Agcaoili vs GSIS 1988 (Art 1169; Compensatio Morae; pg 109) Facts: In 1964, plaintiff Agcaoili applied with the

defendant GSIS to purchase a house and lot in Marikina. In the following year in a letter, respondent approved petitioners application with the advise to occupy the said house immediately and failure to occupy the same from the receipt of the notice, plaintiffs application shall be considered disapproved and will be awarded to another applicant. Plaintif lost no time in occupying the house. However, he could not stay in it and had to leave the following day because the house was nothing more than a shell, in such a state of incompleteness that civilized occupation was not possible. Agcaoili did however ask a homeless friend, a certain Villanueva, to stay in the premises as some sort of watchman, pending completion of the construction of the house. Agcaoili thereafter complained to the GSIS, to no avail. The GSIS asked Agcaoili to pay the monthly amortizations and other fees. Agcaoili paid the first monthly installment and the incidental fees, 3 but refused to make further payments until and unless the GSIS completed the housing unit. What the GSIS did was to cancel the award and require Agcaoili to vacate the premises. 4 Agcaoili reacted by instituting suit in the Court of First Instance of Manila for specific performance and damages. The CFI ruled in favor of Agcaoili declaring the cancellation of the award illegal and viod and ordering GSIS to respect and enforce the aforesaid award, and to complete the house in question to make the same habitable and authorizing GSIS to collect the monthly amortization only after said house shall have been completed. Hence this present appeal. GSIS argued the following: 1. Agcaoili had no right to suspend payment of amortizations on account of the incompleteness of his housing unit, since said unit had been sold in the condition and state of completion then existing ... (and) he is deemed to have accepted the same in the condition he found it when he accepted the award. 2. Perfection of the contract of sale between it and Agcaoili being conditioned upon the latters immediate occupancy of the house subject thereof, and the latter having failed to comply with the condition, no contract ever came into existence between them. Issues: 1. Whether or not Agcaoli may suspend payment of amortization on account of the incompleteness of his housing unit, since said unit had been sold in the condition and state of completion then existing ... (and) he is deemed to have accepted the same in the condition he found it when he accepted the award? Whether or not there was a valid contract of sale between Agcaoili and GSIS? 2. Whether or not Agcaolili repudiated his contract with GSIS? Held: On the first issue, Yes, because Art. 1169 of the Civil Code provides that in reciprocal obligations, neither party incurs in delay if the other does not comply or is not ready to comply in a proper manner with what is incumbent upon him. Certainly, the prestation of the contract which was ratified upon approval of GSIS (presupposing the meeting of the minds of GSIS and Agcaoli) is the house and lot, on the condition that the house should be habitable. Thus: There was then a perfected contract of sale between the parties; there had been a meeting of the minds upon the purchase by Agcaoili of a determinate house and lot in the GSIS Housing Project at Nangka Marikina, Rizal at a definite price payable in amortizations at P31.56 per month, and from that moment the parties acquired the right to reciprocally demand performance.

There would be no sense to require the awardee to immediately occupy and live in a shell of a house, a structure consisting only of four walls with openings, and a roof, and to theorize, as the GSIS does, that this was what was intended by the parties, since the contract did not clearly impose upon it the obligation to deliver a habitable house, is to advocate an absurdity, the creation of an unfair situation. By any objective interpretation of its terms, the contract can only be understood as imposing on the GSIS an obligation to deliver to Agcaoili a reasonably habitable dwelling in return for his undertaking to pay the stipulated price. Since GSIS did not fulfill that obligation, and was not willing to put the house in habitable state, it cannot invoke Agcaoilis suspension of payment of amortizations as cause to cancel the contract between them. It is axiomatic that (i)n 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. 1
Arrieta vs. National Rice & Corn Corporation (NARIC)

GR L-15645, 31 January 1964 FACTS On 19 May 1952, Paz and Vitaliado Arrieta participated in the public bidding called by NARIC for the supply of 20,000 metric tons of Burmese rice. Ad her bid of $203 per metric ton was the lowest, she was awarded the contract for the same. As a result of the delay in the opening of the letter of credit by NARIC, the allocation of Arrietas supplier in Rangoon was cancelled and the 5% deposit amounting to an equivalent of P200,000 was forfeited. Arrieta endeavored but failed to restore the cancelled Burmese rice allocation, and thus offered Thailand rice instead. Such offer was rejected by NARIC. Subsequently, Arrieta sent a letter to NARIC, demanding compensation for the damages caused her in the sum of US$286,000 representing unrealized profit. The demand having been rejected, she instituted the case. ISSUE Whether the rate of exchange to be applied in the conversion is that prevailing at the time of breach, or at the time the obligation was incurred, or on the promulgation of the decision. HELD As pronounced in Eastboard Navigation vs. Ismael, if there is any agreement to pay an obligation in the currency other than Philippine legal tender, the same is null and void as contrary to public policy (RA 529), and the most that could be demanded is to pay said obligation in Philippine currency to be measured in the prevailing rate of exchange at the time the obligation was incurred. Herein, the rate of exchange to be applied is that of 1 July 1952, when the contract was executed.

Telefast vs Castro (1988) Facts: In 1956, Sofia Castro-Crouch (plaintiff-respondent) was vacationing in Pangasinan in her parents house. That same year in November, her mother, Consolacion died. On the day of her mothers death she addressed a telegram to her father Ignacio who was then in the US announcing Consolacions death. The telegram was accepted by Telefast (defendant-petitioner) in its Dagupan office after payment of required fees or charges. The telegram never reached the addressee. Consolacion was interred without her husband and children besides Sofia. Sofia went back to the US and learned that the telegram never reached her father. Thus, she and her siblings and their father sued Telefast for damages arising from the breach of contract by the defendant. Petitioner-defendant Telefast interposed that the reason why the telegram never reached the addressee is because of technical and atmospheric factors beyond its control. It appears though that no attempt made by defendant to inform Sofia for that matter or any reason at all that explains why the telegram reached the addressee. The CFI ruled in favor of Sofia and her co-plaintiffs awarding her damages she prayed for. Telefast appealed before the IAC which affirmed the decision of the CFI. Hence this appeal. Issues: Whether or not petitioner is liable for damages arising from the breach of contract even though that there was a technical and atmospheric factors that lead to its failure to comply with terms of the contract? Held: Yes. Art. 1170 of the Civil Code provides, Those who in the performance of their obligation are guilty of fraud, delay, negligence, and those who in any manner contravene the tenor thereof, are liable for damages. Art. 2176 also provides that whoever by act or omission causes damage to another, there being fault or negligence, is obliged to pay for the damage done. In the case at bar, petitioner and private respondent Sofia C. Crouch entered into a contract whereby, for a fee, petitioner undertook to send said private respondents message overseas by telegram. This, petitioner did not do, despite performance by said private respondent of her obligation by paying the required charges. Petitioner was therefore guilty of contravening its obligation to said private respondent and is thus liable for damages.

Also, it is evident that petitioner did not do anything to advise the plaintiff of the circumstances which lead to its failure to comply with its obligation. It is apparent that such tantamount to gross negligence. Hence bad faith. NPC vs CA, ECI 1986 (Quasi-Delict; Fortuitous Event) Facts: ECI entered into a contract with NAWASA to undertake a construction of a tunnel from Ipo Dam to Bicti including all materials, equipment and labor for the said construction for 800 days. The project involved 2 phases. The first involves tunnel works and the second consists of outworks at both ends of the tunnel. As soon as ECI finished the tunnel works in Bicti, it transferred all its equipments to Ipo Dam to finish the second phase of the project. The record shows that on November 4,1967, typhoon Welming hit Central Luzon, passing through defendants (NPC) Angat Hydro-electric Project and Dam at lpo, Norzagaray, Bulacan. Strong winds struck the project area, and heavy rains intermittently fell. Due to the heavy downpour, the water in the reservoir of the Angat Dam was rising perilously at the rate of sixty (60) centimeters per hour. To prevent an overflow of water from the dam, since the water level had reached the danger height of 212 meters above sea level, the defendant corporation caused the opening of the spillway gates. ECI sued NPC for damages. The trial court and the court of appeals found that defendant NPC was negligent when opened the gates only at the height of the typhoon holding that it could have opened the spill gates gradually and should have done so before the typhoon came. Thus both courts awarded ECI for damages. NPC assails the decision of the CA as being erroneous on the grounds, inter alia, that the loss sustained by ECI was due to force majeure. It argued that the rapid rise of water level in the reservoir due to heavy rains brought about by the typhoon is an extraordinary occurrence that could not have been foreseen. On the other hand, ECI assails the decision of the court of appeals modifying the decision of the trial court eliminating the awarding of exemplary damages. Hence this present appeal. Issues: 1. Whether or not NPC is liable for damages even though the cause of the damage is due to a force majeure? Otherwise stated, whether or not the damage sustained by ECI could be attributed to NPC notwithstanding the occurrence of a force majeure? 2. Whether or not ECI is entitled to exemplary damages? Held: Yes. NPC was undoubtedly negligent because it opened the spillway gates of the Angat Dam only at the height of typhoon Welming when it knew very well that it was safer to have opened the same gradually and earlier, as it was also undeniable that NPC knew of the coming typhoon at least four days before it actually struck. And even though the typhoon was an act of God or what we may call force majeure, NPC cannot escape liability because its negligence was the proximate cause of the loss and damage. As we have ruled in Juan F. Nakpil & Sons v. Court of Appeals, (144 SCRA 596, 606-607): Thus, if upon the happening of a fortuitous event or an act of God, there concurs a corresponding fraud, negligence, delay or violation or contravention in any manner of the tenor of the obligation as provided for in Article 1170 of the Civil Code, which results in loss or damage, the obligor cannot escape liability. The principle embodied in the act of God doctrine strictly requires that the act must be one occasioned exclusively by the violence of nature and human agencies are to be excluded from creating or entering into the cause of the mischief. When the effect, the cause of which is to be considered, is found to be in part the result of the participation of man, whether it be from active intervention or neglect, or failure to act, the whole occurrence is thereby humanized, as it was, and removed from the rules applicable to the acts of God. (1 Corpus Juris, pp. 1174-1175). Thus, it has been held that when the negligence of a person concurs with an act of God in producing a loss, such person is not exempt from liability by showing that the immediate cause of the damage was the act of God. To be exempt from liability for loss because of an act of God, he must be free from any previous negligence or misconduct by which the loss or damage may have been occasioned. (Fish & Elective Co. v. Phil. Motors, 55 Phil. 129; Tucker v. Milan 49 O.G. 4379; Limpangco & Sons v. Yangco Steamship Co., 34 Phil. 594, 604; Lasam v. Smith, 45 Phil. 657). Substantial evidence is defined as such relevant evidence as a reasonable mind might accept as adequate to support a conclusion (Philippine Metal Products, Inc. v. Court of Industrial Relations, 90 SCRA 135 [1979]; Police Commission v. Lood, 127 SCRA 757 [1984]; Canete v. WCC, 136 SCRA 302 [1985]) Exemplary Damages

No. As to the question of exemplary damages, we sustain the appellate court in eliminating the same since it found that there was no bad faith on the part of NPC and that neither can the latters negligence be considered gross. In Dee Hua Liong Electrical Equipment Corp. v. Reyes, (145 SCRA 713, 719) we ruled: Neither may private respondent recover exemplary damages since he is not entitled to moral or compensatory damages, and again because the petitioner is not shown to have acted in a wanton, fraudulent, reckless or oppressive manner (Art. 2234, Civil Code; Yutuk v. Manila Electric Co., 2 SCRA 377; Francisco v. Government Service Insurance System, 7 SCRA 577; Gutierrez v. Villegas, 8 SCRA 527; Air France v. Carrascoso, 18 SCRA 155; Pan Pacific (Phil.) v. Phil. Advertising Corp., 23 SCRA 977; Marchan v. Mendoza, 24 SCRA 888). Comments: Under Art. 1170 of the Civil Code, When those who in the performance of their obligations are guilty of fraud, delay, or negligence, or in any manner contravene in the tenor of the obligation, are liable for damages. What the provision contemplates is that there is an express obligation between the obligor and the obligee arising from a contractual obligation that must be complied with in good faith. And what the aforestated provision liable for damages is that breach either because of fraud, delay, or negligence, or contravention to the tenor of obligation. Hence it should not be applied generally in all cases, especially in quasi-delict which is treated specifically by law. In the case at bar, ECI and NPC has no preexisting obligation arising from a contract. Although negligence is indubitably present in the case, there cannot be located from the facts that there is a prior obligation arising form NPC and ECI. But instead the applicable law in the case at bar is Art. 2176 which provides, Whoever by act or omission causes damage to another, there being fraud or negligence, is obliged to pay for the damage done. Such fault of negligence, if there is no pre-existing contractual relation between the parties, is called quasi-delict and is governed by the provisions of this chapter. I should rather say that the Honorable Supreme Court misplaced the application of the law. I should further say that the Act of God Doctrine should be applied inversely to that Nakpil and Sons Vs Court of appeals 1986 Facts: Philippine Bar Association, an NGO, entered into a contract with UCCI on administration basis and Nakpil & Sons to construct a building; the latter will provide the design and specifications of the said building. Two years after the building is constructed and is being leased by PBA, an earthquake, unusually strong hit Metro Manila. As a result, the building is severely damaged (partially collapsed) which compelled the tenants to vacate the premises. PBA, sued UCCI and Nakpil. Since the case involves a high degree of technicality to ascertain the cause of action, the trial court appointed a Commissioner to report to him his findings. According to the Commissioner the damage is caused by: 1. Earthquake 2. defects in the plans and specifications prepared by the third-party defendants architects. 3. deviations from said plans and specifications by the defendant contractors 4. failure of the latter to observe the requisite workmanship in the construction of the building and of the contractors, architects 5. failure of the owners to exercise the requisite degree of supervision in the construction of subject building The trial court agreed with the findings of the Commissioner except as to the holding that the owner is charged with full nine supervision of the construction. The Court sees no legal or contractual basis for such conclusion. Defendants appealed the decision of the trial court to CA. CAs decision is to affirm the lower courts decision with the additional P200K damages. Issue: The pivotal issue in this case is whether or not an act of God-an unusually strong earthquake-which caused the failure of the building, exempts from liability, parties who are otherwise liable because of their negligence. Held: No. ART 1723 NCC Liability of the engineer or architect is if the building should collapse within 15 years because of a defect in the plans and specification OR due to the defects in the ground.

The liability of the contractor lies if the building should collapse w/in 15 years because of (1) defects in the CONSTRUCTION (2) USE of materials of INFERIOR QUALITY furnished by contractor or (3) VIOLATION of the terms of the contract. If the construction was supervised by the engineer or architect, he shall be solidarily liable with the contractor. If the owner of the building accepts the building after it is constructed does not mean a WAIVER of any cause of action by reason of defects. The action should be brought within 10 years. Upon the other hand, 1174 of NCC: Except in cases expressly specified by law, or otherwise when it is declared in stipulation or when from the nature of the obligation requires the assumption of risk, no person shall be liable for those events which could not be foreseen, or which, though foreseen, were ineveitable. Elements of 1174, fortuitous event (a) the cause of the breach of the obligation must be independent of the will of the debtor; (b) the event must be either unforseeable or unavoidable; (c) the event must be such as to render it impossible for the debtor to fulfill his obligation in a normal manner; and (d) the debtor must be free from any participation in, or aggravation of the injury to the creditor. In any event, the relevant and logical observations of the trial court as affirmed by the Court of Appeals that while it is not possible to state with certainty that the building would not have collapsed were those defects not present, the fact remains that several buildings in the same area withstood the earthquake to which the building of the plaintiff was similarly subjected, cannot be ignored. One who negligently creates a dangerous condition cannot escape liability for the natural and probable consequences thereof, although the act of a third person, or an act of God for which he is not responsible, intervenes to precipitate the loss. As already discussed, the destruction was not purely an act of God. Truth to tell hundreds of ancient buildings in the vicinity were hardly affected by the earthquake. Only one thing spells out the fatal difference; gross negligence and evident bad faith, without which the damage would not have occurred.

UP v. Delos Angeles Facts: UP petitioner entered into a contract with ALUMCO respondent, a logging company, where the latter is granted a right to cut,collect and remove timber from the land grant in return for a consideration of money. But respondent incurred unpaid account amounting to P220K and despite repeated demands, it still failed to settle its dues. UP sent a notice to rescind the contract, and respondent executed an instrument, entitled Acknowledgment of Debt and Proposed Manner of Payments wherein it undertook to settle the balance on or before June 1965 and in case of non-fulfillment, UP is entitled to rescind the contract and respondent will pay P50K as liquidated damages without the necessity of judicial suit. UP President approved the instrument. Respondent constinued its logging operations but again failled to settle its account in addition to the indebtedness it had previously acknowledged. That o July 1965, UP informed 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; and on 7 September 1965, UP filed a complaint against ALUMCOfor the collection or payment of the herein before stated sums of money and alleging the facts hereinbefore specified, together with other allegations; it prayed for and obtained an order, dated 30 September 1965, for preliminary attachment and preliminary injunction restraining ALUMCO from continuing its logging operations in the Land Grant. Before the issuance of the preliminary injuction UP had taken steps to have another concessionaire take over the logging operation; after it advertised its invitation to bid, the concession was awarded to Sta. Clara Lmber signed in Feb. 1966. In the mean time, ALUMCO filed a petition to enjoin UP form the conducting the bidding, the CFI ejoined UP from awarding the logging rights. However, the order was received only after it had concluded the its contract with Sta. Clara. And upon motion of ALUMCO, UP was declared in contempt and directed Sta. Clara from exercising logging rights or conducting logging operations in the concession. UP moved to reconsider the order but it was denied. Hence this present appeal. Issue: Whether or not by virtue of the instrument respondent executed, petitioner can rescind the contract upon default of respondent without judicial pronouncement? Held: Yes. UP and ALUMCO had expressly stipulated in the Acknowledgment of Debt and Proposed Manner of Payments that, upon default by the debtor ALUMCO, the creditor (UP) has the right and the power to consider, the Logging Agreement dated 2 December 1960 as rescinded without the necessity of any judicial suit. As to such special stipulation, and in connection with Article 1191 of the Civil Code, this Court stated in Froilan vs. Pan Oriental Shipping Co., et al., L-11897, 31 October 1964, 12 SCRA 276: 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. Article 1191. The power to rescind obligations is implied in reciprocal ones, in case one of the obligors should not comply with what is incumbent upon him.

The injured party may choose between the fulfillment and the rescission of the obligation, with the payment of damages in either case. He may also seek rescission, even after he has chosen fulfillment, if the latter should become impossible. The court shall decree the rescission claimed, unless there be just cause authorizing the fixing of a period. This is understood to be without prejudice to the rights of third persons who have acquired the thing, in accordance with articles 1385 and 1388 and the Mortgage Law. (1124) Of course, it must be understood that the act of party in treating a contract as cancelled or resolved on account of infractions by the other contracting party must be made known to the other and is always provisional, being ever subject to scrutiny and review by the proper court. If the other party denies that rescission is justified, it is free to resort to judicial action in its own behalf, and bring the matter to court. Then, should the court, after due hearing, decide that the resolution of the contract was not warranted, the responsible party will be sentenced to damages; in the contrary case, the resolution will be affirmed, and the consequent indemnity awarded to the party prejudiced. 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 others 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 (Civil Code, Article 2203).

Central Bank vs CA and Tolentino 1985 Facts: On April 1965, Island Savings Bank approved the loan of Sulpicio Tolentino for P80K payable in 3 years with 12% interest per annum, in consideration of his 100-hectare land. On May 1965, only a mere P17K of the P80K was released by the bank and Sulipicio and his wife signed a promissory note for the same consideration. The bank promised repeatedly the release of P63K. On August 1965, the Monetary Board of the Central Bank, after finding Island Savings was suffering liquidity problems, issued a resolution prhibiting it from making new loans and investments (except investment in government securities) excluding granting extensions and renewals of already approved loans subject to review by the Superintendent of Banks. On June 1968, after finding that Island savings failed to put up the required capital to restore its solvency prohibited it from doing diong business and instructed the Acting Superintendent of Banks to take charge of the Banks assets. On August 1968, Island savings filed an application for the extra-judicial foreclosure of the real estate mortgage covering the 100-hectare land of Sulpicio. On January 1979, Sulpicio filed a petition with the CFI for injuction, specific performance or rescission with damages with preliminary injuction alleging that Island Savings failed to deliver the P63K balance of the P80K loan. He prayed the delivery of P63K plus 12% legal interest and if the same is not fulfilled, then the real estate mortgage should be rescinded. Upon filing of a P5K bond, the CFI issued a TRO enjoining Island Savings from continuing with foreclosure of the mortgage. After the trial, the CFI dismissed the petition of Sulpicio ordered him to pay the P17K loan plus 12% legal interest and if he failed to pay the same the TRO be lifted and the foreclosure may proceed. Sulpicio appealed the decision to the CA which in turn affirmed the dismissal of his petition but ruled that Island Savings can neither foreclose the mortgage nor collect the P17K loan. Hence this appeal. Issues: (1) Whether or not Sulpicio entitled to the relief of specific performance? (2) Whether or not Sulpicio is liable to pay the P17K debt covered by the promissory note? (3) If Sulpicios liability to pay the P17K subsists, can his real estate mortgage be foreclosed to satisfy the said amount? Held: When Island Savings and Sulpicio entered into an P80K loan agreement in 1965, they undertook reciprocal obligations. In reciprocal oblications, neither party incurs in delay when the other does not comply or is not ready to comply in a proper manner with what is incumbent upon him. So when Sulpicio furnished his land on April 1965 in consideration of P80K and when Island Savings failed to comply the fulfillment of the P80K, the latter incurred in delay. Neither is it a valid defense when the monetary board prohibited it from extending new loans because it did not prevent it from releasing the balance of a loan agreement previously contracted. Sulpicio then has the right to demand specific performance but in view of the consideration that the monetary board prohibited it from doing any business, specific performance can no longer be granted. In the same line, the only remedy left is rescission of the contract but it can only apply to the balance of P63K because the bank is in default only insofar as such amount is concerned, as there is no doubt that the bank failed to give the P63,000.00. As far as the partial release of P17,000.00, which Sulpicio M. Tolentino accepted and executed a promissory note to cover it, the bank was deemed to have complied with its reciprocal obligation to furnish a P17,000.00 loan. The promissory note gave rise to Sulpicio M. Tolentinos reciprocal obligation to pay the P17,000.00 loan when it falls due. His failure to pay the overdue amortizations under the promissory note made him a party in default, hence not entitled to rescission (Article 1191 of the Civil Code). If there is a right to rescind the promissory note, it shall belong to the aggrieved party, that is, Island Savings Bank. If Tolentino had not signed a promissory note setting the date for payment of P17,000.00 within 3 years, he would be entitled to ask for rescission of the entire loan because he cannot possibly be in default as there was no date for him to perform his reciprocal obligation to pay. Thus there is still the obligation of Sulpicio to pay Island Savings the P17k he loaned.

However, Sulpicios land may not be foreclosed in whole because the 100-hectare land was in consideration of P80K. Since only P17K was given or constituting only 21.25 percent, the land that may only be foreclosed should correspond to the amount given. Thus his real estate covering 78.75 hectares was declared unenforceable.

Zulueta v. Mariano GR 29360 (1982)

Facts: Zulueta and Avellana (a movie director) entered into a Contract to Sell a residential house and lot for P75k payable in 20 years, with Avellana assuming to pay P5k of down payment and monthly installment payable in advance before 5 th of each month, starting Dec. 1964. It was also stipulate that upon failure of the BUYER (Avellana) to fulfill any of the conditions, it will authorize the owner to(1) recover physical possession of the land, and (2) rescind the contract, and by such (3) all payments made by the BUYER to OWNER shall be deemed as rental payments. Avellana failed to make payment despite several demands. Thus compelled Zulueta to sue Avellana for ejectment before the Municipal Court. Avellana contended that that the Municipal Court had no jurisdiction over the nature of the action as it involved the interpretation and/or rescission of the contract; that prior to the execution of the contract to sell, petitioner was already indebted to him in the sum of P31,269.00 representing the cost of two movies respondent made for petitioner and used by the latter in his political campaign in 1964 when petitioner ran for Congressman, as well as the cost of one 16 millimeter projector petitioner borrowed from respondent and which had never been returned The Municipal Court found that respondent Avellana had failed to comply with his financial obligations under the contract and ordered him to vacate the premises and deliver possession thereof to petitioner. Respondent Avellana appealed to the CFI which granted his contention that the Municipal Court had no jurisdiction to try the case, thus dismissed it. Hence this appeal. Issue: Was the action before the Municipal Court of Pasig essentially for detainer and, therefore, within its exclusive original jurisdiction, or one for rescission or annulment of a contract, which should be litigated before a Court of First Instance? Held: The case is essentially one for rescission of the contract. Under those circumstances, proof of violation is a condition precedent to resolution or rescission. It is only when the violation has been established that the contract can be declared resolved or rescinded. Upon such rescission, in turn, hinges a pronouncement that possession of the realty has become unlawful. Thus, the basic issue is not possession but one of rescission or annulment of a contract, which is beyond the jurisdiction of the Municipal Court to hear and determine. True, the contract between the parties provided for extrajudicial rescission. This has legal effect, however, where the other party does not oppose it. Where it is objected to, a judicial determination of the issue is still necessary. A stipulation entitling one party to take possession of the land and building if the other party violates the contract does not ex proprio vigore confer upon the former the right to take possession thereof if objected to without judicial intervention and determination. The writ of mandamus was denied.

Palay Inc. vs Clave 56076 1983 Facts: In 1965, Petitioner and private respondent entered into a Contract to Sell a parcel of land. In the said contract, it provided the petitioner for automatic extrajudicial rescission upon default in payment of any

monthly installment after the lapse of 90 days from the expiration of the grace period of one month, without need of notice and with forfeiture of all installments paid. Respondent Dumpit paid the downpayment and several installments. The last payment was made on Dec. 1967. On 1973, private respondent wrote petitioner offering to update all his overdue accounts with interest, and seeking its written consent to the assignment of his rights to a certain Lourdes Dizon. Replying petitioners informed respondent that his Contract to Sell had long been rescinded pursuant to paragraph 6 of the contract, and that the lot had already been resold. Questioning the validity of the rescission of the contract, respondent filed a letter complaint with the (NHA) for reconveyance with an alternative prayer for refund. In a Resolution, dated July 10, 1979, the NHA, finding the rescission void in the absence of either judicial or notarial demand, ordered Palay, Inc. and Alberto Onstott in his capacity as President of the corporation, jointly and severally, to refund immediately to private respondent with 12% interest from the filing of the complaint. Petitioners Motion for Reconsideration of said Resolution was denied by the NHA in its Order dated October 23, 1979. The case was appealed to the Office of the President which affirmed the resolution of the NHA. Hence this present appeal. Issues: 1. Whether notice or demand is not mandatory under the circumstances and, therefore, may be dispensed with by stipulation in a contract to sell? 2. Whether petitioners may be held liable for the refund of the installment payments made by respondent Nazario M. Dumpit?
3.

Whether or not petitioner Onstott the President of petitioner corporation may be held personally liable?

Held:

1.We hold that resolution by petitioners of the contract was ineffective and inoperative against private respondent for lack of notice of resolution. Well settled is the rule, as held in previous jurisprudence, that judicial action for the rescission of a contract is not necessary where the contract provides that it may be revoked and cancelled for violation of any of its terms and conditions. However, even in the cited cases, there was at least a written notice sent to the defaulter informing him of the rescission. As stressed in University of the Philippines vs. Walfrido de los Angeles the act of a party in treating a contract as cancelled should be made known to the other. We quote the pertinent excerpt: It must be understood that the act of a party in treating a contract as cancelled or resolved in account of infractions by the other contracting party must be made known to the other and is always provisional being ever subject to scrutiny and review by the proper court. If the other party denies that rescission is justified it is free to resort to judicial action in its own behalf, and bring the matter to court. Then, should the court, after due hearing, decide that the resolution of the contract was not warranted, the responsible party will be sentenced to damages; in the contrary case, the resolution will be affirmed, and the consequent indemnity awarded to the party prejudiced. 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 others 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 (Civil Code, Article 2203). in every case where the extrajudicial resolution is contested only the final award of the court of competent jurisdiction can conclusively settle whether the resolution was proper or not. in case of abuse or error by the rescinder the other party is not barred from questioning in court such abuse or error, the practical effect of the stipulation being merely to transfer to the defaulter the initiative of instituting suit, instead of the rescinder. This was reiterated in Zulueta vs. Mariano where we held that extrajudicial rescission has legal effect where the other party does not oppose it. Where it is objected to, a judicial determination of the issue is still necessary. The contention that private respondent had waived his right to be notified under paragraph 6 of the contract is neither meritorious because it was a contract of adhesion, a standard form of petitioner corporation, and private respondent had no freedom to stipulate. A waiver must be certain and unequivocal, and intelligently made; such waiver follows only where liberty of choice has been fully accorded. Moreover, it is a matter of public policy to protect buyers of real estate on

installment payments against onerous and oppressive conditions. Waiver of notice is one such onerous and oppressive condition to buyers of real estate on installment payments 2. Yes. The payments must be returned. 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. Neither sham rescission take place when the things which are the object of the contract are legally in the possession of third persons who did not act in bad faith. In this case, indemnity for damages may be demanded from the person causing the loss. 3. We come now to the third and fourth issues regarding the personal liability of petitioner Onstott who was made jointly and severally liable with petitioner corporation for refund to private respondent of the total amount the latter had paid to petitioner company. It is basic that a corporation is invested by law with a personality separate and distinct from those of the persons composing it as wen as from that of any other legal entity to which it may be related. 11 As a general rule, a corporation may not be made to answer for acts or liabilities of its stockholders or those of the legal entities to which it may be connected and vice versa. However, the veil of corporate fiction may be pierced when it is used as a shield to further an end subversive of justice 12 ; or for purposes that could not have been intended by the law that created it 13 ; or to defeat public convenience, justify wrong, protect fraud, or defend crime. 14 ; or to perpetuate fraud or confuse legitimate issues 15 ; or to circumvent the law or perpetuate deception 16 ; or as an alter ego, adjunct or business conduit for the sole benefit of the stockholders. We find no badges of fraud on petitioners part. They had literally relied, albeit mistakenly, on paragraph 6 (supra) of its contract with private respondent when it rescinded the contract to sell extrajudicially and had sold it to a third person. In this case, petitioner Onstott was made liable because he was then the President of the corporation and he a to be the controlling stockholder. No sufficient proof exists on record that said petitioner used the corporation to defraud private respondent. He cannot, therefore, be made personally liable just because he appears to be the controlling stockholder. Mere ownership by a single stockholder or by another corporation is not of itself sufficient ground for disregarding the separate corporate personality. 18 In this respect then, a modification of the Resolution under review is called for.

Angeles v. Calasanz G.R. No. L-42283 March 18, 1985 Facts: Herein plaintiffs-appellees entered into a contract to sell with defendants-appellants for the formers purchase of a parcel of land located in Cainta, Rizal. The agreed amount is P3,920.00 plus 7% interest per annum. The plaintiffs-appellees made a downpayment of P392.00 upon the execution of the contract and promised to pay the balance in monthly installments of P41.20 until fully paid. The plaintiffs-appellees paid the monthly instalments until July 1966 and their aggregate payment already reached P4,533.38. After several months, due to plaintiffs-appellees failure to pay the monthly installments despite defendants-appellants demands, the latter cancelled the contract to sell pursuant to a provision in the contract which states that the seller (defendants-appellants) has the right to declare the contract cancelled and of no effect as a consequence of failure to pay the agreed amount plus interests. Thus, the plaintiffs-appellees filed a civil action in court to compel defendants-appellants to execute in their favour a final deed of sale citing their aggregate payment of P4,533.38 which includes payment of interests, taxes and incidental expenses. The lower court rendered judgement in favour of the plaintiffs-appellees and a motion for reconsideration filed by the defendants-appellants were denied. The Court of Appeals then brought the matter to the Supreme Court as it involves pure questions of law. Issue:

Whether or not the contract has been automatically and validly cancelled by the defendant-appellants (Ursula Torres Calasanz and Tomas Calasanz) Held: Herein plaintiffs-appellees entered into a contract to sell with defendants-appellants for the formers purchase of a parcel of land located in Cainta, Rizal. The agreed amount is P3,920.00 plus 7% interest per annum. The plaintiffs-appellees made a downpayment of P392.00 upon the execution of the contract and promised to pay the balance in monthly installments of P41.20 until fully paid. The plaintiffs-appellees paid the monthly instalments until July 1966 and their aggregate payment already reached P4,533.38. After several months, due to plaintiffs-appellees failure to pay the monthly installments despite defendants-appellants demands, the latter cancelled the contract to sell pursuant to a provision in the contract which states that the seller (defendants-appellants) has the right to declare the contract cancelled and of no effect as a consequence of failure to pay the agreed amount plus interests. Thus, the plaintiffs-appellees filed a civil action in court to compel defendants-appellants to execute in their favour a final deed of sale citing their aggregate payment of P4,533.38 which includes payment of interests, taxes and incidental expenses. The lower court rendered judgement in favour of the plaintiffs-appellees and a motion for reconsideration filed by the defendants-appellants were denied. The Court of Appeals then brought the matter to the Supreme Court as it involves pure questions of law. Citing the case of University of the Philippines v. De los Angeles (35 SCRA 102) where it is stated that if the other party denies that rescission (of a contract) is justified, it is free to resort to judicial action in its own behalf and bring the matter to court and that for it is only the final judgement of the Court that will conclusively and finally settle the action taken whether the action taken was or was not correct in law, the Supreme Court that the right to rescind the contract for non performance of one of its stipulations is not absolute. Furthermore, citing Song Fo & Co. v. Hawaiian-Philippine Co., (47 Phil. 821, 827) which states that The general rule is that rescission of a contract will not be permitted for a slight or casual breach, but only for such substantial and fundamental breach as would defeat the very object of the parties in making the agreement, the Court held that the breach of the contract is so slight and casual when the initial downpayment plus the aggregates amount is considered. The Court also cited Article 1234 of the Civil Code which states that: If the obligation has been substantially performed in good faith, the obligor may recover as though there had been a strict and complete fulfillment, less damages suffered by the obligee as a provision which militates against the unilateral act of the defendants-appellants in cancelling the contract. The Court also held that the contract to sell, being essentially a contract of adhesion, must be construed against the party causing it. Therefore, the Court ruled in favour of the plaintiffs-appellees and did not uphold the cancellation of the contract. The petition of the defendants-appellants was denied and the plaintiffs-appellees were ordered to pay the remaining balance and after which the defendants-appellants were ordered to execute a final deed of sale in favour of the plaintiffs-appellee.

GARCIA, JR. V. COURT OF APPEALS, G.R.NO. 80201, Facts: On April 15, 1977, Western Minolco Corporation (WMC) secured from the Philippine Investments Systems Organization (PISO) two loans amounting to P2,500,000 and P1,000,000 to be paid on May 30, 1977. On the same date, Antonio Garcia,jr. and Ernest Kahn executed a surety agreement binding themselves jointly and severally for the payment of the P2,500,000 loan on due date. After repeated demands wherein WMC still did not pay the loans, Garcia was sued by Lasal Development Corporation which the credit was assigned to by PISO, for not paying the loan as part of the surety agreement. On May 1983, Garcia moved that the complaint be dismissed on the ground that the principal obligation has been novated. He claimed that there was novation due to the fact that there was re-structuring of the payment scheme and thus, the existing contract has been novated. The trial court granted the petition of Garcia but it was later reversed by the Court of Appeals. Issue: Whether or not there was indeed novation of the old contract or obligation. Held: The Supreme Court held that Novation of contract cannot be presumed. In order that an obligation may be extinguished by another which substitutes the same, it is imperative that it be so declared in unequivocal terms, or that the old and the new obligations be on every point compatible with each other. In every novation, there are four essential requisites: 1) a previous valid obligation; 2) the agreement of the parties to a new contract; 3) the extinguishment of the old contract; and 4) the validity of the new one. Novation requires the creation of new contractual relations as well as extinguishment of the old. There must be consent of all the parties to the substitution, resulting in the extinction of the old obligation and the creation of a new valid one. The legal doctrine is that an obligation to pay a sum of money is not novated in a new instrument by

changing the term of payment and adding other obligations not incompatible with the old one. It is not proper to consider an obligation novated as in the case at bar by the mere granting of extension of payment which did not even alter its essence. The Supreme Court denied the petition of Garcia and affirmed the decision of the Court of Appeals.

Asia Production Co. Inc. v. Pano G.R. No. L-51058 January 27, 1992 Facts: Sometime in March 1976, private respondents, who claimed to be the owners of a building constructed on a lot leased from Lucio San Andres and located in Valenzuela, Bulacan, offered to sell the building to the petitioners for P170,000.00. Petitioners agreed because of private respondents' assurance that they will also assign to the petitioners the contract of lease over the land. The above agreement and promise were not reduced to writing. Private respondents undertook to deliver to the petitioners the deed of conveyance over the building and the deed of assignment of the contract of lease within sixty (60) days from the date of payment of the downpayment of P20,000.00. The balance was to be paid in monthly installments. On 20 March 1976, petitioners paid the downpayment and issued eight (8) postdated checks drawn against the Equitable Banking Corporation for the payment of the eight (8) monthly instalments. Relying on the good faith of private respondents, petitioners constructed in May 1976 a weaving factory on the leased lot. Unfortunately, private respondents, despite extensions granted, failed to comply with their undertaking to execute the deed to sale and to assign the contract despite the fact that they were able to encash the checks dated 30 June and 30 July 1976 in the total amount of P30,000.00. Worse, the lot owner made it plain to petitioners that he was unwilling to give consent to the assignment of the lease unless petitioners agreed to certain onerous terms, such as an increase in rental, or the purchase of the land at a very unconscionable price. Petitioners thereafter removed their effects from the disputed land and therefore filed a case for the collection of the paid instalments which the lower court dismissed because it falls within the purview of the requirements as set forth in the Statute of Frauds. Hence, this petition. Issue: Whether or not an action for the refund of partial payments of the purchase price of a building covered by an oral agreement to sell it with an oral promise to assign the contract of lease on the lot where the building is constructed is barred by the Statute of Frauds? Held:

No. The statute of frauds is not applicable because there is partial performance in the aforementioned contract which is the payment of consideration in lieu of the promise of the defendants. It goes without saying then, as held in the early case of Almirol, et al. vs. Monserrat, 17 that the statute will apply only to executory rather than executed contracts. Partial execution is even enough to bar the application of the statute WHEREFORE, the petition is hereby GRANTED. The challenged Orders of 18 April 1979 and 21 June 1979 in Civil Case No. Q-23593 of the court below are hereby ANNULLED and SET ASIDE, and the complaint in said case is hereby ordered REINSTATED. The default order against private respondent Lolita Lee Le Hua shall stand and private respondent Alberto Dy is ordered to file his Answer to the complaint with the court below within ten (10) days from receipt of this decision. This decision shall be immediately executory.

Boysaw v Interphil Promotions 148 SCRA 635 Facts: The case is an appeal by Solomon Boysaw and Alfred Yulo Jr. from CFI ordering them to pay Manuel Nieto Jr. P20k-moral damages, P5k-attys fees,; and to Interphil Promotions, Inc. and Lope Sarreal Sr.(additional P20k for moral damages), P250k-unrealized profits, P33,369.72-actual damages, P5k-attys fees. And costs. Facts May 1, 1961, Solomon Boysaw is a boxer handled by Willie Ketchum(w/ partner Ruskay). They signed a contract with Interphil (represented by Sarreal) for a match with Gabriel Flash Elorde for the world junior lightweight championship. The stipulations of the contract were the venue in the Rizal Memorial stadium on Sept. 30-61. In case of mutuallyagreed postponement, it would be no more than 30 days later. And that Boysaw would not prior to the match, engage in any other such contest without the written consent of Interphil. Days later, Elorde signed a similar agreement with Interphil. A supplemental agreement b/w Ketchum & Sarreal took place. Boysaw on June 9-61 fought Louis Avila in a ten-round non-title bout held in Las Vegas. On July 2-61, he changed his manager to J. Amado Araneta. On July 31-61, Boysaw arrived in the Philippines to get ready. On Sept. 1-61, Araneta assigned his managerial rights to Yulo. On Sept 2-61, Boysaw finally informed Sarreal of his presence in the country. Sept. 5-61 Yulo informed Sarreal of the managerial changes and readiness to comply with the contract. On the same day, Sarreal wrote to the Games and Amusement Board(GAB) of the lack of formal notification of the managerial rights switching and that Boysaw be called for clarification. GAB did act upon it by calling for conferences, and decided to schedule the match for Nov.4-61. The USA Natl Boxing Assoc. supervising all world-title fights approved the date. Yulo disagreed, and Sarreal offered to change to Oct. 28, w/in the 30-day pd. Early Oct. Yulo contacted Mamerto Besa for promotion of the match. Oct.6-31 in one of Yulos communication to Besa, he said that he was willing to allow the Nov.4 fight, if Besa promotes it. The Boysaw-Elorde fight did push through but it wasnt the contemplated fight in the contract. Boysaw and Yulo petitioned CFI Rizal against Sarreal, Interphil and Manuel Nieto Jr. (GAB chairman, resps claim to have acted arbitrarily) damages for non-fulfillment of contract commitments.

Issues:

Trial dragged for 3 yrs because of appellants, until Boysaw could no longer return (taken as leaving w/out notice to court and counsel), CFI decided for the respondents and denied a postponement & motion for new trial.

1) Whether or not there was a violation of the contract stipulations, and who was liable? ; 2) Whether or not there was a legal ground for postponement/was Nieto/GAB reasonable? Held: 1st Issue: Yes, Yulo admitted the fact of Boysaw and Avilas fight in Las Vegas and the assignment of the managerial rights over Boysaw to different people (novation) without PRIOR approval of Interphil. Even if Yulo sent a letter, there is no showing that Interphil acceded to the substitution judging from the complaint in GAB. Our law recognizes actionable in every contract breach. Art.1170those who in the performance of their obligations are guilty of fraud, negligence or delay, and those who in any manner contravene the terms thereof, are liable for damages. Art1191the power to rescind obligation is implied, in reciprocal ones, in case one of the obligors should not comply with what is incumbent upon him. Novation which consists in substituting a new debtor in the place of the original one may be made even without the knowledge or against the will of the latter, BUT NOT WITHOUT THE CONSENT OF THE CREDITOR.Substitution needs the consent of the creditor because the new debtor may cause delay or prevent the fulfillment of the obligation due to insolvency or inability. Since the creditor is at risk, then his consent must first be secured to be binding. 2nd Issue: Yes, when the contract was unlawfully novated, the aggrieved creditor is not bound to deal with the substitute. He has a right to demand rescission or refusal to recognize the substitute. In this case they chose to renegotiate the date. The GAB (not Nieto himself) did not act arbitrarily when it set it to Nov. 4 because indeed there is a novated contract (from evidence). Anyways, Interphil was willing to set it to Oct. 28 to be w/in the 30 day period.

Lydia L. Geraldez v. Court of Appeals and Kenstar Travel Corporation G.R. No. 108253, February 23 (1994) Facts: With reference to Civil Case No. Q-90-4649 of the RTC of Quezon City, Petitioner Geraldez filed an action for damages against Respondent Kenstar Travel Corporation for breach of contract with antecedent facts as follows: Petitioner opt a 22-day Europe tour travel package offered by Respondent Corporation paying 2,990 dollars as consideration. The tour did not end up as expected by herein petitioner, it did not as represented in the brochure: no European tour manager, hotels were not 1st class and the Filipino tour guide who is supposed to accompany them is a 1 st timer. Petitioner then filed a breach of contract against Respondent Corporation for committing acts of representations constituting fraud in contracting the obligation. RTC rendered judgment ordering Respondent Corporation to pay petitioner 500,000 as moral damages, 200,000 as nominal damages, 300,000 as exemplary damages and 50,000 as litigation and attorneys fees (all in pesos). On appeal, award for moral and exemplary damages were deleted and a reduction of nominal damages to 40,000 pesos, this on account that the Respondent has substantially complied with the prestation and no malice or bad faith is imputable as a consequence . Hence, the petition. Issue: Whether or not private respondent acted in bad faith or with gross negligence in discharging its obligation under contract. Held: On the foregoing considerations, respondent court erred in deleting the award for moral and exemplary damages which may be awarded in breaches of contract where fraud is evident. Private respondent faulted with fraud in the inducement, which is employed by a party to a contract in securing the consent of the other. In the case at bar, the Private respondent has committed either dolo causante or dolo incidente by making false misrepresentation. Either which oblige a person to indemnify damages. Wherefore, premises considered, the decision of Respondent Court of Appeals is hereby set aside, and another one rendered, ordering private respondent Kenstar Travel Corporation to pay petitioner Lydia Geraldez the sums of P 100,000 by way of moral damages, P 50,000 as exemplary damages, and P 20,000 as attorneys fees with litigation cost against private respondent. The nominal award of damages is hereby deleted.

AJAX MARKETING & DEVELOPMENT CORP. VS. COURT OF APPEALS G.R. NO. 118585, SEPTEMBER 14, 1995 Facts: Ylang-Ylang Merchandising Company, a partnership between Angelita Rodriquez and Antonio Tan, obtained a loan of P250,000.00 from Metropolitan Bank and Trust Company, and to secure payment of the same, spouses Marcial See and Lilian Tan constituted a real estate mortgage in favor of the said bank over the property in the District of Paco, Manila. The partnership had changed its name to Ajax Marketing Company without changing its composition and it obtained a loan of P150,000.00 from the same bank and executed a second real estate mortgage over the same property. As the partnership converted into a corporation and changed its name into Ajax Marketing and Development Corporation with the original partners and additional incorporators, another loan was obtained from the same mortgagee of P600,000.00. In December 1980, the three loans were re-structured into one loan and Ajax Marketing represented by Antonio Tan and Elisa Tan in their capacity as solidary co-obligor executed a Promissory Note. The petitioner argue that a novation occurs when their three loans which are all secured by the same real estate property were consolidated, thereby extinguishing their monetary obligations and releasing the mortgaged property from liability. Issue: Whether or not there is a novation occurred when the three loans which are all secured by the same real estate property were consolidated into one single loan under a Promissory Note? Held: Novation is the extinguishment of an obligation by the substitution or change of the obligation by a subsequent one which extinguishes or modifies the first, either by changing the object or principal conditions, or by substituting another in place of the creditor. It is never presumed and will not be allowed unless it is clearly shown by express agreement, or by acts of equal import. Thus, to effect an objective novation it is imperative that the new obligation expressly declare that the old obligation is thereby extinguished, or that the new obligation be on every point incompatible with the new one. There is nothing in the records to show the unequivocal intent of the parties to novate the three loan agreements, no indication of the extinguishment of, or an incompatibility with. In addition, the consolidation of the three loans did not release the mortgaged real estate property from liability because the mortgage annotations, all remained uncancelled, indicating the subsistence of the real estate mortgage. Neither can it be validly contended that there was a change or substitution in the persons of either the creditor or the debtor. The conversation from a partnership to a corporation , without sufficient evidence that they were expressly released from their obligations, with new corporate personality, a third person or new debtor within the context of subjective novation. Novation purported change in the third person must be clear and express. Clearly then, neither objective nor subjective novation occurred.

Limketkai Sons Milling v. CA [G.R. No. 118509. December 1, 1995.] Facts: Philippine Remnants Co., Inc. constituted the Bank of the Philippine Islands (BPI) as its trustee to manage, administer, and sell its real estate property. Pedro Revilla, Jr., a licensed real estate broker was given formal authority by BPI to sell the lot for P1,000.00 per sq.m. This arrangement was concurred in by the owners of the Philippine Remnants. Broker Revilla contacted Alfonso Lim of Limketkai Sons Milling (LSM) who agreed to buy the land. LSMs officials and Revilla were given permission to enter and view the property they were buying (by Rolando V. Aromin, BPI Assistant Vice-President). Revilla formally informed BPI that he had procured a buyer, LSM. LSMs officials, Alfonso Lim and Albino Limketkai, went to BPI to confirm the sale. They were entertained by Vice-President Merlin Albano and Asst. Vice-President Aromin. LSM asked that the price of P1,000.00 per sq.m. be reduced to P900.00 while Albano stated the price to be P1,100.00. The parties finally agreed that the lot would be sold at P1,000.00 per sq.m. to be paid in cash. Since the authority to sell was on a first come, first served and non-exclusive basis, it may be mentioned at this juncture that there is no dispute over LSMs being the first comer and the buyer to be first served. Notwithstanding the final agreement to pay P1,000.00 per sq.m. on a cash basis, Alfonso Lim asked if it was possible to pay on terms. The bank officials stated that there was no harm in trying to ask for payment on terms because in previous transactions, the same had been allowed. It was the understanding, however, that should the term payment be disapproved, then the price shall be paid in cash. It was Albano who dictated the terms under which the installment payment may be approved, and acting thereon, Alfonso Lim, on the same date, 11 July 1988, wrote BPI through Merlin Albano embodying the payment initially of 10% and the remaining 90% within a period of 90 days. 2 or 3 days later, LSM learned that its offer to pay on terms had been frozen. Alfonso Lim went to BPI on 18 July 1988 and tendered the full payment to Albano. The payment was refused because Albano stated that the authority to sell that particular piece of property in Pasig had been withdrawn from his unit. The same check was tendered to BPI Vice-President Nelson Bona who also refused to receive payment. An action for specific performance with damages was thereupon filed on 25 August 1988 by LSM against BPI with the RTC Pasig (Branch 151). In the course of the trial, BPI informed the trial court that it had sold the property under litigation to National Book Store (NBS) on 14 July 1989. The complaint was thus amended to include NBS. On 10 June 1991, the trial court rendered judgment in favor of LSM; holding that there was a perfected contract between LSM and BPI, and thus declared the Deed of Sale involving the lot in Pasig in the name of BPI and in favor of NBS as null and void; ordered the Register of Deeds of the Province of Rizal to cancel the TCT which may have been issued in favor of NBS by virtue of the said deed; ordered BPI upon receipt by it from LSM the full payment to execute a Deed of Sale in favor of the latter of the said property at the price of P1,000.00 per sq.m. and in default thereof, the Clerk of Court is directed to execute the deed dated 14 July 1989; ordered the Register of Deeds of Pasig, upon registration of the said deed, whether executed by BPI or the Clerk of Court and payment of the corresponding fees and charges, to cancel said TCT 493122 and to issue, in lieu thereof, another transfer certificate of title in the name of LSM; ordered BPI and NBS to pay in solidum to LSM the sums of P10,000,000.00 as actual and consequential damages and P150,000.00 as attorneys fees and litigation expenses, both with interest at 12% per annum from date of judgment; on the cross-claim by the bank against NBS, ordered NBS to indemnify the bank of whatever BPI shall have paid to LSM; dismissed the counterclaim of both BPI and NBS against LSM and the cross-claim of NBS against BPI; with costs against BPI and NBS. Upon elevation of the case to the Court of Appeals, the decision of the trial court was reversed and the complaint dismissed on 12 August 1994. It was held that no contract of sale was perfected because there was no concurrence of the three requisites enumerated in Article 1318 of the Civil Code. Hence, the petition. The Supreme Court reversed and set aside the questioned judgment of the Court of Appeals, and reinstated the 10 June 1991 judgment of Branch 151 of the RTC of The National Capital Judicial Region stationed in Pasig, Metro Manila except for the award of P10,000,000.00 damages, which was deleted.

Issues: 1.) Was there a perfected contract 2.) Does BPI officials have full authority to bind the bank 3.) Are evidence supporting the sale competent and admissible 4.) Does the sale of the lot to National Book Store characterized by bad faith.

Held: The supremene court reversed and set aside the judgment of court of appeals and the judgment of branch 151 of the regional trial court of the national capital judicial region is reinstated except for the award of P10,000,000 damages with is hereby deleted. 1.) Yes. The perfection of the contract took place when Aromin and Albano, acting for BPI, agreed to sell and Alfonso Lim with Albino Limketkai, acting for petitioner Limketkai, agreed to buy the disputed lot at P1,000.00 per square meter. Aside from this there was the earlier agreement between petitioner and the authorized broker. There was a concurrence of offer and acceptance, on the object, and on the cause thereof. The fact that the deed of sale still had to be signed and notarized does not mean that no contract had already been perfected. A sale of land is valid regardless of the form it may have been entered into (Claudel vs. Court of Appeals, 199 SCRA 113, 119 [1991]). The requisite form under Article 1458 of the Civil Code is merely for greater efficacy or convenience and the failure to comply therewith does not affect the validity and binding effect of the act between the parties (Vitug, Compendium of Civil Law and Jurisprudence, 1993 Revised Edition, p. 552). 2.) The alleged lack of authority of the bank officials acting in behalf of BPI is not sustained by the record. If BPI could give the authority to sell to a licensed broker, there is no reason to doubt the authority to sell of the two BPI VicePresidents whose precise job in the Bank was to manage and administer real estate property.
3.) Yes. Counsel for respondents cross-examined petitioner's witnesses at length on the contract itself, the purchase

price, the tender of cash payment, the authority of Aromin and Revilla, and other details of the litigated contract. Under the Abrenica rule (reiterated in a number of cases, among them Talosig vs. Vda. de Nieba 43 SCRA 472 [1972]), even assuming that parol evidence was initially inadmissible, the same became competent and admissible because of the cross-examination, which elicited evidence proving the evidence of a perfected contract. The crossexamination on the contract is deemed a waiver of the defense of the Statute of Frauds (Vitug, Compendium of Civil Law and Jurisprudence, 1993 Revised Edition, supra, p. 563). 4.) On the fourth question of whether or not NBS is an innocent purchaser for value, the record shows that it is not. It acted in bad faith. Respondent NBS ignored the notice of lis pendens annotated on the title when it bought the lot. It was the willingness and design of NBS to buy property already sold to another party which led BPI to dishonor the contract with Limketkai.

Victorino Hernandez v. CA and substituted heirs of Rev. Fr. Lucio Garcia (Deceased) G.R. no. L-41132, April 27, 1988 Facts: Three parcels of land were owned by Fr. Garcia in Paranaque adjoining the lands owned by petitioner. In 1956 Hernandez and Garcia had an agreement orally to set the boundaries of their lands. The bureau of lands put up monuments to mark the boundaries as agreed by the petitioner and respondent on the same year. Then after on 1959 Fr. Garcia filed for an application for registration of the three parcels of land under his name. The court granted respondents application, with this petitioner discovered that the 220 square meters of land included in the application was part of his property. Petitioner filed for a review of the decree of registration and was denied by the CFI. Hence, an appeal was made to the CA who affirmed the decision of the CFI declaring Fr. Garcia the absolute owner of said lands by acquisitive prescription, stating that petitioner had made no objection to the application and that the agreement was unenforceable since does not comply with the Statute of Frauds because it is not on writing and that only 516 square meters of land was on the deed of sale upon buying the said land by the petitioners parents Issue: 1. Whether or not there was fraud on the application for registration of said lands by respondent? 2. Whether or not the agreement is valid not being in writing? 3. Whether or not the petitioners right to file for a review has prescribed by his inaction? Held: The SC upon looking of the facts on record found out that the CA overlooked on its factual conclusion and failed to consider the same that is essential to the issue. On the first issue, the government through the bureau of land monuments put up marks to separate both their estates according to their agreement, which has been altered by the application, modifying the marks of separation, clearly herein petitioner is a victim of fraud, cheated to vindicate his claim to the land. On the second, according to article 1403 of the civil code, formality to be in writing is only required on leases more than 1 year or sale of property or an interest, respondents reliance on the statute of Frauds is misplaced, further petitioners tenants are living for a long time on the disputed lands. Therefore the agreement was valid. For the third, the remedy must be given to the petitioner being a victim of fraud; therefore he is entitled to the relief sought. Lastly the information on the deed of sale cannot be taken into consideration on this case because it was not accurate as to the actual measure of the estate upon purchase. Wherefore the SC reversed and set aside the decision of the CA and declared the 220 square meters of land in the Original Certificate of Title of respondent was null and void granting the said land to petitioner and re-issuing a new OCT to the respondent excluding the 220 square meter land.

HOUSE INTERNATIONAL BUILDING TENANTS ASSOCIATION, INC., vs.INTERMEDIATE APPELLATE COURT, CENTERTOWN MARKETING CORP., MANILA TOWERS DEVELOPMENT CORP., AND THE GOVERNMENT SERVICE INSURANCE SYSTEM (G.R. No. 75287 June 30, 1987)

Facts: Petitioner House International Building Tenants Association, Inc. (ASSOCIATION, for short) is a domestic non-stock, nonprofit civic corporation, whose incorporators, directors and members constitute the great majority of more than a hundred heads of families who are tenants of long and good standing of the 14-storey House International Building. The land and the improvements thereon was foreclosed by GSIS, which subsequently sold it to Centertown Marketing Corporation (CENTERTOWN, for short) in a deed of conditional sale, without notice to the tenants of the building and without securing the prior clearance of the then Ministry of Human Settlements. CENTERTOWN was not authorized by its Articles of Incorporation to engage in the real estate business so it assigned to its sister corporation TOWERS, with almost the same incorporators and stockholders, all its rights and obligations under the Deed of Conditional Sale, with the consent and approval of the GSIS. Thereafter, herein petitioner filed a complaint with the Regional Trial Court of Manila against CENTERTOWN, TOWERS and GSIS for annulment of the deed of conditional sale and the subsequent assignment thereof by CENTERTOWN to TOWERS. The complaint alleged in part that the Deed of Conditional Sale is null and void ab initio for being ultra vires, since defendant CENTERTOWN is not qualified to acquire real estate property or to engage in real estate transactions. The court a quo and Court of Appeals dismissed the complaint. Hence, this petition for review on certiorari. Issues: (1) Whether petitioner has the personality to sue, on its own, as a corporation representing its members who are tenants of the House International Building, and (2) Whether petitioner has a cause of action against respondents GSIS, CENTERTOWN and TOWERS. Held: 1. None. In the present case, the real parties in interest are the tenants of the House International Building and not the petitioner ASSOCIATION, which has a personality separate and distinct from that of its members. Section 2, Rule 3 of the Rules of Court provides: Sec. 2. Parties in interest. Every action must be prosecuted and defended in the name of the real party in interest. All persons having an interest in the subject of the action and in obtaining the relief amended shall be joined as plaintiffs. Such rights of the tenants are personal and individual rights which can only be claimed by the tenants who must necessarily be the indispensable and real parties in interest and certainly not the plaintiff-appellant organization. 2. Appellant is not privy to either the deed of conditional sale or the assignment. Art. 1397 of the Civil Code provides: Art. 1397. The action for the annulment of contracts may be instituted by all who are thereby obliged principally or subsidiarily. He who has no right in a contract is not entitled to prosecute an action for nullity, for, according to the precedents established by the courts, the person who is not a party to a contract, nor has any cause of action or representation from those who intervened therein, is manifestly without right of action and personality such as to enable him to assail the validity of the contract.

PRECILLANO NECESITO, ETC vs.NATIVIDAD PARAS, ET AL. G.R. No. L-10605, June 30, 1958 Facts: In the morning of January 28, 1964, Severina Garces and her one-year old son, Precillano Necesito, carrying vegetables, boarded passenger auto truck or bus No. 199 of the Philippine Rabbit Bus Lines at Agno, Pangasinan. The passenger truck,

driven by Francisco Bandonell, then proceeded on its regular run from Agno to Manila. After passing Mangatarem, Pangasinan truck No. 199 entered a wooden bridge, but the front wheels swerved to the right; the driver lost control, and after wrecking the bridge's wooden rails, the truck fell on its right side into a creek where water was breast deep. The mother, Severina Garces, was drowned; the son, Precillano Necesito, was injured, suffering abrasions and fracture of the left femur. Subsequently, actions for damages were brought directly against the operator of the bus. The latter pleaded that the accident was due to "engine or mechanical trouble" independent or beyond the control of the defendants or of the driver Bandonell. After joint trial, the Court of First Instance found that the bus was proceeding slowly due to the bad condition of the road; that the accident was caused by the fracture of the right steering knuckle, which was defective in that its center or core was not compact but "bubbled and cellulous", a condition that could not be known or ascertained by the carrier despite the fact that regular thirty-day inspections were made of the steering knuckle, since the steel exterior was smooth and shiny to the depth of 3/16 of an inch all around; that the knuckles are designed and manufactured for heavy duty and may last up to ten years; that the knuckle of bus No. 199 that broke on January 28, 1954, was last inspected on January 5, 1954, and was due to be inspected again on February 5th. Hence, the trial court, holding that the accident was exclusively due to fortuitous event, dismissed both actions. Hence this appeal. Issues: 1. Whether or not the carrier is liable for the injuries and damages sustained by the passengers. 2. Whether or not the cause of the accident is that of fortuitous event. Held: 1. Yes. The Supreme Court held that the preponderance of authority is in favor of the doctrine that a passenger is entitled to recover damages from a carrier for an injury resulting from a defect in an appliance purchased from a manufacturer, whenever it appears that the defect would have been discovered by the carrier if it had exercised the degree of care which under the circumstances was incumbent upon it, with regard to inspection and application of the necessary tests. For the purposes of this doctrine, the manufacturer is considered as being in law the agent or servant of the carrier, as far as regards the work of constructing the appliance. According to this theory, the good repute of the manufacturer will not relieve the carrier from liability" (10 Am. Jur. 205, s, 1324; and cases cited therein). The rationale of the carrier's liability is the fact that the passenger has neither choice nor control over the carrier in the selection and use of the equipment and appliances in use by the carrier. Having no privity whatever with the manufacturer or vendor of the defective equipment, the passenger has no remedy against him, while the carrier usually has. It is but logical, therefore, that the carrier, while not in insurer of the safety of his passengers, should nevertheless be held to answer for the flaws of his equipment if such flaws were at all discoverable.

2. As to the second issue, the record is to the effect that the only test applied to the steering knuckle in question was a
purely visual inspection every thirty days, to see if any cracks developed. It nowhere appears that either the manufacturer or the carrier at any time tested the steering knuckle to ascertain whether its strength was up to standard, or that it had no hidden flaws would impair that strength. This periodical visual inspection of the steering knuckle as practiced by the carrier's agents did not measure up to the required legal standard of "utmost diligence of very cautious persons" - "as far as human care and foresight can provide", and therefore that the knuckle's failure can not be considered a fortuitous event that exempts the carrier from responsibility (Lasam vs. Smith, 45 Phil. 657; Son vs. Cebu Autobus Co., 94 Phil., 892.). TOLOMEO LIGUTAN VS. COURT OF APPEALS G.R. No. 138677. February 12, 2002 Facts: Petitioners Ligutan and dela Llana obtained a loan in the amount of P120, 000.00 from respondent Security Bank and Trust Company. As a result, petitioners executed a promissory note binding them, jointly and severally, to pay the sum borrowed with an interest of 15.189% per annum upon maturity and to pay a penalty of 5% every month on the outstanding principal and interest in case of default. Moreover, they agreed to pay 10% of the total amount due by way of attorneys fees if the matter were indorsed to a lawyer for collection or if a suit were instituted to enforce payment. The obligation matured and the bank granted an extension to pay. Despite several demands, petitioners failed to settle their debt in the amount of to P114, 416.10. Consequently, the bank filed a complaint for recovery of the amount due with the Regional Trial Court (RTC).

Due to petitioners absence on a certain hearing, the court considered the case submitted for decision. Thereafter, petitioners filed a motion for reconsideration; however, the trial court denied the same and rendered a decision in favor of respondent. On appeal, petitioners assailed the imposition of the 2% service charge, the 5% per month penalty charge and 10% attorney's fees. The Court of Appeals (CA) affirmed the decision of the trial court, except on the imposition of the 2% service charge which was deleted pursuant to Central Bank Circular No. 783. Unsatisfied, both filed their respective motion for reconsideration. The CA found merit on respondents contention that Default generally begins from the moment the creditor demands the performance of the obligation. However, demand is not necessary to render the obligor in default when the obligation or the law so provides and consequently, rendered a decision in favor of respondent. Hence, petitioners filed a petition for review with the Supreme Court. Issues: 1. Whether or not the court is correct in holding the borrowers liable for the penalty charge. 2. Whether or not the subsequent execution of the real estate mortgage as security for the existing loan would have resulted in the extinguishment of the original contract because of novation. Held: 1. A penalty clause, expressly recognized by law, is an accessory undertaking to assume greater liability on the part of an obligor in case of breach of an obligation. It functions to strengthen the coercive force of the obligation and to provide, in effect, for what could be the liquidated damages resulting from such a breach. The obligor would then be bound to pay the stipulated indemnity without the necessity of proof on the existence and on the measure of damages caused by the breach. Although a court may not at liberty ignore the freedom of the parties to agree on such terms and conditions as they see fit that contravene neither law nor morals, good customs, public order or public policy, a stipulated penalty, nevertheless, may be equitably reduced by the courts if it is iniquitous or unconscionable or if the principal obligation has been partly or irregularly complied with. 2. The subsequent execution of the real estate mortgage as security for the existing loan would not have resulted in the extinguishment of the original contract of loan because of novation. Petitioners acknowledge that the real estate mortgage contract does not contain any express stipulation by the parties intending it to supersede the existing loan agreement between the petitioners and the bank. Respondent bank has correctly postulated that the mortgage is but an accessory contract to secure the loan in the promissory note. An obligation to pay a sum of money is not extinctively novated by a new instrument which merely changes the terms of payment or adding compatible covenants or where the old contract is merely supplemented by the new one. When not expressed, incompatibility is required so as to ensure that the parties have indeed intended such novation despite their failure to express it in categorical terms. The incompatibility, to be sure, should take place in any of the essential elements of the obligation, i.e., (1) the juridical relation or tie, such as from a mere commodatum to lease of things, or from negotiorum gestio to agency, or from a mortgage to antichresis, or from a sale to one of loan; (2) the object or principal conditions, such as a change of the nature of the prestation; or (3) the subjects, such as the substitution of a debtor or the subrogation of the creditor. Extinctive novation does not necessarily imply that the new agreement should be complete by itself; certain terms and conditions may be carried, expressly or by implication, over to the new obligation. Petition denied.

MERCANTILE INSURANCE CO., INC vs.HON. COURT OF APPEALS and REPARATIONS COMMISSION. G.R. No. 85647 April 22, 1991 Facts: On 6 February 1964, the Philippine Government represented by the Repacom in Japan and Jose Lopez entered into a Procurement Contract with Japanese suppliers for the acquisition of a fishing vessel, later named M/V "Jolo Lema," priced at US$174,900.00. On 28 August 1964, pursuant to the Protocol of Delivery signed in Japan, the "Jolo Lema" was delivered to Jose Lopez. On 24 September 1964, Jose Lopez posted a bond guaranteed by petitioner Mercantile in favor of Repacom. In that bond, Lopez undertook to pay Repacom the amount of P68,385.90 in the event of his failure to comply with any of his obligations under the Contract of Conditional Purchase and Sale. On 2 March 1965, Repacom and Lopez entered into a Conditional Contract of Purchase and Sale covering the vessel "Jolo Lema" for US$179,000.00 or its peso equivalent at the "preferred" rate of exchange, without prejudice to re-adjustment should the Supreme Court confirm that the imposition of the free market rate of exchange was proper or valid. The "Terms and Conditions" of the Contract, inter alia, provided that: . . . should the Conditional Vendee fail to pay any of the yearly installments when due, or utilize the goods for any illegal purpose or purposes other than that for which the goods have been produced, or otherwise fail to comply with any of the terms and conditions of this contract or with any of the applicable provisions of the Reparations law and/or of the Rules and Regulations promulgated pursuant thereto, then the Conditional Vendor is hereby given the option to either rescind the contract upon notice to the Conditional Vendee in which case all sums already paid by the Conditional Vendee shall be forfeited as rentals in favor

of the Conditional Vendor, and also that the Conditional Vendee shall deliver peacefully to the Conditional Vendor the property, subject of this contract or sue for specific performance in which case the whole amount remaining unpaid in this contract shall immediately become due and payable. Among the other obligations undertaken by Lopez under the Contract was the posting of a performance bond in favor of Repacom to secure Lopez' compliance with his obligations. Lopez failed to pay the first installment without interest on its due date despite repeated demands made on him. Repacom then demanded payment from Mercantile but the latter also refused to pay. Thereupon, on 28 August 1965, Repacom confiscated the Mercantile bond and demanded payment of the amount of P68,386.90 covered by the bond. Subsequently, Lopez posted EGCI Bond No. 65-1103 dated 20 November 1965 in the amount of P36,906.51, issued by Eagle Guaranty Co., Inc. ("Eagle") in favor of Repacom to secure compliance by Lopez of his obligations under the Contract of Conditional Purchase and Sale . The first installment with interest in the amount of P36,906.51 under the Schedule of Payments fell due on 28 August 1966. Despite repeated demands made by Repacom, Lopez refused to pay that installment. Notice was sent to Eagle who likewise refused to pay. Thereupon, Repacom confiscated EGCI Bond No. 65-1103. On 14 February 1967, Repacom instituted an action in the then Court of First Instance of Manila against Mercantile, Eagle and Jose Lopez for the collection of the unpaid purchase price of the fishing vessel M/V "Jolo Lema" as well as for interest, liquidated damages, attorney's fees and costs. This case was, however, dismissed upon motion of Repacom. Petitioner makes an issue of the fact that the price of the vessel was reduced as a result of the issuance of the writ. Petitioner calls attention to the posting of the Eagle bond subsequent to the issuance of the writ and concludes that it was to guarantee payment of the ten percent (10%) of the reduced price of the vessel that the Eagle bond was posted, and that the Mercantile bond was accordingly released. It is further contended that petitioner's bond could not have secured Lopez' obligation under the Contract of Conditional Purchase and Sale since the latter was concluded after petitioner's bond had been issued. Petitioner argues that the Mercantile bond guaranteed only the procurement contract entered into prior to the issuance of the writ of preliminary injunction, and that the writ of preliminary injunction in effect had made the Mercantile bond unenforceable.

Issues: 1.) Does posting of another bond by Lopez constitute novation through substitution of the debtor? 2.) Does reduction of price of the vessel released the mercantile bond? Held: 1.) The fact that subsequent to the execution of the Contract of Conditional Purchase and Sale, Lopez posted another bond, the Eagle bond, does not by itself suggest that there was a novation of Mercantile's obligation through a substitution of the debtor. The general rule is that novation in never presumed; it must always be clearly and unequivocally shown. Thus, "the mere fact that the creditor receives a guaranty or accepts payments from a third person who has agreed to assume the obligation, when there is no agreement that the first debtor shall be released from responsibility, does not constitute novation, and the creditor can still enforce the obligation against the original debtor." In the case at bar, the records do not at all show any express intention of the parties to extinguish the Mercantile bond. The original relationship between Jose Lopez, Mercantile and Repacom remained unchanged despite the posting of the Eagle bond, there having been no agreement between Repacom, Jose Lopez and Eagle to release Mercantile from the latter's obligation under its bond. The rule is that "in a case of subjective novation through a change in the person of debtor, it is not enough that the juridical relation between the original parties is extended to include a third person, as this constitutes only an increase in the number of persons liable to the obligee. It is essential that the old debtor be released from the obligation and the third person take his place in the relation. If the older debtor is not released, there is no novation; the third person becomes merely a codebtor, surety or co-surety. 2.)The Supreme court held that It is of no moment that the purchase price of the vessel was reduced. The said reduction was merely a result of the conversion of the price of the vessel "Jolo Lema" in U.S. Dollars to Philippine Pesos using the preferred rate of exchange instead of the free market rate of exchange which was originally intended by the parties. Such was merely an adjustment of the peso value of the vessel; the dollar value thereof remained at US$174,900.00 and the required amount of the performance bond was still ten percent (10%) of US$174,900.00. The reduction of the peso purchase price did not extinguish Mercantile's commitments under the bond. It must be recalled that under its bond Mercantile undertook to secure ten percent (10%) of the purchase price of the vessel which at that time was pegged at P683,859.00 after converting the dollar price into the corresponding peso price using the free market rate of

exchange. With the adjustment of the vessel's peso price mandated by the writ of preliminary injunction, Mercantile's undertaking to pay a certain number of pesos under certain conditions was adjusted downward but not extinguished.

Silahis Mktg. v. IAC G. R. No. L-74027 December 7, 1989 Facts: De Leon sold and delivered to Petitioner Silahis Mktg. various items of merchandise for the total amount of P22,213.75 payable within 30 days. Upon maturity, Silahis failed to pay its account; after repeated demands which after all were futile, De Leon filed a complaint for collection before the CFI. Silahis admitted the allegations of its indebtedness to De Leon but presented as affirmative defenses: 1. [a debit memo] for P22,000.00 as unrealized profit of Silahis, had De Leon not sold to Dole Philippines Directly its merchandise; and 2. return of a defective merchandise which Silahis sold to its client. The CFI confirmed Silahis' liability to De Leon but ordered to PARTIALLY OFFSET by Silahis counterclaim as contained in the debit memo. As a result of the offset, De Leon is entitled for P13.75 to recover. De Leon appealed to IAC which reversed the decision of the CFI. It held that De Leon is not under the obligation NOT to sell directly to Dole Phi.; thus the counterclaim of Silahis was dismissed. Hence this present petition for review on certiorari. Issue: Whether or Not De Leon is liable to pay Silahis for the commission or margin for the direct sale made by the former directly to Dole? Corollarily, Whether or not Silahis is entitled to compensation or partial set off of its debt? Held: No. This is ncessarily so because there is no evidence on record from which it can be inferred that there was any agreement between the petitioner and private respondent prohibiting the latter from selling directly to Dole Philippines. Since there is no

obligation existing between De Leon and Silahis with regard to selling directly to Dole, the latter has no right to claim agains the former. Absent of that obligation will not give rise to set off or compensation because under the law "compensation takes place when two persons, in their own right, are creditors and debtors to each other. Article 1279 of the Civil Code provides that: "In order that compensation may be proper, it is necessary: [1] that each one of the obligors be bound principally, and that he be at the same time a principal creditor of the other; [2] that both debts consist in a sum of money, or if the things due are consumable, they be of the same kind, and also of the same quality if the latter has been stated; [3] that the two debts be due; [4] that they be liquidated and demandable; [5] that over neither of them there be any retention or controversy, commenced by third persons and communicated in due time to the debtor. When all the requisites mentioned in Art. 1279 of the Civil Code are present, compensation takes effect by operation of law, even without the consent or knowledge of the creditors and debtors. 5 Article 1279 requires, among others, that in order that legal compensation shall take place, "the two debts be due" and "they be liquidated and demandable." Compensation is not proper where the claim of the person asserting the set-off against the other is not clear nor liquidated; compensation cannot extend to unliquidated, disputed claim existing from breach of contract." Wherefore, Silahis is bound to pay De Leon for its debt.

SO PING BUN vs. COURT OF APPEALS, TEK HUA ENTERPRISES CORP. and MANUEL C. TIONG, G.R. No. 120554, September 21, 1999 Facts: Tek Hua Enterprises Corp. (Tek Hua), engaged in textile business, entered into four (4) lease agreements with lessor Dee C. Chuan & Sons Inc. (DCCSI) for one-year term. They provided that should the lessee continue to occupy the premises after the term, the lease shall be on a month-to-month basis. When the contracts expired, the parties did not renew the contracts, but Tek Hua continued to occupy the premises. Upon the death of Tek Huas managing partner, So Pek Giok, his grandson, So Ping Bung, and herein petitioner, occupied the warehouse for his own textile business, Trendsetter Marketing. Years thereafter, private respondent Manuel C. Tiong sent a letter to herein petitioner demanding to the vacate the premises after temporarily allowing the use of the premises due to the close business relationship with petitioners late grandfather. Petitioner refused to vacate and thereafter requested formal contracts of lease with DCCSI in favour of Trendsetter Marketing. Petitioner claimed that after the death of his grandfather, So Pek Giok, he had been occupying the premises for his textile business and religiously paid rent. DCCSI acceded to petitioner's request and the lease contracts in favor of Trendsetter were thus executed. In the suit for injunction, private respondents pressed for the nullification of the lease contracts between DCCSI and petitioner and also claimed damages. The trial court ruled in favour of respondents, annulling the four Contracts of Lease between defendants So Ping Bun, doing business under the name and style of "Trendsetter Marketing", and DCCSI and ordering defendant So Ping Bun the payment of attorneys fees among others. On appeal by So Ping Bun, the Court of Appeals upheld the trial court, but modified the decision by reducing the award of attorney's fees. Issues: 1.) Whether or not the appellate court erred in affirming the trial courts decision finding So Ping Bun guilty of tortuous interference of contract. 2.) Whether or not the appellate court erred in awarding attorneys fees in favour of private respondents. Held: No. A duty which the law of torts is concerned with is respect for the property of others, and a cause of action ex delicto may be predicated upon an unlawful interference by one person of the enjoyment by the other of his private property. This may pertain to a situation where a third person induces a party to renege on or violate his undertaking under a contract. In the case at bar, petitioner's Trendsetter Marketing asked DCCSI to execute lease contracts in its favor, and as a result petitioner deprived respondent corporation of the latter's property right. Clearly, and as correctly viewed by the appellate court, the three elements of tort interference, to wit: (1) existence of a valid contract; (2) knowledge on the part of the third

person of the existence of contract; and (3) interference of the third person is without legal justification or excuse, are present in the instant case. No. The recovery of attorney's fees in the concept of actual or compensatory damages, is allowed under the circumstances provided for in Article 2208 of the Civil Code. One such occasion is when the defendant's act or omission has compelled the plaintiff to litigate with third persons or to incur expenses to protect his interest. But it was consistently held that the award of considerable damages should have clear factual and legal bases. In connection with attorney's fees, the award should be commensurate to the benefits that would have been derived from a favorable judgment. In a long line of cases it was said, "It is not sound policy to place in penalty on the right to litigate. To compel the defeated party to pay the fees of counsel for his successful opponent would throw wide open the door of temptation to the opposing party and his counsel to swell the fees to undue proportions."

EDGARDO E. MENDOZA vs. HON. ABUNDIO Z. ARRIETA, Presiding Judge of Branch VIII, Court of First Instance of Manila, FELINO TIMBOL, and RODOLFO SALAZAR G.R. No. L-32599 June 29, 1979 Facts: Petitioner, Edgardo Mendoza, seeks a review on certiorari of the Orders of respondent Judge in Civil Case No. 80803 dismissing his Complaint for Damages based on quasi-delict against respondents Felino Timbol and Rodolfo Salazar. On October 22 a three- way vehicular accident occurred along Mac-Arthur Highway, Marilao, Bulacan, involving a Mercedes Benz owned and driven by petitioner; a private jeep owned and driven by respondent Rodolfo Salazar; and a gravel and sand truck owned by respondent Felipino Timbol and driven by Freddie Montoya. Two separate Information for Reckless Imprudence Causing Damage to Property were filed against Rodolfo Salazar and Freddie Montoya. The cause of action was due to how truck-driver Montoya was for causing damage to the jeep owned by Salazar, by hitting it at the right rear portion thereby causing said jeep to hit and bump an oncoming car, which happened to be petitioner's Mercedes Benz. The case against jeep-owner-driver Salazar, was for causing damage to the Mercedes Benz. The Court of First Instance rendered judgment finding the accused Freddie Montoya guilty beyond reasonable doubt of the crime of damage to property thru reckless imprudence. The trial Court absolved jeep-owner-driver Salazar of any liabilityin view of its findings that the collision between Salazar's jeep and petitioner's car was the result of the former having been bumped from behind by the truck driven by Montoya. Neither was petitioner awarded damages as he was not a complainant against truck-driver Montoya but only against jeep-owner. After the termination of the criminal cases, petitioner filed a civil case against respondents jeep-owner-driver Salazar and Felino Timbol, the latter being the owner of the gravel and sand truck driven by Montoya, for identification for the damages sustained by his car as a result of the collision. Jeep-owner-driver Salazar and truck-owner Timbol were joined as defendants, either in the alternative or in solidum. Truck-owner Timbol filed a Motion to Dismiss on the grounds that the Complaint is barred by a prior judgment in the criminal cases and that it fails to state a cause of action. An Opposition thereto was filed by petitioner. In an order respondent Judge dismissed the Complaint against truck-owner Timbol for reasons stated in the aforementioned Motion to Dismiss, petitioner sought before this Court the review of that dismissal, to which petition we gave due course.Upon motion of jeep-owner-driver Salazar, respondent Judge also dismissed the case as against the former. Respondent Judge reasoned out that "while it is true that an independent civil action for liability under Article 2177 of the Civil Code could be prosecuted independently of the criminal action for the offense from which it arose, the New Rules of Court, which took effect on January 1, 1964, requires an express reservation of the civil action to be made in the criminal action; otherwise, the same would be barred pursuant to Section 2, Rule 111. Petitioner's Motion for Reconsideration thereof was denied in the order dated with respondent Judge suggesting that the issue be raised to a higher Court "for a more decisive interpretation of the rule. Petitioner then filed a Supplemental Petition to review the last two mentioned Orders, that required jeep-owner-driver Salazar to file an Answer. Issue:

Is the action against respondents barred because of a prior judgment? Held: Petitioner's cause of action being based on quasi-delict, respondent Judge committed reversible error when he dismissed the civil suit against the truck-owner, as said case may proceed independently of the criminal proceedings and regardless of the result of the latter. The court held- it is a well-settled rule that for a prior judgment to constitute a bar to a subsequent case, the following requisites must concur: (1) it must be a final judgment; (2) it must have been rendered by a Court having jurisdiction over the subject matter and over the parties; (3) it must be a judgment on the merits; and (4) there must be, between the first and second actions, Identity of parties, Identity of subject matter and Identity of cause of action. It is conceded that the first three requisites of res judicata are present. However, we agree with petitioner that there is no Identity of cause of action between the criminal case and the civil case. Obvious is the fact that in said criminal case truckdriver Montoya was not prosecuted for damage to petitioner's car but for damage to the jeep. Neither was truck-owner Timbol a party in said case. In fact as the trial Court had put it "the owner of the Mercedes Benz cannot recover any damages from the accused Freddie Montoya, he (Mendoza) being a complainant only against Rodolfo Salazar in the criminal case. And more importantly, in the criminal cases, the cause of action was the enforcement of the civil liability arising from criminal negligence under Article l of the Revised Penal Code, whereas the civil case is based on quasi-delict under Article 2180, in relation to Article 2176 of the Civil Code Petitioner's cause of action against Timbol in the civil case is based on quasi-delict is evident from the recitals in the complaint . The court declare, therefore, that in so far as truck-owner Timbol is concerned, the civil case is not barred by the fact that petitioner failed to reserve, in the criminal action, his right to file an independent civil action based on quasi-delict.

MARIA ANTONIA SIGUAN, petitioner, vs. ROSA LIM, LINDE LIM, INGRID LIM and NEIL LIM, respondents.[G.R. No. 134685, November 19, 1999] Facts: On 25 and 26 August 1990, respondent LIM issued two Metrobank checks in favor of petitioner SIGUAN. Upon presentment by petitioner with the drawee bank, the checks were dishonored for the reason account closed. Demands to make good the checks proved futile. As a consequence, a criminal case for violation of Batas Pambansa Blg. 22 was filed by petitioner against LIM. Meanwhile, on 2 July 1991, a Deed of Donation conveying the parcels of land and purportedly executed by LIM on 10 August 1989 in favor of her children, Linde, Ingrid and Neil, was registered with the Office of the Register of Deeds of Cebu City. New transfer certificates of title were thereafter issued in the names of the donees. On 23 June 1993, petitioner filed an accion pauliana against LIM and her children to rescind the questioned Deed of Donation and to declare as null and void the new transfer certificates of title issued for the lots covered by the questioned Deed, as the same was allegedly made in bad faith and fraud of creditors. In its decision of 31 December 1994, the trial court ordered the rescission of the Deed and declared null and void the transfer certificates but on appeal, Court of Appeals reversed said decision and dismissed petitioners accion pauliana. Hence, this petition for review on certiorari. Issue: Whether or not the Deed of Donation executed by respondent Lim be rescinded for being in fraud of her alleged creditor, petitioner Siguan. Held: The Supreme Court resolved the issue in the negative. Under Article 1381 of the Civil Code, contracts entered into in fraud of creditors may be rescinded only when the creditors cannot in any manner collect the claims due them. Also, Article 1383 of the same Code provides that the action for rescission is but a subsidiary remedy which cannot be instituted except when the party suffering damage has no other legal means to obtain reparation for the same. The term subsidiary remedy has been defined as the exhaustion of all remedies by the prejudiced creditor to collect claims due him before rescission is resorted to. It is, therefore, essential that the party asking for rescission prove that he has exhausted all other legal means to obtain satisfaction of his claim. Petitioner neither alleged nor proved that she did so. On this score, her action for the rescission of the questioned deed is not maintainable even if the fraud charged actually did exist. Moreover, the Article 1387, first paragraph, of the Civil Code provides: All contracts by virtue of which the debtor alienates property by gratuitous title are presumed to have been entered into in fraud of creditors when the donor did not reserve sufficient property to pay all debts contracted before the donation. Likewise, Article 759 of the same Code, second paragraph, states that the donation is always presumed to be in fraud of creditors when at the time thereof the donor did not reserve sufficient property to pay his debts prior to the donation. For this presumption of fraud to apply, it must be established that the donor did not leave adequate properties which creditors might have recourse for the collection of their credits existing before the execution of the donation. Nevertheless, a creditor need not depend solely upon the presumption laid down in Articles 759 and 1387 of the Civil Code. Under the third paragraph of Article 1387, the design to defraud may be proved in any other manner recognized by the law of evidence. Thus in the consideration of whether certain transfers are fraudulent, the Court has laid down specific rules by which the character of the transaction may be determined. The following have been denominated by the Court as badges of fraud: (1) The fact that the consideration of the conveyance is fictitious or is inadequate;

(2) (3) (4) (5) (6) (7)

A transfer made by a debtor after suit has begun and while it is pending against him; A sale upon credit by an insolvent debtor; Evidence of large indebtedness or complete insolvency; The transfer of all or nearly all of his property by a debtor, especially when he is insolvent or greatly embarrassed financially; The fact that the transfer is made between father and son, when there are present other of the above circumstances; and The failure of the vendee to take exclusive possession of all the property.

Petitioner failed to discharge the burden of proving any of the circumstances enumerated above or any other circumstance from which fraud can be inferred. Accordingly, since the requirements for the rescission of a gratuitous contract are not present in this case, petitioners action must fail.

YOLANDA ROSELLO-BENTIR, SAMUEL PORMIDA and CHARITO PORMIDA,, vs. HONORABLE MATEO M. LEANDA, and LEYTE GULF TRADERS, INC., . G.R. No. 128991 April 12, 2000 Facts: Herein respondent entered into a contract of lease of a parcel of land with petitioner Bentir for a period of twenty (20) years starting May 5, 1968. Respondent alleged that the lease extended for another four (4) years. On May 5, 1989, herein petitioner Bentir sold the leased property to petitioner spouses Pormada. Respondent then questioned the sale claiming its right of first refusal and filed a case before the court seeking for the reformation of the expired contract of lease on the ground that its lawyer accidentally failed to incorporate in the contract of lease the verbal agreement between the parties that in case petitioner Bentir leases or sells the lot after the expiration of the lease, respondent corporation has the right to equal the highest offer. Issue: Whether the complaint for reformation of instrument has prescribed or not. Held: Reformation of an instrument is that remedy in equity by means of which a written instrument is made or construed so as to express or conform to the real intention of the parties when some error or mistake has been committed. An action for reformation must be brought within the period prescribed by law, otherwise, it will be barred by the mere lapse of time. The prescriptive period for actions based upon a written contract and for reformation of an instrument is ten (10) years. Prescription is intended to suppress stale and fraudulent claims arising from transactions like the one at bar which facts had become so obscure from the lapse of time or defective memory. In the case at bar, respondent had ten (10) years from 1968, the time when the contract of lease was executed, to file an action for reformation. Sadly, it did so only on May 15, 1992 or twenty-four (24) years after the cause of action accrued, hence, its cause of action has become stale, hence, timebarred.

RITA SARMING, ET AL. v. CRESENCIO DY, ET AL. G.R. No. 133643 Facts: After the death of Valentina Unto Flores, her three children, Jose, Venancio, and Silveria took possession of Lot 5734 with each occupying a one-third portion. Upon their death, their children and grandchildren took possession of their respective shares. The other parcel, Lot 4163 which is solely registered under the name of Silveria, was sub-divided between Silveria and Jose. The grandchildren of Jose and now owners of one-half of Lot 4163, sold their half to the plaintiff Alejandra Delfino. Silveria did not object to the sale. When Atty. Deogracias Pinili, Alejandra's lawyer, to prepare the instruments and deeds, asked for the title of the land, Silveria Flores delivered Original Certificate of Title No. 4918-A, covering Lot No. 5734, and not the correct title covering Lot 4163. At that time, the parties knew the location of Lot 4163 but not its OCT Number, so it was pure mistake on part of Silveria Flores. Believing in the error, Pinili prepared a notarized Settlement of Estate and Sale that was signed by the parties. As a result, OCT No. 4918-A was cancelled and in lieu thereof, TCT No. 5078 was issued in the names of Silveria Flores and Alejandra Delfino, with one-half share each. Silveria Flores was present in all of these. Alejandra Delfino immediately took possession and introduced improvements on the purchased lot. Two years later, Alejandra Delfino discovered that what was designated in the deed, Lot 5734, was the wrong lot. She sought the assistance of Pinili who approached Silveria and together they inquired from the Registry of Deeds about the status of Lot 4163. They found out that OCT No. 3129-A covering Lot 4163 was still on file. Alejandra Delfino paid the necessary fees so that the title to Lot 4163 could be released to Silveria Flores, who promised to turn it over to Pinili for the reformation of the deed of sale. However, despite repeated demands, Silveria did not do so, prompting Alejandra to file a complaint for reformation of the deed of sale with damages. Silveria Flores claimed that she was the sole owner of Lot 4163 as shown by OCT No. 3129-A so respondents had no right to the lot. The contract of sale clearly stated that the property being sold was Lot 5734, not Lot 4163. The case lasted several years, and their heirs became the parties in the case. The trial court ruled in favor of the respondents and ordered the reformation of the contract. Petitioners appealed the decision to the CA, which affirmed the ruling of the trial court. Hence their present petition for review Issue: Is the reformation of the deed is proper by reason of mistake? Held: Reformation is that remedy in equity by means of which a written instrument is made or construed so as to express or conform 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 contact; (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 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. Subsequent and contemporaneous acts of the parties as well as the evidentiary facts as proved and admitted can be reflective intention. The totality of the evidence clearly indicates that what was intended to be sold to Alejandra Delfino was Lot 4163 and not Lot 5734. Why would Alejandra occupy and possess one-half of said lot if it was not the parcel of land which was the object of the sale to her? If it were true that Silveria Flores was the sole owner, she should have objected when Alejandra Delfino took possession of one-half thereof immediately after the sale. The other half belongs to her brother Jose, represented now by his grandchildren successors-in-interest. As such, the latter could rightfully sell the land to Alejandra Delfino. Reformation of the instrument is proper, and the decisions of the trial court and the CA is sustained.

THE INTERNATIONAL CORPORATE BANK INC.vs.THE IMMEDIATE APPELLATE COURT June 30, 1988 Facts:

G.R. No. L-69560

In the early part of 1980, private respondent secured from petitioner's predecessors-in-interest, the then Investment and Underwriting Corp. of the Philippines and Atrium Capital Corp., a loan in the amount of P50,000,000.00. To secure this loan, private respondent mortgaged her real properties in Quiapo, Manila and in San Rafael, Bulacan, which she claimed have a total market value of P110,000,000.00. Of this loan, only the amount of P20,000,000.00 was approved for release. The same amount was applied to pay her other obligations to petitioner, bank charges and fees. Thus, private respondent's claim that she did not receive anything from the approved loan. On September 11, 1980, private respondent made a money market placement with ATRIUM in the amount of P1,046,253.77 at 17% interest per annum for a period of 32 days or until October 13, 1980, its maturity date. Meanwhile, private respondent allegedly failed to pay her mortgaged indebtedness to the bank so that the latter refused to pay the proceeds of the money market placement on maturity but applied the amount instead to the deficiency in the proceeds of the auction sale of the mortgaged properties. With Atrium being the only bidder, said properties were sold in its favor for only P20,000,000.00. Petitioner claims that after deducting this amount, private respondent is still indebted in the amount of P6.81 million.On November 17, 1982, private respondent filed a complaint with the trial court against petitioner for annulment of the sheriff's sale of the mortgaged properties, for the release to her of the balance of her loan from petitioner in the amount of P30,000,000,00, and for recovery of P1,062,063.83 representing the proceeds of her money market investment and for damages. She alleges in her complaint, which was subsequently amended, that the mortgage is not yet due and demandable and accordingly the foreclosure was illegal; that per her loan agreement with petitioner she is entitled to the release to her of the balance of the loan in the amount of P30,000,000.00; that petitioner refused to pay her the proceeds of her money market placement notwithstanding the fact that it has long become due and payable; and that she suffered damages as a consequence of petitioner's illegal acts. In its answer, petitioner denies private respondent's allegations and asserts among others, that it has the right to apply or set off private respondent's money market claim of P1,062,063.83. Petitioner thus interposes counterclaims for the recovery of P5,763,741.23, representing the balance of its deficiency claim after deducting the proceeds of the money market placement, and for damages. The trial court subsequently dismissed private respondent's cause of action concerning the annulment of the foreclosure sale, for lack of jurisdiction, but left the other causes of action to be resolved after trial. On December 15, 1983, private respondent filed a motion to order petitioner to release in her favor the sum of P1,062,063.83, representing the proceeds of the money market placement, at the time when she had already given her direct testimony on the merits of the case and was being cross-examined by counsel. On February 13, 1984, respondent judge issued an order granting the motion. Petitioner filed a motion for reconsideration to the aforesaid order, asserting among other things that said motion is not verified, and therefore a mere scrap of paper. On March 13, 1984, petitioner filed a special civil action for certiorari and prohibition with preliminary injunction with the Court of Appeals. In a decision rendered on October 31, 1984, the Court of Appeals dismissed said petition. Issue: Whether or not there can be legal compensation in the case at bar. Held: The argument is without merit. Compensation shall take place when two persons, in their own right, are creditors and debtors of each other. "When all the requisites mentioned in Art. 1279 of the Civil Code are present, compensation takes effect by operation of law, even without the consent or knowledge of the debtors." Article 1279 of the Civil Code requires among others, that in order that legal compensation shall take place, "the two debts be due" and "they be liquidated and demandable." Compensation is not proper where the claim of the person asserting the set-off against the other is not clear nor liquidated; compensation cannot extend to unliquidated, disputed claim arising from breach of contract. There can be no doubt that petitioner is indebted to private respondent in the amount of P1,062,063.83 representing the proceeds of her money market investment. This is admitted. But whether private respondent is indebted to petitioner in the amount of P6.81 million representing the deficiency balance after the foreclosure of the mortgage executed to secure the loan extended to her, is vigorously disputed. This circumstance prevents legal compensation from taking place. PILIPINAS BANK v. INTERMEDIATE APPELLATE COURT1G.R. No. L-67881 June 30, 1987 Facts: The petioner-appellant bank and private respondent-appellees Dioknos entered into a contract over a parcel of land described in Contract to Sell No. VV-18-(a) in Victoria Valley Subdivision in Antipolo, Rizal.
1

PILIPINAS BANK as Successor-In-Interest Of And/Or In substitution to, The MANUFACTURERS BANK AND TRUST COMPANY, petitioner-appellant vs. INTERMEDIATE APPELLATE COURT (Fourth Civil Cases Division), and JOSE W. DIOKNO and CARMEN I. DIOKNO, respondents-appellees.

This is an appeal by certiorari from the decision2 of the respondent court entitled "Jose W. Diokno and Carmen I. Diokno, plaintiffs-appellees, vs. The Manufacturers Bank and Trust Company, which affirmed the decision3 of the Court of First Instance wherefore the judgment is rendered in favor of the plaintiffs and against the defendant, ordering the defendant to deliver to the plaintiffs the parcel of land described in Contract to Sell No. VV-18-(a) in the total area of 5,936 square meters and to execute in their favor the necessary deed of absolute sale therefor then pay for actual damages. After trial, the lower court rendered a decision in private respondents' favor, holding that petitioner could not rescind the contract to sell, because: (a) petitioner waived the automatic rescission clause by accepting payment on September 1967, and by sending letters advising private respondents of the balances due, thus, looking forward to receiving payments thereon; (b) in any event, until May 18, 1977 (when petitioner made arrangements for the acquisition of additional 870 square meters) petitioner could not have delivered the entire area contracted for, so, neither could private respondents be liable in default, citing Art. 1189 of the New Civil Code. Said Decision was affirmed on appeal. Issue: Whether the Petition For Review on Certiorari, raising the main issue of whether or not the Contract to Sell No. VV-18(a) was rescinded or cancelled, under the automatic rescission clause contained therein is valid. Held: It was found that the petition is meritless because there is a clear WAIVER of the stipulated right of "automatic rescission," as evidenced by the many extensions granted private respondents by the petitioner. In all these extensions, the petitioner never called attention to the proviso on "automatic rescission." 4 WHEREFORE the assailed decision is hereby AFFIRMED but the actual damages are hereby reduced minus whatever private respondents still owe the petitioner as a result of the contract.

IRENE DINO vs. HON. AUGUSTO L. VALENCIA and FRANCISCO L. ONG, G.R.. L-43886 July 19, 1989 Facts: Petitioner Irene Dino is the registered owner of a parcel of land, of which private respondent, Francisco L. Ong is the adverse claimant. Private respondent issued an affidavit and memorandum of quitclaim wherein he waived and renounced all his claims, rights and credits over and against the aforesaid parcel of land upon payment by petitioner of P90,000.00 in the following manner. (a) Downpayment of FORTY THOUSAND PESOS (P40,000.00) on or before February 15, 1974, receipt of which (sic) hereby acknowledged; and the future sums covered by postdated checks in denominations of: (b) TEN THOUSAND PESOS(Pl0,000.00)payable or redeemable on or before April 15, 1974; and,
2

May 31, 1984 in CA-G.R. CV No. 67205 entitled "Jose W. Diokno and Carmen I. Diokno, plaintiffs-appellees, vs. The Manufacturers Bank and Trust Company, defendant-appellant.(Penned by Justice Porfirio V. Sison concurred in by Justices Abdulwahid A. Bidin, Marcelino R. Veloso, and Desiderio P. Jurado.)
3 4

Civil Case No. 19660 (penned by Judge Gregorio G. Pineda.)

Paragraph (e) of Contract to Sell No. VV-18 (a): The contract shall be considered automatically rescinded and cancelled and of no further force and effect upon failure of the vendee to pay when due, three or more consecutive installments as stipulated therein or to comply with any of the terms and conditions thereof, in which case the vendor shall have right to resell the said parcel of land to any person interested, forfeiting payments made by the vendee as liquidated damages.

(c) EIGHT THOUSAND PESOS (Pl0,000.00) (sic) EACH payable or redeemable on or before the 15th of June, August, October, December of 1974 and February of 1975, respectively, and for a total of FORTY THOUSAND PESOS (P40,000.00), The petitioner was able to pay P50,000.00 in cash, but issued 5 post-dated checks for the remaining P40,000.00 . However, 4 of the checks were dishonored by the bank due to insufficient funds and the account of petitioner being closed. Respondent filed for the enforcement of the obligation plus damages to which petitioner alleged that the original agreement of the parties as to the payment had already been novated and disregarded by the parties after the issuance of the said checks. Issue: Whether or not the contract was novated by a change in mode of payment? Held: The petitioner's contention is untenable. Her defense that the original agreement of the parties had already been novated and disregarded after the issuance of the checks mentioned in private respondent's complaint and after the private respondent had executed and signed the Affidavit and Memorandum of Quitclaim, 13 is a sham and false defense and did not tender an issue that would require a hearing for the reception of evidence. It is a mere device or scheme to avoid or delay the immediate payment of petitioner's obligation to the private respondent under the Affidavit and Memorandum of Quitclaim. Thus, as aptly observed by the court a quoA novation under the rules of civil law, where the term has been introduced into the modern nomenclature of our common law jurisprudence, was a mode of extinguishing one obligation by another; the substitution, not of a new paper or rate but of a new obligation in lieu of an old one, the effect of which was to pay, dissolve or otherwise discharge it (ibid). It will be noted that the original contract was not actually altered or changed. The defendant, as a matter of fact, and for all intents and purposes, had issued checks in payment of her obligation as prestated by the contract but asserts that the same were issued only to guarantee but not as a payment in itself, but it is not denying the fact that one of the five checks were cashed, thus making the balance of only P32,000.00, that is without mention the liquidated damage of P20,000.00. The ambivalent attitude of the defendant could only mean or should be construed as a mere pretense to avoid an immediate demand for the payment of her obligation. In order that an obligation may be extinguished by another which substitutes the same, it is imperative that it be so declared in unequivocal terms, or that the old and new obligation be on every point incompatible with each other (Art. 1292-New Civil Code.) In the present case the contract referred to did not expressly extinguish the obligation existing in said affidavit and memorandum of quitclaim. On the contrary, it expressly recognized the obligation between the parties and expressly provided a method by which the same shall be extinguished, which method was expressly provided in the aforementioned contract, by means of periodical payments. For all the foregoing considerations, the court believes, and so holds, that the aforementioned contract has never been altered, changed or novated. For what the herein defendant actually did is not absolutely incompatible with the prestation of the existing contract but rather she expressly ratified such obligation through the issuance of postdated checks, some of which were cashed and others not for reason of insufficiency of funds or 'account closed. WHEREFORE, the petition is this case is DISMISSED with costs against petitioner.chanrobles virtual law library

PHILIPPINE COMMERCIAL INTERNATIONAL BANK, vs. COURT OF APPEALS and FORD PHILIPPINES, INC. and CITIBANK, N.A., G.R. No. 121413 January 29, 2001 Facts: These consolidated petitions involve several fraudulently negotiated checks. Ford Philippines drew and issued Citibank checks in favor of the Commissioner of Internal Revenue as payments of its taxes. The said check was deposited to PCIB and was subsequently cleared at Central Bank. Proceeds of the checks were never received by the Commissioner, but were encashed and diverted to the accounts of members of a syndicate. The acting Commissioner of Internal Revenue officially informed Ford that its check in the amount of P4,746,114.41 was not paid to the government or its authorized agent, hence, Ford has to pay the said amount within 15 days from receipt of the letter, Ford was forced to make second payment of its taxes. Thus, an action to recover the amounts from the collecting and drawee banks was filed. Issue: Whether or not Ford has the right to recover from the collecting bank (PCIBank) and the drawee bank (Citibank) the value of the checks intended as payment to the Commissioner of Internal Revenue. Whethet or not Ford's cause of action already prescribed. Held:

PCIB failed to verify the authority of Mr. Rivera to negotiate the checks. The neglect of PCIB employees to verify whether his letter requesting for the replacement of the Citibank Check No. SN-04867 was duly authorized, showed lack of care and prudence required in the circumstances. The mere fact that forgery was committed by a drawer-payors confidential employee or agent, who by virtue of his position had unusual facilities to perpetrate the fraud and imposing the forged paper upon the bank, does not entitle the bank to shift the loss to the drawer-payor, in the absence of some circumstance raising estoppel against the drawer. The rule applies to checks fraudulently negotiated or diverted by the confidential employees who hold them in their possession. It also shows that Citibank as drawee bank was likewise negligent in the performance of its duties. Citibank failed to establish that its payment of Fords checks was made in due course and legally in order. Thus, invoking the doctrine of comparative negligence, we are of the view that both PCIB and Citibank failed in their respective obligations and both were negligent in the selection and supervision of their employees resulting in the encashment of Citibank Check Nos. SN 10597 AND 16508. Thus, we are constrained to hold them equally liable for the loss of the proceeds of said checks issued by Ford in favor of the CIR. On the issue of prescription, PCIB claims that the action of Ford had prescribed because of its inability to seek judicial relief seasonably, considering that the alleged negligent act took place prior to December 19, 1977 but the relief was sought only in 1983, or seven years thereafter. The statute of limitations begins to run when the bank gives the depositor notice of the payment, which is ordinarily when the check is returned to the alleged drawer as a voucher with a statement of his account, and an action upon a check is ordinarily governed by the statutory period applicable to instruments in writing. Our laws on the matter provide that the action upon a written contract must be brought within ten year from the time the right of action accrues; hence, the reckoning time for the prescriptive period begins when the instrument was issued and the corresponding check was returned by the bank to its depositor.

MARIO S. ESPINA v. THE COURT OF APPEALS and RENE G. DIAZ G.R. No. 116805 June 22, 2000 Facts: Mario S. Espina is the registered owner of a Condominium Unit No. 403, Victoria Valley Condominium, Valley Golf Subdivision, Antipolo, Rizal. Such ownership is evidenced by Condominium Certificate of Title No. N-10. On November 29, 1991, Mario S. Espina and Rene G. Diaz executed a Provisional Deed of Sale, whereby the former sold to the latter the aforesaid condominium unit for the amount of P100,000.00 to be paid upon the execution of the contract and the balance of P1,400,000.00 to be paid through six (6) PCI Bank postdated checks. Subsequently, in a letter dated January 22, 1992, Diaz informed Espina that his checking account with PCI Bank has been closed and a new checking account with the same bank is opened and that the postdated checks issued will be replaced with new ones in the same bank. On January 25, 1992, Diaz through his wife Ms. Socorro Diaz paid Mario Espina P200,000.00, acknowledged by him as partial payment for the condominium unit subject of this controversy. On July 26, 1992, Espina sent Diaz a "Notice of Cancellation" of the Provisional Deed of Sale. However, despite this notice, Espina still accepted payment from Diaz per Metrobank Check No. 395694 dated and encashed on October 28, 1992 in the amount of P100,000.00. On February 24, 1993, Espina filed a complaint for Unlawful Detainer against Diaz before the Municipal Trial Court of Antipolo. The trial court rendered its decision, ordering Diaz and all persons claiming rights under him to vacate the condominium unit; to pay the total arrears covering the period July 1991 up to the filing complaint, and to pay P7,000.00 every month thereafter as rentals unit he vacates the premises; and to pay the attorney's fees and costs of suit. Espina may

refund to Diaz the balance from P400,000.00 after deducting all of Diaz total obligations as specified in the decision from receipt of said decision. Diaz appealed to the Regional Trial Court and the said appellate court affirmed in all respects the decision of the trial court. Diaz filed with the Court of Appeals a petition for review, and the Court of Appeals reversed the appealed decision and dismissed the complaint for Unlawful Detainer with costs against Espina. Espina filed a motion for reconsideration of the decision of the Court of Appeals, and this was denied. Hence, this appeal via petition for review on certiorari. Issue: Whether or not the Court of Appeals erred in ruling that the provisional deed of sale novated the existing contract of lease and that petitioner had no cause of action for ejectment against respondent Diaz. Held: The Supreme Courts answer is no. The novation must be clearly proved since its existence is not presumed. "In this light, novation is never presumed; it must be proven as a fact either by express stipulation of the parties or by implication derived from an irreconcilable incompatibility between old and new obligations or contracts." Novation takes place only if the parties expressly so provide, otherwise, the original contract remains in force. In other words, the parties to a contract must expressly agree that they are abrogating their old contract in favor of a new one. Where there is no clear agreement to create a new contract in place of the existing one, novation cannot be presumed to take place, unless the terms of the new contract are fully incompatible with the former agreement on every point. Thus, a deed of cession of the right to repurchase a piece of land does not supersede a contract of lease over the same property. In the provisional deed of sale in this case, after the initial down payment, respondent's checks in payment of six installments all bounced and were dishonored upon presentment for the reason that the bank account was closed. Consequently, on July 26, 1992, petitioner terminated the provisional deed of sale by a notarial notice of cancellation. Nonetheless, respondent Diaz continued to occupy the premises, as lessee, but failed to pay the rentals due. On October 28, 1992, respondent made a payment of P100,000.00 that may be applied either to the back rentals or for the purchase of the condominium unit. On February 13, 1993, petitioner gave respondent a notice to vacate the premises and to pay his back rentals. Failing to do so, respondent's possession became unlawful and his eviction was proper. Hence, on February 24, 1993, petitioner filed with the Municipal Trial Court, Antipolo, Rizal an action for Unlawful Detainer against respondent Diaz. The respondent contends that the petitioner's subsequent acceptance of such payment effectively withdrew the cancellation of the provisional sale. The Supreme Court did not agree. Unless the application of payment is expressly indicated, the payment shall be applied to the obligation most onerous to the debtor. In this case, the unpaid rentals constituted the more onerous obligation of the respondent to petitioner. As the payment did not fully settle the unpaid rentals, petitioner's cause of action for ejectment survives. Thus, the Court of Appeals erred in ruling that the payment was "additional payment" for the purchase of the property. The Court grants the petition for review on certiorari, and reversed the decision of the Court of Appeals.

NATIONAL POWER CORPORATION, vs.EIN CHEMICAL CORPORATION and PHILIPPINE INTERNATIONAL SURETY CO. G.R. No. L-24856 November 14, 1986 Facts: On March 23, 1956, the National Power Corporation (or NPC), after public bidding, awarded to the EIN Chemical Corporation (or (EIN), the contract formalized on April 19, 1956, to supply and deliver 3,691 long tons of crude sulfur in one shipment to the Maria Cristina Fertilizer Plant in Iligan City on or before May 10, 1956, for the price of P374,374.91 to be paid by NPC. To guarantee its obligation, EIN posted a bond from the Philippine International Surety Co. in the amount of P74,874.98. EIN obtained from the NPC a letter of credit with Philippine National Bank (PNB), New York on May 8, 1956 amounting to US$185,794.00 with an expiry date originally set for May 30, 1956 but reset by NPC upon the request of EIN to June 30, 1956. Anticipating failure to deliver on the contract date, EIN requested and was granted by NPC a further extension of the expiry date of the letter of credit to September 30, 1956. On August 19, 1956, EIN delivered only 1,000 long tons of crude sulfur ostensibly due to lack of bottoms; but was paid therefor by NPC the amount of P101,764.05. Even though it failed to deliver as per contract, EIN requested to be allowed to participate in another bidding to be conducted by NPC but the latter disqualified EIN from participating in the said bidding. The NPC instead sued EIN for damages for breach of contract on December 17, 1956 before the then Court of First Instance of Manila, Branch XVI. The lower court dismissed the case declaring that EIN was not in bad faith; that, the extension of the expiry date of the letter of credit carried with it the extension of the delivery time. The NPC appealed the trial court's decision questioning all the foregoing points. On the other hand, EIN alleged that NPC failed to inform it that it would take 45 days to ship from the U.S. Atlantic ports to the Philippines; that NPC incurred delay in opening the letter of credit; that, the purpose of extending the expiry date of the letter of credit was to extend the delivery time and this became manifest with the partial delivery of 1,000 long tons of crude sulfur; that, it was the intention of the parties for the seller to ship the crude sulfur as soon as it received notice of the opening of the letter of credit; that it should have been allowed to participate in the second bidding; and, that the scarcity of bottoms could have been avoided had NPC opened the letter of credit within a reasonable time. Issue: The sole question for Our resolution is whether or not EIN committed a breach of contract which would entitle NPC to damages. Held: A review of the records shows that the contract was freely entered into by both parties in good faith. The provisions of the contract, however, indicate that there is no relationship between the delivery date and the opening of the letter of credit

which was anyway opened within a reasonable time after the signing of the contract. The extensions of the expiry dates of the letter of credit cannot, by any means, be interpreted as extensions of the delivery date. As the terms show, no other delivery date can even be inferred. The problem of bottoms is one that is well-known and anticipated by suppliers and shippers, and NPC cannot be faulted for such problem since it opened the letter of credit within a reasonable time after the signing of the contract. The NPC, in fact, had no duty to inform EIN of -the shipping time between the US Atlantic ports and the Philippines since all shippers and suppliers are presumed to know this as part of their business. Evidently, the EIN clearly committed a breach of contract by failing to completely deliver on its contract inspite of the leniency of the NPC in enforcing its rights. Laxity of a contracting party in the enforcement of its rights under the contract does not in any manner diminish its rights thereunder. Considering the foregoing, the Court resolved to SET ASIDE the appealed decision, and to render a new one directing the appellees to pay appellant, jointly and severally, the amount of the performance bond, the liquidated damages from August 19, 1956 up to January 20, 1958 when the appellant purchased crude sulfur from other sources, and the costs.

ABS CBN v. CA GR-128690 (1999) Facts: In 1990, ABS-CBN and VIVA executed a Film Exhibition Agreement whereby the latter gave the former an exclusive right to exhibit 24 VIVA Films for TV telecast. Later, VIVA, through respondent Vincent del Rosario, offered ABS-CBN a list of 3 film packages (36 titles) from which the latter may exercise its right of first refusal under their agreement. ABS-CBN ticked off 10 titles therefrom. Thereafter, in February 1992, Del Rosario offered ABS-CBN airing rights over a package of 104 movies for P60 million. In April, 1992, Del Rosario, and Eugenio Lopez of ABS-CBN, met at a restaurant to discuss the package proposal. According to Lopez, however, what they agreed upon was ABS-CBNs exclusive film rights to 14 films for P36 million. Del Rosario denied the same. He insisted that the discussion was on VIVAs offer of 104 films for P60 million, to which ABSCBN later made a counterproposal but rejected by VIVAs Board of Directors. Hence, VIVA later granted RBS the exclusive right to air the 104 VIVA films, including the 14 films supposedly granted to ABS-CBN. ABS-CBN then filed a complaint for specific performance with prayer for injunction. The RTC granted the prayer and required ABS-CBN post a P35 million bond. But while ABS-CBN was moving for reduction of the bond, RBS offered to put up a counterbond and was allowed to post P30 million. Later, the RTC rendered a decision in favor of RBS and VIVA, ordering ABS-CBN to pay RBS the amount it paid for the print advertisement and premium on the counterbond, moral damages, exemplary damages and attorneys fee. ABS-CBN appealed to the Court of Appeals. Viva and Del Rosario also appealed seeking moral and exemplary damages and additional attorneys fees. The Court of Appeals affirmed the RTC decision and sustained the monetary awards, VIVAs and Del Rosarios appeals were denied. Issues: 1. Whether there was a perfected contract between VIVA and ABS-CBN; and 2. Whether RBS is entitled to damages and attorneys fees. Held: The first issue is resolved against ABS-CBN, in the absence of the requisites to make a valid contract. The alleged agreement on the 14 films, if there is one, is not binding to VIVA as it is not manifested that Del Rosario has an authority to bind VIVA. Thus, when ABS-CBN made a counter-proposal to VIVA, the same was submitted to its Board of Directors, who rejected the same. Further, the Court agreed that the alleged agreement is not a continuation of the 1990 Contract as the right of first refusal under the said contract had already been exercised by ABS-CBN. However, on the issue of damages, the Court found ABS-CBN. RBS is not entitled to actual damages as the claim thereof did not arise from that which allows the same to be recovered. Neither is RBS entitled to attorneys fees as there is no showing of bad faith in the other partys persistence in his case. Also, being a corporation, RBS is not entitled to moral damages as the same is awarded to compensate actual injuries suffered. Lastly, exemplary damages cannot be awarded in the absence of proof that ABS-CBN was inspired by malice or bad faith.

Babasa Spouses v. CA Facts: Spouses Babasa as vendors and Tabangao Realty as vendee executed a contract of Conditional Sale of Registered Lands over three parcels of land. The certificates of title over the lots were in the name of third persons who had already executed deeds of reconveyance and disclaimer in favor of the Babasa spouses. The parties agreed that the total purchase price is P2.1M of which P300K will be paid upon signing of the contract and P1.8M will be paid upon the delivery of clean titles of the lots within 20 months. During the period of 20 months while the Babasas are to deliver clean titles, it was agreed that Tabangao will pay 17% of P1.8M as interest per annum or P20K per month as rental. A month after the signing of the contract, Tabangao leased the lots to Shell which immediately started the construction of a Liquefied Petroleum Gas Terminal Project, an approved zone export enterprise of the EPZ. However, 2 days prior to the expiration of the 20-month period, the Babasa spouses asked for an indefinite extension within which to deliver clean titles over the lots. And they asked Tabango to continue paying the monthly interest of P20k on the ground that the civil cases they filed for the transfer of titles of the lots in their name. Tabangao refused. In retaliation the Babasa spouses executed a notarized unilateral rescission and demanded that Shell shall vacate the lots. Tabango instituted an action for specific performance and damages to compel the spouses to comply with their obligation to deliver clean titles over the properties on the ground that they already obtained a favorable judgment ordering the reconstitution of the original copies of the land title. On the merits, Tabango obtained a favorable judgment from the trial court. According to it, the 20-month period stipulated in the contract was never meant to be its term such that upon its expiration the respective obligations of the parties would be extinguished. On the contrary, the expiration thereof merely gave rise to the right of TABANGAO to either rescind the contract or to demand that the BABASAS comply with their contractual obligation to deliver to it clean titles and registerable documents of sale. Hence, the unilateral rescission was void and of no legal effect. Aggrieved, Babasa spouses appealed to the CA contending that the Contract of Conditional Sale was one of lease, not of sale. But they were unable to convince the CA which dismissed their appeal. Undaunted, hence this present petition. The spouses aver that the contract of 11 April 1981 was in reality a contract of lease, not of sale; but even assuming that it was indeed a sale, its nature was conditional only, the efficacy of which was extinguished upon the non-happening of the condition, i.e., non-delivery of clean certificates of title and registerable documents of sale in favor of TABANGAO within twenty (20) months from the signing of the contract. They also argued that they never intended to sell their ancestral lots but were merely forced to do so when TABANGAO dangled the threat of expropriation by the government (through the Export Processing Zone Authority) in the event voluntary negotiations failed. Petitioners contend that ownership over the three (3) lots was never transferred to TABANGAO and that the contract of 11 April 1981 was rendered lifeless when the 20-month period stipulated therein expired without them being able to deliver

clean certificates of title to TABANGAO through no fault of their own. Consequently, their unilateral rescission dated 28 February 1983 should have been upheld as valid. Issues: Whether or not the spouses can unilaterally rescind the contract, on account of first, their non-fulfillment of their obligation to deliver the clean titles, second, that they were merely forced to agree because of impending threat that their lots will be expropriated via EPEZA, and third, the lapse of the period (20 months) and the non-delivery of the clean titles the contract was rendered lifeless?

Held: No. The Unilateral rescission was unwarranted. First, the condition in the contract is in favor of Tabangao; that is upon the delivery of clean titles, Tabangao will pay P1.8M.

MALBAROSA, vs. COURT OF APPEALS Facts: Here in petitioner was the president and general manager of Philtectic Corp., a subsidiary of respondent SEADC. Being an officer, he was issued a car and membership in the Architectural Center. One day he intimidated with the vice-chairman of the BoD of respondent his desire to retire and he requested that his incentive compensation be paid to him as president ofPhiltectic. He then tendered his resignation to said VP. One of the officer met with petitioner and informed him that he will get roughly around P395k. Following his resignation, the VP sent a letter-offer to petitioner stating therein acceptance of petitioners resignation and advised him that he is entitled to P251k as his incentive compensation. In the same letter, the VP proposed the satisfaction of his incentive by giving him the car the company issued and the membership in the Architectural Center will be transferred to him, instead of cash. Petitioner was required by respondent through the VP to affix his signature in the letter if he was agreeable to the proposal. The letter was given to the petitioner by the officer who told him that he was supposed to get P395k. Petitioner was dismayed when he received the letter-offer and refused to sign it as required by respondent if he was agreeable to it. Two weeks later, respondent company demanded the return the car and turn over the membership in the Architectural Center. Petitioner wrote the counsel of respondent telling him that he cannot comply with the demand since he already accepted the offer fourteen (14) days after it was made. In his letter, he enclosed a Xerox of the original with his affixed signature as required. With his refusal, respondent instituted an action for recovery with replevin. In his Answer to the complaint, the petitioner, as defendant therein, alleged that he had already agreed on March 28, 1990 to the March 14, 1990 Letter-offer of the respondent, the plaintiff therein, and had notified the said plaintiff of his acceptance; hence, he had the right to the possession of the car. After the trial, judgment was rendered against petitioner. The trial court opined that there existed no perfected contract between the petitioner and the respondent on the latters March 14, 1990 Letter-offer for failure of the petitioner to effectively notify the respondent of his acceptance of said letter-offer before the respondent withdrew the same. He appealed to the CA which affirmed the decision of the trial court. Hence, this present appeal. Issues: 1. Whether or not there was a valid acceptance on his part of the March 14, 1990 Letter-offer of the respondent? 2. Whether or not there was an effective withdrawal by the respondent of said letter-offer? Held:

1.

No. Under Article 1319 of the New Civil Code, the consent by a party is manifested by the meeting of the offer and the acceptance upon the thing and the cause which are to constitute the contract. An offer may be reached at any time until it is accepted. An offer that is not accepted does not give rise to a consent. To produce a contract, there must be acceptance of the offer which may be express or implied but must not qualify the terms of the offer. The acceptance must be absolute, unconditional and without variance of any sort from the offer. The acceptance of an offer must be made known to the offeror. 5[27] Unless the offeror knows of the acceptance, there is no meeting of the minds of the parties, no real concurrence of offer and acceptance. 6[28] The offeror may withdraw its offer and revoke the same before acceptance thereof by the offeree. The contract is perfected only from the time an acceptance of an offer is made known to the offeror. If an offeror prescribes the exclusive manner in which acceptance of his offer shall be indicated by the offeree, an acceptance of the offer in the manner prescribed will bind the offeror. On the other hand, an attempt on the part of the offeree to accept the offer in a different manner does not bind the offeror as the absence of the meeting of the minds on the altered type of acceptance. 7[29] An offer made inter praesentes must be accepted immediately. If the parties intended that there should be an express acceptance, the contract will be perfected only upon knowledge by the offeror of the express acceptance by the offeree of the offer. An acceptance which is not made in the manner prescribed by the offeror is not effective but constitutes a counter-offer which the offeror may accept or reject.8[30] The contract is not perfected if the offeror revokes or withdraws its offer and the revocation or withdrawal of the offeror is the first to reach the offeree. In the case at bar, the respondent made its offer through its VP. On March 16, the officer handed over the original letteroffer to petitioner. The respondent required the petitioner to accept by affixing his signature and the date in the letter offer, thus foreclosing an implied acceptance or any other mode of acceptance. And it is for a fact that the petitioner did not accept of reject the offer for he needed time to decide whether to accept or reject. Although the petitioner claims that he had affixed his conformity to the letter-offer on March 28, 1990, the petitioner failed to transmit the said copy to the respondent. It was only on April 7, 1990 when the petitioner appended to his letter to the respondent a copy of the said March 14, 1990 Letter-offer bearing his conformity that he notified the respondent of his acceptance to said offer. But then, the respondent, through Philtectic Corporation, had already withdrawn its offer and had already notified the petitioner of said withdrawal via respondents letter dated April 4, 1990 which was delivered to the petitioner on the same day. Indubitably, there was no contract perfected by the parties on the March 14, 1990 Letter-offer of the respondent.

2.

Yes. It is necessarily so because there was no need for the respondent to withdraw its offer because the petitioner had already rejected the respondents offer on March 16, 1990 when the petitioner received the original of the March 14, 1990 Letter-offer of the respondent without the petitioner affixing his signature on the space therefor.

5[27] 6[28] 7[29] 8[30]

Jardine Davies, Inc. v. Court of Appeals, et al., 333 SCRA 689 (2000). Enriquez v. Sun Life Assurance, 41 Phil. 269. Allied Steel & Conveyors, Inc.. v. Ford Motor Company, 277 FEDERAL REPORTERS 2nd, 907 (1960). TOLENTINO, COMMENTARIES AND JURISPRUDENCE OF THE NEW CIVIL CODE, 1985 ed., Vol. IV, pp. 462-463.

Palomar v. CFI, Phil Refining. 29881, Aug. 31, 1988 Facts: Respondent started as sales promotion scheme named Grand Slam wherein any person who submits to it matching left and right halves of pictures of any article wins that article as his prize. Half-pictures were found in the labels of the products promoted. In the advertisements for said scheme which were published in newspapers, it was also announced that free halfphotos of prizes might also be obtained by writing to its address. Petitioner Postmaster General issued Fraud Order No. 2 against respondent on the ground that the promotion is a lottery within the purview of the Postal Law and directed all its employees to return to sender any mail matter addressed to respondent. Offended by said order, respondent filed a complaint for mandatory injunction with preliminary injunction against petitioner before the CFI. Its ground is that the promotional scheme is not a lottery because there was no consideration involved. Preliminary injunction was ordered against petitioner. After due hearing, the trial court held that the scheme was not a lottery absent of the element of consideration. Hence, this present appeal. Issue: The only issue presented in this case is whether or not the element of consideration is present in the Grand Slam promotion of the respondent company, which, together with the elements of prize and chance, constitute the "lottery" prohibited by the Postal Law. Petitioner argues that there is consideration because one has to buy respondent companys products to enable them to participate in the scheme. On the other hand, private respondent countered that with or without its Grand Slam promotion, the products subject of the said sales drive are bought at the same usual price; with or without the promotion, no person is required to pay more than the current cost of the said products. Held: It appears that the Philippine Refining Company, herein appellee, resorted to two schemes to promote the sale of its products: Breeze Easy Money and CAMIA Lucky-Key Hunt; both of which envisioned the giving away for free of certain prizes (without additional consideration) for the purchase of Breeze soap and CAMIA cooking oil. In other words, the participants would get the exact value of the prize for the goods plus the chance of winning in the scheme. No one would be required to pay more than the usual price of the products. This Court has consistently ruled that a plan whereby prizes can be obtained without any additional consideration (when a product is purchased) is not a lottery (Uy v. Palomar, L-23248, Febuary 28, 1969; U.S. v. Baguio, 39 Phil. 862; Caltex (Phil.) Inc. v. Postmaster-General, 18 SCRA 247). It is thus clear that the schemes in the case at bar are not lotteries.

ENRIQUE P. SYQUIA vs. THE HONORABLE COURT OF APPEALS AND EDWARD LITTON Facts:

A contract of lease, Exhibit "G", entered into by and between the defendant and plaintiff's predecessors-ininterest, has been terminated by its express provision appearing in paragraph 1, which states that the lease shall be for a period of nine (9) years commencing on January 1, 1970 and ending on January 31, 1979.August 9, 1976, the Litton co-ownership was dissolved by partition (Exh. "E") and the ownership of the Dutch Inn Building and the lots on which it is built was adjudicated to herein private respondent Edward Litton. However, the latter gave notice in writing (Exh. "F") that as the new owner of said properties, rentals of the same should be remitted to him starting January, 1977. Petitioner signified his conformity (Exh. " F-1 ") to this notice and accordingly paid his rentals directly private respondent. Then petitioner wrote to respondent manifesting his willingness to renew the contract of lease upon its expiration on January 31, 1979 under such terms as may be agreeable to both of them.

private respondent, thru counsel, asked petitioner in writing to vacate the premises on or before the expiration of the lease contract on January 31, 1979, and upon his failure to vacate the premises after the expiry date of the lease contract, he should pay the amount of P58,685.00 per month as compensation for the use and occupation of the premises Petitioner objected to the amount as not being fair and reasonable rental, petitioner invoking the huge investment he has put in the Dutch Inn Building from 1970 to 1979 and also the alleged verbal assurance by plaintiff-apellee's predecessor-in-interest of petitioner's priority to renew the lease of the premises in question. Petitioner's refusal to vacate the premises upon written demand made by private respondent on February 1, 1979, private respondent filed the case for ejectment based on the expiration of the Contract of Lease SYQUIA claims that this case was filed prematurely considering that he is entitled to a renewal of the contract, that one of the inducements which made him enter into a lease agreement with plaintiff's predecessor-ininterest was the oral assurance of said plaintiff's predecessor-in-interest that the defendant is entitled to a renewal or a priority to lease the premises upon the expiration of the contract of lease the plaintiff is now duty-bound to respect the verbal assurance given by the plaintiff's predecessor to give him a renewal or priority to a new lease over the property and that defendant should now be made to exercise his option to renew the lease. In other words, plaintiff should be compelled to abide by the commitment made by his predecessor-in-interest Issue: Whether or not the defendant is entitled to a renewal of the contract of lease, Exhibit "G ", which on its face, expired on January 31, 1979. In other words, can the alleged verbal assurances of George Litton Sr. and Gloria Litton del Rio be sufficient basis to vary the written contract and allow the defendant an extension of the lease contract, which, on its surface, already expired on January 31, 1979? Held: However, under 2(e) of Article 1403 of the Civil Code as quoted above, the alleged oral assurance or promise of the representatives of the Litton Finance & Investment Corp, that defendant should be given priority or a renewal of Exhibit "G" cannot be enforceable against plaintiff. there is absolutely no room to readinto Exhibit "G" the alleged extension or renewal or assurance or priority to lease after the contract shall have expired, because the document is in itself, complete, and no ambiquities can be ascribed to its terms and neither is there any mistake or imperfection or failure to express the true intent and agreement of the parties therein, simply because the provisions for extension or renewal are not found in or capable of being inferred from the The testimony of the defendant that there was an oral understanding between him and the representatives of Litton Finance & Investment Corp. to be allowed to extend or renew or be given priority to lease the property at the expiration of the contract of lease on January 31, 1979 is belied by his letter to plaintiff dated December 1, 1978, which is inconsistent to what all along said defendant had professed It is significant from this portion of the letter that the defendant never mentioned his option or priority to lease the property. It is the observation of the court that the alleged verbal assurance of George Litton Sr. and Gloria Litton del Rio is only an afterthought of the defendant. It is merely an eleventh hour defense of the defendant when the plaintiff refused to renew the contract It is noted that petitioner is among other things a successfull and experienced businessman. Considering his huge investment made on the building, he should have taken steps to protect his investment within the

protective mantle of the law by insisting that the alleged verbal assurance be reduced into writing. His failure to do so has considerably weakened his claim. Proof of the alleged verbal assurance of a lease renewal cannot be allowed both under the Parol Evidence Rule and the Statute of Frauds for failure to put in writing said alleged stipulation. Upon the other hand We are inclined to consider Syquia as having constructed in good faith the improvements he introduced in the Dutch Inn Building. His rights to said improvements are governed by Art. 1678 of the Civil Code, which provides: Petitioner admits the fact of ownership of the private respondent over the building in question. As the owner, it is only logical that he should have the freedom to choose the tenant of the premises under such terms and conditions as may enable him to realize reasonable and fair returns therefrom. Since petitioner stubbornly refused to vacate-ate the premises despite repeated demands of respondent, he should be obliged to compensate the latter such amount as may be deemed fair and reasonable under the circumstances.

RAMON MAGSAYSAY AWARD FOUNDATION v. THE COURT OF APPEALS 55998 01/17/1985 Facts: Petitioner owns a building which was leased to private respondent. The contract of lease was for a period of five years with express provisos against any extension or renewal by implication of the lease and for the review of the rental rate at the end of the second year of the lease and every two years thereafter. It provides that parties may negotiate on or before 90 days prior to the expiration of the contract. The original stipulated rental for P14 per square meter per month included all costs in the maintenance of the building like electricity, water, etc. Before the end of the fourth year of the lease, petitioner notified respondent that in accordance with their contract, it would increase the rental at P16 per sq. m. per month. Meanwhile, the parties negotiated for the renewal of the contract of lease. Petitioner gave respondent the draft of the new contract providing a rental rate of P17. Both parties agreed substantially with

the whole contract except on account of arrears which respondent should only be bound to pay P14 instead of P16 for three months. The second contract was consummated and agreed upon by parties. There were disagreements between parties as to the apparent increase in the expenses of the building and the demand by petitioner of the arrearages it claimed to be entitled into. Before the expiration of the renewed contract of lease which is for a period of two years, petitioner offered that if respondent is willing to pay its arrearages and the increased rate, it would agree to renew the contract of lease. But the respondent unwilling to accede to pay the arrearages holding its position not to pay the same, petitioner notified the respondent to vacate the premises. Petitioner then instituted an action for ejectment before the City Court. On appeal by petitioner, the CFI affirmed but modified the lower courts decision. On appeal, the CA affirmed the decision of the CFI as regards a renewed contract but dismissed petitioners claim as to payment of reasonable compensation. Hence, this present appeal. Respondent contends, as adopted by all lower courts, that after the expiration of the renewed contract of lease, there was an implied new lease pursuant to Art. 1687 of the Civil Code, which thus empowers the court to fix a longer period of lease on the ground that the lessee (respondent herein) having occupied the premises for over one year. Petitioner also claimed that there was no meeting of the minds as regards the renewed contract of lease. Issues: 1. Whether or not there was a meeting of the mind while apparently it appears that parties while negotiating were not agreeable to the arrearages but at the same time the parties signed the contract? 2. Whether or not there was an implied new lease pursuant to Art. 1687 of the Civil Code, notwithstanding the express provisos against extension or renewal by implication? Held: Yes. "During the negotiations, although petitioner adverted to the arrearages in rental still due from the private respondent, it appears that said claim (as regards arrearages the parties disagree about) had been treated as a distinct or separate matter such that its resolution was not considered a condition precedent to the renewal under negotiation." In other words, since the arrearages did not pertain to the substance of the contract, it, not a principal condition thereof, cannot nullify a contract. No. The contract expressly provided against renewal by implication. Under Art. 1687 If the period for the lease has not been fixed, it is understood to be from year to year, if the rent agreed upon is annual; from month to month, if it is monthly; from week to week, if the rent is weekly; and from day to day, if the rent is to be paid daily. However, even though a monthly rent is paid, and no period for the lease has been set, the courts may fix a longer term for the lease after the lessee has occupied the premises for over one year. If the rent is weekly, the courts may likewise determine a longer period after the lessee has been in possession for over six months. In case of daily rent, the courts may also fix a longer period after the lessee has stayed in the place for over one month. And it must be noted that under the renewed contract of lease, the period was fixed to two years.

But the appellate court erred in upholding the trial court's judgment that after the expiration of the two-year period of the renewed lease on March 10, 1975, there was an implied new lease under the provisions of Art. 1670 of the Civil Code at the same no longer adequate rental rate of P17.00 per square meter.

NAGA TELEPHONE CO., INC. (NATELCO) AND LUCIANO M. MAGGAY, vs.THE COURT OF APPEALS AND CAMARINES SUR II ELECTRIC COOPERATIVE, INC. (CASURECO II), G.R. No. 107112 February 24, 1994 Facts: Petitioner Naga Telephone Co., Inc. (NATELCO) is a telephone company in Naga City while private respondent Camarines Sur II Electric Cooperative, Inc. (CASURECO II) is a private corporation established for the purpose of operating an electric power service in the same city. On November 1, 1977, the parties entered into a contract for the use by petitioners in the operation of its telephone service the electric light posts of private respondent in Naga City. In consideration therefor, petitioners agreed to install, free of charge, ten (10) telephone connections for the use by private respondent After the contract had been enforced for over ten (10) years, private respondent filed on January 2, 1989 with the Regional Trial Court of Naga City against petitioners for reformation of the contract with damages, on the ground that it is too onesided 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; that a post now costs as much as P2,630.00; so that justice and equity demand that the contract be reformed to abolish the inequities thereon.

Add to this the destruction of some of plaintiff's poles during typhoons like the strong typhoon Sisang in 1987 because of the heavy telephone cables attached thereto, and the escalation of the costs of electric poles from 1977 to 1989, and the conclusion is indeed ineluctable that the agreement has already become too one-sided in favor of appellant to the great disadvantage of plaintiff, in short, the continued enforcement of said contract has manifestly gone far beyond the contemplation of plaintiff, so much so that it should now be released therefrom under Art. 1267 of the New Civil Code to avoid appellant's unjust enrichment at its (plaintiff's) expense. As second cause of action, private respondent alleged that starting with the year 1981, petitioners have used 319 posts in the towns outside Naga City, without any contract with it; that at the rate of P10.00 per post, petitioners should pay private respondent for the use thereof from 1981 up to the filing of its complaint; and that petitioners had refused to pay private respondent said amount despite demands. And as third cause of action, private respondent complained about the poor servicing by petitioners of the ten (10) telephone units which had caused it great inconvenience. Issues: 1. Whether or not the continued enforcement of the contract between the NAGA TELEPHONE CO., INC. (NATELCO) and CAMARINES SUR II ELECTRIC COOPERATIVE, INC. (CASURECO II), inequitous or disadvantageous to the latter (CASURECO plaintiff) and too one-sided in favor of former ( NATELCO defendantappellant). 2. Whether or not the CASURECOs action for reformation of contract cannot be an element in the determination of the period for prescription of the action to reform. 3. Whether or not there is potestative about the prestations i.e., dependent purely on the will of either party. Held: While the contract appeared to be fair to both parties when it was entered into by them, it had become disadvantageous and unfair to CASURECO because of subsequent events and conditions, particularly the increase in the volume of the subscribers of NATELCO for more than ten (10) years without the corresponding increase in the number of telephone connections provided to CASURECO.The continued enforcement of the contract between the parties has, through the years (since 1977), become too inequitous or disadvantageous to the CASURECO and too one-sided in favor of defendantappellant (NATELCO), so that a solution must be found to relieve plaintiff from the continued operation of said agreement and to prevent defendant-appellant from further unjustly enriching itself at plaintiff's expense. Article 1267 speaks of "service" which has become so difficult. Taking into consideration the rationale behind this provision, the term "service" should be understood as referring to the "performance" of the obligation. In the present case, the obligation of CASURECO consists in allowing NATELCO to use its posts in Naga City, which is the service contemplated in said article. Furthermore, a bare reading of this article reveals that it is not a requirement thereunder that the contract be for future service with future unusual change. According to Senator Arturo M. Tolentino, Article 1267 states in our law the doctrine of unforseen events. This is said to be based on the discredited theory of rebus sic stantibus in public international law; under this theory, the parties stipulate in the light of certain prevailing conditions, and once these conditions cease to exist the contract also ceases to exist. Considering practical needs and the demands of equity and good faith, the disappearance of the basis of a contract gives rise to a right to relief in favor of the party prejudiced. On the issue of prescription of CASURECOs action for reformation of contract, NATELCO alleged that CA's ruling that the right of action "arose only after said contract had already become disadvantageous and unfair to it due to subsequent events and conditions, which must be sometime during the latter part of 1982 or in 1983 is erroneous. In reformation of contracts, what is reformed is not the contract itself, but the instrument embodying the contract. It follows that whether the contract is disadvantageous or not is irrelevant to reformation and therefore, cannot be an element in the determination of the period for prescription of the action to reform. Article 1144 of the New Civil Code provides, inter alia, that an action upon a written contract must be brought within ten (10) years from the time the right of action accrues. Clearly, the ten (10) year period is to be reckoned from the time the right of action accrues which is not necessarily the date of execution of the contract. Private respondent's right of action arose "sometime during the latter part of 1982 or in 1983 when according to Atty. Luis General, Jr. he was asked by (private respondent's) Board of Directors to study said contract as it already appeared disadvantageous to (private respondent).

Private respondent's cause of action to ask for reformation of said contract should thus be considered to have arisen only in 1982 or 1983, and from 1982 to January 2, 1989 when the complaint in this case was filed, ten (10) years had not yet elapsed. Regarding the last issue, petitioners allege that there is nothing purely potestative about the prestations of either party because petitioner's permission for free use of telephones is not made to depend purely on their will, neither is private respondent's permission for free use of its posts dependent purely on its will. Petitioners' allegations must be upheld in this regard. A potestative condition is a condition, the fulfillment of which depends upon the sole will of the debtor, in which case, the conditional obligation is void. Based on this definition, CAs finding that the provision in the contract, to wit: (a) That the term or period of this contract shall be as long as the party of the first part (NATELCO) has need for the electric light posts of the party of the second part (CASURECO) . . .. is a potestative condition, is correct. However, it must have overlooked the other conditions in the same provision, to wit: . . . it being understood that this contract shall terminate when for any reason whatsoever, the party of the second part (private respondent) is forced to stop, abandoned (sic) its operation as a public service and it becomes necessary to remove the electric light post (sic); which are casual conditions since they depend on chance, hazard, or the will of a third person. In sum, the contract is subject to mixed conditions, that is, they depend partly on the will of the debtor and partly on chance, hazard or the will of a third person, which do not invalidate the aforementioned provision. Nevertheless, in view of our discussions under the first and second issues raised by petitioners, there is no reason to set aside the questioned decision and resolution of respondent court. MACTAN CEBU INTERNATIONAL AIRPORT AUTHORITY, vs. COURT OF APPEALS, REGIONAL TRIAL COURT, BRANCH 9, CEBU CITY, MELBA LIMBACO, LINDA C. LOGARTA and RAMON C. LOGARTA, G.R. No. 121506 October 30, 1996 Facts: Officers of the National Airport Corporation (NAC) informed the owners of the various lots surrounding the Lahug Airport that the government will purchase their lands for the expansion of the airport. The landowners were assured that their properties will be turned to them when these are no longer being used by the airport. Inez Ouano, though skeptic at first, agreed to sell since the government was going to expropriate the land anyway. She was also reassured by the promise that the land will be returned to her when it is no longer in use. The sale of Inez' properly was covered by a Deed of Sale signed by her and Mariano Reyes representing the NAC. The deed, however, does not contain any provision regarding Inez' right to repurchase the properties. Nonetheless, during her lifetime, Inez used to remind her granddaughter Melba Limbaco about the assurance by the NAC officials that the properties will be returned. Inez also made Melba understand that the latter can recover the land herself should Inez die before the proper time arises. Upon learning that other landowners were able to recover their properties and that the then Pres. Aquino had ordered that the airport be transferred to Mactan, the appellees tried to repurchase the properties originally owned by their grandmother. However, the manager of the NAC, denied their request because the deed of sale covering the properties does not contain any condition relating to the right to repurchase. Private respondents thereafter filed a case for reconveyance with the Regional Trial Court (RTC) which ruled in their favor. On appeal to the CA, the same was affirmed in toto. Issue: Whether or not the Statute of Frauds apply in the case at bar Held: NO. Under Art. 1403 of the Civil Code, a contract for the sale of real property shall be unenforceable unless the same or some note or memorandum thereof be in writing and subscribed by the party charged or his agent. Evidence of the agreement cannot be received without the writing, or a secondary evidence of its contents. In the case at bench, the deed of sale and the verbal agreement allowing the right of repurchase should be considered as an integral whole. The deed of sale relied upon by petitioner is in itself the note or memorandum evidencing the contract. Thus, the requirement of the Statute of Frauds has been sufficiently complied with. Moreover, the principle of the Statute of Frauds only applies to executory contracts and not to contracts either partially or totally performed, as in this case, where the sale has been consummated; hence, the same is taken out of the scope of the Statute of Frauds. As the deed of sale has been consummated, by virtue of

which, petitioner accepted some benefits thereunder, it cannot now deny the existence of the agreement. The Statute of Frauds was enacted for the purpose of preventing fraud. It should not be made the instrument to further them.

Heirs of Escanlar Vs Court of Appeals [G.R. No. 119777. October 23, 1997] Facts: The rights, interests and participation of 2 parcels of land, denominated as Lot 1616 and 1617 of the Kabankalan Cadastre, was executed through a deed in favor of Pedro Escanlar and Francisco Holgado. However, on November 3, 1982 the heirs instituted a case for cancellation of sale against Escanlar and Holgado because of the latters failure to pay the balance of the purchase price by 31 May 1979, which was the date stated in the Deed of Agreement as the final date that the balance of the purchase price shall be paid. On September 10, 1981, Escanlar and Holgado moved to intervene in the probate proceedings that is being held to give Nombre and Cari-an the rights over the Cari-ans share in Lots 1616 and 1617. But the probate court ruled in favor of the Cari-ans to sell their respective shares in the estate. The case was brought to the Court of Appeals and the Supreme Court. Issue: Do Escanlar and Hodalgo still have rights on half of the property in question even after the failure to pay the amount due on time? Held: The Supreme Court ruled in favor of Escanlar and Hodalgo and remanded the case to the RTC Negros Occidental so that it may be determined, at the option of Escanlar and Hodalgo, which half of the property in question would be theirs and which half would be the Cari-ans. Among others, one of the reasons for such decision is the provision in the New Civil Code, Article 1592, which provides that in the sale of immovable property, even though it may have been stipulated that upon failure to pay the price at the time agreed upon the rescission of the contract shall of right take place, the vendee may pay, even after the expiration of the period, as long as no demand for rescission of the contract has been made upon him either judicially or by a notarial act. After the demand, the court may not grant him a new term. In this case, the sellers gave a specific due date but did not make any judicial demand after Escanlar and Hodalgo failed to pay the due amount on time. They also did not execute a demand through a notarial act. Thus, the right to of the property remains with Escanlar and Hodalgo.