Case 2

NARCISO DEGAÑOS vs. PEOPLE OF THE PHILIPPINES

G.R. No. 162826               October 14, 2013

FACTS:
Narciso and Aida Luz are brother and sister. Lydia knew them because they are the
relatives of her husband. The usual business practice of Sps. Atty Bordador with the
accused was for Narciso to receive the jewelry and gold items for and in behalf of Aida and
for Narciso to sign the "Kasunduan at Katibayan" receipts while Aida will pay for the price
later on. The subject items were usually given to Narciso only upon instruction from Aida
through telephone calls or letters. Said business arrangement went on for quite some time
since Narciso and Aida Luz had been paying religiously.

When the accused defaulted in their payment, they sent demand letters Aida sent a letter to
Lydia Bordador requesting for an accounting of her indebtedness. Lydia made an
accounting which contained the amount of P122,673.00 as principal and P21,483.00 as
interest. Thereafter, she paid the principal amount through checks. She did not pay the
interest because the same was allegedly excessive. Atty. Jose Bordador brought a ledger to
her and asked her to sign the same.

The said ledger contains a list of her supposed indebtedness to the private complainants.
She refused to sign the same because the contents thereof are not her indebtedness but
that of his brother, Narciso. She even asked the private complainants why they gave so
many pieces of jewelry and gold bars to Narciso without her permission and told them that
she has no participation in the transactions covered by the subject "Kasunduan at
Katibayan" receipts.

Co-accused Narciso categorically admitted that he is the only one who was indebted to the
private complainants and out of his indebtedness, he already made partial payments in the
amount of P53,307.00. Included in the said partial payments is the amount of P20,000.00
which was contributed by his brothers and sisters who helped him and which amount was
delivered by Aida to the private complainants. RTC found Narciso GUILTY beyond
reasonable doubt of the crime of estafa but acquitted Luz for insufficiency of evidence,
imposing on Narciso twenty years of reclusion temporal. On appeal, Degañ os assailed his
conviction

ISSUE:
Whether or not RTC erred in not finding that the agreement between the private
complainant and accused was one of sale on credit.

RULING:
Transaction was an agency, not a sale on credit. Narciso contends that his agreement with
the complainants relative to the items of jewelry and gold was a sale on credit, not a
consignment to sell on commission basis. The contention of Degañ os is devoid of factual
and legal bases. Based on the express terms and tenor of the “Kasunduan at Katibayan”,
Narciso received and accepted the items under the obligation to sell them in behalf of the
complainants and he would be compensated with the overprice as his commission. Plainly,
the transaction was a consignment under the obligation to account for the proceeds of sale,
or to return the unsold items.

As such, he was the agent of the complainants in the sale to others of the items. In contrast,
according the first paragraph of Article 1458 of the Civil Code one of the contracting parties
in a contract of sale obligates himself to transfer the ownership of and to deliver a
determinate thing, while the other party obligates himself to pay therefor a price certain in
money or its equivalent. Contrary to the contention of Narciso, there was no sale on credit
to him because the ownership of the items did not pass to him. Novation did not transpire
as to prevent the incipient criminal liability from arising Degañ os claims that his partial
payments to the complainants novated his contract with them from agency to loan, thereby
converting his liability from criminal to civil.

He insists that his failure to complete his payments prior to the filing of the complaint-
affidavit by the complainants notwithstanding, the fact that the complainants later required
him to make a formal proposal before the barangay authorities on the payment of the
balance of his outstanding obligations confirmed that novation had occurred. The CA
rejected the claim of Degañ os, opining that his argument that novation took place when the
private complainants accepted his partial payments before the criminal information was
filed in court and therefore, his criminal liability was extinguished is untenable Novation is
not one of the grounds prescribed by the RPC for the extinguishment of criminal liability.

Case 3
ANG YU ASUNCION, ARTHUR GO AND KEH TIONG vs. THE HON. COURT OF APPEALS
and BUEN REALTY DEVELOPMENT CORPORATION
G.R. No. 109125 December 2, 1994

FACTS:
A complaint for Specific Performance was filed by plaintiffs against Bobby Cu Unjieng and
Jose Tan. They were tenants or lessees of residential and commercial spaces owned by
defendants in Binondo. Defendants informed the plaintiffs that they are offering to sell the
premises and are giving them priority to acquire the same.

During negotiations, Cu Unjieng offered a price of P6- million while plaintiffs made a
counter of offer of P5-million. Plaintiff thereafter asked the defendants to put their offer in
writing to which the defendants acceded. In reply to defendants’ letter, plaintiffs wrote,
asking that they specify the terms and conditions of the offer to sell. When the plaintiffs did
not receive any reply, they sent another letter with the same request. Since defendants
failed to specify the terms and conditions of the offer to sell and because of information
received that the defendants were about to sell the property, plaintiffs were compelled to
file the complaint to compel defendants to sell the property to them. The court dismissed
the complaint on the ground that the parties did not agree upon the terms and conditions
of the proposed sale; hence, there was no contact of sale at all.

ISSUE:
Whether the agreement of the parties constitutes an option contract.

RULING:
No. An accepted unilateral promise which specifies the thing to be sold and the price to be
paid, when coupled with a valuable consideration distinct and separate from the price, is
what may properly be termed a perfected contract of option.

Article 1479 of the Civil Code states, viz:

An accepted unilateral promise to buy or to sell a determinate thing for a price certain is
binding upon the promissor if the promise is supported by a consideration distinct from
the price.

The option is not the contract of sale itself. The optionee has the right, but not the
obligation, to buy. Once the option is exercised timely, i.e., the offer is accepted before a
breach of the option, a bilateral promise to sell and to buy ensues and both parties are then
reciprocally bound to comply with their respective undertakings. Where a period is given
to the offeree within which to accept the offer, the following rules generally govern:
(1) If the period is not itself founded upon or supported by a consideration, the offeror is
still free and has the right to withdraw the offer before its acceptance, or, if an acceptance
has been made, before the offeror’s coming to know of such fact, by communicating that
withdrawal to the offeree. The right to withdraw, however, must not be exercised
whimsically or arbitrarily; otherwise, it could give rise to a damage claim under Article 19
of the Civil Code which ordains that “every person must, in the exercise of his rights and in
the performance of his duties, act with justice, give everyone his due, and observe honesty
and good faith.”

(2) If the period has a separate consideration, a contract of “option” is deemed perfected,
and it would be a breach of that contract to withdraw the offer during the agreed period.
The option, however, is an independent contract by itself, and it is to be distinguished from
the projected main agreement (subject matter of the option) which is obviously yet to be
concluded. If, in fact, the optioner-offeror withdraws the offer before its acceptance
(exercise of the option) by the optionee-offeree, the latter may not sue for specific
performance on the proposed contract (“object” of the option) since it has failed to reach its
own stage of perfection. The optioner-offeror, however, renders himself liable for damages
for breach of the option. In these cases, care should be taken of the real nature of the
consideration given, for if, in fact, it has been intended to be part of the consideration for
the main contract with a right of withdrawal on the part of the optionee, the main contract
could be deemed perfected; a similar instance would be an “earnest money” in a contract of
sale that can evidence its perfection (Art. 1482, Civil Code).

Case 4
ECE REALTY vs. MANDAP
G.R. No. 196182               September 1, 2014

FACTS:
The petitioner is a corporation engaged in building condominium units. The petitioner
started its construction at Pasay City. However, in their advertisement it provides that it is
situated in Makati City. The respondent in belief that the condo unit was in Makati City
agreed to buy a unit by paying reservation fee, downpayment and monthly installments. In
their Contract to Sell it indicated therein that the condo unit was in Pasay City.

More than two years after the execution of the contract, respondent demanded the return
of her payment on the ground that the unit was built in Pasay not in Makati.

ISSUE:
Whether or not the petitioner was guilty of fraud and if so, whether such fraud is sufficient
ground to nullify its contract with the respondent.

RULING:
First, the fraud must be dolo causante or it must be fraud in obtaining the consent of the
party. This is referred to as causal fraud. The deceit must be serious. The fraud is serious
when it is sufficient to impress, or to lead an ordinarily prudent person into error; that
which cannot deceive a prudent person cannot be a ground for nullity. The circumstances
of each case should be considered, taking into account the personal conditions of the
victim. Second, the fraud must be proven by clear and convincing evidence and not merely
by preponderance thereof.

In the present case, the Supreme Court finds that petitioner is guilty of false representation
of a fact. This is evidenced by its printed advertisements indicating that its subject
condominium project is located in Makati City when, in fact, it is in Pasay City. However,
insofar as the present case is concerned, the Court agrees with the Housing and Land Use
Arbiter, the HLURB Board of Commissioners, and the Office of the President, that the
misrepresentation made by petitioner in its advertisements does not constitute causal
fraud which would have been a valid basis in annulling the Contract to Sell between
petitioner and respondent.

Case 5
ASIAN CONSTRUCTION AND DEVELOPMENT CORPORATION vs. PHILIPPINE
COMMERCIAL INTERNATIONAL BANK
G.R. NO. 153827 April 25, 2006

FACTS:
Asian Construction and Development Corporation (ASIAKONSTRUKT) obtained credit
accommodations covered by a promissory note from PCI Banks . However, the promissory
note have NOT fully been paid having become due and demandable. Repeated verbal and
written demands were made upon asiakonstrukt , but to no avail. It has failed and refused
to pay its outstanding obligation to PCI bank.

The petitioner alleged as a defense “severe financial and currency crisis” in the
Philippines , which adversely affected and ultimately put it out of business . The
respondent contended that the alleged financial crisis was not a fortuitous event that
would excuse the respondent from their obligations nor is it an exempting circumstance.

ISSUE:
W/N the petitioner is exempt from the obligation because of the financial crisis .

RULING:
No. The petitioner may have experienced financial difficulties because of the “economic
crisis” . This does not constitute a valid justification for the petitioner to renege on its
obligations to the respondent . The court ruled that it is a fundamental rule that contracts,
once perfected binds both contracting parties, and obligations arising therefrom have the
force of law between the parties and should be complied with in good faith. But the law
recognizes an exception to the principle of the obligatory force of the contracts. One
exception is laid down in article 1266 of the civil code ( The debtor in obligations to do
shall also be released when the prestation becomes legally or physically impossible without
the fault of the obligor.”

Petitioner cannot take refuge in the said article , because it only applicable to obligations
“to do” , and not obligations “to give”. An obligation “to do “ includes all kinds of work or
service ; while an obligation “to give” is a prestation which consist in the delivery of a
movable or an immovable thing in order to create a real right or for the use of the
recipient , or for its simple possession , or in order to return it to its owner .

Thus, the petitioner is not exempt from fulfilling the obligation.

Case 6
PRIMITIVO ANSAY vs. THE BOARD OF DIRECTORS OF THE NATIONAL DEVELOPMENT
COMPANY
G.R. No. L-13667 April 29, 1960

FACTS:
On July 25, 1956, appellants filed against appellees in the Court of First Instance of Manila a
complaint praying for a 20% Christmas bonus for the years 1954 and 1955. Petitioners
admit that respondents are not under legal duty to give such bonus but that they had only
ask that such bonus be given to them because it is a moral obligation of respondents to give
that but as this Court understands, it has no power to compel a party to comply with a
moral obligation (Art. 142, New Civil Code).

ISSUE:
Is bonus demandable and enforceable?

RULING:
No. A bonus is not demandable and enforceable obligation, unless it is part of a wage or
salary compensation. But even if it does not form part of the wage, salary or compensation,
it may be granted on equitable consideration as when it was given in the past. "Civil
obligations are a right of action to compel their performance. Natural obligations, not being
based on positive law but on equity and natural law, do not grant a right of action to
enforce their performance, but after voluntary fulfillment by the obligor, they authorize the
retention of what has been delivered or rendered by reason thereof". An element of natural
obligation before it can be cognizable by the court is voluntary fulfillment by the obligor.
Certainly retention can be ordered but only after there has been voluntary performance.
But here there has been no voluntary performance. In fact, the court cannot order the
performance.

Case 7
DBP vs CONFESOR
G.R. No. L-48889 May 11, 1988

FACTS:
On February 10, 1940, spouses Patricio Confesor and Jovita Villafuerte obtained an
agricultural loan from Agricultural and Industrial Bank, now Development Bank of the
Philippines, in the sum of Two Thousand Pesos, as evidenced by a promissory note of said
date whereby they bound themselves jointly and severally to pay the amount in ten equal
yearly amortizations.

As the obligation remained unpaid even after the lapse if the ten-year period, Confesor,
who was then a member of the Congress of the Philippines, executed a second promissory
note on April 11, 1961, expressly acknowledging the said loan and promising to pay the
same on or before June 15, 1961.

The spouses still failed to pay the obligation on the specified date. As a result, the DBP filed
a complaint on September 11, 1970 in the City Court of Iloilo City. The city court ordered
payment from spouses. The CFI of Iloilo reversed the decision.

ISSUE:
Whether or not a promissory which was executed in consideration of a previous
promissory note which has already been barred by prescription is valid.

RULING:
Yes, the second promissory note is valid because the said promissory note is not a mere
acknowledgement of the debt that has prescribed already. Rather, it is a new promise to
pay the debt. A new promise is a new cause of action. Although a debt barred by
prescription is enforceable, a new contract recognizing and assuming the prescribed debt
would be valid and enforceable.

Case 8
Ansay vs. Board of Directors
G.R. No. L-13667 April 29, 1960

FACTS:
On July 25, 1956, appellants filed against appellees in the Court of First Instance of Manila a
complaint praying for 20% Christmas Bonus for the years 1954. Appellants contend that
there exists a cause of action in their complaint because their claim rests on moral grounds
or what in brief is defined by law as a natural obligation.

ISSUE:
Whether or not the respondents are entitled to pay the appellants the 20% Christmas
Bonus.

RULING:
Article 1423 of the New Civil Code classifies obligations into civil or natural . “ Civil
obligations are a right of action to compel their performance. Natural obligations, not being
based on positive law but on equity and natural law, do not grant a right of action to
enforce their performance, but after voluntary fulfillment by the obligor, thery authorize
the retention of what has been delivered or rendered by reason thereof”.

From the legal point of view a bonus is not a demandable and enforceable obligation. It is
so when it is made a part of the wage or salary compensation.

Case 9
ABS -CBN CORPORATION et. al. vs Office of the Ombudsman
G.R. 133347 April 23, 2010

FACTS:
Senator Fernandez, representing Benedicto, met with Senator Tañ ada to discuss on how to
arrive at a reasonable rental for the use of ABS-CBN stations and facilities. Thereafter, they
entered into a letter-agreement with ABS-CBN. Barely two weeks from their entry into the
ABS Broadcast Center, KBS personnel started making unauthorized withdrawals from the
ABS Stock Room. All these withdrawals of supplies and equipment were made under the
orders of Benedicto, et. al. No payment was ever made by either Benedicto for all the
supplies and equipment withdrawn from the ABS Broadcast Center. The SC dropped
respondents Benedicto and Tan from the case due to their untimely demise during the
pendency of the case.
ISSUE:
Whether or not a criminal prosecution will proceed to prosecute civil liability
notwithstanding the death of an accused during the pendency of the case?
RULING:
Death of an accused pending appeal of his conviction extinguishes his criminal liability as
well as the civil liability based solely thereon. As opined by Justice Regalado, in this regard,
“the death of the accused prior to final judgment terminates his criminal liability and only
the civil liability directly arising from and based solely on the offense committed, i.e., civil
liability ex delicto in senso strictiore.” Article 2176. of the Civil Code provides that,
”whoever by act or omission causes damage to another, there being fault or negligence, is
obliged to pay for the damage done. Such fault or negligence, if there is no pre-existing
contractual relation between the parties, is called a quasi-delict and is governed by the
provisions of this Chapter.”
Corollary, the claim for civil liability survives notwithstanding the death of accused, if the
same may also be predicated on a source of obligation other than delict. Article 1157 of the
Civil Code enumerates these other sources of obligation from which the civil liability may
arise as a result of the same act or omission:
a) Law
b) Contracts
c) Quasi-contracts
d) Acts or omissions punished by law
e) Quasi-delicts
Case 10
SEVERINO SALEN and ELENA SALBANERA vs. JOSE BALCE
G.R. NO. L-14414 APRIL 27, 1960

FACTS:
Plaintiffs are the legitimate parents of Carlos Salen who died single from wounds caused by
Gumersindo Balce, a legitimate son of defendant. At the time, Gumersindo Balce was also
Single, a minor below 18 years of age, and was living with defendant.

Gumersindo Balce accused and convicted of homicide and was sentenced to imprisonment
and to pay the heirs of the deceased an indemnity in the amount of P2,000.00.

Gumersindo Balce was insolvent and had no property in his name. Thereupon, plaintiffs
demanded upon defendant, father of Gumersindo, the payment of the indemnity the latter
has failed to pay, but defendant refused, thus causing plaintiffs to institute the present
action.

ISSUE:
Whether or not defendant/appellee can be held subsidiary liable to pay the indemnity of
2,000.00 pesos.

RULING:
Yes, Article 2180 of the Cvil Code of The Philippines 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.

The father and, in case of his death or incapacity, the mother, are responsible for the
damages caused by the minor children who live in their company”.

To hold otherwise would result in the absurdity that while for an act where mere
negligence intervens the father or mother may stand sudsidiarily for the damage caused by
his or her son, no liability would attach if the damage is caused with criminal intent. Verily,
the void that apparently exists in the Revised Penal Code is subserved by this particular
provision of our Civil Code, as may be gleaned from some recent decisions of this Court
which cover equal or identical cases.

Case 11
METROPOLITAN BANK AND TRUST CORP vs. ANNA GRACE ROSALES AND YO
YUK TO,
G.R. NO. 183204 JAN 13, 2014

FACTS:
Respondent Ana Grace Rosales (Rosales) is an owner of a travel agency and Yo Yuk To
is the mother of Ana Rosales. In 2000, respondents opened an account in
Metropolitan Bank. As of Aug. 4, 2004, their joint account showed a balance of
P2,515,693.52. In May 2002, respondent Rosales accompanied her client Liu Chiu
Fang, who is applying for a retiree’s visa from PLRA, to open a savings account. Liu
Chui Fang could only speak Mandarin and Rosales became her interpreter. On July
31, 2003, petitioner issued a "Hold Out" order against respondents’ accounts.

On September 3, 2003, petitioner filed before the Office of the Prosecutor of

Manila a criminal case for Estafa through False Pretences,
Misrepresentation, Deceit, and Use of Falsified Documents against respondent Rosales.
Petitioner accused respondent Rosales and an unidentified woman as the
ones responsible for the unauthorized and fraudulent withdrawal of
US$75,000.00 from Liu Chiu Fang’s dollar account with petitioner’s Escolta
Branch. On December 15, 2003, the Office of the City Prosecutor of Manila
issued a Resolution dismissing the criminal case for lack of probable cause. Petitioner
moved for reconsideration.

On September 10, 2004, respondents filed before the RTC of Manila a Complaint for
Breach of Obligation and Contract with Damages against petitioner. Respondents
alleged that they attempted several times to withdraw their deposits but
were unable to because petitioner had placed their accounts under "Hold Out"
status without explanation. Petitioner alleged that respondents have no cause of
action because it has a valid reason for issuing the "Hold Out" order.

RTC ruled that the petitioner is liable for damages for breach of contract.
Petitioner appealed to the CA. CA affirmed the ruling of the RTC but deleted the
award of actual damages.

ISSUES:
a) Whether the petitioner is liable for breach of contract
b) Whether the petitioner is liable for damages

RULING:
Petition is hereby DENIED. We find that petitioner is guilty of breach of contract
when it unjustifiably refused to release respondents’ deposit despite demand.
Having breached its contract with respondents, petitioner is liable for damages.

Petitioner’s reliance on the "Hold Out" clause in the Application and Agreement for
Deposit Account is misplaced. The "Hold Out" clause applies only if there is a valid
and existing obligation arising from any of the sources of obligation enumerated
in Article 1157 of the Civil Code, to wit: law, contracts, quasi-contracts, delict, and
quasi-delict. Petitioner failed to show that respondents have an obligation to it under
any law, contract, quasi-contract, delict, or quasi-delict. Considering that respondent
Rosales is not liable under any of the five sources of obligation, there was no legal
basis for petitioner to issue the "Hold Out" order. Accordingly, we agree with the
findings of the RTC and the CA that the "Hold Out" clause does not apply in the instant
case.

Case 12
JOSEPH SALUDAGA vs. FAR EASTERN UNIVERSITY and EDILBERTO C. DE JESUS
G.R. NO. 179337 APRIL 30, 2008

FACTS:
Saludaga was a sophomore law student in FEU when he was shot by one of the security
guards on duty in the school premises, which resulted in his hospitalization. No formal
complaint was filed against the guard. Thereafter, Saludaga filed a complaint for damages
against FEU on the ground of breach of obligation – that is to provide students with a safe
and secure environment.

Respondents averred that the shooting incident was a fortuitous event and that it was
impossible to be foreseen as the security guard was not their employee.

ISSUES:
1) Whether or not FEU may be held liable for damages.

2) Whether or not the defense of force majeure may be considered.

RULING:
1) YES. There was a contractual obligation between Saludaga and FEU. The latter being
a learning institution is obliged to provide a safe and secure environment to its
students. In culpa contractual, a mere proof of the existence of the contract and the
failure of its compliance justify, prima facie, a corresponding right of relief. Article
1170 of the Civil Code provides that those who are negligent in the performance of
their obligations are liable for damages. Accordingly, for breach of contract due to
negligence in providing a safe learning environment, respondent FEU is liable to
petitioner for damages.

2) NO. In order for force majeure to be considered, respondents must show that no
negligence or misconduct was committed that may have occasioned the loss. An act
 of God cannot be invoked to protect a person who has failed to take steps to forestall
the possible adverse consequences of such a loss. One's negligence may have
concurred with an act of God in producing damage and injury to another;
nonetheless, showing that the immediate or proximate cause of the damage or
injury was a fortuitous event would not exempt one from liability.

Case 13
MERALCO vs. RAMOY
G.R. No. 158911 March 4, 2008

FACTS:
This is a Petition for Review on Certiorari on CA‘s decision of ordering petitioner Manila
Electric Company (MERALCO) topay Leoncio Ramoy moral and exemplary damages and
attorney's fees.

The evidence on record has established that in the year 1987 the National Power
Corporation (NPC) filed with the MTC Quezon City a case for ejectment against several
persons allegedly illegally occupying its properties in Baesa, Quezon City. Among the
defendants in the ejectment case was Leoncio Ramoy, one of the plaintiffs in the case at bar.

The MTC rendered judgment for the plaintiff [MERALCO] and "ordering the defendants

to demolish or remove the building and structures they built on the land of the plaintiff and
to vacate the premises.

On June 20, 1990 NPC wrote Meralco requesting for the immediate disconnection

of electric power supply to all residential and commercial establishments beneath the NPC
transmission lines.

Meralco requested NPC for a joint survey to determine all the establishments which

are considered under NPC property in view of the fact that "the houses in the area are very
close to each other.
 
In due time, the electric service connection of the plaintiffs [herein respondents]
was disconnected. After the electric power in Ramoy's apartment was cut off, the plaintiffs-
lessees left the premises.

During the ocular inspection ordered by the Court and attended by the parties, it was
found out that the residence of plaintiffs-spouses Leoncio and Matilde Ramoy was indeed
outside the NPC property.

The RTC decided in favor of MERALCO by dismissing herein respondents' claim for

moral damages, exemplary damages and attorney's fees. However, the RTC ordered
MERALCO to restore the electric power supply of respondents.

ISSUE:
W/N Meralco acted negligently when it disconnected the subject electric service
of respondents.

W/N the CA gravely erred when it awarded moral and exemplary damages and attorney‘s
fees against Meralco under the
circumstances that the latter acted in good faith in the disconnection of the electric services
of the respondents.

RULING:
Yes. MERALCO admits that respondents are its customers under a Service Contract
whereby it is obliged to supply respondents with electricity. Clearly, respondents' cause of
action against MERALCO is anchored on culpa contractual or breach of contract for the
latter's discontinuance of its service to respondents under Article 1170 of the Civil Code. In
culpa contractual, the mere proof of the existence of the contract and the failure of its
compliance justify, prima facie, a corresponding right of relief .

The law, recognizing the obligatory force of contracts, will not permit a party to be set free
from liability for any kind of mis performance of the contractual undertaking or a
contravention of the tenor thereof.

The Court agrees with the CA that under the factual milieu of the present

case, MERALCO failed to exercise the utmost degree of care and diligence required of it. To
repeat, it was not enough for MERALCO to merely rely on the Decision of the MTC without
ascertaining whether it had become final and executory.

Yes to Moral Damages since Ramoy testified in Court about his mental anguish. In the

present case, MERALCO willfully caused injury to Leoncio Ramoy by withholding from him
and his tenants the supply of electricity to which they were entitled under the Service
Contract. Electricity is a basic necessity the generation and distribution of which is imbued
with public interest, and its provider is a public utility subject to strict regulation by the
State in the exercise of police power. Failure to comply with these regulations will give rise
to the presumption of bad faith or abuse of right.

No to Exemplary Damages since Article 2232 of the Civil Code provides that in contracts

and quasi-contracts, the court may award exemplary damages if the defendant, in this case
MERALCO, acted in a wanton, fraudulent, reckless, oppressive, or malevolent manner,
while Article 2233 of the same Code provides that such damages cannot be recovered as a
matter of right and the adjudication of the same is within the discretion of the court
No to Attorney‘s Fees since the Court does not deem it proper to award exemplary damages
in this case, then the CA's award for attorney's fees should likewise be deleted, as Article
2208 of the Civil Code states that in the absence of stipulation, attorney's fees cannot be
recovered except in cases provided for in said Article.

Case 14
CRUZ vs. TUASON & CO.
G.R. No. L-23749 April 29, 1977
FACTS:
In 1952, Tuason & Co. availed of Cruz’ services as an intermediary with the Deudors, to
work for the amicable settlement in a civil case. The said case involved 50 quiones of land,
of which the 20 quiones of land mentioned formed part.

A compromise agreement between the Deudors and Tuason & Co. was entered into on
1963 which was approved by court.

Cruz alleged that Tuason & Co. promised to convey him the 3,000 sq. meters of land
occupied by him which was part of the 20 quiones of land within 10 years from the date of
signing of the compromise agreement between the Deudors and the latter as consideration
of his services. The said land was not conveyed to him by Tuason & Co.

Cruz further alleged that Tuason & Co. was unjustly enriched at his expense since they
enjoyed the benefits of the improvements he made on the land acquired by the latter.

ISSUE:
Whether or not a presumed quasi-contract be emerged as against one part when the
subject matter thereof is already covered by a contract with another party.

RULING:
No. it is obvious that a presumed qauasi-contract cannot emerge as against one party when
the subject matter thereof is already covered by an existing contract with another party.
Predicated on the principle that no one should be allowed to unjustly enrich himself at the
expense of another.

Case 15
Adille vs. CA
G.R. L-44546 January 29 1988

FACTS:
Felisa Alzul married twice in her lifetime. Sometime in 1939, she sold a property in pacto
de retro. The petitioner (her child from the first marriage), by himself, repurchased the
property after her death and within the period of redemption. He then executed a deed of
extra-judicial partition representing himself to be the only heir and child of his mother with
the consequence that he was able to secure a title in his name alone. His half-siblings (from
the second marriage) argued that the petitioner does not have full ownership of the lot and
that he is a trustee of an implied trust.Petitioner contends that the property subject of
dispute devolved upon him upon the failure of his co-heirs to join him in its redemption
within the period required by law.

ISSUE:
Whether or not the plaintiff is the sole owner of the property.

RULING:
No. The right of repurchase may be exercised by a co-owner with respect to his share alone.
Shouldering the expenses and having the title to the name of the petitioner did not
extinguish the co-ownership. The petitioner may collect reimbursement for expenses
incurred for the repurchase. The petitioner may be considered as a negotiorum gestor but
if he is guilty of fraud, he must act as a trustee (Art. 1456), the private respondents as the
beneficiaries. Either way, he will remain liable to his co-heirs.

Case 16
Andres vs. Manufacturers Hanover and Trust Corp.
G.R. No. 82670 September 15, 1989

FACTS:
Petitioner Dometila M. Andres, doing business under the name and style of Irene’s
Wearing Apparel was engaged in the manufacture of ladies garments, children’s wear,
men’s apparel, and linens for local and foreign buyers. Among its foreign buyers was
Facets Funwear, Inc. (FACETS) of the United States. FACETS instructed the First
National State Bank (FNSB) of New Jersey to transfer $10,000 to Irene’s Wearing
Apparel via Philippine National Bank (PNB). FNSB instructed private respondent
Manufacturers Hanover and Trust Corporation (Mantrust) to effect the transfer by
charging the amount to the account of FNSB with them. However, the payment was not
posted because the payee designated in the telex was only Wearing Apparel. Mantrust
sent PNB another telex stating that the payment was to be made to Irene’s Wearing
Apparel on which the petitioner received the remittance of $10,000.

After learning about the delay, FACETS informed FNSB about the situation. FACETS
unaware that petitioner already received the remittance, informed Mantrust and
amended its instruction asking it to effect the payment to Philippine Commercial and
Industrial Bank (PCIB) instead of PNB. Mantrust also unaware that petitioner already
received the remittance, instructed PCIB to pay $10,000 to petitioner. Hence, the
petitioner received another $10,000 which was charged again to the account of FACETS
with FNSB. Further, FNSB discovered that private respondent had made a duplication of
remittance. Private respondent asked the petitioner to return the second remittance of
$10,000, but the latter refused to do so contending that there was negligence on the
part of the private respondent and still has a balance to them of $49,324.

ISSUE:
Whether the private respondent has the right to recover the second remittance it had
delivered to the petitioner.

RULING:
Yes, second payment by the private respondent was made by mistake of fact. Article
2154 of the New Civil Code is applicable in the instant case which provides that if
something is received when there is no right to demand it, and it was unduly delivered
through mistake, the obligation to return it arises. Also, there was no contractual
relation between the parties, the petitioner has the obligation to return the second
remittance.
Case 17
Puyat and Sons, Inc. vs. City of Manila
G.R. No. L-17447 April 30, 1963

FACTS:
Acting pursuant to an ordinance, the defendant City Treasurer of Manila assessed from
plaintiff retail dealer’s tax on the sales of furniture manufacture and sold by it and its
factory site. All assessments were paid by plaintiff without protests in the erroneous belief
that it was liable thereof not knowing that pursuant to an ordinance, it is exempt from the
payment of taxes being a manufacturer of various kinds of furniture. After learning about
the ordinance, plaintiff filed with defendant City Treasurer of Manila a formal request for
refund of the retail dealer’s taxes unduly paid. The City Treasurer, however, denied the said
request for refund. Hence, this case.

ISSUE:
Whether or not the defendant is obliged to refund the amount which the plaintiff paid.

RULING:
Yes. The plaintiff was exempted from paying the taxes assessed. Hence, it was clearly an
error or mistake which makes it fall under Article 2154 of Solutio Indebiti. It provides that
something is received when there is no right to demand it, and it was unduly delivered
through mistake, the obligation to return it arises.

Case 18
Cinco vs. Canonoy
GR No. L-33171, 90 SCRA 369 May 31, 1979

FACTS:
Cinco filed, a Complaint in the City Court of Mandaue City, Cebu, Branch II, for the recovery
of damages on account of a vehicular accident involving his automobile and a jeepney
driven by Romeo Hilot and operated by Valeriana Pepito and Carlos Pepito, the last three
being the private respondents in this suit. Subsequent thereto, a criminal case was filed
against the driver, Romeo Hilot, arising from the same accident. At the pre-trial in the civil
case, counsel for private respondents moved to suspend the civil action pending the final
determination of the criminal suit.

The City Court of Mandaue City ordered the suspension of the civil case. Petitioner elevated
the matter on Certiorari to the Court of First Instance of Cebu, respondent Judge dismissed
the Petition for Certiorari on the ground that there was no grave abuse of discretion on the
part of the City Court in suspending the civil action inasmuch as damage to property is not
one of the instances when an independent civil action is proper; that petitioner has another
plain, speedy, and adequate remedy under the law, which is to submit his claim for
damages in the criminal case.

ISSUE:
Whether or not there can be an independent civil action for damage to property during the
pendency of the criminal action.

RULING:
From the Complaint filed by petitioner before the City Court of Mandaue City, Cebu, it is
evident that the nature and character of his action was quasi- delictual, predicated
principally on articles 2176 and 2180 of the Civil Code.

Case 19
NATIONAL POWER CORPORATION vs. COURT OF APPEALS
G.R. No. 124378 March 8, 2005

FACTS:
On 15 November 1973, the Office of the President of the Philippines issued Memorandum
Order No. 398. Said decree instructed the NPC to build the Agus Regulation Dam at the
mouth of Agus River in Lanao del Sur, at a normal maximum water level of Lake Lanao at
702 meters elevation. Private respondents were owners of fishponds sited along the Lake
Lanao shore. They have spent substantial amounts to construct, maintain, and stock their
respective fishponds with fish fingerlings, and make plantings along the adjoining
foreshore areas between 1984 and 1986. In October and November of 1986, all the
improvements were washed away when the water level of the lake escalated and the
subject lakeshore area was flooded. Private respondents blamed the inundation on the
Agus Regulation Dam.

ISSUE:
Whether or not the Court of Appeals erred in affirming the trial court’s verdict that
petitioner was legally answerable for the damages endured by the private respondents.

RULING:
No. With respect to its job to maintain the normal maximum level of the lake at 702 meters,
the Court of Appeals, echoing the trial court, observed with alacrity that when the water
level rises due to the rainy season, the NPC ought to release more water to the Agus River
to avoid flooding and prevent the water from going over the maximum level. And yet, the
petitioner failed to do so, resulting in the inundation of the nearby estates. The negligence
of NPC as a result of its inability to maintain the level of water in its dams has been
satisfactorily and extensively established. And therefore, NPC is liable for damages.

Case 20
NAPOCOR vs. The Honorable Court of Appeals
GR No. 124378 March 8, 2005

FACTS:
By virtue of Memorandum Order No. 398 - "Prescribing Measures to Preserve the Lake
Lanao Watershed, To Enforce the Reservation of Areas Around the Lake Below Seven
Hundred And Two Meters Elevation, and for Other Purposes.", petitioner herein built and
operated the Agus Regulation Dam at the mouth of Agus River in Lanao del Sur, at a normal
maximum water level of Lake Lanao at 702 meters elevation in 1978.

In 1986, private respondents’ fishponds and other improvements were washed away when
the water level of the lake escalated, and the subject lakeshore area was flooded. NPC
refused to compensate them, so they filed an action for damages, alleging that
the negligence and inexperience of NPC’s employees assigned to operate the Agus
Regulation Damwere the proximate causes of the damage caused to their properties and
livelihood.

NPC denied the allegations and alleged that:

1. the water level of Lake Lanao never went beyond 702 meters,
2. their employees were not negligent,
3. private respondents’ fishponds were located below the 702-water level, which is
prohibited.

ISSUE:
Whether or not NPC is liable for damages.

RULING:
Yes. By virtue of MO 398, NPC had two duties:
1. to maintain the normal maximum lake elevation at 702 meters, and
2. build benchmarks to warn the inhabitants in the area that cultivation of land below
said elevation is forbidden.

Now, upon ocular inspection by the lower courts, it was established that in the subject
areas, the benchmarks as pointed out by the NPC representative, could not be seen nor
reached because they were totally covered with water. Thus, an application of the doctrine
of res ipsa loquitur, the thing speaks for itself, is proper.

The doctrine states that:

Where the thing which causes injury is shown to be under the management of the
defendant, and the accident is such as in the ordinary course of things does not happen if
those who have the management use proper care, it affords reasonable evidence, in the
absence of an explanation by the defendant, that the accident arose from want of care.

In the case at bar, the fact that the benchmarks could not be seen nor reached, is by itself,
constitute proof that the water level did rise above the benchmarks and inundated the
properties in the area. Thus, in the absence of any clear explanation on what other factors
could have explained the flooding in the neighboring properties of the dam, it is fair to
reasonably infer that the incident happened because of want of care on the part of NPC to
maintain the water level of the dam within the benchmarks at the maximum normal lake
elevation of 702 meters.

Case 21
BERNARDINO JIMENEZ vs. CITY OF MANILA and INTERMEDIATE APPELLATE COURT
G.R. No. 71049 May 29, 1987

FACTS:
Petitioner Bernardino Jimenez bought bagoong in the Sta. Ana Public Market on a rainy
day. It was flooded by ankle-deep and dirty rainwater. When petitioner turned around, he
stepped on an uncovered drainage opening, causing a 4-inch rusty nail to penetrate his leg.
Petitioner fell sick and was unable to supervise his bus business for a long time. He sued
the City of Manila and Asiatic Integrated Corp. as administrator of the said public market.

ISSUE:
Whether or not the City of Manila is also liable for the injuries suffered by the petitioner.

RULING:
Yes. Art. 2189 of the Civil Code provides that “Provinces, cities and municipalities shall
be liable for damages for the death of, or injuries suffered by any person by reason of
defective conditions of roads, streets, bridges, public buildings and other public works
under their control or supervision.”

Under article 2189, it is not necessary for the liability therein established to attach, that the
defective public works belong to the province, city or municipality from which
responsibility is exacted. What said article requires is that the province, city or municipality
has either "control or supervision" over the public building in question.

Also, the City of Manila, per the contract, remained in control of Asiatic, hence the former
must be held liable for petitioner’s injuries.

The fact of supervision and control of the City over subject public market was admitted by
Mayor Ramon Bagatsing in his letter to Secretary of Finance Cesar Virata.

“Petitioner had the right to assume that there were no openings in the middle of the
passageways and if any, that they were adequately covered. Had the opening been
covered, petitioner could not have fallen into it. Thus the negligence of the City of Manila is
the proximate cause of the injury suffered; the City is therefore liable for the injury suffered
by the petitioner.

“Respondent City of Manila and Asiatic Integrated Corporation being joint tort-feasors are
solidarily liable under Article 2194 of the Civil Code.”

Case 22
BERNARDINO JIMENEZ vs. CITY OF MANILA
G.R. No. 71049 May 29, 1987

FACTS:
The evidence of the plaintiff (petitioner herein) shows that in the morning of August 15,
1974 he, together with his neighbors, went to Sta. Ana public market to buy "bagoong" at
the time when the public market was flooded with ankle deep rainwater.
After purchasing the"bagoong" he turned around to return home but he stepped on an
uncovered opening which could not be seen because of the dirty rainwater, causing a dirty
and rusty four-inch nail, stuck inside the uncovered opening, to pierce the left leg of
plaintiff-petitioner penetrating to... a depth of about one and a half inches.

ISSUES:
Whether or not the Intermediate Appellate Court erred in not ruling that respondent City of
Manila should be jointly and severally liable with Asiatic Integrated Corporation for the
injuries petitioner suffered.

RULING:
Respondent City of Manila maintains that it cannot be held liable for the injuries sustained
by the petitioner because under the Management and Operating Contract, Asiatic
Integrated Corporation assumed all responsibility for damages which may be suffered by
third persons for any cause attributable to it. It has also been argued that the City of Manila
cannot be held liable under Article I, Section 4 of Republic Act No. 409

On the other hand, Article 2189 of the Civil Code of the Philippines which provides that:
Provinces, cities and municipalities shall be liable for damages for the death of, or injuries
suffered by any person by reason of defective conditions of roads, streets, bridges, public
buildings and other public works under their control or supervision."

In the case at bar, there is no question that the Sta. Ana Public Market, despite the
Management and Operating Contract between respondent City and Asiatic Integrated
Corporation remained under the control of the former.

The contention of respondent City of Manila that petitioner should not have ventured to go
to Sta. Ana Public Market during a stormy weather is indeed untenable. There is no
argument that it is the duty of the City of Manila to exercise reasonable care to keep the
public market reasonably safe for people frequenting the place for their marketing needs.
Thus, Respondent City of Manila and Asiatic Integrated Corporation being joint tort-feasors
are solidarily liable under Article 2194 of the Civil Code.

Case 23
Sanchez vs. Rigos
GR No. L-25494, 14 June 1972

FACTS:
On April 3, 1961, plaintiff Nicolas Sanchez and defendant SeverinaRigos executed an
instrument entitled "Option to Purchase," whereby Mrs. Rigos "agreed, promised and
committed ... to sell" to Sanchez the sum of P1,510.00, a parcel of land within two (2) years
from said date with the understanding that said option shall be deemed "terminated and
elapsed," if "Sanchez shall fail to exercise his right to buy the property" within the
stipulated period. Inasmuch as several tenders of payment of the sum of Pl,510.00, made by
Sanchez within said period, were rejected by Mrs. Rigos, on March 12, 1963, the former
deposited said amount with the CFI of Nueva Ecija and commenced against the latter the
present action, for specific performance and damages. The defendant alleged as a special
defense, that the contract between the parties "is a unilateral promise to sell, and the same
being unsupported by any valuable consideration, by force of the New Civil Code, is null
and void". The lower court rendered judgment ordering Mrs. Rigos to accept the sum
judicially consigned by him and to execute, in his favor, the requisite deed of conveyance.
Hence, this appeal by Mrs. Rigos.

ISSUE:
Whether or not Rigos is bound by Sanchez’ acceptance even though the option is not
supported by a separate consideration.

RULING:
Yes. The court ruled that the option did not impose upon plaintiff the obligation to
purchase defendant's property. The instrument executed is not a "contract to buy and sell."
It merely granted plaintiff an "option" to buy. 

Article 1479 must be read in relation to Article 1354. Article 1354 applies to contracts in
general, whereas the second paragraph of Article 1479 refers to "sales" in particular, and,
more specifically, to "an accepted unilateral promise to buy or to sell." In other words,
Article 1479 is controlling in the case at bar.

Since there may be no valid contract without a cause or consideration, the promisor is not
bound by his promise and may, accordingly, withdraw it. Pending notice of its withdrawal,
his accepted promise partakes, however, of the nature of an offer to sell which, if accepted,
results in a perfected contract of sale.

Case 24
GAISANO CAGAYAN, INC. vs. INSURANCE COMPANY OF NORTH AMERICA
GR No. 147839 June 8, 2006

FACTS:
Petitioner is a costumer and dealer of Intercapitol Marketing Corporation (IMC) and Levi’s
Strauss Phil. Inc. (LSPI). IMC and LSPI separately obtained fire insurance policies with book
debt endorsement, related to their ready-made clothing materials which have been sold or
delivered to various customers and dealers nationwide. On February 25, 1991, Gaisano
Superstore Complex in Cagayan de Oro, owned by the petitioner, containing ready-made
clothing materials sold and delivered by IMC and LSPI was consumed by fire.

On February 4, 1992, respondent filed a complaint for damages against the petitioner and
alleges that IMC and LSPI filed their claims under respective fire insurance policies which it
paid this it was subrogated to their rights. On July 4, 1995, petitioner contend that it could
not be held liable because the property covered by the insurance policies were destroyed
due to fortuities event; that respondent’s right of subrogation has no basis inasmuch as
there was no breach of contract committed; that IMC and LSPI never communicated
regarding their insured properties; and that it never consented to paying the claim of the
insured.

ISSUE:
Whether or not the petitioner is liable to the insurer?

RULING:
Yes. Petitioners argument that it is not liable because of fortuitous event under Article 1174
of the Civil Code is misplaced. The seller retains ownership only to insure that the buyer
will pay its debt, the risk of loss is borne by the buyer. Accordingly, petitioner bears the risk
of loss of the goods delivered. And because the obligation is generic the loss or destruction
of anything of the same kind even without the debtor's fault and before he has incurred in
delay will not have the effect of extinguishing the obligation.

However, since there is no evidence that respondent has been subrogated to any right
which LSPI may have against petitioner. The order to pay the amount that was paid by the
respondent to the LSPI is deleted.

Case 25
Paz P. Arrieta and Vitaliado Arrieta vs. National Rice and Corn Corporation
G.R. No. L-15645 January 31, 1964

FACTS:
On May 19, 1952, the spouses Arrieta participated in the public bidding called by National
Rice and corn Administration (NARIC) for the supply of 20,000 metric tons of Burmese rice.
As her bid of 203.00 U.S. dollars per metric ton was the lowest, she was awarded the
contract for the same. Accordingly, on July 1, 1952, the plaintiff-appellee Paz P. Arrieta and
the appellant corporation entered into a Contract of Sale of Rice, under the terms of which
the former obligated herself to deliver to the latter 20,000 metric tons of metric tons. In
turn, the
defendant corporation committed itself to pay for the imported rice “by means of
irrevocable, confirmed and assignable letter of credit in U.S. currency in favor of the
Arrieta’s. The latter was able to secure the provision of Burmese Rice through a reservation
of 5% of the total costs of the entire shipment. However, the NARIC was not able to fulfill its
obligation of opening a letter of credit as the bank required them to deposit 50% of the
total costs of the shipment as it was not in a financial position to do so. The down payment
of the Arrieta’s were forfeited in favor of their supplier due to the inability to secure the
letter of credit. The whole provision of Burmese Rice was cancelled.

ISSUE:
Is the NARIC liable for the damages?

RULING:
The answer is in the affirmative. The proximate cause of the cancellation of the contract
was
due to NARIC’s fault. The latter is estopped from claiming of not having fault since it is by
their actions, by way of calling for bids, without having the necessary funds to fulfill its
obligation. Article 1170 of the Civil Code states that “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. The court ruled in favor of the Arrieta’s as it is
clear
from the documents presented that NARIC was in default.

Case 26
TELEFAST COMMUNICATIONS vs. IGNACIO CASTRO SR.
GR No. 73867 February 29, 1988

FACTS:
November 2, 1956, Consolacion Bravo-Castro, wife of plaintiff Ignacio Castro, Sr. and
mother of the other plaintiffs, passed away in Lingayen, Pangasinan. On the same day, her
daughter Sofia C. Crouch, who was then vacationing in the Philippines, addressed a
telegram to plaintiff Ignacio Castro, Sr. at 685 Wanda, Scottsburg, Indiana, U.S.A., 47170
announcing Consolacion’s death. The telegram was accepted by the defendant in its
Dagupan office, for transmission, after payment of the required fees or charges. The
telegram never reached its addressee. Consolacion was interred with only her daughter
Sofia in attendance. Neither the husband nor any of the other children of the deceased, then
all residing in the United States, returned for the burial. When Sofia returned to the United
States, she discovered that the wire she had caused the defendant to send, had not been
received.

Plaintiffs filed for action at CFI Pangasinan for damages arising from defendant’s breach of
contract. The only defense of the defendant was that it was unable to transmit the telegram
because of “technical and atmospheric factors beyond its control.” No evidence appears on
record that defendant ever made any attempt to advise the plaintiff Sofia C. Crouch as to
why it could not transmit the telegram. CFI of Pangasinan, after trial, ordered the defendant
(now petitioner) to pay the plaintiffs (now private respondents) damages. On appeal,
Intermediate Appellate Court affirmed CFI’s decision but eliminated compensatory
damages and exemplary damages to private respondents, while reducing moral damages.
Hence, this case.

ISSUES:
1. Whether the petitioner company is liable for damages?
2. Whether the petitioner company is liable for moral damages?

RULING:
1. Yes. Art. 1170 of the Civil Code provides that “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.”

Art. 2176 also provides that “whoever by act or omission causes damage to another, there
being fault or negligence, is obliged to pay for the damage done.”
In the case at bar, petitioner and private respondent Sofia C. Crouch entered into a contract
whereby, for a fee, petitioner undertook to send said private respondent’s message
overseas by telegram. This, petitioner did not do, despite performance by said private
respondent of her obligation by paying the required charges. Petitioner was therefore
guilty of contravening its obligation to said private respondent and is thus liable for
damages.

This liability is not limited to actual or quantified damages. To sustain petitioner’s contrary
position in this regard would result in an inequitous situation where petitioner will only be
held liable for the actual cost of a telegram fixed thirty (30) years ago

2. Yes. We find Art. 2217 of the Civil Code applicable to the case at bar. It states: “Moral
damages include physical suffering, mental anguish, fright, serious anxiety, besmirched
reputation, wounded feelings, moral shock, social humiliation, and similar injury. Though
incapable of pecuniary computation, moral damages may be recovered if they are the
proximate results of the defendant’s wrongful act or omission.”

Case 27
Santos Ventura Hocorma Foundation, Inc. vs. Santos
G.R. No. 153004 November 4, 2004

FACTS:
1. There are several civil cases between herein respondent (then petitioner, Ernesto
Santos) and petitioner (then respondent, Santos Ventura Hocorma Foundation, Inc.,
SVHFI for brevity).
2. On October 26, 1990, Santos and SVHFI executed a Compromise Agreement which
amicable ended all their pending litigations.
3. Pertinent portions of the agreement read as follows:
 SVHFI shall pay Santos P14.5 million in the following manner:
 P 1.5 million immediately upon the execution of this agreement;
 The balance of P13 million shall be paid, whether in one lump rum 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.
 … Santos shall cause the dismissal with prejudice of Civil Cases…. and for
immediate lifting of the aforesaid various notices of lis pendens on the
real properties aforementioned; … in the event that SVHFI 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 Foundations obligations under this
agreement as may still be subsisting and payable at the time of any such
sale or sales.
 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 write of execution for the enforcement of this agreement.
 4. Santos move for the dismissal of the aforesaid cases and caused the lifting of the
notices of lis pendens on the real properties involved. SVHFI, paid P1.5 million to
Santos, leaving a balance of P13 million.
5. On September 30, 1991, the RTC of Makati approved the compromise agreement.
6. SVHFI sold two real properties, which were previously subjects of lis pendens.
Santos then sent a letter to the SVHFI demanding the payment of the remaining P13
million, which the latter ignored.
7. On October 28, 1992, Santos send another letter to SVHFI inquiring when it would
pay the balance. There was no response from SVHFI.
8. Santos applied for the issuance of the writ of execution of its compromise
agreement. Granted by the RTC.
9. Sheriff levied on the real properties petitioner, which were formerly subjects of the
lis pendens.
10. On November 22, 1994, the real properties were auctioned. Riverland, Inc. was the
highest bidder and issued a Certificate of Sale covering the real properties subject of
the auction sale, provided for the right of redemption within one year from the date
of registration of properties.
11. Santos and Riverland, Inc. filed a Complaint for Declaratory Relief and
Damages alleging that there was delay on the part of the petitioner in paying the
balance of P13 million. They prayed that petitioner be ordered to pay legal interest
and for the sales be declared final and not subject to legal redemption.
12. SVHFI was able to fully settle its outstanding balance on February 8, 1995.
ISSUE/S:
1. Whether or not the respondent are entitled to legal interest considering that the
compromise agreement does not provide for the payment of interest.
2. Whether or not the petitioner is in default (mora).

RULING:
1. Yes. 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.
2. Yes. 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.

In the present case, Compromise Agreement was entered into by the parties on October 26,
1990. it was judicially approved on September 30, 1991. 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 obligation of the parties thereto.

Art. 1169. Those obliged to deliver or to something incur in delay from the time the obligee
judicially or extrajudicially demands from them the fulfillment of their obligation.
Requisites for a debtor to be in default (mora):
1. The obligation be demandable and already liquidated;
 2. the debtor delays performance; and
3. the creditor requires the performance judicially and extrajudicially.

The Compromise Agreement as a consensual contract became binding between the parties
UPON ITS EXECUTION and not upon its court approval.

Case 28
AGAPITO MANUEL vs. COURT OF APPEALS, HON. RAMON MAKASIAR and SPOUSES
JESUS DE JESUS and CARMEN DE JESUS
G.R. NO. 95469 JULY 25, 1991

FACTS:
Petitioner rented an apartment unit of the respondent on a month to month basis for a
monthly rental of Php. 466.00 payable in advance. Petitioner failed to pay the rentals,
private respondents through their counsel sent a demand letter to the petitioner requiring
him to pay the rentals and to vacate the leased premises within five days from the receipt
thereof, otherwise private respondents will be constrained to file the appropriate legal
action against him, in an answer, the petitioner stated that the amount of rentals, which the
private respondents allegedly refused to receive had been deposited at the United Coconut
Planters Bank with Account no. 8893 in the name of the Petitioner’s son and could be
withdrawn upon notice of payment. Private respondent on the other hand through their
counsel requested that the payment of the said rentals be done at their counsel’s office.
Petitioner instead of complying with private respondent’s request, requested that the
rentals in arears be paid at petitioner’s house. The private respondent did not heed to
petitioner’s request.

ISSUE:
WON the private respondents are in mora accipiendi.

RULING:
Art. 1169. Those obliged to deliver or to do something incur in delay from the time the
obligee judicially or extrajudicially demands from them the fulfilment of their obligation.

However, the demand by the creditor shall not be necessary in order that delay may exist:
(1) When the obligation or the law expressly so declare; or
(2) When from the nature and the circumstances of the obligation it appears that the
designation of the time when the thing is to be delivered or the service is to be rendered
was a controlling motive for the establishment of the contract; or
(3) When demand would be useless, as when the obligor has rendered it beyond his power
to perform.

The contention of the petitioner that private respondents are in mora accipiendi cannot be
upheld. The failure of the owners to collect or their refusal to accept the rentals are not
valid defences. Consignation under such circumstance, is necessary. Petitioner did not
comply with the requirements for consignation as provided by sec. 5(b) of Batas Pambansa
Blg. 25, which gives rise to a cause of action for ejectment.
Case 29
Cortes vs. CA
GR no. 126083 July 12 2006

FACTS :
Petitioner Antonio Cortes and private respondent Villa Esperanza Development
Corporation (Corporation) entered into a contract of sale, Cortes as seller and the
corporation as buyer.

The land being sold has

purchase   price   of   P3,700,000.00,   the   corporation   advanced   to   Cortes   an amount
of P1,213,000.00. Sometime in September 1983 the parties executed a  deed  of  absolute 
sale,  it  is  stated  in  the  deed  of  absolute  sale,  that  upon execution  of  the  deed,  the 
corporation  shall  pay  Cortes  P2,200,000.00. 

On January    14,    1985,    the    Corporation    filed    the    instant    case   for    specific
performance  seeking  to  compel  Cortes  to  deliver  the  TCTs  and  the  original copy of the
Deed of Absolute Sale. Cortes on the other hand contended that it was the corporation who
refused to pay the remaining balance.

ISSUE:
Whether there is delay in the performance of the parties obligation that would justify the
rescission of the contract of sale.

RULING:
There is mutual delay of the parties thus no one is guilty of delay and thus it will not justify
the rescission of the contract of sale. The mutual inaction of Cortes and the Corporation
therefore gave rise to a compensation morae or default on the part of both parties because
neither has completed their part in their reciprocal obligation. This mutual delay of the
parties cancels out the effects of default, such that it is as if no one is guilty of delay.

Case 30
UNLAD RESOURCES DEVELOPMENT CORPORATION, UNLAD RURAL BANK OF
NOVELETA, INC., UNLAD COMMODITIES, INC., HELENA Z. BENITEZ, and
CONRADO L. BENITEZ II vs. RENATO P. DRAGON, TARCISIUS R. RODRIGUEZ,
VICENTE D. CASAS, ROMULO M. VIRATA, FLAVIANO PERDITO, TEOTIMO
BENITEZ, ELENA BENITEZ, and ROLANDO SUAREZ
GR NO 149338 July 28, 2008

FACTS:
On December 29, 1981, respondents and petitioner Unlad Resources, entered into a
Memorandum of Agreement wherein it is provided that [respondents], as controlling
stockholders of the Rural Bank [of Noveleta] shall allow Unlad Resources to invest
four million eight hundred thousand pesos (₱4,800,000.00) in the Rural Bank in the
form of additional equity. On the other hand, [petitioner] Unlad Resources bound
itself to invest the said amount of 4.8 million pesos in the Rural Bank; upon signing, it
was, likewise, agreed that [petitioner] Unlad Resources shall subscribe to a minimum
of four hundred eighty thousand pesos (₱480,000.00) (sic) common or preferred non-
voting shares of stock with a total par value of four million eight hundred thousand
pesos (₱4,800,000.00) and pay up immediately one million two hundred thousand
pesos (₱1,200,000.00) for said subscription; that the [respondents], upon the signing
of the said agreement shall transfer control and management over the Rural Bank to
Unlad Resources. According to the [respondents], immediately after the signing of the
agreement, they complied with their obligation and transferred control of the Rural
Bank to Unlad Resources and its nominees and the Bank was renamed the Unlad
Rural Bank of Noveleta, Inc. However, [respondents] claim that despite repeated
demands, Unlad Resources has failed and refused to comply with their obligation
under the said Memorandum of Agreement when it did not invest four million eight
hundred thousand pesos (₱4,800,000.00) in the Rural Bank in the form of additional
equity and, likewise, it failed to immediately infuse one million two hundred thousand
pesos (₱1,200,000.00) as paid in capital upon signing of the Memorandum of
Agreement.

ISSUE:
Whether or not the MOA is subject to recission

RULING:
There is no question that petitioners herein failed to fulfill their obligation under the
Memorandum of Agreement. Respondents’ failure to fulfill their undertaking in the
agreement would have given rise to the scenario contemplated by Article 1191 of the
Civil Code.

Petitioners should have exacted fulfillment from the respondents or asked for the
rescission of the contract instead of simply not performing their part of the
Agreement. But in the course of things, it was the respondents who availed of the
remedy under Article 1191, opting for the rescission of the Agreement in order to
regain control of the Rural Bank. The petitioners failed to fulfill their end of the
agreement, and thus, there was just cause for rescission. With the contract thus
rescinded, the parties must be restored to the status quo ante, that is, before they
entered into the Memorandum of Agreement.

Case 31
SICAM vs. JORGE
G.R. NO. 159617 August 8, 2017

FACTS:
Lulu V. Jorge pawned several pieces of jewelry with Agencia de R. C. Sicam to secure a loan
in the total amount of P59,500. In 1987, two armed men entered the pawnshop and took
away whatever cash and jewelry were found inside the pawnshop vault. Spouses Jorge,
filed a complaint against petitioner Sicam for indemnification for the loss of pawned
jewelry.
Sicam filed his Answer contending that he is not the real party-in-interest as the pawnshop
was incorporated in 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.

RTC ruled that petitioner corp. could not be held liable for the loss of the pawned jewelry
since the loss of the pledged pieces of jewelry was occasioned by armed robbery; that
robbery is a fortuitous event which exempts the victim from liability for the loss. On appeal,
CA reversed the RTC. The CA 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; 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:
Under Article 1174 of the Civil Code provides:
Art. 1174. Except in cases expressly specified by the law, or when it is otherwise declared by
stipulation, or when the nature of the obligation requires the assumption of risk, no person
shall be responsible for those events which could not be foreseen or which, though foreseen,
were inevitable.

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.

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 provision on pledge, particularly Article 2099 of the Civil Code, provides that the
creditor shall take care of the thing pledged with the diligence of a good father of a family.
This means that petitioners must take care of the pawns the way a prudent person would
as to his own property. That it was revealed that there were no security measures adopted
by petitioners in the operation of the pawnshop. Evidently, no sufficient precaution and
vigilance were adopted by petitioners to protect the pawnshop from unlawful intrusion.

Case 32
Manila Electric vs. Ramoy Macabagdal
G.R. No. 158911 March 04, 2008

FACTS:
MERALCO is obliged to supply respondents with electricity. Nevertheless, upon request of
the NPC, MERALCO disconnected its power supply to respondents on the ground that they
were illegally occupying yhte NPC`s right of way. During inspection, it was found ut that the
residence of the defendant-spouses was outside the NPC property.

ISSUE:
Whether or not MERALCO was negligent when it disconnected the subject electric service
of respodents.

RULING:
Yes, Respondents cause of action against MERALCO is anchored on culpa-contractual.
MERALCO`S failure to exercise utmost case and diligence in the performance of its
obligation. This being so, MERALCO is liable for damages under Article 1170 of the Civil
Code.

Case 33
Mindanao Terminal and brokerage service, Inc vs. Phoenix Assurance Company of
New York, MCGEE & Co., Inc.
G.R. 162467 May 8, 2009

FACTS
Del Monte Philippines, Inc. contracted Mindanao Terminal and Brokerage Service, Inc. to
load and stow a shipment of bananas and pineapples bound for Inchon, Korea into the
cargo hold of the vessel M/V Mistrau. Upon arrival at the destination, part of the cargo was
found to be damaged due to a typhoon encountered by the ship during the voyage.

ISSUE
Whether or not Mindanao Terminal exercised the necessary degree of diligence in the
loading and stowing of the cargo.

RULING
Yes. Art. 1173 of the Civil Code provides that, If the law or contract does not state the
diligence which is to be observed in the performance, that which is expected of a good
father of a family shall be required.
Since there was no contractual stipulation for Mindanao Terminal to observe a higher
degree of diligence than that required of a good father of a family, then they are only
required to observe ordinary diligence in loading and stowing the cargoes of Del Monte
Produce aboard M/V Mistrau.
Furthermore, Mindanao Terminal performed its duty as a stevedore under the supervision
of the ship’s officers who would approve the loading of the cargo only if it complied with
the stowage plan to assure that such cargo could withstand voyage in open seas.

Case 34
CAMGLASCO CORPORATION vs. SANTOS CAR CHECK CENTER CORP.
GR No. 202989 MARCH 25, 2015

FACTS:
The respondent Santos leased out a property in iloilo to petitioner Comglasco for a term of
5 years. In paragraph 15 of the lease contract, the parties stipulated a pre-termination
with cause in the first three year and without cause after the third year. After a year,
Camglasco terminated the lease, vacated the lease property and stop paying for the
rental fee. Santos sent several demand letters to the Comglasco, however, it was ignored
by the latter, thus, a suit was filed by the Satos for breach of contract. Comgalsco
contended that the “cause” for pre-termination was due to the 1997 Asian Currency
crisis resulted in great difficulty on its part to comply with the terms of the lease “as to
be manifestly beyond the contemplation of the parties”.

ISSUE:
Whether or not the 1997 crisis is a valid cause to pre-terminate the lease?

RULING:
The petitioner was denied for lack of merit.
Article 1267 speaks of a prestation involving service which has been rendered so difficult
by unforeseen subsequent events as to be manifestly beyond the contemplation of the
parties.  To be sure, the Asian currency crisis befell the region from July 1997 and for
sometime thereafter, but Comglasco cannot be permitted to blame its difficulties on the
said regional economic phenomenon because it entered into the subject lease only on
August 16, 2000, more than three years after it began, and by then Comglasco had known
what business risks it assumed when it opened a new shop in Iloilo City.

Case 35
NAKPIL vs. COURT OF APPEALS
GR. NO L-47851 October 3, 1986

FACTS:
Philippine Bar Association (PBA) decided to construct an office building. To this end, PBA
contracted the services of Juan F. Nakpil & Sons and Juan F. Nakpil (Nakpils). For the plans,
specifications and design, and the United Construction Company, Inc. (UNITED) for the
construction of the building. The building was completed in construction. However, after an
unusually strong earthquake that hit Manila, the building in question sustained major
damage.

PBA sought for recovery of damages against UNITED claiming that the collapse of the
building was caused by defects in the construction. UNITED, in turn, filed a third-party
complaint against the Nakpils, alleging that the collapse of the building was due to the
defects in the architects" plans, specifications and design.

The parties agreed to refer the technical issues to the Commissioner and he reported that
while the damage sustained by the building was caused directly by the earthquake., they
were also caused by the defects in the plans and specifications prepared by the Nakpils;
UNITED’s deviations from said plans and specifications and its failure to observe the
workmanship in the construction of the building; and failure of PBA to exercise supervision
in the construction of the building. Nakpils countered that an act of God caused the failure
of the building which should exempt them from responsibility.

ISSUES:
Whether or not United and Nakpil are exempt from liability on the ground of fortuitous
event or act of God.

RULING:
No.
Article 1174 of the New Civil Code provides the requisites for the obligor to be exempt
from liability for a breach of an obligation due to an "act of God," the following 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. it has been held that when the negligence of a person concurs with an act of God in
producing a loss, such person is not exempt from liability by showing that the immediate
cause of the damage was the act of God.

To be exempt from liability for loss because of an act of God, the obligor must be free from
any previous negligence or misconduct by which that loss or damage may have been
occasioned.

In this case, both United and Nakpil were negligent in the plans, designs, specifications, and
construction of the PBA building and is equivalent to bad faith in the performance of their
respective tasks. As shown in the report by the Commissioner, United have made
substantial deviations from the plans and specifications and failed to observe the
workmanship in the construction as well as to exercise supervision in the construction. For
the Nakpils, there were inadequacies or defects in the plans and specifications prepared by
them. Thus, the case at bar does not fall under any of the exceptions under Article 1174 of
the New Civil Code.

Case 36
EUFEMIA ALMEDA and ROMEL ALMEDA vs. BATHALA MARKETING INDUSTRIES, INC.
G.R. No. 150806             January 28, 2008

FACTS:
Respondent Bathala Marketing Industries, Inc., as lessee, renewed its Contract of Lease
with Ponciano L. Almeda (Ponciano), as lessor, husband of petitioner Eufemia and father of
petitioner Romel Almeda. Under the said contract, Ponciano agreed to lease a portion of
the Almeda Compound, located at 2208 Pasong Tamo Street, Makati City, consisting of
7,348.25 square meters, for a monthly rental of P1,107,348.69, for a term of four (4) years
from May 1, 1997 unless sooner terminated as provided in the contract.

The contract of lease contained the following pertinent provisions which gave rise to the
instant case: SIXTH – It is expressly understood by the parties hereto that the rental rate
stipulated is based on the present rate of assessment on the property, and that in case the
assessment should hereafter be increased or any new tax, charge or burden be imposed by
authorities on the lot and building where the leased premises are located, LESSEE shall pay,
when the rental herein provided becomes due, the additional rental or charge
corresponding to the portion hereby leased; provided, however, that in the event that the
present assessment or tax on said property should be reduced, LESSEE shall be entitled to
reduction in the stipulated rental, likewise in proportion to the portion leased by him;
SEVENTH – In case an extraordinary inflation or devaluation of Philippine Currency should
supervene, the value of Philippine peso at the time of the establishment of the obligation
shall be the basis of payment;

During the effectivity of the contract, Ponciano died. Thereafter, respondent dealt with
petitioners. In a letter, petitioners advised respondent that the former shall assess and
collect Value Added Tax (VAT) on its monthly rentals. In response, respondent contended
that VAT may not be imposed as the rentals fixed in the contract of lease were supposed to
include the VAT therein, considering that their contract was executed on May 1, 1997 when
the VAT law had long been in effect. Respondent received another letter from petitioners
informing the former that its monthly rental should be increased by 73% pursuant to
condition No. 7 of the contract and Article 1250 of the Civil Code. Respondent opposed
petitioners’ demand and insisted that there was no extraordinary inflation to warrant the
application of Article 1250 in light of the pronouncement of this Court in various cases.

Respondent refused to pay the VAT and adjusted rentals as demanded by petitioners but
continued to pay the stipulated amount set forth in their contract. Respondent instituted an
action for declaratory relief for purposes of determining the correct interpretation of
condition Nos. 6 and 7 of the lease contract to prevent damage and prejudice.

ISSUE:
Whether or not declaratory relief is a proper action for purposes of determining the correct
interpretation of condition Nos. 6 and 7.

RULING:
YES. Petitioners insist that respondent was already in breach of the contract when the
petition was filed, thus, respondent is barred from filing an action for declaratory relief.
However, after petitioners demanded payment of adjusted rentals and in the months that
followed, respondent complied with the terms and conditions set forth in their contract of
lease by paying the rentals stipulated therein. Respondent religiously fulfilled its
obligations to petitioners even during the pendency of the present suit. There is no
showing that respondent committed an act constituting a breach of the subject contract of
lease. Thus, respondent is not barred from instituting before the trial court the petition for
declaratory relief. 

Petitioners further claim that the instant petition is not proper because a separate action
for rescission, ejectment and damages had been commenced before another court; thus, the
construction of the subject contractual provisions should be ventilated in the same forum. 

As a rule, the petition for declaratory relief should be dismissed in view of the pendency of
a separate action for unlawful detainer. In this case, however, the trial court had not yet
resolved the rescission/ejectment case during the pendency of the declaratory relief
petition. In fact, the trial court, where the rescission case was on appeal, initiated the
suspension of the proceedings pending the resolution of the action for declaratory relief.

Case 37
Universal Food Corporation vs. Court of Appeals
G.R. No. L-29155 May 13, 1970

FACTS:
Magdalo V. Francisco, Sr. is the inventor of the formula for Mafran Sauce who asked for the
financial assistance of Universal Food Corporation (UFC) which lead to an execution of a
Bill of Assignment. Said Bill stipulates that Francisco shall be the chief chemist of the
company (permanent in character) and that UFC shall have a right to use the formula.
However, a year after, UFC ordered the suspension of the employment of Francisco. Hence,
Francisco filed an action for the rescission of the BOA. On the other hand, UFC contends
that the rescission should be denied.

ISSUE:
Whether or not petitioner’s contention that Magdalo V. Francisco, Sr. is not entitled to
rescission, valid?

RULING:
No. 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 breach as would defeat the
very object of the parties in making the agreement. The case at bar was a case of reciprocal
obligation. Under Art. 1191, it is stated 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. In this case, the dismissal of the respondent patentee Magdalo V. Francisco, Sr. as the
permanent chief chemist of the corporation is a fundamental and substantial breach of the
Bill of Assignment. The petitioner corporation violated the Bill of Assignment by
terminating the services Magdalo Francisco, Sr. without lawful and justifiable cause. Thus,
Francisco Sr. is entitled to recission.

Case 38
JOSE M. JAVIER and ESTRELLA F. JAVIER vs. COURT OF APPEALS and LEONARDO
TIRO, G.R. No. L-48194 March 15, 1990

FACTS:
Petitioner and private respondent entered into an agreement into which Petitioner bound
himself to transfer his rights (shares of stocks) on Timberwealth Corporation to private
respondent. That for and in consideration of the transfer of rights, Petitioner undertake to
pay Private Respondent subject to the condition that the application of Private Respondent
for an additional area for forest concession be approved by Bureau of Forestry. Private
Respondent did not obtain the approval.

ISSUE:
Whether or not an agreement may be nullified for non-performance of the conditions
stipulated therein.

RULING:
Yes. When a contract is subject to a suspensive condition, its birth and effectivity can take
place only if and when the event which constitutes the condition happens or is fulfilled. If
the suspensive condition does not take place, the parties would stand as if the conditional
obligation had never existed. Art. 1461 of the Civil Code, the efficacy of the sale of a mere
hope or expectancy is deemed subject to the condition that the thing will come into
existence.

Case 39
HONGKONG AND SHANGHAI BANKING CORP., LTD. STAFF RETIREMENT PLAN,
petitioner vs. SPS. BIENVENIDO AND EDITHA BROQUEZA, respondents
G.R. No. 178610 November 17, 2010

FACTS:
Respondents Broqueza are employees of HSBC and are also part of Petitioner, HSBCL-SR.
Respondents obtained loans from HSBC to be automatically deducted from their salaries.
However, there was a labor dispute between the employees and HSBC which led to their
dismissal. The employees filed a case of illegal dismissal, but HSBC already issued demands
upon Respondents which led to their delinquency.

There was a collection case filed in the MeTC by Petitioner, which it won. Termination from
employment resulted in the loss of continued benefits under their retirement plans. Thus,
the loans secured by their future retirement benefits to which they are no longer entitled
are reduced to unsecured and pure civil obligations. As unsecured and pure obligations, the
loans are immediately demandable.

Respondents appealed to the RTC, but it upheld the decision of the lower court. On appeal
to the CA, it held in favour of Respondents, stating that complaints for recovery of sum of
money against Respondents are premature as the loan obligations have not yet matured.
Thus, no cause of action accrued in favor of Petitioner.
Petitioner thus appeals to the Supreme Court.

ISSUE:
Whether or not the loan is immediately demandable.

RULING:
Yes. The obligation to pay the loans is a pure obligation because the promissory note does
not specify a period. The payroll deduction is merely a convenient mode of payment and
not the sole source of payment for the loans. HSBCL-SRP never agreed that the loans will be
paid only through salary deductions. Neither did HSBCL-SRP agree that if respondents
cease to be an employee of HSBC, their obligation to pay the loans will be suspended. Thus,
when they ceased being an employee of the company, they can no longer avail of the
benefit of payment by installment. Therefore, Petitioner can demand payment immediately.

The enforcement of a loan agreement involves "debtor-creditor relations founded on

contract and does not in any way concern employee relations. As such it should be enforced
through a separate civil action in the regular courts and not before the Labor Arbiter.

Petition is GRANTED. The decisions of MeTC and RTC are affirmed.

Case 40
PAY vs. PALANCA
GR No. L-29900

FACTS
George Pay is a creditor of the late Justo Palanca, who died on July 3, 1952 in Manila.
Before his death, he and Rosa Gonzales Vda. de Carlos Palanca promised to pay P
26,900,00, with interest thereon at the rate of 12%.

The promissory note read as follows: "For value received from time to time since 1947, we
[jointly and severally promise to] pay to Mr. George Pay at this office at the China Banking
Corporation the sum of P26,900.00, with interest thereon at the rate of 12% per annum
upon receipt by either of the undersigned of cash payment from the Estate of the late Don
Carlos Palanca or upon demand"

The promissory note was dated January 30, 1952.

ISSUE
Whether or not the phrase “upon demand” extinguishes the prescriptive period.

RULING
No. Article 1179 of the Civil Code provides: "Every obligation whose performance does not
depend upon a future or uncertain event, or upon a past event unknown to the parties, is
demandable at once."
The obligation being due and demandable, it would appear that the filing of the suit after
fifteen years was much too late. According to the Civil Code, which is based on Section 43 of
Act No. 190, the prescriptive period for a written contract is that of ten years. This is
another instance where this Court has consistently adhered to the express language of the
applicable norm.

Case 41
JOSE JAVIER AND ESTRELLA JAVIER vs. COURT OF APPEALS and LEONARDO TIRO
G.R. No. L-48194 March 15, 1990

FACTS:
Private Respondent is a holder of an ordinary timber license issued by the Bureau of
Forestry .He executed a "Deed of Assignment "in favor of the petitioners to assign , transfer
and convey his shares of stocks in Timberlan Corporation in consideration of a sum of
money.

At the time the said deed of assignment was executed , private respondent has a pending
application before the Bureau of Forestry of forest concession , hence private respondents
entered into another agreement that in the event that the respondents' application will be
approved his rights to the additional concession shall be transferred to petitioners in
consideration of a sum of money. 

ISSUES:
Whether or not the deed of assignment was null and void?
Whether or not the second agreement was also null and void?

RULING:   
No, as found by the Court of Appeals the true case or consideration of the said deed was the
transfer of the forest concession of the respondent to the petitioners. Also the
contemporaneous and subsequent acts of petitioners and private respondent reveal that
the cause stated in the questioned deed of assignment is false. 

Article 1346- 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.

Article 1461-Things having a potential existence may be the object of the contract of sale.
The efficacy of the sale of a mere hope or expectancy is deemed subject to the condition
that the thing will come into existence.

Case 42
HEIRS OF PAULINO ATIENZA vs. DOMINGO P. ESPIDOL
G.R. No. 180665 Aug. 11,2010

FACTS:
This case is about the legal consequences when a buyer in a contract to sell on installment
fails to make the next payments that he promised.

On August 12, 2002 the Atienzas and respondent Domingo P. Espidol entered into a
contract called Kasunduan sa Pagbibili ng Lupa na may Paunang-Bayad (contract to sell
land with a down payment) covering the property. They agreed on a price, payable in three
installments.

When the Atienzas demanded payment of the second installment of P1,750,000.00 in

December 2002, however, respondent Espidol could not pay it. Claiming that Espidol
breached his obligation, on February 21, 2003 the Atienzas filed a complaint for the
annulment of their agreement with damages before the Regional Trial Court (RTC)of
Cabanatuan City in a Civil Case.

ISSUE:
Whether or not the Atienzas were entitled to the cancellation of the contract to sell they
entered into with respondent Espidol on the ground of the latter’s failure to pay the second
installment when it fell due.

RULING:
The Court declares the Kasunduan sa Pagbibili ng Lupa na may Paunang-
Bayad between petitioner Heirs of Paulino Atienza and respondent Domingo P. Espidol
dated August 12, 2002 cancelled and the Heirs’ obligation under it non-existent. Regarding
the right to cancel the contract for non-payment of an installment, there is need to initially
determine if what the parties had was a contract of sale or a contract to sell. In a contract of
sale, the title to the property passes to the buyer upon the delivery of the thing sold. In a
contract to sell, on the other hand, the ownership is, by agreement, retained by the seller
and is not to pass to the vendee until full payment of the purchase price. In the first place,
since Espidol failed to pay the installment on a day certain fixed in their agreement, the
Atienzas can afterwards validly cancel and ignore the contract to sell because their
obligation to sell under it did not arise. Since the suspensive condition did not arise, the
parties stood as if the conditional obligation had never existed.

Case 43
MILA A. REYES vs. VICTORIA TUPARAN
G.R. No. 188064 June 1, 2011

FACTS:
Petitioner owns a three-story commercial building in Valenzuela City. Respondent leased a
space on said building for a monthly rental of P4,000. A close friendship developed
between the two which led the respondent to invest in petitioner’s financing business.
Petitioner borrowed P2Million from Farmers Savings and Loan Bank (FSL Bank) and
mortgaged the building and lot (subject real properties). Reyes decided to sell the property
for P6.5 Million to liquidate her loan and finance her business. Respondent offered to
conditionally buy the real properties for P4.2 Million on installment basis without interest
and to assume the bank loan.
ISSUE:
Whether or not the deed of conditional sale be rescinded.

RULING:
The SC agrees that the conditional sale is a contract to sell. The title and ownership of the
subject properties remains with the petitioner until the respondent fully pays the balance
of the purchase price and the assumed mortgage obligation. Without respondent’s full
payment, there can be no breach of contract to speak of because petitioner has no
obligation ye to turn over the title. The court agrees that a substantial amount of the
purchase price has already been paid. It is only right and just to allow Tuparan to pay the
said unpaid balance of the purchase price to Reyes. Granting that a rescission can be
permitted under Article 1191, the Court still cannot allow it for the reason that, considering
the circumstances, there was only a slight or casual breach in the fulfillment of the
obligation. Whether the breach is slight or substantial is largely determined by the
attendant circumstance.

Case 44
SPS. FORTUNATO SANTOS and ROSALINDA R SANTOS vs. COURT OF APPEALS, SPS.
MARIANO R. CASEDA and CARMEN CASEDA
G.R. No. 120820             August 1, 2000

FACTS:
The spouses Fortunato and Rosalinda Santos owned a house and lot. The land
together with the house, was mortgaged with the Rural Bank of Salinas, Inc.
to secure a loan of 150,000 maturing on June 16, 1987. On June 16 1984, the bank
sent Rosalinda Santos a letter demanding payment of 16,915.84 in unpaid interest
and other charges. Since the couple had no funds, Rosalinda offered to sell the house
and lot to Carmen Caseda. The Casedas gave an initial payment of 54,100 and
immediately took possession of the property, which they then leased out. They
also paid in installments, P 81, 696.84 of the mortgage loan. Carmen Caseda also
paid the real estate taxes and electric bills all in the name of Rosalinda Santos. In
January 1989, the Santoses, seeing that the Casedas lacked the means to pay
the remaining installments and/or amortization of the loan, repossessed the
property. The Santoses then collected the rentals from the tenants. The Casedas
sold a property then approached petitioners and offered to pay the balance of
the purchase price for the house and lot. The parties, however, could not
agree, and the deal could not push through because the Santoses wanted a
higher price.

ISSUE:
Whether the subject transaction is not a contract of absolute sale but a mere oral
contract to sell in which case judicial demand for rescission (Art. 1592 CC) is
not applicable.

RULING:
The Supreme Court held that this was a contract to sell.

The foregoing circumstances categorically and clearly show that no valid transfer
of ownership was made by the Santoses to the Casedas. Absent this essential
element, their agreement cannot be deemed a contract of sale. We agree with
petitioners' averment that the agreement between Rosalinda Santos and Carmen
Caseda is a contract to sell. In contracts to sell, ownership is reserved by the
vendor and is not to pass until full payment of the purchase price. This we find
fully applicable and understandable in this case, given that the property involved
is a titled realty under mortgage to a bank and would require notarial and other
formalities of law before transfer thereof could be validly effected.

In view of our finding in the present case that the agreement between the parties
is a contract to sell, it follows that the appellate court erred when it decreed that a
judicial rescission of said agreement was necessary. This is because there was no
rescission to speak of in the first place.

Case 45
PARKS vs. PROVINCE OF TARLAC
G.R NO. L-24190 July 13, 1926

FACTS:
On October 18, 1910, Concepcion Cirer and James Hill donated a parcel of land to
Municipality of Tarlac, under certain conditions that is was to used absolutely and
exclusively for the erection of a central school and the other for a public park, the work to
commence in both cases within the period of six months from the date of the ratification by
the partes of the document evidencing the donation.The donation was accepted by Mr.
Santiago de Jesus the Municpal Presisent and was later registered in the name of the donee,
the Municipality of Tarlac. On January 15, 1921, Concepcion Cirer and James Hill sold this
parcel to the herein plaintiff George L. Parks. On August 24, 1923, the municipality of Tarlac
transferred the parcel to the Province of Tarlac.

Parks, filed a complaint for the revocation of the donation, and prayed that he be declared
the absolute owner entitled to the possession of this parcel, for the reason that the
conditions of the donation were not complied with.

ISSUE:
Whether or not the donation was coupled with a condition precedent? W/N the action to
revoke has prescribed?

RULING:
No. We find no merit in this contention.The allegation, however, that it is a condition
precedent is erroneous. The condition to erect a school within six months is not a condition
precedent. The characteristic of a condition precedent is that the acquisition of the right is
not effected while said condition is mot complied with or is not deemed complied with.
Meanwhile nothing is acquired and there is only an expectancy of a right. Consequently,
when a condition is imposed, the compliance of which cannot be effected except when the
right is deemed acquired, such condition cannot be a condition precedent. In the present
case the condition that a public school be erected and a public park be made of the donated
land could not be complied with except after giving effect to the donation.

That this action is prescriptible, there is no doubt. There is no legal provision which
excludes this class of action from the statute of limitations. If no special period is provided
for the prescription of the action for revocation for noncompliance of the conditions of the
donation (art. 647, Civil Code), it is because in this respect the donation is considered
onerous and is governed by the law of contracts and the general rules of prescription.
Under the law in force (sec. 43, Code of Civ. Proc.) the period of prescription of this class of
action is ten years. The action for the revocation of the donation for this cause arose on
April 19, 1911, that is six months after the ratification of the instrument of donation of
October 18, 1910. The complaint in this action was presented July 5, 1924, more than ten
years after this cause accrued.

Case 46
Central Philippine University vs. Court of Appeals
G.R. No. 112230 July 17, 1995

FACTS:
In 1939, Don Ramon Lopez Sr. executed a deed of donation in favor of CPU together with
the following conditions: a) The land should be utilized by CPU exclusively for the
establishment & use of medical college; b) The said college shall not sell transfer or convey
to any 3rd party; c) The said land shall be called “Ramon Lopez Campus” and any income
from that land shall be put in the fund to be known as “Ramon Lopez Campus Fund”.
However, on May 31, 1989, PR, who are the heirs of Don Ramon filed an action for
annulment of donation, reconveyance & damages against CPU for not complying with the
conditions. The heirs also argued that CPU had negotiated with the NHA to exchange the
donated property with another land owned by the latter.
Petitioner alleged that the right of private respondents to file the action had prescribed.

ISSUE:
1) WON petitioner failed to comply the resolutely conditions annotated at the back of
petitioner’s certificate of title without a fixed period when to comply with such conditions?
2) WON there is a need to fix the period for compliance of the condition?

RULING:
1) YES. Under Art. 1181, on conditional obligations, the acquisition of rights as well the
extinguishment or loss of those already acquired shall depend upon the happening of the
event which constitutes the condition. Thus, when a person donates land to another on
the condition that the latter would build upon the land a school is such a resolutory one.
The donation had to be valid before the fulfillment of the condition. If there was no
fulfillment with the condition such as what obtains in the instant case, the donation may
be revoked & all rights which the donee may have acquired shall be deemed lost &
extinguished.
2) NO. Under Art. 1197, when the obligation does not fix a period but from its nature &
circumstance it can be inferred that the period was intended, the court may fix the
duration thereof because the fulfillment of the obligation itself cannot be demanded until
after the court has fixed the period for compliance therewith & such period has arrived.
However, this general rule cannot be applied in this case considering the different set of
circumstances existing more than a reasonable period of 50yrs has already been allowed
to petitioner to avail of the opportunity to comply but unfortunately, it failed to do so.
Hence, there is no need to fix a period when such procedure would be a mere
technicality & formality & would serve no purpose than to delay or load to unnecessary
and expensive multiplication of suits.

Case 47
ROWENA R. SOLANTE vs. COMMISSION ON AUDIT
GR No. 207348 August 20, 2014

FACTS:
The City of Mandaue and F.F. Cruz and Co., Inc. (F.F. Cruz) entered into a Contract of
Reclamation in which F.F. Cruz, in consideration of a defined land agreed to undertake, at
its own expense, the reclamation of 180 hectares, more or less, of foreshore and submerged
lands in the city. The project is estimated to be completed in six (6) years: Subsequently,
the parties executed a Memorandum of Agreement [MOA] whereby the City of Mandaue
allowed F.F. Cruz to put up structures on a portion of a parcel of land owned by the city.
Pursuant to the MOA, F.F. Cruz proceeded to construct the contemplated housing units and
other facilities which included a canteen and a septic tank. Later developments saw the City
of Mandaue which required the widening of roads. However, the structures ad facilities
built by F.F. Cruz subject of the MOA stood in the direct path of the road widening project.
Thus, the DPWH and Samuel Darza entered into an agreement with FF.Cruz whereby FF
Cruz would demolish the improvements outside of the boundary of the road widening
project and, in return, receive the total amount of PhP 1,084,836.42 in compensation.
However, the Special Audit Office disallowed the payment of PhP 1,084,836.42 to F.F. Cruz
and naming that company, Darza and Solante liable for the transaction.

ISSUE:
Whether or not the City of Mandaue owned the material during the period it was
demolished

RULING:
NO. F.F Cruz is still the owner on this point, the Civil Code provision on obligations with a
period is relevant:
“Article 1193. Obligations for whose fulfillment a day certain has been fixed, shall be
demandable only when that day comes. Obligations with a resolutory period take effect at
once, but terminate upon arrival of the day certain.”
A plain reading of the Contract of Reclamation reveals that the six (6)-year period provided
for project completion, or, with like effect, termination of the contract was a mere estimate
and cannot be considered a period or a "day certain" in the context of the aforequoted Art.
1193. As such, the lapse of six (6) years from the perfection of the contract did not, by itself,
make the obligation to finish the reclamation project demandable, such as to put the
obligor in a state of actionable delay for its inability to finish. The City of Mandaue never
made a demand for the fulfillment of its obligation under the Contract of Reclamation. The
Mandaue-F.F.Cruz MOA states that the structures built by F .F.. Cruz on the property of the
city will belong to the latter only upon the completion of the project. Clearly, the
completion of the project is a suspensive condition that has yet to be fulfilled. Until the
condition arises, ownership of the structures properly pertains to F.F Cruz.

Case 48
Radiowealth Finance Company vs. Spouses Del Rosario
G.R No. 138739 July 6, 2000

FACTS:
On March 2, 1991, Spouses Vicente and Maria Sumilang del Rosario (herein respondents),
jointly and severally executed, signed and delivered in favor of Radiowealth Finance
Company (herein petitioner), a Promissory Note for P138,948. Pertinent provisions of the
Promissory Note read: P11,579 payable for 12 consecutive months starting on [date not
indicated – respondent claims that the obligation is not yet due because Court should first
insert date]; 2.5% per month penalty charge for non-payment; 25% attorney‘s fee in case of
court case; 10% liquidated damages. Thereafter, respondents defaulted on the monthly
installments. Despite repeated demands, they failed to pay their obligations under their
Promissory Note. On June 7, 1993, petitioner filed a Complaint for the collection of a sum of
money before the Regional Trial Court of Manila, Branch 14. During the trial, Jasmer
Famatico, the credit and collection officer of petitioner, presented in evidence the
respondents‘ check payments, the demand letter dated July 12, 1991, the customer‘s ledger
card for the respondents, another demand letter and Metropolitan Bank dishonor slips.
Famatico admitted that he did not have personal knowledge of the transaction or the
execution of any of these pieces of documentary evidence, which had merely been
endorsed to him. On July 4, 1994, the trial court issued an Order terminating the
presentation of evidence for the petitioner. Thus, the latter formally offered its evidence
and exhibits and rested its case on July 5, 1994. Respondents filed on July 29, 1994 a
Demurrer to Evidence for alleged lack of cause of action. On November 4, 1994, the trial
court dismissed the complaint for failure of petitioner to substantiate its claims, the
evidence it had presented being merely hearsay. On appeal, the Court of Appeals (CA)
reversed the trial court (because the respondents‘ admitted the genuineness of the PN) and
remanded (re-trial which is a waste of time and resources) the case for further
proceedings. Petitioner claims that respondents are liable for the whole amount of their
debt and the interest thereon, after they defaulted on the monthly installments.
Respondents, on the other hand, counter that the installments were not yet due and
demandable. Petitioner had allegedly allowed them to apply their promotion services for
its financing business as payment of the Promissory Note. This was supposedly evidenced
by the blank space left for the date on which the installments should have commenced. In
other words, respondents theorize that the action for immediate enforcement of their
obligation is premature because its fulfillment is dependent on the sole will of the debtor.
Hence, they consider that the proper court should first fix a period for payment, pursuant
to Articles 1180 and 1197 of the Civil Code. RTC ruled in favor of respondents. CA and SC
ruled in favor of petitioner.

ISSUES:
1. W/N the CA erred in ruling that re-trial should be done because of the Demurrer of
Evidence signed by the respondents?
2. W/N the Court should first fix the period of the first installment payment for the
obligation to become due and demandable?

RULING:
Issue 1
Yes. Sec 33 of the Rules of Court provides that after the plaintiff has completed the
presentation of his evidence, the defendant may move for dismissal on the ground that
upon the facts and the law the plaintiff has shown no right to relief. If his motion is denied,
he shall have the right to present evidence. If the motion is granted but on appeal the order
of dismissal is reversed he shall be deemed to have waived the right to present evidence.
The respondents‘ case will now depend on the weakness of the petitioner‘s evidence.

Issue 2
No. The act of leaving blank the due date of the first installment did not necessarily mean
that the debtors were allowed to pay as and when they could. If this was the intention of
the parties, they should have so indicated in the Promissory Note. However, it did not
reflect any such intention. Furthermore, it also provided for an acceleration clause and a
late payment penalty, both of which showed the intention of the parties that the
installments should be paid at a definite date. Had they intended that the debtors could pay
as and when they could, there would have been no need for these two clauses.In this case,
the conclusion that the installments had already became due and demandable is bolstered
by the fact that respondents started paying installments on the Promissory Note, even if the
checks were dishonored by their drawee bank.

Case 49
LOURDES VALERIO LIM vs. PEOPLE
GR No. L-34338 Nov 21, 1984

FACTS:
The appellant is a businesswoman. She went to the house of Maria Ayroso and proposed to
sell Ayroso's tobacco who agreed to the proposition of the appellant to sell her tobacco
consisting of 615 kilos at P1.30 a kilo. They made an agreement in the presence of plaintiffs
sister which reads;

This is to certify that I have received from Mrs. Maria de Guzman Vda. de Ayroso, of Gapan,
Nueva Ecija, six hundred fifteen kilos of leaf tobacco to be sold at P1.30 per kilo. The
proceed in the amount of Seven Hundred Ninety Nine Pesos and 50/100 (P 799.50) will be
given to her as soon as it was sold.'

However, of the total value of P799.50  the appellant had paid only P240.00 on three
different times. Thus, demands for the payment of the balance of the value of the tobacco
were made by Ayroso.

ISSUES:
Whether or not the Honorable Court of Appeals was legally right in holding that Art. 1197
of the New Civil Code does not apply

RULING:
It is clear in the agreement, agreement that the proceeds of the sale of the tobacco should
be turned over to the complainant and 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.
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.

Case 50
GREGORIO ARANETA, INC. vs. PHIL. SUGAR ESTATE DEVELOPMENT CO.
GR No. L- 22558 May 31, 1967

FACTS:
Gregorio Araneta, Inc. and Phil. Sugar Estate Development, Inc. entered into a contract of
purchase and sale with mortgage whereas Araneta sold a parcel of land to Phil. Sugar
Estate Dev’t, Inc. subject to following conditions: 1) that buyer will build on said land the
Sto. Domingo Church and Convent and 2) that seller will construct streets surrounding the
land which shall be named “Sto. Domingo Avenue” Respondents finished the construction
of the church while Petitioner was unable to finish the construction of the streets because a
third party, occupying the middle part thereof, refuse to vacate the same. Respondent filed
a complaint seeking Petitioner to comply with the obligation and/or pay damages in case of
failure/refusal. The defense was that the obligation, to contract the street, was that the
obligation, to contract the street, was with a period, hence, the complaint was premature,
as the buyer must first ask the court to fix the period.

ISSUE:
Does the court still have to fix the period?

RULING:
Yes, the fixing of a period by the courts under Article 1197 of the Civil Code of the
Philippines is sought to be justified on the basis that petitioner (defendant below) placed
the absence of a period in issue by pleading in its answer that the contract with respondent
Philippine Sugar Estates Development Co., Ltd. gave petitioner Gregorio Araneta, Inc.
"reasonable time within which to comply with its obligation to construct and complete the
streets." If the contract so provided, then there was a period fixed, a "reasonable time;" and
all that the court should have done was to determine if that reasonable time had already
elapsed when suit was filed if it had passed, then the court should declare that petitioner
had breached the contract.

Case 51
SSS vs. MOONWALK DEVELOPMENT HOUSING CORP.
G.R. No. 73345 April 7, 1993

FACTS:
SSS filed a complaint in the CFI Rizal against Moonwalk Development & Housing Corp.,
alleging that it had committed an error in failing to compute the 12% interest due on
delayed payments on the loan of Moonwalk — resulting in a chain of errors in the
application of payments made by Moonwalk and, in an unpaid balance on the principal loan
agreement of P7, 053.77 and, also in not reflecting in its statement or account an unpaid
balance on the said penalties for delayed payments of P7, 517, 178.21

Both parties submitted their stipulation of facts to the trial court.

The trial court dismissed the complaint because the obligation was already extinguished by
the payment by Moonwalk of its indebtedness to SSS, and by the latter's act of cancelling
the real estate mortgages executed in its favor by defendant Moonwalk.

The CA affirmed CFI, holding that Moonwalk's obligation was extinguished, and there was
no more need for the penal clause.

ISSUE:
Whether or not there was a basis for demanding the penal clause since the obligation has
been extinguished.

RULING:
No, the Supreme Court rules that there is no basis for demanding the penal clause since the
obligation has been extinguished.

The obligation of Moonwalk was fully complied with, that is, the amount loaned together
with the 12% interest has been fully paid. Hence, there is no basis for demanding the penal
clause since the obligation has been extinguished.

SSS has waived the penal clause as it did not demand the same before the full obligation
was fully paid and extinguished. In fact, SSS has not lost anything under the contract since it
got back in full the amount loan as well as the interest thereof. The same thing would have
happened if the obligation was paid on time, for then the penal clause, under the terms of
the contract would not apply. Payment of the penalty does not mean gain or loss of SSS
since it is merely for the purpose of enforcing the performance of the main obligation,
which has been fully complied with and extinguished. Hence, the penal clause has lost its
raison d' entre.

The petition is DISMISSED and the decision of the respondent court is AFFIRMED.

Case 52
THE BACHRACH MOTOR CO., INC. vs. FAUSTINO ESPIRITU
G.R. No. L-28497             November 6, 1928

FACTS:
Espiritu purchased from Bachrach Motor a truck on installments. To secure payment,
defendants mortgaged the truck along with three others. Espiritu failed to pay the price
secured by the mortgage. It was agreed that 12 per cent interest would be paid upon the
unpaid portion of the price, and in case of non-payment of the total debt upon its maturity,
25 per cent thereon, as penalty. The lower court ordered the defendants to pay plaintiff,

ISSUE:
Whether or not the 25 per cent penalty upon the debt, in addition to the interest of 12 per
cent per annum makes the contract usurious.

RULING:
No. Art 1152 of the Civil Code permits the agreement upon a penalty apart from the
interest. The penalty is not to be added to the interest for the determination of whether the
interest exceeds the rate fixed by law, since the said rate was fixed only for the interest.

Case 53
ROBES-FRANCISCO REALTY & DEVELOPMENT CORPORATION vs. COURT OF FIRST
INSTANCE OF RIZAL (BRANCH 34), and LOLITA MILLAN
G.R. No. L-41093 OCTOBER 30, 1978

FACTS:
In May 1962 Robes-Francisco Realty & Development Corporation, now petitioner, agreed
to sell to private respondent Lolita Millan for and in consideration of the sum of P3,864.00,
payable in installments, a parcel of land containing an area of approximately 276 square
meters, situated in Barrio Camarin, Caloocan City, known as Lot No. 20, Block No. 11 of its
Franville Subdivision. 2

Millan complied with her obligation under the contract and paid the installments stipulated
therein, the final payment having been made on December 22, 1971. Private respondent
made a total payment of P5,193.63 including interests and expenses for registration of title.

After six (6) months, the seller failed to cause the issuance of the TCT. So, private
respondent filed a complaint for specific performance and damages. The Trial Court
awarded nominal damages.

ISSUE:
Whether or not the award of nominal damages is proper.

RULING:
It is ruled that the award of nominal damages is proper, petitioner was in delay, amounting
to nonperformance of their obligation to Millan, who had fully paid her installments.

Case 54
Golden Valley Exploration Inc vs. Pinkian Mining Company and Copper Valley Inc.
G.R. NO. 190080 June 11 2014

FACTS
Respondent is the owner of 81 mining claims, 15 of which were covered by Mining Lease
Contract No. MRD-56 while the remaining 66 had pending applications for lease, Pinkian
Mining Company, entered into an Operating Agreement (OA) with petitioner Golden Valley
Exploration (GVEI) granting the latter “full, exclusive and irrevocable possession, use,
occupancy and control over the mining claims and every matter pertaining to the
examination, exploration, development and mining for a period of 25 years.

Respondent PMC then extra-judicially rescinded the OA in a letter sent to GVEI claiming
that the latter violated terms of the agreement, GVEI contested the rescission, claiming that
the obligation to pay royalties to PMC arises only when the mining claims are placed in
commercial production, which was yet to occur. It also clarified that it had made a prior
payment amounting t0 185,000 as future royalties in exchange for PMC's waiver of any
breach or default done by GVEI.

PMC no longer responded to GVEI and proceeded to enter into another contract with
Copper Valley Inc, promising the same things promised to GVEI.

ISSUE
Was there a valid rescission of the OA?

RULING
The court rules in the affirmative.

As a general rule, the power to rescind an obligation must be invoked judicially and cannot
be exercised solely on a party's own judgement that the other has committed a breach of
the obligation. This is because rescission of a contract will not be permitted for a slight or
casual breach, but only for substantial and fundamental violations as would defeat the very
object of the parties in making the agreement. As a well-established exception, however an
injured party need not resort to court action in order to rescind a contract when the
contract itself provides that it may be revoked or cancelled upon violation of its terms and
conditions.

As such the court finds the PMC may unilaterally rescind the OA due to GVEI'S non-
payment of royalties considering that such was the express stipulation in the OA.
Case 55
Swire Realty Development Corporation vs. Jayne Yu
G.R. No. 207133 March 09, 2015

FACTS:
Respondent Jayne Yu and petitioner Swire Realty Development Corporation entered
into a Contract to Sell on July 25, 1995 covering one residential condominium
unit. Respondent paid the full purchase price of P7,519,371.80 for the unit while
making a down payment of P20,000.00 for the parking lot. However, notwithstanding
full payment of the contract price, petitioner failed to complete and deliver the subject
unit on time. This prompted respondent to file a Complaint for Rescission of Contract
with Damages.

ISSUE:
Whether rescission of the contract is proper in the instant case.

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

Thus, The delay in the completion of the project as well as of the delay in the delivery
of the unit are breaches of statutory and contractual obligations which entitle
respondent to rescind the contract, demand a refund and payment of damages.

Case 57
UNLAD RESOURCES DEVELOPMENT CORPORATION vs. DRAGON
GR NO. 149338 28 JULY 2008

FACTS:
The parties in this case entered into a Memorandum of Agreement (MoA) that UNLAD will
invest in additional stocks worth P4.8M and Pay up immediately P1.2M for said
subscription while the respondents, Dragon and Company, shall transfer control and
management over the Rural Bank to UNLAD resources. The respondents complied with
their obligation but the petitioners did not. Thus, respondent filed a complaint for
rescission of the agreement and return of the control and management of the Rural Bank
from petitioners to respondent, Plus damages.

ISSUE:
WoN the rescission of the MoA between the parties is proper.

RULING:
Yes, the MoA between the parties can be rescinded pursuant to Art. 1191 of the Civil Code
which states that “The Power to Rescind Obligations is Implied in reciprocal ones, in case the
on of the Obligors should not comply with what is uncumbent upon him, the other party – the
respondents can ask for rescission of the MoA on such ground. Clearly, the petitioners failed
to fulfill their end of agreement, and thus, there was a just cause of rescission. With a
contract, thus rescinded, the parties must be restored to the original state, that is, before
the entered into a Memorandum of Agreement.

Case 58
SPOUSES RODOLFO BEROT AND LILIA BEROT vs. FELIPE C. SIAPNO
G.R. No. 188944

FACTS:
On May 23, 2002, Macaria Berot and spouses Rodolfo A. Berot ("appellant") and Lilia P.
Berot obtained a loan from Felipe C. Siapno ("appellee") in the sum of PhP250,000.00,
payable within one year together with interest thereon at the rate of 2% per annum from
that date until fully paid.

As security for the loan, Macaria, appellant and Lilia) mortgaged to appellee a portion,
consisting of 147 square meters ("contested property"), of that parcel of land with an area
of 718 square meters, situated in Banaoang, Calasiao, Pangasinan in the names of Macaria
and her husband Pedro Berot (or "Pedro"), deceased.

On June 23, 2003, Macaria died.

Because of the mortgagors' default, appellee filed an action against them for foreclosure of
mortgage and damages on July 15, 2004 in the Regional Trial Court of Dagupan City.

The action was anchored on the averment that the mortgagors failed and refused to pay the
abovementioned sum of PhP250,000.00 plus the stipulated interest of 2% per month
despite lapse of one year from May 23, 2002.

Appellant and Berot Spouses alleged that the contested property was the inheritance of the
former from his deceased father, Pedro; that on said property is their family home; that the
mortgage is void as it was constituted over the family home without the consent of their
children, who are the beneficiaries thereof; that their obligation is only joint; and that
the lower court has no jurisdiction over Macaria for the reason that no summons was
served on her as she was already dead.

RTC: Ruled in favor of Siapno and ordered the Appellant to pay PhP250,000.00 with
interest at two (2%) percent monthly from February, 2004 the month when they stopped
paying the agreed interest up to satisfaction of the claim. But, nothing in the decision w/
regards to the issue of the obli being joint expressly, but in the records it revealed that the
trial court held that the obli is solidary.
In resolving petitioners' Motion for Reconsideration to its 30 June 2006 Decision, the trial
court categorically ruled that:

Defendants [sic] obligation with plaintiff is solidary. A careful scrutiny of the Real Estate
Mortgage (Exh. "A") will show that all the defendants, for a single loan, bind themselves to
cede, transfer, and convey by way of real estate mortgage all their rights, interest and
participation in the subject parcel of land including the improvements thereon in favor of
the plaintiff, and warrant the same to be free from liens and encumbrances, and that should
they fail to perform their obligation the mortgage will be foreclosed. From this it can be
gleaned that each of the defendants obligated himself/herself to perform the said solidary
obligation with the plaintiff.

CA: Affirmed the decision of the RTC

ISSUE:
WoN the obligation is only Joint, not Solidary.

RULING:
The SC held that the obligation is joint.

Under Article 1207 of the Civil Code of the Philippines, the general rule is that when there
is a concurrence of two or more debtors under a single obligation, the obligation is
presumed to be joint:

Art. 1207. 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 prestations. There
is a solidary liability only when the obligation expressly so states, or when the law or the
nature of the obligation requires solidarity.

Case 59
OLONGAPOCITY vs. SUBIC WATER AND SEWERAGE CO., INC
GR No. 171626 April 11, 2012

FACTS:
Olongapo City seek to hold liable for its agreement with the Olongapo City Water District,
the SUBIC WATER AND SEWERAGE CO., INC who succeeded the latter’s operations, thru
Joint Venture Agreement , on November 24, 1996, with Subic Bay Metropolitan Authority,
and other corporations creating Subic Water—a new corporate entity,. The respondent
counters that it is a separate entity from its predecessor and that the same merely owned
10% of its stocks. And Subic Water is not liable for the Petitioner and OCWD compromise
agreement on June 4, 1997, that offsets their respective claims and counterclaims. OCWD
who also undertook to pay to petitioner its net obligation amounting to ₱135,909,467.09,
to be amortized for a period of not exceeding twenty-five (25) years at twenty-fourpercent
(24%) per annum, even if the former was designated as co-maker.
ISSUE:
Whether or not that Subic Water could be held solidarily liable since it was identified as
OCWD’s co-maker in the compromise agreement.

HELD:
No. Art. 1207 provides that 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 the present
case, the joint and several liabilities of Subic Water and OCWD were nowhere clear in the
agreement. The agreement simply and plainly stated that petitioner and OCWD were only
requesting Subic Water to be a co-maker, in view of its assumption of OCWD’s water
operations. And no evidence was presented also to show that such request was ever
approved by Subic Water’s board of directors.

Under these circumstances, petitioner cannot proceed after Subic Water for OCWD’s
unpaid obligations. The law explicitly states that solidary liability is not presumed and
must be expressly provided for. Not being a surety, Subic Water is not an insurer of OCWD’s
obligations under the compromise agreement.

Case 60
ESTANISLAO and AFRICA SINAMBAN vs. CHINA BANKING CORPORATION
G.R. No. 193890 March 11, 2015

FACTS:
The spouses Danilo and Magdalena Manalastas executed a Real Estate Mortgage (REM) in
favor of respondent ChinaBanking Corporation over two real estate properties. In the
following years, they executed several amendments to the mortgage contract progressively
increasing their credit line. They then executed several promissory notes in favor of
Chinabank. In two of the PNs, petitioners Estanislao and Africa Sinamban signed as co-
makers. Subsequently, spouses Sinbamban failed to pay the obligation and after the
mortgage was foreclosed, there still remained a 1.7M obligation which prompted
Chinabank to file a complaint to the RTC. The complaint alleged that they reneged on their
obligations under the PNs which the spouses Manalastas executed.

The petitioners averred that they had no participation in the execution of one of the PN.
However, they admitted that they signed some PN forms as co-makers upon the request of
the spouses Manalastas. The petitioners denied knowing about the mortgage security
provided by the spouses Manalastas. They also refused the loan deficiency of 1.7M on the
PNs given that the mortgage collateral was worth more than P10,000,000 –– enough to
answer all the loans and penalties. They also denied the knowledge of the auction sale and
denied that they knew about the Certificate of Sale. In their counterclaim, the spouses
Sinamban prayed for damages, attorney’s fees of 25%, litigation expenses, and costs of suit.
The RTC ruled in favor of Chinabank but upon the motion of reconsideration, the RTC ruled
in favor of the Defendants. The CA then affirmed RTC MR ruling.

ISSUE:
Whether or not the spouses Sinbamban are solidarily liable to the remaining obligation.
RULING:
Yes. The SC overturns CA ruling.
A co-maker of a PN who binds himself with the maker "jointly and severally" renders
himself directly and primarily liable with the maker on the debt, without reference to his
solvency. In this case, the spouses Sinamban expressly bound themselves to be jointly and
severally, or solitarily, liable with the principal makers of the PN. Article 1216 of the Civil
Code provides 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."

As the Court has noted, by deducting the auction proceeds from the aggregate amount of
the three loans due, Chinabank in effect opted to apply the entire proceeds of the auction
simultaneously to all the three loans. This implies that each PN will assume a pro rata
portion of the resulting deficiency on the total indebtedness as bears upon each PN's
outstanding balance. Since each loan, represented by each PN, was obtained under a single
credit line extended by Chinabank, then each PN is simultaneously covered by the same
mortgage security. No PN enjoys any priority or preference in payment over the others,
with the only difference being that the spouses Sinamban are solitarily liable for the
deficiency on two of them.

Case 61
INDUSTRIAL MANAGEMENT INTERNATIONAL DEVELOPMENT CORP. (INIMACO). vs.
NATIONAL LABOR RELATIONS COMMISSION, (Fourth Division) Cebu City, and
ENRIQUE SULIT, SOCORRO MAHINAY, ESMERALDO PEGARIDO, TITA BACUSMO, GINO
NIERE, VIRGINIA BACUS, ROBERTO NEMENZO, DARIO GO, and ROBERTO ALEGARBES.
G.R. No. 101723 May 11, 2000

FACTS:
In September 1984, private respondents, who were employees of INIMACO, filed a
complaint before the Department of Labor for separation pay and unpaid wages.

A decision made by the Labor arbiter dated on March 1987 in favor to the private
respondents. On the dispositive part of the decision, no word “solidary” was used when he
ordered petitioners to pay respondents their claims.

No appeal was made within the reglementary period, making the decision final and
executory.

In June 1987, the Labor Arbiter issued a Writ of Execution but it was unfavorably returned.
On that same year, in August, he issued an Alias Writ of Execution where the dispositive
part had an “and/or”. Thereafter petitioner, on September, filed a “Motion to Quash and set
aside the decision” on grounds that the tone of the decision changed the liability of the
petitioners from joint to solidary. In turn, the Labor Arbiter denied the motion.
On October, petitioner appealed the Labor Arbiter’s decision dated September 14, 1987.

A Decision dated August 31, 1988, respondent NLRC dismissed the appeal wherein the
respondents of the case were ordered to pay, jointly and severally, which the original
claims of the complainants were as was the latter’s prayers. Waiving any error, defect or
irregularity whether in substance or in form, in line with the powers granted to the
Commission under Art. 318( c ) of the Labor code.

ISSUES:
Whether or Not petitioners can be held soridarily liable even if it was not made mention on
the decision? Are petitioners liable to pay jointly and severally with a certain sum of
money?

RULING:
No. Respondents liability is joint not solidary.
The dispositive portion of the decision dated March 1987, where there was no mention on
the word “solidary” by the Labor Arbiter was clear. Solidary liability is present when the
obligation expressly so states, when the nature of the obligation requires or the law so
provides. Obviously, petitioners exhausted all their means to delay the final disposition of
the case by initiating incidents, hinting ambiguity in the said dispositive portion even if it
was clarified by the Labor Arbiter and the Commission.

ARTICLE 1208. If from the law, or the nature or the wording of the obligations to which of
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, the credits or debts
being considered distinct from one another, subject to the Rules of Court governing the
multiplicity of suits.

Case 62
Philippine National Bank vs. Independent Planters Association
GR. No. L-28046 May 16,1983

FACTS:
PNB assails the order of the dismissal of the lower court dismissing its complaints against
several solidary debtors on the ground that one of the defendants died during the
pendency of the case and therefore the complaint being the money claim based on a
contract should be prosecuted in the estate and intestate proceeding for the settlement of
the estate of deceased.

ISSUE:
Whether in an action for collection of a sum of money based on contract against all the
solidary debtors, the death of one defendant deprives the court of jurisdiction to proceed
with the case against the surviving defendants.

RULING:
It is now settled that the quoted Article 1216 grants the creditor the substantive right to
seek satisfaction of his credit from one, some or all of his solidary debtors, as he deems fit
or convenient for the protection of his interests; and if, after instituting a collection suit
based on contract against some or all of them and, during its pendency, one of the
defendants dies, the court retains jurisdiction to continue the proceedings and decide the
case in respect of the surviving defendants

Case 63
ERNESTO V. RONQUILLO vs. HONORABLE COURT OF APPEALS AND ANTONIO P. SO
G.R. No. L-55138 September 28, 1984

FACTS:
Petitioner Ernesto V. Ronquillo was one of four (4) defendants in Civil Case... filed by
private respondent Antonio P. So, on July 23, 1979, for the collection of the sum of
P117,498.98 plus attorney's fees and costs. Plaintiff agrees to reduce its total claim of
P117,498.95 to only P110,000.00 and defendants agree to acknowledge the validity of such
claim and further bind themselves to initially pay out of the total indebtedness of
P110,000.00 the amount of P55,000.00 on or before December 24, 1979, the balance of
P55,000.00, defendants individually and jointly agree to pay within a period of six months
from January 1980, or before June 30, 1980. Private respondent (then plaintiff) filed a
Motion for Execution on the ground that defendants failed to make the initial payment of
P55,000.00 on or before December 24, 1979 as provided in the Decision.

There appears to be a non-payment in accordance with the compromise agreement to be

paid on or before December 24, 1979. The parties are reminded that the payment is
condition sine qua non to the lifting of the preliminary attachment and the execution of an
affidavit of desistance a writ of execution was issued for the satisfaction of the sum of
P82,500.00 as against the properties of the defendants (including petitioner), "singly or
jointly liable."... issued a notice of sheriff's sale, for the sale of certain furnitures and
appliances found in petitioner's residence to satisfy the sum of P 82,500.00.

ISSUE:
What is the nature of the liability of the defendants (including petitioner), was it merely
joint, or was it several or solidary? Whether or not he is liable jointly or solidarily.

RULING:
Based on the parties' compromise agreement... defendants individually and jointly agree to
pay within a period of six months. Clearly then, by the express term of the compromise
agreement and the decision based upon it, the defendants obligated themselves to pay their
obligation "individually and jointly".

The term "individually" has the same meaning as "collectively", "separately",

"distinctively", respectively or "severally". An agreement to be "individually liable"
undoubtedly creates a several obligation,  and a "several obligation"... is one by which one
individual binds himself to perform the whole obligation.
The obligation in the case at bar being described as "individually and jointly", the same is
therefore enforceable against one of the numerous obligors.
Petition is hereby DISMISSED.

Case 64
Spouses Chin Kong Wong Choi and Ana O. Chua vs. United Coconut Planters Bank
Gr. No. 207747 March 11, 2015

FACTS:
A Contract to Sell involving a condominium unit in Kiener Hills Cebu was entered into by
petitioner spouses Chin Kong Wong Choi and Ana O. Chua, and Primetown, a domestic
corporation engaged in the business of condominium construction and real estate
development. A down payment of P100,000.00 was given by petitioners while the
remaining balance became payable in 40 equal monthly instalments from January 16, 1997
to April 16, 2000. In the meantime, on April 23, 1998, a Memorandum of Agreement and
Sale of Receivables and Assignment of Rights and Interests were executed by and between
respondent United Coconut Planters Bank(UCPB) and Primetown. In 2006, a complaint for
refund with interest and damages against Primetown and UCPB was instituted by
petitioners for failure of Primetown to finish the construction and to deliver the subject
condominium unit despite full payment of contract price. The Office of the President
likewise ruled that UCPB was jointly and severally liable with Primetown. The Court of
Appeals reversed the Office of the President’s decision and reinstated Housing and Land
Use Regulatory Board Regional Field Office No. VI reinstated in another aspect.

ISSUE:
Whether or not respondent UCPB is solidarily liable with Primetown.

RULING:
No. Supreme Court held that as for UCPB’s alleged solidary liability, there is no merit in the
instant case, there is failure to comply with Sections 17, 18 and 25 of Presidential Decree
No. 957, which made the banks in those cases solidarily liable. Article 1207 of the Civil
Code states that a solidary obligation cannot be inferred lightly, but exists only when
expressly stated, or the law or nature of the obligation requires it. Since there is no other
ground to hold UCPB solidarily liable with Primetown and there is no reason to depart
from the ratio decidendi in  UCPB v. Ho, UCPB is only liable to refund Spouses Choi the
amount it indisputably received, which is P26,292.97 based on the evidence presented by
Spouses Choi.

Case 65
ROLITO CALANG and PHILTRANCO SERVICE ENTERPRISES, INC.
vs. PEOPLE OF THE PHILIPPINES
G.R. No. 190696 August 3, 2010

FACTS:
Rolito Calang, an employee and a bus driver of PHILTRANCO Bus Co. was involved in a
vehicular accident which killed three (3) people. A criminal case was filed against Calang
and PHILTRANCO Bus Co. The RTC ruled finding Calang and PHILTRANCO to be jointly and
severally liable for the crime and ordered to pay indemnity to the victims. After its Motion
for Reconsideration was denied, PHILTRANCO appealed to the Court of Appeals which in
turn affirmed in toto the decision of the Regional Trial Court. When the Court of Appeals
denied its Motion for Reconsideration, PHILTRANCO went to the SC to appeal the CA’s
decision.

ISSUE:
Whether the Liability of the Employer is jointly and severally liable in a civil liability arising
from delict committed by its employee?

RULING:
No. Calang was charged criminally before the RTC. Undisputedly, Philtranco was not a
direct party in this case. Since the cause of action against Calang was based on delict, both
the RTC and the CA erred in holding Philtranco jointly and severally liable with Calang,
based on quasi-delict under Articles 2176[1] and 2180[2] of the Civil Code. Articles 2176
and 2180 of the Civil Code pertain to the vicarious liability of an employer for quasi-delicts
that an employee has committed. Such provision of law does not apply to civil liability
arising from delict.

PHILTRANCO is only subsidiarily liable. Article 102 of the Revised Penal Code states the
subsidiary civil liabilities of innkeepers, tavern keepers and proprietors of establishments.
The provisions of the Revised Penal Code on subsidiary liability Articles 102 and 103 are
deemed written into the judgments in cases to which they are applicable. Thus, in the
dispositive portion of its decision, the trial court need not expressly pronounce the
subsidiary liability of the employer. Nonetheless, before the employer's subsidiary liability
is enforced, adequate evidence must exist establishing that (1) they are indeed the
employers of the convicted employees; (2) they are engaged in some kind of industry; (3)
the crime was committed by the employees in the discharge of their duties; and (4) the
execution against the latter has not been satisfied due to insolvency. The determination of
these conditions may be done in the same criminal action in which the employee liability,
criminal and civil, has been pronounced, in a hearing set for that precise purpose, with due
notice to the employer, as part of the proceedings for the execution of the judgment.

Case 66
COMMODATUM IS NOT PERFECT UNTIL DELIVERY OF THE OBJECT OF THE
CONTRACT
SAURA IMPORT vs. DBP
G.R. No. L-24968 April 27, 1972

FACTS:
In July 1952, Saura, Inc., applied to Rehabilitation Finance Corp., now DBP, for an industrial
loan of P500,000 to be used for the construction of a factory building, to pay the balance of
the jute mill machinery and equipment and as additional working capital. In Resolution
No.145, the loan application was approved to be secured first by mortgage on the factory
buildings, the land site, and machinery and equipment to be installed.
The mortgage was registered and documents for the promissory note were executed. But
then, later on, was cancelled to make way for the registration of a mortgage contract over
the same property in favor of Prudential Bank and Trust Co., the latter having issued Saura
letter of credit for the release of the jute machinery. As security, Saura execute a trust
receipt in favor of the Prudential. For failure of Saura to pay said obligation, Prudential
sued Saura.
After almost 9 years, Saura Inc, commenced an action against RFC, alleging failure on the
latter to comply with its obligations to release the loan applied for and approved, thereby
preventing the plaintiff from completing or paying contractual commitments it had entered
into, in connection with its jute mill project.

The trial court ruled in favor of Saura, ruling that there was a perfected contract between
the parties and that the RFC was guilty of breach thereof.

ISSUE:
Whether or not there was a perfected contract between the parties.

RULING:
Yes. There was indeed a perfected consensual contract. Article 1934 provides: An accepted
promise to deliver something by way of commodatum or simple loan is binding upon the
parties, but the commodatum or simple loan itself shall not be perfected until delivery of
the object of the contract. The same goes for Article 1316.

There was undoubtedly offer and acceptance in the case. The application of Saura, Inc. for a
loan of P500,000.00 was approved by resolution of the defendant, and the corresponding
mortgage was executed and registered. The defendant failed to fulfill its obligation and the
plaintiff is therefore entitled to recover damages.

When an application for a loan of money was approved by resolution of the respondent
corporation and the responding mortgage was executed and registered, there arises a
perfected consensual contract.

However, it should be noted that RFC imposed two conditions (availability of raw materials
and increased production) when it restored the loan to the original amount of P500,000.00.
Saura, Inc. obviously was in no position to comply with RFC’s conditions. So instead of
doing so and insisting that the loan be released as agreed upon, Saura, Inc. asked that the
mortgage be cancelled. The action thus taken by both parties was in the nature of mutual
desistance which is a mode of extinguishing obligations. It is a concept that derives from
the principle that since mutual agreement can create a contract, mutual disagreement by
the parties can cause its extinguishment.

Case 67
RIVELISA REALTY, INC., represented by RICARDO P. VENTURINA vs. FIRST STA.
CLARA BUILDERS CORPORATION, represented by RAMON A. PANGILINAN, as
President
G.R. No. 189618 January 15, 2014

FACTS:
On January 25, 1995, Rivelisa Realty entered into a Joint Venture Agreement (JVA) with
First Sta. Clara for the construction and development of a residential subdivision located in
Cabanatuan City. On August 24, 1995, Rivelisa agreed to release First Sta. Clara from the
JVA and estimated its actual accomplishment at P4,000,000.00, which included the
payment to the subcontractor in the amount of P1,258,892.72 and the cash advances
amounting to P319,259.68. First Sta. Clara, however, insisted on a valuation of its
accomplished works at P4,578,142.10, which, less the cash advances and subcontractor's
fees, should leave a net reimbursable amount of P3,000,000.00 in its favor. Rivelisa agreed
to reimburse First Sta. Clara the amount of P3M. emphasizing in its letter dated October 9,
1995 that the amount is actually over and beyond its obligation under the JVA. The amount
of P3M has remained to be unpaid despite repeated demands.

ISSUE:
Whether or not First Sta. Clara Builder Corporation is entitled to be compensated for the
development works it had accomplished on the project.

RULING:
YES. The Supreme Court concurs with the CA that First Sta. Clara is entitled to be
compensated for the development works it had accomplished on the project based on the
principle of quantum meruit. Case law instructs that under this principle, a contractor is
allowed to recover the reasonable value of the thing or services rendered despite the lack
of a written contract, in order to avoid unjust enrichment.

Quantum meruit means that, in an action for work and labor, payment shall be made in
such amount as the plaintiff reasonably deserves. The measure of recovery should relate to
the reasonable value of the services performed because the principle aims to prevent
undue enrichment based on the equitable postulate that it is unjust for a person to retain
any benefit without paying for it. In this case it is undisputed that First Sta. Clara already
performed certain works on the project with an estimated value ofP4,578,152.10. Clearly,
to completely deny it payment for the same would result in Rivelisa Realty's unjust
enrichment at the former's expense.

Case 69
NETLINK COMPUTER INCORPORATED vs. ERIC DELMO
G.R. No. 160827 June 18, 2014

FACTS:
Netlink hired Delmo as account manager tasked to canvass and source clients and convince
them to purchase the products and services of Netlink. Delmo worked in the field most of
the time. He and his fellow account managers were not required to accomplish time cards
to record their personal presence in the office of Netlink. He was able to generate sales
worth P35,000,000.00, more or less, from which he earned commissions amounting
to P993,558.89 and US$7,588.30. He then requested payment of his commissions, but
Netlink refused and only gave him partial cash advances chargeable to his commissions.
Later on, Netlink began to nitpick and fault find, like stressing his supposed absences and
tardiness. In order to force him to resign, Netlink issued several memoranda detailing his
supposed infractions of the company’s attendance policy. Despite the memoranda, Delmo
continued to generate huge sales for Netlink.

On November 28, 1996, Delmo was shocked when he was refused entry into the company
premises by the security guard pursuant to a memorandum to that effect. His personal
belongings were still inside the company premises and he sought their return to him. This
incident prompted Delmo to file a complaint for illegal dismissal.

In its answer to Delmo’s complaint, Netlink countered that there were guidelines regarding
company working time and its utilization and how the employees’ time would be recorded.
Allegedly, all personnel were required to use the Bundy clock to punch in and out in the
morning, and in and out in the afternoon. Excepted from the rules were the company
officers, and the authorized personnel in the field project assignments. Netlink claimed that
it would be losing on the business transactions closed by Delmo due to the high costs of
equipment, and in fact his biggest client had not yet paid. Netlink pointed out that Delmo
had become very lax in his obligations, with the other account managers eventually having
outperformed him. Netlink asserted that warning, reprimand, and suspension memoranda
were given to employees who violated company rules and regulations, but such actions
were considered as a necessary management tool to instill discipline

Ruling of the LA:

Delmo was illegally and unjustly dismissed. Respondents were ordered to reinstate
complainant to his former position without loss of seniority rights with full back wages and
other benefits. The reinstatement aspect is immediately executory even pending appeal. In
case reinstatement is no longer feasible, complainant shall be paid separation pay of one-
month pay for every year of service.

The NLRC modified the decision of the LA by setting aside the back wages and
reinstatement decreed by the Labor Arbiter due to the existence of valid and just causes for
the termination of Delmo’s employment.

The CA upholds NLRC’s ruling with modifications with the awarding of commission and
13th month pay to the respondent. Whole commission was not awarded since commission
is made to depend on the future and uncertain event. As regard to 13th month pay,
petitioner was not made to pay because employment was terminated based on valid and
just cause although he was not given due process.

ISSUE:
Whether or not the petitioner violated the principle of non – diminution of benefits and the
payment of the commissions should be in US dollars.

RULING:
Yes. As a general rule, all obligations shall be paid in Philippine currency. However, the
contracting parties may stipulate that foreign currencies may be used for settling
obligations. This is pursuant to Republic Act No. 8183 which provides as follows:

“Section 1. All monetary obligations shall be settled in the Philippine currency which is
legal tender in the Philippines. However, the parties may agree that the obligation or
transaction shall be settled in any other currency at the time of payment.”

There was no written contract between Netlink and Delmo stipulating that the latter’s
commissions would be paid in US dollars. The absence of the contractual stipulation
notwithstanding, Netlink was still liable to pay Delmo in US dollars because the practice of
paying its sales agents in US dollars for their US dollar-denominated sales had become a
company policy. This was impliedly admitted by Netlink when it did not refute the
allegation that the commissions earned by Delmo and its other sales agents had been paid
in US dollars. Instead of denying the allegation, Netlink only sought a declaration that the
US dollar commissions be paid using the exchange rate at the time of sale.

The principle of non-diminution of benefits, which has been incorporated in Article 100 of
the Labor Code, forbade Netlink from unilaterally reducing, diminishing, discontinuing or
eliminating the practice. Verily, the phrase "supplements, or other employee benefits" in
Article 100 is construed to mean the compensation and privileges received by an employee
aside from regular salaries or wages. With the payment of US dollar commissions having
ripened into a company practice, there is no way that the commissions due to Delmo were
to be paid in US dollars or their equivalent in Philippine currency determined at the time of
the sales. To rule otherwise would be to cause an unjust diminution of the commissions due
and owing to Delmo.

Case 70
Elizabeth del Carmen vs. Sps. Sabordo
G.R No. 181723 August 11, 2014

FACTS:
Spouses Suico obtained a loan from the Development bank of the Philippines , secured by a
mortgage of four parcels of land . Failing to pay their loan , DBP foreclosed the mortgaged
on the said lots. DBP allowed Suico spouses and Flores Spouses to repurchase the subject
lots by way of conditional sale. The They were were able to pay the down payment and the
first monthly amortization , but no monthly installments were made thereafter. The Suico
and Flores spouses sold their rights over the said properties to the Sabordo Spouses
subject to the condition that the latter shall pay the balance of the sale price . The Sabordo’s
were able to purchase the foreclosed properties. Despite transfer and repurchase of the
Sabordo’s , the Suico Spouses wanted to recover some of the property lots. So, Sabordo filed
with the CFI a motion for declaratory relief . The CA gallowed the Suico spouses to exercise
their option to purchase the subject lots by paying P 127, 500.00

In the meantime the husband , Mr Suico died . His wife and heirs discovered that the
Sabardo’s mortgaged the lot to RPB as security for a loan. The suicos filed a complaint with
the RTC seeking to compel Sabardos and RPB to interplead and litigate between themselves
their respective interest on the abovementioned sum of money . The Suico’s deposited the
money with the court.

ISSUE:
W/N the consignation of the money was valid and binding to the parties and produced the
effect of payment of the purchase price of the subject lots.

RULING:
No . Consignation is the act of depositing the thing due with the court or judicial authorities
whenever the creditor cannot accept or refuses to accept payment, and it generally
requires prior tender of payment . it should be distinguished from tender of payment which
is the manifestation by the debtor to the creditor of his desire to comply with his obligation
, with the offer of immediate performance . Tender is the antecedent of consignation ,that
is, an act preparatory to the consignation, which is the principal , and from which are
derived the immediate consequences which the debtor desires or seeks to obtain . Tender
of payment may be extrajudicial , while consignation is necessarily judicial, and the
priority of the first is the attempt to make a private settlement before proceeding to the
solemnities of consignation . Tender and consignation, where validly made , produces the
effect of payment and extinguishes the obligation. (Art 1256)

In the case at bar petitioner and her co-heirs , upon making the deposit with the RTC , did
not ask the trial court that the respondents be notified to receive the amount that they have
deposited . In fact , there was no tender of payment . Instead the petitioner and her co-heirs
prayed for the respondents and RPB be directed to interplead with one another to
determine their alleged respective rights over the consigned amount; that respondent be
likewise directed to substitute the subject lots with other real properties as collateral for
their loan with RPB and that RPB also be directed to accept the substitute real properties as
collateral for the said loan.

It is settled that compliance with the requisite of a valid consignation is mandatory . failure
to comply strictly with any of the requisites will render the consignation void. One of these
requisites is a valid prior tender of payment .

Case 71
BOGNOT vs. RRI LENDING CORPORATION
G.R. No. 180144               September 24, 2014

FACTS:
RRI Lending Corporation (respondent) is an entity engaged in the business of lending
money to its borrowers within Metro Manila. The petitioner and his younger brother,
Rolando A. Bognot (collectively referred to as the "Bognot siblings"), applied for and
obtained a loan of Five Hundred Thousand Pesos (₱500,000.00) from the respondent. The
loan was evidenced by a promissory note and was secured by a post dated check. Evidence
on record shows that the petitioner renewed the loan several times on a monthly basis. He
paid a renewal fee of ₱54, 600.00 for each renewal, issued a new post-dated check as
security, and executed and/or renewed the promissory note previously issued. The
respondent on the other hand, canceled and returned to the petitioner the post-dated
checks issued prior to their renewal.

The petitioner applied for another loan renewal. He again executed as principal and signed
Promissory Note. As security for the loan, the petitioner also issued BPI Check. Several days
before the loan’s maturity, Rolando’s wife, Julieta Bognot (Mrs. Bognot), went to the
respondent’s office and applied for another renewal of the loan. She issued in favor of the
respondent Promissory Note, and International Bank Exchange (IBE) Check in the amount
of ₱54,600.00 as renewal fee.

On the excuse that she needs to bring home the loan documents for the Bognot siblings’
signatures and replacement, Mrs. Bognot asked the respondent’s clerk to release to her the
promissory note, the disclosure statement, and the check. Mrs. Bognot, however, never
returned these documents nor issued a new post-dated check. Consequently, the
respondent sent the petitioner follow-up letters demanding payment of the loan, plus
interest and penalty charges. These demands went unheeded.

The respondent, through Bernardez, filed a complaint for a sum of money before the
Regional Trial Court (RTC) against the Bognot siblings. The respondent mainly alleged that
the loan renewal which the Bognot siblings applied for remained unpaid; and despite
repeated demands, the Bognot siblings failed to pay their joint and solidary obligation.

ISSUE:
Whether or not the parties’ obligation was extinguished by payment.

RULING:
In the present case, the petitioner failed to satisfactorily prove that his obligation had
already been extinguished by payment. As the CA correctly noted, the petitioner failed to
present any evidence that the respondent had in fact cashed his check and applied the
proceeds to the payment of the loan. Neither did he present official receipts evidencing
payment, nor any proof that the check had been dishonored.

Article 1249, paragraph 2 of the Civil Code provides: The delivery of promissory notes
payable to order, or bills of exchange or other mercantile documents shall produce the
effect of payment only when they have been cashed, or when through the fault of the
creditor they have been impaired.

Case 72
RODRIGO RIVERA vs. SPS. SALVADOR CHUA AND S. VIOLETA CHUA
G.R. no. 184458/184472 January 14, 2015

FACTS:
Rivera and Sps. Chua were longtime friends as “kumpadres” since 1973. In February 1995,
Rivera obtained a loan from the Spouses Chua, in the tune of P120,000.00, at the same time
issued a promissory note. Embodied in a promissory stipulating that failure to pay the
amount on December 31, 1995, Rivera agrees to pay 5% interest monthly from the date of
default. 3yrs from the maturity date, Rivera issued two (2) checks for payment but were
dishonored for the reason “closed account.”

ISSUE:
Whether or not a demand from Sps. Chua is needed to make Rivera liable.

RULING:
No, a demand from spouses Chua is not needed to make Rivera liable. Even if Rivera’s
Promissory Note is not a negotiable instrument and therefore outside the coverage of
Section 70 of the Negotiable Instruments Law which provides that presentment for
payment is not necessary to charge the person liable on the instrument, Rivera is still liable
under the terms of the Promissory Note that he issued. Article 1169 of the Civil Code
explicitly provides that the demand by the creditor shall not be necessary in order that
delay may exist when the obligation or the law expressly so declare. 

Case 73
The Wellex Group, Inc vs. U-land Airlines Co, Ltd.
G.R. No. 167519 January 14, 2015

FACTS:
Wellex and U-Land bound themselves to negotiate with each other within a 40- day period
to enter into a share purchase agreement. If no share purchase agreement was entered
into, both parties would be freed from their respective undertakings. On July 30, 1999, U-
Land filed a Complaint praying for rescission of the First Memorandum of Agreement and
damages against Wellex and for the issuance of a Writ of Preliminary Attachment.

ISSUE:
Whether or not U-land is entitled to the rescission.

RULING:
Respondent U-Land is praying for rescission or resolution under Article 1191, and not
rescission under Article 1381, which is a subsidiary action limited to cases of rescission for
lesion under Article 1381 of the New Civil Code, For Article 1191 to be applicable, however,
there must be reciprocal prestations as distinguished from mutual obligations between or
among the parties. A prestation is the object of an obligation, and it is the conduct required
by the parties to do or not to do, or to give. Parties may be mutually obligated to each other,
but the prestations of these obligations are not necessarily reciprocal. The reciprocal
prestations must necessarily emanate from the same cause that gave rise to the existence
of the contract. Thus, respondent U-Land correctly sought the principal relief of rescission
or resolution under Article 1191. The obligations of the parties gave rise to reciprocal
prestations, which arose from the same cause: the desire of both parties to enter into a
share purchase agreement that would allow both parties to expand their respective airline
operations in the Philippines and other neighboring countries.
Thus, respondent U-Land correctly sought the principal relief of rescission or resolution
under Article 1191. The obligations of the parties gave rise to reciprocal prestations, which
arose from the same cause: the desire of both parties to enter into a share purchase
agreement that would allow both parties to expand their respective airline operations in
the Philippines and other neighboring countries.

Case 74
NPC vs. LUCMAN IBRAHIM
GR No.175863

FACTS:
Ibrahim and his co-heirs claimed that they were owners of several parcels of land.
Sometime in 1978, NAPOCOR, through alleged secrecy and without respondents’
knowledge and prior consent, took possession of the sub-terrain area of their lands and
constructed therein underground tunnels. The existence of the tunnels was only discovered
in July 1992 by respondents and then later confirmed by NAPOCOR itself. Respondents
demanded that

NAPOCOR pay damages and vacate the sub-terrain portion of their lands but the latter
refused to vacate much less pay damages. Disputing respondents’ claim, NAPOCOR claimed
that respondents have no cause of action because they failed to show proof that they were
the owners of the property, and the tunnels are a government project for the benefit of all
and all private lands are subject to such easement as may be necessary for the same.

ISSUE:
Whether or Not respondents are entitled to just compensation?

RULING:
The ownership of land extends to the surface as well as to the subsoil under it. Petitioner
contends that the underground tunnels in this case constitute an easement upon the
property of respondents which does not involve any loss of title or possession. The manner
in which the easement was created by petitioner, however, violates the due process rights
of respondents as it was without notice and indemnity to them and did not go through
proper expropriation proceedings.

Based upon the foregoing, respondents are clearly entitled to the payment of just
compensation. Notwithstanding the fact that petitioner only occupies the sub-terrain
portion, it is liable to pay not merely an easement fee but rather the full compensation for
land.

Case 75
Azcona vs. Jamandre
G.R. No./ SCRA L- 30597 June 30, 1987

FACTS:
Guillermo Azcona leased 80 hectares out of his 150 hectares share in Hacienda Sta. Fe in
Negros Occidental to Cirilo Jamandre. The agreed yearly rental was P7200 and the term
was for agricultural years beginning 1960. On March 30, 1960, when the first annual rent
was due. Petitioner was not able to deliver possessions of the leased property thus he
“waived” payment of the rental. Respondent only entered the premises on October 26,
1960 after paying P7000, which was acknowledge by the petitioner in the receipt. On april
6, 1961, the petitioner notified respondent that the contract of lease was deemed cancelled
for violation of the conditions of the contract. Earlier, in fact, the respondent had been
ousted from the possession of the 60 hectares of the leased premises and let with only 20
hectares of the original area.

ISSUE/S:
Whether or not the obligations is extinguised by the acceptance of payment though
incomplete.

RULING:
Yes. The obligation already ceased to exist when the petitioner accepted the payment
without contention even if it is incomplete.

Petioner contends that the payment of P7000, which was short of P200, was a violation of
the agreement thus the contract should be deemed canceled. But the petitioner
unqualifiedly accepted the amount. The absence of any mention of the discrepancy in the
receipt nor any protest or demands to collect the remaining balance, means that petitioner
acknowledged the amount as the full payment for the rent. The SC affirms the decision of
the CA and petition is denied.

Article 1235. When the obligee accepts the performance, knowing its incompleteness or
irrigularity and without expressing any protest or objection is deemed fully complied with.

Case 76
J.M. TUASON & CO., INC. vs. JAVIER
G.R. No. L-28569 FEBRUARY 27, 1970

FACTS:
On September 7, 1954, petitioner J.M. Tuason & Co., Inc. entered a contract to sell with
respondent Ligaya Javier a parcel of land for the sum of Php3,691.20 with 10% interest per
annum. An amount of Php396.12 will be payable upon execution of the contract, and an
installment of Php43.92 monthly for a period of ten (10) years. It was further stipulated in
the contract, that upon failure of respondent to pay the monthly installment, she is given a
one month grace period to pay such installment together with the monthly installment
falling on the said grace period. Furthermore, failure to pay both monthly installments,
respondent will pay an additional 10% interest. It is also stipulated in the contract that
after 90 days from the end of the grace period, petitioner can rescind the contract, and the
payments made by respondent will be considered as rentals. Upon the execution of the
contract, respondent religiously paid the monthly installment until January 5, 1962.
Respondent, however, was unable to pay the monthly installments within the grace period
which petitioner, subsequently, sent a letter to respondent on May 22, 1964 that the
contract has been rescinded and asked the respondent to vacate the said land. So, upon
failure of respondent to vacate the said land, petitioner filed an action to the Court of First
Instance for the rescission of the contract. The CFI rendered a decision in favor of
respondent in applying Article 1592 of the New Civil Code. Hence, petitioner made an
appeal to the Supreme Court alleging that since Article 1592 of the New Civil applies only
to contracts of sale and not in contracts to sell.

ISSUE:
Did the CFI erroneously apply Article 1592 of the New Civil Code?

RULING:
Yes. Regardless, however, of the propriety of applying Article 1592, petitioner has not been
denied substantial justice under Article 1234 of the New Civil Code. In this connection,
respondent religiously satisfied the monthly installments for almost eight (8) years or up to
January 5, 1962. It has been shown that respondent had already paid Php4,134.08 as of
January 5, 1962 which is beyond the stipulated amount of Php3,691.20. Also, respondent
has offered to pay all installments overdue including the stipulated interest, attorney’s fees
and the costs which the CFI accordingly sentenced respondent to pay such installment,
interest, fees and costs. Thus, petitioner will be able recover everything that was due
thereto. Under these circumstances, the SC feel that, in the interest of justice and equity, the
decision appealed from may be upheld upon the authority of Article 1234 of the New Civil
Code.

Case 78
JOSE ARAŇAS, ET AL. vs. EDUARDO C. TUTAAN, ET AL.
127 SCRA 828 February 29, 1984

FACTS:
The stocks of Universal Textile Mills (UTEX) were issued to co-defendants Manuel and
Castaneda. Subsequently, in 1971, the lower court declared that Luisa Aranas is the rightful
owner of the 400 shares of stocks at Universal Textile Mills (UTEX). Further, it ordered that
dividends in cash or stocks pertaining to the same be delivered to Aranas. UTEX then filed a
motion to clarify the phrase in said decision which states “to deliver to her all dividends
appertaining to the same, whether in cash or in stocks” meant dividends properly
pertaining to the plaintiffs after the court’s declaration of her ownership. The said motion
was granted, where the court ordered UTEX to pay the plaintiff the cash dividends which
accrued to the stocks in question after the current decision was rendered but the cash
dividends were already paid to the co-defendants before the court decision may not be
claimed by the plaintiffs.

The co-defendants filed for a new trial and the decision was the same as the 1971 ruling.
Upon appeal to the CA, the said ruling was affirmed. The lower court issued a writ of
execution in 1979 directed to UTEX to 1) cancel the certificate of stocks of the co-
defendants and issue new ones in the name of the petitioners, and 2) Pay the cash
dividends accrued from 1972 to 1979 (period from the new trial to the issuance of writ of
execution). UTEX alleged that the cash dividends had already been paid.

ISSUE:
Whether or not there was valid payment

RULING:
No. It is elementary that payment made by a judgment debtor to a wrong party cannot
extinguish the obligation of such debtor to its creditor. It was clear in the motion for
clarification that all dividends accruing to the said shares after the rendition of judgement
belonged to the Aranas. When UTEX paid the wrong parties, despite its knowledge and
understanding of the final judgment, it is still liable to pay Aranas as the lawful declared
owners of the said shares. The burden to recover the wrong payment is on UTEX and
cannot be passed on to the Aranas as the innocent parties.

Case 79
HYDRO RESOURCES CONTRACTORS CORPORATION vs. NATIONAL IRRIGATION
ADMINISTRATION
G.R. NO. 160215 NOVEMBER 10, 2004

FACTS:
The National Irrigation Administration (NIA) awarded a contract involving the main civil
work of the Magat River Multi-Purpose Project to Hydro Resources Contractors
Corporation (Hydro). The contract price contained a peso and a US$ component. The US$
Component includes an allocation for equipment financing. The fixed exchange rate of
P7.3735 to the dollar was agreed upon.

During the period of the execution of the contract, the foreign exchange value of the peso
against the US dollar declined and steadily deteriorated. Whenever Hydro's availment of
the foreign currency component exceeded the amount of the foreign currency payable to
Hydro for a particular period, NIA charged interest in dollars based on the prevailing
exchange rate instead of the fixed exchange. Yet when Hydro received payments from NIA
in Philippine Pesos, NIA made deductions from Hydro's foreign currency component at the
fixed exchange rate instead of the prevailing exchange rate. Upon completion of the project,
a final reconciliation of the total entitlement of Hydro to the foreign currency component of
the contract was made and it showed that the total entitlement of Hydro to the foreign
currency component of the contract exceeded the amount of US dollars required by Hydro
to repay the advances made by NIA for its account in the importation of new equipment,
spare parts and tools.

NIA and Hydro prepared a joint computation and based on said joint computation, Hydro
was still entitled to a foreign exchange differential which is why Hydro made several
demands to recover its claim until the same was turned down with finality by then NIA
Administrator.

ISSUE:
Whether or not Hydro's claim should be computed at the fixed rate of exchange.

RULING:
NO. NIA is estopped from invoking the contractual stipulation providing for the fixed rate
to justify a lower computation than that claimed by Hydro. It cannot be allowed to hide
behind the very provision which it itself continuously violated. An admission or
representation is rendered conclusive upon the person making it and cannot be denied or
disproved as against the person relying thereon. A party may not go back on his own acts
and representations to the prejudice of the other party who relied upon them. A person
who, by his deed or conduct has induced another to act in a particular manner, is barred
from adopting an inconsistent position, attitude or course of conduct that thereby causes
loss or injury to another.

Case 80
Ponce vs. Honorable Court of Appeals
G.R. No. L-49494 May 31, 1979

FACT:
On June 3, 1969, private respondent Jesusa B. Afabale, together with Felisa L. Mendoza and
Maria Aurora C. Dino, executed a promissory note in favor of petitioner Nelia G. Ponce in
the sum of PHP 814, 868.42 pesos Philippine Currency payable, without interest, on or
before July 31, 1969.

Without interest as well as stipulation in case of non-payment, upon the failure of the
debtors to comply with the terms of the note, petitioner file a complaint for the recovery of
the principal sum, plus interest and damages.

Private respondent argued that the contract under consideration involved the payment of
US dollars and was therefore, illegal, and that under the in pari delicto rule, since both
parties are guilty of violating the law, neither can recover.

Defendant Dinos Answer contained a general denial and avered that the aforementioned
promissory not was obtained by plaintiffs an their assurance that it was only for formality.
Defendant Afable likewise contended that the promissory note failed to express the true
intent of the agreement of the parties that the entire obligation was to be paid by defendant
Mendoza and that she only signed the promissory note as the President of Carmen Planas
Memorial, Inc..

The court of Appeals reversed the Judgment of the Trial Court and opined that the intent of
the parties was that the promissory note was payable in US dollars therefore, the
transaction was illegal with neither party entitled to recover under the in pari delicto rule.

ISSUE:
Whether or Not the subject matter is illegal and against public policy, there by warranting
the application of the doctrines of in pari delicto.
RULING
NO, it is to be noted while an agreement to pay in dollars is declared as null and void and of
no effect, what the laws specifically prohibits its payment in currency other than legal
tender. It does not defeat a creditor’s claim for payment , as it specifically provides that
every other domestic obligation, whether or not any such provision as to payment is
contained therein or made with respect thereto, shall be discharged upon payment in any
coin or currency which at the time of payment is legal tender for public and private debts.

A contrary rule would allow a person to profit or enrich himself in equitability at another’s
expense.

What is prohibited by RA No. 529 is the payment of an obligation in dollars, meaning that a
creditor cannot oblige the debtor to pay him in dollars, even if the loan were given in said
currency .

In such a case, the indemnity to be allowed should be expressed in Philippines currency on

the basis of the current rate of exchange at the time of payment.

Case 81
KALALO vs. LUZ
G.R. No. L-27782 JULY 31, 1970

FACTS:
Octavio Kalalo is an engineer whose services were contracted by Alfredo Luz, an architect
in 1961. Luz contracted Kalalo to work on ten projects across the country, one of which was
an in the International Rice Research Institute (IRRI) Research Center in Los Bañ os,
Laguna. Luz was to be paid $140,000.00 for the entire project. For Kalalo’s work, Luz
agreed to pay him 20% of what IRRI is going to pay or equivalent to $28,000.00.

ISSUE:
Whether or not Kalalo should be paid in US currency.

RULING:
No. The agreement was forged in 1961, years before the passage of Republic Act 529 in
1950. The said law requires that payment in a particular kind of coin or currency other
than the Philippine currency shall be discharged in Philippine currency measured at the
prevailing rate of exchange at the time the obligation was incurred. Nothing in the law
however provides which rate of exchange shall be used hence it is but logical to use the rate
of exchange at the time of payment.

Case 82
Tibajia vs. CA
G.R. No. 100290 June 4, 1993

FACTS:
A suit for a collection of a sum of money was filed against the Tibajia spouses by Eden Tan
to whom a favorable decision was rendered by the lower court. The Tibajia spouses
delivered to the deputy sheriff the total money judgment in cashier’s check and cash which
Eden Tan refused to accept as payment.

ISSUE:
Whether or not the cashier’s check tendered by petitioners for payment of the judgment
debt is “legal tender.”

RULING:
No. A check whether a manager’s check or ordinary check is not legal tender. An offer of a
check in payment of a debt is not a valid tender of payment and may be refused receipt by
the obligee or creditor.

Case 83
Roman Catholic Bishop of Malolos, Inc. vs. Intermediate Appelate Court
G.R. No. 72110 November 16, 1990

FACTS:
Petitioner and private respondent entered into a contract of sale over a parcel of
land to be paid within four years from execution of the contract. The contract
included stipulations for cancellation, forfeiture of previous payments, and
reconveyance of the land in question in case the private respondent would fail
to complete payment within the said period. After the expiration of the
stipulated period for payment, Atty. Adalia Francisco (president of the company
who bought land) wrote the petitioner a formal request that her company be
allowed to pay the principal amount of P100,000.00 in three (3) equal
installments of six (6) months each with the first installment and the accrued
interest of P24,000.00 to be paid immediately upon approval of the said request.
The petitioner formally denied the said request of the private respondent, but
granted the latter a grace period of five (5) days from the receipt of the denial to
pay the total balance of P124,000.00. The private respondent wrote the
petitioner requesting an extension of 30 days from said date to fully settle its
account but this was still denied.

Consequently, Atty. Francisco wrote a letter directly addressed to the petitioner,

protesting the alleged refusal of the latter to accept tender of payment made by
the former on the last day of the grace period. But the private respondent
demanded the execution of a deed of absolute sale over the land in question. Atty.
Fernandez wrote a reply to the private respondent stating the refusal of his client
to execute the deed of absolute sale so the petitioner cancelled the contract and
considered all previous payments forfeited and the land as ipso facto reconveyed.

The trial court considered as fatal the failure of Atty. Francisco to present in court
the certified personal check allegedly tendered as payment or, at least, its
photocopy, or even bank records. Not satisfied with the said decision, the private
respondent appealed to the IAC. The IAC reversed the decision of the trial court.
The IAC, in finding that the private respondent had sufficient available funds, ipso
facto concluded that the latter had tendered payment.

ISSUE:
Whether the petitioner validly cancelled the contract, the forfeiture of the previous
payment, and the reconveyance of the land in question.

RULING:
Yes, the petitioner in the legitimate exercise of its rights pursuant to the subject contract,
did validly order therefore the cancellation of the said contract, the forfeiture of the
previous payment, and the reconveyance ipso facto of the land in question. Article 1159 of
the Civil Code of the Philippines provides that "obligations arising from contracts have the
force of law between the contracting parties and should be complied with in good faith."
And unless the stipulations in said contract are contrary to law, morals, good customs,
public order, or public policy, the same are binding as between the parties.

Case 84
Papa vs. Valencia
G.R. No. 105188

FACTS:
Myron Papa is the administrator of the estate of Angela Butte. In 1973, he sold a portion of
said estate to Felix Peñ arroyo through A.U. Valencia and Co., Inc.
Peñ arroyo gave papa 5,000.00 plus a check worth 40,000.00 However, Papa was not able to
deliver the Certificate Title to Peñ arroyo.

A litigation ensued and then ten years after, Papa argued that the sale between him and
Peñ arroyo was never consummated.

ISSUE:
Whether or not Papa’s contention is meritorious.

RULING:
No. After more than ten years from the payment in part cash and in part check, the
presumption is that the check has been encashed.

Granting that Papa had never encashed said check, his failure to do so for more than ten
years undoubtedly resulted in the impairment of the check through unexplained delay.

Case 85
Soco vs. Militante
G.R. L-58961, 123 SCRA 160 June 28, 1983

FACTS:
Soco learned that Francisco sub-leased a portion of the building to NACIDA, at a monthly
rental of more than P3,000.00 which is definitely very much higher than what Francisco
was paying to Soco under the Contract of Lease, the latter felt that she was on the losing
end of the lease agreement so she tried to look for ways and means to terminate the
contract.

In view of this alleged non-payment of rental of the leased premises beginning May, 1977,
Soco through her lawyer sent a letter dated November 23, 1978 to Francisco serving notice
to the latter ‘to vacate the premises leased.’ In answer to this letter, Francisco through his
lawyer informed Soco and her lawyer that all payments of rental due her were in fact paid
by Commercial Bank and Trust

Company through the Clerk of Court of the City Court of Cebu. Despite this explanation,
Soco filed this instant case of Illegal Detainer.

ISSUE:
WON there was a valid consignation of payment of the rental

RULING:
The City Court further found that there is no showing that the letter allegedly
delivered to the plaintiff in May, 1977 by Filomeno Soon, messenger of the FAR
Corporation contained cash money, check, money order, or any other form of note of
value, hence there could never be any tender of payment, and even granting that there was,
but plaintiff refused to accept it without any reason, still no consignation for May, 1977
rental could be considered in favor of the defendant unless evidence is presented to
establish that he actually made rental deposit with the court in cash money and prior and
subsequent to such deposit, he notified the plaintiff thereof.

Notwithstanding the contradictory findings of fact and the resulting opposite

conclusions of law by the City Court and the Court of First Instance, both are agreed,
however, that the case presents the issue of whether the lessee failed to pay the monthly
rentals beginning May, 1977 up to the time the complaint for eviction was filed on
January 8, 1979. This issue in turn revolves on whether the consignation of the
rentals was valid or not to discharge effectively the lessee's obligation to pay the same.
The City Court ruled that the consignation was not valid. The Court of First Instance, on
the other hand, held that there was substantial compliance with the requisites of the law
on consignation.

Let us examine the law and consider Our jurisprudence on the matter, aside from the codal
provisions already cited herein.

According to Article 1256, New Civil Code, if the creditor to whom tender of
payment has been made refuses without just cause to accept it, the debtor shall be
released from responsibility by the consignation of the thing or sum due.
Consignation alone shall produce the same effect in the following cases: (1) When the
creditor is absent or unknown, or does not appear at the place of payment; (2) When
he is incapacitated to receive the payment at the time it is due; (3) When, without just
cause, he refuses to give a receipt; (4) When two or more persons claim the same right
to collect; (5) When the title of the obligation has been lost.

Case 86
SOLEDAD SOCO vs. HON. FRANCIS MILITANTE
G.R. No. L-58961 June 28, 1983

FACTS:
Soco and Francisco entered into a contract of lease whereby Soco leased her commercial
building and lot, to Francisco for a monthly rental of P 800.00 for a period of 10 years
renewable for another 10 years at the option of the lessee. Francisco noticed that Soco did
not anymore send her collector for the payment of rentals and at times there were
payments made but no receipts were issued. This prompted Francisco to write Soco the
letter which the latter received. After writing this letter, Francisco sent his payment for
rentals by checks issued by the Commercial Bank and Trust Company (CBTC). After Soco
learned that Francisco sub-leased a portion of the building to NACIDA, at a monthly rental
of more than P3,000.00, the latter felt that she was on the losing end of the lease agreement
so she tried to look for ways and means to terminate the contract. Soco through her lawyer
sent a letter to Francisco serving notice to the latter 'to vacate the premises leased.'
Francisco answered through his lawyer informing Soco and her lawyer that all payments of
rental due her were in fact paid by CBTC through the Clerk of Court. Despite this
explanation, Soco filed this instant case of Illegal Detainer.

ISSUE:
Whether or not there was a valid consignation of payment of the rentals.

RULING:
No. For consignation to be effective, the debtor must first comply with certain
requirements prescribed by law. The debtor must show (1) that there was a debt due; (2)
that the consignation of the obligation had been made because the creditor to whom tender
of payment was made refused to accept it, or because he was absent or incapacitated, or
because several persons claimed to be entitled to receive the amount due; (3) that previous
notice of the consignation had been given to the person interested in the performance of
the obligation; (4) that the amount due was placed at the disposal of the court; and (5) that
after the consignation had been made the person interested was notified thereof. Failure in
any of these requirements is enough ground to render a consignation ineffective. The Court
held that the respondent lessee has utterly failed to prove the following requisites of a valid
consignation.

Case 87
Immaculata vs. Navarro
GR No. L-42230 April 15, 1988

FACTS:
An action for specific performance was filed by Juanito Victoria, during his lifetime, against
petitioner Lauro Immaculata, represented by his wife, Amparo Velasco, before the
respondent court to compel petitioner to execute a document registrable with the ROD of
Rizal in order that Juanito Victoria may be able to obtain title over the property; that no
proper and valid service of summons was ever made upon the petitioner, and thus,
notwithstanding, the latter was declared in default and judgement by default was rendered
against him; that said judgment by default was null and void, having been rendered against
a person who was admittedly insane.

ISSUE: Whether or not the present case is already barred by prescription.

RULING:
Respondents alleged that the offer to redeem was not sincere because there was no
consignation. The right to redeem is a right, not obligation, therefore, there is no
consignation required to preserve the right to redeem.

Case 88
SPOUSES OSCAR and THELMA CACAYORIN vs.  ARMED FORCES AND POLICE MUTUAL
BENEFIT ASSOCIATION, INC. (AFPMBAI)
G.R No, 171298 April 15, 2013

FACTS:
Oscar Cacayorin filed an application with AFPMBAI to purchase a property which the latter
owned through a loan facility. Spouses Cacayorin and the Rural Bank of San Teodoro
executed a Loan and Mortgage Agreement with the former as borrowers and the Rural
Bank as lender, on the basis of the Rural Bank's letter of guaranty, AFPMBAI executed in
petitioners' favor a Deed of Absolute Sale, and a new title was issued in their name.
However, due to sudden turn of events, the Pag-ibig loan facility did not push through and
the rural bank was placed under receivership by the PDIC.

AFPMBAI somehow was able to take possession of petitioners' loan documents and the
TCT, while petitioners were unable to pay the loan for the property. AFPMBAI made
written demands for petitioners to pay the loan for the property. Then, petitioners filed
with the RTC a complaint for consignation of loan payment, recovery of title and
cancellation of mortgage annotation since under the circumstances, they do not know
which of the two the Rural Bank or AFPMBAI should receive full payment of the purchase
price, or to whom tender of payment must validly be made. AFPMBAI contended that since
no prior valid tender of payment was made by petitioners, the consignation case was fatally
defective and susceptible to dismissal.

ISSUE:
Whether or not the action for consignation was proper.

RULING:
Yes, the action for consignation was proper.
Under Article 1256 of the Civil Code, the debtor shall be released from responsibility by the
consignation of the thing or sum due, without need of prior tender of payment, when the
creditor is absent or unknown, or when he is incapacitated to receive the payment at the
time it is due, or when two or more persons claim the same right to collect, or when the
title to the obligation has been lost. The said provision clearly precludes consignation in
venues other than the courts.

Clearly, the allegations in the Complaint present a situation where the creditor is unknown,
or that two or more entities appear to possess the same right to collect from THpetitioners.
The court finds that a case for consignation has been made out as it now appears that there
are 2 entities which petitioners must deal with in order to fully secure their title to the
property. Furthermore, no prior tender of payment is needed because of article

Case 89
SPOUSES RAYOS vs. REYES et al
G.R No. 150913 February 20, 2003

FACTS:
3 parcels of unregistered land in Pangasinan were formerly owned by the
spouses Tazal who on 1 September 1957 sold them to respondents’ predecessor-in-
interest, Reyes, with right to repurchase within two 2 years from date thereof by
paying to the vendee the purchase price and all expenses incident to
t h e i r conveyance. 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 3parcels were again sold by Tazal in favor of
petitioners’ predecessor-in-interest R a y o s w i t h o u t f i r s t a v a i l i n g o f h i s r i g h t
t o r e p u r c h a s e t he p r o p e r t i e s . I n t h e meantime, the conventional right of
redemption in favor of spouses Tazal expired without the right being exercised by either
the Tazal spouses or the vendee Rayos.

ISSUE:
Whether or Not the consignation 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 amo unt w it h
t he court; and third, to sho w the acce ptance by t he 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. However, they failed
to notify the other party of such action.

Case 90
CALTEX (PHILIPPINES), INC. vs. THE INTERMEDIATE APPELLATE COURT and ASIA
PACIFIC AIRWAYS, INC.,
G.R. No. 72703 November 13, 1992

FACTS:
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 years. Respondent had an outstanding obligation to
petitioner in the total amount of P4,072,682.13. A Deed of Assignment was executed in
favor of petitioner and assigned to petitioner its receivables or refunds of Special Fund
Import Payments from National Treasury of the Philippines as payment. Respondent,
learned that the amount remitted to petitioner exceeded the amount covered by the Deed
of Assignment and requested a refund of P900,000 and also demanded the refund of the
remaining amount. 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 ofrespondent.

ISSUE:
Whether or not the Deed of Assignment entered into constituted dacionenpago so that
petitioner was not legally authorized to deduct the amount forinterest and service
charges on the unpaid and overdue accounts of private respondent

RULING:
The Deed of Assignment executed by the parties is not a dation in payment and did not
totally extinguish respondent's obligations. 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 order to judge the intention of thecontracting
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).

Case 91
PHILIPPINE NATIONAL BANK vs. HON. GREGORIO G. PINEDA, in his capacity as
Presiding Judge of the Court of First Instance of Rizal, Branch XXI and TAYABAS
CEMENT COMPANY, INC.
G.R. No. L-46658 May 13, 1991
FACTS:
The Arroyo spouse obtained a load of P580,000.00 from the Petitioner to purchase 60% of
the subscribed capital stock and thereby acquire the controlling interest of private
respondent Tayabas Cement Company, Inc. (TCC). As security for the said loan, the spouses
executed a real estate mortgage.

TCC filed with petitioner bank for the establishment of an eight year deferred letter of
credit for $7,000,000.00 in favor of Toyo Menka Kaisha, Ltd.(TKML) of Japan to cover the
importation of machinery and equipment. The Arroyo spouses executed a surety
agreement. This machinery and equipment arrived and were released to TCC under trust
receipt agreement.

TMKL made drawings against the letter of credit as scheduled. However, TCC failed to
remit the corresponding amount covered by the drawing.

Thus pursuant to the trust receipt agreement, PNB notified TCC of its intention to repossess
the machinery and equipment for the failure of the latter to settle its obligation. PNB also
foreclosed the real estate mortgages executed by the Arroyo spouses in TCC’s favor.

The TCC filed a complaint against PNB seeking, inter alia, the issuance of a writ of
preliminary injunction to restrain the foreclosure of the mortgages and declare their
obligation with PNB has been paid by reason of the latter’s repossession of the machinery
and equipment.

ISSUE:
Whether or not TCC’s liability has been extinguished by the repossession of PNB of the
machinery and equipment.

RULING:
No. The repossession of PNB of the machinery and equipment does not extinguish the
liability of TCC. The repossession of the machinery and equipment is a form of security for
the advances under the Letter of Credit, it is not by itself to be considered as payment of the
loan. Payment would legally result only after PNB had foreclosed the securities, sold them,
and applied the proceed to TCC’s loan. Since PNB merely repossessed the equipment and
machinery. Therefor, no dacion en pago was ever accomplished.

Case 92
Filinvesst Credit Corporation vs. Philippine Acetylene, Co., Inc.,
G.R. No. L-50449 January 30, 1982

FACTS:
On October 30, 1971, the defendant purchased from one Alexander Lim, as evidenced by a
Deed of Sale marked as Exhibit G, a motor vehicle described as Chevrolet, 1969 model with
Serial No. 136699Z303652 for P55,247.80 with a down payment of P 20,000.00 and the
balance of P 35,247.80 payable, under the terms and conditions of the promissory note, at a
monthly installment of P 1,037.70 for thirty-four (34) months. As security for the payment
of said promissory note, the appellant executed a chattel mortgage over the same motor
vehicle in favor Alexander Lim. Subsequently, on November 2, 1971, Alexander Lim
assigned to the Filinvest Finance Corporation all his rights, title and interests in the
promissory note and chattel mortgage by virtue of a Deed of Assignment. Appellant then
failed to comply with the terms and conditions set forth in the promissory note and chattel
mortgage since it had defaulted payment of nine successive installments. Subsequently the
respondent, returned the vehicle together with the document “Voluntary Surrender with
Special Power of Attorney to sell. Almost a month later, Filinvest informed the respondent
that they cannot sell the vehicle due to unpaid taxes in the sum of P 70,122. The
respondent argued that it has no obligation to pay the taxes as they already surrendered
the vehicle which is tantamount to the obligation being extinguished.

ISSUE:
Whether or not the delivery of the thing constitutes the obligation being extinguished

RULING:
The answer is in the negative. Article 1232 of the Civil Code states that Payment means not
only the delivery of money but also the performance, in any manner of an obligation. The
mere delivery of the thing is not tantamount to the fulfillment of their obligation. It must be
noted that the unpaid taxes on the motor vehicle is a burden on the property. Since as
earlier shown, the ownership of the mortgaged property never left the mortgagor, the
herein respondent, the burden of the unpaid taxes should be home by him.

Case 93
Citizens Surety and Insurance Co., Inc. vs. Court of Appeals
GR No. L-48958, 162 SCRA 738 June 28, 1988

FACTS:
On December 4 1959 -Citizen’s Surety issued 2 surety bonds as guarantee for Principal
Pascual Perez Enterprises in its obligation for a Contract of Sale entered into with Singer
Sewing Machine Co. Pascual Perez and his attorney in fact (wife) executed the indemnity
agreements obligating himself and the Enterprises to indemnify the petitioner jointly and
severally.

Pascual Perez also placed a collateral security a stock of lumber with a total value of P400k
through a deed of assignment on same day. Then, Pascual Perez also executed a second real
estate mortgage in favour of Citizens Surety.

Pascual Perez Enterprises failed to comply with the obligation with Singer Sewing Machine
Co. Citizens Surety paid for the total amount of the surety bonds at 144k. Except for
partial payments in the total sum of P55,600.00 and notwithstanding several demands,
Pascual M. Perez Enterprises failed to reimburse Citizen’s Surety for the losses it sustained
under the said surety bonds. Citizens Surety filed a claim for sum of money against the
estate of the Attorney in Fact and Wife of Pascual M. Perez. Perez averred: that the bonds
and indemnity agreements had been extinguished by the deed of assignment due to the
CA’s judgment which extinguished the obligation by virtue of execution of deed of
assignment and release of second mortgage.

ISSUE:
WON the obligation under the surety bonds and indemnity agreements had been
extinguished by reason of the execution of the deed of assignment via dation of payment.

RULING:
NO, there was no dation in payment

Perez averred: Obligation under the surety bonds and indemnity agreements had been
extinguished by reason of the execution of the deed of assignment via dation of payment.

Court ruled (with Citizen’s Surety): It is a rule that there is no room for construction
thereof when words of a contract are plain and readily understandable, however this case
is under the exceptions.

On its face, the document (Deed of Assignment) speaks of an assignment where there
seems to be a complete conveyance of the stocks of lumber to Citizen’s surety, as assignee.
However, in the light of the circumstances obtaining at the time of the execution of said
deed of assignment, Court cannot regard the transaction as an absolute conveyance
Respondent court CA stated that "by virtue of the execution of deed of assignment,
ownership of lumber materials had been transferred from Perez to Citizen's Surety, and
this amounted to dation in payment whereby Perez is considered to have alienated his
property in favor of the Citizen's Surety in satisfaction of a monetary debt (Article 1245).
Perez's obligation therefore, under the surety bonds is extinguished upon the execution of
the deed of assignment." Court ruled that his is not sustained by the records.

1. The transaction cannot be dation in payment because the obligation on the part of
Citizens Surety to pay Singer Sewing Machine had not yet arisen. There was nothing
extinguished on that date, hence there is no dation in payment.

2. The deed of assignment cannot be regarded as an absolute conveyance whereby the

obligation under the surety bonds was automatically extinguished. The subsequent acts of
Perez bolster the fact that the deed of assignment was intended merely as a security for the
issuance of the two bonds.

 Partial payments amounting to P55,600 were made after the execution of the deed
of assignment to satisfy the obligation under the two surety bonds.

 Since later payments were made to pay the indebtedness, it follows that no debts
was extinguished upon the execution of the deed of assignment.

Case 94
FIRST UNITED CONSTRUCTORS CORPORATION and BLUE STAR CONSTRUCTION
CORPORATION vs. BAYANIHAN AUTOMOTIVE CORPORATION, Respondent.
G.R. No. 164985               January 15, 2014

FACTS:
Petitioners FUCC and petitioner Blue Star were associate construction firms
sharing financial resources, equipment and technical personnel on a case-to-case basis.
From May 27, 1992 to July 8, 1992, they ordered six units of dump trucks from respondent
Bayanihan. On September 19, 1992, FUCC ordered from the respondent one unit
of Hino Prime Mover that the respondent delivered on the same date. On September 29,
1992, FUCC again ordered from the respondent one unit of Isuzu Transit Mixer that was
also delivered to the petitioners. For the two purchases, FUCC partially paid in cash, and the
balance through post-dated checks.
               
Upon presentment of the checks for payment, the respondent learned that FUCC had
ordered the payment stopped. The respondent immediately demanded the full settlement
of their obligation from the petitioners, but to no avail. Instead, the petitioners informed
the respondent that they were withholding payment of the checks due to the breakdown of
one of the dump trucks they had earlier purchased from respondent, specifically the
second dump truck delivered on May 27, 1992.
               
Due to the refusal to pay, the respondent commenced this action for collection on April 29,
1993, seeking payment of the unpaid balance in the amount of P735,000.00 represented by
the two checks.
               
Petitioners averred that they had stopped the payment on the two checks worth
P735,000.00 because of the respondent’s refusal to repair the second dump truck; and that
they had informed the respondent of the defects in that unit but the respondent had
refused to comply with its warranty, compelling them to incur expenses for the repair and
spare parts. They prayed that the respondent return the price of the defective dump
truck worth P830,000.00 minus the amounts of their two checks worth P735,000.00, with
12% per annum interest on the difference of P90,000.00 from May 1993 until the same is
fully paid; that the respondent should also reimburse them the sum of P247,950.00 as their
expenses for the repair of the dump truck, with 12% per annum interest from December
16, 1992, the date of demand, until fully paid

ISSUE:
Whether or not petitioners could avail themselves of legal compensation. 

RULING:
NO. The Court held that petitioners could not avail of legal compensation because the
claims of petitioners against respondent were not liquidated and demandable. A debt is
liquidated when its existence and amount are determined. Accordingly, an unliquidated
claim set up as a counterclaim by a defendant can be set off against the plaintiff’s claim
from the moment it is liquidated by judgment. Article 1290 of the Civil Code provides that
when all the requisites mentioned in Article 1279 of the Civil Code are present,
compensation takes effect by operation of law, and extinguishes both debts to the
concurrent amount. With petitioners’ expenses for the repair of the dump truck being
already established and determined with certainty by the lower courts, it follows that legal
compensation could take place because all the requirements were present. Hence, the
amount of P71,350.00 should be set off against petitioners’ unpaid obligation of
P735,000.00, leaving a balance of P663,650.00, the amount petitioners still owe the
respondent.

Case 95
PAYMENT OF DEBTS CITIZENS SURETY and INSURANCE COMPANY, INC vs. COURT OF
APPEALS and PASCUAL M. PEREZ
G.R. No. L-48958 June 28, 1988

FACTS:
The petitioner issued two surety to guarantee compliance by the principal Pascual M. Perez
Enterprises of its obligation under a "Contract of Sale of Goods" entered into with the
Singer Sewing Machine Co. In consideration of the issuance of the aforesaid bonds, two
indemnity agreements were executed to obligate the respondent and the Enterprises to
indemnify the petitioner jointly and severally, whatever payments advances and damage it
may suffer or pay as a result of the issuance of the surety bonds. In addition to the
indemnity agreements, petitioner was also required to put up a collateral security to
further ensure reimbursement to the petitioner of whatever losses or liabilities it may be
made to pay under the surety bonds. As a result, he executed a deed of assignment and put
up as a collateral his lumber stocks and a real estate mortgage was further executed in
favour of the petitioner to guarantee the fulfilment of said obligation.

Respondent failed to comply with his obligation under the contract of sale of goods and was
compelled to pay. Petitioner was able to pay the fair value of the two surety bonds.
Respondent failed to reimburse the petitioner for the losses it sustained under the said
surety bonds. The petitioner filed a claim for sum of money. Respondent asserts that the
surety bonds and the indemnity agreements had been extinguished by the execution of the
deed of assignment.

ISSUE:
WON the obligation under the surety bonds agreements had been extinguished through
execution of the deed of assignment.

RULING:
Art. 1245. Dation in payment, whereby property is alienated to the creditor in
satisfaction of a debt in money, shall be governed by the law of sales.

The deed of assignment cannot be regarded as an absolute conveyance whereby the

obligation under the surety bonds was automatically extinguished. The subsequent acts of
the private respondent bolster the fact that the deed of assignment was intended merely as
a security for the issuance of the two bonds. Partial payments were made after the
execution of the deed of assignment to satisfy the obligation under the two surety bonds.
Since later payments were made to pay the indebtedness, it follows that no debt was
extinguished upon the execution of the deed of assignment. Moreover, a second real estate
mortgage was executed and eventually cancelled. If indeed the deed of assignment
extinguished the obligation, there was no reason for a second mortgage to still have to be
executed.

Case 96
CESAR V. AREZA AND LOLITA B. AREZA vs.. EXPRESS SAVINGS BANK, INC. AND
MICHAEL POTENCIANO
G.R. No. 176697 September 10, 2014

FACTS :
Petitioners Cesar V. Areza and Lolita B. Areza maintained bank deposits with respondent
Express Savings Bank.
 
They were engaged in the business of “buy and sell” of brand new and second-hand motor
vehicles.  On 2 May 2000, they received an order for the purchase of 2 cars.
 
The buyer, Mambuay, paid petitioners with nine (9) Philippine Veterans Affairs Office
(PVAO) checks for a total of One Million Eight Hundred Thousand Pesos (P1,800,000.00).
 
About this occasion, petitioners claimed that Michael Potenciano (Potenciano), the branch
manager of respondent Express Savings Bank (the Bank) offered the services of the Bank
for the processing and eventual crediting of the said checks to petitioners’ account.
 
On May 3, 2000, petitioners deposited the said checks in their Savings account with
Express Savings Bank and the bank in turn, deposited the checks with its depository bank,
Equitable-PCI Bank.
However, in July 2000, the subject checks were returned by Philippine Veterans
Association Office to the drawee on the ground that the amount on the face of the checks
were altered from the original amount. 

On 9 March 2001, petitioners issued a check in the amount of P500,000.00.  Said check was
dishonored by the Express
Savings Bank for the reason that the Bank placed their account on hold. Petitioners through
their counsel demanded Express Savings Bank to honor their check.

The Bank refused to heed their request and instead, withdrew the amount of P1,800,000.00
representing the returned checks from petitioners’ savings account.
 
Acting on the alleged arbitrary and groundless dishonoring of their checks and the
unlawful and unilateral withdrawal from their savings account, petitioners filed a
Complaint for Sum of Money with Damages against the Bank and its manager.

ISSUE :
Whether or not Express Savings Bank had the right to debit the amount of PhP 1,800,000
from the appelant’s account.

RULING :
Express Savings Bank cannot set-off the amount it paid to Equitable-PCI Bank with
petitioner’s savings account. Under Article 1278 of the New Civil Code , compensation shall
take place when two persons in their own right,are creditors and debtors of each other.
Under Article 1279, in order that the compensation may be proper, it is necessary:

A)That each one of the obligors be bound principally, and that he be at the same time a
principla creditor of the other, B)that both debts consist of some of money, or if the things
due are consumable, they may be of the same kind, and also of the same qualityif the latter
has been stated, C) that the two debts are due, D) that hey be liquidated and demandable,
E) that over neither of them, there be any retentionor controversy, commenced by third
persons and communicated in due time to the debtor.

Iis well-settled that the relationship of the depositors and the bank or similar institution is
that of creditor-debtor. Article 1980 of the New Civil Code provides that fixed savings and
current deposits of money in banks and similar institutions shall be governed by the
provisions concerning simple loans. The bank is the debtor and depositor is the creditor.
The depositor lends the bank money and the bank agrees to pay the depositor on demand.
The savings deposit agreement between the bank and the depositor is the contract that
determines the rights and obligations of the parties. Hence, petitioners are not liable for the
deposit of the altered checks. Express Savings Bank, as the depository and collecting bank
ultimately bears the loss. Thus, there being no indebtedness to the bank on the part of the
petitioners, legal compensation can not take place.

Case 97
FEDERAL BUILDERS, INC. vs. FOUNDATION SPECIALISTS, INC.
G.R. No. 194507 

FACTS:
On August 20, 1990, Federal Builders, Inc. (FBI) entered into an agreement with
Foundation Specialists, Inc. (FSI) whereby the latter, undertook the construction of the
Trafalgar Plaza, for a total contract price of (₱7,400,000.00).7 Under the agreement,8 FBI
was to pay a down-payment equivalent to twenty percent (20%) of the contract price and
the balance, through a progress billing every fifteen (15) days, payable not later than one
(1) week from presentation of the billing.

On January 9, 1992, FSI filed a complaint for Sum of Money against FBI allegedly that FBI
refused to pay said amount despite demand and its completion of 97% of the contracted
works seeking (₱1,635,278.91), representing Billings No. 3 and 4, with accrued interest
from August 1, 1991 plus moral and exemplary damages with attorney’s fees.  FBI
maintains that because of FSI’s inadequacy, its schedule in finishing the Project has been
delayed resulting in the Project owner’s deferment of its own progress billing.
RTC’s judgment was rendered ordering defendant to pay plaintiff. 

ISSUE:
Whether or not FBI is liable to pay he balance of P1,024,600 with legal interest of 12%.

RULING:
Yes. No compelling reason to disturb the factual findings of the RTC and the CA. As to the
rate of interest due should be reduced to 6% per annum. In the absence of any record to
otherwise prove FSI’s neglect in the fulfilment of its obligations under the contract, this
Court shall refrain from reversing the findings of the courts below, which are fully
supported by and deducible from, the evidence on record.

Case 98
LORETO J. SOLINAP vs. AMELIA K. DEL ROSARIO
GR No. 50638 July 25, 1983

FACTS:
On June 2, 1970, the spouses Tiburcio Lutero and Asuncion Magalona, owners of the
Hacienda Tambal, leased the said hacienda to petitioner Loreto Solinap for a period of ten
[10] years at P50,000.00 a year. It was further agreed in the lease contract that out of the
aforesaid annual rental, the sum of P25,000.00 should be paid by Solinap to the Philippine
National Bank to amortize the indebtedness of the spouses Lutero with the said bank.

Tiburcio Lutero died on January 21, 1971. Soon after, his heirs instituted the testate estate
proceedings of the deceased, presided by public respondent judge Del Rosario.

Respondent judge issued an order stating that in order to protect the estate, the
administrator was authorized to scout among the testamentary heirs who is financially in a
position to pay all the unpaid obligations of the estate, with right to subrogation.

Juanito Lutero (Tiburcio’s grandson and heir) paid PNB P25,000.00 as partial settlement of
the deceased’s obligation. Subsequently, Juanito filed a motion before the testate court for
reimbursement from Solinap of the amount he paid. He argued that the said amount should
have been paid by Solinap as stipulated in the lease contract.

ISSUE:
Whether the oblilgation of Solinap to Lutero may be compensated or set-off against the
amount sought to be recovered in an action for sum of money filed by Solinap against the
Lutero.

RULING:
No. Petitioner's claim against the respondent Luteros is still pending determination by the
court. The counterclaim interposed by them, if ultimately found to be meritorious, can
defeat petitioner's demand. Upon this premise, his claim in that case cannot be categorized
as liquidated credit which may properly be set-off against his obligation. Compensation
cannot take place where one's claim against the other is still the subject of court litigation.
It is a requirement, for compensation to take place, that the amount involved be certain and
liquidated.

Case 99
Bank of the Philippine Islands vs. Court of Appeals
G.R. No. 136202 January 25, 2007

FACTS: 
A.A. Salazar Construction and Engineering Services filed an action for a sum of money with
damages against herein petitioner Bank of the Philippine Islands (BPI) on December 5,
1991 before Branch 156 of the Regional Trial Court (RTC) of Pasig City. The complaint was
later amended by substituting the name of Annabelle A. Salazar as the real party in interest
in place of A.A. Salazar Construction and Engineering Services. Private respondent Salazar
prayed for the recovery of the amount of Two Hundred Sixty-Seven Thousand, Seven
Hundred Seven Pesos and Seventy Centavos (P267,707.70) debited by petitioner BPI from
her account. She likewise prayed for damages and attorney’s fees. Petitioner BPI, in its
answer, alleged that on August 31, 1991, Julio R. Templonuevo, third-party defendant and
herein also a private respondent, demanded from the former payment of the amount of
Two Hundred Sixty-Seven Thousand, Six Hundred Ninety-Two Pesos and Fifty Centavos (P
267,692.50) representing the aggregate value of three (3) checks, which were allegedly
payable to him, but which were deposited with the petitioner bank to private respondent
Salazar’s account (Account No. 0203-1187-67) without his knowledge and corresponding
endorsement. Accepting that Templonuevo’s claim was a valid one, petitioner BPI froze
Account No. 0201-0588-48 of A.A. Salazar and Construction and Engineering Services,
instead of Account No. 0203-1187-67 where the checks were deposited, since this account
was already closed by private respondent Salazar or had an insufficient balance.

ISSUE: 
Whether or not respondent is entitled to the proceeds of the checks even without prior
indorsement.

RULING:
No. Section 49 of the Negotiable Instruments Law contemplates a situation whereby the
payee or indorsee delivers a negotiable instrument for value without indorsing it. an
exception to the general rule for a payee of an order instrument to transfer the instrument
without indorsement. Precisely because the situation is abnormal, it is but fair to the maker
and to prior holders to require possessors to prove without the aid of an initial
presumption in their favor, that they came into possession by virtue of a legitimate
transaction with the last holder.23 Salazar failed to discharge this burden, and the return of
the check proceeds to Templonuevo was therefore warranted under the circumstances
despite the fact that Templonuevo may not have clearly demonstrated that he never
authorized Salazar to deposit the checks or to encash the same. Noteworthy also is the fact
that petitioner stamped on the back of the checks the words: “All prior endorsements
and/or lack of endorsements guaranteed,” thereby making the assurance that it had
ascertained the genuineness of all prior endorsements. Having assumed the liability of a
general indorser, petitioner’s liability to the designated payee cannot be denied.
Case 100
Gan tion vs. Hon Court of Appeals
G.R. L22490 May 21, 1969

FACTS
Private respondent was a tenant in a premise owned by petitioner.
1961. Petitioner filed an ejectment case, for failure to pay of the months of August and
September, to the collective sum of PHP 360, or PHP 180 per month. Private respondent
denied the allegation and said that the agreed monthly rental was only PHP 160, which he
offered but refused by petitioner. The Municipal Court of Manila ruled in favor of petitioner
on said ejectment case. In 1962, July 2, upon appeal, CFI reversed lower court’s judgment
and ordered private respondent to pay petitioner the sum of P500 as attorney’s fees. Said
judgment was final. In 1963, October 10, petitioner served notice that he was increasing
rent to PHP 180, effective November 1st, and demanded the rents in arrears at the old rate
in the aggregate amount of PHP 4320.00, from August 1961 to October 1963.

ISSUE
Whether there was legal compensation between petitioner and private respondent?

RULING
Yes. In the opinion of said Court, the requisites of legal compensation, namely, that the
parties must be creditors and debtors of each other in their own right (Art. 1278, Civil
Code) and that each one of them must be bound principally and at the same time be a
principal creditor of the other (Art. 1279), are not present in the instant case, since the real
creditor with respect to the sum of P500 was the defendant’s counsel. The award is made in
favor of the litigant, not of his counsel who is the judgment creditor and who may enforce
the judgment by execution. Such credit, therefore, may properly be the subject of legal
compensation. Quite obviously it would be unjust to compel petitioner to pay his debt for
P500 when admittedly his creditor is indebted to him for more than P4, 000.00. Judgment
of Court of appeals reversed, and the writ of execution of CFI Manila is set aside.

Case 101
PNB vs. VDA. DE ONG ACERO
G.R. L-69255 FEBRUARY 27, 1987

FACTS:
Isabela Wood Construction & Dvpt Corp (ISABELA) has a savings account with PNB
in the amount of P2M. Said account is the subject of two conflicting claims. One claim
is asserted by the Aceros, and the other by PNB. Aceros’ claim to the bank deposit was
founded upon the garnishment thereof by the sheriff, in the amount of P1.5M
rendered by the CFI in their favor. Notice of garnishment was served on PNB,
followed by a CFI order directing the latter to hand over the P1.5M to the sheriff for
delivery to the ACEROs.
On the other hand, PNB's claim is based on a Credit Agreement between it and ISABELA in
virtue of which the deposit was made by ISABELA as "collateral" in connection with its
indebtedness to PNB in the event of ISABELA's failure to fulfill those undertakings, PNB
was empowered to apply the deposit to the payment of that indebtedness. It was upon
this version of the facts, and its theory thereon based on a mutual set-off, or
compensation, between it and ISABELA — in accordance with Articles 1278 et al. of
the Civil Code — that PNB intervened in the action between the ACEROS and ISABELA.

ISSUE:
WON PNB’s contentions are correct, and that compensation automatically took place
between the parties thus preventing the Aceros’ garnishment thereof

RULING:
No, The legal provisions of Article 1278 cannot apply to PNB’s advantage under the
circumstances of this case. The obstacle to the success of PNB's cause is the factual finding
that it has not proven by competent evidence that it is a creditor of ISABELA. All the
documents presented by PNB prove that a letter of credit might have been opened for
ISABELA by PNB, but not that the credit was ever availed of.

One final factor preclude validity to PNB's arguments on the assumption that the P2M
deposit was in truth assigned as some sort of "collateral" to PNB — although as PNB
insists, it was not in the form of a pledge — the agreement postulated by PNB that it
had been authorized to assume ownership of the fund upon the coming into being of
ISABELA‘s indebtedness is void ab initio, it being in the nature of a pactum commisoruim
proscribed as contrary to public policy.

Case 102
FRANCIA vs. INTERMEDIATE APPELLATE COURT
GR NO L-67649 June 28, 1988

FACTS:
Engracio Francia is the registered owner of a house and lot located in Pasay City. A portion
of such property was expropriated by the Republic of the Philippines in 1977. Francia
failed to pay his real estate tax. Thus, his property was sold in a public auction by the City
Treasurer of Pasay City. However, he was not present during the auction sale.

Francia filed a complaint to annul the auction sale. However, the lower court dismissed the
complaint and the Intermediate Appellate Court affirmed the decision of the lower court in
toto. Hence, this petition for review. Francia contends that his tax delinquency of P 2,400
has been extinguished by legal compensation. He claims that the government owed him P
4,116 when a portion of his land was expropriated on October 15, 1977.

ISSUE:
Whether or not Francia’s tax delinquency has been extinguished by legal compensation as
the government owed him when a portion of his land was expropriated.
RULING:
No. There is no legal basis for the contention.

Article 1278 states that, Compensation shall take place when two persons, in their own
right, are creditors and debtors of each other.

There can be no offsetting 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.

Internal revenue taxes cannot be the subject of compensation. The Government and the
taxpayer are not mutually creditors and debtors of each other under Article 1278 of the
Civil Code and a claim of taxes is not such a debt, demand, contract or judgment as is
allowed to be set-off.

Case 103
FRANCISCO SYCIP vs. HONORABLE COURT OF APPEALS and PEOPLE OF THE
PHILIPPINES
G.R. No. L-38711 January 31, 1985

FACTS:
In April 1961, Jose K. Lapuz received from Albert Smith in Manila 2,000 shares of stock of
the Republic Flour Mills, Inc., covered by Certificate No. 57 in the name of Dwight Dill who
had left for Honolulu. Jose K. Lapuz "was supposed to sell his (the shares) at present market
value out of which I (he) was supposed to get certain commission." According to Jose K.
Lapuz, the accused-appellant approached him and told him that he had good connections in
the Stock Exchange, assuring him that he could sent them at a good price. Before accepting
the offer of the accused-appellant to sent the shares of stock, Jose K. Lapuz made it clear to
him that the shares of stock did not belong to him and were shortly entrusted to him for
sale. He then gave the shares of stock to the accused-appellant who put them in the market.
Thereafter, Jose K. Lapuz received a letter from the accused-appellant, dated April 25, the
latter informing him that "1,758 shares has been sold for a net amount of P29,000.00," but
that the transaction could not be concluded until they received the Power of Attorney duly
executed by Dwight Dill, appointing a person to endorse the certificate of stock, and a
resolution from the Biochemical Research Laboratory, Inc., authorizing the transfer of the
certificate. Jose K. Lapuz signed his conformity to the contents of the letter.

Jose K. Lapuz declared that he "was able to secure a power of attorney of Dr. Dwight Dill,
and gave it to the accused-appellant." The power of attorney authorized the sale of 1,758
shares only; the difference of 242 shares were given back to Biochemical Research
Laboratory, Inc. Later, the accused-appellant wrote a letter to Jose K. Lapuz, dated June 1,
1961 confirming their conversation on that date that "500 shares out of the 1,000 shares of
the Republic Flour ... has been sold," and stating further that "pending receipt of the
payment, expected next week, we are enclosing herewith our draft to cover the full value of
500 shares." He asked in that letter, "Please give me the 50 shares in the name of Mr. Felix
Gonzales and the photostat of 208 shares in the name of Trans Oceanic Factors and
Company."

The accused-appellant sold and paid for the other 500 shares of stock, for the payment of
which Jose K. Lapuz issued in his favor a receipt, dated June 9, 1961. When Jose K. Lapuz
sent a wire to him, telling him that he would "file estafa case (in the) fiscals office ... against
him' unless he raise [the] balance left eight thousand" , the accused-appellant answered
him by sending a wire, "P5,000 remitted ask boy check Equitable but "the check was never
made good," so Jose K. Lapuz testified. He had to pay Albert Smith the value of the 500
shares of stock." 

ISSUE:
Whether or not compensation can be applied since Lapuz still owed Sycip an amount more
than 5k, Sycip’s obligation to turn over proceeds from sale of the shares is extinguished.

RULING:
Petition is dismissed. Petitioner contends that respondent Court of Appeals erred in not
applying the provisions on compensation or setting-off debts under Articles 1278 and 1279
of the New Civil Code, despite evidence showing that Jose K. Lapuz still owed him an
amount of more than P5,000.00 and in not dismissing the appeal considering that the latter
is not legally the aggrieved party. This contention is untenable. Compensation cannot take
place in this case since the evidence shows that Jose K. Lapuz is only an agent of Albert
Smith and/or Dr. Dwight Dill. Compensation takes place only when two persons in their
own right are creditors and debtors of each other, and that each one of the obligors is
bound principally and is at the same time a principal creditor of the other. Moreover, as
correctly pointed out by the trial court, Lapuz did not consent to the off-setting of his
obligation with petitioner's obligation to pay for the 500 shares.

Petitioner argues that the appellate court erred in not ruling that the deed of sale is a
consummated contract and, therefore, not covered by the Statute of Frauds. It must be
pointed out that the issue on whether or not the alleged contract of sale is covered by the
Statute of Frauds has not been raised in the trial court or with the Court of Appeals. It
cannot now be raised for the first time in this petition. Thus, there is no need for
respondent court to make findings of fact on this matter.

Case 104
Mindanao Portland Cement Corp. vs. Court of Appeals
G.R. No. L-62169 February 28, 1983

FACTS:
One Atty. Casiano P. Laquihon, in behalf of third-party defendant Pacweld Steel Corporation
(Pacweld), as the latter's attorney, filed a pleading addressed to Mindanao Portland Cement
Corporation (MPCC), herein appellant, entitled 'motion to direct payment of attorney's fee
to counsel' (himself), invoking in his motion the fact that in the decision of the court dated
Sept. 14, 1976, MPCC was adjudged to pay Pacweld the sum of P10,000.00 as attorney's
fees. MPCC filed an opposition to Atty. Laquihon's motion, stating, as grounds therefor, that
said amount is set-off by a like sum of P10,000.00 which it MPCC has collectible in its favor
from Pacweld also by way of attorney's fees which MPCC recovered from the same Court of
First Instance of Manila. Appellate court ruled in favor of Atty. Laquihon, thus, the instant
appeal.

ISSUE:
Whether or not the two obligations are extinguished reciprocally by operation of law?

RULING:
Yes. The Court held that it is clear from the record that both corporations, petitioner MPCC
and respondent Pacweld, were creditors and debtors of each other, their debts to each
other consisting in final and executory judgments of the Court of First Instance in two
separate cases, ordering the payment to each other of the sum of P10,000.00 by way of
attorney's fees. The two obligations, therefore, respectively offset each other, compensation
having taken effect by operation of law and extinguished both debts to the concurrent
amount of P10,000.00, pursuant to the provisions of Arts. 1278, 1279 and 1290 of the
Civil Code, since all the requisites provided in Art. 1279 of the said Code for automatic
compensation "even though the creditors and debtors are not aware of the compensation"
were duly present.

Case 105
THE INTERNATIONAL CORPORATE BANK INC. vs THE IMMEDIATE APPELLATE
COURT, HON. ZOILO AGUINALDO
G.R. No. L-69560 June 30, 1988

FACTS:
Private respondent (Natividad Fajardo) applied for a P50M loan from petitioner
predecessor-in-interest (Atrium Capital Corporation). To secure his loan, private
respondent mortgaged her real properties in Quaipo, Manila and in San Rafael, Bulacan. Of
this loan, only the amount of P20M was approved for release. The same amount was
applied to pay her other obligations to petitioner, bank charges and fees. Meanwhile,
private respondent made a money market placement with Atrium in the amount of
P1,046,253.77. On its maturity, the bank refused to pay the proceeds, as private
respondents allegedly failed to pay her mortgaged indebtedness, but applied the amount
instead to the deficiency in the proceeds of the auction sale of the mortgaged properties.

Petitioner’s argument was that after foreclosing the mortgage, there is still due from
private respondent as deficiency the amount of P6.81M against which it has the right to
apply or set off private respondent’s money market claim of P1,062,063.83. Respondent’s
defense was that the mortgage is not yet due and demandable and accordingly the
foreclosure was illegal; she is entitled to the proceeds of her money market placement as it
has long become due and payable.

ISSUE:
Whether or not there can be legal compensation.
RULING:
No. Compensation shall take place when two persons, in their own right, are creditors and
debtors of each other. (Art 1278, Civil Code). “When all the requisites mentioned in Art.
1279 of the Civil Code are present, compensation takes effect by operation of law, even
without the consent or knowledge of the debtors.” (Art 1290, Civil Code). Article 1279 of
the Civil Code requires among others, that in order that legal compensation shall take place,
“the two debts be due” and “they be liquidated and demandable.” Compensation is not
proper where the claim of the person asserting the set-off against the other is not clear nor
liquidated; compensation cannot extend to unliquidated, disputed claim arising from
breach of contract.

There can be no doubt that petitioner is indebted to private respondent in the amount of
P1,062,063.83 representing the proceeds of her money market investment. This is
admitted. But whether private respondent is indebted to petitioner in the amount of
P6.81M representing deficiency balance after the foreclosure of the mortgage executed to
secure the loan extended to her is vigorously disputed. This circumstance prevents legal
compensation from taking place.

Case 106
MONDRAGON PERSONAL SALES, INC vs. VICTORIANO S. SOLA, JR.
G.R. No. 174882 January 21, 2013

FACTS:
Petitioner, a company engaged in the business of selling various consumer products
through a network of sales representatives, entered into a Contract of Services with
respondent Sola, Jr. for a period of three years commencing on October 1994 up to October
1997. Under the said contract, respondent, as service contractor, would provide service
facilities to petitioner's products, sales force and customers in General Santos City and as
such, he was entitled to commission or service fee.

On January 1995, respondent wrote a letter to the petitioner acknowledging and

confirming his wife’s indebtedness to petitioner and, together with his wife, bound himself
to pay on installment basis the said debt. Consequently, petitioner withheld the payment of
respondent's service fees from February to April 1995 and applied the same as partial
payments to the debt which he obligated to pay. On April 1995, respondent closed and
suspended operation of his office cum bodega where petitioner's products were stored and
customers were being dealt with.

ISSUE:
Whether or not the withholding of payment of respondent’s service fees is applicable as
compensation.

RULING:
Yes, since respondent promised petitioner in his letter to monthly pay a certain amount to
cover the indebtedness to petitioner which he failed to do, the latter withheld the payment
of respondent's service fees and applied the same as partial payments of the debt by way of
compensation. The Court held that the application of the fees and commissions earned by
respondent to his obligations constitutes as an acknowledgment of the legal compensation
which occurred by operation of law.

Compensation is a mode of extinguishing to the concurrent amount the obligations of

persons who in their own right and as principals are reciprocally debtors and creditors of
each other. Legal compensation takes place by operation of law when all the requisites are
present, as opposed to conventional compensation which takes place when the parties
agree to compensate their mutual obligations even in the absence of some requisites.

Case 107
JESUS M. MONTEMAYOR vs. VICENTE D. MILLORA
GR No. 168251 2011-07-27

FACTS
Respondent obtained a loan of P400,000.00 from the petitioner as evidenced by a
promissory note executed by Vicente. On August 10, 1990, the parties executed a loan
contract wherein it was provided that the loan has a stipulated monthly interest of 2% and
that Vicente had already paid the amount of P100,000.00 as well as the P8,000.00
representing the interest for the period July 24 to August 23, 1990.

Subsequently and with Vicente's consent, the interest rate was increased to 3.5% or
P10,500.00 a month. From March 24, 1991 to July 23, 1991, or for a period of four months,
Vicente was supposed to pay P42,000.00 as interest but was able to pay only P24,000.00,
which was the last payment Vicente made. Jesus made several demands for the petitioner
to settle his obligation but to no avail.

RTC ordered Vicente to pay Jesus his monetary obligation amounting to P300,000.00 plus
interest of 12% from the time of the filing of the complaint on August 17, 1993 until fully
paid. Additionally, there was no pronouncements as to cost. Petitioner filed a motion for
reconsideration at the CA but was denied.

ISSUE
Whether or not despite the absence of a specific amount in the decision representing
respondent's counterclaim, the same could be validly offset against the specific amount of
award mentioned in the decision in favor of the petitioner.

RULING
The petition lacks merit. For legal compensation to take place, the requirements set forth in
Articles 1278 and 1279 of the Civil Code

"A debt is liquidated when its existence and amount are determined. It is not necessary
that it be admitted by the debtor. Nor is it necessary that the credit appear in a final
judgment in order that it can be considered as liquidated; it is enough that its exact amount
is known. And a debt is considered liquidated, not only when it is expressed already in
definite figures which do not require verification, but also when the determination of the
exact amount depends only on a simple arithmetical operation."

Case 108
ARCO PULP vs. DAN T. LIM,
GR No. 206806 2014-06-25

FACTS:
Dan T. Lim works in the business of supplying scrap papers, cartons, and other raw
materials, under the name Quality Paper and Plastic Products, Enterprises, to factories
engaged in the paper mill business. The defendant alleged that when he delivered the raw
materials, Arco Pulp and Paper issued a post-dated check dated with partial payment with
the assurance that the check would not bounce.When he deposited the check on April 18,
2007, it was dishonored for being drawn against a closed account. On the same day the
petitioner bound to deliver themselves their finished product. The defendant filed
acomplaint for collection of sum of money before the RTC. The petitioner filed its answer
but failed to attend with the pre trial conference . Mr. Lim appealed the judgment to the
Court of Appeals contending that novation did not take place since the MOA was an
exclusive agreement between him and the petitioner.

ISSUES:
1. Whether the obligation between the parties was extinguished by novation ?
2. Whether Candida was solidarily liable with the petitioner ?
3. Whether moral damages , exemplary damages and attorney's fees can be awarded ?

RULING:
The petition is denied.The obligation between the parties was alternative obligation .
Petitioners are liable for the damages . Under Article 2200 of the Civil Code , moral
damages maybe awarded in case of breach of contract where the breach is due to
fraud or bad faith. Since a finding of bad faith is generally premised on the intent of the
doer , it requires an examination of the circumstances in each case. Petitioner Arco Pulp
and Paper's actions clearly show "a dishonest purpose or some moral obliquity and
conscious doing of a wrong, a breach of known duty through some motive or interest or ill
will that partakes of the nature of fraud." Moral damages may, therefore, be awarded.

Case 109
THE WELLEX GROUP, INC. vs. U-LAND AIRLINES, CO, LTD
G.R. No. 167519 January 14, 2015

FACTS:
Wellex is a corporation established under Philippine law and it maintains airline
operations in the Philippines. It owns shares of stock in several corporations including Air
Philippines International Corporation (APIC), Philippine Estates Corporation (PEC), and
Express Savings Bank (ESB). Wellex alleges that it owns all shares of stock of Air
Philippines Corporation (APC). While U-Land Airlines Co. Ltd. (U-Land) “is a corporation
duly organized and existing under the laws of Taiwan, registered to do business in the
Philippines. It is engaged in the business of air transportation in Taiwan and in other Asian
countries. Wellex and U-land entered into a Memorandum of Agreement (MOA) by virtue of
which as provided they both agreed to develop a long-term business relationship through
the creation of joint interest in (1) airline operations and (2) property development
projects in the Philippines. The MOA would be implemented through (1) the acquisition of
shares by the U-Land from the Wellex, of the shares of stocks of APC and PEC; (2) by
another joint development agreement between U-Land and PEC; (3) Option for U-Land to
acquire shares of ESB. Part of the agreement provides that within 40 days from the date of
said agreement unless extended by mutual agreement, U-Land and WELLEX shall execute a
Share Holder Purchase Agreement (SHPA) covering the acquisition by U-Land of the APIC
and PEC shares. Accordingly, Wellex and U-Land agreed that if they were unable to agree
on the terms of the SPHA and the joint development agreement within 40 days from the
signing, then the first MOA would cease to be effective. And if in case no agreements were
executed, the parties would be released from their respective undertakings, except that
Wellex would be required to refund within three days the $3 Million given as initial funding
by U-Land for their development projects. If Wellex was unable to refund the $3 Million
dollars to U-Land, then U-Land would have the right to recover on the 57,000,000 PEC
shares that would be delivered to it. The 40-day period lapsed. Wellex and U-Land were not
able to enter into any SHPA although drafts were exchanged between the twoDespite the
absence of a SHPA, U-Land remitted to Wellex $7.5 Million Dollars which was
acknowledged by Wellex. According to Wellex, the parties agreed to enter into a security
arrangement. If the sale of the shares of stock failed to push through, the partial payments
or remittances U-Land made were to be secured by these shares of stock and parcels
of land.50 This meant that U-Land could recover the amount it paid to Wellex by selling
these shares of stock of 60,770,000 and 72,601,000 and land titles or using them to
generate income. Despite these transactions, Wellex and U-Land still failed to enter into the
SHPA and the Joint Development Agreement. So 10 months after the last formal
communication between the two parties, U-Land demanded the refund for the amount it
remitted. Due to failure of Wellex to heed the demand, U-Land filed a complaint for
rescission of the First Memorandum of Agreement and damages against Wellex.

ISSUE:
Whether or not U-Land is praying for rescission or resolution under Art.1191, and not
rescission under Article 1381.

RULING:
The Court ruled that rescission under 1191(also known as resolution), and not under 1381,
is proper in this case.

For Article 1191 to be applicable, there must be reciprocal prestations as distinguished from
mutual obligations between or among the parties. A prestation is the object of an obligation,
and it is the conduct required by the parties to do or not to do, or to give. Parties may be
mutually obligated to each other, but the prestations of these obligations are not necessarily
reciprocal. The reciprocal prestations must necessarily emanate from the same cause that
gave rise to the existence of the contract. Reciprocity arises from identity of cause, and
necessarily the two obligations are created at the same time. The failure of one of the parties
to comply with its reciprocal prestation allows the wronged party to seek the remedy
of Art.1191. The injured party is entitled to rescission or resolution under Art. 1191, and even
the payment of damages. It is a principal action precisely because it is a violation of the
original reciprocal prestation.

Article 1381 and 1383, on the other hand, pertain to rescission where creditors or even third
persons not privy to the contract can file an action due to lesion or damage as a result of the
contract. When a party seeks the relief of rescission as provided in Article 1381, there is no
need for reciprocal prestations to exist between or among the parties. All that is required is
that the contract should be among those enumerated in Article 1381 for the contract to be
considered rescissible. Unlike Article 1191, rescission under Art. 1381 must be a subsidiary
action because of Article 1383.

Contrary to petitioner Wellex’s argument, this is not rescission under Article 1381 of the
Civil Code. This case does not involve prejudicial transactions affecting guardians,
absentees, or fraud of creditors.

Article 1381(3) pertains in particular to a series of fraudulent actions on the part of the
debtor who is in the process of transferring or alienating property that can be used to satisfy
the obligation of the debtor to the creditor.

There is no allegation of fraud for purposes of evading obligations to other creditors. The
actions of the parties involving the terms of the First Memorandum of Agreement do not
fall under any of the enumerated contracts that may be subject of rescission.

Moreover, the desire of both parties to enter into a share purchase agreement that could
allow both parties to expand their respective airline operations in the Philippines and other
neighboring countries give raise to a reciprocal prestation,

Hence, respondent U-Land correctly sought the principal relief of rescission or resolution
under Article 1191.

Case 110
FORT BONIFACIO DEVELOPMENT CORPORATION vs. VALENTIN L. FONG
G.R. NO. 209370 March 25, 2015

FACTS:
FBDC, a domestic corporation engaged in the real estate development business, entered
into a Trade Contract with MS Maxco Company, Inc. (MS Maxco), then operating under the
name "L&M Maxco, Specialist Engineering Construction," for the execution of the structural
and partial architectural works of one of its condominium projects in Taguig City, the
Bonifacio Ridge Condominium (Project). Records show that FBDC had the right to withhold
five percent (5%) of the contract price as retention money.

Under the Trade Contract, FBDC had the option to hire other contractors to rectify any
errors committed by MS Maxco by reason of its negligence, act, omission, or default, as well
as to deduct or set-off any amount from the contract price in such cases. Hence, when MS
Maxco incurred delays and failed to comply with the terms of the Trade Contract, FBDC
took over and hired other contractors to complete the unfinished construction.

ISSUE:
Whether or not the CA erred in ruling that FBDC was bound by the Deed of Assignment
between MS Maxco and Fong.

RULING:
Obligations arising from contracts have the force of law between the contracting parties
and should be complied with in good faith. As such, the stipulations in contracts are binding
on them unless the contract is contrary to law, morals, good customs, public order or public
policy.

Fong, as mere assignee of MS Maxco's rights under the Trade Contract it had previously
entered with FBDC, i.e., the right to recover any credit owing to any unutilized retention
money, is equally bound by the foregoing provision and hence, cannot validly enforce the
same without FBDC's consent.
Without any proof showing that FBDC had consented to the assignment, Fong cannot
validly demand from FBDC the delivery of the sum of P1,577,115.90 that was supposedly
assigned to him by MS Maxco as a portion of its retention money with FBDC.

Case 111
BANK OF THE PHILIPPINE ISLANDS vs. AMADOR DOMINGO
G.R. No. 169407 March 25, 2015

FACTS:
On September 27, 1993, spouses Domingo executed a Promissory Note in favor of Makati
Auto Center, Inc. in the sum of P 629,856.00, payable in 48 successive monthly
installments in the amount of P 13,122.00 each. They simultaneously executed a Deed
of Chattel Mortgage over a 1993 Mazda 323 (subject vehicle) to secure the payment of
their Promissory Note. Makati Auto Center, Inc. then assigned, ceded, and transferred
all its rights and interests over the said Promissory Note and chattel mortgage to Far East
Bank and Trust Company (FEBTC). Through a merger in April 7, 2000, all the assets
and liabilities of FEBTC (absorbed corporation) were transferred to and absorbed by
BPI (surviving corporation).

The spouses Domingo defaulted when they failed to pay 21 monthly installments
that had fallen due consecutively from January 15, 1996 to September 15, 1997.
BPI demanded that the spouses Domingo pay the balance of the Promissory Note including
accrued late payment charges/interests or to return the possession of the subject
vehicle for the purpose of foreclosure in accordance with the undertaking stated in
the chattel mortgage. When the spouses Domingo still failed to comply with its demand,
BPI filed on November 14, 2000 a Complaint for Replevin and Damages in the MeTC of
Manila. BPI included a John Doe as defendant because at the time of filing of
the Complaint, BPI was already aware that the subject vehicle was in the
possession of a third person (Carmelita Gonzales) but did not yet know the identity
of said person.

ISSUE:
Whether or not there had been a novation of the loan obligation with chattel mortgage of
the spouses Domingo to BPI so that the spouses Domingo were released from said
obligation and Carmelita was substituted as debtor?

RULING:
According to Article 1293 of the New Civil Code provides: “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.” In the case at bar, the court is convinced that there is no novation by
delegacion and Amador Domingo remains a debtor of BPI. The court reinstates the
MeTC judgment ordering Amador to pay for the P275, 562.00 balances on the
Promissory Note, 10% attorney’s fees and costs suit; but modifies the rate of interest
imposed and the date when such interest began to run.

The burden of establishing a novation is on the party who asserts its existence. Contrary to
the findings of the Court of Appeals and the RTC, Amador failed to discharge such burden
as he was unable to present proof of the clear and unmistakable consent of BPI to the
substitution of debtors.

Case 112
LBP vs. ONG,
G.R. NO. 190755 November 24, 2010

FACTS:
On March 18, 1996, spouses Johnson and Evangeline Sy secured a 16 million from Land
Bank Legazpi City, secured by three (3) residential lots, five (5) cargo trucks, and a
warehouse. With the agreement, PhP 6 million of the loan wouldbe short-term and would
mature on February 28, 1997, while the balance of PhP 10 million would be payable in
seven (7) years. The Notice of Loan Approval dated February 22, 1996 contained an
acceleration clause wherein any default in payment of amortizations or other charges...
would accelerate the maturity of the loan.

The spouses are now insolvent, on December 9, 1996, they sold three (3) of their
mortgaged parcels of land for PhP 150,000 to Angelina Gloria Ong, Evangeline's mother.
The Bank told Alfredo, Evangeline’s father, they should pay part of the principal which was
computed at PhP 750,000 and to update due or accrued interests on the... promissory notes
so that Atty. Hingco the manger, could easily approve the assumption of mortgage, and
issued a check for PhP 750,000 and personally gave it to Atty. Hingco.But the application
for assumption of mortgage was not approved by Land Bank. The bank learned from its
credit investigation report that the Ongs had a real estate mortgage in the amount of PhP
18,300,000 with another bank that was past due. Thus, the bank foreclosed the properties.
Ong filed an action for recovery of the money that he paid, and won in the RTC. On appeal
to the CA, it likewise affirmed the RTC decision. Thus, Land Bank appeals to the Supreme
Court.

ISSUE:
Is Land Bank Liable to Ong?

RULING:
We rule that Land Bank is still liable for the return of the PhP 750,000 based on the
principle of unjust enrichment. Land Bank is correct in arguing that it has no obligation as
creditor to recognize Alfredo as a person with interest in the fulfillment of the obligation.
But... while Land Bank is not bound to accept the substitution of debtors in the subject real
estate mortgage, it is estopped by its action of accepting Alfredo's payment from arguing
that it does not have to recognize Alfredo as the new debtor. By accepting Alfredo's
payment and keeping silent on the status of Alfredo's application, Land Bank misled
Alfredo to believe that he had for all intents and purposes stepped into the shoes of the
Spouses Sy. Alfredo, having been deemed disqualified from assuming the loan, had no duty
to pay petitioner bank and the latter had no right to receive it. In sum, we hold that Land
Bank may not keep the PhP 750,000 paid by Alfredo as it had already foreclosed on the
mortgaged lands.

Case 113

SOLOMON BOYSAW and ALFREDO M. YULO, JR. vs. INTERPHIL PROMOTIONS, INC.,
LOPE SARREAL, SR., and MANUEL NIETO, JR.
G.R. No. L-22590 March 20, 1987

FACTS:
On May 1, 1961, Solomon Boysaw and his then Manager, Willie Ketchum, signed with
Interphil Promotions, Inc. represented by Lope Sarreal, Sr., a contract to engage Gabriel
"Flash" Elorde in a boxing contest for the junior lightweight championship of the world. It
will be held at the Rizal Memorial Stadium in Manila on September 30, 1961 or not later
than thirty 30 days thereafter should a postponement be mutually agreed upon, and that
Boysaw would not, prior to the date of the boxing contest, engage in any other such contest
without the written consent of Interphil Promotions, Inc.
On June 19, 1961, Boysaw fought and defeated Louis Avila in a ten-round non-title bout
held in Las Vegas, Nevada, U.S.A. On July 2, 1961, Ketchum on his own behalf and on behalf
of his associate Frank Ruskay, assigned to J. Amado Araneta the managerial rights over
Solomon Boysaw. On September 1, 1961, the former assigned to Alfredo J. Yulo, Jr. the
managerial rights over Boysaw. Alfredo Yulo, Jr. wrote to Sarreal informing him of his
acquisition of the managerial rights over Boysaw and indicating his and Boysaw's
readiness to comply with the boxing contract of May 1, 1961. However, the fight was
rescheduled on November 4, 1961. Yulo, Jr. refused to accept the change in the fight date.
As a result of the foregoing occurrences, on October 12, 1961, Boysaw and Yulo, Jr. sued
Interphil, Sarreal, Sr. and Manuel Nieto, Jr. for damages allegedly occasioned by the refusal
of Interphil and Sarreal, aided and abetted by Nieto, Jr., then GAB Chairman, to honor their
commitments under the boxing contract of May 1, 1961.
ISSUE:
Whether or not there was a violation of the fight contract of May 1, 1961; and if there was,
who was guilty of such violation?

RULING:
The evidence established that the contract was violated by appellant Boysaw himself when,
without the approval or consent of Interphil, he fought Louis Avila on June 19, 1961. While
the contract imposed no penalty for such violation, this does not grant any of the parties
the unbridled liberty to breach it with impunity. Our law on contracts recognizes the
principle that actionable injury inheres in every contractual breach. Thus: Those who in the
performance of their obligations are guilty of fraud, negligence or delay, and those who in
any manner contravene the terms thereof, are liable for damages.

Case 114
CALIFORNIA BUS LINES INC. vs. STATE INVESTMENT HOUSE, INC.
G.R. No. 147950 December 11, 2003

FACTS:
Delta Motors Corporation applied for financial assistance from respondent State
Investment House, Inc. (SIHI), a domestic corporation engaged in the business of quasi-
banking. SIHI agreed to extend a credit line to Delta which eventually became indebted to
SIHI. Meanwhile, petitioner purchased on installment basis several buses to Delta. To
secure the payment of the obligation petitioner executed promissory notes in favor of
Delta. When petitioner defaulted on the payments of the debts, it entered into an
agreement with delta to cover its due obligations. However, petitioner still had trouble
meeting its obligations with delta. Pursuant to the memorandum of agreement delta
executed a deed of sale assigning to respondent, the promissory notes from petitioner.
Respondent subsequently sent a demand letter to petitioner requiring remitting payments
due on the promissory notes. Petitioner replied informing respondent of the fact that delta
had taken over its management and operations.

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:
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. However, our review of its terms yields no incompatibility
between the promissory notes and the restructuring agreement.
Case 115
Ajax Marketing and Development Corporation vs. Court of Appeals
G.R No. 118585 September 14, 1995

FACTS:
Ylang-Ylang Merchandising Company, a partnership between Angelita Rodriguez and
Antonio Tan, obtained a loan of P250,000.00 from the MBTC, and to secure payment of the
same, spouses Marcial See and Lilian Tan constituted a real estate mortgage in favor of said
bank over their property in Paco, Manila, covered by TCT No. 105233. The mortgage was
annotated at the back of the title.After the partnership had changed its name to Ajax
Marketing Company (without changing its composition), it obtained a loan of P150,000.00
from MBTC. Again to secure the loan, spouses Marcial See and Lilian Tan executed in favor
of said bank a second real estate mortgage over the same property. As in the first instance,
the mortgage was duly annotated.Ajax Marketing Company was converted into a
corporation denominated as Ajax Marketing and Development Corporation, with the
original partners (Rodriguez and Tan) as incorporators and three (3) additional
incorporators, namely, Elisa Tan, and Jose San Diego and Tessie San Diego. Ajax Marketing
and Development Corporation obtained from MBTC a loan of P600,000.00, the payment of
which was secured by another real estate mortgage executed by spouses Marcial See and
Lilian Tan in favor of said bank over the same property in Paco, Manila. Again, the third
real estate mortgage was annotated on the TCT.The 3 loans with an aggregate amount of
P1,000,000.00 were re-structured and consolidated into one loan, and Ajax Marketing and
Development Corporation executed a Promissory Note.Petitioners argue that novation
occurred when their three loans secured by the same real estate property were
consolidated into a single loan of P1 million under Promissory Note, extinguishing their
monetary obligations and releasing the mortgaged property from liability.

ISSUE:
1. Whether or not novation occurred.
2. Whether a real estate mortgage can cover future debts.

RULING:
1. NO.
The well settled rule is that novation is never presumed. The attendant facts herein do not
make a case of novation. There is nothing in the records to show the unequivocal intent of
the parties to novate the three loan agreements through the execution of the promissory
note.
Petitioners agreed to apply the real estate property to secure obligations that they may
thereafter obtain including their renewals or extensions with the principals fixed at
P600,000.00, P150,000.00, and P250,000.00 which when added have an aggregate sum of
P1.0 million. The PN merely restructured and renewed the three previous loans to
expediently make the loans current. There was no change in the object of the prior
obligations. The consolidation of the three loans, contrary to petitioners’ contention, did
not release the mortgaged real estate property from any liability because the mortgage
annotations at the back of TCT No. 105233, in fact, all remained uncancelled, thus
indicating the continuing subsistence of the real estate mortgages.
2. YES.
An action to foreclose a mortgage is usually limited to the amount mentioned in the
mortgage, but where on the four corners of the mortgage contracts, as in this case, the
intent of the contracting parties is manifest that the mortgaged property shall also answer
for future loans or advancements then the same is not improper as it is valid and binding
between the parties.For merely consolidating and expediently making current the three
previous loans, the loan of P1.0 million under PN, secured by the real estate property, was
correctly included in the foreclosure’s bid price. Petitioners’ reliance on the C & C
Commercial Corp. v. Phil. National Bank case is misplaced. In that case, the foreclosure sale
included previously incurred unsecured obligations in favour of PNB which were not in the
contemplation of the mortgage contract, whereas in the instant case, the mortgages were
one in providing that the mortgaged real estate property shall also secure future
advancements or loans, as well as renewals or extensions of the same.The decision
appealed from is hereby AFFIRMED in toto.

Case 116
SANGGUNIANG PANLUNGSOD NG BAGUIO CITY vs. JADEWELL PARKING SYSTEMS
CORPORATION
G.R. No. 160025               April 23, 2014

FACTS:
On 1 March 1999, Jadewell proposed the privatization of the administration of on-street
parking in Baguio City using Display Parking Meter which would make the city as the first
and only city in the Philippines to have metered parking as an important part of its traffic
and parking system. Respondent Sanggunian acted favorably on the proposal and passed a
Resolution authorizing the City Mayor of Baguio to negotiate and enter into a MOA with
Jadewell. Subsequently, questions arose regarding the compliance by Jadewell with the
provisions of the MOA on matters such as obtaining the recommendation from DPWH for
the installation of the parking meters and the legality of the collection of parking fees being
done by its parking attendants prior to the installation of the parking meters at Burnham
Park. The Sanggunian then, passed Resolution expressing its intent to rescind the MOA
with Jadewell.
 
ISSUE:
Whether the act of rescission of the MOA was a valid act of rescission

RULING:
The Court ruled that the first act of rescission by the City of Baguio may be valid even if
there is a stipulation against it within the first five years of the MOA’s existence. Article
1191 of the New Civil Code provides a party the right to rescind the agreement and clearly
overrides any stipulation to the contrary. However, the grounds that would serve as basis
to the application of the said article must be clearly established. The objectives of the
Sanggunian Panlungsod, as well as its intention to rescind the MOA; because it deems to no
longer serve the interest of the City of Baguio, are clearly an exercise of its legislative or
administrative function.

The court further ruled that in the exercise of option under Art. 1191, its is not necessary
for the City of Baguio to provide Jadewell an opportunity to air its side on the matter before
the former implemented the rescission of the MOA and that Jadewell was not deprived of
procedural due process. Citing the case of Taxicab Operators of Metro Manila v. The Board
of Transportation; the phase-out was embodied in a circular that was promulgated without
holding a public hearing or at least requiring those affected to submit their position papers
on the policy to be implemented. Dispensing with a public hearing prior to the issuance of the
Circulars is neither violative of procedural due process. Finally, the court pronounced that
the Sanggunian was within its full right to perform the second act of rescission, and thus, it
is even with more reason, that its members and the City Legal Officer cannot be held in
contempt.

Case 117
METROPOLITAN AND TRUST COMPANY vs. WILFRED CHIOK
G.R. No. 172652 November 26, 2014

FACTS: 
On July 5, 1995, respondent Wilfred N. Chiok bought US$1,022,288.50 dollars from Gonzalo
B. Nuguid where Chiok deposited the three manager’s checks (Asian Bank MC Nos. 025935
and 025939, and Metrobank CC No. 003380), with an aggregate value of ₱26,068,350.00 in
Nuguid’s account with petitioner Bank of the Philippine Islands (BPI). Nuguid, however,
failed to deliver the dollar equivalent of the three checks as agreed upon, prompting Chiok
to request that payment on the three checks be stopped. On the following day, July 6, 1995,
Chiok filed a Complaint for damages with application for ex parte restraining order and/or
preliminary injunction with the Regional Trial Court (RTC) of Quezon City against the
spouses Gonzalo and Marinella Nuguid, and the depositary banks, Asian Bank and
Metrobank. On July 25, 1995, the RTC issued an Order directing the issuance of a writ of
preliminary prohibitory injunction. When checks were presented for payment, Asian Bank
refused to honor MC Nos. 025935 and 025939 in deference to the TRO.

ISSUE: 
Whether or not payment of manager’s and cashier’s checks are subject to the condition that
the payee thereof should comply with his obligations to the purchaser of the checks.

RULING:
 No. A manager’s check, like a cashier’s check, is an order of the bank to pay, drawn upon
itself, committing in effect its total resources, integrity, and honor behind its issuance. By
its peculiar character and general use in commerce, a manager’s check or a cashier’s check
is regarded substantially to be as good as the money it represents. While manager’s and
cashier’s checks are still subject to clearing, they cannot be countermanded for being
drawn against a closed account, for being drawn against insufficient funds, or for similar
reasons such as a condition not appearing on the face of the check. Long standing and
accepted banking practices do not countenance the countermanding of manager’s and
cashier’s checks on the basis of a mere allegation of failure of the payee to comply with its
obligations towards the purchaser. Therefore, when Nuguid failed to deliver the agreed
amount to Chiok, the latter had a cause of action against Nuguid to ask for the rescission of
their contract; but, Chiok did not have a cause of action against Metrobank and Global Bank
that would allow him to rescind the contracts of sale of the manager’s or cashier’s checks,
which would have resulted in the crediting of the amounts thereof back to his accounts.

Case 118
WELLEX GROUP vs. U-LAND AIRLINES
G.R. NO. 167519 January 14, 2015

FACTS:
Wellex and U-Land agreed to develop a long-term business relationship through the
creation of joint interest in airline operations and property development projects in the
Philippines. The agreement includes: acquisition of APIC and PEC shares; operation and
management of APIC/PEC/APC; entering into and funding a joint development agreement;
and the option to acquire from Wellex shares of stock of EXPRESS SAVINGS BANK up to
40% of the outstanding capital stock of ESB of U-Land. The provisions of the memorandum
were agreed to e executed within 40 days from its execution date.

The 40-day period lapsed but Wellex and U-Land were not able to enter into any share
purchase agreement although drafts were exchanged between the two. However, despite
the absence of a share purchase agreement, U-Land remitted to Wellex a total of US
$7,499,945.00. Wellex acknowledged the receipt of theseremittances and allegedly
delivered stock certificates and TCTs of subject properties. Despite these transactions,
Wellex and U-Land still failed to enter into the share purchase agreement. U-Land filed a
Complaint praying for rescission of the First Memorandum of Agreement and damages
against Wellex and for the issuance of a Writ of Preliminary Attachment.

The RTC ruled in favor of U-Land and ordered rescission of contract under Art. 1911 of the
civil code. Basis of rescission is that Wellex’s misrepresentation that APIC was a majority
shareholder of APIC that compelled it to enter into the agreement.

On appeal, the CA affirmed the ruling of the RTC. Hence, this petition.

ISSUE:
Whether or not respondent, U-Land, correctly sought the principal relief of rescission or
resolution under Art. 1191.

RULING:
Yes. The Court ruled that rescission under Art. 1191 (also known as resolution), and not
under 1381, is proper in this case. Rescission or resolution under Article 1191 is a principal
action that is immediately available to the party at the time that the reciprocal prestation
was breached. Article 1383 mandating that rescission be deemed a subsidiary action
cannot be applicable to rescission or resolution under Article 1191.
Thus, respondent U-Land correctly sought the principal relief of rescission or resolution
under Article 1191. The obligations of the parties gave rise to reciprocal prestations, which
arose from the same cause: the desire of both parties to enter into a share purchase
agreement that would allow both parties to expand their respective airline operations in
the Philippines and other neighboring countries.

Case 119
SWIRE REALTY DEVELOPMENT CORPORATION vs. JAYNE YU
G.R. No. 207133 March 9,2015

FACTS:
The parties entered into a Contract to Sell wherein Yu is to buy a condominium unit. Yu
paid in full the purchase price. However, Swire failed to complete and deliver the subject
unit on time. Yu filed a Complaint for Rescission of Contract with Damages.

ISSUE:
Whether or not rescission of the Contract to Sell was proper.

RULING:
Yes. Pursuant to Article 1191 of the Civil Code, the delay of the completion of the project as
well as of the delay in the delivery of the unit are breaches of statutory and contractual
obligations which entitle respondent to rescind the contract, demand a refund and
payment of damages.
Hence, the petition is denied.

Case 120
UNIVERSAL FOOD CORPORATION vs. THE COURT OF APPEALS, MAGDALO V.
FRANCISCO, SR., and VICTORIANO N. FRANCISCO
G.R. No. L-29155 MAY 13, 1970

FACTS:
Private respondent Magdalo is the inventor of the formula for Mafran Sauce, who asked for
the financial assistance of petitioner which led to an Execution of a Bill of Assignment. On
the said bill, it states that the former will be the Chief Chemist of the company and that the
latter will have a right to use such formula.

A year has passed, petitioner ordered the suspension of the employment of private
respondent Magdalo. And because of it, the latter filed an action for the rescission of the Bill
of Assignment. However, the former contends that such rescission should be denied since
under Article 1383, rescission is just a subsidiary remedy.

ISSUE:
Whether or not Article 1383 will apply.

RULING:
It is ruled that Article 1383 will not apply. 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 breach as would defeat the very object of the parties in making the agreement.

Case 121
Vda. De Mistica vs. Sps. Naguiat
G.R. NO. 137909 December 11, 2003

FACTS:
Eulalio Mistica, was the owner of a parcel of land, wherein a portion of which was leased to
respondent Bernardino Naguiat, a contract was then made to sell the property. Respondent
gave a down payment and another partial payment in accordance to the agreement but
failed to make the next payment agreed upon. Upon the death of Eulalio his wife filed a
complaint for the rescission of the conract with Naguiat on the basis that his failure to
make payments for the balance left in the agreed price constitutes a breach of contract
which gives her the right to rescind the same. Respondents argue that there can be no
rescission on the basis that the contract clearly stipulates that the consequence of a failure
to pay is a yearly interest of 12 % , he further alleges that during the wake of Eulalio he
offered to pay for the balance but she refused.

ISSUE:
Whether or not petitioner is Entitled to rescind the contract?

RULING:
No, Petitioner cannot rescind the contract.
The transaction between Eulalio and the respondent, was clearly a contract of Sale, a deed
of sale is absolute in nature when there is neither stipulation in the deed that title to the
property is reserved until the full payment is made nor is there a stipulation that allows the
seller to unilaterally dissolve the contract if the buyer fails to pay within the agreed period.
In a contract of sale, the remedy of an unpaid seller is either specific performance or
rescission. Article 1191 of the civil code provides that the right to rescind an obligation is
predicated in the violation of the reciprocity between the parties, brought about by a
breach of faith by one of them. Rescission, however, is only allowed when the breach is
substantial and fundamental.

In the present case, the failure of the respondents to pay the balance within the agreed
period does not amount to the substantial breach stipulated in Article 1191. The contract
was clear that in case of failure the respondents would only have to pay an interest of 12
percent. The stipulations within the contract for the law between the contracting parties
and the court has no alternative but to enforce it as it is.

Case 122
Palay vs. Clave
G.R. No. L-56076 September 21, 1983
FACTS:
In 1965, Palay Inc., through its President Onstott, executed in favor of Dumpit
(respondent) a Contract to sell a parcel of land in Antipolo, Rizal. The sale was for P23,
300 with 9% interest per annum, payable with a downpayment of P4,660 and
monthly installments of P246.42 until fully paid. Par. 6 of the contract provided
for automatic extrajudicial rescission upon default in payment of any monthly
installment after the lapse of 90 days from the expiration of the grace period of a
month, without need of notice and forfeiture of all installments paid. Dumpit was able
to pay the dp and several installments amounting to P13, 722.50, with the last
payment made on Dec. 5, 1967 for installments up to Sept. 1967.In 1973, Dumpit
requested Palay Inc to update his overdue accounts and sought its permission to
assign his rights to Dizon. However, Palay informed him that his Contract to Sell had
long been rescinded pursuant to Par. 6 and that the lot had already been resold.
Dumpit filed a complaint with the NHA for reconveyance with an alternative
prayer for refund. NHA ruled in favor of Dumpit, stating that the rescission is
void for lack of either judicial or notarial demand. Office of the President affirmed.

ISSUE:
Whether notice or demand may be dispensed with by stipulation in a contract to
sell and should be liable for the refund of the installment payments made by
Dumpit.

RULING:
NO. Although a judicial action for rescission of a contract is not necessary where
the contract provides for its revocation and cancellation for violation of any of its
terms and condition, jurisprudence has shown that at least, there was a written
notice sent to the defaulter informing him of the rescission. Par. 6 cannot be
considered a waiver of Dumpit's right to be notified because it was a contract of
adhesion. A waiver must be certain and unequivocal and intelligently made; such
waiver follows only where the liberty of choice has been fully accorded.
Moreover, the indispensability of notice of cancellation to the buyer is protected
under RA 6551. It is a matter of public policy to protect the buyers of real estate
on installment payments against onerous and oppressive conditions. Waiver of
notice is one such onerous and oppressive condition to buyers of real estate on
installment payments.

As a consequence of the rescission of the contract, right to the lot should be

restored to Dumpit or the same should be replaced by another acceptable lot.
However, considering that the lot had been resold to a third person, Dumpit is
entitled to refund of the installments paid plus legal interest of 12%.

Case 123
RODRIGO RIVERA vs. SPOUSES SALVADOR CHUA and VIOLETA S. CHUA
G.R. No. 184458 January 14, 2015.

FACTS:
The parties were friends of long standing having known each other since 1973. In February
1995, Rivera obtained a loan from the Spouses Chua, in the tune of P120,000.00 embodied
in a promissory note with stipulations that failure on the part of Rivera to pay the amount
on December 31, 1995, he agrees to pay 5% interest monthly from the date of default
(January 1, 1996). Three years have passed from the maturity date, when Rivera issued two
(2) checks in favor of Chua as payment for the loan, which, upon presentment, were
dishonored for the reason “account closed.” In their collection suit, Spouses Chua alleged
that they have repeatedly demanded payment from Rivera to no avail. In his Answer,
Rivera claimed forgery of the subject Promissory Note and denied his indebtedness
thereunder. From the MeTC to the CA, the monetary claim of Spouses Chua was sustained.

ISSUE:
Whether or not a demand from Sps. Chua is needed to make Rivera liable.

RULING:
No, a demand from Sps. Chua is not needed to make Rivera liable.
Demand is no longer necessary because the law is explicit that when the debtor fails to pay
upon maturity date, when the obligation is due and demandable, he therefore incurs delay.
Art. 1169 of the NCC states, “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. However, the demand by the creditor shall not be necessary in order that
delay may exist: 1) When the obligation or the law expressly so declare xxx.”
There are four instances when demand is not necessary to constitute the debtor in default:
(1) when there is an express stipulation to that effect; (2) where the law so provides; (3)
when the period is the controlling motive or the principal inducement for the creation of
the obligation; and (4) where demand would be useless.

In the first two paragraphs, it is not sufficient that the law or obligation fixes a date for
performance; it must further state expressly that after the period lapses, default will
commence. The clause in the Promissory Note containing the stipulation of interest which
expressly requires Rivera to pay 5% monthly interest from the date of default until the
entire obligation is fully paid. It is evident that the maturity of the obligation on a date
certain, December 31, 1995, will give rise to the obligation to pay interest. The date of
default under the Promissory Note is 1 January 1996, the day following 31 December 1995,
the due date of the obligation. On that date, Rivera became liable for the stipulated interest
which the Promissory Note says is equivalent to 5% a month.

In sum, until 31 December 1995, demand was not necessary before Rivera could be held
liable for the principal amount of P120,000.00. Thereafter, on 1 January 1996, upon default,
Rivera became liable to pay the Spouses Chua damages, in the form of stipulated interest.

Case 124
Solar Harvest, Inc. vs. Davao Corrugated Carton Corporation
G.R. No. 176868 26 July 2010

FACTS:
The petitioner (Solar Harvest, Inc., Solar for brevity) entered into an agreement with
respondent, Davao Corrugated Carton Corporation (DCCC for brevity), for the purchase of
materials, designed for petitioner’s business of exporting fresh bananas. Solar deposited in
DCCC’s US Dollar Savings Account, as full payment for the ordered boxes. However, Solar
did not receive any boxes from DCCC. Solar wrote a demand letter for reimbursement of
the amount paid. DCCC replied that the boxes had been completed as early as April 3, 1998
and that Solar failed to pick them up from the formers warehouse 30 days from completion,
as agreed upon. It was also mentioned that Solar placed an additional order, out of which,
half had been manufactured without any advanced payment from Solar. (Solar alleges that
the agreement was for DCCC to deliver within 30 days from payment the said cartons to
Tagum Agricultural Development Corporation (TADECO) which the latter failed to
manufacture and deliver within such time.) DCCC then demanded Solar to remove the
boxes from the factory and to pay the balance for the additional boxes.

ISSUE:
Whether or not the respondent (Davao Corrugated Carton Corporation) is in default.

RULING:
No. It was unthinkable that, over a period of more than two years, Solar did not even
demand for the delivery of the boxes. Even assuming that the agreement was for DCCC to
deliver the boxes, the latter would not be liable for breach of contract as Solar had not yet
demanded from it the delivery of the boxes.

In reciprocal obligations, as in contract of sale, the general rule is that the fulfillment of the
parties respective obligation should be simultaneous. Hence, no demand is generally
necessary because, once a party fulfills his obligation and the other party does not fulfill his,
the latter automatically incurs delay. But when different dates for performance of the
obligation are fixed, the default for each obligation must be determined, that is, the other
party would incur in delay only from the moment the other party demands fulfillment of
the formers obligation. Thus, even in reciprocal obligations, if the period for the fulfillment
of the formers obligation is fixed, demand upon the obliged is still necessary before the
obligor can be considered in default and before a cause of action for rescission will accrue.
Solar alleges that they made a follow-up upon respondent, which, however, would not
qualify as a demand for the fulfillment obligation. The former also testified that they made
a follow-up of the boxes, but not a demand.

Even assuming that a demand had been previously made before filling the present case
Solar’s claim for reimbursement would still fail, as the circumstances would show that
DCCC was not guilty of breach of contract.

Aside from the pictures of the finished boxes and the production report thereof, there is
ample showing that the boxes had already been manufactured by DCCC. There is the
testimony of Estanislao who accompanied Que to the factory, attesting that, during the first
visit to the company, they saw the pile of boxes and Que took a samples thereof. Que,
himself confirmed this incident. He testified that Tan pointed the boxes to him and got a
sample and saw that it was blank. Ques absolute assertion that the boxes were not
manufactured is, therefore, implausible and suspicious.

DCCC was willing to shoulder expenses for a representative of the court to visit the plant
and see the boxes. It also prays that Solar be ordered to remove the boxes from its factory
site, which would only mean that the boxes are, up to the present, still in DCCC’s premises.
Assuming that DCCC was obliged to deliver the boxes, it could not have complied with such
obligation. Que, admitted that he did not given DCCC the authority to deliver the boxes to
TADECO. Surely, without such authority, TADECO would not have allowed to deposite the
boxes within its premises.

Case 125
Osmena III vs. SSS
G.R. No. 165272

FACTS:
Osmena III and 4 other members of the Senate and SSS members seek for nullification of
the following issuances of Social Security Commission:
1. Res. No. 428, July 124, 2004- Swiss Challenge Method – approved the sale of the entire
equityshare of SSS to Equitable PCI bank
2. Res. 485, August 11, 2004 – pertains to the timetable and instruction to bidder.

SSS in order to liquefy its long term investments and diversify them into higher yielding
and less volatile investments which includes its shareholdings in EPCIB (Reason: shares in
question substantially declined in value and SSS could no longer afford to continue holding
on them) in a purchase agreement it was agreed in that SSS will sell all its EPCIB shares to
BDO. COA and DOJ (in its opinion) approved the agreement. The Bidding was made “subject
to the right of BDO Capital to match the highest bid”. BDO turned out to be the highest
bidder. The Petitioner alleged that BDO to buy EPCIB shares is inconsistent with the idea of
public bidding. BDO and EPCIBhad a merger, all EPCIB shares were transferred to BDO.

ISSUE:
WON in questioning the alleged resolution can still recover the shares and subject it to a
“proper”bidding process.

RULING:
No, petitioners can no longer recover the shares. The obligation to give a determinate thing
isextinguished if the object is lost without the fault of the debtor. In the very real sense,
theinterplay of the ensuing factor: a) the BDO-EPCIB merger and b) the cancellation of
subjectshares and their replacement by totally new common shares of BDO had rendered
the erstwhile187.84 M EPCIB shares of SSS unrecoverable in the contemplation of Civil
Code provision.

Case 126
Villamar vs. Mangaoil
GR No. 188661 April 11, 2012
FACTS:
Estelita villamar a registered owner of 3.6080 hectares of parcel of land, decided to sell it
Balbino Mangaoil with the certain conditions. The price of the land is 180,000.00 php per
hectare but only the 3.5000 hectares shall be paid and the rest shall be given free, so that
the total purchase or selling price shall be 630,000.00 php only. The respondent paid the
amount of 185,000 as a down payment for the land title to be given to him. After some time,
Mangaoil decided to back out from the agreement because the area is not yet fully cleared
by encumbrances as these are tenants who are not willing to vacate the land without giving
them back the amount that they mortgage the land.

Mangaoil demanded a refund for his 185,000, reiterating his demand on another date but
the same as unheeded. The respondent filed a complaint in the RTC and the latter ordered
the rescission of the agreement and the deed of absolute sale in accordance of Art. 1458
and Art. 1191 of the Civil Code. The petitioner filed before the CA an appeal to challenge the
foregoing. She ascribed error on the part of the RTC when the latter ruled that the
agreement and deed of sale executed by and between the parties can be rescinded as she
failed to deliver to the respondent both the subject property and the certificate of title
covering the same. On February 20, 2009, the CA rendered the now assailed decision
dismissing the petitioners appeal. Thus the case

ISSUE:
Whether or not the failure of petitioner-seller to deliver the certificate of title over the
property to respondent-buyer is a breach of obligation in a contract of sale of real property
that would warrant rescission of the contract?

RULING:
The RTC and CA were right to both found the petitioner failed to comply with her
obligations to deliver to the respondent both the possession of the subject property and the
certificate of title covering the same. The petition was denied for failure to deliver to the
respondent the possession of the subject property due to the continued presence and
occupation of tenants. Art. 1191 provides the power to rescind obligation is implied in
reciprocal ones, in case one of the obligors should not comply with what is incumbent
upon him. So the Court directed the rescission of the agreement and absolute deed of sale
entered by Villamar and Mangaoil and return of the down payment made for the purchase
of the subject property.

Case 127
GENEROSA AYSON-SIMON vs. NICOLAS ADAMOS and VICENTA FERIA
G.R. No. L-39378 August 28, 1984

FACTS:
On December 13, 1943, the defendants herein purchased two lots forming part of the
Piedad Estate in Quezon City. Sometime after, the successors-in-interest of the latter filed
and succeeded for the annulment of the sale. But during the pendency of the above-
mentioned case, defendants sold to plaintiff the two lots in question. Since the sale of the
lots were annulled, the defendants failed to comply with their commitment to have the
subdivision plan of the lots approved and to deliver the titles and possession to the
plaintiff.

Thus this case was filed. The defendants contend (1) that the fulfillment and the rescission
of the obligation in reciprocal ones are alternative remedies, and plaintiff having chosen
fulfillment in Civil Case No. Q-7525, she cannot now seek rescission; and (2) that even if the
plaintiff could seek rescission, the action to rescind the obligation has prescribed."

ISSUE:
Whether or not the action to rescind the obligation has prescribed.

RULING:
No, the action to rescind the obligation has not prescribed. The action for rescission must
be commenced within four years from that date, May 3, 1967. Since the complaint for
rescission was filed on August 16, 1968, the four year period within which the action must
be commenced had not expired.
"Article 1191 of the Civil Code provides that the injured party may also seek rescission, if
the fulfillment should become impossible. The cause of action to claim rescission arises
when the fulfillment of the obligation became impossible when the Court of First Instance
of
The rule that the injured party can only choose between fulfillment and rescission of the
obligation, and cannot have both, applies when the obligation is possible of fulfillment. If, as
in this case, the fulfillment has become impossible, Article 1191[3] allows the injured party
to seek rescission even after he has chosen fulfillment.

Case 128
BUENAVENTURA ANGELES, ET AL. vs. URSULA TORRES CALASANZ, ET AL.
G.R. No. L-42283 March 18, 1985

FACTS:
Defendants-appellants Calasanz entered a contract to sell with plaintiffs-appellees Angeles
and Juani. A contract to sell a piece of land, located at Cainta, Rizal in the amount of
P3,920.00 plus 7% interest per annum.

Upon the execution of the contract, Plaintiffs-appellees made a down payment of P392.00.
They promise to bay the remaining balance in monthly installments for P41.20, every 19 th
of the month until fully paid.

July 1966 the payment already amounted to P4,533.38. There were several times wherein
defendants-appellants accepted and received the delayed installment payments.
Later that year, defendants-appellants wrote a letter requesting them the remittance of
past due accounts.
The following year, January 28, 1967,defendants-appellants cancelled the said contract for
failure to pay subsequent due. Plaintiffs’ plea for reconsideration of the cancellation of the
contract which was denied by the defendants.

Plaintiffs computed all the payments made for the land and found out that they had paid in
full including the interests and other land expenses. They filed a case to compel defendants
to execute in their favor the final deed of sale.

Defendants answered that the cancellation of the said contract was valid. Thus, the lower
court decided otherwise. Ordered to execute a final deed of sale in favor of the plaintiffs
and to pay P500 by way of attorney’s fees.

Defendants files a motion for reconsideration citing errors of the lower court which was
later on denied.

ISSUE:
Whether or not the contract to sell has been validly and automatically cancelled by the
defendants?

Whether or not the defendants validly exercised their right for the said cancellation under
the rescission of reciprocal obligations?

RULING:
No. The cancellation of the contract to sell the piece of land was unfair. The failure of the
defendants to pay the later dues bears little weight. Considering the down payment made
and faithfully paying the defendants for a period of 9 years cannot be discounted because it
will unjustly enrich the defendants.

The petition was denied for lack of merit. The decision appealed is affirmed with
modifications that the plaintiffs should pay the balance of P671.67 without interest.

Case 129
University of the Philippines vs. Walfrido De Los Angeles
G.R. No. L-28602 September 29, 1970

FACTS:
On November 2, 1960, UP and ALUMCO entered into a logging agreement whereby the
latter was granted exclusive authority to cut, collect and remove timber from the Land
Grant for a period starting from the date of agreement to December 31, 1965, extendable
for a period of 5 years by mutual agreement.

On December 8, 1964, ALUMCO incurred an unpaid account of P219,362.94. Despite

repeated demands, ALUMCO still failed to pay, so UP sent a notice to rescind the logging
agreement. On the other hand, ALUMCO executed an instrument entitled “Acknowledgment
of Debt and Proposed Manner of Payments. It was approved by the president of UP, which
stipulated the following: In the event that the payments called for are not sufficient to
liquidate the foregoing indebtedness, the balance outstanding after the said payments have
been applied shall be paid by the debtor in full no later than June 30, 1965; In the event that
the debtor fails to comply with any of its promises, the Debtor agrees without reservation
that Creditor shall have the right to consider the Logging Agreement rescinded, without the
necessity of any judicial suit.

ALUMCO continued its logging operations, but again incurred an unpaid account. On July
19,1965, UP informed ALUMCO that it had, as of that date, considered rescinded and of no
further legal effect the logging agreement, and that UP had already taken steps to have
another concessionaire take over the logging operation. ALUMCO filed a petition to enjoin
UP from conducting the bidding. The lower court ruled in favor of ALUMCO, hence, this
appeal.

ISSUE:
Whether or not can petitioner UP treat its contract with ALUMCO rescinded, and may
disregard the same before any judicial pronouncement to that effect?

RULING:
Yes. In the first place, UP and ALUMCO had expressly stipulated that upon default by the
debtor, UP has the right and the power to consider the Logging Agreement of December 2,
1960 as rescinded without the necessity of any judicial suit. As to such special stipulation
and in connection with Article 1191 of the Civil Code, the Supreme Court, stated in Froilan
vs. Pan Oriental Shipping Co:

“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.”

Case 130
UNIVERSAL FOOD CORPORATION vs. THE COURT OF APPEALS, MAGDALO V.
FRANCISCO, SR., and VICTORIANO N. FRANCISCO
G.R. No. L-29155 May 13, 1970

FACTS:
Magdalo Francisco is the inventor of the formula for Mafran Sauce who asked for the
financial assistance of Universal Food Corporation (UFC) which lead to an execution of a
Bill of Assignment. Said Bill stipulates that Francisco shall be the chief chemist of the
company (permanent in character) and that UFC shall have a right to use the formula.
However, a year after, UFC ordered the suspension of the employment of Francisco. Hence,
Francisco filed an action for the rescission of the BOA. UFC contends that the rescission
should be denied because under Art. 1383, rescission is just a subsidiary remedy.

ISSUE:
Whether or not Art. 1383 is applicable in the case at bar
RULING:
No. 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 breach as would defeat the
very object of the parties in making the agreement.
The question of whether a breach of a contract is substantial depends upon the attendant
circumstances. The petitioner contends that rescission of the Bill of Assignment should be
denied because, under article 1383, rescission is a subsidiary remedy which cannot be
instituted except when the party suffering damage has no other legal means to obtain
reparation for the same.

Case 131
SM Land Inc. vs. Bases Conversion and Development Authority
GR no. 203655 August 13, 2014

FACTS:
SM Land Inc submitted to the Bases Conversion and Development Authority (BCDA)
unsolicited proposals for the development of the Bonifacio South Property. Upon the
acceptance of the terms of the final unsolicited proposal, issuance of Certification of
Successful Negotiations and eligibility to enter into the proposed Joint Venture activity, the
SM Land Inc. agreed to subject the latter’s Original Proposal to Competitive Challenge
pursuant to NEDA Joint Venture Guidelines.
Years later and upon the commencement of the activities for the solicitation for
comparative proposals, however, the BCDA through the issuance of Supplemental Notice
No. 5 terminated the competitive challenge for the selection of BCDA’s joint venture
partner for the development of a portion of Fort Bonifacio.

SMLI, argued that BCDA’s unilateral termination of the competitive challenge is a violation
of SMLI’s rights as an original proponent and constitutes abandonment of BCDA’s
contractual obligations.  BCDA, on the other hand, responded that it is justifiable since
NEDA JV Guidelines is a mere guideline and not a law, and that the Government has a right
to terminate the competitive challenge when the terms are disadvantageous to public
interest.

ISSUE:
Whether BCDA and SM land have a contract that would bestow upon the latter the right to
demand that its unsolicited proposal be subjected to a competitive challenge.

RULING:
There exists a valid agreement between SMLI and BCDA. Article 1305 of the New Civil Code
defines a contract as “a meeting of minds between two persons whereby one binds himself,
with respect to the other, to give something or to render some service.” It is a “juridical
convention manifested in legal form, by virtue of which one or more persons bind
themselves in favor of another or others, or reciprocally, to the fulfilment of a prestation to
give, to do, or not to do.” The succeeding Article 1318 of the Code lays down the essential
requisites of a valid contract, to wit:
 (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 is, between BCDA and SMLI, a perfected contract––a source of
rights and reciprocal obligations on the part of both parties. Consequently, a breach thereof
may give rise to a cause of action against the erring party.

Case 132
NARI K. GIDWANI vs. PEOPLE OF THE PHILIPPINES
G.R. No. 195064 January 15, 2014

FACTS:
Petitioner is the president of G.G. Sportswear Manufacturing Corporation (GSMC), which is
engaged in the export of ready-to-wear clothes. GSMC secured the embroidery services of
El Grande Industrial Corporation (El Grande) and issued on various dates from June 1997
to December 1997 a total of 10 Banco de Oro (BDO) checks as payment for the latter’s
services worth an aggregate total of ₱1,626,707.62. Upon presentment, these checks were
dishonored by the drawee bank - closed account. El Grande sent three demand letters
regarding 8 of the 10 issued checks.

Petitioner wrote to El Grande’s counsel acknowledging receipt of the 8 October demand

letter 6 and informing the latter that GSMC had filed a Petition with the SEC. It was a
Petition for the Declaration of a State of Suspension of Payments, for the Approval of a
Rehabilitation Plan and Appointment of a Management Committee.

Acting on the Petition, the SEC issued an Order ordering the suspension of all actions,
claims, and proceedings against GSMC until further order from the SEC. In short, GSMC did
not pay El Grande. Despite its receipt of GSMC’s letter and explanation, El Grande still
presented to the drawee bank BDO Check Nos. 0000063652 and 0000063653 dated
November and December 1997.

El Grande filed a Complaint charging petitioner with eight counts of violation of B.P. 22 for
the checks covering June to October 1997. El Grande filed a similar Complaint in December
1997, covering the checks issued in November and December 1997. Informations were
subsequently filed.

Petitioner’s defenses: (1) the SEC Order of Suspension of Payment legally prevented him
from honoring the checks; (2) there was no consideration for the issuance of the checks,
because the embroidery services of El Grande were of poor quality and, hence, were
rejected; and (3) he did not receive a notice of dishonor of the checks. MTC of Manila found
petitioner guilty beyond reasonable doubt of ten counts of violation of B.P. 22. RTC
affirmed the findings of the MTC

Petitioner filed with the CA a Petition for Review under Rule 42. CA partly granted the
appeal and acquitted petitioner of eight counts of violation of B.P. 22, while sustaining his
conviction for the two remaining counts. Petitioner filed his Motion for Partial
Reconsideration arguing that: (1) there was no clear evidence showing that he
acknowledged the Notice of Dishonor of the two remaining checks; (2) the suspension
Order of the SEC was a valid reason for stopping the payment of the checks; and, (3) as a
corporate officer, he could only be held civilly liable. CA denied. Hence, this Petition

ISSUES:
1. Whether the court of appeals erred in ruling that the order for the suspension of
payment issued by the SEC is not a valid reason to stop payment of a check even if
such order was issued prior to the presentment of the checks for payment.
2. Whether the court of appeals erred in finding a corporate officer personally liable
for the civil liability of a corporation.

RULING:
We find the appeal to be meritorious. In convicting petitioner of two counts of violation of
B.P. 22, the CA applied Tiong v. Co,16 in which we said: The filing of the case for violation of
B.P. Blg. 22 is not a "claim" that can be enjoined within the purview of P.D. No. 902-A. True,
although conviction of the accused for the alleged crime could result in the restitution,
reparation or indemnification of the private offended party for the damage or injury he
sustained by reason of the felonious act of the accused, nevertheless, prosecution for
violation of B.P. Blg. 22 is a criminal action.

Hence, accused-appellant cannot be deemed excused from honoring his duly issued checks
by the mere filing of the petition for suspension of payments before the SEC. Otherwise, an
absurdity will result such that " one who has engaged in criminal conduct could escape
punishment by the mere filing of a petition for rehabilitation by the corporation of which
he is an officer."

However, what the CA failed to consider was that the facts of Tiong were not on all fours
with those of the present case and must be put in the proper context. In Tiong, the
presentment for payment and the dishonor of the checks took place before the Petition for
Suspension of Payments for Rehabilitation Purposes was filed with the SEC. There was
already an obligation to pay the amount covered by the checks. The criminal action for the
violations of B.P. 22 was filed for failure to meet this obligation. The criminal proceedings
were already underway when the SEC issued an Omnibus Order creating a Management
Committee and consequently suspending all actions for claims against the debtor therein.
Thus, in Tiong, this Court took pains to differentiate the criminal action, the civil liability
and the administrative proceedings involved.

In contrast, it is clear that prior to the presentment for payment and the subsequent
demand letters to petitioner, there was already a lawful Order from the SEC suspending all
payments of claims. It was incumbent on him to follow that SEC Order. He was able to
sufficiently establish that the accounts were closed pursuant to the Order, without which a
different set of circumstances might have dictated his liability for those checks.

Considering that there was a lawful Order from the SEC, the contract is deemed suspended.
When a contract is suspended, it temporarily ceases to be operative; and it again becomes
operative when a condition occurs – or a situation arises – warranting the termination of
the suspension of the contract.
In other words, the SEC Order also created a suspensive condition. When a contract is
subject to a suspensive condition, its birth takes place or its effectivity commences only if
and when the event that constitutes the condition happens or is fulfilled. Thus, at the time
private respondent presented the September and October 1997 checks for encashment, it
had no right to do so, as there was yet no obligation due from petitioner.

Consequently, because there was a suspension of GSMC s obligations, petitioner may not be
held liable for the civil obligations of the corporation covered by the bank checks at the
time this case arose. However, it must be emphasized that her non-liability should not
prejudice the right of El Grande to pursue its claim through remedies available to it, subject
to the SEC proceedings regarding the application for corporate rehabilitation.

WHEREFORE, the Petition is hereby GRANTED.

Case 133
SIMULATED OR FICTITIOUS CONTRACT REBUSQUILLO vs. SPA. DOMINGO
G.R. No. 204029 June 4, 2014

FACTS:
Petitioner was one of the seven children of deceased, Eulalio and Victoria. Both of them
died intestate. The deceased left a parcel of land in Legazpi City. In 2001, Emelinda
(daughter of petitioner), made petitioner sign two documents. In 2003, the petitioner
discovered that the two documents were an affidavit of self-adjudication, and a deed of
absolute sale in favor of Sps. Domingo. Petitioner then filed an action to annul the two
documents before the RTC. In the respondents’ answer, they admitted the execution of the
affidavit and deed, but they argued that it was with the consent of all the heirs of Eulalio
and Victoria, and that such was agreed to be done to facilitate the titling of the property.
Respondents further argued that the petitioner received the amount of Php 50,000 for the
sale.

The RTC ruled in favor of the petitioner. The CA reversed the RTC’s decision and said that
the affidavit and the sale were valid.

ISSUE:
Whether or not the affidavit of self-adjudication and the sale are valid

RULING:
No.
The petition is granted. Both the affidavit and the deed of sale are void. An Affidavit of Self-
Adjudication is only proper when the affiant is the sole heir of the decedent. (Sec. 1, Rule
74, ROC). As admitted by respondents, Avelina was not the sole heir of Eulalio. In fact, as
admitted by respondents, petitioner Salvador is one of the co-heirs by right of
representation of his mother. Without a doubt, Avelina had perjured herself when she
declared in the affidavit that she is the only daughter and sole heir of spouses Eulalio and
Victoria. The falsity of this claim renders her act of adjudicating to herself the inheritance
left by her father invalid.

In effect, Avelina was not in the right position to sell and transfer the absolute ownership of
the subject property to respondents. As she was not the sole heir of Eulalio and her
Affidavit of Self- Adjudication is void, the subject property is still subject to partition.
Avelina, in fine, did not have the absolute ownership of the subject property but only an
aliquot portion. What she could have transferred to respondents was only the ownership of
such aliquot portion. It is apparent from the admissions of respondents and the records of
this case that Avelina had no intention to transfer the ownership, of whatever extent, over
the property to respondents. Hence, the Deed of Absolute Sale is nothing more than a
simulated contract.

The Civil Code provides:

Art. 1345. Simulation of a contract may be absolute or relative. The former takes place
when the parties do not intend to be bound at all; the latter, when the parties conceal their
true agreement.

Art. 1346. An absolutely simulated 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.
In the present case, respondents admitted that the purpose of the sale was to facilitate
titling and not the transfer of ownership.

Case 134
SPOUSES ANICETO BALILA and EDITHA S. DE GUZ MAN, SPOUSES ASTERIO DE
GUZMAN and ERLINDA CONCEPCION and ENCARNACION OCAMPO VDA. DE
CONCEPCION
vs. HONORABLE INTERMEDIATE APPELLATE COURT
G.R. No. L-68477 October 29, 1987

FACTS:
Petitioners were defendants and private respondents were plaintiffs in a Civil Case. They
entered into an amicable settlement wherein petitioners admitted “having sold under a
pacto de retro sale 3 parcels of land (Lot 965, Lot 16, Lot 52) in the amount of P84,000” and
that they “hereby promise to pay the said amount within the period of 4 months but not
later than May 15, 1981.

”December 30, 1981 or more than 7 months after the last day for making payments,
petitioners redeemed from private respondent Guadalupe Lot No. 52 by paying the amount
of P20,000.August 4, 1982 – Guadalupe filed a motion for a hearing on the consolidation of
the title over the remaining 2 parcels of land namely Lot 965 and Loot 16 alleging that the
earlier court decision (approving the amicable settlement) remained unenforced for non-
payment of the total obligation. Petitioners opposed, alleging that they had made partial
payments to Guadalupe’s attorney-in-fact and son, Waldo, as well as to the Sheriff. TC
issued an order affirming consolidation.

ISSUE:
Was the Order approving the amicable settlement novated upon subsequent mutual
agreements of the parties?

RULING:
YES. The root of all the issues raised is that judgment by compromise rendered by the
lower court based on the terms of the amicable settlement of the contending parties. Such
agreement not being contrary to law, good morals or public policy was approved by the
lower court and therefore binds the parties who are enjoined to comply therewith. There is
no question that petitioners tendered several payments to Waldo del Castillo even after
redeeming lot No. 52. A total of these payments reveal that petitioners share fully paid the
amount stated in the judgment by compromise.

Case 136
SPOUSES CARMEN S. TONGSON and JOSE C. TONGSON substituted by his children
namely: JOSE TONGSON, JR., RAUL TONGSON, TITA TONGSON, GLORIA TONGSON
ALMA TONGSON vs. EMERGENCY PAWNSHOP BULA, INC. and DANILO R. NAPALA
G.R. No. 167874               January 15, 2010

FACTS:
Napala offered to purchase the land of Spouses Tongson for P3,000,000. The petitioners
find the offer acceptable executed with Napala a Memorandum of Agreement. Upon signing
of the Deed of Absolute Sale Napala paid P200,000 in cash to petitioners and issued a
postdated PNB check for the payment of the remaining amount. However, the check
bounces because of insufficient fund, despite the petitioners repeated demand that it be
paid in full or return the land, Napala failed to do both now the petitioners filed an action
against Napala.

ISSUE:
Whether or not the contract of sale can be annulled based on the fraud employed by
Napala.

RULING:
A valid contract requires the concurrence of the following essential elements: (1) consent
or meeting of the minds, that is, consent to transfer ownership in exchange for the price;
(2) determinate subject matter; and (3) price certain in money or its equivalent.

In the case, there is no dispute as regards the presence of the two requisites for a valid
sales contract, namely, (1) a determinate subject matter and (2) a price certain in money.
The problem now lies with the existence of the remaining element, which is consent of the
contracting parties, specifically, the consent of the Spouses Tongson to sell the property to
Napala.
The Supreme Court found no causal fraud in this case to justify the annulment of the
contract of sale between the parties. It is clear from the records that the Spouses Tongson
agreed to sell their property to Napala who offered to pay ₱3,000,000 as purchase price
therefor. Contrary to the Spouses Tongson’s belief that the fraud employed by Napala was
“already operational at the time of the perfection of the contract of sale,” the
misrepresentation by Napala that the postdated PNB check would bounce on its maturity
hardly equates to dolo causante. Napala’s assurance that the check he issued was fully
funded was not the principal inducement for the Spouses Tongson to sign the Deed of
Absolute Sale. Even before Napala issued the check, the parties had already consented and
agreed to the sale transaction. The Spouses Tongson were never tricked into selling their
property to Napala. On the contrary, they willingly accepted Napala’s offer to purchase the
property at ₱3,000,000. In short, there was a meeting of the minds as to the object of the
sale as well as the consideration therefor.

Instances where there is an existence of causal fraud include: (1) when the seller, who had
no intention to part with her property, was “tricked into believing”; (2) when the signature
of the authorized corporate officer was forged; or (3) when the seller was seriously ill, and
died a week after signing the deed of sale raising doubts on whether the seller could have
read, or fully understood, the contents of the documents he signed or of the consequences
of his act. Suffice it to state that nothing analogous to these badges of causal fraud exists in
this case.

However, while no causal fraud attended the execution of the sales contract, the fraud
surfaced when Napala issued the worthless check to the Spouses Tongson, which is
definitely not during the negotiation and perfection stages of the sale. Rather, the fraud
existed in the consummation stage of the sale when the parties are in the process of
performing their respective obligations under the perfected contract of sale.

Case 137
SPOUSES VICTOR and EUNA BINUA vs. LUCIA P. ONG
G.R. No. 207176 June 18, 2014

FACTS: 
Petitioner Binua was convicted of Estafa and sentenced to imprisonment and was
ordered to pay the respondent the amount of P2,285,000.00, with ten percent (10%)
interest, and damages. To avoid criminal liability, she settled her indebtedness by
mortgaging her husband Victor’s properties.  Thereafter, she filed a motion for a new trial,
which was granted and overturned her previous conviction for Estafa and adjudged her
only to be civilly liable to respondent Ong. However, she failed to settle her obligation,
forcing respondent to foreclose the mortgage on the properties, with the latter as the
highest bidder during the public sale. 

The petitioners then filed the case for the Declaration of Nullity of Mortgage Contracts,
alleging that the mortgage documents were "executed under duress, as the [petitioners] at
the time of the execution of said deeds were still suffering from the effect of the conviction
of [petitioner] Edna, and could not have been freely entered into said contracts."  

ISSUE: 
Whether or not consent was vitiated. (NO) 

RULING: 
Article 1390(2) of the Civil Code provides that contracts where the consent is vitiated by
mistake, violence, intimidation, undue influence or fraud are voidable or annullable. Article
1335 of the Civil Code, meanwhile, states that "[t]here is intimidation when one of the
contracting parties is compelled by a reasonable and well-grounded fear of an imminent
and grave evil upon his person or property, or upon the person or property of his spouse,
descendants or ascendants, to give his consent." The same article, however, further states
that "[a] threat to enforce one’s claim through competent authority, if the claim is just or
legal, does not vitiate consent." 

In cases involving mortgages, a preponderance of the evidence is essential to establish its

invalidity, and in order to show fraud, duress, or undue influence of a mortgage, clear and
convincing proof is necessary. 

Based on the petitioners’ own allegations, what the respondent did was merely inform
them of petitioner Edna’s conviction in the criminal cases for Estafa. It might have evoked a
sense of fear or dread on the petitioners’ part, but certainly there is nothing unjust,
unlawful or evil in the respondent's act. The petitioners also failed to show how such
information was used by the respondent in coercing them into signing the mortgages. The
petitioners must remember that petitioner Edna's conviction was a result of a valid judicial
process and even without the respondent allegedly "ramming it into petitioner Victor's
throat," petitioner Edna's imprisonment would be a legal consequence of such conviction.

Case 139
SPS. FRANCISCO SIERRA vs. PAIC SAVINGS 
GR No. 197857 September 10, 2014

FACTS:
On May 1983, Goldstar Conglomerates, Inc. (GCI), represented by Guillermo Zaldaga
(Zaldaga), obtained a loan in the amount of  P1,500,000.00 as evidenced by a Loan
Agreement dated May 31, 1983 from Paic Savings and Mortgage Bank, Inc. (PSMB) formerly
First Summa Savings and Mortgage Bank (Summa Bank). For security, GCI executed six (6)
promissory notes as well as a Deed of Real Estate Mortgage over a parcel of land. Sps.
Francisco Sierra, petitioners herein added four (4) parcel of lands for additional security.
Eventually, GCI defaulted in the payment of its loan to PSMB, thereby prompting the latter
to extrajudicially foreclose the mortgage on the subject properties.

Petitioners averred that under pressing need of money, with very limited education and
lacking proper instructions, they fell prey to a group who misrepresented to have
connections with Summa Bank and, thus, could help them secure a loan. Likewise, they
were not furnished copies of the loan and mortgage documents, and a copy of the
statement of account nor a copy of the petition foreclosure.

ISSUE:
1. Whether petitioners are mere accommodation mortgagors
2. W/n the action has prescribed and barred by laches

RULING:
1. Yes, the Court finds petitioners' claim of mistake or error (that they acted merely as
accommodation mortgagors) grounded on their "very limited education" and "lack of
proper instruction" not to be firmly supported by the evidence on record. The Court has
stressed that allegations must be proven by sufficient evidence because mere allegation
is not evidence.
2. Even if petitioners have a valid cause of action, the four-year prescriptive period on
voidable contracts shall apply. Since the complaint for annulment was anchored on a
claim of mistake, the action should have been brought within four (4) years from its
discovery. Petitioners' action is already barred by laches, which operates not really to
penalize neglect or sleeping on one's rights. As mortgagors desiring to attack a mortgage
as invalid, petitioners should act with reasonable promptness, else its unreasonable
delay may amount to ratification.

Case 141
Mariano C Mendoza and Elmira Lim vs. Spouses Leonora and Gabriel Gomez
GR No. 160110

FACTS:
As a result of a vehicular collision resulting from the driver’s negligence, respondents
suffered physical injuries and the Isuzu truck sustained extensive damages. Respondents
argued that although the registered owner of the bus was Lim, the actual owner of the bus
was Cirilo Enriquez, who had the bus attached with Mayamy Transportation Company under
the so called “Kabit System”. Respondents then impleaded both Lim and Enriquez.

ISSUE:
Who is Liable? Who is deemed Mendoza driver employer? Is it Enriquez the actual owner of
the bus? Or Lim the registered owner of the bus?

RULING:
The registered owner is deemed the employer of the negligent driver, and is thus
vicariously liable under Article 2176, in relation to Article 2180 of the Civil Code. The
registered owner of the motor vehicle is the employer of the negligent driver, and the actual
employer is considered merely as an agent of such owner. Thus, whether there is an
employee-employer relationship between the registered owner and the driver is irrelevant
in determining the liability of the registered owner who the law holds primarily and
directly responsible for any accident, injury or death caused by the operation of the vehicle
in the streets and highways.
This does not mean that Lim is left without any recourse against Mendoza and Enriquez.
Under the Civil law, the principle of unjust enrichment, the registered owner of the vehicle
has the right to be indemnified by the actual employer of the driver, and under 2181 of the
Civil Code, whoever pays for the damage caused by his dependents or employees may
recover from the latter what he has paid or delivered in satisfaction of the claim.

Case 142
SPOUSES EDUARDO AND LYDIA SILOS vs. PHILIPPINE NATIONAL BANK
G. R. NO.181045 JULY 2, 2014

FACTS:
Spouses Eduardo and Lydia Silos secured a revolving credit line with Philippine National
Bank (PNB) through a real state mortgage as a scrutiny. After two years, their credit line
increased. Spouses Silos then signed a Credit Agreement, which was also amended two
years later, and several Promissory Notes (PN) as regards their Credit Agreements with
PNB. The said loan was initially subjected to a 19.5% interest rate per annum. In the Credit
agreements, Spouses Solis bound themselves to the power of PNB to modify the interest
rate depending on whatever policy that PNB may adopt in the future, without the need of
notice upon them. Thus, the said interest rates played from 16% to as 32% per annum.
Spouses Silos acceded to the policy by pre-signing a total of twenty six (26) PNs leaving the
individual applicable interest rates at hand blank since it would be subject to modification
by PNB.

Spouses Silos regularly renewed and made good on their PNs, religiously paid the interests
without objection or fail. However, during the 1997 Asian Financial Crisis, Spouses Silos
faltered when the interest rates soared. Spouses Silos’ make good on the note. Thus, PNB
foreclosed and auctioned the involved security for the mortgage. Spouses Silos instituted
an action to annul the foreclosure sale on the ground that the succeeding interest rates
used in their loan agreements was left to the sole will of PNB, the same fixed by the latter
without their prior consent and thus, void. The regional Trial Court (RTC) ruled that such
stipulation authorizing both the increase and decrease of interest rates as may be
applicable is valid. The Court of Appeals(CA) affirmed the RTC decision.

ISSUE:
May the bank, on its own, modify the interest rate in a loan agreement without violating the
mutuality of contracts?

RULING:
No. Any modification in the contract, such as the interest rates, must be with the consent of
the contracting parties. The minds of all parties must meet as to the proposed
modifications, espicially when it affects an important aspect of the agreement. In the case of
loan agreements, the rate of interest is a principal condition, if not the most important
component.

Loans and credit arrangements may be made enticing by, or “sweetened with, offers of low
initial interest rates, but actually accompanied by provisions written in fine print that allow
lenders to later on increase or decrease interest rates unilaterally, without the consent of
the borrower, and depending on complex and subjective factors. Because they have been
lured into these contracts by initially low interest rates, borrowers get caught and stuck in
the web of subsequent steep rates and penalties, surcharges and the like. Being ordinary
individuals or entitites, they naturally dread legal complications and cannot afford court
litigation, they succumb to whatever charges the lenders impose. At the very least,
borrowers should be charged rightly, but then again this is not possible in a one-sided
credit, system where the temptation to abuse is strong and the willingness to rectify is
made weak by the eternal desire to profit.

Case 143
LANDBANK vs. HEIRS OF SPOUSES SORIANO
GR. NO. 178312 JANUARY 30, 2012

FACTS:
Marivel Carandang and Joseph Soriano are the children of the late Jorja Rigor- Soriano and
Magin Soriano, the owners of the two parcels of land located in Macabucod, Aliaga, Nueva
Ecija. The properties became subject to Operation Land Transfer (OLT) and were valued by
the Land Bank and the Department of Agrarian Reform (DAR) at P10,000.00/hectare.
Contending that such valuation was too low compared to existing valuations of agricultural
lands, the heirs commenced an action for just compensation. They asked that a final
valuation of the properties be pegged at P1,800,000.00, based on Administrative Order No.
61, Series of 1992 and R.A. No. 6657. The RTC ordered Land Bank to pay the heirs the
amount P1,227,571.10 as just compensation.

Land Bank appealed to the CA. The CA denied the petition. Hence, Land Bank appealed to
the Supreme Court. During the pendency of the appeal, both parties entered into an
agreement re-evaluating the cost of the parcels of land. Thus, Land Bank submitted a
manifestation informing the High Court that the parties have already filed their Joint
Motion to Approve submitting their Agreement dated November 29, 2012.

ISSUE:
Whether or not the present appeal to the Supreme Court should be dismissed?

RULING:
The appeal should be closed and terminated.

The Agreement was a compromise that the parties freely and voluntarily entered into for
the purpose of finally settling their dispute in this case. Under Art. 2028 of the Civil Code, a
compromise is a contract whereby the parties, by making reciprocal concessions, avoid a
litigation or put an end to one already commenced. Accordingly, a compromise is either
judicial, if the objective is to put an end to a pending litigation, or extrajudicial, if the
objective is to avoid a litigation.

As a contract, a compromise is perfected by mutual consent. However, a judicial

compromise, while immediately binding between the parties upon its execution, is not
executory until it is approved by the court and reduced to a judgment. The validity of a
compromise is dependent upon its compliance with the requisites and principles of
contracts dictated by law. Also, the terms and conditions of a compromise must not be
contrary to law, morals, good customs, public policy and public order. A review of the terms
of the Agreement, indicates that it is a judicial compromise because the parties intended it
to terminate their pending litigation by fully settling their dispute.

Case 144
MANUEL LAGUNZAD vs. MARIA SOTO VDA. DE GONZALES and THE COURT OF
APPEALS
G.R. No. L-32066 August 6, 1979

FACTS:
Petitioner Manuel Lagunzad, a newspaperman, began the production of a movie entitled
"The Moises Padilla Story" under the name of his own business outfit, the "MML
Productions." It was based mainly on the copyrighted but unpublished book of Atty.
Ernesto Rodriguez, Jr., entitled "The Long Dark Night in Negros" subtitled "The Moises
Padilla Story," the rights to which petitioner had purchased from Atty. Rodriguez in the
amount of P2,000.00. 

The book narrates the events which culminated in the murder of Moises Padilla sometime
between November 11 and November 17, 1951. Padilla was then a mayoralty candidate of
the Nacionalista Party (then the minority party) for the Municipality of Magallon, Negros
Occidental, during the November, 1951 elections.

Petitioner received a telephone call from one Mrs. Nelly Amante, half-sister of Moises
Padilla, objecting to the filming of the movie and the "exploitation" of his life. Mrs. Amante,
for and in behalf of her mother, private respondent, demanded in writing for certain
changes, corrections and deletions in the movie. Petitioner contends that he acceded to the
demands because he had already invested heavily in the picture to the extent of mortgaging
his properties, in addition to the fact that he had to meet the scheduled target date of the
premiere showing.

After some bargaining as to the amount to be paid, which was P50,000.00 at first, then
reduced to P20,000.00,

Traversing the Complaint, petitioner contended in his Answer that the episodes in the life
of Moises Padilla depicted in the movie were matters of public knowledge and occurred at
or about the same time that the deceased became and was a public figure; that private
respondent has no property right over those incidents; that the Licensing Agreement was
without valid cause or consideration and that he signed the same only because private
respondent threatened him with unfounded and harassing action which would have
delayed production; and that he paid private respondent the amount of P5,000.00 in
October, 1961, only because of the coercion and threat employed upon him. By way of
counterclaim, petitioner demanded that the Licensing Agreement be declared null and void
for being without any valid cause; that private respondent be ordered to return to him the
amount of P5,000.00; and that he be paid P50,000.00 by way of moral damages, and
P5,500.00 as attorney's fees.

ISSUE:
Whether or not the Licensing Agreement entered into by the petitioner and respondents is
valid.

RULING:
Yes. A contract is valid even though one of the parties entered into it against his own wish
and desires, or even against his better judgment. In legal effect, there is no difference
between a contract wherein one of the contracting parties exchanges one condition for
another because he looks for greater profit or gain by reason of such change, and an
agreement wherein one of the contracting parties agrees to accept the lesser of two
disadvantages. In either case, he makes a choice free and untrammelled and must
accordingly abide by it.

The Licensing Agreement has the force of law between the contracting parties and since its
provisions are not contrary to law, morals, good customs, public order or public policy (Art.
1306, Civil Code), petitioner should comply with it in good faith.

Case 145
LORENZO VELASCO and SOCORRO J. VELASCO vs. HONORABLE COURT OF APPEALS
and MAGDALENA ESTATE, INC.
G.R. No. L-31018 June 29, 1973

FACTS:
The Velasco family leased a property from Magdalena Estates, and sometime in1962
offered to purchase the lot which Lorenzo Velasco, thru Socorro Velasco, made a P10K
deposit. When plaintiff tendered an amount of P20K to Magdalena, it was not accepted.
Defendant avers that it refused to accept the tendered payment as it considered the offer
to sell rescinded for failure of petitioner to complete the down payment before Dec 1962.
The plaintiff avers that there was a perfected contract to sell by virtue of the deposit if
P10K as down payment. Petitioners initially filed a motion for specific performance to
compel defendants to execute the sale which was dismissed and for moral and exemplary
damages. Upon appeal, petitioners were required by CA to file their printed record on
appeal within 60 days from receipt. Subsequently, petitioners sent CA and Magdalena
Estates a motion for Extension of Time on ground of failures in the printing machines.
Respondents then filed a motion to dismiss the appeal of the petitioners which was
granted by the CA on grounds that the motion for extension which was supposedly filed by
petitioners on Jan 15, 1969 was filed at a later date beyond the required time; and that the
carrier of Makati Post office was merely induced to postmark the letters addressed to CA
and counsel for respondent Jan 15, 1969.

ISSUES:
a. Whether the CA gravely abused its discretion in rendering its decision dismissing the
appeal of the petitioners? No. the CA found that the petitioners failed to file the printed
record on appeal on time; thus it was proper to dismiss the motion for the extension.

b. Whether the agreement of Velasco and Magdalena Estates was a perfected deed of sale?
No. The contracting parties failed to meet and agree as to the manner of payment of down
payment and installments. An agreement on the manner of payment is an essential element
in a contract of sale.

RULING:
The CA did not act arbitrarily on grounds that the fact that registry receipts are dated Jan
15 does not establish an unrebuttable presumption of the real date of mailing as evidenced
by the testimonies of Malindog, a postmaster of the Makati Post Office. As petitioners failed
to comply with its duty of filing the printed record on appeal within 60 days of receipt
thereof, their motion for the extension of period to file printed record is deemed inexistent.
There was no perfected contract of sale because the minds of the parties did not meet as
regards to the manner of payment. Petitioners also admit that they and respondents still
had to meet how and when the down payment and installment payments were to be paid. A
definite agreement on the manner of payment of the purchase price is an essential element
in the formation of a binding contract of sale. The fact that a deposit of P10K is made does
not prove the perfection of any purchase and sale agreement.

Case 146
YOLANDA PALATTAO vs. THE COURT OF APPEALS
G.R. NO. 131726 MAY 7, 2002

FACTS:
Yolanda Palattao entered into a contract of lease with Marcelo Co involving a house and a
490-square-meter lot. The term of the lease for three years from January 1, 1991 to
December 31, 1993, renewable at the option of the parties, with an agreed monthly rental
of P7,500.00, P8,000.00, and P8,500 for the first, second, and third year, respectively. The
contract gave lessee the first option to purchase the leased property.

In a letter dated April 2, 1993, Palattao offered to sell the 413.28 square meters of the
property to Co at P7,800.00 per square meter. In his reply dated April 15,1993, Co
informed Palattao that he is definitely exercising his option to buy however, he manifested
his intention to buy the whole 490 square meter property and inquired on the reason why
Palattao is not selling the whole property. In a letter dated November 6, 1993, Palattao
made a final offer at P7,500.00 per square meter, 50% downpayment upon signing of the
contract of conditional sale, the balance payable in one year with a monthly payment of
P14,000 payable on or before fifth of every month. The offer was accepted by Co on
November 7, 1993 which was acknowledge by Palattao.

Palattao gave Co until November 24, 1993 to pay the downpayment and stressed that
failure to pay on the stipulated period will enable her to sell the property to another and
that she is no longer renewing the lease agreement. There was no acceptance by Co of the
terms proposed rather he manifested his intention to renew their lease contract for
another three years, which was rejected by Palattao instead demanded that Co vacate the
premises. Co refused to and filed a case for specific performance.

ISSUE:
Whether or not there was a perfected contract.

RULING:
NO. 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 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.

Case 147
Liam Law vs. Olympic Sawmill Co. and Elino Lee Chi
G.R. No. L-30771 May 28, 1984

FACT:
Liam Law loaned P10,000.00 without interest to the Olympic Sawmill Co. and Elino Lee Chi,
as the managing partner. When the loan became due, the debtors asked for extension and
another loan was executed, extending the payment of the loan and adding P6,000.00 as
answer for attorney’s fees, legal interest and other cost incident thereto.

Law filed a collection case when the defendants were unable to pay the second time. The
CFI of Bulacan decided in favor of the plaintiff. On appeal, the Court of Appeals endorsed
the case to the Supreme Court, stating that the issue involved was one of law.

ISSUE:
Whether or not the agreement to pay P6,000.00 in addition to the principal obligation is
lawful.

RULING:
Yes. Article 1354 of the Civil Code states that: Article 1354. Although the cause is not stated
in the contract, it is presumed that it exists and is lawful, unless the debtor proves the
contrary.
In relation to the case, the agreement of the parties relative to the P6,000.00 obligation,
without an evidentiary hearing, it has to be concluded that defendants had not proven that
the P6,000.00 obligation was illegal. Hence, it is presumed that the agreement of the parties
relative to the P6,000.00 exists and is lawful.
Case 148
PENTACAPITAL INVESTMENT CORPORATION vs. MAKILITO B. MAHINAY,
GR No. 171736 2010-07-05

FACTS:
Petitioner filed a complaint for a sum of money against respondent Makilito Mahinay based
on two separate loans obtained by the latter, amounting to P1,936,800.00. These loans
were evidenced by two promissory notes dated February 23, 1996. Despite repeated
demands, respondent failed to pay the loans.
In his Answer with Compulsory Counterclaim, respondent claimed that petitioner had no
cause of action because the promissory notes on which its complaint was based were
subject to a condition that did not occur.

ISSUE:
Whether or not the doctrine of piercing the corporate veil may be invoked and applied in
order to evade an obligation and facilitate procedural wrongdoing

RULING:
To ascertain whether or not respondent is bound by the promissory notes, it must be
established that all the elements of a contract of loan are present. Like any other contract, a
contract of loan is subject to the rules governing the requisites and validity of contracts in
general.

Respondent Makilito B. Mahinay is ordered to pay petitioner Pentacapital Investment

Corporation P1,936,800.00 plus 12% interest per annum, and 12% per annum penalty
charge, starting February 17, 1997. He is likewise ordered to pay 10% of his outstanding
obligation as attorney's fees.

Case 149
Heirs of Ureta vs. Heirs of Liberato Ureta
G.R. No. 165748 September 14, 2011

FACTS:
Francisco, who was then a municipal judge, suggested that in order to reduce the
inheritance taxes, their father should make it appear that he had sold some of his lands to
his children. Accordingly, Alfonso executed four (4) Deeds of Sale covering several parcels
of land in favor of his children Policronio, Liberato, Prudencia, and his common-law wife,
Valeriana Dela Cruz. On April 19, 1989, Alfonso’s heirs executed a Deed of Extra-Judicial
Partition, which included all the lands that were covered by the four (4) deeds of sale that
were previously executed by Alfonso for taxation purposes.

After their father’s death, the Heirs of Policronio found tax declarations in his name
covering the six parcels of land. Believing that the six parcels of land belonged to their late
father, and as such, excluded from the Deed of Extra-Judicial Partition, the Heirs of
Policronio sought to amicably settle the matter with the Heirs of Alfonso. Earnest efforts
proving futile, the Heirs of Policronio filed a Complaint for Declaration of Ownership,
Recovery of Possession, Annulment of Documents, Partition, and Damages against the Heirs
of Alfonso. RTC ruled in favor of the Heirs of Alfonso in a decision. The CA affirmed the
finding of the RTC that the Deed of Sale was void.

ISSUES:
Whether or not the Deed of Sale was valid

RULING:
The Court finds no cogent reason to deviate from the finding of the CA that the Deed of Sale
is null and void for being absolutely simulated. The Civil Code provides:
Art. 1345. Simulation of a contract may be absolute or relative. The former takes place
when the parties do not intend to be bound at all; the latter, when the parties conceal their
true agreement.

Art. 1346. An absolutely simulated 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.

Case 150
Weldon Construction Corporation vs. Court of Appeals
G.R. L-35721 October 12, 1987

FACTS:
Petitioner Weldon Construction Corporation is asking for a commission of P63,378.82,
which is 10% of the total cost of the construction of the Gay Theater building, and
P23,788.32 as cost for the additional works. But, the respondent Manuel Cancio, refused to
pay the amount demanded by the petitioner on the ground that the stipulated price of
P600,000.00 have already been paid. The basis for the claim for commission is an alleged
contract of supervision of construction between the theater owner Manuel Cancio, herein
private respondent, and the petitioner’s predecessors-in-interest, Weldon Construction,
which the petitioner seeks to enforce. The CFI of Manila ruled in favor of the petitioner, but
the Court of appeals reversed the lower court’s decision. Hence this petition.

ISSUE:
Whether or not the respondent has an obligation to pay for the ten percent commission
and the additional works to the petitioners.

RULING:
No, there is no basis for the petitioner’s demand for the said commission and additional
works. This is govern by Article 1724 which provides that the contractor who undertakes
to build a structure or any other work for a stipulated price, in conformity with plans and
specifications agreed upon with the landowner can neither withdraw from the contract nor
demand an increase in the price on account of the higher cost of labor or materials, save
when there has been a change in the plans and specifications, provided that 1) such change
has been authorized by the proprietor in writing, and 2) the additional price to be paid to
the contractor has been determined in writing by both parties. In the absence of a written
authority by the owner for the changes in the plans and specifications of the building and of
a written agreement between the parties on the additional price to be paid to the
contractor, as required by Article 1724, the claim for the cost of additional works on the
Gay Theater building must be denied.

Case 151
Lao Sok vs. Sabaysabay
G.R. No. L-61898 August 9, 1985

FACTS:
Lao Sok owned and operated the Shelton Department Store located at Quiapo, Manila.
Lydia Sabaysabay, et al. were sales ladies. On the day the department store was caught on
fire, Lao Sok promised to transfer the sales ladies to other department stores. This,
however, did not materialize. The Sales ladies filed a case against Lao Sok for illegal
dismissal and non-payment of their separation pay.

ISSUE:
Whether or not petitioner Lao Sok is obligated to pay the private respondent’s separation
pay.

RULING:
Yes. Lao Sok’s obligation to pay severance is not based on his failure to make a report or to
ask a prior clearance as reiterated in Sections 10 and 11 of the Labor Code.

Case 152
Gallardo vs. Honorable Intermediate Appellate Court
G.R. No. L-67742 October 29, 1987

FACTS:
On August 10, 1937, petitioner claimed that the a parcel of land was sold to them in
a private document, an unnotarized deed of sale written in Tagalog that was
allegedly signed by the late Pedro Villanueva conveying and transferring the
property in question in favor of the petitioners. When petitioners learned of an
Affidavit of Adverse Claim, attempts were made to settle said controversy amicably, but
they failed. Hence this case.

ISSUE:
Whether or not the unnotarized deed of sale can be considered as a valid instrument for
effecting the alienation by way of sale of a parcel of land registered under the Torrens
System.

RULING:
No. The general rule enunciated in said Art. 1356 is that contracts are obligatory, in
whatever form they may have been entered, provided all the essential requisites
for their validity are present, except when the law so requires requiring a contract
to be in some form for validity or enforceability.

Said law is Section 127 of Act 496 which requires, among other things, that the conveyance
be executed "before the judge of a court of record or clerk of a court.

Case 153
EMILIO BUGATTI vs. COURT OF APPEALS
G.R. No. 138113 October 17, 2000

FACTS:
Respondents are the owners of a parcel of land and the petitioner offered to lease their
land. They discussed the terms and conditions of the lease with the petitioner. They agreed
that the terms and conditions should be included in the written contract of lease to be
prepared by petitioner and presented to respondents for their approval. However, even
before preparing the contract of lease, petitioner occupied respondents’ land and began
construction. Respondent demanded that the contract of lease should first be signed.
However, the petitioner assured respondents that he was preparing the contract. When the
petitioner finally presented the lease contract to respondents, it did not contain the terms
and conditions previously agreed upon. Respondents insisted that the petitioner re-draft
the contract in accordance with their discussions. The revised document contained
counter-proposals. Respondents refused to accede to such counter-proposals. Despite the
fact that no contract was signed by the parties, petitioner continued to occupy respondents’
land.

ISSUE:
Whether or not there is a perfected contract of lease.

RULING:
No. In the first week where they discussed the terms and conditions, they were merely
negotiating. 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. There was no meeting of the
minds therefore, there was no perfected contract of lease.

Case 154
TONG Brothers Co. vs. IAC and Juliano and Company
GR No. 73918 December 21, 1987

FACTS:
On December 1974, the Juliano and Comp. brought the Zamboanga-J to the defendant-
appellant's backyard. The defendant-appellant asked for a deposit of 15,000 but even it
was not yet paid, they dry-docked the vessel. The payment of the 15,000 was paid in the
form of 2 checks as initial deposit for the said repair. On the ground that the petitioner did
not complete all the work necessary, essential and indispensable to rendering the vessel
seaworthy resulting in its deterioration and total loss, the respondent filed a complaint
against the petitioner.

The CFI of Cotabato held in favor of the private respondent. It was appealed on the higher
court, petitioner contended that before accepting the job, it wanted to have the respondent
sign a written contract with an initial down payment of 50,000. Moreover, the removal of
the rudders and pulling out of the tail shafts with propellers were standard operating
procedures to inspect the condition. It did not amount to the commencement of the repair
of the vessel or partial compliance with a contract to repair the vessel. The series of their
communication from Jan. 14 to 28, 1975 through telegrams showed that there was no
perfected contract to repair the vessel.

ISSUE:
Whether or not there was a perfected contract between the petitioner and the respondent
to repair the vessel of Zamboanga-J.

RULING:
There was not yet meeting of the minds as to the cause of contract. The SC ruled that the
lower court committed reversible error. It was shown through the telegram that the
petitioner had not yet consented to the contract and the fact that the private respondent
ignored the telegram, confirms that there was no perfected contract to repair Zamboanga-J.
Art. 1319 of CC provides that: "Consent is manifested by the meeting of the offer and the
acceptance upon the thing and the cause which are to constitute the contract. The
offer must be certain and the acceptance absolute. A qualified acceptance constitutes a
counteroffer."

Case 155
NICOLAS SANCHEZ vs. SEVERINA RIGOS
G.R. No. L-25494 June 14, 1972

FACTS:
Nicolas Sanchez and Severina Rigos executed an instrument entitled “Option to Purchase”
wherein Mrs. Rigos agreed, promised and committed to sell to Mr. Sanchez a parcel of land
for the amount of P1,510 within two years from the date of the instrument, with the
understanding that the said option shall be deemed terminated and elapsed if Mr. Sanchez
shall fail to exercise his right to buy the property within the stipulated period.

Mrs. Rigos agreed and committed to sell and Mr. Sanchez agreed and committed to buy. But
there is nothing in the contract to indicate that her agreement, promise and undertaking is
supported by a consideration distinct from the price stipulated for the sale of the land.
Mr. Sanchez has made several tenders of payment in the said amount within the period
before any withdrawal from the contract has been made by Mrs. Rigos, but were rejected
nevertheless.

ISSUE:
Was there a contract to buy and sell between the parties or only a unilateral promise to
sell?

RULING:
No. Since there may be no valid contract without a cause or consideration, the promisor is
not bound by his promise and may, accordingly, withdraw it. Pending notice of its
withdrawal, his accepted promise partakes, however, of the nature of an offer to sell which,
if accepted, results in a perfected contract of sale.

However, it is not Article 1354 but the Article 1479 of the same Code which is controlling in
the case at bar because the latter’s 2nd paragraph refers to "sales" in particular, and, more
specifically, to "an accepted unilateral promise to buy or to sell." Since there may be no
valid contract without a cause or consideration, the promisor is not bound by his promise
and may, accordingly, withdraw it. Pending notice of its withdrawal, his accepted promise
partakes, however, of the nature of an offer to sell which, if accepted, results in a perfected
contract of sale. Upon mature deliberation, the Court reiterates the doctrine laid down in
the Atkins case and deemed abandoned or modified the view adhered to in the
Southwestern Company case.

Case 156
CITIZENS SURETY and INSURANCE COMPANY, INC. vs. COURT OF APPEALS and
PASCUAL M. PEREZ
G.R. No. L-48958 June 28, 1988

FACTS:
The petitioner issued two surety bonds to guarantee compliance by the principal
Pascual M. Perez Enterprises of its obligation under a "Contract of Sale of
Goods” entered into with the Singer Sewing Machine Co. In consideration of the issuance
of the bonds, Perez executed two indemnity agreements obligating to indemnify the
petitioner jointly and severally, whatever payments advances and damage it may suffer
or pay as a result of the issuance of the surety bonds. In addition Perez
Enterprises was also required to put up a collateral security and Perez executed a deed
of assignment. Perez Enterprises failed to comply with its obligation under the
contract of sale of goods. Petitioner paid the two surety except for partial payments
and Perez Enterprises failed to reimburse the petitioner for the losses it sustained
under the said surety bonds.

ISSUE:
Whether or not the administrator's obligation under the surety bonds and indemnity
agreements had been extinguished by reason of the execution of the deed of assignment.
RULING:
The SC reiterated in an earlier case Lopez v CA: The respondent court stated that "by virtue
of the execution of the deed of assignment, ownership of administrator-appellant's lumber
materials had been transferred to the claimant-appellant and this amounted to dation
in payment whereby the former is considered to have alienated his property in favor of the
latter in satisfaction of a monetary debt (Article1245). As a consequence thereof,
administrator-appellant's obligation under the surety bonds is thereby extinguished upon
the execution of the deed of assignment." This statement is not sustained by the records. LL
phil The transaction could not be dation in payment. As pointed out in the concurring and
dissenting opinion of Justice Edgardo L. Paras and the dissenting opinion of Justice Mariano
Serrano when the deed of assignment was executed on December 4, 1959, the obligation of
the assignor to refund the assignee had not yet arisen. In other words, there was no
obligation yet on the part of the petitioner, Citizens' Surety and Insurance Co., to pay Singer
Sewing Machine Co. There was nothing to be extinguished on that date, hence, there could
not have been a dation in payment.

The deed of assignment cannot be regarded as an absolute conveyance whereby the

obligation under the surety bonds was automatically extinguished.

WHEREFORE, the petition is hereby DISMISSED.

Case 157
LIM YHI LUYA vs. COURT OF APPEALS and HIND SUGAR COMPANY
G.R. No. L-40258 September 11, 1980

FACTS:
Lim YhiLuya (Lim) and Hind Sugar Company (Hind) since 1958 have had business dealings
with each other, the company selling sugar to Lim and Hind has been supplying the
company with diesoline, gasoline, muriatic acid, sulfuric acid, other supplies and materials
ordered on credit. On November 12, 1970, Lim received a telegram from Hind in the
following tenor: "Please come tomorrow morning without fail."The following day, Lim
proceeded to Hind, the latter offered to sell sugar at P37.00 per picul. The parties agreed to
the purchase of 4,085 piculs of sugar at P35.00 per picul. The contract of sale was prepared
by Hind and one of the specific terms of the contract stipulates that the term of payment
iscash upon signing of the contract. On the same day and in compliance with the contract,
four delivery orders were issued to Lim covering the total quantity of sugar sold, 4,085
piculs. Between November 13, 1970 to January 27, 1971, Hind withdrew from the company
warehouse in varying quantities a total amount of 3,735 piculs, leaving a balance of 350
piculs undelivered.

On January 22, 1971, the question of payment cropped between the parties. Lim claimed
that he had paid P142,975.00 to the company officials on November 13, 1970 and as proof
of his payment, he referred to the stipulation of the contract, stating "Terms: Cash upon
signing of this contract." Hind denied the claim of Lim, alleging that the latter never paid for
the sugar on November 13, 1970 or at any time thereafter. An audit report or examination
of the books of the company showed no payment by Lim.
ISSUE:
Whether Lim has paid the sum of P142,975.00 which is the purchase price of the 4,085
piculs of sugar covered by the contract of sale between the parties?

RULING:
Yes, the stipulation in the contract which reads: "Terms: Cash upon signing of this contract"
is very clear and simple in its meaning, leaving no doubt upon the intention of the
contracting parties, hence, the governing rule at hand under Art. 1370 of the New Civil
Code, “If the terms of a contract are clear and leave no doubt upon the intention of the
contracting parties, the literal meaning of its stipulation shall control. If the words appear to
be contrary to the evident intention of the parties, the latter shall prevail over the former.“The
interpretation to be taken shall not favor Hind since it is the party who caused the
ambiguity in its preparation and under Art. 1377 of the New Civil Code, “The interpretation
of obscure words or stipulations in a contract shall not favor the party who caused the
obscurity. “

Case 158
AURELIO G. BRIONES vs. PRIMITIVO P. CAMMAYO, ET AL.
G.R. No. L-23559 October 4, 1971

FACTS:
On February 22, 1962, the plaintiff file an action against the defendants to recover the
amount of P1,500.00, plus damages, attorney’s fees and cost of suit.

The defendant alleged that they executed a real estate mortgage as security for the loan of
P1,200.00 upon an usurious agreement that they would pay the plaintiff and that the
plaintiff reserve and secure out of the alleged loan of P1,500.00 as an interest the sum of
P300.00 for one year; that although the mortgage contract was executed for securing the
payment of P1,500.00 for a period of one year, without interest, in truthis that plaintiff
delivered to the defendant only the sum of P1,200.00 and withheld the sum of P300.00
which was intended as advance interest for one year; that on account of the said loan, the
defendant paid the plaintiff the sum of P330.00 which the plaintiff, illegally and unlawfully
refuse to acknowledge as part payment of the account but as in interest of the said loan an
extension of another term of one year; thus the said contract of loan is usurious contract
and therefor inexistent and void from the beginning.

ISSUE:
Whether or not the plaintiff is entitled to collect from the defendant the principal obligation
and the interest thereon, and if so, at what rate?

RULING:
Yes. The plaintiff may recover the principal of the loan, with interest at the legal rate of 6%
per annum from the date of the filing of the complaint.
Under Act 2655, an usurious contract is void, the creditor has no right of action to recover
the interest in excess of the lawful rate, but this does not mean that the debtor may keep
the principal received by him as loan, thus unjustly enriching himself to the damage of the
creditor.

Case 159
Asian Cathay Finance and Leasing Corporation vs. Sps. Cesario Gravador & Norma
Vera
G.R. No. 186550 July 5, 2010

FACTS:
On October 22, 1999, petitioner extended a loan of Eight Hundred Thousand Pesos to
respondent Cesario Gravador with Norma de Vera and Emma Concepcion Dumigpi as co-
makers. The loan was payable in sixty (60) monthly installments of 24,400.00 pesos each.
To
secure the loan, respondent Cesario executed a real estate mortgage over his property in
Sta.
Maria, Bulacan covered by TCT No. T29234. Respondent was able to pay the initial
installment due in November 1999 but were unable to pay the subsequent ones.
Consequently, on February 1, 2000, the respondents received a letter demanding payment
of P 1,871,480.00 within five (5) days from the receipt thereof. The respondent asked for
an
extension to settle their obligation but the petitioner refused. Petitioner then filed a
petition
for the extrajudicial foreclosure of mortgage with the Office of the Deputy Sheriff of
Malolos,
Bulacan. On April 7, 2000, respondents filed a suit for annulment of real estate mortgage
and
promissory note with damages and a prayer for issuance of T.R.O. Respondents averred
that
there was no reference on the maturity date of the loan, the interest rate and the mode of
payment and it illegally impose liquidated damages.

ISSUE:
Whether or not the imposition of interest is valid

RULING:
The answer is in the Negative. The petitioner failed to show any computation on how the
interests rates were computed as well as the penalties charged. It is noteworthy that in a
span of three months, the respondents’ obligation ballooned by more than One Million
Pesos. Thus the imposition of the amount claimed is unconscionable. Stipulations
authorizing the imposition of iniquitous or unconscionable interest are contrary to morals,
if not against the
law. Under Article 1409 of the Civil Code, these contracts are inexistent and void from the
beginning.
Case 160
Daisy B. Tiu, vs. Platinum Plans Phil., Inc.
G.R. NO. 163512 February 28, 2007

FACTS:
Daisy B. Tiu was re-hired by Platinum Plans Phil., Inc. as a Senior Assistant Vice-President
and Territorial Operations Head. A contract of employment, valid for 5 years, was executed
by both parties on January 1, 1993 and contained a non-involvement clause stating that the
employee (Tiu) may not be involved in any corporation engaged in the same business or
industry as that of the employer 2 years after the employee’s separation from the company.
Tiu became Vice-President for Sales of another corporation also engaged in the same pre-
need industry on November 1995. Respondent sued for damages, while petitioner
countered by saying that such non-involvement clause was unenforceable for being against
public order or public policy since it does not allow her to engage in the only line of work
she knows.

ISSUE:
Whether or not the non-involvement clause is contrary to public policy

RULING:
No. Art. 1306 of the Civil Code provides that, the contracting parties may establish such
stipulations, clauses, terms and conditions as they may deem convenient, provided they are
not contrary to law, morals, good customs, public order, or public policy.

Also, Art. 1159 of the same Code provides that, Obligations arising from contracts have the
force of law between the contracting parties and should be complied with in good faith. The
Court has ruled that “a non-involvement clause is not necessarily void for being in restraint
of trade as long as there are reasonable limitations as to time, trade, and place.” Also, by
virtue of the position she once held, where she was privy to highly confidential information
regarding respondent’s business, such non-involvement clause provides sufficient
protection for the respondent and is thus not contrary to public welfare. Therefore, such
agreement must be complied with by both parties in good faith.

Case 161
Cariño vs. CA
GR 47661 July 31, 1987

FACTS:
Pablo Encabo applied with the Bureau of Lands, to purchase a parcel of land which was
granted. Later an agreement of transfer was made. LTA (Land Tenure Administration),
unaware of the transfer of rights by Encabo to Quesada, adjudicated the lot in favor of
Encabo, and LTA and Encabo signed an Agreement to Sell. LTA later came to know about
the "transfer" of rights from Encabo to Quesada. However, before the LTA's disapproval of
the transfer of Encabo's rights to Quesada, the latter had entered into possession of the lot
in question. Cariñ o filed a petition with the LTA seeking approval of the transfer to herein
petitioners of rights to the lot in question. LTA rendered a decision holding that the status
quo should be maintained. The Cariñ os appealed the decision of the LTA to the Office of the
President. The Cariñ os refused to give up the possession of the lot despite the rulings of the
LTA and the Office of the President; thereafter, the Encabos filed an action in the Court of
First Instance of Manila to declare them as the owners of the lot. After hearing and trial, the
lower court rendered decision in favor of the plaintiffs therein the Encabos. Hence, this
petition.

ISSUE:
Whether or not the court erred in rendering decision in favor of respondent.

HELD:
No, the petitioners herein have nothing else to support their claim over the disputed lot
except for the Deed of Sale, Exhibit "D-1" which is even unnotarized, and the exact date of
execution, unknown. Whereas, on the other hand, the private respondents clearly have a
preponderance of evidence negating the validity of such deed. Contracts of sale are void
and produce no effect whatsoever where the price, which appears therein as paid, has in
fact never been paid by the vendee to the vendor. The Civil Code provides Art. 1409. The
following contracts are inexistent and void from the beginning: xx (2) Those which are
absolutely simulated or fictitious; xx These contracts cannot be ratified. Neither can the
right to set up the defense of illegality be waived. Furthermore, even without going into the
merits, it is clear that there has been no legal transfer of rights in favor of the Cariñ os
because neither the LTA nor the Land Authority has approved or given due course to such
transfer of rights. The LTA never waived its right to approve the transfer of rights. Since no
approval or due course has yet been given by the LTA or LA to such transfer of rights, the
document Exhibit "D-1" is not enforceable against the latter.

Case 162
VALIDITY OF CONTRACTS HEIRS OF POLICRONIO M. URETA, SR. vs. HEIRS OF
LIBERATO M. URETA
G.R. NO. 165748 September 14, 2011

FACTS:
Alfonso, the father of Policronio and Liberato, he was financially well-off during his lifetime.
Sometime later, he executed four (4) deed of sale covering several parcels of land in favour
of his three (3) children, Policronio, Liberato, Prudencia, and Valeriana Dela Cruz, his
common-law wife, this was done in order to reduce the inheritance taxes. The deed of sale
executed in favour of Policornio 6 parcels of land.

Alfonso died, Liberato acted as the administrator of his father's estate. Alfonso’s heirs
executed a Deed of Extra-Judicial Partition, which included all the lands that were covered
by the four (4) deed of sale that were previously executed by Alfonso for taxation purposes.
The heirs of Policronio upon learning about the Extra-Judicial Partition sought to amicably
settle the matter with the heirs of Alfonso believing that the six parcels of land belonged to
their late father, Policronio. Earnest efforts proving futile, the Heirs of Policronio filed a
Complaint for Declaration of Ownership, Recovery of Possession, Annulment of Documents,
Partition, and Damages against the Heirs of Alfonso.
ISSUE:
WON the Deed of Sale was valid.

RULING:
Art. 1409. The following contracts are inexistent and void from the beginning:
(2) Those which are absolutely simulated or fictitious;

For guidance, the following are the most fundamental characteristics of void or inexistent
contracts:
1) As a general rule, they produce no legal effects whatsoever in accordance with the
principle "quod nullum est nullum producit effectum."
2) They are not susceptible of ratification.
3) The right to set up the defense of inexistence or absolute nullity cannot be waived or
renounced.
4) The action or defense for the declaration of their inexistence or absolute nullity is
imprescriptible.
5) The inexistence or absolute nullity of a contract cannot be invoked by a person whose
interests are not directly affected.

In the case at bar, Policronio never disclosed the existence of the Deed of Sale to his
children. This, coupled with Policronio’s failure to exercise any rights pertaining to an
owner of the subject lands, leads to the conclusion that he was aware that the transfer was
only made for taxation purposes and never intended to bind the parties thereto.
Furthermore, the most protuberant index of simulation of contract is the complete absence
of an attempt in any manner on the part of the ostensible buyer to assert rights of
ownership over the subject properties. Policronio’s failure to take exclusive possession of
the subject properties or, in the alternative, to collect rentals, is contrary to the principle of
ownership. Such failure is a clear badge of simulation that renders the whole transaction
void.

Case 163
Rubias vs. Batiller
GR No. L-35702 May 29, 1973

FACTS :
DOMINGO D. RUBIAS, plaintiff-appellant, a lawyer claim ownership to the land located in
Barrio General Luna, Barotac Viejo, Iloilo, which he bought in 1956 from his father-in-law ,
Francisco Militante, at a time when the latter's application for registration in which Atty.
Rubias was the counsel thereof , had already been dismissed by the land registration court
and was pending appeal in the Court of Appeals.

On April 22, 1960, the plaintiff filed a forcible Entry and Detainer case against Isaias Batiller
in the Justice of the Peace Court of Barotac Viejo, Province of Iloilo. However, defendant
claims the complaint of the plaintiff does not state a cause of action, the truth of the matter
being that he and his predecessors-in-interest have always been in actual, open and
continuous possession since time immemorial under claim of ownership of the portions of
the lot in question.

ISSUE:
Whether or not the contract of sale between appellant and his father-in-law was void
because it was made when plaintiff was counsel of his father-in-law in a land registration
case involving the property in dispute

RULING:
It can be noted that Atty Rubias acted as counsel of his father-inlaw during the land
registration case of such property. It is well settled that the  purchase  by  a  lawyer  of  the 
property  in  litigation  from  his  client  is categorically  prohibited  by  Article  1491, 
paragraph  (5)  of  the  Philippine  Civil Code, which prohibits in its six paragraphs certain
persons, by reason of the relation of trust or their peculiar control over the property, from
acquiring such property in their trust or control either directly or indirectly ;even at a
public or judicial auction; as follows: (1) guardians; (2) agents; (3) administrators;
(4)public officers and employees; judicial officers and employees, prosecuting attorneys,
and lawyers; and (6) others especially disqualified by law. Consequently,  plaintiff's 
purchase  of  the  property  in  litigation from his client was void and could produce no legal
effect, by virtue of Article 1409,  paragraph  (7)  of  our  Civil  Code.  Contracts  "expressly 
prohibited  or declared  void  by  law'  are  "inexistent  and  that  "(T)hese  contracts 
cannot  be ratified, neither can the right to set up the defense of illegality be waived.”
Hence, the contract is void and Domingo rubias can not claim ownership of the land.

Case 164
FRANCISCO A. TONGOY, for himself and as Judicial Administrator of the Estate
of the Late Luis D. Tongoy and Ma. Rosario Araneta Vda. de Tongoy vs. THE
HONORABLE COURT OF APPEALS, MERCEDES T. SONORA, JUAN T. SONORA,
JESUS T. SONORA, TRINIDAD T. SONORA, RICARDO P. TONGOY, CRESENCIANO P.
TONGOY, AMADO P. TONGOY, and NORBERTO P. TONGOY
G.R. No. L-45645

FACTS:
Patricio D. Tongoy and Luis Tongoy executed on April 29, 1933 a Declaration of
Inheritance wherein they declared themselves as the only heirs of the late Francisco
Tongoy and thereby entitled to the latter's share in Hacienda Pulo. On June 26, 1936,
Luis D. Tongoy executed a real estate mortgage over the Cuaycong property in favor
of the PNB, Bacolod Branch, as security for loan of P4,500.00. Three days thereafter,
on June 29, 1936, he also executed a real estate mortgage over Hacienda Pulo in favor
of the same bank to secure an indebtedness of P21,000.00, payable for a period of
fifteen (15) years at 8% per annum. After two decades, on April 17, 1956, Luis D.
Tongoy paid off all his obligations with the PNB. However, it was only on April 22,
1958 that a release of real estate mortgage was executed by the bank in favor of Luis
D. Tongoy.
Not long after the death of Luis D. Tongoy, on June 2, 1966 defendants alleging in sum
that plaintiffs and/or their predecessors transferred their interests on the two lots in
question to Luis D. Tongoy by means of simulated sales, pursuant to a trust
arrangement whereby the latter would return such interests after the mortgage
obligations thereon had been settled.

Among the actions raised, petitioners contend that causes of action, and maintaining,
among others, that the sale to Luis D. Tongoy of the two lots in question was genuine
and for a valuable consideration, and that no trust agreement of whatever nature
existed between him and the plaintiffs. As affirmative defenses, defendants also
raised laches, prescription, estoppel, and the statute of frauds against plaintiffs.
Answering defendants counter claimed for damages against plaintiffs for allegedly
bringing an unfounded and malicious complaint. CA modified RTC’s ruling in favor of
the respondents.

ISSUE:
Whether or not th rights of herein respondents over subject properties, which were
the subjects of simulated or fictitious transactions, have already prescribed.

RULING:
The deeds of transfer executed in favor of Luis Tongoy were from the very beginning
absolutely simulated or fictitious, since the same were made merely for the purpose
of restructuring the mortgage over the subject properties and thus preventing the
foreclosure by the PNB.

Here, articles 1409 and 1410 applies which states The following contracts are
inexistent and void from the beginning: which are absolutely simulated or fictitious;…
these contracts cannot be ratified. Neither can the right to set up the defense of
illegality be waived and the action or defense for the declaration of the inexistence of
a contract does not prescribe.

There is no implied trust that was generated by the simulated transfers; because
being fictitious or simulated, the transfers were null and void ab initio-from the very
beginning and thus vested no rights whatsoever in favor of Luis Tongoy or his heirs.
That which is inexistent cannot give life to anything at all.

Case 165
LITA ENTERPRISES, INC. vs. INTERMEDIATE APPELLATE COURT, NICASIO M.
OCAMPO and FRANCISCA P. GARCIA.
G.R. No. L-64693 April 27, 1984

FACTS:
Sometime in 1966, the spouses Nicasio M. Ocampo and Francisca Garcia, herein private
respondents, purchased in installment from the Delta Motor Sales Corporation five (5)
Toyota Corona Standard cars to be used as taxicabs. Since they had no franchise to operate
taxicabs, they contracted with petitioner Lita Enterprises, Inc., through its representative,
Manuel Concordia, for the use of the latter's certificate of public convenience in
consideration of an initial payment of P1,000.00 and a monthly rental of P200.00 per
taxicab unit. To effectuate Id agreement, the aforesaid cars were registered in the name of
petitioner Lita Enterprises, Inc, Possession, however, remained with tile spouses Ocampo
who operated and maintained the same under the name Acme Taxi, petitioner's trade
name.

About a year later one of said taxicabs driven by their employee, Emeterio Martin, collided
with a motorcycle whose driver, one Florante Galvez, died from the head injuries sustained
therefrom. A criminal case was eventually filed against the driver Emeterio Martin, while a
civil case for damages was instituted by Rosita Sebastian Vda. de Galvez, heir of the victim,
against Lita Enterprises, Inc., as registered owner of the taxicab in the latter case. Petitioner
Lita Enterprises, Inc. was adjudged liable for damages by the CFI.

This decision having become final, a writ of execution was issued. Two of the vehicles of
respondent spouses were levied upon and sold at public auction.
Thereafter, Nicasio Ocampo decided to register his taxicabs in his name. He requested the
manager of petitioner Lita Enterprises, Inc. to turn over the registration papers to him, but
the latter allegedly refused. Hence, he and his wife filed a complaint against Lita
Enterprises, Inc., Mrs. de Galvez and the Sheriff of Manila for reconveyance of motor
vehicles with damages.

ISSUE:
Whether or not petitioner has a cause of action against defendants.

RULING:
No. Unquestionably, the parties herein operated under an arrangement, commonly known
as the "kabit system", whereby a person who has been granted a certificate of convenience
allows another person who owns motors vehicles to operate under such franchise for a fee.
A certificate of public convenience is a special privilege conferred by the government .
Abuse of this privilege by the grantees thereof cannot be countenanced. The "kabit system"
has been Identified as one of the root causes of the prevalence of graft and corruption in the
government transportation offices. In the words of Chief Justice Makalintal, "this is a
pernicious system that cannot be too severely condemned. It constitutes an imposition
upon the good faith of the government.

Although not outrightly penalized as a criminal offense, the "kabit system" is invariably
recognized as being contrary to public policy and, therefore, void and inexistent under
Article 1409 of the Civil Code, It is a fundamental principle that the court will not aid either
party to enforce an illegal contract, but will leave them both where it finds them. Upon this
premise, it was flagrant error on the part of both the trial and appellate courts to have
accorded the parties relief from their predicament. Article 1412 of the Civil Code denies
them such aid. It provides:

ART. 1412. if the act in which the unlawful or forbidden cause consists does not constitute a
criminal offense, the following rules shall be observed:
(1) when the fault, is on the part of both contracting parties, neither may recover what he
has given by virtue of the contract, or demand the performance of the other's undertaking.
Having entered into an illegal contract, neither can seek relief from the courts, and each
must bear the consequences of his acts.

Case 166
FRANCISCA ARSENAL and REMEDIO ARSENAL vs. THE INTERMEDIATE APPELLATE
COURT,
G.R. No. L-66696 July 14, 1986

FACTS:
Defendants Palaos secured OCT FROM THE Registry of Deeds of Bukidnon for Lot 81 by
vitue of Homestead.

Patent granted to him. Palaos sold 4 hectares of land to Suralta. Spouses Arcenal became
tenants of an adjoining land hich was worked and cultivated by them. Subsequently, Palaos
executed a Deed of Sale for another portion of his landin favor of Arcenals. Later, Suralta
saw for the first time the Deed of Sale embracing the whole lot 81, thus filed a case against
Arcesal and Palaos. As a defense, Arcesal denied knowledge of the previous sale to Suralta
and claimed that the sale was aginst Public Law Land. On the other hand, Palaos stated that
Arcenal was informed of the previous sale to Suralta and that Arcenal took undue
advantage f thier ignorance and illiteracy and carried them to sign the document covering
the whole Lot 81.

ISSUE:
Within the Deed of Sale issued by Palaos in favor of Suralta was contrary with Public Land
Law.

RULING:
Under the Public Land Law, a cotract which purports of alienate, transfer, convey or
encumber any homestead within the prohibitory period of five years from the date of
issuance of the patent is void from its execution. Further, under the Civil Code a void
contract is inexistent from the beginning . It cannot ratified neither can the right to set up
the defense of its illegality be waived.Art. 1409. Void contracts.

Case 167
Manotok Reality, Inc. vs. Court of Appeals, et al
Gr no. L-45038
April 30, 1987
FACTS:
Clara Tambunting was the owner of the subdivision where the respondent was residing on,
on the condition that he would eventually buy said lot. When she died, her entire estate,
which included the lot occupied by the respondent, was placed under custodial legis. After
such death, respondent made a deposit for the lot, which was received by the husband of
the late owner. Apart from the initial deposit, no further payments were made. Later, the
husband was appointed as a special administrator of the estate. Meanwhile the private
respondent remained in possession of the lot in question. Subsequently, the petitioner
became the successful bidder and vendee of the deceased’s subdivision. In its effort to clear
the subdivision of its squatters and occupants, the petitioner caused the publication of
several notices advising the occupants to vacate their respective premises, otherwise, court
action with damages would follow. The private respondent was one of the many occupants
who refused to vacate the lots they were occupying, such that petitioner filed an action in
court to recover said lot. The RTC and the CA dismissed the petitioner's action.

ISSUE:
Whether or not it is within the capacity of the husband of the deceased to dispose of the lot.

RULING:
No it is not, the decision appealed from is reversed and set aside. According to Art. 136 and
137 of the Civil Code of the Philippines, (136) “The wife retains the ownership of the
paraphernal property,” and (137) “The wife shall have the administration of the
paraphernal property, unless she delivers the same to the husband by means of a public
instrument empowering him to administer it. In this case, the public instrument shall be
recorded in the Registry of Property. As for the movables, the husband shall give adequate
security.” There is nothing in the records that shows that Don Vicente Legarda was the
administrator of the paraphernal properties of Dona Clara Tambunting during the lifetime
of the latter. The sale between Don Vicente Legarda and the private respondent is void ab
initio, the former being neither an owner nor administrator of the subject property. After
the appointment of Don Vicente Legarda as administrator of the estate of Dona Clara
Tambunting, he should have applied before the probate court for authority to sell the
disputed property in favor of the private respondent. If the probate court approved the
request, then Don Vicente Legarda would have been able to execute a valid deed of sale in
favor of the respondent. Unfortunately, there was no effort on the part of the administrator
to comply with the rule of procedure nor on that of the respondent to protect his interests
or to pay the balance of the installments to the court appointed administrator.

Case 168
PORTUGAL vs. INTERMEDIATE APPELLATE COURT
G.R. 73564 MARCH 25, 1988

FACTS:
Respondent, through fraudulent means was able to transfer the lot from his parents to
himself without consideration or cause through a purported deed of sale. The IAC held
that the action had already prescribed because an action to annul a contract based on
fraud prescribes in four years.

ISSUE:
Whether or not the IAC’s ruling is proper?

RULING:
No. Applying the provisions of Articles 1350, 1352, and 1409 of the new Civil Code in
relation to the indispensable requisite of a valid cause or consideration in any contract, and
what constitutes a void or inexistent contract, the court ruled that the disputed deed of sale
is void ab initio or inexistent, not merely voidable. And it is provided in Article 1410 of the
Civil Code, that the action or defense for the declaration of the inexistence of a contract
does not prescribe.

Case 169
PHILIPPINE BANKING CORPORATION vs. LUI SHE
GR NO 17587 September 12, 1967

FACTS:
Justina Santos executed on a contract of lease of real properties in favor of Wong. The lease
was for 50 years, although the lessee was given the right to withdraw at any time from the
agreement.

Santos executed another contract giving Wong the option to buy the leased premises for
P120,000, payable within ten years at a monthly installment of P1,000. The option imposed
on him the obligation to pay for the food of the dogs and the salaries of the maids in her
household, the charge not to exceed P1,800 a month. The option was conditioned on his
obtaining Philippine citizenship, a petition for which was then pending in the CFI of Rizal
It appears, however, that this application for naturalization was withdrawn when it was
discovered that he was not a resident of Rizal. On October 28, 1958 she filed a petition to
adopt him and his children on the erroneous belief that adoption would confer on them
Philippine citizenship. The error was discovered and the proceedings were abandoned.
In two wills, she bade her legatees to respect the contracts she had entered into with Wong,
but in a codicil of a later date she appears to have a change of heart. Claiming that the
various contracts were made by her because of machinations and inducements practiced
by him, she now directed her executor to secure the annulment of the contracts.

ISSUE:
Whether the contracts involving Wong were valid.

RULING:
No. Art. 1308 states that, the contract must bind both contracting parties; its validity or
compliance cannot be left to the will of one of them.

The contracts show nothing that is necessarily illegal, but considered collectively, they
reveal an insidious pattern to subvert by indirection what the Constitution directly
prohibits. To be sure, a lease to an alien for a reasonable period is valid. So is an option
giving an alien the right to buy real property on condition that he is granted Philippine
citizenship.
But if an alien is given not only a lease of, but also an 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 whereby the owner divests himself in stages not only of the right to enjoy the
land but also of the right to dispose of it.

Accordingly, the contracts in question are annulled and set aside; the land subject-matter of
the contracts is ordered returned to the estate of Justina Santos.

Case 170
TEJA MARKETING AND/OR ANGEL JAUCIAN vs. HONORABLE INTERMEDIATE
APPELLATE COURT
G.R. No. L-65510 March 9, 1987

FACTS:
Pedro Nale bought from Teja Marketing a motorcycle with complete accessories and a
sidecar. A chattel mortgage was constituted as a security for the payment of the balance of
the purchase price. The records of the Land Transportation Commission show that the
motorcycle sold to the defendant was first mortgaged to the Teja Marketing by Angel
Jaucian though the Teja Marketing and Angel Jaucian are one and the same, because it was
made to appear that way only as the defendant had no franchise of his own and he attached
the unit to the plaintiff’s MCH Line. The agreement also of the parties here was for the
plaintiff to undertake the yearly registration of the motorcycle with the Land
Transportation Commission. The plaintiff, however failed to register the motorcycle on that
year on the ground that the defendant failed to comply with some requirements such as the
payment of the insurance premiums and the bringing of the motorcycle to the LTC for
stenciling, the plaintiff said that the defendant was hiding the motorcycle from him. Lastly,
the plaintiff also explained that though the ownership of the motorcycle was already
transferred to the defendant, the vehicle was still mortgaged with the consent of the
defendant to the Rural Bank of Camaligan for the reason that all motorcycle purchased
from the plaintiff on credit was rediscounted with the bank.

Teja Marketing made demands for the payment of the motorcycle but just the same Nale
failed to comply, thus forcing Teja Marketing to consult a lawyer and file an action for
damage before the City Court of Naga in the amount of P546.21 for attorney’s fees and
P100.00 for expenses of litigation. Teja Marketing also claimed that as of 20 February 1978,
the total account of Nale was already P2, 731, 05 as shown in a statement of account;
includes not only the balance of P1, 700.00 but an additional 12% interest per annum on
the said balance from 26 January 1976 to 27 February 1978; a 2% service charge; and
P546.21 representing attorney’s fees. On his part, Nale did not dispute the sale and the
outstanding balance of P1,700.00 still payable to Teja Marketing; but contends that because
of this failure of Teja Marketing to comply with his obligation to register the motorcycle,
Nale suffered damages when he failed to claim any insurance indemnity which would
amount to no less than P15,000.00 for the more than 2 times that the motorcycle figured in
accidents aside from the loss of the daily income of P15.00 as boundary fee beginning
October 1976 when the motorcycle was impounded by the LTC for not being registered.

The City Court rendered judgment in favor of Teja Marketing, dismissing the counterclaim,
and ordered Nale to pay Teja Marketing On appeal to the Court of First Instance of
Camarines Sur, the decision was affirmed in toto. Nale filed a petition for review with the
Intermediate Appellate Court. On 18 July 1983, the appellate court set aside the decision
under review on the basis of doctrine of “pari delicto,” and accordingly, dismissed the
complaint of Teja Marketing, as well as the counterclaim of Nale; without pronouncements
as to costs. Hence, the petition for review was filed by Teja Marketing and/or Angel Jaucian.

ISSUE:
Whether or not respondent court erred in applying the doctrine of “pari delicto”?

RULING:
No. Petition devoid of merit. Unquestionably, the parties herein operated under an
arrangement, commonly known as the “kabit system” whereby a person who has been
granted a certificate of public convenience allows another person who owns motor vehicles
to operate under such franchise for a fee. A certificate of public convenience is a special
privilege conferred by the government. Abuse of this privilege by the grantees thereof
cannot be countenanced. The “kabit system” has been identified as one of the root causes of
the prevalence of graft and corruption in the government transportation offices.

Although not out rightly penalized as a criminal offense, the kabit system is invariably
recognized as being contrary to public policy and, therefore, void and inexistent under
Article 1409 of the Civil Code. It is a fundamental principle that the court will not aid either
party to enforce an illegal contract, but will leave both where it finds them. Upon this
premise it would be error to accord the parties relief from their predicament.

Article 1412 of the Civil Code denies them such aid. It provides:
“Art. 1412. If the act in which the unlawful or forbidden cause consists does not constitute a
criminal offense, the following rules shall be observed:
“1. When the fault is on the part of both contracting parties, neither may recover that he has
given by virtue of the contract, or demand, the performance of the other’s undertaking.“

The defect of inexistence of a contract is permanent and cannot be cured by ratification or

by prescription. The mere lapse of time cannot give efficacy to contracts that are null and
void.

Case 171
Julian Francisco vs. Pastor Herrera
G.R. No. 139982 November 21, 2002

FACTS:
Eligio Herrera, Sr., father of respondent, sold two parcels of land to the petitioner. After
finding that the contract price for the two parcels of land was grossly inadequate, children
of Eligio Herrera Sr., tried to negotiate with the petitioner to increase the purchase price.
When petitioner refused, respondent then filed a complaint for annulment of sale on the
grounds 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. On the other hand,
petitioner contended that respondent had effectively ratified both contracts of sales by
receiving payments thereof. RTC ruled in favor of the defendant and was affirmed by the
appellate court. Hence, this petition for review.

ISSUE:
Whether or not the contract of sale was voidable and can be validated by ratification?

RULING:
Yes. The Court said that under Art. 1327, demented persons cannot give consent to a
contract and under Art. 1390, contracts are voidable if contracted by those who are
incapable of giving consent. Therefore, the contract between petitioner and Eligio Herrera,
Sr. is one that is voidable. However, the act of the respondent in receiving payments shows
ratification of the sale on his part and under Art. 1392, ratification extinguishes the action
to annul a voidable contract. Therefore, the voidable contract of sale between petitioner
and Eligio Sr. was validated by ratification of the defendant.

Case 172
CORONEL vs. CONSTANTINO
G.R. No. 121069 February 7, 2003

FACTS:
The disputed property was originally owned by Honoria Aguinaldo. One half was inherited
by Emilia Coronel together with her sons Benjamin, Catalino and Cerefino - All surnamed
Coronel.

The other half was inherited by Florentino Constantino and Aurea Buensuseco . Emilia sold
her share of the lot to Jess Santos and Priscilla Bernardo as evidenced by the “Kasulatan ng
bilihang patuluyan “. Santos and Bernardo then sold it to the respondents. Petitioners built
several constructions and improvements on the disputed lot. The respondents then filed a
complaint for the declaration of ownership, quieting of title and damages with prayer for
writ of mandatory and prohibitory injunction with the trial court.

ISSUE:
Whether or not the sale was valid.

RULING:
Yes, only up to a quarter of share of the land inherited by Emilia and her sons. Emilia signed
only on her behalf and not in representation of her three children thus the sale is only
binding to her share. The subject property was co-owned, pro-indiviso by petitioner Emilia
together with her petitioner sons. No proof was presented to show that the co-ownership
that existed among the heirs of Ceferino and Catalino and herein petitioners as never been
terminated.

Case 173
IGLESIA FILIPINA INDEPENDIENTE vs. HEIRS of BERNARDINO TAEZA
G.R. No. 179597 February 3, 2014
FACTS:
Petitioner, a religious corporation, owned a parcel of land which was transferred by Rev.
Macario Ga in his capacity as the Supreme Bishop of IFI to Bernardino Taeza under a deed
of sale with mortgage on February 1976. The officers of the Laymen’s Committee of the
Parish Council filed a complaint for annulment of said deed of sale but the complaint was
dismissed by the trial court.

Rev. Ga’s term as Supreme Bishop of the IFI terminated on May 1981. Meanwhile
Bernardino Taeza registered the subject parcels of land and Transfer Certificate of Sale was
issued to him.

On January 1990, a complaint for annulment of sale was again filed by IFI through the
newly-appointed Supreme Bishop. The trial court rendered a decision in favor of petitioner
declaring that the deed of sale was null and void. On appeal, the appellate court reversed
the RTC’s decision ruling that IFI, being a corporation sole, validly transferred ownership
over the land through its Supreme Bishop, who was at the time the administrator of all
properties and the official representative of the church.

ISSUE:
Whether or not then Supreme Bishop Rev. Ga is authorized to enter into a contract
disposing a property in behalf of IFI.

RULING:
No. Section 113 (now Section 111) provides that in cases where the rules, regulations, and
discipline of the religious denomination, sect or church, religious society, or order
concerned represented by such corporation sole regulate the method of acquiring, holding,
selling, and mortgaging real estate and personal property, such rules, regulations and
discipline shall govern. Article IV (a) of their Canons provides that “All real properties of
the Church located or situated in such parish can be disposed of only with the approval and
conformity of the laymen’s committee, the parish priest, the Diocesan Bishop, with sanction
of the Supreme Council, and finally with the approval of the Supreme Bishop, as
administrator of all the temporalities of the Church.”

The Laymen’s Committee made its objection to the sale known to the Supreme Bishop.
Since the Canons require that all the church entities listed in Article IV (a) of the Canons
should give its approval to the transaction, in executing the sale, Supreme Bishop Rev. Ga
had acted beyond his powers making the contract of sale with mortgage unenforceable.

Unenforceable contracts mentioned in Article 1403, paragraph (1) of the Civil Code, which
provides, that the following contracts are unenforceable, unless they are ratified: (1) Those
entered into in the name of another person by one who has been given no authority or legal
representation, or who has acted beyond his powers; (2) Those that do not comply with the
Statute of Frauds as set forth in this number.

In the present case, however, respondents’ predecessor-in-interest, Bernardino Taeza, had

already obtained a transfer certificate of title in his name over the property in question.
Since the person supposedly transferring ownership was not authorized to do so, the
property had evidently been acquired by mistake.

Case 174
SUGA SOTTO YUVIENCO, et. al., vs. HON. AUXENCIO C. DACUYCUY
G.R. No. L-55048 May 27, 1981

FACTS
Atty. Gamboa sent a letter to Yao King Ong stating the willingness to sell the land to latter.
Yao King Ong replied by telegram with the following words “we agree to buy proceed to
Tacloban to negotiate details”. Yao King Ong filed a suit for specific performance against the
petitioners. Petitioners contended that the contract of sale is unenforceable under the
Statute of Frauds and there was no absolute acceptance made by the respondents. Hence,
there was no perfected contract of sale.

ISSUE
Whether or not there was a perfected contract of sale.

RULING
The court ruled that the acceptance was not absolute under Article 1319 of the Civil Code.
In this case, the respondents only said that they are open to negotiate which is opposite to
the idea that an agreement had been reached. Therefore, there was no perfected contract of
sale.
Case 175
BISAYA LAND TRANSPORTATION CO., INC., ANTONIO V. CUENCO and BENJAMIN G.
ROA vs. MARCIANO C. SANCHEZ AND THE HON. INTERMEDIATE APPELLATE COURT
GR. No. 74623 August 31, 1987

FACTS :
Bisaya Land Transportation Company, Inc. (BISTRANCO) has been engaged in the shipping
business and one of its ports of call is found in Butuan City. When BISTRANCO was under
receivership , Mariano Sanchez (Sanchez) was appointed by BISTRANCO as its acting
shipping agent for its vessels in Butuan City by its Receiver Atty. Adolfo V. Amor .Thereafter
a formal Contract of Agency was executed between BISTRANCO, represented by Receiver
Atty. Amor and  Sanchez. SANCHEZ then executed a Supplemental Shipping Agency
Contract after finding that a paragraph of the Contract of Agency was quite prejudicial to
him which was then signed by both parties. 

However both the Contract of Agency and the Supplemental Shipping Agency Contract
(Contracts) were never submitted by Atty. Amor to the receivership court for its approval.
By virtue of the Contracts, Sanchez performed his duties as shipping agent of BISTRANCO.
Then one day, BISTRANCO wrote Sanchez that they would commence operating its branch
office at Butuan City and thereafter actually operated a branch office which in effect
repudiated the contracts.

ISSUE :
WON the alteration in MOA and Working Agreement entered by both parties constituted to
novation?

RULING:
No. Agreements were not meant to novate the herein questioned contracts. Rather, the
intent of the parties was to suspend some of the provisions of the Contracts for a period of
one (1) year, during which, the provisions of the Agreements will prevail.  

Article 1409(l) of the Civil Code which provides that contracts whose cause, object or
purpose is contrary to law, morals, good customs, public order or public policy, are
inexistent and void from the beginning

Art. 1403(1) Those entered into in the name of another person by one who has been given
no authority or legal representation, or who has acted beyond his powers" are
unenforceable, unless they are ratified.

Case 176
AINZA vs. PADUA
G.R. No. 165420 JUNE 30, 2020

FACTS:
Concepcion alleged that respondent-spouses Eugenia and Antonio owned a lot with an
unfinished residential house sometime in April 1987, she bought one-half of an undivided
portion of the property from her daughter, Eugenia and the latter’s husband, Antonio, for
One Hundred Thousand Pesos (P100,000.00). No Deed of Absolute Sale was executed to
evidence the transaction, but cash payment was received by the respondents, and
ownership was transferred to Concepcion through physical delivery to her attorney-in-fact
and daughter. Concepcion authorized Natividad and the latter’s husband to occupy the
premises, and make improvements on the unfinished building. Thereafter, Concepcion
alleged that without her consent, respondents caused the subdivision of the property into
three portions and registered it in their names in violation of the restrictions annotated at
the back of the title. The Regional Trial Court rendered judgment in favor of Concepcion. On
appeal by the respondents, the Court of Appeals reversed the decision of the trial court, and
declared the sale null and void. Hence this case.

ISSUE:
Whether the oral contract in the sale of the real property is legal and binding?

RULING:
Yes, The SC upheld the ruling of the lower court that the sale between Eugenia and
Concepcion was consummated when both contracting parties complied with their
respective obligations. Eugenia transferred possession by delivering the property to
Concepcion who in turn paid the purchase price. It also declared that the transfer of the
property did not violate the Statute of Frauds because a fully executed contract does not
fall within its coverage. The verbal contract of sale between Eugenia and Concepcion did
not violate the provisions of the Statute of Frauds that a contract for the sale of real
property shall be unenforceable unless the contract or some note or memorandum of the
sale is in writing and subscribed by the party charged or his agent. When a verbal contract
has been completed, executed or partially consummated, as in this case, its enforceability
will not be barred by the Statute of Frauds, which applies only to an executory agreement.
Thus, where one party has performed his obligation, oral evidence will be admitted to
prove the agreement. In the instant case, the oral contract of sale between Eugenia and
Concepcion was evidenced by a receipt signed by Eugenia. Antonio also stated that his wife
admitted to him that she sold the property to Concepcion.

Case 177
ANTHONY ORDUÑA, et.al, vs. EDUARDO J. FUENTEBELLA, et.al.
G.R. No. 176841 June 29, 2010

FACTS:
Gabriel Sr. sold the subject lot to petitioner Antonita Orduñ a, but no formal deed was
executed to document the sale. The contract price was apparently payable in installments
as Antonita remitted from time to time and Gabriel Sr. accepted partial payments. One of
the Orduñ as would later testify that Gabriel Sr. agreed to execute a final deed of sale upon
full payment of the purchase price. However, Antonita and her sons, Dennis and Anthony
Orduñ a, were already occupying the subject lot on the basis of some arrangement
undisclosed in the records and even constructed their house thereon. They also paid real
property taxes for the house and declared it for tax purposes. After the death of Gabriel Sr.,
his son and namesake, respondent Gabriel Jr., secured TCT No. T-71499 over the subject lot
and continued accepting payments from the petitioners. On December 12, 1996, Gabriel Jr.
wrote Antonita authorizing her to fence off the said lot and to construct a road in the
adjacent lot. Gabriel Jr. acknowledged receipt of a PhP40,000 payment from petitioners.
Through a letter, Gabriel Jr. acknowledged that petitioner had so far made an aggregate
payment of PhP65,000, leaving an outstanding balance of PhP60,000. A receipt Gabriel Jr.
issued reflected a PhP10,000 payment.

ISSUE:
Whether or not the Statute of Frauds bars the enforcement of the verbal sale contract
between Gabriel Sr. and Antonita.

RULING:
No. The Statute of Frauds expressed in Article 1403, par. (2), of the Civil Code applies only
to executory contracts, i.e., those where no performance has yet been made. Stated a bit
differently, the legal consequence of non-compliance with the Statute does not come into
play where the contract in question is completed, executed, or partially consummated.
The Statute of Frauds, in context, provides that a contract for the sale of real property or of
an interest therein shall be unenforceable unless the sale or some note or memorandum
thereof is in writing and subscribed by the party or his agent. However, where the verbal
contract of sale has been partially executed through the partial payments made by one
party duly received by the vendor, as in the present case, the contract is taken out of the
scope of the Statute.
Case 178
FRANCISCO M. ALONSO vs. PHILIPPINE NATIONAL BANK
G.R. No. L-4132 May 23, 1952

FACTS:
On January 16, 1947, in the Court of First Instance of Cebu, the plaintiff, Francisco M.
Alonso alleges that he has held since before the liberation of the Philippines circulating
notes of the Philippine National Bank, in the amount of P7,000, which he presented to the
defendant, Philippine National Bank, for redemption in actual legal currency, but that the
defendant has refused to redeem the same; that, because of such refusal, the plaintiff
suffered damages in the sum of P5,000, resulting from his failure to invest the money in
lucrative business and from the interest he paid on other commercial obligations which he
could not settle with the circulating notes. The plaintiff prays that the defendant to redeem
the notes and pay damages.

PNB contended that the defendant sets up the special defense that on November 18, 1944,
the President of the Philippines issued Executive Order No. 25, paragraph 6 of which
provided that the Philippine National Bank notes (except duly authorized emergency
issues) were not legal tender and that transactions in said currencies were prohibited; that,
at any rate, the defendant Bank had already redeemed all the circulating notes.

ISSUE:
Is the Appellant entitled to the damages claimed in his complaint?

HELD:
Although the plaintiff alleged to be the holder of Philippine National Bank circulating notes
in the amount of P7,000, he actually presented at the trial notes amounting only to P2,630.
The appealed decision is predicated on Republic Act No. 211, enacted by the Congress but
before the appealed decision was rendered. This Act provides for the retirement and
redemption of the circulating notes lawfully issued by the Philippine National Bank and the
registration and deposit of such notes illegally issued, and it enumerates the serial numbers
of the notes which cannot be redeemed. The effect of the appealed decision, therefore, is
that the plaintiff may present, for redemption, the circulating notes in his possession that
are authorized to be redeemed under Republic Act No. 211.

We agree with the trial court that Republic Act No. 211 is decisive. The appellant in this
instance, however, assails the constitutionality of said Act. This the appellant cannot do,
since a question of constitutionality cannot be raised for the first time on appeal.

It is clear that the appellant is not entitled to the damages claimed in his complaint. If he
was not able to utilize the circulating notes in question, it was undoubtedly because
Executive Order No. 25, issued on November 18, 1944, by the President of the Philippines,
prohibited transactions in such currency which was expressly outlawed as a legal tender.

Case 179
CABALIW vs. SADORRA
G.R NO. L-25650 JUNE 11, 1975

FACTS:
Isidora Cabaliw (2nd wife of Benigno Sadorra) filed a complaint against her husband
named Benigno Sadorra for the abandonment made by the latter. They have a daughter
named Soledad Sadorra. During their marriage they acquired two (2) parcels of land
located in Nueva Vizcaya. On January 30, 1933, judgment was rendered requiring Benigno
Sadorra to pay his wife the amount of P75.00 a month in terms of support as of January 1,
1933, and P150.00 in concept of attorney’s fees and the costs but Benigno failed to comply
with the judgement of the court. Isidora filed a motion to cite Benigno Sadorra for contempt
and the Court of First Instance of Manila authorized Isidora to take possession of the
conjugal property, to administer the same, and to avail herself of the fruits thereof in
payment of the monthly support in arrears. With this order of the Court, Isidora proceeded
to Nueva Vizcaya to take possession of the aforementioned parcels of land, and it was then
that she discovered that her husband had sold them to his son-in-law Sotero. On February
1, 1940, Isidora filed with the Court of First Instance of Nueva Vizcaya against her husband
and Sotero Sadorra for the recovery of the lands in question on the ground that the sale
was fictitious; at the same time a notice of lis pendens was filed with the Register of Deeds
of Nueva Vizcaya. In May of 1940, Benigno Sadorra died.

ISSUE:
Is there a presumption of fraud against Sotero Sadorra?

RULING:
Yes, it was stated on Art. 1387 that “Alienation by onerous title are also presumed
fraudulent when made by persons against whom some judgment has been rendered in any
instance or some writ of attachment has been issued. The decision or attachment need not
refer to the property alienated and need not have been obtained by the party seeking the
rescission.” the presumption of fraud was established at the time of the conveyance. The
fact that Sotero was living with his father-in-law and he knew that there was a judgment
directing the latter to give a monthly support to his wife Isidora and that his father-in-law
was avoiding payment and execution of the judgment. It was known to Sotero that his
father-in-law had no properties other than those two parcels of land which were being sold
to him. The fact that a vendor transfers all of his property to a third person when there is a
judgment against him is a strong indication of a scheme to defraud one who may have a
valid interest over his properties. The close relationship between Benigno and Sotero is
called to be a badge of fraud.

Case 181
REPUBLIC OF THE PHILIPPINES vs. PLDT
G.R. No. L-18841 January 27, 1969

FACTS:
The Bureau of Telecommunications set up its own Government Telephone System by
utilizing its own appropriation and equipment and by renting trunk lines of the PLDT to
enable government officers to call private parties. One of the rules of PLDT, however, is the
prohibition on the Bureau’s public use of the service furnished only for the private use of
said Bureau. The Bureau has extended its services to the general public since its inception
(also using the lines of PLDT). PLDT contends that said bureau was violating the conditions
under which their Private Branch Exchange is inter-connected with the PLDT’s facilities
and, after giving an ultimatum, PLDT disconnected the trunk lines rented by the Bureau,
effectively isolating the Philippines from the rest of the world (except the United States).
Petitioner thus filed for judgment commanding PLDT to execute a contract with plaintiff.

ISSUE:
Whether or not the PLDT may be forced to execute a contract with the Republic

RULING:
The parties cannot be coerced to enter into a contract where no agreement is had between
them as to the principal terms and conditions of the contract. Freedom to stipulate such
terms and conditions is of the essence of our contractual system, and by express provision
of the statute, a contract may be annulled if tainted by violence, intimidation, or undue
influence (Articles 1306, 1336, 1337, Civil Code of the Philippines). While the Republic may
not compel the PLDT to celebrate a contract with it, the Republic may, in the exercise of the
sovereign power of eminent domain, require the telephone company to permit
interconnection of the government telephone system and that of the PLDT subject to the
payment of just compensation to be determined by the Court. The use of PLDT’s lines and
services are subjected to a burden to the respondent for the public use and benefit, thus,
they constitute properties over which the power of eminent domain may be exercised.

Case 182
William Golangco Construction Corp. (WGCC) vs. Phil Commercial Intl Bank (PCIB)
G.R. No. 142830 March 24, 2006

FACTS:
William Golangco Construction Corporation (WGCC) and the Philippine Commercial
International Bank (PCIB) entered into a contract for the construction of the extension of
PCIB Tower II on October 20, 1989. The project included, among others, the application of
Granitite wash-out finish on the exterior walls of the building.PCIB, with the concurrence of
its consultant TCGI Engineers (TCGI), accepted the turnover of the completed work by
WGCC in a letter dated June 1, 1992. To answer for any defect arising within a period of one
year, WGCC submitted a guarantee bond dated July 1, 1992 issued by Malayan Insurance
Company, Inc. in compliance with the construction contract. The controversy arose when
portions of the granitite wash-out finish of the exterior of the building began peeling off
and falling from the walls in 1993. WGCC made minor repairs after PCIB requested it to
rectify the construction defects.In 1994, PCIB entered into another contract with Brains
and Brawn Construction and Development Corporation to re-do the entire granitite wash-
out finish after WGCC manifested that it was "not in a position to do the new finishing
work," though it was willing to share part of the cost. PCIB incurred expenses amounting to
P11,665,000 for the repair work.
PCIB filed a request for arbitration with the Construction Industry Arbitration Commission
(CIAC) for the reimbursement of its expenses for the repairs made by another contractor. It
complained of WGCC’s alleged non-compliance with their contractual terms on materials
and workmanship. WGCC interposed a counterclaim for P5,777,157.84 for material cost
adjustment.

The CIAC declared WGCC liable for the construction defects in the project. WGCC filed a
petition for review with the Court of Appeals (CA) which dismissed it for lack of merit.
However, its motion for reconsideration was similarly denied.
There is a question of certiorari in this case.

ISSUE:
Whether or not petitioner WGCC is liable for defects in the granite wash-out finish that
occurred after the lapse of one-year defects liability period provided in Art. XI of the
construction contract?

RULING:
The court ruled in favor of WGCC. The controversy pivots on a provision in the construction
contract referred to as the defects liability period:

Guarantee
In Article XI on Guarantee - the CONTRACTOR hereby guarantees the work stipulated in
this Contract, and shall make good any defect in materials and workmanship which
[becomes] evident within one (1) year after the final acceptance of the work. The
CONTRACTOR shall leave the work in perfect order upon completion and present the final
certificate to the ENGINEER promptly.

If in the opinion of the OWNER and ENGINEER, the CONTRACTOR has failed to act
promptly in rectifying any defect in the work which appears within the period mentioned
above, the OWNER and the ENGINEER may, at their own discretion, using the Guarantee
Bond amount for corrections, have the work done by another contractor at the expense of
the CONTRACTOR or his bondsmen.

However, nothing in this section shall in any way affect or relieve the CONTRACTOR’S
responsibility to the OWNER.
Although both parties based their arguments on the same stipulations, they reached
conflicting conclusions. A careful reading of the stipulations, however, leads us to the
conclusion that WGCC’s arguments are more tenable.

Autonomy of Contracts
The autonomous nature of contracts is enunciated in Article 1306 of the Civil Code.
Article 1306. The contracting parties may establish such stipulations, clauses, terms and
conditions as they may deem convenient, provided they are not contrary to law, morals,
good customs, public order, or public policy.
Obligations arising from contracts have the force of law between the parties and should be
complied with in good faith.

The adoption of a one-year guarantee, as done by WGCC and PCIB, is established usage in
the Philippines for private and government construction contracts. However, the contract
did not specify a different period for defects in the granitite wash-out finish; hence, any
defect therein should have been brought to WGCC’s attention within the one-year defects
liability period in the contract.
The inclusion in a written contract for a piece of work, such as the one in question, of a
provision defining a warranty period against defects, is not uncommon. This kind of a
stipulation is of particular importance to the contractor, for as a general rule, after the lapse
of the period agreed upon therein, he may no longer be held accountable for whatever
defects, deficiencies or imperfections that may be discovered in the work executed by him.

Unfulfilled Obligations
PCIB calls our attention to Article 62.2 which provides: Notwithstanding the issue of the
Defects Liability Certificate[,] the Contractor and the Owner shall remain liable for the
fulfillment of any obligation[,] incurred under the provisions of the Contract prior to the
issue of the Defects Liability Certificate[,] which remains unperformed at the time such
Defects Liability Certificate is issued[. And] for the purpose of determining the nature and
extent of any such obligation, the Contract shall be deemed to remain in force between the
parties of the Contract. (emphasis ours).

Case 183
IRENEO LEAL et. Al vs. C.A and VICENTE SANTIAGO
G.R. No. L-65425 November 5, 1987

FACTS:
Sometime before the agricultural year, Vicente Santiago approached the petitioners and
offered re- repurchase three parcels of land executed in favor of Cirilo Leal, the deceased
father of the petitioners which the latter refused. Consequently, Vicente Santiago instituted
a complaint for specific performance contending that there was an express prohibition
against the sale of the lots described in the "Compraventa” stipulating that “they shall not
sell to others these three lots but only to the seller Vicente or to his heirs or successors".

The petitioners contended by endorsing the penned decision of CA stating that there is
grave doubt regarding the validity of the ostensible resolutory condition which is the
prohibition to sell the lots to persons other than the vendor, uncertainly, a prohibition to
alienate should not exceed at most a period of twenty years, otherwise there would be
subversion of public policy, which naturally frowns on unwarranted restrictions on the
right of ownership.

ISSUE:
Whether or not under aforequoted paragraph in "Compraventa" Vicente has a right of
repurchase the 3 parcels of land
RULING:
It was held that the court cannot and any express or implied grant of a right to repurchase,
nor can infer, from any word or words in the questioned paragraph, the existence of any
such right. But even assuming that such a right of repurchase is granted under the
"Compraventa," the petitioner correctly asserts that the same has already prescribed.

Under Art,. 1606 of the Civil Code, the right to redeem or repurchase, in the absence of an
express agreement as to time, shall last four years from the date of the contract. Since the
alleged right to repurchase was attempted to be exercised by Vicente Santiago only in
1966, or 25 years from the date of the contract, the said right has undoubtedly expired. The
court REINSTATED THE RULING OF CA affirming the trial court's dismissal of the private
respondent's complaint.

Case 184
VDA DE MESTICA vs. NAGUIAT
G.R. No. 137909 December 11, 2003

FACTS:
Eulalio Mistica entered into a contract to sell with respondent Bernardino Naguiat
over a portion of lot containing an area of 200 square meters. Pursuant to their
agreement, respondent gave a down payment of P2,000.00 out of the full purchase
price ofP20,000.00. On February 7, 1980, respondent made another payment of
P1,000.00 and after that no other payment was made. Eulalio died sometime in 1986.
Petitioner Fidela Del Castillo Vda. De Mistica, Eulalio's widow, filed with the trial court
a complaint for rescission of the contact to sell alleging that the failure of respondents
to pay the balance of the purchase price constitutes a violation of the contract which
entitles her to rescind the same.

ISSUE:
Whether or not petitioner may rescind the contract.

RULING:
Disallowing rescission, the CA held that respondents did not breach the Contract of Sale. It
is explained that the conclusion of the ten-year period was not a resolutory term, because
the Contract had stipulated that payment with interest of 12 percent could still be made if
respondents failed to pay within the period. According to the appellate court, petitioner did
not disprove the allegation of respondents that they had tendered payment of the balance
of the purchase price during her husband’s funeral, which was well within the ten-
year period. The proper recourse, the CA held, was to order them to pay the balance of the
purchase price, with 12 percent interest. petitioner claims that she is entitled to rescind
the Contract under Article 1191 of the Civil Code, because respondents committed a
substantial breach when they did not pay the balance of the purchase price within the ten-
year period. The transaction between Eulalio Mistica and respondents, as evidenced by the
agreement was clearly a Contract of Sale. A deed of sale is considered absolute in nature
when there is neither a stipulation in the deed that title to the property sold is reserved
to the seller until the full payment of the price; nor a stipulation giving the vendor the right
to unilaterally resolve the contract the, moment the buyer fails to pay within a fixed period.
The CA further ruled that rescission in this case would be unjust to respondents, because
a certificate of title had already been issued in their names.

Case 185
MARIMPERIO COMPAÑIA NAVIERA vs. COURT OF APPEALS
G.R. No. L – 40234 December 14, 1987

FACTS:
In 1964 Philippine Traders Corporation and Union Import and Export Corporation entered
into a joint business venture for the purchase of copra from Indonesia for sale in Europe.
James Liu President and General Manager of the Union took charge of the European market
and the chartering of the vessel to take the copra to Europe. Peter Yap of the Philippine on
the other hand, found one P.T. Karham in Dumai Sumatra who had around 4,000 tons of
copra for sale. Exequiel Toeg of Interocean was commissioned to look for a vessel and he
found the vessel “SS Paxoi” of Marimperio available. Philippine and Union authorized Toeg
to negotiate for its charter but with instructions to keep confidential the fact that they are
the real charterers.

On March 21, 1965, in London England, a “Uniform Time Charter” for hire of vessel “Paxoi”
was entered into by the owner, Marimperio Compania Naviera, S.A. through its agents N &
J. Vlassopulos Lrd. And Matthews Wrightson, Burbrdge, Ltd. to be referred to simply as
Matthews, representing Interocean Shipping Corporation, which was made to appear as
charterer, although it merely acted in behalf of the real charterers, private respondents
herein.

In view of the aforesaid Charter, in March 30, 1965 plaintiff Charterer cabled a firm offer to
P.T. Karkam to buy the 4,000 tons of copra for US $180.00 per ton, the same to be loaded
either in April or May, 1965. The offer was accepted and plaintiffs opened two irrevocable
letters of Credit in favor of P.T. Karkam.

On March 29, 1965, the Charterer was notified by letter by Vlassopulos through Matthews
that the vessel “Paxoi” had sailed from Hsinkang at noontime on March 27, 1965 and that it
had left on hire at the time and date under the Uniform Time Charter.

ISSUE:
Whether or not respondents have the legal capacity to bring the suit for specific
performance against petitioner based on the charter party.

RULING:
Yes. According to Article 1311 of the Civil Code, a contract takes effect between the parties
who made it, and also their assigns and heirs, except in cases where the rights and
obligations arising from the contract are not transmissible by their nature, or by stipulation
or by provision of law. Since a contract may be violated only by the parties, thereto as
against each other, in an action upon that contract, the real parties in interest, either as
plaintiff or as defendant, must be parties to the said contract. Therefore, a party who has
not taken part in it cannot sue or be sued for performance or for cancellation thereof,
unless he shows that he has a real interest affected thereby.

It is admitted by respondents that the charterer is the Interocean Shipping Company. Even
paragraph 3 of the complaint-in-intervention alleged that respondents were given the use
of the vessel “pursuant to paragraph 20 of the Uniform time Charter…” which precisely
provides for the subletting of the vessel by the charterer.

Case 186
JESUS V. OCCENA and EFIGENIA C. OCCENA vs. HON. RAMON V. JABSON, Presiding
Judge of the Court Of First Instance of Rizal, Branch XXVI; COURT OF APPEALS and
TROPICAL HOMES, INC.
G.R. No. L-44349 October 29, 1976

FACTS:
Topical Homes filed a complaint for the modification of the terms and conditions of its
subdivision contract with petitioners, alleging due to the rising price of oil. Petitioners
moved to dismiss the complaint. Respondent court set aside the preliminary injunction
issued by it and dismissed the petition on the ground that under Article 1276 of the Civil, a
positive right is created in favor of the obligor to be released from the performance of an
obligation in full or in part when its performance has become so difficult as to be manifestly
beyond contemplation of the parties.

ISSUE:
Whether or not Article 1276 is applicable.

RULING:
No. The respondent’s complaint seeks not to release the subdivision contract but that the
court render judgment modifying the terms and conditions of the contract with petitioners,
which has no basis in law. If the respondent’s complaint were to be released from having to
comply with the subdivision contract, then the court’s upholding of respondent’s complaint
and dismissal would be justifiable under the cited codal article.

Case 187
SPOUSES JESUS L. CABAHUG and CORONACION M. CABAHUG vs. NATIONAL POWER
CORPORATION
G.R. No. 186069 JANUARY 30, 2013

FACTS:
Petitioner spouses are the owners of two parcels of land. Petitioner Jesus then executed
two (2) documents denominated as Right of Way Grant in favor of respondent NPC. For and
in consideration of easement fees in sum of P112,225.50 and P21,375.00, the former also
granted NPC a continuous easement right of way for the latter’s transmission lines and
their appurtenances.
But petitioner spouses filed the complaint for the payment of just compensation, damages
and attorney’s fees against respondent, claiming to have been totally deprived of the use of
the lands. Respondent then averred that it already paid the full easement fee and the
reservation in the grant referred to additional compensation for easement fee, not the full
just compensation sought by the petitioner spouses.

ISSUE:
Whether or not respondent NPC may still be held liable for the full compensation value of
the affected property despite the fact transfer of title thereto was not required by the
easement.

RULING:
It is ruled that respondent NPC may still be held liable. If the easement is intended to
perpetually or indefinitely deprive the owner of his propriety rights through the imposition
of conditions that affect the ordinary use.

Case 188
Banco Filipino Savings and Mortage Bank vs. Hon. Miguel Navarro
G.R. NO. L-46591 July 28 1987

FACTS
Respondent obtained a loan secured by a real estate mortage from petitioner Banco
Filipino in the sum of 41,300 Pesos, payable and to be amortized within 15 years at 12% ,
on the written promissory note evidencing the loan is written an escalator clause which
provides that "respondent would authorize Banco Filipino to increase the stipulated
interest rate without advance notice at the event that a law should be enacted increasing
the lawful rates of the interest"

On January 2 1976 Central Bank Circular 494 was issued which increased the maximum
rate of interest, including commissions, premiums, fees and other charges for loans with
maturity of more than 730 days, by banking institutions, including thrift banks and rural
banks or by financial intermediaries to 19% per annum.

Thus, Banco Filipino increased the interest rate for Respondents Loan to 17% and gave him
due notice through a letter, clarifying that the increase was due to the enaction of the
escalator clause contained within the note, Respondents averred that the law pertained in
the Escalator clause was not Circular No.494 and filed a prayer for Declaratory relief from
the courts.

ISSUE
Whether or not Banco Filipino may Increase the Interest Rate of the Loan to 17%?

RULING
The court rules in the negative.
The Court Opines that while an escalation clause like the one in question can normally be
held valid, the Petitioner cannot rely thereon to raise the interest rates on the borrower's
loan from 12% to 17% per annum because Circular No 494 of the Monetary Board was not
the Law contemplated by the parties, nor should said Circular be held as applicable to loans
secured by registered real estate in the absence of any such specific indication and in
contravention of the policy behind the usury Law.

Case 189
Spouses Florendo vs. Court of Appeals
G. R. No. 101771 December 17, 1996

FACTS:
Petitioner, Gilda Florendo, was an employee of respondent bank from May 17, 1976
until August 16, 1984 when she voluntarily resigned. However, before her
resignation, she applied for a housing loan. On March 19, 1985, respondent bank
increased the interest rate on petitioner’s loan from 9% per annum to 17%.

ISSUE:
Whether a bank can unilaterally raise the interest rate on a housing loan granted to
an employee by reason of the voluntary resignation of the borrower.

RULING:
No, the respondent bank does not have a valid and legal basis to impose an
increase rate on the petitioner’s housing loan. The unilateral determination and
imposition of increased interest rates by the respondent bank violates the principle
of mutuality of contracts ordained in Article 1308 of the Civil Code. Hence, a
contract containing a condition which makes its fulfillment dependent exclusively
upon the uncontrolled will of one of the contracting parties is void.

Case 191
DKC Holdings vs. CA
G.R. No. 118248 April 5, 2000

FACTS:
On March 16, 1998, petitioner DKC Holdings Corporation (DKC) entered into a Contract of
Lease with Option to Buy with Encarnacion Bartolome, decedent herein, whereby
petitioner was given the option to lease or lease with purchase the subject land.

Encarnacion died. Thereafter, petitioner coursed its payment to private respondent Victor
Bartolome, being the sole heir of Encarnacion. Victor, however, refused to accept
these payments. On March 14, 1990, petitioner served upon Victor, via registered mail,
notice that it was exercising its option to lease the property, tendering the amount of
P15,000.00 as rent. Again, Victor refused to accept the tendered rental fee and
to surrender possession of the property to petitioner. On April 23, 1990, petitioner filed a
complaint for specific performance and damages against Victor and the Register of Deeds

ISSUE:
Whether or not the rights under a Contact of Lease with Option to Buy were transmissible.
RULING:
YES. The general rule, therefore, is that heirs are bound by contracts entered into by their
predecessors-in-interest except when the rights and obligations arising therefrom are not
transmissible by (1) their nature, (2) stipulation or (3) provision of law. The Court held
that there is neither contractual stipulation nor legal provision making the rights
and obligations under the lease contract intransmissible. More importantly, the nature of
the rights and obligations therein are, by their nature, transmissible.

In the case at bar, the subject matter of the contract is a lease, which is a property right. The
death of a party does not excuse nonperformance of a contract which involves a property
right, and the rights and obligations thereunder pass to the personal representatives of the
deceased. Similarly, nonperformance is not excused by the death of the party when the
other party has a property interest in the subject matter of the contract.

Therefore, Victor is bound by the subject Contract of Lease with Option to Buy.

Case 192
METROBANK vs. REYNADO
G.R. No. 164538

FACTS:
In this case, a complaint for estafa was filed by Metrobank against respondents Reynado
and Adrandea alleging that they acted with fraud, deceit and abuse of confidence in
connivance with their client Universal Converter Phils. Preliminary investigation was
carried out and Prosecutor Edad dismissed the case on the ground that the crime of estafa
did not exist since the parties already entered into Debt Settlement Agreement which
already novated their contract.

CA affirmed the twin resolutions of the DOJ Sec, and accordingly, just as Universal cannot
be held responsible under the bills purchase transactions on account of novation, private
respondents, who acted in complicity with the former, cannot be made liable [for] the same
transactions

ISSUE:
WON novation extinguish criminal liability or WON the execution of the debt settlement
agreement precluded MB from holding respondents criminally liable for estafa.

RULING:
The SC ruled that Novation not a mode of extinguishing criminal liability for estafa.
Criminal liability for estafa not affected by compromise or novation of contract.

Case 193
PRUDENTIAL BANK AND TRUST COMPANY vs. LIWAYWAY ABASOLO,
G.R. No. 186738          September 27, 2010
FACTS:
Liwayway Abasolo thru SPA empowered her to sell the properties of Leonor Valenzuela-
Rosales.

Corazon wanted to buy the properties which were being sold for P2,448,960, but as she
had no available cash, she broached the idea of first mortgaging the properties to petitioner
Prudential Bank and Trust Company (PBTC), the proceeds of which would be paid directly
to respondent. Respondent agreed to the proposal.

By respondent’s claim, Mendiola advised her to transfer the properties first to Corazon for
the immediate processing of Corazon’s loan application with assurance that the proceeds
thereof would be paid directly to the respondent.

Heeding Mendiola’s advice, respondent executed a Deed of Absolute Sale over the
properties in favor of Corazon. Then latter’s application for a loan with PBTC’s Tondo
Branch was approved and the bank released the proceeds of the loan to Corazon.
Respondent later got wind of the approval of Corazon’s loan application and the release of
its proceeds to Corazon who, despite repeated demands, she incompletely paid the
obligation. Hence the case for damages, against Corazon and PBTC.

RTC and later the Court of Appeals rendered judgment in favor of respondent and against
Corazon who was made directly liable to respondent, and against petitioner who was made
subsidiarily liable in the event that Corazon fails to pay.

ISSUE:
Whether petitioner is subsidiarily liable.

RULING:
No. In the absence of a lender-borrower relationship between petitioner and respondent,
there is no inherent obligation of petitioner to release the proceeds of the loan to her. In
Article 1311 provides that contracts take effect only between the parties, their assigns and
heirs xxx. The contracting parties must have clearly and deliberately conferred a favor
upon a third person.
For respondent to prove her claim against petitioner, a clear and deliberate act of
conferring a favor upon her must be present. A written request would have sufficed to
prove this, given the nature of a banking business, not to mention the amount involved.

Since it has not been established that petitioner had an obligation to respondent, there is
no breach to speak of. Respondent’s claim should only be directed against Corazon.
Petitioner cannot thus be held subsidiarily liable.

Case 194
R. MARINO CORPUS vs. COURT OF APPEALS and JUAN T. DAVID
G.R. No. L-40424 June 30, 1980

FACTS:
The defendant was charged administratively by several employees of the Central Bank
Export Department of which the defendant is the director. Among others, lawyering for his
case was the plaintiff. During the pendency of the case, the defendant filed a petition for
certiorari but the case was dismissed. Thus, after being remanded to the lower courts, the
defendant sent a letter and a check as a token of appreciation. But, the plaintiff did not
accept. He said, since a final favorable outcome has not yet been met, he will not accept
payment, instead he asks to be remembered after the case is finally resolved. After the
resolution of the case, the defendant denies to give the plaintiff his attorney’s fees.

ISSUE:
Whether or not private respondent Atty. Juan T. David is entitled to attorney’s fees.

RULING:
YES. While there was an express agreement between petitioner and respondent as regards
attorney’s fees, the facts of the case support the position of respondent that there was at
least an implied agreement for the payment of attorney’s fees. Petitioner’s act of giving the
check to the respondent indicates the petitioner's commitment to pay the former attorney’s
fees. It is patent then that respondent David agreed to render professional services to
petitioner Corpus secondarily for a professional fee.

Moreover, the payment of attorney’s fees to respondent may also be justified by virtue of
the innominate contract of facio ut des (I do and you give which is based on the principle
that “no one shall unjustly enrich himself at the expense of another.” innominate contracts
have been elevated to a codal provision in the New Civil Code by providing under Article
1307 that such contracts shall be regulated by the stipulations of the parties, by the general
provisions or principles of obligations and contracts, by the rules governing the most
analogous nominate contracts, and by the customs of the people.

Case 196
C&C Commercial Corporation vs. Antonio Menor
G.R. No. L-28360 January 27, 1983

FACTS:
This case is about the requirement of a tax clearance certificate as a prerequisite for taking
part in public biddings or contracts to sell supplies to any government agency.

Judge Cloribel of the CFI of Manila ordered Antonio C Menor, Acting General Manager of the
NAWASA and the members of the Committee on Pre-Qualification to allow C & C
Commercial Corporation to participate as a qualified bidder in the public bidding for the
supply of asbestos cement pressure pipes to the Nawasa in spite of the fact that it had a
pending tax case and had no tax clearance certificate. By virtue of that judgment, which
became final because the Nawasa did not appeal, C & C Commercial Corporation took part
in the bidding. When the bids were opened on May 18, 1967, it was found to be the lowest
bidder. Menor required C & C Commercial Corporation to submit the tax clearance
certificate required in Presidential Administrative Order No, 66.
C & C Commercial Corporation filed a motion wherein it prayed that the Nawasa officials be
ordered to award to the said corporation the contract for the supply of asbestos cement
pressure pipes and that they be restrained from awarding the contract to another bidder.
In effect, that motion Judge Cloribel granted the motion and ordered Menor and the other
Nawasa officials to award within ten days from notice the contract to C & C Commercial
Corporation as the lowest bidder.

ISSUE:
Whether or Not Judge Cloribel acted with grave abuse of discretion in issuing erroneous
order.

RULING:
The order is erroneous and void for the following reasons:
1. The said order was an amendment of a judgment that had already been satisfied. The
case was closed and terminated. Judge Cloribel had no right and authority to issue such an
order after he had lost jurisdiction over the case.
2. The Nawasa was justified in not awarding the contract- to C & C Commercial Corporation
because it had no tax clearance certificate.
3. Moreover, it was not the ministerial duty of the Nawasa officials to award the contract to
C & C Commercial Corporation even if it was the lowest bidder.

Case 197
VICENTE E. TANG vs. HON. COURT OF APPEALS and PHILIPPINE AMERICAN LIFE
INSURANCE COMPANY
G.R. No. L-48563 May 25, 1979

FACTS:
On September 25, 1965, Lee See Guat, a widow, 61 years old, and an illiterate who spoke
only Chinese, applied for an insurance on her life for P60,000 with the respondent
Company. The application consisted of two parts, both in the English language. The second
part of her application dealt with her state of health and because her answers indicated
that she was healthy, the Company issued her Policy No. 0690397, effective October 23,
1965, with her nephew Vicente E. Tang, herein Petitioner, as her beneficiary. On November
15, 1965, Lee See Guat again applied with the respondent Company for an additional
insurance on her life for P40,000. Considering that her first application had just been
approved, no further medical examination was made but she was required to accomplish
and submit Part I of the application . On April 20, 1966, Lee See Guat died of lung cancer.
Thereafter, the beneficiary of the two policies, Vicente E. Tang claimed for their face value
in the amount of P100,000 which the insurance company refused to pay on the ground that
the insured was guilty of concealment and misrepresentation at the time she applied for
the two policies. Hence, the filing of Civil Case No. 90062 in the Court of First Instance of
Manila which dismissed the claim because of the concealment practised by the insured in
violation of the Insurance Law.
On appeal, the Court of Appeals, affirmed the decision. In its decision, the Court of Appeals
stated, inter alia: "There is no doubt that she deliberately concealed material facts about
her physical condition and history and/or conspired with whoever assisted her in relaying
false information to the medical examiner, assuming that the examiner could not
communicate directly with her."

ISSUE:
Whether or not Article 1332 of the Civil Code can be applied.

RULING:
It should be noted that under Art. 1332 above quoted, the obligation to show that the terms
of the contract had been fully explained to the party who is unable to read or understand
the language of the contract, when fraud or mistake is alleged, devolves on the party
seeking to enforce it. Here the insurance company is not seeking to enforce the contracts;
on the contrary, it is seeking to avoid their performance. It is petitioner who is seeking to
enforce them even as fraud or mistake is not alleged. Accordingly, respondent company
was under no obligation to prove that the terms of the insurance contracts were fully
explained to the other party. Even if we were to say that the insurer is the one seeking the
performance of the contracts by avoiding paying the claim, it has to be noted as above
stated that there has been no imputation of mistake or fraud by the illiterate insured whose
personality is represented by her beneficiary the petitioner herein.

In sum, Art. 1332 is inapplicable to the case at bar.

Case 198
BUENAVENTURA ANGELES vs. URSULA TORRES CALASANZ
G.R. No. L-42283 March 18, 1985

FACTS:
On December 19, 1957, defendants-appellants Ursula Calasanz and plaintiffs-appellees
Buenaventura Angeles and Juani entered into a contract to sell a piece of land plus 7%
interest per annum. The plaintiffs-appellees made a down payment upon the execution of
the contract. They promised to pay the balance in monthly installments until fully paid, the
installment being due and payable on the 19th day of each month. The plaintiffs-appellees
paid the monthly installments until July 1966.  On January 28, 1967, the defendants-
appellants cancelled the said contract because the plaintiffs failed to meet subsequent
payments. The plaintiffs’ letter with their plea for reconsideration of the said cancellation
was denied by the defendants.  The plaintiffs-appellees filed a case before the Court of First
Instance to compel the defendant to execute in the final deed of sale. The Court of First
Instance rendered judgment in favor of the plaintiffs, hence this appeal. 

ISSUE:
Whether or not the Contract to Sell has been automatically and validly cancelled by the
defendants-appellants.

RULING:
No. The contract to sell, being a contract of adhesion, must be construed against the party
causing it. The Supreme Court agree with the observation of the plaintiffs-appellees to the
effect that the terms of a contract must be interpreted against the party who drafted the
same, especially where such interpretation will help effect justice to buyers. Thus, since the
principal obligation under the contract is only P3,920.00 and the plaintiffs-appellees have
already paid an aggregate amount of P4,533.38, the courts should only order the payment
of the few remaining installments but not uphold the cancellation of the contract. Upon
payment of the balance of P671.67 without any interest thereon, the defendant must
immediately execute the final deed of sale in favor of the plaintiffs and execute the
necessary transfer of documents, as provided in par.12 of the contract.

Case 199
BONIFACIO BROS., INC., ET AL. vs. ENRIQUE MORA, ET AL.
G.R. No. L-20853 May 29, 1967

FACTS:
Enrique Mora, owner of an OldsMobile sedan model 1956, mortgaged the same to H.S.
Reyes Inc., with the condition that the former would insure the automobile with the latter
as beneficiary. The automobile was insured on June 23, 1959 with the State Bonding &
Insurance Co., Inc. and a motor car insurance were issued to Enrique Mora

During the effectivity of the insurance contract the car met an accident. Mora, without
knowledge of the H. S. Reyes Inc., authorized the Bonifacio Bros., Inc. to repair the car with
some materials supplied by the Ayala Auto parts Co. For the cost of Labor and materials,
Mora was billed P2,102.73. The bill was sent to the insurer’s appraiser. The insurance
company drew a check in the amount of the insurance proceeds and entrusted the check to
its appraiser for delivery to the proper party. The car was delivered to Mora without the
consent of HS Reyes, and without payment to Bonifacio Bros and Ayala.

Upon the theory that the insurance proceeds should be directly paid to them, Bonifacio and
Ayala filed a complaint against Mora and the insurer with the municipal court for the
collection of P2,102.73. The insurance company filed its answer with a counterclaim for
interpleader, requiring Bonifacio and HS Reyes to interplead in order to determine who has
a better right to the proceeds.

ISSUE:
Whether or not there is privity of contract between Bonficacio and Ayala on one hand and
State Insurance on the other.

RULING:
No. A policy of insurance is a distinct and independent contract between the insured and
insurer. A third person has no right in law or equity to the proceeds of an insurance unless
there is a contract or trust, express or implied between the insured and the third person.
The Appellants are not mentioned in the contract as parties thereto, nor is there any clause
or provision thereof from which we can infer that there is an obligation on the part of the
insurance company to pay the cost directly to them.

The clause is an insurance policy, authorizing the owner of the damaged vehicle to contract
for its repairs does not mean that the repairman is entitled to collect the cost of the repair
out of the proceeds of the insurance. It merely establishes the procedure that the insured
has to follow in order to be entitled to indemnity for repair.

On the other hand, the “loss payable” clause of the insurance policy stipulates “Loss, if any,
is payable to H. S. Reyes, Inc.” indicating that it was only the H. S. Reyes Inc. which intended
to be benefited. Where the mortgagee is the beneficiary in a car insurance, it has a better
right than the repairman to the insurance proceeds.

Case 200
STIPULATION POUR ARTRUI FLORENTINO vs. ENCARNACION
GR No L – 27696 September 30, 1977

FACTS:
The parties are applicants for the registration of a parcel of land. This land was acquired by
them through inheritance, except for Salvador Jr. and Angel (oppositors) who purchased
their shares from the original heirs. In the Deed of El Partition, it was stipulated that the
products of the land shall answer for the expenses to be incurred by the Church for the
preparation and celebration of the Holy Week. This stipulation was sought by the
petitioners to be included as an encumbrance on the land sought by the petitioners to be
included as an encumbrance on the land sought to be registered, Salvador Sr. Salvador Jr.
and Angel opposed.

ISSUE:
Whether or not the stipulation in question is a stipulation pour autrui.

RULING:
Yes. The requisites to a stipulation pour autrui are:
(1) That the stipulation is in favour of a third person should be a part, not the whole, of the
contract;
(2) that the favourable stipulation should not be conditioned or compensated by any kind
of obligation whatever;
(3) Neither of the contracting parties bears the legal representation or authorization of a
third party.

The fairest test to determine whether or not the interest of a third person in a contract is a
stipulation pour autrui or merely an incidental interest, is to rely upon the intention of the
parties as disclosed by their contract. While a stipulation in favour of a third person has no
binding effect in itself before its acceptance by the party favoured, the law does not provide
when the third person must make his acceptance. As a rule, there is no time limit; such
third person has all the time until the stipulation is revoked.

Here, the Church is deemed to have impliedly accepted the stipulation in its favour for it
has continuously enjoyed the benefits flowing from the land for seventeen years before its
revocation. This means that the oppositors cannot revoke the stipulation unilaterally.

Case 201
SO PING BUN vs. COURT OF APPEALS, TEK HUA ENTERPRISES CORP. and MANUEL C.
TIONG
G.R. No. 120554 September 21, 1999

FACTS:
Tek Hua Trading Co, through its managing partner, So Pek Giok, entered into four (4) lease
agreements with lessor Dee C. Chuan & Sons Inc. (DCCSI) subject to a one-year term and
with the condition that should the lessee continue to occupy the premises after the term,
the lease shall be on a month-to-month basis. When the contracts expired, the parties did
not renew the contracts, but Tek Hua continued to occupy the premises. In 1976, Tek Hua
Trading Co. was dissolved but later on formed Tek Hua Enterprising Corp. So Pek Giok,
managing partner of Tek Hua Trading, died in 1986. So Pek Gioks grandson, petitioner So
Ping Bun, occupied the warehouse for his own textile business, Trendsetter Marketing.

Lessor DCCSI sent letters to Tek Hua Enterprises stating their intention in increasing the
rent and enclosed therein were new lease contracts for signing. DCCSI warned that failure
of the lessee to accomplish the contracts shall be deemed a lack of interest on the lessee’s
part and agreement to the termination of the lease. Private respondents did not answer any
of these letters. Still, the lease contracts were not rescinded.

ISSUE:
Whether or not So Ping Bun is guilty of tortous interference of a contract.

RULING:
YES. The elements of tort interference are: (1) existence of a valid contract; (2) knowledge
on the part of the third person of the existence of a contract; and (3) interference of the
third person is without legal justification or excuse.

In this case, petitioners Trendsetter Marketing asked DCCSI to execute lease contracts in its
favor, and as a result, petitioner deprived the respondent corporation of the latter’s
property right. Clearly, the three elements of tort interference above-mentioned are
present in the instant case.