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OCAMPO III. VS.

PEOPLE
G.R Nos. 156547-51. February 4, 2008

FACTS:
The Department of Budget and Management released the amount of Php 100
Million for the support of the local government unit of the province of Tarlac. However,
petitioner Ocampo, governor of Tarlac, loaned out more than P 56.6 million in which he
contracted with Lingkod Tarlac Foundation, Inc.. thus, it was the subject of 25 criminal
charges against the petitioner.
The Sandiganbayan convicted the petitioner of the crime of malversation of
public funds. However, the petitioner contended that the loan was private in character
since it was a loan contracted with the Taralc Foundation.
ISSUE:
Whether the amount loaned out was private in nature.
RULING:
Yes, the loan was private in nature because Art. 1953 of the New Civil Code
provides that a person who receives a loan of money or any other fungible thing
acquires the ownership thereof, and is bound to pay the creditor an equal amount of the
same kind and quality.
The fact that the petitioner-Governor contracted the loan, the public fund changed
its nature to private character, thus it is not malversation which is the subject of this case,
instead it must be a simple collection of money suit against the petitioner in case of non
payment . therefore, the petitioner is acquitted for the crime of malversation.

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LEUNG BEN VS. O BRIEN


GR No. 13602. April 6, 1918

FACTS:
In 1917, O Brien filed a collection suit against Leung Ben for the lost of the latter
in gamblings, games and banking percentage games. The amount to be collected was P
15,000.00. The respondent then filed the case for the fear that the petitioner might escape
his obligation by going abroad and thus the respondent attached the property of the
petitioner in payment of the winnings of O Brien.

ISSUE:
Whether there was a statutory obligation to pay the winnings in gambling.
RULING:
No. Although there can be a voluntary payment of money for the loser to the
winner, necessarily that in civil actions, it is not an obligatory act to pay the winnings in a
gambling because the act by nature is prohibited by law and by moral.
Thus, in this case, the duty of the defendant to refund the money which he won
from the plaintiff at gaming is a duty imposed by statute. It therefore arises ex lege.
Furthermore, it is a duty to return a certain sum which had passed from the plaintiff to the
defendant. By all the criteria which the common law supplies, this is a duty in the nature
of debt and is properly classified into as an implied contract. It is well-settled that money
lost in gambling or lottery, if recoverable at all, can be recovered by the loser. Thus
Leung Ben can recover the property attached by the respondent.

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PELAYO VS. LAURON


GR No. 4089. June 12 1909

FACTS:
The wife of the petitioner was to deliver a child, however, when the time of
delivery came, the parents - in- law of the wife called the physician since her husband
was not present. Thus the husband refused to pay the service fee of the physician since
the wife died during the delivery of the child. The defense of the husband was that he was
not the one who called the aid of a physician ,thus his parents shall be liable for the
services rendered by the physician.

ISSUE:
Who should pay the doctor?

RULING:
It is the husband who should pay the service of the doctor because even he was
not the one who called the doctor, it is his duty to give mutual support to his wife and
support includes medical assistance. This obligation to give is imposed by law.

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ASI CORPORATION VS. EVANGELISTA


G.R No. 158086. February 14, 2008

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

ISSUE:
Was the detention of the alleged chicks valid and recognized under the law?

RULING:
No, because ASJ Corporation must give due to the Evangelista Spouses in paying
the installment, thus, it must not delay the delivery of the chicks. Thus, under the law,
they are obliged to pay damages with each other for the breach of the obligation.
Therefore, in a contract of service, each party must be in good faith in the
performance of their obligation, thus when the petitioner had detained the hatched eggs of
the respondents spouses, it is an implication of putting prejudice to the business of the
spouses due to the delay of paying installment to the petitioner.

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RAMAS VS. QUIAMCO


G.R No. 146322. December 6, 2006

FACTS:
Quiamco has amicably settled with Davalan, Gabutero and Generoso for the
crime of robbery and that in return, the three had surrendered to Quiamco a motorcycle
with its registration. However, Atty. Ramas has sold to Gabutero the motorcycle in
installment but when the latter did not able to pay the installment, Davalon continued the
payment but when he became insolvent, he said that the motorcycle was taken by
Quiamcos men. However, after several years, the petitioner Ramas together with
policemen took the motorcycle without the respondents permit and shouted that the
respondent Quiamco is a thief of motorcycle. Respondent then filed an action for
damages against petitioner alleging that petitioner is liable for unlawful taking of the
motorcycle and utterance of a defamatory remark and filing a baseless complaint. Also,
petitioners claim that they should not be held liable for petitioners exercise of its right as
seller-mortgagee to recover the mortgaged motorcycle preliminary to the enforcement of
its right to foreclose on the mortgage in case of default.

ISSUE:
Whether the act of the petitioner is correct.

RULING:
No. The petitioner being a lawyer must know the legal procedure for the recovery
of possession of the alleged mortgaged property in which said procedure must be
conducted through judicial action. Furthermore, the petitioner acted in malice and intent
to cause damage to the respondent when even without probable cause, he still instituted
an act against the law on mortgage.

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HOTEL NIKKO MANILA VS. ROBERTO REYES


G.R No. 154259. February 28, 2005

FACTS:
Respondent Reyes also known as Amay Bisaya was having a coffee break at the
lobby of Hotel Nikko Manila Garden when his friend Mrs. Filart invited him to attend the
natal party of the owner of the hotel, thus respondent Reyes acceded to his friend but
when they are going to take food in the buffet table , party organizer, Ruby Lim
confronted the respondent since allegedly the latter was not invited and that the party was
for limited guests. The respondent was so embarrassed especially when he was driven
away by policemen. The trial court ruled in favor of Lim however, the Appellate Court
favored the respondent.

ISSUE:
Whether Amay Bisaya (private respondent) is entitled to payment of damages.

RULING:
No. The respondent can not recover damages from the organizer of the party since
the organizer acted in pursuance of the ordered of the celebrant that the party was for
limited guests and thus, the latter approached the respondent to leave the area. The act of
the respondent is considered as a self- inflicted injury when he, being a gate crasher has
voluntary went to a party in which he is not invited. Therefore, the act of Ruby Lim is
justified and reasonable.

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ST. MARYS ACADEMY VS. CARPITANOS


G.R. No. 143363. February 6, 2002

FACTS:
The Petitioner Academy was conducting a visitation campaign in 1995 for the
encouragement of prospective enrollees to enroll at St. Marys Academy of Dipolog City.
The victim Sherwin Carpitanos was one of the high school students who was present in
the campaign . thus, Sherwin and other students was riding then in a Mitsubishi jeepney
owned by defendant Villanueva but was driven by James Daniel III, then 15 years old
and a student of the same school. As they proceed to Larayan Elementary School in
Dapitan City, the jeepney turned turtle causing the death of Sherwin.

ISSUE:
Whether the petitioner academy is liable for damages against the death of Sherwin
Carpitanos.

RULING:
No, the petitioner can not be held liable for the death of the son of the respondent
because the accident was not the proximate cause of the death of Sherwin, instead even
Daniel explained that the accident was caused by the steering wheel guide of the jeepney,
thus the petitioner has no negligence in the performance of its duties. Therefore, the
owner or registered owner of the jeepney can be held liable for the death of Sherwin due
to his negligence in maintaining the good condition of the vehicle which is necessarily
required for the contract of common carriage.

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TSPIC CORPORATION VS. TSPIC EMPLOYEES UNION


G.R No. 163419. February 13, 2008

FACTS:
TSPI Corporation entered into a Collective Bargaining Agreement with the
corporation Union for the increase of salary for the latters members for the year 2000 to
2002 starting from January 2000. thus, the increased in salary was materialized on
January 1, 2000. However, on October 6, 2000, the Regional Tripartite Wage and
production Board raised daily minimum wage from P 223.50 to P 250.00 starting
November 1, 2000. Conformably, the wages of the 17 probationary employees were
increased to P250.00 and became regular employees therefore receiving another 10%
increase in salary. In January 2001, TSPIC implemented the new wage rates as mandated
by the CBA. As a result, the nine employees who were senior to the 17 recently
regularized employees, received less wages. On January 19, 2001, TSPICs HRD notified
the 24 employees who are private respondents, that due to an error in the automated
payroll system, they were overpaid and the overpayment would be deducted from their
salaries starting February 2001. The Union on the other hand, asserted that there was no
error and the deduction of the alleged overpayment constituted diminution of pay.

ISSUE:
Whether the alleged overpayment constitutes diminution of pay as alleged by the
Union.

RULING:
Yes, because it is considered that Collective Bargaining Agreement entered into
by unions and their employers are binding upon the parties and be acted in strict
compliance therewith. Thus, the CBA in this case is the law between the employers and
their employees.
Therefore, there was no overpayment when there was an increase of salary for the
members of the union simultaneous with the increasing of minimum wage for workers in
the National Capital Region. The CBA should be followed thus, the senior employees
who were first promoted as regular employees shall be entitled for the increase in their
salaries and the same with lower rank workers.

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REGINO VS. PCST


G.R No. 156109. November 18, 2004

FACTS:
Petitioner Kristine Regino was a poor student enrolled at the Pangasinan College
of Science and Technology. Thus, a fund raising project pertaining to a dance party was
organized by PCST, requiring all its students to purchase two tickets in consideration as a
prerequisite for the final exam.
Regino, an underprivileged, failed to purchase the tickets because of her status as
well as that project was against her religious belief, thus, she was not allowed to take the
final examination by her two professors.

ISSUE:
Was the refusal of the university to allow Regino to take the final examination
valid?

RULING:
No, the Supreme Court declared that the act of PCST was not valid, though, it can
impose its administrative policies, necessarily, the amount of tickets or payment shall be
included or expressed in the student handbooks given to every student before the start of
the regular classes of the semester. In this case, the fund raising project was not included
in the activities to be undertaken by the university during the semester. The petitioner is
entitled for damages due to her traumatic experience on the acts of the university causing
her to stop studying sand later transfer to another school.

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PSBA VS. CA
G.R No. February 4, 1992

FACTS:
On August 30, 1985, Carlitos Bautista was stabbed and killed inside the campus
of Philippine School of Business Administration where the accused were outsiders, while
the victim was an enrolled third year student of commerce.
Thus, the parents of Bautista sued the school for the collection of damages due to
the latters alleged negligence.

ISSUE:
Whether or not PSBA is liable for the damages against the death of Bautista

RULING:
Yes, although, the action does not fall under Ouasi delicts, there is negligence
on the part of the school in maintaining peace and order inside the premises; thus, there
was a breach contractual relation committed by PSBA since the incident occurred inside
the campus. The failure of the petitioner school in providing security measures inside the
campus implies the negligence of the same and constitute the breach of contract entered
into by the petitioner and the victim Bautista when the latter was enrolled and fall under
the supervision of the petitioner.

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COSMOPOLITAN VS. LA VILLE


G.R No. 152801. August 20, 2004

FACTS:
Cosmo entertainment entered into a contract lease with the respondent owner La
Ville Commercial Corporation for a parcel of land. The contract includes payment of the
first three months of rental; hence, the lease is good for seven years. Thus, when Cosmo
has paid the initial payment, it suffered business reverse and stopped operations over the
land, however, the respondent demanded for the payment of lease up to 1997. Thus being
insolvent Cosmo, sublease the land in favor of another party without the consent of the
owner of the land.

ISSUE:
Was the petitioner has the right to sublease the property?

RULING:
No, because it was established in the contract that the owner lessor has the right
to approve sublease of the property, thus, Cosmo violated the condition of the contract.
Thus, the ejectment of Cosmo from one lot is reasonable. The petitioner, having
voluntarily given its consent thereto, was bound by this stipulation. And, having failed to
pay the monthly rentals, the petitioner is deemed to have violated the terms of the
contract, warranting its ejectment from the leased premises. The Court finds no cogent
reason to depart from this factual disquisition of the courts below in view of the rule that
findings of facts of the trial courts are, as a general rule, binding on this Court.

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AYALA CORPORATION VS. ROSA- DIANA REALTY


G.R No. 134284. December 1, 2000

FACTS:
Ayala Corporation contracted a deed of sale over a parcel of land owned by the
latter with Manuel Sy, with special conditions on the building construction at the area,
Thus, restrictions on the height, area and structure of the building were stipulated.
However, Sy contracted another sale of the subject property to Rosa Diana Realty,
with the approval of Ayala as well as the promise of Rosa Diana to follow such
conditions and restrictions upon building constructions.
Thus, Rosa Diana violated the contract and restrictions when it passed different
building plans to the city of Makati and to Ayala Corporation, where the former plan has
exceeded the stipulated number of storey and the prescribed land area.

ISSUE:
Whether Rosa Diana Realty must follow the deed of restriction contained in the
contract it entered with Ayala.

RULING:
Yes, because in contractual obligations the contract has the force of a law that the
same is not contrary to law or public policy, thus, it must be performed with in good
faith.
Thus, the payment of damages is an obligation of Rosa Diana Realty to Ayala
Corp. since the former violation can no longer lead to the destruction of the building
because the building was already occupied by several persons and offices.

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BRICKTOWN VS. AMOR TIERRA


G.R No. 112182 December 12, 1994

FACTS:
Bricktown Development Corporation entered into a two contracts to sell in favor
Amor Tierra Development Corporation. The total price of the sell was P21,639,875.00
was stipulated to be paid by private respondent in such amounts and maturity dates, as
follows: P2,200,000.00 on 31 March 1981; P3,209,968.75 on 30 June 1981;
P4,729,906.25 on 31 December 1981; and the balance of P11,500,000.00 to be paid by
means of an assumption by private respondent of petitioner corporation's mortgage
liability to the Philippine Savings Bank or, alternately, to be made payable in cash. On
the same date, parties executed a Supplemental Agreement providing that private
respondent would additionally pay to petitioner corporation the amounts of P55,364.68,
or 21% interest on the balance of down payment for the period from 31 march to 30 June
1981, and of P390,369.37 representing interest paid by petitioner corporation to the
Philippine Savings Bank. Private respondent was only able to pay petitioner corporation
for the subject land from the installment not covered by the initial payment up to the time
the contract be nullified.

ISSUE:
Whether the act of Bricktown in filing the rescission of contract to sell valid.

RULING:
No, because necessarily a grace period must be given to the debtor in case it can
not immediately deliver nor perform the obligation. The grace period must not be
likened to an obligation, the non-payment of which, under Article 1169 of the Civil Code,
would generally still require judicial or extrajudicial demand before "default" can be said
to arise. Verily, in the case at bench, the 60-day grace period under the terms of the
contracts to sell became ipso facto operative from the moment the due payments were not
met at their stated maturities.
In this case, the contract was not validly made because it is contrary to the
principle that the contract can not be reneged without the consent of the contracting
parties affected by the cancellation of contract, thus the petitioner did not give due for the
respondent for the chance of performing the obligation.

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PILIPINAS HINO INC. VS. COURT OF APPEALS


G.R No. 126570. August 18, 2000

FACTS:
A contract of lease was entered into between herein parties, under which the
defendants, as lessors, leased real property to plaintiff for a term of 2 years, from 16
August 1989 -15 August 1991. According to the contract, plaintiff-lessee deposited with
the defendants-lessors the amount of P400,000.00 to answer for repairs and damages.
After the expiration of the contract, the plaintiff and defendants made a joint inspection
and both agreed that the cost of repairs would amount to P60,000.00 and that the amount
of P340,000.00 shall be returned by to plaintiff. However, defendants returned to
plaintiff only the amount of P200,000.00, still having a balance of P140,000.00.
Defendants unjustifiably refused to return the balance of P140,000.00 holding that the
true and actual damage on the lease premises amounted to P298,738.90.
However, the subject property was made into a contract to sell where the
petitioner has paid the initial installment but failed to pay the remaining payments., thus
the owner of the property withhold the amount of P 924, 000.00 representing the interest
due of the unpaid installments.

ISSUE:
Whether the owner of the property subject to sell is entitled to the interest due of
unpaid installments.

RULING:
No, because paragraph 9 of the Memorandum of Agreement provides in very
clear terms that "when the owners exercise their option to forfeit the downpayment, they
shall return to the buyer any amount paid by the buyer in excess of the downpayment
with no obligation to pay interest thereon." This should include all amounts paid,
including interest. The court finds no basis in the conclusion reached by the lower courts
that "interest paid" should not be returned to the buyer.
Thus, the said interest of the unpaid installments shall be returned to the buyer
since the seller will unjustly enriched himself at the expense of the buyer if he will collect
undetermined amount.

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TITAN-IKEDA VS. PRIMETOWN


G.R No. 158768. February 12, 2008

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

ISSUE:
Whether the petitioner is entitled to damages.

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

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PADCOM VS. ORTIGAS CENTER


G.R No. 146807. May 9, 2002

FACTS:
The petitioner Padilla Office Condominium acquired a lot from Ortigas and
Company by Tierra Development Corporation for the construction of a building. Thus,
petitioner originally took the land from Tierra Development under a deed of sale whereas
among the terms and conditions of the deed was that, any successor in interest and long
term lessee be automatically included as members of a future association in Ortigas area.
In 1982, Ortigas realty owners association was organized and thus a membership
due was established for the development and improvements of the buildings located at
the said area. However, when the respondent association will collect the membership due
of the petitioner, the latter refused and contended that it is not a member of the
association and it can not be compelled to join the association.

ISSUE:
Whether the petitioner is a member of the association.

RULIG:
Yes. The petitioner is an automatic member of the association because it was
clearly reminded and stated in the contract of sale and conditions on successor in interest
that the latter is ipso facto included in any association to be formed for the benefit and
protection of the Ortigas Center buildings, thus the time that the contract was signed
signified the compliance of the petitioner.
Furthermore, the petitioner is estopped when it claimed that there was only a
delay in payment of the due, thus it has the intention of paying and acknowledging the
dues. Moreover, the petitioner can invoke his freedom of association because it will
tantamount to unjust enrichment when it refused to pay due to the respondent even it
affords the protection and benefits given by the association.

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MC ENGINEERING VS. COURT OF APPEALS


G.R No. 104047. April 3, 2002

FACTS:
The petitioner entered into agreement with Surigao Development Corporation for
the restoration of the latter. The original amount was P 5, 150, 000.00 of which, P2.5M
was for the restoration of the damaged buildings and land improvement, while the P3M
was for the restoration of the electrical and mechanical works. However, the petitioner
contracted the service of Gerent Builders for the improvements of Surigao Development
Corporation , thus an increased for the amount considered was made turning the original
amount to P 3, 104, 851.51. It was alleged that Gerent Builders finished the improvement
of the building but it cancelled the electrical and mechanical works and simultaneously, it
demanded the amount of P 632, 590.13 as share in the adjusted contract cost. The
petitioner refused to pay Gerent using the defense that there was a quitclaim which
removed the petitioners liability.

ISSUE:
Whether the petitioner is obliged to pay Gerent Builders.

RULING:
No. Gerent builders can not collect additional payment from the petitioner
because Quitclaims, being contracts of waiver, involve the relinquishment of rights, with
knowledge of their existence and intent to relinquish them. Quitclaims deserve full
credence and are valid and enforceable.
In this case, Gerent was already estopped to demand additional payment when it
accepted the payment of the subcontract made with it by the petitioner, in which the
acceptance implied that the petitioners obligation to Gerent is already extinguished even
for additional services rendered by the latter in the improvements because those services
are deemed contained in the subcontract.

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BPI VS. PINEDA


G.R No. L-62441. December 14, 1987

FACTS:
Southern Industrial Project and Bacong Shipping Company purchased three
vessels thru the financing furnished by Bank of the Philippine Island with the vessels as
securities. To secure the payment of whatever amounts may be disbursed for the
aforesaid purpose, the vessels were mortgaged to BPI. For the operation of the vessels,
these were placed under respondent Interocean Shipping Corporation headed by
respondent Pineda. As BPI was not fulfilled with the services of Interocean, it hired
Gacet Inc for a period of six months. The contract between BPI and Gacet did not
however terminate the services of Interocean. Due to Bacong and SIPs inability to pay
the mortgage, it sold the vessels to BPI. The transfer was entered into between BPI and
SIP and Bacong through a Deed of Confirmation.
Thus , the vessels suffered damages and successfully repaired by Pineda.
However, Pineda demanded for the balance of the total amount paid by Southern
Industrial Project but the new owner Bank refused to pay the balance for the repairs
alleging that the debt was incurred during the ownership of Southern Shipping Project .

ISSUE:
Is BPI liable for the payment of debts incurred during the ownership of Southern
Shipping Project?

RULING:
Yes, Bank of the Philippine Island can be held liable to pay Pineda for the
remaining balance of the shipping company because the mere fact that the bank and the
shipping company signed the Confirmation of the Obligation, the former bank already
assumed any obligations in relations to the subject vessels. Thus, it can not escape from
the liability of paying the past debts of the company in which it gave financial support
otherwise it will result to unjust enrichment on the part of the petitioner bank to hide from
a confirmed obligation.

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STATE INVESTMENTS VS. COURT OF APPEALS


G.R No. 90676. June 19, 1991

FACTS:
Private respondents Spouses Aquino pledged certain shares of stocks with
petitioner State Investments for a loan of P120, 000.00, together with the pledge was the
securing of another loan by another spouses Jose and Marcelina Aquino.
When the original spouses Aquino were willing and available to pay the loan, the
petitioner refused to accept payment and released of the shares of stocks for the reason
that the second loaner Spouses Jose and Marcelina Aquino were not yet ready to pay their
loan. Thus, the trial court ruled that the petitioner must accept the payment from Spouses
Aquino as long as they pay the loan of P 120, 000.00 and there pledged shares of stocks
be releases. However, there was confusion in the ruling of the trial court whether or not
the interest be paid.

ISSUE:
Whether the spouses Aquino be obliged to pay the interest of the loan/

RULING:
Yes. The claim of the spouses Aquino for the acceptance of their early payment
must be accepted by the petitioner, however, the spouses can escape from the liability of
paying the interest of the loan for it was stipulated that there must be a 17 % interest per
annum of the loan even there was delay or payment before its maturity. Thus, the alleged
interest is already a part of the contract and not as a penalty for it will constitute unjust
enrichment on the part of the spouses Aquino at the expense and prejudice of the
petitioner State Investments.

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PEOPLE VS. MALICSI


G.R No. 175833. January 29, 2008

FACTS:
The accused-appellant was accused for the crime of rape against his niece. The
incident was repeated trice by the appellant. The appellant contended that he and the
victim were sweethearts but the trial court did not give weight to that theory.
The trial court found appellant guilty of the crime of four counts of qualified rape
and was sentenced to suffer the penalty of death for each count of rape, to pay
P300,000.00 as civil indemnity (P75,000.00 for each count), and P200,000.00 as moral
damages (P50,000.00 for each count). The CA however modified the findings of the RTC
declaring that appellant is guilty of four counts of simple rape and to suffer the penalty of
reclusion perpetua.

ISSUE:
Whether the award of damages was properly made.

RULING:
No, because the Supreme Court declared that the crime committed was four count
of simple rape only and not qualified rape because the special aggravating circumstances
of minority and relationship must be alleged in the information but the prosecution failed
to do so. Since it is not included, four counts of simple rape should be undertaken. The
penalty imposed then should be reclusion perpetua. The appellate court also correctly
affirmed the award by the trial court of P200,000.00 for moral damages. Moral damages
are automatically granted to rape victim. However, the award of civil indemnity is
reduced to P200,000.00 in the amount of P50,000.00 for each count of simple rape is
automatically granted.

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PEOPLE VS. SIA


G.R No. 137457. November 21, 2001

FACTS:
The accused-appellants conspired to kill the victim Bermudes and carried wqith
them the victims taxicab. After several days of lost, Bermudezs corpse was discovered
inside a carton box located in a fishpond. Thus the appellants were convicted for separate
crimes of anti-carnapping and murder, thus sentenced to suffer the penalty of reclusion
perpetua. The trial court also awarded to the victims heirs, sums of P50,000.00 as
compensatory damages for the death of Christian Bermudez, P200,000.00 as burial and
other expenses incurred in connection with the death P3,307,199.60 (2/3 x [80-27] x 300
per day x 26 days x 12 months) representing the loss of earning capacity of Christian
Bermudez as taxi driver.

ISSUE:
Whether the amount of damages awarded was correct.

RULING:
The Supreme Court affirmed the award of P 50, 000.00 as civil indemnity for the
death of Bermudez without even presenting of evidence. The court also affirmed the
award of moral damages for the suffering of the victims family. However, the
compensatory or actual damages were deleted because of lack of proofs, thus in
determining the loss of income , the following must be taken into account: the number of
years for which the victim would have lived; and the rate of the loss sustained by the
heirs of the deceased.

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PEOPLE VS. DOCTOLERO


G.R No. 131866. August 20, 2001

FACTS:
Ganongan and his friends went to Honeymoon road at Baguio City. While they
were leaving the place, armed person stopped them, hence when Ganongan, the victim
reacted the appellant Doctolero shot him twice causing the victims death as Saint Louis
Hospital The RTC finds the accused Carlos Doctolero, Sr. guilty of the offense of
Murder and hereby sentences him to Reclusion Perpetua and to indemnify the heirs of
deceased, the sum of P50,000.00 as indemnity for his death; the sum of P227,808.80 as
actual damages for expenses incurred for hospitalization, doctors fees, funeral expenses,
vigil and burial as a result of his death, and P300,000.00 as Moral damages for the pain
and mental anguish suffered by the heirs by reason of his death.

ISSUE:
Whether the award of actual damages is correct?

RULING:
No, the award of actual damages in incorrect thus Supreme Court reduced the
award of actual damages to P112, 413.40 representing funeral expenses, which proven
during the proceedings. Expenses relating to the 9th day, 40th day and 1st year
anniversaries cannot be considered in the award of actual damages as these were incurred
after a considerable lapse of time from the burial of the victim. However, the award of
moral damages is reduced to P50, 000.00 in accordance with existing jurisprudence for
the death of the victim.

Page | 22

PEOPLE VS. ABULENCIA


G.R No. 138403. August 22 2001

FACTS:
The appellant had a drink with the brother of the victim, Rebelyn, when the
appellant along with the victim who was then 12 years old to but dilis in the nearby store.
The appellant and the victim never returned but the former surrendered to the authorities
and alleged that the victim has accidentally fallen into the river. However, when the body
was found, it was discovered that the victim was raped before thrown to the river. The
trial court foud Abulencia guilty of the crime of aggravated rape with homicide and
sentenced him to suffer the penalty of death. It was also ordered that the accused
indemnify the heirs of Rebelyn Garcia, the sum of P75,000.00 damages, and another sum
of P20,000.00 for exemplary damages plus P6,425.00 as actual damages.

ISSUE:
Whether the award of damages is correctly imposed.

RULING:
No. the award of damages and penalty was incorrect, thus the Supreme Court both
modified the penalty by reducing it to reclusion perpetua and the award of civil damages.
The court awarded the amount of P 50, 000.00 as moral damages for the moral suffering
of the heirs of the raped victim. However, the award of civil indemnity was increasea
from P 75, 000.00 to p 100, 000.00 based on current jurisprudence in cases of rape with
homicide.

Page | 23

BERMUDEZ VS. JUDGE MELENCIO-HERRERA


G.R No. L-32055. February 26, 1988

FACTS:
The victim Rogelio, a six years old son of the petitioners was killed in a vehicular
accident caused by the alleged negligenc of Cordova, the driver of a jeep who bumped
with the victims passenger seat. The parents instituted an action for collection of
damages against the accused Cordova from the crime of homicide thru reckless
imprudence. The petitioner parents reserved their right to file an independent action
based on quasi-delicts. However, the trial court decided to order the dismissal of the
complaint against defendant Cordova Ng Sun Kwan and to suspend the hearing of the
case against Domingo Pontino until after the criminal case for Homicide Through
Reckless Imprudence is finally terminated.

ISSUE:
Whether the action is based on quasi-delicts and can not stand independently from
the criminal case.

RULING:
Yes. The action was based on quasi-delicts, thus it can be based on the provisions
of the New Civil Code under Article 2176- 2194 where an action for damages from fault,
omission or negligence can prosper independently even during the proceeding in the
criminal case
The parents of the victim made a reservation to file an independent civil action in
accordance with the provisions of Section 2 of Rule 111, Rules of Court. In fact, even
without such a reservation, the court has allowed the injured party in the criminal case
which resulted in the acquittal of the accused to recover damages based on quasi-delict.

Page | 24

PEOPLE VS. JUDGE RELOVA


G.R No. L-45129

FACTS:
Batangas Electric System together with police officers, has searched the premises
of the Ice Plant building owned and managed by Opulencia. The authorities discovered
that Opulencia made illegal installment of electrical wirings and devices causing the
diminution of his electric bill. Thus, he was charge of violatin city ordinance enacted in
1974. Opulencia contended that the offense has already prescribed thus, the Batangas
City Court granted the motion to dismiss on the ground of prescription, it appearing that
the offense charged was a light felony which prescribes two months from the time of
discovery thereof, and it appearing further that the information was filed by the fiscal
more than nine months after discovery of the offense charged in February 1975. After
two weeks, another violation was again filed against Opulencia, this time for theft of
electric power under Article 308 in relation to Article 309 of the Revised Penal Code.

ISSUE:
Whether the electric company can file separate civil action for collection of
damagers against Opulencia.

RULING:
Yes, the electric company may file another civil action for the theft of electric
power by Opulencia. Although the criminal aspect was already prescribed in the first
criminal case And by bar on double jeopardy in the second case, Opulencia can not
escape his civil liability.
Thus, the Supreme Court ordered Opulencia to pay the damages in the amount he
stole from the city and or the electric company from the time he installed the electric
wirings and devices.

Page | 25

MANANTAN VS. COURT OF APPEALS


G.R No. 107125. January 29, 2001

FACTS:
The deceased Nicolas suggested to Fiscal Ambrocio that they will borrow the for
fiera of the accused Manantan, in order for the former to have easy access for their
planned activity. Thus, when they proceeded catching shrimps, they had drinking spree
until they decided to go to Santiago City in the evening and have another drinking spree
there. However, after they ate snacks in the city, they decided to go home. While the
Manantan was driving the carat the speed of 40 kilometer per hour, the car bumped a
coming jeepney causing the former car to swerve into the next line. Ruben Nicolas died ,
however Manantan and the Fiscal suffered injuries.
The trial court acquitted the accused of the crime of Homicide through Reckless
Imprudence. Thus, Manantan appealed for the civil liability he is going to fulfill to the
heirs of the victim. However, it was found out that the proximate cause of the death of the
victim was the negligence of Manantan and the latter was ordered to pay the heirs of the
victim in the amount of P 174, 400.00.

ISSUE:
Whether the extinguishment of the criminal liability in the case carries also the
extinguishment of the civil liability.

RULING:
No. the extinguishment of the criminal liability of Manantan does not carry the
extinguishment of his civil liability because his acquittal was based on reasonable doubt
or the failure to prove the guilt of the accused beyond reasonable doubt. However, it was
not proven that he was acquitted as if he was not present at the happening of the crime
which totally obliterates his civil liability. Thus, article 29 of the Civil Code can be
applied in case of omission or fault.

Page | 26

PEOPLE VS. BAYOTAS


G.R No. 102007. September 2, 1994

FACTS:
Appellant Bayotas was charged with rape and was convicted for the said crime in
1991. while his appeal was pending, he died at the New Bilibid Hospital due to
respiratory attack. Thus, when the Supreme Court dismissed the criminal aspect, the
Solicitor- General expressed that the civil liability of the accused was not also extinguish
upon the death of the appellant.

ISSUE:
Whether the civil liability of the accused was extinguished upon his death.

RULING:
No, the civil liability in general of the accused was not extinguished upon the
death of the accused. However, necessarily, the civil liability in the rape case was
extinguished since it was included in the act complained of but the remedy of the victim
is to proceed to the estate of the accused through the filing of a separate independent
action for collection of damages.

Page | 27

Barredo vs. Garcia


73 Phil 607

FACTS:
The taxicab owned by petitioner Barredo collided to a carratela. Thus, the
carratela fall down and overturned causing the death of the son of respondent Garcia. The
trial court convicted the driver of the taxicab. However, the respondent has reserved his
right to file independent civil action for collection of damages for the death of his son.

ISSUE:
Whether Barredo can held primary liable for the death of the son of the
respondent.

RULING:
Yes. Barredo can also be held primary and directly liable in the civil case because
it was found out that being the owner and operator of the taxicab, his negligence to
supervise and exert extraordinary diligence in the performance of his employees made
him liable together with his convicted employee. Thus, the failure to prove that there was
no negligence on the part of the owner of the taxicab made no way for the petitioner to
escape his civil liability. Therefore, the acts of the employee reflects the act of the
employer causing the latter liable in case of negligence in supervision.

Page | 28

DY TEBAN VS. LIBERTY FOREST


G.R No. 161803. February 4, 2008

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

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

Page | 29

SAFEGUARD SECURITY VS. TANGCO


G.R No. 165732. December 14, 2006

FACTS:
The victim Evangeline Tangco was depositor of Ecology Bank. She was also a
licensed-fire arm holder, thus during the incident, she was entering the bank to renew her
time deposit and along with her was her firearm. Suddenly, the security guard of the
bank, upon knowing that the victim carries a firearm, the security guard shot the victim
causing the latters instant death. The heirs of the victim filed a criminal case against
security guard and an action against Safeguard Security for failure to observe diligence of
a goof father implied upon the act of its agent.

ISSUE:
Whether Safeguard Security can be held liable for the acts of its agent.

RULING:
Yes. The law presumes that any injury committed either by fault or omission of
an employee reflects the negligence of the employer. In quasi-delicts cases, in order to
overcome this presumption, the employer must prove that there was no negligence on his
part in the supervision of his employees.
It was declared that in the selection of employees and agents, employers are
required to examine them as to their qualifications, experience and service records. Thus,
due diligence on the supervision and operation of employees includes the formulation of
suitable rules and regulations for the guidance of employees and the issuance of proper
instructions intended for the protection of the public and persons with whom the
employer has relations through his employees. Thus, in this case, Safeguard Security
committed negligence in identifying the qualifications and ability of its agents.

Page | 30

VILLANUEVA VS. DOMINGO


G.R No. 144274. September 20, 2004

FACTS:
In 1991, a collision was made by a green Mitsubishi lancer owned by Ocfemia
against a silver Mitsubishi lancer driven by Leandro Domingo and owned by petitioner
Priscilla Domingo. The incident caused the car of Domingo bumped another two parked
vehicles. A charged was filed against Ocfemia and the owner Villanueva. Villanueva
claimed that he must not be held liable for the incident because he is no longer the owner
of the car, that it was already swapped to another car . however, the trial court ordered the
petitioner to pay the damages incurred by the silver Mitsubishi lancer car.

ISSUE:
Whether the owner Villanueva be held liable for the mishap.

RULING:
Under the Motor Vehicle law, it was declared that the registered owner of any
vehicle is primary land directly liable for any injury it incurs while it is being operated.
Thus, even the petitioner claimed that he was no longer the present owner of the car, still
the registry was under his name, thus it is presumed that he still possesses the car and that
the damages caused by the car be charge against him being the registered owner. The
primary function of Motor vehicle registration is to identify the owner so that if any
accident happens, or that any damage or injury is caused by the vehicle, responsibility
therefore can be fixed on a definite individual, the registered owner.

Page | 31

CALALAS VS. COURT OF APPEALS


G.R No. 122039. May 31, 2000

FACTS:
Eliza Sunga was a passenger of a jeepney owned and operated by the petitioner
Calalas. Private respondent Sunga sat in the rear protion of the jeepney where the
conductor gave Sunga an extension seat. When the jeep stopped, Sunga gave way to a
passenger going outside the jeep. However, an Isuzu Truck driven by Verene and owned
by Salva, accidentally hit Sunga causing the latter to suffer physical injuries where the
attending physician ordered a three months of rest. Sunga filed an action for damages
against the petitioner for breach of contract of common carriage by the petitioner.
On the other hand, the petitioner Calalas filed an action against Salva, being the
owner of the truck. The lower court ruled in favor of ther petitioner, thus the truck owner
is liable for the damage to the jeep of the petitioner.

ISSUE:
Whether the petitionerr is liable.

RULING:
Yes. The petitioner is liable for the injury suffered by Sunga. Under Article 1756
of the New Civil Code, it provides that common carriers are presumed to have been at
fault or to have acted negligently unless they prove that they observed extraordinary
diligence as defined in Arts. 1733 and 1755 of the Code. This provision necessarily shifts
to the common carrier the burden of proof.
In this case, the law presumes that any injury suffered by a passenger of the jeep
is deemed to be due to the negligence of the driver. This is a case on Culpa Contractual
where there was pre-existing obligations and that the fault is incidental to the
performance of the obligation. Thus, it was clearly observed that the petitioner has
negligence in the conduct of his duty when he allowed Sunga to seat in the rear portion of
the jeep which is prone to accident.

Page | 32

LUDO AND LUYM CORPORATION vs. COURT OF APPEALS


G.R. No. 125483. FEBRUARY 1, 2001
FACTS:
Ludo & Luym Corporation is a domestic corporation engaged in copra
processing. Private Respondent Gabisan Shipping Lines was the registered owner and
operator of the motor vessel MV Miguela, while the other private respondent, Anselmo
Olasiman, was its captain. On May 21, 1990, while MV Miguela was docking at
petitioners wharf, it rammed and destroyed a fender pile cluster. Ireneo Naval,
petitioners employee, guided the vessel to its docking place. After the small rope was
thrown from the vessel and while the petitioners security guard was pulling the big rope
to be tied to the bolar, MV Miguela did not slow down. The crew did not release the
vessels anchor. Naval shouted Reverse to the vessels crew, but it was too late when
the latter responded, for the vessel already rammed the pile cluster. Petitioner demanded
for damages but private respondents denied the incident and the damage. Their witnesses
claimed that the damage, if any, must have occurred prior to their arrival and caused by
another vessel or by ordinary wear and tear.
ISSUE:
Is the doctrine of res ipsa loquitur applicable to this case?
RULING:
The doctrine of res ipsa loquitor provides that where the thing which causes injury
is shown to be under the management of the defendant, and the accident is such as in the
ordinary course of things does not happen if those who have the management use proper
care, it affords reasonable evidence, in the absence of an explanation by the defendant,
that the accident arose from want of care. In this case, all the requisites for this doctrine
exist. First, MV Miguela was under the exclusive control of its officers and crew. Second,
aside from the testimony that MV Miguela rammed the cluster pile, private respondent
did not show persuasively other possible causes of the damage. There exists a
presumption of negligence against private respondents which they failed to overcome.
Additionally, petitioner presented proof that demonstrated private respondents
negligence. As testified by Capt. Olasiman, from command of slow ahead to stop
engine, the vessel will still travel 100 meters before it finally stops. However, he ordered
stop engine when the vessel was only 50 meters from the pier. Further, he testified that
before the vessel is put to slow astern, the engine has to be restarted. However, Olasiman
can not estimate how long it takes before the engine goes to slow astern after the engine
is restarted. From these declarations, the conclusion is that it was already too late when
the captain ordered reverse. By then, the vessel was only 4 meters from the pier, and thus
rammed it.
Respondent companys negligence consists in allowing incompetent crew to man
its vessel. As shown also by petitioner, both Captain Olasiman and Chief Mate Gabisan
did not have a formal training in marine navigation. The former was a mere elementary
graduate while the latter is a high school graduate. Their experience in navigationwas
only as a watchman and a quartermaster, respectively. Gabisan Shipping Lines and the
ship captain are held jointly and severally liable for damages caused to the petitioner.

Page | 33

THERMOCHEM INCORPORATED vs. LEONORA NAVAL


G.R. No. 131541. OCTOBER 20, 2000
FACTS:
"On May 10, 1992, at around 12:00 o'clock midnight, Eduardo Edem was driving
a "Luring Taxi" along Ortigas Avenue, near Rosario, Pasig, going towards Cainta.
Thereafter, the driver executed a U-turn to traverse the same road, going to the direction
of EDSA. At this point, the Nissan Pathfinder traveling along the same road going to the
direction of Cainta collided with the taxicab. The point of impact was so great that the
taxicab was hit in the middle portion and was pushed sideward, causing the driver to lose
control of the vehicle. The taxicab was then dragged into the nearby Question Tailoring
Shop, thus, causing damage to the said tailoring shop, and its driver, Eduardo Eden,
sustained injuries as a result of the incident."
Private respondent, as owner of the taxi, filed a damage suit against petitioner,
Thermochem Incorporated, as the owner of the Nissan Pathfinder, and its driver,
petitioner Jerome Castro. After trial, the lower court adjudged petitioner Castro negligent
and ordered petitioners, jointly and severally, to pay private respondent actual,
compensatory and exemplary damages plus attorney's fees and costs of suit.
ISSUE:
What are the liabilities of both parties?
RULING:
The driver of the oncoming Nissan Pathfinder vehicle was liable and the driver of
the U-turning taxicab was contributorily liable. It is established that Castro was driving
at a speed faster than 50 kilometers per hour because it was a downhill slope. But as he
allegedly stepped on the brake, it locked causing his Nissan Pathfinder to skid to the left
and consequently hit the taxicab. Malfunction or loss of brake is not a fortuitous event.
Between the owner and his driver, on the one hand, and third parties such as commuters,
drivers and pedestrians, on the other, the former is presumed to know about the
conditions of his vehicle and is duty bound to take care thereof with the diligence of a
good father of the family. A mechanically defective vehicle should avoid the streets. As
petitioner's vehicle was moving downhill, the driver should have slowed down since a
downhill drive would naturally cause the vehicle to accelerate. Moreover, the record
shows that the Nissan Pathfinder was on the wrong lane when the collision occurred.
The taxi driver is contributorily liable since he took a U-turn where it is not
generally advisable. The taxi was hit on its side which means that it had not yet fully
made a turn to the other lane. The driver of the taxi ought to have known that vehicles
coming from the Rosario bridge are on a downhill slope. Obviously, there was lack of
foresight on his part, making him contributorily liable. Considering the contributory
negligence of the driver of private respondent's taxi, the award of P47,850.00, for the
repair of the taxi, should be reduced in half. All other awards for damages are deleted for
lack of merit.

Page | 34

AMADO PICART vs. FRANK SMITH, JR.


G.R. No. L-12219. MARCH 15, 1918
FACTS:
The plaintiff, riding on his pony was half way across the Carlatan bridge when the
defendant approached from the opposite direction in an automobile, going at the rate of
about ten or twelve miles per hour. As the defendant neared the bridge he saw a
horseman on it and blew his horn to give warning of his approach. He continued his
course and after he had taken the bridge he gave two more successive blasts, as it
appeared to him that the man on horseback before him was not observing the rule of the
road. The plaintiff saw the automobile coming and heard the warning signals. However,
thinking that he has no sufficient time to go to the other side of the road, he pulled the
pony closely up against the railing on the right side of the bridge instead of going to the
left. The defendant, instead of veering to the right while yet some distance away or
slowing down, continued to approach directly toward the horse. When he had gotten
quite near, there being then no possibility of the horse getting across to the other side, the
defendant quickly turned his car sufficiently to the right to escape hitting the horse
alongside of the railing where it as then standing; but in so doing the automobile passed
in such close proximity to the animal that it became frightened and turned its body across
the bridge with its head toward the railing. In so doing, it as struck on the hock of the left
hind leg by the flange of the car and the limb was broken. The horse fell and its rider was
thrown off with some violence. As a result of its injuries the horse died. The plaintiff
received contusions which caused temporary unconsciousness and required medical
attention for several days.
ISSUE:
Whether or not the defendant is guilty of negligence.
RULING:
As the defendant started across the bridge, he had the right to assume that the
horse and the rider would pass over to the proper side; but as he moved toward the center
of the bridge he clearly saw that this would not be done; and he must in a moment have
perceived that it was too late for the horse to cross with safety in front of the moving
vehicle. The control of the situation had then passed entirely to the defendant; and it was
his duty either to bring his car to an immediate stop or, seeing that there were no other
persons on the bridge, to take the other side and pass sufficiently far away from the horse
to avoid the danger of collision. Instead of doing this, the defendant ran straight on until
he was almost upon the horse.
The plaintiff himself was not free from fault, for he was guilty of antecedent
negligence in planting himself on the wrong side of the road. But it was the defendant
who had the last clear chance to avoid the impending harm and when he failed to do so,
he is deemed negligent, thus liable to pay damages in favor of the plaintiff.

Page | 35

JOSE V. LAGON vs. HOOVEN COMALCO INDUSTRIES, INC


G.R. No. 135657. JANUARY 17, 2001
FACTS:
Sometime in April 1981 Lagon, a businessman and HOOVEN entered into two
(2) contracts, denominated Proposal, whereby for a total consideration of P104,870.00
HOOVEN agreed to sell and install various aluminum materials in Lagons commercial
building in Tacurong, Sultan Kudarat. HOOVEN filed an action against Lagon claiming
that the latter failed to pay his due despite HOOVENs performance of its obligation.
Lagon, in his answer, denied liability and averred that HOOVEN was the party guilty of
breach of contract by failing to deliver and install some of the materials specified in the
proposals; that as a consequence he was compelled to procure the undelivered materials
from other sources; that as regards the materials duly delivered and installed by
HOOVEN, they were fully paid.
ISSUE:
Who among the parties is entitled to damages?
RULING:
HOOVEN's bad faith lies not so much on its breach of contract - as there was no
showing that its failure to comply with its part of the bargain was motivated by ill will or
done with fraudulent intent - but rather on its appalling temerity to sue petitioner for
payment of an alleged unpaid balance of the purchase price notwithstanding knowledge
of its failure to make complete delivery and installation of all the materials under their
contracts. Although petitioner was found to be liable to respondent to the extent of
P6,377.66, petitioner's right to withhold full payment of the purchase price prior to the
delivery and installation of all the merchandise cannot be denied since under the contracts
the balance of the purchase price became due and demandable only upon the completion
of the project. Consequently, the resulting social humiliation and damage to petitioner's
reputation as a respected businessman in the community, occasioned by the filing of this
suit provide sufficient grounds for the award of P50,000.00 as moral damages. On the
part of Lagon, he is ordered by the court to pay HOOVEN the amount corresponding to
the value of the materials admittedly delivered to him.

Page | 36

SPOUSES FRANCISCO vs. HONORABLE COURT OF APPEALS


G.R. No. 118749. APRIL 25, 2003
FACTS:
On 3 February 1984, the spouses Lorenzo and Lorenza Francisco and Engineer
Bienvenido C. Mercado entered into a Contract of Development for the development into
a subdivision of several parcels of land in Pampanga. Under the Contract, respondent
agreed to undertake at his expense the development work for the Franda Village
Subdivision. Respondent committed to complete the construction within 27 months.
Respondent also advanced P200,000.00 for the initial expenses of the development work.
In return, respondent would receive 50% of the total gross sales of the subdivision lots
and other income of the subdivision. Respondent also enjoyed the exclusive and
irrevocable authority to manage, control and supervise the sales of the lots within the
subdivision. The Contract required respondent to submit to petitioners, within the first 15
days of every month, a report on payments collected from lot buyers with copies of all
the contracts to sell. However, respondent failed to submit the monthly report.
On 27 February 1987, respondent filed with the trial court an action to rescind the
Contract with a prayer for damages. Petitioners countered that respondent breached the
Contract by failing to finish the subdivision within the 27 months agreed upon, and
therefore respondent was in delay.
ISSUE:
Did Engr. Mercado incur delay in the case at bench?
RULING:
The petitioners breached the Contract by: (1) hiring Rosales to do development
work on the subdivision within the 27-month period exclusively granted to respondent;
(2) interfering with the latter's development work; and (3) stopping respondent from
managing the sale of lots and collection of payments. Because petitioners were the first to
breach the Contract and even interfered with the development work, respondent did not
incur delay even if he completed only 28% of the development work. Further, the HSRC
extended the Contract up to July 1987. Since the Contract had not expired at the time
respondent filed the action for rescission, petitioners' defense that respondent did not
finish the development work on time was without basis. The law provides that delay may
exist when the obligor fails to fulfill his obligation within the time expressly stipulated. In
this case, the HSRC extended the period for respondent to finish the development work
until 30 July 1987. Respondent did not incur delay since the period granted him to fulfill
his obligation had not expired at the time respondent filed the action for rescission on 27
February 1987.
Moreover, since petitioners stopped respondent from selling lots and collecting
payments from lot buyers, which was the primary source of development funds, they in
effect, rendered respondent incapable, or at least made it difficult for him, to develop the
subdivision within the allotted period. In reciprocal obligations, neither party incurs in
delay if the other does not comply or is not ready to comply with what is incumbent upon
him. It is only when one of the parties fulfills his obligation that delay by the other
begins.

Page | 37

JACINTO TANGUILIG vs. COURT OF APPEALS and VICENTE HERCE JR.


G.R. No. 117190. JANUARY 2, 1997
FACTS:
Petitioner Jacinto M. Tanguilig proposed to respondent Vicente Herce Jr. to
construct a windmill system for him. After some negotiations they agreed on the
construction of the windmill for a consideration of P60,000.00. On 14 March 1988, due
to the refusal and failure of respondent to pay the balance, petitioner filed a complaint to
collect the amount. Respondent denied the claim saying that he had already paid this
amount to the San Pedro General Merchandising Inc. (SPGMI) which constructed the
deep well to which the windmill system was to be connected. According to respondent,
since the deep well formed part of the system the payment he tendered to SPGMI should
be credited to his account by petitioner. Moreover, assuming that he owed petitioner a
balance of P15,000.00, this should be offset by the defects in the windmill system which
caused the structure to collapse after a strong wind hit their place.
Petitioner denied that the construction of a deep well was included in the
agreement to build the windmill system, for the contract price of P60,000.00 was solely
for the windmill assembly and its installation. He also disowned any obligation to repair
or reconstruct the system since its collapse was attributable to a typhoon, a force majeure,
which relieved him of any liability.
ISSUE:
Whether or not the payment for the deep well is part of the contract price.
Whether or not Tanguilig is liable to reconstruct the damaged windmill considering that
its collapse is due to a typhoon.
RULING:
There is absolutely no mention in the two (2) documents that a deep well pump is
a component of the proposed windmill system. The contract prices fixed in both
proposals cover only the features specifically described therein and no other. Respondent
is directed to pay petitioner Tanguilig the balance of P15,000.00 plus legal interest.
Regarding the second issue, the Supreme Court has consistently held that in order
for a party to claim exemption from liability by reason of fortuitous event under Art.
1174 of the Civil Code four (4) requisites must concur: (a) the cause of the breach of the
obligation must be independent of the will of the debtor; (b) the event must be either
unforeseeable or unavoidable; (c) the event must be such as to render it impossible for the
debtor to fulfill his obligation in a normal manner; and, (d) the debtor must be free from
any participation in or aggravation of the injury to the creditor. Petitioner failed to show
that the collapse of the windmill was due solely to a fortuitous event. Petitioner
merely stated that there was a "strong wind." But a strong wind in this case cannot be
fortuitous. On the contrary, a strong wind should be present in places where windmills
are constructed. Petitioner is ordered to "reconstruct subject defective windmill system, in
accordance with the one-year guaranty".

Page | 38

DR. FERNANDO PERIQUET, JR. vs. THE COURT OF APPEALS


G.R. No. L-69996. DECEMBER 5, 1994
FACTS:
Spouses Fernando Periquet and Petra Francisco were left childless after the death
of their only child, Elvira, so they took in a son out of wedlock of Marta Francisco-Reyes,
sister of Petra. Though he was not legally adopted, the boy was given the name Fernando
Periquet, Jr. and was reared to manhood by the spouses Periquet. On March 20, 1966,
Fernando Periquet died. When Petra died, she was survived by her siblings, nieces and
nephews and by the petitioner. But a few days before her death, Petra asked her lawyer to
prepare her last will and testament. However, she died before she could sign it. In the said
will, Petra left her estate to petitioner, Fernando Periquet, Jr. and provided for certain
legacies to her other heirs. Felix Franciso, brother of Petra, assigned his hereditary rights
to the petitioner. However, later on, he filed an action for annulment of the Assignment of
Hereditary Rights claiming "gross misrepresentation and fraud," "grave abuse of
confidence," "mistake and undue influence," and "lack of cause and/or consideration" in
the execution of the challenged deed of assignment.
ISSUE:
Whether or not the Assignment of Hereditary Rights is tainted with fraud.
RULING:
The kind of fraud that will vitiate a contract refers to those insidious words or
machinations resorted to by one of the contracting parties to induce the other to enter into
a contract which without them he would not have agreed to. In the case at bench, no such
fraud was employed by herein petitioner. Resultantly, the assignment of hereditary rights
executed by Felix Francisco in favor of herein petitioner is valid and effective.
Felix Francisco could not be considered to have been deceived into signing the
subject deed of assignment for the following reasons: The assignment was executed and
signed freely and voluntarily by Felix Francisco in order to honor, respect and give full
effect to the last wishes of his deceased sister, Petra. The same was read by him and was
further explained by Atty. Diosdado Guytingco. Furthermore, witnesses for petitioner,
who also served as witnesses in the execution and signing of the deed of assignment,
declared that Felix Francisco was neither forced nor intimidated to sign the assignment of
hereditary rights.

Page | 39

LEGASPI OIL CO., INC. vs. THE COURT OF APPEALS


G.R. No. 96505 JULY 1, 1993
FACTS:
Bernard Oseraos had several transactions with Legaspi Oil Co. for the sale of
copra to the latter. The price at which appellant sells the copra varies from time to time,
depending on the prevailing market price when the contract is entered into. On February
16, 1976, appellant's agent Jose Llover signed contract No. 3804 for the sale of 100 tons
of copra at P82.00 per 100 kilos with delivery terms of 20 days effective March 8, 1976.
After the period to deliver had lapsed, appellant sold only 46,334 kilos of copra thus
leaving a balance of 53,666 kilos. Accordingly, demands were made upon appellant to
deliver the balance with a final warning that failure to deliver will mean cancellation of
the contract, the balance to be purchased at open market and the price differential to be
charged against appellant. On October 22, 1976, since there was still no compliance,
appellee exercised its option under the contract and purchased the undelivered balance
from the open market at the prevailing price of P168.00 per 100 kilos, or a price
differential of P86.00 per 100 kilos, a net loss of P46,152.76 chargeable against appellant.
ISSUE:
Whether or not private respondent is guilty of breach of contact.
RULING:
Private respondent is guilty of fraud in the performance of his obligation under
the sales contract whereunder he bound himself to deliver to petitioner 100 metric tons of
copra. However within the delivery period, Oseraos delivered only 46,334 kilograms of
copra to petitioner. Petitioner made repeated demands upon private respondent to deliver
the balance of 53,666 kilograms but private respondent ignored the same. Petitioner made
a final demand with a warning that, should private respondent fail to complete delivery of
the balance of 53,666 kilograms of copra, petitioner would purchase the balance at the
open market and charge the price differential to private respondent. Still private
respondent failed to fulfill his contractual obligation to deliver the remaining 53,666
kilograms of copra and since there was still no compliance by private respondent,
petitioner exercised its right under the contract and purchased 53,666 kilograms of copra,
the undelivered balance, at the open market at the then prevailing price of P168.00 per
100 kilograms, a price differential of P46,152.76.
The conduct of private respondent clearly manifests his deliberate fraudulent
intent to evade his contractual obligation for the price of copra had in the meantime more
than doubled from P82.00 to P168 per 100 kilograms. Under Article 1170 of the Civil
Code of the Philippines, those who in the performance of their obligation are guilty of
fraud, negligence, or delay, and those who in any manner contravene the tenor thereof,
are liable for damages. Pursuant to said article, private respondent is liable for damages.

Page | 40

TITAN-IKEDA CONSTRUCTION vs. PRIMETOWN


G.R. No. 158768, FEBRUARY 12, 2008
FACTS:
In 1992, respondent Primetown Property Group, Inc. awarded the contract for the
structural works of its 32-storey Makati Prime Tower (MPT) to petitioner Titan-Ikeda
Construction and Development Corporation. In September 1995, respondent engaged the
services of Integratech, Inc. (ITI), an engineering consultancy firm, to evaluate the
progress of the project. In its report, ITI informed respondent that petitioner, at that point,
had only accomplished 31.89% of the project (or was 11 months and six days behind
schedule). Meanwhile, petitioner and respondent were discussing the possibility of the
latters take over of the projects supervision. Despite ongoing negotiations, respondent
did not obtain petitioners consent in hiring ITI as the projects construction manager.
Neither did it inform petitioner of ITIs September 7, 1995 report.
Subsequently, both parties agreed that Primetown will take over the project.
Petitioner then demanded for the payment due him in relation to its partial performance
of its obligation. For failure of Primetown to pay despite repeated demands, petitioner
filed a case for specific performance against Primetown. Meanwhile, Primetown
demanded reimbursement for the amount it spent in having the project completed.
ISSUE:
Whether or not Titzn-Ikeda is responsible for the projects delay.
RULING:
It was found that because respondent modified the MPT's architectural design,
petitioner had to adjust the scope of work. Moreover, respondent belatedly informed
petitioner of those modifications. It also failed to deliver the concrete mix and rebars
according to schedule. For this reason, petitioner was not responsible for the project's
delay. Mora or delay is the failure to perform the obligation in due time because of dolo
(malice) or culpa (negligence). A debtor is deemed to have violated his obligation to the
creditor from the time the latter makes a demand. Once the creditor makes a demand, the
debtor incurs mora or delay. Respondent never sent petitioner a written demand asking it
to accelerate work on the project and reduce, if not eliminate, slippage. In view of the
foregoing, we hold that petitioner did not incur delay in the performance of its obligation.

Page | 41

PNB MADECOR vs. GERARDO C. UY


G.R. No. 129598. AUGUST 15, 2001
FACTS:
Guillermo Uy assigned to respondent Gerardo Uy his receivables due from
Pantranco North Express Inc. (PNEI). The deed of assignment included sales invoices
containing stipulations regarding payment of interest and attorneys fees. On January 23,
1995, Gerardo Uy filed with the RTC a collection suit against PNEI. He alleged that
PNEI was guilty of fraud in contracting the obligation sued upon, hence his prayer for a
writ of preliminary attachment. The sheriff issued a notice of garnishment addressed to
the Philippine National Bank (PNB) and PNB MADECOR attaching the goods, effects,
credits, monies and all other personal properties of PNEI in the possession of the bank.
PNB MADECOR however claimed that the receivables of Guillermo Uy have been
applied to PNEIs unpaid rentals to the bank thru compensation, thus private respondent
is no longer entitled to such. Respondent pointed out that the demand letter sent by PNEI
to petitioner was made before petitioners obligation to PNEI became due. This being so,
respondent argues that there can be no compensation since there was as yet no
compensable debt in 1984 when PNEI demanded payment from petitioner.
ISSUE:
Whether or not PNB MADECOR is correct in its contention that compensation is
applicable to its receivables from and its payables to PNEI.
RULING:
Petitioners obligation to PNEI appears to be payable on demand. However, the
Court found that the letter sent by PNEI to PNB MADECOR was not one demanding
payment, but one that merely informed petitioner of the conveyance of a certain portion
of its obligation to PNEI. Since petitioners obligation to PNEI is payable on demand,
and there being no demand made, it follows that the obligation is not yet due. Therefore,
this obligation may not be subject to compensation for lack of a requisite under the law.
Without compensation having taken place, petitioner remains obligated to PNEI to the
extent stated in the promissory note. This obligation may undoubtedly be garnished in
favor of respondent to satisfy PNEIs judgment debt.
As regards respondents averment that there was as yet no compensable debt
when PNEI sent petitioner a demand letter on September 1984, since PNEI was not yet
indebted to petitioner at that time, the law does not require that the parties obligations be
incurred at the same time. What the law requires only is that the obligations be due and
demandable at the same time.

Page | 42

IGNACIO BARZAGA vs. COURT OF APPEALS and ANGELITO ALVIAR


G.R. No. 115129. FEBRUARY 12, 1997
FACTS:
Barzaga went to the hardware store of respondent Alviar to inquire about the
availability of certain materials to be used in the construction of a niche for his wife. The
following morning, Barzaga went back to the store and told the employees that the
materials he was buying would have to be delivered at the Memorial Cemetery by eight
o'clock that morning since his hired workers were already at the burial site and time was
of the essence. A store employee agreed to deliver the items at the designated time,
date and place. With this assurance, Barzaga purchased the materials and paid in full.
The construction materials did not arrive at eight o'clock as promised. After follow-ups
and several hours later, when there was yet no delivery made, Barzaga went back to the
store. He saw the delivery truck but the things he purchased were not yet ready for
loading. Distressed by the seeming lack of concern on the stores part, Barzaga decided to
cancel his transaction with the store and buy from another store.
Not being able to fulfill the scheduled burial of his wife, Barzaga demanded
damages from Alviar but the latter refused claiming that he is not liable for damages
considering that he did not incur legal delay since there was no specific time of delivery
agreed upon.
ISSUE:
Whether or not the respondent incurred delay in the performance of his
obligation.
RULING:
Respondent Angelito Alviar was negligent and incurred in delay in the
performance of his contractual obligation. The niche had to be constructed at the very
least on the twenty-second of December considering that it would take about two (2) days
to finish the job if the interment was to take place on the twenty-fourth of the month.
Respondent's delay in the delivery of the construction materials wasted so much time that
construction of the tomb could start only on the twenty-third. It could not be ready for
the scheduled burial of petitioner's wife.
This case is clearly one of non-performance of a reciprocal obligation. In their
contract of purchase and sale, petitioner had already complied fully with what was
required of him as purchaser, i.e., the payment of the purchase price of P2,110.00. It was
incumbent upon respondent to immediately fulfill his obligation to deliver the goods
otherwise delay would attach.

Page | 43

JACINTO TANGUILIG vs. COURT OF APPEALS and VICENTE HERCE JR.


G.R. No. 117190. JANUARY 2, 1997
FACTS:
Petitioner Jacinto M. Tanguilig proposed to respondent Vicente Herce Jr. to
construct a windmill system for him. After some negotiations they agreed on the
construction of the windmill for a consideration of P60,000.00. On 14 March 1988, due
to the refusal and failure of respondent to pay the balance, petitioner filed a complaint to
collect the amount. Respondent denied the claim saying that he had already paid this
amount to the San Pedro General Merchandising Inc. (SPGMI) which constructed the
deep well to which the windmill system was to be connected. According to respondent,
since the deep well formed part of the system the payment he tendered to SPGMI should
be credited to his account by petitioner. Moreover, assuming that he owed petitioner a
balance of P15,000.00, this should be offset by the defects in the windmill system which
caused the structure to collapse after a strong wind hit their place.
Petitioner refused to pay and argued that private respondent was already in default
in the payment of his outstanding balance of P15,000.00 and hence should bear his own
loss.
ISSUE:
Whether or not petitioner is correct in his contention that respondent is already in
default thus he should bear the loss of the windmill.
RULING:
Petitioner's argument that private respondent was already in default in the
payment of his outstanding balance of P15,000.00 and hence should bear his own loss, is
untenable. 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.
When the windmill failed to function properly it became incumbent upon petitioner to
institute the proper repairs in accordance with the guaranty stated in the contract. Thus,
respondent cannot be said to have incurred in delay; instead, it is petitioner who should
bear the expenses for the reconstruction of the windmill. Article 1167 of the Civil Code
is explicit on this point that if a person obliged to do something fails to do it, the same
shall be executed at his cost.

Page | 44

TAYAG vs. COURT OF APPEALS


G.R. No. 96053. MARCH 3, 1993
FACTS:
Juan Galicia, Sr. executed a deed of conveyance, prior to his demise in 1979 in
favor of Albrigido Leyva involving the undivided one-half portion of a piece of land
situated at Poblacion, Guimba, Nueva Ecija for the sum of P50,000.00. There is no
dispute that the first installment was received by Juan Galicia, Sr. And according to
petitioners, of the P10,000.00 to be paid within ten days from execution of the
instrument, only P9,707.00 was tendered to, and received by, them on numerous
occasions from May 29, 1975, up to November 3, 1979. It was also agreed upon that
private respondent will assume the vendors' obligation to the Philippine Veterans Bank,
however, he paid only the sum of P6,926.41 while the difference of the indebtedness was
paid by Juan Galicia, Sr.s sister. Moreover, petitioners claimed that not a single centavo
of the P27,000.00 representing the remaining balance was paid to them. Petitioners
averred that private respondents failure to pay full consideration of the agreement to sell
gave them the right to have the contract rescinded.
ISSUE:
Whether or not the petitioners have the right to rescind the contract in the present
case.
RULING:
Considering that the heirs of Juan Galicia, Sr. accommodated private respondent
by accepting the latter's delayed payments not only beyond the grace periods but also
during the pendency of the case for specific performance, petitioners' actuation is
susceptible of but one construction that they are now estopped from reneging from their
commitment on account of acceptance of benefits arising from overdue accounts of
private respondent. Indeed, the right to rescind is not absolute and will not be granted
where there has been substantial compliance by partial payments.
Private respondent is ordered to pay the balance of the purchase price and to
reimburse the sum paid by Juan Galicia Sr.s sister to the Philippine Veterans bank,
minus the attorney's fees and damages awarded in favor of private respondent.

Page | 45

DR. FERNANDO PERIQUET, JR. vs. THE COURT OF APPEALS


G.R. No. L-69996. DECEMBER 5, 1994
FACTS:
Spouses Fernando Periquet and Petra Francisco were left childless after the death
of their only child, Elvira, so they took in a son out of wedlock of Marta Francisco-Reyes,
sister of Petra. Though he was not legally adopted, the boy was given the name Fernando
Periquet, Jr. and was reared to manhood by the spouses Periquet. On March 20, 1966,
Fernando Periquet died. When Petra died, she was survived by her siblings, nieces and
nephews and by the petitioner. But a few days before her death, Petra asked her lawyer to
prepare her last will and testament. However, she died before she could sign it. In the said
will, Petra left her estate to petitioner, Fernando Periquet, Jr. and provided for certain
legacies to her other heirs. Felix Franciso, brother of Petra, assigned his hereditary rights
to the petitioner. However, later on, he filed an action for annulment of the Assignment of
Hereditary Rights claiming "gross misrepresentation and fraud," "grave abuse of
confidence," "mistake and undue influence," and "lack of cause and/or consideration" in
the execution of the challenged deed of assignment.
ISSUE:
Whether or not the Assignment of Hereditary Rights is tainted with fraud.
RULING:
The kind of fraud that will vitiate a contract refers to those insidious words or
machinations resorted to by one of the contracting parties to induce the other to enter into
a contract which without them he would not have agreed to. In the case at bench, no such
fraud was employed by herein petitioner. Resultantly, the assignment of hereditary rights
executed by Felix Francisco in favor of herein petitioner is valid and effective.
Felix Francisco could not be considered to have been deceived into signing the
subject deed of assignment for the following reasons: The assignment was executed and
signed freely and voluntarily by Felix Francisco in order to honor, respect and give full
effect to the last wishes of his deceased sister, Petra. The same was read by him and was
further explained by Atty. Diosdado Guytingco. Furthermore, witnesses for petitioner,
who also served as witnesses in the execution and signing of the deed of assignment,
declared that Felix Francisco was neither forced nor intimidated to sign the assignment of
hereditary rights.

Page | 46

RIZAL COMMERCIAL BANKING CORPORATION vs. COURT OF APPEALS


G.R. No. 133107. MARCH 25, 1999
FACTS:
Private respondent Atty. Felipe Lustre purchased a Toyota Corolla from Toyota
Shaw, Inc. for which he made a down payment of P164,620.00, the balance of the
purchase price to be paid in 24 equal monthly installments. Private respondent thus
issued 24 postdated checks for the amount of P14,976.00 each. To secure the balance, he
executed a promissory note and a contract of chattel mortgage over the vehicle in favor of
Toyota Shaw, Inc. The contract of chattel mortgage, in paragraph 11 thereof, provided
for an acceleration clause stating that should the mortgagor default in the payment of any
installment, the whole amount remaining unpaid shall become due. In addition, the
mortgagor shall be liable for 25% of the principal due as liquidated damages. On March
14, 1991, Toyota Shaw, Inc. assigned all its rights and interests in the chattel mortgage to
petitioner Rizal Commercial Banking Corporation (RCBC).
On the theory that respondent defaulted in his payments, the check representing the
payment for August 10, 1991 being unsigned, petitioner demanded from private
respondent the payment of the remaining balance of the debt pursuant to the acceleration
clause, and also of the liquidated damages,. The latter refused, prompting petitioner to
file an action for replevin and damages against him.
ISSUE:
Whether or not petitioner is correct that private respondent is in default thus
justifying its treating the balance of the purchase price as due and demandable.
RULING:
In the case at bench, plaintiff-appellant's imputation of default to defendantappellee rested solely on the fact that the 5 th check issued by appellee was recalled for
lack of signature. The "default" was not a case of failure to pay, the check being
sufficiently funded, and which amount was in fact already debited from appellee's
account by the appellant bank which subsequently re-credited the amount to defendantappellee's account for lack of signature. All these actions RCBC did on its own without
notifying defendant until sixteen (16) months later when it wrote its demand letter dated
January 21, 1993.
Article 1170 of the Civil Code states that those who in the performance of their
obligations are guilty of delay are liable for damages. The delay in the performance of
the obligation, however, must be either malicious or negligent. Thus, assuming that
private respondent was guilty of delay in the payment of the value of the unsigned check,
private respondent cannot be held liable for damages. There is no imputation, much less
evidence, that private respondent acted with malice or negligence in failing to sign the
check. Indeed, we agree with the Court of Appeals' finding that such omission was mere
"inadvertence" on the part of private respondent. As pointed out by the trial court, this
whole controversy could have been avoided if only petitioner bothered to call up private
respondent and ask him to sign the check.

Page | 47

STATE INVESTMENT HOUSE INC. vs. COURT OF APPEALS


G.R. No. 115548. MARCH 5, 1996
FACTS:
Spouses Oreta and the Solid Homes, Inc. (SOLID) entered into a Contract to Sell
involving a parcel of land for a consideration of P39,347.00. Upon signing of the
contract, the spouses Oreta paid the downpayment with the agreement that the balance
shall be payable in monthly installments of P45 1.70, at 12% interest per annum. On
November 4, 1976, SOLID executed several real estate mortgage contracts in favor of
State Investment House Inc. (STATE) over its subdivided parcels of land, one of which is
the subject lot which is the one subject of the above stated Contract to Sell. For failure of
SOLID to comply with its mortgage obligations contract, STATE extra-judicially
foreclosed the mortgaged properties including the subject lot on April 6, 1983. As a result
of the foreclosure, the spouses filed a complaint against SOLID and STATE for SOLIDs
failure to execute the absolute deed of sale despite full payment of the purchase price as
of 1981.
ISSUE:
Who has the better right over the subject lot?
RULING:
Petitioner admits the superior rights of respondents-spouses Oreta over the subject
property as it did not pray for the nullification of the contract between respondentsspouses and SOLID, but instead asked for the payment of the release value of the
property in question, plus interest, attorneys fees and costs of suit against SOLID or, in
case of the latters inability to pay, against respondents-spouses before it can be required
to release the title of the subject property in favor of the respondent spouses. And even if
we were to pass upon the first assigned error, we find respondent courts ruling on the
matter to be well-founded. STATEs registered mortgage right over the property is
inferior to that of respondents-spouses unregistered right. The unrecorded sale between
respondents-spouses and SOLID is preferred for the reason that if the original owner
(SOLID, in this case) had parted with his ownership of the thing sold then he no longer
had ownership and free disposal of that thing so as to be able to mortgage it again.
Registration of the mortgage is of no moment since it is understood to be without
prejudice to the better right of third parties.

Page | 48

BPI INVESTMENT CORPORATION vs. HON. COURT OF APPEALS


G.R. No. 133632. FEBRUARY 15, 2002
FACTS:
Frank Roa obtained a loan at an interest rate of 16 1/4% per annum from Ayala
Investment and Development Corporation (AIDC), predecessor of petitioner BPIIC for
the construction of a house on his lot. Said house and lot were mortgaged to AIDC to
secure the loan. Sometime in 1980, Roa sold the house and lot to private respondents
ALS and Antonio Litonjua. They paid P350,000 in cash and assumed the P500,000
balance of Roas indebtedness with AIDC. The latter, however, was not willing to extend
the old interest rate to private respondents and proposed to grant them a new loan of
P500,000 to be applied to Roas debt and secured by the same property, at an interest rate
of 20% per annum. In June 1984, BPIIC instituted foreclosure proceedings against
private respondents on the ground that they failed to pay the mortgage indebtedness.
Private respondents on the other hand alleged that they were not in arrears in their
payment, but in fact made an overpayment as of June 30, 1984.
ISSUE:
Whether or not petitioner may be held liable for moral and exemplary damages.
RULING:
Petitioner claims that it should not be held liable for moral and exemplary
damages for it did not act maliciously when it initiated the foreclosure proceedings. It
merely exercised its right under the mortgage contract because private respondents were
irregular in their monthly amortization. Private respondents counter that BPIIC was guilty
of bad faith and should be liable for said damages because it insisted on the payment of
amortization on the loan even before it was released. Further, it did not make the
corresponding deduction in the monthly amortization to conform to the actual amount of
loan released, and it immediately initiated foreclosure proceedings when private
respondents failed to make timely payment. But as admitted by private respondents
themselves, they were irregular in their payment of monthly amortization. Thus, we can
not properly declare BPIIC in bad faith. Consequently, we should rule out the award of
moral and exemplary damages. However, in our view, BPIIC was negligent in relying
merely on the entries found in the deed of mortgage, without checking and
correspondingly adjusting its records on the amount actually released to private
respondents and the date when it was released. Such negligence resulted in damage to
private respondents, for which an award of nominal damages should be given in
recognition of their rights which were violated by BPIIC. For this purpose, the amount of
P25,000 is sufficient. Lastly, we sustain the award of P50,000 in favor of private
respondents as attorneys fees since they were compelled to litigate.

Page | 49

CARMELITA LEAO vs. COURT OF APPEALS


G.R. No. 129018. NOVEMBER 15, 2001
FACTS:
Hermogenes Fernando, as vendor and Carmelita Leao, as vendee executed a
contract to sell involving a piece of land. In the contract, Leao bound herself to pay
Fernando P10,775.00 at the signing of the contract with the balance of P96,975.00 to be
paid within a period of TEN (10) years at a monthly amortization of P1,747.30. The
contract also provided for a grace period of one month within which to make payments,
together with the one corresponding to the month of grace. Should the month of grace
expire without the installments for both months having been satisfied, an interest of 18%
per annum will be charged on the unpaid installments.
ISSUE:
Whether petitioner was in delay in the payment of the monthly amortizations.
RULING:
On the issue of whether petitioner Leao was in delay in paying the amortizations,
we rule that while the contract provided that the total purchase price was payable within a
ten-year period, the same contract specified that the purchase price shall be paid in
monthly installments for which the corresponding penalty shall be imposed in case of
default. Petitioner Leao cannot ignore the provision on the payment of monthly
installments by claiming that the ten-year period within which to pay has not elapsed.
Article 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. From the moment one of the parties fulfills
his obligation, delay by the other begins. In the case at bar, respondent Fernando
performed his part of the obligation by allowing petitioner Leao to continue in
possession and use of the property. Clearly, when petitioner Leao did not pay the
monthly amortizations in accordance with the terms of the contract, she was in delay and
liable for damages. However, we agree with the trial court that the default committed by
petitioner Leao in respect of the obligation could be compensated by the interest and
surcharges imposed upon her under the contract in question.

Page | 50

HEIRS OF LUIS BACUS vs. HON. COURT OF APPEALS


G.R. No. 127695. DECEMBER 3, 2001
FACTS:
Luis Bacus leased to private respondent Faustino Duray a parcel of agricultural
land. The contract contained an option to buy clause. Under said option, the lessee had
the exclusive and irrevocable right to buy 2,000 square meters of the property within five
years from a year after the effectivity of the contract. Close to the expiration of the
contract, Luis Bacus died. Thereafter, the Duray spouses informed one of the heirs of
Luis Bacus, that they were willing and ready to purchase the property under the option to
buy clause. Due to the refusal of petitioners to sell the property, Duray filed a complaint
for specific performance against the heirs of Luis Bacus asking that he be allowed to
purchase the lot specifically referred to in the lease contract with option to buy. On the
other hand, petitioners alleged that before Luis Bacus death, private respondents
conveyed to them the formers lack of interest to exercise their option because of
insufficiency of funds. They further alleged that private respondents did not deposit the
money as required by the Lupon and instead presented a bank certification which cannot
be deemed legal tender.
ISSUE:
Did private respondents incur in delay when they did not deliver the purchase
price or consign it in court on or before the expiration of the contract?
RULING:
Obligations under an option to buy are reciprocal obligations. The performance of
one obligation is conditioned on the simultaneous fulfillment of the other obligation. In
other words, in an option to buy, the payment of the purchase price by the creditor is
contingent upon the execution and delivery of a deed of sale by the debtor. In this case,
when private respondents opted to buy the property, their obligation was to advise
petitioners of their decision and their readiness to pay the price. They were not yet
obliged to make actual payment. Only upon petitioners actual execution and delivery of
the deed of sale were they required to pay. Notice of the creditors decision to exercise
his option to buy need not be coupled with actual payment of the price, so long as this is
delivered to the owner of the property upon performance of his part of the agreement.
Consequently, since the obligation was not yet due, consignation in court of the purchase
price was not yet required.
Private respondents did not incur in delay when they did not yet deliver payment
nor make a consignation before the expiration of the contract. In reciprocal obligations,
neither party incurs in delay if the other does not comply or is not ready to comply in a
proper manner with what is incumbent upon him. Only from the moment one of the
parties fulfills his obligation, does delay by the other begin. In this case, as there was no
compliance yet with what was incumbent upon petitioners under the option to buy,
private respondents had not incurred in delay when the cashiers check was issued even
after the contract expired.

Page | 51

INTEGRATED PACKAGING CORP. vs. COURT OF APPEALS


G.R. No. 115117. JUNE 8, 2000
FACTS:
Petitioner and private respondent executed an order agreement whereby private
respondent bound itself to deliver to petitioner 3,450 reams of printing papers under
specified schedule of delivery. As of July 30, 1979, private respondent had delivered to
petitioner 1,097 reams of printing paper out of the total 3,450 reams stated in the
agreement. Petitioner alleged it wrote private respondent to immediately deliver the
balance because further delay would greatly prejudice petitioner. From June 5, 1980 and
until July 23, 1981, private respondent delivered again to petitioner various quantities of
printing paper amounting to P766,101.70. However, petitioner encountered difficulties
paying private respondent said amount. Accordingly, private respondent made a formal
demand upon petitioner to settle the outstanding account. Private respondent filed a
collection suit against petitioner for the sum of P766,101.70, representing the unpaid
purchase price of printing paper bought by petitioner on credit. In its answer, petitioner
denied the material allegations of the complaint. It alleged that private respondent was
able to deliver only 1,097 reams of printing paper which was short of 2,875 reams, in
total disregard of their agreement; that private respondent failed to deliver the balance of
the printing paper despite demand therefor, hence, petitioner suffered actual damages and
failed to realize expected profits.
ISSUE:
Whether or not private respondent violated the order agreement.
RULING:
The transaction between the parties is a contract of sale whereby private
respondent (seller) obligates itself to deliver printing paper to petitioner (buyer) which, in
turn, binds itself to pay its equivalent (price). Both parties concede that the order
agreement gives rise to a reciprocal obligation such that the obligation of one is
dependent upon the obligation of the other. Reciprocal obligations are to be performed
simultaneously, so that the performance of one is conditioned upon the simultaneous
fulfillment of the other. Thus, private respondent undertakes to deliver printing paper of
various quantities subject to petitioners corresponding obligation to pay, on a maximum
90-day credit, for these materials. Clearly, petitioner did not fulfill its side of the contract
as its last payment in August 1981 could cover only materials covered by delivery
invoices dated September and October 1980. Thus, private respondent did not violate the
order agreement.

Page | 52

LAFORTEZA vs. MACHUCA


G.R. No. 137552. JUNE 16, 2000
FACTS:
In the exercise of the Special Power of Attorney executed by their co-heirs, by
Roberto Z. Laforteza and Gonzalo Z. Laforteza, Jr. entered into a Memorandum of
Agreement (Contract to Sell) with the plaintiff over the subject house and lot for the sum
of P630,000.00. On September 18, 1998, defendant heirs, through their counsel wrote a
letter to the plaintiff furnishing the latter a copy of the reconstituted title to the subject
property, advising him that he had thirty (3) days to produce the balance of P600,000.00
under the Memorandum of Agreement which plaintiff received on the same date. The
plaintiff requested a 30-day extension within which he would pay the balance of the
purchase price. This was granted by Roberto Laforteza but not by Gonzalo Laforteza, the
second attorney-in-fact.
On November 15, 1989, plaintiff informed the defendant heirs, through defendant
Roberto Z. Laforteza, that he already has the money. However, the defendants, refused to
accept the told him that the subject property was no longer for sale. Thereafter, plaintiff
reiterated his request to tender payment of the balance but the defendants insisted on the
rescission of the Memorandum of Agreement. Thereafter, plaintiff filed the instant action
for specific performance.
ISSUE:
Whether or not defendants may rescind the contract of sale entered with Machuca.
RULING:
Admittedly, the failure of the respondent to pay the balance of the purchase price
was a breach of the contract and was a ground for rescission thereof. The extension of
thirty (30) days allegedly granted to the respondent by Roberto Z. Laforteza was correctly
found by the Court of Appeals to be ineffective inasmuch as the signature of Gonzalo Z.
Laforteza did not appear thereon as required by the Special Powers of Attorney.
However, the evidence reveals that after the expiration of the six-month period provided
for in the contract, the petitioners were not ready to comply with what was incumbent
upon them, i.e. the delivery of the reconstituted title of the house and lot. It was only on
September 18, 1989 or nearly eight months after the execution of the Memorandum of
Agreement when the petitioners informed the respondent that they already had a copy of
the reconstituted title and demanded the payment of the balance of the purchase price.
The respondent could not therefore be considered in delay for in reciprocal obligations,
neither party incurs in delay if the other party does not comply or is not ready to comply
in a proper manner with what was incumbent upon him.
Even assuming for the sake of argument that the petitioners were ready to comply
with their obligation, we find that rescission of the contract will still not prosper. Delay in
payment was only thirty days which was caused by the respondents justified but
mistaken belief that an extension to pay was granted to him. We agree with the Court of
Appeals that the delay of one month in payment was a mere casual breach that would not
entitle the respondents to rescind the contract. Rescission of a contract will not be
permitted for a slight or casual breach, but only such substantial and fundamental breach
as would defeat the very object of the parties in making the agreement.

Page | 53

THE INTERNATIONAL CORPORATE vs. SPS. GUECO


G.R. No. 141968. FEBRUARY 12, 2001
FACTS:
The Gueco Spouses obtained a loan from petitioner International Corporate Bank
(now Union Bank of the Philippines) to purchase a car. In consideration thereof, the
Spouses executed promissory notes which were payable in monthly installments and
chattel mortgage over the car to serve as security for the notes. The Spouses defaulted in
payment of installments. After some negotiations and computation, the amount of car
loan was lowered. Finally, Dr. Gueco delivered a managers check in the amount of
reduced car loan but the car was not released because of his refusal to sign the Joint
Motion to Dismiss. Petitioner, however, insisted that the joint motion to dismiss is
standard operating procedure in their bank to effect a compromise and to preclude future
filing of claims, counterclaims or suits for damages.
ISSUE:
Whether or not there was fraud in the part of herein petitioner.
RULING:
Fraud has been defined as the deliberate intention to cause damage or prejudice.
It is the voluntary execution of a wrongful act, or a willful omission, knowing and
intending the effects which naturally and necessarily arise from such act or omission. We
fail to see how the act of the petitioner bank in requiring the respondent to sign the joint
motion to dismiss could constitute as fraud. True, petitioner may have been remiss in
informing Dr. Gueco that the signing of a joint motion to dismiss is a standard operating
procedure of petitioner bank. However, this can not in anyway have prejudiced Dr.
Gueco. The motion to dismiss was in fact also for the benefit of Dr. Gueco, as the case
filed by petitioner against it before the lower court would be dismissed with prejudice.
The whole point of the parties entering into the compromise agreement was in order that
Dr. Gueco would pay his outstanding account and in return petitioner would return the
car and drop the case for money and replevin before the Metropolitan Trial Court.
Petitioner's act of requiring Dr. Gueco to sign the joint motion to dismiss can not be said
to be a deliberate attempt on the part of petitioner to renege on the compromise
agreement of the parties. It should, likewise, be noted that in cases of breach of contract,
moral damages may only be awarded when the breach was attended by fraud or bad faith.
The law presumes good faith. Dr. Gueco failed to present an iota of evidence to
overcome this presumption. Necessarily, the claim for exemplary damages must fail. In
no way, may the conduct of petitioner be characterized as wanton, fraudulent, reckless,
oppressive or malevolent.

Page | 54

REPUBLIC OF THE PHILIPPINES vs. THE COURT OF TAX APPEALS


G.R. No. 139050. OCTOBER 2, 2001
FACTS:
On 12 December 1992, a shipment of bales of textile gray cloth arrived at the
Manila International Container Port (MICP). There has been a mistake in the name of the
consignee provided in the shipment's Inward Foreign Manifest. Forthwith, the shipping
agent, FIL-JAPAN, requested for an amendment of the Inward Foreign Manifest so as to
correct the name of the consignee from that of GQ GARMENTS, Inc., to that of
AGFHA, Inc. Subsequently, FIL-JAPAN forwarded to AGFHA, Inc., the amended
Inward Foreign Manifest which the latter, in turn, submitted to the MICP Law Division.
The MICP indorsed the document to the Customs Intelligence Investigation Services
(CIIS). The CIIS placed the subject shipment under Hold Order on the ground that GQ
GARMENTS, Inc., could not be located in its given address and was thus suspected to be
a fictitious firm. Forfeiture proceedings under Section 2530(f) and (l) (3-5) of the Tariff
and Customs Code were initiated.
ISSUE:
Whether or not the private respondent is guilty of fraud in relation to the shipment
subject of the case at bench.
RULING:
Petitioner asserts that all of the requisites for forfeiture proceedings under the
Tariff and Customs Code are present in this case. Private respondent AGFHA, Inc., on
the other hand, maintains that there has only been an inadvertent error and not an
intentional wrongful declaration by the shipper to evade payment of any tax due.
Fraud must be proved to justify forfeiture. It must be actual, amounting to
intentional wrong-doing with the clear purpose of avoiding the tax. Forfeiture is not
favored in law nor in equity. Mere negligence is not equivalent to the fraud contemplated
by law. What is here involved is an honest mistake, not even directly attributable to
private respondent, which will not deprive the government of its right to collect the
proper tax. The conclusion of the appellate court, being consistent with the evidence on
record and not contrary to law and jurisprudence, hardly can be overturned by this Court.

Page | 55

YAMBAO vs. ZUIGA


G.R. No. 146173. DECEMBER 11, 2003
FACTS:
At around 3:30 p.m. of May 6, 1992, the bus owned by the petitioner was being
driven by her driver, Ceferino G. Venturina along the northbound lane of Epifanio delos
Santos Avenue (EDSA). Suddenly, the bus bumped Herminigildo Zuiga, a pedestrian.
Such was the force of the impact that the left side of the front windshield of the bus was
cracked. Zuiga was rushed to the Quezon City General Hospital where he was given
medical attention, but due to the massive injuries sustained, he succumbed shortly
thereafter.
Private respondents, heirs of the victim, filed a Complaint against petitioner and
her driver, Venturina, for damages. The complaint alleged that Venturina drove the bus in
a reckless, careless and imprudent manner, in violation of traffic rules and regulations,
without due regard to public safety, thus resulting in the victims premature death. In her
Answer, the petitioner denied the allegations of the complaint, trying to shift the blame to
the victim, theorizing that Herminigildo bumped into her bus, while avoiding an
unidentified woman who was chasing him. She further alleged that she was not liable for
any damages because as an employer, she exercised the proper diligence of a good father
of a family, both in the selection and supervision of her bus driver.
ISSUE:
Whether petitioner exercised the diligence of a good father of a family in the
selection and supervision of her employees, thus absolving her from any liability.
RULING:
Petitioner claimed that she exercised due diligence in the selection and
supervision of her driver, Venturina. Her allegation that before she hired Venturina she
required him to submit his drivers license and clearances is worthless, in view of her
failure to offer in evidence certified true copies of said license and clearances. Moreover,
petitioner contradicted herself. She declared that Venturina applied with her sometime in
January 1992 and she then required him to submit his license and clearances. However,
the record likewise shows that Venturina submitted the said requirements only on May 6,
1992, or on the very day of the fatal accident itself. In other words, petitioners own
admissions clearly and categorically show that she did not exercise due diligence in the
selection of her bus driver.
In any case, assuming arguendo that Venturina did submit his license and
clearances when he applied with petitioner in January 1992, the latter still fails the test of
due diligence in the selection of her bus driver. Petitioner failed to present convincing
proof that she went to this extent of verifying Venturinas qualifications, safety record,
and driving history. Nor did petitioner show that she exercised due supervision over
Venturina after his selection. For as pointed out by the Court of Appeals, petitioner did
not present any proof that she drafted and implemented training programs and guidelines
on road safety for her employees. In fact, the record is bare of any showing that
petitioner required Venturina to attend periodic seminars on road safety and traffic
efficiency. Hence, petitioner cannot claim exemption from any liability arising from the
recklessness or negligence of Venturina.

Page | 56

SMITH BELL DODWELL vs. CATALINO BORJA


G.R. No. 143008. JUNE 10, 2002
FACTS:
Smith Bell filed a written request with the Bureau of Customs for the attendance
of the latters inspection team on vessel M/T King Family which was due to arrive at the
port of Manila on September 24, 1987. In response, Catalino Borja was instructed to
board the said vessel and inspect the vessel. At about 11 oclock in the morning on
September 24, 1987, while M/T King Family was unloading chemicals unto two (2)
barges owned by respondent ITTC, a sudden explosion occurred setting the vessels afire.
Upon hearing the explosion, Borja, who was at that time inside the cabin preparing
reports, ran outside to check what happened. Again, another explosion was heard. Seeing
the fire Borja hurriedly jumped over board to save himself. However, the water was
likewise on fire due mainly to the spilled chemicals. Despite the tremendous heat, Borja
swam his way until he was rescued by the people living in the squatters area and sent to
San Juan De Dios Hospital.
After weeks of intensive care at the hospital, Borja was diagnosed to be
permanently disabled due to the incident. Thus, he made demands against Smith Bell and
ITTC for the damages caused by the explosion. However, both denied liabilities and
attributed to each other negligence.
ISSUES:
Who, if any, is liable for Borjas injuries?
RULING:
Both the RTC and the CA ruled that the fire and the explosion had originated
from petitioners vessel. The attempts of Smith Bell to shift the blame on ITTC were all
for naught. First, the testimony of its alleged eyewitness was stricken off the record for
his failure to appear for cross-examination. Second, the documents offered to prove that
the fire originated from barge ITTC-101 were all denied admission by the court for being,
hearsay. Thus, there is nothing in the record to support petitioners contention that the fire
and explosion originated from barge ITTC-101.
The three elements of quasi delict are: (a) damages suffered by the plaintiff, (b)
fault or negligence of the defendant, and (c) the connection of cause and effect between
the fault or negligence of the defendant and the damages inflicted on the plaintiff. All
these elements were established in this case. Knowing fully well that it was carrying
dangerous chemicals, petitioner was negligent in not taking all the necessary precautions
in transporting the cargo. As a result of the fire and the explosion during the unloading of
the chemicals from petitioners vessel, Respondent Borja suffered severe injuries. Hence,
the owner or the person in possession and control of a vessel and the vessel are liable for
all natural and proximate damage caused to persons and property by reason of negligent
management or navigation.

Page | 57

RAMON K. ILUSORIO vs. HON. COURT OF APPEALS


G.R. No. 139130. NOVEMBER 27, 2002
FACTS:
Petitioner is a prominent businessman and was a depositor in good standing of
respondent bank, the Manila Banking Corporation. As he was then running about 20
corporations, and was going out of the country a number of times, petitioner entrusted to
his secretary, Katherine E. Eugenio, his credit cards and his checkbook with blank
checks. Eugenio was able to encash and deposit to her personal account about seventeen
(17) checks drawn against the account of the petitioner at the respondent bank, with an
aggregate amount of P119,634.34. Petitioner did not bother to check his statement of
account until a business partner apprised him that he saw Eugenio use his credit cards.
Petitioner fired Eugenio immediately, and instituted a criminal action against her for
estafa thru falsification.
Petitioner then requested the respondent bank to credit back and restore to its
account the value of the checks which were wrongfully encashed but respondent bank
refused. Hence, petitioner filed the instant case.
ISSUE:
Is Manila Bank liable for damages for its negligence in failing to detect the
discrepant checks?
RULING:
Petitioners contention that Manila Bank was remiss in the exercise of its duty as
drawee lacks factual basis. Manila Bank employees exercised due diligence in cashing
the checks. Its verifiers first verified the drawers signatures thereon as against his
specimen signature cards, and when in doubt, the verifier went further, such as by
referring to a more experienced verifier for further verification. In some instances the
verifier made a confirmation by calling the depositor by phone. It is only after taking
such precautionary measures that the subject checks were given to the teller for payment.
Of course it is possible that the verifiers of TMBC might have made a mistake in
failing to detect any forgery -- if indeed there was. However, a mistake is not equivalent
to negligence if they were honest mistakes. In the instant case, we believe and so hold
that if there were mistakes, the same were not deliberate, since the bank took all the
precautions. As borne by the records, it was petitioner, not the bank, who was negligent.
Negligence is the omission to do something which a reasonable man, guided by those
considerations which ordinarily regulate the conduct of human affairs, would do, or the
doing of something which a prudent and reasonable man would do. In the present case, it
appears that petitioner accorded his secretary unusual degree of trust and unrestricted
access to his credit cards, passbooks, check books, bank statements, including custody
and possession of cancelled checks and reconciliation of accounts.

Page | 58

NATIONAL POWER CORPORATION vs. THE COURT OF APPEALS


G.R. No. 124378. MARCH 8, 2005
FACTS:
On 15 November 1973, the Office of the President of the Philippines issued
Memorandum Order No. 398 instructing the NPC to build the Agus Regulation Dam at
the mouth of Agus River in Lanao del Sur, at a normal maximum water level of Lake
Lanao at 702 meters elevation. Pursuant thereto, petitioner built and operated the said
dam in 1978. Private respondents Hadji Abdul Carim Abdullah, Caris Abdullah, Hadji
Ali Langco and Diamael Pangcatan own fishponds along the Lake Lanao shore. In
October and November of 1986, all the improvements were washed away when the water
level of the lake escalated and the subject lakeshore area was flooded. Private
respondents blamed the inundation on the Agus Regulation Dam built and operated by
the NPC in 1978. They theorized that NPC failed to increase the outflow of water even
as the water level of the lake rose due to the heavy rains.
ISSUE:
Whether or not the Court of Appeals erred in affirming the trial courts verdict
that petitioner was legally answerable for the damages endured by the private
respondents.
RULING:
Memorandum Order No. 398 clothes the NPC with the power to build the Agus
Regulation Dam and to operate it for the purpose of generating energy. Twin to such
power are the duties: (1) to maintain the normal maximum lake elevation at 702 meters,
and (2) to build benchmarks to warn the inhabitants in the area that cultivation of land
below said elevation is forbidden.
With respect to its job to maintain the normal maximum level of the lake at 702
meters, the Court of Appeals, echoing the trial court, observed with alacrity that when the
water level rises due to the rainy season, the NPC ought to release more water to the
Agus River to avoid flooding and prevent the water from going over the maximum level.
And yet, petitioner failed to do so, resulting in the inundation of the nearby estates.
Consequently, even assuming that the fishponds were erected below the 702-meter level,
NPC must, nonetheless, bear the brunt for such damages inasmuch as it has the duty to
erect and maintain the benchmarks precisely to warn the owners of the neighboring
properties not to build fishponds below these marks. Without such points of reference,
the inhabitants in said areas are clueless whether or not their improvements are within the
prohibited area. Conversely, without such benchmarks, NPC has no way of telling if the
fishponds, subject matter of the present controversy, are indeed below the prescribed
maximum level of elevation. Due to NPCs negligence in the performance of its duties, it
shall be held liable for the resulting damages suffered by private respondents.

Page | 59

MUAJE-TUAZON vs. WENPHIL


G.R. No. 162447. DECEMBER 27, 2006
FACTS:
Petitioners Annabelle M. Tuazon and Almer R. Abing worked as branch
managers of the Wendy's food chains. In Wendys Biggie Size It! Crew Challenge"
promotion contest, branches managed by petitioners won first and second places,
respectively. Because of its success, respondent had a second run of the contest from
April 26 to July 4, 1999. The Meycauayan branch won again. The MCU Caloocan branch
failed to make it among the winners. Before the announcement of the third round
winners, management received reports that as early as the first round of the contest, the
Meycauayan, MCU Caloocan, Tandang Sora and Fairview branches cheated. An internal
investigation ensued. Petitioners were summoned to the main office regarding the
reported anomaly. Petitioners denied there was cheating. Immediately thereafter,
petitioners were notified, in writing, of hearings and of their immediate suspension.
Thereafter, petitioners were dismissed.
ISSUE:
Is the respondent guilty of illegal suspension and dismissal in the case at bench?
RULING:
There is no denying that petitioners were managerial employees. They executed
management policies, they had the power to hire personnel and assign them tasks; and
discipline the employees in their branch. They recommended actions on employees to the
head office.Article 212 (m) of the Labor Code defines a managerial employee as one who
is vested with powers or prerogatives to lay down and execute management policies
and/or hire, transfer, suspend, lay-off, recall, discharge, assign or discipline employees.
Consequently, as managerial employees, in the case of petitioners, the mere existence of
grounds for the loss of trust and confidence justify their dismissal. Pursuant to our ruling
in Caoile v. National Labor Relations Commission, as long as the employer has a
reasonable ground to believe that the managerial employee concerned is responsible for
the purported misconduct, or the nature of his participation renders him unworthy of the
trust and confidence demanded by his position, the managerial employee can be
dismissed.
In the present case, the tape receipts presented by respondents showed that there
were anomalies committed in the branches managed by the petitioners. On the principle
of respondeat superior or command responsibility alone, petitioners may be held liable
for negligence in the performance of their managerial duties, unless petitioners can
positively show that they were not involved. Their position requires a high degree of
responsibility that necessarily includes unearthing of fraudulent and irregular activities.
Their bare, unsubstantiated and uncorroborated denial of any participation in the cheating
does not prove their innocence nor disprove their alleged guilt. Additionally, some
employees declared in their affidavits that the cheating was actually the idea of the
petitioners.

Page | 60

RCPI vs. VERCHEZ


G.R. No. 164349. JANUARY 31, 2006
FACTS:
Editha Hebron Verchez (Editha) was confined in the hospital due to an ailment.
Her daughter Grace immediately went to the Sorsogon Branch of RCPI whose services
she engaged to send a telegram to her sister Zenaida. As three days after RCPI was
engaged to send the telegram to Zenaida no response was received from her, Grace sent a
letter to Zenaida, this time thru JRS Delivery Service, reprimanding her for not sending
any financial aid. Immediately after she received Graces letter, Zenaida, along with her
husband left for Sorsogon. On her arrival at Sorsogon, she disclaimed having received
any telegram.
The telegram was finally delivered to Zenaida 25 days later. On inquiry from
RCPI why it took that long to deliver it, RCPI claimed that delivery was not immediately
effected due to the occurrence of circumstances which were beyond the control and
foresight of RCPI.
ISSUE:
Whether or not RCPI is negligent in the performance of its obligation.
RULING:
Article 1170 of the Civil Code provides: Those who in the performance of their
obligations are guilty of fraud, negligence, or delay, and those who in any manner
contravene the tenor thereof, are liable for damages. In culpa contractual, the mere proof
of the existence of the contract and the failure of its compliance justify, prima facie, a
corresponding right of relief. The law, recognizing the obligatory force of contracts, will
not permit a party to be set free from liability for any kind of misperformance of the
contractual undertaking or a contravention of the tenor thereof.
Considering the public utility of RCPIs business and its contractual obligation to
transmit messages, it should exercise due diligence to ascertain that messages are
delivered to the persons at the given address and should provide a system whereby in
cases of undelivered messages the sender is given notice of non-delivery. Messages sent
by cable or wireless means are usually more important and urgent than those which can
wait for the mail. RCPI argues, however, against the presence of urgency in the delivery
of the telegram, as well as the basis for the award of moral damages. RCPIs arguments
fail. For it is its breach of contract upon which its liability is, it bears repeating, anchored.
Since RCPI breached its contract, the presumption is that it was at fault or negligent. It,
however, failed to rebut this presumption. For breach of contract then, RCPI is liable to
Grace for damages. RCPIs liability as an employer could of course be avoided if it could
prove that it observed the diligence of a good father of a family to prevent damage.

Page | 61

VICTORY LINER, INC. vs. GAMMAD


G.R. No. 159636. NOVEMBER 25, 2004
FACTS:
Marie Grace Pagulayan-Gammad was on board an air-conditioned Victory Liner
bus bound for Tuguegarao, Cagayan from Manila. At about 3:00 a.m., the bus while
running at a high speed fell on a ravine which resulted in the death of Marie Grace and
physical injuries to other passengers. On May 14, 1996, respondent heirs of the deceased
filed a complaint for damages arising from culpa contractual against petitioner. In its
answer, the petitioner claimed that the incident was purely accidental and that it has
always exercised extraordinary diligence in its 50 years of operation.
ISSUE:
Whether petitioner should be held liable for breach of contract of carriage.
RULING:
Petitioner was correctly found liable for breach of contract of carriage. A
common carrier is bound to carry its passengers safely as far as human care and foresight
can provide, using the utmost diligence of very cautious persons, with due regard to all
the circumstances. In a contract of carriage, it is presumed that the common carrier was
at fault or was negligent when a passenger dies or is injured. Unless the presumption is
rebutted, the court need not even make an express finding of fault or negligence on the
part of the common carrier. This statutory presumption may only be overcome by
evidence that the carrier exercised extraordinary diligence.
In the instant case, there is no evidence to rebut the statutory presumption that the
proximate cause of Marie Graces death was the negligence of petitioner. Hence, the
courts below correctly ruled that petitioner was guilty of breach of contract of carriage.

Page | 62

FGU INSURANCE CORP. vs. G.P. SARMIENTO TRUCKING CORPORATION


G.R. No. 141910. AUGUST 6, 2002
FACTS:
G.P. Sarmiento Trucking Corporation (GPS) undertook to deliver refrigerators
aboard one of its Isuzu truck, driven by Lambert Eroles, from the plant site of
Concepcion Industries, Inc. to the Central Luzon Appliances in Dagupan City. While the
truck was traversing the north diversion road along McArthur highway in Barangay
Anupol, Bamban, Tarlac, it collided with an unidentified truck, causing it to fall into a
deep canal, resulting in damage to the cargoes. FGU Insurance Corporation (FGU), an
insurer of the shipment, paid to Concepcion Industries, Inc., the value of the covered
cargoes. FGU, in turn, being the subrogee of the rights and interests of Concepcion
Industries, Inc., sought reimbursement of the amount it had paid to the latter from GPS.
Since the trucking company failed to heed the claim, FGU filed a complaint for damages
and breach of contract of carriage against GPS and its driver Lambert Eroles.
Respondents asserted that that the cause of damage was purely accidental.
ISSUE:
Whether or not GPS is liable for damages arising from negligence.
RULING:
In culpa contractual, upon which the action of petitioner rests as being the
subrogee of Concepcion Industries, Inc., the mere proof of the existence of the contract
and the failure of its compliance justify, prima facie, a corresponding right of relief.
Respondent trucking corporation recognizes the existence of a contract of carriage
between it and petitioner and admits that the cargoes it has assumed to deliver have been
lost or damaged while in its custody. In such a situation, a default on, or failure of
compliance with, the obligation in this case, the delivery of the goods in its custody to
the place of destination - gives rise to a presumption of lack of care and corresponding
liability on the part of the contractual obligor the burden being on him to establish
otherwise. GPS has failed to do so.
Respondent driver, without concrete proof of his negligence or fault, may not
himself be ordered to pay petitioner. The driver, not being a party to the contract of
carriage between petitioner and defendant, may not be held liable under the agreement.
A contract can only bind the parties who have entered into it or their successors who have
assumed their personality or their juridical position. Petitioners civil action against the
driver can only be based on culpa aquiliana, which, unlike culpa contractual, would
require the claimant for damages to prove negligence or fault on the part of the defendant.

Page | 63

LRTA vs. NAVIDAD


G.R. No. 145804. FEBRUARY 6, 2003
FACTS:
On 14 October 1993, in the evening, Nicanor Navidad, then drunk, entered the
EDSA LRT station. While Navidad was standing on the platform near the LRT tracks,
Junelito Escartin, the security guard assigned to the area approached Navidad. A
misunderstanding or an altercation between the two apparently ensued that led to a fist
fight. No evidence, however, was adduced to indicate how the fight started or who,
between the two, delivered the first blow or how Navidad later fell on the LRT tracks. At
the exact moment that Navidad fell, an LRT train, operated by petitioner Rodolfo Roman,
was coming in. Navidad was struck by the moving train, and he was killed
instantaneously. The widow of Nicanor, along with her children, filed a complaint for
damages against Junelito Escartin, Rodolfo Roman, the LRTA, the Metro Transit
Organization, Inc. (Metro Transit), and Prudent for the death of her husband. LRTA and
Roman filed a counterclaim against Navidad and a cross-claim against Escartin and
Prudent. Prudent, in its answer, denied liability and averred that it had exercised due
diligence in the selection and supervision of its security guards.
ISSUE:
Who, if any, is liable for damages in relation to the death of Navidad?
RULING:
The foundation of LRTAs liability is the contract of carriage and its obligation to
indemnify the victim arises from the breach of that contract by reason of its failure to
exercise the high diligence required of the common carrier. In the discharge of its
commitment to ensure the safety of passengers, a carrier may choose to hire its own
employees or avail itself of the services of an outsider or an independent firm to
undertake the task. In either case, the common carrier is not relieved of its
responsibilities under the contract of carriage.
Regrettably for LRTA, as well as perhaps the surviving spouse and heirs of the
late Nicanor Navidad, this Court is concluded by the factual finding of the Court of
Appeals that there is nothing to link Prudent to the death of Navidad, for the reason that
the negligence of its employee, Escartin, has not been duly proven. There being,
similarly, no showing that petitioner Rodolfo Roman himself is guilty of any culpable act
or omission, he must also be absolved from liability.

Page | 64

RODZSSEN SUPPLY CO, INC. VS. FAR EAST BANK & TRUST CO.
GR No. 109087 May 9, 2001
FACTS:
Defendant Rodzssen Supply, Inc. opened with plaintiff Far East Bank and Trust
Co. a 30-day domestic letter of credit in the amount of P190,000.00 in favor of Ekman
and Company, Inc. (Ekman) for the purchase from the latter of five units of hydraulic
loaders, to expire on February 15, 1979. Defendant refused to pay without any valid
reason. Plaintiff prays for judgment ordering defendant to pay the abovementioned
P76,000.00 plus due interest thereon, plus 25% of the amount of the award as attorneys
fees. Knowing that the two units of hydraulic loaders had been delivered to defendant
after the expiry date of subject LC; and that in view of the breach of contract, defendant
offered to return to plaintiff the two units of hydraulic loaders, presently still with the
defendant but plaintiff refused to take possession thereof.
Under the contract of sale of the five loaders between Ekman and defendant, upon
Ekmans delivery to, and acceptance by, defendant of the two remaining units of the five
loaders, defendant became liable to Ekman for the payment of said two units. However,
as defendant did not pay Ekman, the latter pressed plaintiff for the payment of said two
loaders in the amount of P76,000.00. In the honest belief that it was still under obligation
to Ekman for said amount, considering that Ekman had presented all the necessary
documents, plaintiff voluntarily paid the said amount to Ekman.
The CA rejected petitioners imputation of bad faith and negligence to respondent
bank for paying for the two hydraulic loaders, which had been delivered after the
expiration of the subject letter of credit. To absolve defendant from liability for the price
of the same," the CA explained, "is to allow it to get away with its unjust enrichment at
the expense of the plaintiff."
ISSUE:
Whether petitioner is liable to respondent.
RULING:
Petitioner claims that it accepted the late delivery of the equipment, only because
it was bound to accept it under the companys trust receipt arrangement with respondent
bank.
Granting that petitioner was bound under such arrangement to accept the late
delivery of the equipment, we note its unexplained inaction for almost four years with
regard to the status of the ownership or possession of the loaders. Bewildering was its
lack of action to validate the ownership and possession of the loaders, as well as its
stolidity over the purported failed sales transaction. Significant too is the fact that it
formalized its offer to return the two pieces of equipment only after respondents demand
for payment, which came more than three years after it accepted delivery.
When both parties to a transaction are mutually negligent in the performance of
their obligations, the fault of one cancels the negligence of the other and, as in this case,
their rights and obligations may be determined equitably under the law proscribing unjust
enrichment.
Petitioner Rodzssen Supply Co., Inc. is orderd to reimburse Respondent Far East
Bank and Trust Co., Inc. P76,000 plus interest thereon at the rate of 6 percent per annum
computed from April 7, 1983. After this judgment becomes final, the interest shall be 12
percent per annum.

Page | 65

UNIVERSITY OF THE EAST VS. JADER


GR. No. 132344 February 17, 2000
FACTS:
Plaintiff was enrolled in the defendants' College of Law from 1984 up to 1988. In
the first semester of his last year (School year 1987-1988), he failed to take the regular
final examination in Practice Court I for which he was given an incomplete grade. He
enrolled for the second semester as fourth year law student and on February 1, 1988 he
filed an application for the removal of the incomplete grade given him by Professor
Carlos Ortega which was approved by Dean Celedonio Tiongson after payment of the
required fee. He took the examination on March 28, 1988. On May 30, 1988, Professor
Carlos Ortega submitted his grade. It was a grade of five. In the meantime, the Dean and
the Faculty Members of the College of Law met to deliberate on who among the fourth
year students should be allowed to graduate. The plaintiff's name appeared in the
Tentative List of Candidates for graduation for the Degree of Bachelor of Laws (LL.B) as
of Second Semester (1987-1988). The plaintiff attended the investiture ceremonies at F.
dela Cruz Quadrangle, U.E., Recto Campus, during the program of which he went up the
stage when his name was called.
He thereafter prepared himself for the bar examination. He took a leave of
absence without pay from his job from April 20, 1988 to September 30, 1988 and
enrolled at the pre-bar review class in Far Eastern University. Having learned of the
deficiency he dropped his review class and was not able to take the bar examination. [A
check with the Attorney's List in the Court shows that private respondent is not a member
of the Philippine Bar.]
ISSUE:
Whether petitioner is liable for damages under culpa contractual.
RULING:
When a student is enrolled in any educational or learning institution, a contract of
education is entered into between said institution and the student. The professors,
teachers or instructors hired by the school are considered merely as agents and
administrators tasked to perform the school's commitment under the contract. Since the
contracting parties are the school and the student, the latter is not duty-bound to deal with
the former's agents, such as the professors with respect to the status or result of his
grades, although nothing prevents either professors or students from sharing with each
other such information. The Court takes judicial notice of the traditional practice in
educational institutions wherein the professor directly furnishes his/her students their
grades.
It is the contractual obligation of the school to timely inform and furnish
sufficient notice and information to each and every student as to whether he or she had
already complied with all the requirements for the conferment of a degree or whether
they would be included among those who will graduate. Prior or subsequent to the
ceremony, the school has the obligation to promptly inform the student of any problem
involving the latter's grades and performance and also most importantly, of the
procedures for remedying the same.
Petitioner, in belatedly informing respondent of the result of the removal
examination, particularly at a time when he had already commenced preparing for the bar
exams, cannot be said to have acted in good faith.
WHEREFORE, Petitioner is ordered to pay respondent the sum of Thirty-five
Thousand Four Hundred Seventy Pesos (P35,470.00), with legal interest of 6% per
annum computed from the date of filing of the complaint until fully paid; the amount of
Five Thousand Pesos (P5,000.00) as attorney's fees; and the costs of the suit. The award
of moral damages is deleted.
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BAYNE ADJUSTERS VS. CA


GR No. 116332 January 25, 2000
FACTS:
In May 1987 Colgate Palmolive Philippine, Inc., imported alkyl benzene from
Japan valued at US$255,802.88. The said liquid cargo was insured with herein private
respondent Insurance Company of North America against all risk for its full value.
Petitioner Bayne Adjusters and Surveyors Inc., was contracted by the consignee to
supervise the proper handling and discharge of the cargo from the chemical tanker to a
receiving barge until the cargo is pumped into the consignees shore tank. When the
cargo arrived in Manila petitioners surveyor supervised the transfer of the cargo from the
chemical tanker to the receiving barge. Pumping operation from the barge to the
consignees shore tank commenced at 2020 hours of June 27, 1987. Pumping of the
liquid cargo from the barge to the consignees tank was interrupted several times due to
mechanical problems with the pump. When the pump broke down once again at about
1300 hours of June 29, 1987, the petitioners surveyor left the premises without leaving
any instruction with the barge foreman what to do in the event that the pump becomes
operational again. Petitioner sent Amado Fontillas, a cargo surveyor, not a liquid bulk
surveyor, to the premises and it was agreed that pumping operation would resume the
following day at 1030 hours. Fontillas tried to inform both the barge men and the
assigned surveyor of the scheduled resumption of pumping operation but he could not
find them so he left the premises. When the barge men arrived in the early evening, they
found the valves of the tank open and resumed pumping operation in the absence of any
instruction from the surveyor to the contrary. The following morning it was found that an
undetermined amount of alkyl benzene was lost due to overflow.
The consignee filed a claim with the private respondent insurance corporation for
the value of the lost liquid cargo.
Both the trial court and the appellate court found the petitioners failure to comply
with the Standard Operating Procedure for Handling Liquid Bulk Cargo when pumping
operation is suspended as the proximate cause of the loss.
ISSUE:
Whether petitioner is liable for the damages incurred arising from culpa
contractual.
RULING:
The negligence of the obligor in the performance of the obligation renders him
liable for damages for the resulting loss suffered by the obligee. Fault or negligence of
the obligor consists in his failure to exercise due care and prudence in the performance of
the obligation as the nature of the obligation so demands. The factual findings and
conclusions of the trial and appellate court when supported by substantial evidence are
entitled to great respect and will not be disturbed on appeal except on very strong and
cogent grounds. Both parties agree that the petitioner is bound to supervise the proper
discharge of the liquid cargo from the chemical tanker to the receiving barge and from
the latter to the consignees shore tank.
It is clear that under the standard procedure the surveyor is required to seal all
cargo compartment manhole covers and the barge and manifold covers to avoid
unsupervised discharge of the liquid cargo and to avert loss or contamination thereof. The
petitioners failure to closely supervise the discharge of the cargo in accordance with
accepted guidelines is the proximate cause of the loss. We find no cogent reason to
overturn the legal conclusion reached by the lower courts that the petitioner is negligent
in the performance of its duty as a marine superintendent surveyor under the Standard
Operating Procedure in handling liquid cargo and held the petitioner liable for damages
for the loss of the cargo.
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DELSAN TRANSPORT VS. C & A CONSORTIUM


GR No. 156034 October 1, 2003
FACTS:
On October 9, 1994, M/V Delsan Express, a ship owned and operated by
petitioner Delsan Transport Lines, Inc., anchored at the Navotas Fish Port for the purpose
of installing a cargo pump and clearing the cargo oil tank. At around 12:00 midnight of
October 20, 1994, Captain Demetrio T. Jusep of M/V Delsan Express received a report
from his radio head operator in Japan that a typhoon was going to hit Manila in about
eight (8) hours. At approximately 8:35 in the morning of October 21, 1994, Capt. Jusep
tried to seek shelter at the North Harbor but could not enter the area because it was
already congested. At 10:00 a.m., Capt. Jusep decided to drop anchor at the vicinity of
Vitas mouth, 4 miles away from a Napocor power barge. At that time, the waves were
already reaching 8 to 10 feet high. Capt. Jusep ordered his crew to go full ahead to
counter the wind which was dragging the ship towards the Napocor power barge. To
avoid collision, Capt. Jusep ordered a full stop of the vessel.[9] He succeeded in avoiding
the power barge, but when the engine was re-started and the ship was maneuvered full
astern, it hit the deflector wall constructed by respondent.
Respondent demanded payment of the damage from petitioner but the latter
refused to pay.
The trial court ruled that petitioner was not guilty of negligence because it had taken all
the necessary precautions to avoid the accident. Applying the "emergency rule", it
absolved petitioner of liability because the latter had no opportunity to adequately weigh
the best solution to a threatening situation. It further held that even if the maneuver
chosen by petitioner was a wrong move, it cannot be held liable as the cause of the
damage sustained by respondent was typhoon "Katring", which is an act of God.
On appeal to the Court of Appeals, the decision of the trial court was reversed and
set aside. It found Capt. Jusep guilty of negligence in deciding to transfer the vessel to the
North Harbor only at 8:35 a.m. of October 21, 1994 and thus held petitioner liable for
damages.
ISSUES:
1. Whether or not Capt. Jusep was negligent;
2. If yes, whether or not petitioner is solidarily liable under for the quasi-delict
committed by Capt. Jusep?
RULING:
Article 2176 of the Civil Code provides that whoever by act or omission causes
damage to another, there being fault or negligence, is obliged to pay for the damage done.
Such fault or negligence, if there is no pre-existing contractual relation between the
parties, is called a quasi-delict. The test for determining the existence of negligence in a
particular case may be stated as follows: Did the defendant in doing the alleged negligent
act use the reasonable care and caution which an ordinary prudent person would have
used in the same situation? If not, then he is guilty of negligence.
In the case at bar, the Court of Appeals was correct in holding that Capt. Jusep
was negligent in deciding to transfer the vessel only at 8:35 in the morning of October 21,
1994. As early as 12:00 midnight of October 20, 1994, he received a report from his radio
head operator in Japan that a typhoon was going to hit Manila after 8 hours. This,
notwithstanding, he did nothing, until 8:35 in the morning of October 21, 1994, when he
decided to seek shelter at the North Harbor, which unfortunately was already congested.
The finding of negligence cannot be rebutted upon proof that the ship could not
have sought refuge at the North Harbor even if the transfer was done earlier. It is not the
speculative success or failure of a decision that determines the existence of negligence in
the present case, but the failure to take immediate and appropriate action under the
Page | 68

circumstances. Capt. Jusep, despite knowledge that the typhoon was to hit Manila in 8
hours, complacently waited for the lapse of more than 8 hours thinking that the typhoon
might change direction. Furthermore, he did not transfer as soon as the sun rose because,
according to him, it was not very cloudy and there was no weather disturbance yet.
Anent the second issue, we find petitioner vicariously liable for the negligent act
of Capt. Jusep. Under Article 2180 of the Civil Code an employer may be held solidarily
liable for the negligent act of his employee. Thus Art. 2180. The obligation imposed in Article 2176 is demandable not only for
ones own acts or omissions, but also for those of persons for whom one is responsible.
Employers shall be liable for the damages caused by their employees and
household helpers acting within the scope of their assigned tasks, even though the former
are not engaged in any business or industry.
Whenever an employees negligence causes damage or injury to another, there
instantly arises a presumption juris tantum that the employer failed to exercise
diligentissimi patris families in the selection (culpa in eligiendo) or supervision (culpa in
vigilando) of its employees. To avoid liability for a quasi-delict committed by his
employee, an employer must overcome the presumption by presenting convincing proof
that he exercised the care and diligence of a good father of a family in the selection and
supervision of his employee.
There is no question that petitioner, who is the owner/operator of M/V Delsan
Express, is also the employer of Capt. Jusep who at the time of the incident acted within
the scope of his duty. The defense raised by petitioner was that it exercised due diligence
in the selection of Capt. Jusep because the latter is a licensed and competent Master
Mariner. It should be stressed, however, that the required diligence of a good father of a
family pertains not only to the selection, but also to the supervision of employees. It is
not enough that the employees chosen be competent and qualified, inasmuch as the
employer is still required to exercise due diligence in supervising its employees.

Page | 69

PCIB VS. CA
GR No. 121413 January 29, 2001
FACTS:
The plaintiff Ford drew and issued its Citibank Check No. SN-04867 in the
amount of P4,746,114.41, in favor of the Commissioner of Internal Revenue as payment
of plaintiffs percentage or manufacturers sales taxes for the third quarter of 1977. The
aforesaid check was deposited with the defendant IBAA (now PCIBank) and was
subsequently cleared at the Central Bank. Upon presentment with the defendant Citibank,
the proceeds of the check was paid to IBAA as collecting or depository bank. The
proceeds of the same Citibank check of the plaintiff was never paid to or received by the
payee thereof, the Commissioner of Internal Revenue. As a consequence, upon demand
of the Bureau and/or Commissioner of Internal Revenue, the plaintiff was compelled to
make a second payment to the Bureau of Internal Revenue of its
percentage/manufacturers sales taxes for the third quarter of 1977 and that said second
payment of plaintiff in the amount of P4,746,114.41 was duly received by the Bureau of
Internal Revenue.
The Acting Commissioner of Internal Revenue addressed to the plaintiff that its
check in the amount of P4,746,114.41 was not paid to the government or its authorized
agent and instead encashed by unauthorized persons, hence, plaintiff has to pay the said
amount within fifteen days from receipt of the letter. Upon advice of the plaintiffs
lawyers, plaintiff paid to the Bureau of Internal Revenue, the amount of P4,746,114.41,
representing payment of plaintiffs percentage tax for the third quarter of 1977. Plaintiff
demanded defendant to reimburse him of the said amount paid for the second time to BIR
but the latter refused.
ISSUE:
Whether PCIB is liable to Ford Philippines the amount of several checks which
were allegedly embezzled by a syndicate group.
RULING:
Jurisprudence regarding the imputed negligence of employer in a master-servant
relationship is instructive. Since a master may be held for his servants wrongful act, the
law imputes to the master the act of the servant, and if that act is negligent or wrongful
and proximately results in injury to a third person, the negligence or wrongful conduct is
the negligence or wrongful conduct of the master, for which he is liable. The general rule
is that if the master is injured by the negligence of a third person and by the concurring
contributory negligence of his own servant or agent, the latters negligence is imputed to
his superior and will defeat the superiors action against the third person, assuming, of
course that the contributory negligence was the proximate cause of the injury of which
complaint is made.
It appears that although the employees of Ford initiated the transactions
attributable to an organized syndicate, in our view, their actions were not the proximate
cause of encashing the checks payable to the CIR. The degree of Fords negligence, if
any, could not be characterized as the proximate cause of the injury to the parties.
Citibank should have scrutinized Citibank Check before paying the amount of the
proceeds thereof to the collecting bank of the BIR. One thing is clear from the record: the
clearing stamps at the back of Citibank Check Nos. SN 10597 and 16508 do not bear any
initials. Citibank failed to notice and verify the absence of the clearing stamps. Had this
been duly examined, the switching of the worthless checks to Citibank Check Nos. 10597
and 16508 would have been discovered in time. For this reason, Citibank had indeed
failed to perform what was incumbent upon it, which is to ensure that the amount of the
checks should be paid only to its designated payee. The fact that the drawee bank did not
discover the irregularity seasonably, in our view, constitutes negligence in carrying out
Page | 70

the banks duty to its depositors. The point is that as a business affected with public
interest and because of the nature of its functions, the bank is under obligation to treat the
accounts of its depositors with meticulous care, always having in mind the fiduciary
nature of their relationship.
Citibank must likewise answer for the damages incurred by Ford on Citibank
Checks because of the contractual relationship existing between the two. Citibank, as the
drawee bank breached its contractual obligation with Ford and such degree of culpability
contributed to the damage caused to the latter.

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SAN MIGUEL CORPORATION AND HEIRS OF OUANA VS. CA


GR No. 141716 July 4, 2002
FACTS:
San Miguel Corporation entered into a Time Charter Party Agreement with Julius
Ouano, doing business under the name and style J. Ouano Marine Services. Under the
terms of the agreement, SMC chartered the M/V Doa Roberta owned by Julius Ouano
for a period of two years, from June 1, 1989 to May 31, 1991, for the purpose of
transporting SMCs beverage products from its Mandaue City plant to various points in
Visayas and Mindanao.
On November 11, 1990, during the term of the charter, SMC issued sailing orders
to the Master of the MN Doa Roberta, Captain Sabiniano Inguito, to sail for Opol,
Cagayan Nov. 12, 1990.
Meanwhile, at 4:00 a.m. of November 12, 1990, typhoon
Ruping was spotted 570 kilometers east-southeast of Borongan, Samar, moving westnorthwest at 22 kilometers per hour in the general direction of Eastern Visayas. The
typhoon had maximum sustained winds of 240 kilometers per hour near the center with
gustiness of up to 280 kilometers per hour.
At 7:00 a.m., November 12, 1990, one hour after the M/V Doa Roberta departed
from Mandaue City SMC Radio Operator Rogelio P. Moreno contacted Captain Inguito
through the radio and advised him to take shelter. Captain Inguito replied that they will
proceed since the typhoon was far away from them, and that the winds were in their
favor.
At 1:15 a.m., November 13, 1990, Captain Inguito called Moreno over the radio
and requested him to contact Rico Ouano, son of Julius Ouano, because they needed a
helicopter to rescue them. The vessel was about 20 miles west of Sulauan Point.
Upon being told by SMCs radio operator, Rico Ouano turned on his radio and
read the distress signal from Captain Ingiuto. When he talked to the captain, the latter
requested for a helicopter to rescue them. Rico Ouano talked to the Chief Engineer who
informed him that they can no longer stop the water from coming into the vessel because
the crew members were feeling dizzy from the petroleum fumes.
At 2:30 a.m. of November 13, 1990, the M/V Doa Roberta sank. Out of the 25
officers and crew on board the vessel, only five survived.
ISSUE:
Whether or nor Ouano is liable for the negligence of his employee.
RULING:
A charter party is a contract by virtue of which the owner or the agent of a vessel
binds himself to transport merchandise or persons for a fixed price. It has also been
defined as a contract by virtue of which the owner or the agent of the vessel leases for a
certain price the whole or a portion of the vessel for the transportation of goods or
persons from one port to another.
If the charter is a contract of affreightment, which leaves the general owner in
possession of the ship as owner for the voyage, the rights and the responsibilities of
ownership rest on the owner. The charterer is free from liability to third persons in
respect of the ship.
SC concur with the findings of the Court of Appeals that the charter party in these
cases was a contract of affreightment, contrary to petitioner Ouanos protestation that it
was a demise charter.
It appearing that Ouano was the employer of the captain and crew of the M/V
Doa Roberta during the term of the charter, he therefore had command and control over
the vessel. His son, Rico Ouano, even testified that during the period that the vessel was
under charter to SMC, the Captain thereof had control of the navigation of all voyages.

Page | 72

Under the foregoing definitions, as well as the clear terms of the Charter Party
Agreement between the parties, the charterer, SMC, should be free from liability for any
loss or damage sustained during the voyage, unless it be shown that the same was due to
its fault or negligence.
The evidence does not show that SMC or its employees were amiss in their duties.
The facts indubitably establish that SMCs Radio Operator, Rogelio P. Moreno, who was
tasked to monitor every shipment of its cargo, contacted Captain Inguito as early as 7:00
a.m., one hour after the M/V Doa Roberta departed from Mandaue, and advised him to
take shelter from typhoon Ruping. This advice was reiterated at 2:00 p.m. At that point,
Moreno thought of calling Ouano?s son, Rico, but failed to find him. At 4:00 p.m.,
Moreno again advised Captain Inguito to take shelter and stressed the danger of venturing
into the open sea. The Captain insisted that he can handle the situation.
In the assailed decision, the Court of Appeals found that the proximate cause of the
sinking of the vessel was the negligence of Captain Sabiniano Inguito
SC likewise agrees with the CA that Ouano is vicariously liable for the negligent
acts of his employee, Captain Inguito. Under Articles 2176 and 2180 of the Civil Code,
owners and managers are responsible for damages caused by the negligence of a servant
or an employee, the master or employer is presumed to be negligent either in the selection
or in the supervision of that employee. This presumption may be overcome only by
satisfactorily showing that the employer exercised the care and the diligence of a good
father of a family in the selection and the supervision of its employee. 39
Ouano miserably failed to overcome the presumption of his negligence. He failed to
present proof that he exercised the due diligence of a bonus paterfamilias in the selection
and supervision of the captain of the M/V Doa Roberta. Hence, he is vicariously liable
for the loss of lives and property occasioned by the lack of care and negligence of his
employee

Page | 73

MERCURY DRUG CORPORATION VS. HUANG


GR No. 172122 June 22, 2007
FACTS:
Petitioner Mercury Drug is the registered owner of a six-wheeler 1990 Mitsubishi
Truck. It has in its employ petitioner Rolando Del Rosario as driver. Respondent spouses
Richard and Carmen Huang are the parents of respondent Stephen Huang and own the
red 1991 Toyota Corolla. These two vehicles figured in a road accident. At the time of
the accident, petitioner Del Rosario only had a Traffic Violation Receipt. A drivers
license had been confiscated because he had been previously apprehended for reckless
driving. Respondent Stephen Huang sustained massive injuries to his spinal cord, head,
face and lung. He is paralyzed for life from his chest down and requires continuous
medical and rehabilitation treatment. Respondents fault petitioner Del Rosario for
committing gross negligence and reckless imprudence while driving, and petitioner
Mercury Drug for failing to exercise the diligence of a good father of a family in the
selection and supervision of its driver.
The trial court found Mercury Drug and Del Rosario jointly and severally liable to
pay respondents. The Court of Appeals affirmed the said decision.
ISSUE:
Whether or not petitioner Mercury Drug is liable for the negligence of its
employee.
RULING:
Article 2176 and 2180 of the Civil Code provide:
Whoever by act or omission causes damage to another, there being fault
or negligence, is obliged to pay for the damages done. Such fault or negligence, if there is
no pre-existing contractual relationship between the parties, is called a quasi-delict and is
governed by the provisions of this Chapter.
The obligation imposed by article 2176 is demandable not only for ones
own acts or omissions, but also for those of persons for whom one is responsible.
The liability of the employer under Article 2180 is direct and immediate. It is not
conditioned on a prior recourse against the negligent employee, or a prior showing of
insolvency of such employee. It is also joint and solidary with the employee. To be
relieved f the liability, petitioner should show that it exercised the diligence of a good
father of a family, both in the selection of the employee and in the supervision of the
performance of his duties.
In this case, the petitioner Mercury Drug does not provide for back-up driver for
long trips. As the time of the accident, Del Rosario has been driving for more than
thirteen hours, without any alternate. Moreover, Del Rosario took the driving test and
psychological exam for the position of Delivery Man and not as Truck Man.
With this, petitioner Mercury Drug is liable jointly and severally liable to pay the
respondents.

Page | 74

MENDOZA VS. SORIANO


GR No. 164012 June 8, 2007
FACTS:
Sonny Soriano, while crossing Commonwealth Avenue near Luzon Avenue, was
hit by a speeding Tamaraw FX driven by Lomer Macasasa. Soriano was thrown five
meters away, while the vehicle stopped some 25 meters from the point of impact. Gerard
Villaspin, one of Sorianos companions, asked Macasasa to bring Soriano to the hospital,
but the first flee. Respondents wife and daughter filed a complaint for damages against
Macasasa and petitioner Flordeliza Mendoza, the registered owner of the vehicle.
Petitioner Mendoza contends that she was not liable since as owner of the vehicle,
she had exercised the diligence of a good father of a family over her employee. Macasas.
The trial court dismissed the complaint against Macasasa and Mendoza. It found
Soriano negligent for crossing not in the pedestrian overpass. The Court of Appeals, on
the other hand, reversed the assailed decision of the lower court.
ISSUE:
Whether or not petitioner is liable for damages.
RULING:
While the appellate court agreed that Soriano was negligent, it also found
Macasasa negligent for speeding, such that he was unable to avoid hitting the victim. It
observed that Sorianos own negligence did not preclude recovery for damages from
Macasasas negligence. It further held that since petitioner failed to present evidenced to
the contrary and conformably with Article 2180 of the Civil Code, the presumption of
negligence of the employer in the selection and supervision of employees stood.
The records show that Macasasa violated two traffic rules under the Land
Transportation and Office Code. Under Article 2185 of the Civil Code, a person driving a
motor vehicle is presumed negligent if at the time of the mishap, he was violating traffic
regulations.
Further, under Article 2180, employers are liable for the damages caused by their
employees acting within the scope of their assigned tasks. The liability arises due to the
presumed negligence of the employers in supervising their employees unless they prove
that they observed all the diligence of a good father of a family to prevent the damage. In
this case petitioner is held primarily and solidarily liable for the damages caused by
Macasasa.
However, Article 2179 states that when the plaintiffs own negligence was the
immediate and proximate cause of his injury, he cannot recover damages. But if his
negligence was only contributory, the immediate and proximate cause of the injury being
the defendants lack of due care, the plaintiff may recover damages, but the court shall
mitigate the damages awarded.
Ruling that Soriano was guilty of contributory negligence for not using the
pedestrian overpass, 20% reduction of the amount of the damages awarded was awarded
to petitioner.

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CEREZO VS. TUAZON


GR No. 141538 March 23, 2004
FACTS:
Country Bus Lines passenger bus collided with a tricycle. Tricycle driver Tuazon
filed a complaint for damages against Mrs. Cerezo, as owner of the bus line, her husband
Attorney Juan Cerezo, and bus driver Danilo A. Foronda.
After considering Tuazons testimonial and documentary evidence, the trial court
ruled in Tuazons favor. The trial court made no pronouncement on Forondas liability
because there was no service of summons on him. The trial court did not hold Atty.
Cerezo liable as Tuazon failed to show that Mrs. Cerezos business benefited the family,
pursuant to Article 121(3) of the Family Code. The trial court held Mrs. Cerezo solely
liable for the damages sustained by Tuazon arising from the negligence of Mrs. Cerezos
employee, pursuant to Article 2180 of the Civil Code.
ISSUE:
Whether petitioner is solidarily liable.
RULING:
Contrary to Mrs. Cerezos assertion, Foronda is not an indispensable party to the
case. An indispensable party is one whose interest is affected by the courts action in the
litigation, and without whom no final resolution of the case is possible. However, Mrs.
Cerezos liability as an employer in an action for a quasi-delict is not only solidary, it is
also primary and direct. Foronda is not an indispensable party to the final resolution of
Tuazons action for damages against Mrs. Cerezo.
The responsibility of two or more persons who are liable for a quasi-delict is
solidary. Where there is a solidary obligation on the part of debtors, as in this case, each
debtor is liable for the entire obligation. Hence, each debtor is liable to pay for the entire
obligation in full. There is no merger or renunciation of rights, but only mutual
representation. Where the obligation of the parties is solidary, either of the parties is
indispensable, and the other is not even a necessary party because complete relief is
available from either. Therefore, jurisdiction over Foronda is not even necessary as
Tuazon may collect damages from Mrs. Cerezo alone.
Moreover, an employers liability based on a quasi-delict is primary and direct,
while the employers liability based on a delict is merely subsidiary. The words primary
and direct, as contrasted with subsidiary, refer to the remedy provided by law for
enforcing the obligation rather than to the character and limits of the obligation.
Although liability under Article 2180 originates from the negligent act of the employee,
the aggrieved party may sue the employer directly.
When an employee causes damage, the law presumes that the employer has
himself committed an act of negligence in not preventing or avoiding the damage. This is
the fault that the law condemns. While the employer is civilly liable in a subsidiary
capacity for the employees criminal negligence, the employer is also civilly liable
directly and separately for his own civil negligence in failing to exercise due diligence in
selecting and supervising his employee. The idea that the employers liability is solely
subsidiary is wrong.
To hold the employer liable in a subsidiary capacity under a delict, the aggrieved
party must initiate a criminal action where the employees delict and corresponding
primary liability are established. If the present action proceeds from a delict, then the trial
courts jurisdiction over Foronda is necessary.
However, the present action is clearly for the quasi-delict of Mrs. Cerezo and not
for the delict of Foronda.
Thus, the petition was denied ordering the defendant Hermana Cerezo to pay the
plaintiff.
Page | 76

VIRON TRANSPORTATION CO., INC. VS. DELOS SANTOS


GR No. 54080 November 22, 2000

FACTS:
Defendant Alberto delos Santos was the driver of defendant Rudy
Samidan of the latters vehicle, a Forward Cargo Truck. At about 12:30 in the
afternoon, he was driving said truck along the National Highway within the
vicinity of Gerona, Tarlac. The Viron Bus, driven by Wilfredo Villanueva, tried
to overtake his truck, and he swerved to the right shoulder of the highway, but as
soon as he occupied the right lane of the road, the cargo truck which he was
driving was hit by the Viron bus on its left front side, as the bus swerved to his
lane to avoid an incoming bus on its opposite direction. With the driver of another
truck dealing likewise in vegetables, Dulnuan, the two of them and the driver of
the Viron bus proceeded to report the incident to the Police Station.
Both the RTC and the CA rendered its decision in favor of the private
respondents.
ISSUE:
Whether the employer is liable to the negligence of his employee.
RULING:
As employers of the bus driver, the petitioner is, under Article 2180 of the
Civil Code, directly and primarily liable for the resulting damages. The
presumption that they are negligent flows from the negligence of their employee.
That presumption, however, is only jusris tantum, not juris et de jure. Their only
possible defense is that they exercised all the diligence of a good father of a
family to prevent the damage.
In fine, when the employee causes damage due to his own negligence
while performing his own duties, there arises the juris tantum presumption that
the employer is negligent, rebuttable only by proof of observance of the diligence
of a good father of a family.
Petitioner, through its witnesses, failed to rebut such legal presumption of
negligence in the selection and supervision of employees, thus, petitioner as the
employer is responsible for damages, the basis of the liability being the
relationship of pater familias or on the employers own negligence. Hence, with
the allegations and subsequent proof of negligence against the bus driver of
petitioner, petitioner (employer) is liable for damages.

Page | 77

MERCURY DRUG CORPORATION VS. BAKING


GR No. 57435 May 25, 2007
FACTS:
Sebastian Baking, respondent, went to the clinic of Dr. Cesar Sy for a medical
check-up. Dr. Sy gave respondent two medical prescriptions Diomicron for his blood
sugar and Benalize tablets for his triglyceride.
Respondent then proceeded to petitioner Mercury Drug Corporation (Alabang
Branch) to buy the prescribed medicines. However, the saleslady misread the prescription
Diamicron as a prescription for Dormicum. Unaware that what was given to him was the
wrong medicine, respondent took one pill of dormicum on three consecutive days. On the
third day he took the medicine, and he figured in a vehicular accident. The car he was
driving collided with the car of one Jose Peralta. Respondent fell asleep while driving he
could not remember anything about the collision nor felt its impact.
Suspecting that the tablet he took may have bearing on his physical and mental
state at the time of the collision, respondent returned to Dr. Sy. Upon being shown the
medicine, Dr. Sy was shocked to find that what was sold to him was Dormicum, instead
of the prescribed Diamicron
The RTC and CA rendered their decision in favor of respondent.
ISSUE:
Whether petitioner was negligent, and if so, whether such negligence was the
proximate cause of respondents accident.
RULING:
Article 2176 states that whoever by act or omission causes damage to another,
there being fault or negligence, is obliged to pay for the damages done. Such fault or
negligence, if there is no pre-existing contractual relationship between the parties, is
called a quasi-delict
Obviously, petitioners employee was grossly negligent in selling respondent
domicrum, instead of the prescribed diamicron. Considering that a fatal mistake could be
a matter of life and death for a buying patient, the employee should have been very
cautious in dispensing medicines.
Petitioner contends that the proximate cause of the accident was respondents
negligence in driving. The court disagrees. The accident could have not occurred had
petitioners employee been careful in reading the prescription.
Article 2180 in complementing the preceding article states that the obligation
imposed by articles 2176 is demandable not only for ones own acts or omissions, but
also for those of persons for whom one is responsible
It is thus clear that the employer of a negligent employee is liable for the damages
caused by the latter. When an injury is caused by the negligence of an employee, there
instantly arises a presumption of the law that there has been negligence on the part of the
employer either in the selection of the employee or the supervision over him, after such
selection. The presumption, however, may be rebutted by a clear showing on the part of
the employer that he has exercised the care and diligence of a good father of a family in
the selection and supervision of his employee.
In this case, petitioner failed to prove such exercised of due diligence of a good
father of a family in the selection and supervision of employee, thus making the
petitioner solidarily liable for the damages.

Page | 78

SAFEGUARD SECURITY V. TANGCO


GR No. 165732 December 14, 2006
FACTS:
Evangeline Tangco (Evangeline) went to Ecology Bank, Katipunan Branch,
Quezon City, to renew her time deposit per advise of the bank's cashier as she would sign
a specimen card. Evangeline, a duly licensed firearm holder with corresponding permit to
carry the same outside her residence, approached security guard Pajarillo, who was
stationed outside the bank, and pulled out her firearm from her bag to deposit the same
for safekeeping. Suddenly, Pajarillo shot Evangeline with his service shotgun hitting her
in the abdomen instantly causing her death.
Respondent filed a complaint for damages against Pajarillo for negligently
shooting Evangeline and against Safeguard for failing to observe the diligence of a good
father of a family to prevent the damage committed by its security guard.
Petitioners denied the material allegations in the complaint and alleged that
Safeguard exercised the diligence of a good father of a family in the selection and
supervision of Pajarillo; that Evangeline's death was not due to Pajarillo's negligence as
the latter acted only in self-defense.
The RTC found respondents to be entitled to damages. It rejected Pajarillo's claim
that he merely acted in self-defense. The RTC also found Safeguard as employer of
Pajarillo to be jointly and severally liable with Pajarillo. It ruled that while it may be
conceded that Safeguard had perhaps exercised care in the selection of its employees,
particularly of Pajarillo, there was no sufficient evidence to show that Safeguard
exercised the diligence of a good father of a family in the supervision of its employee.
ISSUES:
1. Whether Pajarillo is guilty of negligence in shooting Evangeline; and
2. Whether Safeguard should be held solidarily liable for the damages awarded to
respondents.
RULING:
ARTICLE 2176. Whoever by act or omission causes damage to another, there
being fault or negligence, is obliged to pay for the damage done. Such fault or
negligence, if there is no pre-existing contractual relation between the parties is called a
quasi-delict and is governed by the provisions of this Chapter.
Safeguard contends that it cannot be jointly held liable since it had adequately
shown that it had exercised the diligence required in the selection and supervision of its
employees. It claims that it had required the guards to undergo the necessary training and
to submit the requisite qualifications and credentials which even the
RTC found to
have been complied with; that the RTC erroneously found that it did not exercise the
diligence required in the supervision of its employee. Safeguard further claims that it
conducts monitoring of the activities of its personnel, wherein supervisors are assigned to
routinely check the activities of the security guards which include among others, whether
or not they are in their proper post and with proper equipment, as well as regular
evaluations of the employees' performances; that the fact that Pajarillo loaded his firearm
contrary to Safeguard's operating procedure is not sufficient basis to say that Safeguard
had failed its duty of proper supervision; that it was likewise error to say that Safeguard
was negligent in seeing to it that the procedures and policies were not properly
implemented by reason of one unfortunate event. The Supreme Court was not convinced.
Article 2180 of the Civil Code provides: The obligation imposed by Article 2176
is demandable not only for one's own acts or omissions, but also for those of persons for
whom one is responsible.
As the employer of Pajarillo, Safeguard is primarily and solidarily liable for the
quasi-delict committed by the former. Safeguard is presumed to be negligent in the
Page | 79

selection and supervision of his employee by operation of law. This presumption may be
overcome only by satisfactorily showing that the employer exercised the care and the
diligence of a good father of a family in the selection and the supervision of its employee.
In the selection of prospective employees, employers are required to examine them as to
their qualifications, experience, and service records. On the other hand, due diligence in
the supervision of employees includes the formulation of suitable rules and regulations
for the guidance of employees and the issuance of proper instructions intended for the
protection of the public and persons with whom the employer has relations through his or
its employees and the imposition of necessary disciplinary measures upon employees in
case of breach or as may be warranted to ensure the performance of acts indispensable to
the business of and beneficial to their employer. To this, we add that actual
implementation and monitoring of consistent compliance with said rules should be the
constant concern of the employer, acting through dependable supervisors who should
regularly report on their supervisory functions. To establish these factors in a trial
involving the issue of vicarious liability, employers must submit concrete proof,
including documentary evidence.

Page | 80

PLEYTO VS. LOMBOY


GR No. 148737 December 16, 2004
FACTS:
Respondent Maria D. Lomboy of Calasiao, Pangasinan, is the surviving spouse of
the late Ricardo Lomboy, who died in Pasolingan, Gerona, Tarlac, in a vehicular
accident. The accident was a head-on collision between the PRBL bus driven by
petitioner Pleyto and the car where Ricardo was a passenger. Carmela suffered injuries
requiring hospitalization in the same accident which resulted in her fathers death.
According to Rolly Orpilla, a witness and one of the bus passengers, Pleyto tried
to overtake Esguerras tricycle but hit it instead. Pleyto then swerved into the left
opposite lane. Coming down the lane, some fifty meters away, was a southbound
Mitsubishi Lancer car, driven by Arnulfo Asuncion. The car was headed for Manila with
some passengers. Seated beside Arnulfo was his brother-in-law, Ricardo Lomboy, while
in the back seat were Ricardos 18-year old daughter Carmela and her friend, one Rhino
Daba. PRBL Bus No. 1539 smashed head-on the car, killing Arnulfo and Ricardo
instantly. Carmela and Rhino suffered injuries, but only Carmela required hospitalization.
The Court of Appeals found PRBL liable for Pleytos negligence pursuant to
Article 2180 in relation to Article 2176 of the Civil Code. Under Article 2180, when an
injury is caused by the negligence of a servant or an employee, the master or employer is
presumed to be negligent either in the selection or in the supervision of that employee.
This presumption may be overcome only by satisfactorily showing that the employer
exercised the care and the diligence of a good father of a family in the selection and the
supervision of its employee.
ISSUE:
Did petitioner observed the proper diligence of a good father of a family?
RULING:
The negligence and fault of appellant driver is manifest. He overtook the tricycle
despite the oncoming car only fifty (50) meters away from him. Defendant-appellants
claim that he was driving at a mere 30 to 35 kilometers per hour does not deserve
credence as it would have been easy to stop or properly maneuver the bus at this speed.
The speed of the bus, the drizzle that made the road slippery, and the proximity of the car
coming from the opposite direction were duly established by the evidence.
The
speed at which the bus traveled, inappropriate in the light of the aforementioned
circumstances, is evident from the fact despite the application of the brakes, the bus still
bumped the tricycle, and then proceeded to collide with the incoming car with such force
that the car was pushed beyond the edge of the road to the ricefield.
In the present case, petitioners presented several documents in evidence to show
the various tests and pre-qualification requirements imposed upon petitioner Pleyto
before his hiring as a driver by PRBL. However, no documentary evidence was
presented to prove that petitioner PRBL exercised due diligence in the supervision of its
employees, including Pleyto. Citing precedents, the Court of Appeals opined,
In order that the defense of due diligence in the selection and supervision of
employees may be deemed sufficient and plausible, it is not enough for the employer to
emptily invoke the existence of company guidelines and policies on hiring and
supervision. As the negligence of the employee gives rise to the presumption of
negligence on the part of the employer, the latter has the burden of proving that it has
been diligent not only in the selection of employees but also in the actual supervision of
their work. The mere allegation of the existence of hiring procedures and supervisory
policies without anything more is decidedly not sufficient to overcome such presumption.

Page | 81

VIRON TRANSPORTATION CO., INC. VS. DELOS SANTOS


GR No. 54080 November 22, 2000

FACTS:
Defendant Alberto delos Santos was the driver of defendant Rudy
Samidan of the latters vehicle, a Forward Cargo Truck. At about 12:30 in the
afternoon, he was driving said truck along the National Highway within the
vicinity of Gerona, Tarlac. The Viron Bus, driven by Wilfredo Villanueva, tried
to overtake his truck, and he swerved to the right shoulder of the highway, but as
soon as he occupied the right lane of the road, the cargo truck which he was
driving was hit by the Viron bus on its left front side, as the bus swerved to his
lane to avoid an incoming bus on its opposite direction. With the driver of another
truck dealing likewise in vegetables, Dulnuan, the two of them and the driver of
the Viron bus proceeded to report the incident to the Police Station.
Both the RTC and the CA rendered its decision in favor of the private
respondents.
ISSUE:
Whether the employer is liable to the negligence of his employee.
RULING:
As employers of the bus driver, the petitioner is, under Article 2180 of the
Civil Code, directly and primarily liable for the resulting damages. The
presumption that they are negligent flows from the negligence of their employee.
That presumption, however, is only jusris tantum, not juris et de jure. Their only
possible defense is that they exercised all the diligence of a good father of a
family to prevent the damage.
In fine, when the employee causes damage due to his own negligence
while performing his own duties, there arises the juris tantum presumption that
the employer is negligent, rebuttable only by proof of observance of the diligence
of a good father of a family.
Petitioner, through its witnesses, failed to rebut such legal presumption of
negligence in the selection and supervision of employees, thus, petitioner as the
employer is responsible for damages, the basis of the liability being the
relationship of pater familias or on the employers own negligence. Hence, with
the allegations and subsequent proof of negligence against the bus driver of
petitioner, petitioner (employer) is liable for damages.

Page | 82

SYKI VS. BEGASA


GR No. 149149 October 23, 2003
FACTS:
Respondent Salvador Begasa and his three companions flagged down a passenger
jeepney driven by Joaquin Espina and owned by Aurora Pisuena. While respondent was
boarding the passenger jeepney (his right foot already inside while his left foot still on the
boarding step of the passenger jeepney), a truck driven by Elizalde Sablayan and owned
by petitioner Ernesto Syki bumped the rear end of the passenger jeepney. Respondent fell
and fractured his left thigh bone.
Respondent filed a complaint for damages for breach of common carriers
contractual obligations and quasi-delict against Aurora Pisuena, the owner of the
passenger jeepney;, herein petitioner Ernesto Syki, the owner of the truck;, and Elizalde
Sablayan, the driver of the truck.
After hearing, the trial court dismissed the complaint against Aurora Pisuena, the
owner and operator of the passenger jeepney, but ordered petitioner Ernesto Syki and his
truck driver, Elizalde Sablayan, to pay respondent Salvador Begasa, jointly and severally
ISSUE:
1. Whether or not petitioner is liable for the act of his employee.
2. Whether he exercised the diligence of a good father of a family.
RULING:
1. Article 2180 of the Civil Code provides:
Employers shall be liable for the damages caused by their employees and
household helpers acting within the scope of their assigned tasks, even though the former
are not engaged in any business or industry.
From the above provision, when an injury is caused by the negligence of an
employee, a legal presumption instantly arises that the employer was negligent, either or
both, in the selection and/or supervision of his said employee duties. The said
presumption may be rebutted only by a clear showing on the part of the employer that he
had exercised the diligence of a good father of a family in the selection and supervision
of his employee. If the employer successfully overcomes the legal presumption of
negligence, he is relieved of liability. In other words, the burden of proof is on the
employer.
2. The question is: how does an employer prove that he had indeed exercised the
diligence of a good father of a family in the selection and supervision of his employee.
Making proof in its or his case, it is paramount that the best and most complete evidence
is formally entered.
In the case at bar, while there is no rule which requires that testimonial evidence,
to hold sway, must be corroborated by documentary evidence, inasmuch as the witnesses
testimonies dwelt on mere generalities, we cannot consider the same as sufficiently
persuasive proof that there was observance of due diligence in the selection and
supervision of employees. Petitioners attempt to prove its deligentissimi patris
familias in the selection and supervision of employees through oral evidence must fail as
it was unable to buttress the same with any other evidence, object or documentary, which
might obviate the apparent biased nature of the testimony.
In the selection of prospective employees, employers are required to examine
them as to their qualifications, experience, and service records. On the other hand, with
respect to the supervision of employees, employers should formulate standard operating
procedures, monitor their implementation, and impose disciplinary measures for breaches
thereof. To establish these factors in a trial involving the issue of vicarious liability,
employers must submit concrete proof, including documentary evidence.

Page | 83

The employer must not merely present testimonial evidence to prove that he had
observed the diligence of a good father of a family in the selection and supervision of his
employee, but he must also support such testimonial evidence with concrete or
documentary evidence. The reason for this is to obviate the biased nature of the
employers testimony or that of his witnesses.
In this case, petitioners evidence consisted entirely of testimonial evidence. He
testified that before he hired Elizalde Sablayan, he required him to submit a police
clearance in order to determine if he was ever involved in any vehicular accident. He also
required Sablayan to undergo a driving test with conducted by his mechanic, Esteban
Jaca. Petitioner claimed that he, in fact, accompanied Sablayan during the driving test and
that during the test, Sablayan was taught to read and understand traffic signs like Do Not
Enter, One Way, Left Turn, and Right Turn.
Petitioners mechanic, Esteban Jaca, on the other hand, testified that Sablayan
passed the driving test and had never figured in any vehicular accident except the one in
question. He also testified that he maintained in good condition all the trucks of petitioner
by checking the brakes, horns and tires thereof before leaving for providing hauling
services.
Petitioner, however, never presented the alleged police clearance given to him by
Sablayan, nor the results of Sablayans driving test. Petitioner also did not present records
of the regular inspections that his mechanic allegedly conducted.
In sum, the sole and proximate cause of the accident was the negligence of
petitioners driver who, as found by the lower courts, did not slow down even when he
was already approaching a busy intersection within the city proper. The passenger
jeepney had long stopped to pick up respondent and his three companions and, in fact,
respondent was already partly inside the jeepney, when petitioners driver bumped the
rear end ofrear-ended it.
Since the negligence of petitioners driver was the sole and proximate cause of the
accident, in the present case, petitioner is liable, under Article 2180 of the Civil Code, to
pay damages to respondent Begasa for the injuries sustained by latter.

Page | 84

YAMBAO VS. ZUNIGA


GR No. 146173 December 11, 2003
FACTS:
The bus owned by the petitioner was being driven by her driver, one Ceferino G.
Venturina along the northbound lane of Epifanio delos Santos Avenue (EDSA). With
Venturina was the bus conductor, Fernando Dumaliang. Suddenly, the bus bumped
Herminigildo Zuiga, a pedestrian. Such was the force of the impact that the left side of
the front windshield of the bus was cracked. Zuiga was rushed to the Quezon City
General Hospital where he was given medical attention, but due to the massive injuries
sustained, he succumbed shortly thereafter.
Private respondents, as heirs of the victim, filed a Complaint against petitioner
and her driver, Venturina, for damages. The complaint essentially alleged that Venturina
drove the bus in a reckless, careless and imprudent manner, in violation of traffic rules
and regulations, without due regard to public safety, thus resulting in the victims
premature death.
The petitioner vehemently denied the material allegations of the complaint. She
tried to shift the blame for the accident upon the victim, theorizing that Herminigildo
bumped into her bus, while avoiding an unidentified woman who was chasing him. She
further alleged that she was not liable for any damages because as an employer, she
exercised the proper diligence of a good father of a family, both in the selection and
supervision of her bus driver.
ISSUE:
Whether or not petitioner observed the diligence of a good father of a family, so
as not to be liable for the act committed by her employee?
RULING:
It held that this was a case of quasi-delict, there being no pre-existing contractual
relationship between the parties. The court a quo then found the petitioner directly and
primarily liable as Venturinas employer pursuant to Article 2180 of the Civil Code as
she failed to present evidence to prove that she has observed the diligence of a good
father of a family in the selection and supervision of her employees.
Art. 2180 states that the obligation imposed by Article 2176 is demandable not
only for ones own acts or omissions, but also for those of persons for whom one is
responsible
Employers shall be liable for the damages caused by their employees and
household helpers acting within the scope of their assigned tasks, even though the former
are not engaged in any business or industry.
Petitioner contends that as an employer, she observed the proper diligence of a
good father of a family, both in the selection and supervision of her driver and therefore,
is relieved from any liability for the latters misdeed. To support her claim, she points
out that when Venturina applied with her as a driver in January 1992, she required him to
produce not just his drivers license, but also clearances from the National Bureau of
Investigation (NBI), the Philippine National Police, and the barangay where he resides.
She also required him to present his Social Security System (SSS) Number prior to
accepting him for employment. She likewise stresses that she inquired from Venturinas
previous employer about his employment record, and only hired him after it was shown
to her satisfaction that he had no blot upon his record.
In sum, petitioners liability to private respondents for the negligent and
imprudent acts of her driver, Venturina, under Article 2180 of the Civil Code is both
manifest and clear. Petitioner, having failed to rebut the legal presumption of negligence
in the selection and supervision of her driver, is responsible for damages, the basis of the
liability being the relationship of pater familias or on the employers own negligence.
Page | 85

REGINO VS. PANGASINAN COLLEGES


GR No. 156109 November 18, 2004
FACTS:
Petitioner Khristine Rea M. Regino was a first year computer science student at
Respondent Pangasinan Colleges of Science and Technology (PCST). In February 2002,
PCST held a fund raising campaign dubbed the Rave Party and Dance Revolution, the
proceeds of which were to go to the construction of the schools tennis and volleyball
courts. Each student was required to pay for two tickets at the price of P100 each. The
project was allegedly implemented by recompensing students who purchased tickets with
additional points in their test scores; those who refused to pay were denied the
opportunity to take the final examinations. Financially strapped and prohibited by her
religion from attending dance parties and celebrations, Regino refused to pay for the
tickets. On March 14 and March 15, 2002, the scheduled dates of the final examinations
in logic and statistics, her teachers -- Respondents Rachelle A. Gamurot and Elissa
Baladad -- allegedly disallowed her from taking the tests.
ISSUE:
Whether or not the purchased of the tickets are mandatory and are part of the
contract between school and student.
RULING:
Reciprocity of the School-Student Contract
The school-student relationship is also reciprocal. Thus, it has consequences
appurtenant to and inherent in all contracts of such kind -- it gives rise to bilateral or
reciprocal rights and obligations. The school undertakes to provide students with
education sufficient to enable them to pursue higher education or a profession. On the
other hand, the students agree to abide by the academic requirements of the school and to
observe its rules and regulations.
The terms of the school-student contract are defined at the moment of its
inception -- upon enrolment of the student. Standards of academic performance and the
code of behavior and discipline are usually set forth in manuals distributed to new
students at the start of every school year. Further, schools inform prospective enrollees
the amount of fees and the terms of payment.
In practice, students are normally required to make a down payment upon
enrollment, with the balance to be paid before every preliminary, midterm and final
examination. Their failure to pay their financial obligation is regarded as a valid ground
for the school to deny them the opportunity to take these examinations.
The foregoing practice does not merely ensure compliance with financial
obligations; it also underlines the importance of major examinations. Failure to take a
major examination is usually fatal to the students promotion to the next grade or to
graduation. Examination results form a significant basis for their final grades. These
tests are usually a primary and an indispensable requisite to their elevation to the next
educational level and, ultimately, to their completion of a course.
Thus, students expect that upon their payment of tuition fees, satisfaction of the
set academic standards, completion of academic requirements and observance of school
rules and regulations, the school would reward them by recognizing their completion of
the course enrolled in.
PCST imposed the assailed revenue-raising measure belatedly, in the middle of the
semester. It exacted the dance party fee as a condition for the students taking the final
examinations, and ultimately for its recognition of their ability to finish a course. The
fee, however, was not part of the school-student contract entered into at the start of the
school year. Hence, it could not be unilaterally imposed to the prejudice of the enrollees.

Page | 86

YHT REALTY VS. CA


GR. No. 126780 February 17, 2005
FACTS:
McLoughlin arrived from Australia and registered with Tropicana. He rented a
safety deposit box as it was his practice to rent a safety deposit box every time he
registered at Tropicana in previous trips. As a tourist, McLoughlin was aware of the
procedure observed by Tropicana relative to its safety deposit boxes. The safety deposit
box could only be opened through the use of two keys, one of which is given to the
registered guest, and the other remaining in the possession of the management of the
hotel. When a registered guest wished to open his safety deposit box, he alone could
personally request the management who then would assign one of its employees to
accompany the guest and assist him in opening the safety deposit box with the two keys.
However, when he returned coming from a trip, he noticed that his money in the
envelope was lacking and that the jewelries were gone.
ISSUE:
Whether petitioner is liable for the loss of the personal properties of respondent.
RULING:
Under Article 1170 of the New Civil Code, those who, in the performance of
their obligations, are guilty of negligence, are liable for damages. Article 2180 provides
that the owners and managers of an establishment or enterprise are likewise responsible
for damages caused by their employees in the service of the branches in which the latter
are employed or on the occasion of their functions. Also, this Court has ruled that if an
employee is found negligent, it is presumed that the employer was negligent in selecting
and/or supervising him for it is hard for the victim to prove the negligence of such
employer.
Thus, given the fact that the loss of McLoughlins money was
consummated through the negligence of Tropicanas employees in allowing Tan to open
the safety deposit box without the guests consent, both the assisting employees and YHT
Realty Corporation itself, as owner and operator of Tropicana, should be held solidarily
liable.
Art. 2003. The hotel-keeper cannot free himself from responsibility by posting
notices to the effect that he is not liable for the articles brought by the guest. Any
stipulation between the hotel-keeper and the guest whereby the responsibility of the
former as set forth in Articles 1998 to 2001 is suppressed or diminished shall be void.
The hotel business like the common carriers business is imbued with public
interest. The twin duty constitutes the essence of the business. The law in turn does not
allow such duty to the public to be negated or diluted by any contrary stipulation in socalled undertakings that ordinarily appear in prepared forms imposed by hotel keepers
on guests for their signature.
In the case at bar, the responsibility of securing the safety deposit box was
shared not only by the guest himself but also by the management since two keys are
necessary to open the safety deposit box. Without the assistance of hotel employees, the
loss would not have occurred.
Thus, Tropicana was guilty of concurrent negligence in allowing Tan, who was
not the registered guest, to open the safety deposit box of McLoughlin, even assuming
that the latter was also guilty of negligence in allowing another person to use his key. To
rule otherwise would result in undermining the safety of the safety deposit boxes in hotels
for the management will be given imprimatur to allow any person, under the pretense of
being a family member or a visitor of the guest, to have access to the safety deposit box
without fear of any liability that will attach thereafter in case such person turns out to be a
complete stranger. This will allow the hotel to evade responsibility for any liability
incurred by its employees in conspiracy with the guests relatives and visitors.
Page | 87

RAMOS VS. CA
GR No. 124354 December 29, 1999
FACTS:
Plaintiff Erlinda Ramos was a robust woman Except for occasional complaints of
discomfort due to pains allegedly caused by the presence of a stone in her gall bladder.
Because the discomforts somehow interfered with her normal ways, she sought
professional advice. She was advised to undergo an operation for the removal of a stone
in her gall bladder. Through the intercession of a mutual friend, Dr. Buenviaje she and
her husband Rogelio met for the first time Dr. Orlino one of the defendants in this case,
on June 10, 1985. They agreed that their date at the operating table at the DLSMC
(another defendant. Dr. Hosaka decided that she should undergo a "cholecystectomy"
operation after examining the documents (findings from the Capitol Medical Center, FEU
Hospital and DLSMC) presented to him. Rogelio E. Ramos, however, asked Dr. Hosaka
to look for a good anesthesiologist. Dr. Hosaka, in turn, assured Rogelio that he will get
a good anesthesiologist. Dr. Hosaka charged a fee of P16,000.00, which was to include
the anesthesiologist's fee and which was to be paid after the operation. A day before the
scheduled date of operation, she was admitted at one of the rooms of the DLSMC,
located along E. Rodriguez Avenue, Quezon City.
At around 7:30 A.M. of June 17, 1985 and while still in her room, she was
prepared for the operation by the hospital staff. Her sister-in-law, Herminda Cruz, who
was the Dean of the College of Nursing at the Capitol Medical Center, was also there for
moral support. Herminda was allowed to stay inside the operating room.
At around 9:30 A.M., Dr. Gutierrez reached a nearby phone to look for Dr.
Hosaka who was not yet in Dr. Gutierrez thereafter informed Herminda Cruz about the
prospect of a delay in the arrival of Dr. Hosaka. Herminda then went back to the patient
who asked, "Mindy, wala pa ba ang Doctor"? The former replied, "Huwag kang magalaala, darating na iyon. Thereafter, Herminda went out of the operating room and
informed the patient's husband, Rogelio, that the doctor was not yet around.
At about 12:15 P.M., Herminda Cruz, who was inside the operating room with the
patient, heard somebody say that "Dr. Hosaka is already here." She then saw people
inside the operating room "moving, doing this and that, preparing the patient for the
operation" As she held the hand of Erlinda Ramos, she then saw Dr. Gutierrez intubating
the hapless patient. She thereafter heard Dr. Gutierrez say, "ang hirap ma-intubate nito,
mali yata ang pagkakapasok. O lumalaki ang tiyan", because of the remarks of Dra.
Gutierrez, she focused her attention on what Dr. Gutierrez was doing. She thereafter
noticed bluish discoloration of the nailbeds of the left hand of the hapless Erlinda even as
Dr. Hosaka approached her. She then heard Dr. Hosaka issue an order for someone to
call Dr. Calderon, another anesthesiologist. After Dr. Calderon arrived at the operating
room, she saw this anesthesiologist trying to intubate the patient. The patient's nailbed
became bluish and the patient was placed in a trendelenburg position - a position where
the head of the patient is placed in a position lower than her feet which is an indication
that there is a decrease of blood supply to the patient's brain. Immediately thereafter, she
went out of the operating room, and she told Rogelio E. Ramos "that something wrong
was happening". Dr. Calderon was then able to intubate the patient.
Meanwhile, Rogelio, who was outside the operating room, saw a respiratory
machine being rushed towards the door of the operating room. He also saw several
doctors rushing towards the operating room. When informed by Herminda Cruz that
something wrong was happening, he told her (Herminda) to be back with the patient
inside the operating room.
Herminda immediately rushed back, and saw that the
patient was still in trendelenburg position. At almost 3:00 P.M. of that fateful day, she
saw the patient taken to the Intensive Care Unit (ICU). Doctors Gutierrez and Hosaka
were also asked by the hospital to explain what happened to the patient. The doctors
explained that the patient had bronchospasm. Erlinda Ramos stayed at the ICU for a
month. About four months thereafter the patient was released from the hospital.

Page | 88

ISSUE:
1. Whether the respondent doctors are negligent.
2. Whether the respondent doctors and the hospital are solidarily liable.
RULING:
Res ipsa loquitur is a Latin phrase which literally means "the thing or the
transaction speaks for itself." The phrase "res ipsa loquitur" is a maxim for the rule that
the fact of the occurrence of an injury, taken with the surrounding circumstances, may
permit an inference or raise a presumption of negligence, or make out a plaintiff's prima
facie case, and present a question of fact for defendant to meet with an explanation
At the time of submission, Erlinda was neurologically sound and, except for a few
minor discomforts, was likewise physically fit in mind and body. However, during the
administration of anesthesia and prior to the performance of cholecystectomy she
suffered irreparable damage to her brain. Thus, without undergoing surgery, she went out
of the operating room already decerebrate and totally incapacitated. Obviously, brain
damage, which Erlinda sustained, is an injury which does not normally occur in the
process of a gall bladder operation. In fact, this kind of situation does not happen in the
absence of negligence of someone in the administration of anesthesia and in the use of
endotracheal tube. Normally, a person being put under anesthesia is not rendered
decerebrate as a consequence of administering such anesthesia if the proper procedure
was followed. Furthermore, the instruments used in the administration of anesthesia,
including the endotracheal tube, were all under the exclusive control of private
respondents, who are the physicians-in-charge. Likewise, petitioner Erlinda could not
have been guilty of contributory negligence because she was under the influence of
anesthetics which rendered her unconscious.
With regard to Dra. Gutierrez, we find her negligent in the care of Erlinda during
the anesthesia phase. As borne by the records, respondent Dra. Gutierrez failed to
properly intubate the patient.
The Court finds that she omitted to exercise reasonable care in not only intubating
the patient, but also in not repeating the administration of atropine without due regard to
the fact that the patient was inside the operating room for almost three (3) hours. For
after she committed a mistake in intubating the patient, the patient's nailbed became
bluish and the patient, thereafter, was placed in trendelenburg position, because of the
decrease of blood supply to the patient's brain. The evidence further shows that the
hapless patient suffered brain damage because of the absence of oxygen in her (patient's)
brain for approximately four to five minutes which, in turn, caused the patient to become
comatose.
On the part of Dr. Orlino Hosaka, this Court finds that he is liable for the acts of
Dr. Perfecta Gutierrez whom he had chosen to administer anesthesia on the patient as part
of his obligation to provide the patient a `good anesthesiologist', and for arriving for the
scheduled operation almost three (3) hours late.
On the part of DLSMC (the hospital), this Court finds that it is liable for the acts
of negligence of the doctors in their `practice of medicine' in the operating room.
Moreover, the hospital is liable for failing through its responsible officials, to cancel the
scheduled operation after Dr. Hosaka inexcusably failed to arrive on time.
In having held thus, this Court rejects the defense raised by defendants that they
have acted with due care and prudence in rendering medical services to plaintiff-patient.
For if the patient was properly intubated as claimed by them, the patient would not have
become comatose. And, the fact that another anesthesiologist was called to try to
intubate the patient after her (the patient's) nailbed turned bluish, belie their claim.
Furthermore, the defendants should have rescheduled the operation to a later date. This,
they should have done, if defendants acted with due care and prudence as the patient's
case was an elective, not an emergency case.
Wherefore judgment is rendered in favor of the plaintiffs and against the
defendants. Accordingly, the latter are ordered to pay, jointly and severally.
Page | 89

REYES VS. SISTERS OF MERCY HOSPITAL


GR No. 130547 October 3, 2000
FACTS:
Jorge Reyes was taken to the Mercy Community Clinic. He was attended to by
respondent Dr. Marlyn Rico, a resident physician and admitting physician on duty, who
gave Jorge a physical examination and took his medical records. Typhoid fever was then
prevalent in the locality. Suspecting that Jorge could be suffering from this disease, Dr.
Rico ordered a Widal Test, a standard test for typhoid fever, to be performed on Jorge.
The results of the test from which Dr. Rico concluded that Jorge was positive for typhoid
fever. As her shift was only up to 5:00 p.m., Dr. Rico indorsed Jorge to respondent Dr.
Marivie Blanes.
Dr. Blanes also took the physical examination of Jorge. Antibiotics being the
accepted treatment for typhoid fever, she ordered that a compatibility test with the
antibiotic chloromycetin be done on Jorge. As she did not observe any adverse reaction,
she ordered the first 500 mg. of said antibiotic. At around 1:00 in the morning, Dr. Blanes
was called as Jorges temperature rose to 41 degrees and then valium was administered.
However, the patient did not respond to the treatment and slipped into cyanosis, a bluish
or purplish discoloration of the skin or mucous membrane due to deficient oxygenation of
the blood. At around 2:00 a.m. Jorge died.
ISSUES:
Whether the death of Jorge Reyes was due to or caused by the negligence,
carelessness, imprudence, and lack of skill or foresight on the part of the
defendants.
RULING:
Petitioners action is for medical malpractice. It is a form of negligence which
consists in the failure of the physician or surgeon to apply to his practice of medicine that
degree of care and skill which is ordinarily employed by the profession. Four elements
involve in medical negligence cases, namely: duty, breach, injury, and proximate
causation.
In this case, there is no doubt that physician-patient relationship existed between
respondent doctors and Jorge Reyes. It is breach of this duty which constitutes actionable
malpractice. As to this aspect of medical malpractice, the determination of reasonable
level of care and breach thereof, expert testimony is essential.
The petitioner presented Dr. Vacalares, Chief Pathologist of the Northern
Mindanao Training Hospital, Cagayan de Oro, who performed the autopsy of Jorge. He
testified that Jorge did not die of typhoid fever but of shock undetermined, which could
be due to allergic reaction or chloromycetin overdose. The court was not persuaded.
Although Dr. Vacalares may have had extensive experience in performing autopsies, he
admitted that he had yet to do one on the body of a typhoid victim at the time he
conducted the post mortem of Jorge. It is also plain from his testimony that he treated
only about three cases of typhoid fever.
On the other hand, the two doctors presented by respondents clearly were experts
on the subject. They vouched for the correctness of Dr. Ricos diagnosis. Dr. Gotiong, a
diplomate whose specialization is infectious diseases and microbiology and an associate
professor at the Southern University College of Medicine and the Gullas College of
Medicine, testified that he has already treated over a thousand cases of typhoid fever.
According to him a case of typhoid fever is suspected using the widal test, if the 1:320
results of the said test has been presented to him. As to the treatment of the disease, he
stated that chloromycetin was the drug of choice. He also explained that despite the
measures taken by respondents and the intravenous administration of the two doses of
chloromycetin, complications of the disease could not be discounted.
Page | 90

Dr. Marilyn did not depart from the reasonable standard recommended by the
experts as she in fact observed the due care required under the circumstances. Though the
widal test is not conclusive, it remains a standard diagnostic test for typhoid fever and, in
the present case, a greater accuracy through repeated testing was rendered unobtainable
by the early death of the patient. The results of the widal test and the patients history of
fever with chills for five days, taken with the fact that typhoid fever was then prevalent,
were sufficient to give upon any doctor of reasonable skill the impression that the patient
had typhoid fever.

Page | 91

NOGALES VS. CAPITOL MEDICAL CENTER


GR No. 45641 December 19, 2006
FACTS:
Pregnant with her fourth child, Corazon Nogales was under the exclusive prenatal
care of Dr. Estrada. While Corazon was on her lat trimester of pregnancy, Dr. Estrada
noted an increase in her blood pressure and development of leg edema indicating
preeclampsia, which is dangerous complication of pregnancy. When Corazon started to
experience mild labor, he and her husband, prompted to see Dr. Estrada at his home.
After examining Corazon, he advised her to immediate admission to the Capitol Medical
Center. Upon admission at the CMC, Rogelio Nogales executed and signed the Consent
on Admission and Agreement and Admission Agreement. Then Corazon was brought to
the labor room. Dr. Uy, a resident physician, conducted an internal examination of
Corazon and notified Dr. Estrada of her findings. Dr. Estrada ordered for 10 mg. of
valium to be administered immediately by intramascular injection. Later he ordered that
start of intravenous administration of syntocinon admixed with dextrose, 5% in lactated
Ringers solution, at the rate of eight to ten micro-drops per minute.
Dr. Enriquez, an anesthesiologist, was notified of Corazons admission.
Subsequently he asked if Dr. Estrada needed his service but the latter refused. Despite
refusal he stayed to observe Corazons condition.
Corazons water bag ruptured spontaneously and started to experience
convulsions. Dr. Estrada ordered the injectionof ten grams of magnesium sulfate.
However, Dr. Villaflor, who is assisting Dr. Estrada, administered only 2.5 grams of
magnesium sulfate. Dr. Estrada applied low forceps to extract the baby. The baby came
out in a weak and injured condition and consequently had to be intubated and
resuscitated.
Corazon began to manifest moderate vaginal bleeding which rapidly became
profuse. Dr. Estrada ordered blood typing and cross matching with bottled blood. Dr.
Espinola, head of the Obstetrics-Gynecology Department of the CMC, was apprised of
Corazons condition by telephone. Upon being informed of Corazons profuse bleeding,
Dr. Espinola ordered immediate hysterectomy. Dr. Espinola, due to the inclement
weather, arrived about an hour late. he examined the patient but despite his efforts
Corazon died.
Petitioners filed a case against CMC personnel and physicians on the ground that
they were negligent in the treatment and management of Corazons condition and
charged CMC with negligence in the selection and supervision of defendant physicians
and hospital staff.
After more than 11 years the Trial Court rendered its judgment finding Dr.
Estrada solely liable for damages.
ISSUE:
Whether CMC is vicariously liable for the negligence of Dr. Estrada.
RULING:
In general, a hospital is not liable for the negligence of an independent contractorphysician. However, the hospital may be held liable if the physician is the ostensible
agent of the hospital. This exception is also known as the doctrine of apparent
authority.
Under the doctrine of apparent authority a hospital can be held vicariously liable
for the negligent act of a physician providing care at eh hospital, regardless of whether
the physician is an independent contractor, unless the patient knows, or should have
known, that the physician is an independent contractor.
The doctrine of apparent authority involves two factors to determine the liability
of an independent contractor-physician. First factor focuses on the hospitals
Page | 92

manifestations and is sometimes described as an inquiry whether the hospital acted in a


manner which would lead a responsible person to conclude that the individual who was
alleged to be negligent was an employee or agent of the hospital. The second factor
focuses on the patients reliance. It is sometimes characterized as an inquiry on whether
the plaintiff acted in reliance upon the conduct of the hospital or its agent, consistent with
ordinary care and prudence.
In this case, CMC impliedly held out Dr. Estrada as a member of its medical staff.
First, CMC granted staff privileges to Dr. Estrada when it extended its medical staff and
facilities. Upon request to admit Corazon, through its personnel, readily accommodated
the patient and updated Dr. Estrada of the patients condition. Second, CMC made
Rogelio sign a consent forms printed in CMC letterhead. And third, Dr. Estradas
referral to Dr. Espinola, who then was the Head of the Obstetrics and Gynecology
Department of CMC.
Wherefore the court finds respondent Capitol Medical Center vicariously liable
for the negligence of Dr. Oscar Estrada.

Page | 93

PROFESSIONAL SERVICES VS. AGANA


GR No. 126467 February 11, 2008
FACTS:
On April 04, 1984, Natividad Agana was admitted at the Medical City General
Hospital because of difficulty of bowel movement and bloody anal discharge. Dr. Ampil
diagnosed her to be suffering from cancer of the sigmoid. Thus, Dr. Ampil, assisted by
the medical staff of Medical City, performed a surgery upon her. During the surgery, he
found that the malignancy in her sigmoid area had spread to her left ovary, necessitating
the removal of certain portions of it. Thus, Dr. Ampil obtained the consent of Natividads
husband to permit Dr. Fuentes to perform hysterectomy upon Natividad. Dr. Fuentes
performed and completed the hysterectomy. Afterwards, Dr. Ampil took over, completed
the operation and closed the incision. The operation, however, appeared to be flawed as
the attending nurses entered in the corresponding Record of Operation that there were 2
lacking sponge and announced that it was searched by the surgeon but to no avail.
After a couple of days, Natividad complained excruciating pain in her anal region.
She consulted both Dr. Ampil and Dr. Fuentes. They told her that the pain was the natural
consequence of the surgical operation performed upon her. Dr. Ampil recommended that
she consult an oncologist to treat the cancerous nodes which were not removed.
Natividad and her husband went to the US to seek further treatment. After 4 months she
was told that she was free of cancer. They then flew back to the Philippines. Two weeks
thereafter , Natividads daughter found a piece of gauze protruding from her vagina. Dr.
Ampil saw immediately informed. He proceeded to Natividads house where he extracted
by hand a piece of gauze. Natividad sought the treatment of Polymedic General Hospital
thereat Dr. Gutierrez detected a foreign object in her vagina - a foul-smelling gauze
which infected her vaginal vault. A recto-vaginal fistula had formed in her reproductive
organ which forced stool to excrete in her vagina. Another surgical operation was
performed upon her.
Spouses Agana filed a complaint against PSI (owner of Medical City), Dr. Ampil
and Dr. Fuentes. The Trial Court found the respondents jointly and severally liable. The
CA affirmed said decision with modification that Dr. Fuentes was dismissed.
ISSUE:
Whether the Court of Appeals erred in absolving Dr. Fuentes of any liability.
RULING:
It was duly established that Dr. Ampil was the lead surgeon during the operation
of Natividad. He requested the assistance of Dr. Fuentes only to perform hysterectomy
when he (Dr. Ampil) found that the malignancy in her sigmoid area had spread to her left
ovary. Dr. Fuentes performed the surgery and thereafter reported and showed his work to
Dr. Ampil. The latter examined it and finding everything to be in order, allowed Dr.
Fuentes to leave the operating room. Dr. Ampil then resumed operating on Natividad. He
was about to finish the procedure when the attending nurses informed him that two pieces
of gauze were missing. A "diligent search" was conducted, but the misplaced gauzes were
not found. Dr. Ampil then directed that the incision be closed. During this entire period,
Dr. Fuentes was no longer in the operating room and had, in fact, left the hospital.
Under the "Captain of the Ship" rule, the operating surgeon is the person in
complete charge of the surgery room and all personnel connected with the operation.
Their duty is to obey his orders. As stated before, Dr. Ampil was the lead surgeon. In
other words, he was the "Captain of the Ship." That he discharged such role is evident
from his following conduct. Clearly, the control and management of the thing which
caused the injury was in the hands of Dr. Ampil, not Dr. Fuentes.
Here, the negligence was proven to have been committed by Dr. Ampil and not by
Dr. Fuentes.
Page | 94

PROFESSIONAL SERVICES, INC. VS. COURT OF APPEALS


GR No. 126297 February 11, 2008
FACTS:
On April 04, 1984, Natividad Agana was admitted at the Medical City General
Hospital because of difficulty of bowel movement and bloody anal discharge. Dr. Ampil
diagnosed her to be suffering from cancer of the sigmoid. Thus, Dr. Ampil, assisted by
the medical staff of Medical City, performed a surgery upon her. During the surgery, he
found that the malignancy in her sigmoid area had spread to her left ovary, necessitating
the removal of certain portions of it. Thus, Dr. Ampil obtained the consent of Natividads
husband topermit Dr. Fuentes to perform hysterectomy upon Natividad. Dr. Fuentes
performed and completed the hysterectomy. Afterwards, Dr. Ampil took over, completed
the operation and closed the incision. The operation, however, appeared to be flawed as
the attending nurses entered in the corresponding Record of Operation that there were 2
lacking sponge and announced that it was searched by the surgeon but to no avail.
After a couple of days, Natividad complained excruciating pain in her anal region.
She consulted both Dr. Ampil and Dr. Fuentes. They told her that the pain was the natural
consequence of the surgical operation performed upon her. Dr. Ampil recommended that
she consult an oncologist to treat the cancerous nodes which were not removed.
Natividad and her husband went to the US to seek further treatment. After 4 months she
was told that she was free of cancer. They then flew back to the Philippines. Two weeks
thereafter , Natividads daughter found a piece of gauze protruding from her vagina. Dr.
Ampil saw immediately informed. He proceeded to Natividads house where he extracted
by hand a piece of gauze. Natividad sought the treatment of Polymedic General Hospital
thereat Dr. Gutierrez detected a foreign object in her vagina - a foul-smelling gauze
which infected her vaginal vault. A recto-vaginal fistula had formed in her reproductive
organ which forced stool to excrete in her vagina. Another surgical operation was
performed upon her.
Spouses Agana filed a complaint against PSI (owner of Medical City), Dr. Ampil
and Dr. Fuentes. The Trial Court found the respondents jointly and severally liable. The
CA affirmed said decision with modification that Dr. Fuentes was dismissed.
ISSUE:
Whether there is an employee-employer relationship in order to hold PSI solidary
liable.
RULING:
PSI contends that the proximate cause of Natividads injury was Dr. Ampils
negligence and that there is no employee-employer relationship between them because
Dr. Ampil is only a consultant of the said hospital.
The court held that there is an employee-employer relationship between hospital
and their attending and visiting physician. After a physician is accepted, either as a
visiting or attending consultant, he is normally required to attend clinicopathological
conferences, conduct bedside rounds for clerks, interns and residents, moderate grand
rounds and patient audits and perform other tasks and responsibilities, for the privilege of
being able to maintain a clinic in the hospital, and/or privilege of admitting patients into
the hospital. The physicians performance is generally evaluated and if said physician
falls short of the minimum standards he is normally terminated. In the said case, the
hospital has a control over its attending or visiting physician.
In general, a hospital is not liable for the negligence of an independent contractorphysician. However, the hospital may be held liable if the physician is the ostensible
agent of the hospital. This exception is also known as the doctrine of apparent
authority.

Page | 95

The doctrine of apparent authority involves two factors to determine the liability
of an independent contractor-physician. First factor focuses on the hospitals
manifestations and is sometimes described as an inquiry whether the hospital acted in a
manner which would lead a responsible person to conclude that the individual who was
alleged to be negligent was an employee or agent of the hospital. The second factor
focuses on the patients reliance. It is sometimes characterized as an inquiry on whether
the plaintiff acted in reliance upon the conduct of the hospital or its agent, consistent with
ordinary care and prudence.
In this case, it has been proven that the two factors were present. The hospital
indeed made it appear that Dr. Ampil was its employee when they advertise and
displayed his name in the directory at the lobby of the said hospital and that Natividad
relied on such knowledge that Dr. Ampil was indeed an employee of the hospital.
Wherefore PSI and Dr. Ampil are liable jointly and severally.

Page | 96

DIAZ VS. DAVAO LIGHT


GR No. 160959 April 2, 2007
FACTS:
Plaintiff asks for damages for defendants alleged malicious prosecution of a
criminal case of theft of electricity against him, for plaintiffs filing of a charge of
violation of P.D. 401 as amended after dismissal of the theft case, the filing of a damage
suit against him before the RTC of Cebu City which was dismissed and the filing of
another damage suit before the same Cebu RTC which is still pending. Damages are also
being sought for defendants removal of Electric Meter, but this is a subject matter of a
case pending before Branch 13 of this Court and therefore said court retains jurisdiction
over the said cause of action.
The RTC held that while the City Prosecutor, and later the Secretary of Justice,
concluded that there was no probable cause for the crime of theft, this did not change the
fact that plaintiff made an illegal connection for electricity. A persons right to litigate
should not be penalized by holding him liable for damages.
On October 1, 2003, the CA affirmed the decision of the RTC. It concluded that
the evidence on hand showed good faith on the part of DLPC in filing the subject
complaints. It pointed out that Diaz had been using the electrical services of DLPC
without its consent. As to the effect of the compromise agreement, the CA ruled that it
did not bar the filing of the criminal action. Thus, under the principle of damnum absque
injuria, the legitimate exercise of a persons right, even if it causes loss to another, does
not automatically result in an actionable injury.
Diaz, now petitioner, comes before this Court in this petition for review on
certiorari
ISSUES:
1. Whether or not the compromise agreement entered into between DLPC and
Diaz barred the former from instituting further actions; and
2. Whether or not DLPC acted in bad faith in instituting the criminal cases against
Diaz
RULING:
The petition is without merit. Petitioner insists that the compromise agreement as
well as the decision of the CA already settled the controversies between them; yet, DLPC
instituted the theft case against Diaz, and worse, instituted another action for violation of
P.D. 401, as amended by B.P. Blg. 876. Thus, the only conclusion that can be inferred
from the acts of DLPC is that they were designed to harass, embarrass, prejudice, and
ruin him. He further avers that the compromise agreement completely erased litigious
matters that could necessarily arise Moreover, Diaz asserts that the evidence he presented
is sufficient to prove the damages he suffered by reason of the malicious institution of the
criminal cases.
The court does not agree. Article 2028 of the Civil Code defines a compromise as
a contract whereby the parties, by making reciprocal concessions, avoid litigation or put
an end to one already commenced. The purpose of compromise is to settle the claims of
the parties and bar all future disputes and controversies. However, criminal liability is not
affected by compromise for it is a public offense which must be prosecuted and punished
by the Government on its own motion, though complete reparation should have been
made of the damages suffered by the offended party. A criminal case is committed
against the People, and the offended party may not waive or extinguish the criminal
liability that the law imposes for the commission of the offense. Moreover, a compromise
is not one of the grounds prescribed by the Revised Penal Code for the extinction of
criminal liability.
On the other hand, malicious
prosecution has been defined as an action for damages brought by or against whom a
criminal prosecution, civil suit or other legal proceeding has been instituted maliciously
Page | 97

and without probable cause, after the termination of such prosecution, suit, or other
proceeding in favor of the defendant therein. It is an established rule that in order for
malicious prosecution to prosper, the following requisites must be proven by petitioner:
(1) the fact of prosecution and the further fact that the defendant (respondent) was
himself the prosecutor, and that the action finally terminated with an acquittal; (2) that in
bringing the action, the prosecutor acted without probable cause; and (3) that the
prosecutor was actuated or impelled by legal malice, that is, by improper or sinister
motive. The foregoing are necessary to preserve a persons right to litigate which may be
emasculated by the undue filing of malicious prosecution cases.
From the foregoing requirements, it can be inferred that malice and want of
probable cause must both be clearly established to justify an award of damages based on
malicious prosecution. DLPC was not motivated by malicious intent or by a sinister
design to unduly harass petitioner, but only by a well-founded anxiety to protect its
rights. Respondent DLPC cannot therefore be faulted in availing of the remedies
provided for by law.

Page | 98

YASOA VS. DE RAMOS


GR No. 156339 October 6, 2004
FACTS:
Aurea Yasoa and her son, Saturnino, went to the house of Jovencio de Ramos to
ask for financial assistance in paying their loans to Philippine National Bank (PNB),
otherwise their residential house and lot would be foreclosed. Inasmuch as Aurea was his
aunt, Jovencio acceded to the request. They agreed that, upon payment by Jovencio of the
loan to PNB, half of Yasoas subject property would be sold to him. Jovencio paid
Aureas bank loan. As agreed upon, Aurea executed a deed of absolute sale in favor of
Jovencio over half of the lot consisting of 123 square meters. Thereafter, the lot was
surveyed and separate titles were issued by the Register of Deeds of Sta. Cruz, Laguna in
the names of Aurea and Jovencio
Twenty-two years later, in August 1993, Aurea filed an estafa complaint against
brothers Jovencio and Rodencio de Ramos on the ground that she was deceived by them
when she asked for their assistance in 1971 concerning her mortgaged property. In her
complaint, Aurea alleged that Rodencio asked her to sign a blank paper on the pretext
that it would be used in the redemption of the mortgaged property
On February 21, 1994, Assistant Provincial Prosecutor Rodrigo B. Zayenis
dismissed the criminal complaint for estafa for lack of evidence. On account of this
dismissal, Jovencio and Rodencio filed a complaint for damages on the ground of
malicious prosecution. They alleged that the filing of the estafa complaint against them
was done with malice and it caused irreparable injury to their reputation, as Aurea knew
fully well that she had already sold half of the property to Jovencio.
ISSUE:
Whether or not the filing of the criminal complaint for estafa by petitioners
against respondents constituted malicious prosecution?
RULING:
To constitute malicious prosecution, there must be proof that the prosecution
was prompted by a sinister design to vex or humiliate a person, and that it was initiated
deliberately by the defendant knowing that his charges were false and groundless.
Concededly, the mere act of submitting a case to the authorities for prosecution does not
make one liable for malicious prosecution.
In this case, the records show that the sale of the property was evidenced by a
deed of sale duly notarized and registered with the local Register of Deeds. After the
execution of the deed of sale, the property was surveyed and divided into two portions.
Separate titles were then issued in the names of Yasoa and Jovencio. Since 1973,
Jovencio had been paying the realty taxes of the portion registered in his name. In 1974,
Aurea even requested Jovencio to use his portion as bond for the temporary release of her
son who was charged with malicious mischief. Also, when Aurea borrowed money from
the Rural Bank of Lumban in 1973 and the PNB in 1979, only her portion was
mortgaged.
All these pieces of evidence indicate that Aurea had long acknowledged Jovencios
ownership of half of the property. Furthermore, it was only in 1993 when petitioners
decided to file the estafa complaint against respondents. If petitioners had honestly
believed that they still owned the entire property, it would not have taken them 22 years
to question Jovencios ownership of half of the property.
Malicious prosecution, both in criminal and civil cases, requires the elements of (1)
malice and (2) absence of probable cause.These two elements are present in the present
controversy. The complaint for estafa was dismissed outright as the prosecutor did not
find any probable cause against respondents. A suit for malicious prosecution will
prosper where legal prosecution is carried out without probable cause.
Page | 99

PEOPLE VS. DELOS SANTOS


GR No. 131588 March 27, 2001
FACTS:
Philippine National Police (PNP), undergoing a Special Training Course (Scout
Class 07-95), wearing black T-shirts and black short pants, performing an "Endurance
Run" of 35 kilometers coming from their camp in Manolo Fortich, Bukidnon, heading to
Regional Training Headquarters in Camp Alagar, Cagayan de Oro City, running in a
column of 3, with a distance of two feet, more or less, from one trainee to another, thus
forming a three lines, with a length of more or less 50 meters from the 1 st man to the last
man, unable to defend themselves, because the accused ran or moved his driven vehicle
on the direction of the backs of the PNP joggers in spite of the continuous warning
signals made by six of the joggers, namely: PO1 Allan Tabacon Espana, Waldon Sinda
Sacro, Lemuel Ybanez Pangca, Artemio Jamil Villaflor, Nardo Omasas Collantes and
Joselito Buyser Escartin, who were at the rear echelon of said run, acting as guards, by
continuously waving their hands at the accused for him to take the left lane of the
highway, going to the City proper, from a distance of 100 meters away from the joggers
rear portion, but which accused failed and refused to heed; instead, he proceeded to
operate his driven vehicle (an Isuzu Elf) on high speed directly towards the joggers, thus
forcing the rear hitting, bumping, or ramming the first four (4) victims, causing the
bodies to be thrown towards the windshields of said Isuzu Elf, breaking said windshield,
and upon being aware that bodies of the victims flew on the windshield of his driven
vehicle, instead of applying his brake, continued to travel on a high speed, this time
putting off its headlights, thus hitting the succeeding joggers on said 1 st line, as a result
thereof killed them.
ISSUE:
Whether or not accused is guilty beyond reasonable doubt of the complex crime
of multiple murder, multiple frustrated murder, and multiple attempted multiple murder.
RULING:
It is a well-entrenched rule that if the inculpatory facts are capable of two or more
explanations one consistent with the innocence or lesser degree of liability of the
accused, and the other consistent with his guilt or graver responsibility the Court should
adopt the explanation which is more favorable to the accused.
The incident, tragic though it was in light of the number of persons killed and
seriously injured, was an accident and not an intentional felony. It is significant to note
that there is no shred of evidence that accused had an axe to grind against the police
trainees that would drive him into deliberately hitting them with intent to kill.
The test for determining whether a person is negligent in doing an act whereby
injury or damage results to the person or property of another is this: Could a prudent man,
in the position of the person to whom negligence is attributed, foresee harm to the person
injured as a reasonable consequence of the course actually pursued? If so, the law
imposes a duty on the actor to refrain from that course or to take precautions to guard
against its mischievous results, and the failure to do so constitutes negligence.
Reasonable foresight of harm, followed by the ignoring of the admonition born of this
prevision, is always necessary before negligence can be held to exist.
Accused showed an inexcusable lack of precaution. Article 365 of the Revised
Penal Code states that reckless imprudence consists in voluntarily, but without malice,
doing or failing to do an act from which material damage results by reason of inexcusable
lack of precaution on the part of the person performing or failing to perform such act,
taking into consideration (1) his employment or occupation; (2) his degree of
intelligence; (4) his physical condition; and (3) other circumstances regarding persons,
time
Page | 100

Considering that the incident was not a product of a malicious intent but rather the
result of a single act of reckless driving, should be held guilty of the complex crime of
reckless imprudence resulting in multiple homicide with serious physical injuries and less
serious physical injuries.
Article 48 of the Revised Penal Code provides that when the single act constitutes
two or more grave or less grave felonies, or when an offense is a necessary means for
committing the other, the penalty for the most serious crime shall be imposed, the same
to be applied in its maximum period. Since Article 48 speaks of felonies, it is applicable
to crimes through negligence in view of the definition of felonies in Article 3 as "acts or
omissions punishable by law" committed either by means of deceit {dolo) or fault
(culpa).
WHEREFORE, accused-appellant GLENN DE LOS SANTOS guilty beyond
reasonable doubt of (1) the complex crime of reckless imprudence resulting in multiple
homicide with serious physical injuries and less serious physical injuries, and sentencing
him to suffer an indeterminate penalty of four (4) years of prision correccional, as
minimum, to ten (10) years of prision mayor, as maximum; and (2) ten (10) counts of
reckless imprudence resulting in slight physical injuries and sentencing him, for each
count, to the penalty of two (2) months of arresto mayor. Furthermore, the awards of
death indemnity for each group of heirs of the trainees killed are reduced to P50,000; and
the awards in favor of the other victims are deleted.

Page | 101

MAGAT VS. MEDIALDEA


L-37120 April 20, 1983
FACTS:
That sometime in September 1972, the defendant entered into a contract with the
U.S. Navy Exchange, Subic Bay, Philippines, for the operation of a fleet of taxicabs, each
taxicab to be provided with the necessary taximeter and a radio transceiver for receiving
and sending of messages from mobile taxicab to fixed base stations within the Naval
Base at Subic Bay, Philippines.
ISSUE:
Whether or not there is contravention of the terms.
RULING:
After a thorough examination of the complaint at bar, We find the test of legal
sufficiency of the cause of action adequately satisfied. In a methodical and logical
sequence, the complaint recites the circumstances that led to the perfection of the contract
entered into by the parties. It further avers that while petitioner had fulfilled his part of
the bargain, private respondent failed to comply with his correlative obligation by
refusing to open a letter of credit to cover payment of the goods ordered by him and that
consequently, petitioner suffered not only loss of his expected profits, but moral and
exemplary damages as well. From these allegations, the essential elements of a cause of
action are present, to wit: the existence of a legal right to the plaintiff; a correlative duty
of the defendant and an act or omission of the defendant in violation of the plaintiff's
right, with consequent injury or damage to the latter for which he may maintain an action
for recovery of damages or other appropriate relief.
Indisputably, the parties, both businessmen, entered into the aforesaid contract
with the evident intention of deriving some profits therefrom. Upon breach of the contract
by either of them, the other would necessarily suffer loss of his expected profits. Since
the loss comes into being at the very moment of breach, such loss is real, "fixed and
vested" and, therefore, recoverable under the law.
Article 1170 of the Civil Code provides:
"Those who in the performance of their obligation are guilty of fraud, negligence,
or delay, and those who in any manner contravene the tenor thereof are liable for
damages."
The phrase "in any manner contravene the tenor" of the obligation includes any
illicit act or omission which impairs the strict and faithful fulfillment of the obligation
and every kind of defective performance.
The damages which the obligor is liable for includes not only the value of the loss
suffered by the obligee [dao emergente] but also the profits which the latter failed to
obtain [lucro cesante]. If the obligor acted in good faith, he shall be liable for those
damages that are the natural and probable consequences of the breach of the obligation
and which the parties have foreseen or could have reasonably foreseen at the time the
obligation was constituted; and in case of fraud, bad faith, malice or wanton attitude, he
shall be liable for all damages which may be reasonably attributed to the nonperformance
of the obligation

Page | 102

VDA. DE MISTICA VS. NAGUIAT


GR. No 137909 December 11, 2003
FACTS:
Eulalio Mistica, predecessor-in-interest of herein petitioner, is the owner of a
parcel of land. A portion thereof was leased to [Respondent Bernardino Naguiat]
sometime in 1970. On 5 April 1979, Eulalio Mistica entered into a contract to sell with
Respondent Naguiat over a portion of the aforementioned lot containing an area of 200
square meters.
Pursuant to said agreement, Respondent Bernardino Naguiat gave a downpayment
of P2,000.00. He made another partial payment of P1,000.00 on 7 February 1980. He
failed to make any payments thereafter. Eulalio Mistica died sometime in October 1986.
On 4 December 1991, petitioner filed a complaint for rescission alleging inter
alia: that the failure and refusal of respondents to pay the balance of the purchase price
constitutes a violation of the contract which entitles her to rescind the same; that
[respondents] have been in possession of the subject portion and they should be ordered
to vacate and surrender possession of the same to petitioner.
Respondents
contended that the contract cannot be rescinded on the ground that it clearly stipulates
that in case of failure to pay the balance as stipulated, a yearly interest of 12% is to be
paid. Likewise alleged that sometime in October 1986, during the wake of the late
Eulalio Mistica, he offered to pay the remaining balance to petitioner but the latter
refused and hence, there is no breach or violation committed by them and no damages
could yet be incurred by the late Eulalio Mistica, his heirs or assigns pursuant to the said
document.
ISSUE:
Whether petitioner may rescind the contract.
RULING:
Disallowing rescission, the CA held that respondents did not breach the Contract
of Sale. It explained that the conclusion of the ten-year period was not a resolutory term,
because the Contract had stipulated that payment -- with interest of 12 percent -- could
still be made if respondents failed to pay within the period. According to the appellate
court, petitioner did not disprove the allegation of respondents that they had tendered
payment of the balance of the purchase price during her husbands funeral, which was
well within the ten-year period.
Moreover, rescission would be unjust to respondents, because they had already
transferred the land title to their names. The proper recourse, the CA held, was to order
them to pay the balance of the purchase price, with 12 percent interest.
Petitioner claims that she is entitled to rescind the Contract under Article 1191 of
the Civil Code, because respondents committed a substantial breach when they did not
pay the balance of the purchase price within the ten-year period.
We disagree. The transaction between Eulalio Mistica and respondents, as
evidenced by the Kasulatan, was clearly a Contract of Sale. A deed of sale is considered
absolute in nature when there is neither a stipulation in the deed that title to the property
sold is reserved to the seller until the full payment of the price; nor a stipulation giving
the vendor the right to unilaterally resolve the contract the moment the buyer fails to pay
within a fixed period. The CA further ruled that rescission in this case would be unjust to
respondents, because a certificate of title had already been issued in their names.

Page | 103

CO VS. CA
GR No. 112330 August 17, 1999
FACTS:
Plaintiff entered into a verbal contract with defendant for her purchase of the
latters house and lot located at 316 Beata St., New Alabang Village, Muntinlupa, Metro
Manila, for and in consideration of the sum of $100,000.00. One week thereafter, and
shortly before she left for the United States, plaintiff paid to the defendants the amounts
of $1,000.00 and P40,000.00 as earnest money, in order that the same may be reserved
for her purchase, said earnest money to be deducted from the total purchase price. The
purchase price of $100,000.00 is payable in two payments $40,000.00 on December 4,
1984 and the balance of $60,000.00 on January 5, 1985. On January 25, 1985, although
the period of payment had already expired, plaintiff paid to the defendant Melody Co in
the United States, the sum of $30,000.00, as partial payment of the purchase price.
Defendants counsel, Atty. Leopoldo Cotaco, wrote a letter to the plaintiff dated March
15, 1985, demanding that she pay the balance of $70,000.00 and not receiving any
response thereto, said lawyer wrote another letter to plaintiff dated August 8, 1986,
informing her that she has lost her option to purchase the property subject of this case
and offered to sell her another property.
ISSUE:
Whether or not the Court of Appeals erred in ordering the COS to return the
$30,000.00 paid by Custodio pursuant to the option granted to her over the Beata
property?
RULING:
The COS main argument is that Custodio lost her option over the Beata
property and her failure to exercise said option resulted in the forfeiture of any amounts
paid by her pursuant to the August letter.
An option is a contract granting a privilege to buy or sell within an agreed time
and at a determined price.
Article 1479.
An accepted unilateral promise to buy or to sell a determinate thing for a price
certain is binding upon the promissor if the promise is supported by a consideration
distinct from the price.
However, the March 15, 1985 letter sent by the COS through their lawyer to the
Custodio reveals that the parties entered into a perfected contract of sale and not an
option contract.
In the case at bar, the property involved has not been delivered to the appellee.
She has therefore nothing to return to the appellants. The price received by the appellants
has to be returned to the appellee as aptly ruled by the lower court, for such is a
consequence of rescission, which is to restore the parties in their former situations.

Page | 104

UNIVERSAL FOOD CORPORATION VS. CA


L-29155 February 22, 1971
FACTS:
The petitioner contends that (a) under the terms of the Bill of Assignment, exh. A,
the respondent Magdalo V. Francisco ceded and transferred to the petitioner not only the
right to the use of the formula for Mafran sauce but also the formula itself, because this,
allegedly, was the intention of the parties; (b) that on the basis of the entire evidence on
record and as found by the trial court, the petitioner did not dismiss the respondent
Francisco because he was, and still is, a member of the board of directors, a stockholder,
and an officer of the petitioner corporation, and that as such, had actual knowledge of the
resumption of production by the petitioner, but that despite such knowledge, he refused to
report back for work notwithstanding the petitioner's call for him to do so; (c) that the
private respondents are not entitled to rescind the Bill of Assignment; and (d) that the
evidence on record shows that the respondent Francisco was the one not ready, willing
and able to comply with his obligations under the Bill of Assignment, in the sense that he
not only irregularly reported for work but also failed to assign, transfer and convey to the
petitioner of the said deed of conveyance.
ISSUE:
Whether respondent Francisco ceded to the petitioner merely the use of the
formula for Mafran sauce and not the formula itself.
RULING:
The Court concluded that what was actually ceded and transferred was only the use of
the Mafran sauce formula. The fact that the trademark "Mafran" was duly registered in
the name of the petitioner pursuant to the Bill of Assignment, standing by itself alone, to
borrow the petitioner's language, is not sufficient proof that the respondent Francisco was
supposedly obligated to transfer and cede to the petitioner the formula for Mafran sauce
and not merely its use. For the said respondent allowed the petitioner to register the
trademark for purposes merely of the "marketing of said project."

Page | 105

UNIVERSITY OF THE PHILIPPINES VS. DELOS ANGELES


L-28602 September 29, 1970
FACTS:
UP and ALUMCO entered into a logging agreement under which the latter was
granted exclusive authority, for a period starting from the date of the agreement to 31
December 1965, extendible for a further period of five (5) years by mutual agreement, to
cut, collect and remove timber from the Land Grant, in consideration of payment to UP
of royalties, forest fees, etc.; that ALUMCO cut and removed timber therefrom but, as of
8 December 1964, it had incurred an unpaid account of P219,362.94, which, despite
repeated demands, it had failed to pay; that after it had received notice that UP would
rescind or terminate the logging agreement, ALUMCO executed an instrument, entitled
"Acknowledgment of Debt and Proposed Manner of Payments," dated 9 December 1964,
which was approved by the president of UP. ALUMCO continued its logging operations,
but again incurred an unpaid account, for the period from 9 December 1964 to 15 July
1965, in the amount of P61,133.74, in addition to the indebtedness that it had previously
acknowledged.
That on 19 July 1965, petitioner UP informed respondent ALUMCO that it had,
as of that date, considered as rescinded and of no further legal effect the logging
agreement that they had entered in 1960.
That before the issuance of the aforesaid preliminary injunction UP had taken
steps to have another concessionaire take over the logging operation, and the concession
was awarded to Sta. Clara Lumber Company, Inc.
ISSUE:
Whether petitioner U.P. can treat its contract with ALUMCO rescinded, and may
disregard the same before any judicial pronouncement to that effect.
RULING:
Respondent ALUMCO contended, and the lower court, in issuing the injunction
order of 25 February 1966. apparently sustained it (although the order expresses no
specific findings in this regard), that it is only after a final court decree declaring the
contract rescinded for violation of its terms that U.P. could disregard ALUMCO's rights
under the contract and treat the agreement as breached and of no force or effect.
UP and ALUMCO had expressly stipulated in the "Acknowledgment of Debt and
Proposed Manner of Payments" that, upon default by the debtor ALUMCO, the creditor
(UP) has "the right and the power to consider the Logging Agreement dated 2 December
1960 as rescinded without the necessity of any judicial suit." "There is nothing in the law
that prohibits the parties from entering into agreement that violation of the terms of the
contract would cause cancellation thereof, even without court intervention. In other
words, it is not always necessary for the injured party to resort to court for rescission of
the contract."
In other words, the party who deems the contract violated may consider it
resolved or rescinded, and act accordingly, without previous court action, but it proceeds
at its own risk. For it is only the final judgment of the corresponding court that will
conclusively and finally settle whether the action taken was or was not correct in law. But
the law definitely does not require that the contracting party who believes itself injured
must first file suit and wait for a judgment before taking extrajudicial steps to protect its
interest. Otherwise, the party injured by the other's breach will have to passively sit and
watch its damages accumulate during the pendency of the suit until the final judgment of
rescission is rendered when the law itself requires that he should exercise due diligence to
minimize its own damages.

Page | 106

FRANCISCO VS. DEAC CONSTRUCTION, INC.


GR No. 171312 February 4, 2008
FACTS:
Spouses Francisco obtained the services of DEAC Construction, Inc. to construct
a 3-storey residential building with mezzanine and roof deck on their lot for a contract
price of 3.5M. as agreed upon, a downpayment of 2M should be paid upon signing of the
construct of construction, and the remaining balance of 1.5M was to be paid in two equal
installments. To undertake the said project, DEAC engaged the services of a subcontractor, Vigor Construction and Development Corporation, but allegedly without the
spouses knowledge and consent.
Even prior to the execution of the contract, spouses Francisco had paid the
downpayment. However, the said construction commenced although DEAC had not yet
obtained the necessary building permit for the proposed construction and that the
contractor deviated from the approved plans.
Spouses Francisco demanded DEAC to comply with the approved plan,
otherwise, they would be compelled to invoke legal remedies. Work stoppage was issued
against Lino Francisco pursuant to the previous Notice of Violations. The plaintiffs then
file civil case for Rescission of Contract and Damages against DEAC.
ISSUE:
Whether or not spouses Francisco may rescind the contract.
RULING:
Article 1191 of the Civil Code provides that the power to rescind obligations is
implied in reciprocal ones, in case one of the obligors should not comply with what is
incumbent upon him. The rescission referred to in this article, more appropriately referred
to a resolution, is not predicated on injury to economic interests on the part of the party
plaintiff, but of breach of faith by the defendant which is violative of the reciprocity
between the parties.
Given the fact that the construction in this case is already 75% complete, that trial
court was correct in ordering partial rescission of the portion of the construction.
Equitable considerations justify rescission of the portion of the obligation which has not
been delivered

Page | 107

SPS. FELIPE AND LETICIA CANNU versus SPS. GIL AND FERNANDINA
GALANG AND NATIONAL HOME MORTGAGE FINANCE CORPORATION
G.R. No. 139523
2005 May 26
FACTS:
Respondents-spouses Gil and Fernandina Galang obtained a loan from Fortune
Savings & Loan Association for P173,800.00 to purchase a house and lot located at
Pulang Lupa, Las Pias, in the names of respondents-spouses. To secure payment, a real
estate mortgage was constituted on the said house and lot in favor of Fortune Savings &
Loan Association. In early 1990, NHMFC purchased the mortgage loan of respondentsspouses from Fortune Savings & Loan Association for P173,800.00. Petitioner Leticia
Cannu agreed to buy the property for P120,000.00 and to assume the balance of the
mortgage obligations with the NHMFC and with CERF Realty (the Developer of the
property).
A Deed of Sale with Assumption of Mortgage Obligation dated 20 August 1990
was made and entered into by and between spouses Fernandina and Gil Galang (vendors)
and spouses Leticia and Felipe Cannu (vendees) over the house and lot and petitioners
immediately took possession and occupied the house and lot. However, despite requests
from Adelina R. Timbang and Fernandina Galang to pay the balance of P45,000.00 or in
the alternative to vacate the property in question, petitioners refused to do so. Because the
Cannus failed to fully comply with their obligations, respondent Fernandina Galang, on
21 May 1993, paid P233,957.64 as full payment of her remaining mortgage loan with
NHMFC.
From 1991 until the present, no other payments were made by plaintiffsappellants to defendants-appellees spouses Galang. Out of the P250,000.00 purchase
price which was supposed to be paid on the day of the execution of contract in July, 1990
plaintiffs-appellants have paid, in the span of eight (8) years, from 1990 to present, the
amount of only P75,000.00. Plaintiffs-appellants should have paid the P250,000.00 at the
time of the execution of contract in 1990. Eight (8) years have already lapsed and
plaintiffs-appellants have not yet complied with their obligation.
ISSUE:
Whether or not the action for rescission was subsidiary, and that there was a
substantial breach of the obligation.
RULING:
Rescission or, more accurately, resolution, of a party to an obligation under
Article 1191 is predicated on a breach of faith by the other party that violates the
reciprocity between them.
Art. 1191 states that the power to rescind obligations is implied in reciprocal ones,
in case one of the obligors should not comply with what is incumbent upon him. The
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.
Rescission will not be permitted for a slight or casual breach of the contract.
Rescission may be had only for such breaches that are substantial and fundamental as to
defeat the object of the parties in making the agreement. The question of whether a
breach of contract is substantial depends upon the attending circumstances and not
merely on the percentage of the amount not paid.
Page | 108

Thus, the petitioners failure to pay the remaining balance of P45,000.00 is


substantial. Even assuming arguendo that only said amount was left out of the supposed
consideration of P250,000.00, or eighteen percent thereof, this percentage is still
substantial. Their failure to fulfill their obligation gave the respondents-spouses Galang
the right to rescission.
Also, there was no waiver on the part of petitioners to demand the rescission of
the Deed of Sale with Assumption of Mortgage. The fact that respondents-spouses
accepted, through their attorney-in-fact, payments in installments does not constitute
waiver on their part to exercise their right to rescind the Deed of Sale with Assumption of
Mortgage. Adelina Timbang merely accepted the installment payments as an
accommodation to petitioners since they kept on promising they would pay. However,
after the lapse of considerable time (18 months from last payment) and the purchase price
was not yet fully paid, respondents-spouses exercised their right of rescission when they
paid the outstanding balance of the mortgage loan with NHMFC. It was only after
petitioners stopped paying that respondents-spouses moved to exercise their right of
rescission.
The subsidiary character of the action for rescission applies to contracts
enumerated in Articles 1381 of the Civil Code. However, the contract involved in the
case is not one of those mentioned therein. The provision that applies in the case at bar is
Article 1191. Rescission under Article 1191 is a principal action, while rescission under
Article 1383 is a subsidiary action. The former is based on breach by the other party that
violates the reciprocity between the parties, while the latter is not.
In the case at bar, the reciprocity between the parties was violated when petitioners
failed to fully pay the balance of P45,000.00 to respondents-spouses and their failure to
update their amortizations with the NHMFC. Therefore, the Spouses Gil and Fernandina
Galang are ordered to return the partial payments made by petitioners in the amount of
P165,312.47.

Page | 109

GENEROSO VILLANUEVA and RAUL VILLANUEVA JR.. versus ESTATE OF


GERARDO GONZAGA/ MA. VILLA GONZAGA in her capacity as
Administratrix
G.R. No. 15731 2006 August 09
FACTS:
On January 15, 1990, petitioners Generoso Villanueva and Raul Villanueva, Jr.,
business entrepreneurs engaged in the operation of transloading stations and sugar
trading, and respondent Estate of Gerardo L. Gonzaga, represented by its Judicial
Administratrix, respondent Ma. Villa J. Gonzaga, executed a MOA.
As stipulated in the agreement, petitioners introduced improvements after paying
P291,600.00 constituting sixty (60%) percent of the total purchase price of the lots.
Petitioners then requested permission from respondent Administratrix to use the premises
for the next milling season. Respondent refused on the ground that petitioners cannot use
the premises until full payment of the purchase price. Petitioners informed respondent
that their immediate use of the premises was absolutely necessary and that any delay will
cause them substantial damages. Respondent remained firm in her refusal, and demanded
that petitioners stop using the lots as a transloading station to service the Victorias
Milling Company unless they pay the full purchase price. In a letter-reply dated April 5,
1991, petitioners assured respondent of their readiness to pay the balance but reminded
respondent of her obligation to redeem the lots from mortgage with the Philippine
National Bank (PNB). Petitioners gave respondent ten (10) days within which to do so.
On April 10, 1991, respondent Administratrix wrote petitioners informing them
that the PNB had agreed to release the lots from mortgage. She demanded payment of the
balance of the purchase price. Enclosed with the demand letter was the PNBs letter of
approval dated April 8, 1991. Petitioners demanded that respondent show the clean titles
to the lots first before they pay the balance of the purchase price. Respondent merely
reiterated the demand for payment. Petitioners stood pat on their demand.
On May 28, 1991, respondent Administratrix executed a Deed of Rescission
rescinding the MOA. In their Letter dated June 13, 1991, petitioners, through counsel,
formally demanded the production of the titles to the lots before they pay the balance of
the purchase price. The demand was ignored. Consequently, on June 19, 1991, petitioners
filed a complaint against respondents for breach of contract, specific performance and
damages before the RTC-Bacolod City. The trial court decided the case in favor of
respondents. Petitioners filed a petition for review before the Court of Appeals. The Court
of Appeals affirmed the trial courts decision but deleted the award for moral damages on
the ground that petitioners were not guilty of bad faith in refusing to pay the balance of
the purchase price.
ISSUE:
Whether there is legal, or even a factual, ground for the rescission of the
Memorandum of Agreement.
RULING:
There is no legal basis for the rescission. The remedy of rescission under Art.
1191 of the Civil Code is predicated on a breach of faith by the other party that violates
the reciprocity between them. The court have held in numerous cases that the remedy
does not apply to contracts to sell.
In Santos v. Court of Appeals, in a contract to sell, title remains with the vendor
and does not pass on to the vendee until the purchase price is paid in full. Thus, in a
contract to sell, the payment of the purchase price is a positive suspensive condition.
Failure to pay the price agreed upon is not a mere breach, casual or serious, but a
situation that prevents the obligation of the vendor to convey title from acquiring an
obligatory force. This is entirely different from the situation in a contract of sale, where
Page | 110

non-payment of the price is a negative resolutory condition. The effects in law are not
identical. In a contract of sale, the vendor has lost ownership of the thing sold and cannot
recover it, unless the contract of sale is rescinded and set aside. In a contract to sell,
however, the vendor remains the owner for as long as the vendee has not complied fully
with the condition of paying the purchase price. If the vendor should eject the vendee for
failure to meet the condition precedent, he is enforcing the contract and not rescinding it.
The MOA between petitioners and respondents is a conditional contract to sell.
Ownership over the lots is not to pass to the petitioners until full payment of the purchase
price. Petitioners obligation to pay, in turn, is conditioned upon the release of the lots
from mortgage with the PNB to be secured by the respondents. Although there was no
express provision regarding reserved ownership until full payment of the purchase price,
the intent of the parties in this regard is evident from the provision that a deed of absolute
sale shall be executed only when the lots have been released from mortgage and the
balance paid by petitioners. Since ownership has not been transferred, no further legal
action need have been taken by the respondents, except an action to recover possession in
case petitioners refuse to voluntarily surrender the lots.
The records show that the lots were finally released from mortgage in July 1991.
Petitioners have always expressed readiness to pay the balance of the purchase price once
that is achieved. Hence, petitioners should be allowed to pay the balance now, if they so
desire, since it is established that respondents demand for them to pay in April 1991 was
premature. However, petitioners may not demand production by the respondents of the
titles to the lots as a condition for their payment. It was not required under the MOA. The
MOA merely states that petitioners shall pay the balance upon approval by the PNB of
the release of the lots from mortgage. Petitioners may not add further conditions now.
Obligations arising from contracts have the force of law between the contracting parties
and should be complied with in good faith.
Thus, the petiotion is GRANTED, an the assailed decision is REVERSED and
SET ASIDE.

Page | 111

SPOUSES DOMINGO and LOURDES PAGUYO versus Pierre Astorga and St.
Andrew Realty, Inc.
G.R. No. 130982
2005 September 16
FACTS:
Spouses Domingo Paguyo and Lourdes Paguyo, were the owners of a small fivestorey building known as the Paguyo Building located at Makati Avenue, corner Valdez
Street, Makati City. The lot on which the Paguyo Building stands was the subject of
Civil Case wherein the RTC of Makati City, Branch 57, rendered a decision on 20
January 1988 approving a Compromise Agreement made between the Armases and the
petitioners. The compromise agreement provided that in consideration of the total sum of
One Million Seven Hundred Thousand Pesos (P1,700,000.00), the Armases committed to
execute in favor of petitioners a deed of sale and/or conveyance assigning and
transferring unto said petitioners all their rights and interests over the parcel of land
containing an area of 299 square meters. In order for the petitioners to complete their title
and ownership over the lot in question, there was an urgent need to make complete
payment to the Armases, which at that time stood at P917,470.00 considering that
petitioners had previously made partial payments to the Armases.
On 29 November 1988, in order to raise the much needed amount, petitioner
Lourdes Paguyo entered into an agreement captioned as Receipt of Earnest Money with
respondent Pierre Astorga, for the sale of the formers property consisting of the lot
which was to be purchased from the Armases, together with the improvements thereon,
particularly, the existing building known as the Paguyo Building. However, contrary to
their express representation with respect to the subject lot, petitioners failed to comply
with their obligation to acquire the lot from the Armas family despite the full financial
support of respondents. Nevertheless, the parties maintained their business relationship
under the terms and conditions of the above-mentioned Receipt of Earnest Money.
On 12 December 1988, petitioners asked for and were given by respondents an
additional P50,000.00 to meet the formers urgent need for money in connection with
their construction business. Thus, on 5 January 1989, the parties executed the four
documents in question namely, the Deed of Absolute Sale of the Paguyo Building, the
Mutual Undertaking, the Deed of Real Estate Mortgage, and the Deed of Assignment of
Rights and Interest. Simultaneously with the signing of the four documents, respondents
paid petitioners the additional amount of P500,000.00. Thereafter, the respondents
renamed the Paguyo Building into GINZA Bldg. and registered the same in the name of
respondent St. Andrew Realty, Inc. at the Makati Assessors Office after paying accrued
real estate taxes in the total amount of P169,174.95.
On 06 October 1989, petitioners filed a Complaint for the rescission of the
Receipt of Earnest Money with the undertaking to return the sum of P763,890.50. They
also sought the rescission of the Deed of Real Estate Mortgage, the Mutual Undertaking,
the Deed of Absolute Sale of Building, and the Deed of Assignment of Rights and
Interest.
After trial, the RTC ruled in favor of respondents. The petition for preliminary injunction
is denied, and the court ordered the plaintiff spouses Domingo and Lourdes Paguyo to
pay the defendants Pierre Astorga and St. Andrew Realty, Inc. on their counterclaim. On
appeal, the Court of Appeals affirmed the decision of the trial court
ISSUE:
Did the Court of Appeals err in upholding the trial courts decision denying
petitioners complaint for rescission?

Page | 112

RULING:
No. The right to rescind a contract involving reciprocal obligations is provided for
in Article 1191 of the Civil Code. Article 1191 states: 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.
Moreover, Articles 1355 and 1470 of the Civil Code state: Art. 1355. Except in
cases specified by law, lesion or inadequacy of cause shall not invalidate a contract,
unless there has been fraud, mistake or undue influence. Art. 1470. Gross inadequacy of
price does not affect a contract of sale, except as may indicate a defect in the consent, or
that the parties really intended a donation or some other act or contract.
Petitioners failed to prove any of the instances mentioned in Articles 1355 and
1470 of the Civil Code, which would invalidate, or even affect, the Deed of Sale of the
Building and the related documents. Indeed, there is no requirement that the price be
equal to the exact value of the subject matter of sale. In sum, petitioners pray for
rescission of the Deed of Sale of the building and offer to repay the purchase price after
their liquidity position would have improved and after respondents would have
refurbished the building, updated the real property taxes, and turned the building into a
profitable business venture. The court stated however that, it will not allow itself to be an
instrument to the dissolution of contract validly entered into, for a party should not, after
its opportunity to enjoy the benefits of an agreement, be allowed to later disown the
arrangement when the terms thereof ultimately would prove to operate against its hopeful
expectations.
WHEREFORE, the Decision of the Court of Appeals is AFFIRMED with
MODIFICATION.

Page | 113

BIENVENIDO M. CASIO, JR. versus THE COURT OF APPEALS and


OCTAGON REALTY DEVELOPMENT CORPORATION
G.R. No. 133803
2005 September 16
FACTS:
On October 2, 1991, respondent Octagon Realty Development Corporation, filed
a complaint for rescission of contract with damages against petitioner Bienvenido M.
Casio, Jr., owner and proprietor of the Casio Wood Parquet and Sanding Services,
relative to the parties agreement for the supply and installation by petitioner of narra
wood parquet ordered by respondent.
In its complaint, respondent alleges that on December 22, 1989, it entered into a
contract with petitioner for the supply and installation by the latter of narra wood parquet
(kiln dried) to the Manila Luxury Condominium Project, of which respondent is the
developer, for a total price of P1,158,487.00; that the contract stipulated that full delivery
by petitioner of labor and materials was in May 1990; that in accordance with the terms
of payment in the contract, respondent paid to petitioner the amount P463,394.50,
representing 40% of the total contract price; that after delivering only 26,727.02 sq.
ft. of wood parquet materials, petitioner incurred in delay in the delivery of the
remainder of 34,245.98 sq. ft.; that petitioner misrepresented to respondent that he is
qualified to do the work contracted when in truth and in fact he was not and, furthermore,
he lacked the necessary funds to execute the work as he was totally dependent on
the funds advanced to him by respondent; that due to petitioners unlawful and malicious
refusal to comply with its obligations, respondent incurred actual damages in the
amount of P912,452.39 representing estimated loss on the new price, unliquidated
damages and cost of money; that in order to minimize losses, the respondent contracted
the services of Hilvano Quality Parquet and Sanding Services to complete the petitioners
unfinished work, respondent thereby agreeing to pay the latter P1,198,609.30.
However, petitioner avers that the manner of payment, period of delivery and
completion of work and/or full delivery of labor and materials were modified; that the
delivery and completion of the work could not be done upon the request and/or
representations by the respondent because he failed to make available and/or to prepare
the area in a suitable manner for the work contracted, preventing the petitioner from
complying with the delivery schedule under the contract; that petitioner delivered the
required materials and performed the work despite these constraints; that the respondent
failed to pay the petitioners second and third billings for deliveries and work performed
in the sum of P105,425.68, which amount the petitioner demanded from the respondent
with the warning of suspension of deliveries or rescission for contract for non-payment;
that it was the respondent who failed to prepare the area suitable for the delivery and
installation of the wood parquet, respondent who advised or issued orders to the
petitioner to suspend the delivery and installation of the wood parquet, which created a
storage problem for the petitioner.

ISSUE:
Whether or not the rescission of the contract by the private respondent is valid.
RULING:
Under the contract, petitioner and respondent had respective obligations, i.e., the
former to supply and deliver the contracted volume of narra wood parquet materials and
install the same at respondents condominium project by May, 1990, and the latter, to pay
for said materials in accordance with the terms of payment set out under the parties
agreement. But while respondent was able to fulfill that which is incumbent upon it by
Page | 114

making a downpayment representing 40% of the agreed price upon the signing of the
contract and even paid the first billing of petitioner, the latter failed to comply with his
contractual commitment. For, after delivering only less than one-half of the contracted
materials, petitioner failed, by the end of the agreed period, to deliver and install the
remainder despite demands for him to do so. Thus, it is petitioner who breached the
contract.
The petitioner therefore, has failed to comply with his prestations under his
contract with respondent, the latter is vested by law with the right to rescind the parties
agreement, conformably with Article 1191 of the Civil Code.
However, the right to rescind a contract for non-performance of its stipulations is
not absolute. The general rule is that rescission of a contract will not be permitted for a
slight or casual breach, but only for such substantial and fundamental violations as would
defeat the very object of the parties in making the agreement. Contrary to petitioners
asseveration, the breach he committed cannot, by any measure, be considered as slight
or casual. For petitioners failure to make complete delivery and installation way beyond
the time stipulated despite respondents demands, is doubtless a substantial and
fundamental breach, more so when viewed in the light of the large amount of money
respondent had to pay another contractor to complete petitioners unfinished work.
Likewise, contrary to petitioners claim, it cannot be said that he had no inkling
whatsoever of respondents recourse to rescission. True, the act of a party in treating a
contract as cancelled or resolved on account of infractions by the other party must be
made known to the other. In the case, however, petitioner cannot feign ignorance of
respondents intention to rescind, fully aware, as he was, of his non-compliance with
what was incumbent upon him, not to mention the several letters respondent sent to him
demanding compliance with his obligation. It is thus proper that respondent acted well
within its rights in unilaterally terminating its contract with petitioner and in entering into
a new one with a third person in order to minimize its losses, without prior need of
resorting to judicial action.
WHEREFORE, the petition is DENIED and the assailed Decision and
Resolution of the appellate court AFFIRMED.

Page | 115

FERNANDO CARRASCOSO JR. versus COURT OF APPEALS, LAURO


LEVISTE, as Director and Minority Stockholder and On Behaf of Other
Stockholders of El Dorado Plantation Inc. and EL DORADO PLANTATION,
INC., represented by one of its minority stockholders, Lauro P. Leviste
G.R. No. 123672 & G. R. No. 164489
December 14, 2005

FACTS:
El Dorado Plantation, Inc. (El Dorado) was the registered owner of a parcel of
land with an area of approximately 1,825 hectares covered by Transfer Certificate of Title
(TCT) No. T-93 situated in Sablayan, Occidental Mindoro.
On February 15, 1972, at a special meeting of El Dorados Board of Directors, a
Resolution was passed authorizing Feliciano Leviste, then President of El Dorado, to
negotiate the sale of the property and sign all documents and contracts bearing thereon.
El Dorado, through Feliciano Leviste, sold the property to Fernando O. Carrascoso, Jr.
Under the Deed of Sale, Carrascoso was to pay the full amount of the purchase price on
March 23, 1975.
On March 24, 1972, Carrascoso and his wife Marlene executed a Real Estate
Mortgage] over the property in favor of Home Savings Bank (HSB) to secure a loan in
the amount of P1,000,000.00. Of this amount, P290,000.00 was paid to Philippine
National Bank to release the mortgage priorly constituted on the property and
P210,000.00 was paid to El Dorado pursuant to the terms and conditions of the Deed of
Sale.
On May 18, 1972, the real estate mortgage in favor of HSB was amended to
include an additional three year loan of P70,000.00 as requested by the spouses
Carrascoso. However, the 3-year period for Carrascoso to fully pay for the property on
March 23, 1975 passed without him having complied therewith. In the meantime, on
July 11, 1975, Carrascoso and the Philippine Long Distance Telephone Company
(PLDT), through its President Ramon Cojuangco, executed an Agreement to Buy and
Sell whereby the former agreed to sell 1,000 hectares of the property to the latter at a
consideration of P3,000.00 per hectare or a total of P3,000,000.00.
Lauro Leviste, a stockholder and member of the Board of Directors of El Dorado,
called the attention of the Board to Carrascosos failure to pay the balance of the purchase
price of the property amounting to P1,300,000.00. Lauros desire to rescind the sale was
reiterated in two other letters addressed to the Board. Jose P. Leviste, as President of El
Dorado, later sent a letter of February 21, 1977 to Carrascoso informing him that in view
of his failure to pay the balance of the purchase price of the property, El Dorado was
seeking the rescission of the March 23, 1972 Deed of Sale of Real Property. For the
failure of Carrascoso to give his reply, Lauro and El Dorado finally filed a complaint for
rescission of the Deed of Sale. They also sought the cancellation of TCT No. T-6055 in
the name of Carrascoso and the revival of TCT No. T-93 in the name of El Dorado, free
from any liens and encumbrances.
In the meantime, Carrascoso, as vendor and PLDT, as vendee forged on April 6,
1977 a Deed of Absolute Sale over the 1,000 hectare portion of the property subject of
their July 11, 1975 Agreement to Buy and Sell. In turn, PLDT, by Deed of Absolute Sale
conveyed the aforesaid 1,000 hectare portion of the property to its subsidiary, PLDT
Agricultural Corporation (PLDTAC), for a consideration of P3,000,000.00, the amount of
P2,620,000.00 of which was payable to PLDT upon signing of said Deed, and
P380,000.00 to Carrascoso upon issuance of title to PLDTAC.
On July 31, 1978, PLDT and PLDTAC filed an Urgent Motion for Intervention
which was granted by the trial court. PLDT and PLDTAC thereupon filed their Answer
Page | 116

In Intervention with Compulsory Counterclaim and Crossclaim against Carrascoso. The


RTC dismissed the complaint. Carrascoso, PLDT and PLDTAC filed their respective
appeals to the Court of Appeals. The appellate court reversed the decision of the trial
court. Thereafter, different motions and actions were done by both parties.
ISSUE:
Whether or not the rescission is valid.
RULING:
The right of rescission of a party to an obligation under Article 1191 is predicated
on a breach of faith by the other party who violates the reciprocity between them.
A contract of sale is a reciprocal obligation. The seller obligates itself to transfer
the ownership of and deliver a determinate thing, and the buyer obligates itself to pay
therefor a price certain in money or its equivalent. The non-payment of the price by the
buyer is a resolutory condition which extinguishes the transaction that for a time existed,
and discharges the obligations created thereunder. Such failure to pay the price in the
manner prescribed by the contract of sale entitles the unpaid seller to sue for collection
or to rescind the contract.
In the case at bar, El Dorado already performed its obligation through the
execution of the March 23, 1972 Deed of Sale of Real Property which effectively
transferred ownership of the property to Carrascoso. The latter, on the other hand, failed
to perform his correlative obligation of paying in full the contract price in the manner
and within the period agreed upon.
The terms of the Deed are clear and unequivocal: Carrascoso was to pay the
balance of the purchase price of the property amounting to P1,300,000.00 plus interest
thereon at the rate of 10% per annum within a period of three (3) years from the signing
of the contract on March 23, 1972. When Jose Leviste informed him that El Dorado was
seeking rescission of the contract by letter of February 21, 1977, the period given to him
within which to fully satisfy his obligation had long lapsed.
The El Dorado Board Resolution and the Affidavit of Jose Leviste interposing no
objection to Carrascosos mortgaging of the property to any bank did not have the effect
of suspending the period to fully pay the purchase price, as expressly stipulated in the
Deed, pending full payment of any mortgage obligation of Carrascoso.
PLDT cannot shield itself from the notice of lis pendens because all that it had at the
time of its inscription was an Agreement to Buy and Sell with Carrascoso, which in
effect is a mere contract to sell that did not pass to it the ownership of the property.
Ownership was retained by Carrascoso which El Dorado may very well recover through
its action for rescission.
The appellate courts decision ordering the rescission of the March 23, 1972 Deed of
Sale of Real Property between El Dorado and Carrascoso being in order, mutual
restitution follows to put back the parties to their original situation prior to the
consummation of the contract. Between Carrascoso and PLDT/PLDTAC, the former
acted in bad faith while the latter acted in good faith. This is so because it was
Carrascosos refusal to pay his just debt to El Dorado that caused PLDT/PLDTAC to
suffer pecuniary losses. Therefore, Carrascoso should return to PLDT/PLDTAC the
P3,000,000.00 price of the farm plus legal interest from receipt thereof until paid.
The exercise of the power to rescind extinguishes the obligatory relation as if it
had never been created, the extinction having a retroactive effect. The rescission is
Page | 117

equivalent to invalidating and unmaking the juridical tie, leaving things in their status
before the celebration of the contract.
Where a contract is rescinded, it is the duty of the court to require both parties to
surrender that which they have respectively received and to place each other as far as
practicable in his original situation, the rescission has the effect of abrogating the contract
in all parts.
The April 6, 1977 and May 30, 1977 Deeds of Absolute Sale being subject to the
notice of lis pendens, and as the Court affirms the declaration by the appellate court of
the rescission of the Deed of Sale executed by El Dorado in favor of Carrascoso,
possession of the 1,000 hectare portion of the property should be turned over by PLDT
to El Dorado.
As regards the improvements introduced by PLDT on the 1,000 hectare portion
of the property, a distinction should be made between those which it built prior to the
annotation of the notice of lis pendens and those which it introduced subsequent thereto.
WHEREFORE, the petitions are DENIED.

Page | 118

GOLDENROD, INC. vs. COURT OF APPEALS BARRETTO & SONS, INC., PIO
BARRETTO REALTY DEVELOPMENT, INC., and ANTHONY QUE
G.R. No. 126812
1998 Nov 24
FACTS:
Pio Barretto and Sons, Inc. (BARRETTO & SONS) owned forty-three parcels of
registered land with a total area of 18,500 square meters located at Carlos Palanca St.,
Quiapo, Manila, which were mortgaged with the United Coconut Planters Bank (UCPB).
In 1988, the obligation of the corporation with UCPB remained unpaid making
foreclosure of the mortgage imminent. Goldenrod, Inc. (GOLDENROD), offered to buy
the property from BARRETTO & SONS.
When the term of existence of BARRETTO & SONS expired, all its assets and
liabilities including the property located in Quiapo were transferred to respondent Pio
Barretto Realty Development, Inc. Petitioner's offer to buy the property resulted in its
agreement with respondent BARRETTO REALTY that petitioner would pay P24.5
million representing the outstanding obligations of BARRETTO REALTY with UCPB
on 30 June 1988, the deadline set by the bank for payment; and P20 million which was
the balance of the purchase price of the property to be paid in installments within a 3-year
period with interest at 18% per annum. However, petitioner did not pay UCPB the P24.5
million loan obligation of BARRETTO REALTY on the deadline set for payment. It
asked for an extension of one month or up to 31 July 1988 to settle the obligation, which
the bank granted. Moreover, petitioner again requested another extension of sixty days to
pay the loan, but the bank demurred.
In the meantime BARRETTO REALTY was able to cause the reconsolidation of
the forty-three titles covering the property subject of the purchase into two titles covering
Lots 1 and 2. The reconsolidation of the titles was made pursuant to the request of
petitioner in its letter to private respondents on 25 May 1988. Respondent BARRETTO
REALTY allegedly incurred expenses for the reconsolidation amounting to P250,000.00.
On 30 August 1988 Alicia P. Logarta, President of Logarta Realty and
Development Corporation, which acted as agent and broker of petitioner, wrote private
respondent Anthony Que informing him on behalf of petitioner that it could not go
through with the purchase of the property due to circumstances beyond its fault ( the
denial by UCPB of its request for extension of time to pay the obligation).
On 31 August 1988 respondent BARRETTO REALTY sold to Asiaworld Trade
Center Phils., Inc., Lot 2, one of the two consolidated lots, for the price of P23 million.
On 13 October 1988 respondent BARRETTO REALTY executed a deed transferring by
way of "dacion" the property reconsolidated as Lot 1 in favor of UCPB, which in turn
sold the property to ASIAWORLD for P24 million. Sometime after the said sale, Logarta
again wrote respondent Que demanding the return of the earnest money to
GOLDENROD, but to no avail. Petitioner then filed a complaint with the RTC of Manila
against private respondents for the return of the amount of P1 million and the payment of
damages including lost interests or profits.
ISSUE:
Whether or not the petitioner's extrajudicial rescission of its agreement with
private respondents was valid.
RULING:
Under Art. 1482 of the Civil Code, whenever earnest money is given in a
contract of sale, it shall be considered as part of the purchase price and as proof of the
Page | 119

perfection of the contract. Petitioner clearly stated without any objection from private
respondents that the earnest money was intended to form part of the purchase price. It
was an advance payment which must be deducted from the total price. Hence, the parties
could not have intended that the earnest money or advance payment would be forfeited
when the buyer should fail to pay the balance of the price, especially in the absence of a
clear and express agreement thereon. By reason of its failure to make payment petitioner,
through its agent, informed private respondents that it would no longer push through with
the sale. In other words, petitioner resorted to extrajudicial rescission of its agreement
with private respondents.
It was held in the case of University of the Philippines v. de los Angeles that the
right to rescind contracts is not absolute and is subject to scrutiny and review by the
proper court. It was held further that rescission of reciprocal contracts may be
extrajudicially rescinded unless successfully impugned in court. If the party does not
oppose the declaration of rescission of the other party, specifying the grounds therefor,
and it fails to reply or protest against it, its silence thereon suggests an admission of the
veracity and validity of the rescinding party's claim. A such, private respondents did not
interpose any objection to the rescission by petitioner of the agreement. As found by the
Court of Appeals, private respondent BARRETTO REALTY even sold Lot 2 of the
subject consolidated lots to another buyer, ASIAWORLD, one day after its President
Anthony Que received the broker's letter rescinding the sale. Subsequently, on 13
October 1988 respondent BARRETTO REALTY also conveyed ownership over Lot 1 to
UCPB which, in turn, sold the same to ASIAWORLD.
Article 1385 of the Civil Code provides that rescission creates the obligation to
return the things which were the object of the contract together with their fruits and
interest. Therefore, by virtue of the extrajudicial rescission of the contract to sell by
petitioner without opposition from private respondents who, in turn, sold the property to
other persons, private respondent BARRETTO REALTY, as the vendor, had the
obligation to return the earnest money of P1,000,000.00 plus legal interest from the date
it received notice of rescission from petitioner, i.e., 30 August 1988, up to the date of the
return or payment. It would be most inequitable if respondent BARRETTO REALTY
would be allowed to retain petitioner's payment of P1,000,000.00 and at the same time
appropriate the proceeds of the second sale made to another.

Page | 120

LORETA SERRANO vs. COURT OF APPEALS and LONG LIFE PAWNSHOP,


INC.
G.R. No. 45125
1991 Apr 22

FACTS:
Sometime in early March 1968, petitioner Loreta Serrano bought some pieces of
jewelry for P48,500.00 from Niceta Ribaya. However, when petitioner was in need of
money, she instructed her private secretary, Josefina Rocco, to pawn the jewelry. Josefina
then went to private respondent Long Life Pawnshop, Inc. ("Long Life"), pledged the
jewelry for P22,000.00 with its principal owner and General Manager, Yu An Kiong, and
then absconded with said amount and the pawn ticket. The pawnshop ticket issued to
Josefina Rocco stipulated that it was redeemable "on presentation by the bearer."
Three months later, Gloria Duque and Amalia Celeste informed Niceta Ribaya
that a pawnshop ticket issued by private respondent was being offered for sale. They told
Niceta the ticket probably covered jewelry once owned by the latter which jewelry had
been pawned by one Josefina Rocco. Suspecting that it was the same jewelry she had sold
to petitioner, Niceta informed the latter of this offer and suggested that petitioner go to
the Long Life pawnshop to check the matter out. Petitioner claims she went to private
respondent pawnshop, verified that indeed her missing jewelry was pledged there and
told Yu An Kiong not to permit anyone to redeem the jewelry because she was the lawful
owner thereof. Petitioner claims that Yu An Kiong agreed.
On 9 July 1968, petitioner went to the Manila Police Department to report the
loss, and a complaint first for qualified theft and later changed to estafa was subsequently
filed against Josefina Rocco. Thereafter, a member of the Manila Police went to the
pawnshop, showed Yu An Kiong petitioner's report and left the latter a note asking him
to hold the jewelry and notify the police in case someone should redeem the same.
However, the next day, Yu An Kiong permitted one Tomasa de Leon, exhibiting the
appropriate pawnshop ticket, to redeem the jewelry.
On 4 October 1968, petitioner filed a complaint for damages against private
respondent Long Life for failure to hold the jewelry and for allowing its redemption
without first notifying petitioner or the police. Hon. Luis B. Reyes, rendered a decision in
favor of petitioner. The decision was however reversed on appeal and the complaint
dismissed by the public respondent Court of Appeals.
ISSUE:
Whether or not the Court of Appeals committed reversible error in rendering its
Decision.
RULING:
Having been notified by petitioner and the police that jewelry pawned to it was
either stolen or involved in an embezzlement of the proceeds of the pledge, private
respondent pawnbroker became duty bound to hold the things pledged and to give notice
to petitioner and the police of any effort to redeem them. Such a duty was imposed by
Article 21 of the Civil Code. The circumstance that the pawn ticket stated that the pawn
was redeemable by the bearer, did not dissolve that duty. The pawn ticket was not a
negotiable instrument under the Negotiable Instruments Law nor a negotiable document
of title under Articles 1507 et seq. of the Civil Code. If the third person Tomasa de Leon,
who redeemed the things pledged a day after petitioner and the police had notified Long
Life, claimed to be owner thereof, the prudent recourse of the pawnbroker was to file an
interpleader suit, impleading both petitioner and Tomasa de Leon. The respondent
Page | 121

pawnbroker was, of course, entitled to demand payment of the loan extended on the
security of the pledge before surrendering the jewelry, upon the assumption that it had
given the loan in good faith and was not a "fence" for stolen articles and had not
conspired with the faithless Josefina Rocco or with Tomasa de Leon.
Respondent pawnbroker acted in reckless disregard of that duty in the instant case
and must bear the consequences, without prejudice to its right to recover damages from
Josefina Rocco. Hence, the trial court correctly held that private respondent was liable to
petitioner for actual damages which corresponded to the difference in the value of the
jewelry and the amount of the loan, or the sum of P26,500.00. Petitioner is entitled to
collect the balance of the value of the jewelry, corresponding to the amount of the loan, in
an appropriate action against Josefina Rocco. Private respondent Long Life in turn is
entitled to seek reimbursement from Josefina Rocco of the amount of the damages it must
pay to petitioner.
Wherefore, the Petition is GRANTED and the decision of the Court of Appelas
was REVERSED and SET ASIDE.

Page | 122

PERLA PALMA GIL, VICENTE HIZON, JR., and ANGEL PALMA GIL vs.
HON. COURT OF APPEALS, HEIRS OF EMILIO MATULAC, CONSTANCIO
MAGLANA, AGAPITO PACETES & The REGISTER OF DEEDS OF DAVAO
CITY
G.R. No. 127206
September 12, 2003
FACTS:
Concepcion Palma Gil, and her sister, Nieves Palma Gil, married to Angel
Villarica, were the co-owners of a parcel of commercial land with an area of 829 square
meters, identified as Lot No. 59-C, covered by Transfer Certificate of Title (TCT) No.
432 located in Davao City. The spouses Angel and Nieves Villarica had constructed a
two-storey commercial building on the property. On October 13, 1953, Concepcion filed
a complaint against her sister Nieves for specific performance, to compel the defendant
to cede and deliver to her an undivided portion of the said property with an area of 256.2
square meters. After due proceedings, the court rendered judgment on April 7, 1954 in
favor of Concepcion, ordering the defendant to deliver to the plaintiff an undivided
portion of the said property with an area of 256.2 square meters.
Nieves appealed to the Court of Appeals which affirmed the assailed decision. In
due course, the decision became final and executory. On motion of the plaintiff
(Concepcion), the court issued a writ of execution. Nieves, however, refused to execute
the requisite deed in favor of her sister. On April 27, 1956, the court issued an order
authorizing ex-officio Sheriff Eriberto Unson to execute the requisite deed of transfer to
the plaintiff over an undivided portion of the property with a total area of 256.2 square
meters. Instead of doing so, the sheriff had the property subdivided into four lots. The
sheriff thereafter executed a Deed of Transfer to Concepcion.
On October 24, 1956, Concepcion executed a deed of absolute sale over Lot 59-C-1
in favor of Iluminada Pacetes. In the said deed, the area of Lot 59-C-1 appeared as 256
square meters although under the subdivision plan, the area of the property was only 218
square meters.
On December 21, 1956, Iluminada Pacetes filed a motion to intervene as vendee of
the property subject of the case and a motion to dismiss the complaint which was both
granted by the court. On the basis of the deed of transfer executed by Sheriff Iriberto A.
Unson, the Register of Deeds issued TCT No. 7450 over Lot 59-C-1 and 59-C-2 on July
17, 1957 in the name of Concepcion, with a total area of 256.2 square meters. However,
the latter failed to transfer title to the property to and under the name of Iluminada
Pacetes. Consequently, the latter did not remit the balance of the purchase price of the
property to Concepcion.
In the interim, the spouses Angel and Nieves Villarica executed a real estate
mortgage over Lot 59-C-4 in favor of Prudential Bank as security for a loan. On August
4, 1959, Concepcion died intestate and was survived by Nieves Villarica and her
nephews and nieces. Iluminada filed a motion for her substitution as party-plaintiff in lieu
of the deceased Concepcion. On August 2, 1961, the court issued an order granting the
motion.
The Court rendered judgment setting aside the deed of transfer executed by the
sheriff in favor of Concepcion Palma Gil, and remanding the records to the trial court for
further proceedings. In compliance with the Decision of the Court in the other case, the
trial court conducted further proceedings and discovered that the defendant had
mortgaged Lot 59-C-4 to the Prudential Bank. Consequently, the court issued an order on
February 17, 1964, declaring that the defendant had waived the benefits of the Decision
of the Court, thus, the conveyance of the property made by Concepcion in favor of
Iluminada on October 24, 1956 must stand. Nieves filed a motion for the reconsideration
of the said order but the court denied the same in an Order dated February 29, 1964.
Nieves appealed the order to the CA which dismissed the appeal. for her failure to file a
record on appeal.
ISSUE:
Whether or not the rescission made was valid and binding upon the parties.
RULING:

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Under the last paragraph of Article 1169 of the New Civil Code, in reciprocal
obligations, neither party incurs in delay if the other does not comply or is not ready to
comply in a proper manner with what is incumbent upon him. From the moment one of
the parties fulfills his obligation, delay in the other begins. Thus, reciprocal obligations
are to be performed simultaneously so that the performance of one is conditioned upon
the simultaneous fulfillment of the other. The right of rescission of a party to an
obligation under Article 1191 of the New Civil Code is predicated on a breach of faith by
the other party that violates the reciprocity between them.
The deed of absolute sale executed by Concepcion Gil in favor of Iluminada Pacetes
is an executory contract and not an executed contract is a settled matter. In a perfected
contract of sale of realty, the right to rescind the said contract depends upon the
fulfillment or non-fulfillment of the prescribed condition. The court ruled that the
condition pertains in reality to the compliance by one party of an undertaking the
fulfillment of which would give rise to the demandability of the reciprocal obligation
pertaining to the other party. The reciprocal obligation envisaged would normally be, in
the case of the vendee, the payment by the vendee of the agreed purchase price and in the
case of the vendor, the fulfillment of certain express warranties.
In this case, Concepcion Gil sold Lot 59-C-1 to Iluminada Pacetes for P21,600.00,
that P7,500.00, to be paid upon the signing of this instrument; and the balance of
P14,100.00, to be paid upon the delivery of the corresponding Certificate of Title.
Indeed, Concepcion Gil obliged herself to transfer title over the property to and under the
name of the vendee within 120 days from the execution of the deed.
The vendee paid the downpayment of P7,500.00. By the terms of the contract, the
obligation of the vendee to pay the balance of the purchase price ensued only upon the
issuance of the certificate of title by the Register of Deeds over the property sold to and
under the name of the vendee, and the delivery thereof by the vendor Concepcion Gil to
the latter. Concepcion failed to secure a certificate of title over the property. When she
died intestate on August 4, 1959, her obligation to deliver the said title to the vendee
devolved upon her heirs, including the petitioners. The said heirs, including the
petitioners failed to do so, despite the lapse of eighteen years since Concepcions death.
The petitioners, as successors-in-interest of the vendor, are not the injured parties
entitled to a rescission of the deed of absolute sale. It was Concepcions heirs, including
the petitioners, who were obliged to deliver to the vendee a certificate of title over the
property under the latters name, free from all liens and encumbrances within 120 days
from the execution of the deed of absolute sale on October 24, 1956, but had failed to
comply with the obligation.
The consignation by the vendee of the purchase price of the property is sufficient to
defeat the right of the petitioners to demand for a rescission of the said deed of absolute
sale.
Thus, the decision of the CA affirming the decision of the RTC dismissing the
complaint of the petitioners is affirmed.

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DAVID REYES vs. JOSE LIM, CHUY CHENG KENG and HARRISON
LUMBER, INC.
408 SCRA 560
FACTS:
On 7 November 1994, Reyes as seller and Lim as buyer entered into a contract to sell
a parcel of land located along F.B. Harrison Street, Pasay City. Harrison Lumber
occupied the Property as lessee with a monthly rental of P35,000. The total consideration
for the purchase of the aforedescribed parcel of land together with the perimeter walls
found therein P28,000,000.00 pesos.
The complaint claimed that Reyes had informed Harrison Lumber to vacate the
Property before the end of January 1995. Reyes also informed Keng and Harrison
Lumber that if they failed to vacate by 8 March 1995, he would hold them liable for the
penalty of P400,000 a month as provided in the Contract to Sell. The complaint further
alleged that Lim connived with Harrison Lumber not to vacate the Property until the
P400,000 monthly penalty would have accumulated and equaled the unpaid purchase
price of P18,000,000.
On the other hand, Keng and Harrison Lumber denies that they connived with Lim to
defraud Reyes. Keng and Harrison Lumber alleged that Reyes approved their request for
an extension of time to vacate the Property due to their difficulty in finding a new
location for their business. Harrison Lumber claimed that as of March 1995, it had
already started transferring some of its merchandise to its new business location in
Malabon.
Lim alleged that he was ready and willing to pay the balance of the purchase price on
or before 8 March 1995, but Reyes kept postponing their meeting. On 9 March 1995,
Reyes offered to return the P10 million down payment to Lim because Reyes was having
problems in removing the lessee from the Property. Lim rejected Reyes offer and
proceeded to verify the status of Reyes title to the Property. Lim learned that Reyes had
already sold the Property to Line One Foods Corporation on 1 March 1995 for
P16,782,840.
ISSUE:
Whether or not Reyes has the right to obje t to the deposit of the 10 million pesos
downpayment in court.
RULING:
There is also no plausible or justifiable reason for Reyes to object to the deposit of
the P10 million down payment in court. The Contract to Sell can no longer be enforced
because Reyes himself subsequently sold the Property to Line One. Both Reyes and Lim
are seeking rescission of the Contract to Sell. Under Article 1385 of the Civil Code,
rescission creates the obligation to return the things that are the object of the contract.
Rescission is possible only when the person demanding rescission can return whatever he
may be obliged to restore. A court of equity will not rescind a contract unless there is
restitution, that is, the parties are restored to the status quo ante.
Thus, since Reyes is demanding to rescind the Contract to Sell, he cannot refuse to
deposit the P10 million down payment in court. Such deposit will ensure restitution of the
P10 million to its rightful owner. Lim, on the other hand, has nothing to refund, as he has
not received anything under the Contract to Sell.
In another case, the Court ruled the refund of amounts received under a contract is a
precondition to the rescission of the contract. the party who have asked for rescission,
must restore to the defendants whatever it has received under the contract. It will only be
just if, as a condition to rescission, the other party be required to refund to the defendants
an amount equal to the purchase price, plus the sums expended by them in improving the
land.
The principle that no person may unjustly enrich himself at the expense of another is
embodied in Article 22 of the Civil Code. This principle applies not only to substantive
rights but also to procedural remedies. One condition for invoking this principle is that
the aggrieved party has no other action based on contract, quasi-contract, crime, quasidelict or any other provision of law. Courts can extend this condition to the hiatus in the

Page | 125

Rules of Court where the aggrieved party, during the pendency of the case, has no other
recourse based on the provisional remedies of the Rules of Court.
Thus, a court may not permit a seller to retain, pendente lite, money paid by a buyer
if the seller himself seeks rescission of the sale because he has subsequently sold the
same property to another buyer. By seeking rescission, a seller necessarily offers to return
what he has received from the buyer. Such a seller may not take back his offer if the court
deems it equitable, to prevent unjust enrichment and ensure restitution, to put the money
in judicial deposit.
Thus, it was just, equitable and proper for the trial court to order the deposit of the
P10 million down payment to prevent unjust enrichment by Reyes at the expense of Lim.
WHEREFORE, the decision of the Court of Appeals is AFFIRMED.

Page | 126

ONG YONG et al., vs. DAVID S. TIU et al.


G.R. No. 144476
2002 Feb 1
FACTS:
Masagana Citimall was owned and managed by the First Landlink Asia
Development Corporation (FLADC). FLADC was fully owned by the Tiu Group. In
order to recover from floundering finances, the Tiu group entered into a Pre-Subscription
Agreement with the Ong group wherein both parties agreed to maintain equal
shareholdings in FLADC the Ongs investing cash, while the Tius contributing property.
The Ongs gave P100M as payment of their 1 Million subscription shares at a par value of
1 peso per share.
Intraland Resources and Development Corporation executed a requisite Deed of
Assignment over a building it owned in favor of FLADC and was duly credited with
200,000 shares in FLADC. Masagana Telamart transferred titles of 2 properties in favor
of FLADC. The Ongs had to pay P70M more, aside from their P100M subscription
payment in order to settle the P190M loan of FLADC from PNB. The Tius also had to
advance P20M, which amount was loaned to them by the Ongs. The Tius rescinded the
Pre-Subscription Agreement when the Ongs refused to credit the FLADC shares in the
name of Masagana Telamart commensurate to its 1, 902.30 square meter contribution and
to credit the number of FLADC shares in favor of the Tius commensurate to its 151
square meter property contribution; and when David Tius and Cely Tiu were proscribed
from assuming and performing their duties as V-P and Treasurer, respectively. SEC
confirmed the unilateral rescission of the agreement.
ISSUE:
Whether the rescission applies only to reciprocal obligations and the PreSubscription agreement does not provide for reciprocity.
RULING:
The Ongs illustrate reciprocity in the following manner: In a contract of sale, the
correlative duty of the obligation of the seller to deliver the property is the obligation of
the buyer to pay the agreed price. In the case, the correlative obligation of the Tius to let
the Ongs have and exercise the functions of the positions of President and Secretary is the
obligation of the Ongs to let the Tius have and exercise the functions of Vice-President
and Treasurer.
Petitioners keep on harping for the Pre-Subscription Agreements specific
performance yet they also actually failed to give a legal basis therefor. They deny that the
Tiu Group has a right to ask for rescission of their agreement per Article 1191 of the
Civil Code when they themselves invoke the same law as basis for asking the specific
performance of the same agreement.
The Courts of Appeals then correctly confirmed the rescission of the PreSubscription Agreement on the basis of Art. 1191 of the Civil Code. It could have relied
on the said provision and nonetheless stood on valid ground. It, however, judiciously
took into account the special circumstances of the case and further justified its decision
confirming the rescission of the Pre-Subscription Agreement on the basis of its
perception that the two groups "can no longer work harmoniously together" and that "to
pit them together in the management of FLADC will only result to further squabbles and
numerous litigation."
As a legal consequence of rescission, the order of the Court of Appeals to return
the cash and property contribution of the parties is based on law, hence, cannot be
Page | 127

considered an act of misappropriation. In order for the rescission of the Pre-Subscription


Agreement be implemented, the returning to the two groups whatever they delivered to
the corporation in accordance with the Agreement is needed.
With regard to the order of the Court of Appeals transferring to the Tiu Group
whatever remains of the assets of FLADC and the management thereof, the same is but
an inevitable consequence of the rescission of the Pre-Subscription Agreement.
Restoration of the parties to status quo ante dictates that the building constructed on the
two (2) existing lots of FLADC, the remaining asset of FLADC, be transferred to the Tiu
Group. The status quo ante immediately prior to the execution of the Pre-Subscription
Agreement was that the Tius, then wholly owning FLADC, had control and custody over
this remaining asset.
On the other hand, the Court of Appeals however, erred in finding that the Tiu
Group violated the Pre-Subscription Agreement since the deed of assignment over the
151 sq. m. lot was not executed by the Tiu Group but by the Lichaucos in favor of
FLADC. Hence, the Tiu Group cannot be credited with the number of shares
commensurate to the value of said lot and will not, therefore, be able to equal the Ong
Groups one million subscription in FLADC. The Lichaucos are not parties to the PreSubscription Agreement and are not even demanding that they be credited with such
shares in exchange for the said property. Just like the 1, 902.30 sq. m. parcel of land in
the name of Masagana Telamart, Inc. (also a corporation owned by the Tius), was also
acquired by the Tius before the execution of the Pre-Subscription Agreement. The fact
that the 1, 902.30 sq. m. property was acquired by the Tius beforehand does not prejudice
the Ongs, as shown by the Ongs non-objection to crediting the Masagana Telamart, Inc.
with the commensurate number of shares, subject only to the Tius payment of the
expenses for the transfer of the title in the name of FLADC. So, too, in the case of the
151 sq. m. property, the fact that the Deed of Assignment between the Lichaucos and the
FLADC was executed prior to the execution of the Pre-Subscription Agreement does not
prejudice the Ongs. Therefore, the Tius should be credited with 49, 800 shares in
FLADC for this property contribution, pursuant to the Pre-Subscription Agreement.

Page | 128

EQUATORIAL REALTY DEVELOPMENT, Inc. vs. MAYFAIR THEATER, Inc.,


G.R. No. 133879
2001 Nov 21
FACTS:
Carmelo & Bauermann, Inc. (Carmelo) used to own a parcel of land, together
with two 2-storey buildings constructed thereon, located at Claro M. Recto Avenue,
Manila, and covered by TCT No. 18529 issued in its name by the Register of Deeds of
Manila. On June 1, 1967, Carmelo entered into a Contract of Lease with Mayfair Theater
Inc. (Mayfair) for a period of 20 years. The lease covered a portion of the second floor
and mezzanine of a two-storey building with about 1,610 square meters of floor area,
which respondent used as a movie house known as Maxim Theater.
Two years later, on March 31, 1969, Mayfair entered into a second Contract of
Lease with Carmelo for the lease of another portion of the latters property -- namely, a
part of the second floor of the two-storey building, and two store spaces on the ground
floor and the mezzanine. In that space, Mayfair put up another movie house known as
Miramar Theater. The Contract of Lease was likewise for a period of 20 years. Both
leases contained a provision granting Mayfair a right of first refusal to purchase the
subject properties. However, on July 30, 1978 - within the 20-year-lease term -- the
subject properties were sold by Carmelo to Equatorial Realty Development, Inc.
(Equatorial) for the total sum of P11,300,000, without their first being offered to
Mayfair.
As a result of the sale of the subject properties to Equatorial, Mayfair filed a
Complaint before the Regional Trial Court of Manila for the annulment of the Deed of
Absolute Sale between Carmelo and Equatorial, specific performance, and damages.
After trial on the merits, the lower court rendered a Decision in favor of Carmelo and
Equatorial. On appeal CA completely reversed and set aside the judgment of the lower
court. The decision of the Court became final and executory on March 17, 1997. On
April 25, 1997, Mayfair filed a Motion for Execution, which the trial court granted.
However, Carmelo could no longer be located. Thus, following the order of execution of
the trial court, Mayfair deposited with the clerk of court a quo its payment to Carmelo in
the sum of P11,300,000 less P847,000 as withholding tax. The lower court issued a Deed
of Reconveyance in favor of Carmelo and a Deed of Sale in favor of Mayfair. On the
basis of these documents, the Registry of Deeds of Manila cancelled Equatorials titles
and issued new Certificates of Title in the name of Mayfair.
The CA in its Resolution of November 20, 1998, explained that Mayfair had no
right to deduct the P847,000 as withholding tax. Since Carmelo could no longer be
located, the appellate court ordered Mayfair to deposit the said sum with the Office of the
Clerk of Court, Manila, to complete the full amount of P11,300,000 to be turned over to
Equatorial. Equatorial questioned the legality of the CA ruling. In its Decision, the Court
directed the trial court to follow strictly the Decision in the mother case. Meanwhile,
barely five months after Mayfair had submitted its Motion for Execution before the RTC
of Manila, Equatorial filed with the Regional Trial Court of Manila, an action for the
collection of a sum of money against Mayfair, claiming payment of rentals or reasonable
compensation for the defendants use of the subject premises after its lease contracts had
expired.
ISSUES:
1. Whether or not the contract of sale is validly rescinded though there was no
actual delivery made.
2. Whether or not the rentals paid concede actual delivery.

Page | 129

RULING:
A contract of sale is valid until rescinded, and ownership of the thing sold is not
acquired by mere agreement, but by tradition or delivery. In the case, it shows that
delivery was not actually effected; in fact, it was prevented by a legally effective
impediment. Not having been the owner, petitioner cannot be entitled to the civil fruits
of ownership like rentals of the thing sold. Furthermore, petitioners bad faith, as again
demonstrated by the specific factual milieu of said Decision, bars the grant of such
benefits.
In this case, it is clear that petitioner never took actual control and possession of
the property sold, in view of respondents timely objection to the sale and the continued
actual possession of the property. The objection took the form of a court action
impugning the sale which, as we know, was rescinded by a judgment rendered by this
Court in the mother case. It has been held that the execution of a contract of sale as a
form of constructive delivery is a legal fiction. It holds true only when there is no
impediment that may prevent the passing of the property from the hands of the vendor
into those of the vendee. When there is such impediment, fiction yields to reality - the
delivery has not been effected. Hence, respondents opposition to the transfer of the
property by way of sale to Equatorial was a legally sufficient impediment that effectively
prevented the passing of the property into the latters hands.
The execution of a public instrument gives rise, therefore, only to a prima facie
presumption of delivery. Such presumption is destroyed when the instrument itself
expresses or implies that delivery was not intended; or when by other means it is shown
that such delivery was not effected, because a third person was actually in possession of
the thing. In the latter case, the sale cannot be considered consummated.
2. The Decision in the mother case stated that Equatorial x x x has received
rents from Mayfair during all the years that this controversy has been litigated.
However, these statements does not concede actual delivery. The fact that Mayfair paid
rentals to Equatorial during the litigation should not be interpreted to mean either actual
delivery or ipso facto recognition of Equatorials title. The records show that Equatorial as alleged buyer of the disputed properties and as alleged successor-in-interest of
Carmelos rights as lessor - submitted two ejectment suits against Mayfair. Mayfair
eventually won them both. However, to be able to maintain physical possession of the
premises while awaiting the outcome of the mother case, it had no choice but to pay the
rentals.
Therefore, the rental payments made by Mayfair should not be construed as a
recognition of Equatorial as the new owner. They were made merely to avoid imminent
eviction. At bottom, it may be conceded that, theoretically, a rescissible contract is valid
until rescinded. However, this general principle is not decisive to the issue of whether
Equatorial ever acquired the right to collect rentals. What is decisive is the civil law rule
that ownership is acquired, not by mere agreement, but by tradition or delivery. Under
the factual environment of this controversy as found by the Court in the mother case,
Equatorial was never put in actual and effective control or possession of the property
because of Mayfairs timely objection.
In short, the sale to Equatorial may have been valid from inception, but it was
judicially rescinded before it could be consummated. Petitioner never acquired
ownership, not because the sale was void, as erroneously claimed by the trial court, but
because the sale was not consummated by a legally effective delivery of the property
sold.

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Spouses MARIANO Z. VELARDE and AVELINA D. VELARDE vs. COURT OF


APPEALS, DAVID A. RAYMUNDO and GEORGE RAYMUNDO
G.R. No. 108346
2001 Jul 11
FACTS:
David Raymundo is the absolute and registered owner of a parcel of land, together
with the house and other improvements thereon. Private Respondent George Raymundo
is Davids father who negotiated with plaintiffs Avelina and Mariano Velarde, the
petitioners, for the sale of said property, which was, however, under lease. On August 8,
1986, a Deed of Sale with Assumption of Mortgage was executed by defendant David
Raymundo, as vendor, in favor of plaintiff Avelina Velarde, as vendee. It is further
agreed and understood by the parties that the capital gains tax and documentary stamps
on the sale shall be for the account of the vendor; whereas, the registration fees and
transfer tax thereon shall be for the account of the vendee. On the same date, and as part
of the above-document, plaintiff Avelina Velarde, with the consent of her husband,
Mariano, executed an Undertaking.
It appears that the negotiated terms for the payment of the balance of P1.8 million
was from the proceeds of a loan that plaintiffs were to secure from a bank with
defendants help. Defendants had a standing approved credit line with the Bank of the
Philippine Islands (BPI). The parties agreed to avail of this, subject to BPIs approval of
an application for assumption of mortgage by plaintiffs. Pending BPIs approval of the
application, plaintiffs were to continue paying the monthly interests of the loan secured
by a real estate mortgage. Pursuant to said agreements, plaintiffs paid BPI the monthly
interest on the loan secured by the aforementioned mortgage for three (3) months,
however, plaintiffs were advised that the Application for Assumption of Mortgage with
BPI was not approved, which prompted plaintiffs not to make any further payment. On
January 5, 1987, defendants, thru counsel, wrote plaintiffs informing the latter that their
non-payment to the mortgage bank constituted non-performance of their obligation.
Thereafter, defendants sent plaintiffs a notarial notice of cancellation/rescission of the
intended sale of the subject property allegedly due to the latters failure to comply with
the terms and conditions of the Deed of Sale with Assumption of Mortgage and the
Undertaking.
ISSUE:
Whether or not the Court of Appeals erred in holding that the rescission
(resolution) of the contract by private respondents was justified.
RULING:
A substantial breach of a reciprocal obligation entitles the injured party to rescind
the obligation. Rescission abrogates the contract from its inception and requires a mutual
restitution of benefits received.
The breach committed by petitioners was not so much their nonpayment of the
mortgage obligations, as their nonperformance of their reciprocal obligation to pay the
purchase price under the contract of sale. Private respondents right to rescind the
contract finds basis in Article 1191 of the Civil Code.
The right of rescission of a party to an obligation under Article 1191 of the Civil
Code is predicated on a breach of faith by the other party who violates the reciprocity
between them. The breach contemplated in the said provision is the obligors failure to
comply with an existing obligation. When the obligor cannot comply with what is
incumbent upon it, the obligee may seek rescission and, in the absence of any just cause
for the court to determine the period of compliance, the court shall decree the rescission.
Page | 131

The private respondents therefore validly exercised their right to rescind the
contract, because of the failure of petitioners to comply with their obligation to pay the
balance of the purchase price. Indubitably, the latter violated the very essence of
reciprocity in the contract of sale, a violation that consequently gave rise to private
respondents right to rescind the same in accordance with law. The petitioners expressed
their willingness to pay the balance of the purchase price one month after it became due;
however, this was not equivalent to actual payment as would constitute a faithful
compliance of their reciprocal obligation. In effect, the qualified offer to pay was a
repudiation of an existing obligation, which was legally due and demandable under the
contract of sale. Hence, private respondents were left with the legal option of seeking
rescission to protect their own interest.
The breach committed by petitioners was the nonperformance of a reciprocal
obligation, not a violation of the terms and conditions of the mortgage contract.
Therefore, the automatic rescission and forfeiture of payment clauses stipulated in the
contract does not apply. Instead, Civil Code provisions shall govern and regulate the
resolution of this controversy. Considering that the rescission of the contract is based on
Article 1191 of the Civil Code, mutual restitution is required to bring back the parties to
their original situation prior to the inception of the contract. Accordingly, the initial
payment of P800,000 and the corresponding mortgage payments in the amounts of
P27,225, P23,000 and P23,925 (totaling P874,150.00) advanced by petitioners should be
returned by private respondents, lest the latter unjustly enrich themselves at the expense
of the former.
Rescission creates the obligation to return the object of the contract. It can be
carried out only when the one who demands rescission can return whatever he may be
obliged to restore. To rescind is to declare a contract void at its inception and to put an
end to it as though it never was. It is not merely to terminate it and release the parties
from further obligations to each other, but to abrogate it from the beginning and restore
the parties to their relative positions as if no contract has been made.

Page | 132

ALEXANDER G. ASUNCION vs. EDUARDO B. EVANGELISTA and COURT OF


APPEALS
G.R. No. 133491
1999 Oct 13

FACTS:
On September 9, 1980, private respondent borrowed P500,000 from Paluwagan
ng Bayan Savings and Loan Association to use as working capital for Embassy Farms.
He executed a real estate mortgage on three of his properties as security for the loan. On
November 4, 1981, private respondent mortgaged 10 titles more in favor of PAIC
Savings and Mortgage Bank, formerly First Summa Savings and Mortgage Bank, as
security for a loan he obtained from it in the amount of P1,712,000. Private respondent
obtained another loan in the amount of P844,625.78 from Mercator Finance Corporation.
The loan was secured by a real estate mortgage on five 5 other landholdings of private
respondent.
Private respondents aggregate debt exposure totaled P3,056,625.78. However, he
defaulted in his loan payments. By June 1984, his aggregate debt had ballooned to almost
six million pesos.
On August 2, 1984, petitioner and private respondent executed a Memorandum of
Agreement. Upon the execution of the Memorandum, petitioner paid private respondent
one million pesos, P500,000.00 within a ninety-day period in four disbursements. The
second installment, in the like amount of three hundred thousand pesos, was supposed to
be remitted by petitioner to private respondent for the purpose of financing the operations
of the piggery pursuant to the Memorandum. Instead, petitioner agreed to pay to PAIC
Savings & Mortgage Bank.
Aside from paying the aforesaid amount of P300,000.00 to PAIC Savings &
Mortgage Bank, petitioner also paid P400,000.00 in favor of Paluwagan ng Bayan
Savings and Loan Association.
For his part, private respondent was obligated under the Memorandum of Agreement to
"execute, sign and deliver any and all documents" necessary for the transfer and
conveyance of several parcels of land he owned but mortgaged with the banks and
financial institutions and to "cede, transfer and convey in a manner absolute and
irrevocable any and all of his shares of stocks in Embassy Farms, Inc." as well as "cause
to be so transferred to petitioner or his nominee such shares of stock until they constitute
90% of the paid-in equity of said corporation". However, more than a year after the
signing of the Memorandum of Agreement, the landholdings of private respondent which
were mortgaged to Paluwagan ng Bayan Savings and Loan Association, PAIC Savings
and Mortgage Bank and Mercator Finance Corporation still remained titled in his name.
Neither did he inform said mortgagees of the transfer of his lands. As to the shares of
stock, it was incumbent upon private respondent to endorse and deliver them to petitioner
so he could also have them transferred in his name, but private respondent never did. He
refused to honor his obligations under the Memorandum of Agreement and even
countered with a demand letter of his own. He accused petitioner of having failed to
restructure his loans with Paluwagan ng Bayan Savings and Loan Association, PAIC
Savings and Mortgage Bank and Mercator Finance Corporation and blamed him for the
foreclosure of his landholdings, including the piggery site of Embassy Farms, Inc.
Petitioner then filed in the RTC a complaint for rescission of the Memorandum of
Agreement with a prayer for damages. The Court declared the Memorandum of
Agreement rescinded and of no further force and effect. Both petitioner and private
respondent repaired to the Court of Appeals. The court affirmed the decision of the trial
court and ordered its immediate execution.

Page | 133

ISSUES:
1. Whether the non-compliance of one party in a reciprocal obligation amounts to
rescission of the obligation.
2. Whether or not the Court shall allow the grant of damages corresponding to the
value of the land foreclosed by private respondent's creditors upon the latter's failure to
make his loan payments.
RULING:
1. The parties' Memorandum of Agreement is a contract of sale where a price
certain is paid in exchange for a determinate thing that is sold and delivered. However, it
shows that it constitutes not a mere isolated, simple, short-term business deal calling for
the outright sale and purchase of land and shares of stocks belonging to private
respondent, but a set of chronological, reciprocal and conditional obligations that both
petitioner and private respondent must faithfully comply with to ensure the full
enforcement of all its stipulations.
Petitioner and private respondent entered into what the law regards as reciprocal
obligations. Reciprocity arises from identity of cause, and necessarily the two obligations
are created at the same time. Reciprocal obligations, therefore, are those which arise from
the same cause, and in which each party is a debtor and a creditor of the other, such that
the obligation of one is dependent upon the obligation of the other. They are to be
performed simultaneously, so that the performance of one is conditioned upon the
simultaneous fulfillment of the other.
Article 1191 of the Civil Code governs the situation where there is noncompliance by one party in case of reciprocal obligations. It provides:
"The power to rescind the 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 2388 and the Mortgage Law."
The effect of rescission is also provided in the Civil Code in Article 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
obligated to restore.
"Neither shall rescission take place when the things which are the object of the contract
are legally in the possession of third persons who did not act in bad faith.
"In this case, indemnity for damages may be demanded from the persons causing the
loss."

Page | 134

Private respondent admitted in open court that petitioner paid him the initial sum
of one million pesos upon the signing of the Memorandum of Agreement as well as
various sums of money as fees for the restructuring of his loans. Thereupon, private
respondent was obligated to execute a deed of sale with assumption of mortgage, both in
compliance with the Memorandum of Agreement and to ensure the legal efficacy of
petitioner's promise to assume his loan obligations. However, private respondent failed to
perform his substantial obligations under the Memorandum of Agreement. Hence,
petitioner sought the rescission of the Memorandum of Agreement and ceased infusing
capital into the piggery business of private respondent.
2. The Court cannot allow the grant of damages corresponding to the value of the
land foreclosed by private respondent's creditors upon the latter's failure to make his loan
payments. In case of rescission, while damages may be assessed in favor of the
prejudiced party, only those kinds of damages consistent with the remedy of rescission
may be granted, keeping in mind that had the parties opted for specific performance,
other kinds of damages would have been called for which are absolutely distinct from
those kinds of damages accruing in the case of rescission.
An obligation may be resolved if one of the obligors fails to comply with that
which is incumbent upon him; and it is declared that the person prejudiced may elect
between exacting the fulfillment of the obligation (specific performance) and its
resolution, with compensation for damage and payment of interest in either case. One is
not entitled to pursue both of the inconsistent remedies. In estimating the damages to be
awarded in case of rescission, those elements of damages only can be admitted that are
compatible with the idea of rescission and in estimating the damages to be awarded in
case the lessor elects for specific performance only those elements of damages can be
admitted which are compatible with the conception of specific performance. Thus,
damages which would only be consistent with the conception of specific performance
cannot be awarded in an action where rescission is sought.
In cases of resolution or rescission, the parties are bound to restore to each the
thing which has been the subject matter of the contract, precisely as in the situation where
a decree of nullity is granted. In the common case of the resolution of a contract of sale
for failure of the purchaser to pay the stipulated price, the seller is entitled to be restored
to the possession of the thing sold, if it has already been delivered. But he cannot have
both the thing sold and the price which was agreed to be paid, for the resolution of the
contract has the effect of destroying the obligation to pay the price. Similarly, in the case
of the resolution, or rescission of a contract of lease, the lessor is entitled to be restored to
the possession of the leased premises, but he cannot have both the possession of the
leased premises for the remainder of the term and the rent which the other party had
contracted to pay. The termination of the lease has the effect of destroying the obligation
to pay rent for the future.

Page | 135

WILLIAM UY and RODEL ROXAS vs. COURT OF APPEALS, HON. ROBERT


BALAO and NATIONAL HOUSING AUTHORITY
G.R. No. 120465
1999 Sep 9

FACTS:
Petitioners William Uy and Rodel Roxas are agents authorized to sell eight
parcels of land by the owners thereof. By virtue of such authority, petitioners offered to
sell the lands, located in Tuba, Tadiangan, Benguet to respondent National Housing
Authority (NHA) to be utilized and developed as a housing project. On February 14,
1989, the NHA Board passed Resolution No. 1632 approving the acquisition of said
lands at the cost of P23.867 million, pursuant to which the parties executed a series of
Deeds of Absolute Sale covering the subject lands. Of the eight parcels of land, however,
only five were paid for by the NHA because of the report it received from the Land
Geosciences Bureau of the Department of Environment and Natural Resources (DENR)
that the remaining area is located at an active landslide area and therefore, not suitable for
development into a housing project. On 22 November 1991, the NHA issued Resolution
No. 2352 cancelling the sale over the three parcels of land. The NHA, through Resolution
No. 2394, subsequently offered the amount of P1.225 million to the landowners as danos
perjuicios.
On 9 March 1992, petitioners filed before the RTC of Quezon City a Complaint
for Damages against NHA and its General Manager Robert Balao. After trial, the RTC
rendered a decision declaring the cancellation of the contract to be justified. The trial
court nevertheless awarded damages to plaintiffs in the sum of P1.255 million, the same
amount initially offered by NHA to petitioners as damages. Upon appeal by petitioners,
the Court of Appeals reversed the decision of the trial court and entered a new one
dismissing the complaint. It held that since there was "sufficient justifiable basis" in
cancelling the sale, "it saw no reason" for the award of damages.
ISSUE:
Whether or not the CA erred in declaring that respondent NHA had any legal
basis for rescinding the sale involving the last three parcels covered by NHA Resolution
No. 1632.
RULING:
Petitioners confuse the cancellation of the contract by the NHA as a rescission of
the contract under Article 1191 of the Civil Code. The right of rescission or, more
accurately, resolution, of a party to an obligation under Article 1191 is predicated on a
breach of faith by the other party that violates the reciprocity between them. The power to
rescind, therefore, is given to the injured party. Article 1191 states:
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.
In this case, the NHA did not rescind the contract. Indeed, it did not have the right
to do so for the other parties to the contract, the vendors, did not commit any breach,
much less a substantial breach of their obligation. Their obligation was merely to deliver
the parcels of land to the NHA, an obligation that they fulfilled. The NHA did not suffer
any injury by the performance thereof.
Page | 136

The cancellation, therefore, was not a rescission under Article 1191. Rather, the
cancellation was based on the negation of the cause arising from the realization that the
lands, which were the object of the sale, were not suitable for housing.
Cause is the essential reason which moves the contracting parties to enter into it.
In other words, the cause is the immediate, direct and proximate reason which justifies
the creation of an obligation through the will of the contracting parties. Cause, which is
the essential reason for the contract, should be distinguished from motive, which is the
particular reason of a contracting party which does not affect the other party. In this case,
it is clear, and petitioners do not dispute, that NHA would not have entered into the
contract were the lands not suitable for housing. In other words, the quality of the land
was an implied condition for the NHA to enter into the contract. On the part of the NHA,
therefore, the motive was the cause for its being a party to the sale.
Accordingly, we hold that the NHA was justified in cancelling the contract. The
realization of the mistake as regards the quality of the land resulted in the negation of the
motive/cause thus rendering the contract inexistent.28 [Note that said contract is also
avoidable under Article 1331 of the Civil Code which states:
Art. 1331. In order that mistake may invalidate consent, it should refer to the substance of
the thing which is the object of the contract, or to those conditions which have principally
moved one or both parties to enter into the contract. x x x] Article 1318 of the Civil Code
states that:
Art. 1318. There is no contract unless the following requisites concur:
(1) Consent of the contracting parties;
(2) Object certain which is the subject matter of the contract;
(3) Cause of the obligation which is established.
Wherefore, the petition was DENIED.

Page | 137

VICTORY LINER, INC. vs. HEIRS OF ANDRES MALECDAN


G.R. No. 154278
2002 Dec 27

FACTS:
Andres Malecdan was a 75 year-old farmer residing in Barangay Nungnungan 2,
Municipality of Cauayan, Province of Isabela. On July 15, 1994, at around 7:00 p.m.,
while Andres was crossing the National Highway on his way home from the farm, a
Dalin Liner bus on the southbound lane stopped to allow him and his carabao to pass.
However, as Andres was crossing the highway, a bus of petitioner Victory Liner, driven
by Ricardo C. Joson, Jr., bypassed the Dalin bus. In so doing, respondent hit the old man
and the carabao on which he was riding. As a result, Andres Malecdan was thrown off the
carabao, while the beast toppled over. The Victory Liner bus sped past the old man, while
the Dalin bus proceeded to its destination without helping him. Malecdan sustained a
wound on his left shoulder, from which bone fragments protruded. He was taken by
Lorena, the witness, and another person to the Cagayan District Hospital where he died a
few hours after arrival The carabao also died soon afterwards. Subsequently, a criminal
complaint for reckless imprudence resulting in homicide and damage to property was
filed against the Victory Liner bus driver Ricardo Joson, Jr.
On October 5, 1994, private respondents brought suit for damages in the Regional
Trial Court, Branch 5, Baguio City, which, in a decision rendered on July 17, 2000, found
the driver guilty of gross negligence in the operation of his vehicle and Victory Liner,
Inc. also guilty of gross negligence in the selection and supervision of Joson, Jr.
Petitioner and its driver were held liable for damages. On appeal, the decision was
affirmed by the Court of Appeals, with the modification that the award of attorneys fees
was fixed at P50,000.00.
ISSUE:
1. Whether or not the employer can be held solidarily liable or vicariously liable.
2. Whether or not the award of damages is valid.
RULING:
1. Article 2176 provides:
Whoever by act or omission causes damage to another, there being fault or negligence, is
obliged to pay for the damage done. Such fault or negligence, if there is no pre-existing
contractual relation between the parties, is called a quasi-delict and is governed by the
provisions of this Chapter.
Article 2180 provides for the solidary liability of an employer for the quasi-delict
committed by an employee. The responsibility of employers for the negligence of their
employees in the performance of their duties is primary and, therefore, the injured party
may recover from the employers directly, regardless of the solvency of their employees.
The rationale for the rule on vicarious liability has been explained thus:
What has emerged as the modern justification for vicarious liability is a rule of policy, a
deliberate allocation of a risk. The losses caused by the torts of employees, which as a
practical matter are sure to occur in the conduct of the employers enterprise, are placed
upon that enterprise itself, as a required cost of doing business. They are placed upon the
employer because, having engaged in an enterprise, which will on the basis of all past
experience involve harm to others through the tort of employees, and sought to profit by
it, it is just that he, rather than the innocent injured plaintiff, should bear them; and
Page | 138

because he is better able to absorb them and to distribute them, through prices, rates or
liability insurance, to the public, and so to shift them to society, to the community at
large. Added to this is the makeweight argument that an employer who is held strictly
liable is under the greatest incentive to be careful in the selection, instruction and
supervision of his servants, and to take every precaution to see that the enterprise is
conducted safely.
Employers may be relieved of responsibility for the negligent acts of their
employees acting within the scope of their assigned task only if they can show that "they
observed all the diligence of a good father of a family to prevent damage." For this
purpose, they have the burden of proving that they have indeed exercised such diligence,
both in the selection of the employee and in the supervision of the performance of his
duties.
In the selection of prospective employees, employers are required to examine
them as to their qualifications, experience and service records. With respect to the
supervision of employees, employers must formulate standard operating procedures,
monitor their implementation and impose disciplinary measures for breaches thereof.
These facts must be shown by concrete proof, including documentary evidence.
2. To justify an award of actual damages, there should be proof of the actual
amount of loss incurred in connection with the death, wake or burial of the victim. The
court cannot take into account receipts showing expenses incurred some time after the
burial of the victim, such as expenses relating to the 9th day, 40th day and 1st year death
anniversaries.
In this case, the trial court awarded P88,339.00 as actual damages. While these
were duly supported by receipts, these included the amount of P5,900.00, the cost of one
pig which had been butchered for the 9th day death anniversary of the deceased. This
item cannot be allowed. The court therefore, reduce the amount of actual damages to
P82,439.00.00. The award of P200,000.00 for moral damages should likewise be
reduced. The trial court found that the wife and children of the deceased underwent
"intense moral suffering" as a result of the latters death. Under Art. 2206 of the Civil
Code, the spouse, legitimate children and illegitimate descendants and ascendants of the
deceased may demand moral damages for mental anguish by reason of the death of the
deceased. Under the circumstances of this case an award of P100,000.00 would be in
keeping with the purpose of the law in allowing moral damages. On the other hand, the
award of P50,000.00 for indemnity is in accordance with current rulings of the Court.
Art. 2231 provides that exemplary damages may be recovered in cases involving
quasi-delicts if the defendant acted with gross negligence. Exemplary damages are
imposed not to enrich one party or impoverish another but to serve as a deterrent against
or as a negative incentive to curb socially deleterious actions. In this case, petitioners
driver Joson, Jr. was grossly negligent in driving at such a high speed along the national
highway and overtaking another vehicle which had stopped to allow a pedestrian to cross.
Worse, after the accident, Joson, Jr. did not stop the bus to help the victim. Under the
circumstances, the court believe that the trial courts award of P50,000.00 as exemplary
damages is proper.
Finally, private respondents are entitled to attorneys fees. Under Art. 2008 of the
Civil Code, attorneys fees may be recovered when, as in the instant case, exemplary
damages are awarded. In the recent case of Metro Manila Transit Corporation v. Court of
Appeals, the court held an award of P50,000.00 as attorneys fees to be reasonable.
Hence, private respondents are entitled to attorneys fees in that amount.
WHEREFORE, the decision of the Court of Appeals is AFFIRMED, with the
MODIFICATION.
Page | 139

GOVERNMENT SERVICE INSURANCE SYSTEM vs. SPOUSES GONZALO


and MATILDE LABUNG-DEANG
G.R. No. 135644
2001 Sep 17

FACTS:
Sometime in December 1969, the spouses Deang obtained a housing loan from
the GSIS in the amount of eight thousand five hundred pesos. Under the agreement, the
loan was to mature on December 23, 1979. The loan was secured by a real estate
mortgage constituted over the spouses property covered by Transfer Certificate of Title
No. 14926-R issued by the Register of Deeds of Pampanga. As required by the mortgage
deed, the spouses Daeng deposited the owners duplicate copy of the title with the GSIS.
On January 19, 1979, eleven (11) months before the maturity of the loan, the
spouses Deang settled their debt with the GSIS and requested for the release of the
owners duplicate copy of the title since they intended to secure a loan from a private
lender and use the land covered by it as collateral security for the loan of fifty thousand
pesos which they applied for with one Milagros Runes. However, personnel of the GSIS
were not able to release the owners duplicate of the title as it could not be found despite
diligent search. As stated earlier, the spouses as mortgagors deposited the owners
duplicate copy of the title with the GSIS located at its office in San Fernando, Pampanga.
Satisfied that the owners duplicate copy of the title was really lost, in 1979, GSIS
commenced the reconstitution proceedings with the Court of First Instance of Pampanga
for the issuance of a new owners copy of the same. On June 22, 1979, GSIS issued a
certificate of release of mortgage. After the completion of judicial proceedings, GSIS
finally secured and released the reconstituted copy of the owners duplicate of Transfer
Certificate of Title No. 14926-R to the spouses Deang.
On July 6, 1979, the spouses Deang filed with the Court of First Instance, Angeles
City a complaint against GSIS for damages, claiming that as result of the delay in
releasing the duplicate copy of the owners title, they were unable to secure a loan from
Milagros Runes, the proceeds of which could have been used in defraying the estimated
cost of the renovation of their residential house and which could have been invested in
some profitable business undertaking. The trial court rendered a decision ruling for the
spouses Deang. The trial court reasoned that the loss of the owners duplicate copy of the
title in the possession of GSIS as security for the mortgage... without justifiable cause
constitutes negligence on the part of the employee of GSIS who lost it, making GSIS
liable for damages.
On August 30, 1995, GSIS appealed the decision to the Court of Appeals. On
September 21, 1998, the Court of Appeals promulgated a decision affirming the appealed
judgment, ruling: First, since government owned and controlled corporations whose
charters provide that they can sue and be sued have a legal personality separate and
distinct from the government, GSIS is not covered by Article 2180 of the Civil Code, and
it is liable for damages caused by their employees acting within the scope of their
assigned tasks. Second, the GSIS is liable to pay a reasonable amount of damages and
attorneys fees, which the appellate court will not disturb.
ISSUE:
1. Whether GSIS, as a GOCC primarily performing governmental functions, is
liable for a negligent act of its employee acting within the scope of his assigned tasks.
2. Whether or no the award of damages is valid.

Page | 140

RULING:
1. GSIS is liable for damages. Article 2180 and Article 2176 is not applicable to
the case. However, the trial court and the Court of Appeals erred in citing it as the
applicable law. The trial court and the Court of Appeals should not have treated the
obligation of GSIS as one springing from quasi-delict. Under the facts, there was a preexisting contract between the parties. GSIS and the spouses Deang had a loan agreement
secured by a real estate mortgage. The duty to return the owners duplicate copy of title
arose as soon as the mortgage was released. Thus, negligence is obvious as the owners
duplicate copy could not be returned to the owners. Therefore, the more applicable
provisions of the Civil Code are:
Article 1170. Those who in the performance of their obligations are guilty of fraud,
negligence, or delay and those who in any manner contravene the tenor thereof are liable
for damages.
Article 2201. In contracts and quasi-contracts, the damages for which the obligor who
acted in good faith is liable shall be those that are the natural and probable consequences
of the breach of the obligation, and which the parties have foreseen or could have
reasonably foreseen at the time the obligation was constituted xxx.
Since good faith is presumed and bad faith is a matter of fact which should be
proved, GSIS shall be treated as a party who defaulted in its obligation to return the
owners duplicate copy of the title. As an obligor in good faith, GSIS is liable for all the
natural and probable consequences of the breach of the obligation. The inability of the
spouses Deang to secure another loan and the damages they suffered thereby has its roots
in the failure of the GSIS to return the owners duplicate copy of the title.
2. In a breach of contract, moral damages are not awarded if the defendant is not
shown to have acted fraudulently or with malice or bad faith. The fact that the
complainant suffered economic hardship or worries and mental anxiety is not enough.
There is likewise no factual basis for an award of actual damages. Actual
damages to be compensable must be proven by clear evidence. A court can not rely on
speculation, conjecture or guess work as to the fact and amount of damages, but must
depend on actual proof. However, it is also apparent that the spouses Deang suffered
financial damage because of the loss of the owners duplicate copy of the title. Thus,
temperate damages may be granted.
Article 2224. Temperate or moderate damages, which are more than nominal but less
than compensatory damages, may be recovered when the court finds that some pecuniary
loss has been suffered but its amount cannot, from the nature of the case, be proved with
certainty.
The rationale behind temperate damages is precisely that from the nature of the
case, definite proof of pecuniary loss cannot be offered. When the court is convinced that
there has been such loss, the judge is empowered to calculate moderate damages, rather
than let the complainant suffer without redress from the defendants wrongful act. The
award of twenty thousand pesos (P20,000.00) in temperate damages is reasonable
considering that GSIS spent for the reconstitution of the owners duplicate copy of the
title.
WHEREFORE, the petition was DENIED, and the decision of the Court of
Appeals is AFFIRMED with the MODIFICATION that award of attorneys fees is
DELETED.

Page | 141

BPI INVESTMENT CORPORATION vs. D. G. CARREON COMMERCIAL


CORPORATION, DANIEL G. CARREON, AURORA J. CARREON, AND
JOSEFA M. JECIEL
G.R. No. 126524
2001 Nov 29

FACTS:
On November 15, 1979, D. G. Carreon Commercial Corporation placed with BPI
Investments P318,981.59 in money market placement with a maturity term of thirty two
days, or up to December 17, 1979, at a maturity value of P323,518.22. On December 12,
1979, there appeared in BPI Investments ledger due D. G. Carreon an amount of
P323,518.22, which is the exact amount to mature on December 17, 1979. D. G. Carreon
did not make any money placement maturing on December 12, 1979.
On December 17, 1979, BPI Investments credited D. G. Carreon with another
P323,518.22 via roll over of P300,000.00, for a term of one hundred twenty days at 19%
interest maturing on April 15, 1980, and P23,518.22, paid out in cash. BPI Investments
paid the money placement on April 16, 1980. The money placement in the amount of
P319,000.00 that matured on April 16, 1980 was again rolled over for a term of sixty one
days at 19% interest maturing on June 16, 1980, with a maturity value of P329,443.81.
The amount was again rolled over for a term of thirty days at 18% interest maturing on
July 16, 1980, and again rolled over for another thirty days at 18% interest.
BPI Investments paid D. G. Carreon twice in interest of the amount of
P323,518.22, representing a single money market placement, the first on December 12,
1979, and the second on December 17, 1979. According to petitioner, their bookkeeper
made an error in posting 12-17 on the sales order slip for 12-12. BPI Investments
claimed that the same placement was also booked as maturing on December 12, 1979.
Aurora Carreon instructed BPI Investments to roll over the whole amount of P323,518.22
for another thirty days, or up to January 11, 1980, at 19% interest. BPI Investments
claimed that roll overs were subsequently made from maturing payments on which BPI
Investments had made over payments at a total amount of P410,937.09. On April 21,
1982, BPI Investments wrote respondents Daniel Carreon and Aurora Carreon,
demanding the return of the overpayment of P410,937.09.
D.G. Carreon asked for compensatory damages in an amount to be proven during
the trial; spouses Daniel and Aurora Carreon asked for moral damages of P1,000,000.00
because of the humiliation, great mental anguish, sleepless nights and deterioration of
health due to the filing of the complaint and indiscriminate and wrongful attachment of
their property, especially their residential house and payment of their money market
placement of P109,283.75. Josefa Jeceil asked for moral damages of P500,000.00,
because of sleepless nights and mental anguish, and payment of her money market
placement of P73,857.57; all defendants claimed for exemplary damages and attorneys
fees of P100,000.00. However, the petition was dismissed.
Both parties appealed the above decision to the Court of Appeals. The Court of
Appeals affirmed the decision of the trial court, while the dismissal of the counterclaim
of defendants was REVERSED and SET ASIDE. The judgment is rendered as follows:
1. Ordering plaintiff BPI to pay the following amounts of damages:
Moral Damages
a)P1,000,000.00 to the late Daniel G. Carreon or his estate represented by Aurora J.
Carreon;

Page | 142

b)P1,000,000.00 to Aurora J. Carreon; P500,000.00 to the late Josefa M. Jeceil or her


estate represented by Aurora J. Carreon;
Compensatory Damages
P1,500,000.00 to D. G. Carreon Commercial Corporation;
Exemplary Damages
P1,000,000.00 to all defendants;
Attorneys Fees
P500,000.00 to all defendants
2. Ordering plaintiff BPI to pay to the estate of Daniel G. Carreon, represented by
Aurora J. Carreon, the money market placement of P109,238.75 with 12% interest per
annum from June 3, 1982 until fully paid;
3. Ordering plaintiff BPI to pay to the estate of Josefa M. Jeceil, represented by Aurora
J. Carreon, the money market placement in the amount of P73,857.57 at 12% interest per
annum from maturity on July 12, 1982 until fully paid;
4. Ordering plaintiff BPI to pay for the costs of the suit."
ISSUE:
Whether the Court of Appeals awarded excessive moral and exemplary damages
as well as attorneys fees to respondents.
RULING:
The law on exemplary damages is found in Section 5, Chapter 3, Title XVIII,
Book IV of the Civil Code. These are imposed by way of example or correction for the
public good, in addition to moral, temperate, liquidated, or compensatory damages. They
are recoverable in criminal cases as part of the civil liability when the crime was
committed with one or more aggravating circumstances; in quasi-delicts, if the defendant
acted with gross negligence; and in contracts and quasi-contracts, if the defendant acted
in a wanton, fraudulent, reckless, oppressive, or malevolent manner.
BPI Investments did not act in a wanton, fraudulent, reckless, oppressive, or
malevolent manner, when it asked for preliminary attachment. It was just exercising a
legal option. The sheriff of the issuing court did the execution and the attachment.
Hence, BPI Investments is not to be blamed for the excessive and wrongful attachment.
The award of moral damages and attorneys fees is also not in keeping with
existing jurisprudence. Moral damages may be awarded in a breach of contract when the
defendant acted in bad faith, or was guilty of gross negligence amounting to bad faith, or
in wanton disregard of his contractual obligation. Finally, with the elimination of award
of moral damages, so must the award of attorneys fees be deleted.
There is no doubt, however, that the damages sustained by respondents were due
to petitioners fault or negligence, short of gross negligence. Temperate or moderate
damages may be recovered when the court finds that some pecuniary loss has been
suffered but its amount cannot, from the nature of the case, be proved with certainty. The
Court deems it prudent to award reasonable temperate damages to respondents under the
circumstances.

Page | 143

As to the claim for payment of the money market placement of Josefa Jeceil, the
trial court may release the deposited amount of P73,857.57 to petitioner as the
consignation was not proper or warranted.
This, the decision of the Court of Appeals was AFFIRMED with
MODIFICATION. The award of moral, compensatory and exemplary damages and
attorneys fees are deleted. BPI Investments is ordered to pay to the estate of Daniel G.
Carreon and Aurora J. Carreon the money market placement of P109,238.75, with legal
interest of twelve (12%) percent per annum from June 3, 1982, until fully paid; to pay the
estate of Josefa M. Jeceil, the money market placement in the amount of P73,857.57,
with legal interest at twelve (12%) percent per annum from maturity on July 12, 1982,
until fully paid. The petitioner may withdraw its deposit from the lower court at its peril.
BPI Investments is likewise ordered to pay temperate damages to the estate of the late
Daniel G. Carreon in the amount of P300,000.00, and to the estate of Aurora J. Carreon
in the amount of P300,000.00, and to the estate of Josefa M. Jeceil in the amount of
P150,000.00.

Page | 144

KHE HONG CHENG, alias FELIX KHE, SANDRA JOY KHE and RAY STEVEN
KHE vs. COURT OF APPEALS, HON. TEOFILO GUADIZ, RTC 147, MAKATI
CITY and PHILAM INSURANCE CO., INC.
G.R. No. 144169
2001 Mar 28
FACTS:
Petitioner Khe Hong Cheng, alias Felix Khe, is the owner of Butuan Shipping
Lines. On October 4, 1985, the Philippine Agricultural Trading Corporation shipped on
board the vessel M/V PRINCE ERIC, owned by petitioner Khe Hong Cheng, 3,400 bags
of copra at Masbate, Masbate, for delivery to Dipolog City, Zamboanga del Norte. The
said shipment of copra was covered by a marine insurance policy issued by American
Home Insurance Company (respondent Philam's assured). M/V PRINCE ERIC,
however, sank somewhere between Negros Island and Northeastern Mindanao, resulting
in the total loss of the shipment. Because of the loss, the insurer, American Home, paid
the amount of P354,000.00 (the value of the copra) to the consignee. Having been
subrogated into the rights of the consignee, American Home instituted a civil case in the
RTC of Makati to recover the money paid to the consignee, based on breach of contract
of carriage.
While the case was still pending, petitioner Khe Hong Cheng executed deeds of
donations of parcels of land in favor of his children, herein co-petitioners Sandra Joy and
Ray Steven. The parcel of land with an area of 1,000 square meters was donated to Ray
Steven. Petitioner Khe Hong Cheng likewise donated in favor of Sandra Joy two parcels
of land located in Butuan City. The trial court rendered judgment against petitioner Khe
Hong Cheng in Civil Case No. 13357 on December 29, 1993, four years after the
donations were made and the TCTs were registered in the donees names.
After the said decision became final and executory, a writ of execution was
forthwith issued, however, it was not served. An alias writ of execution was, thereafter,
applied for and granted in October 1996. Despite earnest efforts, the sheriff found no
property under the name of Butuan Shipping Lines and/or petitioner Khe Hong Cheng to
levy or garnish for the satisfaction of the trial court's decision. When the sheriff,
accompanied by counsel of respondent Philam, went to Butuan City on January 17, 1997,
to enforce the alias writ of execution, they discovered that petitioner Khe Hong Cheng no
longer had any property and that he had conveyed the subject properties to his children.
Respondent Philam filed a complaint with the RTC of Makati City for the
rescission of the deeds of donation executed by petitioner Khe Hong Cheng in favor of
his children and for the nullification of their titles. Respondent Philam alleged, inter alia,
that petitioner Khe Hong Cheng executed the aforesaid deeds in fraud of his creditors,
including respondent Philam. Petitioners subsequently filed their answer to the complaint
a quo. They moved for its dismissal on the ground that the action had already prescribed.
The trial court denied the motion to dismiss. It held that respondent Philam's complaint
had not yet prescribed. On appeal by petitioners, the CA affirmed the trial court's
decision in favor of respondent Philam.
The CA declared that the action to rescind the donations had not yet prescribed.
Citing Articles 1381 and 1383 of the Civil Code, the CA basically ruled that the four year
period to institute the action for rescission began to run only in January 1997, and not
when the decision in the civil case became final and executory on December 29, 1993.
The CA reckoned the accrual of respondent Philam's cause of action on January 1997, the
time when it first learned that the judgment award could not be satisfied because the
judgment creditor, petitioner Khe Hong Cheng, had no more properties in his name.
Prior thereto, respondent Philam had not yet exhausted all legal means for the satisfaction
of the decision in its favor, as prescribed under Article 1383 of the The Court of Appeals
thus denied the petition for certiorari filed before it, and held that the trial court did not
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commit any error in denying petitioners' motion to dismiss. Their motion for
reconsideration was likewise dismissed in the appellate court's resolution dated July 11,
2000.
ISSUE:
Whether or not the remedy of accion pauliana by the respondent is valid.
RULING:
Article 1389 of the Civil Code simply provides that, The action to claim
rescission must be commenced within four years. Since this provision of law is silent as
to when the prescriptive period would commence, the general rule, i.e, from the moment
the cause of action accrues, therefore, applies. Article 1150 of the Civil Code is
particularly instructive:
Art. 1150. The time for prescription for all kinds of actions, when there is no special
provision which ordains otherwise, shall be counted from the day they may be brought.
Indeed, the Court enunciated the principle that it is the legal possibility of
bringing the action which determines the starting point for the computation of the
prescriptive period for the action. Article 1383 of the Civil Code provides as follows:
Art. 1383. An action for rescission is subsidiary; it cannot be instituted except when the
party suffering damage has no other legal means to obtain reparation for the same.
It is thus apparent that an action to rescind or an accion pauliana must be of last
resort, availed of only after all other legal remedies have been exhausted and have been
proven futile. For an accion pauliana to accrue, the following requisites must concur:
1) That the plaintiff asking for rescission has a credit prior to the
alienation, although demandable later;
2) That the debtor has made a subsequent contract conveying a
patrimonial benefit to a third person;
3) That the creditor has no other legal remedy to satisfy his claim, but
would benefit by rescission of the conveyance to the third person;
4) That the act being impugned is fraudulent;
5) That the third person who received the property conveyed, if by
onerous title, has been an accomplice in the fraud.
An accion pauliana accrues only when the creditor discovers that he has no other
legal remedy for the satisfaction of his claim against the debtor other than an accion
pauliana. The accion pauliana is an action of a last resort. For as long as the creditor
still has a remedy at law for the enforcement of his claim against the debtor, the creditor
will not have any cause of action against the creditor for rescission of the contracts
entered into by and between the debtor and another person or persons. Indeed, an accion
pauliana presupposes a judgment and the issuance by the trial court of a writ of execution
for the satisfaction of the judgment and the failure of the Sheriff to enforce and satisfy the
judgment of the court. It presupposes that the creditor has exhausted the property of the
debtor. The date of the decision of the trial court against the debtor is immaterial. What
is important is that the credit of the plaintiff antedates that of the fraudulent alienation by
the debtor of his property. After all, the decision of the trial court against the debtor will
retroact to the time when the debtor became indebted to the creditor.
An accion pauliana thus presupposes the following:
1) A judgment;
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2) the issuance by the trial court of a writ of execution for the satisfaction
of the judgment, and
3) the failure of the sheriff to enforce and satisfy the judgment of the
court.
It requires that the creditor has exhausted the property of the debtor. The date of
the decision of the trial court is immaterial. What is important is that the credit of the
plaintiff antedates that of the fraudulent alienation by the debtor of his property. After all,
the decision of the trial court against the debtor will retroact to the time when the debtor
became indebted to the creditor.
While it is necessary that the credit of the plaintiff in the accion pauliana must be
prior to the fraudulent alienation, the date of the judgment enforcing it is immaterial.
Even if the judgment be subsequent to the alienation, it is merely declaratory with
retroactive effect to the date when the credit was constituted.
The following successive measures must be taken by a creditor before he may
bring an action for rescission of an allegedly fraudulent sale:
(1) exhaust the properties of the debtor through levying by attachment and
execution upon all the property of the debtor, except such as are exempt from execution;
(2) exercise all the rights and actions of the debtor, save those personal to
him (accion subrogatoria); and
(3) seek rescission of the contracts executed by the debtor in fraud of their
rights (accion pauliana).

Even if respondent Philam was aware, as of December 27, 1989, that petitioner
Khe Hong Cheng had executed the deeds of donation in favor of his children, the
complaint against Butuan Shipping Lines and/or petitioner Khe Hong Cheng was still
pending before the trial court. Respondent Philam had no inkling, at the time, that the
trial court's judgment would be in its favor and further, that such judgment would not be
satisfied due to the deeds of donation executed by petitioner Khe Hong Cheng during the
pendency of the case. Had respondent Philam filed his complaint on December 27, 1989,
such complaint would have been dismissed for being premature. Not only were all other
legal remedies for the enforcement of respondent Philams claims not yet exhausted at
the time the deeds of donation were executed and registered. Respondent Philam would
also not have been able to prove then that petitioner Khe Hong Chneg had no more
property other than those covered by the subject deeds to satisfy a favorable judgment by
the trial court.
WHEREFORE, the petition is DENIED for lack of merit.

Page | 147

ROBERTO C. SICAM and AGENCIA de R.C. SICAM, INC. versus LULU V.


JORGE and CESAR JORGE
G.R. NO. 159617
August 8, 2007
FACTS:
On different dates from September to October 1987, Lulu V. Jorge pawned
several pieces of jewelry with Agencia de R. C. Sicam located at No. 17 Aguirre Ave.,
BF Homes Paraaque, Metro Manila, to secure a loan in the total amount of P59,500.00.
On October 19, 1987, two armed men entered the pawnshop and took away
whatever cash and jewelry were found inside the pawnshop vault. Petitioner Sicam sent
respondent Lulu a letter dated October 19, 1987 informing her of the loss of her jewelry
due to the robbery incident in the pawnshop. On November 2, 1987, respondent Lulu
then wrote a letter to petitioner Sicam expressing disbelief stating that when the robbery
happened, all jewelry pawned were deposited with Far East Bank near the pawnshop
since it had been the practice that before they could withdraw, advance notice must be
given to the pawnshop so it could withdraw the jewelry from the bank. Respondent Lulu
then requested petitioner Sicam to prepare the pawned jewelry for withdrawal on
November 6, 1987 but petitioner Sicam failed to return the jewelry.
On September 28, 1988, respondent Lulu joined by her husband, Cesar Jorge,
filed a complaint against petitioner Sicam with the Regional Trial Court of Makati
seeking indemnification for the loss of pawned jewelry and payment of actual, moral and
exemplary damages as well as attorney's fees. However, petitioner Sicam contends that
he is not the real party-in-interest as the pawnshop was incorporated on April 20, 1987
and known as Agencia de R.C. Sicam, Inc; that petitioner corporation had exercised due
care and diligence in the safekeeping of the articles pledged with it and could not be
made liable for an event that is fortuitous.
After trial ,the RTC rendered its Decision dismissing respondents complaint as
well as petitioners counterclaim. The RTC held that robbery is a fortuitous event which
exempts the victim from liability for the loss and under Art. 1174 of the Civil Code. It
further held that the corresponding diligence required of a pawnshop is that it should
take steps to secure and protect the pledged items and should take steps to insure itself
against the loss of articles which are entrusted to its custody as it derives earnings from
the pawnshop trade which petitioners failed to do and that robberies and hold-ups are
foreseeable risks in that those engaged in the pawnshop business are expected to foresee.
ISSUE:
Whether petitioners are liable for the loss of
possession.

the pawned articles in their

RULING:
Fortuitous events by definition are extraordinary events not foreseeable or
avoidable. It is therefore, not enough that the event should not have been foreseen or
anticipated, as is commonly believed but it must be one impossible to foresee or to avoid.
The mere difficulty to foresee the happening is not impossibility to foresee the same.
To constitute a fortuitous event, the following elements must concur: (a) the cause
of the unforeseen and unexpected occurrence or of the failure of the debtor to comply
with obligations must be independent of human will; (b) it must be impossible to foresee
the event that constitutes the caso fortuito or, if it can be foreseen, it must be impossible
to avoid; (c) the occurrence must be such as to render it impossible for the debtor to

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fulfill obligations in a normal manner; and, (d) the obligor must be free from any
participation in the aggravation of the injury or loss.
The burden of proving that the loss was due to a fortuitous event rests on him who
invokes it. And, in order for a fortuitous event to exempt one from liability, it is
necessary that one has committed no negligence or misconduct that may have occasioned
the loss.
It has been held that an act of God cannot be invoked to protect a person who has
failed to take steps to forestall the possible adverse consequences of such a loss. One's
negligence may have concurred with an act of God in producing damage and injury to
another; nonetheless, showing that the immediate or proximate cause of the damage or
injury was a fortuitous event would not exempt one from liability. When the effect is
found to be partly the result of a person's participation -- whether by active intervention,
neglect or failure to act -- the whole occurrence is humanized and removed from the rules
applicable to acts of God.
Petitioner Sicam had testified that there was a security guard in their pawnshop at
the time of the robbery and that when he started the pawnshop business in 1983, he
thought of opening a vault with the nearby bank for the purpose of safekeeping the
valuables but was discouraged by the Central Bank since pawned articles should only be
stored in a vault inside the pawnshop. The very measures which petitioners had allegedly
adopted show that to them the possibility of robbery was not only foreseeable, but
actually foreseen and anticipated. The testimony, in effect, contradicts petitioners
defense of fortuitous event. Moreover, petitioners failed to show that they were free from
any negligence by which the loss of the pawned jewelry may have been occasioned.
Robbery per se, just like carnapping, is not a fortuitous event. It does not
foreclose the possibility of negligence on the part of herein petitioners. The presentation
of the police report of the Paraaque Police Station on the robbery committed based on
the report of petitioners' employees is not sufficient to establish robbery. Such report also
does not prove that petitioners were not at fault. Also, the robbery in this case took place
in 1987 when robbery was already prevalent and petitioners in fact had already foreseen
it as they wanted to deposit the pawn with a nearby bank for safekeeping. Thus,
petitioners are negligent in securing their pawnshop.

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FLORENCIA T. HUIBONHOA vs. COURT OF APPEALS, Spouses Rufina G. Lim


and ANTHONY LIM, LORETA GOJOCCO CHUA and Spouses SEVERINO and
PRISCILLA GOJOCCO
G.R. No. 95897
1999 Dec 14
FACTS:
On June 8, 1983, Florencia T. Huibonhoa entered into a memorandum of
agreement with siblings Rufina Gojocco Lim, Severino Gojocco and Loreta Gojocco
Chua stipulating that Florencia T. Huibonhoa would lease from them 3 adjacent
commercial lots at Ilaya Street, Binondo, Manila, all in their (Gojoccos') names.
On June 30, 1983, pursuant to the said memorandum of agreement, the parties
inked a contract of lease of the same three lots for a period of fifteen years commencing
on July 1, 1983 and renewable upon agreement of the parties. Subject contract was to
enable the lessee, Florencia T. Huibonhoa, to construct a "four-storey reinforced concrete
building with concrete roof deck, according to plans and specifications approved by the
City Engineer's Office." The parties agreed that the lessee could let/sublease the building
and/or its spaces to interested parties under such terms and conditions as the lessee would
determine and that all amounts collected as rents or income from the property would
belong exclusively to the lessee. The lessee undertook to complete construction of the
building "within eight (8) months from the date of the execution of the contract of lease."
The parties also agreed that upon the termination of the lease, the ownership and
title to the building thus constructed on the said lots would automatically transfer to the
lessor, even without any implementing document therefor. Real estate taxes on the land
would be borne by the lessor while that on the building, by the lessee, but the latter was
authorized to advance the money needed to meet the lessors' obligations such as the
payment of real estate taxes on their lots. The lessors would deduct from the monthly
rental due all such advances made by the lessee.
After the execution of the contract, the Gojoccos executed a power of attorney
granting Huibonhoa the authority to obtain "credit facilities" in order that the three lots
could be mortgaged for a limited one-year period from July 1983. Hence, on September
12, 1983, Huibonhoa obtained from China Banking Corporation "credit facilities" not
exceeding One Million Pesos. Simultaneously, she mortgaged the three lots to the
creditor bank. Fifteen days later, Huibonhoa signed a contract amending the real estate
mortgage in favor of China Banking Corporation whereby the "credit facilities" were
increased to the principal sum of Three Million Pesos.
During the construction of the building which later became known as Poulex
Merchandise Center, former Senator Benigno Aquino, Jr. was assassinated. The incident
must have affected the country's political and economic stability. The consequent
hoarding of construction materials and increase in interest rates allegedly affected
adversely the construction of the building such that Huibonhoa failed to complete the
same within the stipulated eight-month period. Projected to be finished on February 29,
1984, the construction was completed only in September 1984 or seven months later.
Under the contract, Huibonhoa was supposed to start paying rental in March 1984
but she failed to do so. Consequently, the Gojoccos made several verbal demands upon
Huibonhoa for the payment of rental arrearages and, for her to vacate the leased premises.
On December 19, 1984, lessors sent lessee a final letter of demand to pay the rental
arrearages and to vacate the leased premises. The former also notified the latter of their
intention to terminate the contract of lease.
However, on January 3, 1985, Huibonhoa brought an action for reformation of
contract., the Complaint alleged that although there was a meeting of the minds between
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the parties on the lease contract, their true intention as to when the monthly rental would
accrue was not therein expressed due to mistake or accident. Thus, according to
Huibonhoa, the first rent would have been due only in October 1984. Moreover, the
assassination of former Senator Benigno Aquino, Jr., an unforeseen event, caused the
country's economy to turn from bad to worse and as a result, the prices of commodities
like construction materials so increased that the building worth Six Million pesos
escalated to "something like 11 to 12 million pesos." However, she averred that by reason
of mistake or accident, the lease contract failed to provide that should an unforeseen
event dramatically increase the cost of construction, the monthly rental would be reduced
and the term of the lease would be extended for such duration as may be fair and
equitable to both the lessors and the lessee.
ISSUE:
Whether or not the Court failed to consider the tragic assassination of former
Senator Benigno Aquino as a fortuitous event or force majeure which justifies the
adjustment of the terms of the contract of lease.
RULING:
The Court does not find merit in her submission that the assassination of the late
Senator Benigno Aquino, Jr. was a fortuitous event that justified a modification of the
terms of the lease contract.
In the case, the assassination of Senator Aquino may indeed be considered a
fortuitous event. However, the said incident per se could not have caused the delay in the
construction of the building. What might have caused the delay was the resulting
escalation of prices of commodities including construction materials. Be that as it may,
there is no merit in Huibonhoa's argument that the inflation borne by the Filipinos in
1983 justified the delayed accrual of monthly rental, the reduction of its amount and the
extension of the lease by three years.
Inflation is the sharp increase of money or credit or both without a corresponding
increase in business transaction. There is inflation when there is an increase in the
volume of money and credit relative to available goods resulting in a substantial and
continuing rise in the general price level. While it is of judicial notice that there has been
a decline in the purchasing power of the Philippine peso, this downward fall of the
currency cannot be considered unforeseeable considering that since the 1970's we have
been experiencing inflation. It is simply a universal trend that has not spared our country.
Conformably, the Court upheld the petitioner's view in Occena v. Jabson that even a
worldwide increase in prices does not constitute a sufficient cause of action for
modification of an instrument.
It is only when an extraordinary inflation supervenes that the law affords the
parties a relief in contractual obligations. Art. 1250 of the Civil Code provides that "(i)n
case an extraordinary inflation or deflation of the currency stipulated should supervene,
the value of the currency at the time of the establishment of the obligation shall be the
basis of the payment, unless there is an agreement to the contrary."
Extraordinary inflation exists when 'there is a decrease or increase in the
purchasing power of the Philippine currency which is unusual or beyond the common
fluctuation in the value of said currency, and such decrease or increase could not have
been reasonably foreseen or was manifestly beyond the contemplation of the parties at
the time of the establishment of the obligation.
No decrease in the peso value of such magnitude having occurred, Huibonhoa has
no valid ground to ask this Court to intervene and modify the lease agreement to suit her
Page | 151

purpose. As it is, Huibonhoa even failed to prove by evidence, documentary or


testimonial, that there was an extraordinary inflation from July 1983 to February 1984.
Although she repeatedly alleged that the cost of constructing the building doubled from
P6 million to P12 million, she failed to show by how much, for instance, the price index
of goods and services had risen during that intervening period. An extraordinary inflation
cannot be assumed. Hence, for Huibonhoa to claim exemption from liability by reason of
fortuitous event under Art. 1174 of the Civil Code, she must prove that inflation was the
sole and proximate cause of the loss or destruction of the contract or, in this case, of the
delay in the construction of the building. Having failed to do so, Huibonhoa's contention
is untenable.
Pathetically, if indeed a fortuitous event deterred the timely fulfillment of
Huibonhoa's obligation under the lease contract, she chose the wrong remedy in filing the
case for reformation of the contract. Instead, she should have availed of the remedy of
recission of contract in order that the court could release her from performing her
obligation under Arts. 1266, the debtor in obligations to do shall also be released when
the presentation becomes legally or physically impossible without the fault of the obligor
and 1267, when the service has become so difficult as to be manifestly beyond the
contemplation of the parties, the obligor may also be released therefrom, in whole or in
part, so that the parties could be restored to their status prior to the execution of the lease
contract.

Page | 152

ACE-AGRO DEVELOPMENT CORPORATION vs. COURT OF APPEALS and


COSMOS BOTTLING CORPORATION
G.R. No. 119729
1997 Jan 21

FACTS:
Private respondent Cosmos Bottling Corp. is engaged in the manufacture of soft
drinks. Since 1979 petitioner Ace-Agro Development Corp. had been cleaning soft drink
bottles and repairing wooden shells for Cosmos, rendering its services within the
company premises in San Fernando, Pampanga. The parties entered into service contracts
which they renewed every year. On January 18, 1990, they signed a contract covering the
period January 1, 1990 to December 31, 1990. Private respondent had earlier contracted
the services of Aren Enterprises in view of the fact that petitioner could handle only from
2,000 to 2,500 cases a day and could not cope with private respondent's daily production
of 8,000 cases. Unlike petitioner, Aren Enterprises rendered service outside private
respondent's plant.
On April 25, 1990, fire broke out in private respondent's plant, destroying, among
other places, the area where petitioner did its work. As a result, petitioner's work was
stopped. On May 15, 1990, petitioner asked private respondent to allow it to resume its
service, but petitioner was advised that on account of the fire, which had practically
burned all old soft drink bottles and wooden shells, private respondent was terminating
their contract. Petitioner expressed surprise at the termination of the contract and
requested private respondent, on June 13, 1990, to reconsider its decision and allow
petitioner to resume its work. As it received no reply from private respondent, petitioner,
on June 20, 1990, informed its employees of the termination of their employment.
In response, private respondent advised petitioner on August 28, 1990 that the
latter could resume the repair of wooden shells under terms similar to those contained in
its contract but work had to be done outside the company premises. Petitioner refused the
offer, claiming that to do its work outside the company's premises would make it incur
additional costs for transportation.
On January 3, 1991, petitioner brought the case against private respondent for
breach of contract and damages in the Regional Trial Court of Malabon. In its decision,
the RTC found private respondent guilty of breach of contract and ordered it to pay
damages to petitioner. Private respondent appealed to the Court of Appeals, which on
December 29, 1994, reversed the trial court's decision and dismissed petitioner's
complaint. The appellate court found that it was petitioner which had refused to resume
work, after failing to secure an extension of its contract.
ISSUE:
Whether or not the appellate court erred in ruling that respondent was justified in
unilaterally terminating the contract on account of a force majeure.
RULING:
Obligations may be extinguished by the happening of unforeseen events, under
whose influence the obligation would never have been contracted, because in such cases,
the very basis upon which the existence of the obligation is founded would be wanting.
Both parties admitted that the April 25, 1990 fire was a force majeure or unforeseen event
and that the same even burned practically all the softdrink bottles and wooden shells
which are the objects of the agreement. However, the court says that there was no cause
for terminating the contract but at most a temporary suspension of work. Thus, as a result
of the fire, the obligation of contract have not been extinguished.
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The agreement between the appellee and the appellant is with a resolutory period,
beginning from January 1, 1990 and ending on December 31, 1990. When the fire broke
out on April 25, 1990, there resulted a suspension of the appellee's work as per
agreement. But this suspension of work due to force majeure did not merit an automatic
extension of the period of the agreement between them.
According to Tolentino, the stipulation that in the event of a fortuitous event or
force majeure the contract shall be deemed suspended during the said period does not
mean that the happening of any of those events stops the running of the period the
contract has been agreed upon to run. It only relieves the parties from the fulfillment of
their respective obligations during that time. If during six of the thirty years fixed as the
duration of a contract, one of the parties is prevented by force majeure to perform his
obligation during those years, he cannot after the expiration of the thirty-year period, be
compelled to perform his obligation for six more years to make up for what he failed to
perform during the said six years, because it would in effect be an extension of the term
of the contract. The contract is stipulated to run for thirty years, and the period expires on
the thirtieth year; the period of six years during which performance by one of the parties
is prevented by force majeure cannot be deducted from the period stipulated.
WHEREFORE, the petition is DENIED and the decision of the Court of Appeals
is AFFIRMED.

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PEDRO D. DIOQUINO vs. FEDERICO LAUREANO, AIDA DE LAUREANO and


JUANITO LAUREANO
G.R. No. L-25906
May 28, 1970
FACTS:
Attorney Pedro Dioquino, a practicing lawyer of Masbate, is the owner of a car.
On March 31, 1964, he went to the office of the MVO, Masbate, to register the same. He
met the defendant Federico Laureano, a patrol officer of said MVO office, who was
waiting for a jeepney to take him to the office of the Provincial Commander, PC,
Masbate. Attorney Dioquino requested the defendant Federico Laureano to introduce him
to one of the clerks in the MVO Office, who could facilitate the registration of his car and
the request was graciously attended to.
Defendant Laureano rode on the car of Atty. Dioquino on his way to the P.C.
Barracks at Masbate. While about to reach their destination, the car was stoned by some
'mischievous boys,' and its windshield was broken. Defendant Federico Laureano chased
the boys and he was able to catch one of them. The boy was taken to Atty. Dioquino and
admitted having thrown the stone that broke the car's windshield. The plaintiff and the
defendant Federico Laureano with the boy returned to the P.C. barracks and the father of
the boy was called, but no satisfactory arrangements were made.
Federico Laureano refused to file any charges against the boy and his parents
because he thought that the stone-throwing was merely accidental and that it was due to
force majeure. So he did not want to take any action and after delaying the settlement, the
defendant Federico Laureano refused to pay the windshield himself and challenged that
the case be brought to court for judicial adjudication.
ISSUE:
Whether or not the stone-throwing incident can be considered as a force majeure,
thus respondent can be held liable.
RULING:
Under the Civil Code, the rule was well-settled that in the absence of a legal
provision or an express covenant, "no one should be held to account for fortuitous cases."
The error committed by the lower court in holding defendant Federico Laureano liable
appears to be thus obvious. Its own findings of fact repel the motion that he should be
made to respond in damages to the plaintiff for the broken windshield. What happened
was clearly unforeseen. It was a fortuitous event resulting in a loss which must be borne
by the owner of the car.
The trial court was misled, apparently, by the inclusion of the exemption from the
operation of such a provision of a party assuming the risk, considering the nature of the
obligation undertaken. The very wording of the law dispels any doubt that what is therein
contemplated is the resulting liability even if caused by a fortuitous event where the party
charged may be considered as having assumed the risk incident in the nature of the
obligation to be performed. It would be an affront, not only to the logic but to the realities
of the situation, if in the light of what transpired, as found by the lower court, defendant
Federico Laureano could be held as bound to assume a risk of this nature. There was no
such obligation on his part.
WHEREFORE, the decision of the lower court of November 2, 1965 insofar as it
orders defendant Federico Laureano to pay plaintiff the amount of P30,000.00 as
damages plus the payment of costs, is reversed.

Page | 155

Bachelor Express vs CA
GR. NO. 85691, July 31, 1990
FACTS:
On 1 August 1980, Bus 800, owned by Bachelor Express, Inc. and driven by
Cresencio Rivera, came from Davao City on its way to Cagayan de Oro City passing
Butuan City. While at Tabon-Tabon, Butuan City, the bus picked up a passenger. About
15 minutes later, a passenger at the rear portion suddenly stabbed a PC soldier which
caused commotion and panic among the passengers. When the bus stopped, passengers
Ornominio Beter and Narcisa Rautraut were found lying down the road, the former
already dead as a result of head injuries and the latter also suffering from severe injuries
which caused her death later. The passenger-assailant alighted from the bus and ran
toward the bushes but was killed by the police.
Thereafter, the heirs of Ornomino Beter and Narcisa Rautraut (Ricardo Beter and
Sergia Beter are the parents of Ornominio while Teofilo Rautraut and Zotera Rautraut are
the parents of Narcisa) filed a complaint for sum of money against Bachelor Express,
its alleged owner Samson Yasay, and the driver Rivera. After due trial, the trial court
issued an order dated 8 August 1985 dismissing the complaint. The CA however reversed
the RTC decision.
ISSUES:
1. Whether or not the case at bar is within the context of force majeure.
2. Should the petitioner be absolved from liability for the death of its passengers?
RULING:
The sudden act o the passenger who stabbed another passenger in the bus is
within the context of force majeure. However, in order that a common carrier may be
absolved from liability in case of force majeure, it is not enough that the accident was
caused by force majeure. The common carrier must still proves that it was not negligent
in causing the injuries resulting from such accident. Considering the factual findings in
this case, it is clear that petitioner has failed to overcome the presumption of fault and
negligence found in the law governing common carriers. The argument that the
petitioners are not insurers of their passengers deserves no merit in view of the failure of
the petitioners to observe extraordinary diligence in transporting safely the passengers to
their destination as warranted by law.

Page | 156

PEDRO VASQUEZ, SOLEDAD ORTEGA, CLETO B. BAGAIPO, AGUSTINA


VIRTUDES, ROMEO VASQUEZ and MAXIMINA CAINAY vs. THE COURT OF
APPEALS and FILIPINAS PIONEER LINES, INC.
G.R. No. L-42926
1985 Sep 13
FACTS:
MV 'Pioneer Cebu' was owned and operated by the defendant and used in the
transportation of goods and passengers in the interisland shipping. It had a passenger
capacity of three hundred twenty-two including the crew. It undertook the said voyage on
a special permit issued by the Collector of Customs inasmuch as, upon inspection, it was
found to be without an emergency electrical power system. The special permit authorized
the vessel to carry only two hundred sixty passengers due to the said deficiency and for
lack of safety devices for 322 passengers. A headcount was made of the passengers on
board, resulting on the tallying of 168 adults and 20 minors, although the passengers
manifest only listed 106 passengers. It has been admitted, however, that the headcount is
not reliable.
When the vessel left Manila, its officers were already aware of the typhoon
Klaring building up somewhere in Mindanao. There being no typhoon signals on the
route from Manila to Cebu, and the vessel having been cleared by the Customs
authorities, the MV 'Pioneer Cebu' left on its voyage to Cebu despite the typhoon.When it
left the Port of Manila in the early morning of May 15, 1966, t had on board the spouses
Alfonso Vasquez and Filipinas Bagaipo and a four-year old boy, Mario Marlon Vasquez,
among her passengers. The MV 'Pioneer Cebu' encountered typhoon 'Klaring' and struck
a reef on the southern part of Malapascua Island, located somewhere north of the island
of Cebu and subsequently sunk.
Plaintiffs Pedro Vasquez and Soledad Ortega are the parents of Alfonso Vasquez;
plaintiffs Cleto Bagaipo and Agustina Virtudes are the parents of Filipinas Bagaipo; and
plaintiffs Romeo Vasquez and Maximina Cainay are the parents of the child, Mario
Marlon Vasquez. They seek the recovery of damages due to the loss of Alfonso Vasquez,
Filipinas Bagaipo and Mario Marlon Vasquez during said voyage.
The defendant admitted its contract of carriage with Alfonso Vasquez, Filipinas
Bagaipo and Mario Marlon Vasquez, and the fact of the sinking of the MV 'Pioneer
Cebu'. The defendant alleged that the sinking of the vessel was caused by force majeure,
and that the defendant's liability had been extinguished by the total loss of the vessel.
ISSUE:
Whether or not the respondent would be exempt from responsibility due to its
defense of fortuitous event.
RULING:
To constitute a caso fortuito that would exempt a person from responsibility, it is
necessary that (1) the event must be independent of the human will; (2) the occurrence
must render it impossible for the debtor to fulfill the obligation in a normal manner; and
that (3) the obligor must be free of participation in, or aggravation of, the injury to the
creditor. The event must have been impossible to foresee, or if it could be foreseen, must
have been impossible to avoid. There must be an entire exclusion of human agency from
the cause of injury or loss.
Under the circumstances, while, indeed, the typhoon was an inevitable
occurrence, yet, having been kept posted on the course of the typhoon by weather
bulletins at intervals of six hours, the captain and crew were well aware of the risk they
Page | 157

were taking as they hopped from island to island from Romblon up to Tanguingui. They
held frequent conferences, and oblivious of the utmost diligence required of very cautious
persons, they decided to take a calculated risk. In so doing, they failed to observe that
extraordinary diligence required of them explicitly by law for the safety of the passengers
transported by them with due regard for all circumstances and unnecessarily exposed the
vessel and passengers to the tragic mishap. They failed to overcome that presumption of
fault or negligence that arises in cases of death or injuries to passengers.
With regard to the contention that the total loss of the vessel extinguished its
liability pursuant to Article 587 of the Code of Commerce, it was held that the liability of
a shipowner is limited to the value of the vessel or to the insurance thereon. Despite the
total loss of the vessel therefore, its insurance answers for the damages that a shipowner
or agent may be held liable for by reason of the death of its passengers.
WHEREFORE, the appealed judgment is REVERSED and the judgment of the then
Court of First Instance of Manila is reinstated.

Page | 158

ALBERTA YOBIDO and CRESENCIO YOBIDO vs. COURT OF APPEALS,


LENY TUMBOY, ARDEE TUMBOY and JASMIN TUMBOY
G.R. No. 113003
1997 Oct 17
FACTS:
On April 26, 1988, spouses Tito and Leny Tumboy and their minor children
named Ardee and Jasmin, boarded at Mangagoy, Surigao del Sur, a Yobido Liner bus
bound for Davao City. Along Picop Road in Km. 17, Sta. Maria, Agusan del Sur, the left
front tire of the bus exploded. The bus fell into a ravine around three (3) feet from the
road and struck a tree. The incident resulted in the death of 28-year-old Tito Tumboy, and
physical injuries to other passengers.
On November 21, 1988, a complaint for breach of contract of carriage, damages
and attorney's fees was filed by Leny and her children against Alberta Yobido, the owner
of the bus, and Cresencio Yobido, its driver, before the Regional Trial Court of Davao
City. The plaintiffs asserted that violation of the contract of carriage between them and
the defendants was brought about by the driver's failure to exercise the diligence required
of the carrier in transporting passengers safely to their place of destination. On the other
hand, the defendants raised the affirmative defense of caso fortuito.
On August 29, 1991, the lower court rendered a decision dismissing the action for
lack of merit. It ruled that the tire blowout was "a caso fortuito which is completely an
extraordinary circumstance independent of the will" of the defendants who should be
relieved of "whatever liability the plaintiffs may have suffered by reason of the explosion
pursuant to Article 1174 4 of the Civil Code. Upon appeal of the plaintiffs, the court
reversed the decision of the lower court, ruling that the explosion of the tire is not in itself
a fortuitous event.
ISSUE:
Whether or not petitioners should be exempt from liability because the tire
blowout was a fortuitous event.
RULING:
As a rule, when a passenger boards a common carrier, he takes the risks incidental
to the mode of travel he has taken. After all, a carrier is not an insurer of the safety of its
passengers and is not bound absolutely and at all events to carry them safely and without
injury. However, when a passenger is injured or dies, while traveling, the law presumes
that the common carrier is negligent.
Thus, the Civil Code provides under Article 1755 that a common carrier is bound
to carry the passengers safely as far as human care and foresight can provide, using the
utmost diligence of very cautious persons, with a due regard for all the circumstances.
Accordingly, in culpa contractual, once a passenger dies or is injured, the carrier is
presumed to have been at fault or to have acted negligently. This disputable presumption
may only be overcome by evidence that the carrier had observed extraordinary diligence
as prescribed by Articles 1733, 10 1755 and 1756 of the Civil Code or that the death or
injury of the passenger was due to a fortuitous event. Consequently, the court need not
make an express finding of fault or negligence on the part of the carrier to hold it
responsible for damages sought by the passenger.
The petitioners' contention that they should be exempt from liability because the
tire blowout was no more than a fortuitous event that could not have been foreseen, must
fail. Under the circumstances of this case, the explosion of the new tire may not be
considered a fortuitous event. There are human factors involved in the situation. The fact
Page | 159

that the tire was new did not imply that it was entirely free from manufacturing defects or
that it was properly mounted on the vehicle. Neither may the fact that the tire bought and
used in the vehicle is of a brand name noted for quality, resulting in the conclusion that it
could not explode within five days' use. It is settled that an accident caused either by
defects in the automobile or through the negligence of its driver is not a caso fortuito that
would exempt the carrier from liability for damages.
Moral damages are generally not recoverable in culpa contractual except when bad faith
had been proven. However, the same damages may be recovered when breach of contract
of carriage results in the death of a passenger, as in this case. Exemplary damages,
awarded by way of example or correction for the public good when moral damages are
awarded, may likewise be recovered in contractual obligations if the defendant acted in
wanton, fraudulent, reckless, oppressive, or malevolent manner. Because petitioners
failed to exercise the extraordinary diligence required of a common carrier, which
resulted in the death of Tito Tumboy, it is deemed to have acted recklessly. As such,
private respondents shall be entitled to exemplary damages.
WHEREFORE, the Decision of the Court of Appeals is AFFIRMED.

Page | 160

ROBERTO JUNTILLA vs. CLEMENTE FONTANAR, FERNANDO BANZON


and BERFOL CAMORO
G.R. No. L-45637
1985 May 31
FACTS:
Plaintiff was a passenger of the public utility jeepney bearing plate No. PUJ-71-7
on the course of the trip from Danao City to Cebu City. The jeepney was driven by
defendant Berfol Camoro. It was registered under the franchise of defendant Clemente
Fontanar but was actually owned by defendant Fernando Banzon. When the jeepney
reached Mandaue City, the right rear tire exploded causing the vehicle to turn turtle. In
the process, the plaintiff who was sitting at the front seat was thrown out of the vehicle.
Upon landing on the ground, the plaintiff momentarily lost consciousness. When
he came to his senses, he found that he had a lacerated wound on his right palm. Aside
from this, he suffered injuries on his left arm, right thigh and on his back. Because of his
shock and injuries, he went back to Danao City but on the way, he discovered that his
`Omega' wrist watch was lost. Upon his arrival in Danao City, he immediately entered
the Danao City Hospital to attend to his injuries, and also requested his father-in-law to
proceed immediately to the place of the accident and look for the watch. In spite of the
efforts of his father-in-law, the wrist watch, which he bought for P852.70 could no longer
be found.
Petitioner Roberto Juntilla, then filed a civil case for breach of contract with
damages before the City Court of Cebu City against Clemente Fontanar, Fernando
Banzon and Berfol Camoro. The respondents alleged that the accident that caused losses
to the petitioner was beyond the control of the respondents taking into account that the
tire that exploded was newly bought and was only slightly used at the time it blew up.
The City Court of Cebu rendered judgment in favor of the petitioner and against
the respondents. The respondents appealed to the Court of First Instance of Cebu. The
court reversed the judgment of the City Court of Cebu upon a finding that the accident in
question was due to a fortuitous event.
ISSUE:
Whether or not the Court of First Instance of Cebu erred when it absolved the
carrier from any liability upon a finding that the tire blow out is a fortuitous event.
RULING:
The Court of First Instance of Cebu erred when it absolved the carrier from any
liability upon a finding that the tire blow out is a fortuitous event for there are specific
acts of negligence on the part of the respondents. The records show that the passenger
jeepney turned turtle and jumped into a ditch immediately after its right rear tire
exploded. The evidence shows that the passenger jeepney was running at a very fast
speed before the accident. We agree with the observation of the petitioner that a public
utility jeep running at a regular and safe speed will not jump into a ditch when its right
rear tire blows up. There is also evidence to show that the passenger jeepney was
overloaded at the time of the accident.
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
Page | 161

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.
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 an 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.
The source of a common carrier's legal liability is the contract of carriage, and by
entering into the said contract, it binds itself to carry the passengers safely as far as
human care and foresight can provide, using the utmost diligence of a very cautious
person, with a due regard for all the circumstances. The records show that this obligation
was not met by the respondents.
WHEREFORE, the decision of the Court of First Instance of Cebu is
REVERSED and SET ASIDE, and the decision of the City Court of Cebu is
REINSTATED.

Page | 162

THE PHILIPPINE AMERICAN GENERAL INSURANCE CO., INC. vs. MGG


MARINE SERVICES, INC. and DOROTEO GAERLAN
G.R. No. 135645
2002 Mar 8
FACTS:
On March 1, 1987, San Miguel Corporation insured several beer bottle cases with
petitioner Philippine American General Insurance Company. The cargo were loaded on
board the M/V Peatheray Patrick-G to be transported from Mandaue City to Bislig,
Surigao del Sur. After having been cleared by the Coast Guard Station in Cebu the
previous day, the vessel left the port of Mandaue City for Bislig, Surigao del Sur on
March 2, 1987.
The following day, March 3, 1987, M/V Peatheray Patrick-G listed and
subsequently sunk off Cawit Point, Cortes, Surigao del Sur. As a consequence thereof,
the cargo belonging to San Miguel Corporation was lost. Subsequently, San Miguel
Corporation claimed the amount of its loss from petitioner.
The Board of Marine Inquiry conducted its own investigation of the sinking of the
M/V Peatheray Patrick-G to determine whether or not the captain and crew of the vessel
should be held responsible for the incident. On May 11, 1989, the Board rendered its
decision exonerating the captain and crew of the ill-fated vessel for any administrative
liability. It found that the cause of the sinking of the vessel was the existence of strong
winds and enormous waves in Surigao del Sur, a fortuitous event that could not have
been forseen at the time the M/V Peatheray Patrick-G left the port of Mandaue City. It
was further held by the Board that said fortuitous event was the proximate and only cause
of the vessels sinking.
The RTC of Makati City promulgated its Decision finding private respondents
solidarily liable for the loss of San Miguel Corporations cargo. Private respondents
appealed the trial courts decision to the Court of Appeals. The appellate court reversed
the ruling of the RTC. It held that private respondents could not be held liable for the loss
of San Miguel Corporations cargo because said loss occurred as a consequence of a
fortuitous event, and that such fortuitous event was the proximate and only cause of the
loss.
ISSUE:
Whether the cargo was lost due to a fortuitous event and whether respondents
exercised due diligence to prevent the loss of the cargo.
RULING:
Common carriers, from the nature of their business and for reasons of public
policy, are mandated to observe extraordinary diligence in the vigilance over the goods
and for the safety of the passengers transported by them. Owing to this high degree of
diligence required of them, common carriers, as a general rule, are presumed to have
been at fault or negligent if the goods transported by them are lost, destroyed or if the
same deteriorated.
However, this presumption of fault or negligence does not arise in the cases
enumerated under Article 1734 of the Civil Code:
Common carriers are responsible for the loss, destruction, or deterioration of the goods,
unless the same is due to any of the following causes only:
(1) Flood, storm, earthquake, lightning or other natural disaster or calamity;
Page | 163

(2) Act of the public enemy in war, whether international or civil;


(3) Act or omission of the shipper or owner of the goods;
(4) The character of the goods or defects in the packing or in the containers;
(5) Order or act of competent public authority.
In order that a common carrier may be absolved from liability where the loss,
destruction or deterioration of the goods is due to a natural disaster or calamity, it must
further be shown that the such natural disaster or calamity was the proximate and only
cause of the loss; there must be "an entire exclusion of human agency from the cause of
the injury of the loss." Moreover, even in cases where a natural disaster is the proximate
and only cause of the loss, a common carrier is still required to exercise due diligence to
prevent or minimize loss before, during and after the occurrence of the natural disaster,
for it to be exempt from liability under the law for the loss of the goods. If a common
carrier fails to exercise due diligence--or that ordinary care which the circumstances of
the particular case demand --to preserve and protect the goods carried by it on the
occasion of a natural disaster, it will be deemed to have been negligent, and the loss will
not be considered as having been due to a natural disaster under Article 1734 (1).
The findings of the Board of Marine Inquiry indicate that the attendance of strong
winds and huge waves while the M/V Peatheray Patrick-G was sailing through Cortes,
Surigao del Norte on March 3, 1987 was indeed fortuitous. Thus, the Caprain could not
be expected to have foreseen the unfavorable weather condition that awaited the vessel in
Cortes, Surigao del Sur. It was the presence of the strong winds and enormous waves
which caused the vessel to list, keel over, and consequently lose the cargo contained
therein. The appellate court likewise found that there was no negligence on the part of the
crew of the M/V Peatheray Patrick-G. Hence, private respondents cannot be held liable
for the said loss.

Page | 164

MINDEX RESOURCES DEVELOPMENT vs. EPHRAIM MORILLO


G.R. No. 138123
2002 Mar 12
FACTS:
On February 1991, a verbal agreement was entered into between Ephraim Morillo
and Mindex Resources Corporation for the lease of the formers 6 x 6 ten-wheeler cargo
truck for use in MINDEXs mining operations in Binaybay, Bigaan, San Teodoro,
Oriental Mindoro, at the stipulated rental of P300.00 per hour for a minimum of eight
hours a day or a total of P2,400.00 daily. MINDEX had been paying the rentals until
April 10, 1991.
Unknown to Morillo, on April 11, 1991, the truck was burned by unidentified
persons while it was parked unattended at Sitio Aras, Bigaan, San Teodoro, Oriental
Mindoro, due to mechanical trouble. Upon learning of the burning incident, Morillo
offered to sell the truck to MINDEX but the latter refused. Instead, it replaced the
vehicles burned tires and had it towed to a shop for repair and overhauling.
On April 15, 1991, Morillo sent a letter to Mr. Arni Isberg, the Finance Manager
of MINDEX, thru Mr. Ramoncito Gozar, Project Manager, proposing that he is entrusting
to MINDEX the said vehicle in the amount of P275,000.00 which is its cost price, in four
monthly installments. Morillo then promised to relinquish all the necessary documents
upon full payment of said account. On the other hand, MINDEX expressed thier
reservations and made counter offers that it will pay the truck in the amount of P76,000,
that the repair and overhaul will be on their expense, and that they wll return it in a good
running condition after repair. Morillo replied 1 that he will relinquish to MINDEX the
damaged truck, that he is amenable to receive the rental in the amount of P76,000.00, and
that MINDEX will pay fifty thousand pesos monthly until the balance of P275,000.00 is
fully paid. On August 1991, Morillo pulled out the truck from the repair shop of
MINDEX and had it repaired elsewhere for which he spent the total amount of
P132,750.00.
The Regional Trial Court found petitioner responsible for the destruction or loss
of the leased 6 x 6 truck. The appellate court sustained the RTCs finding that petitioner
was not without fault for the loss and destruction of the truck and, thus, liable therefor.
ISSUE:
Whether or not the Court of Appeals gravely erred in finding that petitioner failed
to overcome the presumption of negligence against it considering that the facts show that
the burning of the truck was a fortuitous event.
RULING:
Both the RTC and the CA found petitioner negligent and thus liable for the loss or
destruction of the leased truck. Both parties may have suffered from the burning of the
truck; however, as found by both lower courts, the negligence of petitioner makes it
responsible for the loss.
In order for a fortuitous event to exempt one from liability, it is necessary that one
has committed no negligence or misconduct that may have occasioned the loss. An act of
God cannot be invoked to protect a person who has failed to take steps to forestall the
possible adverse consequences of such a loss. Ones negligence may have concurred with
an act of God in producing damage and injury to another; nonetheless, showing that the
immediate or proximate cause of the damage or injury was a fortuitous event would not
exempt one from liability. When the effect is found to be partly the result of a persons

Page | 165

participation -- whether by active intervention, neglect or failure to act -- the whole


occurrence is humanized and removed from the rules applicable to acts of God.
To constitute a fortuitous event, the following elements must concur: (a) the cause
of the unforeseen and unexpected occurrence or of the failure of the debtor to comply
with obligations must be independent of human will; (b) it must be impossible to foresee
the event that constitutes the caso fortuito or, if it can be foreseen, it must be impossible
to avoid; (c) the occurrence must be such as to render it impossible for the debtor to
fulfill obligations in a normal manner; and (d) the obligor must be free from any
participation in the aggravation of the injury or loss.
The records clearly shows that petitioner failed to exercise reasonable care and
caution that an ordinarily prudent person would have used in the same situation.
Petitioner fell short of ordinary diligence in safeguarding the leased truck against the
accident.n Petitioner failed to employ reasonable foresight, diligence and care that would
have exempted it from liability resulting from the burning of the truck. Negligence, as
commonly understood, is that conduct that naturally or reasonably creates undue risk or
harm to others. It may be a failure to observe that degree of care, precaution or vigilance
that the circumstances justly demand; or to do any other act that would be done by a
prudent and reasonable person, who is guided by considerations that ordinarily regulate
the conduct of human affairs.

Page | 166

NATIONAL POWER CORPORATION vs. PHILIPP BROTHERS OCEANIC,


INC.
G.R. No. 126204
2001 Nov 20

FACTS:
On May 14, 1987, the National Power Corporation (NAPOCOR) issued
invitations to bid for the supply and delivery of 120,000 metric tons of imported coal for
its Batangas Coal-Fired Thermal Power Plant in Calaca, Batangas. The Philipp Brothers
Oceanic, Inc. (PHIBRO) prequalified and was allowed to participate as one of the
bidders. After the public bidding was conducted, PHIBROs bid was accepted.
NAPOCORs acceptance was conveyed in a letter dated July 8, 1987, which was
received by PHIBRO on July 15, 1987.
On July 10, 1987, PHIBRO sent word to NAPOCOR that industrial disputes
might soon plague Australia, the shipments point of origin, which could seriously
hamper PHIBROs ability to supply the needed coal. From July 23 to July 31, 1987,
PHIBRO again apprised NAPOCOR of the situation in Australia, particularly informing
the latter that the ship owners therein are not willing to load cargo unless a strike-free
clause is incorporated in the charter party or the contract of carriage. In order to hasten
the transfer of coal, PHIBRO proposed to NAPOCOR that they equally share the burden
of a strike-free clause. NAPOCOR refused.
On August 6, 1987, PHIBRO received from NAPOCOR a confirmed and
workable letter of credit. Instead of delivering the coal on or before the thirtieth day after
receipt of the Letter of Credit, as agreed upon by the parties in the July contract, PHIBRO
effected its first shipment only on November 17, 1987. Consequently, in October 1987,
NAPOCOR once more advertised for the delivery of coal to its Calaca thermal plant.
PHIBRO participated anew in this subsequent bidding. On November 24, 1987,
NAPOCOR disapproved PHIBROs application for pre-qualification to bid for not
meeting the minimum requirements. Upon further inquiry, PHIBRO found that the real
reason for the disapproval was its purported failure to satisfy NAPOCORs demand for
damages due to the delay in the delivery of the first coal shipment.
PHIBRO then filed an action for damages with application for injunction against
NAPOCOR with the Regional Trial Court of Makati City alleging that NAPOCORs act
of disqualifying it in the October 1987 bidding and in all subsequent biddings was tainted
with malice and bad faith. On he other hand, NAPOCOR averred that the strikes in
Australia could not be invoked as reason for the delay in the delivery of coal because
PHIBRO itself admitted that as of July 28, 1987 those strikes had already ceased. The
trial court rendered a decision in favor of PHIBRO. On appeal, the Court of Appeals
rendered a Decision affirming in toto the Decision of the Regional Trial Court stating that
strikes are included in the definition of force majeure in Section XVII of the Bidding
Terms and Specifications, so Phibro is not liable for any delay caused thereby. Phibro
was informed of the acceptance of its bid on July 8, 1987. Delivery of coal was to be
effected thirty (30) days from Napocors opening of a confirmed and workable letter of
credit. Napocor was only able to do so on August 6, 1987.

ISSUE:
Whether or not the Court of Appeals gravely and seriously erred in concluding
and so holding that PHIBROs delay in the delivery of imported coal was due to
NAPOCORs alleged delay in opening a letter of credit and to force majeure, and not to
PHIBROs own deliberate acts and faults

Page | 167

RULING:
The Court of Appeals is justified in sustaining the Regional Trial Courts decision
exonerating PHIBRO from any liability for damages to NAPOCOR as it was clearly
established from the evidence, testimonial and documentary, that what prevented
PHIBRO from complying with its obligation under the July 1987 contract was the
industrial disputes which besieged Australia during that time. Extant in our Civil Code is
the rule that no person shall be responsible for those events which could not be foreseeen,
or which, though foreseen, were inevitable. This means that when an obligor is unable to
fulfill his obligation because of a fortuitous event or force majeure, he cannot be held
liable for damages for non-performance.
Fortuitous events may be produced by two general causes: (1) by Nature, such as
earthquakes, storms, floods, epidemics, fires, etc., and (2) by the act of man, such as an
armed invasion, attack by bandits, governmental prohibitions, robbery, etc.
The term generally applies, broadly speaking, to natural accidents. In order that
acts of man such as a strike, may constitute fortuitous event, it is necessary that they have
the force of an imposition which the debtor could not have resisted. Hence, by law and by
stipulation of the parties, the strikes which took place in Australia from the first week of
July to the third week of September, 1987, exempted Phibro from the effects of delay of
the delivery of the shipment of coal.
In addition, PHIBRO and NAPOCOR explicitly agreed in Section XVII of the
Bidding Terms and Specifications that neither seller (PHIBRO) nor buyer
(NAPOCOR) shall be liable for any delay in or failure of the performance of its
obligations, other than the payment of money due, if any such delay or failure is due to
Force Majeure. Specifically, they defined force majeure as any disabling cause beyond
the control of and without fault or negligence of the party, which causes may include but
are not restricted to Acts of God or of the public enemy; acts of the Government in either
its sovereign or contractual capacity; governmental restrictions; strikes, fires, floods,
wars, typhoons, storms, epidemics and quarantine restrictions.
The law is clear and so is the contract between NAPOCOR and PHIBRO.
Therefore, the court have no reason to rule otherwise. Significantly, one characteristic of
a fortuitous event, in a legal sense, and consequently in relations to contracts, is that the
concurrence must be such as to render it impossible for the debtor to fulfill his obligation
in a normal manner. Faced with the above circumstance, NAPOCOR is justified in
assuming that, may be, there was really no fortuitous event or force majeure which could
render it impossible for PHIBRO to effect the delivery of coal.

Page | 168

UNION BANK OF THE PHILIPPINES versus EDMUND SANTIBAEZ and


FLORENCE SANTIBAEZ ARIOLA
G.R. No. 149926
2005 Feb 23
FACTS:
On May 31, 1980, the First Countryside Credit Corporation (FCCC) and Efraim
M. Santibaez entered into a loan agreement in the amount of P128,000.00. The amount
was intended for the payment of the purchase price of one unit Ford 6600 Agricultural
All-Purpose Diesel Tractor. In view thereof, Efraim and his son, Edmund, executed a
promissory note in favor of the FCCC, the principal sum payable in five equal annual
amortizations of P43,745.96 due on May 31, 1981 and every May 31st thereafter up to
May 31, 1985.
On December 13, 1980, the FCCC and Efraim entered into another loan
agreement, this time in the amount of P123,156.00. It was intended to pay the balance of
the purchase price of another unit of Ford 6600 Agricultural All-Purpose Diesel Tractor,
with accessories, and one unit Howard Rotamotor Model AR 60K. Again, Efraim and his
son, Edmund, executed a promissory note for the said amount in favor of the FCCC.
Aside from such promissory note, they also signed a Continuing Guaranty Agreement for
the loan dated December 13, 1980.
Sometime in February 1981, Efraim died, leaving a holographic will.
Subsequently in March 1981, testate proceedings commenced before the RTC of Iloilo
City. On April 9, 1981, Edmund, as one of the heirs, was appointed as the special
administrator of the estate of the decedent. During the pendency of the testate
proceedings, the surviving heirs, Edmund and his sister Florence Santibaez Ariola,
executed a Joint Agreement dated July 22, 1981, wherein they agreed to divide between
themselves and take possession of the three tractors; that is, two tractors for Edmund and
one tractor for Florence. Each of them was to assume the indebtedness of their late father
to FCCC, corresponding to the tractor respectively taken by them.
On August 20, 1981, a Deed of Assignment with Assumption of Liabilities was
executed by and between FCCC and Union Savings and Mortgage Bank, wherein the
FCCC as the assignor, among others, assigned all its assets and liabilities to Union
Savings and Mortgage Bank. Demand letters for the settlement of his account were sent
by petitioner Union Bank of the Philippines (UBP) to Edmund, but the latter failed to
heed the same and refused to pay. Thus, on February 5, 1988, the petitioner filed a
Complaint for sum of money against the heirs of Efraim Santibaez, Edmund and
Florence, before the RTC of Makati City.
ISSUE:
1. Whether in testate succession, there can be no valid partition among the heirs.
2. Whether or not the heirs assumption of the indebtedness of the deceased is
binding.
3. Whether or not the petitioner can hold the heirs liable on the obligation of the
deceased.
RULING:
1. In testate succession, there can be no valid partition among the heirs until after
the will has been probated. The law enjoins the probate of a will and the public requires
it, because unless a will is probated and notice thereof given to the whole world, the right
of a person to dispose of his property by will may be rendered nugatory. It presupposes
that the properties to be partitioned are the same properties embraced in the will.

Page | 169

The court then agrees with the appellate court that the provisions stated in the will
is an all-encompassing provision embracing all the properties left by the decedent which
might have escaped his mind at that time he was making his will, and other properties he
may acquire thereafter. This being so, any partition involving the said tractors among the
heirs is not valid. The joint agreement executed by Edmund and Florence, partitioning the
tractors among themselves, is invalid, specially so since at the time of its execution, there
was already a pending proceeding for the probate of their late fathers holographic will
covering the said tractors.
2. The heirs assumption of the indebtedness is not binding. The assumption of
liability was conditioned upon the happening of an event, that is, that each heir shall take
possession and use of their respective share under the agreement. It was made dependent
on the validity of the partition, and that they were to assume the indebtedness
corresponding to the chattel that they were each to receive. The partition being invalid,
the heirs in effect did not receive any such tractor. It follows then that the assumption of
liability cannot be given any force and effect.
3. Florence S. Ariola could not be held accountable for any liability incurred by
her late father. The documentary evidence presented, particularly the promissory notes
and the continuing guaranty agreement, were executed and signed only by the late Efraim
Santibaez and his son Edmund. As the petitioner failed to file its money claim with the
probate court, at most, it may only go after Edmund as co-maker of the decedent under
the said promissory notes and continuing guaranty, of course, subject to any defenses
Edmund may have as against the petitioner. However, the court had not acquired
jurisdiction over the person of Edmund. Also, the petitioner had not sufficiently shown
that it is the successor-in-interest of the Union Savings and Mortgage Bank to which the
FCCC assigned its assets and liabilities.
Wherefore, the petition is DENIED, the Court of Appeals Decision is
AFFIRMED.

Page | 170

JESUS SAN AGUSTIN vs. COURT OF APPEALS and MAXIMO MENEZ JR.
G.R. No. 121940
2001 Dec 4
FACTS:
On February 11, 1974, the Government Service Insurance System (GSIS) sold to
a certain Macaria Vda. de Caiquep, a parcel of residential land of the Government
Service and Insurance System Low Cost Housing Project (GSIS-LCHP). The sale is
evidenced by a Deed of Absolute Sale. On February 19, 1974, the Register of Deeds of
Rizal issued in the name of Macaria Vda. de Caiquep, Transfer Certificate of Title (TCT).
A day after the issuance of TCT, Vda. de Caiquep sold the subject lot to private
respondent, Maximo Menez, Jr., as evidenced by a Deed of Absolute Sale. However, the
deed was notarized but was not registered immediately upon its execution in 1974
because GSIS prohibited him from registering the same in view of the five-year
prohibition to sell during the period ending in 1979.
Sometime in 1979, for being suspected as a subversive, an Arrest, Search and
Seizure Order (ASSO) was issued against private respondent. Military men ransacked his
house in Cainta, Rizal. Upon learning that he was wanted by the military, he voluntarily
surrendered and was detained for two years. When released, another order for his rearrest was issued so he hid in Mindanao for another four years or until March 1984. In
December of 1990, he discovered that the subject TCT was missing. He consulted a
lawyer but the latter did not act immediately on the matter. Upon consulting a new
counsel, an Affidavit of Loss was filed with the Register of Deeds of Pasig and a certified
copy of the TCT was issued.
Private respondent sent notices and searched the registered owner. However, their
search proved futile. On July 8, 1992, private respondent filed a petition for the issuance
of owners duplicate copy of TCT No. 436465 to replace the lost one. The trial court
granted his petition.
On October 13, 1992, petitioner, Jesus San Agustin, received a copy of the
abovecited decision. He claimed this was the first time he became aware of the case of
her aunt, Macaria Vda. de Caiquep who, according to him, died sometime in 1974.
Claiming that he was the present occupant of the property and the heir of Macaria, he
filed his Motion to Reopen Reconstitution Proceedings, however, RTC issued an order
denying said motion.
ISSUE:
Whether the petitioner have an interest in the property.
RULING:
The petitioner does not appear to have an interest in the property based on the
memorandum of encumbrances annotated at the back of the title. His claim that he is an
heir (nephew) of the original owner of the lot covered by the disputed lot and the present
occupant thereof is not annotated in the said memorandum of encumbrances. Neither was
his claim entered on the Certificate of Titles in the name of their original/former owners
on file with the Register of Deeds. Also, private respondent's compliance of the RTCs
order of publication of the petition in a newspaper of general circulation is sufficient
notice of the petition to the public at large.
On the other hand, GSIS has not filed any action for the annulment, nor for the
forfeiture of the lot in question. Thus, the contract of sale remains valid between the
parties, unless and until annulled in the proper suit filed by the rightful party, the GSIS.
Page | 171

The said contract of sale is binding upon the heirs of Macaria Vda. de Caiquep, including
petitioner who alleges to be one of her heirs, in line with the rule that heirs are bound by
contracts entered into by their predecessors-in-interest.
Moreover, in the social justice policy of R.A. 8291 otherwise known as
Government Service Insurance Act of 1997 in granting housing assistance to the
less-privileged GSIS members and their dependents payable at an affordable payment
scheme. This is the same policy which the 5-year restrictive clause in the contract seeks
to implement by stating in the encumbrance itself annotated at the back of TCT No.
436465 that, The purpose of the sale is to aid the vendee in acquiring a lot for
himself/themselves and not to provide him/them with a means for speculation or profit by
a future assignment of his/their right herein acquired or the resale of the lot through rent,
lease or subletting to others of the lot and subject of this deed, xxx within five (5) years
from the date final and absolute ownership thereof becomes vested in the vendee, except
in cases of hereditary succession or resale in favor of the vendor. However, absent the
proper action taken by the GSIS as the original vendor referred to, the contract between
petitioners predecessor-in-interest and private respondent deserves to be upheld. For it is
protected by the Constitution under Section 10, Article III, of the Bill of Rights stating
that, No law impairing the obligation of contracts shall be passed. Thus, that provision
of the Constitution duly calls for compliance.

Page | 172

PROJECT BUILDERS, INC., GALICANO A. CALAPATIA, JR., and LEANDRO


ENRIQUEZ vs. THE COURT OF APPEALS and INDUSTRIAL FINANCE
CORPORATION
G. R. No. 99433
2001 Jun 19

FACTS:
On August 21, 1975, plaintiff and defendant PBI entered into an agreement
whereby it was agreed that plaintiff would provide a maximum amount of P2,000,000.00
against which said defendant would discount and assign to plaintiff on a with recourse
non-collection basis its accounts receivable under the contracts to sell specified in said
agreement. And on June 15, 1976, the same parties entered into an agreement whereby it
was agreed that PBIs credit line with plaintiff be increased to P5,000,000.00. It was
stipulated that the credit line of P5,000,000.00 granted includes the amount already
assigned/discounted. The discounts were on different date accounts receivables with
different maturity dates from different condominium-unit buyers. And each time a certain
account receivable was discounted, the covering Contract to Sell was assigned by
defendant to plaintiff.
The total amount of receivables discounted by defendant PBI is P7,986,815.38
and consists of twenty accounts. Of such receivables amounting to P7,986,815.38
plaintiff released to defendant PBI the amount of P4,549,132.72 and the difference of
P3,437,682.66 represents the discounting fee or finance fee. To secure compliance,
defendants executed a Deed of Real Estate Mortgage in favor of plaintiff. When
defendants allegedly defaulted in the payment of the subject account, plaintiff foreclosed
the mortgage and plaintiff was the highest bidder in the amount of P3,500,000.00.
The foreclosed property was redeemed a year later, but after application of the
redemption payment, plaintiff claims that there is still a deficiency in the amount of
P1,323,053.08. The trial court dismissed the complaint. The Court of Appeals however
overturned the judgment of the trial court.
ISSUE:
Whether or not the assignment of credit is valid.
RULING:
An assignment of credit is an act of transferring, either onerously or gratuitously,
the right of an assignor to an assignee who would then be capable of proceeding against
the debtor for enforcement or satisfaction of the credit. The transfer of rights takes place
upon perfection of the contract, and ownership of the right, including all appurtenant
accessory rights, is thereupon acquired by the assignee. The assignment binds the debtor
only upon acquiring knowledge of the assignment but he is entitled, even then, to raise
against the assignee the same defenses he could set up against the assignor. Where the
assignment is on account of pure liberality on the part of the assignor, the rules on
donation would likewise be pertinent; where valuable consideration is involved, the
assignment partakes of the nature of a contract of sale or purchase.
Upon an assignment of a contract to sell, the assignee is effectively subrogated in
place of the assignor and in a position to enforce the contract to sell to the same extent as
the assignor could. In an assignment of credit, the consent of the debtor is not essential
for its perfection, his knowledge thereof or lack of it affecting only the efficaciousness or
inefficaciousness of any payment he might make.

Page | 173

Consent is not necessary in order that assignment may fully produce legal effects.
Hence, the duty to pay does not depend on the consent of the debtor. Otherwise, all
creditors would be prevented from assigning their credits because of the possibility of the
debtors refusal to give consent. What the law requires in an assignment of credit is not
the consent of the debtor but merely notice to him. A creditor may, therefore, validly
assign his credit and its accessories without the debtors consent. The purpose of the
notice is only to inform the debtor that from the date of the assignment, payment should
be made to the assignee and not to the original creditor.
In the case, the assignment, was "with recourse", and default in the payment of
installments had been duly established when petitioner corporation foreclosed on the
mortgaged parcels of land. The resort to foreclosure of the mortgaged properties did not
preclude private respondent from collecting interest from the assigned Contracts To Sell
from the time of foreclosure to the redemption of the foreclosed property. The imposition
of interest was a mere enforcement or exercise of the right to the ownership of the credit
or receivables which the parties stipulated in the 1976 financing agreement.
WHEREFORE, the petition is DENIED, the decision of the Court of Appeals
reversing the decision of the trial court is AFFIRMED.

Page | 174

DBP VS CA
GR No. 118180
September 20, 1996
FACTS:
Private respondents were the original owners of a parcel of agricultural land
covered by TCT No. T-1432, situated in Barrio Capucao, Ozamis City, with an area of
113,695 square meters, more or less. On May 30, 1977, they mortgaged said land to
petitioner DBP. They defaulted on their obligation and petitioner acquired the land by
being the sole bidder in the ensuing auction. On April 6, 1984, petitioner entered into a
conditional contract with private respondents where private respondents would sell the
land for (P73,700.00), with a down payment of P8,900.00 and the balance of P64,800
shall be payable in six (6) years on equal quarterly amortization plan at 18% interest per
annum. The first quarterly amortization of P4,470.36 shall be payable three months from
the date of the execution of the documents and all subsequent amortization shall be due
and payable every quarter thereafter. Upon completion of payment, petitioners refused to
turn over the deed of sale citing legal impossibility from the implementation of Sec. 6 of
Rep. Act 6657 (the Comprehensive Agrarian Reform Law or CARL) approved 10 June
1988, and Sec. 1 of E.O. 407 issued 10 June 1990. Private respondents filed a case in
court and were favored by the RTC and the CA.
ISSUE:
When does the acquisition of these rights take place?
RULING:
In conditional obligations, the acquisition of rights, as well as the extinguishment
or loss of those already acquired, shall depend upon the happening of the event which
constitutes the condition.
More specifically, petitioner cannot invoke the last paragraph of Sec. 6 of Rep.
Act 6657 to set aside its obligations already existing prior to its enactment. In the first
place, said last paragraph clearly deals with "any sale, lease, management contract or
transfer or possession of private lands executed by the original land owner." The original
owner in this case is not the petitioner but the private respondents. Petitioner acquired
the land through foreclosure proceedings but agreed thereafter to reconvey it to private
respondents, albeit conditionally.

Page | 175

GONZALES VS THE HEIRS OF THOMAS AND PAULA CRUZ


GR No. 131784
September 16, 1999
FACTS:
On December 1, 1983, Paula Ao Cruz together with the plaintiffs heirs of
Thomas and Paula Cruz entered into a contract of lease with the defendant, Felix L.
Gonzales of a half portion of a land containing an area of 12 hectares, more or less, and
an accretion of 2 hectares, more or less, situated in Rodriguez Town, Province of Rizal
and covered by Transfer Certificate of Title No. 12111. As stipulated therein:
Paragraph 9 - The LESSORS hereby commit themselves and shall undertake to obtain a
separate and distinct T.C.T. over the herein leased portion to the LESSEE within a
reasonable period of time which shall not in any case exceed four (4) years, after which a
new Contract shall be executed by the herein parties which shall be the same in all
respects with this Contract of Lease/Purchase insofar as the terms and conditions are
concerned.
Under the contract, Gonzales paid the rental fees but did not choose to exercise
the option of paying the one million purchase price. A letter was issued by one of the
heirs to rescind the said contract following breach and ordered Gonzales to vacate the
premises within ten days. Gonzales did no vacate. A few days later Paula Cruz died. A
case was launched in Court by the heirs of Paula Cruz.
ISSUE:
How must paragraph nine of the contract be interpreted in enforcing the contract
of lease?
RULING:
If a stipulation in a contract admits of several meanings, it shall be understood as
bearing that import most adequate to render it effectual. An obligation cannot be
enforced unless the plaintiff has fulfilled the condition upon which it is premised. The
ninth provision was intended to ensure that respondents would have a valid title over the
specific portion they were selling to petitioner. Only after the title is assured may the
obligation to buy the land and to pay the sums stated in the Contract be enforced within
the period stipulated. Verily, the petitioners obligation to purchase has not yet ripened
and cannot be enforced until and unless respondents can prove their title to the property
subject of the Contract. The ninth clause was the condition precedent of the contract.
Respondents cannot rescind the contract, because they have not caused the
transfer of the TCT to their names, which is a condition precedent to petitioners
obligation. This Court has held that there can be no rescission (or more properly,
resolution) of an obligation as yet non-existent, because the suspensive condition has not
happened.

Page | 176

INSULAR LIFE VS YOUNG


GR No. 140964.
January 16, 2002
FACTS:
Respondent Robert Young obtained a short term loan of P170,000,000.00 from
interbank to finance the purchase 45% equity in Insular Savings Bank. He did this under
the assumption that Araneta would purchase 99.82% of the banks outsanding capital
stock and consolidate all shares in Youngs name. However, Araneta backed and Young
was left with a massive debt. Young entered into a Memorandum of Agreement where
Insular Life and its Pension Fund whereby Insular Life would purchase shares of stock if
Young would abide by certain conditions: one of them being to infuse additional capital
of P50,000,000.00 into the Bank.
It was discovered that Young was pilfering funds from the bank through check
kiting operations and he tendered his resignation. He also defaulted on his obligations.
His shares of stock were purchased by Insular Life in a public auction. The shares were
then consolidated in its name. On January 7, 1992, Young filed a case for annulment of
notarial sale, specific performance and damages.
ISSUE:
Is Insular Life entitled to ownership of majority of the Banks shares of stock?
RULING:
The provisions of the MOA negate the existence of a perfected contract of sale.
The MOA is merely a contract to sell since the parties therein specifically undertook to
enter into a contract of sale if the stipulated conditions are met and the representation and
warranties given by Young prove to be true. Here, the MOA provides that Young shall
infuse additional capital of P50,000,000.00 into the Bank. Young failed to infuse the
required additional capital. Moreover, the due diligence audit shows that Young was
involved in fraudulent schemes like check kiting. Since no sale transpired between the
parties, the CA erred in concluding that Insular Life purchased 55% of the total shares of
the Bank under the MOA.
It would be unfair on the part of Young to demand compliance by Insular Life of
its obligations when he himself was remiss in his own.

Page | 177

DIRECT FUNDERS HOLDERS ASSOCIATION VS LAVIA


GR No. 141851.
January 16, 2002
FACTS:
The petitioners assail the decision of the CA affirming the decision of the RTC in
issuing a writ of mandatory preliminary injunction despite the orders of a co-equal court
in deciding that the property in question was in the lawful possession of the petitioner.
ISSUE:
Is petitioners contention tenable?
RULING:
The conditional sale agreement was the only document that the respondent
presented during the summary hearing of the application for a temporary restraining order
before the Regional Trial Court, Branch 71, Pasig City. The conditional sale agreement is
officious and ineffectual. First, it was not consummated. Second, it was not registered
and duly annotated on the Transfer Certificate of Title (No. 12357) covering the subject
property. Third, it was executed about eight (8) years after the execution of the real
estate mortgage over the subject property.
To emphasize, the mortgagee (United Savings Bank) did not give its consent to
the change of debtor. It is a fundamental axiom in the law on contracts that a person not
a party to an agreement cannot be affected thereby. Worse, not only was the conditional
sale agreement executed without the consent of the mortgagee-creditor, United Savings
Bank, the same was also a material breach of the stipulations of the real estate mortgage
over the subject property.
The petitioner as opposed to Kambiyak Chan bears a TCT, deeds of assignment,
certificates of sale in its favor showing that it has a better right to possession of the
disputed land.

Page | 178

VDA. DE MISTICA VS NAGUIAT


418 SCRA 73 December 11, 2003
FACTS:
On April 5, 1979, Eulalio Mistica, predecessor-in-interest of herein [petitioner],
entered into a contract to sell with [respondent] Bernardino Naguiat over a lot. Pursuant
to said agreement, respondent gave a downpayment of P2,000.00. He made another
partial payment of P1,000.00 on February 7, 1980. He failed to make any payments
thereafter. Eulalio Mistica died sometime in October 1986. On December 4, 1991,
petitioner filed a complaint for rescission alleging that the failure and refusal of
respondents to pay the balance of the purchase price constitutes a violation of the contract
which entitles her to rescind the same.
ISSUE:
Is petitioner entitled to rescission of contract?
RULING:
The transaction between Eulalio Mistica and respondents, as evidenced by the
Kasulatan, was clearly a Contract of Sale. A deed of sale is considered absolute in nature
when there is neither a stipulation in the deed that title to the property sold is reserved to
the seller until the full payment of the price; nor a stipulation giving the vendor the right
to unilaterally resolve the contract the moment the buyer fails to pay within a fixed
period.
In a contract of sale, the remedy of an unpaid seller is either specific performance
or rescission. Rescission, however, is allowed only where the breach is substantial and
fundamental to the fulfillment of the obligation. In the present case, the failure of
respondents to pay the balance of the purchase price within ten years from the execution
of the Deed did not amount to a substantial breach.
Moreover, it is undisputed that during the ten year period, petitioner never made
any demand for the balance of the purchase price. Petitioner even refused the payment
tendered by respondents during her husbands funeral, thus showing she was not exactly
blameless for the lapse of the ten year period.

Page | 179

HERMOSA VS LONGARA
GR No. L-5267, October 27, 1953
FACTS:
This is an appeal by way of certiorari against a decision of the Court of Appeals,
fourth division, approving certain claims presented by Epifanio M. Longara against the
testate estate of Fernando Hermosa, Sr. The claims are of three kinds, namely, P2,341.41
representing credit advances made to the intestate from 1932 to 1944, P12,924.12 made
to his son Francisco Hermosa, and P3,772 made to his grandson, Fernando Hermosa, Jr.
from 1945 to 1947, after the death of the intestate, which occurred in December, 1944.
The claimant presented evidence and the Court of Appeals found, in accordance
therewith, that the intestate had asked for the said credit advances for himself and for the
members of his family "on condition that their payment should be made by Fernando
Hermosa, Sr. as soon as he receive funds derived from the sale of his property in Spain."
Claimant had testified without opposition that the credit advances were to be "payable as
soon as Fernando Hermosa, Sr.'s property in Spain was sold and he receive money
derived from the sale." The Court of Appeals held that payment of the advances did not
become due until the administratrix received the sum of P20,000 from the buyer of the
property. Upon authorization of the probate court in October, 1947, and the same was
paid for subsequently. The Claim was filed on October 2, 1948.
ISSUE:
Does said condition a potestative condition and thusly void and unenforceable?
RULING:
A careful consideration of the condition upon which payment of the sums
advanced was made to depend, "as soon as he (intestate) receive funds derived from the
sale of his property in Spain," discloses the fact that the condition in question does not
depend exclusively upon the will of the debtor, but also upon other circumstances beyond
his power or control. Cirumstances show that the intestate had already decided to sell his
house lest he meant to fool his creditors. But in addition of the sale to him (the intestatevendor), there were still other conditions that had no concur to effect the sale, mainly that
of the presence of a buyer, ready, able and willing to purchase the property under the
conditions demanded by the intestate. It is evident, therefore, that the condition of the
obligation was not a purely protestative one, depending exclusively upon the will of the
intestate, but a mixed one, depending partly upon the will of intestate and partly upon
chance. The Supreme Court upheld the ruling of the lower courts.

Page | 180

TRILLANA VS QUEZON COLLEGES


GR No. L-5003, June 27, 1953
FACTS:
On June 1, 1948, Damasa Crisostomo applied for 200 shares of stock worth
PhP100.00 each at Quezon Colleges, Inc. Within her letter of application, she stipulated,
You will find (Babayaran kong lahat pagkatapos na ako ay makapag-pahuli ng isda)
pesos as my initial payment and the balance payable in accordance with law and the rules
and regulations of the Quezon College. Damasa died on October 26, 1948. Since no
payment was rendered on the subscription made in the foregoing letter, Quezon College
presented a claim of PhP20,000.00 on her intestate proceedings. The petitioner
administrator of the estate then contests the validity of said proceedings?
ISSUE:
Is the condition laid down by Damasa Crisostomo valid?
RULING:
There is nothing in the record to show that the Quezon College, Inc. accepted the
term of payment suggested by Damasa Crisostomo, or that if there was any acceptance
the same came to her knowledge during her lifetime. As the application of Damasa
Crisostomo is obviously at variance with the terms evidenced in the form letter issued by
the Quezon College, Inc., there was absolute necessity on the part of the College to
express its agreement to Damasa's offer in order to bind the latter. Conversely, said
acceptance was essential, because it would be unfair to immediately obligate the Quezon
College, Inc. under Damasa's promise to pay the price of the subscription after she had
caused fish to be caught. Thus, it cannot be said that the letter ripened into a contract.
Indeed, the need for express acceptance on the part of the Quezon College, Inc.
becomes the more imperative, in view of the proposal of Damasa Crisostomo to pay the
value of the subscription after she has harvested fish, a condition obviously dependent
upon her sole will and, therefore, facultative in nature, rendering the obligation void.
Under the Civil Code it is provided that if the fulfillment of the condition should depend
upon the exclusive will of the debtor, the conditional obligation shall be void.

Page | 181

VISAYAN SAWMILL VS CA
219 SCRA 378
March 3, 1993
FACTS:
The antecedent facts, summarized by the public respondent are as follows:
On May 1, 1983, herein plaintiff-appellee and defendants appellants entered into a
sale involving scrap iron, subject to the condition that plaintiff appellee will open a letter
of credit in the amount of P250,00.00 in favor of defendant-appellant corporation on or
before May 15, 1983. On May 24, 1983, plaintiff-appellee informed defendans-appellants
by telegram that the letter of credit was opened May 12, 1983 at the BPI main office in
Ayala, but that transmittal was delayed. On May 26, 1983, defendants-appellants
received a letter advice from the Dumaguete City Branch of BPI dated May 26, 1983,
that a domestic letter of credit had been opened in favor of Visayan Sawmill Company.
On July 19, 1983 plaintiffs then demanded that defendants comply with the deed
of sale. On July 20, 1983 defendant corporation informed plaintiffs lawyer that it is
unwilling to continue with the sale due to plaintiffs failure to comply with the essential
preconditions of the contract.
Private respondent prayed for judgment ordering the petitioner corporation to
comply with the contract by delivering to him the scrap iron subject thereof.
ISSUE:
Did petitioner corporation violate the terms and conditions of the contract?
RULING:
The petitioner corporations obligation to sell is unequivocally subject to a
positive suspensive condition. The failure of the private respondent to comply with the
positive suspensive condition cannot even be considered a breach casual or serious
but simply an event that prevented the obligation of petitioner corporation to convey title
from acquiring binding force.
The letter of credit in favor of petitioner was indisputably not in accordance with
the stipulation in the contract signed by the parties on at three counts: (1) it was not
opened, made or indorsed by the private respondent, but by a corporation which is not a
party to the contract; (2) it was not opened with the bank agreed upon and; (3) it is not
irrevocable and unconditional, for it is without recourse, it is set to expire on a specific
date and it stipulates certain conditions with respect to shipment.
Consequently, the obligation of petitioner to sell did not arise; it therefore cannot
be compelled by specific performance to comply with its prestation.

Page | 182

LEAO VS COURT OF APPEALS


GR No. 129018.
November 15, 2001
FACTS:
On November 13, 1985, Hermogenes Fernando, as vendor and Carmelita Leao,
as vendee executed a contract to sell involving a piece of land. In the contract, Carmelita
Leao bound herself to pay Hermogenes Fernando the sum of PhP107,750.00 as the total
purchase price of the lot.
The contract also provided for a grace period of one month within which to make
payments, together with the one corresponding to the month of grace. Should the month
of grace expire without the installments for both months having been satisfied, an interest
of 18% per annum will be charged on the unpaid installments. Should a period of ninety
days elapse from the expiration of the grace period without the overdue and unpaid
installment paid with proper interests, Fernando, as vendor, was authorized to declare the
contract cancelled. The defendant later filed an ejectment case for failure of petitioner to
pay within the terms of contract.
ISSUE:
Is petitioner entitled to rights over the lot?
RULING:
The transaction between the parties was a conditional sale not an absolute sale.
The intention of the parties was to reserve the ownership of the land in the seller until the
buyer has paid the total purchase price. The ownership of the lot was not transferred to
Carmelita Leao. In a contract to sell real property on installments, the full payment of
the purchase price is a positive suspensive condition, the failure of which is not
considered a breach, casual or serious, but simply an event that prevented the obligation
of the vendor to convey title from acquiring any obligatory force. In the case at bar,
petitioners non-payment of the installments after April 1, 1989, prevented the obligation
of respondent to convey the property from arising. In fact, it brought into effect the
provision on cancellation.
However, in view of RA No. 6552, that the default committed by petitioner in
respect of the obligation could be compensated by the interest and surcharges imposed
upon her under the contract in question.

Page | 183

HERIS OF SANDEJAS VS LINA


GR No. 141634.
February 5, 2001
FACTS:
Eliodoro Sendejas, Sr., served as administrator of the estate of Remedios R.
Sandejas. Eliodoro, in his capacity as seller, bound and obligated himself, administrators,
and assigns, to sell forever and absolutely and in their entirety parcels of lands which
formed part of the estate of the late Remedios to one Mr. Alex A. Lina for the
consideration of P1 Million. Eliodoro died and Mr. Alex Lina served as temporary
administrator of the estate until he was replaced by the heir of Eliodoro, Sixto Sandejas.
Mr. Lina filed an Omnibus motion to approve the deed of conditional sale executed
between Plaintiff-in-Intervention Alex A. Lina and Eliodoro Sandejas, Sr. on June 7,
1982. The administrator Sixto filed a motion to dismiss.
ISSUE:
Is Mr. Lina entitled to purchase parcels of lands forming the estate of Remedios?
RULING:
In a contract to sell, the payment of the purchase price is a positive suspensive
condition. The vendors obligation to convey the title does not become effective in case
of failure to pay. On the other hand, the agreement between Eliodoro, Sr. and respondent
is subject to a suspensive condition the procurement of a court approval, not full
payment. There was no reservation of ownership in the agreement. In accordance with
paragraph 1 of the Receipt, petitioners were supposed to deed the disputed lots over to
respondent. This they could do upon the courts approval, even before full payment.
Hence, their contract was a conditional sale, rather than a contract to sell as determined
by the CA.
Because petitioners did not consent to he sale of their ideal shares in the disputed
lots, the CA correctly limited the scope of the Receipt to the pro-indiviso share of
Eliodoro, Sr. Thus, it correctly modified the intestate courts ruling by excluding their
shares from the ambit of the transaction.
The petition was partially granted. The appealed decision and resolution are
affirmed with he modification that respondent is entitled to only a pro-indiviso share
equivalent to 11/20 of the disputed lots.

Page | 184

CIR VS PRIMETOWN
GR No. 162155.
August 28, 2007
FACTS:
On March 11, 1999, Gilbert Yap, vice chair of respondent Primetown Property
Group, Inc., applied for the refund or credit of income tax respondent paid in 1997.
According to Yap, because respondent suffered losses, it was not liable for income taxes.
Nevertheless, respondent paid its quarterly corporate income tax and remitted creditable
withholding tax from real estate sales to the BIR in the total amount of P26,318,398.32.
Therefore, respondent was entitled to tax refund or tax credit.
On May 13, 1999, revenue officer Elizabeth Y. Santos required respondent to
submit additional documents to support its claim. Respondent complied but its claim was
not acted upon. Thus, on April 14, 2000, it filed a petition for review in the Court of Tax
Appeals (CTA). On December 15, 2000, the CTA dismissed the petition as it was filed
beyond the two-year prescriptive period for filing a judicial claim for tax refund or tax
credit. Respondents now assail that decision for dismissal of the CTA.
ISSUE:
What is the expiration period for the filing of the action?
RULING:
Both Article 13 of the Civil Code and Section 31, Chapter VIII, Book I of the
Administrative Code of 1987 deal with the same subject matter the computation of
legal periods. Under the Civil Code, a year is equivalent to 365 days whether it be a
regular year or a leap year. Under the Administrative Code of 1987, however, a year is
composed of 12 calendar months. Needless to state, under the Administrative Code of
1987, the number of days is irrelevant.
There obviously exists a manifest incompatibility in the manner of computing
legal periods under the Civil Code and the Administrative Code of 1987. For this reason,
we hold that Section 31, Chapter VIII, Book I of the Administrative Code of 1987, being
the more recent law, governs the computation of legal periods. Lex posteriori derogat
priori.
Following this formula, respondents petition (filed on April 14, 2000) was filed
on the last day of the 24th calendar month from the day respondent filed its final adjusted
return. Hence, it was filed within the reglementary period.

Page | 185

NAMARCO vs Tecson
GR No. L-29131.
August 27, 1969
FACTS:
On a previous court case, the CFI rendered judgment:
(a) Ordering the defendants Miguel D. Tecson and Alto Surety Insurance Co.,
Inc. to pay jointly and severally plaintiff PRATRA the sum of P7,200.00 plus 7% interest
from May 25, 1960 until the amount is fully paid, plus P500.00 for attorney's fees, and
plus costs;
(b) ordering defendant Miguel D. Tecson to indemnify his co-defendant Alto
Surety & Insurance Co., Inc. on the cross-claim for all the amounts it would be made to
pay in this decision, in case defendant Alto Surety & Insurance Co., Inc. pay the amount
adjudged to plaintiff in this decision. From the date of such payment defendant Miguel D.
Tecson would pay the Alto Surety & Insurance Co., Inc., interest at 12% per annum until
Miguel D. Tecson has fully reimbursed plaintiff of the said amount.
Defendant Miguel Tecson seeks the dismissal of the complaint on the ground of
lack of jurisdiction and prescription. This case was filed exactly on December 21, 1965
but more than ten years have passed a year is a period of 365 days (Art. 13, CCP).
Plaintiff forgot that 1960, 1964 were both leap years so that when this present case was
filed it was filed two days too late.
ISSUE:
Should the complaint be dismissed on the grounds of prescription?
RULING:
In the language of this Court, in People vs. Del Rosario, with the approval of the
Civil Code of the Philippines (Republic Act 386) ... we have reverted to the provisions of
the Spanish Civil Code in accordance with which a month is to be considered as the
regular 30-day month ... and not the solar or civil month," with the particularity that,
whereas the Spanish Code merely mentioned "months, days or nights," ours has added
thereto the term "years" and explicitly ordains that "it shall be understood that years are
of three hundred sixty-five days."
The decision was affirmed.

Page | 186

BERG VS MAGDALENA ESTATES


GR No. L-3784, October 17, 1952
FACTS:
The plaintiff Ernest Berg owned 1/3 of the property known as Crystal Arcade
situated in Manila. The defendant Hermady owned the remaining 2/3 of said property.
Defendant alleges that plaintiff offered to sell his property for the sum of PHP200,000.00
which the defendant accepted. However, a year later, plaintiff then unjustly refused to
accept payment despite their agreement. Plaintiff then claims that there is no written
evidence suggesting the supposed agreement constituting the statute of fraud.
ISSUE:
1. Was there sufficient evidence of the supposed agreement?
2. Does the agreement refer to a stipulated condition or period?
RULING:
1. Exhibit 3 and 4 as offered by the defendant constitute sufficient evidence as
required by the statute of fraud. In the application exhibit "3", Ernest Berg appears
as the seller and the Magdalena Estate Inc. as the purchaser, the former's interest
in the Crystal Arcade as the subject-matter, and the sum of P200,000 as the
consideration. The application Exhibit "4" states specifically that a portion of the
sum of P400,000 which is desired to be raised as a loan will be used for the
purchase of the one-third interest of Ernest Berg, which portion undoubtedly
refers to the sum of P200,000 mentioned in the application Exhibit "3".
2. It would seem that the agreement is not a term but a condition. Considering the
first alternative, that is, until defendant shall have obtained a loan from the
National City Bank of New York, it is clear that the granting of such loans is not
definite and cannot be held to come within the terms "day certain" provided for in
the Civil code, for it may or it may not happen. As a matter of fact, the loan did
not materialize. And considering that the period given was until such time as
defendant could raise money from other sources, it is to be indefinite and
contingent and so it is also a condition and not a term within the meaning of the
law. In any event it is apparent that the fulfillment of the condition contained in
this second alternative is made to depend upon the defendant's exclusive will, and
viewed in this light, the Court was of the opinion that plaintiff's obligation to sell
did not arise, for, under Article 1115 of the old Civil Code, "when the fulfillment
of the condition depends upon the exclusive will of the debtor the conditional
obligation shall be void."

Page | 187

LIRAG TEXTILE MILLS, INC. VS CA


63 SCRA 375 April 14, 1975
FACTS:
On May 9, 1960, defendant Lirag Textile Mills, Inc. wrote a letter to plaintiff
(Alcantara) advising that, effective May 11, 1960, his temporary designation as Technical
Assistant to the Administrative Officer was made permanent. The plaintiffs tenure of
employment was to be for an indefinite period, unless sooner terminated by reason of
voluntary resignation or by virtue of a valid cause or causes. On July 22, 1961, the
defendant sent plaintiff a letter advising him of the termination of his employment
because the company had suffered some serious reverses both in terms of pecuniary loss
and in market opportunities. The CA sentenced petitioners to pay respondent Alcantara
back salaries. The petitioners now assail the decision of the CA.
ISSUE:
Is the termination of Alcantaras employment valid?
RULING:
The contract of employment was for an indefinite period. It necessarily follows
that if the petitioner-employer Lirag Textile Mills terminates the employment without a
valid cause or causes, as it admittedly did, it committed a breach of the contract of
employment executed by and between the parties.
The indefinite period of employment expressly agreed upon by and between the
parties in this case is really a resolutory period because the employment is bound to
terminate on a future day certain such as the employees resignation or employers
termination of employment upon a valid cause or causes, like death of the employee or
termination of employers corporate existence, although it may not be known when.
In this case there was no valid cause for termination of Alcantaras employment.
The corporation did not realize as big a profit as in the previous year, nevertheless, it
realized profits in the amount of P1,173,098.00 rather then sustain losses.

Page | 188

DAGUHOY ENTERPRISES, INC., VS PONCE


GR No. L-6515.
October 18, 1954
FACTS:
On June 24, 1950, Rita L. Ponce, executed in favor of plaintiff Daguhoy
Enterprises a deed of mortgage over a parcel of land including the improvements thereon,
situated in Manila, to secure the payment of a loan of PhP5,000.00 granted to her by said
corporation, payable within six years with interest at 12 per cent per annum. Rita and her
husband Domnigo attempted to register the deeds in the office of the register of deeds,
but the register noted defects and deficiencies and advised the couple to cure such and
furnish the necessary data. Instead of compliance, the couple withdrew the deeds and
mortgaged the same in favor of the Rehabilitation Finance Corporation (RFC) to secure a
loan. Potenciano Gapol, a majority stockholder in the corporation, discovered the
withdrawal of the deeds from the office of the register of deeds, and filed a case in court
to collect the amount of the loan.
ISSUE:
Are said loans immediately demandable despite the six year installment for
payments?
RULING:
Although the original loan of PhP5,000.00 including the increase of PhP1,190.00
was payable within six years from June 1950, and so did not become due and payable
until 1956, it was held that under Article 1198 of the new Civil Code, the debtor lost the
benefit of the period by reason of her failure to give the security in the form of the two
deeds of mortgage and register them including defendants act in withdrawing said two
deeds from the office of the register of deeds and then mortgaging the same property in
favor of the RFC; and so the obligation became pure and without any condition and
consequently, the loan became due and immediately demandable.

Page | 189

VICTORIAS PLANTER ASSN., INC., ET AL. VS VICTORIAS MILLING CO.,


INC
GR No. L-6648.
July 25, 1955
FACTS:
At various dates, from the year 1917 to 1934, the petitioners - sugar cane planters
executed identical milling contracts, setting forth the terms and conditions under which
the sugar central North Negros Sugar Co. Inc. would mill the sugar produced by said
planters. The Victorias Milling Co. Inc., was also constructed to accommodate other
planters within its vicinity. Both centrals had their first millings on 1918-1919 and 19211922, respectively. Subsequent moliendas or millings took place every successive crop
year thereafter, except the 6 year period, comprising 4 years of the last World War II and
2 years of post-war reconstruction of respondents central at Victorias, Negros
Occidental.
After the liberation, only the central at Victorias was reconstructed and existent
contracts with Negros were now to be processed at the Victorias central. Beginning with
the year 1948, the planters contracted with North Negros considered the stipulated 30
year-period of the contract they entered into in 1918 to have been terminated. Defendant
however contends that the contracts call for 30 years of milling and not 30 years in time.
Thereby, the contracts actually terminated on 1952 to account for its inability to operate
during the war and reconstruction.
ISSUE:
What is the respective period of the contracts in question?
RULING:
The fact that the contracts make reference to first milling does not make the
period of thirty years one of thirty milling years.
Even if the thirty year period provided for in the contracts be construed as milling
years, the deduction or extension of six years would not be justified. While the contract
was deemed suspended during force majeure, war, etc., it did not mean that the
happening of any of those events stopped the running of the period agreed upon.
The performance of what the law has written off cannot be demanded and
required. The prayer that the plaintiffs be compelled to deliver sugar cane to the appellant
for six more years to make up for what they failed to deliver during those trying years,
the fulfillment of which was impossible, if granted, would in effect be an extension of the
term of the contracts entered into by and between the parties.

Page | 190

JESPAJO VS CA
GR No. 113626
September 27, 2002
FACTS:
On February 1, 1985, said corporation, represented by its President, Jesus L. Uy,
entered into separate contracts of lease with Tan Te Gutierrez and Co Tong. Pursuant to
the contract, Tan Te occupied room No. 217 of the subject building at a monthly rent of
P847.00 while Co Teng occupied the Penthouse at a monthly rent of P910.00. The terms
of the contract among others are the following:
PERIOD OF LEASE- The lease period shall be effective as of February 1, 1985 and
shall continue for an indefinite period provided the lessee is up-to-date in the payment of
his monthly rentals. The LESSEE may, at his option, terminate this contract any time by
giving sixty (60) days prior written notice of termination to the LESSOR.
However, violation of any of the terms and conditions of this contract shall be a sufficient
ground for termination thereof by the LESSOR.
The private respondents religiously paid the monthly rental fees. On January 2, 1990, the
lessor corporation sent a written notice to the lessees informing them of the formers
intention to increase the monthly rentals on the occupied premises to P3,500.00 monthly
effective February 1, 1990. The private respondents refused payment. An ejectment case
was filed against them in court.
ISSUE:
Is the stipulation a potestative period and hence void?
RULING:
The lease contract between petitioner and respondents is with a period subject to a
resolutory condition. The wording of the agreement is unequivocal. The condition
imposed in order that the contract shall remain effective is that the lessee is up-to-date in
his monthly payments. It is undisputed that the lessees Gutierrez and Co Tong
religiously paid their rent at the increasing rate of 20% annually. The agreement between
the lessor and the lessees are therefore still subsisting, with the original terms and
conditions agreed upon, when the petitioner unilaterally increased the rental payment to
more than 20% or P3,500.00 a month.
The petitioner is estopped from backing out of their representations in the contract
with respondent, that is, they may not renege on their own acts and representations, to the
prejudice of the respondents who relied on them.

Page | 191

BORROMEO VS CA
GR No. L-22962.
September 28, 1972
FACTS:
Respondent Jose A Villamor was a distributor of lumber belonging to Mr. Miller
who was the agent of the Insular Lumber Company in Ceb City. Defendant usually
borrowed from his friend and former classmate-petitioner Canuto O. Borromeo several
amounts of money. On one occasion, with some pressing obligation to Mr. Miller,
defendant borrowed a large sum of money from Borromeo for which he mortgaged his
land and house in Cebu City. Mr. Miller filed a civil action against the defendant and
attached his properties including those mortgaged to plaintiff, inasmuch as the deed of
mortgage in favor of plaintiff could not be registered as it was not properly drawn up.
Plaintiff then pressed for settlement of his obligation, but defendant instead offered to
execute a document of future payment. Liquidation was made and defendant was found
to have owed plaintiff the sum of PhP7220.00, for which defendant signed a promissory
therefor on November 29, 1933 with interest at the rate of 12% per annum, agreeing to
pay as soon as I have money. The note further stipulates that the defendant would waive
the right of prescription as prescribed in the Civil Code of Procedure. Plaintiff did not
collect within the 1st ten years since defendant did not have any property attached to his
name. However after the second World War, plaintiff then pressed on his demands. The
RTC granted his motion but the CA reversed the ruling claiming that said period was
contrary to law?
ISSUE:
Is said period stipulated in the contract valid?
RULING:
The CA erred in its decision. It should be noted that the wordings in said contracts
should not instantly nullify the intent of the parties. The intent of the parties is clear that
an extension of time be granted to respondent for payment of his debts.
In effect, the first 10 years should not be considered in the prescription of the
contract and that the next ten years is granted from which the counting of the period
should begin.

Page | 192

GONZALES VS JOSE
GR No. 43429.
October 24, 1938
FACTS:
The plaintiff Benito Gonzales filed an action to recover from the defendant the
total amount of Php547.95 from two promissory notes dated June 22, 1922 and
September 13, 1922. The CFI granted his petition. The defendant now assails that
decision claiming that the complaint was uncertain inasmuch as the notes did not specify
when the indebtedness was incurred or when it was demandable, and that, granting that
plaintiff has any cause of action, the same has prescribed in accordance with law.
ISSUE:
Does plaintiff have a cause of action?
RULING:
Article 1128 of the Civil Code stipulates that if the obligation does not specify a
term, but it is inferred from its nature and circumstances that it was intended to grant the
debtor time for its performance, the period of the term shall be fixed by the Court.
The two promissory notes are governed by Article 1128 because under the terms
thereof, the plaintiff intended to grant the defendant a period within which to pay his
debts. However, the action to ask the court to fix a period has already prescribed. The
period of prescription is ten years, which has already elapsed from the execution of the
promissory notes until the filing of the action on June 1, 1934.

Page | 193

BALUYUT VS POBLETE
GR No. 144435.
February 6, 2007
FACTS:
On July 20, 1981, Guillermina Baluyut, mortgaged her house to secure a loan in
the amount of PhP850,000.00 from the spouses Eulogio and Salud Poblete. The load was
set to mature in one month. After a month had passed, she was unable to pay her
indebtedness which led the spouses to extrajudicially foreclose the mortgage. The
property was then sold on Auction to the Poblete spouses who asked Baluyut to vacate
the premises. Baluyut instead filed an action for annulment of mortgage. His claim was
rejected by the RTC and the CA. Petitioner claims that based on the testimony of Atty.
Edwina Mendoza that the maturity of the loan which she incurred is only for one year.
ISSUE:
Is petitioners contention tenable?
RULING:
Evidence of a prior or contemporaneous verbal agreement is generally not
admissible to vary, contradict or defeat the operation of a valid contract. In the instant
case, aside from the testimony of Atty. Mendoza, no other evidence was presented to
prove that the real date of maturity is one year.
The terms that were thusly reduced to writing is deemed to contain all the terms
agreed upon and no evidence of such terms can be admitted other than the contents of the
agreement itself. The promissory note is the law between petitioner and private
respondents and it clearly states that the loan shall mature in one month from date of the
said Promissory Note.

Page | 194

MALAYAN REALTY VS UY
GR No. 163763.
November 10, 2006
FACTS:
Malayan Realty, Inc. (Malayan), is the owner of an apartment unit known as 3013
Interior No. 90 (the property), located at Nagtahan Street, Sampaloc, Manila. In 1958,
Malayan entered into a verbal lease contract with Uy Han Yong (Uy) over the property at
a monthly rental of P262.00. The monthly rental was increased yearly starting 1989, and
by 2001, the monthly rental was P4,671.65.
On July 17, 2001, Malayan sent Uy a written notice informing him that the lease
contract would no longer be renewed or extended upon its expiration on August 31, 2001,
and asking him to vacate and turn over the possession of the property within five days
from August 31, 2001, or on September 5, 2001. Despite Uys receipt of the notice on
June 18, 2001, he refused to vacate the property, prompting Malayan to file before the
Metropolitan Trial Court (MeTC) of Manila a complaint for ejectment, docketed as Civil
Case No. 171256, and was raffled to Branch 3 thereof. The Court ruled in favor of Uy
and granted an extension period of five years.
ISSUE:
Is respondent Uy entitled to a grant of extension by the Court?
RULING:
The 2nd paragraph of Article 1687 provides that in the event that the lessee has
occupied the leased premises for over a year, the courts may fix a longer term for the
lease.
The power of the courts to establish a grace period is potestative or discretionary,
depending on the particular circumstances of the case. Thus, a longer term may be
granted where equities come into play, and may be denied where none appears, always
with due deference to the parties freedom to contract.
In the present case, respondent has remained in possession of the property from the
time the complaint for ejectment was filed on September 18, 2001 up to the present time.
Effectively, respondents lease has been extended for more than five years, which time is,
under the circumstances, deemed sufficient as an extension and for him to find another
place to stay.

Page | 195

KASAPIAN NG MANGGAGAWA NG COCA-COLA VS CA


GR No. 159828.
April 19, 2006
FACTS:
On June 1998, a Collective Bargaining Agreement which was in effect between
petitioner union and private respondent company expired. With the intervention of the
NCMB Administrator, on December 26, 1998, both parties executed and signed a MOA
providing for salary increases and other economic and non-economic benefits. As part of
the MOA, 61 employees were regularized. Consequently, petitioner demanded the
payment and benefits of the newly regularized employees retroactive to December 1,
1998. Petitioner then demanded renegotiation of the CBA which private respondent
refused. On December 9, 1999, despite the pendency of petitioners complaint before the
NLRC, private respondent closed its Manila and Antipolo plants resulting in the
termination of employment of 646 employees. The affected employees were considered
on paid leave from December 9, 1999 to February 29, 2009 and were paid their
corresponding salaries. The Petitioners amended their complaint to include union busting,
illegal dismissal, etc.
ISSUE:
Is the closure of the Manila and Antipolo plants valid?
RULING:
Under Article 280 of the Labor Code, all those who have been with the company
for one year by said date must automatically be considered regular employees by
operation of law. The 61 employees all qualify as regular employees by this provision.
The characterization of the employees services as no longer necessary or
sustainable, and therefore properly terminable, is an exercise of business judgment on the
part of the employer. The wisdom or soundness of such characterizing or decision is not
subject to discretionary review on the part of the Labor Arbiter nor of the NLRC so long,
of course, as violation of law or merely arbitrary and malicious action is not shown. As
found by the NLRC, the private respondents decision to close the plant was a result of a
study conducted which established that the most prudent course of action for the private
respondent was to stop operations in said plants and transfer production to other more
modern and technologically advanced plants of private respondent.

Page | 196

SANTOS VS SANTOS
GR No. 153004.
November 5, 2004
FACTS:
Ernesto V. Santos and Santos Ventura Hocorma Foundation, Inc. (SVHFI) were
the plaintiff and defendant, respectively, in several civil cases. On October 26, 1990, the
parties executed a Compromise Agreement which amicably ended all their pending
litigations. As stipulated, defendant foundation shall pay Plaintiff Santos P14.5 Million in
the following manner: a) P1.5 Million immediately upon the execution of the agreement;
b) The balance of P13 Million shall be paid at the discretion of the Foundation, within a
period of not more than two (2) years from the execution of the agreement. Plaintiff
Santos shall also cause the dismissal of civil cases pending upon the execution of the
agreement.
As a result of the Compromise Agreement, the civil cases were dropped.
However, petitioner SVHFI sold to Development Exchange Livelihood two real
properties, which were previously subjects of lis pendens. Respondent then issued a
demand letter for the collection of payment. With no response from petitioner, filed for
the issuance of a writ of execution for which the properties of petitioner were then
auctioned off for payment of the debt. On June 2, 1995, respondent filed a complaint for
declaratory relief and damages alleging that he was also entitled to interest for delayed
payment.
ISSUE:
Are the respondents entitled to legal interest?
RULING:
The general rule is that a compromise has upon the parties the effect and authority
of res judicata, with respect to the matter definitely started therein, or in which by
implication from its terms should be deemed to have been included therein. This holds
true even if the agreement has not been judicially approved. In the case at bar, the
obligation was already due and demandable after he lapse of the two-year period from the
execution of the contract.
Verily, the petitioner is liable for damages for the delay in the performance of its
obligation (Article 1170 of the New Civil Code). When the debtor knows the amount and
period when he is to pay, interest as damages is generally allowed as a matter of right. In
the absence of agreement, the legal rate of interest shall prevail. The legal interest for a
loan as forebearance of money is 12% per annum to be computed from default. Thus
respondent was entitled to legal interest.

Page | 197

METOLINDOS VS TOBIAS
GR No. 146658.
October 28, 2002
FACTS:
Eighty-seven-year old petitioner, Atty. Manuel D. Melotindos, was the lessee of
the ground floor of a house at Nakpil Street in Malate, Manila. He had been renting the
place since 1953 on a month-to-month basis from its owner, respondent Melecio Tobias,
who was then residing in Canada. On June 1, 1998, respondent asked petitioner to restore
the premises to him for essential repairs to accommodate housing for his mother during
her regular medical check-ups in Manila. Petitioner however refused to vacate the
premises and worse, he neglected payment of his monthly dues. Petitioner then filed a
complaint for ejectment in Court. The courts ruled in favor of defendant. Petitioner filed a
motion for review but was denied on grounds of late filing. Petitioner then filed the
instant petition for review asservating that the order to eject him from the leased premises
was illegal because he was always up to date in paying the rental fee; that it was the
obligation of the Trial Court to extend his lease by five (5) more years citing Article 1687
of the Civil Code.
ISSUE:
Is the order of ejectment illegal?
RULING:
The Decision of the Court of Appeals was already final and executor. Petitioner
received the CA decision on October 9, 2000 as shown by the registry return receipt and
that he filed his motion for reconsideration thereof only on October 30, 2000. The motion
was obviously filed beyond the fifteen day reglementary period.
The evidence on record confirm petitioners default in paying the rental fees for
more than three months in 1999 and 1998 prior to the filing of the ejectment complaint.
In addition, there is sufficient basis to conclude that respondent desperately needed the
property in good faith for his own family and for the repair of the house therein. These
facts represent legal grounds for ejectment.
Lastly, Article 1687 does not grant a lessee absolute right to an extension of the
lease term but merely gives the courts the discretion to allow additional time for the
lessee to prepare for his eventual ejection. The petitioner had effectively been granted an
extension of five years when respondent did not assiduously pursue the several demands
made in 1995 and 1996 for him to return possession of the leased premises until in 1999.
He was also only evicted from the premises in accordance with the MeTC decision only
in 2002.

Page | 198

LL AND COMPANY DEVELOPMENT AND AGRO-INDUSTRIAL


CORPORATION VS HUANG CHAO CHAN
GR No. 142378.
March 7, 2002
FACTS:
Petitioner filed a case for unlawful detainer alleging that respondents Huang Chao
Chun and Yang Tung Fa violated their amended lease contract over Lot No. 1-A-1, when
they did not pay the monthly rentals thereon in the total amount of P4,322,900.00.
Petitioner also alleged that the amended lease contract had already expired on September
16, 1966 but respondents refused to vacate the premises. The MeTC, RTC, and CA
dismissed the unlawful detainer case. It was held that in the interest of justice and equity,
the contract entered into by the parties may be extended by the lessees. Hence petitioners
now raise the issue to the Supreme Court.
ISSUE:
Is the case of unlawful and detainer and ejectment a valid course of action?
RULING:
Where no period has been fixed by the parties, the courts, pursuant to Article
1687, have the potestative authority to set a longer period of lease. In the case at bar, the
Contract of Lease provided for a fixed period of five years specifically from September
16, 1991 to September 15, 1996. Thus, it ceased on the day fixed without need of
demand. The Court could not supply material stipulations to a contract and extend to date
of lease. Furthermore, the extension of a lease contract must be made before the term of
the agreement expires, no after. Upon the lapse of the stipulated period, courts cannot
belatedly extend or make a new lease for the parties, even on the basis of equity.
The period of the lease must be deemed to have been agreed upon for the benefit
of both parties. Its renewal may be authorized only upon their mutual agreement or at
their joint will. Its continuance, effectivity or fulfillment cannot be made to depend
exclusively upon the free and uncontrolled choice of just one party. In the instant case,
there was nothing in the stipulations of the contract of the actuations of the parties to
indicate automatic renewal of the term of the contract.
Lastly, while mere failure to pay does not make possession unlawful, but when a
valid demand to vacate the premises is made by the lessor, the lessees continued
withholding of possession becomes unlawful as what is evident in this case. The Supreme
Court granted the petition.

Page | 199

BRENT SCHOOL VS ZAMORA


GR No. L-48494.
February 5, 1990
FACTS:
Doroteo R. Alegre was engaged as athletic director by Brent School, Inc. The
contract fixed a specific term for its existence, five (5) years, i.e., from July 18, 1971, the
date of execution of the agreement, to July 17, 1976.
On April 20,1976, Alegre was given a copy of the report filed by Brent School
with the Department of Labor advising of the termination of his services effective on July
16, 1976. The stated ground for the termination was "completion of contract, expiration
of the definite period of employment." And a month or so later, on May 26, 1976, Alegre
accepted the amount of P3,177.71, and signed a receipt therefor containing the phrase, "in
full payment of services for the period May 16, to July 17, 1976 as full payment of
contract." However, Alegre later protested at the termination of his employment upon
investigation of the labor conciliator.
ISSUE:
Is Alegre entitled to regularized employment?
RULING:
Since the entire purpose behind the development of legislation culminating in the
present Article 280 of the Labor Code clearly appears to have been to prevent
circumvention of the employee's right to be secure in his tenure, the clause in said article
indiscriminately and completely ruling out all written or oral agreements conflicting with
the concept of regular employment as defined therein should be construed to refer to the
substantive evil that the Code itself has singled out: agreements entered into precisely to
circumvent security of tenure. It should have no application to instances where a fixed
period of employment was agreed upon knowingly and voluntarily by the parties, without
any force, duress or improper pressure being brought to bear upon the employee and
absent any other circumstances vitiating his consent, or where it satisfactorily appears
that the employer and employee dealt with each other on more or less equal terms with no
moral dominance whatever being exercised by the former over the latter. Unless thus
limited in its purview, the law would be made to apply to purposes other than those
explicitly stated by its framers; it thus becomes pointless and arbitrary, unjust in its
effects and apt to lead to absurd and unintended consequences.
The Supreme Court thusly decided in favor of petitioner.

Page | 200

LIM VS PEOPLE
GR No. L-34338.
November 21, 1984
FACTS:
The appellant is a businesswoman. On January 10, 1966, the appellant went to the
house of Maria Ayroso and proposed to sell Ayroso's tobacco. Ayroso agreed to the
proposition of the appellant to sell her tobacco consisting of 615 kilos at P1.30 a kilo. The
appellant was to receive the overprice for which she could sell the tobacco. This
agreement was made in the presence of plaintiff's sister, Salud G. Bantug. Salvador
Bantug drew the document, Exh. A, dated January 10, 1966. Following the transaction
respondent or rather Salud tried to follow up on the payment and forwarded a demand
letter.
Pursuant to this letter, the appellant sent a money order for P100.00 on October
24, 1967, Exh. 4, and another for P50.00 on March 8, 1967; and she paid P90.00 on April
18, 1967 as evidenced by the receipt Exh. 2, dated April 18, 1967, or a total of P240.00.
As no further amount was paid, the complainant filed a complaint against the appellant
for estafa. Both the RTC and CA convicted petitioner.
ISSUE:
Does the obligation solely depend on the will of the debtor, thus leaving only the
courts to impose a period?
RULING:
It is clear in the agreement, Exhibit "A", that the proceeds of the sale of the
tobacco should be turned over to the complainant as soon as the same was sold, or, that
the obligation was immediately demandable as soon as the tobacco was disposed of.
Hence, Article 1197 of the New Civil Code, which provides that the courts may fix the
duration of the obligation if it does not fix a period, does not apply.
Aside from the fact that Maria Ayroso testified that the appellant asked her to be
her agent in selling Ayroso's tobacco, the appellant herself admitted that there was an
agreement that upon the sale of the tobacco she would be given something. The appellant
is a businesswoman, and it is unbelievable that she would go to the extent of going to
Ayroso's house and take the tobacco with a jeep which she had brought if she did not
intend to make a profit out of the transaction. Certainly, if she was doing a favor to Maria
Ayroso and it was Ayroso who had requested her to sell her tobacco, it would not have
been the appellant who would have gone to the house of Ayroso, but it would have been
Ayroso who would have gone to the house of the appellant and deliver the tobacco to the
appellant.

Page | 201

PACIFIC BANKING VS CA
GR No. L-45656.
May 5, 1989
FACTS:
Hart and Clarkins are the major stockholders of Insular Farms. On July 31, 1956
Insular Farms, owned by respondents, Inc. executed a Promissory Note of P 250,000.00
to the bank payable in five equal annual installments, the first installment payable on or
before July 1957. Said note provided that upon default in the payment of any installment
when due, all other installments shall become due and payable. The loan was intended to
support Insular Farms.
Unfortunately, business continued to decline. Hart agreed to Clarkin's proposal
that all Insular Farms shares of stocks be pledged to petitioner bank in lieu of additional
collateral and to insure an extension of the period to pay the July 1957 installment. Said
pledge was executed on February 19, 1958. Barely two weeks after the pledge the bank
demanded judicial foreclosure of the stock and the lots. The RTC granted the motion but
was reversed by the CA.
ISSUE:
Did petitioner bank infringe on the terms and conditions of the pledge?
RULING:
In case the period of extension is not precise, the provisions of Article 1197 of the
Civil Code should apply. In this case, there was an agreement to extend the payment of
the loan, including the first installment thereon which was due on or before July 1957.
In addition, there is ample evidence to support bad faith on the part of petitioner.
No sufficient investigation was conducted after the execution of the pledge regarding the
ability of Insular Farms to pay its loan. Also the dates of demand and filing of the case
for foreclosure seem to cast doubt on the intent of petitioner to offer the pledge to help
respondents.
In the light of the above discussion and the finding that the foreclosure sale was
premature and done in bad faith, petitioners are liable for damages arising from a quasidelict. The Supreme Court upheld the decision of the CA.

Page | 202

AGONCILLO VS JAVIER
GR No. 12611.
August 7, 1918
FACTS:
On February 27, 1904, Anastacio Alano, Jose Alano, and Florencio Alano,
executed in favor of the plaintiff, Da. Marcela Mario a document whereby: (1) The
Alanos would render unto her within one year from the date of the document, with
interest at 12% per annum, the sum of Php2,730.50; (2) They would mortgage a house
and lot inherited by them from the deceased, one Evangelista, to secure payment and; (3)
In case of insolvency on their part, they would cede said house and lot to Dr. Marcela
Mario. In case its value is insufficient to cover the total amount of indebtedness,
Anastacio Alano would also mortgage to said lady his four parcels of land to secure the
balance, if any.
In 1912, Anastacio Alano died intestate, and notices were drawn in boards and
newspapers for creditors to make their claims. No claims were presented to the
committee and the intestate proceeding was terminated by order dated November 8, 1915.
On April 27, 1916, petitioner stated that she was a creditor and the intestate proceedings
were reopened. The Court appointed one Javier to be administrator of the estate. Claims
for the house and lot were made as petitioner avers that defendants paid no part of the
indebtedness acknowledged therein, with the exception of the PhP200.00 paid on account
by Anastacio in 1908.
ISSUE:
Does petitioner have a right to the house and lot?
RULING:
The contract now under consideration is not susceptible of the interpretation that
the title to the house and lot in question was to be transferred to the creditor ipso facto
upon the mere failure to pay the debt at its maturity. The obligation assumed by the
debtors was alternative, and they had the right to elect which obligation they could
perform. The conduct of the parties involved shows that it was not their understanding
that the right to discharge the obligation by the payment of money was lost to debtors by
their failure to pay the debt at its maturity. The alternative indivisible obligation also
arises from the fulfillment of the suspensive condition before it can be availed of.
It is unfortunate, but the petition was judged to have lacked merit.

Page | 203

ONG GUAN VS THE CENTURY INSURANCE COMPANY, LTD.


GR No. L-20096
February 6, 1924
FACTS:
An action was filed by the plaintiff Ong Guan Can to recover from the defendant
an amount due on the policy of insurance issued by the defendant corporation. On June 5,
1923, only the motion of the plaintiff, The Court judged in default against the defendant.
The notice of appearance was received on June 7, 1923. The defendant then asserts that
said judgment should be reversed as the letter was carried on board the steamship
Vizcaya and was sent on June 2, 1923. The ship was however delayed due to a storm at
sea.
ISSUE:
Should the letter of notice be given due course?
RULING:
The Petition bore merit.
It has been frequently decided that, if pleadings or other papers essential to a case
are entrusted to the mails in due season and under proper precaution and are lost or
miscarried, it will be ground for vacating a judgment by default.
A delay of mail, such as occurred in the present case, amounts to accident or
surprise for which judgments by default may be set aside, especially when the defendant
shows by affidavit or otherwise that he has a valid and meritorious defense. The time
fixed for filing papers in a cause is generally directory and the court always has it in its
power, in the exercise of a proper discretion, to extend the time fixed by law whenever
the ends of justice would seem to demand such an extension.

Page | 204

LEGARDA VS MIAILHE
GR No. L-3435,
April 28, 1951
FACTS:
On June 3, 1944, plaintiffs filed a complaint against the original defendant
William J.B. Burke, alleging defendants unjustified refusal to accept payment in
discharge of a mortgage indebtedness in his favor, and praying that the latter be order (1)
to receive the sum of P75,920.83; (2) to execute the corresponding deed of release of
mortgage, and; (3) to pay damages in the sum of P1,000. The Court then decided in favor
of plaintiff Legarda. After the war and the subsequent defeat of the Japanese occupants,
defendant filed a case in court claiming that plaintiff Clara de Legarda violated her
agreement with defendant, by forcing to deposit worthless Japanese military notes when
they originally agreed that the interest was to be condoned until after the occupation and
that payment was rendered either in Philippine or English currency. Defendant was later
substituted upon death by his heir Miailhe and the Courts judged in defendants favor.
Plaintiff now assails said decision.
ISSUE:
Is the tender of payment by plaintiff valid?
RULING:
On February 17, 1943, the only currency available was the Philippine currency, or
the Japanese Military notes, because all other currencies, including the English, were
outlawed by a proclamation issued by the Japanese Imperial Commander on January 3,
1942. The right to election ceased to exist on the date of plaintiffs payment because it
had become legally impossible. And this is so because in alternative obligations there is
no right to choose undertakings that are impossible or illegal. In other words, the
obligation on the part of the debtor to pay the mortgage indebtedness has since then
ceased to be alternative. It appears therefore, that the tender of payment in Japanese
Military notes was a valid tender because it was the only currency permissible at the time
and its payment was tantamount to payment in Philippine currency.
However, payment with the clerk of court did not have any legal effect because it
was made in certified check, and a check does not meet the requirements of legal tender.
Therefore, her consignation did not have the effect of relieving her from her obligation of
the defendant.

Page | 205

ESTANISLAO REYES vs. SEBASTIANA MARTINEZ ET AL.,


G.R. No. 32226 . DECEMBER 29, 1930.

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

ISSUE:
Whether or not Reyes is entitled to the recovery of ownership of the five parcels
of land subject of this case.

RULING:
The prior history of the litigation shows that Reyes elected to take and hold the
parcel described in clause 8, and his right thereto has all along been recognized in the
dispositions made by the court with respect to said land. In our decision in Martinez vs.
Grao (51 Phil., 287, 301), it was a basal assumption that Reyes would obtain the
thousand trees referred to; and we are of the opinion that, from various steps taken in the
prior litigation, Reyes must be taken to have elected to take that particular parcel and he
is now estopped from asserting a contrary election to take the five parcels of land
described in paragraph IX of his complaint.
However, the title to the parcel of land elected by Reyes is in the heirs of Inocente
Martinez and it does not appear that they have transferred said title to Reyes. It results
therefore that Reyes now has a claim for damages against the parties signatory to the
contract of March 5, 1921, for the value of the aforesaid property. We therefore reach the
conclusion that Reyes should either have the land originally set apart for him under
clauses 4 and 8 of the contract, or, in case his right thereto should fail, he should not be
required to pay the judgment for P8,000 which was awarded to the Martinez heirs in
Martinez vs. Grao (51 Phil., 287, 302).

Page | 206

QUIZANA VS REDUGORIO
GR No. L-6620.
May 7, 1954
FACTS:
This is an appeal to this Court from a decision rendered by the Court of First
Instance of Marinduque, wherein the defendants-appellants are ordered to pay the
plaintiff-appellee the sum of P550, with interest from the time of the filing of the
complaint, and from an order of the same court denying a motion of the defendantsappellants for the reconsideration of the judgment on the ground that they were deprived
of their day in court.
ISSUE:
What is the nature and effect of the actionable document mentioned above?
RULING:
The decisive question at issue, therefore, is whether the second part of the written
obligation, in which the obligors agreed and promised to deliver a mortgage over the
parcel of land described therein, upon their failure to pay the debt on a date specified in
the proceeding paragraph, is valid and binding and effective upon the plaintiff-appellee,
the creditor. This second part of the obligation in question is what is known in law as a
facultative obligation, defined in article 1206 of Civil Code of the Philippines, which
provides:
ART. 1206. When only one prestation has been agreed upon, but the obligor may
render another in substitution, the obligation is called facultative.
There is nothing in the agreement which would argue against its enforcement. it is not
contrary to law or public morals or public policy, and notwithstanding the absence of any
legal provision at the time it was entered into government it, as the parties had freely and
voluntarily entered into it, there is no ground or reason why it should not be given effect.
It is a new right which should be declared effective at once.

Page | 207

PURITA ALIPIO vs. COURT OF APPEALS


G.R. No. 134100. September 29, 2000

FACTS:
Respondent Romeo Jaring was the lessee of a 14.5 hectare fishpond in Barito,
Mabuco, Hermosa, Bataan, for a period of five years ending on September 12, 1990. On
June 19, 1987, he subleased the fishpond, for the remaining period of his lease, to the
spouses Placido and Purita Alipio and the spouses Bienvenido and Remedios Manuel.
The stipulated amount of rent was P485,600.00, payable in two installments of
P300,000.00 and P185,600.00, with the second installment falling due on June 30, 1989.
Each of the four sublessees signed the contract.
The first installment was duly paid, but of the second installment, the sublessees
only satisfied a portion thereof, leaving an unpaid balance of P50,600.00. Despite due
demand, the sublessees failed to comply with their obligation, so that, on October 13,
1989, private respondent sued the Alipio and Manuel spouses for the collection of the
said amount before the Regional Trial Court. In the alternative, he prayed for the
rescission of the sublease contract should the defendants fail to pay the balance.
Petitioner Purita Alipio moved to dismiss the case because her husband had
passed away. And that any action for recovery of money, debt or interest thereon, shall
be dismissed when the defendant dies before final judgment.The trial court denied
petitioner's motion and held that the obligation is solidary. On appeal, the Court of
Appeals affirmed the decision.
ISSUE:
Whether a creditor can sue the surviving spouse for the collection of a debt which
is owed by the conjugal partnership of gains, or whether such claim must be filed in
proceedings for the settlement of the estate of the decedent.
RULING:
The Court held that the respondent cannot sue the surviving spouse of a decedent in an
ordinary proceeding for the collection of a sum of money chargeable against the conjugal
partnership. Because when the husband died, their conjugal partnership was
automatically dissolved and debts chargeable against it is to be paid in the settlement of
estate proceedings.
Moreover, respondent does not cite any provision of law which provides that
when there are two or more lessees, or in this case, sublessees, the latter's obligation to
pay the rent is solidary.Thus, the liability of the sublessees is merely joint. Since the
obligation of the Manuel and Alipio spouses is chargeable against their respective
conjugal partnerships, the unpaid balance of P50,600.00 should be divided into two so
that each couple is liable to pay the amount of P25,300.00. Hence, the petition is granted.

Page | 208

PH CREDIT CORP VS CA
GR No. 109648.
November 22, 2001
FACTS:
PH Credit Corp., filed a case against Pacific Lloyd Corp., Carlos Farrales,
Thomas H. Van Sebille and Federico C. Lim, for [a] sum of money. The case was
docketed as Civil Case No. 83-17751 before the Regional Trial Court, Branch 51,
Manila. After service of summons upon the defendants, they failed to file their answer
within the reglementary period, hence they were declared in default. PH Credit Corp.,
was then allowed to present its evidence ex-parte. The RTC judged in favor of PH Credit
Corp.
On July 27, 1990, a motion for the issuance of a writ of possession was filed and
on October 12, 1990, the same was granted. The writ of possession itself was issued on
October 26, 1990. Said order and writ of possession are now the subject of this petition.
Petitioner claims that Respondent Judge erred in applying the presumption of a joint
obligation in the face of the conclusion of fact and law contained in the decision showing
that the obligation is solidary.
ISSUE:
Is the petitioners contention tenable?
RULING:
The Rules of Court requires that all available objections to a judgment or
proceeding must be set up in an Omnibus Motion assailing it; otherwise, they are deemed
waived. In the case at bar, the objection of private respondent to his solidary liability
became available to him, only after his real property was sold at public auction. At the
time his personal properties were levied and sold, it was not evident to him that he was
being held solely liable for the monetary judgment rendered against him and his corespondents. That was why his objections then did not include those he asserted when his
solidary liability became evident.
In the dispositive portion of the January 31, 1984 Decision of the trial court, the
word solidary neither appears nor can it be inferred therefrom. The fallo merely stated
that the following respondents were liable: Pacific Lloyd Corporation, Thomas H. Van
Sebille, Carlos M. Farrales and Federico C. Lim. Under the circumstances, the liability is
joint, as provided by the Civil Code.
We should stress that respondents obligation is based on the judgment rendered
by the trial court. The dispositive portion or the fallo is its decisive resolution and is thus
the subject of execution. The other parts of the decision may be resorted to in order to
determine the ratio decidendi for the disposition. Where there is a conflict between the
dispositive part and the opinion of the court contained in the text or body of the decision,
the former must prevail over the latter on the theory that the dispositive portion is the
final order, while the opinion is merely a statement ordering nothing. Hence the
execution must conform with that which is ordained or decreed in the dispositive portion
of the decision.

Page | 209

CDCP VS ESTRELLA
GR No. 147791.
September 8, 2006
FACTS:
On December 29, 1978, respondents Rebecca G. Estrella and her granddaughter,
Rachel E. Fletcher, boarded in San Pablo City, a BLTB bus bound for Pasay City.
However, they never reached their destination because their bus was rammed from
behind by a tractor-truck of CDCP in the South Expressway. The strong impact pushed
forward their seats and pinned their knees to the seats in front of them. They regained
consciousness only when rescuers created a hole in the bus and extricated their legs from
under the seats. They suffered physical injuries as a result. Thereafter, respondents filed a
Complaint for damages against CDCP, BLTB, Espiridion Payunan, Jr. and Wilfredo
Datinguinoo before the Regional Trial Court of Manila, Branch 13.
ISSUE:
Are the accused jointly or solidarily liable?
RULING:
The case filed by respondents against petitioner is an action for culpa
aquiliana or quasi-delict under Article 2176 of the Civil Code. The liability for the
negligent conduct of the subordinate is direct and primary, but is subject to the defense of
due diligence in the selection and supervision of the employee. In the instant case, the
trial court found that petitioner failed to prove that it exercised the diligence of a good
father of a family in the selection and supervision of Payunan, Jr.
It is well-settled in Fabre, Jr. v. Court of Appeals, that the owner of the
other vehicle which collided with a common carrier is solidarily liable to the injured
passenger of the same. The Peitition was thusly DENIED.

Page | 210

REPUBLIC GLASS CORPORATION v. QUA


G.R. No. 14413 July 30, 2004

FACTS:
Petitioners and respondent were stockholders of Ladtek, Inc., which obtained
loans from Metrobank and PDCP where they stood as sureties. Among themselves they
executed Agreements for Contribution, Indemnity and Pledge of shares of Stocks, stating
that in case of default in the payment of loans, the parties would reimburse each other the
proportionate share of any sum that any might pay to creditors. Ladtek defaulted on its
loan obligations, hence Metrobank filed a collection case. During the pendency thereof,
RGC and Gervel paid Metrobank where a waiver and quitclaim in favor of the two was
executed. Upon Quas refusal to reimburse, RGC and Gervel foreclosed the pledged
shares of stocks owned by Qua at a public auction. On appeal, the CA issued the assailed
decision and held that there was an implied novation of the agreement and that the
payment did not extinguish the entire obligation and did not benefit Qua. Hence, the
petition, where the petitioners claim the following: (1) Qua is estopped from claiming
that the payment made was not for the entire obligation, due to his judicial admissions;
(2) payment of the entire obligation is a condition sine qua non for the demand of
reimbursement under the indemnity agreements; and (3) there is no novation in the
instant case.

ISSUES:
(1) Whether payment of the entire obligation is an essential condition for
reimbursement; and (2) Whether there was no novation.

RULING:
The petition is denied. Although the Agreement does not state that payment of
the entire obligation is an essential condition for reimbursement, RGC and Gervel cannot
automatically claim for indemnity from Qua because Qua himself is liable directly to
Metrobank and PDCP. The elements of novation are not established in the instant case.
Contrary to RGC and Gervels claim, payment of any amount will not automatically
result in reimbursement. If a solidary debtor pays the obligation in part, he can recover
reimbursement from the co-debtors only in so far as his payment exceeded his share in
the obligation. This is precisely because if a solidary debtor pays an amount equal to his
proportionate share in the obligation, then he in effects pays only what is due from him.
If the debtor pays less than his share in the obligation, he cannot demand reimbursement
because his payment is less than his actual debt.

Page | 211

INDUSTRIAL MANAGEMENT VS NLRC


GR No. 101723.
May 11, 2000
FACTS:
This is a petition for certiorari assailing the Resolution dated September 4, 1991
issued by the National Labor Relations Commission in RAB-VII-0711-84 on the alleged
ground that it committed a grave abuse of discretion amounting to lack of jurisdiction in
upholding the Alias Writ of Execution issued by the Labor Arbiter which deviated from
the dispositive portion of the Decision dated March 10, 1987, thereby holding that the
liability of the six respondents in a case adjudicated by the NLRC is solidary despite the
absence of the word "solidary" in the dispositive portion of the Decision, when their
liability should merely be joint.
ISSUE:
Is the petitioners liability pursuant to the Decision of the Labor Arbiter dated
March 10, 1987, solidary or not?
RULING:
In the dispositive portion of the Labor Arbiter, the word "solidary" does not
appear. The said fallo expressly states the following respondents therein as liable,
namely: Filipinas Carbon and Mining Corporation, Gerardo Sicat, Antonio Gonzales,
Industrial Management Development Corporation (petitioner INIMACO), Chiu Chin
Gin, and Lo Kuan Chin. Nor can it be inferred therefrom that the liability of the six (6)
respondents in the case below is solidary, thus their liability should merely be joint.
Moreover, it is already a well-settled doctrine in this jurisdiction that, when it is
not provided in a judgment that the defendants are liable to pay jointly and severally a
certain sum of money, none of them may be compelled to satisfy in full said judgment.
Granting that the Labor Arbiter has committed a mistake in failing to indicate in the
dispositive portion that the liability of respondents therein is solidary, the correction -which is substantial -- can no longer be allowed in this case because the judgment has
already become final and executory.

Page | 212

METRO MANILA TRANSIT CORPORATION vs. THE COURT OF APPEALS


G.R. No. 104408 1993 June 21, 1993
FACTS:
On August 28, 1979, plaintiff-appellant Nenita Custodio boarded as a paying
passenger a public utility jeepney with plate No. D7 305 PUJ, then driven by defendant
Agudo Calebag and owned by his co-defendant Victorino Lamayo, bound for her work at
Dynetics Incorporated located in Bicutan, Taguig, Metro Manila, where she then worked
as a machine operator earning P16.25 a day. While the passenger jeepney was travelling
at (a) fast clip along DBP Avenue, Bicutan, Taguig, Metro Manila another fast moving
vehicle, a Metro Manila Transit Corp. bus with plate no. 3Z 307 PUB (Philippines) '79
driven by defendant Godofredo C. Leonardo was negotiating Honeydew Road, Bicutan,
Taguig, Metro Manila bound for its terminal at Bicutan. As both vehicles approached the
intersection of DBP Avenue and Honeydew Road they failed to slow down and slacken
their speed; neither did they blow their horns to warn approaching vehicles. As a
consequence, a collision between them occurred, the passenger jeepney ramming the left
side portion of the MMTC bus. The collision impact caused plaintiff-appellant Nenita
Custodio to hit the front windshield of the passenger jeepney and (she) was thrown out
therefrom, falling onto the pavement unconscious with serious physical injuries. She was
brought to the Medical City Hospital where she regained consciousness only after one (1)
week. Thereat, she was confined for twenty-four (24) days, and as a consequence, she
was unable to work for three and one half months (3 1/2).
A complaint for damages was filed by herein private respondent, who being then
a minor was assisted by her parents, against all of therein named defendants following
their refusal to pay the expenses incurred by the former as a result of the collision.
Said defendants denied all the material allegations in the complaint and pointed an
accusing finger at each other as being the party at fault.
ISSUE:
Whether the evidence presented during the trial with respect to the proof of due
diligence of petitioner MMTC in the selection and supervision of its employees,
particularly driver Leonardo, is sufficient.

RULING:
With the allegation and subsequent proof of negligence against the defendant
driver and of an employer-employee relation between him and his co-defendant MMTC
in this instance, the case is undoubtedly based on a quasi-delict under Article 2180.
When the employee causes damage due to his own negligence while performing his own
duties, there arises the juris tantum presumption that the employer is negligent,
rebuttable only by proof of observance of the diligence of a good father of a family. For
failure to rebut such legal presumption of negligence in the selection and supervision of
employees, the employer is likewise responsible for damages, the basis of the liability
being the relationship of pater familias or on the employer's own negligence.
Hence, the court consistently held that where the injury is due to the concurrent
negligence of the drivers of the colliding vehicles, the drivers and owners of the said
vehicles shall be primarily, directly and solidarily liable for damages and it is immaterial
that one action is based on quasi-delict and the other on culpa contractual, as the
solidarity of the obligation is justified by the very nature thereof. Hence, decision of
respondent Court of Appeals is affirmed.

Page | 213

INCIONG VS. COURT OF APPEALS


G.R. No. 96405, June 26, 1996
FACTS:
On February 3, 1983, petitioner Baldomero L. Inciong, Jr. together with Rene C.
Naybe and Gregorio D. Pantanosas signed a promissory note in the amount of P50,
000.00 holding themselves jointly and severally liable to private respondent Philippine
Bank of Communications. The promissory note was due on May 5, 1983. Said due date
expired without the promissors having paid their obligation.
On November 14, 1983 and on June 8, 1984, private respondent sent petitioner
telegrams demanding payment thereof. On December 11, 1983, private respondent also
sent registered mail a final letter of demand to Rene C. Naybe. Since both obligors did
not respond to the demand made, private respondent filed on January 24, 1986 a
complaint for collection of the sum of P50, 000.00 against the three (3) obligors. On
January 27, 1987, the lower court dismissed the case against defendant Pantanosas as
prayed by herein private respondent. Meanwhile, only the summons addressed to
petitioner was served for the reason that defendant Naybe had gone to Saudi Arabia.
The lower court rendered its decision holding petitioner solidarily liable and to
pay herein respondent bank the amount of P50, 000.00 plus interest thereon. Petitioner
appealed the said decision to the Court of Appeals. The respondent court, however,
affirmed the decision of the lower court. The petitioner moved for reconsideration, which
was later on denied by the respondent Court of Appeals.
ISSUE
Whether or not the dismissal of the complaint against Naybe, the principal debtor,
and against Pantanosas, his co-maker, constituted a release of his obligation.
HELD
The dismissal of the complaint against Naybe and Pantanosas did not constitute a
release of petitioners obligation, especially because the dismissal of the case against
Pantanosas was upon the motion of private respondent itself. Petitioner signed the
promissory note as a solidary co-maker and not as a guarantor. A solidary or joint and
several obligation is one in which each debtor is liable for the entire obligation, and each
creditor is entitled to demand the whole obligation. The promissory note involved in this
case expressly states that the three signatories therein are jointly and severally liable, any
one, some or all of them may be proceeded against for the entire obligation. The choice is
left to the solidary creditor to determine against whom he will enforce collection
Under Article 1207 of the Civil Code, when there are two or more debtors in one and the
same obligation, the presumption is that the obligation is joint so that each of the debtors
is liable only for a proportionate part of the debt. There is solidary liability only when the
obligation expressly so states, when the law so provides or when the nature of the
obligation so requires.

Page | 214

PHILIPPINE BLOOMING MILLS VS CA


GR No. 142381.
October 15, 2003
FACTS:
This is a petition for review on certiorari to annul the Decision dated 16 July 1999
of the Court of Appeals in CA-G.R. CV No. 39690, as well as its Resolution dated 17
February 2000 denying the motion for reconsideration. The Court of Appeals affirmed
with modification the Decision dated 31 August 1992 rendered by Branch 113 of the
Regional Trial Court of Pasay City ("trial court"). The trial courts Decision declared
petitioner Alfredo Ching ("Ching") liable to respondent Traders Royal Bank ("TRB") for
the payment of the credit accommodations extended to Philippine Blooming Mills, Inc.
("PBM"). The petition is a thinly veiled attempt to make the Supreme Court reconsider its
decision in the prior case of Traders Royal Bank v. Court of Appeals.
ISSUE:
Is Ching is liable for obligations PBM contracted after execution of the Deed of
Suretyship?
RULING:
Ching is liable for credit obligations contracted by PBM against TRB before and
after the execution of the 21 July 1977 Deed of Suretyship. This is evident from the tenor
of the deed itself, referring to amounts PBM "may now be indebted or may hereafter
become indebted" to TRB. The law expressly allows a suretyship for "future debts
(Article 2053).
Ching would like the Court to rule that his liability is limited, at most, to the
amount stated in PBMs rehabilitation plan. In claiming this reduced liability, Ching
invokes Article 1222. In granting the loan to PBM, TRB required Chings surety
precisely to insure full recovery of the loan in case PBM becomes insolvent or fails to
pay in full. This was the very purpose of the surety. Thus, Ching cannot use PBMs
failure to pay in full as justification for his own reduced liability to TRB. As surety,
Ching agreed to pay in full PBMs loan in case PBM fails to pay in full for any reason,
including its insolvency.
TRB, as creditor, has the right under the surety to proceed against Ching for the
entire amount of PBMs loan. This is clear from Article 1216 of the Civil Code whereby
the creditor may proceed against any one of the solidary debtors.

Page | 215

EPARWA SECURITY, v. LICEO DE CAGAYAN UNIVERSITY


G.R. No. 150402 Nov 8, 2006

FACTS:
On 1 December 1997, Eparwa and LDCU, entered into a Contract for Security
Services. On 21 December 1998, 11 security guards (security guards) whom Eparwa
assigned to LDCU from 1 December 1997 to 30 November 1998, filed a complaint
before the NLRC Regional Arbitration Branch No. 10 in Cagayan de Oro City. The
complaint was filed against both Eparwa and LDCU for underpayment of salary, legal
holiday pay, 13th month pay, rest day, service incentive leave, night shift differential,
overtime pay, and payment for attorneys fees.
The Labor Arbiter found that the security guards are entitled to wage differentials
and premium for holiday and rest day work. The Labor Arbiter held Eparwa and LDCU
solidarily liable pursuant to Article 109 of the Labor Code. LDCU filed an appeal before
the NLRC. LDCU agreed with the Labor Arbiters decision on the security guards
entitlement to salary differential but challenged the propriety of the amount of the award.
LDCU alleged that security guards not similarly situated were granted uniform monetary
awards and that the decision did not include the basis of the computation of the amount of
the award.
Eparwa also filed an appeal before the NLRC. For its part, Eparwa questioned its
liability for the security guards claims and the awarded cross-claim amounts. The NLRC
found that the security guards are entitled to wage differentials and premium for holiday
and rest day work. Although the NLRC held Eparwa and LDCU solidarily liable for the
wage differentials and premium for holiday and rest day work, the NLRC did not require
Eparwa to reimburse LDCU for its payments to the security guards. Eparwa and LDCU
again filed separate motions for partial reconsideration. In its Resolution NLRC declared
that although Eparwa and LDCU are solidarily liable to the security guards for the
monetary award, LDCU alone is ultimately liable.
LDCU filed a petition for certiorari before the appellate court assailing the NLRCs
decision. The appellate court granted LDCUs petition and reinstated the Labor Arbiters
decision. The appellate court also allowed LDCU to claim reimbursement from Eparwa.
The appellate court denied Eparwas motion for reconsideration.Hence, this
petition.

ISSUE:
Is LDCU alone ultimately liable to the security guards for the wage differentials
and premium for holiday and rest day pay?
RULING:
Articles 106, 107 and 109 of the Labor Code read:
Art. 106. Contractor or subcontractor. Whenever an employer enters into a
contract with another person for the performance of the formers work, the employees of
the contractor and of the latters subcontractor, if any, shall be paid in accordance with
the provisions of this Code.Article 107. Indirect employer. The provisions of the
immediately preceding Article shall likewise apply to any person, partnership, association
or corporation which, not being an employer, contracts with an independent contractor
for the performance of any work, task, job or project.
Article 109. Solidary liability. The provisions of existing laws to the contrary
notwithstanding, every employer or indirect employer shall be held responsible with his
contractor or subcontractor for any violation of any provision of this Code. For purposes
of determining the extent of their civil liability under this Chapter, they shall be
considered as direct employers.
This joint and several liability of the contractor and the principal is mandated by
the Labor Code to assure compliance of the provisions therein including the statutory
Page | 216

minimum wage [Article 99, Labor Code]. The contractor is made liable by virtue of his
status as direct employer. The principal, on the other hand, is made the indirect employer
of the contractors employees for purposes of paying the employees their wages should
the contractor be unable to pay them. This joint and several liability facilitates, if not
guarantees, payment of the workers performance of any work, task, job or project, thus
giving the workers ample protection as mandated by the 1987 Constitution. For the
security guards, the actual source of the payment of their wage differentials and premium
for holiday and rest day work does not matter as long as they are paid. This is the import
of Eparwa and LDCUs solidary liability. Creditors, such as the security guards, may
collect from anyone of the solidary debtors. Solidary liability does not mean that, as
between themselves, two solidary debtors are liable for only half of the payment.
LDCUs ultimate liability comes into play because of the expiration of the
Contract for Security Services. There is no privity of contract between the security
guards and LDCU, but LDCUs liability to the security guards remains because of
Articles 106, 107 and 109 of the Labor Code. Eparwa is already precluded from asking
LDCU for an adjustment in the contract price because of the expiration of the contract,
but Eparwas liability to the security guards remains because of their employer-employee
relationship. In lieu of an adjustment in the contract price, Eparwa may claim
reimbursement from LDCU for any payment it may make to the security guards.
However, LDCU cannot claim any reimbursement from Eparwa for any payment it may
make to the security guards. Hence, the petition is granted.

Page | 217

DIMAYUGA vs. PHILIPPINE COMMERCIAL & INDUSTRIAL BANK


Division G.R. No. 42542 Aug 5, 1991

FACTS:
On February 6, 1962, petitioner borrowed from the plaintiff-respondent, the sum
of ten thousand (P10,000.00) pesos as evidenced by a promissory note executed and
signed by Pedro Tanjuatco and Carlos Dimayuga. The indebtedness was to be paid on
May 7, 1962 with interest at the rate of ten percent (10%) per annum in case of nonpayment at maturity as evidenced by and in accordance with the terms and conditions of
the promissory note executed jointly and severally by defendants.
In the aforementioned promissory note, Carlos Dimayuga bound himself to pay
jointly and severally with Pedro Tanjuatco interest at the rate of 10% per annum on the
said amount of P10,000.00 until fully paid. Moreover, both undertook to "jointly and
severally authorize the respondent Philippine Commercial and Industrial Bank, at its
option to apply to the payment of this note any and all funds, securities or other real or
personal property of value which hands (sic) on deposit or otherwise belonging to anyone
or all of us. Upon the default of the promissors to pay, a complaint was filed on July 11,
1969 by the PCIB for some of money.
Defendant Carlos Dimayuga, however, had remitted to the plaintiff -respondent
the amount totalling P4,000.00 by way of partial payments made from August 1, 1969 to
May 7, 1970 as evidenced by corresponding receipts thereto. These payments were
nevertheless applied to past interests, charges and partly on the principal. On May 28,
1974, the trial court rendered a decision holding defendants jointly and severally liable to
pay the plaintiff the sum of P9,139.60 with interest at 10% per annum until fully paid
plus P913.96 as attorneys' fees.
On July 11, 1974, petitioner filed a motion alleging that since Pedro Tanjuatco
died on December 23, 1973, the money claim of the respondents should be dismissed and
prosecuted against the estate of the late Pedro Tanjuatco. On June 22, 1974, the trial court
denied the motion for lack of merit.Not satisfied, the petitioner appealed to the
respondent court. The Court of Appeals dismissed the appeal. Hence, this petition.
ISSUE:
Whether the position of the petitioner that Pedro Tanjuatco having died on
December 23, 1973, the money claim of PCIB should be dismissed and prosecuted
against the estate of the late Tanjuatco.
RULING:
From the evidence presented, there can be no dispute that Carlos Dimayuga
bound himself jointly and severally with Pedro C. Tanjuatco, now deceased, to pay the
obligation with PCIB in the amount of P10,000.00 plus 10% interest per annum. In
addition, as above stated, in case of non-payment, they undertook among others to jointly
and severally authorize respondent bank, at its option to apply to the payment of this
note, any and all funds, securities, real or personal properties, etc. belonging to anyone or
all of them. Otherwise stated, the promissory note in question provides in unmistakable
language that the obligation of petitioner Dimayuga is joint and several with Pedro C.
Tanjuatco.
It is well settled under the law and jurisprudence that when the obligation is
solidary, the creditor may bring his action in toto against the debtors obligated in
solidum. As expressly allowed by Article 1216 of the Civil Code, the creditor may
proceed against any one of the solidary debtors or some or all of them simultaneously.
"Hence, there is nothing improper in the creditor's filing of an action against the surviving
solidary debtors alone, instead of instituting a proceeding for the settlement of the estate
of the deceased debtor wherein his claim could be filed." The notice is undoubtedly left
to the solidary creditor to determine against whom he will enforce collection. Thus, the
appeal interposed by petitioner-appellant is dismissed for lack of merit and the decision
of the Court of First Instance is Affirmed in toto.
Page | 218

CERNA VS CA
GR No. L-48359.
March 30, 1993
FACTS:
On or about October 16, 1972, Celerino Delgado (Delgado) and Conrad Leviste
(Leviste) entered into a loan agreement which was evidenced by a promissory note
worded as follows:
FOR VALUE RECEIVED, I, CELERINO DELGADO, with postal
address at 98 K-11 St., Kamias Rd., Quezon City, promise to pay to the
order of CONRAD C. LEVISTE, NINETY (90) DAYS after date, at his
office at 215 Buendia Ave., Makati, Rizal, the total sum of SEVENTEEN
THOUSAND FIVE HUNDRED (P17,500.00) PESOS, Philippine
Currency, without necessity of demand, with interest at the rate of
TWELVE (12%) PERCENT per annum
On the same date, Delgado executed a chattel mortgage over a Willy's jeep owned
by him. And acting as the attorney-in-fact of herein petitioner, Manolo P. Cerna
(petitioner), he also mortgaged a "Taunus" car owned by the latter. The period lapsed
without Delgado paying the loan. This prompted Leviste to file a collection suit docketed
as Civil Case No. 17507 with the Court of First Instance of Rizal, Branch XXII against
Delgado and petitioner as solidary debtors. The Court of Appeals held that petitioner and
Delgado were solidary debtors.
ISSUE:
Are petitioner and Delgado solidary debtors?
RULING:
Only Delgado signed the promissory note and accordingly, he was the only one
bound by the contract of loan. Nowhere did it appear in the promissory note that
petitioner was a co-debtor. The law is clear that "(c)ontracts take effect only between the
parties. But by some stretch of the imagination, petitioner was held solidarily liable for
the debt allegedly because he was a co-mortgagor of the principal debtor, Delgado. This
ignores the basic precept that "(t)here is a solidary liability only when the obligation
expressly so states, or when the law or the nature of the obligation requires solidarity."
We have already stated that the contract of loan, as evidenced by the promissory note,
was signed by Delgado only. Petitioner had no part in the said contract. Thus, nowhere
could it be seen from the agreement that petitioner was solidarily bound with Delgado for
the payment of the loan.

Page | 219

NAZARENO VS. COURT OF APPEALS


G.R. No. 131641, February 23, 2000
FACTS:
Maximino Nazareno, Sr. and Aurea Poblete were husband and wife. Aurea died on
April 15, 1970, while Maximino, Sr. died on December 18, 1980. After the death of
Maximino, Sr., Romeo filed an intestate case in the Court of First Instance of Cavite,
Branch XV, where the case was docketed as Sp. Proc. No. NC-28. Upon the
reorganization of the courts in 1983, the case was transferred to the Regional Trial Court
of Naic, Cavite. Romeo was appointed administrator of his fathers estate. In the course
of the intestate proceedings, Romeo discovered that his parents had executed several
deeds of sale conveying a number of real properties in favor of his sister, Natividad. One
of the deeds involved six lots in Quezon City which were allegedly sold by Maximino,
Sr., with the consent of Aurea, to Natividad on January 29, 1970 for the total amount of
P47,800.00.
ISSUE:
Whether or not the Deed of Absolute of Sale can be equated as a divisible
obligation.
HELD:
The Supreme court held that the Deed of Absolute Sale is an indivisible contract
founded on an indivisible obligation. As such, it being indivisible, it can not be annulled
by only one of them. And since this suit was filed only by the estate of Maximino A.
Nazareno, Sr. without including the estate of Aurea Poblete, the present suit must fail.
The estate of Maximino A. Nazareno, Sr. can not cause its annulment while its validity is
sustained by the estate of Aurea Poblete. An obligation is indivisible when it cannot be
validly performed in parts, whatever may be the nature of the thing which is the object
thereof. The indivisibility refers to the prestation and not to the object. The Deed of Sale
of January 29, 1970 supposedly conveyed the six lots to Natividad. The obligation is
clearly indivisible because the performance of the contract cannot be done in parts,
otherwise the value of what is transferred is diminished. Petitioners are mistaken in
basing the indivisibility of a contract on the number of obligors. In any case, if
petitioners only point is that the estate of Maximino, Sr. alone cannot contest the validity
of the Deed of Sale because the estate of Aurea has not yet been settled, the argument
would nonetheless be without merit. The validity of the contract can be questioned by
anyone affected by it. A void contract is inexistent from the beginning. Hence, even if
the estate of Maximino, Sr. alone contests the validity of the sale, the outcome of the suit
will bind the estate of Aurea as if no sale took place at all.

Page | 220

ALONZO VS SAN JUAN


GR No. 137549.
February 11, 2005
FACTS:
A complaint for recovery of possession was filed by Aurelio P. Alonzo and
Teresita A. Sison against Jaime and Perlita San Juan docketed as Civil Case No. Q-9629415 before the Regional Trial Court (RTC) of Quezon City, Branch 77. In their
Complaint, plaintiffs alleged that they are the registered owners of a parcel of land. At
around June of 1996, plaintiffs discovered that a portion on the left side of the said parcel
of land with an area of one hundred twenty-five (125) square meters, more or less, was
occupied by the defendants for more than a year, without their prior knowledge or
consent. A demand letter was sent to the defendants in August of 1996 requiring them to
vacate the property but they refused to comply; hence, the filing of the Complaint.
During the pendency of the case, the parties agreed to enter into a Compromise
Agreement which the trial court approved in a Judgment.
Alleging that they failed to abide by the provisions of the Compromise Agreement
by their failure to pay the amounts due thereon, plaintiffs sent a letter demanding that the
defendants vacate the premises. Plaintiffs subsequently filed an Amended Motion for
Execution. Acting on the motion, the trial court issued its Order dated 11 August 1998
denying the motion.
ISSUE:
Is the RTC decision correct?
RULING:
In herein case, the respondents failed to discharge their burden of proving
payment. Even assuming that payments were made, it has not been shown to the full
satisfaction of this Court whether the payments were made specifically to satisfy
respondents obligation under the Compromise Agreement, nor were the circumstances
under which the payments were made explained, taking into consideration the conditions
of the Compromise Agreement.
Respondents contract with the petitioners have the force of law between them.
Respondents are thus bound to fulfill what has been expressly stipulated therein. Items 11
and 12 of the Compromise Agreement provided, in clear terms, that in case of failure to
pay on the part of the respondents, they shall vacate and surrender possession of the land
that they are occupying and the petitioners shall be entitled to obtain immediately from
the trial court the corresponding writ of execution for the ejectment of the respondents.
This provision must be upheld, because the Agreement supplanted the Complaint itself.
When the parties entered into a Compromise Agreement, the original action for recovery
of possession was set aside and the action was changed to a monetary obligation. Once
approved judicially, the Compromise Agreement can not and must not be disturbed
except for vices of consent or forgery.

Page | 221

DAVID VS CA
GR No. 115821.
October 13, 1999
FACTS:
The Regional Trial Court of Manila, Branch 27, with Judge Ricardo Diaz, then
presiding, issued a writ of attachment over real properties covered by TCT Nos. 80718
and 10289 of private respondents. In his Decision dated October 31, 1979, Judge Diaz
ordered private respondent Afable to pay petitioner P66,500.00 plus interest from July
24, 1974, until fully paid, plus P5,000.00 as attorney's fees, and to pay the costs of suit.
On June 20, 1980, however, Judge Diaz issued an Order amending said Decision,
so that the legal rate of interest should be computed from January 4, 1966, instead of
from July 24, 1974. The amended Decision in the decretal portion reads:
WHEREFORE, judgment is hereby rendered against the defendant,
Valentin Afable Jr., ordering him to pay to the plaintiff the sum of
P66,500.00 plus the legal rate of interest thereon from January 4, 1966 up
to the time the same is fully paid plus the amount of P5,000.00 as and for
attorney's fees and to pay the costs of the suit." ordering the private
respondent Afable to pay the petitioner the sum of P66,500.00 plus the
legal rate of interest thereon from July 24, 1974, plus the amount of
P5,000.00 as attorney's fees and to pay the costs of suit.
The CA affirmed the judgment. The affirmation now comes to review before the
SC.
ISSUE:
Should the payment of interest be simple or compound?
RULING:
As therein held, Article 2212 contemplates the presence of stipulated or
conventional interest which has accrued when demand was judicially made. In cases
where no interest had been stipulated by the parties, as in the case of Philippine American
Accident Insurance, no accrued conventional interest could further earn interest upon
judicial demand.
When the judgment sought to be executed ordered the payment of simple "legal
interest" only and said nothing about payment of compound interest, but the respondent
judge orders payment of compound interest, then, he goes beyond the confines of a
judgment which had become final.

Page | 222

THERESA MACALALAG vs. PEOPLE OF THE PHILIPPINES


G.R. No. 164358
December 20, 2006
FACTS:
On two separate occasions, particularly on 30 July 1995 and 16 October 1995,
petitioner Theresa Macalalag obtained loans from Grace Estrella (Estrella), each in the
amount of P100,000.00, each bearing an interest of 10% per month. Macalalag
consistently paid the interests. Finding the interest rates so burdensome, Macalalag
requested Estrella for a reduction of the same to which the latter agreed. On 16 April
1996 and 1 May 1996, Macalalag executed Acknowledgment/Affirmation Receipts
promising to pay Estrella the face value of the loans in the total amount of P200,000.00
within two months from the date of its execution plus 6% interest per month for each
loan. Under the two Acknowledgment/Affirmation Receipts, she further obligated herself
to pay for the two (2) loans the total sum of P100,000.00 as liquidated damages and
attorney's fees in the total sum of P40,000.00 as stipulated by the parties the moment she
breaches the terms and conditions thereof.
As security for the payment of the aforesaid loans, Macalalag issued two
Philippine National Bank (PNB) Checks on 30 June 1996, each in the amount of
P100,000.00, in favor of Estrella. However, the said checks were dishonored for the
reason that the account against which the same was drawn was already closed. Estrella
sent a notice of dishonor and demand to make good the said checks to Macalalag, but the
latter failed to do so. Hence, Estrella filed two criminal complaints for Violation of Batas
Pambansa Blg. 22 before the Municipal Trial Court in Cities (MTCC) of Bacolod
City.The MTCC found the accused Theresa Macalalag guilty beyond reasonable doubt of
the crime charged and is likewise ordered to pay as civil indemnity the total amount of
P200,000.00 with interest at the legal rate from the time of the filing of the informations
until the amount is fully paid; less whatever amount was thus far paid and validly
deducted from the principal sum originally claimed. On appealed, the Court of Appeals,
affirmed the RTC and the MTCC decisions with modification to the effect that accused
was convicted only of one (1) count of Violation of Batas Pambansa Blg. 22.
ISSUE:
Whether petitioner`s payments over and above the value of the said checks would
free her from criminal liability.
RULING:
The Court argued that, Even if we agree with petitioner Macalalag that the
interests on her loans should not be imputed to the face value of the checks she issued,
petitioner Macalalag is still liable for Violation of Batas Pambansa Blg. 22. Petitioner
Macalalag herself declares that before the institution of the two cases against her, she has
made a total payment of P156,000.00. Applying this amount to the first check (No. C889835), what will be left is P56,000.00, an amount insufficient to cover her obligation
with respect to the second check. As stated above, when Estrella presented the checks for
payment, the same were dishonored on the ground that they were drawn against a closed
account. Despite notice of dishonor, petitioner Macalalag failed to pay the full face value
of the second check issued.
Only a full payment of the face value of the second check at the time of its presentment
or during the five-day grace period15 could have exonerated her from criminal liability.
A contrary interpretation would defeat the purpose of Batas Pambansa Blg. 22, that of
safeguarding the interest of the banking system and the legitimate public checking
account user,16 as the drawer could very well have himself exonerated by the mere
expediency of paying a minimal fraction of the face value of the check. Hence, the
Petition is denied.

Page | 223

ANTONIO TAN vs. COURT OF APPEALS, ET AL.


G.R. No. 116285
October 19, 2001

FACTS:
On May 14, 1978 and July 6, 1978, petitioner Tan obtained two (2) loans each in
the principal amount of Two Million Pesos (P2,000,000.00), or in the total principal
amount of Four Million Pesos (P4,000,000.00) from respondent Cultural Center of the
Philippines(CCP) evidenced by two (2) promissory notes with maturity dates on May 14,
1979 and July 6, 1979, respectively. Petitioner defaulted but after a few partial payments
he had the loans restructured by respondent CCP, and petitioner accordingly executed a
promissory note on August 31, 1979 in the amount of Three Million Four Hundred
Eleven Thousand Four Hundred Twenty-One Pesos and Thirty-Two Centavos
(P3,411,421.32) payable in five (5) installments. Petitioner Tan failed to pay any
installment on the said restructured loan. The last installment falling due on December
31, 1980. In a letter dated January 26, 1982, petitioner requested and proposed to
respondent CCP a mode of paying the restructured loan payable in thirty-six (36) equal
monthly installments until fully paid. On October 20, 1983, petitioner again sent a letter
to respondent CCP requesting for a moratorium on his loan obligation until the following
year allegedly due to a substantial deduction in the volume of his business and on account
of the peso devaluation. No favorable response was made to said letters. Instead,
respondent CCP, through counsel, wrote a letter dated May 30, 1984 to the petitioner
demanding full payment, within ten (10) days from receipt of said letter, of the
petitioner`s restructured loan which as of April 30, 1984 amounted to Six Million EightyEight Thousand Seven Hundred Thirty-Five Pesos and Three Centavos (P6,088,735.03).
On August 29, 1984, respondent CCP filed in the RTC of Manila a complaint for
collection of a sum of money, against the petitioner after the latter failed to settle his said
restructured loan obligation. The petitioner interposed the defense that he merely
accommodated a friend, Wilson Lucmen, who allegedly asked for his help to obtain a
loan from respondent CCP. Petitioner claimed that he has not been able to locate Wilson
Lucmen. While the case was pending in the trial court, the petitioner filed a Manifestation
wherein he proposed to settle his indebtedness to respondent CCP by proposing to make a
down payment of One Hundred Forty Thousand Pesos (P140,000.00) and to issue twelve
(12) checks every beginning of the year to cover installment payments for one year, and
every year thereafter until the balance is fully paid. However, respondent CCP did not
agree to the petitioner`s proposals and so the trial of the case ensued.
The trial court rendered a decision in favor of Defendant-respondent CCP. The
appellate court denied the petitioner`s motion for reconsideration of the said decision.
I
ISSUE:
Whether there are contractual and legal bases for the imposition of the penalty,
interest on the penalty and attorney`s fees.
HELD:
The Court found no merit in the petitioner`s contention. Article 1226 of the New
Civil Code provides that: In obligations with a penal clause, the penalty shall substitute
the indemnity for damages and the payment of interests in case of non-compliance, if
there is no stipulation to the contrary. Nevertheless, damages shall be paid if the obligor
refuses to pay the penalty or is guilty of fraud in the fulfillment of the obligation. The
penalty may be enforced only when it is demandable in accordance with the provisions of
this Code.
In the case at bar, the promissory note expressly provides for the imposition of
both interest and penalties in case of default on the part of the petitioner in the payment
of the subject restructured loan. If the obligation consists in the payment of a sum of
money, and the debtor incurs in delay, the indemnity for damages, there being no
stipulation to the contrary, shall be the payment of the interest agreed upon, and in the
absence of stipulation, the legal interest, which is six per cent per annum.
Page | 224

The penalty charge of two percent (2%) per month in the case at bar began to
accrue from the time of default by the petitioner. There is no doubt that the petitioner is
liable for both the stipulated monetary interest and the stipulated penalty charge. Without
prejudice to the provisions of Article 2212, interest due and unpaid shall not earn interest.
However, the contracting parties may by stipulation capitalize the interest due and
unpaid, which as added principal, shall earn new interest.
Inasmuch as the said stipulation on the compounding of interest has the force of
law between the parties and does not appear to be inequitable or unjust, the said written
stipulation should be respected.
On the issue of attorney`s fees, the appellate court ruled correctly and justly in
reducing the trial court?s award of twenty-five percent (25%) attorney?s fees to five
percent (5%) of the total amount due.
Hence, the assailed Decision of the Court of Appeals is hereby affirmed with
modification in that the penalty charge of two percent (2%) per month on the total
amount due, compounded monthly, is hereby reduced to a straight twelve percent (12%)
per annum starting from August 28, 1986.

Page | 225

EASTERN SHIPPING INES, INC vs. HON. COURT OF APPEALS


G.R. No. 97412 Jul 12, 1994

FACTS:
On December 4, 1981, two fiber drums of riboflavin were shipped from
Yokohama, Japan for delivery vessel `SS EASTERN COMET' owned by defendant
Eastern Shipping Lines under Bill of Lading No. YMA-8 (The shipment was insured
under plaintiff's Marine Insurance Policy No. 81/01177 for P36,382,466.38.
Upon arrival of the shipment in Manila on December 12, 1981, it was discharged
unto the custody of defendant Metro Port Services, Inc. The latter excepted to one drum,
said to be in bad order, which damage was unknown to plaintiff. On January 7, 1982
defendant Allied Brokerage Corporation received the shipment from defendant Metro
Port Service, Inc., one drum opened and without. On January 8 and 14, 1982, defendant
Allied Brokerage Corporation made deliveries of the shipment to the consignees'
warehouse. The latter excepted to one drum which contained spillages, while the rest of
the contents was adulterated/fake Plaintiff contended that due to the losses/damage
sustained by said drum, the consignee suffered losses totaling P19,032.95, due to the fault
and negligence of defendants. Claims were presented against defendants who failed and
refused to pay the same "As a consequence of the losses sustained, plaintiff was
compelled to pay the consignee P19,032.95 under the aforestated marine insurance
policy, so that it became subrogated to all the rights of action of said consignee against
defendants.
ISSUE:
a.)Whether the payment of legal interest on an award for loss or damage is to be
computed from the time the complaint is filed or form the date the decision appealed
from is rendered; and b)Whether the applicable rate of interest is twelve percent or six
percent.
HELD:
When an obligation, regardless of its source, i.e., law, contracts, quasi-contracts,
delicts or quasi-delicts is breached, the contravenor can be held liable for damages. With
regard particularly to an award of interest in the concept of actual and compensatory
damages, the rate of interest, as well as the accrual thereof, is imposed, as follows:
1. When the obligation is breached, and it consists in the payment of a sum of money,
i.e., a loan or forbearance of money, the interest due should be that which may have been
stipulated in writing. Furthermore, the interest due shall itself earn legal interest from the
time it is judicially demanded. In the absence of stipulation, the rate of interest shall be
12% per annum to be computed from default, i.e., from judicial or extrajudicial demand
under and subject to the provisions of Article 1169 23 of the Civil Code.
2. When a obligation, not constituting a loan or forbearance of money, is breached, an
interest on the amount of damages awarded may be imposed at the discretion of the court
at the rate of 6% per annum. No interest, however, shall be adjudged on unliquidated
claims or damages except when or until the demand can be established with reasonable
certainty. Accordingly, where the demand is established with reasonable certainty, the
interest shall begin to run from the time the claim is made judicially or extrajudicially
(Art. 1169, Civil Code) but when such certainty cannot be so reasonably established at
the time the demand is made, the interest shall begin to run only from the date of the
judgment of the court is made (at which time the quantification of damages may be
deemed to have been reasonably ascertained).
3. When the judgment of the court awarding a sum of money becomes final and
executory, the rate of legal interest, whether the case falls under paragraph 1 or paragraph
2, above, shall be 12% per annum from such finality until its satisfaction, this interim
period being deemed to be by then an equivalent to a forbearance of credit.

Page | 226

PCI vs Ng Shueng Ngor


A.M. No. P-05-1973. March 18, 2005
FACTS:
Complainant EPCIB is the defendant in Civil Case No. CEB-26983 before the
Regional Trial Court (RTC), Branch 16, Cebu City, entitled, Ng Sheung Ngor, doing
business under the name and style Ken Marketing, Ken Appliance Division, Inc. and
Benjamin Go, Plaintiffs, vs. Equitable PCI Bank, Aimee Yu and Ben Apas, Defendants
for Annulment and/or Reformation of Documents and Contracts.
Respondents Antonio A. Bellones and Generoso B. Regalado are the sheriffs in
Branches 9 and 16, respectively, of the RTC of Cebu City.
For garnishing accounts maintained by Equitable PCI Bank, Inc. (EPCIB) at
Citibank, N.A., and Hongkong and Shanghai Bank Corporation (HSBC), allegedly in
violation of Section 9(b) of Rule 39 of the Rules of Court, a complaint for grave abuse of
authority was filed by Atty. Paulino L. Yusi against Sheriffs Antonio A. Bellones and
Generoso B. Regalado. There was an offer of other real property by petitioner.
ISSUE:
Did respondents violate the Rules of Court?
RULING:
By serving notices of garnishment on Citibank, N.A., HSBC and PNB, Sheriff
Regalado violated EPCIBs right to choose which property may be levied upon to be sold
at auction for the satisfaction of the judgment debt. Thus, it is clear that when EPCIB
offered its real properties, it exercised its option because it cannot immediately pay the
full amount stated in the writ of execution and all lawful fees in cash, certified bank
check or any other mode of payment acceptable to the judgment obligee.
In the case at bar, EPCIB cannot immediately pay by way of Managers Check so
it exercised its option to choose and offered its real properties. With the exercise of the
option, Sheriff Regalado should have ceased serving notices of garnishment and
discontinued their implementation. This is not true in the instant case. Sheriff Regalado
was adamant in his posture even if real properties have been offered which were
sufficient to satisfy the judgment debt.

Page | 227

POLOTAN VS CA
GR No. 119379.
September 25, 1998
FACTS:
Private respondent Security Diners International Corporation (Diners Club), a
credit card company, extends credit accomodations to its cardholders for the purchase of
goods and other services from member establishments. Said goods and services are
reimbursed later on by cardholders upon proper billing. Petitioner Rodelo G. Polotan, Sr.
applied for membership and credit accmodations with Diners Club in October 1985. The
application form contained terms and conditions governing the use and availment of the
Diners Club card, among which is for the cardholder to pay all charges made through the
use of said card within the period indicated in the statement of account and any remaining
unpaid balance to earn 3% interest per annum plus prime rate of Security Bank & Trust
Company. Notably, in the application form submitted by petitioner, Ofricano Canlas
obligated himself to pay jointly and severally with petitioner the latters obligation to
private respondent.
Upon acceptance of his application, petitioner was issued Diners Club card No.
3651-212766-3005. As of May 8, 1987, petitioner incurred credit charges plus
appropriate interest and service charges in the aggregate amount of P33,819.84 which had
become due and demandable. Demands for payment made against petitioner proved
futile. Hence, private respondent filed a Complaint for Collection of Sum of Money
against petitioner before the lower court.
ISSUE:
Is petitioner liable for payment of credit charges plus interest and service charges?
RULING:
A contract of adhesion is one in which one of the contracting parties imposes a
ready-made form of contract which the other party may accept or reject, but cannot
modify. One party prepares the stipulation in the contract, while the other party merely
affixes his signature or his adhesion thereto, giving no room for negotiation and
depriving the latter of the opportunity to bargain on equal footing. Nevertheless, these
types of contracts have been declared as binding as ordinary contracts, the reason being
that the party who adheres to the contract is free to reject it entirely.
In this case, petitioner, in effect, claims that the subject contract is one-sided in
that the contract allows for the escalation of interests, but does not provide for a
downward adjustment of the same in violation of Central Bank Circular 905. Admittedly,
the second paragraph of the questioned proviso which provides that the Cardholder
hereby authorizes Security Diners to correspondingly increase the rate of such interest in
the event of changes in prevailing market rates x x x is an escalation clause. However, it
cannot be said to be dependent solely on the will of private respondent as it is also
dependent on the prevailing market rates.
Escalation clauses are not basically wrong or legally objectionable as long as they are not
solely potestative but based on reasonable and valid grounds. Obviously, the
fluctuation in the market rates is beyond the control of private respondent.

Page | 228

NEW SAMPAGUITA BUILDERS CONSTRUCTION, INC. (NSBCI) V.


PHILIPPINE NATIONAL BANK
G.R. No. 148753 2004 Jul 30

FACTS:
On February 11, 1989, Board Resolution No. 05, Series of 1989 was approved by
Petitioner NSBCI authorizing the company to x x x apply for or secure a commercial loan
with the PNB in an aggregate amount of P8.0M, under such terms agreed by the Bank
and the NSBCI, using or mortgaging the real estate properties registered in the name of
its President and Chairman of the Board Petitioner Eduardo R. Dee as collateral; and
authorizing petitioner-spouses to secure the loan and to sign any and all documents which
may be required by Respondent PNB, and that petitioner-spouses shall act as sureties or
co-obligors who shall be jointly and severally liable with Petitioner NSBCI for the
payment of any [and all] obligations.
On August 15, 1989, Resolution No. 77 was approved by granting the request of
Respondent PNB thru its Board NSBCI for an P8 Million loan broken down into a
revolving credit line of P7.7M and an unadvised line of P0.3M for additional operating
and working capital to mobilize its various construction projects.
The loan of Petitioner NSBCI was secured by a first mortgage on the following:
a) three (3) parcels of residential land located at Mangaldan, Pangasinan; b) six (6)
parcels of residential land situated at San Fabian, Pangasinan; and c) a residential lot and
improvements thereon located at Mangaldan. The loan was further secured by the joint
and several signatures of Petitioners Eduardo Dee and Arcelita Marquez Dee, who signed
as accommodation-mortgagors since all the collaterals were owned by them and
registered in their names. Moreover Petitioner NSBCI executed three promissory notes.
In addition, petitioner corporation also signed the Credit Agreement dated August 31,
1989 relating to the revolving credit line of P7.7 Million x x x and the Credit
Agreement dated September 5, 1989 to support the unadvised line of P300,000.00.
On August 31, 1989, petitioner-spouses executed a Joint and Solidary
Agreement (JSA) in favor of Respondent PNB unconditionally and irrevocably binding
themselves to be jointly and severally liable with the borrower for the payment of all
sums due and payable to the Bank under the Credit Document. Later on, Petitioner
NSBCI failed to comply with its obligations under the promissory notes.
On June 18, 1991, Petitioner Eduardo R. Dee on behalf of Petitioner NSBCI sent
a letter to the Branch Manager of the PNB Dagupan Branch requesting for a 90-day
extension for the payment of interests and restructuring of its loan for another term.
Subsequently, NSBCI tendered payment to Respondent PNB of three (3) checks
aggregating P1,000,000.00.
In a meeting held on August 12, 1991, Respondent PNBs representative, Mr.
Rolly Cruzabra, was informed by [Petitioner] Eduardo Dee of his intention to remit to
Respondent PNB post-dated checks covering interests, penalties and part of the loan
principals of his due account.
On August 22, 1991, Respondent banks Crispin Carcamo wrote Petitioner
Eduardo Dee, informing him that Petitioner NSBCIs proposal was acceptable, provided
the total payment should be P4,128,968.29 that would cover the amount of P1,019,231.33
as principal, P3,056,058.03 as interests and penalties, and P53,678.93 for insurance[,]
with the issuance of post-dated checks to be dated not later than November 29, 1991.
On September 6, 1991, Petitioner Eduardo Dee wrote the PNB Branch Manager
reiterating his proposals for the settlement of Petitioner NSBCIs past due loan account
amounting to P7,019,231.33. Petitioner Eduardo Dee later tendered four (4) post-dated
Interbank checks aggregating P1,111,306.67 in favor of Respondent PNB
Upon presentment, however, x x x check nos. 03500087 and 03500088 dated
September 29 and October 29, 1991 were dishonored by the drawee bank and returned
due to a stop payment order from petitioners.

Page | 229

On November 12, 1991, PNBs Mr. Carcamo wrote Petitioner Eduardo Dee
informing him that unless the dishonored checks were made good, said PNB branch
shall recall its recommendation to the Head Office for the restructuring of the loan
account and refer the matter to its legal counsel for legal action. Petitioners did not heed
respondents warning and as a result, the PNB Dagupan Branch sent demand letters to
Petitioner NSBCI at its office address at 1611 ERDC Building, E. Rodriguez Sr. Avenue,
Quezon City, asking it to settle its past due loan account.
Petitioners nevertheless failed to pay their loan obligations within the time frame
given them and as a result, Respondent PNB filed with the Provincial Sheriff of
Pangasinan at Lingayen a Petition for Sale
The sheriff foreclosed the real estate mortgage and sold at public auction the
mortgaged properties of petitioner-spouses, with Respondent PNB being declared the
highest bidder for the amount of P10,334,000.00.
Copies of the Sheriffs Certificate of Sale were sent by registered mail to
petitioner corporations address petitioner-spouses address.
On April 6, 1992, the PNB Dagupan Branch Manager sent a letter to petitioners at
their address informing them that the properties securing their loan account had been sold
at public auction, that the Sheriffs Certificate of Sale had been registered with the
Registry of Deeds of Pangasinan and that a period of one (1) year therefrom was granted
to them within which to redeem their properties.
Petitioners failed to redeem their properties within the one-year redemption period
and so Respondent PNB executed a Deed of Absolute Sale consolidating title to the
properties in its name.
Respondent PNB informed Petitioner NSBCI that the proceeds of the sale
conducted on February 26, 1992 were not sufficient to cover its total claim amounting to
P12,506,476.43 and thus demanded from the latter the deficiency of P2,172,476.43 plus
interest and other charges until the amount was fully paid.
Petitioners refused to pay the above deficiency claim which compelled
Respondent PNB to institute the instant Complaint for the collection of its deficiency
claim.
ISSUE:
Whether or not the escalation clause is valid and whether or not it is violative of
the principle of mutuality of contracts.
RULING:
In each drawdown, the Promissory Notes specified the interest rate to be charged:
19.5 percent in the first, and 21.5 percent in the second and again in the third. However,
a uniform clause therein permitted respondent to increase the rate within the limits
allowed by law at any time depending on whatever policy it may adopt in the future x x
x, without even giving prior notice to petitioners. The Court holds that petitioners
accessory duty to pay interest did not give respondent unrestrained freedom to charge any
rate other than that which was agreed upon. No interest shall be due, unless expressly
stipulated in writing. It would be the zenith of farcicality to specify and agree upon rates
that could be subsequently upgraded at whim by only one party to the agreement.
The unilateral determination and imposition of increased rates is violative of
the principle of mutuality of contracts ordained in Article 1308 of the Civil Code. Onesided impositions do not have the force of law between the parties, because such
impositions are not based on the parties essential equality.
Although escalation clauses are valid in maintaining fiscal stability and retaining
the value of money on long-term contracts, giving respondent an unbridled right to adjust
the interest independently and upwardly would completely take away from petitioners the
right to assent to an important modification in their agreement and would also negate
the element of mutuality in their contracts. The clause cited earlier made the fulfillment
Page | 230

of the contracts dependent exclusively upon the uncontrolled will of respondent and
was therefore void. Besides, the pro forma promissory notes have the character of a
contract dadhsion, where the parties do not bargain on equal footing, the weaker
partys the debtors participation being reduced to the alternative to take it or leave it.

Page | 231

PNB VS ENCINA
GR 174055. February 12, 2008
FACTS:
The Philippine National Bank (PNB) assails the Decision of the Court of Appeals
dated 15 May 2005, rendered in CA-G.R. CV No. 79094 which, among others, declared
null and void the interest rate imposed by PNB on the loan obtained from it by
respondents and the consequent extrajudicial foreclosure of the properties offered as
security for the loan.
Respondents Encina spouses acquired several loans from PNB from which it
failed to pay within due time. Encina avers that there ought to be longer gestation periods
on its part being engaged in a business of agricultural character.
ISSUE:
Was there a violation of the Usury Law?
RULING:
As borne by the records, the Encina spouses never challenged the validity of their
loan and the accessory contracts with PNB on the ground that they violated the principle
of mutuality of contracts in view of the provision therein that the interest rate shall be set
by management. Their only contention concerning the interest rate was that the charges
imposed by the bank violated the Usury Law. This was the essence of the second cause of
action alleged in the complaint.
It should be definitively ruled in this regard that the Usury Law had been rendered
legally ineffective by Resolution No. 224 dated 3 December 1982 of the Monetary Board
of the Central Bank, and later by Central Bank Circular No. 905 which took effect on 1
January 1983 and removed the ceiling on interest rates for secured and unsecured loans
regardless of maturity. The effect of these circulars is to allow the parties to agree on any
interest that may be charged on a loan. The virtual repeal of the Usury Law is within the
range of judicial notice which courts are bound to take into account. After all, the
fundamental tenet is that the law is deemed part of the contract. Thus, the trial court was
correct in ruling that the second cause of action was without basis.

Page | 232

IMPERIAL VS. JAUCIAN


427 SCRA 517
2004 Apr 14
FACTS:
The present controversy arose from a case for collection of money, filed by Alex A.
Jaucian against Restituta Imperial, on October 26, 1989. The complaint alleges, inter
alia, that defendant obtained from plaintiff six (6) separate loans for which the former
executed in favor of the latter six (6) separate promissory notes and issued several
checks as guarantee for payment. When the said loans became overdue and unpaid,
especially when the defendants checks were dishonored, plaintiff made repeated oral
and written demands for payment.
The loans were covered by six (6) separate promissory notes executed by
defendant. The face value of each promissory notes is bigger [than] the amount released
to defendant because said face value already included the interest from date of note to
date of maturity. Said promissory notes indicate the interest of 16% per month, date of
issue, due date, the corresponding guarantee checks issued by defendant, penalties and
attorneys fees. The trial courts clear and detailed computation of petitioners
outstanding obligation to respondent was affirmed by the CA for being convincing and
satisfactory. However, the CA held that without judicial inquiry, it was improper for the
RTC to rule on the constitutionality of Section 1, Central Bank Circular No. 905, Series
of 1982.
ISSUES:
Whether or not the penalties charged per month is in the guise of hidden interest.
Whether or not the reduction of attorneys fees by the RTC is reasonable.
RULING:
Iniquitous and unconscionable stipulations on interest rates, penalties and
attorneys fees are contrary to morals. Consequently, courts are granted authority to
reduce them equitably. If reasonably exercised, such authority shall not be disturbed by
appellate courts.
Article 1229 of the Civil Code states thus:
The judge shall equitably reduce the penalty when the principal obligation has been
partly or irregularly complied with by the debtor. Even if there has been no performance,
the penalty may also be reduced by the courts if it is iniquitous or unconscionable.
In exercising this power to determine what is iniquitous and unconscionable,
courts must consider the circumstances of each case. What may be iniquitous and
unconscionable in one may be totally just and equitable in another. In the present case,
iniquitous and unconscionable was the parties stipulated penalty charge of 5 percent per
month or 60 percent per annum, in addition to regular interests and attorneys fees. Also,
there was partial performance by petitioner when she remitted P116,540 as partial
payment of her principal obligation of P320,000. Under the circumstances, the trial court
was justified in reducing the stipulated penalty charge to the more equitable rate of 14
percent per annum.
The Promissory Note carried a stipulation for attorneys fees of 25 percent of the
principal amount and accrued interests. Strictly speaking, this covenant on attorneys
fees is different from that mentioned in and regulated by the Rules of Court. Rather, the
attorneys fees here are in the nature of liquidated damages and the stipulation therefor is
aptly called a penal clause. So long as the stipulation does not contravene the law,

Page | 233

morals, public order or public policy, it is binding upon the obligor. It is the litigant, not
the counsel, who is the judgment creditor entitled to enforce the judgment by execution.
Nevertheless, it appears that petitioners failure to comply fully with her
obligation was not motivated by ill will or malice. The twenty-nine partial payments she
made were a manifestation of her good faith. Again, Article 1229 of the Civil Code
specifically empowers the judge to reduce the civil penalty equitably, when the principal
obligation has been partly or irregularly complied with. Upon this premise, we hold that
the RTCs reduction of attorneys fees -- from 25 percent to 10 percent of the total
amount due and payable -- is reasonable.

Page | 234

TEDDY G. PABUGAIS v. DAVE P. SAHIJWANI


G.R. No. 156846, February 23, 2004
FACTS:
Teddy G. Pabugais, agreed to sell to Dave P. Sahijwani a lot located at North
Forbes Park, Makati. Dave paid Teddy the amount of P600,000.00 as option/reservation
fee and the balance of P14,887,500.00 to be paid within 60 days from the execution of
the contract, simultaneous with delivery of the owners duplicate TCT in Daves name
and other required documents. Teddy failed to deliver the required documents, and
returned to Dave the option/reservation fee by way of check, which was, however,
dishonored. On August11, 1994, Teddy wrote to Dave saying that he is consigning the
mount tendered with the RTC of Makati City. On August 15, 1994, Teddy filed a
complaint for consignation, alleging that he twice rendered to Dave, through his counsel,
the amount of P672,900.00 in the form of managers check, but was refused. Daves
counsel, on the other hand, admitted that his office received petitioners letter, but
claimed that no check was appended thereto. He averred that there was no valid tender of
payment because no check was tendered and the computation of the amount to be
tendered was insufficient. The trial court declared the consignation invalid for failure to
prove that there was a prior tender of payment and was refused by Dave. Teddy appealed
the decision to the Court of Appeals. Thereafter, he filed an Ex Parte Motion to
Withdraw Consigned Money, which was denied by the CA. On a motion for
reconsideration, the CA declared the consignation as valid, and thus held that Teddy
cannot withdraw his consignation. Unfazed, Teddy filed the present petition upon the
contention that he can withdraw the amount deposited with the trial court as a matter of
right since at the time he moved for the withdrawal, the CA has yet to rule on its validity
and Dave had not yet accepted the same.
ISSUES:
(1) Whether or not there was a valid consignation; and (2) Whether or not
petitioner can withdraw the amount consigned as a matter of right?
RULING:
The petition for review is denied. Petitioners tender of payment is valid. The
amount consigned however can no longer be withdrawn because respondents prayer in
his answer that the amount consigned be awarded to him is equivalent to an acceptance of
the consignation, which has the effect of extinguishing petitioners obligation. The
amount consigned with the trial court can no longer be withdrawn by petitioner because
respondents prayer in his answer that the amount consigned be awarded to him is
equivalent to an acceptance of the consignation, which has the effect of extinguishing
petitioners obligation. Moreover, petitioner failed to manifest his intention to comply
with the Agreement And Undertaking by delivering the necessary documents and the
lot subject of the sale to respondent in exchange for the amount deposited. Withdrawal of
the money consigned would enrich petitioner and unjustly prejudice respondent.

Page | 235

ANTONIO LO V. COURT OF APPEALS


FACTS:
At the core of the present controversy are two parcels of land measuring a total of
2,147 square meters, with an office building constructed thereon. Petitioner acquired the
subject parcels of land in an auction sale on November 9, 1995 for P20,170,000 from the
Land Bank of the Philippines (Land Bank). Private respondent National Onion Growers
Cooperative Marketing Association, Inc., an agricultural cooperative, was the occupant of
the disputed parcels of land under a subsisting contract of lease with Land Bank. The
lease was valid until December 31, 1995. Upon the expiration of the lease contract,
petitioner demanded that private respondent vacate the leased premises and surrender its
possession to him. Private respondent refused on the ground that it was, at the time,
contesting petitioners acquisition of the parcels of land in question in an action for
annulment of sale, redemption and damages.
Petitioner filed an action for ejectment before the MTC. He asked, inter alia, for
the imposition of the contractually stipulated penalty of P5,000 per day of delay in
surrendering the possession of the property to him. On September 3, 1996, the trial court
decided the case in favor of petitioner. On appeal to the RTC, the MTC decision was
affirmed in toto. The CA rendered its assailed decision affirming the decision of the trial
court, with the modification that the penalty imposed upon private respondent for the
delay in turning over the leased property to petitioner was reduced from P 5,000 to P
1000 per day.
ISSUE:
Whether or not the Court of Appeals erred in reducing the penalty awarded by the
trial court, the same having been stipulated by the parties.
RULING:
No. Generally, courts are not at liberty to ignore the freedom of the parties to
agree on such terms and conditions as they see fit as long as they are not contrary to law,
morals, good customs, public order or public policy. Nevertheless, courts may equitably
reduce a stipulated penalty in the contract if it is iniquitous or unconscionable, or if the
principal obligation has been partly or irregularly complied with. This power of the
courts is explicitly sanctioned by Article 1229 of the Civil Code which provides:
Article 1229. The judge shall equitably reduce the penalty when the principal obligation
has been partly or irregularly complied with by the debtor. Even if there has been no
performance, the penalty may also be reduced by the courts if it is iniquitous or
unconscionable.
The question of whether a penalty is reasonable or iniquitous is addressed to the
sound discretion of the court and depends on several factors, including, but not limited to,
the following: the type, extent and purpose of the penalty, the nature of the obligation, the
mode of breach and its consequences, the supervening realities, the standing and
relationship of the parties.
In this case, the stipulated penalty was reduced by the appellate court for being
unconscionable and iniquitous. Petition denied; CA decision affirmed.

Page | 236

LIGUTAN VS. COURT OF APPEALS


376 SCRA 561 FEBRUARY 12, 2002
FACTS:
Petitioners Tolomeo Ligutan and Leonidas dela Llana obtained on May 11, 1981
a loan in the amount of P120,000.00 from respondent Security Bank and Trust Company.
Petitioners executed a promissory note binding themselves, 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. In
addition, petitioners 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 on September 8, 1981; the bank, however, granted an
extension but only until December 29, 1981. When petitioners defaulted on their
obligation, the bank filed on November 3, 1982 with the RTC a complaint for recovery of
the due amount. On September 5, 1988, the trial court ruled in favor of the bank. It
ordered the petitioners to pay, jointly and severally, the sum of P114,416.00 with interest
thereon at the rate of 15.189% per annum, 2% service charge and 5% per month penalty
charge, commencing on May 20, 1982 until fully paid.
The CA affirmed it but deleted the 2% service charge pursuant to Central Bank
Circular No. 783. Not fully satisfied with the decision, both parties moved for
reconsideration. Petitioners prayed for the reduction of the 5% penalty for being
unconscionable. The bank asked that the payment of interest and penalty be commenced
not from the date of filing of complaint but from the time of default as so stipulated in the
contract of the parties. On October 28, 1998, the CA resolved the two (2) motions
granting the prayer of the bank that the payment of interest and penalty be commenced on
the date when the obligation became due and on the other hand held that a penalty of 3%
per month or 36% per annum would suffice.
The petitioner, before the Court, contended, among others that the 15.189%
interest and the penalty of 3% per month or 36% per annum imposed by private
respondent bank on petitioners loan obligation are still manifestly exorbitant, iniquitous
and unconscionable. Respondent bank, which did not take an appeal, would, however,
have it that the penalty sought to be deleted by petitioners was even insufficient to fully
cover and compensate for the cost of money brought about by the radical devaluation and
decrease in the purchasing power of the peso.
ISSUE:
Whether or not the penalty is reasonable and not iniquitous.
RULING:
NO, the penalty is not unreasonable. The Court held that the question of whether
a penalty is reasonable or iniquitous can be partly subjective and partly objective. Its
resolution would depend on such factors as, but not necessarily confide to, the type,
extent and purpose of the penalty, the nature of the obligation, the mode of breach and its
consequences, the supervening realities, the standing and relationship of the parties, and
the like, the application of which, by and large, is addressed to the sound discretion of the
court. In Rizal Commercial Banking Corp. v. Court of Appeals, for example, the Court
has tempered the penalty charges after taking into account the debtors pitiful situation
and its offer to settle the entire obligation with the creditor bank. The stipulated penalty
might likewise be reduced when a partial or irregular payment is made by the payment.
The stipulated penalty might even be deleted such as when there has been substantial
performance in good faith by the obligor, when the penalty clause itself suffers from fatal
infirmity, and when exceptional circumstances so exist as to warrant it. In the case at bar,
given the circumstances, not to mention the repeated acts of breach by petitioners of their
contractual obligation, this Court sees no cogent ground to change the ruling of the
appellate court.
Page | 237

FIRST METRO INVESTMENT V. ESTE DEL SOL MOUNTAIN RESERVE, INC


369 SCRA 99
FACTS:
Petitioner FMIC granted respondent Este del Sol a loan of Seven Million Three
Hundred Eighty-Five Thousand Five Hundred Pesos (P7,385,500.00) to finance the
construction and development of the Este del Sol Mountain Reserve, a sports/resort
complex project. Under the terms of the Loan Agreement, the proceeds of the loan were
to be released on staggered basis. Interest on the loan was pegged at sixteen (16%)
percent per annum based on the diminishing balance. The loan was payable in thirty-six
(36) equal and consecutive monthly amortizations to commence at the beginning of the
thirteenth month from the date of the first release in accordance with the Schedule of
Amortization. In case of default, an acceleration clause was, among others, provided and
the amount due was made subject to a twenty (20%) percent one-time penalty on the
amount due and such amount shall bear interest at the highest rate permitted by law from
the date of default until full payment thereof plus liquidated damages at the rate of two
(2%) percent per month compounded quarterly on the unpaid balance and accrued
interests together with all the penalties, fees, expenses or charges thereon until the unpaid
balance is fully paid, plus attorneys fees equivalent to twenty-five (25%) percent of the
sum sought to be recovered, which in no case shall be less than Twenty Thousand Pesos
(P20,000.00) if the services of a lawyer were hired. In accordance with the terms of the
Loan Agreement, respondent Este del Sol executed several documents as security for
payment, among them, (a) a Real Estate Mortgage and (b) individual Continuing
Suretyship agreements by co-respondents Valentin S. Daez, Jr., et al. Respondent Este
del Sol also executed, as provided for by the Loan Agreement, an Underwriting
Agreement whereby petitioner FMIC shall underwrite on a best-efforts basis the public
offering of 120,000 common shares of respondent Este del Sols capital stock for a onetime underwriting fee of P200,000.00.
The Underwriting Agreement also provided that for supervising the public
offering of the shares, respondent Este del Sol shall pay petitioner FMIC an annual
supervision fee of 200,000.00 per annum for a period of four consecutive years. The
Underwriting Agreement also stipulated for the payment by respondent Este del Sol to
petitioner FMIC a consultancy fee of P332,500.00 per annum for a period of four
consecutive years. Simultaneous with the execution of and in accordance with the terms
of the Underwriting Agreement, a Consultancy Agreement was also executed on January
31, 1978 whereby respondent Este del Sol engaged the services of petitioner FMIC for a
fee as consultant to render general consultancy services. Since respondent Este del Sol
failed to meet the schedule of repayment in accordance with a revised Schedule of
Amortization, it appeared to have incurred a total obligation of P12,679,630.98 per the
petitioners Statement of Account dated June 23, 1980. Accordingly, petitioner FMIC
caused the extrajudicial foreclosure of the real estate mortgage on June 23, 1980. At the
public auction, petitioner FMIC was the highest bidder of the mortgaged properties for
P9,000,000.00. Failing to secure from the individual respondents, the payment of the
alleged deficiency balance, petitioner instituted the instant collection suit to collect the
alleged deficiency balance of P6,863,297.73 plus interest thereon at 21% percent per
annum from June 24, 1980 until fully paid, and 25% percent thereof as and for attorneys
fees and costs.
The trial court rendered its decision in favor of petitioner FMIC. CA reversed the
challenged decision of the trial court.
ISSUE:
Whether or not the appellate court erred in reversing the decision of the trial court
as regards to the payment of penalties.
RULING:
Page | 238

No. First, Central Bank Circular No. 905 did not repeal nor in any way amend the
Usury Law but simply suspended the latters effectivity. Thus, retroactive application of
a Central Bank Circular cannot, and should not, be presumed. Second, several facts and
circumstances taken altogether show that the Underwriting and Consultancy Agreements
were simply cloaks or devices to cover an illegal scheme employed by petitioner FMIC to
conceal and collect excessively usurious interest. The Underwriting and Consultancy
Agreements which were executed and delivered contemporaneously with the Loan
Agreement on January 31, 1978 were exacted by petitioner FMIC as essential conditions
for the grant of the loan. An apparently lawful loan is usurious when it is intended that
additional compensation for the loan be disguised by an ostensibly unrelated contract
providing for payment by
the borrower for the lenders services which are of little value or which are not in fact to
be rendered, such as in the instant case. In this connection, Article 1957 of the New Civil
Code clearly provides that: Art. 1957. Contracts and stipulations, under any cloak or
device whatever, intended to circumvent the laws against usury shall be void. The
borrower may recover in accordance with the laws on usury. In usurious loans, the
entire obligation does not become void because of an agreement for usurious interest; the
unpaid principal debt still stands and remains valid but the stipulation as to the usurious
interest is void, consequently, the debt is to be considered without stipulation as to the
interest.
Thus, the Court agrees with the factual findings and conclusion of the appellate
court, wherein it held that the stipulated penalties, liquidated damages and attorneys
fees, excessive, iniquitous and unconscionable. Accordingly, the 20% penalty on the
amount due and 10% of the proceeds of the foreclosure sale as attorneys fees would
suffice to compensate the appellee, especially so because there is no clear showing that
the appellee hired the services of counsel to effect the foreclosure; it engaged counsel
only when it was seeking the recovery of the alleged deficiency.
Attorneys fees as provided in penal clauses are in the nature of liquidated
damages. So long as such stipulation does not contravene any law, morals, or public
order, it is binding upon the parties. Nonetheless, courts are empowered to reduce the
amount of attorneys fees if the same is iniquitous or unconscionable.[46] Articles
1229 and 2227 of the New Civil Code provide that: Art. 1229. The judge shall equitably
reduce the penalty when the principal obligation has been partly or irregularly complied
with by the debtor. Even if there has been no performance, the penalty may also be
reduced by the courts if it is iniquitous or unconscionable. Art. 2227. Liquidated
damages, whether intended as an indemnity or a penalty, shall be equitably reduced if
they are iniquitous or unconscionable.
In the case at bar, the amount of Three Million One Hundred Eighty-Eight
Thousand Six Hundred Thirty Pesos and Seventy-Five Centavos (P3,188,630.75) for the
stipulated attorneys fees equivalent to twenty-five (25%) percent of the alleged amount
due, as of the date of the auction sale on June 23, 1980, is manifestly exorbitant and
unconscionable. Accordingly, we agree with the appellate court that a reduction of the
attorneys fees to ten (10%) percent is appropriate and reasonable under the facts and
circumstances of this case.

Page | 239

DOMEL TRADING CORPORATION V. COURT OF APPEALS and


G.R. No. 84813, September 22, 1999
FACTS:
On June 3, 1981, private respondent NDC-NACIDA Raw Materials Corporation
(NNRMC) ordered from petitioner Domel Trading Corporation (DOMEL) 22,000
bundles of buri midribs at P16.00 per bundle to be delivered within 30 working days from
the date of the opening of a letter of credit. On June 4, 1981, private respondent again
ordered 300,000 pieces of rattan poles at P9.65 per piece for a total price of
P2,895,000.00, also to be delivered within 60 days from the date of the opening of a letter
of credit. The specifications and provisions of both transactions, which served as their
agreement, were printed in two separate purchase orders.
In accordance with their agreement, NNRMC, on July 9, 1981, opened a letter of credit
with Philippine National Bank (PNB) in favor of DOMEL in the amount of
P1,997,000.00 to cover its order for 206,943 pieces of rattan poles. On July 13, 1981,
NNRMC opened another letter of credit in favor of DOMEL in the amount of
P1,236,000.00 to cover the price of 93,057 pieces of rattan poles and 22,000 bundles of
buri midribs.
In violation of their agreement, DOMEL failed to deliver the buri midribs and rattan
poles within the stipulated period. Thus, on September 23, 1981, DOMEL and NNRMC
agreed to restructure the latters purchase orders in a Memorandum of Agreement. Under
the agreement, NNRMC extended the expiry date of its two letters of credit to November
5, 1981. It also reduced the quantity of the rattan poles from 300,000 to only 100,000
pieces while the quantity of buri midribs remained at 22,000 bundles. Further, DOMEL
undertook to deliver the goods on or before October 31, 1981. However, no deliveries
were again made on the said date. Consequently, demands were made by NNRMC on
January 19, 1982 for the payment of damages, which demands were ignored by DOMEL.
Hence, NNRMC filed a complaint for damages before the Regional Trial Court of Pasig.
After trial, judgment was rendered in favor of plaintiff and against defendant.
Both DOMEL and NNRMC assail the above-quoted decision in separate petitions which
have been consolidated before this Court. Based on the pleadings submitted by the
parties, this Court has resolved to give due course to the petition and decides the same.
DOMEL submits it has not breached its contractual obligation to NNRMC inasmuch as it
was the fault of the latter for not inspecting and examining the rattan poles as well as the
buri midribs already shipped by the suppliers and stored in the formers warehouse. In
short, DOMEL claims that NNRMC must first inspect the ordered items before delivery
could be made.
ISSUE:
Whether or not the decision of the Court of Appeals in CA-G.R. CV No. 08952
which modified the decision of the lower court granting private respondents prayer for
damages, was correct.
RULING:
While the Supreme Court did not agree with the Court of Appeals that the failure
of NNRMC to conduct the inspection mitigated DOMELs liability for liquidated
damages, nevertheless, it agreed in the reduction of the amount of liquidated damages to
only P150,000.00. The amount of P2,000.00 as penalty for every day of delay is
excessive and unconscionable.
Article 1229 of the Civil Code states, thus:The judge shall equitably reduce the penalty
when the principal obligation has been partly or irregularly complied with by the debtor.
Even if there has been no performance, the penalty may also be reduced by the courts if it
is iniquitous or unconscionable.
Page | 240

Article 2227 of the Civil Code likewise states, thus: Liquidated damages, whether
intended as an indemnity or a penalty, shall be equitably reduced if they are iniquitous or
unconscionable.
In determining whether a penalty clause is iniquitous and unconscionable, a court may
very well take into account the actual damages sustained by a creditor who was
compelled to sue the defaulting debtor, which actual damages would include the interest
and penalties the creditor may have had to pay on its own from its funding source. In this
case, NNRMC was only able to prove that it incurred the amounts of P5,995.83 as
opening charges on the two Letters of Credit and an additional P1,911.85 as amendment
charges on the same Letters of Credit. Other than that, NNRMC failed to prove it had
suffered actual damages resulting from the nondelivery of the specified buri midribs and
rattan poles. In fact, what it allegedly suffered are what it calls Foregone Interest
Income and Foregone Profit from the two Letters of Credit. Such could not be
considered as actual damages.

Page | 241

MEDEL VS CA
G.R. No. 131622 November 27, 1998
FACTS:
The Medel spouses obtained several loans of which they were unable to pay in full. On
July 23, 1986, Servando and Leticia with the latter's husband, Dr. Rafael Medel,
consolidated all their previous unpaid loans totaling P440,000.00, and sought from
Veronica another loan in the amount of P60,000.00, bringing their indebtedness to a total
of P500,000.00, payable on August 23, 1986. They executed a promissory note indicating
payment for the balance.
On maturity of the loan, the borrowers failed to pay the indebtedness of
P500,000.00, plus interests and penalties, evidenced by the above-quoted promissory
note. On February 20, 1990, Veronica R. Gonzales, joined by her husband Danilo G.
Gonzales, filed with the Regional Trial Court of Bulacan, Branch 16, at Malolos,
Bulacan, a complaint for collection of the full amount of the loan including interests and
other charges.
ISSUE:
What is the interest that must be collected on the instant case?
RULING:
Basically, the issue revolves on the validity of the interest rate stipulated upon.
Thus, the question presented is whether or not the stipulated rate of interest at 5.5% per
month on the loan in the sum of P500,000.00, that plaintiffs extended to the defendants is
usurious. In other words, is the Usury Law still effective, or has it been repealed by
Central Bank Circular No. 905, adopted on December 22, 1982, pursuant to its powers
under P.D. No. 116, as amended by P.D. No. 1684?
We agree with petitioners that the stipulated rate of interest at 5.5% per month on
the P500,000.00 loan is excessive, iniquitous, unconscionable and exorbitant. However,
we can not consider the rate "usurious" because this Court has consistently held that
Circular No. 905 of the Central Bank, adopted on December 22, 1982, has expressly
removed the interest ceilings prescribed by the Usury Law and that the Usury Law is now
"legally inexistent".
Nevertheless, we find the interest at 5.5% per month, or 66% per annum,
stipulated upon by the parties in the promissory note iniquitous or unconscionable, and,
hence, contrary to morals ("contra bonos mores"), if not against the law. 20 The
stipulation is void. The courts shall reduce equitably liquidated damages, whether
intended as an indemnity or a penalty if they are iniquitous or unconscionable.
Consequently, the Court of Appeals erred in upholding the stipulation of
the parties. Rather, we agree with the trial court that, under the circumstances, interest at
12% per annum, and an additional 1% a month penalty charge as liquidated damages may
be more reasonable.

Page | 242

PACITA REFORMINA v TOMOL, JR.


NO. L-59096 October 11, 1985

FACTS:
An action for Recovery of Damages for Injury to Person and Loss of
Property was filed. RTC rendered judgment in favor of the plaintiffs and against the
defendants, ordering the latter to pay jointly and severally the former. On appeal, the
decision was modified. In the computation of the legal interest decreed sought to be
executed, petitioners claimed that it should be at 12% per annum invoking Central bank
Circular. The respondents, however, insist that said legal interest should be at the rate of
6% per annum pursuant to Article 2209 of the New Civil code
ISSUE:
How much by way of legal interest, should a judgment debtor pay the judgment
creditor?

RULING:
The judgment spoken of and referred to are judgments in litigations
involving loans or forbearances of any money, goods or credits. Any other kind of
monetary judgment does not fall within the coverage of the said law for it is not within
the ambit of authority granted to the Central Bank. The Monetary Board may not tread on
forbidden grounds. To make Central Bank Circular No. 416 applicable to any case other
than those specifically provided for by the Usury Law will make the same of doubtful
constitutionality since the Monetary Board will be exercising legislative functions which
are beyond the intendment of PD No. 116.
The petition is without merit, the same is dismissed with costs against
petitioners.

Page | 243

SONNY LO v. KJS ECO-FORMWORK SYSTEM


G.R. No. 149420
October 8, 2003

FACTS:
KJS is engaged in the sale of steel scaffoldings while Lo is a building
contractor. On February 22, 1990, petitioner ordered scaffolding equipments from
respondent worth P540,425.80. He paid a downpayment in the amount of P150,000. The
balance was made payable in 10 monthly installments. Respondent delivered the
equipments. Petitioner was able to pay the first two monthly installments. His business
suffered financial difficulties and he was unable to settle his obligations despite demands.
On October 11, 1990, the parties executed a Deed of Assignment whereby petitioner
assigned to respondent his receivables from Jonero Realty. However, Jonero refused to
honor the Dees of Assign,nt because it claimed that petitioner was indebted to it.
Petitioner refused to pay claiming that that his obligation had been extinguished when
they executed the deed of assign,ent. RTC dismissed the complaint on the ground that the
assignment of credit extinguished the obligation. Court of appeals reversed the decision
and ordered Lo to pay the plaintiff KJS with legal interests of 6% per annum until fully
paid.
ISSUE:
Whether or not the Deed of Assignment extinguished the obligation
RULING:
An assignment of credit, by virtue of which the owner of the credit, the assignor,
by a legal cause, such as sale, dacion en pago, exchange or donation and without the
consent of the debtor transfers his credit and accessory rights to another, the assignee,
who acquires the power to enforce it against the debtor. Petitioner, as assignor, is bound
to warrant the existence and legality of the credit at the tim of the sale or assignment.
When Jonero claimed that it was no longer indebted to petitioner since the latter had also
as unpaid obligation to it, it essentially meant that its obligation to the petitioner has been
extinguished by compensation. Petitioner was found in breach of his obligation under the
Deed of assignment. Court of Appeals decision is affirmed.

Page | 244

PHILPPINE NATIONAL BANK v.CA and LORETO TAN


G.R. No. 108630 April 2, 1996
FACTS:
Private respondent Loreto Tan is the owner of a parcel of land abutting the
national highway. Expropriaton proceedings were instituted by the government. Tan filed
a motion requesting the issuance of an order for the release to him of the expropriation
price of P32,480.00. PNB was required by the trial court to release to tan the amount and
deposited it by the government. Petitioner, through its Assistant Manager Tagamolila,
issued a check and delivered the same to Sonia Gonzaga on the strength of the SPA,
without tans knowledge, consent and authority. RTC ordered petitioner and Tagamolila
to pay private respondent jointly and severally the amount worth legal interests, damages
and attorneys fees. Ca affirmed the decision.
ISSUE:
Whether the Special Power of Attorney authorized Sonia Gonzaga to receive
payment intended for private respondent
RULING:
There is no question that no payment had ever been made to private respondent as
to the check was never delivered to him. Under Article 1233 of the Civil Code, a debt
shall not be understood to have been paid unless the thing or service in which the
obligation consists has been completely delivered or rendered, as the case may be. The
burden of proof of sad payment lies with the debtor.
The decision of the court of appeals is affirmed with the modification that the
award by the RTC of P5,000 as attorneys fees is reinstated.

Page | 245

CATHAY PACIFIC AIRWAYS v.Spouses Vazquez


G.R. No. 150843 March 14, 2003

FACTS:
Cathay is a common carrier engaged in transporting passenger and goods by air.
Spouses Vazquez are Gold Card Members of its Marc Polo Club. The Spouses, with two
friends and a maid went to HongKong for business. Spouses have the Business class
boarding passes and economy class for the maid. When boarding, the ground stewardess
declared a seat change from Business class to First Class for the Vazquez. The Spouses
refused but after insistence by the stewardess, the spouses gave in. When the arrived in
Manila, spouses demanded to be indemnified in the amount of one million for the
humiliation and embarrassment caused by the employee. RTC ruled for the Vazquez
ordering Cathay Airways to pay the spouses, stating further that there was a breach of
contract not because of overbooking but because the latter pushed through with the
upgrading despite objections of the spouses.

ISSUE:
Is an involuntary upgrading of an airlines accommodation at no extra costs cause
a breach of contract of carriage?
RULING:
The Vazquezes are aware of the privileges, but such privileges may be waived.
Spouses should have been consulted first. It should not have been imposed on them over
their vehement objection. By insisting of the upgrade, Pacific Airways breached its
contract of carriage with the Vazquezes. Nominal damages are adjudicated in order that
the right of the plaintiff, which have been violated may be vindicated or recognized and
not for indemnifying the plaintiff for any loss suffered by him.
Petition is partly granted. Court of Appeals decision is modified. Moral damages
deleted, nominal damages reduced to P5,000.

Page | 246

CITIBANK v.SABENIANO
G.R.No. 156132, October 16, 2006

FACTS:
Petitioner Citibank is a banking corporation duly authorized under the
laws of the USA to do commercial banking activities n the Philippines. Sabeniano
was a client of both Petitioners Citibank and FNCB Finance. Respondent filed a
complaint against petitioners claiming to have substantial deposits, the proceeds
of which were supposedly deposited automatically and directly to respondents
account with the petitioner Citibank and that allegedly petitioner refused to
despite repeated demands. Petitioner alleged that respondent obtained several
loans from the former and in default, Citibank exercised its right to set-off
respondents outstanding loans with her deposits and money. RTC declared the
act illegal, null and void and ordered the petitioner to refund the amount plus
interest, ordering Sabeniano, on the other hand to pay Citibank her indebtedness.
CA affirmed the decision entirely in favor of the respondent.
ISSUE:
Whether petitioner may exercise its right to set-off respondents loans with her
deposits and money in Citibank-Geneva

RULING:
Petition is partly granted with modification.
1. Citibank is ordered to return to respondent the principal amount of
P318,897.34 and P203,150.00 plus 14.5% per annum
2. The remittance of US $149,632.99 from respondents Citibank-Geneva
account is declared illegal, null and void, thus Citibank is ordered to refund
said amount in Philippine currency or its equivalent using exchange rate at the
time of payment.
3. Citibank to pay respondent moral damages of P300,000, exemplary damages
for P250,000, attorneys fees of P200,000.
4. Respondent to pay petitioner the balance of her outstanding loans of
P1,069,847.40 inclusive off interest.

Page | 247

TELENGTAN BROTHERS and SONS v.UNITED STATES LINES G.R.No.


132284,February 28,2006

FACTS:
Petitioner is a domestic corporation while US Lines is a foreign corporation
engaged in overseas shipping. It was made applicable that consignees who fail to take
delivery of their containerized cargo within the 10-day free period are liable to pay
demurrage charges. On June 22, 1981, US Lines filed a suit against petitioner seeking
payment of demurrage charges plus interest and damages. Petitioner incurred P94,000
which the latter refused to pay despite repeated demands. Petitioner disclaims liability
alleging that it has never entered into a contract nor signed an agreement to be bound by
it. RTC ruled that petitioner is liable to respondent and all be computed as of the date of
payment in accordance with Article 1250 of the Civil Code. CA affirmed the decision.
ISSUE:
Whether the re-computation of the judgment award in accordance with Article
1250 of the Civil Code proper
RULING:
The Supreme Court found as erroneous the trial courts decision as affirmed y the
Court of Appeals. The Court holds that there has been an extraordinary inflation within
the meaning of Article 1250 of the Civil Code. There is no reason for ordering the
payment of an obligation in an amount different from what has been agreed upon because
of the purported supervention of an extraordinary inflation.
The assailed decision is affirmed with modification that the order for recomputation as of the date of payment in accordance with the provisions of Article 1250
of New Civil Code is deleted.

Page | 248

C. F. SHARP v. NORTHWEST AIRLINES


G.R. No. 133498, April 18,2002

FACTS:
On May 9, 1974, respondent entered into an International Passengers
Sales Agency Agreement with petitioner, authorizing the latter to sell its air
transport tickets. Petitioner failed to remit the proceeds of the ticket sales, for
which reason, respondent filed a Collection suit against petitioner before the
Tokyo District Court, which ordered petitioner to pay respondent 82,158,195 Yen
and damages for the delay at the rate of 6% per annum fro August 28,1980 up to
and until payment is completed. Unable to execute the decision in Japan,
respondent filed a case with the RTC.
RTC issued writ of execution ordering defendant to pay plaintiff
83,158,195 Yen at the exchange rate on the date of foreign judgment plus 6%
interest. On appeal, petitioner contended that it had already paid partial payments
hence, was not liable to pay additional 6% interest imposed in the foreign
judgment.
ISSUE:
Whether or not the petitioner is liable to pay additional 6% per annum for
the delay

RULING:
The petition is denied. CA decision is affirmed with modification.
Petitioner is directed to pay respondent 61,734 Yen plus damages for the delay at
6% per annum from August 28,1980 until payment is completed, with interest at
the rate of 12% per annum counted from the date of filing until fully satisfied.
Petitioners liability may be paid in Philippine currency computed at the exchange
rate prevailing at the time of payment.

Page | 249

ALBERT PADILLA v. SPOUSES PAREDES and COURT OF APPEALS


G.R. NO. 124874,March 17, 2000

FACTS:
On October 20, 1988, petitioner Padilla and private respondent entered
into a contract to sell involving a parcel of land. The was untitled but private
respondent was paying taxes thereon. Under the contract, petitioner undertook to
secure title to the property in private respondents names of the P312,840
purchase prize, petitioner was to pay downpayment of P50,000 upon signing and
the balance was to be paid within 10 days from the issuance of the court order
directing issuance of the decree of registration. For failure to pay some of the
amount, respondent offered to sell to petitioner one-half of the property for all the
payment, lest respondent rescinds the contract. Petitioner refused and instituted
action for specific performance alleging that they have substantially complied
with the obligation. RTC ruled for the petitioners stating a casual or slight breach
that did not warrant rescission. CA reversed the decision and confirmed the
respondents rescission.
ISSUE:
Whether or not the private respondents are entitled to rescind the contract
to sell the land to petitioner
RULING:
The Supreme Court sustained the ruling of CA that private respondent
may validly rescind the contract to sell, however, the reason for this is not that
respondents have the power to rescind but because their obligation thereunder did
not arise. The CA is correct in ordering the return to petitioner of the amounts
received from him by private respondents, on the precept that no one shall be
unjustly enriched himself at the expense of another.

Page | 250

SPOUSES TIBAJIA v. COURT OF APPEALS and EDEN TAN


G. R. No. 100290, June 4, 1993
FACTS:
A suit of collection of sum of money was filed by Eden Tan against the spouses.
A writ of attachment was issued, the Deputy Sheriff filed a return stating that a deposit
made by Tibajia in the amount of P442,750 in another case, had been garnished by him.
RTC ruled in favor of Eden Tan and ordered the spouses to pay her an amount in excess
of P3,000,000. Court of Appeals modified the decision by reducing the amount for
damages. Tibajia Spouses delivered to Sheriff Bolima the total money judgment of
P398483.70. Tan refused to accept the payment and insisted that the garnished funds be
withdrawn to satisfy the judgment obligation.
ISSUE:
Whether or not payment by means of check is considered payment in legal tender

RULING:
The ruling applies the statutory provisions which lay down the rule that a check is
not legal tender and that a creditor may validly refuse payment by check, whether it be a
managers check, cashiers or personal check. The decision of the court of Appeals is
affirmed.

Page | 251

DEVELOPMENT BANK OF THE PHILIPPINES


v. COURT OF APEEALS
G.R.No. 138703,June 30, 2006
FACTS:
In March 1968, DBP granted to private respondents an industrial loan in the
amount of P2,500,000 P500,000 n cash and P2,000,000 in DBP Progress Bank. It was
evidenced by a promissory note and secured by a mortgage executed by respondents over
their present and future properties. Another loan was granted by DBP in the for of a 5year revolving guarantee to P1,700,000. In 1975, the outstanding accounts wth DBP was
restructured in view of failure to pay. Amounting to P4,655,992.35 were consolidated
into a single account. On the other hand, all accrued interest and charges due amounting
to P3,074,672.21 were denominated as Notes Taken for Interests and evidenced by a
separate promissory note. For failure to comply with its obligation, DBP initiated
foreclosure proceedings upon its computation that respondents loans were arrears by
P62,954,473.68. Respondents contended that the collection was unconscionable if not
unlawful or usurious . RTC, as affirmed by the CA, ruled in favor of the respondents.
ISSUE:
Whether the prestation to collect by the DBP is unconscionable or usurious
RULING:
It cannot be determined whether DBP in fact applied an interest rate higher than
what is prescribed under the law. Assuming it did exceed 12% in addition to the other
penalties stipulated in the note, this should be stricken out for being usurious.
The petition is partly granted. Decision of the court of Appeals is reversed and set
aside. The case is remanded o the trial court for the determination of the total amount of
the respondents obligation based on the promissory notes, according to the interest rate
agreed upon by the parties on the interest rate of 12% per annum, whichever is lower.

Page | 252

METROBANK v. CABLZO
G.R. No. 154469
December 6, 2006
FACTS:
Respondent Cabilzo was one of the Metrobanks client who maintained a current
account. On November 12, 199, Cabilzo issued a Metrobank check payable to cash in the
amount of P1,000 and was paid to a certain Mr. Marquez. The check was oresented to
Westmont Bank or payment and in turn indorsed to etrobank for appropriate clearing. It
was discovered that the amount withdrawn wa P91,000, thus, the check was altered.
Cabilzo re-credit the amount of P91,000 to his account but Metrobank refused to comply
despite demands. RTC ordered Metrobank to pay the sum of P90,000 to Cabilzo. Court
of Appeals affirmed the decision with modification.
ISSUE:
Whether holding Metrobank, as drawee bank, liable for the alternations on the
subject check bearing the authentic signature of the drawer thereof
RULING:
The degree of diligence in the exercise of his tasks and the performance of his
duties have been faithfully complied with by Cabilzo. It is obvious that Metrobank was
remiss in the duty and violated that fiduciary relationship with its clients as it appeared
that there are material alterations on the check that are visble to the naked eye but the
bank failed to detect such.
Petition is denied. Court of Appeals decision is affirmed with modification that
exemplary damages in the amount of P50,000 be awarded.

Page | 253

EUFEMIA and ROMEL ALMEDA v.


BATHALA MARKETING
G.R.No. 150806, January 28, 2008

FACTS:
In May 1997, Bathala Marketng, renewed its Contract of Lease with
Ponciano Almeda. Under the contract, Ponciano agreed to lease a porton of Almeda
Compound for a monthly rental of P1,107,348.69 for four years. On January 26, 1998,
petitioner informed respondent that its monthly rental be increased by 73% pursuant to
the condition No. 7 of the contract and Article 1250. Respondent refused the demand and
insisted that there was no extraordinary inflation to warrant such application. Respondent
refused to pay the VAT and adjusted rentals as demanded by the petitioners but
continually paid the stipulated amount. RTC ruled in favor of the respondent and
declared that plaintiff is not liable for the payment of VAT and the adjustment rental,
there being no extraordinary inflation or devaluation. CA affirmed
the
decision
deleting the amounts representing 10% VAT and rental adjustment.
ISSUE:
Whether the amount of rentals due the petitioners should be adjusted by reason of
extraordinary inflation or devaluation
RULING:
Petitioners are stopped from shifting to respondent the burden of paying the VAT.
6th Condition states that respondent can only be held liable for new taxes imposed after
the effectivity of the contract of lease, after 1977, VAT cannot be considered a new tax.
Neither can petitioners legitimately demand rental adjustment because of extraordinary
inflation or devaluation. Absent an official pronouncement or declaration by competent
authorities of its existence, its effects are not to be applied.
Petition is denied. CA decision is affirmed.

Page | 254

EQUITABLE PCI BANK, YU and APAS v. NG SHEUNG NGOR


G.R.NO. 171545, December 19, 2007
FACTS:
On October 7, 2001, respondents Ngor and Go filed an action for
amendment and/or reformation of documents and contracts against Equitable and its
employees. They claimed that they were induced by the bank to avail of its peso and
dollar credit facilities by offering low interests so they accepted and signed Equitables
proposal. They alleged that they were unaware that the documents contained escalation
clauses granting Equitable authority to increase interest without their consent. These were
rebutted by the bank. RTC ordered the use of the 1996 dollar exchange rate in computing
respondents dollar-denominated loans. CA granted the Banks application for injunction
but the properties were sold to public auction.
ISSUE:
Whether or not there was an extraordinary deflation
RULING:
Extraordinary inflation exists when there is an unusual decrease in the
purchasing power of currency and such decrease could not be reasonably foreseen or was
beyond the contemplation of the parties at the time of the obligation. Deflation is an
inverse situation.
Despite the devaluation of the peso, BSP never declared a situation of
extraordinary inflation. Respondents should pay their dollar denominated loans at the
exchange rate fixed by the BSP on the date of maturity.
Decision of lower courts are reversed and set aside.

Page | 255

SIMPLICIO PALANCA v.ULYSIUS GUIDES and LORENZO GUIDES


G.R. No. 146365
February 28, 2005
FACTS:
In August 1983, petitioner Palanca executed a contract to sell a parcel of land on
installment with Jopson for P11,250. Jopson paid petitioner P1,650 as downpayment,
leaving a balance of P9600. In December 1983, Jopson assigned ad transferred all her
rights and interests over the property to respondent Guides. Believing that she had fully
paid the purchase prize, respondent found out when she verified with the Register of
Deeds that the property in question was still in the name of de Leon. Petitioner stated that
she refused to execute the document of sale in favor of the respondent since the latter
failed with the said obligation- that he was not paid the complete amount in the contract.
RTC ruled in favor of the plaintiff and against Palanca, ordering him to execute a Deed of
Absolute Sale and the issuance of TCT, reimburse plaintiff the amount paid n excess and
for
damages.
ISSUE:
Whether the petitioners claim of unpaid charges from the respondent proper
RULING:
Petitioner was deemed to have waived his right to present evidence and thus was
unable to adduce evidence of such inflation or fluctuation. Even if there were such,
petitioner did not make a demand on respondent for the satisfaction of the claim.
When petitioner accepted respondents installment payments despite the alleged
charges, and without any showing that he protested the irregularity of such payment, nor
demanded the payment of the alleged charges, respondents liability, if any for said
charges is deemed fully satisfied.

Page | 256

PCIB v. COURT OF APPEALS


G.R. NO. 121989
January 31, 2006
FACTS:
PCIB and MBC were joint bidders in a foreclosure sale held of assorted mining
machinery and equipment previously mortgaged to them by Philippine Iron Mines. Atlas
agreed to purchase some of these properties and the sale was evidenced by a Deed of Sale
with a downpayment of P12,000,000 and the balance of P18,000,000 payable in 6
monthly installments. In compliance with the contract, Atlas issued HongKong and
shanghai Bank check amounting to P12,000,000. Atlas paid to NAMAWU the amount of
P4,298,307.77 in compliance with the writ of garnishment issued against Atlas to satisfy
the judgment in favor of NAMAWU. Atlas alleged that there was overpayment, hence
the suit against PCIB to obtain reimbursement. PCIB contended that Atlas still owed
P908,398.75 because NAAWU had been partially paid in the amount of P601,260.00.
RTC ruled against Atlas to pay P908,398.75 to PCIB. CA reversed the decision.
ISSUE:
Whether atlas had complied with its obligation to PCIB
RULING:
While the original amount sought to be garnished was P4,298,307,77, the partial
payment of P601,260 naturally reduced it to P3,697,047.77 Atlas overpaid NAMAWU,
thus the remedy if Atlas would be to proceed against NAAWU nut not against PCIB in
relation to article 1236 of the Civil Code
The petition is partly granted.CA decision is reversed and set aside and in lieu
thereof Atlas is ordered to pay PCIB the sum of P146,058.96, with the legal interest
commencing from the time of first demand on August 22, 1985.

Page | 257

JOSE LAGONv. HOOVEN COMALCO INDUSTRIES


G.R. No. 135657
January 17, 2001

FACTS:
Petitioner is the owner of a commercial building while respondent is a domestic
corporation known to be the biggest manufacturer and installer of aluminum materials in
the country. Parties entered into 2 contracts whereby for a total consideration of
P104,870. Hooven agreed to sell and install various aluminum materials in Lagons
building. Upon execution of contracts, Lagon paid Hooven P48,000 in advance. On
February 24, 1987, Hooven commenced an action for sum of money. It was alleged that
materials were delvered and installed but P69,329 remained unpaid even after the
completion of the project and despite repeated demands. RTC held partly on the basis of
the ocular inspection finding that the total actual deliveries cost P87,140 deducting
therefrom P48,000. CA set aside the decision and held in favor of Hooven.

ISSUE:
Whether all the materials specified in the contracts had been delivered and
installed by respondent in petitioners commercial building
RULING:
Essentially, respondent has the burden of establishing its affirmative allegations
of complete delivery and installation of the materials and petitioners failure to pay
therefor. The evidence on its discharge is grossly anemic. The CA decision is modified.
Lagon is ordered to pay respondent P6,377.66 representing the value unpaid. On the other
hand, respondent is ordered to pay petitioner P50,000 as moral damages, P30,000
attorneys fees and P46,554.50 as actual damages.

Page | 258

BANK OF THE PHILIPPINE ISLANDS v. EASTERN PLYWOOD and


BENIGNO LIM
G.R. No. 104612, May 10, 1994

FACTS:
Private respondent , Eastern and Lim, an officer and stock holder of
Eastern held at least one joint bank account with the CBTC, the predecessor-in
interest of the petitioner BPI. In March 1975, checking account with Lim in the
amount of P120,000 was opened by Velasco with funds withdrawn fro the
account of Eastern and Lim. Velasco died and at the time of his death, the
outstanding balance of the account stood at P662,522.87. Thereafter, Easrtern
obtained a loan of P73,000 fro CBTC in addition, Eastern and Lim and CBTC
signed another document entitled Holdout agreement.
In the settlement proceeding of Velascos estate, the whole balance of
P331,261.44 in the joint account of Velasco and Lim was claimed as part of
Velascos estate. The interstate court granted the urgent motion of heirs of
Velasco to withdraw the deposit and authorize them to divide among themselves
the amount. BPI filed a complaint against Lin and Eastern demanding payment of
promissory not for P73,000. RTC ruled that the promissory note is subject to the
holdout agreement. CA affirmed the division.
ISSUE:
Whether BPI is still liable to the private respondent on the account subject
to the holdout agreement after it is withdrawn by the heirs of
Velasco
RULING:
The account was proved to belong to Eastern even if it was in the names
of Lim and Velasco. As the real creditor of the bank, Eastern has the right to
withdraw it or demand payment thereof. BPI can not be relieved of its duty to pay
Eastern simply because it already allowed the heirs of Velasco to withdraw the
whole balance of the account. Payment made by the debtor to the wrong party
does not extinguish the obligation as to the creditor who is without fault or
negligence.

Page | 259

AUDION ELECTRIC COMPANY v. NLRC


G.R. NO. 106648, June 17,1999
FACTS:
Complainant Nicolas Madolid was employed by Audion as a fabricator.
He continuously rendered service, assigned in different offices or projects for 13
years with a clean record. The complainant was surprised to received an
information stating that he will be considered terminated after the turnover of
materials. Complainant claims that he was dismissed without justifiable cause.
For this reason, he claims that he is entitled to reinstatement with full backwages,
payment of overtime pay, project allowances, increase adjustments, 13th month
pay and attorneys fees. Local
Arbiter ruled in favor of Madolid and ordered Audion to pay the former, which
was affirmed by the NLRC.
ISSUE:
Whether the respondent NLRC committed grave abuse of discretion when
it ruled that private respondent was a regular employee and not a project
employee

RULING:
Private respondents employment status was established by the
certification of employment issued by the petitioner. The rule is that findings of
facts of the NLRC affirming those of the Labor Arbiter are entitled to a great
weight and will not be disturbed if they were supported by substantial evidence.
There was no grave abuse of discretion committed by NLRC in finding that
respondent was not a project employee. Decision of NLRC is affirmed with
modification deleting the awards of damages and attorneys fees.

Page | 260

PHILPPINE NATIONAL BANK v. COURT OF APPEALS and LORETO TAN


G.R. No. 108630,April 2, 1996
FACTS:
Private respondent Loreto Tan is the owner of a parcel of land abutting the
national highway. Expropriaton proceedings were instituted by the government. Tan filed
a motion requesting the issuance of an order for the release to him of the expropriation
price of P32,480.00. PNB was required by the trial court to release to tan the amount and
deposited it by the government. Petitioner, through its Assistant Manager Tagamolila,
issued a check and delivered the same to Sonia Gonzaga on the strength of the SPA,
without tans knowledge, consent and authority. RTC ordered petitioner and Tagamolila
to pay private respondent jointly and severally the amount worth legal interests, damages
and attorneys fees. Ca affirmed the decision.
ISSUE:
Whether the Special Power of Attorney authorized Sonia Gonzaga to receive
payment intended for private respondent
RULING:
There is no question that no payment had ever been made to private respondent as
to the check was never delivered to him. Under Article 1233 of the Civil Code, a debt
shall not be understood to have been paid unless the thing or service in which the
obligation consists has been completely delivered or rendered, as the case may be. The
burden of proof of sad payment lies with the debtor.
The decision of the court of appeals is affirmed with the modification that the
award by the RTC of P5,000 as attorneys fees is reinstated.

Page | 261

LORENZO SHIPPING COMPANY v. BJ MARTHEL INTERNATIONAL


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

FACTS:
Petitioner Lorenzo Shipping is engaged in coastwise shipping and
owns the cargo M/V Dadiangas Express. BJ Marthel is engaged in trading,
marketing an dselling various industrial commodities. Lorenzo Shipping ordered
for the second time cylinder lines from the respondent stating the term of
payment to be 25% upon delivery, the balance payable in 5 bi-monthly equal
installments, no again stating the date of the cylinders delivery. It was allegedly
paid through post dated checks but the same was dishonored due to insufficiency
of funds. Despite due demands by the respondent, petitioner falied contending
that time was of the essence in the delivery of the cylinders and that there was a
delay since the respondent committed said items within two months after receipt
of fir order. RTC held respondents bound to the quotation with respect to the
term of payment, which was reversed by the Court of appeals ordering appellee to
pay appellant P954,000 plus interest. There was no delay since there was no
demand.
ISSUE:
Whether or not respondent incurred delay in performing its obligation
under the contract of sale

RULING:
By accepting the cylinders when they were delivered to the warehouse,
petitioner waived the claimed delay in the delivery of said items. Supreme Court
geld that time was not of the essence. There having been no failure on the part of
the respondent to perform its obligations, the power to rescind the contract is
unavailing to the petitioner.
Petition is denied. Court of appeals decision is affirmed.

Page | 262

SPOUSES RAFAEL ESTANISLAO v. EASTWEST BANKING


CORPORATION
G.R. No. 178537,February 11, 2008

FACTS:
On July 24,1997, petitioner obtained a loan fro the respondent in the
amount of P3,925,000 evidenced by a promissory note and secured by two deeds
of chattel mortgage covering two dump trucks and a bull dozer . Petitioner
defaulted entire obligation became due and demandable. A deed of assignment
was drafted by the respondent on October 6, 2000 and March 8, 2001
respectively. Petitioners completed the delivery of heavy equipment mentioned in
the deed of assignment to respondent which accepted the same without protest or
objection. Respondent manifested to admit an amended complaint for the seizure
and delivery of two more heavy equipment which are covered under the second
deed of the chattel mortgage. RTC ruled that the deed of assignment and the
petitioners delivery of the heavy equipment effectively extinguished the
petitioners obligation and respondent as stopped. CA reversed the decision
ordering the petitioner the outstanding debt of P4,275,919.69 plus interests.
ISSUE:
Did the Deed of Assignment operate to extinguish petitioners debt to the
respondent such that the replevin suit could no longer prosper?
RULING:
The deed of assignment was a perfected agreement which extinguished
petitioners total outstanding obligation to the respondent. The nature of the
assignment was a dacion en pago whereby property is alienated to the creditor in
the satisfaction of a debt in money. Since the agreement was consummated by the
delivery of the last unit of heavy equipment under the deed, petitioners are
deemed to have been released from all their obligations from the respondents.

Page | 263

AQUINTEY v. SPOUSES TIBONG


G.R. No. 166704,December 20, 2006
FACTS:
On May 6, 1999, petitioner Aquintey filed before RTC Baguio, a
complaint for sum of money and damages against respondents. Agrifina alleged
that Felicidad secured loans from her on several occasions at monthly interest
rates of 6% to 7%. Despite demands, spouses Tibong failed to pay their
outstanding loans of P773,000,00 exclusive of interests. However, spouses Tiong
alleged that they had executed deeds of assignment in favor of Agrifina
amounting to P546,459 and that their debtors had executed promissory notes in
favor of Agrifina. Spouses insisted that by virtue of these documents, Agrifina
became the new collector of their debts. Agrifina was able to collect the total
amount of P301,000 from Felicdads debtors. She tried to collect the balance of
Felicidad and when the latter reneged on her promise, Agrifina filed a complaint
in the office of the barangay for the collection of P773,000.00. There was no
settlement. RTC favored Agrifina. Court of Appeals affirmed the decision with
modification ordering defendant to pay the balance of total indebtedness in the
amount of P51,341,00 plus 6% per month.
ISSUE:
Whether or not the deeds of assignment in favor of petitioner has the
effect of payment of the original obligation that would partially
extinguish the same
RULING:
Substitution of the person of the debtor ay be affected by delegacion.
Meaning, the debtor offers, the creditor accepts a third person who consent of the
substitution and assumes the obligation. It is necessary that the old debtor be
released fro the obligation and the third person or new debtor takes his place in
the relation . Without such release, there is no novation. Court of Appeals
correctly found that the respondents obligation to pay the balance of their
account with petitioner was extinguished pro tanto by the deeds of credit. CA
decision is affirmed with the modification that the principal amount of the
respondents is P33,841.

Page | 264

MAMENTA Vda. De JAYME


v. COURT OF APPEALS
G.R.N o. 128669,October 4, 002

FACTS:
On January 8, 1973, spouses Jayme entered into a contract of lease with
George Neri, President of Asian Cars covering one-half of Lot 2700 for 20 years.
Under the contract, Asian Cars used the leased premises as a collateral to secure
payment of loan which Asian Cars may obtain from any bank, provided, the
proceeds of the loans shall be used solely for the construction of the building
which upon the termination of lease shall automatically become the property of
the Jayme spouses. In October1977, Asian Cars obtained a loan of six million
from Metrobank. The entire lot 2700 was offered as one of the several properties
given as collateral for the loan. Due to financial difficulties, Asian Cars conveyed
ownership of the building on the leased premises to MBTC by way of dacion en
pago. Eventually, MBTC extrajudicially foreclosed the mortgage and MBTC was
the highest bidder in a public auction. Heirs of Graciano Jayme filed an action for
annulment of contract with damages and issuance of preliminary injunction
against Asian Cars. RTC declared that the REM executed by Jayme in favor of
Metrobank as valid and binding. XXX CA affirmed the decision declaring valid
also the foreclosure of the mortgage and the foreclosure sale.
ISSUE:
Whether or not the dacion en pago by Asian Cars in favor of MBTC is
valid and binding despite the stipulation in the lease contract
RULING:
Court of Appeal did not err in considering MBTC as a purchase in good
faith, MBTC had no knowledge of the stipulation in the lease contract. There was
no annotation on the title of any encumbrance. Thus, the transfer of the building
in favor of MBTC was properly held valid and binding by respondent CA.
CA decision is affirmed with modification ordering that private
respondent MBTC pay petitioners rentals amounting to P602,083.33. with 6 %
interest per annum until fully paid.

Page | 265

CALTEX v.INTEREDIATE APPELLATE COURT and ASIA PACIFC


G.R. No. 72703, November 13, 1992

FACTS:
On January 12, 1975, Asia Pacific entered into an agreement with Caltex
whereby petitioner agreed to supply private respondents aviation fuel for 2 years.
As of June 30, 1980, asia Pacific had an outstanding obligation n the total amount
of P 4,072,682.13. Caltex executed a Ded of Assignment wherein it assigned to
petitioner its receivables from the National treasury of the Philippines. Pursuant to
the Deed of assignment, National Treasury warrant the amount of P5,475,294
representing the refund. Caltex refused to return the excess amount of
P510,550.63 because it represented the interest and service charges and the rate of
18% per annum on the unpaid and overdue account of respondent. RTC dismissed
the case. IAC reversed the decision and ordered petitioner to return the amount of
P510,550.63 to private respondent.

ISSUE:
Whether or not the Deed of Assignment entered into by the parties
constituted dacion en pago, such that the obligation is totally
extinguished, hence, no interest and service charges could anymore
be imposed

RULING:
The Deed of Assignment executed by the parties is not a dation in
payment in payment and did not totally extinguish respondents obligation. It is
clear that in this case, dation in payment does not necessarily mean total
extinguishment of the obligation. The obligation is totally extinguished only when
the parties, by agreement, express or implied, or by their silence, consider the
thing a equivalent to the obligation.
Decision of Intermediate Appellate Court is set aside.

Page | 266

SONNY LO v. KJS ECO-FORMWORK SYSTEM


G.R. No. 149420,October 8, 2003

FACTS:
KJS is engaged in the sale of steel scaffoldings while Lo is a building
contractor. On February 22, 1990, petitioner ordered scaffolding equipments from
respondent worth P540,425.80. He paid a downpayment in the amount of P150,000. The
balance was made payable in 10 monthly installments. Respondent delivered the
equipments. Petitioner was able to pay the first two monthly installments. His business
suffered financial difficulties and he was unable to settle his obligations despite demands.
On October 11, 1990, the parties executed a Deed of Assignment whereby petitioner
assigned to respondent his receivables from Jonero Realty. However, Jonero refused to
honor the Dees of Assign,nt because it claimed that petitioner was indebted to it.
Petitioner refused to pay claiming that that his obligation had been extinguished when
they executed the deed of assign,ent. RTC dismissed the complaint on the ground that the
assignment of credit extinguished the obligation. Court of appeals reversed the decision
and ordered Lo to pay the plaintiff KJS with legal interests of 6% per annum until fully
paid.
ISSUE:
Whether or not the Deed of Assignment extinguished the obligation
RULING:
An assignment of credit, by virtue of which the owner of the credit, the
assignor, by a legal cause, such as sale, dacion en pago, exchange or donation and
without the consent of the debtor transfers his credit and accessory rights to another, the
assignee, who acquires the power to enforce it against the debtor. Petitioner, as assignor,
is bound to warrant the existence and legality of the credit at the tim of the sale or
assignment. When Jonero claimed that it was no longer indebted to petitioner since the
latter had also as unpaid obligation to it, it essentially meant that its obligation to the
petitioner has been extinguished by compensation. Petitioner was found in breach of his
obligation under the Deed of assignment. Court of Appeals decision is affirmed.

Page | 267

ASI CORP and ANTONIO SAN JUAN

v. SPOUSES EFREN EVANGELISTA

FACTS:
Respondents are engaged in the large-scale business of buying broiler
eggs, hatching and selling them and egg by-products. For incubation and hatchings,
respondents availed of the hatching services of ASJ Corp. They agreed o service fees of
80 centavos per egg. Service fees were paid upon release. Fro consecutive times the
respondents failed to pay the fee until such time that ASJ retained the chicks demanding
full payment from the respondent. ASJ received P15,000 for partial payment but the
chicks were still not released. RTC ruling, which was affirmed by the Court of Appeals
holding that ASJ Corp and Antonio San Juan be solidarily liable to the respondents.
ISSUE:
Was petitioners retention of the chicks and by-products, on account of
respondents failure to pay the corresponding fees unjustified?
RULING:
Respondents offer to partially satisfy their accounts is not enough to
extinguish their obligation. Respondents cannot substitute or apply as their payment the
value of the chicks and by-products they expect to derive because it is necessary that all
the debts be paid for the same kind. The petition is partly granted. The Court of Appeals
decision is modified.

Page | 268

NEREO PACULDO v. BONIFACIO REGALADO


G. R. No. 123855,November 20, 2000

FACTS:
On December 27, 1990, petitioner Paculdo and respondent Regalado
entered into a contract of lease over a parcel of land for 25 years. For the first 5
years, Paculdo would pay monthly rental of P450,000 payable within 5 days of
each month, with 2% penalty for very month of delay. Aside from the above
lease, petitioner leased 11 other property from respondent. Petitioner failed to
pay. Without the knowledge of petitioner, respondent ortgaged the land subject of
the lease contract including the improvements to Monte de Piedad. On August 12,
1995, and on subsequent dates thereafter, respondent refused to accepr
petitioners daily rental payments. Petitioner filed an action for injunction to
enjoin respondent from disturbing his possession while respondent filed a
complaint for ejectment attaching the demand letters. MTC held in favor of the
plaintiff which was affired by the RTC. CA found that the petitioner impliedly
consented to respondents application of payment to his obligations, thus,
dismissed the petition for lack of merit.

ISSUE:
Whether petitioner was truly in arrears in the payment of rentals on
the subject property at the time of the filing of the complaint of
ejectment

RULING:
The lease over the Fairview wet market property is the most onerous
among all the obligations of petitioner to respondent. It was established that the
wet market is a going concern and that petitioner has invested about P35,000,000
in form of improvements, over the property. Hence, petitioner would stand to lose
more if the lease would not proceed. CA decision was based
on a
misapprehension of the facts and the law on the application of payment. Hence,
the ejectment case must be dismissed. CA decision is set aside.

Page | 269

CHINA BANKING CORPORATION v. COURT OF APPEALS


G.R. No. 121158, December 5, 1996
FACTS:
China Banking Corporation extended several loans to Native West and so Ching,
Native Wests President. Native west executed a promissory note in favor of China Bank.
So Ching, with the marital consent of his wife additionally executed two real estate
mortgages over their properties. The promissory notes matured and despite due demands,
neither private respondents paid. China Bank filed petition for the extrajudicial
foreclosure of the mortgaged properties. Upon receipt of the foreclosure, private
respondents filed a complaint before RTC for accounting with damages and with
temporary restraining order.
ISSUE:
Whether or not the subject additional mortgaged properties of the spouses
are not included in the notice of foreclosure
RULING:
It is well-settled that mortgages given to secure future advancements or
loans are valid and legal contracts, and that the amounts named as
considerations in said contracts do not limit the amount for which the
mortgage may stand as security if from the four corners of the instrument
the intent to secure future and their indebtedness can be gathered. Supreme
Court found that petitioners are entitled to foreclose the mortgages.

Page | 270

MOBIL OIL PHILIPPINES and CALTEX v. COURT OF APPEALS and


CONTINENTAL CEMENT
G.R.No. 103052,May 23, 1997
FACTS:
In May 1982, petitioner Mobil Oil entered into a supply agreement with private
respondent Continental Cement, under which the former would supply the latters
industrial fuel oil or bunker fuel oil requirements. MOP extended to CCC an unsecured
credit line of P2,000,000 against which CCCs purchases of oil could initially be charged.
MOP made a total of 67 deliveries of BFO, each delivery consisting of 20,000 liters to
CCCs factory. CCC discovered that, the supposed BFO was in fact, pure water. A joint
undertaking was initiated. On August 23, 1983, Caltex informed CCC that it would be the
new owner of Mop effective September 1, 1983 and that Caltex would assume all rights
and obligations of MOP under all its existing contracts. CA upheld the findings of the
trial court that the water-contaminated BFO delivered by MOP caused damages to CCCs
rotary kin.
ISSUE:
Whether or not petitioners can be held liable for the contaminated BO
delivered on the ground that CFS, as carrier-hauler, was an agent of Mobil
RULING:
Court of Appeals correctly ruled that MOP could be held liable for the acts of
CFS. The hauling contract executed by and between MOP and CFS laid out the
responsibilities of CFS. The presumption LAID DOWN IN Article 1523 of the Civil
Code is not applicable. The questioned decision of the court of Appeals is affirmed in
toto.

Page | 271

SPOUSES JAIME BENOS v. SPOUSES GREGORIO LAWILAO


G.R. No. 172259, December 5, 2006

FACTS:
On February 11,1999, petitioner-spouses Benos and respondent
Lawilao executed a Pacto de Retro Sale where Benos sold their lot and the
building erected thereon for P300,000, one-half of which to be paid in cash to the
Benos and the other half to be paid to the bank to pay off the loans of the Benos
which was secured by the same lot and building. Under the contract, Benos could
redeem the property within 18 months from the date of execution by returning the
contract price, otherwise, the sale would become irrevocable. After paying the
P150,000, Lawilao took possession of the property, restructured it twicw,
eventually the loan become due and demandable. On August 14, 2000, a son of
Benos and Lawilao paid the bankl but the bank refused. Lawilao filed for
consignation against the bank and deposited the amount of P159,000.00. RTC
declared Lawilao of the ownership of the subject property, which was affirmed by
the Court of Appeals.
ISSUE:
Whether or not the contract of Pacto de Retro Sale be rescinded by
the petitioner

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

Page | 272

PEOPLES INDUSTRIAL AND COMERCIAL v. COURT OF APPEALS and


MAR-ICK INVESTENT
G.R. No. 112733, October 24, 1997
FACTS:
Private respondent is the registered owner of Mar-ick Subdivision which
entered into 6 agreements with petitioner, whereby to sell 6 subdivision lots.
Except for lot no. 8. All the lots measure 240 sq each. Lot nos. 3,4,5,6 and 7
similarly stipulate that petitioner agreed to pay for each lot P7,333.20, P480 as
down payment. The balance shall be payable n 120 equal monthly installments of
P57.11 every 30th of the month, for 10 years. With lot no. 8, they agreed to the
purchase price of P7,730 with a down payment of P506 and equal installments of
P60.20. Petitioner failed to perform its obligation. After series of negotiations, the
parties agreed to enter into a new contract to sell 8 lots. Checks issued in favor of
the private respondent were received but not encashed. Private respondent filed a
suit against the petitioner. RTC directed petitioner to return the lots, which was
affirmed in toto by the CA.

ISSUE:
Whether or not there was a perfected and enforceable contracts of
sale on October 11,1983 which modified the earlier contracts to
sell which had not been validly rescinded
RULING:
It is apropos to stress that the agreements are contracts to sell and not
contract of sale, hence, rescission either by judicial action or notarial act is not
applicable. Private respondents act of cancelling the contract to sell was not done
arbitrarily. Because the contracts to sell had long been cancelled when private
respondent fled the accion publiciana de possession, there was no more
installment buyer and seller relationship to speak of. It had been reduced to a
mere case of an owner claiming possession of its property that had long been
illegally withheld from it by another.

Page | 273

ETERNAL GARDENS v. COURT OF APPEALS and 7TH DAY ADVENTIST


G.R. No. 124554, December 9, 1997

FACTS:
Petitioner Eternal Gardens and private NPUM entered into a Land
Development Agreement. Under the agreement, EG was to develop a parcel of
land owned by NPUM into a memorial park. The P1.5 million initial installment
mentioned in the Deed of Absolute Sale, shall be deducted out of the proceeds
from the First Partys 40% at the end of the 5th year. Subsequent payment should
be changed against what is due to the first Party under the Land Development
agreement. Later, 2 claimants of the land surfaced but were dismissed. The case
was remanded to the CA for proper determination and dispositions. CA required
EG to produce documents necessary for accounting but failed to do so, hence, the
right is waived. CA directed EG to pay private respondent the amounts of
P167,065,195.00 as principal and P167,235,451.00 interest.

ISSUE:
Whether or not the petitioner is liable for interest despite the land dispute

RULING:
Even during the pendency of the land dispute cases, EG was required to
deposit the accruing interests with a reputable commercial bank to avoid
possible wastage of funds when the case was given due course. Yet, EG hedged
in depository the amounts due and made obvious attempts to stay payment by
filing sundry motions and pleadings. CA correctly held EG liable for interest of
12%. It is tantamount to a forbearance of money.

Page | 274

RAYOS V REYES
G.R.No. 150193 February 20, 2003
FACTS:
Three parcels were formerly owned by the spouses Francisco and Asuncion Tazal
who on 1 September 1957 sold them for P724.00 to respondents predecessor-in-interest,
one Mamerto Reyes, with right to repurchase within two (2) years from date thereof by
paying to the vendee the purchase price and all expenses incident to their reconveyance.
After the sale the vendee a retro took physical possession of the properties and paid the
taxes thereon.
The otherwise inconsequential sale became controversial when two (2) of the
three (3) parcels were again sold on 24 December 1958 by Francisco Tazal for P420.00 in
favor of petitioners predecessor-in-interest Blas Rayos without first availing of his right
to repurchase the properties.
ISSUE:
Was there a valid consignation and tender of payment made in the instant case?
RULING:
In order that consignation may be effective the debtor must show that (a) there
was a debt due; (b) the consignation of the obligation had been made because the creditor
to whom a valid tender of payment was made refused to accept it; (c) previous notice of
the consignation had been given to the person interested in the performance of the
obligation; (d) the amount due was placed at the disposal of the court; and, (e) after the
consignation had been made the person interested was notified thereof.
In the instant case, petitioners failed, first, to offer a valid and unconditional
tender of payment; second, to notify respondents of the intention to deposit the amount
with the court; and third, to show the acceptance by the creditor of the amount deposited
as full settlement of the obligation, or in the alternative, a declaration by the court of the
validity of the consignation. The failure of petitioners to comply with any of these
requirements rendered the consignation ineffective.
Consignation and tender of payment must not be encumbered by conditions if
they are to produce the intended result of fulfilling the obligation. In the instant case, the
tender of payment of P724.00 was conditional and void as it was predicated upon the
argument of Francisco Tazal that he was paying a debt which he could do at any time
allegedly because the 1 September 1957 transaction was a contract of equitable mortgage
and not a deed of sale with right to repurchase

Page | 275

CEBU INTERNATIONAL V CA
G.R.No. 123031 October 12, 1999
FACTS:
On April 25, 1991, private respondent, Vicente Alegre, invested with CIFC,
P500,000.00 pesos, in cash. Petitioner issued a promissory note to mature on May 27,
1991. The note for P516,238.67 covered private respondent's placement plus interest at
twenty and a half percent for thirty-two days. On May 27, 1991, CIFC issued BPI Check
No. 513397 P514,390.94 in favor of the private respondent as proceeds of his matured
investment plus interest. The CHECK was drawn from petitioner's current account
number 0011-0803-59, maintained with BPI, main branch at Makati City. On June 17,
1991, private respondent's wife deposited the CHECK with RCBC, in Puerto Princesa,
Palawan. BPI dishonored the CHECK with the annotation, that the "Check (is) Subject of
an Investigation." BPI took custody of the CHECK pending an investigation of several
counterfeit checks drawn against CIFC's aforestated checking account. BPI used the
check to trace the perpetrators of the forgery. Immediately, private respondent notified
CIFC of the dishonored CHECK and demanded, on several occasions, that he be paid in
cash. CIFC refused the request, and instead instructed private respondent to wait for its
ongoing bank reconciliation with BPI.
ISSUE:
Whether or not there was valid tender of payment in the instant case?
RULING:
A check is not a legal tender, and therefore cannot constitute valid tender of
payment. "Since a negotiable instrument is only a substitute for money and not money,
the delivery of such an instrument does not, by itself, operate as payment. A check,
whether a manager's check or ordinary check, is not legal tender, and an offer of a check
in payment of a debt is not a valid tender of payment and may be refused receipt by the
obligee or creditor. Mere delivery of checks does not discharge the obligation under a
judgment. The obligation is not extinguished and remains suspended until the payment by
commercial document is actually realized
The delivery of promissory notes payable to order, or bills of exchange or other
mercantile documents shall produce the effect of payment only when they have been
cashed, or when through the fault of the creditor they have been impaired.

Page | 276

DE MESA V CA
G.R.No. 106467-68 October 19,1999
FACTS:
Petitioner Dolores Ligaya de Mesa owns several parcels of land in Makati, Pasay
City, Cavite, and General Santos City3 I. Two (2) parcels of land situated in Makati,
Metro Manila, with TCT no. (232345) S-60337 containing an area of 188 square meters
and TCT No. (232344) S-50336 containing an area of 236 square meters.
Two parcels of land situated in Makan, General Santos City, with TCT No. T-11067
containing an area of 837 square meters. which were mortgaged to the Development
Bank of the Philippines (DBP) as security for a loan she obtained from the bank. Failing
to pay her mortgage debt, all her mortgaged properties were foreclosed and sold at public
auction held on different days. On April 30, 1977, the Makar property was sold and the
corresponding certificate of sale inscribed on March 10, 1978. On August 25, 1977, the
Naic, Cavite property was sold and the certificate of sale registered on the same day. On
August 30, 1977, the two (2) parcels of land in Makati were sold at public auction and the
certificate of sale was inscribed on November 25, 1977. And on January 12, 1978, the
three (3) parcels of land in Pasay City were also sold and the certificate of sale was
recorded on the same date. In all the said auction sales, DBP was the winning bidder.
ISSUE:
Whether or not the Court can supplant its own reading of an ambiguous contract
for the actual intention of the contracting parties as testified to in open court and under
oath.
RULING:
Art. 1370. If the terms of a contract are clear and leave no doubt upon the
intention of the contracting parties, the literal meaning of its stipulation shall control.
When the words of a contract are plain and readily understood, there is no room
for construction. As the agreement of the parties are reduced to writing, such agreement
is considered as containing all its terms and there can be, between the parties and their
successors-in-interest, no evidence of the terms of the written agreement other than the
contents of the writing.
In the case under consideration, the terms of the "Deed of Sale with Assumption of
Mortgage Debt" are clear and leave no doubt as to what were sold thereunder.
The contract under scrutiny is so explicit and unambiguous that it does not justify
any attempt to read into it any supposed intention of the parties, as the said contract is to
be understood literally, just as they appear on its face.

Page | 277

OCCENA V CA
G.R.No. 44349 October 29, 1976
FACTS
On February 25, 1975 private respondent Tropical Homes, Inc. filed a complaint
for modification of the terms and conditions of its subdivision contract with petitioners
(landowners of a 55,330 square meter parcel of land in Davao City), making the
following allegations:
"That due to the increase in price of oil and its derivatives and the concomitant
worldwide spiralling of prices, which are not within the control of plaintiff, of all
commodities including basis raw materials required for such development work, the cost
of development has risen to levels which are unanticipated, unimagined and not within
the remotest contemplation of the parties at the time said agreement was entered into and
to such a degree that the conditions and factors which formed the original basis of said
contract, Annex 'A', have been totally changed;
"That further performance by the plaintiff under the contract, Annex 'A', will
result in situation where defendants would be unjustly enriched at the expense of the
plaintiff; will cause an inequitous distribution of proceeds from the sales of subdivided
lots in manifest contravention of the original essence of the agreement; and will actually
result in the unjust and intolerable exposure of plaintiff to implacable losses.
ISSUE
Whether or not provisions of art 1267 of the new civil code is applicable in the
case at a bar?
RULING
ART. 1267. When the service has become so difficult as to be manifestly beyond
the contemplation of the parties, the obligor may also be released therefrom, in whole or
in part."
Respondent's complaint seeks not release from the subdivision contract but that
the court "render judgment modifying the terms and conditions of the contract . . . by
fixing the proper shares that should pertain to the herein parties out of the gross proceeds
from the sales of subdivided lots of subject subdivision". The cited article does not grant
the courts this authority to remake, modify or revise the contract or to fix the division of
shares between the parties as contractually stipulated with the force of law between the
parties, so as to substitute its own terms for those covenanted by the parties themselves.
Respondent's complaints for modification of contract manifestly has no basis in law and
therefore states no cause of action. Under the particular allegations of respondent's
complaint and the circumstances therein averred, the courts cannot even in equity grant
the relief sought.

Page | 278

ORTIGAS V FEATI BANK


G.R.No. 24670 December 14, 1979
FACTS
On March 4, 1952, plaintiff, as vendor, and Augusto Padilla y Angeles and
Natividad Angeles, as vendees, entered into separate agreements of sale on installments
over two parcels of land, known as Lots Nos. 5 and 6, Block 31, of the Highway Hills
Subdivision, situated at Mandaluyong, Rizal. On July 19, 1962, the said vendees
transferred their rights and interests over the aforesaid lots in favor of one Emma Chavez.
Upon completion of payment of the purchase price, the plaintiff executed the
corresponding deeds of sale in favor of Emma Chavez.
On or about May 5, 1963, defendant-appellee began laying the foundation and
commenced the construction of a building on Lots Nos. 5 and 6, to be devoted to banking
purposes, but which defendant-appellee claims could also be devoted to, and used
exclusively for, residential purposes. The following day, plaintiff-appellant demanded in
writing that defendant-appellee stop the construction of the commercial building on the
said lots. The latter refused to comply with the demand, contending that the building was
being constructed in accordance with the zoning regulations, defendant-appellee having
filed building and planning permit applications with the Municipality of Mandaluyong,
and it had accordingly obtained building and planning permits to proceed with the
construction.
ISSUE
Whether the Resolution No. 27 s-1960 can nullify or supersede the contractual
obligations assumed by defendant-appellee.
RULING
It should be stressed, that while non-impairment of contracts is constitutionally
guaranteed, the rule is not absolute, since it has to be reconciled with the legitimate
exercise of police power.
Resolution No. 27, s-1960 declaring the western part of Highway 54, EDSA from
Shaw Boulevard to the Pasig River as an industrial and commercial zone, was obviously
passed by the Municipal Council of Mandaluyong, Rizal in the exercise of police power
to safeguard or promote the health, safety, peace, good order and general welfare of the
people in the locality. Judicial notice may be taken of the conditions prevailing in the
area, especially where Lots Nos. 5 and 6 are located. The lots themselves not only front
the highway; industrial and commercial complexes have flourished about the place.
EDSA, a main traffic artery which runs through several cities and municipalities in the
Metro Manila area, supports an endless stream of traffic and the resulting activity, noise
and pollution are hardly conducive to the health, safety or welfare of the residents in its
route. Having been expressly granted the power to adopt zoning and subdivision
ordinances or regulations, the municipality of Mandaluyong, through its Municipal
Council, was reasonably, if not perfectly, justified under the circumstances, in passing the
subject resolution.

Page | 279

MAGAT V CA
G.R.No. 124221 August 4, 2000
FACTS
Private respondent Santiago A. Guerrero (hereinafter referred to as "Guerrero")
was President and Chairman of[4] "Guerrero Transport Services", a single proprietorship.
Sometime in 1972, Guerrero Transport Services won a bid for the operation of a fleet of
taxicabs within the Subic Naval Base, in Olongapo. As highest bidder, Guerrero was to
"provide radio-controlled taxi service within the U. S. Naval Base, Subic Bay, utilizing as
demand requires... 160 operational taxis consisting of four wheel, four-door, four
passenger, radio controlled, meter controlled, sedans, not more than one year.
On September 22, 1972, with the advent of martial law, President Ferdinand E. Marcos
issued Letter of Instruction No. 1. SEIZURE AND CONTROL OF ALL PRIVATELY
OWNED NEWSPAPERS, MAGAZINES, RADIO AND TELEVISION FACILITIES
AND ALL OTHERMEDIA OF COMMUNICATION.
ISSUE
Whether the contract between Victorino and Guerrero for the purchase of radio
transceivers was void.
RULING
The contract was not void ab initio. Nowhere in the LOI and Admin. Circular is
there an express ban on the importation of transceivers.
The LOI and Administrative Circular did not render "radios and transceivers"
illegal per se. The Administrative Circular merely ordered the Radio Control Office to
suspend the "acceptance and processing .... of applications... for permits to possess, own,
transfer, purchase and sell radio transmitters and transceivers..."[41] Therefore,
possession and importation of the radio transmitters and transceivers was legal provided
one had the necessary license for it.[42] Transceivers were not prohibited but merely
regulated goods. The LOI and Administrative Circular did not render the transceivers
outside the commerce of man. They were valid objects of the contract.

Page | 280

PNCC V CA
G.R.No. 118696 May 5, 1997
FACTS
On 7 January 1986, petitioner obtained from the Ministry of Human Settlements a
Temporary Use Permit 2 for the proposed rock crushing project. The permit was to be
valid for two years unless sooner revoked by the Ministry. On 16 January 1986, private
respondents wrote petitioner requesting payment of the first annual rental in the amount
of P240,000 which was due and payable upon the execution of the contract.
They also assured the latter that they had already stopped considering the
proposals of other aggregates plants to lease the property because of the existing contract
with petitioner. In its reply-letter, petitioner argued that under paragraph 1 of the lease
contract, payment of rental would commence on the date of the issuance of an industrial
clearance by the Ministry of Human Settlements, and not from the date of signing of the
contract. It then expressed its intention to terminate the contract, as it had decided to
cancel or discontinue with the rock crushing project "due to financial, as well as
technical, difficulties." Private respondents refused to accede to petitioner's request for
the pretermination of the lease contract. They insisted on the performance of petitioner's
obligation and reiterated their demand for the payment of the first annual rental.
ISSUE
Whether provisions of Article 1266 and the principle of rebus sic stantibus is
applicable in the case at bar?
RULING
Article 1266 of the Civil Code, which reads: "The debtor in obligations to do shall
also be released when the prestation becomes legally or physically impossible without the
fault of the obligor." Petitioner cannot, however, successfully take refuge in the said
article, since it is applicable only to obligations "to do," and not to obligations "to give."
An obligation "to do" includes all kinds of work or service; while an obligation "to give"
is a prestation which consists in the delivery of a movable or an immovable thing in order
to create a real right, or for the use of the recipient, or for its simple possession, or in
order to return it to its owner.
The obligation to pay rentals or deliver the thing in a contract oflease falls within
the prestation "to give"; hence, it is not covered within the scope of Article 1266. At any
rate, the unforeseen event and causes mentioned by petitioner are not the legal or physical
impossibilities contemplated in the said article. Besides, petitioner failed to state
specifically the circumstances brought about by "the abrupt change in the political
climate in the country" except the alleged prevailing uncertainties in government policies
on infrastructure projects. The principle of rebus sic stantibus neither fits in with the facts
of the case. Under this theory, the parties stipulate in the light of certain prevailing
conditions, and once these conditions cease to exist, the contract also ceases to exist.

Page | 281

NATELCO V CA
G.R.No. 107112 February 24, 1994
FACTS
Petitioner Naga Telephone Co., Inc. (NATELCO) is a telephone company
rendering local as well as long distance service in Naga City while private respondent
Camarines Sur II Electric Cooperative, Inc. (CASURECO II) is a private corporation
established for the purpose of operating an electric power service in the same city. On
November 1, 1977, the parties entered into a contract (Exh. "A") for the use by
petitioners in the operation of its telephone service the electric light posts of private
respondent in Naga City. In consideration therefor, petitioners agreed to install, free of
charge, ten (10) telephone connections for the use by private respondent
After the contract had been enforced for over ten (10) years, private respondent
filed on January 2, 1989 with the Regional Trial Court of Naga City (Br. 28) C.C. No. 891642 against petitioners for reformation of the contract with damages, on the ground that
it is too one-sided in favor of petitioners; that it is not in conformity with the guidelines
of the National Electrification Administration (NEA) which direct that the reasonable
compensation for the use of the posts is P10.00 per post, per month; that after eleven (11)
years of petitioners' use of the posts, the telephone cables strung by them thereon have
become much heavier with the increase in the volume of their subscribers, worsened by
the fact that their linemen bore holes through the posts at which points those posts were
broken during typhoons.
ISUUE
Whether respondent court erred in making a contract for the parties by invoking
Article 1267 of the New Civil Code.
RULING
Article 1267 speaks of "service" which has become so difficult. Taking into
consideration the rationale behind this provision, 9 the term "service" should be
understood as referring to the "performance" of the obligation. In the present case, the
obligation of private respondent consists in allowing petitioners to use its posts in Naga
City, which is the service contemplated in said article. Furthermore, a bare reading of this
article reveals that it is not a requirement thereunder that the contract be for future service
with future unusual change. According to Senator Arturo M. Tolentino, 10 Article 1267
states in our law the doctrine of unforseen events. This is said to be based on the
discredited theory of rebus sic stantibus in public international law; under this theory, the
parties stipulate in the light of certain prevailing conditions, and once these conditions
cease to exist the contract also ceases to exist. Considering practical needs and the
demands of equity and good faith, the disappearance of the basis of a contract gives rise
to a right to relief in favor of the party prejudiced.

Page | 282

TRANS PACIFIC V CA
G.R.No. 109172 August 19, 1994
FACTS
Sometime in 1979, petitioner applied for and was granted several financial
accommodations amounting to P1,300,000.00 by respondent Associated Bank. The loans
were evidence and secured by four (4) promissory notes, a real estate mortgage covering
three parcels of land and a chattel mortgage over petitioner's stock and inventories.
Unable to settle its obligation in full, petitioner requested for, and was granted by
respondent bank, a restructuring of the remaining indebtedness which then amounted to
P1,057,500.00, as all the previous payments made were applied to penalties and interests.
The mortgaged parcels of land were substituted by another mortgage covering
two other parcels of land and a chattel mortgage on petitioner's stock inventory. The
released parcels of land were then sold and the proceeds amounting to P1,386,614.20,
according to petitioner, were turned over to the bank and applied to Trans-Pacific's
restructured loan. Subsequently, respondent bank returned the duplicate original copies of
the three promissory notes to Trans-Pacific with the word "PAID" stamped thereon.
Despite the return of the notes, or on December 12, 1985, Associated Bank demanded
from Trans-Pacific payment of the amount of P492,100.00 representing accrued interest
on PN No. TL-9077-82. According to the bank, the promissory notes were erroneously
released.
ISSUE
Whether or not petitioner has indeed paid in full its obligation to respondent bank.
RULING
Art. 1271.
The delivery of a private document evidencing a credit, made
voluntarily by the creditor to the debtor, implies the renunciation of the action which the
former had against the latter."
The surrender and return to plaintiffs of the promissory notes evidencing the
consolidated obligation as restructured, produces a legal presumption that Associated had
thereby renounced its actionable claim against plaintiffs (Art. 1271, NCC). The
presumption is fortified by a showing that said promissory notes all bear the stamp
"PAID", and has not been otherwise overcome. Upon a clear perception that Associated's
record keeping has been less than exemplary . . . , a proffer of bank copies of the
promissory notes without the "PAID" stamps thereon does not impress the Court as
sufficient to overcome presumed remission of the obligation vis-a-vis the return of said
promissory notes. Indeed, applicable law is supportive of a finding that in interest bearing
obligations-as is the case here, payment of principal (sic) shall not be deemed to have
been made until the interests have been covered (Art. 1253, NCC). Conversely,
competent showing that the principal has been paid, militates against postured entitlement
to unpaid interests.

Page | 283

DALUPAN V HARDEN
G.R.No. L-3975 November 27, 1951
FACTS
On August 26, 1948, plaintiff filed an action against the defendant for the
collection of P113,837.17, with interest thereon from the filing of the complaint, which
represents 50 per cent of the reduction plaintiff was able to secure from the Collector of
Internal Revenue in the amount of unpaid taxes claimed to be due from the defendant.
Defendant acknowledged this claim and prayed that judgment be rendered accordingly.
In the meantime, the receiver in the liquidation case No. R-59634 and the wife of the
defendant, Esperanza P. de Harden, filed an answer in intervention claiming that the
amount sought by the plaintiff was exorbitant and prayed that it be reduced to 10 per cent
of the rebate. By reason of the acquiescence of the defendant to the claim on one hand,
and the opposition of the receiver and of the wife on the other, an amicable settlement
was concluded by the plaintiff and the intervenor whereby it was agreed that the sum of
P22,767.43 be paid to the plaintiff from the funds under the control of the receiver "and
the balance of P91,069.74 shall be charged exclusively against the defendant Fred M.
Harden from whatever share he may still have in the conjugal partnership between him
and Esperanza P. de Harden.
ISSUE
Whether or not the writ of execution asked for by the plaintiff on the two checks
is premature.
RULING
Examining the terms the court finds that the stipulation limits the right of the
plaintiff to ask for the execution of the judgment to whatever share Fred M. Harden may
still have in the conjugal partnership between him and his wife after the final liquidation
and partition thereof. The execution of the judgment is premised upon a condition
precedent, which is the final liquidation and partition of the conjugal partnership. Note
that the condition does not refer to the liquidation of a particular property of the
partnership. It refers to the over-all and final liquidation of the partnership. Such being
the stipulation of the parties which was sanctioned and embodied by the Court in its
decision, it is clear that the writ of execution asked for by the plaintiff on the two checks
is premature.

Page | 284

LOPEZ V TAMBUNTING
G.R.No. 9806 January 19, 1916
FACTS
These proceedings were brought to recover from the defendant the sum of P2,000,
amount of the fees, which, according to the complaint, are owing for professional medical
services rendered by the plaintiff to a daughter of the defendant from March 10 to July
15, 1913, which fees the defendant refused to pay, notwithstanding the demands therefor
made upon him by the plaintiff.
The defendant denied the allegations of the complaint, and furthermore alleged
that the obligation which the plaintiff endeavored to compel him to fulfill was already
extinguished.
ISSUE
Whether or not implied condonation can be legally pressumed in the instant case?
RULING
It is true that number 8 of section 334 of the Code of Civil Procedure provides as
a legal presumption "that an obligation delivered up to the debtor has been paid." Article
1188 of the Civil Code also provides that the voluntary surrender by a creditor to his
debtor, of a private instrument proving a credit, implies the renunciation of the right of
action against the debtor; and article 1189 prescribes that whenever the private instrument
which evidences the debt is in the possession of the debtor, it will be presumed that the
creditor delivered it of his own free will, unless the contrary is proven.
But the legal presumption established by the foregoing provisions of law cannot
stand if sufficient proof is adduced against it. In the case at bar the trial court correctly
held that there was sufficient evidence to the contrary, in view of the preponderance
thereof in favor of the plaintiff and of the circumstances connected with the defendant's
possession of said receipt Exhibit 1. Furthermore, in order that such a presumption may
be taken into account, it is necessary, as stated in the laws cited, that the evidence of the
obligation be delivered up to the debtor and that the delivery of the instrument proving
the credit be made voluntarily by the creditor to the debtor. In the present case, it cannot
be said that these circumstances concurred, inasmuch as when the plaintiff sent the
receipt to the defendant for the purpose of collecting his fee, it was not his intention that
that document should remain in the possession of the defendant if the latter did not
forthwith pay the amount specified therein.

Page | 285

ESTATE OF MOTA V SERRA


G.R.No. 22825 February 14, 1925
FACTS
On February 1, 1919, plaintiffs and defendant entered into a contract of
partnership, marked Exhibit A, for the construction and exploitation of a railroad line
from the "San Isidro" and "Palma" centrals to the place known as "Nandong". The
original capital stipulated was P150,000. It was covenanted that the parties should pay
this amount in equal parts and the plaintiffs were entrusted with the administration of the
partnership.
January 29, 1920, the defendant entered into a contract of sale with Venancio
Concepcion, Phil. C. Whitaker, and Eusebio R. de Luzuriaga, whereby he sold to the
latter the estate and central known as "Palma" with its running business, as well as all the
improvements, machineries and buildings, real and personal properties, rights, choses in
action and interests, including the sugar plantation of the harvest year of 1920 to 1921,
covering all the property of the vendor. Before the delivery to the purchasers of the
hacienda thus sold, Eusebio R. de Luzuriaga renounced all his rights under the contract of
January 29, 1920, in favor of Messrs. Venancio Concepcion and Phil. C. Whitaker.
Afterwards, on January 8, 1921, Venancio Concepcion and Phil. C. Whitaker bought
from the plaintiffs the one half of the railroad line pertaining to the latter executing
therefor the document Exhibit 5. The price of this sale was P237,722.15, excluding any
amount which the defendant might be owing to the plaintiffs.
ISSUE
Whether or not there was confusion of the rights of the creditor and debtor
RULING
The purchasers, Phil. C. Whitaker and Venancio Concepcion, to secure the
payment of the price, executed a mortgage in favor of the plaintiffs on the same rights
and titles that they had bought and also upon what they had purchased from Mr. Salvador
Serra. In other words, Phil C. Whitaker and Venancio Concepcion mortgaged unto the
plaintiffs what they had bought from the plaintiffs and also what they had bought from
Salvador Serra. If Messrs. Phil. C. Whitaker and Venancio Concepcion had purchased
something from Mr. Salvador Serra, the herein defendant, regarding the railroad line, it
was undoubtedly the one-half thereof pertaining to Mr. Salvador Serra. This clearly
shows that the rights and titles transferred by the plaintiffs to Phil. C. Whitatker and
Venancio Concepcion were only those they had over the other half of the railroad line.
Therefore, as already stated, since there was no novation of the contract between the
plaintiffs and the defendant, as regards the obligation of the latter to pay the former onehalf of the cost of the construction of the said railroad line, and since the plaintiffs did not
include in the sale, evidenced by Exhibit 5, the credit that they had against the defendant,
the allegation that the obligation of the defendant became extinguished by the merger of
the rights of creditor and debtor by the purchase of Messrs. Phil. C. Whitaker and
Venancio Concepcion is wholly untenable.

Page | 286

YEK TON LIN V YUSINGCO


G.R.No. 43608 July 20, 1937
FACTS
Defendant Pelagio Yusingco was the owner of the steamship Yusingco and, as
such, he executed, on November 19, 1927, a power of attorney in favor of Yu Seguioc to
administer, lease, mortgage and sell his properties, including his vessels or steamship. Yu
Seguioc mortgaged to the plaintiff Yek Tong Lin Fire & Marine Insurance Co., Ltd.,
with the approval of the Bureau of Customs, the steamship Yusingco belonging to the
defendant. One year and some months later, the steamship Yusingco needed some repairs
which were made by the Earnshaw Docks & Honolulu Iron Works. The repairs were
made upon the guaranty of the defendant and appellant Vicente Madrigal at a cost of
P8,244.66. When neither A. Yusingco Hermanos nor Pelagio Yusingco could pay said
sum to the Earnshaw Docks & Honolulu Iron Works, the defendant and appellant Vicente
Madrigal had to make payment thereof with the stipulated interest thereon, which was at
the rate of 9 per cent per annum, on March 9, 1932, because he was bound thereto by
reason of the bond filed by him, the payment then made by him having amounted to
P8,777.60. When said defendant discovered that he was not to be reimbursed for the
repairs made on the steamship Yusingco, he brought an action against his codefendant
Pelagio Yusingco and A. Yusingco Hermanos to compel them to reimburse, thereby
giving rise to civil case No. 41654 of the Court of First Instance of Manila, entitled
"Vicente Madrigal, plaintiff, vs. Pelagio Yusingco and A. Yusingco Hermanos,
defendants" which resulted in a judgment favorable to him and adverse to the Yusingcos.
ISSUE
Whether or not obligations were extinguished by reason of the merger of the
rights of the debt or and creditor?
RULING
After the steamship Yusingco had been sold by virtue of the judicial writ issued in
civil case No. 41654 for the execution of the judgment rendered in favor of Vicente
Madrigal, the only right left to the plaintiff was to collect its mortgage credit from the
purchaser thereof at public auction, inasmuch as the rule is that a mortgage directly and
immediately subjects the property on which it is imposed, whoever its possessor may be,
to the fulfillment of the obligation for the security of which it was created (article 1876,
Civil code); but it so happens that it can not take such steps now because it was the
purchaser of the steamship Yusingco at public auction, and it was so with full knowledge
that it had a mortgage credit on said vessel. Obligations are extinguished by the merger of
the rights of the creditor and debtor (articles 1156 and 1192, Civil Code).

Page | 287

E.G.V. REALTY V CA
G.R.No. 120236 July 20, 1999
FACTS
Petitioner E.G.V. Realty Development Corporation is the owner/developer of a
seven-storey condominium building known as Cristina Condominium. Cristina
Condominium Corporation holds title to all common areas of Cristina Condominium and
is in charge of managing, maintaining and administering the condominiums common
areas and providing for the buildings security. Respondent Unisphere International, Inc.
(hereinafter referred to as Unisphere) is the owner/occupant of Unit 301 of said
condominium. On November 28, 1981, respondent Unispheres Unit 301 was allegedly
robbed of various items valued at P6,165.00. The incident was reported to petitioner
CCC. On July 25, 1982, another robbery allegedly occurred at Unit 301 where the items
carted away were valued at P6,130.00, bringing the total value of items lost to
P12,295.00. This incident was likewise reported to petitioner CCC. On October 5, 1982,
respondent Unisphere demanded compensation and reimbursement from petitioner CCC
for the losses incurred as a result of the robbery. On January 28, 1987, petitioners E.G.V.
Realty and CCC jointly filed a petition with the Securities and Exchange Commission
(SEC) for the collection of the unpaid monthly dues in the amount of P13,142.67 against
respondent Unisphere.
ISSUE
Whether or not set-off or compensation has taken place in the instant case.
RULING
Compensation or offset under the New Civil Code takes place only when two
persons or entities in their own rights, are creditors and debtors of each other. (Art. 1278).
A distinction must be made between a debt and a mere claim. A debt is an amount
actually ascertained. It is a claim which has been formally passed upon by the courts or
quasi-judicial bodies to which it can in law be submitted and has been declared to be a
debt. A claim, on the other hand, is a debt in embryo. It is mere evidence of a debt and
must pass thru the process prescribed by law before it develops into what is properly
called a debt. Absent, however, any such categorical admission by an obligor or final
adjudication, no compensation or off-set can take place. Unless admitted by a debtor
himself, the conclusion that he is in truth indebted to another cannot be definitely and
finally pronounced, no matter how convinced he may be from the examination of the
pertinent records of the validity of that conclusion the indebtedness must be one that is
admitted by the alleged debtor or pronounced by final judgment of a competent court or
in this case by the Commission.
There can be no doubt that Unisphere is indebted to the Corporation for its unpaid
monthly dues in the amount of P13,142.67. This is admitted.

Page | 288

AEROSPACE CHEMICAL V CA
g.r.no. 108129 september 23, 1999
FACTS
On June 27, 1986, petitioner Aerospace Industries, Inc. (Aerospace) purchased
five hundred (500) metric tons of sulfuric acid from private respondent Philippine
Phosphate Fertilizer Corporation (Philphos). Initially set beginning July 1986, the
agreement provided that the buyer shall pay its purchases in equivalent Philippine
currency value, five days prior to the shipment date. Petitioner as buyer committed to
secure the means of transport to pick-up the purchases from private respondent's
loadports. Per agreement, one hundred metric tons (100 MT) of sulfuric acid should be
taken from Basay, Negros Oriental storage tank, while the remaining four hundred metric
tons (400 MT) should be retrieved from Sangi, Cebu. On December 18, 1986, M/T Sultan
Kayumanggi docked at Sangi, Cebu, but withdrew only 157.51 MT of sulfuric acid.
Again, the vessel tilted. Further loading was aborted. Two survey reports conducted by
the Societe Generale de Surveillance (SGS) Far East Limited, dated December 17, 1986
and January 2, 1987, attested to these occurrences. Later, on a date not specified in the
record, M/T Sultan Kayumanggi sank with a total of 227.51 MT of sulfuric acid on
board. Petitioner chartered another vessel, M/T Don Victor, with a capacity of
approximately 500 MT.6 [TSN, September 1, 1989, pp. 28-29.] On January 26 and
March 20, 1987, Melecio Hernandez, acting for the petitioner, addressed letters to private
respondent, concerning additional orders of sulfuric acid to replace its sunken purchases.
ISSUE
Should expenses for the storage and preservation of the purchased fungible goods,
namely sulfuric acid, be on seller's account pursuant to Article 1504 of the Civil Code?
RULING
Petitioner tries to exempt itself from paying rental expenses and other damages by
arguing that expenses for the preservation of fungible goods must be assumed by the
seller. Rental expenses of storing sulfuric acid should be at private respondent's account
until ownership is transferred, according to petitioner. However, the general rule that
before delivery, the risk of loss is borne by the seller who is still the owner, is not
applicable in this case because petitioner had incurred delay in the performance of its
obligation. Article 1504 of the Civil Code clearly states: "Unless otherwise agreed, the
goods remain at the seller's risk until the ownership therein is transferred to the buyer, but
when the ownership therein is transferred to the buyer the goods are at the buyer's risk
whether actual delivery has been made or not, except that: (2) Where actual delivery has
been delayed through the fault of either the buyer or seller the goods are at the risk of the
party at fault."
On this score, we quote with approval the findings of the appellate court, thus:
The defendant [herein private respondent] was not remiss in reminding the plaintiff that it
would have to bear the said expenses for failure to lift the commodity for an unreasonable
length of time.But even assuming that the plaintiff did not consent to be so bound, the
provisions of Civil Code come in to make it liable for the damages sought by the
defendant.

Page | 289

APODACA V NLRC
G.R.No. 80039 April1 8, 1989
FACTS
Petitioner was employed in respondent corporation. On August 28, 1985,
respondent Jose M. Mirasol persuaded petitioner to subscribe to P1,500 shares of
respondent corporation it P100.00 per share or a total of P150,000.00. He made an initial
payment of P37,500.00. On September 1, 1975, petitioner was appointed President and
General Manager of the respondent corporation. However, on January 2, 1986, he
resigned.
On December 19, 1986, petitioner instituted with the NLRC a complaint against private
respondents for the payment of his unpaid wages, his cost of living allowance, the
balance of his gasoline and representation expenses and his bonus compensation for
1986. Petitioner and private respondents submitted their position papers to the labor
arbiter. Private respondents admitted that there is due to petitioner the amount of
P17,060.07 but this was applied to the unpaid balance of his subscript in the amount of
P95,439.93. Petitioner questioned the set-off alleging that there was no call or notice for
the payment of unpaid subscription and that, accordingly, the alleged obligation is not
enforceable.
ISSUE
Does the National Labor Relations Commission (NLRC) have jurisdiction to
resolve a claim for non-payment of stock subscriptions to a corporation? Assuming that it
has, can an obligation arising therefrom be offset against a money claim of an employee
against the employer?
RULING
Firstly, the NLRC has no jurisdiction to determine such intra-corporate dispute
between the stockholder and the corporation as in the matter of unpaid subscriptions. This
controversy is within the exclusive jurisdiction of the Securities and Exchange
Commission.
Secondly, assuming arguendo that the NLRC may exercise jurisdiction over the
said subject matter under the circumstances of this case, the unpaid subscriptions are not
due and payable until a call is made by the corporation for payment. Private respondents
have not presented a resolution of the board of directors of respondent corporation calling
for the payment of the unpaid subscriptions. It does not even appear that a notice of such
call has been sent to petitioner by the respondent corporation.

Page | 290

PNB MANAGEMENT V R&R METAL


G.R.No. 132245 January 1, 2002
FACTS
It appears that on November 19, 1993, respondent R&R Metal Casting and
Fabricating, Inc. (R&R) obtained a judgment in its favor against Pantranco North
Express, Inc. (PNEI). PNEI was ordered to pay respondent P213,050 plus interest as
actual damages, P50,000 as exemplary damages, 25 percent of the total amount payable
as attorneys fees, and the costs of suit. However, the writ of execution was returned
unsatisfied since the sheriff did not find any property of PNEI recorded at the Registries
of Deeds of the different cities of Metro Manila. Neither did the sheriff receive a reply to
the notice of garnishment he sent to PNB-Escolta.On March 27, 1995, respondent filed
with the trial court a motion for the issuance of subpoenae duces tecum and ad
testificandum requiring petitioner PNB Management and Development Corp. (PNB
MADECOR) to produce and testify on certain documents pertaining to transactions
between petitioner and PNEI from 1981 to 1995.
ISSUE
Whether or not legal compensation have occured in the instant case?
RULING
Legal compensation could not have occurred because of the absence of one
requisite in this case: that both debts must be due and demandable.
Petitioners obligation to PNEI appears to be payable on demand, following the above
observation made by the CA and the assertion made by petitioner. Petitioner is obligated
to pay the amount stated in the promissory note upon receipt of a notice to pay from
PNEI. If petitioner fails to pay after such notice, the obligation will earn an interest of
18 percent per annum.
Since petitioners obligation to PNEI is payable on demand, and there being no
demand made, it follows that the obligation is not yet due. Therefore, this obligation may
not be subject to compensation for lack of a requisite under the law. Without
compensation having taken place, petitioner remains obligated to PNEI to the extent
stated in the promissory note. This obligation may undoubtedly be garnished in favor of
respondent to satisfy PNEIs judgment debt.

Page | 291

SILAHIS V IAC
G.R.No. 74027 December 7, 1989
FACTS
Petitioner Silahis Marketing Corporation seeks in this petition for review on
certiorari a reversal of the decision of the then Intermediate Appellate Court (IAC) in
AC-G.R. CV No. 67162 entitled "De Leon, etc. v. Silahis Marketing Corporation",
disallowing petitioner's counterclaim for commission to partially offset the claim against
it of private respondent Gregorio de Leon for the purchase price of certain merchandise.
A review of the record shows that on various dates in October, November and December,
1975, Gregorio de Leon doing business under the name and style of Mark Industrial Sales
sold and delivered to Silahis Marketing Corporation various items of merchandise
covered by several invoices in the aggregate amount of P22,213.75 payable within thirty
(30) days from date of the covering invoices.Allegedly due to Silahis' failure to pay its
account upon maturity despite repeated demands, de Leon filed before the then Court of
First Instance of Manila a complaint for the collection of the said accounts including
accrued interest thereon in the amount of P661.03 and attorney's fees of P5,000.00 plus
costs of litigation.
ISSUE
Whether or not private respondent is liable to the petitioner for the commission or
margin for the direct sale which the former concluded and consummated with Dole
Philippines, Incorporated without coursing the same through herein petitioner.
RULING
It must be remembered that 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 setoff against the other is not clear nor liquidated; compensation cannot extend to
unliquidated, disputed claim existing from breach of contract. Undoubtedly, petitioner
admits the validity of its outstanding accounts with private respondent in the amount of
P22,213.75 as contained in its answer. But whether private respondent is liable to pay the
petitioner a 20% margin or commission on the subject sale to Dole Philippines, Inc. is
vigorously disputed. This circumstance prevents legal compensation from taking place.

Page | 292

FRANCIA V CA
G.R.No. 67649 June 28, 1998
FACTS
Engracio Francia is the registered owner of a residential lot and a two-story house
built upon it situated at Barrio San Isidro, now District of Sta. Clara, Pasay City, Metro
Manila. On October 15, 1977, a 125 square meter portion of Francia's property was
expropriated by the Republic of the Philippines for the sum of P4,116.00 representing the
estimated amount equivalent to the assessed value of the aforesaid portion.Since 1963 up
to 1977 inclusive, Francia failed to pay his real estate taxes. Thus, on December 5, 1977,
his property was sold at public auction by the City Treasurer of Pasay City pursuant to
Section 73 of Presidential Decree No. 464 known as the Real Property Tax Code in order
to satisfy a tax delinquency of P2,400.00. Ho Fernandez was the highest bidder for the
property. Francia was not present during the auction sale since he was in Iligan City at
that time helping his uncle ship bananas. On March 3, 1979, Francia received a notice of
hearing of LRC Case No. 1593-P "In re: Petition for Entry of New Certificate of Title"
filed by Ho Fernandez, seeking the cancellation of TCT No. 4739 (37795) and the
issuance in his name of a new certificate of title. On March 20, 1979, Francia filed a
complaint to annul the auction sale. He later amended his complaint on January 24, 1980.
ISSUE
Whether or not francias tax delinquency of P2,400.00 has been extinguished by
legal compensation.
RULING
There is no legal basis for the contention. By legal compensation, obligations of
persons, who in their own right are reciprocally debtors and creditors of each other, are
extinguished (Art. 1278, Civil Code). The circumstances of the case do not satisfy the
requirements provided by Article 1279, to wit:
"(1) that each one of the obligors be bound principally and that he be at the same time a
principal creditor of the other;
We have consistently ruled that there can be no off-setting of taxes against the claims that
the taxpayer may have against the government. A person cannot refuse to pay a tax on the
ground that the government owes him an amount equal to or greater than the tax being
collected. The collection of a tax cannot await the results of a lawsuit against the
government.
A claim for taxes is not such a debt, demand, contract or judgment as is allowed
to be set-off under the statutes of set-off, which are construed uniformly, in the light of
public policy, to exclude the remedy in an action or any indebtedness of the state or
municipality to one who is liable to the state or municipality for taxes. Neither are they a
proper subject of recoupment since they do not arise out of the contract or transaction
sued on. "The general rule based on grounds of public policy is well-settled that no setoff admissible against demands for taxes levied for general or local governmental
purposes. The reason on which the general rule is based, is that taxes are not in the nature
of contracts between the party and party but grow out of duty to, and are the positive acts
of the government to the making and enforcing of which, the personal consent of
individual taxpayers is not required

Page | 293

TRINIDAD V ACAPULCO
G.R.No. 147477 June 27, 2006
FACTS
On May 6, 1991, respondent Estrella Acapulco filed a Complaint before the RTC
seeking the nullification of a sale she made in favor of petitioner Hermenegildo M.
Trinidad. She alleged: Sometime in February 1991, a certain Primitivo Caete requested
her to sell a Mercedes Benz for P580,000.00. Caete also said that if respondent herself
will buy the car, Caete was willing to sell it for P500,000.00. Petitioner borrowed the
car from respondent for two days but instead of returning the car as promised, petitioner
told respondent to buy the car from Caete for P500,000.00 and that petitioner would pay
respondent after petitioner returns from Davao. Following petitioners instructions,
respondent requested Caete to execute a deed of sale covering the car in respondents
favor for P500,000.00 for which respondent issued three checks in favor of Caete.
Respondent thereafter executed a deed of sale in favor of petitioner even though
petitioner did not pay her any consideration for the sale. When petitioner returned from
Davao, he refused to pay respondent the amount of P500,000.00 saying that said amount
would just be deducted from whatever outstanding obligation respondent had with
petitioner. Due to petitioners failure to pay respondent, the checks that respondent
issued in favor of Caete bounced, thus criminal charges were filed against her.[3]
Respondent then prayed that the deed of sale between her and petitioner be declared null
and void; that the car be returned to her; and that petitioner be ordered to pay damages.
ISSUE
Whether or not petitioners claim for legal compensation was already too late
RULING
The court ruled in favor of the petitioner. Compensation takes effect by operation
of law even without the consent or knowledge of the parties concerned when all the
requisites mentioned in Article 1279 of the Civil Code are present.[26] This is in
consonance with Article 1290 of the Civil Code which provides that: Article 1290. When
all the requisites mentioned in article 1279 are present, compensation takes effect by
operation of law, and extinguishes both debts to the concurrent amount, even though the
creditors and debtors are not aware of the compensation. Since it takes place ipso
jure,[27] when used as a defense, it retroacts to the date when all its requisites are
fulfilled.
Petitioners stance is that legal compensation has taken place and operates even
against the will of the parties because: (a) respondent and petitioner were personally both
creditor and debtor of each other; (b) the monetary obligation of respondent was
P566,000.00 and that of the petitioner was P500,000.00 showing that both indebtedness
were monetary obligations the amount of which were also both known and liquidated; (c)
both monetary obligations had become due and demandablepetitioners obligation as
shown in the deed of sale and respondents indebtedness as shown in the dishonored
checks; and (d) neither of the debts or obligations are subject of a controversy
commenced by a third person.

Page | 294

AQUINTEY V. TIBONG
G.R. No. 166704 December 20, 2006
FACTS
On May 6, 1999, petitioner Agrifina Aquintey filed before the RTC of Baguio
City, a complaint for sum of money and damages against the respondents, spouses
Felicidad and Rico Tibong. Agrifina alleged that Felicidad had secured loans from her on
several occasions, at monthly interest rates of 6% to 7%. Despite demands, the spouses
Tibong failed to pay their outstanding loan, amounting to P773,000.00 exclusive of
interests.
In their Answer with Counterclaim, spouses Tibong admitted that they had
secured loans from Agrifina. The proceeds of the loan were then re-lent to other
borrowers at higher interest rates. They, likewise, alleged that they had executed deeds of
assignment in favor of Agrifina, and that their debtors had executed promissory notes in
Agrifinas favor. According to the spouses Tibong, this resulted in a novation of the
original obligation to Agrifina. They insisted that by virtue of these documents, Agrifina
became the new collector of their debtors; and the obligation to pay the balance of their
loans had been extinguished.
ISSUE
Whether or not there is valid novation in the instant case?
RULING
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 of the person of the debtor may be
effected by delegacion, meaning, the debtor offers, and the creditor, accepts a third
person who consents to the substitution and assumes the obligation. Thus, the consent of
those three persons is necessary. In this kind of novation, it is not enough to extend the
juridical relation to a third person; it is necessary that the old debtor be released from the
obligation, and the third person or new debtor take his place in the relation. Without such
release, there is no novation; the third person who has assumed the obligation of the
debtor merely becomes a co-debtor or a surety. If there is no agreement as to solidarity,
the first and the new debtor are considered obligated jointly.
In the case at bar, the court found that respondents obligation to pay the balance
of their account with petitioner was extinguished, pro tanto, by the deeds of assignment
of credit executed by respondent Felicidad in favor of petitioner. As gleaned from the
deeds executed by respondent Felicidad relative to the accounts of her other debtors,
petitioner was authorized to collect the amounts of P6,000.00 from Cabang, and
P63,600.00 from Cirilo. They obliged themselves to pay petitioner. Respondent
Felicidad, likewise,unequivocably declared that Cabang and Cirilo no longer had any
obligation to her.

Page | 295

SWAGMAN V CA
G.R.No. 161135 April 8, 2005
FACTS
Sometime in 1996 and 1997, petitioner Swagman Hotels and Travel, Inc., through Atty.
Leonor L. Infante and Rodney David Hegerty, its president and vice-president,
respectively, obtained from private respondent Neal B. Christian loans evidenced by
three promissory notes dated 7 August 1996, 14 March 1997, and 14 July 1997. Each of
the promissory notes is in the amount of US$50,000 payable after three years from its
date with an interest of 15% per annum payable every three months. In a letter dated 16
December 1998, Christian informed the petitioner corporation that he was terminating the
loans and demanded from the latter payment in the total amount of US$150,000 plus
unpaid interests in the total amount of US$13,500. On 2 February 1999, private
respondent Christian filed with the Regional Trial Court of Baguio City, Branch 59, a
complaint for a sum of money and damages against the petitioner corporation, Hegerty,
and Atty. Infante. The petitioner corporation, together with its president and vicepresident, filed an Answer raising as defenses lack of cause of action and novation of the
principal obligations. According to them, Christian had no cause of action because the
three promissory notes were not yet due and demandable.
ISSUE
Where there is a valid novation, may the original terms of contract which has been
novated still prevail?
HELD
The receipts, as well as private respondents summary of payments, lend credence to
petitioners claim that the payments were for the principal loans and that the interests on
the three consolidated loans were waived by the private respondent during the undisputed
renegotiation of the loans on account of the business reverses suffered by the petitioner at
the time.
There was therefore a novation of the terms of the three promissory notes in that the
interest was waived and the principal was payable in monthly installments of US$750.
Alterations of the terms and conditions of the obligation would generally result only in
modificatory novation unless such terms and conditions are considered to be the essence
of the obligation itself.[25] The resulting novation in this case was, therefore, of the
modificatory type, not the extinctive type, since the obligation to pay a sum of money
remains in force.
Thus, since the petitioner did not renege on its obligation to pay the monthly installments
conformably with their new agreement and even continued paying during the pendency
of the case, the private respondent had no cause of action to file the complaint. It is only
upon petitioners default in the payment of the monthly amortizations that a cause of
action would arise and give the private respondent a right to maintain an action against
the petitioner.

Page | 296

AZOLLA FARMS V CA
G.R.No. 138085 November 11, 2004
FACTS
Petitioner Francis R. Yuseco, Jr., is the Chairman, President and Chief Operating
Officer of petitioner Azolla Farms International Philippines. In 1982, Azolla Farms
undertook to participate in the National Azolla Production Program wherein it will
purchase all the Azolla produced by the Azolla beneficiaries in the amount not exceeding
the peso value of all the inputs provided to them. The project also involves the then
Ministry of Agriculture, the Kilusang Kabuhayan at Kaunlaran, and the Kiwanis. To
finance its participation, petitioners applied for a loan with Credit Manila, Inc., which the
latter endorsed to its sister company, respondent Savings Bank of Manila (Savings Bank).
The Board of Directors of Azolla Farms, meanwhile, passed a board resolution on August
31, 1982, authorizing Yuseco to borrow from Savings Bank in an amount not exceeding
P2,200,000.00.
The loan having been approved, Yuseco executed a promissory note on
September 13, 1982, promising to pay Savings Bank the sum of P1,400,000.00 on or
before September 13, 1983. the Azolla Farms project collapsed. Blaming Savings Bank,
petitioners Yuseco and Azolla Farms filed on October 3, 1983 with the Regional Trial
Court of Manila (Branch 25), a complaint for damages. In essence, their complaint
alleges that Savings Bank unjustifiably refused to promptly release the remaining
P300,000.00 which impaired the timetable of the project and inevitably affected the
viability of the project resulting in its collapse, and resulted in their failure to pay off the
loan. Thus, petitioners pray for P1,000,000.00 as actual damages, among others.
ISSUE
Whether the trial court erred in admitting petitioners amended complaint
RULING
SEC. 5. Amendment to conform to or authorize presentation of evidence .When
issues not raised by the pleadings are tried by express or implied consent of the parties,
they shall be treated in all respects, as if they had been raised in the pleadings. Such
amendment of the pleadings as may be necessary to cause them to conform to the
evidence and to raise these issues may be made upon motion of any party at any time,
even after judgment; but failure so to amend does not affect the result of the trial of these
issues. If evidence is objected to at the trial on the ground that it is not within the issues
made by the pleadings, the court may allow the pleadings to be amended and shall do so
freely when the presentation of the merits of the action will be subserved thereby and the
objecting party fails to satisfy the court that the admission of such evidence would
prejudice him in maintaining his action or defense upon the merits.
As can be gleaned from the records, it was petitioners belief that respondents
evidence justified the amendment of their complaint. The trial court agreed thereto and
admitted the amended complaint. On this score, it should be noted that courts are given
the discretion to allow amendments of pleadings to conform to the evidence presented
during the trial.

Page | 297

CALIFORNIA BUS LINES V STATE INVESMENTS


G.R.No. 147950 December 11, 2003
FACTS
Sometime in 1979, Delta Motors CorporationM.A.N. Division (Delta) applied
for financial assistance from respondent State Investment House, Inc.
SIHI agreed to extend a credit line to Delta for P25,000,000.00 in three separate credit
agreements dated May 11, June 19, and August 22, 1979. Delta eventually became
indebted to SIHI to the tune of P24,010,269.32
From April 1979 to May 1980, petitioner California Bus Lines, Inc. (hereafter
CBLI), purchased on installment basis 35 units of M.A.N. Diesel Buses and two (2) units
of M.A.N. Diesel Conversion Engines from Delta. To secure the payment of the
purchase price of the 35 buses, CBLI and its president, Mr. Dionisio O. Llamas, executed
sixteen (16) promissory notes in favor of Delta on January 23 and April 25, 1980.[5] In
each promissory note, CBLI promised to pay Delta or order, P2,314,000 payable in 60
monthly installments starting August 31, 1980, with interest at 14% per annum. CBLI
further promised to pay the holder of the said notes 25% of the amount due on the same
as attorneys fees and expenses of collection, whether actually incurred or not, in case of
judicial proceedings to enforce collection. In addition to the notes, CBLI executed
chattel mortgages over the 35 buses in Deltas favor. When CBLI defaulted on all
payments due, it entered into a restructuring agreement with Delta on October 7, 1981, to
cover its overdue obligations under the promissory notes.CBLI continued having trouble
meeting its obligations to Delta. This prompted Delta to threaten CBLI with the
enforcement of the management takeover clause.
ISSUE
Whether the Restructuring Agreement dated October 7, 1981, between petitioner
CBLI and Delta Motors, Corp. novated the five promissory notes Delta Motors, Corp.
assigned to respondent SIHI.
RULING
Novation has been defined as the extinguishment of an obligation by the
substitution or change of the obligation by a subsequent one which terminates the first,
either by changing the object or principal conditions, or by substituting the person of the
debtor, or subrogating a third person in the rights of the creditor.For novation to take
place, four essential requisites have to be met, namely, (1) a previous valid obligation; (2)
an agreement of all parties concerned to a new contract; (3) the extinguishment of the old
obligation; and (4) the birth of a valid new obligation.
In this case, the attendant facts do not make out a case of novation. The
restructuring agreement between Delta and CBLI executed on October 7, 1981, shows
that the parties did not expressly stipulate that the restructuring agreement novated the
promissory notes. Absent an unequivocal declaration of extinguishment of the preexisting obligation, only a showing of complete incompatibility between the old and the
new obligation would sustain a finding of novation by implication.

Page | 298

OCAMPO-PAULE V CA
G.R.No. 145872 February 4, 2002
FACTS
During the period August, 1991 to April, 1993, petitioner received from private
complainant Felicitas M. Calilung several pieces of jewelry with a total value of One
hundred Sixty Three Thousand One hundred Sixty Seven Pesos and Ninety Five
Centavos (P163,167.95). The agreement between private complainant and petitioner was
that the latter would sell the same and thereafter turn over and account for the proceeds of
the sale, or otherwise return to private complainant the unsold pieces of jewelry within
two months from receipt thereof. Since private complainant and petitioner are relatives,
the former no longer required petitioner to issue a receipt acknowledging her receipt of
the jewelry.When petitioner failed to remit the proceeds of the sale of the jewelry or to
return the unsold pieces to private complainant, the latter sent petitioner a demand letter.
Notwithstanding receipt of the demand letter, petitioner failed to turn over the proceeds
of the sale or to return the unsold pieces of jewelry. Private complainant was constrained
to refer the matter to the barangay captain of Sta. Monica, Lubao, Pampanga.
ISSUE
Whether or not there was a novation of petitioners criminal liability when she
and private complainant executed the Kasunduan sa Bayaran.
RULING
It is well-settled that the following requisites must be present for novation to take
place: (1) a previous valid obligation; (2) agreement of all the parties to the new contract;
(3) extinguishment of the old contract; and (4) validity of the new one.
Novation, in its broad concept, may either be extinctive or modificatory. It is extinctive
when an old obligation is terminated by the creation of a new obligation that takes the
place of the former; it is merely modificatory when the old obligation subsists to the
extent it remains compatible with the amendatory agreement.
The execution of the Kasunduan sa Bayaran does not constitute a novation of the
original agreement between petitioner and private complainant. Said Kasunduan did not
change the object or principal conditions of the contract between them. The change in
manner of payment of petitioners obligation did not render the Kasunduan incompatible
with the original agreement, and hence, did not extinguish petitioners liability to remit
the proceeds of the sale of the jewelry or to return the same to private complainant.
An obligation to pay a sum of money is not novated, in a new instrument wherein
the old is ratified, by changing only the terms of payment and adding other obligations
not incompatible with the old one, or wherein the old contract is merely supplemented by
the new one.
In any case, novation is not one of the grounds prescribed by the Revised Penal
Code for the extinguishment of criminal liability.

Page | 299

REYES V CA
g.r.no. 147758 june 26, 2002
FACTS
This petition arose from a civil case for collection of a sum of money with
preliminary attachment filed by respondent Pablo V. Reyes against his first cousin
petitioner Arsenio R. Reyes and spouse Nieves S. Reyes. According to private
respondent, petitioner-spouses borrowed from him P600,000.00 with interest at five
percent (5%) per month, which totalled P1,726,250.00 at the time of filing of the
Complaint. The loan was to be used supposedly to buy a lot in Paraaque. It was
evidenced by an acknowledgment receipt dated 15 July 1990 signed by the petitionerspouses Arsenio R. Reyes and Nieves S. Reyes and witness Romeo Rueda.
In their Answer petitioners admitted their loan from respondent but averred that there was
a novation so that the amount loaned was actually converted into respondent's
contribution to a partnership formed between them on 23 March 1990.
ISSUE
Whether or not there was novation in the instant case?
RULING
For novation to take place, the following requisites must concur: (a) there must be
a previous valid obligation; (b) there must be an agreement of the parties concerned to a
new contract; (c) there must be the extinguishment of the old contract; and, (d) there must
be the validity of the new contract.
In the case at bar, the third requisite is not present. The parties did agree that the
amount loaned would be converted into respondent's contribution to the partnership, but
this conversion did not extinguish the loan obligation. The date when the
acknowledgment receipt/promissory note was made negates the claim that the loan
agreement was extinguished through novation since the note was made while the
partnership was in existence.
Significantly, novation is never presumed. It must appear by express agreement of
the parties, or by their acts that are too clear and unequivocal to be mistaken for anything
else. An obligation to pay a sum of money is not novated in a new instrument wherein the
old is ratified by changing only the terms of payment and adding other obligations not
incompatible with the old one, or wherein the old contract is merely supplemented by the
new one.

Page | 300

BAUTISTA V PILAR DEVELOPMENT


g.r.no. 135046 august 17, 1999
FACTS
In 1978, petitioner spouses Florante and Laarni Bautista purchased a house and
lot in Pilar Village, Las Pinas, Metro Manila. To partially finance the purchase, they
obtained from the Apex Mortgage & Loan Corporation a loan in the amount of
P100,180.00. They executed a promissory note on December 22, 1978 obligating
themselves, jointly and severally, to pay the "principal sum of P100,180.00 with interest
rate of 12% and service charge of 3%" for a period of 240 months, or twenty years, from
date, in monthly installments of P1,378.83. Late payments were to be charged a penalty
of one and one-half per cent (1 1/2%) of the amount due. In the same promissory note,
petitioners authorized Apex to "increase the rate of interest and/or service charges"
without notice to them in the event that a law, Presidential Decree or any Central Bank
regulation should be enacted increasing the lawful rate of interest and service charges on
the loan. Payment of the promissory note was secured by a second mortgage on the house
and lot purchased by petitioners.Petitioner spouses failed to pay several installments. On
September 20, 1982, they executed another promissory note in favor of Apex. This note
was in the amount of P142,326.43 at the increased interest rate of twenty-one per cent
(21%) per annum with no provision for service charge but with penalty charge of 1 1/2%
for late payments.
ISSUE
Whether or not there was valid novation in the case at bar?
RULING
Novation has four (4) essential requisites: (1) the existence of a previous valid
obligation; (2) the agreement of all parties to the new contract; (3) the extinguishment of
the old contract; and (4) the validity of the new one. In the instant case, all four requisites
have been complied with. The first promissory note was a valid and subsisting contract
when petitioner spouses and Apex executed the second promissory note. The second
promissory note absorbed the unpaid principal and interest of P142,326.43 in the first
note which amount became the principal debt therein, payable at a higher interest rate of
21% per annum. Thus, the terms of the second promissory note provided for a higher
principal, a higher interest rate, and a higher monthly amortization, all to be paid within a
shorter period of 16.33 years. These changes are substantial and constitute the principal
conditions of the obligation. Both parties voluntarily accepted the terms of the second
note; and also in the same note, they unequivocally stipulated to extinguish the first note.
Clearly, there was animus novandi, an express intention to novate. The first promissory
note was cancelled and replaced by the second note. This second note became the new
contract governing the parties' obligations.

Page | 301

EVADEL REALTY V SORIANO


G.R.No. 144291 April 20, 2001
FACTS
On April 12, 1996, the spouses Antero and Virginia Soriano (respondent spouses),
as sellers, entered into a "Contract to Sell " with Evadel Realty and Development
Corporation (petitioner), as buyer, over a parcel of land denominated as Lot 5536-C of
the Subdivision Plan of Lot 5536 covered by Transfer Certificate of Title No. 125062
which was part of a huge tract of land known as the Imus Estate. Upon payment of the
first installment, petitioner introduced improvements thereon and fenced off the property
with concrete walls. Later, respondent spouses discovered that the area fenced off by
petitioner exceeded the area subject of the contract to sell by 2,450 square meters. Upon
verification by representatives of both parties, the area encroached upon was
denominated as Lot 5536-D-1 of the subdivision plan of Lot 5536-D of Psd-04-092419
and was later on segregated from the mother title and issued a new transfer certificate of
title, TCT No. 769166, in the name of respondent spouses. Respondent spouses
successively sent demand letters to petitioner on February 14, March 7, and April 24,
1997, to vacate the encroached area. Petitioner admitted receiving the demand letters but
refused to vacate the said area.
ISSUE
Whether or not there was novation of contract?
RULING
Petitioner's claim that there was a novation of contract because there was a
"second" agreement between the parties due to the encroachment made by the national
road on the property subject of the contract by 1,647 square meters, is unavailing.
Novation, one of the modes of extinguishing an obligation, requires the concurrence of
the following: (1) there is a valid previous obligation; (2) the parties concerned agree to a
new contract; (3) the old contract is extinguished; and (4) there is valid new contract.
Novation may be express or implied. 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 (express novation) or that the old and the new obligations be on every point
incompatible with each other (implied novation).
In the instant case, there was no express novation because the "second" agreement
was not even put in writing. Neither was there implied novation since it was not shown
that the two agreements were materially and substantially incompatible with each other.
We quote with approval the following findings of the trial court: Since the alleged
agreement between the plaintiffs [herein respondents] and defendant [herein petitioner] is
not in writing and the alleged agreement pertains to the novation of the conditions of the
contract to sell of the parcel of land subject of the instant litigation, ipso facto, novation is
not applicable in this case since, as stated above, novation must be clearly proven by the
proponent thereof and the defendant in this case is clearly barred by the Statute of Frauds
from proving its claim.

Page | 302

B & I REALTY V. CASPE


G.R. No. 146972 January 29, 2008
FACTS
Consorcia L. Venegas was the owner of a parcel of land located in Barrio
Bagong-Ilog in Pasig, Rizal and covered by TCT No. 247434. She delivered said title to,
and executed a simulated deed of sale in favor of, Datuin for purposes of obtaining a loan
with the RCBC. Datuin claimed that he had connections with the management of RCBC
and offered his assistance to Venegas in obtaining a loan from the bank. He issued a
receipt to the Venegases, acknowledging that the lot was to be used as a collateral for
bank financing and that the deed of sale was executed only as a device to obtain the loan.
However, Datuin prepared a deed of absolute sale and, through forgery, made it appear
that the spouses Venegas executed the document in his favor. Venegas learned of
Datuin's fraudulent scheme when she sold the lot to herein respondents for P160,000 in a
deed of conditional sale. She, along with her husband, instituted a complaint against
Datuin in the then Court of First Instance CFI of Rizal, Branch 11, docketed as Civil Case
No. 188893, for recovery of property and nullification of TCT No. 377734, with
damages. However, when the case was called for pre-trial, the Venegases' counsel failed
to appear and the complaint was eventually dismissed without prejudice.
ISSUE
Whether or not filing of Civil Case No. 36852 by the Venegases had the effect of
interrupting the prescriptive period for the filing of the complaint for judicial foreclosure
of mortgage?
RULING
We agree with the CA's ruling that Civil Case No. 36852 did not have the effect
of interrupting the prescription of the action for foreclosure of mortgage as it was not an
action for foreclosure but one for annulment of title and nullification of the deed of
mortgage and the deed of sale. It was not at all the action contemplated in Article 1155 of
the Civil Code which explicitly provides that the prescription of an action is interrupted
only when the action itself is filed in court. Petitioner could have protected its right over
the property by filing a cross-claim for judicial foreclosure of mortgage against
respondents in Civil Case No. 36852. The filing of a cross-claim would have been proper
there. All the issues pertaining to the mortgage validity of the mortgage and the propriety
of foreclosure would have been passed upon concurrently and not on a piecemeal basis.
This should be the case as the issue of foreclosure of the subject mortgage was connected
with, or dependent on, the subject of annulment of mortgage in Civil Case No.
36852. The actuations clearly manifested that petitioner knew its rights under the law but
chose to sleep on the same.

Page | 303

MESINA V. GARCIA
G.R. No. 168035 November 30, 2006
FACTS
Atty. Honorio Valisno Garcia and Felicisima Mesina, during their lifetime,
enstered into a Contract to Sell over a lot consisting of 235 square meters, situated at
Diversion Road, Sangitan, Cabanatuan City, covered and embraced by TCT No. T31643 in the name of Felicisima Mesina which title was eventually cancelled and TCT
No. T-78881 was issued in the name of herein petitioners. The Contract to Sell provides
that the cost of the lot is P70.00 per square meter for a total amount of P16,450.00;
payable within a period not to exceed 7 years at an interest rate of 12% per annum, in
successive monthly installments of P260.85 per month, starting May 1977. Thereafter,
the succeeding monthly installments are to be paid within the first week of every month,
at the residence of the vendor at Quezon City, with all unpaid monthly installments
earning an interest of 1% per month. Instituting this case at bar, respondent asserts that
despite the full
payment made on 7 February 1984 for the consideration of the
subject lot, petitioners refused to issue the necessary Deed of Sale to effect the transfer of
the property to her.
ISSUE
Whether or not respondents cause of action had already prescribed?
RULING
Article 1155 of the Civil Code is explicit that the prescriptive period is interrupted
when an action has been filed in court; when there is a written extrajudicial demand made
by the creditors; and when there is any written acknowledgment of the debt by the
debtor.
The records reveal that starting 19 April 1986 until 2 January 1997 respondent
continuously demanded from the petitioners the execution of the said Deed of Absolute
Sale but the latter conjured many reasons and excuses not to execute the same.
Respondent even filed a Complaint before the Housing and Land Use Regulatory Board
way back in June, 1986, to enforce her rights and to compel the mother of herein
petitioners, who was still alive at that time, to execute the necessary Deed of Absolute
Sale for the transfer of title in her name. On 2 January 1997, respondent, through her
counsel, sent a final demand letter to the petitioners for the execution of the Deed of
Absolute Sale, but still to no avail. Consequently, because of utter frustration of the
respondent, she finally lodged a formal Complaint for Specific Performance with
Damages before the trial court on 20 January 1997.
Hence, from the series of written extrajudicial demands made by respondent to
have the execution of the Deed of Absolute Sale in her favor, the prescriptive period of
10 years has been interrupted. Therefore, it cannot be said that the cause of action of the
respondent has already been prescribed.

Page | 304

HEIRS OF GAUDIANE V CA
G.R.No. 119879 March 11, 2004
FACTS
The lot in controversy is Lot 4389 located at Dumaguete City and covered by
Original Certificate of Title No. 2986-A (OCT 2986-A) in the names of co-owners Felix
and Juana Gaudiane. Felix died in 1943 while his sister Juana died in 1939. Herein
respondents are the descendants of Felix while petitioners are the descendants of Juana.
On November 4, 1927, Felix executed a document entitled Escritura de Compra-Venta
(Escritura, for brevity) whereby he sold to his sister Juana his one-half share in Lot No.
4156 covered by Transfer Certificate of Title No. 3317-A.
Petitioners predecessors-in-interest, Geronimo and Ines Iso (the Isos), believed
that the sale by Felix to their mother Juana in 1927 included not only Lot 4156 but also
Lot 4389. In 1974, they filed a pleading in the trial court seeking to direct the Register of
Deeds of Dumaguete City to cancel OCT 2986-A covering Lot 4389 and to issue a new
title in favor of the Isos. This was later withdrawn after respondents predecessors-ininterest, Procopio Gaudiane and Segundo Gaudiane, opposed it on the ground that the
Isos falsified their copy of the Escritura by erasing Lot 4156 and intercalating in its
place Lot 4389.
ISSUE
Whether the court gravely erred in not giving due course to the claim of
petitioners and legal effect of prescription and laches adverted by defendants-appellants
in their answer and affirmative defenses proven during the hearing by documentary and
testimonial evidence.
RULING
As a general rule, ownership over titled property cannot be lost through
prescription.[12] Petitioners, however, invoke our ruling in Tambot vs. Court of
Appeals[13] which held that titled property may be acquired through prescription by a
person who possessed the same for 36 years without any objection from the registered
owner who was obviously guilty of laches.
Petitioners claim is already rendered moot by our ruling barring petitioners from
raising the defense of exclusive ownership due to res judicata. Even assuming arguendo
that petitioners are not so barred, their contention is erroneous. As correctly observed by
the appellate court.
As explained earlier, only Lot No. 4156 was sold. It was through this
misrepresentation that appellees predecessor-in-interest succeeded in withholding
possession of appellees share in Lot No. 4389. Appellees cannot, by their own fraudulent
act, benefit therefrom by alleging prescription and laches.

Page | 305

LAUREANO V CA
G.R.No. 114776 February 2, 2000
FACTS;
Petitioner was employed in the singapore airlines limited as the pilot captain of B707. Sometime in 1982, defendant, hit by a recession, initiated cost-cutting measures.
Seventeen expatriate captains in the Airbus fleet were found in excess of the defendant's
requirement. Consequently, defendant informed its expatriate pilots including plaintiff of
the situation and advised them to take advance leaves. Realizing that the recession would
not be for a short time, defendant decided to terminate its excess personnel. It did not,
however, immediately terminate it's A-300 pilots. It reviewed their qualifications for
possible promotion to the B-747 fleet. Among the 17 excess Airbus pilots reviewed,
twelve were found qualified. Unfortunately, plaintiff was not one of the twelve.
Aggrieved, plaintiff on June 29, 1983, instituted a case for illegal dismissal before the
Labor Arbiter. Defendant moved to dismiss on jurisdictional grounds. Before said motion
was resolved, the complaint was withdrawn.
ISSUE ;
What is the prescriptive period for money claims arising from employer-employee
relationship?
RULING;
Article 291. Money claims. - All money claims arising from employee-employer
relations accruing during the effectivity of this Code shall be filed within three (3) years
from the time the cause of action accrued; otherwise they shall be forever barred.
It should be noted further that Article 291 of the Labor Code is a special law
applicable to money claims arising from employer-employee relations; thus, it
necessarily prevails over Article 1144 of the Civil Code, a general law. Basic is the rule
in statutory construction that 'where two statutes are of equal theoretical application to a
particular case, the one designed therefore should prevail.'
In the instant case, the action for damages due to illegal termination was filed by
plaintiff-appellee only on January 8, 1987 or more than four (4) years after the effectivity
date of his dismissal on November 1, 1982. Clearly, plaintiff-appellee's action has already
prescribed.

Page | 306

BANCO FILIPINO vs. COURT OF APPEALS


332 SCRA 241
FACTS:
Elsa Arcilla and her husband, Calvin Arcilla secured on three occasions, loans
from the Banco Filipino Savings and Mortgage bank in the amount of Php.107,946.00 as
evidenced by the Promissory Note executed by the spouses in favor of the said bank.
To secure payment of said loans, the spouses executed Real Estate Mortgages in favor
of the appellants (Banco Filipino) over their parcels of land. The appellee spouses failed
to pay their monthly amortization to appellant. On September 2, 1985 the appellees filed
a complaint for Annulment of the Loan Contracts, Foreclosure Sale with Prohibitory and
Injunction which was granted by the RTC. Petitioners appealed to the Court of Appeals,
but the CA affirmed the decision of the RTC.
ISSUE:
Whether or not the CA erred when it held that the cause of action of the private
respondents accrued on October 30, 1978 and the filing of their complaint for annulment
of their contracts in 1085 was not yet barred by the prescription/
RULING:
The court held that the petition is unmeritorious. Petitioners claim that the action
of the private respondents have prescribed is bereft of merit. Under Article 1150 of the
Civil Code, the time for prescription of all kinds of action where there is no special
provision which ordains otherwise shall be counted from the day they may be brought.
Thus the period of prescription of any cause of action is reckoned only from the date of
the cause of action accrued. The period should not be made to retroact to the date of the
execution of the contract, but from the date they received the statement of account
showing the increased rate of interest, for it was only from the moment that they
discovered the petitioners unilateral increase thereof.

Page | 307

VDA. DE DEL GADO vs. COURT OF APPEALS


363 SCRA 58
FACTS:
Carlos Delgado was the absolute owner of a parcel of land with an area of
692,549 square meter situated in the Municipality of Catarman Samar. Carlos Delgado
granted and conveyed by way of donation with quitclaim all rights, title, interest claim
and demand over a portion of land with an area of 165,000 square meter in favor of the
Commonwealth of the Philippines. The acceptance was then made to President Quezon
in his capacity as Commander-in-Chief. The Deed of Donation was executed with a
condition that the said land will be used for the formation of the National Defense of the
Philippines. The said parcel of land then covered by the Torrens System of the
Philippines and was registered in the name of Commonwealth of the Philippines for a
period of 40 years. The land was registered under TCT 0-2539-160 in favor of the
Commonwealth however without any annotation.
Upon declaration of independence, the Commonwealth was replaced by Republic
of the Philippines which took over the subject land and turned over to Civil Aeronautics
Administration, later named Bureau of Air Transportation Office. The said agency
utilizes the said land a domestic airport.
Jose Delgado filed a petition for reconveyance for a violation of the condition.
The RTC ruled in favor of the plaintiff Delgado. But the CA reversed the said decision
because of prescription. The petitioner filed only before 24 years o discovery which the
law only requires 10 years of filing.
ISSUE:
Whether or not the petitioners action for reconveyance is already barred by
prescription.
RULING:
The Supreme Court denied the petition and affirmed the decision of the Court of
Appeals because the time of filing has been prescribed. Under Article 1144 of the Civil
Code on Prescription based on written contracts, the filing of action for reconveyance is
within 10 years from the time the condition in the Deed of Donation was violated. The
petitioner herein filed only 24 years in the first action and 43 years in the second filing of
the 2nd action.
The action for reconveyance on the alleged excess of 33, 607 square meter
mistakenly included in the title was also prescribed Article 1456 of the Civil Code states,
if property is acquired through mistake or fraud, the person obtaining it is, by force of
law, considered a trustee of an implied trust for the benefits of the person from whom the
property comes, if within 10 years such action for reconveyance has not been executed.

Page | 308

MAESTRADO vs. COURT OF APPEALS


327 SCRA 678
FACTS:
These consolidated cases involve Lot No. 5872 and the rights of the contending
parties thereto. The lot has an area of 57.601 sq.m. and is registered in the name of the
deceased spouses Ramon and Rosario Chaves. The spouses died intestate in 1943 and
1944, respectively. They were survived by six heirs. To settle the estate of said spouse,
Angel Chaves, one of the heirs, initiated intestate proceedings and was appointed
administrator of said estates in the process. An inventory of the estates was made and
thereafter, the heirs agreed on a project partition. The court approved the partition but a
copy of said decision was missing. Nonetheless, the estate was divided among the heirs.
Subsequently, in 1956, the partition case effected and the respective shares of the heirs
were delivered to them.
Significantly, Lot No.5872 was not included in a number of documents. Parties
offered different explanations as to the omission of said lot in the documents. Petitioners
maintain the existence of an oral partition agreement entered into by all heirs after the
death of their parents. To set things right, petitioners then prepared a quitclaim to confirm
the alleged oral agreement. Respondents dispute voluntariness of their consent to the
quitclaims.
Six years after the execution of the quitclaims, respondents discovered that indeed subject
lot was still a common property in the name of the deceased spouses. Eventually, an
action for Quieting of Title was filed by petitioners on December 22, 1983.
The trial court considered Lot No. 5872 as still a common property and therefore
must be divided into six parts, there being six heirs. Petitioners appealed to the Court of
Appeals which sustained the decision of the trial court.
ISSUE:
Whether or not the action for quieting of title had already prescribed.
RULING:
The Supreme Court ruled that an action for quieting of title is imprescriptible
especially if the plaintiff is in possession of the property being litigated. One who is in
actual possession of a land, claiming to be the owner thereof may wait until his
possession is disturbed or his title is attacked before making steps to vindicate his right
because his undisturbed possession gives him a continuing right to seek the aid of the
courts to ascertain the nature of the adverse claim and its effect on his title. Moreover, the
Court held that laches is inapplicable in this case. This is because, as mentioned earlier,
petitioners possession of the subject lot has rendered their right to bring an action for
quieting of title imprescriptible.

Page | 309

TANAY RECREATION CENTER AND DEVELOPMENT CORP.


vs. CATALINA MATIENZO FAUSTO
April 12, 2005
FACTS:
Petitioner Tanay Recreation Center and Development Corp. (TRCDC) is the
lessee of a 3,090-square meter property located in Sitio Gayas, Tanay, Rizal, owned by
Catalina Matienzo Fausto, under a Contract of Lease. On this property stands the Tanay
Coliseum Cockpit operated by petitioner. The lease contract provided for a 20-year term,
subject to renewal within sixty days prior to its expiration. The contract also provided
that should Fausto decide to sell the property, petitioner shall have the priority right to
purchase the same.
On June 17, 1991, petitioner wrote Fausto informing her of its intention to renew
the lease. However, it was Faustos daughter, respondent Anunciacion F. Pacunayen, who
replied, asking that petitioner remove the improvements built thereon, as she is now the
absolute owner of the property. It appears that Fausto had earlier sold the property to
Pacunayen and title has already been transferred in her name. Petitioner filed an
Amended Complaint for Annulment of Deed of Sale, Specific Performance with
Damages, and Injunction
In her Answer, respondent claimed that petitioner is estopped from assailing the
validity of the deed of sale as the latter acknowledged her ownership when it merely
asked for a renewal of the lease. According to respondent, when they met to discuss the
matter, petitioner did not demand for the exercise of its option to purchase the property,
and it even asked for grace period to vacate the premises.
ISSUE:
The contention in this case refers to petitioners priority right to purchase, also
referred to as the right of first refusal.
RULING:
When a lease contract contains a right of first refusal, the lessor is under a legal
duty to the lessee not to sell to anybody at any price until after he has made an offer to
sell to the latter at a certain price and the lessee has failed to accept it. The lessee has a
right that the lessor's first offer shall be in his favor. Petitioners right of first refusal is an
integral and indivisible part of the contract of lease and is inseparable from the whole
contract. The consideration for the lease includes the consideration for the right of first
refusal and is built into the reciprocal obligations of the parties.
It was erroneous for the CA to rule that the right of first refusal does not apply
when the property is sold to Faustos relative. When the terms of an agreement have been
reduced to writing, it is considered as containing all the terms agreed upon. As such,
there can be, between the parties and their successors in interest, no evidence of such
terms other than the contents of the written agreement, except when it fails to express the
true intent and agreement of the parties. In this case, the wording of the stipulation giving
petitioner the right of first refusal is plain and unambiguous, and leaves no room for
interpretation. It simply means that should Fausto decide to sell the leased property
during the term of the lease, such sale should first be offered to petitioner. The
stipulation does not provide for the qualification that such right may be exercised only
when the sale is made to strangers or persons other than Faustos kin. Thus, under the
terms of petitioners right of first refusal, Fausto has the legal duty to petitioner not to sell
the property to anybody, even her relatives, at any price until after she has made an offer
to sell to petitioner at a certain price and said offer was rejected by petitioner.
Page | 310

ROMEO MENDOZA vs. COURT OF APPEALS


February 18, 2005
FACTS:
Manotok was the administrator of a parcel of land which it leased to Benjamin
Mendoza; that the contract of lease expired on December 31, 1988; that even after the
expiration of the lease contract, Benjamin Mendoza, and after his demise, his son,
Romeo, continued to occupy the premises and thus incurred a total of P44,011.25 as
unpaid rentals from January 1, 1989 to July 31, 1996; that on July 16, 1996, Manotok
made a demand on Benjamin Mendoza to pay the rental arrears and to vacate the
premises within fifteen (15) days from receipt of the demand letter; that despite receipt of
the letter and after the expiration of the 15-day period, the Mendozas refused to vacate
the property and to pay the rentals. The complaint prayed that the court order Mendoza
and those claiming rights under him to vacate the premises and deliver possession thereof
to Manotok, and to pay the unpaid rentals from January 1, 1989 to July 31, 1996 plus
P875.75 per month starting August 1, 1996, subject to such increase allowed by law, until
he finally vacates the premise.
ISSUE:
Whether or not the Honorable Court of Appeals committed error in giving
efficacy to a lease contract signed in 1988 when the alleged signatory was already dead
since 1986.
RULING:
This is a case for unlawful detainer. It appears that respondent corporation leased
the property subject of this case to petitioners father. After expiration of the lease,
petitioner continued to occupy the property but failed to pay the rentals. On July 16,
1996, respondent corporation made a demand on petitioner to vacate the premises and to
pay their arrears.
An action for unlawful detainer may be filed when possession by a landlord,
vendor, vendee or other person of any land or building is unlawfully withheld after the
expiration or termination of the right to hold possession by virtue of a contract, express or
implied. The only issue to be resolved in an unlawful detainer case is physical or material
possession of the property involved, independent of any claim of ownership by any of the
parties involved. In the case at bar, petitioner lost his right to possess the property upon
demand by respondent corporation to vacate the rented lot. Petitioner cannot now refute
the existence of the lease contract because of his prior admissions in his pleadings
regarding his status as tenant on the subject property.

Page | 311

JEFFERSON LIM vs. QUEENSLAND TOKYO COMMODITIES, INC.


January 4, 2002
FACTS:
Sometime in 1992, Benjamin Shia, a market analyst and trader of Queensland,
was introduced to petitioner Jefferson Lim by Marissa Bontia, one of his employees.
Marissas father was a former employee of Lims father. Shia suggested that Lim invest
in the Foreign Exchange Market, trading U.S. dollar against the Japanese yen, British
pound, Deutsche Mark and Swiss Franc.
Before investing, Lim requested Shia for proof that the foreign exchange was
really lucrative. They conducted mock tradings without money involved. As the mock
trading showed profitability, Lim decided to invest with a marginal deposit of US$5,000
in managers check. The marginal deposit represented the advance capital for his future
tradings. It was made to apply to any authorized future transactions, and answered for
any trading account against which the deposit was made, for any loss of whatever nature,
and for all obligations, which the investor would incur with the broker.
Petitioner Lim was then allowed to trade with respondent company which was
coursed through Shia by virtue of blank order forms all signed by Lim. Respondent
furnished Lim with the daily market report and statements of transactions as evidenced
by the receiving forms, some of which were received by Lim.
Meanwhile, on October 22, 1992, respondent learned that it would take seventeen
(17) days to clear the managers check given by petitioner. Shia returned the check to
petitioner who informed Shia that petitioner would rather replace the managers check
with a travelers check. Shia noticed that the travelers check was not indorsed but Lim
told Shia that Queensland could sign the endorsee portion. Because Shia trusted the
latters good credit rating, and out of ignorance, he brought the check back to the office
unsigned. Inasmuch as that was a busy Friday, the check was kept in the drawer of
respondents consultant. Later, the travelers check was deposited with Citibank.
On October 27, 1992, Citibank informed respondent that the travelers check
could not be cleared unless it was duly signed by Lim, the original purchaser of the
travelers check. A Miss Arajo, from the accounting staff of Queensland, returned the
check to Lim for his signature, but the latter, aware of his P44,465 loss, demanded for a
liquidation of his account and said he would get back what was left of his investment.
ISSUE:
Whether or not the CA erred in reversing the decision of the RTC which
dismissed the respondents complaint
RULING:
The essential elements of estoppel are: (1) conduct of a party amounting to false
representation or concealment of material facts or at least calculated to convey the
impression that the facts are otherwise than, and inconsistent with, those which the party
subsequently attempts to assert; (2) intent, or at least expectation, that this conduct shall
be acted upon by, or at least influence, the other party; and (3) knowledge, actual or
constructive, of the real facts. ere, it is uncontested that petitioner had in fact signed the
Customers Agreement in the morning of October 22, 1992, knowing fully well the
nature of the contract he was entering into. The Customers Agreement was duly
notarized and as a public document it is evidence of the fact, which gave rise to its
execution and of the date of the latter.
Page | 312

Next, petitioner paid his investment deposit to respondent in the form of a


managers check in the amount of US$5,000 as evidenced by PCI Bank Managers Check
No. 69007, dated October 22, 1992. All these are indicia that petitioner treated the
Customers Agreement as a valid and binding contract.

Page | 313

PLACEWELL INTERNATIONAL SERVICES CORP. vs. CAMOTE


G.R. No. 169973, June 26, 2006
FACTS:
Petitioner Placewell International Services Corporation (PISC) deployed
respondent Ireneo B. Camote to work as building carpenter for SAAD Trading and
Contracting Co. (SAAD) at the Kingdom of Saudi Arabia (KSA) for a contract duration
of two years, with a corresponding salary of US$370.00 per month. At the job site,
respondent was allegedly found incompetent by his foreign employer; thus the latter
decided to terminate his services. However, respondent pleaded for his retention and
consented to accept a lower salary of SR 800.00 per month. Thus, SAAD retained
respondent until his return to the Philippines two years after.
On November 27, 2001, respondent filed a sworn Complaint for monetary claims
against petitioner alleging that when he arrived at the job site, he and his fellow Filipino
workers were required to sign another employment contract written in Arabic under the
constraints of losing their jobs if they refused; that for the entire duration of the new
contract, he received only SR 590.00 per month; that he was not given his overtime pay
despite rendering nine hours of work everyday; that he and his co-workers sought
assistance from the Philippine Embassy but they did not succeed in pursuing their cause
of action because of difficulties in communication.
ISSUE:
Whether there is estoppel by laches
HELD:
R.A. No. 8042 explicitly prohibits the substitution or alteration to the prejudice of
the worker, of employment contracts already approved and verified by the Department of
Labor and Employment (DOLE) from the time of actual signing thereof by the parties up
to and including the period of the expiration of the same without the approval of the
DOLE. The subsequently executed side agreement of an overseas contract worker with
her foreign employer which reduced her salary below the amount approved by the POEA
is void because it is against our existing laws, morals and public policy. The said side
agreement cannot supersede her standard employment contract approved by the POEA.
Petitioners contention that respondent is guilty of laches is without basis. Laches
has been defined as the failure of or neglect for an unreasonable and unexplained length
of time to do that which by exercising due diligence, could or should have been done
earlier, or to assert a right within reasonable time, warranting a presumption that the party
entitled thereto has either abandoned it or declined to assert it. Thus, the doctrine of
laches presumes that the party guilty of negligence had the opportunity to do what should
have been done, but failed to do so. Conversely, if the said party did not have the
occasion to assert the right, then, he can not be adjudged guilty of laches. Laches is not
concerned with the mere lapse of time; rather, the party must have been afforded an
opportunity to pursue his claim in order that the delay may sufficiently constitute laches.
In the instant case, respondent filed his claim within the three-year prescriptive
period for the filing of money claims set forth in Article 291 of the Labor Code from the
time the cause of action accrued. Thus, we find that the doctrine of laches finds no
application in this case.

Page | 314

HEIRS OF RAGUA vs. COURT OF APPEALS


G.R. Nos. 88521-22
FACTS:
These consolidated cases involve a prime lot consisting of 4,399,322 square
meters, known as the Diliman Estate, situated in Quezon City. On this 439 hectares of
prime land now stand the following: the Quezon City Hall, Philippine Science High
School, Quezon Memorial Circle, Visayas Avenue, Ninoy Aquino Parks and Wildlife,
portions of UP Village and East Triangle, the entire Project 6 and Vasha Village,
Veterans Memorial Hospital and golf course, Department of Agriculture, Department of
Environment and Natural Resources, Sugar Regulatory Administration, Philippine
Tobacco Administration, Land Registration Authority, Philcoa Building, Bureau of
Telecommunications, Agricultural Training Institute building, Pagasa Village, San
Francisco School, Quezon City Hospital, portions of Project 7, Mindanao Avenue
subdivision, part of Bago Bantay resettlement project, SM City North EDSA, part of
Phil-Am Life Homes compound and four-fifths of North Triangle. This large estate was
the subject of a petition for judicial reconstitution originally filed by Eulalio Ragua in
1964, which gave rise to protracted legal battles between the affected parties, lasting
more than thirty-five (35) years.
ISSUE:
Whether estoppel by laches exists on the part of petitioner
HELD:
Petitioners filed the petition for reconstitution of OCT 632 nineteen (19) years
after the title was allegedly lost or destroyed. We thus consider petitioners guilty of
laches. Laches is negligence or omission to assert a right within a reasonable time,
warranting the presumption that the party entitled to assert it either has abandoned or
declined to assert it.

Page | 315

METROPOLITAN BANK & TRUST COMPANY vs. COURT OF APPEALS


June 8, 2000
FACTS:
Mr. Chia offered the subject property for sale to private respondent G.T.P.
Development Corporation (hereafter, GTP), with assumption of the mortgage
indebtedness in favor of petitioner METROBANK secured by the subject property.
Pending negotiations for the proposed sale, Atty. Bernardo Atienza, acting in behalf of
respondent GTP, went to METROBANK to inquire on Mr. Chia's remaining balance on
the real estate mortgage. METROBANK obliged with a statement of account of Mr. Chia
amounting to about P115,000.00 as of August ,1980. The deed of sale and the
memorandum of agreement between Mr. Chia and respondent GTP were eventually
executed and signed. Atty. Atienza went to METROBANK Quiapo Branch and paid one
hundred sixteen thousand four hundred sixteen pesos and seventy-one centavos
(P116,416.71) for which METROBANK issued an official receipt acknowledging
payment. This notwithstanding, petitioner METROBANK refused to release the real
estate mortgage on the subject property despite repeated requests from Atty. Atienza, thus
prompting respondent GTP to file an action for specific performance against petitioner
METROBANK and Mr. Chia.
ISSUE:
Whether or not the CA erred in reversing the decision of the lower court.
RULING:
The Court found no compelling reasons to disturb the assailed decision. All
things studiedly viewed in proper perspective, the Court are of the opinion, and so rule,
that whatever debts or loans mortgagor Chia contracted with Metrobank after September
4, 1980, without the conformity of plaintiff-appellee, could not be adjudged as part of the
mortgage debt the latter so assumed. We are persuaded that the contrary ruling on this
point in Our October 24, 1994 decision would be unfair and unjust to plaintiff-appellee
because, before buying subject property and assuming the mortgage debt thereon, the
latter inquired from Metrobank about the exact amount of the mortgage debt involved.
Petitioner METROBANK is estopped from refusing the discharge of the real
estate mortgage on the claim that the subject property still secures "other unliquidated
past due loans."

Page | 316

SPOUSES DEL CAMPO vs. COURT OF APPEALS


February 1, 2001
FACTS:
Salome, Consorcia, Alfredo, Maria, Rosalia, Jose, Quirico and Julita, all
surnamed Bornales, were the original co-owners of the lot in question.
On July 14, 1940, Salome sold part of her 4/16 share to Soledad Daynolo.
Thereafter, Soledad Daynolo immediately took possession of the land described above
and built a house thereon. A few years later, Soledad and her husband, Simplicio Distajo,
mortgaged the subject portion of the lot as security for a debt to Jose Regalado, Sr. This
transaction was evidenced by a Deed of Mortgage.
On April 14, 1948, three of the eight co-owners of Lot 162, specifically, Salome,
Consorcia and Alfredo, sold 24,993 square meters of said lot to Jose Regalado, Sr. On
May 4, 1951, Simplicio Distajo, heir of Soledad Daynolo who had since died, paid the
mortgage debt and redeemed the mortgaged portion of Lot 162 from Jose Regalado, Sr.
The latter, in turn, executed a Deed of Discharge of Mortgage in favor of Soledads heirs,
namely: Simplicio Distajo, Rafael Distajo and Teresita Distajo-Regalado. On same date,
the said heirs sold the redeemed portion of Lot 162 for P1,500.00 to herein petitioners,
the spouses Manuel Del Campo and Salvacion Quiachon.
ISSUE:
Whether or not the sale of the subject portion constitutes a sale of a concrete or
definite portion of land owned in common does not absolutely deprive herein petitioners
of any right or title thereto.
RULING:
There can be no doubt that the transaction entered into by Salome and Soledad
could be legally recognized in its entirety since the object of the sale did not even exceed
the ideal shares held by the former in the co-ownership. As a matter of fact, the deed of
sale executed between the parties expressly stipulated that the portion of Lot 162 sold to
Soledad would be taken from Salomes 4/16 undivided interest in said lot, which the
latter could validly transfer in whole or in part even without the consent of the other coowners. Salomes right to sell part of her undivided interest in the co-owned property is
absolute in accordance with the well-settled doctrine that a co-owner has full ownership
of his pro-indiviso share and has the right to alienate, assign or mortgage it, and substitute
another person in its enjoyment.

Page | 317

CUENCO vs. CUENCO


G.R. No. 149844, October 13, 2004
FACTS:
On September 19, 1970, the [respondent] filed the initiatory complaint herein for
specific performance against her uncle [Petitioner] Miguel Cuenco which averred, inter
alia that her father, the late Don Mariano Jesus Cuenco (who became Senator) and said
[petitioner] formed the Cuenco and Cuenco Law Offices; that on or around August 4,
1931, the Cuenco and Cuenco Law Offices served as lawyers in two (2) cases entitled
Valeriano Solon versus Zoilo Solon (Civil Case 9037) and Valeriano Solon versus
Apolonia Solon (Civil Case 9040) involving a dispute among relatives over ownership
of lot 903 of the Banilad Estate which is near the Cebu Provincial Capitol; that records
of said cases indicate the name of the [petitioner] alone as counsel of record, but in truth
and in fact, the real lawyer behind the success of said cases was the influential Don
Mariano Jesus Cuenco; that after winning said cases, the awardees of Lot 903 subdivided
said lot into three (3) parts as follows:
Lot 903-A: 5,000 [square meters]: Mariano Cuencos attorneys fees
Lot 903-B: 5,000 [square meters]: Miguel Cuencos attorneys fees
Lot 903-C: 54,000 [square meters]: Solons retention
Petitioner later claimed the property after the death of his brother.
ISSUES:
Whether Petitioner is in is estoppel
Whether laches barred the right of action of respondent
HELD:
From the time Lot 903-A was subdivided and Marianos six children -- including
Concepcion -- took possession as owners of their respective portions, no whimper of
protest from petitioner was heard until 1963. By his acts as well as by his omissions,
Miguel led Mariano and the latters heirs, including Concepcion, to believe that Petitioner
Cuenco respected the ownership rights of respondent over Lot 903-A-6. That Mariano
acted and relied on Miguels tacit recognition of his ownership thereof is evident from his
will, executed in 1963. Indeed, as early as 1947, long before Mariano made his will in
1963, Lot 903-A -- situated along Juana Osmea Extension, Kamputhaw, Cebu City, near
the Cebu Provincial Capitol -- had been subdivided and distributed to his six children in
his first marriage. Having induced him and his heirs to believe that Lot 903-A-6 had
already been distributed to Concepcion as her own, petitioner is estopped from asserting
the contrary and claiming ownership thereof. The principle of estoppel in pais applies
when -- by ones acts, representations, admissions, or silence when there is a need to
speak out -- one, intentionally or through culpable negligence, induces another to believe
certain facts to exist; and the latter rightfully relies and acts on such belief, so as to be
prejudiced if the former is permitted to deny the existence of those facts.
Petitioner claims that respondents action is already barred by laches. Laches is
negligence or omission to assert a right within a reasonable time, warranting a
presumption that the party entitled to it has either abandoned or declined to assert it.[40]
In the present case, respondent has persistently asserted her right to Lot 903-A-6 against
petitioner. Concepcion was in possession as owner of the property from 1949 to 1969.
When Miguel took steps to have it separately titled in his name, despite the fact that she
Page | 318

had the owners duplicate copy of TCT No. RT-6999 -- the title covering the entire Lot
903-A -- she had her adverse claim annotated on the title in 1967. When petitioner
ousted her from her possession of the lot by tearing down her wire fence in 1969, she
commenced the present action on September 19, 1970, to protect and assert her rights to
the property. We find that she cannot be held guilty of laches, as she did not sleep on her
rights.

Page | 319

LAUREL vs. HON. ANIANO A. DESIERTO


July 1, 2002
FACTS:
Petitioner Salvador H. Laurel moves for a reconsideration of this Courts decision
declaring him, as Chair of the National Centennial Commission (NCC), a public officer.
Petitioner also prays that the case be referred to the Court En Banc.
ISSUE:
Whether or not Laurel is a public officer as Chair of the NCC
RULING:
The issue in this case is whether petitioner, as Chair of the NCC, is a public officer
under the jurisdiction of the Ombudsman. Assuming, as petitioner proposes, that the
designation of other members to the NCC runs counter to the Constitution, it does not
make petitioner, as NCC Chair, less a public officer. Such serious constitutional
repercussions do not reduce the force of the rationale behind this Courts decision.
Second, petitioner invokes estoppel. He claims that the official acts of the President,
the Senate President, the Speaker of the House of Representatives, and the Supreme
Court, in designating Cabinet members, Senators, Congressmen and Justices to the NCC,
led him to believe that the NCC is not a public office.
The contention has no merit. In estoppel, the party representing material facts must
have the intention that the other party would act upon the representation. It is
preposterous to suppose that the President, the Senate President, the Speaker and the
Supreme Court, by the designation of such officials to the NCC, intended to mislead
petitioner just so he would accept the position of NCC Chair. Estoppel must be
unequivocal and intentional. Moreover, petitioner himself admits that the principle of
estoppel does not operate against the Government in the exercise of its sovereign powers.
Third, as ground for the referral of the case to the Court En Banc, petitioner submits
that our decision in this case modified or reversed doctrines rendered by this Court,
which can only be done by the Court En Banc.It is argued that by designating three of its
then incumbent members to the NCC, the Court took the position that the NCC was not a
public office. The argument is a bit of a stretch. Section 4 (3), Article VIII of the
Constitution provides that no doctrine or principle of law laid down by the court in a
decision rendered en banc or in division may be modified or reversed except by the court
sitting en banc. In designating three of its incumbent members to the NCC, the Court did
not render a decision, in the context of said constitutional provision, which
contemplates an actual case. Much less did the Court, by such designation, articulate any
doctrine or principle of law. Invoking the same provision, petitioner asserts that the
decision in this case reversed or modified Macalino vs. Sandiganbayan, holding that the
Assistant Manager of the Treasury Division and the Head of the Loans Administration &
Insurance Section of the Philippine National Construction Corporation (PNCC) is not a
public officer under Republic Act No. 3019. This contention also has no merit. The
rationale for the ruling in Macalino is that the PNCC has no original charter as it was
incorporated under the general law on corporations. However, as we pointed out in our
decision, a conclusion that EXPOCORP is a government-owned or controlled corporation
would not alter the outcome of this case because petitioners position and functions as
Chief Executive Officer of EXPOCORP are by virtue of his being Chairman of the NCC.
The other issues raised by petitioner are mere reiterations of his earlier arguments. The
Court, however, remains unswayed thereby.
Page | 320

SPOUSES HANOPOL vs. SHOEMART INCORPORATED


October 4, 2002
FACTS:
Shoemart, Inc., is a corporation duly organized and existing under the laws of the
Philippines engaged in the operation of department stores. On December 4, 1985,
Shoemart, through its Executive Vice-President, Senen T. Mendiola, and spouses Manuel
R. Hanopol and Beatriz T. Hanopol executed a Contract of Purchase on Credit.
Under the terms of the contract, Shoemart extended credit accommodations, in the
amount of Three Hundred Thousand Pesos (P300,000.00), for purchases on credit made
by holders of SM Credit Card issued by spouses Hanopol for one year, renewable yearly
thereafter. Spouses Hanopol were given a five percent (5%) discount on all purchases
made by their cardholders, deductible from the semi-monthly payments to be made to
Shoemart by spouses Hanopol.
For failure of spouses Hanopol to pay the principal amount of One Hundred
Twenty-Four Thousand Five Hundred Seventy-One Pesos and Eighty-Nine Centavos
(P124,571.89) as of October 6, 1987, Shoemart instituted extrajudicial foreclosure
proceedings against the mortgaged properties.
Spouses Hanopol alleged that Shoemart breached the contract when the latter
failed to furnish the former with the requisite documents by which the formers liability
shall be determined, namely: charge invoices, purchase booklets and purchase journal, as
provided in their contract; that without the requisite documents, spouses Hanopol had no
way of knowing that, in fact, they had already paid, even overpaid, whatever they owed
to Shoemart; that despite said breach, Shoemart even had the audacity to apply for
extrajudicial foreclosure with the Sheriff.
ISSUE:
Whether or not Shoemart acted with manifest bad faith in pursuing with the
foreclosure and auction sale of the property of spouses Hanopol, and, accordingly, should
be held liable for damages.
RULING:
All the three (3) elements for litis pendentia as a ground for dismissal of an action
are present, namely: (a) identity of parties, or at least such parties who represent the same
interest in both actions; (b) identity of rights asserted and relief prayed for, the relief
being founded on the same facts; and (c) the identity, with respect to the two (2)
preceding particulars in the two (2) cases, in such that any judgment that may be rendered
in the pending case, regardless of which party is successful, would amount to res judicata
in the other.
In the case at bench, the parties are the same; the relief sought in the case before
the Court of Appeals and the trial court are the same, that is, to permanently enjoin the
foreclosure of the real estate mortgage executed by spouses Hanopol in favor of
Shoemart; and, both are premised on the same facts. The judgment of the Court of
Appeals would constitute a bar to the suit before the trial court.

Page | 321

TERMINAL FACILITIES vs. PPA


378 SCRA 82
FACTS:
Before us are two (2) consolidated petitions for review, one filed by the Terminal
Facilities and Services Corporation (TEFASCO) and the other by the Philippine Ports
Authority (PPA). TEFASCO is a domestic corporation organized and existing under the
laws of the Philippines with principal place of business at Barrio Ilang, Davao City. It is
engaged in the business of providing port and terminal facilities as well as arrastre,
stevedoring and other port-related services at its own private port at Barrio Ilang.
Sometime in 1975 TEFASCO submitted to PPA a proposal for the construction of
a specialized terminal complex with port facilities and a provision for port services in
Davao City. To ease the acute congestion in the government ports at Sasa and Sta. Ana,
Davao City, PPA welcomed the proposal and organized an inter-agency committee to
study the plan. The committee recommended approval.
On April 21, 1976 the PPA Board of Directors passed Resolution No. 7 accepting
and approving TEFASCO's project proposal.
Long after TEFASCO broke round with massive infrastructure work, the PPA
Board curiously passed on October 1, 1976 Resolution No. 50 under which TEFASCO,
without asking for one, was compelled to submit an application for construction permit.
Without the consent of TEFASCO, the application imposed additional significant
conditions.
The series of PPA impositions did not stop there. Two (2) years after the
completion of the port facilities and the commencement of TEFASCO's port operations,
or on June 10, 1978, PPA again issued to TEFASCO another permit, under which more
onerous conditions were foisted on TEFASCO's port operations. In the purported permit
appeared for the first time the contentious provisions for ten percent (10%) government
share out of arrastre and stevedoring gross income and one hundred percent (100%)
wharfage and berthing charges.
On February 10, 1984 TEFASCO and PPA executed a Memorandum of
Agreement (MOA) providing among others for (a) acknowledgment of TEFASCO's
arrears in government share at Three Million Eight Hundred Seven Thousand Five
Hundred Sixty-Three Pesos and Seventy-Five Centavos (P3,807,563.75) payable
monthly, with default penalized by automatic withdrawal of its commercial private port
permit and permit to operate cargo handling services; (b) reduction of government share
from ten percent (10%) to six percent (6%) on all cargo handling and related revenue (or
arrastre and stevedoring gross income); (c) opening of its pier facilities to all commercial
and third-party cargoes and vessels for a period coterminous with its foreshore lease
contract with the National Government; and, (d) tenure of five (5) years extendible by
five (5) more years for TEFASCO's permit to operate cargo handling in its private port
facilities. In return PPA promised to issue the necessary permits for TEFASCO's port
activities. TEFASCO complied with the MOA and paid the accrued and current
government share.
On August 30, 1988 TEFASCO sued PPA and PPA Port Manager, and Port
Officer in Davao City for refund of government share it had paid and for damages as a
result of alleged illegal exaction from its clients of one hundred percent (100%) berthing
and wharfage fees. The complaint also sought to nullify the February 10, 1984 MOA and
all other PPA issuances modifying the terms and conditions of the April 21, 1976
Resolution No. 7 above-mentioned.
Page | 322

PPA appealed the decision of the trial court to the Court of Appeals. The appellate
court in its original decision recognized the validity of the impositions and reversed in
toto the decision of the trial court. TEFASCO moved for reconsideration which the Court
of Appeals found partly meritorious. Thus the Court of Appeals in its Amended Decision
partially affirmed the RTC decision only in the sense that PPA was directed to pay
TEFASCO (1) the amounts of Fifteen Million Eight Hundred Ten Thousand Thirty-Two
Pesos and Seven Centavos (P15,810,032.07) representing fifty percent (50%) wharfage
fees and Three Million Nine Hundred Sixty-One Thousand Nine Hundred Sixty-Four
Pesos and Six Centavos (P3,961,964.06) representing thirty percent (30%) berthing fees
which TEFASCO could have earned as private port usage fee from 1977 to 1991. The
Court of Appeals held that the one hundred percent (100%) berthing and wharfage fees
were unenforceable because they had not been approved by the President under P.D. No.
857, and discriminatory since much lower rates were charged in other private ports as
shown by PPA issuances effective 1995 to 1997. Both PPA and TEFASCO were
unsatisfied with this disposition hence these petitions.
ISSUE:
Whether or not the collection by PPA of one hundred percent (100%) wharfage
fees and berthing charges; (c) the propriety of the award of fifty percent (50%) wharfage
fees and thirty percent (30%) berthing charges as actual damages in favor of TEFASCO
for the period from 1977 to 1991 is valid.
RULING:
The imposition by PPA of ten percent (10%), later reduced to six percent (6%),
government share out of arrastre and stevedoring gross income of TEFASCO is void.
This exaction was never mentioned in the contract, much less is it a binding prestation,
between TEFASCO and PPA. What was clearly stated in the terms and conditions
appended to PPA Resolution No. 7 was for TEFASCO to pay and/or secure from the
proper authorities "all fees and/or permits pertinent to the construction and operation of
the proposed project." The government share demanded and collected from the gross
income of TEFASCO from its arrastre and stevedoring activities in TEFASCO's wholly
owned port is certainly not a fee or in any event a proper condition in a regulatory permit.
Rather it is an onerous "contractual stipulation" which finds no root or basis or reference
even in the contract aforementioned.

Page | 323

MENDOZA vs. COURT OF APPEALS


June 25, 2001
FACTS:
Petitioner Danilo D. Mendoza is engaged in the domestic and international trading
of raw materials and chemicals. He operates under the business name Atlantic Exchange
Philippines (Atlantic), a single proprietorship registered with the Department of Trade
and Industry (DTI). Sometime in 1978 he was granted by respondent Philippine National
Bank (PNB) a Five Hundred Thousand Pesos (P500,000.00) credit line and a One Million
Pesos (P1,000,000.00) Letter of Credit/Trust Receipt (LC/TR) line.
As security for the credit accommodations and for those which may thereinafter
be granted, petitioner mortgaged to respondent PNB the following: 1) three (3) parcels of
land with improvements in F. Pasco Avenue, Santolan, Pasig; 2) his house and lot in
Quezon City; and 3) several pieces of machinery and equipment in his Pasig cocochemical plant.
Petitioner executed in favor of respondent PNB three (3) promissory notes
covering the Five Hundred Thousand Pesos (P500,000.00) credit line, one dated March 8,
1979 for Three Hundred Ten Thousand Pesos (P310,000.00); another dated March 30,
1979 for Forty Thousand Pesos (P40,000.00); and the last dated September 27, 1979 for
One Hundred Fifty Thousand Pesos (P150,000.00).
Petitioner made use of his LC/TR line to purchase raw materials from foreign
importers. He signed a total of eleven (11) documents denominated as "Application and
Agreement for Commercial Letter of Credit," on various dates
In a letter dated January 3, 1980 and signed by Branch Manager Fil S. Carreon Jr.,
respondent PNB advised petitioner Mendoza that effective December 1, 1979, the bank
raised its interest rates to 14% per annum, in line with Central Bank's Monetary Board
Resolution No. 2126 dated November 29, 1979.
On March 9, 1981, he wrote a letter to respondent PNB requesting for the
restructuring of his past due accounts into a five-year term loan and for an additional
LC/TR line of Two Million Pesos (P2,000,000.00). According to the letter, because of the
shut-down of his end-user companies and the huge amount spent for the expansion of his
business, petitioner failed to pay to respondent bank his LC/TR accounts as they became
due and demandable.
Ceferino D. Cura, Branch Manager of PNB Mandaluyong replied on behalf of the
respondent bank and required petitioner to submit the following documents before the
bank would act on his request: 1) Audited Financial Statements for 1979 and 1980; 2)
Projected cash flow (cash in - cash out) for five (5) years detailed yearly; and 3) List of
additional machinery and equipment and proof of ownership thereof. Cura also
suggested that petitioner reduce his total loan obligations to Three Million Pesos
(P3,000,000.00).
On September 25, 1981, petitioner sent another letter addressed to PNB VicePresident Jose Salvador, regarding his request for restructuring of his loans. He offered
respondent PNB the following proposals: 1) the disposal of some of the mortgaged
properties, more particularly, his house and lot and a vacant lot in order to pay the
overdue trust receipts; 2) capitalization and conversion of the balance into a 5-year term
loan payable semi-annually or on annual installments; 3) a new Two Million Pesos
(P2,000,000.00) LC/TR line in order to enable Atlantic Exchange Philippines to operate
at full capacity; 4) assignment of all his receivables to PNB from all domestic and export
Page | 324

sales generated by the LC/TR line; and 5) maintenance of the existing Five Hundred
Thousand Pesos (P500,000.00) credit line.
The petitioner testified that respondent PNB Mandaluyong Branch found his
proposal favorable and recommended the implementation of the agreement. However,
Fernando Maramag, PNB Executive Vice-President, disapproved the proposed release of
the mortgaged properties and reduced the proposed new LC/TR line to One Million Pesos
(P1,000,000.00). Petitioner claimed he was forced to agree to these changes and that he
was required to submit a new formal proposal and to sign two (2) blank promissory notes.
In a letter dated July 2, 1982, petitioner offered the following revised proposals to
respondent bank: 1) the restructuring of past due accounts including interests and
penalties into a 5-year term loan, payable semi-annually with one year grace period on
the principal; 2) payment of Four Hundred Thousand Pesos (P400,000.00) upon the
approval of the proposal; 3) reduction of penalty from 3% to 1%; 4) capitalization of the
interest component with interest rate at 16% per annum; 5) establishment of a One
Million Pesos (P1,000,000.00) LC/TR line against the mortgaged properties; 6)
assignment of all his export proceeds to respondent bank to guarantee payment of his
Petitioner failed to pay the subject two (2) Promissory Notes Nos. 127/82 and
128/82 as they fell due. Respondent PNB extra-judicially foreclosed the real and chattel
mortgages, and the mortgaged properties were sold at public auction to respondent PNB,
as highest bidder, for a total of Three Million Seven Hundred Ninety Eight Thousand
Seven Hundred Nineteen Pesos and Fifty Centavos (P3,798,719.50).
The petitioner filed a complaint for specific performance, nullification of the
extra-judicial foreclosure and damages against respondents PNB. He alleged that the
Extrajudicial Foreclosure Sale of the mortgaged properties was null and void since his
loans were restructured to a five-year term loan; hence, it was not yet due and
demandable. On March 16, 1992, the trial court rendered judgment in favor of the
petitioner and ordered the nullification of the extrajudicial foreclosure of the real estate
mortgage, the Sheriffs sale of the mortgaged real properties by virtue of consolidation
thereof and the cancellation of the new titles issued to PNB; that PNB vacate the subject
premises in Pasig and turn the same over to the petitioner; and also the nullification of the
extrajudicial foreclosure and sheriff's sale of the mortgaged chattels, and that the chattels
be returned to petitioner Mendoza if they were removed from his Pasig premises or be
paid for if they were lost or rendered unserviceable.
The trial court decided for the petitioner. Upon appeal, the Court of Appeals
reversed the decision of the trial court and dismissed the complaint.
ISSUE:
Whether or not respondent promised to be bound by the proposal of the petitioner
for a five-year restructuring of his overdue loan.
RULING:
No. Respondent Court of Appeals held that there is no evidence of a promise from
respondent PNB, admittedly a banking corporation, that it had accepted the proposals of
the petitioner to have a five-year restructuring of his overdue loan obligations. It found
and held, on the basis of the evidence adduced, that "appellee's (Mendoza)
communications were mere proposals while the bank's responses were not categorical
that the appellee's request had been favorably accepted by the bank."
Nowhere in those letters presented by the petitioner is there a categorical
statement that respondent PNB had approved the petitioners proposed five-year
Page | 325

restructuring plan. It is stretching the imagination to construe them as evidence that his
proposed five-year restructuring plan has been approved by the respondent PNB which is
admittedly a banking corporation. Only an absolute and unqualified acceptance of a
definite offer manifests the consent necessary to perfect a contract. If anything, those
correspondences only prove that the parties had not gone beyond the preparation stage,
which is the period from the start of the negotiations until the moment just before the
agreement of the parties.
The doctrine of promissory estoppel is an exception to the general rule that a
promise of future conduct does not constitute an estoppel. In some jurisdictions, in order
to make out a claim of promissory estoppel, a party bears the burden of establishing the
following elements: (1) a promise reasonably expected to induce action or forebearance;
(2) such promise did in fact induce such action or forebearance, and (3) the party suffered
detriment as a result.
It is clear from the forgoing that the doctrine of promissory estoppel presupposes
the existence of a promise on the part of one against whom estoppel is claimed. The
promise must be plain and unambiguous and sufficiently specific so that the Judiciary can
understand the obligation assumed and enforce the promise according to its terms. For
petitioner to claim that respondent PNB is estopped to deny the five-year restructuring
plan, he must first prove that respondent PNB had promised to approve the plan in
exchange for the submission of the proposal. As discussed earlier, no such promise was
proven, therefore, the doctrine does not apply to the case at bar. A cause of action for
promissory estoppel does not lie where an alleged oral promise was conditional, so that
reliance upon it was not reasonable. It does not operate to create liability where it does
not otherwise exist.

Page | 326

ROBLETT INDUSTRIAL CONSTRUCTION CORPORATION


vs. COURT OF APPEALS
266 SCRA 71
FACTS:
On 23 September 1986 respondent Contractors Equipment Corporation (CEC)
instituted an action for a sum of money against petitioner Roblett Industrial Construction
Corporation (RICC) before the Regional Trial Court of Makati alleging that in 1985 it
leased to the latter various construction equipment which it used in its projects. As a
result RICC incurred unpaid accounts amounting to P342,909.38.
On 19 December 1985 RICC through its Assistant Vice President for Finance
Candelario S. Aller Jr. entered into an Agreement with CEC where it confirmed
petitioner's account. As an off-setting arrangement respondent received from petitioner
construction materials worth P115,000.00 thus reducing petitioner's balance to
P227,909.38.
A day before the execution of their Agreement, or on 18 December 1985, RICC
paid CEC P10,000.00 in postdated checks which when deposited were dishonored. As a
consequence the latter debited the amount to petitioner's account of P227,909.38 thus
increasing its balance to P237,909.38.
On 24 July 1986 Mariano R. Manaligod, Jr., General Manager of CEC, sent a
letter of demand to petitioner through its Vice President for Finance regarding the latter's
overdue account of P237,909.38 and sought settlement thereof on or before 31 July 1986.
In reply, petitioner requested for thirty (30) days to have enough time to look for funds to
substantially settle its account.
Traversing the allegations of respondent, Candelario S. Aller Jr. declared that he
signed the Agreement with the real intention of having proof of payment. In fact Baltazar
Banlot, Vice President for Finance of petitioner, claimed that after deliberation and audit
it appeared that petitioner overpaid respondent by P12,000.00 on the basis of the latter's
Equipment Daily Time Reports for 2 May to 14 June 1985 which reflected a total
obligation of only P103,000.00. He claimed however that the Agreement was not
approved by the Board and that he did not authorize Aller Jr. to sign thereon.
On rebuttal, Manaligod Jr. declared that petitioner had received a statement of
account covering the period from 28 March to 12 July 1985 in the amount of
P376,350.18 which it never questioned. From this amount P3,440.80, based on
respondent's account with petitioner and P30,000.00, representing payments made by the
latter, were deducted thus leaving a balance of P342,909.38 as mentioned in the
Agreement. On 19 December 1990 the trial court rendered judgment ordering petitioner
to pay respondent

ISSUE:
Whether or not the agreement between the parties is binding upon them.

RULING:
Yes. It must be emphasized that the same agreement was used by plaintiff as the
basis for claiming defendant's obligation of P237,909.38 and also used by defendant as
Page | 327

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

Page | 328

METROBANK vs. CABILZO


510 SCRA 259
FACTS:
On 12 November 1994, Cabilzo issued a Metrobank Check No. 985988, payable
to CASH and postdated on 24 November 1994 in the amount of One Thousand Pesos
(P1, 000.00). The check was drawn against Cabilzos Account with Metrobank Pasong
Tamo Branch under Current Account No. 618044873-3 and was paid by Cabilzo to a
certain Mr. Marquez, as his sales commission. Subsequently, the check was presented to
Westmont Bank for payment. Westmont Bank, in turn, indorsed the check to Metrobank
for appropriate clearing. After the entries thereon were examined, including the
availability of funds and the authenticity of the signature of the drawer, Metrobank
cleared the check for encashment in accordance with the Philippine Clearing House
Corporation (PCHC) Rules.
On 16 November 1994, Cabilzos representative was at Metrobank Pasong Tamo
Branch to make some transaction when he was asked by bank personnel if Cabilzo had
issued a check in the amount of P91, 000.00 to which the former replied in the negative.
On the afternoon of the same date, Cabilzo himself called Metrobank to reiterate that he
did not issue a check in the amount of P91, 000.00 and requested that the questioned
check be returned to him for verification, to which Metrobank complied. Upon receipt of
the check, Cabilzo discovered that Metrobank Check No. 985988 which he issued on 12
November 1994 in the amount of P1, 000.00 was altered to P91, 000.00 and the date 24
November 1994 was changed to 14 November 1994.Hence, Cabilzo demanded that
Metrobank re-credit the amount of P91, 000.00 to his account. Metrobank, however,
refused reasoning that it has to refer the matter first to its Legal Division for appropriate
action. Repeated verbal demands followed but Metrobank still failed to re-credit the
amount of P91, 000.00 to Cabilzos account
On 30 June 1995, Cabilzo, thru counsel, finally sent a letter-demand to Metrobank
for the payment of P90, 000.00, after deducting the original value of the check in the
amount of P1, 000.00. Such written demand notwithstanding, Metrobank still failed or
refused to comply with its obligation. Consequently, Cabilzo instituted a civil action for
damages against Metrobank before the RTC of Manila, Branch 13. In his Complaint
docketed as Civil Case No. 95-75651, Renato D. Cabilzo v. Metropolitan Bank and Trust
Company, Cabilzo prayed that in addition to his claim for reimbursement, actual and
moral damages plus costs of the suit be awarded in his favor.
ISSUE:
Whether equitable estoppel can be appreciated in favor of petitioner

HELD:
The degree of diligence required of a reasonable man in the exercise of his tasks
and the performance of his duties has been faithfully complied with by Cabilzo. In fact,
he was wary enough that he filled with asterisks the spaces between and after the
amounts, not only those stated in words, but also those in numerical figures, in order to
prevent any fraudulent insertion, but unfortunately, the check was still successfully
altered, indorsed by the collecting bank, and cleared by the drawee bank, and encashed
by the perpetrator of the fraud, to the damage and prejudice of Cabilzo.

Page | 329

Metrobank cannot lightly impute that Cabilzo was negligent and is therefore
prevented from asserting his rights under the doctrine of equitable estoppel when the
facts on record are bare of evidence to support such conclusion. The doctrine of
equitable estoppel states that when one of the two innocent persons, each guiltless of any
intentional or moral wrong, must suffer a loss, it must be borne by the one whose
erroneous conduct, either by omission or commission, was the cause of injury.
Metrobanks reliance on this dictum is misplaced. For one, Metrobanks representation
that it is an innocent party is flimsy and evidently, misleading. At the same time,
Metrobank cannot asseverate that Cabilzo was negligent and this negligence was the
proximate cause of the loss in the absence of even a scintilla proof to buttress such claim.
Negligence is not presumed but must be proven by the one who alleges it, which
petitioner failed to.

Page | 330

MESINA vs. GARCIA


509 SCRA 431
FACTS:
Atty. Honorio Valisno Garcia and Felicisima Mesina, during their lifetime, or on
26 April 1977, to be exact entered into a Contract to Sell over a lot consisting of 235
square meters, situated at Diversion Road, Sangitan, Cabanatuan City, covered and
embraced by TCT No. T-31643 in the name of Felicisima Mesina which title was
eventually
cancelled and TCT No. T-78881 was issued in the name of herein
petitioners. Atty. Honorio Valisno Garcia is the deceased husband of [herein respondent
Gloria C. Garcia] while the late Felicisima Mesina is the mother of Danilo, Simeon, and
Melanie, all surnamed Mesina.
The Contract to sell provides that the cost of the lot is P70.00 per square
meter for a total amount of P16, 450.00; payable within a period not to exceed seven (7)
years at an interest rate of 12% per annum, in successive monthly installments of P260.85
per month, starting May 1977. Thereafter, the succeeding monthly installments are to be
paid within the first week of every month, at the residence of the vendor at Quezon City,
with all unpaid monthly installments earning an interest of one percent (1%) per month.
The Contract also stipulated, among others, that: Should the spouses Garcia fail
to pay five (5) successive monthly installments, Felicisima Mesina shall have a right to
rescind the Contract to Sell. All paid installments to be recomputed as rental for usage of
lot shall be at the rate of P100.00 a month and that Felicisima Mesina shall have the
further option to return the downpayment plus whatever balance spouses Garcia paid,
thereby rescinding the Contract to Sell. Upon rescission of the Contract to sell,
spouses Garcia agree to remove all the improvements built on the lot within three (3)
months from rescission of this contract, spouses Garcia shouldering all expenses of said
removal.
Instituting this case at bar, respondent asserts that despite the full payment made
on February 7, 1984 for the consideration of the subject lot, petitioners refused to issue
the necessary Deed of Sale to effect the transfer of the property to her
ISSUES:
Whether respondents cause of action had already prescribed
Whether petitioners are in estoppel
HELD:
In the case at bar, as pointed out by the Court of Appeals, the right of action of the
respondent accrued on the date that the full and final payment of the contract price was
made. Accordingly, as the full payment of the purchase price on the subject Contract to
Sell had been effected on 7 February 1984 thus, respondent had from said date until
February 7, 1994 within which to bring an action to enforce the written contract, the
Contract to Sell. It was then the contention of the petitioners that when the respondent
instituted her Complaint for Specific Performance with Damages on 20 January 1997, the
same had already been barred by prescription. The contention of the petitioners is
untenable. Article 1155 of the Civil Code is explicit that the prescriptive period is
interrupted when an action has been filed in court; when there is a written extrajudicial
demand made by the creditors; and when there is any written acknowledgment of the debt
by the debtor. Hence the action has not yet prescribed.

Page | 331

With respect to the issue on estoppel, this Court, upon reviewing the records of
the case at bar, finds no reason to overturn the findings of the appellate court that, indeed,
petitioners are estopped from avowing that they never had knowledge as to the
acceptance of the delayed payments made by the respondent, and that they never induced
respondent to believe that she had validly effected full payment. Evidence on record
show that petitioners can no longer deny having accepted the late payments made by the
respondent because in a letter dated April 10, 1986 sent to petitioner Simeon Mesina by
Engineer Danilo Angeles, who is the husband of petitioners authorized collection agent
Angelina Angeles, he told petitioner Simeon Mesina that the title and the Deed of Sale
were both ready for their signature, and respondent was willing and ready to pay for the
excess area. Hence, if petitioners did not accept the late payments of the respondent, and
if they did not consider such as full payment of the purchase price on the subject property
as they claimed it to be, the title as well as the Deed of Sale could not have been prepared
for their signature. In the same way, respondent could not have sent a demand letter to
ask for the execution of those documents had they not been induced to believe that the
late payments were validly accepted and that the purchase price had already been paid in
full. There were statements, which were made under oath, which made it crystal clear that
the late payments were accepted by the petitioners, and that the payments corresponded
to the purchase value of the subject property; therefore, petitioners cannot deny the fact
that the full payment of the purchase value of the lot in question had in fact been made by
the respondent.

Page | 332

PAHAMOTANG VS. PNB


G.R. No. 156403, March 21, 2005
FACTS:
On July 1, 1972, Melitona Pahamotang died. She was survived by her husband
Agustin Pahamotang, and their eight (8) children, namely: Ana, Genoveva, Isabelita,
Corazon, Susana, Concepcion and herein petitioners Josephine and Eleonor, all surnamed
Pahamotang. On September 15, 1972, Agustin filed with the then Court of First Instance
of Davao City a petition for issuance of letters administration over the estate of his
deceased wife. The petition, docketed as Special Case No. 1792, was raffled to Branch
VI of said court, hereinafter referred to as the intestate court. In his petition, Agustin
identified petitioners Josephine and Eleonor as among the heirs of his deceased spouse.
It appears that Agustin was appointed petitioners' judicial guardian in an earlier case Special Civil Case No. 1785 also of the CFI of Davao City, Branch VI. On December
7, 1972, the intestate court issued an order granting Agustins petition.
The late Agustin then executed several mortgages and later sale of the properties
with the PNB and Arguna respectively. The heirs later questioned the validity of the
transactions prejudicial to them. The trial court declared the real estate mortgage and the
sale void but both were valid with respect to the other parties. The decision was reversed
by the Court of Appeals; to the appellate court, petitioners committed a fatal error of
mounting a collateral attack on the foregoing orders instead of initiating a direct action to
annul them.
ISSUE:
Whether the Court of Appeals erred in reversing the decision of the trial court

RULING:

In the present case, the appellate court erred in appreciating laches against
petitioners. The element of delay in questioning the subject orders of the intestate court is
sorely lacking. Petitioners were totally unaware of the plan of Agustin to mortgage and
sell the estate properties. There is no indication that mortgagor PNB and vendee Arguna
had notified petitioners of the contracts they had executed with Agustin. Although
petitioners finally obtained knowledge of the subject petitions filed by their father,
and eventually challenged the July 18, 1973, October 19, 1974, February 25, 1980 and
January 7, 1981 orders of the intestate court, it is not clear from the challenged
decision of the appellate court when they (petitioners) actually learned of the existence
of said orders of the intestate court. Absent any indication of the point in time when
petitioners acquired knowledge of those orders, their alleged delay in impugning the
validity thereof certainly cannot be established. And the Court of Appeals cannot simply
impute laches against them.

Page | 333

SHOPPER'S PARADISE REALTY & DEVELOPMENT CORPORATION


vs. EFREN ROQUE
January 13, 2004
FACTS:
On 23 December 1993, petitioner Shopper's Paradise Realty & Development
Corporation, represented its president, Veredigno Atienza, entered into a twenty-five year
lease with Dr. Felipe C. Roque, now deceased, over a parcel of land, Petitioner issued to
Dr. Roque a check for P250,000.00 by way of "reservation payment." Simultaneously,
petitioner and Dr. Roque likewise entered into a memorandum of agreement for the
construction, development and operation of a commercial building complex on the
property. Conformably with the agreement, petitioner issued a check for another
P250,000.00 "downpayment" to Dr. Roque.
The annotations, however, were never made because of the untimely demise of
Dr. Felipe C. Roque. The death of Dr. Roque on 10 February 1994 constrained petitioner
to deal with respondent Efren P. Roque, one of the surviving children of the late Dr.
Roque, but the negotiations broke down due to some disagreements. In a letter, dated 3
November 1994, respondent advised petitioner "to desist from any attempt to enforce the
aforementioned contract of lease and memorandum of agreement". On 15 February 1995,
respondent filed a case for annulment of the contract of lease and the memorandum of
agreement, with a prayer for the issuance of a preliminary injunction. Efren P. Roque
alleged that he had long been the absolute owner of the subject property by virtue of a
deed of donation inter vivos executed in his favor by his parents, Dr. Felipe Roque and
Elisa Roque, on 26 December 1978, and that the late Dr. Felipe Roque had no authority
to enter into the assailed agreements with petitioner. The donation was made in a public
instrument duly acknowledged by the donor-spouses before a notary public and duly
accepted on the same day by respondent before the notary public in the same instrument
of donation. The title to the property, however, remained in the name of Dr. Felipe C.
Roque, and it was only transferred to and in the name of respondent sixteen years later, or
on 11 May 1994, while he resided in the United States of America, delegated to his father
the mere administration of the property. Respondent came to know of the assailed
contracts with petitioner only after retiring to the Philippines upon the death of his father.
On 9 August 1996, the trial court dismissed the complaint of respondent; it explained:
Ordinarily, a deed of donation need not be registered in order to be valid between
the parties. Registration, however, is important in binding third persons. Thus, when
Felipe Roque entered into a lease contract with defendant corporation, plaintiff Efren
Roque (could) no longer assert the unregistered deed of donation and say that his father,
Felipe, was no longer the owner of the subject property at the time the lease on the
subject property was agreed upon. "The registration of the Deed of Donation after the
execution of the lease contract did not affect the latter unless he had knowledge thereof at
the time of the registration which plaintiff had not been able to establish. Plaintiff knew
very well of the existence of the lease. He, in fact, met with the officers of the defendant
corporation at least once before he caused the registration of the deed of donation in his
favor and although the lease itself was not registered, it remains valid considering that no
third person is involved. Plaintiff cannot be the third person because he is the successorin-interest of his father, Felipe Roque, the lessor, and it is a rule that contracts take effect
not only between the parties themselves but also between their assigns and heirs (Article
1311, Civil Code) and therefore, the lease contract together with the memorandum of
agreement would be conclusive on plaintiff Efren Roque. He is bound by the contract
even if he did not participate therein. Moreover, the agreements have been perfected and
partially executed by the receipt of his father of the downpayment and deposit totaling to
P500,000.00." The trial court ordered respondent to surrender TCT No. 109754 to the
Register of Deeds of Quezon City for the annotation of the questioned Contract of Lease
and Memorandum of Agreement.
Page | 334

On appeal, the Court of Appeals reversed the decision of the trial court and held
to be invalid the Contract of Lease and Memorandum of Agreement. While it shared the
view expressed by the trial court that a deed of donation would have to be registered in
order to bind third persons, the appellate court, however, concluded that petitioner was
not a lessee in good faith having had prior knowledge of the donation in favor of
respondent, and that such actual knowledge had the effect of registration insofar as
petitioner was concerned. The appellate court based its findings largely on the testimony
of Veredigno Atienza during cross-examination.
ISSUE:
Whether or not the respondent is barred by laches and estoppel from denying the
contracts.
RULING:
The Court cannot accept petitioner's argument that respondent is guilty of laches.
Laches, in its real sense, is the failure or neglect, for an unreasonable and unexplained
length of time, to do that which, by exercising due diligence, could or should have been
done earlier; it is negligence or omission to assert a right within a reasonable time,
warranting a presumption that the party entitled to assert it either has abandoned or
declined to assert it. Respondent learned of the contracts only in February 1994 after the
death of his father, and in the same year, during November, he assailed the validity of the
agreements. Hardly, could respondent then be said to have neglected to assert his case for
an unreasonable length of time.
Neither is respondent estopped from repudiating the contracts. The essential
elements of estoppel in pais, in relation to the party sought to be estopped, are: 1) a clear
conduct amounting to false representation or concealment of material facts or, at least,
calculated to convey the impression that the facts are otherwise than, and inconsistent
with, those which the party subsequently attempts to assert; 2) an intent or, at least, an
expectation, that this conduct shall influence, or be acted upon by, the other party; and 3)
the knowledge, actual or constructive, by him of the real facts. With respect to the party
claiming the estoppel, the conditions he must satisfy are: 1) lack of knowledge or of the
means of knowledge of the truth as to the facts in question; 2) reliance, in good faith,
upon the conduct or statements of the party to be estopped; and 3) action or inaction
based thereon of such character as to change his position or status calculated to cause him
injury or prejudice. 12 It has not been shown that respondent intended to conceal the
actual facts concerning the property; more importantly, petitioner has been shown not to
be totally unaware of the real ownership of the subject property. Altogether, there is no
cogent reason to reverse the Court of Appeals in its assailed decision.

Page | 335

MEATMASTER vs. LELIS INTEGRATED


452 SCRA 626
FACTS:
On November 11, 1993, petitioner Meatmasters International Corporation
engaged the services of respondent Lelis Integrated Development Corporation to
undertake the construction of a slaughterhouse and meat cutting and packing plant. The
Construction Agreement provided that the construction of petitioners slaughterhouse
should be completed by March 10, 1994. Respondent failed to finish the construction of
the said facility within the stipulated period, hence, petitioner filed a complaint for
rescission of contract and damages on August 9, 1996 before the Regional Trial Court.
On November 23, 1998, the trial court rendered decision RESCINDING the
Construction Agreement between plaintiff Meatmaster Intl. Corp. and defendant Lelis
Integrated Devt. Corp. with both parties shouldering their own respective damage.
A copy of the decision was received by the respondent on December 9, 1998. A
motion for reconsideration was filed by respondent on December 22, 1998, but the same
was denied. A copy of the resolution denying the motion for reconsideration was
received on March 25, 1999. Respondent filed its notice of appeal on March 29, 1999.
Initially, the trial court dismissed the appeal for failure of the respondent to pay
the requisite docket fees within the reglementary period. Upon motion by the respondent
however, the trial court reconsidered and gave due course to the notice of appeal because
respondent paid the docket fees.
In a motion to dismiss filed before the appellate court, the petitioner alleged that
respondents appeal suffers from jurisdictional infirmity because of late payment of
docket fees.
CA set aside the decision of the trial court and directed petitioner to pay
respondent the amount of P1,863,081.53. Petitioners motion for reconsideration was
denied Hence, the instant petition.
ISSUE:
Whether or not the Court of Appeals erred in entertaining the appeal of
respondent despite the finality of the trial courts decision.
RULING:
Yes. It is well-established that the payment of docket fees within the prescribed
period is mandatory for the perfection of an appeal. This is so because a court acquires
jurisdiction over the subject matter of the action only upon the payment of the correct
amount of docket fees regardless of the actual date of filing of the case in court. The
payment of the full amount of the docket fee is a sine qua non requirement for the
perfection of an appeal. The court acquires jurisdiction over the case only upon the
payment of the prescribed docket fees.
In the case at bar, the respondent seasonably filed the notice of appeal but it paid the
docket fees one (1) month after the lapse of the appeal period. As admitted by the
respondent, the last day for filing the notice of appeal was on March 29, 1999, but it paid
the docket fees only on April 30, 1999 because of oversight. Obviously, at the time the
said docket fees were paid, the decision appealed from has long attained finality and no
longer appealable.
Page | 336

Respondents contention that the petitioner is now estopped from raising the issue
of late payment of the docket fee because of his failure to assail promptly the trial courts
order approving the notice of appeal and accepting the appeal fee, is untenable. Estoppel
by laches arises from the negligence or omission to assert a right within a reasonable
time, warranting a presumption that the party entitled to assert it either has abandoned or
declined to assert it. In the case at bar, petitioner raised at the first instance the nonpayment of the docket fee in its motion for reconsideration before the trial court.
Petitioner reiterated its objection in the motion to dismiss before the appellate court and
finally, in the instant petition. Plainly, petitioner cannot be faulted for being remiss in
asserting its rights considering that it vigorously registered a persistent and consistent
objection to the Court of Appeals assumption of jurisdiction at all stages of the
proceedings.

Page | 337

MANIPOR vs. RICAFORT


407 SCRA 298
FACTS:
Respondent spouses Pablo and Antonia Ricafort instituted an action for
annulment of Transfer of Certificate of Title in the name of spouses Renato and Teresita
Villareal covering a 299 sq.m. lot. The Ricaforts alleged that they are co-owners of said
property together with Abelardo, the father and predecessor of Renato as evidenced by an
agreement whereby Abelardo recognized their ownership of portion of the lot.
Respondents also claim that, in violation of the agreement, Abelardo obtained during his
lifetime Original Certificate of Title over the lot without their knowledge and consent.
When Abelardo died in 1993, Renato and Teresita transferred the title over the land in
their name and were issued a TCT.
In the course of the proceedings, parties entered into a compromise settlement
wherein the Villareals admitted the genuineness and due execution of the agreement
between respondents and Abelardo. Hence, they agreed to physically divide the lot into
half. They also agreed to cause a relocation survey and the expenses will be borne equally
by them.
The trial court approved the compromise agreement but not long thereafter,
respondents filed a motion to cite the Villareals in contempt of court for refusing to
comply with the terms of the agreement. Eventually, herein petitioners who are all
siblings of Renato filed a motion for intervention and substitution of parties alleging that
spouses Renato and Teresita have waived their interest in the disputed lot in their favor.
Petitioners availed of various remedies only to pursue the endeavor for the annulment of
the compromise judgment. Most of them were denied until they resorted to this review
before the Supreme Court.
ISSUE:
Whether or not the petitioners are estopped from seeking the annulment of the
compromise judgment.
RULING:
Yes, note that in a Sinumpaang Salaysay, petitioners admitted that they
acquiesced to have the subject lot donated and registered in Renatos name. In view of
such admission, petitioners are estopped from denying Renatos absolute title to the lot.
Under the principle of estoppel, an admission or representation is rendered conclusive
upon the person making it and cannot be denied against the person relying thereon.
Verily, since petitioners admitted that they donated the lot to Renato, they cannot now be
allowed to defeat respondents claim by conveniently asserting that they are co-owners of
the lot. Otherwise, respondents, who rightfully relied on the Certificate of Title, would be
prejudiced by petitioners misleading conduct.

Page | 338

LARENA vs. MAPILI


408 SCRA 484
FACTS:
Hipolito Mapili during his lifetime owned a parcel of unregistered land declared
for taxation purposes in his name. The property had descended by succession from
Hipolito to his only son Magno and on to the latters own widow and children. These
heirs, the herein respondents, took possession of the property up to the outbreak of World
War II when they evacuated to the hinterlands.
On the other hand, petitioner Aquilina Larena took possession of the property in
the1970s alleging that she had purchased it from her aunt (Filomena Larena) on
February 17, 1968. Filomena Larena in turn claimed to have bought it from Hipolito on
October 28, 1949, as evidence by the Affidavit of Transfer of Real Property executed on
the same date. The Regional Trial Court, however, declared the said affidavit as spurious
because Hipolito was already dead when the alleged transfer was made to Filomena
Larena.
On appeal, the Court of Appeals declared that respondents had never lost their
right to the land in question as they were the heirs to whom the property had descended
upon the death of the original claimant and possessor.
ISSUE:
Whether or not Filomena Larena acquired the subject property by means of sale,
prescription, and/or laches.
RULING:

No, Filomena did not acquire said property by means of sale, prescription and/or
laches. First, the tax declarations are not a conclusive evidence of ownership, but a proof
that the holder has a claim of title over the property. It is good indicia of possession in the
concept of owner. It may strengthen Aquilinas bona fide claim of acquisition of
ownership. However, petitioners failed to present the evidence needed to tack the date of
possession on the property in question.
Second, acquisitive prescription is a mode of acquiring ownership by a possessor
through the requisite lapse of time. Since the claims of purchase were unsubstantiated,
petitioners acts of possessory character have been merely tolerated by the owner. Hence,
it did not constitute possession. Moreover, there is lack of just title on the part of Aquilina
and therefore, ordinary acquisitive prescription of ten (10) years as provided under
Article 1134 of the Civil Code cannot be applied. Under Article 1137 of the Civil Code,
the lapse of time required for extra-ordinary acquisitive prescription is thirty (30) years,
and records show that the lapse of time was only twenty-seven (27) yearsa period that
was short of three (3) years, when the complaint was filed.
Finally, laches is a failure or neglect for an unreasonable and unexplained length
of time to do that which could or should have been done earlier through the exercise of
due diligence. The filing by respondents of the complaint in 1977 completely negates the
decision that the latter were negligent in asserting their claim.

Page | 339

SANTOS vs. SANTOS


366 SCRA 395
FACTS:
Petitioner Zenaida M. Santos is the widow of Salvador Santos, a brother of
private respondents Calixto, Alberto, Antonio, all surnamed Santos and Rosa SantosCarreon.
The spouses Jesus and Rosalia were the parents of the respondents and the
husband of the petitioner. The spouses owned a parcel of registered land with a four-door
apartment administered by Rosalia who rented them out. On January 19, 1959, the
spouses executed a deed of sale of the properties in favor of their children Salvador and
Rosa. Rosa in turn sold her share to Salvador on November 20, 1973, which resulted in
the issuance of new TCT. Despite the transfer of the property to Salvador, Rosalia
continued to lease and receive rentals from the apartment units.
On January 9, 1985, Salvador died, followed by Rosalia who died the following
month. Shortly after, petitioner Zenaida, claiming to be Salvadors heir, demanded the
rent from Antonio Hombrebueno, a tenant of Rosalia. When the latter refused to pay,
Zenaida filed an ejectment suit against him with the Metropolitan Trial Court of Manila,
which eventually decided in Zenaidas favor.
On January 5, 1989, private respondent instituted an action for reconveyance of
property with preliminary injunction against petitioner in the Regional Trial Court of
Manila, where they alleged that the two deeds of sale were simulated for lack of
consideration. The petitioner on the other hand denied the material allegations in the
complaint and that she further alleged that the respondents right to reconveyance was
already barred by prescription and laches considering the fact that from the date of sale
from Rosa to Salvador up to his death, more or less twelve (12) years had lapsed, and
from his death up to the filing of the case for reconveyance, four (4) years has elapsed. In
other words, it took respondents about sixteen (16) years to file the case. Moreover,
petitioner argues that an action to annul a contract for lack of consideration prescribes in
ten (10) years and even assuming that the cause of action has not prescribed, respondents
are guilty of laches for their inaction for a long period of time.
The trial court decided in favor of private respondents in as much as the deeds of
sale were fictitious, the action to assail the same does not prescribe.
Upon appeal, the Court of Appeals affirmed the trial courts decision. It held that
the subject deeds of sale did not confer upon Salvador the ownership over the subject
property, because even after the sale, the original vendors remained in dominion, control,
and possession thereof.
ISSUE:
Whether or not the cause of action of the respondents had prescribed and/or
barred by laches.
RULING:
No, the cause of action by the respondents had not prescribed nor is it barred by
laches.
First, the right to file an action for the reconveyance of the subject property to the
estate of Rosalia has not prescribed since deeds of sale were simulated and fictitious. The
Page | 340

complaint amounts to a declaration of nullity of a void contract, which is imprescriptible.


Hence, respondents cause of action has not prescribed.
Second, neither is their action barred by laches. The elements of laches are: 1)
conduct on the part of the defendant, or of one under whom he claims, giving rise to the
situation of which the complainant seeks a remedy; 2) delay in asserting the
complainants rights, the complainant having knowledge or notice of the defendants
conduct as having been afforded an opportunity to institute a suit; 3) lack of knowledge
or notice on the part of the defendant that the complainant would assert the right in which
he bases his suit; and 4) injury or prejudice to the defendant in the event relief is accorded
to the complainant, or the suit is not held barred. These elements must all be proved
positively. The lapse of four (4) years is not an unreasonable delay sufficient to bar
respondents action. Moreover, the fourth (4th) element is lacking in this case. The
concept of laches is not concerned with the lapse of time but only with the effect of
unreasonable lapse. The alleged sixteen (16) years of respondents inaction has no
adverse effect on the petitioner to make respondents guilty of laches.

Page | 341

VILLANUEVA- MIJARES ET. AL. vs. COURT OF APPEALS


April 12, 2000
FACTS:
Felipe Villanueva left a 15,336-square-meter parcel of land in Kalibo, Capiz to his
eight children: Simplicio, Benito, Leon, Eustaquio, Camila, Fausta and Pedro. In 1952,
Pedro declared under his name 1/6 portion of the property (1,905 sq. m.). He held the
remaining properties in trust for his co-heirs who demanded the subdivision of the
property but to no avail. After Leons death in 1972, private respondents discovered that
the shares of Simplicio, Nicolasa, Fausta and Maria Baltazar had been purchased by Leon
through a deed of sale dated August 25, 1946 but registered only in 1971. In July 1970,
Leon also sold and partitioned the property in favor of petitioners, his children, who
thereafter secured separate and independent titles over their respective pro- indiviso
shares.
Private respondents, who are also descendants of Felipe, filed an action for
partition with annulment of documents and/or reconveyance and damages against
petitioners. They contended that Leon fraudulently obtained the sale in his favor through
machinations and false pretenses. The RTC declared that private respondents action had
been barred by res judicata and that petitioners are the legal owners of the property in
question in accordance with the individual titles issued to them.
ISSUE:
Whether or not laches apply against the minors property that was held in trust.
RULING:
No. At the time of the signing of the Deed of Sale of August 26,1948, private
respondents Procerfina, Prosperedad, Ramon and Rosa were minors. They could not be
faulted for their failure to file a case to recover their inheritance from their uncle Leon,
since up to the age of majority, they believed and considered Leon their co-heir
administrator. It was only in 1975, not in 1948, that they became aware of the actionable
betrayal by their uncle. Upon learning of their uncles actions, they filed for recovery.
Hence, the doctrine of stale demands formulated in Tijam cannot be applied here. They
did not sleep on their rights, contrary to petitioners assertion.
Furthermore, when Felipe Villanueva died, an implied trust was created by
operation of law between Felipes children and Leon, their uncle, as far as the 1/6 share
of Felipe. Leons fraudulent titling of Felipes 1/6 share was a betrayal of that implied
trust.

Page | 342

TOLENTINO vs. SECRETARY


235 SCRA 630
FACTS:
The valued-added tax (VAT) is levied on the sale, barter or exchange of goods
and properties as well as on the sale or exchange of services. It is equivalent to 10% of
the gross selling price or gross value in money of goods or properties sold, bartered or
exchanged or of the gross receipts from the sale or exchange of services. Republic Act
No. 7716 seeks to widen the tax base of the existing VAT system and enhance its
administration by amending the National Internal Revenue Code. The petitioners
challenge the constitutionality of Republic Act No. 7716 on various grounds.
ISSUE:
Whether or not the imposition of Vat violates the non-impairment clause.
RULING:
Only slightly less abstract but nonetheless hypothetical is the contention of
CREBA that the imposition of the VAT on the sales and leases of real estate by virtue of
contracts entered into prior to the effectivity of the law would violate the constitutional
provision that "No law impairing the obligation of contracts shall be passed." It is enough
to say that the parties to a contract cannot, through the exercise of prophetic discernment,
fetter the exercise of the taxing power of the State. For not only are existing laws read
into contracts in order to fix obligations as between parties, but the reservation of
essential attributes of sovereign power is also read into contracts as a basic postulate of
the legal order. The policy of protecting contracts against impairment presupposes the
maintenance of a government which retains adequate authority to secure the peace and
good order of society.

Page | 343

DUNCAN ASSOCIATION OF DETAILMAN PTGW vs. GLAXOWELLCOM


PHILIPPINES
G.R. No. 162994, September 17, 2004

FACTS:
Petitioner Pedro A. Tecson (Tecson) was hired by respondent Glaxo Wellcome
Philippines, Inc. (Glaxo) as medical representative on October 24, 1995, after Tecson had
undergone training and orientation. Thereafter, Tecson signed a contract of employment
which stipulates, among others, that he agrees to study and abide by existing company
rules; to disclose to management any existing or future relationship by consanguinity or
affinity with co-employees or employees of competing drug companies and should
management find that such relationship poses a possible conflict of interest, to resign
from the company.
The Employee Code of Conduct of Glaxo similarly provides that an employee is
expected to inform management of any existing or future relationship by consanguinity or
affinity with co-employees or employees of competing drug companies. If management
perceives a conflict of interest or a potential conflict between such relationship and the
employees employment with the company, the management and the employee will
explore the possibility of a transfer to another department in a non-counterchecking
position or preparation for employment outside the company after six months. Tecson
was initially assigned to market Glaxos products in the Camarines Sur-Camarines Norte
sales area. Subsequently, Tecson entered into a romantic relationship with Bettsy, an
employee of Astra Pharmaceuticals (Astra), a competitor of Glaxo. Bettsy was Astras
Branch Coordinator in Albay. She supervised the district managers and medical
representatives of her company and prepared marketing strategies for Astra in that area.
Even before they got married, Tecson received several reminders from his District
Manager regarding the conflict of interest which his relationship with Bettsy might
engender. Still, Tec son married Bettsy in September 1998. Tecson was later reassigned
at Butuan-Surigao-Agusan area to prevent conflict of interest but he refused and argued
that he was constructively dismissed.
ISSUE:
Whether the Court of Appeals erred in ruling that Glaxos policy against its
employees marrying employees from competitor companies is valid
HELD:
Glaxo has a right to guard its trade secrets, manufacturing formulas, marketing
strategies and other confidential programs and information from competitors, especially
so that it and Astra are rival companies in the highly competitive pharmaceutical
industry. The prohibition against personal or marital relationships with employees of
competitor companies upon Glaxos employees is reasonable under the circumstances
because relationships of that nature might compromise the interests of the company. In
laying down the assailed company policy, Glaxo only aims to protect its interests against
the possibility that a competitor company will gain access to its secrets and procedures.
That Glaxo possesses the right to protect its economic interests cannot be denied.
No less than the Constitution recognizes the right of enterprises to adopt and enforce such
a policy to protect its right to reasonable returns on investments and to expansion and
growth. Indeed, while our laws endeavor to give life to the constitutional policy on social
justice and the protection of labor, it does not mean that every labor dispute will be
decided in favor of the workers. The law also recognizes that management has rights
which are also entitled to respect and enforcement in the interest of fair play.
Page | 344

In this case, there were notices and advises given to the petitioner regarding his
romantic relationship to his marriage regarding the conflict of interest.
Hence the petition was denied.

Page | 345

STAR PAPER vs. SIMBOL


487 SCRA 228
FACTS:
Petitioner was the employer of the respondents. Under the policy of Star Paper the
employees are:
1. New applicants will not be allowed to be hired if in case he/she has a relative, up to
the 3rd degree of relationship, already employed by the company.
2. In case of two of our employees (singles, one male and another female) developed a
friendly relationship during the course of their employment and then decided to get
married, one of them should resign to preserve the policy stated above.
Respondents Comia and Simbol both got married to their fellow employees.
Estrella on the other hand had a relationship with a co-employee resulting to her
pregnancy on the belief that such was separated. The respondents allege that they were
forced to resign as a result of the implementation of the said assailed company policy.
The Labor Arbiter and the NLRC ruled in favor of petitioner. The decision was
appealed to the Court of Appeals which reversed the decision.
ISSUE:
Whether the prohibition to marry in the contract of employment is valid
HELD:
It is significant to note that in the case at bar, respondents were hired after they
were found fit for the job, but were asked to resign when they married a co-employee.
Petitioners failed to show how the marriage of Simbol, then a Sheeting Machine
Operator, to Alma Dayrit, then an employee of the Repacking Section, could be
detrimental to its business operations. Neither did petitioners explain how this detriment
will happen in the case of Wilfreda Comia, then a Production Helper in the Selecting
Department, who married Howard Comia, then a helper in the cutter-machine. The policy
is premised on the mere fear that employees married to each other will be less efficient.
If we uphold the questioned rule without valid justification, the employer can create
policies based on an unproven presumption of a perceived danger at the expense of an
employees right to security of tenure.
Petitioners contend that their policy will apply only when one employee marries a
co-employee, but they are free to marry persons other than co-employees. The
questioned policy may not facially violate Article 136 of the Labor Code but it creates a
disproportionate effect and under the disparate impact theory, the only way it could pass
judicial scrutiny is a showing that it is reasonable despite the discriminatory, albeit
disproportionate, effect. The failure of petitioners to prove a legitimate business concern
in imposing the questioned policy cannot prejudice the employees right to be free from
arbitrary discrimination based upon stereotypes of married persons working together in
one company.
Lastly, the absence of a statute expressly prohibiting marital discrimination in our
jurisdiction cannot benefit the petitioners. The protection given to labor in our
jurisdiction is vast and extensive that we cannot prudently draw inferences from the
legislatures silence that married persons are not protected under our Constitution and
declare valid a policy based on a prejudice or stereotype. Thus, for failure of petitioners
to present undisputed proof of a reasonable business necessity, we rule that the
Page | 346

questioned policy is an invalid exercise of management prerogative. Corollary, the issue


as to whether respondents Simbol and Comia resigned voluntarily has become moot and
academic.
In the case of Estrella, the petitioner failed to adduce proof to justify her
dismissal. Hence, the Court ruled that it was illegal.
Petition was denied.

Page | 347

TIU vs. PLATINUM PLANS PHILIPPINES


G.R. No. 163512, February 28, 2007
FACTS:
Respondent Platinum Plans Philippines, Inc. is a domestic corporation engaged in
the pre-need industry. From 1987 to 1989, petitioner Daisy B. Tiu was its Division
Marketing Director. On January 1, 1993, respondent re-hired petitioner as Senior
Assistant Vice-President and Territorial Operations Head in charge of its Hong Kong and
Asean operations. The parties executed a contract of employment valid for five years.
On September 16, 1995, petitioner stopped reporting for work. In November 1995, she
became the Vice-President for Sales of Professional Pension Plans, Inc., a corporation
engaged also in the pre-need industry.
Consequently, respondent sued petitioner for damages before the RTC of Pasig
City, Branch 261. Respondent alleged, among others, that petitioners employment with
Professional Pension Plans, Inc. violated the non-involvement clause in her contract of
employment. In upholding the validity of the non-involvement clause, the trial court ruled
that a contract in restraint of trade is valid provided that there is a limitation upon either
time or place. In the case of the pre-need industry, the trial court found the two-year
restriction to be valid and reasonable. On appeal, the Court of Appeals affirmed the trial
courts ruling. It reasoned that petitioner entered into the contract on her own will and
volition. Thus, she bound herself to fulfill not only what was expressly stipulated in the
contract, but also all its consequences that were not against good faith, usage, and law.
The appellate court also ruled that the stipulation prohibiting non-employment for two
years was valid and enforceable considering the nature of respondents business.
ISSUE:
Whether the Court of Appeals erred in sustaining the validity of the noninvolvement clause

HELD:
In this case, the non-involvement clause has a time limit: two years from the time
petitioners employment with respondent ends. It is also limited as to trade, since it only
prohibits petitioner from engaging in any pre-need business akin to respondents. More
significantly, since petitioner was the Senior Assistant Vice-President and Territorial
Operations Head in charge of respondents Hongkong and Asean operations, she had
been privy to confidential and highly sensitive marketing strategies of respondents
business. To allow her to engage in a rival business soon after she leaves would make
respondents trade secrets vulnerable especially in a highly competitive marketing
environment. In sum, The Court finds the non-involvement clause not contrary to public
welfare and not greater than is necessary to afford a fair and reasonable protection to
respondent. Hence the restraint is valid and such stipulation prevails.

Page | 348

AVON COSMETICS vs. LUNA


511 SCRA 376

FACTS:
The present petition stemmed from a complaint[3] dated 1 December 1988, filed
by herein respondent Luna alleging, inter alia that she began working for Beautifont, Inc.
in 1972, first as a franchise dealer and then a year later, as a Supervisor. Sometime in
1978, Avon Cosmetics, Inc. (Avon), herein petitioner, acquired and took over the
management and operations of Beautifont, Inc. Nonetheless, respondent Luna continued
working for said successor company. Aside from her work as a supervisor, respondent
Luna also acted as a make-up artist of petitioner Avons Theatrical Promotions Group,
for which she received a per diem for each theatrical performance.
The contract was that:
The Company agrees:
1)

To allow the Supervisor to purchase at wholesale the products of the Company.

The Supervisor agrees:


1)
To purchase products from the Company exclusively for resale and to be
responsible for obtaining all permits and licenses required to sell the products on retail.
The Company and the Supervisor mutually agree:

1)
That this agreement in no way makes the Supervisor an employee or agent of the
Company, therefore, the Supervisor has no authority to bind the Company in any
contracts with other parties.
2)
That the Supervisor is an independent retailer/dealer insofar as the Company is
concerned, and shall have the sole discretion to determine where and how products
purchased from the Company will be sold. However, the Supervisor shall not sell such
products to stores, supermarkets or to any entity or person who sells things at a fixed
place of business.
3)
That this agreement supersedes any agreement/s between the Company and the
Supervisor.
4)
That the Supervisor shall sell or offer to sell, display or promote only and
exclusively products sold by the Company.
5)
Either party may terminate this agreement at will, with or without cause, at any
time upon notice to the other.
Later, respondent Luna entered into the sales force of Sandre Philippines which
caused her termination for the alleged violation of the terms of the contract. The trial
court ruled in favor of Luna that the contract was contrary to public policy thus the
dismissal was not proper. The Court of Appeals affirmed the decision, hence this petition.
ISSUE:
Whether the Court of Appeals erred in ruling that the Supervisors Agreement
was invalid for being contrary to public policy

Page | 349

Whether there was subversion of the autonomy of contracts by the lower courts
HELD:
Agreements in violation of orden pblico must be considered as those which
conflict with law, whether properly, strictly and wholly a public law (derecho) or whether
a law of the person, but law which in certain respects affects the interest of society.
Plainly put, public policy is that principle of the law which holds that no subject or
citizen can lawfully do that which has a tendency to be injurious to the public or against
the public good. As applied to contracts, in the absence of express legislation or
constitutional prohibition, a court, in order to declare a contract void as against public
policy, must find that the contract as to the consideration or thing to be done, has a
tendency to injure the public, is against the public good, or contravenes some established
interests of society, or is inconsistent with sound policy and good morals, or tends clearly
to undermine the security of individual rights, whether of personal liability or of private
property.
From another perspective, the main objection to exclusive dealing is its tendency
to foreclose existing competitors or new entrants from competition in the covered portion
of the relevant market during the term of the agreement. Only those arrangements whose
probable effect is to foreclose competition in a substantial share of the line of commerce
affected can be considered as void for being against public policy. The foreclosure effect,
if any, depends on the market share involved. The relevant market for this purpose
includes the full range of selling opportunities reasonably open to rivals, namely, all the
product and geographic sales they may readily compete for, using easily convertible
plants and marketing organizations.
Applying the preceding principles to the case at bar, there is nothing invalid or
contrary to public policy either in the objectives sought to be attained by paragraph 5, i.e.,
the exclusivity clause, in prohibiting respondent Luna, and all other Avon supervisors,
from selling products other than those manufactured by petitioner Avon.
Having held that the exclusivity clause as embodied in paragraph 5 of the
Supervisors Agreement is valid and not against public policy, we now pass to a
consideration of respondent Lunas objections to the validity of her termination as
provided for under paragraph 6 of the Supervisors Agreement giving petitioner Avon the
right to terminate or cancel such contract. The paragraph 6 or the termination clause
therein expressly provides that:
The Company and the Supervisor mutually agree:
6)
Either party may terminate this agreement at will, with or without cause, at any
time upon notice to the other.
In the case at bar, the termination clause of the Supervisors Agreement clearly
provides for two ways of terminating and/or canceling the contract. One mode does not
exclude the other. The contract provided that it can be terminated or cancelled for cause,
it also stated that it can be terminated without cause, both at any time and after written
notice. Thus, whether or not the termination or cancellation of the Supervisors
Agreement was for cause, is immaterial. The only requirement is that of notice to the
other party. When petitioner Avon chose to terminate the contract, for cause, respondent
Luna was duly notified thereof.
Worth stressing is that the right to unilaterally terminate or cancel the
Supervisors Agreement with or without cause is equally available to respondent Luna,
subject to the same notice requirement. Obviously, no advantage is taken against each
other by the contracting parties.
Hence, the petition was granted.
Page | 350

DEL CASTILLO vs. RICHMOND


45 PHIL. REPORTS 679
FACTS:
The plaintiff alleges that the provisions and conditions contained in the third
paragraph of their contract constitute an illegal and unreasonable restriction upon his
liberty to contract, are contrary to public policy, and are unnecessary in order to
constitute a just and reasonable protection to the defendant; and asked that the same be
declared null and void and of no effect. The defendant interposed a general and special
defense. In his special defense he alleges that during the time the plaintiff was in the
defendant's employ he obtained knowledge of his trade and professional secrets and came
to know and became acquainted and established friendly relations with his customers so
that to now annul the contract and permit plaintiff to establish a competing drugstore in
the town of Legaspi, as plaintiff has announced his intention to do, would be extremely
prejudicial to defendant's interest." The defendant further, in an amended answer, alleges
that this action not having been brought within four years from the time the contract
referred to in the complaint was executed, the same has prescribed.
ISSUE:
Whether the contract is valid and the autonomy of contracts be upheld
HELD:
Considering the nature of the business in which the defendant is engaged, in
relation with the limitation placed upon the plaintiff both as to time and place, The Court
is of the opinion, and so decide, that such limitation is legal and reasonable and not
contrary to public policy, otherwise, the autonomy of the contract will be subverted.

Page | 351

ARWOOD INDUSTRIES, INC. vs. DM CONSUNJI, INC.


394 SCRA 11

FACTS:
Petitioner and respondent, as owner and contractor, respectively, entered into a
civil, structural and architectural works Agreement dated February 6, 1989 for the
construction of petitioners Westwood condominium at No. 23 Eisenhower St., Greenhills,
San Juan, Metro Manila. The contract price for the condominium project aggregated P20,
800,000.00.
Despite the completion of the condominium project, the amount of P962, 434.78
remain unpaid by petitioner. Repeated demands by respondent for petitioner to pay went
unheeded.
Thus on August 13, 1993, respondent as plaintiff in a civil case filed its complaint
for the recovery of the balance of the contract price and for damages against petitioner.
Respondent specifically prayed for the payment of the: (a) amount of P962,
434.78 with interest of 2% per month or a fraction thereof, from November 1990 up to
the time of payment; (b) the amount of P250,000 as Attorneys fees and litigation
expenses; (c) amount of P150,000.00 as exemplary damages; and (d)cost of suit.
On appeal, the Court of Appeals affirmed the lower courts decision with
modification
ISSUE:
Whether or not the imposition of two percent interest on the amount adjudged is
proper.
RULING:
Yes. It must be noted that the agreement provided the contractor, respondent in
this case, two (2) options in case of delay in monthly payments, to wit: a) suspend works
on the project until payment is remitted by the owner or continue the work but the owner
shall be required to pay interest at a rate of two (2) percent per month or a fraction
thereof. Evidently, respondent chose the latter option, as the condominium project was in
fact already completed. Since the agreement stands as the law between the parties, the
court cannot ignore the existence of such provision providing for a penalty for every
months delay.

Page | 352

PASCUAL vs. RAMOS


384 SCRA 105
FACTS:
Ramos alleged that on 3 June 1987, for and in consideration of P150,000, the
Spouses Pascual executed in his favor a Deed of Absolute Sale with Right to Repurchase
over two parcels of land and the improvements thereon located in Bambang, Bulacan,
Bulacan. This document was annotated at the back of the title. The Pascuals did not
exercise their right to repurchase the property within the stipulated one-year period;
hence, Ramos prayed that the title or ownership over the subject parcels of land and
improvements thereon be consolidated in his favor.
In their Answer, the Pascuals admitted having signed the Deed of Absolute Sale
with Right to Repurchase for a consideration of P150, 000 but averred that what the
parties had actually agreed upon and entered into was a real estate mortgage. They further
alleged that there was no agreement limiting the period within which to exercise the right
to repurchase and that they had even overpaid Ramos. The trial court found that the
transaction between the parties was actually a loan in the amount of P150,000, the
payment of which was secured by a mortgage of the property covered by TCT No.
305626. It also found that the Pascuals had made payments in the total sum of P344,000,
and that with interest at 7% per annum, they had overpaid the loan by P141,500.
Accordingly, in its Decision of 15 March 1995 the trial court ruled in favor of the
defendants. The Pascuals interposed the following defenses: (a) the trial court had no
jurisdiction over the subject or nature of the petition; (b) Ramos had no legal capacity to
sue; (c) the cause of action, if any, was barred by the statute of limitations; (d) the
petition stated no cause of action; (e) the claim or demand set forth in Ramoss pleading
had been paid, waived, abandoned, or otherwise extinguished; and (f) Ramos has not
complied with the required confrontation and conciliation before the barangay.
The Court of Appeals affirmed in toto the trial courts Orders of 5 June 1995 and
7 September 1995.
ISSUE:
Whether or not the contract entered into is a contract of loan.
RULING:
The Pascuals are actually raising as issue the validity of the stipulated interest
rate. It must be stressed that they never raised as a defense or as basis for their
counterclaim the nullity of the stipulated interest. While overpayment was alleged in the
Answer, no ultimate facts which constituted the basis of the overpayment was alleged. In
their pre-trial brief, the Pascuals made a long list of issues, but not one of them touched
on the validity of the stipulated interest rate. Their own evidence clearly shows that they
have agreed on, and have in fact paid interest at, the rate of 7% per month.
After the trial court sustained petitioners claim that their agreement with
RAMOS was actually a loan with real estate mortgage, the Pascuals should not be
allowed to turn their back on the stipulation in that agreement to pay interest at the rate of
7% per month. The Pascuals should a