Civil Law Review II 2nd Assignment
25. Salonte v. COA (2014)
Facts:
In 1989, the City of Mandaue and FF Cruz entered
into a CONTRACT OF RECLAMATION in which the latter
undertook the reclamation of 180 hectares of foreshore
and submerged lands from the Cabaug Causeway in
that city. It was stipulated that the project is estimated
to be completed in 6 years. Later on, more than 6
years later, the City of Mandaue undertook the Metro
Cebu Development Project II (MCDP II) which required
the widening of the Plaridel Extension Mandaue
Causeway. However, the structures and facilities built
by FF Cruz subject to the 1989 MOA stood in the way,
so the parties agreed that FF Cruz would demolish the
improvements outside of the boundary of the road
widening project and, in return, receive around P1
million in compensation.
The COA disallowed the disbursement, theorizing
that from the provisions of the 1989 MOA, it is clear
that the improvements introduced by FF Cruz would be
owned by the City upon completion of the project
under the contract of reclamation which should have
been in 1995. Hence, there was no need for payment
of P1 million.
Issue: Whether or not COA correctly ruled that the City
of Mandaue already owned the improvements as of
1995.
Held: No. Under the Civil Code, Obligations for whose
fulfillment a day certain has been fixed, shall be
demandable only when that day comes. Obligations
with a resolutory period take effect at once, but
terminate upon arrival of the day certain. A day certain
is understood to bethat which must necessarily come,
although it may not be known when. If the uncertainty
consists in whether the day will come or not, the
obligation is conditional, and it shall be regulated by
the rules of the preceding Section.
A plain reading of the Contract ofReclamation
reveals that the six (6)-year period provided for
projectcompletion, or, with like effect, termination of
the contract was a mere estimateand cannot be
considered a period or a "day certain" inthe context of
the aforequoted Art. 1193. To be clear, par. 15 of the
Contract of Reclamation states: "[T]he project is
estimated to be completed in six (6) years." As such,
the lapse of six (6) years from the perfection of the
contract did not, by itself, make the obligation to finish
the reclamation project demandable, such as to put the
obligor in a state of actionable delay for its inability to
finish. Thus, F.F. Cruz cannot be deemed to be in delay.
Put a bit differently, the lapse of six (6) years from
the perfection of the subject reclamation contract,
withoutmore, could not have automatically vested
Mandaue City, under the MOA, with ownership of the
structures.
Moreover, even if we consider the allotted six (6)
years within which F.F. Cruz was supposed to
completethe reclamation project, the lapse thereof
does not automatically mean that F.F. Cruz was in
delay. As may be noted, the City of Mandaue never
madea demand for the fulfillment of its obligation
under the Contract of Reclamation, in accordance with
Art. 1169 of the Civil Code.
26. Calero v. Carrion (1960)
Facts:
In 1937, Calero proposed to Enrique Carreon,
father of the defendants, to acquire a property in Plaza
Santa Cruz worth P250K where the former would pay
P15K and the latter, P10K as down payment. Carrion
accepted.
Atty. Santiago Carrion, counsel of defendants, said
to Calero that the property would become difficult to
establish as a community property because of the
repairs and improvements so Atty. Carrion suggested to
buy the property under the exclusive names of the
defendants (daughters of Enrique Carrion) with the
obligation to pay Calero 20% of the profits when the
property was sold. Calero accepted provided that the
selling price would not be less that P300K. This
agreement was executed on May 28, 1937. (Emilia and
Maria) - names of duaghters
Since then, Calero made several offers to
defendants to sell the property to a buyer willing to pay
for P1.4M but defendants refused to sell the same.
On December 1956, Calero filed an action in court
to fix the period for the fulfillment of defendants
obligation which is the delivery of his 20% profit share
by selling the property. Defendants filed a motion to
dismiss contending that Caleros right of action existed
only for 10 years accruing from 1937 which is at the
time of their agreement and since the action was filed
only on 1956, his cause of action has already
prescribed. Calero contends that the time for enforcing
their right of action to have the period judicially
determined did not begin to run until the defendants
had been formally demanded and they refused to sell
the property. It was only then that the period of
prescription started to run. The case was dismissed by
the lower court.
Issue: Whether Calero may still ask the court to fix the
period of performance by the defendants of their
obligation.
Held: No. Before the period is fixed, the defendants'
obligation to sell is suspended and they cannot be
compelled to act. For this reason, a complaint to
enforce immediately the principal obligation subject to
the suspensive period before this is fixed, will not
prosper.
But this is not to say that the plaintiff has no cause
of action. His cause of action under the agreement is to
have the court fix the period and after the expiration of
that period, to compel the performance of the principal
obligation to sell. And this right to have the period
judicially fixed is born from the date of the agreement
itself which contains the undetermined period.
Extrajudicial demand is not essential for the creation of
this cause of action to have the period fixed. It exists
by operation of law from the moment such an
agreement subject to an undetermined period is
entered into, whether the period depends upon the will
of the debtor alone, or of the parties themselves, or
 Civil Law Review II 2nd Assignment
where from the nature and the circumstances of the
obligation it can be inferred that a period was intended.
This is the clear intendment of Art. 1197 of the
New Civil Code. Since the agreement was executed on
May 28, 1937 and the complaint to have the period
fixed was filed on December 21, 1956 or after almost
20 years, Calero's action is clearly and indisputably
barred under the Statute of Limitations.
27. Sps. Berot v. Siapno (2014)
Facts:
Macaria Berot and Spouses Rodolfo & Lilia Berot
obtained a loan from Felipe Siapno in the amount of
P250,000 payable in one year. As security for the loan,
the Berots mortgaged a land in Pangasinan registered
in the names of Macaria and her deceased husband,
Pedro (Note that Rodolfo is the son of Macaria and
Pedro). Later on, Macaria also died.
Spouses Berot was not able to pay their
obligations, so Siapno sued for foreclosure. In their
defense, Spouses Berot argued that (1) Rodolfo
inherited the subject property from his parents,
Macaria and Pedro; (2) It constitutes as their family
home; and (3) They cannot be made to pay for the
whole P250,000 since the obligation is only joint and
not solidary.
Nevertheless, the RTC and the CA ruled for
foreclosure.
Issue: Whether the obligation is joint or solidary.
Held: Joint. Under Article 1207 of the Civil Code of the
Philippines, the general rule is that when there is a
concurrence of two or more debtors under a single
obligation, the obligation is presumed to be joint: The
concurrence of two or more creditors or of two or more
debtors in one and the same obligation does not imply
that each one of the former has a right to demand, or
that each one of the latter is bound to render, entire
compliance with the prestations. There is a solidary
liability only when the obligation expressly so states, or
when the law or the nature of the obligation requires
solidarity. The law further provides that to consider
the obligation as solidary in nature, it must expressly
be stated as such, or the law or the nature of the
obligation itself must require solidarity.
We have scoured the records of the case, but found
no record of the principal loan instrument, except an
evidence that the realestate mortgage was executed
by Macaria and petitioners. When petitioner Rodolfo
Berot testified in court, he admitted that heand his
mother, Macaria had contracted the loan for their
benefit.
During her lifetime, Macaria was the registered
owner of the mortgaged property, subject of the
assailed foreclosure. Considering that she had validly
mortgaged the property to secure a loan obligation,
and given our ruling in this case that the obligation is
joint, her intestate estate is liable to a third of the loan
contracted during her lifetime. Thus, the foreclosure of
the property may proceed, but would be answerable
only to the extent of the liability of Macaria to
respondent.
28. Traders Royal Bank v. CA (1989)
Facts:
On March 30, 1982, the Philippine Blooming Mills,
Inc. (PBM) and Alfredo Ching jointly submitted to the
Securities and Exchange Commission a petition for
suspension of payments (SEC No. 2250) where Alfredo
Ching was joined as co-petitioner because under the
law, he was allegedly entitled, as surety, to avail of the
defenses of PBM. Traders Royal Bank was included
among PBMs creditors named in Schedule A
accompanying PBMs petition for suspension of
payments.
On May 13, 1983, the petitioner bank filed a civil
case in the Regional Trial Court against PBM and
Alfredo Ching, to collect P22,227,794.05 exclusive of
interests, penalties and other bank charges
representing PBMs outstanding obligation to the bank.
Alfredo Ching, a stockholder of PBM, was impleaded as
co-defendant for having signed as a surety for PBMs
obligations to the extent of ten million pesos
(P10,000,000) under a Deed of Suretyship.
On July 9, 1982, the SEC issued an Order placing
PBMs business, including its assets and liabilities,
under rehabilitation receivership, and ordered that all
actions for claims listed in Schedule A of the petition
pending before any court or tribunal are hereby
suspended in whatever stage the same may be, until
further orders from the Commission.
PBM and Ching jointly filed a motion to dismiss the
civil case filed by Traders Royal Bank in the RTC
invoking the pendency in the SEC of PBMs application
for suspension of payments (which Ching co-signed)
and over which the SEC had already assumed
jurisdiction. Before the motion to dismiss could be
resolved, the court dropped PBM from the complaint,
on motion of the plaintiff bank, for the reason that the
SEC had already placed PBM under rehabilitation
receivership.
On August 15, 1983, the trial court denied Chings
motion to dismiss the complaint against himself. The
court pointed out that P.D. 1758 is only concerned
with the activities of corporations, partnerhips and
associations. The CA, however, annulled the order of
the RTC and prohibit the judge from further proceeding
in the civil case.
Issue: Whether or not Traders Royal Bank is barred
from collecting from Ching as surety for PBM.
Held: No. Chings properties were not included in the
rehabilitation receivership that the SEC constituted to
take custody of PBMs assets. An anomalous situation
would arise if individual sureties for debtor
corporations may escape liability by simply co-filing
with the corporation a petition for suspension of
payments in the SEC whose jurisdiction is limited only
to corporations and their corporate assets.
Ching can be sued separately to enforce his liability
as surety for PBM, as expressly provided by Article
1216 of the New Civil Code: The creditor may proceed
against any of the solidary debtors or all of them
simultaneously. The demand made against one of them
 Civil Law Review II 2nd Assignment
shall not be an obstacle to those which may
subsequently be directed against the others, as long as
the debt has not been fully collected.
It must be noted that Ching is a different person
from PBM. It is elementary that a corporation has a
personality distinct and separate from its individual
stockholders or members. Hence, petitioner bank can
enfore the debt against Ching separately.
29. Phil. Blooming Mills v. CA (2003)
Facts:
This case is the sequel of Traders Royal Bank v. CA
(1989). Note that the 1989 case is the result of Chings
filing of a petition for certiorari before the CA over the
RTCs denial of his motion to dismiss. Now, were back
to the main action. In his Answer, Ching Ching denied
liability as surety and accommodation co-maker of
PBM. He claimed that the SEC had already issued a
decision approving a revised rehabilitation plan for
PBMs creditors, and that PBM obtained the credit
accommodations for corporate purposes that did not
redound to his personal benefit. He further claimed
that even as a surety, he has the right to the defenses
personal to PBM. Thus, his liability as surety would
attach only if, after the implementation of payments
scheduled under the rehabilitation plan, there would
remain a balance of PBMs debt to TRB. Although Ching
admitted PBMs availment of the credit
accommodations, he did not show any proof of
payment by PBM or by him.
Issue: Whether or not Chings liability is limited to the
amount stated in PBMs rehabilitation plan.
Held: No. Ching would like this 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 of the Civil Code
which reads: Art. 1222. A solidary debtor may, in
actions filed by the creditor, avail himself of all
defenses which are derived from the nature of the
obligation and of those which are personal to him, or
pertain to his own share. With respect to those which
personally belong to the others, he may avail himself
thereof only as regards that part of the debt for which
the latter are responsible.
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:
ART. 1216. The creditor may proceed against any one
of the solidary debtors or some or all of them
simultaneously. The demand made against one of them
shall not be an obstacle to those which may
subsequently be directed against the others, so long as
the debt has not been fully collected.
Ching further claims a reduced liability under TRB
Board Resolution No. 5935. This resolution states that
PBMs outstanding loans may be reduced to P1.373
million subject to certain conditions like the payment of
P150,000 initial payment. The resolution also states
that TRB should not release Chings solidary liability
under his surety. The resolution even directs TRBs
management to study Chings criminal liability under
the trust documents. Chings own witness testified that
Resolution No. 5935 was never implemented. For one,
PBM or its receiver never paid the P150,000 initial
payment to TRB. TRB also rejected the document that
PBMs receiver presented which would have released
Ching from his suretyship. Clearly, Ching cannot rely on
Resolution No. 5935 to escape liability under his
suretyship. Chings attempts to have this Court review
the factual issues of the case are improper. It is not a
function of the Supreme Court to assess and evaluate
again the evidence, testimonial and evidentiary,
adduced by the parties particularly where the findings
of both the trial court and the appellate court coincide
on the matter.
30. Country Bankers Insurance Corp and Sy v. CA
and OVEC (1991)
Facts:
Oscar Ventanilal Enterprises Corporation (OVEC)
leased in favor of Enrique Sy the Avenue, Broadway
and Capitol Theaters and the land on which they are
situated in Cabanatuan City. There was a forfeiture
clause in their lease contract. Sy was not able to keep
up with his obligations to OVEC resulting in the latters
repossession of the premises.
Sy filed an action for reformation of contract, and
he also sought to recover the amounts he spent
making major repairs in the premises and other
expenses he incurred. OVEC, however, invoked the
forfeiture clause.
Issue: Whether or not the forfeiture clause would
unjustly enrich OVEC.
Held: No. We find no merit in petitioners' argument
that the forfeiture clause stipulated in the lease
agreement would unjustly enrich the respondent OVEC
at the expense of Sy and CBISCO contrary to law,
morals, good customs, public order or public policy. A
provision which calls for the forfeiture of the remaining
deposit still in the possession of the lessor, without
prejudice to any other obligation still owing, in the
event of the termination or cancellation of the
agreement by reason of the lessee's violation of any of
the terms and conditions of the agreement is a penal
clause that may be validly entered into. A penal clause
is an accessory obligation which the parties attach to a
principal obligation for the purpose of insuring the
performance thereof by imposing on the debtor a
special presentation (generally consisting in the
payment of a sum of money) in case the obligation is
not fulfilled or is irregularly or inadequately fulfilled.
(Eduardo P. Caguioa, Comments and Cases on Civil
Law, Vol. IV, First Edition, pp. 199-200) As a general
rule, in obligations with a penal clause, the penalty
shall substitute the indemnity for damages and the
payment of interests in case of noncompliance. This is
 Civil Law Review II 2nd Assignment
specifically provided for in Article 1226, par. 1, New
Civil Code. In such case, proof of actual damages
suffered by the creditor is not necessary in order that
the penalty may be demanded (Article 1228, New Civil
Code). However, there are exceptions to the rule that
the penalty shall substitute the indemnity for damages
and the payment of interests in case of non-compliance
with the principal obligation. They are first, when there
is a stipulation to the contrary; second, when the
obligor is sued for refusal to pay the agreed penalty;
and third, when the obligor is guilty of fraud (Article
1226, par. 1, New Civil Code). It is evident that in all
said cases, the purpose of the penalty is to punish the
obligor. Therefore, the obligee can recover from the
obligor not only the penalty but also the damages
resulting from the non-fulfillment or defective
performance of the principal obligation.
In the case at bar, inasmuch as the forfeiture
clause provides that the deposit shall be deemed
forfeited, without prejudice to any other obligation still
owing by the lessee to the lessor, the penalty cannot
substitute for the P100,000.00 supposed damage
resulting from the issuance of the injunction against
the P290,000.00 remaining cash deposit. This
supposed damage suffered by OVEC was the alleged
P10,000.00 a month increase in rental from P50,000.00
to P60,000,00), which OVEC failed to realize for ten
months from February to November, 1980 in the total
sum of P100,000.00. This opportunity cost which was
duly proven before the trial court, was correctly made
chargeable by the said court against the injunction
bond posted by CBISCO. The undertaking assumed by
CBISCO under subject injunction refers to "all such
damages as such party may sustain by reason of the
injunction if the Court should finally decide that the
Plaintiff was/were not entitled thereto." (Rollo, p. 101)
Thus, the respondent Court correctly sustained the trial
court in holding that the bond shall and may answer
only for damages which OVEC may suffer as a result of
the injunction. The arrears in rental, the unmeritted
amounts of the amusement tax delinquency, the
amount of P100,000.00 (P10,000.00 portions of each
monthly rental which were not deducted from plaintiffs
cash deposit from February to November, 1980 after
the forfeiture of said cash deposit on February 11,
1980) and attorney's fees which were all charged
against Sy were correctly considered by the respondent
Court as damages which OVEC sustained not as a
result of the injunction.
31. Commercial Credit Corporation Cagayan De
Oro v. CA and The Cagayan De Oro Coliseum, Inc.
(1989)
Facts:
Cagayan De Oro Coliseum, Inc. obtained a loan
from Commercial Credit Corporation in the amount of
P329,852.54 payable in 36 monthly installments. The
Coliseum defaulted, so ComCred instituted with the
extrajudicial foreclosure of the real estate mortgage
executed by the Coliseum. Later on, five minority
stockholders of the Coliseum filed a special civil action
questioning the Coliseums power to execute a real
estate mortgage without the stockholders consent. In
due course, a compromise agreement was entered into
by the parties on the basis of which a compromise
judgment was rendered by the CFI.
But still, the Coliseum was not able to comply with
the compromise judgment, so ComCred filed a motion
for the issuance of a writ of execution. In turn, the
Coliseum filed petition for certiorari with the CA to
annul the compromise judgment, claiming that the CFI
acted with grave abuse of discretion. The CA modified
the compromise judgment by reducing the amount of
penalty interest and attorneys fees to be paid by the
Coliseum.
Issue: Whether or not the CA acted properly in
modifying the CFIs compromise judgment.
Held: No.
The modification of said compromise judgment by
the respondent appellate court is predicated on the
provision of Article 1229 of the Civil Code which
provides as follows: 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.
32. Pryce Corporation v. PAGCOR (2005)
Facts:
Pryce Properties Corporation (PPC) entered into a
3-year lease contract with PAGCOR, with the former as
lessor and the latter lessee, in connection with the
establishment of a casino in Cagayan de Oro. Article 20
of their contract empowers PPC to terminate the
contract in case of breach by PAGCOR, and it also
makes PAGCOR fully liable for the rentals
corresponding to the remaining term of the lease as
well as for any and all damages, actual or
consequential resulting from such default and
termination of this contract.
However, the casino was met with public backlash
from the community with rallies being staged, and the
local government even enacted an ordinance
prohibiting casinos in Cagayan de Oro. Because of this,
the casino ended up as a failure.
PPC then demanded payment of full rentals, but
PAGCOR relented, citing unforeseen legal and other
circumstances which prevented it from complying with
its obligations. Later on, PPC informed PAGCOR that it
was terminating the lease contract due to the latters
continuing breach, and that it was exercising its rights
under Article 20 of the contract.
PPC sued PAGCOR for collection. When the case
reached the CA, the appellate court held that under
Art. 1659 of the Civil Code, PPC had the right to ask for
(1) rescission of the Contract and damages or (2) only
indemnification plus the continuation of the Contract.
These two remedies were alternative, not cumulative,
ruled the CA.
Issue: Is the CA correct?
Held: No. Well-taken is petitioners insistence that it
had the right to ask for termination plus the full
 Civil Law Review II 2nd Assignment
payment of future rentals under the provisions of the
Contract, rather than just rescission under Article 1659
of the Civil Code. This Court is not unmindful of the fact
that termination and rescission are terms that have
been used loosely and interchangeably in the past. But
distinctions ought to be made, especially in this
controversy, in which the terms mean differently and
lead to equally different consequences. The term
rescission is found in 1) Article 1191 of the Civil Code,
the general provision on rescission of reciprocal
obligations; 2) Article 1659, which authorizes
rescission as an alternative remedy, insofar as the
rights and obligations of the lessor and the lessee in
contracts of lease are concerned; and 3) Article 1380
with regard to the rescission of contracts.
The rescission on account of breach of stipulations
is not predicated on injury to economic interests of the
party plaintiff but on the breach of faith by the
defendant, that violates the reciprocity between the
parties. It is not a subsidiary action, and Article 1191
may be scanned without disclosing anywhere that the
action for rescission thereunder is subordinated to
anything other than the culpable breach of his
obligations to the defendant. This rescission is a
principal action retaliatory in character, it being unjust
that a party be held bound to fulfill his promises when
the other violates his. As expressed in the old Latin
aphorism: Non servanti fidem, non est fides servanda.
Hence, the reparation of damages for the breach is
purely secondary. On the contrary, in rescission by
reason of lesion or economic prejudice, the cause of
action is subordinated to the existence of that
prejudice, because it is the raison detre as well as the
measure of the right to rescind. Relevantly, it has been
pointed out that resolution was originally used in
Article 1124 of the old Civil Code, and that the term
became the basis for rescission under Article 1191
(and, conformably, also Article 1659).
Now, as to the distinction between termination (or
cancellation) and rescission (more properly, resolution),
Huibonhoa v. CA held that, where the action prayed for
the payment of rental arrearages, the aggrieved party
actually sought the partial enforcement of a lease
contract. Thus, the remedy was not rescission, but
termination or cancellation, of the contract.
With respect to the issue of future rentals, the rule
is that future rentals cannot be claimed as
compensation for the use or enjoyment of anothers
property after the termination of a contract. We stress
that by abrogating the Contract in the present case,
PPC released PAGCOR from the latters future
obligations, which included the payment of rentals. To
grant that right to the former is to unjustly enrich it at
the latters expense. However, it appears that Section
XX (c) was intended to be a penalty clause. That fact is
manifest from a reading of the mandatory provision
under subparagraph (a) in conjunction with
subparagraph (c) of the Contract. A penal clause is an
accessory obligation which the parties attach to a
principal obligation for the purpose of insuring the
performance thereof by imposing on the debtor a
special prestation (generally consisting in the payment
of a sum of money) in case the obligation is not fulfilled
or is irregularly or inadequately fulfilled.
In obligations with a penal clause, the general rule
is that the penalty serves as a substitute for the
indemnity for damages and the payment of interests in
case of noncompliance; that is, if there is no stipulation
to the contrary, in which case proof of actual damages
is not necessary for the penalty to be demanded. There
are exceptions to the aforementioned rule, however, as
enumerated in paragraph 1 of Article 1226 of the Civil
Code: 1) when there is a stipulation to the contrary, 2)
when the obligor is sued for refusal to pay the agreed
penalty, and 3) when the obligor is guilty of fraud. In
these cases, the purpose of the penalty is obviously to
punish the obligor for the breach. Hence, the obligee
can recover from the former not only the penalty, but
also other damages resulting from the nonfulfillment of
the principal obligation. In the present case, the first
exception applies because Article XX (c) provides that,
aside from the payment of the rentals corresponding to
the remaining term of the lease, the lessee shall also
be liable for any and all damages, actual or
consequential, resulting from such default and
termination of this contract. Having entered into the
Contract voluntarily and with full knowledge of its
provisions, PAGCOR must be held bound to its
obligations. It cannot evade further liability for
liquidated damages.
The Court, however, reduced PAGCORs penalty
from P7 million to P690,000 as the former amount is
highly iniquitous. It applied Art. 1229 which provides
that 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.
Here, PAGCORs breach was occasioned by events
that, although not fortuitous in law, were in fact real
and pressing. From the CAs factual findings, which are
not contested by either party, we find that PAGCOR
conducted a series of negotiations and consultations
before entering into the Contract. It did so not only
with the PPC, but also with local government officials,
who assured it that the problems were surmountable.
Likewise, PAGCOR took pains to contest the ordinances
before the courts, which consequently declared them
unconstitutional. On top of these developments, the
gaming corporation was advised by the Office of the
President to stop the games in Cagayan de Oro City,
prompting the former to cease operations prior to
September 1993. Also worth mentioning is the CAs
finding that PAGCORs casino operations had to be
suspended for days on end since their start in
December 1992; and indefinitely from July 15, 1993,
upon the advice of the Office of President, until the
formal cessation of operations in September 1993.
Needless to say, these interruptions and stoppages
meant that PAGCOR suffered a tremendous loss of
expected revenues, not to mention the fact that it had
fully operated under the Contract only for a limited
time.
32. Asiatrust Devt Bank v. Concepts Trading
Corporation (2003)
Facts:
 Civil Law Review II 2nd Assignment
Concepts Trading Corporation obtained a loan from
Asiatrust Development Bank in the amount of P2
million. Concepts executed a promissory note
containing an escalation clause which further subjects
the due and demandable amount to a penalty
equivalent to 36% per annum. Concepts was not able
to pay at some point but was granted a modified
payment scheme. Later on, dispute arose as to the
remaining balance.
Concepts filed an action for declaratory relief,
claiming that its remaining balance amounted to only
P316,000.00, but Asiatrust contended that the
outstanding obligation actually amounted to
P2,800,000 as the monthly amortizations paid by
Concepts were being applied to the penalties accruing.
The RTC and CA generally ruled in favor of Concepts.
The CA noted that Concepts stopped paying when it
still had a balance of P309,298.58, hence the
escalation and penalty clauses took effect. However,
the CA reduced the penalty charges from 36% to 3%
per annum.
Issue: Whether or not the CA acted correctly in
reducing the penalty charges.
Held: Yes, applying Art. 1229 of the Civil Code. Given
the peculiar circumstances in this case, particularly
that the principal obligation had been partially
complied with by the respondent, the Court sees no
justifiable reason to modify the reduction by the CA of
the penalty charges made by the CA.
33. Jison v. CA (1988)
Facts:
Spouses Jison entered into a contract to sell with
Robert O. Phillips & Sons, Inc. whereby the latter
agreed to sell to the former a lot at the Victoria Valley
Subdivision in Antipolo, Rizal for P55,000. The contract
to sell had a clause providing for an automatic
rescission and cancellation in case the buyer failed to
pay when due 3 or more consecutive monthly
installments. It so happened that Spouses Jison
defaulted in at least 3 monthly installments. Spouses
Jison wanted to keep paying, but Phillips would not
accept, hence Spouses Jison filed an action for specific
performance. The RTC and the CA ruled in favor of
Phillips.
Issue: Whether or not the automatic
rescission/cancellation and forfeiture clauses are valid.
Held: Yes, but the penalty needs to be reduced.
While the resolution of the contract and the
forfeiture of the amounts already paid are valid and
binding upon petitioners, the Court is convinced that
the forfeiture of the amount of P5.00 although it
includes the accumulated fines for petitioners' failure
to construct a house as required by the contract, is
clearly iniquitous considering that the contract price is
only P6,173.15 The forfeiture of fifty percent (50%) of
the amount already paid, or P3,283.75 appears to be a
fair settlement. In arriving at this amount the Court
gives weight to the fact that although petitioners have
been delinquent in paying their amortizations several
times to the prejudice of private respondent, with the
cancellation of the contract the possession of the lot
review.... to private respondent who is free to resell it
to another party. Also, had R.A. No. 65856, been
applicable to the instant case, the same percentage of
the amount already paid would have been forfeited
[Torralba 3(b).] The Court's decision to reduce the
amount forfeited finds support in the Civil Code. As
stated in paragraph 3 of the contract, in case the
contract is cancelled, the amounts already paid shall
be forfeited in favor of the vendor as liquidated
damages. The Code provides that liquidated damages,
whether intended as an indemnity or a penalty, shall
be equitably reduced if they are iniquitous or
unconscionable [Art. 2227.]