. In the instant case, petitioners failed, first, to offer a valid and unconditional tender of payment; second, to notify respondents of the intention to deposit the amount with the court; and third, to show the acceptance by the creditor of the amount deposited as full settlement of the obligation, or in the alternative, a declaration by the court of the validity of the consignation. The failure of petitioners to comply with any of these requirements rendered the consignation ineffective. Mamerto Reyes was therefore within his right to refuse the tender of payment offered by petitioners because it was conditional upon his waiver of the two (2)-year redemption period stipulated in the deed of sale with right to repurchase. Wherefore, the petition for review is denied.

TENDER OF PAYMENT OR CONSIGNATION CEBU INTERNATIONAL FINANCE CORPORATION VS. COURT of APPEALS G. R. No. 123031. October 12, 1999 316 SCRA 488 FACTS: Cebu International Finance Corporation (CIFC) is a quasi-banking institution engaged in money market operations. On April 25, 1991, private respondent Vicente Alegre invested with CIFC P500, 000.00 in cash. Petitioner issued a promissory note to mature on May 27, 1991. The note for P516, 238. 67 covered private respondent’s placement plus interest at 20.5% for 32 days. On May 27, 1991, CIFC issued BPI Check No. 513397 for P514, 390.94 in favor of the private respondent as proceeds of his mature investment plus interest. The check was drawn from petitioner’s current account maintained with Bank of the Philippine Islands (BPI) main branch at Makati City. On June 17, 1991, private respondent’s wife deposited the check with Rizal Commercial Banking Corp. (RCBC) in Puerto Princesa, Palawan. BPI dishonored the check, that the check is subject of an investigation. BPI took custody of the check pending an investigation of several counterfeit checks drawn against CIFC’s checking account. BPI used the check to trace the perpetrators of the forgery. Immediately, private respondent notified CIFC of the dishonored check and demanded that he be paid in cash. CIFC denied the request and instead instructed private respondent to wait for its ongoing bank reconciliation with BPI. Private respondent made a formal demand of his money market placement. In turn, CIFC promised to replace the check but required an impossible condition that the original check must first be surrendered. On February 25, 1992, Alegre filed a complaint for recovery of sum of money against petitioner. On July 13, 1992, CIFC sought to recover its lost funds and formally filed against BPI a separate civil action for collection of a sum of money with RTC- Makati Branch. It alleged that BPI unlawfully deducted from CIFC’s checking account, counterfeit checks amounting to P1, 724, 364. 58. The action included the prayer to collect the amount of the check paid to Alegre but dishonored by BPI. CIFC in its response to Alegre’s complaint filed for leaver of court and impleaded BPI to enforce a right, for contribution and indemnity. The court granted CIFC’s motion but upon the motion to dismiss the third-party complaint filed by BPI, the court dismissed the third-party complaint. During the

hearing, BPI through its Manager, testified that on July 16, 1993, BPI encashed and deducted the said amount from the account of CIFC, but the proceeds, as well as the check remained in BPI’s custody. This was alleged in accordance with the Compromise Agreement it entered with CIFC to end the litigation in RTCMakati Branch. On July 27, 1993, BPI filed a separate collection suit against Alegre, alleging that he had connived with other persons to forge several checks of BPI’s client, amounting to P1, 724, 364.58. On September 27, 1993, RTCMakati Branch rendered its judgment in favor of private respondent. CIFC appealed from the said decision, but the appellate court affirmed in toto the decision of the lower court. ISSUE: Whether or not the petitioner is still liable for the payment of check even though BPI accepted the instrument RULING: The Supreme Court held that the money market transaction between the petitioner and private respondent is in the nature of loan. In a loan transaction, the obligation to pay a sum certain in money may be paid in money, which is the legal tender or, by the use of a check. A check is not a legal tender, and therefore cannot constitute valid tender of payment. In effect, CIFC has not yet tendered a valid payment of its obligation to the private respondent. 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. Tender of payment cannot be presumed by a mere inference from surrounding circumstances. Hence, CIFC is still liable for the payment of the check. Wherefore, the assailed decision is affirmed and the petition is denied. TENDER OF PAYMENT OR CONSIGNATION DOLORES LIGAYA DE MESA, petitioner, vs. THE COURT OF APPEALS, OSSA HOUSE, INC. AND DEVELOPMENT BANK OF THE PHILIPPINES,respondents G.R. No. 106467-68 October 19, 1999 FACTS: Petitioner Dolores Ligaya de Mesa owns several parcels of land in Makati,

Pasay City, Cavite, and General Santos City which were mortgaged to the Development Bank of the Philippines (DBP) as security for a loan she obtained from the bank. Failing to pay her mortgage debt, all her mortgaged properties were foreclosed and sold at public auction held on different days. On April 30, 1977, the Makar property was sold and the corresponding certificate of sale inscribed on March 10, 1978. On August 25, 1977, the Naic, Cavite property was sold and the certificate of sale registered on the same day. On August 30, 1977, the two (2) parcels of land in Makati were sold at public auction and the certificate of sale was inscribed on November 25, 1977. And on January 12, 1978, the three (3) parcels of land in Pasay City were also sold and the certificate of sale was recorded on the same date. In all the said auction sales, DBP was the winning bidder. On October 23, 1978, Mrs. de Mesa, under a “Deed of Sale with Assumption of Mortgage,” sold the foreclosed properties to private respondent OSSA under the condition that the latter was to assume the payment of the mortgage debt by the repurchase of all the properties mortgaged on installment basis, with an initial payment of P90,000.00 representing 20% of the total obligation. On March 11, 1981, petitioner de Mesa notified private respondent OSSA that she was rescinding the Deed of Sale with Assumption of Mortgage she executed in favor of the latter on the ground that OSSA failed to comply with the terms and conditions of their agreement, particularly the payment of installments to the Development Bank of the Philippines, the discharge and cancellation of the mortgage on the property listed in item IV of the first whereas clause, and the payment of the balance of more or less P45,000.00 to petitioner, representing the difference between the purchase price of subject properties and the actual obligation to the DBP. On August 5, 1981, DBP refused to accept the 9th quarterly installment paid by OSSA, prompting the latter to file against DBP and the petitioner, on August 11, 1981, Civil Case No. 42381 for specific performance and consignation, with the then Court of First Instance of Pasig, Rizal, depositing in said case the amount of P15,824.92. After trial, the lower court came out with a Decision for the private respondent OSSA. The petitioner appealed to the Court of Appeals which handed down on March 31, 1992, its decision modifying the challenged decision. ISSUE: Whether or not the Court erred in ruling that the mandatory requirements of the Civil Code on consignation can be waived by the trial court or whether or not the requirements of Articles 1256 to 1261 can be 'relaxed' or 'substantially complied with'.

RULING: Petitioner argues that there was no notice to her regarding OSSA's consignation of the amounts corresponding to the 12th up to the 20th quarterly installments. The records, however, show that several tenders of payment were consistently turned down by the petitioner, so much so that the respondent OSSA found it pointless to keep on making formal tenders of payment and serving notices of consignation to petitioner. Moreover, in a motion dated May 7, 1987, OSSA prayed before the lower court that it be allowed to deposit by way of consignation all the quarterly installments, without making formal tenders of payment and serving notice of consignation, which prayer was granted by the trial court in the Order dated July 3, 1982. The motion and the subsequent court order served on the petitioner in the consignation proceedings sufficiently served as notice to petitioner of OSSA's willingness to pay the quarterly installments and the consignation of such payments with the court. For reasons of equity, the procedural requirements of consignation are deemed substantially complied with in the present case.

Petitioner also insists that there was no valid tender of payment because the amount tendered was P34,363.08, not P51,243.26, and assuming ex gratia argumenti that it was the correct amount, the tender thereof was still not valid, the same having been made by check. This claim, however, does not accord with the records on hand. Thus, the Court of Appeals ratiocinated: "The 'Deed of Sale with Assumption of Mortgage', was for a consideration of P500,000.00, from which shall be deducted de Mesas's outstanding obligation, with the DBP pegged as of May 10, 1978, by the parties themselves, at P455,636.92. This amount of P455,636.92 owing DBP, is what OSSA agreed to assume. What remained to be paid de Mesa was P44,636.08, but OSSA made an advance payment of P10,000.00, hence the remaining amount payable to de Mesa is P34,363.08, which OSSA tendered in cash. It is thus beyond cavil that the respondent OSSA tendered the correct amount, the tender of which was in cash and not by check, as theorized by petitioner. The Court of Appeals erred not in affirming the decision of the trial court of origin.

The petition is DENIED and the assailed Decision of the Court of Appeals in CA-G.R. Nos. 19145 and 19156 dated March 31, 1992 AFFIRMED.

LOSS OF THE PRESTATION: KINDS OF LOSS 1. 2.

OCCENA VS. CA, OCT. 29, 1976 ORTIGAS VS. FEATI BANK, 94 SCRA 533

OCCENA VS. JABSON, COURT OF APPEALS AND TROPICAL HOMES, INC 73 SCRA 637 NO. L-44349, OCTOBER 29, 1976

FACTS: Private respondent Tropical Homes, Inc had a subdivision contract with petitioners who are the owners of the land subject of subdivision development by private respondent. The contract stipulated that the petitioners’ fixed and sole share and participation is the land which is equivalent to forty percent of all cash receipts from the sale of the subdivision lots. When the development costs increased to such level not anticipated during the signing of the contract and which threatened the financial viability of the project as assessed by the private respondent, respondent filed at the lower court a complaint for the modification of the terms and conditions of the contract by fixing the proper shares that should pertain to the parties therein out of the gross proceeds from the sales of the subdivision lots. Petitioners moved for the dismissal of the complaint for lack of cause of action. The lower court denied the motion for dismissal which was upheld by the CA based on the civil code provision that “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”. Insisting that the worldwide increase in prices cited by private respondent does not constitute a sufficient cause of action for the modification of the terms and conditions of the contract, petitioners filed the instant petition. ISSUE: Whether or not private respondent may demand modification of the terms of the contract on the ground that the prestation has manifestly come beyond the contemplation of the parties. RULING:

If the prayer of the private respondent is to be released from its contractual obligations on account of the fact that the prestation has become beyond the contemplation of the parties, then private respondent can rely on said provision of the civil code. But the prayer of the private respondent was for the modification of their valid contract. The above-cited civil code provision does not grant the court the power to remake, modify, or revise the contract or to fix the division of the shares between the parties as contractually stipulated with the force of law between the parties. Therefore, private respondent’s complaint for modification of its contract with petitioner must be dismissed. The decision of respondent court is reversed. LOSS OF THE PRESTATION: KINDS OF LOSS ORTIGAS & CO., LIMITED PARTNERSHIP VS. FEATI BANK AND TRUST CO. G.R. No. L-24670 December 14, 1979 FACTS: Plaintiff is a limited partnership and defendant Feati Bank and Trust Co., is a corporation duly organized and existing in accordance with the laws of the Philippines. Plaintiff is engaged in real estate business, developing and selling lots to the public, particularly the Highway Hills Subdivision along EDSA, Mandaluyong, Rizal. On March 4, 1952, plaintiff, as vendor, and Augusto Padilla and Natividad Angeles, as vendees, entered into separate agreements of sale on installments over two parcels of land. On July 19, 1962, the said vendees transferred their rights and interests over the aforesaid lots in favor of one Emma Chavez. Upon completion of payment of the purchase price, the plaintiff executed the corresponding deeds of sale in favor of Emma Chavez. Both the agreements (of sale on installment) and the deeds of sale contained some stipulations or restrictions which were later annotated in TCT Nos. 101509 and 101511 of the Register of Deeds of Rizal, covering the said lots and issued in the name of Emma Chavez. Eventually, defendant-appellee acquired Lots Nos. 5 and 6, with TCT Nos. 101613 and 106092 issued in its name, respectively and the building restrictions were also annotated therein. Defendant-appellee bought Lot No. 5 directly from Emma Chavez, "free from all liens and encumbrances as stated in Annex 'D', 5 while Lot No. 6 was acquired from Republic Flour Mills through a "Deed of Exchange," Annex "E". TCT No. 101719 in the name of Republic Flour Mills likewise contained the same restrictions, although defendant-appellee claims that Republic Flour Mills purchased the said Lot No. 6 "in good faith. free from all liens and encumbrances," as stated in the Deed of Sale, Annex "F" between it and Emma Chavez.

Plaintiff-appellant claims that the restrictions annotated on TCT Nos. 101509, 101511, 101719, 101613, and 106092 were imposed as part of its general building scheme designed for the beautification and development of the Highway Hills Subdivision which forms part of the big landed estate of plaintiffappellant where commercial and industrial sites are also designated or established. Defendant-appellee, upon the other hand, maintains that the area along the western part of EDSA from Shaw Boulevard to Pasig River, has been declared a commercial and industrial zone, per Resolution No. 27, dated February 4, 1960 of the Municipal Council of Mandaluyong, Rizal. It alleges that plaintiff-appellant 'completely sold and transferred to third persons all lots in said subdivision facing EDSA" and the subject lots thereunder were acquired by it "only on July 23, 1962 or more than two (2) years after the area ... had been declared a commercial and industrial zone. On or about May 5, 1963, defendant-appellee began laying the foundation and commenced the construction of a building on Lots Nos. 5 and 6, to be devoted to banking purposes, but which defendantappellee claims could also be devoted to, and used exclusively for, residential purposes. The following day, plaintiff-appellant demanded in writing that defendant-appellee stop the construction of the commerical building on the said lots. The latter refused to comply with the demand, contending that the building was being constructed in accordance with the zoning regulations, defendantappellee having filed building and planning permit applications with the Municipality of Mandaluyong, and it had accordingly obtained building and planning permits to proceed with the construction. ISSUE: Whether or not Resolution No. 27 s-1960 is a valid exercise of police power; and whether or not the said Resolution can nullify or supersede the contractual obligations assumed by defendant-appellee. RULING: The validity of the resolution was admitted at least impliedly, in the stipulation of facts below when plaintiff-appellant did not dispute the same. Granting that Resolution No. 27 is not an ordinance, it certainly is a regulatory measure within the intendment or ambit of the word "regulation" under the provision. As a matter of fact the same section declares that the power exists "(A)ny provision of law to the contrary notwithstanding ... "

With regard to the contention that said resolution cannot nullify the contractual obligations assumed by the defendant-appellee referring to the restrictions incorporated in the deeds of sale and later in the corresponding Transfer Certificates of Title issued to defendant-appellee, it should be stressed, that while non-impairment of contracts is constitutionally guaranteed, the rule is not absolute, since it has to be reconciled with the legitimate exercise of police power. Resolution No. 27, s-1960 declaring the western part of highway , now EDSA, from Shaw Boulevard to the Pasig River as an industrial and commercial zone, was obviously passed by the Municipal Council of Mandaluyong, Rizal in the exercise of police power to safeguard or promote the health, safety, peace, good order and general welfare of the people in the locality. Judicial notice may be taken of the conditions prevailing in the area, especially where lots Nos. 5 and 6 are located. The lots themselves not only front the highway; industrial and commercial complexes have flourished about the place. EDSA, a main traffic artery which runs through several cities and municipalities in the Metro Manila area, supports an endless stream of traffic and the resulting activity, noise and pollution are hardly conducive to the health, safety or welfare of the residents in its route. Having been expressly granted the power to adopt zoning and subdivision ordinances or regulations, the municipality of Mandaluyong, through its Municipal 'council, was reasonably, if not perfectly, justified under the circumstances, in passing the subject resolution. The motives behind the passage of the questioned resolution being reasonable, and it being a " legitimate response to a felt public need," not whimsical or oppressive, the non-impairment of contracts clause of the Constitution will not bar the municipality's proper exercise of the power. It is, therefore, clear that even if the subject building restrictions were assumed by the defendant-appellee as vendee of Lots Nos. 5 and 6, in the corresponding deeds of sale, and later, in Transfer Certificates of Title Nos. 101613 and 106092, the contractual obligations so assumed cannot prevail over Resolution No. 27, of the Municipality of Mandaluyong, which has validly exercised its police power through the said resolution. Accordingly, the building restrictions, which declare Lots Nos. 5 and 6 as residential, cannot be enforced.

REBUS SIC STANTIBUS

1. 2. 3.

MAGAT VS. CA, 337 SCRA 298 PNCC VS. CA, 272 SCRA 183 NATELCO VS. CA, 230 SCRA 351 MAGAT VS. COURT OF APPEALS 337 SCRA 298

FACTS: Private respondent Santiago A. Guerrero was President and Chairman of "Guerrero Transport Services", a single proprietorship. Sometime in 1972, Guerrero Transport Services won a bid for the operation of a fleet of taxicabs within the Subic Naval Base, in Olongapo. As highest bidder, Guerrero was to "provide radio-controlled taxi service within the U.S. Naval Base, Subic Bay, utilizing as demand requires . . . 160 operational taxis consisting of four wheel, four-door, four passenger, radio controlled, meter controlled, sedans, not more than one year . . . " On September 22, 1972, with the advent of martial law, President Ferdinand E. Marcos issued Letter of Instruction No. 1. On September 25, 1972, pursuant to the aforequoted Letter of Instruction, the Radio Control Office issued Administrative Circular No. 4: Subject: Suspending the acceptance and processing of applications for radio station construction permits and for permits to own and/or possess radio transmitters or transceivers. On September 25, 1972, Guerrero and Victorino D. Magat, as General Manager of Spectrum Electronic Laboratories, a single proprietorship, executed a letter-contract for the purchase of transceivers at a quoted price of US$77,620.59, FOB Yokohoma. Victorino was to deliver the transceivers within 60 to 90 days after receiving notice from Guerrero of the assigned radio frequency, "taking note of Government Regulations.” The contract was signed and Victorino contacted his Japanese supplier, Koide & Co., Ltd. and placed an order for the transceivers. On September 29, 1972, Navy Exchange Officer, A. G. Mason confirmed that Guerrero won the bid for the commercial transportation contract. On October 4, 1972, middle man and broker Isidro Q. Aligada of Reliance Group Engineers, Inc. , wrote Victorino, informing him that a radio frequency was not yet assigned to Guerrero and that government regulations might complicate the importation of the transceivers. However, in the same letter, Victorino was

advised to advise his supplier "to proceed (with) production pending frequency information." Victorino was also assured of Guerrero's financial capability to comply with the contract. On October 6, 1972, Guerrero informed Aligada of the frequency number assigned by Subic Naval Base authorities. Aligada was instructed to "proceed with the order thru Spectrum Electronics Laboratories." On October 7, 1972, Aligada informed Magat of the assigned frequency number. Aligada also advised Victorino to "proceed with the order upon receipt of letter of credit." On January 10, 1973, Guerrero applied for a letter of credit with the Metropolitan Bank and Trust Company. This application was not pursued. On March 27, 1973, Victorino, represented by his lawyer, Atty. Sinesio S. Vergara, informed Guererro that the order with the Japanese supplier has not been canceled. Should the contract be canceled, the Japanese firm would forfeit 30% of the deposit and charge a cancellation fee in an amount not yet known, Guerrero to bear the loss. Further, should the contract be canceled, Victorino would demand an additional amount equivalent to 10% of the contract price. Unable to get a letter of credit from the Central Bank due to the refusal of the Philippine government to issue a permit to import the transceivers, Guerrero commenced operation of the taxicabs within Subic Naval Base, using radio units borrowed from the U.S. government. Victorino thus canceled his order with his Japanese supplier. On May 22, 1973, Victorino filed with the Regional Trial Court, Makati a complaint for damages arising from breach of contract against Guerrero. On June 7, 1973, Guerrero moved to dismiss the complaint on the ground that it did not state a cause of action. On June 16, 1973, the trial court granted the motion and dismissed the complaint. On July 11, 1973, Victorino filed a petition for review on certiorari with this Court assailing the dismissal of the complaint. On April 20, 1983, the Supreme Court ruled that the complaint sufficiently averred a cause of action. The Court set aside the order of dismissal and remanded the case to the trial court for further proceedings. On November 27, 1984, the trial court ordered that the case be archived for failure of Victorino to prosecute. On March 11, 1985, petitioners, Olivia, Dulce, Ma. Magnolia, Ronald and Dennis Magat, moved to reinstate the case and to substitute Victorino in its prosecution. Apparently, Victorino died on February 18, 1985. On April 29, 1985, the trial court granted the motion. On July 12, 1991, the trial court decided in favor of the heirs of Victorino and ordered Guerrero to pay temperate, moral and exemplary damages, and

attorney's fees. On August 21, 1991, Guerrero appealed to the Court of Appeals. However it was dismissed. On October 26, 1995, the heirs of Victorino filed with the Court of Appeals a motion for reconsideration. On March 12, 1996, the Court of Appeals denied the motion for reconsideration. ISSUES: Whether or not the transceivers were contraband items prohibited by the LOI and Administrative Circular to import; hence, the contract is void. Whether or not the contract was breached. RULING: Anent the 1st issue, NO. The contract was not void ab initio. Nowhere in the LOI and Administrative Circular is there an express ban on the importation of transceivers. The LOI and Administrative Circular did not render “radios and transceivers” illegally per se. The Administrative Circular merely ordered the Radio Control Office to suspend the acceptance and processing… of application… for permits to possess, own, transfer, purchase and sell radio transmitters and transceivers… therefore; possession and importation of the radio transmitters and transceivers was legal provided one had the necessary license for it. The LOI and Administrative Circular did not render the transceivers outside the commerce of man. They were valid objects of the contract. Anent the 2nd issue, NO. The contract was not breached. Affirming the validity of the contract, the law provides that when the service (required by the contract) has become so manifestly beyond the contemplation of the parties, the obligor may also be released there from in whole or in parts. Here, Guerrero’s inability to secure a letter of credit and to comply with his obligation was a direct consequence of the denial of the permit to import. For this, he cannot be faulted. Even if the Court assumes that there was a breach of contract, damages cannot be awarded. Damnum absque injuria comes into the fore.

REBUS SIC STANTIBUS PNCC VS. CA 272 SCRA 183 FACTS: On 18 November 1985, private respondents and petitioner entered into a contract of lease of a parcel of land owned by the former. The terms and

conditions of said contract of lease are as follows: a) the lease shall be for a period of five (5) years which begins upon the issuance of permit by the Ministry of Human Settlement and renewable at the option of the lessee under the terms and conditions, b) the monthly rent is P20, 000.00 which shall be increased yearly by 5% based on the monthly rate, c) the rent shall be paid yearly in advance, and d) the property shall be used as premises of a rock crushing plan. On January 7, 1986, petitioner obtained permit from the Ministry which was to be valid for two (2) years unless revoked by the Ministry. Later, respondent requested the payment of the first annual rental. But petitioner alleged that the payment of rental should commence on the date of the issuance of the industrial clearance not on the date of signing of the contract. It then expressed its intention to terminate the contract and decided to cancel the project due to financial and technical difficulties. However, petitioner refused to accede to respondent’s request and reiterated their demand for the payment of the first annual rental. But the petitioner argued that it was only obligated to pay P20, 000.00 as rental for one month prompting private respondent to file an action against the petitioner for specific performance with damages before the RTC of Pasig. The trial court rendered decision in favor of private respondent. Petitioner then appealed the decision of the trial court to the Court of Appeals but the later affirmed the decision of the trial court and denied the motion for reconsideration. ISSUE: Whether or not petitioner can avail of the benefit of Article 1267 of the New Civil Code. RULING: NO. The petitioner cannot take refuge of the said article. Article 1267 of the New Civil Code provides that when the service has become so difficult as to manifestly beyond the contemplation of the parties, the obligor may also be released therefrom, in whole or in part. This article, which enunciates the doctrine of unforeseen events, is not, however an absolute application of the principle of rebus sic stantibus, which would endanger the security of contractual relations. The parties to the contract must be presumed to have assumed the risks of unfavorable developments. It is therefore only in absolutely exceptional chances of circumstances that equity demands assistance for the debtor. The principle of rebus sic stantibus neither fits in with the facts of the case. Under this theory, the parties stipulate in the light of certain prevailing conditions, and once these conditions cease to exist, the contract also ceases to exist.

In this case, petitioner averred that three (3) abrupt change in the political climate of the country after the EDSA Revolution and its poor financial condition rendered the performance of the lease contract impractical and inimical to the corporate survival of the petitioner. However, as held in Central Bank v. CA, mere pecuniary inability to fulfill an engagement does not discharge a contractual obligation, nor does it constitute a defense of an action for specific performance. REBUS SIC STANTIBUS NAGA TELEPHONE CO., INC. (NATELCO) AND LUCIANO M. MAGGAY, petitioners, VS. THE COURT OF APPEALS AND CAMARINES SUR II ELECTRIC COOPERATIVE, INC. (CASURECO II), respondents 1994 Feb 24 230 SCRA 351 FACTS: Petitioner Naga Telephone Co., Inc. (NATELCO) is a telephone company rendering local as well as long distance service in Naga City while private respondent Camarines Sur II Electric Cooperative, Inc. (CASURECO II) is a private corporation established for the purpose of operating an electric power service in the same city. On November 1, 1977, the parties entered into a contract for the use by petitioners in the operation of its telephone service the electric light posts of private respondent in Naga City. In consideration therefor, petitioners agreed to install, free of charge, ten (10) telephone connections for the use by private respondent. After the contract had been enforced for over ten (10) years, private respondent filed 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); 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; that a post now costs as much as P2,630.00; so that justice and equity demand that the contract be reformed to abolish the inequities thereon. As second cause of action, private respondent alleged that starting with the year 1981, petitioners have used 319 posts outside Naga City, without any contract with it; that at the rate of P10.00 per post, petitioners should pay private respondent for the use thereof the total amount of P267,960.00 from

1981 up to the filing of its complaint; and that petitioners had refused to pay private respondent said amount despite demands. And as third cause of action, private respondent complained about the poor servicing by petitioners. The trial court ruled, as regards private respondent’s first cause of action, that the contract should be reformed by ordering petitioners to pay private respondent compensation for the use of their posts in Naga City, while private respondent should also be ordered to pay the monthly bills for the use of the telephones also in Naga City. And taking into consideration the guidelines of the NEA on the rental of posts by telephone companies and the increase in the costs of such posts, the trial court opined that a monthly rental of P10.00 for each post of private respondent used by petitioners is reasonable, which rental it should pay from the filing of the complaint in this case on January 2, 1989. And in like manner, private respondent should pay petitioners from the same date its monthly bills for the use and transfers of its telephones in Naga City at the same rate that the public are paying. On private respondent's second cause of action, the trial court found that the contract does not mention anything about the use by petitioners of private respondent's posts outside Naga City. Therefore, the trial court held that for reason of equity, the contract should be reformed by including therein the provision that for the use of private respondent's posts outside Naga City, petitioners should pay a monthly rental of P10.00 per post, the payment to start on the date this case was filed, or on January 2, 1989, and private respondent should also pay petitioners the monthly dues on its telephone connections located outside Naga City beginning January, 1989. And with respect to private respondent's third cause of action, the trial court found the claim not sufficiently proved. The Court of Appeals affirmed the decision of the trial court, but based on different grounds to wit: (1) that Article 1267 of the New Civil Code is applicable and (2) that the contract was subject to a potestative condition which rendered said condition void. ISSUE: Whether or not the principle of Rebus Sic Stantibus is applicable in the case at bar. RULING:

No. Article 1267 speaks of "service" which has become so difficult. Taking into consideration the rationale behind this provision, the term "service" should be understood as referring to the "performance" of the obligation.

essential services being rendered by both parties herein to the public and to avoid unjust enrichment by appellant at the expense of plaintiff . . . " Decision affirmed.

In the present case, the obligation of private respondent consists in allowing petitioners to use its posts in Naga City, which is the service contemplated in said article. Furthermore, a bare reading of this article reveals that it is not a requirement thereunder that the contract be for future service with future unusual change. According to Senator Arturo M. Tolentino, Article 1267 states in our law the doctrine of unforseen events. This is said to be based on the discredited theory of rebus sic stantibus in public international law; under this theory, the parties stipulate in the light of certain prevailing conditions, and once these conditions cease to exist the contract also ceases to exist. Considering practical needs and the demands of equity and good faith, the disappearance of the basis of a contract gives rise to a right to relief in favor of the party prejudiced. The allegations in private respondent's complaint and the evidence it has presented sufficiently made out a cause of action under Article 1267. The Court, therefore, release the parties from their correlative obligations under the contract. However, the disposition of the present controversy does not end here. The Court has to take into account the possible consequences of merely releasing the parties therefrom: petitioners will remove the telephone wires/cables in the posts of private respondent, resulting in disruption of their essential service to the public; while private respondent, in consonance with the contract will return all the telephone units to petitioners, causing prejudice to its business. The Court shall not allow such eventuality. Rather, the Court requires, as ordered by the trial court: 1) petitioners to pay private respondent for the use of its posts in Naga City and in the towns of Milaor, Canaman, Magarao and Pili, Camarines Sur and in other places where petitioners use private respondent's posts, the sum of ten (P10.00) pesos per post, per month, beginning January, 1989; and 2)private respondent to pay petitioner the monthly dues of all its telephones at the same rate being paid by the public beginning January, 1989. The peculiar circumstances of the present case, as distinguished further from the Occeña case, necessitates exercise of a equity jurisdiction. By way of emphasis, the Court reiterates the rationalization of respondent court that: ". . . In affirming said ruling, we are not making a new contract for the parties herein, but we find it necessary to do so in order not to disrupt the basic and

REQUISITES OF CONDONATION – NOT INOFFICIOUS TRANS-PACIFIC INDUSTRIAL SUPPLIES, INC., petitioner, VS. THE COURT OF APPEALS and ASSOCIATED BANK, respondents 1994 Aug 19 235 SCRA 494 FACTS: Sometime in 1979, petitioner applied for and was granted several financial accommodations amounting to P1,300,000.00 by respondent Associated Bank. The loans were evidence and secured by four (4) promissory notes, a real estate mortgage covering three parcels of land and a chattel mortgage over petitioner's stock and inventories. Unable to settle its obligation in full, petitioner requested for, and was granted by respondent bank, a restructuring of the remaining indebtedness which then amounted to P1,057,500.00, as all the previous payments made were applied to penalties and interests. To secure the re-structured loan of P1,213,400.00, three new promissory notes were executed by Trans-Pacific. The mortgaged parcels of land were substituted by another mortgage covering two other parcels of land and a chattel mortgage on petitioner's stock inventory. The released parcels of land were then sold and the proceeds amounting to P1,386,614.20, according to petitioner, were turned over to the bank and applied to Trans-Pacific's restructured loan. Subsequently, respondent bank returned the duplicate original copies of the three promissory notes to Trans-Pacific with the word "PAID" stamped thereon. Despite the return of the notes, or on December 12, 1985, Associated Bank demanded from Trans-Pacific payment of the amount of P492,100.00 representing accrued interest on PN No. TL-9077-82. According to the bank, the promissory notes were erroneously released. Initially, TransPacific expressed its willingness to pay the amount demanded by respondent bank. Later, it had a change of heart and instead initiated an action before the Regional Trial Court for specific performance and damages. There it prayed that

the mortgage over the two parcels of land be released and its stock inventory be lifted and that its obligation to the bank be declared as having been fully paid. After trial, the court a quo rendered judgment in favor of Trans-Pacific. The appellate court which, as aforesaid, reversed the decision of the trial court. ISSUE: Whether or not petitioner has indeed paid in full its obligation to respondent bank. RULING: No. The Court found no reversible error committed by the appellate court in disposing of the appealed decision. As gleaned from the decision of the court a quo, judgment was rendered in favor of petitioner on the basis of presumptions. The above disquisition finds no factual support, however, per review of the records. The presumption created by the Art. 1271 of the Civil Code is not conclusive but merely prima facie. If there be no evidence to the contrary, the presumption stands. Conversely, the presumption loses its legal efficacy in the face of proof or evidence to the contrary. In the case at bar, the Court finds sufficient justification to overthrow the presumption of payment generated by the delivery of the documents evidencing petitioners’ indebtedness. It may not be amiss to add that Article 1271 of the Civil Code raises a presumption, not of payment, but of the renunciation of the credit where more convincing evidence would be required than what normally would be called for to prove payment. The rationale for allowing the presumption of renunciation in the delivery of a private instrument is that, unlike that of a public instrument, there could be just one copy of the evidence of credit. Where several originals are made out of a private document, the intendment of the law would thus be to refer to the delivery only of the original rather than to the original duplicate of which the debtor would normally retain a copy. Petition denied IMPLIED CONDONATION – PRESUMPTION OF DELIVERY 1. 2.

DALUPAN VS. HARDEN, NOV. 27, 1951 LOPEZ LISO VS. TAMBUNTING, 33 PHIL. 226

DALUPAN VS. HARDEN 1951 Nov 27 FACTS: The case is an appeal taken from an order of the First Instance of Manila dated May 19, 1950, setting aside the writs of execution and garnishment issued to the sheriff of Manila commanding him to levy on two (2) checks, one for P9,028.50, and another for P24,546.00, payable to Fred M. Harden which were then in possession of the receiver appointed in case involving the liquidation of the conjugal partnership of the spouses Fred M. Harden and Esperanza P. de Harden. On August 26, 1948, plaintiff filed an action against the defendant for the collection of P113,837.17, with interest thereon from the filing of the complaint, which represents fifty (50) per cent of the reduction plaintiff was able to secure from the Collector of Internal Revenue in the amount of unpaid taxes claimed to be due from the defendant. Defendant acknowledged this claim and prayed that judgment be rendered accordingly. The receiver in the liquidation of case No. R59634 and the wife of the defendant, Esperanza P. de Harden, filed an answer in intervention claiming that the amount sought by the plaintiff was exorbitant and prayed that it be reduced to 10 per cent of the rebate. By reason of the acquiescence of the defendant to the claim on one hand, and the opposition of the receiver and of the wife on the other, an amicable settlement was concluded by the plaintiff and the intervenor whereby it was agreed that the sum of P22,767.43 be paid to the plaintiff from the funds under the control of the receiver "and the balance of P91,069.74 shall be charged exclusively against the defendant Fred M. Harden from whatever share he may still have in the conjugal partnership between him and Esperanza P. de Harden after the final liquidation and partition thereof, without pronouncement as to costs and interests." The court rendered judgment in accordance with this stipulation. Almost one year thereafter, plaintiff filed a motion for the issuance of a writ of execution to satisfy the balance of P91, 069.74, which was favorably acted upon. At that time the receiver had in his possession two (2) checks payable to Fred M. Harden amounting to P33,574.50, representing part of the proceeds of the sale of two (2) lots belonging to the conjugal partnership which was ordered by the court upon the joint petition of the spouses in order that they may have funds with which to defray their living and other similar expenses. One-half of the proceeds was given to Mrs. Harden. The sheriff attempted to garnish these two (2) checks acting upon the writ of execution secured by the plaintiff, but the receivership court quashed the writ, stating however in the order that it will be “without prejudice to the right of Francisco Dalupan to attach

the money of the defendant Fred M. Harden, after the same has been delivered to the latter. When said checks were delivered to the latter.” ISSUE: Whether or not the proffer made by the plaintiff to the defendant is binding. RULING: YES, the proffer made by the plaintiff to the defendant to the effect that “in the event you lose your case with your wife, Mrs. Esperanza P. de Harden, and that after adjudication of the conjugal property what is left with you will not be sufficient for your livelihood. I shall be pleased to write off as bad debt the balance of your account in the sum of P42, 069.74.” This proffer was contained in a letter sent by the plaintiff to the defendant on March 23, 1949, which was accepted expressly by Fred M. Harden. Harden regarded this proffer as a binding obligation and acted accordingly, and for plaintiff to say now that proffer is but a mere gesture of generosity or an act of Christian charity without any binding legal effect is unfair to say at least. This is an added circumstance, which confirms the Court’s view that the understanding between the plaintiff and the defendant is really to defer payment of the balance of the claim until after the final liquidation of the conjugal partnership. IMPLIED CONDONATION – PRESUMPTION OF DELIVERY LEONIDES LOPEZ LISO, plaintiff-appellee, VS. MANUEL TAMBUNTING, defendant-appellant 1916 January 19 G.R. No. 9806 33 PHIL 226 FACTS: These proceedings were brought to recover from the defendant the sum of P2,000, amount of the fees, which, according to the complaint, are owing for professional medical services rendered by the plaintiff to a daughter of the defendant from March 10 to July 15, 1913, which fees the defendant refused to pay, notwithstanding the demands therefor made upon him by the plaintiff. The defendant denied the allegations of the complaint, and furthermore alleged that the obligation which the plaintiff endeavored to compel him to fulfill was already extinguished.

The Court of First Instance of Manila, after hearing the evidence introduced by both parties, rendered judgment on December 17, 1913, ordering the defendant to pay to the plaintiff the sum of P700, without express finding as to costs. The defendant, after entering a motion for a new trial, which was denied, appealed from said judgment and forwarded to this court the proper bill of exceptions. ISSUE: Whether or not the obligation alleged in the complaint has already been extinguished. RULING: No, the Supreme Court ruled that the obligation has not been extinguished. The receipt signed by the plaintiff, for P700, the amount of his fees he endeavored to collect from the defendant after he had finished rendering the services in question was in the latter's possession, and this fact was alleged by him as proof that he had already paid said fees to the plaintiff. The court, after hearing the testimony, reached the conclusion that, notwithstanding that the defendant was in possession of the receipt, the said P700 had not been paid to the plaintiff. Number 8 of section 334 of the Code of Civil Procedure provides as a legal presumption "that an obligation delivered up to the debtor has been paid." Article 1188 of the Civil Code also provides that the voluntary surrender by a creditor to his debtor, of a private instrument proving a credit, implies the renunciation of the right of action against the debtor; and article 1189 prescribes that whenever the private instrument which evidences the debt is in the possession of the debtor, it will be presumed that the creditor delivered it of his own free will, unless the contrary is proven. But the legal presumption established by the foregoing provisions of law cannot stand if sufficient proof is adduced against it. In the case at bar the trial court correctly held that there was sufficient evidence to the contrary, in view of the preponderance thereof in favor of the plaintiff and of the circumstances connected with the defendant's possession of said receipt. Furthermore, in order that such a presumption may be taken into account, it is necessary, as stated in the laws cited, that the evidence of the obligation be delivered up to the debtor and that the delivery of the instrument proving the credit be made voluntarily by the creditor to the debtor. In the present case, it cannot be said that these circumstances concurred, inasmuch as when the plaintiff sent the receipt to the defendant for the purpose of collecting his fee, it was not his

intention that that document should remain in the possession of the defendant if the latter did not forthwith pay the amount specified therein. By reason of the foregoing, the Court affirmed the judgment appealed from, with the costs of this instance against the appellant.

CONFUSION OR MERGER OR RIGHTS 1. 2.

ESTATE OF MOTA VS. SERRA, 47 PHIL 464 YEK TN LIN VS. YUSINGCO, 64 PHIL 1062 ESTATE OF MOTA VS. SERRA 47 PHIL. 464

FACTS: On February 1, 1919, plaintiffs and defendant entered into a contract of partnership, for the construction and exploitation of a railroad line from the "San Isidro" and "Palma" centrals to the place known as "Nandong." The original capital stipulated was P150, 000. It was covenanted that the parties should pay this amount in equal parts and the plaintiffs were entrusted with the administration of the partnership. The agreed capital of P150,000, however, did not prove sufficient, as the expenses up to May 15, 1920, had reached the amount of P226,092.92, presented by the administrator and O.K.'d by the defendant. January 29, 1920, the defendant entered into a contract of sale with Venancio Concepcion, Phil. C. Whitaker, and Eusebio R. de Luzuriaga, whereby he sold to the latter the estate and central known as "Palma" with its running business, as well as all the improvements, machineries and buildings, real and personal properties, rights, choices in action and interests, including the sugar plantation of the harvest year of 1920 to 1921, covering all the property of the vendor. This contract was executed before a notary public of Iloilo. Before the delivery to the purchasers of the hacienda thus sold, Eusebio R. de Luzuriaga renounced all his rights under the contract of January 29, 1920, in favor of Messrs. Venancio Concepcion and Phil. C. Whitaker. This gave rise to the fact that on July 17, 1920, Venancio Concepcion and Phil. C. Whitaker and the herein defendant executed before Mr. Antonio Sanz, a notary public in and for the City of Manila, another deed of absolute sale of the said "Palma" Estate

for the amount of P1,695,961.90, of which the vendor received at the time of executing the deed the amount of P945,861.90, and the balance was payable by installments in the form and manner stipulated in the contract. The purchasers guaranteed the unpaid balance of the purchase price by a first and special mortgage in favor of the vendor upon the hacienda and the central with all the improvements, buildings, machineries, and appurtenances then existing on the said hacienda. Afterwards, on January 8, 1921, Venancio Concepcion and Phil. C. Whitaker bought from the plaintiffs the one-half of the railroad line pertaining to the latter, executing therefore the document. The price of this sale was P237,722.15, excluding any amount which the defendant might be owing to the plaintiffs. Of the purchase price, Venancio Concepcion and Phil. C. Whitaker paid the sum of P47,544.43 only. In the Deed, the plaintiffs and Concepcion and Whitaker agreed, among other things, that the partnership "Palma" and "San Isidro," formed by the agreement of February 1, 1919, between Serra, Lazaro Mota, now deceased, and Juan J. Vidaurrazaga for himself and in behalf of his brother, Felix and Dionisio Vidaurrazaga, should be dissolved upon the execution of this contract, and that the said partnership agreement should be totally cancelled and of no force and effect whatever. Since the defendant Salvador Serra failed to pay one-half of the amount expended by the plaintiffs upon the construction of the railroad line, that is, P113,046.46, as well as Phil. C. Whitaker and Venancio Concepcion, the plaintiffs instituted the present action praying: 1) that the deed of February 1, 1919, be declared valid and binding; 2) that after the execution of the said document the defendant improved economically so as to be able to pay the plaintiffs the amount owed, but that he refused to pay either in part or in whole the said amount notwithstanding the several demands made on him for the purpose; and 3) that the defendant be sentenced to pay plaintiffs the aforesaid sum of P113, 046.46, with the stipulated interest at 10 per cent per annum beginning June 4, 1920, until full payment thereof, with the costs of the present action. Defendant set up three special defenses: 1) the novation of the contract by the substitution of the debtor with the conformity of the creditors; 2) the confusion of the rights of the creditor and debtor; and 3) the extinguishment of the contract. The court a quo in its decision held that there was a novation of the contract by the substitution of the debtor, and therefore absolved the defendant from the complaint with costs against the plaintiffs. With regard to the prayer that the said contract be declared valid and binding, the court held that there

was no way of reviving the contract which the parties themselves in interest had spontaneously and voluntarily extinguished. ISSUES: Whether or not there was a novation of the contract by the substitution of the debtor with the consent of the creditor, as required by Article 1205 of the Civil Code; and Whether or not there was a merger of rights of debtor and creditor under Article 1192 of the Civil Code. RULING: 1. NO, there was no novation of the contract. It should be noted that in order to give novation its legal effect, the law requires that the creditor should consent to the substitution of a new debtor. This consent must be given expressly for the reason that, since novation extinguishes the personality of the first debtor who is to be substituted by new one, it implies on the part of the creditor a waiver of the right that he had before the novation which waiver must be express under the principle that renuntiatio non praesumitur, recognized by the law in declaring that a waiver of right may not be performed unless the will to waive is indisputably shown by him who holds the right. The fact that Phil. C. Whitaker and Venancio Concepcion were willing to assume the defendant's obligation to the plaintiffs is of no avail, if the latter have not expressly consented to the substitution of the first debtor. As has been said, in all contracts of novation consisting in the change of the debtor, the consent of the creditor is indispensable, pursuant to Article 1205 of the Civil Code which reads as follows: Novation which consists in the substitution of a new debtor in the place of the original one may be made without the knowledge of the latter, but not without the consent of the creditor. 2. NO, there was no merger of Rights. Another defense urged by the defendant is the merger of the rights of debtor and creditor, whereby under Article 1192 of the Civil Code, the obligation, the fulfillment of which is demanded in the complaint, became extinguished. It is maintained in appellee's brief that the debt of the defendant was transferred to Phil. C. Whitaker and Venancio Concepcion by the document. These in turn acquired the credit of the plaintiffs by virtue of the debt; thus, the rights of the debtor and creditor were merged in one person. The argument would at first seem to be incontrovertible, but if we bear in mind that the rights and titles which the plaintiffs sold to Phil. C. Whitaker and Venancio Concepcion refer only to one-half of the railroad line in question, it will be

seen that the credit which they had against the defendant for the amount of one-half of the cost of construction of the said line was not included in the sale. That the plaintiffs sold their rights and titles over one-half of the line. The purchasers, Phil. C. Whitaker and Venancio Concepcion, to secure the payment of the price, executed a mortgage in favor of the plaintiffs on the same rights and titles that they had bought and also upon what they had purchased from Mr. Salvador Serra. In other words, Phil. C. Whitaker and Venancio Concepcion mortgaged unto the plaintiffs what they had bought from the plaintiffs and also what they had bought from Salvador Serra. If Messrs. Phil. C. Whitaker and Venancio Concepcion had purchased something from Mr. Salvador Serra, the herein defendant, regarding the railroad line, it was undoubtedly the one-half thereof pertaining to Mr. Salvador Serra. This clearly shows that the rights and titles transferred by the plaintiffs to Phil. C. Whitaker and Venancio Concepcion were only those they had over the other half of the railroad line. Therefore, as already stated, since there was no novation of the contract between the plaintiffs and the defendant, as regards the obligation of the latter to pay the former one-half of the cost of the construction of the said railroad line, and since the plaintiffs did not include in the sale, the credit that they had against the defendant, the allegation that the obligation of the defendant became extinguished by the merger of the rights of creditor and debtor by the purchase of Messrs. Phil. C. Whitaker and Venancio Concepcion is wholly untenable. CONFUSION OR MERGER OR RIGHTS YEK TONG LIN VS. YUSINGCO 64 PHIL 473 FACTS: The defendant Pelagio Yusingco was the owner of the steamship Yusingco and, as such, he executed, on November 19, 1927, a power of attorney in favor of Yu Seguios to administer, lease, mortgage and sell his properties, including his vessels or steamships. Yu Seguios, acting as such attorneys in fact of Pelagio Yusingco, mortgaged to the plaintiff Yek Tong Lin Fire & Marine Insurance Co., Ltd., with the approval of the Bureau of Customs, the steamship Yusingco belonging to the defendant, to answer for any amount that said plaintiff might pay in the name of the defendant on account of a promissory note for P45, 000 executed by it.

One year and some months later, or in February, 1930, and in April, 1931, the steamship Yusingco needed some repairs which were made by the Earnshaw Docks & Honolulu Iron Works upon petition of A. Yusingco Hermanos which, according to documentary evidence of record, was co-owner of Pelagio Yusingco. The repairs were made upon the guaranty of the defendant and appellant Vicente Madrigal at a cost of P8,244.66. When neither A. Yusingco Hermanos nor Pelagio Yusingco could pay said sum to the Earnshaw Docks & Honolulu Iron Works, the defendant and appellant Vicente Madrigal had to make payment thereof with the stipulated interest thereon, which was at the rate of 9 per cent per annum, on March 9, 1932, because he was bound thereto by reason of the bond filed by him, the payment then made by him having amounted to P8,777.60. Some days later, when said defendant discovered that he was not to be reimbursed for the repairs made on the steamship Yusingco, he brought an action against his co-defendant Pelagio Yusingco and A. Yusingco Hermanos to compel them to reimburse him, which resulted in a judgment favorable to him and adverse to the Yusingcos, as the latter were ordered to pay him the sum of P3,269.66 plus interest thereon at said rate of 9 per cent per annum from May 6, 1931, with the costs of the suit. It was provided in the judgment that upon failure of the Yusingcos to pay the above-stated amounts to Vicente Madrigal, a writ of execution would be issued in order to have the steamship Yusingco sold at public auction for the purpose of satisfying said amounts with the proceeds thereof. Inasmuch as neither the defendant Pelagio Yusingco nor A. Yusingco Hermanos paid the amount of the judgment rendered in civil case No. 41654, in favor of the defendant and appellant Vicente Madrigal, the latter sought and obtained from the Court of First Instance, which tried the case, the issuance of the corresponding writ of execution. However, before the sale of the steamship Yusingco, by virtue of the writ of execution so issued, was carried out, the plaintiff and appellant filed with the defendant sheriff a third party claim demanding said ship for himself, alleging that it had been mortgaged to him long before the issuance of said writ and, therefore, he was entitled to the possession thereof. The defendant sheriff then informed the defendant and appellant Vicente Madrigal that if he wished to have the execution sought by him carried out, he should file the indemnity bond required by section 451 of Act No. 190. This was done by Vicente Madrigal, but in order to prevent him and the sheriff from proceeding with the execution, the plaintiff and appellant instituted this case in the court of origin and asked for the issuance of a writ of preliminary injunction addressed to said two defendants to restrain them from selling the steamship Yusingco at public auction. The writ of preliminary injunction, which was issued on August 19, 1932, was later dissolved, the defendant and appellant

Vicente Madrigal having filed a bond of P5,000. This left the preliminary injunction unimpaired and valid for the sale of the steamship Yusingco at public auction. For this reason, said ship was sold at public auction on September 19, 1932, and was purchased, under the circumstances, by the plaintiff and appellant itself, which was the highest bidder, having made the highest bid of P12,000. Of said amount, the defendant sheriff turned over P10,195 to Vicente Madrigal in payment of his judgment credit. It is said sum of P10,195 which the lower court ordered Vicente Madrigal to turn over to the plaintiff. ISSUE: Whether or not the credit of the plaintiff, as mortgaged creditor of Pedagio Yusingco, is superior to that of Vicente Madrigal, as judgment creditor of said Pelagio Yusingco and A. Yusingco Hermones.

RULING: NO, the defendant and appellant Vicente Madrigal enjoy preference in the payment of his judgment credit. After the steamship Yusingco had been sold by virtue of the judicial writ issued in civil case No. 41654 for the execution of the judgment rendered in favor of Vicente Madrigal, the only right left to the plaintiff was to collect its mortgage credit from the purchaser thereof at public auction, inasmuch as the rule is that a mortgage directly and immediately subjects the property on which it is imposed, whoever its possessor may be, to the fulfillment of the obligation for the security of which it was created (Article 1876, Civil Code); but it so happens that it can not take such steps now because it was the purchaser of the steamship Yusingco at public auction, and it was so with full knowledge that it had a mortgage credit on said vessel. Obligations are extinguished by the merger of the rights of the creditor and debtor (Articles 1156 and 1192, Civil Code). COMPENSATION – REQUISITES 1. 2. 3.

EGV REALTY VS. CA, 20 JULY 1999 AEROSPACE CHEMICAL VS. CA, 23 SEPTEMBER 1999 APODCA VS. NLRC, 172 S 442

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

in law be submitted and has been declared to be a debt. A claim, on the other hand, is a debt in embryo. It is mere evidence of a debt and must pass thru the process prescribed by law before it develops into what is properly called a debt. Absent, however, any such categorical admission by an obligor or final adjudication, no compensation or off-set can take place. Unless admitted by a debtor himself, the conclusion that he is in truth indebted to another cannot be definitely and finally pronounced, no matter how convinced he may be from the examination of the pertinent records of the validity of that conclusion the indebtedness must be one that is admitted by the alleged debtor or pronounced by final judgment of a competent court or in this case by the Commission. There can be no doubt that Unisphere is indebted to the Corporation for its unpaid monthly dues in the amount of P13,142.67. This is admitted. COMPENSATION – REQUISITES

AEROSPACE CHEMICAL V CA g.r.no. 108129 september 23, 1999 FACTS On June 27, 1986, petitioner Aerospace Industries, Inc. (Aerospace) purchased five hundred (500) metric tons of sulfuric acid from private respondent Philippine Phosphate Fertilizer Corporation (Philphos). Initially set beginning July 1986, the agreement provided that the buyer shall pay its purchases in equivalent Philippine currency value, five days prior to the shipment date. Petitioner as buyer committed to secure the means of transport to pick-up the purchases from private respondent's loadports. Per agreement, one hundred metric tons (100 MT) of sulfuric acid should be taken from Basay, Negros Oriental storage tank, while the remaining four hundred metric tons (400 MT) should be retrieved from Sangi, Cebu. On December 18, 1986, M/T Sultan Kayumanggi docked at Sangi, Cebu, but withdrew only 157.51 MT of sulfuric acid. Again, the vessel tilted. Further loading was aborted. Two survey reports conducted by the Societe Generale de Surveillance (SGS) Far East Limited, dated December 17, 1986 and January 2, 1987, attested to these occurrences. Later, on a

date not specified in the record, M/T Sultan Kayumanggi sank with a total of 227.51 MT of sulfuric acid on board. Petitioner chartered another vessel, M/T Don Victor, with a capacity of approximately 500 MT.6 [TSN, September 1, 1989, pp. 28-29.] On January 26 and March 20, 1987, Melecio Hernandez, acting for the petitioner, addressed letters to private respondent, concerning additional orders of sulfuric acid to replace its sunken purchases. ISSUE Should expenses for the storage and preservation of the purchased fungible goods, namely sulfuric acid, be on seller's account pursuant to Article 1504 of the Civil Code? RULING Petitioner tries to exempt itself from paying rental expenses and other damages by arguing that expenses for the preservation of fungible goods must be assumed by the seller. Rental expenses of storing sulfuric acid should be at private respondent's account until ownership is transferred, according to petitioner. However, the general rule that before delivery, the risk of loss is borne by the seller who is still the owner, is not applicable in this case because petitioner had incurred delay in the performance of its obligation. Article 1504 of the Civil Code clearly states: "Unless otherwise agreed, the goods remain at the seller's risk until the ownership therein is transferred to the buyer, but when the ownership therein is transferred to the buyer the goods are at the buyer's risk whether actual delivery has been made or not, except that: (2) Where actual delivery has been delayed through the fault of either the buyer or seller the goods are at the risk of the party at fault." On this score, we quote with approval the findings of the appellate court, thus: The defendant [herein private respondent] was not remiss in reminding the plaintiff that it would have to bear the said expenses for failure to lift the commodity for an unreasonable length of time.But even assuming that the plaintiff did not consent to be so bound, the provisions of Civil Code come in to make it liable for the damages sought by the defendant.

COMPENSATION – REQUISITES

APODACA V NLRC G.R.No. 80039 April1 8, 1989 FACTS Petitioner was employed in respondent corporation. On August 28, 1985, respondent Jose M. Mirasol persuaded petitioner to subscribe to P1,500 shares of respondent corporation it P100.00 per share or a total of P150,000.00. He made an initial payment of P37,500.00. On September 1, 1975, petitioner was appointed President and General Manager of the respondent corporation. However, on January 2, 1986, he resigned. On December 19, 1986, petitioner instituted with the NLRC a complaint against private respondents for the payment of his unpaid wages, his cost of living allowance, the balance of his gasoline and representation expenses and his bonus compensation for 1986. Petitioner and private respondents submitted their position papers to the labor arbiter. Private respondents admitted that there is due to petitioner the amount of P17,060.07 but this was applied to the unpaid balance of his subscript in the amount of P95,439.93. Petitioner questioned the set-off alleging that there was no call or notice for the payment of unpaid subscription and that, accordingly, the alleged obligation is not enforceable. ISSUE Does the National Labor Relations Commission (NLRC) have jurisdiction to resolve a claim for non-payment of stock subscriptions to a corporation? Assuming that it has, can an obligation arising therefrom be offset against a money claim of an employee against the employer? RULING Firstly, the NLRC has no jurisdiction to determine such intracorporate dispute between the stockholder and the corporation as in the matter of unpaid subscriptions. This controversy is within the exclusive jurisdiction of the Securities and Exchange Commission. Secondly, assuming arguendo that the NLRC may exercise jurisdiction over the said subject matter under the circumstances of this case, the unpaid subscriptions are not due and payable until a call is

made by the corporation for payment. Private respondents have not presented a resolution of the board of directors of respondent corporation calling for the payment of the unpaid subscriptions. It does not even appear that a notice of such call has been sent to petitioner by the respondent corporation.

COMPENSATION – LEGAL; WHEN PROHIBITED (Art. 1287-1288) 1. 2. 3. 4.

PNB MANAGEMENT VS. R & R METAL, 373 SCRA 1 SILAHIS MARKETING VS. IAC, DEC. 7, 1989 FRANCIA VS. CA, JUNE 28, 1988 TRINIDAD VS. ACAPULCO, 494 S 179

PNB MANAGEMENT and DEVELOPMENT CORP. (PNB MADECOR), petitioner, VS. R&R METAL CASTING and FABRICATING, INC., respondent January 2, 2002 G. R. No. 132245 FACTS: On November 19, 1993, respondent R&R Metal Casting and Fabricating, Inc. (R&R) obtained a judgment in its favor against Pantranco North Express, Inc. (PNEI). PNEI was ordered to pay respondent P213,050 plus interest as actual damages, P50,000 as exemplary damages, 25 percent of the total amount payable as attorney’s fees, and the costs of suit. However, the writ of execution was returned unsatisfied since the sheriff did not find any property of PNEI recorded at the Registries of Deeds of the different cities of Metro Manila. Neither did the sheriff receive a reply to the notice of garnishment he sent to PNB-Escolta.

On March 27, 1995, respondent filed with the trial court a motion for the issuance of subpoenae duces tecum and ad testificandum requiring petitioner PNB Management and Development Corp. (PNB MADECOR) to produce and testify on certain documents pertaining to transactions between petitioner and PNEI from 1981 to 1995. From the testimony of the representative of PNB MADECOR, it was discovered that NAREDECO, petitioner’s forerunner, executed a promissory note in favor of PNEI for P7.8 million, and that PNB MADECOR also had receivables from PNEI in the form of unpaid rentals amounting to more than P7.5 million. On the basis of said testimony, respondent filed with the trial court a motion for the application of funds or properties of PNEI, its judgment debtor, in the hands of PNB MADECOR for the satisfaction of the judgment in favor of respondent. The trial court issued an order garnishing the amount owed by petitioner to PNEI under the promissory note, to satisfy the judgment against PNEI and in favor of respondent. On appeal, the Court of Appeals affirmed the decision. The appellate court also denied petitioner’s motion for reconsideration. ISSUE: Whether or not the Court of Appeals erred when it ruled that the requisites for legal compensation as set forth under articles 1277 and 1278 of the civil code do not concur in the case at bar. RULING: NO. Legal compensation could not have occurred because of the absence of one requisite in this case - that both debts must be due and demandable. As observed by the Court of Appeals, under the terms of the promissory note, failure on the part of NAREDECO (PNB MADECOR) to pay the value of the instrument ‘after due notice has been made by PNEI would entitle PNEI to collect an 18% interest per annum from date of notice of demand. Petitioner makes a similar assertion in its petition. Petitioner’s obligation to PNEI appears to be payable on demand. Petitioner is obligated to pay the amount stated in the promissory note upon receipt of a notice to pay from PNEI. If petitioner fails to pay after such notice, the obligation will earn an interest of 18 percent per annum. Respondent alleges that PNEI had already demanded payment. The Court agrees with petitioner that this letter was not one demanding payment, but one that merely informed petitioner of (1) the conveyance of a certain portion of its obligation to PNEI per a dacion en pago arrangement between PNEI and PNB, and (2) the unpaid balance of its obligation after deducting the amount conveyed to PNB. The import of this letter is not that PNEI

was demanding payment, but that PNEI was advising petitioner to settle the matter of implementing the earlier arrangement with PNB. Since petitioner’s obligation to PNEI is payable on demand, and there being no demand made, it follows that the obligation is not yet due. Therefore, this obligation may not be subject to compensation for lack of a requisite under the law. Without compensation having taken place, petitioner remains obligated to PNEI to the extent stated in the promissory note. This obligation may undoubtedly be garnished in favor of respondent to satisfy PNEI’s judgment debt. There is another alleged demand letter on record, dated January 24, 1990. It was addressed to Atty. Domingo A. Santiago, Jr., Senior Vice President and Chief Legal Counsel of PNB, and signed by Manuel Vijungco, chairman of the Board of Directors of PNEI. In said letter, PNEI requested offsetting of accounts between petitioner and PNEI. However, PNEI’s own Assistant General Manager for Finance at that time, Atty. Loreto N. Tang, testified that the letter was not a demand letter. THUS, Petition denied. Decision affirmed

COMPENSATION –LEGAL; WHEN PROHIBITED SILAHIS MARKETING CORPORATION, petitioner, VS. INTERMEDIATE APPELLATE COURT and GREGORIO DE LEON, doing business under the name and style of "MARK INDUSTRIAL SALES", respondents. 1989 December 07 G.R. No. 74027 FACTS: On various dates in October, November and December, 1975, Gregorio de Leon doing business under the name and style of Mark Industrial Sales sold and delivered to Silahis Marketing Corporation various items of merchandise covered by several invoices in the aggregate amount of P22,213.75 payable within thirty (30) days from date of the covering invoices. Allegedly due to Silahis' failure to pay its account upon maturity despite repeated demands, de Leon filed a complaint for the collection of the said accounts including accrued interest thereon in the amount of P661.03 and attorney's fees of P5,000.00 plus costs of litigation.

The answer admitted the allegations of the complaint insofar as the invoices were concerned but presented as affirmative defenses; [a] a debit memo for P22,200.00 as unrealized profit for a supposed commission that Silahis should have received from de Leon for the sale of sprockets in the amount of P111,000.00 made directly to Dole Philippines, Incorporated by the latter sometime in August 1975; and [b] Silahis' claim that it is entitled to return the stainless steel screen which was found defective by its client, Borden International, Davao City, and to have the corresponding amount cancelled from its account with de Leon. ISSUE: Whether or not private respondent is liable to the petitioner for the commission or margin for the direct sale which the former concluded and consummated with Dole Philippines, Incorporated without coursing the same through herein petitioner. RULING: It must be remembered that compensation takes place when two persons, in their own right, are creditors and debtors to each other. Article 1279 of the Civil Code provides that: "In order that compensation may be proper, it is necessary: [1] that each one of the obligors be bound principally, and that he be at the same time a principal creditor of the other; [2] that both debts consist in a sum of money, or if the things due are consumable, they be of the same kind, and also of the same quality if the latter has been stated; [3] that the two debts be due; [4] that they be liquidated and demandable; [5] that over neither of them there be any retention or controversy, commenced by third persons and communicated in due time to the debtor." Undoubtedly, petitioner admits the validity of its outstanding accounts with private respondent in the amount of P22,213.75 as contained in its answer. But whether private respondent is liable to pay the petitioner a 20% margin or commission on the subject sale to Dole Philippines, Inc. is vigorously disputed. This circumstance prevents legal compensation from taking place. The Court agrees with respondent appellate court that there is no evidence on record from which it can be inferred that there was any agreement between the petitioner and private respondent prohibiting the latter from selling directly to Dole Philippines, Incorporated. Definitely, it cannot be asserted that the debit memo was a contract binding between the parties considering that the same, as correctly found by the appellate court, was not signed by private

respondent nor was there any mention therein of any commitment by the latter to pay any commission to the former involving the sale of sprockets to Dole Philippines, Inc. in the amount of P111,000.00. Indeed, such document can be taken as self-serving with no probative value absent a showing or at the very least an inference, that the party sought to be bound assented to its contents or showed conformity thereto. Thus the questioned decision of respondent appellate court is hereby affirmed. COMPENSATION – LEGAL; WHEN PROHIBITED ENGRACIO FRANCIA VS. INTERMEDIATE APPELLATE COURT and HO FERNANDEZ G.R. No. L-67649 June 28, 1988 162 SCRA 753 FACTS: Engracio Francia is the registered owner of a residential lot, 328 square meters, and a two-story house built upon it situated at Barrio San Isidro, now District of Sta. Clara, Pasay City, Metro Manila. On October 15, 1977, a 125 square meter portion of Francia's property was expropriated by the Republic of the Philippines for the sum of P4,116.00 representing the estimated amount equivalent to the assessed value of the aforesaid portion. Since 1963 up to 1977 inclusive, Francia failed to pay his real estate taxes. Thus, on December 5, 1977, his property was sold at public auction pursuant to Section 73 of Presidential Decree No. 464 known as the Real Property Tax Code in order to satisfy a tax delinquency of P2,400.00. Ho Fernandez was the highest bidder for the property. On March 20, 1979, Francia filed a complaint to annul the auction sale. He later amended his complaint on January 24, 1980. The petitioner seeks to set aside the auction sale of his property which took place on December 5, 1977, and to allow him to recover a 203 square meter lot which was sold at public auction to Ho Fernandez and ordered titled in the latter's name. He further averred that his tax delinquency of P2,400.00 has been extinguished by legal compensation since the government owed him P4, 116.00 when a portion of his land was expropriated. The lower court rendered a decision in favor Fernandez which was affirmed by the Intermediate Appellate Court . Hence, this petition for review. ISSUE:

Whether or not the tax delinquency of Francia has been extinguished by legal compensation. RULING: There is no legal basis for the contention. By legal compensation, obligations of persons, who in their own right are reciprocally debtors and creditors of each other, are extinguished (Art. 1278, Civil Code). The circumstances of the case do not satisfy the requirements provided by Article 1279, to wit: (1) that each one of the obligors be bound principally and that he be at the same time a principal creditor of the other; (2) that the two debts be due. The Court had consistently ruled that there can be no off-setting of taxes against the claims that the taxpayer may have against the government. A person cannot refuse to pay a tax on the ground that the government owes him an amount equal to or greater than the tax being collected. The collection of a tax cannot await the results of a lawsuit against the government. In addition, a taxpayer cannot refuse to pay his tax when called upon by the collector because he has a claim against the governmental body not included in the tax levy. There are also other factors which compelled the Court to rule against the petitioner. The tax was due to the city government while the expropriation was effected by the national government. Moreover, the amount of P4,116.00 paid by the national government for the 125 square meter portion of his lot was deposited with the Philippine National Bank long before the sale at public auction of his remaining property. Notice of the deposit dated September 28, 1977 was received by the petitioner on September 30, 1977. The petitioner admitted in his testimony that he knew about the P4,116.00 deposited with the bank but he did not withdraw it. It would have been an easy matter to withdraw P2,400.00 from the deposit so that he could pay the tax obligation thus aborting the sale at public auction. The petition for review was dismissed. COMPENSATION – REQUISITES

TRINIDAD V ACAPULCO G.R.No. 147477 June 27, 2006

FACTS On May 6, 1991, respondent Estrella Acapulco filed a Complaint before the RTC seeking the nullification of a sale she made in favor of petitioner Hermenegildo M. Trinidad. She alleged: Sometime in February 1991, a certain Primitivo Cañete requested her to sell a Mercedes Benz for P580,000.00. Cañete also said that if respondent herself will buy the car, Cañete was willing to sell it for P500,000.00. Petitioner borrowed the car from respondent for two days but instead of returning the car as promised, petitioner told respondent to buy the car from Cañete for P500,000.00 and that petitioner would pay respondent after petitioner returns from Davao. Following petitioner’s instructions, respondent requested Cañete to execute a deed of sale covering the car in respondent’s favor for P500,000.00 for which respondent issued three checks in favor of Cañete. Respondent thereafter executed a deed of sale in favor of petitioner even though petitioner did not pay her any consideration for the sale. When petitioner returned from Davao, he refused to pay respondent the amount of P500,000.00 saying that said amount would just be deducted from whatever outstanding obligation respondent had with petitioner. Due to petitioner’s failure to pay respondent, the checks that respondent issued in favor of Cañete bounced, thus criminal charges were filed against her.[3] Respondent then prayed that the deed of sale between her and petitioner be declared null and void; that the car be returned to her; and that petitioner be ordered to pay damages. ISSUE Whether or not petitioner’s claim for legal compensation was already too late RULING The court ruled in favor of the petitioner. Compensation takes effect by operation of law even without the consent or knowledge of the parties concerned when all the requisites mentioned in Article 1279 of the Civil Code are present.[26] This is in consonance with Article 1290 of the Civil Code which provides that: Article 1290. When all the requisites mentioned in article 1279 are present, compensation takes effect by operation of law, and extinguishes both debts to the concurrent amount, even though the creditors and debtors are not aware of the

compensation. Since it takes place ipso jure,[27] when used as a defense, it retroacts to the date when all its requisites are fulfilled. Petitioner’s stance is that legal compensation has taken place and operates even against the will of the parties because: (a) respondent and petitioner were personally both creditor and debtor of each other; (b) the monetary obligation of respondent was P566,000.00 and that of the petitioner was P500,000.00 showing that both indebtedness were monetary obligations the amount of which were also both known and liquidated; (c) both monetary obligations had become due and demandable—petitioner’s obligation as shown in the deed of sale and respondent’s indebtedness as shown in the dishonored checks; and (d) neither of the debts or obligations are subject of a controversy commenced by a third person. NOVATION: SUBJECTIVE NOVATION; SUBSTITUION OF DEBTOR (Art. 1293) (EXPROMISION VS. DELEGACION)

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

to Agrifina. They insisted that by virtue of these documents, Agrifina became the new collector of their debtors; and the obligation to pay the balance of their loans had been extinguished. ISSUE Whether or not there is valid novation in the instant case? RULING Novation which consists in substituting a new debtor in the place of the original one may be made even without the knowledge or against the will of the latter but not without the consent of the creditor. Substitution of the person of the debtor may be effected by delegacion, meaning, the debtor offers, and the creditor, accepts a third person who consents to the substitution and assumes the obligation. Thus, the consent of those three persons is necessary. In this kind of novation, it is not enough to extend the juridical relation to a third person; it is necessary that the old debtor be released from the obligation, and the third person or new debtor take his place in the relation. Without such release, there is no novation; the third person who has assumed the obligation of the debtor merely becomes a co-debtor or a surety. If there is no agreement as to solidarity, the first and the new debtor are considered obligated jointly. In the case at bar, the court found that respondents’ obligation to pay the balance of their account with petitioner was extinguished, pro tanto, by the deeds of assignment of credit executed by respondent Felicidad in favor of petitioner. As gleaned from the deeds executed by respondent Felicidad relative to the accounts of her other debtors, petitioner was authorized to collect the amounts of P6,000.00 from Cabang, and P63,600.00 from Cirilo. They obliged themselves to pay petitioner. Respondent Felicidad, likewise,unequivocably declared that Cabang and Cirilo no longer had any obligation to her. NOVATION: SUBJECTIVE NOVATION; SUBROGATION OF THE RIGHTS OF THE CREDITOR (LEGAL VS. CONVENTIONAL) 1. 2.

SWAGMAN VS. CA, 455 S 175 AZOLLA FARMS VS. CA, 11 NOVEMBER 2004

3. 4. 5. 6. 7.

CALIFORNIA BUS LINES VS. STATE INVVESTMENT, 418 S 297 OCAMPO-PAULE VS. CA, 4 FEBRUARY 2002 REYES VS. CA, 383 S 471 BAUTISTA VS. PILAR DEVELOPMENT, 312 S 611 EVADEL REALTY VS. SORIANO, 357 S 395

SWAGMAN V CA G.R.No. 161135 April 8, 2005 FACTS Sometime in 1996 and 1997, petitioner Swagman Hotels and Travel, Inc., through Atty. Leonor L. Infante and Rodney David Hegerty, its president and vice-president, respectively, obtained from private respondent Neal B. Christian loans evidenced by three promissory notes dated 7 August 1996, 14 March 1997, and 14 July 1997. Each of the promissory notes is in the amount of US$50,000 payable after three years from its date with an interest of 15% per annum payable every three months. In a letter dated 16 December 1998, Christian informed the petitioner corporation that he was terminating the loans and demanded from the latter payment in the total amount of US$150,000 plus unpaid interests in the total amount of US$13,500. On 2 February 1999, private respondent Christian filed with the Regional Trial Court of Baguio City, Branch 59, a complaint for a sum of money and damages against the petitioner corporation, Hegerty, and Atty. Infante. The petitioner corporation, together with its president and vice-president, filed an Answer raising as defenses lack of cause of action and novation of the principal obligations. According to them, Christian had no cause of action because the three promissory notes were not yet due and demandable. ISSUE Where there is a valid novation, may the original terms of contract which has been novated still prevail? HELD The receipts, as well as private respondent’s summary of payments, lend credence to petitioner’s claim that the payments were for the principal loans and that the interests on the three consolidated loans were waived by the private respondent during the undisputed renegotiation of the

loans on account of the business reverses suffered by the petitioner at the time. There was therefore a novation of the terms of the three promissory notes in that the interest was waived and the principal was payable in monthly installments of US$750. Alterations of the terms and conditions of the obligation would generally result only in modificatory novation unless such terms and conditions are considered to be the essence of the obligation itself.[25] The resulting novation in this case was, therefore, of the modificatory type, not the extinctive type, since the obligation to pay a sum of money remains in force. Thus, since the petitioner did not renege on its obligation to pay the monthly installments conformably with their new agreement and even continued paying during the pendency of the case, the private respondent had no cause of action to file the complaint. It is only upon petitioner’s default in the payment of the monthly amortizations that a cause of action would arise and give the private respondent a right to maintain an action against the petitioner. NOVATION: SUBJECTIVE NOVATION; SUBROGATION OF THE RIGHTS OF THE CREDITOR (LEGAL VS. CONVENTIONAL)

AZOLLA FARMS V CA G.R.No. 138085 November 11, 2004 FACTS Petitioner Francis R. Yuseco, Jr., is the Chairman, President and Chief Operating Officer of petitioner Azolla Farms International Philippines. In 1982, Azolla Farms undertook to participate in the National Azolla Production Program wherein it will purchase all the Azolla produced by the Azolla beneficiaries in the amount not exceeding the peso value of all the inputs provided to them. The project also involves the then Ministry of Agriculture, the Kilusang Kabuhayan at Kaunlaran, and the Kiwanis. To finance its participation, petitioners applied for a loan with Credit Manila, Inc., which the latter endorsed to its sister company, respondent Savings

Bank of Manila (Savings Bank). The Board of Directors of Azolla Farms, meanwhile, passed a board resolution on August 31, 1982, authorizing Yuseco to borrow from Savings Bank in an amount not exceeding P2,200,000.00. The loan having been approved, Yuseco executed a promissory note on September 13, 1982, promising to pay Savings Bank the sum of P1,400,000.00 on or before September 13, 1983. the Azolla Farms project collapsed. Blaming Savings Bank, petitioners Yuseco and Azolla Farms filed on October 3, 1983 with the Regional Trial Court of Manila (Branch 25), a complaint for damages. In essence, their complaint alleges that Savings Bank unjustifiably refused to promptly release the remaining P300,000.00 which impaired the timetable of the project and inevitably affected the viability of the project resulting in its collapse, and resulted in their failure to pay off the loan. Thus, petitioners pray for P1,000,000.00 as actual damages, among others. ISSUE Whether the trial court erred in admitting petitioners’ amended complaint RULING SEC. 5. Amendment to conform to or authorize presentation of evidence .—When issues not raised by the pleadings are tried by express or implied consent of the parties, they shall be treated in all respects, as if they had been raised in the pleadings. Such amendment of the pleadings as may be necessary to cause them to conform to the evidence and to raise these issues may be made upon motion of any party at any time, even after judgment; but failure so to amend does not affect the result of the trial of these issues. If evidence is objected to at the trial on the ground that it is not within the issues made by the pleadings, the court may allow the pleadings to be amended and shall do so freely when the presentation of the merits of the action will be subserved thereby and the objecting party fails to satisfy the court that the admission of such evidence would prejudice him in maintaining his action or defense upon the merits. As can be gleaned from the records, it was petitioners’ belief that respondent’s evidence justified the amendment of their complaint. The

trial court agreed thereto and admitted the amended complaint. On this score, it should be noted that courts are given the discretion to allow amendments of pleadings to conform to the evidence presented during the trial. NOVATION: SUBJECTIVE NOVATION; SUBROGATION OF THE RIGHTS OF THE CREDITOR (LEGAL VS. CONVENTIONAL)

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

ISSUE Whether the Restructuring Agreement dated October 7, 1981, between petitioner CBLI and Delta Motors, Corp. novated the five promissory notes Delta Motors, Corp. assigned to respondent SIHI. RULING Novation has been defined as the extinguishment of an obligation by the substitution or change of the obligation by a subsequent one which terminates the first, either by changing the object or principal conditions, or by substituting the person of the debtor, or subrogating a third person in the rights of the creditor.For novation to take place, four essential requisites have to be met, namely, (1) a previous valid obligation; (2) an agreement of all parties concerned to a new contract; (3) the extinguishment of the old obligation; and (4) the birth of a valid new obligation. In this case, the attendant facts do not make out a case of novation. The restructuring agreement between Delta and CBLI executed on October 7, 1981, shows that the parties did not expressly stipulate that the restructuring agreement novated the promissory notes. Absent an unequivocal declaration of extinguishment of the pre-existing obligation, only a showing of complete incompatibility between the old and the new obligation would sustain a finding of novation by implication. NOVATION: SUBJECTIVE NOVATION; SUBROGATION OF THE RIGHTS OF THE CREDITOR (LEGAL VS. CONVENTIONAL)

OCAMPO-PAULE V CA G.R.No. 145872 February 4, 2002 FACTS During the period August, 1991 to April, 1993, petitioner received from private complainant Felicitas M. Calilung several pieces of jewelry with a total value of One hundred Sixty Three Thousand One hundred

Sixty Seven Pesos and Ninety Five Centavos (P163,167.95). The agreement between private complainant and petitioner was that the latter would sell the same and thereafter turn over and account for the proceeds of the sale, or otherwise return to private complainant the unsold pieces of jewelry within two months from receipt thereof. Since private complainant and petitioner are relatives, the former no longer required petitioner to issue a receipt acknowledging her receipt of the jewelry.When petitioner failed to remit the proceeds of the sale of the jewelry or to return the unsold pieces to private complainant, the latter sent petitioner a demand letter. Notwithstanding receipt of the demand letter, petitioner failed to turn over the proceeds of the sale or to return the unsold pieces of jewelry. Private complainant was constrained to refer the matter to the barangay captain of Sta. Monica, Lubao, Pampanga.

An obligation to pay a sum of money is not novated, in a new instrument wherein the old is ratified, by changing only the terms of payment and adding other obligations not incompatible with the old one, or wherein the old contract is merely supplemented by the new one.

ISSUE Whether or not there was a novation of petitioner’s criminal liability when she and private complainant executed the Kasunduan sa Bayaran.

REYES V CA june 26, 2002

RULING It is well-settled that the following requisites must be present for novation to take place: (1) a previous valid obligation; (2) agreement of all the parties to the new contract; (3) extinguishment of the old contract; and (4) validity of the new one. Novation, in its broad concept, may either be extinctive or modificatory. It is extinctive when an old obligation is terminated by the creation of a new obligation that takes the place of the former; it is merely modificatory when the old obligation subsists to the extent it remains compatible with the amendatory agreement. The execution of the Kasunduan sa Bayaran does not constitute a novation of the original agreement between petitioner and private complainant. Said Kasunduan did not change the object or principal conditions of the contract between them. The change in manner of payment of petitioner’s obligation did not render the Kasunduan incompatible with the original agreement, and hence, did not extinguish petitioner’s liability to remit the proceeds of the sale of the jewelry or to return the same to private complainant.

In any case, novation is not one of the grounds prescribed by the Revised Penal Code for the extinguishment of criminal liability. NOVATION: SUBJECTIVE NOVATION; SUBROGATION OF THE RIGHTS OF THE CREDITOR (LEGAL VS. CONVENTIONAL)

FACTS This petition arose from a civil case for collection of a sum of money with preliminary attachment filed by respondent Pablo V. Reyes against his first cousin petitioner Arsenio R. Reyes and spouse Nieves S. Reyes. According to private respondent, petitioner-spouses borrowed from him P600,000.00 with interest at five percent (5%) per month, which totalled P1,726,250.00 at the time of filing of the Complaint. The loan was to be used supposedly to buy a lot in Parañaque. It was evidenced by an acknowledgment receipt dated 15 July 1990 signed by the petitionerspouses Arsenio R. Reyes and Nieves S. Reyes and witness Romeo Rueda. In their Answer petitioners admitted their loan from respondent but averred that there was a novation so that the amount loaned was actually converted into respondent's contribution to a partnership formed between them on 23 March 1990. ISSUE Whether or not there was novation in the instant case? RULING For novation to take place, the following requisites must concur: (a) there must be a previous valid obligation; (b) there must be an agreement

of the parties concerned to a new contract; (c) there must be the extinguishment of the old contract; and, (d) there must be the validity of the new contract. In the case at bar, the third requisite is not present. The parties did agree that the amount loaned would be converted into respondent's contribution to the partnership, but this conversion did not extinguish the loan obligation. The date when the acknowledgment receipt/promissory note was made negates the claim that the loan agreement was extinguished through novation since the note was made while the partnership was in existence. Significantly, novation is never presumed. It must appear by express agreement of the parties, or by their acts that are too clear and unequivocal to be mistaken for anything else. An obligation to pay a sum of money is not novated in a new instrument wherein the old is ratified by changing only the terms of payment and adding other obligations not incompatible with the old one, or wherein the old contract is merely supplemented by the new one. NOVATION: SUBJECTIVE NOVATION; SUBROGATION OF THE RIGHTS OF THE CREDITOR (LEGAL VS. CONVENTIONAL)

BAUTISTA V PILAR DEVELOPMENT g.r.no. 135046 august 17, 1999 FACTS In 1978, petitioner spouses Florante and Laarni Bautista purchased a house and lot in Pilar Village, Las Pinas, Metro Manila. To partially finance the purchase, they obtained from the Apex Mortgage & Loan Corporation a loan in the amount of P100,180.00. They executed a promissory note on December 22, 1978 obligating themselves, jointly and severally, to pay the "principal sum of P100,180.00 with interest rate of 12% and service charge of 3%" for a period of 240 months, or twenty years, from date, in monthly installments of P1,378.83. Late payments were to be charged a penalty of one and one-half per cent (1 1/2%) of the amount due. In the same promissory note, petitioners authorized Apex to

"increase the rate of interest and/or service charges" without notice to them in the event that a law, Presidential Decree or any Central Bank regulation should be enacted increasing the lawful rate of interest and service charges on the loan. Payment of the promissory note was secured by a second mortgage on the house and lot purchased by petitioners.Petitioner spouses failed to pay several installments. On September 20, 1982, they executed another promissory note in favor of Apex. This note was in the amount of P142,326.43 at the increased interest rate of twenty-one per cent (21%) per annum with no provision for service charge but with penalty charge of 1 1/2% for late payments. ISSUE Whether or not there was valid novation in the case at bar? RULING Novation has four (4) essential requisites: (1) the existence of a previous valid obligation; (2) the agreement of all parties to the new contract; (3) the extinguishment of the old contract; and (4) the validity of the new one. In the instant case, all four requisites have been complied with. The first promissory note was a valid and subsisting contract when petitioner spouses and Apex executed the second promissory note. The second promissory note absorbed the unpaid principal and interest of P142,326.43 in the first note which amount became the principal debt therein, payable at a higher interest rate of 21% per annum. Thus, the terms of the second promissory note provided for a higher principal, a higher interest rate, and a higher monthly amortization, all to be paid within a shorter period of 16.33 years. These changes are substantial and constitute the principal conditions of the obligation. Both parties voluntarily accepted the terms of the second note; and also in the same note, they unequivocally stipulated to extinguish the first note. Clearly, there was animus novandi, an express intention to novate. The first promissory note was cancelled and replaced by the second note. This second note became the new contract governing the parties' obligations. NOVATION: SUBJECTIVE NOVATION; SUBROGATION OF THE RIGHTS OF THE CREDITOR (LEGAL VS. CONVENTIONAL)

EVADEL REALTY V SORIANO G.R.No. 144291 April 20, 2001 FACTS On April 12, 1996, the spouses Antero and Virginia Soriano (respondent spouses), as sellers, entered into a "Contract to Sell " with Evadel Realty and Development Corporation (petitioner), as buyer, over a parcel of land denominated as Lot 5536-C of the Subdivision Plan of Lot 5536 covered by Transfer Certificate of Title No. 125062 which was part of a huge tract of land known as the Imus Estate. Upon payment of the first installment, petitioner introduced improvements thereon and fenced off the property with concrete walls. Later, respondent spouses discovered that the area fenced off by petitioner exceeded the area subject of the contract to sell by 2,450 square meters. Upon verification by representatives of both parties, the area encroached upon was denominated as Lot 5536-D-1 of the subdivision plan of Lot 5536-D of Psd04-092419 and was later on segregated from the mother title and issued a new transfer certificate of title, TCT No. 769166, in the name of respondent spouses. Respondent spouses successively sent demand letters to petitioner on February 14, March 7, and April 24, 1997, to vacate the encroached area. Petitioner admitted receiving the demand letters but refused to vacate the said area. ISSUE Whether or not there was novation of contract? RULING Petitioner's claim that there was a novation of contract because there was a "second" agreement between the parties due to the encroachment made by the national road on the property subject of the contract by 1,647 square meters, is unavailing. Novation, one of the modes of extinguishing an obligation, requires the concurrence of the following: (1) there is a valid previous obligation; (2) the parties concerned agree to a new contract; (3) the old contract is extinguished; and (4) there is valid new contract. Novation may be express or implied. In order that an obligation may be extinguished by another which

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

EXTINCTIVE PRESCRIPTION: INTERRUPTION 1. 2. 3. 4. 5. 6. 7.

B & I REALTY VS. CASPE, 543 S 1 MESINA VS. GARCIA, 509 S 431 HEIRS OF GAUDIANE VS. CA, 11 MARCH 2004 LAUREANO VS. CA, 9 MARCH 2000 BANCO FILIPINO VS. CA, 30 MAY 2000 VDA. DE DELGADO VS CA, 28 MARCH 2001 MAESTRADO VS. CA, 9 MAMRCH 2000

B & I REALTY V. CASPE G.R. No. 146972 January 29, 2008 FACTS Consorcia L. Venegas was the owner of a parcel of land located in Barrio Bagong-Ilog in Pasig, Rizal and covered by TCT No. 247434. She delivered said title to, and executed a simulated deed of sale in favor of, Datuin for purposes of obtaining a loan with the RCBC. Datuin claimed that he had connections with the management of RCBC and offered his

assistance to Venegas in obtaining a loan from the bank. He issued a receipt to the Venegases, acknowledging that the lot was to be used as a collateral for bank financing and that the deed of sale was executed only as a device to obtain the loan. However, Datuin prepared a deed of absolute sale and, through forgery, made it appear that the spouses Venegas executed the document in his favor. Venegas learned of Datuin's fraudulent scheme when she sold the lot to herein respondents for P160,000 in a deed of conditional sale. She, along with her husband, instituted a complaint against Datuin in the then Court of First Instance CFI of Rizal, Branch 11, docketed as Civil Case No. 188893, for recovery of property and nullification of TCT No. 377734, with damages. However, when the case was called for pre-trial, the Venegases' counsel failed to appear and the complaint was eventually dismissed without prejudice. ISSUE Whether or not filing of Civil Case No. 36852 by the Venegases had the effect of interrupting the prescriptive period for the filing of the complaint for judicial foreclosure of mortgage? RULING We agree with the CA's ruling that Civil Case No. 36852 did not have the effect of interrupting the prescription of the action for foreclosure of mortgage as it was not an action for foreclosure but one for annulment of title and nullification of the deed of mortgage and the deed of sale. It was not at all the action contemplated in Article 1155 of the Civil Code which explicitly provides that the prescription of an action is interrupted only when the action itself is filed in court. Petitioner could have protected its right over the property by filing a cross-claim for judicial foreclosure of mortgage against respondents in Civil Case No. 36852. The filing of a cross-claim would have been proper there. All the issues pertaining to the mortgage validity of the mortgage and the propriety of foreclosure would have been passed upon concurrently and not on a piecemeal basis. This should be the case as the issue of foreclosure of the subject mortgage was connected with, or dependent on, the subject of annulment of mortgage in Civil Case No. 36852. The actuations clearly manifested that petitioner knew its rights under the law but chose to sleep on the same.

EXTINCTIVE PRESCRIPTION: INTERRUPTION

MESINA V. GARCIA G.R. No. 168035 November 30, 2006 FACTS Atty. Honorio Valisno Garcia and Felicisima Mesina, during their lifetime, enstered into a Contract to Sell over a lot consisting of 235 square meters, situated at Diversion Road, Sangitan, Cabanatuan City, covered and embraced by TCT No. T-31643 in the name of Felicisima Mesina which title was eventually cancelled and TCT No. T-78881 was issued in the name of herein petitioners. The Contract to Sell provides that the cost of the lot is P70.00 per square meter for a total amount of P16,450.00; payable within a period not to exceed 7 years at an interest rate of 12% per annum, in successive monthly installments of P260.85 per month, starting May 1977. Thereafter, the succeeding monthly installments are to be paid within the first week of every month, at the residence of the vendor at Quezon City, with all unpaid monthly installments earning an interest of 1% per month. Instituting this case at bar, respondent asserts that despite the full payment made on 7 February 1984 for the consideration of the subject lot, petitioners refused to issue the necessary Deed of Sale to effect the transfer of the property to her. ISSUE Whether prescribed?

or

not

respondent’s

cause

of

action

had

already

RULING Article 1155 of the Civil Code is explicit that the prescriptive period is interrupted when an action has been filed in court; when there is a written extrajudicial demand made by the creditors; and when there is any written acknowledgment of the debt by the debtor. The records reveal that starting 19 April 1986 until 2 January 1997 respondent continuously demanded from the petitioners the execution of the said Deed of Absolute Sale but the latter conjured many reasons and

excuses not to execute the same. Respondent even filed a Complaint before the Housing and Land Use Regulatory Board way back in June, 1986, to enforce her rights and to compel the mother of herein petitioners, who was still alive at that time, to execute the necessary Deed of Absolute Sale for the transfer of title in her name. On 2 January 1997, respondent, through her counsel, sent a final demand letter to the petitioners for the execution of the Deed of Absolute Sale, but still to no avail. Consequently, because of utter frustration of the respondent, she finally lodged a formal Complaint for Specific Performance with Damages before the trial court on 20 January 1997. Hence, from the series of written extrajudicial demands made by respondent to have the execution of the Deed of Absolute Sale in her favor, the prescriptive period of 10 years has been interrupted. Therefore, it cannot be said that the cause of action of the respondent has already been prescribed. EXTINCTIVE PRESCRIPTION: INTERRUPTION

HEIRS OF GAUDIANE V CA G.R.No. 119879 March 11, 2004 FACTS The lot in controversy is Lot 4389 located at Dumaguete City and covered by Original Certificate of Title No. 2986-A (OCT 2986-A) in the names of co-owners Felix and Juana Gaudiane. Felix died in 1943 while his sister Juana died in 1939. Herein respondents are the descendants of Felix while petitioners are the descendants of Juana. On November 4, 1927, Felix executed a document entitled Escritura de Compra-Venta (Escritura, for brevity) whereby he sold to his sister Juana his one-half share in Lot No. 4156 covered by Transfer Certificate of Title No. 3317-A.

Dumaguete City to cancel OCT 2986-A covering Lot 4389 and to issue a new title in favor of the Isos. This was later withdrawn after respondents’ predecessors-in-interest, Procopio Gaudiane and Segundo Gaudiane, opposed it on the ground that the Isos falsified their copy of the Escritura by erasing “Lot 4156” and intercalating in its place “Lot 4389.” ISSUE Whether the court gravely erred in not giving due course to the claim of petitioners and legal effect of prescription and laches adverted by defendants-appellants in their answer and affirmative defenses proven during the hearing by documentary and testimonial evidence. RULING As a general rule, ownership over titled property cannot be lost through prescription.[12] Petitioners, however, invoke our ruling in Tambot vs. Court of Appeals[13] which held that titled property may be acquired through prescription by a person who possessed the same for 36 years without any objection from the registered owner who was obviously guilty of laches. Petitioners’ claim is already rendered moot by our ruling barring petitioners from raising the defense of exclusive ownership due to res judicata. Even assuming arguendo that petitioners are not so barred, their contention is erroneous. As correctly observed by the appellate court. As explained earlier, only Lot No. 4156 was sold. It was through this misrepresentation that appellees’ predecessor-in-interest succeeded in withholding possession of appellees’ share in Lot No. 4389. Appellees cannot, by their own fraudulent act, benefit therefrom by alleging prescription and laches. EXTINCTIVE PRESCRIPTION: INTERRUPTION

Petitioners’ predecessors-in-interest, Geronimo and Ines Iso (the Isos), believed that the sale by Felix to their mother Juana in 1927 included not only Lot 4156 but also Lot 4389. In 1974, they filed a pleading in the trial court seeking to direct the Register of Deeds of

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

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

EXTINCTIVE PRESCRIPTION: INTERRUPTION

BANCO FILIPINO vs. COURT OF APPEALS 332 SCRA 241 FACTS: Elsa Arcilla and her husband, Calvin Arcilla secured on three occasions, loans from the Banco Filipino Savings and Mortgage bank in the amount of Php.107,946.00 as evidenced by the “Promissory Note” executed by the spouses in favor of the said bank. To secure payment of said loans, the spouses executed “Real Estate Mortgages” in favor of the appellants (Banco Filipino) over their parcels of land. The appellee spouses failed to pay their monthly amortization to appellant. On September 2, 1985 the appellee’s filed a complaint for “Annulment of the Loan Contracts, Foreclosure Sale with Prohibitory and Injunction” which was granted by the RTC. Petitioners appealed to the Court of Appeals, but the CA affirmed the decision of the RTC. ISSUE: Whether or not the CA erred when it held that the cause of action of the private respondents accrued on October 30, 1978 and the filing of their complaint for annulment of their contracts in 1085 was not yet barred by the prescription/

RULING: The court held that the petition is unmeritorious. Petitioner’s claim that the action of the private respondents have prescribed is bereft of merit. Under Article 1150 of the Civil Code, the time for prescription of all kinds of action where there is no special provision which ordains otherwise shall be counted from the day they may be brought. Thus the period of prescription of any cause of action is reckoned only from the date of the cause of action accrued. The period should not be made to retroact to the date of the execution of the contract, but from the date they received the statement of account showing the increased rate of interest, for it was only from the moment that they discovered the petitioner’s unilateral increase thereof.

EXTINCTIVE PRESCRIPTION: INTERRUPTION

Upon declaration of independence, the Commonwealth was replaced by Republic of the Philippines which took over the subject land and turned over to Civil Aeronautics Administration, later named Bureau of Air Transportation Office. The said agency utilizes the said land a domestic airport. Jose Delgado filed a petition for reconveyance for a violation of the condition. The RTC ruled in favor of the plaintiff Delgado. But the CA reversed the said decision because of prescription. The petitioner filed only before 24 years o discovery which the law only requires 10 years of filing. ISSUE: Whether or not the petitioner’s action for reconveyance is already barred by prescription. RULING:

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

The Supreme Court denied the petition and affirmed the decision of the Court of Appeals because the time of filing has been prescribed. Under Article 1144 of the Civil Code on Prescription based on written contracts, the filing of action for reconveyance is within 10 years from the time the condition in the Deed of Donation was violated. The petitioner herein filed only 24 years in the first action and 43 years in the second filing of the 2nd action. The action for reconveyance on the alleged excess of 33, 607 square meter mistakenly included in the title was also prescribed Article 1456 of the Civil Code states, if property is acquired through mistake or fraud, the person obtaining it is, by force of law, considered a trustee of an implied trust for the benefits of the person from whom the property comes, if within 10 years such action for reconveyance has not been executed. EXTINCTIVE PRESCRIPTION: INTERRUPTION

MAESTRADO vs. COURT OF APPEALS

327 SCRA 678

Whether or not the action for quieting of title had already prescribed.

FACTS: RULING: These consolidated cases involve Lot No. 5872 and the rights of the contending parties thereto. The lot has an area of 57.601 sq.m. and is registered in the name of the deceased spouses Ramon and Rosario Chaves. The spouses died intestate in 1943 and 1944, respectively. They were survived by six heirs. To settle the estate of said spouse, Angel Chaves, one of the heirs, initiated intestate proceedings and was appointed administrator of said estates in the process. An inventory of the estates was made and thereafter, the heirs agreed on a project partition. The court approved the partition but a copy of said decision was missing. Nonetheless, the estate was divided among the heirs. Subsequently, in 1956, the partition case effected and the respective shares of the heirs were delivered to them. Significantly, Lot No.5872 was not included in a number of documents. Parties offered different explanations as to the omission of said lot in the documents. Petitioners maintain the existence of an oral partition agreement entered into by all heirs after the death of their parents. To set things right, petitioners then prepared a quitclaim to confirm the alleged oral agreement. Respondents dispute voluntariness of their consent to the quitclaims. Six years after the execution of the quitclaims, respondents discovered that indeed subject lot was still a common property in the name of the deceased spouses. Eventually, an action for Quieting of Title was filed by petitioners on December 22, 1983. The trial court considered Lot No. 5872 as still a common property and therefore must be divided into six parts, there being six heirs. Petitioners appealed to the Court of Appeals which sustained the decision of the trial court. ISSUE:

The Supreme Court ruled that an action for quieting of title is imprescriptible especially if the plaintiff is in possession of the property being litigated. One who is in actual possession of a land, claiming to be the owner thereof may wait until his possession is disturbed or his title is attacked before making steps to vindicate his right because his undisturbed possession gives him a continuing right to seek the aid of the courts to ascertain the nature of the adverse claim and its effect on his title. Moreover, the Court held that laches is inapplicable in this case. This is because, as mentioned earlier, petitioners’ possession of the subject lot has rendered their right to bring an action for quieting of title imprescriptible. ESTOPPEL (ART. 143-1439) 1.) DEFINITION AND MEANING 1. 2. 3.

TANAY RECREATION VS. FAUSTO, 455 S 436 MENDOZA VS. CA, 9 MARCH 2000 LIM VS. QUEENSLAND, 373 S 31

TANAY RECREATION CENTER AND DEVELOPMENT CORP. vs. CATALINA MATIENZO FAUSTO April 12, 2005 FACTS: Petitioner Tanay Recreation Center and Development Corp. (TRCDC) is the lessee of a 3,090-square meter property located in Sitio Gayas, Tanay, Rizal, owned by Catalina Matienzo Fausto, under a Contract of Lease. On this property stands the Tanay Coliseum Cockpit operated by petitioner. The lease contract provided for a 20-year term, subject to renewal within sixty days prior to its expiration. The contract also

provided that should Fausto decide to sell the property, petitioner shall have the “priority right” to purchase the same. On June 17, 1991, petitioner wrote Fausto informing her of its intention to renew the lease. However, it was Fausto’s daughter, respondent Anunciacion F. Pacunayen, who replied, asking that petitioner remove the improvements built thereon, as she is now the absolute owner of the property. It appears that Fausto had earlier sold the property to Pacunayen and title has already been transferred in her name. Petitioner filed an Amended Complaint for Annulment of Deed of Sale, Specific Performance with Damages, and Injunction In her Answer, respondent claimed that petitioner is estopped from assailing the validity of the deed of sale as the latter acknowledged her ownership when it merely asked for a renewal of the lease. According to respondent, when they met to discuss the matter, petitioner did not demand for the exercise of its option to purchase the property, and it even asked for grace period to vacate the premises.

of an agreement have been reduced to writing, it is considered as containing all the terms agreed upon. As such, there can be, between the parties and their successors in interest, no evidence of such terms other than the contents of the written agreement, except when it fails to express the true intent and agreement of the parties. In this case, the wording of the stipulation giving petitioner the right of first refusal is plain and unambiguous, and leaves no room for interpretation. It simply means that should Fausto decide to sell the leased property during the term of the lease, such sale should first be offered to petitioner. The stipulation does not provide for the qualification that such right may be exercised only when the sale is made to strangers or persons other than Fausto’s kin. Thus, under the terms of petitioner’s right of first refusal, Fausto has the legal duty to petitioner not to sell the property to anybody, even her relatives, at any price until after she has made an offer to sell to petitioner at a certain price and said offer was rejected by petitioner. DEFINITION AND MEANING

ROMEO MENDOZA vs. COURT OF APPEALS February 18, 2005

ISSUE: The contention in this case refers to petitioner’s priority right to purchase, also referred to as the right of first refusal. RULING: When a lease contract contains a right of first refusal, the lessor is under a legal duty to the lessee not to sell to anybody at any price until after he has made an offer to sell to the latter at a certain price and the lessee has failed to accept it. The lessee has a right that the lessor's first offer shall be in his favor. Petitioner’s right of first refusal is an integral and indivisible part of the contract of lease and is inseparable from the whole contract. The consideration for the lease includes the consideration for the right of first refusal and is built into the reciprocal obligations of the parties. It was erroneous for the CA to rule that the right of first refusal does not apply when the property is sold to Fausto’s relative. When the terms

FACTS: Manotok was the administrator of a parcel of land which it leased to Benjamin Mendoza; that the contract of lease expired on December 31, 1988; that even after the expiration of the lease contract, Benjamin Mendoza, and after his demise, his son, Romeo, continued to occupy the premises and thus incurred a total of P44,011.25 as unpaid rentals from January 1, 1989 to July 31, 1996; that on July 16, 1996, Manotok made a demand on Benjamin Mendoza to pay the rental arrears and to vacate the premises within fifteen (15) days from receipt of the demand letter; that despite receipt of the letter and after the expiration of the 15-day period, the Mendozas refused to vacate the property and to pay the rentals. The complaint prayed that the court order Mendoza and those claiming rights under him to vacate the premises and deliver possession thereof to Manotok, and to pay the unpaid rentals from January 1, 1989 to July 31, 1996 plus P875.75 per month starting August 1, 1996, subject to such increase allowed by law, until he finally vacates the premise.

ISSUE: Whether or not the Honorable Court of Appeals committed error in giving efficacy to a lease contract signed in 1988 when the alleged signatory was already dead since 1986. RULING: This is a case for unlawful detainer. It appears that respondent corporation leased the property subject of this case to petitioner’s father. After expiration of the lease, petitioner continued to occupy the property but failed to pay the rentals. On July 16, 1996, respondent corporation made a demand on petitioner to vacate the premises and to pay their arrears. An action for unlawful detainer may be filed when possession by a landlord, vendor, vendee or other person of any land or building is unlawfully withheld after the expiration or termination of the right to hold possession by virtue of a contract, express or implied. The only issue to be resolved in an unlawful detainer case is physical or material possession of the property involved, independent of any claim of ownership by any of the parties involved. In the case at bar, petitioner lost his right to possess the property upon demand by respondent corporation to vacate the rented lot. Petitioner cannot now refute the existence of the lease contract because of his prior admissions in his pleadings regarding his status as tenant on the subject property.

DEFINITION AND MEANING

JEFFERSON LIM vs. QUEENSLAND TOKYO COMMODITIES, INC. January 4, 2002 FACTS: Sometime in 1992, Benjamin Shia, a market analyst and trader of Queensland, was introduced to petitioner Jefferson Lim by Marissa Bontia,

one of his employees. Marissa’s father was a former employee of Lim’s father. Shia suggested that Lim invest in the Foreign Exchange Market, trading U.S. dollar against the Japanese yen, British pound, Deutsche Mark and Swiss Franc. Before investing, Lim requested Shia for proof that the foreign exchange was really lucrative. They conducted mock tradings without money involved. As the mock trading showed profitability, Lim decided to invest with a marginal deposit of US$5,000 in manager’s check. The marginal deposit represented the advance capital for his future tradings. It was made to apply to any authorized future transactions, and answered for any trading account against which the deposit was made, for any loss of whatever nature, and for all obligations, which the investor would incur with the broker. Petitioner Lim was then allowed to trade with respondent company which was coursed through Shia by virtue of blank order forms all signed by Lim. Respondent furnished Lim with the daily market report and statements of transactions as evidenced by the receiving forms, some of which were received by Lim. Meanwhile, on October 22, 1992, respondent learned that it would take seventeen (17) days to clear the manager’s check given by petitioner. Shia returned the check to petitioner who informed Shia that petitioner would rather replace the manager’s check with a traveler’s check. Shia noticed that the traveler’s check was not indorsed but Lim told Shia that Queensland could sign the endorsee portion. Because Shia trusted the latter’s good credit rating, and out of ignorance, he brought the check back to the office unsigned. Inasmuch as that was a busy Friday, the check was kept in the drawer of respondent’s consultant. Later, the traveler’s check was deposited with Citibank. On October 27, 1992, Citibank informed respondent that the traveler’s check could not be cleared unless it was duly signed by Lim, the original purchaser of the traveler’s check. A Miss Arajo, from the accounting staff of Queensland, returned the check to Lim for his signature, but the latter, aware of his P44,465 loss, demanded for a liquidation of his account and said he would get back what was left of his

investment. FACTS: ISSUE: Whether or not the CA erred in reversing the decision of the RTC which dismissed the respondent’s complaint RULING: The essential elements of estoppel are: (1) conduct of a party amounting to false representation or concealment of material facts or at least calculated to convey the impression that the facts are otherwise than, and inconsistent with, those which the party subsequently attempts to assert; (2) intent, or at least expectation, that this conduct shall be acted upon by, or at least influence, the other party; and (3) knowledge, actual or constructive, of the real facts. ere, it is uncontested that petitioner had in fact signed the Customer’s Agreement in the morning of October 22, 1992, knowing fully well the nature of the contract he was entering into. The Customer’s Agreement was duly notarized and as a public document it is evidence of the fact, which gave rise to its execution and of the date of the latter. Next, petitioner paid his investment deposit to respondent in the form of a manager’s check in the amount of US$5,000 as evidenced by PCI Bank Manager’s Check No. 69007, dated October 22, 1992. All these are indicia that petitioner treated the Customer’s Agreement as a valid and binding contract.

Petitioner Placewell International Services Corporation (PISC) deployed respondent Ireneo B. Camote to work as building carpenter for SAAD Trading and Contracting Co. (SAAD) at the Kingdom of Saudi Arabia (KSA) for a contract duration of two years, with a corresponding salary of US$370.00 per month. At the job site, respondent was allegedly found incompetent by his foreign employer; thus the latter decided to terminate his services. However, respondent pleaded for his retention and consented to accept a lower salary of SR 800.00 per month. Thus, SAAD retained respondent until his return to the Philippines two years after. On November 27, 2001, respondent filed a sworn Complaint for monetary claims against petitioner alleging that when he arrived at the job site, he and his fellow Filipino workers were required to sign another employment contract written in Arabic under the constraints of losing their jobs if they refused; that for the entire duration of the new contract, he received only SR 590.00 per month; that he was not given his overtime pay despite rendering nine hours of work everyday; that he and his coworkers sought assistance from the Philippine Embassy but they did not succeed in pursuing their cause of action because of difficulties in communication. ISSUE: Whether there is estoppel by laches HELD:

2.) KINDS OF ESTOPPEL 1. PLACEWELL VS. CAMOTE, 26 JUNE 2006 2. HEIRS OF RAGUA VS. CA, 31 JANUARY 2000

PLACEWELL INTERNATIONAL SERVICES CORP. vs. CAMOTE G.R. No. 169973, June 26, 2006

R.A. No. 8042 explicitly prohibits the substitution or alteration to the prejudice of the worker, of employment contracts already approved and verified by the Department of Labor and Employment (DOLE) from the time of actual signing thereof by the parties up to and including the period of the expiration of the same without the approval of the DOLE. The subsequently executed side agreement of an overseas contract worker with her foreign employer which reduced her salary below the amount approved by the POEA is void because it is against our existing

laws, morals and public policy. The said side agreement cannot supersede her standard employment contract approved by the POEA. Petitioner’s contention that respondent is guilty of laches is without basis. Laches has been defined as the failure of or neglect for an unreasonable and unexplained length of time to do that which by exercising due diligence, could or should have been done earlier, or to assert a right within reasonable time, warranting a presumption that the party entitled thereto has either abandoned it or declined to assert it. Thus, the doctrine of laches presumes that the party guilty of negligence had the opportunity to do what should have been done, but failed to do so. Conversely, if the said party did not have the occasion to assert the right, then, he can not be adjudged guilty of laches. Laches is not concerned with the mere lapse of time; rather, the party must have been afforded an opportunity to pursue his claim in order that the delay may sufficiently constitute laches. In the instant case, respondent filed his claim within the three-year prescriptive period for the filing of money claims set forth in Article 291 of the Labor Code from the time the cause of action accrued. Thus, we find that the doctrine of laches finds no application in this case. KINDS OF ESTOPPEL

HEIRS OF RAGUA vs. COURT OF APPEALS G.R. Nos. 88521-22

Administration, Philippine Tobacco Administration, Land Registration Authority, Philcoa Building, Bureau of Telecommunications, Agricultural Training Institute building, Pagasa Village, San Francisco School, Quezon City Hospital, portions of Project 7, Mindanao Avenue subdivision, part of Bago Bantay resettlement project, SM City North EDSA, part of Phil-Am Life Homes compound and four-fifths of North Triangle. This large estate was the subject of a petition for judicial reconstitution originally filed by Eulalio Ragua in 1964, which gave rise to protracted legal battles between the affected parties, lasting more than thirty-five (35) years. ISSUE: Whether estoppel by laches exists on the part of petitioner HELD: Petitioners filed the petition for reconstitution of OCT 632 nineteen (19) years after the title was allegedly lost or destroyed. We thus consider petitioners guilty of laches. Laches is negligence or omission to assert a right within a reasonable time, warranting the presumption that the party entitled to assert it either has abandoned or declined to assert it. 3.) ESTOPPEL BY DEED 1. METROBANK VS. CA, 8 JUNE 2000 2. SPS. MANUEL VS. CA, 1 FEBRUARY 2001

FACTS: These consolidated cases involve a prime lot consisting of 4,399,322 square meters, known as the Diliman Estate, situated in Quezon City. On this 439 hectares of prime land now stand the following: the Quezon City Hall, Philippine Science High School, Quezon Memorial Circle, Visayas Avenue, Ninoy Aquino Parks and Wildlife, portions of UP Village and East Triangle, the entire Project 6 and Vasha Village, Veterans Memorial Hospital and golf course, Department of Agriculture, Department of Environment and Natural Resources, Sugar Regulatory

METROPOLITAN BANK & TRUST COMPANY vs. COURT OF APPEALS June 8, 2000 FACTS: Mr. Chia offered the subject property for sale to private respondent G.T.P. Development Corporation (hereafter, GTP), with assumption of the mortgage indebtedness in favor of petitioner METROBANK secured by the subject property. Pending negotiations for the proposed sale, Atty.

Bernardo Atienza, acting in behalf of respondent GTP, went to METROBANK to inquire on Mr. Chia's remaining balance on the real estate mortgage. METROBANK obliged with a statement of account of Mr. Chia amounting to about P115,000.00 as of August ,1980. The deed of sale and the memorandum of agreement between Mr. Chia and respondent GTP were eventually executed and signed. Atty. Atienza went to METROBANK Quiapo Branch and paid one hundred sixteen thousand four hundred sixteen pesos and seventy-one centavos (P116,416.71) for which METROBANK issued an official receipt acknowledging payment. This notwithstanding, petitioner METROBANK refused to release the real estate mortgage on the subject property despite repeated requests from Atty. Atienza, thus prompting respondent GTP to file an action for specific performance against petitioner METROBANK and Mr. Chia. ISSUE:

SPOUSES DEL CAMPO vs. COURT OF APPEALS February 1, 2001 FACTS: Salome, Consorcia, Alfredo, Maria, Rosalia, Jose, Quirico and Julita, all surnamed Bornales, were the original co-owners of the lot in question. On July 14, 1940, Salome sold part of her 4/16 share to Soledad Daynolo. Thereafter, Soledad Daynolo immediately took possession of the land described above and built a house thereon. A few years later, Soledad and her husband, Simplicio Distajo, mortgaged the subject portion of the lot as security for a debt to Jose Regalado, Sr. This transaction was evidenced by a Deed of Mortgage.

Whether or not the CA erred in reversing the decision of the lower court. RULING: The Court found no compelling reasons to disturb the assailed decision. All things studiedly viewed in proper perspective, the Court are of the opinion, and so rule, that whatever debts or loans mortgagor Chia contracted with Metrobank after September 4, 1980, without the conformity of plaintiff-appellee, could not be adjudged as part of the mortgage debt the latter so assumed. We are persuaded that the contrary ruling on this point in Our October 24, 1994 decision would be unfair and unjust to plaintiff-appellee because, before buying subject property and assuming the mortgage debt thereon, the latter inquired from Metrobank about the exact amount of the mortgage debt involved. Petitioner METROBANK is estopped from refusing the discharge of the real estate mortgage on the claim that the subject property still secures "other unliquidated past due loans." ESTOPPEL BY DEED

On April 14, 1948, three of the eight co-owners of Lot 162, specifically, Salome, Consorcia and Alfredo, sold 24,993 square meters of said lot to Jose Regalado, Sr. On May 4, 1951, Simplicio Distajo, heir of Soledad Daynolo who had since died, paid the mortgage debt and redeemed the mortgaged portion of Lot 162 from Jose Regalado, Sr. The latter, in turn, executed a Deed of Discharge of Mortgage in favor of Soledad’s heirs, namely: Simplicio Distajo, Rafael Distajo and Teresita Distajo-Regalado. On same date, the said heirs sold the redeemed portion of Lot 162 for P1,500.00 to herein petitioners, the spouses Manuel Del Campo and Salvacion Quiachon. ISSUE: Whether or not the sale of the subject portion constitutes a sale of a concrete or definite portion of land owned in common does not absolutely deprive herein petitioners of any right or title thereto. RULING: There can be no doubt that the transaction entered into by Salome and Soledad could be legally recognized in its entirety since the object of

the sale did not even exceed the ideal shares held by the former in the co-ownership. As a matter of fact, the deed of sale executed between the parties expressly stipulated that the portion of Lot 162 sold to Soledad would be taken from Salome’s 4/16 undivided interest in said lot, which the latter could validly transfer in whole or in part even without the consent of the other co-owners. Salome’s right to sell part of her undivided interest in the co-owned property is absolute in accordance with the well-settled doctrine that a co-owner has full ownership of his pro-indiviso share and has the right to alienate, assign or mortgage it, and substitute another person in its enjoyment. 4.)ESTOPPEL IN PAIS: MEANING AND REQUISITES

dispute among relatives over ownership of lot 903 of the Banilad Estate which is near the Cebu Provincial Capitol; that records of said cases indicate the name of the [petitioner] alone as counsel of record, but in truth and in fact, the real lawyer behind the success of said cases was the influential Don Mariano Jesus Cuenco; that after winning said cases, the awardees of Lot 903 subdivided said lot into three (3) parts as follows: Lot 903-A: 5,000 [square meters]: Mariano Cuenco’s attorney’s fees Lot 903-B: 5,000 [square meters]: Miguel Cuenco’s attorney’s fees Lot 903-C: 54,000 [square meters]: Solon’s retention Petitioner later claimed the property after the death of his brother.

1. 2. 3. 4.

5. 6.

CUENCO VS. CUENCO,458 S 496 LAUREL VS. DESIERTO, 383 S 493 HANOPOL VS. SM, 390 S 439’ TERMINAL FACILITIES VS. PPA, 378 S 82 MENDOZA VS. CA, 390 S 71 ROBLETT CONSTRUCTION VS. CA

CUENCO vs. CUENCO G.R. No. 149844, October 13, 2004 FACTS: On September 19, 1970, the [respondent] filed the initiatory complaint herein for specific performance against her uncle [Petitioner] Miguel Cuenco which averred, inter alia that her father, the late Don Mariano Jesus Cuenco (who became Senator) and said [petitioner] formed the ‘Cuenco and Cuenco Law Offices’; that on or around August 4, 1931, the Cuenco and Cuenco Law Offices served as lawyers in two (2) cases entitled ‘Valeriano Solon versus Zoilo Solon’ (Civil Case 9037) and ‘Valeriano Solon versus Apolonia Solon’ (Civil Case 9040) involving a

ISSUES: Whether Petitioner is in is estoppel Whether laches barred the right of action of respondent HELD: From the time Lot 903-A was subdivided and Mariano’s six children -- including Concepcion -- took possession as owners of their respective portions, no whimper of protest from petitioner was heard until 1963. By his acts as well as by his omissions, Miguel led Mariano and the latter’s heirs, including Concepcion, to believe that Petitioner Cuenco respected the ownership rights of respondent over Lot 903-A-6. That Mariano acted and relied on Miguel’s tacit recognition of his ownership thereof is evident from his will, executed in 1963. Indeed, as early as 1947, long before Mariano made his will in 1963, Lot 903-A -- situated along Juana Osmeña Extension, Kamputhaw, Cebu City, near the Cebu Provincial Capitol -- had been subdivided and distributed to his six children in his first marriage. Having induced him and his heirs to believe that Lot 903-A-6 had already been distributed to Concepcion as her own, petitioner is estopped from asserting the contrary and claiming ownership thereof. The principle of estoppel in pais applies when -- by one’s acts, representations,

admissions, or silence when there is a need to speak out -- one, intentionally or through culpable negligence, induces another to believe certain facts to exist; and the latter rightfully relies and acts on such belief, so as to be prejudiced if the former is permitted to deny the existence of those facts. Petitioner claims that respondent’s action is already barred by laches. Laches is negligence or omission to assert a right within a reasonable time, warranting a presumption that the party entitled to it has either abandoned or declined to assert it.[40] In the present case, respondent has persistently asserted her right to Lot 903-A-6 against petitioner. Concepcion was in possession as owner of the property from 1949 to 1969. When Miguel took steps to have it separately titled in his name, despite the fact that she had the owner’s duplicate copy of TCT No. RT-6999 -- the title covering the entire Lot 903-A -- she had her adverse claim annotated on the title in 1967. When petitioner ousted her from her possession of the lot by tearing down her wire fence in 1969, she commenced the present action on September 19, 1970, to protect and assert her rights to the property. We find that she cannot be held guilty of laches, as she did not sleep on her rights. ESTOPPEL IN PAIS

LAUREL vs. HON. ANIANO A. DESIERTO July 1, 2002 FACTS: Petitioner Salvador H. Laurel moves for a reconsideration of this Court’s decision declaring him, as Chair of the National Centennial Commission (NCC), a public officer. Petitioner also prays that the case be referred to the Court En Banc. ISSUE: Whether or not Laurel is a public officer as Chair of the NCC RULING:

The issue in this case is whether petitioner, as Chair of the NCC, is a public officer under the jurisdiction of the Ombudsman. Assuming, as petitioner proposes, that the designation of other members to the NCC runs counter to the Constitution, it does not make petitioner, as NCC Chair, less a public officer. Such “serious constitutional repercussions” do not reduce the force of the rationale behind this Court’s decision. Second, petitioner invokes estoppel. He claims that the official acts of the President, the Senate President, the Speaker of the House of Representatives, and the Supreme Court, in designating Cabinet members, Senators, Congressmen and Justices to the NCC, led him to believe that the NCC is not a public office. The contention has no merit. In estoppel, the party representing material facts must have the intention that the other party would act upon the representation. It is preposterous to suppose that the President, the Senate President, the Speaker and the Supreme Court, by the designation of such officials to the NCC, intended to mislead petitioner just so he would accept the position of NCC Chair. Estoppel must be unequivocal and intentional. Moreover, petitioner himself admits that the principle of estoppel does not operate against the Government in the exercise of its sovereign powers. Third, as ground for the referral of the case to the Court En Banc, petitioner submits that our decision in this case modified or reversed doctrines rendered by this Court, which can only be done by the Court En Banc.It is argued that by designating three of its then incumbent members to the NCC, the Court took the position that the NCC was not a public office. The argument is a bit of a stretch. Section 4 (3), Article VIII of the Constitution provides that “no doctrine or principle of law laid down by the court in a decision rendered en banc or in division may be modified or reversed except by the court sitting en banc.” In designating three of its incumbent members to the NCC, the Court did not render a “decision,” in the context of said constitutional provision, which contemplates an actual case. Much less did the Court, by such designation, articulate any “doctrine or principle of law.” Invoking the same provision, petitioner asserts that the decision in this case reversed or modified Macalino vs. Sandiganbayan, holding that the Assistant Manager of the Treasury

Division and the Head of the Loans Administration & Insurance Section of the Philippine National Construction Corporation (PNCC) is not a public officer under Republic Act No. 3019. This contention also has no merit. The rationale for the ruling in Macalino is that “the PNCC has no original charter as it was incorporated under the general law on corporations.” However, as we pointed out in our decision, a conclusion that EXPOCORP is a government-owned or controlled corporation would not alter the outcome of this case because petitioner’s position and functions as Chief Executive Officer of EXPOCORP are by virtue of his being Chairman of the NCC. The other issues raised by petitioner are mere reiterations of his earlier arguments. The Court, however, remains unswayed thereby.

instituted extrajudicial foreclosure proceedings against the mortgaged properties.

ESTOPPEL IN PAIS

ISSUE:

SPOUSES HANOPOL vs. SHOEMART INCORPORATED October 4, 2002 FACTS: Shoemart, Inc., is a corporation duly organized and existing under the laws of the Philippines engaged in the operation of department stores. On December 4, 1985, Shoemart, through its Executive Vice-President, Senen T. Mendiola, and spouses Manuel R. Hanopol and Beatriz T. Hanopol executed a Contract of Purchase on Credit. Under the terms of the contract, Shoemart extended credit accommodations, in the amount of Three Hundred Thousand Pesos (P300,000.00), for purchases on credit made by holders of SM Credit Card issued by spouses Hanopol for one year, renewable yearly thereafter. Spouses Hanopol were given a five percent (5%) discount on all purchases made by their cardholders, deductible from the semi-monthly payments to be made to Shoemart by spouses Hanopol. For failure of spouses Hanopol to pay the principal amount of One Hundred Twenty-Four Thousand Five Hundred Seventy-One Pesos and Eighty-Nine Centavos (P124,571.89) as of October 6, 1987, Shoemart

Spouses Hanopol alleged that Shoemart breached the contract when the latter failed to furnish the former with the requisite documents by which the former’s liability shall be determined, namely: charge invoices, purchase booklets and purchase journal, as provided in their contract; that without the requisite documents, spouses Hanopol had no way of knowing that, in fact, they had already paid, even overpaid, whatever they owed to Shoemart; that despite said breach, Shoemart even had the audacity to apply for extrajudicial foreclosure with the Sheriff.

Whether or not Shoemart acted with manifest bad faith in pursuing with the foreclosure and auction sale of the property of spouses Hanopol, and, accordingly, should be held liable for damages. RULING: All the three (3) elements for litis pendentia as a ground for dismissal of an action are present, namely: (a) identity of parties, or at least such parties who represent the same interest in both actions; (b) identity of rights asserted and relief prayed for, the relief being founded on the same facts; and (c) the identity, with respect to the two (2) preceding particulars in the two (2) cases, in such that any judgment that may be rendered in the pending case, regardless of which party is successful, would amount to res judicata in the other. In the case at bench, the parties are the same; the relief sought in the case before the Court of Appeals and the trial court are the same, that is, to permanently enjoin the foreclosure of the real estate mortgage executed by spouses Hanopol in favor of Shoemart; and, both are premised on the same facts. The judgment of the Court of Appeals would constitute a bar to the suit before the trial court. ESTOPPEL IN PAIS

TERMINAL FACILITIES vs. PPA 378 SCRA 82 FACTS: Before us are two (2) consolidated petitions for review, one filed by the Terminal Facilities and Services Corporation (TEFASCO) and the other by the Philippine Ports Authority (PPA). TEFASCO is a domestic corporation organized and existing under the laws of the Philippines with principal place of business at Barrio Ilang, Davao City. It is engaged in the business of providing port and terminal facilities as well as arrastre, stevedoring and other port-related services at its own private port at Barrio Ilang. Sometime in 1975 TEFASCO submitted to PPA a proposal for the construction of a specialized terminal complex with port facilities and a provision for port services in Davao City. To ease the acute congestion in the government ports at Sasa and Sta. Ana, Davao City, PPA welcomed the proposal and organized an inter-agency committee to study the plan. The committee recommended approval. On April 21, 1976 the PPA Board of Directors passed Resolution No. 7 accepting and approving TEFASCO's project proposal. Long after TEFASCO broke round with massive infrastructure work, the PPA Board curiously passed on October 1, 1976 Resolution No. 50 under which TEFASCO, without asking for one, was compelled to submit an application for construction permit. Without the consent of TEFASCO, the application imposed additional significant conditions. The series of PPA impositions did not stop there. Two (2) years after the completion of the port facilities and the commencement of TEFASCO's port operations, or on June 10, 1978, PPA again issued to TEFASCO another permit, under which more onerous conditions were foisted on TEFASCO's port operations. In the purported permit appeared for the first time the contentious provisions for ten percent (10%) government share out of arrastre and stevedoring gross income and one hundred percent (100%) wharfage and berthing charges.

On February 10, 1984 TEFASCO and PPA executed a Memorandum of Agreement (MOA) providing among others for (a) acknowledgment of TEFASCO's arrears in government share at Three Million Eight Hundred Seven Thousand Five Hundred Sixty-Three Pesos and Seventy-Five Centavos (P3,807,563.75) payable monthly, with default penalized by automatic withdrawal of its commercial private port permit and permit to operate cargo handling services; (b) reduction of government share from ten percent (10%) to six percent (6%) on all cargo handling and related revenue (or arrastre and stevedoring gross income); (c) opening of its pier facilities to all commercial and third-party cargoes and vessels for a period coterminous with its foreshore lease contract with the National Government; and, (d) tenure of five (5) years extendible by five (5) more years for TEFASCO's permit to operate cargo handling in its private port facilities. In return PPA promised to issue the necessary permits for TEFASCO's port activities. TEFASCO complied with the MOA and paid the accrued and current government share. On August 30, 1988 TEFASCO sued PPA and PPA Port Manager, and Port Officer in Davao City for refund of government share it had paid and for damages as a result of alleged illegal exaction from its clients of one hundred percent (100%) berthing and wharfage fees. The complaint also sought to nullify the February 10, 1984 MOA and all other PPA issuances modifying the terms and conditions of the April 21, 1976 Resolution No. 7 above-mentioned. PPA appealed the decision of the trial court to the Court of Appeals. The appellate court in its original decision recognized the validity of the impositions and reversed in toto the decision of the trial court. TEFASCO moved for reconsideration which the Court of Appeals found partly meritorious. Thus the Court of Appeals in its Amended Decision partially affirmed the RTC decision only in the sense that PPA was directed to pay TEFASCO (1) the amounts of Fifteen Million Eight Hundred Ten Thousand Thirty-Two Pesos and Seven Centavos (P15,810,032.07) representing fifty percent (50%) wharfage fees and Three Million Nine Hundred Sixty-One Thousand Nine Hundred Sixty-Four Pesos and Six Centavos (P3,961,964.06) representing thirty percent (30%) berthing fees which TEFASCO could have earned as private port usage fee from 1977 to 1991. The Court of Appeals held that the one hundred percent (100%) berthing

and wharfage fees were unenforceable because they had not been approved by the President under P.D. No. 857, and discriminatory since much lower rates were charged in other private ports as shown by PPA issuances effective 1995 to 1997. Both PPA and TEFASCO were unsatisfied with this disposition hence these petitions. ISSUE: Whether or not the collection by PPA of one hundred percent (100%) wharfage fees and berthing charges; (c) the propriety of the award of fifty percent (50%) wharfage fees and thirty percent (30%) berthing charges as actual damages in favor of TEFASCO for the period from 1977 to 1991 is valid.

Petitioner Danilo D. Mendoza is engaged in the domestic and international trading of raw materials and chemicals. He operates under the business name Atlantic Exchange Philippines (Atlantic), a single proprietorship registered with the Department of Trade and Industry (DTI). Sometime in 1978 he was granted by respondent Philippine National Bank (PNB) a Five Hundred Thousand Pesos (P500,000.00) credit line and a One Million Pesos (P1,000,000.00) Letter of Credit/Trust Receipt (LC/TR) line. As security for the credit accommodations and for those which may thereinafter be granted, petitioner mortgaged to respondent PNB the following: 1) three (3) parcels of land with improvements in F. Pasco Avenue, Santolan, Pasig; 2) his house and lot in Quezon City; and 3) several pieces of machinery and equipment in his Pasig coco-chemical plant.

RULING: The imposition by PPA of ten percent (10%), later reduced to six percent (6%), government share out of arrastre and stevedoring gross income of TEFASCO is void. This exaction was never mentioned in the contract, much less is it a binding prestation, between TEFASCO and PPA. What was clearly stated in the terms and conditions appended to PPA Resolution No. 7 was for TEFASCO to pay and/or secure from the proper authorities "all fees and/or permits pertinent to the construction and operation of the proposed project." The government share demanded and collected from the gross income of TEFASCO from its arrastre and stevedoring activities in TEFASCO's wholly owned port is certainly not a fee or in any event a proper condition in a regulatory permit. Rather it is an onerous "contractual stipulation" which finds no root or basis or reference even in the contract aforementioned. ESTOPPEL IN PAIS

MENDOZA vs. COURT OF APPEALS June 25, 2001 FACTS:

Petitioner executed in favor of respondent PNB three (3) promissory notes covering the Five Hundred Thousand Pesos (P500,000.00) credit line, one dated March 8, 1979 for Three Hundred Ten Thousand Pesos (P310,000.00); another dated March 30, 1979 for Forty Thousand Pesos (P40,000.00); and the last dated September 27, 1979 for One Hundred Fifty Thousand Pesos (P150,000.00). Petitioner made use of his LC/TR line to purchase raw materials from foreign importers. He signed a total of eleven (11) documents denominated as "Application and Agreement for Commercial Letter of Credit," on various dates In a letter dated January 3, 1980 and signed by Branch Manager Fil S. Carreon Jr., respondent PNB advised petitioner Mendoza that effective December 1, 1979, the bank raised its interest rates to 14% per annum, in line with Central Bank's Monetary Board Resolution No. 2126 dated November 29, 1979. On March 9, 1981, he wrote a letter to respondent PNB requesting for the restructuring of his past due accounts into a five-year term loan and for an additional LC/TR line of Two Million Pesos (P2,000,000.00). According to the letter, because of the shut-down of his end-user companies and the huge amount spent for the expansion of his business,

petitioner failed to pay to respondent bank his LC/TR accounts as they became due and demandable. Ceferino D. Cura, Branch Manager of PNB Mandaluyong replied on behalf of the respondent bank and required petitioner to submit the following documents before the bank would act on his request: 1) Audited Financial Statements for 1979 and 1980; 2) Projected cash flow (cash in cash out) for five (5) years detailed yearly; and 3) List of additional machinery and equipment and proof of ownership thereof. Cura also suggested that petitioner reduce his total loan obligations to Three Million Pesos (P3,000,000.00). On September 25, 1981, petitioner sent another letter addressed to PNB Vice-President Jose Salvador, regarding his request for restructuring of his loans. He offered respondent PNB the following proposals: 1) the disposal of some of the mortgaged properties, more particularly, his house and lot and a vacant lot in order to pay the overdue trust receipts; 2) capitalization and conversion of the balance into a 5-year term loan payable semi-annually or on annual installments; 3) a new Two Million Pesos (P2,000,000.00) LC/TR line in order to enable Atlantic Exchange Philippines to operate at full capacity; 4) assignment of all his receivables to PNB from all domestic and export sales generated by the LC/TR line; and 5) maintenance of the existing Five Hundred Thousand Pesos (P500,000.00) credit line. The petitioner testified that respondent PNB Mandaluyong Branch found his proposal favorable and recommended the implementation of the agreement. However, Fernando Maramag, PNB Executive VicePresident, disapproved the proposed release of the mortgaged properties and reduced the proposed new LC/TR line to One Million Pesos (P1,000,000.00). Petitioner claimed he was forced to agree to these changes and that he was required to submit a new formal proposal and to sign two (2) blank promissory notes. In a letter dated July 2, 1982, petitioner offered the following revised proposals to respondent bank: 1) the restructuring of past due accounts including interests and penalties into a 5-year term loan, payable semi-annually with one year grace period on the principal; 2)

payment of Four Hundred Thousand Pesos (P400,000.00) upon the approval of the proposal; 3) reduction of penalty from 3% to 1%; 4) capitalization of the interest component with interest rate at 16% per annum; 5) establishment of a One Million Pesos (P1,000,000.00) LC/TR line against the mortgaged properties; 6) assignment of all his export proceeds to respondent bank to guarantee payment of his Petitioner failed to pay the subject two (2) Promissory Notes Nos. 127/82 and 128/82 as they fell due. Respondent PNB extra-judicially foreclosed the real and chattel mortgages, and the mortgaged properties were sold at public auction to respondent PNB, as highest bidder, for a total of Three Million Seven Hundred Ninety Eight Thousand Seven Hundred Nineteen Pesos and Fifty Centavos (P3,798,719.50). The petitioner filed a complaint for specific performance, nullification of the extra-judicial foreclosure and damages against respondents PNB. He alleged that the Extrajudicial Foreclosure Sale of the mortgaged properties was null and void since his loans were restructured to a five-year term loan; hence, it was not yet due and demandable. On March 16, 1992, the trial court rendered judgment in favor of the petitioner and ordered the nullification of the extrajudicial foreclosure of the real estate mortgage, the Sheriff’s sale of the mortgaged real properties by virtue of consolidation thereof and the cancellation of the new titles issued to PNB; that PNB vacate the subject premises in Pasig and turn the same over to the petitioner; and also the nullification of the extrajudicial foreclosure and sheriff's sale of the mortgaged chattels, and that the chattels be returned to petitioner Mendoza if they were removed from his Pasig premises or be paid for if they were lost or rendered unserviceable. The trial court decided for the petitioner. Upon appeal, the Court of Appeals reversed the decision of the trial court and dismissed the complaint. ISSUE: Whether or not respondent promised to be bound by the proposal of the petitioner for a five-year restructuring of his overdue loan.

RULING: No. Respondent Court of Appeals held that there is no evidence of a promise from respondent PNB, admittedly a banking corporation, that it had accepted the proposals of the petitioner to have a five-year restructuring of his overdue loan obligations. It found and held, on the basis of the evidence adduced, that "appellee's (Mendoza) communications were mere proposals while the bank's responses were not categorical that the appellee's request had been favorably accepted by the bank." Nowhere in those letters presented by the petitioner is there a categorical statement that respondent PNB had approved the petitioner’s proposed five-year restructuring plan. It is stretching the imagination to construe them as evidence that his proposed five-year restructuring plan has been approved by the respondent PNB which is admittedly a banking corporation. Only an absolute and unqualified acceptance of a definite offer manifests the consent necessary to perfect a contract. If anything, those correspondences only prove that the parties had not gone beyond the preparation stage, which is the period from the start of the negotiations until the moment just before the agreement of the parties. The doctrine of promissory estoppel is an exception to the general rule that a promise of future conduct does not constitute an estoppel. In some jurisdictions, in order to make out a claim of promissory estoppel, a party bears the burden of establishing the following elements: (1) a promise reasonably expected to induce action or forebearance; (2) such promise did in fact induce such action or forebearance, and (3) the party suffered detriment as a result. It is clear from the forgoing that the doctrine of promissory estoppel presupposes the existence of a promise on the part of one against whom estoppel is claimed. The promise must be plain and unambiguous and sufficiently specific so that the Judiciary can understand the obligation assumed and enforce the promise according to its terms. For petitioner to claim that respondent PNB is estopped to deny the five-year restructuring plan, he must first prove that respondent PNB had promised to approve the plan in exchange for the submission of the proposal. As discussed

earlier, no such promise was proven, therefore, the doctrine does not apply to the case at bar. A cause of action for promissory estoppel does not lie where an alleged oral promise was conditional, so that reliance upon it was not reasonable. It does not operate to create liability where it does not otherwise exist. ESTOPPEL IN PAIS

ROBLETT INDUSTRIAL CONSTRUCTION CORPORATION vs. COURT OF APPEALS 266 SCRA 71 FACTS: On 23 September 1986 respondent Contractors Equipment Corporation (CEC) instituted an action for a sum of money against petitioner Roblett Industrial Construction Corporation (RICC) before the Regional Trial Court of Makati alleging that in 1985 it leased to the latter various construction equipment which it used in its projects. As a result RICC incurred unpaid accounts amounting to P342,909.38. On 19 December 1985 RICC through its Assistant Vice President for Finance Candelario S. Aller Jr. entered into an Agreement with CEC where it confirmed petitioner's account. As an off-setting arrangement respondent received from petitioner construction materials worth P115,000.00 thus reducing petitioner's balance to P227,909.38. A day before the execution of their Agreement, or on 18 December 1985, RICC paid CEC P10,000.00 in postdated checks which when deposited were dishonored. As a consequence the latter debited the amount to petitioner's account of P227,909.38 thus increasing its balance to P237,909.38. On 24 July 1986 Mariano R. Manaligod, Jr., General Manager of CEC, sent a letter of demand to petitioner through its Vice President for Finance regarding the latter's overdue account of P237,909.38 and sought settlement thereof on or before 31 July 1986. In reply, petitioner

requested for thirty (30) days to have enough time to look for funds to substantially settle its account. Traversing the allegations of respondent, Candelario S. Aller Jr. declared that he signed the Agreement with the real intention of having proof of payment. In fact Baltazar Banlot, Vice President for Finance of petitioner, claimed that after deliberation and audit it appeared that petitioner overpaid respondent by P12,000.00 on the basis of the latter's Equipment Daily Time Reports for 2 May to 14 June 1985 which reflected a total obligation of only P103,000.00. He claimed however that the Agreement was not approved by the Board and that he did not authorize Aller Jr. to sign thereon. On rebuttal, Manaligod Jr. declared that petitioner had received a statement of account covering the period from 28 March to 12 July 1985 in the amount of P376,350.18 which it never questioned. From this amount P3,440.80, based on respondent's account with petitioner and P30,000.00, representing payments made by the latter, were deducted thus leaving a balance of P342,909.38 as mentioned in the Agreement. On 19 December 1990 the trial court rendered judgment ordering petitioner to pay respondent ISSUE:

and Board approval." This Court cannot agree to defendant's contention. It must be stressed that defendant's answer was not made under oath, and therefore, the genuineness and due execution of the agreement which was the basis for plaintiff's claim is deemed admitted (Section 8, Rule 8, Rules of Court). Such admission, under the principle of estoppel, is rendered conclusive upon defendant and cannot be denied or disproved as against plaintiff (Art. 1431, Civil Code). Either the agreement is valid or void. It must be treated as a whole and not to be divided into parts and consider only those provisions which favor one party (in this case the defendant). Contracts must bind both contracting parties, its validity or compliance cannot be left to the will of one of them (Art. 1308, New Civil Code).

5.)ESTOPPEL BY LACHES 1. 2. 3. 4. 5. 6. 7.

Whether or not the agreement between the parties is binding upon

METROBANK VS. CABILZO MESINA VS. GARCIA PAHAMATONG VS. PNB SHOPPER’S PARADISE VS. ROQUE MEATMASTERS VS. LELIS INTEGRATED LARENA VS. MAPILI SANTOS VS. SANTOS

METROBANK vs. CABILZO 510 SCRA 259

them. FACTS: RULING: Yes. It must be emphasized that the same agreement was used by plaintiff as the basis for claiming defendant's obligation of P237,909.38 and also used by defendant as the same basis for its alleged payment in full of its obligation to plaintiff. But while plaintiff treats the entire agreement as valid, defendant wants the court to treat that portion which treats of the offsetting of P115,000.00 as valid, whereas it considers the other terms and conditions as "onerous, illegal and want of prior consent

On 12 November 1994, Cabilzo issued a Metrobank Check No. 985988, payable to “CASH” and postdated on 24 November 1994 in the amount of One Thousand Pesos (P1, 000.00). The check was drawn against Cabilzo’s Account with Metrobank Pasong Tamo Branch under Current Account No. 618044873-3 and was paid by Cabilzo to a certain Mr. Marquez, as his sales commission. Subsequently, the check was presented to Westmont Bank for payment. Westmont Bank, in turn, indorsed the check to Metrobank for appropriate clearing. After the entries thereon were examined, including the availability of funds and the

authenticity of the signature of the drawer, Metrobank cleared the check for encashment in accordance with the Philippine Clearing House Corporation (PCHC) Rules. On 16 November 1994, Cabilzo’s representative was at Metrobank Pasong Tamo Branch to make some transaction when he was asked by bank personnel if Cabilzo had issued a check in the amount of P91, 000.00 to which the former replied in the negative. On the afternoon of the same date, Cabilzo himself called Metrobank to reiterate that he did not issue a check in the amount of P91, 000.00 and requested that the questioned check be returned to him for verification, to which Metrobank complied. Upon receipt of the check, Cabilzo discovered that Metrobank Check No. 985988 which he issued on 12 November 1994 in the amount of P1, 000.00 was altered to P91, 000.00 and the date 24 November 1994 was changed to 14 November 1994.Hence, Cabilzo demanded that Metrobank re-credit the amount of P91, 000.00 to his account. Metrobank, however, refused reasoning that it has to refer the matter first to its Legal Division for appropriate action. Repeated verbal demands followed but Metrobank still failed to re-credit the amount of P91, 000.00 to Cabilzo’s account On 30 June 1995, Cabilzo, thru counsel, finally sent a letter-demand to Metrobank for the payment of P90, 000.00, after deducting the original value of the check in the amount of P1, 000.00. Such written demand notwithstanding, Metrobank still failed or refused to comply with its obligation. Consequently, Cabilzo instituted a civil action for damages against Metrobank before the RTC of Manila, Branch 13. In his Complaint docketed as Civil Case No. 95-75651, Renato D. Cabilzo v. Metropolitan Bank and Trust Company, Cabilzo prayed that in addition to his claim for reimbursement, actual and moral damages plus costs of the suit be awarded in his favor.

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

MESINA vs. GARCIA 509 SCRA 431

ISSUE: Whether equitable estoppel can be appreciated in favor of petitioner

FACTS:

Atty. Honorio Valisno Garcia and Felicisima Mesina, during their lifetime, or on 26 April 1977, to be exact entered into a Contract to Sell over a lot consisting of 235 square meters, situated at Diversion Road, Sangitan, Cabanatuan City, covered and embraced by TCT No. T-31643 in the name of Felicisima Mesina which title was eventually cancelled and TCT No. T-78881 was issued in the name of herein petitioners. Atty. Honorio Valisno Garcia is the deceased husband of [herein respondent Gloria C. Garcia] while the late Felicisima Mesina is the mother of Danilo, Simeon, and Melanie, all surnamed Mesina. The Contract to sell provides that the cost of the lot is P70.00 per square meter for a total amount of P16, 450.00; payable within a period not to exceed seven (7) years at an interest rate of 12% per annum, in successive monthly installments of P260.85 per month, starting May 1977. Thereafter, the succeeding monthly installments are to be paid within the first week of every month, at the residence of the vendor at Quezon City, with all unpaid monthly installments earning an interest of one percent (1%) per month. The Contract also stipulated, among others, that: Should the spouses Garcia fail to pay five (5) successive monthly installments, Felicisima Mesina shall have a right to rescind the Contract to Sell. All paid installments to be recomputed as rental for usage of lot shall be at the rate of P100.00 a month and that Felicisima Mesina shall have the further option to return the downpayment plus whatever balance spouses Garcia paid, thereby rescinding the Contract to Sell. Upon rescission of the Contract to sell, spouses Garcia agree to remove all the improvements built on the lot within three (3) months from rescission of this contract, spouses Garcia shouldering all expenses of said removal. Instituting this case at bar, respondent asserts that despite the full payment made on February 7, 1984 for the consideration of the subject lot, petitioners refused to issue the necessary Deed of Sale to effect the transfer of the property to her ISSUES: Whether respondent’s cause of action had already prescribed

Whether petitioners are in estoppel HELD: In the case at bar, as pointed out by the Court of Appeals, the right of action of the respondent accrued on the date that the full and final payment of the contract price was made. Accordingly, as the full payment of the purchase price on the subject Contract to Sell had been effected on 7 February 1984 thus, respondent had from said date until February 7, 1994 within which to bring an action to enforce the written contract, the Contract to Sell. It was then the contention of the petitioners that when the respondent instituted her Complaint for Specific Performance with Damages on 20 January 1997, the same had already been barred by prescription. The contention of the petitioners is untenable. Article 1155 of the Civil Code is explicit that the prescriptive period is interrupted when an action has been filed in court; when there is a written extrajudicial demand made by the creditors; and when there is any written acknowledgment of the debt by the debtor. Hence the action has not yet prescribed. With respect to the issue on estoppel, this Court, upon reviewing the records of the case at bar, finds no reason to overturn the findings of the appellate court that, indeed, petitioners are estopped from avowing that they never had knowledge as to the acceptance of the delayed payments made by the respondent, and that they never induced respondent to believe that she had validly effected full payment. Evidence on record show that petitioners can no longer deny having accepted the late payments made by the respondent because in a letter dated April 10, 1986 sent to petitioner Simeon Mesina by Engineer Danilo Angeles, who is the husband of petitioners’ authorized collection agent Angelina Angeles, he told petitioner Simeon Mesina that the title and the Deed of Sale were both ready for their signature, and respondent was willing and ready to pay for the excess area. Hence, if petitioners did not accept the late payments of the respondent, and if they did not consider such as full payment of the purchase price on the subject property as they claimed it to be, the title as well as the Deed of Sale could not have been prepared for their signature. In the same way, respondent could not have sent a

demand letter to ask for the execution of those documents had they not been induced to believe that the late payments were validly accepted and that the purchase price had already been paid in full. There were statements, which were made under oath, which made it crystal clear that the late payments were accepted by the petitioners, and that the payments corresponded to the purchase value of the subject property; therefore, petitioners cannot deny the fact that the full payment of the purchase value of the lot in question had in fact been made by the respondent.

valid with respect to the other parties. The decision was reversed by the Court of Appeals; to the appellate court, petitioners committed a fatal error of mounting a collateral attack on the foregoing orders instead of initiating a direct action to annul them. ISSUE: Whether the Court of Appeals erred in reversing the decision of the trial court RULING:

ESTOPPEL BY LACHES

PAHAMOTANG VS. PNB G.R. No. 156403, March 21, 2005 FACTS: On July 1, 1972, Melitona Pahamotang died. She was survived by her husband Agustin Pahamotang, and their eight (8) children, namely: Ana, Genoveva, Isabelita, Corazon, Susana, Concepcion and herein petitioners Josephine and Eleonor, all surnamed Pahamotang. On September 15, 1972, Agustin filed with the then Court of First Instance of Davao City a petition for issuance of letters administration over the estate of his deceased wife. The petition, docketed as Special Case No. 1792, was raffled to Branch VI of said court, hereinafter referred to as the intestate court. In his petition, Agustin identified petitioners Josephine and Eleonor as among the heirs of his deceased spouse. It appears that Agustin was appointed petitioners' judicial guardian in an earlier case Special Civil Case No. 1785 – also of the CFI of Davao City, Branch VI. On December 7, 1972, the intestate court issued an order granting Agustin’s petition. The late Agustin then executed several mortgages and later sale of the properties with the PNB and Arguna respectively. The heirs later questioned the validity of the transactions prejudicial to them. The trial court declared the real estate mortgage and the sale void but both were

In the present case, the appellate court erred in appreciating laches against petitioners. The element of delay in questioning the subject orders of the intestate court is sorely lacking. Petitioners were totally unaware of the plan of Agustin to mortgage and sell the estate properties. There is no indication that mortgagor PNB and vendee Arguna had notified petitioners of the contracts they had executed with Agustin. Although petitioners finally obtained knowledge of the subject petitions filed by their father, and eventually challenged the July 18, 1973, October 19, 1974, February 25, 1980 and January 7, 1981 orders of the intestate court, it is not clear from the challenged decision of the appellate court when they (petitioners) actually learned of the existence of said orders of the intestate court. Absent any indication of the point in time when petitioners acquired knowledge of those orders, their alleged delay in impugning the validity thereof certainly cannot be established. And the Court of Appeals cannot simply impute laches against them.

ESTOPPEL BY LACHES

SHOPPER'S PARADISE REALTY & DEVELOPMENT CORPORATION vs. EFREN ROQUE January 13, 2004 FACTS:

On 23 December 1993, petitioner Shopper's Paradise Realty & Development Corporation, represented its president, Veredigno Atienza, entered into a twenty-five year lease with Dr. Felipe C. Roque, now deceased, over a parcel of land, Petitioner issued to Dr. Roque a check for P250,000.00 by way of "reservation payment." Simultaneously, petitioner and Dr. Roque likewise entered into a memorandum of agreement for the construction, development and operation of a commercial building complex on the property. Conformably with the agreement, petitioner issued a check for another P250,000.00 "downpayment" to Dr. Roque. The annotations, however, were never made because of the untimely demise of Dr. Felipe C. Roque. The death of Dr. Roque on 10 February 1994 constrained petitioner to deal with respondent Efren P. Roque, one of the surviving children of the late Dr. Roque, but the negotiations broke down due to some disagreements. In a letter, dated 3 November 1994, respondent advised petitioner "to desist from any attempt to enforce the aforementioned contract of lease and memorandum of agreement". On 15 February 1995, respondent filed a case for annulment of the contract of lease and the memorandum of agreement, with a prayer for the issuance of a preliminary injunction. Efren P. Roque alleged that he had long been the absolute owner of the subject property by virtue of a deed of donation inter vivos executed in his favor by his parents, Dr. Felipe Roque and Elisa Roque, on 26 December 1978, and that the late Dr. Felipe Roque had no authority to enter into the assailed agreements with petitioner. The donation was made in a public instrument duly acknowledged by the donor-spouses before a notary public and duly accepted on the same day by respondent before the notary public in the same instrument of donation. The title to the property, however, remained in the name of Dr. Felipe C. Roque, and it was only transferred to and in the name of respondent sixteen years later, or on 11 May 1994, while he resided in the United States of America, delegated to his father the mere administration of the property. Respondent came to know of the assailed contracts with petitioner only after retiring to the Philippines upon the death of his father. On 9 August 1996, the trial court dismissed the complaint of respondent; it explained:

third persons. Thus, when Felipe Roque entered into a lease contract with defendant corporation, plaintiff Efren Roque (could) no longer assert the unregistered deed of donation and say that his father, Felipe, was no longer the owner of the subject property at the time the lease on the subject property was agreed upon. "The registration of the Deed of Donation after the execution of the lease contract did not affect the latter unless he had knowledge thereof at the time of the registration which plaintiff had not been able to establish. Plaintiff knew very well of the existence of the lease. He, in fact, met with the officers of the defendant corporation at least once before he caused the registration of the deed of donation in his favor and although the lease itself was not registered, it remains valid considering that no third person is involved. Plaintiff cannot be the third person because he is the successor-in-interest of his father, Felipe Roque, the lessor, and it is a rule that contracts take effect not only between the parties themselves but also between their assigns and heirs (Article 1311, Civil Code) and therefore, the lease contract together with the memorandum of agreement would be conclusive on plaintiff Efren Roque. He is bound by the contract even if he did not participate therein. Moreover, the agreements have been perfected and partially executed by the receipt of his father of the downpayment and deposit totaling to P500,000.00." The trial court ordered respondent to surrender TCT No. 109754 to the Register of Deeds of Quezon City for the annotation of the questioned Contract of Lease and Memorandum of Agreement. On appeal, the Court of Appeals reversed the decision of the trial court and held to be invalid the Contract of Lease and Memorandum of Agreement. While it shared the view expressed by the trial court that a deed of donation would have to be registered in order to bind third persons, the appellate court, however, concluded that petitioner was not a lessee in good faith having had prior knowledge of the donation in favor of respondent, and that such actual knowledge had the effect of registration insofar as petitioner was concerned. The appellate court based its findings largely on the testimony of Veredigno Atienza during cross-examination. ISSUE:

Ordinarily, a deed of donation need not be registered in order to be valid between the parties. Registration, however, is important in binding

Whether or not the respondent is barred by laches and estoppel from denying the contracts.

MEATMASTER vs. LELIS INTEGRATED 452 SCRA 626

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

FACTS: On November 11, 1993, petitioner Meatmasters International Corporation engaged the services of respondent Lelis Integrated Development Corporation to undertake the construction of a slaughterhouse and meat cutting and packing plant. The Construction Agreement provided that the construction of petitioner’s slaughterhouse should be completed by March 10, 1994. Respondent failed to finish the construction of the said facility within the stipulated period, hence, petitioner filed a complaint for rescission of contract and damages on August 9, 1996 before the Regional Trial Court. On November 23, 1998, the trial court rendered decision RESCINDING the Construction Agreement between plaintiff Meatmaster Int’l. Corp. and defendant Lelis Integrated Dev’t. Corp. with both parties shouldering their own respective damage. A copy of the decision was received by the respondent on December 9, 1998. A motion for reconsideration was filed by respondent on December 22, 1998, but the same was denied. A copy of the resolution denying the motion for reconsideration was received on March 25, 1999. Respondent filed its notice of appeal on March 29, 1999. Initially, the trial court dismissed the appeal for failure of the respondent to pay the requisite docket fees within the reglementary period. Upon motion by the respondent however, the trial court reconsidered and gave due course to the notice of appeal because respondent paid the docket fees. In a motion to dismiss filed before the appellate court, the petitioner alleged that respondent’s appeal suffers from jurisdictional infirmity because of late payment of docket fees.

CA set aside the decision of the trial court and directed petitioner to pay respondent the amount of P1,863,081.53. Petitioner’s motion for reconsideration was denied Hence, the instant petition.

the instant petition. Plainly, petitioner cannot be faulted for being remiss in asserting its rights considering that it vigorously registered a persistent and consistent objection to the Court of Appeals’ assumption of jurisdiction at all stages of the proceedings.

ISSUE: Whether or not the Court of Appeals erred in entertaining the appeal of respondent despite the finality of the trial court’s decision.

ESTOPPEL BY LACHES

RULING: Yes. It is well-established that the payment of docket fees within the prescribed period is mandatory for the perfection of an appeal. This is so because a court acquires jurisdiction over the subject matter of the action only upon the payment of the correct amount of docket fees regardless of the actual date of filing of the case in court. The payment of the full amount of the docket fee is a sine qua non requirement for the perfection of an appeal. The court acquires jurisdiction over the case only upon the payment of the prescribed docket fees. In the case at bar, the respondent seasonably filed the notice of appeal but it paid the docket fees one (1) month after the lapse of the appeal period. As admitted by the respondent, the last day for filing the notice of appeal was on March 29, 1999, but it paid the docket fees only on April 30, 1999 because of oversight. Obviously, at the time the said docket fees were paid, the decision appealed from has long attained finality and no longer appealable. Respondent’s contention that the petitioner is now estopped from raising the issue of late payment of the docket fee because of his failure to assail promptly the trial court’s order approving the notice of appeal and accepting the appeal fee, is untenable. Estoppel by laches arises from the negligence or omission to assert a right within a reasonable time, warranting a presumption that the party entitled to assert it either has abandoned or declined to assert it. In the case at bar, petitioner raised at the first instance the non-payment of the docket fee in its motion for reconsideration before the trial court. Petitioner reiterated its objection in the motion to dismiss before the appellate court and finally, in

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

Teresita have waived their interest in the disputed lot in their favor. Petitioners availed of various remedies only to pursue the endeavor for the annulment of the compromise judgment. Most of them were denied until they resorted to this review before the Supreme Court. ISSUE: Whether or not the petitioners are estopped from seeking the annulment of the compromise judgment. RULING: Yes, note that in a Sinumpaang Salaysay, petitioners admitted that they acquiesced to have the subject lot donated and registered in Renato’s name. In view of such admission, petitioners are estopped from denying Renato’s absolute title to the lot. Under the principle of estoppel, an admission or representation is rendered conclusive upon the person making it and cannot be denied against the person relying thereon. Verily, since petitioners admitted that they donated the lot to Renato, they cannot now be allowed to defeat respondent’s claim by conveniently asserting that they are co-owners of the lot. Otherwise, respondents, who rightfully relied on the Certificate of Title, would be prejudiced by petitioner’s misleading conduct.

ESTOPPEL BY LACHES

LARENA vs. MAPILI 408 SCRA 484 FACTS: Hipolito Mapili during his lifetime owned a parcel of unregistered land declared for taxation purposes in his name. The property had descended by succession from Hipolito to his only son Magno and on to the latter’s own widow and children. These heirs, the herein respondents,

took possession of the property up to the outbreak of World War II when they evacuated to the hinterlands. On the other hand, petitioner Aquilina Larena took possession of the property in the1970’s alleging that she had purchased it from her aunt (Filomena Larena) on February 17, 1968. Filomena Larena in turn claimed to have bought it from Hipolito on October 28, 1949, as evidence by the Affidavit of Transfer of Real Property executed on the same date. The Regional Trial Court, however, declared the said affidavit as spurious because Hipolito was already dead when the alleged transfer was made to Filomena Larena. On appeal, the Court of Appeals declared that respondents had never lost their right to the land in question as they were the heirs to whom the property had descended upon the death of the original claimant and possessor. ISSUE: Whether or not Filomena Larena acquired the subject property by means of sale, prescription, and/or laches. RULING: No, Filomena did not acquire said property by means of sale, prescription and/or laches. First, the tax declarations are not a conclusive evidence of ownership, but a proof that the holder has a claim of title over the property. It is good indicia of possession in the concept of owner. It may strengthen Aquilina’s bona fide claim of acquisition of ownership. However, petitioners failed to present the evidence needed to tack the date of possession on the property in question. Second, acquisitive prescription is a mode of acquiring ownership by a possessor through the requisite lapse of time. Since the claims of purchase were unsubstantiated, petitioners’ acts of possessory character have been merely tolerated by the owner. Hence, it did not constitute possession. Moreover, there is lack of just title on the part of Aquilina and

therefore, ordinary acquisitive prescription of ten (10) years as provided under Article 1134 of the Civil Code cannot be applied. Under Article 1137 of the Civil Code, the lapse of time required for extra-ordinary acquisitive prescription is thirty (30) years, and records show that the lapse of time was only twenty-seven (27) years—a period that was short of three (3) years, when the complaint was filed. Finally, laches is a failure or neglect for an unreasonable and unexplained length of time to do that which could or should have been done earlier through the exercise of due diligence. The filing by respondents of the complaint in 1977 completely negates the decision that the latter were negligent in asserting their claim.

STOPPEL BY LACHES

SANTOS vs. SANTOS 366 SCRA 395 FACTS: Petitioner Zenaida M. Santos is the widow of Salvador Santos, a brother of private respondents Calixto, Alberto, Antonio, all surnamed Santos and Rosa Santos-Carreon. The spouses Jesus and Rosalia were the parents of the respondents and the husband of the petitioner. The spouses owned a parcel of registered land with a four-door apartment administered by Rosalia who rented them out. On January 19, 1959, the spouses executed a deed of sale of the properties in favor of their children Salvador and Rosa. Rosa in turn sold her share to Salvador on November 20, 1973, which resulted in the issuance of new TCT. Despite the transfer of the property to Salvador, Rosalia continued to lease and receive rentals from the apartment units. On January 9, 1985, Salvador died, followed by Rosalia who died the following month. Shortly after, petitioner Zenaida, claiming to be Salvador’s heir, demanded the rent from Antonio Hombrebueno, a tenant

of Rosalia. When the latter refused to pay, Zenaida filed an ejectment suit against him with the Metropolitan Trial Court of Manila, which eventually decided in Zenaida’s favor. On January 5, 1989, private respondent instituted an action for reconveyance of property with preliminary injunction against petitioner in the Regional Trial Court of Manila, where they alleged that the two deeds of sale were simulated for lack of consideration. The petitioner on the other hand denied the material allegations in the complaint and that she further alleged that the respondents’ right to reconveyance was already barred by prescription and laches considering the fact that from the date of sale from Rosa to Salvador up to his death, more or less twelve (12) years had lapsed, and from his death up to the filing of the case for reconveyance, four (4) years has elapsed. In other words, it took respondents about sixteen (16) years to file the case. Moreover, petitioner argues that an action to annul a contract for lack of consideration prescribes in ten (10) years and even assuming that the cause of action has not prescribed, respondents are guilty of laches for their inaction for a long period of time. The trial court decided in favor of private respondents in as much as the deeds of sale were fictitious, the action to assail the same does not prescribe. Upon appeal, the Court of Appeals affirmed the trial court’s decision. It held that the subject deeds of sale did not confer upon Salvador the ownership over the subject property, because even after the sale, the original vendors remained in dominion, control, and possession thereof. ISSUE: Whether or not the cause of action of the respondents had prescribed and/or barred by laches. RULING:

No, the cause of action by the respondents had not prescribed nor is it barred by laches. First, the right to file an action for the reconveyance of the subject property to the estate of Rosalia has not prescribed since deeds of sale were simulated and fictitious. The complaint amounts to a declaration of nullity of a void contract, which is imprescriptible. Hence, respondents’ cause of action has not prescribed. Second, neither is their action barred by laches. The elements of laches are: 1) conduct on the part of the defendant, or of one under whom he claims, giving rise to the situation of which the complainant seeks a remedy; 2) delay in asserting the complainant’s rights, the complainant having knowledge or notice of the defendant’s conduct as having been afforded an opportunity to institute a suit; 3) lack of knowledge or notice on the part of the defendant that the complainant would assert the right in which he bases his suit; and 4) injury or prejudice to the defendant in the event relief is accorded to the complainant, or the suit is not held barred. These elements must all be proved positively. The lapse of four (4) years is not an unreasonable delay sufficient to bar respondent’s action. Moreover, the fourth (4th) element is lacking in this case. The concept of laches is not concerned with the lapse of time but only with the effect of unreasonable lapse. The alleged sixteen (16) years of respondents’ inaction has no adverse effect on the petitioner to make respondents guilty of laches. ESTOPPEL BY LACHES

VILLANUEVA- MIJARES ET. AL. vs. COURT OF APPEALS April 12, 2000 FACTS: Felipe Villanueva left a 15,336-square-meter parcel of land in Kalibo, Capiz to his eight children: Simplicio, Benito, Leon, Eustaquio, Camila, Fausta and Pedro. In 1952, Pedro declared under his name 1/6

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

uncle, as far as the 1/6 share of Felipe. Leon’s fraudulent titling of Felipe’s 1/6 share was a betrayal of that implied trust. AUTONOMY OF CONTRACTS 1. 2. 3. 4. 5. 6. 7. 8.

TOLENTINO VS. SECRETARY, 235 SCRA 630 DUNCAN VS. GLAXO STARPAPER VS. SIMBOL TIU VS. PLATINUM PLANS AVON COSMETICS VS. LUNA DEL CASTILLO VS. RICHMOND ARWOOD VS. DM CONSUNJI, 394 SCRA 11 PASCUAL VS. RAMOS, 384 SCRA 105

ARTURO M. TOLENTINO VS. THE SECRETARY OF FINANCE and THE COMMISSIONER OF INTERNAL REVENUE 1994 Aug 25 G.R. No. 115455 235 SCRA 630 FACTS: The valued-added tax (VAT) is levied on the sale, barter or exchange of goods and properties as well as on the sale or exchange of services. It is equivalent to 10% of the gross selling price or gross value in money of goods or properties sold, bartered or exchanged or of the gross receipts from the sale or exchange of services. Republic Act No. 7716 seeks to widen the tax base of the existing VAT system and enhance its administration by amending the National Internal Revenue Code. The Chamber of Real Estate and Builders Association (CREBA) contends that the imposition of VAT on sales and leases by virtue of contracts entered into prior to the effectivity of the law would violate the constitutional provision of “non-impairment of contracts.” ISSUE: Whether R.A. No. 7716 is unconstitutional on ground that it violates the contract clause under Art. III, sec 10 of the Bill of Rights. RULING:

No. The Supreme Court the contention of CREBA, that the imposition of the VAT on the sales and leases of real estate by virtue of contracts entered into prior to the effectivity of the law would violate the constitutional provision of non-impairment of contracts, is only slightly less abstract but nonetheless hypothetical. It is enough to say that the parties to a contract cannot, through the exercise of prophetic discernment, fetter the exercise of the taxing power of the State. For not only are existing laws read into contracts in order to fix obligations as between parties, but the reservation of essential attributes of sovereign power is also read into contracts as a basic postulate of the legal order. The policy of protecting contracts against impairment presupposes the maintenance of a government which retains adequate authority to secure the peace and good order of society. In truth, the Contract Clause has never been thought as a limitation on the exercise of the State's power of taxation save only where a tax exemption has been granted for a valid consideration. Such is not the case of PAL in G.R. No. 115852, and the Court does not understand it to make this claim. Rather, its position, as discussed above, is that the removal of its tax exemption cannot be made by a general, but only by a specific, law. Further, the Supreme Court held the validity of Republic Act No. 7716 in its formal and substantive aspects as this has been raised in the various cases before it. To sum up, the Court holds: (1) That the procedural requirements of the Constitution have been complied with by Congress in the enactment of the statute; (2) That judicial inquiry whether the formal requirements for the enactment of statutes - beyond those prescribed by the Constitution have been observed is precluded by the principle of separation of powers; (3) That the law does not abridge freedom of speech, expression or the press, nor interfere with the free exercise of religion, nor deny to any of the parties the right to an education; and (4) That, in view of the absence of a factual foundation of record, claims that the law is regressive, oppressive and confiscatory and that it violates vested rights protected under the Contract Clause are prematurely raised and do not justify the grant of prospective relief by writ of prohibition. WHEREFORE, the petitions are DISMISSED. AUTONOMY OF CONTRACTS

DUNCAN ASSOCIATION OF DETAILMAN PTGW vs. GLAXOWELLCOM PHILIPPINES G.R. No. 162994, September 17, 2004 FACTS: Petitioner Pedro A. Tecson (Tecson) was hired by respondent Glaxo Wellcome Philippines, Inc. (Glaxo) as medical representative on October 24, 1995, after Tecson had undergone training and orientation. Thereafter, Tecson signed a contract of employment which stipulates, among others, that he agrees to study and abide by existing company rules; to disclose to management any existing or future relationship by consanguinity or affinity with co-employees or employees of competing drug companies and should management find that such relationship poses a possible conflict of interest, to resign from the company. The Employee Code of Conduct of Glaxo similarly provides that an employee is expected to inform management of any existing or future relationship by consanguinity or affinity with co-employees or employees of competing drug companies. If management perceives a conflict of interest or a potential conflict between such relationship and the employee’s employment with the company, the management and the employee will explore the possibility of a “transfer to another department in a non-counterchecking position” or preparation for employment outside the company after six months. Tecson was initially assigned to market Glaxo’s products in the Camarines Sur-Camarines Norte sales area. Subsequently, Tecson entered into a romantic relationship with Bettsy, an employee of Astra Pharmaceuticals (Astra), a competitor of Glaxo. Bettsy was Astra’s Branch Coordinator in Albay. She supervised the district managers and medical representatives of her company and prepared marketing strategies for Astra in that area. Even before they got married, Tecson received several reminders from his District Manager regarding the conflict of interest which his relationship with Bettsy might engender. Still, Tec son married Bettsy in September 1998. Tecson was later reassigned at Butuan-Surigao-Agusan area to

prevent conflict of interest but he refused and argued that he was constructively dismissed. ISSUE: Whether the Court of Appeals erred in ruling that Glaxo’s policy against its employees marrying employees from competitor companies is valid HELD: Glaxo has a right to guard its trade secrets, manufacturing formulas, marketing strategies and other confidential programs and information from competitors, especially so that it and Astra are rival companies in the highly competitive pharmaceutical industry. The prohibition against personal or marital relationships with employees of competitor companies upon Glaxo’s employees is reasonable under the circumstances because relationships of that nature might compromise the interests of the company. In laying down the assailed company policy, Glaxo only aims to protect its interests against the possibility that a competitor company will gain access to its secrets and procedures. That Glaxo possesses the right to protect its economic interests cannot be denied. No less than the Constitution recognizes the right of enterprises to adopt and enforce such a policy to protect its right to reasonable returns on investments and to expansion and growth. Indeed, while our laws endeavor to give life to the constitutional policy on social justice and the protection of labor, it does not mean that every labor dispute will be decided in favor of the workers. The law also recognizes that management has rights which are also entitled to respect and enforcement in the interest of fair play. In this case, there were notices and advises given to the petitioner regarding his romantic relationship to his marriage regarding the conflict of interest. Hence the petition was denied.

AUTONOMY OF CONTRACTS

STAR PAPER vs. SIMBOL 487 SCRA 228 FACTS: Petitioner was the employer of the respondents. Under the policy of Star Paper the employees are: 1. New applicants will not be allowed to be hired if in case he/she has a relative, up to the 3rd degree of relationship, already employed by the company. 2. In case of two of our employees (singles, one male and another female) developed a friendly relationship during the course of their employment and then decided to get married, one of them should resign to preserve the policy stated above. Respondents Comia and Simbol both got married to their fellow employees. Estrella on the other hand had a relationship with a coemployee resulting to her pregnancy on the belief that such was separated. The respondents allege that they were forced to resign as a result of the implementation of the said assailed company policy. The Labor Arbiter and the NLRC ruled in favor of petitioner. The decision was appealed to the Court of Appeals which reversed the decision. ISSUE: Whether the prohibition to marry in the contract of employment is valid HELD:

It is significant to note that in the case at bar, respondents were hired after they were found fit for the job, but were asked to resign when they married a co-employee. Petitioners failed to show how the marriage of Simbol, then a Sheeting Machine Operator, to Alma Dayrit, then an employee of the Repacking Section, could be detrimental to its business operations. Neither did petitioners explain how this detriment will happen in the case of Wilfreda Comia, then a Production Helper in the Selecting Department, who married Howard Comia, then a helper in the cuttermachine. The policy is premised on the mere fear that employees married to each other will be less efficient. If we uphold the questioned rule without valid justification, the employer can create policies based on an unproven presumption of a perceived danger at the expense of an employee’s right to security of tenure. Petitioners contend that their policy will apply only when one employee marries a co-employee, but they are free to marry persons other than co-employees. The questioned policy may not facially violate Article 136 of the Labor Code but it creates a disproportionate effect and under the disparate impact theory, the only way it could pass judicial scrutiny is a showing that it is reasonable despite the discriminatory, albeit disproportionate, effect. The failure of petitioners to prove a legitimate business concern in imposing the questioned policy cannot prejudice the employee’s right to be free from arbitrary discrimination based upon stereotypes of married persons working together in one company. Lastly, the absence of a statute expressly prohibiting marital discrimination in our jurisdiction cannot benefit the petitioners. The protection given to labor in our jurisdiction is vast and extensive that we cannot prudently draw inferences from the legislature’s silence that married persons are not protected under our Constitution and declare valid a policy based on a prejudice or stereotype. Thus, for failure of petitioners to present undisputed proof of a reasonable business necessity, we rule that the questioned policy is an invalid exercise of management prerogative. Corollary, the issue as to whether respondents Simbol and Comia resigned voluntarily has become moot and academic.

In the case of Estrella, the petitioner failed to adduce proof to justify her dismissal. Hence, the Court ruled that it was illegal. Petition was denied. AUTONOMY OF CONTRACTS

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

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

AVON COSMETICS vs. LUNA 511 SCRA 376 FACTS: The present petition stemmed from a complaint[3] dated 1 December 1988, filed by herein respondent Luna alleging, inter alia¸ that she began working for Beautifont, Inc. in 1972, first as a franchise dealer

and then a year later, as a Supervisor. Sometime in 1978, Avon Cosmetics, Inc. (Avon), herein petitioner, acquired and took over the management and operations of Beautifont, Inc. Nonetheless, respondent Luna continued working for said successor company. Aside from her work as a supervisor, respondent Luna also acted as a make-up artist of petitioner Avon’s Theatrical Promotion’s Group, for which she received a per diem for each theatrical performance. The contract was that: The Company agrees: 1) To allow the Supervisor to purchase at wholesale the products of the Company. The Supervisor agrees:

4) That the Supervisor shall sell or offer to sell, display or promote only and exclusively products sold by the Company. 5) Either party may terminate this agreement at will, with or without cause, at any time upon notice to the other. Later, respondent Luna entered into the sales force of Sandre Philippines which caused her termination for the alleged violation of the terms of the contract. The trial court ruled in favor of Luna that the contract was contrary to public policy thus the dismissal was not proper. The Court of Appeals affirmed the decision, hence this petition. ISSUE: Whether the Court of Appeals erred in ruling that the Supervisor’s Agreement was invalid for being contrary to public policy

1) To purchase products from the Company exclusively for resale and to be responsible for obtaining all permits and licenses required to sell the products on retail.

Whether there was subversion of the autonomy of contracts by the lower courts

The Company and the Supervisor mutually agree:

HELD:

1) That this agreement in no way makes the Supervisor an employee or agent of the Company, therefore, the Supervisor has no authority to bind the Company in any contracts with other parties. 2) That the Supervisor is an independent retailer/dealer insofar as the Company is concerned, and shall have the sole discretion to determine where and how products purchased from the Company will be sold. However, the Supervisor shall not sell such products to stores, supermarkets or to any entity or person who sells things at a fixed place of business. 3) That this agreement supersedes any agreement/s between the Company and the Supervisor.

Agreements in violation of orden público must be considered as those which conflict with law, whether properly, strictly and wholly a public law (derecho) or whether a law of the person, but law which in certain respects affects the interest of society. Plainly put, public policy is that principle of the law which holds that no subject or citizen can lawfully do that which has a tendency to be injurious to the public or against the public good. As applied to contracts, in the absence of express legislation or constitutional prohibition, a court, in order to declare a contract void as against public policy, must find that the contract as to the consideration or thing to be done, has a tendency to injure the public, is against the public good, or contravenes some established interests of society, or is inconsistent with sound policy and good morals, or tends clearly to undermine the security of individual rights, whether of personal liability or of private property.

From another perspective, the main objection to exclusive dealing is its tendency to foreclose existing competitors or new entrants from competition in the covered portion of the relevant market during the term of the agreement. Only those arrangements whose probable effect is to foreclose competition in a substantial share of the line of commerce affected can be considered as void for being against public policy. The foreclosure effect, if any, depends on the market share involved. The relevant market for this purpose includes the full range of selling opportunities reasonably open to rivals, namely, all the product and geographic sales they may readily compete for, using easily convertible plants and marketing organizations. Applying the preceding principles to the case at bar, there is nothing invalid or contrary to public policy either in the objectives sought to be attained by paragraph 5, i.e., the exclusivity clause, in prohibiting respondent Luna, and all other Avon supervisors, from selling products other than those manufactured by petitioner Avon. Having held that the “exclusivity clause” as embodied in paragraph 5 of the Supervisor’s Agreement is valid and not against public policy, we now pass to a consideration of respondent Luna’s objections to the validity of her termination as provided for under paragraph 6 of the Supervisor’s Agreement giving petitioner Avon the right to terminate or cancel such contract. The paragraph 6 or the “termination clause” therein expressly provides that: The Company and the Supervisor mutually agree: 6) Either party may terminate this agreement at will, with or without cause, at any time upon notice to the other. In the case at bar, the termination clause of the Supervisor’s Agreement clearly provides for two ways of terminating and/or canceling the contract. One mode does not exclude the other. The contract provided that it can be terminated or cancelled for cause, it also stated that it can be terminated without cause, both at any time and after written notice. Thus, whether or not the termination or cancellation of the Supervisor’s Agreement was “for cause,” is immaterial. The only requirement is that of

notice to the other party. When petitioner Avon chose to terminate the contract, for cause, respondent Luna was duly notified thereof. Worth stressing is that the right to unilaterally terminate or cancel the Supervisor’s Agreement with or without cause is equally available to respondent Luna, subject to the same notice requirement. Obviously, no advantage is taken against each other by the contracting parties. Hence, the petition was granted. AUTONOMY OF CONTRACTS

DEL CASTILLO vs. RICHMOND 45 PHIL. REPORTS 679 FACTS: The plaintiff alleges that the provisions and conditions contained in the third paragraph of their contract constitute an illegal and unreasonable restriction upon his liberty to contract, are contrary to public policy, and are unnecessary in order to constitute a just and reasonable protection to the defendant; and asked that the same be declared null and void and of no effect. The defendant interposed a general and special defense. In his special defense he alleges that during the time the plaintiff was in the defendant's employ he obtained knowledge of his trade and professional secrets and came to know and became acquainted and established friendly relations with his customers so that to now annul the contract and permit plaintiff to establish a competing drugstore in the town of Legaspi, as plaintiff has announced his intention to do, would be extremely prejudicial to defendant's interest." The defendant further, in an amended answer, alleges that this action not having been brought within four years from the time the contract referred to in the complaint was executed, the same has prescribed. ISSUE:

Whether the contract is valid and the autonomy of contracts be upheld

Whether or not the trial court and the CA correctly granted the imposition of the monetary interest of 2% per month on the amount of P962,434

HELD:

RULING: The Agreement or the contract between the parties is the formal expression of the parties rights, duties, and obligations. It is the best evidence of the intention of the parties. Thus, “when the terms of an agreement have been reduced to writing, it is considered as containing all the terms agreed upon and there can be, between the parties and their successors in interest, no evidence of such terms other than the contents of the written agreement.”

Considering the nature of the business in which the defendant is engaged, in relation with the limitation placed upon the plaintiff both as to time and place, The Court is of the opinion, and so decide, that such limitation is legal and reasonable and not contrary to public policy, otherwise, the autonomy of the contract will be subverted. AUTONOMY OF CONTRACTS ARWOOD INDUSTRIES, INC. VS. D.M. CONSUNJI, INC. G.R No. 142277 December 11, 2002 394 SCRA 11 FACTS: Petitioner Arwood Industries and resppndent DM Consunji, as owner and contractor, respectively, entered into a Civil, Structural and Architectural Works Agreement on February 6, 1989 for the construction of petitioner’s Westwood Condominium at No. 23 Eisenhower St. Greenhills, San Juan, Metro Manila. The contract price for the project aggregated to P20,800,000.00 Despite completion of the project, the amount of P962,434.78 remained unpaid by petitioner. Demands were made by respondent for petitioner to pay went unheeded. Thus, on August 13, 1993, respondent filed a complaint for the recovery of the balance of the contract price and for damages against petitioner. It prayed for the payment of the a) amount of P962, 434.78 with interest of 2% per month or a fraction thereof, from November 1990 up to the time of payment; b) the payment of P250, 000 as attorney’s fees and litigation expenses; c) amount of P150, 000 as exemplary damages and d) costs of suit. The trial court and the Court of Appelas ruled in favor of DM Consunji. Hence, this petition. ISSUE:

It must be noted that the Agreement provided the respondent-contractor two options in case of delay in monthly payments, to wit: a) suspend work on the project until payment is remitted by the owner or b) continue the work but the owner shall be required to pay the interest at a rate of 2% per month or fraction thereof. Evidently, respondent the second option, as the condominium project was in fact already completed. The payment of 2% then cannot be rejected. Therefore, since the Agreement stands as the law between the parties, the Court cannot ignore the existence of such provision providing for a penalty for every month’s delay. Neither can petitioner impugn the Agreement to which it willingly gave its consent. Wherefore the petition is denied.

AUTONOMY OF CONTRACTS SPOUSES SILVESTRE and CELIA PASCUAL VS. RODRIGO RAMOS G. R. No. 144712 FACTS: On June 3, 1987, spouses Silvestre and Celia Pascual executed in favor of Rodrigo Ramos a Deed of Absolute Sale with Right to Repurchase over two parcels of land located in Bambang, Bulacan, Bulacan for and in consideration of P150,000.00. The Pascuals did not exercixe their right to repurchase the property within the stipulated one-year period; thus, Ramos filed with the trial court a petition that the title or ownership over the subject parcels and improvements thereon be consolidated in his favor. In their answer, the Pascuals averred that what the parties had actually agreed upon and entered

into was a real estate mortgage and that they had even overpaid Ramos. The Pascuals prayed that Ramos be ordered to execute a Deed of Cancellation, Release or Discharge of the Absolute Sale with Right to Repurchase or a Deed of Real Estate Mortgage and for the award of damages. Among the documents offered in evidence by Ramos during the trial was a document denominated as Sinumpaang Salaysay signed by Ramos and Silvestre Pascual, but not notarized. On the other hand, the Pascuals presented documentary evidence consisting of acknowledgement receipts to prove the payments they had made. The trial court found that the transaction was actually a loan in the amount of P150, 000, the payment of which was secured by a mortgage of the property. It also found that the Pascuals had made payments in the total sum of P344,000, and that with interest at 7% per annum, the Pascuals had overpaid the loan by P141,500. The trial court rendered its decision dismissing Ramos’ petition and awarding the Pascuals the sum of P141,500 as overpayments on the loan and interests. Ramos moved for the reconsideration of the decision, alleging that the trial court erred in using an interest rate of 7% pert annum in the computation of the total amount of obligation since what was expressly stipulated in the Sinumpaang Salaysay was 7% per month. Thus the total interest due was P643,000 was still due as interest. Adding the latter to the principal sum of P150,000, the total amount due from the Pascuals as of April 3, 1995, was P793,000. Finding merit in Ramos’ motion for reconsideration, which was not opposed by the Pascuals, the trial court issued an order modifying its decision. It deleted the award of P141,500 to the Pascuals and ordered them to pay Ramos P511,000. The trial court noted that during the trial, the Pascuals never disputed the stipulated interest which is 7% per month. However, the court declared it is too burdensome and onerous, thus reducing the interest rate at 5% per month. The Pascuals filed a motion to reconsider the Order of June 5, 1995 and Ramos opposed the motion of the Pascuals. The Pascuals appealed to the Court of Appeals but the appellate court affirmed in toto the trial court’s orders. Hence, this petition. ISSUE: Whether or not the Pascuals are liable for 5% interest per month from June 3, 1987 to April 3, 1995. RULING:

The Supreme Court held that parties are bound by the stipulation in the contracts voluntarily entered into by them. Parties are free to stipulate terms and conditions which they deem convenient provided they are not contrary to law, morals, good customs, public order or public policy. The interest rate of 7% per month was voluntarily agreed upon by Ramos and the Pascuals. There is nothing from the records and no allegation showing that petitioners were victims of fraud when they entered into the agreement with Ramos. With the suspension of the Usury Law and the removal of interest ceiling, the parties are free to stipulate the interest to be imposed on loans. Absent any evidence of fraud, undue influence, or any vice of consent exercised by Ramos on the Pascuals, the interest agreed upon them is binding upon them. The Court is not in a position to impose upon parties contractual stipulations different from what they have agreed upon. The Court cannot supplant the interest rate, which was reduced to 5% per month without opposition on the part of Ramos. Hence, the Pascuals are liable for 5% interest per month from June 3, 1987 to April 3, 1995. The assailed decision is therefore affirmed and the petition is denied. OBLIGATORY FORCE OF CONTRACTS MAXIMA HEMEDES, petitioner, VS. THE HONORABLE COURT OF APPEALS, DOMINIUM REALTY AND CONSTRUCTION CORPORATION, ENRIQUE D. HEMEDES, and R & B INSURANCE CORPORATION, respondents G.R. No. 108472 October 8, 1999 FACTS: The instant controversy involves a question of ownership over an unregistered parcel of land, identified as Lot No. 6, plan Psu-111331, with an area of 21,773 square meters, situated in Sala, Cabuyao, Laguna. It was originally owned by the late Jose Hemedes, father of Maxima Hemedes and Enrique D. Hemedes. On March 22, 1947 Jose Hemedes executed a document entitled “Donation Inter Vivos With Resolutory Conditions” whereby he conveyed ownership over the subject land, together with all its improvements, in favor of his third wife, Justa Kausapin. Maxima Hemedes, through her counsel, filed an application for registration and confirmation of title over the subject unregistered land. Subsequently, Original Certificate of Title (OCT) No. (0-941) 0-198 was issued in the name of Maxima Hemedes married to Raul Rodriguez by the Registry of Deeds of Laguna on June 8, 1962, with the annotation that “Justa

Kausapin shall have the usufructuary rights over the parcel of land herein described during her lifetime or widowhood.” On February 28, 1979, Enrique D. Hemedes sold the property to Dominium Realty and Construction Corporation (Dominium). On April 10, 1981, Justa Kausapin executed an affidavit affirming the conveyance of the subject property in favor of Enrique D. Hemedes as embodied in the “Kasunduan” dated May 27, 1971, and at the same time denying the conveyance made to Maxima Hemedes. On August 27, 1981, Dominium and Enrique D. Hemedes filed a complaint with the Court of First Instance of Binan, Laguna for the annulment of TCT No. 41985 issued in favor of R & b Insurance and/or the reconveyance to Dominium of the subject property. Specifically, the complaint alleged that Dominium was the absolute owner of the subject property by virtue of the February 28, 1979 deed of sale executed by Enrique D. Hemedes, who in turn obtained ownership of the land from Justa Kausapin, as evidenced by the “Kasunduan” dated May 27, 1971. The Plaintiffs asserted that Justa Kausapin never transferred the land to Maxima Hemedes and that Enrique D. Hemedes had no knowledge of the registration proceedings initiated by Maxima Hemedes. After considering the merits of the case, the trial court rendered judgment on February 22, 1989 in favor of plaintiffs Dominium and Enrique D. Hemedes. Both R & B Insurance and Maxima Hemedes appealed from the trial court’s decision. On September 11, 1992 the Court of Appeals affirmed the assailed decision in toto and on December 29, 1992, it denied R & Insurance’s motion for reconsideration. Thus, Maxima Hemedes and R & B Insurance filed their respective petitions for review with this Court on November 3, 1992 and February 22, 1993, respectively. ISSUE: Which of the two conveyances by Justa Kausapin, the first in favor of Maxima Hemedes and the second in favor of Enrique D. Hemedes, effectively transferred ownership over the subject land? RULING: Public respondent’s finding that the “Deed of Conveyance of Unregistered Real Property By Reversion” executed by Justa Kausapin in favor of Maxima Hemedes is spurious is not supported by the factual findings in this case. It is grounded upon the mere denial of the same by Justa Kausapin.

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

RIGHTS OF FIRST REFUSAL 1. 2. 3. 4.

VILLEGAS VS. CA EQUATORIAL REALTY VS. CARMELO PUP VS. CA LITONJUA VS. L &R

JOSELITO VILLEGAS and DOMINGA VILLEGAS vs. COURT OF APPEALS

G.R. No. 129977. February 1, 2001

appealed this decision to the Court of Appeals, which affirmed the trial court’s decision.

FACTS: Before September 6, 1973, Lot B-3-A, with an area of 4 hectares was registered under TCT No. 68641 in the names of Ciriaco D. Andres and Henson Caigas. This land was also declared for real estate taxation under Tax Declaration No. C2-4442. On September 6, 1973, Andres and Caigas, with the consent of their respective spouses, Anita Barrientos and Consolacion Tobias, sold the land to Fortune Tobacco Corporation for P60,000.00. Simultaneously, they executed a joint affidavit declaring that they had no tenants on said lot. On the same date, the sale was registered in the Office of the Register of Deeds of Isabela. TCT No. 68641 was cancelled and TCT No. T-68737 was issued in Fortune’s name. On August 6, 1976, Andres and Caigas executed a Deed of Reconveyance of the same lot in favor of Filomena Domingo, the mother of Joselito Villegas, defendant in the case before the trial court. Although no title was mentioned in this deed, Domingo succeeded in registering this document in the Office of the Register of Deeds on August 6, 1976, causing the latter to issue TCT No. T-91864 in her name. It appears in this title that the same was a transfer from TCT No. T-68641. On April 13, 1981, Domingo declared the lot for real estate taxation under Tax Declaration No. 10-5633. On December 4, 1976, the Office of the Register of Deeds of Isabela was burned together with all titles in the office. On December 17, 1976, the original of TCT No. T-91864 was administratively reconstituted by the Register of Deeds. On June 2, 1979, a Deed of Absolute Sale of a portion of 20,000 square meters of Lot B-3-A was executed by Filomena Domingo in favor of Villegas for a consideration of P1,000.00. This document was registered on June 3, 1981 and as a result TCT No. T131807 was issued by the Register of Deeds to Villegas. On the same date, the technical description of Lot B-3-A-2 was registered and TCT No. T-131808 was issued in the name of Domingo. On January 22, 1991, this document was registered and TCT No. 154962 was issued to the defendant, Joselito Villegas. On April 10, 1991, the trial court upon a petition filed by Fortune ordered the reconstitution of the original of TCT No. T-68737. After trial on the merits, the trial court rendered its assailed decision in favor of Fortune Tobacco, declaring it to be entitled to the property. Petitioners thus

ISSUES: Whether or not the Court of Appeals was correct in affirming the trial court’s decision. RULING: Even if Fortune had validly acquired the subject property, it would still be barred from asserting title because of laches. The failure or neglect, for an unreasonable length of time to do that which by exercising due diligence could or should have been done earlier constitutes laches. It is negligence or omission to assert a right within a reasonable time, warranting a presumption that the party entitled to assert it has either abandoned it or declined to assert it. While it is by express provision of law that no title to registered land in derogation of that of the registered owner shall be acquired by prescription or adverse possession, it is likewise an enshrined rule that even a registered owner may be barred from recovering possession of property by virtue of laches. Hence, petition was GRANTED and the Decision of the Court of Appeals was REVERSED.

EQUATORIAL REALTY DEVELOPMENT, INC. & CARMELO & BAUERMANN, INC vs. MAYFAIR THEATER, INC G.R. No. 106063 1996 Nov 21 264 SCRA 483 FACTS: Carmelo owned a parcel of land, together with two 2-storey buildings constructed thereon. On June 1, 1967 Carmelo entered into a contract of lease with Mayfair for the latter’s lease of a portion of Carmelo’s property. Two years later, on March 31, 1969, Mayfair entered into a second contract of lease with Carmelo for the lease of another portion of Carmelo’s property.

Both contracts of lease provide identically worded paragraph 8, which reads: ‘That if the LESSOR should desire to sell the leased premises, the LESSEE shall be given 30-days exclusive option to purchase the same. In the event, however, that the leased premises is sold to someone other than the LESSEE, the LESSOR is bound and obligated, as it hereby binds and obligates itself, to stipulate in the Deed of Sale thereof that the purchaser shall recognize this lease and be bound by all the terms and conditions thereof.

Four years later, on July 30, 1978, Carmelo sold its entire C.M. Recto Avenue land and building, which included the leased premises housing the ‘Maxim’ and ‘Miramar’ theatres, to Equatorial by virtue of a Deed of Absolute Sale, for the total sum of P11,300,000.00. In September 1978, Mayfair instituted the action a quo for specific performance and annulment of the sale of the leased premises to Equatorial. It dismissed the complaint with costs against the plaintiff. The Court of Appeals reversed the decision of the trial court. RULING:

Mr. Henry Pascal of Carmelo informed Mr. Henry Yang, President of Mayfair, through a telephone conversation that Carmelo was desirous of selling the entire Claro M. Recto property. Mr. Pascal told Mr. Yang that a certain Jose Araneta was offering to buy the whole property for US Dollars 1,200,000, and Mr. Pascal asked Mr. Yang if the latter was willing to buy the property for Six to Seven Million Pesos. Under your company’s two lease contracts with our client, it is uniformly provided: ‘8. That if the LESSOR should desire to sell the leased premises the LESSEE shall be given 30-days exclusive option to purchase the same. In the event, however, that the leased premises is sold to someone other than the LESSEE, the LESSOR is bound and obligated, as it here binds and obligates itself, to stipulate in the Deed of Sale thereof that the purchaser shall recognize this lease and be bound by all the terms and conditions hereof. Carmelo did not reply to this letter. On September 18, 1974, Mayfair sent another letter to Carmelo purporting to express interest in acquiring not only the leased premises but ‘the entire building and other improvements if the price is reasonable. However, both Carmelo and Equatorial questioned the authenticity of the second letter.

Whether or not the decision of the Court of Appeals’ decision was correct. RULING: The Court agrees with the Court of Appeals that the aforecited contractual stipulation provides for a right of first refusal in favor of Mayfair. It is not an option clause or an option contract. It is a contract of a right of first refusal. As early as 1916, in the case of Beaumont vs. Prieto, unequivocal was our characterization of an option contract as one necessarily involving the choice granted to another for a distinct and separate consideration as to whether or not to purchase a determinate thing at a predetermined fixed price. Further, what Carmelo and Mayfair agreed to, by executing the two lease contracts, was that Mayfair will have the right of first refusal in the event Carmelo sells the leased premises. It is undisputed that Carmelo did recognize this right of Mayfair, for it informed the latter of its intention to sell the said property in 1974. There was an exchange of letters evidencing the offer and counter-offers made by both parties. Carmelo, however, did not pursue the exercise to its logical end. While it initially recognized Mayfair’s right of first refusal, Carmelo violated such right when without affording its negotiations with Mayfair the full process to

ripen to at least an interface of a definite offer and a possible corresponding acceptance within the “30-day exclusive option” time granted Mayfair, Carmelo abandoned negotiations, kept a low profile for some time, and then sold, without prior notice to Mayfair, the entire Claro M. Recto property to Equatorial. Since Equatorial is a buyer in bad faith, this finding renders the sale to it of the property in question rescissible. We agree with respondent Appellate Court that the records bear out the fact that Equatorial was aware of the lease contracts because its lawyers had, prior to the sale, studied the said contracts. As such, Equatorial cannot tenably claim to be a purchaser in good faith, and, therefore, rescission lies. Hence, the petition was denied.

POLYTECHNIC UNIVERSITY OF THE PHILIPPINES vs. COURT OF APPEALS and FIRESTONE CERAMICS, INC. G.R. No. 143513. November 14, 2001 NATIONAL DEVELOPMENT CORPORATION vs. FIRESTONE CERAMICS INC G.R. No. 143590. November 14, 2001 FACTS: In the early sixties, petitioner National Development Corporation (NDC), had in its disposal a ten-hectare property located along Pureza St., Sta. Mesa, Manila. The estate was popularly known as the NDC compound and covered by Transfer Certificates of Title Nos. 92885, 110301 and 145470. Private respondent Firestone Ceramics Inc. manifested its desire to lease a portion of the property for its ceramic manufacturing business. NDC and FIRESTONE entered into a contract of lease denominated as Contract No. C-30-65 covering a portion of the property measured at 2.90118 hectares for use as a manufacturing plant for a term of ten years, renewable for another ten years under the same terms and conditions. In

consequence of the agreement, FIRESTONE constructed on the leased premises several warehouses and other improvements needed for the fabrication of ceramic products. Three and a half years later, FIRESTONE entered into a second contract of lease with NDC over the latter's fourunit pre-fabricated reparation steel warehouse stored in Daliao, Davao. FIRESTONE agreed to ship the warehouse to Manila for eventual assembly within the NDC compound. The second contract, denominated as Contract No. C-26-68, was for similar use as a ceramic manufacturing plant and was agreed expressly to be "co-extensive with the lease of LESSEE with LESSOR on the 2.60 hectare-lot. The parties signed a similar contract concerning a six-unit pre-fabricated steel warehouse which, as agreed upon by the parties, would expire on 2 December 1978. Prior to the expiration of the aforementioned contract, FIRESTONE wrote NDC requesting for an extension of their lease agreement. Consequently, the Board of Directors of NDC adopted the Resolution extending the term of the lease, subject to several conditions among which was that in the event NDC "with the approval of higher authorities, decide to dispose and sell these properties including the lot, priority should be given to the LESSEE". In pursuance of the resolution, the parties entered into a new agreement for a ten-year lease of the property, renewable for another ten years, expressly granting FIRESTONE the first option to purchase the leased premises in the event that it decided "to dispose and sell these properties including the lot”. The parties' lessor-lessee relationship went smoothly until early 1988 when FIRESTONE, cognizant of the impending expiration of their lease agreement with NDC, informed the latter through several letters and telephone calls that it was renewing its lease over the property. While its letter of 17 March 1988 was answered by Antonio A. Henson, General Manager of NDC, who promised immediate action on the matter, the rest of its communications remained unacknowledged. FIRESTONE's predicament worsened when rumors of NDC's supposed plans to dispose of the subject property in favor of petitioner Polytechnic University of the Philippines came to its knowledge. Forthwith, FIRESTONE served notice on NDC conveying its desire to purchase the property in the exercise of its contractual right of first refusal. Apprehensive that its interest in the property would be disregarded, FIRESTONE instituted an action for specific performance to compel NDC to sell the leased property in its favor. Following the denial of its petition, FIRESTONE amended its

complaint to include PUP and Executive Secretary Catalino Macaraeg, Jr., as party-defendants, and sought the annulment of Memorandum Order No. 214. After trial, judgment was rendered declaring the contracts of lease executed between FIRESTONE and NDC covering the 2.60-hectare property and the warehouses constructed thereon valid and existing until 2 June 1999. The Court of Appeals affirmed the decision of the trial court ordering the sale of the property in favor of FIRESTONE.

have their respective charters and therefore each possesses a separate and distinct individual personality. Hence, the petition was denied. SPS. LITONJUA vs. L & R CORPORATION G.R. No. 130722. December 9, 1999 320 SCRA 405

ISSUE:

This stems from loans obtained by the spouses Litonjua from L&R Corporation in the aggregate sum of P400,000.00; P200,000.00 of which was obtained on August 6, 1974 and the remaining P200,000.00 obtained on March 27, 1978. The loans were secured by a mortgage constituted by the spouses upon their two parcels of land and the improvements thereon The mortgage was duly registered with the Register of Deeds. Spouses Litonjua sold to Philippine White House Auto Supply, Inc. (PWHAS) the parcels of land they had previously mortgaged to L & R Corporation for the sum of P430,000.00. Meanwhile, with the spouses Litonjua having defaulted in the payment of their loans, L & R Corporation initiated extrajudicial foreclosure proceedings with the Ex-Oficio Sheriff of Quezon City. The mortgaged properties were sold at public auction to L & R Corporation as the only bidder for the amount of P221,624.58. The Deputy Sheriff informed L & R Corporation of the payment by PWHAS of the full redemption price and advised it that it can claim the payment upon surrender of its owner’s duplicate certificates of title. The spouses Litonjua presented for registration the Certificate of Redemption issued in their favor to the Register of Deeds of Quezon City. The Certificate also informed L & R Corporation of the fact of redemption and directed the latter to surrender the owner’s duplicate certificates of title within five days. On April 22, 1981, L & R Corporation wrote a letter to the Sheriff, copy furnished to the Register of Deeds, stating: (1) that the sale of the mortgaged properties to PWHAS was without its consent, in contravention of paragraphs 8 and 9 of their Deed of Real Estate Mortgage; and (2) that it was not the spouses Litonjua, but PWHAS, who was seeking to redeem the foreclosed properties, when under Articles 1236 and 1237 of the New Civil Code, the latter had no legal personality or capacity to redeem the same.

Whether or not the Court of Appeals decided a question of substance in a way definitely not in accord with law or jurisprudence. RULING: The courts a quo did not hypothesize, much less conjure, the sale of the disputed property by NDC in favor of petitioner PUP. Aside from the fact that the intention of NDC and PUP to enter into a contract of sale was clearly expressed in the Memorandum Order No. 214, a close perusal of the circumstances of this case strengthens the theory that the conveyance of the property from NDC to PUP was one of absolute sale, for a valuable consideration, and not a mere paper transfer as argued by petitioners. A contract of sale, as defined in the Civil Code, is a contract where one of the parties obligates himself to transfer the ownership of and to deliver a determinate thing to the other or others who shall pay therefore a sum certain in money or its equivalent. It is therefore a general requisite for the existence of a valid and enforceable contract of sale that it be mutually obligatory, i.e., there should be a concurrence of the promise of the vendor to sell a determinate thing and the promise of the vendee to receive and pay for the property so delivered and transferred. The Civil Code provision is, in effect, a "catch-all" provision which effectively brings within its grasp a whole gamut of transfers whereby ownership of a thing is ceded for a consideration. Contrary to what petitioners PUP and NDC propose, there is not just one party involved in the questioned transaction. Petitioners NDC and PUP

FACTS:

On the other hand, the spouses Litonjua asked the Register of Deeds to annotate their Certificate of Redemption as an adverse claim on the titles of the subject properties on account of the refusal of L & R Corporation to surrender the owner’s duplicate copies of the titles to the subject properties. With the refusal of the Register of Deeds to annotate their Certificate of Redemption, the Litonjua spouses filed a Petition on July 17, 1981 against L & R Corporation for the surrender of the owner’s duplicate of Transfer Certificates of Title No. 197232 and 197233 before the then CFI. While the said case was pending, L & R Corporation executed an Affidavit of Consolidation of Ownership. The Register of Deeds cancelled Transfer Certificates of Title No. 197232 and 197233 and in lieu thereof, issued Transfer Certificates of Title No. 280054 and 28055 in favor of L & R Corporation, free of any lien or encumbrance. A complaint for Quieting of Title, Annulment of Title and Damages with preliminary injunction was filed by the spouses Litonjua and PWHAS against herein respondents before the then CFI. ISSUE: Whether or not the Court of Appeals erred in its decision. RULING: In the case at bar, PWHAS cannot claim ignorance of the right of first refusal granted to L & R Corporation over the subject properties since the Deed of Real Estate Mortgage containing such a provision was duly registered with the Register of Deeds. As such, PWHAS is presumed to have been notified thereof by registration, which equates to notice to the whole world. Thus, the Decision appealed from was AFFIRMED with the following MODIFICATIONS.

MUTUALITY OF CONTRACT

JOSEFA VS. ZHANDONG TRADING CORPORATION 417 SCRA 269 G.R. NO. 150903 DECEMBER 8, 2003 FACTS: Respondent Zhandong delivered to petitioner Josefa, who was introduced to it as a client by Mr. Tan, the total volume of 313 crates of boards valued at P4,558,100.00 payable within 60 days from delivery. Instead of paying respondent, however, petitioner remitted his payments to Tan who in turn delivered various checks to respondent, who accepted them upon Tan’s assurance that said checks came from petitioner. When a number of the checks bounced, Tan issued his own checks and those of his mother, but Tan later stopped payments. Respondent demanded payment from Tan and petitioner but was ignored; hence he filed the instant complaint. In his answer petitioner averred that he had already paid all his obligations to respondent through Tan. Furthermore, he claimed he is not privy to the agreements between Tan and respondent, and hence, in case his payments were not remitted to respondent, then it was not his (petitioner) fault and that respondent should bear the consequences. ISSUE: Whether or not petitioner is liable for payment of the boards to respondent when he did not negotiate the transaction with it, rather through Tan as intermediary. RULING: No. The transaction was negotiated between Tan and petitioner who only received the goods delivered by respondent. Petitioner was not privy to the arrangement between Tan and respondent. Petitioner has fully paid for the goods to Tan with whom he had arranged the transaction. Contracts take effect only between the parties, their successors in interest, heirs, and assigns. When there is no privity of contract, there is likewise no obligation or liability and thus, no cause of action arises. Petitioner, being not privy to the transaction between Tan and respondent, should not be made liable for the failure of Tan to deliver the payment to respondent. Therefore, respondent should recover the payment from Tan.

PRINCIPLE OF EQUALITY / CONTRACTS OF ADHESION 1. 2. 3. 4. 5.

PCI VS. NG SHEUNG NGOR DIO VS. ST.FERDINAND MEMORIAL PILTEL VS.TECSON PAL VS. CA, 255 SCRA 48 ERMITANO VS. CA, 306 SCRA 218

PCI VS NG SHUENG NGOR A.M. No. P-05-1973. March 18, 2005 FACTS: Complainant EPCIB is the defendant in Civil Case No. CEB-26983 before the Regional Trial Court (RTC), Branch 16, Cebu City, entitled, “Ng Sheung Ngor, doing business under the name and style ‘Ken Marketing,’ Ken Appliance Division, Inc. and Benjamin Go, Plaintiffs, vs. Equitable PCI Bank, Aimee Yu and Ben Apas, Defendants” for Annulment and/or Reformation of Documents and Contracts. Respondents Antonio A. Bellones and Generoso B. Regalado are the sheriffs in Branches 9 and 16, respectively, of the RTC of Cebu City. For garnishing accounts maintained by Equitable PCI Bank, Inc. (EPCIB) at Citibank, N.A., and Hongkong and Shanghai Bank Corporation (HSBC), allegedly in violation of Section 9(b) of Rule 39 of the Rules of Court, a complaint for grave abuse of authority was filed by Atty. Paulino L. Yusi against Sheriffs Antonio A. Bellones and Generoso B. Regalado. There was an offer of other real property by petitioner. ISSUE: Did respondents violate the Rules of Court? RULING: By serving notices of garnishment on Citibank, N.A., HSBC and PNB, Sheriff Regalado violated EPCIB’s right to choose which property may be levied upon to be sold at auction for the satisfaction of the judgment debt. Thus, it is clear that when EPCIB offered its real properties, it exercised its option because it cannot immediately pay the full amount stated in the writ of execution and all lawful fees in cash, certified bank check or any other mode of payment acceptable to the judgment obligee.

In the case at bar, EPCIB cannot immediately pay by way of Manager’s Check so it exercised its option to choose and offered its real properties. With the exercise of the option, Sheriff Regalado should have ceased serving notices of garnishment and discontinued their implementation. This is not true in the instant case. Sheriff Regalado was adamant in his posture even if real properties have been offered which were sufficient to satisfy the judgment debt.

PRINCIPLE OF EQUALITY / CONTRACTS OF ADHESION

TERESITA DIO vs. ST. FERDINAND MEMORIALPARK, INC. G.R. No. 169578 November 30, 2006 509 SCRA 453 FACTS: On December 11, 1973, Teresita Dio agreed to buy, on installment basis, a memorial lot from the St. Ferdinand Memorial Park, Inc. (SFMPI) in Lucena City. The purchase was evidenced by a Pre-Need Purchase Agreement. She obliged herself to abide by all such rules and regulations governing the SFMPI dated May 25, 1972. SFMPI issued a Deed of Sale and Certificate of Perpetual. The ownership of Dio over the property was made subject to the rules and regulations of SFMPI, as well as the government, including all amendments, additions and modifications that may later be adopted. According to the Rules (Rule 69) Mausoleum building and memorials should be constructed by the Park Personnel. Lot Owners cannot contract other contractors for the construction of the said buildings and memorial, however, the lot owner is free to give their own design for the mausoleum to be constructed, as long as it is in accordance with the park standards. The construction shall be under the close supervision of the Park Superintendent. The mortal remains of Dio’s husband, father and daughter were interred in the lot at her own expense, without the knowledge and intervention of SFMPI..

In October 1986, Dio informed SFMPI, through its president and controlling stockholder, Mildred F. Tantoco, that she was planning to build a mausoleum on her lot and sought the approval thereof. Dio showed to Tantoco the plans and project specifications accomplished by her private contractor at an estimated cost of P60,000.00. The plans and specifications were approved, but Tantoco insisted that the mausoleum be built by it or its agents at a minimum cost of P100,000.00 as provided in Rule 69 of the Rules and Regulations the SFMPI issued on May 25, 1972. The total amount excluded certain specific designs in the approved plan which if included would cost Dio much more. Dio, through counsel, demanded that she be allowed to construct the mausoleum within 10 days, otherwise, she would be impelled to file the necessary action/s against SFMPI and Tantoco. Dio filed a Complaint for Injunction with Damages against SFMPI and Tantoco before the RTC. She averred that she was not aware of Rule 69 of the SFMPI Rules and Regulations; the amount of P100,000.00 as construction cost of the mausoleum was unconscionable and oppressive. She prayed that, after trial, judgment be rendered in her favor, granting a final injunction perpetually restraining defendants from enforcing the invalid Rule 69 of SFMPI’s “Rules for Memorial Work in the Mausoleum of the Park” or from refusing or preventing the construction of any improvement upon her property in the park. The court issued a cease and desist order against defendants. The trial court rendered judgment in favor of defendants. On appeal, the CA affirmed the decision of the trial court.

mother, the plaintiff herein, informed the defendants of her plan to construct and erect a mausoleum. This act of the plaintiff clearly shows that she was fully aware of the said rules and regulations otherwise she should not consult, inform and seek permission from the defendants of her intention to build a mausoleum if she is not barred by the rules and regulations to do the same. When she signed the contract with the defendants, she was estopped to question and attack the legality of said contract later on. Further, a contract of adhesion, wherein one party imposes a readymade form of contract on the other, is not strictly against the law. A contract of adhesion is as binding as ordinary contracts, the reason being that the party who adheres to the contract is free to reject it entirely. Contrary to petitioner’s contention, not every contract of adhesion is an invalid agreement. Thus, the petition was denied.

ISSUE: Whether or not petitioner had knowledge of Rule 69 of SFMPI Rules and Regulations for memorial works in the mausoleum areas of the park when the Pre-Need Purchase Agreement and the Deed of Sale was executed and whether the said rule is valid and binding upon petitioner.

On various dates in 1996, Delfino C. Tecson applied for 6 cellular phone subscriptions with petitioner Pilipino Telephone Corporation (PILTEL), a company engaged in the telecommunications business, which applications were each approved and covered, respectively, by six mobiline service agreements. On 05 April 2001, respondent filed with the Regional Trial Court a complaint against petitioner for a “Sum of Money and Damages.” Petitioner moved for the dismissal of the complaint on the ground of improper venue, citing a common provision in the mobiline service agreements to the effect that - “Venue of all suits arising from this Agreement or any other suit directly or indirectly arising from the relationship between PILTEL and subscriber shall be in the proper courts of Makati, Metro Manila. Subscriber hereby expressly waives any other venues.” The Regional Trial Court of Iligan City, Lanao del Norte, denied

RULING: Plaintiff’s allegation that she was not aware of the said Rules and Regulations lacks credence. Admittedly, in her Complaint and during the trial, plaintiff testified that she informed the defendants of her intention to construct a mausoleum. Even counsel for the plaintiff, who is the son of the plaintiff, informed the Court during the trial in this case that her

PRINCIPLE OF EQUALITY / CONTRACTS OF ADHESION

PILIPINO TELEPHONE CORPORATION vs. DELFINO TECSON G.R. No. 156966. May 7, 2004 FACTS:

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

PRINCIPLE OF EQUALITY / CONTRACTS OF ADHESION PHILIPPINE AIRLINES VS. COURT OF APPEALS G.R. No. 119706 March 14, 1996 255 SCRA 48 FACTS: On January 27, 1990, plaintiff Gilda C. Mejia shipped thru defendant, Philippine Airlines, one (1) unit microwave oven under PAL Air Waybill No. 0-791013008-3, with a gross weight of 33 kilograms from San Francisco, U.S.A. to Manila, Philippines. Upon arrival, however, of said article in Manila, Philippines, plaintiff discovered that its front glass door was broken and the damage rendered it unserviceable. Demands both oral and written were made by plaintiff against the defendant for the reimbursement of the value of the damaged microwave oven, and transportation charges paid by plaintiff to defendant company. But these demands fell on deaf ears. This is because, according to petitioner, was filed out of time under paragraph 12, a (1) of the Air Waybill which provides: "(a) the person entitled to delivery must make a complaint to the carrier in writing in case: (1) of visible damage to the goods, immediately after discovery of the damage and at the latest within 14 days from the receipt of the goods. On September 25, 1990, Gilda C. Mejia filed an action for damages against the petitioner in the lower court. The latter rendered a decision rendering PAL liable to pay, actual, moral and exemplary damages as well as attorney’s fees. On appeal, the Court of Appeals similarly ruled in favor of private respondent by affirming in full the trial court's judgment, with costs against petitioner. ISSUE: Whether or not the respondent court erred in affirming the conclusions of the trial court that since the air waybill is a contract of adhesion, its provisions should be strictly construed against herein petitioner. RULING: The Supreme Court affirmed the appealed decision. The trial court relied on the ruling in the case of Fieldmen's Insurance Co., Inc. vs. Vda. De Songco, et al. in finding that the provisions of the air waybill

should be strictly construed against petitioner. More particularly, the court below stated its findings thus:

Manuelita stated that she “shall not be responsible for any and all charges incurred [through the use of the lost card] After August 29, 1989.

“In this case, it is seriously doubted whether plaintiff had read the printed conditions at the back of the Air Waybill, or even if she had, if she was given a chance to negotiate on the conditions for loading her microwave oven. Instead she was advised by defendant's employee at San Francisco, U.S.A., that there is no need to declare the value of her oven since it is not brand new. Further, plaintiff testified that she immediately submitted a formal claim for P30,000.00 with defendant. But their claim was referred from one employee to another then told to come back the next day, and the next day, until she was referred to a certain Atty. Paco. When they got tired and frustrated of coming without a settlement of their claim in sight, they consulted a lawyer who demanded from defendant on August 13, 1990”.

However, when Luis received his monthly billing statement from BECC dated September 20,1989, the charges included amounts for purchases were made, one amounting to P2,350.05 and the other, P607.50. Manuelita received a billing statement dated October 20,1989 which required her to immediately pay the total amount of P3,197.70 covering the same (unauthorized) purchases. Manuelita wrote again BECC disclaiming responsibility for those charges, which were made after she had served BECC with notice of loss of her card.

Respondent appellate court approved said findings of the trial court in this manner: “We cannot agree with defendant-appellant's above contention. Under our jurisprudence, the Air Waybill is a contract of adhesion considering that all the provisions thereof are prepared and drafted only by the carrier. The only participation left of the other party is to affix his signature thereto. In the earlier case of Angeles v. Calasanz, the Supreme Court ruled that the terms of a contract of adhesion must be interpreted against the party who drafted the same.” PRINCIPLE OF EQUALITY / CONTRACTS OF ADHESION ERMITAÑO VS. COURT OF APPEALS 306 SCRA 218 FACTS: Petitioner Luis Ermitaño applied for a credit card from private respondent BPI Express Card Corp. (BECC) on October 8, 1986 with his wife, Manuelita, as extension card holder. The spouses were given credit limit of P10, 000.00. They often exceeded this credit limit without protest from BCC. On August 9, 1989, Manuelita’s bag was snatched from her as she was shopping at the greenbelt mall in Makati, Metro Manila. Among the items inside the bag was her BECC credit card. That same night she informed, by telephone, BECC of the loss. The call was received by BECC offices through a certain Gina Banzon. This was followed by a letter dated August 30, 1989. She also surrendered Luis’ credit card and requested for replacement cards. In her letter,

However, BECC, in a letter dated July 13, 1990, pointed to Luis the following stipulation in their contract: In his reply dated July 18, 1990, Luis stressed that the contract BECC was referring to was a contract of adhesion and warned that if BECC insisted on charging him and his wife for the unauthorized purchases, they will sue BECC continued to bill the spouses for said purchases. The trial court only opined that the only purpose for the suspension of the spouses’ credit privileges was to compel them to pay for the unauthorized purchases. The trial court ruled that the latter portion of the condition in the parties’ contract, which states the liability for purchases made after a card is lost or stolen shall be for the account of the cardholder until after notice of the lost or theft has been given to BECC and after the latter has informed its member establishments, is void for being contrary to public policy and for being dependent upon the sole will of the debtor. ISSUE: Whether or not the Court of Appeals gravely erred in relying on the case of Serra v. Court of appeals, 229 SCRA 60, because unlike that case, petitioners have no chance at all to contest the stipulations appearing in the credit card application that was drafted entirely by private respondent, thus, a clear contract of adhesion. RULING: At the outset, we note that the contract between the parties in this case is indeed a contract of adhesion, so-called because its terms are prepared by only one party while the other party merely affixes his signature signifying his adhesion thereto. Such contracts are not void in themselves. They are as binding as ordinary contracts. Parties who enter in to such contracts are free to reject the stipulations entirely.

In this case, the cardholder, Manuelita, has complied with what was required of her under the contract with BECC, She immediately notified BECC of loss of her card on the same day it was lost and, the following day, she sent a written notice of the loss to BECC. Clearly, what happened in this case was that BECC failed to notify promptly the establishment in which the unauthorized purchases were made with the use of Manuelita’s lost card. Thus, Manuelita was being liable for those purchases, even if there is no showing that Manuelita herself had signed for said purchases, and after notice by her concerning her card’s loss was already given to BECC. NON-BINDING TO THIRD PARTIES 1. 2. 3. 4.

UNIWIDE VS. TITAN-IKEDA HEIRS OF SALASVS. LAPERAL MEDRANO VS. CA TAN VS. GULLAS

UNIWIDE SALES REALTY AND RESOURCES CORPORATION, vs. TITAN-IKEDA CONSTRUCTIONAND DEVELOPMENT CORPORATION G.R. No. 126619 December 20, 2006 511 SCRA 335 FACTS: PROJECT 1. The first agreement was a written “Construction Contract” entered into by Titan and Uniwide sometime in May 1991 whereby Titan undertook to construct Uniwide’s Warehouse Club and Administration Building in Libis, Quezon City for a fee of P120,936,591.50, payable in monthly progress billings to be certified to by Uniwide’s representative. The parties stipulated that the building shall be completed not later than 30 November 1991. As found by the CIAC, the building was eventually finished on 15 February 1992 and turned over to Uniwide. PROJECT 2. Sometime in July 1992, Titan and Uniwide entered into the second agreement whereby the former agreed to construct an

additional floor and to renovate the latter’s warehouse located at the EDSA Central Market Area in Mandaluyong City. There was no written contract executed between the parties for this project. Construction was allegedly to be on the basis of drawings and specifications provided by Uniwide’s structural engineers. The parties proceeded on the basis of a cost estimate of P21,301,075.77 inclusive of Titan’s 20% mark-up. Titan conceded in its complaint to having received P15,000,000.00 of this amount. This project was completed in the latter part of October 1992 and turned over to Uniwide. PROJECT 3. The parties executed the third agreement in May 1992. In a written “Construction Contract,” Titan undertook to construct the Uniwide Sales Department Store Building in Kalookan City for the price of P118,000,000.00 payable in progress billings to be certified to by Uniwide’s representative. It was stipulated that the project shall be completed not later than 28 February 1993. The project was completed and turned over to Uniwide in June 1993. Uniwide asserted in its petition that: (a) it overpaid Titan for unauthorized additional works in Project 1 and Project 3; (b) it is not liable to pay the Value-Added Tax for Project 1; (c) it is entitled to liquidated damages for the delay incurred in constructing Project 1 and Project 3; and (d) it should not have been found liable for deficiencies in the defectively constructed Project 2. The decision: On Project 1 – Libis: Uniwide is absolved of any liability for the claims made by [Titan] on this Project. Project 2 – Edsa Central: Uniwide is absolved of any liability for VAT payment on this project, the same being for the account of Titan. On the other hand, Titan is absolved of any liability on the counterclaim for defective construction of this project. Uniwide is held liable for the unpaid balance in the amount of P6,301,075.77 which is ordered to be paid to the Titan with 12% interest per annum commencing from 19 December 1992 until the date of payment.

On Project 3 – Kalookan: Uniwide is held liable for the unpaid balance in the amount of P5,158,364.63 which is ordered to be paid to Titan with 12% interest per annum commencing from 08 September 1993 until the date of payment. Uniwide is held liable to pay in full the VAT on this project, in such amount as may be computed by the Bureau of Internal Revenue to be paid directly thereto. The BIR is hereby notified that Uniwide Sales Realty and Resources Corporation has assumed responsibility and is held liable for VAT payment on this project. This accordingly exempts Claimant Titan-Ikeda Construction and Development Corporation from this obligation. ISSUE: Whether or not the decision rendered is correct. RULING: The petition is DENIED and the Decision of the Court of Appeals was AFFIRMED. NON-BINDING TO THIRD PARTIES

HEIRS OF AUGUSTO L. SALAS, JR. vs. LAPERAL REALTY CORPORATION G.R. NO. 135362. December 13, 1999 FACTS: Salas, Jr. was the registered owner of a vast tract of land in Lipa City, Batangas spanning 1,484,354 square meters. On May 15, 1987, he entered into an Owner-Contractor Agreement with respondent Laperal Realty Corporation to render and provide complete (horizontal) construction services on his land. On September 23, 1988, Salas, Jr. executed a Special Power of Attorney in favor of respondent Laperal Realty to exercise general control, supervision and management of the

sale of his land, for cash or on installment basis. On June 10, 1989, Salas, Jr. left his home in the morning for a business trip to Nueva Ecija. He never returned.On August 6, 1996, Teresita Diaz Salas filed with the Regional Trial Court a verified petition for the declaration of presumptive death of her husband, Salas, Jr., who had then been missing for more than seven (7) years. It was granted on December 12, 1996. Meantime, respondent Laperal Realty subdivided the land of Salas, Jr. and sold subdivided portions thereof to respondents Rockway Real Estate Corporation and South Ridge Village, Inc. on February 22, 1990; to respondent spouses Abrajano and Lava and Oscar Dacillo on June 27, 1991; and to respondents Eduardo Vacuna, Florante de la Cruz and Jesus Vicente Capalan on June 4, 1996. On February 3, 1998, petitioners as heirs of Salas, Jr. filed in the Regional Trial Court a Complaint for declaration of nullity of sale, reconveyance, cancellation of contract, accounting and damages against herein respondents. Laperal Realty filed a Motion to Dismiss on the ground that petitioners failed to submit their grievance to arbitration as required under Article VI of the Agreement. Spouses Abrajano and Lava and respondent Dacillo filed a Joint Answer with Counterclaim and Crossclaim praying for dismissal of petitioners’ Complaint for the same reason. The trial court issued an Order dismissing petitioners’ Complaint for non-compliance with the arbitration clause. ISSUE: Whether or not the trial court erred in dismissing the complaint. RULING: A submission to arbitration is a contract. As such, the Agreement, containing the stipulation on arbitration, binds the parties thereto, as well as their assigns and heirs. But only they. Petitioners, as heirs of Salas, Jr., and respondent Laperal Realty are certainly bound by the Agreement. If respondent Laperal Realty, had assigned its rights under the Agreement to a third party, making the former, the assignor, and the latter, the assignee, such assignee would also be bound by the arbitration provision since assignment involves such transfer of rights as to vest in the assignee the power to enforce them to the same extent as the assignor could have enforced them against the debtor or in this case, against the

heirs of the original party to the Agreement. However, respondents Rockway Real Estate Corporation, South Ridge Village, Inc., Maharami Development Corporation, spouses Abrajano, spouses Lava, Oscar Dacillo, Eduardo Vacuna, Florante de la Cruz and Jesus Vicente Capellan are not assignees of the rights of respondent Laperal Realty under the Agreement to develop Salas, Jr.’s land and sell the same. They are, rather, buyers of the land that respondent Laperal Realty was given the authority to develop and sell under the Agreement. As such, they are not “assigns” contemplated in Art. 1311 of the New Civil Code which provides that “contracts take effect only between the parties, their assigns and heirs”. Laperal Realty, as a contracting party to the Agreement, has the right to compel petitioners to first arbitrate before seeking judicial relief. However, to split the proceedings into arbitration for respondent Laperal Realty and trial for the respondent lot buyers, or to hold trial in abeyance pending arbitration between petitioners and respondent Laperal Realty, would in effect result in multiplicity of suits, duplicitous procedure and unnecessary delay. On the other hand, it would be in the interest of justice if the trial court hears the complaint against all herein respondents and adjudicates petitioners’ rights as against theirs in a single and complete proceeding. Hence, the trial court’s decision was nullified and set aside. Said court was ordered to proceed with the hearing. NON-BINDING TO THIRD PARTIES

BIENVENIDO R. MEDRANO and IBAAN RURAL BANK vs. CA, PACITA G. BORBON, JOSEFINA E. ANTONIO and ESTELA A. FLOR G.R. No. 150678. February 18, 2005 FACTS: Bienvenido R. Medrano was the Vice-Chairman of Ibaan Rural Bank, a bank owned by the Medrano family. In 1986, Mr. Medrano asked Mrs. Estela Flor, a cousin-in-law, to look for a buyer of a foreclosed asset of the bank, a 17-hectare mango plantation priced at P2,200,000.00. Mr. Dominador Lee, a businessman from Makati City, was a client of

respondent Mrs. Pacita G. Borbon, a licensed real estate broker. Borbon relayed to her business associates and friends that she had a ready buyer for a mango orchard. Flor then advised her that her cousin-in-law owned a mango plantation which was up for sale. She told Flor to confer with Medrano and to give them a written authority to negotiate the sale of the property. Thus, Medrano issued the Letter of Authority in favor of Pacita G. Borbon and Josefina E. Antonio. A Deed of Sale was eventually executed between the bank, represented by its President/General Manager Teresa M. Ganzon (as Vendor) and KGB Farms, Inc., represented by Dominador Lee (as Vendee), for the purchase price of P1,200,000.00. Since the sale of the property was consummated, the respondents asked from the petitioners their commission, or 5% of the purchase price. The petitioners refused to pay and offered a measly sum of P5,000.00 each. Hence, the respondents were constrained to file an action against herein petitioners. The trial court rendered a Decision in favor of the respondents. It found that the letter of authority was valid and binding as against Medrano and the Ibaan Rural bank. Medrano signed the said letter for and in behalf of the bank, and as owner of the property, promising to pay the respondents a 5% commission for their efforts in looking for a purchaser of the property. He is, therefore, estopped from denying liability on the basis of the letter of authority he issued in favor of the respondents. The trial court further stated that the sale of the property could not have been possible without the representation and intervention of the respondents. As such, they are entitled to the broker’s commission of 5% of the selling price of P1,200,000.00 as evidenced by the deed of sale. On appeal, the CA affirmed the trial court’s decision. ISSUE: Whether or not the Court of Appeals erred in affirming the trial court’s decision. RULING: There can be no other conclusion than the respondents are indeed the procuring cause of the sale. If not for the respondents, Lee would not have known about the mango plantation being sold by the petitioners. The sale was consummated. The bank had profited from such transaction. It would certainly be iniquitous if the respondents would not

be rewarded their commission pursuant to the letter of authority. Hence, the Court of Appeal’s decision is affirmed.

NON-BINDING TO THIRD PARTIES

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

It was the first time that the buyers came to know that private respondent Eduardo Gullas was the owner of the property. Private respondents agreed to sell the property to the Sisters of Mary, and subsequently executed a special power of attorney in favor of Eufemia Cañete, giving her the special authority to sell, transfer and convey the land at a fixed price of P200.00 per square meter. Attorney-in-fact Cañete executed a deed of sale in favor of the Sisters of Mary for the price of P20,822,800.00, or at the rate of P200.00 per square meter. The buyers subsequently paid the corresponding taxes. Thereafter, the Register of Deeds of issued TCT No. 75981 in the name of the Sisters of Mary of Banneaux, Inc. Earlier, on July 3, 1992, petitioners went to see private respondent Eduardo Gullas to claim their commission, but the latter told them that he and his wife have already agreed to sell the property to the Sisters of Mary. Private respondents refused to pay the broker’s fee and alleged that another group of agents was responsible for the sale of land to the Sisters of Mary. petitioners filed a complaint against the defendants for recovery of their broker’s fee in the sum of P1,655,412.60, as well as moral and exemplary damages and attorney’s fees. They alleged that they were the efficient procuring cause in bringing about the sale of the property to the Sisters of Mary, but that their efforts in consummating the sale were frustrated by the private respondents who, in evident bad faith, malice and in order to evade payment of broker’s fee, dealt directly with the buyer whom petitioners introduced to them. They further pointed out that the deed of sale was undervalued obviously to evade payment of the correct amount of capital gains tax, documentary stamps and other internal revenue taxes. In their answer, private respondents countered that, contrary to petitioners’ claim, they were not the efficient procuring cause in bringing about the consummation of the sale because another broker, Roberto Pacana, introduced the property to the Sisters of Mary ahead of the petitioners. Private respondents maintained that when petitioners introduced the buyers to private respondent Eduardo Gullas, the former were already decided in buying the property through Pacana, who had been paid his commission. Private respondent Eduardo Gullas admitted that petitioners were in his office on July 3, 1992, but only to ask for the reimbursement of their cellular phone expenses.

After trial, the lower court rendered judgment in favor of petitioners. Eduardo and Norma Gullas were ordered to pay jointly and severally plaintiffs Manuel Tan, Gregg Tecson and Alexander Saldaña the sum of P624,684.00 as broker’s fee with legal interest at the rate of 6% per annum from the date of filing of the complaint; and the sum of P50,000.00 as attorney’s fees and costs of litigation. The Court of Appeals reversed and set aside the lower court’s decision and rendered another judgment dismissing the complaint. ISSUE: Whether or not the Court of Appeals erred in dismissing the complaint. RULING: It is readily apparent that private respondents are trying to evade payment of the commission which rightfully belongs to petitioners as brokers with respect to the sale. There was no dispute as to the role that petitioners played in the transaction. At the very least, petitioners set the sale in motion. They were not able to participate in its consummation only because they were prevented from doing so by the acts of the private respondents. In the case of Alfred Hahn v. Court of Appeals and Bayerische Motoren Werke Aktiengesellschaft (BMW) the SC ruled that, “An agent receives a commission upon the successful conclusion of a sale. On the other hand, a broker earns his pay merely by bringing the buyer and the seller together, even if no sale is eventually made.” Clearly, therefore, petitioners, as brokers, should be entitled to the commission whether or not the sale of the property subject matter of the contract was concluded through their efforts.

ENFORCEABILITY

G.R. No. 167812 FACTS:

In the local elections of 1995, respondent vied for the gubernatorial post in Pampanga. Upon respondent’s request, petitioner, owner of JMG Publishing House, a printing shop, submitted to respondent draft samples and price quotation of campaign materials. By petitioner’s claim, respondent’s wife had told him that respondent already approved his price quotation and that he could start printing the campaign materials, hence, he did print campaign materials. Given the urgency and limited time to do the job order, petitioner availed of the services and facilities of Metro Angeles Printing and of St. Joseph Printing Press, owned by his daughter Jennifer Gozun and mother Epifania Macalino Gozun, respectively. Petitioner delivered the campaign materials to respondent’s headquarters. On March 31, 1995, respondent’s sister-in-law, Lilian Soriano obtained from petitioner “cash advance” of P253,000 allegedly for the allowances of poll watchers who were attending a seminar and for other related expenses. Lilian acknowledged on petitioner’s 1995 diary receipt of the amount. Petitioner later sent respondent a Statement of Account in the total amount of P2,177,906 itemized as follows: P640,310 for JMG Publishing House; P837,696 for Metro Angeles Printing; P446,900 for St. Joseph Printing Press; and P253,000, the “cash advance” obtained by Lilian. Respondent’s wife partially paid P1,000,000 to petitioner who issued a receipt therefor. Despite repeated demands and respondent’s promise to pay, respondent failed to settle the balance of his account to petitioner. Petitioner thus filed with the RTC a complaint against respondent to collect the remaining amount of P1,177,906 plus “inflationary adjustment” and attorney’s fees. The trial court rendered judgment in favor of the petitioner. The CA however, reversed the trial court’s decision and dismissed the complaint for lack of cause of action. ISSUE:

JESUS M. GOZUN vs. JOSE TEOFILO T. MERCADO

December 19, 2006

Whether or not the Court of Appeals erred in reversing the trial courts’ decision. RULING: Petitioner is the real party in interest in this case. The trial court’s findings on the matter were affirmed by the appellate court. It erred, however, in not declaring petitioner as a real party in interest insofar as recovery of the cost of campaign materials made by petitioner’s mother and sister are concerned, upon the wrong notion that they should have been, but were not, impleaded as plaintiffs. RELATIVITY: PRIVITY: EXCEPTIONS (Art. 1311, CC)

JOSEPH CHAN, WILSON CHAN and LILY CHAN VS. BONIFACIO S. MACEDA,·JR 2003 Apr 30 G.R. No. 142591 402 SCRA 352 FACTS: On July 28, 1976, Bonifacio S. Maceda, Jr., herein respondent, obtained a P7.3 million loan from the Development Bank of the Philippines for the construction of his New Gran Hotel Project in Tacloban City. Thereafter, on September 29, 1976, respondent entered into a building construction contract with Moreman Builders Co., Inc. They agreed that the construction would be finished not later than December 22, 1977. Respondent purchased various construction materials and equipment in Manila. Moreman, in turn, deposited them in the warehouse of Wilson and Lily Chan, herein petitioners. The deposit was free of charge. Unfortunately, Moreman failed to finish the construction of the hotel at the stipulated time. Hence, on February 1, 1978, respondent filed with the then CFI an action for rescission and damages against Moreman. On November 28, 1978, the CFI rendered its Decision rescinding the contract between Moreman and respondent and awarding to the latter P445,000.00 as actual, moral and liquidated damages; P20,000.00 representing the increase in the construction materials; and P35,000.00 as attorney’s fees. Moreman interposed an appeal to the Court of Appeals but the same was dismissed on

March 7, 1989 for being dilatory. He elevated the case to this Court via a petition for review on certiorari. In a Decision dated February 21, 1990, the Court denied the petition. On April 23, 1990 an Entry of Judgment was issued. Meanwhile, during the pendency of the case, respondent ordered petitioners to return to him the construction materials and equipment which Moreman deposited in their warehouse. Petitioners, however, told them that Moreman withdrew those construction materials in 1977. Hence, on December 11, 1985, respondent filed with the RTC an action for damages with an application for a writ of preliminary attachment against petitioners. ISSUE: Whether or not respondent have the right to demand the release of the said materials and equipment or claim for damages. RULING: At the outset, the case should have been dismissed outright by the trial court because of patent procedural infirmities. Even without such serious procedural flaw, the case should also be dismissed for utter lack of merit. Under Article 1311 of the Civil Code, contracts are binding upon the parties (and their assigns and heirs) who execute them. When there is no privity of contract, there is likewise no obligation or liability to speak about and thus no cause of action arises. Specifically, in an action against the depositary, the burden is on the plaintiff to prove the bailment or deposit and the performance of conditions precedent to the right of action. A depositary is obliged to return the thing to the depositor, or to his heirs or successors, or to the person who may have been designated in the contract. In the present case, the record is bereft of any contract of deposit, oral or written, between petitioners and respondent. If at all, it was only between petitioners and Moreman. And granting arguendo that there was indeed a contract of deposit between petitioners and Moreman, it is still incumbent upon respondent to prove its existence and that it was executed in his favor. However, respondent miserably failed to do so. The only pieces of evidence respondent presented to prove the contract of deposit were the delivery receipts. Significantly, they are unsigned and not duly received or authenticated by either Moreman, petitioners or respondent or any of their authorized representatives. Hence, those delivery receipts have no probative value at all. While our laws grant a person the remedial right to prosecute or institute a civil action against another for the enforcement or protection of a right, or the prevention or redress of a wrong, every cause of action ex-contractu must be founded upon a contract, oral or written, express or implied. Moreover,

respondent also failed to prove that there were construction materials and equipment in petitioners’ warehouse at the time he made a demand for their return. Considering that respondent failed to prove (1) the existence of any contract of deposit between him and petitioners, nor between the latter and Moreman in his favor, and (2) that there were construction materials in petitioners’ warehouse at the time of respondent’s demand to return the same, we hold that petitioners have no corresponding obligation or liability to respondent with respect to those construction materials.

February 12, 1985, by the office of the President of the Rep. of the Philippines confirming the rights of the bonafide residents of Barrio Cruz-na-Ligas to the parcel of land they have been possessing or occupying; that defendant UP, pursuant to the said Indorsement from the Office of the President of the Rep. of the Philippines, issued that Reply Indorsement wherein it approved the donation of about 9.2 hectares of the site, directly to the residents of Brgy. Krus Na Ligas. After several negotiations with the residents, the area was increased to 15.8 hectares (158,379 square meters);

STIPULATION pour autrui

TIMOTEO BALUYOT, JAIME BENITO, BENIGNO EUGENIO, ROLANDO GONZALES, FORTUNATO FULGENCIO and CRUZ-NA-LIGAS HOMESITE ASSOCIATION, INC., petitioners, VS. THE HONORABLE COURT OF APPEALS, THE QUEZON CITY GOVERNMENT and UNIVERSITY OF THE PHILIPPINES, respondents 1999 Jul 22 FACTS: Petitioners are residents of Barangay Cruz-na-Ligas. Diliman, Quezon City. The Cruz-na-Ligas Homesite Association, Inc. is a non-stock corporation of which petitioners and other residents of Barangay Cruz-na-Ligas are members. Petitioners filed a complaint for specific performance and damages against private respondent University of the Philippines before the RTC of Quezon City. The complaint was later on amended to include private respondent Quezon City government as defendant. As amended, the complaint alleged: that plaintiffs and their ascendants are owners since memory can no longer recall of that parcel of riceland known Sitio Libis, Barrio Cruz-na-Ligas, Quezon City (now Diliman, Quezon City), while the members of the plaintiff Association and their ascendants have possessed since time immemorial openly, adversely, continuously and also in the concept of an owner, the rest of the area embraced by and within the Barrio Cruz-na-Ligas, Diliman, Quezon City; that since October 1972, the claims of the plaintiffs and/or members of plaintiff Association have been the subject of quasi-judicial proceedings and administrative investigations in the different branches of the government penultimately resulting in the issuance of that Indorsement dated May 7, 1975 by the Bureau of Lands, and ultimately, in the issuance of the Indorsement of

that, however, defendant UP backed-out from the arrangement to donate directly to the plaintiff Association for the benefit of the qualified residents and high-handedly resumed to negotiate the donation thru the defendant Quezon City Government under the terms disadvantageous or contrary to the rights of the bonafide residents of the Barrio; that plaintiff Association forthwith amended its petition and prayed for a writ of preliminary injunction to restrain defendant UP from donating the area to the defendant Quezon City Government which was granted; that in the hearing of the Motion for Reconsideration filed by defendant UP, plaintiff Association finally agreed to the lifting of the said Order granting the injunction after defendant UP made an assurance in their said Motion that the donation to the defendant Quezon City Government will be for the benefit of the residents of Cruz-Na-Ligas; that, however, defendant UP took exception to the aforesaid Order lifting the Order of Injunction and insisted on the dismissal of the case; that plaintiff manifested its willingness to the dismissal of the case, provided, that the area to be donated thru the defendant Quezon City government be subdivided into lots to be given to the qualified residents together with the certificate of titles, without cost; that defendant UP failed to deliver the certificate of title covering the property to be donated thus the defendant Quezon City Government was not able to register the ownership so that the defendant Quezon City Government can legally and fully comply with their obligations under the said deed of donation;that upon expiration of the period of eighteen (18) months, for alleged non-compliance of the defendant Quezon City Government with terms and conditions quoted in par. 16 hereof, defendant UP thru its President, Mr. Jose Abueva, unilaterally, capriciously, whimsically and unlawfully issued that

Administrative Order No. 21 declaring the deed of donation revoked and the donated property be reverted to defendant UP. The petitioners, then, prayed that a writ of preliminary injunction or at least a temporary restraining order be issued, ordering defendant UP to observe status quo; thereafter, after due notice and hearing, a writ of preliminary injunction be issued; (a) to restrain defendant UP or to their representative from ejecting the plaintiffs from and demolishing their improvements on the riceland or farmland situated at Sitio Libis; (b) to order defendant UP to refrain from executing another deed of donation in favor another person or entity and in favor of non-bonafide residents of Barrio Cruz-na-Ligas different from the Deed of Donation, and after trial on the merits, judgment be rendered:declaring the Deed of Donation as valid and subsisting and ordering the defendant UP to abide by the terms and conditions thereof. The Court of Appeals reversed the decision of the trial court. ISSUE: Whether or not defendant UP could execute another deed of donation in favor of third person. RULING: The Court found all the elements of a cause of action contained in the amended complaint of petitioners. While, admittedly, petitioners were not parties to the deed of donation, they anchor their right to seek its enforcement upon their allegation that they are intended beneficiaries of the donation to the Quezon City government. Art. 1311, second paragraph, of the Civil Code provides: If a contract should contain some stipulation in favor of a third person, he may demand its fulfillment provided he communicated his acceptance to the obligor before its revocation. A mere incidental benefit or interest of a person is not sufficient. The contracting parties must have clearly and deliberately conferred a favor upon a third person. Under this provision of the Civil Code, the following requisites must be present in order to have a stipulation pour autrui:(1) there must be a stipulation in favor of a third person; (2) the stipulation must be a part, not the whole of the contract;(3) the contracting parties must have clearly and deliberately conferred a favor upon a third person, not a mere incidental benefit or interest; (4) the third person must have communicated his acceptance to the obligor before its

revocation; and (5) neither of the contracting parties bears the legal representation or authorization of the third party. The allegations in the following paragraphs of the amended complaint are sufficient to bring petitioners’ action within the purview of the second paragraph of Art. 1311 on stipulations pour autrui: 1. Paragraph 17, that the deed of donation contains a stipulation that the Quezon City government, as donee, is required to transfer to qualified residents of Cruz-na-Ligas, by way of donations, the lots occupied by them; 2. The same paragraph, that this stipulation is part of conditions and obligations imposed by UP, as donor, upon the Quezon City government, as donee; 3. Paragraphs 15 and 16, that the intent of the parties to the deed of donation was to confer a favor upon petitioners by transferring to the latter the lots occupied by them; 4. Paragraph 19, that conferences were held between the parties to convince UP to surrender the certificates of title to the city government, implying that the donation had been accepted by petitioners by demanding fulfillment thereof and that private respondents were aware of such acceptance; and 5. All the allegations considered together from which it can be fairly inferred that neither of private respondents acted in representation of the other; each of the private respondents had its own obligations, in view of conferring a favor upon petitioners. The amended complaint further alleges that respondent UP has an obligation to transfer the subject parcel of land to the city government so that the latter can in turn comply with its obligations to make improvements on the land and thereafter transfer the same to petitioners but that, in breach of this obligation, UP failed to deliver the title to the land to the city government and then revoked the deed of donation after the latter failed to fulfill its obligations within the time allowed in the contract. For the purpose of determining the sufficiency of petitioners’ cause of action, these allegations of the amended complaint must be deemed to be hypothetically true. So assuming the truth of the allegations, we hold that petitioners have a cause of action against UP. It is hardly necessary to state that our conclusion that petitioners’ complaint states a cause of action against respondents is in no wise a ruling on

the merits. That is for the trial court to determine in light of respondent UP’s defense that the donation to the Quezon City government, upon which petitioners rely, has been validly revoked. Respondents contend, however, that the trial court has already found that the donation (on which petitioners base their action) has already been revoked. This contention has no merit. The trial court’s ruling on this point was made in connection with petitioners’ application for a writ of preliminary injunction to stop respondent UP from ejecting petitioners. The trial court denied injunction on the ground that the donation had already been revoked and therefore petitioners had no clear legal right to be protected. It is evident that the trial court’s ruling on this question was only tentative, without prejudice to the final resolution of the question after the presentation by the parties of their evidence. The decision of the Court of Appeals is reversed and the case is remanded to the RTC of Quezon City for trial on the merits. CONTRACTS CREATING REAL RIGHTS

SPOUSES ADELINA S. CUYCO and FELICIANO U. CUYCO vs. SPOUSES RENATO CUYCO and FILIPINA CUYCO G.R. No. 168736 April 19, 2006 FACTS: Petitioners obtained a loan in the amount of P1,500,000.00 from respondents payable within one year at 18% interest per annum, and secured by a Real Estate Mortgage over a parcel of land with improvements thereon situated in Cubao, Quezon City covered by a TCT. Subsequently, petitioners obtained additional loans from the respondents in the aggregate amount of P1,250,000.00, broken down as follows: (1) P150,000.00 on May 30, 1992; (2) P150,000.00 on July 1, 1992; (3) P500,000.00 on September 5, 1992; (4) P200,000.00 on October 29, 1992; and (5) P250,000.00 on January 13, 1993. Petitioners made payments amounting to P291,700.00, but failed to settle their outstanding loan obligations. Respondents filed a complaint for foreclosure of mortgage with the RTC. They alleged that petitioners’ loans

were secured by the real estate mortgage; that as of August 31, 1997, their indebtedness amounted to P6,967,241.14, inclusive of the 18% interest compounded monthly; and that petitioners’ refusal to settle the same entitles the respondents to foreclose the real estate mortgage. Petitioners filed a motion to dismiss on the ground that the complaint states no cause of action which was denied by the RTC for lack of merit. Petitioners admitted their loan obligations but argued that only the original loan of P1,500,000.00 was secured by the real estate mortgage at 18% per annum and that there was no agreement that the same will be compounded monthly. The RTC rendered judgment in favor of the respondents and ordered the petitioners to pay to the Court or to the respondents the amounts of P6,332,019.84, plus interest until fully paid, P25,000.00 as attorney’s fees, and costs of suit, within a period of 120 days from the entry of judgment, and in case of default of such payment and upon proper motion, the property shall be ordered sold at public auction to satisfy the judgment. The CA partially granted the petition and modified the RTC decision insofar as the amount of the loan obligations secured by the real estate mortgage. It held that by express intention of the parties, the real estate mortgage secured the original P1,500,000.00 loan and the subsequent loans of P150,000.00 and P500,000.00 obtained on July 1, 1992 and September 5, 1992, respectively. As regards the loans obtained on May 31, 1992, October 29, 1992 and January 13, 1993 in the amounts of P150,000.00, P200,000.00 and P250,000.00, respectively, the appellate tribunal held that the parties never intended the same to be secured by the real estate mortgage. Hence, this petition. ISSUE: Whether or not petitioners must pay respondents legal interest of 12% per annum on the stipulated interest of 18% per annum, computed from the filing of the complaint until fully paid. RULING:

2.

Applying the rules in the computation of interest, the principal amount of loans subject of the real estate mortgage must earn the stipulated interest of 18% per annum, which interest, as long as unpaid, also earns legal interest of 12% per annum, computed from the date of the filing of the complaint on September 10, 1997 until finality of the Court’s Decision. Such interest is not due to stipulation but due to the mandate of the law as embodied in Article 2212 of the Civil Code. From such date of finality, the total amount due shall earn interest of 12% per annum until satisfied Certainly, the computed interest from the filing of the complaint on September 10, 1997 would no longer be true upon the finality of this Court’s decision. In accordance with the rules laid down in Eastern Shipping Lines, Inc. v. Court of Appeals, the SC derived the following formula for the RTCs guidance: TOTAL AMOUNT DUE = [principal + interest + interest on interest] partial payments made Interest = principal x 18 % per annum x no. of years from due date until finality of judgment Interest on interest = Interest computed as of the filing of the complaint (September 10, 1997) x 12% x no. of years until finality of judgment Total amount due as of the date of finality of judgment will earn an interest of 12% per annum until fully paid. Hence, the SC affirmed the CA decision with modifications. It ordered petitioners to pay the respondents (1) the total amount due, as computed by the RTC in accordance with the formula specified above, (2) the legal interest of 12% per annum on the total amount due from such finality until fully paid, (3) the reasonable amount of P25,000.00 as attorney’s fees, and (4) the costs of suit, within a period of not less than 90 days nor more than 120 days from the entry of judgment, and in case of default of such payment the property shall be sold at public auction to satisfy the judgment. TORTIOUS INTERFERENCE 1.

SO VS. CA, SEPT. 21, 1999

TAYAG VS. CA, 25 MARCH 2004

SO PING BUN VS. COURT OF APPEALS 314 SCRA 751 FACTS: In 1963, Tek Hua Trading Co., through its managing partner, So Pek Giok, entered into lease agreements with lessor Dee C. Chuan and Sons Inc (DCCSI). Subjects of four (4) lease contracts were premises located at Nos. 930, 930- Int., 924-B and 924-C, Soler Street, Binondo, Manila. Tek Hua used the areas to store its textiles. The contracts each had a one year term. They provided that should the lessee continue to occupy the premises after the term, the lease shall be on a month to month basis. When the contracts expired, the parties did not renew the contracts, but Tek Hua continued to occupy the premises in 1976 Tek Hua Trading Corp. was dissolved. Later, the original members of Tek Hua Trading Co., including Manuel C.Tiong, formed Tek Hua Enterprising Corp., herein respondent corporation. So Pek Giok, managing partner of Tek Hua Trading, died in 1986. So Pek Giok’s grandson, petitioner So Ping Bun, occupied the warehouse for his own textile business, Trendsetter Marketing. On August 1, 1989, lessor DCCSI sent letters addressed to Tek Hua enterprises, informing the latter of the 25% increase in rent effective September 1, 1989. The rent increase was later on reduced to 20% effective January 1, 1990, upon other lessees’ demand. Again on December 1, 1990, the lessor implemented a 30% rent increase. Enclosed in these letters were new lease contracts for signing. DCCSI warned that failure of the lessee to accomplish the contracts shall be deemed as lack of interest on the lessee’s part, and agreement to the termination of the lese. Private respondents did not answer any of these letters. Still, the lease contracts were not rescinded. On March 1, 1991, private respondent Tiong sent a letter to petitioner asking Mr. So Ping Bun to vacate the premise because he used a warehouse. Petitioner refused to vacate. On March 4, 1992, petitioner requested formal contracts of lease with DCCSI in favor Trendsetter Marketing. So Ping Bun claimed that after the death of his grandfather, So Pek Giok, he had been occupying the premises for his textile business and religiously paid rent. DCCSI

acceded to petitioner’s request. The lease contracts in favor of Trendsetter were executed. ISSUE: Whether the appellate court erred in affirming the trial court’s decision finding So Ping Bun guilty of tortuous interference of contact. RULING: In the instant case, it is clear that petitioner So Ping Bun prevailed upon DCCSI to lease the warehouse to his enterprise at the expense of respondent corporation. Though petitioner took interest in the property of respondent corporation and benefited from it, nothing on record imputes deliberate wrongful motives or malice on him. A duty which the law of torts is concerned with is respect for the property of others, and cause of action ex delicto may be predicated upon an unlawful interference by one person of the enjoyment by the other of his private property. This may pertain to a situation where a third person induces a party to renege on or violate his undertaking under a contract. In the case before us, petitioner’s Trendsetter Marketing asked DCCSI to execute lease contracts in its favor, and as a result petitioner deprived respondent corporation of the latter’s property right. Clearly, and as correctly viewed by the appellate court, the three elements of tort interference above mentioned are present in the instant case. Authorities debate on whether interference may be justified where the defendant acts for the sole purpose of furthering his own financial or economic interest. One view is that, as a general rule, justification for interfering with the business relations of another exist where the actor’s motive is to benefit himself. Such justification does not exist where his sole motive is to cause harm to the other. Added to this, some authorities believe that it is not necessary that the interferer’s interest outweigh that of the party whose rights are invaded, and that an individual acts under an economic interest that is substantial, not merely I de minimis for he acts in self protection. Moreover, justification for protecting ones financial position should not be made to depend on a comparison of his economic interest in the subject matter with that of others. It is sufficient if the impetus of his conduct lies in a proper business interest rather than in wrongful motives. As early as Gilchrist vs. Cuddy we held that where there was no malice in the interference of a contract, and the impulse behind one’s conduct lies in a proper business interest rather than in wrongful motives, a party cannot be a

malicious interferer. Where the alleged interferer is financially interested and such interest motivates his conduct it cannot be said that he is an officious or malicious intermeddler. TORTIOUS INTERFERENCE TAYAG VS. COURT OF APPEALS 219 SCRA 481 FACTS: Petitioners are the heirs of Juan Galicia, Sr. who are seeking to rescind the deed of conveyance executed by Galicia, Sr. together with Celerina Labuguin, in favor of Albrigido Leyva, respondent involving the undivided one-half portion of a piece of land situated at Poblacion, Guimba, Nueva Ecija. They contend that respondent is in breach of the conditions of the deed. Contained in the deed were stipulations regarding the payment and settlement of the purchase price of the land. The respondent however did not strictly comply this with. Despite the posterior payments however, petitioners accepted them. Respondent, on the contention that he fulfilled his obligation to pay filed this case for specific performance by the petitioners. The court of origin which tried the suit for specific performance on account of the herein petitioner’s reluctance to abide by the covenant, ruled in favor of the vendee while respondent court practically agreed with the trial court except as to the amount to be paid to petitioners and the refund to private respondent are concerned. ISSUE: The issue is whether or not petitioners’ prayer for the rescission of the deed can prosper. RULING: The Supreme Court affirmed the decision of the lower courts. The suggestion of petitioners that the covenant must be cancelled in the light of private respondent’s so-called breach seems to overlook petitioners’ demeanor who, instead of immediately filing the case precisely to rescind the instrument because of non-compliance, allowed private respondent to effect numerous payments posterior to the grace periods provided in the contract. This apathy of petitioners, who even permitted private respondent to take the

initiative in filing the suit for specific performance against them, is akin to waiver of abandonment of the right to rescind. STAGES IN THE EXECUTION OF A CONTRACT – CONSUMMATION/TERMINATION

METROPOLITAN MANILA DEVELOPMENT AUTHORITY, petitioner, VS. JANCOM ENVIRONMENTAL CORPORATION and JANCOM INTERNATIONAL DEVELOPMENT PROJECTS PTY. LIMITED OF AUSTRALIA, respondents January 30, 2002 G.R. No. 147465 FACTS: The Philippine Government under the Ramos Administration, and through the Metro Manila Development Authority (MMDA) Chairman, and the Cabinet Officer for Regional Development-National Capital Region (CORD-NCR), entered into a contract with herein respondent JANCOM, on waste-to-energy projects for the waste disposal sites in San Mateo, Rizal and Carmona, Cavite under the build-operate-transfer (BOT) scheme. However, before President Ramos could have signed the said contract, there was a change in the Administration and EXECOM. Said change caused the passage of the law, the Clean Air Act, prohibiting the incineration of garbage and thus, against the contents of said contract. The Philippine Government, through the MMDA Chairman, declared said contract inexistent for several reasons. Herein respondent filed a suit against petitioner. The Regional Trial Court ruled in favor of the respondent. Instead of filing an appeal to the decision, petitioner filed a writ of certiorari on the Court of Appeals, which the latter granted. The Regional Trial Court declared its decision final and executory, for which the petitioner appealed to the CA, which the CA denied such appeal and affirming RTC’s decision. ISSUE: Whether or not a valid contract is existing between herein petitioner and respondent. RULING: Under Article 1305 of the Civil Code, “a contract is a meeting of minds between two persons whereby one binds himself, with respect to the other, to give something or to render some service.” A contract undergoes three distinct

stages preparation or negotiation, its perfection, and finally, its consummation. Negotiation begins from the time the prospective contracting parties manifest their interest in the contract and ends at the moment of agreement of the parties. The perfection or birth of the contract takes place when the parties agree upon the essential elements of the contract. The last stage is the consummation of the contract wherein the parties fulfill or perform the terms agreed upon in the contract, culminating in the extinguishment thereof. Article 1315 of the Civil Code, provides that a contract is perfected by mere consent. Consent, on the other hand, is manifested by the meeting of the offer and the acceptance upon the thing and the cause which are to constitute the contract. In the case at bar, the signing and execution of the contract by the parties clearly show that, as between the parties, there was a concurrence of offer and acceptance with respect to the material details of the contract, thereby giving rise to the perfection of the contract. The execution and signing of the contract is not disputed by the parties. As the Court of Appeals aptly held: Contrary to petitioners’ insistence that there was no perfected contract, the meeting of the offer and acceptance upon the thing and the cause, which are to constitute the contract (Arts. 1315 and 1319, New Civil Code), is borne out by the records. Admittedly, when petitioners accepted private respondents’ bid proposal (offer), there was, in effect, a meeting of the minds upon the object (waste management project) and the cause (BOT scheme). Hence, the perfection of the contract. In City of Cebu vs. Heirs of Candido Rubi, the Supreme Court held that “the effect of an unqualified acceptance of the offer or proposal of the bidder is to perfect a contract, upon notice of the award to the bidder. In fact, in asserting that there is no valid and binding contract between the parties, MMDA can only allege that there was no valid notice of award; that the contract does not bear the signature of the President of the Philippines; and that the conditions precedent specified in the contract were not complied with.

In asserting that the notice of award to JANCOM is not a proper notice of award, MMDA points to the Implementing Rules and Regulations of Republic Act No. 6957, otherwise known as the BOT Law, which require that i) prior to the notice of award, an Investment Coordinating Committee clearance must first be obtained; and ii) the notice of award indicate the time within which the awardee shall submit the prescribed performance security, proof of commitment of equity contributions and indications of financing resources.

Admittedly, the notice of award has not complied with these requirements. However, the defect was cured by the subsequent execution of the contract entered into and signed by authorized representatives of the parties; hence, it may not be gainsaid that there is a perfected contract existing between the parties giving to them certain rights and obligations (conditions precedents) in accordance with the terms and conditions thereof. We borrow the words of the Court of Appeals: Petitioners belabor the point that there was no valid notice of award as to constitute acceptance of private respondent’s offer. They maintain that former MMDA Chairman Oreta’s letter to JANCOM EC dated February 27, 1997 cannot be considered as a valid notice of award as it does not comply with the rules implementing Rep. Act No. 6957, as amended. The argument is untenable. ELEMENTS OF CONSENT: OFFER AND ACCEPTANCE 1. 2. 3. 4. 5. 6.

ROCKLAND VS. MID-PASIG LAND DEVELOPMENT MANILA METAL VS. PNB MONTECILLO VS. REYNES, 385 SCRA 244 SOLER VS. CA, 358 SCRA 57 PALATTAO VS. CA, MAY 7, 2002 ABS-CBN VS. CA, JAN. 21, 1999

ROCKLAND CONSTRUCTION COMPANY, INC vs. MID-PASIG LAND DEVELOPMENT CORPORATION G.R. No. 164587, February 04, 2008 Rockland Construction Company, Inc. in a letter dated March 1, 2000, offered to lease from Mid-Pasig Land Development Corporation the latter’s 3.1-hectare property in Pasig City. This property is covered by Transfer Certificate of Title Nos. 469702 and 337158 under the control of the Presidential Commission on Good Government. Upon instruction of Mid-Pasig to address the offer to the PCGG, Rockland wrote the PCGG on April 15, 2000. The letter, addressed to PCGG Chairman Magdangal Elma, included Rockland’ proposed terms and conditions for the lease. This letter was also received by Mid-Pasig on April 18, 2000, but Mid-Pasig made no response. Again, in another letter dated June 8, 2000 addressed to the Chairman of Mid-Pasig, Mr. Ronaldo Salonga, Rockland sent a Metropolitan

Bank and Trust Company Check No. 2930050168 for P1 million as a sign of its good faith and readiness to enter into the lease agreement under the certain terms and conditions stipulated in the letter. Mid-Pasig received this letter on July 28, 2000. In a subsequent follow-up letter dated February 2, 2001, Rockland then said that it presumed that Mid-Pasig had accepted its offer because the P1 million check it issued had been credited to Mid-Pasig’s account on December 5, 2000. Mid-Pasig, however, denied it accepted Rockland’s offer and claimed that no check was attached to the said letter. It also vehemently denied receiving the P1 million check, much less depositing it in its account. In its letter dated February 6, 2001, Mid-Pasig replied to Rockland that it was only upon receipt of the latter’s February 2 letter that the former came to know where the check came from and what it was for. Nevertheless, it categorically informed Rockland that it could not entertain the latter’s lease application. Mid-Pasig reiterated its refusal of Rockland’s offer in a letter dated February 13, 2001. Rockland then filed an action for specific performance. Rockland sought to compel Mid-Pasig to execute in Rockland’s favor, a contract of lease over a 3.1-hectare portion of Mid-Pasig’s property in Pasig City. The RTC’s decision: 1. the plaintiff and the defendant have duly agreed upon a valid and enforceable lease agreement of subject portions of defendant’s properties comprising an area of 5,000 square meters, 11,000 square meters and 15,000 square meters, or a total of 31,000 square meters; 2. the principal terms and conditions of the aforesaid lease agreement are as stated in plaintiff’s June 8, 2000 letter; 3. defendant to execute a written lease contract in favor of the plaintiff containing the principal terms and conditions mentioned in the next-preceding paragraph, within sixty (60) days from finality of this judgment, and likewise ordering the plaintiff to pay rent to the defendant as specified in said terms and conditions; 4. defendant to keep and maintain the plaintiff in the peaceful possession and enjoyment of the leased premises during the term of said contract;

5. defendant to pay plaintiff attorney’s fees in the sum of One Million Pesos (P1,000,000.00), plus P2,000.00 for every appearance made by counsel in court; 6. The temporary restraining order dated April 2, 2001 is made PERMANENT; 7. Dismissed defendant’s counterclaim. The Court of Appeals reversed the trial court’s decision. ISSUES: 1. Was there a perfected contract of lease? 2. Had estoppel in pais set in? RULING: 1. A close review of the events in this case, in the light of the parties’ evidence, shows that there was no perfected contract of lease between the parties. Mid-Pasig was not aware that Rockland deposited the P1 million check in its account. It only learned of Rockland’s check when it received Rockland’s February 2, 2001 letter. Mid-Pasig, upon investigation, also learned that the check was deposited at the Philippine National Bank San Juan Branch, instead of PNB Ortigas Branch where MidPasig maintains its account. Immediately, Mid-Pasig wrote Rockland on February 6, 2001 rejecting the offer, and proposed that Rockland apply the P1 million to its other existing lease instead. These circumstances clearly show that there was no concurrence of Rockland’s offer and MidPasig’s acceptance. 2. Mid-Pasig is also not in estoppel in pais. The doctrine of estoppel is based on the grounds of public policy, fair dealing, good faith and justice, and its purpose is to forbid one to speak against his own act, representations, or commitments to the injury of one to whom they were directed and who reasonably relied thereon. Since estoppel is based on equity and justice, it is essential that before a person can be barred from asserting a fact contrary to his act or conduct, it must be shown that such act or conduct has been intended and would unjustly cause harm to those who are misled if the principle were not applied against him.

Hence, the petition was denied. ELEMENTS OF CONSENT: OFFER AND ACCEPTANCE

METROPOLITAN MANILA DEVELOPMENT AUTHORITY, VS. JANCOM ENVIRONMENTAL CORPORATION G.R. No. 147465 January 30, 2002 FACTS: The Philippine Government under the Ramos Administration, and through the Metro Manila Development Authority (MMDA) Chairman, and the Cabinet Officer for Regional Development-National Capital Region (CORD-NCR), entered into a contract with respondent JANCOM, on wasteto-energy projects for the waste disposal sites in San Mateo, Rizal and Carmona, Cavite under the build-operate-transfer (BOT) scheme. However, before President Ramos could have signed the said contract, there was a change in the Administration and EXECOM. Said change caused the passage of the law, the Clean Air Act, prohibiting the incineration of garbage and thus, against the contents of said contract. The Philippine Government, through the MMDA Chairman, declared said contract inexistent for several reasons. Herein respondent filed a suit against petitioner. The Regional Trial Court ruled in favor of the respondent. Instead of filing an appeal to the decision, petitioner filed a writ of certiorari on the Court of Appeals, which the latter granted. The Regional Trial Court declared its decision final and executory, for which the petitioner appealed to the CA, which the CA denied such appeal and affirming RTC’s decision.

ISSUE: Whether or not a valid contract is existing between herein petitioner and respondent. RULING: Under Article 1305 of the Civil Code, “a contract is a meeting of minds between two persons whereby one binds himself, with respect to

the other, to give something or to render some service.” A contract undergoes three distinct stages- preparation or negotiation, its perfection, and finally, its consummation. Negotiation begins from the time the prospective contracting parties manifest their interest in the contract and ends at the moment of agreement of the parties. The perfection or birth of the contract takes place when the parties agree upon the essential elements of the contract. The last stage is the consummation of the contract wherein the parties fulfill or perform the terms agreed upon in the contract, culminating in the extinguishment thereof. Article 1315 of the Civil Code, provides that a contract is perfected by mere consent. Consent, on the other hand, is manifested by the meeting of the offer and the acceptance upon the thing and the cause which are to constitute the contract. In the case at bar, the signing and execution of the contract by the parties clearly show that, as between the parties, there was a concurrence of offer and acceptance with respect to the material details of the contract, thereby giving rise to the perfection of the contract. The execution and signing of the contract is not disputed by the parties. As the Court of Appeals aptly held: Contrary to petitioners’ insistence that there was no perfected contract, the meeting of the offer and acceptance upon the thing and the cause, which are to constitute the contract (Arts. 1315 and 1319, New Civil Code), is borne out by the records. Admittedly, when petitioners accepted private respondents’ bid proposal (offer), there was, in effect, a meeting of the minds upon the object (waste management project) and the cause (BOT scheme). Hence, the perfection of the contract. In City of Cebu vs. Heirs of Candido Rubi, the Supreme Court held that “the effect of an unqualified acceptance of the offer or proposal of the bidder is to perfect a contract, upon notice of the award to the bidder. In fact, in asserting that there is no valid and binding contract between the parties, MMDA can only allege that there was no valid notice of award; that the contract does not bear the signature of the President of the Philippines; and that the conditions precedent specified in the contract were not complied with. In asserting that the notice of award to JANCOM is not a proper notice of award, MMDA points to the Implementing Rules and Regulations

of Republic Act No. 6957, otherwise known as the BOT Law, which require that i) prior to the notice of award, an Investment Coordinating Committee clearance must first be obtained; and ii) the notice of award indicate the time within which the awardee shall submit the prescribed performance security, proof of commitment of equity contributions and indications of financing resources. Admittedly, the notice of award has not complied with these requirements. However, the defect was cured by the subsequent execution of the contract entered into and signed by authorized representatives of the parties; hence, it may not be gainsaid that there is a perfected contract existing between the parties giving to them certain rights and obligations (conditions precedents) in accordance with the terms and conditions thereof. We borrow the words of the Court of Appeals: Petitioners belabor the point that there was no valid notice of award as to constitute acceptance of private respondent’s offer. They maintain that former MMDA Chairman Oreta’s letter to JANCOM EC dated February 27, 1997 cannot be considered as a valid notice of award as it does not comply with the rules implementing Rep. Act No. 6957, as amended. The argument is untenable. ELEMENTS OF CONSENT: OFFER AND ACCEPTANCE

MONTECILLO VS. REYNES 385 SCRA 244 FACTS: Respondents Ignacia Reynes and spouses Abucay filed on June 20, 1984 a complaint for Declaration of Nullity and Quieting of Title against petitioner Rico Montecillo. Reynes asserted that she is the owner of a lot situated in Mabolo, Cebu City. In 1981 Reynes sold 185 square meters of the Mabolo Lot to the Abucay Spouses who built a residential house on the lot they bought.

Reynes alleged further that on March 1, 1984, she signed a Deed of Sale of the Mabolo Lot in favor of Montecillo. Reynes, being illiterate signed by affixing her thumb- mark on the document. Montecillo promised to pay the agreed P47,000.00 purchase price within one month from the signing of the Deed of Sale.

During pre-trial Montecillo claimed that the consideration for the sale of the Mabolo Lot was the amount he paid to Cebu Iced and Cold Storage Corporation for the mortgage debt. Of Bienvenido Jayag. Montecillo argued that the release of the mortgage was necessary since the mortgage constituted a lien on the Mabolo Lot.

Reynes further alleged that Montecillo failed to pay the purchase price after the lapse of the one-month period, prompting Reynes to demand from Montecillo the return of the Deed of Sale. Since Montecillo refused to return the Deed of Sale, Reynes executed a document unilaterally revoking the sale and gave a copy of the document to Montecillo.

Reynes, however stated that she had nothing to do with Jayag’s mortgage debt except that the house mortgaged by Jayag stood on a portion of the Mabolo Lot. Reynes further stated that the payment by Montecillo to release the mortgage on Jayag’s house is a matter between Montecillo and

Subsequently, on May 23, 1984 Reynes signed a Deed of Sale transferring to the Abucay Spouses the entire Mabolo Lot, at the same time confirming the previous sale in 1981 of a 185 square meter portion of the lot.

Jayag. The mortgage on the house being a chattel mortgage could not be interpreted in any way as an encumbrance on the Mabolo Lot. Reynes further claimed that the mortgage debt had long prescribed since the P47,000.00 mortgage debt was due for payment on January 30,1967.

Reynes and the Abucay Spouses alleged that on June 18, 1984 they received information that the Register of Deeds of Cebu City issued Certificate of Title No. 90805 in the name of Montecillo for the Mabolo Lot.

ISSUE: Whether or not there was a valid consent in the case at bar to have a valid contract.

Reynes and the Abucay Spouses argued that “for lack for consideration there (was) no meeting of the minds) between Reynes and Montecillo. Thus, the trial court should declare null and void ab initio Monticello’s Deed of sale, and order the cancellation of certificates of title No. 90805 in the name of Montecillo.

RULING:

In his Answer, Montecillo a bank executive with a BS Commerce degree, claimed he was a buyer in good faith and had actually paid the P47,000.00 consideration stated on his Deed of Sale. Montecillo however admitted he still owned Reynes a balance of P10,000.00. He also alleged that he paid P50,000.00 for the release of the chattel mortgage which he argued constituted a lien on the Mabolo Lot. He further alleged that he paid for the real property tax as well as the capital gains tax on the sale of the Mabolo Lot. In their reply, Reynes and the Abucay Spouses contended that Montecillo did not have authority to discharge the chattel mortgage especially after Reynes revoked Montecillo’s Deed of Sale and gave the mortgagee a copy of the document of revocation. Reynes and the Abucay Spouses claimed that Montecillo secured the release of the chattel mortgage through machination. They further asserted that Montecillo took advantage of the real property taxes paid by the Abucay Spouses and surreptitiously caused the transfer of the title to the Mabolo Lot in his name.

One of the three essential requisites of a valid contract is consent of the parties on the object and cause of the contract. In a contract of sale, the parities must agree not only on the p[rice, but also on the manner of payment of the price. An agreement on the price but a disagreement on the manner of its payment will not result in consent, thus preventing the existence of a valid contract for a lack of consent. This lack of consent is separate and distinct for lack of consideration where the contract states that the price has been paid when in fact it has never been paid. Reynes expected Montecillo to pay him directly the P47, 000.00 purchase price within one month after the signing of the Deed of Sale. On the other hand, Montecillo thought that his agreement with Reynes required him to pay the P47, 000.00-purchase price to Cebu Ice Storage to settle Jayag’s mortgage debt. Montecillo also acknowledged a balance of P10, 000.00 in favor of Reynes although this amount is not stated in Montecillo’s Deed of Sale. Thus, there was no consent or meeting of the minds, between Reynes and Montecillo on the manner of payment. This prevented the existence of a valid contract because of lack of consent. In summary, Montecillo’s Deed of Sale is null and void ab initio not only for lack of consideration, but also for lack of consent. The cancellation of TCT No.

90805 in the name of Montecillo is in order as there was no valid contract transferring ownership of the Mabolo Lot from Reynes to Montecillo. ELEMENTS OF CONSENT: OFFER AND ACCEPTANCE JASMIN SOLER, petitioner, VS. COURT OF APPEALS, COMMERCIAL BANK OF MANILA, and NIDA LOPEZ, respondents May 2, 2001 G.R. No. 123892 FACTS: Petitioner is a professional interior designer. In November 1986, her friend Rosario Pardo asked her to talk to Nida Lopez, who was manager of the COMBANK Ermita Branch for they were planning to renovate the branch offices. Even prior to November 1986, petitioner and Nida Lopez knew each other because of Rosario Pardo, the latter’s sister. During their meeting, petitioner was hesitant to accept the job because of her many out of town commitments, and also considering that Ms. Lopez was asking that the designs be submitted by December 1986, which was such a short notice. Ms. Lopez insisted, however, because she really wanted petitioner to do the design for renovation. Petitioner acceded to the request. Ms. Lopez assured her that she would be compensated for her services. Petitioner even told Ms. Lopez that her professional fee was P10,000.00, to which Ms. Lopez acceded. During the November 1986 meeting between petitioner and Ms. Lopez, there were discussions as to what was to be renovated. Ms. Lopez again assured petitioner that the bank would pay her fees. After a few days, petitioner requested for the blueprint of the building so that the proper design, plans and specifications could be given to Ms. Lopez in time for the board meeting in December 1986. Petitioner then asked her draftsman Jackie Barcelon to go to the jobsite to make the proper measurements using the blue print. Petitioner also did her research on the designs and individual drawings of what the bank wanted. Petitioner hired Engineer Ortanez to make the electrical layout, architects Frison Cruz and De Mesa to do the drafting. For the services rendered by these individuals, petitioner paid their professional fees. Petitioner also contacted the suppliers of the wallpaper and the sash makers for their quotation. So come December 1986, the lay out and the design were submitted to Ms. Lopez. She even told petitioner that she liked the designs.

Subsequently, petitioner repeatedly demanded payment for her services but Ms. Lopez just ignored the demands. In February 1987, by chance petitioner and Ms. Lopez saw each other in a concert at the Cultural Center of the Philippines. Petitioner inquired about the payment for her services, Ms. Lopez curtly replied that she was not entitled to it because her designs did not conform to the bank’s policy of having a standard design, and that there was no agreement between her and the bank. Petitioner, through her lawyers, who wrote Ms. Lopez, demanding payment for her professional fees in the amount of P10,000.00 which Ms. Lopez ignored. The lawyers wrote Ms. Lopez once again demanding the return of the blueprint copies petitioner submitted which Ms. Lopez refused to return. The petitioner then filed at the trial court a complaint against COMBANK and Ms. Lopez for collection of professional fees and damages. In its answer, COMBANK stated that there was no contract between COMBANK and petitioner; that Ms. Lopez merely invited petitioner to participate in a bid for the renovation of the COMBANK Ermita Branch; that any proposal was still subject to the approval of the COMBANK’s head office. The trial court rendered judgment in favor of plaintiff. On appeal, the Court of Appeals reversed the decision. Hence, this petition. ISSUE: Whether or not the Court of Appeals erred in ruling that there was no contract between petitioner and respondents, in the absence of the element of consent. RULING: A contract is a meeting of the minds between two persons whereby one binds himself to give something or to render some service to bind himself to give something to render some service to another for consideration. There is no contract unless the following requisites concur: 1. Consent of the contracting parties; 2. Object certain which is the subject matter of the contract; and 3. Cause of the obligation which is established. In the case at bar, there was a perfected oral contract. When Ms. Lopez and petitioner met in November 1986, and discussed the details of the work, the first stage of the contract commenced. When they agreed to the payment of the P10,000.00 as professional fees of petitioner and that she should give the designs before the December 1986 board meeting of the bank, the second stage of the contract proceeded, and when finally petitioner gave the designs to Ms.

Lopez, the contract was consummated. Petitioner believed that once she submitted the designs she would be paid her professional fees. Ms. Lopez assured petitioner that she would be paid. It is familiar doctrine that if a corporation knowingly permits one of its officers, or any other agent, to act within the scope of an apparent authority, it holds him out to the public as possessing the power to do those acts; and thus, the corporation will, as against anyone who has in good faith dealt with it through such agent, be estopped from denying the agent’s authority. Also, petitioner may be paid on the basis of quantum meruit. "It is essential for the proper operation of the principle that there is an acceptance of the benefits by one sought to be charged for the services rendered under circumstances as reasonably to notify him that the lawyer performing the task was expecting to be paid compensation therefor. The doctrine of quantum meruit is a device to prevent undue enrichment based on the equitable postulate that it is unjust for a person to retain benefit without paying for it." The designs petitioner submitted to Ms. Lopez were not returned. Ms. Lopez, an officer of the bank as branch manager used such designs for presentation to the board of the bank. Thus, the designs were in fact useful to Ms. Lopez for she did not appear to the board without any designs at the time of the deadline set by the board. Decision reversed and set aside. Decision of the trial court affirmed. ELEMENTS OF CONSENT: OFFER AND ACCEPTANCE PALATTAO VS. COURT OF APPEALS 381 SCRA 681 MAY 7, 2002 FACTS: Petitioner Yolanda Palattao interred into a lease contract whereby she leased to private respondent a house and a 490-square-meter lot located in 101 Caimito Road, Caloocan City, covered by Transfer Certificate of Title No. 247536 and registered in the name of petitioner. The duration of the lease contract was for three years, commencing from January 1, 1991, to December 31, 1993, renewable at the option of the parties. The agreed monthly rental was P7,500.00 for the first year; P 8,000.00 for the second year: and P8,500.l00 for

the third year. The contract gave respondent lessee the first option to purchase the leased property. During the last year of the contract, the parties began negotiations for the sale of the leased premises to private respondent. In a letter dated April 2, 1993, petitioner offered to sell to private respondents 413.28 square meters of the leased lot at P 7,800.00 per square meter, or for the total amount of P3,223,548.00. private respondents replied on April 15, 1993 wherein he informed petitioner that he “shall definitely exercise his option to buy” the leased property. Private respondent, however, manifested his desire to buy the whole 490-square meters inquired from petitioner the reason why only 413.28 square meters of the leased lot were being offered for sale. In a letter dated November 6, 1993, petitioner made a final offer to sell the lot at P 7,500.00 per square meter with a down payment of 50% upon the signing of the contract of conditional sale, the balance payable in one year with a monthly lease/interest payment P 14,000.00 which must be paid on or before the fifth day every month that the balance is still outstanding. On November 7, 1993, private respondents accepted petitioners offer and reiterated his request for respondent accepted petitioner’s offers and reiterated his request for clarification as to the size of the lot for sale. Petitioner acknowledged private respondent’s acceptance of the offer in his letter dated November 10, 1993. Petitioner gave private respondent on or before November 24, 1993, within which to pay the 50% downpayment in cash or manager’s check. Petitioner stressed that failure to pay the downpayment on the stipulated period will enable petitioner to freely sell her property to others. Petitioner likewise notified private respondent, that she is no longer renewing the lease agreement upon its expiration on December 31, 1993. Private respondent did not accept the terms proposed by petitioner. Neither were there any documents of sale nor payment by private respondent of the required downpayment. Private respondent wrote a letter to petitioner on November 29, 1993 manifesting his intention to exercise his option to renew their lease contract for another three years, starting January 1, 1994 to December 31, 1996. This was rejected by petitioner, reiterating that she was no longer renewing the lease. Petitioner demanded that private respondent vacate the premises, but the latter refused. Hence, private respondent filed with the Regional Trial Court of Caloocan, Branch 127, a case for specified performance, docketed as Civil Case No, 16287, seeking to compel petitioner to sell to him the leased property. Private respondent further prayed for the issuance of a writ preliminary injunction to

prevent petitioner from filing an ejectment case upon the expiration of the lease contract on December 31, 1993. During the proceedings in the specific performance case, the parties agreed to maintain the status quo. After they failed to reach an amicable settlement, petitioner filed the instant ejectment case before the Metropolitan Trial Court of Caloocan City, Branch 53. In his answer, private respondent alleged that he refused to vacate the leased premises because there was a perfected contract of sale of the leased property between him and petitioner. Private respondent argued that he did not abandon his option to buy the leased property and that his proposal to renew the lease was but an alternative proposal to the sale. He further contended that the filing of the ejectment case violated their agreement to maintain the status quo. ISSUE: Whether or not there was a valid consent in the case at bar. RULING: There was no valid consent in the case at bar. Contracts that are consensual in nature, like a contract of sale, are perfected upon mere meeting of the minds. Once there is concurrence between the offer and the acceptance upon the subject matter, consideration, and terns of payment, a contract is produced. The offer must be certain. To convert the offer into a contract, the acceptance must be absolute and must not qualify the terms of the offer; it must be plain, unequivocal, unconditional, and without variance of any sort from the proposal. A qualified acceptance, or one that involves a new proposal, constitutes a counter-offer and is a rejection of the original offer. Consequently, when something is desired which is not exactly is proposed in the offer, such acceptance is not sufficient to generate consent because any modification or variation from the terms of the offer annuals the offer. In the case at bar, while it is true that private respondent informed petitioner that he is accepting the latter’s offer to sell the leased property, it appears that they did not reach an agreement as to the extent of the lot subject of the proposed sale. Letters reveal that private respondent did not give his consent to buy only 413.28 square meters of the leased lot, as he desired to purchase the whole 490 square-meter- leased premises which, however, was not what was exactly

proposed in petitioner’s offer. Clearly, therefore, private respondent’s acceptance of petitioner’s offer was not absolute, and will consequently not generate consent that would perfect a contract.

ELEMENTS OF CONSENT: OFFER AND ACCEPTANCE ABS-CBN BROADCASTING CORPORATION VS. HONORABLE COURT OF APPEALS, REPUBLIC BROADCASTING CORP., VIVA PRODUCTIONS, INC., and VICENTE DEL ROSARIO G.R. No. 128690 January 21, 1999 301 SCRA 573 FACTS: In 1990, ABS-CBN and VIVA executed a Film Exhibition Agreement whereby Viva gave ABS-CBN an exclusive right to exhibit some Viva films. Viva, through defendant Del Rosario, offered ABS-CBN, through its vice-president Charo Santos-Concio, a list of three (3) film packages (36 title) from which ABSCBN may exercise its right of first refusal under the afore-said agreement. ABSCBN, however through Mrs. Concio, "can tick off only ten (10) titles" (from the list) "we can purchase" and therefore did not accept said list. The titles ticked off by Mrs. Concio are not the subject of the case at bar except the film "Maging Sino Ka Man." On February 27, 1992, defendant Del Rosario approached ABS-CBN’s Ms. Concio, with a list consisting of 52 original movie titles (i.e., not yet aired on television) including the 14 titles subject of the present case, as well as 104 reruns (previously aired on television) from which ABS-CBN may choose another 52 titles, as a total of 156 titles, proposing to sell to ABS-CBN airing rights over this package of 52 originals and 52 re-runs for P60,000,000.00 of which P30,000,000.00 will be in cash and P30,000,000.00 worth of television spots. On April 2, 1992, defendant Del Rosario and ABS-CBN’s general manager, Eugenio Lopez III, met at the Tamarind Grill Restaurant in Quezon City to discuss the package proposal of VIVA. Mr. Lopez testified that he and Mr. Del Rosario allegedly agreed that ABS-CBN was granted exclusive film rights to fourteen (14) films for a total consideration of P36 million; that he allegedly put this agreement as to the price and number of films in a "napkin" and signed it and gave it to Mr. Del Rosario. On the other hand, Del Rosario denied having made any agreement with Lopez regarding the 14 Viva films; denied the existence of a

napkin in which Lopez wrote something; and insisted that what he and Lopez discussed at the lunch meeting was Viva’s film package offer of 104 films (52 originals and 52 re-runs) for a total price of P60 million.

(a) (b)

On April 06, 1992, Del Rosario and Mr. Graciano Gozon of RBS Senior vicepresident for Finance discussed the terms and conditions of Viva’s offer to sell the 104 films, after the rejection of the same package by ABS-CBN. On the following day, Del Rosario received a draft contract from Ms. Concio which contains a counter-proposal of ABS-CBN on the offer made by VIVA including the right of first refusal to 1992 Viva Films. However, the proposal was rejected by the Board of Directors of VIVA and such was relayed to Ms. Concio. On April 29, 1992, after the rejection of ABS-CBN and following several negotiations and meetings defendant Del Rosario and Viva’s President Teresita Cruz, in consideration of P60 million, signed a letter of agreement dated April 24, 1992, granting RBS the exclusive right to air 104 Viva-produced and/or acquired films including the fourteen (14) films subject of the present case. On 27 May 1992, ABS-CBN filed before the RTC a complaint for specific performance with a prayer for a writ of preliminary injunction and/or temporary restraining order against private respondents Republic Broadcasting System (now GMA Network Inc.) On 28 May 1992, the RTC issued a temporary restraining order. The RTC then rendered decision in favor of RBS and against ABS-CBN. On appeal, the same decision was affirmed. Hence, this decision. ISSUE: Whether or not there exists a perfected contract between ABS-CBN and VIVA. RULING: A contract is a meeting of minds between two persons whereby one binds himself to give something or render some service to another [Art. 1305, Civil Code.] for a consideration. There is no contract unless the following requisites concur: (1) consent of the contracting parties; (2) object certain which is the subject of the contract; and (3) cause of the obligation, which is established. [Art. 1318, Civil Code.] A contract undergoes three stages:

(c)

preparation, conception, or generation, which is the period of negotiation and bargaining rending at the moment of agreement of the parties; perfection or birth of the contract, which is the moment when the parties come to agree on the terms of the contract; and consummation or death, which is the fulfillment or performance of the terms agreed upon in the contract.

Contracts that are consensual in nature are perfected upon mere meeting of the minds. Once there is concurrence between the offer and the acceptance upon the subject matter, consideration, and terms of payment a contract is produced. The offer must be certain. To convert the offer into a contract, the acceptance must be absolute and must not qualify the terms of the offer; it must be plain, unequivocal, unconditional, and without variance of any sort from the proposal. A qualified acceptance, or one that involves a new proposal, constitutes a counter-offer and is a rejection of the original offer. Consequently, when something is desired which is not exactly what is proposed in the offer, such acceptance is not sufficient to generate consent because any modification or variation from the terms of the offer annuls the offer. In the present case, when Mr. Del Rosario of Viva met Mr. Lopez of ABSCBN at the Tamarind Grill on 2 April 1992 to discuss the package of films, said package of 104 VIVA films was VIVA’s offer to ABS-CBN to enter into a new Film Exhibition Agreement. But ABS-CBN, sent through Ms. Concio, counter-proposal in the form a draft contract proposing exhibition of 53 films for a consideration of P35 million. This counter-proposal could be nothing less than the counter-offer of Mr. Lopez during his conference with Del Rosario at Tamarind Grill Restaurant. Clearly, there was no acceptance of VIVA’s offer, for it was met by a counteroffer which substantially varied the terms of the offer. Furthermore, ABS-CBN made no acceptance of VIVA’s offer hence, they underwent period of bargaining. ABS-CBN then formalized its counter-proposals or counter-offer in a draft contract. VIVA through its Board of Directors, rejected such counter-offer. Even if it be conceded arguendo that Del Rosario had accepted the counter-offer, the acceptance did not bind VIVA, as there was no proof whatsoever that Del Rosario had the specific authority to do so. WHEREFORE, the instant petition is GRANTED.

REQUISITES OF OFFER AS DISTINGUISHED FROM OPTION

LOURDES ONG LIMSON VS. COURT of APPEALS, et al G. R. No. 135929 April 20, 2001 357 SCRA 209 FACTS: In July 1978, respondent spouses Lorenzo de Vera and Asuncion Santos-de Vera, through their agent Marcosa Sanchez, offered to sell to petitioner Lourdes Ong Limson a parcel of land situated in Barrio San Dionisio, Paranaque, Metro Manila. The respondent spouses were the owners of the subject property. On July 31, 1978, she agreed to but the property at the price of P34. 00 per square meter and gave P20, 000.00 as “earnest money”. The respondent spouses signed a receipt thereafter and gave her a 10-day option period to purchase the property. Respondent spouses informed petitioner that the subject property was mortgaged to Emilio Ramos and Isidro Ramos. Petitioner was asked to pay the balance of the purchase price to enable the respondent spouses to settle their obligation with the Ramoses. Petitioner agreed to meet respondent spouses and the Ramoses on August 5, 1978, to consummate the transaction; however, the respondent spouses and the Ramoses did not appear, same with their second meeting. On August 23, 1978, petitioner allegedly gave respondent spouses three checks for the settlement the back taxes of property. On September 5, 1978, the agent of the respondent spouses informed petitioner that the property was the subject of a negotiation for the sale to respondent Sunvar Realty Development Corporation. Petitioner alleged that it was only on September 15, 1978, that TCT No. S72946 covering the property was issued to respondent spouses. On the same day, petitioner filed and Affidavit of Adverse Claim with the Office of the Registry of Deeds of Makati, Metro Manila. The Deed of Sale between respondent spouses and respondent Sunvar was executed on September 15, 1978 and TCT No. S72377 was issued in favor of Sunvar on September 26, 1978 with the Adverse Claim of petitioner annotated thereon. Respondent spouses and Sunvar filed their Answers and Answers to CrossClaim, respectively. On appeal, the Court of Appeals completely reversed the decision of the trial court and ordered the Register of Deeds of Makati City to lift the Adverse Claim and ordered petitioner to pay respondent Sunvar and

respondent spouses exemplary and nominal damages and attorney’s fees. Hence, this petition. ISSUE: Whether or not the agreement between petitioner and respondent spouses was a mere option or a contract to sell. RULING: The Supreme Court held that the agreement between the parties was a contract of option and not a contract to sell. An option is continuing offer or contract by which the owner stipulates with another that the latter shall have the right to buy the property at a fixed price within a time certain, or under, or in compliance with, certain terms and conditions, or which gives the owner of the property the right to sell or demand a sale. It is also sometimes called an “unaccepted offer”. An option is not of itself a purchase, but merely secures the privilege to buy. It is not a sale of property but a sale of the right to purchase. Its distinguishing characteristic is that it imposes no binding obligation on the person holding the option, aside from the consideration for the offer. Hence, the assailed decision is affirmed, with the modification that the award of nominal and exemplary damages as well as attorney’s fees is deleted. The petition is denied.

VICES OF CONSENT 1. 2. 3. 4. 5. 6. 7.

CATALAN VS. BASA DOMINGO VS. CA MENDOZONA VS. OZAMIZ LIM VS. CA RUIZ VS. CA DELA CRUZ VS. CA RURAL BANK OF STA. MARIA VS. CA

CATALAN vs. BASA JULY 31, 2007 FACTS:

On October 20, 1948, FELICIANO CATALAN Feliciano was discharged from active military service. The Board of Medical Officers of the Department of Veteran Affairs found that he was unfit to render military service due to his “schizophrenic reaction, catatonic type, which incapacitates him because of flattening of mood and affect, preoccupation with worries, withdrawal, and sparse and pointless speech.” On September 28, 1949, Feliciano married Corazon Cerezo. On June 16, 1951, a document was executed, titled “Absolute Deed of Donation,” wherein Feliciano allegedly donated to his sister MERCEDES CATALAN one-half of the real property described, viz: A parcel of land located at Barangay Basing, Binmaley, Pangasinan. Bounded on the North by heirs of Felipe Basa; on the South by Barrio Road; On the East by heirs of Segundo Catalan; and on the West by Roman Basa. Containing an area of Eight Hundred One (801) square meters, more or less. The donation was registered with the Register of Deeds. On December 11, 1953, People’s Bank and Trust Company filed a Special Proceedings before the Court of First Instance to declare Feliciano incompetent. On December 22, 1953, the trial court issued its Order for Adjudication of Incompetency for Appointing Guardian for the Estate and Fixing Allowance of Feliciano. The following day, the trial court appointed People’s Bank and Trust Company as Feliciano’s guardian. People’s Bank and Trust Company has been subsequently renamed, and is presently known as the Bank of the Philippine Islands (BPI). On November 22, 1978, Feliciano and Corazon Cerezo donated Lots 1 and 3 of their property, registered under Original Certificate of Title (OCT) No. 18920, to their son Eulogio Catalan. Mercedes sold the property in issue in favor of her children Delia and Jesus Basa. The Deed of Absolute Sale was registered with the Register of Deeds and a Tax Declaration was issued in the name of respondents. Feliciano and Corazon Cerezo donated Lot 2 of the aforementioned property registered under OCT No. 18920 to their children Alex Catalan, Librada Catalan and Zenaida Catalan. On February 14, 1983, Feliciano and Corazon Cerezo donated Lot 4 (Plan Psu-215956) of the same OCT No. 18920 to Eulogio and Florida Catalan.

BPI, acting as Feliciano’s guardian, filed a case for Declaration of Nullity of Documents, Recovery of Possession and Ownership, as well as damages against the herein respondents. BPI alleged that the Deed of Absolute Donation to Mercedes was void ab initio, as Feliciano never donated the property to Mercedes. In addition, BPI averred that even if Feliciano had truly intended to give the property to her, the donation would still be void, as he was not of sound mind and was therefore incapable of giving valid consent. Thus, it claimed that if the Deed of Absolute Donation was void ab initio, the subsequent Deed of Absolute Sale to Delia and Jesus Basa should likewise be nullified, for Mercedes Catalan had no right to sell the property to anyone. BPI raised doubts about the authenticity of the deed of sale, saying that its registration long after the death of Mercedes Catalan indicated fraud. Thus, BPI sought remuneration for incurred damages and litigation expenses. On August 14, 1997, Feliciano passed away. The original complaint was amended to substitute his heirs in lieu of BPI as complainants in Civil Case No. 17666. The trial court found that the evidence presented by the complainants was insufficient to overcome the presumption that Feliciano was sane and competent at the time he executed the deed of donation in favor of Mercedes Catalan. Thus, the court declared, the presumption of sanity or competency not having been duly impugned, the presumption of due execution of the donation in question must be upheld. The Court of Appeals upheld the trial court’s decision. ISSUE: Whether said decision of the lower courts is correct. RULING: Petitioners questioned Feliciano’s capacity at the time he donated the property, yet did not see fit to question his mental competence when he entered into a contract of marriage with Corazon Cerezo or when he executed deeds of donation of his other properties in their favor. The presumption that Feliciano remained competent to execute contracts, despite his illness, is bolstered by the existence of these other contracts. Competency and freedom from undue influence, shown to have existed in

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

VICES OF CONSENT

DOMINGO V. COURT OF APPEALS G.R. No. 127540. October 17, 2001 FACTS: Paulina Rigonan owned three parcels of land including the house and warehouse on one parcel. She allegedly sold them to private respondents, the spouses Felipe and Concepcion Rigonan, who claim to be her relatives. In 1966, petitioners who claim to be her closest surviving relatives, allegedly took possession of the properties by means of stealth, force and intimidation, and refused to vacate the same. According to defendants, the alleged deed of absolute sale was void for being spurious as well as lacking consideration. They said that Paulina Rigonan did not sell her properties to anyone. As her nearest surviving kin within the fifth degree of consanguinity, they inherited the three lots and the permanent

improvements thereon when Paulina died. They said they had been in possession of the contested properties for more than 10 years. ISSUE: 1.) Whether or not the consideration in Deed of Sale can be used to impugn the validity of the Contract of Sale. 2.) Whether or not the alleged Deed of Sale executed by Paulina Rigonan in favor of the private respondents is valid. RULING: 1.) Consideration is the why of a contract, the essential reason which moves the contracting parties to enter into the contract. The Court had seen no apparent and compelling reason for her to sell the subject 9 parcels of land with a house and warehouse at a meager price of P850 only. On record, there is unrebutted testimony that Paulina as landowner was financially well off. She loaned money to several people. Undisputably, the P850.00 consideration for the nine (9) parcels of land including the house and bodega is grossly and shockingly inadequate, and the sale is null and void ab initio. 2.) The Curt ruled in the negative. Private respondents presented only a carbon copy of this deed. When the Register of Deeds was subpoenaed to produce the deed, no original typewritten deed but only a carbon copy was presented to the trial court. None of the witnesses directly testified to prove positively and convincingly Paulina’s execution of the original deed of sale. The carbon copy did not bear her signature, but only her alleged thumbprint. Juan Franco testified during the direct examination that he was an instrumental witness to the deed. However, when crossexamined and shown a copy of the subject deed, he retracted and said that said deed of sale was not the document he signed as witness. VICES OF CONSENT

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

not exist or is different from what that which was really executed.” The requisites of simulation are: (a) an outward declaration of will different from the will of the parties; (b) the false appearance must have been intended by mutual agreement; and (c) the purpose is to deceive third persons. None of these were clearly shown to exist in the case at bar. The Deed of Absolute Sale is a notarized document duly acknowledged before a notary public. As such, it has in its favor the presumption of regularity, and it carries the evidentiary weight conferred upon it with respect to its due execution. It is admissible in evidence without further proof of its authenticity and is entitled to full faith and credit upon its face. The burden fell upon the respondents to prove their allegations attacking the validity and due execution of the said Deed of Absolute Sale. Respondents failed to discharge that burden; hence, the presumption in favor of the said deed stands. VICES OF CONSENT LIM VS. COURT OF APPEALS 229 SCRA 616 FACTS: The case involves the partition of the properties of the deceased spouses Tan Quico and Josefa Oraa. The former died on May 11, 1932 and the latter on August 6, 1932. Both died intestate. They left some ninety six hectares of land located in the municipality of Guinobatan and Camalig, Albay. The late spouses were survived by four children; Cresencia, Lorenzo, Hermogenes and Elias. Elias died on May 2, 1935, without issue. Cresencia died on December 20, 1967. She was survived by her husband, Lim Chay Sing, and children, Mariano, Jaime, Jose Jovita, Anacoreta, Antonietta, Ruben, Benjamin and Rogelio. They are the petitioners in the case at bench. The sad spectacle of the heirs squabbling over the properties of their deceased parents was again replayed in the case at bench. The protagonists were the widower and children of Cresencia on one side, and Lorenzo and Hermogenes on the other side. The late Cresencia and Lorenzo had contrasting educational background. Cresencia only reached the second grade of elementary school. She could not read or write in English. On the other hand, Lorenzo is a lawyer and a CPA. Heirs of Cresencia alleged that since the demise of the spouses Tan Quico and Josefa Oraa, the subject properties had been administered by respondent

Lorenzo. They claimed that before her death, Cresencia had demanded their partition from Lorenzo. After Cresencia’s death, they likewise clamored for their partition. Their effort proved fruitless. Respondents Lorenzo and Hermogenes’ adamant stance against partition is based on various contentions. Principally, they urge: 1) that the properties had already been partitioned, albeit, orally; and 2) during her lifetime, the late Cresencia had sold and conveyed all her interests in said properties to respondent Lorenzo. They cited as evidence the “Deed of Confirmation of Extra Judicial Settlement of the Estate of Tan Quico and Josefa Oraa” and a receipt of payment. ISSUE: Whether or not there is error in the signing of the Deed.

RULING:

In the petition at bench, the questioned Deed is written in English, a language not understood by the late Cresencia an illiterate. It was prepared by the respondent Lorenzo, a lawyer and CPA. Respondent Lorenzo did not cause the notarization of the Deed. Considering these circumstances, the burden was on private respondents to prove that the content of the Deed was explained to the illiterate Cresencia before she signed it. In this regard, the evidence adduced by the respondents failed to discharge their burden. The conclusion drawn by the Honorable of Appeals that there was no undue influence exerted on Cresencia O. Tan by her (Lawyer-CPA) brother Lorenzo O. Tan based on facts stated in the questioned judgment is clearly incorrect. As it is contrary to the provision of Art. 1337, Civil Code. The respondent court, reversing the trial court, held that the evidence failed to establish that it was signed by the late Cresencia as a result of fraud, mistake or undue influence. The Court upheld this ruling erroneous. In calibrating the credibility of the witnesses on this issue, we take our mandate from Article 1332 of the Civil Code which provides: “When one of the parties is unable to read, or if the contract is in a language not understood by him, and mistake or fraud is alleged, the person enforcing the contract must show that the terms thereof have been fully explained to the former.” This substantive law came into being due to the finding of the Code Commission that there is still a fairly large number of illiterates in this country, and documents are usually drawn up in English or Spanish. It is also in accord

with our state policy of promoting social justice. It also supplements Article 24 of the Civil Code which calls on court to be vigilant in the protection of the rights of those who are disadvantaged in life. In the petition at bench, the questioned Deed is written in English, a language not understood by the late Cresencia an illiterate. VICES OF CONSENT: RUIZ VS. COURT OF APPEALS 401 SCRA 410 G.R. NO. 146942 APRIL 22, 2003 FACTS: Petitioner Corazon Ruiz is engaged in the business of buying and selling jewelry. She obtained loans from private respondent Consuelo Torres on different occasions and in different amounts. Prior to their maturity, the loans were consolidated under 1 promissory note dated March 22, 1995. The consolidated loan of P750, 000.00 was secured by a real estate mortgage on a lot in Quezon City, covered by Transfer of Certificate of Title No. RT-96686, and registered in the name of petitioner. The mortgage was signed by petitioner for herself and as attorney-in-fact of her husband Rogelio. It was executed on 20 March 1995, or 2 days before the execution of the subject promissory note. Thereafter, petitioner obtained 3 more loans from private respondent, under the following promissory notes: 1) promissory note dated 21 April 1995, in the amount of P100,000.00; 2) promissory note dated 23 May !995 in the amount of P100,000.00, and 3) promissory note dated 21 December 1995, in the amount of P100,000.00. These combined loans of P300,000.00 were secured by P571,000.00 worth of jewelry pledged by petitioner to private respondent. From April 1995 to March 1996, petitioner paid the stipulated 3% monthly interest on the P750,000.00 loan, amounting to P270,000. After March 1996, petitioner was unable to make interest payments as she had difficulties collecting from her clients in her jewelry business. Because of petitioner’s failure to pay the principal loan of P750,000.00, as well as the interest payment for April 1996, private respondent demanded payment not only of the P750,000.00 loan but also of the P300,000.00 loan.

When petitioner failed to pay, private respondent sought the extrajudicial foreclosure of the aforementioned real estate mortgage. ISSUE: Whether or not there is undue influence in the signing of the promissory note, which determines if foreclosure proceedings could proceed. RULING: The promissory note in question did not contain any fine print provision which could have escaped the attention of the petitioner. Petitioner had all the time to go over and study the stipulations embodied in the promissory note. Aside from the March 22, 1995 promissory note for P750,000.00, three other promissory notes of different dates and amounts were executed by petitioner in favor of private respondent. These promissory notes contain similar terms and conditions, with a little variance in the terms of interests and surcharges. The fact that petitioner and private respondent had entered into not only one but several loan transactions shows that petitioner was not in any way compelled to accept the terms allegedly imposed by private respondent. Moreover, petitioner, in her complaint dated October 7, 1996 filed with the trial court, never claimed that she was forced to sign the subject note. Therefore, the foreclosure proceedings may now proceed.

VICES OF CONSENT EPIFANIA DELA CRUZ, substituted by LAUREANA V. ALBERTO VS. SPS. EDUARDO C. SISON and EUFEMIA S. SISON G.R. No. 163770 February 17, 2005 FACTS:

Initially, the complainant in this case was Epifania S. Dela Cruz (Epifania), but she died on November 1, 1996, while the case was pending in the Court of Appeals. Upon her demise, she was substituted by her niece, Laureana V. Alberto. Epifania claimed that sometime in 1992, she discovered that her rice land in Salomague Sur, Bugallon, 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 she executed on November 24, 1989. Epifania thus filed a complaint before the Regional Trial Court of Lingayen, Pangasinan, 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 (Spouses 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 P20,000.00. 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. ISSUES: Whether the deed of absolute sale is valid. Whether fraud attended the execution of a contract. RULING: On the issue of whether fraud attended the execution of a contract is factual in nature. Normally, this Court is bound by the appellate court’s findings, unless they are contrary to those of the trial court, in which case we may wade into the factual dispute to settle it with finality. After a careful perusal of the records, we sustain the Court of Appeals’ ruling that the Deed of Absolute Sale dated November 24, 1989 is valid.

There being no evidence adduced to support her bare allegations, thus, Epifania failed to satisfactorily establish her inability to read and understand the English language. Although Epifania was 79 years old at the time of the execution of the assailed contract, her age did not impair her mental faculties as to prevent her from properly and intelligently protecting her rights. Even at 83 years, she exhibited mental astuteness when she testified in court. It is, therefore, inconceivable for her to sign the assailed documents without ascertaining their contents, especially if, as she alleges, she did not direct Eduardo to prepare the same. A comparison of the deed of sale in favor of Demetrio and the deed of sale in favor Eduardo, draws out the conclusion that there was no trickery employed. One can readily see that the first deed of sale is in all significant respects different from the second deed of sale. A casual perusal, even by someone as old as Epifania, would enable one to easily spot the differences. Epifania could not have failed to miss them. Indeed, if the intention was to deceive, both deeds of sale should have been mirror images as to mislead Epifania into thinking that she was signing what appeared to be the same document. In addition, the questioned deed of sale was duly notarized. It is a settled rule that one who denies the due execution of a deed where one’s signature appears has the burden of proving that, contrary to the recital in the jurat, one never appeared before the notary public and acknowledged the deed to be a voluntary act. Epifania never claimed her signatures as forgeries. In fact, Epifania never questioned the deed of sale in favor of Demetrio, accepting it as a valid and binding document. It is only with respect to the deed of sale in favor of Eduardo that she denies knowledge of affixing her signature. Unfortunately, for both parties, the notary public, Atty. Maximo V. Cuesta, Jr. before whom they appeared, died prior to the filing of the case.

KINDS OF FRAUD HOW COMMITTED RURAL BANK OF ST. MARIA, PANGASINAN VS. COURT OF APPEALS 314 SCRA 255 FACTS:

Manuel Behis mortgaged a land in favor of RBS, Pangasinan, in a Real Estate Mortgage dated October 23, 1978 as a security for loans obtained amounting to P156,270.00. Unfortunately thereafter, Manuel, being a delinquent in paying his debts, sold the land. And so a Deed of Absolute Sale with Assumption of Mortgage was executed between him as vendor/assignor and Rayandayan and Arceño as vendees/assignees for the sum of P250,000.00. On the same day, Rayandayan and Arceño, together with Manual Behis executed another Agreement embodying the consideration of the sale of the land in the sum of P2.4 million. The land, however, remained in the name of Behis because the former did not present to the Register of Deeds the contracts. Meanwhile, the loan, still in the name of Behis, accumulated an account amounting to P316,368.13 in a Statement of Account sent to Behis on May, 30, 1985. Thereafter, Rayandaran and Arceño presented the Deed of Absolute Sale to the bank and negotiated with the principal stockholder of the bank, Engr. E. Natividad, in Manila for the assumption of the indebtedness of Manuel Behis and the subsequent release of the mortgage on the property by the bank. Rayandaran and Arceño did not show to the bank the agreement with Manuel Behis providing for the real consideration of P2.4 million. Subsequently, the bank consented to the substitution of plaintiffs as mortgage debtors in place of Manuel Behis in a Memorandum of Agreement between private respondents and the bank with restricted and liberalized terms for the payment of the mortgage debt including the initial payment of P143,782.22. The bank discontinued to comply with the Memorandum of Agreement due to the appearance of Christina Behis, Manuel’s wife and a co-signatory in the mortgaged land, who claimed that her signature was forged. For this reason, the bank considered the MA as void. On January 7, 1986, plaintiffs demanded in a letter that the bank comply with its obligation under the Memorandum of Agreement to which the latter denied. Petitioner bank argued that the Memorandum of Agreement is voidable on the ground that its consent to enter said agreement was vitiated by fraud because private respondents withheld from petitioner bank the material information that the real consideration for the sale with assumption of mortgage of the property by Manuel Behis to Rayandayan and Arceño is P2,400,000.00, and not P250,000.00 as represented to petitioner bank. According to petitioner bank, had it known for the real consideration for the sale, i.e. P2.4 million, it would not have consented into entering the Memorandum of Agreement with Rayandayan and Arceño as it was put in the dark as to the real capacity and

financial standing of private respondents to assume the mortgage from Manuel Behis. Petitioner bank pointed out that it would not have assented to the agreement, as it could not expect the private respondents to pay the bank the approximately P343,000.00 mortgage debt when private respondents have to pay at the same time P2,400,000.00 to Manuel Behis on the sale of the land.

equivalent to the Judiciary’s budget for 17 years and three times the Marcos’ Swiss deposits forfeited in favor of the government as decided by the Supreme Court. At the end, the contract was voided for Amari, the private entity, was proven to have inveigled the Public Estates Authority to sell the reclaimed lands without public bidding, in violation of the Government Code.

ISSUE: Whether or not there existed a fraud in the case at bar.

FACTS: Two Senate Committees, the Senate Blue Ribbon Committee and Committee on Accountability of Public Officers, conducted extensive public hearings to determine the actual market value of the public lands; and found out that the sale of such was grossly undervalued based on official documents submitted by the proper government agencies during the investigations. It was found out that the Public Estates Authority (PEA), under the Joint Venture Agreement (JVA), sold to Amari Coastal Bay Development Corporation 157.84 hectares of reclaimed public lands totaling to P 1.89 B or P 1,200 per square meter. However during the investigation process, the BIR pitted the value at P 7,800 per square meter, while the Municipal Assessor of Parañaque at P 6,000 per square meter and by the Commission on Audit (COA) at P21,333 per square meter. Based on the official appraisal of the COA, the actual loss on the part of the government is a gargantuan value of P 31.78 B. However, PEA justified the purchase price based from the various appraisals of private real estate corporations, amounting from P 500 – 1,000 per square meter. Further, it was also found out that there were various offers from different private entities to buy the reclaimed public land at a rate higher than the offer of Amari, but still, PEA finalized the JVA with Amari. During the process of investigation, Amari did not hide the fact that they agreed to pay huge commissions and bonuses to various persons for professional efforts and services in successfully negotiating and securing for Amari the JVA. The amount constituting the commissions and bonuses totaled to a huge P 1.76 B; an indicia of great bribery.

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

ESSENTIAL REQUISITES OF CONTRACT: LICIT OBJECT CHAVEZ VS. PUBLIC ESTATES AUTHORITY 415 SCRA 403 SYNOPSIS: This case involves a government contract conveyed to a private entity (Amari), where 157.84 hectares of reclaimed public lands along Roxas Boulevard were sold at a negotiated price of P 1,200/ square meter. Reports place the market price of land in that area at a high of P 90, 000/ square meter. The difference is a mammoth P 140.16 B from the purchase price of the actual sale,

ISSUE: Whether or not the sale between PEA and Amari is unconstitutional. RULING: YES, it is unconstitutional for what was sold or alienated are lands of the public domain. Further, the Ponce doctrine, to which the respondent seeks refuge and sanctuary, does not fall squarely in the case. First, the subject of the sale was a submerged land; i.e., 78% of the total area sold by PEA to Amari is still submerged land. Submerged lands, like foreshore lands, is of the public domain and cannot be alienated. As unequivocally stated in Article XII, Section 2 of the Constitution, all lands of the

public domain, waters, minerals, coals, petroleum, forces which are potential energies, fisheries, forests or timber, wildlife, flora and fauna, and other natural resources, with the exception of agricultural lands, are inalienable. Submerged lands fall within the scope of such provision. Second, in the Ponce case, the “irrevocable option” to purchase portions of the foreshore lands shall be enforceable only upon reclamation, not prior to reclamation. In the case at bar, even without actual reclamation, the submerged lands were immediately transferred and sold to Amari. Third, the Ponce doctrine has been superseded by the provisions of the Government Auditing Code, which has been bolstered by the provisions of the Local Government Code, which states that any sale of the public land must be made only thru a public bidding. There being no public bidding in the subject sale of land; the amended JVA is a negotiated contract in patent violation of such law. Fourth, the Ponce doctrine which involved the validity to reclaim foreshore lands based on RA 1899 (authorizing municipalities and chartered cities to reclaim foreshore lands) is not applicable in the instant case because what is involved in the case at bar are submerged lands. Fifth, in the Ponce case, the City of Cebu was sanctioned to reclaim foreshore lands under RA 1899 for it is a qualified end user government agency; therefore, can sell patrimonial property to private parties. But PEA is not an end user agency with respect to reclaimed lands under the amended JVA for reclaimed lands are public and therefore are inalienable. Finally, the Ponce case was decided under the 1935 Constitution (196566), which allowed private corporations to acquire alienable lands of the public domain. The case at bar falls within the ambit of the 1987 Constitution which prohibits corporations from acquiring alienable lands of the public domain. Ergo, the submerged lands, being inalienable and outside the commerce of man, could not be the subject of the commercial transactions specified in the Amended JVA. Hence, the contract between Amari and the PEA is void. REQUISITE OF CONTRACT – DETERMINATE OBJECT

MELLIZA VS. CITY OF ILOILO

23 SCRA 477 FACTS: Juliana Melliza during her lifetime owned three parcels of residential land in Iloilo City. On 1932, she donated to the then Municipality of Iloilo a certain lot to serve as site for the municipal hall. The donation was however revoked by the parties for the reason that area was found inadequate to meet the requirements of the development plan. Subsequently the said lot was divided into several divisions. Sometime in 1938, Juliana Melliza sold her remaining interest on the said lot to Remedios San Villanueva. Remedios in turn transferred the rights to said portion of land to Pio Sian Melliza. The transfer Certificate of title in Melliza’s name bears on annotation stating that a portion of said lot belongs to the Municipality of Iloilo. Later the City of Iloilo, which succeeds to the Municipality of Iloilo, donated the city hall sit to the University of the Philippines, Iloilo Branch. On 1952, the University of the Philippines enclosed the site donated with a wire fence. Pio Sian Melliza then filed action in the Court of First Instance of Iloilo against Iloilo City and the University of the Philippines for recovery of the parcel of land or of its value specifically LOT 1214-B. Petitioner contends that LOT 1214-B was not included in those lots which were sold by Juliana Melliza to the then municipality of Iloilo and to say he would render the Deed of Sale invalid because the law requires as an essential element of sale, determinate object. ISSUE: Whether or not IF Lot 1214 – B is included in the Deed of Sale, it would render the contract invalid because the object would allegedly not be determinate as required by law. RULING: NO. The requirement of the law specifically Article 1460 of the Civil Code, that the sale must have for its object a determinate thing, is fulfilled as long as, at the time the contract is entered into, the object of the sale is cable of being determinate without the necessity of a new or further agreement between the parties.

The specific mention of some of the lots plus the statement that the lots object of the sale are the ones needed for city hall site sufficient provides a basis, as of the time, of the execution of the contract, for rendering determinate said lots without the need of a new further agreement of the parties.

ABSENCE OF CAUSE VS. FAILURE/INADEQUACY OF CAUSE ASKAY, plaintiff-appellant, VS. FERNANDO A. COSALAN, defendantappellee 1924 September 15 46 PHIL 179 FACTS: The plaintiff in this case is Askay, an illiterate Igorrote between 70 and 80 years of age, residing in the municipal district of Tublay, Province of Benguet, who at various times has been the owner of mining property. The defendant is Fernando A. Cosalan, the nephew by marriage of Askay, and municipal president of Tublay, who likewise has been interested along with his uncle in mining enterprises About 1907, Askay obtained title to the Pet Kel Mineral Claim located in Tublay, Benguet. On November 23, 1914, if we are to accept defendant's Exhibit 1, Askay sold this claim to Cosalan. Nine years later, in 1923, Askay instituted action in the Court of First Instance of Benguet to have the sale of the Pet Kel Mineral Claim declared null, to secure possession of the mineral claim, and to obtain damages from the defendant in the amount of P10,500. Following the presentation of various pleadings including the answer of the defendant, and following trial before Judge of First Instance Harvey, judgment was rendered dismissing the complaint and absolving the defendant from the same, with costs against the plaintiff. On being informed of the judgment of the trial court, plaintiff attacked it on two grounds: The first, jurisdictional, and the second, formal. Both motions were denied and an appeal was perfected. ISSUE: Whether or not the plaintiff has established his cause of action by a preponderance of the evidence. RULING: Plaintiff contends that the sale of the Pet Kel Mineral Claim was accomplished through fraud and deceit on the part of the defendant. Plaintiff

may be right but in our judgment he has failed to establish his claim. Fraud must be both alleged and proved. One fact exists in plaintiffs favor, and this is the age and ignorance of the plaintiff who could be easily by the defendant, a man of greater intelligence. Another fact is the inadequacy of the consideration for the transfer which, according to the conveyance, consisted of P1 and other valuable consideration, and which, according to the oral testimony, in reality consisted of P107 in cash, a bill-fold, one sheet, one cow, and two carabaos. Gross inadequacy naturally suggest fraud is some evidence thereof, so that it may be sufficient to show it when taken in connection with other circumstances, such as ignorance or the fact that one of the parties has an advantage over the other. But the fact that the bargain was a hard one, coupled with mere inadequacy of price when both parties are in a position to form an independent judgment concerning the transaction, is not a sufficient ground for the cancellation of a contract. Against the plaintiff and in favor of the defendant, the Court had the document itself executed in the presence of witnesses and before a notary public and filed with the mining recorder. The notary public, Nicanor Sison, and one of the attesting witnesses, Apolonio Ramos, testified to the effect that in the presence of the plaintiff and the defendant and of the notary public and the subscribing witnesses, the deed of sale was interpreted to the plaintiff and that thereupon he placed his thumb mark on the document. Two finger print experts, Dr. Charles S. Banks and A. Simkus, have declared in depositions that the thumb mark on exhibit is that of Askay. No less than four other witnesses testified that at various times Askay had admitted to them that he had sold the Pet Kel Mine to Fernando A. Cosalan. Having in mind of these circumstances, how can the plaintiff expect the courts to nullify the deed of sale on mere suspicion? Having waited nine years from the date when the deed was executed, nine years from the time Fernando A. Cosalan started developing the mine, nine years from the time Askay himself had been deprived of the possession of the mine, and nine years permitting of a third party to obtain a contract of lease from Cosalan, how can the court overlook plaintiff's silent acquiescence in the legal rights of the defendant? On the facts of record, the trial judge could have done nothing less than dismiss the action. The Court concludes, therefore, that the complaint was properly dismissed. As a result, judgment is affirmed CAUSE: TRUE/REAL: SIMULATION OF CONTRACTS

HEIRS OF THE LATE SPOUSES AURELIO AND ESPERANZA BALITE VS. LIM 446 SCRA 57 FACTS: The spouses Aurelio and Esperanza Balite were the owners of a parcel of land at Catarman, Northern Samar. When Aurelio died intestate, his wife Esperanza and their children inherited the subject property and became coowners thereof. In the meantime, Esperanza became ill and was in dire need of money fro her hospital expenses. She, through her daughter, Cristeta, offered to sell to Rodrigo Lim, her undivided share for the price of P1,000,000.00. Esperaza and Rodrigo agreed that under the Deed of Absolute Sale, it will be made to appear that the purchase price of the property would be P150,000.00 although the actual price agreed upon by them for the property was P1,000,000.00. On April 16, 1996, Esperanza executed a Deed of Absolute Sale in favor of Rodrigo. They also executed on the same day a Joint Affidavit under which they declared that the real price of the property was P1,000,000.00 payable to Esperanza by installments. Only Esperanza and two of her children Antonio and Cristeta knew about the said transaction. When the rest of the children knew of the sale, they wrote to the Register of Deeds saying that their mother did not inform them of the sale of a portion of the said property nor did they give consent thereto. Nonetheless, Rodrigo made partial payments to Antonio who is authorized by his mother through a Special Power of Attorney. 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 children. Meanwhile, Rodrigo caused to be published in the Samar Reporter the Deed of Absolute Sale. On June 27, 1997, petitioners filed a complaint against Rodrigo with the Regional Trial Court for the annulment of sale, quieting of title, injunction and damages. Subsequently, Rodrigo secured a loan from the Rizal Commercial Banking Corporation in the amount of P2,000,000.00 and executed a Real Estate Mortgage over the property as security thereof. On motion of the petitioners, they were granted leave to file an amended complaint impleading the bank as additional party defendant. On March 30, 1998, the court issued an order rejecting the amended complaint of the petitioners. Likewise, the trial court dismissed the complaint. It held that pursuant to Article 493 of the Civil Code, a co-owner is not invalidated by the absence of the consent of the other co-

owners. Hence, the sale by Esperanza of the property was valid; the excess from her undivided share should be taken from the undivided shares of Cristeta and Antonio, who expressly agreed to and benefit from the sale. The Court of Appeals likewise held that the sale was valid and binding insofar as Esperanza Balite’s undivided share of the property was concerned. It affirmed the trial court’s ruling that the lack of consent of the co-owners did not nullify the sale. ISSUE: Whether or not the Deed of Absolute Sale is null and void on the ground that it is falsified; it has an unlawful cause; and it is contrary to law and/or public policy. RULING: No. The contract is an example of a simulated contract. 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 is relatively simulated. Here, the parties’ real agreement binds them. In the present case, the parties intended to be bound by the Contract, even if it did not reflect the actual purchase price of the property. The letter of Esperanza to respondent and petitioner’s admission that there was partial payment made on the basis of the Absolute Sale reveals that the parties intended the agreement to produce legal effect. Since the Deed of Absolute Sale was merely relatively simulated, it remains valid and enforceable. All the essential requisites prescribed by law for the validity and perfection of contracts is present. However, the parties shall be bound by their real agreement for a consideration of P1,000,000 as reflected by their Joint Affidavit. The petition is DENIED and the assailed decision AFFIRMED.

CAUSE: TRUE/REAL: SIMULATION OF CONTRACTS

SUNTAY V. COURT OF APPEALS G.R. No. 114950, December 19, 1995

FACTS: Respondent Federico Suntay is the owner of a parcel of land and a rice mill, warehouse, and other improvements situated in the said land. A rice miller, Federico, in a letter applied as a miller-contractor of the National Rice and Corn Corporation (NARIC). He informed the NARIC that he had a daily rice mill output of 400 cavans of palay and warehouse storage capacity of 150,000 cavans of palay. His application, although prepared by his nephew-lawyer, Rafael Suntay, was disapproved, because at that time he was tied up with several unpaid loans. For purposes of circumvention, he had thought of allowing Rafael to make the application for him. Rafael prepared an absolute deed of sale whereby Federico, for and in consideration of P20,000.00 conveyed to Rafael said parcel of land with all its existing structures. Said deed was notarized as Document No. 57 and recorded on Page 13 of Book 1, Series of 1962, of the Notarial Register of Atty. Herminio V. Flores. Less than three months after this conveyance, a counter sale was prepared and signed by Rafael who also caused its delivery to Federico. Through this counter conveyance, the same parcel of land with all its existing structures was sold by Rafael back to Federico for the same consideration of P20,000.00. Although on its face, this second deed appears to have been notarized as Document No. 56 and recorded on Page 15 of Book 1, Series of 1962, of the notarial register of Atty. Herminio V. Flores, an examination thereof will show that, recorded as Document No. 56 on Page 13, is not the said deed of sale but a certain "real estate mortgage on a parcel of land with TCT No. 16157 to secure a loan of P3,500.00 in favor of the Hagonoy Rural Bank." Nowhere on page 13 of the same notarial register could be found any entry pertaining to Rafael's deed of sale. Testifying on this irregularity, Atty. Flores admitted that he failed to submit to the Clerk of Court a copy of the second deed. Neither was he able to enter the same in his notarial register. Even Federico himself alleged in his Complaint that, when Rafael delivered the second deed to him, it was neither dated nor notarized. Upon the execution and registration of the first deed, Certificate of Title No. 0-2015 in the name of Federico was cancelled and in lieu thereof, TCT No. T-36714 was issued in the name of Rafael. Even after the execution of the deed, Federico remained in possession of the property

sold in concept of owner. Significantly, notwithstanding the fact that Rafael became the titled owner of said land and rice mill, he never made any attempt to take possession thereof at any time, while Federico continued to exercise rights of absolute ownership over the property. In a letter, dated August 14, 1969, Federico, through his new counsel, Agrava & Agrava, requested that Rafael deliver his copy of TCT No. T-36714 so that Federico could have the counter deed of sale in his favor registered in his name. The request having been obviously turned down, Agrava & Agrava filed a petition with the Court of First Instance of Bulacan asking Rafael to surrender his owner's duplicate certificate of TCT No. T-36714. In opposition thereto, Rafael chronicled the discrepancy in the notarization of the second deed of sale upon which said petition was premised and ultimately concluded that said deed was a counterfeit or "at least not a public document which is sufficient to transfer real rights according to law." On September 8, 1969, Agrava & Agrava filed a motion to withdraw said petition, and, on September 13, 1969, the Court granted the same. On July 8, 1970, Federico filed a complaint for reconveyance and damages against Rafael. In his answer, Rafael scoffed at the attack against the validity and genuineness of the sale to him of Federico's land and rice mill. Rafael insisted that said property was "absolutely sold and conveyed . . . for a consideration of P20,000.00, Philippine currency, and for other valuable consideration". While the trial court upheld the validity and genuineness of the deed of sale executed by Federico in favor of Rafael, which deed is referred to above as Exhibit A, it ruled that the counter-deed, referred to as Exhibit B, executed by Rafael in favor of Federico, was simulated and without consideration, hence, null and void ab initio. Moreover, while the trial court adjudged Rafael as the owner of the property in dispute, it did not go to the extent of ordering Federico to pay back rentals for the use of the property as the court made the evidential finding that Rafael simply allowed his uncle to have continuous possession of the property because or their understanding that Federico would subsequently repurchase the same. From the aforecited decision of the trial court, both Federico and Rafael appealed. The Court of Appeals rendered judgment affirming the trial court's decision, with a modification that Federico was ordered to surrender the possession of the disputed property to Rafael. Counsel of

Federico filed a motion for reconsideration of the aforecited decision. While the motion was pending resolution, Atty. Ricardo M. Fojas entered his appearance in behalf of the heirs of Rafael who had passed away on November 23, 1988. Atty. Fojas prayed that said heirs be substituted as defendants-appellants in the case. The prayer for substitution was duly noted by the court in a resolution dated April 6, 1993. Thereafter, Atty. Fojas filed in behalf of the heirs an opposition to the motion for reconsideration. The parties to the case were heard on oral argument on October 12, 1993. On December 15, 1993, the Court of Appeals reversed itself and rendered an amended judgment. ISSUE: Whether or not the deed of sale executed by Federico in favor of Rafael is simulated and fictitious and, hence, null and void. RULING: In the aggregate, the evidence on record demonstrate a combination of circumstances from which may be reasonably inferred certain badges of simulation that attach themselves to the deed of sale in question. The complete absence of an attempt on the part of the buyer to assert his rights of ownership over the land and rice mill in question is the most protuberant index of simulation. The deed of sale executed by Federico in favor of his now deceased nephew, Rafael, is absolutely simulated and fictitious and, hence, null and void, said parties having entered into a sale transaction to which they did not intend to be legally bound. As no property was validly conveyed under the deed, the second deed of sale executed by the late Rafael in favor of his uncle, should be considered ineffective and unavailing. The allegation of Rafael that the lapse of seven years before Federico sought the issuance of a new title in his name necessarily makes Federico's claim stale and unenforceable does not hold water. Federico's title was not in the hands of a stranger or mere acquaintance; it was in the possession of his nephew who, being his lawyer, had served him faithfully for many years. Federico had been all the while in possession of the land covered by his title and so there was no pressing reason for Federico to have a title in his name issued. Even when the relationship

between the late Rafael and Federico deteriorated, and eventually ended, it is not at all strange for Federico to have been complacent and unconcerned about the status of his title over the disputed property since he has been possessing the same actually, openly, and adversely, to the exclusion of Rafael. It was only when Federico needed the title in order to obtain a collaterized loan that Federico began to attend to the task of obtaining a title in his name over the subject land and rice mill. CAUSE VS. MOTIVE UY VS. COURT OF APPEALS 314 SCRA 69 SEPTEMBER 9, 1999 FACTS: Petitioners William Uy and Rodel Roxas are agents authorized to sell eight (8) 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, NHA approved the acquisition of the said parcels of land 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 lands, 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 that the remaining area is located at an active landslide area and therefore, not suitable for development into a housing project. NHA eventually cancelled the sale over the remaining three (3) parcels of land. On March 9, 1992, petitioners filed a complaint for damages. After trial, the RTC of Quezon City rendered the cancellation of contract to be justified and awarded P1.255 million as damages in favor of petitioners. Upon appeal by petitioners, the Court of Appeals reversed the decision and entered a new one dismissing the complaint including the award of damages.

The motion for reconsideration having been denied, petitioners seek relief from this court contending, inter alia, that the CA erred in declaring that NHA had any legal basis to rescind the subject sale. ISSUE: Whether or not the contention of petitioner is correct. Whether or not a party’s entry into a contract affects the validity of the contract. RULING: Anent the 1st issue, NO. Petitioners confuse the cancellation of the contract by the NHA as a rescission of the contract under Article 1191 of the Civil Code. The right to rescission is predicated on a breach of faith by the other party that violates the reciprocity between them. The power to rescind is given to the injured party. In this case, the NHA did not rescind the contract. Indeed, it did not have the right to do so for the other parties to the contract, the vendors did not commit any breach, much less a substantial breach, of their obligation. The NHA did not suffer any injury. The cancellation was not therefore a rescission under Article 1191. Rather, it was based on the negation of the cause arising from the realization that the lands, which were the objects of the sale, were not suitable for housing. Anent the 2nd issue, as a general rule, a party’s motives for entering into a contract do not affect the contract. However, when the motive predetermines the cause, the motive may be regarded as the cause. As held in Liguez v. CA, ... It is well to note, however, that Manresa himself, while maintaining the distinction and upholding the inoperativess of the motives of the parties to determine the validity of the contract, expressly excepts from the rule those contracts that are conditioned upon the attainment of the motives of either party. The same view is held by the Supreme Court of Spain, in its decisions of Fevruary 4, 1941 and December 4, 1946, holdinmg that the motive may be regarded as causa when it predermones the purpose of the contract.

GRATUITOUS CAUSE 1. 2.

LIGUEZ VS. CA, 102 PHIL 577 PHILBANK VS. LUI SHE, 21 SCRA 52

CONCHITA LIGUEZ, petitioner, VS. THE HONORABLE COURT OF APPEALS, MARIA NGO VDA. DE LOPEZ, ET AL., respondents 102 P 577 December 18, 1957 G.R. No. L-11240 FACTS: The case began upon complaint filed by petitioner-appellant against the widow and heirs of the late Salvador P. Lopez to recover a parcel of 51.84 hectares of land, situated in Barrio Bogac-Linot, of the municipality of Mati, Province of Davao. Plaintiff averred to be its legal owner, pursuant to a deed of donation of said land, executed in her favor by the late owner, Salvador P. Lopez, on 18 May 1943. The defense interposed was that the donation was null and void for having an illicit causa or consideration, which was plaintiff's entering into marital relations with Salvador P. Lopez, a married man; and that the property had been adjudicated to the appellees as heirs of Lopez by the Court of First Instance, since 1949. The Court of Appeals found that the deed of donation was prepared by the Justice of the Peace of Mati, Davao, before whom it was signed and ratified on the date aforesaid. At the time, appellant Liguez was a minor, only 16 years of age. Salvador donated it to Liguez out of his love and affection to her. The Court of Appeals found that when the donation was made, Lopez had been living with the parents of appellant for barely a month; that the donation was made in view of the desire of Salvador P. Lopez, a man of mature years to have sexual relations with appellant Conchita Liguez; that Lopez had confessed to his love for appellant to the instrumental witnesses, with the remark that her parents would not allow Lopez to live with her unless he first donated the land in question; that after the donation, Conchita Liguez and Salvador P. Lopez lived together in the house that was built upon the latter's orders, until Lopez was killed on July 1st, 1943, by some guerrillas who believed him to be pro-Japanese. It was also ascertained by the Court of Appeals that the donated land originally belonged to the conjugal partnership of Salvador P. Lopez and his wife, Maria Ngo; that the latter had met and berated Conchita for living maritally with her husband, sometime during June of 1943; that the widow and children of Lopez were in possession of the land and made improvements thereon; that the land was assessed in the tax rolls first in the name of Lopez and later in that of his widow; and that the need of donation was never recorded. Upon these facts, the Court of Appeals held that the deed of donation was inoperative, and null and void (1) because the husband, Lopez, had no right to

donate conjugal property to the plaintiff appellant; and (2) because the donation was tainted with illegal causa or consideration, of which donor and donee were participants. Appellant vigorously contends that the Court of First Instance as well as the Court of Appeals erred in holding the donation void for having an illicit causa or consideration. It is argued that under Article 1274 of the Civil Code of 1889 (which was the governing law in 1943, when the donation was executed), "in contracts of pure beneficence the consideration is the liberality of the donor", and that liberality per se can never be illegal, since it is neither against law or morals or public policy. ISSUE: Whether or not the deed of donation made by Lopez in favor of Liguez was valid. RULING: Under Article 1274, liberality of the donor is deemed causa only in those contracts that are of "pure" beneficence; that is to say, contracts designed solely and exclusively to procure the welfare of the beneficiary, without any intent of producing any satisfaction for the donor; contracts, in other words, in which the idea of self-interest is totally absent on the part of the transferor.

For this very reason, the same Article 1274 provides that in remuneratory contracts, the consideration is the service or benefit for which the remuneration is given; causa is not liberality in these cases because the contract or conveyance is not made out of pure beneficence, but "solvendi animo." In consonance with this view, the Court in Philippine Long Distance Co. vs. Jeturian* G. R. L-7756, July 30, 1955, like the Supreme Court of Spain in its decision of 16 Feb. 1899, has ruled that bonuses granted to employees to excite their zeal and efficiency, with consequent benefit for the employer, do not constitute donation having liberality for a consideration. Here the facts as found by the Court of Appeals, which the Supreme Court could not vary, demonstrate that in making the donation in question, the late Salvador P. Lopez was not moved exclusively by the desire to benefit appellant Conchita Liguez, but also to secure her cohabiting with him, so that he could gratify his sexual impulses. This is clear from the confession of Lopez to the witnesses Rodriguez and Ragay, that he was in love with appellant, but her

parents would not agree unless he donated the land in question to her. Actually, therefore, the donation was but one part of an onerous transaction (at least with appellant's parents) that must be viewed in its totality. Thus considered, the conveyance was clearly predicated upon an illicit causa. Appellant seeks to differentiate between the alleged liberality of Lopez, as causa for the donation in her favor, and his desire for cohabiting with appellant, as motives that impelled him to make the donation, and quotes from Manresa and the jurisprudence of this Court on the distinction that must be maintained between causa and motives. It is well to note, however, that Manresa himself, while maintaining the distinction and upholding the inoperativeness of the motives of the parties to determine the validity of the contract, expressly excepts from the rule those contracts that are conditioned upon the attainment of the motives of either party. Appellees, as successors of the late donor, being thus precluded from pleading the defense of immorality or illegal causa of the donation, the total or partial ineffectiveness of the same must be decided by different legal principles. In this regard, the Court of Appeals correctly held that Lopez could not donate the entirety of the property in litigation, to the prejudice of his wife Maria Ngo, because said property was conjugal in character, and the right of the husband to donate community property is strictly limited by law. The situation of the children and forced heirs of Lopez approximates that of the widow. As privies of their parent, they are barred from invoking the illegality of the donation. But their right to a legitime out of his estate is not thereby affected, since the legitime is granted them by the law itself, over and above the wishes of the deceased. Hence, the forced heirs are entitled to have the donation set aside in so far as inofficious: i.e., in excess of the portion of free disposal , computed as provided in Articles 818 and 819, and bearing in mind that "collationable gifts" under Article 818 should include gifts made not only in favor of the forced heirs, but even those made in favor of strangers, as decided by the Supreme Court of Spain in its decisions of 4 May 1899 and 16 June 1902. So that in computing the legitimes, the value of the property donated to herein appellant, Conchita Liguez, should be considered part of the donor's estate. Only the court of origin has the requisite date to determine whether the donation is inofficious or not. With regard to the improvements in the land in question, the same should be governed by the rules of accession and possession in good faith, it being undisputed that the widow and heirs of Lopez were unaware of the donation in favor of the appellant when the improvements were made.

Appellant Conchita Liguez was declared by the Supreme Court entitled to so much of the donated property as may be found, upon proper liquidation, not to prejudice the share of the widow Maria Ngo in the conjugal partnership with Salvador P. Lopez or the legitimes of the forced heirs of the latter.

GRATUITOUS CAUSE PHILIPPINE BANKING CORPORATION, representing the estate of JUSTINA SANTOS Y CANON FAUSTINO, deceased, plaintiff-appellant, VS. LUI SHE, in her own behalf and as administratrix of the intestate of Wong Heng, deceased, defendant-appellant 21 SCRA 52 FACTS: Justina Santos and her sister Lorenza were the owners in common of a piece of land in Manila. In it are two residential houses. The sisters lived in one of the houses, while Wong Heng, a Chinese, lived with his family in the restaurant. Wong had been a long time lessee of a portion of the property, paying monthly rentals. On September 22, 1957, Justina became the owner of the entire property as her sister died with no other heir. On November 1, 1957, Justina executed a contract of lease in favor of Wong, covering a portion already leased to him and another portion of the property. The lease was for 50 years, although the lessee was give the right to withdraw at anytime from the agreement with a stipulated monthly rental. On December 1, she executed another contract giving Wong the option to buy the leased premises for P120,000 payable within 10 years at monthly installment of P1,000. The option was conditioned on his obtaining Philippine citizenship, which was then pending. His application for naturalization was withdrawn when it was discovered that he was a resident of Rizal. On November 18,1958, she executed two other contracts one extending the term to 99 years and the term fixing the term of the option of 50 years. In the two wills, she bade her legatees to respect the contract she had entered into with Wong, but it appears to have a change of heart in a codicil. Claiming that the various contracts were made because of her machinations and inducements practiced by him, she now directed her executor to secure the annulment of the contracts.

On November 18, the action was filed in the CFI of Manila. The complaint alleged that Wong obtained the contracts through fraud. Wong denied having taken advantage of her trust in order to secure the execution of the contracts on question. He insisted that the various contracts were freely and voluntarily entered into by the parties. The lower court declared all the contracts null and void with the exception of the first, which is the contract of lease of November 15, 1957. From this decision, both parties appealed directly to the Court. After the case were submitted for decision, both parties died, Wong on 1962, and Justina on 1964. Wong as substituted by his wife Lui She while Justina by the Philippine Banking Corporation. ISSUE: Whether or not the contracts entered into by the parties are void being in violation of the Constitutional prohibition on transfer of lands to aliens or those who are not citizens of the Philippines. RULING: YES. The Court held the lease and the rest of the contracts were obtained with the consent of Justina freely given and voluntarily. However the contacts are not necessarily valid on the ground that it circumvents the Constitutional prohibition against the transfer of lands to aliens. The illicit purpose then becomes the illegal causa, rendering the contracts void. It does not follow from what has been said that because the parties are in pari delicto they will be left where they are, without relief. For one thing, the original parties who were guilty of violation of fundamental charter have died and have since substituted by their administrators to whom it would e unjust to impute their guilt. For another thing, Article 1416 of the Civil Code provides an exception to the pari de licto, that when the agreement is not illegal per se but is merely prohibited, and the prohibition of the law is designed for the protection of the plaintiff, he may recover what he has paid or delivered. FORM AS ESSENTIAL ELEMENT OF CONTRACTS SONIA F. LONDRES, ARMANDO V. FUENTES, CHI-CHITA FUENTES QUINTIA, ROBERTO V. FUENTES, LEOPOLDO V. FUENTES, OSCAR V. FUENTES and MARILOU FUENTES ESPLANA petitioners, vs. THE COURT OF APPEALS, THE DEPARTMENT OF PUBLIC WORKS AND HIGHWAYS,

THE DEPARTMENT OF TRANSPORTATION AND COMMUNICATIONS, ELENA ALOVERA SANTOS and CONSOLACION ALIVIO ALOVERA, respondents Dec 17, 2002 G.R. No. 136427 FACTS: The present case stemmed from a battle of ownership over Lots 1320 and 1333 both located in Barrio Baybay, Roxas City, Capiz. Paulina originally owned these two parcels of land. After Paulina’s death, ownership of the lots passed to her daughter, Filomena. The surviving children of Filomena, namely, Sonia Fuentes Londres, Armando V. Fuentes, Chi-Chita Fuentes Quintia, Roberto V. Fuentes, Leopoldo V. Fuentes and Marilou Fuentes Esplana, herein petitioners, now claim ownership over Lots 1320 and 1333. On the other hand, private respondents Consolacion and Elena anchor their right of ownership over Lots 1320 and 1333 on the Absolute Sale executed by Filomena on April 24, 1959. Filomena sold the two lots in favor of Consolacion and her husband, Julian. Elena is the daughter of Consolacion and Julian. On March 30, 1989, petitioners filed a complaint for the declaration of nullity of contract, damages and just compensation. Petitioners sought to nullify the Absolute Sale conveying Lots 1320 and 1333 and to recover just compensation from public respondents DPWH and DOTC. Petitioners claimed that as the surviving children of Filomena, they are the owners of Lots 1320 and 1333. Petitioners claimed that these two lots were never sold to Julian. Petitioners doubt the validity of the Absolute Sale because it was tampered. The cadastral lot number of the second lot mentioned in the Absolute Sale was altered to read Lot 1333 when it was originally written as Lot 2034. Petitioners pointed out that Lot 2034, situated in Barrio Culasi, Roxas City, Capiz, was also owned by their grandmother, Paulina. And that it was only recently that they learned of the claim of private respondents when Consolacion filed a petition for the judicial reconstitution of the original certificates of title of Lots 1320 and 1333 with the Capiz Cadastre. Upon further inquiry, petitioners discovered that there exists a notarized Absolute Sale executed on April 24, 1959 registered only on September 22, 1982 in the Office of the Register of Deeds of Roxas City. The private respondents’ copy of the Absolute Sale was tampered so that the second parcel of lot sold, Lot 2034 would read as Lot 1333. However, the Records Management and Archives Office kept an unaltered copy of the Absolute Sale. This other copy shows that the objects of the sale were Lots 1320 and 2034. Private respondents maintained that they are the legal owners of Lots 1333 and 1320. Julian purchased the lots from Filomena in good faith and for a

valid consideration. Private respondents explained that Julian was deaf and dumb and as such, was placed in a disadvantageous position compared to Filomena. Julian had to rely on the representation of other persons in his business transactions. After the sale, Julian and Consolacion took possession of the lots. Up to now, the spouses’ successors-in-interest are in possession of the lots in the concept owners. Private respondents claimed that the alteration in the Absolute Sale was made by Filomena to make it conform to the description of the lot in the Absolute Sale. Private respondents filed a counterclaim with damages. The cross-claim of petitioners against public respondents was for the recovery of just compensation. Petitioners claimed that during the lifetime of Paulina, public respondents took a 3,200-square meter portion of Lot 1320. The land was used as part of the Arnaldo Boulevard in Roxas City without any payment of just compensation. In 1988, public respondents also appropriated a 1,786-square meter portion of Lot 1333 as a vehicular parking area for the Roxas City Airport. Sonia, one of the petitioners, executed a deed of absolute sale in favor of the Republic of the Philippines over this portion of Lot 1333. According to petitioners, the vendee agreed to pay petitioners P214,320.00. Despite demands, the vendee failed to pay the stipulated amount. The trial court issued its decision upholding the validity of the Absolute Sale. This was affirmed by the Court of Appeals. ISSUE Whether or not the notarized copy should prevail. RULING Among others, petitioners harp on the fact that the notarized and registered copy of the Absolute Sale should have, been correspondingly corrected. Petitioners believe that the notarized and archived copy should prevail. We disagree. A contract of sale is perfected at the moment there is a meeting of the minds upon the thing which is the object of the contract and upon the price. Being consensual, a contract of sale has the force of law between the contracting parties and they are expected to abide in good faith with their respective contractual commitments. Article 1358 of the Civil Code, which requires certain contracts to be embodied in a public instrument, is only for convenience, and registration of the instrument is needed only to adversely affect third parties. Formal requirements are, therefore, for the purpose of binding or informing third parties. Non-compliance with formal requirements

does not adversely affect the validity of the contract or the contractual rights and obligations of the parties. Decision affirmed with the modification that the cross-claim against public respondents is dismissed.

FORM FOR CONVENIENCE OF CONTRACTS (Art. 1358, CC) 1. BALATBAT VS. CA 2. UNIVERSAL ROBINA VS. HEIRS OF TEVES

CLARA M. BALATBAT VS. COURT OF APPEALS and Spouses JOSE REPUYAN and AURORA REPUYAN G.R. No. 109410 August 28, 1996 261 SCRA 128 FACTS: The lot in question covered by Transfer Certificate of Title No. 51330 was acquired by plaintiff Aurelio Roque and Maria Mesina during their conjugal union and the house constructed thereon was likewise built during their marital union. Out of their union, plaintiff and Maria Mesina had four children. When Maria Mesina died on August 28, 1966, the only conjugal properties left are the house and lot above stated of which plaintiff herein, as the legal spouse, is entitled to one-half share pro-indiviso thereof. With respect to the one-half share proindiviso now forming the estate of Maria Mesina, plaintiff and the four children, the defendants here, are each entitled to one-fifth (1/5) share pro-indiviso. Aurelio Roque then entered into a contract of Absolute Sale with the spouses Aurora and Jose Repuyan. However, on August 20, 1980, Aurelio filed a complaint for Rescission of Contract against Spouses Repuyan for the latter’s failure to pay the balance of the purchase price. A deed of absolute sale was then executed on February 4, 1982 between Aurelio S. Roque, Corazon Roque, Feliciano Roque, Severa Roque and Osmundo Roque and Clara Balatbat, married to Alejandro Balatbat. On April 14, 1982, Clara Balatbat filed a motion for the

issuance of a writ of possession which was granted by the trial court on September 14, 1982 "subject, however, to valid rights and interest of third persons over the same portion thereof, other than vendor or any other person or persons privy to or claiming any rights or interests under it." The corresponding writ of possession was issued on September 20, 1982. The lower court then rendered judgment in favor of the Spouses Repuyan and declared the Deed of Absolute Sale as valid. On appeal by petitioner Balatbat, the Court of Appeals affirmed the lower court’s decision. ISSUE: Whether or not the delivery of the owner’s certificate of title to spouses Repuyan by Aurelio Roque is for convenience or for validity or enforceability. RULING: The Supreme Court found that the sale between Aurelio and the Spouses Repuyan is not merely for the reason that there was no delivery of the subject property and that consideration/price was not fully paid but the sale as consummated, hence, valid and enforceable. The non-delivery of the possession of the subject property to the private respondent, suffice it to say that ownership of the thing sold is acquired only from the time of delivery thereof, either actual or constructive. Article 1498 of the Civil Code provides that when the sale is made through a public instrument, the execution thereof shall be equivalent to the delivery of the thing which is the object of the contract, if from the deed the contrary does not appear or cannot be inferred. The execution of the public instrument, without actual delivery of the thing, transfers the ownership from the vendor to the vendee, who may thereafter exercise the rights of an owner over the same. In the instant case, vendor Roque delivered the owner's certificate of title to herein private respondent. It is not necessary that vendee be physically present at every square inch of the land bought by him, possession of the public instrument of the land is sufficient to accord him the rights of ownership. Thus, delivery of a parcel of land may be done by placing the vendee in control and possession of the land (real) or by embodying the sale in a public instrument (constructive). The provision of Article 1358 on the necessity of a public document is only for convenience, not for validity or enforceability. It is not a requirement for the validity of a contract of sale of a parcel of land that this be embodied in a public instrument. A contract of sale being consensual, it is perfected by the mere consent of the parties. Delivery of the thing bought or payment of the price is not

necessary for the perfection of the contract; and failure of the vendee to pay the price after the execution of the contract does not make the sale null and void for lack of consideration but results at most in default on the part of the vendee, for which the vendor may exercise his legal remedies. Tthe petition for review is hereby dismissed for lack of merit.

FORM FOR CONVENIENCE OF CONTRACTS (Art. 1358, CC) UNIVERSAL ROBINA SUGAR MILLING CORPORATION, petitioner, VS. HEIRS OF ANGEL TEVES, respondents 2002 Sep 18 G.R. No. 128574 389 SCRA 316 FACTS: Andres Abanto owned two parcels of land situated in Campuyo, Manjuyod, Negros Oriental. One lot is registered in his name and the other lot is unregistered. When he died, his heirs executed an "Extrajudicial Settlement of the Estate of the Deceased and Simultaneous Sale." In this document, Abanto's heirs adjudicated unto themselves the two lots and sold the unregistered lot to the United Planters Sugar Milling Company, Inc. (UPSUMCO), and the registered lot to Angel M. Teves, for a total sum of P115,000.00. The sale was not registered. Out of respect for his uncle Montenegro, who was UPSUMCO's founder and president, Teves verbally allowed UPSUMCO to use the registered lot for pier and loading facilities, free of charge, subject to the condition that UPSUMCO shall shoulder the payment of real property taxes and that its occupation shall be coterminus with its corporate existence. UPSUMCO then built a guesthouse and pier facilities on the property. Years later, UPSUMCO’s properties were acquired by the Philippine National Bank (PNB). Later, PNB transferred the same properties to the Asset Privatization Trust (APT) which, in turn, sold the same to the Universal Robina Sugar Milling Corporation (URSUMCO). URSUMCO then took possession of UPSUMCO’s properties, including Teves' lot.

UPSUMCO with the PNB and, therefore, not included among the foreclosed properties acquired by URSUMCO. URSUMCO refused to heed Teves' demand, claiming that it acquired the right to occupy the property from UPSUMCO which purchased it from Andres Abanto; and that it was merely placed in the name of Angel Teves, as shown by the "Deed of Transfer and Waiver of Rights and Possession" dated November 26, 1987. Under this document, UPSUMCO transferred to URSUMCO its application for agricultural and foreshore lease. The same document partly states that the lands subject of the foreshore and agricultural lease applications are bounded on the north by the "titled property of Andres Abanto bought by the transferor (UPSUMCO) but placed in the name of Angel Teves". URSUMCO further claimed that it was UPSUMCO, not Teves, which has been paying the corresponding realty taxes. Consequently, Teves filed a complaint for recovery of possession of real property with damages against URSUMCO. However, on September 4, 1992, Teves died and was substituted by his heirs. On April 6, 1994, the RTC held that URSUMCO has no personality to question the validity of the sale of the property between the heirs of Andres Abanto and Angel Teves since it is not a party thereto; that Teves' failure to have the sale registered with the Registry of Deeds would not vitiate his right of ownership, unless a third party has acquired the land in good faith and for value and has registered the subsequent deed; that the list of properties acquired by URSUMCO from the PNB does not include the disputed lot and, therefore, was not among those conveyed by UPSUMCO to URSUMCO. On appeal by URSUMCO, the Court of Appeals affirmed the RTC decision, holding that the transaction between Angel Teves and Andres Abanto's heirs is a contract of sale, not one to sell, because ownership was immediately conveyed to the purchaser upon payment of P115,000.00. On October 29, 1996, URSUMCO filed a motion for reconsideration but was denied by the Appellate Court. Hence, the instant petition for review on certiorari. ISSUE: Whether or not the respondents have established a cause of action against petitioner.

Upon learning of the acquisition of his lot, Teves formally asked the corporation to turn over to him possession thereof or the corresponding rentals. He stated in his demand letters that he merely allowed UPSUMCO to use his property until its corporate dissolution; and that it was not mortgaged by RULING:

No. Petitioner URSUMCO contends that respondents have no cause of action because the "Extrajudicial Settlement of the Estate of the Deceased Andres Abanto and Simultaneous Sale" is merely a promise to sell and not an absolute deed of sale, hence, did not transfer ownership of the disputed lot to Angel Teves. Assuming that the document is a contract of sale, the same is void for lack of consideration because the total price of P115,000.00 does not specifically refer to the registered lot making the price uncertain. Furthermore, the transaction, being unregistered, does not bind third parties. Petitioner's contentions lack merit. As held by the RTC and the Court of Appeals, the transaction is not merely a contract to sell but a contract of sale. In a contract of sale, title to the property passes to the vendee upon delivery of the thing sold; while in a contract to sell, ownership is, by agreement, reserved in the vendor and is not to pass to the vendee until full payment of the purchase price. In the case at bar, the subject contract, duly notarized, provides that the Abanto heirs sold to Teves the lot covered by TCT No. H-37. There is no showing that the Abanto heirs merely promised to sell the said lot to Teves. The absolute ownership over the registered land was indeed transferred to Teves is further shown by his acts subsequent to the execution of the contract. As found by the trial court, it was Teves, not Andres Abanto's heirs, who allowed UPSUMCO to construct pier facilities and guesthouse on the land. When the property was erroneously included among UPSUMCO's properties that were transferred to petitioner URSUMCO, it was Teves, not the heirs of Andres Abanto, who informed petitioner that he owns the same and negotiated for an arrangement regarding its use. Teves even furnished petitioner documents and letters showing his ownership of the lot, such as a copy of the "Extrajudicial Settlement of the Estate of the Deceased Andres Abanto and Simultaneous Sale" and a certified true copy of TCT No. H-37 covering the disputed lot. Indeed, the trial court and the Court of Appeals correctly ruled that Teves purchased the lot from the Abanto heirs. That the contract of sale was not registered does not affect its validity. Being consensual in nature, it is binding between the parties, the Abanto heirs and Teves. Article 1358 of the New Civil Code, which requires the embodiment of certain contracts in a public instrument, is only for convenience, and the registration of the instrument would merely affect third persons. Formalities intended for greater efficacy or convenience or to bind third persons, if not done, would not adversely affect the validity or enforceability of the contract between the contracting parties themselves. Thus, by virtue of the valid sale, Angel Teves stepped into the shoes of the heirs of Andres Abanto and acquired all their rights to the property.

Thus, petition is denied.

REFORMATION OF INSTRUMENTS: WHEN PROHIBITED (Art. 13661367, CC) 1. 2.

SARMING VS. DY, JUNE 6, 2002 CEBU VS. CA, 407 SCRA 154

SARMING VS. DY 383 SCRA 131 JUNE 6, 2002 FACTS: Petitioners are the succesors-in-interest of original defendant Silveria Flores, while respondents Cresencio Dy and Ludivina Dy-Chan are the succesorsin-interest of the original plaintiff Alejandra Delfino, the buyer of one of the lots subject of this case. They were joined in this petition by the successors-ininterest of Isabel, Juan, Hilario, Ruperto, Tomasa, and Luisa and Trinidad themselves, all surnamed Flores, who were also the original plaintiffs in the lower court. They are the descendants of Venancio and Jose, the brothers of the original defendant Silveria Flores. A controversy arose regarding the sale of Lot 4163 which was half-owned by the original defendant, Silveria Flores, although it was solely registered under her name. The other half was originally owned by Silveria’s brother, Jose. On January 1956, the heirs of Jose entered into a contract with plaintiff Alejandra Delfino, for the sale of their one-half share of Lot 4163 after offering the same to their co-owner, Silveria, who declined for lack of money. Silveria did not object to the sale of said portion to Alejandra. Atty. Deogracias Pinili, Alejandra’s lawyer then prepared the document of sale. In the preparation of the document however, OCT no. 4918-A, covering Lot 5734, and not the correct title covering Lot 4163 was the one delivered to Pinili.

Unaware of the mistake committed, Alejandra immediately possession of Lot 4163 and introduced improvements on the said lot.

took

Two years later, when Alejandra Delfino purchased the adjoinin portion of the lot she had been occupying, she discovered that what was designated in the deed, Lot 5734, was the wrong lot. Thus, Alejandra and the vendors filed for the feformation of the Deed of Sale. ISSUE: Whether or not reformation is proper in this case. RULING: YES. Reformation is that remedy in equity by means of which a written instrument is made or construed so as to express or inform to the real intention of the parties. An action for reformation of instrument under this provision of law may prosper only upon the concurrence of the following requisites: (1) there must have been a meeting of the minds of the parties to the contract; (2) the instrument does not express the true intention of the parties; and (3) the failure of the instrument to express the true intention of the parties is due to mistake, fraud, inequitable conduct or accident. All of these requesites are present in this case. There was a meeting of the minds between the parties to the contract but the deed did not express the true intention ot the parties due to the designation of the lot subject of the deed. There is no dispute as to the intention of the parties to sell the land to Alejandra Delfino but there was a mistake as to the designation of the lot intended to be sold as stated in the Settlement of Estate and Sale. REFORMATION OF INSTRUMENTS: WHEN PROHIBITED (Art. 1366-1367, CC) CEBU CONTRACTORS CONSORTIUM CO., petitioner, VS. COURT OF APPEALS and MAKATI LEASING & FINANCE CORPORATION, respondents G.R. No. 107199 July 22, 2003 FACTS:

The instant Petition for Review on Certiorari stems from a complaint for collection of a sum of money with replevin filed by respondent Makati Leasing and Finance Corporation (MLFC) against petitioner Cebu Contractors Consortium Company (CCCC) before the Regional Trial Court of Makati. MLFC alleges that on August 25, 1976 a lease agreement relating to various equipment was entered into between MLFC, as lessor, and CCCC, as lessee. The terms and conditions of the lease were defined in said agreement and in two lease schedules of payment. To secure the lease rentals, a chattel mortgage, and a subsequent amendment thereto, were executed in favor of MLFC over other various equipment owned by CCCC. On June 30, 1977, CCCC began defaulting on the lease rentals, prompting MLFC to send demand letters. When the demand letters were not heeded, MLFC filed a complaint for the payment of the rentals due and prayed that a writ of replevin be issued in order to obtain possession of the equipment leased and to foreclose on the equipment mortgaged. CCC’s position is that it is no longer indebted to MLFC because the total amounts collected by the latter from the Ministry of Public Highways, by virtue of the deed of assignment, and from the proceeds of the foreclosed chattels were more than enough to cover CCC’s liabilities. CCC submits that in any event, the deed of assignment itself already freed CCC from its obligation to MLFC. The trial court rendered decision upholding the lease agreement and finding CCC liable to MLFC in lease rentals. On appeal, the appellate court affirmed the trial court’s decision. ISSUE: Whether or not respondent court erred in upholding the so- called salelease back scheme of the private respondent when the same is in reality nothing but an equitable mortgage. RULING: The Court finds in favor of CCC. MLFC’s own evidence discloses that it offers two types of financing lease: a direct lease and a sale- lease back. The client sells to MLFC equipment that it owns, which will be leased back to him. The transaction between CCC and MLFC involved the second type of financing lease.CCC argues that the sale and lease back scheme is nothing more than an equitable mortgage and consequently, asks for its reformation. The right of action for reformation accrued from the

date of execution of the contract of lease in 1976. This was properly exercised by CCC when it filed its answer with counterclaim to MLFC’s complaint in 1978 and asked for the reformation of the lease contract. Wherefore, the decision appealed from is hereby affirmed.

INTERPRETATION OF CONTRACT – LITERAL INTERPRETATION ADR SHIPPING SERVICESS, INC, Petitioner, VS. MARCELINO GALLARDO AND Court OF APPEALS, Respondent G.R. No. 134873 September 17, 2002 FACTS: Petitioner ADR Shipping Services, Inc. entered into a contract with private respondent Gallardo for the use of the former’s vessel MV Pacific Breeze to transport logs to Taiwan. The logs were the subject of a sales agreement between private respondent as seller being a timber concessionaire and log dealer, and Stywood Philippines, as buyer. Private respondent paid an advance charter fee of P242,000 representing ten percent of the agreed charter fee. Under the charter agreement, the boat should be ready to load by February 5, 1988. The boat failed to arrive on time, prompting private respondent to notify petitioner of its cancellation of the charter contract and the withdrawal of the advance payment deposited to the account of ADR shipping. ADR Shipping refused to return the advance payment to Gallardo claiming that the agreement on the date of February 5, 1988 was just the “reference commencing date” and the true loading date was February 16, 1988. This prompted the latter to file a case for sum of money and damages. The Regional Trial Court ordered ADR Shipping to pay Gallardo the advance payment with 6 percent interest per annum and attorney’s fees. The decision of the trial court was affirmed by the Court of Appeals. Hence, this petition. ISSUE: Whether or not private respondent is entitled to the refund of the advance payment representing his deposit for the charter of the ship provided by petitioner. RULING:

Yes. Private respondent is entitled to the refund of the advance payment it made to petitioner. There was ambiguity in the interpretation of the contract provisions as to the date of the loading of the ship. Ambiguities in a contract are interpreted strictly, albeit not unreasonably, against the drafter thereof when justified in light of the operative facts and surrounding circumstances. In this case, ambiguity must be construed strictly against ADR which drafted and caused the inclusion of the ambiguous provisions. The charter agreement explicitly states that February 5, 1988 is the intended date when the ship is expected ready to load while February 16, 1988 is merely the canceling date. Considering that the subject contract contains the foregoing express provisions, the parties have no other recourse but to apply the literal meaning of the stipulations. The cardinal rule is that when the terms of the contract are clear, leaving no doubt as to the intention of the parties, the literal meaning of its stipulations is controlling. Pursuant to the provision of Art 1191 of the Civil Code, 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, and the injured party may rescind the obligation, with payment of damages. In this case the private respondent is entitled to the return of his down payment, subject to a legal interest of 6 percent per annum, and to the payment of damages. INTERPRETATION OF CONTRACTS: IN CASE OF DOUBT 1. 2. 3. 4. 5. 6.

TSPIC CORP, VS. TSPIC EMPLOYEES UNION ESTANISLAO VS. EAST-WEST BANKING CORP. AQUINTEY VS. TIBONG CRUZ VS. CA, 456 SCRA 165 GONZALEZ VS. CA, 454 SCRA 8 ALMIRA VS. CA, 399 SCRA 351

TSPIC CORPORATION V. TSPIC EMPLOYEES UNION G.R. No. 163419, February 13, 2008 FACTS:

TSPIC is engaged in the business of designing, manufacturing, and marketing integrated circuits to serve the communication, automotive, data processing, and aerospace industries. TSPIC Employees Union (Union), on the other hand, is the registered bargaining agent of the rankand-file employees of TSPIC. TSPIC and the Union entered into a Collective Bargaining Agreement. As a result all the regular rank-and-file employees of TSPIC received a 10% increase in their salary. A wage order was issued by the National Capital Region which raised the daily minimum wage from PhP 223.50 to PhP 250, hence, the wages of 17 probationary employees were increased to PhP 250.00. TSPIC implemented the new wage rates as mandated by the CBA. As a result several employees received fewer wage. A few weeks after the salary increase for the year 2001 became effective, TSPIC notified some of their employees were overpaid and the overpayment would be deducted from their salaries in a staggered basis. ISSUE: Whether or not deduction of the alleged overpayment from the salaries of the affected members of the Union constitute diminution of benefits in violation of law. RULING: The deduction of the alleged overpayment from the salaries of the respondents is a valid act. The CBA provided in its provision in the computation for the increase in TSPIC’s employees, hence, the intention therein must be pursued basing on the principle that littera necat spiritus vivificate. The fundamental doctrine in labor law that the CBA is the law between the parties and they are obliged to comply with its provisions. Therefore, the error found by TSPIC in pursuance to the terms in the CBA must be sustained. The Court also agrees that TSPIC in charging the overpayments made to the respondents through staggered deductions from their salaries does not constitute diminution of benefits. Any amount given to the employees in excess of what they were entitled to, as computed above, may be legally deducted by TSPIC from the employees’ salaries

because on the first place that excess was not vested in them legally as a right because that will amount to unjust enrichment.

INTERPRETATION OF CONTRACTS: IN CASE OF DOUBT

ESTANISLAO V. EAST WEST BANKING CORPORATION G.R. No. 178537, February 11, 2008 FACTS: Spouses Rafael and Zenaida Estanislao obtained a loan from East West Banking Corporation videnced by a promissory note and secured by two deeds of chattel mortgage of two dump trucks and a bulldozer for the first and bulldozer and a wheel loader for the other. Spouses defaulted in the amortizations and the entire obligation became due and demandable. The bank filed a suit for replevin with damages but subsequently, the bank moved for suspension of the proceedings on account of an earnest attempt to arrive at an amicable settlement of the case. Both parties executed a Deed of Assignment, drafted by the bank, where it provides that the two dump trucks and the bulldozer shall be transferred, assigned and conveyed for the full payment of the debt. But the bank, for an unknown reason failed to sign on the deed, but it accepted the three heavy vehicles freely and voluntarily upon delivery made by the petitioner. After some time, the bank file a petition in court praying for the deliver of the other heavy vehicles mortgaged in the second chattel mortgage. The regional trial court dismissed the complaint for lack of merit but it was reversed and set aside by the court of appeals. ISSUE: Whether or not the Deed of Assignment, unsigned by private respondent, extinguishes the whole and full obligation of the petitioner. RULING:

The deed of assignment was a perfected agreement which extinguished petitioner’s total outstanding obligation to the respondent. The deed explicitly provides that the assignor (petitioners), in full payment of its obligation, shall deliver the three units of heavy equipment to the assignee (respondent), which accepts the assignment in full payment of the above-mentioned debt. This could only mean that should petitioners complete the delivery of the three units of heavy equipment covered by the deed, respondent’s credit would have been satisfied in full, and petitioner’s aggregate indebtedness would then be considered to have been paid in full as well. The nature of the assignment was a dation in payment, whereby property is alienated to the creditor in satisfaction of a debt in money. Such transaction is governed by the law on sales. Even if we were to consider the agreement as a compromise agreement, there was no need for respondent’s signature on the same, because with the delivery of the heavy equipment which the latter accepted, the agreement was consummated. Respondent’s approval may be inferred from its unqualified acceptance of the heavy equipment.

INTERPRETATION OF CONTRACTS: IN CASE OF DOUBT

QUINTEY V.TIBONG G.R. No. 166704, December 20, 2006 FACTS: Agrifina Aquintey filed a complaint for sum of money and damages against the respondents, spouses Felicidad and Rico Tibong. Agrifina alleged that Felicidad had secured loans from her on several occasions, at monthly interest rates. Despite demands, the spouses Tibong failed to pay their outstanding loan exclusive of interests. Spouses Tibong admitted that they had secured loans from Agrifina. The proceeds of the loan were then re-lent to other borrowers at higher interest rates. They, likewise, alleged that they had executed deeds of assignment in favor of Agrifina, and that their debtors had executed promissory notes in

Agrifina's favor. According to the spouses Tibong, this resulted in a novation of the original obligation to Agrifina. They insisted that by virtue of these documents, Agrifina became the new collector of their debtors; and the obligation to pay the balance of their loans had been extinguished. ISSUE: Whether or not consent is necessary in novation. RULING: Novation which consists in substituting a new debtor (delegado) in the place of the original one (delegante) may be made even without the knowledge or against the will of the latter but not without the consent of the creditor. Substitution of the person of the debtor may be effected by delegacion, meaning, the debtor offers, and the creditor (delegatario), accepts a third person who consents to the substitution and assumes the obligation. Thus, the consent of those three persons is necessary. In this kind of novation, it is not enough to extend the juridical relation to a third person; it is necessary that the old debtor be released from the obligation, and the third person or new debtor takes his place in the relation. Without such release, there is no novation; the third person who has assumed the obligation of the debtor merely becomes a co-debtor or a surety. If there is no agreement as to solidarity, the first and the new debtor are considered obligated jointly. Therefore, the Court agrees with the appellate court’s decision that respondents' obligation to pay the balance of their account with petitioner was extinguished, pro tanto, by the deeds of assignment of credit executed by respondent Felicidad in favor of petitioner. INTERPRETATION OF CONTRACTS: IN CASE OF DOUBT ADORACION E. CRUZ, THELMA DEBBIE E. CRUZ, GERRY E. CRUZ and NERISSA CRUZ-TAMAYO vs. THE HONORABLE COURT OF APPEALS, SUMMIT FINANCING CORP., VICTOR STA. ANA, MAXIMO C. CONTRERAS, RAMON G. MANALASTAS and VICENTE TORRES G.R. NO.122904

April 15,2005 FACTS: Herein petitioner is the mother of her co petitioners Thelma Cruz, Gerry Cruz and Nerissa Cruz-Tamayo, as well as Arnel Cruz, who was one of the defendants in Civil Case No. 49466. Petitioners files said case on February 11, 1983 against Arnel Cruz and herein private respondents Summit Financing Corporation (“Summit”), Victor S. Sta. Ana and Maximo C. Contreras, the last two in their capacity as deputy sheriff and ex-officio sheriff of Rizal, respectively, and Ramon G. Manalastas in his capacity as Acting Register of Deeds of Rizal. The Complaint alleged that petitioners and Arnel Cruz were co-owners of a parcel of land situated in Taytay, Rizal. Yet the property, which was then covered by Transfer Certificate of Title (TCT) No. 495225, was registered only in the name of Arnel Cruz. According to petitioners, the property was among the properties they and Arnel Cruz inherited upon the death of Delfin Cruz, husband of Adoracion Cruz. On August 22, 1977, petitioners and Arnel Cruz executed a Deed of Partial Partition, distributing to each of them their shares consisting of several lots previously held by them in common. Among the properties adjudicated to defendant Cruz was the parcel of land covered at the time by TCT No. 495225. It is the subject of this case. Subsequently, the same parties to the Deed of Partition agreed in writing to share equally in the proceeds of the sale of the properties although they have been subdivided and individually titled in the names of the former co-owners pursuant to the Deed of Partition. This arrangement was embodied in a Memorandum of Agreement executed on August 23, 1977 or a day after the partition. The tenor of the Memorandum of Agreement was annotated at the back of the TCT No. 495225 on September 1, 1977. Sometime in January 1983, petitioner Thelma Cruz discovered that TCT No. 514477 was issued on October 18, 1982 in the name of Summit. Upon investigation, petitioners learned that Arnel Cruz had executed a Special Power of Attorney on May 16, 1980 in favor of one Nelson Tamayo, husband of petitioner Nerissa Cruz Tamayo, authorizing him to obtain a loan in the amount of One Hundred Four Thousand Pesos from respondent Summit, to be secured by a real estate mortgage on the subject parcel of land. Since the loan remained outstanding on maturity, Summit instituted extrajudicial foreclosure proceedings, and at the foreclosure sale, it was declared the

highest bidder. Consequently, Sheriff Sta. Ana issued a Certificate of Sale to respondent Summit which more than a year later consolidated its ownership of the foreclosed property. Upon presentation of the affidavit of consolidation of ownership, the Acting Register of Deeds of Rizal cancelled TCT No. 495225 and issued and in lieu thereof, TCT No. 514477 in the name of respondent Summit. In their complaint before the RTC, petitioners asserted that they co-owned the properties with Arnel Cruz, as evidenced by the Memorandum of Agreement. Hence, they argued that the mortgage was void since they did not consent to it. ISSUE: Whether or not the real estate mortgage on the property then covered by TCT No. 495225 is valid and whether the mortgaged property was the exclusive property of Arnel Cruz when it was mortgaged. RULING: A reading of the provisions of the Deed of Partition, no other meaning can be gathered other than that petitioners and Arnel Cruz had put an end to the coownership. In the aforesaid deed, the shares of petitioners and Arnel Cruz’s in the mass of co-owned properties were concretely determined and distributed to each of them. In particular, to Arnel Cruz was assigned the disputed property. There is nothing from the words of said deed which expressly or impliedly stated that petitioners and Arnel Cruz intended to remain as co-owners with respect to the disputed property or to any of the properties for that matter. Petitioners do not question the validity or efficacy of the Deed of Partial Partition. In fact, they admitted its existence in their pleadings and submitted it as a part of their evidence. Thus, the deed is accorded its legal dire effect. Since a partition legally made confers upon each heir their exclusive ownership of the property adjudicated to him, it follows that Arnel Cruz acquired absolute ownership over the specific parcels of land assigned to him in the Deed of Partial Partition, including the property subject of this case. As the absolute owner thereof then, Arnel Cruz had the right to enjoy and dispose of the property, as well as the right to constitute a real estate mortgage over the same without securing the consent of the petitioners. On the other hand, there is absolutely nothing in the Memorandum of Agreement which diminishes the right of Arnel Cruz to alienate or encumber the properties allotted to him in the deed of partition.

As correctly held by the Court of Appeals, the parties only bound themselves to share in the proceeds of the sale of the properties. The agreement does not direct reconveyance of the properties to reinstate the common ownership of the properties. Moreover, to ascertain the intent of the parties in a contractual relationship, it is imperative that the various stipulations provided for in the contracts be construed together, consistent with the parties contemporaneous and subsequent acts as regards the execution of the contract. Subsequent to the execution of the Deed of Partition and Memorandum of Agreement, the properties were titled individually in the names of the co-owners to which they were respectively adjudicated, to the exclusion of the other co-owners. Petitioners Adoracion Cruz and Thelma Cruz separately sold the properties distributed to them as absolute owners thereof. Being clear manifestations of sole and exclusive dominion over the properties affected, the acts signify total incongruence with the state of co-ownership claimed by the petitioners. The real estate mortgage on the disputed property is valid and does not contravene the agreement of the parties. INTERPRETATION OF CONTRACTS: IN CASE OF DOUBT GONZALES VS. COURT OF APPEALS 354 SCRA 8 FACTS: Private respondents, Mr. and Mrs. Gabriel Caballero, are the registered owneres of two parcels of land situated in Cubao, Quezon City described in Transfer Certificate fo Title No. 247309 (Lot 1) and TCT No. 247310 (Lot 2). The spouses’ residence stood in Lot 2. Sometime in 1979, they obtained a loan from the Cavite Development Bank in the amount of P225,000.00. The two lots were mortgaged to secure their loan. The loan matured in 1984. To pay the loan they offered Lot 1 for sale. The offer was advertised in the Bulletin Today. However, offers to purchase from prospective buyers did not materialize. On October 24, 1985, a certain Mrs. Lagrimas approached the spouses offering to broker the sale to an interested buyer. Initially, the spouses told the broker that they were selling only to direct buyers. Nonetheless, Mrs. Lagrimas

brought to the spouses her buyer, herein petitioner Napoleon H. Gonzales, who turned out to be Mrs. Lagrimas’ relative. Petitioner offered to buy the vacant lot for P470,000.00. Initially, respondents refused to reduce their asking price. Petitioner bargained for a lower price with the suggestion that on paper the price will be markedly lower so the spouses would pay lower capital gains tax. Petitioner assured the spouses this could be done since he had connections with the Bureau of Internal Revenue. The spouses agreed to sell at P470.000.00. Petitioners paid the bank P375,000.00, to be deducted from the purchase price. After the mortgage was cancelled and upon release of the two titles, Gonzales asked for the deeds of sale of the two lots and delivery of the titles to him. Defendants signed the deed of sale covering only Lot 1 but refused to deliver its title until petitioner paid the remaining balance of P70,000.00 This prompted petitioner to file a complaint for specific performance and damages. ISSUE: Whether or not the sale involved only Lot 1 and not both Lots.

RULING:

YES. Principally, the issue here is whether the contract of sale between the parties involved Lot 1 and 2 as claimed by petitioner or only Lot 1 as private respondents contend. In a case where we have to judge conflicting claims on the intent of the parties, as in this instance, judicial determination of the parties’ intention is mandated. Contemporaneous and subsequent acts of the parties material to the case are to be considered. Petitioner admits he himself caused the preparation of the deed of sale presented before the lower court. Yet he could not explain why I referred only to the sale of Lot 1 and not to the two lots, if the intention of the parties was really to cover the sale of two lots. As the courts a quo observed, even if it were true that two lots were mortgaged and were about to be foreclosed, the ads private respondents placed in the Bulletin Today offered only Lot 1 and was strong indication that they did not intend to sell Lot 2. The 501 sq.m. lot was offered for P1,150.00 per sq.m. It alone would have fetched P576,150.00. The loan still to be paid the bank was only P375,000.00 which was what petitioner actually paid the bank. As the trial court observed, it was incomprehensible why the spouses would part with two lots, one with a 2-storey house, and both situated at a prime commercial district for less than the price of one lot. Contrary to what petitioner would make us believe, the sale of Lot 1 valued at P576,150.00 for P470,000.00,

with petitioner assuming the bank loan of P375,000.00 as well as payment of the capital gains tax, appears more plausible.

INTERPRETATION OF CONTRACTS: IN CASE OF DOUBT ALMIRA VS. COURT OF APPEALS 399 SCRA 351 FACTS: Petitioners are the wife and the children of the late Julio Garcia who inherited from his mother, Ma. Alibudbud, a portion of a 90,655 square meter property denominated as lot 1642 of the Sta. Rosa Estate in Brgy. Caingin Sta. Rosa Laguna. The lot was co-owned and registered in the names of three persons with the following shares: Vicente de Guzman (1/2), Enrique Hemedes (1/4) and Francisco Alibudbud, the father of Ma. Alibudbud (1/4). Although there wad no separate title in the name of Julio Garcia, there were tax declaration in his name to the intent of his grandfather’s share covering the area of 21460 square meter. On July 5, 1984, petitioner as heirs of Julio Garcia, and respondent Federico Brines entered a Kasunduan ng Pagbibilihan (Kasunduan for Brevity) over the 21460 square meter portion for the sum of P150.000.00. Respondent paid P65, 000.00 upon execution of the contract while the balance of P85, 000.00 was made payable within six (6) months from the date of the execution of the instrument. The time of the execution of the kasunduan, petitioners allegedly informed respondent that TCT No. RT-1076 was in the possession of their cousin, Conchila Alibudbud, who having bought Vicente de Guzman’s ½ shares, owned the bigger portion of lot 1642. This standing notwithstanding, respondent willingly entered into the Kasunduan provided that the full payment of the purchase price will be made upon delivery to him of the title. Respondent took possession of the property subject of the Kasunduan and made various payments to petitioiners amountiong to P58500.00. However upon failure of petitionere to deliver to him a separate title to the property in the name of Julio Garcia he refused to make further payments, prompting petitioner to file a civil action before the RTC for a rescission of the Kasunduan, return by respondent to petitioner of the possession of the subject parcel of land, and payment by respondent of damages in favour of petitioners.

ISSUE Whether or not the petitioner may rescind the Kasunduan pursuant to Article 1191 of the Civil Code for the failure of respondent to give full payment of the balance of the purchase price. RULING: NO, the right of the parties are governed by the terms ands the nature of the contract they entered. Hence, although the nature of the Kasunduan was never places in dispute by both parties, it is necessary to ascertain whether the Kasunduan is a contract to sell or a contract of Sale. Although both parties have consistency referred to the Kasunduan as a contract to Sell, a careful reading of the provision of the Kasunduan reveals that it is a contract of Sale. A deed of sale is absolute in nature in the absence of an any stipulation reserving title to the vendor until full payment of the purchase price. The delivery of a separation title in the name of Julio Garcia was a condition imposed on respondent’s obligation to pay the balance of the purchase price. It was not a condition imposed in the perfection of the contract of Sale. The rescission will not prosper since the power to rescind is only given to the injured party. The injured party is the party who has faithfully fulfilled his obligation. In the case at bar, the petitioners were not ready, willing and able to comply with their obligation to deliver a separate title in the name of Julio Garcia to respondent therefore, thy are not in a position to ask for rescission. Failure to comply with a condition imposed on the performance of an obligation gives the other party the option either to refuse to proceed with the sale or to waive the condition under Art 1545 of the civil code. Hence it is the respondent who has the option. DOCTRINE OF “COMPLEMENTARY CONTRACTS CONSTRUED TOGETHER” 1. 2. 3.

PHIL. BANK OF COMMUNICATIONS VS. LIM, 455 SCRA 436 RIGOR VS. CONSOLIDATED LEASING, 387 SCRA 437 VELASQUEZ VS. CA, JUNE 30, 1999

PHILIPPINE BANK OF COMMUNICATIONS VS. ELENA LIM, RAMON CALDERON and TRI-ORO INTERNATIONAL TRADING &MANUFACTURING CORPORATION G.R. NO. 158138 April 12, 2005

FACTS: On September 3, 1999, petitioner filed a complaint against respondents fo0r the collection of a deficiency amounting to P4,014,297.23 exclusive of interest. Petitioner alleged that respondents obtained a loan from it and executed a continuing surety agreement dated November 16, 1995 in favor of petitioner for all loans, credits, etc., that were extended or may be extended in the future to respondents. Petitioner granted a renewal of said loan upon respondent’s request, the most recent being on January 21, 1998 as evidenced by a promissory note renewal BD-Variable No. 8298021001 on the amount of P3,000,000.00. it was expressly stipulated therein that the venue for any legal action that may arise out of said promissory note shall be Makati City “to the excklusion of all other courts.” Respondent allegedly failed to pay said obligation upon maturity. Thus petitioner foreclosed the real estate mortgage executed by the respondents valued at P1,081,600.00 leaving a deficiency balance of P4,014,297.23 as of August 31, 1999. Respondents moved to dismiss the complaint on the ground of improper venue, invoking the stipulation contained in the last paragraph of the promissory note with respect to the restriction/exclusive venue. The trial court denied said motion asseverating that petitioners had separate causes of action arising from the promissory note and the continuing surety agreement. Thus, under Rule 4, Section 2 of the 1997 Rules of Civil Procedure, as amended, venue was properly laid in Manila. The trial court supported its order with cases where venue was held to be permissive. A motion for reconsideration of said order was likewise denied. ISSUE: Whether or not the “complementary-contracts-construed principle is applicable in the case at bar.

together”

RULING: According to this principle, an accessory contract must be read in its entirety and together with the principal agreement. This principle is used in construing contractual stipulations in order to arrive at their true meaning; certain stipulations cannot be segregated and then made to control. This nosegregation principle is based on Article 1374 of the Civil Code. The aforementioned doctrine is applicable to the present case. In capable of standing by itself, the surety agreement can be enforced only in conjuction with the promissory note. The latter documents the debt that is sought to be collected in the action against the sureties.

The factual milieu of the present case shows that the surety agreement was entered into to facilitate existing and future loan agreements. Petitioner approved the loan covered by the promissory note, partly because of the surety agreement that assured the payment of the principal obligation. The circumstances that relate to the issuance of the promissory note and the surety agreement are so intertwined that neither one could be separated from the other. It makes no sense to argue that the parties to the surety agreement were not bound by the stipulations in the promissory note. Notably, the promissory note was a contract of adhesion that petitioner required the principal debtor to execute as a condition of the approval of the loan. It was made in the form and language prepared by the bank. By inserting the provision of that Makati City would be the “venue for any legal action that may arise out of the promissory note,” petitioner also restricted the venue of actions against the sureties. The legal action against the sureties arose not only from the security agreement but also from the promissory note. DOCTRINE OF “COMPLEMENTARY CONTRACTS CONSTRUED TOGETHER” SPOUSES EFREN N. RIGOR and ZOSIMA D. RIGOR, for themselves and as owners of CHIARA CONSTRUCTION, petitioners, VS. CONSOLIDATED ORIX LEASING and FINANCE CORPORATION, respondent 2002 Aug 20 FACTS: Petitioners obtained a loan from private respondent Consolidated Orix Leasing and Finance Corporation in the amount of P1,630,320.00. Petitioners executed a promissory note on July 31, 1996 promising to pay the loan in 24 equal monthly installments of P67,930.00 every fifth day of the month commencing on September 5, 1996. The promissory note also provides that default in paying any installment renders the entire unpaid amount due and payable. To secure payment of the loan, petitioners executed in favor of private respondent a deed of chattel mortgage over two dump trucks. Petitioners failed to pay several installments despite demand from private respondent. On January 5, 1998, private respondent sought to foreclose the chattel mortgage by filing a complaint for Replevin with Damages against petitioners before the Regional Trial Court of Dagupan City.After service of summons, petitioners moved to dismiss the complaint on the ground of improper venue based on a provision in the promissory note which states that, x x x all legal

actions arising out of this note or in connection with the chattels subject hereof shall only be brought in or submitted to the proper court in Makati City, Philippines. Private respondent opposed the motion to dismiss and argued that venue was properly laid in Dagupan City where it has a branch office based on a provision in the deed of chattel mortgage which states that, x x x in case of litigation arising out of the transaction that gave rise to this contract, complete jurisdiction is given the proper court of the city of Makati or any proper court within the province of Rizal, or any court in the city, or province where the holder/mortgagee has a branch office, waiving for this purpose any proper venue. After a further exchange of pleadings, the Dagupan trial court denied petitioners’ motion to dismiss Not satisfied with the orders, petitioners filed a petition for certiorari before the Court of Appeals imputing grave abuse of discretion by the Dagupan trial court in denying the motion to dismiss which was denied. ISSUE: Whether or not venue was properly laid under the provisions of the chattel mortgage contract in the light of Article 1374 of the Civil Code. RULING: Yes. Art. 1374 provides that the various stipulations of a contract shall be interpreted together, attributing to the doubtful ones that sense which may result from all of them taken jointly. Applying the doctrine to the instant case, we cannot sustain petitioners’ contentions. The promissory note and the deed of chattel mortgage must be construed together. Private respondent explained that its older standard promissory notes confined venue in Makati City where it had its main office. After it opened a branch office in Dagupan City, private respondent made corrections in the deed of chattel mortgage, but due to oversight, failed to make the corresponding corrections in the promissory notes. Petitioners affixed their signatures in both contracts. The presumption is applied that a person takes ordinary care of his concerns. It is presumed that petitioners did not sign the deed of chattel mortgage without informing themselves of its contents. As aptly stated in a case, they being of age and businessmen of experience, it must be presumed that they acted with due care and have signed the documents in question with full knowledge of their import and the obligation they were assuming thereby. In any event, petitioners did not contest the deed of chattel mortgage under Section 8, Rule 8 of the Revised Rules of Civil Procedure. As held in Velasquez, this omission effectively eliminated any defense relating to the authenticity and due execution of the deed, e.g. that the

document was spurious, counterfeit, or of different import on its face as the one executed by the parties; or that the signatures appearing thereon were forgeries; or that the signatures were unauthorized. Clearly, the Court of Appeals did not err in ruling that venue was properly laid in Dagupan City as provided in the deed of chattel mortgage. The Court holds that private respondent is not barred from filing its case against petitioners in Dagupan City where private respondent has a branch office as provided for in the deed of chattel mortgage. Petition denied. DOCTRINE OF “COMPLEMENTARY CONTRACTS CONSTRUED TOGETHER” RODOLFO P. VELASQUEZ, petitioner, VS. COURT OF APPEALS, and PHILIPPINE COMMERCIAL INTERNATIONAL BANK, INC., respondents G.R. No. 124049 June 30, 1999 FACTS: The case arose from a complaint for a sum of money with preliminary attachment filed with the Regional Trial Court of Makati City by private respondent Philippine Commercial International Bank (PCIB) against petitioner Rodolfo P. Velasquez together with Mariano N. Canilao Jr., Inigo A. Nebrida, Cesar R. Dean and Artemio L. Raymundo. Sometime in December 1994 the Pick-up Fresh Farms, Inc. (PUFFI), of which petitioner Velasquez was an officer and stockholder, filed an application for a loan of P7,500,000.00 with PCIB under the government's Guarantee Fund for Small and Medium Enterprises (GFSME). On 16 April 1985 the parties executed the corresponding loan agreement. As security for the loan, promissory notes numbered TL 121231 and TL 121258 for the amounts of P4,000,000.00 and P3,500,000.00, respectively, were signed by Inigo A. Nebrida and Mariano N. Canilao, Jr. as officers of and for both PUFFI and Aircon and Refrigeration Industries, Inc. (ARII). A chattel mortgage was also executed by ARII over its equipment and machineries in favor of PCIB. Petitioner along with Nebrida and Canilao, Jr. also executed deeds of suretyship in favor of PCIB. Separate deeds of suretyship were further executed by Cesar R. Dean and Artemio L. Raymundo. When PUFFI defaulted in the payment of its obligations PCIB foreclosed the chattel mortgage. The proceeds of the sale amounted to

P678,000.00. Thus, PCIB filed an action to recover the remaining balance of the entire obligation including interests, penalties and other charges. Exemplary damages and attorney’s fees of 25% of the total amount due were also sought. On 9 October 1989 a writ of preliminary attachment was granted by the trial court. On 20 June 1990 the trial court rendered a summary judgment in favor of PCIB holding petitioner and Canilao solidarily liable to pay P7,227,624.48 plus annual interest of 17%, and P700,000.00 as attorney’s fees and the costs of suit. The case was dismissed without prejudice with regard to the other defendants as they were not properly served with summons. On appeal, the Court of Appeals on 28 September 1995 affirmed in toto the RTC judgment. Petitioner’s motion for reconsideration was thereafter denied. Hence this petition. ISSUE: Whether or not the appellate court committed reversible error in sustaining or affirming the summary judgment despite the existence of genuine triable issues of facts and in refusing to set aside the default order against petitioner.

personally liable in the deed of suretyship because the loan agreement, among others, provided to further secure the obligations of the BORROWER to the LENDER, Messrs. Nebrida, Raymundo, Canilao, Dean and Velasquez and Aircon and Refrigeration Ind. Inc. shall each execute a suretyship agreement in favor of the LENDER in form and substance acceptable to the LENDER. WHEREFORE, the petition is DENIED. The Decision of 28 September 1995 of the Court of Appeals affirming the 20 June 1990 judgment of the RTC- Br. 61, Makati City, ordering petitioner Rodolfo P. Velasquez and Mariano N. Canilao, Jr. to solidarily pay respondent Philippine Commercial and Industrial Bank (PCIB) the amount of P7,227,624.48 with annual interest of 17% and attorney’s fees of P700,000.00 plus costs of suit as well as its Resolution of 19 February 1995 denying reconsideration, is AFFIRMED.

RESCISSIBLE CONTRACTS-NATURE AND EFFECTS-MUTUAL RESTITUTION 1. 2. 3. 4.

EQUATORIAL REALTY VS. MAYFAIR THEATER, 370 SCRA 56 SIGUAN VS. LIM, NOVEMBER 19, 1999 KHE KONG VS. CA, 355 SCRA 701 SUNTAY VS. CA, 251 SCRA 430

RULING: The more appropriate doctrine in this case is that of the “complementary contracts construed together” doctrine. The surety bond must be read in its entirety and together with the contract between the NPC and the contractors. The provisions must be construed together to arrive at their true meaning. Certain stipulations cannot be segregated and then made to control. That the “complementary contracts construed together” doctrine applies in this case finds support in the principle that the surety contract is merely an accessory contract and must be interpreted with its principal contract, which in this case was the loan agreement. This doctrine closely adheres to the spirit of Art. 1374 of the Civil Code which states that Art. 1374. The various stipulations of a contract shall be interpreted together, attributing to the doubtful ones that sense which may result from all of them taken jointly. Applying the “complementary contracts construed together” doctrine leaves no doubt that it was the intention of the parties that petitioner would be

EQUATORIAL REALTY DEVELOPMENT, INC. VS. MAYFAIR THEATER, INC. 370 SCRA 56 FACTS: Carmelo & Bauermann, Inc. (Carmelo) used to own a parcel of land, together with two two-storey buildings constructed thereon. On June 1, 1967, Carmelo entered into a lease with Mayfair Theater, Inc. (Mayfair) for a period of 20 years. The lease covered a portion of the second floor and mezzanine. Two (2) years later, Mayfair entered into a second lease with Carmelo for the lease of another property, a part of the second floor and two spaces on the ground floor. The lease was also for a period of twenty (20) years. Both leases contained a provision granting Mayfair a right of first refusal to purchase the said properties. However, on July 30, 1978, within the 20-year-lease term, Carmelo sold the subject properties to Equatorial Realty Development, Inc. (Equatorial) for the sum of P11.3M without their first being offered to Mayfair.

As a result, Mayfair filed a complaint for specific performance and damages. After trial, the court ruled in favor of Equatorial. On appeal, the Court of Appeals (CA) reversed and set aside the judgment of the lower court. On November 21, 1996, the Supreme Court denied Equatorial’s petition for review and declared the contract between Carmelo and Equatorial rescinded. The decision became final and executory and Mayfair filed a motion for its execution, which the court granted on April 25, 1997. However, Carmelo could no longer be located thus Mayfair deposited with the court its payment to Carmelo. The lower court issued a deed of reconveyance in favor of Carmelo and issued new certificates in the name of Mayfair. On September 18, 1997, Equatorial filed an action for the collection of sum of money against Mayfair claiming payment of rentals or reasonable compensation for the defendant’s use of the premises after its lease contracts had expired. The lower court debunked the claim of the petitioner for unpaid rentals, holding that the rescission of the Deed of Absolute Sale in the mother case did not confer on Equatorial any vested or residual proprietary rights, even in expectancy. ISSUE: Whether or not Equatorial may collect rentals or reasonable compensation for Mayfair’s use of subject premises after its lease contracts had expired. RULING: NO. Rent is a civil fruit that belongs to the owner of the property producing it by right of accession. Consequently and ordinarily, the rentals that fell due from the time of the perfection of the sale to petitioner until its rescission by final judgment should belong to the owner of the property during that period. Petitioner never took actual control and possession of the property sold, in view of the respondent’s timely objection to the sale and continued actual possession of the property. The objection took the form of a court action impugning the sale that was rescinded by a judgment rendered by the Court in the mother case. It has been held that the execution of a contract of sale as a form of constructive delivery is a legal fiction. It holds true only when there is no impediment that may prevent the passing of the property from the hands of the vendor into those of the vendee. When there is such impediment, fiction yields to reality; the delivery has not been effected. Hence, respondent’s opposition to the transfer of property by way of sale to Equatorial was a legally sufficient impediment that effectively prevented the passing of the property into the latter’s hands.

Article 1386 of the Civil Code provides rescission, which creates the obligation to return the things, which were the object of the contract, together with their fruits, and the price with its interest, but also the rentals paid, if any, had to be returned by the buyer. RESCISSIBLE CONTRACTS-NATURE AND EFFECTS-MUTUAL RESTITUTION MARIA ANTONIA SIGUAN, petitioner, VS. ROSA LIM, LINDE LIM, INGRID LIM and NEIL LIM, respondents 1999 Nov 19 G.R. No. 134685 FACTS: On 25 and 26 August 1990, Lim issued two Metrobank checks in the sums of P300,000 and P241,668, respectively, payable to "cash." Upon presentment by petitioner with the drawee bank, the checks were dishonored for the reason "account closed." Demands to make good the checks proved futile. As a consequence, a criminal case for violation of Batas Pambansa Blg. 22, docketed as Criminal Cases Nos. 22127-28, were filed by petitioner against LIM with Branch 23 of the Regional Trial Court (RTC) of Cebu City. In its decision dated 29 December 1992, the court a quo convicted Lim as charged. The case is pending before this Court for review and docketed as G.R. No. 134685. It also appears that on 31 July 1990, Lim was convicted of estafa by the RTC of Quezon City in Criminal Case No. Q-89-22162 filed by a certain Victoria Suarez. This decision was affirmed by the Court of Appeals. On appeal, however, the Supreme Court, in a decision promulgated on 7 April 1997, acquitted Lim but held her civilly liable in the amount of P169,000, as actual damages, plus legal interest. Meanwhile, on 2 July 1991, a Deed of Donation conveying parcels of land and purportedly executed by Lim on 10 August 1989 in favor of her children, Linde, Ingrid and Neil, was registered with the Office of the Register of Deeds of Cebu City. New transfer certificates of title were thereafter issued in the names of the donees. On 23 June 1993, petitioner filed an accion pauliana against Lim and her children before Branch 18 of the RTC of Cebu City to rescind the questioned Deed of Donation and to declare as null and void the new transfer certificates of title issued for the lots covered by the questioned Deed. The complaint was docketed as Civil Case No. CEB-14181. Petitioner claimed therein that sometime

in July 1991, Lim, through a Deed of Donation, fraudulently transferred all her real property to her children in bad faith and in fraud of creditors, including her; that Lim conspired and confederated with her children in antedating the questioned Deed of Donation, to petitioner's and other creditors' prejudice; and that Lim, at the time of the fraudulent conveyance, left no sufficient properties to pay her obligations. On the other hand, Lim denied any liability to petitioner. She claimed that her convictions in Criminal Cases Nos. 22127-28 were erroneous, which was the reason why she appealed said decision to the Court of Appeals. As regards the questioned Deed of Donation, she maintained that it was not antedated but was made in good faith at a time when she had sufficient property. Finally, she alleged that the Deed of Donation was registered only on 2 July 1991 because she was seriously ill. In its decision of 31 December 1994 the trial court ordered the rescission of the questioned deed of donation; (2) declared null and void the transfer certificates of title issued in the names of private respondents Linde, Ingrid and Neil Lim; (3) ordered the Register of Deeds of Cebu City to cancel said titles and to reinstate the previous titles in the name of Rosa Lim; and (4) directed the LIMs to pay the petitioner, jointly and severally, the sum of P10,000 as moral damages; P10,000 as attorney's fees; and P5,000 as expenses of litigation. On appeal, the Court of Appeals, in a promulgated on 20 February 1998, reversed the decision of the trial court and dismissed petitioner's accion pauliana. It held that two of the requisites for filing an accion pauliana were absent, namely, (1) there must be a credit existing prior to the celebration of the contract; and (2) there must be a fraud, or at least the intent to commit fraud, to the prejudice of the creditor seeking the rescission. According to the Court of Appeals, the Deed of Donation, which was executed and acknowledged before a notary public, appears on its face to have been executed on 10 August 1989. Under Section 23 of Rule 132 of the Rules of Court, the questioned Deed, being a public document, is evidence of the fact which gave rise to its execution and of the date thereof. No antedating of the Deed of Donation was made, there being no convincing evidence on record to indicate that the notary public and the parties did antedate it. Since Lim's indebtedness to petitioner was incurred in August 1990, or a year after the execution of the Deed of Donation, the first requirement for accion pauliana was not met.

Anent petitioner's contention that assuming that the Deed of Donation was not antedated it was nevertheless in fraud of creditors because Victoria Suarez became Lim’s creditor on 8 October 1987, the Court of Appeals found the same untenable, for the rule is basic that the fraud must prejudice the creditor seeking the rescission. ISSUE: Whether or not the deed of donation is valid. RULING: The Supreme Court upheld the validity of the deed of donation. Article 1381 of the Civil Code enumerates the contracts which are rescissible, and among them are "those contracts undertaken in fraud of creditors when the latter cannot in any other manner collect the claims due them." The action to rescind contracts in fraud of creditors is known as accion pauliana. For this action to prosper, the following requisites must be present: (1) the plaintiff asking for rescission has a credit prior to the alienation, although demandable later; (2) the debtor has made a subsequent contract conveying a patrimonial benefit to a third person; (3) the creditor has no other legal remedy to satisfy his claim; (4) the act being impugned is fraudulent; (5) the third person who received the property conveyed, if it is by onerous title, has been an accomplice in the fraud. The general rule is that rescission requires the existence of creditors at the time of the alleged fraudulent alienation, and this must be proved as one of the bases of the judicial pronouncement setting aside the contract. Without any prior existing debt, there can neither be injury nor fraud. While it is necessary that the credit of the plaintiff in the accion pauliana must exist prior to the fraudulent alienation, the date of the judgment enforcing it is immaterial. Even if the judgment be subsequent to the alienation, it is merely declaratory, with retroactive effect to the date when the credit was constituted. In the instant case, the alleged debt of Lim in favor of petitioner was incurred in August 1990, while the deed of donation was purportedly executed on 10 August 1989. The Supreme Court is not convinced with the allegation of the petitioner that the questioned deed was antedated to make it appear that it was made

prior to petitioner's credit. Notably, that deed is a public document, it having been acknowledged before a notary public. As such, it is evidence of the fact which gave rise to its execution and of its date, pursuant to Section 23, Rule 132 of the Rules of Court. In the present case, the fact that the questioned Deed was registered only on 2 July 1991 is not enough to overcome the presumption as to the truthfulness of the statement of the date in the questioned deed, which is 10 August 1989. Petitioner's claim against Lim was constituted only in August 1990, or a year after the questioned alienation. Thus, the first two requisites for the rescission of contracts are absent. Even assuming arguendo that petitioner became a creditor of Lim prior to the celebration of the contract of donation, still her action for rescission would not fare well because the third requisite was not met. Under Article 1381 of the Civil Code, contracts entered into in fraud of creditors may be rescinded only when the creditors cannot in any manner collect the claims due them. Also, Article 1383 of the same Code provides that the action for rescission is but a subsidiary remedy which cannot be instituted except when the party suffering damage has no other legal means to obtain reparation for the same. The term "subsidiary remedy" has been defined as "the exhaustion of all remedies by the prejudiced creditor to collect claims due him before rescission is resorted to." It is, therefore, essential that the party asking for rescission prove that he has exhausted all other legal means to obtain satisfaction of his claim. Petitioner neither alleged nor proved that she did so. On this score, her action for the rescission of the questioned deed is not maintainable even if the fraud charged actually did exist." The fourth requisite for an accion pauliana to prosper is not present either.

RESCISSIBLE CONTRACTS-NATURE AND EFFECTS-MUTUAL RESTITUTION RAFAEL G. SUNTAY, substituted by his heirs, namely: ROSARIO, RAFAEL, JR., APOLINARIO, RAYMUND, MARIA VICTORIA, MARIA ROSARIO and MARIA LOURDES, all surnamed SUNTAY, petitioners, VS. THE HON. COURT OF APPEALS and FEDERICO C. SUNTAY, respondents G.R. No. 114950 December 19, 1995 FACTS:

Respondent Federico Suntay was the registered owner of a parcel of land with an area in Bulacan. On the land may be found: a rice mill, a warehouse, and other improvements. A rice miller, Federico, in a letter, dated September 30, 1960, applied as a miller-contractor of the then National Rice and Corn Corporation (NARIC). He informed the NARIC that he had a daily rice mill output of 400 cavans of palay and warehouse storage capacity of 150,000 cavans of palay. His application, although prepared by his nephew-lawyer, petitioner Rafael Suntay, was disapproved, obviously because at that time he was tied up with several unpaid loans. For purposes of circumvention, he had thought of allowing Rafael to make the application for him. Rafael prepared an absolute deed of sale whereby Federico, for and in consideration of P20,000.00 conveyed to Rafael said parcel of land with all its existing structures. Said deed was notarized as Document No. 57 and recorded on Page 13 of Book 1, Series of 1962, of the Notarial Register of Atty. Herminio V. Flores. Less than three months after this conveyance, a counter sale was prepared and signed by Rafael who also caused its delivery to Federico. Through this counter conveyance, the same parcel of land with all its existing structures was sold by Rafael back to Federico for the same consideration of P20,000.00. Although on its face, this second deed appears to have been notarized as Document No. 56 and recorded on Page 15 of Book 1, Series of 1962, of the notarial register of Atty. Herminio V. Flores, an examination thereof will show that, recorded as Document No. 56 on Page 13, is not the said deed of sale but a certain "real estate mortgage on a parcel of land with TCT No. 16157 to secure a loan of P3,500.00 in favor of the Hagonoy Rural Bank." Nowhere on page 13 of the same notarial register could be found any entry pertaining to Rafael's deed of sale. Testifying on this irregularity, Atty. Flores admitted that he failed to submit to the Clerk of Court a copy of the second deed. Neither was he able to enter the same in his notarial register. Even Federico himself alleged in his Complaint that, when Rafael delivered the second deed to him, it was neither dated nor notarized. Upon the execution and registration of the first deed, Certificate of Title No. 0-2015 in the name of Federico was cancelled and in lieu thereof, TCT No. T36714 was issued in the name of Rafael. Even after the execution of the deed, Federico remained in possession of the property sold in concept of owner. Significantly, notwithstanding the fact that Rafael became the titled owner of said land and rice mill, he never made any attempt to take possession thereof at any time, while Federico continued to exercise rights of absolute ownership over the property.

In a letter, dated August 14, 1969, Federico, through his new counsel, Agrava & Agrava, requested that Rafael deliver his copy of TCT No. T-36714 so that Federico could have the counter deed of sale in his favor registered in his name. The request having been obviously turned down, Agrava & Agrava filed a petition with the Court of First Instance of Bulacan asking Rafael to surrender his owner's duplicate certificate of TCT No. T-36714. In opposition thereto, Rafael chronicled the discrepancy in the notarization of the second deed of sale upon which said petition was premised and ultimately concluded that said deed was a counterfeit or "at least not a public document which is sufficient to transfer real rights according to law." On September 8, 1969, Agrava & Agrava filed a motion to withdraw said petition, and, on September 13, 1969, the Court granted the same. On July 8, 1970, Federico filed a complaint for reconveyance and damages against Rafael. In his answer, Rafael scoffed at the attack against the validity and genuineness of the sale to him of Federico's land and rice mill. Rafael insisted that said property was "absolutely sold and conveyed . . . for a consideration of P20,000.00, Philippine currency, and for other valuable consideration". While the trial court upheld the validity and genuineness of the deed of sale executed by Federico in favor of Rafael, which deed is referred to above as Exhibit A, it ruled that the counter-deed, referred to as Exhibit B, executed by Rafael in favor of Federico, was simulated and without consideration, hence, null and void ab initio. Moreover, while the trial court adjudged Rafael as the owner of the property in dispute, it did not go to the extent of ordering Federico to pay back rentals for the use of the property as the court made the evidential finding that Rafael simply allowed his uncle to have continuous possession of the property because or their understanding that Federico would subsequently repurchase the same. From the aforecited decision of the trial court, both Federico and Rafael appealed. The Court of Appeals rendered judgment affirming the trial court's decision, with a modification that Federico was ordered to surrender the possession of the disputed property to Rafael. Counsel of Federico filed a motion for reconsideration of the aforecited decision. While the motion was pending resolution, Atty. Ricardo M. Fojas entered his appearance in behalf of the heirs of Rafael who had passed away on November 23, 1988. Atty. Fojas prayed that said heirs be substituted as defendants-appellants in the case. The prayer for substitution was duly noted by the court in a resolution dated April 6, 1993.

Thereafter, Atty. Fojas filed in behalf of the heirs an opposition to the motion for reconsideration. The parties to the case were heard on oral argument on October 12, 1993. On December 15, 1993, the Court of Appeals reversed itself and rendered an amended judgment. ISSUE: Whether or not the deed of sale executed by Federico in favor of Rafael is simulated and fictitious and, hence, null and void. RULING: In the aggregate, the evidence on record demonstrate a combination of circumstances from which may be reasonably inferred certain badges of simulation that attach themselves to the deed of sale in question. The complete absence of an attempt on the part of the buyer to assert his rights of ownership over the land and rice mill in question is the most protuberant index of simulation. The deed of sale executed by Federico in favor of his now deceased nephew, Rafael, is absolutely simulated and fictitious and, hence, null and void, said parties having entered into a sale transaction to which they did not intend to be legally bound. As no property was validly conveyed under the deed, the second deed of sale executed by the late Rafael in favor of his uncle, should be considered ineffective and unavailing. The allegation of Rafael that the lapse of seven years before Federico sought the issuance of a new title in his name necessarily makes Federico's claim stale and unenforceable does not hold water. Federico's title was not in the hands of a stranger or mere acquaintance; it was in the possession of his nephew who, being his lawyer, had served him faithfully for many years. Federico had been all the while in possession of the land covered by his title and so there was no pressing reason for Federico to have a title in his name issued. Even when the relationship between the late Rafael and Federico deteriorated, and eventually ended, it is not at all strange for Federico to have been complacent and unconcerned about the status of his title over the disputed property since he has been possessing the same actually, openly, and adversely, to the exclusion of Rafael. It was only when Federico needed the title in order to obtain a collaterized loan that Federico began to attend to the task of obtaining a title in his name over the subject land and rice mill. Decision affirmed. Petitioners, the heirs of Rafael G. Suntay, were ordered to reconvey to private respondent Federico G. Suntay the property described in

paragraph 2.1 of the complaint, within 10 days from the finality of the Decision, and to surrender to him within the same period the owner's duplicate copy of Transfer Certificate of Title No. T-36714 of the Registry of Deeds of the Province of Bulacan. In the event that the petitioners fail or refuse to execute the necessary deed of reconveyance as herein directed, the Clerk of Court of the Regional Trial Court of Bulacan was ordered to execute the same at the expense of the aforesaid heirs. RESCISSIBLE CONTRACTS-NATURE AND EFFECTS-MUTUAL RESTITUTION KHE HONG CHENG, alias FELIX KHE, SANDRA JOY KHE and RAY STEVEN KHE, petitioners, VS. COURT OF APPEALS, HON. TEOFILO GUADIZ, RTC 147, MAKATI CITY and PHILAM INSURANCE CO., INC., respondents G.R. No. 144169 28 March 2001 355 SCRA 701 FACTS: Petitioner Khe Hong Cheng, alias Felix Khe, is the owner of Butuan Shipping Lines to which the Philippine Agricultural Trading Corporation used its vessel M/V Prince Eric Corporation to ship 3,400 bags of Copra at Masbate for delivery to Dipolog. Such shipping of 3, 400 bags was covered by a marine insurance policy issued by American Home Insurance Company (eventually Philam). However, M/V Prince Eric sank somewhere between Negros Island and Northern Mindanao which resulted to the total loss of the shipment. Insurer Philam paid the amount of P 354, 000.00, which is the value of the copra, to Philippine Agricultural Trading Corporation. American Home was thereby subrogated unto the rights of the consignee and filed a case to recover money paid to the latter, based on breach of common carriage. While the case was pending, Khe Hong Cheng executed deeds of donations of parcels of land in favor of his children. As a consequence of a favorable judgment for American Home, a writ of execution to garnish Khe Hong Cheng’s property was issued but the sheriff failed to implement the same for Cheng’s property were already transferred to his children. Consequently, American home filed a case for the rescission of the deeds of donation executed by petitioner in favor of children for such were made in fraud of his creditors. Petitioner answered saying that the action should be dismissed for it already prescribed. Petitioner posited that the registration of the donation was on December 27, 1989 and such constituted constructive notice. And since the

complaint was filed only in 1997, more than four (4) years after registration, the action is thereby barred by prescription. ISSUE: Whether or not the action for the rescission of the deed of donation has prescribed. RULING: An accion pauliana accrues only when the creditor discovers that he has no other legal remedy for the satisfaction of his claim against the debtor other than an accion pauliana. The accion pauliana is an action of a last resort. For as long as the creditor still has a remedy at law for the enforcement of his claim against the debtor, the creditor will not have any cause of action against the creditor for rescission of the contracts entered into by and between the debtor and another person or persons. Indeed, an accion pauliana presupposes a judgment and the issuance by the trial court of a writ of execution for the satisfaction of the judgment and the failure of the Sheriff to enforce and satisfy the judgment of the court. It presupposes that the creditor has exhausted the property of the debtor. The date of the decision of the trial court against the debtor is immaterial. What is important is that the credit of the plaintiff antedates that of the fraudulent alienation by the debtor of his property. After all, the decision of the trial court against the debtor will retroact to the time when the debtor became indebted to the creditor. Although Article 1389 of the Civil Code provides that “The action to claim rescission must be commenced within four (4) years” is silent as to where the prescriptive period would commence, the general rule is such shall be reckoned from the moment the cause of action accrues; i.e., the legal possibility of bringing the action. Since accion pauliana is an action of last resort after all other legal remedies have been exhausted and have been proven futile, in the case at bar, it was only in February 25, 1997, barely a month from discovering that petitioner Khe Hong Cheng had no other property to satisfy the judgment award against him that the action for rescission accrued. So the contention of Khe Hong Cheng that the action accrued from the time of the constructive notice; i.e., December 27, 1989, the date that the deed of donation was registered, is untenable. EFFECTS OF ANNULMENT OF VOIDABLE CONTRACTS 1. 2. 3.

VDA. DE APE VS. CA, 456 SCRA 193 FRANCISCO VS. HERRERA, 392 SCRA 317 BRAGANZA VS. VILLA ABRILLE, 105 PHIL. 456

4. 5. 6.

MIAILHE VS. CA, 354 SCRA 675 KATIPUNAN VS. KATIPUNAN, JANUARY 30, 2002 JUMALON VS. CA, JANUARY 30, 2002

PERPETUA VDA. DE APE, petitioner, VS. THE HONORABLE COURT OF APPEALS and GENOROSA CAWIT VDA. DE LUMAYNO, respondents G.R. No. 133638 April 15, 2005 FACTS: Cleopas Ape was the registered owner of a parcel of land (Lot No. 2319) which is covered by Original Certificate of Title (OCT) No. RP 1379 (RP-154 [300]). Upon Cleopas Ape’s death sometime in 1950, the property passed on to his wife, Maria Ondoy, and their eleven (11) children, namely: Fortunato, Cornelio, Bernalda, Bienvenido, Encarnacion, Loreta, Lourdes, Felicidad, Adela, Dominador, and Angelina. On 15 March 1973, private respondent, joined by her husband, Braulio, instituted a case for “Specific Performance of a Deed of Sale with Damages” against Fortunato and his wife Perpetua (petitioner herein). It was alleged in the complaint that on 11 April 1971, private respondent and Fortunato entered into a contract of sale of land under which for a consideration of P5,000.00, Fortunato agreed to sell his share in Lot No. 2319 to private respondent. The agreement was contained in a receipt prepared by private respondent’s son-in-law, Andres Flores, at her behest. As private respondent wanted to register the claimed sale transaction, she supposedly demanded that Fortunato executes the corresponding deed of sale and to receive the balance of the consideration. However, Fortunato unjustifiably refused to heed her demands. Private respondent, therefore, prayed that Fortunato be ordered to execute and deliver to her “a sufficient and registrable deed of sale involving his one-eleventh (1/11) share; to pay P5,000.00 in damages; P500.00 reimbursement for litigation expenses as well as additional P500.00 for every appeal made; P2,000.00 for attorney’s fees; and to pay the costs. Fortunato and petitioner denied the material allegations of the complaint and claimed that Fortunato never sold his share in Lot No. 2319 to private respondent and that his signature appearing on the purported receipt was forged. By way of counterclaim, the defendants below maintained having entered into a contract of lease with respondent involving Fortunato’s portion of Lot No. 2319.

In their reply, the private respondent and her husband alleged that they had purchased from Fortunato’s co-owners, as evidenced by various written instruments, their respective portions of Lot No. 2319. By virtue of these sales, they insisted that Fortunato was no longer a co-owner of Lot No. 2319 thus, his right of redemption no longer existed. At the trial court level, Fortunato died and was substituted by his children named Salodada, Clarita, Narciso, Romeo, Rodrigo, Marieta, Furtunato, Jr., and Salvador, all surnamed Ape. During the trial, private respondent contended that her husband caused the annotation of an adverse claim on the certificate of title of Lot No. 2319. In addition, she and her husband had the whole Lot No. 2319 surveyed by a certain Oscar Mascada who came up with a technical description of said piece of land. Significantly, private respondent alleged that Fortunato was present when the survey was conducted. After due trial, the court a quo rendered a decision dismissing both the complaint and the counterclaim. The Court of Appeals, reversed and set aside the trial court’s dismissal of the private respondent’s complaint but upheld the portion of the court a quo’s decision ordering the dismissal of petitioner and her children’s counterclaim. It upheld private respondent’s position that Exhibit “G” which is the receipt of partial payment had all the earmarks of a valid contract of sale. ISSUE: Whether the receipt signed by Fortunato proves the existence of a contract of sale between him and private respondent. RULING: No, the Court ruled that the records of this case betray the stance of private respondent that Fortunato Ape entered into such an agreement with her. A contract of sale is a consensual contract, thus, it is perfected by mere consent of the parties. Upon its perfection, the parties may reciprocally demand performance, that is, the vendee may compel the transfer of the ownership and to deliver the object of the sale while the vendor may demand the vendee to pay the thing sold. For there to be a perfected contract of sale, however, the following elements must be present: consent, object, and price in money or its equivalent.

To be valid, consent: (a) should be intelligent; (b) should be free and (c) should be spontaneous. Intelligence in consent is vitiated by error; freedom by violence, intimidation or undue influence; spontaneity by fraud. In this jurisdiction, the general rule is that he who alleges fraud or mistake in a transaction must substantiate his allegation as the presumption is that a person takes ordinary care for his concerns and that private dealings have been entered into fairly and regularly. The exception to this rule is provided for under Article 1332 of the Civil Code which provides that “when one of the parties is unable to read, or if the contract is in a language not understood by him, and mistake or fraud is alleged, the person enforcing the contract must show that the terms thereof have been fully explained to the former.” In this case, as private respondent is the one seeking to enforce the claimed contract of sale, she bears the burden of proving that the terms of the agreement were fully explained to Fortunato Ape who was an illiterate. This she failed to do. While she claimed in her testimony that the contents of the receipt were made clear to Fortunato, such allegation was debunked by Andres Flores himself when the latter took the witness stand. Flores testified that, while he was very much aware of Fortunato’s inability to read and write in the English language, he did not bother to fully explain to the latter the substance of the receipt (Exhibit “G”). He even dismissed the idea of asking somebody else to assist Fortunato considering that a measly sum of thirty pesos was involved. Evidently, it did not occur to Flores that the document he himself prepared pertains to the transfer altogether of Fortunato’s property to his mother-in-law. It is precisely in situations such as this when the wisdom of Article 1332 of the Civil Code readily becomes apparent which is “to protect a party to a contract disadvantaged by illiteracy, ignorance, mental weakness or some other handicap.” Thus, the Court annuls the contract of sale between Fortunato and private respondent on the ground of vitiated consent.

EFFECTS OF ANNULMENT OF VOIDABLE CONTRACTS 1. 2. 3. 4. 5. 6.

SANCHES VS. MAPALAD OESMER VS. PDC VDA. DE APE VS. CA BRAGANZA VS. VILLA ABRILLLE MIALHE VS. CA KATIPUNAN VS. KATIPUNAN

7. JUMALON VS. CA

SANCHEZ vs. MAPALAD 541 SCRA 397 FACTS: Respondent Mapalad was the registered owner of four (4) parcels of land located along Roxas Boulevard, Baclaran, Parañaque The PCGG issued writs of sequestration for Mapalad and all its properties. Josef, Vice president/treasurer and General Manager of Mapalad discovered that the 4 TCTs were missing, however the four missing tcts turned out to be in possession of Nordelak Development Corporation. Nordelak came into possession of the 4 TCTs by deed of sale purportedly executed by Miguel Magsaysay in his capacity as President and Board Chairman of Mapalad. Mapalad filed an action for annulment of deed of sale and reconveyance of title with damages against Nordelak. RTC ruled in favour of Nordelak. The Ca reversed the decision of RTC. ISSUE: Whether or not there was a valid sale between Mapalad and Nordelak. RULING: In the present case, consent was purportedly given by Miguel Magsaysay, the person who signed for and in behalf of Mapalad in the deed of absolute sale dated November 2, 1989. However, as he categorically stated on the witness stand during trial, he was no longer connected with Mapalad on the said date because he already divested all his interests in said corporation as early as 1982. Even assuming, for the sake of argument, that the signatures purporting to be his were genuine, it would still be voidable for lack of authority resulting in his incapacity to give consent for and in behalf of the corporation.

Lack of consideration makes a contract of sale fictitious. A fictitious sale is void ab initio. The alleged deed of absolute sale dated November 2, 1989 notwithstanding, the contract of sale between Mapalad and Nordelak is not only voidable on account of lack of valid consent on the part of the purported seller, but also void ab initio for being fictitious on account of lack of consideration. WHEREFORE, the petition is hereby DENIED and the appealed Court of Appeals decision AFFIRMED in toto.

EFFECTS OF ANNULMENT OF VOIDABLE CONTRACTS

RIZALINO, substituted by his heirs, JOSEFINA, ROLANDO and FERNANDO, ERNESTO, LEONORA, BIBIANO, JR., LIBRADO and ENRIQUETA, all surnamed OESMER, Petitioners, vs PARAISO DEVELOPMENT CORPORATION, Respondent. G.R. No. 157493 February 5, 2007 FACTS: Petitioner Ernesto to meet with a certain Sotero Lee, President of respondent Paraiso Development Corporation, at Otani Hotel in Manila. The said meeting was for the purpose of brokering the sale of petitioners’ properties to respondent corporation. A Contract to Sell was drafted. A check in the amount of P100,000.00, payable to Ernesto, was given as option money. Sometime thereafter, Rizalino, Leonora, Bibiano, Jr., and Librado also signed the said Contract to Sell. However, two of the brothers, Adolfo and Jesus, did not sign the document. However petitioners informed respondent corporation about their intention to rescind the Contract to Sell and to return the amount of Php 100,000.00. respondent did not respond to the aforesaid letter. Petitioners, therefore, filed a complaint for Declaration of Nullity or for Annulment of Option Agreement or Contract to Sell with damages.

The RTC rendered its decision in favor to respondent. CA affirmed the decision of RTC with modification. ISSUE: Whether ot not Contract to Sell is void considering that on of the heirs did not sign it as to indicate its consent to be bound by its terms. RUKING: It is well-settled that contracts are perfected by mere consent, upon the acceptance by the offeree of the offer made by the offeror. From that moment, the parties are bound not only to the fulfillment of what has been expressly stipulated but also to all the consequences which, according to their nature, may be in keeping with good faith, usage and law. To produce a contract, the acceptance must not qualify the terms of the offer. However, the acceptance may be express or implied. For a contract to arise, the acceptance must be made known to the offeror. Accordingly, the acceptance can be withdrawn or revoked before it is made known to the offeror.13 In the case at bar, the Contract to Sell was perfected when the petitioners consented to the sale to the respondent of their shares in the subject parcels of land by affixing their signatures on the said contract. Such signatures show their acceptance of what has been stipulated in the Contract to Sell and such acceptance was made known to respondent corporation when the duplicate copy of the Contract to Sell was returned to the latter bearing petitioners’ signatures. EFFECTS OF ANNULMENT OF VOIDABLE CONTRACTS

PERPETUA VDA. DE APE, petitioner, vs.THE HONORABLE COURT OF APPEALS and GENOROSA CAWIT VDA. DE LUMAYNO, respondents G.R. No. 133638 April 15, 2005 FACTS:

Generosa Cawit de Lumayno (private respondent herein), joined by her husband, Braulio,3 instituted a case for "Specific Performance of a Deed of Sale with Damages" against Fortunato and his wife Perpetua (petitioner herein). She supposedly demanded that Fortunato execute the corresponding deed of sale and to receive the balance of the consideration. However, Fortunato unjustifiably refused to heed her demands. Private respondent, therefore, prayed that Fortunato be ordered to execute and deliver to her "a sufficient and registrable deed of sale involving his one-eleventh (1/11) share or participation in Lot No. 2319 of the Escalante Cadastre Private respondent testified that Fortunato went to her store at the time when their lease contract was about to expire. He allegedly demanded the rental payment for his land but as she was no longer interested in renewing their lease agreement, they agreed instead to enter into a contract of sale which Fortunato acceded to provided private respondent bought his portion of Lot No. 2319 for P5,000.00. Thereafter, she asked her son-in-law Flores to prepare the aforementioned receipt. ISSUE: Whether or not the receipt signed by Fortunato proves the existence of a contrct of sale between him and private respondent. RUKING: Under Article 1332 of the Civil Code which provides that "[w]hen one of the parties is unable to read, or if the contract is in a language not understood by him, and mistake or fraud is alleged, the person enforcing the contract must show that the terms thereof have been fully explained to the former." As can be gleaned from Flores's testimony, while he was very much aware of Fortunato's inability to read and write in the English language, he did not bother to fully explain to the latter the substance of the receipt (Exhibit "G"). He even dismissed the idea of asking somebody else to assist Fortunato considering that a measly sum of thirty pesos was involved. Evidently, it did not occur to Flores that the document he himself prepared pertains to the transfer altogether of Fortunato's property to his mother-in-law. It is precisely in situations such as this

when the wisdom of Article 1332 of the Civil Code readily becomes apparent which is "to protect a party to a contract disadvantaged by illiteracy, ignorance, mental weakness or some other handicap EFFECTS OF ANNULMENT OF VOIDABLE CONTRACTS JULIAN FRANCISCO, ET. AL. VS. PASTOR HERRERA G.R. No. 139982 November 21, 2002 392 SCRA 317 FACTS: Eligio Herrera, Sr., the father of respondent, was the owner of two parcels of land, one consisting of 500 sq. m. and another consisting of 451 sq. m., covered by Tax Declaration (TD) Nos. 01-00495 and 01-00497, respectively. Both were located at Barangay San Andres, Cainta, Rizal. On January 3, 1991, petitioner Julian Francisco bought from said landowner the first parcel, covered by TD No. 01-00495, for the price of P1,000,000, paid in installments from November 30, 1990 to August 10, 1991. And on March 12, 1991, petitioner bought the second parcel covered by TD No. 01-00497, for P750,000. Contending that the contract price for the two parcels of land was grossly inadequate, the children of Eligio, Sr., namely, Josefina Cavestany, Eligio Herrera, Jr., and respondent Pastor Herrera, tried to negotiate with petitioner to increase the purchase price. When petitioner refused, herein respondent then filed a complaint for annulment of sale, with the RTC of Antipolo City. In his complaint, respondent claimed ownership over the second parcel allegedly by virtue of a sale in his favor since 1973. He likewise claimed that the first parcel was subject to the co-ownership of the surviving heirs of Francisca A. Herrera, the wife of Eligio, Sr., considering that she died intestate on April 2, 1990, before the alleged sale to petitioner. Finally, respondent also alleged that the sale of the two lots was null and void on the ground that at the time of sale, Eligio, Sr. was already incapacitated to give consent to a contract because he was already afflicted with senile dementia, characterized by deteriorating mental and physical condition including loss of memory. The RTC rendered decision declaring the contract null and void. The Court of Appeals affirmed the decision of the RTC, hence, this appeal.

ISSUE: Whether or not the contract is void or merely voidable. RULING: A void or inexistent contract is one which has no force and effect from the very beginning. Hence, it is as if it has never been entered into and cannot be validated either by the passage of time or by ratification. There are two types of void contracts: (1) those where one of the essential requisites of a valid contract as provided for by Article 1318 of the Civil Code is totally wanting; and (2) those declared to be so under Article 1409 of the Civil Code. By contrast, a voidable or annullable contract is one in which the essential requisites for validity under Article 1318 are present, but vitiated by want of capacity, error, violence, intimidation, undue influence, or deceit. Article 1318 of the Civil Code states that no contract exists unless there is a concurrence of consent of the parties, object certain as subject matter, and cause of the obligation established. Article 1327 provides that insane or demented persons cannot give consent to a contract. But, if an insane or demented person does enter into a contract, the legal effect is that the contract is voidable or annullable as specifically provided in Article 1390. In the present case, it was established that the vendor Eligio, Sr. entered into an agreement with petitioner, but that the former’s capacity to consent was vitiated by senile dementia. Hence, we must rule that the assailed contracts are not void or inexistent per se; rather, these are contracts that are valid and binding unless annulled through a proper action filed in court seasonably. An annullable contract may be rendered perfectly valid by ratification, which can be express or implied. Implied ratification may take the form of accepting and retaining the benefits of a contract. This is what happened in this case. As found by the trial court and the Court of Appeals, upon learning of the sale, respondent negotiated for the increase of the purchase price while receiving the installment payments. It was only when respondent failed to convince petitioner to increase the price that the former instituted the complaint for reconveyance of the properties. Clearly, respondent was agreeable to the contracts, only he wanted to get more. Further, there is no showing that respondent returned the payments or made an offer to do so. This bolsters the view that indeed there was ratification. One cannot negotiate for an increase in the price in one breath and in the same breath contend that the contract of sale is void.

WHEREFORE, the instant petition is GRANTED. The two contracts of sale covering lots under TD No. 01-00495 and No. 01-00497 are hereby declared VALID.

EFFECTS OF ANNULMENT OF VOIDABLE CONTRACTS BRAGANZA VS. VILLA ABRILLE 105 PHIL 456 FACTS: Petitioners Braganza and her two sons, Rodolfo and Guillermo appears to have received from Villa Abrille, as a loan, on October 30, 1944 P70, 000 in Japanese war note and in consideration thereof, promised in writing to pay him P10, 000 in legal currency on the P.I. two years after the cessation of the present hostilities or as soon as International Exchange has been established in the Philippines, plus 2% per annum. Because of no payment had been made, Abrille sued them on March 1949. In their answer, defendants claimed to have received P40, 000 only instead of P70, 000 as plaintiff asserted. Also they raised the defense of minority because at the time they signed the promissory notes, Rodolfo and Guillermo were only 16 and 18 yrs. of age. The lower court rendered judgment whereby the defendants were required solidarily to pay Abrille the sum of P10, 000 plus 2% interest from October 30, 1944, which was affirmed by the CA. ISSUE: Whether or not petitioners are excused from complying with their monetary obligation on account of minority of the two consigners. RULING: NO. Petitioners are not absolved from monetary responsibility. In accordance with the provisions of the Civil Code, even if the contract is unenforceable because of non-age, they shall make restitution to the extent that they may have profited by the money they received. There is testimony that the funds delivered to them by Abrille were used for their support during the Japanese occupation. Such being the case, it is but fair to hold that they had profited to the extent of the value of such money, which value has been authoritatively established in the so-called Ballantine Schedule: in October

1944, P40.00 Japanese notes were equivalent to P1.00 of current Philippine money.

EFFECTS OF ANNULMENT OF VOIDABLE CONTRACTS WILLIAM ALAIN MIALHE, petitioner, VS. COURT OF APPEALS and REPUBLIC OF THE PHILIPPINES, respondent G.R. No. 10899 March 20, 2001

The records in this case indubitably show the lapse of the prescriptive period, thus warranting the immediate dismissal of the Complaint. The suit before the trial court was an action for the annulment on the Contract of Sale on the alleged ground of vitiation of consent by intimidation. The reconveyance of the three parcels of land, which the petitioner half-heatedly espouses as the real nature of the action, can prosper only if and when the Contract of Sale covering the subject lots is annulled. Thus, the reckoning period for prescription would be that pertaining to an action for the annulment of contract; that is, four years from the time the defect in the consent ceases.

FACTS: On March 23, 1990, William Alain Mialhe, on his own behalf and on behalf of Victoria Desbarats-Mialhe, Momique Mialhe-Sichere and Elaine MialheLencquesaing filed a Complaint for Annulment of Sale, Reconveyance and Damages against Republic of the Philippines and defendant Development Bank of the Philippines before the court.

There is as yet no obligation in existence. Respondent has no obligation to reconvey the subject lots because of the existing Contract of Sale. Although allegedly voidable, it is binding unless annulled by a proper action in court. Not binding a determinate conduct that can be extra judicially demanded, it cannot be considered as an obligation either. Since Article 1390 of the Civil Code states that voidable “contracts are binding, unless they are annulled by a proper action in court,” it is clear that the defendant were not obligated to accede to any extra judicial demand to annul the Contract of Sale.

On May 25, 1990 filed its Answer denying the substantial facts allrged in the complaint and raising, as special and affirmative defenses, that there was no forcible take-over of the subject properties and that the amount paid to private respondents was fair and reasonable Defendant DBP also filed its Answer raising as Special and Affirmative Defense that action had already prescribed.

EFFECTS OF ANNULMENT OF VOIDABLE CONTRACTS

On September 11, 1992, the court issued an Order. The Court of Appeals ruled that petitioner’s action had prescribed. A suit to annul a voidable contract may be filed within four (4) years from the time the defect ceases. The CA also ruled that Article 1155 of the Civil Code, according to which a written extrajudicial demand by the creditors would interrupt prescription, referred only to a creditor-debtor relationship, which is not the case here. ISSUE: Whether or not the action for the annulment of the Contract of Sale has prescribed. RULING: CA correctly set aside the Order of the trial court.

KATIPUNAN VS. KATIPUNAN 375 SCRA 199 FACTS: Respondent is the owner of a lot and a five-door apartment constructed thereon occupied by lessees. On December 29, 1985, respondent, assisted by his brother, petitioner, entered into a Deed of Absolute Sale with their other brothers (co-petitioners, represented by their father, Atty. Balguma involving the subject property for P187, 000. 00. Consequently, respondent’s title to the property was cancelled and in lieu thereof, a new TCT was issued in favor of petitioners. Thereafter, respondent filed with the RTC a complaint for annulment of the above Deed of Absolute Sale on the ground that petitioners, with evident bad faith, conspired with one another in taking advantage of his ignorance, he being

only a third grader and through insidious words and machinations, they made him sign a document purportedly a contract of employment, which turned out to be a Deed of Absolute Sale. The lower court dismissed the complaint holding that respondent failed to prove his causes of action since he admitted that: 1.) He obtained loans from the Balgumas; 2.) He signed the Deed of Absolute Sale; and 3.) He acknowledged selling the property and that he stopped collecting the rentals. The said decision was however reversed by the Court of Appeals.

Respondent and the Balguma brothers is voidable, and hereby annulled, then the restitution of the property and its fruits to respondent is just and proper. Therefore, the petitioners are hereby ordered to turn over to respondent Braulio Katipunan, Jr. the rentals they received for the five-door apartment corresponding to the period from January, 1986 up to the time the property shall have been returned to him, with interest at the legal rate.

EFFECTS OF ANNULMENT OF VOIDABLE CONTRACTS

ISSUE: JUMALON VS. COURT OF APPEALS 375 SCRA 175 JANUARY 30, 2002

Whether or not the subject contract is void ab initio or voidable on the ground that one of the parties is incapable of giving consent or where consent is vitiated by mistake, fraud, or intimidation. RULING: A contract of sale is born from the moment there is meeting of minds upon the thing which is the object of the contract and upon the price. This meeting of minds speaks of the intent of the parties in entering into the contract respecting the subject matter and the consideration thereof. Thus, the elements of a contract of sale are consent, object, and price in money or its equivalent. Under Article 1330 of the Civil Code, consent may be vitiated by any of the following: 1.) mistake, 2.) violence, 3.) intimidation, 4.) undue influence, and 5.) fraud. The presence of any of these vices renders the contract voidable. A contract where one of the parties is incapable of giving consent or where the consent is vitiated by mistake, fraud, or intimidation, is not void ab initio but only voidable and is binding upon the parties unless annulled by proper court action. The effect of annulment is to restore the parties to the status quo ante in so far as legally and equitably possible. As an exception, however, to the principle of mutual restitution, Article 1399 provides that when the defect of the contract consists in the incapacity of one of the parties, the incapacitated person is not obliged to make restitution, except when he has been benefited by the things or price received by him. Since the Deed of Absolute Sale between

FACTS: On July 16, 1991, petitioner and complainant entered into a Conditional Sales Agreement whereby the latter purchased from the former a house and lot. On July 24, 1991, petitioner executed in favor of complainant a Deed of Absolute Sale. Title was transferred to complainant on July 29, 1991. Thereafter, complainant learned from neighboring residents that the presence of high-tension wires in the subdivision where the house and lot is located generate tremendous static electricity and produce electric sparks whenever it rains. Upon complainant’s inquiries to the Meralco and HLURB, he found out that the subject house and lot was built within the 30-meter right of way of Meralco wherein high tension wires carrying 115, 000 volts are located which posed serious risks on the property and its occupants. Consequently, sometime in November 1992, complainant filed a case for declaration of nullity or annulment of sale of real property before the R.T.C.. The lower court dismissed the case. Thereafter, complainant filed before the HLURB a complaint before the HLURB seeking the rescission of the Conditional Sales Agreement and the Absolute Deed of Sale on the ground of fraud. HLURB rendered decision in favor of complainant which was upheld by the Court of Appeals, hence this petition. ISSUE:

Whether or not there was fraud on the part of petitioner as to warrant the rescission of the Conditional Sales Agreement and of the Absolute Deed of Sale.

Saturnina paid Dr. Corrompido Php 966.66 for the obligation of petitioner Nelson’s late father Alberto.

RULING:

ISSUE:

The Supreme Court found the petition without merit for it involved questions of fact which is not reviewable unless it is within the ambit of exceptions.

Whether or not the slae entered into is valid and binding.

Nonetheless, SC agrees with the Court of Appeals that respondent de Leon was entitled to annul the sale. There was fraud in the sale of the subject house. It is not safely habitable. It is built in a subdivision area where there is an existing 30-meter right of way of the Manila Electric Company (Meralco) with high-tension wires over the property, posing a danger to life and property. The construction of houses underneath the high tension wires is prohibited as hazardous to life and property because the line carries 115,000 volts of electricity, generates tremendous static electricity and produces electric sparks whenever it rained.

CABALES, ET. AL vs COURT OF APPEALS August 31, 2007 FACTS: Saturnina and her children Bonifacio, Albino, Francisco, Leonara, Alberto and petitioner Rito inherited a parcel of land. They sold such property to Dr. Cayetano Corrompido with a right to repurchase within 8 years. Alberto secured a note from Dr. Corrompido in the amount of Php 300.00. Alberto died leaving a wife and son, petitioner Nelson. Within the 8-year redemption period, Bonifacio and Albino tendered their payment to Dr. Corrompido. But Dr. Corrompido only released the document of sale with pacto de retro after Saturnina paid the share of her deceased son, Alberto, plus the note. Saturnina and her children executed an affidavit to the effect that petitioner Nelson would only receive the amount of Php 176.34 from respondents-spouses when he reaches the age if 21 considering that

RUKING: The legal guardian only has the plenary power of administration of the minor’s property. It does not include the power to alienation which needs judicial authority. Thus when Saturnina, as legal guardian of petitioner Rito, sold the latter’s pro indiviso share in subject land, she did not have the legal authority to do so. The contarct of sale as to the pro indiviso share of Petitioner Rito was unenforceable. However when he acknowledged receipt of the proceeds of the sale on July24, 1986, petitioner Rito effectively ratified it. This act of ratification rendered the sale valid and binding as to him. NECESSITY OF WRITING 1. SHOEMAKER VS. LA TONDENA 2. PNB VS. PVOC

SHOEMAKER vs. LA TONDEMA 68 Phil 24 FACTS: Defendant company, La tondena, Inc. entered into a written contract of lease of services with plaintiff Harry Ives Shoemaker for a period of 5 years, with a compensation consisting of 8% of the net earnings of defendant. That during each year that the contract was in force, plaintiff would receive monthly during the period of the contract of the sum of Php 1,500.00 or Php 18,000.00 per annum as minimum compensation if 8% of the net earnings of the aforementioned alleged business would not reach the amount.

The defendant company alleged that there were changes in the contract in which both the parties agreed upon. Plaintiff filed a complaint against defendant company. The defendant interposed a demurrer based on the ground that the facts therein alleged do not constitute a cause of action, since it is not averred that the alleged mutual agreement modifying the contract of lease of services, has been put in writing, whereas it states that its terms and conditions may only be modified upon the written consent of both parties. ISSUE: Whether or not the ocurt a quo ered in sustaining the demurrer interposed by the defendant company to the second amended complaint filed by plaintiff, on the ground that the facts alleged therein do not constitute a couse of action. RUKING: When in an oral contract which by its terms, is not to be performed within 1 year from the execution thereof, one of the contracting parties has complied within the year with the obligations imposed on him said contract, the other party cannot avoid the fulfillment of what is incumbent on him under the same contract by invoking the statute of frauds because the latter aims to prevent and not to protect fraud. EXECUTORY VS. EXECUTED

PNB vs. PHILIPPINE VEGETABLE OIL COMPANY 49 Phil 897

declaring the mortgage which the PNB seeks to foreclose to be without force and effect, requiring an accouting from the PNB of the sales of the property and assets of the Vegetable Co. and ordering the PVOC and the PNB to pay him the sum of Php 4,424,418.37 In 1920, the Vegetable Oil Company, found itself in financial straits. It was in debt to the extent of approximately Php 30,000,000.00. The PNB was the largest creditor. The VOC owed the bank Php 17,000,000.00. The PNB was securedly principally by a real and chattel mortgage in favor of the bank on its vessels Tankerville and H.S. Everett to guarantee the payment of sums not exceed Php 4,000,000.00 ISSUE: Whether or not the plaintiff had failed to comply with the contract, that it was alleged to have celebrated with the defendant and the intervenor, that it would furnish funds to the defendant so that it could continue operating its factory. RUKING: In the present instance, it is found that the Board of Directors of the PNB had not consented to an agreement for practically unlimited backing of the V corporation and had not ratified any promise to trhat effect made by its general manager. All the evidence, documentary and oral, pertinent to the issue considered and found to disclose no binding promise, tacit, or express made by the PNB to continue indefinitely the operation of the V corporation. Accordingly, intervenor Whitaker is not entitled to recover damages from the bank. EXECUTORY VS. EXECUTED TAN vs VILLAPAZ 475 SCRA 720 November 22, 2005

FACTS: This appeal involves the legal right of the PNB to obtain a judgement against Vegetable Oil Co., Inc., for Php 15,812,454 and to foreclose a mortgage on the property of the PVOC for Php 17,000,000.00 and the legal right of the Phil C. Whitaker as intervenor to obtain a judgement

FACTS:

Respondent Carmelito Villapaz issued a Philippine Bank of Communications (PBCom) crossed check in the amount of P250,000.00, payable to the order of petitioner Tony Tan. The Malita, Davao del Sur Police issued an invitation-request to petitioner Antonio Tan inviting him to appear before the Deputy Chief of Police Office on June 27, 1994 at 9:00 o’clock in the morning “in connection with the request of [herein respondent] Carmelito Villapaz, for conference of vital importance.” The invitation-request was received by petitioner Antonio Tan on June 22, 1994 but on the advice of his lawyer, he did not show up at the Malita, Davao del Sur Police Office. Respondent filed a Complaint for sum of money against petitionersspouses, alleging that, , his issuance of the February 6, 1992 PBCom crossed check which loan was to be settled interest-free in six (6) months; on the maturity date of the loan or on August 6, 1992, petitioner Antonio Tan failed to settle the same, and despite repeated demands, petitioners never did. Petitioners alleged that they never received from respondent any demand for payment, be it verbal or written, respecting the alleged loan; since the alleged loan was one with a period — payable in six months, it should have been expressly stipulated upon in writing by the parties but it was not. ISSUE: Whether or not Honorable Court of Appeals erred in concluding that the transaction in dispute was a contract of loan and not a mere matter of check encashment as found by the trial court. RUKING: At all events, a check, the entries of which are no doubt in writing, could prove a loan transaction. That petitioner Antonio Tan had, on February 6, 1992, an outstanding balance of more than P950,000.00 in his account at PBCom Monteverde branch where he was later to deposit respondent’s check did

not rule out petitioners’ securing a loan. It is pure naivete to believe that if a businessman has such an outstanding balance in his bank account, he would have no need to borrow a lesser amount. In fine, as petitioners’ side of the case is incredible as it is inconsistent with the principles by which men similarly situated are governed, whereas respondent’s claim that the proceeds of the check, which were admittedly received by petitioners, represented a loan extended to petitioner Antonio Tan is credible, the preponderance of evidence inclines on respondent. EXECUTORY VS. EXECUTED SPOUSES VENANCIO DAVID and PATRICIA MIRANDA DAVID and FLORENCIA VENTURA VDA. DE BASCO, petitioners, vs. ALEJANDRO and GUADALUPE TIONGSON, respondents. G.R. No. 108169 August 25, 1999 FACTS: Three sets of plaintiffs, namely spouses Ventura, spouses David and Vda. De Basco, filed a complaint for specific performance with damges, against private respondents spouses Tiongson, alleging that the latter sold to them lots located in Pampanga. The parties expressly agredd that in case of payment has been fully paid respondents would execute an individual deed of absolute sale in plaintiffs flavor. The respondents demanded the executuion of a deed of sale and issuance of certificate of titile but the respondents refused to issue the same. The trial court rendered its decision in favor of the respondents. However the CA ruled that contract of sale was not been perfrected between spouses David and/or Vda. De Basco and respondents. As with regard to the spouses Ventura, the CA affirmed the RTC. ISSUE:

Whether or not contract of sale has not been perfected but petitioners and respondents.

Whether or not Statute of Frauds applies in this case.

RUKING:

RUKING:

The SC ruled that there was a perfected contact. However, the statute of frauds is inapplicable. The rule is settled that the statute of frauds applies only to executor and not to completed, executed or partially executed contract. In the case of spouses David, the payment made rendered the sales contract beyong the ambit of the statutre of frauds/ The CA erred in concluding that there was no perfected contract of sale. However, in view of the stipulation of the parties that the deed of sale and corresponding certificate of title would be issued after full payment, then, they ad entered into a contract to sell and not a contract of sale.

The CA and respondent Miranda stress the absence of a “written memorandum of the alleged contract between the parties”. Respondent implicity agrues that the alleged contract is unenforceable under the Statute of Frauds however, the statute of frauds applies only to executor and not to completed, executed, or partially executed contracts. Thus, were one party has performed one’s obligation, oral evidence will be admitted to prove the agreement. In the present case, it has already been established that petitioner had delivered the rattan poles to respondent. The contract was partially executed, the Statute of Frauds does not apply.

EXECUTORY VS. EXECUTED GENARO CORDIAL, petitioner, vs. DAVID MIRANDA, respondent. December 14, 2000 FACTS: David Miranda, a businessman from Angeles City, was engaged in rattan business. Gener Buelva was the supplier of David but the former met an accident and died. Genero Cordial and Miranda met through Buelva’s widow, Cecilla. They agreed that Cordial will be his supplier of rattan poles. Cordial shipped rattan poles as to the agreed number of pieces and sizes however Miranda refused to pay the cost of the rattan poles delivered. Miranda alleged that there exist no privity of contract between Miranda and Cordial. Cordial filed a complaint againt Miranda. The RTC rendered its decision in favor of the petitioner. The CA reversed the decision of the RTC. ISSUE:

EXECUTORY VS. EXECUTED VILLANUEVA-MIJARES petitioners, vs.THE COURT OF APPEALS, respondents. G.R. No. 108921 April 12, 2000

ROSENCOR DEVELOPMENT CORPORATION and RENE JOAQUIN, petitioners, vs.PATERNO INQUING, IRENE GUILLERMO, FEDERICO BANTUGAN, FERNANDO MAGBANUA and LIZZA TIANGCO, respondents. G.R. No. 140479 March 8, 2000 FACTS:

FACTS: During the lifetime, Felipe, owned real property, a parcel of land situated at Estancia, Kalibo, Capiz. Upong Felipe’s death, ownership of the land was passed on to his children. Pedro, on of the children, got his share. The remaining undivided portion of the land was held in trust by leon. His co-heirs made several seasonable and lawful demands upon him to subdivide the partition the property, but no subdivision took place. After the death of Leon, private respondents discovered that the shares of four of the heirs of Felipe was purchased by Leon as evidenced by Deed of Sale. ISSUE: Whether or not the appellate court erred in declaring the Deed of Sale unenforceable against the private respondent fro being unauthorized contract. RUKING: The court has ruled that the nullity of the unenforceable contract is of a permanent nature and it will exist as long the unenforceable contract is not duly ratifired. The mere lapse of time cannot igve efficacy to such a contract. The defect is such that it cannot be cured except by the subsequent ratification of the unenforceable contract by the person in whose name the contract was executed. In the instant case, there is no showing of any express or implied ratification of the assailed Deed of Sale by the private respondents Procerfina, Ramon,. Prosperidad, and Rosa. Thus, the said Deed of Sale must remain unenforceable as to them. REMEDIES

Plaintiffs and plaintiffs-intervenors averred that they are the lessess since 1971 of a two-story residential apartment and owned by spouses Faustino and Cresencia Tiangco. The lease was nocovered by any contract. The lesses were renting the premises then for Php 150.00 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 Tiangco, the management of the property was adjudicated to their heirs who were represented by Eufrocina deLeon. The lessees received a letter from de Leon advising them that the heirs of the late spouses have already sold the property to Resencor. The lessees filed an action f\before th RTC praying for the following: a) rescission of the Deed of Absolute Sale between de Leon and Rocencor, b) the defendants Rosencor/Rene Joaquin be ordered to reconvey the property to de Leon, c) de Leon be ordered to reimburse the plaintiffs for the repair of the property or apply the said amount as part of the purchase of the property. The RTC dismissed the complaint while the Ca reversed the decision of the RTC. ISSUE: Whether or not a right of first refusal is indeed covered by the provisions of the NCC on the Statute of Frauds. RUKING: 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 NCC, 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 involed byt of the right of first refusal over the property sought to be sold. It is thus evident that the statute of frauds does not contemplate cases involving a right of right of first refusal. As such, a right of first refusal need not be written to be enforceable and may be proven by oral evidence.

REMEDIES

VOID/ INEXISTENT CONTRACTS: WHO MAY BRING ACTION FOR DECLARATION OF NULLITY

SPOUSES CONSTANTE FIRME AND AZUCENA E. FIRME, petitioners,

1.

vs.UKAL ENTERPRISES AND DEVELOPMENT CORPORATION, respondent. G.R. No. 146608 October 23, 2003 FACTS: Petitioner Spouses Firme are the registered owner of a parcel of land located on Dahlia Avenue, Fairview Park, Quezon City. Bukal Enterprises filed a complaint for specific performance and damges with the trial court, aleeging that the Spouses Firme reneged on their agreement to sell the property. The complaint asked the trial court to order the Spouses Firme to execute the deed of sale and to delover the title of the property to Bukal Enterpises upon payment of the agreed purchase price. The RTC rendered its decision against Bukal. The CA reversed and set aside the decision of the RTC. ISSUE: Whether or not Statute of Frauds is applicable. RUKING: The CA held that partial performance of the contract of sale takes the oral contract out of the scope of Statute of Frauds. This conclusion arose from the appellate court’s erronoues finding that there was a perfected contract of sale. The recors shoe that there was no perfected contract of sale. There is therefore no basis for the application of the Stature of Frauds. The application of the Statute of Frauds presupposes the existence of a perfected contract.

2. 3. 4. 5. 6. 7. 8.

HEIRS OF M. DORONIO VS. HEIERS OF F. DORONIO GURREA VS. SUPLICO FRENZEL VS. CATITO LA BUGA’AL-BLAAN VS. RAMOS AGAN VS. PIATCO, JANUARY 21, 2004 COMELEC VS. QUIJANO-PADILLA, 389 SCRA 353 JAWORSKI VS. PAGCOR, JAN. 14, 2004 CAUTON VS. SALUD, JAN. 27, 2004

HEIRS OF M. DORONIO vs. HEIR OF F. DORONIO 541 SCRA 479 FACTS: Petitioners are the heirs of Maralino Doronio, while respondents are the heirs of Fortunato Doronio. The property in dispute is one of a private deed of donation propter nuptias who was executed by Spouses Simeon Doronio and Cornelia Gante in facor of Maralino Doronio and his wife Veronica Pico. The heirs of Fortuanto Doronio contended that only the half of the property was actually incorporated in the deed of donation because it stated that Fortunato is the owner of the adjacent property. Eager to obtain the entire property, the heirs of Marcelino filed a petition “For the Registration of a Private Deed of Donation”. The RTC granted the petition. The heirs of Fortunato files a pleading in the form of petition. In the petition, they prayed that an order be issued declaring null and void the registration of the private deed of donation. The RTC ruled in favor of the heirs of Marcelino. The CA reversed the decision of RTC> ISSUE: Whether or not the donation propter nuptias is valid. RUKING:

Article 633 of the OCC provides that figts of real property , in order to be valid, must appear in a public document. It is settled that a donation of real estate propter nuptias is void unless made by public instrument. In the instant case, the donation propter nuptias did not become valid. Neither did it create any right because it was not made in a public instrument. Hence, it conveyed no title to the land in question to petitioner’s predecessors.

VOID/ INEXISTENT CONTRACTS: DECLARATION OF NULLITY

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NATIVIDAD ARIAGA VDA. DE GURREA, CARLOS GURREA, JULIETA GURREA, TERESA GURREA-RODRIGUEZ, RICARDO GURREA, Jr., MA. VICTORIA GURREA-CANDEL, and RAMONA GURREA-MONTINOLA, Petitioners, vs ENRIQUE SUPLICO, Respondent G.R. No. 144320 April 26, 2006 FACTS: The petition arose from a complaint for anuulment of tilte with prayer for preliminary injunction filed with the court of First Instance by Rosalina Gurrea in her capacity as attorney-in-fact of the heirs of Ricardo Gurrea. The complaint was filed against Atty. Enrique Suplico. Atty. Suplico alleged that the property in dispurte was for the payment of his services rendered to the late Ricardo Gurrrea which the offered to him as payment. ISSUE: Whether or not petitioner’s are entitled to the cancellation of respondent attorney’s title over the subject property and the reconveyance thereof to the herein petitioners or to be the estate of the Late Ricardo.

lawyers from acquiring property or rights which may be the object of any litigation in which they may take part by virtue of their profession. It follows that respondent’s title over the subject property should be cancelled and the property reconveyed to the estate of Ricardo, the same to be distributed to the latter?s heirs. This is without prejudice, however, to respondent?s right to claim his attorney?s fees from the estate of Ricardo, it being undisputed that he rendered legal services for the latter. VOID/ INEXISTENT CONTRACTS: DECLARATION OF NULLITY

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ALFRED FRITZ FRENZEL, petitioner, vs.EDERLINA P. CATITO, respondent. G.R. No. 143958 July 11, 2003 FACTS: Alfred Frenzel and Ederlina Catito had an amorous relationship which started in King’s Cross, a night spot in Sydney. During their relationship Alfred bought properties in the Philippines in the name of Ederlina. Their relationship started to deteriorate when the husband of Ederlina threatened Ederlina that he would file a bigamy case against her for having an illicit affair with Alfred, who was also married. Alfred filed a complaint against Ederlina for specific performance, declaration of real and personal properties, sum of money and damages. ISSUE: Whether or not acquisition of a parcel of land is valid.

RUKING: RUKING: Having been established that the subject property was still the object of litigation at the time the subject deed of Transfer of Rights and Interest was executed, the assignment of rights and interest over the subject property in favor of respondent is null and void for being violative of the provisions of Article 1491 of the Civil Code which expressly prohibits

The sales of three parcels of land in favor of the petitioner who is a foreigner is illegal per se. The transactions are void ab initio because they were entered into in violation of the Constitution. Thus, to allow the petitioner to recover the properties or the money used in the purchase of the parcels of land would be subversive of public policy.

An action for recovery of what has been paid without just cause has been designated as an accion in rem verso. This provision does not apply if, as in this case, the action is proscribed by the Constitution or by the application of the pari delicto doctrine. 68 It may be unfair and unjust to bar the petitioner from filing an accion in rem verso over the subject properties, or from recovering the money he paid for the said properties, but, as Lord Mansfield stated in the early case of Holman vs. Johnson:69 "The objection that a contract is immoral or illegal as between the plaintiff and the defendant, sounds at all times very ill in the mouth of the defendant. It is not for his sake, however, that the objection is ever allowed; but it is founded in general principles of policy, which the defendant has the advantage of, contrary to the real justice, as between him and the plaintiff."

VOID/ INEXISTENT CONTRACTS: WHO MAY BRING ACTION FOR DECLARATION OF NULLITY

LA BUGA’AL-BLAAN vs RAMOS December 1, 2004 FACTS: The Petition for Prohibition and Mandamus before the Court challenges the constitutionality of (1) Republic Act No. [RA] 7942 (The Philippine Mining Act of 1995); (2) its Implementing Rules and Regulations (DENR Administrative Order No. [DAO] 96-40); and (3) the FTAA dated March 30, 1995, executed by the government with Western Mining Corporation (Philippines), Inc. (WMCP). On January 27, 2004, the Court en banc promulgated its Decision granting the Petition and declaring the unconstitutionality of certain provisions of RA 7942, DAO 96-40, as well as of the entire FTAA executed between the government and WMCP, mainly on the finding that FTAAs are service contracts prohibited by the 1987 Constitution. ISSUE: Whether or nor it is a void contract. RULING: Section 7.9 of the WMCP FTAA has effectively given away the State's share without anything in exchange. Moreover, it constitutes unjust enrichment on the part of the local and foreign stockholders in WMCP, because by the mere act of divestment, the local and foreign stockholders get a windfall, as their share in the net mining revenues of WMCP is automatically increased, without having to pay anything for it.Being grossly disadvantageous to government and detrimental to the Filipino people, as well as violative of public policy, Section 7.9 must therefore be stricken off as invalid. Section 7.8(e) of the WMCP FTAA likewise is invalid, since by allowing the sums spent by government for the benefit of the contractor to be deductible from the State's share in net mining revenues, it results in

benefiting the contractor twice over. This constitutes unjust enrichment on the part of the contractor, at the expense of government. For being grossly disadvantageous and prejudicial to government and contrary to public policy, Section 7.8(e) must also be declared without effect. It may likewise be stricken off without affecting the rest of the FTAA. HEIRS OF THE LATE SPOUSES AURELIO AND ESPERANZA BALITE VS. RODRIGO N. LIM, G.R. No. 152168, December 10, 2004 446 SCRA 56 FACTS: The spouses Aurelio and Esperanza Balite were the owners of a parcel of land, located at Poblacion Barangay Molave, Catarman, Northern Samar, with an area of 17,551 square meters. When Aurelio died intestate in 1985, his wife, Esperanza Balite, and their children, petitioner Antonio Balite, Flor Balite-Zamar, Visitacion Balite-Difuntorum, Pedro Balite, Pablo Balite, Gaspar Balite, Cristeta Balite and Aurelio Balite, Jr., inherited the subject property and became coowners thereof, with Esperanza inheriting an undivided share of 9,751 square meters. In the meantime, Esperanza became 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 P1,000,000.00. 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 P150,000.00, although the actual price agreed upon by them for the property was P1,000,000.00. Gaspar, Visitacion, Flor, Pedro and Aurelio, Jr. learned of the sale, and on August 21, 1996, they wrote a letter to the Register of Deeds [RD] of Northern Samar, 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, and requested the RD to hold the approval of any application for the registration of title of ownership in the name of the buyer of said lot which has not yet been partitioned judicially or extrajudicially, until the issue of the legality/validity of the above sale has been cleared. 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 children.

merely relatively simulated, it remains valid and enforceable between the parties and their successors in interest since all the essential requisites prescribed by law for the validity and perfection of contracts are present.

On June 27, 1997, petitioners filed a complaint against Rodrigo with the Regional Trial Court of Northern Samar for “Annulment of Sale, Quieting of Title, Injunction and Damages.

VOID/ INEXISTENT CONTRACTS: DECLARATION OF NULLITY

The trial court dismissed the Complaint. The Court of Appeals held that the sale was valid and binding insofar as Ezperanza Balite’s undivided share of the property was concerned. Hence, this Petition. ISSUE: Whether or not the heirs of Esperanza has the right to question the said contract. RULING: The Supreme Court held that the petitioners cannot be permitted to unmake the Contract voluntarily entered into by their predecessor, even if the stated consideration included therein was for an unlawful purpose. The binding force of a contract must be recognized as far as it is legally possible to do so.

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. In the present case, the parties intended to be bound by the Contract, even if it did not reflect the actual purchase price of the property. That the parties intended the agreement to produce legal effect is revealed by the letter of Esperanza Balite to respondent dated October 23, 1996 and petitioners’ admission that there was a partial payment of P320,000 made on the basis of the Deed of Absolute Sale. There was an intention to transfer the ownership of over 10,000 square meters of the property. The Deed of Absolute Sale was

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ALEJANDRIA PINEDA and SPOUSES ADEODATO DUQUE, JR., and EVANGELINE MARY JANE DUQUE, petitioners, VS. COURT OF APPEALS and SPOUSES NELSON BAÑEZ and MERCEDES BAÑEZ, respondents 2002 Feb 6 FACTS: The appellees and the petitioner, Pineda, executed an Agreement to Exchange Real Properties. The appellees exchanging their property at White Plains with that of the Pinedas located in California. At the time of the execution of the agreement, the white plains property was mortgaged with the GSIS, while the California property also had a mortgaged obligation. As stated in the exchange agreement, Pineda paid the appellees the total amount of $12, 000. Pineda and the spouses Duque executed an agreement to sell over the white plains property, whereby Pineda sold the property in the amount of P1.6M. Pineda paid the mortgage of the white plains property and requested the appellees for a written authority for the release of the title from GSIS. The appellees gave Pineda the authority with the understanding that Pineda will deliver the title to the appellees. Upon their return to the Philippines, the appellees discovered that the spouses Duque were occupying the white plains property and a fictitious deed of sale in the name of Pineda. In a civil case filed by the appellees, the trial court declared them as the absolute owners of the property located in White Plains. ISSUE: Whether petitioners validly acquired the subject property. RULING: No. The Court denies the petition. It appears that the Bañez spouses were the original owners of the parcel of land and improvements located at 32 Sarangaya St., White Plains, Quezon City. On January 11, 1983, the Bañez spouses and petitioner Pineda executed an agreement to exchange real

properties. However, the exchange did not materialize. Petitioner Pineda’s "sale" of the property to petitioners Duque was not authorized by the real owners of the land, respondent Bañez. The Civil Code provides that in a sale of a parcel of land or any interest therein made through an agent, a special power of attorney is essential. This authority must be in writing; otherwise the sale shall be void. In his testimony, petitioner Adeodato Duque confirmed that at the time he "purchased" respondents’ property from Pineda, the latter had no Special Power of Authority to sell the property. A special power of attorney is necessary to enter into any contract by which the ownership of an immovable is transmitted or acquired for a valuable consideration. Without an authority in writing, petitioner Pineda could not validly sell the subject property to petitioners Duque. Hence, any "sale" in favor of petitioners Duque is void. Further, Article 1318 of the Civil Code lists the requisites of a valid and perfected contract, namely: (1) consent of the contracting parties; (2) object certain which the subject matter of the contract; (3) cause of the obligation which is established. Pineda was not authorized to enter into a contract to sell the property. As the consent of the real owner of the property was not obtained, no contract was perfected. Consequently, petitioner Duque failed to validly acquire the subject property. VOID/ INEXISTENT CONTRACTS: DECLARATION OF NULLITY

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LA BUGAL-B’LAAN TRIBAL ASSOCIATION, INC. et al VS. RAMOS G.R. No. 127882 December 1, 2004 445 SCRA 1 FACTS: Petitioners challenged constitutionality of Republic Act No. 7942 (The Philippine Mining Act of 1995) and its Implementing Rules and Regulations and the Financial and Technical Assistance Agreement dated March 30, 1995, executed by the government with Western Mining Corporation (Philippines), Inc. On January 27, 2004, the Supreme Court en banc promulgated its decision declaring the unconstitutionality of certain provisions of RA 7942 as well as of the entire FTAA executed between the government and WMCP, mainly on the finding that FTAAs are service contracts prohibited by the 1987 Constitution. Subsequently, respondents filed separate Motions for Reconsideration.

In a Resolution dated March 9, 2004, the Supreme Court required petitioners to comment. The case was set for Oral Argument on June 29, 2004. After hearing the opposing sides, the Court required the parties to submit their respective memoranda in amplification of their arguments. On the same day, the Court noted inter alia, the Manifestation and Motion for Intervention filed by the Office of the Solicitor General on behalf of public respondents. The OSG said that it was not interposing any objection to the Motion for Intervention filed by the Chamber of Mines of the Philippines, Inc. and was in fact joining and adopting the latter’s Motion for Reconsideration. Memoranda were accordingly filed by the intervenor as well as by petitioners, public respondents, and private respondent, dwelling at length on three issues, namely, (1) mootness of the case by the sale of WMC shares in WMCP to Sagittarius which 60% its equity is owned by Filipinos and by the subsequent transfer and registration of the FTAA from WMCP to Sagittarius; (2) constitutionality of the assailed provisions of the Mining Law, its Implementing Rules and Regulations and the WMCP FTAA; and, (3) proper interpretation of the phrase “agreements involving either technical of financial assistance contained in paragraph 4 of Section 2 of Article XII of the Constitution. Among the assailed provisions of the Mining Law were Section 80 and the colatilla in Section 84, as well as Section 112. The petitioners alleged that these sections limit the State’s share in a mineral production-sharing agreement to just the excise tax on the mineral product and the WMCP FTAA contains a provision which grants the contractor unbridled and automatic authority to convert the FTAA into MPSA (mineral production-sharing agreements. However, the Court ruled that these were not argued upon by the parties in their respective pleadings. Also, the Court stated that these particular provisions do not come within issues that were defined and delineated by during the Oral Argument, particularly the third issue, which pertained exclusively to FTAAs. Later, WMCP submitted its Reply Memorandum, while the OSG, in compliance to the order of the Supreme Court, filed a Compliance submitting copies of more FTAAs entered into by the government. ISSUE: Whether or not petitioners have a right to assail the statutory provisions (Sections 80, 84 and 112) for its unconstitutionality. RULING: The Supreme Court held that it cannot rule on mere surmises and hypothetical assumptions, without firm factual anchor, in relation to the assailed provisions. Stated in Article 1421, “The defense of illegality of contracts is not available to third persons whose interests are not directly affected.” The Court

thus held that due process requires hearing the parties who have a real legal interests in the MPSAs (i.e. the parties who executed them) before the MPSAs can be reviewed, or worse, struck down by the Court. Thus, the petitioners have no right to question the assailed provisions.

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COMMISSION ON ELECTIONS, COMELEC CHAIRMAN ALFREDO L. BENIPAYO, COMELEC COMMISSIONERS RESURRECCION Z. BORRA and FLORENTINO A. TUASON, JR., petitioners, VS. JUDGE MA. LUISA QUIJANO-PADILLA, REGIONAL TRIAL COURT OF QUEZON CITY, BRANCH 215 and PHOTOKINA MARKETING CORP., respondents September 18, 2002 G.R. No. 151992 FACTS: In 1996, the Philippine Congress passed Republic Act No. 8189, otherwise known as the "Voter's Registration Act of 1996," providing for the modernization and computerization of the voters' registration list and the appropriate of funds therefor "in order to establish a clean, complete, permanent and updated list of voters." Pursuant thereto, the Commission on Elections (COMELEC) promulgated Resolution No. 00-0315 approving in principle the Voter's Registration and Identification System Project [(VRIS) Project]. The VRIS Project envisions a computerized database system for the May 2004 Elections. The idea is to have a national registration of voters whereby each registrant's fingerprints will be digitally entered into the system and upon completion of registration, compared and matched with other entries to eliminate double entries. A tamper-proof and counterfeit-resistant voter's identification card will then be issues to each registrant as a visual record of the registration. On September 9, 1999, the COMELEC issued invitations to pre-qualify and bid for the supply and installations of information technology equipment and ancillary services for its VRIS Project. Private respondent Photokina Marketing Corporation (PHOTOKINA) pre-qualified and was allowed to participate as one of the bidders, and eventually won. A contract was perfected between the parties,

but COMELEC failed to comply with the contract due to insufficiency of funds. Respondent filed a suit against petitioner, of which respondent judge granted the writ of prohibitory injunction to private respondent. Upon motion for reconsideration of both parties, respondent judge granted the writ of mandatory injunction of respondent and denying the Omnibus Motion of petitioner. Hence, the instant petition for certiorari filed by the Office of the Solicitor General (OSG) in behalf of then COMELEC. PHOTOKINA filed a Comment with Motion to Dismiss, the present petition, on two procedural grounds. First, the petition violates the doctrine of hierarchy of courts. And second, the OSG has no authority and/or standing to file the petition considering that the petitioners have not been authorized by the COMELEC en banc to take such action. Without the concurrence of at least a majority of the members of the COMELEC, neither petitioners nor the OSG could file the petition in behalf of the COMELEC. ISSUE: Whether or not the Office of the Solicitor-General has no authority and/or standing to file the petition considering that the petitioners have not been authorized by the COMELEC en banc to take such action. RULING: The OSG is an independent office. Its hands are not shackled to the cause of its client agency. In the discharge of its task, the primordial concern of the OSG is to see to it that the best interest of the government is upheld. This is regardless of the fact that what it perceived as the "best interest of the government" runs counter to its client agency’s position. Endowed with a broad perspective that spans the legal interest of virtually the entire government officialdom, the OSG may transcend the parochial concerns of a particular client agency and instead, promote and protect the public wealth. The Supreme Court’s ruling in Orbos vs. Civil Service Commission, is relevant, thus: "x x x It is incumbent upon him (Solicitor General) to present to the court what he considers would legally uphold the best interest of the government although it may run counter to a client’s position. x x x." In the present case, it appears that after the Solicitor General studied the issues he found merit in the cause of the petitioner based on the applicable law and jurisprudence. Thus, it is his duty to represent the petitioner as he did by filing this petition. He cannot be disqualified from appearing for the petitioner even if in so doing his representation runs against the interests of the CSC.

This is not the first time that the Office of the Solicitor General has taken a position adverse to his clients like the CSC, the National Labor Relations Commission, among others, and even the People of the Philippines. x x x" Hence, while petitioners’ stand is contrary to that of the majority of the Commissioners, still, the OSG may represent the COMELEC as long as in its assessment, such would be for the best interest of the government. For, indeed, in the final analysis, the client of the OSG is not the agency but no less than the Republic of the Philippines in whom the plenum of sovereignty resides. Moreover, it must be emphasized that petitioners are also public officials entitled to be represented by the OSG. Under Executive Order No. 292 and Presidential Decree No. 478, the OSG is the lawyer of the government, its agencies and instrumentalities, and its officials or agents. Surely, this mandate includes the three petitioners who have been impleaded as public respondents in Special Civil Action No. Q-01-45405. Anent the alleged breach of the doctrine of hierarchy of courts, suffice it to say that it is not an iron-clad dictum. On several instances where this Court was confronted with cases of national interest and of serious implications, it never hesitated to set aside the rule and proceed with the judicial determination of the case. The case at bar is of similar import. It is in the interest of the State that questions relating to government contracts be settled without delay. This is more so when the contract, as in this case, involves the disbursement of public funds and the modernization of our country’s election process, a project that has long been overdue. VOID/ INEXISTENT CONTRACTS: DECLARATION OF NULLITY

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MANSUETO CUATON, petitioner, VS. REBECCA SALUD and COURT OF APPEALS (Special Fourteenth Division), respondents G.R. No. 158382 January 27, 2004 FACTS: On January 5, 1993, respondent Rebecca Salud, joined by her husband Rolando Salud, instituted a suit for foreclosure of real estate mortgage with damages against petitioner Mansueto Cuaton and his mother, Conchita Cuaton, with the trial court. The trial court rendered a decision declaring the mortgage

constituted on October 31, 1991 as void, because it was executed by Mansueto Cuaton in favor of Rebecca Salud without expressly stating that he was merely acting as a representative of Conchita Cuaton, in whose name the mortgaged lot was titled. The court ordered petitioner to pay Rebecca Salud, inter alia, the loan secured by the mortgage in the amount of P1,000,000 plus a total P610,000.00 representing interests of 10% and 8% per month for the period February 1992 to August 1992. Both parties filed their respective notices of appeal. The Court of Appeals affirmed the judgment of the trial court. Petitioner filed a motion for partial reconsideration of the trial court’s decision with respect to the award of interest in the amount of P610,000.00, arguing that the same was iniquitous and exorbitant. This was denied by the Court of Appeals. ISSUE: Whether or not the excessive interest rates cannot be considered as an issue presented for the first time on appeal. RULING: The contention regarding the excessive interest rates cannot be considered as an issue presented for the first time on appeal. The records show that petitioner raised the validity of the 10% monthly interest in his answer filed with the trial court. To deprive him of his right to assail the imposition of excessive interests would be to sacrifice justice to technicality. Furthermore, an appellate court is clothed with ample authority to review rulings even if they are not assigned as errors. This is especially so if the court finds that their consideration is necessary in arriving at a just decision of the case before it. The Court has consistently held that an unassigned error closely related to an error properly assigned, or upon which a determination of the question raised by the error properly assigned is dependent, will be considered by the appellate court notwithstanding the failure to assign it as an error. Since respondents pointed out the matter of interest in their Appellants’ Brief before the Court of Appeals, the fairness of the imposition thereof was opened to further evaluation. The Court therefore is empowered to review the same. Petition granted. Decision modified. The interest rates of 10% and 8% per month imposed by the trial court is reduced to 12% per annum, computed from the date of the execution of the loan on October 31, 1991 until finality of this decision. After the judgment becomes final and executory until the obligation is satisfied, the amount due shall further earn interest at 12% per year.

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DEMOSTHENES P. AGAN, JR., et al., petitioners, VS. PHILIPPINE INTERNATIONAL AIR TERMINALS CO., INC., MANILA INTERNATIONAL AIRPORT AUTHORITY, DEPARTMENT OF TRANSPORTATION AND COMMUNICATIONS and SECRETARY LEANDRO M. MENDOZA, respondents G.R. No. 155001 January 21, 2004 FACTS: On October 5, 1994, Asia’s Emerging Dragon Corp. (AEDC) submitted an unsolicited proposal to the Philippine Government through the Department of Transportation and Communication (DOTC) and Manila International Airport Authority (MIAA) for the construction and development of the NAIA IPT III under a build-operate-and-transfer arrangement pursuant to R.A. No. 6957, as amended by R.A. No. 7718 (BOT Law). In accordance with the BOT Law and its Implementing Rules and Regulations (Implementing Rules), the DOTC/MIAA invited the public for submission of competitive and comparative proposals to the unsolicited proposal of AEDC. On September 20, 1996 a consortium composed of the People’s Air Cargo and Warehousing Co., Inc. (Paircargo), Phil. Air and Grounds Services, Inc. (PAGS) and Security Bank Corp. (Security Bank) (collectively, Paircargo Consortium), submitted their competitive proposal to the Prequalification Bids and Awards Committee (PBAC).After finding that the Paircargo Consortium submitted a bid superior to the unsolicited proposal of AEDC and after failure by AEDC to match the said bid, the DOTC issued the notice of award for the NAIA IPT III project to the Paircargo Consortium, which later organized into herein respondent PIATCO. Hence, on July 12, 1997, the Government, through then DOTC Secretary Arturo T. Enrile, and PIATCO, through its President, Henry T. Go, signed the “Concession Agreement for the Build-Operate-and-Transfer Arrangement of the Ninoy Aquino International Airport Passenger Terminal III” (1997 Concession Agreement). On November 26, 1998, the 1997 Concession Agreement was superseded by the Amended and Restated Concession Agreement (ARCA) containing certain revisions and modifications from the original contract. A series of supplemental agreements was also entered into by the Government and PIATCO. The First Supplement was signed on August 27, 1999, the Second Supplement on September 4, 2000, and the Third Supplement on June 22, 2001 (collectively, Supplements) (the 1997 Concession Agreement, ARCA and the Supplements collectively referred to as the PIATCO Contracts).On September 17, 2002, various petitions were filed before this Court to annul the 1997 Concession Agreement, the ARCA and the Supplements and to prohibit the public respondents DOTC and MIAA from implementing them. In a decision dated May 5, 2003, this Court granted the said petitions and declared the 1997 Concession Agreement, the ARCA and the Supplements null and void.Respondent PIATCO, respondent-Congressmen and respondents-intervenors now seek the reversal of the May 5, 2003 decision and pray that the petitions be dismissed. In the alternative, PIATCO prays that the Court should not strike down the entire 1997 Concession Agreement, the ARCA and its supplements in light of their separability clause. Respondent-Congressmen and NMTAI also pray that in the alternative, the cases at bar should be referred to arbitration pursuant to the provisions of the ARCA. PIATCO-Employees pray that the petitions be dismissed and remanded to the trial courts for trial on the merits or in the alternative that the 1997 Concession Agreement, the ARCA and the Supplements be declared valid and binding.

the controversy and whether such party has sustained or is in imminent danger of sustaining an injury as a result of the act complained of, a standard which is distinct from the concept of real party in interest. Measured by this yardstick, the application of the doctrine on legal standing necessarily involves a preliminary consideration of the merits of the case and is not purely a procedural issue. Considering the nature of the controversy and the issues raised in the cases at bar, this Court affirms its ruling that the petitioners have the requisite legal standing. The petitioners in G.R. Nos. 155001 and 155661 are employees of service providers operating at the existing international airports and employees of MIAA while petitioners-intervenors are service providers with existing contracts with MIAA and they will all sustain direct injury upon the implementation of the PIATCO Contracts. The 1997 Concession Agreement and the ARCA both provide that upon the commencement of operations at the NAIA IPT III, NAIA Passenger Terminals I and II will cease to be used as international passenger terminals. Further, the ARCA provides: (d) For the purpose of an orderly transition, MIAA shall not renew any expired concession agreement relative to any service or operation currently being undertaken at the Ninoy Aquino International Airport Passenger Terminal I, or extend any concession agreement which may expire subsequent hereto, except to the extent that the continuation of the existing services and operations shall lapse on or before the In-Service Date. Beyond iota of doubt, the implementation of the PIATCO Contracts, which the petitioners and petitioners-intervenors denounce as unconstitutional and illegal, would deprive them of their sources of livelihood. Under settled jurisprudence, one's employment, profession, trade, or calling is a property right and is protected from wrongful interference. It is also self evident that the petitioning service providers stand in imminent danger of losing legitimate business investments in the event the PIATCO Contracts are upheld. Over and above all these, constitutional and other legal issues with far-reaching economic and social implications are embedded in the cases at bar, hence, this Court liberally granted legal standing to the petitioning members of the House of RepresentativesFirst, at stake is the build-operate-and–transfer contract of the country’s premier international airport with a projected capacity of 10 million passengers a year. Second, the huge amount of investment to complete the project is estimated to be P13,000,000,000.00. Third, the primary issues posed in the cases at bar demand a discussion and interpretation of the Constitution, the BOT Law and its implementing rules which have not been passed upon by this Court in previous cases. They can chart the future inflow of investment under the BOT Law. The Court notes the bid of new parties to participate in the cases at bar as respondents-intervenors, namely, (1) the PIATCO Employees and (2) NMTAI (collectively, the New Respondents-Intervenors). After the Court’s Decision, the New Respondents-Intervenors filed separate Motions for Reconsideration-In-Intervention alleging prejudice and direct injury. PIATCO employees claim that “they have a direct and personal interest [in the controversy]... since they stand to lose their jobs should the government’s contract with PIATCO be declared null and void.” NMTAI, on the other hand, represents itself as a corporation composed of responsible tax-paying Filipino citizens with the objective of “protecting and sustaining the rights of its members to civil liberties, decent livelihood, opportunities for social advancement, and to a good, conscientious and honest government.” The Rules of Court govern the time of filing a Motion to Intervene. Section 2, Rule 19 provides that a Motion to Intervene should be filed “before rendition of judgment....” The New Respondents-Intervenors filed their separate motions after a decision has been promulgated in the present cases. They have not offered any worthy explanation to justify their late intervention. Consequently, their Motions for Reconsideration-In-Intervention are denied for the rules cannot be relaxed to await litigants who sleep on their rights. In any event, a sideglance at these late motions will show that they hoist no novel arguments.

ISSUE: Whether or not that petitioners lack legal personality to file the cases at bar as they are not real parties in interest who are bound principally or subsidiarily to the PIATCO Contracts.

VOID/ INEXISTENT CONTRACTS: DECLARATION OF NULLITY

WHO

MAY

BRING

ACTION

FOR

RULING: The determination of whether a person may institute an action or become a party to a suit brings to fore the concepts of real party in interest, capacity to sue and standing to sue. To the legally discerning, these three concepts are different although commonly directed towards ensuring that only certain parties can maintain an action. As defined in the Rules of Court, 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.Capacity to sue deals with a situation where a person who may have a cause of action is disqualified from bringing a suit under applicable law or is incompetent to bring a suit or is under some legal disability that would prevent him from maintaining an action unless represented by a guardian ad litem. Legal standing is relevant in the realm of public law. In certain instances, courts have allowed private parties to institute actions challenging the validity of governmental action for violation of private rights or constitutional principles. In these cases, courts apply the doctrine of legal standing by determining whether the party has a direct and personal interest in

SENATOR ROBERT S. JAWORSKI, petitioner, vs. PHILIPPINE AMUSEMENT AND GAMING CORPORATION and SPORTS AND GAMES ENTERTAINMENT CORPORATION, respondents 2004 Jan 14 G.R. No. 144463 FACTS:

On March 31, 1998, PAGCOR’s board of directors approved an instrument denominated as “Grant of Authority and Agreement for the Operation of Sports Betting and Internet Gaming”, which granted SAGE the authority to operate and maintain Sports Betting station in PAGCOR’s casino locations, and Internet Gaming facilities to service local and international bettors, provided that to the satisfaction of PAGCOR, appropriate safeguards and procedures are established to ensure the integrity and fairness of the games. Petitioner, in his capacity as member of the Senate and Chairman of the Senate Committee on Games, Amusement and Sports, files the instant petition, praying that the grant of authority by PAGCOR in favor of SAGE be nullified. He maintains that PAGCOR committed grave abuse of discretion amounting to lack or excess of jurisdiction when it authorized SAGE to operate gambling on the internet. He contends that PAGCOR is not authorized under its legislative franchise, P.D. 1869, to operate gambling on the internet for the simple reason that the said decree could not have possibly contemplated internet gambling since at the time of its enactment on July 11, 1983 the internet was yet inexistent and gambling activities were confined exclusively to real-space. Further, he argues that the internet, being an international network of computers, necessarily transcends the territorial jurisdiction of the Philippines, and the grant to SAGE of authority to operate internet gambling contravenes the limitation in PAGCOR’s franchise, under Section 14 of P.D. No. 1869. According to petitioner, internet gambling does not fall under any of the categories of the authorized gambling activities enumerated under Section 10 of P.D. No. 1869 which grants PAGCOR the “right, privilege and authority to operate and maintain gambling casinos, clubs, and other recreation or amusement places, sports gaming pools, within the territorial jurisdiction of the Republic of the Philippines.” Respondents argue that petitioner does not have the requisite personal and substantial interest to impugn the validity of PAGCOR’s grant of authority to SAGE. ISSUE: Whether or not the petitioner has legal standing to file the instant petition as a concerned citizen or as a member of the Philippine Senate. RULING: Objections to the legal standing of a member of the Senate or House of Representative to maintain a suit and assail the constitutionality or validity of laws, acts, decisions, rulings, or orders of various government agencies or instrumentalities are not without precedent. Ordinarily, before a member of Congress may properly challenge the validity of an official act of any department

of the government there must be an unmistakable showing that the challenged official act affects or impairs his rights and prerogatives as legislator. However in a number of cases, the Court clarified that where a case involves an issue of utmost importance, or one of overreaching significance to society, the Court, in its discretion, can brush aside procedural technicalities and take cognizance of the petition. Considering that the instant petition involves legal questions that may have serious implications on public interests, petitioner has the requisite legal standing to file this petition. The instant petition is GRANTED. The “Grant of Authority and Agreement to Operate Sports Betting and Internet Gaming” executed by PAGCOR in favor of SAGE is declared NULL and VOID.

PROHIBITED CONTRACTS: EFFECTS AND REMEDIES IN CASE ONE PARTY IS INNOCENT / DISADVANTAGED 1. 2. 3. 4. 5. 6. 7. 8.

INFORMATION TECH. FOUNDATION VS. COMELEC, JAN. 13, 2004 PABUGAIS VS. SAHIJWANI, 423 SCRA 596 LIGUEZ VS. CA, 102 PHIL 577 PHILBANK VS. LUI SHE, 21 SCRA 52 EPG CONSTRUCTION VS. VIGILAR, 354 SCRA 566 GO CHAN VS. YOUNG, 354 SCRA 566 FRANCISCO VS. HERRERA, 392 SCRA 317 MENDEZONA VS. OZAMIZ, 376 SCRA 482

INFORMATION TECHNOLOGY FOUNDATION OF THE PHILIPPINES VS. COMMISSION ON ELECTIONS 2004 Jan 13 G.R. No. 159139 FACTS: On June 7, 1995, Congress passed Republic Act 8046, which authorized Comelec to conduct a nationwide demonstration of a computerized election system and allowed the poll body to pilot-test the system in the March 1996 elections in the Autonomous Region in Muslim Mindanao (ARMM). On December 22, 1997, Congress enacted Republic Act 8436authorizing Comelec to use an automated election system (AES) for the process of voting, counting votes and

canvassing/consolidating the results of the national and local elections. It also mandated the poll body to acquire automated counting machines (ACMs), computer equipment, devices and materials; and to adopt new electoral forms and printing materials.

under a two-envelope/two stage system. The bidder’s first envelope or the Eligibility Envelope should establish the bidder’s eligibility to bid and its qualifications to perform the acts if accepted. On the other hand, the second envelope would be the Bid Envelope itself.

Initially intending to implement the automation during the May 11, 1998 presidential elections, Comelec eventually decided against full national implementation and limited the automation to the Autonomous Region in Muslim Mindanao (ARMM). However, due to the failure of the machines to read correctly some automated ballots in one town, the poll body later ordered their manual count for the entire Province of Sulu.

Out of the 57 bidders, the BAC found MPC and the Total Information Management Corporation (TIMC) eligible. For technical evaluation, they were referred to the BAC’s Technical Working Group (TWG) and the Department of Science and Technology (DOST).

In the May 2001 elections, the counting and canvassing of votes for both national and local positions were also done manually, as no additional ACMs had been acquired for that electoral exercise allegedly because of time constraints. On October 29, 2002, Comelec adopted in its Resolution 02-0170 a modernization program for the 2004 elections. It resolved to conduct biddings for the three (3) phases of its Automated Election System; namely, Phase I Voter Registration and Validation System; Phase II - Automated Counting and Canvassing System; and Phase III - Electronic Transmission. On January 24, 2003, President Macapagal-Arroyo issued EO No. 172, which allocated the sum of P2.5 billion to fund the AES for the May 10, 2004 elections. Upon the request of Comelec, she authorized the release of an additional P500 million. On January 28, 2003, the Commission issued an “Invitation to Apply for Eligibility and to Bid.

In its Report on the Evaluation of the Technical Proposals on Phase II, DOST said that both MPC and TIMC had obtained a number of failed marks in the technical evaluation. Notwithstanding these failures, Comelec en banc, on April 15, 2003, promulgated Resolution No. 6074 awarding the project to MPC. The Commission publicized this Resolution and the award of the project to MPC on May 16, 2003. On May 29, 2003, five individuals and entities (including the herein Petitioners Information Technology Foundation of the Philippines, represented by its president, Alfredo M. Torres; and Ma. Corazon Akol) wrote a letter to Comelec Chairman Benjamin Abalos Sr. They protested the award of the Contract to Respondent MPC “due to glaring irregularities in the manner in which the bidding process had been conducted.” Citing therein the noncompliance with eligibility as well as technical and procedural requirements (many of which have been discussed at length in the Petition), they sought a re-bidding. However, the Comelec chairman -- speaking through Atty. Jaime Paz, his head executive assistant -- rejected the protest and declared that the award “would stand up to the strictest scrutiny.” Hence, the present Petition.

On February 17, 2003, the poll body released the Request for Proposal (RFP) to procure the election automation machines. The Bids and Awards Committee (BAC) of Comelec convened a pre-bid conference on February 18, 2003 and gave prospective bidders until March 10, 2003 to submit their respective bids. Among others, the RFP provided that bids from manufacturers, suppliers and/or distributors forming themselves into a joint venture may be entertained, provided that the Philippine ownership thereof shall be at least 60 percent. Joint venture is defined in the RFP as “a group of two or more manufacturers, suppliers and/or distributors that intend to be jointly and severally responsible or liable for a particular contract.” Basically, the public bidding was to be conducted

ISSUE: Whether or not the Commission on Elections, the agency vested with the exclusive constitutional mandate to oversee elections, gravely abused its discretion when, in the exercise of its administrative functions, it awarded to MPC the contract for the second phase of the comprehensive Automated Election System. RULING: Yes. There is grave abuse of discretion (1) when an act is done contrary to the Constitution, the law or jurisprudence; or (2) when it is executed whimsically, capriciously or arbitrarily out of malice, ill will or personal bias. In

the present case, the Commission on Elections approved the assailed Resolution and awarded the subject Contract not only in clear violation of law and jurisprudence, but also in reckless disregard of its own bidding rules and procedure. For the automation of the counting and canvassing of the ballots in the 2004 elections, Comelec awarded the Contract to “Mega Pacific Consortium” an entity that had not participated in the bidding. Despite this grant, the poll body signed the actual automation Contract with “Mega Pacific eSolutions, Inc.,” a company that joined the bidding but had not met the eligibility requirements.

administrative action is patently illegal amounting to lack or excess of jurisdiction, (4) when there is estoppel on the part of the administrative agency concerned, (5) when there is irreparable injury, (6) when the respondent is a department secretary whose acts as an alter ego of the President bears the implied and assumed approval of the latter, (7) when to require exhaustion of administrative remedies would be unreasonable, (8) when it would amount to a nullification of a claim, (9) when the subject matter is a private land in land case proceedings, (10) when the rule does not provide a plain, speedy and adequate remedy, and (11) when there are circumstances indicating the urgency of judicial intervention.”

Comelec awarded this billion-peso undertaking with inexplicable haste, without adequately checking and observing mandatory financial, technical and legal requirements. It also accepted the proferred computer hardware and software even if, at the time of the award, they had undeniably failed to pass eight critical requirements designed to safeguard the integrity of elections, especially the following three items: (a) They failed to achieve the accuracy rating criteria of 99.9995 percent set-up by the Comelec itself, (b) They were not able to detect previously downloaded results at various canvassing or consolidation levels and to prevent these from being inputted again and (c) They were unable to print the statutorily required audit trails of the count/canvass at different levels without any loss of data

The present controversy precisely falls within the exceptions listed as Nos. “(7) when to require exhaustion of administrative remedies would be unreasonable; (10) when the rule does not provide a plain, speedy and adequate remedy, and (11) when there are circumstances indicating the urgency of judicial intervention.” As already stated, Comelec itself made the exhaustion of administrative remedies legally impossible or, at the very least, “unreasonable.”

Because of the foregoing violations of law and the glaring grave abuse of discretion committed by Comelec, the Court declared null and void the assailed Resolution and the subject Contract. The illegal, imprudent and hasty actions of the Commission have not only desecrated legal and jurisprudential norms, but have also cast serious doubts upon the poll body’s ability and capacity to conduct automated elections. Truly, the pith and soul of democracy -- credible, orderly, and peaceful elections -- has been put in jeopardy by the illegal and gravely abusive acts of Comelec.

TEDDY G. PABUGAIS v. DAVE P. SAHIJWANI G.R. No. 156846 February 23, 2004 423 SCRA 596

The letter-protest is sufficient compliance with the requirement to exhaust administrative remedies particularly because it hews closely to the procedure outlined in Section 55 of RA 9184. And even without that May 29, 2003 letterprotest, the Court still holds that petitioners need not exhaust administrative remedies in the light of Paat v. Court of Appeals. Paat enumerates the instances when the rule on exhaustion of administrative remedies may be disregarded, as follows: “(1) when there is a violation of due process, (2) when the issue involved is purely a legal question, (3) when the

PROHIBITED CONTRACTS: EFFECTS AND REMEDIES IN CASE ONE PARTY IS INNOCENT / DISADVANTAGED

FACTS: Pursuant to an “Agreement And Undertaking” on December 3, 1993, petitioner Teddy G. Pabugais, in consideration of the amount of P15,487,500.00, agreed to sell to respondent Dave P. Sahijwani a lot containing 1,239 square meters located at Jacaranda Street, North Forbes Park, Makati, Metro Manila. Respondent paid petitioner the amount of P600,000.00 as option/reservation fee and the balance of P14,887,500.00 to be paid within 60 days from the execution of the contract, simultaneous with delivery of the owner’s duplicate Transfer Certificate of Title in respondent’s name the Deed of Absolute Sale; the Certificate of Non-Tax Delinquency on real estate taxes and Clearance on Payment of Association Dues. The parties further agreed that failure on the part of respondent to pay the balance of the purchase price entitles petitioner to forfeit the P600,000.00 option/reservation fee; while non-delivery by the latter

of the necessary documents obliges him to return to respondent the said option/reservation fee with interest at 18% per annum.

has yet to rule on the consignation’s validity and the respondent had not yet accepted the same.

Petitioner failed to deliver the required documents. In compliance with their agreement, he returned to respondent the latter’s P600,000.00 option/reservation fee by way of Far East Bank & Trust Company Check, which was, however, dishonored.

ISSUE: Whether or not assigning the amount of P672, 900.00 to Atty. De Guzman is prohibited.

Petitioner claimed that he twice tendered to respondent, through his counsel, the amount of P672,900.00 (representing the P600,000.00 option/reservation fee plus 18% interest per annum computed from December 3, 1993 to August 3, 1994) in the form of Far East Bank & Trust Company Manager’s Check No. 088498, dated August 3, 1994, but said counsel refused to accept the same. On August 11, 1994, petitioner wrote a letter to respondent saying that he is consigning the amount tendered with the Regional Trial Court of Makati City. On August 15, 1994, petitioner filed a complaint for consignation. Respondent’s counsel, on the other hand, admitted that his office received petitioner’s letter dated August 5, 1994, but claimed that no check was appended thereto. He averred that there was no valid tender of payment because no check was tendered and the computation of the amount to be tendered was insufficient, because petitioner verbally promised to pay 3% monthly interest and 25% attorney’s fees as penalty for default, in addition to the interest of 18% per annum on the P600,000.00 option/reservation fee. On November 29, 1996, the trial court rendered a decision declaring the consignation invalid for failure to prove that petitioner tendered payment to respondent and that the latter refused to receive the same. Petitioner appealed the decision to the Court of Appeals. Petitioner’s motion to withdraw the amount consigned was denied by the Court of Appeals and the decision of the trial court was affirmed. On a motion for reconsideration, the Court of Appeals declared the consignation as valid in an Amended Decision dated January 16, 2003. It held that the validity of the consignation had the effect of extinguishing petitioner’s obligation to return the option/reservation fee to respondent. Hence, petitioner can no longer withdraw the same. Unfazed, petitioner filed the instant petition for review contending that he can withdraw the amount deposited with the trial court as a matter of right because at the time he moved for the withdrawal thereof, the Court of Appeals

RULING: The amount consigned with the trial court can no longer be withdrawn by petitioner because respondent’s prayer in his answer that the amount consigned be awarded to him is equivalent to an acceptance of the consignation, which has the effect of extinguishing petitioner’s obligation. Moreover, petitioner failed to manifest his intention to comply with the “Agreement And Undertaking” by delivering the necessary documents and the lot subject of the sale to respondent in exchange for the amount deposited. Withdrawal of the money consigned would enrich petitioner and unjustly prejudice respondent. The withdrawal of the amount deposited in order to pay attorney’s fees to petitioner’s counsel, Atty. De Guzman, Jr., violates Article 1491 of the Civil Code which forbids lawyers from acquiring by assignment, property and rights which are the object of any litigation in which they may take part by virtue of their profession. Furthermore, Rule 10 of the Canons of Professional Ethics provides that “the lawyer should not purchase any interest in the subject matter of the litigation which he is conducting.” The assailed transaction falls within the prohibition because the Deed assigning the amount of P672,900.00 to Atty. De Guzman, Jr., as part of his attorney’s fees was executed during the pendency of this case with the Court of Appeals. In his Motion to Intervene, Atty. De Guzman, Jr., not only asserted ownership over said amount, but likewise prayed that the same be released to him. That petitioner knowingly and voluntarily assigned the subject amount to his counsel did not remove their agreement within the ambit of the prohibitory provisions. To grant the withdrawal would be to sanction a void contract. WHEREFORE, in view of all the foregoing, the instant petition for review is DENIED.

PROHIBITED CONTRACTS: EFFECTS AND REMEDIES IN CASE ONE PARTY IS INNOCENT / DISADVANTAGED

LIGUEZ VS. COURT OF APPEALS 102 PHIL 577 FACTS: Petitioner filed a complaint for the recovery of parcel of land against the widow and heirs of Salvador Lopez. Petitioner averred that he is the owner of the aforementioned parcel of land pursuant to a Deed of Donation executed in her favor by the late owner, Salvador Lopez. The defense interposed that the donation was null and void for having illicit cause or consideration which was the petitioner’s entering into a marital relations with Salvador, a married man, and that the property had been adjudicated to the appellees as heirs of Salvador Lopez by the Court of First Instance. Meanwhile, the Court of Appeals found that the Deed of Donation was prepared by a Justice of Peace and was ratified and signed when petitioner Liquez was still a minor, 16 years of age. It was the ascertainment of the Court of Appeals that the donated land belonged to the conjugal partnership of Salvador and his wife and that the Deed of Donation was never recorded. Hence, the Court of Appeals held that the Deed of Donation was inoperative and null and void because the donation was tainted with illegal cause or consideration. ISSUE: Whether or not the Deed of Donation is void for having illicit cause or consideration. RULING: NO. Under Article 1279 of the Civil Code of 1989, which was the governing law during the execution of the Deed of Donation, the liberality of the donor is deemed cover only in those contracts that are pure beneficence. In these contracts, the idea of self interest is totally absent in the part of the transferee. Here, the facts as found demonstrated that in making the donation, Salvador Lopez was not moved exclusively by the desire to benefit the petitioner but also to secure her cohabiting with him. Petitioner seeks to differentiate between the liberality of Lopez as cause and his desire as a motive. However, motive may be regarded as cause when it predetermined the purpose of the contract. The Court of Appeals rejected the claim of petitioner on the ground on the rule on pari delicto embodied in Article 1912 of the Civil Code. However, this rule cannot be applied in the case because it cannot be said that both parties had equal guilt where petitioner was a mere minor when the donation was made and that it was not shown that she was fully aware of the terms of the said donation.

PROHIBITED CONTRACTS: EFFECTS AND REMEDIES IN CASE ONE PARTY IS INNOCENT / DISADVANTAGED PHILBANK VS. LUI SHE 21 SCRA 52 FACTS: Justinia Santos was the owner of the property where a restaurant owned by Weng Heng is located. Being 90 years of age, without any surviving relatives, delivered to Weng being closed to her then, various sum of money for safekeeping. Subsequently, she executed a contract of lease in favor of Weng for a period of 50 years. However, the lessee was given the right to withdraw at any time from the agreement. Subsequently, she again executed another contract giving Weng the option to buy the premises. The option was conditioned on Weng’s obtaining a Filipino citizenship, which however, Weng failed to obtain. After which, Justinia again executed two other contracts, extending the term of the lease to 99 years and another fixing the term of the option to 50 years. However, a year later, she filed a complaint before the trial court alleging that the various contracts were executed by her because of machination, and inducement practiced by Weng, thereby she directed her executor to secure the annulment of the contract. ISSUE: Whether or not the various contracts were void. RULING: Article 1308 of the Civil Code creates no impediment to the insertion in a contract of a resolutory condition permitting the cancellation of the contract by one of the parties. Such a stipulation does not make either the validity or the fulfillment of the contract dependent upon the will of the party to whom It conceded the privilege of the cancellation. In the case, the lease for an alien for a reasonable period is valid. So is the option giving the alien the right to buy the real property subject to the condition that he must obtain Filipino citizenship. Since alien’s residence in the Philippines is temporary, they may be grated temporary rights such as a lease contract which is not forbidden. However, if the alien is given not only the lease of, but also the option to buy a piece of land by virtue of which the Filipino owner cannot sell, or otherwise dispose of his property, this to last for 50 years, then it

becomes clear that the arrangement is a virtual transfer of ownership. As such, the constitutional ban against alien landholding is in grave peril. However, it does not follow that because the parties are in pari delicto, they will be left where they are without relief. Article 1416 of the Civil Code provides an exception when the agreement is not illegal per se but is merely prohibited, and the prohibition by law is designed for the protection of the plaintiff, he may, if public policy is thereby enhanced, recover what he had paid on delivery.

PROHIBITED CONTRACTS: EFFECTS AND REMEDIES IN CASE ONE PARTY IS INNOCENT / DISADVANTAGED EPG CONSTRUCTION VS. VIGILAR 259 SCRA 566 FACTS: In 1989, the Ministry of Human Settlement through the BLISS Development Corporation, initiated a housing project on a government property. For this purpose, the MHS entered into a Memorandum of Agreement (MOA) with the Ministry of Public Works (MPWH) and Highway where the latter undertook to develop the housing site and construct therein 145 housing units. By virtue of the MOA, the MPWH forged individual contracts with petitioners for the construction of the housing units. Under the contracts, the scope of construction covered only 2/3 of each housing unit. After complying, the MPWH undersecretary made a verbal request for the additional construction, for the completion of the housing units, which the petitioner agreed. Subsequently, petitioner received payment for the construction work duly covered by the individual contracts, however, the amount covering the additional contracts were unpaid. The petitioner then sent a demand letter. The MPWH assistant secretary averred that the money claim should be based on quantum meruit to be forwarded to the COA. The amount of money was finally released, however, the MPWH secretary denied the subject money claim, which prompted the petitioner to file a case before the RTC. However, the trial court dismissed the case. ISSUE:

Whether or not the petitioner has the right to be compensated for the public works housing project by virtue of the implied contract which was verbally executed. RULING: YES, the petitioner has the right to be compensated for the additional construction applying the principle of quantum meruit. Notably, the peculiar circumstances present in the instant case buttress petitioner’s claim for compensation for the additional construction, despite the illegality and void nature of the “implied contracts” forged between the MPWH and petitioners. In this matter, it is bear stressing that, the illegality of the subject contracts proceeds from the express declaration or prohibition of the law, and not for any intrinsic illegality. Stated differently, the subject contracts are not illegal per se. The Court cannot sanction an injustice so patent on its face and allow itself to be an instrument in the perpetration thereof. Justice and equity demands that the State’s cloak of invincibility against suit be shred in this particular case and that the petitioners-contractors be duly compensated, on the basis of quantum meruit, for the construction done on the public housing project. Petition is granted. Accordingly, the Commission on Audit is hereby directed to determine as ascertain with dispatch the total compensation due petitioners for the additional constructions on the housing project and to allow payment thereof.

PROHIBITED CONTRACTS: EFFECTS AND REMEDIES IN CASE ONE PARTY IS INNOCENT / DISADVANTAGED GO CHAN VS. YOUNG 354 SCRA 201 FACTS: Gochan Realty was registered with the Security and Exchange Commission with Felix Gochan Sr., Maria Tiong, Pedro Gochan, Tomasa Gochan, Esteban Gochan and Crispo Gochan as its incorporators. Later, Felix Gochan Sr.’s daughter, Alice, mother of herein respondents, inherited 50 shares of stocks in Gochan Realty from the former. Alice subsequently died leaving the 50 shares to her husband, John Young Sr. Sometime in 1962, the RTC adjudicated 6/14 of these shares to her children. When her children, herein respondents, reached the age of majority, their father requested Gochan Realty to partition the shares

of his late wife by canceling the stock certificate in his name and issuing, in lieu thereof, a new stock certificate in favor of his children. The Realty however, refused. Meanwhile, fifteen years later, Cecilia Uy and Miguel Uy filed a complaint with the SEC for issuance of shares of stocks to the rightful owners, nullification of shares of stock, reconveyance of the property impressed with trust and damages. The petitioners moved to dismiss the complaint. The SEC thereafter held that the Youngs were not shown to have been stockholders stock holders of Gochan Realty to confer them with the legal capacity to bring and maintain their action. That is why the case cannot be considered as an intra-corporate controversy within the jurisdiction of the Commission. The Court of Appeals, on appeal, held that the SEC had no jurisdiction over the case as far as the heirs of Alice Gochan were concerned; however, it upheld the capacity of Cecilia Gochan Uy and her spouse, Miguel Uy. ISSUE: Whether or not the spouses Uy have personality to file the suit before the Security and Exchange Commission. RULING: YES, the spouses have the personality. As a general rule, the jurisdiction of a court or tribunal over the subject matter is determined by the allegation in the complaint. The spouse averment in the complaint that the purchase of her stocks by the corporation was null and void ab initio was deemed admitted. It is elementary that a void contract produces no effect either against or in favor of anyone; it cannot create, modify or extinguish the juridical relations to where it attaches. Thus, Cecilia remains a stockholder of the corporation in view of the nullity of the contract of sale. Although she was no longer registered as a stock holder in the corporate record, the admitted allegation in the complaint made her still a bona fide stock holder of the corporation.

PROHIBITED CONTRACTS: EFFECTS AND REMEDIES IN CASE ONE PARTY IS INNOCENT / DISADVANTAGED FRANCISCO VS. HERRERA 392 SCRA 317 FACTS:

Eligio Herrera Sr. was the owner of 2 parcels of land located in Cainta, Rizal. On January 3, 1991, petitioner Julian Francisco bought from Herrera the first parcel of land covered by tax Declaration No. 01-00495 for P1M pain in installments from November 30, 1990 to August 10, 1991. Eventually, Francisco bought the second parcel of land covered by TD No. 01-00497 for P750T. Thereafter, the children of Eligio Sr. tried to negotiate with petitioner to increase the purchase price contending that it was grossly inadequate. When petitioner refused, respondent Pastor Herrera, son of Eligio, filed a complaint for annulment of sale. He claimed ownership over the second parcel of land allegedly by virtue of a sale in his favor since 1973. Moreover, he claimed that the first lot was subject to co-ownership of the surviving heirs of his parents before the alleged sale to Francisco. Ultimately, Pastor alleged that the sale of the 2 parcels of land was null and void on the ground that at the time of sale, Eligio Sr. was already incapacitated to give consent to a contract because of Senile Dementia which is characterized by deteriorating mental and physical condition including loss of memory. At variance, Francisco alleged that respondent was estopped from assailing the sale of the lots because respondent had effectively ratified both sales by receiving the consideration offered in each transaction. On November 14, 1994, the trial court declared the Deeds of Sale null and void. Francisco was ordered to return the lots in question including all improvements. Concomitantly, Herrera was ordered to return the purchase price of the lots sold. ISSUE: Whether or not the assailed contracts of sale are void or merely voidable and hence capable of being ratified. RULING: YES, the Supreme Court ruled that the contracts are merely voidable or annullable. Note that Article 1390 of the Civil Code specifically provides that when an insane or demented person enters into a contract, the legal effect is that the contract is voidable, not void or inexistent per se. Therefore, the contracts of sale entered into by Eligio Sr. are valid and binding unless annulled through a proper action filed in court seasonably. Furthermore, the questioned annullable contract was rendered perfectly valid in this case because of respondent’s acts of ratification. He actually received the payments on behalf of his father further manifesting that he was agreeable to the contracts. Similarly,

respondent’s previous negotiation for an increase in the price bolster that indeed there was ratification of what he himself questions as a void contract.

PROHIBITED CONTRACTS: EFFECTS AND REMEDIES IN CASE ONE PARTY IS INNOCENT / DISADVANTAGED MENDEZONA VS. OZAMIZ 376 SCRA 482 2002 Feb 6 FACTS: A civil case for quieting of title was instituted on September 25, 1991 by petitioner spouses Mendezona as plaintiffs. In their complaint, the petitioners, as plaintiffs therein, alleged that petitioner spouses own a parcel of land each with almost similar areas covered and described in Transfer Certificates of Title (TCT). The petitioners ultimately traced their titles of ownership over their respective properties from a notarized Deed of Absolute Sale dated April 28, 1989 executed in their favor by Carmen Ozamiz for and in consideration of the sum of One Million Forty Thousand Pesos (P1,040,000.00). The petitioners initiated the suit to remove a cloud on their said respective titles caused by the inscription thereon of a notice of lis pendens, which came about as a result of an incident in a Special Proceeding of the RTC. This Special Proceeding is a proceeding for guardianship over the person and properties of Carmen Ozamiz. In the course of the guardianship proceeding, the petitioners and the oppositors thereto agreed that Carmen Ozamiz needed a guardian over her person and her properties, and thus respondent Montalvan was designated as guardian over the person of Carmen Ozamiz while petitioner Mendezona, respondents Roberto J. Montalvan and Julio H. Ozamiz were designated as joint guardians over the properties of the said ward. The respondents opposed the petitioners’ claim of ownership of the Lahug property and alleged that the titles issued in the petitioners names are defective and illegal, and the ownership of the said property was acquired in bad faith and without value inasmuch as the consideration for the sale is grossly inadequate and unconscionable. Respondents further alleged that at the time of the sale on

April 28, 1989 Carmen Ozamiz was already ailing and not in full possession of her mental faculties; and that her properties having been placed in administration, she was in effect incapacitated to contract with petitioners. Trial on the merits ensued and the lower court ruled in favor of petitioners. The appellate court reversed the factual findings of the trial court and ruled that the Deed of Absolute Sale dated April 28, 1989 was a simulated contract since the petitioners failed to prove that the consideration was actually paid, and, furthermore, that at the time of the execution of the contract the mental faculties of Carmen Ozamiz were already seriously impaired. Thus, the appellate court declared that the Deed of Absolute Sale of April 28, 1989 is null and void. It ordered the cancellation of the certificates of title issued in the petitioners’ names and directed the issuance of new certificates of title in favor of Carmen Ozamiz or her estate. The motion for reconsideration was denied. ISSUE: Whether or not the CA erred in ruling that the Deed of Absolute Sale dated on April 28, 1989 was a Simulated Contract. RULING: YES. Simulation is defined as "the declaration of a fictitious will, deliberately made by agreement of the parties, in order to produce, for the purposes of deception, the appearances of a juridical act which does not exist or is different from what that which was really executed." The requisites of simulation are: (a) an outward declaration of will different from the will of the parties; (b) the false appearance must have been intended by mutual agreement; and (c) the purpose is to deceive third persons. None of these were clearly shown to exist in the case at bar. Contrary to the erroneous conclusions of the appellate court, a simulated contract cannot be inferred from the mere non-production of the checks. It was not the burden of the petitioners to prove so. It is significant to note that the Deed of Absolute Sale dated April 28, 1989 is a notarized document duly acknowledged before a notary public. As such, it has in its favor the presumption of regularity, and it carries the evidentiary weight conferred upon it with respect to its due execution. It is admissible in evidence without further proof of its authenticity and is entitled to full faith and credit upon its face.

Payment is not merely presumed from the fact that the notarized Deed of Absolute Sale dated April 28, 1989 has gone through the regular procedure as evidenced by the transfer certificates of title issued in petitioners’ names by the Register of Deeds. Considering that Carmen Ozamiz acknowledged, on the face of the notarized deed, that she received the consideration at One Million Forty Thousand Pesos (P1,040,000.00), the appellate court should not have placed too much emphasis on the checks, the presentation of which is not really necessary. Besides, the burden to prove alleged non-payment of the consideration of the sale was on the respondents, not on the petitioners. Also, between its conclusion based on inconsistent oral testimonies and a duly notarized document that enjoys presumption of regularity, the appellate court should have given more weight to the latter. Spoken words could be notoriously unreliable as against a written document that speaks a uniform language. It has been held that a person is not incapacitated to contract merely because of advanced years or by reason of physical infirmities. Only when such age or infirmities impair her mental faculties to such extent as to prevent her from properly, intelligently, and fairly protecting her property rights, is she considered incapacitated. The respondents utterly failed to show adequate proof that at the time of the sale on April 28, 1989 Carmen Ozamiz had allegedly lost control of her mental faculties. A person is presumed to be of sound mind at any particular time and the condition is presumed to continue to exist, in the absence of proof to the contrary. Competency and freedom from undue influence, shown to have existed in the other acts done or contracts executed, are presumed to continue until the contrary is shown. WHEREFORE, the instant petition is hereby GRANTED and the assailed Decision and Resolution of the Court of Appeals are hereby REVERSED and SET ASIDE. The Decision dated September 23, 1992 of the Regional Trial Court of Cebu City, Branch 6, in Civil Case No. CEB-10766 is REINSTATED. No pronouncement as to costs. NATURAL OBLIGATIONS: KINDS (1424-1430) 1. 2.

MANZANILLA VS. CA, MARCH 15, 1990 RURAL BANK OF PARAÑAQUE VS. REMOLADO, MARCH 18, 1985

MANZANILLA VS. COURT OF APPEALS 183 SCRA 207 FACTS: In 1963, spouses Celedonio and Dolores Manzanilla sold on installment an undivided one-half portion of their residential house and lot. At the time of the sale, the said property was mortgaged to the Government Service Insurance System (GSIS), which fact was known to the vendees, spouses Magdaleno and Justina Campo. The Campo spouses took possession of the premises upon payment of the first installment. Some payments were made to petitioners while some were made directly to GSIS. On May 17, 1965, the GSIS filed its application to foreclose the mortgage on the property for failure of the Manzanilla spouses to pay their monthly amortizations. On October 11, 1965, the property was sold at public auction where GSIS was the highest bidder. Two months before the expiration of the period to redeem or on August 31, 1966, the Manzanilla spouses executed a Deed of Absolute Sale of the undivided one half portion of their property in favor of the Campo spouses. Upon the expiration of the period to redeem without the Manzanilla spouses exercising their right of redemption, title to the property was consolidated in favor of the GSIS and a new title issued in its name. In January 1969, the Manzanilla spouses made representations and succeeded in re-acquiring the property form the GSIS. Upon full payment of the purchase price, an Absolute Deed Of Sale was executed by GSIS in favor of the Manzanilla spouses. On May 14, 1973, the Manzanilla spouses mortgaged the property to the Biñan Rural Bank. On September 7, 1973, petitioner Ines Carpio purchased the property from the Manzanilla spouses and agreed to assume the mortgage in favor of Biñan Rural Bank. On November 12, 1973, private respondent Justina Campo registered her adverse claim over the said lot.

On October 3, 1977, petitioner Carpio filed an ejectment case against private respondent Justina Campo. On July 31, 1979, private respondent Justina Campo (already a widow) filed a complaint for quieting of title against the Manzanilla spouses and Ines Carpio praying among others, for the issuance to her of a certificate of title over the undivided one-half portion of the property. The trial court rendered its decision in favor of Campo. The decision was appealed by petitioners to the Court of Appeals; however it only affirmed the decision of the trial court. Petitioners’ Motion for reconsideration was denied. ISSUE: Whether or not petitioners are under any legal duty to reconvey the undivided one-half portion of the property to private respondent Justina Campo. RULING: NO, there may be a moral duty on the part of petitioners to convey the one-half portion of the property previously sold to private respondent. However, they are under no legal obligation to do so. Hence, the action to quiet title filed by private respondent must fail. NATURAL OBLIGATIONS: KINDS (1424-1430) RURAL BANK OF PARAÑAQUE, INC., petitioner, VS. ISIDRA REMOLADO and COURT OF APPEALS, respondents 1985 March 18 FACTS: This case is about the repurchase of mortgaged property after the period of redemption had expired. Isidra Remolado, 64, a widow, and resident of Makati, Rizal, owned a lot with an area of 308 square meters, with a bungalow thereon, which was leased to Beatriz Cabagnot. In 1966 she mortgaged it to the Rural Bank of Parañaque, Inc. as security for a loan of P15,000. She paid the loan. On April 17, 1971 she mortgaged it again to the bank. She eventually secured loans totalling P18,000. The loans become overdue. The bank foreclosed the mortgage on July 21, 1972 and bought the property at the foreclosure sale for P22,192.70. The one-year, period of redemption was to expire on August 21, 1973. On August 8, 1973 the bank advised Remolado that she had until August 23 to redeem the property. On August 9, 1973 or 14 days

before the expiration of the one-year redemption period, the bank gave her a statement showing that she should pay P25,491.96 for the redemption of the property on August 23. No redemption was made on that date. On September 3, 1973 the bank consolidated its ownership over the property. Remolado's title was cancelled. A new title, TCT No. 418737, was issued to the bank on September 5. On September 24, 1973, the bank gave Remolado up to ten o'clock in the morning of October 31, 1973, or 37 days, within which to repurchase (not redeem since the period of redemption had expired) the property. The bank did not specify the price. On October 26, 1973 Remolado and her daughter, Patrocinio Gomez, promised to pay the bank P33,000 on October 31 for the repurchase of the property. Contrary to her promise, Remolado did not repurchase the property on October 31. Five days later, or on November 5, Remolado and her daughter delivered P33,000 cash to the bank's assistant manager as repurchase price. The amount was returned to them the next day, November 6, 1973. At that time, the bank was no longer willing to allow the repurchase. Remolado filed an action to compel the bank to reconvey the property to her for P25,491.96 plus interest and other charges and to pay P35,000 as damages. The repurchase price was not consigned. A notice of lis pendens was registered. On November 15, the bank sold the property to Pilar Aysip for P50,000. A new title was issued to Aysip with an annotation of lis pendens The trial court ordered the bank to return the property to Remolado upon payment of the redemption price of P25,491.96 plus interest and other bank charges and to pay her P15,000 as damages. The Appellate Court affirmed the judgment. ISSUE: Whether or not the appellate court erred in reconveying the disputed property to Remolado. RULING: Yes. We hold that the trial court and the Appellate Court erred in ordering the reconveyance of the property. There was no binding agreement for its repurchase. Even on the assumption that the bank should be bound by its commitment to allow repurchase on or before October 31, 1973, still Remolado had no cause of action because she did not repurchase the property on that date. Justice is done according to law. As a rule, equity follows the law. There may be a moral obligation, often regarded as an equitable consideration

(meaning compassion), but if there is no enforceable legal duty, the action must fail although the disadvantaged party deserves commiseration or sympathy. The choice between what is legally just and what is morally just, when these two options do not coincide, is explained by Justice Moreland in Vales vs. Villa, 35 Phil. 769, 788 where he said: "Courts operate not because one person has been defeated or overcome by another, but because he has been defeated or overcome illegally. Men may do foolish things, make ridiculous contracts, use miserable judgment, and lose money by them - indeed, all they have in the world; but not for that alone can the law intervene and restore. There must be, in addition, a violation of law, the commission of what the law knows as an actionable wrong before the courts are authorized to lay hold of the situation and remedy it." In the instant case, the bank acted within its legal rights when it refused to give Remolado any extension to repurchase after October 31, 1973. It had given her about two years to liquidate her obligation. She failed to do so. Thus, the Appellate Court's judgment is reversed and set aside.

house, the swimming pool, and the fence surrounding the properties on the understanding that the petitioners would merely hold title in trust for the respondents’ beneficial interest. Petitioner Huangs leased the property to Deltron Corporation for its official quarters without the permission of the respondents. But later, the lessees prohibited the use of the swimming pool by the respondents, and the Huangs began challenging the respondents’ ownership of the property. Thus, respondents filed a complaint before the trial court for the nullification of the deed of sale to the petitioners and the quieting of title of Lot 20. The trial court found that the respondents were the real owners of the Lot 20 and therefore ordered the petitioners to vacate the property and to remit to the respondents the rentals earned from Lot 20. The Court of Appeals affirmed the lower court’s decision. Hence, the instant recourse. ISSUE: Whether or not petitioners can claim ownership of the property registered in their name but for which was paid by the respondents.

KINDS OF TRUSTS: EXPRESS TRUST VS. IMPLIED TRUST 1. 2. 3. 4. 5.

HUANG VS. CA, 236 SCRA 420 VDA. DE ESCONDE VS. CA, 253 SCRA 66 ANCOG VS. CA, JUNE 30, 1997 MORALES VS. CA, JUNE 19, 1997 TALA REALTY VS. BANCO FILIPINO, 392 SCRA 506 SPS. RICARDO AND MILAGROS HUANG, Petitioner, VS. COURT OF APPEALS,Et. al, Respondents G.R. No. 108525 September 13, 1994

FACTS: Private respondents Dolores and Aniceto Sandoval wanted to buy two lots in Dasmarinas Village, Makati but was allowed to buy only one lot per policy of the subdivision owner. Private respondents bought Lot 21 and registered it in their name. Respondents also bought Lot 20 but the deed of sale was in the name of petitioner Ricardo Huang and registered in his name. Respondents constructed a house on Lot 21 while petitioners were allowed by respondents to build a house on Lot 20. Petitioners were also allowed to mortgage the Lot 20 to the SSS to secure a loan. Respondents actually financed the construction of the

RULING: No. Respondent Sandoval provided the money for the purchase of Lot 20 but the corresponding deed of sale and transfer certificate of title were placed in the name of petitioner Huang. Through this transaction, a resulting trust was created. Petitioner became the trustee of Lot 20 and its improvements for the benefit of respondent as owner. Article 1448 of the New Civil Code provides that 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 for the property. A resulting trust arises because of the presumption the he who pays for a thing intends a beneficial therein for himself. Given these provisions of law, petitioner was only a trustee of the property in question for the benefit of the respondent who is the real owner. Therefore, petitioner cannot claim ownership of the property even when it was registered in his name. Thus, petition is denied. The decision of the trial court as sustained by the Court of Appeals is affirmed, with costs against petitioners.

KINDS OF TRUSTS: EXPRESS TRUST VS. IMPLIED TRUST

CATALINA BUAN VDA. DE ESCONDE, CONSTANCIA ESCONDE VDA. DE PERALTA, ELENITA ESCONDE and BENJAMIN ESCONDE, petitioners, VS. HONORABLE COURT OF APPEALS and PEDRO ESCONDE, respondents 1996 February 01 G.R. No. 103635 FACTS: Petitioners Constancia, Benjamin and Elenita, and private respondent Pedro, are the children of the late Eulogio Esconde and petitioner Catalina Buan. Eulogio Esconde was one of the children and heirs of Andres Esconde. Andres is the brother of Estanislao Esconde, the original owner of the disputed lot who died without issue on April 1942. Survived by his only brother, Andres, Estanislao left an estate consisting of four (4) parcels of land in Samal, Bataan. Eulogio died in April, 1944 survived by petitioners and private respondent. At that time, Lazara and Ciriaca, Eulogio's sisters, had already died without having partitioned the estate of the late Estanislao Esconde. On December 5, 1946, the heirs of Lazara, Ciriaca and Eulogio executed a deed of extrajudicial partition, with the heirs of Lazara identified therein as the Party of the First Part, that of Ciriaca, the Party of the Second Part and that of Eulogio, the Party of the Third Part. Since the children of Eulogio, with the exception of Constancia, were then all minors, they were represented by their mother and judicial guardian, petitioner Catalina Buan vda. de Esconde who renounced and waived her usufructuary rights over the parcels of land in favor of her children in the same deed. The deed bears the thumbmark of Catalina Buan and the signature of Constancia Esconde, as well as the approval and signature of Judge Basilio Bautista. Pursuant to the same deed, transfer certificates of title were issued to the new owners of the properties. Transfer Certificate of Title No. 394 for Lot No. 1700 was issued on February 11, 1947 in the name of private respondent but Catalina kept it in her possession until she delivered it to him in 1949 when private respondent got married. Meanwhile, Benjamin constructed the family home on Lot No. 1698-B which is adjacent to Lot No. 1700. A portion of the house occupied an area of twenty (20) square meters, more or less, of Lot No. 1700. Benjamin also built a concrete fence and a common gate enclosing the two (2) lots, as well as an artesian well within Lot No. 1700.

Sometime in December, 1982, Benjamin discovered that Lot No. 1700 was registered in the name of his brother, private respondent. Believing that the lot was co-owned by all the children of Eulogio Esconde, Benjamin demanded his share of the lot from private respondent. However, private respondent asserted exclusive ownership thereof pursuant to the deed of extrajudicial partition and, in 1985 constructed a "buho" fence to segregate Lot No. 1700 from Lot No. 1698-B. Hence, on June 29, 1987, petitioners herein filed a complaint before the Regional Trial Court of Bataan against private respondent for the annulment of TCT No. 394. They further prayed that private respondent be directed to enter into a partition agreement with them, and for damages (Civil Case No. 5552). In its decision of July 31, 1989, the lower court dismissed the complaint and the counterclaims. It found that the deed of extrajudicial partition was an unenforceable contract as far as Lot No. 1700 was concerned because petitioner Catalina Buan vda. de Esconde, as mother and judicial guardian of her children, exceeded her authority as such in "donating" the lot to private respondent or waiving the rights thereto of Benjamin and Elenita in favor of private respondent. Because of the unenforceability of the deed, a trust relationship was created with private respondent as trustee and Benjamin and Elenita as beneficiaries However, the lower court ruled that the action had been barred by both prescription and laches. Lot No. 1700 having been registered in the name of private respondent on February 11, 1947, the action to annul such title prescribed within ten (10) years on February 11, 1957 or more than thirty (30) years before the action was filed on June 29, 1987.

Thus, even if Art. 1963 of the old Civil Code providing for a 30-year prescriptive period for real actions over immovable properties were to be applied, still, the action would have prescribed on February 11, 1977. Hence, petitioners elevated the case to the Court of Appeals which affirmed the lower court's decision. The appellate court held that the deed of extrajudicial partition established "an implied trust arising from the mistake of the judicial guardian in favoring one heir by giving him a bigger share in the hereditary property." It stressed that "an action for reconveyance based on implied or constructive trust" prescribes in ten (10) years "counted from the registration of the property in the sole name of the co-heir." ISSUE:

Whether or not the action was already barred with laches and prescription. RULING: Trust is the legal relationship between one person having an equitable ownership in property and another person owning the legal title to such property, the equitable ownership of the former entitling him to the performance of certain duties and the exercise of certain powers by the latter. Trusts are either express or implied. An express trust is created by the direct and positive acts of the parties, by some writing or deed or will or by words evidencing an intention to create a trust. No particular words are required for the creation of an express trust, it being sufficient that a trust is clearly intended. On the other hand, implied trusts are those which, without being expressed, are deducible from the nature of the transaction as matters of intent or which are superinduced on the transaction by operation of law as matters of equity, independently of the particular intention of the parties. In turn, implied trusts are either resulting or constructive trusts. These two are differentiated from each other as follows: 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 or 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. On the other hand, 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. While the deed of extrajudicial partition and the registration of Lot No. 1700 occurred in 1947 when the Code of Civil Procedure or Act No. 190 was yet in force, the Supreme Court held that the trial court correctly applied Article 1456. A deeper analysis of Article 1456 reveals that it is not a trust in the technical sense for in a typical trust, confidence is reposed in one person who is named a trustee for the benefit of another who is called the cestui que trust, respecting property which is held by the trustee for the benefit of the cestui que trust. 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. In the case at bench, petitioner Catalina Buan vda. de Esconde, as mother and legal guardian of her children, appears to have favored her elder son, private respondent, in allowing that he be given Lot No. 1700 in its entirety in the extrajudicial partition of the Esconde estate to the prejudice of her other children. Although it does not appear on record whether Catalina intentionally granted private respondent that privileged bestowal, the fact is that, said lot was registered in private respondent's name. After TCT No. 394 was handed to him by his mother, private respondent exercised exclusive rights of ownership therein to the extent of even mortgaging the lot when he needed money. If, as petitioners insist, a mistake was committed in allotting Lot No. 1700 to private respondent, then a trust relationship was created between them and private respondent. However, private respondent never considered himself a trustee. If he allowed his brother Benjamin to construct or make improvements thereon, it appears to have been out of tolerance to a brother.

Consequently, if indeed, by mistake, private respondent was given the entirety of Lot No. 1700, the trust relationship between him and petitioners was a constructive, not resulting, implied trust. Petitioners, therefore, correctly questioned private respondent's exercise of absolute ownership over the property. Unfortunately, however, petitioners assailed it long after their right to do so had prescribed. The rule that a trustee cannot acquire by prescription ownership over property entrusted to him until and unless he repudiates the trust, applies to express trusts and resulting implied trusts. However, in constructive implied trusts, prescription may supervene even if the trustee does not repudiate the relationship. Necessarily, repudiation of the said trust is not a condition precedent to the running of the prescriptive period. Since the action for the annulment of private respondent's title to Lot No. 1700 accrued during the effectivity of Act No. 190, Section 40 of Chapter III thereof applies. It provides: Sec. 40. Period of prescription as to real estate. An action for recovery of title to, or possession of, real property, or an interest

therein, can only be brought within ten years after the cause of such action accrues. Thus, in Heirs of Jose Olviga v. Court of Appeals, the Court ruled that the ten-year prescriptive period for an action for reconveyance of real property based on implied or constructive trust which is counted from the date of registration of the property, applies when the plaintiff is not in possession of the contested property. In this case, private respondent, not petitioners who instituted the action, is in actual possession of Lot No. 1700. Having filed their action only on June 29, 1987, petitioners' action has been barred by prescription. Not only that. Laches has also circumscribed the action for, whether the implied trust is constructive or resulting, this doctrine applies. 23 As regards constructive implied trusts, the Court held in Diaz, et al. v. Gorricho and Aguado that: . . . in constructive trusts (that are imposed by law), there is neither promise nor fiduciary relation; the so-called trustee does not recognize any trust and has no intent to hold for the beneficiary; therefore, the latter is not justified in delaying action to recover his property. It is his fault if he delays; hence, he may be estopped by his own laches. It is tragic that a land dispute has once again driven a wedge between brothers. However, credit must be given to petitioner Benjamin Esconde for resorting to all means possible in arriving at a settlement between him and his brother in accordance with Article 222 of the Civil Code. Verbally and in two letters, he demanded that private respondent give him and his sisters their share in Lot No. 1700. He even reported the matter to the barangay authorities for which three conferences were held. Unfortunately, his efforts droved fruitless. Even the action he brought before the court was filed too late. On the other hand, private respondent should not be unjustly enriched by the improvements introduced by his brother on Lot No. 1700 which he himself had tolerated. He is obliged by law to indemnify his brother, petitioner Benjamin Esconde, for whatever expenses the latter had incurred. KINDS OF TRUSTS: EXPRESS TRUST VS. IMPLIED TRUST JOVITA YAP ANCOG, and GREGORIO YAP, JR., petitioners, VS. COURT OF APPEALS, ROSARIO DIEZ, and CARIDAD YAP, respondents G.R. No. 112260 June 30, 1997 FACTS:

The land, with improvements thereon, was formerly the conjugal property of the spouses Gregorio Yap and Rosario Diez. In 1946, Gregorio Yap died, leaving his wife, private respondent Rosario Diez, and children, petitioners Jovita Yap Ancog and Gregorio Yap, Jr., and private respondent Caridad Yap as his heirs. In 1954 and again 1958, Rosario Diez obtained loans from the Bank of Calape, secured by a mortgage on the disputed land, which was annotated on its Original Certificate of Title No. 622. When Rosario Diez applied again for a loan to the bank, offering the land in question as security, the bank’s lawyer, Atty. Narciso de la Serna, suggested that she submit an extrajudicial settlement covering the disputed land as a means of facilitating the approval of her application. The suggestion was accepted and on April 4, 1961, Atty. de la Serna prepared an extrajudicial settlement, which the heirs, with the exception of petitioner Gregorio Yap, Jr., then only 15 years old, signed. As a result, OCT No. 622 was cancelled and Transfer Certificate of Title No. 3447 (T-2411) was issued on April 13, 1961. On April 14, 1961, upon the execution of a real estate mortgage on the land, the loan was approved by the bank. Rosario Diez exercised rights of ownership over the land. In 1985, she brought an ejectment suit against petitioner Jovita Yap Ancog’s husband and son to evict them from the ground floor of the house built on the land for failure to pay rent. Shortly thereafter, petitioner Jovita Ancog learned that private respondent Rosario Diez had offered the land for sale.Petitioner Ancog immediately informed her younger brother, petitioner Gregorio Yap, Jr., who was living in Davao, of their mother’s plan to sell the land. On June 6, 1985, they filed this action for partition in the Regional Trial Court of Bohol where it was docketed as Civil Case No. 3094. As private respondent Caridad Yap was unwilling to join in the action against their mother, Caridad was impleaded as a defendant. Petitioners alleged that the extrajudicial instrument was simulated and therefore void. They claimed that in signing the instrument they did not really intend to convey their interests in the property to their mother, but only to enable her to obtain a loan on the security of the land to cover expenses for Caridad’s school fees and for household repairs. The trial court rendered judgment dismissing petitioners’ action. It dismissed petitioners’ claim that the extrajudicial settlement was simulated and held it was voluntarily signed by the parties. Observing that even without the need of having title in her name Rosario Diez was able to obtain a loan using the land in question as collateral, the court held that the extrajudicial settlement could not have been simulated for the purpose of enabling her to obtain another loan. Petitioners failed to overcome the presumptive validity of the extrajudicial settlement as a public instrument. The court instead found that petitioner Ancog had waived her right to the land, as shown by the fact that on February 28, 1975, petitioner’s husband, Ildefonso Ancog, leased the property from private respondent Diez. Furthermore, when the spouses Ancog applied for a loan to the Development Bank of the Philippines using the land in question as collateral, they accepted an appointment from Rosario Diez as the latter’s attorney-in-fact. The court also found that the action for partition had already prescribed.On appeal, the Court of Appeals upheld the validity of the extrajudicial settlement and sustained the trial court’s dismissal of the case. The appellate court emphasized that the extrajudicial settlement could not have been simulated in order to obtain a loan, as the new loan was merely “in addition to” a previous one which private respondent Diez had been able to obtain even without an extrajudicial settlement. Neither did petitioners adduce evidence to prove that an extrajudicial settlement was indeed required in order to obtain the additional loan. The appellate court held that considering petitioner Jovita Yap Ancog’s educational attainment (Master of Arts and Bachelor of Laws), it was improbable that she would sign the settlement if she did not mean it to be such. Hence, this petition. ISSUE: Whether or not the appellate court erred in ruling that petitioner Gregorio Yap, Jr., one of the co-owners of the litigated property, had lost his rights to the property through prescription or laches. RULING: In this case, the trial court and the Court of Appeals found no evidence to show that the extrajudicial settlement was required to enable private respondent Rosario Diez to obtain a loan from the Bank of Calape. Petitioners merely claimed that the extrajudicial settlement was demanded by the bank.To the contrary, that the heirs (Jovita Yap Ancog and Caridad Yap) meant the extrajudicial settlement to be fully effective is shown by the fact that Rosario Diez performed acts of dominion over the entire land, beginning with its registration, without any objection from them. Instead, petitioner Jovita Ancog agreed to lease the land from her mother, private respondent Rosario Diez, and accepted from her a special power of attorney to use the land in question as collateral for a loan she was applying from the DBP. Indeed, it was private respondent Diez who paid the loan of the Ancogs in order to secure the release of the property from mortgage Petitioner Jovita Yap Ancog contends that she could not have waived her share in the land because she is landless. For that matter, private respondent Caridad Yap is also landless, but she signed the agreement. She testified that she did so out of filial devotion to her mother. Thus, what the record of this case reveals is the intention of Jovita Ancog and Caridad Yap to cede their interest in the land to their mother Rosario Diez. It is immaterial that they had been initially motivated by a desire to acquire a loan. Under Art. 1082 of the Civil Code, every act which is intended to put an end to indivision among co-heirs is deemed to be a partition even though it should purport to be a sale, an exchange, or any other transaction.

The Supreme Court held that the Court of Appeals erred in ruling that the claim of petitioner Gregorio Yap, Jr. was barred by laches. In accordance with Rule 74, §1 of the Rules of Court, as he did not take part in the partition, he is not bound by the settlement. It is uncontroverted that, at the time the extrajudicial settlement was executed, Gregorio Yap, Jr. was a minor. For this reason, he was not included or even informed of the partition. Instead, the registration of the land in Rosario Diez’s name created an implied trust in his favor by analogy to Art. 1451 of the Civil Code, which provides: “When land passes by succession to any person and he causes the legal title to be put in the name of another, a trust is established by implication of law for the benefit of the true owner.” In the case of O’Laco v. Co Cho Chit, Art. 1451 was held as creating a resulting trust, which is founded on the presumed intention of the parties. As a general rule, it arises where such may be reasonably presumed to be the intention of the parties, as determined from the facts and circumstances existing at the time of the transaction out of which it is sought to be established. In this case, the records disclose that the intention of the parties to the extrajudicial settlement was to establish a trust in favor of petitioner Yap, Jr. to the extent of his share. Rosario Diez testified that she did not claim the entire property, while Atty. de la Serna added that the partition only involved the shares of the three participants. A cestui que trust may make a claim under a resulting trust within 10 years from the time the trust is repudiated. Although the registration of the land in private respondent Diez’s name operated as a constructive notice of her claim of ownership, it cannot be taken as an act of repudiation adverse to petitioner Gregorio Yap, Jr.’s claim, whose share in the property was precisely not included by the parties in the partition. Indeed, it has not been shown whether he had been informed of her exclusive claim over the entire property before 1985 when he was notified by petitioner Jovita Yap Ancog of their mother’s plan to sell the property.This Court has ruled that for prescription to run in favor of the trustee, the trust must be repudiated by unequivocal acts made known to the cestui que trust and proved by clear and conclusive evidence. Furthermore, the rule that the prescriptive period should be counted from the date of issuance of the Torrens certificate of title applies only to the remedy of reconveyance under the Property Registration Decree. Since the action brought by petitioner Yap to claim his share was brought shortly after he was informed by Jovita Ancog of their mother’s effort to sell the property, Gregorio Yap, Jr.’s claim cannot be considered barred either by prescription or by laches. WHEREFORE, the decision of the Court of Appeals is AFFIRMED with the MODIFICATION that this case is REMANDED to the Regional Trial Court for the determination of the claim of petitioner Gregorio Yap, Jr.

KINDS OF TRUSTS: EXPRESS TRUST VS. IMPLIED TRUST RODOLFO MORALES, represented by his heirs, and PRISCILA MORALES, petitioners, VS. COURT OF APPEALS (Former Seventeenth Division), RANULFO ORTIZ, JR., and ERLINDA ORTIZ, respondents Jun 19, 1997 G.R. No. 117228 FACTS: This is an action for recovery of possession of land and damages with a prayer for a writ of preliminary mandatory injunction filed by private respondents herein, spouses Ranulfo Ortiz, Jr. and Erlinda Ortiz, against Rodolfo Morales. The complaint prayed that private respondents be declared the lawful owners of a parcel of land and the two-storey residential building standing thereon, and that Morales be ordered to remove whatever improvements he constructed thereon, vacate the premises, and pay actual and moral damages, litigation expenses, attorney's fees and costs of the suit. Priscila Morales, one of the daughters of late Rosendo Avelino and Juana Ricaforte, filed a motion to intervene in the case. No opposition thereto having been filed, the motion was granted on March 4, 1988. On November 30, 1988

Rodolfo Morales passed away. The trial court allowed his substitution by his heirs, Roda, Rosalia, Cesar and Priscila, all surnamed Morales. The trial court rendered its decision in favor of plaintiffs, private respondents herein. Dissatisfied with the trial court's decision, defendants heirs of Rodolfo Morales and intervenor Priscila Morales, petitioners herein, appealed to the Court of Appeals which in turn affirmed the decision. ISSUE: Whether or not Celso Avelino purchase the land in question from the Mendiolas as a mere trustee for his parents and siblings. RULING: Trusts are either express or implied. Express trusts are created by the intention of the trustor or of the parties, while implied trusts come into being by operation of law, either through implication of an intention to create a trust as a matter of law or through the imposition of the trust irrespective of, and even contrary to, any such intention. In turn, implied trusts are either resulting or constructive trusts. 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 or 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. On the other hand, 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. In the instant case, petitioners' theory is that Rosendo Avelino owned the money for the purchase of the property and he requested Celso, his son, to buy the property allegedly in trust for the former. The fact remains, however, that title to the property was conveyed to Celso. Accordingly, the situation is governed by or falls within the exception under the third sentence of Article 1448, “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.”

The preponderance of evidence, as found by the trial court and affirmed by the Court of Appeals, established positive acts of Celso Avelino indicating, without doubt, that he considered the property he purchased from the Mendiolas as his exclusive property. He had its tax declaration transferred in his name, caused the property surveyed for him by the Bureau of Lands, and faithfully paid the realty taxes. Finally, he sold the property to private respondents. The theory of implied trust with Celso Avelino as the trustor and his parents Rosendo Avelino and Juan Ricaforte as trustees is not even alleged, expressly or impliedly. Decision affirmed.

In August 1992, petitioner wrote respondent informing it of the expiration of the 11-year lease contract. They failed to reach an agreement. Thus, on April 14, 1994, petitioner notified respondent that the lease shall no longer be renewed and demanded that it vacate the premises and pay the rents in arrears amounting to P2,057,600.00. Respondent did not heed such demand, prompting petitioner to file civil case for illegal detainer. On February 5, 1998, the RTC rendered its Decision dismissing petitioner’s complaint for ejectment for lack of merit. On appeal via a petition for review, the Court of Appeals, on July 23, 1999, had dismissed the petition and upholding the 20-year lease contract between the parties.

KINDS OF TRUSTS: EXPRESS TRUST VS. IMPLIED TRUST TALA REALTY SERVICES CORPORATION, petitioner, VS. BANCO FILIPINO SAVINGS AND MORTGAGE BANK, respondent 2004 Jan 29 G.R. No. 143263 FACTS: In 1979, Banco Filipino, respondent, had to unload some of its branch sites since it has reached its allowable limit under Section 25(a) and 34 of Republic Act 337, as amended, otherwise known as the General Banking Act. The major stockholders of Banco Filipino formed a corporation known as TALA Realty Services Corporation, herein petitioner. TALA stands for the names of Banco Filipino’s four major stockholders, namely, Antonio Tiu, Tomas Aguirre, Nancy Lim and Pedro Aguirre. On August 25, 1981, respondent bank executed in favor of petitioner TALA eleven deeds of sale transferring to the latter its branch sites. In turn, petitioner leased these branch sites to respondent through separate contracts of lease for a period of twenty years, renewable for another twenty years, at the option of respondent, with a monthly rental of P12,000.00 and require respondent bank to pay petitioner P602,500.00 as advance rentals. That day, another lease contract was executed by the parties covering each branch site providing for a period of eleven years, renewable for another nine years at the option of respondent. And respondent bank was required to pay P602,500.00 as security deposit for the performance of the terms and conditions of the contract.

ISSUE: Whether respondent may be ejected from the leased premises for nonpayment of rent. RULING: No, the Supreme Court ruled that the parties deliberately circumvented the real estate investment limit under Sections 25(a) and 34 of the General Banking Act. Being in pari delicto, they should suffer the consequences of their deception by denying them any affirmative relief. Equity dictates that Tala should not be allowed to collect rent from the Bank. Both the Bank and Tala participated in the deceptive creation of a trust to circumvent the real estate investment limit under Sections 25(a) and 34 of the General Banking Act. Upholding Tala’s right to collect rent from the period during which the Bank was arbitrarily closed would allow Tala to benefit from the illegal ‘warehousing agreement.’ This would result in the application of the Bank’s advance rentals covering the eleventh to the twentieth years of the lease, to the rentals due for the period during which the Bank was arbitrarily closed. With the advance rentals already used up, and the Bank having stopped payment of the rent on the thirteenth year of the lease or in April 1994, rentals would be due Tala from the time the Bank stopped paying rent in April 1994 up to the expiration of the lease period. The Bank should not be allowed to dispute the sale of its lands to Tala nor should Tala be allowed to further collect rent from the Bank. The clean hands doctrine will not allow the creation or the use of a juridical relation such as a trust to subvert, directly or indirectly, the law. Neither the Bank nor Tala came to court with clean hands; neither will obtain relief from the court as one who seeks equity and justice must come to court with clean hands Thus, the petition is DENIED. The challenged Decision of the Court of Appeals dated July 23, 1999 and its Resolution dated May 16, 2000, are REVERSED and SET ASIDE.

IMPLIED TRUSTS: PRESCRIPTIVE PERIODS OF ACTION ENFORCE IMPLIED TRUSTS: IN ACTIONS TO QUIET TITLE 1. 2. 3. 4. 5. 6.

TO

HEIRS OF KIONISALA VS. HEIRS OF DACUT, 378 SCRA 206 RAMOS VS. RAMOS, 61 SCRA 284 INTESTATE ESTATE OF TY VS. CA, 356 SCRA 661 VDA. DE RETERTO VS. BARZ, 372 SCRA 712 CHIA LIONG TAN VS. CA, 228 SCRA 75 O’LACO VS. CO CHO CHIT, 220 SCRA 656

HEIRS OF AMBROCIO KIONISALA, namely, ANA, ISABEL, GRACE, JOVEN and CARMELO, all surnamed KIONISALA v VS. HEIRS OF HONORIO DACUT G.R. No. 147379 February 27, 2002 378 SCRA 206 FACTS: On 19 December 1995 private respondents filed a complaint for declaration of nullity of titles, reconveyance and damages against petitioners in the Regional Trial Court of Manolo Fortich, Bukidnon. This complaint involved 2 parcels of land known as Lot No. 1017 and Lot No. 1015 with areas of 117,744 square meters and 69,974 square meters respectively, located in Pongol, Libona, Bukidnon. On 7 September 1990 Lot No. 1017 was granted a free patent to petitioners Heirs of Ambrocio Kionisala under Free Patent No. 603393, and on 13 November 1991 Lot 1015 was bestowed upon Isabel Kionisala, one of the impleaded heirs of Ambrocio Kionisala under Free Patent No. 101311-91-904. Thereafter, on 19 November 1990 Lot 1017 was registered under the Torrens system and was issued Original Certificate of Title No. P-19819 in petitioners’ name, while on 5 December 1991 Lot No. 1015 was registered in the name of Isabel Kionisala under Original Certificate of Title No. P-20229. In support of their causes of action for declaration of nullity of titles and reconveyance, private respondents claimed absolute ownership of Lot 1015 and 1017 even prior to the issuance of the corresponding free patents and certificates of title.

After the hearing on 3 December 1996 the trial court dismissed complaint on the ground that the cause of action of private respondents truly for reversion so that only the Director of Lands could have filed complaint. On 23 December 1996 private respondents moved reconsideration of the order of dismissal but on 3 June 1997 the motion denied by the trial court.

the was the for was

On 7 June 1997 private respondents appealed the order of dismissal to the Court of Appeals. On 15 February 2000 the appellate court promulgated its assailed Decision reversing the order of dismissal. On 7 March 2000 petitioners moved for reconsideration of the CA Decision. On 22 January 2001 the appellate court denied the motion for lack of merit, hence this petition for review. ISSUE: Whether or not the action for nullity of free patents and certificates of title of Lot 1015 and Lot 1017 or the action for reconveyance based on implied trust of the same lots has prescribed. RULING: The Supreme Court ruled that neither the action for declaration of nullity of free patents and certificates of title of Lot 1015 and Lot 1017 nor the action for reconveyance based on an implied trust of the same lots has prescribed. It ruled that “a free patent issued over private land is null and void, and produces no legal effects whatsoever. Moreover, private respondents’ claim of open, public, peaceful, continuous and adverse possession of the 2 parcels of land and its illegal inclusion in the free patents of petitioners and in their original certificates of title also amounts to an action for quieting of title which is imprescriptible. The action for reconveyance based on implied trust, on the other hand, prescribes only after 10 years from 1990 and 1991 when the free patents and the certificates of title over Lot 1017 and Lot 1015, respectively, were registered. Obviously the action had not prescribed when private respondents filed their complaint against petitioners on 19 December 1995. At any rate, the action for reconveyance in the case at bar is also significantly deemed to be an action to quiet title for purposes of determining the prescriptive period on account of private respondents’ allegations of actual possession of the disputed lots. In such a case, the cause of action is truly imprescriptible.

Wherefore, the instant petition for review is denied. IMPLIED TRUSTS: PRESCRIPTIVE PERIODS OF ACTION TO ENFORCE IMPLIED TRUSTS: IN ACTIONS TO QUIET TITLE RAMOS VS. RAMOS 61 SCRA 284 FACTS: Spouses Martin Ramos and Candida Tanate died on October 4, 1906 and October 26, 1880, respectively. They were survived by their 3 children. Moreover, Martin was survived by his 7 natural children. In December 1906, a special proceeding for the settlement of the intestate estate of said spouses was conducted. Rafael Ramos, a brother of Martin, administered the estate for more than 6 years. Eventually, a partition project was submitted which was signed by the 3 legitimate children and 2 of the 7 natural children. A certain Timoteo Zayco signed in representation of the other 5 natural children who were minors. The partition was sworn to before a justice of peace. The conjugal hereditary estate was appraised at P74,984.93, consisting of 18 parcels of land, some head of cattle and the advances to the legitimate children. ½ thereof represented the estate of Martin. 1/3 thereof was the free portion or P12,497.98. The shares of the 7 natural children were to be taken from that 1/3 free portion. Indeed, the partition was made in accordance with the Old Civil code. Thereafter, Judge Richard Campbell approved the partition project. The court declared that the proceeding will be considered closed and the record should be archived as soon as proof was submitted that each he3ir had received the portion adjudicated to him. On February 3, 1914, Judge Nepumoceno asked the administrator to submit a report showing that the shares of the heirs had been delivered to them as required by the previous decision. Nevertheless, the manifestation was not in strict conformity with the terms of the judge’s order and with the partition project itself. 8 lots of the Himamaylan Cadastre were registered in equal shares in the names of Gregoria (widow of Jose Ramos) and her daughter, when in fact the administrator was supposed to pay the cash adjudications to each of them as enshrined in the partition project. Plaintiffs were then constrained to bring the suit before the court seeking for the reconveyance in their favor their corresponding participations in said parcels of land in accordance with Article 840 of the old Civil Code. Note that 1/6 of the subject lots represents the 1/3 free portion of martin’s shares which will eventually redound to the shares of his

7 legally acknowledged natural children. The petitioners’ action was predicated on the theory that their shares were merely held in trust by defendants. Nonetheless, no Deed of Trust was alleged and proven. Ultimately, the lower court dismissed the complaint on the grounds of res judicata, prescription and laches. ISSUE: Whether or not the plaintiffs’ action was barred by prescription, laches and res judicata to the effect that they were denied of their right to share in their father’s estate. RULING: YES, there was inexcusable delay thereby making the plaintiffs’ action unquestionably barred by prescription and laches and also by res judicata. Inextricably interwoven with the questions of prescription and res judicata is the question on the existence of a trust. It is noteworthy that the main thrust of plaintiffs’ action is the alleged holding of their shares in trust by defendants. Emanating from such, the Supreme Court elucidated on the nature of trusts and the availability of prescription and laches to bar the action for reconveyance of property allegedly held in trust. It is said that trust is the right, enforceable solely in equity to the beneficial enjoyment of property, the legal title to which is vested in another. It may either be express or implied. The latter ids further subdivided into resulting and constructive trusts. Applying it now to the case at bar, the plaintiffs did not prove any express trust. Neither did they specify the kind of implied trust contemplated in their action. Therefore, its enforcement maybe barred by laches and prescription whether they contemplate a resulting or a constructive trust. IMPLIED TRUSTS: PRESCRIPTIVE PERIODS OF ACTION TO ENFORCE IMPLIED TRUSTS: IN ACTIONS TO QUIET TITLE THE INTESTATE ESTATE OF ALEXANDER T. TY, represented by the Administratrix, SYLVIA S. TE, petitioner, VS. COURT OF APPEALS, HON. ILDEFONSO E. GASCON, and ALEJANDRO B. TY, respondents G.R. No. 112872 April 19, 2001 FACTS: Petitioner Sylvia S. Tywas married to Alexander T. Ty, son of private respondent Alejandro b. ty, on January 11, 1981. Alexander died of leukemia on May 19, 1988 and was survived by his wife, petitioner Silvia, and only child,

Krizia Katrina. In the settlement of his estate, petitioner was appointed administratrix of her late husband’s intestate estate. On November 4, 1992, petitioner filed a motion for leave to sell or mortgage estate property in order to generate funds for the payment of deficiency estate taxes in the sum of P4,714,560.00. Privite respondent Alejandro Ty then filed two complaints for the recovery of the above-mentioned property, praying for the declaration of nullity of the deed of absolute sale of the shares of stock executed by private respondent in favor of the deceased Alexander, praying for the recovery of the pieces of property that were placed in the name of deceased Alexander, they were acquired through private-respondent’s money, without any cause or consideration from deceased Alexander. The motions to dismiss were denied. Petitioner then filed petitions for certiorari in the Courts of Appeals, which were also dismissed for lack of merit. Thus, the present petitions now before the Court. ISSUE: Whether or not an express trust was created by private respondent when he transferred the property to his son. RULING: Private respondent contends that the pieces of property were transferred in the name of the deceased Alexander for the purpose of taking care of the property for him and his siblings. Such transfer having been effected without cause of consideration, a resulting trust was created. WHEREFORE, the petition for certiorari in G.R. No. 112872 is DISMISSED, having failed to show that grave abuse of discretion was committed in declaring that the regional trial court had jurisdiction over the case. The petition for review on certiorari in G.R. 114672 is DENIED, having found no reversible error was committed. IMPLIED TRUSTS: PRESCRIPTIVE PERIODS OF ACTION TO ENFORCE IMPLIED TRUSTS: IN ACTIONS TO QUIET TITLE VDA. DE RETUERTO VS. BARZ 372 SCRA 712

FACTS: Petitioners are the heirs of Panfilo Retuerto, while respondents are the heirs of Pedro Barz who is the sole heir of Juana Perez Barz. Juana Perez Barz was the original owner of Lot No. 896 having an area of 13,160 square meters. Before her death on April 16, 1929, Juana Perez executed a Deed of Absolute Sale in favor of Panfilo Retuerto over a parcel of land, identified as Lot No. 896-A, a subdivision of Lot No. 896, with an approximate area of 2,505 square meters. On July 22, 1940, the Court issued an Order directing the Land Registration Commission for the issuance of the appropriate Decree in favor of Panfilo Retuerto over the said parcel of land. However, no such Decree was issued as directed by the Court because, by December 8, 1941, the Second World War ensued in the Pacific. However, Panfilo failed to secure the appropriate decree after the war. Sometime in 1966, Pedro Barz, as the sole heir of Juana Perez, filed and application, with the then CFI of Cebu for the confirmation of his title over Lot 896 which included the Lot sold to Panfilo Retuerto. The Court ruled in his favor declaring him the lawful owner of the said property, and thus Original Certificate of Title No. 521 was issued. Lot No. 896-A however was continuously occupied by the petitioners. Thus, a confrontation arose and as a result respondents filed an action on September 5, 1989 for “Quieting of Title, Damages and Attorney’s Fees.” In their answer, petitioners claimed that they were the owners of a portion of the lot which was registered under the name of Pedro Barz and therefore the issuance of the Original Certificate of Title in Pedro Barz’s name did not vest ownership but rather it merely constituted him as a trustee under a constructive trust. Petitioners further contend that Pedro Barz misrepresented with the land registration court that he inherited the whole lot thereby constituting fraud on his part. ISSUE: Whether or not petitioners’ defense is tenable. RULING: NO, the contention is bereft of merit. Constructive trusts are created in equity to prevent unjust enrichment, arising 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. Petitioners failed to substantiate their allegation that their predecessor-in-interest had acquired any legal right to the property subject of the present controversy. Nor had they adduced evidence to show that the certificate of title of Pedro Barz was obtained through fraud.

Even assuming arguendo that Pedro Barz acquired title to the property through mistake or fraud, petitioners are nonetheless barred from filing their claim of ownership. An action for reconveyance based on an implied or constructive trust prescribes within ten years from the time of its creation or upon the alleged fraudulent registration of the property. Since registration of real property is considered a constructive notice to all persons, then the ten-year prescriptive period is reckoned from the time of such registering, filing or entering. Thus, petitioners should have filed an action for reconveyance within ten years from the issuance of OCT No. 521 in November 16, 1968. This, they failed to do so.

IMPLIED TRUSTS: PRESCRIPTIVE PERIODS OF ACTION TO ENFORCE IMPLIED TRUSTS: IN ACTIONS TO QUIET TITLE CHIAO LIONG TAN VS. COURT OF APPEALS 228 SCRA 75 FACTS: Petitioner Chiao Liong Tan claims to be the owner of a motor vehicle, particularly described as Isuzu Elf van, 1976 Model that he purchased in March 1987. As owner thereof, petitioner says he has been in possession, enjoyment and utilization of the said motor vehicle until his older brother, Tan Ban Yong, the private respondent, took it from him. Petitioner relies principally on the fact that the van is registered in his name under Certificate of Registration. He claims in his testimony before the trial court that the said motor vehicle was purchased from Balintawak Isuzu Motor Center for a price of over P100, 000. 00; that he sent his brother to pay for the van and the receipt fro payment was placed in his name because it was his money that was used to pay for the vehicle; that he allowed his brother to use the van because the latter was working for his company, the CLT Industries; and that his brother later refused to return the van to him and appropriated the same for himself. On the other hand, private respondent testified that CLT Industries is a family business that was placed in petitioner’s name because at that time he was then leaving for the United Stated and petitioner remaining Filipino in the family residing in the Philippines. When the family business needed a vehicle in 1987 for use in the deliver of machinery to its customers, he asked petitioner to look for a vehicle and gave him the amount of P5,000.00 to be deposited as

down payment for the van, which would be available in about a month. After a month, he himself paid the whole price out of a loan of P140, 000.00 from his friend Tan Pit Sin. Nevertheless, respondent allowed the registration of the vehicle in petitioner’s name. It was also their understanding that he would keep the van for himself because CLT Industries was not in a position to pay him. Hence, from the time of the purchase, he had been in possession of the vehicle including the original registration papers thereof, but allowing petitioner from time to time to use the van for deliveries of machinery. After hearing, the trial court found for the private respondent. Finding no merit in the appeal, the Court of Appeals affirmed the decision of the trail court. ISSUE: Whether or not the petitioner-appellant established proof of ownership over the subject motor vehicle.

RULING:

No. Petitioner did not have in his possession the Certificate of Registration of the motor vehicle and the official receipt of payment for the same, thereby lending credence to the claim of private respondent who has possession thereof, that he owns the subject motor vehicle. A certificate of registration of a motor vehicle in one’s name indeed creates a strong presumption of ownership. For all practical purposes, the person in whose favor it has been issued is virtually the owner thereof unless proved otherwise. In other words, such presumption is rebuttable by competent proof. The New Civil Code recognizes cases of implied trusts other than those enumerated therein. Thus, although no specific provision could be cited to apply to the parties herein, it is undeniable that an implied trust was created when the certificate of registration of the motor vehicle was placed in the name of the petitioner although the price thereof was not paid by him but by private respondent. The principle that a trustee who puts a certificate of registration in his name cannot repudiate the trust relying on the registration is one of the wellknown limitations upon a title. A trust, which derives its strength from the confidence one reposes on another especially between brothers, does not lose that character simply because of what appears in a legal document. WHEREFORE, the instant petition for review is hereby DENIED for lack of merit.

IMPLIED TRUSTS: PRESCRIPTIVE PERIODS OF ACTION TO ENFORCE IMPLIED TRUSTS: IN ACTIONS TO QUIET TITLE O'LACO VS. CO CHO CHIT 220 SCRA 656 1993 Mar 31 FACTS: This Case involves half-sisters each claiming ownership over a parcel of land. While petitioner Emilia O'Laco asserts that she merely left the certificate of title covering the property with private respondent O Lay Kia for safekeeping, the latter who is the former's older sister insists that the title was in her possession because she and her husband bought the property from their conjugal funds. The trial court declared that there was no trust relation of any sort between the sisters. The Court of Appeals ruled otherwise. Hence, the instant petition for review on certiorari of the decision of the appellate court together with its resolution denying reconsideration. ISSUE: Whether a resulting trust was intended by them in the acquisition of the property; Whether Prescription has set in. HELD: I.

YES. By definition, trust relations between parties may either be express or implied.

Express trusts are those which are created by the direct and positive acts of the parties, by some writing or deed, or will, or by words evincing an intention to create a trust. Implied trusts are those which, without being express, are deducible from the nature of the transaction as matters of intent, or which are superinduced on the transaction by operation of law as matters of equity, independently of the particular intention of the parties. Implied trusts may either be resulting or constructive trusts, both coming into being by operation of law. A resulting trust was indeed intended by the parties under Art. 1448 of the New Civil Code which states ----

"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 . . ." II. As differentiated from constructive trusts, where the settled rule is that prescription may supervene, in resulting trust, the rule of imprescriptibility may apply for as long as the trustee has not repudiated the trust. Once the resulting trust is repudiated, however, it is converted into a constructive trust and is subject to prescription. A resulting trust is repudiated if the following requisites concur: (a) the trustee has performed unequivocal acts of repudiation amounting to an ouster of the cestui qui trust; (b) such positive acts of repudiation have been made known to the cestui qui trust; and, (c) the evidence thereon is clear and convincing. In Tale v. Court of Appeals, the Court categorically ruled that an action for reconveyance based on an implied or constructive trust must perforce prescribe in ten (10) years, and not otherwise, thereby modifying previous decisions holding that the prescriptive period was four (4) years. Neither the registration of the Oroquieta property in the name of petitioner Emilia O'Laco nor the issuance of a new Torrens title in 1944 in her name in lieu of the alleged loss of the original may be made the basis for the commencement of the prescriptive period. For, the issuance of the Torrens title in the name of Emilia O'Laco could not be considered adverse, much less fraudulent. Precisely, although the property was bought by respondent-spouses, the legal title was placed in the name of Emilia O'Laco. The transfer of the Torrens title in her name was only in consonance with the deed of sale in her favor. Consequently, there was no cause for any alarm on the part of respondent-spouses. As late as 1959, or just before she got married, Emilia continued to recognize the ownership of respondent-spouses over the Oroquieta property. Thus, until that point, respondent-spouses were not aware of any act of Emilia which would convey to them the idea that she was repudiating the resulting trust. The second requisite is therefore absent. Hence, prescription did not begin to run until the sale of the Oroquieta property, which was clearly an act of repudiation. But immediately after Emilia sold the Oroquieta property which is obviously a disavowal of the resulting trust, respondent-spouses instituted the present suit for breach of trust. Correspondingly, laches cannot lie against them.

After all, so long as the trustee recognizes the trust, the beneficiary may rely upon the recognition, and ordinarily will not be in fault for omitting to bring an action to enforce his rights. There is no running of the prescriptive period if the trustee expressly recognizes the resulting trust. Since the complaint for breach of trust was filed by respondent-spouses two (2) months after acquiring knowledge of the sale, the action therefore has not yet prescribed. WHEREFORE, the Petition for Review on Certiorari is DENIED. The Decision of the Court of Appeals of 9 April 1981, which reversed the trial court, is AFFIRMED. Costs against petitioners.

THE

END

G.R. No. 100594 March 10, 1993 FACTS: On May 11, 1967, private respondents, through Angelina P. Echaus, in her capacity as Judicial Administrator of the intestate estate of Luis B. Puentevella, executed a Contract to Sell and a Deed of Sale of forty-two subdivision lots within the Phib-Khik Subdivision of the Puentevella family, conveying and transferring said lots to petitioner Binalbagan Tech., Inc. (hereinafter referred to as Binalbagan). In turn Binalbagan, through its president, petitioner Hermilo J. Nava (hereinafter referred to as Nava), executed an Acknowledgment of Debt with Mortgage Agreement, mortgaging said lots in favor of the estate of Puentevella. Upon the transfer to Binalbagan of titles to the 42 subdivision lots, said petitioner took possession of the lots and the building and improvements thereon. Binalbagan started operating a school on the property from 1967 when the titles and possession of the lots were transferred to it. It appears that there was a pending case, Civil Case No. 7435 of Regional Trial Court stationed at Himamaylan, Negros Occidental. In this pending case the intestate estate of the late Luis B. Puentevella, thru Judicial Administratrix, Angelina L. Puentevella sold said aforementioned lots to Raul Javellana with the condition that the vendee-promisee would not transfer his rights to said lots without the express consent of Puentevella and that in case of the cancellation of the contract by reason of the violation of any of the terms thereof, all payments therefor made and all improvements introduced on the property shall pertain to the promissor and shall be considered as rentals for the use and occupation thereof. Javellana having failed to pay the installments for a period of five years, Civil Case No. 7435 was filed by defendant Puentevella against Raul Javellana and the Southern Negros Colleges which was impleaded as a party defendant it being in actual possession thereof, for the rescission of their contract to sell and the recovery of possession of the lots and buildings with damages.

Note: This is page 188A of Casebook (Part I-Obligations) IDENTITY OF PRESTATION (WHERE PAYMENT MUST BE MADE) BINALBAGAN VS. COURT OF APPEALS

Accordingly, after trial, judgment was rendered in favor of Puentevella. Came December 29, 1965 when the plaintiffs in the instant case on appeal filed their Third-Party Claim based on an alleged Deed of Sale executed in their favor by spouses Jose and Lolita Lopez, thus Puentevella was constrained to assert physical possession of the premises to counteract the fictitious and unenforceable claim of herein plaintiffs.

Upon the filing of the instant case for injunction and damages on January 3, 1966, an ex-parte writ of preliminary injunction was issued by the Honorable Presiding Judge Carlos Abiera, which order, however, was elevated to the Honorable Court of Appeals which issued a writ of preliminary injunction ordering Judge Carlos Abiera or any other person or persons in his behalf to refrain from further enforcing the injunction issued by him in this case and from further issuing any other writs or prohibitions which would in any manner affect the enforcement of the judgment rendered in Civil Case 7435, pending the finality of the decision of the Honorable Court of Appeals in the latter case. Thus, defendant Puentevella was restored to the possession of the lots and buildings subject of this case. However, plaintiffs filed a petition for review with the Supreme Court which issued a restraining order against the sale of the properties claimed by the spouses-plaintiffs. When the Supreme Court dissolved the aforesaid injunction issued by the Court of Appeals, possession of the building and other property was taken from petitioner Binalbagan and given to the third-party claimants, the de la Cruz spouses. Petitioner Binalbagan transferred its school to another location. In the meantime, the defendants in Civil Case No. 293 with the Court of Appeals interposed an appeal. On October 30, 1978, the Court of Appeals rendered judgment, reversing the appealed decision in Civil Case No. 293. On April 29, 1981, judgment was entered in CA-G.R. No. 42211, and the record of the case was remanded to the court of origin on December 22, 1981. Consequently, in 1982 the judgment in Civil Case No. 7435 was finally executed and enforced, and petitioner was restored to the possession of the subdivision lots an May 31, 1982. It will be noted that petitioner was not in possession of the lots from 1974 to May 31, 1982. After petitioner Binalbagan was again placed in possession of the subdivision lots, private respondent Angelina Echaus demanded payment from petitioner Binalbagan for the subdivision lots, enclosing in the letter of demand a statement of account as of September 1982 showing a total amount due of P367,509.93, representing the price of the land and accrued interest as of that date. As petitioner Binalbagan failed to effect payment, private respondent Angelina P. Echaus filed on October 8, 1982 Civil Case No. 1354 of the Regional Trial Court of the Sixth Judicial Region stationed in Himamaylan, Negros Occidental against petitioners for recovery of title and damages. Private respondent Angelina P. Echaus filed an amended complaint by including her

mother, brothers, and sisters as co-plaintiffs, which was admitted by the trial court on March 18, 1983. The trial court rendered a decision in favor of the petitioner because of prescription. Nonetheless, the Court of Appeals reversed said decision. ISSUE: Whether or not the petition is with merit. RULING: No. A party to a contract cannot demand performance of the other party's obligations unless he is in a position to comply with his own obligations. Similarly, the right to rescind a contract can be demanded only if a party thereto is ready, willing and able to comply with his own obligations there under (Art. 1191, Civil Code). In a contract of sale, the vendor is bound to transfer the ownership of and deliver, as well as warrant, the thing which is the object of the sale (Art. 1495, Civil Code); he warrants that the buyer shall, from the time ownership is passed, have and enjoy the legal and peaceful possession of the thing. As afore-stated, petitioner was evicted from the subject subdivision lots in 1974 by virtue of a court order in Civil Case No. 293 and reinstated to the possession thereof only in 1982. During the period, therefore, from 1974 to 1982, seller private respondent Angelina Echaus' warranty against eviction given to buyer petitioner was breached though, admittedly, through no fault of her own. It follows that during that period, 1974 to 1982, private respondent Echaus was not in a legal position to demand compliance of the prestation of petitioner to pay the price of said subdivision lots. In short, her right to demand payment was suspended during that period, 1974-1982. The prescriptive period within which to institute an action upon a written contract is ten years (Art. 1144, Civil Code). The cause of action of private respondent Echaus is based on the deed of sale afore-mentioned. The deed of sale whereby private respondent Echaus transferred ownership of the subdivision lots was executed on May 11, 1967. She filed Civil Case No. 1354 for recovery of title and damages only on October 8, 1982. From May 11, 1967 to October 8, 1982, more than fifteen (15) years elapsed. Seemingly, the 10-year prescriptive period had expired before she brought her action to recover title. However, the period 1974 to 1982 should be deducted in computing the prescriptive period for the reason that, as above discussed, from 1974 to 1982, private respondent Echaus was not in a legal position to initiate action against petitioner since as afore-stated, through no fault of hers, her warranty against eviction was breached. In the case of it was held that a court order deferring

action on the execution of judgment suspended the running of the 5-year period for execution of a judgment. Here the execution of the judgment in Civil Case No. 7435 was stopped by the writ of preliminary injunction issued in Civil Case No. 293. It was only when Civil Case No. 293 was dismissed that the writ of execution in Civil Case No. 7435 could be implemented and petitioner Binalbagan restored to the possession of the subject lots. Deducting eight years (1974 to 1982) from the period 1967 to 1982, only seven years elapsed. Consequently, Civil Case No. 1354 was filed within the 10year prescriptive period. Working against petitioner's position too is the principle against unjust enrichment, which would certainly be the result if petitioner were allowed to own the 42 lots without full payment thereof. WHEREFORE, the petition is DENIED and the decision of the Court of Appeals in CA-G.R. CV No. 24635 is AFFIRMED.