Sales Case Digest

Obligations and Contracts Definitions, Elements Cause in a Contract PNOC AND PNOC DOCKYARD D OCKYARD AND ENGINEERING CORP. VS. KEPPEL PHILIPPINES HOLDINGS, INC. G.R. NO. 202050 JULY 25, 2016 BRION, J. FACTS: Keppel entered into a lease agreement with Luzon Stevedoring Co. for 25 years for P2.1M. At the option of Luzsteveco, the rental fee could be totally or partially converted converted into equity shares in Keppel. At the end of the agreement, Keppel was given the option to purchase the land for P4.09M provided that it acquired the necessary qualification. However, Keppel at the time of the agreement was not qualified because less than 60% of its shareholding was Filipino-owned. Filipino-owned. If at the end of o f the agreement, Keppel was still unqualified, the lease agreement would automatically be renewed for another 25 years. After which, Keppel was again give the option to purchase the land up to the 30th year of the lease. Luzsteveco warranted not to sell the land or assign rights for the duration of the agreement unless Keppel consents. PNOC acquired the land, and Keppel did not object so long as the agreement was annotated on PNOC’s title, to which, t he latter consented. When Keppel qualified to acquire t he land, it

expressed its intention to purchase the land several times, but PNOC did not favourably respond. PNOC stated that the agreement was illegal for circumventing the constitutional prohibition against aliens holding lands in the Philippines. It also asserted that the option contract was void, as it was unsupported by a separate valuable consideration and that it was not privy to the agreement. ISSUE: Whether the option contract is void if it not supported by a separate value consideration, HELD: No. An option contract is a contract where one person grants to another person the right or privilege to buy or to sell a determinate thing at a fixed price, if he or she chooses to do so within an agreed period. It must necessarily have the essential elements of a contract. The consideration in an option contract may be anything of value, unlike in a sale where the purchase price must be in money or its equivalent. However, when the consideration is not monetary, the consideration must be clearly specified as such in the option contract or clause. When the written agreement itself does not state the consideration for the option contract, the offeree or promisee bears the burden of proving the existence of a separate consideration for the option. On the contrary, the option to t o convert the purchase price for shares should be deemed part of the consideration for the contract of sale itself, since the shares are merely an alternative to the actual cash price. The absence of consideration supporting the option o ption contract, however, does not invalidate the offer to buy or sell. An option unsupported by a separate consideration stands as an unaccepted offer to buy or sell which, when properly accepted, ripens into a contract to sell. Accordingly, when an option to buy or to sell is not supported by a consideration separate from the purchase price, the option constitutes as an offer to buy or to sell, which may be withdrawn by the offeror at any time prior to the

communication of the offeree's acceptance. When the offer is duly accepted, a mutual promise to buy and to sell under the first paragraph of Article 1479 of the Civil Code ensues and the parties' respective obligations become reciprocally reciprocally demandable. The court ruled that the offer to buy the land was timely accepted by Keppel. As early as 1994, Keppel expressed expressed its desire to exercise its option to buy the land. Instead of rejecting outright Keppel's acceptance, PNOC referred the matter to the Office of the Government Corporate Counsel (OGCC). Thus, when Keppel communicated its acceptance, the offer to purchase the Bauan land stood, not having been withdrawn by PNOC. The offer having been duly accepted, a contract to sell the land ensued which Keppel can rightfully demand PNOC to comply with.

Sources of Obligations Prima facie execution and authenticity of deed of sale. DAMASO T. AMBRAY AND CEFERINO T. AMBRAY, JR. VS. SYLVIA A. TSOUROUS, ET. AL. G. R. NO. 209264, JULY 5, 2016 PERLAS-BERNABE, J. FACTS: During their lifetime, Ceferino, Sr. and Estela owned several properties, one of which was a parcel of land located in San Pablo City denominated as Lot 2. On December 28, 1977, Ceferino, Sr. mortgaged Lot 2 with Manila Bank for the amount of P180,000.00. Prior to the discharge of the mortgage, Lot 2 was subdivided into three lots: Lot 2-A, Lot 2-B, and the subject property, Lot 2- C. Lot 2-C was registered in Ceferino, Sr.’s name. In June 1996, respondent Maristela discovered that the title covering Lot 2-C was cancelled and another was issued in the name of petitioners. It appears that by virtue of a notarized Deed of Absolute Sale date January 16, 1978, Ceferino, Sr. allegedly sold such portion of Lot 2 to petitioners for a consideration of P150,000.00. This prompted the respondents to file a criminal case for falsification of public document against petitioners before the MTCC of San Pablo City. The MTCC acquitted the petitioners of the charge for failure of the prosecution to prove t heir guilt beyond reasonable doubt. Thereafter, respondents filed the instant complaint for annulment of title, reconveyance, and damages against petitioners alleging alleging that the certificate of title t itle and the Deed of Sale were null and void because the signatures of Ceferino, Sr. and Estela thereon were forgeries. ISSUE: Whether a delay in the registration of the sale is a ground to invalidate the Deed of o f Sale HELD: As a rule, forgery cannot be presumed and must be proved by clear, positive and convincing evidence, and the burden of proof lies on the party alleging forgery. As against direct evidence consisting of the testimony of a witness who was physically present at the signing of the contract and who had personal knowledge thereof, the testimony of an expert witness constitutes indirect or circumstantial evidence at best. Between the questioned documents report presented by th e respondents and the testimony given by Estela in the falsification case in support of petitioners’ d efense, the Court finds greater evidentiary weight in favor of the latter. Estela gave t he positive testimony that Ceferino, Sr. himself who signed the Deed of Sale that conveyed Lot 2-C to petitioners and likewise verified her signature thereon. By virtue of these declarations, she confirmed the genuineness and authenticity of the questioned signatures. Thus, it follows that the t he Deed of Sale itself is valid and duly executed, contrary to the finding of the RTC, as affirmed by the CA, that it was of spurious nature. Further lending credenc credence e to the validity of the Deed of Sale is the th e well-settled principle that a duly notarized contract enjoys prima facie presumption of authenticity and due execution as well as the full faith and credence attached to a public instrument. The delay in the registration of the sale in favor of of petitioners neither affects nor invalidates the same, in light of the authenticity of the Deed of Sale itself.

Civil Liability PNB V. PABLO RAYMUNDO G.R. NO. 208672 DECEMBER 7, 2016 PERALTA, J, FACTS: Raymundo, then the Assistant Department Manager of PNB, approved for deposit a foreign draft check payable to Merry May Juan. Ms. Juan drew and negotiated 6 (six) checks and were approved for payment on the same day by Raymundo, without waiting for the foreign draft check, intended to fund the issued check, to be cleared by the PNB Foreign Currency Clearing Unit. Subsequently, the foreign draft check was dishonored for being fraudulent. For irregularly irregularly approving the payment of the six (6) checks issued by Ms. Juan, without waiting for the foreign draft check to be cleared, Raymundo, as then Department Manager of PNB San Pedro Branch, was administratively charged by PNB for fo r Conduct Prejudicial to the Interest of the Service and/or Gross Violation of Bank's Rules and Regulations. The RTC held that it would be too harsh and inequitable to impose criminal liability upon Raymundo, who approved the withdrawal because of his belief that the checks were funded, due to the absence of the stamp mark "Returned Check'' on the checks, and check return slips. Considering that Raymundo's duties as Branch Manager entailed a lot of responsibility, the RTC found it almost unreasonable to expect him to directly and personally check the books of accounts of each particular client every time a check is presented to the bank for payment and for his approval. Aggrieved, the PNB appealed from the civil aspect of the RTC Decision ISSUE: Whether the respondent may be held civilly liable despite his acquittal in the criminal action HELD: Our law recognizes two kinds of acquittal, with different effects on the civil liability of the accused. First is an acquittal on the t he ground that the accused is not the author of the act or omission complained of. This instance closes the door to civil liability. 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. Raymundo can still be held civilly liable for the charge of violation of Section 3(e) of R.A. No. 3019 because he was only acquitted for failure of the prosecution to establish his guilt beyond reasonable doubt. Raymundo’s gross negligence was shown through the comp laints and affidavits submitted to the court. It was shown that he violated the proper protocol on such kind of transactions. Raymundo's act of approving the deposit to Ms. Juan's newly-opened peso checking account of the peso conversion [P4,752,689.65] of the foreign check prior to the lapse of the 21-day 2 1-day clearing period is the proximate cause why the six (6) checks worth P4,000,000.00 were later encashed, thereby causing the PNB undue injury.

Nature and Effects of Obligations Kinds of Obligations Solidary Obligation AFP RETIREMENT AND SEPARATION BENEFITS SYSTEM (AFPRSBS) VS. EDUARDO SANVICTORES G.R. NO. 207586, AUGUST 17, 2016 MENDOZA, J. FACTS: Sometime in 1994, PEPI, formerly Antipolo Properties, Inc., offered to Sanvictores for sale on installment basis a parcel of land in Village East Executive Homes situated in Binangonan, Rizal. On April 20, 1994, Sanvictores paid the required down payment of ₱81,949.04; that on June 9, 1994, a Contract to Sell was executed by and between PEPI and AFPRSBS, as the seller, and Sanvictores, as the buyer on February 27, 1999, Sanvictores paid in full the purchase price of the subject property in the amount of ₱534,378.79. Despite the full payment, PEPI and AFPRSBS failed to execute the corresponding deed of absolute sale on the subject property and deliver the corresponding title thereto; that on September 6, 2000, Sanvictores demanded from PEPI the execution of the deed of sale and the delivery of the transfer certificate of title. PEPI claimed that the title t itle of the subject property was still with the Philippine National Bank (PNB) and could not be released due to the economic crisis. However, despite several follow-ups with PEPI, the latter did not communicate with Sanvictores Sanvictores for a period of four fo ur (4) years. Thereafter, Sanvictores filed filed a complaint for rescission of the contract to sell, refund of payment, damages, and attorney's fees against PEPI and AFPRSBS as being the subdivision developer and Espina as the treasurer of PEPI. ISSUE: Whether the nature of the obligation of the parties under the contract to sell was solidary despite the absence of stipulation HELD: A solidary obligation as 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 o f the debtors. On the other hand, a joint obligation is one in which each debtor 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 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 this regard, Article 1207 of the Civil Code provides: “The concurrence of two or more creditors or of two or more debtors in one and the same obligation does not imply that each one of the former has a right to demand, or that each one of the latter is bound to render, entire compliance with the prestation. There is a solidary liability only when the obligation expressly so states, or when the law or the nature of the obligation requires solidarity.” In this case, there was t hus no delineation as to the rights and obligations of PEPI and AFPRSBS. The Court held that there is no doubt that the nature of the obligation of PEPI and AFPRSBS under the subject contract to sell was solidary. In the said contract, P EPI and AFPRSBS were expressly referred to as the "SELLER" while Sanvictores was referred to as the "BUYER." Indeed, the contract to sell did not

state "SELLERS" but "SELLER." This could only mean that t hat PEPI and AFPRSBS were considered as one seller in the contract. Being that said, there could be no other conclusion except that PEPI and AFPRSBS came to the contracting table with the intention to be bound jointly and severally. Also, the signatories were Espina, representing PEPI; Mena, representing AFPRSBS; and Sanvictores. Espina signed under PEPI as seller while Mena signed under AFPRSBS also as seller. Furthermore, the signatures of Espina and Mena were affixed again in the last portion of the Deed of Restrictions under the word "OWNER" with Espina signing for PEPI and Mena for AFPRSBS. AFPRSBS is estopped from denying Mena's authority to represent it. It is quite o bvious that AFPRSBS clothed Mena with apparent authority to act on its behalf in the execution of the contract to sell.

Payment of solidary debtors PHIL-NIPPON KYOEI, CORP. VS. ROSALIA T. GUDELOSAO, ET. AL. G. R. NO. 181375 JULY 13, 2016 JARDELEZA, J. FACTS: Petitioner purchased a “Ro-Ro” passenger/cargo vessel “MV Mahlia” in Japan in February 2003. For the vessel’s one-month conduction voyage from Japan to the Philippines, petitioner, as local principal, and

TMCL, as foreign principal, hired Edwin C. Gudelosao, Virgilio A. Tancontian, and six other crew members. They were hired through the local manning agency of TMCL, TEMMPC. Petitioner secured a Marine Insurance Policy from SSSICI over the vessel for P10,800,000.00 against loss, damage, and third party liability or expense, arising from the occurrence of the perils of the sea for the voyage of the vessel from Onomichi, Japan to Batangas, Philippines. On February 24, 2003, while still in Japanese waters, the vessel sank due to extreme bad weather condition. Only the Chief Engineer survived the incident. Respondents, as heirs and beneficiaries of Gudelosao and Tancontian, filed separate complaints for death benefits and other damages against petitioner. On August 5, 20 04, the Labor Arbiter rendered a Decision finding solidary liability among petitioner, TEMMPC, TMCL and Capt. Orbeta. On appeal, the NLRC absolved petitioner, TEMMPC, TMCL, and Capt. Orbeta from any liability based o n the limited liability rule. ISSUE: Whether the liability of petitioner is extinguished upon SSSICI's payment of insurance proceeds to the heirs and beneficiaries beneficiaries of the deceased employees HELD: Petitioner is solidarily liable with TEMMPC and TMCL for the death benefits under the POEA-SEC. The basis of the solidary liability of the t he principal with the local manning agent is found in the second paragraph of Section 10 of the Migrant Workers and Overseas Filipino Act of 1995, which provides that “the liability of the principal/employer and the r ecruitment/placement ecruitment/placement agency for any and all claims under this section shall be joint and several.” The rule is that the t he release of one solidary debtor redounds to the benefit of the others. Considering that petitioner is solidarily liable with TEMMPC and TMCL, the court holds that the Release and Quitclaim executed by respondents in favor of TEMMPC and TMCL redounded to the petitioner’s benefit. Accordingly, the liabilities of petitioner under Section 20(A)(1) and (4)(c) of the POEA-SEC to respondents are now deemed extinguished. extinguished.

Joint Obligations SPS. AMADO AND ESTHER IBAÑEZ V. JAMES HARPER G.R. No. 194272 February 15, 2017 JARDELEZA, J. FACTS: Sps. Amado and Ibañez borrowed the amount of P1,300.00 P 1,300.00 payable in three months, with the interest rate of 3% a month. The Sps. Ibañez issued a Promissory Note binding themselves jointly and severally to pay Ma. Consuelo and Consuelo the loan amount with interest. As security, Sps. Ibañez executed a Deed of Real Estate Mortgage in favor of Ma. Consuelo and Consuelo over a parcel of land and its improvements covered by TCT No. 202978 and the mortgage contained the same terms as the promissory note. All conditions of the mortgage have been violated and that all check payments were dishonored by the drawees and they applied for foreclosure of the real estate mortgage. The parties filed a Joint Motion for Approval of Amended Compromise Agreement signed signed by the Sps. Ibañez and Francisco, for himself and on behalf of Ma. Consuelo and Consuelo. The compromise agreement was later on approved by the RTC. ISSUE: Whether the subsequent subsequent compromise agreement agreement binds the parties to be liable solidarily as previously stipulated in the promissory note. HELD: The compromise agreement is binding on the contractual parties, being expressly acknowledged as  juridical agreement agreement between them, them, and has the effect and authority of res res judicata. There There is nothing in the Amended Compromise Agreement which shows a declaration that the obligation created was solidary. Pursuant to Article 1207, there is a solidary liability only when the obligation expressly so states, or when the law or the nature of the obligation requires solidarity. In this case, given that solidarity could not be inferred from the agreement, the presumption under the law applies  – the obligation is joint. As defined in Article 1208, a joint obligation is one where there is a concurrence concurrence of several creditors, or of several debtors, or of several debtors, or of several creditors and debtors, by virtue of which each of the creditors has a right to demand, and each of the debtors is bound to render compliance with his proportionate part of the prestation which constitutes the object of the o bligation. Each debtor answers only for a part of o f the whole liability and to each oblige belongs only a part of the correlative rights as it is only in solidary obligations that payment made to any one of the solidary creditors extinguishes the entire obligation. This means that Francisco, Ma. Consuelo and Consuelo are each entitled to equal shares in the P3,000,000 agreed upon in the Amended Compromise Agreement and that payment to Consuelo and Ma. Consuelo will not have the effect of discharging the obligation with respect to Francisco.

Quantum Meruit PHILIPPINE SCIENCE HIGH SCHOOL-CAGAYAN VALLEY CAMPUS (PSHS) VS. PIRRA CONSTRUCTION CONSTRUCTION ENTERPRISES G.R. NO. 204423 SEPTEMBER 14, 2016 DEL CASTILLO, J. Facts: PIRRA is engaged in contracting and a licensed contractor. contractor. It bid and won in constructing the PSHS’s construction projects which which consisted of Project A and Project C. Project P roject A was accepted as substantially completed. As such, PIRRA asked for the payment of the completed project. It stated that the payment thereof could not yet be made pending correction correction of the noted defects and remaining work activities, the final inspection of the concerned agencies, among other reasons. Project A was subjected by inspection of the COA. However, PIRRA was absent during such inspection. A joint inspection agreement agreement was entered into by the parties for COA’s reinspection but it did not materialize. PSHS informed PIRRA

that it was taking t aking over Project A in the interest of the government and to prepare for its occupancy for the incoming school year. PIRRA questioned the taking over as well as the inspection made by the COA. On Project C, PIRRA requested for several time suspensions because of the several problems that occurred. The parties entered into a joint inspection agreement but still the project was delayed to which PSHS attributed to the non-response of PIRRA. PIRRA suspended the work without approval. PSHS terminated the contract because of the events that occurred. PIRRA questioned such termination. PIRRA filed a complaint against PSHS before the CIAC for damages. ISSUE: Is PIRRA entitled to compensation despite the fact that it was not able to complete the project entered into with PSHH-CVC? HELD: Yes. The Court agreed that Project A had been substantially completed, thus, payment must be made to PIRRA. When PIRRA requested substantial acceptance and completion of Project A, PSHS did not object to such a request. It acted upon it and even created an Inspectorate Team for punch listing, and for the purpose of determining PIRRA's Billing Statement. The existence of the of the defective or undelivered items was not an excuse to avoid payment of the progress billing, billing, as the payment was due on the performed items that were completed or were otherwise performed, performed, save for the defects. Pursuant to Article 1234 of the Civil Code, if the obligation had been substantially performed in good faith, the obligor, in this case, PIRRA, may m ay recover as if it had strictly and completely fulfilled its obligation, less the damages suffered by the obligee or in this instance, PSHS. Hence, PSHS should pay PIRRA for the services that it rendered. It was held that PIRRA PIRRA incurred delay, suspended work without PSHS’ approval, and abandoned the project. Because of such, PSHS may terminate the contract since such was stipulated in the contract. Nonetheless, PIRRA is entitled to the value of the work done on Project C pursuant to the principle of quantum meruit and to avoid unjust enrichment on the part of PIRRA. Quantum meruit means that, in an action for work and labor, payment shall be made in such amount as the plaintiff reasonably deserves as it is unjust for a person to retain any benefit without paying for it.". To deny payment thereof would result in unjust enrichment of PSHS at the expense of PIRRA.

Contracts Indivisibility of contracts SPOUSES ALEXANDER AND JULIE LAM v. KODAK PHILIPPINES, LTD. G.R. No. 1 67615 January 11, 2016 LEONEN, J.: FACTS: On January 8, 1992, the Lam Spouses and Kodak Philippines, Ltd. entered into an agreement for the sale of three (3) units of the Kodak Minilab System 22XL6 in the amount of P1,796,000.00 per unit. Kodak Philippines, Ltd. delivered one (1) unit of the Minilab Equipment in Tagum, Davao Province. The Lam Spouses issued postdated checks amounting to P35,000.00 each for 12 months as payment for the first delivered unit. The Lam Spouses requested that Kodak Philippines, Ltd. not negotiate the check dated due to insufficiency of funds. However, both checks were negotiated by Kodak Philippines, Ltd. and were honored by the depository bank. The 10 other checks were subsequently subsequently dishonored after the Lam Spouses ordered the depository bank to stop payment. Kodak Philippines, Ltd. canceled the sale and demanded that the Lam Spouses return the unit it delivered together with its accessories. The Lam Spouses ignored the demand but also rescinded the contract through the letter dated November 18, 1992 on account of Kodak Philippines, Ltd.'s failure to deliver the two (2) remaining Minilab Equipment Equipment units. ISSUE: Whether the contract between petitioners and respondent pertained to obligations that are severable, divisible, and susceptible to partial performance HELD: The intention of the parties to bind themselves to an indivisible obligation can be further discerned through their direct acts in relation to the package deal. This intent must prevail even though the articles involved are physically separable and capable of being paid for and delivered individually. An obligation is indivisible when it cannot be validly performed in parts, whatever may be t he nature of the thing which is the object thereof. The indivisibility refers to the prestation and not to the object thereof. The Agreement between the parties contained an indivisible obligation. It contained a “package deal" involving three (3) units of the Kodak Minilab System 22XL. The intention of the parties is for there to be a single transaction covering all three (3) units of the Minilab Equipment. Respondent's obligation obligation was to deliver all products purchased under a "package," and, in turn, petitioners' obligation was to pay for t he total purchase price, payable in installments. The intention of the parties to bind themselves to an indivisible obligation can be further discerned through through their direct acts in relation to the package deal. The Letter Agreement specified only one purpose for the buyer, which was to obtain these units for three different outlets. If the intention of the parties were to have a divisible contract, then separate agreements could have been made for each Minilab Equipment unit instead of covering all three in one package deal. Furthermore, the 19% multiple order discount as contained in the Letter Agreement was applied to all three acquired units. There is no indication in the Letter Agreement that the unit’s petitioners ordered were covered by three (3) separate transactions.

Reformation of Instruments B.F. CORPORATION AND HONORIO PINEDA V. FORM-EZE SYSTEMS, INC. G.R. NO. 192948 DECEMBER 07, 2016 PEREZ, J. FACTS: On 29 August 2006, SM Prime Holdings, Inc. awarded the contract for general construction of the SM City-Marikina mall to BFC. In turn, BFC engaged Form-Eze for the lease of formwork system and related equipment for and needed by the Project. Five (5) contracts and two (2) letter agreements were executed by the BFC. On 30 March 2007, Form-Eze filed a Request for Arbitration before the CIAC. In its Complaint, Form-Eze alleged that BFC has an unpaid obligation amounting to P9,189,024.58; that BFC wanted to re-negotiate the equipment leases; and that it was not complying with the contractual and supplemental agreeme nts in effect. BFC’s contention is that the Contract #1 must be reformed to incorporate a provision that BFC shall deduct from said billing the cost of labor supplied by it for the fabrication and assembly of the forming system and for the stripping, cleaning, resetting thereof thereof at the rate of P60.00 per man-hour. BFC also demanded the refund of P5,773,440.00 as expenses for the manufacture of additional hardware to complete the 7,000 square meters of formwork required in Contract #1. BFC explained that Form-Eze had only furnished 4,682.4 square meters of formwork. ISSUE: Whether the contract expressed their true intention; and, if not, whether it was due to mistake, fraud, inequitable conduct or accident Is reformation of contract proper to incorporate a provision that BFC shall furnish the labor needed by assembling and that it shall deduct therefrom the agreed cost of labor since it has been the intention and agreement of the parties? HELD: Yes. Reformation is a remedy in equity, whereby a written instrument is made or construed so as to express or conform to the real intention of the parties, where some error or mistake has been committed. BFC relies on the Form-Eze Proposed SM Marikina Mall Project Elevated Beam and Slab Formwork dated 7 December 2006 to support its contention that Contract No. 1 should have a provision on the cost of labor. Indeed, in the proposal, BFC has agreed "to furnish the labor required for fabrication and assembly of the forming equipment" and that "BFC will deduct from the total contract amount 50.00 per man-hour each carpenter or laborer supplied to Form-Eze." Notably, Contracts No. 2 and 3 contain labor-guarantee provisions provisions considering that BFC has committed to provide the necessary labor for both contracts. The admission by Form-Eze bolsters the conclusion that the parties intended to include a labor guarantee provision in Contract No. 1. Both Contracts No. 2 and 3 set the labor rate at P60.00 P60 .00 per carpenter man-hour. Considering that both parties admitted that there should be a labor guarantee clause in Contract No. 1, 1 , it can be reasonably inferred inferred that the failure to include said provision was due to mistake. m istake. A reformation is in order to include a cost of labor provision in Contract No. 1.

Amendment of Contract BASES CONVERSION DEVELOPMENT AUTHORITY V. DMCI PROJECT DEVELOPERS, INC. G.R. NO. 173137 JANUARY 11, 2016 LEONEN, J. FACTS: On June 10, 1995, 1 995, Bases Conversion Development Authority entered into a Joint Venture Agreement with Philippine National Railways and other foreign corporations. Under the Joint Venture Agreement, the parties agreed to construct a railroad system from Manila to Clark with possible extensions to Subic Bay and La Union and later, possibly to Ilocos Norte and Nueva Ecija. BCDA organized and incorporated Northrail. Northrail was registered registered with the Securities and Exchange Commission on August 22, 1995. 1995 . On February 8, 1996, the Joint Venture Agreement was amended to include D.M. Consunji, Inc. and/or its nominee as party. The conflict arose when Northrail withdrew from the SEC its application for increased authorized capital stock. On September 27, 2000, DMCI-PDI started demanding from BCDA and Northrail the return of its P300 million deposit. DMCI-PDI cited Northrail's failure to increase its authorized capital stock as reason for the demand. However, BCDA and Nortrail refused to do so. On August 17, 2005, DMCIPDI served a demand for arbitration to BCDA and Northrail, citing the arbitration clause in the June 10, 1995 Joint Venture Agreement. BCDA and Northrail failed to respond. ISSUE: Whether DMCI-PDI may compel BCDA and Northrail to submit to arbitration when the former was not a party to the agreement containing the arbitration clause. HELD: DMCI-PDI may compel BCDA and Northrail to submit to arbitration proceedings proceedings in light of the policy in favor of arbitration. BCDA and Northrail assail DMCI-PDI's right to compel them to submit to arbitration based on the assumption that DMCI-PDI was not a party to the agreement containing the arbitration clause. However, three documents represent the agreement between BCDA, Northrail, and D.M. Consunji, Inc. Among the three documents, only the Joint Venture Agreement contains contains the arbitration clause. DMCI-PDI was allegedly not a party to the Joint Venture Agreement. Amendments or supplements to the agreement may be executed by contracting parties to address the circumstances or issues that arise while a contract subsists. When an agreement is amended, some provisions are changed. Certain parts or provisions may be added, removed, or corrected. These changes may cause effects that are inconsistent with the wordings of the contract before the changes were applied. In that case, the old provisions shall be deemed to have lost their force and effect, while the changes shall be deemed to have taken effect. Provisions that are not affected by the changes usually remain effective. When a contract is supplemented, new provisions that are not inconsistent with the old provisions are added. The nature, scope, and terms and conditions are expanded. A reading of all the documents of agreement shows that they were executed by the same parties. Initially, the Joint Venture Agreement was executed only by BCD A, P NR, and the foreign corporations. When the

Joint Venture Agreement was amended to include D.M. Consunji, Inc. and/or its nominee, D.M. Consunji, Inc. and/or its nominee were deemed to have been also a party to the original Joint Venture Agreement executed by BCDA, PNR, and the foreign corporations. D.M. Consunji, Inc. and/or its nominee became bound to the terms of both the Joint Venture Agreement and its amendment. Each document of agreement represents a step toward the implementation of the project, such that the three agreements must be read together for a complete understanding of the parties' whole agreement. The Joint Venture Agreement, the amended Joint Venture Agreement, and the Memorandum of Agreement should be treated as one contract because they all form part of a whole agreement. Hence, the arbitration clause in the Joint Venture Agreement should not be interpreted as applicable only to the Joint Venture Agreement's original parties. The succeeding agreements are deemed part of or a continuation of the Joint Venture Agreement. The arbitration clause should extend to all the agreements and its parties since it is still consistent with all the terms and conditions of the amendments and supplements.

Interpretation of Contracts Literal Application; Contracts TERESITA I. BUENAVENTURA VS. METROPOLITAN BANK AND TRUST COMPANY G.R. NO. 167082 AUGUST 3, 2016 BERSAMIN, J. FACTS: On January 20, 1997 and April 17, 1997, Teresita Buenaventura Buenaventura executed Promissory Notes each in the amount of P 1,500,000.00 and payable to Metrobank with interest and credit evaluation and supervision fee. Both PNs provide for penalty of 18% per annum on the unpaid principal from date of default until full payment of the obligation. Despite demands, there remained unpaid on PN Nos. 232663 and 232711 the amounts of P2,061,208.08 P2,061 ,208.08 and P1,492,236.37, respectively, as of July 15, 1998, inclusive of interest and penalty. Consequently, appellee filed an action against appellant for recovery of said amounts, interest, penalty and attorney's fees before the Regional Trial Court of Makati City. Petitioner averred that she is just a guarantor to the obligation of his nephew Rene Imperial and cannot be held liable unless the respondent exhausted all the properties of imperial. Petitioner also claimed that the Promissory Notes are contact of adhesion and must be construed against the respondent. HELD: The Promissory Notes were valid. First, the terms and conditions of the P romissory Notes were clear and unambiguous. Hence, the Court only needs to literally apply the contracts. While it is true that the Promissory Notes were considered contract of adhesion, such fact would not necessarily entitle the petitioner to bar their literal enforcement against her. Contracts of adhesion, such as in this case have the same validity and enforceability with that of ordinary contracts. Also, the claim of the petitioner that the Promissory Notes were meant as guaranties to secure the payment of the checks by Rene imperial was also denied. The Court ruled that a contract of guaranty is one where a person, the guarantor, binds himself or herself to another, the creditor, to fulfill the obligation of the principal debtor in case of failure of the latter to do so. It cannot be presumed, but must be express and in writing to be enforceable, especially especially as it is considered a

special promise to answer for the debt, default or miscarriage of another. It being clear that the promissory notes were entirely silent about the supposed guaranty in favor of Imperial, we must read the promissory notes literally due to the absence of any ambiguities about their language and meaning. In other words, the petitioner could not validly insist on the guaranty.Construction guaranty.Construction of words and phrases in the contract CENTURY PROPERTIES, INC. VS. EDWIN J. BABIANO AND EMMA B. CONCEPCION G. R. NO. 220978 JULY 5, 2016 PERLAS-BERNABE, J. FACTS: Babiano was hired by CPI as Director of Sales, and was eventually appointed as Vice President for Sales effective September 1, 2007. During that same period, Concepcion was initially hired as Sales Agent by CPI and was eventually promoted as P roject Director on September 1, 2007. As such, she signed an employment agreement, denominated as “ Contract of Agency for Project Director” which provided, among others, that she would directly report to Babiano.

After receiving reports that Babiano, among others, spread false information regarding CPI and for being absent without official leave for five days, CPI sent Babiano a Notice to Explain. On February 25, 2009, Babiano tendered his resignation and revealed that he had been accepted as Vice President of First Global BYO Development Corporation, a competitor of CPI. Respondents filed a complaint for non-payment of commissions and damages against CPI before the NLRC. The labor arbiter decided in CPI’s favor. On appeal, however, the NLRC ruled in favor

of the respondents. The CA later affirmed the NLRC ruling. HELD: Article 1370 of the Civil Code provides that “if the terms of a contract are clear and leave no

doubt upon the intention of the contracting parties, the literal meaning of its stipulations shall control. In this case, the assailed “Confidentiality of Documents and Non-Compete Clause” found in Babiano’s employment contract. Such clause states that Babiano is barred to “work for

whatsoever capacity with any person whose business is in direct competition with CPI while he is employed and for a period of one year for the date of his resignation or termination from the company,” it also expressly provided that should Babiano breach any term of the contract, forms

of compensation will be forfeited.”

Clearly, when Babiano sought and eventually accepted the position with First Global, he was still employed by CPI as he has not formally resigned at that time. Such act was a clear violation of the “Confidentiality of Documents and Non-Complete Clause” in his employment contract with

CPI, thus, justifying the forfeiture of his unpaid commissions.Ambiguity in contracts; harmonize POWER SECTOR ASSETS AND LIABLITIES L IABLITIES MANAGEMENT MANAGEMENT CORPORATION VS. SEM-SALACA POWER CORPORATION GR. NO. 204719, DEC. 5, 2016 PERALTA, J. FACTS: The Electric Power Industry Reform Act of 2001 (EPIRA), o r Republic Act (R.A.) No. 9136, which was signed into law by then President Gloria Macapagal Macapagal Arroyo on June 8, 2001, was intended to provide a framework for the restructuring of the electric power industry, including the privatization of the assets of the t he National Power Corporation (NPC), the transition to the desired competitive structure and the definition of the responsibilities of the various government agencies and private entities with respect to the reform of the electric power industry industry which included the creation of petitioner Power Sector Assets and Liabilities Management Corporation (PSALM), a government-owned and controlled corporation which took over ownership of the generation assets, liabilities, independent power producer (IPP) contracts, real estate and other disposable assets of the NPC. Among the assets put on sale by PSALM was the 600-MW Batangas Coal-Fired Thermal Thermal Power Plant in Calaca, Batangas (Calaca Power Plant). In July 2009, DMCI Holdings, Inc. (DMCI) was declared the highest bidder in the sale.] The sale was effected through an Asset P urchase Agreement (APA) executed by PSALM and DMCI on July 29, 2009, and became effective on August 3, 2009. DMCI transferred all of its rights and obligations under the APA and the Land Lease Agreement (also called Final Transaction Documents) to herein respondent SEM-Calaca Power Corporation (SCPC) by entering into an Amendment, Accession and Assumption Agreement that was signed by PSALM, DMCI and SCPC. SCPC contends that it is obliged to supply 10.841% of MERALCO's total requirement but not to exceed 169,000 kW in any hourly interval. However, PSALM holds a different view and contends

that SCPC is bound to supply the entire 10.841% 10 .841% of what MERALCO requires, without regard to any cap or limit. HELD: Among the key principles in the interpretation of contracts is that espoused in Article 1370, The rule means that the contract's meaning should be determined from its clear terms without reference to extrinsic facts or aids. The intention of the parties must be gathered from the contract's language, and from that language alone. Stated differently, where the language of a written contract is clear and unambiguous, the contract must be taken to mean that which, on its face, it purports to mean, unless some good reason can be assigned to show t hat the words should be understood in a different sense.In the case at bar, the Court finds that ambiguity indeed surrounds the figures 10.841% and 169,000 kW found in the contract, the former because it does not indicate a base value with a specific quantity and a definite unit of measurement and the latter because there is uncertainty as to whether it is a cap or limit on the party's obligation or not. These were similarly the findings of both the ERC and the appellate court. Even to the casual observer, it is obvious that the plain language alone of Schedule W does not shed light on these t hese figures. Then, case law is also settled on the rule that contracts should be so construed as to harmonize and give effect to its different provisions. The legal effect effect of a contract is not determined alone by any particular provision disconnected from all others, but from the whole read together. In simple terms, that SCPC is not accountable for any shortfall once it had delivered 169,000 kW at any given hour, the same being the responsibility responsibility of NPC. SCPC becomes liable only whenever it fails to deliver whichever is lower of 169,000 kW or 10.841% of MERALCO's requirements, at any given hour.Stipulation on interest IBM PHILIPPINES, INC. VS. PRIME SYSTEMS PLUS, INC. G.R. NO. 203192, AUGUST 15, 2016 DEL CASTILLO, J FACTS: Petitioner entered into an agreement with respondent whereby the former will deliver 45

automated teller machines (ATMs) and several computer hardware to respondent's customers. Thereafter, petitioner instituted a Complaint for sum of money against respondent. In the said Complaint, petitioner sought to have respondent pay the former respondent's unpaid obligation with 3% monthly interest. Respondent denied the allegations in the Complaint. Respondent also alleged that 'it had fully paid for the fifty six (56) ATMs it purchased from petitioner during the period covering December 1997 to February 1998. The Regional Trial Court ordered respondent to pay the amount with interest at 6% per annum from March 15, 2006. The appellate court meanwhile ordered respondent respondent to pay petitioner the amount with 6% annual interest from the time of filing of the Complaint. Petitioner claimed that the interest should be 3% as expressed in the agreement, hence the petition to the Supreme Court. HELD: It has been a long-standing rule that for interest to become due and demandable, two requisites must be present: (1) that there must be an express stipulation for the payment of interest and (2) the agreement to pay interest is reduced in writing. In this case, the amount of interest was never reduce to writing. The 3% interest was never agreed upon. The evidence points to respondent's lack of consent to a 3% monthly interest. Petitioner adamantly claims that respondent's act of requesting for a lower interest rate shows the latter's agreement to a 3% monthly interest. However, However, respondent's authorized representative representative never assented to petitioner's letter. Based on the evidence presented, to accept petitioner's misplaced argument that t he parties mutually agreed to a 3% monthly interest when respondent subsequently ordered ATMs despite receiving petitioner's letter imposing a 3% monthly interest will render the second condition - that the agreement be reduced in writing - futile. Although respondent did agree to the imposition of interest per se, the fact that there was never a clear rate of interest still leaves room to guess as to how much interest respondent will pay. Thus, the legal rate of interest shall prevail which is 6% interest per annum.Stipulation on breach of contract UNIVERSAL INTERNATIONAL INVESTMENT INVESTMENT (BVI) LIMITED V. RAY BURTON DEVELOPMENT CORPORATION G.R. NO. 182201 NOVEMBER 14, 2016 SERENO, C.J.

FACTS: RBDC owned and developed Elizabeth Place, a condominium located at H.V. De la Costa St., Salcedo Village, Makati City. On 18 October 1996, respondent and petitioner entered into separate Contracts to Sell covering the purchase of 10 condominium units and 10 parking slots in the building and in February 1999, petitioner paid respondent respondent the full purchase price of these t hese properties amounting to P52,836,781.50. Universal issued a letter dated 23 August 2000 to RBDC demanding the cancellation of the sales transaction after the latter failed to deliver possession of the properties and reneged on its obligation to transfer t ransfer the Condominium Certificates Certificates of Title (CCTs) to petitioner's name but RBDC ultimately failed to satisfy the demand of Universal to deliver the properties. Thereafter, Thereafter, petitioner discovered that the mother title to the lot of Elizabeth Place had been mortgaged to China Banking Corporation (China Bank) since 31 July 1991. HELD: The contract between the parties contain a stipulation when breach has been committed. RBDC counters that it cannot be considered in breach of the agreement, since Universal Universal failed to pay the transfer charges. The CA agreed with respondent's reasoning and thus rejected petitioner's demand for liquidated damages. The Supreme Court concurs with the CA's rejection of liquidated damages, but for a different reason. If the terms of the contract are clear and leave no doubt upon the intention of the contracting parties, the literal meaning of its stipulations shall control. In this case, the very words of Section 6 of the Contracts to Sell refer only to situations of (1) force majeure or (2) substantial delay in the condominium project, Elizabeth Place. Universal is not alleging either of these two circumstances. Rather, it is claiming damages for RBDC's failure to deliver possession of the condominium units, parking slots, and their CCTs. Hence, Section 6 of the Contracts to Sell is clearly inapplicable to petitioner's cause of action. Again, respondent had two obligations specified in Section 3 of the Contracts to Sell: (1) to deliver the deeds of absolute sale; and (2) to give the corresponding CCTs. RBDC admittedly failed to perform these obligations, but invoked the excuse that Universal had defaulted on the payment of transfer charges under Section 5(a) of the Contracts to Sell. Thus, petitioner is awarded

temperate damages in lieu of actual damages.Unenforceable Contracts IGLESIA FILIPINA INDEPENDIENTE VS. HEIRS OF BERNARDINO TAEZA G.R. NO. 179597 FEBRUARY 3, 2017 PERALTA, J. FACTS: IFI owned a parcel of land and was subdivided into 4 lots. One of the four lots was sold to Bienvenido. 2 of the lots were also sold to Bernardino whose payment was made through installments with mortgage to secure the payment. Bernardino allegedly allegedly completed the payments. Thereafter, a complaint for annulment of the deed of sale with mortgage to Bernardino was filed by the Parish Council. The complaint was dismissed because of the lack of personality to file the case. An action for annulment of the sale was again filed by the IFI against Bernardino which was dismissed again without prejudice upon the determination of the elected Supreme Bishop. In the meantime, Bernardino caused the registration of the lots under his name. For the third time, a case for annulment of the sale to Bernardino was filed by the Supreme Bishop of IFI. HELD: The sale made between the then Supreme Bishop and Bernardino was declared by the Supreme Court as unenforceable. Even if the Supreme Bishop had the authority to contract the sale, the laymen’s committee objected to such sale. The Canons state that all the church entities listed

must give their approval to the transaction. When the Supreme Bishop executed the contract of sale despite the opposition made by the laymen’s committee, he acted beyond his powers. Since

the property had already been transferred in the name of Bernardino, he becomes the trustor of the property. The prescription of such trust is within 10 years from such registration. The action was filed well within the prescriptive period so the property must be reconveyed to its true owner, IFI.Void and Inexistent Contracts Simulated Contract TERESITA I. BUENAVENTURA VS. METROPOLITAN BANK AND TRUST COMPANY G.R. NO. 167082 AUGUST 03, 2016 BERSAMIN, J.

FACTS: On January 20, 1997 and April 17, 1997, Teresita Buenaventura Buenaventura executed Promissory Notes each in the amount of P 1,500,000.00 and payable to Metrobank with interest and credit evaluation and supervision fee. Both PNs provide for penalty of 18% per annum on the unpaid principal from date of default until full payment of the obligation. Despite demands, there remained unpaid on PN Nos. 232663 and 232711 the amounts of P2,061,208.08 P2,061 ,208.08 and P1,492,236.37, respectively, as of July 15, 1998, inclusive of interest and penalty. Consequently, appellee filed an action against appellant for recovery of said amounts, interest, penalty and attorney's fees before the Regional Trial Court of Makati City. Petitioner averred that she is just a guarantor to the obligation of his nephew Rene Imperial and cannot be held liable unless the respondent exhausted all the properties of imperial. Petitioner also claimed that the Promissory Notes are contact of adhesion and must be construed against the respondent. HELD: There was no sufficiency of evidence to show that the promissory notes were simulated. Based on Article 1345 of the Civil Code, simulation of contracts is of two kinds, namely: (1) absolute; and (2)relative. Simulation is absolute when there is a contract but without any substance, the parties not intending to be bound thereby. It is relative when the parties come to an agreement that they hide or conceal in the t he guise of another contract. The effects of simulated contracts are in Article 1346 of the Civil Code: “An absolutely simulated or fictitious contract is void. A relative

simulation, when it does not prejudice a third person and is not intended for any purpose contrary to law, morals, good customs, public order or public policy binds the parties to their real agreement.” The burden of showing that a contract is simulated rests on the party impugning the

contract. This is because of the presumed validity of the contract that has been duly executed. The proof required to overcome the presumption of validity must be convincing and preponderant. Without such proof, therefore, the petitioner's allegation that she had been made to believe that the promissory notes would be guaranties for t he rediscounted checks, checks, not evidence of her primary and direct liability under loan agreements, could not stand. Moreover, the issue of simulation of contract was not brought up in the RTC. It was raised for the first time

only in the CA. Such belatedness forbids the consideration of simulation of contracts as an issue.Remedies in case of Breach of Contract Annulment of Contract DESIDERIO RANARA, JR. VS. ZACARIAS DE LOS L OS ANGELES, JR. G.R. NO. 200765 AUGUST 08, 2016 REYES, J FACTS: Leonor Parada loaned from De Los Angeles, Sr. an amount of money, to finance her migration to Canada which was actually from his son- Zacarias De Los Angeles, Jr. As security for the loan, Parada mortgaged an agricultural land to respondent, with the stipulation that the possession and farming of such land shall only be meant to pay for the interests of the loan. Allegedly, Parada executed a deed of sale with a right to repurchase the land, which was given to the respondent. When respondent’s father became sick, he demanded Parada to exercise her right of redemption and buy back the land as he badly needed money for his father’s hospital expenses. However

Parada did not do so, claiming that the land was never sold to respondent. Because of this, respondent sold the land to petitioner Ranara. The dispute reached the courts and the Regional Trial Court decided in favour of Parada finding that the contract entered into between Parada and respondent was one of an equitable mortgage. The appellate court affirmed the trial court’s decision, hence the petition to the Supreme Court under rule 45 of the Rules of Court with an issue as to whether the parties are in pari delicto. HELD: First, the Court said that the question of whether parties are in pari delicto are not covered by a Rule 45 petition. Second, such rule is inapplicable to this case. The Court held that the Latin for "in equal fault," in pari delicto connotes that two or more people are at fault or are guilty of a crime. This doctrine finds expression in the maxims "ex dolo malo non oritur actio" and "in pari delicto potior est condition defendentis. This doctrine is governed by the Civil Code specifically: When the nullity proceeds from the illegality of the cause or object of the contract, and the act constitutes a criminal offense, both parties being in pari delicto, they shall have no action against each other, and both shall be prosecuted (Article 1411); and, If the act in which the unlawful or

forbidden cause consists does not constitute a criminal offense, the following rules shall be observed: 1) When the fault is on the part of both contracting parties, parties, neither may recover what he has given by virtue of the contract, or demand the performance of the other's undertaking(Article undertaking(Article 1412). Thus the doctrine applies to contracts which are void for illegality of subject matter and not to contracts rendered void for being simulated, or those in which the parties do not really intend to be bound thereby. There is no illegal or unlawful cause in this case to make the doctrine applicable. The petitioner is mistaken in the application of the doctrine ofin pari delicto. The Court ruled that the petitioner cannot claim reimbursement for any expense incurred in the improvements on the lot.Rescission PHILIPPINE ECONOMIC ZONE AUTHORITY AND PILHINO SALES CORPORATION G.R. NO. 185765 SEPTEMBER 28, 2016 LEONEN, J. FACTS: PEZA published an invitation to bid for its acquisition of two (2) brand new fire truck units with complete accessories. 3 companies participated in the bidding and Pilhino was able to secure the contract. The contract stipulated that Pilhino was to deliver to the Philippine Economic Zone Authority two (2) FF3HP brand fire trucks within 45 days of receipt of a purchase order from the Philippine Economic Zone Authority as well as payment of a penalty. Pilhino failed to deliver which prompted PEZA to issue formal demands which were not complied with. A complaint for rescission and damages was filed. Pilhino countered that there was no starting date stipulated where its obligation to deliver was reckoned upon, considering that the Complaint supposedly failed to allege acceptance by Pilhino of the t he purchase order. HELD: A contract of sale entails reciprocal obligations. Rescission on account of breach of reciprocal obligations is provided for in Article 1191 of the Civil Code which 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 court sided with Pilhino that the rescission of a contract results in mutual restitution.

However, mutual restitution under Article 1191 is not a license for the negation of contractually stipulated liquidated damages. Petitioner already suffered damage by respondent's respondent's mere delay. The very same breach or delay in the performance that triggers rescission rescission is what makes damages due. When contracting parties, by their own free acts of will, agreed on what these damages ought to be, they established the law between themselves. Pilhino cannot balk at the natural result of its own breach. The exigencies that impelled petitioner to obtain fire trucks i.e. El Niño made it imperative for respondent to act with dispatch. Instead, it dragged its feet, left petitioner with inadequate means for addressing the very emergencies that engendered the need for fire trucks, and forced it into litigation to enforce its rights.STA. FE REALTY, INC. AND VICTORIA SANDEJAS FABREGAS VS. JESUS M. SISON G.R. NO. 199431 AUGUST 31, 2016 REYES, J FACTS: SFRI agreed to sell to Sison the south eastern portion of the land covered by TCT No. 61132. On October 19, 1989, SFRI executed a Deed of Sale over the subject property to Fabregas for the amount of P10,918.00. Fabregas, then, executed another deed of sale in favor of Sison fo r the same amount. This sale was authorized by SFRI in a Board Resolution and was then adopted by its Board of Directors together with the corresponding Secretary's Certificate. Thus he subdivided the land and built on a portion thereof. In the interim, Sta. Fe Realty also subdivided the parcels of land it owned and sold a subdivided portion to Fabregas. Sison claimed that said subdivided portion was the land sold by the realty to him. Fabregas claimed that she had extrajudicially rescinded the contract between her and Sison thus Sison had no rights over the land. The Regional Trial Court ruled in favour of Sison. The appellate court affirmed such ruling. Hence the petition to the Supreme Court, with petitioners claiming that the deed of sale between Sison and Fabregas was simulated and that there was rescission of the contract. HELD: The Court ruled that the unilateral rescission of the sale presupposes an implied admission of the validity of the deed of sale which the petitioners were claiming to be simulated. In any case, the remedy of rescission is based on the fulfilment of the obligation by the party and it is not on the t he

alleged lack of consideration of the contract. Here, it appears that Fabregas failed to judicially rescind the contract. The Court had already ruled that in the absence of a stipulation, a party cannot unilaterally and extrajudicially rescind rescind a contract. A judicial or notarial act is necessary before a valid rescission can take place. The party entitled to rescind should apply to the court for a decree of rescission. The right cannot be exercised solely on a party's own judgment that the other committed a breach of the t he obligation. The operative act which produces thy resolution of the contract is the t he decree of the court and not the mere act of the vendor. In other words, t he 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 conclusively and finally settle whether the action taken was or was not correct in law. While the petitioners claim that Sison did not pay the price of the subject property, the notice of rescission that Fabregas allegedly sent to Sison declaring her intention to rescind the sale did not operate to validly rescind the contract because there is absolutely no stipulation giving Fabregas the right to unilaterally rescind the contract in case of non-payment. Consequently, the unilateral rescission she made is o off no effect.CONCHITA A. SONLEY VS. ANCHOR SAVINGS BANK/EQUICOM BANK/EQUICOM SAVINGS BANK G.R. NO. 205623 AUGUST 10, 2016 DEL CASTILLO, J FACTS: Conchita Sonley entered into a Contract to Sell agreement over a parcel of land with Anchor Savings Bank. Upon her failure to pay her monthly obligations under the contract, Anchor rescinded the Contract to sell. However a compromise agreement was entered into whereby Conchita agreed to repurchase the land. Conchita however failed to pay her obligations as well under the compromise agreement, thus the bank rescinded such agreement. Thus a case was filed against Conchita before the Regional Trial Court which decided in favour of the bank. The appellate court ruled against Conchita as well. Hence the petition to the Supreme Court. Conchita contends that the bank has no right to exercise rescission. HELD:

Under Article 2041 of the Civil Code, "if one of the parties fails or refuses to abide by the compromise, the other party may either enforce the compromise or regard it as rescinded and insist upon his original demand." "The language of this Article 2041 denotes that no action for rescission is required and that the party aggrieved by the breach of a compromise agreement agreement may, if he chooses, bring the suit contemplated or involved in his original demand, as if there had never been any compromise agreement, without bringing an action for rescission thereof. He need not seek a judicial declaration of rescission, for he may ‘regard’ the compromise agreement already ‘rescinded’. The Compromise Agreement between the parties states: “This shall be without prejudice to the

right of the defendant to rescind this Compromise Agreement Agreement as provided under the "Contract to Sell". The Contract to Sell also states that the seller shall be entitled, as a matter of right, to rescind the contract. Pursuant to the stipulations of the contract, respondent has the right to rescind the agreement. Petitioner’s failure to abide by the agreement should result in execution, cancellation and rescission of the Compromise Agreement Agreement and Contract to Sell, and her eviction from the property.SPOUSES JAIME AND MATILDE POON VS. PRIME SAVINGS BANK G. R. NO. 183794 JUNE 13, 2016 SERENO, CJ. FACTS: Petitioners owned a commercial building in Naga City, which they used for their bakery business. On November 3, 2006, Matilde Poon and respondent executed a 10-year Contract of Lease over the building for the latter’s use as its branch office in Naga City.

Paragraph 24 of the Contract provides: 24. Should the lease[d] premises be closed, deserted or vacated by the L ESSEE, the LESSOR shall have the right to terminate the lease without the necessity of serving a court order and to immediately repossess the leased premises. Thereafter the LESSOR shall open and enter the leased premises in the presence of a representative of the LESSEE (or of the proper authorities) for the purpose of taking a complete inventory of all furniture, fixtures, equipment and/or other materials or property found within the leased premises. Barely three years later, however, the BSP placed respondent under the receivership of the

Philippine Deposit Insurance Corporation Corporation (PDIC) by virtue of BSP Monetary Board Boa rd Resolution No. 22. On May 12, 12 , 2000, respondent vacated the leased premises and surrendered them to petitioners. Subsequently, Subsequently, the PDIC issued petitioners a demand letter asking for the return of the unused advance rental on the ground that paragraph 24 of the lease agreement had become inoperative, because respondent’s closure constituted force majeure. Pe titioners, however,

refused the PDIC's demand. They maintained that they were entitled to retain the remainder of the advance rentals following paragra ph 24 of their Contract. Due to their refusal to PDIC’s demand, respondents filed for the partial rescission of the contract and recovery of sum of money before the RTC of Naga City. The RTC granted the petition. Held: The legal remedy of rescission is not limited to those enumerated in Articles 1381 and 1382 of the Civil Code. The Civil Code uses rescission in two different contexts, namely: 1) rescission on account of breach of contract under Article 1191; and 2) 2 ) rescission by reason of lesion or economic prejudice under Article Article 1381. In this case, the action instituted by the respondent was for the rescission of reciprocal obligations under Article 1191. Moreover, the closure of business of the respondent was neither a fortuitous nor an unforeseen event which rendered rendered the lease functus officio. The period during which the bank cannot do business due to insolvency is not a fortuitous event, unless it is shown that the government’s action to place a bank under receivership or liquidation

proceedings is tainted with arbitrariness, or that the regulatory body has acted withoutjurisdiction. There is no indication or allegation that the BSP's action in this case was tainted with arbitrariness or bad faith. Instead, its decision to place respondent under receivership and liquidation proceedings proceedings was pursuant to Section 30 of Republic Act No. 7653. Moreover, respondent was partly accountable for the closure of its banking business. It cannot be said, then, that the closure of its business was independent of its will as in the case of Provident Savings Bank. Mere inconvenience, unexpected impediments, increased expenses, or even pecuniary inability to fulfill an engagement, will not relieve the obligor from an undertaking that it has knowingly and freely contracted. Besides, nothing has prevented petitioners from putting their building to other profitable uses, since respondent surrendered surrendered the premises immediately after

the closure of its business.Novation EVER ELECTRICAL MANUFACTURING INC., VICENTE C. GO AND GEORGE C. GO VS. PHILIPPINE BANK OF COMMUNICATIONS (PBCOM) G.R. NOS. 187822-23, AUGUST 03, 2016 REYES, J. FACTS: Ever is a duly organized o rganized domestic corporation corporation with a history of transacting t ransacting with respondent Philippine Bank of Communications (PBCom), a domestic commercial bank. The parties had been involved in litigation for collection of a sum of money where PBCom was able to get a favorable Partial Judgment dated July 23, 2001 2 001 issued by the Regional Trial Court (RTC) of Manila, Branch 24. It loaned the amount of 65 million pesos from PBCom, a banking institution. The loan was secured by a real estate mortgage over two parcels of land and a promissory note, where it was indicated in the latter the maturity date of the loan and the interest rate. Ever was unable to pay at the agreed maturity date, thus a compromise agreement was entered into among Ever, PBCom, and Vicente Go, whereby Vicente would fully assume the past obligations of Ever to PBCom via instalment payments. The agreement further adds that failure of Vicente to pay the instalments agreed upon shall make the whole unpaid amount immediately demandable. However, However, Vicente was not able to make m ake the necessary payments as stipulated in the compromise agreement. HELD: There was no novation Partial Judgment dated July 23, 2001. The elements of Novation under the Civil Code are as follows: 1) There must be a previous valid obligation; 2) There must be an agreement of the parties concerned to a new contract; 3) There must be the extinguishment of the old contract; and, 4) There must be the validity of the new contract. In this case not all of the elements of novation were present. The Court held that t he compromise agreement entered into by the parties does not contain any provision releasing releasing Ever from its liability to PBCom. By virtue of the agreement, there is nothing to be construed from it releasing Ever from its obligation. Under the terms of the agreement, Vicente is an additional person who would ensure that the loan of Ever to PBCom would be paid and under the t he rules of novation, the mere act of adding another person to be personally liable, who in this case is Vicente, did not

constitute novation since there was no agreement to release Ever from its responsibility to PBCom. Ever is still liable to PBCom. Since there was no novation, PBCom may proceed to collect from the original debtor, Ever, under the terms of the original loan agreement.Damages agreement.Damages Liability of educational institutions in enrollment contracts; damages ST. LUKE’S COLLEGE OF MEDICINE-WILLIAM QUASHA MEMORIAL FOUNDATION VS. SPS. PEREZ

AND SPS.QUINTOS G.R. NO. 222740 SEPTEMBER 28, 2016 PEREZ, J. FACTS: The CHR issued a memorandum which required medical students to undergo rotating clinical clerkship in their fourth year. Petitioner entered into a Memorandum of Intent with the Municipality of Cabiao, Nueva Ecija for the construction of a community clinic. 4 medical students (Jessa, Cecille, Jerillie, and Miguel) were required to complete the clerkship rotation. While they were sleeping, Miguel heard one of them shout that there was a fire on the other side of their room. They tried to extinguish it but to no avail. They called for help and after sometime, they were rescued. Unfortunately, the daughters of the respondents died. St. Luke’s gave money

from the insurance proceeds. After some investigation, NBI declared that the construction of the Cabiao Community Clinic building was in violation of the provisions of Republic Act No. 9514 (R.A. No. 9514) or the t he Revised Fire Code of the Philippines, that the cause o f the fire was due to faulty electrical wiring, and that St. Luke's negligence is criminal in nature. Respondents filed a complaint for damages. HELD: The Municipality of Cabiao is only a necessary party. The case is between a school and its students with their relationship based on the enrollment contracts. Institutions of learning have the builtin obligation of their students with an atmosphere that promotes or assists in attaining its primary undertaking of imparting knowledge. Certainly, no student can absorb the intricacies of physics or higher mathematics or explore the realm of the arts and other sciences when bullets are flying or grenades exploding in the air or where there looms around the school premises a constant threat to life and limb. Necessarily, the school must ensure that adequate steps are taken to maintain peace and order within the campus premises and to prevent the breakdown

thereof. In the case at bar, the Cabiao Community Clinic is to be considered as part of the campus premises of St. Luke's. In the course description of the clerkship program program in preventive and community medicine, it is stated that the Cabiao Community Clinic serves as the base operation of the clerkship program. As such, petitioner had the same obligation to their students, even though they were stationed in the Cabiao Community Clinic, and it was incumbent upon petitioners to ensure that said Clinic was conducive for learning, that it had no constant threats to life and limb,and that peace and order was maintained thereat. After all, although away from the main campus of St. Luke's, the students were still under the same protective and supervisory custody of petitioners as the ones detailed in the main campus. Another point is that the victims were in the Cabiao Community Clinic because it was a requirement of petitioners. The students were complying with an obligation under the enrollment contract — they were rendering medical services services in a community center as required by petitioners. It was thus incumbent upon petitioners to comply with their own obligations under the enrollment contract - to ensure that the community center where they would designate their students is safe and secure, among others. Petitioners failed to take t he necessary precautions to guard their students against foreseeable harm. The petitioners were obviously negligent in detailing their students to a virtual fire trap. As found by the NBI, the Clinic was unsafe and was constructed in violation of numerous provisions of the Revised Fire Code of the Philippines. It had no emergency facilities, no fire exits, and had no permits or clearances from the appropriate government government offices.Sale o ffices.Saless Nature and Form of Contract Sale in Lump Sum ANITA U. LORENZANA VS. RODOLFO LELINA G.R. NO. 187850 AUGUST 17, 2016 JARDELEZA, J. FACTS: On April 1, 1975, Ambrosia Lelina (Ambrosia), married to Aquilino Lelina (Aquilino), executed a Deed of Absolute Sale over one-half (1/2) of an undivided parcel of land covered by Tax Declaration (TD) No. 14324-C (property) in favor of her son, the respondent. The Deed of

Absolute Sale, however, specified only an area of 810 sq. m. as the one-half (1/2) of o f the property covered by the tax declaration. Respondent immediately took possession of the property and that his tenants continue to give his share of the produce of the property. Around 1996, respondent and the tenants were invited to the Municipal Agrarian Office in Ilocos Sur. There, they were informed that informed that the property is already owned by petitioner by virtue of a Deed of Final Conveyance in the name of the petitioner. Petitioner claims claims that she became the judgment creditor in a case for collection of sum o f money (collection case) she filed against Aquilino. The property was auctioned and the petitioner was adjudged as the highest bidder. She obtained the certificate of sale and she subsequently had that registered under her name. HELD: Respondent rightfully owned his portion of the land. Petitioner does not question the validity of the Deed of Sale but merely the admissibility of the deed. As such, the deed was admitted in evidence as to its contents. Where land is sold for a lump sum and not so much m uch per unit of measure or number, the boundaries of the land stated in the contract determine the effects and scope of the sale, and not its area. This is consistent with Article 1542 of the Civil Code which provides: “In t he sale of 

real estate, made for a lump sum and not at the rate of a certain sum for a unit of measure or number, there shall be no increase or decrease of the price, although there be a greater or lesser areas or number than that stated in the contract. The same rule shall be applied when two or more immovables are sold for a single price; but if, besides mentioning the boundaries, which is indispensable in every conveyance of real estate, its area or number should be designated in the contract, the vendor shall be bound to deliver all that is included within said boundaries, evenwhen it exceeds the area or number specified in the contract; and, should he not be able to do so, he shall suffer a reduction in the price, in proportion to what is lacking in t he area or number, unless the contract is rescinded because the vendee does not accede to the failure to deliver what has been stipulated.”

In this case, the land covered by TD No. 14324-C in the Deed of Absolute Sale, from where the one-half (1/2) portion belonging to respondent is taken, has the following boundaries: North by

Constancio Batac & National Highway; East by Cecilio Lorenzana; South by Creek; and West by Andres Cuaresma. This description should prevail over the area specified in the Deed of Absolute Sale.Nature of pacto de retro SPOUSES ARCHIBAL LATOJA AND CHARITO LATOJA VS. HONORABLE ELVIE LIM, ET. AL . G. R. NO. 198925, JULY 13, 2016 SERENO, CJ. FACTS: On May 21, 1997, respondent Teresita Cabe, together with Donato A. Cardona II (Cardona II), executed a Deed of Sale with Pacto de Retro over a parcel of land registered under the “Heirs of  Donato Cardona represented by Jovita T. Cardona.” For failure of C ardona II to repurchase the

property from her within one year as agreed upon in the deed, Cabe filed a Petition for Consolidation of Ownership pursuant to Article 1607 of the Civil Code to the RTC. The petition was granted. Cardona II questioned the t rial court’s decision by filing with the Court of Appeals a

petition for certiorari which was dismissed by the CA. Cardona II also appealed to the Supreme Court which was also denied. Thereafter, respondent Cabe filed a motion for execution of the RTC decision in the consolidation case which was granted. Cabe prayed for the issuance of a Writ of Possession which was granted by Judge Lim of RTC Branch 2. Petitioners allege grave abuse of discretion on the part of Judge Lim contending that Judge Lim wrongly granted the motion for the issuance of a Writ of Possession to Cabe. HELD: The consolidation of title prescribed in Article 1607 of the Civil Code is merely for the purpose of registering and consolidating title to the property in case of a vendor a retro’s failure to redeem. Judge Lim overlooked the nature of the Pacto de Retro sale entered into by Cabe and Cardona II. It is basic that in a pacto de retro sale, the title and ownership of the property sold are immediately vested in the vendee a retro. As a result, the vendee a retro has a right to the immediate possession of the property sold, unless otherwise agreed upon. Therefore, the right of respondent Cabe to possess the subject property must be founded on the terms of the Pacto de Retro Sale itself, and not on the decision in the consolidation case.Contract to Sell

THELMA RODRIGUEZ VS. SPOUSES SIOSON, ET AL. G.R. NO. 199180 JULY 27, 2016 REYES, J. FACTS: The Municipality of Orani, Bataan purchased a land with an area of about 1.7 hectare of Lot 398 to be used for the extension of the public market from Neri delos Reyes. They also agreed that upon full payment of the purchase price, Neri will surrender surrender the mother title for the subdivision of the property on the condition that Neri will equitably share in the expense thereof. The lot was subdivided into 5 lots: Lot 398-A to Lot 398-E. Lots C and D were the portions sold to the Municipality and Lot E is a road lot. Lot A and B were the lots to which Neri maintained absolute title, registered in the name of “Neri delos Reyes, married to Violeta Lacuata”.

Neri alleged that the Municipal Mayor suggested that he sell Lot A to his aunt, petitioner Thelma. The Municipality would then expropriate the same from Thelma, to which Neri agreed. It was agreed that Thelma will pay in instalments, the purchase price of P1.2M but was only able to pay about P400,000. About the same time when she caused the annotation of an adverse claim, she saw an advertisement that a new common terminal would be built on Lot A without having any agreement that the same can already be used. HELD: The real character of the contract is not the title given, but the intention of the parties. Despite the denomination of their agreement as one of sale, the circumstances tend to show that Neri agreed to sell the subject property to Thelma on t he condition that title and ownership would pass or be transferred upon the full payment of the purchase price. This is the very nature of a contract to sell, which is a "bilateral contract whereby the prospective seller, while expressly reserving the ownership of the property despite delivery thereof to the prospective buyer, binds himself to sell the property exclusively to the prospective buyer upon fulfillment of the condition agreed upon, i.e., the full payment of the t he purchase price." As stated by the Court, the agreement to execute a deed of sale upon full payment of the purchase price "shows that the vendors reserved title to the subject property until full payment of the purchase price. The alleged alleged delivery of the property, even if true, is irrelevant irrelevant considering that in a contract to sell, ownership

is retained by the registered owner in spite of the partial payment of the purchase price and delivery of possession of the t he property.