1|Page1

DIGESTED
CASES IN
OBLIGATIONS
AND
CONTRACTS
2|Page2

OBLIGATIONS
ELEMENTS OF OBLIGATIONS
Ocampo III vs. People 7
Cosmo Entertainment vs. La Ville Commercial Corp. 8
Roblett Industrial Const. Corp. vs. Court of Appeals 9
San Lorenzo Village Ascn.Inc., vs. Court Of Appeals 11
Titan-Ikeda Cons. vs. Primetown Property Group Inc. 13
SOURCES OF OBLIGATIONS
Abellana vs. People 14
Ayala Corporation vs. Rosa Diana Realty 16
Arturo Pelayo vs. Marcelo Lauron 18
Regino vs. Pangasinan Colleges of Science and Tech. 20
David Reyes vs. Jose Lim 22
DEFAULT OR MORA
Ignacio Barzaga vs. Court Of Appeals 24
Heirs of Luis Bacus vs. Hon. Court Of Appeals 25
Lorenzo Shipping Company vs. BJ Marthel International 27
Tayag vs. Court Of Appeals 29
Titan-Ikeda Construction vs. Primetown Property Group, 30
Inc.,
DUTY TO EXERCISE DILIGENCE
Ramon Ilusorio vs. Hon. Court Of Appeals 31
Loadmasters Services vs. Glodel Brokerage Corp. 33
Metropolitan Bank vs. Rentao D. Cabilzo 34
Dy Teban vs. Liberty Forest 35
Cecilia Yambao vs. Melchorita Zuiga 36
DETERMINATE THING
Domingo Carabeo vs. Sps. Norberto & Susan Dingco 38
Sps. Henry And Elizabeth Co vs. Court Of Appeals 40
LL and Company Development vs. Huang Chao Chun 41
Pio Sian Melliza vs. City Of Iloilo 43
William Uy vs. Bartolome Puzon 44
FORTUITOUS EVENT
National Power Corp. vs. Philipp Brothers Oceanic, Inc. 45
Phil-Am General Insurance Co. vs. MGG Marine 47
Republic vs. Stevedoring Corporation 49
Jacinto Tanguiling vs. Court Of Appeals 50
Mindex Resources Development vs. Ephraim Morillo 52
TRAMSMISSIBILITY OF RIGHTS
Juan Azarraga vs. Jose Rodriguez 54
Co Bun Chun vs. The Overseas Bank Of Manila 55
Padcom Condominium Corp. vs. Ortigas Center Ascn. 56
Republic of The Philippines vs. Emilio G. Guanzon 58
Jesus San Agustin vs. Court Of Appeals 59
PURE AND CONDITIONAL OBLIGATION
Ernest Berg vs. Magdalena Estate, Inc. 60
Central Philippine University vs. Court Of Appeals 62
Daguhoy Enterprises, Inc. vs. Rita Ponce 64
Direct Funders Holding Corp. vs. Juge Celso Lavia 66
Ignacio Barzaga vs. Court of Appeals 67
3|Page3

Carmelita Leaño vs. Court of Appeals 68

Manila Int. Airport Authority vs. Court of Appeals 69
M.D. Taylor vs. Uy Tieng Piao 71
Nazario Trillana vs. Quezon Colleges Inc. 73
Visayan Sawmill Company vs. Court of Appeals 75
OBLIGATIONS WITH A PERIOD
Ace-Agro Development Corp. vs. Court of Appeals
Ernest Berg vs. Magdalena Estate, Inc. 77
Central Philippine University vs. Court of Appeals 79
Jose Ponce De Leon vs. Santiago Syjuco, Inc. 80
Potenciano Ilusorio vs. Fernando Busuego 82
Joaquin Lopez vs. Enrique P. Ochoa 83
Philippine National Bank vs. Flaviano Lopez Vito 84
Filomena Sarmiento vs. Glicerio Javellana 85
Smith, Bell & Co. Ltd. vs. Vicente Sotelo Matti 87
Felix Ullman vs. Vicente Hernaez 88
ALTERNATIVE OBLIGATION
Felipe Agoncillo vs. Crisanto Javier 89
Arco Pulp And Paper Co., Inc. vs. Dan T. Lim 91
Equitable Insurance vs. Rural Insurance 92
Equatorial Realty Dev. vs. Mayfair Theater, Inc 93
De Legarda vs. Victoria Desbarats Miailhe 95
Ong Guan Can vs. The Century Insurance Company Ltd. 96
Martina Quizana vs. Gaudencio Redugorio 97
Estanislao Reyes vs. Sebastiana Martinez 98
Judge Ramon R. San Jose vs. Natalio Javier 99
Nazario Trillana vs. Quezon Colleges, Inc. 100
JOINT & SOLIDARY OBLIGATION
Rosario De Barganza Et Al vs. Fernando De Villa Abrille 101
Hemana Cerezo vs. David Tuazon 102
Light Rail Transit Authority vs. Marjorie Navidad 104
Mercury Drug Corporation vs. Huang 105
Ouano Arrastre Services, Inc vs. Hon. Peary Aleonor 107
Alfredo Pacis vs. Jerome Jovanne Morales 109
Philippine Hawk Corporation vs. Vivian Tan Lee 111
Safeguard Security vs. Evangiline Tangco 113
San Miguel Corp. vs. Court of Appeals 115
Viron Transportation Co., Inc. vs. Delos Santos 117
DIVISIBLE & INDIVISIBLE OBLIGATION
Blossom & Co. Inc. vs. Manila Gas Corporations 118
Nazareno vs. Court Of Appeals 120
Spouses Lam vs. Kodak Philippines, Ltd. 121
Josefina Tayag vs. Court Of Appeals 122
Tanay Recreation Center vs. Catalina Matienzo Fausto 123
PAYMENT BY PERFORMANCE
Asj Corp. vs. Sps. Efren & Maura Evangelista 125
Jose V. Lagon vs. Hooven Comalco Industries 126
Felisa Toribio vs. Dolores Foz 127
Philppine National Bank vs. Court of Appeals 128
Phil. Commercial International Bank vs. Court of Appeals 129
PAYMENT BY CESSION
Development Bank vs. Court of Appeals 130
4|Page4

Delta Development vs. Angeles Catherine Enriquez 131

Operators Inc vs. American Biscuit Corporation 133
Spouses Villaluz vs. Land Bank of The Philippines 135
The Philippine Industrial Co. vs. El Hogar Filipino 137
TENDER OF PAYMENT
Cebu International vs. Court of Appeals 139
Clara De Legarda vs. Victoria Desbarats Miailhe 140
Spouses Teofilo and Simeona Rayos vs. Donato Reyes 141
State Investment House Inc. vs. Court Of Appeals 142
Spouses Benos vs. Spouses Lawilao 144
LOSS OF THE THING
Bayne Adjusters and Surveyors vs. Court of Appeals 145
YHT Realty Corporation vs. Court of Appeals 147
PNCC vs. Court of Appeals 149
Jesus Occena and Efigenia Occena Court Of Appeals 151
Naga Telephone Co., Inc. vs. The Court of Appeals 152
CONDONATION OF DEBT
Leonides Lopez Liso vs. Manuel Tambunting 153
Ruben Reyna vs. Commision on Audit 154
Trans-Pacific Industrial Supplies vs. Court of Appeals 156
Conchita Liguez vs. Court of Appeals 158
United Planters Milling Co. vs. Court Of Appeals 160
MERGER OF RIGHTS
Rodrigo Enriquez Et. Al. vs. Soccoro Ramos 161
Estate Of Lazaro Mota Et Al. vs. Salvador Serra 163
Tirso Garcia vs. Lim Chu Sing 165
Yek Ton Lin vs. Pelagio Yusingco Et Al 166
Sta. Lucia Realty vs. Sps. Buenaventura 167
COMPENSATION
E.G.V. Realty Development Corp. vs. Court Of Appeals 169
Engracio Francia vs. Intermidiate Appellate Court 171
Selwin Lao vs. Special Plans, Inc. 173
Pnb Management vs. R&R Metal 174
United Planters Milling Co. vs. Court Of Appeals 175
NOVATION
Sonny Lo vs. Kjs Eco-Formwork System 176
Mindanao Savings vs. Edward Willkom 177
Carolina Hernandez-Nievera vs. Wilfredo Hernandez 179
Republic Glass Corporation vs. Lawrence Qua 181
St. James College vs. Equitable PCI Bank 182
5|Page5

CONTRACTS

ESSENTIAL REQUISITES OF CONTRACT

Auyong Hian vs. Court of Tax Appeals 183
Monico Concepcion vs. Paciencia Sta. Ana 184
Silverio Q. Cornejo vs. Manuel B. Calupitan 186
Andrea Dumasug vs. Felix Modelo 187
Liam Law vs. Olympic Sawmill Co. 189
Benito De Los Reyes vs. Veronica Alojado 190
UCPB General Insurance vs. Masagana Telamart 191
Agustino Yiu vs. Court of Appeals 192
Jose Vales vs. Simeon Villa 193
Andrea Damasug vs. Felix Modelo 194
CONSENT
C.W. Rosenstock vs. Edwin Burke 195
Morton Meads vs. Land Settlement Dev. Corp 196
Metropolitan Manila Development Authority vs. Jancom 197
Environmental Corporation
ABS-CBN vs. Court of Appeals 198
Rupert Montinola vs. Victorias Milling Co et al 200
OBJECT OF CONTRACT
Segunda Pernollosa vs. Land Tenure Administration 201
Armand O. Raquel-Santos vs. Court Of Appeals 202
Felicidad Villanueva vs. Hon. Mariano Castañeda 203
Leonardo Navarro vs. Luis Lardizabal 204
Leonardo Osorio vs. Tomasa Osorio 205
CAUSE OF CONTRACT
Amparo Gonzales vs. Primitivo Trinidad 206
Monico Concepcion vs. Paciencia Sta. Ana 207
Teodoro Velez vs. Salomon Ramas 208
Maximino Carantes vs. Court of Appeals 209
William Uy vs. Court Of Appeals 210
REFORMATION OF INSTRUMENTS
Equitable PPC Bank vs. Antonio Bellones 211
Ong Chua vs.Edward Carr 212
Frabelle Fishing Corporation vs. Phil-Am Life Insurance 213
Nieves De Mondragon vs. Roman Santos 214
Rita Sarming vs. Cresencio Dy 216
RECISSIBLE CONTRACTS
Juana Almira Et Al vs. Court of Appeals 217
Jaime Benos vs. Gregorio Lawilao 219
Albert Padilla vs. Spouses Paredes 220
Heirs Of Sofia Quirong vs. Development Bank 221
University of the Philippines vs. De Los Angeles 223
VOIDABLE CONTRACTS
Carmela Mangahas vs. Eufrocina Brobio 225
William Miailhe vs. Court of Appeals 227
First Philippines Holding vs. Trans Middle East Equities 228
Manuel Luis Sanchez vs. Mapalad Realty Corporation 229
Miguel Katipunan vs. Braulio Katipunan, Jr. 230
UNENFORCEABLE CONTRACTS
6|Page6

Anthony Ordua vs. Eduardo J. Fuentebella 231

Luz Hermosa vs. Epifanio Longara 232
Julian Francisco vs. Pastor Herrera 233
Municipality of Hagonoy vs. Hon. Simeon P. Dumdum 234
Genaro Cordial vs. David Miranda 235
VOID CONTRACTS
Heirs Of Spouses Balite vs. Rodrigo Lim 236
William Ollendorf vs. Ira Abrahamson 238
Philippine Banking Corporation vs. Lui She 239
Roberto Domingo vs. Court Of Appeals 240
Natividad Ariaga vs. Enrique Suplico 241
NATURAL OBLIGATION
Spouses Celedonio Manzanilla vs. Court of Appeals 242
Rural Bank of Parañàque vs. Isidra Remolado 244
Manila Surety And Fidelity Co. Inc., vs. Valentin Lim 245
Domingo DeLa Cruz vs. Northern Theatrical Enterprises 247
Juan F. Villarroel vs. Bernardino Estrada 248
ESTOPPEL
Miguel Cuenco vs. Concepcion Cuenco 249
Heirs Of Ragua vs. Court Of Appeals 251
Jefferson Lim vs. Queensland Tokyo Commodities Inc 252
Metropolitan Bank vs. Renato Cabilzo 254
Placewell International Services vs. Ireneo Camote 256
7|Page7

MARIANO UN OCAMPO III VS. PEOPLE

G.R Nos. 156547-51
AZCUNA, J.:

FACTS:

The Department of Budget and Management released the

amount of Php 100 Million for the support of the local government
unit of the province of Tarlac. However, petitioner Ocampo, governor
of Tarlac, loaned out more than P 56.6 million in which he contracted
with Lingkod Tarlac Foundation, Inc.. thus, it was the subject of 25
criminal charges against the petitioner.

The Sandiganbayan convicted the petitioner of the crime of

malversation of public funds. However, the petitioner contended that
the loan was private in character since it was a loan contracted with
the Taralc Foundation.

ISSUE:

Whether the amount loaned out was private in nature.

DECISION:

Yes, the loan was private in nature because Art. 1953 of the
New Civil Code provides that “a person who receives a loan of
money or any other fungible thing acquires the ownership thereof,
and is bound to pay the creditor an equal amount of the same kind
and quality.”

The fact that the petitioner-Governor contracted the loan, the

public fund changed its nature to private character, thus it is not
malversation which is the subject of this case, instead it must be a
simple collection of money suit against the petitioner in case of non
payment . Therefore, the petitioner is acquitted for the crime of
malversation.
8|Page8

COSMO ENTERTAINMENT MANAGEMENT, INC. VS. LA VILLE

COMMERCIAL CORP.
G.R. NO. 152801
CALLEJO, SR., J.:

FACTS:
The respondent, La Ville Commercial Corp. owns a parcel of
land, with a building thereon, as registered in a Transfer Certificate
Title registered in the Registry of deeds of Makati. It entered into a
contract of lease with the petitioner, Cosmo Entertainment
Management, Inc. for the rental of the property for a period of seven
years for a fixed monthly rental and a security deposit equivalent to
3 months’ worth of the rental.
The petitioner, however, suffered business reverses and was
constrained to stop operations and defaulted in its rental payments.
The respondent, thereafter, made a demand for the petitioner to
vacate the premises and to pay the accrued rentals plus interests.
In reply to the demand, the petitioner requested that the interest be
waived and it be given time to find a solution of its financial problems.
It also held that the security deposit paid upon the execution of the
contract be applied on the unpaid rentals.
After negotiations between the parties failed, the respondent
reiterated its demand to pay the unpaid rentals and to vacate and
surrender the premise. The petitioner however, refused to comply
with the demand and a complaint for illegal detainer was filed by the
respondent.

ISSUE:
Whether or not Cosmo Entertainment Management, Inc. has
the right to sublease the premise.

DECISION:
The court rendered judgment ordering Cosmo Entertainment
Management, Inc. to vacate the property in question and to turn the
possession as well its improvements to La Ville Commercial Corp.;
to pay the accrued rentals including the interest and taxes minus the
security deposit equivalent to 3 monthly rentals; a reasonable
compensation amounting to P159, 000 for every month of continued
and illegal use and occupancy of the property and the attorney’s fee
for the cost of the suit.
9|Page9

ROBLETT INDUSTRIAL CONSTRUCTION CORPORATION vs.

COURT OF APPEALS
G.R. No. 116682
BELLOSILLO, J.:

FACTS:

On 23 September 1986 respondent Contractors Equipment

Corporation (CEC) instituted an action for a sum of money against
petitioner Roblett Industrial Construction Corporation (RICC) before
the Regional Trial Court of Makati alleging that in 1985 it leased to
the latter various construction equipment which it used in its projects.
As a result RICC incurred unpaid accounts amounting to
P342,909.38.

On 19 December 1985 RICC through its Assistant Vice

President for Finance Candelario S. Aller Jr. entered into an
Agreement with CEC where it confirmed petitioner's account. As an
off-setting arrangement respondent received from petitioner
construction materials worth P115,000.00 thus reducing petitioner's
balance to P227,909.38.

A day before the execution of their Agreement, or on 18

December 1985, RICC paid CEC P10,000.00 in postdated checks
which when deposited were dishonored. As a consequence the
latter debited the amount to petitioner's account of P227,909.38 thus
increasing its balance to P237,909.38.

On 24 July 1986 Mariano R. Manaligod, Jr., General Manager

of CEC, sent a letter of demand to petitioner through its Vice
President for Finance regarding the latter's overdue account of
P237,909.38 and sought settlement thereof on or before 31 July
1986. In reply, petitioner requested for thirty (30) days to have
enough time to look for funds to substantially settle its account.

Traversing the allegations of respondent, Candelario S. Aller

Jr. declared that he signed the Agreement with the real intention of
having proof of payment. In fact Baltazar Banlot, Vice President for
Finance of petitioner, claimed that after deliberation and audit it
appeared that petitioner overpaid respondent by P12,000.00 on the
basis of the latter's Equipment Daily Time Reports for 2 May to 14
June 1985 which reflected a total obligation of only P103,000.00. He
claimed however that the Agreement was not approved by the Board
and that he did not authorize Aller Jr. to sign thereon.

On rebuttal, Manaligod Jr. declared that petitioner had

received a statement of account covering the period from 28 March
to 12 July 1985 in the amount of P376,350.18 which it never
questioned. From this amount P3,440.80, based on respondent's
account with petitioner and P30,000.00, representing payments
made by the latter, were deducted thus leaving a balance of
P342,909.38 as mentioned in the Agreement. On 19 December
1990 the trial court rendered judgment ordering petitioner to pay
respondent
10 | P a g e 10

ISSUE:

Whether or not the agreement between the parties is binding

upon them.

DECISION:

Yes. It must be emphasized that the same agreement was

used by plaintiff as the basis for claiming defendant's obligation of
P237,909.38 and also used by defendant as the same basis for its
alleged payment in full of its obligation to plaintiff. But while plaintiff
treats the entire agreement as valid, defendant wants the court to
treat that portion which treats of the offsetting of P115,000.00 as
valid, whereas it considers the other terms and conditions as
"onerous, illegal and want of prior consent and Board approval." This
Court cannot agree to defendant's contention. It must be stressed
that defendant's answer was not made under oath, and therefore,
the genuineness and due execution of the agreement which was
the basis for plaintiff's claim is deemed admitted (Section 8, Rule 8,
Rules of Court). Such admission, under the principle of estoppel, is
rendered conclusive upon defendant and cannot be denied or
disproved as against plaintiff (Art. 1431, Civil Code). Either the
agreement is valid or void. It must be treated as a whole and not to
be divided into parts and consider only those provisions which favor
one party (in this case the defendant). Contracts must bind both
contracting parties, its validity or compliance cannot be left to the will
of one of them (Art. 1308, New Civil Code).
11 | P a g e 11

SAN LORENZO VILLAGE ASSOCIATION, INC., VS. COURT OF

APPEALS
G.R. NO. 116825
ROMERO, J.:

FACTS:
The petitioner, San Lorenzo Village Association Inc., is an
owner of a parcel of land with building and other improvements
situated at San Lorenzo Village, Makati, embraced in a Transfer
Certificate Title on the Registry of Deeds of Makati.
The Transfer Certificate Title contains restrictions that are as follows:
 The owner of the title shall be an automatic member of the San
Lorenzo Village Association Inc.
 The lot may not be subdivided and may only be used for
residential purposes
 Only one storey building may be constructed
 The property is subject to easement
The land was sold to Almeda Development and Equipment
Corporation, the respondent, who wanted to cancel the annotated
restrictions on the Transfer Certificate Title. The respondent wanted
to construct a taller building and would not want to be a member of
the San Lorenzo Village Association.
ADEC filed a petition for an issuance of a Temporary Restraining
Order and prohibition for the cancellation of the annotations. SLVAI
filed a motion to dismiss the petition on the grounds of lack of cause
of action and lack of ADEC’s personality to sue. However, ADEC
countered the motion contending that it had a cause of action
because it involves the new owner. Citing Philippine Suburban
Development Corporation vs. Auditor General, it asserted its
capacity to sue because the actual notice of sale is equivalent to
registration.
The court denied SLVIA’s motion as well as the certiorari filed before
the court of appeals.

ISSUE:
Whether or not Almeda Development and Equipment Corp.
has a cause of action.

DECISION:
Yes, ADEC has a cause of action. A complaint states a cause of
action where it consist three essential elements of a cause of action
which are as follow: (1) the legal right of the plaintiff; (2) the
12 | P a g e 12

correlative obligation of the defendant, and; (3) the act or omission

of the defendant in violation of said legal right. Absence of any of
these elements may cause the complaint to be vulnerable to a
motion to dismiss on the ground of failure to state a cause of action.
A motion to dismiss on the ground of failure to state a cause of action
in the complaint hypothetically the truth of the facts alleged therein.
In this case, the complaint asserts that plaintiff purchased the
property in question from the person admittedly holding title
thereto. It then infers that by this mode, it became the successor-in-
interest of the vendor, if not indeed the owner of the property. Hence,
the restrictions in the title should be nullified not only because it is
contrary to law but also because the conditions under which they
were imposed had ceased to exist.
The averments in the complaint like the title of ADECs vendor,
the execution of the sale by said vendor to ADEC, the latter’s status
as the vendors successor-in-interest, and the altered physical
environment along Pasay Road, are allegations well within the
hypothetical-admission principle. These averments satisfy the three
(3) elements of a cause of action. In other words, the complaint did
state a cause of action.
In view of such, SLVAI cannot successfully invoke the ground
that the complaint fails to state a cause of action in its motion to
dismiss.
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TITAN-IKEDA CONSTRUCTION VS. PRIMETOWN PROPERTY

GROUP INC.
G.R No. 158768
CORONA, J.:

FACTS:

The respondent Primetown Property Corporation entered into

contract weith the petitioner Titan-Ikeda Construction Corporation
for the structural works of a 32-storey prime tower. After the
construction of the tower, respondent again awarded to the
petitioner the amount of P 130,000,000.00 for the tower’s
architectural design and structure. However, in 1994, the respondent
entered into a contract of sale of the tower in favor of the petitioner
in a manner called full-swapping. Since the respondent had
allegedly constructed almost one third of the project as well as
selling some units to third persons unknown to the petitioner.
Integrated Inc. took over the project, thus the petitioner is demanding
for the return of its advanced payment in the amount of P2,
000,000.00 as well as the keys of the unit.

ISSUE:

Whether the petitioner is entitled to damages.

DECISION:

No, because in a contract necessarily that there is a meeting

of the minds of the parties in which this will be the binding law upon
them. Thus, in a reciprocal obligation. Both parties are obliged to
perform their obligation simultaneously and in good faith. In this
case, petitioner, Titan-Ikeda cannot recover damages because it
was found out there was no solutio indebiti or mistake in payment
in this case since the latter is just entitled to the actual services it
rendered to the respondent and thus it is ordered to return the
condominium units to the respondent.
14 | P a g e 14

FELIXBERTO ABELLANA VS. PEOPLE OF THE

PHILIPPINES AND SPOUSES SAAPIA ALONTO AND DIAGA
ALONTO
G.R. No. 174654
DEL CASTILLO, J.:

FACTS:

In 1985, petitioner Felixberto A. Abellana extended a loan to

private respondents spouses Diaga and Saapia Alonto (spouses
Alonto), secured by a Deed of Real Estate Mortgage over Lot Nos.
6471 and 6472 located in Cebu City.Subsequently, or in 1987,
petitioner prepared a Deed of Absolute Sale conveying said lots to
him. The Deed of Absolute Sale was signed by spouses Alonto in
Manila. However, it was notarized in Cebu City allegedly without the
spouses Alonto appearing before the notary public. Thereafter,
petitioner caused the transfer of the titles to his name and sold the
lots to third persons.On August 12, 1999, respondent spouses filed
a complaint charging petitioner with Estafa through Falsification of
Public Document.

The RTC found that petitioner did not intend to defraud

the spouses Alonto and that petitioner can only be held guilty of
Falsification of a Public Document by a private individual under
Article 172(1)in relation to Article 171(2) of the Revised Penal Code
and not Estafa through falsification of public document as charged
in the Information.

Petitioner, upon appeal, raised the issue of whether an

accused who was acquitted of the crime charged may nevertheless
be convicted of another crime or offense not specifically charged and
alleged and which is not necessarily included in the crime or offense
charged. The CA held that petitioner who was charged with and
arraigned for estafa through falsification of public document under
Article 171(1) of the RPC could not be convicted of Falsification of
Public Document by a Private Individual under Article 172(1) in
relation to Article 171(2). Thus, the CA opined that the conviction of
the petitioner for an offense not alleged in the Information or one not
necessarily included in the offense charged violated his
constitutional right to be informed of the nature and cause of the
accusation against him. Nonetheless, the CA affirmed the trial
court's finding with respect to petitioner's civil liability.

ISSUE:
Whether or not petitioner could still be held civilly liable
notwithstanding his acquittal.

DECISION:

NO. It is an established rule in criminal procedure that a

judgment of acquittal shall state whether the evidence of the
15 | P a g e 15

prosecution absolutely failed to prove the guilt of the accused or

merely failed to prove his guilt beyond reasonable doubt. The
"extinction of the penal action does not carry with it the extinction of
civil liability unless the extinction proceeds from a declaration in a
final judgment that the fact from which the civil liability might arise
did not exist."
Civil liability arises when one, by reason of his own act
or omission, done intentionally or negligently, causes damage to
another. Hence, for petitioner to be civilly liable to spouses Alonto, it
must be proven that the acts he committed had caused damage to
the spouses.Based on the records of the case, we find that the acts
allegedly committed by the petitioner did not cause any damage to
spouses Alonto.

Even assuming that the spouses Alonto did not

personally appear before the notary public for the notarization of the
Deed of Absolute Sale, the same does not necessarily nullify or
render void ab initio the parties' transaction. Such non-appearance
is not sufficient to overcome the presumption of the truthfulness of
the statements contained in the deed. And since the defective
notarization does not ipso facto invalidate the Deed of Absolute Sale,
the transfer of said properties from spouses Alonto to petitioner
remains valid. Hence, when on the basis of said Deed of Absolute
Sale, petitioner caused the cancellation of spouses Alonto's title and
the issuance of new ones under his name, and thereafter sold the
same to third persons, no damage resulted to the spouses Alonto.
16 | P a g e 16

AYALA CORPORATION VS. ROSA DIANA REALTY

G.R. NO. 134284
DE LEON, JR., J.:

FACTS:

Petitioner Ayala Corporation (Ayala) was the registered owner

of a parcel of land located in Alfaro Street, Salcedo Village, Makati
City with an area of 840 square meters more or less and covered by
TCT no. 233435 of the Register of Deeds of Rizal.

On April 20, 1976, Ayala sold the lot to Manuel Sy married to

Vilma Po and Sy Ka Kieng married to Rosa Chan. The Deed of Sale
executed between Ayala and the buyers contained Special
Conditions of Sale and Deed Restrictions. Manuel Sy and Sy Ka
Kieng failed to construct the building in violation of the Special
Conditions of Sale. Notwithstanding the violation, Manuel Sy and
Sy Ka Kieng were able to sell the lot to respondent Rosa-Diana
Realty and Development Corp. with Ayala’s approval. As a
consideration for Ayala to release the certificate of title of the subject
property, Rosa-Diana, executed an undertaking promising to abide
by said Special Condition of Sale executed between Ayala and the
original vendees. Upon the submission of the undertaking, together
with the building plans for a condominium project, known as the
Peak, Ayala released title to the lot, thereby enabling Rosa-Diana to
register the Deed of Sale on its favor and obtain certificate of Title in
its name.

Thereafter, Rosa-Diana submitted to the building official of

Makati another set of building plans which were substantially
different from those that it earlier submitted to Ayala for approval.
During the construction of Rosa-Diana’s condominium project, Ayala
filed an action with the RTC of Makati for specific performance with
application for a writ of preliminary injunction seeking to compel the
latter to comply with the contractual obligations under the Deed of
Restriction annotated on the title as well as with the building plans it
submitted to the latter. In the alternative, Ayala prayed for rescission
of the sale of the subject lot to Rosa-Diana Realty. The lower court
denied Ayala’s prayer for injunctive relief; thus, enabling Rosa-Diana
to complete the construction of the building. Ayala tried to cause the
annotation a notice of lis pendens on Rosa-Diana’s title but the
Register of Deed of Makati refused registration on the ground that
the case pending before the trial court being an action for specific
performance and or rescission is an action in personam which does
not involve the title, use or possession of the property. The Land
Registration Authority reversed the ruling of the Register of Deeds.
The decision of the LRA, however, was reversed by the CA.

ISSUE:

The issue is whether or not respondent Rosa-Diana has the

obligation to enforce the Deed of Restrictions contained in the
contract it entered with Ayala.
17 | P a g e 17

DECISION:

Contractual obligations between parties have the force of law

between them and absent any allegation that the same are contrary
to law, morals, good customs, public order or public policy, they must
be complied with in good faith. Hence, Article 1159 of the new Civil
Code provides “obligations arising from contracts have the force of
law between the contracting parties and should be complied with in
good faith.

Hence, respondent Rosa-Diana has the obligation to enforce

the Deed of Restrictions contained in the contract it entered with
Ayala.
18 | P a g e 18

ARTURO PELAYO VS. MARCELO LAURON

G.R. NO. L-4089
TORRES, J.:
FACTS:
Plaintiff, Arturo Pealyo, a physician was called up to the
defendant’s house to render a medical attendance to Juana Abella
who was about to give birth. Upon consultation, it was found out that
it was necessary, on account of the difficult birth, to remove the fetus
by means of forceps and such were performed by the plaintiff. The
operation went on until morning of the following day and a visit from
the physician was made several times afterwards. The plaintiff billed
an amount of P500 for the cost of the service rendered which the
defendants refused to pay, hence a complaint was filed.
In an answer to the complaint, defendants denied all of the
allegations and as a special defense, alleged that their daughter in
law died in consequence of childbirth, that when she was alive she
lived independently with her husband in a separate house without
any relation whatever with them, and that, if on the day she gave
birth she was on the house of the defendants, her stay was
accidental. Therefore, the defendants prayed to absolved of the
complaint and requesting that the same be dismissed with a cost
against the plaintiff.

ISSUE:
Whether or not the defendants are held liable to pay for the
service rendered.

DECISION:
The defendants are not to be held liable to pay for the service
rendered. The court cited the general law on obligations under
Article 1089, stating that obligations are created by law, contracts,
by contracts, by quasi-contracts, and by illicit acts or omissions or by
those in which any kind of fault or negligence occurs.
By express provision of law, rendering medical assistance in
case of illness is one of the mutual obligations of the spouses by way
of support. In this case therefore, the burden for childbirth expenses
falls upon the husband. It is only the husband and not his parents,
who is bound to give support. The fact that it was not him who called
the plaintiff and requested the assistance for his wife is no bar to the
fulfillment of the said obligation.
From the foregoing it may readily be understood that it was
improper to have brought an action against the defendants simply
because they were the parties who called the plaintiff and requested
19 | P a g e 19

him to assist the patient during her difficult confinement, and also,
possibly, because they were her father and mother-in-law and the
sickness occurred in their house. The defendants were not, nor are
they now, under any obligation by virtue of any legal provision, to
pay the fees claimed, nor in consequence of any contract entered
into between them and the plaintiff from which such obligation might
have arisen.
20 | P a g e 20

KHRISTINE REA M. REGINO VS. PANGASINAN COLLEGES OF

SCIENCE AND TECHNOLOGY
G.R. NO. 156109
PANGANIBAN, J.:

FACTS:

Petitioner Khristine Rea M. Regino was a first year computer

science student of Pangasinan Colleges of Science and Technology
(PCST). Reared in a poor family, Regino went to college mainly
through the financial support of her relatives. She enrolled Logic
and Statistics subjects under Rachelle Gamurot and Elissa Baladad,
respectively as teachers.

In February 2002, PCST held a fund raising campaign dubbed

“The Rave Party and Dance Revolution” the proceeds which were to
go to the construction of the school’s tennis and volleyball courts.
Each student was required to pay for two tickets at the price of
P100.00 each. The project was allegedly implemented by
recompensing students who purchased tickets with additional points
in their test scores; those who refused to pay were denied the
opportunity to take the final examinations.

Financially strapped and prohibited by her religion from

attending dance parties and celebration, Regino refused to pay
tickets. On March 14 and 15, 2002, the scheduled dates of
examinations in Logics and Statistics, the teachers allegedly
disallowed her from taking the tests. Petitioner then filed as pauper
litigant, a complaint for damages against PCST. She prayed for
P500,000.00 as nominal; P500,000.00 as moral and at least
P1,000,000.00 as exemplary damages, P250,000.00 as actual
damages & cost of litigation and attorney’s fees.
The Regional Trial Court dismissed the complaint for lack of merit.
It ruled that Commission on Higher Education, not the court, has
jurisdiction over the controversy.

ISSUES:

Whether or not there was a breach of contract and liability of

tort.

DECISION:

The terms of the school-student contract are defined at the

moment of its inception-upon enrolment of the student.
21 | P a g e 21

PCST imposed the assailed revenue-raising measure

belatedly in the middle of the semester, It exacted the dance party
fee as a condition for students in taking the final examinations and
ultimately for recognition of their ability to finish a course. The fee,
however, was not part of the school-student contract entered into at
the start of the school year.

Wherefore, the petition is hereby granted, and the assailed

orders reversed. The trial court is directed to reinstate the complaint
and with all deliberate speed, to continue the proceedings in Civil
Case No. U-7541. No costs.
22 | P a g e 22

DAVID REYES VS. JOSE LIM

G.R. NO. 134241
CARPIO, J.:

FACTS:
The petitioner herein, David Reyes and the respondent, Jose
Lim, entered into a contract to sell a parcel of land. Reyes as the
seller and Lim as the buyer.
The said contract of sale contained the following terms and
conditions: (1) that the consideration for the said parcel of land is a
total of P28 million and of which, P10 million is to be paid upon
signing of the contract to sell and that the remaining P18 million upon
the designated date but only upon the complete vacation of the
occupants on said property; (2) that in the event, the occupants
failed to vacate the premise upon the arrival of the designated date,
the vendee shall withhold payment and the vendor shall pay an
interest of 4% of the down payment until the complete vacation of
the occupants.
In the complaint for annulment filed before the trial court, the
petitioner claimed that Lim connived with the occupants of the
subject property to not vacate the said premise. In his answer, the
respondent stated that he was willing to pay the remaining balance
but Reyes kept postponing the date of the meeting and even offered
the return of the down payment. Lim, on the other hand, learned that
the subject property was already sold to Line One Foods Corporation
and the said sale has been registered to the Registry of Deeds.
Lim filed a complaint of estafa against Reyes as well as an
action for a specific performance and a nullification of the sale plus
damages. Such complaint prompted the Reyes to file a motion for
leave to file amended complaint which the trial court granted. In
Lim’s amended answer, he prayed for the cancellation of the
contract to sell and for the issuance of writ of preliminary attachment
against Reyes. The trial court denied the prayer for the writ of
preliminary attachment. Lim also requested in an open court that
Reyes be ordered to deposit the down payment to the RTC’s cashier
which was granted. Reyes, however, prayed that the motion be set
aside for having been issued with grave abuse of discretion
amounting to lack of jurisdiction which the Court of Appeals
dismissed.

Issue:
Whether or not the equity jurisdiction is applicable on the
matter.
23 | P a g e 23

Decision:
In the case at hand, the Supreme Court held that this is
precisely one where there is a hiatus in the law and in the Rules of
Court and if such were left alone, will only result in the unjust
enrichment of Reyes at the expense of Lim. The hiatus may also
imperil restitution, which is a precondition to the rescission of the
Contract to Sell that Reyes himself seeks. This is not a case of equity
overruling a positive provision of law or judicial rule for there is none
that governs this particular case. This is a case of silence or
insufficiency of the law and the Rules of Court. In this case, Article 9
of the Civil Code expressly mandates the courts to make a ruling
despite the silence, obscurity or insufficiency of the laws. This calls
for the application of equity, which fills the open spaces in the law.
Thus, the trial court in the exercise of its equity jurisdiction may
validly order the deposit of the P10 million down payment in court.
The purpose of the exercise of equity jurisdiction in this case is to
prevent unjust enrichment and to ensure restitution. Equity
jurisdiction aims to do complete justice in cases where a court of law
is unable to adapt its judgments to the special circumstances of a
case because of the inflexibility of its statutory or legal
jurisdiction. Equity is the principle by which substantial justice may
be attained in cases where the prescribed or customary forms of
ordinary law are inadequate.
24 | P a g e 24

IGNACIO BARZAGA VS. COURT OF APPEALS AND

ANGELITO ALVIAR
G.R. NO. 115129
BELLOSILLO, J.:
Facts:
Barzaga went to the hardware store of respondent Alviar to
inquire about the availability of certain materials to be used in the
construction of a niche for his wife. The following morning, Barzaga
went back to the store and told the employees that the materials he
was buying would have to be delivered at the Memorial Cemetery by
eight o'clock that morning since his hired workers were already at
the burial site and time was of the essence. A store employee
agreed to deliver the items at the designated time, date
and place. With this assurance, Barzaga purchased the materials
and paid in full. The construction materials did not arrive at eight
o'clock as promised. After follow-ups and several hours later, when
there was yet no delivery made, Barzaga went back to the store. He
saw the delivery truck but the things he purchased were not yet
ready for loading. Distressed by the seeming lack of concern on the
store‘s part, Barzaga decided to cancel his transaction with the store
and buy from another store. Not being able to fulfill the scheduled
burial of his wife, Barzaga demanded damages from Alviar but the
latter refused claiming that he is not liable for damages considering
that hedid not incur legal delay since there was no specific time of
delivery agreed upon.

Issue:
Whether or not the respondent incurred delay in the
performance of his obligation.

Decision:
Respondent Angelito Alviar was negligent and incurred in
delay in the performance of his contractual obligation. The niche had
to be constructed at the very least on the twenty-second of
December considering that it would take about two (2) days to finish
the job if the interment was to take place on the twenty-fourth of
the month. Respondent's delay in the delivery of the construction
materials wasted so much time that construction of the tomb could
start only on the twenty-third. It could not be ready for the scheduled
burial of petitioner's wife. This case is clearly one of non-
performance of a reciprocal obligation. In their contract of purchase
and sale, petitioner had already complied fully with what was
required of him as purchaser, i.e., the payment of the purchase price
of P2,110.00. It was incumbent upon respondent to immediately
fulfill his obligation to deliver the goods otherwise delay would attach.
25 | P a g e 25

HEIRS OF LUIS BACUS vs. HON. COURT OF APPEALS

G.R. No. 127695
QUISUMBING, J.:

Luis Bacus leased to private respondent Faustino Duray a

parcel of agricultural land. The contract contained an option to buy
clause. Under said option, the lessee had the exclusive and
irrevocable right to buy 2,000 square meters of the property within
five years from a year after the effectivity of the contract. Close to
the expiration of the contract, Luis Bacus died. Thereafter, the Duray
spouses informed one of the heirs of Luis Bacus, that they were
willing and ready to purchase the property under the option to buy
clause. Due to the refusal of petitioners to sell the property, Duray
filed a complaint for specific performance against the heirs of Luis
Bacus asking that he be allowed to purchase the lot specifically
referred to in the lease contract with option to buy. On the other
hand, petitioners alleged that before Luis Bacus’ death, private
respondents conveyed to them the former’s lack of interest to
exercise their option because of insufficiency of funds. They further
alleged that private respondents did not deposit the money as
required by the Lupon and instead presented a bank certification
which cannot be deemed legal tender.

ISSUE:

Did private respondents incur in delay when they did not

deliver the purchase price or consign it in court on or before the
expiration of the contract?

DECISION:

Obligations under an option to buy are reciprocal obligations.

The performance of one obligation is conditioned on the
simultaneous fulfillment of the other obligation. In other words, in an
option to buy, the payment of the purchase price by the creditor is
contingent upon the execution and delivery of a deed of sale by the
debtor. In this case, when private respondents opted to buy the
property, their obligation was to advise petitioners of their decision
and their readiness to pay the price. They were not yet obliged to
make actual payment. Only upon petitioners’ actual execution and
delivery of the deed of sale were they required to pay. Notice of the
creditor’s decision to exercise his option to buy need not be coupled
with actual payment of the price, so long as this is delivered to the
owner of the property upon performance of his part of the
agreement. Consequently, since the obligation was not yet due,
consignation in court of the purchase price was not yet required.

Private respondents did not incur in delay when they did not
yet deliver payment nor make a consignation before the expiration
26 | P a g e 26

of the contract. In reciprocal obligations, neither party incurs in delay

if the other does not comply or is not ready to comply in a proper
manner with what is incumbent upon him. Only from the moment
one of the parties fulfills his obligation, does delay by the other begin.
In this case, as there was no compliance yet with what was
incumbent upon petitioners under the option to buy, private
respondents had not incurred in delay when the cashier’s check was
issued even after the contract expired.
27 | P a g e 27

LORENZO SHIPPING COMPANY vs. BJ MARTHEL

INTERNATIONAL
G.R. No. 145483, November 19, 2004

FACTS:

Petitioner Lorenzo Shipping is engaged in coastwise shipping

and owns the cargo M/V Dadiangas Express. BJ Marthel is engaged
in trading, marketing and selling various industrial commodities.
Lorenzo Shipping ordered for the second time cylinder lines from the
respondent stating the term of payment to be 25% upon delivery, the
balance payable in 5 bi-monthly equal installments, no again stating
the date of the cylinder’s delivery. It was allegedly paid through
postdated checks but the same was dishonored due to insufficiency
of funds. Despite due demands by the respondent, petitioner failed
contending that time was of the essence in the delivery of the
cylinders and that there was a delay since the respondent committed
said items “ within two months after receipt of fir order”. RTC held
respondents bound to the quotation with respect to the term of
payment, which was reversed by the Court of appeals ordering
appellee to pay appellant P954,000 plus interest. There was no
delay since there was no demand.

ISSUE:

Whether or not respondent incurred delay in performing its

obligation under the contract of sale

DECISION:

By accepting the cylinders when they were delivered to the

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

In the case at hand, the Supreme Court held that this is

precisely one where there is a hiatus in the law and in the Rules of
Court and if such were left alone, will only result in the unjust
enrichment of Reyes at the expense of Lim. The hiatus may also
imperil restitution, which is a precondition to the rescission of the
Contract to Sell that Reyes himself seeks. This is not a case of equity
overruling a positive provision of law or judicial rule for there is none
that governs this particular case. This is a case of silence or
insufficiency of the law and the Rules of Court. In this case, Article 9
of the Civil Code expressly mandates the courts to make a ruling
despite the silence, obscurity or insufficiency of the laws. This calls
for the application of equity, which fills the open spaces in the law.
28 | P a g e 28

Thus, the trial court in the exercise of its equity jurisdiction may
validly order the deposit of the P10 million down payment in court.
The purpose of the exercise of equity jurisdiction in this case is to
prevent unjust enrichment and to ensure restitution. Equity
jurisdiction aims to do complete justice in cases where a court of law
is unable to adapt its judgments to the special circumstances of a
case because of the inflexibility of its statutory or legal
jurisdiction. Equity is the principle by which substantial justice may
be attained in cases where the prescribed or customary forms of
ordinary law are inadequate.
29 | P a g e 29

JOSEFINA TAYAG vs. COURT OF APPEALS

G.R. No. 96053
MELO, J.:

FACTS:

Juan Galicia, Sr. executed a deed of conveyance, prior to his

demise in 1979 in favor of Albrigido Leyva involving the undivided
one-half portion of a piece of land situated at Poblacion, Guimba,
Nueva Ecija for the sum of P50,000.00. There is no dispute that the
first installment was received by Juan Galicia, Sr. And according to
petitioners, of the P10,000.00 to be paid within ten days from
execution of the instrument, only P9,707.00 was tendered to, and
received by, them on numerous occasions from May 29, 1975, up to
November 3, 1979. It was also agreed upon that private respondent
will assume the vendors' obligation to the Philippine Veterans Bank,
however, he paid only the sum of P6,926.41 while the difference of
the indebtedness was paid by Juan Galicia, Sr.’s sister. Moreover,
petitioners claimed that not a single centavo of the P27,000.00
representing the remaining balance was paid to them. Petitioners
averred that private respondent’s failure to pay full consideration of
the agreement to sell gave them the right to have the contract
rescinded.

ISSUE:

Whether or not the petitioners have the right to rescind the

contract in the present case.

DECISION:

Considering that the heirs of Juan Galicia, Sr. accommodated

private respondent by accepting the latter's delayed payments not
only beyond the grace periods but also during the pendency of the
case for specific performance, petitioners' actuation is susceptible of
but one construction that they are now estopped from reneging from
their commitment on account of acceptance of benefits arising from
overdue accounts of private respondent. Indeed, the right to rescind
is not absolute and will not be granted where there has been
substantial compliance by partial payments.

Private respondent is ordered to pay the balance of the

purchase price and to reimburse the sum paid by Juan Galicia Sr.’s
sister to the Philippine Veteran’s bank, minus the attorney's fees and
damages awarded in favor of private respondent.
30 | P a g e 30

TITAN-IKEDA CONSTRUCTION vs. PRIMETOWN PROPERTY

GROUP, INC.,
G.R. No. 158768
CORONA, J.:

FACTS:

In 1992, respondent Primetown Property Group, Inc. awarded

the contract for the structural works of its 32-storey Makati Prime
Tower (MPT) to petitioner Titan-Ikeda Construction and
Development Corporation. In September 1995, respondent engaged
the services of Integratech, Inc. (ITI), an engineering consultancy
firm, to evaluate the progress of the project. In its report, ITI informed
respondent that petitioner, at that point, had only accomplished
31.89% of the project (or was 11 months and six days behind
schedule). Meanwhile, petitioner and respondent were discussing
the possibility of the latter’s takeover of the project’s supervision.
Despite ongoing negotiations, respondent did not obtain petitioner’s
consent in hiring ITI as the project’s construction manager. Neither
did it inform petitioner of ITI’s September 7, 1995 report.

Subsequently, both parties agreed that Primetown will take

over the project. Petitioner then demanded for the payment due him
in relation to its partial performance of its obligation. For failure of
Primetown to pay despite repeated demands, petitioner filed a case
for specific performance against Primetown. Meanwhile, Primetown
demanded reimbursement for the amount it spent in having the
project completed.

ISSUE:

Whether or not Titan-Ikeda is responsible for the project’s

delay.

DECISION:

It was found that because respondent modified the MPT's

architectural design, petitioner had to adjust the scope of work.
Moreover, respondent belatedly informed petitioner of those
modifications. It also failed to deliver the concrete mix and rebars
according to schedule. For this reason, petitioner was not
responsible for the project's delay. Mora or delay is the failure to
perform the obligation in due time because of dolo (malice) or culpa
(negligence). A debtor is deemed to have violated his obligation to
the creditor from the time the latter makes a demand. Once the
creditor makes a demand, the debtor incurs mora or delay.
Respondent never sent petitioner a written demand asking it to
accelerate work on the project and reduce, if not eliminate, slippage.
In view of the foregoing, we hold that petitioner did not incur delay in
the performance of its obligation.
31 | P a g e 31

RAMON ILUSORIO VS. HON. COURT OF APPEALS

G.R. NO. 139130
QUISUMBING, J.:

FACTS:

Petitioner is a prominent businessman and was a depositor in

good standing of respondent bank, the Manila Banking Corporation.
As he was then running about 20 corporations, and was going out of
the country a number of times, petitioner entrusted to his secretary,
Katherine E. Eugenio, his credit cards and his checkbook with blank
checks. Eugenio was able to encash and deposit to her personal
account about seventeen (17) checks drawn against the account of
the petitioner at the respondent bank, with an aggregate amount of
P119,634.34.

Petitioner did not bother to check his statement of account until

a business partner apprised him that he saw Eugenio use his credit
cards. Petitioner fired Eugenio immediately, and instituted a criminal
action against her for estafa thru falsification. Petitioner then
requested the respondent bank to credit back and restore to its
account the value of the checks which were wrongfully encashed but
respondent bank refused. Hence, petitioner filed the instant case.

ISSUE:

Is Manila Bank liable for damages for its negligence in failing

to detect the discrepant checks?

DECISION:

Petitioner‘s contention that Manila Bank was remiss in the

exercise of its duty as drawee lacks factual basis. Manila Bank
employees exercised due diligence in cashing the checks. Its
verifiers first verified the drawer‘s signatures thereon as against his
specimen signature cards, and when in doubt, the verifier went
further, such as by referring to a more experienced verifier for further
verification. In some instances the verifier made a confirmation by
calling the depositor by phone. It is only after taking such
precautionary measures that the subject checks were given to the
teller for payment.

Of course it is possible that the verifiers of TMBC might have made

a mistake in failing to detect any forgery -- if indeed there was.
However, a mistake is not equivalent to negligence if they were
honest mistakes. In the instant case, we believe and so hold that if
there were mistakes, the same were not deliberate, since the bank
took all the precautions. As borne by the records, it was petitioner,
not the bank, who was negligent. Negligence is the omission to do
something which a reasonable man, guided by those considerations
32 | P a g e 32

which ordinarily regulate the conduct of human affairs, would do, or

the doing of something which a prudent and reasonable man would
do. In the present case, it appears that petitioner accorded his
secretary unusual degree of trust and unrestricted access to his
credit cards, passbooks, check books, bank statements, including
custody and possession of cancelled checks and reconciliation of
accounts.
33 | P a g e 33

LOADMASTERS CUSTOMS SERVICES, INC. vs. GLODEL

BROKERAGE CORPORATION and R&B INSURANCE
CORPORATION
G.R. No.179446
MENDOZA, J.:

FACTS:

Columbia Wire and Cable Corporation (Columbia) insured a

cargo of copper cathodes through R&B Insurance Corporation
(R&B). Columbia also engaged the services of Glodel Brokerage
Corporation (Glodel) for the transport of the cargo to Columbia
facilities. Glodel then engaged the services of Loadmasters
Customs Services (Loadmasters) for the delivery of said cargo to
Columbia. Out of 12 trucks, owned by Loadmasters, used to deliver
the cargo of Columbia, only 11 made it to their respective
destinations. /span>Columbia claimed the amount of loss from R&B,
which sued both Glodel and Loadmasters. The RTC ruled in favor of
R&B, but did not hold Loadmasters liable. Both R&B and
Glodelappealed the judgement. The Court of Appeals modified the
decision of the RTC and ruled that Loadmasters, being the agent of
Glodel, is liable to Glodel for all the damages it might be required to
pay.

ISSUES:

Whether or not Loadmasters is an agent of Glodel, and

whether or not it may be held liable under the transaction between
Glodel and Columbia.

DECISION:

Petition is partly meritorious. Glodel and Loadmasters are both

common carriers, as they hold out their carriage services to the
public. As such, under the Civil Code, they are mandated to show
extraordinary diligence in the conduct of transport. In the case at bar,
both Glodel and Loadmasters were negligent as the cargo failed to
reach its destination. Loadmasters failed to ensure that its
employees would not tamper with the cargo. Glodel failed to ensure
that Loadmasters is sufficiently capable of completing the delivery.
Glodel and Loadmasters are therefore joint tortfeasors and are
solidarily liable to R&B Insurance.

Loadmasters cannot be considered an agent of Glodel.

Loadmasters in no way represented itself as such, and in the transfer
of cargo, did not represent itself as doing such in behalf of Glodel. In
fact, Loadmasters is not privy to the agreement between Glodel and
Columbia. It cannot be considered an agent of Glodel, and cannot
be held liable to Glodel.
34 | P a g e 34

METROPOLITAN BANK vs. RENTAO D. CABILZO

G.R. No. 154469
CHICO-NAZARIO, J.:

FACTS:

Respondent Cabilzo was one of the Metrobank’s client who

maintained a current account. On November 12, 199, Cabilzo
issued a Metrobank check payable to cash in the amount of P1,000
and was paid to a certain Mr. Marquez. The check was oresented to
Westmont Bank or payment and in turn indorsed to etrobank for
appropriate clearing. It was discovered that the amount withdrawn
wa P91,000, thus, the check was altered. Cabilzo re-credit the
amount of P91,000 to his account but Metrobank refused to comply
despite demands. RTC ordered Metrobank to pay the sum of
P90,000 to Cabilzo. Court of Appeals affirmed the decision with
modification.

ISSUE:
Whether holding Metrobank, as drawee bank, liable for the
alternations on the subject check bearing the authentic signature of
the drawer thereof

DECISION:

The degree of diligence in the exercise of his tasks and the

performance of his duties have been faithfully complied with by
Cabilzo. It is obvious that Metrobank was remiss in the duty and
violated that fiduciary relationship with its clients as it appeared that
there are material alterations on the check that are visible
35 | P a g e 35

DY TEBAN VS. LIBERTY FOREST

G.R No. 161803
REYES, R.T., J.:

FACTS:

A Prime Mover Trailer suffered a tire blow out during the

night of its travel at a national highway. The trailer was owned by
the respondent Liberty Forest. The driver allegedly put earl warning
devices but the only evidence being witnessed was a banana
trunks and candles. Since the car was placed at the right wing of
the road, thus it cause the swerving of a Nissan van owned by the
petitioner when a passenger bus was coming in between the
trailer. The Nissan van owner claimed for damages against the
respondent. The trial court found that the proximate cause of the
three –way accident is the negligence and carelessness of driver of
the respondent. However reversed the decision of the trial court.

ISSUE:

Whether there was negligence on the part of the respondent.

DECISION:

Yes. There was negligence on the part of the respondent

when the latter failed to put and used an early warning device
because it was found out that there was no early warning device
being prescribed by law that was used by the driver in order to
warn incoming vehicle. Furthermore, the proximate cause of the
accident was due to the position of the trailer where it covered a
cemented part of the road, thus confused and made trick way for
other vehicles to pass by. Thus the respondent is declared liable
due to violation of road rules and regulations.
36 | P a g e 36

CECILIA YAMBAO VS. MELCHORITA ZUIGA ET AL

G.R. NO. 146173
QUISUMBING J.:

FACTS:
May 6, 1992, around 3:30 p.m., a bus owned by the petitioner
was being driven by her driver, Ceferino Venturina along the
northbound lane of Epifanio delos Santos Avenue (EDSA) when the
said bus bumped into Herminigildo Zuiga, a pedestrian. Such was
the force of the impact that the left side of the front windshield
cracked. Zuiga was rushed to Quezon City General Hospital where
he was given medical attention, but due to the massive injuries
sustained, he succumbed shortly thereafter.
Private respondents, heirs of the victim, filed a complaint
against the petitioner and her driver, Venturina, for damages. The
complaint alleged that Venturina drove the bus in a reckless,
careless and imprudent manner, in violation of traffic rules and
regulations, without due regard to public safety, thus resulting to the
victim’s premature death. In her answer, the petitioner denied the
allegations of the complaint, trying to shift the blame to the victim,
theorizing that Herminigildo bumped into her bus while avoiding an
unidentified woman who was chasing him. She further alleged that
she is not liable for any damages because as an employer, she
properly exercised the diligence of a good father of a family, both in
the selection and supervision of her bus driver.

ISSUE:
Whether the petitioner exercised the diligence of a good father
of a family in the selection and supervision of her bus driver.

DECISION:
Petitioner claimed that she exercised due diligence in the
selection and supervision of her driver, Venturina. Her allegation that
before she hired Venturina she required him to submit his driver‘s
license and clearances is worthless, in view of her failure to offer in
evidence certified true copies of said license and clearances.
Moreover, petitioner contradicted herself. She declared that
Venturina applied with her sometime in January 1992 and she then
required him to submit his license and clearances. However, the
record likewise shows that Venturina submitted the said
requirements only on May 6, 1992, or on the very day of the fatal
accident itself. In other words, petitioner‘s own admissions clearly
and categorically show that she did not exercise due diligence in the
selection of her bus driver.
37 | P a g e 37

In any case, assuming arguendo that Venturina did submit his

license and clearances when he applied with petitioner in January
1992, the latter still fails the test of due diligence in the selection of
her bus driver. Petitioner failed to present convincing proof that she
went to this extent of verifying Venturina‘s qualifications, safety
record, and driving history. Nor did petitioner show that she
exercised due supervision over Venturina after his selection. For as
pointed out by the Court of Appeals, petitioner did not present any
proof that she drafted and implemented training programs and
guidelines on road safety for her employees. In fact, the record is
bare of any showing that petitioner required Venturina to attend
periodic seminars on road safety and traffic efficiency. Hence,
petitioner cannot claim exemption from any liability arising from the
recklessness or negligence of Venturina.
38 | P a g e 38

DOMINGO CARABEO VS. SPS. NORBERTO & SUSAN DINGCO

G.R. No. 190823
CARPIO MORALES, J.:

FACTS:

On July 10, 1990, Domingo Carabeo (petitioner) entered into

a contract denominated as "Kasunduan sa Bilihan ng Karapatan sa
Lupa" with Spouses Norberto and Susan Dingco (respondents)
whereby petitioner agreed to sell his rights over a 648 square meter
parcel of unregistered land situated in Purok III, Tugatog, Orani,
Bataan to respondents for P38,000.

Respondents tendered their initial payment of P10,000 upon

signing of the contract, the remaining balance to be paid on
September 1990. Respondents were later to claim that when they
were about to hand in the balance of the purchase price, petitioner
requested them to keep it first as he was yet to settle an on-going
"squabble" over the land. Sometime in 1994, respondents learned
that the alleged problem over the land had been settled and that
petitioner had caused its registration in his name on December 21,
1993 under Transfer Certificate of Title No. 161806. They thereupon
offered to pay the balance but petitioner declined, drawing them to
file a complaint before the Katarungan Pambarangay. No settlement
was reached, however, hence, respondent filed a complaint for
specific performance before the Regional Trial Court (RTC) of
Balanga, Bataan.

The trial court ruled in favor of respondents. CA affirmed RTC.

Hence this petition.

ISSUE:

Whether or not the CA erred in their decision by favoring

respondents.

DECISION:

The Supreme Court denied the petition. The court contends

that the KASUNDUAN which pertinent portion reads “Na ako ay may
isang partial na lupa na matatagpuan sa Purok 111, Tugatog, Orani
Bataan, na may sukat na 27 x 24 metro kuwadrado, ang nasabing
lupa ay may sakop na dalawang punong santol at isang punong
mangga, kaya't ako ay nakipagkasundo sa mag-asawang Norby
Dingco at Susan Dingco na ipagbili sa kanila ang karapatan ng
nasabing lupa sa halagang P38,000.00”, That the kasunduan did not
specify the technical boundaries of the property did not render the
sale a nullity. The requirement that a sale must have for its object a
determinate thing is satisfied as long as, at the time the contract is
entered into, the object of the sale is capable of being made
determinate without the necessity of a new or further agreement
between the parties. As the above-quoted portion of the kasunduan
shows, there is no doubt that the object of the sale is determinate.
39 | P a g e 39

In the present case, respondents are pursuing a property right

arising from the kasunduan, whereas petitioner is invoking nullity of
the kasunduan to protect his proprietary interest. Assuming
arguendo, however, that the kasunduan is deemed void, there is a
corollary obligation of petitioner to return the money paid by
respondents, and since the action involves property rights. The
death of a client immediately divests the counsel of authority. Thus,
in filing a Notice of Appeal, petitioner's counsel of record had no
personality to act on behalf of the already deceased client who, it
bears reiteration, had not been substituted as a party after his death.
40 | P a g e 40

SPS. HENRY AND ELIZABETH CO VS. COURT OF APPEALS

GR No. 112330
GONZAGA-REYES, J.:

FACTS:

Plaintiff entered into a verbal contract with defendant for her

purchase of the latter’s house and lot located at 316 Beata St., New
Alabang Village, Muntinlupa, Metro Manila, for and in consideration
of the sum of $100,000.00. One week thereafter, and shortly before
she left for the United States, plaintiff paid to the defendants the
amounts of $1,000.00 and P40,000.00 as earnest money, in order
that the same may be reserved for her purchase, said earnest
money to be deducted from the total purchase price. The purchase
price of $100,000.00 is payable in two payments $40,000.00 on
December 4, 1984 and the balance of $60,000.00 on January 5,
1985. On January 25, 1985, although the period of payment had
already expired, plaintiff paid to the defendant Melody Co in the
United States, the sum of $30,000.00, as partial payment of the
purchase price. Defendant’s counsel, Atty. Leopoldo Cotaco, wrote
a letter to the plaintiff dated March 15, 1985, demanding that she
pay the balance of $70,000.00 and not receiving any response
thereto, said lawyer wrote another letter to plaintiff dated August 8,
1986, informing her that she has lost her ‘option to purchase’ the
property subject of this case and offered to sell her another property.

ISSUE:

Whether or not the Court of Appeals erred in ordering the COS

to return the $30,000.00 paid by Custodio pursuant to the “option”
granted to her over the Beata property?

DECISION:

The Co’s main argument is that Custodio lost her “option” over
the Beata property and her failure to exercise said option resulted in
the forfeiture of any amounts paid by her pursuant to the August
letter. An option is a contract granting a privilege to buy or sell within
an agreed time and at a determined price. Article 1479 of the Civil
Code states that an accepted unilateral promise to buy or to sell a
determinate thing for a price certain is binding upon the promissor if
the promise is supported by a consideration distinct from the price.

However, the March 15, 1985 letter sent by the COS through their
lawyer to the Custodio reveals that the parties entered into a
perfected contract of sale and not an option contract.

In the case at bar, the property involved has not been delivered
to the appellee. She has therefore nothing to return to the
appellants. The price received by the appellants has to be returned
to the appellee as aptly ruled by the lower court, for such is a
consequence of rescission, which is to restore the parties in their
former situations.
41 | P a g e 41

LL AND COMPANY DEVELOPMENT VS. HUANG CHAO CHUN

G.R. NO. 142378
PANGANIBAN, J.:

FACTS:

The case originated from an unlawful detainer case filed by

petitioner before the trial court alleging that respondents Huang
Chao Chun and Yang Tung Fa violated their amended lease contract
over a 1,112 square meter lot it owns, when they did not pay the
monthly rentals thereon in the total amount of P4,322,900.00. It also
alleged that the amended lease contract already expired on
September 16, 1996 but respondents refused to surrender
possession thereof plus the improvements made thereon, and pay
the rental arrearages despite repeated demands. The parties
entered into the amended lease contract sometime in August 1991.
The same amended the lease contract previously entered into by the
parties on August 8, 1991.
Respondent were joined by the Tsai Chun International Resources
Inc. in their answer to the Complaint, wherein they alleged that the
actual lessee is the corporation. Respondents and the corporation
denied petitioner’s allegations.

The MTC dismissed the case. The MTC ruled that the
lessees could extend the contract entered into by the parties
unilaterally for another five years for reasons of justice and equity. It
also ruled that the corporation’s failure to pay the monthly rentals as
they fell due was justified by the fact that petitioner refused to honor
the basis of the rental increase as stated in their Lease Agreement.
This was affirmed by the RTC. It also held that the parties had a
reciprocal obligation: unless and until petitioner presented “the
increased realty tax,” private respondents were not under any
obligation to pay the increased monthly rental. The decision was
likewise affirmed by the Court of Appeals.

ISSUE:

Whether or not the court could still extend the term of the
lease, after its expiration.

DECISION:

In general, the power of the courts to fix a longer term for a

lease is discretionary. Such power is to be exercised only in
accordance with the particular circumstances of a case: a longer
term to be granted where equities demanding extension come into
play; to be denied where none appear -- always with due deference
to the parties’ freedom to contract. Thus, courts are not bound to
extend the lease. Article 1675 of the Civil Code excludes cases
falling under Article 1673 from those under Article 1687. Article 1673
provides among others, that the lessor may judicially eject the lessee
upon the expiration of “the period agreed upon or that, which is fixed
42 | P a g e 42

for the duration of the leases.” Where no period has been fixed by
the parties, the courts, pursuant to Article 1687, have the potestative
authority to set a longer period of lease.

In the case, the Contract of Lease provided for a fixed period of

five (5) years -- “specifically” from September 16, 1991 to September
15, 1996. Because the lease period was for a determinate time, it
ceased, by express provision of Article 1669 of the Civil Code, “on
the day fixed, without need of a demand.” Here, the five-year period
expired on September 15, 1996, whereas the Complaint for
ejectment was filed on October 6, 1996. Because there was no
longer any lease that could be extended, the MeTC, in effect, made
a new contract for the parties, a power it did not have.

Furthermore, the extension of a lease contract must be made

before the term of the agreement expires, not after. Upon the lapse
of the stipulated period, courts cannot belatedly extend or make a
new lease for the parties, even on the basis of equity. Because the
Lease Contract ended on September 15, 1996, without the parties
reaching any agreement for renewal, respondents can be ejected
from the premises.
43 | P a g e 43

PIO SIAN MELLIZA VS. CITY OF ILOILO

G.R No. L-24732
BENGZON, J.P., J.:

FACTS:

Juliana Melliza owned three parcels of residential land. She

sold to the Municipality of Iloilo a certain lot to serve as site for the
municipal hall. The donation was however revoked by the parties
for the reason that area was found inadequate to meet the
requirements of the development plan. Subsequently the said lot
was divided into several divisions. She then sold her remaining
interest on the said lot to Remedios San Villanueva. Remedios in
turn transferred the rights to said portion of land to Pio Sian Melliza.
The transfer Certificate of title in Melliza’s name bears on annotation
stating that a portion of said lot belongs to the Municipality of Iloilo.
Later the City of Iloilo donated the city hall site to the University of
the Philippines, Iloilo which fenced the same with iron wires.
Pio Sian Melliza then filed action against Iloilo City and the University
of the Philippines for recovery of the parcel of land or of its value.

Petitioner contends that the claimed lot was not included in

those lots which were sold by Juliana Melliza to Iloilo City and further
asserts that the Deed of Sale invalid because the law requires as an
essential element of sale, determinate object, which was blur in the
case at bar.

ISSUE:

Whether or not the Deed of Sale should be declared invalid

because the object is not determinate as required by law.

DECISION:

Article 1460 of the Civil Code states that the sale must have
for its object a determinate thing, is fulfilled as long as, at the time
the contract is entered into, the object of the sale is cable of being
determinate without the necessity of a new or further agreement
between the parties.

The specific mention of some of the lots plus the statement

that the lots object of the sale are the ones needed for city hall site
sufficient provides a basis, as of the time, of the execution of the
contract, for rendering determinate said lots without the need of a
new further agreement of the parties.
44 | P a g e 44

WILLIAM UY VS. BARTOLOME PUZON

G.R. No. L-19819
CONCEPCION JR., J.:

FACTS:
Bartolome Puzon had two contracts with the government for
the construction of roads and bridges. He sought the financial
assistance of William Uy, so he proposed that they create a
partnership which would be the sub-contractor of the projects. They
also agreed that the profits will be divided among themselves.

They agreed to contribute P50,000 each. P40,000 was

advanced by William Uy while Puzon was waiting for the approval of
his P150,000 PNB Loan. Upon release of the loan, he promised to
reimburse William Uy of the P40,000; pay his share of P50,000 and
loan P60,000 to the partnership. The loan was approved by
November 1956 and at the end of 1957, Uy contributed a total of
P115,000. The partnership agreement was signed in 1957 although
the work for the projects began as early as 1956.

Since Puzon was busy with other projects, Uy was the one
who managed the partnership. In order to guarantee the PNB Loan,
Puzon, without the knowledge of Uy, assigned the payments to the
payments to be received from the projects to PNB. Due to the
financial demands of the projects, Uy demanded that Puzon comply
with his obligation to place his capital contribution in the company.
However, Puzon failed to comply even after formal demand letters
were sent to him.
Thereafter, Puzon wrote terminated the subcontract
agreement with the partnership to which he is also a partner and Uy
was not allowed to hold office in the UP Construction Company and
his authority to negotiate with the Bureau was revoked by Puzon. Uy
then claimed that Puzon had violated the terms of their partnership
agreement and sought for the dissolution of the partnership with
damages.

ISSUE:
Whether or not Puzon failed to comply with his obligation of
paying the capital contribution to the company.

DECISION:
There was failure on the part of Puzon to contribute capital to
the partnership. When his load with PNB was approved, he only
gave P60,000 to Uy; P40,000 was for reimbursement to the
payments made by Uy and the other P20,000 was for the capital
contribution. Thereafter, Puzon never made additional contribution.

If a partner in a construction enterprise fails to fulfill his

commitments to the partnership, he is required to indemnify his co-
partner for the latter’s losses, such as the money invested or spent
by the latter.
45 | P a g e 45

NATIONAL POWER CORPORATION vs. PHILIPP BROTHERS

OCEANIC, INC.
G.R. No. 126204
SANDOVAL-GUTIERREZ, J.:

FACTS:

On May 14, 1987, the National Power Corporation

(NAPOCOR) issued invitations to bid for the supply and delivery of
120,000 metric tons of imported coal for its Batangas Coal-Fired
Thermal Power Plant in Calaca, Batangas. The Philipp Brothers
Oceanic, Inc. (PHIBRO) prequalified and was allowed to participate
as one of the bidders. After the public bidding was conducted,
PHIBRO’s bid was accepted. NAPOCOR’s acceptance was
conveyed in a letter dated July 8, 1987, which was received by
PHIBRO on July 15, 1987. On July 10, 1987, PHIBRO sent word to
NAPOCOR that industrial disputes might soon plague Australia, the
shipment’s point of origin, which could seriously hamper PHIBRO’s
ability to supply the needed coal. From July 23 to July 31, 1987,
PHIBRO again apprised NAPOCOR of the situation in Australia,
particularly informing the latter that the ship owners therein are not
willing to load cargo unless a “strike-free” clause is incorporated in
the charter party or the contract of carriage. In order to hasten the
transfer of coal, PHIBRO proposed to NAPOCOR that they equally
share the burden of a “strike-free” clause. NAPOCOR refused.

On August 6, 1987, PHIBRO received from NAPOCOR a

confirmed and workable letter of credit. Instead of delivering the coal
on or before the thirtieth day after receipt of the Letter of Credit, as
agreed upon by the parties in the July contract, PHIBRO effected its
first shipment only on November 17, 1987. Consequently, in October
1987, NAPOCOR once more advertised for the delivery of coal to its
Calaca thermal plant. PHIBRO participated anew in this subsequent
bidding. On November 24, 1987, NAPOCOR disapproved
PHIBRO’s application for pre-qualification to bid for not meeting the
minimum requirements. Upon further inquiry, PHIBRO found that the
real reason for the disapproval was its purported failure to satisfy
NAPOCOR’s demand for damages due to the delay in the delivery
of the first coal shipment.

ISSUE:

Whether or not the Court of Appeals gravely and seriously

erred in concluding and so holding that PHIBRO’s delay in the
delivery of imported coal was due to NAPOCOR’s alleged delay in
opening a letter of credit and to force majeure, and not to PHIBRO’s
own deliberate acts and faults

DECISION:

Fortuitous events may be produced by two general

causes: (1) by Nature, such as earthquakes, storms, floods,
epidemics, fires, etc., and (2) by the act of man, such as an armed
46 | P a g e 46

invasion, attack by bandits, governmental prohibitions, robbery, etc.

The term generally applies, broadly speaking, to natural accidents.
In order that acts of man such as a strike, may constitute fortuitous
event, it is necessary that they have the force of an imposition which
the debtor could not have resisted. Hence, by law and by stipulation
of the parties, the strikes which took place in Australia from the first
week of July to the third week of September, 1987, exempted Phibro
from the effects of delay of the delivery of the shipment of coal.

In addition, PHIBRO and NAPOCOR explicitly agreed in

Section XVII of the “Bidding Terms and Specifications” that “neither
seller (PHIBRO) nor buyer (NAPOCOR) shall be liable for any delay
in or failure of the performance of its obligations, other than the
payment of money due, if any such delay or failure is due to Force
Majeure.” Specifically, they defined force majeure as “any disabling
cause beyond the control of and without fault or negligence of the
party, which causes may include but are not restricted to Acts of God
or of the public enemy; acts of the Government in either its sovereign
or contractual capacity; governmental restrictions; strikes, fires,
floods, wars, typhoons, storms, epidemics and quarantine
restrictions.”
47 | P a g e 47

THE PHILIPPINE AMERICAN GENERAL INSURANCE CO., INC.

vs. MGG MARINE SERVICES, INC. and DOROTEO GAERLAN
G.R. No. 135645
KAPUNAN, J.:

FACTS:

On March 1, 1987, San Miguel Corporation insured several

beer bottle cases with petitioner Philippine American General
Insurance Company. The cargo were loaded on board the M/V
Peatheray Patrick-G to be transported from Mandaue City to Bislig,
Surigao del Sur. After having been cleared by the Coast Guard
Station in Cebu the previous day, the vessel left the port of Mandaue
City for Bislig, Surigao del Sur on March 2, 1987. The following day,
March 3, 1987, M/V Peatheray Patrick-G listed and subsequently
sunk off Cawit Point, Cortes, Surigao del Sur. As a consequence
thereof, the cargo belonging to San Miguel Corporation was lost.
Subsequently, San Miguel Corporation claimed the amount of its
loss from petitioner.

The Board of Marine Inquiry conducted its own investigation

of the sinking of the M/V Peatheray Patrick-G to determine whether
or not the captain and crew of the vessel should be held responsible
for the incident. On May 11, 1989, the Board rendered its decision
exonerating the captain and crew of the ill-fated vessel for any
administrative liability. It found that the cause of the sinking of the
vessel was the existence of strong winds and enormous waves in
Surigao del Sur, a fortuitous event that could not have been forseen
at the time the M/V Peatheray Patrick-G left the port of Mandaue
City. It was further held by the Board that said fortuitous event was
the proximate and only cause of the vessel’s sinking.

ISSUE:

Whether the cargo was lost due to a fortuitous event and

whether respondents exercised due diligence to prevent the loss of
the cargo.

DECISION:

Common carriers, from the nature of their business and for

reasons of public policy, are mandated to observe extraordinary
diligence in the vigilance over the goods and for the safety of the
passengers transported by them. Owing to this high degree of
diligence required of them, common carriers, as a general rule, are
presumed to have been at fault or negligent if the goods transported
by them are lost, destroyed or if the same deteriorated.

However, this presumption of fault or negligence does not

arise in the cases enumerated under Article 1734 of the Civil Code:
48 | P a g e 48

Common carriers are responsible for the loss, destruction, or

deterioration of the goods, unless the same is due to any of the
following causes only:(1) Flood, storm, earthquake, lightning or other
natural disaster or calamity;(2) Act of the public enemy in war,
whether international or civil;(3) Act or omission of the shipper or
owner of the goods;(4) The character of the goods or defects in the
packing or in the containers;(5) Order or act of competent public
authority.

The findings of the Board of Marine Inquiry indicate that the

attendance of strong winds and huge waves while the M/V
Peatheray Patrick-G was sailing through Cortes, Surigao del Norte
on March 3, 1987 was indeed fortuitous. Thus, the Caprain could not
be expected to have foreseen the unfavorable weather condition that
awaited the vessel in Cortes, Surigao del Sur. It was the presence
of the strong winds and enormous waves which caused the vessel
to list, keel over, and consequently lose the cargo contained therein.
The appellate court likewise found that there was no negligence on
the part of the crew of the M/V Peatheray Patrick-G. Hence, private
respondents cannot be held liable for the said loss.
49 | P a g e 49

REPUBLIC VS. STEVEDORING CORPORATION

G.R. L-21749
REYES, J.B.L., J.:

FACTS:

A barge being towed by tugboats "Bangus" and "Barbero" all

owned by Luzon Stevedoring Corp. rammed one of the wooden piles
of the Nagtahan Bailey Bridge due to the swollen current of the Pasig
after heavy rains days before. The Republic sued Luzon Stevedoring
for actual and consequential damages. Luzon Stevedoring claimed
it had exercised due diligence in the selection and supervision of its
employees; that the damages to the bridge were caused by force
majeure; that plaintiff has no capacity to sue; and that the Nagtahan
bailey bridge is an obstruction to navigation.

ISSUE:

Whether or not the collision of appellant's barge with the

supports or piers of the Nagtahan bridge was in law caused by
fortuitous event or force majeure.

DECISION:

There is a presumption of negligence on part of the employees

of Luzon Stevedoring, as the Nagtahan Bridge is
stationary. For caso fortuito or force majeure (which in law are
identical in so far as they exempt an obligor from liability) by
definition, are extraordinary events not foreseeable or avoidable,
"events that could not be foreseen, or which, though foreseen, were
inevitable" (Art. 1174, Civ. Code of the Philippines). It is, therefore,
not enough that the event should not have been foreseen or
anticipated, as is commonly believed, but it must be one impossible
to foresee or to avoid. The mere difficulty to foresee the happening
is not impossibility to foresee the same. Luzon Stevedoring knew the
perils posed by the swollen stream and its swift current, and
voluntarily entered into a situation involving obvious danger; it
therefore assured the risk, and cannot shed responsibility merely
because the precautions it adopted turned out to be insufficient. It is
thus liable for damages.
50 | P a g e 50

JACINTO TANGUILING VS. COURT OF APPEALS AND

VICENTE HERCE JR.
G.R. NO. 117190
BELLOSILLO, J.:

Facts:
Petitioner, Jacinto Tanguilig proposed to Vicente Herce Jr.,
respondent to construct a windmill system for him. They have agreed
on the construction of the windmill for a consideration of
P60,000,000 with a one year guaranty from the date of completion.
Pursuant to the agreement, respondent paid an amount of P30,
000,000 as down payment and P15, 000,000 as installment, leaving
a balance of P15, 000,000.
Due to refusal and failure of respondent to pay the balance,
petitioner filed a complaint to collect. The respondent filed answered
the petition by claiming that he has paid the balance San Pedro
General Merchandising Inc. (SPGMI) which constructed the deep
well to which the windmill system is to be connected and since the
deep well formed part of the system, the payment tendered to
SPGMI should be credited by the petitioner to his account.
Moreover, assuming that he owed the petitioner an amount of P15,
000, 000, this should be offset by the defects of the windmill system
which caused the structure to collapse after a strong wind hit their
place.
Petitioner denied the inclusion of the construction of a deep
well in the system, claiming that the contract price was solely for the
assembly of the windmill and its installation. He also disowned any
obligation attributable to repair or reconstruct the system, insisting
that he delivered such in a good and working condition to respondent
who accepted without protest and since the collapse was attributable
to a typhoon, a force majeure, he should be relieved from any
liability.

Issue:
Whether or not Tanguilig is liable to reconstruct the damage
windmill.

Decision:
The Supreme Court held that in order for a party to claim
exemption from liability by reason of fortuitous event under Art. 1174
of the Civil Code, four requisites must concur: (a) the cause of the
breach of the obligation must be independent of the will of the debtor;
(b) the event must either be unforeseeable or unavoidable; (c) the
51 | P a g e 51

event must be such as to render it impossible for the debtor to fulfill

his obligation in a normal manner; and, (d) the debtor must be free
from any participation or aggravation of the injury to the creditor.
In this case, petitioner failed to show that the collapse was due
solely to a fortuitous event. The evidence does not disclose that
there was actually a typhoon on the day of the windmill collapsed.
Thus, petitioner was ordered to reconstruct subject defective
windmill system in accordance to the one year guaranty.
52 | P a g e 52

MINDEX RESOURCES DEVELOPMENT vs. EPHRAIM

MORILLO
G.R. No. 138123
PANGANIBAN, J.:

FACTS:

On February 1991, a verbal agreement was entered into

between Ephraim Morillo and Mindex Resources Corporation for the
lease of the former’s 6 x 6 ten-wheeler cargo truck for use in
MINDEX’s mining operations in Binaybay, Bigaan, San Teodoro,
Oriental Mindoro, at the stipulated rental of ‘P300.00 per hour for a
minimum of eight hours a day or a total of P2,400.00 daily.’ MINDEX
had been paying the rentals until April 10, 1991. Unknown to
Morillo, on April 11, 1991, the truck was burned by unidentified
persons while it was parked unattended at Sitio Aras, Bigaan, San
Teodoro, Oriental Mindoro, due to mechanical trouble. Upon
learning of the burning incident, Morillo offered to sell the truck to
MINDEX but the latter refused. Instead, it replaced the vehicle’s
burned tires and had it towed to a shop for repair and overhauling.

On April 15, 1991, Morillo sent a letter to Mr. Arni Isberg, the
Finance Manager of MINDEX, thru Mr. Ramoncito Gozar, Project
Manager, proposing that he is entrusting to MINDEX the said vehicle
in the amount of P275,000.00 which is its cost price, in four monthly
installments. Morillo then promised to relinquish all the necessary
documents upon full payment of said account. On the other hand,
MINDEX expressed thier reservations and made counter offers that
it will pay the truck in the amount of P76,000, that the repair and
overhaul will be on their expense, and that they wll return it in a good
running condition after repair. Morillo replied 1 that he will relinquish
to MINDEX the damaged truck, that he is amenable to receive the
rental in the amount of P76,000.00, and that MINDEX will pay fifty
thousand pesos monthly until the balance of P275,000.00 is fully
paid. On August 1991, Morillo pulled out the truck from the repair
shop of MINDEX and had it repaired elsewhere for which he spent
the total amount of P132,750.00.

ISSUE:

Whether or not the Court of Appeals gravely erred in finding

that petitioner failed to overcome the presumption of negligence
against it considering that the facts show that the burning of the truck
was a fortuitous event.

DECISION:

Both the RTC and the CA found petitioner negligent and thus
liable for the loss or destruction of the leased truck. Both parties may
have suffered from the burning of the truck; however, as found by
both lower courts, the negligence of petitioner makes it responsible
for the loss. In order for a fortuitous event to exempt one from
liability, it is necessary that one has committed no negligence or
53 | P a g e 53

misconduct that may have occasioned the loss. An act of God

cannot be invoked to protect a person who has failed to take steps
to forestall the possible adverse consequences of such a loss. One’s
negligence may have concurred with an act of God in producing
damage and injury to another; nonetheless, showing that the
immediate or proximate cause of the damage or injury was a
fortuitous event would not exempt one from liability. When the effect
is found to be partly the result of a person’s participation -- whether
by active intervention, neglect or failure to act -- the whole
occurrence is humanized and removed from the rules applicable to
acts of God.

The records clearly shows that petitioner failed to exercise

reasonable care and caution that an ordinarily prudent person would
have used in the same situation. Petitioner fell short of ordinary
diligence in safeguarding the leased truck against the accident.n
Petitioner failed to employ reasonable foresight, diligence and care
that would have exempted it from liability resulting from the burning
of the truck. Negligence, as commonly understood, is that conduct
that naturally or reasonably creates undue risk or harm to others. It
may be a failure to observe that degree of care, precaution or
vigilance that the circumstances justly demand; or to do any other
act that would be done by a prudent and reasonable person, who is
guided by considerations that ordinarily regulate the conduct of
human affairs.
54 | P a g e 54

JUAN AZARRAGA vs. JOSE RODRIGUEZ

G.R. No. L-3833
TORRES, J.:

FACTS:

December 31, 1898, the defendant Rodriguez executed in

favor of Regino Ramirez a document whereby he bound himself to
pay the latter on the 15th of May, 1899, the a sum of money, which
Fray Lesmes Perez owed the said Ramirez, who, in payment of a
debt to the plaintiff. Azarraga, indorsed assigned to the latter the said
document from the defendant, Rodriguez, for the above-stated sum,
for account of his indebtedness.

ISSUE:

Whether or not the transfer of rights was valid.

DECISION:

The court held that the assignment or transfer of the credit in

question, made by Ramirez, the creditor is valid, and
notwithstanding the fact that the cause or consideration of the
transfer is not stated in the endorsement, it must be presumed that
one exists and that it is a lawful one, unless file debtor should prove
the contrary which he has not done in this case.
55 | P a g e 55

CO BUN CHUN VS. THE OVERSEAS BANK OF MANILA

G.R. NO. L-27342
AQUINO, J.:

FACTS:

Co Bun Chun placed with the Overseas Bank of Manila a time

deposit of P66,000 for a period of one year with interest at 4 1/2
interest per annum. Four days later, he assigned to the bank the said
time deposit as security for the six-month overdraft accounts of
P75,000 each, or a total of P300,000. It was a condition of the
assignment that the time deposit could not be withdrawn unless the
overdraft line, the interest due thereon and "the expenses incurred"
had been fully paid.

The overdraft accounts, due on July 17 and August 10, 1964,

were fully liquidated only on May 21, 1965. The debtors paid
P228,881.37. The bank had to refer the default to its lawyer who
undertook the extrajudicial collection of the amounts due and who
charge 5%, or P11,444.06, as collection expenses.

ISSUE:

Whether or not Co Bun is bound by the terms included in the

assignment.

DECISION:

The court held that Co Bun Chun is bound by the terms of the
deed assigning his time deposit to the bank. He was not a mere
guarantor of the overdraft accounts. The assignment specifically
bound him to pay the "expenses incurred" for the extrajudicial
collection of the overdraft accounts of what the bank terms "his
companies."
56 | P a g e 56

PADCOM CONDOMINIUM CORPORATION VS. ORTIGAS

CENTER ASSOCIATION, INC.,
G.R. No. 146807
DAVIDE, JR., C.J.:

FACTS:

Petitioner Padcom Condominium Corporation (hereafter

PADCOM) owns and manages the Padilla Office Condominium
Building (PADCOM Building). The land on which the building stands
was originally acquired from the Ortigas & Company, Limited
Partnership (OCLP), by Tierra Development Corporation (TDC)
under a Deed of Sale. Among the terms and conditions in the deed
of sale was the requirement that the transferee and its successor-in-
interest must become members of an association for realty owners
and long-term lessees in the area later known as the Ortigas Center.
Subsequently, the said lot, together with improvements thereon, was
conveyed by TDC in favor of PADCOM in a Deed of Transfer.

In 1982, respondent Ortigas Center Association, Inc. was

organized to advance the interests and promote the general welfare
of the real estate owners and long-term lessees of lots in the Ortigas
Center. It sought the collection of membership dues from PADCOM.
The corporate books showed that PADCOM owed the Association
P639, 961.47, representing membership dues, interests and penalty
charges from April 1983 to June 1993. The letters exchanged
between the parties through the years showed repeated demands
for payment, requests for extensions of payment, and even a
settlement scheme proposed by PADCOM in September 1990.

In view of PADCOM's failure and refusal to pay its arrears in

monthly dues, including interests and penalties thereon, the
Association filed a complaint for collection of sum of money before
the trial court. The Association averred that purchasers of lands
within the Ortigas Center complex from OCLP are obligated under
their contracts of sale to become members of the Association. This
obligation was allegedly passed on to PADCOM when it bought the
lot from TDC, its predecessor-in-interest.
The trial court dismissed the case. However, the Court of Appeals
reversed the same in favor of the Association.

ISSUE:

Whether or not PADCOM is a member of the Ortigas Center

Association, Inc.

DECISION:

As a lot owner, PADCOM is a regular member of the

Association. No application for membership is necessary. If at all,
acceptance by the Board of Directors is a ministerial function
57 | P a g e 57

considering that PADCOM is deemed to be a regular member upon

the acquisition of the lot pursuant to the automatic membership
clause annotated in the Certificate of Title of the property and the
Deed of Transfer. PADCOM’s contention that the automatic
membership clause is a violation of its freedom of association
because it was never forced to join the association is likewise
untenable. Nobody forced it to buy the land when it bought the
building with the annotation of the condition or lien on the Certificate
of Title thereof and accepted the Deed. PADCOM voluntarily agreed
to be bound by and respect the condition, and thus to join the
Association.

Having ruled that PADCOM is a member of the Association, it

is obligated to pay its dues incidental thereto as mandated by Article
1159 of the Civil Code which states that “obligations arising from
contracts have the force of law between the contracting parties and
should be complied with in good faith”.

Assuming in gratis argument that PADCOM is not a member

of the Association, it cannot evade payment without violating the
equitable principles underlying quasi-contracts. Article 2142 of the
Civil Code provides that “certain lawful, voluntary and unilateral acts
give rise to the juridical relation of quasi-contract to the end that no
one shall be unjustly enriched or benefited at the expense of
another”.
58 | P a g e 58

REPUBLIC OF THE PHILIPPINES vs. EMILIO G. GUANZON

G.R. No. L-22374
FERNANDO, J.:

FACTS:

Emilio Guanzon borrowed money from the Bank of Taiwan

during the Japanese occupation. Security was given in the form of a
real mortgage on two parcels, and a chattel mortgage on the crops
growing on said parcels. When the Philippines was liberated in 1946,
the mortgage credit was acquired by the United States, and later
transferred to the Philippines through Property Act of 1946. The
Philippines then filed an action for foreclosure. The lower court
dismissed the action firstly on the ground that the Philippines is not
a party-in-interest, and secondly, on the ground that the foreign law
cited cannot be effective in our country.

ISSUE:

Whether or not the Philippines has legal interest in the

mortgage loan.

DECISION:

The Philippines has legal interest in the mortgage loans,

because the mortgage credit was transferred to our government by
the U.S. through the Philippine Property Act of 1946, a foreign law
duly acquiesced in by both the executive and legislative branches of
our government.
59 | P a g e 59

JESUS SAN AGUSTIN VS. COURT OF APPEALS

G.R. NO. 121940
QUISUMBING, J.:

FACTS:

GSIS sold to Macaria Vda de Caiquep, a parcel or residential

land located at Pasig City, part of the GISIS Low Cost Housing
Project evidenced by a Deed of Absolute Sale. The Register of
Deeds of Rizal issued in the name of Caiquep, Transfer Certificate
of Title. The next day, Caiquep sold the subject lot to private
respondent Maximo Menez. Being suspected as a subversive,
military men ransacked Menez’s’ house in Rizal. He surrendered to
the authorities and was detained for two years. When released,
another order for his arrest was issued so he hid in Mindanao for
another four years. Later on, he discovered that the subject TCT
was missing. He consulted a lawyer but the latter did not act
immediately on the matter. Upon consulting a new counsel, an
Affidavit of Loss was filed with the Register of Deeds and a certified
copy of TCT was issued. Private respondent also declared the
property for tax purposes and obtained a certification thereof from
the Assessor’s office. His search for the registered owner to different
parts of the country failed prompting the former to file a petition for
the issuance of owner’s duplicate copy to replace the lost one.
During the hearing, only Menez and counsel were present because
the Register of Deeds and the Provincial Prosecutor were not
notified. The trial court granted his petition after Menez presented
his evidence ex parte. San Agustin claimed this was the first time
he became aware of the case of his aunt Ma. Vda de Caiquep and
the present occupant of the property. He filed a Motion to Reopen
Reconstitution Proceedings but RTC denied said motion. Petitioner
moved for motion for re consideration but was again denied.

ISSUE:

Whether or not petitioner is bound by the contract entered into

by his predecessor-in-interest.

DECISION:

The petitioner is bound by contracts entered into by his

predecessor’s-in-interest. In this case, the the GSIS has not filed
any action for the annulment of Deed of Absolute Sale of the lot that
the latter sold to Caiquep, nor the forfeiture of the lot in question. In
our view, the suit filed by the rightful party, the GSIS. For now, the
said contract of sale is binding upon heirs of Macaria Vda de
Caiquep., including petitioner who alleges to be one of her heirs, in
line with the rule that heirs are bound by contracts entered into by
their predecessors-in-interest.
60 | P a g e 60

ERNEST BERG VS. MAGDALENA ESTATE, INC.

G.R. NO. L-3784
BAUTISTA ANGELO, J.:

FACTS:

The complaint avers that plaintiff and defendant are co-

owners of said property, the former being the owner of one-third
interest and the latter of the remaining two-thirds. The division is
asked because plaintiff and defendant are unable to agree upon the
management of the property and upon the partition thereof.

Defendant answered setting up a special defense and

counterclaim. As a special defense, defendant claims that on
September 22, 1943, it sold to plaintiff one-third of the property in
litigation subject to the express condition that should either vendor
or vendee decide to sell his undivided share, the party selling would
grant to the other party first an irrevocable option to purchase the
same at the seller’s price. It avers that in January 1946, plaintiff fixed
the sum of P200, 000 as the price of said share and offered to sell it
to defendant, which offer was accepted and for the payment of said
price plaintiff gave defendant a period of time which, including the
extensions granted would expire on May 31, 1947. Defendant
claims that in spite of its acceptance of the offer, plaintiff refused to
accept the payment of the price, and for this refusal defendant
suffered damages in the amount of P100, 000. For these reasons,
defendant asks for specific performance.

ISSUE:

Whether or not the obligation is one subject to a term.

DECISION:

The obligation is rather subject to a condition. Under Article

1125 of the old Civil Code, obligations with a term, for the fulfillment
of which a day certain has been fixed, shall be demandable only
when the day arrives. A day certain is understood to be that which
must necessarily arrive, even though it is not known when. In order
that an obligation may be with a term, it is, therefore, necessary that
it should arrive, sooner or later; otherwise, if its arrival is uncertain,
the obligation is conditional.

Viewing in this light the clause on which defendant relies for

the enforcement of its right to buy the property, it would seem that it
is not a term, but a condition. Considering the first alternative, that
is, until defendant shall have obtained a loan from the National City
Bank of New York, it is clear that the granting of such loan is not
definite and cannot be held to come within the terms “day certain.”
61 | P a g e 61

And if it is considered that the period given was until such time as
defendant could raise money from other sources, then it is also to
be indefinite and contingent, and so it is also a condition and not a
term within the meaning of the law. In any event, it is apparent that
the fulfillment of the condition contained in this second alternative is
made to depend upon defendant’s exclusive will, and viewed in this
light, the plaintiff’s obligation to sell did not arise, for, under article
1115 of the old Civil Code, “when the fulfillment of the condition
depends upon the exclusive will of the debtor the conditional
obligation shall be void.”
62 | P a g e 62

CENTRAL PHILIPPINE UNIVERSITY VS. COURT OF APPEALS

G.R. NO. 112230
BELLOSILLO, J.:

FACTS:
In 1939, Don Ramon Lopez Sr. executed a deed of
donation in favor of CPU together with the following conditions:

a) The land should be utilized by CPU exclusively for the

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

ISSUE:
Whether or not the petitioner failed to comply the
resolutely conditions annotated at the back of petitioner’s
certificate of title without a fixed period when to comply with
such conditions?

DECISION:

Under Art. 1181, on conditional obligations, the

acquisition of rights as well the extinguishment or loss of those
already acquired shall depend upon the happening of the
event which constitutes the condition. Thus, when a person
donates land to another on the condition that the latter would
build upon the land a school is such a resolutory one. The
donation had to be valid before the fulfillment of the condition.
If there was no fulfillment with the condition such as what
obtains in the instant case, the donation may be revoked & all
rights which the donee may have acquired shall be deemed
lost & extinguished.
63 | P a g e 63

More than a reasonable period of fifty (50) years has

already been allowed petitioner to avail of the opportunity to
comply with the condition even if it be burdensome, to make
the donation in its favor forever valid. But, unfortunately, it
failed to do so. Hence, there is no more need to fix the duration
of a term of the obligation when such procedure would be a
mere technicality and formality and would serve no purpose
than to delay or lead to an unnecessary and expensive
multiplication of suits.
Records are clear and facts are undisputed that since
the execution of the deed of donation up to the time of filing of
the instant action, petitioner has failed to comply with its
obligation as donee. Petitioner has slept on its obligation for
an unreasonable length of time. Hence, it is only just and
equitable now to declare the subject donation already
ineffective and, for all purposes, revoked so that petitioner as
donee should now return the donated property to the heirs of
the donor, private respondents herein, by means of
reconveyance.
64 | P a g e 64

DAGUHOY ENTERPRISES, INC. VS. RITA PONCE

G.R. NO. L-6515
MONTEMAYOR, J.:

FACTS:

Defendant-appellant Domingo Ponce was chairman and

manager and his son Buhay M. Ponce was secretary-treasurer of
the plaintiff corporation Daguhoy Enterprises, Inc. Rita L. Ponce,
wife of Domingo, executed in favor of plaintiff corporation a deed of
mortgage over a parcel of land including the improvements thereon
to secure the payment of a loan of P5, 000 granted to her by said
corporation, payable within six years with interests at 12% annum.

Rita L. Ponce with the consent of her husband Domingo

executed another mortgage deed amending the first one, whereby
the loan was increased from P5,000 to P6,190, the terms and
conditions of the mortgage remaining the same. Rita and Domingo
presented the two mortgage deeds for registration in the office of the
register of deeds for registrations in the office of the register of
deeds, but the said register advised the two to cure the defects and
furnish the necessary data. Instead of complying with the
suggestion and requirements, the two withdrew the two mortgage
deeds and then mortgaged the same parcel of land in favor of the
Rehabilitation Finance Corporation (RFC) to secure a loan.

Potenciano Gapol, the majority stockholder in the corporation,

upon learning that the deeds of mortgage were not registered and
that they were withdrawn from the office of the register of deeds and
the land covered by the two deeds was again mortgaged to RFC, he
filed a civil case against the respondents, not only for the amount of
the loan of P6,190 but for other sums, possibly on the theory that the
loan in question was granted by Domingo and Buhay as officers of
the corporation.

To account for the amount of the loan, Domingo and his son
filed in court a check of RFC in the amount of P6,190 and an interesT
of P266.10 in favor of the company. Thereafter, Gapol petitioned
the court for permission to withdraw the amounts as payment of the
loan. But because the defendants opposed said petition, the court
denied it. Gapol, agreeing to the cancellation of the mortgage as
soon as the amounts are withdrawn and deposited with the Bank of
America, in the name of the company, filed a second petition for
withdrawal. However, the defendants failed to agree, thus it was
again denied.

ISSUE:

Whether or not the sum in the form of an RFC check and

some interest deposited in the civil case may be withdrawn to satisfy
65 | P a g e 65

the judgment and to pay the loan of P6,190 and part of the interest
due.

DECISION:

Although the original loan of P5,000 including the increase

of P1,190 was payable within six years from June 1950 and so did
not become due and payable until 1956, the trial court held that
under article 1198 of the Civil Code, the debtor lost the benefit of the
period by reason of her failure to give the security in the form of the
two deeds of mortgage and register them, including defendant’s act
in withdrawing said two deeds from the office of the register of deeds
and then mortgaging the same property in favor of the RFC; and so
the obligation became pure and without any condition and
consequently, the loan became due and immediately demandable.
Likewise, even if the defendants had already deposited a certain
amount in favor of the corporation, they are not yet relieved from the
payment of interests from the time of the deposit because the loan
is not yet paid.
66 | P a g e 66

DIRECT FUNDERS HOLDING CORP. VS. JUGE CELSO LAVIA

GR No. 141851
PARDO, J.:

FACTS:

The petitioners assail the decision of the CA affirming the

decision of the RTC in issuing a writ of mandatory preliminary
injunction despite the orders of a co-equal court in deciding that the
property in question was in the lawful possession of the petitioner.

ISSUE:

Whether or not the petitioner’s contention is tenable.

DECISION:

The conditional sale agreement is officious and ineffectual.

First, it was not consummated. Second, it was not registered and
duly annotated on the Transfer Certificate of Title (No. 12357)
covering the subject property. Third, it was executed about eight (8)
years after the execution of the real estate mortgage over the subject
property.

To emphasize, the mortgagee (United Savings Bank) did

not give its consent to the change of debtor. It is a fundamental
axiom in the law on contracts that a person not a party to an
agreement cannot be affected thereby. Worse, not only was the
conditional sale agreement executed without the consent of the
mortgagee-creditor, United Savings Bank, the same was also a
material breach of the stipulations of the real estate mortgage over
the subject property.

The petitioner as opposed to Kambiyak Chan bears a TCT,

deeds of assignment, certificates of sale in its favor showing that it
has a better right to possession of the disputed land.
67 | P a g e 67

IGNACIO BARZAGA vs. COURT OF APPEALS and

ANGELITO ALVIAR
G.R. No. 115129
BELLOSILLO, J.:

FACTS:

Barzaga went to the hardware store of respondent Alviar to

inquire about the availability of certain materials to be used in the
construction of a niche for his wife. The following morning, Barzaga
went back to the store and told the employees that the materials he
was buying would have to be delivered at the Memorial Cemetery by
eight o'clock that morning since his hired workers were already at
the burial site and time was of the essence. A store employee agreed
to deliver the items at the designated time, date and place. With this
assurance, Barzaga purchased the materials and paid in full. The
construction materials did not arrive at eight o'clock as promised.
After follow-ups and several hours later, when there was yet no
delivery made, Barzaga went back to the store. He saw the delivery
truck but the things he purchased were not yet ready for loading.
Distressed by the seeming lack of concern on the store’s part,
Barzaga decided to cancel his transaction with the store and buy
from another store.

Not being able to fulfill the scheduled burial of his wife,

Barzaga demanded damages from Alviar but the latter refused
claiming that he is not liable for damages considering that he did not
incur legal delay since there was no specific time of delivery agreed
upon.

ISSUE:
Whether or not the respondent incurred delay in the
performance of his obligation.

DECISION:

Respondent Angelito Alviar was negligent and incurred in

delay in the performance of his contractual obligation. The niche
had to be constructed at the very least on the twenty-second of
December considering that it would take about two (2) days to finish
the job if the interment was to take place on the twenty-fourth of the
month. Respondent's delay in the delivery of the construction
materials wasted so much time that construction of the tomb could
start only on the twenty-third. It could not be ready for the scheduled
burial of petitioner's wife.

This case is clearly one of non-performance of a reciprocal

obligation. In their contract of purchase and sale, petitioner had
already complied fully with what was required of him as purchaser,
i.e., the payment of the purchase price of P2,110.00. It was
incumbent upon respondent to immediately fulfill his obligation to
deliver the goods otherwise delay would attach.
68 | P a g e 68

CARMELITA LEAÑO VS. COURT OF APPEALS

GR No. 129018
PARDO, J.:

FACTS:

On November 13, 1985, Hermogenes Fernando, as vendor

and Carmelita Leaño, as vendee executed a contract to sell involving
a piece of land. In the contract, Carmelita Leaño bound herself to
pay Hermogenes Fernando the sum of PhP107,750.00 as the total
purchase price of the lot.

The contract also provided for a grace period of one month

within which to make payments, together with the one corresponding
to the month of grace. Should the month of grace expire without the
installments for both months having been satisfied, an interest of
18% per annum will be charged on the unpaid installments. Should
a period of ninety days elapse from the expiration of the grace period
without the overdue and unpaid installment paid with proper
interests, Fernando, as vendor, was authorized to declare the
contract cancelled. The defendant later filed an ejectment case for
failure of petitioner to pay within the terms of contract.

ISSUE:

Whether or not the petitioner is entitled to rights over the lot.

DECISION:

The transaction between the parties was a conditional sale not

an absolute sale. The intention of the parties was to reserve the
ownership of the land in the seller until the buyer has paid the total
purchase price. The ownership of the lot was not transferred to
Carmelita Leaño. In a contract to sell real property on installments,
the full payment of the purchase price is a positive suspensive
condition, the failure of which is not considered a breach, casual or
serious, but simply an event that prevented the obligation of the
vendor to convey title from acquiring any obligatory force. In the case
at bar, petitioner’s non-payment of the installments after April 1,
1989, prevented the obligation of respondent to convey the property
from arising. In fact, it brought into effect the provision on
cancellation.

However, in view of RA No. 6552, that the default committed

by petitioner in respect of the obligation could be compensated by
the interest and surcharges imposed upon her under the contract in
question.
69 | P a g e 69

MANILA INTERNATIONAL AIRPORT AUTHORITY VS. COURT

OF APPEALS
G.R. No. 155650
CARPIO, J.:

FACTS:

K Services began providing porters for the domestic

passenger terminal of the Manila (now Ninoy Aquino) International
Airport under a provisional permit that was renewed until December
1984. Although the parties did not review their contract for the
succeeding year, K Services continued as porterage contractor. K
Services received a letter from the then MIAA General Manager, the
relevant portion of which stated: “Due the certain administrative
problems, that are preventing us from taking over, please continue
operating said service until further notice from us.’’

K Services alleged that it was initially hesitant to accept MIAA’s

offer. However, it continued to provide porters for Domestic Terminal
I and expanded its operations to cover Domestic Terminal II upon
the alleged verbal assurance of MIAA’s offi cers that MIAA’s policy
was to relinquish porterage operations to the private sector. K
Services likewise claimed that MIAA offi cers also gave verbal
assurance that K Services would not be replaced with another
porterage contractor without a public bidding in which K Services
could participate.

On December 1, 1992, the new General Manager gave written

notice to K Services to “wind up” its operations as “Management has
decided to take over the aforecited services at the Domestic
Passenger Terminals I and II.”

K Services opposed the takeover. It fi led a petition for

prohibition with preliminary injunction.

ISSUE:

Whether K Services was entitled to the writ of preliminary

injunction granted by the trial court.

DECISION:

No. Extension would only be “until further notice.’’ — “While it

may be conceded that private respondent was allowed to continue
operating the porterage service after the expiration of the contract
as the above letter shows, there is no question, however, that private
respondent was only allowed to operate up to a certain time,
specified therein as ‘until further notice from us.’ Indeed, there is
nothing in said letter to indicate that private respondent has until
forever to operate the porterage service as private respondent would
like to make it appear.
70 | P a g e 70

The fact that the authority to continue the porterage service

was specified up to a certain period is a clear indication that
petitioner did not intend to allow private respondent to operate the
porterage service for as long as it pleases. Perforce, it limited such
privilege to a certain period or until further notice.’’
71 | P a g e 71

M.D. TAYLOR VS. UY TIENG PIAO AND TAN LIAUN

G.R. No. L-16109
STREET, J.:

FACTS:

Taylor contracted his services to Tan Liuan & Co as

superintendent of an oil factory which the latter contemplated
establishing. The contract extended over 2 years and the salary was
P600/month during the first year and P700/month during the second
with electric, light and water for domestic consumption or in lieu
thereof, P60/month. At this time, the machinery for contemplated
factory had not been acquired, though ten expellers had been
ordered from the US.

It was understood that should the machinery to be installed fail,

for any reason, to arrive in Manila within the period of 6 months, the
contract may be cancelled by the party of the second part at its
option, such cancellation not to occur before the expiration of such
6 months.

The machinery did not arrive in Manila within the 6 months; the
reason does not appear, but a preponderance of evidence show that
the defendants seeing that oil business no longer promised large
returns, either cancelled the order for machinery from choice or were
unable to supply the capital necessary to finance the project.
Defendants communicated to Taylor that they had decided to
rescind the contract.

Taylor instituted this action to recover damages in the amount

of P13,000, covering salary and perks due and to become due

ISSUE:

Whether or not in a contract for the prestation of service, it is lawful

for the parties to insert a provision giving the employer the power to
cancel the contract in contingency which may be dominated by
himself

DECISION:

YES. One of the consequences of the stipulation was that the

employers were left in a position where they could dominate the
contingency, and the result was about the same as if they had been
given an unqualified option to dispense with the services of Taylor
at the end of 6 months. But this circumstance does not make the
stipulation illegal.

A condition at once facultative and resolutory may be valid

even though the condition is made to depend upon the will of the
obligor. If it were apparent, or could be demonstrated that the
defendants were under positive obligation to cause the machinery to
arrive in Manila, they would of course be liable, in the absence of
72 | P a g e 72

affirmative proof showing that the non-arrival of the machinery was

due to some cause not having its origin in their own act or will.
The contract, however, expresses no such positive obligation, and
its existence cannot be implied in the face of the stipulation, defining
the conditions under which the defendants can cancel the contract.
CFI no error in rejecting Taylor’s claim in so far as damages are
sought for the period subsequent to the expiration of 6 months, but
in assessing the damages due for the six-month period, the trial
judge overlooked the item of P60 (commutation of house rent) This
amount Taylor is entitled to recover in addition to P300 awarded by
CFI.
73 | P a g e 73

NAZARIO TRILLANA VS QUEZON COLLEGES INC.

GR No. L-5003
PARAS, J.:

FACTS:

On June 1, 1948, Damasa Crisostomo applied for 200 shares

of stock worth PhP100.00 each at Quezon Colleges, Inc. Within her
letter of application, she stipulated, “You will find (Babayaran kong
lahat pagkatapos na ako ay makapag-pahuli ng isda) pesos as my
initial payment and the balance payable in accordance with law and
the rules and regulations of the Quezon College.” Damasa died on
October 26, 1948. Since no payment was rendered on the
subscription made in the foregoing letter, Quezon College presented
a claim of PhP20,000.00 on her intestate proceedings. The
petitioner – administrator of the estate then contests the validity of
said proceedings?

ISSUE:

Whether or not the condition laid down by Damasa

Crisostomo is valid.

DECISION:

There is nothing in the record to show that the Quezon

College, Inc. accepted the term of payment suggested by Damasa
Crisostomo, or that if there was any acceptance the same came to
her knowledge during her lifetime. As the application of Damasa
Crisostomo is obviously at variance with the terms evidenced in the
form letter issued by the Quezon College, Inc., there was absolute
necessity on the part of the College to express its agreement to
Damasa's offer in order to bind the latter. Conversely, said
acceptance was essential, because it would be unfair to immediately
obligate the Quezon College, Inc. under Damasa's promise to pay
the price of the subscription after she had caused fish to be caught.
Thus, it cannot be said that the letter ripened into a contract.

Indeed, the need for express acceptance on the part of the

Quezon College, Inc. becomes the more imperative, in view of the
proposal of Damasa Crisostomo to pay the value of the subscription
after she has harvested fish, a condition obviously dependent upon
her sole will and, therefore, facultative in nature, rendering the
obligation void. Under the Civil Code it is provided that if the
fulfillment of the condition should depend upon the exclusive will of
the debtor, the conditional obligation shall be void.
74 | P a g e 74

VISAYAN SAWMILL COMPANY VS. COURT OF APPEALS

G.R. NO. 83851
DAVIDE, JR., J.:

FACTS:

On May 1, 1983, herein plaintiff-appellee and defendants

appellants entered into a sale involving scrap iron, subject to the
condition that plaintiff appellee will open a letter of credit in the
amount of P250,00.00 in favor of defendant-appellant corporation on
or before May 15, 1983. On May 24, 1983, plaintiff-appellee
informed defendans-appellants by telegram that the letter of credit
was opened May 12, 1983 at the BPI main office in Ayala, but that
transmittal was delayed. On May 26, 1983, defendants-appellants
received a letter advice from the Dumaguete City Branch of BPI
dated May 26, 1983, that a domestic letter of credit had been opened
in favor of Visayan Sawmill Company.

On July 19, 1983 plaintiffs then demanded that defendants

comply with the deed of sale. On July 20, 1983 defendant
corporation informed plaintiff’s lawyer that it is unwilling to continue
with the sale due to plaintiff’s failure to comply with the essential
preconditions of the contract.

Private respondent prayed for judgment ordering the

petitioner corporation to comply with the contract by delivering to him
the scrap iron subject thereof.

ISSUE:
Did petitioner Corporation violate the terms and conditions of
the contract?

DECISION:
The petitioner corporation’s obligation to sell is unequivocally
subject to a positive suspensive condition. The failure of the private
respondent to comply with the positive suspensive condition cannot
even be considered a breach – casual or serious – but simply an
event that prevented the obligation of petitioner corporation to
convey title from acquiring binding force.

The letter of credit in favor of petitioner was indisputably not in

accordance with the stipulation in the contract signed by the parties
on at three counts: (1) it was not opened, made or indorsed by the
private respondent, but by a corporation which is not a party to the
contract; (2) it was not opened with the bank agreed upon and; (3) it
is not irrevocable and unconditional, for it is without recourse, it is
set to expire on a specific date and it stipulates certain conditions
with respect to shipment.

Consequently, the obligation of petitioner to sell did not arise;

it therefore cannot be compelled by specific performance to comply
with its prestation.
75 | P a g e 75

ACE-AGRO DEVELOPMENT CORPORATION vs. COURT OF

APPEALS and COSMOS BOTTLING CORPORATION
G.R. No. 119729
MENDOZA, J.:

FACTS:

Petitioner Ace-Agro Development Corporation and private

respondent Cosmos Bottling Corporation are corporations duly
organized and existing under Philippine laws. Private respondent
Cosmos Bottling Corp. is engaged in the manufacture of soft drinks.
Since 1979 petitioner Ace-Agro Development Corp. (Ace-Agro) had
been cleaning soft drink bottles and repairing wooden shells for
Cosmos, rendering its services within the company premises in San
Fernando, Pampanga. The parties entered into service contracts
which they renewed every year. On January 18, 1990, they signed
a contract covering the period January 1, 1990 to December 31,
1990. Private respondent had earlier contracted the services of Aren
Enterprises in view of the fact that petitioner could handle only from
2,000 to 2,500 cases a day and could not cope with private
respondents daily production of 8,000 cases. Unlike petitioner, Aren
Enterprises rendered service outside private respondents plant.

On April 25, 1990, fire broke out in private respondents plant,

destroying, among other places, the area where petitioner did its
work. As a result, petitioners work was stopped.

On May 15, 1990, petitioner asked private respondent to allow

it to resume its service, but petitioner was advised that on account
of the fire, which had practically burned all old soft drink bottles and
wooden shells, private respondent was terminating their contract.

ISSUE:

Whether or not the period during which work has been

suspended justify an extension of the term of the contract.

DECISION:

The agreement between the appellee and the appellant is with

a resolutory period, beginning from January 1, 1990 and ending on
December 31, 1990. When the fire broke out on April 25, 1990, there
resulted a suspension of the appellees work as per agreement. But
this suspension of work due to force majeure did not merit an
automatic extension of the period of the agreement between them.
According to Tolentino:

The stipulation that in the event of a fortuitous event or force majeure

the contract shall be deemed suspended during the said period does
not mean that the happening of any of those events stops the
running of the period the contract has been agreed upon to run. It
only relieves the parties from the fulfillment of their respective
obligations during that time. If during six of the thirty years fixed as
76 | P a g e 76

the duration of a contract, one of the parties is prevented by force

majeure to perform his obligation during those years, he cannot after
the expiration of the thirty-year period, be compelled to perform his
obligation for six more years to make up for what he failed to perform
during the said six years, because it would in effect be an extension
of the term of the contract. The contract is stipulated to run for thirty
years, and the period expires on the thirtieth year; the period of six
years during which performance by one of the parties is prevented
by force majeure cannot be deducted from the period stipulated.
77 | P a g e 77

ERNEST BERG VS. MAGDALENA ESTATE, INC.

G.R. NO. L-3784
BAUTISTA ANGELO, J.:

FACTS:

The complaint avers that plaintiff and defendant are co-

owners of said property, the former being the owner of one-third
interest and the latter of the remaining two-thirds. The division is
asked because plaintiff and defendant are unable to agree upon the
management of the property and upon the partition thereof.

Defendant answered setting up a special defense and

counterclaim. As a special defense, defendant claims that on
September 22, 1943, it sold to plaintiff one-third of the property in
litigation subject to the express condition that should either vendor
or vendee decide to sell his undivided share, the party selling would
grant to the other party first an irrevocable option to purchase the
same at the seller’s price. It avers that in January 1946, plaintiff fixed
the sum of P200, 000 as the price of said share and offered to sell it
to defendant, which offer was accepted and for the payment of said
price plaintiff gave defendant a period of time which, including the
extensions granted would expire on May 31, 1947. Defendant
claims that in spite of its acceptance of the offer, plaintiff refused to
accept the payment of the price, and for this refusal defendant
suffered damages in the amount of P100, 000. For these reasons,
defendant asks for specific performance.

ISSUE:
Whether or not the obligation is one subject to a term.

DECISION:

The obligation is rather subject to a condition. Under Article

1125 of the old Civil Code, obligations with a term, for the fulfillment
of which a day certain has been fixed, shall be demandable only
when the day arrives. A day certain is understood to be that which
must necessarily arrive, even though it is not known when. In order
that an obligation may be with a term, it is, therefore, necessary that
it should arrive, sooner or later; otherwise, if its arrival is uncertain,
the obligation is conditional.

Viewing in this light the clause on which defendant relies for

the enforcement of its right to buy the property, it would seem that it
is not a term, but a condition. Considering the first alternative, that
is, until defendant shall have obtained a loan from the National City
Bank of New York, it is clear that the granting of such loan is not
definite and cannot be held to come within the terms “day certain.”
And if it is considered that the period given was until such time as
defendant could raise money from other sources, then it is also to
78 | P a g e 78

be indefinite and contingent, and so it is also a condition and not a

term within the meaning of the law. In any event, it is apparent that
the fulfillment of the condition contained in this second alternative is
made to depend upon defendant’s exclusive will, and viewed in this
light, the plaintiff’s obligation to sell did not arise, for, under article
1115 of the old Civil Code, “when the fulfillment of the condition
depends upon the exclusive will of the debtor the conditional
obligation shall be void.”
79 | P a g e 79

CENTRAL PHILIPPINE UNIVERSITY VS. COURT OF APPEALS

G.R. No. 112230
BELLOSILLO, J.:

FACTS:

In 1939, Don Ramon Lopez Sr. executed a deed of donation

in favor of CPU together with the following conditions:
a) The land should be utilized by CPU exclusively for the
establishment & use of medical college;
b) The said college shall not sell transfer or convey to any 3rd party;
c) The said land shall be called “Ramon Lopez Campus” and any
income from that land shall be put in the fund to be known as “Ramon
Lopez Campus Fund”.

However, on May 31, 1989, PR, who are the heirs of Don
Ramon filed an action for annulment of donation, reconveyance &
damages against CPU for not complying with the conditions. The
heirs also argued that CPU had negotiated with the NHA to
exchange the donated property with another land owned by the
latter.

Petitioner alleged that the right of private respondents to file

the action had prescribed.

ISSUE:

Whether or not there is a need to fix the period for compliance

of the condition?

DECISION:

Under Art. 1197, when the obligation does not fix a period but
from its nature & circumstance it can be inferred that the period was
intended, the court may fix the duration thereof because the
fulfillment of the obligation itself cannot be demanded until after the
court has fixed the period for compliance therewith & such period
has arrived. However, this general rule cannot be applied in this case
considering the different set of circumstances existing more than a
reasonable period of 50yrs has already been allowed to petitioner to
avail of the opportunity to comply but unfortunately, it failed to do so.
Hence, there is no need to fix a period when such procedure would
be a mere technicality & formality & would serve no purpose than to
delay or load to unnecessary and expensive multiplication of suits.
80 | P a g e 80

JOSE PONCE DE LEON VS. SANTIAGO SYJUCO, INC.

G.R. L-3316
BAUTISTA ANGELO, J.:

FACTS:

The plaintiff obtained from defendant Syjuco on May 5, 1944,

a loan of P200,000 and on July 31, 1944, another loan of P16,000,
payable within one year from May 5, 1948." On November 15, 1944,
the plaintiff offered to pay the entire indebtedness plus all the interest
up to the date of maturity. Upon Syjuco's refusal to accept the
tendered payment, the plaintiff deposited the amount with the clerk
of the Court of First Instance of Manila and instituted the present
action to compel Syjuco to accept payment. The records of the case
were destroyed during the war, but they were duly reconstituted after
the liberation.

The trial court sentenced the plaintiff to pay Syjuco the

defendant the sum of P18,000 as principal and the further sum of
P5,130 as interest thereon from August 6, 1944, to May 5, 1949, or
total sum of P23,130, representing the whole indebtedness plus all
the interest from August 6, 1944, to May 5, 1949, computed
according to the Ballantine scale of values, with interest thereon at
the rate of 6% per annum from May 6, 1949, until said amount is
paid in full, with costs against the plaintiff. From this judgment Syjuco
has appealed, claiming his right to be paid the sum of P216,000,
actual Philippine currency, plus P200,000, as penalty agreed upon
in the contract.

ISSUE:

Whether or not the consignation made by the plaintiff valid in

the light of the law and the stipulations agreed upon in the two
promissory notes signed by the plaintiff?

DECISION:

The Supreme Court held in the negative. In order that

consignation may be effective, the debtor must first comply with
certain requirements prescribed by law. The debtor must show (1)
that there was a debt due; (2) that the consignation of the obligation
had been made because the creditor to whom tender of payment
was made refused to accept it, or because he was absent for
incapacitated, or because several persons claimed to be entitled to
receive the amount due (Art. 1176, Civil Code); (3) that previous
notice of the consignation have been given to the person interested
in the performance of the obligation (Art. 1177, Civil Code); (4)that
the amount due was placed at the disposal of the court (Art 1178,
Civil Code); and (5) that after the consignation had been made the
person interested was notified thereof (Art. 1178,Civil Code).
81 | P a g e 81

While it is admitted a debt existed, that the consignation was

made because of the refusal of the creditor to accept it, and the filing
of the complaint to compel its acceptance on the part of the creditor
can be considered sufficient notice of the consignation to the
creditor, nevertheless, it appears that at least two of the above
requirements have not been complied with. Thus, it appears that
plaintiff, before making the consignation with the clerk of the court,
failed to give previous notice thereof to the person interested in the
performance of the obligation. It also appears that the obligation was
not yet due and demandable when the money was consigned,
because, as already stated, by the very express provisions of the
document evidencing the same, the obligation was to be paid within
one year after May 5,1948, and the consignation was made before
this period matured. The failure of these two requirements is enough
ground to render the consignation ineffective. And it cannot be
contended that plaintiff is justified in accelerating the payment of the
obligation because he was willing to pay the interests due up to the
date of its maturity, because, under the law, in a monetary obligation
contracted with a period, the presumption is that the same is deemed
constituted in favor of both the creditor and the debtor unless from
its tenor or from other circumstances it appears that the period has
been established for the benefit of either one of them.
82 | P a g e 82

POTENCIANO ILUSORIO and SILVERIO R. VIOLA vs.

FERNANDO BUSUEGO
G.R. No. L-822
FERIA, J.:
FACTS:

On May 3, 1943, the plaintiff Silverio R. Viola obtained from

the defendant Fernando Busuego a loan of P35,000.00, and to
secure the payment of said amount the former executed a deed of
mortgage of fifteen parcels of land situated in Bulacan in favor of the
latter.

Subsequently, on July 3, 1943, additional security and partial

release of some of the properties mortgaged were agreed upon by
the parties in another instrument, subject to the same terms and
conditions stipulated in the deed of mortgage.

On November 12, 1943, plaintiff Viola, without the knowledge

and consent of the defendant Busuego, executed a deed of sale in
favor of the other plaintiff-appellant Potenciano Ilusorio of five
parcels of land, mortgaged to the defendant, and Ilusorio assumed
the obligation to pay Viola's obligation or debt to the defendant
Busuego under the terms and conditions stipulated in the above
quoted deed of mortgage.

On April 27 and July 5, 1944, the plaintiff Ilusorio tendered to

defendant Busuego the sum of P40,638.58, in payments of Viola's
debt with interest accrued and to accrue up to May 3, 1946.

ISSUE:
Whether or not the whole debt may be paid even before the
expiration of the term without the creditors consent, provided that
interest for the whole term is assumed.

DECISION:
The appellants could not pay the debt and redeem the
mortgage before the expiration of the period of three years, without
the consent of the defendant appellee.

According to Section 59, Rule 123, of the Rules of Court, "In

the construction of an instrument where there are several provisions
or particulars, such a construction is, if possible, to be adopted as
will give effect to all"; and the only construction which may be
adopted to give effect to the provisions of both paragraphs (3) and
(4) of the deed of mortgage above quoted, is that the mortgage debt
shall be payable at the expiration of three years, but it may be paid
before the expiration of the period if the creditor consents to accept
the payment; because otherwise, or to construe the deed in the
sense that the mortgagor has the right to pay the debt within or
before the expiration of the period of three years, would be to give
no effect to the pertinent provision of paragraph 4 of the deed of
mortgage.
83 | P a g e 83

JOAQUIN LOPEZ vs. ENRIQUE P. OCHOA

G.R. No. L-7955
BAUTISTA ANGELO, J.:

FACTS:

Enrique P. Ochoa executed in favor of Joaquin Lopez a

document whereby he mortgaged a piece of land located in Manila
as security for the payment of a loan. The contract stipulated that the
debtor would not be allowed to pay until after the end of two years
from the date the contract was perfected. Before the end of two
years, however, Ochoa offered to pay partially, and Lopez accepted
the partial payment.

ISSUE:

Whether or not Lopez’s acceptance of the premature payment

implies renunciation of the benefit of the period.

DECISION:

While at the beginning it was clear that the creditor had the benefit
of the term, his acceptance of the premature payment implies that
he has waived his right, renouncing his benefit of the term.
84 | P a g e 84

Philippine National Bank vs. Flaviano Lopez Vito

G.R. No. 28884
VILLAMOR, J.:

FACTS:

This action was brought for the recovery of a mortgage credit.

On July 25, 1918, the defendant spouses, Flaviano Lopez and
Maximina del Castillo mortgaged realty located in the Province of
Occidental Negros to secure the payment of a loan of P 24,000
granted by the plaintiff, the Philippine National Bank (PNB). The
defendants bound themselves to pay the loan with interest in ten
annual installments of P 3,602.64 each payable on or before July
18thof each year from; the date of said contract. Defendants failed
to pay the sums corresponding to the six yearly installments and
interest thereon, hence, the plaintiff instituted this action. The trial
court rendered judgment ordering the defendants to pay the plaintiff
the sum of P13,404.18 with 8% interest reserving to plaintiff the
proper action on last installment and interest thereon.

ISSUE:

Whether or not the trial court committed an error in adding that

the eight annual installment of P 2,884.88 is not yet demandable?

DECISION:

The defendant’s right to avail themselves of the periods was

by the will of the contracting parties themselves made subject to the
resolutory conditioned contained in paragraph 5 of the mortgage
contract. It has resolutory effects, since its fulfillment resolves the
period and leaves the creditor at liberty to demand the performance
of the debtors obligations and to proud to foreclosure of mortgage.
However, this court ruled that the mortgage installments in question
have matured by the failure of the mortgagor to pay, the mortgagee
may collect the uncle with law. Wherefore, the trial court erred and
its judgment is hereby modified in favor of the plaintiff.
85 | P a g e 85

FILOMENA SARMIENTO VS. GLICERIO JAVELLANA

G.R. NO. L-18500
AVANCEÑA, J.:

FACTS:

On August 28, 1991, the defendant loaned the plaintiffs the

sum of P1,500 with interest at the rate of 25 per cent per annum for
the term of one year. To guarantee this loan, the plaintiffs pledged
certain jewelries, which the contracting parties appraised at P4,000.
This loan is evidenced by two documents.

The plaintiffs allege that at the maturity of this loan, August 31,
1912, the plaintiff Eusebio M. Villaseñor, being unable to pay the
loan, obtained from the defendant an extension, with the condition
that the loan was to continue, drawing interest at the rate of 25 per
cent per annum, so long as the security given was sufficient to cover
the capital and the accrued interest. In the month of August, 1919,
the plaintiff Villaseñor, went to the house of the defendant and
offered to pay the loan and redeem the jewels, taking with him, for
this purpose, the sum of P11,000, but the defendant then informed
them that the time for the redemption had already elapsed. The
plaintiffs renewed their offer to redeem the jewelry by paying the
loan, but met with the same reply.

The defendant alleges, in his defense, that upon the maturity

of the loan, August 31, 1912, he requested the plaintiff, Villaseñor,
to secure the money, pay the loan and redeem the jewels; that one
month thereafter, the plaintiff, Filomena Sarmiento, went to his
house and offered to ell him the jewels pledged for P3,000; Filomena
Sarmiento, went back to the house of the defendant who then paid
her the sum of P1,125, which was the balance remaining of
theP3,000 after deducting the plaintiff's loan.

ISSUE:

Whether or not defendant is bound to return the jewels or their

value (P12,000) to plaintiffs, and the plaintiffs have the right to
demand the same upon the payment by them of the sum of P1,5000,
plus the interest thereon at the rate of 25 per cent per annum

DECISION:

It appears that the defendant possessed these jewels

originally, as a pledge to secure the payment of a loan stated in
writing, the mere testimony of the defendant to the effect that later
they were sold to him by the plaintiff, Sarmiento, against the positive
testimony of the latter that she did not make any such sale, requires
a strong corroboration to be accepted. Defendant has not sufficiently
established, by his evidence, the fact of the purchase of the jewels,
but also that there is a circumstance tending to show the contrary,
which is the fact that up to the trial of this cause the defendant
continued in possession of the documents, evidencing the loan and
86 | P a g e 86

the pledge. If the defendant really bought these jewels, it seems

natural that Filomena would have demanded the surrender of the
documents evidencing the loan and the pledge, and the defendant
would have returned them to plaintiff.

From the foregoing it follows that, as the jewels in question

were in the possession of the defendant to secure the payment of a
loan and the defendant having subsequently extended the term of
the loan indefinitely, and so long as the value of the jewels pledged
was sufficient to secure the payment of the capital and the accrued
interest, the defendant is bound to return the jewels or their value
(P12,000) to plaintiffs, and the plaintiffs have the right to demand the
same upon the payment by them of the sum of P1,5000, plus the
interest thereon at the rate of 25 per cent per annum from August
28, 1911.
87 | P a g e 87

SMITH, BELL & CO. LTD. VS. VICENTE SOTELO MATTI

G.R. NO. L-16570
ROMUALDEZ, J.:

FACTS:

In August, 1918, the plaintiff corporation and the defendant,

Mr. Vicente Sotelo, entered into contracts whereby the former
obligated itself to sell two steel tanks, two expellers, and two electric
motors to the latter. As to the tanks, the agreement was that the
delivery was to be made within three or four months, but the seller
shall not be responsible for delays caused by fires, riots on land or
on sea, strikes or other causes known as Force Majeure. With regard
to the expellers, he contract says within the month of September,
1918, or as soon as possible. And with reference to the motors,
approximate delivery within ninety days but not guaranteed. The
tanks arrived at Manila on April, 1919; the expellers on October 26,
1918, and the motors of February 27, 1919. The plaintiff notified the
defendant of the arrival of the said goods but the latter refused to
receive them and pay the prices. This caused the plaintiff to file a
suit against defendant. The defendant, in turn, denied the allegations
of the plaintiff, stating that it was only on May, 1919 when plaintiff
informed them that the tanks have arrived. The Trial court rendered
a decision absolving the defendant insofar as the tanks and motors
are concerned but it rendered a decision against the defendant with
regards to the receiving of the goods. Hence, an appeal by both
parties.

ISSUE:

Whether or not under the contracts entered into and the

circumstances established in the record, the plaintiff has fulfilled, in
due time, it obligation to bring the goods in question to Manila.

DECISION:

Judgment appealed from is modified and defendant is

sentenced to accept the goods form the plaintiff. The obligation must
be regarded as conditional. The fulfillment of the condition, in this
case, depends not only upon the will of the plaintiff but also that of
the third person. According to article 1125 of the Civil Code (now art.
1193 of the NCC), “Obligations for the performance of which a day
certain has been fixed shall be demandable only when the day
arrives; A day certain must be understood to be one which must
necessarily arrive, even though its date be unknown; If the
uncertainty should consists at the arrival or non-arrival of the day,
the obligation is conditional..” Time is regarded as unessential in this
kind of contract, though the delivery must be made within the
reasonable time. Moreover, the obligor will be deemed to have
sufficiently performed his part of the obligation, if he has done all that
was in his power, even if the condition has not been fulfilled in reality.
88 | P a g e 88

FELIX ULLMAN VS. VICENTE HERNAEZ

G.R. NO. L-9816
ARELLANO, C.J.:

FACTS:

This is an APPEAL from a judgment of the Court of First

Instance of Occidental Negros. The complaint has for its object the
collection of a debt contracted by Vicente Hernaez in favor of Felix
Ullman on April 5, 1900, amounting to 3,525 pesos Mexican
currency, to be paid, says Hernaez, "as soon as I receive the portion
that as an heir must come to me from the estate of Juana Espinosa,
widow of Hernaez; without prejudice to paying on it, during the time
that may elapse until I get possession of said property, interests at
six per cent year, but not, however, compound interest. “That the
defendant did on January 5, 1913, cede, alienate, and convey to
Rosendo Hernaez for the sum of twenty-five thousand pesos
(P25,000) Philippine currency, all his rights and rights of action in the
property left by the deceased Juana Espinosa. The Court of First
Instance of Occidental Negros decided the case by sentencing the
defendant to pay to the plaintiff P3,525, with interest at 6 per cent a
year from April 5, 1913. But on rehearing requested by the plaintiff
the court again rendered judgment, amending the portion relating to
the interest, and sentenced the defendant to pay interest on the debt
on the basis of 6 per cent a year from April 5, 1900, and the costs.

ISSUE:

When will the period of prescription start?

DECISION:

The right of action for nullity shall only last four years. The right
of action was notexercised from April 5, 1905, until June 2, 1913, nor
was any move made during this time.But a right of action that has
not yet arisen cannot prescribe. In time obligations, as that at bar,to
pay "as soon as I receive the portion that as an heir must come to
me from the estate of Juana Espinosa," the right of action only arises
when the date fixed has arrived; the obligationis enforcible only when
the day comes. This day arrived on January 25, 1913, when
thedefendant sold to Rosendo Hernaez his right to inherit from
Juana Espinosa and received fromhim P25,000, just as if he had
received same from that estate.
89 | P a g e 89

FELIPE AGONCILLO VS. CRISANTO JAVIER

G.R. NO. L-12611
FISHER, J.:

FACTS:

On February 27 1904, Anastasio Alano, Jlose Alano and

Florencio Alano executed in favor of the plaintiff, Dra. Marcela
Marino a document stipulating that the Alanos as testamentary heirs
of deceased Rev. Anastacio Cruz, would pay the sum of P2, 730.50
within one (1) year with interest of 12 percent per annum
representing the amount of debt incurred by Cruz. Moreover, the
agreement provided that the Alanos are to convey the house and lot
bequeathed to them by Cruz in the event of failure to pay the debt in
money at its maturity.

No part of interest or principal due has been paid except the

sum of P200 paid in 1908 by Anastacio Alano. In 1912, Anastasio
died intestate. On August 8, 1914, CFI of Batangas appointed
Crisanto Javier as administrator of Anastasio’s estate. On March 17,
1916, the plaintiffs filed the complaint against Florencio, Jose and
Crisanto praying that unless defendants pay the debt for the
recovery of which the action was brought, they be required to convey
to plaintiffs the house and lot described in the agreement, that the
property be appraised and if its value is found to be less than the
amount of the debt, with accrued interest at the stipulation rate,
judgment be rendered in favor of the plaintiffs for the balance.

ISSUE:

The issue is whether or not the agreement that the

defendant-appellant, at the maturity of the debt, will pay the sum of
the money lent by the appellees or will transfer the rights to the
ownership and possession of the house and lot bequeathed to the
former by the testator in favor of the appellees, is valid.

DECISION:

This stipulation is valid because it is simply an alternative

obligation, which is expressly allowed by law. The agreement to
convey the house and lot on an appraised value in the event of
failure to pay the debt in money at its maturity is valid. It is simply an
undertaking that if debt is not paid in money, it will be paid in another
way. The agreement is not open to the objection that the agreement
is pacto comisorio. It is not an attempt to permit the creditor to
declare the forfeiture of the security upon the failure of the debtor to
pay at its maturity. It is simply provided that if the debt is not paid in
money, it shall be paid by the transfer of the property at a valuation.
Such an agreement unrecorded, creates no right in rem, but as
between the parties, it is perfectly valid and specific performance by
90 | P a g e 90

its terms may be enforced unless prevented by the creation of

superior rights in favor of third persons.

The contract is not susceptible of the interpretation that the

title to the house and lot in question was to be transferred to the
creditor ipso facto upon the mere failure of the debtors to pay the
debt at its maturity. The obligations assumed by the debtors were in
the alternative, and they had the right to elect which they would
perform. The conduct of parties shows that it was not their
understanding that the right to discharge the obligation by the
payment of the money was lost to the debtors by their failure to pay
the debt at its maturity. The plaintiff accepted the payment from
Anastacio in 1908, several years after the debt matured.

It is quite clear therefore that under the terms of the

contract, and the parties themselves have interpreted it, the liability
of the defendant as to the conveyance of the house and lot is
subsidiary and conditional, being dependent upon their failure to pay
the debt in money. It must follow therefore that if the action to recover
the debt was prescribed, the action to compel a conveyance of the
house and lot is likewise barred, as the agreement to make such
conveyance was not an independent principal undertaking, but
merely a subsidiary alternative pact relating to the method by which
the debt must be paid.
91 | P a g e 91

ARCO PULP AND PAPER CO., INC. vs. DAN T. LIM

G.R. No. 206806
LEONEN, J.:

FACTS:

Dan T. Lim works in the business of supplying scrap papers,

cartons, and other raw materials, under the name Quality Paper and
Plastic Products, Enterprises, to factories engaged in the paper mill
business. From February 2007 to March 2007, he delivered scrap
papers worth 7,220,968.31 to Arco Pulp and Paper Company, Inc.
through its Chief Executive Officer and President, Candida A.
Santos. The parties allegedly agreed that Arco Pulp and Paper
would either pay Dan T. Lim the value of the raw materials or deliver
to him their finished products of equivalent value.

On May 5, 2007, Dan T. Lim sent a letter12 to Arco Pulp and

Paper demanding payment of the amount of 7,220,968.31, but no
payment was made to him.

ISSUE:

Whether or not the obligation is an alternative obligation.

DECISION:

The obligation between the parties was an alternative

obligation.

According to the factual findings of the trial court and the

appellate court, the original contract between the parties was for
respondent to deliver scrap papers worth ₱7,220,968.31 to
petitioner Arco Pulp and Paper. The payment for this delivery
became petitioner Arco Pulp and Paper’s obligation. By agreement,
petitioner Arco Pulp and Paper, as the debtor, had the option to
either (1) pay the price or (2) deliver the finished products of
equivalent value to respondent.

When petitioner Arco Pulp and Paper tendered a check to

respondent in partial payment for the scrap papers, they exercised
their option to pay the price. Respondent’s receipt of the check and
his subsequent act of depositing it constituted his notice of petitioner
Arco Pulp and Paper’s option to pay.
92 | P a g e 92

EQUITABLE INSURANCE AND CASUALTY COMPANY, INC.,

vs. RURAL INSURANCE AND SURETY COMPANY, INC.,
G.R. No. L-17436
BARRERA, J.:

FACTS:

On November 11, 1957, plaintiff (Equitable) and defendant

(Rural Insurance) entered into a reciprocal facultative reinsurance
agreement. Pursuant to said agreement, plaintiff reinsured for
P2,000.00 with defendant the stock covered by fire insurance Policy
No. 5880 and also for P2,000.00 the stock covered by fire insurance
Policy No. 6026.

Stocks covered by Insurance Policy Nos. 5880 and 6026 were

subsequently burned and the share of the loss assumed by
defendant as per reinsurance agreement was computed at
P2,024.87 and P1,334.80 respectively.

Notwithstanding repeated demands, defendant refused and

failed to pay plaintiff, and that for defendant's failure to pay its share
of the losses assumed by it, plaintiff has been compelled to institute
an action in court. The defendant moved for the dismissal of the case
contending that the complaint states no cause of action, the matter
not having been referred to the decision of two arbitrators or umpire.

ISSUE:

Whether or not the trial court erred in failing to rule that in a

facultative obligation the right to choose an alternative remedy lies
only with the debtor.

DECISION:

The court finds no connection whatsoever between Article

1206 of the Civil Code and the agreement subject of this action,
except the word "facultative" used in both. The term "facultative" is
used in reinsurance contracts, and it is so used in this particular
case, merely to define the right of the reinsurer to accept or not to
accept participation in the risk insured. But once the share is
accepted, as it was in the case at bar, the obligation is absolute and
the liability assumed thereunder can be discharged by one and only
way — payment of the share of the losses. There is no alternative
nor substitute prestation.
93 | P a g e 93

EQUATORIAL REALTY DEVELOPMENT, INC. & CARMELO &

BAUERMANN, INC vs. MAYFAIR THEATER, INC
G.R. No. 106063
HERMOSISIMA, JR., J.:

FACTS:

Carmelo owned a parcel of land, together with two 2-storey

buildings constructed thereon. On June 1, 1967 Carmelo entered
into a contract of lease with Mayfair for the latter’s lease of a portion
of Carmelo’s property. Two years later, on March 31, 1969, Mayfair
entered into a second contract of lease with Carmelo for the lease
of another portion of Carmelo’s property. Both contracts of lease
provide identically worded paragraph 8, which reads:

‘That if the LESSOR should desire to sell the leased premises,

the LESSEE shall be given 30-days exclusive option to purchase the
same.

In the event, however, that the leased premises is sold to

someone other than the LESSEE, the LESSOR is bound and
obligated, as it hereby binds and obligates itself, to stipulate in the
Deed of Sale thereof that the purchaser shall recognize this lease
and be bound by all the terms and conditions thereof.

Mr. Henry Pascal of Carmelo informed Mr. Henry Yang, President of

Mayfair, through a telephone conversation that Carmelo was
desirous of selling the entire Claro M. Recto property. Mr. Pascal
told Mr. Yang that a certain Jose Araneta was offering to buy the
whole property for US Dollars 1,200,000, and Mr. Pascal asked Mr.
Yang if the latter was willing to buy the property for Six to Seven
Million Pesos.

Under your company’s two lease contracts with our client, it

is uniformly provided: ‘That if the LESSOR should desire to sell the
leased premises the LESSEE shall be given 30-days exclusive
option to purchase the same. In the event, however, that the
leased premises is sold to someone other than the LESSEE, the
LESSOR is bound and obligated, as it here binds and obligates
itself, to stipulate in the Deed of Sale thereof that the purchaser
shall recognize this lease and be bound by all the terms and
conditions hereof. Carmelo did not reply to this letter.

On September 18, 1974, Mayfair sent another letter to

Carmelo purporting to express interest in acquiring not only the
leased premises but ‘the entire building and other improvements if
the price is reasonable. However, both Carmelo and Equatorial
questioned the authenticity of the second letter.

Four years later, on July 30, 1978, Carmelo sold its entire
C.M. Recto Avenue land and building, which included the leased
premises housing the ‘Maxim’ and ‘Miramar’ theatres, to Equatorial
94 | P a g e 94

by virtue of a Deed of Absolute Sale, for the total sum of

P11,300,000.00.

In September 1978, Mayfair instituted the action a quo for

specific performance and annulment of the sale of the leased
premises to Equatorial. It dismissed the complaint with costs against
the plaintiff. The Court of Appeals reversed the decision of the trial
court.

ISSUE:

Whether or not the decision of the Court of Appeals’ decision

was correct.

DECISION:
The Court agrees with the Court of Appeals that the aforecited
contractual stipulation provides for a right of first refusal in favor of
Mayfair. It is not an option clause or an option contract. It is a contract
of a right of first refusal.

As early as 1916, in the case of Beaumont vs. Prieto,

unequivocal was our characterization of an option contract as one
necessarily involving the choice granted to another for a distinct and
separate consideration as to whether or not to purchase a
determinate thing at a predetermined fixed price.

Further, what Carmelo and Mayfair agreed to, by executing the

two lease contracts, was that Mayfair will have the right of first
refusal in the event Carmelo sells the leased premises. It is
undisputed that Carmelo did recognize this right of Mayfair, for it
informed the latter of its intention to sell the said property in 1974.
There was an exchange of letters evidencing the offer and counter-
offers made by both parties. Carmelo, however, did not pursue the
exercise to its logical end. While it initially recognized Mayfair’s right
of first refusal, Carmelo violated such right when without affording its
negotiations with Mayfair the full process to ripen to at least an
interface of a definite offer and a possible corresponding acceptance
within the “30-day exclusive option” time granted Mayfair, Carmelo
abandoned negotiations, kept a low profile for some time, and then
sold, without prior notice to Mayfair, the entire Claro M. Recto
property to Equatorial.

Since Equatorial is a buyer in bad faith, this finding renders the

sale to it of the property in question rescissible. We agree with
respondent Appellate Court that the records bear out the fact that
Equatorial was aware of the lease contracts because its lawyers
had, prior to the sale, studied the said contracts. As such, Equatorial
cannot tenably claim to be a purchaser in good faith, and, therefore,
rescission lies.

Hence, the petition was denied.

95 | P a g e 95

CLARA TAMBUNTING DE LEGARDA VS. VICTORIA

DESBARATS MIAILHE
G.R. No. L-3435
BAUTISTA ANGELO, J.:

FACTS:

On June 3, 1944, plaintiffs filed a complaint against the

original defendant William J.B. Burke, alleging defendant’s
unjustified refusal to accept payment in discharge of a mortgage
indebtedness in his favor, and praying that the latter be order (1) to
receive the sum of P75,920.83; (2) to execute the corresponding
deed of release of mortgage, and; (3) to pay damages in the sum of
P1,000. The Court then decided in favor of plaintiff Legarda. After
the war and the subsequent defeat of the Japanese occupants,
defendant filed a case in court claiming that plaintiff Clara de
Legarda violated her agreement with defendant, by forcing to
deposit worthless Japanese military notes when they originally
agreed that the interest was to be condoned until after the
occupation and that payment was rendered either in Philippine or
English currency. Defendant was later substituted upon death by his
heir Miailhe and the Courts judged in defendant’s favor. Plaintiff now
assails said decision.

ISSUE:

Is the tender of payment by plaintiff valid?

DECISION:

On February 17, 1943, the only currency available was the

Philippine currency, or the Japanese Military notes, because all
other currencies, including the English, were outlawed by a
proclamation issued by the Japanese Imperial Commander on
January 3, 1942. The right to election ceased to exist on the date of
plaintiff’s payment because it had become legally impossible. And
this is so because in alternative obligations there is no right to
choose undertakings that are impossible or illegal. In other words,
the obligation on the part of the debtor to pay the mortgage
indebtedness has since then ceased to be alternative. It appears
therefore, that the tender of payment in Japanese Military notes was
a valid tender because it was the only currency permissible at the
time and its payment was tantamount to payment in Philippine
currency.

However, payment with the clerk of court did not have any
legal effect because it was made in certified check, and a check does
not meet the requirements of legal tender. Therefore, her
consignation did not have the effect of relieving her from her
obligation of the defendant.
96 | P a g e 96

ONG GUAN CAN VS. THE CENTURY INSURANCE COMPANY,

LTD.
G.R. NO. 21196
46 PHIL 592
VILLAMOR, J.:

FACTS:

A building of the plaintiff was insured against fire by the

defendant in the sum of P30,000.00 as well as the goods and
merchandise therein contained in the sum of P15,000.00. The
house and merchandise insured were burnt early in the morning of
February 28, 1923 while the policies issued by the defendant in favor
of the plaintiff were in force.

The appellants contend that under clause 14 of the conditions

of the policies, it may rebuild the house burnt and although the house
may be smaller, yet it would be sufficient indemnity to the insured for
the actual loss suffered by him.

ISSUE:

Whether or not the defendant company may perform the

alternative obligation despite the fact that the plaintiff’s consent was
not secured.

DECISION:

It must be noted that in alternative obligations, the debtor, the

insurance company in this case, must notify the creditor of his
election, stating which of the two prestations he is disposed to fulfill,
in accordance with the law. The object of this notice is to five the
creditor, that is, the plaintiff in the instant case, opportunity to
expr3ss his consent. The record shows that the appellant company
did not give a formal notice of its selection to rebuild and while the
witnesses speaks of the propped reconstruction of the house
destroyed, yet the plaintiff id d not give his assent to the proposition,
for the reason that the new house would be smaller and of materials
of lower kind than those employed in the construction of the house
destroyed.
97 | P a g e 97

MARTINA QUIZANA VS. GAUDENCIO REDUGORIO

GR No. L-6620
LABRADOR, J.:

FACTS:

This is an appeal to this Court from a decision rendered by the

Court of First Instance of Marinduque, wherein the defendants-
appellants are ordered to pay the plaintiff-appellee the sum of P550,
with interest from the time of the filing of the complaint, and from an
order of the same court denying a motion of the defendants-
appellants for the reconsideration of the judgment on the ground that
they were deprived of their day in court.

ISSUE:

What is the nature and effect of the actionable document

mentioned above?

DECISION:

The decisive question at issue, therefore, is whether the

second part of the written obligation, in which the obligors agreed
and promised to deliver a mortgage over the parcel of land described
therein, upon their failure to pay the debt on a date specified in the
proceeding paragraph, is valid and binding and effective upon the
plaintiff-appellee, the creditor. This second part of the obligation in
question is what is known in law as a facultative obligation, defined
in article 1206 of Civil Code of the Philippines, which provides:

ART. 1206. When only one prestation has been agreed

upon, but the obligor may render another in substitution, the
obligation is called facultative.

There is nothing in the agreement which would argue against

its enforcement. it is not contrary to law or public morals or public
policy, and notwithstanding the absence of any legal provision at the
time it was entered into government it, as the parties had freely and
voluntarily entered into it, there is no ground or reason why it should
not be given effect. It is a new right which should be declared
effective at once.
98 | P a g e 98

ESTANISLAO REYES vs. SEBASTIANA MARTINEZ ET AL.

G.R. No. 32226
STREET, J.:

FACTS:

Estanislao Reyes filed an action against the Martinez heirs in

which the plaintiff seeks, among others, to recover five parcels of
land, containing approximately one thousand coconut trees, and to
obtain a declaration of ownership in his own favor as against the
defendants with respect to said parcels. This cause of action is
founded upon the contract, and the claim by the plaintiff is to have
the five parcels adjudged to him in lieu of another parcel formerly
supposed to contain one thousand trees and described in paragraph
8 of the contract between him and certain of the Martinez heirs. By
this contract Reyes was to be given the parcel described in clause
8, but in a proviso to said clause, the parties contracting with Reyes
agreed to assure to him certain other land containing an equivalent
number of trees in case he should so elect.

ISSUE:

Whether or not Reyes is entitled to the recovery of ownership

of the five parcels of land subject of this case.

DECISION:

The prior history of the litigation shows that Reyes elected to

take and hold the parcel described in clause 8, and his right thereto
has all along been recognized in the dispositions made by the court
with respect to said land. In our decision in Martinez vs. Graño (51
Phil., 287, 301), it was a basal assumption that Reyes would obtain
the thousand trees referred to; and we are of the opinion that, from
various steps taken in the prior litigation, Reyes must be taken to
have elected to take that particular parcel and he is now estopped
from asserting a contrary election to take the five parcels of land
described in paragraph IX of his complaint.

However, the title to the parcel of land elected by Reyes is in

the heirs of Inocente Martinez and it does not appear that they have
transferred said title to Reyes. It results therefore that Reyes now
has a claim for damages against the parties signatory to the contract
of March 5, 1921, for the value of the aforesaid property. We
therefore reach the conclusion that Reyes should either have the
land originally set apart for him under clauses 4 and 8 of the contract,
or, in case his right thereto should fail, he should not be required to
pay the judgment for P8,000 which was awarded to the Martinez
heirs in Martinez vs. Graño (51 Phil., 287, 302).
99 | P a g e 99

JUDGE RAMON R. SAN JOSE, THE SHERIFF OF MANILA, and

ANTERO PEREZ vs. NATALIO JAVIER and AMANDO JAVIER
G.R. No. L-6802
MONTEMAYOR, J.:

FACTS:

Defendants promised to sell to plaintiff for the sum of P1,000 a house

located at 1009 Economia Street, Sampaloc, Manila built on a lot
belonging to the Rita Legarda Estate, Inc. and leased to Natalio
Javier and his wife for many years, with right and option to purchase
said lot.

ISSUE:

Whether or not the right and option to purchase is

enforceable.

DECISION:

There is nothing in the record which would show that

petitioners had guaranteed their right to sell their option to buy the
lot. On the other hand, it was known by all the parties concerned that
the lot was leased to petitioners from time immemorial, with the right
of option to purchase the same, a right which is not written but
respected, as a matter of general tradition and practice. It is,
therefore, implied that in the enforceability of such right or option
much would have to depend upon the Rita Legarda Estate,
notwithstanding the desire of the parties to comply with it. Knowing
this to be true, and the Estate not having been made a party to the
transactions involved in this case, or given its consent thereto, the
inclusion of such condition, that is, to sell the option to buy, should
not have been interpreted to mean that the petitioners must warrant
the validity and effectiveness of the option. The execution of the
deed of sale is one thing, and the validity of its terms is another. The
deed of sale clearly contains the first part of the alternative judgment.
Whether the term of such first part may be validly enforced under the
circumstances of the case, is a matter completely foreign to the issue
whether the said deed of sale is conformity with the judgment.
100 | P a g e 100

ROSARIO DE BARGANZA ET AL VS. FERNANDO DE

VILLA ABRILLE
G.R. NO. L-12471
BENGZON, J.:

FACTS:
October 20, 1944, Rosario de Barganza and her two minor
sons borrowed from Villa Abrille P70,000 in Japanese money,
promising to pay solidarily P10,000 in legal currency of the
Philippines two years after the war. The money was used for the
support of the children. For failure to pay, Villa Abrille sued in March
1949. The mother and the two sons pleaded in defense the minority
of the two children at the time the contract was entered into.

ISSUE:
Whether or not the two minors are bound by the contract they
have signed.

DECISION:
No, the minor’s failure to disclose their minority in the same
promissory they signed does not follow as a legal proposition, that
they will not be permitted thereafter to assert it. They have no duty
to disclose their inability. The Supreme Court sustained previous
sources in jurisprudence – “in order to hold the infant liable, the fraud
must be actual and not constructive. It has been held that his mere
silence in making the contract as to his age does not constitute fraud
which can be made as basis of action for deceit.” However, this does
not entirely absolved them from any monetary responsibility. They
shall make restitution to the extent that they have profited by the
money they received.
Rosario, on the other hand, is still liable to pay 1/3 of P10,000,
her share of the contract. The minority of her children does not
completely release her from the liability, since minority is a personal
defense of the minors.
101 | P a g e 101

ROSARIO DE BARGANZA ET AL VS. FERNANDO DE

VILLA ABRILLE
G.R. NO. L-12471
BENGZON, J.:

FACTS:
October 20, 1944, Rosario de Barganza and her two minor
sons borrowed from Villa Abrille P70,000 in Japanese money,
promising to pay solidarily P10,000 in legal currency of the
Philippines two years after the war. The money was used for the
support of the children. For failure to pay, Villa Abrille sued in March
1949. The mother and the two sons pleaded in defense the minority
of the two children at the time the contract was entered into.

ISSUE:
Whether or not the two minors are bound by the contract they
have signed.

DECISION:
No, the minor’s failure to disclose their minority in the same
promissory they signed does not follow as a legal proposition, that
they will not be permitted thereafter to assert it. They have no duty
to disclose their inability. The Supreme Court sustained previous
sources in jurisprudence – “in order to hold the infant liable, the fraud
must be actual and not constructive. It has been held that his mere
silence in making the contract as to his age does not constitute fraud
which can be made as basis of action for deceit.” However, this does
not entirely absolved them from any monetary responsibility. They
shall make restitution to the extent that they have profited by the
money they received.
Rosario, on the other hand, is still liable to pay 1/3 of P10,000,
her share of the contract. The minority of her children does not
completely release her from the liability, since minority is a personal
defense of the minors.
102 | P a g e 102

HEMANA CEREZO VS. DAVID TUAZON

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

ISSUE:
Whether petitioner is solidarily liable.

DECISION:
Contrary to Mrs. Cerezo‘s assertion, Foronda is not an
indispensable party to the case. An indispensable party is one
whose interest is affected by the court‘s action in the litigation, and
without whom no final resolution of the case is possible. However,
Mrs. Cerezo‘s liability as an employer in an action for a quasi-delict
is not only solidary, it is also primary and direct. Foronda is not an
indispensable party to the final resolution of Tuazon‘s action for
damages against Mrs. Cerezo. The responsibility of two or more
persons who are liable for a quasi-delict is solidary. Where there is
a solidary obligation on the part of debtors, as in this case, each
debtor is liable for the entire obligation. Hence, each debtor is liable
to pay for the entire obligation in full. There is no merger or
renunciation of rights, but only mutual representation. Where the
obligation of the parties is solidary, either of the parties is
indispensable, and the other is not even a necessary party because
complete relief is available from either. Therefore, jurisdiction over
Foronda is not even necessary as Tuazon may collect damages
from Mrs. Cerezo alone.
Moreover, an employer‘s liability based on a quasi-delict is primary
and direct, while the employer‘s liability based on a delict is merely
subsidiary. The words ―primary and direct, as contrasted with
―subsidiary, refer to the remedy provided by law for enforcing the
103 | P a g e 103

obligation rather than to the character and limits of the obligation.

Although liability under Article 2180 originates from the negligent act
of the employee, the aggrieved party may sue the employer directly.
To hold the employer liable in a subsidiary capacity under a delict,
the aggrieved party must initiate a criminal action where the
employee‘s delict and corresponding primary liability are
established. If the present action proceeds from a delict, then the
trial court‘s jurisdiction over Foronda is necessary. However, the
present action is clearly for the quasi-delict of Mrs. Cerezo and not
for the delict of Foronda. Thus, the petition was denied ordering the
defendant Hermana Cerezo to pay the plaintiff.
104 | P a g e 104

LIGHT RAIL TRANSIT AUTHORITY VS. MARJORIE NAVIDAD

G.R. NO. 145804
VITUG, J.:
FACTS:
On 14 October 1993, in the evening, Nicanor Navidad, then
drunk, entered the EDSA LRT station. While Navidad was standing
on the platform near the LRT tracks, Junelito Escartin, the security
guard assigned to the area approached Navidad. A
misunderstanding or an altercation between the two apparently
ensued that led to a fist fight. No evidence, however, was adduced
to indicate how the fight started or who, between the two, delivered
the first blow or how Navidad later fell on the LRT tracks. At the exact
moment that Navidad fell, an LRT train, operated by petitioner
Rodolfo Roman, was coming in. Navidad was struck by the moving
train, and he was killed instantaneously. The widow of Nicanor,
along with her children, filed a complaint for damages against
Junelito Escartin, Rodolfo Roman, the LRTA, the Metro Transit
Organization, Inc. (Metro Transit), and Prudent for the death of her
husband. LRTA and Roman filed a counterclaim against Navidad
and a cross-claim against Escartin and Prudent. Prudent, in its
answer, denied liability and averred that it had exercised due
diligence in the selection and supervision of its security guards.

ISSUE:
Who, if any, is liable for damages in relation to the death of
Navidad?

DECISION:
The foundation of LRTA‘s liability is the contract of carriage
and its obligation to indemnify the victim arises from the breach of
that contract by reason of its failure to exercise the high diligence
required of the common carrier. In the discharge of its commitment
to ensure the safety of passengers, a carrier may choose to hire its
own employees or avail itself of the services of an outsider or an
independent firm to undertake the task. In either case, the common
carrier is not relieved of its responsibilities under the contract of
carriage.
Regrettably for LRTA, as well as perhaps the surviving spouse
and heirs of the late Nicanor Navidad, this Court is concluded by the
factual finding of the Court of Appeals that―there is nothing to link
Prudent to the death of Navidad, for the reason that the negligence
of its employee, Escartin, has not been duly proven. There being,
similarly, no showing that petitioner Rodolfo Roman himself is guilty
of any culpable act or omission, he must also be absolved from
liability.
105 | P a g e 105

MERCURY DRUG CORPORATION VS. HUANG

G.R. NO. 172122
PUNO, C.J.:

Facts:
Petitioner Mercury Drug is the registered owner of a six-
wheeler 1990 Mitsubishi Truck. It has in its employ petitioner
Rolando Del Rosario as driver. Respondent spouses Richard and
Carmen Huang are the parents of respondent Stephen Huang and
own the red 1991 Toyota Corolla. These two vehicles figured in a
road accident. At the time of the accident, petitioner Del Rosario only
had a Traffic Violation Receipt. A driver‘s license had been
confiscated because he had been previously apprehended for
reckless driving.
Respondent Stephen Huang sustained massive injuries to his
spinal cord, head, face and lung. He is paralyzed for life from his
chest down and requires continuous medical and rehabilitation
treatment. Respondent‘s fault petitioner Del Rosario for committing
gross negligence and reckless imprudence while driving, and
petitioner Mercury Drug for failing to exercise the diligence of a good
father of a family in the selection and supervision of its driver.

Issue:
Whether or not petitioner Mercury Drug is liable for the
negligence of its employee.

Decision:
The trial court found Mercury Drug and Del Rosario jointly and
severally liable to pay respondents. The Court of Appeals affirmed
the said decision.
Article 2176 and 2180 of the Civil Code provide:
―Whoever by act or omission causes damage to another,
there being fault or negligence, is obliged to pay for the damages
done. Such fault or negligence, if there is no pre-existing contractual
relationship between the parties, is called a quasi-delict and is
governed by the provisions of this Chapter.‖
―The obligation imposed by article 2176 is demandable not
only for one‘s own acts or omissions, but also for those of persons
for whom one is responsible.‖
The liability of the employer under Article 2180 is direct and
immediate. It is not conditioned on a prior recourse against the
negligent employee, or a prior showing of insolvency of such
106 | P a g e 106

employee. It is also joint and solidary with the employee. To be

relieved f the liability, petitioner should show that it exercised the
diligence of a good father of a family, both in the selection of the
employee and in the supervision of the performance of his duties. In
this case, the petitioner Mercury Drug does not provide for back-up
driver for long trips. As the time of the accident, Del Rosario has
been driving for more than thirteen hours, without any alternate.
Moreover, Del Rosario took the driving test and psychological exam
for the position of Delivery Man and not as Truck Man. With this,
petitioner Mercury Drug is liable jointly and severally liable to pay the
respondents.
107 | P a g e 107

OUANO ARRASTRE SERVICES, INC VS. HON. PEARY

ALEONOR
G.R. NO. 97664
FELICIANO, J.:

Facts:
International Pharmacueticals, Inc. (IPI) sued the Mercantile
Insurance Company and Ouano Arrastre Service, Inc., for
replacement of a certain equipment imported by IPI which were
insured by Mercantile but were lost on arrival, allegedly because of
mishandling by Ouano. Ouano’s answer was filed by the law firm of
Ledesma, et al. and signed by Atty. Manuel Trinidad of the Cebu
branch of the law office. However, Atty. Trinidad later resigned from
the law firm and Atty. Fidel Manalo, a partner from the Makati Office
filed a motion to postpone the hearing, stating that the case had just
been endorsed to him by Ouano.
On January 12, 1990, after the trial which Atty. Manalo
handled for Ouano, the trial court held Mercantile and Ouano jointly
and severally liable for the cost of replacement of the damaged
equipment plus damages. Only Mercantile appealed. On June 19,
1990, IPI moved for execution of the decision against Ouano which
the judge granted on June 25, 1990. On June 26, 1990, Ouano’s
counsel Atty. Catipay filed a notice of appeal claiming that the
decsion was “mistakenly sent” by the trial court to the law firm’s head
office in Makati. The trial judge denied Ouano’s motion, declaring the
appeal cannot be given due course for lack of merit. The Court of
Appeals (CA) dismissed Ouano’s appeal. Petitioner complains that
an immediate execution, pending Mercantile’s appeal, would result
in “complexities” if the CA were to absolve Mercantile of its liabilities,
that Ouano would have no recourse against its solidary co-debtor
and would in effect be held the only liable under the trial court’s
judgment.

Issue:
Whether or not the defense personal to co-debtor are available
to the other co-debtor.

Decision:
Petitioner argues the defenses personal to co-debtor are
available to the other co-debtor because “the rights and liabilities of
the parties are so interwoven and dependent on each other, as to be
inseparable. Ouano claims that the goods did not sustain any
damage or loss during the voyage. Furthermore, Mercantile claims
that, in any case, the insurance contract with IPI has already lapsed,
108 | P a g e 108

a defense which Ouano, as the arrastre company responsible for the

damage, cannot invoke to avoid liability. Finally, failing to appeal,
Ouano, effectively waived any right it might have had to assert,
against the judgment creditor, any defense pertaining to Mercantile.
In other words, Ouano by its own act or inaction, is no longer in a
position to benefit from the provision of Art. 1222.
109 | P a g e 109

ALFREDO PACIS & CLEOPATRA PACIS VS. JEROME

JOVANNE MORALES
G.R. NO. 169467
CARPIO, J.:

Facts:
On 17 January 1995, petitioners Alfredo P. Pacis and
Cleopatra D. Pacis (petitioners) filed with the trial court a civil case
for damages against respondent Jerome Jovanne Morales
(respondent). Petitioners are the parents of Alfred Dennis Pacis, Jr,
a 17-year old student who died in a shooting incident inside the Top
Gun Firearms and Ammunitions Store in Baguio City. Respondent is
the owner of the gun store.
The bullet which killed Alfred Dennis Pacis was fired from a
gun brought in by a customer of the gun store for repair. The gun,
an AMT Automag II Cal. 22 Rimfire Magnum with Serial No. SN-
H34194, was left by defendant Morales in a drawer of a table located
inside the gun store. Defendant Morales was in Manila at the
time.Sales agents Matibag and Herbolario were the ones left to look
after the gun store. It appears that Matibag and Herbolario later
brought out the gun from the drawer and placed it on top of the table.
Attracted by the sight of the gun, the young Alfred Dennis Pacis got
hold of the same. Matibag asked Alfred Dennis Pacis to return the
gun. The latter followed and handed the gun to Matibag. It went off,
the bullet hitting the young Alfred in the head. A criminal case for
homicide was filed against Matibag, but was however acquitted of
the charge against him because of the exempting circumstance of
accident under Art. 12, par. 4 of the Revised Penal Code. Petitioners
opted to file an independent civil action for damages against
respondent whom they alleged was Matibag's employer. Petitioners
based their claim for damages under Articles 2176 and 2180 of the
Civil Code. The RTC however imposed a civil liability against
repsondent. Upon appeal, the CA absolved respondent from civil
liability under Article 2180 of the Civil Code.

Issue:
Whether or not respondent Morales, as the employer is
subsidiary liable.

Decision:
Yes. The Court held that respondent did not exercise the
degree of care and diligence required of a good father of a family,
much less the degree of care required of someone dealing with
dangerous weapons. For the subsidiary liability of the employer
110 | P a g e 110

under Article 103 of the Revised Penal Code, the liability of the
employer, or any person for that matter, under Article 2176 of the
Civil Code is primary and direct, based on a persons own
negligence. As a gun store owner, respondent is presumed to be
knowledgeable about firearms safety and should have known never
to keep a loaded weapon in his store to avoid unreasonable risk of
harm or injury to others. For failing to insure that the gun was not
loaded, respondent himself was negligent. Furthermore, it was not
shown in this case whether respondent had a License to Repair
which authorizes him to repair defective firearms to restore its
original composition or enhance or upgrade firearms.
111 | P a g e 111

PHILIPPINE HAWK CORPORATION VS. VIVIAN TAN LEE

G.R. NO. 166869
PERALTA J.:

Facts:
On March 15, 2005, respondent Vivian Tan Lee filed before
the RTC of Quezon City a Complaint against petitioner Philippine
Hawk Corporation and defendant Margarito Avila for damages
based on quasi-delict, arising from a vehicular accident that
occurred on March 17, 1991 in Barangay Buensoceso, Gumaca,
Quezon. The accident resulted in the death of respondent's
husband, Silvino Tan, and caused respondent physical injuries. The
accident involved a motorcycle, a passenger jeep, and a bus with
Body No. 119. The bus was owned by petitioner Philippine Hawk
Corporation, and was then being driven by Margarito Avila.
On June 18, 1992, respondent filed an amended complaint, in
her own behalf and in behalf of her children, in the civil case for
damages against petitioner. Respondent sought the payment of
indemnity for the death of Silvino Tan, moral and exemplary
damages, funeral and interment expenses, medical and
hospitalization expenses, the cost of the motorcycle's repair,
attorney's fees, and other just and equitable reliefs.
In its answer, petitioner denied liability for the vehicular
accident, alleging that the immediate and proximate cause of the
accident was the recklessness or lack of caution of Silvino Tan.
Petitioner asserted that it exercised the diligence of a good father of
the family in the selection and supervision of its employees, including
Margarito Avila.
The trial court rendered judgment against petitioner and
defendant Margarito Avila, wherein it adjudged guilty of simple
negligence. It further held petitioner bus company liable for failing to
exercise the diligence of a good father of the family in the selection
and supervision of Avila, having failed to sufficiently inculcate in him
discipline and correct behavior on the road. The CA affirmed the
decision of the trial court with modification in the award of damages.

Issue:
Whether or not petitioner is liable to respondent for damages.

Decision:
Yes. The Court upholds the finding of the trial court and the
Court of Appeals that petitioner is liable to respondent, since it failed
to exercise the diligence of a good father of the family in the selection
112 | P a g e 112

and supervision of its bus driver, Margarito Avila, for having failed to
sufficiently inculcate in him discipline and correct behavior on the
road. Indeed, petitioner's tests were concentrated on the ability to
drive and physical fitness to do so. It also did not know that Avila had
been previously involved in sideswiping incidents. The Court also
affirmed the CA's decision in awarding civil indemnity for the death
of respondent's husband, temperate damages, and moral damages
for the physical injuries sustained by respondent in addition to the
damages granted by the trial court to respondent.
113 | P a g e 113

SAFEGUARD SECURITY VS. EVANGILINE TANGCO

G.R. NO. 165732
AUSTRIA-MARTINEZ, J.:

Facts:
Evangeline Tangco (Evangeline) went to Ecology Bank,
Katipunan Branch, Quezon City, to renew her time deposit per
advise of the bank's cashier as she would sign a specimen card.
Evangeline, a duly licensed firearm holder with corresponding
permit to carry the same outside her residence, approached security
guard Pajarillo, who was stationed outside the bank, and pulled out
her firearm from her bag to deposit the same for safekeeping.
Suddenly, Pajarillo shot Evangeline with his service shotgun hitting
her in the abdomen instantly causing her death.
Respondent filed a complaint for damages against Pajarillo for
negligently shooting Evangeline and against Safeguard for failing to
observe the diligence of a good father of a family to prevent the
damage committed by its security guard. Petitioners denied the
material allegations in the complaint and alleged that Safeguard
exercised the diligence of a good father of a family in the selection
and supervision of Pajarillo; that Evangeline's death was not due to
Pajarillo's negligence as the latter acted only in self-defense.

Issue:
Whether Safeguard should be held solidarily liable for the
damages awarded to respondents.

Decision:
Safeguard contends that it cannot be jointly held liable since it
had adequately shown that it had exercised the diligence required in
the selection and supervision of its employees. It claims that it had
required the guards to undergo the necessary training and to submit
the requisite qualifications and credentials which even the RTC
found to have been complied with; that the RTC erroneously found
that it did not exercise the diligence required in the supervision of its
employee. Safeguard further claims that it conducts monitoring of
the activities of its personnel, wherein supervisors are assigned to
routinely check the activities of the security guards which include
among others, whether or not they are in their proper post and with
proper equipment, as well as regular evaluations of the employees'
performances; that the fact that Pajarillo loaded his firearm contrary
to Safeguard's operating procedure is not sufficient basis to say that
Safeguard had failed its duty of proper supervision; that it was
114 | P a g e 114

likewise error to say that Safeguard was negligent in seeing to it that

the procedures and policies were not properly implemented by
reason of one unfortunate event. The Supreme Court was not
convinced.
Article 2180 of the Civil Code provides: The obligation imposed
by Article 2176 is demandable not only for one's own acts or
omissions, but also for those of persons for whom one is
responsible. As the employer of Pajarillo, Safeguard is primarily and
solidarily liable for the quasi-delict committed by the former.
Safeguard is presumed to be negligent in the selection and
supervision of his employee by operation of law. This presumption
may be overcome only by satisfactorily showing that the employer
exercised the care and the diligence of a good father of a family in
the selection and the supervision of its employee. In the selection of
prospective employees, employers are required to examine them as
to their qualifications, experience, and service records. On the other
hand, due diligence in the supervision of employees includes the
formulation of suitable rules and regulations for the guidance of
employees and the issuance of proper instructions intended for the
protection of the public and persons with whom the employer has
relations through his or its employees and the imposition of
necessary disciplinary measures upon employees in case of breach
or as may be warranted to ensure the performance of acts
indispensable to the business of and beneficial to their employer.
115 | P a g e 115

SAN MIGUEL CORP. AND HEIRS OF OUANO VS. COURT

OF APPEALS
GR NO. 141716
YNARES J.:

Facts:

San Miguel Corporation entered into a Time Charter Party

Agreement with Julius Ouano, doing business under the name and
style J. Ouano Marine Services. Under the terms of the agreement,
SMC chartered the M/V Doña Roberta owned by Julius Ouano for a
period of two years, from June 1, 1989 to May 31, 1991, for the
purpose of transporting SMC‘s beverage products from its Mandaue
City plant to various points in Visayas and Mindanao.

On November 11, 1990, during the term of the charter, SMC

issued sailing orders to the Master of the MN Doña Roberta, Captain
Sabiniano Inguito, to sail for Opol, Cagayan Nov. 12, 1990.
Meanwhile, at 4:00 a.m. of November 12, 1990, typhoon Ruping was
spotted 570 kilometers east-southeast of Borongan, Samar, moving
west-northwest at 22 kilometers per hour in the general direction of
Eastern Visayas. The typhoon had maximum sustained winds of 240
kilometers per hour near the center with gustiness of up to 280
kilometers per hour.
At 7:00 a.m., November 12, 1990, one hour after the M/V Doña
Roberta departed from Mandaue City SMC Radio Operator Rogelio
P. Moreno contacted Captain Inguito through the radio and advised
him to take shelter. Captain Inguito replied that they will proceed
since the typhoon was far away from them, and that the winds were
in their favor. At 1:15 a.m., November 13, 1990, Captain Inguito
called Moreno over the radio and requested him to contact Rico
Ouano, son of Julius Ouano, because they needed a helicopter to
rescue them. The vessel was about 20 miles west of Sulauan Point.
Upon being told by SMC‘s radio operator, Rico Ouano turned on his
radio and read the distress signal from Captain Ingiuto. When he
talked to the captain, the latter requested for a helicopter to rescue
them. Rico Ouano talked to the Chief Engineer who informed him
that they can no longer stop the water from coming into the vessel
because the crew members were feeling dizzy from the petroleum
fumes.At 2:30 a.m. of November 13, 1990, the M/V Doña Roberta
sank. Out of the 25 officers and crew on board the vessel, only five
survived.

Issue:

Whether or not Ouano is liable for the negligence of his

employee.
116 | P a g e 116

Decision:
A charter party is a contract by virtue of which the owner or the
agent of a vessel binds himself to transport merchandise or persons
for a fixed price. It has also been defined as a contract by virtue of
which the owner or the agent of the vessel leases for a certain price
the whole or a portion of the vessel for the transportation of goods
or persons from one port to another. If the charter is a contract of
affreightment, which leaves the general owner in possession of the
ship as owner for the voyage, the rights and the responsibilities of
ownership rest on the owner. The charterer is free from liability to
third persons in respect of the ship. SC concur with the findings of
the Court of Appeals that the charter party in these cases was a
contract of affreightment, contrary to petitioner Ouano‘s protestation
that it was a demise charter.

It appearing that Ouano was the employer of the captain and

crew of the M/V Doña Roberta during the term of the charter, he
therefore had command and control over the vessel. His son, Rico
Ouano, even testified that during the period that the vessel was
under charter to SMC, the Captain thereof had control of the
navigation of all voyages. Under the foregoing definitions, as well as
the clear terms of the Charter Party Agreement between the parties,
the charterer, SMC, should be free from liability for any loss or
damage sustained during the voyage, unless it be shown that the
same was due to its fault or negligence. The evidence does not show
that SMC or its employees were amiss in their duties. In the assailed
decision, the Court of Appeals found that the proximate cause of the
sinking of the vessel was the negligence of Captain Sabiniano
Inguito. SC likewise agrees with the CA that Ouano is vicariously
liable for the negligent acts of his employee, Captain Inguito. Under
Articles 2176 and 2180 of the Civil Code, owners and managers are
responsible for damages caused by the negligence of a servant or
an employee, the master or employer is presumed to be negligent
either in the selection or in the supervision of that employee.
117 | P a g e 117

VIRON TRANSPORTATION CO., INC. VS. DELOS

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

Issue:
Whether the employer is liable to the negligence of his
employee.

Decision:
As employers of the bus driver, the petitioner is, under Article
2180 of the Civil Code, directly and primarily liable for the resulting
damages. The presumption that they are negligent flows from the
negligence of their employee. That presumption, however, is only
jusris tantum, not juris et de jure. Their only possible defense is that
they exercised all the diligence of a good father of a family to prevent
the damage.
In fine, when the employee causes damage due to his own
negligence while performing his own duties, there arises the juris
tantum presumption that the employer is negligent, rebuttable only
by proof of observance of the diligence of a good father of a family.
Petitioner, through its witnesses, failed to rebut such legal
presumption of negligence in the selection and supervision of
employees, thus, petitioner as the employer is responsible for
damages, the basis of the liability being the relationship of pater
familias or on the employer‘s own negligence. Hence, with the
allegations and subsequent proof of negligence against the bus
driver of petitioner, petitioner (employer) is liable for damages.
118 | P a g e 118

BLOSSOM & CO. INC. VS. MANILA GAS CORPORATIONS

G.R. No. L-32958
JOHNS, J.:

Facts:

Blossom & Co. and Manila Gas Corporations entered into a

contract. The contract provided for the delivery to the plaintiff from
month to month of specified amounts of water gas tar. 1 ton of gas
was priced at Php65. It was agreed that the price would prevail only
so long as the raw materials used by the defendants in the
manufacture of gas should cost the same price as that prevailing at
the time of the contract. In the event of an increase or decrease in
the cost of raw materials, there would be a corresponding increase
or decrease in the price of tar.

The contract was later amended to extend the period for ten
years. Inconsideration of the modification, the plaintiff agreed to
purchase from the defendant a certain piece of land lying adjacent
to its plant. The defendant sold and conveyed the land to the plaintiff
which in turn executed a mortgage to secure the payment of the
balance of the purchase price.

Around 4 years from the execution of the contract, plaintiff filed

an action against the defendant to obtain specific performance and
recovery of damages. Plaintiff alleged that the defendant breached
the contract by ceasing to deliver any coal and water gas tar solely
because of the increase in price of tar products and its desire to
secure better prices than what the plaintiff paid.

CFI Manila ruled in favor of the plaintiff. The court granted the
recovery for damages but refused to order the defendants to resume
delivery but left it with its remedy for damages against the
defendants for any subsequent breach of contract.

Later, plaintiff filed another action for damages on the ground

that the defendant breached the contract once more after refusal to
perform its obligation under the same contract.

Issue:

Whether or not the plaintiff is barred from filing the second

action for damages.

Decision:

Yes, the plaintiff is barred from filing the second action for
damages. Doctrine of Divisible contracts as a general rule states hat
a contract to do several things at several times is divisible. A
judgment for a single breach of a continuing contract is not a bar to
a suit for a subsequent breach.
119 | P a g e 119

In an entire contract, when the contract is indivisible and the

breach is total, there can only be one action in which the plaintiff
must recover all damages. The recovery of a judgment for damages
by reason of a breach is a bar to another action on the same contract
and on account of the continuous breach.

The contract between the parties is an entire contract. In the

case at bar, the defendant terminated the continuing contract by
absolute refusal. The claim for damages is an indivisible demand.
Where a former final judgment was rendered, it is a bar to any
damages which plaintiff may thereafter sustain.
120 | P a g e 120

NATIVIDAD NAZARENO VS. COURT OF APPEALS

G.R. No. 131641
BELLOSILLO, J.:

FACTS:

Maximino Nazareno, Sr. and Aurea Poblete were husband

and wife. Aurea died on April 15, 1970, while Maximino, Sr. died on
December 18, 1980. After the death of Maximino, Sr., Romeo filed
an intestate case in the Court of First Instance of Cavite, Branch XV,
where the case was docketed as Sp. Proc. No. NC-28. Upon the
reorganization of the courts in 1983, the case was transferred to the
Regional Trial Court of Naic, Cavite. Romeo was appointed
administrator of his father’s estate. In the course of the intestate
proceedings, Romeo discovered that his parents had executed
several deeds of sale conveying a number of real properties in favor
of his sister, Natividad. One of the deeds involved six lots in Quezon
City which were allegedly sold by Maximino, Sr., with the consent of
Aurea, to Natividad on January 29, 1970 for the total amount of
P47,800.00.

ISSUE:

Whether or not the Deed of Absolute of Sale can be equated

as a divisible obligation.

DECISION:

The Supreme court held that the Deed of Absolute Sale is

an indivisible contract founded on an indivisible obligation. As such,
it being indivisible, it can not be annulled by only one of them. And
since this suit was filed only by the estate of Maximino A. Nazareno,
Sr. without including the estate of Aurea Poblete, the present suit
must fail. The estate of Maximino A. Nazareno, Sr. can not cause its
annulment while its validity is sustained by the estate of Aurea
Poblete. An obligation is indivisible when it cannot be validly
performed in parts, whatever may be the nature of the thing which is
the object thereof. The indivisibility refers to the prestation and not
to the object. The Deed of Sale of January 29, 1970 supposedly
conveyed the six lots to Natividad. The obligation is clearly indivisible
because the performance of the contract cannot be done in parts,
otherwise the value of what is transferred is diminished. Petitioners
are mistaken in basing the indivisibility of a contract on the number
of obligors. In any case, if petitioners’ only point is that the estate of
Maximino, Sr. alone cannot contest the validity of the Deed of Sale
because the estate of Aurea has not yet been settled, the argument
would nonetheless be without merit. The validity of the contract can
be questioned by anyone affected by it. A void contract is inexistent
from the beginning. Hence, even if the estate of Maximino, Sr. alone
contests the validity of the sale, the outcome of the suit will bind the
estate of Aurea as if no sale took place at all.
121 | P a g e 121

SPOUSES ALEXANDER AND JULIE LAM vs. KODAK

PHILIPPINES, LTD.
G.R. No. 167615
LEONEN, J.:
FACTS:

On January 8, 1992, the Lam Spouses and Kodak Philippines,

Ltd. entered into an agreement for the sale of three units of the
Kodak Minilab System 22XL in the amount of P1,796,000 per unit.

Kodak Philippines, Ltd. delivered one unit and the Lam

Spouses issued postdated checks amounting to P35,000 each for
12 months as payment for the first delivered unit.

The Lam Spouses requested that Kodak Philippines, Ltd. not

to negotiate the checks allegedly due to insufficiency of funds.
However, checks were negotiated by Kodak Philippines, Ltd. and
were honored by the depository bank. The 10 other checks were
subsequently dishonored after the Lam Spouses ordered the
depository bank to stop payment.

Kodak Philippines Ltd. cancelled the sale and demanded Lam

spouses to return the unit. Lam spouses ignored the demand but
also rescinded the contract on account of Kodak Philippines Ltd’s
failure to deliver the two remaining minilab units.

ISSUE:

Whether or not the contract between the spouses and Kodak

Philippines Inc. pertains to an obligation which is severable, divisible
or susceptible of partial performance.

DECISION:
The intention of the parties is for there to be a single
transaction covering all three equipment. Respondent’s obligation
was to deliver all products purchased under a package, and, in turn
petitioners obligation was to pay for the total purchase price, payable
in installments.

The intention of the parties to bind themselves to an indivisible

obligation can be further discerned through their direct acts in
relation to the package deal. There was only one agreement
covering all three equipment and their accessories. The Letter of
agreement specified only one purpose for the buyer, which was to
obtain these units for three different outlets. If the intention of the
parties were to have a divisible contract, then separate agreements
would have been made for each equipment unit instead of covering
all three in one package deal. Furthermore, the 19% multiple order
discount as contained in the Letter Agreement was applied to all
three acquired units. The no downpayment term contained in the
Letter Agreement was also applicable to all minilab equipment units.
Lastly, the fourth clause of the Letter Agreement clearly referred to
the object of the contract as Minilab Equipment Package.
122 | P a g e 122

ACJOSEFINA TAYAG VS. COURT OF APPEALS

G.R. NO. 96053
MELO, J.:

FACTS:

Juan Galicia, Sr. executed a deed of conveyance, prior to his

demise in 1979 in favor of Albrigido Leyva involving the undivided
one-half portion of a piece of land situated at Poblacion, Guimba,
Nueva Ecija forA the sum of P50,000.00. There is no dispute that
the first installment was received by Juan Galicia, Sr. And according
to petitioners, of the P10,000.00 to be paid within ten days from
execution of the instrument, only P9,707.00 was tendered to, and
received by, them on numerous occasions from May 29, 1975, up to
November 3, 1979. It was also agreed upon that private respondent
will assume the vendors' obligation to the Philippine Veterans Bank,
however, he paid only the sum of P6,926.41 while the difference of
the indebtedness was paid by Juan Galicia, Sr.’s sister. Moreover,
petitioners claimed that not a single centavo of the P27,000.00
representing the remaining balance was paid to them. Petitioners
averred that private respondent’s failure to pay full consideration of
the agreement to sell gave them the right to have the contract
rescinded.

ISSUE:

Whether or not the petitioners have the right to rescind the

contract in the present case.

DECISION:

Considering that the heirs of Juan Galicia, Sr. accommodated

private respondent by accepting the latter's delayed payments not
only beyond the grace periods but also during the pendency of the
case for specific performance, petitioners' actuation is susceptible of
but one construction that they are now estopped from reneging from
their commitment on account of acceptance of benefits arising from
overdue accounts of private respondent. Indeed, the right to rescind
is not absolute and will not be granted where there has been
substantial compliance by partial payments.

Private respondent is ordered to pay the balance of the

purchase price and to reimburse the sum paid by Juan Galicia Sr.’s
sister to the Philippine Veteran’s bank, minus the attorney's fees and
damages awarded in favor of private respondent.
123 | P a g e 123

TANAY RECREATION CENTER AND DEVELOPMENT CORP.

VS. CATALINA MATIENZO FAUSTO
G.R. NO. 140182
AUSTRIA-MARTINEZ, J.:

FACTS:

Petitioner Tanay Recreation Center and Development Corp.

(TRCDC) is the lessee of a 3,090-square meter property owned by
Catalina Matienzo Fausto, under a Contract of Lease. On this
property stands the Tanay Coliseum Cockpit operated by petitioner.
The lease contract provided for a 20-year term, subject to renewal
within sixty days prior to its expiration. The contract also provided
that should Fausto decide to sell the property, petitioner shall have
the “priority right” to purchase the same.

On June 17, 1991, petitioner wrote Fausto informing her of its

intention to renew the lease. However, it was Fausto’s daughter,
respondent Anunciacion F. Pacunayen, who replied, asking that
petitioner remove the improvements built thereon, as she is now the
absolute owner of the property. It appears that Fausto had earlier
sold the property to Pacunayen and title has already been
transferred in her name. Petitioner filed an Amended Complaint for
Annulment of Deed of Sale, Specific Performance with Damages,
and Injunction

In her Answer, respondent claimed that petitioner is estopped

from assailing the validity of the deed of sale as the latter
acknowledged her ownership when it merely asked for a renewal of
the lease. According to respondent, when they met to discuss the
matter, petitioner did not demand for the exercise of its option to
purchase the property, and it even asked for grace period to vacate
the premises.

ISSUE:

Whether or not the contention on the right of first refusal valid.

DECISION:

When a lease contract contains a right of first refusal, the

lessor is under a legal duty to the lessee not to sell to anybody at
any price until after he has made an offer to sell to the latter at a
certain price and the lessee has failed to accept it. The lessee has
a right that the lessor's first offer shall be in his favor. Petitioner’s
right of first refusal is an integral and indivisible part of the contract
of lease and is inseparable from the whole contract. The
consideration for the lease includes the consideration for the right of
first refusal and is built into the reciprocal obligations of the parties.

It was erroneous for the CA to rule that the right of first refusal
does not apply when the property is sold to Fausto’s relative. When
124 | P a g e 124

the terms of an agreement have been reduced to writing, it is

considered as containing all the terms agreed upon. As such, there
can be, between the parties and their successors in interest, no
evidence of such terms other than the contents of the written
agreement, except when it fails to express the true intent and
agreement of the parties. In this case, the wording of the stipulation
giving petitioner the right of first refusal is plain and unambiguous,
and leaves no room for interpretation. It simply means that should
Fausto decide to sell the leased property during the term of the
lease, such sale should first be offered to petitioner. The stipulation
does not provide for the qualification that such right may be
exercised only when the sale is made to strangers or persons other
than Fausto’s kin. Thus, under the terms of petitioner’s right of first
refusal, Fausto has the legal duty to petitioner not to sell the property
to anybody, even her relatives, at any price until after she has made
an offer to sell to petitioner at a certain price and said offer was
rejected by petitioner.
125 | P a g e 125

ASJ CORP. VS. SPS. EFREN & MAURA EVANGELISTA

G.R No. 158086
QUISUMBING, J.:

FACTS:

Private respondent Evangelista contracted Petitioner ASJ

Corporation for the incubation and hatching of eggs and by products
owned by Evangelista Spouses. The contract includes the
scheduled payments of the service of ASJ Corporation that the
amount of installment shall be paid after the delivery of the chicks.
However, the ASJ Corporation detained the chicks because
Evangelista Spouses failed to pay the installment on time.

ISSUE:

Whether or not the detention of the alleged chicks valid and

recognized under the law.

DECISION:

No, because ASJ Corporation must give due to the

Evangelista Spouses in paying the installment, thus, it must not
delay the delivery of the chicks. Thus, under the law, they are obliged
to pay damages with each other for the breach of the obligation.

Therefore, in a contract of service, each party must be in good

faith in the performance of their obligation, thus when the petitioner
had detained the hatched eggs of the respondents spouses, it is an
implication of putting prejudice to the business of the spouses due
to the delay of paying installment to the petitioner.
126 | P a g e 126

JOSE V. LAGON vs. HOOVEN COMALCO INDUSTRIES,

INC
G.R. No. 135657
BELLOSILLO, J.:

FACTS:

Sometime in April 1981 Lagon, a businessman and HOOVEN

entered into two (2) contracts, denominated Proposal, whereby for
a total consideration of P104,870.00 HOOVEN agreed to sell and
install various aluminum materials in Lagon’s commercial building in
Tacurong, Sultan Kudarat. HOOVEN filed an action against Lagon
claiming that the latter failed to pay his due despite HOOVEN’s
performance of its obligation. Lagon, in his answer, denied liability
and averred that HOOVEN was the party guilty of breach of contract
by failing to deliver and install some of the materials specified in the
proposals; that as a consequence he was compelled to procure the
undelivered materials from other sources; that as regards the
materials duly delivered and installed by HOOVEN, they were fully
paid.

ISSUE:
Whether or not HOOVEN is entitled to the unpaid
balance.

DECISION:

HOOVEN's bad faith lies not so much on its breach of contract

- as there was no showing that its failure to comply with its part of
the bargain was motivated by ill will or done with fraudulent intent -
but rather on its appalling temerity to sue petitioner for payment of
an alleged unpaid balance of the purchase price notwithstanding
knowledge of its failure to make complete delivery and installation of
all the materials under their contracts. Although petitioner was found
to be liable to respondent to the extent of P6,377.66, petitioner's right
to withhold full payment of the purchase price prior to the delivery
and installation of all the merchandise cannot be denied since under
the contracts the balance of the purchase price became due and
demandable only upon the completion of the project. Consequently,
the resulting social humiliation and damage to petitioner's reputation
as a respected businessman in the community, occasioned by the
filing of this suit provide sufficient grounds for the award of
P50,000.00 as moral damages. On the part of Lagon, he is ordered
by the court to pay HOOVEN the amount corresponding to the value
of the materials admittedly delivered to him.
127 | P a g e 127

FELISA TORIBIO vs. DOLORES FOZ, ET AL.,

G.R. No. 11039
TORRES, J.:

FACTS:

Felisa Toribio is the owner of a property located at Sta. Cruz,

Manila, which she sold to Carlos Rodriguez Pomar. Stipulated in the
sale is the right of Felisa to redeem the property and the right to
continue to occupy the house on the condition of her paying a
monthly rental fee of Php 38.00.

Thereafter, she sold her right of redemption and right to lease

to his brother Buenaventura Toribio and sister-in-law, Dolores Foz
for the amount of Php 2,200 minus Php 700.00 which the plaintiff
owed the defendants.

Foz, in her own name and representing her husband, executed

an instrument of indebtedness to the plaintiff in which she
acknowledged their debt of Php1,500. However, after repeated
demands for payment by the plaintiff, the spouses refused to pay.
Hence, the plaintiff filed an action to the Court of First Instance of,
praying the court to enter judgement rescinding the contract of the
sale of rights or else to order the defendants to pay the sum of
Php1,500.00, together with legal interest and attorney’s fees.

During trial, the spouses denied having failed to pay their debt.
They presented a deed of sale notarized by Ramon Muyot, a notary
public, as evidence and a receipt of payment in the amount of
Php307.00.Contained in the notarized instrument is the statement
that the plaintiff received the total amount of sale. The plaintiff
admitted having executed the deed of sale, but she allegedly did so
to help further certain financial transactions which her brother and
sister-in-law intended to make.

ISSUE:

Whether or not the existence of a certificate of indebtedness

in the hands of the creditor is proof that the debt has not been settled.

DECISION:

Yes, the existence of a certificate of indebtedness in the hands

of the creditor is evidence that the debt has not been settled, unless
the contrary shall have been fully proven by the debtor. In the case
at bar, the defendants were only able to show payment via a receipt
of Php307.00. The rest, in the amount of Php 1,193, were not given
proof of payment. The defendant’s statement that she made partial
payments to the plaintiff in the amount of Php 693 and Php500 at
different dates in the presence of the notary public, and that being in
a hurry, she forgot to require receipts and to require the return of the
certificate of indebtedness cannot prosper since the notary public
Muyot denied having seen the defendant make any payment to the
plaintiff.
128 | P a g e 128

PHILPPINE NATIONAL BANK VS. COURT OF APPEALS AND

LORETO TAN
G.R. NO. 108630
ROMERO, J.:

FACTS:

Private respondent Loreto Tan is the owner of a parcel of land

abutting the national highway. Expropriaton proceedings were
instituted by the government. Tan filed a motion requesting the
issuance of an order for the release to him of the expropriation price
of P32,480.00. PNB was required by the trial court to release to tan
the amount and deposited it by the government. Petitioner, through
its Assistant Manager Tagamolila, issued a check and delivered the
same to Sonia Gonzaga on the strength of the SPA, without tan’s
knowledge, consent and authority. RTC ordered petitioner and
Tagamolila to pay private respondent jointly and severally the
amount worth legal interests, damages and attorney’s fees. Ca
affirmed the decision.

ISSUE:

Whether the Special Power of Attorney authorized Sonia

Gonzaga to receive payment intended for private
respondent

DECISION:

There is no question that no payment had ever been made to

private respondent as to the check was never delivered to him.
Under Article 1233 of the Civil Code, a debt shall not be understood
to have been paid unless the thing or service in which the obligation
consists has been completely delivered or rendered, as the case
may be. The burden of proof of sad payment lies with the debtor.
The decision of the court of appeals is affirmed with the
modification that the award by the RTC of P5,000 as attorney’s fees
is reinstated.
129 | P a g e 129

PHILIPPINE COMMERCIAL INTERNATION BANK vs. COURT

OF APPEALS
G.R. NO. 121989
TINGA, J.:

FACTS:

PCIB and MBC were joint bidders in a foreclosure sale held of

assorted mining machinery and equipment previously mortgaged to
them by Philippine Iron Mines. Atlas agreed to purchase some of
these properties and the sale was evidenced by a Deed of Sale with
a downpayment of P12,000,000 and the balance of P18,000,000
payable in 6 monthly installments. In compliance with the contract,
Atlas issued HongKong and shanghai Bank check amounting to
P12,000,000. Atlas paid to NAMAWU the amount of P4,298,307.77
in compliance with the writ of garnishment issued against Atlas to
satisfy the judgment in favor of NAMAWU. Atlas alleged that there
was overpayment, hence the suit against PCIB to obtain
reimbursement. PCIB contended that Atlas still owed P908,398.75
because NAAWU had been partially paid in the amount of
P601,260.00. RTC ruled against Atlas to pay P908,398.75 to PCIB.
CA reversed the decision.

ISSUE:

Whether or not atlas had complied with its obligation to PCIB.

DECISION:

While the original amount sought to be garnished was

P4,298,307,77, the partial payment of P601,260 naturally reduced it
to P3,697,047.77 Atlas overpaid NAMAWU, thus the remedy if Atlas
would be to proceed against NAAWU nut not against PCIB in relation
to article 1236 of the Civil Code
The petition is partly granted.CA decision is reversed and set
aside and in lieu thereof Atlas is ordered to pay PCIB the sum of
P146,058.96, with the legal interest commencing from the time of
first demand on August 22, 1985.
130 | P a g e 130

DEVELOPMENT BANK OF THE PHILIPPINES vs. COURT OF

APPEALS and LYDIA CUBA
G.R. No. 118342

LYDIA P. CUBA vs. COURT OF APPEALS, DEVELOPMENT

BANK OF THE PHILIPPINES and AGRIPINA P. CAPERAL
G.R. No. 118367
DAVIDE, JR., J.:

Facts:

These two consolidated cases stemmed from a complaint filed

against the Development Bank of the Philippines and Agripina
Caperal filed by Lydia Cuba on 21 May 1985 with the Regional Trial
Court of Pangasinan, Branch 54. The said complaint sought (1) the
declaration of nullity of DBP’s appropriation of CUBA’s rights, title,
and interests over a 44-hectares fishpond located in Bolinao,
Pangasinan, for being violative of Article 2088 of the Civil Code; (2)
the annulment of the Deed of Conditional Sale executed in her favor
by DBP; (3) the annulment of DBP’s sale of the subject fishpond to
Caperal; (4) the restoration of her rights, title, and interests over the
fishpond; and (5) the recovery of damages, attorney’s fees, and
expenses of litigation.

In its decision of 25 May 1994, the Court of Appeals ruled that

that (1) the deed of assignment was null and void and that defendant
Caperal could not validly acquire the leasehold rights from DBP; (2)
contrary to the claim of DBP, the assignment was not a cession
under Article 1255 of the Civil Code because DBP appeared to be
the sole creditor to CUBA — cession presupposes plurality of debts
and creditors; (3) the deeds of assignment represented the voluntary
act of CUBA in assigning her property rights in payment of her debts,
which amounted to a novation of the promissory notes executed by
CUBA in favor of DBP; (4) CUBA was estopped from questioning the
assignment of the leasehold rights, since she agreed to repurchase
the said rights under a deed of conditional sale; and (5) condition no.
12 of the deed of assignment was an express authority from CUBA
for DBP to sell whatever right she had over the fishpond.

Issue:

Whether or not there is cession.

Decision:

The assignment did not amount to payment by cession under

Article 1255 of the Civil Code for the plain and simple reason that
there was only one creditor, the DBP. Article 1255 contemplates the
existence of two or more creditors and involves the assignment of
all the debtor’s property.
131 | P a g e 131

DELTA DEVELOPMENT vs. ENRIQUEZ and LUZON

DEVELOPMENT BANK
G.R. No. 168666
DEL CASTILLO, J.:

FACTS:

On July 3, 1995, De Leon (owner of Delta) and his spouse

obtained a P4 million loan from the BANK for the express purpose
of developing Delta Homes I.8 To secure the loan, the spouses De
Leon executed in favor of the BANK a real estate mortgage (REM)
on several of their properties,9 including Lot 4. Subsequently, this
REM was amended10 by increasing the amount of the secured loan
from P4 million to P8 million. Both the REM and the amendment
were annotated on TCT No. T-637183.11

Sometime in 1997, DELTA executed a Contract to Sell with

respondent Angeles Catherine Enriquez (Enriquez)14 over the
house and lot in Lot 4 with the condition that upon full payment of
the total consideration the Owner shall execute a final deed of sale
in favor of the Vendee/s.

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. Enriquez filed a complaint against DELTA and the
BANK before Office of the HLURB19 alleging that DELTA violated
the terms of its License to Sell. The 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.

DELTA appealed the arbiter’s Decision to the HLURB Board

of Commissioners. The Commission ordered [Enriquez] to pay
[DELTA] the amount due from the time she suspended payment up
to filing of the complaint with 12% interest thereon per annum;
thereafter the provisions of the Contract to Sell shall apply until full
payment is made.
The OP adopted by reference the findings of fact and conclusions of
law of the HLURB Decisions, which it affirmed in toto. The CA ruled
against the validity of the dacion en pago executed in favor of the
BANK on the ground that DELTA had earlier relinquished its
ownership over Lot 4 in favor of Enriquez via the Contract to Sell.46

ISSUE:
Whether the dacion en pago extinguished the loan obligation,
such that DELTA has no more obligations to the BANK.

DECISION:

The violation of Section 18 renders the mortgage executed by

DELTA void therefore the 8 million loans are unsecured. Since the
Contract to sell did not transfer ownership of Lot 4 to Enriquez, said
132 | P a g e 132

ownership remained with DELTA. DELTA could then validly transfer

such ownership (as it did) to another person (the BANK). However,
the transferee BANK is bound by the Contract to Sell and has to
respect Enriquez’s rights thereunder.

BANK is also not entitled to payment of the equivalent value of

the lot 4 from DELTA when the this court ruled in favor of ENRIQUEZ
over lot 4. 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."
133 | P a g e 133

OPERATORS INC VS. AMERICAN BISCUIT CORPORATION

G.R. No. L-35024
SARMIENTO, J.:

FACTS:

Plaintiff American Biscuit Company, a manufacturer of biscuit,

candy and bubble gum products in financial distress, entered into an
agreement with defendant Operators Inc. where it ceded the entire,
total and complete present operation of its business inconsideration
for which Operators Inc. undertook to answer for existing obligations
of the plaintiff to its several creditors and to compensate plaintiff with
a percentage of the gross profits realized in the course of its
operations.

Barely 10 months thereafter, ABC and Operators Inc., entered

into another agreement (Tripartite Agreement) with defendant
Associated Biscuit Operators. Associated agreed to engage in the
manufacture and marketing of the biscuit products of ABC under the
terms and conditions of the Operating Contract of September 26,
1953.

Operators and Associated had both undertaken to pay ABC's

obligation owing to its various creditors. Defendants would
sharefifty-fifty in the monthly installments of the P110,000.00 unpaid
balance of the loan (China Banking Corporation). This arrangement
was religiously complied with by Operators Inc. which paid Pl,500.00
monthly, making a total payment of more than P100,000.00including
interest. Defendant Associated in turn, failed to make good its
commitments to pay its share of P55,000.00.

American Biscuit filed a complaint against Operators

Incorporated and Associated Biscuit for the cancellation of the
Operating Contract and the Tripartite Agreement, with prayers to put
Associated Biscuit under receivership and for damages. American
Biscuit maintained that the payment of its indebtedness and of its
overhead expenses was a joint and solidary obligation of Operators
and Associated Biscuit.

ISSUE:

Whether or not the payment of indebtedness to ABC’s

creditors by Operators and Associated Biscuit was a Solidary
Obligation.

DECISION:

The position of Operators that under the Operating Contract

and the Tripartite Agreement it is not answerable for the
misfeasance of Associated, is belied by the very provisions of the
Tripartite Agreement, thus:
134 | P a g e 134

10. Incorporating Clauses.

Paragraphs 9, 10, 11, the provisions on Board of Arbitrators,

14, 15, 16 and 17 of the contract of September 26, 1953 between
the American Biscuit Co., Inc. and Operators Incorporated are
hereby incorporated into this Contract by way of reference and made
an essential part hereof; and the word "OPERATORS" mentioned in
said paragraphs is to be understood as to include the Associated
Biscuit Operators Inc., for purposes of this Contract; and both the
Operators Incorporated and the Associated Biscuit Operators Inc.,
in so far as liabilities and obligations therein contained in said
paragraphs shall be made answerable to the American Biscuit Co.,
Inc., jointly and severally.

There is thus no mistaking the fact that Operators and

Associated had assumed, per their agreements, American's
liabilities to its creditors in solidum.

Article 1207 of the new Civil Code states that: "there is a

solidary liability when the obligation expressly so states "What may
have led Operators in denying the solidary character of its
obligations was the fact that it was engaged in the manufacture of
candy whereas Associated Biscuit was supposed to manufacture
biscuits, and the fact that the two operators were required to invest
different minimum amounts in the venture. But these conditions do
not alter the solidary nature of their obligations as expressly provided
in Article 1211 of the Civil Code.
135 | P a g e 135

SPOUSES MAY S. VILLALUZ and JOHNNY VILLALUZ, JR., vs.

LAND BANK OF THE PHILIPPINES and the REGISTER OF
DEEDS FOR DAVAO CITY
G.R. No. 192602
JARDELEZA, J.:

FACTS:

Sometime in 1996, Paula Agbisit, mother of petitioner May S.

Villaluz, requested the latter to provide her with collateral for a loan.
May convinced her husband, Johnny Villaluz, to allow Agbisit to use
their land, located in Calinan, Davao City, as collateral. 5 On March
25, 1996, the Spouses Villaluz executed a Special Power of Attorney
in favor of Agbisit authorizing her to, among others, "negotiate for
the sale mortgage, or other forms of disposition a parcel of land" sign
in our behalf all documents relating to the sale, loan or mortgage, or
other disposition of the aforementioned property. The one-page
power of attorney neither specified the conditions under which the
special powers may be exercised nor stated the amounts for which
the subject land may be sold or mortgaged.

On June 19, 1996, Agbisit executed her own Special Power of

Attorney, appointing Milflores Cooperative as attorney-in-fact in
obtaining a loan from and executing a real mortgage in favor of Land
Bank of the Philippines. On June 21, 1996, Milflores Cooperative, in
a representative capacity, executed a Real Estate Mortgage in favor
of Land Bank in consideration of the ₱3,000,000 loan to be extended
by the latter. On June 24, 1996, Milflores Cooperative also executed
a Deed of Assignment of the Produce/Inventory as additional
collateral for the loan. Land Bank partially released one-third of the
total loan amount, or ₱995,500, to Milflores Cooperative on June 25,
1996. On the same day, Agbisit borrowed the amount of ₱604,750
from Milflores Cooperative. Land Bank released the remaining loan
amount of ₱2,000,500 to Milflores Cooperative on October 4, 1996.

Unfortunately, Milflorcs Cooperative was unable to pay its

obligations to Land Bank. Thus, Land Bank filed a petition for extra-
judicial foreclosure sale with the Office of the Clerk of Court of Davao
City. Sometime in August, 2003, the Spouses Villaluz learned that
an auction sale covering their land had been set for October 2, 2003.
Land Bank won the auction sale as the sole bidder.

ISSUE:

Whether or not the debtor is released from the obligation.

DECISION:

The Spouses Villaluz claim that the Special Power of Attorney

they issued was mooted by the execution of the Deed of Assignment
of the Produce/Inventory by Milflores Cooperative in favor of Land
Bank. Their theory is that the additional security on the same loan
136 | P a g e 136

extinguished the agency because the Deed of Assignment "served

as payment of the loan of the Cooperative."

The assignment was for the express purpose of "securing the

payment of the Line/Loan, interest and charges thereon." Nowhere
in the deed can it be reasonably deduced that the collaterals
assigned by Milflores Cooperative were intended to substitute the
payment of sum of money under the loan. It was an accessory
obligation to secure the principal loan obligation.

The assignment, being intended to be a mere security rather

than a satisfaction of indebtedness, is not an elation in payment
under Article 1245 and did not extinguish the loan 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." As stated in the
second condition of the Deed of Assignment, the "Assignment shall
in no way release the ASSIGNOR from liability to pay the Line/Loan
and other obligations, except only up to the extent of any amount
actually collected and paid to ASSIGNEE by virtue of or under this
Assignment." Clearly, the assignment was not intended to substitute
the payment of sums of money. It is the delivery of cash proceeds,
not the execution of the Deed of Assignment that is considered as
payment. Absent any proof of delivery of such proceeds to Land
Bank, the Spouses Villaluz's claim of payment is without basis.

Neither could the assignment have constituted payment by

cession under Article 125536 for the plain and simple reason that
there was only one creditor, Land Bank. Article 1255 contemplates
the existence of two or more creditors and involves the assignment
of all the debtor's property.
137 | P a g e 137

THE PHILIPPINE INDUSTRIAL CO. VS. EL HOGAR FILIPINO

and SALVADOR VALLEJO
G.R. No. L-20482
VILLAMOR, J.:

FACTS:

Defendant Salvador Vallejo executed a mortgage in favor of El

Hogar Filipino, upon a certain real estate belonging to him,
registered in the registry of property under the Torrens law. This
mortgage contains a stipulation that the mortgagor cannot create
any legal right upon the realty in favor of a third person, nor make,
with regard to said realty, any contract of lease registerable under
the law, or whereby a rental for more than one month is to be paid
in advance, without obtaining the previous consent in writing of the
association El Hogar Filipino. That same mortgage, moreover,
contains a stipulation that in case the debt falls due for non-
compliance, on the part of the debtor, with any of the obligations
mentioned in the contract, the manager of the association El Hogar
Filipino is authorized to proceed to the extrajudicial sale of the
mortgaged property at public auction before a notary, or an
auctioneer to be designated by the board of directors of the
association, after publication of notice thereof in a newspaper of
general circulation in this city, once a week for three consecutive
weeks; the manager of the association being likewise authorized to
execute, as agent of the borrower, the corresponding deed of sale
in favor of the highest bidder who may present himself at the auction
at the time and in the manner prescribed in the tenth clause of said
contract.

After said mortgage was noted as a lien and encumbrance on

the certificate of title of the property mortgaged, a document was
presented to the register of deeds whereby the debtor made a
second mortgage in favor of the plaintiff corporation, the herein
appellee. The register of deeds refused to register said second
mortgage on the ground that it did not appear therein that the first
mortgagee, El Hogar Filipino, never consented to the registration, in
accordance with the prohibiting clause of the mortgage previously
recorded; and an administrative proceeding having been instituted
against the action of the register of deeds, the trial court ruled that
the validity or nullity of the prohibiting clause in question must be
litigated in an ordinary action.

The first mortgage having fallen due, according to the terms

thereof, El Hogar Filipino advertised the sale at public auction of the
property mortgaged and the plaintiff then brought this action,
wherein it is prayed that the prohibiting clause above mentioned be
declared void, and a preliminary injunction issued against the
defendants, El Hogar Filipino and Salvador Vallejo their attorneys,
agents and representatives and other persons acting on their behalf,
commanding them to abstain from carrying out the advertised sale
of the land in question.
138 | P a g e 138

ISSUE:

Whether or not the mortgagor may obtain subsequent loans

by means of subsequent and successive mortgages of his property.

DECISION:

In the instant case, said article 107 of the Mortgage Law has
no application because this is a case of a property registered in
accordance with the Torrens system prescribed by Act No. 496,
section 124 of which provides that the system of registration
established by the laws in force on the matter in the Philippine
Islands should continue to be applicable to properties not registered
in accordance with this law, with the modifications established
therein. Nor can said article 1880 of the Civil Code, giving effect to
the provisions of the Mortgage Law, be invoked. Therefore, the
provision of article 1255 of the Civil Code remains in force, who gives
the contracting parties absolute liberty to make such stipulations as
they may deem fit, provided they are not contrary to law, morals and
public order; and there being no law whatsoever prohibiting the
stipulation that no other mortgage should be made, and said
stipulation not being immoral, nor contrary to public order, we are of
the opinion that such a stipulation is valid and binding between the
parties.

It is evident that the mortgagor may obtain subsequent loans

by means of subsequent and successive mortgages of his property,
but when the debtor voluntarily binds himself not to make any
second mortgage without the consent of the mortgagee, we see no
reason whatsoever why said debtor should not be bound to comply
with all the conditions of the contract. As has been stated, article
107, No. 4, of the Mortgage Law not being applicable, which
expressly permits the registration of a subsequent mortgages
executed upon a real state previously mortgaged under the
Mortgage Law, even if there is a stipulation that no other mortgage
should be made, there exists no law prohibiting such a stipulation
and the debtor, having agreed not to make any second mortgage
without the consent of the creditor, is bound thereby.
139 | P a g e 139

CEBU INTERNATIONAL VS. COURT OF APPEALS

G.R.No. 123031
QUISUMBING, J.:

FACTS:

On April 25, 1991, private respondent, Vicente Alegre,

invested with CIFC, P500,000.00 pesos, in cash. Petitioner issued a
promissory note to mature on May 27, 1991. The note for
P516,238.67 covered private respondent's placement plus interest
at twenty and a half percent for thirty-two days. On May 27, 1991,
CIFC issued BPI Check No. 513397 P514,390.94 in favor of the
private respondent as proceeds of his matured investment plus
interest. The CHECK was drawn from petitioner's current account
number 0011-0803-59, maintained with BPI, main branch at Makati
City. On June 17, 1991, private respondent's wife deposited the
CHECK with RCBC, in Puerto Princesa, Palawan. BPI dishonored
the CHECK with the annotation, that the "Check (is) Subject of an
Investigation." BPI took custody of the CHECK pending an
investigation of several counterfeit checks drawn against CIFC's
aforestated checking account. BPI used the check to trace the
perpetrators of the forgery. Immediately, private respondent notified
CIFC of the dishonored CHECK and demanded, on several
occasions, that he be paid in cash. CIFC refused the request, and
instead instructed private respondent to wait for its ongoing bank
reconciliation with BPI.

ISSUE:

Whether or not there was valid tender of payment in the instant

case?

DECISION:

A check is not a legal tender, and therefore cannot constitute

valid tender of payment. "Since a negotiable instrument is only a
substitute for money and not money, the delivery of such an
instrument does not, by itself, operate as payment. A check, whether
a manager's check or ordinary check, is not legal tender, and an
offer of a check in payment of a debt is not a valid tender of payment
and may be refused receipt by the obligee or creditor. Mere delivery
of checks does not discharge the obligation under a judgment. The
obligation is not extinguished and remains suspended until the
payment by commercial document is actually realized

The delivery of promissory notes payable to order, or bills of

exchange or other mercantile documents shall produce the effect of
payment only when they have been cashed, or when through the
fault of the creditor they have been impaired.
140 | P a g e 140

CLARA TAMBUNTING DE LEGARDA, ET AL., VS. VICTORIA

DESBARATS MIAILHE
GR NO. L-3435
BAUTISTA ANGELO, J.:

FACTS:

On June 3, 1944, plaintiffs filed a complaint against the

original defendant William J.B. Burke, alleging defendant’s
unjustified refusal to accept payment in discharge of a mortgage
indebtedness in his favor, and praying that the latter be order (1) to
receive the sum of P75,920.83; (2) to execute the corresponding
deed of release of mortgage, and; (3) to pay damages in the sum of
P1,000. The Court then decided in favor of plaintiff Legarda. After
the war and the subsequent defeat of the Japanese occupants,
defendant filed a case in court claiming that plaintiff Clara de
Legarda violated her agreement with defendant, by forcing to
deposit worthless Japanese military notes when they originally
agreed that the interest was to be condoned until after the
occupation and that payment was rendered either in Philippine or
English currency. Defendant was later substituted upon death by his
heir Miailhe and the Courts judged in defendant’s favor. Plaintiff now
assails said decision.

ISSUE:

Is the tender of payment by plaintiff valid?

DECISION:

On February 17, 1943, the only currency available was the

Philippine currency, or the Japanese Military notes, because all
other currencies, including the English, were outlawed by a
proclamation issued by the Japanese Imperial Commander on
January 3, 1942. The right to election ceased to exist on the date of
plaintiff’s payment because it had become legally impossible. And
this is so because in alternative obligations there is no right to
choose undertakings that are impossible or illegal. In other words,
the obligation on the part of the debtor to pay the mortgage
indebtedness has since then ceased to be alternative. It appears
therefore, that the tender of payment in Japanese Military notes was
a valid tender because it was the only currency permissible at the
time and its payment was tantamount to payment in Philippine
currency.

However, payment with the clerk of court did not have any
legal effect because it was made in certified check, and a check does
not meet the requirements of legal tender. Therefore, her
consignation did not have the effect of relieving her from her
obligation of the defendant.
141 | P a g e 141

SPS. TEOFILO AND SIMEONA RAYOS VS. DONATO REYES

G.R.No. 150193
BRLLOSILLO, J.:

FACTS:

Three parcels were formerly owned by the spouses Francisco

and Asuncion Tazal who on 1 September 1957 sold them for
P724.00 to respondents’ predecessor-in-interest, one Mamerto
Reyes, with right to repurchase within two (2) years from date thereof
by paying to the vendee the purchase price and all expenses
incident to their reconveyance. After the sale the vendee a retro took
physical possession of the properties and paid the taxes thereon.

The otherwise inconsequential sale became controversial

when two (2) of the three (3) parcels were again sold on 24
December 1958 by Francisco Tazal for P420.00 in favor of
petitioners’ predecessor-in-interest Blas Rayos without first availing
of his right to repurchase the properties.

ISSUE:

Was there a valid consignation and tender of payment made

in the instant case?

DECISION:

In order that consignation may be effective the debtor must

show that (a) there was a debt due; (b) the consignation of the
obligation had been made because the creditor to whom a valid
tender of payment was made refused to accept it; (c) previous notice
of the consignation had been given to the person interested in the
performance of the obligation; (d) the amount due was placed at the
disposal of the court; and, (e) after the consignation had been made
the person interested was notified thereof.

In the instant case, petitioners failed, first, to offer a valid and

unconditional tender of payment; second, to notify respondents of
the intention to deposit the amount with the court; and third, to show
the acceptance by the creditor of the amount deposited as full
settlement of the obligation, or in the alternative, a declaration by the
court of the validity of the consignation. The failure of petitioners to
comply with any of these requirements rendered the consignation
ineffective.

Consignation and tender of payment must not be encumbered

by conditions if they are to produce the intended result of fulfilling the
obligation. In the instant case, the tender of payment of P724.00 was
conditional and void as it was predicated upon the argument of
Francisco Tazal that he was paying a debt which he could do at any
time allegedly because the 1 September 1957 transaction was a
contract of equitable mortgage and not a deed of sale with right to
repurchase
142 | P a g e 142

STATE INVESTMENT HOUSE INC. VS. COURT OF APPEALS

G.R. NO. 90676
BELLOSILLO, J.:

FACTS:

Respondent spouses Rafael and Refugio Aquino pledged

certain shares of stock to petitioner State Investment House Inc. in
order to secure a loan of P120, 000.00. Prior to the execution of the
pledge, respondent spouses Jose and Marcelina Aquino signed an
agreement with Petitioner for the latter’s purchase of receivables
amounting to P375, 000.00. When the 1st Account fell due,
respondent spouses paid the same partly with their own funds and
partly from the proceeds of another loan which they obtained also
from Petitioner designated as the 2nd Account. This new loan was
secured by the same pledge agreement executed in relation to the
1st Account. When the new loan matured, State demanded
payment. Respondents expressed willingness to pay, requesting
that upon payment, the shares of stock pledged be released. State
denied the request on the ground that the loan which it had extended
to the spouses Jose and Marcelina Aquino has remained unpaid.

On 29, June 1984, Atty. Rolando Salonga sent to respondent

spouses a Notice of Notarial Sale stating that upon request of State
and by virtue of the pledge agreement, he would sell at public
auction the shares of stock pledged to State. This prompted
respondents to file a case before the Regional Trial Court of Quezon
City alleging that the intended foreclosure sale was illegal because
from the time the obligation under the 2nd Account became due,
they had been able and willing to pay the same, but petitioner had
insisted that respondents pay even the loan account of Jose and
Marcelino Aquino, which had not been secured by the pledge. It was
further alleged that their failure to pay their loan was excused
because State itself had prevented the satisfaction of the obligation.

On January 29, 1985, the trial court rendered a decision in

favor of the plaintiff ordering State to immediately release the pledge
and to deliver to respondents the share of stock upon payment of
the loan. The Court of Appeals affirmed in toto the decision of the
trial court.

ISSUES:

Whether or not the conditions to be complied with by the debtor

desirous of being released from his obligation in cases where the
creditor unjustly refuses to accept payment have been met by the
spouses Aquino.

DECISION:

The conditions had not been complied with. Article 1256 of the
civil code states that: “If the creditor to whom tender of payment has
been made refuses without just cause to accept it, the debtor shall
143 | P a g e 143

be released from responsibility by consignation of the thing or sum

due.” Where the creditor unjustly refuses to accept payment, the
debtor desirous of being released from his obligation must comply
with two (2) conditions: (a) tender of payment; and (b) consignation
of the sum due. Tender of payment must be accompanied or
followed by consignation in order that the effects of payment may be
produced. In the instant case, respondent spouses Aquino, while
they are properly regarded as having made a written tender of
payment to petitioner state, failed to consign in court the amount due
at the time of the maturity of the 2nd Account No. It follows that their
obligation to pay principal-cum-regular or monetary interest under
the terms and conditions of the said Account was not extinguished
by such tender of payment alone.
144 | P a g e 144

SPOUSES JAIME BENOS VS. SPOUSES GREGORIO

LAWILAO
G.R. NO. 172259
YNARES-SANTIAGO, J.:

FACTS:

On February 11,1999, petitioner-spouses Benos and

respondent Lawilao executed a Pacto de Retro Sale where
Benos sold their lot and the building erected thereon for
P300,000, one-half of which to be paid in cash to the Benos
and the other half to be paid to the bank to pay off the loans of
the Benos which was secured by the same lot and building.
Under the contract, Benos could redeem the property within
18 months from the date of execution by returning the contract
price, otherwise, the sale would become irrevocable. After
paying the P150,000, Lawilao took possession of the property,
restructured it twicw, eventually the loan become due and
demandable. On August 14, 2000, a son of Benos and Lawilao
paid the bankl but the bank refused. Lawilao filed for
consignation against the bank and deposited the amount of
P159,000.00. RTC declared Lawilao of the ownership of the
subject property, which was affirmed by the Court of Appeals.

ISSUE:

Whether or not the contract of Pacto de Retro Sale be

rescinded by the petitioner

DECISION:

In the instant case, records show that Lawilao filed the

petition for consignation against the bank in Civil Case without
notifying the Benos. Hence, Lawilao failed to prove their offer
to pay the balance, even before the filing of the consignation
case. Lawilao never notified the Benos. Thus, as far as the
Benos are concerned, there was no full and complete payment
of the contract price which gives them the right to rescind.
Petition is granted. Court of Appeals decision is reversed
and set aside, that the Pacto de Retro Sale is rescinded and
petitioner are ordered to return the amount of P150,000 to
respondents.
145 | P a g e 145

BAYNE ADJUSTERS AND SURVEYORS, INC., vs. COURT OF

APPEALS and INSURANCE COMPANY OF NORTH AMERICA,
GR No. 116332
GONZAGA-REYES, J.:

FACTS:

In May 1987 Colgate Palmolive Philippine, Inc., imported alkyl

benzene from Japan valued at US$255,802.88. The said liquid
cargo was insured with herein private respondent Insurance
Company of North America against all risk for its full value. Petitioner
Bayne Adjusters and Surveyors Inc., was contracted by the
consignee to supervise the proper handling and discharge of the
cargo from the chemical tanker to a receiving barge until the cargo
is pumped into the consignee’s shore tank. When the cargo arrived
in Manila petitioner’s surveyor supervised the transfer of the cargo
from the chemical tanker to the receiving barge. Pumping operation
from the barge to the consignee’s shore tank commenced at 2020
hours of June 27, 1987. Pumping of the liquid cargo from the barge
to the consignee’s tank was interrupted several times due to
mechanical problems with the pump. When the pump broke down
once again at about 1300 hours of June 29, 1987, the petitioner’s
surveyor left the premises without leaving any instruction with the
barge foreman what to do in the event that the pump becomes
operational again. Petitioner sent Amado Fontillas, a cargo surveyor,
not a liquid bulk surveyor, to the premises and it was agreed that
pumping operation would resume the following day at 1030 hours.
Fontillas tried to inform both the barge men and the assigned
surveyor of the scheduled resumption of pumping operation but he
could not find them so he left the premises. When the barge men
arrived in the early evening, they found the valves of the tank open
and resumed pumping operation in the absence of any instruction
from the surveyor to the contrary. The following morning it was found
that an undetermined amount of alkyl benzene was lost due to
overflow.

The consignee filed a claim with the private respondent

insurance corporation for the value of the lost liquid cargo.

Both the trial court and the appellate court found the
petitioner’s failure to comply with the Standard Operating Procedure
for Handling Liquid Bulk Cargo when pumping operation is
suspended as the proximate cause of the loss.

ISSUE:

Whether petitioner is liable for the damages incurred arising

from culpa contractual.
146 | P a g e 146

DECISION:

The negligence of the obligor in the performance of the

obligation renders him liable for damages for the resulting loss
suffered by the obligee. Fault or negligence of the obligor consists in
his failure to exercise due care and prudence in the performance of
the obligation as the nature of the obligation so demands. The
factual findings and conclusions of the trial and appellate court when
supported by substantial evidence are entitled to great respect and
will not be disturbed on appeal except on very strong and cogent
grounds. Both parties agree that the petitioner is bound to supervise
the proper discharge of the liquid cargo from the chemical tanker to
the receiving barge and from the latter to the consignee’s shore tank.

It is clear that under the standard procedure the surveyor is

required to seal all cargo compartment manhole covers and the
barge and manifold covers to avoid unsupervised discharge of the
liquid cargo and to avert loss or contamination thereof. The
petitioner’s failure to closely supervise the discharge of the cargo in
accordance with accepted guidelines is the proximate cause of the
loss. We find no cogent reason to overturn the legal conclusion
reached by the lower courts that the petitioner is negligent in the
performance of its duty as a marine superintendent surveyor under
the Standard Operating Procedure in handling liquid cargo and held
the petitioner liable for damages for the loss of the cargo.
147 | P a g e 147

YHT REALTY CORPORATION VS. COURT OF APPEALS

GR. NO. 126780
TINGA, J.:

FACTS:

McLoughlin arrived from Australia and registered with

Tropicana. He rented a safety deposit box as it was his practice to
rent a safety deposit box every time he registered at Tropicana in
previous trips. As a tourist, McLoughlin was aware of the procedure
observed by Tropicana relative to its safety deposit boxes. The
safety deposit box could only be opened through the use of two keys,
one of which is given to the registered guest, and the other remaining
in the possession of the management of the hotel. When a
registered guest wished to open his safety deposit box, he alone
could personally request the management who then would assign
one of its employees to accompany the guest and assist him in
opening the safety deposit box with the two keys.

However, when he returned coming from a trip, he noticed that

his money in the envelope was lacking and that the jewelries were
gone.

ISSUE:

Whether petitioner is liable for the loss of the personal

properties of respondent.

DECISION:

Under Article 1170 of the New Civil Code, those who, in the
performance of their obligations, are guilty of negligence, are liable
for damages. Article 2180 provides that the owners and managers
of an establishment or enterprise are likewise responsible for
damages caused by their employees in the service of the branches
in which the latter are employed or on the occasion of their functions.
Also, this Court has ruled that if an employee is found negligent, it is
presumed that the employer was negligent in selecting and/or
supervising him for it is hard for the victim to prove the negligence of
such employer. Thus, given the fact that the loss of McLoughlin’s
money was consummated through the negligence of Tropicana’s
employees in allowing Tan to open the safety deposit box without
the guest’s consent, both the assisting employees and YHT Realty
Corporation itself, as owner and operator of Tropicana, should be
held solidarily liable.

Art. 2003. The hotel-keeper cannot free himself from

responsibility by posting notices to the effect that he is not liable for
the articles brought by the guest. Any stipulation between the hotel-
keeper and the guest whereby the responsibility of the former as
set forth in Articles 1998 to 2001 is suppressed or diminished shall
be void.
148 | P a g e 148

The hotel business like the common carrier’s business is

imbued with public interest. The twin duty constitutes the essence of
the business. The law in turn does not allow such duty to the public
to be negated or diluted by any contrary stipulation in so-called
“undertakings” that ordinarily appear in prepared forms imposed by
hotel keepers on guests for their signature.

In the case at bar, the responsibility of securing the safety

deposit box was shared not only by the guest himself but also by the
management since two keys are necessary to open the safety
deposit box. Without the assistance of hotel employees, the loss
would not have occurred.

Thus, Tropicana was guilty of concurrent negligence in

allowing Tan, who was not the registered guest, to open the safety
deposit box of McLoughlin, even assuming that the latter was also
guilty of negligence in allowing another person to use his key. To
rule otherwise would result in undermining the safety of the safety
deposit boxes in hotels for the management will be given imprimatur
to allow any person, under the pretense of being a family member or
a visitor of the guest, to have access to the safety deposit box
without fear of any liability that will attach thereafter in case such
person turns out to be a complete stranger. This will allow the hotel
to evade responsibility for any liability incurred by its employees in
conspiracy with the guest’s relatives and visitors.
149 | P a g e 149

PHILIPPINE NATIONAL CONSTRUCTION CORPORATION VS.

COURT OF APPEALS, MA. TERESA S. RAYMUNDO-ABARRA
ET AL.
G.R.No. 118696
DAVIDE, JR., J.:

FACTS:

On 7 January 1986, petitioner obtained from the Ministry of

Human Settlements a Temporary Use Permit 2 for the proposed rock
crushing project. The permit was to be valid for two years unless
sooner revoked by the Ministry. On 16 January 1986, private
respondents wrote petitioner requesting payment of the first annual
rental in the amount of P240,000 which was due and payable upon
the execution of the contract.

They also assured the latter that they had already stopped
considering the proposals of other aggregates plants to lease the
property because of the existing contract with petitioner. In its reply-
letter, petitioner argued that under paragraph 1 of the lease contract,
payment of rental would commence on the date of the issuance of
an industrial clearance by the Ministry of Human Settlements, and
not from the date of signing of the contract. It then expressed its
intention to terminate the contract, as it had decided to cancel or
discontinue with the rock crushing project "due to financial, as well
as technical, difficulties." Private respondents refused to accede to
petitioner's request for the pretermination of the lease contract. They
insisted on the performance of petitioner's obligation and reiterated
their demand for the payment of the first annual rental.

ISSUE:

Whether provisions of Article 1266 and the principle of rebus

sic stantibus is applicable in the case at bar?

DECISION:

Article 1266 of the Civil Code, which reads: "The debtor in

obligations to do shall also be released when the prestation
becomes legally or physically impossible without the fault of the
obligor." Petitioner cannot, however, successfully take refuge in the
said article, since it is applicable only to obligations "to do," and not
to obligations "to give." An obligation "to do" includes all kinds of
work or service; while an obligation "to give" is a prestation which
consists in the delivery of a movable or an immovable thing in order
to create a real right, or for the use of the recipient, or for its simple
possession, or in order to return it to its owner.

The obligation to pay rentals or deliver the thing in a contract

oflease falls within the prestation "to give"; hence, it is not covered
within the scope of Article 1266. At any rate, the unforeseen event
and causes mentioned by petitioner are not the legal or physical
impossibilities contemplated in the said article. Besides, petitioner
150 | P a g e 150

failed to state specifically the circumstances brought about by "the

abrupt change in the political climate in the country" except the
alleged prevailing uncertainties in government policies on
infrastructure projects. The principle of rebus sic stantibus neither
fits in with the facts of the case. Under this theory, the parties
stipulate in the light of certain prevailing conditions, and once these
conditions cease to exist, the contract also ceases to exist.
151 | P a g e 151

JESUS OCCENA and EFIGENIA OCCENA COURT OF

APPEALS
G.R.No. 44349
TEEHANKEE, J.:

FACTS:

On February 25, 1975 private respondent Tropical Homes, Inc.

filed a complaint for modification of the terms and conditions of its
subdivision contract with petitioners (landowners of a 55,330 square
meter parcel of land in Davao City), making the following allegations:
"That due to the increase in price of oil and its derivatives and
the concomitant worldwide spiralling of prices, which are not within
the control of plaintiff, of all commodities including basis raw
materials required for such development work, the cost of
development has risen to levels which are unanticipated,
unimagined and not within the remotest contemplation of the parties
at the time said agreement was entered into and to such a degree
that the conditions and factors which formed the original basis of said
contract, Annex 'A', have been totally changed;
"That further performance by the plaintiff under the contract,
Annex 'A', will result in situation where defendants would be unjustly
enriched at the expense of the plaintiff; will cause an inequitous
distribution of proceeds from the sales of subdivided lots in manifest
contravention of the original essence of the agreement; and will
actually result in the unjust and intolerable exposure of plaintiff to
implacable losses.

ISSUE:

Whether or not provisions of art 1267 of the new civil code is

applicable in the case at a bar?

DECISION:

ART. 1267. When the service has become so difficult as to be

manifestly beyond the contemplation of the parties, the obligor may
also be released therefrom, in whole or in part."

Respondent's complaint seeks not release from the

subdivision contract but that the court "render judgment modifying
the terms and conditions of the contract . . . by fixing the proper
shares that should pertain to the herein parties out of the gross
proceeds from the sales of subdivided lots of subject subdivision".
The cited article does not grant the courts this authority to remake,
modify or revise the contract or to fix the division of shares between
the parties as contractually stipulated with the force of law between
the parties, so as to substitute its own terms for those covenanted
by the parties themselves. Respondent's complaints for modification
of contract manifestly has no basis in law and therefore states no
cause of action. Under the particular allegations of respondent's
complaint and the circumstances therein averred, the courts cannot
even in equity grant the relief sought.
152 | P a g e 152

NAGA TELEPHONE CO., INC. AND LUCIANO vs. COURT OF

APPEALS
G.R.No. 107112
NOCON, J.:
FACTS:
Petitioner Naga Telephone Co., Inc. (NATELCO) is a
telephone company rendering local as well as long distance service
in Naga City while private respondent Camarines Sur II Electric
Cooperative, Inc. (CASURECO II) is a private corporation
established for the purpose of operating an electric power service in
the same city. On November 1, 1977, the parties entered into a
contract (Exh. "A") for the use by petitioners in the operation of its
telephone service the electric light posts of private respondent in
Naga City. In consideration therefor, petitioners agreed to install,
free of charge, ten (10) telephone connections for the use by private
respondent
After the contract had been enforced for over ten (10) years,
private respondent filed on January 2, 1989 with the Regional Trial
Court of Naga City (Br. 28) C.C. No. 89-1642 against petitioners for
reformation of the contract with damages, on the ground that it is too
one-sided in favor of petitioners; that it is not in conformity with the
guidelines of the National Electrification Administration (NEA) which
direct that the reasonable compensation for the use of the posts is
P10.00 per post, per month; that after eleven (11) years of
petitioners' use of the posts, the telephone cables strung by them
thereon have become much heavier with the increase in the volume
of their subscribers, worsened by the fact that their linemen bore
holes through the posts at which points those posts were broken
during typhoons.
ISSUE:
Whether respondent court erred in making a contract for the
parties by invoking Article 1267 of the New Civil Code.
DECISION:
Article 1267 speaks of "service" which has become so difficult.
Taking into consideration the rationale behind this provision, 9 the
term "service" should be understood as referring to the
"performance" of the obligation. In the present case, the obligation
of private respondent consists in allowing petitioners to use its posts
in Naga City, which is the service contemplated in said article.
Furthermore, a bare reading of this article reveals that it is not a
requirement thereunder that the contract be for future service with
future unusual change. According to Senator Arturo M. Tolentino, 10
Article 1267 states in our law the doctrine of unforseen events. This
is said to be based on the discredited theory of rebus sic stantibus
in public international law; under this theory, the parties stipulate in
the light of certain prevailing conditions, and once these conditions
cease to exist the contract also ceases to exist. Considering practical
needs and the demands of equity and good faith, the disappearance
of the basis of a contract gives rise to a right to relief in favor of the
party prejudiced.
153 | P a g e 153

LEONIDES LOPEZ LISO VS. MANUEL TAMBUNTING

G.R.No. L-9806
ARAULLO, J.:

FACTS:

These proceedings were brought to recover from the

defendant the sum of P2,000, amount of the fees, which, according
to the complaint, are owing for professional medical services
rendered by the plaintiff to a daughter of the defendant from March
10 to July 15, 1913, which fees the defendant refused to pay,
notwithstanding the demands therefor made upon him by the
plaintiff.

The defendant denied the allegations of the complaint, and

furthermore alleged that the obligation which the plaintiff endeavored
to compel him to fulfill was already extinguished.

ISSUE:

Whether or not implied condonation can be legally presumed

in the instant case?

DECISION:

It is true that number 8 of section 334 of the Code of Civil

Procedure provides as a legal presumption "that an obligation
delivered up to the debtor has been paid." Article 1188 of the Civil
Code also provides that the voluntary surrender by a creditor to his
debtor, of a private instrument proving a credit, implies the
renunciation of the right of action against the debtor; and article 1189
prescribes that whenever the private instrument which evidences the
debt is in the possession of the debtor, it will be presumed that the
creditor delivered it of his own free will, unless the contrary is proven.

But the legal presumption established by the foregoing

provisions of law cannot stand if sufficient proof is adduced against
it. In the case at bar the trial court correctly held that there was
sufficient evidence to the contrary, in view of the preponderance
thereof in favor of the plaintiff and of the circumstances connected
with the defendant's possession of said receipt Exhibit 1.
Furthermore, in order that such a presumption may be taken into
account, it is necessary, as stated in the laws cited, that the evidence
of the obligation be delivered up to the debtor and that the delivery
of the instrument proving the credit be made voluntarily by the
creditor to the debtor. In the present case, it cannot be said that
these circumstances concurred, inasmuch as when the plaintiff sent
the receipt to the defendant for the purpose of collecting his fee, it
was not his intention that that document should remain in the
possession of the defendant if the latter did not forthwith pay the
amount specified therein.
154 | P a g e 154

RUBEN REYNA VS. COMMISION ON AUDIT

G.R. NO. 167219
PERALTA, J:

FACTS:

The Land Bank of the Philippines (Land Bank) was engaged

in a cattle-financing program wherein loans were granted to various
cooperatives. Pursuant thereto, Land Bank's Ipil, Zamboanga del
Sur Branch (Ipil Branch) went into a massive information campaign
offering the program to cooperatives.Cooperatives who wish to avail
of a loan under the program must fill up a Credit Facility Proposal
(CFP) which will be reviewed by the Ipil Branch. The Ipil Branch
approved the applications of four cooperatives.One of the conditions
stipulated in the CFP is that prior to the release of the loan, a
Memorandum of Agreement (MOA) between the supplier of the
cattle, Remad Livestock Corporation (REMAD), and the cooperative,
shall have been signed. As alleged by petitioners, the terms of the
CFP allowed for pre-payments or advancement of the payments
prior to the delivery of the cattle by the supplier REMAD but such
was not stipulated in the contracts.

Three checks were issued by the Ipil Branch to REMAD to

serve as advanced payment for the cattle. REMAD, however, failed
to supply the cattle on the dates agreed upon.
In post audit, the Land Bank Auditor disallowed the amount of
P3,115,000.00 under CSB No. 95-005 dated December 27, 1996
and Notices of Disallowance Nos. 96-014 to 96-019 in view of the
non-delivery of the cattle. Also made as the basis of the disallowance
was the fact that advanced payment was made in violation of bank
policies and COA rules and regulations.
Petitioners were made liable for the amount

ISSUE:

Whether or not the writing off of a loan is considered as

condonation.

DECISION:

This Court rules that writing-off a loan does not equate to a

condonation or release of a debt by the creditor. As an accounting
strategy, the use of write-off is a task that can help a company
maintain a more accurate inventory of the worth of its current assets.
In general banking practice, the write-off method is used when an
account is determined to be uncollectible and an uncollectible
expense is recorded in the books of account. If in the future, the debt
appears to be collectible, as when the debtor becomes solvent, then
the books will be adjusted to reflect the amount to be collected as an
asset. In turn, income will be credited by the same amount of
increase in the accounts receivable.

Write-off is not one of the legal grounds for extinguishing an

155 | P a g e 155

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.
156 | P a g e 156

TRANS-PACIFIC INDUSTRIAL SUPPLIES, INC., VS. COURT OF

APPEALS
G.R.NO. 109172
BIDIN, J.:

FACTS:

Sometime in 1979, petitioner applied for and was granted

several financial accommodations amounting to P1,300,000.00 by
respondent Associated Bank. The loans were evidence and secured
by four (4) promissory notes, a real estate mortgage covering three
parcels of land and a chattel mortgage over petitioner's stock and
inventories.
Unable to settle its obligation in full, petitioner requested for, and was
granted by respondent bank, a restructuring of the remaining
indebtedness which then amounted to P1,057,500.00, as all the
previous payments made were applied to penalties and interests.

The mortgaged parcels of land were substituted by another

mortgage covering two other parcels of land and a chattel mortgage
on petitioner's stock inventory. The released parcels of land were
then sold and the proceeds amounting to P1,386,614.20, according
to petitioner, were turned over to the bank and applied to Trans-
Pacific's restructured loan. Subsequently, respondent bank returned
the duplicate original copies of the three promissory notes to Trans-
Pacific with the word "PAID" stamped thereon. Despite the return of
the notes, or on December 12, 1985, Associated Bank demanded
from Trans-Pacific payment of the amount of P492,100.00
representing accrued interest on PN No. TL-9077-82. According to
the bank, the promissory notes were erroneously released.

ISSUE :

Whether or not petitioner has indeed paid in full its obligation

to respondent bank.

DECISION:

Art. 1271. The delivery of a private document evidencing a

credit, made voluntarily by the creditor to the debtor, implies the
renunciation of the action which the former had against the latter."

The surrender and return to plaintiffs of the promissory notes

evidencing the consolidated obligation as restructured, produces a
legal presumption that Associated had thereby renounced its
actionable claim against plaintiffs (Art. 1271, NCC). The
presumption is fortified by a showing that said promissory notes all
bear the stamp "PAID", and has not been otherwise overcome. Upon
a clear perception that Associated's record keeping has been less
than exemplary . . . , a proffer of bank copies of the promissory notes
without the "PAID" stamps thereon does not impress the Court as
sufficient to overcome presumed remission of the obligation vis-a-
vis the return of said promissory notes. Indeed, applicable law is
157 | P a g e 157

supportive of a finding that in interest bearing obligations-as is the

case here, payment of principal (sic) shall not be deemed to have
been made until the interests have been covered (Art. 1253, NCC).
Conversely, competent showing that the principal has been paid,
militates against postured entitlement to unpaid interests.
158 | P a g e 158

CONCHITA LIGUEZ VS. COURT OF APPEALS

G.R. No. L-11240
REYES, J.B.L., J.:

FACTS:

Liguez filed a complaint against the widow and heirs of the late
Salvador P. Lopez to recover a parcel of 51.84 hectares of land.
Plaintiff averred to be its legal owner, pursuant to a deed of donation
of said land, executed in her favor by the late owner, Salvador P.
Lopez. The defense interposed that the donation was null and void
for having an illicit cause or consideration, which was plaintiff's
entering into marital relations with Salvador P. Lopez, a married
man; and that the property had been adjudicated to the appellees as
heirs of Lopez by the court.The Court of Appeals held that the deed
of donation was inoperative, and null and void (1) because the
husband, Lopez, had no right to donate conjugal property to the
plaintiff appellant; and (2) because the donation was tainted with
illegal causa or consideration (illicit sexual relation), of which donor
and donee were participants.
Appellant vigorously contends that the Court of First Instance
as well as the Court of Appeals erred in holding the donation void for
having an illicit cause or consideration. It is argued that under Article
1274 of the Civil Code of 1889 (which was the governing law in 1943,
when the donation was executed), "in contracts of pure beneficence
the consideration is the liberality of the donor", and that liberality per
se can never be illegal, since it is neither against law or morals or
public policy.

ISSUE:

Whether or not the deed of donation made by Lopez in favor

of Liguez was valid.

DECISION:

Under Article 1274, liberality of the donor is deemed causa

only in those contracts that are of "pure" beneficence; that is to say,
contracts designed solely and exclusively to procure the welfare of
the beneficiary, without any intent of producing any satisfaction for
the donor; contracts, in other words, in which the idea of self-interest
is totally absent on the part of the transferor.

Here the fact that the late Salvador P. Lopez was not moved
exclusively by the desire to benefit appellant Conchita Liguez, but
also to secure her cohabiting with him, so that he could gratify his
sexual impulses. This is clear from the confession of Lopez to the
witnesses Rodriguez and Ragay that he was in love with appellant,
but her parents would not agree unless he donated the land in
question to her. Actually, therefore, the donation was but one part
of an onerous transaction (at least with appellant's parents) that
must be viewed in its totality. Thus considered, the conveyance was
clearly predicated upon an illicit causa.
159 | P a g e 159

Appellant seeks to differentiate between the alleged liberality

of Lopez, as causa for the donation in her favor, and his desire for
cohabiting with appellant, as motives that impelled him to make the
donation, and quotes from Manresa and the jurisprudence of this
Court on the distinction that must be maintained between causa and
motives. It is well to note, however, that Manresa himself, while
maintaining the distinction and upholding the inoperativeness of the
motives of the parties to determine the validity of the contract,
expressly excepts from the rule those contracts that are conditioned
upon the attainment of the motives of either party.

Appellees, as successors of the late donor, being thus

precluded from pleading the defense of immorality or illegal causa
of the donation, the total or partial ineffectiveness of the same must
be decided by different legal principles. In this regard, the Court of
Appeals correctly held that Lopez could not donate the entirety of
the property in litigation, to the prejudice of his wife Maria Ngo,
because said property was conjugal in character, and the right of the
husband to donate community property is strictly limited by law.
Appellant Conchita Liguez was declared by the Supreme
Court entitled to so much of the donated property as may be found,
upon proper liquidation, not to prejudice the share of the widow
Maria Ngo in the conjugal partnership with Salvador P. Lopez or the
legitimes of the forced heirs of the latter.
160 | P a g e 160

UNITED PLANTERS MILLING CO. VS. COURT OF APPEALS

GR No. 126890
TINGA, J.:
FACTS:

In 1987, the Republic of the Philippines lost around 1.5 Billion Pesos
after it had waived its right to collect on an outstanding indebtedness
from petitioner, by virtue of a so-called “friendly foreclosure
agreement” that ultimately was friendly only to petitioner.

Petitioner United Planters Sugar Milling Co. (UPSUMCO) was

engaged in the business of milling sugar. In 1974, as UPSUMCO
commenced operations, it obtained a set of loans from respondent
Philippine National Bank (PNB). The loans were secured
over two parcels of land where the milling plant stood and chattel
mortgages over the machineries and equipment.

On 27 February 1987, through a Deed of Transfer, PNB

assigned to the Government its “rights, titles and interests” over
UPSUMCO, among several other assets.[6] The Deed of Transfer
acknowledged that said assignment was being undertaken “in
compliance with Presidential Proclamation No. 50.” The
Government subsequently transferred these “rights, titles and
interests” over UPSUMCO to the respondent Asset and Privatization
Trust (APT).

ISSUE:

Whether or not there was compensation in the present case.

DECISION:

The right of PNB to set-off payments from UPSUMCO arose

out of conventional compensation rather than legal compensation,
even though all of the requisites for legal compensation were present
as between those two parties. The determinative factor is the mutual
agreement between PNB and UPSUMCO to set-off payments. Even
without an express agreement stipulating compensation, PNB and
UPSUMCO would have been entitled to set-off of payments, as the
legal requisites for compensation under Article 1279 were present.

As soon as PNB assigned its credit to APT, the mutual

creditor-debtor relation between PNB and UPSUMCO ceased to
exist. However, PNB and UPSUMCO had agreed to a conventional
compensation, a relationship which does not require the presence
of all the requisites under Article 1279. And PNB too had assigned
all its rights as creditor to APT, including its rights under conventional
compensation. The absence of the mutual creditor-debtor relation
between the new creditor APT and UPSUMCO cannot negate the
conventional compensation. Accordingly, APT, as the assignee of
credit of PNB, had the right to set-off the outstanding obligations of
UPSUMCO on the basis of conventional compensation before the
condonation took effect on 3 September 1987.
161 | P a g e 161

RODRIGO ENRIQUEZ ET. AL. VS. SOCCORO RAMOS

G.R. NO. 40908
BUTTE, J.:

FACTS:

On November 24, 1958 Enriquez and spouses Dizon sold to

Ramos 20 subdivision lots in Quezon City for the sum of P235,056
of which only P35,056 had been paid. The balance of P200,000 was
to be liquidated within 2 years from the date of the execution of the
deed of sale, with interest at 6% for the 1st year and 12% thereafter
until fully paid. To secure the payment of that balance, Ramos
executed in the same document a deed of mortgage in favor of the
vendors on several parcels of land variously situated in Quezon City,
Pampanga and Bulacan. The deed of mortgage embodies certain
stipulations which Ramos invoked. But according to the appellants
the defendant violated the terms of their agreement in the following
respects:

The defendant refuse to pay the sum of P200,000 within the

stipulated period. The mortgage on Bulacan property was never
registered and, the realty tax for 1959 on the lots mortgage were not
paid by the defendant. Ramos admit that she has not paid the realty
taxes and has not registered the mortgage on Bulacan property but
argues that it was a minor ones and still her obligation to pay the
sum of P200,000 has not arisen as no previous notice and demand
for payment has been made and according to her the road is not
completed because the appellants have not yet planted trees nor put
up water facilities as required by the ordinance.

The court held that the non-payment of 1959 realty taxes as

well as the non-registration of the mortgaged on Bulacan estate by
the defendant were minor matters. On the issue of the completion of
road the appellant adduced the testimonies of 2 witnesses that the
road was completed on May 9, 1960 in accordance with the
ordinances of Quezon City and there is nothing in Ordinance 2969
which would indicate that a street may be considered completed with
water facilities are built on the subdivision and these activities are
definitely segregable. As to be alleged lack of previous notice
completion and demand for payment, the filling of the case is
sufficient notice to the defendant of the completion of the roads in
question and of the appellee’s desire to be paid the purchase price
of the questioned lots.

ISSUE:

Whether or not confusion or merger of rights took place when

a creditor bought the mortgaged land of his debtor, in effect
extinguishing the debt.

DECISION:
162 | P a g e 162

The trial court held that when the plaintiffs acquired through
Francisco Paulino the equity of Fructuosa Cadiz in the very same
lands conveyed to them as mortgagees, a merger of rights took
place which had the effect of extinguishing the debt of Fructuosa
Cadiz in favor of the plaintiffs, under the provisions of articles 1156
and 1159 of the Civil Code. If that were not true, the plaintiffs would
acquire the legal and equitable title to lands assessed at P28,150 for
the sum of P873.31 paid by them to Francisco Paulino without giving
Fructuosa Cadiz or her estate credit for anything, leaving the said
estate still owing the plaintiffs the P30,000, plus interest, for which
the lands stood security. This extinction of the obligation and merger
of rights by which the plaintiffs became owners of the land, occurred
when they acquired the rights of Francisco Paulino, that is to say, on
February 9, 1931.

The intervenor’s appeal rests essentially upon the proposition

that novation of the contract of mortgage occurred when the plaintiffs
agreed that they should take possession of the land before the
maturity of the mortgage, and credit the products thereof to the
payment of the principal and interest of the debt, thus converting the
mortgage to a contract of antichresis. The evidence fails entirely to
establish said alleged agreement. The defendant administrator, the
widower of the deceased Fructuosa Cadiz, ma es no such claim.
The plaintiffs contend that they did not take possession until after
they became owners by virtue of the conveyance from Francisco
Paulino, that is to say, toward the end of the month of February,
1932, which was after the year for redemption of Francisco Paulino’s
purchase by the judgment debtor had expired.
163 | P a g e 163

ESTATE OF LAZARO MOTA ET AL. VS. SALVADOR SERRA

G.R. NO. 22825
VILLAMOR, J;

FACTS:
On February 1, 1919, plaintiffs and defendant entered into a
contract of partnership, for the construction and exploitation of a
railroad line from the "San Isidro" and "Palma" centrals to the place
known as "Nandong". The original capital stipulated was P150,000.
It was covenanted that the parties should pay this amount in equal
parts and the plaintiffs were entrusted with the administration of the
partnership.
January 29, 1920, the defendant entered into a contract of sale
with Venancio Concepcion, Phil. C. Whitaker, and Eusebio R. de
Luzuriaga, whereby he sold to the latter the estate and central known
as "Palma" with its running business, as well as all the
improvements, machineries and buildings, real and personal
properties, rights, choses in action and interests, including the sugar
plantation of the harvest year of 1920 to 1921, covering all the
property of the vendor. Before the delivery to the purchasers of the
hacienda thus sold, Eusebio R. de Luzuriaga renounced all his rights
under the contract of January 29, 1920, in favor of Messrs. Venancio
Concepcion and Phil. C. Whitaker.
Afterwards, on January 8, 1921, Venancio Concepcion and Phil. C.
Whitaker bought from the plaintiffs the one half of the railroad line
pertaining to the latter executing therefor the document. The price of
this sale was P237,722.15, excluding any amount which the
defendant might be owing to the plaintiffs.

ISSUE:
Whether or not there was confusion of the rights of the creditor
and debtor

DECISION:
The purchasers, Phil. C. Whitaker and Venancio Concepcion,
to secure the payment of the price, executed a mortgage in favor of
the plaintiffs on the same rights and titles that they had bought and
also upon what they had purchased from Mr. Salvador Serra. In
other words, Phil C. Whitaker and Venancio Concepcion mortgaged
unto the plaintiffs what they had bought from the plaintiffs and also
what they had bought from Salvador Serra. If Messrs. Phil. C.
Whitaker and Venancio Concepcion had purchased something from
Mr. Salvador Serra, the herein defendant, regarding the railroad line,
it was undoubtedly the one-half thereof pertaining to Mr. Salvador
Serra. This clearly shows that the rights and titles transferred by the
164 | P a g e 164

plaintiffs to Phil. C. Whitatker and Venancio Concepcion were only

those they had over the other half of the railroad line. Therefore, as
already stated, since there was no novation of the contract between
the plaintiffs and the defendant, as regards the obligation of the latter
to pay the former one-half of the cost of the construction of the said
railroad line, and since the plaintiffs did not include in the sale, the
credit that they had against the defendant, the allegation that the
obligation of the defendant became extinguished by the merger of
the rights of creditor and debtor by the purchase of Messrs. Phil. C.
Whitaker and Venancio Concepcion is wholly untenable.
165 | P a g e 165

TIRSO GARCIA vs. LIM CHU SING

G.R. No. L-39427
VILLA-REAL, J.:

FACTS:

Defendant is the owner of shares of stocks of the Mercantile

Bank of China amounting to P10,000. Later, the defendant borrowed
money from the Bank amounting to P9,605.17 with interest thereon
at 6% per annum. The debt was to be paid in installments as they
become due, the entire amount or the unpaid balance thereof will
become due and payable on demand. The defendant defaulted in
the payment of several installments and plaintiff brought this action
to recover the unpaid balance. The defendant pleaded
compensation.

ISSUE:

Whether or not the defendant’s debt can be compensated with

the shares of stock he owns?

DECISION:

There can be no compensation because regarding the shares

of stock, there is no relationship of debtor and creditor.

“A stockholder’s indebtedness to a banking corporation cannot

be compensated with the amount of his shares in the same
institution, there being no relation of creditor and debtor with regards
to such shares.”

“According to the weight of authority, a share of stock or

certificate is not an indebtedness to the owner nor evidence of
indebtedness, and, therefore, it is not a credit.”
166 | P a g e 166

YEK TON LIN VS. PELAGIO YUSINGCO ET AL

G.R. NO. 43608
DIAZ, J;

FACTS:

Defendant Pelagio Yusingco was the owner of the steamship

Yusingco and, as such, on November 19, 1927, he executed, a
power of attorney in favor of Yu Seguioc to administer, lease,
mortgage and sell his properties, including his vessels or steamship.
Yu Seguioc mortgaged to the plaintiff Yek Tong Lin Fire & Marine
Insurance Co., Ltd., with the approval of the Bureau of Customs, the
steamship Yusingco belonging to the defendant. One year and some
months later, the steamship Yusingco needed some repairs which
were made by the Earnshaw Docks & Honolulu Iron Works. The
repairs were made upon the guaranty of the defendant and appellant
Vicente Madrigal at a cost of P8,244.66. When neither A. Yusingco
Hermanos nor Pelagio Yusingco could pay said sum to the
Earnshaw Docks & Honolulu Iron Works, the defendant and
appellant Vicente Madrigal had to make payment thereof with the
stipulated interest thereon, which was at the rate of 9 percent per
annum, on March 9, 1932, because he was bound thereto by reason
of the bond filed by him, the payment then made by him having
amounted to P8,777.60. When said defendant discovered that he
was not to be reimbursed for the repairs made on the steamship
Yusingco, he brought an action against his codefendant Pelagio
Yusingco and A. Yusingco Hermanos to compel them to reimburse,
thereby giving rise to civil case No. 41654 of the Court of First
Instance of Manila, entitled "Vicente Madrigal, plaintiff, vs. Pelagio
Yusingco and A. Yusingco Hermanos, defendants” which resulted in
a judgment favorable to him and adverse to the Yusingcos.

ISSUE:

Whether or not obligations were extinguished by reason of the

merger of the rights of the debtor and creditor?

DECISION:

After the steamship Yusingco had been sold by virtue of the

judicial writ issued in civil case No. 41654 for the execution of the
judgment rendered in favor of Vicente Madrigal, the only right left to
the plaintiff was to collect its mortgage credit from the purchaser
thereof at public auction, inasmuch as the rule is that a mortgage
directly and immediately subjects the property on which it is
imposed, whoever its possessor may be, to the fulfillment of the
obligation for the security of which it was created (article 1876, Civil
code); but it so happens that it cannot take such steps now because
it was the purchaser of the steamship Yusingco at public auction,
and it was so with full knowledge that it had a mortgage credit on
said vessel. Obligations are extinguished by the merger of the rights
of the creditor and debtor.
167 | P a g e 167

STA. LUCIA REALTY V. SPS. BUENAVENTURA

G.R. No. 177113
YNARES-SANTIAGO, J.:

FACTS:

Respondent-spouses Francisco Segismundo and Emilia

Buenaventura, represented by Ricardo Segismundo, filed before the
Housing and Land Use Regulatory Board (HLRUB) a Complaint
against petitioner Sta. Lucia Realty & Development, Inc. for Specific
Performance, Damages and Attorney’s Fees. Respondents alleged
that they bought a lot known as Lot 3, Block 4, Phase II at
Greenwood Executive Village, Cainta, Rizal from Loida Gonzales
Alfonso. Respondents thus demanded from petitioner the rightful
possession of their lot; but to no avail. In its Answer, petitioner
averred that respondents had no cause of action against it because
it has no transaction record regarding Lot 3, Block 4, Phase II; that
the said lot actually belonged to ACL Development Corporation, its
joint-venture partner; that it was RCD Realty Corporation which
caused the subdivision of the lot and constructed separate
residential buildings thereon; that RCD Realty Corporation’s lot was
actually Lot 3, Block 4, Phase II-A; and that respondents, in bad faith
and in a retaliatory manner, erected their own house on Lot 4 which
belonged to a different owner. Petitioner suggested that to remedy
the situation, respondents, RCD Realty Corporation, and the real
owner of Lot 4, should agree to a three-way exchange of their
respective properties as it has been verified that the areas of their
lots are the same.

On September 1, 1997, petitioner filed a third-party complaint

against ACL Development Corporation and RCD Realty
Corporation. Petitioner prayed that in the event that it be adjudged
liable for any of the claims of respondents, ACL Development
Corporation and RCD Realty Corporation should be held jointly and
severally liable for said claims or an amount equivalent thereto. ACL
Development Corporation alleged that petitioner was responsible for
the issuance of all construction permits on the subdivision project;
hence, it was the one that caused the confusion among all parties.
On the other hand, RCD Realty Corporation alleged that it was a
builder in good faith. On June 16, 1998, the HLURB’s Arbiter for the
National Capital Region Field Office issued a Decision directing
respondent Sta. Lucia Realty and Development Corporation, Inc. to
cause to be vacated complainant’s lot denominated as Lot No. 3,
Block No. 4, Phase II, Greenwood Executive Village, Cainta, Rizal;
and In the alternative, the aforesaid respondent is ordered to
reimburse the complainant the current market value of the
subdivision lot which shall in no case be less than P4,500.00 per
square meter, the prevailing price in the area. On June 24, 1999, the
HLURB Board of Commissioners affirmed the Decision of the
HLURB Arbiter with modification that the market value of the subject
lot, stated in paragraph 2 of the dispositive portion, be reduced from
P4,500.00 to P3,200.00 per square meter, plus 12% interest per
annum from the time of the filing of the complaint. On July 18, 2003,
168 | P a g e 168

the Office of the President issued a Decision affirming the June 24,
1999 Decision of the HLURB Board of Commissioners.
Subsequently, it issued a Resolution dated November 28, 2003
denying petitioner’s Motion for Reconsideration. On December 21,
2006, the Court of Appeals affirmed the Decision of the Office of the
President. The appellate court found that it was petitioner who
caused the confusion in the identity of the lots by its issuance of a
construction permit to RCD Realty Corporation; that petitioner was
remiss and negligent in complying with its obligations towards its
buyers, their heirs, assignees, and/or successors-in-interest when it
failed to deliver the property described in respondents’ title. On
March 21, 2007, the Court of Appeals denied petitioner’s Motion for
Reconsideration. Hence, this Petition for Review on Certiorari.

ISSUE:

Whether or not the CA erred in affirming that the petitioner is

liable in a complaint for specific performance.

DECISION:

The Supreme Court held that the petition was without merit.
Article 1311 of the New Civil Code states that, “contracts take effect
only between the parties, their assigns and heirs, except in case
where the rights and obligations arising from the contract are not
transmissible by their nature, or by stipulation or by provision of law.”
In this case, the rights and obligations between petitioner and
Alfonso are transmissible. There was no mention of a contractual
stipulation or provision of law that makes the rights and obligations
under the original sales contract for Lot 3, Block 4, Phase II
intransmissible. Hence, Alfonso can transfer her ownership over the
said lot to respondents and petitioner is bound to honor its
corresponding obligations to the transferee or new lot owner in its
subdivision project. Having transferred all rights and obligations over
Lot 3, Block 4, Phase II to respondents, Alfonso could no longer be
considered as an indispensable party. An indispensable party is one
who has such an interest in the controversy or subject matter that a
final adjudication cannot be made in his absence, without injuring
or affecting that interest. Contrary to petitioner’s claim, Alfonso no
longer has an interest on the subject matter or the present
controversy, having already sold her rights and interests on Lot 3,
Block 4, Phase II to herein respondents. We agree with the appellate
court’s finding that petitioner was remiss and negligent in the
performance of its obligations towards its buyers, their heirs,
assignees, and/or successors-in-interest; and that it was petitioner’s
negligence which caused the confusion on the identity of the lot,
which likewise resulted to the erroneous construction done by RCD
Realty Corporation. Petitioner cannot pass the blame to RCD Realty
Corporation because it is undisputed that it issued a construction
permit for Lot 3, Block 4, Phase II – the property of respondents.
169 | P a g e 169

E.G.V. REALTY DEVELOPMENT CORP. VS. COURT OF

APPEALS
G.R. NO. 120236
KAPUNAN, J;

FACTS:

Petitioner E.G.V. Realty Development Corporation is the

owner/developer of a seven-storey condominium building known as
Cristina Condominium. Cristina Condominium Corporation holds title
to all common areas of Cristina Condominium and is in charge of
managing, maintaining and administering the condominium’s
common areas and providing for the building’s security. Respondent
Unisphere International, Inc. (hereinafter referred to as Unisphere)
is the owner/occupant of Unit 301 of said condominium. On
November 28, 1981, respondent Unisphere’s Unit 301 was allegedly
robbed of various items valued at P6,165.00. The incident was
reported to petitioner CCC. On July 25, 1982, another robbery
allegedly occurred at Unit 301 where the items carted away were
valued at P6,130.00, bringing the total value of items lost to
P12,295.00. This incident was likewise reported to petitioner CCC.
On October 5, 1982, respondent Unisphere demanded
compensation and reimbursement from petitioner CCC for the
losses incurred as a result of the robbery. On January 28, 1987,
petitioners E.G.V. Realty and CCC jointly filed a petition with the
Securities and Exchange Commission (SEC) for the collection of the
unpaid monthly dues in the amount of P13,142.67 against
respondent Unisphere.

ISSUE:

Whether or not compensation has taken place in the instant

case.

DECISION:

Compensation or offset under the New Civil Code takes place

only when two persons or entities in their own rights, are creditors
and debtors of each other. (Art. 1278).

A distinction must be made between a debt and a mere claim.

A debt is an amount actually ascertained. It is a claim which has
been formally passed upon by the courts or quasi-judicial bodies to
which it can in law be submitted and has been declared to be a debt.
A claim, on the other hand, is a debt in embryo. It is mere evidence
of a debt and must pass thru the process prescribed by law before it
develops into what is properly called a debt. Absent, however, any
such categorical admission by an obligor or final adjudication, no
compensation or off-set can take place. Unless admitted by a debtor
himself, the conclusion that he is in truth indebted to another cannot
be definitely and finally pronounced, no matter how convinced he
may be from the examination of the pertinent records of the validity
of that conclusion the indebtedness must be one that is admitted by
170 | P a g e 170

the alleged debtor or pronounced by final judgment of a competent

court or in this case by the Commission.

There can be no doubt that Unisphere is indebted to the

Corporation for its unpaid monthly dues in the amount of
P13,142.67. This is admitted.
171 | P a g e 171

ENGRACIO FRANCIA VS. INTERMIDIATE APPELLATE COURT

G.R.No. 67649
GUTIERREZ, JR., J.:

FACTS:

Engracio Francia was the owner of a 328 square meter land in

Pasay City. In October 1977, a portion of his land (125 square meter)
was expropriated by the government for P4,116.00. The
expropriation was made to give way to the expansion of a nearby
road.
It also appeared that from 1963 to 1977, Francia failed to pay
his real property taxes amounting to P2,400.00. So in December
1977, the remaining 203 square meters of his land was sold at a
public auction (after due notice was given him). The highest bidder
was a certain Ho Fernandez who paid the purchase price of
P2,400.00 (which was lesser than the price of the portion of his land
that was expropriated).’
Later, Francia filed a complaint to annul the auction sale on
the ground that the selling price was grossly inadequate. He further
argued that his land should have never been auctioned because the
P2,400.00 he owed the government in taxes should have been set-
off by the debt the government owed him (legal compensation). He
alleged that he was not paid by the government for the expropriated
portion of his land because though he knew that the payment
therefor was deposited in the Philippine National Bank, he never
withdrew it.

ISSUE:

Whether or not Francia’s tax delinquency of P2,400.00 has

been extinguished by legal compensation.

DECISION:

There is no legal basis for the contention. By legal

compensation, obligations of persons, who in their own right are
reciprocally debtors and creditors of each other, are extinguished
(Art. 1278, Civil Code). This is not applicable in taxes. There can be
no off-setting of taxes against the claims that the taxpayer may have
against the government. A person cannot refuse to pay a tax on the
ground that the government owes him an amount equal to or greater
than the tax being collected. The collection of a tax cannot await the
results of a lawsuit against the government.

A claim for taxes is not such a debt, demand, contract or

judgment as is allowed to be set-off under the statutes of set-off,
which are construed uniformly, in the light of public policy, to exclude
the remedy in an action or any indebtedness of the state or
municipality to one who is liable to the state or municipality for taxes.
Neither are they a proper subject of recoupment since they do not
arise out of the contract or transaction sued on. "The general rule
172 | P a g e 172

based on grounds of public policy is well-settled that no set-off

admissible against demands for taxes levied for general or local
governmental purposes. The reason on which the general rule is
based, is that taxes are not in the nature of contracts between the
party and party but grow out of duty to, and are the positive acts of
the government to the making and enforcing of which, the personal
consent of individual taxpayers is not required
173 | P a g e 173

SELWIN LAO VS. SPECIAL PLANS, INC.

G.R. NO. 164729
DEL CASTILLO, J;
FACTS:
Petitioners Selwyn F. Lao and Edgar Manansala (Manansala),
together with Benjamin Jim (Jim), entered into a Contract of
Lease with respondent 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 monthly rate of P23, 000.00. 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 MTC
of Quezon City, claiming unpaid rentals of P118, 000.00 covering
the period March 16, 1996 to August 16, 1996.

Petitioners answered faulting SPI for making them believe that

it owns the leased property and that SPI did not deliver the leased
premises in a condition fit for petitioners’ intended use. Thus,
petitioners claimed that they were constrained to incur expenses for
necessary repairs as well as expenses for the repair of structural
defects, which SPI failed and refused to reimburse. Petitioners
prayed that the complaint be dismissed and judgment on their
counterclaims be rendered ordering SPI to pay them the sum
of P422, 920.40 as actual damages, as well as moral damages,
attorney’s fees and exemplary damages.

ISSUE:
Whether or not the cost of repairs incurred by the petitioners
should be compensated against the unpaid rentals.
DECISION:

Petitioners failed to properly discharge their burden to show

that the debts are liquidated and demandable. Consequently, legal
compensation is inapplicable.
The petitioners attempted to prove that they spent for the
repair of the roofing, ceiling and flooring, as well as for
waterproofing. However, they failed to appreciate that, as per their
lease contract, only structural repairs are for the account of the
lessor, herein respondent SPI. In which case, they overlooked the
need to establish that aforesaid repairs are structural in nature, in
the context of their earlier agreement. It would have been an
altogether different matter if the lessor was informed of the said
structural repairs and he implicitly or expressly consented and
agreed to take responsibility for the said expenses. Such want of
evidence on this respect is fatal to this appeal. Consequently, their
claim remains unliquidated and, legal compensation is inapplicable.
174 | P a g e 174

PNB MANAGEMENT VS. R&R METAL

G.R.No. 132245
QUISUMBING, J.:

FACTS:

It appears that on November 19, 1993, respondent R&R Metal

Casting and Fabricating, Inc. (R&R) obtained a judgment in its favor
against Pantranco North Express, Inc. (PNEI). PNEI was ordered to
pay respondent P213,050 plus interest as actual damages, P50,000
as exemplary damages, 25 percent of the total amount payable as
attorney’s fees, and the costs of suit. However, the writ of execution
was returned unsatisfied since the sheriff did not find any property
of PNEI recorded at the Registries of Deeds of the different cities of
Metro Manila. Neither did the sheriff receive a reply to the notice of
garnishment he sent to PNB-Escolta.

On March 27, 1995, respondent filed with the trial court a

motion for the issuance of subpoenae duces tecum and ad
testificandum requiring petitioner PNB Management and
Development Corp. (PNB MADECOR) to produce and testify on
certain documents pertaining to transactions between petitioner and
PNEI from 1981 to 1995. From the testimony of the representative
of PNB MADECOR, it was discovered that NAREDECO, petitioner’s
forerunner, executed a promissory note in favor of PNEI for P7.8
million, and that PNB MADECOR also had receivables from PNEI in
the form of unpaid rentals amounting to more than P7.5 million.

ISSUE:

Whether or not legal compensation have occurred in the

instant case.

DECISION:

Legal compensation could not have occurred because of the

absence of one requisite in this case: that both debts must be due
and demandable.
Petitioner’s obligation to PNEI appears to be payable on
demand, following the above observation made by the CA and the
assertion made by petitioner. Petitioner is obligated to pay the
amount stated in the promissory note upon receipt of a notice to pay
from PNEI. If petitioner fails to pay after such notice, the obligation
will earn an interest of 18 percent per annum.

Since petitioner’s obligation to PNEI is payable on demand,

and there being no demand made, it follows that the obligation is not
yet due. Therefore, this obligation may not be subject to
compensation for lack of a requisite under the law. Without
compensation having taken place, petitioner remains obligated to
PNEI to the extent stated in the promissory note. This obligation
may undoubtedly be garnished in favor of respondent to satisfy
PNEI’s judgment debt.
175 | P a g e 175

UNITED PLANTERS MILLING CO. VS. COURT OF APPEALS

G.R. NO. 126890
TINGA, J.:

FACTS:
In 1987, the Republic of the Philippines lost around 1.5 Billion
Pesos after it had waived its right to collect on an outstanding
indebtedness from petitioner, by virtue of a so-called “friendly
foreclosure agreement” that ultimately was friendly only to petitioner.
Petitioner United Planters Sugar Milling Co. (UPSUMCO) was
engaged in the business of milling sugar. In 1974, as UPSUMCO
commenced operations, it obtained a set of loans from respondent
Philippine National Bank (PNB). The loans were secured
over two parcels of land where the milling plant stood and chattel
mortgages over the machineries and equipment.
On 27 February 1987, through a Deed of Transfer, PNB
assigned to the Government its “rights, titles and interests” over
UPSUMCO, among several other assets. The Deed of Transfer
acknowledged that said assignment was being undertaken “in
compliance with Presidential Proclamation No. 50.” The
Government subsequently transferred these “rights, titles and
interests” over UPSUMCO to the respondent Asset and Privatization
Trust (APT).

ISSUE:

Whether or not there was compensation in the present case.

DECISION:

The right of PNB to set-off payments from UPSUMCO arose

out of conventional compensation rather than legal compensation,
even though all of the requisites for legal compensation were present
as between those two parties. The determinative factor is the mutual
agreement between PNB and UPSUMCO to set-off payments. Even
without an express agreement stipulating compensation, PNB and
UPSUMCO would have been entitled to set-off of payments, as the
legal requisites for compensation under Article 1279 were present.

As soon as PNB assigned its credit to APT, the mutual

creditor-debtor relation between PNB and UPSUMCO ceased to
exist. However, PNB and UPSUMCO had agreed to a conventional
compensation, a relationship which does not require the presence
of all the requisites under Article 1279. And PNB too had assigned
all its rights as creditor to APT, including its rights under conventional
compensation. The absence of the mutual creditor-debtor relation
between the new creditor APT and UPSUMCO cannot negate the
conventional compensation. Accordingly, APT, as the assignee of
credit of PNB, had the right to set-off the outstanding obligations of
UPSUMCO on the basis of conventional compensation before the
condonation took effect on 3 September 1987.
176 | P a g e 176

SONNY LO vs. KJS ECO-FORMWORK SYSTEM

G.R. No. 149420
YNARES-SANTIAGO, J.:

FACTS:

KJS is engaged in the sale of steel scaffoldings while Lo is a

building contractor. On February 22, 1990, petitioner ordered
scaffolding equipments from respondent worth P540,425.80. He
paid a downpayment in the amount of P150,000. The balance was
made payable in 10 monthly installments. Respondent delivered the
equipments. Petitioner was able to pay the first two monthly
installments. His business suffered financial difficulties and he was
unable to settle his obligations despite demands. On October 11,
1990, the parties executed a Deed of Assignment whereby petitioner
assigned to respondent his receivables from Jonero Realty.
However, Jonero refused to honor the Dees of Assignment because
it claimed that petitioner was indebted to it. Petitioner refused to pay
claiming that his obligation had been extinguished when they
executed the deed of assignment. RTC dismissed the complaint on
the ground that the assignment of credit extinguished the obligation.
Court of appeals reversed the decision and ordered Lo to pay the
plaintiff KJS with legal interests of 6% per annum until fully paid.

ISSUE:

Whether or not the Deed of Assignment extinguished the

obligation.

DECISION:

An assignment of credit, by virtue of which the owner of the

credit, the assignor, by a legal cause, such as sale, dacion en pago,
exchange or donation and without the consent of the debtor transfers
his credit and accessory rights to another, the assignee, who
acquires the power to enforce it against the debtor. Petitioner, as
assignor, is bound to warrant the existence and legality of the credit
at the tim of the sale or assignment. When Jonero claimed that it
was no longer indebted to petitioner since the latter had also as
unpaid obligation to it, it essentially meant that its obligation to the
petitioner has been extinguished by compensation. Petitioner was
found in breach of his obligation under the Deed of assignment.
Court of Appeals decision is affirmed.
177 | P a g e 177

MINDANAO SAVINGS AND LOAN ASSOCIATION INC. VS.

EDWARD WILLKOM
GR No. 178618
NACHURA, J.:

FACTS:

The First Iligan Savings and Loan Association, Inc. (FISLAI)

and the Davao Savings and Loan Association, Inc. (DSLAI) banks
that entered into a merger, with DSLAI as the surviving
corporation. The articles of merger were not registered with the SEC
but when DSLAI changed its corporate name to MSLAI the
amendment was approved by the SEC. Meanwhile, the Board of
Directors of FISLAI passed a resolution, assigning its assets in favor
of DSLAI which in turn assumed the former’s liabilities. The business
of MSLAI, however, failed was ordered its closure and placed under
receivership.

Prior to the closure of MSLAI, Uy filed an action for collection

of sum of money against FISLAI. The RTC issued a summary
decision in favor of Uy, directing defendants therein (which included
FISLAI) to pay the former the sum of P136, 801.70. Therafter, sheriff
Bantuas levied on six (6) parcels of land owned by FISLAI and
Willkom was the highest bidder. New certificates of title covering
the subject properties were issued in favor of Willkom who sold one
of the subject parcels of land to Go.

MSLAI, represented by PDIC, filed a complaint for Annulment

of Sheriff’s Sale, Cancellation of Title and Reconveyance of
Properties against respondents. The respondents averred that
MSLAI had no cause of action against them or the right to recover
the subject properties because MSLAI is a separate and distinct
entity from FISLAI as the merger did not take effect.

ISSUE:

Whether or not there was novation of the obligation by

substituting the person of the debtor

DECISION:

It is a rule that novation by substitution of debtor must always

be made with the consent of the creditor. As stated in Article 1293
of the Civil Code, novation which consists in substituting a new
debtor in the place of the original one, may be made even without
the knowledge or against the will of the latter, but not without the
consent of the creditor. Payment by the new debtor gives him the
rights mentioned in Articles 1236 and 1237.

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
178 | P a g e 178

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.
179 | P a g e 179

CAROLINA HERNANDEZ-NIEVERA VS. WILFREDO

HERNANDEZ
G.R. NO. 171165
PERALTA, J.:

FACTS:

Project Movers Realty & Development Corporation (PMRDC)

is a duly organized domestic corporation engaged in real estate
development. It entered into a Memorandum of Agreement (MOA)
whereby it was given the option to buy pieces of land owned by
petitioners Carolina Hernandez-Nievera, Margarita H. Malvar and
Demetrio P. Hernandez, Jr. Demetrio, under authority of a Special
Power of Attorney to Sell or Mortgage, signed the MOA also in behalf
of Carolina and Margarita. In the aggregate, the realty measured
4,580,451 square meters and was segregated by agreement into
Area I and Area II.

On March 23, 1998, the PMRDC entered with LBP and

Demetrio - the latter purportedly acting under authority of the same
special power of attorney as in the MOA - into a Deed of Assignment
and Conveyance (DAC). PMRDC delivered to petitioners certain
checks representing the money, the same however allegedly
bounced. Hence, on January 8, 1999, petitioners demanded the
return of the corresponding TCTs over the land but PMRDC said that
the TCTs could no longer be delivered back to petitioners as the
covered properties had already been conveyed and assigned to the
Asset Pool pursuant to the March 23, 1998 DAC. Petitioner
contended that Demetrio could not have entered into the said
agreement as his power of attorney was limited only to selling or
mortgaging the properties and not conveying the same to the Asset
Pool.

ISSUE:

Whether or not the novation of the MOA is valid.

DECISION:

Thus, it becomes clear that Demetrio's special power of

attorney to sell is sufficient to enable him to make a binding
commitment under the DAC in behalf of Carolina and Margarita. In
particular, it does include the authority to extinguish PMRDC's
obligation under the MOA to deliver option money and agree to a
more flexible term by agreeing instead to receive shares of stock in
lieu thereof and in consideration of the assignment and conveyance
of the properties to the Asset Pool. 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.
180 | P a g e 180

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.
181 | P a g e 181

REPUBLIC GLASS CORPORATION VS. LAWRENCE QUA

G.R. NO. 14413
CARPIO, J.:

FACTS:

Petitioners and respondent were stockholders of Ladtek,

Inc., which obtained loans from Metrobank and PDCP where they
stood as sureties. Among themselves they executed Agreements
for Contribution, Indemnity and Pledge of shares of Stocks, stating
that in case of default in the payment of loans, the parties would
reimburse each other the proportionate share of any sum that any
might pay to creditors. Ladtek defaulted on its loan obligations,
hence Metrobank filed a collection case. During the pendency
thereof, RGC and Gervel paid Metrobank where a waiver and
quitclaim in favor of the two was executed. Upon Qua’s refusal to
reimburse, RGC and Gervel foreclosed the pledged shares of stocks
owned by Qua at a public auction. On appeal, the CA issued the
assailed decision and held that there was an implied novation of the
agreement and that the payment did not extinguish the entire
obligation and did not benefit Qua. Hence, the petition, where the
petitioners claim the following: (1) Qua is estopped from claiming
that the payment made was not for the entire obligation, due to his
judicial admissions; (2) payment of the entire obligation is a condition
sine qua non for the demand of reimbursement under the indemnity
agreements; and (3) there is no novation in the instant case.

ISSUE:

Whether there was no novation.

DECISION:

The petition is denied. Although the Agreement does not state

that payment of the entire obligation is an essential condition for
reimbursement, RGC and Gervel cannot automatically claim for
indemnity from Qua because Qua himself is liable directly to
Metrobank and PDCP. The elements of novation are not established
in the instant case. Contrary to RGC and Gervel’s claim, payment
of any amount will not automatically result in reimbursement. If a
solidary debtor pays the obligation in part, he can recover
reimbursement from the co-debtors only in so far as his payment
exceeded his share in the obligation. This is precisely because if a
solidary debtor pays an amount equal to his proportionate share in
the obligation, then he in effects pays only what is due from him. If
the debtor pays less than his share in the obligation, he cannot
demand reimbursement because his payment is less than his actual
debt.
182 | P a g e 182

ST. JAMES COLLEGE VS. EQUITABLE PCI BANK

GR No. 179441
VELASCO, JR., J.:

FACTS:

Petitioners-spouses owned and operated St. James College

of Paranaque. Sometime in 1995, the Philippine Commercial and
International Bank (PCIB), respondent, granted the Torres spouses
and/or St. James College a credit line facility of up to 25,000,000
secured by a real estate mortgage over a parcel of land in
Paranaque. Petitioners had defaulted in the payment of the loan
obtained from the secured credit accommodation, their total unpaid
loan obligation, as of September 2001, stood at 18,300,000.
Respondent proposed a payment scheme to pay annually which the
petitioners agreed upon but failed to comply with. Respondent then
demanded full settlement of the loan. Petitioners contended that the
full amount is still not due owing to the implied novation of the terms
of payment previously agreed upon. As petitioners assert in this
regard that the acceptance by respondent, particularly of the June
23, 2003 PhP 2,521,609.62 payment, without any objection on the
new terms set forth in their June 23, 2003 complementing covering
letter, novated the terms of payment of the 18,300,000 secured loan.

ISSUE:

Whether or not there was novation of contract

DECISION:

As a civil law concept, 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.
Novation may be extinctive or modificatory. It is extinctive when an
old obligation is terminated by the creation of a new one that takes
the place of the former; it is merely modificatory when the old
obligation subsists to the extent that it remains compatible with the
amendatory agreement. Novation may either be express, when the
new obligation declares in unequivocal terms that the old obligation
is extinguished, or implied, when the new obligation is on every point
incompatible with the old one. The test of incompatibility lies on
whether the two obligations can stand together, each one with its
own independent existence.

For novation, as a mode of extinguishing or modifying an obligation,

to apply, the following requisites must concur:
1) There must be a previous valid obligation.
2) The parties concerned must agree to a new contract.
3) The old contract must be extinguished.
4) There must be a valid new contract.
183 | P a g e 183

AUYONG HIAN VS. COURT OF TAX APPEALS

G.R. NO. L-28782
ZALDIVAR, J.

FACT:

On December 30, 1961, 600 hogsheads of Virginia leaf

tobacco arrived in the Port of Manila. As the Import Control Law was
already expired, the Collector of Customs in Manila refused to
release the shipment of the subject goods. The shipment was then,
declared illegal upon the ground that the importation was made long
after the expiration of the effectivity of the Import Control Law and
that the importation contravened the government policy as declared
in Republic Acts 698 and 1194. The goods were declared forfeited
to the government and its sale was ordered for public auction which
the CTIP took advantage of. The petitioner prayed for several errors
by the CTA. One of them is the petitioner’s contention that the sale
to the CTIP was invalid on ground that the amount paid by the CTIP
was insufficient in respect with the petitioner’s claim that the goods’
value was Php 7,000,000 and what CTIP paid was only Php
1,500,000.

ISSUE:

Whether the sale of the tobacco from the public auction to

STIP was invalid?

DECISION:

No. The sale of the tobacco from the public auction to CTIP
was valid. Even if the consideration paid for the forfeited tobacco
was inadequate, such inadequate consideration is not a ground for
the invalidity of a contract. Article 1355 of the Civil Code provides
the law for this matter. It was not shown that the instant sale is a
case exempted by law from the operation of the aforementioned
Article; neither has the petitioner shown that there was fraud,
mistake or undue influence in the sale. Therefore, the SC can only
conclude with the CTA that “In these circumstances, we find no
reason to invalidate the sale of said tobacco to CTIP.”
184 | P a g e 184

MONICO CONCEPCION vs. PACIENCIA STA. ANA

G.R. No. L-2277
FERIA, J.:

FACTS:

An action was instituted by Monico Concepcion vs. Paciencia Sta.

Ana to annul the sale made by the late Perpetua Concepcion, sister
of the plaintiff, of three parcels of land with the improvements
thereon to the defendant. The complaint alleges that Perpetua
Concepcion, in connivance with the defendant and with intent to
defraud the plaintiff, sold and conveyed three parcels of land for a
false and fictitious consideration to the defendant, who secured
transfer certificates of title of said lands issued under her name; and
that the defendant has been in possession of the properties sold
since the death of Perpetua Concepcion, thereby causing damages
to the plaintiff in the amount of not less than two hundred (P200)
pesos.

ISSUE:

Whether or not Perpetua Concepcion has transmitted to the

plaintiff any right arising from the contract under consideration in
order that he can bring an action to annul the sale voluntarily made
by her to the defendant with a false consideration.

DECISION:

In support of his contention that the contract of sale under

consideration being a fictitious contract or contract with a false
consideration is null per se or non-existent, plaintiff quotes
Manresa’s comment on article 1274 to 1277, Vol. 8, p. 623, which
says: “Recognizing this analogy, it was held by the Supreme Court
of Spain that a fictitious contract, or contract entered into with false
consideration does not confer any right or produce any legal effect,
citing the judgments of the Supreme Court of Spain of October 31,
1865, of March 21, 1884, and of November 23, 1877.” Appellant’s
conclusion is not correct. By stating that contracts with false
consideration confer no right and produce no legal effect, Manresa
does not mean to say that they are null and void per se or non-
existent as contradistinguished from annullable, for the effects of
both non-existent and annullable contracts that have been annulled
are the same: they confer no right and produce no legal effect. What
Manresa says on page 700 of the same volume, commenting on
article 1301, is the following: “The expression of a false cause or
consideration in the contract does not make it non-existent, and it
shall only be a ground for an action for nullity as provided by article
1276 and confirmed by article 1301 of the Civil Code. There are
some who consider this somewhat confused under the Code; for us
it is very clear, for the code repeatedly provides that the effect of a
false consideration is limited to making the contract voidable, and
we have already pointed out that in this particular, our Civil Code has
deviated deliberately from the French Code, which includes
185 | P a g e 185

indistinctly in one and the same provision contracts without

consideration and contracts in which the consideration is illicit or
false.”

We are of the opinion and so hold, that the late Perpetua

Concepcion has not transmitted to the plaintiff any right arising from
the contract of conveyance or sale of her lands to the defendant, and
therefore the plaintiff cannot file an action to annul such contract as
representative of the deceased.

Therefore, as the plaintiff in the present case, not being a

forced heir of the late Perpetua Concepcion, can not institute an
action to annul under article 1300 or to rescind under article 1291 (3)
of the Civil Code the contract under consideration entered into by
the deceased with the defendant.
186 | P a g e 186

SILVERIO Q. CORNEJO VS. MANUEL B. CALUPITAN, D.B.

CASTANEDA, AND EUSTACIO BARRERA
G.R. NO. L-2342
MONTEMAYOR, J.:

FACTS:

On January 1945- owner of a parcel of land in the barrio of

Mayatobo, Candelaria, Tayabas, an area of 110.9125 hectares
authorized his co-defendants Castaneda, Eustacio Barrera, real
estate broker operating in manila to sell the said parcel.;January 4,
1945, defendant Calupitan accepted the offer made by the plaintiff
Cornejo, at the price of P650,000 in Japanese military notes;
January 6, 1945, Cornejo delivered only P65,000 to defendant
broker Castaneda & Barrera to deliver for Calupitan and the balance
to paid on January 25, 1945. Calupitan wrote out a letter receipt of
acceptance specifying the terms of payment of the balance
approving the stipulated date on or before January 25, 1945.
January 22, 1945, After supposedly failing to deliver the balance of
P585,000, Cornejo deposited the sum with the clerk of court,
securing corresponding receipt and filed the corresponding complain
against Calupitan and the two real estate brokers for specific
performance and for payment of damages.

The trial court absolve the defendant-appelle and held that

Cornejo repudiated the original agreement by proposing money be
reduced from P70,000 to P65,000 and the balance adjusted from
19th of January to 25, 1945.

ISSUE:

Whether or not that the condition being offered to the plaintiff by the
appellant is Justifiable in terms of the status of the situation or the
en-viewed coming events of war.

DECSION:

Yes, its up to the prospective purchaser to accept or reject it,

but he should return the value of the said amount P65,000 Japanese
notes at the time to the plaintiff. Exhibit B between Cornejo and
Calupitan had been abandoned and rendered void by Cornejo
himself, and that as to new proposition made by Cornejo, there was
no meeting of minds of the parties for it was not accepted entirely by
Calupitan, consequently the contract of sale of the land in question
was not perfected and so Calupitan may not be compelled to convey
said land to plaintiff-appllant. Calupitan is ordered to return to the
plaintiff the value of the P65,000 Japanese war notes he received,
which value is to be ascertained according to the ballantyne
schedule as of January 6, 1945 in Manila. Said value is hereby fixed
at P541.66 with legal interest from January 6, 1945 until paid.
187 | P a g e 187

ANDREA DUMASUG VS. FELIX MODELO

G.R. NO. L-10462
TORRES, J.:

FACTS:

On June 17, 1912, counsel for Andrea Dumasug filed a written

complaint in the Court of First Instance of Cebu, in which he alleged
that about the month of November, 1911, defendant persuaded
plaintiff to sign a document by falsely and maliciously making her
believe that it contained an engagement on plaintiff’s part to pay
defendant a certain sum of money as expresses occasioned the
latter by reason of a lawsuit in which plaintiff Dumasug was one of
the parties and was protected and aided by defendant; that this
document, plaintiff, who does not know how to write, signed by
affixing her mark thereto, believing in good faith that defendant had
told her the truth and that said document referred to the expenses
incurred by defendant; but that three months after the execution of
said document, defendant took possession of a carabao belonging
to plaintiff and also of two parcels of land, likewise belonging to her,
situated in the barrio of Katang, pueblo of Argao, Cebu, the area and
boundaries of which are specified in the complaint, and notified
plaintiff that she had conveyed to him by absolute sale said parcels
of land and the plow carabao; that in spite of plaintiff’s opposition
and protests, defendant took possession of said property and, up to
the date of the complaint, continued to hold possession thereof and
to enjoy the products of the lands and of the labor of the carabao;
and that, by reason of such acts, defendant had caused loss and
damage to plaintiff in the sum of P1,000. Said counsel therefore
prayed the court to render judgment by declaring null and void and
of no value whatever the alleged contract of purchase and sale of
the carabao and the two parcels of land described in the complaint,
to order defendant to restore to plaintiff said work animal and lands,
and, besides, to pay her the sum of P1,000 for the loss and damage
caused her, in addition to the costs of the suit.

ISSUES:

Whether or not the instrument of purchase and sale of two

parcels of land and a plow carabao is null and void?

DECISION:

Yes, it is null and void. It is, then, perfectly evident that the
document Exhibit 1, by means of which defendant made himself the
owner of the properties in question is not the instrument of debt
which Andrea Dumasug had signed, and if it is the same one its
contents were not duly and faithfully explained to plaintiff in the act
of its execution. In either case, the consent said to have been given
by Andrea Dumasug in said document Exhibit 1 is null and void, as
it was given by mistake (arts. 1265 and 1266, Civil Code). This error
invalidates the contract, because it goes to the very substance of the
thing which was the subject matter of said contract, for, had the
188 | P a g e 188

maker thereof truly understood the contents of said document, she

would neither have accepted nor authenticated it by her mark.

This case is an example of Mistake of Fact which is Mistake

as to the Nature of the Contract. If the mistake refers to the nature
of the contract, the error or mistake goes to the essence thereof.
This may invalidate the contract. In this case Andrea Dumasug
affixed her thumb mark on the document that presented to her
believing that it was a deed of mortgaged and not a deed of sale
therefore her consent vitiated the contract.
189 | P a g e 189

LIAM LAW VS. OLYMPIC SAWMILL CO. AND ELINO LEE CHI
G.R. NO. L-30771
MELENCIO-HERRERA, J.:

FACTS:

Liam Law loaned P10,000.00 without interest to the Olympic

Sawmill Co. and Elino Lee Chi, as the managing partner. When the
loan became due, the debtors asked for extension and another loan
was executed, extending the payment of the loan and adding
P6,000.00 as answer for attorney’s fees, legal interest and other cost
incident thereto.

Law filed a collection case when the defendants were unable

to pay the second time. The CFI of Bulacan decided in favor of the
plaintiff. On appeal, the Court of Appeals endorsed the case to the
Supreme Court, stating that the issue involved was one of law.

ISSUE:

Whether or not the agreement to pay P6,000.00 in addition to

the principal obligation is lawful.

DECISION:

Yes. Article 1354 of the Civil Code states that:

Article 1354. Although the cause is not stated in the contract,

it is presumed that it exists and is lawful, unless the debtor proves
the contrary.

In relation to the case, the agreement of the parties relative to

the P6,000.00 obligation, without an evidentiary hearing, it has to be
concluded that defendants had not proven that the P6,000.00
obligation was illegal. Hence, it is presumed that the agreement of
the parties relative to the P6,000.00 exists and is lawful.
190 | P a g e 190

BENITO DE LOS REYES vs. VERONICA ALOJADO

G.R. No. L-5671
TORRES, J.:

FACTS:
On or about January 22, 1905, Veronica Alojado received, as
a loan, from Benito de los Reyes that the sum P67 .60, for the
purpose of paying a debt she owed to Olimpia Zaballa. It was agreed
between Alojado and Reyes that the debtor should remain as a
servant in the house and in the service of her creditor, without any
renumeration whatever, until she should find someone who would
furnish her with the said sum where with to repeat the loan.
After sometime, the debtor left without paying, so the creditor
instituted this action to compel her to pay, and work as a servant
without pay until the debt could finally be paid. The debtor on the
other hand, asked payment for services already rendered.
ISSUE:
Whether or not the agreement without pay is valid.
DECISION:
The agreement to work without pay is immoral and void since
this would amount to involuntary servitude. The creditor was ordered
to pay wages and to subtract therefrom the amount of the debt.
191 | P a g e 191

UCPB GENERAL INSURANCE VS. MASAGANA TELAMART

G.R. NO. 137172
DAVIDE, JR., C.J.:

FACTS:
Respondent, which had procured insurance coverage for a
number of years, had been granted a 60 to 90 day term for the
renewal of policies. Such a practice had existed up to the time the
claims were. Moreover, there was preponderant proof that no timely
notice of non-renewal was made by petitioner.

ISSUE:
Whether or not the fire insurance policies had expired on 22
May 1992, or had been extended or renewed by an implied credit
arrangement though actual payment of premium was tendered on a
later date after the occurrence of the risk insured against.

DECISION:
An insurance policy, other than life is not valid and binding until
actual payment of the premium. Any agreement to the contrary is
void.The parties may not agree expressly or impliedly on the
extension of credit or time to pay the premium and consider the
policy binding before actual payment.
The case of Malayan Insurance v. Cruz-Arnaldocited by the
CA is not applicable. In that case, payment of the premium was
made on before the occurrence of the fire. In the present case, the
payment of the premium for renewal of the policies was tendered a
month after the fire occurred. Masagana did not even give UCPB a
notice of loss within a reasonable time after occurrence of the fire.
192 | P a g e 192

AGUSTINO B. ONG YIU VS. HONORABLE COURT OF

APPEALS AND PHILIPPINE AIR LINES, INC.,
G.R. No. L-40597
MELENCIO-HERRERA, J.:

FACTS:
Petitioner was a fare paying passenger of respondent
Philippine Air Lines, Inc. (PAL), from Mactan Cebu, bound for Butuan
City. He was scheduled to attend the trial of Civil Case in the Court
of First Instance, Branch II, thereat. He checked in one piece of
luggage, for which he was issued Claim Check. Upon arrival,
petitioner claimed his luggage but it could not be found. The
petitioner was worried about the missing luggage because it
contained vital documents needed for trial the next day. Petitioner
wired PAL Cebu demanding the delivery of his baggage before noon
the next day, otherwise, he would hold PAL liable for damages, and
stating that PAL’s gross negligence had caused him undue
inconvenience, worry, anxiety and extreme embarrassment. This
telegram was received by the Cebu PAL supervisor but the latter felt
no need to wire petitioner that his luggage had already been
forwarded on the assumption that by the time the message reached
Butuan City, the luggage would have arrived.

ISSUE:
Whether or not PAL is liable for damages.

DECISION:
Petitioner is neither entitled to exemplary damages. In
contracts, as provided for in Article 2232 of the Civil Code,
exemplary damages can be granted if the defendant acted in a
wanton, fraudulent, reckless, oppressive, or malevolent manner,
which has not been proven in this case.
193 | P a g e 193

JOSE VALES vs. SIMEON A. VILLA, FELIPE S. SILVESTRE,

and MARIA GUIA GARCI
G.R. No. 10028
MORELAND, J.:
FACTS:
This is an action to set aside certain transfers of real estate
from the plaintiff to one of the defendants and to require that
defendant to recover by good and sufficient conveyance the title to
such properties; to refund to the plaintiff a certain sum paid by
plaintiff for the recovery of certain other real estate; and for an
accounting by the defendants of the rents, issues and profits of
certain real estate during a certain period; and for P25,000 damages.
The plaintiff claims that his properties were obtained from him and
that he was induced to execute conveyances therefor in favor of the
defendant under the threat that; that is, that they would repudiate the
verbal agreement which plaintiff alleges was attached to that
conveyance.

ISSUE:
Whether or not it is valid to annul a series of real estate
transactions on the ground of duress.

DECISION:
The same may be said with greater force of a case where a
person’s own voluntary act, uninfluenced by another, has put him in
a disadvantageous position — a position which another may unjustly
make use of to his injury. The failure to reduce a contract to writing,
or to have witnesses present when a verbal agreement is made, or
to record an instrument, or to exclude from the operation of its terms
things verbally agreed to be excluded, etc., may place a person in a
disadvantageous position with respect to another; and the demand
that he pay to secure his extrication is not illegal, and a payment
made pursuant to such demand is not necessarily voidable. He pays
for his lack of foresight. While the demand may be reprehensible
morally, it is not illegal’ and of itself is not ground for relief.
194 | P a g e 194

ANDREA DUMASUG vs. FELIX MODELO

G.R. No. L-10462
TORRES, J.:

FACTS:
Andrea Dumasug filed a written complaint in the Court of First
Instance, alleging that the defendant persuaded plaintiff to sign a
document by falsely and maliciously making her believe that it
contained an engagement on plaintiff’s part to pay defendant a
certain sum of money as expresses occasioned the latter by reason
of a lawsuit in which plaintiff Dumasug was one of the parties and
was protected and aided by defendant; that this document, plaintiff,
who does not know how to write, signed by affixing her mark thereto,
believing in good faith that defendant had told her the truth and that
said document referred to the expenses incurred by defendant; but
that three months after the execution of said document, defendant
took possession of a carabao belonging to plaintiff and also of two
parcels of land, likewise belonging to her; that in spite of plaintiff’s
opposition and protests, defendant took possession of said property
and, up to the date of the complaint, continued to hold possession
thereof and to enjoy the products of the lands and of the labor of the
carabao; and that, by reason of such acts, defendant had caused
loss and damage to plaintiff in the sum of P1,000.
ISSUE:
Whether or not the instrument of purchase and sale of two
parcels of land and a plow carabao is null and void?

DECISION:
Yes, it is null and void. It is, then, perfectly evident that the
document, by means of which defendant made himself the owner of
the properties in question is not the instrument of debt which Andrea
Dumasug had signed, and if it is the same one its contents were not
duly and faithfully explained to plaintiff in the act of its execution. In
either case, the consent said to have been given by Andrea
Dumasug in said document is null and void, as it was given by
mistake. This error invalidates the contract, because it goes to the
very substance of the thing which was the subject matter of said
contract, for, had the maker thereof truly understood the contents of
said document, she would neither have accepted nor authenticated
it by her mark.
195 | P a g e 195

C. W. ROSENSTOCK vs. EDWIN BURKE

G.R. No. 20732
AVANCEÑA, J.:

FACTS:
A letter began as follows: “In connection with the yacht
Bonzewing, I am in position and am willing to entertain the purchase
of it under the following terms.”

ISSUE:
Whether or not the offer is certain.

DECISION:
No, because here the offer was neither definite nor certain.
Said the Supreme Court: “To convey the idea of a resolution to
purchase, a man of ordinary intelligence and common culture would
use these clear and simple words: ‘I offer to purchase,’ I want to
purchase,’ ‘I am in position to purchase…’ It must be presumed that
a man in his transactions in good faith used the best means of
expressing his mind that his intelligence and culture so permit as to
convey and exteriorize his will faithfully and unequivocally. The word
‘entertain’ applied to an act does not mean the resolution to perform
said act. It was not a definite or certain offer, but a mere invitation to
a proposal being made to him, which might be accepted by him or
not.”
196 | P a g e 196

MORTON F. MEADS VS. LAND SETTLEMENT AND

DEVELOPMENT CORPORATION
G.R. No. L-7824
MONTEMAYOR, J.:

FACTS:
Plaintiff offered to exchange his sawmill equipment and spare
parts for some surplus used tractors belonging to the defendant
corporation. The defendant, in a reply letter, stated that "we are
willing to accept the proposition" and referred the plaintiff to the
Property Department for a possible arrangement. Question: Did
defendant definitely accept the offer of plaintiff? Held: The phrase
"willing to accept" does not mean acceptance. It merely signifies that
the defendant was disposed to accept or was agreeable to the
proposition or offer, in principle, but that other considerations still
remained before a contract of barter was perfected. Surely, before
definitely agreeing to the barter or exchange, the defendant would
want first to examine the sawmill equipment offered for exchange,
especially since it is secondhand, through according to plaintiff, only
slightly used, and perhaps would need overhauling and extensive
repairs.

ISSUE:
Whether or not there is a meeting of the minds.

DECISION:
There was no meeting minds of the parties; the tenor of the
letter of defendant Corporation is clearly indefinite and did not
amount to an express and final acceptance, as it uses the phrase "a
possible arrangement”.
197 | P a g e 197

METROPOLITAN MANILA DEVELOPMENT AUTHORITY VS.

JANCOM ENVIRONMENTAL CORPORATION
G.R. No. 147465
MELO, J.:

FACTS:

The Philippine Government under the Ramos Administration,

and through the Metro Manila Development Authority (MMDA)
Chairman, and the Cabinet Officer for Regional Development-
National Capital Region (CORD-NCR), entered into a contract with
respondent JANCOM, on waste-to-energy projects for the waste
disposal sites in San Mateo, Rizal and Carmona, Cavite under the
build-operate-transfer (BOT) scheme.

However, before President Ramos could have signed the said

contract, there was a change in the Administration and EXECOM.
Said change caused the passage of the law, the Clean Air Act,
prohibiting the incineration of garbage and thus, against the contents
of said contract. The Philippine Government, through the MMDA
Chairman, declared said contract inexistent for several reasons.
Herein respondent filed a suit against petitioner. The Regional Trial
Court ruled in favor of the respondent. Instead of filing an appeal to
the decision, petitioner filed a writ of certiorari on the Court of
Appeals, which the latter granted. The Regional Trial Court declared
its decision final and executory, for which the petitioner appealed to
the CA, which the CA denied such appeal and affirming RTC’s
decision.

ISSUE:

Whether or not a valid contract is existing between herein

petitioner and respondent.

DECISION:

Under Article 1305 of the Civil Code, “a contract is a meeting

of minds between two persons whereby one binds himself, with
respect to the other, to give something or to render some service.”
Article 1315 of the Civil Code, provides that a contract is perfected
by mere consent. Consent, on the other hand, is manifested by the
meeting of the offer and the acceptance upon the thing and the
cause which are to constitute the contract. In the case at bar, the
signing and execution of the contract by the parties clearly show that,
as between the parties, there was a concurrence of offer and
acceptance with respect to the material details of the contract,
thereby giving rise to the perfection of the contract. The execution
and signing of the contract is not disputed by the parties. As the
Court of Appeals aptly held: Contrary to petitioners’ insistence that
there was no perfected contract, the meeting of the offer and
acceptance upon the thing and the cause, which are to constitute
the contract, is borne out by the records.
198 | P a g e 198

ABS-CBN BROADCASTING CORPORATION vs. HONORABLE

COURT OF APPEALS, REPUBLIC BROADCASTING CORP.,
VIVA PRODUCTIONS, INC., and VICENTE DEL ROSARIO
G.R. No. 128690
DAVIDE, JR., C.J.:

FACTS:

ABS-CBN, requested Viva Production, Inc. to allow ABS-CBN

to air at least 14 films produced by Viva. Pursuant to this request, a
meeting was held between Viva’s representative and ABS-CBN’s.
During the meeting Viva proposed a film package which will allow
ABS-CBN to air 104 Viva films for P60 million. Later, a letter ABS-
CBN proposed to Viva a counterproposal of 53 films (including the
14 films initially requested) for P35 million. Several negotiations
were subsequently made but Viva made an agreement with
Republic Broadcasting Corporation which gave exclusive rights to
RBS to air 104 Viva films including the 14 films initially requested by
ABS-CBN.
ABS-CBN now filed a complaint for specific performance
against Viva as it alleged that there is already a perfected contract
between Viva and ABS-CBN. ABS-CBN also filed an injunction
against RBS to enjoin the latter from airing the films. The injunction
was granted. RBS now filed a countersuit with a prayer for moral
damages as it claimed that its reputation was debased when they
failed to air the shows that they promised to their viewers. RBS relied
on the ruling in People vs Manero and Mambulao Lumber vs PNB
which states that a corporation may recover moral damages if it “has
a good reputation that is debased, resulting in social humiliation”.
The trial court ruled in favor of Viva and RBS. The Court of Appeals
affirmed the trial court.

ISSUE:
Whether or not a contract was perfected in the meeting
between the representatives of the two corporations.

DECISION:
No. There is no proof that a contract was perfected in the said
meeting. Lopez’ testimony about the contract being written in a
napkin is not corroborated because the napkin was never produced
in court. Further, there is no meeting of the minds because Del
Rosario’s offer was of 104 films for P60 million was not accepted.
And that the alleged counter-offer made by Lopez on the same day
was not also accepted because there’s no proof of such. The counter
offer can only be deemed to have been made days after the April 2
meeting when Santos-Concio sent a letter to Del Rosario containing
199 | P a g e 199

the counter-offer. Regardless, there was no showing that Del

Rosario accepted. But even if he did accept, such acceptance will
not bloom into a perfected contract because Del Rosario has no
authority to do so.
As a rule, corporate powers, such as the power; to enter into
contracts; are exercised by the Board of Directors. But this power
may be delegated to a corporate committee, a corporate officer or
corporate manager. Such a delegation must be clear and specific.
In the case at bar, there was no such delegation to Del Rosario. The
fact that he has to present the counteroffer to the Board of Directors
of Viva is proof that the contract must be accepted first by the Viva’s
Board. Hence, even if Del Rosario accepted the counter-offer, it did
not result to a contract because it will not bind Viva sans
authorization.
200 | P a g e 200

RUPERTO MONTINOLA VS. VICTORIAS MILLING CO, INC.,

and FRANCIS J. COOPER
G.R. No. L-31973
OSTRAND, J.:

FACTS:
In order to encourage efficient sugar production, the Victorias Milling
Company, which was operating a sugar central, conducted a contest, complete
with written rules. Montinola joined the contest, but because he failed to follow
some of the rules the company had no alternative except to disqualify him for
any prize. He no alleges lack of authority on the part of the company to disqualify
him.

ISSSUE:
Whether or not respondent is correct.

DECISION:
Under the law, the offerer may fix the time, place and manner of
acceptance. Because Montinola violated the rules, it cannot be said that there
was a meeting of the minds. Therefore, he could properly be disqualified.
Indeed, the basis of the right to a reward is in the nature of a contract and rests
on one side upon conditions. In competitive contests for rewards, the
acceptance must be in strict conformity with the offer, and a qualified
acceptance does not create a contract.
201 | P a g e 201

SEGUNDA PORNELLOSA and JOSE ANGELES vs. THE LAND

TENURE ADMINISRATION and HERMINIO GUZMAN
G.R. No. L-14040
PADILLA, J.:

FACTS:

The lot in controversy is a part of the Santa Clara Estate on

which many families have settled through the consent of its owner,
each paid a rental. In May 1941, the said Estate was acquired by the
Government & was entrusted to an office known as the Rural
Progress Admin., which was later abolished & its functions was
transferred to the Bureau of Lands. Recently, such duties was given
to the Land Tenure Administration. The plaintiff acquired by
purchase the right of occupation of the lot in question from Vicente
San Jose, predecessor-in-interest. After the purchase of the Santa
Clara Estate by the Government, the plaintiffs were allowed to make
payments on account of the purchase price of the lot, as fenced,
included two hundred (200) sq.m. Thereafter, the plaintiffs found out
that the lot had been subdivided into two (2) smaller lots, No. 44 and
78. Lot No. 44 had been sold to Hermino Guzman. The plaintiffs then
filed a complaint to compel the Director of Lands to execute a Deed
of Sale in their favor & declare null and void the Deed of Sale of Lot
No. 44, executed in favor of respondent Hemino. The trial court
rendered judgment in favor of plaintiff, but was reversed by the Court
of Appeals, dismissing the petitioner’s complaint. Hence, this
petition.

ISSUE:

Whether or not the plaintiffs are entitled to purchase from the

Government the lot, allegedly includes 200 sq.m.

DECISION:

The judgment under review was affirmed. The lot on which

San Jose’s house stood had not been specified, nor had the
boundaries thereof been mentioned. Significantly, the plaintiff
cannot show a contract whereby the Rural Progress Admin., has
sold or promised to sell them a lot of 200 sq.m. A party claiming a
right
202 | P a g e 202

ARMAND O. RAQUEL-SANTOS VS. COURT OF APPEALS

G.R. NO. 174986
NACHURA, J.:

FACTS:

Finvest is a stock brokerage corporation duly organized under

Philippine laws and is a member of the PSE with one membership
seat pledged to the latter. Armand O. Raquel-Santos was Finvest’s
President and nominee to the PSE from February 20, 1990 to July
16, 1998.3 Annalissa Mallari was Finvest’s Administrative Officer
until December 31, 1998.In the course of its trading operations,
Finvest incurred liabilities to PSE representing fines and penalties
for non-payment of its clearing house obligations. PSE also received
reports that Finvest was not meeting its obligations to its clients.
Consequently, PSE indefinitely suspended Finvest from trading. The
Securities and Exchange Commission (SEC) also suspended its
license as broker.On June 17, 1998, PSE demanded from Finvest
the payment of its obligations to the PSE in the amount of
P4,267,339.99 and to its (Finvest’s) clients within 15 days. PSE also
ordered Finvest to replace its nominee, Raquel-Santos.

ISSUE:

Whether or not rescission is the proper remedy.

DECISION:

Clearly, Finvest’s failure to deliver the stock certificates

representing the shares of stock purchased by TMEI and Garcia
amounted to a substantial breach of their contract which gave rise
to a right to rescind the sale.

Rescission creates the obligation to return the object of the

contract. This is evident from Article 1385 of the Civil Code which
provides:

ART. 1385. Rescission creates the obligation to return the things

which were the object of the contract, together with their fruits, and
the price with its interest; consequently, it can be carried out only
when he who demands rescission can return whatever he may be
obliged to restore.

In this case, indemnity for damages may be demanded from

the person causing the loss.
203 | P a g e 203

FELICIDAD VILLANUEVA ET. AL VS. HON. MARIANO

CASTAÑEDA ET AL
G.R. NO. L-61311
CRUZ, J.:

FACTS:

There is in the vicinity of the public market of San Fernando,

Pampanga, along Mercado Street, a strip of land on which stands a
conglomeration of vendors stalls together forming what is commonly
known as a talipapa. The petitioners claim they have a right to
remain in and conduct business in this area by virtue of a previous
authorization granted to them by the municipal government. The
respondents deny this and justify the demolition of their stalls as
illegal constructions on public property. At the petitioners' behest, we
have issued a temporary restraining order to preserve the status quo
between the parties pending our decision.
ISSUE:
Whether or not petitioners’ alleged contract is valid.

DECISION:
The contract of lease is invalid. The petitioners had no right in
the first place to occupy the disputed premises and cannot insist in
remaining there now on the strength of their alleged lease contracts.
According to article 344 of the Civil Code: "Property for public
use in provinces and in towns comprises the provincial and town
roads, the squares, streets, fountains, and public waters, the
promenades, and public works of general service supported by said
towns or provinces.
204 | P a g e 204

LEONARDO NAVARRO VS. LUIS L. LARDIZABAL, ET AL.

G.R. No. L-25361
ANGELES, J.:

FACTS:

Juanita Cochero, lawful holder of a stall in the public market in Baguio

City allowed Leonardo Navarro to occupy the same for more that six months.
Navarro then formally applied for the award of the stall to him, The City Market
Committee postponed indefinitely the awarding of the stall upon a certain D.B.
Baton. Navarro sued for prohibition to prohibit Bauio City officials from delaying
the award.

ISSUE:
Whether or not the suit will prosper.

DECISION:
The suit will not prosper, for Navarro has not shown that he
already has a legal right to the stall, his application being merely
pending. The right to lease and occupy a stall in a public market is
not a common a right, but a purely statutory privilege, governed by
laws and ordinances. The occupancy of the stall cannot be the
subject of a valid contract as between the authorized stallholder and
his transferee, unless the agreement is approved by the City
authorities concerned.
205 | P a g e 205

LEONARDO OSORIO VS. TOMASA OSORIO and THE

YNCHAUSTI STEAMSHIP CO.,
G.R. No. L-16544
VILLAMOR, J.:

FACTS:

. Antonio Osorio had formed with Ynchausti & Co., a joint

account association for the exploitation of the shipping business, he
being the owner of the one-third of the company's capital. Upon his
death, his heirs agreed to authorize the defendant Da. Tomasa
Osorio, then administratrix of the estate of the deceased, to present
a project of partition, and said administratix inserted in the project
with the consent of all the heirs, among the properties which
belonged to the widow Da. Petrona Reyes, the sum of P94,000 as
her part in the "share of the estate in the shipping business of
Ynchausti & Co.," that is, a little over P166,666.66, which was the
share in said business of the deceased Osorio during his lifetime.
On February 28, 1914, the widow of D. Antonio Osorio,
executed before the notary a document of gift in favor of her son D.
Leonardo Osorio, the plaintiff, giving to him one-half of her share in
the one-third part which belonged to her husband in the shipping
business of Ynchausti & Co., a donation which was duly accepted
by the donee, who signed said document with the plaintiff. On that
date, February 28, 1914, the estate of D. Antonio Osorio was not yet
distributed among his heirs.
ISSUE:
Whether or not the donation is valid.

DECISION:
The Civil Code does not prohibit absolutely that future
inheritance should be the object of agreement, for there are certain
cases in which agreements may be made as to them, beside that
indicated in article 1271, and it may be deduced that an inheritance
already existing, which is no longer future from the moment of death
of the predecessor, may legally be the object of contract. A donation
being of a contractual nature, inasmuch as for its efficacy the
concurrence of two wills is required, that of the donor and the donee,
we believe that which may be the object of contract may also be the
object of a donation. Ubi eadem est ratio, ibi est eadem legis
dispositio. We conclude that the donor Da. Petrona Reyes, on
February 28, 1912, and could legally dispose of her right through an
act of liberality, as she had done.
206 | P a g e 206

AMPARO GONZALEZ AND ALFREDO TRINIDAD VS.

PRIMITIVO TRINIDAD AND MARIA YNARES
G.R. NO. L-45965
IMPERIAL, J.:

FACTS:

On November 11, 1931, the plaintiffs executed in favor of the

now petitioners a deed of sale of an urban property situated in the
City of Manila, for the sum of P10,000. As the property was
mortgaged to the Bureau of Lands for P6,500, the purchasers
assumed the encumbrance. The sale was simulated and the
supposed vendors did not receive the alleged price, the idea being
to save the property, which was fictitiously sold, from attachment by
Dr. Ramon Papa to whom Lorenzo Perez had endorsed a note for
P4,000 executed and signed by Primitivo Trinidad. Dr. Papa,
however, died and the credit represented by the note was
adjudicated to Carmen Papa with when the said Primitivo Trinidad
had a subsequent agreement to the effect that he would pay the note
as soon as he had the money. Thus the litigation and attachment
which Primitivo Trinidad feared were averted.

ISSUES:

Whether or not the contract without consideration can be cured

by the presence of motives.

DECISION:

The contract was in itself fictitious and simulated and the

supposed vendors did not receive the stipulated price, the
consideration being thus lacking, said contract is null and void.
207 | P a g e 207

MONICO CONCEPCION VS. PACIENCIA STA. ANA

G.R. NO. L-2277
FERIA, J.:

FACTS:

An action was instituted by Monico Concepcion vs. Paciencia

Sta. Ana to annul the sale made by the late Perpetua Concepcion,
sister of the plaintiff, of three parcels of land with the improvements
thereon to the defendant. The complaint alleges that Perpetua
Concepcion, in connivance with the defendant and with intent to
defraud the plaintiff, sold and conveyed three parcels of land for a
false and fictitious consideration to the defendant, who secured
transfer certificates of title of said lands issued under her name; and
that the defendant has been in possession of the properties sold
since the death of Perpetua Concepcion, thereby causing damages
to the plaintiff in the amount of not less than two hundred (P200)
pesos.

ISSUE:

Whether or not Perpetua Concepcion has transmitted to the

plaintiff any right arising from the contract under consideration in
order that he can bring an action to annul the sale voluntarily made
by her to the defendant with a false consideration.

DECISION:

In support of his contention that the contract of sale under

consideration being a fictitious contract or contract with a false
consideration is null per se or non-existent.

Appellant’s conclusion is not correct. By stating that contracts

with false consideration confer no right and produce no legal effect.

Therefore the late Perpetua Concepcion has not transmitted

to the plaintiff any right arising from the contract of conveyance or
sale of her lands to the defendant, and therefore the plaintiff cannot
file an action to annul such contract as representative of the
deceased.
208 | P a g e 208

TEODORO VELEZ, ET AL., VS. SALOMON RAMAS, ET AL.,

G.R. No. L-14997
STREET, J.:

FACTS:

An employee in a pawnshop named Restituta Quirante

embezzled a sum of money from said pawnshop, and in order that
she would not be prosecuted, her father and her husband signed a
promissory note to pay the amount embezzled, with interest to the
victim. When they did not pay, the victim instituted an action to
recover the said amount.

ISSUE:

Whether or not the recovery can be made.

DECISION:

Recover can be made because the cause of consideration is

illicit, namely, to prevent a prosecution for a crime. This was clearly
the purpose of the father, and also the purpose of the husband. And
even if the victim were to claim that even without that purpose the
husband’s intention was merely to pay that which he owes, as a
member of the conjugal partnership, for his wife’s act, still since the
wife was not made a defendant in the instant case, the husband’s
liability cannot be enforced in the present proceeding.
209 | P a g e 209

MAXIMINO CARANTES VS. COURT OF APPEALS ET AL

G.R. NO. L-33360
CASTRO, C.J:

FACTS:

The heirs of a deceased person assigned in 1939 their “Right to

Inheritance” in favour of a co-heir in consideration of the sum of P1.00 and in
further consideration of the fact that while the deceasd was still alive, he had
orally expressed that the assignee co-heir was actually the rightful owner of the
property being assigned to him, It was alleged later, in an action to nullify the
assignment, that the deed of assignment was void, there being no consideration
therefor, and that the action to hace the deed declared void does not prescribe
because the deed itself was void.

ISSUE:
Whether or not the contract of assignment is valid.

DECISION:
The Contract of assignment is valid, there being sufficient
consideration therefor – the P1.00 consideration and the fact that the
deceased had previously recognized the assignee ti be the rightful
owner of the property.
210 | P a g e 210

WILLIAM UY VS. COURT OF APPEALS

G.R. NO. 120465
KAPUNAN, J.:

FACTS:

Petitioners William Uy and Rodel Roxas are agents authorized

to sell eight parcels of land by owners thereof. By virtue of such
authority, they entered the contract of sale to respondent National
Housing Authority to be utilized in developing as a housing project.
However, due to the report of the DENR the three (3) parcels are
located at an active landslide area and not suitable for housing
project, NHA issued a resolution canceling the sale of the three (3)
parcels of land but it offered the amount of P1.225 million to the land
owners as danos perjuicious.

Petitioners filed before the RTC a complaint for damages

against NHA. The RTC rendered a decision declaring the
cancellation of contract to be justified. Nevertheless, it awarded
damages to plaintiff. Upon appeal by the petitioners, the Court of
Appeals dismissed the complaint and cancelled the award for
damages.

ISSUE:

Whether or not the cancellation of the sale has sufficient

justifiable basis.

DECISION:

The cancellation of the sale was based on the negation of the

cause arising from the realization that the land, which were the
object of the sale, were not suitable for housing cause is the
essential reason which moves the contracting parties to enter into a
contract. The National Housing Authority would not have entered
into the contract were the lands not suitable for housing. In other
words, the quality of the land was an implied condition for the NHA
to enter into the contract. NHA was justified in canceling the contract.
211 | P a g e 211

EQUITABLE PCI BANK INC. VS. ANTONIO BELLONES ET AL.

A.M. NO. P-05-1973
CHICO-NAZARIO, J.:

FACTS:

Complainant EPCIB is the defendant in Civil Case No. CEB-

26983 before the Regional Trial Court (RTC), Branch 16, Cebu City,
entitled, “Ng Sheung Ngor, doing business under the name and style
‘Ken Marketing,’ Ken Appliance Division, Inc. and Benjamin Go,
Plaintiffs, vs. Equitable PCI Bank, Aimee Yu and Ben Apas,
Defendants” for Annulment and/or Reformation of Documents and
Contracts. Respondents Antonio A. Bellones and Generoso B.
Regalado are the sheriffs in Branches 9 and 16, respectively, of the
RTC of Cebu City.

For garnishing accounts maintained by Equitable PCI Bank,

Inc. (EPCIB) at Citibank, N.A., and Hongkong and Shanghai Bank
Corporation (HSBC), allegedly in violation of Section 9(b) of Rule 39
of the Rules of Court, a complaint for grave abuse of authority was
filed by Atty. Paulino L. Yusi against Sheriffs Antonio A. Bellones and
Generoso B. Regalado. There was an offer of other real property by
petitioner.

ISSUE:

Whether or not respondents violated the Rules of Court.

DECISION:

By serving notices of garnishment on Citibank, N.A., HSBC

and PNB, Sheriff Regalado violated EPCIB’s right to choose which
property may be levied upon to be sold at auction for the satisfaction
of the judgment debt. Thus, it is clear that when EPCIB offered its
real properties, it exercised its option because it cannot immediately
pay the full amount stated in the writ of execution and all lawful fees
in cash, certified bank check or any other mode of payment
acceptable to the judgment obligee.

In the case at bar, EPCIB cannot immediately pay by way of

Manager’s Check so it exercised its option to choose and offered its
real properties. With the exercise of the option, Sheriff Regalado
should have ceased serving notices of garnishment and
discontinued their implementation. This is not true in the instant
case. Sheriff Regalado was adamant in his posture even if real
properties have been offered which were sufficient to satisfy the
judgment debt.
212 | P a g e 212

ONG CHUA vs.EDWARD CARR, ET AL.,

G.R. No. L-29512
OSTRAND, J.:

FACTS:

Henry Teck and Magdalena Lim owns some land which they
sold to Ong Chua, with the right to repurchase within 4 years. The
land was later sold by Ong to Edward Carr. In the deed of sale
however, the right to repurchase was removed, without the
knowledge of Ong, in order for Carr to obtain a loan using the land.

When the spouses Teck and Lim offered to repurchase the

property, Carr refused, claiming that he has absolute title to the
property. Ong then filed a case for the reformation of the deed which
was granted by the lower court. Hence, this appeal.

ISSUE:

Whether or not the reformation of the deed should be granted?

DECISION:

Yes. Carr’s conduct was tainted with fraud, which was

established beyond a doubt and not by mere preponderance of
evidence. Hence, since there was mistake by one party, and fraud
in the other, the party who was mistaken has the right to demand the
reformation of the contract.

Also, it is conclusive in the evidence that the plaintiff had no

clear conception of the contents of the deed. That he was anxious
to protect the rights of redemption held by the parties who sold the
land to him, is very obvious; indeed, if he had failed to do so, he
would have laid himself open to an action for damages. But the deed
was written in the English language, with which the plaintiff was
unfamiliar, and he had to rely on the statements of Moore as to the
contents and effect of the deed and was told that the document was
sufficient. He had confidence in Moore, with whom he had previous
business relations, and it was but natural for him to believe Moore’s
statement.
213 | P a g e 213

FRABELLE FISHING CORPORATION VS. PHILIPPINE

AMERICAN LIFE INSURANCE COMPANY
G.R. NO. 158560
SANDOVAL-GUTIERREZ, J:

FACTS:

Respondents entered into a Memorandum of Agreement

whereby each agreed to contribute cash, property, and services for
the construction and development of Philamlife Tower, a 45-storey
office condominium. They executed a Deed of Assignment wherein
they assigned to Frabelle Properties Corporation their rights and
obligations under the MOA with respect to the construction,
development, and subsequent ownership of Unit No. 38-B located
at the 38th floor of Philamlife Tower. The parties also stipulated that
the assignee shall be deemed as a co-developer of the construction
project with respect to Unit No. 38-B.

The dispute between the parties started when petitioner found

material concealment on the part of respondents regarding certain
details in the 1996 DOA and 1998 MOA and their gross violation of
their contractual obligations as condominium developers.

On February 11, 2002, petitioner filed with the Housing and

Land Use Regulatory Board, a complaint for reformation of
instrument, specific performance and damages against
respondents. Petitioner alleged, among others, that the contracts do
not reflect the true intention of the parties; and that it is a mere buyer
and not co-developer and/or co-owner of the condominium unit.

ISSUE:

Whether or not the HLURB has jurisdiction over the complaint

for reformation of instruments, specific performance and damages

DECISION:

The petition lacks merit. As the records show, the complaint

filed by petitioner with the HLURB is one for reformation of
instruments. Petitioner claimed that the terms of the contract are not
clear and prayed that they should be reformed to reflect the true
stipulations of the parties.

An action for the reformation of an instrument, to quiet title to

real property or remove clouds therefrom, or to consolidate
ownership under Article 1607 of the Civil Code, may be brought
under this Rule.

As correctly held by the Court of Appeals, any disagreement

as to the nature of the parties relationship which would require first
an amendment or reformation of their contract is an issue which the
courts may and can resolve without the need of the expertise and
specialized knowledge of the HLURB.
214 | P a g e 214

NIEVES VDA. DE GONZALES DE MONDRAGON VS. ROMAN

SANTOS
G.R. NO. L-1724
TUASON, J.:

FACT:

It appears that Don Joaquin Gonzales Mondragon, who died

on December 16, 1940 in Manila, left a large tract of land known as
Hacienda Esperanza, situated in three municipalities of Pangasinan
and covered by five certificates of titles. The deceased had executed
a will and codicil in which he provided for the distribution and
disposition of his estate among his widow, Doña Nieves Balmori
Vda. de Gonzales Mondragon, the plaintiff herein, and various
children. To his widow, the testator devised 33/34 of the hacienda,
among other legacies.

In 1941, the widow and her children made a partition of the

inheritance, allotting to each heir separate and specific portions but
leaving pro-indiviso the residential lots and roads in the barrios
situated within the estate. They employed a surveyor, and a sub-
division plan, was drawn, on which the area of the widow’s
approximately one-third share was stated to be 1,023 hectares.

Subsequent to the partition, negotiations were started, or

resumed, for the purchase by Don Roman Santos, the defendant, of
the plaintiff’s share and those of her children who were willing to sell.
Offers and counter-offers were made until, finally, the parties closed
the deal and executed the deed.

Sometime after the sale, a new survey was made and the new
plan gave the area of the plaintiff’s approximately one-third share of
the hacienda as 1,091.24 instead of 1,023. It was the restoration of
the difference between these two figures or the payment of its
equivalent in cash that the first complaint was filed, it being alleged
that the plaintiff had sold her land on the basis of P450 per hectare.
Explaining why she signed the deed without objecting to the form in
which it was written, the plaintiff declared that she did not read the
document because she was then sick suffering from a heart ailment.
The defendant countered with the allegation that he bought all the
plaintiff’s right and interest to and in the hacienda for lump sum and
not for a specified price for each hectare, as the plaintiff claims.

ISSUE:

Whether or not the true intent and agreement of the parties

therein and that the appellant’s consent thereto was given through
mistake and error.

DECISION:
215 | P a g e 215

The plaintiff has the burden of proof to overcome the strong

presumption that the document she and her co-sellers signed,
expressed their true intention. Our view of the plaintiff’s evidence is
that it is neither predominant nor conclusive. The best that can be
said in its favor is that it does not rule out the opposite theory. Much
less does it establish, in order to show that the mistakes was mutual,
that the buyer shared the vendor’s intention and belief that the sale
was by the hectare and not for a sum in gross as stated in the
document of sale.

The plaintiff’s evidence being as it is, the integrity of the

document Exhibit A will, of necessity, have to be maintained and
equitable relief denied. This would be true even if there were doubts.
Decisions of this court and of American courts abound in favor of the
salutary doctrine that contracts solemnly and deliberately entered
into may not be overturned by inconclusive proof or by reason of
mistakes of one of the parties to which the other in no way has
contributed.

Moran’s comments on the Rules of Court, Vol. III, p. 195,

summing up the rulings laid down in various decisions of the court
and one of the United States Supreme Court, says: “Relief by way
of reformation of a written agreement will not be granted unless the
proof of mutual mistake is of the clearest and most satisfactory
character. The amount of evidence necessary to sustain a prayer for
relief where it is sought to impugn a fact in a document is always
more than a mere preponderance of the evidence.”

It is to be noted that in the last-cited case, the mistake was

caused, intentionally or innocently, by the agent of the plaintiff who
was favored by the shortage, whereas in the case at bar the error
was in the plain of the plaintiff herself who was prejudiced by the
excess.
216 | P a g e 216

RITA SARMING ET AL VS. CRESENCIO DY ET AL

G.R. No. 133643
QUISUMBING, J.:

FACTS:
A controversy arose regarding the sale of Lot 4163 which was
half-owned by the original defendant, Silveria Flores, although it was
solely registered under her name. The other half was originally
owned by Silveria’s brother, Jose. The heirs of Jose entered into a
contract with plaintiff Alejandra Delfino, for the sale of their one-half
share of after offering the same to their co-owner, Silveria, who
declined for lack of money. Silveria did not object to the sale of said
portion to Alejandra.
Atty. Deogracias Pinili, Alejandra’s lawyer then prepared the
document of sale. In the preparation of the document however, the
incorrect title was the one delivered to Pinili. Unaware of the mistake
committed, Alejandra immediately took possession of the lot and
introduced improvements on the said lot.

Two years later, when Alejandra Delfino purchased the

adjoinin portion of the lot she had been occupying, she discovered
that what was designated in the deed, Lot 5734, was the wrong lot.
Thus, Alejandra and the vendors filed for the feformation of the Deed
of Sale.

ISSUE:
Whether or not reformation is proper in this case.

DECISION:
The Court ruled that reformation is proper in the case at bar.
Reformation is that remedy in equity by means of which a written
instrument is made or construed so as to express or inform to the
real intention of the parties.

An action for reformation of instrument under this provision of

law may prosper only upon the concurrence of the following
requisites:
(1) there must have been a meeting of the minds of the parties to
the contract;
(2) the instrument does not express the true intention of the
parties; and
(3) the failure of the instrument to express the true intention of the
parties is due to mistake, fraud, inequitable conduct or accident.

All of these requisites are present in this case. There was a

meeting of the minds between the parties to the contract but the
deed did not express the true intention of the parties due to the
designation of the lot subject of the deed. There is no dispute as to
the intention of the parties to sell the land to Alejandra Delfino but
there was a mistake as to the designation of the lot intended to be
sold as stated in the Settlement of Estate and Sale.
217 | P a g e 217

JUANA ALMIRA ET AL VS. COURT OF APPEALS

G.R. No. 115966
AZCUNA, J.:

FACTS:

Petitioners are the wife and the children of the late Julio Garcia
who inherited from his mother, Ma. Alibudbud, a portion of a 90,655
square meter property denominated as lot 1642 of the Sta. Rosa
Estate in Brgy. Caingin Sta. Rosa Laguna. The lot was co-owned
and registered in the names of three persons with the following
shares: Vicente de Guzman (1/2), Enrique Hemedes (1/4) and
Francisco Alibudbud, the father of Ma. Alibudbud (1/4). Although
there wad no separate title in the name of Julio Garcia, there were
tax declaration in his name to the intent of his grandfather’s share
covering the area of 21460 square meter.

On July 5, 1984, petitioner as heirs of Julio Garcia, and

respondent Federico Brines entered a Kasunduan ng Pagbibilihan
(Kasunduan for Brevity) over the 21460 square meter portion for the
sum of P150.000.00. Respondent paid P65, 000.00 upon execution
of the contract while the balance of P85, 000.00 was made payable
within six (6) months from the date of the execution of the instrument.
The time of the execution of the kasunduan, petitioners allegedly
informed respondent that TCT No. RT-1076 was in the possession
of their cousin, Conchila Alibudbud, who having bought Vicente de
Guzman’s ½ shares, owned the bigger portion of lot 1642. This
standing notwithstanding, respondent willingly entered into the
Kasunduan provided that the full payment of the purchase price will
be made upon delivery to him of the title.

Respondent took possession of the property subject of the

Kasunduan and made various payments to petitioiners amountiong
to P58500.00. However upon failure of petitionere to deliver to him
a separate title to the property in the name of Julio Garcia he refused
to make further payments, prompting petitioner to file a civil action
before the RTC for a rescission of the Kasunduan, return by
respondent to petitioner of the possession of the subject parcel of
land, and payment by respondent of damages in favour of
petitioners.

ISSUE:

Whether or not the petitioner may rescind the Kasunduan

pursuant to Article 1191 of the Civil Code for the failure of
respondent to give full payment of the balance of the purchase price.

DECISION:

NO, the right of the parties are governed by the terms ands the
nature of the contract they entered. Hence, although the nature of
the Kasunduan was never places in dispute by both parties, it is
necessary to ascertain whether the Kasunduan is a contract to sell
218 | P a g e 218

or a contract of Sale. Although both parties have consistency

referred to the Kasunduan as a contract to Sell, a careful reading of
the provision of the Kasunduan reveals that it is a contract of Sale.
A deed of sale is absolute in nature in the absence of an any
stipulation reserving title to the vendor until full payment of the
purchase price. The delivery of a separation title in the name of Julio
Garcia was a condition imposed on respondent’s obligation to pay
the balance of the purchase price. It was not a condition imposed in
the perfection of the contract of Sale.

The rescission will not prosper since the power to rescind is

only given to the injured party. The injured party is the party who has
faithfully fulfilled his obligation. In the case at bar, the petitioners
were not ready, willing and able to comply with their obligation to
deliver a separate title in the name of Julio Garcia to respondent
therefore, thy are not in a position to ask for rescission. Failure to
comply with a condition imposed on the performance of an obligation
gives the other party the option either to refuse to proceed with the
sale or to waive the condition under Art 1545 of the civil code. Hence
it is the respondent who has the option.
219 | P a g e 219

SPOUSES JAIME BENOS VS. SPOUSES GREGORIO

LAWILAO
G.R. NO. 172259
YNARES- SANTIAGO, J.:

FACTS:

On February 11,1999, petitioner-spouses Benos and

respondent Lawilao executed a Pacto de Retro Sale where
Benos sold their lot and the building erected thereon for
P300,000, one-half of which to be paid in cash to the Benos
and the other half to be paid to the bank to pay off the loans of
the Benos which was secured by the same lot and building.
Under the contract, Benos could redeem the property within
18 months from the date of execution by returning the contract
price, otherwise, the sale would become irrevocable. After
paying the P150,000, Lawilao took possession of the property,
restructured it twicw, eventually the loan become due and
demandable. On August 14, 2000, a son of Benos and Lawilao
paid the bankl but the bank refused. Lawilao filed for
consignation against the bank and deposited the amount of
P159,000.00. RTC declared Lawilao of the ownership of the
subject property, which was affirmed by the Court of Appeals.

ISSUE:

Whether or not the contract of Pacto de Retro Sale be

rescinded by the petitioner.

DECISION:

In the instant case, records show that Lawilao filed the

petition for consignation against the bank in Civil Case without
notifying the Benos. Hence, Lawilao failed to prove their offer
to pay the balance, even before the filing of the consignation
case. Lawilao never notified the Benos. Thus, as far as the
Benos are concerned, there was no full and complete payment
of the contract price which gives them the right to rescind.

Petition is granted. Court of Appeals decision is reversed

and set aside, that the Pacto de Retro Sale is rescinded and
petitioner are ordered to return the amount of P150,000 to
respondents.
220 | P a g e 220

ALBERT PADILLA VS. SPOUSES PAREDES AND

COURT OF APPEALS
G.R. NO. 124874
QUISUMBING, J.:

FACTS:

On October 20, 1988, petitioner Padilla and private respondent

entered into a contract to sell involving a parcel of land. The was
untitled but private respondent was paying taxes thereon. Under the
contract, petitioner undertook to secure title to the property in private
respondent’s names of the P312,840 purchase prize, petitioner was
to pay downpayment of P50,000 upon signing and the balance was
to be paid within 10 days from the issuance of the court order
directing issuance of the decree of registration. For failure to pay
some of the amount, respondent offered to sell to petitioner one-half
of the property for all the payment, lest respondent rescinds the
contract. Petitioner refused and instituted action for specific
performance alleging that they have substantially complied with the
obligation. RTC ruled for the petitioners stating a casual or slight
breach that did not warrant rescission. CA reversed the decision and
confirmed the respondent’s rescission.

ISSUE:

Whether or not the private respondents are entitled to rescind

the contract to sell the land to petitioner

DECISION:

The Supreme Court sustained the ruling of CA that private

respondent may validly rescind the contract to sell, however, the
reason for this is not that respondents have the power to rescind but
because their obligation thereunder did not arise. The CA is correct
in ordering the return to petitioner of the amounts received from him
by private respondents, on the precept that no one shall be unjustly
enriched himself at the expense of another.
221 | P a g e 221

HEIRS OF SOFIA QUIRONG VS. DEVELOPMENT BANK OF

THE PHILIPPINES
G.R. No. 173441
ABAD, J.:

FACTS:

When the late Emilio Dalope died, he left a 589-square meter

untitled lot in Sta. Barbara, Pangasinan, to his wife, Felisa Dalope
and their nine children, one of whom was Rosa Dalope-Funcion. To
enable Rosa and her husband Antonio Funcion get a loan from
respondent Development Bank of the Philippines (DBP), Felisa sold
the whole lot to the Funcions. With the deed of sale in their favor and
the tax declaration transferred in their names, the Funcions
mortgaged the lot with the DBP. On February 12, 1979, after the
Funcions failed to pay their loan, the DBP foreclosed the mortgage
on the lot and consolidated ownership in its name on June 17, 1981.
Four years later or on September 20, 1983 the DBP conditionally
sold the lot to Sofia Quirong for the price of P78,000.00. In their
contract of sale, Sofia Quirong waived any warranty against eviction.
The contract provided that the DBP did not guarantee possession of
the property and that it would not be liable for any lien or
encumbrance on the same. Quirong gave a down payment of
P14,000.00. Two months after that sale or on November 28, 1983
Felisa and her eight children filed an action for partition and
declaration of nullity of documents with damages against the DBP
and the Funcions before the Regional Trial Court (RTC) of Dagupan
City.

On December 16, 1992 the RTC rendered a decision,

declaring the DBP's sale to Sofia Quirong valid only with respect to
the shares of Felisa and Rosa Funcion in the property. The DBP
resisted the writ by motion to quash, claiming that the decision could
not be enforced because it failed to state by metes and bounds the
particular portions of the lot that would be assigned to the different
parties in the case.

The RTC denied the DBP's motion. The Court of Appeals (CA)
reversed the RTC decision and dismissed the heirs' action on the
ground of prescription. Hence, this petition.

ISSUE:

Whether or not the heirs of Quirong were entitled to the

rescission of the DBP's sale of the subject lot to the late Sofia
Quirong as a consequence of her heirs having been evicted from it.

DECISION:

The remedy of "rescission" is not confined to the rescissible

contracts enumerated under Article 1381. Article 1191 of the Civil
Code gives the injured party in reciprocal obligations, such as what
222 | P a g e 222

contracts are about, the option to choose between fulfillment and

"rescission." "Rescission" is a subsidiary action based on injury to
the plaintiff's economic interests as described in Articles 1380 and
1381. "Resolution," the action referred to in Article 1191, on the other
hand, is based on the defendant's breach of faith, a violation of the
reciprocity between the parties. As an action based on the binding
force of a written contract, therefore, rescission (resolution) under
Article 1191 prescribes in 10 years. Ten years is the period of
prescription of actions based on a written contract under Article
1144.

The supreme court conclusion is that the Court has reached

respecting the first issue presented in this case, it would serve no
useful purpose for it to further consider the issue of whether or not
the heirs of Quirong would have been entitled to the rescission of the
DBP's sale of the subject lot to Sofia Quirong as a consequence of
her heirs having been evicted from it. As the Court has ruled, their
action was barred by prescription. The CA acted correctly in
reversing the RTC decision and dismissing their action.

In view of the case, the Supreme Court denied the petition and
affirm the decision of the CA.
223 | P a g e 223

UNIVERSITY OF THE PHILIPPINES VS. WALFRIDO DE LOS

ANGELES
G.R. NO. L-28602
REYES, J.B.L. J.;

FACTS:
UP and ALUMCO entered into a logging agreement under
which the latter was granted exclusive authority, for a period starting
from the date of the agreement to 31 December 1965, extendible for
a further period of five (5) years by mutual agreement, to cut, collect
and remove timber from the Land Grant, in consideration of payment
to UP of royalties, forest fees, etc.; that ALUMCO cut and removed
timber therefrom but, as of 8 December 1964, it had incurred an
unpaid account of P219,362.94, which, despite repeated demands,
it had failed to pay; that after it had received notice that UP would
rescind or terminate the logging agreement, ALUMCO executed an
instrument, entitled "Acknowledgment of Debt and Proposed
Manner of Payments," dated December 9, 1964, which was
approved by the president of UP. ALUMCO continued its logging
operations, but again incurred an unpaid account, for the period of
December 9, 1964 to July 15, 1965, in the amount of P61,133.74, in
addition to the indebtedness that it had previously acknowledged.
That on July 19, 1965, petitioner UP informed respondent ALUMCO
that it had, as of that date, considered as rescinded and of no further
legal effect the logging agreement that they had entered in 1960.
That before the issuance of the aforesaid preliminary injunction UP
had taken steps to have another concessionaire take over the
logging operation, and the concession was awarded to Sta. Clara
Lumber Company, Inc.

ISSUE:
Whether U.P. can treat its contract with ALUMCO rescinded,
and may disregard the same before any judicial pronouncement to
that effect.

DECISION:
Respondent ALUMCO contended, and the lower court, in
issuing the injunction order on February 25,1966, apparently
sustained it (although the order expresses no specific findings in this
regard), that it is only after a final court decree declaring the contract
rescinded for violation of its terms that U.P. could disregard
ALUMCO's rights under the contract and treat the agreement as
breached and of no force or effect. UP and ALUMCO had expressly
stipulated in the "Acknowledgment of Debt and Proposed Manner of
Payments" that, upon default by the debtor ALUMCO, the creditor
(UP) has "the right and the power to consider the Logging
224 | P a g e 224

Agreement dated 2 December 1960 as rescinded without the

necessity of any judicial suit." "There is nothing in the law that
prohibits the parties from entering into agreement that violation of
the terms of the contract would cause cancellation thereof, even
without court intervention. In other words, it is not always necessary
for the injured party to resort to court for rescission of the contract."
In other words, the party who deems the contract violated may
consider it resolved or rescinded, and act accordingly, without
previous court action, but it proceeds at its own risk. For it is only the
final judgment of the corresponding court that will conclusively and
finally settle whether the action taken was or was not correct in law.
But the law definitely does not require that the contracting party who
believes itself injured must first file suit and wait for a judgment
before taking extrajudicial steps to protect its interest. Otherwise, the
party injured by the other's breach will have to passively sit and
watch its damages accumulate during the pendency of the suit until
the final judgment of rescission is rendered when the law itself
requires that he should exercise due diligence to minimize its own
damages.
225 | P a g e 225

CARMELA MANGAHAS VS. EUFROCINA BROBIO

G.R. No. 183852
NACHURA, J.:

FACTS:

Pacifico S. Brobio died intestate, leaving three parcels of land.

He was survived by his wife, respondent Eufrocina A. Brobio, and
four legitimate and three illegitimate children; petitioner Carmela
Brobio Mangahas is one of the illegitimate children.

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 Pacificos other children, in consideration of
their love and affection for respondent and the sum of P150,000.00,
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
fathers 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 P1M, but respondent begged her to
lower the amount. Petitioner agreed to lower it to P600,000.00.
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.

ISSUE:

The Honorable Court of Appeals erred in the appreciation of

the facts of this case when it found that intimidation attended the
execution of the promissory note subject of this case.

DECISION:

The Supreme Court ruled that contracts are voidable where

consent thereto is given through mistake, violence, intimidation,
undue influence, or fraud. In determining whether consent is vitiated
by any of these circumstances, courts are given a wide latitude in
weighing the facts or circumstances in a given case and in deciding
in favor of what they believe actually occurred, considering the age,
physical infirmity, intelligence, relationship, and conduct of the
parties at the time of the execution of the contract and subsequent
226 | P a g e 226

thereto, irrespective of whether the contract is in a public or private

writing. It is alleged that mistake, violence, fraud, or intimidation
attended the execution of the promissory note. Still, respondent
insists that she was "forced" into signing the promissory note
because petitioner would not sign the document required by the BIR.
The fact that respondent may have felt compelled, under the
circumstances, to execute the promissory note will not negate the
voluntariness of the act. As rightly observed by the trial court, the
execution of the promissory note in the amount of P600,000.00 was,
in fact, the product of a negotiation between the parties. Respondent
herself testified that she bargained with petitioner to lower the
amount. The remedy suggested by the CA is not the proper one
under the circumstances. An action for partition implies that the
property is still owned in common. Considering that the heirs had
already executed a deed of extrajudicial settlement and waived their
shares in favor of respondent, the properties are no longer under a
state of co-ownership; there is nothing more to be partitioned, as
ownership had already been merged in one person.
227 | P a g e 227

WILLIAM ALAIN MIAILHE VS. COURT OF APPEALS AND

REPUBLIC OF THE PHILIPPINES
G.R. NO. 108991
PANGANIBAN, J.:

FACTS:

Petitioner, William Alain Miailhe, on his own behalf and on

behalf of Victoria Desbarats-Miailhe, Monique Miailhe-Sichere and
Elaine Miailhe-Lencquesaing filed a Complaint for Annulment of
Sale, Reconveyance and Damages against [Respondent] Republic
of the Philippines and defendant Development Bank of the
Philippines.

The petitioner alleged that DBP forged, threatened and

intimidated petitioner to sell the property to DBP for the grossly low
price. The RTC and CA rendered their decision in favor of DBP and
that the action is already prescribed.

ISSUE:

Whether or not extrajudicial demands did not interrupt

prescription.

DECISION:

In the present case, there is as yet no obligation in existence.

Respondent has no obligation to reconvey the subject lots because
of the existing Contract of Sale. Although allegedly voidable, it is
binding unless annulled by a proper action in court.12 Not being a
determinate conduct that can be extrajudically demanded, it cannot
be considered as an obligation either. Since Article 1390 of the Civil
Code states that voidable "contracts are binding, unless they are
annulled by a proper action in court," it is clear that the defendants
were not obligated to accede to any extrajudicial demand to annul
the Contract of Sale.13
228 | P a g e 228

FIRST PHILIPPINE HOLDINGS CORPORATION VS. TRANS

MIDDLE EAST EQUITIES INC.
G.R. NO. 179505
CHICO-NAZARIO, J.:

FACTS:

FHPC formerly known as Meralco Securities Corporation

incorporated on 30 June 1961 by Filipino Entreprenuers led by
Eugenio Lopez Sr. sold its 6,299,179.00 php shares of common
stock in Philippine Commercial International Bank (PCIB), now
Equitable PCIB to TMEE. Such shares according to the FHPC were
obtained by the TMEE through fraud, acts contrary to Law, Morals,
Good Customs and Public Policy and such acquisition is either
voidable, void or un forceable. FHPC filed then its motion for leave
to intervene and admit complaint in intervention and was granted by
the court. On the otehr hand, TMEE filed its motion to dismiss the
complaint-in-intervention by the FHPC on the ground that the action
of FHPC has already prescribed under Article 1391 of the Civil Code.
Since the action was filed only on 28 December 1988 and the sale
was 24 May 1984 the action was laready 7 months late from the date
of prescription.

ISSUE:

Whether or not the sale of property is void and the

prescriptive period had elapsed.

DECISION:

No, the SC found that the sale is not void for a suit for the
annulment of voidbale contract on account of fraud shall be filed
within four years from the discovery of the same, here, from the time
the questioned sale transaction on May 24, 1984 took place, FHPC
didn't deny that it had actual knowledge of the same. Simply,
petitioner was fully aware of the sale of the PCIB shares to TMEE
and espite full knowledge petitioners did not question the said sale
from its inception and sometime thereafter. it was only four years
and seven months had elapsed following the knowledge or
discovery of the alleged fraudulent sale that the petitioner assailed
the same, by then it was too late for the petitioners to beset same
transaction, since the prescriptive period had already come into play.
229 | P a g e 229

MANUEL LUIS SANCHEZ VS. MAPALAD REALTY

CORPORATION
G.R. No. 148516
REYES, J.:

FACTS:

Respondent Mapalad was the registered owner of four (4)

parcels of land located along Roxas Boulevard, Baclaran,
Parañaque. The PCGG issued writs of sequestration for Mapalad
and all its properties. Josef, Vice president/treasurer and General
Manager of Mapalad discovered that the 4 TCTs were missing,
however the four missing tcts turned out to be in possession of
Nordelak Development Corporation. Nordelak came into possession
of the 4 TCTs by deed of sale purportedly executed by Miguel
Magsaysay in his capacity as President and Board Chairman of
Mapalad.

Mapalad filed an action for annulment of deed of sale and

reconveyance of title with damages against Nordelak.

ISSUE:

Whether or not there was a valid sale between Mapalad and

Nordelak.

DECISION:

In the present case, consent was purportedly given by Miguel

Magsaysay, the person who signed for and in behalf of Mapalad in
the deed of absolute sale dated November 2, 1989. However, as he
categorically stated on the witness stand during trial, he was no
longer connected with Mapalad on the said date because he already
divested all his interests in said corporation as early as 1982. Even
assuming, for the sake of argument, that the signatures purporting
to be his were genuine, it would still be voidable for lack of authority
resulting in his incapacity to give consent for and in behalf of the
corporation.

Lack of consideration makes a contract of sale fictitious. A

fictitious sale is void ab initio. The alleged deed of absolute sale
dated November 2, 1989 notwithstanding, the contract of sale
between Mapalad and Nordelak is not only voidable on account of
lack of valid consent on the part of the purported seller, but also void
ab initio for being fictitious on account of lack of consideration.
230 | P a g e 230

MIGUEL KATIPUNAN ET AL VS. BRAULIO KATIPUNAN, JR.

G.R. NO. 132415
SANDOVAL-GUTIERREZ, J.:

FACTS:

Respondent Braulio Katipunan, Jr. is the owner of a 203

square meter lot and a five-door apartment constructed thereon
located at 385-F Matienza St., San Miguel, Manila.
Petitioner Miguel Katipunan, entered into a Deed of Absolute Sale4
with brothers Edgardo Balguma and Leopoldo Balguma, Jr. (co-
petitioners), represented by their father Atty. Leopoldo Balguma, Sr.,
involving the subject property for a consideration of P187,000.00.

Respondent filed a complaint for annulment of the Deed of

Absolute Sale. He contended that the said contract was obtained
through insidious words and machinations.
The TRC dismissed the complaint. The CA reversed the decision of
RTC.

ISSUE:

Whether or not CA ered when it overturned the factual findings

of the trial court which are amply supported by the evidence on
record.

DECISION:

The circumstances surrounding the execution of the contract

manifest a vitiated consent on the part of respondent. Undue
influence was exerted upon him by his brother Miguel and Inocencio
Valdez (petitioners) and Atty. Balguma. It was his brother Miguel
who negotiated with Atty. Balguma. However, they did not explain to
him the nature and contents of the document. Worse, they deprived
him of a reasonable freedom of choice. It bears stressing that he
reached only grade three. Thus, it was impossible for him to
understand the contents of the contract written in English and
embellished in legal jargon.

A contract where one of the parties is incapable of giving

consent or where consent is vitiated by mistake, fraud, or
intimidation is not void ab initio but only voidable and is binding upon
the parties unless annulled by proper Court action. Since the Deed
of Absolute Sale between respondent and the Balguma brothers is
voidable and hereby annulled, then the restitution of the property and
its fruits to respondent is just and proper. Petitioners should turn over
to respondent all the amounts they received starting January, 1986
up to the time the property shall have been returned to the latter.
231 | P a g e 231

ANTHONY ORDUA ET AL VS. EDUARDO FUENTEBELLA

G.R. NO. 176841
VELASCO, JR., J.:

FACTS:

Sometime in 1996 or thereabouts, Gabriel Sr. sold the subject

lot to petitioner Antonita Ordua, 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 Orduas would later testify that
Gabriel Sr. agreed to execute a final deed of sale upon full payment
of the purchase price.

In 1979, Antonita and her sons, Dennis and Anthony Ordua,

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 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. T-71499 over the subject
lot and continued accepting payments from the petitioners. On
December 12, 1996, Gabriel Jr. wrote Antonita authorizing her to
fence off the said lot and to construct a road in the adjacent lot. 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
Banta (Bernard) obviously without the knowledge of petitioners.

ISSUE:

Whether or not the sale of the subject lot by Gabriel Sr. to

Antonita is unenforceable under the Statute of Frauds.

DECISION:

The court notices that Gabriel Sr., during his lifetime, sold the
subject property to Antonita, the purchase price payable on
installment basis. Gabriel Sr. appeared to have been a recipient of
some partial payments. After his death, his son duly recognized the
sale by accepting payments and issuing what may be considered as
receipts therefor. Gabriel Jr., in a gesture virtually acknowledging the
petitioners' dominion of the property, authorized them to construct a
fence around it. And no less than his wife, Teresita, testified as to
the fact of sale and of payments received. Eduardo's assertion in
his Answer that "persons appeared in the property" only after "he
initiated ejectment proceedings" is clearly baseless.
232 | P a g e 232

LUZ HERMOSA VS. EPIFANIO LONGARA

GR No. L-5267
LABRADOR, J.:

FACTS:

This is an appeal by way of certiorari against a decision of

the Court of Appeals, fourth division, approving certain claims
presented by Epifanio M. Longara against the testate estate of
Fernando Hermosa, Sr. The claims are of three kinds, namely,
P2,341.41 representing credit advances made to the intestate from
1932 to 1944, P12,924.12 made to his son Francisco Hermosa, and
P3,772 made to his grandson, Fernando Hermosa, Jr. from 1945 to
1947, after the death of the intestate, which occurred in December,
1944. The claimant presented evidence and the Court of Appeals
found, in accordance therewith, that the intestate had asked for the
said credit advances for himself and for the members of his family
"on condition that their payment should be made by Fernando
Hermosa, Sr. as soon as he receive funds derived from the sale of
his property in Spain." Claimant had testified without opposition that
the credit advances were to be "payable as soon as Fernando
Hermosa, Sr.'s property in Spain was sold and he receive money
derived from the sale." The Court of Appeals held that payment of
the advances did not become due until the administratrix received
the sum of P20,000 from the buyer of the property. Upon
authorization of the probate court in October, 1947, and the same
was paid for subsequently. The Claim was filed on October 2, 1948.

ISSUE:

Whether or not said condition is a potestative condition and

thusly void and unenforceable.

DECISION:

A careful consideration of the condition upon which

payment of the sums advanced was made to depend, "as soon as
he (intestate) receive funds derived from the sale of his property in
Spain," discloses the fact that the condition in question does not
depend exclusively upon the will of the debtor, but also upon other
circumstances beyond his power or control. Cirumstances show that
the intestate had already decided to sell his house lest he meant to
fool his creditors. But in addition of the sale to him (the intestate-
vendor), there were still other conditions that had no concur to effect
the sale, mainly that of the presence of a buyer, ready, able and
willing to purchase the property under the conditions demanded by
the intestate. It is evident, therefore, that the condition of the
obligation was not a purely protestative one, depending exclusively
upon the will of the intestate, but a mixed one, depending partly upon
the will of intestate and partly upon chance. The Supreme Court
upheld the ruling of the lower courts.
233 | P a g e 233

JULIAN FRANCISCO VS. PASTOR HERRERA

GR No. 139982
QUISUMBING, J.:

FACTS:

Eligio Herrera, Sr., father of the respondent, was the owner of

two parcels of land. At two incidents on 1991, petitioner bought the
two parcels of land for Php1,000,000.00 and PhP750,000.00.
Contending that the purchase price was inadequate, the children of
Eligio, Sr., namely, Josefina Cavettany, Eligio Herrera, Jr., and
respondent Pastor Herrera tried to negotiate for an increase of the
purchase price. When petitioner refused respondents then filed a
complaint for annulment of sale on the ground that at the time of
sale, Eligio Sr., was already afflicted with senile dementia,
characterized by deteriorating mental and physical condition
including loss of memory. Both the RTC and CA decided in favor of
respondent.

ISSUE:

Whether or not the disputed contract void and therefore

unenforceable.

DECISION:

In the present case, it was established that the vendor Eligio,

Sr., entered into an agreement with petitioner, but that the former’s
capacity to consent was vitiated by senile dementia. Hence, the
assailed contracts are not void or inexistent per se; rather, these are
contracts that are valid and binding unless annulled through a proper
action filed in court seasonably.

An annullable contract may be rendered perfectly valid by

ratification which can be express or implied. Implied ratification may
take the form of accepting and retaining the benefit of a contract.
This is what happened in this case. Respondent negotiated for the
increase of the purchase price while receiving the installment
payments.

One cannot negotiate for an increase in the price in one breath

and in the same breath contend that the contract of sale is void.
234 | P a g e 234

MUNICIPALITY OF HAGONOY, BULACAN ET. AL. V HON.

SIMEON P. DUMDUM, JR. ET. AL
G.R. NO. 168289
PERALTA, J.:

FACTS:

Private respondent, Emily Rose Go Ko Lim Chao, who is

engaged in buy and sell business of surplus business, equipment
machineries, spare parts and related supplies filed a complaint for
collection of sum of money, including damages against the
petitioners, Municipality of Hagonoy, Bulacan and its ormer chief
executive, Mayor Felix V. Ople in his official and personal capacity.
The private respondent claimed that because of Ople’s earnest
representation that funds had already been allowed for the project,
she agreed to deliver from her personal principal business in Cebu
City twenty-one motor vehicles whose valued totaled to
5,820,000.00 php but the petitioners here instead filed a motion to
dismiss on the ground that the claim on which the action had been
brought was unenforceable under the statute of frauds, pointing out
that there was no written contract or document that would evince the
supposed agreement they entered into with the respondent. The
petitioners also filed for Motion to Dissolve and /or Discharge the
Writ of Preliminary Attachment already issued by the court invoking
immunity of the State from suit, unenforceability of contract, and
failure to substantiate the allegation of fraud. But the trial court
denied all the petitions of the petitioners; hence the petitioners
brought this case to CA believing that the trial court committed grave
abuse of discretion upon issuing two orders .

ISSUES:

Whether or not complaint is unenforceable under the Statutes

of Fraud.

DECISION:

The SC held that Statute of frauds is descriptive of statutes

that require certain classes of contracts to be in writing, and that do
not deprive the parties of the right to contract with respect to the
matters therein involved, but merely regulate the formalities of the
contract necessary to render its enforceability. In other words, the
Statute of fraud only lays down the method by which the enumerated
contracts maybe proved. It does not also declare any contract invalid
because they are not reduced into writing inasmuch as, by law,
contracts are obligatory in whatever form they may have been
entered into provided that all their essential requisites for validity are
present. Thus the claim of the respondent is well-substantiated.
235 | P a g e 235

GENARO CORDIAL VS. DAVID MIRANDA

G.R. NO. 135495
PANGANIBAN, J.:

FACTS:

David Miranda, a businessman from Angeles City, was

engaged in rattan business. Gener Buelva was the supplier of David
but the former met an accident and died. Genero Cordial and
Miranda met through Buelva’s widow, Cecilla.
They agreed that Cordial will be his supplier of rattan poles.
Cordial shipped rattan poles as to the agreed number of pieces and
sizes however Miranda refused to pay the cost of the rattan poles
delivered. Miranda alleged that there exist no privity of contract
between Miranda and Cordial.
Cordial filed a complaint againt Miranda. The RTC rendered
its decision in favor of the petitioner. The CA reversed the decision
of the RTC.

ISSUE:

Whether or not Statute of Frauds applies in this case.

DECISION:

The CA and respondent Miranda stress the absence of a

“written memorandum of the alleged contract between the parties”.
Respondent implicity agrues that the alleged contract is
unenforceable under the Statute of Frauds however, the statute of
frauds applies only to executor and not to completed, executed, or
partially executed contracts. Thus, were one party has performed
one’s obligation, oral evidence will be admitted to prove the
agreement. In the present case, it has already been established that
petitioner had delivered the rattan poles to respondent. The contract
was partially executed, the Statute of Frauds does not apply.
236 | P a g e 236

HEIRS OF THE LATE SPOUSES AURELIO AND ESPERANZA

BALITE VS. RODRIGO LIM
G.R. No. 152168
PANGANIBAN, J.:

FACTS:

The spouses Aurelio and Esperanza Balite were the owners of

a parcels of land. When Aurelio died intestate, his wife Esperanza
and their children inherited the subject property and became co-
owners thereof. Esperanza became ill and was in dire need of
money for her hospital expenses. She, through her daughter,
Cristeta, offered to sell to Rodrigo Lim, her undivided share for the
price of P1,000,000.00. Esperaza and Rodrigo agreed that under
the Deed of Absolute Sale, it will be made to appear that the
purchase price of the property would be P150,000.00 although the
actual price agreed upon by them for the property was
P1,000,000.00. On April 16, 1996, Esperanza executed a Deed of
Absolute Sale in favor of Rodrigo. They also executed on the same
day a Joint Affidavit under which they declared that the real price of
the property was P1,000,000.00 payable to Esperanza by
installments. Only Esperanza and two of her children Antonio and
Cristeta knew about the said transaction. When the rest of the
children knew of the sale, they wrote to the Register of Deeds saying
that their mother did not inform them of the sale of a portion of the
said property nor did they give consent thereto. Nonetheless,
Rodrigo made partial payments to Antonio who is authorized by his
mother through a Special Power of Attorney.

Esperanza signed a letter addressed to Rodrigo informing the

latter that her children did not agree to the sale of the property to him
and that she was withdrawing all her commitments until the validity
of the sale is finally resolved. Then Esperanza died intestate and
was survived by her children. Meanwhile, Rodrigo caused to be
published the Deed of Absolute Sale.

Petitioners filed a complaint against Rodrigo for the annulment

of sale, quieting of title, injunction and damages. Rodrigo secured a
loan from the Rizal Commercial Banking Corporation in the amount
of P2,000,000.00 and executed a Real Estate Mortgage over the
property as security thereof. On motion of the petitioners, they were
granted leave to file an amended complaint impleading the bank as
additional party defendant. The court issued an order rejecting the
amended complaint of the petitioners. Likewise, the trial court
dismissed the complaint. It held that pursuant to Article 493 of the
Civil Code, a co-owner is not invalidated by the absence of the
consent of the other co-owners. Hence, the sale by Esperanza of the
property was valid; the excess from her undivided share should be
taken from the undivided shares of Cristeta and Antonio, who
expressly agreed to and benefit from the sale. The Court of Appeals
likewise held that the sale was valid and binding insofar as
Esperanza Balite’s undivided share of the property was concerned.
237 | P a g e 237

It affirmed the trial court’s ruling that the lack of consent of the co-
owners did not nullify the sale.

ISSUE:

Whether or not the Deed of Absolute Sale is null and void on

the ground that it is falsified; it has an unlawful cause; and it is
contrary to law and/or public policy.

DECISION:

The petition was denied and the ruling of the court below was
affirmed by the Court.

The Deed of Sale is not null and void. It is an example of a

simulated contract which Article 1345 of the Civil Code governs. The
simulation of a contract may either be absolute or relative. In
absolute simulation, there is a colorable contract but without any
substance, because the parties have no intention to be bound by it.
An absolutely simulated contract is void, and the parties may recover
from each other what they may have given under the “contract”. On
the other hand, if the parties state a false cause is relatively
simulated. Here, the parties’ real agreement binds them. In the
present case, the parties intended to be bound by the Contract, even
if it did not reflect the actual purchase price of the property. The
letter of Esperanza to respondent and petitioner’s admission that
there was partial payment made on the basis of the Absolute Sale
reveals that the parties intended the agreement to produce legal
effect.

Since the Deed of Absolute Sale was merely relatively

simulated, it remains valid and enforceable. All the essential
requisites prescribed by law for the validity and perfection of
contracts is present. However, the parties shall be bound by their
real agreement for a consideration of P1,000,000 as reflected by
their Joint Affidavit..
238 | P a g e 238

WILLIAM OLLENDORF VS. IRA ABRAHAMSON

G.R. NO. 13228
FISHER, J.:

FACTS:

Herein plaintiff Ollendorf and defendant Abrahamson made

and entered into Contract of Agreement. The first part hereby agrees
to employ the defendant and the party of the second obliges himself
to work for the plaintiff within the period of two years. Defendant
obligates and binds himself to devote his entire time, attention,
energies and industry on the promotion of the furtherance of the
business and interest of the party. Failure on the said duty shall
entitle the plaintiff to discharge and dismiss the defendant. The
second part of the contract further binds the party that he will not
enter whether directly or indirectly to engage in a similar or
competitive business. Under the term of this agreement, the plaintiff
left the employment due to illness and went to U.S. After his
departure, the defendant returns to Manila as the Manager of the
Philippine Underwear Company. Defendant admits that both firms
turn out the same class of goods and those they are exported to the
same market. However, he alleged that the said contract with the
plaintiff was void for it violates the right for free trade.

ISSUE:

Whether or not the contract is void due to the violation of the

rights of trade.

DECISION:

No, the contract was not void as constituting an unreasonable

restraint of trade. The rule is that the obligations created by contracts
have the force of law between the contracting parties and must be
enforce in accordance with their tenor. The only limitation upon the
freedom of contractual agreement is that the facts established shall
not contrary to law, morals or public order. The industry of counsel
failed to discover direct expression of the legislative which will
prohibits such.
239 | P a g e 239

PHILIPPINE BANKING CORPORATION VS. LUI SHE

G.R. NO. 17587
CASTRO, J.:

FACTS:

Justina who inherited parcels of land in Manila executed a contract

of lease in favor of Wong, covering a portion already leased to him
and another portion of the property. The lease was for 50 years,
although the lessee was give the right to withdraw at anytime from
the agreement with a stipulated monthly rental.

She executed another contract giving Wong the option to buy

the leased premises for P120,000 payable within 10 years at
monthly installment of P1,000. The option was conditioned on his
obtaining Philippine citizenship, which was then pending. His
application for naturalization was withdrawn when it was discovered
that he was a resident of Rizal.

She executed two other contracts one extending the term to

99 years and the term fixing the term of the option of 50 years. In
the two wills, she bade her legatees to respect the contract she had
entered into with Wong, but it appears to have a change of heart in
a codicil. Claiming that the various contracts were made because of
her machinations and inducements practiced by him, she now
directed her executor to secure the annulment of the contracts.

The complaint alleged that Wong obtained the contracts

through fraud. Wong denied having taken advantage of her trust in
order to secure the execution of the contracts on question. He
insisted that the various contracts were freely and voluntarily entered
into by the parties.

The lower court declared all the contracts null and void with
the exception of the first, which is the contract of lease.

ISSUE:

Whether or not the contracts entered into by the parties are

void.

DECISION:

The contract is void. The Court held the lease and the rest of
the contracts were obtained with the consent of Justina freely given
and voluntarily, hence the claim that the consent was vitiated due to
fraud or machination is bereft of merit. However the contacts are not
necessarily valid because the Constitution provides that aliens are
not allowed to own lands in the Philippines. The illicit purpose then
becomes the illegal causa, rendering the contracts void.
240 | P a g e 240

ROBERTO DOMINGO VS. COURT OF APPEALS

G.R. No. 127540
ROMERO, J.:

FACTS:

Paulina Rigonan owned three parcels of land including the house

and warehouse on one parcel. She allegedly sold them to private
respondents, the spouses Felipe and Concepcion Rigonan, who
claim to be her relatives. In 1966, petitioners who claim to be her
closest surviving relatives, allegedly took possession of the
properties by means of stealth, force and intimidation, and refused
to vacate the same. According to defendants, the alleged deed of
absolute sale was void for being spurious as well as lacking
consideration. They said that Paulina Rigonan did not sell her
properties to anyone. As her nearest surviving kin within the fifth
degree of consanguinity, they inherited the three lots and the
permanent improvements thereon when Paulina died. They said
they had been in possession of the contested properties for more
than 10 years.

ISSUE:

Whether or not the consideration in Deed of Sale can be used

to impugn the validity of the Contract of Sale.

DECISION:

Consideration is the why of a contract, the essential reason

which moves the contracting parties to enter into the contract. The
Court had seen no apparent and compelling reason for her to sell
the subject 9 parcels of land with a house and warehouse at a
meager price of P850 only. On record, there is unrebutted testimony
that Paulina as landowner was financially well off. She loaned
money to several people. Undisputably, the P850.00 consideration
for the nine (9) parcels of land including the house and bodega is
grossly and shockingly inadequate, and the sale is null and void ab
initio.
241 | P a g e 241

NATIVIDAD ARIAGA VDA. DE GURREA ET AL VS. ENRIQUE

SUPLICO
G.R. NO. 144320
AUSTRIA-MARTINEZ, J.:

FACTS:

The petition arose from a complaint for anuulment of tilte with

prayer for preliminary injunction filed with the court of First Instance
by Rosalina Gurrea in her capacity as attorney-in-fact of the heirs of
Ricardo Gurrea. The complaint was filed against Atty. Enrique
Suplico.
Atty. Suplico alleged that the property in dispurte was for the
payment of his services rendered to the late Ricardo Gurrrea which
the offered to him as payment.

ISSUE:

Whether or not petitioner’s are entitled to the cancellation of

respondent attorney’s title over the subject property and the
reconveyance thereof to the herein petitioners or to be the estate of
the Late Ricardo.

DECISION:

Having been established that the subject property was still the
object of litigation at the time the subject deed of Transfer of Rights
and Interest was executed, the assignment of rights and interest
over the subject property in favor of respondent is null and void for
being violative of the provisions of Article 1491 of the Civil Code
which expressly prohibits lawyers from acquiring property or rights
which may be the object of any litigation in which they may take part
by virtue of their profession.
It follows that respondent’s title over the subject property should be
cancelled and the property reconveyed to the estate of Ricardo, the
same to be distributed to the latter?s heirs. This is without prejudice,
however, to respondent?s right to claim his attorney?s fees from the
estate of Ricardo, it being undisputed that he rendered legal services
for the latter.
242 | P a g e 242

SPOUSES CELEDONIO MANZANILLA ET AL VS. COURT OF

APPEALS
GR No. L-75342
MEDIALDEA, J.:

FACTS:

Spouses Manzanilla sold on installment an undivided one-half

portion of their residential house and lot. At the time of the sale, the
said property was mortgaged to the Government Service Insurance
System (GSIS), which fact was known to the vendees, spouses
Magdaleno and Justina Campo. The Campo spouses took
possession of the premises upon payment of the first installment.
Some payments were made to petitioners while some were made
directly to GSIS. The GSIS filed its application to foreclose the
mortgage on the property for failure of the Manzanilla spouses to
pay their monthly amortizations. The property was sold at public
auction where GSIS was the highest bidder.

Two months before the expiration of the period to redeem, the

Manzanilla spouses executed a Deed of Absolute Sale of the
undivided one half portion of their property in favor of the Campo
spouses. Upon the expiration of the period to redeem without the
Manzanilla spouses exercising their right of redemption, title to the
property was consolidated in favor of the GSIS and a new title issued
in its name.

The Manzanilla spouses succeeded in re-acquiring the

property from the GSIS. An Absolute Deed of Sale was executed by
GSIS in favor of the Manzanilla spouses and a new certificate of title
was issued to them.

The Manzanilla spouses mortgaged the property to the Biñan

Rural Bank. Petitioner Ines Carpio purchased the property from the
Manzanilla spouses and agreed to assume the mortgage in favor of
Biñan Rural Bank.

Private respondent Justina Campo registered her adverse

claim over the said portion of land with the Register of Deeds of
Quezon City. On the other hand, petitioner Ines Carpio filed an
ejectment case against private respondent Justina. Private
respondent Justina Campo filed a case for quieting of title against
the Manzanilla spouses and Ines Carpio praying for the issuance to
her of a certificate of title over the undivided one-half portion of the
property in question.

ISSUE:

Whether petitioners Manzanillas are under any legal duty to

reconvey the undivided one-half portion of the property to private
respondent Justina Campo.
243 | P a g e 243

DECISION:

In view of the failure of either the Manzanilla spouses or the

Campo spouses to redeem the property from GSIS, title to the
property was consolidated in the name of GSIS. The new title
cancelled the old title in the name of the Manzanilla spouses. GSIS
at this point had a clean title free from any lien in favor of any person
including that of the Campo spouses.

Art. 1456. If property is acquired through mistake or fraud, the

person obtaining it is, by force of law, considered a trustee of an
implied trust for the benefit of the person from whom the property
comes. There was no mistake or fraud on the part of petitioners
when the subject property was re-acquired from the GSIS. The fact
that they previously sold one-half portion thereof has no more
significance in this re-acquisition. Private respondent's right over the
one-half portion was obliterated when absolute ownership and title
passed on to the GSIS after the foreclosure sale. The property as
held by GSIS had a clean title. The property that was passed on to
petitioners retained that quality of title. As regards the rights of
private respondent Ines Carpio, she is a buyer in good faith and for
value. There was no showing that at the time of the sale to her of the
subject property, she knew of any lien on the property except the
mortgage in favor of the Biñan Rural Bank. No other lien was
annotated on the certificate of title. She is also not required by law
to go beyond what appears on the face of the title. When there is
nothing on the certificate of title to indicate any cloud or vice in the
ownership of the property or any encumbrances thereon, the
purchaser is not to explore further than what the Torrens Title upon
its face indicates in quest for any hidden defect or inchoate right
thereof.
244 | P a g e 244

RURAL BANK OF PARAÑÀQUE VS. ISIDRA REMOLADO

GR No. L-62051
AQUINO, J.:

FACTS:

This case is about the repurchase of mortgage property after

the period of redemption and had expired. Isidra Remolado, 64, a
widow, and resident of Makati, Rizal, owned a lot with an area of 308
square meters, with a bungalow thereon, which was leased to
Beatriz Cabagnot. On April 17, 1971 she mortgaged it again to
petitioner. She eventually secured loans totalling P18,000 (Exh. At
D). the loans become overdue. The bank foreclosed the mortagage
on July 21, 1972 and bought the property at the foreclosure sale for
P22,192.70. The one-year period of redemption was to expire on
August 21, 1973.

On August 9, 1973 or 14 days before the expiration of the one-

year redemption period, the bank gave her a statement showing that
she should pay P25,491.96 for the redemption of the property on
August 23. No redemption was made on that date. On September 3,
1973 the bank consolidated its ownership over the property.
Remolado's title was cancelled. Remolado was offered a period until
October 31, 1973 from which she could repurchase the lot. She only
exercised that option on November 5. Remolado then filed an action
for reconveyance which the lower courts granted her.

ISSUE:

Whether or not Remolado is entitled to reconveyance.

DECISION:

There was no binding agreement for its repurchase. Even on

the assumption that the bank should be bound by its commitment to
allow repurchase on or before October 31, 1973, still Remolado had
no cause of action because she did not repurchase the property on
that date.

Justice is done according to law. As a rule, equity follows the

law. There may be a moral obligation, often regarded as an equitable
consideration (meaning compassion), but if there is no enforceable
legal duty, the action must fail although the disadvantaged party
deserves commiseration or sympathy.

In the instant case, the bank acted within its legal rights when
it refused to give Remolado any extension to repurchase after
October 31, 1973. It had given her about two years to liquidate her
obligation. She failed to do so. The decision of the CA affirming the
decision of the RTC was reversed.
245 | P a g e 245

MANILA SURETY AND FIDELITY CO. INC., VS. VALENTIN LIM

G.R. No. L-9343
ENDENCIA, J.:

FACTS:

Valentin R. Lim obtained a judgment against Irineo Facundo,

"ordering the latter to vacate the premises described in the complaint
(Civil Case No. 32) and to pay the plaintiff a monthly rental of Php
100 until the defendant vacate the premises and to pay the costs."
Irineo Facundo filed in the Court of First Instance of Rizal a special
civil action for certiorari and prohibition (Case No. 7674) for
prohibition against Lucio M. Tinagco as municipal Judge of Rizal
City, and Valentin R. Lim, with a prayer of a writ of preliminary
injunction be issued upon filing a bond of Php 1,000 to prevent Judge
Tinagco from issuing an alias writ of execution in civil case No. 32.
Upon Facundo's filing of the bond, which was posted by the Manila
Surety & Fidelity Co., Inc. (herein plaintiff-appellee), the court issued
the corresponding preliminary injunction. The court dismissed the
case and dissolved the writ of preliminary injunction. Lim then filed
a petition with said court asking for damages sustained by him for
failure to collect the rentals because of the issuance of the
aforementioned preliminary injunction. The Court of First Instance
of Rizal allowed the damages sought for, and ordered the
confiscation of the bond posted by the Manila Surety & Fidelity Co.,
Inc., and directed the latter to pay to Lim the full value of said Court.

Thereafter, the Court of First Instance of Rizal, issued a writ of

directing the Sheriff of Manila to require the Manila Surety Fidelity
Co., Inc. to pay to appellant Valentin R. Lim the sum of Php 1,000 in
satisfaction of its liability under the preliminary injunction bond, and
in compliance with the writ of execution, the Manila Surety & Fidelity
Co., Inc., herein appellee, delivered to the Sheriff of Manila the sum
of P1,105.01 in full satisfaction of the writ of execution and the fees
of the Sheriff, of which amount the sum of Php 1,000 was delivered
by the Sheriff to appellant Valentin R. Lim. Afterwards, it was later
declared by the Court of First Instance of Rizal that the writs of
execution were null and void since they were granted in violation of
Section 9 of Rule 60 in connection with Section 20 of Rule 59 of the
Rules of Court, which was affirmed on appeal by the Supreme Court.
Subsequently, the plaintiff-appellee demanded from the defendant-
appellant the immediate reimbursement of the payment it made in
compliance with said writs. The d efendant-appellant contended that
the plaintiff-appellee has paid voluntarily its natural obligation and
therefore is precluded from recovering that which was delivered to
defendant-appellant.

ISSUE:

Whether or not payment by Manila Surety and Fidelity Co.,

was made voluntarily.
246 | P a g e 246

DECISION:

No. Art. 1423 of the Civil Code provides that “Natural

obligations, not being based on positive law but on equity and natural
law, do not grant a right of action to enforce their performance, but
after voluntary fulfillment by the obligor, they authorize the retention
of what has been delivered or rendered by reason thereof.” Upon
careful examination of the foregoing provisions of law and
undisputed facts of the case, we find appellants contention to be
untenable, for the payment made by the herein plaintiff-appellee to
defendant-appellant was not voluntary, it was thru a coercive
process of the writ of execution issued at the instant and insistence
of the defendant-appellant. Certainly, were it not for said writ of
execution, plaintiff-appellee would not have paid to defendant-
appellant the amount in question. It should be noted that at the time
the said writ of execution was issued, the right of defendant-
appellant to damages caused unto him by reason of his inability to
collect the rents of the property involved the civil cases, was still
pending determination by the Supreme Court, and had defendant-
appellant waited for the final decision of the Supreme Court on said
damages, surely he would not have caused the issuance of the writ
of execution in said civil cases and thus compel plaintiff-appellee to
pay to him the aforementioned sum of P1,105.01.
247 | P a g e 247

DOMINGO DE LA CRUZ VS. NORTHERN THEATRICAL

ENTERPRISES INC., ET AL.
G.R. NO. L-7089
MONTEMAYOR, J.:

FACTS:

1941, The Northern Theatrical Enterprises Inc., a domestic

corporation operated a movie house in Laoag, Ilocos Norte.
Domingo De La Cruz was employed whose duties were to guard the
main entrance, to maintain peace and order and to report the
commission of disorders within premises.

Benjamin Martin wanted to crash the gate or entrance of the

movie house. Infuriated by the refusal of De la Cruz to let him in
without first providing himself with a ticket, Martin attacked him with
a bolo. De la Cruz defendant himself as best he could until he was
cornered, at which moment to save himself he shot Martin, resulting
in Benjamin Martin’s death.

De la Cruz was charged with homicide. After a re-investigation

conducted by the Provincial Fiscal the latter filed a motion to dismiss
the complaint, which was granted by the court. De la Cruz was again
accused of the same crime of homicide. After trial, he was finally
acquitted of the charge.

He then demanded from former employer to repay the

expenses but was refused thus filed present action against the
Northern Theatrical Enterprises Inc company and to three members
of its Board of Directors to recover amounts he had paid his lawyers
including moral damages said to have been suffered due to his
worry, neglect of his interests and his family as well in the
supervision of the cultivation of his land, a total of P 15,000.

ISSUE:

Whether or not an agent who’s in the line of duty performs an

act that resulted in his incurring expenses caused by a stranger.

DECISION:

No, because the relationship between the Northern Theatrical

Enterprises Inc. and plaintiff was not that of principal and agent
because the principle of representation as a characteristic of agency
was in no way involved. Plaintiff was not employed to represent
corporation in its dealings with third parties. Plaintiff is a mere
employee hired to perform a certain specific duty or task, that of
acting as a special guard and staying at the main entrance of the
movie house to stop gate crashers and to maintain peace and order
within the premises.
248 | P a g e 248

JUAN F. VILLARROEL VS. BERNARDINO ESTRADA

G.R. NO. L-47362
AVANCEÑA:

FACTS:
On May 9, 1912, Alejandra F. Callao mother of herein
petitioner obtained from the Sps Mariano Estrada and Severina a
loan of 1000 pesos payable in 6 years. Alejandra died leaving
petitioner as the sole heir. The Sps Mariano Estrada and Severina
died as well leaving the respondent as the sole heir. On Aug 9 1930,
petitioner signed a document assuming the obligation to pay the
respondent 1000 plus 12% per annum interest. Hence the action
filed to recover said amount.

The CFI ruled in favor of the respondent ordering the petitioner

to pay 1000 plus interest of 12% per annum to be counted from Aug
9 1930.

ISSUE:
Whether or not the present action may prosper
notwithstanding the prescription of the action to recover the original
debt.

DECISION:
Yes. The present action is not based on the original debt
contracted by petitioner’s mother – which has already prescribed –
but on petitioner’s undertaking on Aug 9 1930 to assume the original
obligation. For the petitioner who is the sole heir of the original
debtor with rights to the latter’s inheritance, the debt legally
contracted by his mother even if it has already lost enforceability due
to prescription, has become a moral obligation which is a sufficient
consideration to make the obligation he voluntarily assumed on Aug
9 1930 enforceable and legally demandable.
249 | P a g e 249

MIGUEL CUENCO vs. CONCEPCION CUENCO

G.R. No. 149844
PANGANIBAN, J.:

FACTS:

On September 19, 1970, the [respondent] filed the initiatory

complaint herein for specific performance against her uncle
[Petitioner] Miguel Cuenco which averred, inter alia that her father,
the late Don Mariano Jesus Cuenco (who became Senator) and said
[petitioner] formed the ‘Cuenco and Cuenco Law Offices’; that on or
around August 4, 1931, the Cuenco and Cuenco Law Offices served
as lawyers in two (2) cases entitled ‘Valeriano Solon versus Zoilo
Solon’ (Civil Case 9037) and ‘Valeriano Solon versus Apolonia
Solon’ (Civil Case 9040) involving a dispute among relatives over
ownership of lot 903 of the Banilad Estate which is near the Cebu
Provincial Capitol; that records of said cases indicate the name of
the [petitioner] alone as counsel of record, but in truth and in fact,
the real lawyer behind the success of said cases was the influential
Don Mariano Jesus Cuenco; that after winning said cases, the
awardees of Lot 903 subdivided said lot into three (3) parts as
follows:

Lot 903-A: 5,000 [square meters]: Mariano Cuenco’s attorney’s fees

Lot 903-B: 5,000 [square meters]: Miguel Cuenco’s attorney’s fees
Lot 903-C: 54,000 [square meters]: Solon’s retention

Petitioner later claimed the property after the death of his

brother.

ISSUES:

Whether Petitioner is in is estoppel

DECISION:

From the time Lot 903-A was subdivided and Mariano’s six
children -- including Concepcion -- took possession as owners of
their respective portions, no whimper of protest from petitioner was
heard until 1963. By his acts as well as by his omissions, Miguel led
Mariano and the latter’s heirs, including Concepcion, to believe that
Petitioner Cuenco respected the ownership rights of respondent
over Lot 903-A-6. That Mariano acted and relied on Miguel’s tacit
recognition of his ownership thereof is evident from his will, executed
in 1963. Indeed, as early as 1947, long before Mariano made his will
in 1963, Lot 903-A -- situated along Juana Osmeña Extension,
Kamputhaw, Cebu City, near the Cebu Provincial Capitol -- had been
subdivided and distributed to his six children in his first marriage.
Having induced him and his heirs to believe that Lot 903-A-6 had
already been distributed to Concepcion as her own, petitioner is
estopped from asserting the contrary and claiming ownership
250 | P a g e 250

thereof. The principle of estoppel in pais applies when -- by one’s

acts, representations, admissions, or silence when there is a need
to speak out -- one, intentionally or through culpable negligence,
induces another to believe certain facts to exist; and the latter
rightfully relies and acts on such belief, so as to be prejudiced if the
former is permitted to deny the existence of those facts.

Petitioner claims that respondent’s action is already barred by

laches. Laches is negligence or omission to assert a right within a
reasonable time, warranting a presumption that the party entitled to
it has either abandoned or declined to assert it.[40] In the present
case, respondent has persistently asserted her right to Lot 903-A-6
against petitioner. Concepcion was in possession as owner of the
property from 1949 to 1969. When Miguel took steps to have it
separately titled in his name, despite the fact that she had the
owner’s duplicate copy of TCT No. RT-6999 -- the title covering the
entire Lot 903-A -- she had her adverse claim annotated on the title
in 1967. When petitioner ousted her from her possession of the lot
by tearing down her wire fence in 1969, she commenced the present
action on September 19, 1970, to protect and assert her rights to the
property. We find that she cannot be held guilty of laches, as she
did not sleep on her rights.
251 | P a g e 251

HEIRS OF RAGUA VS. COURT OF APPEALS

G.R. NOS. 88521-22
PARDO, J.:

FACTS:

These consolidated cases involve a prime lot consisting of

4,399,322 square meters, known as the Diliman Estate, situated in
Quezon City. On this 439 hectares of prime land now stand the
following: the Quezon City Hall, Philippine Science High School,
Quezon Memorial Circle, Visayas Avenue, Ninoy Aquino Parks and
Wildlife, portions of UP Village and East Triangle, the entire Project
6 and Vasha Village, Veterans Memorial Hospital and golf course,
Department of Agriculture, Department of Environment and Natural
Resources, Sugar Regulatory Administration, Philippine Tobacco
Administration, Land Registration Authority, Philcoa Building,
Bureau of Telecommunications, Agricultural Training Institute
building, Pagasa Village, San Francisco School, Quezon City
Hospital, portions of Project 7, Mindanao Avenue subdivision, part
of Bago Bantay resettlement project, SM City North EDSA, part of
Phil-Am Life Homes compound and four-fifths of North Triangle. This
large estate was the subject of a petition for judicial reconstitution
originally filed by Eulalio Ragua in 1964, which gave rise to
protracted legal battles between the affected parties, lasting more
than thirty-five (35) years.

ISSUE:

Whether estoppel by laches exists on the part of petitioner

DECISION:

Petitioners filed the petition for reconstitution of OCT 632

nineteen (19) years after the title was allegedly lost or destroyed. We
thus consider petitioners guilty of laches. Laches is negligence or
omission to assert a right within a reasonable time, warranting the
presumption that the party entitled to assert it either has abandoned
or declined to assert it.
252 | P a g e 252

JEFFERSON LIM VS. QUEENSLAND TOKYO COMMODITIES

INC.
G.R. NO. 136031
QUISUMBING, J.:

FACTS:

Sometime in 1992, Benjamin Shia, a market analyst and trader

of Queensland, was introduced to petitioner Jefferson Lim by
Marissa Bontia, one of his employees. Marissa’s father was a former
employee of Lim’s father. Shia suggested that Lim invest in the
Foreign Exchange Market, trading U.S. dollar against the Japanese
yen, British pound, Deutsche Mark and Swiss Franc.Before
investing, Lim requested Shia for proof that the foreign exchange
was really lucrative. They conducted mock tradings without money
involved. As the mock trading showed profitability, Lim decided to
invest with a marginal deposit of US$5,000 in manager’s check. The
marginal deposit represented the advance capital for his future
tradings. It was made to apply to any authorized future transactions,
and answered for any trading account against which the deposit was
made, for any loss of whatever nature, and for all obligations, which
the investor would incur with the broker. Petitioner Lim was then
allowed to trade with respondent company which was coursed
through Shia by virtue of blank order forms all signed by Lim.
Respondent furnished Lim with the daily market report and
statements of transactions as evidenced by the receiving forms,
some of which were received by Lim.

Meanwhile, on October 22, 1992, respondent learned that it

would take seventeen (17) days to clear the manager’s check given
by petitioner. Shia returned the check to petitioner who informed
Shia that petitioner would rather replace the manager’s check with a
traveler’s check. Shia noticed that the traveler’s check was not
indorsed but Lim told Shia that Queensland could sign the endorsee
portion. Because Shia trusted the latter’s good credit rating, and out
of ignorance, he brought the check back to the office unsigned.
Inasmuch as that was a busy Friday, the check was kept in the
drawer of respondent’s consultant. Later, the traveler’s check was
deposited with Citibank.

On October 27, 1992, Citibank informed respondent that the

traveler’s check could not be cleared unless it was duly signed by
Lim, the original purchaser of the traveler’s check. A Miss Arajo,
from the accounting staff of Queensland, returned the check to Lim
for his signature, but the latter, aware of his P44,465 loss, demanded
for a liquidation of his account and said he would get back what was
left of his investment.

ISSUE:

Whether or not the CA erred in reversing the decision of the

RTC which dismissed the respondent’s complaint.
253 | P a g e 253

DECISION:

The essential elements of estoppel are: (1) conduct of a party

amounting to false representation or concealment of material facts
or at least calculated to convey the impression that the facts are
otherwise than, and inconsistent with, those which the party
subsequently attempts to assert; (2) intent, or at least expectation,
that this conduct shall be acted upon by, or at least influence, the
other party; and (3) knowledge, actual or constructive, of the real
facts. Here, it is uncontested that petitioner had in fact signed the
Customer’s Agreement in the morning of October 22, 1992, knowing
fully well the nature of the contract he was entering into. The
Customer’s Agreement was duly notarized and as a public
document it is evidence of the fact, which gave rise to its execution
and of the date of the latter.

Next, petitioner paid his investment deposit to respondent in

the form of a manager’s check in the amount of US$5,000 as
evidenced by PCI Bank Manager’s Check No. 69007, dated October
22, 1992. All these are indicia that petitioner treated the Customer’s
Agreement as a valid and binding contract.
254 | P a g e 254

METROPOLITAN BANK AND TRUST COMPANY VS. RENATO

CABILZO
G.R. No. 154469
CHICO-NAZARIO, J.:

FACTS:

On 12 November 1994, Cabilzo issued a Metrobank Check

No. 985988, payable to “CASH” and postdated on 24 November
1994 in the amount of One Thousand Pesos (P1, 000.00). The
check was drawn against Cabilzo’s Account with Metrobank Pasong
Tamo Branch under Current Account No. 618044873-3 and was
paid by Cabilzo to a certain Mr. Marquez, as his sales commission.
Subsequently, the check was presented to Westmont Bank for
payment. Westmont Bank, in turn, indorsed the check to Metrobank
for appropriate clearing. After the entries thereon were examined,
including the availability of funds and the authenticity of the signature
of the drawer, Metrobank cleared the check for encashment in
accordance with the Philippine Clearing House Corporation (PCHC)
Rules.

On 16 November 1994, Cabilzo’s representative was at

Metrobank Pasong Tamo Branch to make some transaction when
he was asked by bank personnel if Cabilzo had issued a check in
the amount of P91, 000.00 to which the former replied in the
negative. On the afternoon of the same date, Cabilzo himself called
Metrobank to reiterate that he did not issue a check in the amount of
P91, 000.00 and requested that the questioned check be returned
to him for verification, to which Metrobank complied. Upon receipt
of the check, Cabilzo discovered that Metrobank Check No. 985988
which he issued on 12 November 1994 in the amount of P1, 000.00
was altered to P91, 000.00 and the date 24 November 1994 was
changed to 14 November 1994.Hence, Cabilzo demanded that
Metrobank re-credit the amount of P91, 000.00 to his account.
Metrobank, however, refused reasoning that it has to refer the matter
first to its Legal Division for appropriate action. Repeated verbal
demands followed but Metrobank still failed to re-credit the amount
of P91, 000.00 to Cabilzo’s account.

On 30 June 1995, Cabilzo, thru counsel, finally sent a letter-

demand to Metrobank for the payment of P90, 000.00, after
deducting the original value of the check in the amount of P1,
000.00. Such written demand notwithstanding, Metrobank still failed
or refused to comply with its obligation. Consequently, Cabilzo
instituted a civil action for damages against Metrobank before the
RTC of Manila, Branch 13. In his Complaint docketed as Civil Case
No. 95-75651, Renato D. Cabilzo v. Metropolitan Bank and Trust
Company, Cabilzo prayed that in addition to his claim for
reimbursement, actual and moral damages plus costs of the suit be
awarded in his favor.

ISSUE:
255 | P a g e 255

Whether equitable estoppel can be appreciated in favor of

petitioner

DECISION:

The degree of diligence required of a reasonable man in the

exercise of his tasks and the performance of his duties has been
faithfully complied with by Cabilzo. In fact, he was wary enough that
he filled with asterisks the spaces between and after the amounts,
not only those stated in words, but also those in numerical figures,
in order to prevent any fraudulent insertion, but unfortunately, the
check was still successfully altered, indorsed by the collecting bank,
and cleared by the drawee bank, and encashed by the perpetrator
of the fraud, to the damage and prejudice of Cabilzo.
Metrobank cannot lightly impute that Cabilzo was negligent
and is therefore prevented from asserting his rights under the
doctrine of equitable estoppel when the facts on record are bare of
evidence to support such conclusion. The doctrine of equitable
estoppel states that when one of the two innocent persons, each
guiltless of any intentional or moral wrong, must suffer a loss, it must
be borne by the one whose erroneous conduct, either by omission
or commission, was the cause of injury. Metrobank’s reliance on this
dictum is misplaced. For one, Metrobank’s representation that it is
an innocent party is flimsy and evidently, misleading. At the same
time, Metrobank cannot asseverate that Cabilzo was negligent and
this negligence was the proximate cause of the loss in the absence
of even a scintilla proof to buttress such claim. Negligence is not
presumed but must be proven by the one who alleges it, which
petitioner failed to.
256 | P a g e 256

PLACEWELL INTERNATIONAL SERVICES CORP. vs. IRENEO

B. CAMOTE
G.R. No. 169973
YNARES-SANTIAGO, J.:

FACTS:

Petitioner Placewell International Services Corporation (PISC)

deployed respondent Ireneo B. Camote to work as building
carpenter for SAAD Trading and Contracting Co. (SAAD) at the
Kingdom of Saudi Arabia (KSA) for a contract duration of two years,
with a corresponding salary of US$370.00 per month. At the job site,
respondent was allegedly found incompetent by his foreign
employer; thus the latter decided to terminate his services.
However, respondent pleaded for his retention and consented to
accept a lower salary of SR 800.00 per month. Thus, SAAD retained
respondent until his return to the Philippines two years after.

On November 27, 2001, respondent filed a sworn Complaint

for monetary claims against petitioner alleging that when he arrived
at the job site, he and his fellow Filipino workers were required to
sign another employment contract written in Arabic under the
constraints of losing their jobs if they refused; that for the entire
duration of the new contract, he received only SR 590.00 per month;
that he was not given his overtime pay despite rendering nine hours
of work everyday; that he and his co-workers sought assistance from
the Philippine Embassy but they did not succeed in pursuing their
cause of action because of difficulties in communication.

ISSUE:

Whether there is estoppel by laches

DECISION:

R.A. No. 8042 explicitly prohibits the substitution or alteration

to the prejudice of the worker, of employment contracts already
approved and verified by the Department of Labor and Employment
(DOLE) from the time of actual signing thereof by the parties up to
and including the period of the expiration of the same without the
approval of the DOLE. The subsequently executed side agreement
of an overseas contract worker with her foreign employer which
reduced her salary below the amount approved by the POEA is void
because it is against our existing laws, morals and public policy. The
said side agreement cannot supersede her standard employment
contract approved by the POEA.

Petitioner’s contention that respondent is guilty of laches is

without basis. Laches has been defined as the failure of or neglect
for an unreasonable and unexplained length of time to do that which
by exercising due diligence, could or should have been done earlier,
or to assert a right within reasonable time, warranting a presumption
257 | P a g e 257

that the party entitled thereto has either abandoned it or declined to

assert it. Thus, the doctrine of laches presumes that the party guilty
of negligence had the opportunity to do what should have been
done, but failed to do so. Conversely, if the said party did not have
the occasion to assert the right, then, he can not be adjudged guilty
of laches. Laches is not concerned with the mere lapse of time;
rather, the party must have been afforded an opportunity to pursue
his claim in order that the delay may sufficiently constitute laches.

In the instant case, respondent filed his claim within the three-
year prescriptive period for the filing of money claims set forth in
Article 291 of the Labor Code from the time the cause of action
accrued. Thus, we find that the doctrine of laches finds no
application in this case.