Civil Law Digest

Civil Law Review Case Digests Obligations and Contracts | Estoppel | Trusts | Compromise | Partnership | Concurrence and Preferrence of Credits Submitted by:

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Kenjie C. Ameda Ariel D. Gonzales Jose Mari O. Molintas Gerard Franco Q. Posadas Santiago U. Wacas, Jr.

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Saint Louis University School of Law TABLE OF CONTENTS

OBLIGATIONS Sources of Obligations 

Metropolitan Bank and Trust Company v. Rosales (G.R. No. 183204, January 13, 2014)

Obligations to Give 

Philippine National Bank v. Maranon (G.R. No. 189316, June 1, 2013)

Delay      

General Milling Corporation v. Spouses Maranom (G.R. No. 189316, June 1, 2013) Philippine Charter Insurance Corporation v. Central Colleges of the Philippines (G.R. Nos. 180631-33, February 22, 2012) Atlantic Erectors, Inc. v. Court of Appeals (G.R. No. 170732, October 11, 2012) Pascua v. G and G Real TV Corporation (G.R. No. 196383, October 15, 2012) Spouses Bonrostro v. Spouses Luna (G.R. No. 172346, July 24, 2013) Development Bank of the Philippines v. Guarina Agricultural and Realty Development Corporation (G.R. No. 160758, January 15, 2014)

Negligence     

Metropolitan Bank and Trust Company v. Centro Development Corporation (G.R. No. 180974, June 13, 2012) BJDC Construction v. Lanuzo (G.R. No. 161151, March 24, 2014) Bignay Ex-Im Philippines, Inc. v. Union Bank of the Philippines (G.R. No.171590-98, February 12, 2014) Development Bank of the Philippines v. Guarina Agricultural and Realty Development Corporation (G.R. No. 160758, January 15, 2014) Eastern Shipping Lines, Inc. v. BPI (G.R. No. 193986, January 15, 2014)

Fortuitous Events  

Philippine Realty and Holdings Corporation v. Ley Construction and Development Corporation (G.R. No. 165548, June 13, 2011) Metro Concast Steel Corporation v. Allied Bank Corporation (G.R. No. 177921, December 4, 2013)

Enforcement of Creditor’s Remedies 

Metropolitan Bank and Trust Company v. International Exchange Bank (G.R. No. 176008, August 10, 2011)

Civil Law Review II | Ameda | Gonzales | Molintas | Posadas | Wacas

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Saint Louis University School of Law

Usurious Transactions     

Asian Cathay Finance And Leasing Corporation v. Sps. Cesario Gravador (GR 186550, July 5, 2010) Solidbank Corporation v. Permanent Homes, Incorporated (G.R. No. 171925, July 23, 2010) Spouses Villanueva v. Court Of Appeals (G.R. No. 163433, August 22, 2011) Rgm Industries, Inc. v. United Pacific Capital Corporation (G.R. No. 194781, June 27, 2012) Virgilio S. David v. Misamis Occidental Ii Electric Cooperative, Inc. (G.R. No. 194785, July 11, 2012)

Pure Obligations 

HSBC Ltd. Staff Retirement Plan, v. Spouses Broqueza (G.R. No. 178610, November 17, 2010)

Conditional Obligations  

Spouses Nameal And Lourdes Bonrostro v. Spouses Juan And Constancia Luna (G.R. No. 172346, July 24, 2013) Carlos Lim, Et. Al., v. Development Bank Of The Philippines (G.R. No. 177050, July 01, 2013)

Reciprocal Obligations          

G.G. Sportswear Mfg. Corp., v. World Class Properties, Inc. (G.R. No. 182720, March 2, 2010) Solar Harvest, Inc., v. Davao Corrugated Carton Corp. (G.R. No. 176868, July 26, 2010) Bonifacio Sanz Maceda, Jr. v. Development Bank Of The Philippines (G.R. No. 174979, August 11, 2010) Heirs Of Ramon C. Gaite v. The Plaza, Inc. (G.R. No. 177685, January 26, 2011) Mila A. Reyes v. Victoria T. Tuparan (G.R. No. 188064, June 1, 2011) Vicelet Lalicon And Vicelen Lalicon v. National Housing Authority (G.R. No. 185440, July 13, 2011) F.F. Cruz & Co., Inc. v. Hr Construction Corp. (G.R. No. 187521, March 14, 2012) Subic Bay Metropolitan Authority v. Court of Appeals (G.R. No.192885, July 4, 2012 ) Spouses Tongson v. Emergency Pawnshop Bula, Inc. (G.R. No.167874, January 15, 2010) Fil-estate Properties, Inc. v. Spouses Ronquillo (G.R. No.185798, January 13, 2014)

Joint Obligations 

Marsman Drysdale Land, Inc. v. Philippine Geoanalytics, Inc. And Gotesco properties, Inc., (G.R. No.183374, June 29, 2010)

Solidary Obligations  

Asset Builders Corporation v. Stronghold Insurance Company, Inc. (G.R. No.187116, October 18, 2010) Petron Corporation v. Spouses Cudilla, et al. (G.R. No.151038, January 18, 2012)

Obligation with a Penal Clause 

Continental Cement Corporation v. Asea Brown Boveri, Inc. (G.R. No. 171660, October 17, 2011)


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Extinguishment of Obligations 

Metro Concast Steel Corporation v. Allied Bank Corporation (G.R. No.177921, December 4, 2013)

Payment or Performance     

Vitarich corporation v. Chona Losin (G.R. No.181560, november 15, 2010) Land bank of the Philippines v. Alfredo Ong (G.R. No.190755, November 24, 2010) Republic of the Philippines v. Thi thu thuy t. De guzman (G.R. No.175021, June 15, 2011) Union bank of the Philippines v. Spouses Rodolfo and victoria n. Tiu (G.R. nos. 173090-91, September 7, 2011) Spouses Miniano and Leta dela Cruz v. Concepcion (G.R. No.172825, October 11, 2012)

Dation in Payment (Dacion en Pago)   

Luzon development bank v. Enriquez (G.R. No. 168646, January 12, 2011) Tan Shuy v. Spouses Maulawin (G.R. No.190375, February 8, 2012) Spouses Serfino v. Far East bank and Trust company, Inc. (G.R. No.171845, October 10, 2012)

Tender of Payment and Consignation   

Dalton v. FGR realty and development corporation (G.R. No.172577, January 19, 2011) Spouses Cacayorin v. Armed Forces and Police Mutual Benefit Association, Inc. (G.R. No.171298, April 15, 2013) Bonrostro v. Luna (G.R. No. 172346, July 24, 2013)

Loss of the Thing Due 

So v. Food Fest Land (G.R. No. 18362, April 7, 2010)

Condonation or Remission 

Reyna v. Commission on Audit (G.R. No. 167219, February 8, 2011)

Compensation       

Lao v. Special Plans, Inc. (G.R. No. 164791, June 29, 2010) Chung v. Ulanday (G.R. No. 156038, October 11, 2010) Traders Royal Bank v. Castañares (G.R. No. 172020, December 6, 2010) Montemayor v. Millora (G.R. No. 168251, July 27, 2011) Insular Investment and Trust Corp. v. Capital One Equities Corp. (G.R. No. 183308, April 25, 2012) Soriano v. People of the Philippines (G.R. No. 181692, August 14, 2013) Mondragon Personal Sales, Inc. v. Sola (G.R. No. 174882, January 21, 2013)


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Union Bank of the Philippines v. Development Bank of the Philippines (G.R. No. 191555, January 20, 2014) First United Constructors Corp. v. Bayanihan Automotive Corp. (G.R. No. 164985, January 15, 2014)

Novation                      

ACE Foods, Inc. v. Micro Pacific Technologies Co., Ltd. (G.R. No. 200602, December 11, 2013) Metropolitan Bank and Trust Company v. Rural Bank of Gerona (G.R. No. 159097, July 5, 2010) Banate v. Philippine Countryside Rural Bank (G.R. No. 163825, July 13, 2010) St. James College of Parañaque v. Equitable PCI Bank (G.R. No. 179441, August 9, 2010) Mindanao Savings and Loan Association, Inc. v. Wilkom (G.R. No. 178618, October 20, 2010) Salazar v. J.Y. Brothers Marketing Corporation (G.R. No. 171998, October 20, 2010) Loadmasters Customs Services, Inc. v. Glodel Brokerage Corporation (G.R. No. 179446, January 10, 2011) Hernandez-Nievera v. Hernandez, (G.R. No. 171465, February 14, 2011) Country Bankers Insurance Corp. v. Antonio Lagman, (G.R. No. 165487, July 13, 2011) RCJ Bus Lines, Inc. v. Standard Insurance Company Inc., (G.R. No. 193629, August 17, 2011) RCJ Bus Lines, Inc. v. Masters and Travel Corporation, (G.R. No. 177232, August 11, 2012) Republic Flours Mills Corporation v. Forbes Factors Inc., (G.R. No. 152323, October 19, 2011) Stolt-Nielsen Transportation Group, Inc. v. Modequillo, (G.R. No. 177498, January 18, 2012) United Pulp and Paper Co. v. Acropolis Central Guaranty Corp., (G.R. No. 171750, January 25, 2012) Milla v. People, (G.R. No. 188726, January 25, 2012) Malayan Insurance Co. Inc. v. Alberto, (G.R. No. 194320, February 1, 2012) Heirs Franco v. Gonzales, (G.R. No. 159709, June 27, 2012) Land Bank of the Philippines v. Ong, (G.R. No. 190755, November 24, 2012) Philippines National Bank v. Soriano, (G.R. No. 164051, October 3, 2012) Philippines Reclamation Authority v. Romago, (G.R. No. 174665, September 18, 2013) Vector Shipping Corporation v. American Home Assurance Co. (G.R. No. 159213, July 3,2013) Asian Terminals, Inc. v. Philam Insurance Co. Inc. (G.R. No. 181163, July 24, 2013)


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Re: Obligations (Sources of Obligations) THE METROPOLITAN BANK AND TRUST COMPANY, v. ANA GRACE ROSALES AND YO YUK TO G.R. No. 183204, January 13, 2014 Facts: Fraudulent and unauthorized withdrawals were made from Liu Chiu Fang’s dollar account with petitioner Metropolitan Bank and Trust Company. This prompted petitioner to issue a “Hold Out” order against the accounts of respondents whom petitioner believed were responsible for the withdrawals. Respondents, on the other hand, denied taking part in the fraudulent and unauthorized withdrawals from the dollar account of Liu Chiu Fang and argued that there was no legal basis for petitioner to withhold their deposits because they had no monetary obligation to petitioner. Respondents filed a complaint for breach of contract and damages against petitioner after they were unable, after several attempts, to withdraw their deposits with the latter. Petitioner claimed that it did not breach its contract with respondents because it had a valid reason for issuing the "Hold Out" order. It averred that due to the fraudulent scheme of respondents, it was compelled to reimburse Liu Chiu Fang the amount of US$75,000. Petitioner anchors its right to withhold respondents’ deposits on the Application and Agreement for Deposit Account, which authorized petitioner to withhold as security deposits made with it “…as will be sufficient to pay any or all obligations incurred by Depositor under the Account or by reason of any other transactions between the same parties now existing or hereafter contracted…” Issue: Whether or not petitioner breached its contract with respondent. Held: Yes. Petitioner is guilty of breach of contract for unjustifiably refusing to release respondents’ deposit despite demand and is, thus, liable for damages. The "Hold Out" clause applies only if there is a valid and existing obligation arising from any of the sources of obligations enumerated in Article 1157 of the Civil Code, to wit: law, contracts, quasicontracts, delict, and quasi-delict. In this case, petitioner failed to show that respondents have an obligation to it under any law, contract, quasi-contract, delict, or quasi-delict. And although a criminal case was filed by petitioner against respondents, this is not enough reason for petitioner to issue a "Hold Out" order as the case was still pending and no final judgment of conviction has been rendered against respondents. In fact, it is significant to note that at the time petitioner issued the "Hold Out" order, the criminal complaint had not yet been filed. Thus, 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.


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Re: Obligations (Obligation to Give) PHILIPPINE NATIONAL BANK, v. SPOUSES BERNARD and CRESENCIA MARANON. G.R. No. 189316, June 1, 2013 Facts: The spouses Rodolfo and Emilie Montealegre (spouses Montealegre) obtained a loan from petitioner Philippine National Bank (PNB) secured by a Real Estate Mortgage over a parcel of land. Upon failure of the spouses Montealegre to pay the loan, the land was foreclosed and title thereto was issued in favor of PNB as the highest bidder in the auction sale. Subsequently, respondents Bernard and Cresencia Marañon (spouses Marañon) filed before the RTC a complaint for Annulment of Title, Reconveyance and Damages against the spouses Montealegre and PNB alleging that they (the spouses Marañon) are the true registered owners of the land which was illegally transferred in the name of Emilie Montealegre through a falsified Deed of Sale. In the decision rendered by the RTC: (a) title over the subject parcel of land was reconveyed in favor of the spouses Marañon; and (b) PNB was adjudged to be a mortgagee in good faith whose lien on the subject land must be respected. Subsequent motions were filed by the spouses Marañon for the release of the rental payments made by a tenant in the subject land which was deposited with the Clerk of Court and paid to PNB. PNB averred that its mortgage lien should be carried over to the new title reconveying the lot to Spouses Marañon. PNB further argued that with the expiration of the redemption period, it is now the owner of the subject land hence, entitled to its fruits. Issue: Whether or not PNB is entitled to the fruits of the land. Held: No. Rent is a civil fruit that belongs to the owner of the property producing it by right of accession. The rightful recipient of the disputed rent in this case should thus be the owner of the subject lot at the time the rent accrued. Under Article 2127 of the New Civil Code, a mortgage extends to the natural accessions, to the improvements, growing fruits, and the rents or income not yet received when the obligation becomes due. But the application of Article 2127 is predicated on the presumption that the ownership of accessions and accessories also belongs to the mortgagor as the owner of the principal. Corollary, any evidence sufficiently overthrowing the presumption that the mortgagor owns the mortgaged property precludes the application of Article 2127. Otherwise stated, the provision is irrelevant and inapplicable to mortgages and their resultant foreclosures if the mortgagor is later on found or declared to be not the true owner of the property. In the case at bar, the spouses Montealegre are not the true owners of the subject land much less of the building which produced the disputed rent. The foreclosure proceedings caused by PNB could


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not have, thus, included the building found on the subject lot and the rent it yields. PNB’s lien as a mortgagee in good faith pertains to the subject lot alone because the rule that improvements shall follow the principal in a mortgage under Article 2127 of the Civil Code does not apply under the premises. Accordingly, since the building was not foreclosed, it remains a property of Spouses Marañon; it is not affected by non-redemption and is excluded from any consolidation of title made by PNB over the subject lot. Thus, PNB’s claim for the rentals has no basis. It must be remembered that there is technically no juridical tie created by a valid mortgage contract that binds PNB to the subject lot because its mortgagor was not the true owner. But by virtue of the mortgagee in good faith principle, the law allows PNB to enforce its lien. We cannot, however, extend such principle so as to create a juridical tie between PNB and the improvements attached to the subject lot despite clear and undeniable evidence showing that no such juridical tie exists.


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Re: Obligations (Delay) GENERAL MILLING CORPORATION, v. SPS. LIBRADO RAMOS and REMEDIOS RAMOS G.R. No. 193723, July 20, 2011 Facts: General Milling Corporation (GMC) agreed to supply broiler chicken to the spouses Librado and Remedios Ramos (spouses Ramos) and to guarantee full compliance, a Deed of Real Estate Mortgage was executed over a parcel of land owned by the latter. GMC sent several letters to the spouses Ramos requesting them to go to the office of GMC to discuss" the settlement of their account. But due to business losses, the spouses were unable to settle their obligations with GMC. Thus, the land was foreclosed and title thereto was issued in favor of GMC. Issue: Whether or not there was sufficient demand for the spouses Ramos to pay their obligations to GMC. Held: No. There are three requisites necessary for a finding of default. First, the obligation is demandable and liquidated; second, the debtor delays performance; and third, the creditor judicially or extrajudicially requires the debtor’s performance. GMC did not make a demand on Spouses Ramos but merely requested them to go to GMC’s office to discuss the settlement of their account. In spite of the lack of demand made on the spouses, however, GMC proceeded with the foreclosure proceedings. Neither was there any provision in the Deed of Real Estate Mortgage allowing GMC to extrajudicially foreclose the mortgage without need of demand. GMC should have first made a demand on the spouses before proceeding to foreclose the real estate mortgage.


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Re: Obligations (Delay) PHILIPPINE CHARTER INSURANCE CORPORATION, v. CENTRAL COLLEGES OF THE PHILIPPINES and DYNAMIC PLANNERS AND CONSTRUCTION CORPORATION G.R. Nos. 180631-33, February 22, 2012 Facts: Central Colleges of the Philippines (CCP) contracted the services of Dynamic Planners and Construction Corporation (DPCC) for the construction of a school. To guarantee the fulfillment of the obligation, DPCC posted three bonds which were all issued by the Philippine Charter Insurance Corporation (PCIC). All the bonds were callable on demand and set to expire on October 30, 2003. Under the construction bonds issued by PCIC, claims must be presented to it in writing within 10 days from the expiration of this bond or from the occurrence of the default or failure of DPCC, whichever is the earliest, otherwise the bonds shall be cancelled. After several delays in the construction of the school by DPCC, CCP terminated its contract with DPCC and informed the latter of said termination on October 29, 2003. On November 6, 2003, CCP informed PCIC of the breach in the contract by DPCC and its plan to claim on the construction bonds. According to PCIC, DPCC was already in default as early as September 4, 2003 when it failed to comply with the agreed construction schedules, hence, the ten-day reglementary period to file a claim on the bonds should have been reckoned from such date and filed on September 14, 2003. Issue: Whether or not DPCC incurred in delay as of September 4, 2003. Held: No. The civil law concept of delay or default commences from the time the obligor demands, judicially or extrajudicially, the fulfillment of the obligation from the obligee. In legal parlance, demand is the assertion of a legal or procedural right. Hence, DPCC incurred delay from the time CCP called its attention that it had breached the contract and extrajudicially demanded the fulfillment of its commitment against the bonds. It is the obligor’s culpable delay, not merely the time element, which gives the obligee the right to seek the performance of the obligation. As such, CCP’s cause of action accrued from the time that DPCC became in culpable delay as contemplated in the surety and performance bonds. DPCC incurred in default on October 29, 2003 when CCP informed it in writing of the breach of the contract agreement and demanded the fulfillment of its obligation against the bonds. Consequently, the November 6, 2003 letter that CCP sent to PCIC properly complied with the notice of claim requirement set forth in the said bonds. Upon notice of default of obligor DPCC, PCIC’s liability, as surety, was already attached.


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Re: Obligations (Delay) ATLANTIC ERECTORS, INC., v. COURT OF APPEALS and HERBAL COVE REALTY CORPORATION G.R. No. 170732, October 11, 2012 Facts: Respondent Herbal Cove Realty Corporation entered into a contract with petitioner Atlantic Erectors, Inc. for the construction of its subdivision project. Petitioner agreed to finish and complete the works within a period of 180 consecutive calendar days reckoned from July 8, 1996. The construction contract provided that upon failure to complete the project within the contract time, petitioner shall be required to pay respondent liquidated damages equivalent to 1% of the Contract Price per calendar day of delay until completion, delivery and acceptance of the said Works by respondent to a maximum amount not to exceed 10%. Despite the extensions granted to petitioner, it still failed to complete the project. Issue: Whether or not petitioner was in default in the performance of its obligation as to entitle respondent to liquidated damages. Held: Yes. As a pre-condition for an award of liquidated damages, there must be proof of the fact of delay in the performance of the obligation. In the case at bar, petitioner’s failure to complete the works and deliver the housing units within the stipulated period has been duly established, thereby entitling respondent to liquidated damages. It is undisputed that petitioner failed to perform the contracted works within the period as originally agreed upon. It is likewise settled that an extension was requested by petitioner and granted by respondent. With the modification of the contract period, petitioner was obliged to perform the works and deliver the units only until April 7, 1997. Yet it still reneged on its obligation. As long as the petitioner fails to finish the works within the period agreed upon by the parties without justifiable reason and after the owner makes a demand, then liability for damages as a consequence of such default arises.


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Re: Obligations (Delay) ROBERT PASCUA, doing business under the name and style TRI-WEB CONSTRUCTION, v. G & G REAL TV CORPORATION G.R. No. 196383, October 15, 2012 Facts: Respondent G&G Real TV Corporation contracted the services of petitioner Robert Pascua for the construction of a four-story building. During the course of the construction project, respondent required petitioner to undertake several additional works and change order works which were not covered by the original agreement. Since respondent required petitioner to prioritize the change order and additional works, the construction of the four-storey building had to be temporarily halted. Eventually, petitioner was able to finish the project, albeit behind the scheduled turnover date. However, respondent refused to settle its outstanding obligation to petitioner prompting the latter to file a Complaint for Sum of Money with Damages. Issue: Whether or not petitioner is entitled to the payment of the outstanding balance of the contract price. Held: Yes. The testimonies and documentary evidence presented sufficiently prove that it was respondent’s additional works and change orders, which were not part of the original agreement, that had caused the delay in the completion of the proposed project. A construction contract necessarily involves reciprocal obligations, as it imposes upon the contractor the obligation to build the structure subject of the contract, and upon the owner the obligation to pay for the project upon its completion. Pursuant to the aforementioned contractual obligations, petitioner completed the construction of the four-storey commercial building and twostorey kitchen with dining hall. Thus, this Court finds no legal basis for respondent to not comply with its obligation to pay the balance of the contract price due the petitioner.


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Re: Obligations (Delay) SPOUSES NAMEAL and LOURDES BONROSTRO, v. SPOUSES JUAN and CONSTANCIA LUNA G.R. No. 172346, July 24, 2013. Facts: The spouses Luna, under a Contract to Sell, sold to the spouses Bonrostro a house and lot for P1,250,000 which was to be paid as follows: (a) (b) (c) (d)

P200,000.00 upon signing the Contract To Sell, P300,000.00 payable on or before April 30, 1993, P330,000.00 payable on or before July 31, 1993, P417,000.00 payable to the New Capitol Estate, for 15 years at P6,867.12 a month.

The parties further stipulated on the following terms and conditions: (a) In the event the spouses Bonrostro fail to pay the second installment on time, they shall pay a 2% monthly interest on the P300,000.00; (b) In the event the spouses Bonrostro fail to pay the amount of P630,000.00 on the stipulated time, the Contract to Sell shall be deemed cancelled and rescinded. Except for the P200,000 downpayment, the spouses Bonrostro failed to pay any of the stipulated subsequent amortization payments. When the spouses Luna filed a complaint for rescission of the contract, the spouses Bonrostro, in their answer, averred that they sought an extension to pay their obligation, however, during the time that they were ready to pay the said amount the spouses Luna did not show up in the rendezvous. On November 24, 1993, Lourdes sent a letter expressing her desire to pay the balance, but received no response. Issue: Whether or not the spouses Bonrostro are liable for interest on the installments due from the date of default until fully paid. Held: Yes. The spouses Bonrostro cannot invoke their readiness and willingness to pay their obligation on November 24, 1993 as an excuse from being made liable for interest beyond the said date. When a tender of payment is made in such a form that the creditor could have immediately realized payment if he had accepted the tender, followed by a prompt attempt of the debtor to deposit the means of payment in court by way of consignation, the accrual of interest on the obligation will be suspended from the date of such tender. But when the tender of payment is not accompanied by the means of payment, and the debtor did not take any immediate step to make a consignation, then interest is not suspended from the time of such tender.


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In the case at bar, the spouses Bonrostro erroneously assumed that their notice to pay would excuse them from paying interest. Their claimed tender of payment did not produce any effect whatsoever because it was not accompanied by actual payment or followed by consignation. Hence, it did not suspend the running of interest. The spouses Bonrostro are therefore liable for interest on the subject installments from the date of default until full payment of the sums of P300,000.00 and P330,000.00. Under Article 2209 of the New Civil Code, if the obligation consists in the payment of a sum of money, and the debtor incurs in delay, the indemnity for damages, there being no stipulation to the contrary, shall be the payment of the interest agreed upon, and in the absence of stipulation, the legal interest. In the case at bar, there being no stipulation on interest in case of delay in the payment of amortization, the legal rate of 12% per annum shall apply.


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Re: Obligations (Delay) DEVELOPMENT BANK OF THE PHILIPPINES, v. GUARIÑA AGRICULTURAL AND REALTY DEVELOPMENT CORPORATION G.R. No. 160758, January 15, 2014 Facts: Guariña Agricultural and Realty Development Corporation (Guariña Corporation) obtained a loan from the Development Bank of the Philippines (DBP) and executed several real estate and chattel mortgages to secure its obligation. According to DBP, the loan had been granted for the development of a beach resort, thus, upon discovering that Guariña Corporation had not completed the construction works, DBP refused to release of the balance of the loan despite the demands made by Guariña Corporation. DBP, in a telegram to Guariña Corporation reminded the latter to make good on its construction works, otherwise, it would foreclose the mortgage it executed. Subsequently, even before the loan became due, DBP initiated extrajudicial foreclosure proceedings against the mortgaged properties of Guariña Corporation. Guariña Corporation argued that the principal obligation did not yet fall due and become demandable, thus, the foreclosure proceedings were premature and unenforceable Issue: Whether or not Guariña Corporation incurred in delay. Held: No. By its failure to release the proceeds of the loan in their entirety, DBP had no right yet to exact on Guariña Corporation the latter's compliance with its own obligation under the loan. While a creditor and a debtor could regulate the order in which they should comply with their reciprocal obligations, it is presupposed that in a loan the lender should perform its obligation - the release of the full loan amount - before it could demand that the borrower repay the loaned amount. In other words, Guariña Corporation would not incur in delay before DBP fully performed its reciprocal obligation. Considering that it had yet to release the entire proceeds of the loan, DBP could not yet make an effective demand for payment upon Guariña Corporation to perform its obligation under the loan. And it would only be when a demand to pay had been made and was subsequently refused that a borrower could be considered in default, and the lender could obtain the right to collect the debt or to foreclose the mortgage. Hence, Guariña Corporation has not incurred in delay.


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Re: Obligations (Negligence) METROPOLITAN BANK and TRUST COMPANY, v. CENTRO DEVELOPMENT CORPORATION, CHONGKING KEHYENG, MANUEL CO KEHYENG and QUIRINO KEHYENG G.R. No. 180974, June 13, 2012 Facts: Respondent Centro Development Corporation (Centro) mortgaged its properties under a Mortgage Trust Indenture (MTI) agreement with the Bank of the Philippine Islands to secure loans in favor of Lucky Two Corporation and for the operations of its business. Subsequently, Centro and BPI made several amendments to the MTI allowing additional loans and to include San Carlos Milling Company, Inc. (San Carlos) as a borrower in addition to Centro and Lucky Two Corporation. The total obligation under the MTI amounted to one hundred forty four million pesos. (P144,000,000) Meanwhile, the MTI was amended in favor of petitioner Metropolitan Bank and Trust Company (Metrobank) constituting the latter as successor-trustee of the existing MTI. On August 12, 1994, the board of directors of Centro allegedly issued a resolution to that effect. In 1998, respondents herein, and stockholders of Centro, Chongking Kehyeng, Manuel Co Kehyeng and Quirino Kehyeng, (Kehyengs) allegedly questioned the mortgage of the properties. They alleged that they were not aware of any board or stockholders’ meeting held on August 12, 1994, when petitioner Metrobank was appointed as successor-trustee of BPI in the MTI. Meanwhile, during the period April 1998 to December 1998, San Carlos obtained additional loans from petitioner Metrobank. It is noteworthy, however, that these additional obligations were not reflected in the MTI, hence were unsecured obligations. San Carlos failed to pay these outstanding obligations despite demand. Thus, petitioner, as trustee of the MTI, enforced the conditions thereof and initiated foreclosure proceedings. Respondents Kehyengs on the other hand filed an action for the annulment of the MTI and a complaint against Go Eng Uy, and the other officers of the corporation on the ground that they were denied of their rights as stockholders of Centro since they were not notified of the said meeting where the MTI was concluded. Respondents also filed a temporary restraining order against the foreclosure proceedings initiated by petitioner Metrobank. They contend that Metrobank could not foreclosure the properties of Centro under the MTI since the same was not valid and arguing further that Metrobank was also negligent when it did not ascertain that all legal requirements under the law were met in order to validly mortgage the properties of Centro. On the other hand, Metrobank argued that no neglect could be imputed to it since it merely relied on the certificate issued by the corporate secretary of Centro, which apparently established the authority to mortgage Centro’s properties and assets.


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Issue: Whether or not Metrobank cannot foreclose the properties of Centro subject of the MTI since it was negligent in not ascertaining the authority under the MTI which authorizes the mortgage of Centro’s properties. Held: The Supreme Court ruled in the affirmative. Petitioner Metrobank was negligent when it failed to ascertain the validity of the mortgage under the MTI. Under Republic Act No. 8971, or the General Banking Law of 2000, recognizes the vital role of banks in providing an environment conducive to the sustained development of the national economy and the fiduciary nature of banking; thus, the law requires banks to have high standards of integrity and performance. The fiduciary nature of banking requires banks to assume a degree of diligence higher than that of a good father of a family. In the present case, the act of petitioner Metrobank in merely relying on the secretary’s certificate is tantamount it. It did not even inquire into the validity of the meeting conducted to approve the same, hence it is not entitled to the benefits of the MTI to foreclose the properties of Centro. In the case at bar, petitioner itself was negligent in the conduct of its business when it extended unsecured loans to the debtors. Worse, it was in serious breach of its duty as the trustee of the MTI. It was not able to protect the interests of the parties and was even instrumental in violating the terms of the MTI, to the detriment of the parties thereto. Thus, petitioner has only itself to blame for being left with insufficient recourse against petitioner under the assailed MTI.


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Re: Obligations (Negligence) BJDC CONSTRUCTION, REPRESENTED BY ITS MANAGER/PROPRIETOR JANET S. DELA CRUZ, v. NENA E. LANUZO, CLAUDETTE E. LANUZO, JANET E. LANUZO, JOAN BERNABE E. LANUZO, AND RYAN JOSE E. LANUZO G.R. No. 161151, March 24, 2014 Facts: On January 5, 1998, Nena E. Lanuzo (Lanuzo) filed a complaint for damages against BJDC Construction Company (BJDC), a single proprietorship engaged in the construction business. The company was the contractor of the re–blocking project to repair the damaged portion of one lane of the national highway at San Agustin, Pili, Camarines Sur from September 1997 to November 1997. The claim for damages was based on the allegation that her husband, Balbino Lanuzo (Balbino) figured in an accident that transpired at the site of the re–blocking work which caused the latter’s death on October 30, 1997. According to Lanuzo’s claim, her husband’s motorcycle sideswiped the road barricade placed by the company in the right lane portion of the road, causing him to lose control of his motorcycle and to crash on the newly cemented road. Further, it was because there was a failure on the part of BJDC to place illuminated warning signs on the site of the project which caused the accident and was the proximate cause of the death of Balbino. On the other hand, BJDC countered that it had installed warning signs and lights along the highway and on the barricades of the project and at the time of the incident, the lights were working and switched on. BJDC insisted that the death of Balbino was an accident brought about by his own negligence. In the police investigation report it was stated that Balbino was not wearing any helmet at that time, and the accident occurred. It also stated that the road sign/barricade installed on the road had a light. On trial, the Regional Trial Court denied Lanuzo’s claim stating that they were unable to make out a case for damages, with a preponderance of evidence. According to the court, Lanuzo did not even present an eyewitness account of the death of their decedent whereas, the flagman of defendant was present when the accident occurred. The flagman stated among others that, the accident was caused by deceased Balbino having overtaken a motorcycle ahead of him and on swerving, hit barricade. On appeal, the appellate court reversed the decision of the Regional Trial Court finding the testimony of the flagman as self–serving. It held that the flagman’s statement was negated by the statements of other witness to the effect that they had passed by the area immediately before the accident and had seen the road to be dark and lit only by a gas lamp. Thus, the appellate court ruled that the placing of road signs and streamers alone did not prove that the electric bulbs were in fact switched on at the time of the accident as to sufficiently light up the newly re–blocked portion of the highway.


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Issue: Whether or not Nena’s claim had satisfactorily presented a prima facie case of negligence, which BJDC failed to overcome with an adequate explanation, and whether such alleged negligence is the proximate cause of death of Balbino. Held: Upon a review of the records, the Supreme Court affirmed the findings of the Regional Trial Court. The Court ruled that Lanuzo, the party carrying the burden of proof, did not establish by preponderance of evidence that the negligence on the part of the company was the proximate cause of the fatal accident of Balbino. Based on the evidence adduced by the Lanuzo heirs, negligence cannot be fairly ascribed to the company considering that it has shown its installation of the necessary warning signs and lights in the project site. In that context, the fatal accident was not caused by any event which is within the exclusive control of the company. In contrast, Balbino had the exclusive control of how he operated and managed his motorcycle. The records disclose that he himself did not take the necessary precautions. As the flagman declared, Balbino overtook another motorcycle rider at a fast speed, and in the process could not avoid hitting a barricade at the site, causing him to be thrown off his motorcycle onto the newly cemented road. This causation of the fatal injury went uncontroverted by Lanuzo. Moreover, by the time of the accident, the project, had been going on for more than a month and was already in the completion stage. Balbino, who had passed there on a daily basis, was thus very familiar with the risks at the project site. Nor could Lanuzo claim that the illumination was not adequate, for it cannot be denied that Balbino’s motorcycle was equipped with headlights that would have enabled him at dusk or night time to see the condition of the road ahead. That the accident still occurred surely indicated that he himself did not exercise the degree of care expected of him as a prudent motorist. Lastly, the testimony of a doctor stated that the cause of the death of Balbino was the fatal depressed fracture at the back of his head. Considering that it was shown that Balbino was not wearing any protective head gear or helmet at the time of the accident, he was guilty of negligence in that respect. Had he worn the protective head gear or helmet, his untimely death would not have occurred. All the established circumstances showed that the proximate and immediate cause of the death of Balbino was his own negligence. Hence, Lanuzo could not recover damages.


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Re: Obligations (Negligence) BIGNAY EX-IM PHILIPPINES, INC. v. UNION BANK OF THE PHILIPPINES. G.R. No.171590-98, February 12, 2014 Facts: In 1984, Alfonso de Leon (Alfonso) mortgaged in favor of Union Bank of the Philippines (Union Bank) real property which was registered in his and his wife Rosario’s name. The property was foreclosed and sold at auction to Union Bank. After the redemption period expired, Union Bank consolidated its ownership and a new title was issued in its name in 1987. In 1988, Rosario filed against Alfonso and Union Bank an action for annulment of the 1984 mortgage, claiming that Alfonso mortgaged the property without her consent, and for reconveyance. On September 6, 1989, not knowing about the pending case for annulment of mortgage, Bignay ExIm Philippines, Inc. (Bignay) through its president, offered to purchase the property. It was made to appear in an alleged letter-proposal that Bignay is buying the property despite the knowledge of pending litigation between Rosario de Leon and Union Bank. Thus, on December 20, 1989, the property was sold by Union Bank to Bignay for P4,000,000.00. The deed of sale provides that vendor (Union Bank) does not make any representations or warranty with respect to the property but that it will defend its title to the same against the claims of any person whomsoever. Meanwhile on December 12, 1991, the court decided on the action for the annulment of mortgage in favor of Rosario. The court awarded one-half (1/2) of the undivided share of the property to Rosario. Union Bank tried to appeal the case, however, it was denied for failure to file the required appellant’s brief. Next, when a Petition for Review on Certiorari was filed with the Supreme Court as regards the case, it was likewise denied due to late filing and payment of legal fees. Finally, Union bank sought the annulment of the December 12, 1991 judgment, with the Court of Appeals, yet again, the court dismissed the petition for its failure to comply with Supreme Court Circular No. 2891. As a result, Bignay was evicted from the property. By then, however, it had demolished the existing structure on the lot and begun construction of a new building. On March 21, 1994, Bignay filed a case for breach of warranty against eviction under Articles 1547 and 1548 of the Civil Code, with damages, against Union Bank. Bignay alleged in its complaint that at the time of the sale, Union Bank represented that there were no liens or encumbrances over the property other than those annotated on the title. It turned out, however, that the property was the subject of a case by Rosario against Union Bank, and Bignay began to receive copies of court orders and pleadings relative to the case. Union Bank, on the other hand interposed Bignay had knowledge of the pending case involving the disputed property as evidenced by the letter-proposal. Further, it claimed that it made no warranties in favor of Bignay when it sold the property to the latter on December 20, 1989 as evidenced by the deed of sale.


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Bignay, through its president, countered that it merely signed papers in blank and left it with Union Bank. This is proved by the fact that Bignay proceeded to construct a costly building on the property, and that if it knew of the pending case it is highly doubtful that it would do so. Issue: Whether or not Union Bank (seller), is negligent in protecting its title to the disputed property against the claims of third persons resulting in Bignay’s (buyer) eviction from the property. Held: The Supreme Court is convinced that Bignay purchased the property without knowledge of the pending case between Rosario and Union Bank. As such, Union Bank is therefore answerable for its express undertaking under the deed of sale to defend its title to the property against the claims of any person whatsoever. By this warranty, Union Bank represented to Bignay that it had title to the property, and by assuming the obligation to defend such title, it promised to do so at least in good faith and with sufficient prudence, if not to the best of its abilities. Further, the Supreme Court observed based on records, that clearly, Union Bank was grossly negligent in the handling and prosecution of the civil case filed by Rosario against it causing the eviction of Bignay. As a result, the December 12, 1991 Decision became final and executory, and Bignay was evicted from the property. The Supreme Court said that such negligence in the handling of the case is far from coincidental, and that it is decidedly glaring that it amounts to bad faith. The Court went on further stating that negligence may be occasionally so gross as to amount to malice or bad faith. Indeed, in culpa contractual or breach of contract, gross negligence of a party amounting to bad faith is a ground for the recovery of damages by the injured party.


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Re: Obligations (Negligence) DEVELOPMENT BANK OF THE PHILIPPINES, v. GUARIÑA AGRICULTURAL AND REALTY DEVELOPMENT CORPORATION. G.R. No. 160758, January 15, 2014 Facts: In July 1976, Guariña Agricultural and Realty Development Corporation (Guariña Corporation) applied for a loan from the development Bank of the Philippines (DBP) to finance the development of its resort complex situated in Iloilo. The loan, in the amount of P3,387,000.00, was approved on August 5, 1976. In consideration of the loan, Guariña Corporation executed a promissory note that would be due on November 3, 1988. In addition, Guariña Corporation executed a real estate mortgage over several real properties and a chattel mortgage over several personal properties existing at the resort complex and those yet to be acquired out of the proceeds of the loan in favor of DBP as security for the repayment of the loan. On the other hand, prior to the release of the loan, DBP also required Guariña Corporation to put up a cash equity for the construction of the buildings and other improvements on the resort complex. The loan was released in several installments, and Guariña Corporation used the proceeds to defray the cost of additional improvements in the resort complex. Subsequently, Guariña Corporation demanded the release of the balance of the loan, but DBP refused. Instead, DBP directly paid some suppliers of Guariña Corporation over the latter's objection. DBP found upon inspection of the resort project, that Guariña Corporation had not completed the construction works. By way of letter, DBP demanded that Guariña Corporation expedite the completion of the project, and warned that it would initiate foreclosure proceedings should Guariña Corporation not do so. Unsatisfied with the non-action and objection of Guariña Corporation, DBP initiated extrajudicial foreclosure proceedings. A notice of foreclosure sale was sent to Guariña Corporation. The notice was eventually published, leading the clients and patrons of Guariña Corporation to think that its business operation had slowed down, and that its resort had already closed. On January 6, 1979, Guariña Corporation sued DBP in the Regional Trial Court (RTC) to demand specific performance of the latter's obligations under the loan agreement, and to stop the foreclosure of the mortgages. However, DBP moved for the dismissal of the complaint, stating that the mortgaged properties had already been sold to satisfy the obligation of Guariña Corporation at a public auction. Guariña Corporation thus, sought the nullification of the foreclosure proceedings and the cancellation of the certificate of sale. In the meantime, DBP applied for the issuance of a writ of possession by the RTC. Aggrieved, Guariña Corporation assailed the granting of the writ before the Court of Appeals. The appellate court dismissed the petition and DBP sought the implementation of the order for the issuance of the writ of possession. On January 6, 1998, the RTC rendered its judgment in the action filed by Guariña Corporation for the nullification of the foreclosure sales made by DBP. The court declared the foreclosure sales null


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and void ordering DBP to give back to Guariña Corporation the actual possession and enjoyment of all the properties foreclosed and possessed by it. The Court of Appeals affirmed the decision. Issue: Whether or not the ruling of the Trial Court which was affirmed by the Court of Appeals was correct. Held: The Supreme Court upheld the findings of the lower courts. The agreement between DBP and Guariña Corporation was a loan, and under the law, a contract of loan is a reciprocal obligation, as it arises from the same cause where one party is the creditor, and the other the debtor. The obligation of one party in a reciprocal obligation is dependent upon the obligation of the other, and the performance should ideally be simultaneous. This means that in a loan, the creditor should release the full loan amount and the debtor repays it when it becomes due and demandable. In this case, DBP did not release the total amount of the approved loan. DBP therefore could not have made a demand for payment of the loan since it had yet to fulfill its own obligation. More so, DBP cannot foreclose the properties of Guariña Corporation since the latter was not yet in default, thus, rendering the foreclosure proceedings premature and improper. The Supreme Court further held that DBP’s failure to release the proceeds of the loan in their entirety gives it no right yet to exact on Guariña Corporation the latter's compliance with its own obligation under the loan. Indeed, if a party in a reciprocal contract like a loan does not perform its obligation, the other party cannot be obliged to perform what is expected of it while the other's obligation remains unfulfilled. In other words, the latter party does not incur delay. Under the circumstances, DBP's foreclosure of the mortgage and the sale of the mortgaged properties at its instance were premature, and, therefore, void and ineffectual. Being a banking institution, DBP owed it to Guariña Corporation to exercise the highest degree of diligence, as well as to observe the high standards of integrity and performance in all its transactions because its business was imbued with public interest. The high standards were also necessary to ensure public confidence in the banking system. Thus, DBP had to act with great care in applying the stipulations of its agreement with Guariña Corporation. Yet, DBP failed in its duty to exercise the highest degree of diligence by prematurely foreclosing the mortgages and unwarrantedly causing the foreclosure sale of the mortgaged properties despite Guariña Corporation not being yet in default.


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Re: Obligations (Negligence) EASTERN SHIPPING LINES INC., v. BPI/MS INSURANCE CORP. and MITSUI SUM TOMO INSURANCE CO. LTD. G.R. No. 193986, January 15, 2014 Facts: Sumitomo Corporation (Sumitomo) made three (3) shipments of steel sheets in coil through vessels owned by petitioner Eastern Shipping Lines, Inc. (petitioner), in favor of the consignee Calamba Steel Center Inc. (Calamba Steel). The shipments were insured by Sumitomo against all risks with Mitsui. The first shipment consists of thirty-one (31) various steel sheets in coil from Yokohama, Japan for delivery to Calamba Steel. Upon unloading from the vessel, nine (9) coils were observed to be in bad condition. The second shipment consists of twenty-eight (28) steel sheets in coil for transport and delivery again to Calamba Steel. Upon unloading of the cargo from the said vessel, eleven (11) coils were found damaged. In the third shipment, Sumitomo again shipped 117 various steel sheets in coil, again in favor of Calamba Steel, and upon its discharge, six coils were again observed to be in bad condition. All the respective cargoes, at the time of their arrival at the port of Manila, were turned over to Asian Terminals, Inc. (ATI) for stevedoring, storage and safekeeping pending Calamba Steel’s withdrawal of the goods. When ATI delivered the respective cargoes to Calamba Steel, the latter rejected its damaged portions, for being unfit for its intended purpose. Calamba Steel filed an insurance claim with Mitsui through the latter’s settling agent, respondent BPI/MS Insurance Corporation (BPI/MS). BPI/MS paid Calamba Steel the sum of US$30,210.32.12 for the damage suffered by all three shipments. On August 31, 2004, as insurer and subrogee of Calamba Steel, Mitsui and BPI/MS filed a Complaint for Damages against petitioner and ATI. The Regional Trial Court (RTC) rendered a judgment in favor of Mitsui and BPI/MS against petitioner Eastern Shipping Lines and ATI, jointly and severally, ordering the latter to pay damages worth US$30,210.32 to Mitsui and BPI/MS. The Court of Appeals affirmed the decision of the RTC, ruling that both petitioner and ATI were very negligent in the handling of the subject cargoes. Thus, the petitioner elevates the case to the Supreme Court through a petition for review on certiorari. Petitioner avers that the Court of Appeals erred in affirming the RTC decision because there are pieces of evidence show that the cause of the damage was the rough handling of the goods by ATI during the discharging operations. Petitioner prays to be absolved from any liability relative to the damage incurred by the goods. On the other hand, respondents Mitsui and BPI/MS counter that petitioner is required by law to observe extraordinary diligence in the vigilance over the goods it carries.


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Issue: Whether or not the Court of Appeals committed an error in finding that petitioner is solidarily liable with ATI on account of the damage incurred by the goods. Held: It was shown to the Supreme Court that a Request for Bad Order Surveys or a document which is requested by an interested party that incorporates therein the details of the damage, if any, suffered by a shipped commodity was issued against the cargo. Also, a Turn Over Survey of Bad Order Cargoes (TOSBOC) was issued by, ATI as the arrastre contractor in this case. The TOSBOC is a form of certification that states therein the bad order condition of a particular cargo, as found prior to its turn over to the custody or possession of the said arrastre contractor. The said damage Reports, Turn Over Survey Reports and Requests for Bad Order Survey led the Court to conclude that before the subject shipments were turned over to ATI, the said cargo were already in bad order condition due to damage sustained during the sea voyage. Nevertheless, this Court cannot turn a blind eye to the fact that there was also negligence on the part of the employees of ATI and petitioner in the discharging of the cargo Verily, it is settled in maritime law jurisprudence that cargoes while being unloaded generally remain under the custody of the carrier. As hereinbefore found by the RTC and affirmed by the CA based on the evidence presented, the goods were damaged even before they were turned over to ATI. Such damage was even compounded by the negligent acts of petitioner and ATI which both mishandled the goods during the discharging operations. Thus, it bears stressing unto petitioner that common carriers, from the nature of their business and for reasons of public policy, are bound to observe extraordinary diligence in the vigilance over the goods transported by them. Subject to certain exceptions enumerated under Article 1734 of the Civil Code, common carriers are responsible for the loss, destruction, or deterioration of the goods. The extraordinary responsibility of the common carrier lasts from the time the goods are unconditionally placed in the possession of, and received by the carrier for transportation until the same are delivered, actually or constructively, by the carrier to the consignee, or to the person who has a right to receive them. Owing to this high degree of diligence required of them, common carriers, as a general rule, are presumed to have been at fault or negligent if the goods they transported deteriorated or got lost or destroyed. That is, unless they prove that they exercised extraordinary diligence in transporting the goods. In order to avoid responsibility for any loss or damage, therefore, they have the burden of proving that they observed such high level of diligence. In this case, petitioner failed to hurdle such burden.


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Re: Obligations (Fortuitous Event) PHILIPPINE REALTY AND HOLDINGS CORPORATION, v. LEY CONSTRUCTION AND DEVELOPMENT CORPORATION G.R. No. 165548, June 13, 2011 Facts: Ley Construction and Development Corporation (LCDC) was the project contractor for the construction of several buildings for Philippine Realty and Holdings Corporation (PRHC), the project owner. Engineer Dennis Abcede (Abcede) was the project construction manager of PRHC, while Joselito Santos (Santos) was its general manager and vice-president for operations. The two corporations entered into four major construction projects, which included the Tektite Building, as evidenced by construction agreements. LCDC committed itself to the construction of the buildings needed by PRHC, which in turn committed itself to pay the contract price agreed upon. In order to jump-start the construction operations, LCDC was required to submit a performance bond as provided for in the construction agreements. As stated in these agreements, as soon as PRHC received the performance bond, it would deliver its initial payment to LCDC. The remaining balance was to be paid in monthly progress payments based on actual work completed. In practice, these monthly progress payments were used by LCDC to purchase the materials needed to continue the construction of the remaining parts of the building. In the course of the construction of the Tektite Building, it became evident to both parties that LCDC would not be able to finish the project within the agreed period. Thus, LCDC met with Abcede to discuss the cause of the delay. LCDC explained that the unanticipated delay in construction was due mainly to the sudden, unexpected hike in the prices of cement and other construction materials. It claimed that, without a corresponding increase in the fixed prices found in the agreements, it would be impossible for it to finish the construction of the Tektite Building. In their analysis of the project plans for the building and of all the external factors affecting the completion of the project, the parties discovered that even if LCDC were able to collect the entire balance from the contract, the collected amount would still be insufficient to purchase all the materials needed to complete the construction of the building. Both parties agreed that their foremost objective should be to ensure that the Tektite Building project would be completed. To achieve this goal, they entered into another agreement. Abcede asked LCDC to advance the amount necessary to complete construction. Its president acceded, on the absolute condition that it be allowed to escalate the contract price and disregard the prohibition in the agreements. Abcede replied that he would take this matter up with the board of directors of PRHC. The PRHC board of directors turned down the request, but it gave no notice to LCDC of their denial. Instead, Abcede sent a formal letter to LCDC, asking for its conformity, to the effect that should it infuse P36 million into the project, a contract price escalation for the same amount would be granted in its favor by PRHC. However, there was no signature by PRHC in the said agreement.


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Notwithstanding the absence of a signature above PRHC’s name, LCDC proceeded with the construction of the Tektite Building, expending the entire amount necessary to complete the project totaling to an amount of P38 Million. LCDC religiously submitted to PRHC monthly reports that contained the amounts it spent. PRHC never replied to any of these monthly reports. When more than 96% of Tektite Building had been completed, LCDC requested the release of the P36 million escalation price. PRHC did not reply, but after the construction of the building was completed, it conveyed its decision that it would set off, in the form of liquidated damages, its claim to the supposed liability of LCDC. In a letter dated 18 January 1993, LCDC, through counsel, demanded payment of the agreed escalation price of P36 million. In its reply, PRHC suddenly denied any liability for the escalation price, and countered that LCDC had incurred 111 days of delay in the construction of the Tektite Building, hence it should be liable for damages. LCDC countered that its requests for time extension was due to reasonable causes sanctioned by the construction agreement such as power failures, water supply interruption, and scarcity of construction materials. Nevertheless, its requests were unreasonably reduced to shorter periods by PRHC. It further claimed that its president inquired from Abcede and Santos why its requests for extension of time were not granted in full. The two, however, assured him that LCDC would not be penalized with damages for even a single day of delay, because the fact that it was working hard on the Tektite Building project was known to PRHC. Issue: Whether or not the delays incurred by LCDC was justified due to a fortuitous event. Held: The Supreme Court upheld the opinion of Justice Juan Q. Enriquez. In his Dissenting Opinion, he held that the reasons submitted by LCDC fell under the definition of force majeure. This specific point was not refuted by the majority of the CA Justices. Article 1174 of the Civil Code provides: 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." A perusal of the construction agreements shows that the parties never agreed to make LCDC liable even in cases of force majeure. Neither was the assumption of risk required. Thus, in the occurrence of events that could not be foreseen, or though foreseen were inevitable, neither party should be held responsible. Under Article 1174 of the Civil Code, to exempt the obligor from liability for a breach of an obligation due to an "act of God" or force majeure, the following must concur:


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1. The cause of the breach of the obligation must be independent of the will of the debtor; 2. The event must be either unforseeable or unavoidable; 3. The event must be such as to render it impossible for the debtor to fulfill his obligation in a normal manner; and 4. The debtor must be free from any participation in, or aggravation of the injury to the creditor. The shortage in supplies and cement may be characterized as force majeure. In the present case, hardware stores did not have enough cement available in their supplies or stocks at the time of the construction in the 1990s. Likewise, typhoons, power failures and interruptions of water supply all clearly fall under force majeure. Since LCDC could not possibly continue constructing the building under the circumstances prevailing, it cannot be held liable for any delay that resulted from the causes aforementioned. Further, PRHC is barred by the doctrine of promissory estoppel from denying that it agreed, and even promised, to hold LCDC free and clear of any liquidated damages. Abcede and Santos also promised that the latter corporation would not be held liable for liquidated damages even for a single day of delay despite the non-approval of the requests for extension.


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Re: Obligations (Fortuitous Event) METRO CONCAST STEEL CORPORATION, SPOUSES JOSE S. DYCHIAO AND TIUOH YAN, SPOUSES GUILLERMO AND MERCEDES DYCHIAO, AND SPOUSES VICENTE AND FILOMENA DYCHIAO, v. ALLIED BANK CORPORATION G.R. No. 177921, December 4, 2013 Facts: On various dates and for different amounts, Metro Concast Steel Corporation (Metro Concast), a business engaged in production of steel products, obtained several loans from Allied Bank. These loan transactions were covered by a promissory note and separate letters of credit/trust receipts. By way of security, the individual petitioners executed several Continuing Guaranty/Comprehensive Surety Agreements in favor of Allied Bank. Petitioners failed to settle their obligations under the aforementioned promissory note and trust receipts, hence, Allied Bank, through counsel, sent them demand letters seeking payment of the obligation, but to no avail. Thus, Allied Bank was prompted to file a complaint for collection of sum of money against petitioners before the RTC, In their answer, petitioners admitted their indebtedness but alleged that the economic reverses suffered by the Philippine economy in 1998 as well as the devaluation of the peso against the US dollar contributed greatly to the downfall of the steel industry, directly affecting the business of Metro Concast and eventually leading to its cessation. Hence, in order to settle their debts with Allied Bank, petitioners offered the sale of Metro Concast’s remaining assets, consisting of machineries and equipment, to Allied Bank, which the latter, however, refused. Instead, Allied Bank advised them to sell the equipment and apply the proceeds of the sale to their outstanding obligations. Accordingly, petitioners offered the equipment for sale, but since there were no takers, the equipment was reduced into ferro scrap or scrap metal over the years. In 2002, Peakstar Oil Corporation (Peakstar), expressed interest in buying the scrap metal. During the negotiations with Peakstar, petitioners claimed that Atty. Peter Saw (Atty. Saw), a member of Allied Bank’s legal department, acted as the latter’s agent. Eventually, with the alleged conformity of Allied Bank, through Atty. Saw, a Memorandum of Agreement (MOA) was drawn between Metro Concast and Peakstar, underwhich Peakstar obligated itself to purchase the scrap metal. Unfortunately, Peakstar reneged on all its obligations under the MOA. In this regard, petitioners asseverated that: their failure to pay their outstanding loan obligations to Allied Bank must be considered as force majeure; and since Allied Bank was the party that accepted the terms and conditions of payment proposed by Peakstar, petitioners must therefore be deemed to have settled their obligations to Allied Bank.


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Issue: Whether or not the act of Peakstar in backing out on its undertaking to purchase scrap metal from Metro Concast to settle its obligation with Allied Bank amounts to force majeure. Held: While it may be argued that Peakstar’s breach of the MOA was unforeseen by petitioners, the same us clearly not "impossible" to foresee or even an event which is independent of human will." Neither has it been shown that said occurrence rendered it impossible for petitioners to pay their loan obligations to Allied Bank and thus, negates the former’s force majeure theory altogether. In any case, as earlier stated, the performance or breach of the MOA bears no relation to the performance or breach of the subject loan transactions, they being separate and distinct sources of obligations. The fact of the matter is that petitioners’ loan obligations to Allied Bank remain subsisting for the basic reason that the former has not been able to prove that the same had already been paid or, in any way, extinguished. In this regard, petitioners’ liability, as adjudged by the Court of Appeals, must perforce stand.


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Re: Obligations (Enforcement of Creditor’s Remedies: Accion Pauliana) METROPOLITAN BANK and TRUST COMPANY v. INTERNATIONAL EXCHANGE BANK G.R. No. 176131 and 176008, August 10, 2011 Facts: Sacramento Steel Corporation (SSC) is a business entity engaged in manufacturing and producing steel and steel products. For the purpose of increasing its capital, SSC entered into a Credit Agreement with herein respondent International Exchange Bank (IEB) on September 10, 2001 wherein the latter granted the former an omnibus credit line in the amount of P60,000,000.00, a loan of P20,000,000.00 and a subsequent credit line with a limit of P100,000,000.00. As security for its loan obligations, SSC executed five separate deeds of chattel mortgage constituted over various equipment found in its steel manufacturing plant. Subsequently, SSC defaulted in the payment of its obligations. IEB's demand for payment went unheeded. On July 7, 2004, the IEB filed with the RTC an action for injunction for the purpose of enjoining SSC from taking out the mortgaged equipment from its premises. On the other hand, on July 18, 2004, SSC filed with the same RTC a Complaint for annulment of mortgage and specific performance for the purpose of compelling the IEB to restructure SSC's outstanding obligations. SSC also prayed for the issuance of a Temporary Restraining Order (TRO) and writ of preliminary injunction to prevent IEB from taking any steps to dispossess SSC of any equipment in its steel manufacturing plant as well as to restrain it from foreclosing the mortgage on the said equipment. On October 21, 2004, herein petitioner Metropolitan Bank and Trust Company (Metrobank) filed a motion for intervention contending that it has legal interest in the properties subject of the litigation between IEB and SSC because it is a creditor of SSC and that the mortgage contracts between IEB and SSC were entered into to defraud the latter's creditors. Metrobank prayed for the rescission of the chattel mortgages executed by SSC in favor of IEB. Issue: Whether or not the act of Metrobank in filing an Accion Pauliana case, is valid despite the existence of other remedies under the law. Held: No. The action of Metrobank, despite the existence of other remedies under the law, is not valid. Under Article 1381 of the Civil Code, an accion pauliana is an action to rescind contracts in fraud of creditors. However, jurisprudence is clear that the following successive measures must be taken by a creditor before he may bring an action for rescission of an allegedly fraudulent contract: 1. Exhaust the properties of the debtor through levying by attachment and execution upon all the property of the debtor, except such as are exempt by law from execution;


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2. Exercise all the rights and actions of the debtor, save those personal to him (accion subrogatoria); and 3. Seek rescission of the contracts executed by the debtor in fraud of their rights (accion pauliana). It is thus apparent that an action to rescind, or an accion pauliana, must be of last resort, availed of only after the creditor has exhausted all the properties of the debtor not exempt from execution or after all other legal remedies have been exhausted and have been proven futile. It does appear not in the given case that Metrobank sought other properties of SSC other than the subject lots alleged to have been transferred in fraud of creditors. Neither is there any showing that Metrobank subrogated itself in SSC's transmissible rights and actions. Without availing of the first and second remedies, Metrobank simply undertook the third measure and filed an action for annulment of the chattel mortgages. This cannot be done. Article 1383 of the New Civil Code is very explicit that the right or remedy of the creditor to impugn the acts which the debtor may have done to defraud them is subsidiary in nature. It can only be availed of in the absence of any other legal remedy to obtain reparation for the injury. This fact is not present in this case. No evidence was presented nor was an allegation even offered to show that Metrobank had availed of the abovementioned remedies before it tried to question the validity of the contracts of chattel mortgage between IEB and SSC.


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Re: Obligations (Usurious Transactions) ASIAN CATHAY FINANCE AND LEASING CORPORATION, v. SPOUSES CESARIO GRAVADOR AND NORMA DE VERA AND SPOUSES EMMA CONCEPCION G. DUMIGPI AND FEDERICO L. DUMIGPI G.R. No. 186550, July 5, 2010 Facts: Asian Cathay Finance and Leasing Corporation (ACFLC) extended a loan of P800,000.00 to respondent Cesario Gravador (Cesario), with respondents Norma de Vera and Emma Concepcion Dumigpi as his co-makers. The loan was payable in 60 monthly installments of P24,000.00 each and secured by a real estate mortgage executed by Cesario over his property. Respondents paid the first installment for November 1999 but failed to pay the subsequent installments. In February 2000, ACFLC demanded payment of P1,871,480.00 from respondents. Respondents asked for more time to pay but ACFLC denied their request. Respondents filed a case for annulment of the real estate mortgage and promissory note before the Regional Trial Court (RTC). Respondents averred that the mortgage did not make reference to the promissory note and contained a provision on the waiver of the mortgagor’s right of redemption, which is contrary to law and public policy. Respondents added that the promissory note did not specify the maturity date of the loan, the interest rate, and the mode of payment, and illegally imposed liquidated damages. ACFLC filed a petition for extrajudicial foreclosure of mortgage with the office of the Deputy Sheriff. The RTC dismissed respondents’ complaint for annulment of mortgage for lack of cause of action, holding that respondents were well-educated individuals who could not feign naiveté in the execution of the loan documents. The RTC further held that the alleged defects in the promissory note and in the deed of real estate mortgage were too insubstantial to warrant the nullification of the mortgage. It added that a promissory note was not one of the essential elements of a mortgage, thus, reference to a promissory note was neither indispensable nor imperative for the validity of the mortgage. Respondents appealed to the Court of Appeals (CA) which reversed the RTC. The CA held that the amount of P1,871,480.00 demanded by ACFLC from respondents was unconscionable and excessive. The CA fixed the interest rate at 12% per annum and reduced the penalty charge to 1% per month. The CA also invalidated the waiver of respondents’ right of redemption for reasons of public policy. When the CA denied ACFLC’s motion for reconsideration, ACFLC brought the case to the Supreme Court, insisting on the validity of the real estate mortgage and promissory note. ACFLC argued that right of redemption was a privilege which respondents could waive as they did in this case. It further argued that respondents’ action for annulment of mortgage was a collateral attack on its certificate of title. Issue: Whether or not the interest imposed by ACFLC was unconscionable and excessive;


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Held: It is true that parties to a loan agreement have a wide latitude to stipulate on any interest rate in view of Central Bank Circular No. 905, series of 1982, which suspended the Usury Law ceiling on interest rate effective 1 January 1983. However, interest rates, whenever unconscionable, may be equitably reduced or even invalidated. In a span of 3 months (from the payment of the initial installment for November 1999 up to ACFLC’s demand on 1 February 2000), respondents’ principal obligation of P800,000.00 ballooned by more than P1,000,000.00. ACFLC failed to show any computation on how much interest was imposed and on the penalties charged. Thus, the amount claimed by ACFLC was 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. They cannot be ratified nor the right to set up their illegality as a defense be waived. The nullity of the stipulation on the usurious interest does not, however, affect the lender’s right to recover the principal of the loan. Nor would it affect the terms of the real estate mortgage. The right to foreclose the mortgage remains with the creditors, and said right can be exercised upon the failure of the debtors to pay the debt due. The debt due is to be considered without the stipulation of the excessive interest. A legal interest of 12% per annum will be added in place of the excessive interest formerly imposed. The nullification by the CA of the interest rate and the penalty charge and the consequent imposition of an interest rate of 12% and penalty charge of 1% per month cannot, therefore, be considered a reversible error. The Court cited Spouses Castro vs. Tan, et al. (G.R. No. 168940; 24 November 2009), where it held that: “The imposition of an unconscionable rate of interest on a money debt, even if knowingly and voluntarily assumed, is immoral and unjust. It is tantamount to a repugnant spoliation and an iniquitous deprivation of property, repulsive to the common sense of man. It has no support in law, in principles of justice, or in the human conscience nor is there any reason whatsoever which may justify such imposition as righteous and as one that may be sustained within the sphere of public or private morals.”


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Re: Obligations (Usurious Transactions) SOLIDBANK CORPORATION v. PERMANENT HOMES INC GR No. 171925, July 23, 2010 Facts: PERMANENT HOMES is a real estate development company, and to finance its housing project known as the “Buena Vida Townhomes”, it applied and was subsequently granted by SOLIDBANK with an “Omnibus Line” credit facility in the total amount of P60M. Of the entire loan, 59M was a time loan for a term of up to 360 days, with interest thereon at prevailing market rates, and subject to monthly repricing. The remaining P1M was available for domestic bills purchase. To secure the aforesaid loan, PERMANENT HOMES initially mortgaged 3 townhouse units within the Buena Vida project in Parañaque. At the time the instant complaint was filed against SOLIDBANK, a total of 36 townhouse units were mortgaged with said bank. Of the 60 million available to PERMANENT HOMES, it availed of a total of 41.5 million pesos, covered by 3 promissory notes, which contain provisions: authorizing Solidbank to increase or decrease at any time the interest rate agreed on the basis of, among others, prevailing rates in the local or international capital markets and that Should PH disagree to the interest rate adjustment, it shall prepay all amounts due under the Note or Loan within thirty 30 days from the receipt of the written notice. Contrary, however, to the specific provisions as afore-quoted, there was a standing agreement by the parties that any increase or decrease in interest rates shall be subject to the mutual agreement of the parties. Issue: Whether the increases in the interest rates on Permanent’s loans are void for having been unilaterally imposed thereby violating the principle of Mutuality of contracts Held: The Usury Law had been rendered legally ineffective by Resolution No. 224 dated 3 December 1982 of the Monetary Board of the Central Bank, and later by Central Bank Circular No. 905 which took effect on 1 January 1983. These circulars removed the ceiling on interest rates for secured and unsecured loans regardless of maturity. The effect of these circulars is to allow the parties to agree on any interest that may be charged on a loan. The virtual repeal of the Usury Law is within the range of judicial notice which courts are bound to take into account. Although interest rates are no longer subject to a ceiling, the lender still does not have an unbridled license to impose increased interest rates. The lender and the borrower should agree on the imposed rate, and such imposed rate should be in writing. The stipulations on interest rate repricing are valid because (1) the parties mutually agreed on said stipulations; (2) repricing takes effect only upon Solidbank’s written notice to Permanent of the new


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interest rate; and (3) Permanent has the option to prepay its loan if Permanent and Solidbank do not agree on the new interest rate. The phrases used in the provisions emphasize that Permanent should receive a written notice from Solidbank as a condition for the adjustment of the interest rates. Moreover, Solidbank’s range of lending rates was consistent with prevailing rates in the local or international capital markets. Example: The repriced interest rates from 12 September to 21 November 1997 conformed to the range of Solidbank’s lending rates to other borrowers. The 12 December 1997 to 12 February 1998 repriced interest rates were not unconscionably out of line with the upper range of lending rates to other borrowers. In order that obligations arising from contracts may have the force of law between the parties, there must be mutuality between the parties based on their essential equality. A contract containing a condition which makes its fulfillment dependent exclusively upon the uncontrolled will of one of the contracting parties is void. There was no showing that either Solidbank or Permanent coerced each other to enter into the loan agreements. The terms of the Omnibus Line Agreement and the promissory notes were mutually and freely agreed upon by the parties. Solidbank admitted that it did not promptly send Permanent written repriced rates, but rather verbally advised Permanent’s officers over the phone at the start of the period. Solidbank did not present any written memorandum to support its allegation that it promptly advised Permanent of the change in interest rates. Solidbank advised Permanent on the repriced interest rate applicable for the 30-day interest period only after the period had begun. Hence, Solidbank’s computation of the interest due from Permanent should be adjusted to take effect only upon Permanent’s receipt of the written notice from Solidbank.


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Re: Obligations (Usurious Transactions) SPOUSES NELSON R. VILLANUEVA v. THE COURT OF APPEALS G.R. No. 163433, August 22, 2011 Facts: Sometime in 1994, petitioners applied for separate loans amounting to P100k and P125k, which were granted by respondent Provident Rural Bank of Sta. Cruz, Laguna. As security for the loans, petitioners executed two separate promissory notes the due dates of which both fall on August 20, 1995. Petitioners also executed two separate real estate mortgages over a parcel of agricultural land located in Sta. Cruz, Laguna. Petitioners failed to pay their loans when they became due. As a consequence, respondent Bank filed a petition for extrajudicial foreclosure of the mortgages. Petitioners then wrote a letter-request addressed to the OIC of the Office of the Clerk of Court of the RTC, Santa Cruz, Laguna questioning the amount of its outstanding obligations to respondent Bank and requesting that the public auction be suspended until after its objection to the amount being sought by respondent Bank is resolved by the court. Petitioners filed a Petition for Declaratory Relief, Accounting and Damages praying that the stipulated interests, charges and expenses on its loans be declared null and void for being contrary to law, morals, good customs, public order or public policy as they are exorbitant, usurious, iniquitous and unconscionable. Issue: Whether the stipulated interest rate is usurious Held: Negative. Usury has been legally non-existent and that interest can now be charged as lender and borrower may agree upon. In fact, Section 1 of Central Bank Circular No. 905, Series of 1982, which took effect on January 1, 1983, expressly provides that the rate of interest, including commissions, premiums, fees and other charges, on a loan or forbearance of any money, goods, or credits, regardless of maturity and whether secured or unsecured, that may be charged or collected by any person, whether natural or juridical, shall not be subject to any ceiling prescribed under or pursuant to the Usury Law, as amended. Nonetheless, the Court has also held in a number of cases, that nothing in the circular grants lenders carte blanche authority to raise interest rates to levels which will either enslave their borrowers or lead to a hemorrhaging of their assets. Thus, the stipulated interest rates are illegal if they are unconscionable. In Spouses Bacolor v. Banco Filipino Savings (2007) the Court held that the interest rate of 24% per annum on a loan of P244,000.00, agreed upon by the parties, may not be considered as unconscionable and excessive. As such, the Court ruled that the borrowers cannot renege on their obligation to comply with what is incumbent upon them under the contract of loan as the said


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contract is the law between the parties and they are bound by its stipulations. Also, in Garcia v. Court of Appeals (1988), the Court sustained the agreement of the parties to a 24% per annum interest on an P8,649,250 loan finding the same to be reasonable and clearly evidenced by the amended credit line agreement entered into by the parties as well as two promissory notes executed by the borrower in favor of the lender. Based on the above jurisprudence, the Court finds that the 24% per annum interest rate, provided for in the subject mortgage contracts for a loan of P225,000 may not be considered unconscionable. Moreover, considering that the mortgage agreement was freely entered into by both parties, the same is the law between them and they are bound to comply with the provisions contained therein. The Court also upholds the validity of the 6% per annum penalty charge. In DBP v. Family Foods Manufacturing, the Court, sustained the validity of an 8% per annum penalty charge on separate loans of P500,000.00 and P440,000.00. The Court has recognized a penalty clause as an accessory obligation which the parties attach to a principal obligation for the purpose of insuring the performance thereof by imposing on the debtor a special prestation (generally consisting in the payment of a sum of money) in case the obligation is not fulfilled or is irregularly or inadequately fulfilled. The enforcement of the penalty can be demanded by the creditor only when the non-performance is due to the fault or fraud of the debtor. The non-performance gives rise to the presumption of fault; in order to avoid the payment of the penalty, the debtor has the burden of proving an excuse — the failure of the performance was due to either force majeure or the acts of the creditor himself.


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Re: Obligations (Usurious Transactions) RGM INDUSTRIES, INC. v. UNITED PACIFIC CAPITAL GR No. 194781, June 27, 2012 Facts: The respondent is a domestic corporation engaged in the business of lending and financing. It granted a 30M peso short-term credit facility in favor of the petitioner. The loan amount was sourced from individual funders on the basis of a direct-match facility for which a series of promissory notes were issued by the petitioner for the payment of the loan. The petitioner failed to satisfy the said promissory notes as they fell due and the loan had to be assumed in full by the respondent which thereby stepped into the shoes of the individual funders. Consequently, the petitioner issued in favor of the respondent a consolidated promissory note in the principal amount of P27,852,075.98 for a term of 14 days. The stipulated interest on the consolidated promissory note was 32% per annum. In case of default, a penalty charge was imposed in an amount equivalent to 8% per month of the outstanding amount due and unpaid computed from the date of default. The respondent sent demand letters to the petitioner but the latter failed to pay and instead asked for restructuring of the loan. The respondent declined the request. The petitioner did not dispute the loan it owes but claimed that the agreed interest rate was fixed at 15.5% per annum and not the varying interest rates imposed by the respondent which reached as high as 40% per annum. The petitioner asserted that the respondent unilaterally imposed the increased interest rates in violation of the principle of mutuality of contracts. Issue: Whether the interest rate is usurious Held: The Court affirms the interest rate decreed by the CA. Stipulated interest rates are illegal if they are unconscionable and the courts are allowed to temper interest rates when necessary. In exercising this vested power to determine what is iniquitous and unconscionable, the Court must consider the circumstances of each case. What may be iniquitous and unconscionable in one case, may be just in another. The Court cannot uphold the petitioner's invocation of the ruling in DBP v CA, wherein the interest rate imposed was reduced to 10% per annum. The overriding circumstance prompting such pronouncement was the regular payments made by the borrower. Evidently, such fact is wanting in the case at bar, hence, the petitioner cannot demand for a similar interest rate. The circumstances herein are similar to those in Trade & Investment Development v. Roblett Industrial wherein the legal interest rate of 12% per annum was levied. However, pursuant to BPI v.


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Yu, the Court deemed it proper to further reduce the penalty charge decreed by the CA from 2% per month to 1% per month or 12% per annum in view of the following factors: (1) respondent has already received P7,504,522.27 in penalty charges, and (2) the loan extended to respondent was a short-term credit facility.


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Re: Obligations (Usurious Transactions) VIRGILIO S. DAVID vs. MISAMIS OCCIDENTAL II ELECTRIC COOPERATIVE, INC G.R. No. 194785, July 11, 2012 Facts: David was the owner or proprietor of VSD Electric Sales, a company engaged in the business of supplying electrical hardware including transformers for rural electric cooperatives like respondent Misamis Occidental II Electric Cooperative, Inc. (MOELCI), with principal office located in Ozamis City. To solve its problem of power shortage affecting some areas within its coverage, MOELCI expressed its intention to purchase a 10-MVA power transformer from David. David agreed to supply the power transformer provided that MOELCI would secure a board resolution. As stated in the proposal, the subject transformer, together with the basic accessories, was valued at P5,200,000.00. It was also stipulated therein that 50% of the purchase price should be paid as downpayment and the remaining balance to be paid upon delivery. As there was no immediate action on the loan application, Engr. Rada of MOELCI requested David to deliver the transformer to them even without the required down-payment. David granted the request provided that MOELCI would pay interest at 24% per annum. Engr. Rada acquiesced to the condition. On December 17, 1992, the goods were shipped to Ozamiz City via William Lines. In the Bill of Lading, a sales invoice was included which stated the agreed interest rate of 24% per annum. When nothing was heard from MOELCI for sometime after the shipment, David’s Marketing Manager, went to Ozamiz City to check on the shipment. When no payment was made after several months, a demand letter was sent, which MOELCI duly received. Subsequently, demand letters were sent to MOELCI demanding the payment of the whole amount plus the balance of previous purchases of other electrical hardware. David’s prayer is that MOELCI be made to pay the total sum of P 5,472,722.27 plus the stipulated interest at 24% per annum from the filing of the complaint. Issue: Whether or not the stipulated interest is usurious Held: Although the Court agrees that MOELCI should pay interest, the stipulated rate is, however, unconscionable and should be equitably reduced. While there is no question that parties to a loan agreement have wide latitude to stipulate on any interest rate in view of the Central Bank Circular No. 905 s. 1982 which suspended the Usury Law ceiling on interest effective January 1, 1983, it is also worth stressing that interest rates whenever unconscionable may still be reduced to a reasonable and fair level. There is nothing in the said circular which grants lenders carte blanche authority to raise interest rates to levels which will either enslave their borrowers or lead to a hemorrhaging of


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their assets. Accordingly, the excessive interest of 24% per annum stipulated in the sales invoice should be reduced to 12% per annum.


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Re: Obligations (Pure Obligations) HONGKONG AND SHANGHAI BANKING CORP v. BROQUEZA G.R. No. 178610, November 17, 2010 Facts: Petitioners Gerong and Broqueza are employees of HSBC. They are also members of respondent HSBC- Staff Retirement Plan (HSBCL-SRP). The HSBCL-SRP is a retirement plan established by HSBC through its Board of Trustees for the benefit of the employees. Petitioner Editha Broqueza obtained a car loan in the amount of Php175,000.00. On December 12, 1991, she again applied and was granted an appliance loan in the amount of Php24,000.00. On the other hand, petitioner Gerong applied and was granted an emergency loan in the amount of Php35,780.00. These loans are paid through automatic salary deduction. Meanwhile, a labor dispute arose between HSBC and its employees. Majority of HSBC’s employees were terminated, among whom are petitioners Editha Broqueza and Fe Gerong. The employees then filed an illegal dismissal case before the NLRC against HSBC. Because of their dismissal, petitioners were not able to pay the monthly amortizations of their respective loans. Thus, respondent HSBCL-SRP considered the accounts of petitioners delinquent. Demands to pay the respective obligations were made upon petitioners, but they failed to pay. HSBCL-SRP filed civil actions for recovery and collection of sums of money. On 6 August 2007, HSBCL-SRP filed a manifestation withdrawing the petition against Gerong because she already settled her obligations. Issue: Whether or not HSBC-SRP has the right to demand immediate payments of the loan Held: In ruling for HSBCL-SRP, the Court applied the first paragraph of Article 1179 of the Civil Code: 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 Court affirmed the findings of the MeTC and the RTC that there is no date of payment indicated in the Promissory Notes. The RTC is correct in ruling that since the Promissory Notes do not contain a period, HSBCL-SRP has the right to demand immediate payment. Article 1179 of the Civil Code applies. The spouses Broqueza’s obligation to pay HSBCL-SRP is a pure obligation. The fact that HSBCL-SRP was content with the prior monthly check-off from Editha Broqueza’s salary is of no moment. Once Editha Broqueza defaulted in her monthly payment, HSBCL-SRP made a demand to enforce a pure obligation.


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Despite the spouses Broqueza’s protestations, 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 Editha Broqueza ceases to be an employee of HSBC, her obligation to pay the loans will be suspended. HSBCL-SRP can immediately demand payment of the loans at any time because the obligation to pay has no period. Moreover, the spouses Broqueza have already incurred in default in paying the monthly installments. Finally, 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.


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Re: Obligations (Conditional Obligations) SPOUSES BONROSTRO v. SPOUSES LUNA G.R. No. 172346, July 24, 2013 Facts: In 1992, respondent Constancia Luna, as buyer, entered into a Contract to Sell with Bliss Development Corporation (Bliss) involving a house and lot in Diliman, Quezon City. Barely a year after, Constancia, this time as the seller, entered into another Contract to Sell with petitioner Lourdes Bonrostro concerning the same property. Immediately after the execution of the said second contract, the spouses Bonrostro took possession of the property. However, except for the P200,000.00 down payment, Lourdes Bonrostro failed to pay any of the stipulated subsequent amortization payments. The spouses Bonrostro want to be relieved from paying interest on the amount of P214,492.62 which the spouses Luna paid to Bliss as amortizations by asserting that they were prevented from fulfilling such obligation. They invoke Art. 1186 of the Civil Code which provides that "the condition shall be deemed fulfilled when the obligor voluntarily prevents its fulfillment." Issue: Whether petitioners’ obligations should be deemed fully complied with and extinguished in accordance with the principle of constructive fulfillment Held: The Court finds Art. 1186 inapplicable to this case. The said provision explicitly speaks of a situation where it is the obligor who voluntarily prevents fulfillment of the condition. Here, Constancia is not the obligor but the obligee. Moreover, even if this significant detail is to be ignored, the mere intention to prevent the happening of the condition or the mere placing of ineffective obstacles to its compliance, without actually preventing fulfillment is not sufficient for the application of Art. 1186. Two requisites must concur for its application, to wit: 1. Intent to prevent fulfillment of the condition; and, 2. Actual prevention of compliance. In this case, while it is undisputed that Constancia indeed instructed Bliss not to accept payment from anyone but her, there is nothing on record to show that Bliss heeded the instruction of Constancia as to actually prevent the spouses Bonrostro from making payments to Bliss. There is no showing that the spouses Bonrostro attempted to make payment to and was refused by Bliss. Neither was there a witness presented to prove that Bliss indeed gave effect to the instruction contained in Constancia’s letter. While Bliss’ Project Development Officer, testified during trial, nothing could be gathered from his testimony regarding this except for the fact that Bliss received


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the said letter. In view of these, the spouses Luna could not be said to have placed an effective obstacle as to actually prevent the spouses Bonrostro from making amortization payments to Bliss. On the other hand, there are telling circumstances which militate against the spouses Bonrostro’s claimed keenness to comply with their obligation to pay the monthly amortization. After the execution of the second contract in January 1993, they immediately took possession of the property but failed to make amortization payments. It was only after seven months that they made payments to Bliss. Whether the same covers previous unpaid amortizations is also not clear as the receipt does not indicate the same. As per the Statement of Account as of March 8, 1994 issued by Bliss, the unpaid monthly amortizations for February to November 1993 in the total amount of P78,271.69 remained outstanding. On the part of the spouses Luna, it is understandable that they paid the amortizations due. The assumption of payment of the monthly amortization to Bliss was made part of the obligations of the spouses Bonrostro under their contract with the spouses Luna precisely to avoid the cancellation of the earlier contract entered into by Constancia with Bliss. But as the spouses Bonrostro failed in this obligation, the spouses Luna were constrained to pay Bliss to avoid the adverse effect of such failure. This act of the spouses Luna proved to be even more beneficial to the spouses Bonrostro as the cancellation of the Contract to Sell between Constancia and Bliss would result in the cancellation of the subsequent Contract to Sell between Constancia and Lourdes. Also, the spouses Bonrostro were relieved from paying the penalties that would have been imposed by Bliss if the monthly amortizations covered by the said payment remained unpaid. Hence, the resulting situation is that the spouses Luna are constrained to part with their money while the spouses Bonrostro, despite being remiss in their obligation to pay the monthly amortization, are relieved from paying higher penalties at the expense of the former. This is aside from the fact that the spouses Bonrostro are in continued possession of the subject property and are enjoying the beneficial use thereof.


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Re: Obligations (Conditional Obligations) LIM vs. DEVELOPMENT BANK OF THE PHILIPPINES G.R. No. 177050, July 01, 2013 Facts: Petitioners obtained loans from the respondent bank which were covered by promissory notes and secured by Real Estate Mortgage. Due to violent confrontations between government troops and Muslim rebels in Mindanao from 1972 to 1977, petitioners were forced to abandon their cattle ranch. As a result, their business collapsed and they failed to pay the loan amortizations. The petitioners failed to pay the amount of the loans and so respondent bank warned the former that unless they fully pay their obligation the latter will move for the foreclosure proceedings. These led to a series of negotiations and foreclosure proceedings but were postponed until a Restructuring Agreement was prepared in favor of the account of the petitioners subject to additional conditions. There was no compliance however by the petitioners and so the Restructuring Agreement was cancelled. Then the mortgaged properties of the petitioners were sold at public auction with DBP as the highest bidder. On July 28, 1995, petitioners filed a Complaint against DBP for Annulment of Foreclosure and Damages with Prayer for Issuance of a Writ of Preliminary Injunction and/or Temporary Restraining Order. Petitioners alleged that DBP’s acts and omissions prevented them from fulfilling their obligation; thus, they prayed that they be discharged from their obligation and that the foreclosure of the mortgaged properties be declared void. Petitioners, however, insist that DBP’s cancellation of the Restructuring Agreement justifies the extinguishment of their loan obligation under the Principle of Constructive Fulfillment found in Article 1186 of the Civil Code. Issue: Whether petitioners’ obligations should be deemed fully complied with and extinguished in accordance with the principle of constructive fulfillment Held: The Promissory Notes subject of the case became due and demandable as early as 1972 and 1976. The only reason the mortgaged properties were not foreclosed in 1977 was because of the restraining order from the court. In 1978, petitioners made a partial payment of P902,800.00. No subsequent payments were made. It was only in 1989 that petitioners tried to negotiate the settlement of their loan obligations. And although DBP could have foreclosed the mortgaged properties, it instead agreed to restructure the loan. In fact, from 1989 to 1994, DBP gave several extensions for petitioners to settle their loans, but they never did, thus, prompting DBP to cancel the Restructuring Agreement.


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Article 1186 of the Civil Code, which states that the condition shall be deemed fulfilled when the obligor voluntarily prevents its fulfillment, does not apply in this case. Article 1186 enunciates the doctrine of constructive fulfillment of suspensive conditions, which applies when the following three (3) requisites concur, viz: 1. The condition is suspensive; 2. The obligor actually prevents the fulfillment of the condition; and 3. He acts voluntarily. Suspensive condition is one the happening of which gives rise to the obligation. It will be irrational for any Bank to provide a suspensive condition in the Promissory Note or the Restructuring Agreement that will allow the debtor-promissor to be freed from the duty to pay the loan without paying it. Besides, petitioners have no one to blame but themselves for the cancellation of the Restructuring Agreement. It is significant to point out that when the Regional Credit Committee reconsidered petitioners’ proposal to restructure the loan, it imposed additional conditions i.e. petitioners were required to pay the amount of P1,300,672.75, plus a daily interest of P632.15 starting November 16, 1993 up to the date of actual payment of the said amount. This, petitioners failed to do. DBP therefore had reason to cancel the Restructuring Agreement. Moreover, since the Restructuring Agreement was cancelled, it could not have novated or extinguished petitioners’ loan obligation. And in the absence of a perfected Restructuring Agreement, there was no impediment for DBP to exercise its right to foreclose the mortgaged properties.


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Re: Obligations (Reciprocal Obligations) GG SPORTSWEAR MFG v. WORLD CLASS PROPERTIES GR No. 182720, March 2, 2010 Facts: World Class is the owner-developer of Global Business, an office condominium project. GG Sportswear, a domestic corporation, offered to purchase the 38th floor penthouse unit and 16 parking slots for 32 cars in World Class's condominium project for the discounted, pre-selling price of P89,624,272.82. After GG Sportswear paid the P500k reservation fee, the parties signed a Reservation Agreement that provides for the schedule of payments. Based on the Agreement, the contract to sell pertaining to the entire 38th floor Penthouse unit and the parking slots would be executed upon the payment of 30% of the total purchase price. It also stipulated that all its provisions would be deemed incorporated in the contract to sell and other documents to be executed by the parties thereafter. The Agreement also specified that the failure of the buyer to pay any of the installments on the stipulated date would give the developer the right either to: (1) charge 3% interest per month on all unpaid receivables, or (2) rescind and cancel the Agreement without the need of any court action and, upon cancellation, automatically forfeit the reservation fee and other payments made by the buyer. From May to December 1996, GG Sportswear timely paid the installments due; the eight monthly installment payments amounted to a total of P19,717,339.50, or 21% of the total contract price. In a letter dated January 30, 1997, GG Sportswear requested the return of the outstanding postdated checks it previously delivered to World Class because it (GG Sportswear) intended to replace these old checks with new ones from the corporation’s new bank. World Class acceded, but suggested the execution of a new Reservation Agreement to reflect the arrangement involving the replacement checks, with the retention of the other terms and conditions of the old Agreement. GG Sportswear did not object to the execution of a new Reservation Agreement, but requested that World Class defer the deposit of the replacement checks for 90 days. World Class denied this request, contending that a deferment would delay the subsequent monthly installment payments. On March 5, 1997, GG Sportswear delivered the replacement checks and paid the January 1997 installment payment which had been delayed by two months. World Class in turn issued a second Reservation Agreement, which it transmitted to GG Sportswear for the latter’s conformity. World Class also sent GG Sportswear a provisional Contract to Sell, which stated that the condominium project would be ready for turnover to the buyer not later than December 15, 1998. GG Sportswear did not sign the second Reservation Agreement. Instead, it sent a letter to World Class, requesting that its check dated April 24, 1997 be deposited on May 15, 1997 because it was experiencing financial difficulties. When World Class rejected GG Sportswear’s request, GG Sportswear sent another letter informing World Class that the second Reservation Agreement was incomplete because it did not expressly provide the time of completion of the condominium unit. World Class countered that the provisional Contract to Sell it previously submitted to GG Sportswear expressly provided for the completion date (December 15, 1998) and insisted that GG Sportswear pay its overdue account.


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Issue: Whether or not GG has a right to rescind the contract based on Art.1191 of the NCC Held: GG Sportswear has no legal basis to demand either the rescission of the Agreement or the refund of payments it made to World Class. Unless the parties stipulated it, rescission is allowed only when the breach of the contract is substantial and fundamental to the fulfillment of the obligation. GG Sportswear cannot claim that it did not know the time-frame for the project’s completion when it entered into the Agreement with World Class. As World Class points out, it is absurd and unbelievable that the president of GG Sportswear and an experienced businessman, did not have an idea of the expected completion date of the condominium project before he bought the condominium units for P89,624,272.82. Even assuming that GG Sportswear was not aware of the exact completion date, we note that GG Sportswear signed the Agreement despite the Agreement’s omission to expressly state a specific completion date. This directly implies that a specific completion date was not a material consideration for GG Sportswear when it executed the Agreement. The provisional Contract to Sell that accompanied the second Reservation Agreement explicitly provided that the condominium project would be ready for turnover no later than December 15, 1998, a clear expression of the project’s completion date. While GG Sportswear claims dissatisfaction with this completion date, it never alleged that the given December 15, 1998 completion date violates the completion date previously agreed upon by the parties. In fact, nowhere does GG Sportswear allege that the parties ever agreed upon an earlier completion date. We therefore find no reason for GG Sportswear to be dissatisfied with the indicated completion date. Even if it had been unhappy with the completion date, this ground, standing alone, is not sufficient basis to rescind the Agreement; unhappiness is a state of mind, not a defect available in law as a basis to rescind a contract. The Agreement expressly provides that GG Sportswear shall be entitled to a Contract to Sell only upon its payment of at least 30% of the total contract price. Since GG Sportswear had only paid 21% of the total contract price, World Class’s obligation to execute a Contract to Sell had not yet arisen. Accordingly, GG Sportswear had no basis to claim that World Class breached this obligation. When GG Sportswear filed its complaint, World Class had not yet breached its obligation, and rescission under this provision of the Civil Code was premature. GG Sportswear, not World Class, substantially breached its obligations under the Agreement when it was remiss in the timely payment of its obligations. A substantial breach of a reciprocal obligation, like failure to pay the price in the manner prescribed by the contract, entitles the injured party to rescind the obligation. Under this contractual term, it was World Class, not GG Sportswear, which had the ground to demand the rescission of the Agreement, as well as the prerogative to secure the forfeiture of all the payments already made by GG Sportswear.


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Rescission of contracts of sale of commercial condominium units on installment is governed by P.D. No. 957. Neither can GG Sportswear find recourse through P.D. No. 957, or the “Subdivision and Condominium Buyers’ Protective Decree. Upon the developer’s failure to develop, the buyer may choose either: (1) to continue with the contract but suspend payments until the developer complies with its obligation to finish the project; or (2) to cancel the contract and demand a refund of all payments made, excluding delinquency interests. Notably, a buyer’s cause of action against a developer for failure to develop ripens only when the developer fails to complete the project on the lapse of the completion period stated on the sale contract or the developer’s License to Sell.


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Re: Obligations (Reciprocal Obligations) SOLAR HARVEST v. DAVAO CORRUGATED CARTON GR No. 176868, July 26, 2010, Facts: Petitioners entered into an agreement with the respondent for the purchase of corrugated carton boxes specifically designed for petitioner's business of exporting fresh bananas. The agreement was not reduced into writing. Petitioner deposited in respondent's US Dollar Savings Account as full payment for the ordered boxes. Despite such payment, petitioner did not receive any boxes from respondent. Petitioner wrote a demand letter for reimbursement of the amount paid. Respondent replied that the boxes had been completed as early as April 3, 1998 and that petitioner failed to pick them up from the former's warehouse 30 days from completion, as agreed upon. Petitioner filed a Complaint for sum of money and damages against respondent. The Complaint averred that the parties agreed that the boxes will be delivered within 30 days from payment but respondent failed to manufacture and deliver the boxes within such time. Issue: Whether or not demand is still necessary in reciprocal obligations before the obligor can be considered in default Held: Petitioner’s claim for reimbursement is actually one for rescission (or resolution) of contract under Article 1191 of the Civil Code. The power to rescind obligations is implied in reciprocal ones, in case one of the obligors should not comply with what is incumbent upon him. The injured party may choose between the fulfillment and the rescission of the obligation, with the payment of damages in either case. He may also seek rescission, even after he has chosen fulfillment, if the latter should become impossible. The right to rescind a contract arises once the other party defaults in the performance of his obligation. In determining when default occurs, Art. 1191 should be taken in conjunction with Art. 1169 of the New Civil Code. Those obliged to deliver or to do something incur in delay from the time the obligee judicially or extrajudicially demands from them the fulfillment of their obligation. 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 declares; 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


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3. When demand would be useless, as when the obligor has rendered it beyond his power to perform. In reciprocal obligations, neither party incurs in delay if the other does not comply or is not ready to comply in a proper manner with what is incumbent upon him. From the moment one of the parties fulfills his obligation, delay by the other begins. In reciprocal obligations, as in a contract of sale, the general rule is that the fulfillment of the parties’ respective obligations 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 in delay. But when different dates for performance of the obligations are fixed, the default for each obligation must be determined by the rules that is, the other party would incur in delay only from the moment the other party demands fulfillment of the former’s obligation. Thus, even in reciprocal obligations, if the period for the fulfillment of the obligation is fixed, demand upon the obligee is still necessary before the obligor can be considered in default and before a cause of action for rescission will accrue. Evident from the records and even from the allegations in the complaint was the lack of demand by petitioner upon respondent to fulfill its obligation to manufacture and deliver the boxes. The Complaint only alleged that petitioner made a “follow-up” upon respondent, which, however, would not qualify as a demand for the fulfillment of the obligation. Even assuming that a demand had been previously made before filing the present case, petitioner’s claim for reimbursement would still fail, as the circumstances would show that respondent was not guilty of breach of contract. As correctly observed by the CA, 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 respondent.


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Re: Obligations (Reciprocal Obligations) BONIFACIO MACEDA v. DEVELOPMENT BANK OF THE PHILIPPINES G.R. No. 175010 and 174979, August 11, 2010 Facts: Maceda obtained a loan from the defendant DBP in the amount of P7.3 million to finance the expansion of the Old Gran Hotel in Leyte. Upon approval of said loan, Maceda executed a promissory note and a REM. Project cost of the New Gran Hotel was P10.5M. DBP fixed a debtequity ratio of 70%-30%, corresponding to DBP and Maceda’s respective infusion in the hotel project. Maceda’s equity infusion was P2.93M, or 30% of P10.5M. The DBP Governor at that time, Recio Garcia, in-charge of loans for hotels, allegedly imposed the condition that DBP would choose the building contractor, namely, Moreman Builders Co. (Moreman). The contractor would directly receive the loan releases from DBP, after verification by DBP of the construction progress. The period of loan availment was 360 days from date of initial release of the loan. Similarly, suppliers of equipment and furnishings for the hotel were also to be paid directly by DBP. Maceda filed a complaint for Rescission of the building contract with Damages against the contractor Moreman. The CFI rescinded the building contract, suspended the period of availment, allowed Maceda to himself take over construction, and directed DBP to release to Maceda the sum of P1.003M, which had previously been approved for release. The DBP was further ordered to give plaintiff Maceda such other amounts still pending release. Moreman filed an appeal which was subsequently dismissed in 1990 by the Supreme Court. In the meantime, Maceda also instituted the case a quo for Specific Performance with Damages against defendant DBP. In essence, Maceda’s complaint before the Makati RTC alleged that DBP conspired with the contractor, Moreman, by approving anomalous loan releases to the latter despite exaggerated charges and valuation made by said contractor on the hotel project. In effect, it was alleged that despite only a 15% accomplishment which should have cost only P700,000.00, the contractor, thru the active connivance of the DBP, was able to rake in a total of P3,174,358.38 or 60% of the cost of the projected hotel building. When plaintiff Maceda himself tried to resume the completion and construction of the hotel project, after the building contract with Moreman was already rescinded by the CFI Manila, defendant allegedly blocked efforts of the plaintiff by delaying the release of funds from his loan with the DBP and imposing onerous conditions which made it difficult for plaintiff to pursue the construction of the New Gran Hotel. It was further alleged that due to such delays on the part of the DBP, the period of availment of the loan expired without the plaintiff’s [sic] having availed of the total approved amount of their loan. The construction of the hotel was never finished. Worse, due to interests and penalties, the obligation of the plaintiff has ballooned to P11,817,365.90 as of January 31, 1984, not to mention the amount of P810,702.68 supposedly representing interests and charges for the period of February 1, 1978 to October 1979. Finally, DBP allegedly threatened to foreclose the mortgaged properties of the plaintiff. Issue: Whether or not rescission is proper in this case


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Held: The Court found credit in the finding that DBP actively connived with the contractor in the anomalous loan releases. As found by the RTC, the records show that checks were drawn only in the name of Moreman and plaintiff’s conformity to fund releases were solicited by DBP after the fact of release, not before. Direct releases to the plaintiff, instead of Moreman, began only after Moreman was discharged as contractor. Further, it was agreed that payment to Moreman Builders would be assessed against actual construction of the project upon DBP’s verification. Thus, DBP contributed in the swindling perpetrated by Moreman against the plaintiff because it improperly discharged its duty as verifier of the construction project. DBP was also at fault in not releasing the amount of P1.003 Million which had already been approved for release. It is apparent that such delay in the release of plaintiff’s loan is directly attributable to DBP and contributed to the construction delay, such that radical rise in construction cost and prices of materials had already caught up with the hotel project. In releasing other sums but not the P1.003 million, and in failing to release the bigger sum of P1,952,489.10 which is the total unreleased balance of the loan, DBP treated its prestation according to its likes and dislikes. DBP was at fault when it gave the impression to suppliers that it was not supporting the hotel project and verbally advised suppliers to pull out their units from the jobsite of the hotel. Moreover, when plaintiff-appellant Maceda personally took over the project after the contract with Moreman was rescinded, some suppliers who submitted their claims to DBP were refused payment by the defendant-appellant bank. Thus, said suppliers were constrained to file collection cases and replevin suits against herein plaintiff-appellant. In an action for specific performance, the party at fault will be required to perform its undertaking under the contract. In this case, the trial court and the appellate court should have required DBP, as creditor under the loan agreement, to lend (and not to pay) Maceda the amount needed to finish the construction of the hotel. The trial court and the appellate court thus erred in requiring DBP to pay Maceda P17,547,510.90 to finish the construction of the hotel. Maceda put in cash equity worth P6,153,398.05. Under Article 1191 of the Civil Code, the aggrieved party has a choice between specific performance and rescission with damages in either case. However, if specific performance becomes impractical or impossible, the court may order rescission with damages to the injured party. After the lapse of more than 30 years, it is now impossible to implement the loan agreement as it was written, considering the absence of evidence as to the rising costs of construction, as well as the obvious changes in market conditions on the viability of the operations of the hotel. The Court deemed it equitable and practicable to rescind the obligation of DBP to deliver the balance of the loan proceeds to Maceda. DBP was ordered to pay Maceda the value of Maceda’s cash equity of P6,153,398.05 by way of actual damages, plus the applicable interest rate.


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Re: Obligations (Reciprocal Obligations) HEIRS OF RAMON GAITE v. THE PLAZA G.R. No. 177685, January 26, 2011 Facts: On July 16, 1980, The Plaza, a corporation engaged in the restaurant business, through its President, Jose C. Reyes, entered into a contract with Rhogen Builders, represented by Ramon C. Gaite, for the construction of a restaurant building in Greenbelt, Makati, Metro Manila for the price ofP7,600,000.00. On July 18, 1980, to secure Rhogen’s compliance with its obligation under the contract, Gaite and FGU Insurance Corporation (FGU) executed a surety bond in the amount of P1,155,000.00 in favor of The Plaza. On July 28, 1980, The Plaza paid P1,155,000.00 less withholding taxes as down payment to Gaite. Thereafter, Rhogen commenced construction of the restaurant building. Engineer Angelito Z. Gonzales, the Acting Building Official of the Municipality of Makati, ordered Gaite to cease and desist from continuing with the construction of the building for violation of Sections 301 and 302 of the National Building Code and its implementing rules and regulations. Engr. Gonzales informed Gaite that the building permit for the construction of the restaurant was revoked for non-compliance with the provisions of the National Building Code and for the additional temporary construction without permit. After several failed attempts of the parties to solve the matter, Gaite demanded payment on the work that is already done while Reyes demanded from Gaite the reimbursement of the balance of their initial payment of P1,155,000.00 from the value of the works correctly completed, or if none, to reimburse the entire down payment plus expenses of removal and replacement. Issue: Whether or not rescission is warranted in the present case Held: Reciprocal obligations are those which arise from the same cause, and in which each party is a debtor and a creditor of the other, such that the obligation of one is dependent upon the obligation of the other. They are to be performed simultaneously such that the performance of one is conditioned upon the simultaneous fulfillment of the other. Respondent The Plaza predicated its action on Article 1191 of the Civil Code, which provides for the remedy of "rescission" or more properly resolution, a principal action based on breach of faith by the other party who violates the reciprocity between them. The breach contemplated in the provision is the obligor’s failure to comply with an existing obligation. Thus, the power to rescind is given only to the injured party. The injured party is the party who has faithfully fulfilled his obligation or is ready and willing to perform his obligation. The construction contract between Rhogen and The Plaza provides for reciprocal obligations whereby the latter’s obligation to pay the contract price or progress billing is conditioned on the


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former’s performance of its undertaking to complete the works within the stipulated period and in accordance with approved plans and other specifications by the owner. Pursuant to its contractual obligation, The Plaza furnished materials and paid the agreed down payment. It also exercised the option of furnishing and delivering construction materials at the jobsite pursuant to Article III of the Construction Contract. However, just two months after commencement of the project, construction works were ordered stopped by the local building official and the building permit subsequently revoked on account of several violations of the National Building Code and other regulations of the municipal authorities. Petitioners may not justify Rhogen’s termination of the contract upon grounds of non-payment of progress billing and uncooperative attitude of respondent The Plaza and its employees in rectifying the violations which were the basis for issuance of the stoppage order. Having breached the contractual obligation it had expressly assumed, i.e., to comply with all laws, rules and regulations of the local authorities, Rhogen was already at fault. Respondent The Plaza, on the other hand, was justified in withholding payment on Rhogen’s first progress billing, on account of the stoppage order and additionally due to disappearance of owner-furnished materials at the jobsite. In failing to have the stoppage and revocation orders lifted or recalled, Rhogen should take full responsibility in accordance with its contractual undertaking.


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Re: Obligations (Reciprocal Obligations) MILA REYES v. VICTORIA TUPARAN G.R. No. 188064, June 1, 2011 Facts: Petitioner decided to sell her real properties so she could liquidate her bank loan and finance her businesses. As a gesture of friendship, respondent verbally offered to conditionally buy petitioner’s real properties payable on installment basis without interest and to assume the bank loan. After petitioner’s verbal acceptance of all the conditions/concessions, both parties worked together to obtain FSL Bank’s approval for respondent to assume her (petitioner’s) outstanding bank account. The assumption would be part of respondent’s purchase price for petitioner’s mortgaged real properties. FSL Bank approved their proposal on the condition that petitioner would sign or remain as co-maker for the mortgage obligation assumed by respondent. Due to their close personal friendship and business relationship, both parties chose not to reduce into writing the other terms of their agreement mentioned in paragraph 11 of the complaint. Besides, FSL Bank did not want to incorporate in the Deed of Conditional Sale of Real Properties with Assumption of Mortgage any other side agreement between petitioner and respondent. Respondent, however, defaulted in the payment of her obligations on their due dates. Petitioner further averred that despite her success in finding a prospective buyer for the subject real properties within the 3-month period agreed upon, respondent reneged on her promise to allow the cancellation of their deed of conditional sale. Instead, respondent became interested in owning the subject real properties and even wanted to convert the entire property into a modern commercial complex. The residential building was gutted by fire which caused the petitioner to lose rental income. Respondent neglected to renew the fire insurance policy on the subject buildings. Since then, respondent had taken possession of the subject real properties and had been continuously collecting and receiving monthly rental income from the tenants of the buildings and vendors of the sidewalk fronting the RBJ building without sharing it with petitioner. Respondent countered, among others, that the tripartite agreement erroneously designated by the petitioner as a Deed of Conditional Sale of Real Property with Assumption of Mortgage was actually a pure and absolute contract of sale with a term period. It could not be considered a conditional sale because the acquisition of contractual rights and the performance of the obligation therein did not depend upon a future and uncertain event. Moreover, the capital gains and documentary stamps and other miscellaneous expenses and real estate taxes were supposed to be paid by petitioner but she failed to do so. Issue: Whether or not rescission can be made by the petitioner


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Held: The subject contract was correctly classified as a contract to sell based on the following pertinent stipulations: That the title and ownership of the subject real properties shall remain with the First Party until the full payment of the Second Party of the balance of the purchase price and liquidation of the mortgage obligation of ₱2M. Pending payment of the balance of the purchase price and liquidation of the mortgage obligation that was assumed by the Second Party, the Second Party shall not sell, transfer and convey and otherwise encumber the subject real properties without the written consent of the First and Third Party. That upon full payment by the Second Party of the full balance of the purchase price and the assumed mortgage obligation herein mentioned the Third Party shall issue the corresponding Deed of Cancellation of Mortgage and the First Party shall execute the corresponding Deed of Absolute Sale in favor of the Second Party. 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. Accordingly, the petitioner’s obligation to sell the subject properties becomes demandable only upon the happening of the positive suspensive condition, which is the respondent’s full payment of the purchase price. Without respondent’s full payment, there can be no breach of contract to speak of because petitioner has no obligation yet to turn over the title. Respondent’s failure to pay in full the purchase price is not the breach of contract contemplated under Article 1191 of the New Civil Code but rather just an event that prevents the petitioner from being bound to convey title to the respondent. 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. Unless the parties stipulated it, rescission is allowed only when the breach of the contract is substantial and fundamental to the fulfillment of the obligation. Whether the breach is slight or substantial is largely determined by the attendant circumstances. Considering that out of the total purchase price of ₱4,200,000.00, respondent has already paid the substantial amount of ₱3,400,000.00, more or less, leaving an unpaid balance of only ₱805,000.00, it is right and just to allow her to settle, within a reasonable period of time, the balance of the unpaid purchase price. The Court agrees with the courts below that the respondent showed her sincerity and willingness to comply with her obligation when she offered to pay the petitioner the amount of ₱751,000.00.


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Re: Obligations (Reciprocal Obligations) VICELET LALICON and VICELEN LALICON v. NATIONAL HOUSING AUTHORITY G.R. No. 185440, July 13, 2011 Facts: On November 25, 1980 the NHA executed a Deed of Sale with Mortgage over a Quezon City lot in favor of the spouses Isidro and Flaviana Alfaro (the Alfaros). In due time, the Quezon City Registry of Deeds issued TCT 277321 in the name of the Alfaros. The deed of sale provided, among others, that the Alfaros could sell the land within five years from the date of its release from mortgage without NHA’s prior written consent. About nine years later or on November 30, 1990, while the mortgage on the land subsisted, the Alfaros sold the same to their son, Victor Alfaro, who had taken in a common-law wife, Cecilia, with whom he had two daughters, petitioners Vicelet and Vicelen Lalicon (the Lalicons). Cecilia, who had the means, had a house built on the property and paid for the amortizations. After full payment of the loan or on March 21, 1991 the NHA released the mortgage. Six days later or on March 27 Victor transferred ownership of the land to his illegitimate daughters. About four and a half years after the release of the mortgage or on October 4, 1995, Victor registered the November 30, 1990 sale of the land in his favor, resulting in the cancellation of his parents’ title. On December 14, 1995 Victor mortgaged the land to Marcela Lao Chua, Rosa Sy, Amparo Ong, and Ida See. Subsequently, on February 14, 1997 Victor sold the property to Chua, one of the mortgagees, resulting in the cancellation of his TCT 140646 and the issuance of TCT N172342 in Chua’s name. A year later or on April 10, 1998 the NHA instituted a case before the Quezon City Regional Trial Court (RTC) for the annulment of the NHA’s 1980 sale of the land to the Alfaros, the latter’s 1990 sale of the land to their son Victor, and the subsequent sale of the same to Chua, made in violation of NHA rules and regulations. Issues: 1. Whether or not the NHA’s right to rescind has prescribed; and 2. Whether or not the subsequent buyers of the land acted in good faith and their rights, therefore, cannot be affected by the rescission. Held: First. The contract between the NHA and the Alfaros forbade the latter from selling the land within five years from the date of the release of the mortgage in their favor. But the Alfaros sold the property to Victor on November 30, 1990 even before the NHA could release the mortgage in their favor on March 21, 1991. Clearly, the Alfaros violated the five-year restriction, thus entitling the NHA to rescind the contract.


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Second. Invoking the RTC ruling, the Lalicons claim that under Article 1389 of the Civil Code the "action to claim rescission must be commenced within four years" from the time of the commission of the cause for it. But an action for rescission can proceed from either Article 1191 or Article 1381. It has been held that Article 1191 speaks of rescission in reciprocal obligations within the context of Article 1124 of the Old Civil Code which uses the term "resolution." Resolution applies only to reciprocal obligations such that a breach on the part of one party constitutes an implied resolutory condition which entitles the other party to rescission. Resolution grants the injured party the option to pursue, as principal actions, either a rescission or specific performance of the obligation, with payment of damages in either case. Rescission under Article 1381, on the other hand, was taken from Article 1291 of the Old Civil Code, which is a subsidiary action, not based on a party’s breach of obligation. The four-year prescriptive period provided in Article 1389 applies to rescissions under Article 1381. Here, the NHA sought annulment of the Alfaros’ sale to Victor because they violated the five-year restriction against such sale provided in their contract. Thus, the CA correctly ruled that such violation comes under Article 1191 where the applicable prescriptive period is that provided in Article 1144 which is 10 years from the time the right of action accrues. The NHA’s right of action accrued on February 18, 1992 when it learned of the Alfaros’ forbidden sale of the property to Victor. Since the NHA filed its action for annulment of sale on April 10, 1998, it did so well within the 10-year prescriptive period. Third. The Court also agrees with the CA that the Lalicons and Chua were not buyers in good faith. Since the five-year prohibition against alienation without the NHA’s written consent was annotated on the property’s title, the Lalicons very well knew that the Alfaros’ sale of the property to their father, Victor, even before the release of the mortgage violated that prohibition. As regards Chua, she and a few others with her took the property by way of mortgage from Victor in 1995, well within the prohibited period. Chua knew, therefore, based on the annotated restriction on the property, that Victor had no right to mortgage the property to her group considering that the Alfaros could not yet sell the same to him without the NHA’s consent. Consequently, although Victor later sold the property to Chua after the five-year restriction had lapsed, Chua cannot claim lack of awareness of the illegality of Victor’s acquisition of the property from the Alfaros. Lastly, since mutual restitution is required in cases involving rescission under Article 1191, the NHA must return the full amount of the amortizations it received for the property, plus the value of the improvements introduced on the same, with 6% interest per annum from the time of the finality of this judgment.


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Re: Obligations (Reciprocal Obligations) FF CRUZ and CO, INC. v. HR CONSTRUCTION CORP. G.R. No. 187521, March 14, 2012 Facts: FFCCI entered into a contract with DPWH for the construction of the Magsaysay Viaduct. FFCCI, in turn, entered into a Subcontract Agreement with HRCC for the supply of materials, labor, equipment, tools and supervision for the construction of a portion of the said project. Pursuant to the Subcontract Agreement, HRCC would submit to FFCCI a monthly progress billing which the latter would then pay within 30 days from receipt thereof. The parties agreed that the requests of HRCC for payment should include progress accomplishment of its completed works as approved by FFCCI. Eventually, FFCCI did not pay the amount stated in the second and third progress billing, even though HRCC submitted its progress billings claiming that it had already paid HRCC for the completed works for the period stated therein. HRCC demanded payment but still was not paid so HRCC halted the construction of the subcontracted project. Both the CA and the CIAC held that the work stoppage of HRCC was justified as the same is but an exercise of its right to rescind the Subcontract Agreement in view of FFCCI’s failure to pay the former’s monthly progress billings. Further, the CIAC stated that FFCCI could no longer assail the work stoppage of HRCC as it failed to file any counterclaim against HRCC pursuant to the terms of the Subcontract Agreement. For its part, FFCCI asserted that the work stoppage of HRCC was not justified and, in any case, its failure to raise a counterclaim against HRCC for liquidated damages before the CIAC does not amount to a ratification of the latter’s work stoppage. Issue: Whether FFCCI’s non-compliance with their contract make HRCC rescission valid Held: The right of rescission is statutorily recognized in reciprocal obligations. The power to rescind obligations is implied in reciprocal ones, in case one of the obligors should not comply with what is incumbent upon him. The injured party may choose between the fulfillment and the rescission of the obligation, with the payment of damages in either case. He may also seek rescission, even after he has chosen fulfillment, if the latter should become impossible. The court shall decree the rescission claimed, unless there be just cause authorizing the fixing of a period. The rescission referred to in this article, more appropriately referred to as resolution is on the breach of faith by the defendant which is violative of the reciprocity between the parties. The right to rescind, however, may be waived, expressly or impliedly. While the right to rescind reciprocal obligations is implied, that is, that such right need not be expressly provided in the contract, nevertheless the contracting parties may waive the same.


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Contrary to the respective dispositions of the CIAC and the CA, we find that HRCC had no right to rescind the Subcontract Agreement in the guise of a work stoppage, the latter having waived such right. Apropos is Article 11.2 of the Subcontract Agreement, which reads: 11.2

Effects of Disputes and Continuing Obligations Notwithstanding any dispute, controversy, differences or arbitration proceedings relating directly or indirectly to this SUBCONTRACT Agreement and without prejudice to the eventual outcome thereof, [HRCC] shall at all times proceed with the prompt performance of the Works in accordance with the directives of FFCCI and this SUBCONTRACT Agreement.

Hence, in spite of the existence of dispute or controversy between the parties during the course of the Subcontract Agreement, HRCC had agreed to continue the performance of its obligations pursuant to the Subcontract Agreement. In view of the provision of the Subcontract Agreement quoted above, HRCC is deemed to have effectively waived its right to effect extrajudicial rescission of its contract with FFCCI. Accordingly, HRCC, in the guise of rescinding the Subcontract Agreement, was not justified in implementing a work stoppage.


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Re: Obligations (Reciprocal Obligations) SUBIC BAY METROPOLITAN AUTHORITY v. COURT OF APPEALS G.R. No. 192885, July 4, 2012 Facts: Petitioner and respondent entered into a lease and development agreement. Section 6.1 of the said Agreement stipulated for the payment of service fees, which pertain to the proportionate share of the private respondent in the costs that the petitioner may incur in the provision of services, maintenance and operation of common facilities computed at $0.10 per square meter of the gross land area of the leased property. Upon conduct of lease compliance audit, SBMA found that the petitioner and other Freeport locators have not been charged for service fees. Thus it charged respondent an amount of $ 265, 053.50 accrued service fees. Respondent then requested for reconsideration of the billing stating that the services for which the billing was based were not actually provided by the petitioner but by independent contractor. But the petitioner claimed that the fees include services which indirectly redound to the benefit of the tenants. The respondent then filed a petition for declaratory relief for the court to determine if the charging of service fee by the petitioner was correct. Both the trial and appellate court ruled that the charging of the service fee has no legal basis. Issue: Whether or not SBMA is entitled to service fees Held: No. The Lease and Development Agreement entered into by petitioner and private respondent contains a definition of “service fees” and in that provision, the CA was correct in ruling that service fees pertain to the proportionate share of the tenant in the costs of the enumerated services which include the maintenance and operation of facilities which directly or indirectly benefit or serve the leased property or the tenant, or any of its subsidiaries, assignees, transferees or operators. Clearly, if the intention is the contrary, there would have been no need to enumerate what would constitute services covered by the “service fees.” Even logic dictates that before anyone is entitled to collect service fees, one must have actually rendered a service. As correctly pointed out by the CA, petitioner did not provide most of the services enumerated in the Lease and Development Agreement. It is apparent that the questioned provisions of the contract are reciprocal in nature. Reciprocal obligations are those which arise from the same cause, and in which each party is a debtor and a creditor of the other, such that the obligation of one is dependent upon the obligation of the other. They are to be performed simultaneously such that the performance of one is conditioned upon the simultaneous fulfillment of the other. For one party to demand the performance of the obligation of the other party, the former must also perform its own obligation. Accordingly, petitioner, not having


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provided the services that would require the payment of service fees as stipulated in the Lease Development Agreement, is not entitled to collect the same. A close scrutiny of the records shows that respondent-appellant did not actually provide most of the services enumerated in the lease agreement. As such, petitioner, not having rendered actual service cannot demand from private respondent its proportionate share of costs which were not really incurred.


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Re: Obligations (Reciprocal Obligations) SPOUSES CARMEN TONGSON v. EMERGENCY PAWNSHOP BULA G.R. No. 167874, January 15, 2010 Facts: In May 1992, Napala offered to purchase from the Spouses Tongson their parcel of land, situated in Davao City for P3,000,000. Finding the offer acceptable, the Spouses Tongson executed with Napala a Memorandum of Agreement dated 8 May 1992. Respondents’ lawyer Atty. Raganas, Jr. prepared a Deed of Absolute Sale indicating the consideration as only P400,000. When Carmen Tongsonnoticed that the consideration was very low, she complained and called the attention of Napala but the latter told her not to worry as he would be the one to pay for the taxes and she would receive the net amount of P3,000,000. Upon signing the Deed of Absolute Sale, Napala paid P200,000 in cash to the Spouses Tongson and issued a postdated Philippine National Bank (PNB) check in the amount of P2,800,000, representing the remaining balance of the purchase price of the subject property.When presented for payment, the PNB check was dishonored for the reason "Drawn Against Insufficient Funds." Despite the Spouses Tongson's repeated demands to either pay the full value of the check or to return the subject parcel of land, Napala failed to do either. The trial court found that the purchase price of the subject property has not been fully paid and that Napala’s assurance to the Spouses Tongson that the PNB check would not bounce constituted fraud that induced the Spouses Tongson to enter into the sale.The Court of Appeals agreed with the trial court’s finding that Napala employed fraud. Finding the trial court’s award of damages unconscionable, the Court of Appeals reduced the moral damages and the exemplary damages. Issue: Whether or not rescission is available as a remedy in this case Held: The Court finds that Napala defrauded the Spouses Tongson in his acts of issuing a worthless check and representing to the Spouses Tongson that the check was funded, committing in the process a substantial breach of his obligation as a buyer. Indisputably, the Spouses Tongson as the sellers had already performed their obligation of executing the Deed of Sale, which led to the cancellation of their title in favor of EPBI. Respondents as the buyers, on the other hand, failed to perform their correlative obligation of paying the full amount of the contract price. While Napala paid P200,000 cash to the Spouses Tongson as partial payment, Napala issued an insufficiently funded PNB check to pay the remaining balance of P2.8 million. Despite repeated demands and the filing of the complaint, Napala failed to pay the P2.8 million until the present. Clearly, respondents committed a substantial breach of their reciprocal obligation, entitling the Spouses Tongson to the rescission of the sales contract. The law grants this relief to


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the aggrieved party. The power to rescind obligations is implied in reciprocal ones, in case one of the obligors should not comply with what is incumbent upon him. The injured party may choose between the fulfillment and the rescission of the obligation, with payment of damages in either case. He may also seek rescission, even after he has chosen fulfillment, if the latter should become impossible. Rescission creates the obligation to return the things which were the object of the contract, together with their fruits, and the price with its interest; consequently, it can be carried out only when he who demands rescission can return whatever he may be obliged to restore. Neither shall rescission take place when the things which are the object of the contract are legally in the possession of third persons who did not act in bad faith.


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Re: Obligations (Reciprocal Obligations) FIL-ESTATE PROPERTIES v. SPOUSES RONQUILLO G.R. No. 185798, January 13, 2014 Facts: Fil-Estate Properties, Inc. is the owner and developer of the Central Park Place Tower while copetitioner Fil-Estate Network, Inc. is its authorized marketing agent. Respondent Spouses Conrado and Maria Victoria Ronquillo purchased from petitioners an 82-square meter condominium unit at Central Park Place Tower in Mandaluyong City for a pre-selling contract price of P5, 174,000. Respondents executed and signed a Reservation Application Agreement wherein they deposited P200,000.00 as reservation fee. As agreed upon, respondents paid the full downpayment of P1,552,200.00 and had been paying the P63,363.33 monthly amortizations until September 1998. Upon learning that construction works had stopped, respondents likewise stopped paying their monthly amortization. Claiming to have paid a total of P2,198,949.96 to petitioners, respondents through 2 successive letters, demanded a full refund of their payment with interest. When their demands went unheeded, respondents were constrained to file a Complaint for Refund and Damages before the HLURB. Petitioners attributed the delay in construction to the 1997 Asian financial crisis. Petitioners denied committing fraud or misrepresentation. The Arbiter considered petitioners’ failure to develop the condominium project as a substantial breach of their obligation which entitles respondents to seek for rescission with payment of damages. The Arbiter also stated that mere economic hardship is not an excuse for contractual and legal delay. The HLURB reiterated that the depreciation of the peso as a result of the Asian financial crisis is not a fortuitous event which will exempt petitioners from the performance of their contractual obligation. Issue: Whether or not rescission is proper in this case Held: Respondents are entitled to rescind the contract and to be refunded the amount of amortizations paid including interest and damages. Indeed, the non-performance of petitioners’ obligation entitles respondents to rescission under Article 1191 of the New Civil Code. The power to rescind obligations is implied in reciprocal ones, in case one of the obligors should not comply with what is incumbent upon him. The injured party may choose between the fulfillment and the rescission of the obligation, with payment of damages in either case. He may also seek rescission, even after he has chosen fulfillment, if the latter should become impossible.


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Presidential Decree No. 957, the rule governing the sale of condominiums provides that no installment payment made by a buyer in a subdivision or condominium project for the lot or unit he contracted to buy shall be forfeited in favor of the owner or developer when the buyer, after due notice to the owner or developer, desists from further payment due to the failure of the owner or developer to develop the subdivision or condominium project according to the approved plans and within the time limit for complying with the same. Such buyer may, at his option, be reimbursed the total amount paid including amortization interests but excluding delinquency interests, with interest thereon at the legal rate. Conformably with these provisions of law, respondents are entitled to rescind the contract and demand reimbursement for the payments they had made to petitioners. The Court cannot generalize that the Asian financial crisis in 1997 was unforeseeable and beyond the control of a business corporation. It is unfortunate that petitioner apparently met with considerable difficulty e.g. increase cost of materials and labor, even before the scheduled commencement of its real estate project as early as 1995. However, a real estate enterprise engaged in the pre-selling of condominium units is concededly a master in projections on commodities and currency movements and business risks. The fluctuating movement of the Philippine peso in the foreign exchange market is an everyday occurrence, and fluctuations in currency exchange rates happen every day, thus, not an instance of caso fortuito.


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Re: Obligations (Joint Obligations) MARSMAN DRYSDALE LAND, INC., v. PHILIPPINE GEOANALYTICS, INC. AND GOTESCO PROPERTIES, INC. G.R. No. 183374, June 29, 2010 Facts: Marsman Drysdale Land, Inc. and Gotesco Properties, Inc. entered into a Joint Venture Agreement (JVA) for the construction and development of an office building on a land owned by Marsman Drysdale in Makati City. The joint venture engaged the services of Philippine Geoanalytics, Inc. (PGI) to provide subsurface soil exploration, laboratory testing, seismic study and geotechnical engineering for the project. PGI then billed the joint venture for the cost of partial subsurface soil exploration; and for the cost of the completed seismic study. Despite repeated demands from PGI, the joint venture failed to pay its obligations. Due to unfavorable economic conditions at the time, the joint venture was cut short and the planned building project was eventually shelved. PGI subsequently filed a complaint for collection of sum of money and damages at the Regional Trial Court (RTC) of Quezon City against Marsman Drysdale and Gotesco. To Marsman Drysdale, it is Gotesco since, under the JVA, construction funding for the project was to be obtained from Gotesco’s cash contribution, as its (Marsman Drysdale’s) participation in the venture was limited to the land. Gotesco maintains, however, that it has no liability to pay PGI since it was due to the fault of Marsman Drysdale that PGI was unable to complete its undertaking. Issue: The core issue to be resolved is which between joint venturers Marsman Drysdale and Gotesco bears the liability to pay PGI its unpaid claims. Held: The Court finds Marsman Drysdale and Gotesco jointly liable to PGI. PGI executed a technical service contract with the joint venture and was never a party to the JVA. While the JVA clearly spelled out, inter alia, the capital contributions of Marsman Drysdale (land) and Gotesco (cash) as well as the funding and financing mechanism for the project, the same cannot be used to defeat the lawful claim of PGI against the two joint venturers-partners. The TSC clearly listed the joint venturers Marsman Drysdale and Gotesco as the beneficial owner of the project, and all billing invoices indicated the consortium therein as the client. As the appellate court held, Articles 1207 and 1208 of the Civil Code, which respectively read: 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


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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 nature of the obligation requires solidarity. Art. 1208. If from the law, or the nature or the wording of the obligations to which the preceding article refers the contrary does not appear, the credit or debt shall be presumed to be divided into as many equal shares as there are creditors or debtors, the credits or debts being considered distinct from one another, subject to the Rules of Court governing the multiplicity of suits. These presume that the obligation owing to PGI is joint between Marsman Drysdale and Gotesco. In the JVA, Marsman Drysdale and Gotesco agreed on a 50-50 ratio on the proceeds of the project. They did not provide for the splitting of losses, however. Applying Article 1797, the same ratio applies in splitting the P535, 353.50 obligation-loss of the joint venture. Marsman Drysdale and Gotesco being jointly liable, there is no need for Gotesco to reimburse Marsman Drysdale for “50% of the aggregate sum due” to PGI. Allowing Marsman Drysdale to recover from Gotesco what it paid to PGI would not only be contrary to the law on partnership on division of losses but would partake of a clear case of unjust enrichment at Gotesco’s expense.


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Re: Obligations (Solidary Obligations) ASSET BUILDERS CORPORATION, v. STRONGHOLD INSURANCE COMPANY, INC. G.R. No. 187116, October, 18, 2010 Facts: On April 28, 2006, Asset Builders Corporation (ABC) entered into an agreement with Lucky Star Drilling & Construction Corporation (Lucky Star) as part of the completion of its project to construct the ACG Commercial Complex. Lucky Star was to supply labor, materials, tools, and equipment including technical supervision to drill one (1) exploratory production well on the project site. The total contract price for the said project was P1, 150,000.00. To guarantee faithful compliance with their agreement, Lucky Star engaged respondent Stronghold which issued two (2) bonds in favor of petitioner. The first, SURETY BOND GR No. 141558, dated May 9, 2006, covers the sum of P575, 000.00 or the required down payment for the drilling work. With respect to the second contract, PERFORMANCE BOND GR No. 115388, dated May 09, 2006, it covers the sum of P345, 000.00. By July 18, 2006, just a few days before the agreed completion date of 60 calendar days, Lucky Star managed to accomplish only ten (10) % of the drilling work. On the same date, petitioner sent a demand letter to Lucky Star for the immediate completion of the drilling work with a threat to cancel the agreement and forfeit the bonds should it still fail to complete said project within the agreed period. Despite notice, ABC did not receive any reply either from Lucky Star or Stronghold, prompting it to file its Complaint for Rescission with Damages against both before the RTC on November 21, 2006. Issue: Whether or not respondent insurance company, as surety, can be held liable under its bonds. Held: The Court rules in the affirmative. Respondent, along with its principal, Lucky Star, bound itself to the petitioner when it executed in its favor surety and performance bonds. As provided in Article 2047, the surety undertakes to be bound solidarily with the principal obligor. That undertaking makes a surety agreement an ancillary contract as it presupposes the existence of a principal contract. Although the contract of a surety is in essence secondary only to a valid principal obligation, the surety becomes liable for the debt or duty of another although it possesses no direct or personal interest over the obligations nor does it receive any benefit therefrom. Let it be stressed that notwithstanding the fact that the surety contract is secondary to the principal obligation, the surety assumes liability as a regular party to the undertaking. Suretyship, in essence, contains two types of relationship – the principal relationship between the obligee (petitioner) and the obligor (Lucky Star), and the accessory surety relationship between the principal (Lucky Star) and the surety (respondent). In this arrangement, the obligee accepts the surety’s solidary undertaking to pay if the obligor does not pay. Such acceptance, however, does not change


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in any material way the obligee’s relationship with the principal obligor. Neither does it make the surety an active party to the principal obligee-obligor relationship. Thus, the acceptance does not give the surety the right to intervene in the principal contract. The surety’s role arises only upon the obligor’s default, at which time, it can be directly held liable by the obligee for payment as a solidary obligor. In the case at bench, when Lucky Star failed to finish the drilling work within the agreed time frame despite petitioner’s demand for completion, it was already in delay. Due to this default, Lucky Star’s liability attached and, as a necessary consequence, respondent’s liability under the surety agreement arose. Undeniably, when Lucky Star reneged on its undertaking with the petitioner and further failed to return the P575, 000.00 down payments that was already advanced to it, respondent, as surety, became solidarily bound with Lucky Star for the repayment of the said amount to petitioner. Accordingly, after liability has attached to the principal, the obligee or, in this case, the petitioner, can exercise the right to proceed against Lucky Star or respondent or both. In fine, respondent should be answerable to petitioner on account of Lucky Star’s non-performance of its obligation as guaranteed by the performance bond. Finally, Article 1217 of the New Civil Code acknowledges the right of reimbursement from a codebtor (the principal co-debtor, in case of suretyship) in favor of the one who paid (the surety). Thus, respondent is entitled to reimbursement from Lucky Star for the amount it may be required to pay petitioner arising from its bonds.


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Re: Obligations (Solidary Obligations) PETRON CORPORATION, v. SPOUSES JOVERO G.R. No. 151038, January 18, 2012 Facts: On 25 April 1984, Rubin Uy entered into a Contract of Lease with Cesar J. Jovero over a property located at E. Reyes Ave., Estancia, Iloilo for the purpose of operating a gasoline station for a period of five (5) years. On 30 April 1984, petitioner, a domestic corporation engaged in the importation and distribution of gasoline and other petroleum products, entered into a Retail Dealer Contract with Rubin Uy for the period 1 May 1984 to 30 April 1989. Under the dealership contract, petitioner sold its products in quantities as ordered by the dealer. In order to comply with its obligation to deliver the petroleum products to the dealer, petitioner contracted the hauling services of Jose Villaruz, who did business under the name Gale Freight Services. Meanwhile, on 27 October 1988, Rubin Uy executed a Special Power of Attorney (SPA) in favor of Chiong Uy authorizing the latter to manage and administer the gasoline station. Chiong Uy and his wife, Dortina M. Uy, operated the gasoline station as agents of Rubin Uy. However, on 27 November 1990, Chiong Uy left for Hong Kong, leaving Dortina Uy to manage the gasoline station. On 3 January 1991, around ten o’clock in the morning, Ronnie Allanaraiz, an employee of the gasoline station, ordered from petitioner various petroleum products. Petitioner then requested the services of Villaruz for the delivery of the products to the gasoline station in Estancia, Iloilo. He, however, used a tank truck different from the trucks specifically enumerated in the hauling contract executed with petitioner. Petitioner nevertheless allowed the transport and delivery of its products to Estancia in the tank truck driven by Pepito Igdanis. During the unloading of the petroleum from the tank truck into the fill pipe that led to the gasoline station’s underground tank, for reasons unknown, a fire started in the fill pipe and spread to the rubber hose connected to the tank truck. During this time, driver Pepito Igdanis was nowhere to be found. Bystanders then tried to put out the flames. It was then that Igdanis returned to the gasoline station with a bag of dried fish in hand. Seeing the fire, he got into the truck without detaching the rubber hose from the fill pipe and drove in reverse, dragging the burning fuel hose along the way. As a result, a conflagration started and consumed the nearby properties of herein defendants, spouses Cesar J. Jovero and Erma Cudilla-Jovero, amounting to P1,500,000; of spouses Leonito Tan and Luzvilla Samson, amounting to P800,000; and of spouses Rogelio Limpoco and Lucia Josue Limpoco, amounting to P4,112,000. Issue: Whether or not petitioner is solidarily liable with the dealer, Robin Uy.


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Held: Yes. With regard to the delivery of the petroleum, Villaruz was acting as the agent of petitioner Petron. Therefore, as far as the dealer was concerned with regard to the terms of the dealership contract, acts of Villaruz and his employees are also acts of petitioner. Villaruz failed to rebut the presumption that the employer was negligent in the supervision of an employee who caused damages to another; and, thus, petitioner should likewise be held accountable for the negligence of Villaruz and Igdanis. To reiterate, petitioner, the dealer Rubin Uy – acting through his agent, Dortina Uy – shared the responsibility for the maintenance of the equipment used in the gasoline station and for making sure that the unloading and the storage of highly flammable products were without incident. As both were equally negligent in those aspects, petitioner cannot pursue a claim against the dealer for the incident. Therefore, both are solidarily liable to respondents for damages caused by the fire. Villaruz is also liable to petitioner based on the hauling contract. As the employer of Igdanis, Villaruz was impleaded by herein respondents in the lower court and was found to be solidarily liable with his other co-defendants. To put it simply, based on the ruling of the lower courts, there are four (4) persons who are liable to pay damages to respondents. The latter may proceed against any one of the solidary debtors or some or all of them simultaneously, pursuant to Article 1216 of the Civil Code. These solidary debtors are petitioner Petron, the hauler Villaruz, the operator Dortina Uy and the dealer Rubin Uy. To determine the liability of each defendant to one another, the amount of damages shall be divided by four, representing the share of each defendant. Supposedly, under the hauling contract, petitioner may require Villaruz to indemnify it for its share. However, because it was not able to maintain the cross-claim filed against him, it shall be liable for its own share under Article 1208 and can no longer seek indemnification or subrogation from him under its dismissed cross-claim. Petitioner may not pursue its cross-claim against Rubin Uy and Dortina Uy, because the cross-claims against them were also dismissed; moreover, they were all equally liable for the conflagration as discussed herein.


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Re: Obligations (Obligation with a Penal Clause) CONTINENTAL CEMENT CORPORATION, v. ASEA BROWN BOVERI, INC. G.R. No. 171660, October 17, 2011 Facts: Sometime in July 1990, petitioner Continental Cement Corporation (CCC), obtained the services of respondents Asea Brown Boveri, Inc. (ABB) and BBC Brown Boveri, Corp. to repair its 160 KW Kiln DC Drive Motor (Kiln Drive Motor). On October 23, 1991, due to the repeated failure of respondents to repair the Kiln Drive Motor, petitioner filed a Complaint for sum of money and damages, against respondent corporations. Respondents, however, claimed that under Clause 7 of the General Conditions, attached to the letter of offer dated July 4, 1990 issued by respondent ABB to petitioner, the liability of respondent ABB “does not extend to consequential damages either direct or indirect.” Issue: Whether or not petitioner is entitiled to penalties under Purchase Order Nos. 17136-37. Held: Yes. As per Purchase Order Nos. 17136-37, petitioner is entitled to penalties in the amount of P987.25 per day from the time of delay, August 30, 1990, up to the time the Kiln Drive Motor was finally returned to petitioner. Records show that although the testing of Kiln Drive Motor was done on March 13, 1991, the said motor was actually delivered to petitioner as early as January 7, 1991. The installation and testing was done only on March 13, 1991 upon the request of petitioner because the Kiln was under repair at the time the motor was delivered; hence, the load testing had to be postponed. Under Article 1226 of the Civil Code, the penalty clause takes the place of indemnity for damages and the payment of interests in case of non-compliance with the obligation, unless there is a stipulation to the contrary. In this case, since there is no stipulation to the contrary, the penalty in the amount of P987.25 per day of delay covers all other damages (i.e. production loss, labor cost, and rental of the crane) claimed by petitioner. Article 1226 of the Civil Code further provides that if the obligor refuses to pay the penalty, such as in the instant case, damages and interests may still be recovered on top of the penalty. Damages claimed must be the natural and probable consequences of the breach, which the parties have foreseen or could have reasonably foreseen at the time the obligation was constituted. Thus, in addition to the penalties, petitioner seeks to recover as damages production loss, labor cost and the rental of the crane. Petitioner avers that every time the Kiln Drive Motor is tested, petitioner had to rent a crane and pay for labor to install the motor. But except for the Summary of Claims for Damages, no other


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evidence was presented by petitioner to show that it had indeed rented a crane or that it incurred labor cost to install the motor.


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Re: Obligations (Extinguishment of Obligations) METRO CONCAST STEEL CORPORATION, SPOUSES JOSE S. DYCHIAO AND TIUOH YAN, SPOUSES GUILLERMO AND MERCEDES DYCHIAO, AND SPOUSES VICENTE AND FILOMENA DYCHIAO, v. ALLIED BANK CORPORATION. G.R. No. 177921, December 4, 2013 Facts: On various dates and for different amounts, Metro Concast engaged in the business of manufacturing steel, through its officers, herein individual petitioners, obtained several loans from Allied Bank. By way of security, the individual petitioners executed several Continuing Guaranty/Comprehensive Surety Agreements in favor of Allied Bank. Petitioners failed to settle their obligations under the aforementioned promissory note and trust receipts, hence, Allied Bank, through counsel, sent them demand letters, but to no avail. Thus, Allied Bank was prompted to file a complaint for collection of sum of money against defendants. They also alleged that the economic reverses suffered by the Philippine economy in 1998 as well as the devaluation of the peso against the US dollar contributed greatly to the downfall of the steel industry, directly affecting the business of Metro Concast and eventually leading to its cessation. Hence, in order to settle their debts with Allied Bank, petitioners offered the sale of Metro Concast’s remaining assets, consisting of machineries and equipment, to Allied Bank, which the latter, however, refused. Instead, Allied Bank advised them to sell the equipment and apply the proceeds of the sale to their outstanding obligations. Accordingly, petitioners offered the equipment for sale, but since there were no takers, the equipment was reduced into ferro scrap or scrap metal over the years. In 2002, Peakstar Oil Corporation expressed interest in buying the scrap metal. During the negotiations with Peakstar, petitioners claimed that Atty. Peter Saw (Atty. Saw), a member of Allied Bank’s legal department, acted as the latter’s agent. Eventually, with the alleged conformity of Allied Bank, through Atty. Saw, a Memorandum of Agreement dated November 8, 2002 (MoA) was drawn between Metro Concast, represented by petitioner Jose Dychiao, and Peakstar, through Camiling, under which Peakstar obligated itself to purchase the scrap metal for a total consideration ofP34,000,000.00. Unfortunately, Peakstar reneged on all its obligations under the MOA. Issue: Whether or not the loan obligations incurred by the petitioners under the subject promissory note and various trust receipts have already been extinguished. Held: In the present case, petitioners essentially argue that their loan obligations to Allied Bank had already been extinguished due to Peakstar’s failure to perform its own obligations to Metro Concast pursuant to the MoA. Petitioners classify Peakstar’s default as a form of force majeure in the sense that they have, beyond their control, lost the funds they expected to have received from the Peakstar


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(due to the MoA) which they would, in turn, use to pay their own loan obligations to Allied Bank. They further state that Allied Bank was equally bound by Metro Concast’s MoA with Peakstar since its agent, Atty. Saw, actively represented it during the negotiations and execution of the said agreement. Petitioners’ arguments are untenable. At the outset, the Court must dispel the notion that the MoA would have any relevance to the performance of petitioners’ obligations to Allied Bank. The MoA is a sale of assets contract, while petitioners’ obligations to Allied Bank arose from various loan transactions. Absent any showing that the terms and conditions of the latter transactions have been, in any way, modified or novated by the terms and conditions in the MoA, said contracts should be treated separately and distinctly from each other, such that the existence, performance or breach of one would not depend on the existence, performance or breach of the other. In the foregoing respect, the issue on whether or not Allied Bank expressed its conformity to the assets sale transaction between Metro Concast and Peakstar (as evidenced by the MoA) is actually irrelevant to the issues related to petitioners’ loan obligations to the bank. Now, anent petitioners’ reliance on force majeure, suffice it to state that Peakstar’s breach of its obligations to Metro Concast arising from the MoA cannot be classified as a fortuitous event under jurisprudential formulation.


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Re: Obligations (Extinguishment of Obligations: Payment or Performance) VITARICH CORPORATION, v. LOSIN G.R. No. 181560, November 15, 2010 Facts: Respondent Chona Losin was in the fast-food and catering services business named Glamours Chicken House, with address at Parang Road, Cotabato City. Since 1993, Vitarich, particularly its Davao Branch, had been her supplier of poultry meat. In 1995, however, her account was transferred to the newly opened Vitarich branch in General Santos City. In the months of July to November 1996, Losin’s orders of dressed chicken and other meat products allegedly amounted to P921, 083.10. During this said period, Losin’s poultry meat needs for her business were serviced by Rodrigo Directo and Allan Rosa, both salesmen and authorized collectors of Vitarich, and Arnold Baybay, a supervisor of said corporation. Unfortunately, it was also during the same period that her account started to experience problems because of the fact that Directo delivered stocks to her even without prior booking which is the customary process of doing business with her. On August 24, 1996, Directo’s services were terminated by Vitarich without Losin’s knowledge. He left without turning over some supporting invoices covering the orders of Losin. Rosa and Baybay, on the other hand, resigned on November 30, 1996 and December 30, 1996, respectively. Just like Directo, they did not also turn over pertinent invoices covering Losin’s account. On February 12, 1997, demand letters were sent to Losin covering her alleged unpaid account amounting to P921, 083.10. Because of said demands, she checked her records and discovered that she had an overpayment to Vitarich in the amount of P500, 000.00. She relayed this fact to Vitarich and further informed the latter that checks were issued and the same were collected by Directo. It appears that Losin had issued three (3) checks amounting to P288, 463.30 which were dishonored either for reasons - Drawn Against Insufficient Funds (DAIF) or Stop Payment. On March 2, 1998, Vitarich filed a complaint for Sum of Money against Losin, Directo, Rosa, and Baybay before the RTC. Issue: Whether or not the defense of payment may be set up by defendant to mitigate or extinguish her liability. Held: No. As a general rule, one who pleads payment has the burden of proving it. In Jimenez v. NLRC, the Court ruled that the burden rests on the debtor to prove payment, rather than on the creditor to


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prove non-payment. The debtor has the burden of showing with legal certainty that the obligation has been discharged by payment. True, the law requires in civil cases that the party who alleges a fact has the burden of proving it. Section 1, Rule 131 of the Rules of Court provides that the burden of proof is the duty of a party to prove the truth of his claim or defense, or any fact in issue by the amount of evidence required by law. In this case, however, the burden of proof is on Losin because she alleges an affirmative defense, namely, payment. Losin failed to discharge that burden. After examination of the evidence presented, this Court is of the opinion that Losin failed to present a single official receipt to prove payment. This is contrary to the well-settled rule that a receipt, which is a written and signed acknowledgment that money and goods have been delivered, is the best evidence of the fact of payment although not exclusive. All she presented were copies of the list of checks allegedly issued to Vitarich through its agent Directo, a Statement of Payments Made to Vitarich, and apparently copies of the pertinent history of her checking account with Rizal Commercial Banking Corporation (RCBC). At best, these may only serve as documentary records of her business dealings with Vitarich to keep track of the payments made but these are not enough to prove payment. In the case at bar, no cash payment was proved. It was neither confirmed that the checks issued by Losin were actually encashed by Vitarich. Thus, the Court cannot consider that payment, much less overpayment, made by Losin.


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Re: Obligations (Extinguishment of Obligations: Payment or Performance) LAND BANK OF THE PHILIPPINES, v. ALFREDO ONG G.R. No. 190755, November 24, 2010 Facts: On March 18, 1996, spouses Johnson and Evangeline Sy secured a loan from Land Bank Legazpi City in the amount of Php. 6 million. The loan was secured by three (3) residential lots, five (5) cargo trucks, and a warehouse. Under the loan agreement, PhP 6 million of the loan would be 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. Subsequently, however, the Spouses Sy found they could no longer pay their loan. 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, under a Deed of Sale with Assumption of Mortgage. Evangeline’s father, petitioner Alfredo Ong, later went to Land Bank to inform it about the sale and assumption of mortgage. Atty. Edna Hingco, the Legazpi City Land Bank Branch Head, told Alfredo and his counsel Atty. Ireneo de Lumen that there was nothing wrong with the agreement with the Spouses Sy but provided them with requirements for the assumption of mortgage. They were also told that Alfredo 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 could easily approve the assumption of mortgage. Atty. Hingco then informed Alfredo that the certificate of title of the Spouses Sy would be transferred in his name but this never materialized. No notice of transfer was sent to him. Alfredo later found out that his application for assumption of mortgage was not approved by Land Bank. Land Bank foreclosed the mortgage of the Spouses Sy after several months. Alfredo’s other counsel, Atty. Madrilejos, subsequently talked to Land Bank’s lawyer and was told that the PhP 750,000 he paid would be returned to him. On December 12, 1997, Alfredo initiated an action for recovery of sum of money with damages against Land Bank in Civil Case No. T-1941, as Alfredo’s payment was not returned by Land Bank. Issue: 1. Whether or not there was novation by substitution of the person of debtor. 2. Whether or not Land Bank is bound to return the Php. 750, 000. 00 paid by Alfredo. Held: 1. There was no novation in the contract between the parties. Not all the elements of novation were present. Novation must be expressly consented to. Moreover, the conflicting intention


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and acts of the parties underscore the absence of any express disclosure or circumstances with which to deduce a clear and unequivocal intent by the parties to novate the old agreement. And since the substitution of debtors was made without the consent of Land Bank – a requirement which is indispensable in order to effect a novation of the obligation, it is therefore not bound to recognize the substitution of debtors. Land Bank did not intervene in the contract between Spouses Sy and Spouses Ong and did not expressly give its consent to this substitution. 2. Yes. 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. Unjust enrichment has been applied to actions called accion in rem verso. In order that the accion in rem verso may prosper, the following conditions must concur: (1) that the defendant has been enriched; (2) that the plaintiff has suffered a loss; (3) that the enrichment of the defendant is without just or legal ground; and (4) that the plaintiff has no other action based on contract, quasi-contract, crime, or quasi-delict. The principle of unjust enrichment essentially contemplates payment when there is no duty to pay, and the person who receives the payment has no right to receive it. The principle applies to the parties in the instant case, as, 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.


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Re: Obligations (Extinguishment of Obligations: Payment or Performance) REPUBLIC OF THE PHILIPPINES, v. DE GUZMAN G.R. No. 175021, June 15, 2011 Facts: On December 8, 1995, the PNP Engineering Services (PNPES), released a Requisition and Issue Voucher for the acquisition of various building materials amounting to Two Million Two Hundred Eighty-Eight Thousand Five Hundred Sixty-Two Pesos and Sixty Centavos (P2, 288,562.60) for the construction of a four-storey condominium building with roof deck at Camp Crame, Quezon City. Respondent averred that on December 11, 1995, MGM and petitioner, represented by the PNP, through its chief, executed a Contract of Agreement (the Contract) wherein MGM, for the price of P2, 288,562.60, undertook to procure and deliver to the PNP the construction materials itemized in the purchase order attached to the Contract. On November 5, 1997, the respondent, through counsel, sent a letter dated October 20, 1997 to the PNP, demanding the payment of P2,288,562.60 for the construction materials MGM procured for the PNP under their December 1995 Contract. On November 17, 1997, the PNP, through its Officer-in-Charge, replied to respondent’s counsel, informing her of the payment made to MGM via Land Bank of the Philippines (LBP) Check No. 0000530631, as evidenced by Receipt No. 001, issued by the respondent to the PNP on April 23, 1996. Issue: Whether or not there was extinguishment of obligation pertaining to the petitioner by reason of payment. Held No. The petitioner’s obligation has not been extinguished. The petitioner’s obligation consists of payment of a sum of money. In order for petitioner’s payment to be effective in extinguishing its obligation, it must be made to the proper person. Article 1240 of the Civil Code states: Art. 1240. Payment shall be made to the person in whose favor the obligation has been constituted, or his successor in interest, or any person authorized to receive it. Payment made by the debtor to the person of the creditor or to one authorized by him or by the law to receive it extinguishes the obligation. When payment is made to the wrong party, however, the obligation is not extinguished as to the creditor who is without fault or negligence even if the debtor acted in utmost good faith and by mistake as to the person of the creditor or through error induced by fraud of a third person.


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In general, a payment in order to be effective to discharge an obligation, must be made to the proper person. Thus, payment must be made to the obligee himself or to an agent having authority, express or implied, to receive the particular payment. Payment made to one having apparent authority to receive the money will, as a rule, be treated as though actual authority had been given for its receipt. Likewise, if payment is made to one who by law is authorized to act for the creditor, it will work a discharge. The receipt of money due on a judgment by an officer authorized by law to accept it will, therefore, satisfy the debt. The respondent was able to establish that the LBP check was not received by her or by her authorized personnel. The PNP’s own records show that it was claimed and signed for by Cruz, who is openly known as being connected to Highland Enterprises, another contractor. Hence, absent any showing that the respondent agreed to the payment of the contract price to another person, or that she authorized Cruz to claim the check on her behalf, the payment, to be effective must be made to her.


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Re: Obligations (Extinguishment of Obligations: Payment or Performance) UNION BANK OF THE PHILIPPINES, v. SPOUSES TIU G.R. No. 173090, September 7, 2011 Facts: Union Bank of the Philippines and respondent spouses Rodolfo T. Tiu and Victoria N. Tiu entered into a Credit Line Agreement (CLA) whereby Union Bank agreed to make available to the spouses Tiu credit facilities. On June 23, 1998, Union Bank advised the spouses Tiu through a letter that, in view of the existing currency risks, the loans shall be redenominated, the spouses Tiu wrote to Union Bank authorizing the latter to redenominate the loans. On December 21, 1999, Union Bank and the spouses Tiu entered into a Restructuring Agreement. The Restructuring Agreement contains a clause wherein the spouses Tiu confirmed their debt and waived any action on account thereof. Asserting that the spouses Tiu failed to comply with the payment schemes set up in the Restructuring Agreement, Union Bank initiated extrajudicial foreclosure proceedings on the residential property of the spouses Tiu. As for their defense the spouses Tiu claims full payment of the loan since the loan should originally be paid in peso and not in dollars and that they were merely forced to sign the Restructuring Agreement. Issue: Whether or not the restructuring agreement is valid, i.e., payment of the loan in dollars. Held: Yes. Union Bank does not dispute that the spouses Tiu received the loaned amount of US$3,632,000.00 in Philippine pesos, not dollars, at the prevailing exchange rate of US$1=P26. However, Union Bank claims that this does not change the true nature of the loan as a foreign currency loan, and proceeded to illustrate in its Memorandum that the spouses Tiu obtained favorable interest rates by opting to borrow in dollars (but receiving the equivalent peso amount) as opposed to borrowing in pesos. We agree with Union Bank on this point. Although indeed, the spouses Tiu received peso equivalents of the borrowed amounts, the loan documents presented as evidence, i.e., the promissory notes, expressed the amount of the loans in US dollars and not in any other currency. This clearly indicates that the spouses Tiu were bound to pay Union Bank in dollars, the amount stipulated in said loan documents. Thus, before the Restructuring Agreement, the spouses Tiu were bound to pay Union Bank the amount of US$3,632,000.00 plus the interest stipulated in the promissory notes, without converting the same to pesos. The spouses Tiu, who are in the construction business and appear to be dealing primarily in Philippine currency, should therefore purchase the necessary amount of dollars to pay Union Bank, who could have justly refused payment in any currency other than that which was stipulated in the promissory notes.


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Such stipulation of payment in dollars is not prohibited by any prevailing law or jurisprudence at the time the loans were taken. In this regard, Article 1249 of the Civil Code provides: Art. 1249. The payment of debts in money shall be made in the currency stipulated, and if it is not possible to deliver such currency, then in the currency which is legal tender in the Philippines. Although the Credit Line Agreement between the spouses Tiu and Union Bank was entered into on November 21, 1995, when the agreement to pay in foreign currency was still considered void under Republic Act No. 529, the actual loans, as shown in the promissory notes, were taken out from September 22, 1997 to March 26, 1998, during which time Republic Act No. 8183 was already in effect. On July 5, 1996, Republic Act No. 8183 took effect, expressly repealing Republic Act No. 529 in Section 2 thereof. The same statute also explicitly provided that parties may agree that the obligation or transaction shall be settled in a currency other than Philippine currency at the time of payment.


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Re: Obligations (Extinguishment of Obligations: Payment or Performance) SPOUSES MINIANO B. DELA CRUZ and LETA L. DELA CRUZ, v. ANA MARIE CONCEPCION. G.R. No. 172825, October 11, 2012 Facts: On March 25, 1996, petitioners (as vendors) entered into a Contract to Sell with respondent (as vendee) involving a house and lot in Cypress St., Phase I, Town and Country Executive Village, Antipolo City for a consideration of P2,000,000.00. Respondent made the following payments, to wit: (1) P500, 000.00 by way of down payment; (2) P500, 000.00 on May 30, 1996; (3) P500, 000.00 paid on January 22, 1997; and (4) P500, 000.00 bounced check dated June 30, 1997 which was subsequently replaced by another check of the same amount, dated July 7, 1997. Respondent was, therefore, able to pay a total of P2, 000,000.00. Before respondent issued the P500, 000.00 replacement check, she told petitioners that based on the computation of her accountant as of July 6, 1997; her unpaid obligation which includes interests and penalties was only P200, 000.00. Petitioners agreed with respondent and said "if P200, 000.00 is the correct balance, it is okay with us." Meanwhile, the title to the property was transferred to respondent. Petitioners later reminded respondent to pay P209, 000.00 within three months. They claimed that the said amount remained unpaid, despite the transfer of the title to the property to respondent. Several months later, petitioners made further demands stating the supposed correct computation of respondent’s liabilities. Despite repeated demands, petitioners failed to collect the amounts they claimed from respondent. Hence, the Complaint for Sum of Money With Damages was filed. Issue: Whether or not there was extinguishment of obligation through payment to a creditor’s trustee. Held: Yes. While respondent judicially admitted in her Answer that she only paid P2 million and that she still owed petitioners P200, 000.00, respondent claimed later and, in fact, submitted an evidence to show that she already paid the whole amount of her unpaid obligation. It is noteworthy that when respondent presented the evidence of payment, petitioners did not object thereto. Since there was an implied consent on the part of petitioners to try the issue of payment, even if no motion was filed and no amendment of the pleading has been ordered, the RTC cannot be faulted for admitting respondent’s testimonial and documentary evidence to prove payment. Respondent’s obligation consists of payment of a sum of money. In order to extinguish said obligation, payment should be made to the proper person as set forth in Article 1240 of the Civil Code, to wit:


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Article 1240. Payment shall be made to the person in whose favor the obligation has been constituted, or his successor in interest, or any person authorized to receive it. Payment made by the debtor to the person of the creditor or to one authorized by him or by the law to receive it extinguishes the obligation. When payment is made to the wrong party, however, the obligation is not extinguished as to the creditor who is without fault or negligence even if the debtor acted in utmost good faith and by mistake as to the person of the creditor or through error induced by fraud of a third person. In general, a payment in order to be effective to discharge an obligation must be made to the proper person. Thus, payment must be made to the obligee himself or to an agent having authority, express or implied, to receive the particular payment. Payment made to one having apparent authority to receive the money will, as a rule, be treated as though actual authority had been given for its receipt. Likewise, if payment is made to one who by law is authorized to act for the creditor, it will work a discharge. The receipt of money due on a judgment by an officer authorized by law to accept it will, therefore, satisfy the debt. Admittedly, payment of the remaining balance of P200, 000.00 was not made to the creditors themselves. Rather, it was allegedly made to a certain Losloso. Respondent claims that Losloso was the authorized agent of petitioners, but the latter dispute it. Losloso’s authority to receive payment was embodied in petitioners’ Letter addressed to respondent, dated August 7, 1997, where they informed respondent of the amounts they advanced for the payment of the 1997 real estate taxes. In said letter, petitioners reminded respondent of her remaining balance, together with the amount of taxes paid. Taking into consideration the busy schedule of respondent, petitioners advised the latter to leave the payment to a certain "Dori" who admittedly is Losloso, or to her trusted helper. This is an express authority given to Losloso to receive payment. It is clear, then, that Losloso is an agent of the creditor, and payment to him discharges respondents’ liability.


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Re: Obligations (Extinguishment of Obligations: Dation in Payment or Dacion en Pago) LUZON DEVELOPMENT BANK, v. ANGELES CATHERINE ENRIQUEZ G.R. No. 168646, January 12, 2011 Facts: On July 3, 1995, De Leon and his spouse obtained a P4 million loan from the BANK for the express purpose of developing Delta Homes I. To secure the loan, the spouses De Leon executed in favor of the BANK a real estate mortgage (REM) on several of their properties, including Lot 4. Subsequently, this REM was amended by increasing the amount of the secured loan from P4 million to P8 million. Both the REM and the amendment were annotated on TCT No. T637183. DELTA then obtained a Certificate of Registration and a License to Sell from the Housing and Land Use Regulatory Board (HLURB). Sometime in 1997, DELTA executed a Contract to Sell with respondent Angeles Catherine Enriquez (Enriquez) over the house and lot in Lot 4 for the purchase price of P614,950.00. Enriquez made a downpayment of P114,950.00. When DELTA defaulted on its loan obligation, the BANK, instead of foreclosing the REM, agreed to a dation in payment or a dacion en pago. The Deed of Assignment in Payment of Debt was executed on September 30, 1998 and stated that DELTA “assigns, transfers, and conveys and sets over [to] the assignee that real estate with the building and improvements existing thereon x x x in payment of the total obligation owing to [the Bank] x x x.” Unknown to Enriquez, among the properties assigned to the BANK was the house and lot of Lot 4, which is the subject of her Contract to Sell with DELTA. The records do not bear out and the parties are silent on whether the BANK was able to transfer title to its name. It appears, however, that the dacion en pago was not annotated on the TCT of Lot 4. On November 18, 1999, Enriquez filed a complaint against DELTA and the BANK before the Region IV Office of the HLURB alleging that DELTA violated the terms of its License to Sell by: (a) selling the house and lots for a price exceeding that prescribed in Batas Pambansa (BP) Bilang 220; and (b) failing to get a clearance for the mortgage from the HLURB. Enriquez sought a full refund of the P301,063.42 that she had already paid to DELTA, award of damages, and the imposition of administrative fines on DELTA and the BANK. In his June 1, 2000 Decision, HLURB Arbiter Atty. Raymundo A. Foronda upheld the validity of the purchase price, but ordered DELTA to accept payment of the balance of P108,013.36 from Enriquez, and (upon such payment) to deliver to Enriquez the title to the house and lot free from liens and encumbrances. Issue: Whether or not the loan obligation of DELTA with the BANK had been totally extinguished by dacion en pago.


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Held: Yes. Like in all contracts, the intention of the parties to the dation in payment is paramount and controlling. The contractual intention determines whether the property subject of the dation will be considered as the full equivalent of the debt and will therefore serve as full satisfaction for the debt. “The dation in payment extinguishes the obligation to the extent of the value of the thing delivered, either as agreed upon by the parties or as may be proved, unless the parties by agreement, express or implied, or by their silence, consider the thing as equivalent to the obligation, in which case the obligation is totally extinguished.” In the case at bar, the Dacion en Pago executed by DELTA and the BANK indicates a clear intention by the parties that the assigned properties would serve as full payment for DELTA’s entire obligation. Without any reservation or condition, the Dacion stated that the assigned properties served as full payment of DELTA’s “total obligation” to the BANK. The BANK accepted said properties as equivalent of the loaned amount and as full satisfaction of DELTA’s debt. The BANK cannot complain if, as it turned out, some of those assigned properties (such as Lot 4) are covered by existing contracts to sell. As noted earlier, the BANK knew that the assigned properties were subdivision lots and covered by PD 957. It was aware of the nature of DELTA’s business, of the location of the assigned properties within DELTA’s subdivision development, and the possibility that some of the properties may be subjects of existing contracts to sell which enjoy protection under PD 957. Banks dealing with subdivision properties are expected to conduct a thorough due diligence review to discover the status of the properties they deal with. It may thus be said that the BANK, in accepting the assigned properties as full payment of DELTA’s “total obligation,” has assumed the risk that some of the assigned properties (such as Lot 4) are covered by contracts to sell which it is bound to honor under PD 957. A dacion en pago is governed by the law of sales. Contracts of sale come with warranties, either express (if explicitly stipulated by the parties) or implied (under Article 1547 et seq. of the Civil Code). In this case, however, the BANK does not even point to any breach of warranty by DELTA in connection with the Dation in Payment. To be sure, the Dation in Payment has no express warranties relating to existing contracts to sell over the assigned properties. As to the implied warranty in case of eviction, it is waivable and cannot be invoked if the buyer knew of the risks or danger of eviction and assumed its consequences. As we have noted earlier, the BANK, in accepting the assigned properties as full payment of DELTA’s “total obligation,” has assumed the risk that some of the assigned properties are covered by contracts to sell which must be honored under PD 957.


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Re: Obligations (Extinguishment of Obligations: Dation in Payment or Dacion en Pago) TAN SHUY, v. SPOUSES GUILLERMO MAULAWIN and PARING CARIÑOMAULAWIN G.R. No. 190375, February 8, 2012 Facts: Petitioner Tan Shuy is engaged in the business of buying copra and corn in the Fourth District of Quezon Province. According to Vicente Tan, son of petitioner, whenever they would buy copra or corn from crop sellers, they would prepare and issue a pesada in their favor. A pesada is a document containing details of the transaction, including the date of sale, the weight of the crop delivered, the trucking cost, and the net price of the crop. He then explained that when a pesada contained the annotation “pd” on the total amount of the purchase price, it meant that the crop delivered had already been paid for by petitioner. Guillermo Maulawin, respondent in this case, is a farmerbusinessman engaged in the buying and selling of copra and corn. On 10 July 1997, Tan Shuy extended a loan to Guillermo in the amount of ₱420,000. In consideration thereof, Guillermo obligated himself to pay the loan and to sell lucad or copra to petitioner. Petitioner alleged that despite repeated demands, Guillermo remitted only ₱23,000 in August 1998 and ₱5,500 in October 1998, or a total of ₱28,500. He claimed that respondent had an outstanding balance of ₱391,500. Thus, convinced that Guillermo no longer had the intention to pay the loan, petitioner brought the controversy to the Lupon Tagapamayapa. When no settlement was reached, petitioner filed a Complaint before the Regional Trial Court (RTC). Respondent Guillermo countered that he had already paid the subject loan in full. According to him, he continuously delivered and sold copra to petitioner from April 1998 to April 1999. Respondent said they had an oral arrangement that the net proceeds thereof shall be applied as installment payments for the loan. He alleged that his deliveries amounted to ₱420,537.68 worth of copra. To bolster his claim, he presented copies of pesadas issued by Elena and Vicente. He pointed out that the pesadas did not contain the notation “pd,” which meant that actual payment of the net proceeds from copra deliveries was not given to him, but was instead applied as loan payment. He averred that Tan Shuy filed a case against him, because petitioner got mad at him for selling copra to other copra buyers. Issue: Whether the delivery of copra amounted to installment payments for the loan obtained by respondents from petitioner, hence, there was dacion en pago. Held: Yes. Indeed, pursuant to Article 1232 of the Civil Code, an obligation is extinguished by payment or performance. There is payment when there is delivery of money or performance of an obligation. Article 1245 of the Civil Code provides for a special mode of payment called dation in


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payment (dación en pago). There is dation in payment when property is alienated to the creditor in satisfaction of a debt in money. Here, the debtor delivers and transmits to the creditor the former’s ownership over a thing as an accepted equivalent of the payment or performance of an outstanding debt. In such cases, Article 1245 provides that the law on sales shall apply, since the undertaking really partakes – in one sense – of the nature of sale; that is, the creditor is really buying the thing or property of the debtor, the payment for which is to be charged against the debtor’s obligation. Dation in payment extinguishes the obligation to the extent of the value of the thing delivered, either as agreed upon by the parties or as may be proved, unless the parties by agreement – express or implied, or by their silence – consider the thing as equivalent to the obligation, in which case the obligation is totally extinguished. The subsequent arrangement between Tan Shuy and Guillermo can thus be considered as one in the nature of dation in payment. There was partial payment every time Guillermo delivered copra to petitioner, chose not to collect the net proceeds of his copra deliveries, and instead applied the collectible as installment payments for his loan from Tan Shuy. We therefore uphold the findings of the trial court, as affirmed by the CA, that the net proceeds from Guillermo’s copra deliveries amounted to ₱378,952.43. With this partial payment, respondent remains liable for the balance totaling ₱41,047.57.


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Re: Obligations (Extinguishment of Obligations: Dation in Payment or Dacion en Pago) SPOUSES GODFREY and GERARDINA SERFINO, v. FAR EAST BANK AND TRUST COMPANY, INC., now BANK OF THE PHILIPPINE ISLANDS. G.R. No. 171845, October 10, 2012 Facts: By way of settlement, the spouses Serfino and the spouses Cortez executed a compromise agreement on October 20, 1995, in which the spouses Cortez acknowledged their indebtedness to the spouses Serfino in the amount of P 108,245.71. To satisfy the debt, Magdalena bound herself "to pay in full the judgment debt out of her retirement benefits. Payment of the debt shall be made one (1) week after Magdalena has received her retirement benefits from the Government Service Insurance System (GSIS). In case of default, the debt may be executed against any of the properties of the spouses Cortez that is subject to execution, upon motion of the spouses Serfino. After finding that the compromise agreement was not contrary to law, morals, good custom, public order or public policy, the RTC approved the entirety of the parties’ agreement and issued a compromise judgment based thereon. No payment was made as promised. Instead, Godfrey discovered that Magdalena deposited her retirement benefits in the savings account of her daughter-in-law, Grace Cortez, with the respondent, Far East Bank and Trust Company, Inc. (FEBTC). As of April 23, 1996, Grace’s savings account with FEBTC amounted to P245, 830.37, the entire deposit coming from Magdalena’s retirement benefits. That same day, the spouses Serfino’s counsel sent two letters to FEBTC informing the bank that the deposit in Grace’s name was owned by the spouses Serfino by virtue of an assignment made in their favor by the spouses Cortez. The letter requested FEBTC to prevent the delivery of the deposit to either Grace or the spouses Cortez until its actual ownership has been resolved in court. On April 25, 1996, the spouses Serfino instituted Civil Case No. 95- 9344 against the spouses Cortez, Grace and her husband, Dante Cortez, and FEBTC for the recovery of money on deposit and the payment of damages, with a prayer for preliminary attachment. On April 26, 1996, Grace withdrew P 150,000.00 from her savings account with FEBTC. Issue: Whether or not there was extinguishment of obligation by virtue of an assignment of credit which constitutes dacion en pago. Held: No. "An assignment of credit is an agreement by virtue of which the owner of a credit, known as the assignor, by a legal cause, such as sale, dation in payment, exchange or donation, and without the consent of the debtor, transfers his credit and accessory rights to another, known as the assignee, who acquires the power to enforce it to the same extent as the assignor could enforce it against the


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debtor. It may be in the form of sale, but at times it may constitute a dation in payment, such as when a debtor, in order to obtain a release from his debt, assigns to his creditor a credit he has against a third person." As a dation in payment, the assignment of credit operates as a mode of extinguishing the obligation; the delivery and transmission of ownership of a thing (in this case, the credit due from a third person) by the debtor to the creditor is accepted as the equivalent of the performance of the obligation. The terms of the compromise judgment, however, did not convey intent to equate the assignment of Magdalena’s retirement benefits (the credit) as the equivalent of the payment of the debt due the spouses Serfino (the obligation). There was actually no assignment of credit; if at all, the compromise judgment merely identified the fund from which payment for the judgment debt would be sourced. Only when Magdalena has received and turned over to the spouses Serfino the portion of her retirement benefits corresponding to the debt due would the debt be deemed paid. In the present case, the judgment debt was not extinguished by the mere designation in the compromise judgment of Magdalena’s retirement benefits as the fund from which payment shall be sourced. An assignment of credit not only entitles the assignee to the credit itself, but also gives him the power to enforce it as against the debtor of the assignor. Since no valid assignment of credit took place, the spouses Serfino cannot validly claim ownership of the retirement benefits that were deposited with FEBTC. Without ownership rights over the amount, they suffered no pecuniary loss that has to be compensated by actual damages. The grant of actual damages presupposes that the claimant suffered a duly proven pecuniary loss.


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Re: Obligations (Extinguishment of Obligations: Tender of Payment and Consignation) SOLEDAD DALTON, v. FGR REALTY AND DEVELOPMENT CORPORATION, FELIX NG, NENITA NG, and FLORA R. DAYRIT or FLORA REGNER, Respondents. G.R. No. 172577, January 19, 2011 Facts: Flora R. Dayrit owned a 1,811-square meter parcel of land located at the corner of Rama Avenue and Velez Street in Cebu City. Petitioners leased portions of the property. In June 1985, Dayrit sold the property to respondent FGR Realty and Development Corporation (FGR). In August 1985, Dayrit and FGR stopped accepting rental payments because they wanted to terminate the lease agreements with Dalton and Sasam, et al. In a complaint dated 11 September 1985, Dalton and Sasam, et al. consigned the rental payments with the RTC. They failed to notify Dayrit and FGR about the consignation. In motions dated 27 March 1987, 10 November 1987, 8 July 1988, and 28 November 1994, Dayrit and FGR withdrew the rental payments. In their motions, Dayrit and FGR reserved the right to question the validity of the consignation. Dayrit, FGR and Sasam, et al. entered into compromise agreements dated 25 March 1997 and 20 June 1997. In the compromise agreements, they agreed to abandon all claims against each other. Dalton did not enter into a compromise agreement with Dayrit and FGR. Issue: Whether or not the consignation is valid as to effectively render the obligation’s extinguishment. Held: No. In withdrawing the amounts consigned, Dayrit and FGR expressly reserved the right to question the validity of the consignation. A sensu contrario, when the creditor’s acceptance of the money consigned is conditional and with reservations, he is not deemed to have waived the claims he reserved against his debtor. Thus, when the amount consigned does not cover the entire obligation, the creditor may accept it, reserving his right to the balance (Tolentino, Civil Code of the Phil., Vol. IV, 1973 Ed., p. 317, citing 3 Llerena 263). The same factual milieu obtains here because the respondent creditor accepted with reservation the amount consigned in court by the petitionerdebtor. Therefore, the creditor is not barred from raising his other claims against petitioner-debtor. As respondent-creditor’s acceptance of the amount consigned was with reservations, it did not completely extinguish the entire indebtedness of the petitioner-debtor. It is apposite to note here that consignation is completed at the time the creditor accepts the same without objections, or, if he objects, at the time the court declares that it has been validly made in accordance with law. Compliance with the requisites of a valid consignation is mandatory. Failure to comply strictly with any of the requisites will render the consignation void. Substantial compliance is not enough. In Insular Life Assurance Company, Ltd. v. Toyota Bel-Air, Inc., the Court enumerated the requisites of a


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valid consignation: (1) a debt due; (2) the creditor to whom tender of payment was made refused without just cause to accept the payment, or the creditor was absent, unknown or incapacitated, or several persons claimed the same right to collect, or the title of the obligation was lost; (3) the person interested in the performance of the obligation was given notice before consignation was made; (4) the amount was placed at the disposal of the court; and (5) the person interested in the performance of the obligation was given notice after the consignation was made. The giving of notice to the persons interested in the performance of the obligation is mandatory. Failure to notify the persons interested in the performance of the obligation will render the consignation void. “All interested parties are to be notified of the consignation. Compliance with [this requisite] is mandatory.”


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Re: Obligations (Extinguishment of Obligations: Tender of Payment and Consignation) SPOUSES OSCAR and THELMA CACAYORIN, v. ARMED FORCES AND POLICE MUTUAL BENEFIT ASSOCIATION, INC. G.R. No. 171298, April 15, 2013 Facts: Petitioner Oscar Cacayorin is a member of respondent Armed Forces and Police Mutual Benefit Association, Inc. (AFPMBAI). He filed an application with AFPMBAI to purchase a piece of property which the latter owned, specifically Lot 5, Block 8, Phase I, Kalikasan Mutual Homes, San Pedro, Puerto Princesa City (the property), through a loan facility. On July 4, 1994, Oscar and his wife and co-petitioner herein, Thelma, on one hand, and the Rural Bank of San Teodoro on the other, executed a Loan and Mortgage Agreement with the former as borrowers and the Rural Bank as lender, under the auspices of Pag-IBIG or Home Development Mutual Fund’s Home Financing Program. The Rural Bank issued an August 22, 1994 letter of guaranty informing AFPMBAI that the proceeds of petitioners’ approved loan in the amount of P77, 418.00 shall be released to AFPMBAI after title to the property is transferred in petitioners’ name and after the registration and annotation of the parties’ mortgage agreement. 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, with the corresponding annotation of their mortgage agreement with the Rural Bank, under Entry No. 3364. Unfortunately, the Pag-IBIG loan facility did not push through and the Rural Bank closed and was placed under receivership by the Philippine Deposit Insurance Corporation (PDIC). Meanwhile, AFPMBAI somehow was able to take possession of petitioners’ loan documents and TCT No. 37017, while petitioners were unable to pay the loan/consideration for the property. AFPMBAI made oral and written demands for petitioners to pay the loan/ consideration for the property. In July 2003, petitioners filed a Complaint for consignation of loan payment, recovery of title and cancellation of mortgage annotation against AFPMBAI, PDIC and the Register of Deeds of Puerto Princesa City. Petitioners alleged in their Complaint that as a result of the Rural Bank’s closure and PDIC’s claim that their loan papers could not be located, they were left in a quandary as to where they should tender full payment of the loan and how to secure cancellation of the mortgage annotation on TCT No. 37017. Issue: Whether or not the petitioner shall be released from their obligation by the consignation of the thing or sum due.


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Held: 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. Applying Article 1256 to the petitioners’ case as shaped by the allegations in their Complaint, the Court finds that a case for consignation has been made out, as it now appears that there are two entities which petitioners must deal with in order to fully secure their title to the property: 1) the Rural Bank (through PDIC), which is the apparent creditor under the July 4, 1994 Loan and Mortgage Agreement; and 2) AFPMBAI, which is currently in possession of the loan documents and the certificate of title, and the one making demands upon petitioners to pay. 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 petitioners. Whatever transpired between the Rural Bank or PDIC and AFPMBAI in respect of petitioners’ loan account, if any, such that AFPMBAI came into possession of the loan documents and TCT No. 37017, it appears that petitioners were not informed thereof, nor made privy thereto. The lack of prior tender of payment by the petitioners is not fatal to their consignation case. They filed the case for the exact reason that they were at a loss as to which between the two – the Rural Bank or AFPMBAI – was entitled to such a tender of payment. Besides, as earlier stated, Article 1256 authorizes consignation alone, without need of prior tender of payment, where the ground for consignation is that the creditor is unknown, or does not appear at the place of payment; or is incapacitated to receive the payment at the time it is due; or when, without just cause, he refuses to give a receipt; or when two or more persons claim the same right to collect; or when the title of the obligation has been lost. Consignation is necessarily judicial; hence, jurisdiction lies with the RTC, not with the HLURB. The civil code clearly precludes consignation in venues other than the courts. Elsewhere, what may be made is a valid tender of payment, but not consignation. The two, however, are to be distinguished. 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.


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Re: Obligations (Extinguishment of Obligations: Tender of Payment and Consignation) SPOUSES NAMEAL and LOURDES BONROSTRO, v. SPOUSES JUAN and CONSTANCIA LUNA. G.R. No. 172346, July 24, 2013 Facts: In 1992, respondent Constancia Luna, as buyer, entered into a Contract to Sell with Bliss Development Corporation (Bliss) involving a house and lot identified as Lot 19, Block 26 of New Capitol Estates in Diliman, Quezon City. Barely a year after, Constancia, this time as the seller, entered into another Contract to Sell with petitioner Lourdes Bonrostro concerning the same property. Immediately after the execution of the said second contract, the spouses Bonrostro took possession of the property. However, except for the P200, 000.00 down payment, Lourdes failed to pay any of the stipulated subsequent amortization payments. On January 11, 1994respondent spouses Luna, filed before the RTC a Complaint for Rescission of Contract and Damages against the spouses Bonrostro praying for the rescission of the contract, delivery of possession of the subject property, payment by the latter of their unpaid obligation, and awards of actual, moral and exemplary damages, litigation expenses and attorney’s fees. In their Answer with Compulsory Counterclaim, the spouses Bonrostro averred that they were willing to pay their total balance of P630, 000.00 to the spouses Luna after they sought from them a 60-day extension to pay the same. However, during the time that they were ready to pay the said amount in the last week of October 1993, Constancia and her lawyer, Atty. Arlene Carbon, did not show up at their rendezvous. On November 24, 1993, Lourdes sent Atty. Carbon a letter expressing her desire to pay the balance, but received no response from the latter. Claiming that they are still willing to settle their obligation, the spouses Bonrostro prayed that the court fix the period within which they can pay the spouses Luna. Issue: Whether or not petitioners made a valid tender of payment and consignation to cancel out their liability for interest on the installments due from the date of default until fully paid. Held: No. The spouses Bonrostro assert that Lourdes’ letter of November 24, 1993 amounts to tender of payment of the remaining balance amounting to P630, 000.00. Accordingly, thenceforth, accrual of interest should be suspended. Tender of payment "is the manifestation by the debtor of a desire to comply with or pay an obligation. If refused without just cause, the tender of payment will discharge the debtor of the obligation to pay but only after a valid consignation of the sum due shall have been made with the


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proper court." "Consignation is the deposit of the proper amount with a judicial authority in accordance with rules prescribed by law, after the tender of payment has been refused or because of circumstances which render direct payment to the creditor impossible or inadvisable." "Tender of payment, without more, produces no effect." "To have the effect of payment and the consequent extinguishment of the obligation to pay, the law requires the companion acts of tender of payment and consignation." As to the effect of tender of payment on interest, noted civilist Arturo M. Tolentino explained as follows: When a tender of payment is made in such a form that the creditor could have immediately realized payment if he had accepted the tender, followed by a prompt attempt of the debtor to deposit the means of payment in court by way of consignation, the accrual of interest on the obligation will be suspended from the date of such tender. But when the tender of payment is not accompanied by the means of payment, and the debtor did not take any immediate step to make a consignation, then interest is not suspended from the time of such tender. Here, the subject letter merely states Lourdes’ willingness and readiness to pay but it was not accompanied by payment. She claimed that she made numerous telephone calls to Atty. Carbon reminding the latter to collect her payment, but, neither said lawyer nor Constancia came to collect the payment. After that, the spouses Bonrostro took no further steps to effect payment. They did not resort to consignation of the payment with the proper court despite knowledge that under the contract, non-payment of the installments on the agreed date would make them liable for interest thereon. The spouses Bonrostro erroneously assumed that their notice to pay would excuse them from paying interest. Their claimed tender of payment did not produce any effect whatsoever because it was not accompanied by actual payment or followed by consignation. Hence, it did not suspend the running of interest. The spouses Bonrostro are therefore liable for interest on the subject installments from the date of default until full payment of the sums of P300, 000.00 and P330, 000.00.


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Re: Obligations (Extinguishment of Obligations: Loss of the Thing Due) DANIEL T. SO, v. FOOD FEST LAND, INC. G.R. No. 183628, April 7, 2010 Facts: Food Fest Land Inc. entered into a September 14, 1999 Contract of Lease with Daniel T. So over a commercial space in San Antonio Village, Makati City for a period of three years (1999-2002) on which Food Fest intended to operate a Kentucky Fried Chicken carry out branch. While Food Fest was able to secure the necessary licenses and permits for the year 1999, it failed to commence business operations. For the year 2000, Food Fest’s application for renewal of barangay business clearance was “held in abeyance until further study of its kitchen facilities.” As the barangay business clearance is a prerequisite to the processing of other permits, licenses and authority by the city government, Food Fest was unable to operate. Fearing further business losses, Food Fest, by its claim, communicated its intent to terminate the lease contract to So who, however, did not accede and instead offered to help Food Fest secure authorization from the barangay. On So’s advice, Food Fest wrote requests addressed to city officials for assistance to facilitate renewal. In August 2000, Food Fest, for the second time, purportedly informed So of its intent to terminate the lease, and it in fact stopped paying rent. So later sent a November 22, 2000 demand letter to Food Fest for the payment of rental arrearages and reiterated his offer to help it secure clearance from the barangay. By letter of March 26, 2001, So again demanded payment of rentals from Food Fest from September 2000 to March 2001 amounting to P123, 200.00. Food Fest denied any liability, however, and started to remove its fixtures and equipment from the premises. On April 26, 2001, So filed a complaint for ejectment and damages against Food Fest before the Metropolitan Trial Court (MeTC) of Makati City. Issue: Whether or not the respondent may be released from his obligation under the doctrine of unforeseen events. Held: No. As for Food Fest’s invocation of the principle of rebus sic stantibus as enunciated in Article 1267 of the Civil Code to render the lease contract functus officio, and consequently release it from responsibility to pay rentals, the Court is not persuaded. Article 1267 provides: Article 1267. When the service has become so difficult as to be manifestly beyond the contemplation of the parties, the obligor may also be released therefrom, in whole or in part.


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This article, which enunciates the doctrine of unforeseen events, is not, however, an absolute application of the principle of rebus sic stantibus, which would endanger the security of contractual relations. The parties to the contract must be presumed to have assumed the risks of unfavorable developments. It is, therefore, only in absolutely exceptional changes of circumstances that equity demands assistance for the debtor. Food Fest claims that its failure to secure the necessary business permits and licenses rendered the impossibility and non-materialization of its purpose in entering into the contract of lease.


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Re: Obligations (Extinguishment of Obligations: Condonation or Remission) RUBEN REYNA AND LLOYD SORIA v. COMMISSION ON AUDIT G.R. No. 167219, February 8 2011 Facts: The Land Bank was engaged in a cattle-financing program wherein loans would be granted to various cooperatives. A Credit Facility Proposal (CFP) would be required for a cooperative to avail of a loan and thereafter a Memorandum of Agreement would be entered into by the supplier of the cattle and the cooperative. It was alleged that the CFP allowed pre-payments or advance payments prior to the delivery of the cattle by the supplier. Land Bank subsequently approved several applications and later issued three checks to serve as advanced payment for the cattle, however, the supplier failed to supply the cattle on the dates agreed upon. On December 27 1996, the Land Bank Auditor disallowed the three checks issued for the advanced payments to the supplier alleging that advanced payments were in violation of bank policies. A case was filed against the petitioners, officers of the supplier, but they were later absolved. On April 12 1999, the Director of the COA directed the Auditor to record in the books of account of the Land Bank said disallowance. However, petitioners sent a letter to the auditor to have the bookings of the disallowance be set aside on the ground that they were absolved by the Ombudsman in a February 23 1999 resolution and that the Bangko Sentral ng Pilipinas approved the writing off of the loans. Issue: Whether or not the writing-off loans constitutes a condonation Held: No. Write-off is not one of the legal grounds for extinguishing an obligation under the Civil Code. It is not a compromise of liability. Neither is it a condonation, since in condonation gratuity on the part of the obligee and acceptance by the obligor are required. In making the write-off, only the creditor takes action by removing the uncollectible account from its books even without the approval or participation of the debtor. Furthermore, write-off cannot be likened to a novation, since the obligations of both parties have not been modified. When a write-off occurs, the actual worth of the asset is reflected in the books of accounts of the creditor, but the legal relationship between the creditor and the debtor still remains the same – the debtor continues to be liable to the creditor for the full extent of the unpaid debt. Based on the foregoing, as creditor, Land Bank may write-off in its books of account the advance payment released to the supplier in the interest of accounting accuracy given that the loans were already uncollectible. Such write-off, however, as previously discussed, does not equate to a release from liability of petitioners.


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Re: Obligations (Extinguishment of Obligations: Compensation) SELWYN LAO AND EDGAR MANANSALA v. SPECIAL PLANS, INC. G.R. No. 164791, June 29 2010 Facts: Lao and Manansala entered into a Contract of Lease with Special Plans, Inc. (SPI) for the period January 16, 1993 to January 15, 1995 over SPI’s building at No. 354 Quezon Avenue, Quezon City. Petitioners intended to use the premises for their karaoke and restaurant business known as "Saporro Restaurant". Upon expiration of the lease contract, it was renewed for a period of eight months at a rental rate of P23,000.00 per month. On June 3, 1996, SPI sent a Demand Letter to the petitioners asking for full payment of rentals in arrears. Receiving no payment, SPI filed on July 23, 1996 a Complaint for sum of money with the Metropolitan Trial Court (MeTC) of Quezon City, claiming unpaid rentals covering the period March 16, 1996 to August 16, 1996. Petitioners allege that they were constrained to incur expenses necessary for repairs as well as expenses for the repair of structural defects because it claims that SPI did not deliver the premises in a condition fit for the petitioner’s intended use. Issue: Whether or not the unpaid rentals and the expenses for the necessary repairs may be compensated? Held: No. Compensation shall take place when two persons, in their own right, are creditors and debtors of each other. Petitioners failed to properly discharge their burden to show that the debts are liquidated and demandable. Consequently, legal compensation is inapplicable because compensation takes place only if both obligations are liquidated.


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Re: Obligations (Extinguishment of Obligations: Compensation) SPOUSES CHUNG v. ULANDAY CONSTRUCTION G.R. No. 156038, October 11, 2010 Facts: The parties entered into a construction contract on February 1985. They agreed that the contract should be completed within a 150-day period. Actual construction started on March 7, 1995. As the actual construction went on, the respondent submitted several progress billings. During the construction, the respondent also effected 19 change orders without the plaintiff’s prior written approval. The plaintiffs paid some of the change orders which was acknowledged in writing that the balance would be paid upon completion of the contract. On July 4, 1995, the respondent notified the plaintiff that the delay in the payment of progress billings delays the accomplishment of the contract work. On March 28, 1996, the respondent demanded full payment for progress billings and change orders. On April 8, 1996, the respondent demanded payment of the outstanding balance on progress billings and change orders. In a letter dated April 16, 1996, the petitioners denied liability, asserting that the respondent violated the contract provisions by, among others, failing to finish the contract within the 150-day stipulated period, failing to comply with the provisions on change orders, and overstating its billings. On May 8, 1996, the respondent filed a complaint with the Regional Trial Court (RTC), Branch 145, Makati City, for collection of the unpaid balance of the contract and the unpaid change orders, plus damages and attorney’s fees. In their answer with counterclaim, the plaintiff complained of the respondent’s delayed and defective work. They demanded payment of liquidated damages for delay in the completion, the construction errors, loss or non-usage of specified construction materials, unconstructed and non-completed works, plus damages and attorney’s fees. Issue: Whether or not the respective claims may be compensated or set-off Held: Yes. Both parties are creditors and debtors of each other which are already due and demandable, even if the amounts are of different values. The court ruled that based on fairness and equity, the set-off of each of the parties contractual liabilities arising out of the contract and the construction defect since due to the lapse of time the repair of the construction defects are highly impractical.


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Re: Obligations (Extinguishment of Obligations: Compensation) TRADERS ROYAL BANK v. SPOUSES CASTANARES G.R. No. 172020, December 6, 2010 Facts: Respondent are engaged in the business of exporting shell crafts and other handicrafts. Between 1977 and 1978, respondents obtained from Traders Royal Bank various loans and credit accommodations. Respondents executed two real estate mortgages (REMs) dated April 18, 1977 and January 25, 1978 covering their properties. As evidenced by a Promissory Note petitioner released only the amount of Php 35,000.00 although the mortgage deeds indicated the principal amounts as Php 86,000.00 and Php 60,000.00. By the second quarter of 1978, the loans began to mature and the letters of credit against which the packing advances were granted started to expire. On December 7, 1979, petitioner, without notifying the respondents, applied to the payment of respondents’ outstanding obligations the sum which was remitted to the respondents thru telegraphic transfer from AMROBANK, Amsterdam by one Richard Wagner. The aforesaid entries in the passbook of respondents and the $4,220.00 telegraphic transfer were the subject of respondents’ letter-complaint dated September 20, 1982 addressed to the Manager of the Regional Office of the Central Bank of the Philippines. For failure of the respondents to pay their outstanding loans with petitioner, the latter proceeded with the extrajudicial foreclosure of the real estate mortgages. On November 24, 1982, petitioner instituted a case for deficiency judgment, claiming that after applying the proceeds of foreclosure sale to the total unpaid obligations of respondents, respondents were still indebted to petitioner. On February 10, 1983, respondents filed a civil case for the recovery of the sums of Php 2,584.27 debited from their savings account passbook and the equivalent amount of $4,220.00 telegraphic transfer, and damages. Issue: Whether or not compensation is applicable Held: Yes, agreements for compensation of debts or any obligations when the parties are mutually creditors and debtors are allowed under Art. 1282 of the Civil Code even though not all the legal requisites for legal compensation are present. Voluntary or conventional compensation is not limited to obligations which are not yet due. The only requirements for conventional compensation are (1) that each of the parties can fully dispose of the credit he seeks to compensate, and (2) that they agree to the extinguishment of their mutual credits. Consequently, no error was committed by the trial court in holding that petitioner validly applied, by way of compensation, the $4,220.00 telegraphic transfer remitted by respondents’ foreign client through the petitioner.


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Re: Obligations (Extinguishment of Obligations: Compensation) MONTEMAYOR v. MILLORA G.R. No. 168251, July 27, 2011 Facts: On July 24, 1990, respondent obtained a loan of Php 400,000.00 from 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 Php 100,000.00 as well as the Php 8,000.00 representing the interest for the period July 24 to August 23, 1990. Subsequently and with respondent’s consent, the interest rate was increased to 3.5% or Php 10,500.00 a month. From March 24, 1991 to July 23, 1991, or for a period of four months, respondent was supposed to pay Php 42,000.00 as interest but was able to pay only Php24,000.00. This was the last payment respondent made despite several demands of petitioner. A collection suit was instituted by petitioner but in his answer the respondent claimed that he handled several cases for Jesus but he was summarily dismissed from handling them when the instant complaint for sum of money was filed. Issue: Whether or not despite absence of a specific amount in the decision of the lower court representing respondent’s counterclaim, could it still be offset against the specific award Held: Yes, compensation is possible. 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. When the defendant, who has an unliquidated claim, sets it up by way of counterclaim, and a judgment is rendered liquidating such claim, it can be compensated against the plaintiff’s claim from the moment it is liquidated by judgment. The said attorney’s fees were awarded by the RTC on the counterclaim of respondent on the basis of "quantum meruit" for the legal services he previously rendered to petitioner.


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Re: Obligations (Extinguishment of Obligations: Compensation) Insular Investment and Trust Corporation v. Capital One Equities Corp and Planter’s Development Bank G.R. No.183308, April 25, 2012 Facts: Petitioner Insular Investment and Trust Corporation and respondents are regularly engaged in the trading, sale and purchase of Philippine treasury bills. In 1994, IITC purchased treasury bills in an aggregate amount of Php 260,683,392.51 from COEC treasury bills, as evidenced by the confirmations of purchase issued by IITC. The purchase price for the said treasury bills were fully paid by IITC to COEC. On May 2, 1994, COEC purchased treasury bills with a face value of Php 186,774,739.49 . IITC issued confirmations of sale in favor of COEC covering the said transaction. COEC paid the purchase price. Both IITC and PDB received the proceeds of the checks. On May 2, 1994, PDB issued confirmations of sale in favor of IITC for the sale of treasury bills and IITC, in turn, issued confirmations of purchase in favor of PDB over treasury bills. Thereafter, PDB sent a letter dated May 4, 1994 to IITC undertaking to deliver treasury bills wort Php 186,790,000.00, which IITC purchased from PDB on May 2, 1994, as soon as they would be available. On May 10, 1994, COEC wrote a letter to IITC demanding the physical delivery of the treasury bills which the former purchased from the latter on May 2, 1994. In its May 18, 1994 Letter to PDB, IITC requested, on behalf of COEC, the delivery to IITC of treasury bills worth Php 186,790,000.00 which had been paid in full by COEC. On May 30, 1994, COEC protested the tenor of IITC’s letter to PDB and took exception to IITC’s assertion that it merely acted as a facilitator with regard to the sale of the treasury bills. IITC sent COEC a letter dated June 3, 1994, demanding that COEC deliver to it (IITC) the P139,833,392.00 worth of treasury bills or return the full purchase price. COEC and IITC both have claims against each other for the delivery of treasury bills, which prompted COEC proposed that a legal set-off be effected, which would result in IITC owing COEC. Issue: Whether or not the set-off may be allowed Held: Yes, since IITC acted as a principal in the purchase of treasury bills from PDB and in the subsequent sale to COEC of the COEC T-Bills. Thus, COEC and IITC are principal creditors of each other in relation to the sale of the COEC T-Bills and IITC T-Bills, respectively. Further, since all the stipulations under Article 1279 are present in this case, compensation can take place. COEC is allowed to set-off its obligation to deliver the IITC T-Bills against IITC’s obligation to deliver the COEC T-Bills.


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Re: Obligations (Extinguishment of Obligations: Compensation) SORIANO v. THE PEOPLE OF THE PHILIPPINES G.R. No. 181692, August 14, 2013 Facts: On February 18, 1994, Evelyn Alagao (Evelyn), daughter of private complainant Consolacion Alagao (Alagao), as borrower-mortgagor, executed a "Contract of Loan Secured by Real Estate Mortgage with Special Power to Sell Mortgage Property without Judicial Proceedings" in favor of petitioner as lender-mortgagee. The instrument provides for a Php 40,000 loan secured by a parcel of land covered by Original Certificate of Title No. P-6254, located in Old.Nongnongan, Don Carlos, Bukidnon, registered in Evelyn’s name. It likewise provides that the loan was to be paid two years from the date of execution of the contract, or on February 18, 1996, and that Evelyn agrees to give petitioner ¼ of every harvest from her cornland until the full amount of the loan has been paid, starting from the first harvest. Based on Alagao’s testimony, the first harvest was made only in September 1994. Petitioner on the other hand claims that from the time the loan was obtained until September 1994, there were already four harvests. During pre-trial, it was admitted by Alagao that she did not only receive Php 40,000 as provided in the contract of loan but Php 51,730 in the form of fertilizers and cash advances. On September 9, 1994, Alagao and some companions delivered 398 sacks of corn grains to petitioner. Petitioner prepared a voucher indicating that Alagao had received the amount of Php 85,607 as full payment for the 398 sacks of corn grains. Alagao signed said voucher even if she only received Php 3,000. According to Alagao, 64 of the 398 sacks will serve as partial payment of her Php 40,000 loan with petitioner while the remaining balance will come from the Php 85,607 cash she was supposed to receive as payment for the corn grains delivered so she can redeem her daughter’s land title. On March 16, 1999, the Regional Trial Court (RTC) found petitioner guilty beyond reasonable doubt. On appeal, the CA acquitted petitioner but ordered her to pay private complainant the sum of Php 74,807.00 plus interest. Issue: Whether or not the civil liability of the petitioner may be the subject of set-off Held: Yes, Compensation is a mode of extinguishing to the concurrent amount, the debts of persons who in their own right are creditors and debtors of each other. The object of compensation is the prevention of unnecessary suits and payments through the mutual extinction by operation of law of concurring debts. Since the parties are debtors and creditors of each other and that both debts consist of a sum of money which are due and demandable. Further, both debts are already liquidated and demandableA debt is liquidated when the amount is known or is determinable by inspection of the terms and conditions of relevant documents.


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Re: Obligations (Extinguishment of Obligations: Compensation) MONDRAGON PERSONAL SALES, INC., v. SOLA, JR. G.R. No. 174882, January 21, 2013 Facts: Petitioner Mondragon Personal Sales Inc., a company engaged in the business of selling various consumer products through a network of sales representatives, entered into a Contract of Services with respondent Victoriano S. Sola, Jr. for a period of three years commencing on October 2, 1994 up to October 1, 1997. Under the said contract, respondent, as service contractor, would provide service facilities 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 26, 1995, On January 26, 1995, respondent wrote a letter to the petitioner acknowledging and confirming his wife’s indebtedness to petitioner in the amount of Php1,973,154.73 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 29, 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 Held: 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.


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Re: Obligations (Extinguishment of Obligations: Compensation) UNION BANK OF THE PHILIPPINES v. DEVELOPMENT BANK OF THE PHILIPPINES G.R. No. 191555, January 20, 2014 Facts: Foodmasters, Inc. (FI) had outstanding loan obligations to both Union Bank’s predecessor-ininterest, Bancom Development Corporation (Bancom), and to DBP. On May 21, 1979, FI and DBP, entered into a dacion en pago whereby the former ceded in favor of the latter certain properties in consideration of the following: (a) the full and complete satisfaction of FI’s loan obligations to DBP; and (b) the direct assumption by DBP of FI’s obligations to Bancom in the amount ofP17,000,000.00. On May 23, 1979, FI assigned its leasehold rights under the Lease Agreement to Foodmasters Worldwide, Inc. (FW);11 while on May 9, 1984, Bancom conveyed all its receivables, including, among others, DBP’s assumed obligations, to Union Bank. Claiming that the subject rentals have not been duly remitted despite its repeated demands, Union Bank filed, on June 20, 1984, a collection case against DBP before the RTC, docketed as Civil Case No. 7648. On September 13, 2005, Union Bank filed a Manifestation and Motion to Affirm Legal Compensation, praying that the RTC apply legal compensation between itself and DBP in order to offset the return of the funds it previously received from DBP. Union Bank anchored its motion on two grounds which were allegedly not in existence prior to or during trial, namely: (a) on December 29, 1998, DBP’s assumed obligations became due and demandable and (b) considering that FWI became non-operational and non-existent, DBP became primarily liable to the balance of its assumed obligation, which as of Union Bank’s computation after its claimed set-off, amounted to Php 1,849,391.87. The RTC denied the motion. Issue: Whether or not the denial of Union Bank’s motion to affirm legal compensation is correct Held: Yes, legal compensation could not have taken place between these debts because requisites 3 and 4 under Article 1279 of the Civil Code are not present. Since DBP’s assumed obligations to Union Bank for remittance of the lease payments contingent on the prior payment thereof by [FW] to DBP, it cannot be said that both debts are due. Further, any deficiency that DBP had to make up for the full satisfaction of the assumed obligations cannot be determined until after the satisfaction of Foodmasters’ obligation to DBP. Therefore, it cannot be concluded that the same debt had already been liquidated, and thereby became demandable.


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Re: Obligations (Extinguishment of Obligations: Compensation) FIRST UNITED CONSTRUCTOR’S CORPORATIONS AND BLUE STAR CONSTRUCTION CORPORATION v. BAYANIHAN AUTOMOTIVE CORPORATION G.R. No. 164985, January 15, 2014 Facts: Petitioners 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 the respondent, a domestic corporation engaged in the business of importing and reconditioning used Japan-made trucks, and of selling the trucks to interested buyers who were mostly engaged in the construction business. 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 Php 735,000.00 represented by the two checks. After trial, the RTC held that the petitioners could not avail themselves of legal compensation because the claims they had set up in the counterclaim were not liquidated and demandable. Issue: Whether or not petitioner can avail of legal compensation Held: Yes, 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 Php 71,350.00 should be set off against petitioners’ unpaid obligation of Php 735,000.00, leaving a balance of Php 663,650.00, the amount petitioners still owed to respondent.


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Re: Obligations (Extinguishment of Obligations: Novation) ACE FOODS, INC., v. MICROPACIFIC TECHNOLOGIES CO., LTD. G.R. No. 200602, December 11, 2013 Facts: ACE Foods is a domestic corporation engaged in the trading and distribution of consumer goods in wholesale and retail bases, while MTCL is one engaged in the supply of computer hardware and equipment. On September 26, 2001, MTCL sent a letter-proposal for the delivery and sale of the subject products to be installed at various offices of ACE Foods. On October 29, 2001, ACE Foods accepted MTCL’s proposal and issued Purchase Order No. 100023 for the subject products. On March 4, 2002, MTCL delivered the said products to ACE Foods as reflected in Invoice No. 7733. After delivery, the subject products were then installed and configured in ACE Foods’s premises. MTCL’s demands against ACE Foods to pay the purchase price, however, remained unheeded. Instead of paying the purchase price, ACE Foods sent MTCL a Letter dated September 19, 2002, stating that it has been returning the subject products to MTCL thru its sales representative Mr. Mark Anteola who has agreed to pull out the said products but had failed to do so up to now. Issue: Whether or not MTCL’s reservation of ownership is tantamount to novation Held: No, novation may either be extinctive or modificatory. It is extinctive when an old obligation is terminated by the creation of a new obligation that takes the place of the former; it is merely modificatory when the old obligation subsists to the extent it remains compatible with the amendatory agreement. In either case, however, novation is never presumed, and the animus novandi, whether totally or partially, must appear by express agreement of the parties, or by their acts that are too clear and unequivocal to be mistaken. In the case, it has not been shown that the title reservation stipulation appearing in the Invoice Receipt had been included or had subsequently modified or superseded the original agreement of the parties. The fact that the Invoice Receipt was signed by a representative of ACE Foods does not, by and of itself, prove animus novandi since: (a) it was not shown that the signatory was authorized by ACE Foods (the actual party to the transaction) to novate the original agreement; (b) the signature only proves that the Invoice Receipt was received by a representative of ACE Foods to show the fact of delivery; and (c) as matter of judicial notice, invoices are generally issued at the consummation stage of the contract and not its perfection, and have been even treated as documents which are not actionable per se, although they may prove sufficient delivery. Thus, absent any clear indication that the title reservation stipulation was actually agreed upon, the Court must deem the same to be a mere unilateral imposition on the part of MTCL which has no effect on the nature of the parties’ original agreement as a contract of sale. Perforce, the obligations arising thereto, among others, ACE


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Foods’s obligation to pay the purchase price as well as to accept the delivery of the goods, remain enforceable and subsisting.


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Re: Obligations (Extinguishment of Obligations: Novation) METROPOLITAN BANK AND TRUST COMPANY v. RURAL BANK OF GERONA, INC. G.R. No. 159097, July 5, 2010 Facts: RBG is a rural banking corporation organized under Philippine laws and located in Gerona, Tarlac. In the 1970s, the Central Bank and the RBG entered into an agreement providing that RBG shall facilitate the loan applications of farmers-borrowers under the Central Bank-International Bank for Reconstruction and Development’s (IBRD’s) 4th Rural Credit Project. As the depository bank of RBG, Metrobank was designated to receive the credit advice released by the Central Bank representing the proceeds of the IBRD loan of the farmers-borrowers; Metrobank, in turn, credited the proceeds to RBG’s special savings account for the latter’s release to the farmers-borrowers. Metrobank had allowed releases of the amounts in the credit advices it credited in favor of RBG’s special savings account which credit advices and deposits were under its supervision. Being faulted in these acts or omissions, the Central Bank debited these amounts against Metrobank’s demand deposit reserve; thus, Metrobank’s demand deposit reserves diminished correspondingly, suffered prejudice in which case legal subrogation has ensued. Issue: Whether or not there was legal subrogation Held: Yes, Art. 1302. It is presumed that there is legal subrogation (1) When a creditor pays another creditor who is preferred, even without the debtor’s knowledge; (2) When a third person, not interested in the obligation, pays with the express or tacit approval of the debtor; (3) When, even without the knowledge of the debtor, a person interested in the fulfillment of the obligation pays, without prejudice to the effects of confusion as to the latter’s share. Metrobank was a third party to the Central Bank-RBG agreement, had no interest except as a conduit, and was not legally answerable for the IBRD loans. Despite this, it was Metrobank’s demand deposit account, instead of RBG’s, which the Central Bank proceeded against, on the assumption perhaps that this was the most convenient means of recovering the cancelled loans. That Metrobank’s payment was involuntarily made does not change the reality that it was Metrobank which effectively answered for RBG’s obligations. That RBG’s tacit approval came after payment had been made does not completely negate the legal subrogation that had taken place. Article 1303 of the Civil Code states that subrogation transfers to the person subrogated the credit with all the rights thereto appertaining, either against the debtor or against third persons. As the entity against which the collection was enforced, Metrobank was subrogated to the rights of Central


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Bank and has a cause of action to recover from RBG the amounts it paid to the Central Bank, plus 14% per annum interest.


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Re: Obligations (Extinguishment of Obligations: Novation) VIOLETA TUDTUD BANATE, MARY MELGRID CORTEL, BONIFACIO CORTEL, ROSENDO MAGLASANG, AND PATROCINIA MONILAR v. PHILIPPINE COUNTRY SIDE RURAL BANK, INC., AND TEOFILO SOON, JR. G.R. No. 163825, Juley 13, 2010 Facts: On July 22, 1997, petitioner spouses Maglasang obtained a loan from PCRB evidenced by a promissory note and was payable on January 18, 1998. To secure the payment of the subject loan, the spouses Maglasang executed, in favor of PCRB a real estate mortgage over their including the house constructed thereon owned by petitioners spouses Cortel, the spouses Maglasang’s daughter and son-in-law, respectively. Aside from the subject loan, the spouses Maglasang obtained two other loans from PCRB which were covered by separate promissory notes and secured by mortgages on their other properties. Sometime in November 1997, the spouses Maglasang and the spouses Cortel asked PCRB’s permission to sell the subject properties. They likewise requested that the subject properties be released from the mortgage since the two other loans were adequately secured by the other mortgages. The spouses Maglasang and the spouses Cortel claimed that the PCRB, acting through its Branch Manager, Pancrasio Mondigo, verbally agreed to their request but required first the full payment of the subject loan. The spouses Maglasang and the spouses Cortel thereafter sold to petitioner Violeta Banate the subject properties. The spouses Magsalang and the spouses Cortel used the amount to pay the subject loan with PCRB. After settling the subject loan, PCRB gave the owner’s duplicate certificate of title to Banate, who was able to secure a new title in her name. The title, however, carried the mortgage lien in favor of PCRB, prompting the petitioners to request from PCRB a Deed of Release of Mortgage. As PCRB refused to comply with the petitioners’ request, the petitioners instituted an action for specific performance before the RTC to compel PCRB to execute the release deed. Issue: Whether or not the verbal agreement with Mondigo novated the mortgage contract Held: No, novation presupposes not only the extinguishment or modification of an existing obligation but, more importantly, the creation of a valid new obligation. For the consequent creation of a new contractual obligation, consent of both parties is, thus, required. As a general rule, no form of words or writing is necessary to give effect to a novation. Nevertheless, where either or both parties involved are juridical entities, proof that the second contract was executed by persons with the proper authority to bind their respective principals is necessary. To put it simply, the burden of proving the authority of Mondigo to alter or novate the mortgage contract has not been established.


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Re: Obligations (Extinguishment of Obligations: Novation) St. James College of Paranaque; Jaime Torres, represented by, James Kenley Torres and Myrnam Torres v. Equitable PCI Bank G.R. No. 179441, August 9, 2010 Facts: Petitioners, spouses Jaime and Myrna Torres owned and operated St. James College, a sole proprietorship educational institution. Sometime in 1995, the Philippine Commercial and International Bank (PCIB) granted the Torres spouses and/or St. James College a credit line facility of up to Php 25,000,000. This accommodation or any of its extension or renewal was secured by a real estate mortgage (REM) over a parcel of land situated in Parañaque covered by Transfer Certificate of Title (TCT) No. 74598 in the name of St. James College. In May 200 petitioners failed to pay the stipulated annual amortization agreed upon. Whereupon, EPCIB addressed to petitioners a demand letter dated June 6, 2003 requiring them to settle their obligation. On June 23, 2003, petitioners tendered, and EPCIB accepted, a partial payment of PhP 2,521,609.62, broken down to cover the following items: PhP 1,000,000 principal, PhP 1,360,881.62 interest due on June 15, 2003, and PhP 160,728.00 insurance premium for the mortgaged property. In the covering June 23, 2003 letter, which came with the tender, petitioners promised to make another payment in October 2003 and that the account would be made current in June 2004. They manifested, however, that St. James College is not subject to the 10% value-added tax (VAT) which EPCIB assessed against the school in its June 15, 2003 statement of account. Petitioners accordingly requested the deletion of the VAT portion. On September 15, 2003, petitioners requested that the bank allow a partial payment of the May 2003 amortization balance of PhP 5,100,000. Two days later, EPCIB responded denying petitioners’ request, but nonetheless proposed a new repayment scheme to which petitioners were not amenable. Petitioners made a second check remittance, this time in the amount of PhP 921,535.42, the PhP 500,000 portion of which represented payment of the principal and PhP 421,535.42 for interest due on October 15, 2003. By letter dated November 5, 2003, EPCIB again reminded petitioners that its receipt of the check payment for the amount of the PhP 921,535.42 is without prejudice to the bank’s rights considering the overdue nature of petitioners’ loan. Issue: Whether or not there was indeed a novation of the contract between the parties Held: No, novation is the extinguishment of an obligation by the substitution or change of the obligation by a subsequent one which terminates it, either by changing its objects or principal conditions, or by substituting a new debtor in place of the old one, or by subrogating a third person to the rights of the creditor. The test of incompatibility lies on whether the two obligations can stand together, each one with its own independent existence.


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Petitioners made known their inability to pay in full the PhP 6,100,000 principal obligation due in May 2003 and tendered only partial payments of PhP 1,000,000 on June 23, 2003 and PhP 500,000 on November 5, 2003. EPCIB immediately demanded payment for the full PhP 6,100,000 principal obligation due in May 2003. These acts of EPCIB readily show that they were against the idea of its having agreed to a modification in the stipulated terms of payment. Further, novation is never presumed. Consequently, that which arises from a purported modification in the terms and conditions of the obligation must be clear and express. On petitioners thus rests the onus of showing clearly and unequivocally that novation has indeed taken place. To us, petitioners have not discharged the burden. Moreover, we fail to see the presence of the concurring requisites for a novation of contract, as enumerated above. Indeed, petitioners have not shown an express modification of the terms of payment of the obligation.


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Re: Obligations (Extinguishment of Obligations: Novation) MINDANAO SAVINGS AND LOAN ASSOCIATION, INC., REPRESENTED BY ITS LIQUIDATOR, THE PHILIPPINE DEPOSITE INSURANCE CORPORATION v. EDWARD WILLKOM, GILDA GO, REMEDIOS UY, MALAYO BANTUAS AND REGISTER OF DEEDS OF CAGAYAN DE ORO CITY G.R. No. 178618, October 11, 2010 Facts: Sometime in 1985, FISLAI and DSLAI entered into a merger, with DSLAI as the surviving corporation. The articles of merger were not registered with the SEC due to incomplete documentation. On August 12, 1985, DSLAI changed its corporate name to MSLAI by way of an amendment to Article 1 of its Articles of Incorporation, but the amendment was approved by the SEC only on April 3, 1987. Meanwhile, on May 26, 1986, the Board of Directors of FISLAI passed and approved Board Resolution No. 86-002, assigning its assets in favor of DSLAI which in turn assumed the former’s liabilities. The business of MSLAI, however, failed. Hence, the Monetary Board of the Central Bank of the Philippines ordered its closure and placed it under receivership per Monetary Board Resolution No. 922 dated August 31, 1990. The Monetary Board found that MSLAI’s financial condition was one of insolvency, and for it to continue in business would involve probable loss to its depositors and creditors. On May 24, 1991, the Monetary Board ordered the liquidation of MSLAI, with PDIC as its liquidator. On April 28, 1993, sheriff Bantuas levied on six (6) parcels of land owned by FISLAI located in Cagayan de Oro City, and the notice of sale was subsequently published. During the public auction on May 17, 1993, Willkom was the highest bidder. A certificate of sale was issued and eventually registered with the Register of Deeds of Cagayan de Oro City. Upon the expiration of the redemption period, sheriff Bantuas issued the sheriff’s definite deed of sale. New certificates of title covering the subject properties were issued in favor of Willkom. On September 20, 1994, Willkom sold one of the subject parcels of land to Go. On June 14, 1995, MSLAI, represented by PDIC, filed before the RTC, Branch 41 of Cagayan de Oro City, a complaint for Annulment of Sheriff’s Sale, Cancellation of Title and Reconveyance of Properties against respondents. MSLAI alleged that the sale on execution of the subject properties was conducted without notice to it and PDIC; that PDIC only came to know about the sale for the first time in February 1995 while discharging its mandate of liquidating MSLAI’s assets; that the execution of the RTC decision in Civil Case No. 111-697 was illegal and contrary to law and jurisprudence, not only because PDIC was not notified of the execution sale, but also because the assets of an institution placed under receivership or liquidation such as MSLAI should be deemed in custodia legis and should be exempt from any order of garnishment, levy, attachment, or execution. Issue: Whether or not there was novation of the obligation by substituting the person of the debtor


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Held: No, while it is true that DSLAI (now MSLAI) assumed all the liabilities of FISLAI, such assumption did not result in novation as would release the latter from liability, thereby exempting its properties from execution. Novation is the extinguishment of an obligation by the substitution or change of the obligation by a subsequent one which extinguishes or modifies the first, either by changing the object or principal conditions, by substituting another in place of the debtor, or by subrogating a third person in the rights of the creditor. It is a rule that novation by substitution of debtor must always be made with the consent of the creditor. In this case, there was no showing that Uy, the creditor, gave her consent to the agreement that DSLAI (now MSLAI) would assume the liabilities of FISLAI. Such agreement cannot prejudice Uy. Thus, the assets that FISLAI transferred to DSLAI remained subject to execution to satisfy the judgment claim of Uy against FISLAI. The subsequent sale of the properties by Uy to Willkom, and of one of the properties by Willkom to Go, cannot, therefore, be questioned by MSLAI. The consent of the creditor to a novation by change of debtor is as indispensable as the creditor’s consent in conventional subrogation in order that a novation shall legally take place. Since novation implies a waiver of the right which the creditor had before the novation, such waiver must be express.


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Re: Obligations (Extinguishment of Obligations: Novation) ANAMER SALAZAR v. J.Y. BROTHER’S MARKETING CORPORATION G.R. No. 171998, October 20, 2010 Facts: J.Y. Brothers Marketing is a corporation engaged in the business of selling sugar, rice and other commodities. On October 15, 1996, Anamer Salazar, a freelance sales agent, was approached by Isagani Calleja and Jess Kallos, if she knew a supplier of rice. Answering in the positive, Salazar accompanied the two to J.Y. Bros. As a consequence, Salazar with Calleja and Kallos procured from J. Y. Bros. 300 cavans of rice worth Php 214,000.00. As payment, Salazar negotiated and indorsed to J.Y. Bros. Prudential Bank Check No. 067481 dated October 15, 1996 issued by Nena Jaucian Timario in the amount of Php 214,000.00 with the assurance that the check is good as cash. On that assurance, J.Y. Bros. parted with 300 cavans of rice to Salazar. However, upon presentment, the check was dishonored due to "closed account." Informed of the dishonor of the check, Calleja, Kallos and Salazar delivered to J.Y. Bros. a replacement cross Solid Bank Check No. PA365704 dated October 29, 1996 again issued by Nena Jaucian Timario in the amount of Php 214,000.00 but which, just the same, bounced due to insufficient funds. When despite the demand letter dated February 27, 1997, Salazar failed to settle the amount due J.Y. Bros., the latter charged Salazar and Timario with the crime of estafa before the Regional Trial Court. After the prosecution rested its case and with prior leave of court, Salazar submitted a demurrer to evidence which was later granted but he was ordered to pay the civil aspect. Issue: Whether or not the issuance of the acceptance of the Solid Bank check, which replaced the dishonored Prudential Bank check caused the novation of the obligation? Held: No, the respondent’s acceptance of the Solid Bank check did not result to novation because there was no express agreement to establish that petitioner was already discharged from his liability to pay respondent the amount of Php 214,000.00 as payment. Novation is never presumed, there must be an express intention to novate. Further, respondent’s acceptance of the Solid Bank check did not result to any incompatibility, since the two checks were precisely for the purpose of paying the amount of Php 214,000.00, the credit obtained from the purchase of the 300 bags of rice from respondent. Indeed, there was no substantial change in the object or principal condition of the obligation of petitioner as the indorser of the check to pay the amount of Php 214,000.00. It would appear that respondent accepted the Solid Bank check to give petitioner the chance to pay her obligation.


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Re: Obligations (Extinguishment of Obligations: Novation) LOADMASTERS CUSTOMS SERVICES, INC. v. GLODEL BROKERAGE AND R & B INSURANCE CORP. G.R. NO. 179446, January 10, 2011 Facts: On August 28, 2001, R&B Insurance issued Marine Policy No. MN-00105/2001 in favor of Columbia to insure the shipment of 132 bundles of electric copper cathodes against All Risks. On August 28, 2001, the cargoes were shipped on board the vessel "Richard Rey" from Isabela, Leyte, to Pier 10, North Harbor, Manila. They arrived on the same date. Columbia engaged the services of Glodel for the release and withdrawal of the cargoes from the pier and the subsequent delivery to its warehouses/plants. Glodel, in turn, engaged the services of Loadmasters for the use of its delivery trucks to transport the cargoes to Columbia’s warehouses/plants in Bulacan and Valenzuela City. The goods were loaded on board twelve (12) trucks owned by Loadmasters, driven by its employed drivers and accompanied by its employed truck helpers. Of the six (6) trucks route to Balagtas, Bulacan, only five (5) reached the destination. One (1) truck, loaded with 11 bundles or 232 pieces of copper cathodes, failed to deliver its cargo. Later on, the said truck, was recovered but without the copper cathodes. Because of this incident, Columbia filed with R&B Insurance a claim for insurance indemnity in the amount ofP1,903,335.39. After the investigation, R&B Insurance paid Columbia the amount ofP1,896,789.62 as insurance indemnity. R&B Insurance, thereafter, filed a complaint for damages against both Loadmasters and Glodel before the Regional Trial Court, Branch 14, Manila (RTC), It sought reimbursement of the amount it had paid to Columbia for the loss of the subject cargo. It claimed that it had been subrogated "to the right of the consignee to recover from the party/parties who may be held legally liable for the loss." On November 19, 2003, the RTC rendered a decision holding Glodel liable for damages for the loss of the subject cargo and dismissing Loadmasters’ counterclaim for damages and attorney’s fees against R&B Insurance. Both R&B Insurance and Glodel appealed the RTC decision to the CA. On August 24, 2007, the CA rendered that the appellee is an agent of appellant Glodel, whatever liability the latter owes to appellant R&B Insurance Corporation as insurance indemnity must likewise be the amount it shall be paid by appellee Loadmasters. Hence, Loadmasters filed the present petition for review on certiorari. Issue: Whether or not the subrogation of R&B Insurance is proper.


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Held: Yes. The Court is of the view that both Loadmasters and Glodel are jointly and severally liable to R & B Insurance for the loss of the subject cargo. Loadmasters’ claim that it was never privy to the contract entered into by Glodel with the consignee Columbia or R&B Insurance as subrogee, is not a valid defense. The obligation imposed by Article 2176 is demandable not only for one’s own acts or omissions, but also for those of persons for whom one is responsible. Employers shall be liable for the damages caused by their employees and household helpers acting within the scope of their assigned tasks, even though the former are not engaged in any business or industry. It is not disputed that the subject cargo was lost while in the custody of Loadmasters whose employees (truck driver and helper) were instrumental in the hijacking or robbery of the shipment. As employer, Loadmasters should be made answerable for the damages caused by its employees who acted within the scope of their assigned task of delivering the goods safely to the warehouse. Glodel is also liable because of its failure to exercise extraordinary diligence. It failed to ensure that Loadmasters would fully comply with the undertaking to safely transport the subject cargo to the designated destination. Glodel should, therefore, be held liable with Loadmasters. Its defense of force majeure is unavailing. For the consequence, Glodel has no one to blame but itself. The Court cannot come to its aid on equitable grounds. "Equity, which has been aptly described as ‘a justice outside legality,’ is applied only in the absence of, and never against, statutory law or judicial rules of procedure." The Court cannot be a lawyer and take the cudgels for a party who has been at fault or negligent.


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Re: Obligations (Extinguishment of Obligations: Novation) HERNANDEZ-NIEVERA v. HERNANDEZ G.R. NO. 171165, February 14, 2011 Facts: Project Movers Realty & Development Corporation (PMRDC), a real estate developer entered into a Memorandum of Agreement (MOA) with the petitioner whereby it was given an option to buy pieces of land owned by the latter. Demetrio, one of the petitioners, under authority of a Special Power of Attorney (SPA) to sell and mortgage, signed the MOA in behalf of the other petitioners. PMRDC later needed to convey additional properties to augment the value of its Asset Pool and so in entered with LBP and Demetrio into a Deed of Assignment and Conveyance (DAC) whereby the lands covered by the MOA were transferred and assigned to the asset pool in exchange for a number of shares of stock. As PMRDC did not avail of the option to buy, the petitioners demanded the return of the TCTs covering their lands but PMRDC said it could no longer deliver as the properties were already assigned to the asset pool pursuant to the DAC. So the petitioners instituted an action for rescission of the MOA and the declaration of nullity of the DAC alleging that Demetrio did not sign the DAC. The respondents in reply claims that that the terms of the DAC novated the terms of the MOA. Issue: Whether or not the DAC indeed novated the MOA Held: Yes. The SC noted that forgery cannot be presumed and held that the authority of Demetrio in the SPA to sell is sufficient to enable him to make a binding commitment under the DAC in behalf of the other petitioners. As such is the case, the court held that the DAC novated the agreement in the MOA. Indeed, the terms of his special power of attorney allow much leeway to accommodate not only the terms of the MOA but also those of the subsequent agreement in the DAC which, in this case, necessarily and consequently has resulted in a novation of PMRDC's integral obligations. There are two ways which could indicate, in fine, the presence of novation and thereby produce the effect of extinguishing an obligation by another which substitutes the same. The first is when novation has been explicitly stated and declared in unequivocal terms. The second is when the old and the new obligations are incompatible on every point. The test of incompatibility is whether the two obligations can stand together, each one having its independent existence. If they cannot, they are incompatible, and the latter obligation novates the first. Corollarily, changes that breed


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incompatibility must be essential in nature and not merely accidental. The incompatibility must take place in any of the essential elements of the obligation such as its object, cause or principal conditions thereof; otherwise, the change would be merely modificatory in nature and insufficient to extinguish the original obligation.


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Re: Obligations (Extinguishment of Obligations: Novation) COUNTRY BANKERS INSURANCE CORPORATION v. LAGMAN G.R. NO. 165487, July 13, 2011 Facts: Country Bankers Insurance Corporation (Country Bankers) issued Warehouse Bonds by which Nelson Santos was the bond principal, Lagmanwas the surety and the Republic of the Philippines, through the NFA was the obligee. The said bonds were used by Nelson as a requirement for his application for Warehouse business. In consideration of these issuances, corresponding Indemnity Agreements were executed by Santos, as bond principal, together with Ban Lee Lim Santos (Ban Lee Lim), Rhosemelita Reguine (Reguine) and Lagman, as co-signors. The latter bound themselves jointly and severally liable to Country Bankers for any damages which it may sustain as a consequence of the said bond. Santos then secured a loan using his warehouse receipts as collateral. When the loan matured, Santos defaulted in his payment. By virtue of the surety bonds, Country Bankers was compelled to pay P1, 166,750.37. Consequently, Country Bankers filed a complaint for a sum of money. The bond principals, Santos and Ban Lee Lim, were not served with summons because they could no longer be found. The case was eventually dismissed against them without prejudice. The trial court rendered judgment declaring Reguine and Lagman jointly and severally liable to pay Country Bankers. Lagman filed an appeal to the Court of Appeals, docketed as CA G.R. CV No. 61797. He insisted that the lifetime of the 1989 Bonds, as well as the corresponding Indemnity Agreements was only 12 months. The CA reversed the decision of the trial court. Issue: Whether or not the warehouse bonds were effective only for one year. Held: The official receipts in question serve as proof of payment of the premium for one year on each surety bond. It does not, however, automatically mean that the surety bond is effective for only one (1) year. In fact, the effectivity of the bond is not wholly dependent on the payment of premium. Section 177 of the Insurance Code expresses: Sec. 177. The surety is entitled to payment of the premium as soon as the contract of suretyship or bond is perfected and delivered to the obligor. No contract of suretyship or bonding shall be valid and binding unless and until the premium therefor has been paid, except where the obligee has accepted the bond, in which case the bond becomes valid and enforceable irrespective of whether or not the premium has been paid by the obligor to the surety: Provided , That if the contract of suretyship or bond is not accepted by, or filed with the obligee, the surety shall collect only reasonable amount, not exceeding fifty per centum of the premium due thereon as service fee plus the cost of stamps or other taxes imposed for the issuance of the contract or bond. Provided, however, that if the non-acceptance of the bond be due to the fault or negligence of the surety, no such service fee, stamps or taxes shall be collected.


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Re: Obligations (Extinguishment of Obligations: Novation) RCJ BUS LINES, INC. v. STANDARD INSURANCE COMPANY, INC. G.R. NO. 193629, August 17, 2011 Facts: In the evening of 19 June 1994, at around 7:00 o’clock, a Toyota Corolla with Plate No. PHU-185 driven by Rodel Chua, cruised along the National Highway at Barangay Amlang, Rosario, La Union, heading towards the general direction of Bauan, La Union. The Toyota Corolla travelled at a speed of 50 kilometers per hour as it traversed the downward slope of the road, which curved towards the right. The Mitsubishi Lancer GLX with Plate No. TAJ-796, driven by TeodoroGoki, and owned by Rodelene Valentino, was then following the Toyota Corolla along the said highway. Behind the Mitsubishi Lancer GLX was the passenger bus with Plate No. NYG-363, driven by Flor Bola Mangoba and owned by RCJ Bus Lines, Inc. The bus followed the Mitsubishi Lancer GLX at a distance of ten (10) meters and traveled at the speed of 60 to 75 kilometers per hour. Upon seeing a pile of gravel and sand on the road, the Toyota Corolla stopped on its tracks. The Mitsubishi Lancer followed suit and also halted. At this point, the bus hit and bumped the rear portion of the Mitsubishi Lancer causing it to move forward and hit the Toyota Corolla in front of it. As a result of the incident, the Mitsubishi Lancer sustained damages amounting to P162,151.22, representing the costs of its repairs. Under the comprehensive insurance policy secured by Rodelene Valentino, owner of the Mitsubishi Lancer, STANDARD reimbursed to the former the amount she expended for the repairs of her vehicle. Rodelene then executed a Release of Claim and Subrogation Receipt, subrogating STANDARD to all rights, claims and actions she may have against RCJ Bus Lines, Inc. and its driver, Flor Bola Mangoba. Issue: Whether there is a valid subrogation. Held: Yes. In the present case, it cannot be denied that the Mitsubishi Lancer sustained damages. Moreover, it cannot also be denied that Standard paid Rodelene Valentino P162,151.22 for the repair of the Mitsubishi Lancer pursuant to a Release of Claim and Subrogation Receipt. Neither RCJ nor Mangoba cross-examined Standard’s claims evaluator when he testified on his duties, the insurance contract between Rodelene Valentino and Standard, Standard’s payment of insurance proceeds, and RCJ and Mangoba’s refusal to pay despite demands. After being lackadaisical during trial, RCJ cannot escape liability now. Standard’s right of subrogation accrues simply upon its payment of the insurance claim. Article 2207 of the Civil Code reads:


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Art. 2207. If the plaintiff’s property has been insured and he has received indemnity from the insurance company for the injury or loss arising out of the wrong or breach of contract complained of, the insurance company shall be subrogated to the rights of the insured against the wrongdoer or the person who has violated the contract. If the amount paid by the insurance company does not fully cover the injury or loss, the aggrieved party shall be entitled to recover the deficiency from the person causing the loss or injury. Subrogation is the substitution of one person by another with reference to a lawful claim or right, so that he who substitutes another succeeds to the rights of the other in relation to a debt or claim, including its remedies or securities. The principle covers a situation wherein an insurer who has paid a loss under an insurance policy is entitled to all the rights and remedies belonging to the insured against a third party with respect to any loss covered by the policy. RCJ, by presenting witnesses to testify on its exercise of diligence of a good father of a family in the selection and supervision of its bus drivers, admitted that Mangoba is its employee. Article 2180 of the Civil Code, in relation to Article 2176, makes the employer vicariously liable for the acts of its employees. When the employee causes damage due to his own negligence while performing his own duties, there arises the juristantum presumption that the employer is negligent, rebuttable only by proof of observance of the diligence of a good father of a family. For failure to rebut such legal presumption of negligence in the selection and supervision of employees, the employer is likewise responsible for damages, the basis of the liability being the relationship of pater familias or on the employer’s own negligence. To be sure, had not the passenger bus been speeding while traversing the downward sloping road, it would not have hit and bumped the Mitsubishi Lancer in front of it, causing the latter vehicle to move forward and hit and bump, in turn, the Toyota Corolla. Had the bus been moving at a reasonable speed, it could have avoided hitting and bumping the Mitsubishi Lancer upon spotting the same, taking into account that the distance between the two vehicles was ten (10) meters. As fittingly opined by the MeTC, the driver of the passenger bus, being the rear vehicle, had full control of the situation as he was in a position to observe the vehicle in front of him. Had he observed the diligence required under the circumstances, the accident would not have occurred.


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Re: Obligations (Extinguishment of Obligations: Novation) REPUBLIC FLOUR MILLS CORPORATION v. FORBES FACTORS, INC., G.R. NO. 152313, October 19, 2011 Facts: In a contract dated respondent was appointed as the exclusive Philippine indent representative of Richco Rotterdam B.V. (Richco), a foreign corporation, in the sale of the latter's commodities. Under one of the terms of the contract, respondent was to assume the liabilities of all the Philippine buyers, should they fail to honor the commitments on the discharging operations of each vessel, including the payment of demurrage and other penalties. The petitioner purchased Canadian barley and soybean meal from Richco, the latter thereafter chartered four (4) vessels to transport the products to the Philippines. Each of the carrier bulk cargoes was covered by a Contract of Sale executed between respondent as the seller and duly authorized representative of Richco and petitioner as the buyer. Upon delivery of the barley and soybean meal, petitioner failed to discharge the cargoes from the four (4) vessels at the computed allowable period to do so. Thus, it incurred a demurrage. On numerous occasions, on behalf of Richco, respondent demanded from petitioner the payment of the demurrage, to no avail. Issue: Whether or not the respondent have the right to demand demurrage. Held: The court finds the petition without merit. The facts are undisputed. The delay incurred by petitioner in discharging the cargoes from the vessels was due to its own fault. Its obligation to demurrage is established by the Contracts of Sale it executed. Demurrage is, as a rule, an amount payable to a ship owner by a charterer for the detention of the vessel beyond the period allowed for the loading or unloading or sailing. This however, does not mean that a party cannot stipulate with another who is not a ship owner, on demurrage. The moment that Richco debited the account of respondent, the latter is deemed to have subrogated to the rights of the former, who in turn, paid demurrage to the ship owner. It is therefore immaterial that respondent is not the ship owner, since it has been able to prove that it has stepped into the shoes of the creditor. The case at bar is an example of legal subrogation, the petitioner and respondent having no express agreement on the right of subrogation. Thus, it is of no moment that the Contracts of Sale did not expressly state that demurrage shall be paid to respondent. By operation of law, respondent has become the real party-in-interest to pursue the payment of demurrage.


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Re: Obligations (Extinguishment of Obligations: Novation) STOLT-NIELSEN TRANSPORTATION GROUP, INC. v. MEDEQUILLO G.R. NO. 177498, January 18, 2012 Facts: On 6 November 1991(First Contract), respondent was hired by Stolt-Nielsen Marine Services, Inc on behalf of its principal Chung-Gai Ship Management of Panama as Third Assistant Engineer on board the vessel "Stolt Aspiration" for a period of nine (9) months. On February 1992 or for nearly three (3) months of rendering service and while the vessel was at Batangas, he was ordered by the ship’s master to disembark the vessel and repatriated back to Manila for no reason or explanation. Upon his return to Manila, he immediately proceeded to the petitioner’s office where he was transferred employment with another vessel named MV "Stolt Pride" under the same terms and conditions of the First Contract. The Second Contract was noted and approved by the POEA; The POEA, without knowledge that he was not deployed with the vessel, certified the Second Employment Contract on 18 September 1992.Despite the commencement of the Second Contract on 21 April 1992, petitioners failed to deploy him with the vessel MV "Stolt Pride". Issue: Whether or not the first contract was novated by the second contract. Held: Novation is the extinguishment of an obligation by the substitution or change of the obligation by a subsequent one which extinguishes or modifies the first, either by changing the object or principal conditions, or, by substituting another in place of the debtor, or by subrogating a third person in the rights of the creditor. In order for novation to take place, the concurrence of the following requisites is indispensable: 1. 2. 3. 4.

There must be a previous valid obligation, There must be an agreement of the parties concerned to a new contract, There must be the extinguishment of the old contract, and There must be the validity of the new contract.

Guided by the foregoing legal precepts, it is evident that novation took place in this particular case. The parties impliedly extinguished the first contract by agreeing to enter into the second contract to placate Medequillo, Jr. who was unexpectedly dismissed and repatriated to Manila. The second contract would not have been necessary if the petitioners abided by the terms and conditions of Madequillo, Jr.’s employment under the first contract. The records also reveal that the 2nd contract extinguished the first contract by changing its object or principal. These contracts were for overseas employment aboard different vessels. The first contract was for employment aboard the MV "Stolt Aspiration" while the second contract involved working in another vessel, the MV "Stolt Pride." Petitioners and Madequillo, Jr. accepted the terms and conditions of the second contract. Contrary to petitioners’ assertion, the first contract was a "previous valid contract" since it had not yet been


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terminated at the time of Medequillo, Jr.’s repatriation to Manila. The legality of his dismissal had not yet been resolved with finality. Undoubtedly, he was still employed under the first contract when he negotiated with petitioners on the second contract. As such, the NLRC correctly ruled that petitioners could only be held liable under the second contract. The Court concur with the finding that there was a novation of the first employment contract.


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Re: Obligations (Extinguishment of Obligations: Novation) UNITED PULP & PAPER COMPANY, INC. v. ACROPOLIS CENTRAL GUARANTY CORP. G.R. NO. 171750, January 25, 2012 Facts: United Pulp and Paper Co., Inc. (UPPC) filed a civil case for collection of sum of money against Unibox Packaging Corporation (Unibox) and Vicente Ortega (Ortega) before the RTC of Makati. As an answer to the prayer of UPPC, RTC issued the Writ of Attachment after UPPC posted a bond in the same amount of its claim. Unibox and Ortega were allowed to file a counter-bond and the writ of preliminary attachment was to be discharged after the filing of such bond. Thus, respondent Acropolis Central Guaranty Corporation (Acropolis) issued the Defendant’s Bond for Dissolution of Attachment in favor of Unibox. On September 29, 2003, Unibox, Ortega and UPPC executed a compromise agreement, wherein Unibox and Ortega acknowledged their obligation to UPPC in and bound themselves to pay the said amount in accordance with a schedule of payments agreed upon by the parties. The compromise agreement was approved by the RTC. For failure of Unibox and Ortega to pay the required amounts for the months of May and June 2004 despite demand by UPPC, the latter filed its Motion for Execution to satisfy the remaining unpaid balance. The RTC acted favorably on the said motion and issued the requested Writ of Execution. The sheriff discovered, however, that Unibox had already ceased its business operation and all of its assets had been foreclosed by its creditor bank and that Unibox and Ortega no longer had funds available for garnishment. On the basis of the sheriff’s return, UPPC filed its Motion to Order Surety to Pay Amount of Counter-Bond directed at Acropolis. Issue: Whether or not the execution of the compromise agreement between UPPC and Unibox and Ortega was tantamount to a novation which had the effect of releasing Acropolis from its obligation under the counter-attachment bond. Held: The Supreme Court held that there was no novation despite compromise agreement and that Acropolis is still liable under the terms of the counter bond. The liability of the sureties was fixed and conditioned on the finality of the judgment rendered regardless of whether the decision was based on the consent of the parties or on the merits. A judgment entered on a stipulation is nonetheless a judgment of the court. The argument of Acropolis that its obligation under the counter-bond was novated by the compromise agreement is, thus, untenable. In order for novation to extinguish its obligation, Acropolis must be able to show that there is an incompatibility between the compromise agreement and the terms of the counter-bond, as required by Article 1292 of the Civil Code, which provides that:


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Art. 1292. In order that an obligation may be extinguished by another which substitute the same, it is imperative that it be so declared in unequivocal terms, or that the old and the new obligations be on every point incompatible with each other. Nothing in the compromise agreement indicates, or even hints at, releasing Acropolis from its obligation to pay UPPC after the latter has obtained a favorable judgment. Clearly, there is no incompatibility between the compromise agreement and the counter-bond. Neither can novation be presumed in this case. As explained in Duñgo v. Lopena: Novation by presumption has never been favored. To be sustained, it need be established that the old and new contracts are incompatible in all points, or that the will to novate appears by express agreement of the parties or in acts of similar import.


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Re: Obligations (Extinguishment of Obligations: Novation) MILLA v. PEOPLE OF THE PHILIPPINES G.R. NO. 188726, January 25, 2012 Facts: Respondent Carlo Lopez (Lopez) was the Financial Officer of private respondent, Market Pursuits, Inc. (MPI). Milla represented himself as a real estate developer from Ines Anderson Development Corporation, which was engaged in selling business properties in Makati, and offered to sell MPI a property therein located. For this purpose, he showed Lopez a photocopy of Transfer Certificate of Title (TCT) registered in the name of spouses Farley and Jocelyn Handog, as well as a Special Power of Attorney purportedly executed by the spouses in favor of Milla.Since Lopez was convinced by Milla’s authority, MPI purchased the property issuing Security Bank and Trust Co. (SBTC) Check. Milla turned over the TCT but did not furnish the receipts for the transfer taxes and other costs incurred in the transfer of the property. This failure to turn over the receipts prompted Lopez to check with the Register of Deeds, where he discovered the following: (1) the Certificate of Title given to them by Milla could not be found therein; (2) there was no transfer of the property from Sps. Handog to MPI; and (3) the TCT was registered in the name of a certain Matilde M. Tolentino. Consequently, Lopez demanded the return of the amount of P2 million from Milla, who then issued Equitable PCI Check Nos. 188954 and 188955 dated 20 and 23 May 2003, respectively, in the amount of P1 million each. However, these checks were dishonored for having been drawn against insufficient funds. When Milla ignored the demand letter sent by Lopez, twoInformations for Estafa Thru Falsification of Public Documents were filed against him and was subsequently convicted thereof. The decision of the trial court was affirmed by the CA. On her petition, Milla contends that his issuance of Equitable PCI Check Nos. 188954 and 188955 before the institution of the criminal complaint against him novated his obligation to MPI, thereby enabling him to avoid any incipient criminal liability and converting his obligation into a purely civil one. Issue: Whether the principle of novation can exculpate Milla from criminal liability. Held: No. The principles of novation cannot apply to the present case as to extinguish his criminal liability. Mere payment of an obligation before the institution of a criminal complaint does not, on its own, constitute novation that may prevent criminal liability.


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Novation is never presumed, and the animus novandi, whether totally or partially, must appear by express agreement of the parties, or by their acts that are too clear and unequivocal to be mistaken. There are two ways which could indicate, in fine, the presence of novation and thereby produce the effect of extinguishing an obligation by another which substitutes the same. The first is when novation has been explicitly stated and declared in unequivocal terms. The second is when the old and the new obligations are incompatible on every point. The test of incompatibility is whether or not the two obligations can stand together, each one having its independent existence. If they cannot, they are incompatible and the latter obligation novates the first. Corollarily, changes that breed incompatibility must be essential in nature and not merely accidental. The incompatibility must take place in any of the essential elements of the obligation, such as its object, cause or principal conditions thereof; otherwise, the change would be merely modificatory in nature and insufficient to extinguish the original obligation. In the case at bar, the acceptance by MPI of the Equitable PCI checks tendered by Milla could not have novated the original transaction, as the checks were only intended to secure the return of the P2 million the former had already given him. Even then, these checks bounced and were thus unable to satisfy his liability. Moreover, the estafa involved here was not for simple misappropriation or conversion, but was committed through Milla’s falsification of public documents, the liability for which cannot be extinguished by mere novation.


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Re: Obligations (Extinguishment of Obligations: Novation) MALAYAN INSURANCE CO., INC. v. ALBERTO G.R. NO. 194320, February 1, 2012 Facts: An accident occurred at Makati City, involving four (4) vehicles, to wit: (1) a Nissan Bus operated by Aladdin Transit (2) an Isuzu Tanker (3) a Fuzo Cargo Truck and (4) a Mitsubishi Galant. Based on the Police Report issued by the on-the-spot investigator, the Isuzu Tanker was in front of the Mitsubishi Galant with the Nissan Bus on their right side shortly before the vehicular incident. All three (3) vehicles were at a halt along EDSA facing the south direction when the Fuzo Cargo Truck simultaneously bumped the rear portion of the Mitsubishi Galant and the rear left portion of the Nissan Bus. Due to the strong impact, these two vehicles were shoved forward and the front left portion of the Mitsubishi Galant rammed into the rear right portion of the Isuzu Tanker. Previously, Malayan Insurance issued Car Insurance Policy No. PV-025-00220 in favor of First Malayan Leasing and Finance Corporation (the assured), insuring the aforementioned Mitsubishi Galant against third party liability, own damage and theft, among others. Maintaining that it has been subrogated to the rights and interests of the assured by operation of law upon its payment to the latter, Malayan Insurance sent several demand letters to respondents, the registered owner and the driver, respectively, of the Fuzo Cargo Truck, requiring them to pay the amount it had paid to the assured. When respondents refused to settle their liability, Malayan Insurance was constrained to file a complaint for damages for gross negligence against respondents. Respondents asserted however that they cannot be held liable for the vehicular accident, since its proximate cause was the reckless driving of the Nissan Bus driver. Issues: 1. Whether or not petitioner is entitled to damages. 2. Whether or not subrogation of Malayan insurance has passed compliance and requisites as provided under pertinent laws. Held: 1. Yes. There is a sufficient evidence to allow Malayan Insurance to recover damages. Respondents cannot evade liability by virtue of the res ipsa loquitur doctrine. As a rule of evidence, the doctrine of res ipsa loquitur is peculiar to the law of negligence which recognizes that prima facie negligence may be established without direct proof and furnishes a substitute for specific proof of negligence. In the instant case, the Fuzo Cargo Truck would not have had hit the rear end of the Mitsubishi Galant unless someone is negligent. Also, the Fuzo Cargo Truck was under the exclusive control of its driver, Reyes. Even if respondents avert liability by putting the blame on the Nissan Bus driver, still, this allegation was self-serving and totally unfounded. Finally, no contributory negligence was attributed to the driver of the Mitsubishi Galant. Consequently, all the requisites for the application of the doctrine of res ipsa loquitur are present, thereby creating a reasonable presumption of negligence on the part of respondents.


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2. Yes. The Court held that payment by the insurer to the insured operates as an equitable assignment to the insurer of all the remedies that the insured may have against the third party whose negligence or wrongful act caused the loss. The right of subrogation is not dependent upon, nor does it grow out of, any privity of contract. It accrues simply upon payment by the insurance company of the insurance claim. The doctrine of subrogation has its roots in equity. It is designed to promote and to accomplish justice; and is the mode that equity adopts to compel the ultimate payment of a debt by one who, in justice, equity, and good conscience, ought to pay. Considering the above ruling, it is only but proper that Malayan Insurance be subrogated to the rights of the assured.


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Re: Obligations (Extinguishment of Obligations: Novation) HEIRS OF FRANCO v. SPOUSES GONZALES G.R. NO. 159709, June 27, 2012 Facts: Servando Franco and Leticia Medel obtained loans from Veronica Gonzales. All were covered by a promisory note. The loans were not paid on maturity date. On July 23, 1986 Servando and Leticial consolidated all their previous loans and sought another loan bringing their indebtedness to a total of 500 thousand pesos. The same was not paid on maturity date so the Gonzales spouses filed a complaint for collection of sum of money. The trial court upheld the validity of the promissory note and ordered Servando and Leticia to jointly and severally pay the plaintiffs but adjusted the interest rates as they were found to be unconscionable. Upon finality of the decision, the spouses moved for the its execution but Servando opposed claiming that it entered into a compromise agreement with the spouses where his liability was fixed and that he made an advance payment thereon. That such was evinced by a receipt dated February 5, 1992 and such agreement effectively novated the terms of the July 23, 1986 promisory note. Issue: Whether or not there was novation of the terms of the July 23, 1986 promissory by the issuance of the receipt on February 5, 1992 and thus the decision of the court cannot be executed. Held: Novation did not transpire because no irreconcilable incompatibility existed between the promissory note and the receipt. A novation arises when there is a substitution of an obligation by a subsequent one that extinguishes the first, either by changing the object or the principal conditions, or by substituting the person of the debtor, or by subrogating a third person in the rights of the creditor. For a valid novation to take place, there must be, therefore: (a) a previous valid obligation; (b) an agreement of the parties to make a new contract; (c) an extinguishment of the old contract; and (d) a valid new contract. In short, the new obligation extinguishes the prior agreement only when the substitution is unequivocally declared, or the old and the new obligations are incompatible on every point. A compromise of a final judgment operates as a novation of the judgment obligation upon compliance with either of these two conditions. The receipt dated February 5, 1992, excerpted below, did not create a new obligation incompatible with the old one under the promissory note,


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Novation is not presumed. This means that the parties to a contract should expressly agree to abrogate the old contract in favor of a new one. In the absence of the express agreement, the old and the new obligations must be incompatible on every point. The extinguishment of the old obligation by the new one is a necessary element of novation which may be effected either expressly or impliedly. The term “expressly” means that the contracting parties incontrovertibly disclose that their object in executing the new contract is to extinguish the old one. Upon the other hand, no specific form is required for an implied novation, and all that is prescribed by law would be an incompatibility between the two contracts. While there is really no hard and fast rule to determine what might constitute to be a sufficient change that can bring about novation, the touchstone for contrariety, however, would be an irreconcilable incompatibility between the old and the new obligations. There is incompatibility when the two obligations cannot stand together, each one having its independent existence. If the two obligations cannot stand together, the latter obligation novates the first. Changes that breed incompatibility must be essential in nature and not merely accidental. The incompatibility must affect any of the essential elements of the obligation, such as its object, cause or principal conditions thereof; otherwise, the change is merely modificatory in nature and insufficient to extinguish the original obligation.


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Re: Obligations (Extinguishment of Obligations: Novation) PHILIPPINE NATIONAL BANK v. SORIANO G.R. NO. 164051, October 3, 2012 Facts: PNB extended a credit facility in the form of Floor Stock Line (FSL) to Lisam Enterprises, Inc. (LISAM), a family-owned and controlled corporation, Soriano is the chairman and president of LISAM, she is also the authorized signatory in all LISAMs Transactions with PNB. On various dates, LISAM made several availments of the FSL. For each availment, LISAM through Soriano, executed 52 Trust Receipts (TRs). When authorized personnel of PNB conducted an actual physical inventory of LISAMs motor vehicles and motorcycles it was found out that only four (4) units covered by the TRs remained unsold. Despite several formal demands, respondent Soriano failed and refused to turn over the said amount to the prejudice of PNB. PNB approved LISAMs restructuring proposal, the actual restructuring of LISAMs account consisting of several credit lines was never reduced into writing. When the case was filed before the the DOJ Secretary, it ruled that the approval of LISAMs restructuring proposal, even if not reduced into writing, changed the status of LISAMs loan from being secured with Trust Receipts (TRs) to one of an ordinary loan, non-payment of which does not give rise to criminal liability. Issue: Whether the restructuring of LISAMs loan account extinguished Sorianos criminal liability. Held: The court finds that the purported restructuring of the loan agreement did not constitute novation, being one of the modes of extinguishment of obligations. The substitution or change of the obligation by a subsequent one extinguishes the first, resulting in the creation of a new obligation in lieu of the old. It is not a complete obliteration of the obligor-obligee relationship, but operates as a relative extinction of the original obligation. Novation is never presumed, and the animus novandi, whether totally or partially, must appear by express agreement of the parties, or by their acts that are too clear and unmistakable. Court rules that there is no incompatibility between the Floor Stock Line and the purported restructured Omnibus Line. While the restructuring was approved in principle, the effectivity thereof was subject to conditions precedent. These conditions precedent imposed on the restructured Omnibus Line were never refuted by Soriano who, oddly enough, failed to file a Memorandum. Soriano’s bare assertion that the restructuring was approved by PNB cannot equate to a finding of an implied novation which extinguished Soriano’s obligation as entrustee under the TRs. It stands to reason therefore, that Soriano’s criminal liability under the TRs subsists considering that the civil obligations under the Floor Stock Line secured by TRs were not extinguished by the purported restructured Omnibus Line.


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Re: Obligations (Extinguishment of Obligations: Novation) LAND BANK OF THE PHILIPPINES, v. ALFREDO ONG, G.R. No. 190755, November 24, 2010 Facts: Spouses Johnson and Evangeline Sy secured a loan from Land Bank Legazpi City in the amount of PhP 16 million. The loan was secured by three (3) residential lots, five (5) cargo trucks, and a warehouse. 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. Spouses Sy found they could no longer pay their loan. 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. Spouses Sy but provided them with requirements for the assumption of mortgage. They were also told that Alfredo 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 could easily approve the assumption of mortgage. Alfredo later found out that his 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. Alfredo claimed that this was fully paid later on. Nonetheless, Land Bank foreclosed the mortgage of the Spouses Sy after several months. Issue: Whether or not Art. 1236 of the Civil Code does not apply and there is no novation. Held: In order that an obligation may be extinguished by another which substitutes the same, it is imperative that it be so declared in unequivocal terms, or that the old and the new obligations be on every point incompatible with each other. The test of incompatibility is whether or not the two obligations can stand together, each one having its independent existence Not all the elements of novation were present. Novation must be expressly consented to. Moreover, the conflicting intention and acts of the parties underscore the absence of any express disclosure or circumstances with which to deduce a clear and unequivocal intent by the parties to novate the old agreement. Whether or not Alfredo Ong has an interest in the obligation and payment was made with the knowledge or consent of Spouses Sy, he may still pay the obligation for the reason that even before he paid the amount of P750,000.00 on January 31, 1997, the substitution of debtors was already


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perfected by and between Spouses Sy and Spouses Ong as evidenced by a Deed of Sale with Assumption of Mortgage executed by them on December 9, 1996. And since the substitution of debtors was made without the consent of Land Bank – a requirement which is indispensable in order to effect a novation of the obligation, it is therefore not bound to recognize the substitution of debtors. Land Bank did not intervene in the contract between Spouses Sy and Spouses Ong and did not expressly give its consent to this substitution.


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Re: Obligations (Extinguishment of Obligations: Novation) PHILIPPINE RECLAMATION AUTHORITY v. ROMAGO, INCORPORATED G.R. No. 174665, September 18, 2013 Facts: In order to convert former military reservations and installations to productive use and raise funds out of the sale of portions of the country’s military camps, Congress enacted Republic Act 7227,2 creating the Bases Conversion and Development Authority. Pursuant to this law, the President issued Executive Order 40,3 Series of 1992, setting aside portions of Fort Bonifacio in Taguig, Metro Manila, for the Heritage Park Project, aimed at converting a 105hectare land into a world class memorial park for the purpose of generating funds for the BCDA. the BCDA entered into a Memorandum of Agreement5 (MOA) with the Philippine Reclamation Authority, designating it as the Project Manager. Philippine National Bank (PNB) executed a Pool Formation Trust Agreement (PFTA)6 under which BCDA, as project owner, was to issue Heritage Park Investment Certificates that would evidence the holders’ right to the perpetual use and care of specific interment plots. After public bidding, the PRA awarded the outdoor electrical and lighting works for the park to respondent Romago, Inc. Romago immediately began construction works.10 Meanwhile, the parties to the PFTA organized the Heritage Park Management Corporation to take over the management of the project. Mr. Rogelio L. Singson, sent a notice of termination of management to then PRA General Manager Carlos P. Doble with a demand for the turnover of the park to HPMC. As a consequence of the assumption of functions, duties and responsibilities by the Heritage Park Management Corporation, as provided for under the provisions of the Pool Formation Trust Agreement, we are constrained to assign the Electrical Works in favor of the Heritage Park Management Corporation. The PRA claims that its liability under its contract with Romago had been extinguished by novation when it assigned all its obligations to the HPMC pursuant to the provisions of the PFTA Issue: Whether or not the CA erred in holding the PRA still liable to Romago under the Construction Agreement despite the subsequent turnover of the Heritage Park Project to the HPMC. Held: In novation, a subsequent obligation extinguishes a previous one through substitution either by changing the object or principal conditions, by substituting another in place of the debtor, or by subrogating a third person into the rights of the creditor.38 Novation requires (a) the existence of a previous valid obligation; (b) the agreement of all parties to the new contract; (c) the extinguishment of the old contract; and (d) the validity of the new one.


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There cannot be novation in this case since the proposed substituted parties did not agree to the PRA’s supposed assignment of its obligations under the contract for the electrical and light works at Heritage Park to the HPMC. The latter definitely and clearly rejected the PRA’s assignment of its liability under that contract to the HPMC. Romago tried to follow up its claims with the HPMC, not because of any new contract it entered into with the latter, but simply because the PRA told it that the HPMC would henceforth assume the PRA’s liability under its contract with Romago.


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Re: Obligations (Extinguishment of Obligations: Novation) VECTOR SHIPPING CORPORATION and FRANCISCO SORIANO, v. AMERICAN HOME ASSURANCE COMPANY and SULPICIO LINES, INC G.R. No. 159213, July 3, 2013 Facts: Vector was the operator of the motor tanker M/T Vector, while Soriano was the registered owner of the M/T Vector. Respondent is a domestic insurance corporation. Caltex entered into a contract of Affreightment3 with Vector for the transport of Caltex’s petroleum cargo through the M/T Vector. Caltex insured the petroleum cargo with respondent for P7,455,421.08In the evening of December 20, 1987, the M/T Vector and the M/V Doña Paz, the latter a vessel owned and operated by Sulpicio Lines, Inc., collided in the open sea near Dumali Point in Tablas Strait, located between the Provinces of Marinduque and Oriental Mindoro. The collision led to the sinking of both vessels. The entire petroleum cargo of Caltex on board the M/T Vector perished. Respondent filed a complaint against Vector, Soriano, and Sulpicio Lines, Inc. to recover the full amount of P7,455,421.08 it paid to Caltex. The RTC dismissed the case. Vector and Soriano assert that respondent had no right of subrogation to begin with, because the complaint did not allege that respondent had actually paid Caltex for the loss of the cargo. Issue: Whether or not there was proper subrogation Held: It is undeniable that respondent preponderantly established its right of subrogation. Its Exhibit C was Marine Open Policy No. 34-5093-6 that it had issued to Caltex to insure the petroleum cargo against marine peril.22 Its Exhibit D was the formal written claim of Caltex for the payment of the insurance coverage of P7,455,421.08 coursed through respondent’s adjuster.23 Its Exhibits E to H were marine documents relating to the perished cargo on board the M/V Vector that were processed for the purpose of verifying the insurance claim of Caltex.24 Its Exhibit I was the subrogation receipt dated July 12, 1988 showing that respondent paid Caltex P7,455,421.00 as the full settlement of Caltex’s claim under Marine Open Policy No. 34-5093-6.25 All these exhibits were unquestionably duly presented, marked, and admitted during the trial.26 Specifically, Exhibit C was admitted as an authentic copy of Marine Open Policy No. 34-5093-6, while Exhibits D, E, F, G, H and I, inclusive, were admitted as parts of the testimony of respondent’s witness Efren Villanueva, the manager for the adjustment service of the Manila Adjusters and Surveyors Company. Consistent with the pertinent law and jurisprudence, therefore, Exhibit I was already enough by itself to prove the payment of P7,455,421.00 as the full settlement of Caltex’s claim. The payment made to Caltex as the insured being thereby duly documented, respondent became subrogated as a matter of course pursuant to Article 2207 of the Civil Code. In legal contemplation, subrogation is


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the “substitution of another person in the place of the creditor, to whose rights he succeeds in relation to the debt;” and is “independent of any mere contractual relations between the parties to be affected by it, and is broad enough to cover every instance in which one party is required to pay a debt for which another is primarily answerable, and which in equity and conscience ought to be discharged by the latter.


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Re: Obligations (Extinguishment of Obligations: Novation) ASIAN TERMINALS, INC., v. PHILAM INSURANCE CO., INC. G.R. No. 181163, July 24, 2013 Facts: Nichimen Corporation shipped to Universal Motors Corporation. 120 units of brand new Nissan Pickup Truck Double Cab 4x2 model, without engine, tires and batteries, on board the vessel S/S "Calayan Iris" from Japan to Manila. The shipment, which had a declared value of US$81,368 or P29,400,000, was insured with Philam against all risks. When the shipment was unloaded by the staff of ATI, it was found that the package was in bad order. , the shipment was withdrawn by R.F. Revilla Customs Brokerage, Inc., the authorized broker of Universal Motors, and delivered to the latter’s warehouse. Universal Motors filed a formal claim for damages in the amount of P643,963.84 against Westwind,9 ATI10 and R.F. Revilla Customs Brokerage, Inc. When Universal Motors’ demands remained unheeded, it sought reparation from and was compensated in the sum of P633,957.15 by Philam. Accordingly, Universal Motors issued a Subrogation Receipt. Philam, as subrogee of Universal Motors, filed a Complaint for damages against Westwind, ATI and R.F. Revilla Customs Brokerage. Issue: Whether or not there is proper subrogation Held: The Court holds that petitioner Philam has adequately established the basis of its claim against petitioners ATI and Westwind. Philam, as insurer, was subrogated to the rights of the consignee, Universal Motors Corporation, pursuant to the Subrogation Receipt executed by the latter in favor of the former. The right of subrogation accrues simply upon payment by the insurance company of the insurance claim.30 Petitioner Philam’s action finds support in Article 2207 of the Civil Code, which provides as follows: Art. 2207. If the plaintiff’s property has been insured, and he has received indemnity from the insurance company for the injury or loss arising out of the wrong or breach of contract complained of, the insurance company shall be subrogated to the rights of the insured against the wrongdoer or the person who has violated the contract.


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CONTRACTS Definition and Concept    

Ace Foods, Inc. v. Micro Pacific Technologies, Co. (G.R. No. 200602, December 11, 2013) Hur Tin Yang v. People (G.R. No. 195117, August 14, 2013) Cruz v. Gruspe (G.R. No. 191431, March 13, 2013) International Freeport Traders, Inc. v. Danzas Intercontinental, Inc. (G.R. No. 181833, January 26, 2011)

Stages of a Contract  

Heirs of Ignacio v. Home Bankers Saving and Trust Company (G.R. No. 177783, January 23, 2013) Robern Development Corporation v. PELA (G.R. No. 173622, March 11, 2013)

Freedom or Autonomy to Stipulate   

Sps. Edralin v. Philippine Veterans Bank (G.R. No. 168523, March 9, 2011) P.L. Uy Realty Corporation v. ALS Management and Development Corporation (G.R. No. 166462, October 24, 2012) Star Two v. Paper City Corporation of the Philippines (G.R. No. 169211, March 6, 2013)

Obligatory Force and Compliance in Good Faith  

Consolidated Industrial Gases v. Alabang Medical Center (G.R. No. 181983, November 13, 2013) The Metropolitan Bank And Trust Company Vs. Rosales And Yo Yuk To (G.R. No. 183204, January 13, 2014)

Mutuality of Contracts 

Aniceto G. Saludo, Jr. v. Security Bank Corporation (G.R. No. 184041, October 13, 2010)

Relativity and Privity of Contracts  

Allan C. Go v. Mortimer F. Cordero (G.R. No. 164703, May 4, 2010) Analita P. Inocencio v. Hospicio De San Jose (G.R. Nos. 201787, September 25, 2013)

Vices of Consent 

Lina Calilap-Asmeron v. Development Bank Of The Philippines (G.R. No. 157330, November 23, 2011)


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Fraud or Deceit   

Fontana Resort And Country Club, Inc. v. Spouses Roy S. Tan And Susan C. Tan (G.R. No. 154670, January 30, 2012) Spouses Viloria v. Continental Airlines, Inc. (G.R. No. 188288, January 16, 2012) Alejandro V. Tankeh v. Development Bank Of The Philippines (G.R. No. 171428, November 11, 2013)

Object or Subject Matter 

Land Bank Of The Philippines v. Eduardo M. Cacayuran (G.R. No. 191667, April 17, 2013)

Cause or Consideration 

Eduardo M. Cojuangco, Jr. v. Republic Of The Philippines (G.R. No. 180705, November 27, 2012)

Simulation of Contracts   

Heirs Of Intac v. Court Of Appeals (G.R. No. 173211, October 11, 2012) Formaran v. Ong (G.R. No. 186264, July 8, 2013) Spouses Villaceran v. De Guzman (G.R. No. 169055, February 22, 2012)

Forms of Contracts  

Orduña v. Fuentebella (G.R. No. 176841, June 29, 2010) David v. Misamis Occidental Ii Electric Cooperative, Inc. (G.R. No. 194785, July 11, 2012)

Interpretation of Contracts    

Movido v. Pastor (G.R. No. 172279, February 11, 2010) Cabahug v. National Power Corporation (G.R. No. 186069 January 30, 2013) Cruz v. Gruspe (G.R. No. 191431 March 13, 2013) Star Two (Spv-Amc), Inc. v. Paper City Corporation Of The Philippines (G. R. No. 169211 6, 2013)

Rescissible Contracts   

Lee v. Bangkok Bank Public Co. Ltd. (G.R. No. 173349, February 9, 2011) Luz v. Baylon (G.R. No. 182435 , August 13, 2012) Villoria v. Continental Airlines, Inc. (G.R. No. 188288, January 16, 2012)

Voidable Contracts  

Mangahas v. Brobio (G.R. No. 183852, October 20, 2010) The Roman Catholic Church v. Pante (G.R. No. 174118, April 11, 2014)


March

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Metropolitan Fabrics, Inc. v. Prosperity Credit Resources, Inc. (G.R. No. 154390, March 17, 2014) Viloria v. Continental Airlines, Inc. (G.R. No. 188288, January 16, 2012)

Unenforceable Contracts  

Municipality of Hagonoy v. Dumdum (G.R. No. 168289, March 22, 2010) De Ouano v. Republic (G.R. No. 168770, February 9, 2011)

Void or Inexistent Contracts        

Vigilar v. Aquino (G.R. No. 180388, January 18, 2011) Fuentes v. Roca (G.R. No. 178902, April 21,2010) Gonzalo v. Tarnate (G.R. No. 160600, January 15, 2014) Land Bank of the Philippines v. Cacayurin, (G.R. No. 191667, April 17, 2013) Beumer v. Amores, (G.R. No. 195670, December 3, 2012) Borromeo v. Mina (G.R. No. 193747, June 4,2013) Manotok IV v. Heirs of Barque (G.R. No. 162335 & 162605, March 6, 2012) Department of Public Works and Highways v. Quiwa (G.R. No. 183444, February 8, 2012)


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Re: Contracts (Definition and Concept) ACE FOODS, INC., v. MICRO PACIFIC TECHNOLOGIES CO., LTD. G.R. No. 200602, December 11, 2013 Facts: ACE Foods, Inc. (ACE Foods) is a domestic corporation engaged in the trading and distribution of consumer goods in wholesale and retail bases, while Micro Pacific Technologies Co., Ltd. (MTCL) is one engaged in the supply of computer hardware and equipment. On September 26, 2001, MTCL sent a letter-proposal for the delivery and sale of the subject products to be installed at various offices of ACE Foods. ACE Foods accepted MTCL’s proposal and accordingly issued a purchase order for the subject products amounting to P646,464.00. Thereafter, or on March 4, 2002, MTCL delivered the said products to ACE Foods, as reflected in the invoice receipt. The fine print of the invoice states, the “title to sold property is reserved in MICROPACIFIC TECHNOLOGIES CO., LTD. until full compliance of the terms and conditions of above and payment of the price" (title reservation stipulation). After delivery, the subject products were then installed and configured in ACE Foods’s premises. MTCL’s demands against ACE Foods to pay the purchase price, however, remained unheeded. Instead of paying the purchase price, ACE Foods sent MTCL a Letter stating that it has been returning the products to MTCL through its sales representative Mr. Mark Anteola who has agreed to pull out the said products but had failed to do so up to now. Eventually, or on October 16, 2002, ACE Foods lodged a Complaint against MTCL before the RTC, praying that the latter pull out from its premises the subject products since MTCL breached its "after delivery services" obligations to it, particularly, to: (a) install and configure the subject products; (b) submit a cost benefit study to justify the purchase of the subject products; and (c) train ACE Foods’s technicians on how to use and maintain the subject products. ACE Foods likewise claimed that the subject products MTCL delivered are defective and not working. For its part, MTCL, maintained that it had duly complied with its obligations to ACE Foods and that the subject products were in good working condition when they were delivered, installed and configured in ACE Foods’s premises. Thereafter, MTCL even conducted a training course for ACE Foods’s representatives/employees; MTCL, however, alleged that there was actually no agreement as to the purported "after delivery services." Further, MTCL posited that ACE Foods refused and failed to pay the purchase price for the subject products despite the latter’s use of the same for a period of nine (9) months. As such, MTCL prayed that ACE Foods be compelled to pay the purchase price, as well as damages related to the transaction. The RTC rendered its decision directing MTCL to remove the subject products from ACE Foods’s premises and pay damages to Ace Foods. The RTC ruled that the agreement between ACE Foods and MTCL is in the nature of a contract to sell due to the fine print of the Invoice Receipt which expressly indicated a title reservation stipulation noting further that in a contract to sell, the prospective seller explicitly reserves the transfer of title to the prospective buyer, and said transfer is conditioned upon the full payment of the purchase price.


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On appeal, the appellate court reversed and set aside the RTC’s ruling, ordering ACE Foods to pay MTCL the purchase price. It found that the agreement between the parties is in the nature of a contract of sale, observing that the said contract had been perfected from the time ACE Foods sent the Purchase Order to MTCL which, in turn, delivered the subject products covered by the Invoice Receipt and subsequently installed and configured them in ACE Foods’s premises. Thus, considering that MTCL had already complied with its obligation, ACE Foods’s corresponding obligation arose and was then duty bound to pay the agreed purchase price. Issue: Whether or not Ace Foods is liable to pay the purchase price in the contract. Held: A contract is what the law defines it to be, taking into consideration its essential elements, and not what the contracting parties call it. The real nature of a contract may be determined from the express terms of the written agreement and from the contemporaneous and subsequent acts of the contracting parties. However, in the construction or interpretation of an instrument, the intention of the parties is primordial and is to be pursued. The denomination or title given by the parties in their contract is not conclusive of the nature of its contents. The very essence of a contract of sale is the transfer of ownership in exchange for a price paid or promised. This may be gleaned from Article 1458 of the Civil Code which defines a contract of sale as follows: Art. 1458. By the contract of sale one of the contracting parties obligates himself to transfer the ownership and to deliver a determinate thing, and the other to pay therefor a price certain in money or its equivalent. In this case, the Court concurs with the CA that the parties have agreed to a contract of sale and not to a contract to sell as adjudged by the RTC. Bearing in mind its consensual nature, a contract of sale had been perfected at the precise moment ACE Foods, as evinced by its act of sending MTCL the Purchase Order, accepted the latter’s proposal to sell the subject products in consideration of the purchase price of P646,464.00. From that point in time, the reciprocal obligations of the parties – i.e., on the one hand, of MTCL to deliver the said products to ACE Foods, and, on the other hand, of ACE Foods to pay the purchase price – already arose and consequently may be demanded. Article 1475 of the Civil Code makes this clear: Art. 1475. The contract of sale is perfected at the moment there is a meeting of minds upon the thing which is the object of the contract and upon the price. From that moment, the parties may reciprocally demand performance, subject to the provisions of the law governing the form of contracts.


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Re: Contracts (Definition and Concept) HUR TIN YANG v. PEOPLE OF THE PHILIPPINES G.R. No. 195117, August 14, 2013 Facts: Supermax Philippines, Inc. (Supermax) is a domestic corporation engaged in the construction business. On various occasions, Metropolitan Bank and Trust Company (Metrobank), extended several commercial letters of credit to Supermax. These commercial letters of credit were used by Supermax to pay for the delivery of several construction materials which will be used in their construction business. Thereafter, Metrobank required petitioner, as representative of Supermax, to sign trust receipts as security for the construction materials and to hold those materials or the proceeds of the sales in trust for Metrobank to the extent of the amount stated in the trust receipts. When the trust receipts fell due and despite the receipt of a demand letter, Supermax failed to pay or deliver the goods or proceeds to Metrobank. Instead, Supermax requested the restructuring of the loan. When the intended restructuring of the loan did not materialize, Metrobank sent another demand letter. As the demands fell on deaf ears, Metrobank, filed the instant criminal complaints against petitioner. For his defense, while admitting signing the trust receipts, petitioner argued that said trust receipts were demanded by Metrobank as additional security for the loans extended to Supermax for the purchase of construction equipment and materials. In support of this argument, petitioner presented a witness who testified that the construction materials covered by the trust receipts were delivered way before petitioner signed the corresponding trust receipts. Further, petitioner argued that Metrobank knew all along that the construction materials subject of the trust receipts were not intended for resale but for personal use of Supermax relating to its construction business. The trial court rendered judgment convicting accused Hur Tin Yang of the crime of estafa under Article 315 paragraph 1 (a) of the Revised Penal Code. Petitioner appealed to the Court of Appeals. The court rendered a decision upholding the findings of the RTC. The CA ruled that since the offense punished under P.D. No 115 is in the nature of malum prohibitum, a mere failure to deliver the proceeds of the sale or goods, if not sold, is sufficient to justify a conviction under P.D. No. 115. Issue: Whether or not petitioner should be held criminally liable for Estafa even if it was sufficiently proved that the entruster (Metrobank) knew beforehand that the goods (construction materials) subject of the trust receipts were never intended to be sold but only for use in the entrustee’s construction business.


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Held: In determining the nature of a contract, courts are not bound by the title or name given by the parties. The decisive factor in evaluating such agreement is the intention of the parties, as shown not necessarily by the terminology used in the contract but by their conduct, words, actions and deeds prior to, during and immediately after executing the agreement. As such, therefore, documentary and parol evidence may be submitted and admitted to prove such intention. In the instant case, the factual findings of the trial and appellate courts reveal that the dealing between petitioner and Metrobank was not a trust receipt transaction but one of simple loan. Petitioner’s admission––that he signed the trust receipts on behalf of Supermax, which failed to pay the loan or turn over the proceeds of the sale or the goods to Metrobank upon demand––does not conclusively prove that the transaction was, indeed, a trust receipts transaction. In contrast to the nomenclature of the transaction, the parties really intended a contract of loan. In the cases of Ng v. People and Land Bank of the Philippines v. Perez, cases which are in all four corners the same as the instant case––ruled that the fact that the entruster bank knew even before the execution of the trust receipt agreements that the construction materials covered were never intended by the entrustee for resale or for the manufacture of items to be sold is sufficient to prove that the transaction was a simple loan and not a trust receipts transaction. Nonetheless, when both parties enter into an agreement knowing fully well that the return of the goods subject of the trust receipt is not possible even without any fault on the part of the trustee, it is not a trust receipt transaction penalized under Sec. 13 of PD 115 in relation to Art. 315, par. 1(b) of the RPC, as the only obligation actually agreed upon by the parties would be the return of the proceeds of the sale transaction. This transaction becomes a mere loan, where the borrower is obligated to pay the bank the amount spent for the purchase of the goods.


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Re: Contracts (Definition and Concept) RODOLFO G. CRUZ and ESPERANZA IBIAS v. ATTY. DELFIN GRUSPE G.R. No. 191431, March 13, 2013 Facts: The case involves an accident that occurred on October 24, 1999, when the mini bus owned and operated by Rodolfo G. Cruz (Cruz) and driven by Arturo Davin collided with the Toyota Corolla car of Gruspe. The next day, on October 25, 1999, Cruz, along with Leonardo Q. Ibias went to Gruspe’s office, apologized for the incident, and executed a Joint Affidavit of Undertaking promising jointly and severally to replace the Gruspe’s damaged car in 20 days, or until November 15, 1999, of the same model and of at least the same quality; or, alternatively, they would pay the cost of Gruspe’s car amounting to P350,000.00, with interest at 12% per month for any delayed payment after November 15, 1999, until fully paid. When Cruz and Leonardo failed to comply with their undertaking, Gruspe filed a complaint for collection of sum of money against them on November 19, 1999 before the RTC. In their answer, Cruz and Leonardo denied Gruspe’s allegation, claiming that Gruspe, a lawyer, prepared the Joint Affidavit of Undertaking and forced them to affix their signatures thereon, without explaining and informing them of its contents; Cruz affixed his signature so that his mini bus could be released as it was his only means of income; Leonardo, a barangay official, accompanied Cruz to Gruspe’s office for the release of the mini bus, but was also deceived into signing the Joint Affidavit of Undertaking. Meanwhile, Leonardo Ibias died, thus was substituted by his wife Esperanza. The RTC ruled in favor of Gruspe and ordered Cruz and Leonardo to pay P220,000.00, plus 15% per annum from November 15, 1999 until fully paid. On appeal, the Court of Appeals affirmed the RTC decision, but reduced the interest rate to 12% per annum pursuant to the Joint Affidavit. It declared that despite its title, the Joint Affidavit of Undertaking is a contract, as it has all the essential elements of consent, object certain, and consideration required under Article 1318 of the Civil Code. The Court of Appeals further said that Cruz and Leonardo failed to present evidence to support their contention of vitiated consent. By signing the Joint Affidavit of Undertaking, they voluntarily assumed the obligation for the damage they caused to Gruspe’s car; Leonardo, who was not a party to the incident, could have refused to sign the affidavit, but he did not. Issue: Whether or not the joint affidavit undertaking signed by Cruz and Leonardo was binding upon them.


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Held: Contracts are obligatory no matter what their forms may be, whenever the essential requisites for their validity are present. In determining whether a document is an affidavit or a contract, the Court looks beyond the title of the document, since the denomination or title given by the parties in their document is not conclusive of the nature of its contents. The terms of the Joint Affidavit of Undertaking readily discloses that it contains stipulations characteristic of a contract. Based on findings, the Joint Affidavit of Undertaking contained a stipulation where Cruz and Leonardo promised to replace the damaged car of Gruspe, 20 days from October 25, 1999 or up to November 15, 1999, of the same model and of at least the same quality. In the event that they cannot replace the car within the same period, they would pay the cost of Gruspe’s car in the total amount of P350,000.00, with interest at 12% per month for any delayed payment after November 15, 1999, until fully paid. These, as read by the CA, are very simple terms that both Cruz and Leonardo could easily understand. There is also no merit to the argument of vitiated consent. An allegation of vitiated consent must be proven by preponderance of evidence; Cruz and Leonardo failed to support their allegation. Although the undertaking in the affidavit appears to be onerous and lopsided, this does not necessarily prove the alleged vitiation of consent. They, in fact, admitted the genuineness and due execution of the Joint Affidavit and Undertaking when they said that they signed the same to secure possession of their vehicle. If they truly believed that the vehicle had been illegally impounded, they could have refused to sign the Joint Affidavit of Undertaking and filed a complaint, but they did not. That the release of their mini bus was conditioned on their signing the Joint Affidavit of Undertaking does not, by itself, indicate that their consent was forced – they may have given it grudgingly, but it is not indicative of a vitiated consent that is a ground for the annulment of a contract.


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Re: Contracts (Stages of a Contract) INTERNATIONAL FREEPORT TRADERS, INC. v. DANZAS INTERCONTINENTAL, INC. G.R. No. 181833, January 26, 2011 Facts: Petitioner International Freeport Traders Inc. (IFTI) ordered a shipment of Toblerone chocolates and assorted confectioneries from Jacobs Suchard Tobler Ltd. of Switzerland (Jacobs) through its Philippine agent, Colombo Merchants Phils., Inc., under the delivery term “F.O.B. Ex-Works.” To ship the goods, Jacobs dealt with Danmar which issued to Jacobs negotiable house bills of lading signed by its agent, respondent Danzas. The shipment was to be delivered at the Clark Special Economic Zone with Manila as the port of discharge. Since Danmar did not have its own vessel, it contracted Orient Overseas Container Line (OOCL) to ship the goods from Switzerland. OOCL issued a non-negotiable master bill of lading, stating that the freight was prepaid with Danmar as the shipper and Danzas as the consignee and party to be notified. Upon learning from Danmar that the goods had been arrived at the port of Manila, Danzas immediately informed IFTI of its arrival and the latter prepared the necessary documents for the release of the goods. IFTI advised Danzas to pick up the documents. Danzas got the import permit and asked IFTI to: surrender the original bills of lading to secure the release of the goods; and submit a bank guarantee inasmuch as the shipment was consigned to China Banking Corporation to assure Danzas that it will be compensated for freight and other charges. IFTI did not provide Danzas with the original bills of lading and the bank guarantee, thus the latter withheld the processing of the release of the goods. Danzas reiterated to IFTI that it could secure the release of the goods only if IFTI submitted a bank guarantee. Ultimately, IFTI yielded to the request and applied for a bank guarantee. IFTI faxed a letter to Danzas, stating that OOCL confirmed that it had been paid an arbitrary fee. In another letter faxed to Danzas, IFTI reiterating its request that the goods be released pending payment of whatever charges Danzas had incurred for the release and delivery of the goods to Clark and promised to pay Danzas any charges within five days upon delivery of the goods. Danzas secured the release of the goods and delivered the same to IFTI at Clark. In turn, IFTI agreed to give Danzas another opportunity to service its account. In its demand letter to IFTI, Danzas claimed that IFTI engaged its services to process the release of the goods from the port and deliver it to IFTI at Clark but the latter ignored the demand compelling Danzas to file a complaint for the sum of money against IFTI. IFTI countered that it had no liability to Danzas since IFTI was not privy to the hiring of Danzas. Issue: Whether or not IFTI is bound by a contract with Danzas.


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Held: Although the facts show the existence of several contracts, what is clear to the Court is that, by acceding to all the requirements that Danzas imposed on it, IFTI voluntarily accepted its services. The bank guarantee IFTI gave Danzas assured the latter that it would eventually be paid all freight and other charges arising from the release and delivery of the goods to it. Another indication that IFTI recognized its contract with Danzas is when IFTI requested Danzas to have the goods released pending payment of whatever expenses the latter would incur in obtaining the release and delivery of the goods at Clark. It also admitted that it initially settled with Danzas’ General Manager and OOCL’s Mabazza the issue regarding the charges on the goods after Danzas agreed to bill IFTI for the electric charges and storage fees. Certainly, this concession indicated that their earlier agreement did not push through. Every contract has the elements of (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. A contract is perfected by mere consent, which is manifested by the meeting of the offer and the acceptance upon the thing and the cause which are to constitute the contract. Generally, contracts undergo three distinct stages: (1) preparation or negotiation; (2) perfection; and (3) 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 where the parties fulfill or perform the terms they agreed on, culminating in its extinguishment. Here, there is no other conclusion than that the parties entered into a contract of lease of service for the clearing and delivery of the imported goods.


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Re: Contracts (Stages of a Contract) HEIRS OF FAUSTO C. IGNACIO, namely MARFEL D. IGNACIO-MANALO, MILFA D. IGNACIO-MANALO AND FAUSTINO D. IGNACIO v. HOME BANKERS SAVINGS AND TRUST COMPANY, SPOUSES PHILLIP AND THELMA RODRIGUEZ, CATHERINE, REYNOLD & JEANETTE, all surnamed ZUNIGA G.R. No. 177783, January 23, 2013 Facts: Petitioner Faustino Ignacio obtained a P500,000 loan from respondent Home Bankers Savings and Trust Company. As security for the loan, petitioner mortgaged two parcels of land in favor of respondent. The parcels of land were subsequently foreclosed after petitioner defaulted in the payment of the loan and title to the properties were consolidated in favor of respondent as the highest bidder and for failure of petitioner to redeem the foreclosed property within one year. After petitioner offered to repurchase the parcels of land, respondent favorably considered the same and executed a contract of repurchase subject to the following terms and conditions: 1. Total Selling Price: 2. Downpayment: 3. Balance:

P950,000 P150,000 P800,000, payable as follows: (a) 1st Installment: P266,667 (on or before May 31, '84) nd (b) 2 Installment: P266,667 (on or before Sept. 31, '84) (c) 3rd Installment: P266,666 (on or before Jan. 30, '85)

Petitioner upon receipt of the contract of repurchase wrote therein the following notations: 1. Repurchase price: 2. Balance:

P900,000, payable as follows: (a) 1st Installment: P150,000 (b) 2nd Installment: P150,000 Payable depending on petitioner’s financial position

Issue: Whether or not the contract for the repurchase was perfected between petitioner and respondent. Held: No. Petitioner's acceptance of the respondent bank's terms and conditions for the repurchase of the foreclosed properties was not absolute. Petitioner set a different repurchase price and also modified the terms of payment. The qualified acceptance by petitioner constituted a counter-proposal which must be accepted by respondent bank. However, there was no evidence of any document or writing showing the conformity of respondent bank's officers to this counter-proposal. In the absence of conformity or acceptance by properly authorized bank officers of petitioner's counter-proposal, no perfected repurchase contract was perfected.


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Contracts are perfected by mere consent, which is manifested by the meeting of the offer and the acceptance upon the thing and the cause which are to constitute the contract. If the acceptance of the offer was not absolute, such acceptance is insufficient to generate consent that would perfect 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. The acceptance must be identical in all respects with that of the offer so as to produce consent or meeting of the minds. While it is impossible to expect the acceptance to echo every nuance of the offer, it is imperative that it assents to those points in the offer which, under the operative facts of each contract, are not only material but motivating as well. Anything short of that level of mutuality produces not a contract but a mere counter-offer awaiting acceptance.


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Re: Contracts (Stages of a Contract) ROBERN DEVELOPMENT CORPORATION and RODOLFO M. BERNARDO, JR., v. PEOPLE'S LANDLESS ASSOCIATION represented by FLORIDA RAMOS and NARDO LABORA. G.R. No. 173622, March 11, 2013 Facts: Informal settlers, who were members of the People's Landless Association (PELA) began constructing their houses in a parcel of land owned by Al-Amanah Islamic Development Bank of the Philippines (Al-Amanah). Al-Amanah demanded that the informal settlers desist from any further construction unless they purchase the land. The informal settlers together with the PELA sent a letter to Al-Amanah offering to purchase the lot for P300,000. Upon receipt of the letter, Al-Amanah made the following annotation in the lower portion: “Note: Subject offer has been acknowledged/received but processing to take effect upon putting up of the partial amt. of P150,000.00 on or before April 15, 1993.” PELA deposited P150,000 as downpayment for the land, while its members remained in the property and continued introducing improvements therein. Subsequently, Al-Amanah informed the PELA that its offer to buy the land had been disapproved since the price offered by the PELA was way below the selling price of P500 per square meter. The land was later sold to petitioner Robern Development Corporation which prompted the PELA to file a suit for Annulment and Cancellation of the Deed of Sale. Issue: Whether or not there was a perfected contract of sale between PELA and Al-Amanah. Held: No. There is no perfected contract of sale between PELA and Al-Amanah for want of consent and agreement on the price. For a contract of sale to be valid, all of the following essential elements must concur: (a) consent or meeting of the minds; (b) determinate subject matter; and (c) price certain in money or its equivalent. In the case at bar, there was no proof of a perfected contract of sale between Al-Amanah and PELA as to any agreement on the price. Furthermore, no consent, whether express or implied, was given. Al-Amanah never signified its approval or acceptance of the PELA’s offer. The annotation made in the letter containing the PELA’s offer cannot be construed as an acceptance of the same. The annotation simply acknowledged receipt of PELA’s letter-offer. Furthermore, by ‘processing,’ AlAmanah only meant that it will ‘act on the offer’.


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Contracts undergo three stages: a) negotiation which begins from the time the prospective contracting parties indicate interest in the contract and ends at the moment of their agreement; b) perfection or birth, which takes place when the parties agree upon all the essential elements of the contract; and c) consummation, which occurs when the parties fulfill or perform the terms agreed upon, culminating in the extinguishment thereof. The transaction between Al-Amanah and PELA remained in the negotiation stage. The offer never materialized into a perfected sale, for no oral or documentary evidence categorically proves that AlAmanah expressed amenability to the offered P300,000 purchase price.


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Re: Contracts (Basic Principles of a Contract: Freedom or Autonomy to Stipulate) SPOUSES FERNANDO and ANGELINA EDRALIN, v. PHILIPPINE VETERANS BANK G.R. No. 168523, March 9, 2011 Facts: Petitioner spouses Fernando and Angelina Edralin obtained a P270,000 loan from respondent Philippine Veterans Bank (Veterans Bank). As security for the loan, petitioners executed a Real Estate Mortgage (REM) in favor of Veterans Bank over several parcels of land. For failure to pay the obligation, Veterans Bank filed a Petition for Extrajudicial Foreclosure of the Real Estate Mortgage. A Certificate of Sale was issued in favor of Veterans Bank as the highest bidder, and upon petitioners’ failure to redeem the properties during the one-year period provided under Act No. 3135, Veterans Bank acquired absolute ownership over the same. Despite the foregoing, petitioners failed to vacate and surrender possession of the subject property prompting Veterans Bank to file a petition for the issuance of a writ of possession. In its decision, the RTC denied the petition on the ground that Veterans Bank, under paragraph “(d)” of the REM, agreed to take possession of petitioners’ property without judicial intervention which, in effect, amounted to a contracting away of Veteran Bank’s right to avail of the remedy of extrajudicial foreclosure. Thus, to grant the writ of possession would amount to a violation of the contractual agreement of the parties. Veterans Bank, on the other hand, argued that it had not contracted away its right to extrajudicially foreclose the properties as evidenced by paragraph “(c)” of the REM wherein it expressly reserved the right to avail of extrajudicial foreclosure under Section 7 of Act No. 3135 in addition to other remedies available. Issue: Whether or not the remedy of extrajudicial foreclosure is available to Veterans Bank. Held: Yes. The contractual provision in paragraph (d) to immediately take possession of the mortgaged property without need of judicial intervention is distinct from the right to avail of extrajudicial foreclosure under Section 7 of Act No. 3135, which was expressly reserved by Veterans Bank in paragraph (c) of the REM. The fact that the two paragraphs do not negate each other is evidenced by the qualifying phrase "in addition to the remedies herein stipulated" found in paragraph (c). The availability of extra-judicial foreclosure to a mortgagee depends upon the agreement of the contracting parties. In the case at bar, paragraph (c) of the REM granted Veterans Bank the special power as attorney-in-fact of the petitioners to perform all acts necessary for the purpose of extrajudicial foreclosure under Act No. 3135. Thus, there is no obstacle preventing Veterans Bank from availing itself of the remedy of extrajudicial foreclosure.


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Re: Contracts (Basic Principles of a Contract: Freedom or Autonomy to Stipulate) P.L. UY REALTY CORPORATION, v. ALS MANAGEMENT AND DEVELOPMENT CORPORATION and ANTONIO S. LITONJUA G.R. No. 166462. October 24, 2012 Facts: P.L. Uy Realty Corporation (PLU) sold to ALS Management and Development Corporation (ALS) a 5.4 hectare parcel of land for P8,166,705 under the following terms and conditions: (a) that PLU shall undertake to remove the informal settlers from the property; (b) that ALS shall be authorized to withhold the first instalment unless and until PLU complies its undertaking to remove the informal settlers; and (c) that in the event the informal settlers would refuse to vacate the property despite the amicable payments being offered, all payments made including the downpayment, the costs of improvements introduced by ALS, and damages suffered by ALS, shall be refunded by PLU. Upon execution of the contract, ALS made the initial downpayment of P500,000 and paid the first instalment due. However, ALS refused to pay the second instalment despite demand claiming that the installment payments for the balance of the purchase price are not yet due and demandable, as the removal of the informal settlers, a condition precedent for such payments to be demandable, is still to be completed. After an ocular inspection conducted by the court, it found that 1½ hectares of the property was still being occupied by informal settlers. PLU, on the other hand, proceeded to foreclose the mortgage alleging that it had entered into an oral agreement with ALS whereby the latter agreed to take over the task of ejecting the squatters/occupants from the property. Issue: Whether or not the payment of the installments has become due and demandable. Held: No. The removal of the informal settlers on the property is still a subsisting and valid condition. Thus, the payment of the installments has not yet become due and demandable as the suspensive condition – the ejection of the informal settlers on the property – has not yet occurred. Further, even if ALS has taken up the obligation to eject the informal settlers, its inaction cannot be deemed as constructive fulfillment of the suspensive condition. The court reasoned that it is only when the debtor prevents the fulfillment of the condition that constructive fulfillment can be concluded, citing Article 1186 of the Civil Code. And inasmuch as PLU has failed to demand the removal of the informal settlers from the property, ALS cannot be deemed as in default vis-à-vis its obligation to remove the informal settlers. Art. 1306 of the Civil Code guarantees the freedom of parties to stipulate the terms of their contract provided that they are not contrary to law, morals, good customs, public order, or public policy.


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Thus, when the provisions of a contract are valid, the parties are bound by such terms under the principle that a contract is the law between the parties. In the case at bar, both parties knew for a fact that the property subject of their contract was occupied by informal settlers, whose eviction would entail court actions that in turn, would require some amount of time. They also knew that the length of time that would take to conclude such court actions was not within their power to determine. Despite such knowledge, both parties still agreed to the stipulation that the payment of the balance of the purchase price would be deferred until the informal settlers are ejected.


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Re: Contracts (Basic Principles of a Contract: Freedom or Autonomy to Stipulate) STAR TWO (SPV-AMC), INC., v. PAPER CITY CORPORATION OF THE PHILIPPINES G.R. No. 169211, March 6, 2013 Facts: Paper City Corporation (Paper City), which had obtained several loans from Rizal Commercial Banking Corporation (RCBC), entered into a Mortgage Trust Indenture (MTI) with the latter. The loans acquired by Paper City were secured by Deeds of Real Estate Mortgage and additional real and personal properties as described under Annexes “A” and “B” of the MTI. The MTI was amended several times for the additional loans that Paper City obtained but the same still included as part of the mortgaged properties by way of a first mortgage the various machineries and equipment located in and bolted to and/or forming part of buildings. When Paper City failed to meet its obligations, RCBC foreclosed the lands including all improvements thereon. A Certificate of Sale was then issued in favor of RCBC as the highest bidder. Paper City, on the other hand, filed a complaint alleging that the extra-judicial sale of the properties was null and void. It likewise filed a Manifestation with Motion to Remove and/or Dispose Machinery reasoning that the machineries located inside the foreclosed land and building were deteriorating. It posited that since the machineries were not included in the foreclosure of the real estate mortgage, it is appropriate that it be removed from the building and sold to a third party. The RTC, however, ruled that the machineries and equipment were included under Annexes “A” and “B” and form part of the MTI as well as its subsequent amendments. Further, the machineries and equipment were covered by the Certificate of Sale issued as a consequence of foreclosure, the certificate stating that the properties described therein with improvements thereon were sold to RCBC at public auction. Issue: Whether or not the Mortgage Trust Indenture (MTI), as well as the subsequent supplementary amendments, included in its coverage of mortgaged properties the subject machineries and equipment. Held: Yes. The contracting parties may establish any agreement, term, and condition they may deem advisable, provided they are not contrary to law, morals or public policy. Paper City and RCBC had stipulated that the loans obtained by Paper City were to be secured by several parcels of land including the buildings and existing improvements thereon as well as the machineries and equipment which were described and listed under Annexes “A” and “B” of the MTI.


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Furthermore, the plain language and literal interpretation of the MTI must be applied. Paper City and RCBC had intended that the machineries and equipment enumerated in Annexes "A" and "B" were to be included within the coverage of the mortgaged properties. Obviously, with the continued increase in the amount of the loan, Paper City had to offer all valuable properties acceptable to the creditor banks.


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Re: Contracts (Obligatory Force and Compliance in Good Faith) CONSOLIDATED INDUSTRIAL GASES, INC, v. ALABANG MEDICAL CENTER G.R. No. 181983, November 13, 2013 Facts: CIGI is a domestic corporation engaged in the business of selling industrial gases and installing centralized medical and vacuum pipeline system. Respondent AMC, is a domestic corporation operating a hospital business. CIGI, as contractor and AMC, as owner, entered into a contract whereby the former bound itself to provide labor and materials for the installation of a medical gas pipeline system for the first, second and third floors (Phase 1 installation project) of the hospital for the contract price of P9,856,725 which AMC duly paid in full. The legal controversy arose after the parties entered into another agreement, this time for the continuation of the centralized medical oxygen and vacuum pipeline system in the hospital’s fourth & fifth floors (Phase 2 installation project) at the cost of P2,267,344.42. This second contract followed the same terms and conditions of the contract for the Phase 1 installation project. CIGI commenced installation works for Phase 2 while AMC paid the partial amount of P1M with the agreement that the balance shall be paid through progress billing and within 15 days from the date of receipt of the original invoice sent by CIGI. Issue: Whether or not CIGI’s demand for payment upon AMC is proper Held: The subject installation contracts bear the features of reciprocal obligations. Reciprocal obligations are those which arise from the same cause, and in which each party is a debtor and a creditor of the other, such that the obligation of one is dependent upon the obligation of the other. They are to be performed simultaneously, so that the performance of one is conditioned upon the simultaneous fulfillment of the other. In reciprocal obligations, neither party incurs in delay if the other does not comply or is not ready to comply in a proper manner with what is incumbent upon him. From the moment one of the parties fulfills his obligation, delay by the other begins. The Court finds that CIGI did not faithfully complete its prestations and hence, its demand for payment cannot prosper based on the following grounds: (a) under the two installation contracts, CIGI was bound to perform more prestations than merely supplying labor and materials; and (b) CIGI failed to prove by substantial evidence that it requested AMC for electrical facilities as such, its failure to conduct a test run and orientation/seminar is unjustified. From the foregoing, it is clear that AMC’s obligation to pay and CIGI’s right to demand the unpaid balance for the Phase 2 installation project have not yet accrued. For having failed to perform its correlative obligation to AMC under their reciprocal contract, CIGI cannot unilaterally demand for the payment of the remaining balance by simply sending an invoice and billing statement to the former. Its right to demand for and collect payment will only arise upon its completion of ALL its


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prestations under the subject contracts. Otherwise, AMC will be effectively forced to accept an incomplete performance contrary to Article 1248 of the Civil Code which states that unless there is an express stipulation to that effect, the creditor cannot be compelled partially to receive the prestations in which the obligation consists. Considering that AMC’s obligation to pay the balance of the contract price did not accrue, the stipulated interest thereon also did not begin to run. In reciprocal obligations, before a party can demand the performance of the obligation of the other, the former must also perform its own obligation. It is hornbook doctrine in the law on contracts that the parties are bound by the stipulations, clauses, terms and conditions they have agreed to provided that such stipulations, clauses, terms and conditions are not contrary to law, morals, public order or public policy. In the present case, there is no legal proscription infringed by the terms and conditions of the contracts between AMC and CIGI. As such, those said terms and conditions must be held to be the law between them and the parties are bound to fulfill what has been stipulated. The Court, however, finds that AMC has no legal basis to demand the rescission of the installation contracts. Rescission of a contract will not be permitted for a slight or casual breach, but only for such substantial and fundamental violations as would defeat the very object of the parties in making the agreement. In view of the fact that rescission is not permissible, the installation contracts of the parties remain; the terms thereof must be duly fulfilled.


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Re: Contracts (Obligatory Force and Compliance in Good Faith) THE METROPOLITAN BANK v. ROSALES AND YO YUK TO G.R. No. 183204, January 13, 2014 Facts: Metrobank is a domestic banking corporation duly organized and existing under the laws of the Philippines. Respondent Rosales is the owner of China Golden Bridge Travel Services, a travel agency. Respondent Yo Yuk To is the mother of respondent Rosales. In 2000, respondents opened a Joint Peso Account with petitioner’s Pritil-Tondo Branch. Respondent Rosales’ version of the events that transpired is as follows: -February 6, 2003: she received a call from Gutierrez informing her that Liu Chiu Fang was at the bank to close her account. At noon of the same day, respondent Rosales went to the bank to make a transaction. While she was transacting with the teller, she caught a glimpse of a woman seated at the desk of the Branch Operating Officer, Melinda Perez. After completing her transaction, respondent Rosales approached Perez who informed her that Liu Chiu Fang had closed her account and had already left. Perez then gave a copy of the Withdrawal Clearance issued by the PLRA to respondent Rosales. -June 16, 2003: respondent Rosales received a call from Liu Chiu Fang inquiring about the extension of her PLRA Visa and her dollar account. It was only then that Liu Chiu Fang found out that her account had been closed without her knowledge. Respondent Rosales then went to the bank to inform Gutierrez and Perez of the unauthorized withdrawal. -June 23, 2003, respondent Rosales and Liu Chiu Fang went to the PLRA Office, where they were informed that the Withdrawal Clearance was issued on the basis of a Special Power of Attorney (SPA) executed by Liu Chiu Fang in favor of a certain Richard So. Liu Chiu Fang, however, denied executing the SPA. The following day, respondent Rosales, Liu Chiu Fang, Gutierrez, and Perez met at the PLRA Office to discuss the unauthorized withdrawal. During the conference, the bank officers assured Liu Chiu Fang that the money would be returned to her. -December 15, 2003, the Office of the City Prosecutor of Manila issued a Resolution dismissing the criminal case for lack of probable cause. Unfazed, petitioner moved for reconsideration. -September 10, 2004, respondents filed before the Regional Trial Court (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. No explanation, however, was given by petitioner as to why it issued the "Hold Out" order. Issue: Whether petitioner breached its contract with respondents


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Held: The Petition is bereft of merit. Petitioner’s reliance on the "Hold Out" clause is misplaced. Bank deposits, which are in the nature of a simple loan or mutuum, must be paid upon demand by the depositor. 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, quasicontracts, delict, and quasi-delict. In this case, petitioner failed to show that respondents have an obligation to it under any law, contract, quasi-contract, delict, or quasi-delict. And although a criminal case was filed by petitioner against respondent Rosales, this is not enough reason for petitioner to issue a "Hold Out" order as the case is still pending and no final judgment of conviction has been rendered against respondent Rosales. In fact, it is significant to note that at the time petitioner issued the "Hold Out" order, the criminal complaint had not yet been filed. Thus, 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. In closing, it must be stressed that while we recognize that petitioner has the right to protect itself from fraud or suspicions of fraud, the exercise of his right should be done within the bounds of the law and in accordance with due process, and not in bad faith or in a wanton disregard of its contractual obligation to respondents


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Re: Contracts (Mutuality) ANICETO SALUDO v. SECURITY BANK GR No. 184041 October 13, 2010 Facts: On 30 May 1996, Booklight was extended an omnibus line credit facility by SBC in the amount of P10M. Said loan was covered by a Credit Agreement and a Continuing Suretyship with petitioner as surety, both documents dated 1 August 1996, to secure full payment and performance of the obligations arising from the credit accommodation. Booklight drew several availments of the approved credit facility from 1996 to 1997 and faithfully complied with the terms of the loan. On 30 October 1997, SBC approved the renewal of credit facility of Booklight in the amount of P10M under the prevailing security lending rate. For failure to settle the loans upon maturity, demands were made on Booklight and petitioner for the payment of the obligation but the duo failed to pay. The dispute is on the coverage by the Continuing Suretyship of the loan contracted under the second credit facility. Issue: Whether or not petitioner should be held solidarily liable for the second credit facility extended to Booklight Held: Yes. Under the Continuing Suretyship, petitioner undertook to guarantee the following obligations: the obligations of the Debtor arising from all credit accommodations extended by the Bank to the Debtor, including increases, renewals, roll-overs, extensions, restructurings, amendments or novations thereof, as well as (i) all obligations of the Debtor presently or hereafter owing to the Bank, as appears in the accounts, books and records of the Bank, whether direct or indirect, and (ii) any and all expenses which the Bank may incur in enforcing any of its rights, powers and remedies under the Credit Instruments. The Court emphasized that by its nature, a continuing suretyship covers current and future loans, provided that, with respect to future loan transactions, they are within the description or contemplation of the contract of guaranty. Respondent, as last resort, harps on the novation of the first credit facility to exculpate itself from liability from the second credit facility. There is no novation to speak of. It is the first credit facility that expired and not the Credit Agreement. There was a second loan pursuant to the same credit agreement. The terms and conditions under the Credit Agreement continue to apply and the Continuing Suretyship continues to guarantee the Credit Agreement.


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The lameness of petitioner’s stand is pointed up by his attempt to escape from liability by labelling the Continuing Suretyship as a contract of adhesion. A contract of adhesion presupposes that the party adhering to the contract is a weaker party. That cannot be said of petitioner. He is a lawyer. He is deemed knowledgeable of the legal implications of the contract that he is signing. It must be borne in mind, however, that contracts of adhesion are not invalid per se. Contracts of adhesion, where one party imposes a ready-made form of contract on the other, are not entirely prohibited. The one who adheres to the contract is, in reality, free to reject it entirely; if he adheres, he gives his consent.


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Re: Contracts (Relativity or Privity) ALLAN C. GO v. MORTIMER CORDERO GR No. 164703, May 4, 2010 Facts: Cordero, VP of Pamana Marketing Corporation ventured into the business of marketing inter-island passenger vessels. He came to meet Tony Robinson, an Australian national based in Brisbane, Australia, who is the Managing Director of AFFA. Robinson signed documents appointing Cordero as the exclusive distributor of AFFA catamaran and other fast ferry vessels in the Philippines. As such exclusive distributor, Cordero offered for sale to prospective buyers the 25-meter Aluminium Passenger catamaran known as the SEACAT 25. After negotiations with Landicho and Tecson (lawyers of Allan C. Go who is the owner/operator of ACG Express Liner), Cordero was able to close a deal for the purchase of 2 SEACAT 25. Per agreement between Robinson and Cordero, the latter shall receive commissions totalling 22.43% of the purchase price, from the sale of each vessel. However, Cordero later discovered that Go was dealing directly with Robinson when he was informed by Dennis Padua of Wartsila Philippines that Go was canvassing for a second catamaran engine from their company which provided the ship engine for the first SEACAT 25. Cordero immediately flew to Brisbane to clarify matters with Robinson, only to find out that Go and Landicho were already in Brisbane negotiating for the sale of the second SEACAT 25. Despite repeated follow-up calls, no explanation was given by Robinson, Go, Landicho and Tecson. Cordero informed Go that such act of dealing directly with Robinson violated his exclusive distributorship. Having been apprised of Cordero’s demand letter, Thyne & Macartney, the lawyer of AFFA and Robinson, faxed a letter to ACCRA law firm asserting that the appointment of Cordero as AFFA’s distributor was for the purpose of 1 transaction only, that is, the purchase of a high-speed catamaran vessel by ACG Express Liner in August 1997. Issue: Whether petitioner Cordero can sue the respondents for breach of contract Held: The right to perform an exclusive distributorship agreement and to reap the profits resulting from such performance are proprietary rights which a party may protect. Thus, injunction is the appropriate remedy to prevent a wrongful interference with contracts by strangers to such contracts where the legal remedy is insufficient and the resulting injury is irreparable. While it is true that a third person cannot possibly be sued for breach of contract because only parties can breach contractual provisions, a contracting party may sue a third person not for breach but for inducing another to commit such breach.


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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. The presence of the first and second elements is not disputed. Through the letters issued by Robinson attesting that Cordero is the exclusive distributor of AFFA in the Philippines, respondents were clearly aware of the contract between Cordero and AFFA represented by Robinson. As to the third element: A duty which the law of torts is concerned with is respect for the property of others, and a cause of action ex delicto may be predicated upon an unlawful interference by one person of the enjoyment by the other of his private property. This may pertain to a situation where a third person induces a party to renege on or violate his undertaking under a contract. Malice connotes ill will or spite, and speaks not in response to duty. It implies an intention to do ulterior and unjustifiable harm. Malice is bad faith or bad motive. To sustain a case for tortuous interference, the defendant must have acted with malice or must have been driven by purely impure reasons to injure the plaintiff; in other words, his act of interference cannot be justified. The word “induce” refers to situations where a person causes another to choose one course of conduct by persuasion or intimidation. Respondents clearly acted in bad faith in bypassing Cordero as they completed the remaining payments to AFFA without advising him. As a result of respondents’ actuations, Cordero incurred losses. Following the pronouncement in Gilchrist v. Cuddy, such act may not be deemed malicious if impelled by a proper business interest rather than in wrongful motives. The attendant circumstances, however, demonstrated that respondents transgressed the bounds of permissible financial interest to benefit themselves at the expense of Cordero. Cordero was practically excluded from the transaction when Go, Robinson, Tecson and Landicho suddenly ceased communicating with him, without giving him any explanation. Conformably with Article 2194 of the Civil Code, the responsibility of two or more persons who are liable for the quasi-delict is solidary. Obligations arising from tort are, by their nature, always solidary. They are each liable as principals, to the same extent and in the same manner as if they had performed the wrongful act themselves. Joint tortfeasors are jointly and severally liable for the tort which they commit. The rule is that the defendant found guilty of interference with contractual relations cannot be held liable for more than the amount for which the party who was inducted to break the contract can be held liable. Respondents Go, Landicho and Tecson were therefore correctly held liable for the balance of petitioner Cordero’s commission from the sale of the first SEACAT 25.


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Re: Contracts (Relativity or Privity) ANALITA P. INOCENCIO v. HOSPICIO DE SAN JOSE G.R. No. 201787, September 25, 2013 Facts: On 1 March 1946, HDSJ leased a parcel of land located in Pasay City to German Inocencio. The lease contract was effective for a period of 1 year, and was renewed for one-year periods several times. The last written contract was executed on 31 May 1951. German constructed two buildings on the parcel of land which he subleased. He also designated his son Ramon to administer the said property. German passed away in 1997. Evidence-on-record shows that Ramon did not notify HDSJ of German’s death. After German’s passing, Ramon collected the rentals from the sublessees, and paid the rentals to HDSJ, and the taxes on the property. On 1 March 2001, HDSJ’s property administrator notified Ramon that HDSJ is terminating the lease contract effective 31 March 2001. Thereafter, HDSJ refused to accept Ramon’s tender of payment of rentals. HDSJ also entered into lease contracts with several lessees. HDSJ filed a Complaint for unlawful detainer against Ramon and his sublessees. Ramon claimed that HDSJ interfered with the contractual relations between him and his sublessees. Issue: Whether or not there was tortious interference on the part of HDSJ Held: The Court held that the sublease contracts executed by Ramon were valid; it also found that HDSJ did not commit tortious interference. Lease contracts, by their nature, are not personal. The general rule, therefore, is lease contracts survive the death of the parties and continue to bind the heirs except if the contract states otherwise. The general rule, therefore, is that heirs are bound by contracts entered into by their predecessorsin-interest except when the rights and obligations arising therefrom are not transmissible by (1) their nature, (2) stipulation or (3) provision of law. The contract is the law between the parties. 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 successors or 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. What the contract seeks to avoid is for the lessee to substitute a third party in place of the lessee without the lessor’s consent. In any case, HDSJ in a letter also acknowledged that Ramon is its month-tomonth lessee. Thus, the death of German did not terminate the lease contract executed with HDSJ,


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but instead continued with Ramon as the lessee. Ramon had a right to sublease the premises since the lease contract did not contain any stipulation forbidding subleasing. Tortious interference has the following elements: 1. Existence of a valid contract; 2. Knowledge on the part of the third person of the existence of the contract; and 3. Interference of the third person without legal justification or excuse. The facts of the instant case show that there were valid sublease contracts which were known to HDSJ. However, we find that the third element is lacking in this case. In So Ping Bun v. Court of Appeals, we held that there was no tortious interference if the intrusion was impelled by purely economic motives. The evidence shows that HDSJ entered into agreements with Ramon’s former sublessees for purely economic reasons (payment of rentals). HDSJ had a right to collect the rentals from the sublessees upon termination of the lease contract. It does not appear that HDSJ was motivated by spite or ill will towards the Inocencios.


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Re: Contracts (Vices of Consent: Mistake or Error) CALILAP-ASMERON v. DBP GR No. 157330, November 23, 2011 Facts: The petitioner and her brother Celedonio Calilap constituted a real estate mortgage over two parcels of land covered by T-164117 and T-160929, both of the Registry of Deeds of Bulacan, to secure the performance of their loan obligation with respondent DBP. With the principal obligation being ultimately unpaid, DBP foreclosed the mortgage. The mortgaged parcels of land were then sold to DBP as the highest bidder. The one-year redemption period expired on September 1, 1981. DBP insisted that the petitioner’s real intention had been to repurchase the two lots on installment basis. She manifested her real intention to that effect in writing through her letter dated September 14, 1981. The petitioner also sent a telegram whereby she similarly expressed to DBP her interest in reacquiring the properties. On November 16, 1981, DBP received another telegram from her, requesting DBP to put the bidding of the properties on hold. A year later, she sent a letter dated August 31, 1982 to reiterate her intention to repurchase the two properties and to offer to deposit P55,500.00 as initial payment. The petitioner subsequently made the downpayment and DBP formally accepted the offer through its letter, stating therein the terms and conditions. Said terms and conditions, which were later embodied in the deed of conditional sale executed on January 21, 1983, included one that bound her to pay the first amortization of P7,304.15 three months from the execution of the deed, and the remaining amortizations to be due and payable every three months thereafter. DBP presented the duplicate copies of the receipts indicating her timely payment for the first quarterly amortization; however, she incurred delays in her subsequent installments. She made her last payment amounting to P4,500.00 on March 12, 1985, leaving five quarterly amortizations unpaid. The petitioner sent a handwritten letter requesting DBP to put on hold any plans of selling the subject property. DBP replied demanding payment of the petitioner’s remaining obligation of P121,013.75 in cash, otherwise, it would be constrained to sell the property. She responded via telegram; it was followed by a handwritten letter stating her willingness to pay 10% of her outstanding obligations. DBP demanded the immediate remittance of the promised amount via telegram. When she did not pay the six quarterly amortizations, DBP rescinded the deed of conditional sale and applied for a writ of possession. Its application for the writ of possession was granted on November 18, 1986. Issue: 1. Whether petitioner’s consent was vitiated 2. Whether DBP validly exercised its right to rescind the deed of conditional sale


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Held: Article 1332 of the Civil Code does not apply to the petitioner. It is quite notable that the petitioner did not specify which of the stipulations of the deed of conditional sale she had difficulty or deficiency in understanding. Her generalized averment of having been misled should, therefore, be brushed aside as nothing but a last attempt to salvage a hopeless position. The stipulations of the deed of conditional sale were simply worded and plain enough for even one with a slight knowledge of English to easily understand. The petitioner was not illiterate. She had appeared to the trial court to be educated, its cogent observation of her as “lettered” being based on how she had composed her correspondences to DBP. Her testimony also revealed that she had no difficulty understanding English. Nor was the petitioner’s ignorance of the true nature of the deed of conditional sale probably true. By her own admission, she had asked the bank officer why she had been made to sign a deed of conditional sale instead of an absolute sale, which in itself reflected her full discernment of the matters subject of her dealings with DBP. As to the right of DBP to rescission: Firstly, a contract is the law between the parties. Absent any allegation and proof that the contract is contrary to law, morals, good customs, public order or public policy, it should be complied with in good faith. As such, the petitioner, being one of the parties in the deed of conditional sale, could not be allowed to conveniently renounce the stipulations that she had knowingly and freely agreed to. Secondly, the issue of whether or not DBP validly exercised the right to rescind is a factual one that the RTC and the CA already passed upon and determined. The Court sustains the exercise by DBP of its right to rescind following the petitioner’s failure to pay her six monthly amortizations; and after her being given due notice of the notarial rescission. As a consequence of the valid rescission, DBP had the legal right to thereafter sell the property to a person other than the petitioner. And, thirdly, Article 1191 of the Civil Code did not prohibit the parties from entering into an agreement whereby a violation of the terms of the contract would result to its cancellation. There is nothing in this law which prohibits the parties from entering into an agreement that a violation of the terms of the contract would cause its cancellation even without court intervention. The rationale for the foregoing is that in contracts providing for automatic revocation, judicial intervention is necessary not for purposes of obtaining a judicial declaration rescinding a contract already deemed rescinded by virtue of an agreement providing for rescission even without judicial intervention, but in order to determine whether or not the rescission was proper. Where such propriety is sustained, the decision of the court will be merely declaratory of the revocation, but it is not itself the revocatory act.


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Re: Contracts (Vices of Consent: Fraud or Deceit) FONTANA RESORT AND COUNTRY CLUB v. SPOUSES TAN G.R. No. 154670, January 30, 2012 Facts: Respondent spouses Tan bought from petitioner two class “D” shares of stock in Fontana Resort and Country Club, Inc. worth P387,300.00, enticed by the promises of petitioners’ sales agents that petitioner would construct a park with first-class leisure facilities in Clark Field, Pampanga, to be called Fontana Leisure Park (FLP); that FLP would be fully developed and operational by the first quarter of 1998; and that FRCCI class “D” shareholders would be admitted to one membership in the country club, which entitled them to use park facilities and stay at a two-bedroom villa for “five (5) ordinary weekdays and two (2) weekends every year for free.” Two years later, respondents filed before the SEC a Complaint for refund of the P387,300.00 they spent to purchase FRCCI shares of stock from petitioners. Respondents alleged that they had been deceived into buying FRCCI shares because of petitioners’ fraudulent misrepresentations. Construction of FLP turned out to be still unfinished and the policies, rules, and regulations of the country club were obscure. Issue: Whether or not there was fraud or substantial breach in the contract so as to warrant annulment or rescission of the contract. Held: Under Article 1390, the following contracts are voidable or annullable, even though there may have been no damage to the contracting parties: 1. Those where one of the parties is incapable of giving consent to a contract; 2. Those where the consent is vitiated by mistake, violence, intimidation, undue influence or fraud. These contracts are binding, unless they are annulled by a proper action in court. They are susceptible of ratification. There is fraud when one party is induced by the other to enter into a contract, through and solely because of the latter’s insidious words or machinations. But not all forms of fraud can vitiate consent. Under Article 1330, fraud refers to dolo causante or causal fraud, in which, prior to or simultaneous with the execution of a contract, one party secures the consent of the other by using deception, without which such consent would not have been given. Simply stated, the fraud must be the determining cause of the contract, or must have caused the consent to be given.


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The general rule is that he who alleges fraud or mistake in a transaction must substantiate his allegation as the presumption is that a person takes ordinary care for his concerns and that private dealings have been entered into fairly and regularly. In this case, respondents have miserably failed to prove how petitioners employed fraud to induce respondents to buy FRCCI shares. It can only be expected that petitioners presented the FLP and the country club in the most positive light in order to attract investor-members. There is no showing that in their sales talk to respondents, petitioners actually used insidious words or machinations, without which, respondents would not have bought the FRCCI shares. Respondents appear to be literate and of above-average means, who may not be so easily deceived into parting with a substantial amount of money. Similarly, we find no evidence on record that petitioners defaulted on any of their obligations that would have called for the rescission of the sale of the FRCCI shares to respondents. Rescission of a contract will not be permitted for a slight or casual breach, but only such substantial and fundamental breach as would defeat the very object of the parties in making the agreement. In the same case as fraud, the burden of establishing the default of petitioner’s lies upon respondents, but respondents once more failed to discharge the same. Respondents were unable to establish by preponderance of evidence that they are entitled to said annulment or rescission.


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Re: Contracts (Vices of Consent: Fraud or Deceit) VILORIA v. CONTINENTAL AIRLINES GR No. 188288, January 16, 2012 Facts: While in the United States, Fernando purchased for himself and his wife, Lourdes, 2 round trip airline tickets from San Diego, California to Newark, New Jersey on board Continental Airlines. Fernando purchased the tickets at US$400.00 each from a travel agency called "Holiday Travel" and was attended to by a certain Margaret Mager (Mager). According to Spouses Viloria, Fernando agreed to buy the said tickets after Mager informed them that there were no available seats at Amtrak. Per the tickets, Spouses Viloria were scheduled to leave for Newark on August 13, 1997 and return to San Diego on August 21, 1997. Subsequently, Fernando requested Mager to reschedule their flight to Newark to an earlier date or August 6, 1997. Mager informed him that flights to Newark via Continental Airlines were already fully booked and offered the alternative of a round trip flight via Frontier Air. Since flying with Frontier Air called for a higher fare of US$526.00 per passenger and would mean traveling by night, Fernando opted to request for a refund. Mager, however, denied his request as the subject tickets are non-refundable and the only option that Continental Airlines can offer is the re-issuance of new tickets within one (1) year from the date the subject tickets were issued. Fernando decided to reserve two (2) seats with Frontier Air. As he was having second thoughts on traveling via Frontier Air, Fernando went to the Greyhound Station where he saw an Amtrak station nearby. Fernando made inquiries and was told that there are seats available and he can travel on Amtrak anytime and any day he pleased. Fernando then purchased two (2) tickets for Washington, D.C. From Amtrak, Fernando went to Holiday Travel and confronted Mager with the Amtrak tickets, telling her that she had misled them into buying the Continental Airlines tickets by misrepresenting that Amtrak was already fully booked. Fernando reiterated his demand for a refund but Mager was firm in her position that the subject tickets are non-refundable. Upon returning to the Philippines, Fernando sent a letter to CAI on February 11, 1998, demanding a refund and alleging that Mager had deluded them into purchasing the subject tickets. In a letter dated February 24, 1998, Continental Micronesia informed Fernando that his complaint had been referred to the Customer Refund Services of Continental Airlines at Houston, Texas. In a letter dated March 24, 1998, Continental Micronesia denied Fernando’s request for a refund and advised him that he may take the subject tickets to any Continental ticketing location for the reissuance of new tickets within two (2) years from the date they were issued. Continental Micronesia informed Fernando that the subject tickets may be used as a form of payment for the purchase of another Continental ticket, albeit with a re-issuance fee. On June 17, 1999, Fernando went to Continental’s ticketing office at Ayala Avenue, Makati City to have the subject tickets replaced by a single round trip ticket to Los Angeles, California under his name. Therein, Fernando was informed that Lourdes’ ticket was non-transferable, thus, cannot be


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used for the purchase of a ticket in his favor. He was also informed that a round trip ticket to Los Angeles was US$1,867.40 so he would have to pay what will not be covered by the value of his San Diego to Newark round trip ticket. In a letter dated June 21, 1999, Fernando demanded for the refund of the subject tickets as he no longer wished to have them replaced. In addition to the dubious circumstances under which the subject tickets were issued, Fernando claimed that CAI’s act of charging him with US$1,867.40 for a round trip ticket to Los Angeles, which other airlines priced at US$856.00, and refusal to allow him to use Lourdes’ ticket, breached its undertaking under its March 24, 1998 letter. On September 8, 2000, Spouses Viloria filed a complaint against CAI, praying that CAI be ordered to refund the money they used in the purchase of the subject tickets. Issue: Whether the representation of Mager as to unavailability of seats at Amtrak be considered fraudulent as to vitiate the consent of Spouse Viloria in the purchase of the subject tickets Held: Even on the assumption that CAI may be held liable for the acts of Mager, still Spouses Viloria are not entitled to a refund. Mager’s statement cannot be considered a causal fraud that would justify the annulment of the subject contracts; that would oblige CAI to indemnify Spouses Viloria and return the money they paid for the subject tickets. Article 1390, in relation to Article 1391 of the Civil Code, provides that if the consent of the contracting parties was obtained through fraud, the contract is considered voidable and may be annulled within four (4) years from the time of the discovery of the fraud. Once a contract is annulled, the parties are obliged under Article 1398 of the same Code to restore to each other the things subject matter of the contract, including their fruits and interest. Under Article 1338 of the Civil Code, there is fraud when, through insidious words or machinations of one of the contracting parties, the other is induced to enter into a contract which, without them, he would not have agreed to. In order that fraud may vitiate consent, it must be the causal (dolo causante), not merely the incidental (dolo incidente), inducement to the making of the contract. In Samson v. Court of Appeals causal fraud was defined as “a deception employed by one party prior to or simultaneous to the contract in order to secure the consent of the other. Also, fraud must be serious and its existence must be established by clear and convincing evidence. As ruled by this Court in Sierra v. Hon. Court of Appeals, et al., mere preponderance of evidence is not adequate. 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 Court finds that the fraud alleged by Spouses Viloria has not been satisfactorily established as causal in nature to warrant the annulment of the subject contracts. In fact, Spouses Viloria failed to prove by clear and convincing evidence that Mager’s statement was fraudulent. Specifically, Spouses Viloria failed to prove that (a) there were indeed available seats at Amtrak for a trip to New Jersey


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on August 13, 1997 at the time they spoke with Mager on July 21, 1997; (b) Mager knew about this; and (c) that she purposely informed them otherwise.


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Re: Contracts (Vices of Consent: Fraud or Deceit) ALEJANDRO V. TANKEH v. DEVELOPMENT BANK OF THE PHILIPPINES G.R. No. 171428, November 11, 2013 Facts: Tankeh is the President of Sterling Shipping Lines, Inc. He applied for a $3.5 million loan from DBP for the partial financing of an ocean-going vessel named the M/V Golden Lilac. The loan was approved by respondent DBP. The vessel was acquired on September 29, 1981 for $5.3 million. Respondent corporation Sterling Shipping Lines, Inc. through respondent Ruperto V. Tankeh executed a Deed of Assignment in favor of DBP. Petitioner Alejandro wrote a letter to respondent Ruperto V. Tankeh saying that he was severing all ties and terminating his involvement with Sterling Shipping Lines, Inc. He required that its BOD pass a resolution releasing him from all liabilities, particularly the loan contract with DBP. In addition, petitioner asked that the private respondents notify Development Bank of the Philippines that he had severed his ties with Sterling Shipping Lines, Inc. The accounts of respondent Sterling Shipping Lines, Inc. in the DBP were transferred to public respondent Asset Privatization Trust (APT). Through AO 14, issued by former President Corazon Aquino, assets including loans in favor of Development Bank of the Philippines were ordered to be transferred to the national government. The M/V Sterling Ace was sold in Singapore for $350,000.00 by DBP legal counsel Atty. Prospero N. Nograles. When petitioner came to know of the sale, he wrote respondent DBP to express that the final price was inadequate, and therefore, the transaction was irregular. At this time, petitioner was still bound as a debtor because of the promissory note which petitioner signed in December of 1981. The promissory note subsisted despite Sterling Shipping Lines, Inc.’s assignment of all future earnings of the mortgaged M/V Sterling Ace to DBP. Petitioner filed several Complaints against respondents, praying that the promissory note be declared null and void and that he be absolved from any liability from the mortgage of the vessel and the note in question. In the Complaints, petitioner alleged that respondent Ruperto V. Tankeh, together with Vicente L. Arenas, Jr. and Jose Maria Vargas, had exercised deceit and fraud in causing petitioner to bind himself jointly and severally to pay respondent DBP the amount of the mortgage loan. Although he had been made a stockholder and director of the respondent corporation Sterling Shipping Lines, Inc., petitioner alleged that he had never invested any amount in the corporation and that he had never been an actual member of the BOD. Petitioner further claimed that he had been excluded deliberately from participating in the affairs of the corporation and had never been compensated by Sterling Shipping Lines, Inc. as a director and stockholder. According to petitioner, when Sterling Shipping Lines, Inc. was organized, respondent Ruperto V. Tankeh had promised him that he would become part of the administration staff and oversee company operations. Respondent Ruperto V. Tankeh had also promised petitioner that the latter’s son would be given a position in the company. However, after being designated as vice president, petitioner had not been made an officer and had been alienated from taking part in the respondent corporation.


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Issue: Whether the CA erred in finding that respondent Tankeh did not commit fraud against the petitioner Held: The Court finds that respondent Ruperto acted in a fraudulent manner through the finding of dolo incidente. Under Article 1338 of the Civil Code, there is fraud when, through insidious words or machinations of one of the contracting parties, the other is induced to enter into a contract which, without them, he would not have agreed to. In order that fraud may vitiate consent, it must be the causal (dolo causante), not merely the incidental (dolo incidente), inducement to the making of the contract. In order that fraud may make a contract voidable, it should be serious and should not have been employed by both contracting parties. Incidental fraud only obliges the person employing it to pay damages. The first, or causal fraud referred to in Article 1338, are those deceptions or misrepresentations of a serious character employed by one party and without which the other party would not have entered into the contract. Dolo incidente, or incidental fraud which is referred to in Article 1344, are those which are not serious in character and without which the other party would still have entered into the contract. Dolo causante determines or is the essential cause of the consent, while dolo incidente refers only to some particular or accident of the obligation. The effects of dolo causante are the nullity of the contract and the indemnification of damages, and dolo incidente also obliges the person employing it to pay damages. Under Article 1344, the fraud must be serious to annul or avoid a contract and render it voidable. This fraud or deception must be so material that had it not been present, the defrauded party would not have entered into the contract. However, Article 1344 also provides that if fraud is incidental, it follows that this type of fraud is not serious enough so as to render the original contract voidable. To annul a contract on the basis of dolo causante, the following must happen: First, the deceit must be serious or sufficient to impress and lead an ordinarily prudent person to error. If the allegedly fraudulent actions do not deceive a prudent person, given the circumstances, the deceit here cannot be considered sufficient basis to nullify the contract. In order for the deceit to be considered serious, it is necessary and essential to obtain the consent of the party imputing fraud. Second, the standard of proof required is clear and convincing evidence. This standard of proof is derived from American common law. It is less than proof beyond reasonable doubt (for criminal cases) but greater than preponderance of evidence (for civil cases). Civil cases only require a preponderance of evidence to meet the required burden of proof. However, when fraud is alleged in an ordinary civil case involving contractual relations, an entirely different standard of proof needs to be satisfied.


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There had been no dolo causante committed against the petitioner by Ruperto V. Tankeh. The petitioner had given his consent to become a shareholder of the company without contributing a single peso to pay for the shares of stock given to him by Ruperto V. Tankeh. First, petitioner was fully aware of the financial reverses that Sterling Shipping Lines, Inc. had been undergoing, and he took great pains to release himself from the obligation. Second, his background as a doctor, as a bank organizer, and as a businessman with experience in the textile business and real estate should have apprised him of the irregularity in the contract that he would be undertaking. Finally, the records showed that petitioner had been fully aware of the effect of his signing the promissory note. However, in refusing to allow petitioner to participate in the management of the business, respondent Ruperto V. Tankeh was liable for the commission of incidental fraud. Although there was no fraud that had been undertaken to obtain petitioner’s consent, there was fraud in the performance of the contract. The records showed that petitioner had been unjustly excluded from participating in the management of the affairs of the corporation. This exclusion from the management in the affairs of Sterling Shipping Lines, Inc. constituted fraud incidental to the performance of the obligation.


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Re: Contracts (Object or Subject Matter) LAND BANK OF THE PHILIPPINES, v. EDUARDO M. CACAYURAN G.R. No. 191667, April 17, 2013 Facts: From 2005 to 2006, the Municipality’s Sangguniang Bayan passed certain resolutions to implement a multi-phased plan (Redevelopment Plan) to redevelop the Agoo Public Plazawhere the Imelda Garden and Jose Rizal Monument were situated. To finance phase 1 of the said plan, the SB initially passed Resolution No. 68-2005 on April 19, 2005, authorizing then Mayor EufranioErigue to obtain a loan from Land Bank and incidental thereto, mortgage a 2,323.75 square meter lot situated at the southeastern portion of the Agoo Plaza as collateral. To serve as additional security, it further authorized the assignment of a portion of its internal revenue allotment (IRA) and the monthly income from the proposed project in favor of Land Bank. The foregoing terms were confirmed, approved and ratified on October 4, 2005 through Resolution No. 139-2005. Consequently, on November 21, 2005, Land Bank extended a P4, 000,000.00loan in favor of the Municipality (First Loan), the proceeds of which were used to construct ten (10) kiosks at the northern and southern portions of the Imelda Garden. After completion, these kiosks were rented out. On March 7, 2006, the SB passed Resolution No. 58-2006, approving the construction of a commercial center on the Plaza Lot as part of phase II of the Redevelopment Plan. To finance the project, Mayor Eriguel was again authorized to obtain a loan from Land Bank, posting as well the same securities as that of the First Loan. All previous representations and warranties of Mayor Eriguel related to the negotiation and obtention of the new loan were ratified on September 5, 2006 through Resolution No. 128-2006. In consequence, Land Bank granted a second loan in favor of the Municipality on October 20, 2006 in the principal amount of P28,000,000.00 (Second Loan). Unlike phase 1 of the Redevelopment Plan, the construction of the commercial center at the Agoo Plaza was vehemently objected to by some residents of the Municipality. Led by respondent Eduardo Cacayuran, these residents claimed that the conversion of the Agoo Plaza into a commercial center, as funded by the proceeds from the First and Second Loans, were "highly irregular, violative of the law, and detrimental to public interests, and will result to wanton desecration of the said historical and public park." The foregoing was embodied in a Manifesto, launched through a signature campaign conducted by the residents and Cacayuran. Cacayuran, invoking his right as a taxpayer, filed a Complaint16 against the Implicated Officers and Land Bank, assailing, among others, the validity of the Subject Loans on the ground that the Plaza Lot used as collateral thereof is property of public dominion and therefore, beyond the commerce of man. Issue: Whether or not a property belonging to the public dominion may be an object of contract.


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Held: No. Generally, an ultra vires act is one committed outside the object for which a corporation is created as defined by the law of its organization and therefore beyond the powers conferred upon it by law. There are two (2) types of ultra vires acts. As held in Middletown Policemen's Benevolent Association v. Township of Middletown: There is a distinction between an act utterly beyond the jurisdiction of a municipal corporation and the irregular exercise of a basic power under the legislative grant in matters not in themselves jurisdictional. The former are ultra vires in the primary sense and void; the latter, ultra vires only in a secondary sense which does not preclude ratification or the application of the doctrine of estoppel in the interest of equity and essential justice.In other words, an act which is outside of the municipality’s jurisdiction is considered as a void ultra vires act, while an act attended only by an irregularity but remains within the municipality’s power is considered as an ultra vires act subject to ratification and/or validation. Applying these principles to the case at bar, it is clear that the Subject Loans belong to the first class of ultra vires acts deemed as void. Records disclose that the said loans were executed by the Municipality for the purpose of funding the conversion of the Agoo Plaza into a commercial center pursuant to the Redevelopment Plan. However, the conversion of the said plaza is beyond the Municipality’s jurisdiction considering the property’s nature as one for public use and thereby, forming part of the public dominion. Accordingly, it cannot be the object of appropriation either by the State or by private persons. Nor can it be the subject of lease or any other contractual undertaking. Town plazas are properties of public dominion, to be devoted to public use and to be made available to the public in general. They are outside the commerce of man and cannot be disposed of or even leased by the municipality to private parties. In this relation, Article 1409(1) of the Civil Code provides that a contract whose purpose is contrary to law, morals, good customs, public order or public policy is considered void and as such, creates no rights or obligations or any juridical relations. Consequently, given the unlawful purpose behind the Subject Loans which is to fund the commercialization of the Agoo Plaza pursuant to the Redevelopment Plan, they are considered as ultra vires in the primary sense thus, rendering them void and in effect, non-binding on the Municipality.


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Re: Contracts (Cause or Consideration) EDUARDO M. COJUANGCO, JR., v. REPUBLIC OF THE PHILIPPINES G.R. No. 180705, November 27, 2012 Facts: In 1971, Republic Act No. 6260 was enacted creating the Coconut Investment Company ("CIC") to administer the Coconut Investment Fund ("CIF"), which, under Section 8 thereof, was to be sourced from a PhP 0.55 levy on the sale of every 100 kg. of copra. Of the PhP 0.55 levy of which the copra seller was – or ought to be – issued COCOFUND receipts, PhP 0.02 was placed at the disposition of COCOFED, the national association of coconut producers declared by the Philippine Coconut Administration ("PHILCOA" now "PCA") as having the largest membership. The declaration of martial law in September 1972 saw the issuance of several presidential decrees purportedly designed to improve the coconut industry through the collection and use of the coconut levy fund. Charged with the duty of collecting and administering the Fund was PCA. Like COCOFED with which it had a legal linkage, the PCA, by statutory provisions scattered in different coco levy decrees, had its share of the coco levy. As of June 30, 1975, the list of FUB stockholders included Cojuangco with 14,440 shares and PCA with 129,955 shares. It would appear later that, pursuant to the stipulation on maintaining Cojuangco’s equity position in the bank, PCA would cede to him 10% of its subscriptions to (a) the authorized but unissued shares of FUB and (b) the increase in FUB’s capital stock (the equivalent of 158,840 and 649,800 shares, respectively). In all, from the "mother" PCA shares, Cojuangco would receive a total of 95,304 FUB (UCPB) shares broken down as follows: 14,440 shares + 10% (158,840 shares) + 10% (649,800 shares) = 95,304. Shortly after the execution of the PCA – Cojuangco Agreement, President Marcos issued, on July 29, 1975, P.D. No. 755 directing x xx as narrated, PCA to use the CCSF and CIDF to acquire a commercial bank to provide coco farmers with "readily available credit facilities at preferential rate". Then came the 1986 EDSA event. One of the priorities of then President Corazon C. Aquino’s revolutionary government was the recovery of ill-gotten wealth reportedly amassed by the Marcos family and close relatives, their nominees and associates. Apropos thereto, she created the PCGG. Pursuant to these issuances, the PCGG issued numerous orders of sequestration, among which were those handed out xxx against shares of stock in UCPB purportedly owned by or registered in the names of (a) the more than a million coconut farmers, (b) the CIIF companies and (c) Cojuangco, Jr., including the SMC shares held by the CIIF companies. On July 31, 1987, the PCGG instituted before the Sandiganbayan a recovery suit. Issue: Whether or not the PCA-COJUANGCO is a valid contract having the requisite consideration thereof.


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Held: Yes. Under Section 3, Rule 131 of the Rules of Court, the following are disputable presumptions: (1) private transactions have been fair and regular; (2) the ordinary course of business has been followed; and (3) there was sufficient consideration for a contract. A presumption may operate against an adversary who has not introduced proof to rebut it. The effect of a legal presumption upon a burden of proof is to create the necessity of presenting evidence to meet the legal presumption or the prima facie case created thereby, and which if no proof to the contrary is presented and offered, will prevail. The burden of proof remains where it is, but by the presumption, the one who has that burden is relieved for the time being from introducing evidence in support of the averment, because the presumption stands in the place of evidence unless rebutted. The presumption that a contract has sufficient consideration cannot be overthrown by the bare uncorroborated and self-serving assertion of petitioners that it has no consideration. To overcome the presumption of consideration, the alleged lack of consideration must be shown by preponderance of evidence. Petitioners failed to discharge this burden. Under Article 1354 of the Civil Code, it is presumed that consideration exists and is lawful unless the debtor proves the contrary. The rule then is that the party who stands to profit from a declaration of the nullity of a contract on the ground of insufficiency of consideration––which would necessarily refer to one who asserts such nullity––has the burden of overthrowing the presumption offered by the aforequoted Section 3(r). Obviously then, the presumption contextually operates in favor of Cojuangco and against the Republic, as plaintiff a quo, which then had the burden to prove that indeed there was no sufficient consideration for the Second Agreement. The Sandiganbayan’s stated observation, therefore, that based on the wordings of the Second Agreement, Cojuangco had no personal and exclusive option to purchase the FUB shares from Pedro Cojuangco had really little to commend itself for acceptance. This, as opposed to the fact that such sale and purchase agreement is memorialized in a notarized document whereby both Eduardo Cojuangco, Jr. and Pedro Cojuangco attested to the correctness of the provisions thereof, among which was that Eduardo had such option to purchase. A notarized document, Lazaro v. Agustin teaches, "generally carries the evidentiary weight conferred upon it with respect to its due execution, and documents acknowledged before a notary public have in their favor the disputable presumption of regularity." Inadequacy of the consideration, however, does not render a contract void under Article 1355 of the Civil Code, unless there has been fraud, mistake or undue influence. Lack of ample consideration does not nullify the contract. While one may posit that the PCA-Cojuangco Agreement puts PCA and the coconut farmers at a disadvantage, the facts do not make out a clear case of violation of any law that will necessitate the recall of said contract. Indeed, the anti-graft court has not put forward any specific stipulation therein that is at war with any law, or the Constitution, for that matter. It is even clear as day that none of the parties who entered into the two agreements with petitioner Cojuangco contested nor sought the nullification of said agreements, more particularly the PCA who is always provided legal advice in said transactions by the Government corporate counsel, and a battery of lawyers and presumably the COA auditor assigned to said agency. A government agency, like the PCA, stoops down to level of an ordinary citizen when it enters into a private transaction with private individuals. In this setting, PCA is bound by the law on contracts and is bound to comply with the terms of the


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PCA-Cojuangco Agreement which is the law between the parties. With the silence of PCA not to challenge the validity of the PCA-Cojuangco Agreement and the inability of government to demonstrate the lack of ample consideration in the transaction, the Court is left with no other choice but to uphold the validity of said agreements. While consideration is usually in the form of money or property, it need not be monetary. A consideration, in the legal sense of the word, is some right, interest, benefit, or advantage conferred upon the promisor, to which he is otherwise not lawfully entitled, or any detriment, prejudice, loss, or disadvantage suffered or undertaken by the promisee other than to such as he is at the time of consent bound to suffer. The Court rules that the transfer of the subject UCPB shares is clearly supported by valuable consideration.


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Re: Contracts (Simulation of Contracts) HEIRS OF DR. MARIO S. INTAC and ANGELINA MENDOZA-INTAC, v. COURT OF APPEALS and SPOUSES MARCELO ROY, JR. and JOSEFINA MENDOZA-ROY and SPOUSES DOMINADOR LOZADA and MARTINA MENDOZA-LOZADA G.R. No. 173211, October 11, 2012 Facts: From the records, it appears that Ireneo Mendoza, married to SalvacionFermin, was the owner of the subject property, presently covered by TCT No. 242655 of the Registry of Deeds of Quezon City and situated at No. 36, Road 8, BagongPag-asa, Quezon City, which he purchased in 1954. Ireneo had two children: respondents Josefina and Martina, Salvacion being their stepmother. When he was still alive, Ireneo, also took care of his niece, Angelina, since she was three years old until she got married. The property was then covered by TCT No. 106530 of the Registry of Deeds of Quezon City. On October 25, 1977, Ireneo, with the consent of Salvacion, executed a deed of absolute sale of the property in favor of Angelina and her husband, Mario (Spouses Intac). Despite the sale, Ireneo and his family, including the respondents, continued staying in the premises and paying the realty taxes. After Ireneo died intestate in 1982, his widow and the respondents remained in the premises. After Salvacion died, respondents still maintained their residence there. Up to the present, they are in the premises, paying the real estate taxes thereon, leasing out portions of the property, and collecting the rentals. The controversy arose when respondents sought the cancellation of TCT No. 242655, claiming that the sale was only simulated and, therefore, void. Spouses Intac resisted, claiming that it was a valid sale for a consideration. Issue: Whether the Deed of Absolute Sale executed by and between Ireneo Mendoza and Salvacion Fermin, as vendors, and Mario Intac and Angelina Intac, as vendees, involving the subject real property in Pagasa, Quezon City, was a simulated contract or a valid agreement. Held: Yes. Accordingly, for a contract to be valid, it must have three essential elements: (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. All these elements must be present to constitute a valid contract. Consent is essential to the existence of a contract; and where it is wanting, the contract is non-existent. In a contract of sale, its perfection is consummated at the moment there is a meeting of the minds upon the thing that is the object of the contract and upon the price. Consent is manifested by the meeting of the offer and the acceptance of the thing and the cause, which are to constitute the contract.


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In this case, the CA ruled that the deed of sale executed by Ireneo and Salvacion was absolutely simulated for lack of consideration and cause and, therefore, void. Articles 1345 and 1346 of the Civil Code provide: 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. If the parties state a false cause in the contract to conceal their real agreement, the contract is only relatively simulated and the parties are still bound by their real agreement. Hence, where the essential requisites of a contract are present and the simulation refers only to the content or terms of the contract, the agreement is absolutely binding and enforceable between the parties and their successors in interest. In absolute simulation, there is a colorable contract but it has no substance as the parties have no intention to be bound by it. "The main characteristic of an absolute simulation is that the apparent contract is not really desired or intended to produce legal effect or in any way alter the juridical situation of the parties." "As a result, an absolutely simulated or fictitious contract is void, and the parties may recover from each other what they may have given under the contract." In the case at bench, the Court is one with the courts below that no valid sale of the subject property actually took place between the alleged vendors, Ireneo and Salvacion; and the alleged vendees, Spouses Intac. There was simply no consideration and no intent to sell it. Critical is the testimony of Marietto, a witness to the execution of the subject absolute deed of sale. He testified that Ireneo personally told him that he was going to execute a document of sale because Spouses Intac needed to borrow the title to the property and use it as collateral for their loan application. Ireneo and Salvacion never intended to sell or permanently transfer the full ownership of the subject property to Spouses Intac. Marietto was characterized by the RTC as a credible witness.


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Re: Contracts (Simulation of Contracts) DR. LORNA C. FORMARAN, v. DR. GLENDA B. ONG AND SOLOMON S. ONG G.R. No. 186264, July 8, 2013 Facts: According to plaintiff's complaint, she owns the afore-described parcel of land which was donated to her intervivos by her uncle and aunt, spouses Melquiades Barraca and Praxedes Casidsid on June 25, 1967; that on August 12, 1967 upon the prodding and representation of defendant Glenda, that she badly needed a collateral for a loan which she was applying from a bank to equip her dental clinic, plaintiff made it appear that she sold one-half of the afore-described parcel of land to the defendant Glenda; that the sale was totally without any consideration and fictitious; that contrary to plaintiff’s agreement with defendant Glenda for the latter to return the land, defendant Glenda filed a case for unlawful detainer against the plaintiff who consequently suffered anxiety, sleepless nights and besmirched reputation; and that to protect plaintiff’s rights and interest over the land in question, she was constrained to file the instant case, binding herself to pay P50,000.00 as and for attorney's fees. In an answer filed on December 22, 1997, defendant Glenda insisted on her ownership over the land in question on account of a Deed of Absolute Sale executed by the plaintiff in her favor; and that plaintiff’s claim of ownership therefore was virtually rejected by the Municipal Circuit Trial Court of Ibaja-Nabas, Ibajay, Aklan, when it decided in her favor the unlawful detainer case she filed against the plaintiff. Issue: Whether or not the deed of sale executed between the plaintiff and defendant is a simulated contract having no valid consideration thereof. Held: Yes. The subject Deed of Sale is indeed simulated, as it is: (1) totally devoid of consideration; (2) it was executed on August 12, 1967, less than two months from the time the subject land was donated to petitioner on June 25, 1967 by no less than the parents of respondent Glenda Ong; (3) on May 18, 1978, petitioner mortgaged the land to the Aklan Development Bank for a P23,000.00 loan; (4) from the time of the alleged sale, petitioner has been in actual possession of the subject land; (5) the alleged sale was registered on May 25, 1991 or about twenty four (24) years after execution; (6) respondent Glenda Ong never introduced any improvement on the subject land; and (7) petitioner’s house stood on a part of the subject land. These are facts and circumstances which may be considered badges of bad faith that tip the balance in favor of petitioner. The Court is in accord with the observation and findings of the (RTC, Kalibo, Aklan) thus: "The amplitude of foregoing undisputed facts and circumstances clearly shows that the sale of the land in question was purely simulated. It is void from the very beginning (Article 1346, New Civil Code). If the sale was legitimate, defendant Glenda should have immediately taken possession of the land,


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declared in her name for taxation purposes, registered the sale, paid realty taxes, introduced improvements therein and should not have allowed plaintiff to mortgage the land. These omissions properly militated against defendant Glenda’s submission that the sale was legitimate and the consideration was paid. While the Deed of Absolute Sale was notarized, it cannot justify the conclusion that the sale is a true conveyance to which the parties are irrevocably and undeniably bound. Although the notarization of Deed of Absolute Sale, vests in its favor the presumption of regularity, it does not validate nor make binding an instrument never intended, in the first place, to have any binding legal effect upon the parties thereto (Suntay vs. Court of Appeals, G.R. No. 114950, December 19, 1995; cited in RupertoViloria vs. Court of Appeals, et al., G.R. No. 119974, June 30, 1999)."


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Re: Contracts (Simulation of Contracts) SPOUSES JOSE and MILAGROS VILLACERAN and FAR EASTBANK & TRUST COMPANY, v. JOSEPHINE DE GUZMAN G.R. No. 169055, February 22, 2012 Facts: Josephine De Guzman filed a Complaintagainst the spouses Jose and Milagros Villaceran and Far East Bank & Trust Company (FEBTC), Santiago City Branch, for declaration of nullity of sale, reconveyance, redemption of mortgage and damages with preliminary injunction. The complaint was later amended to include annulment of foreclosure and Sheriff’s Certificate of Sale. In her Amended Complaint, De Guzman alleged that she is the registered owner of a parcel of land covered by Transfer Certificate of Title (TCT) No. T-236168,located in Echague, Isabela, having an area of 971 square meters and described as Lot 8412-B of the Subdivision Plan Psd-93948. On April 17, 1995, she mortgaged the lot to the Philippine National Bank (PNB) of Santiago City to secure a loan of P600, 000. In order to secure a bigger loan to finance a business venture, De Guzman asked Milagros Villaceran to obtain an additional loan on her behalf. She executed a Special Power of Attorney in favor of Milagros. Considering De Guzman’s unsatisfactory loan record with the PNB, Milagros suggested that the title of the property be transferred to her and Jose Villaceran and they would obtain a bigger loan as they have a credit line of up toP5, 000,000 with the bank. On June 19, 1996, De Guzman executed a simulated Deed of Absolute Sale in favor of the spouses Villaceran. On the same day, they went to the PNB and paid the amount of P721, 891.67 using the money of the spouses Villaceran. The spouses Villaceran registered the Deed of Sale and secured TCT No. T-257416 in their names. Thereafter, they mortgaged the property with FEBTC Santiago City to secure a loan of P1, 485,000. However, the spouses Villaceran concealed the loan release from De Guzman. Later, when De Guzman learned of the loan release, she asked for the loan proceeds less the amount advanced by the spouses Villaceran to pay the PNB loan. However, the spouses Villaceran refused to give the money stating that they are already the registered owners of the property and that they would reconvey the property to De Guzman once she returns the P721, 891.67 they paid to PNB. De Guzman offered to pay P350, 000 provided that the spouses Villaceran would execute a deed of reconveyance of the property. In view of the simulated character of their transaction, the spouses Villaceran executed a Deed of Absolute Sale dated September 6, 1996 in favor of De Guzman. They also promised to pay their mortgage debt with FEBTC to avoid exposing the property to possible foreclosure and auction sale. However, the spouses Villaceran failed to settle the loan and subsequently the property was extrajudiciallyforeclosed. A Sheriff’s Certificate of Sale was issued in favor of FEBTC for the amount of P3, 594,000. De Guzman asserted that the spouses Villaceran should be compelled to redeem their mortgage so as not to prejudice her as the real owner of the property.


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Issue: Whether or not the Deed of Sale dated 19 June 1996 is a simulated contract and not a true sale of the subject property. Held: Yes. Article 1345 of the Civil Code provides that the simulation of a contract may either be absolute or relative. In absolute simulation, there is a colorable contract but it has no substance as the parties have no intention to be bound by it. The main characteristic of an absolute simulation is that the apparent contract is not really desired or intended to produce legal effect or in any way alter the juridical situation of the parties. As a result, an absolutely simulated or fictitious contract is void, and the parties may recover from each other what they may have given under the contract. However, if the parties state a false cause in the contract to conceal their real agreement, the contract is only relatively simulated and the parties are still bound by their real agreement. Hence, where the essential requisites of a contract are present and the simulation refers only to the content or terms of the contract, the agreement is absolutely binding and enforceable between the parties and their successors in interest. The primary consideration in determining the true nature of a contract is the intention of the parties. If the words of a contract appear to contravene the evident intention of the parties, the latter shall prevail. Such intention is determined not only from the express terms of their agreement, but also from the contemporaneous and subsequent acts of the parties. In the case at bar, there is a relative simulation of contract as the Deed of Absolute Sale dated June 19, 1996 executed by De Guzman in favor of petitioners did not reflect the true intention of the parties. It is worthy to note that both the RTC and the CA found that the evidence established that the aforesaid document of sale was executed only to enable petitioners to use the property as collateral for a bigger loan, by way of accommodating De Guzman. Thus, the parties have agreed to transfer title over the property in the name of petitioners who had a good credit line with the bank. The CA found it inconceivable for De Guzman to sell the property for P75,000 as stated in the June 19, 1996 Deed of Sale when petitioners were able to mortgage the property with FEBTC for P1,485,000.


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Re: Contracts (Form of Contracts) ANTHONY ORDUÑA, DENNIS ORDUÑA, and ANTONITA ORDUÑA, v. EDUARDO J. FUENTEBELLA, MARCOS S. CID, BENJAMIN F. CID, BERNARD G. BANTA, and ARMANDO GABRIEL, JR. G.R. No. 176841, June 29, 2010 Facts: Sometime in 1996 or thereabouts, Gabriel Sr. sold the subject lot to petitioner AntonitaOrduña, but no formal deed was executed to document the sale. The contract price was apparently payable in installments as Antonita remitted from time to time and Gabriel Sr. accepted partial payments. One of the Orduñas would later testify that Gabriel Sr. agreed to execute a final deed of sale upon full payment of the purchase price. As early as 1979, however, Antonita and her sons, Dennis and Anthony Orduña, were already occupying the subject lot 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, as evidenced by Tax Declaration No. (TD) 96-04012-111087 in which they place the assessed value of the structure at PhP 20,090. After the death of Gabriel Sr., his son and namesake, respondent Gabriel Jr., secured TCT No. T71499 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. On December 13, 1996, Gabriel Jr. acknowledged receipt of a PhP 40,000 payment from petitioners. Through a letter dated May 1, 1997, Gabriel Jr. acknowledged that petitioner had so far made an aggregate payment of PhP 65,000, leaving an outstanding balance of PhP 60,000. A receipt Gabriel Jr. issued dated November 24, 1997 reflected a PhP 10,000 payment. Despite all those payments made for the subject lot, Gabriel Jr. would later sell it to Bernard Bantaobviously without the knowledge of petitioners, as later developments would show.Bernard sold the land to respondents Marcos Cid and Benjamin F. Cid. Marcos and Benjamin, in turn, ceded the subject lot to Eduardo through a Deed of Absolute Sale dated May 11, 2000. Issue: 1. Whether or not the sale of the subject lot by Gabriel Sr. to Antonita is unenforceable under the Statute of Frauds. 2. Whether or not such sale has adequate consideration. Held: 1. No. Foremost of these is that 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


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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. The purpose of the Statute is to prevent fraud and perjury in the enforcement of obligations depending for their evidence on the unassisted memory of witnesses, by requiring certain enumerated contracts and transactions to be evidenced by a writing signed by the party to be charged. The Statute requires certain contracts to be evidenced by some note or memorandum in order to be enforceable. The term “Statute of Frauds” is descriptive of statutes that require certain classes of contracts to be in writing. The Statute does not deprive the parties of the right to contract with respect to the matters therein involved, but merely regulates the formalities of the contract necessary to render it enforceable. 2. Yes. For starters, they equated incomplete payment of the purchase price with inadequacy of price or what passes as lesion, when both are different civil law concepts with differing legal consequences, the first being a ground to rescind an otherwise valid and enforceable contract. Perceived inadequacy of price, on the other hand, is not a sufficient ground for setting aside a sale freely entered into, save perhaps when the inadequacy is shocking to the conscience. The Court to be sure takes stock of the fact that the contracting parties to the 1995 or 1996 sale agreed to a purchase price of PhP 125,000 payable on installments. But the original lot owner, Gabriel Sr., died before full payment can be effected. Nevertheless, petitioners continued remitting payments to Gabriel, Jr., who sold the subject lot to Bernard on June 30, 1999. Gabriel, Jr., as may be noted, parted with the property only for PhP 50,000. On the other hand, Bernard sold it for PhP 80,000 to Marcos and Benjamin. From the foregoing price figures, what is abundantly clear is that what Antonita agreed to pay Gabriel, Sr., albeit in installment, was very much more than what his son, for the same lot, received from his buyer and the latter’s buyer later.


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Re: Contracts (Form of Contracts) VIRGILIO S. DAVID, v. MISAMIS OCCIDENTAL II ELECTRIC COOPERATIVE, INC. G.R. No. 194785, July 11, 2012 Facts: To solve its problem of power shortage affecting some areas within its coverage, Misamis Occidental II Electric Cooperative, Inc. (MOELCI) expressed its intention to purchase a 10 MVA power transformer from David. On June 8, 1992, Engr. Rada and Director Jose Jimenez, who was in-charge of procurement, returned to Manila and presented to David the requested board resolution which authorized the purchase of one 10 MVA power transformer. In turn, David presented his proposal for the acquisition of said transformer. This proposal was the same proposal that he would usually give to his clients. As there was no immediate action on the loan application, Engr. Rada returned to Manila in early December 1992 and requested David to deliver the transformer to them even without the required downpayment. David granted the request provided that MOELCI would pay interest at 24% per annum. Engr. Rada acquiesced to the condition. When no payment was made after several months, Medina was constrained to send a demand letter, dated September 15, 1993, which MOELCI duly received. Engr. Rada replied in writing that the goods were still in the warehouse of William Lines again reiterating that the loan had not been approved by NEA. This prompted Medina to head back to Ozamiz City where he found out that the goods had already been released to MOELCI evidenced by the shipping company’s copy of the Bill of Lading which was stamped "Released," and with the notation that the arrastre charges in the amount of P5, 095.60 had been paid. Issue: 1. Whether or not there is a perfected contract of sale under the circumstances or a contract to sell. 2. Whether or not there was delivery. Held: 1. The elements of a contract of sale are, to wit: a) Consent or meeting of the minds, that is, consent to transfer ownership in exchange for the price; b) Determinate subject matter; and c) Price certain in money or its equivalent. It is the absence of the first element which distinguishes a contract of sale from that of a contract to sell. In a contract to sell, the prospective seller explicitly reserves the transfer of title to the prospective buyer, meaning, the prospective seller does not as yet agree or consent to transfer ownership of the property subject of the contract to sell until the happening of an event, such


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as, in most cases, the full payment of the purchase price. What the seller agrees or obliges himself to do is to fulfill his promise to sell the subject property when the entire amount of the purchase price is delivered to him. In other words, the full payment of the purchase price partakes of a suspensive condition, the non-fulfillment of which prevents the obligation to sell from arising and, thus, ownership is retained by the prospective seller without further remedies by the prospective buyer. In a contract of sale, on the other hand, the title to the property passes to the vendee upon the delivery of the thing sold. Unlike in a contract to sell, the first element of consent is present, although it is conditioned upon the happening of a contingent event which may or may not occur. If the suspensive condition is not fulfilled, the perfection of the contract of sale is completely abated. However, if the suspensive condition is fulfilled, the contract of sale is thereby perfected, such that if there had already been previous delivery of the property subject of the sale to the buyer, ownership thereto automatically transfers to the buyer by operation of law without any further act having to be performed by the seller. The vendor loses ownership over the property and cannot recover it until and unless the contract is resolved or rescinded. An examination of the alleged contract to sell, "Exhibit A," despite its unconventional form, would show that said document, with all the stipulations therein and with the attendant circumstances surrounding it, was actually a Contract of Sale. The rule is that it is not the title of the contract, but its express terms or stipulations that determine the kind of contract entered into by the parties. First, there was meeting of minds as to the transfer of ownership of the subject matter. The letter (Exhibit A), though appearing to be a mere price quotation/proposal, was not what it seemed. It contained terms and conditions, so that, by the fact that Jimenez, Chairman of the Committee on Management, and Engr. Rada, General Manager of MOELCI, had signed their names under the word "CONFORME," they, in effect, agreed with the terms and conditions with respect to the purchase of the subject 10 MVA Power Transformer. As correctly argued by David, if their purpose was merely to acknowledge the receipt of the proposal, they would not have signed their name under the word "CONFORME." In sum, since there was a meeting of the minds, there was consent on the part of David to transfer ownership of the power transformer to MOELCI in exchange for the price, thereby complying with the first element. Thus, the said document cannot just be considered a contract to sell but rather a perfected contract of sale. 2. There was delivery and release. Under Article 1523 of the Civil Code, Where, in pursuance of a contract of sale, the seller is authorized or required to send the goods to the buyer delivery of the goods to a carrier, whether named by the buyer or not, for the purpose of transmission to the buyer is deemed to be a delivery of the goods to the buyer, except in the cases provided for in Article 1503, first, second and third paragraphs, or unless a contrary intent appears. Thus, the delivery made by David to William Lines, Inc., as evidenced by the Bill of Lading, was deemed to be a delivery to MOELCI. David was authorized to send the power transformer to the buyer pursuant to their agreement. When David sent the item through the carrier, it amounted to a delivery to MOELCI. Of course, Article 1523 provides a mere presumption and in order to overcome said presumption, MOELCI should have presented evidence to the contrary. The burden of proof


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was shifted to MOELCI, who had to show that the rule under Article 1523 was not applicable. In this regard, however, MOELCI failed. There being delivery and release, said fact constitutes partial performance which takes the case out of the protection of the Statute of Frauds. It is elementary that the partial execution of a contract of sale takes the transaction out of the provisions of the Statute of Frauds so long as the essential requisites of consent of the contracting parties, object and cause of the obligation concur and are clearly established to be present.


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Re: Contracts (Interpretation of Contracts) VALENTIN MOVIDO,substituted by MARGINITOMOVIDO, v. LUIS REYES PASTOR G.R. No. 172279, February 11, 2010 Facts: In his complaint, respondent alleged that he and petitioner executed a kasunduansabilihannglupa where the latter agreed to sell a parcel of land located in Paliparan, Dasmariñas, Cavite with an area of some 21,000 sq. m. out of the 22,731 sq. m. covered by Transfer Certificate of Title (TCT) No. 362995 at P400/sq. m. Respondent further alleged that another kasunduan was later executed supplementing the kasunduansabilihannglupa. It provided that, if a Napocor power line traversed the subject lot, the purchase price would be lowered to P200/sq. m. beyond the distance of 15 meters on both sides from the center of the power line while the portion within a distance of 15 meters on both sides from the center of the power line would not be paid. Respondent likewise claimed that petitioner undertook to cause the survey of the property in order to determine the portion affected by the Napocor power line. Lastly, respondent alleged that he already paid petitioner P5 million out of the original purchase price of P8.4 million stated in the kasunduansabilihannglupa. In his answer, petitioner alleged that the original negotiation for the sale of his property involved the entire area of 22,731 sq. m. After respondent personally inspected the property, a final agreement— the kasunduansabilihannglupa—was executed where the area to be sold was 21,000 sq. m. for P400/sq. m. for a total sum of P8.4 million. The final agreement also listed a schedule of payments of the purchase price and included a penalty clause in case of default. Petitioner also charged respondent with delay in paying several installments due and did not pay the 7th installment in the amount of P1 million. This was allegedly a material breach because they agreed that the survey of the property would only be done after respondent would have paid the 7th installment. Due to respondent’s failure to fulfill his obligations, petitioner claimed that he had no choice except to rescind the kasunduansabilihannglupa. He, however, was willing to reimburse 50% of whatever respondent had paid him so far. Issue: 1. Whether or not the payment in the contract of sale if dependent on the prior survey of the property or vice versa. 2. Whether or not rescission is a proper remedy in the case at bar. Held: 1. Indeed, a reading of the kasunduansabilihannglupa and the kasunduan would readily reveal that payment of the purchase price does not depend on the survey of the property. In other words,


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the purchase price should be paid whether or not the property is surveyed. The survey of the property is important only insofar as the right of respondent to the reduction of the purchase price is concerned. On the other hand, the survey of the property to determine the metes and bounds of the 1,731 sq. m. portion that is excluded from the contract as well as the portions covered by the kasunduan which will be subject to reduction of the purchase price, is also not conditioned on the payment of any installment. Petitioner simply has to do it. In fact, under the kasunduansabilihannglupa, the survey should be done before the date of the last installment. Hence, the survey could have been done anytime after the execution of the agreement. There are two options to resolve this impasse. First, respondent may be ordered to pay his remaining balance in the kasunduansabilihannglupa representing the 7th and 8th installments or the amount of P3.4 million in which case Marginito will be ordered to immediately conduct the survey of the property and thereafter to refund to respondent the excess of the amount paid. Second, Marginito may be ordered to have the property surveyed first within a reasonable period and thereafter respondent will have to pay his corresponding balance (which, naturally, will be less than P3.4 million). Prudence dictates that the second option is better as it will prevent further conflict between the parties. Thus, we adopt the second option. 2. Rescission is only allowed when the breach is so substantial and fundamental as to defeat the object of the parties in entering into the contract. We find no such substantial or material breach. It is true that respondent failed to pay the 7th and 8th installments of the purchase price. However, considering the circumstances of the instant case, particularly the provisions of the kasunduan, respondent cannot be deemed to have committed a serious breach. In the first place, respondent was not in default as petitioner never made a demand for payment.


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Re: Contracts (Interpretation of Contracts) SPOUSES JESUS L. CABAHUG AND CORONACION M. CABAHUG, v. NATIONAL POWER CORPORATION. G.R. No. 186069, January 30, 2013 Facts: The Spouses Cabahug are the owners of two parcels of land situated in Barangay Capokpok, Tabango, Leyte, registered in their names under Transfer Certificate of Title (TCT) Nos. T-9813 and T-1599 of the Leyte provincial registry. They were among the defendants in Special CivilAction No. 0019-PN, a suit for expropriation earlier filed by NPC before the RTC, in connection with its LeyteCebu Interconnection Project. On 9 November 1996, Jesus Cabahug executed two documents denominated as Right of Way Grant in favor of NPC. For and in consideration of the easement fees in the sums of P112, 225.50 and P21, 375.00, Jesus Cabahug granted NPC a continuous easement of right of way for the latter’s transmissions lines and their appurtenances over 24,939 and 4,750 square meters of the parcels of land covered by TCT Nos. T-9813 and T-1599, respectively. By said grant, Jesus Cabahug agreed not to construct any building or structure whatsoever, nor plant in any area within the Right of Way that will adversely affect or obstruct the transmission line of NPC, except agricultural crops, the growth of which will not exceed three meters high. Under paragraph 4 of the grant, however, Jesus Cabahug reserved the option to seek additional compensation for easement fee. On 21 September 1998, the Spouses Cabahug filed the complaint for the payment of just compensation, damages and attorney’s fees against NPC. Issue: Whether or not the Spouses Cabahug may seek further compensation from NPC, equivalent to the just compensation, which right is stipulated in the parties’ contract. Held: Yes. From the foregoing reservation, it is evident that the Spouses Cabahug’s receipt of the easement fee did not bar them from seeking further compensation from NPC. Even by the basic rules in the interpretation of contracts, we find that the CA erred in holding that the payment of additional sums to the Spouses Cabahug would be violative of the parties’ contract and amount to unjust enrichment. Indeed, the rule is settled that a contract constitutes the law between the parties who are bound by its stipulations which, when couched in clear and plain language, should be applied according to their literal tenor. Courts cannot supply material stipulations, read into the contract words it does not contain or, for that matter, read into it any other intention that would contradict its plain import. Neither can they rewrite contracts because they operate harshly or inequitably as to one of the parties, or alter them for the benefit of one party and to the detriment of the other, or by construction, relieve one of the parties from the terms which he voluntarily consented to, or impose on him those which he did not.


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Considering that Gutierrez was specifically made the point of reference for Jesus Cabahug’s reservation to seek further compensation from NPC, we find that the CA likewise erred in finding that the ruling in said case does not apply to the case at bench. Concededly, the NPC was constrained to file an expropriation complaint in Gutierrez due to the failure of the negotiations for its acquisition of an easement of right of way for its transmission lines. The issue that was eventually presented for this Court’s resolution, however, was the propriety of making NPC liable for the payment of the full market value of the affected property despite the fact that transfer of title thereto was not required by said easement. In upholding the landowners’ right to full just compensation, the Court ruled that the power of eminent domain may be exercised although title is not transferred to the expropriator in an easement of right of way. Just compensation which should be neither more nor less than the money equivalent of the property is, moreover, due where the nature and effect of the easement is to impose limitations against the use of the land for an indefinite period and deprive the landowner its ordinary use. Even without the reservation made by Jesus Cabahug in the Grant of Right of Way, the application of Gutierrez to this case is not improper as NPC represents it to be. Where the right of way easement, as in this case, similarly involves transmission lines which not only endangers life and limb but restricts as well the owner's use of the land traversed thereby, the ruling in Gutierrez remains doctrinal and should be applied. It has been ruled that the owner should be compensated for the monetary equivalent of the land if, as here, the easement is intended to perpetually or indefinitely deprive the owner of his proprietary rights through the imposition of conditions that affect the ordinary use, free enjoyment and disposal of the property or through restrictions and limitations that are inconsistent with the exercise of the attributes of ownership, or when the introduction of structures or objects which, by their nature, create or increase the probability of injury, death upon or destruction of life and property found on the land is necessary. Measured not by the taker’s gain but the owner’s loss, just compensation is defined as the full and fair equivalent of the property taken from its owner by the expropriator.


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Re: Contracts (Interpretation of Contracts) RODOLFO CRUZ AND ESPERANZA IBIAS v. ATTY DELFIN GRUSPE G.R. No. 191431, March 13, 2013 Facts: On October 24, 1999, the mini bus owned and operated by petitioner which was driver by one Arturo Davin collided with the Toyota Corolla of respondent resulting to the total wreck of respondent’s car. The next day, petitioners went to respondent’s office and apologized for the incident. There, they executed a joint affidavit of undertaking promising jointly and severally to replace the respondent’s damaged car in 20 days or until November 15, 1999, of the same model and at least of the same quality. Alternatively, they bound themselves to pay the cost of respondent’s car amount to Php 350,00 with interest until fully paid. When petitioners failed to comply, respondent filed a case for collection of sum of money against them. In their answer, petitioners claimed that they were forced by respondent to sign the agreement without explaining the contents. Petitioner Cruz claimed that he only signed in order that his mini bus could be released, since it is his only mean of income. Issue: Whether or not there was vitiated consent Held: No, in determining whether a document is an affidavit or a contract, the Court looks beyond the title of the document, since the denomination or title given by the parties in their document is not conclusive of the nature of its contents. In the construction or interpretation of an instrument, the intention of the parties is primordial and is to be pursued. If the terms of the document are clear and leave no doubt on the intention of the contracting parties, the literal meaning of its stipulations shall control. If the words appear to be contrary to the parties’ evident intention, the latter shall prevail over the former. An allegation of vitiated consent must be proven by preponderance of evidence. Petitioners were unable to prove the same. In fact they admitted the genuineness and due execution of the Joint Affidavit and Undertaking when they said that they signed the same to secure possession of their vehicle. If they truly believed that the vehicle had been illegally impounded, they could have refused to sign the Joint Affidavit of Undertaking and filed a complaint, but they did not. That the release of their mini bus was conditioned on their signing the Joint Affidavit of Undertaking does not, by itself, indicate that their consent was forced – they may have given it grudgingly, but it is not indicative of a vitiated consent that is a ground for the annulment of a contract.


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Re: Contracts (Interpretation of Contracts) STAR TWO, INC., v. PAPER CITY CORPORATION OF THE PHILIPPINES G.R. No 169211, March 6, 2013 Facts: From 1990-1991, Paper City applied for and was granted four (4) loans and credit accommodations by RCBC now substituted by Star Two, Inc. The loans were secured by four (4) Deeds of Continuing Chattel Mortgages on Paper City's machineries and equipment. However, RCBC eventually executed a unilateral Cancellation of Deed of Continuing Chattel Mortgage. In 1992, RCBC, as the trustee bank, together with Metrobank and Union Bank, entered into a Mortgage Trust Indenture, which will be known hereinafter as MTI, with Paper City. In the said MTI, Paper City acquired additional loans secured by five (5) Deeds of Real Estate Mortgage, plus real and personal properties in an annex to the MTI, which covered the machineries and equipment of Paper City. The MTI was later on amended and supplemented three(3) times, wherein the loan was increased and included the same mortgages with an additional building and other improvements in the plant site. Paper City was able to comply worth the loans but only until1997 due to an economic crisis. And because of the default in the payment, RCBC filed a petition for extra-judicial foreclosure against the real estate executed by Paper City including all the improvements. As highest bidders, the three banks were issued a Certificate of Sale. Paper City filed a complaint alleging that the sale was null and void due to lack of prior notice. During the pendency of the complaint, Paper City filed with the trial court a motion the remove machinery out of the foreclosed land and building, saying that the same were not included in the foreclosure of the real estate mortgage. The trial court denied the motion, ruling that the machineries and equipment were included. In Paper City's Motion for Reconsideration, the trial court granted the same and justified the reversal by finding that the machineries and equipment are chattels by agreement thru the four Deeds of Continuing Chattel Mortgages; and that the deed of cancellation executed by RCBC of said mortgage was not valid because it was one unilaterally. Issue: Whether or not the Mortgage Trust Indenture should be construed Held: No, the rule is the parties stipulated that the properties mortgaged by Paper City to RCBC are various parcels of land including buildings and existing improvements thereon as well as the machineries and equipment. The Court reiterated the rule that in contracts, if the language used is clear as day and readily understandable by an ordinary reader, there is no need for construction. The case at bar is covered by the rule. The plain language and literal interpretation of the MTI's must be applied. The petitioner, other creditor banks, and Paper City intended from the very first indenture that the machineries and equipment in the annexing the MTI's are included. The Court also said that


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it was an error for the CA to hold that the machineries and equipment in the MTI's are personal property for in fact the MTI's did not describe the same as personal property. And finally, the real estate mortgage over the machineries and equipment is even in full accord with the classification of such properties by the Civil Code as immovable property.


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Re: Contracts (Rescissible Contracts) LEE v. BANGKOK BANK PUBLIC COMPANY, LTD. GR No. 173349, February 9, 2011 Facts: Midas Diversified Export Corporation and Manila Home Textile, Inc. owned and controlled by the Lee family entered into two separate Credit Line Agreements with Respondent Bangkok Bank Public Company, Limited on November 29, 1995 and April 17, 1996, respectively. The Lee family executed guarantees in favor of Bangkok Bank on December 1, 1995 for the CLA for MDEC and on April 17, 1996 for the CLA of MHI. Under the guarantees, the Lee family irrevocably and unconditionally guaranteed, as principal debtors, the payment of any and all indebtedness of MDEC and MHI with Bangkok Bank. Prior to the granting of the CLAs, Bangkok Bank conducted a property check on the Lee family and required Samuel to submit a list of his properties. Bangkok Bank, however, did not require the setting aside, as collateral, of any particular property to answer for any future unpaid obligation. On July 25, 1996, MDEC was likewise granted a loan facility by Asia Trust Development Bank, Inc. In May 1997, Samuel bought several parcels of land in Cupang, Antipolo, and later entered into a joint venture with Louisville Realty and Development Corporation to develop the properties into a residential subdivision, called Louisville Subdivision. Throughout 1997, MDEC availed itself of the omnibus credit line granted by Asiatrust on three occasions. In the same year, particularly in August 1997, when MDEC had defaulted in the payment of its loan that matured on July 15, 1997, Asiatrust initiated negotiations with MDEC and required the Lee family to provide additional collateral that would secure the loan. In December 1997, the negotiation was concluded when Asiatrust had agreed to Samuel’s proposition that he would mortgage the subject Antipolo properties to secure the loan, and therefore execute a REM over the properties. While the titles of the Antipolo properties had been delivered by Samuel to Asiatrust and the REM had been executed in January 1998, spouses Lee were requested to sign a new deed of mortgage on February 23, 1998, and, thus, it was only on that date that the said mortgage was actually notarized, registered, and annotated at the back of the titles. Similarly, MDEC and MHI initially had made payments with their CLAs until they defaulted and incurred aggregate obligations to Bangkok Bank in the amount of USD 1,998,554.60 for MDEC and USD 800,000 for MHI. Similarly, the Lee corporations defaulted in their obligations with other creditors. On March 12, 1998, Bangkok Bank instituted an action before the RTC to recover the loans extended to MDEC and MHI under the guarantees. With MDEC still unable to make payments on its defaulting loans with Asiatrust, the latter foreclosed the subject mortgaged Antipolo properties. On April 15, 1998, Asiatrust won as the highest bidder at the auction sale, purchasing the said properties for PhP 20,864,735.Thereafter, Asiatrust still filed an action against MDEC and the spouses Lee to collect the deficiency amounting


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to at least PhP 14,800,000. Up until the filing of the memoranda by the parties before this Court, the said action remained pending before the CA. Subsequently, the sale was registered on April 21, 1998. Believing the REM and the foreclosure sale to be fraudulent, Bangkok Bank did not redeem the subject properties. As there had been no effort to redeem the properties, consequently, the TCTs covering the subject properties were consolidated in the name of Asiatrust on April 30, 1999, and 120 new titles were issued in the name of Asiatrust without the annotation of the writs of preliminary attachment, which were deemed canceled. On July 20, 1999, Bangkok Bank filed the instant case before the RTC for the rescission of the REM over the subject properties, annulment of the April 15, 1998 foreclosure sale, cancellation of the new TCTs issued in favor of Asiatrust, and damages amounting to PhP 600,000 alleging that the presumption of fraud under Article 1387 of the Civil Code applies, considering that a writ of preliminary attachment was issued in January 1998 in favor of SBC against Samuel. Issue: Whether or not the presumption of fraud under Art. 1387 of the Civil Code applies in the present case. Held: The presumption of fraud under Art. 1387 of the Civil Code does not apply in the present case. The presumption of fraud established under Art. 1387 does not apply to registered lands IF "the judgment or attachment made is not also registered." In this case, prior to the annotation of the REM, SBC was able to successfully acquire a writ of preliminary attachment in its favor against the spouses Lee in a case for a sum of money for nonpayment of its obligation. Bangkok Bank alleges that because of this, the presumption of fraud under Art. 1387 of the Civil Code applies. But while a judgment was made against the spouses Lee in favor of SBC this, however, was not annotated on the titles of the subject properties. In fact, there is no showing that the judgment has ever been annotated on the titles of the subject properties. As established in the facts, there were only two annotations at the back of the titles of the Antipolo properties: first, the REM executed in favor of Asiatrust; and second, the writ of preliminary attachment in favor of Bangkok Bank. Considering that the earlier SBC judgment or attachment was not, and in fact never was, annotated on the titles of the subject Antipolo properties, prior to the execution of the REM, the presumption of fraud under Art. 1387 of the Code clearly cannot apply. Even assuming that Art. 1387 of the Code applies, the execution of a mortgage is not contemplated within the meaning of alienation by onerous title under the said provision. Under Art. 1387 of the Code, fraud is presumed only in alienations by onerous title of a person against whom a judgment or attachment has been issued. The term, alienation, connotes the "transfer of the property and possession of lands, tenements, or other things, from one person to another." This term is "particularly applied to absolute conveyances of real property" and must involve a "complete transfer from one person to another." A mortgage does not contemplate a transfer or an absolute


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conveyance of a real property. It is "an interest in land created by a written instrument providing security for the performance of a duty or the payment of a debt." When a debtor mortgages his property, he "merely subjects it to a lien but ownership thereof is not parted with." It is merely a lien that neither creates a title nor an estate. It is, therefore, certainly not the alienation by onerous title that is contemplated in Art. 1387 where fraud is to be presumed. In any case, the application of the presumption of fraud under Art. 1387, if applicable, could only be made to apply to the spouses Lee as the person against whom a judgment or writ of attachment has been issued; not to Asiatrust. A careful reading of Art. 1387 of the Code vis-à-vis its Art. 1385 would plainly show that the presumption of fraud in case of alienations by onerous title only applies to the person who made such alienation, and against whom some judgment has been rendered in any instance or some writ of attachment has been issued. A third person is not and should not be automatically presumed to be in fraud or in collusion with the judgment debtor. In allowing rescission in case of an alienation by onerous title, the third person who received the property conveyed should likewise be a party to the fraud. As clarified by Art. 1385(2) of the Code, so long as the person who is in legal possession of the property did not act in bad faith, rescission cannot take place. Thus, in all instances, as to the third person in legal possession of the questioned property, good faith is presumed.


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Re: Contracts (Rescissible Contracts) LILIA B. ADA, et al. v. FLORANTE BAYLON G.R. No. 182435, August 13, 2012 Facts: This case involves the estate of spouses Florentino Baylon and Maximina Elnas Baylon who died on November 7, 1961 and May 5, 1974, respectively. At the time of their death, Spouses Baylon were survived by their legitimate children, namely, Rita Baylon, Victoria Baylon, Dolores Baylon, Panfila Gomez, Ramon Baylon and herein petitioner Lilia B. Ada. Dolores died intestate and without issue. Victoria died and was survived by her daughter, herein petitioner Luz B. Adanza. Ramon died intestate and was survived by herein respondent Florante Baylon, his child from his first marriage, as well as by petitioner Flora Baylon, his second wife, and their legitimate children, namely, Ramon, Jr. and herein petitioners Remo, Jose, Eric, Florentino and Ma. Ruby, all surnamed Baylon. On July 3, 1996, the petitioners filed with the RTC a Complaint for partition, accounting and damages against Florante, Rita and Panfila. They alleged therein that Spouses Baylon, during their lifetime, owned 43 parcels of land all situated in Negros Oriental. After the death of Spouses Baylon, they claimed that Rita took possession of the said parcels of land and appropriated for herself the income from the same. Using the income produced by the said parcels of land, Rita allegedly purchased two parcels of land (Lot No. 4709 and Lot No. 4706) situated in Canda-uay, Dumaguete City. The petitioners averred that Rita refused to effect a partition of the said parcels of land. During the pendency of the case, Rita, through a Deed of Donation conveyed Lot No. 4709 and half of Lot No. 4706 to Florante. Rita died intestate and without any issue. Issue: Whether or not the donation inter vivos in favor of Florante can be rescinded. Held: Rescission is a remedy granted by law to the contracting parties and even to third persons, to secure the reparation of damages caused to them by a contract, even if it should be valid, by means of the restoration of things to their condition at the moment prior to the celebration of said contract. It is a remedy to make ineffective a contract, validly entered into and therefore obligatory under normal conditions, by reason of external causes resulting in a pecuniary prejudice to one of the contracting parties or their creditors. Contracts which are rescissible due to fraud or bad faith include those which involve things under litigation, if they have been entered into by the defendant without the knowledge and approval of the litigants or of competent judicial authority as provided for in Art. 1381 of the New Civil Code. The rescission of a contract under Article 1381(4) of the Civil Code only requires the concurrence of the following: first, the defendant, during the pendency of the case, enters into a contract which refers to the thing subject of litigation; and second, the said contract was entered into without the knowledge and approval of the litigants or of a competent judicial authority. As long as the


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foregoing requisites concur, it becomes the duty of the court to order the rescission of the said contract. Although the gratuitous conveyance of the said parcels of land in favor of Florante was valid, the donation inter vivos of the same being merely an exercise of ownership, Rita’s failure to inform and seek the approval of the petitioners or the RTC regarding the conveyance gave the petitioners the right to have the said donation rescinded pursuant to Article 1381(4) of the Civil Code.


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Re: Contracts (Rescissible Contracts) SPOUSES VILORIA v. CONTINENTAL AIRLINES, INC. G.R. No. 188288, January 16, 2012 Facts: In 1997, while the spouses Viloria were in the United States, they approached Holiday Travel, a travel agency working for Continental Airlines, to purchase tickets from Newark to San Diego. The travel agent, Margaret Mager, advised the couple that they cannot travel by train because it is fully booked; that they must purchase plane tickets for Continental Airlines; that if they won’t purchase plane tickets; they’ll never reach their destination in time. The couple believed Mager’s representations and so they purchased two plane tickets worth $800.00. Later however, the spouses found out that the train trip isn’t fully booked and so they purchased train tickets and went to their destination by train instead. Then they called up Mager to request for a refund for the plane tickets. Mager referred the couple to Continental Airlines. As the couple are now in the Philippines, they filed their request with Continental Airline’s office in Ayala. The spouses Viloria alleged that Mager misled them into believing that the only way to travel was by plane and so they were fooled into buying expensive tickets. Continental Airlines refused to refund the amount of the ticket and so the spouses sued the airline company. In its defense, Continental Airlines claimed that the ticket sold to them by Mager is nonrefundable; that, if any, they are not bound by the misrepresentations of Mager because there’s no agency existing between Continental Airlines and Mager. The trial court ruled in favor of spouses Viloria but the Court of Appeals reversed the ruling of the RTC. Issue: Whether or not the breach of contract may be a ground for rescission Held: No, by pursuing the remedy of rescission under Article 1191, the petitioners impliedly admitted the validity of the subject contracts, forfeiting their right to demand their annulment. A party cannot rely on the contract and claim rights or obligations under it and at the same time impugn its existence or validity. Indeed, litigants are enjoined from taking inconsistent positions. The power to rescind obligations is implied in reciprocal ones, in case one of the obligors should not comply with what is incumbent upon him. The injured party may choose between the fulfilment and the rescission of the obligation, with the payment of damages in either case. He may also seek rescission, even after he has chosen fulfillment, if the latter should become impossible. The court shall decree the rescission claimed, unless there be just cause authorizing the fixing of a period.


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The right to rescind a contract for non-performance of its stipulations is not absolute. The general rule is that rescission of a contract will not be permitted for a slight or casual breach, but only for such substantial and fundamental violations as would defeat the very object of the parties in making the agreement. Moreover, Spouses Viloria’s demand for rescission cannot prosper as CAI cannot be solely faulted for the fact that their agreement failed to consummate and no new ticket was issued to Fernando. Spouses Viloria have no right to insist that a single round trip ticket between Manila and Los Angeles should be priced at around $856.00 and refuse to pay the difference between the price of the subject tickets and the amount fixed by CAI.


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Re: Contracts (Voidable Contracts) CARMELA BROBIO MANGAHAS v. EUFROCINA BROBIO G.R. No. 183852, October 20, 2010 Facts: The petitioner is the illegitimate child of a decedent who died intestate on January 10, 2002, while the respondent is the surviving spouse of the decedent. On May 12, 2002, the heirs of the deceased executed a Deed of Extrajudicial Settlement of Estate of the Late Pacifico Brobio with Waiver. In the Deed, petitioner and Pacifico’s other children, in consideration of their love and affection for respondent and the sum of Php 150,000.00, waived and ceded their respective shares over the three parcels of land in favor of respondent. According to petitioner, respondent promised to give her an additional amount for her share in her father’s estate. Thus, after the signing of the Deed, petitioner demanded from respondent the promised additional amount, but respondent refused to pay, claiming that she had no more money. A year later, while processing her tax obligations with the Bureau of Internal Revenue (BIR), respondent was required to submit an original copy of the Deed. Left with no more original copy of the Deed, respondent summoned petitioner to her office on May 31, 2003 and asked her to countersign a copy of the Deed. Petitioner refused to countersign the document, demanding that respondent first give her the additional amount that she promised. Considering the value of the three parcels of land (which she claimed to be worth P20M), petitioner asked for Php 1M, but respondent begged her to lower the amount. Petitioner agreed to lower it to Php 600,000.00. Because respondent did not have the money at that time and petitioner refused to countersign the Deed without any assurance that the amount would be paid, respondent executed a promissory note. Petitioner agreed to sign the Deed when respondent signed the promissory note. When the promissory note fell due, respondent failed and refused to pay despite demand. Petitioner made several more demands upon respondent but the latter kept on insisting that she had no money. On January 28, 2004, petitioner filed a Complaint for Specific Performance with Damages against respondent. In her Answer with Compulsory Counterclaim, respondent admitted that she signed the promissory note but claimed that she was forced to do so. She also claimed that the undertaking was not supported by any consideration. Issue: Whether or not the contract is voidable Held: No, contracts are voidable where consent thereto is given through mistake, violence, intimidation, undue influence, or fraud. Nowhere is it alleged that mistake, violence, fraud, or intimidation


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attended the execution of the promissory note. Respondent insists that she was "forced" into signing the promissory note because petitioner would not sign the document required by the BIR. There is undue influence when a person takes improper advantage of his power over the will of another, depriving the latter of a reasonable freedom of choice. For undue influence to be present, the influence exerted must have so overpowered or subjugated the mind of a contracting party as to destroy his free agency, making him express the will of another rather than his own. The fact that respondent may have felt compelled, under the circumstances, to execute the promissory note will not negate the voluntariness of the act. The court held that the execution of the promissory note in the amount of Php 600,000.00 was, in fact, the product of a negotiation between the parties. Respondent herself testified that she bargained with petitioner to lower the amount: A contract is presumed to be supported by cause or consideration. The presumption that a contract has sufficient consideration cannot be overthrown by a mere assertion that it has no consideration. To overcome the presumption, the alleged lack of consideration must be shown by preponderance of evidence.


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Re: Contracts (Voidable Contracts) ROMAN CATHOLIC CHURCH v. PANTE G.R. No. 174118, April 11, 2012 Facts: The Roman Catholic Church, represented by the Archbishop of Caceres sold a 32-square meter lot to the respondent Regino Pante, who in the belief of the Church as an actual occupant of the lot. Terms fixed at a purchase price of P 11,200, a down payment P 1,120 and a balance payable in three years. Subsequently, the Church sold a lot to the spouses Rubi, which included the lot that was previously sold to the respondent Pante. Then, the spouses Rubi erected a fence along the lot, including the lot of Pante, which blocked the access of Pante from their family home to the municipal road. Pante instituted an action before the RTC to annul the sale between the Church and spouses Rubi. The Church contended that Pante misrepresented that they were the actual occupant of the said lot. Also, the sale was a mistake that would constitute a voidable contract because Pante made them believe that he was a qualified occupant and Pante was aware that they sell lots only to those occupants and residents. Pante averred that they were using it as passageway from his family home to the road, which signifies that he is really using the actual lot. The RTC ruled in favor to the Church, for it was a misrepresentation of Pante and he delayed in the payment of the lot for he only consigned the balance with the RTC after the church refused to accept the payments. Issue: Whether or not the sale was a voidable contract. Held: No, the Supreme Court ruled that there were no misrepresentation made that would vitiate the consent and render the contract as voidable. As consent as one of the essential requisites of a valid contract and such consent should be free, voluntary, willful and a reasonable understanding of the various obligations that the parties have assumed for themselves. However if consent is given through mistake, violence, intimidation, undue influence and fraud, it would render a contract voidable. On Article 1331 of the Civil Code, mistake could only render a contract voidable if the following requisites concur: 1. the mistake must be either with regard to the identity or with regard to the qualification of one of the contracting parties; and 2. the identity or qualification must have been the principal consideration for the celebration of the contract. In this case, there is no mistake as to the qualifications as to the policy of the Church on selling only for those who are occupants and residents, for neither Pante nor spouses Rubi would qualify as residents of the said 32-square meter lot, as none of them had occupied or resided on the lot. The lot is a passageway for the respondent Pante, thus it is considered as his “RIGHT OF WAY.”


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Also, records show that the Parish Priest was aware that Parte was not an actual occupant and still he allowed the sale to Pante. So, the Church cannot by any means contend that the Church was misled by the act of Pante, that there was vitiation of consent on the said sale. There was no vitiation of consent; therefore, the contract between the Church and Pante stands valid and existing. The delay of Pante in paying the full price could not nullify the contract, since it was a contract of sale (as correctly observed by the CA). In the terms of the contract, it did not stipulate that the Church will retain ownership until full payment of the price. The right to repurchase given to the Church if ever Pante fails to pay within the grace period provided would have been unnecessary had ownership not already passed to Pante.


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Re: Contracts (Voidable Contracts) METROPOLITAN FABRICS, INC., AND ENRIQUE ANG v. PROSPERITY CREDIT RESOURCES INC., DOMINGO ANG, AND CALEB ANG G.R. No. 154390, March 17, 2014 Facts: Metropolitan Fabrics, Incorporated (MFI), a family corporation, owned a 5.8 hectare industrial compound at No. 685 Tandang Sora Avenue, Novaliches, Quezon City which was covered by TCT No. 241597.Pursuant to a P2 million, 10-year 14% per annum loan agreement with Manphil Investment Corporation (Manphil) dated April 6, 1983, the said lot was subdivided into11 lots, with Manphil retaining four lots as mortgage security. The other seven lots, now covered by TCT Nos. 317699 and 317702 to 317707, were released to MFI. In July 1984, MFI sought from PCRI a loan in the amount of P3,443,330.52, the balance of the cost of its boiler machine, to prevent its repossession by the seller. PCRI, also family-owned corporation licensed since 1980 to engage in money lending, was represented by Domingo Ang (“Domingo”) its president, and his son Caleb, vice-president. The parties knew each other because they belonged to the same family association, the Lioc Kui Tong Fraternity. On the basis only of his interview with Enrique, feedback from the stockholders and the Chinese community, as well as information given by his own father Domingo, and without further checking on the background of Enrique and his business and requiring him to submit a company profile and a feasibility study of MFI, Caleb recommended the approval of the P3.44 million with an interest ranging from 24% to 26% per annum and a term of between five and ten years. According to the court, it sufficed for Caleb that Enrique was a well-respected Chinese businessman, that he was the presidentof their Chinese family association, and that he had other personal businesses aside fromMFI, such as the Africa Trading.However, in September 1984, the first amortization check bounced for insufficient fund due to MFI’s continuing business losses. It was then that the appellees allegedly learnedthat PCRI had filled up the 24 blank checks with dates and amounts that reflected a 35%interest rate per annum, instead of just 24%, and a two year repayment period, instead of10 years. On September 4, 1986, Enrique received a Notice of Sheriff’s Sale dated August 29, 1986, announcing the auction of the seven lots on September 24, 1986 due to unpaid indebtedness of P10.5 million. Vicky (daughter of owner of MFI, because their father went into a coma because of intense pressure from the foreclosure) insisted that prior to the auction notice, they never received any statement or demand letter from the defendants to pay P10.5 million, nor did the defendants inform them of the intended foreclosure. Issue: Whether or not the contract is voidable


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Held: No, petitioners agreed to mortgage their properties as security for their loan, and signed the deed of mortgage for the purpose. Thereafter, they delivered the TCTs of the properties subject of the mortgage to respondents. Consequently, petitioners’ contention of absence of consent was not proven. To begin with, they neither alleged nor established that they had been forced or coerced to enter into the mortgage. Also, they had freely and voluntarily applied for the loan, executed the mortgage contract and turned over the TCTs of their properties. And, lastly, contrary to their modified defense of absence of consent, Vicky Ang’s testimony tended at best to prove the vitiation of their consent through insidious words, machinations or misrepresentations amounting to fraud, which showed that the contract was voidable. Where the consent was given through fraud, the contract was voidable, not void ab initio. This is because a voidable or annullable contract is existent, valid and binding, although it can be annulled due to want of capacity or because of the vitiated consent of one of the parties. Article 1390, in relation to Article 1391 of the Civil Code, provides that if the consent of the contracting parties was obtained through fraud, the contract is considered voidable and may be annulled within four years from the time of the discovery of the fraud. According to Article 1338 of the Civil Code, there is fraud when one of the contracting parties, through insidious words or machinations, induces the other to enter into the contract that, without the inducement, he would not have agreed to. Yet, fraud, to vitiate consent, must be the causal (dolo causante), not merely the incidental (dolo incidente), inducement to the making of the contract. In Samson v. Court of Appeals, causal fraud is defined as “a deception employed by one party prior to or simultaneous to the contract in order to secure the consent of the other.”


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Re: Contracts (Voidable Contracts) SPOUSES VILORIA v. CONTINENTAL AIRLINES, INC. G.R. No. 188288, January 16, 2012 Facts: On or about July 21, 1997 and while in the United States, Fernando purchased for himself and his wife, Lourdes, two (2) round trip airline tickets from San Diego, California to Newark, New Jersey on board Continental Airlines. Fernando purchased the tickets at US$400.00 each from a travel agency called "Holiday Travel" and was attended to by a certain Margaret Mager (Mager). According to Spouses Viloria, Fernando agreed to buy the said tickets after Mager informed them that there were no available seats at Amtrak. Per the tickets, Spouses Viloria were scheduled to leave for Newark on August 13, 1997 and return to San Diego on August 21, 1997. Subsequently, Fernando requested Mager to reschedule their flight to Newark to an earlier date or August 6, 1997. Mager informed him that flights to Newark via Continental Airlines were already fully booked and offered the alternative of a round trip flight via Frontier Air. Since flying with Frontier Air called for a higher fare of US$526.00 per passenger and would mean traveling by night, Fernando opted to request for a refund. Mager, however, denied his request as the subject tickets are non-refundable and the only option that Continental Airlines can offer is the re-issuance of new tickets within one (1) year from the date the subject tickets were issued. Fernando decided to reserve two (2) seats with Frontier Air. As he was having second thoughts on traveling via Frontier Air, Fernando went to the Greyhound Station where he saw an Amtrak station nearby. Fernando made inquiries and was told that there are seats available and he can travel on Amtrak anytime and any day he pleased. Fernando then purchased two (2) tickets for Washington, D.C. From Amtrak, Fernando went to Holiday Travel and confronted Mager with the Amtrak tickets, telling her that she had misled them into buying the Continental Airlines tickets by misrepresenting that Amtrak was already fully booked. Fernando reiterated his demand for a refund but Mager was firm in her position that the subject tickets are non-refundable. Upon returning to the Philippines, Fernando sent a letter to CAI on February 11, 1998, demanding a refund and alleging that Mager had deluded them into purchasing the subject tickets. In a letter dated February 24, 1998, Continental Micronesia informed Fernando that his complaint had been referred to the Customer Refund Services of Continental Airlines at Houston, Texas. In a letter dated March 24, 1998, Continental Micronesia denied Fernando’s request for a refund and advised him that he may take the subject tickets to any Continental ticketing location for the reissuance of new tickets within two (2) years from the date they were issued. Continental Micronesia informed Fernando that the subject tickets may be used as a form of payment for the purchase of another Continental ticket, albeit with a re-issuance fee. On June 17, 1999, Fernando went to Continental’s ticketing office at Ayala Avenue, Makati City to have the subject tickets replaced by a single round trip ticket to Los Angeles, California under his


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name. Therein, Fernando was informed that Lourdes’ ticket was non-transferable, thus, cannot be used for the purchase of a ticket in his favor. He was also informed that a round trip ticket to Los Angeles was US$1,867.40 so he would have to pay what will not be covered by the value of his San Diego to Newark round trip ticket. In a letter dated June 21, 1999, Fernando demanded for the refund of the subject tickets as he no longer wished to have them replaced. In addition to the dubious circumstances under which the subject tickets were issued, Fernando claimed that CAI’s act of charging him with US$1,867.40 for a round trip ticket to Los Angeles, which other airlines priced at US$856.00, and refusal to allow him to use Lourdes’ ticket, breached its undertaking under its March 24, 1998 letter. On September 8, 2000, Spouses Viloria filed a complaint against CAI, praying that CAI be ordered to refund the money they used in the purchase of the subject tickets with legal interest from July 21, 1997 and to pay P1,000,000.00 as moral damages, P500,000.00 as exemplary damages and P250,000.00 as attorney’s fees. Issue: Whether or not there was fraud as to amount to a vice of consent. Held: No. Article 1390, in relation to Article 1391 of the Civil Code, provides that if the consent of the contracting parties was obtained through fraud, the contract is considered voidable and may be annulled within four (4) years from the time of the discovery of the fraud. Once a contract is annulled, the parties are obliged under Article 1398 of the same Code to restore to each other the things subject matter of the contract, including their fruits and interest. On the basis of the foregoing and given the allegation of Spouses Viloria that Fernando’s consent to the subject contracts was supposedly secured by Mager through fraudulent means, it is plainly apparent that their demand for a refund is tantamount to seeking for an annulment of the subject contracts on the ground of vitiated consent. To quote Tolentino, the "misrepresentation constituting the fraud must be established by full, clear, and convincing evidence, and not merely by a preponderance thereof. 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." After meticulously poring over the records, the Court finds that the fraud alleged by Spouses Viloria has not been satisfactorily established as causal in nature to warrant the annulment of the subject contracts. In fact, Spouses Viloria failed to prove by clear and convincing evidence that Mager’s statement was fraudulent. Specifically, Spouses Viloria failed to prove that (a) there were indeed available seats at Amtrak for a trip to New Jersey on August 13, 1997 at the time they spoke with Mager on July 21, 1997; (b) Mager knew about this; and (c) that she purposely informed them otherwise.


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Assuming the contrary, Spouses Viloria are nevertheless deemed to have ratified the subject contracts. Even assuming that Mager’s representation is causal fraud, the subject contracts have been impliedly ratified when Spouses Viloria decided to exercise their right to use the subject tickets for the purchase of new ones. Under Article 1392 of the Civil Code, "ratification extinguishes the action to annul a voidable contract." Simultaneous with their demand for a refund on the ground of Fernando’s vitiated consent, Spouses Viloria likewise asked for a refund based on CAI’s supposed bad faith in reneging on its undertaking to replace the subject tickets with a round trip ticket from Manila to Los Angeles. In doing so, Spouses Viloria are actually asking for a rescission of the subject contracts based on contractual breach. Resolution, the action referred to in Article 1191, is based on the defendant’s breach of faith, a violation of the reciprocity between the parties and in Solar Harvest, Inc. v. Davao Corrugated Carton Corporation, this Court ruled that a claim for a reimbursement in view of the other party’s failure to comply with his obligations under the contract is one for rescission or resolution. However, annulment under Article 1390 of the Civil Code and rescission under Article 1191 are two (2) inconsistent remedies. In resolution, all the elements to make the contract valid are present; in annulment, one of the essential elements to a formation of a contract, which is consent, is absent. In resolution, the defect is in the consummation stage of the contract when the parties are in the process of performing their respective obligations; in annulment, the defect is already present at the time of the negotiation and perfection stages of the contract. Accordingly, by pursuing the remedy of rescission under Article 1191, the Vilorias had impliedly admitted the validity of the subject contracts, forfeiting their right to demand their annulment. A party cannot rely on the contract and claim rights or obligations under it and at the same time impugn its existence or validity. Indeed, litigants are enjoined from taking inconsistent positions. CAI’s refusal to accept Lourdes’ ticket for the purchase of a new ticket for Fernando is only a casual breach. Nonetheless, the right to rescind a contract for non-performance of its stipulations is not absolute. The general rule is that rescission of a contract will not be permitted for a slight or casual breach, but only for such substantial and fundamental violations as would defeat the very object of the parties in making the agreement. Whether a breach is substantial is largely determined by the attendant circumstances. While CAI’s refusal to allow Fernando to use the value of Lourdes’ ticket as payment for the purchase of a new ticket is unjustified as the non-transferability of the subject tickets was not clearly stipulated, it cannot, however be considered substantial. The endorsability of the subject tickets is not an essential part of the underlying contracts and CAI’s failure to comply is not essential to its fulfillment of its undertaking to issue new tickets upon Spouses Viloria’s surrender of the subject tickets. This Court takes note of CAI’s willingness to perform its principal obligation and this is to apply the price of the ticket in Fernando’s name to the price of the round trip ticket between Manila and Los Angeles. CAI was likewise willing to accept the ticket in Lourdes’ name as full or partial payment as the case may be for the purchase of any ticket, albeit under her name and for her exclusive use. In other words, CAI’s willingness to comply with its undertaking under its March 24,


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1998 cannot be doubted, albeit tainted with its erroneous insistence that Lourdes’ ticket is nontransferable. Moreover, Spouses Viloria’s demand for rescission cannot prosper as CAI cannot be solely faulted for the fact that their agreement failed to consummate and no new ticket was issued to Fernando. Spouses Viloria have no right to insist that a single round trip ticket between Manila and Los Angeles should be priced at around $856.00 and refuse to pay the difference between the price of the subject tickets and the amount fixed by CAI. The petitioners failed to allege, much less prove, that CAI had obliged itself to issue to them tickets for any flight anywhere in the world upon their surrender of the subject tickets. In its March 24, 1998 letter, it was clearly stated that "[n]onrefundable tickets may be used as a form of payment toward the purchase of another Continental ticket" and there is nothing in it suggesting that CAI had obliged itself to protect Spouses Viloria from any fluctuation in the prices of tickets or that the surrender of the subject tickets will be considered as full payment for any ticket that the petitioners intend to buy regardless of actual price and destination. The CA was correct in holding that it is CAI’s right and exclusive prerogative to fix the prices for its services and it may not be compelled to observe and maintain the prices of other airline companies. The records of this case demonstrate that both parties were equally in default; hence, none of them can seek judicial redress for the cancellation or resolution of the subject contracts and they are therefore bound to their respective obligations thereunder. Therefore, CAI’s liability for damages for its refusal to accept Lourdes’ ticket for the purchase of Fernando’s round trip ticket is offset by Spouses Viloria’s liability for their refusal to pay the amount, which is not covered by the subject tickets. Moreover, the contract between them remains, hence, CAI is duty bound to issue new tickets for a destination chosen by Spouses Viloria upon their surrender of the subject tickets and Spouses Viloria are obliged to pay whatever amount is not covered by the value of the subject tickets.


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Re: Contracts (Unenforceable Contracts) MUNICIPALITY OF HAGONOY, BULACAN v. DUMDUM, JR. G.R. No. 168289, March 22, 2010 Facts: Private respondent Emily Rose Go Ko Lim Chao, entered into an agreement with petitioner municipality of Hagonoy through Ople for the delivery of motor vehicles. Because of Ople’s earnest representation that the funds had already been allocated for the project agreed to deliver 21 motor vehicles. Despite respondents several demands petitioner did not pay its obligation. RTC issued and order directing the sheriff to attach the estate of petitioner real or personal properties. Petitioner filed a motion to dismiss on the ground that, their agreement with the respondent is unenforceable under the statute of fraud as it was not reduce into writing. Petitioner also filed a motion to dissolved and discharge the writ of preliminary attachment invoking immunity of state from suit. Issue: Whether or not the agreement between the respondent and petitioner is unenforceable. Held: While it is true that the agreement between the respondent and petitioner was not reduce into writing however it was evidenced by receipt which was acknowledge by petitioner. Moreover, there was already partial performance when the respondent effected the delivery of the motor vehicle. Thus, it is now removed from statute of fraud.


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Re: Contracts (Unenforceable Contracts) DE OUANO v. REPUBLIC OF THE PHILIPPINES G.R. NO. 168770, FEBRUARY 9, 2011 Facts: The Republic expropriated the lots of the petitioners for the expansion of the Lahug Airport in Cebu City with the assurance that the landowners could repurchase their lands should the Lahug Airport Expansion project do not push through. At the end of 1991, or soon after the transfer of the aforesaid lots to MCIAA, Lahug Airport completely ceased operations, Mactan Airport having opened to accommodate incoming and outgoing commercial flights. On the ground, the expropriated lots were never utilized for the purpose they were taken as no expansion of Lahug Airport was undertaken. This development prompted the former lot owners to formally demand from the government that they be allowed to exercise their promised right to repurchase. The demands went unheeded. Civil suits followed. Issue: Whether or not the verbal assurance of the NAC negotiating team that petitioners can reacquire their landholdings is barred by the Statute of Frauds. Held: Respondents did not object during trial to the admissibility of petitioners’ testimonial evidence under the Statute of Frauds and have thus waived such objection and are now barred from raising the same. In any event, the Statute of Frauds is not applicable herein. Consequently, petitioners’ evidence is admissible and should be duly given weight and credence. Under the rule on the Statute of Frauds, as expressed in Article 1403 of the Civil Code, a contract for the sale or acquisition of real property shall be unenforceable unless the same or some note of the contract be in writing and subscribed by the party charged. Subject to defined exceptions, evidence of the agreement cannot be received without the writing, or secondary evidence of its contents. MCIAA’s invocation of the Statute of Frauds is misplaced primarily because the statute applies only to executory and not to completed, executed, or partially consummated contracts. At any rate, the objection on the admissibility of evidence on the basis of the Statute of Frauds may be waived if not timely raised. Records tend to support the conclusion that MCIAA did not, as the Ouanos and the Inocians posit, object to the introduction of parol evidence to prove its commitment to allow the former landowners to repurchase their respective properties upon the occurrence of certain events.


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Re: Contracts (Void or Inexistent Contracts) VIGILAR v. AQUINO G.R. No. 180388, January 18, 2011 Facts: On 19 June 1992, petitioner Angelito M. Twaño, then Officer-in-Charge (OIC)-District Engineer of the Department of Public Works and Highways (DPWH) 2nd Engineering District of Pampanga sent an Invitation to Bid to respondent Arnulfo D. Aquino, the owner of A.D. Aquino Construction and Supplies. The bidding was for the construction of a dike by bulldozing a part of the Porac River at Barangay Ascomo-Pulungmasle, Guagua, Pampanga. The project was awarded to respondent and a “Contract of Agreement” was thereafter executed. The project was completed as evidenced by the issuance of a Certificate of Project Completion. However, the petitioners refused to pay. Thus, a complaint for collection of sum of money with damages was filed. On their Motion to dismiss, the petitioners set up the defence among others, the “Contract of Agreement” covering the project was void for violating Presidential Decree No. 1445, absent the proper appropriation and the Certificate of Availability of Funds, thus, the respondent is not entitled to be paid. Issues: 1. Whether or not the contract is void. 2. Whether or not the respondent is entitled to be paid. Held: 1. The “Contract of Agreement” is void for failing to comply with the relevant provisions of Presidential Decree No. 1445 and the Revised Administrative Code of 1987. Nevertheless, the illegality of the subject Agreements proceeds from an express declaration or prohibition by law, not from any intrinsic illegality. As such, the Agreements are not illegal per se, and the party claiming thereunder may recover what had been paid or delivered. 2. The respondent is entitled to be paid. Although the Contract of Agreement is void for failing to meet the requirements mandated by law; public interest and equity, however, dictate that the contractor should be compensated for services rendered and work done. The government project involved in this case, the construction of a dike, was completed way back on 9 July 1992. For almost two decades, the public and the government benefitted from the work done by respondent. To deny the payment to the contractor would be to allow the government to unjustly enrich itself at the expense of another. Justice and equity demand compensation on the basis of quantummeruit.


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Re: Contracts (Void or Inexistent Contracts) MANUEL O. FUENTES and LETICIA L. FUENTES v. CONRADO G. ROCA, ANNABELLE R.JOSON, ROSE MARIE R. CRISTOBALand PILAR MALCAMPO G.R. No. 178902, April 21, 2010 Facts: Sabina Tarroza, sold her land to son, Tarciano T. Roca. The latter then subsequently sell the same to petitioners. The agreement required the Fuentes spouses to pay Tarciano a down payment of P60,000.00 for the transfer of the lot’s title to him. And, within six months, Tarciano was to clear the lot of structures and occupants and secure the consent of his estranged wife, Rosario Gabriel Roca (Rosario), to the sale. Upon Tarciano’s compliance with these conditions, the Fuentes spouses were to take possession of the lot and pay him an additional P140,000.00 or P160,000.00, depending on whether or not he succeeded in demolishing the house standing on it. If Tarciano was unable to comply with these conditions, the Fuentes spouses would become owners of the lot without any further formality and payment. Eight years later, the children of Tarciano and Rosario. Eight years later, filed an action for annulment of sale and reconveyance of the land against the Fuentes spouses. The Rocas claimed that the sale to the spouses was void since Tarciano’s wife, Rosario, did not give her consent to it. Her signature on the affidavit of consent had been forged. Issue: Whether or not only Rosario, the wife whose consent was not had, could bring the action to annul that sale. Held: Under the provisions of the Civil Code governing contracts, a void or inexistent contract has no force and effect from the very beginning. And this rule applies to contracts that are declared void by positive provision of law, as in the case of a sale of conjugal property without the other spouse’s written consent. A void contract is equivalent to nothing and is absolutely wanting in civil effects. It cannot be validated either by ratification or prescription. But, although a void contract has no legal effects even if no action is taken to set it aside, when any of its terms have been performed, an action to declare its inexistence is necessary to allow restitution of what has been given under it.


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Re: Contracts (Void or Inexistent Contracts) DOMINGO GONZALO v. JOHN TARNATE, JR. G.R. No. 160600, January 15, 2014 Facts: The DPWH awarded a the contract for the improvement of the Sadsadan-Maba-ay to Bontoc. petitioner Domingo Gonzalo (Gonzalo) subcontracted to respondent John Tarnate, Jr. (Tarnate), the supply of materials and labor for the project under the latter s business known as JNT Aggregates. Their Gonzalo eight percent and four percent of the contract price, respectively, upon Tarnate s first and second billing in the project agreement stipulated, among others that Tarnate would pay to to Gonzalo eight percent and four percent of the contract price, respectively, upon Tarnate s first and second billing in the project. Gonzalo executed a deed of assignment whereby he, as the contractor, was assigning to Tarnate an amount equivalent to 10% of the total collection from the DPWH for the project. Tarnate demanded the payment of the retention fee from Gonzalo, but to no avail. Thus, he brought this suit against Gonzalo in the Regional Trial Court (RTC) Issue: Whether or not there was a valid contract Held: Under Article 1409 of the Civil Code, a contract whose cause, object or purpose is contrary to law is a void or inexistent contract. As such, a void contract cannot produce a valid one. To the same effect is Article 1422 of the Civil Code, which declares that "a contract, which is the direct result of a previous illegal contract, is also void and inexistent. Without the Sub-Contract Agreement there will be no Deed of Assignment to speak of. The illegality of the Sub-Contract Agreement necessarily affects the Deed of Assignment because the rule is that an illegal agreement cannot give birth to a valid contract. To rule otherwise is to sanction the act of entering into transaction the object of which is expressly prohibited by law and thereafter execute an apparently valid contract to subterfuge the illegality. The legal proscription in such an instance will be easily rendered nugatory and meaningless to the prejudice of the general public.


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Re: Contracts (Void or Inexistent Contracts) LAND BANK OF THE PHILIPPINES v. EDUARDO M. CACAYURAN G.R. No. 191667, April 17, 2013 Facts: The Sangguniang Bayan passed Resolution No. 58-2006, approving the construction of a commercial center on the Plaza Lot as part of phase II of the Redevelopment Plan. To finance the project, Mayor Eriguel was again authorized to obtain a loan from Land Bank, posting as well the same securities as that of the First Loan. Unlike phase 1 of the Redevelopment Plan, the construction of the commercial center at the Agoo Plaza was vehemently objected to by some residents of the Municipality. Led by respondent Eduardo Cacayuran, these residents claimed that the conversion of the Agoo Plaza into a commercial center, as funded by the proceeds from the First and Second Loans, were highly irregular, violative of the law, and detrimental to public interests, and will result to wanton desecration of the said historical and public park. Cacayuran, invoking his right as a taxpayer, filed a Complaint against the Implicated Officers and Land Bank, assailing, among others, the validity of the Subject Loans on the ground that the Plaza Lot used as collateral thereof is property of public dominion and therefore, beyond the commerce of man. Upon denial of the Motion to Dismiss dated December 27, 2006, the Implicated Officers and Land Bank filed their respective Answers. For its part, Land Bank claimed that it is not privy to the Implicated Officers’ acts of destroying the Agoo Plaza. It further asserted that Cacayuran did not have a cause of action against it since he was not privy to any of the Subject Loans. During the pendency of the proceedings, the construction of the commercial center was completed and the said structure later became known as the Agoo’s People Center (APC). Issue: Whether or not Sangguniang Bayan resolution is valid. Held: No. Mayor Eriguel’s authorization to contract the Subject Loans was not contained as it need not be contained in the form of an ordinance, the said loans and even the Redevelopment Plan itself were not approved pursuant to any law or ordinance but through mere resolutions. The distinction between ordinances and resolutions is well-perceived. While ordinances are laws and possess a general and permanent character, resolutions are merely declarations of the sentiment or opinion of a lawmaking body on a specific matter and are temporary in nature. As opposed to ordinances, no rights can be conferred by and be inferred from a resolution. In this accord, it cannot be denied that the SB violated Section 444(b)(1)(vi) of the LGC altogether.


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The passage of the Subject Resolutions was also tainted with other irregularities, such as the SB’s failure to submit the Subject Resolutions to the Sangguniang Panlalawigan of La Union for its review contrary to Section 56 of the LGC and the lack of publication and posting in contravention of Section 59 of the LGC. An act which is outside of the municipality’s jurisdiction is considered as a void ultra vires act, while an act attended only by an irregularity but remains within the municipality’s power is considered as an ultra vires act subject to ratification and/or validation. To the former belongs municipal contracts which (a) are entered into beyond the express, implied or inherent powers of the local government unit; and (b) do not comply with the substantive requirements of law e.g., when expenditure of public funds is to be made, there must be an actual appropriation and certificate of availability of funds; while to the latter belongs those which (a) are entered into by the improper department, board, officer of agent; and (b)do not comply with the formal requirements of a written contract e.g., the Statute of Frauds.


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Re: Contracts (Void or Inexistent Contracts) WILLEM BEUMER v. AVELINA AMORES G.R. No. 195670, December 3, 2012 Facts: Petitioner, a Dutch National, and respondent, a Filipina, are married. The RTC declared the nullity of their marriage on the basis of the former’s psychological incapacity. Petitioner filed a Petition for Dissolution of Conjugal Partnership. In defense, respondent averred that, with the exception of their two (2) residential houses on Lots 1 and 2142, she and petitioner did not acquire any conjugal properties during their marriage, the truth being that she used her own personal money to purchase Lots 1, 2142, 5845 and 4 out of her personal funds and Lots 2055-A and 2055-I by way of inheritance. She submitted a joint affidavit executed by her and petitioner attesting to the fact that she purchased Lot 2142 and the improvements thereon using her own money. Petitioner testified that while Lots 1, 2142, 5845 and 4 were registered in the name of respondent, these properties were acquired with the money he received from the Dutch government as his disability benefit since respondent did not have sufficient income to pay for their acquisition. Issue: Whether the petitioner is entiled to the land as partitioned Held: The Constitution itself which demarcates the rights of citizens and non-citizens in owning Philippine land. To be sure, the constitutional ban against foreigners applies only to ownership of Philippine land and not to the improvements built thereon, such as the two (2) houses standing on Lots 1 and 2142 which were properly declared to be co-owned by the parties subject to partition. Needless to state, the purpose of the prohibition is to conserve the national patrimony36 and it is this policy which the Court is duty-bound to protect.


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Re: Contracts (Void or Inexistent Contracts) JOSELITO C. BORROMEO v. JUAN T. MINA G.R. No. 193747, June 5, 2013 Facts: Subject of this case is a 1.1057 hectare parcel of agriculture land. Registered in the name of respondent. It appears from the foregoing TCT that respondent’s title over the said property is based on Emancipation Patent No. 393178 issued by the DAR. Petitioner filed a Petition before the that: (a) his landholding over the subject property be exempted from the coverage of the government’s OLT program; and (b) respondent’s emancipation patent over the subject property be consequently revoked and cancelled. To this end, petitioner alleged that he purchased the aforesaid property from its previous owner, one Garcia, as evidenced by a deed of sale. For various reasons, however, he was not able to effect the transfer of title in his name. Subsequently, to his surprise, he learned that an emancipation patent was issued in respondent’s favor without any notice to him. He equally maintained that his total agricultural landholdings was only 3.3635 hectares and thus, within the landowner's retention limits under both PD 27 and Republic Act No. 6647, otherwise known as the "Comprehensive Agrarian Reform Law of 1988." In this regard, he claimed that the subject landholding should have been excluded from the coverage of the government’s OLT program. Petitioner contends that the sale between him and Garcia as null and void. In this connection, he avers that there was actually an oral sale entered into by him and Garcia. The said oral sale was consummated on the same year as petitioner had already occupied and tilled the subject property and started paying real estate taxes thereon Issue: Whether or not the sale is valid Held: PD 27 prohibits the transfer of ownership over tenanted rice and/or corn lands after October 21, 1972 except only in favor of the actual tenant tillers thereon. Records reveal that the subject landholding fell under the coverage of PD 27 on October 21, 197238 and as such, could have been subsequently sold only to the tenant thereof, i.e., the respondent. Notably, the status of respondent as tenant is now beyond dispute considering petitioner’s admission of such fact.39 Likewise, as earlier discussed, petitioner is tied down to his initial theory that his claim of ownership over the subject property was based on the 1982 deed of sale. Therefore, as Garcia sold the property in 1982 to the petitioner who is evidently not the tenant-beneficiary of the same, the said transaction is null and void for being contrary to law.


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Re: Contracts (Void or Inexistent Contracts) SEVERINO M. MANOTOK IV et. al. v. HEIRS OF HOMER L. BARQUE G.R. Nos. 162335 & 162605, March 6, 2012 Facts: Manotoks, Barques and Manahans filed separate motions for reconsideration of the SC’s Decision promulgated on August 24, 2010. The Manotoks argued that The Honorable Court erred in concluding that the Manotoks had no valid Deed of Conveyance of Lot 823 from the Government The original of Deed of Conveyance No. 29204 gave the register of deeds the authority to issue the transfer certificate of title in the name of the buyer Severino Manotok, which is required by law to be filed with and retained in the custody of the register of deeds.We presume that the copy thereof actually transmitted to and received by the register of deeds did contain the Secretary’s signaturebecause he in fact issued the TCT. And we rely on this presumption because the document itself can no longer be found. The Manahans propounded the same theory that contracts of sale over friar lands without the approval of the Secretary of Natural Resources may be subsequently ratified. Issue: Whether or not the contention is meritorious Held: As to the applicability of Art. 1317 of the Civil Code, the SC maintain that contracts of sale lacking the approval of the Secretary fall under the class of void and inexistent contracts enumerated in Art. 1409 which cannot be ratified. Section 18 of Act No. 1120 mandated the approval by the Secretary for a sale of friar land to be valid. The official document denominated as “Sale Certificate” clearly required both the signatures of the Director of Lands who issued such sale certificate to an applicant settler/occupant and the Secretary of the Interior/Agriculture and Natural Resources indicating his approval of the sale. These forms had been prepared and issued by the Chief of the Bureau of Public Lands under the supervision of the Secretary of the Interior, consistent with Act No. 1120 “as may be necessary x x x to carry into effect all the provisions [thereof] that are to be administered by or under [his] direction, and for the conduct of all proceedings arising under such provisions.


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Re: Contracts (Void or Inexistent Contracts) DEPARTMENT OF PUBLIC WORKS AND HIGHWAYS v. QUIWA G.R. No. 183444, October 12, 2011 Facts: Respondent was engaged by the DPWH through its Project Manager, Philip F. Meñez, for the construction of an emergency project under the Mount Pinatubo Rehabilitation Project. It was alleged that prior to the engagement of the contractors, Undersecretary Teodoro T. Encarnacion of DPWH, who had overall supervision of the infrastructure and flood control projects, met with the contractors and insisted on the urgency of the said projects. Respondents claimed that they had accomplished works on the Sacobia-Bamban-Parua River Control Project pursuant to this emergency project. Ronaldo E. Quiwa claimed that under two construction agreements with the DPWH, his construction company, the R.E.Q. Construction, had accomplished the channeling of the Sacobia-Bamban-Parua River Control Project. Initially, R.E.Q. Construction filed its money claim with the DPWH, which referred the matter to the Commission on Audit. The COA returned the claims to the DPWH with the information that the latter had already been given the funds and the authority to disburse them. When respondent Quiwa filed his claims with the DPWH, it failed to act on these, resulting in the withholding of the payment due him, despite the favorable report and Certification of Completion made by the Asstistant Project Manager for Operations, Engineer Rolando G. Santos. Prompted by the prolonged inaction of the DPWH on their claims, respondents jointly filed an action for a sum of money against the DPWH. Issue: Whether or not the contract is void. Held: No, It should be noted that there was an appropriation amounting to P400 million, which was increased to P700 million. The funding was for the rehabilitation of the areas devastated and affected by Mt. Pinatubo, which included the Sacobia-Bamban-Parua River for which some of the channeling, desilting and diking works were rendered by herein respondents’ construction companies. It was, however, undisputed that there was no certification from the chief accountant of DPWH regarding the said expenditure. In addition, the project manager has a limited authority to approve contracts in an amount not exceeding P1 million. Notwithstanding these irregularities, it should be pointed out that there is no novelty regarding the question of satisfying a claim for construction contracts entered into by the government, where there was no appropriation and where the contracts were considered void due to technical reasons. It has been settled in several cases that payment for services done on account of the government, but based on a void contract, cannot be avoided.


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ESTOPPEL Concept  

Dy v. Bibat-Palamos (G.R. No. 196200, September 11, 2013) Republic of the Philippines v. Minimtim (G.R. No. 169599, March 16, 2011)

Estoppel in Pais or Equitable Estoppel  

Spouses Chung v. Ulanday Construction (G.R. No. 156038, October 11, 2010) Megan Sugar Corporation v. RTC of Iloilo (G.R. No. 170352, June 1, 2011)

Estoppel by Laches       

Modesto Sanchez v. Andrew Sanchez (G.R. No. 187661, December 4, 2013) Citibank N.A. v. Ester H. Tanco-Gabaldon (G.R. No. 198444, September 4, 2013) Bobby Tan v. Grace Andrade (G.R. No. 171904, August 7, 2013) Far East Bank And Trust Company v. Sps. Cayetano (G.R. No. 179909, January 25, 2010) Sime Darby Pilipinas, Inc. v. Goodyear Philippines, Inc. (G.R. No. 182148, June 8, 2011) Gaitero v. Almeria (G.R. No. 181812, June 8, 2011) Estate of Cabacungan v. Laigo, (G.R. No. 175075, August 15, 2011)

PRESCRIPTION 

Philippine National Bank v. Aznar (G.R No. 171805, May 30, 2011)

TRUSTS Express Trusts 

Philippine National Bank v. Aznar (G.R. No. 171805, May 30,2011)

Implied Trusts   

Iglesia Filipina Independiente v. Heirs of Taeza (G.R. No. 179597, February 3, 2014) Republic v. Sandiganbayan (G.R. No. 166859, April 12, 2011) Estate of Cabacungan v. Laigo (G.R. No. 175073, August 13, 2011)


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COMPROMISE  

Land Bank of the Philippines v. Heirs of Soriano (G.R. No. 178312, January 30, 2013) Mechanvez v. Bermudez (G.R. No. 185368, October 11, 2012)

Rescission 

Migule v. Montanez (G.R. No. 191336, January 25, 2012)

PARTNERSHIP 

Realubit v. Jaso (G.R. No. 178782, September 21, 2011)

CONCURRENCE AND PREFERENCE OF CREDITS 

Philippine Deposit Insurance Corporation v. Bureau of Internal Revenue (G.R. No. 172892, June 13, 2013)


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Re: Estoppel (Concept) ERNESTO DY, v. HON. GINA M. BIBAT- PALAMOS, and ORIX METRO LEASING AND FINANCE CORPORATION G.R. No. 196200, September 11, 2013 Facts: To fund its acquisition of a cargo vessel, petitioner obtained a loan from respondent Orix Metro Leasing and Finance Corporation. Despite the demand letters sent by respondent, petitioner failed to make the scheduled payments due to financial losses. Upon applying for the restructuring of the loan, petitioner and respondent agreed to a restructured schedule of payment. However, despite the restructuring of the loan, respondent proceeded and succeeded in foreclosing the cargo vessel. The RTC ordered the seizure of the cargo vessel and turned over its possession to respondent. Subsequently, respondent transferred all of its rights, title to and interests, as mortgagee, to Colorado Shipyard Corporation (Colorado). Petitioner argued that he had not yet defaulted in his loan because respondent had agreed to a restructured schedule of payment. There being no default, the foreclosure of the cargo vessel was premature. As it turned out, the cargo vessel had sustained severe damage and deterioration and had sunk in its shipyard because of its exposure to the elements. Petitioner insisted that he had the right to require that the vessel be returned to him in the same condition that it had been at the time it was wrongfully seized by respondent or, should it no longer be possible, that another vessel of the same tonnage, length and beam similar to that of the cargo ship be delivered. Issue: Whether or not petitioner is estopped from asking for the return of the vessel in the condition it had at the time it was seized. Held: No. Petitioner is not barred from demanding the return of the vessel in its former condition. For estoppel to take effect, there must be knowledge of the real facts by the party sought to be estopped and reliance by the party claiming estoppel on the representation made by the former. In this case, petitioner cannot be estopped from asking for the return of the cargo ship in the condition that it had been at the time it was seized by respondent because he had not known of the deteriorated condition of the ship. Petitioner, who did not have possession of the ship, was only informed of its destruction when Colorado filed its Manifestation seeking permission from the court to cut the sunken vessel into pieces, sell its parts and deposit the proceeds in escrow. During the course of the proceedings in the RTC, the CA and this Court, petitioner could not have known of the worsened condition of the cargo ship because it was in the possession of Colorado.


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Re: Estoppel (Concept) REPUBLIC OF THE PHILIPPINES, v. JUANITO MANIMTIM, JULIO UMALI, represented by AURORA U. JUMARANG, SPOUSES EDILBERTO BAÑANOLA and SOFIA BAÑANOLA, ZENAIDA MALABANAN, MARCELINO MENDOZA, DEMETRIO BARRIENTOS, FLORITA CUADRA, and FRANCISCA MANIMTIM G.R. No. 169599, March 16, 2011 Facts: Respondents sought the registration of two parcels of land in their name alleging that they have acquired the same by purchase and that they have been in actual, open, public, and continuous possession of the subject land under claim of title exclusive of any other rights and adverse to all other claimants by themselves and through their predecessors-in-interest since time immemorial. But the Office of the Solicitor General (OSG) opposed the applications on the ground that the evidence submitted by respondents was insufficient to establish their alleged possession to warrant registration of the titles in their names. The RTC approved the application for the confirmation and registration of the parcels of land which was reversed by the CA on appeal. Among the issues raised by respondents before the Supreme Court was the failure of the OSG, represented by the City Prosecutor of Tagaytay, to contest the respondents’ possession of the parcels of land, among other issues that it had put forward in all the hearings before the RTC. Issue: Whether or not the State can be estopped by the failure of the OSG to contest respondents’ possession over the subject parcels of land. Held: No. The fact that the public prosecutor of Tagaytay City did not contest the respondents’ possession of the subject property is of no moment. The absence of opposition from government agencies is of no controlling significance because the State cannot be estopped by the omission, mistake or error of its officials or agents.


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Re: Estoppel (Estoppel in Pais or Equitable Estoppel) SPOUSES VICTORIANO CHUNG and DEBBIE CHUNG, v. ULANDAY CONSTRUCTION, INC. G.R. No. 156038, October 11, 2010 Facts: In February 1985, the petitioners contracted with respondent Ulanday Construction, Inc. (respondent) to construct, within a 150-day period, the concrete structural shell of the former’s two storey residential house. The Contract provided, among others that the respondent cannot change or alter the plans, specifications, and works without the petitioners’ prior written approval, a mere act of tolerance shall not constitute approval. On March 17, 1995, the petitioners paid the downpayment, with the agreement that the remaining balance shall be paid based on the progress billings. Petitioners only settled the first seven (7) progress billings. As the actual construction went on, the respondent effected 19 change orders without the petitioners’ prior written approval. The petitioners, nonetheless, paid for Change Order No. 1 and partially for Change Order Nos. 16 and 17. On July 4, 1995, the respondent notified the petitioners that the delay in the payment of progress billings delays the accomplishment of the contract work. The respondent made similar follow-up letters between July 1995 to February 1996. On March 28, 1996, the respondent demanded full payment for progress billings and all change orders it effected. In a letter dated April 16, 1996, the petitioners denied liability, asserting that the respondent violated the contract provisions by, among others, failing to finish the contract within the 150-day stipulated period, failing to comply with the provisions on change orders, and overstating its billings. On May 8, 1996, the respondent filed a complaint with the Regional Trial Court (RTC) for collection of the unpaid balance of the contract and the change orders plus damages. The RTC found that both parties have not complied strictly with the requirements of the contract. It observed that change orders were made without the parties’ prescribed written agreement, and that each party should bear their respective costs. The court noted, however, that the petitioners were nonetheless liable for the unpaid change orders since petitioners that such amount was still due upon completion. It also noted that the respondent should not be faulted or penalized for the delay in the completion of the contract within the 150-day period due to the petitioners’ delay in the payment of the progress billings. On appeal, the appellate court applied the principle of estoppel in pais. The court noted that the petitioners, in effect, impliedly consented or tacitly ratified all of the change orders made by respondent by paying several of them and their inaction or non-objection to the construction of the projects covered by the change orders.


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Issue: Whether or not the act of petitioners in undertaking payment of several change orders would estop them from denying the other change orders which were effected by the respondent without the petitioner’s consent. Held: No. The petitioners’ payment of Change Order Nos. 1, 16, and 17 and their non-objection to the other change orders effected by the respondent cannot give rise to estoppel in pais that would render the petitioners liable for the payment of all change orders. Estoppel in pais, or equitable estoppel, arises when one, by his acts, representations or admissions or by his silence when he ought to speak out, intentionally or through culpable negligence, induces another to believe certain facts to exist and the other rightfully relies and acts on such beliefs so that he will be prejudiced if the former is permitted to deny the existence of such facts. The real office of the equitable norm of estoppel is limited to supplying deficiency in the law, but it should not supplant positive law. In this case, the requirement for the petitioners’ written consent to any change or alteration in the specifications, plans and works is written in the contract between the parties. Thus, the petitioners did not, by accepting and paying for Change Order Nos. 1, 16, and 17, do away with the contractual term as regards to the other change orders. The payments for Change Order Nos. 1, 16, and 17 are, at best, acts of tolerance on the petitioners’ part that could not modify the contract as a whole. Consistent with this ruling, the petitioners are still liable for the balance on Change Order Nos. 16 and 17 that, to date, remain unpaid.


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Re: Estoppel (Estoppel in Pais or Equitable Estoppel) MEGAN SUGAR CORPORATION v. REGIONAL TRIAL COURT of ILOILO, NEW FRONTIER SUGAR CORPORATION and EQUITABLE PCI BANK. G.R. No. 170352, June 1, 2011 Facts: On July 23, 1993, respondent New Frontier Sugar Corporation (NFSC) obtained a loan from respondent Equitable PCI Bank (EPCIB). Said loan was secured by a real estate mortgage over NFSC’s land located in Iloilo, and a chattel mortgage over NFSC’s sugar mill. Because of liquidity problems and continued indebtedness to EPCIB, NFSC entered into a Memorandum of Agreement (MOA) with Central Iloilo Milling Corporation (CIMICO), whereby the latter agreed to take-over the operation and management of the NFSC raw sugar factory and facilities. On April 19, 2002, NFSC filed a complaint for specific performance and collection against CIMICO for the latter’s failure to pay its obligations under the MOA. In response, CIMICO filed with the Regional Trial Court (RTC) a case against NFSC for sum of money and/or breach of contract. On May 10, 2002, because of NFSC’s failure to pay its debt, EPCIB foreclosed the mortgage over NFSC’s land and sugar mill. During public auction, EPCIB was the sole bidder and was thus able to buy the entire property and consolidate the titles in its name. EPCIB then employed the services of Philippine Industrial Security Agency (PISA) to help it in its effort to secure the land and the sugar mill. On September 16, 2002, CIMICO filed with the RTC an Amended Complaint where it impleaded PISA and EPCIB and upon the motion of CIMICO, the RTC issued a restraining order, directing EPCIB and PISA to desist from taking possession over the property in dispute. Hence, CIMICO was able to continue its possession over the property. On October 3, 2002, CIMICO and petitioner Megan Sugar Corporation (MEGAN) entered into a MOA whereby MEGAN assumed CIMICO’s rights, interests and obligations over the property. As a result of the foregoing undertaking, MEGAN started operating the sugar mill on November 18, 2002. On November 22, 2002, Passi Iloilo Sugar Central, Inc. (Passi Sugar) filed with the RTC a Motion for Intervention claiming to be the vendee of EPCIB. Passi Sugar claimed that it had entered into a Contract to Sell with EPCIB after the latter foreclosed NFSC’s land and sugar mill. On November 29, 2002, during the hearing on the motion for intervention, Atty. Reuben Mikhail Sabig (Atty. Sabig) appeared before the RTC and entered his appearance as counsel for MEGAN. Several counsels objected to Atty. Sabig’s appearance since MEGAN was not a party to the proceedings; however, Atty. Sabig explained to the court that MEGAN had purchased the interest of CIMICO and manifested that his statements would bind MEGAN.


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In the course of trial, the RTC rendered decisions unfavorable to MEGAN. Aggrieved, it MEGAN filed before the Court of Appeals a petition for certiorari. In said petition, MEGAN argued, among others that the RTC had no jurisdiction over MEGAN. The appellate court dismissed the petition ruling that since Atty. Sabig had actively participated before the RTC, MEGAN was already estopped from assailing the RTC’s jurisdiction. Hence, the petition before the Supreme Court. Issue: Whether or not MEGAN is barred by the principle of estoppel. Held: Yes. The doctrine of estoppel is based upon the grounds of public policy, fair dealing, good faith and justice, and its purpose is to forbid one to speak against his own act, representations, or commitments to the injury of one to whom they were directed and who reasonably relied thereon. The doctrine of estoppel springs from equitable principles and the equities in the case. It is designed to aid the law in the administration of justice where without its aid injustice might result. It has been applied by this Court wherever and whenever special circumstances of a case so demand. Based on the events and circumstances surrounding the issuance of the assailed orders, this Court rules that MEGAN is estopped from assailing both the authority of Atty. Sabig and the jurisdiction of the RTC. While it is true, as claimed by MEGAN, that Atty. Sabig said in court that he was only appearing for the hearing of Passi Sugar’s motion for intervention and not for the case itself, his subsequent acts, coupled with MEGAN’s inaction and negligence to repudiate his authority, effectively bars MEGAN from assailing the validity of the RTC proceedings under the principle of estoppel. In the first place, Atty. Sabig is not a complete stranger to MEGAN. As a matter of fact, as manifested by EPCIB, Atty. Sabig and his law firm SABIG SABIG and VINGCO Law Office has represented MEGAN in other cases where the opposing parties involved were also CIMICO and EPCIB. As such, contrary to MEGAN’s claim, such manifestation is neither immaterial nor irrelevant, because at the very least, such fact shows that MEGAN knew Atty. Sabig.


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Re: Estoppel (Estoppel by Laches) MODESTO SANCHEZ v. ANDREW SANCHEZ G.R. No. 187661, December 4, 2013 Facts: The instant controversy was brought to fore because of the Deed of Absolute Sale, dated November 25, 1981, which expressly states that the parcel of land registered in the name of Andrew and covered by TCT No. 143744 has been conveyed to his brother, Modesto through a sale. Andrew assailed the said document as sham and replete with falsehood and fraudulent misrepresentations. While Andrew admitted that he sent the said pre-signed deed of sale to Modesto in response to the latter’s offer to buy his abovementioned property, he however, alleged that the said transaction did not push through because Modesto did not have the financial means to purchase the property at that time. He also stated that he sent the said document undated and not notarized. He alleged that he tried to retrieve the said deed from Modesto, but the latter failed to return it despite several reminders. Andrew further alleged that he continued to allow Modesto to occupy his property since their ancestral home was built thereon. This alleged liberality of Andrew was later extended to Modesto’s live-in partner, Juanita H. Yap, as evidenced by the Bequest of Usufruct, which the former had executed. In 2000, Modesto, through Yap, allegedly offered again to buy the said property, but Andrew already refused to part with his lot. Andrew later discovered that his certificate of title was missing. Thus, he filed an Affidavit of Loss with the ROD of Manila. Subsequently, he learned that a Petition for Reconstitution of TCT No. 143744 was filed by Modesto on the basis of the said deed of sale, which already appeared to have been notarized in 1981. Thus, Andrew filed the case below to seek for the annulment of the said document. During the pendency of the case, Andrew’s certificate of title was cancelled and a new one in the name of Modesto was issued. By way of affirmative and special defences, Modesto alleged lack of cause of action, prescription, and laches. Issue: Whether the principle of laches is applicable in this case Held: It is apparent from the records that the RTC did not conduct a hearing to receive evidence proving that Andrew was guilty of prescription or laches. There was no full-blown trial. The case was simply dismissed on the basis of the pleadings submitted by the parties. The Court note that the RTC admitted the Amended Complaint and gave Andrew 15 days to comment on Modesto’s Motion to Dismiss based on affirmative defenses and likewise gave Modesto the same period to file his rejoinder, after which, it considered the matter submitted for resolution. The Court has consistently held that the affirmative defense of prescription does not automatically warrant the dismissal of a complaint under Rule 16 of the Rules of Civil Procedure. An allegation of prescription can effectively be used in a motion to dismiss only when the complaint on its face


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shows that indeed the action has already prescribed. If the issue of prescription is one involving evidentiary matters requiring a full-blown trial on the merits, it cannot be determined in a motion to dismiss. Those issues must be resolved at the trial of the case on the merits wherein both parties will be given ample opportunity to prove their respective claims and defenses. Contrary to Modesto’s contention, it is not apparent from the complaint that the action had already prescribed. Furthermore, it should be noted that it is the relief based on the facts alleged, and not the relief demanded, which is taken into consideration in determining the cause of action. Therefore, in terms of classifying the deed, whether it is valid, void or voidable, it is of no significance that the relief prayed for was Annulment of Deed of Absolute Sale. The issue of prescription hinges on the determination of whether the sale was valid, void or voidable. The Court agrees with the CA that the issue of prescription in this case is best ventilated in a full-blown proceeding before the trial court where both parties can substantiate their claims. The trial court is in the best position to ascertain the credibility of both parties. Upon closer inspection of the complaint, it would seem that there are several possible scenarios that may have occurred given the limited set of facts. The statement "transaction did not push through since defendant did not have the financial wherewithal to purchase the subject property" creates confusion and allows for several different interpretations. On one side, it can be argued that said contract is void and consequently, the right to challenge such contract is imprescriptible. Where the deed of sale states that the purchase price has been paid but in fact has never been paid, the deed of sale is null and void ab initio for lack of consideration. Such ruling of the Court would mean that when the deed of sale declares that the price has been paid, when in fact it has never been paid, that would be considered as a "badge of simulation" and would render the contract void and consequently, the right to challenge the same is imprescriptible. In the case at bar, by merely basing analysis on the pleadings submitted, in particular, the complaint, it would be an impossibility to deduce the truth as to whether the price stated in the deed was in fact paid. The only way to prove this is by going to trial. On the other hand, a different analysis of the statement may yield another interpretation. One can also deduce that what actually transpired was a simple non-payment of purchase price, which will not invalidate a contract and could only give rise to other legal remedies such as rescission or specific performance. In this scenario, the contract remains valid and therefore subject to prescription. It is also apparent from the pleadings that both parties denied each other’s allegations. It is then but logical to review more evidence on disputed matters. On this score alone, it is apparent that the complaint on its face does not readily show that the action has already prescribed. The Court emphasize once more that a summary or outright dismissal of an action is not proper where there are factual matters in dispute, which require presentation and appreciation of evidence. Furthermore, settled is the rule that the elements of laches must be proven positively. Laches is evidentiary in nature, a fact that cannot be established by mere allegations in the pleadings and cannot be resolved in a motion to dismiss. At this stage therefore, the dismissal of the complaint on the ground of laches is premature. Those issues must be resolved at the trial of the case on the merits, wherein both parties will be given ample opportunity to prove their respective claims and defenses.


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Re: Estoppel (Estoppel by Laches) CITIBANK N.A. v. ESTER TANCO-GABALDON G.R. No. 198444, September 4, 2013 Facts: On September 21, 2007, Gabaldon, Tanco and the Heirs of Ku Tiong Lam filed with the SECEPD a complaint for violation of the Revised Securities Act (RSA) and the SRC against Citibank and its officials, Citigroup and its officials, and Lim, who is Citigroup’s Vice-President and Director. In their Complaint, the respondents alleged that Gabaldon, Tanco and Lam were joint accountholders of petitioner Citigroup. Sometime in March 2000, the respondents met with petitioner Lim, who "induced" them into signing a subscription agreement for the purchase of USD 2,000,000.00 worth of Ceres II Finance Ltd. Income Notes. In September of the same year, they met again with Lim for another investment proposal, this time for the purchase of USD500,000.00 worth of Aeries Finance II Ltd. Senior Subordinated Income Notes. In a January 2003 statement issued by the Citigroup, the respondents learned that their investments declined, until their account was totally wiped out. Upon verification with the SEC, they learned that the Ceres II Finance Ltd. Notes and the Aeries Finance II Ltd. Notes were not duly registered securities. They also learned that Ceres II Finance Ltd., Aeries Finance II Ltd. and the petitioners, among others, are not dulyregistered security issuers, brokers, dealers or agents. Petitioners Citibank and Citigroup claimed that they did not receive a copy of the complaint and it was only after the BSP wrote them on October 26, 2007 that they were furnished a copy. They replied to the BSP disclaiming any participation by the Citibank or its officers on the transactions and products complained of. Citibank and Citigroup furnished a copy of its letter to the SEC-EPD and the respondents’ counsel. On August 1, 2008, the SEC-EPD asked from the petitioners certain documents to be submitted during a scheduled conference, to which they complied. The petitioners, however, reiterated its position that they are not submitting to the jurisdiction of the SEC. Petitioner Lim contends that the CA committed an error when it did not apply the principle of laches vis-à-vis the petitioners’ administrative liability. Issue: Whether the filing of the action for the petitioners’ administrative liability is barred by laches Held: Laches has been defined as the failure or neglect for an unreasonable and unexplained length of time to do that which, by exercising due diligence, could or should have been done earlier, thus, giving rise to a presumption that the party entitled to assert it either has abandoned or declined to assert it. Section 54 of the SRC provides for the administrative sanctions to be imposed against persons or entities violating the Code, its rules or SEC orders. Just as the SRC did not provide a prescriptive


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period for the filing of criminal actions, it likewise omitted to provide for the period until when complaints for administrative liability under the law should be initiated. On this score, it is a wellsettled principle of law that laches is a recourse inequity, which is, applied only in the absence of statutory law. And though laches applies even to imprescriptible actions, its elements must be proved positively. Ultimately, the question of laches is addressed to the sound discretion of the court and, being an equitable doctrine, its application is controlled by equitable considerations. In this case, records bear that immediately after the respondents discovered in 2004 that the securities they invested in were actually worthless, they filed on October 23, 2005 a complaint for violation of the RSA and SRC with the Mandaluyong City Prosecutor's Office. It took the prosecutor 3 years to resolve the complaint and refer the case to the SEC, in conformity with the Court's pronouncement in Baviera that all complaints for any violation of the SRC and its IRR should be filed with the SEC. Clearly, the filing of the complaint with the SEC on September 21, 2007 is not barred by laches as the respondents' judicious actions reveal otherwise.


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Re: Estoppel (Estoppel by Laches) BOBBY TAN, v. GRACE ANDRADE G.R. No. 171904, August 7, 2013 Facts: Rosario Vda. De Andrade was the registered owner of four parcels of land known as Lots 17, 18, 19, and 20 situated in Cebu City which she mortgaged to and subsequently foreclosed by one Simon. When the redemption period was about to expire, Rosario sought the assistance of Bobby Tan who agreed to redeem the subject properties. Thereafter, Rosario sold the same to Bobby and her son, Proceso Andrade for P100,000.00 as evidenced by a Deed of Absolute Sale dated April 29, 1983. On July 26, 1983, Proceso, Jr. executed a Deed of Assignment, ceding unto Bobby his rights and interests over the subject properties in consideration of P50,000.00. The Deed of Assignment was signed by, among others, Henry Andrade one of Rosario’s sons, as instrumental witness. Notwithstanding the aforementioned Deed of Assignment, Bobby extended an Option to Buy the subject properties in favor of Proceso, Jr., giving the latter until 7:00 in the evening of July 31, 1984 to purchase the same for the sum of P310,000.00. When Proceso, Jr. failed to do so, Bobby consolidated his ownership over the subject properties, and the TCTs therefor were issued in his name. On October 7, 1997, Rosario’s children filed a complaint for reconveyance and annulment of deeds of conveyance and damages against Bobby before the RTC. In their complaint, they alleged that the transaction between Rosario and Bobby was not one of sale but was actually an equitable mortgage which was entered into to secure Rosario’s indebtedness with Bobby. They also claimed that since the subject properties were inherited by them from their father, Proceso Andrade, Sr. the subject properties were conjugal in nature, and thus, Rosario had no right to dispose of their respective shares therein. In this light, they argued that they remained as co-owners of the subject properties together with Bobby, despite the issuance of the TCTs in his name. Issue: Whether or not laches already set-in in this case Held: Pertinent to the resolution of this case is Article 160 of the Civil Code which states that "all property of the marriage is presumed to belong to the conjugal partnership, unless it be proved that it pertains exclusively to the husband or to the wife." For this presumption to apply, the party invoking the same must, however, preliminarily prove that the property was indeed acquired during the marriage. As a condition sine qua non for the operation of Article 160 in favor of the conjugal partnership, the party who invokes the presumption must first prove that the property was acquired during the marriage. In other words, the presumption in favor of conjugality does not operate if there is no showing of when the property alleged to be conjugal was acquired. Moreover, the presumption may be rebutted


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only with strong, clear, categorical and convincing evidence. There must be strict proof of the exclusive ownership of one of the spouses, and the burden of proof rests upon the party asserting it. The presumption cannot prevail when the title is in the name of only one spouse and the rights of innocent third parties are involved. Moreover, when the property is registered in the name of only one spouse and there is no showing as to when the property was acquired by same spouse, this is an indication that the property belongs exclusively to the said spouse. Besides, the Court observes that laches had already set in, thereby precluding the Andrades from pursuing their claim. Case law defines laches as the failure to assert a right for an unreasonable and unexplained length of time, warranting a presumption that the party entitled to assert it has either abandoned or declined to assert it. Records disclose that the Andrades took 14 years before filing their complaint for reconveyance in 1997. The argument that they did not know about the subject transaction is clearly belied by the facts on record. It is undisputed that Proceso, Jr. was a co-vendee in the subject deed of sale, while Henry was an instrumental witness to the Deed of Assignment and Option to Buy both dated July 26, 1983. Likewise, Rosario’s sons, Proceso, Jr. and Andrew, did not question the execution of the subject deed of sale made by their mother to Bobby. These incidents can but only lead to the conclusion that they were well-aware of the subject transaction and yet only pursued their claim 14 years after the sale was executed.


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Re: Estoppel (Estoppel by Laches) FAR EAST BANK AND TRUST COMPANY v. CAYETANO G.R. No. 179909, January 25, 2010 Facts: Respondent Cayetano executed a special poThe Courtr of attorney in favor of her daughter Teresita C. Tabing authorizing her to contract a loan from petitioner in an amount not more than P300,000.00 and to mortgage her 2 lots. For the approval of the loan, Cayetano also executed an affidavit of non-tenancy.Petitioner loaned Tabing P100,000.00 secured by 2 promissory notes and a real estate mortgage over Cayetano’s 2 properties. The mortgage document was signed by Tabing and her husband as mortgagors in their individual capacities, without stating that Tabing was executing the mortgage contract for and in behalf of the owner Cayetano. Petitioner foreclosed the mortgage for failure of the respondents and the spouses Tabing to pay the loan.Subsequently, petitioner consolidated its title and obtained new titles in its name after the redemption period lapsed without respondents taking any action. More than 5 years later, respondents filed a complaint for annulment of mortgage and extrajudicial foreclosure of the properties with damages. Respondents sought nullification of the real estate mortgage and extrajudicial foreclosure sale. Issue: Whether or not the principle of laches is applicable Held: Notwithstanding the nullity of the real estate mortgage executed by Tabing and her husband, the Court finds that the equity principle of laches is applicable in the instant case. Laches is negligence or omission to assert a right within a reasonable time, warranting a presumption that the party entitled to assert it either has abandoned it or declined to assert it. Its essential elements are: (1) conduct on the part of the defendant, or of one under whom he claims, giving rise to the situation complained of; (2) delay in asserting complainant’s right after he had knowledge of the defendant’s conduct and after he has an opportunity to sue; (3) lack of knowledge or notice on the part of the defendant that the complainant would assert the right on which he bases his suit; and (4) injury or prejudice to the defendant in the event relief is accorded to the complainant. In the present case, records clearly show that respondents could have filed an action to annul the mortgage on their properties, but for unexplained reasons, they failed to do so. They only questioned the loan and mortgage transactions in December 1996, or after the lapse of more than 5 years from the date of the foreclosure sale. It bears noting that the real estate mortgage was registered and annotated on the titles of respondents, and the latter The Court even informed of the extrajudicial foreclosure and the scheduled auction. Instead of impugning the real estate mortgage and opposing the scheduled public auction, respondents’ lawyer wrote a letter to petitioner and


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merely asked that the scheduled auction be postponed to a later date. Even after 5 years, respondents still failed to oppose the foreclosure and the subsequent transfer of titles to petitioner when their agent, Tabing, acting in behalf of Cayetano, sent a letter proposing to buy back the properties. It was only when the negotiations failed that respondents filed the instant case. Clearly, respondents slept on their rights.


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Re: Estoppel (Estoppel by Laches) SIME DARBY PILIPINAS, INC., GOODYEAR PHILIPPINES, INC. and MACGRAPHICS CARRANZ INTERNATIONAL CORPORATION v. GOODYEAR PHILIPPINES, INC. G.R. No. 183210 and 182148, June 8, 2011 Facts: Macgraphics owned several billboards across Metro Manila and other surrounding municipalities, one of which was a 35’ x 70’ neon billboard. The Magallanes billboard was leased by Macgraphics to Sime Darby in April 1994 at a monthly rental of P120,000.00. The lease had a term of four years and was set to expire on March 30, 1998. Upon signing of the contract, Sime Darby paid Macgraphics a total of P1.2 million representing the ten-month deposit which the latter would apply to the last ten months of the lease. Thereafter, Macgraphics configured the Magallanes billboard to feature Sime Darby’s name and logo. Sime Darby executed a Memorandum of Agreement7 (MOA) with Goodyear, whereby it agreed to sell its tire manufacturing plants and other assets to the latter for a total of P1.5 billion. Goodyear improved its offer to buy the assets of Sime Darby from P1.5 billion to P1.65 billion. The increase of the purchase price was made in consideration, among others, of the assignment by Sime Darby of the receivables in connection with its billboard advertising in Makati City and Pulilan, Bulacan. Sime Darby and Goodyear executed a deed entitled "Deed of Assignment in connection with Microwave Communication Facility and in connection with Billboard Advertising in Makati City and Pulilan, Bulacan through which Sime Darby assigned, among others, its leasehold rights and deposits made to Macgraphics pursuant to its lease contract over the Magallanes billboard. Goodyear replied stating that due to budget constraints, it could not accept Macgraphics’ offer to integrate the cost of changing the design to the monthly rental. Goodyear stated that it intended to honor theP120,000.00 monthly rental rate given by Macgraphics to Sime Darby. It then requested that Macgraphics send its quotation for the simple background repainting and re-lettering of the neon tubing for the Magallanes billboard. Due to Macgraphics’ refusal to honor the Deed of Assignment, Goodyear sent Sime Darby a letter,1 via facsimile, demanding partial rescission of the Deed of Assignment and the refund ofP1,239,000.00, the pro-rata value of Sime Darby’s leasehold rights over the Magallanes billboard. As Sime Darby refused to accede to Goodyear’s demand for partial rescission, the latter commenced Civil Case In its complaint,Goodyear alleged that Sime Darby was unable to deliver the object of the Deed of Assignment Issue: Whether or not laches is applicable in the case


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Held: Regarding laches, it is an issue raised by Sime Darby for the first time only in this Court. Basic is the rule that issues not raised below cannot be raised for the first time on appeal. Points of law, theories, issues and arguments not brought to the attention of the lower court need not be, and ordinarily will not be, considered by the reviewing court, as they cannot be raised for the first time at that late stage. Basic considerations of due process impel the adoption of this rule. Notwithstanding, the Court finds that the doctrine of laches cannot be applied in this case. Laches is the failure or neglect, for an unreasonable and unexplained length of time, to do that which, by exercising due diligence, could or should have been done earlier; it is negligence or omission to assert a right within a reasonable time, warranting the presumption that the party entitled to assert it either has abandoned or declined to assert it. There is no absolute rule as to what constitutes laches or staleness of demand; each case is to be determined according to its particular circumstances, with the question of laches addressed to the sound discretion of the court. Because laches is an equitable doctrine, its application is controlled by equitable considerations and should not be used to defeat justice or to perpetuate fraud or injustice. From the records, it appears that Macgraphics first learned of the assignment when Sime Darby sent its letter-notice dated May 3, 1996. From the letters sent by Macgraphics to Goodyear, it is apparent that Macgraphics had to study and determine both the legal and practical implications of entertaining Goodyear as a client. After review, Macgraphics found that consenting to the assignment would entail the commitment of manpower and resources that it did not foresee at the inception of the lease. It thereafter communicated its non-conformity to the assignment. To the mind of the Court, there was never a delay.


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Re: Estoppel (Estoppel by Laches) FELICIANO GAITERO and NELIA GAITERO v. GENEROSO ALMERIA and TERESITA ALMERIA G.R. No. 181812, June 8, 2011 Facts: A land registration court issued an original certificate of title to Rosario O. Tomagan. Tomagan subdivided the lot awarded to her into four: Lot 9960-A covering 3,479 sq m; Lot 9960-B covering 1,305 sq m; Lot 9960-C covering 3,073 sq m; and Lot 9960-D covering the remaining 2,884 sq m. Tomagan waived her rights over Lots 9960-A and 9960-C in favor of petitioner Feliciano Gaitero (Gaitero) and Lot 9960-B in favor of Barangay Ysulat, Tobias Fornier. She retained Lot 9960-D. The Almerias waived their rights over a 158 sq m portion of the disputed area in Gaitero’s favor but maintained their claim over the remaining 579 sq m. Subsequently, however, Gaitero filed an affidavit of adverse claim on the Almerias’ title over the remaining 579 sq m. When barangay conciliation proceedings failed to settle the differences between the two neighbors, Gaitero filed an action for recovery of possession against the Almerias7 before the Municipal Circuit Trial Court. Gaitero claimed that he was the registered owner of Lot 9960-A, which was covered by TCT T-2544 and had an assessed value of P11,050.00; that he inherited the same from his mother, Maria Obay, who in turn inherited it from her father, Bonifacio Obay; that before the cadastral survey, Lot 9960A was erroneously lumped with Lot 9960 in Tomagan’s name Issue: Whether or not the the Almerias are entitled to the possession of the disputed area as against Gaitero. Held: Gaitero’s theory of laches cannot vest on him the ownership of the disputed area. To begin with, laches is a consideration in equity and therefore, anyone who invokes it must come to court with clean hands, for he who has done inequity shall not have equity. Here, Gaitero’s claim of laches against the Almerias can be hurled against him. When the lot that the Almerias acquired (Lot 9964) was registered in 1979, Gaitero had constructive, if not actual, notice that the cadastral survey included the disputed area as part of the land that Leon Asenjo claimed. Yet, neither Gaitero nor his mother complained or objected to such inclusion. Worse, when Gaitero saw the subdivision plan covering Tomagan’s original Lot 9960 in 1993, it showed that the disputed area fell outside the boundaries of Lot 9960-A which he claimed. Still, Gaitero did nothing to correct the alleged mistake. He is by his inaction clearly estopped from claiming ownership of the disputed area. He cannot avail himself of the law of equity.


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Re: Estoppel (Estoppel by Laches) ESTATE OF CABACUNGAN v. LAIGO G.R. NO. 175073, August 15, 2011 Facts: In 1968, Margarita Cabacungan’s son, Roberto Laigo asked her to transfer the tax declarations of her properties in his name. For the purpose of supporting his application for non-immigrant visa o the United States. In 1979, he adopted respondents Pedro and Marilou Laigo and married Estela Balagot. In 1990, Roberto sold the property in Bacuit to the respondents Campos. In 1992, he sold another land to Marilou and another to Pedro. The sales were not known to Margarita and her other children. It was only in August 1995, that Margarita came to know of the sales as told by Pedro himself. In February 1996, Margarita, represented by her daughter, Luz, instituted the instant complaint for the annulment of said sales and for the recovery of ownership and possession of the subject properties as well as for the cancellation of Ricardo’s tax declarations. The respondents’ alleged that that Margarita’s cause of action had already been barred by laches, and that even assuming the contrary, the cause of action was nevertheless barred by prescription as the same had accrued way back in 1968 upon the execution of the affidavit of transfer by virtue of which an implied trust had been created. In this regard, they emphasized that the law allowed only a period of ten (10) years within which an action to recover ownership of real property or to enforce an implied trust thereon may be brought, but Margarita merely let it pass. The trial court dismissed the complaint. It found Margarita guilty oflaches by her inaction to recover the properties from Roberto at any time between 1968, following the execution of the affidavit of transfer and Roberto’s return from the States. The decision was affirmed on appeal to the CA. Petitioner believes that the existence of such confidential relationship, as they are bound by familial ties, precludes a finding of unreasonable delay on Margarita’s part in enforcing her claim, especially in the face of Luz’s testimony that she and Margarita had placed trust and confidence in Roberto. Issue: Whether or not the complaint is barred by laches and prescription. Held: No. According to the Supreme Court, laches, being rooted in equity, is not always to be applied strictly in a way that would obliterate an otherwise valid claim especially between blood relatives. The existence of a confidential relationship based upon consanguinity is an important circumstance for consideration; hence, the doctrine is not to be applied mechanically as between near relatives. The Court reiterated its ruling in the case, Adaza v. Court of Appeals, wherein it held that the relationship between the parties therein, who were siblings, was sufficient to explain and excuse what would otherwise have been a long delay in enforcing the claim and the delay in such situation


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should not be as strictly construed as where the parties are complete strangers vis-a-vis each other. Thus, reliance by one party upon his blood relationship with the other and the trust and confidence normally connoted in our culture by that relationship should not be taken against him. Also, in the case of Sotto v. Teves, the Supreme Court ruled that the doctrine of laches is not strictly applied between near relatives, and the fact that the parties are connected by ties of blood or marriage tends to excuse an otherwise unreasonable delay.


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Re: Prescription PHILIPPINE NATIONAL BANK , v. MERELO B. AZNAR, et al. G.R. No. 171805, May 30, 2011 Facts: In 1958, in their desire to rehabilitate the operation of Rural Insurance and Surety Company, Inc. (RISCO), respondents contributed for the purchase of three parcels of land. Titles were issued the name of RISCO and the contributions of respondents were constituted as liens on the said properties. Thereafter, various subsequent annotations were made on the same titles, including the Notice of Attachment and Writ of Execution both dated August 3, 1962 in favor of petitioner. As a result, a Certificate of Sale was issued in favor of Philippine National Bank, being the lone and highest bidder of the three (3) parcels of land. Petitioners filed a complaint seeking the quieting of their title and they argued that the Final Deed of Sale was null and void as these were issued only after 28 years and that any right which PNB may have over the properties had long become stale. The trial court ruled in favor of respondents on the basis that there was an express trust created over the subject properties whereby RISCO was the trustee and the respondents, as stockholders were the beneficiaries. On appeal, the decision was reversed, the CA opined that the contributions made by respondents to RISCO can only be characterized as loan secured by a lien on the subject lots, rather an express trust. Issue: Whether or not the right of the respondents to refund or repayment of their contributions had not prescribed. Held: Yes. The supreme Court reiterated its ruling in the case of Feliciano v. Canoza that, “ the trial courts have authority and discretion to dismiss an action on the ground of prescription when the parties’ pleadings or other facts on record show it to be indeed time-barred x x x; and it may do so on the basis of a motion to dismiss, or an answer which sets up such ground as an affirmative defense; or even if the ground is alleged after judgment on the merits, as in a motion for reconsideration; or even if the defense has not been asserted at all, as where no statement thereof is found in the pleadings, or where a defendant has been declared in default. What is essential only, to repeat, is that the facts demonstrating the lapse of the prescriptive period, be otherwise sufficiently and satisfactorily apparent on the record; either in the averments of the plaintiffs complaint, or otherwise established by the evidence.” According to the Court Article 1144 of the New Civil Code is applicable in this case. Art. 1144: The following actions must be brought within ten years from the time the right of action accrues: 1.

Upon a written contract;


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Saint Louis University School of Law Upon an obligation created by law; Upon a judgment.

The Court stated that it has been established that, “the term written contract includes the minutes of the meeting of the board of directors of a corporation, which minutes were adopted by the parties although not signed by them.” Thus the Minutes which was approved in 1961 is considered as a written contract between respondents and RISCO for the reimbursement of the contributions of the former. As such, the former had a period of ten (10) years from 1961 within which to enforce the said written contract. However, it does not appear that Aznar, et al., filed any action for reimbursement or refund of their contributions against RISCO or even against PNB. Instead the suit that Aznar, et al., brought before the trial court only on January 28, 1998 was one to quiet title over the properties purchased by RISCO with their contributions. It is unmistakable that their right of action to claim for refund or payment of their contributions had long prescribed.


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Re: Trusts (Express Trusts) PHILIPPINE NATIONAL BANK v. AZNAR G.R. No. 171805, May 30, 2011 Facts: In 1958, RISCO ceased operation due to business reverses. In plaintiffs’ desire to rehabilitate RISCO, they contributed a total amount of Php 212,720.00 which was used in the purchase of the three (3) parcels of land which were issued in the name of RISCO. The amounts contributed by plaintiffs were annotated on the titles as liens and encumbrances on the aforementioned. Such annotation was made pursuant to the Minutes of the Special Meeting of the Board of Directors of RISCO on March 14, 1961. Thereafter, various subsequent annotations were made on the same titles, including the Notice of Attachment and Writ of Execution both dated August 3, 1962 in favor of PNB. As a result, a Certificate of Sale was issued in favor of Philippine National Bank, being the lone and highest bidder of the three (3) parcels of land. Thereafter, a Final Deed of Sale dated May 27, 1991 in favor of the Philippine National Bank was also issued. This prompted plaintiffs-appellees to file the instant complaint seeking the quieting of their supposed title alleging that the subsequent annotations on the titles are subject to the prior annotation of their liens and encumbrances. Plaintiffs further contended that the subsequent writs and processes annotated on the titles are all null and void for want of valid service upon RISCO and on them, as stockholders. They argued that the Final Deed of Sale and TCT No. 119848 are null and void as these were issued only after 28 years and that any right which PNB may have over the properties had long become stale. Defendant PNB on the other hand countered that plaintiffs have no right of action for quieting of title since the order of the court directing the issuance of titles to PNB had already become final and executory and the validity cannot be the subject of an indirect attack. Defendant further asserted that plaintiffs, as mere stockholders of RISCO do not have any legal or equitable right over the properties of the corporation. Issues: Whether or not an express trust was created Held: No, Trust is the right to the beneficial enjoyment of property, the legal title to which is vested in another. It is a fiduciary relationship that obliges the trustee to deal with the property for the benefit of the beneficiary. Trust relations between parties may either be express or implied. An express trust is created by the intention of the trustor or of the parties. An implied trust comes into being by operation of law. Express trusts, sometimes referred to as direct trusts, are intentionally created by the direct and positive acts of the settlor or the trustor - by some writing, deed, or will or oral


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declaration. It is created not necessarily by some written words, but by the direct and positive acts of the parties. This is in consonance with Article 1444 of the Civil Code, which states that "[n]o particular words are required for the creation of an express trust, it being sufficient that a trust is clearly intended." In other words, the creation of an express trust must be manifested with reasonable certainty and cannot be inferred from loose and vague declarations or from ambiguous circumstances susceptible of other interpretations. No such reasonable certitude in the creation of an express trust obtains in the case at bar. In fact, a careful scrutiny of the plain and ordinary meaning of the terms used in the Minutes does not offer any indication that the parties thereto intended that Aznar, et al., become beneficiaries under an express trust and that RISCO serve as trustor.


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Re: Implied Trusts IGLESIA FILIPINA INDEPENDIENTE v. HEIRS OF BERNARDINO TAEZA G.R. No 179597, February 3, 2014 Facts: Petitioner is the owner of parcels of land which were subdivided. On February 5, 1976, two parcels of land were sold by Rev. Macario Ga, then the Supreme Bishop of the petitioner, to defendant Bernardino Taez. After the expiration of Rev. Macario Ga's term of office on May 8, 1981, Bishop Abdias dela Cruz was elected as the Supreme Bishop. Thereafter, an action for the declaration of nullity of the elections was filed by Rev. Ga, with the Securities and Exchange Commission (SEC). On February 11, 1988, the Securities and Exchange Commission issued an order resolving the leadership issue of the IFI against Rev. Macario Ga. Meanwhile, the defendant Bernardino Taeza registered the subject parcels of land in his name. The petitioner allegedly demanded the defendant to vacate the said land which he failed to do. In January 1990, a complaint for annulment of sale was again filed by the petitioner, through Supreme Bishop Most Rev. Tito Pasco, against the defendant-appellant. On November 6, 2001, the court a quo rendered judgment in favor of the petitioner. It held that the deed of sale executed by and between Rev. Ga and the defendant-appellant is null and void. However, the decision was reversed on appeal on the ground that since petitioner, being a corporation sole, validly transferred ownership over the land in question 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 an implied trust was created Held: Yes, since the person supposedly transferring ownership was not authorized to do so, the property had evidently been acquired by mistake. Rev. Macario Ga was merely holding the property in trust therefore he had no authority to do so. Article 1456 of the Civil Code states that if property is acquired through mistake or fraud, the person obtaining it is, by force of law, considered a trustee of an implied trust for the benefit of the person from whom the property comes. A constructive trust, unlike an express trust, does not emanate from, or generate a fiduciary relation. While in an express trust, a beneficiary and a trustee are linked by confidential or fiduciary relations, in a constructive trust, there is neither a promise nor any fiduciary relation to speak of and the socalled trustee neither accepts any trust nor intends holding the property for the beneficiary.


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Implied trusts are those which, without being expressed, are deducible from the nature of the transaction as matters of intent or which are super induced on the transaction by operation of law as matters of equity, independently of the particular intention of the parties. In turn, implied trusts are either resulting or constructive trusts. Resulting trusts are based on the equitable doctrine that valuable consideration and not legal title determines the equitable title or interest and are presumed always to have been contemplated by the parties. They arise from the nature of circumstances of the consideration involved in a transaction whereby one person thereby becomes invested with legal title but is obligated in equity to hold his legal title for the benefit of another. On the other hand, constructive trusts are created by the construction of equity in order to satisfy the demands of justice and prevent unjust enrichment. They arise contrary to intention against one who, by fraud, duress or abuse of confidence, obtains or holds the legal right to property which he ought not, in equity and good conscience, to hold.


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Re: Implied Trusts REPUBLIC OF THE PHILIPPINES v. SANDIGANBAYAN G.R. No. 166859, 169203 and 180702, April 12, 2011 Facts: The Republic commenced Civil Case No. 0033 in the Sandiganbayan by complaint, impleading as defendants respondent Eduardo M. Cojuangco, Jr. (Cojuangco) and 59individual defendants. Cojuangco allegedly purchased a block of 33,000,000 shares of SMC stock through the 14holding companies owned by the CIIF Oil Mills. For this reason, the block of 33,133,266shares of SMC stock shall be referred to as the CIIF block of shares. Petitioners allege that Cojuangco is the undisputed "coconut king" with unlimited powers to deal with the coconut levy funds, who took undue advantage of his association, influence and connection, acting in unlawful concert with Defendants Ferdinand E. Marcos, misused coconut levy funds to buy out majority of the outstanding shares of stock of San Miguel Corporation. Defendants Eduardo Cojuangco, Jr., and ACCRA law offices plotted, devised, schemed, conspired and confederated with each other in setting up, through the use of coconut levy funds, the financial and corporate framework and structures that led to the establishment of UCPB, UNICOM, COCOLIFE, COCOMARK. CIC, and more than twenty other coconut levy-funded corporations, including the acquisition of San Miguel Corporation shares and its institutionalization through presidential directives of the coconut monopoly Issue: Whether or not a trust was created for all the coconut farmers Held: No, the conditions for the application of Articles 1455 and 1456 of the Civil Code and Section 31 of the Corporation Code require factual foundations to be first laid out in appropriate judicial proceedings. Hence, the Supreme Court held that there was insufficient evidence to conclude that Cojuangco breached fiduciary duties as an officer and member of the Board of Directors of the UCPB. Although the trust relationship supposedly arose from Cojuangco’s being an officer and member of the Board of Directors of the UCPB, the link between this alleged fact and the borrowings or advances was not established. Nor was there evidence on the loans or borrowings, their amounts, the approving authority, etc. As trial court, the Sandiganbayan could not presume his breach of fiduciary duties without evidence showing so, for fraud or breach of trust is never presumed, but must be alleged and proved. In short, the Supreme Court held that there was insufficient proof that the amount used to purchase the shares was the same amount from the UCPB.


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Re: Implied Trusts ESTATE OF MARGARITA CABACUNGAN v. MARILOU LAIGO, PEDRO LAIGO, STELLA BALAGOT AND SPOUSES CAMPOS G.R. No. 175073, August 15, 2011 Facts: Margarita Cabacungan is the owner of three parcels of unregistered land each are covered by a tax declaration in her name. Sometime in 1968, Margarita’s son, Roberto Laigo, Jr. applied for a nonimmigrant visa to the United States, and to support his application, he allegedly asked Margarita to transfer the tax declarations of the properties in his name. Thus, Margarita executed an Affidavit of Transfer of Real Property in favor of Roberto, unknown to her other children. Roberto adopted respondents Pedro Laigo and Marilou Laigo. In July 1990, Roberto sold the parcels of land to the Spouses Campos and to Pedro and Marilou Laigo. These sales were unknown to Margarita and her other children. During Roberto’s wake, Margarita came to know of the sales as told by Pedro himself. Margarita, represented by her daughter Luz instituted a complaint for the annulment of said sales and for the recovery of ownership and possession of the subject properties as well as for the cancellation of Ricardo’s tax declarations. Spouses Campos advanced that they were innocent purchasers for value and in good faith. Further, they noted that Margarita’s claim was already barred by prescription and laches owing to her long inaction in recovering the subject properties. Marilou and Pedro contends to be buyers in good faith and for value. they also believed that Margarita’s cause of action had already been barred by laches and that even assuming the contrary, the cause of action was nevertheless barred by prescription as the same had accrued way back in 1968 upon the execution of the affidavit of transfer by virtue of which an implied trust had been created. In this regard, they emphasized that the law allowed only a period of ten (10) years within which an action to recover ownership of real property or to enforce an implied trust thereon may be brought but Margarita merely let it pass. Margarita and the Spouses Campos amicably entered into a settlement whereby they waived their respective claims against each other. Margarita died two days later and was substituted by her estate. Issue: Whether or not an action for reconveyance under a constructive implied trust does not prescribe Held: As a trustee of a resulting trust, therefore, Roberto, like the trustee of an express passive trust, is merely a depositary of legal title having no duties as to the management, control or disposition of the property except to make a conveyance when called upon by the cestui que trust. Hence, the sales


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he entered into with respondents are a wrongful conversion of the trust property and a breach of the trust. An action for reconveyance under a constructive implied trust in accordance with Article 1456 does not prescribe unless and until the land is registered or the instrument affecting the same is inscribed in accordance with law, inasmuch as it is what binds the land and operates constructive notice to the world. In the present case, however, the lands involved are concededly unregistered lands; hence, there is no way by which Margarita, during her lifetime, could be notified of the furtive and fraudulent sales made in 1992 by Roberto in favor of respondents, except by actual notice from Pedro himself in August 1995. Hence, it is from that date that prescription began to toll. The filing of the complaint in February 1996 is well within the prescriptive period.


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Re: Compromise (Concept) LAND BANK OF THE PHILIPPINES, v. HEIRS OF SPOUSES JORJA RIGORSORIANO AND MAGIN SORIANO, NAMELY: MARIVEL S. CARANDANG AND JOSEPH SORIANO G.R. No. 178312, January 30, 2013 Facts: The respondents are the children of the late Spouses Jorja Rigor-Soriano and Magin Soriano, the owners of the two parcels of land covered by TCT No. NT 146092 (2839) and TCT NO. NT61608, both of the Registry of Deeds of Nueva Ecija, containing an area of 10.9635 hectares located in Poblacion/Talabutab, Gen. Natividad, Nueva Ecija and 4.1224 hectares located in Macabucod, Aliaga, Nueva Ecija, respectively. 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, however, that such valuation was too low compared to existing valuations of agricultural lands, the respondents commenced this action for just compensation, claiming that the properties were irrigated lands that usually yielded 150 cavans per hectare per season at a minimum of two seasons per year. They asked that a final valuation of the properties be pegged atP1, 800,000.00, based on Administrative Order No. 61, Series of 1992 and Republic Act No. 6657. Land Bank disagreed, insisting that Presidential Decree No. 27 and Executive Order No. 228 governed the fixing of just compensation for the properties; that the Government, through the DAR as the lead agency in the implementation of all agrarian laws, had taken the properties in 1972 pursuant to Presidential Decree No. 27, and had since then redistributed the properties to farmerbeneficiaries; and that in all cases under Presidential Decree No. 27 and Executive Order No. 228, its participation was only to pay the landowners accepting the valuations fixed by the DAR, upon the latter’s direction and in the amounts the DAR determined. It prayed that thevaluation by the DAR be retained or that a valuation be made judicially. Issue: Whether or not there was a valid compromise agreement. Held: Pending the appeal, the Supreme Court received the Joint Motion to Approve the Attached Agreement and the Agreement dated November 29, 2012. Thereby, the parties prayed that the Court consider and approve the Agreement as its disposition of the petition for review on certiorari, and render its judgment in accordance with the terms of the Agreement. There is no question that the foregoing Agreement was a compromise that the parties freely and voluntarily entered into for the purpose of finally settling their dispute in this case. Under Article 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


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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, particularly paragraph 6 and paragraph 7, indicates that it is a judicial compromise because the parties intended it to terminate their pending litigation by fully settling their dispute. Indeed, with the respondents thereby expressly signifying their "unconditional or absolute acceptance and full receipt of the foregoing amounts as just compensation for subject properties the First Party and the Second Party hereby consider the case titled "Land Bank of the Philippines v. Heirs of Spouses Jorja Rigor-Soriano and Magin Soriano, namely: Marivel S. Carandang and Joseph Soriano (G.R. No. 178312) pending before the Supreme Court, closed and terminated," the ultimate objective of the action to determine just compensation for the landowners was achieved.


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Re: Compromise (Concept) ARTHUR F. MENCHAVEZ, v. MARLYN M. BERMUDEZ G.R. No. 185368, October 11, 2012 Facts: Petitioner Arthur F. Menchavez and respondent Marlyn M. Bermudez entered on November 17, 1993 into a loan agreement, covering the amount of PhP500, 000, with interest fixed at 5% per month. Respondent executed a promissory note. She then issued Prudential Bank Check No. 031994, to mature on December 17, 1993, in favor of petitioner. Respondent replaced Check No. 031994 with five postdated Prudential Bank checks totaling PhP 565,000. Four of the checks were cleared and fully encashed when presented for payment, covering the sum of PhP 465,000. The July 17, 1994 check, while dishonored, was partially paid by respondent with a replacement check for PhP 110,000 issued on June 12, 1995. Petitioner alleged entering into a verbal compromise agreement with respondent regarding the delay in payment and the accumulated interest. Under the agreement, respondent would deliver 11 postdated Prudential Bank checks as payment. When presented for payment, eight (8) of these checks were dishonored for the reason, "Drawn against Insufficient Funds." Nine criminal informations were filed against respondent Marlyn M. Bermudez, charging her with violations of Batas Pambansa Blg. 22, or the Bouncing Checks Law. Respondent raised the defense of payment, and proved paying petitioner the sum of PhP 925,000, or PhP 425,000 over the PhP 500,000 loan. The amount of PhP 925,000.00 was acknowledged by petitioner in the statement of account which he prepared, wherein PhP 624,344 was credited to payment of interest, and PhP 300,656 was credited to payment of the principal. Issue: Whether or not the original loan agreement is extinguished by reason of the compromise agreed upon by the same parties. Held: Yes. By stating that the compromise agreement and the original loan transaction are separate and distinct, petitioner would now attempt to exact payment on both. This goes against the very purpose of the parties entering into a compromise agreement, which was to extinguish the obligation under the loan. Petitioner may not seek the enforcement of both the compromise agreement and payment of the loan, even in the event that the compromise agreement remains unfulfilled. It is beyond cavil that if a party fails or refuses to abide by a compromise agreement, the other party may either enforce the compromise or regard it as rescinded and insist upon his original demand. It cannot, thus, be argued that there are two separate validly subsisting obligations to be fulfilled by respondent under both the compromise agreement and the original loan transaction.


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To allow petitioner to recover under the terms of the compromise agreement and to further seek enforcement of the original loan transaction would constitute unjust enrichment. The compromise agreement was entered into precisely to extinguish the obligation under the loan transaction, not to create two sources of obligation for respondent. There is unjust enrichment under Article 22 of the Civil Code when (1) a person is unjustly benefited; and (2) such benefit is derived at the expense of or with damages to another. Since respondent only entered into the compromise agreement to commit to payment of the original loan, petitioner cannot separate the two and seek payment of both, especially as he has already recovered the amount of the original loan.


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Re: Compromise (Rescission) CRISANTA ALCARAZ MIGUEL, v. JERRY D. MONTANEZ G.R. No. 191336, January 25, 2012 Facts: On February 1, 2001, respondent Jerry Montanez secured a loan of P143,864.00, payable in one (1) year, or until February 1, 2002, from the petitioner. The respondent gave as collateral therefor his house and lot located at Block 39 Lot 39 Phase 3, Palmera Spring, Bagumbong, Caloocan City. Due to the respondent’s failure to pay the loan, the petitioner filed a complaint against the respondent before the Lupong Tagapamayapa of Barangay San Jose, Rodriguez, Rizal. The parties entered into a Kasunduang Pag-aayos wherein the respondent agreed to pay his loan in installments in the amount of P2,000.00 per month, and in the event the house and lot given as collateral is sold, the respondent would settle the balance of the loan in full. However, the respondent still failed to pay, and on December 13, 2004, the Lupong Tagapamayapa issued a certification to file action in court in favor of the petitioner. On April 7, 2005, the petitioner filed before the Metropolitan Trial Court (MeTC) of Makati City, Branch 66, a complaint for Collection of Sum of Money. In his Answer with Counterclaim, the respondent raised the defense of improper venue considering that the petitioner was a resident of Bagumbong, Caloocan City while he lived in San Mateo, Rizal. Issue: Whether or not the compromise agreement between the parties as embodied in the Kasunduang Pag-aayos is rescinded or rendered without binding effect and thus, justifying the filing of action for collection of sum of money. Held: Yes. It is true that an amicable settlement reached at the barangay conciliation proceedings, like the Kasunduang Pag-aayos in this case, is binding between the contracting parties and, upon its perfection, is immediately executory insofar as it is not contrary to law, good morals, good customs, public order and public policy. Article 2037 of the Civil Code states, A compromise has upon the parties the effect and authority of res judicata; but there shall be no execution except in compliance with a judicial compromise. Being a by-product of mutual concessions and good faith of the parties, an amicable settlement has the force and effect of res judicata even if not judicially approved. It transcends being a mere contract binding only upon the parties thereto, and is akin to a judgment that is subject to execution in accordance with the Rules. Thus, under Section 417 of the Local Government Code, such amicable settlement or arbitration award may be enforced by execution by the Barangay Lupon within six (6) months from the date of settlement, or by filing an action to enforce such settlement in the appropriate city or municipal court, if beyond the six-month period.


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It must be emphasized, however, that enforcement by execution of the amicable settlement, either under the first or the second remedy, is only applicable if the contracting parties have not repudiated such settlement within ten (10) days from the date thereof in accordance with Section 416 of the Local Government Code. If the amicable settlement is repudiated by one party, either expressly or impliedly, the other party has two options, namely, to enforce the compromise in accordance with the Local Government Code or Rules of Court as the case may be, or to consider it rescinded and insist upon his original demand. Article 2041 of the New Civil Code does not require an action for rescission, and the aggrieved party, by the breach of compromise agreement, may just consider it already rescinded. He need not seek a judicial declaration of rescission, for he may "regard" the compromise agreement already "rescinded". In the instant case, the respondent did not comply with the terms and conditions of the Kasunduang Pag-aayos. Such non-compliance may be construed as repudiation because it denotes that the respondent did not intend to be bound by the terms thereof, thereby negating the very purpose for which it was executed. Perforce, the petitioner has the option either to enforce the Kasunduang Pagaayos, or to regard it as rescinded and insist upon his original demand, in accordance with the provision of Article 2041 of the Civil Code. Having instituted an action for collection of sum of money, the petitioner obviously chose to rescind the Kasunduang Pag-aayos.


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Re: Partnership (Transfer of Interest) JOSEFINA P. REALUBIT, v. PROSENCIO D. JASO and EDEN G. JASO G.R. No. 178782, September 21, 2011 Facts: On 17 March 1994, petitioner Josefina Realubit entered into a Joint Venture Agreement with Francis Eric Amaury Biondo, a French national, for the operation of an ice manufacturing business. With Josefina as the industrial partner and Biondo as the capitalist partner, the parties agreed that they would each receive 40% of the net profit, with the remaining 20% to be used for the payment of the ice making machine which was purchased for the business. For and in consideration of the sum of P500, 000.00, however, Biondo subsequently executed a Deed of Assignment dated 27 June 1997, transferring all his rights and interests in the business in favor of respondent Eden Jaso, the wife of respondent Prosencio Jaso. With Biondo’s eventual departure from the country, the Spouses Jaso caused their lawyer to send Josefina a letter dated 19 February 1998, apprising her of their acquisition of said Frenchman’s share in the business and formally demanding an accounting and inventory thereof as well as the remittance of their portion of its profits. Faulting Josefina with unjustified failure to heed their demand, the Spouses Jaso commenced the instant suit with the filing of their 3 August 1998 Complaint against Josefina, her husband, Ike Realubit, and their alleged dummies, for specific performance, accounting, examination, audit and inventory of assets and properties, dissolution of the joint venture, appointment of a receiver and damages. Said complaint alleged, among other matters, that the Spouses Realubit had no gainful occupation or business prior to their joint venture with Biondo; that with the income of the business which earned not less than P3,000.00 per day, they were, however, able to acquire the two-storey building as well as the land on which the joint venture’s ice plant stands, another building which they used as their office and/or residence and six (6) delivery vans; and, that aside from appropriating for themselves the income of the business, the Spouses Realubit have fraudulently concealed the funds and assets thereof thru their relatives, associates or dummies. Issue: Whether or not the respondent spouses, as assignees, have a right over the profits of the joint venture. Held: Yes. Generally understood to mean an organization formed for some temporary purpose, a joint venture is likened to a particular partnership or one which "has for its object determinate things, their use or fruits, or a specific undertaking, or the exercise of a profession or vocation." The rule is settled that joint ventures are governed by the law on partnerships which are, in turn, based on mutual agency or delectus personae.


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In the case of the dissolution of the partnership, the assignee is entitled to receive his assignor’s interest and may require an account from the date only of the last account agreed to by all the partners. It is evident that "the transfer by a partner of his partnership interest does not make the assignee of such interest a partner of the firm, nor entitle the assignee to interfere in the management of the partnership business or to receive anything except the assignee’s profits. The assignment does not purport to transfer an interest in the partnership, but only a future contingent right to a portion of the ultimate residue as the assignor may become entitled to receive by virtue of his proportionate interest in the capital." Since a partner’s interest in the partnership includes his share in the profits, we find that the CA committed no reversible error in ruling that the Spouses Jaso are entitled to Biondo’s share in the profits, despite Juanita’s lack of consent to the assignment of said Frenchman’s interest in the joint venture. Although Eden did not, moreover, become a partner as a consequence of the assignment and/or acquire the right to require an accounting of the partnership business, the CA correctly granted her prayer for dissolution of the joint venture conformably with the right granted to the purchaser of a partner’s interest under Article 1831 of the Civil Code.


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Re: Concurrence and Preference of Credits PHILIPPINE DEPOSIT INSURANCE CORPORATION, v. BUREAU OF INTERNAL REVENUE G.R. No. 172892, June 13, 2013 Facts: In Resolution No. 1056 dated October 26, 1994, the Monetary Board of the Bangko Sentral ng Pilipinas (BSP) prohibited the Rural Bank of Tuba (Benguet), Inc. (RBTI) from doing business in the Philippines, placed it under receivership in accordance with Section 30 of Republic Act No. 7653, otherwise known as the "New Central Bank Act," and designated the Philippine Deposit Insurance Corporation (PDIC) as receiver. Subsequently, PDIC conducted an evaluation of RBTI’s financial condition and determined that RBTI remained insolvent. Thus, the Monetary Board issued Resolution No. 675 dated June 6, 1997 directing PDIC to proceed with the liquidation of RBTI. Accordingly and pursuant to Section 30 of the New Central Bank Act, PDIC filed in the Regional Trial Court (RTC) of La Trinidad, Benguet a petition for assistance in the liquidation of RBTI. As an incident of the proceedings, the Bureau of Internal Revenue (BIR) intervened as one of the creditors of RBTI. The BIR prayed that the proceedings be suspended until PDIC has secured a tax clearance required under Section 52(C) of Republic Act No. 8424, otherwise known as the "Tax Reform Act of 1997." or the "Tax Code of 1997." The trial court ordered PDIC to secure a tax clearance. Issue: Whether or not prior compliance with the tax clearance requirement as a condition for the approval of the project of distribution of the assets of a bank under liquidation is necessary. Held: No. Section 52(C) of the Tax Code of 1997 is not applicable to banks ordered placed under liquidation by the Monetary Board, and a tax clearance is not a prerequisite to the approval of the project of distribution of the assets of a bank under liquidation by the PDIC. The law expressly provides that debts and liabilities of the bank under liquidation are to be paid in accordance with the rules on concurrence and preference of credit under the Civil Code. Duties, taxes, and fees due the Government enjoy priority only when they are with reference to a specific movable property, under Article 2241(1) of the Civil Code, or immovable property, under Article 2242(1) of the same Code. However, with reference to the other real and personal property of the debtor, sometimes referred to as "free property," the taxes and assessments due the National Government, other than those in Articles 2241(1) and 2242(1) of the Civil Code, such as the corporate income tax, will come only in ninth place in the order of preference. On the other hand, if the BIR’s contention that a tax clearance be secured first before the project of distribution of the


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assets of a bank under liquidation may be approved, then the tax liabilities will be given absolute preference in all instances, including those that do not fall under Articles 2241(1) and 2242(1) of the Civil Code. In order to secure a tax clearance which will serve as proof that the taxpayer had completely paid off his tax liabilities, PDIC will be compelled to settle and pay first all tax liabilities and deficiencies of the bank, regardless of the order of preference under the pertinent provisions of the Civil Code. Following the BIR’s stance, therefore, only then may the project of distribution of the bank’s assets be approved and the other debts and claims thereafter settled, even though under Article 2244 of the Civil Code such debts and claims enjoy preference over taxes and assessments due the National Government. The BIR effectively wants this Court to ignore Section 30 of the New Central Bank Act and disregard Article 2244 of the Civil Code. However, as a court of law, this Court has the solemn duty to apply the law. It cannot and will not give its imprimatur to a violation of the laws.


Civil Law Digest

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