Civil Law Review II Case Digests
OBLIGATIONS AND that the parties intended that the final actual project
CONTRACTS/TRUSTS/SALES
1. Makati Stock Exchange v. Campos (2009)
Facts:
Miguel Campos filed a case against the Makati
Stock Exchange (MKSE) before the SEC for allegedly
depriving him of his right to participate equally in the
allocation of IPO of corporations registered with MKSE.
In its defense, MKSE filed a motion to dismiss on the
ground of failure to state a cause of action.
Issue: Whether or not there is failure to state a cause
of action.
Held: Yes. It is true that Miguels petition before the
SEC asserted a right in his favor and stipulates the
correlative obligation of MKSE to respect such right.
However, the terms rights and obligation in his petition
are not magic words that would automatically lead to
the conclusion that such petition sufficiently states a
cause of action. A right is a claim or title to an interest
in anything whatsoever that is enforceable by law,
while an obligation is a juridical necessity to give, to do
or not to do. Under Art. 1157, obligations arise from
law, contracts, quasi-contracts, crime, and quasi-
delicts. Thus, an obligation imposed on a person, and
the corresponding right granted to another must be
rooted in at least one of these five sources.
In this case, Miguel failed to lay down the source or
basis his right and/or MKSEs obligation. He merely
quoted in his petition the MKSE Board Resolution
passed some time ago, granting him the position of
Chairman Emeritus of MKSE for life. But there is
nothing in his petition from which it can be deduced
that by virtue of such position he has the right to
subscribe to the IPOs of corporations listed in the stock
market at their offering prices.
2. Macasaet v. COA (1989)
Facts:
Philippine Tourism Authority (PTA) entered into a
contract for the development of the proposed
Zamboanga Golf and Country Club with petitioner
Macasaet & Associates. When the project was
completed, dispute arose as to the payment of
professional fees. PTA paid an additional sum of around
P3 million to the main contractor representing the
escalation cost of the contract price due to the
increase in the price of construction materials. Upon
learning this, petitioner requested payment of an
additional professional fee representing 7% of the P3
million pursuant to their contract. PTA denied payment,
reasoning that the increased cost of construction
material did not entail additional work on the part of
petitioner. Thereafter, petitioner filed a claim with COA
but to no avail.
Issue: Whether or not petitioner is entitled to 7% of
the P3 million.
Held: Yes. From the terms of their contract, the
balance of the professional fee was to be computed on
the basis of the final actual project cost. This means
cost would cover the totality of all costs as actually and
finally determined, and logically includes the escalation
cost of the contract price. The price escalation cost
must be deemed included in the final actual project
cost and petitioner should be paid it additional
professional fees. Obligations arising from contract
have the force of law between the contracting parties
and should be complied with in good faith.
3. Philippine Export and Foreign Loan Guarantee
v. VP Eusebio Construction Inc. (2004)
Facts:
The State Organization of Buildings (SOB) of the
Iraq government contracted with respondent VPEC for
the construction of the Institute of Physical Therapy
Medical Rehabilitation Center in Baghdad. There were
three layers of guarantee, but basically petitioner
Philguarantee ended up as VPECs guarantor. The
project was 51% completed when VPEC could not
continue, because SOB did not comply with its
obligation to shoulder 75% of the cost of project.
Philguarantee thereafter paid Al Ahli Bank, which in
turn is the guarantor of Philguarantee in favor of SOB.
Then, Philguarantee sued VPEC for reimbursement.
Issue: Whether or not Philguarantee is entitled to
reimbursement on the basis of its contract with VPEC.
Held: No. It was established that Philguarantee is a
guarantor, not a surety, of VPEC. It follows that it was
improper for Philguarantee to pay the Bank when VPEC
had not even defaulted in the performance of its
obligation. VPEC could not be considered to have
defaulted, since SOB failed to comply with its corollary
obligation, and besides it did not even make a demand
from VPEC.
It was also held that Philguarantee cannot collect
anything from VPEC. Under the law, a person who
makes payment without the knowledge or against the
will of the debtor has the right to recover only insofar
as the payment has been beneficial to the debtor.
Here, VPEC did not benefit from Philguarantees
payment.
4. Jacinto Tanguilig v. CA (1997)
Facts:
Petitioner Jacinto Tanguilig (JMT Engineering)
constructed a windmill in favor of respondent Vicente
Herce, Jr. But later on, Vicente refused to pay,
prompting JMT to sue him for collection. In his defense,
Vicente argued that: (1) He already paid the amount to
San Pedro General Merchandising Inc. (SPGMI) which
constructed the deep well to which the windmill system
was to be connected; and (2) Assuming that he owed
JMT the balance, this should be offset by the defects in
the windmill system which caused the structure to
collapse after a strong wind hit their place.
Issue: Whether or not Vicente is liable to JMT.
Held: Yes. Under the Civil Code, payment shall be
made to the person in whose favor the obligation has
been constituted or his successor in interest or any
 Civil Law Review II Case Digests
person authorized to receive it. Here, SPGMI was not
so authorized. Neither can Vicente claim the benefit of
the law concerning payments made by a third
person, because no creditor-debtor relationship
between JMT and SPGMI exists. It is obvious that the
construction of the well by SPGMI was for the sole
account of Vicente.
As to the issue of offsetting, JMT claimed that the
collapse of the windmill due to strong winds was a
fortuitous event, but the Court disagreed, saying that a
strong wind could not be considered fortuitous as in
fact windmills are created in places where there are
strong winds. JMTs argument that Vicente was already
in default and hence should burden his own loss is
untenable, because in reciprocal obligations, neither
party incurs in delay if the other does not comply with
his own obligation. Here, when the windmill failed to
function properly, it became incumbent upon JMT to
instate the proper repairs pursuant to the contract it
entered into.
5. Barzaga v. CA and Alviar (1997)
Facts:
Ignacio Barzagas wife died on Dec. 19, 1990. Her
dying wish is to be laid to rest before Christmas to
spare her family from loneliness during Christmas day.
On December 21, Ignacio went to respondent Alviars
hardware store to buy materials for his wifes casket.
He was promised that the materials would arrive at the
burial site at 8 am, and upon such assurance Ignacio
paid the costs of the materials. The following morning,
the delivery did not arrive as scheduled. Instead, it
arrived at around 10:30 am, and worse, Alviars
employees were rude and unapologetic. Ignacio
cancelled its contract with Alviar and went to another
hardware store. He was not able to fulfill his wifes
dying wish.
Thereafter, Ignacio sued Alviar for damages. The
latter put the blame on Ignacio, also arguing that the
sales invoice contained no stipulation as to time.
Issue: Whether or not Alviar is liable for damages.
Held: Yes. Under the law, 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 argument that the invoices never indicated a
specific delivery time must fall in the face of the
positive verbal commitment of Alviars storekeeper.
The Court did not buy Alviars excuse of fortuitous
event, saying that flat tires do not constitute
fortuitous event. This case is clearly one of non-
performance of a reciprocal obligation.
6. NAPOCOR v. CA and Engineering Construction
Inc. (1988)
Facts:
Engineering Construction Inc. (ECI) executed a
contract with the National Waterworks and Sewerage
Authority (NAWASA), undertaking to construct the
proposed 2nd Ipo-Bicti Tunnel at Norzagaray, Bulacan.
When the project was about to be completed, a
typhoon (Welming) ravaged the area. To prevent an
overflow of water from the dam, Napocor caused the
opening of the spillway gates. However, upon its
opening, an extraordinary large volum of water rushed
out of the gates and hit the installations and
construction works of ECI at the IPO site. Thus, ECI
sued Napocor for negligence. In its defense, Napocor
invoked fortuitous event.
Issue: Whether or not Napocor is liable to ECI.
Held: Yes. Napocor committed negligence when it
opened the spillway gates of the Angat Dam only at
the height of typhoon when it should have done so
earlier. Conceding that the typhoon was force majeure,
Napocor cannot escape liability, because its negligence
was the proximate cause of the loss. If a fortuitous
event is coupled with a corresponding fraud,
negligence, delay or violation or contravention in any
manner of the obligation as provided for in Art. 1170 of
the Civil Code, the obligor cannot escape liability.
7. Picart v. Smith (1918)
Facts:
Amado Picart was riding his horse over the
Carlatan Bridge in San Fernando, La Union. Before he
had gotten half-way across, an automobile driven by
Frank Smith was fast approaching at the speed of 10 or
12 miles per hour. Smith kept blowing his horn but
didnt reduce speed. As the car was running rapidly,
Picart pulled the horse closely up against the railing on
the right side of the bridge instead of going left,
thinking he had no time to do so. The problem was
Smith merely assumed that Picart would go left, also
taking note of the fact that the horse did not exhibit
any fright. Smith tried to maneuver the car but hit the
hind leg of the horse, with Picart being thrown off.
Picart received contusions causing temporary
unconsciousness and requiring medical attention for
several days, while the horse died. Thus, Picart sued
Smith for damages to which the trial court ruled in
favor of Smith.
Issue:
Whether or not Smith was negligent.
Ruling: Yes. The test by which to determine the
existence of negligence in a particular case may be
stated as follows: Did the defendant in doing the
alleged negligent act use that person would have used
in the same situation? If not, then he is guilty of
negligence. The law here in effect adopts the standard
supposed to be supplied by the imaginary conduct of
the discreet paterfamilias of the Roman law. The
existence of negligence in a given case is not
determined by reference to the personal judgment of
the actor in the situation before him. The law considers
what would be reckless, blameworthy, or negligent in
the man of ordinary intelligence and prudence and
determines liability by that.
Applying this test to the conduct of the defendant
in the present case we think that negligence is clearly
established. A prudent man, placed in the position of
the defendant, would in our opinion, have recognized
that the course which he was pursuing was fraught
 Civil Law Review II Case Digests
with risk, and would therefore have foreseen harm to
the horse and the rider as reasonable consequence of
that course. 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 it was
demonstrated to his eyes 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. In the nature of things this change of
situation occurred while the automobile was yet some
distance away; and from this moment it was not longer
within the power of the plaintiff to escape being run
down by going to a place of greater safety. 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. He
was, we think, deceived into doing this by the fact that
the horse had not yet exhibited fright. But in view of
the known nature of horses, there was an appreciable
risk that, if the animal in question was unacquainted
with automobiles, he might get exited and jump under
the conditions which here confronted him. When the
defendant exposed the horse and rider to this danger
he was, in our opinion, negligent in the eye of the law.
The Court also conceded that Picart himself was
negligent. However, while contributory negligence on
the part of the person injured did not constitute a bar
to recovery, it could be received in evidence to reduce
the damages which would otherwise have been
assessed wholly against the other party.
8. Saludaga v. FEU (2008)
Facts:
FEU law student Joseph Saludaga sued FEU for
culpa contractual over an incident wherein Joseph was
accidentally shot by one of FEUs security guard. In its
defense, FEU said that the shooting incident was a
fortuitous event as they could not have reasonably
foreseen nor avoided the accident caused by the guard
who was not an FEU employee.
Issue: Whether or not the shooting incident was a
fortuitous event.
Held: No. In order for force majeure to be considered,
there must be no negligence or misconduct on the part
of the obligor that may have occasioned the loss. When
the effect is found to be partly the result of a persons
participationwhether by active intervention, neglect
or failure to actthe whole occurrence is humanized
and removed from the rules applicable to acts of God.
9. Consolidated Bank and Trust Corporation v. CA
and LC Diaz (2003)
Facts:
LC Diaz, an accounting firm, sent a messenger to
make cash deposits with Solidbank. The messenger
briefly left to attend to other errands, but when he
came back, he was informed that the passbook was
given to someone else. Because of this incident,
unauthorized withdrawals from the account of LC Diaz
were made. LC Diaz sued Solidbank for collection.
Issue: Whether or not Solidbank is liable to LC Diaz.
Held: Yes. Art. 1172 of the Civil Code provides that
responsibility arising from negligence in the
performance of every kind of obligation is demandable.
Here, the contract between Solidbank and LC Diaz is
governed by the provisions of the Civil Code on simple
loan. Moreover, the law imposes on banks high
standards in view of the fiduciary nature of banking. In
culpa contractual, once the plaintiff proves a breach of
contract, there is a presumption that the defendant
was at fault or negligent. Here, Solidabank failed to
discharge its burden. The defense of exercising the
required diligence in the selection and supervision of
employees is not a complete defense in culpa
contractual, unlike in culpa aquiliana.
10. Schmitz Transport & Brokerage Corporation
v. Transport Venture, Inc. (2005)
Facts:
Petitioner, who was in charge of securing requisite
clearances, receive the cargoes from the shipside and
deliver it to the consignee Little Giant Steel Pipe
Corporation warehouse at Cainta, Rizal, hired the
services of respondent Transport Venture Incorporation
(TVI)s tugboat for the hot rolled steel sheets in coil.
Coils were unloaded to the barge but there was no
tugboat to pull the barge to the pier. Due to strong
waves caused by approaching storm, the barge was
abandoned. Later, the barge capsized washing 37 coils
into the sea. Consignee was executed a subrogation
receipt by Industrial Insurance after the formers filing
of formal claim. Industrial Insurance filed a complaint
against both petitioner and respondent herein. The trial
court held that petitioner and respondent TVI were
jointly and severally liable for the subrogation.
Issue: Whether or not the loss of cargoes was due to
fortuitous event.
Held: No. In order, to be considered a fortuitous event:
(1) the cause of the unforeseen and unexpected
occurrence, or the failure of the debtor to comply with
his obligation, must be independent of human will; (2)
it must be impossible to foresee the event which
constitute the caso fortuito, or if it can be foreseen it
must be impossible to avoid; (3) the occurrence must
be such as to render it impossible for the debtor to
fulfill his obligation in any manner; and (4) the obligor
must be free from any participation in the aggravation
of the injury resulting to the creditor.
TVIs failure to promptly provide a tugboat did not
only increase the risk that might have been reasonably
anticipated during the shipside operation, but was the
proximate cause of the loss. A man of ordinary
prudence would not leave a heavily loaded barge
floating for a considerable number of hours, at such a
precarious time, and in the open sea, knowing that the
barge does not have any power of its own and is totally
defenseless from the ravages of the sea. That it was
nighttime and, therefore, the members of the crew of a
tugboat would be charging overtime pay did not
 Civil Law Review II Case Digests
excuse TVI from calling for one such tugboat. As for
Schmitz, for it to be relieved of liability, it should,
following Article 1739 of the Civil Code, prove that it
exercised due diligence to prevent or minimize the
loss, before, during and after the occurrence of the
storm in order that it may be exempted from liability
for the loss of the goods. While Schmitz sent checkers
and a supervisor on board the vessel to counter-check
the operations of TVI, it failed to take all available and
reasonable precautions to avoid the loss.
After noting that TVI failed to arrange for the
prompt towage of the barge despite the deteriorating
sea conditions, it should have summoned the same or
another tugboat to extend help, but it did not. The
Court holds then that Schmitz and TVI are solidarily
liable for the loss of the cargoes. As for Black Sea, its
duty as a common carrier extended only from the time
the goods were surrendered or unconditionally placed
in its possession and received for transportation until
they were delivered actually or constructively to
consignee Little Giant Parties to a contract of carriage
may, however, agree upon a definition of delivery that
extends the services rendered by the carrier. In the
case at bar, Bill of Lading No. 2 covering the shipment
provides that delivery be made to the port of
discharge or so near thereto as she may safely get,
always afloat. The delivery of the goods to the
consignee was not from pier to pier but from the
shipside of M/V Alexander Saveliev and into barges,
for which reason the consignee contracted the services
of petitioner. Since Black Sea had constructively
delivered the cargoes to Little Giant, through Schmitz,
it had discharged its duty. In fine, no liability may thus
attach to Black Sea.
11. Real v. Belo (2007)
Facts:
Virginia Real was the owner and operator of the
Wasabe Fastfood stall located at the Food Center of the
Philippine Womens University (PWU). Near it was the
BS Masters fastfood stall owned by Sisenando Belo.
One morning, fire broke out at the Wasabe Fastfood
stall. The fire spread and gutted other stalls, including
the one belonging to Belo. Investigation revealed that
the cause of the fire was the leaking fumes coming
from the LPG stove and tank installed at Reals stall.
Thereafter, Belo sued Real, alleging that the latter
failed to exercise due diligence in the upkeep and
maintenance of her cooking equipment, as well as the
selection and supervision of her employees, and that
her negligence was the proximate cause of the
accident. In her answer, Real argued that the fire was a
fortuitous event and that she exercised due diligence in
the selection and supervision of her employees. The
MeTC, RTC and CA all ruled in favor of Belo.
Issue: Whether or not Real is liable.
Ruling: At the onset, it was held that the fire was not a
fortuitous event. Citing Art. 2180, the Court said that
whenever an employee's 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. In this case, petitioner not only failed
to show that she submitted proof that the LPG stove
and tank in her fastfood stall were maintained in good
condition and periodically checked for defects but she
also failed to submit proof that she exercised the
diligence of a good father of a family in the selection
and supervision of her employees. For failing to prove
care and diligence in the maintenance of her cooking
equipment and in the selection and supervision of her
employees, the necessary inference was that petitioner
had been negligent.
12. Philcomsat v. Globe Telecom (2004)
Facts:
Philcomsat and Globe entered into an agreement
whereby Philcomsat obliged itself to establish and
operate an earth station within the Subic Naval Base
for the exclusive use of the US Defense
Communications Agency. However, in 1991, the RP-US
Military Bases Agreement expired and was not renewed
resulting in the exodus of the US military forces in the
Subic bases. Due to this developments, Globe notified
Philcomsat that it could no longer use the earth station,
but Philcomsat still demanded payment. Since Globe
refused to pay, Philcomsat filed a collection suit against
Globe, which invoked fortuitous event.
Issue: Whether or not there fortuitous event in this
case.
Held: Yes. Art. 1174, which exempts an obligor from
liability on account of fortuitous events or force
majeure, refers not only to events that are
unforeseeable, but also to those which are foreseeable
but inevitable. Philcomsat and Globe had no control
over the non-renewal of the RP-US Military Bases
Agreement.
13. Olivarez Realty Corporation v. Castillo (2014)
Conditional Sale vs. Contract to Sell
Facts:
Benjamin Castillo entered into a contract of
conditional sale with Dr. Pablo Olivarez and his
corporation, Olivarez Realty, over a parcel of land in
Batangas. Under the contract, Castillo agreed to sell
his property for P19 million payable by 30 equal
monthly installments. However, there were subsequent
disagreements between the parties eventually leading
to Castillos filing of an action for rescission, alleging
among others that Olivarez only paid P2,500,000.
According to Castillo, Olivarez committed a substantial
breach of contract warranting a rescission under Art.
1191.
Issue: Whether or not rescission is proper in this case.
 Civil Law Review II Case Digests
Held: No, because the contract between Castillo and
Olivarez was actually a contract to sell, because
Castillo reserved his title to the property and undertook
to execute a deed of absolute sale upon Olivarezs full
payment of the purchase price. Art. 1191 of the Civil
Code does not apply to contracts to sell, because
failure to fully pay the purchase price in contracts to
sell is not the breach of contract contemplated under
Art. 1191. Failure to fully pay is merely an event which
prevents the sellers obligation to convey title from
acquiring binding force. This is because there can be
no rescission of an obligation that is still non-existent,
the suspensive condition not having happened.
14. HSCBC v. Sps. Broqueza (2010)
Facts:
Respondents are HSBC employees who obtained
several loans with HSBC. These loans were paid
through automatic salary deduction. Later on, a labor
dispute arose between HSBC and its employees
eventually resulting in respondents dismissal. Because
of this, respondents were not able to pay off their loan.
The RTC ruled in favor of HSBC, but the CA reversed,
ruling that since the promissory notes executed by
respondents do not contain a period, it follows that the
obligations have not yet matured.
Issue: Whether or not CA is correct.
Held: No. Art. 1179 of the Civil Code provides: Every
obligation whose performance does not depend upon a
future or uncertain event, or upon a past event
unknown to the parties, is demandable at once. Since
the promissory notes do not contain a period, HSBC
has the right to demand immediate payment, applying
Art. 1179. Respondents obligation to pay HSBC is a
pure obligation.
15. Security Bank v. CA and Ferrer (1995)
Facts:
Ysmael Ferrer was contracted by Security Bank to
construct a building in Davao for P1,760,000. The
contract dated Feb. 4, 1980 provided that Ferrer would
finish the construction in two hundred (200) working
days. He was able to complete the construction of the
building on Aug. 15, 1980 (within the contracted
period) but he was compelled by a drastic increase in
the cost of construction materials to incur expenses of
about P300,000 on top of the original cost. The
additional expenses were made known to Security
Bank as early as March 1980. The following year,
Security Banks assistant vice president made a
recommendation to settle Ferrers additional claim but
only for P200,000. But instead of paying the
recommended additional amount, Security Bank
denied ever having authorized payment of any amount
beyond the original contract price, citing a provision in
its contract with Ferrer to the effect that any increase
in the price of labor and/or materials resulting in an
increase in construction cost above the stipulated
contract price will not automatically make petitioners
liable to pay for such increased cost, as any payment
above the stipulated contract price has been made
subject to the condition that the "appropriate
adjustment" will be made upon mutual agreement of
both parties. Security Bank argued that since there was
no mutual agreement between the parties, petitioners'
obligation to pay amounts above the original contract
price never materialized. Thus, Ferrer sued Security
Bank for breach of contract with damages. The RTC and
the CA ruled for Ferrer.
Issue: Whether or not Security Bank should be made
liable to Ferrer.
Held: Yes. Under Art. 1182 of the Civil Code, a
conditional obligation shall be void if its fulfillment
depends upon the sole will of the debtor. In the present
case, the mutual agreement, the absence of which
petitioner bank relies upon to support its non-liability
for the increased construction cost, is in effect a
condition dependent on petitioner banks sole will,
since private respondent would naturally and logically
give consent to such an agreement which would allow
him recovery of the increased cost.
16. Catungal v. Rodriguez (2011)
Facts:
Agapita Catungal entered into a conditional sale
with Angel Rodriguez over a parcel of land located in
Cebu. The contract contained the following provisions:
(1) Vendee shall pay the balance of the purchase price
when he has successfully negotiated and secured a
road right of way and (2) Vendee has the option to
rescind the sale. However, things went south, with
Catungal eventually cancelling the sale. Rodriguez
sued Catungal for damages. Catungal argued that the
subject provisions resulted in the nullity of the
contract, invoking Art. 1182.
Issue: Whether or not the contract is void.
Held: No. Paragraph 1(b) of the Conditional Deed of
Sale, stating that respondent shall pay the balance of
the purchase price when he has successfully
negotiated and secured a road right of way, is not a
condition on the perfection of the contract nor on the
validity of the entire contract or its compliance as
contemplated in Article 1308. It is a condition imposed
only on respondent's obligation to pay the remainder of
the purchase price. In our view and applying Article
1182, such a condition is not purely potestative as
petitioners contend. It is not dependent on the sole will
of the debtor but also on the will of third persons who
own the adjacent land and from whom the road right of
way shall be negotiated. In a manner of speaking, such
a condition is likewise dependent on chance as there is
no guarantee that respondent and the third
partylandowners would come to an agreement
regarding the road right of way. This type of mixed
condition is expressly allowed under Article 1182 of the
Civil Code. We must hasten to add, however, that
where the so-called "potestative condition" is imposed
not on the birth of the obligation but on its fulfillment,
only the condition is avoided, leaving unaffected the
obligation itself.
The Catungals' interpretation of the foregoing
stipulation was that Rodriguez's obligation to negotiate
 Civil Law Review II Case Digests
and secure a road right of way was one with a period
and that period, i.e., "enough time" to negotiate, had
already lapsed by the time they demanded the
payment of P5,000,000.00 from respondent. Even
assuming arguendo that the Catungals were correct
that the respondent's obligation to negotiate a road
right of way was one with an uncertain period, their
rescission of the Conditional Deed of Sale would still be
unwarranted.
With respect to Rodriguezs option to rescind, it is
not purely potestative but rather also subject to the
same mixed condition as his obligation to pay the
balance of the purchase price. In the event the
condition is not fulfilled (or the negotiation fails),
Rodriguez has the choice either (a) to not proceed with
the sale and demand return of his downpayment or (b)
considering that the condition was imposed for his
benefit, to waive the condition and still pay the
purchase price despite the lack of road access. This is
the most just interpretation of the parties' contract that
gives effect to all its provisions. In any event, even if
we assume for the sake of argument that the grant to
Rodriguez of an option to rescind, in the manner
provided for in the contract, is tantamount to a
potestative condition, not being a condition affecting
the perfection of the contract, only the said condition
would be considered void and the rest of the contract
will remain valid.
17. Mactan-Cebu International Airport Authority
v. Tudtud (2008)
Facts:
The National Airports Corporation (NAC)
expropriated several adjoining lots in Cebu for the
construction of the Cebu Lahug Airport, but several
years later, the airport was closed and abandoned,
with a significant area of the land were then being used
for commercial purposes. The original owners filed an
action for reconveyance against the NACs successor-
in-interest, Mactan-Cebu International Airport Authority
(MCIAA), alleging that they are entitle to recover the
land since the purpose for which the lot was acquired
no longer existed. MCIAA argued that the trial courts
pronouncement in the expropriation case did not
contain a condition that the lots would revert to their
owners in case the airport would be abandoned.
Issue: Whether or not the lots should revert to their
original owners.
Held: Yes. While the trial court in Civil Case No. R-1881
could have simply acknowledged the presence of
public purpose for the exercise of eminent domain
regardless of the survival of Lahug Airport, the trial
court in its Decision chose not to do so but instead
prefixed its finding of public purpose upon its
understanding that "Lahug Airport will continue to be in
operation." Verily, these meaningful statements in the
body of the Decision warrant the conclusion that the
expropriated properties would remain to be so until it
was confirmed that Lahug Airport was no longer "in
operation". This inference further implies two (2)
things: (a) after the Lahug Airport ceased its
undertaking as such and the expropriated lots were not
being used for any airport expansion project, the rights
vis--vis the expropriated Lots Nos. 916 and 920 as
between the State and their former owners, petitioners
herein, must be equitably adjusted; and, (b) the
foregoing unmistakable declarations in the body of the
Decision should merge with and become an intrinsic
part of the fallo thereof which under the premises is
clearly inadequate since the dispositive portion is not
in accord with the findings as contained in the body
thereof.
In fine, the decision in favor of respondents must
be affirmed. The rights and duties between the MCIAA
and respondents are governed by Article 1190 of the
Civil Code which provides: When the conditions have
for their purpose the extinguishment of an obligation to
give, the parties, upon the fulfillment of said
conditions, shall return to each other what they have
received. In case of the loss, deterioration, or
improvement of the thing, the provisions which, with
respect to the debtor, are laid down in the preceding
article [Article 1189] shall be applied to the party who
is bound to return.
While the MCIAA is obliged to reconvey Lot No. 988
to respondents, respondents must return to the MCIAA
what they received as just compensation for the
expropriation of Lot No. 988, plus legal interest to be
computed from default, which in this case runs from
the time the MCIAA complies with its obligation to the
respondents.
Respondents must likewise pay the MCIAA the
necessary expenses it may have incurred in sustaining
Lot No. 988 and the monetary value of its services in
managing it to the extent that respondents were
benefited thereby. Following Article 1187 of the Civil
Code, the MCIAA may keep whatever income or fruits it
may have obtained from Lot No. 988, and respondents
need not account for the interests that the amounts
they received as just compensation may have earned
in the meantime. In accordance with the earlier-quoted
Article 1190 of the Civil Code vis--vis Article 1189
which provides that "[i]f a thing is improved by its
nature, or by time, the improvement shall inure to the
benefit of the creditor x x x," respondents, as creditors,
do not have to settle as part of the process of
restitution the appreciation in value of Lot 988 which is
a natural consequence of nature and time.
18. Gaite v. The Plaza Inc. and FGU Insurance
Corporation (2011)
Facts:
The Plaza Inc., represented by its president Jose
Reyes, entered into a contract with Rhogen Builders,
represented by Ramon Gaite, for the construction of a
restaurant building in Greenbelt, Makati. While the
construction was ongoing, the Makati local government
ordered Gaite to cease and desist from continuing with
the construction for violation of the National Building
Code. He sought Reyess help to settle the issue, but
the latter refused, saying that he had no obligation to
help Rhogen. Later on, Gaite informed The Plaza that
he is terminating the contract.
Thereafter, The Plaza filed a complaint for breach
of contract, sum of money and damages against Gaite,
 Civil Law Review II Case Digests
who invoked Art. 1191 of the Civil Code, which 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. According to
Gaite, The Plaza was not paying the progress billings
which was being given by Rhogen.
Issue: Whether or not Gaite properly rescinded the
contract with The Plaza.
Held: No. Respondent The Plaza predicated its action
on Article 1191 of the Civil Code, which provides for the
remedy of rescission or more properly resolution, a
principal action based on breach of faith by the other
party who violates the reciprocity between them. The
breach contemplated in the provision is the obligors
failure to comply with an existing obligation. Thus, the
power to rescind is given only to the injured party. The
injured party is the party who has faithfully fulfilled his
obligation or is ready and willing to perform his
obligation.
The construction contract between Rhogen and
The Plaza provides for reciprocal obligations whereby
the latters obligation to pay the contract price or
progress billing is conditioned on the formers
performance of its undertaking to complete the works
within the stipulated period and in accordance with
approved plans and other specifications by the owner.
Pursuant to its contractual obligation, The Plaza
furnished materials and paid the agreed down
payment. It also exercised the option of furnishing and
delivering construction materials at the jobsite
pursuant to Article III of the Construction Contract.
However, just two months after commencement of the
project, construction works were ordered stopped by
the local building official and the building permit
subsequently revoked on account of several violations
of the National Building Code and other regulations of
the municipal authorities.
Such non-observance of laws and regulations of
the local authorities affecting the construction project
constitutes a substantial violation of the Construction
Contract which entitles The Plaza to terminate the
same, without obligation to make further payment to
Rhogen until the work is finished or subject to refund of
payment exceeding the expenses of completing the
works.
19. Song Fo & Company v. Hawaiian Philippine
Co. (1925)
Facts:
Hawaiian-Philippine Co. (HPC) entered into a
contract with Song Fo &Co (SFC) whereby it would
deliver molasses to the latter. HPC had delivered
55,006 gallons of molasses until it stopped delivery,
prompting SFC to sue the former for breach of contract.
In its defense, HPC said that SFC delayed in paying
hence it had the right to rescind the contract.
Issue:
1. Whether HPC actually agreed to sell 400,000
gallons of molasses (NO)
2. Whether or not HPC had the right to rescind the
contract (NO)
Held:
1. Only 300,000 gallons of molasses was agreed to
by HPC as seen in the documents presented in court.
The language used with reference to the additional
100,000 gallons was not a definite promise.
2. No. There was a doubt as to when SFC was
supposed to make the payments. Resolving such
ambiguity as exists and having in mind ordinary
business practice, a reasonable deduction is that SFC
was to pay the HPC upon presentation of accounts at
the end of each month. Under this hypothesis, SFC
should have paid for the molasses delivered in
December, 1922, and for which accounts were received
by it on January 5, 1923, not later than January 31 of
that year. Instead, payment was not made until
February 20, 1923. All the rest of the molasses was
paid for either on time or ahead of time.
The general rule is that rescission will not be
permitted for a slight or casual breach of the contract,
but only for such breaches as are so substantial and
fundamental as to defeat the object of the parties in
making the agreement. A delay in payment for a small
quantity of molasses for some twenty days is not such
a violation of an essential condition of the contract was
warrants rescission for non-performance. Not only this,
but the HPC waived this condition when it arose by
accepting payment of the overdue accounts and
continuing with the contract. Thus, SFC was not in
default in payment so that the HPC had in reality no
excuse for writing its letter of April 2, 1923, cancelling
the contract.
20. Cortes v. CA (2006)
Facts:
Petitioner Antonio Cortes (Cortes) and private
respondent Villa Esperanza Development Corporation
(Corporation), with the former as the seller and the
latter as the buyer, entered into a contract of sale
wherein the purchase price is of P3,700,000.00. The
Corporation advanced to Cortes the total sum of
P1,213,000.00.
The Corporation then filed a case for specific
performance seeking to compel Cortes to deliver the
TCTs and the original copy of the Deed of Absolute
Sale, alleging that, despite its readiness and ability to
 Civil Law Review II Case Digests
pay the purchase price, Cortes refused delivery of the
sought documents. Cortes claimed that the owner's
duplicate copy of the three TCTs were surrendered to
the Corporation and it is the latter which refused to pay
in full the agreed down payment.
The trial court rendered a decision rescinding the
sale and directed Cortes to return to the Corporation
the amount of P1,213,000.00, plus interest. It ruled
that pursuant to the contract of the parties, the
Corporation should have fully paid the amount of
P2,200,000.00 upon the execution of the contract.
On appeal, the Court of Appeals directed Cortes to
execute a Deed of Absolute Sale conveying the
properties and to deliver the same to the Corporation
together with the TCTs, simultaneous with the
Corporation's payment of the balance of the purchase
price of P2,487,000.00. It found that the parties agreed
that the Corporation will fully pay the balance of the
down payment upon Cortes' delivery of the three TCTs
to the Corporation.
Issue: Whether there is a delay in the performance of
the parties' obligation that would justify the rescission
of the contract of sale? (NO)
Held: Under Article 1169 of the Civil Code, from the
moment one of the parties fulfills his obligation, delay
by the other begins. Since Cortes did not perform his
part, the provision of the contract requiring the
Corporation to pay in full the down payment never
acquired obligatory force.
The transcript of stenographic notes reveal Cortes'
admission that he agreed that the Corporation's full
payment of the sum of P2,200,000.00 would depend
upon his delivery of the TCTs of the three lots.It was
also found that Cortes never surrendered said
documents to the Corporation. Cortes testified that he
delivered the same to Manny Sanchez, the son of the
broker, and that Manny told him that her mother,
Marcosa Sanchez, delivered the same to the
Corporation. However, Marcosa Sanchez's unrebutted
testimony is that, she did not receive the TCTs. She
also denied knowledge of delivery thereof to her son,
Manny
Considering that their obligation was
reciprocal, performance thereof must be
simultaneous. The mutual inaction of Cortes and the
Corporation therefore gave rise to a compensation
morae or default on the part of both parties because
neither has completed their part in their reciprocal
obligation. Cortes is yet to deliver the original copy of
the notarized Deed and the TCTs, while the Corporation
is yet to pay in full the agreed down payment of
P2,200,000.00. This mutual delay of the parties cancels
out the effects of default, such that it is as if no one is
guilty of delay.
The meaning of "execution" in the instant case is
not limited to the signing of a contract but includes as
well the performance or implementation or
accomplishment of the parties' agreement. With the
transfer of titles as the corresponding reciprocal
obligation of payment, Cortes' obligation is not only to
affix his signature in the Deed, but to set into motion
the process that would facilitate the transfer of title of
the lots, i.e., to have the Deed notarized and to
surrender the original copy thereof to the Corporation
together with the TCTs.
Reciprocal obligations are those which arise from
the same cause, and 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 fulfilment of the other.
21. Roque v. Lapuz and CA (1980)
Facts:
Felipe Roque and Nicanor Lapuz entered into an
agreement of sale covering 3 lots of Roques property
known as the Rockville Subdivision of Q.C. In
accordance thereto, Lapuz paid P150.00 as deposit and
the further sum of P740.56 to complete the payment of
4 monthly installments covering the period July to
October 1954. In a modified agreement, Roque allowed
Lapuzs abandonment of the said lots and to
substitute, instead, 2 corner lots as the subject of their
transaction. In addition, it was agreed that the
purchase price of these lots would be payable in 120
equal monthly installments with an annual interest of
8%. Thus, Lapuz occupied the lots, built a house
thereon and surrounded it with barbed wires and adobe
walls.
However, aside from the initial payments made by
Lapuz, he failed to make any further payment on
account of the new agreement. Despite Roques
demand to pay the stipulated monthly installments and
a formal letter sent on November 1957 to vacate the
lots and pay reasonable rent, Lapuz remained therein
and failed to pay. Both the Court of First Instance and
the Court of Appeals (CA) decided in favor of Roque. In
reference to the mode payment, the CA found that
though the agreed period within which to pay the lot is
10 years, Lapuz claims that he could pay the purchase
price at any time within the period, while Roque
maintains that Lapuz was bound to pay monthly
installments.
Issue:
Was the transaction between Roque and Lapuz a
Contract of Sale or Contract to Sell? (CONTRACT TO
SELL)
Is Lapuz entitled to fix the period within which he
should pay Roque? (NO)
Held:
There is no writing or document evidencing the
agreement originally entered into between the parties,
except the receipt showing the initial deposit of
P150.00 and the payment of the 4 months installment
made by Lapuz. Neither is there any writing or
document evidencing the modified agreement when
the 3 lots were changed to 2 other corner lots. This
absence of a formal deed of conveyance is a very
strong indication that the parties did not intend
immediate transfer of ownership and title, but only a
transfer after full payment of the price. Parenthetically,
the standard printed contracts for the sale of the lots in
 Civil Law Review II Case Digests
the Rockville Subdivision on a monthly installment
basis, showing the terms and conditions thereof, are
immaterial to the case at bar since they have not been
signed by either of the parties to this case.
The overwhelming weight of authority culminating
in the Luzon Brokerage vs. Maritime cases has laid
down the rule that Article 1592 of the New Civil Code
(NCC) does not apply to a contract to sell where title
remains with the vendor until full payment of the price,
as in the case at bar. Art. 1191 of the NCC is the
applicable provision where the obligee, like Roque,
elects to rescind or cancel his obligation to deliver the
ownership of the two lots in question for failure of
Lapuz to pay in full the purchase price on the basis of
120 monthly equal installments, promptly and
punctually for a period of 10 years. Thus, Roque is
entitled to repossess the property object of the
contract, possession being a mere incident to his right
of ownership.
As obligor, Lapuz is not entitled to the benefits of
paragraph 3 of Art. 1191 of the NCC. Having been in
default, he is not entitled to the new period of 90 days
from entry of judgment within which to pay Roque the
balance of P11,434.44 with interest due on the
purchase price of P12,325.00 for the 2 lots. His refusal
to pay further installments on the purchase price, his
insistence that he had the option to pay the purchase
price any time in 10 years inspire of the clearness and
certainty of his agreement with Roque, as evidenced
further by the receipt, his dilatory tactic of refusing to
sign the necessary contract of sale on the pretext that
he will sign later when he shall have updated his
monthly payments in arrears but which he never
attempted to update, and his failure to deposit or make
available any amount for a period of 26 years are all
unreasonable and unjustified, which altogether,
manifest clear bad faith and malice on Lapuzs part,
making inapplicable and unwarranted the benefits of
par. 3 of Art. 1191. Moreover, his failure to pay the
succeeding 116 monthly installments after paying only
4 monthly installments is a substantial and material
breach on his part, not merely casual.
22. Gil v. CA (2003)
Facts:
The case at hand revolves around a disputed parcel
of commercial land originally co-owned by Concepcion
Palma Gil, and her sister, Nieves Palma Gil who was
married to Angel Villarica. Concepcion filed a complaint
against her sister Nieves Civil Case No. 1160 for
specific performance, to compel the defendant to cede
and deliver to her an undivided portion of the said
property. The lower court ruled in favor of Concepcion.
CA affirmed and the decision became final and
executory. The sheriff had the property subdivided and
executed a Deed of Transfer of one of the four lots to
Concepcion. Concepcion executed a deed of absolute
sale over the said lot in favor of Iluminada Pacetes.
Also, Concepcion filed a complaint for unlawful detainer
against the spouses Angel and Nieves Villarica Civil
Case No. 2246, which the MTC decided in favor of
Concepcion. Meanwhile, the spouses Angel and Nieves
Villarica filed a complaint against the sheriff and
Concepcion with the Civil Case No. 2151 for the
nullification of the deed of transfer executed by the
sheriff. Iluminada Pacetes filed a motion to intervene in
Civil Case No. 2151, as vendee of the property subject
of the case, which was granted by the court. She then
filed a motion to dismiss the complaint. The court
granted the motion.
On the basis of the deed of transfer executed by
Sheriff, the Register of Deeds issued TCTs in the name
of Concepcion. 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.
More than five years having elapsed without the
decision in the unlawful detainer case being enforced,
Iluminada filed a complaint Civil Case No. 4413 for the
revival and execution of the decision of the unlawful
detainer case.
Subsequently, the lot was sold to Constancio
Maglana then to Emilio Matulac. In the meantime, on
August 8, 1977, Iluminada consigned with the court in
the specific performance case the amount of
P11,983.00 only as payment of the purchase price of
the property. Three of the surviving heirs of Concepcion
Gil, namely, Perla Palma Gil, Vicente Hizon, Jr. and
Angel Palma Gil filed on June 17, 1982, a complaint
against Emilio Matulac, Constancio Maglana, Agapito
Pacetes, and the Register of Deeds, with the CFI for the
cancellation of the deed of sale executed by
Concepcion in favor of Iliminada Pacetes; the deed of
sale executed by the latter in favor of Constancio
Maglana; the deed of sale executed by the latter in
favor of Emilio Matulac. Petitioners in this case assert
that private respondent Iluminada Pacetes failed to pay
the balance of the purchase price in the amount of
P14,100.00. They did consign and deposit the amount
of P11,983.00, but only on August 8, 1977, twenty one
years from the execution of the Deed of Absolute Sale
in favor of the said spouses, without the latter
instituting an action for the cancellation of their
obligation. According to the petitioners, the
consignation made by Iluminada Pacetes of the amount
did not produce any legal effect.
In the procedural aspect, it is important to note
that the petitioners failed to implead all the
compulsory heirs of the deceased Concepcion Gil in
their complaint. When she died intestate, Concepcion
Gil, a spinster, was survived by her sister Nieves, and
her nephews and nieces, three of whom are the
petitioners herein.
Issue: Whether or not the property has been
conveyed to Iluminada Pacetes and the subsequent
vendees in spite of the balance that existed for 21
years? (YES)
Held: Article 1191 in tandem with Article 1592 of the
New Civil Code are central to the issues at bar. 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
 Civil Law Review II Case Digests
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.
That 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. We 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 another case, we ruled that the non-payment of
the purchase price of property constitutes a very good
reason to rescind a sale for it violates the very essence
of the contract of sale. In Central Bank of the
Philippines v. Bichara, we held that the non-payment of
the purchase price of property is a resolutory condition
for which the remedy is either rescission or specific
performance under Article 1191 of the New Civil Code.
This is true for reciprocal obligations where the
obligation is a resolutory condition of the other. The
vendee is entitled to retain the purchase price or a part
of the purchase price of realty if the vendor fails to
perform any essential obligation of the contract. Such
right is premised on the general principles of reciprocal
obligations.
In this case, Concepcion Gil sold Lot 59-C-1 to
Iluminada Pacetes for P21,600.00 payable as follows:
The purchase price of P21,600.00 shall be paid as
follows: 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
in the name of the VENDEE.
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.
That it is further stipulated that this contract shall be
binding upon the heirs, executors and administrators of
the respective parties hereof.
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.
Iluminada was not yet obliged on August 8, 1977 to
pay the balance of the purchase price of the property,
but as a sign of good faith, she nevertheless consigned
the amount of P11,983.00, part of the balance of the
purchase price of P14,000.00, with the court in Civil
Case No. 1160. The court accepted the consignation
and she was issued receipts therefor. Still, the heirs of
Concepcion Gil, including the petitioners, failed to
deliver the said title to the vendee. Iluminada was
compelled to file, at her expense, a petition with the
RTC docketed as Miscellaneous Case No. 4715 for the
issuance of an owners duplicate of TCT No. 7450
covering the property sold which was granted by the
court on March 22, 1978. It was only on May 9, 1978
that Iluminada managed to secure TCT No. 61514 over
the property under her name. Upon the failure of the
heirs to comply with the decedents prestation,
Iluminada Pacetes was impelled to resort to legal
means to protect her rights and interests.
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.
It bears stressing that when the vendee consigned
part of the purchase price with the Court and secured
title over the property in her name, the heirs of
Concepcion, including the petitioners, had not yet sent
any notarial demand for the rescission of the deed of
absolute sale to the vendee, or filed any action for the
rescission of the said deed with the appropriate court.
Although the vendee consigned with the Court only
the amount of P11,983.00, P2,017.00 short of the
purchase price of P14,000.00, it cannot be claimed that
Concepcion was an unpaid seller because under the
deed of sale, she was still obligated to transfer the
property in the name of the vendee, which she failed to
do so. According to Article 1167 of the New Civil Code:
If a person obliged to do something fails to do it, the
same shall be executed at his cost. This same rule
shall be observed if he does it in contravention of the
tenor of the obligation. Furthermore, it may be decreed
that what has been poorly done be undone.
The vendee (Iluminada) had to obtain the owners
duplicate of TCT No. 7450 and thereafter secure its
transfer in her name. Pursuant to Article 1167, the
expenses incurred by the vendee should be charged
against the amount of P2,617.00 due to the heirs of
Concepcion Gil as the vendors successors-in-interest.
23. Rayos v. CA (2004)
Facts:
 Civil Law Review II Case Digests
Petitioner Orlando A. Rayos, a practicing lawyer,
and his wife, petitioner Mercedes T. Rayos, secured a
short-term loan from the PSB payable within a period of
1 year in quarterly installments. To secure the payment
of the loan, the petitioners-spouses executed, a Real
Estate Mortgage over their property located in Las
Pias, Metro Manila. Petitioners, as vendors, and the
respondents, Spouses Miranda, as vendees, executed a
Deed of Sale with Assumption of Mortgage over the
subject property. However, the petitioners-spouses,
likewise, executed a Contract to Sell the said property
in favor of the respondents. The petitioners obliged
themselves to execute a deed of absolute sale over the
property in favor of the respondents upon the full
payment of the purchase price thereof. In the
meantime, respondent Rogelio Miranda secured the
services of petitioner Orlando Rayos as his counsel in a
suit.
Both parties agreed to the payment of attorney's
fees. When the petitioner demanded the payment of
attorney's fees, the respondent refused to pay.
Petitioner then received a Letter from the PSB,
reminding him that this loan with the bank would
mature on December 24, 1986, and that it expected
him to pay his loan on or before the said date. Fearing
that the respondents would not be able to pay the
amount due, petitioner paid the bank on December 12,
1986, leaving the balance of P1,048.04. The petitioner
advised the PSB not to turnover to the respondents the
owner's duplicate of the title over the subject property,
even if the latter paid the last quarterly installment on
the loan, as they had not assumed the payment of the
same. Respondent filed a complaint against the
petitioners and the PSB for damages with a prayer for a
writ of preliminary attachment with the RTC of Makati.
The respondents contend that the petitioners breached
their contract.
Issue:
Whether the parties executed a contract of sale
(NO)
Held: The Court ruled that the parties executed a
contract to sell and not a contract of sale. The
petitioners retained ownership without further
remedies by the respondents until the payment of the
purchase price of the property in full. Such payment is
a positive suspensive condition, failure of which is not
really a breach, serious or otherwise, but an event that
prevents the obligation of the petitioners to convey
title from arising, in accordance with Article 1184 of the
Civil Code.
In Lacanilao v. Court of Appeals, the Court ruled
that where the seller promised to execute a deed of
absolute sale upon completion of payment of the
purchase price by the buyer, the agreement is a
contract to sell. In contracts to sell, where ownership is
retained by the seller until payment of the price in full,
such payment is a positive suspensive condition,
failure of which is not really a breach but an event that
prevents the obligation of the vendor to convey title in
accordance with Article 1184 of the Civil Code. The
non-fulfillment by the respondent of his obligation to
pay, which is a suspensive condition to the obligation
of the petitioners to sell and deliver the title to the
property, rendered the contract to sell ineffective and
without force and effect. The parties stand as if the
conditional obligation had never existed. Article 1191
of the New Civil Code will not apply because it
presupposes an obligation already extant. There can
be no rescission of an obligation that is still non-
existing, the suspensive condition not having
happened.
24. Golden Valley Exploration, Inc. v. Pinkian
Mining Company and Copper Valley, Inc. (2014)
Facts:
PMC is the owner of 81 mining claims located in
Kayapa, Nueva Vizcaya, 15 of which were covered by
Mining Lease Contract (MLC) while the remaining 66
had pending applications for lease. On October 30,
1987, PMC entered into an Operating Agreement (OA)
with GVEI, granting the latter "full, exclusive and
irrevocable possession, use, occupancy , and control
over the [mining claims], and every matter pertaining
to the examination, exploration, development and
mining of the [mining claims] and the processing and
marketing of the products x x x ,"for a period of 25
years.
In a Letter dated June 8, 1999, PMC extra-judicially
rescinded the OA upon GVEIs violation of the
provisions thereof. GVEI contested PMCs extra-judicial
rescission through a Letter averring therein that its
obligation to PMC arises only when the mining claims
are placed in commercial production which condition
has not yet taken place.
PMC no longer responded to GVEIs letter. Instead,
it entered into a Memorandum of Agreement dated
May 2, 2000 (MOA) with CVI, whereby the latter was
granted the right to "enter, possess, occupy and
control the mining claims" and "to explore and develop
the mining claims, mine or extract the ores, mill,
process and beneficiate and/or dispose the mineral
products in any method or process," among others, for
a period of 25 years.
Due to the foregoing, GVEI filed a Complaint for
Specific Performance, Annulment of Contract and
Damages against PMC and CVI before the RTC.
RTC ruled in favor of GVEI. CA reversed RTC ruling.
Hence this petition.
Issue: Whether or not there was a valid rescission of
the OA (YES)
Held: There was a valid rescission of the OA. The Court
held that in reciprocal obligations, either party may
rescind the contract upon the others substantial
breach of the obligation/s he had assumed thereunder.
The basis therefor is Article 1191 of the Civil Code
which states as follows:
Art. 1191. The power to rescind
obligations is implied in reciprocal
ones, in case one of the obligors should
not comply with what is incumbent
upon him.
 Civil Law Review II Case Digests
The injured party may choose between
the fulfillment and the rescission of the
obligation, with the payment of
damages in either case. He may also
seek rescission, even after he has
chosen fulfillment, if the latter should
become impossible.
The court shall decree the rescission
claimed, unless there be just cause
authorizing the fixing of a period.
This is understood to be without
prejudice to the rights of third persons
who have acquired the thing, in
accordance with Articles 1385 and
1388 and the Mortgage Law.
More accurately referred to as resolution, the right
of rescission under Article 1191 is predicated on a
breach of faith that violates the reciprocity between
parties to the contract. This retaliatory remedy is given
to the contracting party who suffers the injurious
breach on the premise that it is "unjust that a party be
held bound to fulfill his promises when the other
violates his."
As a general rule, the power to rescind an
obligation must be invoked judicially and cannot be
exercised solely on a partys own judgment that the
other has committed a breach of the obligation. This is
so because 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. As a well-established exception, however,
an injured party need not resort to court action in order
to rescind a contract when the contract itself provides
that it may be revoked or cancelled upon violation of
its terms and conditions.
With this in mind, the Court therefore affirms the
correctness of the CAs Decision upholding PMCs
unilateral rescission of the OA due to GVEIs non-
payment of royalties considering the parties express
stipulation in the OA that said agreement may be
cancelled on such ground.
On the claim of GVEI that no commercial mining was
yet in place:
Despite earlier demands made by PMC, no
meaningful steps were taken by GVEI towards the
commercial production of the 15 perfected mining
claims and the beneficial exploration of those
remaining. Consequently, seven years into the life of
the OA, no royalties were paid to PMC. Compounding
its breach, GVEI not only failed to pay royalties to PMC
but also did not carry out its obligation to conduct
operations on and/or commercialize the mining claims
already covered by MLC. Truth be told, GVEIs non-
performance of the latter obligation under the OA
actually made the payment of royalties to PMC virtually
impossible. Hence, GVEI cannot blame anyone but
itself for its breach of the OA, which, in turn, gave PMC
the right to unilaterally rescind the same.
On the claim of GVEI that the ground to rescind the OA
was only limited to its non-payment of royalties:
While Section 8.01, Article VIII of the OA as above-
cited appears to expressly restrict the availability of an
extra-judicial rescission only to the grounds stated
thereunder, the Court finds that the said stipulation
does not negate PMCs implied statutory right to
judicially rescind the contract for other unspecified acts
that may actually amount to a substantial breach of
the contract. This is based on Article 1191 of the Civil
Code (also above-cited) which pertinently 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" and that
"[t]he court shall decree the rescission claimed, unless
there be just cause authorizing the fixing of a period."
On Extra-judicial rescission:
While it remains apparent that PMC had not
judicially invoked the other grounds to rescind in this
case, the only recognizable effect, however, is with
respect to the reckoning point as to when the contract
would be formally regarded as rescinded. Where
parties agree to a stipulation allowing extra-judicial
rescission, no judicial decree is necessary for rescission
to take place; the extra-judicial rescission immediately
releases the party from its obligation under the
contract, subject only to court reversal if found
improper. On the other hand, without a stipulation
allowing extra-judicial rescission, it is the judicial
decree that rescinds, and not the will of the rescinding
party.
Finally, the Court cannot lend credence to GVEI's
contention that when PMC entered into an agreement
with CVI covering the mining claims, it was committing
a violation of the terms and conditions of the OA. As
above-explained, the invocation of a stipulation
allowing extra-judicial rescission effectively puts an
end to the contract and, thus, releases the parties from
the obligations thereunder, notwithstanding the lack of
a judicial decree for the purpose.
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,
 Civil Law Review II Case Digests
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
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
 Civil Law Review II Case Digests
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
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
 Civil Law Review II Case Digests
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
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
 Civil Law Review II Case Digests
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
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.
 Civil Law Review II Case Digests
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.
33. Asiatrust Devt Bank v. Concepts Trading
Corporation (2003)
Facts:
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
 Civil Law Review II Case Digests
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.
34. 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.]
35. Land Bank v. Ong (2010)
Facts:
Spouses Johnson and Evangeline Sy obtained a
loan from Land Bank in the amount of P16 million
secured by three residential lots, five cargo trucks and
a warehouse. They later found that the could no longer
pay for the loan, so they sold the three parcels of land
to Angelina Gloria Ong, Evangelines mother, under a
Deed of Sale with Assumption of Mortgage.
Evangelines father, Alfredo Ong, went to Land
Bank to inquire about the transaction. He was told that
there was nothing wrong with the agreement, and that
he should pay part of the principal which was
computed at P750,000 as a requirement for the
assumption of mortgage. Alfredo did what he was told,
but his application for assumption of mortgage was not
approved, because the Ongs had a real estate
mortgage in the amount of P18,300,000 with another
bank that was past due. Land Bank eventually
foreclosed the mortgages of the Spouses Sy.
Alfredo sued Land Bank for the collection of his
P750,000, claiming that he was lured into believing
that his payment would cause Land Bank to approve
his assumption of the loan of the Spouses Sy. The RTC
and CA ruled in favor of Alfredo. Land Bank contended
that Art. 1236 of the Civil Code backs their claim that
Alfredos recourse should be with the Spouses Sy
instead of Land Bank.
Issue: Whether or not Alfredos recourse should be
with Spouses Sy.
Held: No. Art. 1236 provides:
The creditor is not bound to accept payment or
performance by a third person who has no interest in the
fulfillment of the obligation, unless there is a stipulation
to the contrary.
Whoever pays for another may demand from the
debtor what he has paid, except that if he paid without
the knowledge or against the will of the debtor, he can
recover only insofar as the payment has been beneficial
to the debtor.
We agree with Land Bank on this point as to the
first part of paragraph 1 of Art. 1236.Land Bank was
not bound to accept Alfredos payment, since as far as
the former was concerned, he did not have an interest
in the payment of the loan of the Spouses Sy. However,
in the context of the second part of said paragraph,
Alfredo was not making payment to fulfill the obligation
of the Spouses Sy. Alfredo made a conditional payment
so that the properties subject of the Deed of Sale with
Assumption of Mortgage would be titled in his name. It
is clear from the records that Land Bank required
Alfredo to make payment before his assumption of
mortgage would be approved. He was informed that
the certificate of title would be transferred accordingly.
He, thus, made payment not as a debtor but as a
prospective mortgagor.
Alfredo, as a third person, did not, therefore, have
an interest in the fulfillment of the obligation of the
Spouses Sy, since his interest hinged on Land Banks
approval of his application, which was denied. The
circumstances of the instant case show that the second
 Civil Law Review II Case Digests
paragraph of Art. 1236 does not apply. As Alfredo made
the payment for his own interest and not on behalf of
the Spouses Sy, recourse is not against the latter. And
as Alfredo was not paying for another, he cannot
demand from the debtors, the Spouses Sy, what he has
paid.
The Supreme Court also disagreed with the CAs
ruling that novation took place in this case. Art. 1293
states that Novation which consists in substituting a
new debtor in the place of the original one, may be
made even without the knowledge or against the will of
the latter, but not without the consent of the creditor.
Payment by the new debtor gives him rights mentioned
in articles 1236 and 1237. We do not agree, then, with
the CA in holding that there was a novation in the
contract between the parties. Not all the elements of
novation were present. Novation must be expressly
consented to. Moreover, the conflicting intention and
acts of the parties underscore the absence of any
express disclosure or circumstances with which to
deduce a clear and unequivocal intent by the parties to
novate the old agreement.
Whether or not Alfredo Ong has an interest in the
obligation and payment was made with the knowledge
or consent of Spouses Sy, he may still pay the
obligation for the reason that even before he paid the
amount of P750,000.00 on January 31, 1997, the
substitution of debtors was already perfected by and
between Spouses Sy and Spouses Ong as evidenced by
a Deed of Sale with Assumption of Mortgage executed
by them on December 9, 1996. And since the
substitution of debtors was made without the consent
of Land Bank a requirement which is indispensable in
order to effect a novation of the obligation, it is
therefore not bound to recognize the substitution of
debtors. Land Bank did not intervene in the contract
between Spouses Sy and Spouses Ong and did not
expressly give its consent to this substitution.
36. Lo v. KJS Eco-Formwork System Phil (2003)
Facts:
Sonny Lo, doing business under the name Sans
Enterprises, ordered scaffolding equipment from KJS
worth P540,425.80. Lo paid a down payment of
P150,000 and the balance was to be paid in 10
monthly installments. KJS delivered the scaffoldings to
Lo, who paid the first two installments. However, his
business encountered financial difficulties and he was
unable to settle his obligation despite oral and written
demands.
Lo and KJS executed a Deed of Assignment,
whereby Lo assigned to KJS his receivables in the
amount of P335,462.14 from Jomero Realty
Corporation. The agreement also stipulated: The
ASSIGNOR further agrees and stipulates as aforesaid
that the said ASSIGNOR, his heirs, executors,
administrators, or assigns, shall and will at times
hereafter, at the request of said ASSIGNEE, its
successors or assigns, at his cost and expense, execute
and do all such further acts and deeds as shall be
reasonably necessary to effectually enable said
ASSIGNEE to recover whatever collectibles said
ASSIGNOR has in accordance with the true intent and
meaning of these presents.
When KJS tried to collect the said credit from
Jomero, it refused to honor the Deed of Assignment
because it claimed that Lo was also indebted to it. KJS
sent a letter to Lo demanding payment but he refused
claiming that his obligation had been extinguished
when they executed the Deed of Assignment.
KJS sued Lo for collection.
Issue: Whether or not the Deed of Assignment
extinguished Los obligation.
Held: No. In dacion en pago as a special mode of
payment, the debtor offers another thing to the
creditor who accepts it as equivalent of payment of an
outstanding debt. The undertaking really partakes in
one sense of the nature of sale the creditor is really
buying the thing or property of the debtor, payment for
which is to be charged against the debtors debt.
The assignment of credit, which is in the nature of
a sale of personal property, produced the effects of a
dation in payment, which may extinguish the
obligation. However, as in any other contract of sale,
the vendor or assignor is bound by certain warranties.
Paragraph 1 of Article 1628 of the Civil Code provides:
The vendor in good faith shall be responsible for the
existence and legality of the credit at the time of the
sale, unless it should have been sold as doubtful; but
not for the solvency of the debtor, unless it has been
so expressly stipulated or unless the insolvency was
prior to the sale and of common knowledge.
Lo, as assignor, is bound to warrant the existence
and legality of the credit at the time of the sale or
assignment. When Jomero claimed that it was no
longer indebted to Lo since the latter also had an
unpaid obligation to it, it essentially meant that its
obligation to Lo has been extinguished by
compensation. As a result, KJS alleged the non-
existence of the credit and asserted its claim to Los
warranty under the assignment. Lo was therefore
required to make good its warranty and pay the
obligation.
Furthermore, Lo breached his obligation under the
Deed of Assignment as he did not execute and do all
such further acts and deeds as shall be reasonably
necessary to effectually enable said ASSIGNEE to
recover whatever collectibles said ASSIGNOR has in
accordance with the true intent and meaning of these
presents. By warranting the existence of the credit, Lo
should have ensured its performance in case it is found
to be inexistent. He should be held liable to pay to KJS
the amount of his indebtedness.
37. PNB v. Pineda (1991)
Facts:
Spouses Ignacio and Tuason Arroyo obtained a loan
of P580,000 secured by La Vista, a parcel of land, in
order to acquire the controlling interest of Tayabas
Cement Company, Inc. (TCC). Thereafter, TCC applied
for the opening of L/C in the amount of $7 million in
favor of Toyo Menka Kaisha to cover the importation of
a cement plant machinery and equipment. Spouses
 Civil Law Review II Case Digests
Arroyo acted as TCCs surety. When the goods arrived
in the Philippines, TCC executed a trust receipt
agreement with the bank, but it later on failed to pay
the bank. Thus, PNB repossessed the machinery and
equipment. Spouses Arroyo also failed to settled their
obligations, so the La Vista Property was foreclosed
with PNB winning the bid. However, when said property
was about to be awarded to PNB, the representative of
the mortgagor-spouses objected and demanded from
the PNB the difference between the bid price of
P1,000,001.00 and the indebtedness of P499,060.25 of
the Arroyo spouses on their personal account. It was
the contention of the spouses Arroyo's representative
that the foreclosure proceedings referred only to the
personal account of the mortgagor spouses without
reference to the account of TCC. To remedy the
situation, PNB filed a supplemental petition on August
13, 1975 requesting the Sheriff's Office to proceed with
the sale of the subject real properties to satisfy not
only the amount of P499,060.25 owed by the spouses
Arroyos on their personal account but also the amount
of P35,019,901.49 exclusive of interest, commission
charges and other expenses owed by said spouses as
sureties of TCC.
TCC filed a complaint against PNB, seeking the
issuance of a writ of preliminary injunction to restrain
the foreclosure of the mortgages over the real
properties as well as a declaration that its obligation
with PNB had been fully paid by reason of the latters
repossession of the imported machinery and
equipment.
Issue: Whether or not TCCs liability has been
extinguished by the repossession of PNB of the
machinery and equipment.
Held: No. The banks repossession of the goods
subject of a trust receipt does not extinguish the
entrustees obligation. Neither can said repossession
amount to dacion en pago. Dation in payment takes
place when property is alienated to the creditor in
satisfaction of a debt in money and the same is
governed by sales. Dation in payment is the delivery
and transmission of ownership of a thing by the debtor
to the creditor as an accepted equivalent of the
performance of the obligation. As aforesaid, the
repossession of the machinery and equipment in
question was merely to secure the payment of TCC's
loan obligation and not for the purpose of transferring
ownership thereof to PNB in satisfaction of said loan.
Thus, no dacion en pago was ever accomplished.
Proceeding from this finding, PNB has the right to
foreclose the mortgages executed by the spouses
Arroyo as sureties of TCC. A surety is considered in law
as being the same party as the debtor in relation to
whatever is adjudged touching the obligation of the
latter, and their liabilities are interwoven as to be
inseparable. As sureties, the Arroyo spouses are
primarily liable as original promissors and are bound
immediately to pay the creditor the amount
outstanding.
Under Presidential Decree No. 385 which took
effect on January 31, 1974, government financial
institutions like herein petitioner PNB are required to
foreclose on the collaterals and/or securities for any
loan, credit or accommodation whenever the
arrearages on such account amount to at least twenty
percent (20%) of the total outstanding obligations,
including interests and charges, as appearing in the
books of account of the financial institution concerned.
It is further provided therein that "no restraining order,
temporary or permanent injunction shall be issued by
the court against any government financial institution
in any action taken by such institution in compliance
with the mandatory foreclosure provided in Section 1
hereof, whether such restraining order, temporary or
permanent injunction is sought by the borrower(s) or
any third party or parties . . ."
38. PCIB v. CA (2006)
Facts:
The petitioner PCIB and Manila Banking
Corporation (MBC) are owners of mining machineries
and equipment previously owned by Philippine Iron
Mines, Inc. The said machineries and equipment was
sold to respondent Atlas by PCIB and MBC. The
contract of sale freed Atlas of any liens and
encumbrances that NAMAWU (National Mines Allied
Workers Union) might have against the said
machineries. As an initial payment, Atlas paid Php
12,000,000 of the total amount Php 29,000,000 value
of the machineries.
On the following day, PCIB and MBC wrote Atlas
requesting that subsequent installment payments of
the balance be made in the following proportions: PCIB
63.1579% and MBC - 36.8421%. The request was
expressed through a lettersigned by Ruben G. Asedillo
and Porfirio Q. Cabalu, Vice Presidents respectively of
MBC and PCIB. The balance were paid in subsequent
installments.
During the period of payments, Atlas received a
final order of garnishment arising from the claim or lien
of NAMAWU with the machineries amount to Php 4M. It
then paid the said amount and credited the same to
the balance of the purchase price it is supposed to pay
with PCIB and MBC.
Atlas then claimed that it had already paid the
whole obligation and even overpaid its obligation. With
this, PCIB filed a collection case against Atlas. It
claimed that it did not fully receive its 63% share in the
purchase price.
The trial court ruled in favor of PCIB and ordered
Atlas to pay the remaining balance that PCIB claims.
On appeal, the CA reversed the decision of the trial
court and ruled that Atlas had indeed made an
overpayment. It ruled that the sharing between PCIB
and MBC (63-38% sharing) is an internal matter for
which Atlas is not a privy.
Issue:
1 Whether or not Atlas can be held liable for the
remaining balance of the 63% share of PCIB in
the purchase price.
2 Whether or not Atlas can credit the whole
amount of Php 4M against its obligation with
PCIB.
 Civil Law Review II Case Digests
Ruling:
1 No. We uphold the appellate court on this
issue.
This case concerns a joint obligation, which is
defined as an obligation where there is a concurrence
of several creditors, or of several debtors, or of several
debtors, or of several creditors and debtors, by virtue
of which each of the creditors has a right to demand,
and each of the debtors is bound to render, compliance
with his proportionate part of the prestation which
constitutes the object of the obligation. Article 1208 of
the Civil Code mandates the equal sharing of creditors
in the payment of debt in the absence of any law or
stipulation to the contrary.
PCIB is adamant in claiming that it only received
P6,819,766.10 as its share in the downpayment. To
prove its allegation, PCIB presented its own receipt
wherein it was clearly stated that PCIB received from
Atlas the amount of P6,819,766.10.
It is beyond dispute that Atlas issued Hongkong
Shanghai Bank Check No. 003842 in the sum of
P12,000,000.00 with PCIB and MBC as joint payees as
downpayment of the purchase price on 12 February
1979. The check was received by Porfirio Cabalu, Jr., a
PCIB Vice-President. As admitted by the parties during
trial, the check was afterwards deposited in the
account of MBC. Therefore, it is reasonable to conclude
that the amount received by PCIB, as evidenced by the
receipt, was given to it by MBC. The appellate court
arrived at the same conclusion, to wit:
Apparently, after the check was deposited in the
account of MBC, the latter issued its MBC Check No.
1652661 in the amount of P6,819,766.10 to PCIB,
properly receipted under Official Receipt No. 466652 of
PCIB. In other words, what the appellee herein
receipted was the share given to it by Manilabank.
Undeniably, there was yet no agreement as of that
date concerning the corresponding share of each
creditor. It was only on 8 March 1979 when PCIB
communicated to Atlas the percentage of payments to
be remitted to PCIB and MBC. Before said date, Atlas
could be secure in the thought that the matter of
sharing was best left to the creditors to decide.
Thus, we agree with the appellate courts
conclusion that whatever deficiency PCIB is entitled
from the P12,000,000.00 down payment had become
an internal matter between it and MBC. The obligation
was deemed fulfilled to the extent of P12,000,000.00
on the part of Atlas when the check was received by a
representative of PCIB and eventually deposited in the
account of MBC.
2 Article 1236 of the Civil Code applies in this
instance. It provides that whoever pays for
another may demand from the debtor what he
has paid, except that if he paid without the
knowledge or against the will of the debtor, he
can recover only insofar as the payment has
been beneficial to the debtor.
PCIB is the debtor in this case, it having purchased
along with MBC legally garnished properties, while
Atlas is the third person who paid the obligation of the
debtor without the latters knowledge and consent.
Since Atlas readily paid NAMAWU without the
knowledge and consent of PCIB, Atlas may only recover
from PCIB or, more precisely charge to PCIB, only the
amount of payment which has benefited the latter.
Generally, the third person who paid anothers
debt is entitled to recover the full amount he had paid.
The law, however, limits his recovery to the amount by
which the debtor has been benefited, if the debtor has
no knowledge of, or has expressed his opposition to
such payment. Where the defenses that could have
been set up by the debtor against the creditor were
existing and perfected, a payment by a third person
without the knowledge of the debtor cannot obligate
the debtor to such third person to an amount more
than what he could have been compelled by the
creditor to pay. Thus, if the debt has been remitted,
paid, compensated or prescribed, a payment by a third
person would constitute a payment of what is not due;
his remedy would be against the person who received
the payment under such conditions, and not against
the debtor who did not benefit from the payment.
The trial court correctly ruled that the overpayment
amounting to P601,260.00 should be recovered from
NAMAWU. The remedy of Atlas in this case would be to
proceed, not against PCIB, but against NAMAWU who
was paid in excess, applying the principle that no
person can unjustly enrich himself at the expense of
another.
39. Culaba v. CA and SMC (2004)
Facts:
The spouses engaged in the sale and distribution of
San Miguel Corporations (SMC) beer products. SMC
sold beer products on credit to the Culaba spouses.
Thereafter, the Culaba spouses made a partial
payment, leaving an unpaid balance. As they failed to
pay despite repeated demands, SMC filed an action for
collection of a sum of money against them . The
defendant-spouses denied any liability, claiming that
they had already paid the plaintiff in full on four
separate occasions. To substantiate this claim, the
defendants presented four (4) Temporary Charge Sales
(TCS) Liquidation Receipts. According to the trial court,
it was unusual that defendant Francisco Culaba forgot
the name of the collector to whom he made the
payments and that he did not require the said collector
to print his name on the receipts. According to the
petitioners, receiving receipts from the private
respondents agents instead of its salesmen was a
usual occurrence, as they had been operating the store
since 1979.
Issue Whether or not petitioners are liable to pay
again.
Held: Yes, payment must be made to true creditor not
on impostor; they were negligent. Payment is a mode
of extinguishing an obligation.Article 1240 of the Civil
Code provides that payment shall be made to the
person in whose favor the obligation has been
 Civil Law Review II Case Digests
constituted, or his successor-in-interest, or any person
authorized to receive it. In this case, the payments
were purportedly made to a supervisor of the private
respondent, who was clad in an SMC uniform and drove
an SMC van. He appeared to be authorized to accept
payments as he showed a list of customers
accountabilities and even issued SMC liquidation
receipts which looked genuine. Unfortunately for
petitioner Francisco Culaba, he did not ascertain the
identity and authority of the said supervisor, nor did he
ask to be shown any identification to prove that the
latter was, indeed, an SMC supervisor. The petitioners
relied solely on the mans representation that he was
collecting payments for SMC. Thus, the payments the
petitioners claimed they made were not the payments
that discharged their obligation to the private
respondent. 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 not do.] In
the case at bar, the most prudent thing the petitioners
should have done was to ascertain the identity and
authority of the person who collected their payments.
Failing this, the petitioners cannot claim that they
acted in good faith when they made such payments.
Their claim therefor is negated by their negligence, and
they are bound by its consequences. Being negligent in
this regard, the petitioners cannot seek relief on the
basis of a supposed agency.
40. Towne & City Development Corporation v. CA
(2004)
Facts:
Guillermo Voluntad and Towne & City Development
Corporation (Towne) entered into a contract for the
construction of buildings and repairs amounting to
around P1 million. When the works were finished,
Guillermo demanded for his fees but was unpaid, so he
filed a collection suit against Towne.
Towne, through its corporate secretary, contended
that cash or check payments to Guillermo were made,
adding that he acknowledged payments with his
signatures on the vouchers.
Issue: Whether or not the vouchers proved that
Guillermo was paid.
Held: No. A voucher is not necessarily an evidence of
payment. It is merely a way or method of recording or
keeping track of payments made. A procedure adopted
by companies for the orderly and proper accounting of
funds disbursed. Unless it is supported by an actual
payment like the issuance of a check which is
subsequently encashed or negotiated, or an actual
payment of cash duly receipted for as is customary
among businessmen, a voucher remains a piece of
paper having no evidentiary weight.
A receipt is a written and signed acknowledgment
that money has been or goods have been delivered,
while a voucher is documentary record of a business
transaction.
The references to alleged check payments in the
vouchers presented by the petitioner do not vest them
with the character of receipts. Under Article 1249 of
the Civil Code, payment of debts in money has to be
made in legal tender and the delivery of mercantile
documents, including checks, shall produce the effect
of payment only when they have been cashed, or when
through the fault of the creditor they have been
impaired.
From the text of the Civil Code provision, it is clear
that there are two exceptions to the rule that payment
by check does not extinguish the obligation. Neither
exception is present in this case. Concerning the first,
petitioner failed to produce the originals of the checks
after their supposed encashment and even the bank
statements although the supposed payments by check
were effected only about 5 years before the filing of
the collection suit. Anent the second exception, the
doctrine is that it does not apply to instruments
executed by the debtor himself and delivered to the
creditor. Indubitably, that is not the situation in this
case.
41. Coronel v. Capati (2005)
Facts:
Noemi Coronel obtained two loans evidenced by
two handwritten instruments from Encarnacion Capati.
The first amounted to P121,000 and the other
P363,000. Coronel issued two check which both
bounced.
Capati sued Coronel for sum of money.
Coronel denied the existence of the loan, claiming
that the checks she issued were actually for payment
of a previous loan amounting to P1.01 million which
had long been paid. She added that Capati still
deposited the two checks despite full payment,
because of a dispute they had over interest rates. As
for the two handwritten instruments evidencing the
loans, Coronel claimed that those were formerly blank
sheets of paper which Capati made her to sign.
The RTC and the CA ruled in favor of Capati.
Issue: Whether or not Coronels defense is
meritorious.
Held: No. When the existence of a debt is fully
established by the evidence contained in the record,
the burden of proving that it has been extinguished by
payment devolves upon the debtor who offers such
defense to the claim of the creditor. Even where
respondent-creditor who was plaintiff in the lower
court, alleges non-payment, the general rule is that the
onus rests on the petitioner-debtor who was defendant
in the lower court, to prove payment, rather than on
the plaintiff-creditor to prove nonpayment. The debtor
has the burden of showing with legal certainty that the
obligation has been discharged by payment. This,
Coronel failed to do.
Time and again, we have held that one who is of
age and a businesswise is presumed to have acted
with due care and to have signed the documents in
question with full knowledge of its contents and
consequences. Petitioner is not one ignorant, illiterate
person who could be easily duped into signing blank
sheets of papers. She has borrowed large sums of
 Civil Law Review II Case Digests
money from respondent. In fact, petitioners total loan
obligation to respondent has reached over millions of
pesos. Petitioner has transacted business with
respondent several times. Among others, they include
transactions involving a pacto de retro sale which is
the subject of another pending case between the
parties and loans amounting to P2M and P1M, secured
by deeds of real estate mortgage and chattel
mortgage, respectively. As the lower court correctly
pointed out, petitioner apparently knows how to take
care of her business dealings. Thus, on October 21,
1992 and February 22, 1993, she caused the execution
of two documents entitled Discharge of Real Estate
Mortgage and Discharge of Chattel Mortgage,
respectively, when she paid respondent the full
consideration of the promissory notes of P2M and P1M,
wherein the mortgages served as security for the
payment of said notes. Similarly, petitioner, upon
payment of P1M to respondent on November 13, 1992,
retrieved the Metrobank Check No. 114675 dated
August 20, 1992 which she issued as security to
respondent. Interestingly, in the case of the two checks
subject matter of this litigation, petitioner did not even
demand their return from respondent, notwithstanding
her claim that she has paid in full her loan obligation.
All she presented was a letter ordering Metrobank
Guagua to stop payment of the checks without proof
that it has been received by, nor actually sent to
Metrobank Guagua.
42. Sps. Bonrostro v. Sps. Luna (2013)
Facts:
Constancia Luna, as buyer, entered into a Contract
to Sell with Bliss Development Corporation over a
house and lot. Later on, Constancia, this time as seller,
entered into another Contract to Sell with Lourdes
Bonrostro over the same property for P1,250,000.
Except for the down payment, Lourdes failed to pay
any of the stipulated subsequent amortization
payments.
Spouses Luna filed a complaint for rescission
against Spouses Bonrostro.
The RTC ruled that the delay was not a substantial
breach and denied rescission, while the CA held that
since the contract was a Contract to Sell, rescission is
not the proper remedy. The CA, however, ruled that
Lourdes should pay interests for being in delay.
Spouses Bonrostro that they have sent a letter
signifying their willingness to pay, which, according to
them, was tantamount to a valid tender of payment.
Hence, they cannot be made to pay interest
subsequent to the date of the letter. Neither should
they be ordered to pay interest on the amount of
P214,492.62 which covers the amortizations paid by
the spouses Luna to Bliss. They point out that it was
Constancia who prevented them from fulfilling their
obligation to pay the amortizations when she
instructed Bliss not to accept payment from them.
Issue: Whether or not there was valid tender of
payment.
Held: No. Tender of payment "is the manifestation by
the debtor of a desire to comply with or pay an
obligation. If refused without just cause, the tender of
payment will discharge the debtor of the obligation to
pay but only after a valid consignation of the sum due
shall have been made with the proper court."
"Consignation is the deposit of the proper amount with
a judicial authority in accordance with rules prescribed
by law, after the tender of payment has been refused
or because of circumstances which render direct
payment to the creditor impossible or inadvisable."
Tender of payment, without more, produces no
effect." "To have the effect of payment and the
consequent extinguishment of the obligation to pay,
the law requires the companion acts of tender of
payment and consignation.
According to Sen. Arturo Tolentino: When a tender
of payment is made in such a form that the creditor
could have immediately realized payment if he had
accepted the tender, followed by a prompt attempt of
the debtor to deposit the means of payment in court by
way of consignation, the accrual of interest on the
obligation will be suspended from the date of such
tender. But when the tender of payment is not
accompanied by the means of payment, and the
debtor did not take any immediate step to make a
consignation, then interest is not suspended from the
time of such tender.
Here, the subject letter merely states Lourdes
willingness and readiness to pay but it was not
accompanied by payment. She claimed that she made
numerous telephone calls to Atty. Carbon reminding
the latter to collect her payment, but, neither said
lawyer nor Constancia came to collect the payment.
After that, the spouses Bonrostro took no further steps
to effect payment. They did not resort to consignation
of the payment with the proper court despite
knowledge that under the contract, non-payment of
the installments on the agreed date would make them
liable for interest thereon. The spouses Bonrostro
erroneously assumed that their notice to pay would
excuse them from paying interest. Their claimed tender
of payment did not produce any effect whatsoever
because it was not accompanied by actual payment or
followed by consignation. Hence, it did not suspend the
running of interest. The spouses Bonrostro are
therefore liable for interest on the subject installments
from the date of default until full payment of the sums
of P300,000.00 and P330,000.00.
The spouses Bonrostro are likewise liable for
interest on the amount paid by the spouses Luna to
Bliss as amortization. The spouses Bonrostro want to
be relieved from paying interest on the amount of
P214,492.62 which the spouses Luna paid to Bliss as
amortizations by asserting that they were prevented by
the latter from fulfilling such obligation. They invoke
Art. 1186 of the Civil Code which provides that "the
condition shall be deemed fulfilled when the obligor
voluntarily prevents its fulfillment." However, the Court
finds Art. 1186 inapplicable to this case. The said
provision explicitly speaks of a situation where it is the
obligor who voluntarily prevents fulfillment of the
condition. Here, Constancia is not the obligor but the
obligee. Moreover, even if this significant detail is to be
ignored, the mere intention to prevent the happening
 Civil Law Review II Case Digests
of the condition or the mere placing of ineffective
obstacles to its compliance, without actually
preventing fulfillment is not sufficient for the
application of Art. 1186. Two requisites must concur for
its application, to wit: (1) intent to prevent fulfillment of
the condition; and, (2) actual prevention of compliance.
In this case, while it is undisputed that Constancia
indeed instructed Bliss on March 4, 1994 not to accept
payment from anyone but her, there is nothing on
record to show that Bliss heeded the instruction of
Constancia as to actually prevent the spouses
Bonrostro from making payments to Bliss. There is no
showing that subsequent to the said letter, the spouses
Bonrostro attempted to make payment to and was
refused by Bliss. Neither was there a witness presented
to prove that Bliss indeed gave effect to the instruction
contained in Constancias letter. While Bliss Project
Development Officer, Mr. Ariel Cordero, testified during
trial, nothing could be gathered from his testimony
regarding this except for the fact that Bliss received
the said letter. In view of these, the spouses Luna could
not be said to have placed an effective obstacle as to
actually prevent the spouses Bonrostro from making
amortization payments to Bliss.
43. Peoples Industrial Com. Corp. v. CA
Facts:
Marick Investment Corporation (Marick), as seller,
entered into a Contract to Sell with Peoples Industrial
and Commercial Corporation (Peoples) over six
subdivision lots in Cainta. After a lapse of 10 years,
Peoples still had not fully paid for the lots. Later on, the
parties agreed to cancel the previous contract and
enter into a new Contract to Sell involving seven lots.
The new contract was not signed by either party.
Thereafter, Peoples issued five checks which were
received but not encashed by Marick.
Marick filed a complaint for accion publiciana
against Peoples.
The RTC and the CA both held that the parties did
not enter into a new contract in accordance with Art.
1403(2) of the Civil Code as the parties did not sign the
new contract. Receipt by Marick of the five checks
could not amount to perfection of the contract,
because it never encashed and benefited from those
checks.
People argued for the validity of the subsequent
Contract to Sell, pointing out the checks it issued to
Marick.
Issue: Whether or not the subsequent Contract to Sell
was validly perfected.
Held: No. The number of lots to be sold is a material
component of the contract to sell. Without an
agreement on the matter, the parties may not in any
way be considered as having arrived at a contract
under the law. The parties failure to agree on a
fundamental provision of the contract was aggravated
by petitioners failure to deposit the installments agreed
upon. Neither did it attempt to make a consignation of
installments.
The mere sending of a letter by the vendee
expressing the intention to pay, without the
accompanying payment, is not considered a valid
tender of payment. Besides, a mere tender of payment
is not sufficient to compel private respondents to
deliver the property and execute the deed of absolute
sale. It is consignation which is essential in order to
extinguish petitioners obligation to pay the balance of
the purchase price. The rule is different in case of an
option contract or in legal redemption or in a sale with
right to repurchase, wherein consignation is not
necessary because this cases involves an exercise of a
right privilege (to buy, redeem, or repurchase) rather
than the discharge of the obligation, hence tender of
payment would be sufficient to preserve the right or
privilege.This is because the provision on consignation
are not applicable when there is no obligation to pay. A
contract to sell, as in the case before us, involves the
performance of an obligation, not merely the exercise
of the privilege or a right. Consequently, performance
or payment may be effected not by tender of payment
alone but by both tender and consignation.
As earlier noted, petitioner did not lift a finger
towards the performance of the contract other than the
tender of down payment. There is no record that it
even bothered to tender payment of the installments
or to amend the contract to reflect the true intention of
the parties as regards the number of lots to be sold.
Indeed, by petitioners inaction, private respondents
may not be judicially enjoined to validate a contract
that the former appeared to have taken for granted. As
in the earlier agreements, petitioner ignored
opportunities to resuscitate a contract to sell that was
rendered moribund and inoperative by its inaction.
44. Eternal Gardens Memorial Park Corporation
v. CA (1997)
Facts:
Eternal Gardens and North Philippine Union Mission
of the Seventh Day Adventists (NPUM) entered into a
Land Development Agreement under which Eternal
Gardens was to develop a parcel of land owned by
NPUM into a memorial park. They stipulated that NPUM
was to receive 40% of Eternal Gardenss net gross
collection from the development of a memorial park on
the property owned by NPUM. But later on, Maysilo
Estate and the heirs of a certain Vicente Singson
Encarnacion also claimed the land over which the
memorial park was to be built. Thus, Eternal Gardens
filed an Action for Interpleader against Maysilo Estate
and NPUM. Eternal Gardens refused to comply with the
courts order to deposit whatever amounts are due
from it with a reputable bank.
When the case reached the CA, it upheld the
validity of NPUMs title and ordered Eternal Gardens to
pay NPUM the amounts of P167,065,195.00 as principal
and P167,235,451.00 in interest.
One of Eternal Gardenss contention was that it
was not liable for interest as it was justified in
withholding payment, because there was still the
unresolved issue of ownership over the property
subject of the Land Development Agreement.
 Civil Law Review II Case Digests

Issue: Whether or not Eternal Gardens was justified in
withholding payment.
Held: No. EGMPC under the agreement had the
obligation to remit monthly to NPUM forty percent
(40%) of its net gross collection from the development
of a memorial park on property owned by NPUM. The
same agreement provided for the designation of a
depository/trustee bank to act as the
depository/trustee for all funds collected by EGMPC.
There was no obstacle, legal or otherwise, to the
compliance by EGMPC of this provision in the contract,
even on the affectation that it did not know to whom
payment was to be made. Even disregarding the
agreement, EGMPC cannot suspend payment on the
pretext that it did not know who among the subject
propertys claimants was the rightful owner. It had a
remedy under the New Civil Code of the Philippines - to
give in consignation the amounts due, as these fell
due. Consignation produces the effect of payment.
The rationale for consignation is to avoid the
performance of an obligation becoming more onerous
to the debtor by reason of causes not imputable to
him. For its failure to consign the amounts due, Eternal
Gardens obligation to NPUM necessarily became more
onerous as it became liable for interest on the amounts
it failed to remit. Notably, EGMPC filed an interpleader
action, the essence of which, aside from the disavowal
of interest in the property in litigation on the part of the
petitioner, is the deposit of the property or funds in
controversy with the court. Yet from the outset, EGMPC
had assailed any court ruling ordering the deposit with
a reputable bank of the amounts due from it under the
Land Development Agreement.
45. Naga Telephone Co., Inc. v. CA (1994)
Facts:
Naga Telephone Co. Inc. (Natelco) and Camarines
Sur II Electronic Cooperative, Inc. (Casureco) entered
into a contract whereby Natelco would use Casurecos
10 electric light posts in the operation of the formers
telephone service.
Ten year later, Casureco filed an Action for
Reformation of Contract against Natelco, alleging that:
(1) The contract was too one-sided in favor of Natelco,
that the contract was not in conformity with the
guidelines of the National Electrification Administration,
that the telephone cables strung by them on the posts
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, and
that a post now costs much more than it used to
before; and (2) Natelco had been using 319 other posts
which were not part of the contract.
The RTC ruled in favor of Casureco. The CA
affirmed, citing Art. 1267 of the Civil Code which
provides: 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.
Natelco contended that Art. 1267 does not apply
because its contract with Casureco did not really
involve rendition of service.
Issue: Whether or not Art. 1267 applies.
Held: Yes. Article 1267 speaks of "service" which has
become so difficult. Taking into consideration the
rationale behind this provision, the term "service"
should be understood as referring to the "performance"
of the obligation. In the present case, the obligation of
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, 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.
The Supreme Court discussed the Occena case
where it did not apply Art. 1267 because the party
invoking it was not seeking a release from its contract;
rather, it was asking the court to modify the contract:
The cited article (Article 1267) does not grant the
courts (the) 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 complaint 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.
The ruling in the Occea case is not applicable
because we agree with respondent court that the
allegations in private respondent's complaint and the
evidence it has presented sufficiently made out a
cause of action under Article 1267. We, therefore,
release the parties from their correlative obligations
under the contract. However, our disposition of the
present controversy does not end here. We have to
take into account the possible consequences of merely
releasing the parties therefrom: petitioners will remove
the telephone wires/cables in the posts of private
respondent, resulting in disruption of their service to
the public; while private respondent, in consonance
with the contract will return all the telephone units to
petitioners, causing prejudice to its business. We shall
not allow such eventuality. Rather, we require, as
ordered by the trial court: 1) petitioners to pay private
respondent for the use of its posts in Naga City and in
the towns of Milaor, Canaman, Magarao and Pili,
Camarines Sur and in other places where petitioners
use private respondent's posts, the sum of ten (P10.00)
pesos per post, per month, beginning January, 1989;
 Civil Law Review II Case Digests
and 2) private respondent to pay petitioner the
monthly dues of all its telephones at the same rate
being paid by the public beginning January, 1989. The
peculiar circumstances of the present case, as
distinguished further from the Occea case,
necessitates exercise of our equity jurisdiction.
The Supreme Court quoted the CAs decision: In
affirming said ruling, we are not making a new contract
for the parties herein, but we find it necessary to do so
in order not to disrupt the basic and essential services
being rendered by both parties herein to the public and
to avoid unjust enrichment by appellant at the expense
of plaintiff.
46. Lepanto Ceramics, Inc. v. Lepanto Ceramics
Employees Association (2010)
Facts:
Respondent Lepanto Ceramics Employees
Association (respondent Association) is a legitimate
labor organization duly registered with the Department
of Labor and Employment. It is the sole and exclusive
bargaining agent in the establishment of petitioner. In
December 1998, petitioner gave a P3,000.00 bonus to
its employees, members of the respondent Association.
Subsequently,in September 1999, petitioner and
respondent Association entered into a Collective
Bargaining Agreement (CBA) which provides for,
among others, the grant of a Christmas gift
package/bonus to the members of the respondent
Association.
The Christmas bonus was one of the enumerated
existing benefit, practice of traditional rights which
shall remain in full force and effect. In the succeeding
years, 1999, 2000 and 2001, the bonus was not in
cash.Instead, petitioner gave each of the members of
respondent Association Tile Redemption Certificates
equivalent to P3,000.00.The bonus for the year 2002 is
the root of the present dispute.Petitioner gave a year-
end cash benefit of Six Hundred Pesos (P600.00) and
offered a cash advance to interested employees
equivalent to one (1) month salary payable in one
year.The respondent Association objected to the
P600.00 cash benefit and argued that this was in
violation of the CBA it executed with the petitioner. The
parties failed to amicably settle the dispute.The
respondent Association filed a Notice of Strike with the
National Conciliation Mediation Board.The efforts to
conciliate failed.
The case was then referred to the Voluntary
Arbitrator for resolution where the Complaint was
docketed as Case No. LAG-PM-12-095-02.The Voluntary
Arbitrator rendered a Decision declaring that petitioner
is bound to grant each of its workers a Christmas
bonus of P3,000.00 for the reason that the bonus was
given prior to the effectivity of the CBA between the
parties and that the financial losses of the company is
not a sufficient reason to exempt it from granting the
same.It stressed that the CBA is a binding contract and
constitutes the law between the parties.The Voluntary
Arbitrator further expounded that since the employees
had already been given P600.00 cash bonus, the same
should be deducted from the claimed amount of
P3,000.00, thus leaving a balance of P2,400.00.
Petitioner elevated the case to the Court of Appeals
which affirmed toto the decision of the Voluntary
Arbitrator
Issue: Whether or not petitioner is still bound to give
its employees the P3,000 Christmas bonuses.
Held: Yes. By definition, a bonus is a gratuity or act of
liberality of the giver. It is something given in addition
to what is ordinarily received by or strictly due the
recipient. A bonus is granted and paid to an employee
for his industry and loyalty which contributed to the
success of the employer's business and made possible
the realization of profits.A bonus is also granted by an
enlightened employer to spur the employee to greater
efforts for the success of the business and realization
of bigger profits.Generally, a bonus is not a
demandable and enforceable obligation. For a bonus to
be enforceable, it must have been promised by the
employer and expressly agreed upon by the parties.
Given that the bonus in this case is integrated in the
CBA, the same partakes the nature of a demandable
obligation.Verily, by virtue of its incorporation in the
CBA, the Christmas bonus due to respondent
Association has become more than just an act of
generosity on the part of the petitioner but a
contractual obligation it has undertaken.
A CBA refers to a negotiated contract between a
legitimate labor organization and the employer,
concerning wages, hours of work and all other terms
and conditions of employment in a bargaining unit. As
in all other contracts, the parties to a CBA may
establish such stipulations, clauses, terms and
conditions as they may deem convenient, provided
these are not contrary to law, morals, good customs,
public order or public policy. It is a familiar and
fundamental doctrine in labor law that the CBA is the
law between the parties and they are obliged to
comply with its provisions. This principle stands strong
and true in the case at bar. A reading of the provision
of the CBA reveals that the same provides for the
giving of a Christmas gift package/bonus without
qualification. Terse and clear, the said provision did not
state that the Christmas package shall be made to
depend on the petitioner's financial standing. The
records are also bereft of any showing that the
petitioner made it clear during CBA negotiations that
the bonus was dependent on any condition. Indeed, if
the petitioner and respondent Association intended
that the P3,000.00 bonus would be dependent on the
company's earnings, such intention should have been
expressed in the CBA. All given, business losses are a
feeble ground for petitioner to repudiate its obligation
under the CBA. The rule is settled that any benefit and
supplement being enjoyed by the employees cannot be
reduced, diminished, discontinued or eliminated by the
employer. The principle of non-diminution of benefits is
founded on the constitutional mandate to protect the
rights of workers and to promote their welfare and to
afford labor full protection. Hence, absent any proof
that petitioners consent was vitiated by fraud, mistake
or duress, it is presumed that it entered into the CBA
voluntarily and had full knowledge of the contents
thereof and was aware of its commitments under the
contract.
 Civil Law Review II Case Digests
47. Trans. Pacific Ind. V. CA (1994)
Facts:
Petitioner Trans-Pacific obtained several loans from
respondent Associated Bank evidenced by four
promissory notes, a real estate mortgage and a chattel
mortgage over shares of stocks. As Trans-Pacific was
not able to pay in full, Associated Bank granted a
restructuring of the remaining indebtedness for which
three new promissory notes were executed. 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.
Petitioner filed an action for specific performance
before the RTC, praying that the mortgage over the two
parcels of land be released and its stock inventory be
lifted and that its obligation to the bank be declared as
fully paid. The RTC ruled in favor of petitioner, but the
CA reversed.
Applying the legal presumption provided by Art.
1271 of the Civil Code, the trial court ruled that
petitioner has fully discharged its obligation by virtue
of its possession of the documents (stamped "PAID")
evidencing its indebtedness. Respondent court
disagreed and held, among others, that the documents
found in possession of Trans-Pacific are mere duplicates
and cannot be the basis of petitioner's claim that its
obligation has been fully paid. Accordingly, since the
promissory notes submitted by petitioner were
duplicates and not the originals, the delivery thereof by
respondent bank to the petitioner does not merit the
application of Article 1271 (1st par.) of the Civil Code
which reads: 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. Respondent court is
of the view that the above provision must be construed
to mean the original copy of the document evidencing
the credit and not its duplicate.
Issue: Whether or not petitioner has paid in full its
obligation.
Held: No. At the onset, the Supreme Court held that
the CA erred in saying that the documents were
inadmissible as in fact the documents presented were
duplicate originals. Nevertheless, the Court held that
the presumption created by the Art. 1271 of the Civil
Code is not conclusive but merely prima facie. If there
be no evidence to the contrary, the presumption
stands. Conversely, the presumption loses its legal
efficacy in the face of proof or evidence to the contrary.
In the case before us, we find sufficient justification to
overthrow the presumption of payment generated by
the delivery of the documents evidencing petitioners
indebtedness. It may not be amiss to add that Article
1271 of the Civil Code raises a presumption, not of
payment, but of the renunciation of the credit where
more convincing evidence would be required than what
normally would be called for to prove payment. The
rationale for allowing the presumption of renunciation
in the delivery of a private instrument is that, unlike
that of a public instrument, there could be just one
copy of the evidence of credit. Where several originals
are made out of a private document, the intendment of
the law would thus be to refer to the delivery only of
the original original rather than to the original
duplicate of which the debtor would normally retain a
copy. It would thus be absurd if Article 1271 were to be
applied differently.
In this case, the RTC relied solely on a disputable
presumption and did not consider evidence presented
showing that petitioner has in fact not fully settled its
obligations to respondent bank. Hence, petitioner must
still pay what it owes respondent bank.
48. Silahis v. IAC (2010)
Facts:
Gregorio de Leon, doing business under the name
of Mark Industrial Sales, was selling and delivering to
Silahis Marketing Corporation various merchandise
covered by several invoices amounting to P22,213.75.
But due to Silahis sailure to pay, Gregorio filed a
collection suit. By way of affirmative defense and
counterclaim, Silahis claimed that it was entitled to
P22,200 as commission for the sale of sprockets in the
amount of P111,000 made directly by Gregorio to Dole
Philippines without coursing the same through it.
The RTC ruled in favor of Silahis, but the CA
reversed, finding no evidence of any agreement that
Silahis was entitled to the commission it was claiming.
Issue: Whether or not Silahis debt should be offset by
the commission it claimed to be entitled to.
Held: No. 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
 Civil Law Review II Case Digests
knowledge of the creditors and debtors. Article 1279
requires, among others, that in order that legal
compensation shall take place, "the two debts be due"
and "they be liquidated and demandable."
Compensation is not proper where the claim of the
person asserting the set-off against the other is not
clear nor liquidated; compensation cannot extend to
unliquidated, disputed claim existing from breach of
contract.
Undoubtedly, petitioner admits the validity of its
outstanding accounts with private respondent in the
amount of P 22,213.75 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. The Court agrees with respondent appellate
court that there is no evidence on record from which it
can be inferred that there was any agreement between
the petitioner and private respondent prohibiting the
latter from selling directly to Dole Philippines,
Incorporated. Definitely, it cannot be asserted that the
debit memo was a contract binding between the
parties considering that the same, as correctly found
by the appellate court, was not signed by private
respondent nor was there any mention therein of any
commitment by the latter to pay any commission to
the former involving the sale of sprockets to Dole
Philippines, Inc. in the amount of P 111,000.00. Indeed,
such document can be taken as self-serving with no
probative value absent a showing or at the very least
an inference, that the party sought to be bound
assented to its contents or showed conformity thereto.
49. Lao v. Special Pans, Inc. (2010)
Facts:
The petitioners Selwyn Lao and Edgar Manansala,
together with Benjamin Jim, entered into a Contract of
Lease with respondent Special Plans Inc. (SPI) over a
building in Quezon Avenue to be used as premises for
their karaoke and restaurant business known as
Saporro Restaurant.
Later on, SPI sued petitioners for sum of money
due to non-payment of rentals amounting to
P118,000.00 (later found by the courts to be actually
P95,000.00). In their defense, petitioners argued that
they are entitled to set off their debts for the expenses
they incurred amounting to P545,000 for repairs and
P125,000 for structural repairs.
The MeTC dismissed the complaint, but the RTC
and the CA both ruled in favor of SPI.
Issue: Whether or not the amount petitioners
supposedly spent for repairs should be compensated
against the unpaid rentals.
Held: No. The fourth requisite of legal compensation is
that the debts must be liquidated and demandable. A
claim is liquidated when the amount and time of
payment is fixed. If acknowledged by the debtor,
although not in writing, the claim must be treated as
liquidated. When the defendant, who has an
unliquidated claim, sets it up by way of counterclaim,
and a judgment is rendered liquidating such claim, it
can be compensated against the plaintiffs claim from
the moment it is liquidated by judgment. We have
restated this in Solinap v. Hon. Del Rosario where we
held that compensation takes place only if both
obligations are liquidated.
But in this case, petitioners did not present any
convincing evidence of proof which could support their
allegation on structural defects and the subsequent
repairs made on the leased premises, i.e. documentary
evidence (receipts of payments made to subcontractor
Tamayo for the repairs made on the building) except
for the self-serving testimony of petitioner Lao. They
(petitioners) merely submitted an estimated statement
of account which did not show that there were actual
expenses made for the alleged structural
defects.Neither were they able to submit proofs of
actual expenses made on the alleged structural
defects. Besides, it is contrary to human experience
that a lessee would continually renew the lease
contract if the subject property were not in good
condition free from structural defects. Further, the
testimony of Tamayo, the alleged subcontractor who
made the repairs on the leased premises did not
convince Us that there were repairs made thereat since
he failed to present any receipts of acknowledgments
of payments which was allegedly made to him.
The petitioners attempted to prove that they spent
for the repair of the roofing, ceiling and flooring, as well
as for waterproofing. However, they failed to
appreciate that, as per their lease contract, only
structural repairs are for the account of the lessor,
herein respondent SPI. In which case, they overlooked
the need to establish that aforesaid repairs are
structural in nature, in the context of their earlier
agreement. It would have been an altogether different
matter if the lessor was informed of the said structural
repairs and he implicitly or expressly consented and
agreed to take responsibility for the said expenses.
Such want of evidence on this respect is fatal to this
appeal. Consequently, their claim remains unliquidated
and, legal compensation is inapplicable.
50. Francia v. IAC (1988)
Facts:
Engracio Francia was the registered owner of a
house and lot located in Pasay City. A portion (125
square meters) of such property was expropriated by
the Republic of the Philippines in 1977. It appeared
that Francia did not pay his real estate taxes from 1963
to 1977. Thus, his property was sold in a public auction
by the City Treasurer of Pasay City. Francia filed a
complaint to annual the auction sale. The lower court
dismissed the complaint and the Intermediate
Appellate Court affirmed the decision of the lower court
in toto. Hence, this petition for review. Francia
contends that his tax delinquency of P 2,400 has been
extinguished by legal compensation. He claims that the
government owed him P 4,116 when a portion of his
land was expropriated on October 15, 1977.
Issue: Whether or not legal compensation is proper.
Held: No. There can be no offsetting of taxes against
the claims that the taxpayer may have against the
 Civil Law Review II Case Digests
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. Internal revenue taxes cannot
be the subject of compensation. The Government and
the taxpayer are not mutually creditors and debtors of
each other under Article 1278 of the Civil Code and a
claim of taxes is not such a debt, demand, contract or
judgment as is allowed to be set-off.
Moreover, the amount of P4,116 paid by the
national government for the 125 square meter portion
of his lot was deposited with the Philippine National
Bank long before the sale at public auction of his
remaining property. It would have been an easy matter
to withdraw P 2,400 from the deposit so that he could
pay the tax obligation thus aborting the sale at public
auction. Thus, the petition for review is dismissed. The
taxes assessed are the obligations of the taxpayer
arising from law, while the money judgment against
the government is an obligation arising from contract,
whether express or implied.
51. BPI (formerly FEBTC) v. CA (2006)
Facts:
Far East Bank and Trust Company (the bank)
granted a total of eight loans in favor of Noahs Arc
Merchandising. The loans were secured by a real estate
mortgage over a parcel of land registered in the name
of Noahs Arc Merchandisings owner, Albert Looyuko,
private respondent Jimmy Go and one Wilson Go. Later
on, Noahs Ark Merchandising defaulted in its
obligations, so the bank extrajudicially foreclosed the
mortgage.
In response, private respondent filed a complaint
for damages against the bank with prayer for issuance
of TRO seeking to enjoin the auction sale. One of
private respondents contention was that by
withholding the lease payments, the bank owed Noahs
Ark Merchandising for the space the bank was leasing
from Noahs Ark Merchandising, and applying said
amounts to the outstanding obligation of Noahs Ark
Merchandising, as expressed in a letter from the bank
dated May 19, 1998, the has waived default, novated
the contract of loan as embodied in the promissory
notes and is therefore estopped from foreclosing on the
mortgaged property.
Issue: Whether or not the bank is estopped from
foreclosing the mortgaged property.
Held: No. Applying Art. 1279 of the Civil Code, it is
clear from the facts that FEBTC and Noahs Ark are
both principal obligors and creditors of each other.
Their debts to each other both consist in a sum of
money. As discussed above, the eight promissory notes
of Noahs Ark are all due; and the lease payments
owed by FEBTC become due each month. Noahs Arks
debt is liquidated and demandable; and FEBTCs lease
payments are liquidated and are demandable every
month as they fall due. Lastly, there is no retention or
controversy commenced by third persons over either of
the debts.
Novation did not occur as private respondent
argued. The Court has declared that a contract cannot
be novated in the absence of a new contract executed
between the parties. The legal compensation, which
was acknowledged by FEBTC in its May 19, 1998 letter,
occurred by operation of law, as discussed above. As a
consequence, it cannot be considered a new contract
between the parties. Hence, the loan agreement, as
embodied in the promissory notes and the real estate
mortgage, subsists.
Since the compensation between the parties
occurred by operation of law, FEBTC did not waive
Noahs Arks default. As a result of the absence of
novation or waiver of default, FEBTC is therefore not
estopped from proceeding with the foreclosure.
52. Arco Pulp and Paper v. Lim (2014)
Facts:
Dan Lim was engaged in the supplying of scrap
papers and other raw materials. He delivered scrap
papers to Arco Pulp and Paper Company Inc. The
parties agreed that Arco would either pay Lim the
value of the raw materials or deliver to him its finished
products of equivalent value. Arco, however, had not
paid Lim. Meanwhile, Arco and a certain Eric Sy
executed a memorandum of agreement whereby Arco
bound themselves to deliver their finished products to
Megapack Container Corporation, owned by Sy.
According to the memorandum, the raw materials
would be supplied by Dan Lim.
Later on, Lim filed a complaint for collection of sum
of money against Arco.
In its defense, Arco claimed that novation took
place by virtue of its memorandum of agreement with
Eric Sy, hence its obligation to Lim was extinguished.
The RTC ruled in favor of Arco, but the CA reversed,
holding that no novation took place.
Issue: Whether or not Arcos obligation to Lim was
extinguished by novation.
Held: No. In the first place, Arcos agreement with Sy
had little bearing, considering that the obligation
between Arco and Lim was an alternative obligation,
meaning Arco had the choice whether to pay Lim or
deliver to him the finished products.
There was also no novation. Art. 1293 of the Civil
Code provides: Novation which consists in substituting
a new debtor in the place of the original one, may be
made even without the knowledge or against the will of
the latter, but not without the consent of the creditor.
Payment by the new debtor gives him the rights
mentioned in Articles 1236 and 1237. Novation
extinguishes an obligation between two parties when
there is a substitution of objects or debtors or when
there is subrogation of the creditor. It occurs only when
the new contract declares so in unequivocal terms
or that the old and the new obligations be on every
point incompatible with each other.
In general, there are two modes of substituting the
person of the debtor: (1) expromision and (2)
delegacion. In expromision, the initiative for the
 Civil Law Review II Case Digests
change does not come from and may even be made
without the knowledge of the debtor, since it
consists of a third persons assumption of the
obligation. As such, it logically requires the consent of
the third person and the creditor. In delegacion, the
debtor offers, and the creditor accepts, a third person
who consents to the substitution and assumes the
obligation; thus, the consent of these three persons are
necessary. Both modes of substitution by the debtor
require the consent of the creditor.
Novation may also be extinctive or modificatory. It
is extinctive when an old obligation is terminated by
the creation of a new one that takes the place of the
former. It is merely modificatory when the old
obligation subsists to the extent that it remains
compatible with the amendatory agreement. Whether
extinctive or modificatory, novation is made either by
changing the object or the principal conditions,
referred to as objective or real novation; or by
substituting the person of the debtor or subrogating a
third person to the rights of the creditor, an act known
as subjective or personal novation. For novation to take
place, the following requisites must concur:
1) There must be a previous valid obligation.
2) The parties concerned must agree to a new
contract.
3) The old contract must be extinguished.
4) There must be a valid new contract.
Novation may also be express or implied. It is
express when the new obligation declares in
unequivocal terms that the old obligation is
extinguished. It is implied when the new obligation is
incompatible with the old one on every point. The test
of incompatibility is whether the two obligations can
stand together, each one with its own independent
existence. Because novation requires that it be clear
and unequivocal, it is never presumed.
There is nothing in the memorandum of agreement
that states that with its execution, the obligation of
petitioner Arco Pulp and Paper to respondent would be
extinguished. It also does not state that Eric Sy
somehow substituted petitioner Arco Pulp and Paper as
respondents debtor. It merely shows that petitioner
Arco Pulp and Paper opted to deliver the finished
products to a third person instead.
The consent of the creditor must also be secured
for the novation to be valid. Here, Lim was not privy to
the memorandum of agreement, thus, his conformity
to the contract need not be secured. Hence, there was
no novation.
53. Peoples Bank v. Syvels (1988)
Facts:
Peoples Bank and Trust Company granted a credit
commercial line in the amount of P900,000 in favor of
Syvels Incorporated. It was secured by a chattel
mortgaged executed over Syvels stocks of goods and
other personal properties. Later on, Syvels defaulted,
prompting the bank to initiate foreclosure proceedings,
but this did not push through due to the parties
attempt to settle the matter. The bank, however, filed a
collection suit against Syvels with a prayer for
preliminary injunction.
The representatives of Syvels were again able to
convince the bank to have the case settled amicably.
Antonio Syyap executed a real estate mortgage over
his property. In the deed of mortgage, Syyap admitted
the indebtedness of Syvels to the bank. The bank was
about to file a motion to dismiss the case without
prejudice, but Syvels did not want to agree if the
dismissal would mean also the dismissal of their
counterclaim. Hence, trial proceeded.
The RTC ruled in favor the bank.
Syvels argued that the lower court erred in not
holding that the obligation secured by the Chattel
Mortgage sought to be foreclosed in the above-entitled
case was novated by the subsequent execution
between appellee and appellant Antonio V, Syyap of a
real estate mortgage as additional collateral to the
obligation secured by said chattel mortgage.
Issue: Whether or not there was novation.
Held: No. There is nothing in the Real Estate Mortgage
which supports appellants' submission. The contract on
its face does not show the existence of an explicit
novation nor incompatibility on every point between
the "old and the "new" agreements as the second
contract evidently indicates that the same was
executed as new additional security to the chattel
mortgage previously entered into by the parties.
Moreover, records show that in the real estate
mortgage, appellants agreed that the chattel mortgage
"shall remain in full force and shall not be impaired by
this (real estate) mortgage. It is clear, therefore, that a
novation was not intended. The real estate mortgage
was evidently taken as additional security for the
performance of the contract.
54. Young v. CA (1991)
Facts:
On November 7, 1961, the estates of Humiliano
Rodriguez and Timoteo Rodriguez leased to Victor
Young a parcel of land in Cebu on which the latters
building known as Liza Theater (later renamed Nation
Theater) stood. The lease contract was for 21 years,
and at the 21st year the lessors have the option to
purchase the Liza Theatre). On December 18, 1961,
the same lease contract was executed by the parties,
only this time, the estate of Humiliano was represented
by another signatory.
On November 5, 1982, the heirs filed a complaint
for specific performance against Victor Young to
compel him to sell to them his theater-building for
P135,000.00.
Young argued that the heirs had no cause of action,
because the complaint was premature. He pointed out
that the November 7, 1961 lease contract was novated
by the December 18, 1961 contract.
The RTC ruled in favor of the heirs. On appeal, the
CA agreed that there was no novation but the original
period of the lease was extended by the second
contract. It did not find that the complaint was
 Civil Law Review II Case Digests
premature because although the action had been filed
a month early, the question became moot and
academic when Young manifested his refusal to sell the
building.
Issue: Whether or not the first lease contract was
novated by the second one.
Held: No. A careful examination of the text of the two
contracts will show that the only change introduced in
the second contract was the substitution by Antolin A.
Jariol of his wife Miguela as signatory for the estate of
Humiliano Rodriguez. There was no express declaration
in the second contract that it was novating the first.
In order that there may be implied novation arising
from incompatibility of the old and new obligations, the
change must refer to the object, the cause, or the
principal conditions of the obligation. In other words,
there must be an essential change.
There was clearly no implied novation for lack of an
essential change in the object, cause, or principal
conditions of the obligation. At most, the substitution of
a signatory in the second contract can be considered
only an accidental modification which, according to
Tolentino, "does not extinguish an existing obligation.
When the changes refer to secondary agreements, and
not to the object or principal conditions of the contract,
there is no novation; such changes will produce
modifications of incidental facts, but will not extinguish
the original obligation."
We do not agree with the respondent court that
there was an extension of the period of lease in the
second contract. As earlier explained, the only reason
for the execution of the second contract was to change
the signatory. There is no clear showing from the
language of that contract that the parties intended to
extend the lease for one month.
55. Salazar v. JY Brothers marketing Corporation
(2010)
Facts:
Sales agent Anamer Salazar, accompanied by
Isagani Calleja and Jess Kallos, bought 300 cavans of
rice from JY Brothers Marketing. As payment, Salazar
negotiated and indorsed to JY Bros. a Prudential Bank
check issued by a certain Nena Timario in the amount
of P214,000.00. However, the check was dishonored
due to closed account. Later on, Salazar delivered
another check, a Solid Bank check again issued by
Timario for the same amount which also bounced.
JY Bros filed a case for estafa against Salazar and
Timario. They were both acquitted, but the court
adjudged Salazar civilly liable for P214,000.00.
Salazar contends that the issuance of the Solid
Bank check and the acceptance thereof by the
respondent, in replacement of the dishonored
Prudential Bank check, amounted to novation that
discharged the latter check; that respondent's
acceptance of the Solid Bank check, notwithstanding
its eventual dishonor by the drawee bank, had the
effect of erasing whatever criminal responsibility,
under Article 315 of the Revised Penal Code, the
drawer or indorser of the Prudential Bank check would
have incurred in the issuance thereof in the amount of
P214,000.00; and that a check is a contract which is
susceptible to a novation just like any other contract.
Issue: Whether or not there was novation.
Held: No. In this case, respondents acceptance of the
Solid Bank check, which replaced the dishonored
Prudential Bank check, did not result to novation as
there was no express agreement to establish that
petitioner was already discharged from his liability to
pay respondent the amount of P214,000.00 as
payment for the 300 bags of rice. As we said, novation
is never presumed, there must be an express intention
to novate. In fact, when the Solid Bank check was
delivered to respondent, the same was also indorsed
by petitioner which shows petitioners recognition of
the existing obligation to respondent to pay
P214,000.00 subject of the replaced Prudential Bank
check.
Moreover, respondents acceptance of the Solid
Bank check did not result to any incompatibility, since
the two checks Prudential and Solid Bank checks
were precisely for the purpose of paying the amount of
P214,000.00, i.e., the credit obtained from the
purchase of the 300 bags of rice from respondent.
Indeed, there was no substantial change in the object
or principal condition of the obligation of petitioner as
the indorser of the check to pay the amount of
P214,000.00. It would appear that respondent
accepted the Solid Bank check to give petitioner the
chance to pay her obligation.
Petitioner also contends that the acceptance of the
Solid Bank check, a non-negotiable check being a
crossed check, which replaced the dishonored
Prudential Bank check, a negotiable check, is a new
obligation in lieu of the old obligation arising from the
issuance of the Prudential Bank check, since there was
an essential change in the circumstance of each check.
Such argument deserves scant consideration. The
effect of crossing a check relates to the mode of
payment, meaning that the drawer had intended the
check for deposit only by the rightful person, i.e., the
payee named therein. The change in the mode of
paying the obligation was not a change in any of the
objects or principal condition of the contract for
novation to take place.
Considering that when the Solid Bank check, which
replaced the Prudential Bank check, was presented for
payment, the same was again dishonored; thus, the
obligation which was secured by the Prudential Bank
check was not extinguished and the Prudential Bank
check was not discharged. Thus, we found no
reversible error committed by the CA in holding
petitioner liable as an accommodation indorser for the
payment of the dishonored Prudential Bank check.
56. Philippine Savings Bank v. Sps. Maalac
(2005)
Facts:
Spouses Maalac obtained a P1.3 million loan from
PSBank covered by a promissory note and secured by a
real estate mortgage over eight parcels of land which
the spouses owned. In view of the spouses invability to
 Civil Law Review II Case Digests
pay, their loan was restructured. The spouses signed
another promissory note for P1,550,000. Another real
estate mortgage covering the same properties as
before was executed.
Later on, Spouses Maalac and Spouses Galicia, with
the prior consent of the bank, entered into a Deed of
Sale with Assumption of Mortgage involving three of
the mortgaged properties and another parcel of land.
Thereafter, the Galicias mortgaged the four parcels
of land they just bought to secure a P2.6 million loan
which they obtained from the bank. They later on
obtained a second loan in the amount of P3.25 million
secured by another real estate mortgaged over the
same four parcels of land.
Meanwhile, the Maalacs kept on defaulting on their
obligation, so the bank filed a petition for extrajudicial
foreclosure of their five remaining mortgage properties.
Foreclosure proceeded, with the bank as the highest
bidder.
Later on, the Maalacs requested the bank for the
partial release of the mortgage covering the lands sold
to the Galicias. The Maalacs and the Galicias issued a
check in the amount of P1.2 million. The bank applied
P1 million to the loan account of the Galicias as
payment for the arrearages in interest and the
remaining P200,000 was applied to the expenses
relative to the account of Maalac.
The bank sold some of the properties it earlier
foreclosed prompting the Maalacs to sue it for
damages. The RTC, which was affirmed by the CA,
annulled the sale made by the bank. The CA held that
novation occurred when PSBank applied P1,000,000.00
of the P1,200,000.00 PCIB Check No. 002133 tendered
by Maalac to the loan account of the Galicias and the
remaining P200,000.00 thereof to Maalacs account. It
held that when the bank applied the amount of the
check in accordance with the instructions contained
therein, there was novation of the previous mortgage
of the properties. It further observed that the bank was
fully aware that the issuance of the check was
conditional hence, when it made the application
thereof, it agreed to be bound by the conditions
imposed by Maalac.
Issue: Whether or not there was novation.
Held: No. The elements of novation are patently
lacking in the instant case. Maalac tendered a check
for P1,200,000.00 to PSBank for the release of 4
parcels of land covered by TCT Nos. N-36192, 36193,
and 36194, under the loan account of the Galicias and
417012 (now TCT No. 79996) under the loan account of
Maalac. However, while the bank applied the tendered
amount to the accounts as specified by Maalac, it
nevertheless refused to release the subject properties.
Instead, it issued a receipt with a notation that the
acceptance of the check is not a commitment on the
part of the bank to release the 4 TCTs as requested by
Maalac.
From the foregoing, it is obvious that there was no
agreement to form a new contract by novating the
mortgage contracts of the Maalacs and the Galicias. In
accepting the check, the bank only acceded to Maalacs
instruction on whose loan accounts the proceeds shall
be applied but rejected the other condition that the 4
parcels of land be released from mortgage. Clearly,
there is no mutual consent to replace the old mortgage
contract with a new obligation. The conflicting intention
and acts of the parties underscore the absence of any
express disclosure or circumstances with which to
deduce a clear and unequivocal intent by the parties to
novate the old agreement.
A fortiori, 3 of the 4 properties sought to be
released from mortgage, namely, TCT Nos. N-36192, N-
36193, and N-36194, have already been sold by
Maalac to Galicia and are now registered in the name
of the latter who thereafter mortgaged the same as
security to a separate loan they obtained from the
bank. Thus, without the consent of PSBank as the
mortgagee bank, Maalac, not being a party to the
mortgage contract between the Galicias and the bank,
cannot demand much less impose upon the bank the
release of the subject properties. Unless there is a
stipulation to the contrary, the release of the
mortgaged property can only be made upon the full
satisfaction of the loan obligation upon which the
mortgage attaches. Unfortunately, Maalac has not
shown that the P1,000,000.00 was sufficient to cover
not only the accrued interests but also the entire
indebtedness of the Galicias to the bank.
Neither can Maalac be deemed substitute debtor
within the contemplation of Article 1293 of the Civil
Code, which states that: Novation which consists in
substituting a new debtor in the place of the original
one, may be made without the knowledge or against
the will of the latter, but not without the consent of the
creditor. Payment by the new debtor gives him the
rights mentioned in articles 1236 and 1237.
In order to change the person of the debtor, the old
one must be expressly released from the obligation,
and the third person or new debtor must assume the
formers place in the relation. Novation is never
presumed. Consequently, that which arises from a
purported change in the person of the debtor must be
clear and express. It is thus incumbent on Maalac to
show clearly and unequivocally that novation has
indeed taken place. In Magdalena Estates Inc. v.
Rodriguez, we held that the mere fact that the creditor
receives a guaranty or accepts payments from a third
person who has agreed to assume the obligation, when
there is no agreement that the first debtor shall be
released from responsibility, does not constitute a
novation, and the creditor can still enforce the
obligation against the original debtor. Maalac has not
shown by competent evidence that they were
expressly taking the place of Galicia as debtor, or that
the latter were being released from their solidary
obligation. Nor was it shown that the obligation of the
Galicias was being extinguished and replaced by a new
one. The existence of novation must be shown in clear
and unmistakable terms.
Likewise, we hold that Maalac cannot demand to
repurchase the foreclosed piece of land covered by TCT
No. 417012 (now TCT No. 79996) from the bank. Its
foreclosure and the consolidation of ownership in favor
of the bank and the resultant cancellation of mortgage
 Civil Law Review II Case Digests
effectively cancelled the mortgage contract between
Maalac and the bank. Insofar as TCT No. 417012 is
concerned, there is no more existing mortgage to
speak of. As the absolute owner of the foreclosed
property, the petitioner has the discretion to reject or
accept any offer to repurchase. Granting arguendo that
a new obligation was established with the acceptance
by the bank of the PCIB Check and its application to
the loan account of Maalac on the condition that TCT
No. 417012 would be released, this new obligation
however could not supplant the October 13, 1977 real
estate mortgage executed by Maalac, which, by all
intents and purposes, is now a defunct and non-
existent contract. As mentioned earlier, novation
cannot be presumed.
57. Astro Electronics Corp. v. Philippine Export
and Foreign Loan Guarantee Corporation (2003)
Facts:
Astro was granted several loans by the Philippine
Trust Company (Philtrust) amounting to P3,000,000.00
with interest and secured by three promissory notes. In
each of these promissory notes, it appears that
petitioner Roxas signed twice, as President of Astro and
in his personal capacity. Roxas also signed a Continuing
Surety ship Agreement in favor of Philtrust Bank, as
President of Astro and as surety.
Thereafter, Philguarantee, with the consent of
Astro, guaranteed in favor of Philtrust the payment of
70% of Astros loan, subject to the condition that upon
payment by Philguanrantee of said amount, it shall be
proportionally subrogated to the rights of Philtrust
against Astro. As a result of Astros failure to pay its
loan obligations, despite demands, Philguarantee paid
70% of the guaranteed loan to Philtrust. Subsequently,
Philguarantee filed against Astro and Roxas a
complaint for sum of money with the RTC of Makati.
Roxas disclaims any liability on the instruments,
alleging, inter alia, that he merely signed the same in
blank and the phrases in his personal capacity and
in his official capacity were fraudulently inserted
without his knowledge. The trial court ruled in favor of
Philguarantee, stating that if Roxas really intended to
sign the instruments merely in his capacity as
President of Astro, then he should have signed only
once in the promissory note. On appeal, the Court of
Appeals affirmed the RTC decision.
Issue: Whether or not Roxas should be solidarily liable
with Astro for the sum awarded by the RTC.
Held: Yes. In signing his name aside from being the
President of Astro, Roxas became a co-maker of the
promissory notes and cannot escape any liability
arising from it. Under the Negotiable Instruments Law,
persons who write their names on the face of
promissory notes are makers. Thus, even without the
phrase personal capacity, Roxas will still be primarily
liable as a joint and several debtor under the notes
considering that his intention to be liable as such is
manifested by the fact that he affixed his signature on
each of the promissory notes twice which necessarily
would imply that he is undertaking the obligation in
two different capacities, official and personal.
Moreover, an instrument which begins with I,
We, or Either of us promise to pay, when signed by
two or more persons, makes them solidary liable
(Republic Planters Bank vs. Court of Appeals, G.R. No.
93073, December 21, 1992). Having signed under such
terms, Roxas assumed the solidary liability of a debtor
and Philtrust Bank may choose to enforce the notes
against him alone or jointly with Astro.
It devolves upon one to overcome the
presumptions that private transactions are presumed
to be fair and regular and that a person takes ordinary
care of his concerns (Mendoza vs. Court of Appeals,
G.R. No. 116710). Bare allegations, when
unsubstantiated by evidence, documentary or
otherwise, are not equivalent to proof under our Rules
of Court (Coronel vs. Constantino, G.R. No. 121069,
February 7, 2003). Since Roxas failed to prove the truth
of his allegations that the phrases in his personal
capacity and in his official capacity were inserted on
the notes without his knowledge, said presumptions
shall prevail over his claims.
Lastly, Philguarantee has all the right to proceed
against petitioner, it is subrogated to the rights of
Philtrust to demand for and collect payment from both
Roxas and Astro since it already paid the value of 70%
of roxas and Astro Electronics Corp.s loan obligation. In
compliance with its contract of Guarantee in favor of
Philtrust.
Subrogation is the transfer of all the rights of the
creditor to a third person, who substitutes him in all his
rights.[19] It may either be legal or conventional. Legal
subrogation is that which takes place without
agreement but by operation of law because of certain
acts. Instances of legal subrogation are those provided
in Article 1302 of the Civil Code. Conventional
subrogation, on the other hand, is that which takes
place by agreement of the parties.
Roxas acquiescence is not necessary for
subrogation to take place because the instant case is
one of the legal subrogation that occurs by operation of
law, and without need of the debtors knowledge.
Further, Philguarantee, as guarantor, became the
transferee of all the rights of Philtrust as against Roxas
and Astro because the guarantor who pays is
subrogated by virtue thereof to all the rights which the
creditor had against the debtor.
58. Metrobank v. Rural Bank of Gerona (2010)
Facts:
Rural Bank of Gerona (RBG) was tasked by the
Central Bank to facilitate loan applications of farmers-
borrowers under the Central Bank-International Bank
for Reconstruction and Developments (IBRDs). Thus,
RBG opened a special savings account with Metrobank
wherein the IBRD loan proceeds shall be deposited. As
the depository bank of RBG, Metrobank was designated
to receive the credit advice released by the Central
Bank representing the proceeds of the IBRD loan of the
farmers-borrowers; Metrobank, in turn, credited the
proceeds to RBGs special savings account for the
latters release to the farmers-borrowers.
 Civil Law Review II Case Digests
The Central Bank released several credit advices in
Metrobanks favor and accordingly credited
Metrobanks demand deposit account for the account
of RBGs. The amounts credited to RBGs special
savings account represented the approved loan
applications of farmer-borrowers.
A little over a month after RBG had made
withdrawals from its account with Metrobank, the
Central Bank issued debit advices, reversing all the
approved IBRD loans. The Central Bank implemented
the reversal by debiting from Metrobanks demand
deposit account the amount corresponding to all three
IBRD loans. Metrobank, in turn, debited the following
amounts from RBGs special savings account:
P189,052.00, P115,000.00, and P8,000.41. Metrobank,
however, claimed that these amounts were insufficient
to cover all the credit advices that were reversed by
the Central Bank.
Metrobank filed a complaint for collection of sum of
money against RBG.
The RTC ruled in favor of Metrobank, holding that
legal subrogation has ensued. The CA said that there
was no subrogation but Metrobank still had a right to
be reimbursed.
Issue: Whether or not there is legal subrogation.
Held: Yes. Under Art. 1302 of the Civil Code, it is
presumed that there is legal subrogation:
1. When a creditor pays another creditor who is
preferred, even without the debtors knowledge;
2. When a third person, not interested in the
obligation, pays with the express or tacit
approval of the debtor; and
3. When, even without the knowledge of the
debtor, a person interested in the fulfillment of
the obligation pays, without prejudice to the
effects of confusion as to the latters share.
As discussed, Metrobank was a third party to the
Central Bank-RBG agreement, had no interest except
as a conduit, and was not legally answerable for the
IBRD loans. Despite this, it was Metrobanks demand
deposit account, instead of RBGs, which the Central
Bank proceeded against, on the assumption perhaps
that this was the most convenient means of recovering
the cancelled loans. That Metrobanks payment was
involuntarily made does not change the reality that it
was Metrobank which effectively answered for RBGs
obligations.
Was there express or tacit approval by RBG of the
payment enforced against Metrobank? After Metrobank
received the Central Banks debit advices in November
1978, it (Metrobank) accordingly debited the amounts
it could from RBGs special savings account without any
objection from RBG. RBGs President and Manager, Dr.
Aquiles Abellar, even wrote Metrobank, on August 14,
1979, with proposals regarding possible means of
settling the amounts debited by Central Bank from
Metrobanks demand deposit account. These instances
are all indicative of RBGs approval of Metrobanks
payment of the IBRD loans. That RBGs tacit approval
came after payment had been made does not
completely negate the legal subrogation that had taken
place.
Article 1303 of the Civil Code states that
subrogation transfers to the person subrogated the
credit with all the rights thereto appertaining, either
against the debtor or against third persons.As the
entity against which the collection was enforced,
Metrobank was subrogated to the rights of Central
Bank and has a cause of action to recover from RBG
the amounts it paid to the Central Bank, plus 14% per
annum interest.
Under this situation, impleading the Central Bank
as a party is completely unnecessary.We note that the
CA erroneously believed that the Central Banks
presence is necessary in order x x x to shed light on
the matter of reversals made by it concerning the loan
applications of the end users and to have a complete
determination or settlement of the claim. In so far as
Metrobank is concerned, however, the Central Banks
presence and the reasons for its reversals of the IBRD
loans are immaterial after subrogation has taken place;
Metrobanks interest is simply to collect the amounts it
paid the Central Bank. Whatever cause of action RBG
may have against the Central Bank for the unexplained
reversals and any undue deductions is for RBG to
ventilate as a third-party claim; if it has not done so at
this point, then the matter should be dealt with in a
separate case that should not in any way further delay
the disposition of the present case that had been
pending before the courts since 1980.
59. Camelcraft v. NLRC (1990)
Facts:
Camelcraft Employees Union was registered as a
legitimate labor union, and yet Camelcraft Corp.
refused to recognize it, so the union filed a petition for
certification for election. Shortly thereafter, the
Camelcraft announced that it would close down due to
financial losses, and so it did. Thus, the union filed a
complaint for illegal lockout and unfair labor practices.
The Labor Arbiter and the NLRC ruled in favor of the
union. Camelcraft filed a petition for certiorari, claiming
that the NLRC acted with grave abuse of discretion.
And to shield itself from paying the employees their
unpaid wages, Camelcraft pointed out that the
employees executed a waiver to the effect that the
employees would waive the award granted by the
NLRC, and in exchange, Camelcraft would implement
all benefits under existing labor laws.
Issue: Whether or not the waiver executed by the
employees were valid.
Held: No, because they are contrary to public policy,
pursuant to Art. 1306 of the Civil Code. The
subordinate position of the individual employee vis-a-
vis management renders him especially vulnerable to
its blandishments and importunings, and even
intimidations, that may result in his improvidently if
reluctantly signing over benefits to which he is clearly
entitled. Recognizing this danger, we have consistently
held that quitclaims of the workers' benefits win not
estop them from asserting them just the same on the
ground that public policy prohibits such waivers.
 Civil Law Review II Case Digests
60. Avon v. Luna (2006)
Facts:
Leticia Luna used to be a supervisor in Beautifront
Inc. until it was acquired by Avon Cosmetics Inc. Luna
then became a supervisor and part of the independent
sales force of Avon after signing a contract which
stipulates, among others, that (1) The Supervisor shall
sell or offer to sell, display or promote only and
exclusively products sold by the Company; and (2)
Either party may terminate this agreement at will, with
or without cause, at any time upon notice to the other.
Later on, Luna was invited and agreed to sell the
products of Sandre Philippines, Inc., a corporation
engaged in direct selling of vitamins and other food
supplements. Knowing that she had a contract with
Avon, Luna consulted a lawyer, who told her that the
two provisions mentioned above are void for being
contrary to public policy.
When Luna told Avon of her lawyers opinion, Avon
terminated its contract with Luna. Thus, Luna sued
Avon for damages.
Luna echoed her counsels opinion, that the two
provisions are contrary to public policy, while Avon
argued that the exclusivity clause was directed against
the supervisors selling other products utilizing their
training and experience, and capitalizing on Avons
existing network for the promotion and sale of the said
products. The exclusivity clause was meant to protect
Avon from other companies, whether competitors or
not, who would exploit the sales and promotions
network already established by Avon at great expense
and effort.
Issue: Whether or not the two provisions of the
contract between Avon and Luna are contrary to public
policy, hence void.
Held: No. Contracts requiring exclusivity are not per se
void. Each contract must be viewed vis--vis all the
circumstances surrounding such agreement in deciding
whether a restrictive practice should be prohibited as
imposing an unreasonable restraint on competition.
The question that now crops up is this, when is a
restraint in trade unreasonable? Authorities are one in
declaring that a restraint in trade is unreasonable when
it is contrary to public policy or public welfare.
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.
Applying the preceding principles in this case, the
exclusivity provision in the contract between Avon and
Luna is not contrary to public policy. Such prohibition is
neither directed to eliminate the competition like
Sandr Phils., Inc. nor foreclose new entrants to the
market. In its Memorandum, it admits that the reason
for such exclusion is to safeguard the network that it
has cultivated through the years. Admittedly, both
companies employ the direct selling method in order to
peddle their products. By direct selling, petitioner Avon
and Sandre, the manufacturer, forego the use of a
middleman in selling their products, thus, controlling
the price by which they are to be sold. The limitation
does not affect the public at all. It is only a means by
which petitioner Avon is able to protect its investment.
It was not by chance that Sandr Philippines, Inc.
made respondent Luna one of its Group Franchise
Directors. It doesnt take a genius to realize that by
making her an important part of its distribution arm,
Sandr Philippines, Inc., a newly formed direct-selling
business, would be saving time, effort and money as it
will no longer have to recruit, train and motivate
supervisors and dealers. Respondent Luna, who
learned the tricks of the trade from petitioner Avon, will
do it for them. This is tantamount to unjust enrichment.
Worse, the goodwill established by petitioner Avon
among its loyal customers will be taken advantaged of
by Sandre Philippines, Inc. It is not so hard to imagine
the scenario wherein the sale of Sandr products by
Avon dealers will engender a belief in the minds of
loyal Avon customers that the product that they are
buying had been manufactured by Avon. In other
words, they will be misled into thinking that the Sandr
products are in fact Avon products. From the foregoing,
it cannot be said that the purpose of the subject
exclusivity clause is to foreclose the competition, that
is, the entrance of Sandr products in to the market.
Therefore, it cannot be considered void for being
against public policy. How can the protection of ones
property be violative of public policy? Sandr
Philippines, Inc. is still very much free to distribute its
products in the market but it must do so at its own
expense. The exclusivity clause does not in any way
limit its selling opportunities, just the undue use of the
resources of petitioner Avon.
Neither is the termination clause contrary to public
policy. In the case of Petrophil Corporation v. Court of
Appeals, this Court already had the opportunity to
opine that termination or cancellation clauses such as
that subject of the case at bar are legitimate if
exercised in good faith. The facts of said case likewise
involved a termination or cancellation clause that
clearly provided for two ways of terminating the
contract, i.e., with or without cause. The utilization of
one mode will not preclude the use of the other.
Therein, we stated that the finding that the termination
of the contract was "for cause," is immaterial. When
petitioner terminated the contract "without cause," it
was required only to give x x x a 30-day prior written
notice, which it did.
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
 Civil Law Review II Case Digests
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.
61. Acol v. PCIBank (2006)
Facts:
Manuel Acol was a PCIB credit card holder. On April
19, 1987, he reported to PCIB that he lost his credit
card the previous day, and he was told that his card
would be immediately included in the circular of lost
cards. On April 20, he followed up his report, and he
was told to put into writing the notice of loss and to
submit it, together with the extension cards of his wife
and daughter. The notice was received by PCIB on April
22. On April 21, a day before receiving the written
notice, PCIB issued a special cancellation bulleting
informing its accredited establishments of the loss of
the cards of the enumerated holders, including Acols.
However, someone had already used Acols credit card
on April 19 and 20 to buy commodities worth
P76,067.28.
At first, PCIB agreed to reverse the billings, but it
changed its mind, invoking a certain provision at the
back of the application form which Acol has signed:
Holder's responsibility for all charges made through
the use of the card shall continue until the expiration or
its return to the Card Issuer or until a reasonable time
after receipt by the Card Issuer of written notice of loss
of the Card and its actual inclusion in the Cancellation
Bulletin.
PCIB filed a collection suit against Acol.
Issue: Whether or not the provision cited above was
valid.
Held: No. The Court has previously ruled in Ermitano v.
CA that prompt notice by the cardholder to the credit
card company of the loss or theft of his card should be
enough to relieve the former of any liability occasioned
by the unauthorized use of his lost or stolen card. The
questioned stipulation in this case, which still requires
the cardholder to wait until the credit card company
has notified all its memberestablishments, puts the
cardholder at the mercy of the credit card company
which may delay indefinitely the notification of its
members to minimize if not to eliminate the possibility
of incurring any loss from unauthorized purchases. Or,
as in this case, the credit card company may for some
reason fail to promptly notify its members through
absolutely no fault of the cardholder. To require the
cardholder to still pay for the unauthorized purchases
after he has given prompt notice of the loss or theft of
his card to the credit card company would simply be
unfair and unjust. The Court cannot give its assent to
such a stipulation which could clearly run against
public policy.
In this case, the stipulation in question is just as
repugnant to public policy as that in Ermitao. As
petitioner points out, the effectivity of the cancellation
of the lost card rests on an act entirely beyond the
control of the cardholder. Worse, the phrase "after a
reasonable time" gives the issuer the opportunity to
actually profit from unauthorized charges despite
receipt of immediate written notice from the
cardholder.
Under such a stipulation, petitioner could have
theoretically done everything in his power to give
respondent the required written notice. But if
respondent took a "reasonable" time (which could be
indefinite) to include the card in its cancellation
bulletin, it could still hold the cardholder liable for
whatever unauthorized charges were incurred within
that span of time. This would have been truly
iniquitous, considering the amount respondent wanted
to hold petitioner liable for.
Article 1306 of the Civil Code10 prohibits
contracting parties from establishing stipulations
contrary to public policy. The assailed provision was
just such a stipulation. It is without any hesitation
therefore that we strike it down.
62. Piltel v. Tecson (2004)
Facts:
On various dates in 1996, Delfino C. Tecson applied
for six (6) cellular phone subscriptions with petitioner
Pilipino Telephone Corporation (PILTEL), a company
engaged in the telecommunications business, which
applications were each approved and covered,
respectively, by six mobiline service agreements. On
05 April 2001, respondent filed with the Regional Trial
Court of Iligan City, Lanao Del Norte, a complaint
against petitioner for a Sum of Money and Damages.
Petitioner moved for the dismissal of the complaint on
the ground of improper venue, citing a common
provision in the mobiline service agreements to the
effect that: Venue of all suits arising from this
Agreement or any other suit directly or indirectly
arising from the relationship between PILTEL and
subscriber shall be in the proper courts of Makati,
Metro Manila. Subscriber hereby expressly waives any
other venues.
The RTC and CA denied petitioners motion to
dismiss, with the CA noting that since the subscription
agreement was a mere contract of adhesion, it does
not bind respondent on the venue stipulation.
Issue: Whether or not the venue stipulation binds
respondent.
Held: Yes. Indeed, the contract herein involved is a
contract of adhesion. But such an agreement is not per
se inefficacious. The rule instead is that, should there
be ambiguities in a contract of adhesion, such
ambiguities are to be construed against the party that
prepared it. If, however, the stipulations are not
obscure, but are clear and leave no doubt on the
intention of the parties, the literal meaning of its
stipulations must be held controlling. A contract of
adhesion is just as binding as ordinary contracts. It is
true that this Court has, on occasion, struck down such
contracts as being assailable when the weaker party is
left with no choice by the dominant bargaining party
and is thus completely deprived of an opportunity to
bargain effectively. Nevertheless, contracts of adhesion
 Civil Law Review II Case Digests
are not prohibited even as the courts remain careful in
scrutinizing the factual circumstances underlying each
case to determine the respective claims of contending
parties on their efficacy.
In the case at bar, respondent secured six (6)
subscription contracts for cellular phones on various
dates. It would be difficult to assume that, during each
of those times, respondent had no sufficient
opportunity to read and go over the terms and
conditions embodied in the agreements. Respondent
continued, in fact, to acquire in the pursuit of his
business subsequent subscriptions and remained a
subscriber of petitioner for quite some time.
In Development Bank of the Philippines vs. National
Merchandising Corporation, the contracting parties,
being of age and businessmen of experience, were
presumed to have acted with due care and to have
signed the assailed documents with full knowledge of
their import. The situation would be no less true than
that which obtains in the instant suit. The
circumstances in Sweet Lines, Inc. vs. Teves, wherein
this Court invalidated the venue stipulation contained
in the passage ticket, would appear to be rather
peculiar to that case. There, the Court took note of an
acute shortage in inter-island vessels that left
passengers literally scrambling to secure
accommodations and tickets from crowded and
congested counters. Hardly, therefore, were the
passengers accorded a real opportunity to examine the
fine prints contained in the tickets, let alone reject
them. A contract duly executed is the law between the
parties, and they are obliged to comply fully and not
selectively with its terms. A contract of adhesion is no
exception.
63. PNB v. Padilla (1991)
Facts:
Ambrosio Padilla obtained a loan from PNB of P1.8
million secured by a real estate mortgage for a term of
2 years with 18% interest per annum. The promissory
notes executed by Padilla uniformly authorized the PNB
to increase the stipulated 18% interest per annum
within the limits allowed by law. As Padilla was paying
his amortizations, PNB has kept on increasing the
interest rate: from 18% to 32%; from 32% to 41%; and
from 41% to 48%. PNB invoked its board resolutions to
justify the increases.
Later on, Padilla filed a complaint with the RTC
against PNB praying that the court declare the
unilateral increase of interest rates to be invalid, and
that the excess of interest payment collected by PNB
by debiting Padillas current account be refunded or
credited to his current account.
The RTC and the CA ruled in favor of Padilla.
Issue: Whether or not PNBs unilateral increase of the
interest rates was valid.
Held: No. Escalation clauses to be valid should
specifically provide: (1) that there can be an increase
in interest if increased by law or by the Monetary
Board; and (2) in order for such stipulation to be valid,
it must include a provision for reduction of the
stipulated interest in the event that the applicable
maximum rate of interest is reduced by law or by the
Monetary Board.
In this case, PNB relied on its own board
resolutions, which are neither laws nor resolutions of
the Monetary Board.
Moreover, Art. 1308 provides: The contract must
bind both contracting parties; its validity or compliance
cannot be left to the will of one of them.
In order that obligations arising from contracts may
have the force of law between the parties, there must
be mutuality between the parties based on their
essential equality. A contract containing a condition
which makes its fulfillment dependent exclusively upon
the uncontrolled will of one of the contracting parties,
is void (Garcia v. Rita Legarda, Inc., 21 SCRA 555).
Hence, even assuming that the P1.8 million loan
agreement between the PNB and the private
respondent gave the PNB a license (although in fact
there was none) to increase the interest rate at will
during the term of the loan, that license would have
been null and void for being violative of the principle of
mutuality essential in contracts. It would have invested
the loan agreement with the character of a contract of
adhesion, where the parties do not bargain on equal
footing, the weaker partys (the debtor) participation
being reduced to the alternative "to take it or leave it"
(Qua v. Law Union & Rock Insurance Co., 95 Phil. 85).
Such a contract is a veritable trap for the weaker party
whom the courts of justice must protect against abuse
and imposition. PNBS successive increases of the
interest rate on the private respondents loan, over the
latters protest, were arbitrary as they violated an
express provision of the Credit Agreement (Exh. 1)
Section 9.01 that its terms "may be amended only by
an instrument in writing signed by the party to be
bound as burdened by such amendment." The
increases imposed by PNB also contravene Art. 1956 of
the Civil Code which provides that "no interest shall be
due unless it has been expressly stipulated in writing."
64. MIAA v. Ding Velayo Sports Center, Inc.
(2011)
Facts:
In 1967, MIAA (then called the Civil Aeronautics
Admistration) and Salem Investment Corporation
(Salem) entered into a contract of lease whereby MIAA
leased in favor of Salem a parcel of land in front of the
Manila International Airport in Pasay City. The purpose
of the lease was to enable Salem to develop the
subject land which was an eyesore to the airport
premises. The contract of lease was for 25 years. In
1974, Salem transferred its lease rights in favor of Ding
Velayo Export Corporation. Thereafter, MIAA and
Velayo entered into a new contract, which contained
the following provisions:
Par. 5: That the LESSEE shall pay to the LESSOR as
monthly rentals for the leased premises the rate of
P0.45 per square meter for the first 300 square
meters, P0.30 per square meter for the next 500
square meters, and P0.25 per square meter for the
remaining area pursuant to Part VIII, Section 4 of
Administrative Order No. 4, Series of 1970, which in
 Civil Law Review II Case Digests
the case of the 8,481 square meters herein leased
shall amount to P2,205.25 per month, or a royalty
equivalent to one percent (1%) of the monthly gross
income of the LESSEE, whichever is higher.
Par. 13: If, during the lifetime of this agreement and
upon approval by the LESSOR, the leased area is
increased or diminished, or the LESSEE is relocated to
another area, rentals, fees, and charges imposed shall
be amended accordingly. Subsequent amendments to
the Administrative Order which will affect an increase
of the rates of fees, charges and rentals agreed upon
in this contract shall automatically amend this
contract to the extent that the rates of fees, rentals,
and charges are increased.
Par. 17: The LESSEE, if desirous of continuing his
lease, should notify the LESSOR sixty (60) days prior
to expiration of the period agreed upon for the
renewal of the Contract of Lease.
Petitioner eventually issued Administrative Order
(AO) No. 4, series of 1982, and AO No. 1, series of
1984, fixing various rates for the lease rentals of its
properties. AO No. 4, series of 1982, and AO No. 1,
series of 1984, allegedly effected an increase in the
lease rental of respondent for the subject property, as
provided for in paragraph 13 of the Contract of Lease
dated May 14, 1976 between petitioner and
respondent.
MIAA increased the amount of rent by 2,000%.
Eventually, Velayo could not pay, and when it asked
MIAA for the renewal of the lease contract, the latter
refused and told Velayo, which peaceably agreed. But
when the president of Velayo was replaced, it reneged
on its agreement to vacate. Instead, it insisted on
renewing the contract with MIAA.
Velayo filed an action for injunction, consignation
and damages against MIAA. The RTC and the CA ruled
in favor of Velayo.
MIAA argued that the renewal of the Contract of
Lease cannot be made to depend on the sole will of
Velayo for the same would then be void for being a
potestative condition.
Issue: Whether or not the renewal clause was void.
Held: No. Article 1308 of the Civil Code expresses what
is known in law as the principle of mutuality of
contracts. It provides that "the contract must bind both
the contracting parties; its validity or compliance
cannot be left to the will of one of them."
An express agreement which gives the lessee the
sole option to renew the lease is frequent and subject
to statutory restrictions, valid and binding on the
parties. This option, which is provided in the same
lease agreement, is fundamentally part of the
consideration in the contract and is no different from
any other provision of the lease carrying an
undertaking on the part of the lessor to act conditioned
on the performance by the lessee. It is a purely
executory contract and at most confers a right to
obtain a renewal if there is compliance with the
conditions on which the right is made to depend. The
right of renewal constitutes a part of the lessee's
interest in the land and forms a substantial and
integral part of the agreement. The fact that such
option is binding only on the lessor and can be
exercised only by the lessee does not render it void for
lack of mutuality. After all, the lessor is free to give or
not to give the option to the lessee.
Paragraph 17 of the Contract of Lease dated May
14, 1976 between petitioner and respondent solely
granted to respondent the option of renewing the lease
of the subject property, the only express requirement
was for respondent to notify petitioner of its decision to
renew the lease within 60 days prior to the expiration
of the original lease term. It has not been disputed that
said Contract of Lease was willingly and knowingly
entered into by petitioner and respondent. Thus,
petitioner freely consented to giving respondent the
exclusive right to choose whether or not to renew the
lease. As we stated in Allied Banking, the right of
renewal constitutes a part of the interest of
respondent, as lessee, in the subject property, and
forms a substantial and integral part of the lease
agreement with petitioner. Records show that
respondent had duly complied with the only condition
for renewal under Section 17 of the Contract of Lease
by notifying petitioner 60 days prior to the expiration of
said Contract that it chooses to renew the lease. We
cannot now allow petitioner to arbitrarily deny
respondent of said right after having previously agreed
to the grant of the same.
Equally unmeritorious is the assertion of petitioner
that paragraph 17 of the Contract of Lease dated May
14, 1976 merely provides a procedural basis for a
negotiation for renewal of the lease and the terms
thereof. The exercise by respondent of its option to
renew the lease need no longer be subject to
negotiations.
Just as the RTC adjudged, no fault could be
attributed to respondent for deficient payment of lease
rentals. Lease rentals were based on either the rates
fixed by AO No. 4, series of 1970, or 1% of the monthly
gross income of respondent, whichever is higher. At the
very beginning of the lease, respondent had been
paying monthly lease rentals based on the rates fixed
by AO No. 4, series of 1970, which amounted to
P2,205.25 per month. When requested, respondent
submitted to petitioner its gross income statements, so
petitioner could very well compute the 1% royalty.
However, petitioner continued to charge respondent
only P2,205.25 monthly lease rental, which the latter
faithfully paid. Petitioner later demanded an increase in
lease rentals based on subsequent administrative
issuances raising the rates for the rental of its
properties. But the RTC found that the adverted
administrative orders were not published in full, thus,
the same were legally invalid within the context of
Article 2 of the Civil Code which provides that [l]aws
shall take effect after fifteen days following the
completion of their publication in the Official Gazette,
unless it is otherwise provided. x x x In Taada v.
Tuvera,we enunciated that publication is indispensable
in order that all statutes, including administrative rules
that are intended to enforce or implement existing
laws, attain binding force and effect, to wit: We hold
therefore that all statutes, including those of local
application and private laws, shall be published as a
condition for their effectivity, which shall begin fifteen
 Civil Law Review II Case Digests
days after publication unless a different effectivity date
is fixed by the legislature.
65. DKC Holdings Corporation v. CA (2000)
Facts:
DKC Holdings entered into a contract of lease with
option to buy with Encarnacion Bartolome over a
14,021 square meter land in Valenzuela, Metro Manila.
DKC regularly paid the monthly rental of P3,000 to
Encarnacio until her death. Thereafter, DKC coursed its
payment to Encarnacions son and sole heir, Victor.
However, Victor refused to accept these payments and
altogether refused to deal with DKC. Hence, DKC filed a
complaint for specific performance and damages
against Victor and the Register of Deeds who refused
to register and annotate the contract with Encarnacion
on Victors title over the property. The RTC and CA
ruled in favor of Victor.
Issue: Whether or not Victor is bound by the contract
entered into between DKC and Encarnacion.
Ruling: Yes. The general rule, therefore, is that heirs
are bound by contracts entered into by their
predecessors-in-interest except when the rights and
obligations arising therefrom are not transmissible by
(1) their nature, (2) stipulation or (3) provision of law.
In the case at bar, there is neither contractual
stipulation nor legal provision making the rights and
obligations under the contract intransmissible. More
importantly, the nature of the rights and obligations
therein are, by their nature, transmissible.
It has also been held that a good measure for
determining whether a contract terminates upon the
death of one of the parties is whether it is of such a
character that it may be performed by the promissors
personal representative. Contracts to perform personal
acts which cannot be as well performed by others are
discharged by the death of the promissor. Conversely,
where the service or act is of such a character that it
may as well be performed by another, or where the
contract, by its terms, shows that performance by
others was contemplated, death does not terminate
the contract or excuse nonperformance.
In the case at bar, there is no personal act required
from the late Encarnacion Bartolome. Rather, the
obligation of Encarnacion in the contract to deliver
possession of the subject property to petitioner upon
the exercise by the latter of its option to lease the
same may very well be performed by her heir Victor. It
is futile for Victor to insist that he is not a party to the
contract because of the clear provision of Article 1311
of the Civil Code. Indeed, being an heir of Encarnacion,
there is privity of interest between him and his
deceased mother. He only succeeds to what rights his
mother had and what is valid and binding against her is
also valid and binding as against him.
In the case at bar, the subject matter of the
contract is likewise a lease, which is a property right.
The death of a party does not excuse nonperformance
of a contract which involves a property right, and the
rights and obligations thereunder pass to the personal
representatives of the deceased. Similarly,
nonperformance is not excused by the death of the
party when the other party has a property interest in
the subject matter of the contract. Under both Article
1311 of the Civil Code and jurisprudence, therefore,
Victor is bound by the subject Contract of Lease with
Option to Buy.
66. Tanay Recreation Center and Development
Corp. v. Fausto (2005)
Facts:
Petitioner TRCDC was the lessee of a parcel of land
in Tanay owned by Catalina Fausto under a contract of
lease, the term of which is 20 years, subject to renewal
within 60 days prior to its expiration. The contract also
granted TRCDC the right of first refusal.
Later on, when TRCDC wrote Catalina a letter
informing her of its intention to renew the lease
contract, it was her daughter, Anunciacion Fausto
Pacunayen who replied. Anunciacion said that she was
now the absolute owner of the property and asked
TRCDC to vacate the property. Catalina earlier sold the
land to Anunciacion.
TRCDC filed a complaint for annulment of deed of
sale and specific performance. In her answer,
Anunciacion claimed that TRCDC is estopped from
assailing the validity of the deed of sale, because the
latter acknowledge her ownership when it merely
asked for a renewal of the lease. According to her,
when they met to discuss the matter, TRCDC did not
demand for the exercise of its option to purchase the
property.
The RTC ruled in favor of Catalina. The CA affirmed,
noting that the right of first refusal granted to TRCDC
applied only in case the property were to be sold to
strangers and not to Catalinas relatives. The CA also
ruled that it would be useless to annul the sale
between Catalina and Anunciacion, because the
property would still remain with the latter after the
death of her mother by virtue of succession.
Issue: Whether or not the rulings of the CA are correct.
Held: No. 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. 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.
The prevailing doctrine therefore, is that a right of first
refusal means identity of terms and conditions to be
offered to the lessee and all other prospective buyers
and a contract of sale entered into in violation of a
right of first refusal of another person, while valid, is
rescissible.
The prevailing doctrine therefore, is that a right of
first refusal means ideIt was also incorrect for the CA to
rule that it would be useless to annul the sale between
Fausto and respondent because the property would still
remain with respondent after the death of her mother
 Civil Law Review II Case Digests
by virtue of succession, as in fact, Fausto died in March
1996, and the property now belongs to respondent,
being Faustos heir.tity of terms and conditions to be
offered to the lessee and all other prospective buyers
and a contract of sale entered into in violation of a
right of first refusal of another person, while valid, is
rescissible.
It was also incorrect for the CA to rule that it would
be useless to annul the sale between Fausto and
respondent because the property would still remain
with respondent after the death of her mother by virtue
of succession, as in fact, Fausto died in March 1996,
and the property now belongs to respondent, being
Faustos heir. For one, Fausto was bound by the terms
and conditions of the lease contract. Under the right of
first refusal clause, she was obligated to offer the
property first to petitioner before selling it to anybody
else. When she sold the property to respondent without
offering it to petitioner, the sale while valid is
rescissible so that petitioner may exercise its option
under the contract. With the death of Fausto, whatever
rights and obligations she had over the property,
including her obligation under the lease contract, were
transmitted to her heirs by way of succession, a mode
of acquiring the property, rights and obligation of the
decedent to the extent of the value of the inheritance
of the heirs. Article 1311 of the Civil Code provides:
Contracts take effect only between the parties, their
assigns and heirs, except in case where the rights and
obligations arising from the contract are not
transmissible by their nature, or by stipulation or by
provision of law. The heir is not liable beyond the value
of the property he received from the decedent.
A lease contract is not essentially personal in
character. Thus, the rights and obligations therein are
transmissible to the heirs. The general rule is that heirs
are bound by contracts entered into by their
predecessors-in-interest except when the rights and
obligations arising therefrom are not transmissible by
(1) their nature, (2) stipulation or (3) provision of law.
In this case, the nature of the rights and obligations
are, by their nature, transmissible. There is also neither
contractual stipulation nor provision of law that makes
the rights and obligations under the lease contract
intransmissible. The lease contract between petitioner
and Fausto is a property right, which is a right that
passed on to respondent and the other heirs, if any,
upon the death of Fausto.
67. Gilchrist v. Cuddy (1915)
Facts:
Cuddy was the owner of the film Zigomar, and he
agreed to rent it to Gilchrist, an owner of a theater in
Iloilo for P125. But Cuddy later on cancelled its contract
with Gilchrist, when he found, Espejo, another theater
owner, willing to pay more (P350). Thus, Gilchrist filed
an action for injunction against Cuddy and Espejo.
It was established that Espejo knowlingly induced
Cuddy to violate his contract with another person. But
there is no proof that Espejo knew the identity of
Gilchrist. Espejos theory is that he could not be liable
for contractual interference, because the fact that he
did not know Gilchrist negates malice on his part.
Issue: Whether or not Espejo is liable for contractual
interference.
Held: Yes. It is said that the ground on which the
liability of a third party for interfering with a contract
between others rests, is that the interference was
malicious. The contrary view, however, is taken by the
Supreme Court of the United States in the case of
Angle vs. Railway Co. (151 U. S., 1). The only motive
for interference by the third party in that case was the
desire to make a profit to the injury of one of the
parties of the contract. There was no malice in the case
beyond the desire to make an unlawful gain to the
detriment of one of the contracting parties. In the case
at bar the only motive for the interference with the
Gilchrist Cuddy contract on the part of the
appellants was a desire to make a profit by exhibiting
the film in their theater. There was no malice beyond
this desire; but this fact does not relieve them of the
legal liability for interfering with that contract and
causing its breach. It is, therefore, clear, under the
above authorities, that they were liable to Gilchrist for
the damages caused by their acts, unless they are
relieved from such liability by reason of the fact that
they did not know at the time the identity of the
original lessee (Gilchrist) of the film.1
68. Montecillo v. Reynes (2002)
Facts:
Ignacia Reynes sold a parcel of land to Rido Montecillo.
In their Deed of Sale, it was stated therein that for
an in consideration of P47,000 to me in hand paid by
Rido Montecillo In other words, at the time of the
execution of the Deed of Sale, Montecillo supposedly
had already paid Reynes. But it turns out that
Montecillo never paid Reynes. Thus, Reynes revoked
her sale with Montecillo and sold the land again to
Spouses Abucay. But later on, Reynes found out that a
certificate of title was issued in favor of Montecillo.
Reynes and Spouses Abucay filed an action for
declaration of nullity and quiting of title against
Montecillo. They argued that there was no meeting of
the minds between Reynes and Montecillo for lack of
consideration. On the other hand, Montecillo claimed
that the consideration for the sale was the amount he
paid to Cebu Ice Storage Corporation for the
mortgaged debt of Bienvenido Jayag which constituted
a lien on the subject parcel of land.
The RTC and the CA ruled in favor of Reynes.
Issue: Whether or not there was a valid sale.
Held: No. The Supreme Court first discussed the
manner of payment of the P47,000 purchase price.
Montecillos payment to Cebu Ice Storage is not the
payment that would extinguish[16]Montecillos
obligation to Reynes under the Deed of Sale. It
militates against common sense for Reynes to sell her
Mabolo Lot for P47,000.00 if this entire amount would
only go to Cebu Ice Storage, leaving not a single
centavo to her for giving up ownership of a valuable
1 Espejo was made liable on the basis of Art. 1902 of the Old
Civil Code. It is the equivalent of Art. 19 of the New Civil Code.
 Civil Law Review II Case Digests
property. This incredible allegation of Montecillo
becomes even more absurd when one considers that
Reynes did not benefit, directly or indirectly, from the
payment of the P47,000.00 to Cebu Ice Storage.
Ignacia Reynes was not a party to nor privy of the
obligation in favor of the Cebu Ice and Cold Storage
Corporation, the obligation being exclusively of
Bienvenido Jayag and wife who mortgaged their
residential house constructed on the land subject
matter of the complaint. The payment by the
defendant to release the residential house from the
mortgage is a matter between him and Jayag and
cannot by implication or deception be made to appear
as an encumbrance upon the land. Thus, Montecillos
payment to Jayags creditor could not possibly redound
to the benefit of Reynes.
Under Article 1318 of the Civil Code, [T]here 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. Article 1352 of
the Civil Code also provides that [C]ontracts without
cause x x x produce no effect whatsoever.
Montecillo argues there is only a breach of his
obligation to pay the full purchase price on time.Such
breach merely gives Reynes a right to ask for specific
performance, or for annulment of the obligation to sell
the Mabolo Lot. These arguments are not persuasive.
This is not merely a case of failure to pay the
purchase price, as Montecillo claims, which can only
amount to a breach of obligation with rescission as the
proper remedy. What we have here is a purported
contract that lacks a cause - one of the three essential
requisites of a valid contract. Failure to pay the
consideration is different from lack of consideration.
The former results in a right to demand the fulfillment
or cancellation of the obligation under an existing valid
contract while the latter prevents the existence of a
valid contract Where the deed of sale states that the
purchase price has been paid but in fact has never
been paid, the deed of sale is null and void ab initio for
lack of consideration.
Reynes expected Montecillo to pay him directly the
P47,000.00 purchase price within one month after the
signing of the Deed of Sale. On the other hand,
Montecillo thought that his agreement with Reynes
required him to pay the P47,000.00 purchase price to
Cebu Ice Storage to settle Jayags mortgage debt.
Montecillo also acknowledged a balance of P10,000.00
in favor of Reynes although this amount is not stated in
Montecillos Deed of Sale. Thus, there was no consent,
or meeting of the minds, between Reynes and
Montecillo on the manner of payment. This prevented
the existence of a valid contract because of lack of
consent. In summary, Montecillos Deed of Sale is null
and void ab initio not only for lack of consideration, but
also for lack of consent. The cancellation of TCT No.
90805 in the name of Montecillo is in order as there
was no valid contract transferring ownership of the
Mabolo Lot from Reynes to Montecillo.
69. Francisco v. Herrera (2002)
Facts:
Eligio Herrera was the owner of two parcels of land
in Cainta. Eligio sold those lands to Julian Francisco. At
the time of the sale, Eligio was already afflicted with
senile dementia, characterized by deteriorating mental
and physical condition, including memory loss.
Meanwhile, the heirs of Herrera found the contract
price for the two lands to be grossly inadequate, so
they negotiated with Francisco to increase the
purchase price, but he refused. Thus, the heirs of
Francisco filed a complaint for annulment of sale
against Francisco.
The Herrera heirs contended that the contract was
void, while Francisco argued that the contract was
voidable and was ratified when the heirs accepted the
purchase price on behalf of their father.
Issue: Is the sale between Eligio Herrera and Julian
Francisco voidable or void? If it is voidable, was there
ratification?
Held: Voidable. Article 1327 provides that insane or
demented persons cannot give consent to a contract.
But, if an insane or demented person does enter into a
contract, the legal effect is that the contract is voidable
or annullable as specifically provided in Article 1390. In
the present case, it was established that the vendor
Eligio, Sr. entered into an agreement with petitioner,
but that the formers capacity to consent was vitiated
by senile dementia. Hence, we must rule that the
assailed contracts are not void or inexistent per se;
rather, these are contracts that are valid and binding
unless annulled through a proper action filed in court
seasonably.
An annullable contract may be rendered perfectly
valid by ratification, which can be express or implied.
Implied ratification may take the form of accepting and
retaining the benefits of a contract. This is what
happened in this case. Respondents contention that he
merely received payments on behalf of his father
merely to avoid their misuse and that he did not intend
to concur with the contracts is unconvincing. If he was
not agreeable with the contracts, he could have
prevented petitioner from delivering the payments, or
if this was impossible, he could have immediately
instituted the action for reconveyance and have the
payments consigned with the court. None of these
happened. As found by the trial court and the Court of
Appeals, upon learning of the sale, respondent
negotiated for the increase of the purchase price while
receiving the installment payments. It was only when
respondent failed to convince petitioner to increase the
price that the former instituted the complaint for
reconveyance of the properties. Clearly, respondent
was agreeable to the contracts, only he wanted to get
more. Further, there is no showing that respondent
returned the payments or made an offer to do so. This
bolsters the view that indeed there was ratification.
One cannot negotiate for an increase in the price in
one breath and in the same breath contend that the
contract of sale is void.
70. Coronel v. Constantino (2003)
Facts:
 Civil Law Review II Case Digests
The subject property consists of two parcels of land
in Hagonoy, Bulacan. The property is originally owned
by Honoria Aguinaldo. One-half of it was inherited by:
(1) Emilia together with her sons (2) Benjamin, (3)
Catalino and Ceferino. The other half was inherited by:
(a) Florentino and (b) Aurea.
Florentino and Aurea filed a complaint for
declaration of ownership and quieting of title against
Emilia and Benjamin. The complaint alleged that Emilia
and her sons sold their parcel of land to third persons,
and those third persons sold the same land to
Florentino and Aurea.
The RTC and the CA ruled in favor of the plaintiffs.
A careful reading of the Kasulatan ng Bilihang
Patuluyan which is a private document, not having
been duly notarized, shows that only the share of
Emilia in the subject property was sold because
Benjamin did not sign the document and the shares of
Ceferino and Catalino were not subject of the sale. But
the CA ruled that through their inaction and silence,
the three sons of Emilia are considered to have ratified
the aforesaid sale of the subject property by their
mother.
Issue: Whether or not Benjamin, Ceferino and Catelino
are deemed to have ratified the sale made by their
mother, Emilia.
Held: No. Art. 1317 of the Civil Code provides: No one
may contract in the name of another without being
authorized by the latter, or unless he has by law a right
to represent him. A contract entered into in the name
of another by one who has no authority or legal
representation or who has acted beyond his powers
shall be unenforceable, unless it is ratified, expressly or
impliedly, by the person on whose behalf it has been
executed, before it is revoked by the other contracting
party.
Ratification means that one under no disability
voluntarily adopts and gives sanction to some
unauthorized act or defective proceeding, which
without his sanction would not be binding on him. It is
this voluntary choice, knowingly made, which amounts
to a ratification of what was theretofore unauthorized,
and becomes the authorized act of the party so making
the ratification.
No evidence was presented to show that the three
brothers were aware of the sale made by their mother.
Unaware of such sale, Catalino, Ceferino and Benjamin
could not be considered as having voluntarily remained
silent and knowingly chose not to file an action for the
annulment of the sale. Their alleged silence and
inaction may not be interpreted as an act of ratification
on their part.
The sale is valid insofar as the share of petitioner
Emilia Meking Vda. de Coronel is concerned. The due
execution of the Kasulatan ng Bilihang Patuluyan was
duly established when petitioners, through their
counsel, admitted during the pre-trial conference that
the said document was signed by Emilia.[12] While
petitioners claim that Emilia erroneously signed it
under the impression that it was a contract of
mortgage and not of sale, no competent evidence was
presented to prove such allegation. Hence, Jess C.
Santos and Priscilla Bernardo, who purchased the share
of Emilia, became co-owners of the subject property
together with Benjamin and the heirs of Ceferino and
Catalino. As such, Santos and Bernardo could validly
dispose of that portion of the subject property
pertaining to Emilia in favor of herein private
respondents Constantino and Buensuceso. However,
the particular portions properly pertaining to each of
the coowners are not yet defined and determined as no
partition in the proper forum or extrajudicial settlement
among the parties has been effected among the
parties. Consequently, the prayer of respondents for a
mandatory or prohibitory injunction lacks merit.
71. Laudico and Harden v. Arias (1922)
Facts:
Vicente Arias owned a building on Carriedo Street.
He wrote a letter to Mamerto Laudico giving him an
option to lease the building to a third person. Later on,
Laudico presented Fred Harden as the party desiring to
lease the building. Thus, Laudico wrote a letter to Arias
advising him that he accepts his proposal. This letter
was received by Arias at 2:53 PM. But on that same
day at 11:25 am, Laudico received a letter from Arias
withdrawing his offer to lease the building. Laudico
thus sued Arias for specific performance.
Issue: Whether or not a contract was perfected
between Arias and Laudico.
Held: No. When Arias sent his letter of withdrawal to
Laudico, he had not yet received the letter of
acceptance, and when it reached him, he had already
sent his letter of withdrawal. Under these facts we
believe that no contract was perfected between the
plaintiffs and the defendants.
Under article 1262, paragraph 2, of the Civil Code,
an acceptance by letter does not have any effect until
it comes to the knowledge of the offerer. Therefore,
before he learns of the acceptance, the latter is not yet
bound by it and can still withdraw the offer.
Consequently, when Mr. Arias wrote Mr. Laudico,
withdrawing the offer, he had the right to do so,
inasmuch as he had not yet receive notice of the
acceptance. And when the notice of the acceptance
was received by Mr. Arias, it no longer had any effect,
as the offer was not then in existence, the same having
already been withdrawn. There was no meeting of the
minds, through offer and acceptance, which is the
essence of the contract. While there was an offer, there
was no acceptance, and when the latter was made and
could have a binding effect, the offer was then lacking.
Though both the offer and the acceptance existed,
they did not meet to give birth to a contract.
With regard to contracts between absent persons
there are two principal theories, to wit, one holding
that an acceptance by letter of an offer has no effect
until it comes to the knowledge of the offerer, and the
other maintaining that it is effective from the time the
letter is sent. The Civil Code, in paragraph 2 of article
1262, has adopted the first theory and, according to its
most eminent commentators, it means that, before the
acceptance is known, the offer can be revoked, it not
 Civil Law Review II Case Digests
being necessary, in order for the revocation to have
the effect of impeding the perfection of the contract,
that it be known by the acceptant.
72. Villanueva v. CA (1995)
Facts:
The two subject lots were owned by Spouses
Celestino and Miguela Villanueva. Miguela sought the
help Jose Viudez, an OIC of the Philippine Veterans
Bank Makati if she could obtain a loan from the bank.
Viudez instructed her to surrender the titles of the lots
as collaterals and to execute a deed of sale covering
the two parcels of land, which she did but without the
signature of her husband. Later on, she was surprised
to learn that a new certificate of title was issued in
favor of PVB but she did not obtain any loan.
The two lots were about to be sold at auction. A
certain Idelfonso Ong offered to buy the lands, but in
the meantime he went abroad. While Ong was still out
of the country, it turned out that PVB approved his
offer. But when Ong came back, PVB became insolvent
and was now under the control of the Central Bank.
Meanwhile, Miguela filed her claim over the lands with
the liquidation court.
The RTC, acting as liquidation court, ruled in favor
of Miguela, but the CA reversed.
Issue: Whether or not Ong is entitled to the lots on the
basis of PVBs previous approval of his offer.
Held: No. There is no doubt that the approval of Ong's
offer constitutes an acceptance, the effect of which is
to perfect the contract of sale upon notice thereof to
Ong. 29 The peculiar circumstances in this case,
however, pose a legal obstacle to his claim of a better
right and deny support to the conclusion of the Court of
Appeals. Ong did not receive any notice of the approval
of his offer. It was only sometime in mid-April 1985
when he returned from the United States and inquired
about the status of his bid that he came to know of the
approval. It must be recalled that the PVB was placed
under receivership pursuant to the MB Resolution of 3
April 1985 after a finding that it was insolvent, illiquid,
and could not operate profitably, and that its
continuance in business would involve probable loss to
its depositors and creditors. The PVB was then
prohibited from doing business in the Philippines, and
the receiver appointed was directed to "immediately
take charge of its assets and liabilities, as expeditiously
as possible collect and gather all the assets and
administer the same for the benefit of its creditors,
exercising all the powers necessary for these purposes.
Under Article 1323 of the Civil Code, an offer
becomes ineffective upon the death, civil interdiction,
insanity, or insolvency of either party before
acceptance is conveyed. The reason for this is that:
The contract is not perfected except by the
concurrence of two wills which exist and continue until
the moment that they occur. The contract is not yet
perfected at any time before acceptance is conveyed;
hence, the disappearance of either party or his loss of
capacity before perfection prevents the contractual tie
from being formed.
In a nutshell, the insolvency of a bank and the
consequent appointment of a receiver restrict the
bank's capacity to act, especially in relation to its
property, Applying Article 1323 of the Civil Code, Ong's
offer to purchase the subject lots became ineffective
because the PVB became insolvent before the bank's
acceptance of the offer came to his knowledge. Hence,
the purported contract of sale between them did not
reach the stage of perfection. Corollarily, he cannot
invoke the resolution of the bank approving his bid as
basis for his alleged right to buy the disputed
properties.
Nor may the acceptance by an employee of the
PVB of Ong's payment of P100,000.00 benefit him
since the receipt of the payment was made subject to
the approval by the Central Bank liquidator of the PVB.
73. Adelfa Properties, Inc. v. CA (1995)
Facts:
Private respondents and their brothers Jose and
Dominador were the registered CO-OWNERS of a parcel
of land in Las Pinas, covered by a TCT. Jose and
Dominador sold their share (eastern portion of the
land) to Adelfa. Thereafter, Adelfa expressed interest in
buying the western portion of the property from private
respondents herein. Accordingly, an exclusive Option
to Purchase was executed between Adelfa and Private
respondents and an option money of 50,000 was given
to the latter. A new owners copy of the certificate of
title was issued (as the copy with respondent Salud
was lost) was issued but was kept by Adelfas counsel,
Atty. Bernardo.
Before Adelfa could make payments, it received
summons as a case was filed (RTC Makati) against Jose
and Dominador and Adelfa, because of a complaint in a
civil case by the nephews and nieces of private
respondents herein. As a consequence, Adelfa, through
a letter, informed the private respondents that it would
hold payment of the full purchase price and suggested
that they settle the case with their said nephews and
nieces. Salud did not heed the suggestion;
respondents informed Atty. Bernardo that they are
canceling the transaction. Atty Bernardo made offers
but they were all rejected.
RTC Makati dismissed the civil case. A few days
after, private respondents executed a Deed of
Conditional Sale in favor of Chua, over the same parcel
of land. Atty Bernardo wrote private respondents
informing them that in view of the dismissal of the
case, Adelfa is willing to pay the purchase price, and
requested that the corresponding deed of Absolute
Sale be executed. This was ignored by private
respondents. Private respondents sent a letter to
Adelfa enclosing therein a check representing the
refund of half the option money paid under the
exclusive option to purchase, and requested Adelfa to
return the owners duplicate copy of Salud. Adelfa
failed to surrender the certificate of title, hence the
private respondents filed a civil case before the RTC
Pasay, for annulment of contract with damages. The
trial court directed the cancellation of the exclusive
option to purchase. On appeal, respondent CA affirmed
in toto the decision of the RTC hence this petition.
 Civil Law Review II Case Digests
Issue: Whether or not the agreement between Adelfa
and private respondents was strictly an option
contract.
Held: No, it was a contract to sell. The test in
determining whether a contract is a contract of sale or
purchase or a mere option is whether or not the
agreement could be specifically enforced. There is no
doubt that the obligation of petitioner to pay the
purchase price is specific, definite and certain, and
consequently binding and enforceable. Had private
respondents chosen to enforce the contract, they could
have specifically compelled petitioner to pay the
balance. This is distinctly made manifest in the
contract itself as an integral stipulation, compliance
with which could legally and definitely be demanded
from petitioner as a consequence. While there is
jurisprudence to the effect that a contract which
provides that the initial payment shall be totally
forfeited in case of default in payment is to be
considered as an option contract, still we are not
inclined to conform with the findings of respondent
court and the court a quo that the contract executed
between the parties is an option contract, for the
reason that the parties were already contemplating the
payment of the balance of the purchase price, and
were not merely quoting an agreed value for the
property. The term balance, connotes a remainder or
something remaining from the original total sum
already agreed upon. In other words, the alleged option
money was actually earnest money which was
intended to form part of the purchase price. The
amount was not distinct from the cause or
consideration for the sale of the property, but was itself
a part thereof. It is a statutory rule that whenever
earnest money is given in a contract of sale, it shall be
considered as part of the price and as proof of the
perfection of the contract. It constitutes an advance
payment and must, therefore, be deducted from the
total price. Also, earnest money is given by the buyer
to the seller to bind the bargain.
There are clear distinctions between earnest
money and option money, viz.: (a) earnest money is
part of the purchase price, while option money ids the
money given as a distinct consideration for an option
contract; (b) earnest money is given only where there
is already a sale, while option money applies to a sale
not yet perfected; and (c) when earnest money is
given, the buyer is bound to pay the balance, while
when the would-be buyer gives option money, he is not
required to buy. The aforequoted characteristics of
earnest money are apparent in the so-called option
contract under review, even though it was called
option money by the parties. In addition, private
respondents failed to show that the payment of the
balance of the purchase price was only a condition
precedent to the acceptance of the offer or to the
exercise of the right to buy. On the contrary, it has
been sufficiently established that such payment was
but an element of the performance of petitioners
obligation under the contract to sell.
Since the contract was that of to sell, Art. 1590
applies in this case. It provides: Should the vendee be
disturbed in the possession or ownership of the thing
acquired, or should he have reasonable grounds to fear
such disturbance, by a vindicatory action or a
foreclosure of mortgage, he may suspend the payment
of the price until the vendor has caused the
disturbance or danger to cease, unless the latter gives
security for the return of the price in a proper case, or
it has been stipulated that, notwithstanding any such
contingency, the vendee shall be bound to make the
payment. A mere act of trespass shall not authorize the
suspension of the payment of the price.
The private respondents may no longer be
compelled to sell and deliver the subject property to
petitioner for two reasons, that is, petitioners failure to
duly effect the consignation of the purchase price after
the disturbance had ceased; and, secondarily, the fact
that the contract to sell had been validly rescinded by
private respondents. The mere sending of a letter by
the vendee expressing the intention to pay, without the
accompanying payment, is not considered a valid
tender of payment. Besides, a mere tender of payment
is not sufficient to compel private respondents to
deliver the property and execute the deed of absolute
sale. It is consignation which is essential in order to
extinguish petitioners obligation to pay the balance of
the purchase price. The rule is different in case of an
option contract or in legal redemption or in a sale with
right to repurchase, wherein consignation is not
necessary because these cases involve an exercise of a
right or privilege (to buy, redeem or repurchase) rather
than the discharge of an obligation, hence tender of
payment would be sufficient to preserve the right or
privilege. This is because the provisions on
consignation are not applicable when there is no
obligation to pay. A contract to sell, as in the case
before us, involves the performance of an obligation,
not merely the exercise of a privilege of a right.
Consequently, performance or payment may be
effected not by tender of payment alone but by both
tender and consignation. Furthermore, petitioner no
longer had the right to suspend payment after the
disturbance ceased with the dismissal of the civil case
filed against it. Necessarily, therefore, its obligation to
pay the balance again arose and resumed after it
received notice of such dismissal. Unfortunately,
petitioner failed to seasonably make payment. By
reason of petitioners failure to comply with its
obligation, private respondents elected to resort to and
did announce the rescission of the contract through its
letter to petitioner. That written notice of rescission is
deemed sufficient under the circumstances. Article
1592 of the Civil Code which requires rescission either
by judicial action or notarial act is not applicable to a
contract to sell. Furthermore, judicial action for
rescission of a contract is not necessary where the
contract provides for automatic rescission in case of
breach, as in the contract involved in the present
controversy. In the case at bar, it has been shown that
although petitioner was duly furnished and did receive
a written notice of rescission which specified the
grounds therefore, it failed to reply thereto or protest
against it. By such cavalier disregard, it has been
effectively estopped from seeking the affirmative relief
it now desires but which it had theretofore disdained.
74. Serra v. CA (1994)
Facts:
 Civil Law Review II Case Digests
In 1975, a Lease Contract with Option to Buy was
executed between Federico Serra and the Rizal
Commercial Banking Corporation (RCBC). It was agreed
that Serra shall lease to RCBC his land from the year
1975 to 2000. It was also agreed that within 10 years
from 1975, RCBC shall exercise an option whether or
not to buy the said lot at a price not exceeding P210.00
per square meter. However, no option money was
provided for in the contract hence, RCBC did not pay
any option money for the exercise of such option to
buy. What was provided, however, was a clause which
states that in case RCBC fails to exercise such option to
buy, it shall forfeit all improvements it made (or will
make) on said land in favor of Serra. In 1984, RCBC
communicated to Serra that it now wants to buy the
said land. Serra however refused. RCBC sued Serra.
Serra now contends that the option to buy was
ineffective because it was not supported by any
consideration distinct from the price hence, it is not
binding upon him.
Issue: Whether or not there was a consideration
distinct from the purchase price in this case.
Held: Yes. The Supreme Court ruled that in this case,
the consideration which is distinct from the price was
the agreement in the contract which stated that if
RCBC fails to exercise its option to buy, it shall transfer
all improvements made on the land [by RCBC] in favor
of Serra. Such is an agreement more onerous than the
payment of option money. Since there is a
consideration distinct from the price, Serra is bound by
the option contract. Therefore, he cannot refuse to sell
the land to RCBC.
A contract of adhesion is one wherein a party,
usually a corporation, prepares the stipulations in the
contract, while the other party merely affixes his
signature or his "adhesion" thereto. These types of
contracts are as binding as ordinary contracts because
in reality, the party who adheres to the contract is free
to reject it entirely. In the case at bar, the Supreme
Court did not find the situation to be inequitable
because petitioner is a highly educated man, who, at
the time of the trial was already a CPA-Lawyer, and
when he entered into the contract, was already a CPA,
holding a respectable position with the Metropolitan
Manila Commission. It is evident that a man of his
stature should have been more cautious in transactions
he enters into, particularly where it concerns valuable
properties. Also, in the present case, the consideration
is even more onerous on the part of the lessee since it
entails transferring of the building and/or
improvements on the property to petitioner, should
respondent bank fail to exercise its option within the
period stipulated.
75. Malbarosa v. CA (2003)
Facts:
Here in petitioner was the president and general
manager of Philtectic Corp., a subsidiary of respondent
SEADC. Being an officer, he was issued a car and
membership in the Architectural Center. One day he
intimidated with the vice-chairman of the BoD of
respondent his desire to retire and he requested that
his incentive compensation be paid to him as president
of Philtectic. He then tendered his resignation to said
VP. One of the officer met with petitioner and informed
him that he will get roughly around P395k.
Following his resignation, the VP sent a letter-offer
to petitioner stating therein acceptance of petitioners
resignation and advised him that he is entitled to
P251k as his incentive compensation. In the same
letter, the VP proposed the satisfaction of his incentive
by giving him the car the company issued and the
membership in the Architectural Center will be
transferred to him, instead of cash. Petitioner was
required by respondent through the VP to affix his
signature in the letter if he was agreeable to the
proposal. The letter was given to the petitioner by the
officer who told him that he was supposed to get
P395k.Petitioner was dismayed when he received the
letter-offer and refused to sign it as required by
respondent if he was agreeable to it.
Two weeks later, respondent company demanded
the return the car and turn over the membership in the
Architectural Center. Petitioner wrote the counsel of
respondent telling him that he cannot comply with the
demand since he already accepted the offer fourteen
(14) days after it was made. In his letter, he enclosed a
Xerox of the original with his affixed signature as
required.
With his refusal, respondent instituted an action for
recovery with replevin. In his Answer to the complaint,
the petitioner, as defendant therein, alleged that he
had already agreed on March 28, 1990 to the March
14, 1990 Letter-offer of the respondent, the plaintiff
therein, and had notified the said plaintiff of his
acceptance; hence, he had the right to the possession
of the car.
After the trial, judgment was rendered against
petitioner. The trial court opined that there existed no
perfected contract between the petitioner and the
respondent on the latters March 14, 1990 Letter-offer
for failure of the petitioner to effectively notify the
respondent of his acceptance of said letter-offer before
the respondent withdrew the same. He appealed to the
CA which affirmed the decision of the trial court.
Hence, this present appeal.
Issue: Whether or not there was a valid acceptance on
his part of the March 14, 1990 Letter-offer of the
respondent.
Held: No. Under Article 1319 of the New Civil Code,
the consent by a party is manifested by the meeting of
the offer and the acceptance upon the thing and the
cause which are to constitute the contract. An offer
may be reached at any time until it is accepted. An
offer that is not accepted does not give rise to a
consent. To produce a contract, there must be
acceptance of the offer which may be express or
implied but must not qualify the terms of the offer. The
acceptance must be absolute, unconditional and
without variance of any sort from the offer. The
acceptance of an offer must be made known to the
offeror. Unless the offeror knows of the acceptance,
there is no meeting of the minds of the parties, no real
concurrence of offer and acceptance.
 Civil Law Review II Case Digests
The offeror may withdraw its offer and revoke the
same before acceptance thereof by the offeree. The
contract is perfected only from the time an acceptance
of an offer is made known to the offeror. If an offeror
prescribes the exclusive manner in which acceptance
of his offer shall be indicated by the offeree, an
acceptance of the offer in the manner prescribed will
bind the offeror. On the other hand, an attempt on the
part of the offeree to accept the offer in a different
manner does not bind the offeror as the absence of the
meeting of the minds on the altered type of
acceptance.
An offer made inter praesentes must be accepted
immediately. If the parties intended that there should
be an express acceptance, the contract will be
perfected only upon knowledge by the offeror of the
express acceptance by the offeree of the offer. An
acceptance which is not made in the manner
prescribed by the offeror is not effective but
constitutes a counter-offer which the offeror may
accept or reject.
The contract is not perfected if the offeror revokes
or withdraws its offer and the revocation or withdrawal
of the offeror is the first to reach the offeree.
In the case at bar, the respondent made its offer
through its VP. On March 16, the officer handed over
the original letter-offer to petitioner. The respondent
required the petitioner to accept by affixing his
signature and the date in the letter offer, thus
foreclosing an implied acceptance or any other mode
of acceptance. And it is for a fact that the petitioner did
not accept or reject the offer for he needed time to
decide whether to accept or reject. Although the
petitioner claims that he had affixed his conformity to
the letter-offer on March 28, 1990, the petitioner failed
to transmit the said copy to the respondent. It was only
on April 7, 1990 when the petitioner appended to his
letter to the respondent a copy of the said March 14,
1990 Letter-offer bearing his conformity that he
notified the respondent of his acceptance to said offer.
But then, the respondent, through Philtectic
Corporation, had already withdrawn its offer and had
already notified the petitioner of said withdrawal via
respondents letter dated April 4, 1990 which was
delivered to the petitioner on the same day.
Indubitably, there was no contract perfected by the
parties on the March 14, 1990 Letter-offer of the
respondent.
On the second issue. It is necessarily so because
there was no need for the respondent to withdraw its
offer because the petitioner had already rejected the
respondents offer on March 16, 1990 when the
petitioner received the original of the March 14, 1990
Letter-offer of the respondent without the petitioner
affixing his signature on the space therefor.
76. Vda De Ape v. CA (2005)
Facts:
Cleopas Ape died in 1950 and left a parcel of land
(Lot 2319) to his 11 children. The children never
formally divided the property amongst themselves
except through hantal-hantal whereby each just
occupied a certain portion and developed each. On the
other hand, the spouses Lumayno were interested in
the land so they started buying the portion of land that
each of the heirs occupied. On 11 Apr 1973, one of the
children, Fortunato, entered into a contract of sale with
Lumayno. In exchange of his lot, Lumayno agreed to
pay P5,000.00. She paid in advance P30.00. Fortunato
was given a receipt prepared by Lumaynos son in law
(Andres Flores). Flores also acted as witness. Lumayno
also executed sales transactions with Fortunatos
siblings separately. In 1973, Lumayno compelled
Fortunato to make the the delivery to her of the
registrable deed of sale over Fortunatos portion of the
Lot No. 2319. Fortunato assailed the validity of the
contract of sale. He also invoked his right to redeem
(as a co-owner) the portions of land sold by his siblings
to Lumayno. Fortunato died during the pendency of the
case.
Issue: Whether or not there was a valid contract of
sale.
Held: No. Fortunato was a no read no write person. It
was incumbent for the the other party to prove that
details of the contract was fully explained to Fortunato
before Fortunato signed the receipt. A contract of sale
is a consensual contract, thus, it is perfected by mere
consent of the parties. It is born from the moment
there is a meeting of minds upon the thing which is the
object of the sale and upon the price. Upon its
perfection, the parties may reciprocally demand
performance, that is, the vendee may compel the
transfer of the ownership and to deliver the object of
the sale while the vendor may demand the vendee to
pay the thing sold. For there to be a perfected contract
of sale, however, the following elements must be
present: consent, object, and price in money or its
equivalent.
For consent to be valid, it must meet the following
requisites: (a) it should be intelligent, or with an exact
notion of the matter to which it refers; (b) it should be
free and (c) it should be spontaneous. Intelligence in
consent is vitiated by error; freedom by violence,
intimidation or undue influence; spontaneity by fraud.
Lumayno claimed that she explained fully the
receipt to Fortunato, but Flores testimony belies it.
Flores said there was another witness but the other
was a maid who also lacked education. Further, Flores
himself was not aware that the receipt was to transfer
the ownership of Fortunatos land to her mom-in-law.
It merely occurred to him to explain the details of the
receipt but he never did.
77. Mayor v. Belen (2004)
Facts:
Andrea Mayor owned a parcel of land in San Pablo
City which was purchased by Lourdes Belen. Later on,
Lourdes sold back the property to Andrea evidenced by
a "Kasulatan ng Bilihang Tuluyan" executed by Lourdes.
Thereafter, Andrea executed a real estate mortgage
over the subject property to secure a loan she obtained
from Lourdes evidenced by a Kasulatan ng Sanglaan.
Lourdes later on filed an action to annul the deed of
sale and the contract of real estate mortgage.
 Civil Law Review II Case Digests
According to her, Andrea, through Vergel Romulo,
made her believe that the sale in her favor by Andrea
is void, because the deed of conveyance did not reflect
the true agreement of the parties as to the true mode
of payment of the purchase price (the purchase price
was made on installments and not in cash as stipulated
in the document. Lourdes further averred that she was
also made to believe that she might lose what she had
already paid which amounted to 70% of the purchase
price. She was convinced by the representations of
Andrea and Romulo that it would be best for the latter
to make it appear that Andrea was merely mortgaging
the subject property to her. Lourdes readily agreed to
the scheme believing that it was for the protection of
her rights. It turned out that the scheme was in fact a
ruse employed by Romulo and Andrea to re-acquire the
property, thus, Lourdess consent in the execution of
the Kasulatan ng Bilihang Tuluyan and Kasulatan ng
Sanglaan was obtained through fraud and undue
influence.
The RTC, affirmed by the CA, ruled in favor of
Lourdes and annulled the two contracts. Andrea
contended that the two deeds were duly executed by
the parties thereto in accordance with the formalities
required by law and as public documents the evidence
to overcome their recitals is wanting.
Issue: Whether or not the two deeds are void.
Held: Yes. Art. 1338 of the Civil Code provides: There
is fraud when, through insidious words or machinations
of one of the contracting parties, the other is induced
to enter into a contract which, without them, he would
not have agreed to. As defined, fraud refers to all
kinds of deception, whether through insidious
machination, manipulation, concealment or
misrepresentation to lead another party into error. The
deceit employed must be serious. It must be sufficient
to impress or lead an ordinarily prudent person into
error, taking into account the circumstances of each
case.
While indeed petitioners point out that the deeds
denominated as Kasulatan ng Bilihang Tuluyan and
Kasulatan ng Sanglaan were executed in Tagalog, a
close scrutiny thereof shows that they are practically
literal translations of their English counterparts. Thus,
the mere fact that the documents were executed in the
vernacular neither clarified nor simplified matters for
Lourdes who admitted on cross-examination that she
merely finished Grade 3, could write a little, and
understand a little of the Tagalog language.
With respect to the fact that the deeds were duly
notarized, the Supreme Court cited its ruling in Suntay
v. CA: Though the notarization of the deed of sale in
question vests in its favor the presumption of
regularity, it is not the intention nor the function of the
notary public to validate and make binding an
instrument never, in the first place, intended to have
any binding legal effect upon the parties thereto. The
intention of the parties still and always is the primary
consideration in determining the true nature of the
contract. The impugned documents cannot be
presumed as valid because of the direct challenge
posed thereto by respondents, which is precisely the
reason for the commencement of this case: to bring to
the fore the irregularity in their execution.
78. Orosco v. Gualvez (2014)
Facts:
Petitioner Avelina was one of the children of Eulalio
and Victoria Abarientos. Eulalio and, eventually,
Victoria died intestate. Eulelio left behind an untitled
parcel of land in Legazpi City. Meanwhile, Avelina was
supposedly made to sign two documents by her
daughter and her son-in-law (respondents herein) on
the pretext that the documents were needed to
facilitate the titling of the lot. It was only in 2003 when
Avelina realized that what she signed was an Affidavit
of Self-Adjudication and a Deed of Absolute Sale in
favor of respondents. Thus, Avelina filed an action for
annulment and revocation of the two documents that
she signed.
The RTC ruled in favor of Avelina on the grounds
that (1) with regard to the Affidavit of Self-Adjudication,
she was not the sole heir of her parents and was not
therefore solely entitled to their estate; and (2) in the
case of the Deed of Absolute Sale, Avelina did not
really intend to sell her share in the property as it was
only executed to facilitate the titling of such property.
The CA reversed the RTCs ruling on the ground
that issues on heirship must be made in a special
proceeding.
Issue: Whether or not the Affidavit of Self-Adjudication
and Deed of Absolute Sale should be annulled.
Held: Yes. It has indeed been ruled that the
declaration of heirship must be made in a special
proceeding, not in an independent civil action.
However, this Court had likewise held that recourse to
administration proceedings to determine who heirs are
is sanctioned only if there is a good and compelling
reason for such recourse. Hence, the Court had allowed
exceptions to the rule requiring administration
proceedings as when the parties in the civil case
already presented their evidence regarding the issue of
heirship, and the RTC had consequently rendered
judgment upon the issues it defined during the pre-
trial.
It appearing, however, that in the present case the
only property of the intestate estate of Portugal is the
Caloocan parcel of land to still subject it, under the
circumstances of the case, to a special proceeding
which could be long, hence, not expeditious, just to
establish the status of petitioners as heirs is not only
impractical; it is burdensome to the estate with the
costs and expenses of an administration proceeding.
And it is superfluous in light of the fact that the parties
to the civil case - subject of the present case, could
and had already in fact presented evidence before the
trial court which assumed jurisdiction over the case
upon the issues it defined during pre-trial.
As admitted by respondents, Avelina was not the
sole heir of Eulalio. In fact, as admitted by respondents,
petitioner Salvador is one of the co-heirs by right of
representation of his mother. Without a doubt, Avelina
had perjured herself when she declared in the affidavit
 Civil Law Review II Case Digests
that she is "the only daughter and sole heir of spouses
EULALIO ABARIENTOS AND VICTORIA VILLAREAL." The
falsity of this claim renders her act of adjudicating to
herself the inheritance left by her father invalid. The
RTC did not, therefore, err in granting Avelinas prayer
to declare the affidavit null and void and so correct the
wrong she has committed. In like manner, the Deed of
Absolute Sale executed by Avelina in favor of
respondents was correctly nullified and voided by the
RTC. Avelina was not in the right position to sell and
transfer the absolute ownership of the subject property
to respondents. As she was not the sole heir of Eulalio
and her Affidavit of Self-Adjudication is void, the
subject property is still subject to partition. Avelina, in
fine, did not have the absolute ownership of the
subject property but only an aliquot portion. What she
could have transferred to respondents was only the
ownership of such aliquot portion. It is apparent from
the admissions of respondents and the records of this
case that Avelina had no intention to transfer the
ownership, of whatever extent, over the property to
respondents. Hence, the Deed of Absolute Sale is
nothing more than a simulated contract.
The Civil Code provides: Art. 1345. Simulation of a
contract may be absolute or relative. The former takes
place when the parties do not intend to be bound at all;
the latter, when the parties conceal their true
agreement. (emphasis supplied) Art. 1346. An
absolutely simulated or fictitious contract is void. A
relative simulation, when it does not prejudice a third
person and is not intended for any purpose contrary to
law, morals, good customs, public order or public policy
binds the parties to their real agreement.
In absolute simulation, there is a colorable contract
but it has no substance as the parties have no
intention to be bound by it. The main characteristic of
an absolute simulation is that the apparent contract is
not really desired or intended to produce legal effect or
in any way alter the juridical situation of the parties. As
a result, an absolutely simulated or fictitious contract is
void, and the parties may recover from each other
what they may have given under the contract.
However, if the parties state a false cause in the
contract to conceal their real agreement, the contract
is relatively simulated and the parties are still bound by
their real agreement. Hence, where the essential
requisites of a contract are present and the simulation
refers only to the content or terms of the contract, the
agreement is absolutely binding and enforceable
between the parties and their successors in interest.
In the present case, the true intention of the
parties in the execution of the Deed of Absolute Sale is
immediately apparent from respondents very own
Answer to petitioners Complaint. As respondents
themselves acknowledge, the purpose of the Deed of
Absolute Sale was simply to "facilitate the titling of the
[subject] property," not to transfer the ownership of the
lot to them. Furthermore, respondents concede that
petitioner Salvador remains in possession of the
property and that there is no indication that
respondents ever took possession of the subject
property after its supposed purchase. Such failure to
take exclusive possession of the subject property or, in
the alternative, to collect rentals from its possessor, is
contrary to the principle of ownership and is a clear
badge of simulation that renders the whole transaction
void.
79. Mangahas v. Brobio (2010)
Facts:
Pacifico Bropio died intestate, leaving three parcels
of land. He was survived by his wife, respondent
Eufrocina, and legitimate and illegitimate children,
including petitioner Carmela Mangahas. The heirs of
Pacifico executed a Deed of Extrajudicial Settlement of
Estate whereby petitioner and Pacificos other children,
in consideration of their love and affection for
respondent and the sum of P150,000.00, waived and
ceded their respective shares over the parcels of land
in favor of respondent. According to petitioner,
respondent promised to give her an additional amount
for her share in her fathers estate. But such additional
amount was not given. A year later, while processing
her tax obligations with the Bureau of Internal Revenue
(BIR), respondent was required to submit an original
copy of the Deed. Left with no more original copy of
the Deed, respondent summoned petitioner to her
office on May 31, 2003 and asked her to countersign a
copy of the Deed. Petitioner refused to countersign the
document, demanding that respondent first give her
the additional amount that she promised. Considering
the value of the three parcels of land (which she
claimed to be worth P20M), petitioner asked for P1M,
but respondent begged her to lower the amount.
Petitioner agreed to lower it to P600,000.00. Because
respondent did not have the money at that time and
petitioner refused to countersign the Deed without any
assurance that the amount would be paid, respondent
executed a promissory note whereby she promised to
pay P600,000.00 to petitioner. However, petitioner
remained unpaid.
Petitioner filed an action for specific performance
with damages against respondent. In her defense,
respondent said she signed the promissory note only
because she was forced to do so.
The RTC ruled in favor of petitioner, holding that
the alleged pressure and confused disposition
experienced by respondent and the circumstances that
led to the execution of the promissory note do not
constitute undue influence as would vitiate
respondents consent thereto.
The CA reversed the RTCs ruling as it held that
there was a complete absence of consideration. It
noted that respondent only executed the promissory
note only to secure petitioners signature.
Issue: Whether or not the promissory note is valid.
Held: Yes. Contracts are voidable where consent
thereto is given through mistake, violence,
intimidation, undue influence, or fraud. In determining
whether consent is vitiated by any of these
circumstances, courts are given a wide latitude in
weighing the facts or circumstances in a given case
and in deciding in favor of what they believe actually
occurred, considering the age, physical infirmity,
intelligence, relationship, and conduct of the parties at
the time of the execution of the contract and
 Civil Law Review II Case Digests
subsequent thereto, irrespective of whether the
contract is in a public or private writing.
Nowhere is it alleged that mistake, violence, fraud,
or intimidation attended the execution of the
promissory note.
Respondent may have desperately needed
petitioners signature on the Deed, but there is no
showing that she was deprived of free agency when
she signed the promissory note. Being forced into a
situation does not amount to vitiated consent where it
is not shown that the party is deprived of free will and
choice. Respondent still had a choice: she could have
refused to execute the promissory note and resorted to
judicial means to obtain petitioners signature. Instead,
respondent chose to execute the promissory note to
obtain petitioners signature, thereby agreeing to pay
the amount demanded by petitioner. The fact that
respondent may have felt compelled, under the
circumstances, to execute the promissory note will not
negate the voluntariness of the act. As rightly observed
by the trial court, the execution of the promissory note
in the amount of P600,000.00 was, in fact, the product
of a negotiation between the parties.
We join the RTC in holding that courts will not set
aside contracts merely because solicitation,
importunity, argument, persuasion, or appeal to
affection was used to obtain the consent of the other
party. Influence obtained by persuasion or argument or
by appeal to affection is not prohibited either in law or
morals and is not obnoxious even in courts of equity.
80. Dauden-Hernaez v. De Los Angeles (1969)
Facts:
Marlene Dauden-Hernaez, an actress, filed a
complaint against Hollywood Far East Productions Inc.
and its president/GM, Ramon Valenzuela, to recover
P14,700.00 representing a balance allegedly due
Marlene for her services as leading actress in two
motion pictures produced by the company. Upon
motion of defendants, the CFI dismissed the complaint
on the ground that Marlenes claim was not evidenced
by a written document in violation of Articles 1356 and
1358 of the Civil Code. Marlene thus filed a petition for
certiorari with the Supreme Court.
Issue: Whether or not the CFI correctly dismissed
Marenes complaint.
Held: No. As a rule, contracts are perfected by mere
consent. The second portion of Art. 1356 provides that
when the law requires a contract be in some form in
order that it may be valid or enforceable, or that
contract be proved in a certain way, that requirement
is absolute and indispensable.
It is thus seen that to the general rule that the form
(oral or written) is irrelevant to the binding effect inter
partes of a contract that possesses the three validating
elements of consent, subject matter, and causa, Article
1356 of the Code establishes only two exceptions, to
wit:
(a) Contracts for which the law itself requires
that they be in some particular form (writing) in
order to make them valid and enforceable (the so-
called solemn contracts). Of these the typical
example is the donation of immovable property
that the law (Article 749) requires to be embodied
in a public instrument in order "that the donation
may be valid", i.e., existing or binding. Other
instances are the donation of movables worth more
than P5,000.00 which must be in writing,
"otherwise the donation shall be void" (Article
748); contracts to pay interest on loans (mutuum)
that must be "expressly stipulated in writing"
(Article 1956); and the agreements contemplated
by Article 1744, 1773, 1874 and 2134 of the
present Civil Code.
(b) Contracts that the law requires to be proved
by some writing (memorandum) of its terms, as in
those covered by the old Statute of Frauds, now
Article 1403(2) of the Civil Code. Their existence
not being provable by mere oral testimony (unless
wholly or partly executed), these contracts are
exceptional in requiring a writing embodying the
terms thereof for their enforceability by action in
court.
The contract sued upon by petitioner herein
(compensation for services) does not come under
either exception. It is true that it appears included in
Article 1358, last clause, providing that "all other
contracts where the amount involved exceeds five
hundred pesos must appear in writing, even a private
one." But Article 1358 nowhere provides that the
absence of written form in this case will make the
agreement invalid or unenforceable. On the contrary,
Article 1357 clearly indicates that contracts covered by
Article 1358 are binding and enforceable by action or
suit despite the absence of writing. Art. 1357 provides:
If the law requires a document or other special form,
as in the acts and contracts enumerated in the
following article, the contracting parties may compel
each other to observe that form, once the contract has
been perfected. This right may be exercised
simultaneously with the action the contract.
81. Claudel v. CA (1991)
Facts:
Cecilio Claudel was the original owner of a parcel of
land in Rizal. Several years after his death, two
branches of Cecilios family contested the ownership of
the land. Petitioners are the children of Cecilio, while
respondents are the siblings of Cecilio. Respondents
filed a complaint for the cancellation of titles and
reconveyance against petitioners, alleging their
parents bought the subject land from Cecilio for P30.
The transaction was verbal, but respondents presented
a subdivision plan of the land as proof of the sale.
The CFI ruled in favor of petitioners, but the CA
reversed the lower courts decision.
Issue: Whether or not respondents are the owners of
the subject land.
Held: No. The rule of thumb is that a sale of land, once
consummated, is valid regardless of the form it may
have been entered into. For nowhere does law or
jurisprudence prescribe that the contract of sale be put
in writing before such contract can validly cede or
 Civil Law Review II Case Digests
transmit rights over a certain real property between
the parties themselves.
However, in the event that a third party, as in this
case, disputes the ownership of the property, the
person against whom that claim is brought can not
present any proof of such sale and hence has no
means to enforce the contract. Thus the Statute of
Frauds was precisely devised to protect the parties in a
contract of sale of real property so that no such
contract is enforceable unless certain requisites, for
purposes of proof, are met.
A sale of real property or an interest therein is one
of the contracts which must be in writing to be
enforceable.
The purpose of the Statute of Frauds is to prevent
fraud and perjury in the enforcement of obligations
depending for their evidence upon the unassisted
memory of witnesses by requiring certain enumerated
contracts and transactions to be evidenced in writing.
The provisions of the Statute of Frauds originally
appeared under the old Rules of Evidence. However
when the Civil Code was re-written in 1949 (to take
effect in 1950), the provisions of the Statute of Frauds
were taken out of the Rules of Evidence in order to be
included under the title on Unenforceable Contracts in
the Civil Code. The transfer was not only a matter of
style but to show that the Statute of Frauds is also a
substantive law.
Therefore, except under the conditions provided by
the Statute of Frauds, the existence of the contract of
sale made by Cecilio with his siblings 13 can not be
proved.
Moreover, respondents action has already
prescribed. The belated claim of respondents who filed
a complaint only in 1976 to enforce a right allegedly
acquired as early as 1930 is difficult to comprehend.
82. Berman Memorial v. Cheng (2005)
Facts:
When Francisco Chengs wife died, he purchased
from Berman Memorial Park Inc. (BMPI) a memorial lot
in Iloilo Memorial Park (IMP). He initially bought a lot for
P150,000.00 (for which P110,000.00 was already paid)
but later on he bought a bigger lot for P350,000.00.
Thereafter, dispute arose as to the amount. Cheng filed
a complaint against IMP (the proper party was BMPI),
alleging that he bought a lot from the BMPI for
P250,000.00, less the amount of P150,000.00 he had
paid for the first lot, or a net price of P100,000.00. In
its answer, BMPI contended that the price of the
second lot was actually P350,000.00, but that it agreed
to sell the lot to Cheng for P250,000.00, less
P110,000.00 of the P150,000.00 already paid for the
first lot.
Cheng testified that he purchased 24-Lot for
P250,000.00 and that he discovered his overpayment
during the first week of November 1994. He signed a
blank document in printed form which turned out to be
the Pre-Need Purchase Agreement because he was sick
with hernia and had to be operated on in five days. He
was not given a copy of the Pre-Need Purchase
Agreement. He knew that the purchase price of a lot
under a PreNeed Purchase Agreement was
P250,000.00.
BMPIs bookkeeper and accountant testified that on
January 19, 1994, Cheng and his brother Santiago
Cheng arrived in the office to buy a lot at the IMP. She
showed them the price list of the lots. She explained to
them that the at-need price of 12-Lot was P150,000.00,
while the at-need price of 24-Lot, which was bigger
than Lot 12, was P350,000.00. Cheng opted to buy 12-
Lot, and signed the At-Need Purchase Agreement and
Promissory Note. Cheng then returned to BMPI on May
11, 1994 and agreed to purchase 24-Lot at the pre-
need price of P250,000.00, less P110,000.00 of the
P150,000.00 he had paid for 12-Lot, or the net price of
P140,000.00. She averred that the difference of
P40,000.00 between the price of P150,000.00 for 12-
Lot and the price of P110,000.00 credited to Cheng
belonged to BMPI. She also testified that Cheng signed
the Pre-Need Purchase Agreement on May 11, 1994,
and was given a copy of the contract, and her
computations of the purchase price of 24-Lot.[32] As of
September 1996, Cheng had a balance on his account
in the amount of P38,634.75.
The RTC ruled in favor of Cheng, but the CA
reversed.
Issue: Whether or not the price of the second lot was
in fact P350,000.00.
Held: Yes. The respondent failed to adduce evidence
that he was suffering from hernia and that he was to
be operated on in five days after signing the May 11,
1994 Pre-Need Purchase Agreement. Article 1370 of
the New Civil Code provides that 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. No amount of extrinsic
aids are required and no further extraneous sources
are necessary in order to ascertain the parties intent,
determinable as it is, from the contract itself. The
records are clear that the respondent understood the
nature of the contract he entered into. If, indeed, the
stipulations as embodied in the aforementioned Pre-
Need Purchase Agreement were not the true intention
of the parties, the respondent should have filed the
corresponding action for reformation of the contract.
But he did not. The hornbook rule on interpretation of
contracts gives primacy to the intention of the parties,
which is the law among them. Ultimately, their
intention is to be deciphered not from the unilateral
post facto assertions of one of the parties, but from the
language used in the contract. And when the terms of
the agreement, as expressed in such language, are
clear, they are to be understood literally, just as they
appear on the face of the contract.
83. Berman Memorial v. Cheng (2005)
Facts:
Africa Valdez de Reynoso leased a parcel of land to
Raoul S. Bonnevie and Christopher Bonnevie for a
period of one year beginning August 8, 1976. Reynoso
alleged that on November 3, 1976 she notified
respondents by registered mail that she was selling the
 Civil Law Review II Case Digests
leased premises for P600,000 and that she was giving
respondents 30 days from receipt of the letter to
exercise their right of first priority to purchase the
subject property as stipulated in their Contract of
Lease. On January 20, 1977, Reynoso sent another
letter to the respondents informing them that the
property had been sold. Respondents wrote back to
Reynoso that they did not receive her first letter and
that they had already signified their interest to
purchase the property beforehand to Reynosos agent
and thus were constrained to refuse Reynosos request
to terminate the lease. Reynoso went on with the sale
in favor of Guzman, Bocaling & Co. for a lesser price,
and filed an ejectment case against the Bonnevies.
Respondents filed an action for annulment of the sale.
The Court of First Instance ruled in favor of the
respondents, declaring the deed of sale executed by
Reynoso in favor of Guzman, Bocaling & Co. null and
void. The Court of Appeals affirmed the lower courts
decision but held that the Contract of Sale was not
voidable but was instead rescissible.
Issue: Whether or not the CA correctly ruled that the
Contract of Sale was rescissible and not voidable.
Held: Yes. Under Article 1380 to 1381 (3) of the Civil
Code, a contract otherwise valid may nonetheless be
subsequently rescinded by reason of injury to third
persons, like creditors. The status of creditors could be
validly accorded the Bonnevies for they had substantial
interests that were prejudiced by the sale of the
subject property to the petitioner without recognizing
their right of first priority under the Contract of Lease.
Rescission is a remedy granted by law to the
contracting parties and even to third persons, to secure
reparation for damages caused to them by a contract,
even if this should be valid, by means of the
restoration of things to their condition at the moment
prior to the celebration of said contract. It is a relief
allowed for the protection of one of the contracting
parties and even third persons from all injury and
damage the contract may cause, or to protect some
incompatible and preferent right created by the
contract. Recission implies a contract which, even if
initially valid, produces a lesion or pecuniary damage
to someone that justifies its invalidation for reasons of
equity.
Petitioner cannot be deemed a purchaser in good
faith for the record shows that it categorically admitted
it was aware of the lease in favor of the Bonnevies,
who were actually occupying the subject property at
the time it was sold to petitioner. A purchaser in good
faith and for value is one who buys the property of
another without notice that some other person has a
right to or interest in such property and pays a full and
fair price for the same at the time of such purchase or
before he has notice of the claim or interest of some
other person in the property. Good faith connotes an
honest intention to abstain from taking
unconscientious advantage of another. Tested by these
principles, the petitioner cannot tenably claim to be a
buyer in good faith as it had notice of the lease of the
property by the Bonnevies and such knowledge should
have cautioned it to look deeper into the agreement to
determine if it involved stipulations that would
prejudice its own interests.
84. Equatorial Realty v. Mayfair Theater, Inc.
(1996)
Facts:
Petitioner Carmelo and Bauermann Inc. leased its
parcel of land with 2-storey building to respondent
Mayfair Theater Inc. They entered a contract which
provides that if the LESSOR should desire to sell the
leased premises, the LESSEE shall be given 30-days
exclusive option to purchase the same. Carmelo
informed Mayfair that it will sell the property to
Equatorial. Mayfair made known its interest to buy the
property but only to the extent of the leased premises.
Notwithstanding Mayfairs intention, Carmelo sold the
property to Equatorial.
Issue: Whether or not the sale in favor of Equatorial
should be rescinded.
Held: Yes. The sale of the property should be rescinded
because Mayfair has the right of first refusal. Both
Equatorial and Carmelo are in bad faith because they
knew of the stipulation in the contract regarding the
right of first refusal. The stipulation is a not an option
contract but a right of first refusal and as such the
requirement of a separate consideration for the option,
has no applicability in the instant case. The
consideration is built in the reciprocal obligation of the
parties. In reciprocal contract, the obligation or promise
of each party is the consideration for that of the other.
(Promise to lease in return of the right to first refusal)
With regard to the impossibility of performance, only
Carmelo can be blamed for not including the entire
property in the right of first refusal. Court held that
Mayfair may not have the option to buy the property.
Not only the leased area but the entire property.
85. Air France v. CA (1995)
Facts:
Petitioner Air France filed a complaint for sum of
money against private respondents Multinational Travel
Corporation of the Philippines and Spouses Panopio.
Judgment was rendered in favor of Air France but was
left unsatisfied. It turned out that Spouses Panopio sold
their house and lot to a third person. Air France moved
for the issuance of an alias writ of execution and for
the declaration that the sale made by Spouses Panopio
was made in fraud of creditors. The RTC granted the
motion and issued an order finding the sale of the
house and lot as having been made in fraud of
creditors. The CA, however, annulled the RTCs orders.
Issue: Whether or not the RTC acted correctly in
declaring that the sale of the house and lot was made
in fraud of creditors.
Held: No. Rescissible contracts, not being void, they
remain legally effective until set aside in a rescissory
action and may convey title. Nor can they be attacked
collaterally upon the grounds for rescission in a land
registration proceeding. An action for rescission may
not be raised or set up in a summary proceeding
through a motion, but in an independent civil action
and only after a full-blown trial. As Article 1383 of the
Civil Code provides: The action for rescission is
subsidiary; it cannot be instituted except when the
 Civil Law Review II Case Digests
party suffering damage has no other legal means to
obtain reparation for the same.
Regarding contracts undertaken in fraud of
creditors, the existence of the intention to prejudice
the same should be determined either by the
presumption established by Article 1387 or by the
proofs presented in the trial of the case. In any case,
the presumption of fraud established by this article is
not conclusive, and may be rebutted by satisfactory
and convincing evidence. To repeat, an independent
action is necessary to prove that the contract is
rescissible. Under Article 1389 of the Civil Code, an
"accion pauliana," the action to rescind contracts made
in favor of creditors, must be commenced within four
years. Clearly, the rights and defenses which the
parties in a rescissible contract may raise or set up
cannot be properly ventilated in a motion but only in a
full trial.
86. China Banking v. CA (2000)
Facts:
Alfonso Roxas Chua and his wife Kiang Mich Chu
Chua were the owners of a land in San Juan which was
sought to be levied in connection with a civil case
between Metrobank and Alfonso. Later on, Metrobank
and Alfonso entered into a compromise agreement to
the effect that the levy on the land was valid and
enforceable only to the extent of the undivided portion
of the property pertaining to the conjucal share of
Alfonso.
Meanwhile, China Bank filed an action for collection
of sum of money against Pacific Multi Agro-Industrial
Corporation and Alfonso anchored on three promissory
notes with an aggregate amount of P2,500,000.00.
The subject land (Alfonsos share) was eventually
levied. Thereafter, Alfonso executed a public
instrument denominated as Assignment of Rights to
Redeem whereby he assigned his rights to redeem the
one-half undivided portion of the property to his son,
Paulino.
On the other hand, in connection with case against
China Bank, a notice of levy on execution was issued.
And thereafter, a certificate of sale on execution was
issued in favor of China Bank.
Paulino his mother, Kiang, filed a complaint against
China Bank, averring that Paulino has a prior and
better right over Alfonsos portion of the land by virtue
of the assignment of rights to redeem made by the
latter.
The trial court rendered a decision on July 15, 1994
in favor of private respondent Paulino Roxas Chua and
against China Banking Corporation. The trial court
ruled that the assignment was made for a valuable
consideration and was executed two years before
petitioner China Bank levied the conjugal share of
Alfonso Roxas Chua on TCT 410603. The trial court
found that Paulino redeemed the one-half portion of
the property, using therefor the amount of P100,000.00
which he withdrew from his savings account as
evidenced by his bankbook and the receipts of
Metrobank for his payment of the redemption price.
The court noted that Paulino at that time was already
of age and had his own source of income.
The CA affirmed the RTC. Hence, this petition.
Issue: Whether or not the assignment of the right of
redemptioner made by Alfonso in favor of Paulino was
done to defraud his creditors and may be rescinded
under Article 1387 of the Civil Code.
Held: Yes. The law presumes that there is fraud of
creditors when: a) There is alienation of property by
gratuitous title by the debtor who has not reserved
sufficient property to pay his debts contracted before
such alienation; or b) There is alienation of property by
onerous title made by a debtor against whom some
judgment has been rendered in any instance or some
writ of attachment has been issued. The decision or
attachment need not refer to the property alienated
and need not have been obtained by the party seeking
rescission.
After his conjugal share in TCT 410603 was
foreclosed by Metrobank, the only property that
Alfonso Roxas Chua had was his right to redeem the
same, it forming part of his patrimony. "Property" under
civil law comprehends every species of title, inchoate
or complete, legal or equitable. Alfonso Roxas Chua
sold his right of redemption to his son, Paulino Roxas
Chua, in 1988. Thereafter, Paulino redeemed the
property and caused the annotation thereof at the back
of TCT 410603. This preceded the annotation of the
levy of execution in favor of China Bank by two (2)
years and the certificate of sale in favor of China Bank
by more than three (3) years. On this basis, the Court
of Appeals concluded that the allegation of fraud made
by petitioner China Bank is vague and unsubstantiated.
Such conclusion, however, runs counter to the law
applicable in the case at bar. Inasmuch as the
judgment of the trial court in favor of China Bank
against Alfonso Roxas Chua was rendered as early as
1985, there is a presumption that the 1988 sale of his
property, in this case the right of redemption, is
fraudulent under Article 1387 of the Civil Code. The
fact that private respondent Paulino Roxas Chua
redeemed the property and caused its annotation on
the TCT more than two years ahead of petitioner China
Bank is of no moment. As stated in the case of Cabaliw
vs. Sadorra, "the parties here do not stand in
equipoise, for the petitioners have in their favor, by a
specific provision of law, the presumption of fraudulent
transaction which is not overcome by the mere fact
that the deeds of sale were in the nature of public
instruments." This presumption is strengthened by the
fact that the conveyance has virtually left Alfonsos
other creditors with no other property to attach. It
should be noted that the presumption of fraud or
intention to defraud creditors is not just limited to the
two instances set forth in the first and second
paragraphs of Article 1387 of the Civil Code.
87. Sps. Tongson v. Emergency Pawnshop Bula,
Inc. and Napala (2010)
Facts:
In May 1992, Napala offered to purchase from the
spouses Tongson their 364-square meter parcel of land,
 Civil Law Review II Case Digests
situated in Davao City for P3,000,000.00. The spouses
found the offer acceptable and executed with Napala a
Memorandum of Agreement on May 8, 1992. Upong
signing the Deed of Absolute Sale, Napala paid the
spouses P200,000.00 in cash and issued a post-dated
check in the amount of P2,800,000.00 representing the
remaining balance of the purchase price of the subject
property. When presented for payment, the PNB check
was dishonored for insufficient funds. Despite the
spouses Tongsons repeated demands to either pay the
full value of the check or to return the land, Napala
failed to do either. The spouses filed with the RTC of
Davao City a Complaint for Annulment of Contract and
Damages with a Prayer for the Issuance of a Temporary
Restraining Order and a Writ of Preliminary Injunction.
The trial court found that the purchase price of the
subject property has not been fully paid and that
Napalas assurance to the Spouses Tongson that the
PNB check would not bounce constituted fraud that
induced the Spouses Tongson to enter into the sale.
Without such assurance, the Spouses Tongson would
not have agreed to the contract of sale. Accordingly,
there was fraud within the ambit of Article 1338 of the
Civil Code, justifying the annulment of the contract of
sale, the award of damages and attorneys fees, and
payment of costs. Respondent appealed to the Court of
Appeals.
The Court of Appeals agreed with the trial courts
finding that Napala employed fraud when he
misrepresented to the Spouses Tongson that the PNB
check in the amount of P2,800,000 would be properly
funded at its maturity. However, the Court of Appeals
found that the issuance and delivery of the PNB check
and fraudulent representation made by Napala could
not be considered as the determining cause for the
sale of the subject parcel of land. Hence, such fraud
could not be made the basis for annulling the contract
of sale. Nevertheless, the fraud employed by Napala is
a proper and valid basis for the entitlement of the
Spouses Tongson to the balance of the purchase price
in the amount of P2,800,000 plus interest at the legal
rate of 6% per annum computed from the date of filing
of the complaint on 11 February 1993. The Spouses
Tongson filed a partial motion for reconsideration which
was denied by the Court of Appeals in its Resolution
dated 10 March 2005. Hence, this petition for review
before the SC.
Issue: Whether or not the contract between Spouses
Tongson and Napala should be annulled.
Held: No. A contract is a meeting of the minds
between two persons, whereby one is bound to give
something or to render some service to the other. A
valid contract requires the concurrence of the following
essential elements: (1) consent or meeting of the
minds, that is, consent to transfer ownership in
exchange for the price; (2) determinate subject matter;
and (3) price certain in money or its equivalent.
We find no causal fraud in this case to justify the
annulment of the contract of sale between the parties.
It is clear from the records that the Spouses Tongson
agreed to sell their 364-square meter Davao property
to Napala who offered to pay P3,000,000 as purchase
price therefor. Contrary to the Spouses Tongsons belief
that the fraud employed by Napala was already
operational at the time of the perfection of the contract
of sale, the misrepresentation by Napala that the
postdated PNB check would not bounce on its maturity
hardly equates to dolo causante. Napalas assurance
that the check he issued was fully funded was not the
principal inducement for the Spouses Tongson to sign
the Deed of Absolute Sale. Even before Napala issued
the check, the parties had already consented and
agreed to the sale transaction. The Spouses Tongson
were never tricked into selling their property to Napala.
On the contrary, they willingly accepted Napalas offer
to purchase the property at P3,000,000. In short, there
was a meeting of the minds as to the object of the sale
as well as the consideration therefor. Some of the
instances where this Court found the existence of
causal fraud include: (1) when the seller, who had no
intention to part with her property, was tricked into
believing that what she signed were papers pertinent
to her application for the reconstitution of her burned
certificate of title, not a deed of sale; (2) when the
signature of the authorized corporate officer was
forged; or (3) when the seller was seriously ill, and died
a week after signing the deed of sale raising doubts on
whether the seller could have read, or fully understood,
the contents of the documents he signed or of the
consequences of his act. Suffice it to state that nothing
analogous to these badges of causal fraud exists in this
case. While they did not file an action for the rescission
of the sales contract, the Spouses Tongson specifically
prayed in their complaint for the annulment of the
sales contract, for the immediate execution of a deed
of reconveyance, and for the return of the subject
property to them. The Spouses Tongson likewise
prayed for such other reliefs which may be deemed
just and equitable in the premises. In view of such
prayer, and considering respondents substantial
breach of their obligation under the sales contract, the
rescission of the sales contract is but proper and
justified. Accordingly, respondents must reconvey the
subject property to the Spouses Tongson, who in turn
shall refund the initial payment of P200,000 less the
costs of suit.
88. Cadwaller & Company v. Smith, Bell &
Company (1907)
Facts:
The Pacific Export Lumber Company of Portland
shipped upon the steamer Quito five hundred and
eighty-one (581) piles to the defendant, Henry W.
Peabody & Company, at Manila, on the sale of which
before storage the consignees were to receive a
commission of one half of whatever sum was obtained
over $15 for each pile and 5 per cent of the price of the
piles sold after storage. After the arrival of the steamer
on August 2, Peabody and Company wrote the agent of
the Pacific Company at Shanghai that for lack of a
demand the piles would have to be sold at
considerably less than $15 apiece; whereupon the
company's agent directed them to make the best
possible offer for the piles, in response to which on
August 5 they telegraphed him an offer of $12 apiece.
It was accepted by him on August 6, in consequence of
which the defendant paid the Pacific Company $6,972.
 Civil Law Review II Case Digests
It afterwards appeared that on July 9 Peabody &
Company had entered into negotiations with the
Insular Purchasing Agent for the sale for the piles at
$20 a piece, resulting of August 4 in the sale to the
Government of two hundred and thirteen (213) piles at
$19 each. More of them were afterwards sold to the
Government at the same figure and the remainder to
other parties at carrying prices, the whole realizing to
the defendants $10,41.66, amounting to $3,445.66
above the amount paid by the defendant to the
plaintiff therefor. Thus it is clear that at the time when
the agents were buying from their principal these piles
at $12 apiece on the strength of their representation
that no better price was obtainable, they had already
sold a substantial part of them at $19. In these
transactions the defendant, Smith, Bell & Company,
were associated with the defendants, Henry W.
Peabody & Company, who conducted the negotiations,
and are consequently accountable with them.
The plaintiff, as assignee of the Pacific Export
Lumber Company, sues for $3,486, United States
currency, the differences between the amount turned
over to the company on account of a cargo of cedar
piles consigned to the defendants as its agents and
afterwards bought by them, and the amount actually
received by them on the subsequent sale thereof.
Issue: Whether or not defendant is guilty of fraud.
Held: Yes. It is plaint that in concealing from their
principal the negotiations with the Government,
resulting in a sale of the piles at 19 a piece and in
misrepresenting the condition of the market, the
agents committed a breach of duty from which they
should benefit. The contract of sale to themselves
thereby induced was founded on their fraud and was
subject to annulment by the aggrieved party. (Civil
Code, articles 1265 and 1269.) Upon annulment the
parties should be restored to their original position by
mutual restitution. (Article 1303 and 1306.) Therefore
the defendants are not entitled to retain their
commission realized upon the piles included under the
contract so annulled. In respect of the 213 piles, which
at the time of the making of this contract on August 5
they had already sold under the original agency, their
commission should be allowed.
89. ECE Realty and Development Inc. v. Mandap
(2014)
Facts:
ECE Realty and Development Inc. and respondent
Rachel Mandap entered into a contract to sell whereby
the latter agreed to buy a condominium unit from ECE.
Printed advertisements were made indicating therein
that the condo was to be built in Makati City. But it
turns out that it was actually being built in Pasay City.
This fact was stated in the contract to sell between ECE
and Rachel. Two years after the execution of the
contract, Rachel demanded the return of the payments
she made on the ground that she subsequently
discovered that the condominium project was being
built in Pasay and not in Makati, but ECE refused.
Hence, Rachel filed a complaint against ECE with the
HLURB. When the case reached the CA, the appellate
court annulled the contract to sell on the ground that
ECE employed fraud and machinations to induce
Rachel to enter into a contract with it.
Issue: Whether or not the CA was correct in annulling
the contract to sell.
Held: No. Jurisprudence has shown that in order to
constitute fraud that provides basis to annul contracts,
it must fulfill two conditions. First, the fraud must be
dolo causante or it must be fraud in obtaining the
consent of the party. This is referred to as causal fraud.
The deceit must be serious. The fraud is serious when
it is sufficient to impress, or to lead an ordinarily
prudent person into error; that which cannot deceive a
prudent person cannot be a ground for nullity. The
circumstances of each case should be considered,
taking into account the personal conditions of the
victim. Second, the fraud must be proven by clear and
convincing evidence and not merely by a
preponderance thereof.
In the present case, this Court finds that petitioner
is guilty of false representation of a fact. This is
evidenced by its printed advertisements indicating that
its subject condominium project is located in Makati
City when, in fact, it is in Pasay City. The Court agrees
with the Housing and Land Use Arbiter, the HLURB
Board of Commissioners, and the Office of the
President, in condemning petitioner's deplorable act of
making misrepresentations in its advertisements and in
issuing a stern warning that a repetition of this act
shall be dealt with more severely. However, insofar as
the present case is concerned, the Court agrees with
the Housing and Land Use Arbiter, the HLURB Board of
Commissioners, and the Office of the President, that
the misrepresentation made by petitioner in its
advertisements does not constitute causal fraud which
would have been a valid basis in annulling the Contract
to Sell between petitioner and respondent.
Evidence shows that respondent proceeded to sign
the Contract to Sell despite information contained
therein that the condominium is located in Pasay City.
This only means that she still agreed to buy the subject
property regardless of the fact that it is located in a
place different from what she was originally informed.
If she had a problem with the property's location, she
should not have signed the Contract to Sell and,
instead, immediately raised this issue with petitioner.
But she did not. As correctly observed by the Office of
the President, it took respondent more than two years
from the execution of the Contract to Sell to demand
the return of the amount she paid on the ground that
she was misled into believing that the subject property
is located in Makati City. In the meantime, she
continued to make payments.
90. Vda. De Buncio v. Estate of De Leon (1987)
Facts:
This case is about a daughters attempt to claim
her share in her fathers estate some 63 years after the
latters demise. The father, Andres Arroyo, died
sometime in 1901. He was survived by three
compulsory heirs: Felix, Filomena (petitioner herein)
and Simplicio. In 1964, Filomena filed a complaint
against her co-heirs, alleging that her share in the
 Civil Law Review II Case Digests
inheritance had at all times been held in trust by Felix,
and that she had been deprived of that share through
fraud and misrepresentation. The defendants filed a
motion to dismiss on the ground of res judicata, laches
and estoppel among others. The CFI granted the
motion to dismiss. It turned out that in 1940, the CFI
rendered a judgment on the basis of a compromise
agreement entered into by the parties to settle the
estate of their father. In 1946, Filomena filed a motion
to vacate the 1940 decision on the ground of fraud,
misrepresentation, deceit and undue influence vitiating
their consent to the compromise agreement. The trial
court denied the motion, and Filomena kept silent until
she filed the present complaint in 1964.
Issue: Whether or not Filomenas complaint can
prosper.
Held: No. Even if it were legally possible to shunt aside
and ignore the principle of res judicata, this would not
help the appellants' cause one whit. Their cause of
action for the annulment of their convenio de
transaccion on the ground of fraud, undue influence, or
mistake, as also their cause of action for recovery of
property on the theory of constructive trust, assuming
their tenability, would nonetheless be barred by
another insuperable legal obstacle: prescription.
The action to annul a contract on the ground that
consent is vitiated by mistake, violence, intimidation,
undue influence or fraud prescribes in four (4) years;
and the period is reckoned, in case of mistake or fraud,
from the time of the discovery of the same. It is
noteworthy that as early as March 14, 1946 the
appellants already had pleaded fraud in the motion
filed by them on that day to set aside the judgment
rendered in Civil Case No. 7268: their contention was
that their consent to the convenio de transaccion
which the judgment had approved, had been obtained
by fraud, or undue machinations. It is thus not
unreasonable, surely, to consider March 14, 1946 as
the day of the discovery of the fraud. So considered, it
should at once be apparent that the prescriptive period
of four (4) years had long elapsed when Civil Case No.
7200 was instituted by the appellants on February 19,
1964, eighteen (18) years afterwards.
Alternatively categorizing the appellants' cause of
action as one for recovery of property held by
defendants under a constructive trust, would not
improve their situation. The statute of limitations would
still preclude their success. Assuming the creation of
an implied trust over the real property in question from
the time that Felix Arroyo (appellees' predecessor) took
over possession and administration thereof sometime
in 1901, the period of prescription to recover the
property-set by law at ten (10) years-began to run from
the time that Torrens titles were obtained over the
property in the name of the trustee or his successors-
in-interest. It being clear from the record that the
appellants had brought their suit, Civil Case No. 7268,
more than ten (10) years after titles had been obtained
over the property claimed by the appellees or their
predecessor-in-interest, their cause of action
predicated on constructive trust is barred by
prescription.
91. Asia Productions v. Pano (1992)
Facts:
Private respondents, who claimed to be the owners
of a building constructed on a lot leased from Lucio San
Andres, offered to sell the buildings to petitioners for
P170,000.00. Petitioners agreed because of private
respondents' assurance that they will also assign to the
petitioners the contract of lease over the land. The
above agreement and promise were not reduced to
writing. Private respondents undertook to deliver to the
petitioners the deed of conveyance over the building
and the deed of assignment of the contract of lease
within sixty (60) days from the date of payment of the
downpayment of P20,000.00. The balance was to be
paid in monthly installments. On 20 March 1976,
petitioners paid the downpayment and issued eight (8)
postdated checks drawn against the Equitable Banking
Corporation for the payment of the eight (8) monthly
installments.
Relying on the good faith of private respondents,
petitioners constructed in May 1976 a weaving factory
on the leased lot. Unfortunately, private respondents,
despite extensions granted, failed to comply with their
undertaking to execute the deed to sale and to assign
the contract despite the fact that they were able to
encash the checks dated 30 June and 30 July 1976 in
the total amount of P30,000.00. Worse, the lot owner
made it plain to petitioners that he was unwilling to
give consent to the assignment of the lease unless
petitioners agreed to certain onerous terms, such as an
increase in rental, or the purchase of the land at a very
unconscionable price. Petitioners were thus compelled
to request for a stop payment order of the six (6)
remaining checks. Succeeding negotiations to save the
transaction proved futile by reason of the continued
failure of private respondents to execute the deed of
sale of the building and the deed of assignment of the
contract of lease.
Petitioners filed a complaint against respondents
for the recovery of their partial payment and for
damages (moral and exemplary). Private respondents
filed a motion to dismiss on the ground that the claim
on which the action is based an alleged purchase of
a building which is not evidenced by any writing
cannot be proved by parol evidence since Article 1356
in relation to Article 1358 of the Civil Code requires
that it should be in writing. The CFI granted the motion
to dismiss.
Issue: Whether or not the CFI was correct in granting
the motion to dismiss.
Held: No. It is well-settled in this jurisdiction that the
Statute of Frauds is applicable only to executory
contracts, not to contracts that are totally or partially
performed. In the words of former Chief Justice Moran:
"The reason is simple. In executory contracts there is a
wide field for fraud because unless they be in writing
there is no palpable evidence of the intention of the
contracting parties. The statute has precisely been
enacted to prevent fraud." (Comments on the Rules of
Court, by Moran, Vol. III [1957 ed.] p. 178). However, if
a contract has been totally or partially performed, the
exclusion of parol evidence would promote fraud or
 Civil Law Review II Case Digests
bad faith, for it would enable the defendant to keep the
benefits already derived by him form the transaction in
litigation, and, at the same time, evade the obligations,
responsibilities or liabilities assumed or contracted by
him thereby.
There can be no dispute that the instant case is not
for specific performance of the agreement to sell the
building and to assign the leasehold right. Petitioners
merely seek to recover their partial payment for the
agreed purchase price of the building, which was to be
paid on installments, with the private respondents
promising to execute the corresponding deed of
conveyance, together with the assignment of the
leasehold rights, within two (2) months from the
payment of the agreed downpayment of P20,000.00.
Besides, even if the action were for specific
performance, it was premature for the respondent
Judge to dismiss the complaint by reason of the Statute
of Frauds despite the explicit allegations of partial
payment.
Under Article 1338 of the Civil Code, there is fraud
when, through insidious words or machinations of one
of the contracting parties, the other is induced to enter
into a contract which, without them, he would not have
agreed to. In order that fraud may vitiate consent, it
must be the causal (dolo causante), not merely the
incidental (dolo incidente), inducement to the making
of the contract. Additionally, the fraud must be serious.
92. Averia v. Averia (2004)
Facts:
Macaria Francisco (Macaria) was married to Marcos
Averia in which they had six children namely:
petitioners Gregorio and Teresa and respondents
Domingo, Angel, Felipe and Felimon. Upon the death of
Marcos, Macaria contracted a second marriage with
Roberto Romero in which they had no children. Upon
the death of Roberto, he left three adjoining residential
lots. In a Deed of Extrajudicial Partition and Summary
Settlement of the Estate of Romero, a house and lot
(Extremadura property) was apportioned to Macaria.
Macaria then filed an action for annulment of title
and damages alleging that fraud was employed by her
co-heirs in which she was represented by Atty. Mario
C.R. Domingo. The case lasted for 10 years until the
Court of Appeals (CA) decided in favor of Macaria
entitling her to an additional 30 square meters of the
estate of Romero. Her son Gregorio and his family and
Teresas family lived with her in the Extremadura
property until her death. After six years, respondents
Domingo, Angel, Felipe and Filemon filed an action for
judicial partition against petitioners Gregorio and
Teresa.
In their defense Gregorio contends that Macaria
verbally sold of her Extramadura property to him
and his wife Agripina because they were the ones who
spent for the litigation expenses in the former civil case
and that Agripina took care of her. Gregorio and co-
petitioner Sylvana claimed that Domingo sold to
Gregorio and Agripina his 1/6 share in the remaining
portion of the property. Upon hearing, Gregorio
presented oral evidence to establish their claim of the
sale of the property to them by Macaria and also the
sale of Domingo of his share. The Regional Trial Court
of (RTC) decided in favor of Gregorio. The CA however,
reversed the decision of the RTC on the ground that
since the sale executed by Macaria in favor of Gregorio
was in violation of the statute of frauds and it cannot
be proven by oral evidence.
Issue: Whether or not parol evidence may be admitted
in proving partial performance.
Held: Yes. With respect to the application by the
appellate court of the Statute of Frauds, Gregorio
contends that the same refers only to purely executory
contracts and not to partially or completely executed
contracts as in the instant case. The finding of the CA
that the testimonies of Gregorios witnesses were
timely objected to by Domingo is not, as Gregorio
insist, borne out in the records of the case except with
respect to his testimony.
Indeed, except for the testimony of petitioner
Gregorio bearing on the verbal sale to him by Macaria
of the property, the testimonies of Gregorios witnesses
Sylvanna Vergara Clutario and Flora Lazaro Rivera
bearing on the same matter were not objected to by
respondents. Just as the testimonies of Gregorio, Jr. and
Veronica Bautista bearing on the receipt by respondent
Domingo on July 23, 1983 from Gregorios wife of
P5,000.00 representing partial payment of the
P10,000.00 valuation of his (Domingos) 1/6 share in
the property, and of the testimony of Felimon
Dagondon bearing on the receipt by Domingo of
P5,000.00 from Gregorio were not objected to.
Following Article 1405 of the Civil Code, the contracts
which infringed the Statute of Frauds were ratified by
the failure to object to the presentation of parol
evidence, hence, enforceable.
Contrary then to the finding of the CA, the admission of
parol evidence upon which the trial court anchored its
decision in favor of respondents is not irregular and is
not foreclosed by Article 1405.
In any event, the Statute of Frauds applies only to
executory contracts and not to contracts which are
either partially or totally performed. In the case at bar,
petitioners claimed that there was total performance of
the contracts, full payment of the objects thereof
having already been made and the vendee Gregorio
having, even after Macarias death in 1983, continued
to occupy the property until and after the filing on
January 19, 1989 of the complaint subject of the case
at bar as in fact he is still occupying it.
However it is not enough for a party to allege
partial performance in order to render the Statute of
Frauds inapplicable; such partial performance must be
duly proved. But neither is such party required to
establish such partial performance by documentary
proof before he could have the opportunity to introduce
oral testimony on the transaction. The partial
performance may be proved by either documentary or
oral evidence.
93. Clemeno v. Lobregat (2004)
Facts:
 Civil Law Review II Case Digests
Spouses Nilus and Teresita Sacramento were the
owner of the parcel of land and house constructed at
Madaling Araw St., Teresita Heights Subd., Novaliches,
Quezon City. Spouses Sacramento mortgaged the
property with the SSS as security for their housing loan
and likewise surrendered the owners and duplicate
copies of the certificate of title. A Deed of Absolute
Sale with Assumption of Mortgage in favor of Spouses
Maria Linda Clemeno and Angel C. Clemeno, Jr. was
entered into by Spouses Sacramental with conformity
of the SSS. 5 years after, Romeo Lobregat and Angel,
who were relatives by consanguinity, entered into a
verbal contract of sale over the property with the
following terms, among others, that the former would
pay the purchase price of the property in the amount of
P270,000.00 inclusive of the balance. When Lobregats
counsel wrote to Angel that he had already paid the
purchase price and was ready to pay the balance, he
demanded that petitioner execute a deed of absolute
sale over the property and deliver the title. In reply,
Angel stated that he ever sold the property but instead
consented to lease the property. Also, that even if
Lobregat wanted to buy the property, the same was
unenforceable, as no document was executed by them
to evince the sale. CA ruled that the contract entered
into was a contract of sale since partial payments had
been made, thus, contract is partly performed.
Issue: Whether or not the essential elements of a
contract of sale are present.
Held: Yes. The Court held that the contract between
the parties is a perfected verbal contract of sale, not a
contract to sell over the subject property with the
petitioner as vendor and respondent as vendee. Sale is
a consensual contract and is perfected by mere
consent, which is manifested by a meeting of the
minds as to the offer and acceptance thereof on three
elements: subject matter, price, and terms of payment
of the price. The evidence shows that upon the
payment made by the respondent of the amount of
P27,000.00, the petitioners vacated their house and
delivered possession. The petitioners cannot re-acquire
ownership and recover possession thereof unless the
contract is rescinded in accordance with law. The
contract of sale of the parties is enforceable
notwithstanding the fact that it was an oral agreement
and not reduced in writing.
94. Spouses Firme v. Bukal Enterprises and
Development Corporation (2003)
Facts:
The vice president of Bukal Enterprises authorized
Teodoro Aviles, a broker, to negotiate with the Spouses
Firme for the purchase of the latters parcel of land.
Bukal sued Spouses Firm for specific performance,
claiming that a contract of sale was already perfected,
but the Spouses contended otherwise, saying that they
had always been firm in refusing to sell their property.
No written contract signed by the parties was shown.
Issue: Whether or not the statute of fraud
applicable.
Held: No. The Court of Appeals held that partial
performance of the contract of sale takes the oral
contract out of the scope of the Statute of Frauds. This
conclusion arose from the appellate courts erroneous
finding that there was a perfected contract of sale. The
records show that there was no perfected contract of
sale. There is therefore no basis for the application of
the Statute of Frauds. The application of the Statute of
Frauds presupposes the existence of a perfected
contract.
95. Sumipat v. Banga, et al. (2004)
Facts:
The spouses Placida Tabo-tabo and Lauro Sumipat
acquired three parcels of land. The couple was
childless. Lauro Sumipat, however, sired five
illegitimate children out of an extra-marital affair,
namely: herein defendants-appellees. Lauro Sumipat
executed a document denominated DEED OF
ABSOLUTE TRANSFER AND/OR QUIT-CLAIM OVER REAL
PROPERTIES (the assailed document) in favor of
defendants-appellees covering the three parcels of
land (the properties). On the document appears the
signature of his wife Placida indicating her marital
consent thereto. It appears that when the assailed
document was executed, Lauro Sumipat was already
very sick and bedridden; that upon defendant-appellee
Lydias request, their neighbor Benjamin Rivera lifted
the body of Lauro Sumipat whereupon Lydia guided his
(Lauro Sumipats) hand in affixing his signature on the
assailed document which she had brought; that Lydia
thereafter left but later returned on the same day and
requested Lauros unlettered wife Placida to sign on
the assailed document, as she did in haste, even
without the latter getting a responsive answer to her
query on what it was all about. After Lauro Sumipats
death, his wife Placida, hereinafter referred to as
plaintiff-appellant, and defendants-appellees jointly
administered the properties 50% of the produce of
which went to plaintiff-appellant. As plaintiff-
appellants share in the produce of the properties
dwindled until she no longer received any and learning
that the titles to the properties in question were
already transferred/made in favor of the defendants-
appellees, she filed a complaint for declaration of
nullity of titles, contracts, partition, recovery of
ownership now the subject of the present appeal.
Defendant-appellee Lydia disclaims participation in the
execution of the assailed document, she claiming to
have acquired knowledge of its existence only five
days after its execution when Lauro Sumipat gave the
same to her. RTC decided the case in favor of
defendants-appellees holding that by virtue of the
assailed document the due execution of which was not
contested by plaintiff-appellant, the properties were
absolutely transferred to defendants-appellees.
Issue: Whether the questioned deed by its terms or
under the surrounding circumstances has validly
transferred title to the disputed properties to the
petitioners.
Held: No. Title to immovable property does not pass
is from the donor to the donee by virtue of a deed of
donation until and unless it has been accepted in a
public instrument and the donor duly notified thereof.
The acceptance may be made in the very same
 Civil Law Review II Case Digests
instrument of donation. If the acceptance does not
appear in the same document, it must be made in
another. Where the deed of donation fails to show the
acceptance, or where the formal notice of the
acceptance, made in a separate instrument, is either
not given to the donor or else not noted in the deed of
donation and in the separate acceptance, the donation
is null and void.
Turning now to the effects of the absolute nullity of
the deed, it is wellsettled that when there is a showing
of illegality, the property registered is deemed to be
simply held in trust for the real owner by the person in
whose name it is registered, and the former then has
the right to sue for the reconveyance of the property.
The action for the purpose is also imprescriptible. As
long as the land wrongfully registered under the
Torrens system is still in the name of the person who
caused such registration, an action in personam will lie
to compel him to reconvey the property to the real
owner.
96. Gochan v. Heirs of Baba (2003)
Facts:
In 1966, Dorotea Inot and 2 of her children,
Victoriano Baba and Gregorio Baba sold a parcel of
land to Felix Gochan and Sons Realty Corporation
(Gochan Realty). Consequently, the title over the land
was transferred to Gochan Realty. In 1995, the other 5
children of Inot (Bestra, Maricel, Crecencia, Antonio and
Petronila all surnamed Baba) discovered the sale
executed in 1966. They filed a complaint for quieting of
title and reconveyance with damages against Gochan
Realty. They alleged that Gochan Realty and their
mother and two siblings connived in executing the
extrajudicial settlement and deed of sale which
fraudulently deprived them of their hereditary share in
the said parcel of land. And that said transactions are
void insofar as their respective shares are concerned
because they never consented to the said sale and
extrajudicial settlement. The trial court dismissed the
complaint filed by Baba et al as it ruled that their
action has prescribed by reason of prescription and
laches. It applied the rule that the fraudulent
conveyance of the property creates an implied trust, an
obligation created by law, which prescribes in ten years
from the date of the issuance of the certificate of title.
The Court of Appeals reversed the decision of the trial
court. It found that the heirs action is a suit to enforce
an implied or constructive trust based on fraud, but it
ruled that since the heirs are in possession of the
disputed property, their action cannot be barred by
prescription and laches, being in the nature of a suit for
quieting of title.
Issue: Whether or not the decision of the Court of
Appeals is correct.
Held: Yes. But the ground relied upon by the CA is
erroneous. The contract in question executed in 1966 is
void ab initio by reason of the lack of consent from the
other heirs in executing said contract. Without said
consent, there can be no valid contract of sale between
Inot et al and Gochan Realty. The rule is: Actions for the
declaration of inexistence of contracts on the ground of
absence of any of the essential requisites thereof do
not prescribe. The case is however remanded to the
trial court to determine whether or not the heirs are
guilty of laches (which is different from prescription).
Though laches applies even to imprescriptible actions,
its elements must be proved positively. Laches is
evidentiary in nature which could not be established by
mere allegations in the pleadings and cannot be
resolved in a motion to dismiss, hence, it must be
settled in the trial court. Gochan Realty is not
precluded from presenting evidence that it is a
purchaser in good faith or that the heirs have no
personality to sue for reconveyance or, even assuming
that they are lawful heirs of Dorotea Inot and
Raymundo Baba, that they are guilty of laches or are
estopped from questioning the validity of the
extrajudicial partition and deed of sale.
97. Fornilda v. RTC (1989)
Facts:
Julio M. Catolos formerly owned 6 parcels of land in
Tanay, Rizal which is subject of settlement proceedings.
The heirs (Francesca Catolos, Agnes Catolos, Alfonso I.
ForniIda and Asuncion M. Pasamba) were represented
in the case by Atty. Sergio Amonoy (Amonoy), herein
respondent. A Project of Partition was filed in the
Intestate Court whereby the Controverted Parcels were
adjudicated to Alfonso I. Fornilda (Alfonso) and
Asuncion (Asuncion) M. Pasamba. On 12 January 1965,
the Court approved the Project of Partition but it was
not until 6 August 1969, that the estate was declared
closed and terminated after estate and inheritance
taxes had been paid, the claims against the estate
settled and all properties adjudicated. On 20 January
1965 (8 days later), Alfonso and Asuncion executed a
Contract of Mortgage wherein they mortgaged the
Controverted Parcels to Respondent Amonoy as
security for the payment of his attorney's fees for
services rendered in the aforementioned intestate
proceedings, in the amount of P27,600.00. Asuncion
and Alfonso died and was substituted by their heirs. For
failure to pay the debt, on 21 January 1970,
Respondent Amonoy instituted foreclosure proceedings
before the CFI of Rizal. Petitioners, as defendants
therein, alleged that the amount agreed upon as
attorney's fees was only Pll,695.92 and that the sum of
P27,600.00 was unconscionable and unreasonable.
Trial Court rendered judgment in favor of respondent
Amonoy for P27,600.00 for the attorneys fees secured
by the mortgage; P11,880.00 as the value of the
harvest from 2 parcels of land; and attorneys fees.
Failing to pay would cause the selling of the parcels at
public auction On 6 February 1973, the Controverted
Parcels were foreclosed and on 23 March 1973, an
auction sale was held with Respondent Amonoy as the
sole bidder for P23,760.00. To satisfy the deficiency,
another execution sale was conducted with Respondent
Amonoy as the sole bidder for P12,137.50.
A year after the judgment in the Foreclosure Case,
an action for Annulment of Judgment was filed by the
plaintiffs. Squarely put in issue were the propriety of
the mortgage, the validity of the judgment in the
Foreclosure Case, and the tenability of the acquisitions
by Respondent Amonoy at the Sheriffs sale. Of
particular relevance to the instant Petition is the
 Civil Law Review II Case Digests
contention that the mortgage and the Sheriffs sales
were null and void as contrary to the positive statutory
injunction in Article 1491 (5) of the Civil Code, which
prohibits attorneys from purchasing, even at a public or
judicial auction, properties and rights in litigation, and
that the Trial Court, in the Foreclosure Case, had never
acquired jurisdiction over the subject matter of the
action.
Issue: Whether or not the mortgage constituted on the
Controverted Parcels in favor of Respondent Amonoy
comes within the scope of the prohibition in Article
1491 of the Civil Code.
Held: Yes, hence it is void. Under Article 1491, a
lawyer is prohibited from acquiring either by purchase
or assignment the property or rights involved which are
the object of the litigation in which they intervene by
virtue of their profession. The prohibition on purchase
is all embracing to include not only sales to private
individuals but also public or judicial sales. The
rationale advanced for the prohibition is that public
policy disallows the transactions in view of the
fiduciary relationship involved i.e., the relation of trust
and confidence and the peculiar control exercised by
these persons.
In the case, while the Project of Partition was
approved on 12 January 1965, it was not until 6 August
1969 that the estate was declared closed and
terminated. At the time the mortgage was executed,
therefore, the relationship of lawyer and client still
existed, the very relation of trust and confidence
sought to be protected by the prohibition, when a
lawyer occupies a vantage position to press upon or
dictate terms to a harassed client. What is more, the
mortgage was executed only eight (8) days after
approval of the Project of Partition thereby evincing a
clear intention on Respondent Amonoy's part to protect
his own interests and ride roughshod over that of his
clients. From the time of the execution of the mortgage
in his favor, Respondent Amonoy had already asserted
a title adverse to his clients' interests at a time when
the relationship of lawyer and client had not yet been
severed.
98. Suntay v. CA (1995)
Facts:
Respondent Federico Suntay was the registered
owner of a parcel of land with an area of 5,118 square
meters, more or less, situated in Sto. Nio, Hagonoy,
Bulacan. On the land may be found: a rice mill, a
warehouse, and other improvements. A rice miller,
Federico, in a letter, dated September 30, 1960,
applied as a miller-contractor of the then National Rice
and Corn Corporation (NARIC). He informed the NARIC
that he had a daily rice mill output of 400 cavans of
palay and warehouse storage capacity of 150,000
cavans of palay. His application, although prepared by
his nephew-lawyer, petitioner Rafael Suntay, was
disapproved, obviously because at that time he was
tied up with several unpaid loans. For purposes of
circumvention, he had thought of allowing Rafael to
make the application for him. Rafael prepared an
absolute deed of sale whereby Federico, for and in
consideration of P20,000.00 conveyed to Rafael said
parcel of land with all its existing structures. Said deed
was notarized as Document No. 57 and recorded on
Page 13 of Book 1, Series of 1962, of the Notarial
Register of Atty. Herminio V. Flores. Less than three
months after this conveyance, a counter sale was
prepared and signed by Rafael who also caused its
delivery to Federico. Through this counter conveyance,
the same parcel of land with all its existing structures
was sold by Rafael back to Federico for the same
consideration of P20,000.00. Although on its face, this
second deed appears to have been notarized as
Document No. 56 and recorded on Page 15 of Book 1,
Series of 1962, 16 of the notarial register of Atty.
Herminio V. Flores, an examination thereof will show
that, recorded as Document No. 56 on Page 13, is not
the said deed of sale but a certain "real estate
mortgage on a parcel of land with TCT No. 16157 to
secure a loan of P3,500.00 in favor of the Hagonoy
Rural Bank". Nowhere on page 13 of the same notarial
register could be found any entry pertaining to Rafael's
deed of sale. Testifying on this irregularity, Atty. Flores
admitted that he failed to submit to the Clerk of Court
a copy of the second deed. Neither was he able to
enter the same in his notarial register. Even Federico
himself alleged in his Complaint that, when Rafael
delivered the second deed to him, it was neither dated
nor notarized. Upon the execution and registration of
the first deed, Certificate of Title No. 0-2015 in the
name of Federico was cancelled and in lieu thereof, TCT
No. T-36714 was issued in the name of Rafael. Even
after the execution of the deed, Federico remained in
possession of the property sold in concept of owner.
Significantly, notwithstanding the fact that Rafael
became the titled owner of said land and rice mill, he
never made any attempt to take possession thereof at
any time, while Federico continued to exercise rights of
absolute ownership over the property. In a letter, 22
dated August 14, 1969, Federico, through his new
counsel, Agrava & Agrava, requested that Rafael
deliver his copy of TCT No. T-36714 so that Federico
could have the counter deed of sale in his favor
registered in his name. The request having been
obviously turned down prompted Agrava & Agrava to
file a petition with the Court of First Instance of Bulacan
asking Rafael to surrender his owner's duplicate
certificate of TCT No. T-36714. In opposition thereto,
Rafael chronicled the discrepancy in the notarization of
the second deed of sale upon which said petition was
premised and ultimately concluded that said deed was
a counterfeit or "at least not a public document which
is sufficient to transfer real rights according to law". On
September 8, 1969, Agrava & Agrava filed a motion to
withdraw said petition, and, on September 13, 1969,
the Court granted the same. On July 8, 1970, Federico
filed a complaint for reconveyance and damages
against Rafael and alleged that Defendant never paid
or delivered, and plaintiff never demanded or received,
the sum of P20,000.00 or any other valuable
consideration for executing the aforesaid "Deed of
Absolute Sale", since the same was and is an
absolutely simulated or fictitious transaction, intended
solely to accommodate and assist defendant. In his
answer, Rafael scoffed at the attack against the
validity and genuineness of the sale to him of
Federico's land and rice mill. Rafael insisted that said
property was "absolutely sold and conveyed . . . for a
 Civil Law Review II Case Digests
consideration of P20,000.00, Philippine currency, and
for other valuable consideration".
While the trial court upheld the validity and
genuineness of the deed of sale executed by Federico
in favor of Rafael, which deed is referred to above as
Exhibit A, it ruled that the counter-deed, referred to as
Exhibit B, executed by Rafael in favor of Federico, was
simulated and without consideration, hence, null and
void ab initio. On the other hand, Court of Appeals
rendered judgment in affirmance of the trial court's
decision, with a modification. Federico was ordered to
surrender the possession of the disputed property to
Rafael. CA held that Prudence if not common sense
should have cautioned Federico of the dangers
attendant to his inaction to assert immediately his
alleged unaffected ownership over the same property.
It is simply unthinkable that Federico could not have
considered the possibility that an innocent purchaser
for value may acquire the property from Rafael. Such a
thought alone is enough reason for Federico to be wary
of the situation which he allowed to continue for 7
years.
Issue: Whether or not the deed of sale executed in
favor of Rafael valid.
Held: No. The cumulative effect of the evidence on
proved that the sale by Federico to his deceased
nephew of his land and rice mill, was not intended to
have any legal effect between them. Though the
notarization of the deed of sale in question vests in its
favor the presumption of regularity, it is not the
intention nor the function of the notary public to
validate and make binding an instrument never, in the
first place, intended to have any binding legal effect
upon the parties thereto. The intention of the parties
still and always is the primary consideration in
determining the true nature of a contract. While the
late Rafael vehemently upholds the validity and
effectiveness of the deed of sale in question, this
posture is eroded by his admission, on cross-
examination during trial that he never declared his
ownership of the subject property in his annual
Statement Of Assets And Liabilities. The fact that the
late Rafael denied both intention and knowledge
involving the sham sale and firmly maintained the
validity and genuineness thereof has become
incongruous because it is irreconcilable with the
circumstance that he apparently never considered the
disputed property as one of his assets over which he
had rights of absolute ownership. The allegation of
Rafael that the lapse of seven (7) years before Federico
sought the issuance of a new title in his name
necessarily makes Federico's claim stale and
unenforceable does not hold water. Federico's title was
not in the hands of a stranger or mere acquaintance; it
was in the possession of his nephew who, being his
lawyer, had served him faithfully for many years.
Federico had been all the while in possession of the
land covered by his title and so there was no pressing
reason for Federico to have a title in his name issued.
Even when the relationship between the late Rafael
and Federico deteriorated, and eventually ended, it is
not at all strange for Federico to have been complacent
and unconcerned about the status of his title over the
disputed property since he has been possessing the
same actually, openly, and adversely, to the exclusion
of Rafael. It was only when Federico needed the title in
order to obtain a collaterized loan that Federico began
to attend to the task of obtaining a title in his name
over the subject land and rice mill. Hence, the deed of
sale executed by Federico in favor of his now deceased
nephew, Rafael, is absolutely simulated and fictitious
and, hence, null and void, said parties having entered
into a sale transaction to which they did not intend to
be legally bound. As no property was validly conveyed
under the deed, the second deed of sale executed by
the late Rafael in favor of his uncle, should be
considered ineffective and unavailing.
99. Teja Marketing v. CA (1987)
Facts:
Pedro Nale bought from Teja Marketing a
motorcycle with complete accessories and a sidecar. A
chattel mortgage was constituted as a security for the
payment of the balance of the purchase price. The
records of the Land Transportation Commission show
that the motorcycle sold to the defendant was first
mortgaged to the Teja Marketing by Angel Jaucian
though the Teja Marketing and Angel Jaucian are one
and the same, because it was made to appear that way
only as the defendant had no franchise of his own and
he attached the unit to the plaintiff's MCH Line. The
agreement also of the parties here was for the plaintiff
to undertake the yearly registration of the motorcycle
with the Land Transportation Commission. The plaintiff,
however failed to register the motorcycle on that year
on the ground that the defendant failed to comply with
some requirements such as the payment of the
insurance premiums and the bringing of the motorcycle
to the LTC for stenciling, the plaintiff said that the
defendant was hiding the motorcycle from him. Lastly,
the plaintiff also explained that though the ownership
of the motorcycle was already transferred to the
defendant, the vehicle was still mortgaged with the
consent of the defendant to the Rural Bank of
Camaligan for the reason that all motorcycle purchased
from the plaintiff on credit was rediscounted with the
bank.
Teja Marketing made demands for the payment of
the motorcycle but just the same Nale failed to comply,
thus forcing Teja Marketing to consult a lawyer and file
an action for damage before the City Court of Naga in
the amount of P546.21 for attorney's fees and P100.00
for expenses of litigation. Teja Marketing also claimed
that as of 20 February 1978, the total account of Nale
was already P2, 731, 05 as shown in a statement of
account; includes not only the balance of P1, 700.00
but an additional 12% interest per annum on the said
balance from 26 January 1976 to 27 February 1978; a
2% service charge; and P546.21 representing
attorney's fees. On his part, Nale did not dispute the
sale and the outstanding balance of P1,700.00 still
payable to Teja Marketing; but contends that because
of this failure of Teja Marketing to comply with his
obligation to register the motorcycle, Nale suffered
damages when he failed to claim any insurance
indemnity which would amount to no less than
P15,000.00 for the more than 2 times that the
motorcycle figured in accidents aside from the loss of
 Civil Law Review II Case Digests
the daily income of P15.00 as boundary fee beginning
October 1976 when the motorcycle was impounded by
the LTC for not being registered. The City Court
rendered judgment in favor of Teja Marketing,
dismissing the counterclaim, and ordered Nale to pay
Teja Marketing On appeal to the Court of First Instance
of Camarines Sur, the decision was affirmed in toto.
Nale filed a petition for review with the Intermediate
Appellate Court. On 18 July 1983, the appellate court
set aside the decision under review on the basis of
doctrine of "pari delicto," and accordingly, dismissed
the complaint of Teja Marketing, as well as the
counterclaim of Nale; without pronouncements as to
costs. Hence, the petition for review was filed by Teja
Marketing and/or Angel Jaucian.
Issue: Whether the defendant can recover damages
against the plaintiff?
Held: No. Unquestionably, the parties herein operated
under an arrangement, commonly known as the "kabit
system" whereby a person who has been granted a
certificate of public convenience allows another person
who owns motor vehicles to operate under such
franchise for a fee. A certificate of public convenience
is a special privilege conferred by the government.
Abuse of this privilege by the grantees thereof cannot
be countenanced.
The "kabit system" has been identified as one of
the root causes of the prevalence of graft and
corruption in the government transportation offices.
Although not out rightly penalized as a criminal
offense, the kabit system is invariably recognized as
being contrary to public policy and, therefore, void and
in existent under Article 1409 of the Civil Code. It is a
fundamental principle that the court will not aid either
party to enforce an illegal contract, but will leave both
where it finds then. Upon this premise it would be error
to accord the parties relief from their predicament.
100. Teja Marketing v. CA (1987)
Facts:
On February 10, 1940 Spouses Patricio Confesor
and Jovita Villafuerte obtained an agricultural loan from
the Agricultural and Industrial Bank (AIB), now the
Development of the Philippines (DBP), in the sum of
P2,000.00, as evidenced by a promissory note of said
date whereby they bound themselves jointly and
severally to pay the account in ten (10) equal yearly
amortizations. As the obligation remained outstanding
and unpaid even after the lapse of the aforesaid ten-
year period, Confesor, who was by then a member of
the Congress of the Philippines, executed a second
promissory note on April 11, 1961 expressly
acknowledging said loan and promising to pay the
same on or before June 15, 1961 and if he failed to do
so, he agree to the foreclosure of the mortgage. It also
provides that if he can secure a certificate of
indebtedness from the government of his back pay he
will be allowed to pay the amount out of it. Said
spouses not having paid the obligation on the specified
date, the DBP filed a complaint dated in the City Court
of Iloilo City against the spouses for the payment of the
loan. After trial on the merits a decision was rendered
by the inferior court in favor of DBP. On appeal to the
Court of First Instance of Iloilo, the court reversed the
appealed decision and dismissed the complaint and
counter-claim with costs against the plaintiff. A motion
for reconsideration of said decision filed by plaintiff was
denied. Hence this petition wherein DBP alleges that
the decision of respondent judge is contrary to law and
runs counter to decisions of this Court when
respondent judge (a) refused to recognize the law that
the right to prescription may be renounced or waived.
Issue: Whether or not the second promissory note
which was executed in consideration of a previous
promissory note the enforcement of this had been
barred by prescription valid.
Held: Yes. The right to prescription may be waived or
renounced. There is no doubt that prescription has set
in as to the first promissory note of February 10, 1940.
However, when respondent Confesor executed the
second promissory note on April 11, 1961 whereby he
promised to pay the amount covered by the previous
promissory note on or before June 15, 1961, and upon
failure to do so, agreed to the foreclosure of the
mortgage, said respondent thereby effectively and
expressly renounced and waived his right to the
prescription of the action covering the first promissory
note. When a debt is already barred by prescription, it
cannot be enforced by the creditor. But a new contract
recognizing and assuming the prescribed debt would
be valid and enforceable. Where, therefore, a party
acknowledges the correctness of a debt and promises
to pay it after the same has prescribed and with full
knowledge of the prescription he thereby waives the
benefit of prescription. This is not a mere case of
acknowledgment of a debt that has prescribed but a
new promise to pay the debt. The consideration of the
new promissory note is the pre-existing obligation
under the first promissory note. The statutory
limitation bars the remedy but does not discharge the
debt. A new express promise to pay a debt barred will
take the case from the operation of the statute of
limitations as this proceeds upon the ground that as a
statutory limitation merely bars the remedy and does
not discharge the debt, there is something more than a
mere moral obligation to support a promise, to wit a
pre-existing debt which is a sufficient consideration for
the new the new promise; upon this sufficient
consideration constitutes, in fact, a new cause of
action. It is this new promise, either made in express
terms or deduced from an acknowledgement as a legal
implication, which is to be regarded as reanimating the
old promise, or as imparting vitality to the remedy
(which by lapse of time had become extinct) and thus
enabling the creditor to recover upon his original
contract.
101. Roblett v. CA (1997)
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
 Civil Law Review II Case Digests
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.
Issue: Whether or not the Agreement is unenforceable
for being in the nature of an unauthorized contract.
Held: No. It must be emphasized that the same
agreement was used by plaintiff as the basis for
claiming defendant's obligation of P237,909.38 and
also used by defendant as the same basis for its
alleged payment in full of its obligation to plaintiff. But
while plaintiff treats the entire agreement as valid,
defendant wants the court to treat that portion which
treats of the offsetting of P115,000.00 as valid,
whereas it considers the other terms and conditions as
"onerous, illegal and want of prior consent and Board
approval". This Court cannot agree to defendant's
contention. It must be stressed that defendant's
answer was not made under oath, and therefore, the
genuineness and due execution of the agreement
which was the basis for plaintiff's claim is deemed
admitted (Section 8, Rule 8, Rules of Court). Such
admission, under the principle of estoppel, is rendered
conclusive upon defendant and cannot be denied or
disproved as against plaintiff (Art. 1431, Civil Code).
Either the agreement is valid or void. It must be
treated as a whole and not to be divided into parts and
consider only those provisions which favor one party
(in this case the defendant). Contracts must bind both
contracting parties, its validity or compliance cannot
be left to the will of one of them (Art. 1308, New Civil
Code).
102. Bucton v. Gabar (1974)
Facts:
Plaintiff Nicanora Gabar Bucton (wife of her co-
plaintiff Felix Bucton) is the sister of defendant Zosimo
Gabar (husband of his co-defendant Josefina Llamoso
Gabar). Plaintiffs' evidence tends to show that
sometime in 1946 defendant Josefina Llamoso Gabar
bought the above-mentioned land from the Spouses
Villarin on installment basis, to wit, P500 down, the
balance payable in installments. Josefina entered into a
verbal agreement with her sister-in-law, plaintiff
Nicanora Gabar Bucton, that the latter would pay one-
half of the price (P3,000) and would then own one-half
of the land. Pursuant to this understanding Nicanora on
January 19, 1946 gave her sister-in-law Josefina the
initial amount of P1,000, for which the latter signed a
receipt (Exh. A). Subsequently, on May 2, 1948
Nicanora gave Josefina P400. She later signed another
receipt. On July 30, 1951 plaintiffs gave defendants
P1,000 in concept of loan, for which defendant Zosimo
Gabar again signed a receipt. Meanwhile, after Josefina
had received in January 1946 the initial amount of
P1,000 as above stated, plaintiffs took possession of
the portion of the land indicated to them by defendants
and built a modest nipa house therein. About two years
later plaintiffs built behind the nipa house another
house for rent. And, subsequently, plaintiffs
demolished the nipa house and in its place constructed
a house of strong materials, with three apartments in
the lower portion for rental purposes. Plaintiffs
occupied the upper portion of this house as their
residence, until July 1969 when they moved to another
house, converting and leasing the upper portion as a
dormitory. In January 1947 the Spouses Villarin
executed the deed of sale of the land abovementioned
in favor of defendant Josefina Llamoso Gabar, to whom
was issued on June 20, 1947 TCT No. II, cancelling OCT
No. 6337. Plaintiffs then sought to obtain a separate
title for their portion of the land in question.
Defendants repeatedly declined to accommodate
plaintiffs; their excuse was that the entire land was still
mortgaged with the Philippine National Bank as
guarantee for defendants' loan of P3,500 contracted on
June 16, 1947. Plaintiffs continued enjoying their
portion of the land, planting fruit trees and receiving
the rentals of their buildings. In 1953, with the consent
of defendants (who were living on their portion),
plaintiffs had the entire land surveyed and subdivided
preparatory to obtaining their separate title to their
portion. After the survey and the planting of the
concrete monuments, defendants erected a fence from
point 2 to point 4 of the plan which is the dividing line
between the portion pertaining to defendants and that
pertaining to plaintiffs. In the meantime, plaintiffs
continued to insist on obtaining their separate title.
Defendants remained unmoved, giving the same
excuse. Frustrated, plaintiffs were compelled to employ
Atty. Bonifacio Regalado to intercede; counsel tried but
failed. Plaintiffs persevered, this time employing Atty.
Aquilino Pimentel, Jr. to persuade defendants to comply
 Civil Law Review II Case Digests
with their obligation to plaintiffs; this, too, failed.
Hence, this case, which has cost plaintiffs P1,500 in
attorney's fees. Defendants' evidence based only on
the testimony of defendant Josefina Llamoso Gabar
denies agreement to sell to plaintiffs one-half of the
land in litigation. She declared that the amounts she
had received from plaintiff Nicanora Gabar Bucton
first, P1,000, then P400 were loans, not payment of
one-half of the price of the land (which was P3,000).
The RTC ruled in favor of the plaintiffs, but the CA
reversed the judgment of the trial court and ordered
petitioners' complaint dismissed stating that the
plaintiffs' action to enforce the alleged written contract
(Exh. A) was not brought within the prescriptive period
of ten (10) years from the time the cause of action
accrued.
Issue: Whether or not the plaintiffs action has already
prescribed.
Held: No. There is no question that petitioner Nicanora
Gabar Bucton paid P1,500.00 to respondent Josefina
Gabar as purchase price of one-half of the lot now
covered by TCT No. II, for respondent Court of Appeals
found as a fact "that plaintiffs really paid for a portion
of the lot in question pursuant to their agreement with
the defendants that they would own one-half (1/2) of
the land". That sale, although not consigned in a public
instrument or formal writing, is nevertheless valid and
binding between petitioners and private respondents,
for the time-honored rule is that even a verbal contract
of sale or real estate produces legal effects between
the parties. Although at the time said petitioner paid
P1,000.00 as part payment of the purchase price on
January 19, 1946, private respondents were not yet the
owners of the lot, they became such owners on January
24, 1947, when a deed of sale was executed in their
favor by the Villarin spouses. In the premises, Article
1434 of the Civil Code, which provides that "when a
person who is not the owner of a thing sells or
alienates and delivers it, and later the seller or grantor
acquires title thereto, such title passes by operation of
law to the buyer or grantee", is applicable. Thus, the
payment by petitioner by Nicanora Gabar Bucton of
P1,000.00 on January 19, 1946, her second payment of
P400.00 on May 2, 1948, and the compensation, up to
the amount of P100.00 (out of the P1,000.00-loan
obtained by private respondents from petitioners on
July 30, 1951), resulted in the full payment of the
purchase price and the consequential acquisition by
petitioners of ownership over one-half of the lot.
Petitioners therefore became owners of the one-half
portion of the lot in question by virtue of a sale which,
though not evidenced by a formal deed, was
nevertheless proved by both documentary and parole
evidence.
The error of respondent Court of Appeals in holding
that petitioners' right of action had already prescribed
stems from its belief that the action of petitioners is
based on the receipt Exh. "A" which was executed way
back on January 19, 1946, and, therefore, in the view of
said appellate court, since petitioners' action was filed
on February 15, 1968, or after the lapse of twenty-two
(22) years and twenty-six (26) days from, the date of
said document, the same is already barred according
to the provisions of Article 1144 of the New Civil Code.
The aforecited document (Exh. "A"), as well as the
other documents of similar import, are the receipts
issued by private respondents to petitioners,
evidencing payments by the latter of the purchase
price of one-half of the lot. The real and ultimate basis
of petitioners' action is their ownership of one-half of
the lot coupled with their possession thereof, which
entitles them to a conveyance of the property. In
Sapto, et al. v. Fabiana, this Court, speaking thru Mr.
Justice J.B.L. Reyes, explained that, under the
circumstances no enforcement of the contract is
needed, since the delivery of possession of the land
sold had consummated the sale and transferred title to
the purchaser, and that, actually, the action for
conveyance is one to quiet title, i.e., to remove the
cloud upon the appellee's ownership by the refusal of
the appellants to recognize the sale made by their
predecessors. We held therein that "... it is an
established rule of American jurisprudence (made
applicable in this jurisdiction by Art. 480 of the New
Civil Code) that actions to quiet title to property in the
possession of the plaintiff are imprescriptible.
103. Olaco v. CA (1993)
Facts:
This Case involves half-sisters each claiming
ownership over a parcel of land. While petitioner Emilia
O'Laco asserts that she merely left the certificate of
title covering the property with private respondent O
Lay Kia for safekeeping, the latter who is the former's
older sister insists that the title was in her possession
because she and her husband bought the property
from their conjugal funds. The trial court declared that
there was no trust relation of any sort between the
sisters. The Court of Appeals ruled otherwise. Hence,
the instant petition for review on certiorari of the
decision of the appellate court together with its
resolution denying reconsideration.
Issues:
1. Whether a resulting trust was intended by
them in the acquisition of the property.
2. Whether prescription has set in.
Held:
1. Yes. By definition, trust relations between parties
may either be express or implied. Express trusts are
those which are created by the direct and positive acts
of the parties, by some writing or deed, or will, or by
words evincing an intention to create a trust. Implied
trusts are those which, without being express, are
deducible from the nature of the transaction as matters
of intent, or which are superinduced on the transaction
by operation of law as matters of equity, independently
of the particular intention of the parties. Implied trusts
may either be resulting or constructive trusts, both
coming into being by operation of law. A resulting trust
was indeed intended by the parties under Art. 1448 of
the New Civil Code which provides: There is an
implied trust when property is sold, and the legal
estate is granted to one party but the price is paid by
another for the purpose of having the beneficial
 Civil Law Review II Case Digests
interest of the property. The former is the trustee, while
the latter is the beneficiary.
2. As differentiated from constructive trusts, where
the settled rule is that prescription may supervene, in
resulting trust, the rule of imprescriptibility may apply
for as long as the trustee has not repudiated the trust.
Once the resulting trust is repudiated, however, it is
converted into a constructive trust and is subject to
prescription.
A resulting trust is repudiated if the following
requisites concur: (a) the trustee has performed
unequivocal acts of repudiation amounting to an ouster
of the cestui qui trust; (b) such positive acts of
repudiation have been made known to the cestui qui
trust; and, (c) the evidence thereon is clear and
convincing.
In Tale v. Court of Appeals, the Court categorically
ruled that an action for reconveyance based on an
implied or constructive trust must perforce prescribe in
ten (10) years, and not otherwise, thereby modifying
previous decisions holding that the prescriptive period
was four (4) years. Neither the registration of the
Oroquieta property in the name of petitioner Emilia
O'Laco nor the issuance of a new Torrens title in 1944
in her name in lieu of the alleged loss of the original
may be made the basis for the commencement of the
prescriptive period. For, the issuance of the Torrens
title in the name of Emilia O'Laco could not be
considered adverse, much less fraudulent. Precisely,
although the property was bought by respondent-
spouses, the legal title was placed in the name of
Emilia O'Laco. The transfer of the Torrens title in her
name was only in consonance with the deed of sale in
her favor. Consequently, there was no cause for any
alarm on the part of respondent-spouses. As late as
1959, or just before she got married, Emilia continued
to recognize the ownership of respondent-spouses over
the Oroquieta property. Thus, until that point,
respondent-spouses were not aware of any act of
Emilia which would convey to them the idea that she
was repudiating the resulting trust. The second
requisite is therefore absent. Hence, prescription did
not begin to run until the sale of the Oroquieta
property, which was clearly an act of repudiation. But
immediately after Emilia sold the Oroquieta property
which is obviously a disavowal of the resulting trust,
respondent-spouses instituted the present suit for
breach of trust. Correspondingly, laches cannot lie
against them. After all, so long as the trustee
recognizes the trust, the beneficiary may rely upon the
recognition, and ordinarily will not be in fault for
omitting to bring an action to enforce his rights. There
is no running of the prescriptive period if the trustee
expressly recognizes the resulting trust. Since the
complaint for breach of trust was filed by respondent-
spouses two (2) months after acquiring knowledge of
the sale, the action therefore has not yet prescribed.
WHEREFORE, the Petition for Review on Certiorari
is DENIED. The Decision of the Court of Appeals of 9
April 1981, which reversed the trial court, is AFFIRMED.
Costs against petitioners.
104. Chiao Sing Tan v. CA (1993)
Facts:
Petitioner claims to be the owner of a motor
vehicle, Isuzu Elf van, relying on the Certificate of
Registration in his name. He claims that he sent his
brother to look and purchase a car which the latter did.
However, the brother is claiming ownership on the van.
The brothers contention is that the purchase money
was from the loan he acquired from a friend-lender. He
asked petitioner to purchase the van and gave him the
downpayment (P5,000). This is the reason why the car
is registered in petitioners name. However, the
balance (P133,000) was paid by respondent himself.
The friend-lender and an Isuzu Motors employee
corroborated the claim of the respondent. Petitioner
files action of replevin. He lost in the lower courts. He
appeals to overturn the order of replevin by proving
ownership.
Issue: Whether or not ownership may be decided in a
replevin case.
Held: Yes. A certificate of registration creates a strong
presumption of ownership. But such is rebuttable by
competent proof. In this case, it is undeniable that an
IMPLIED TRUST has been created in the name of
petitioner (The court was able to conclude this because
it affirmed the allegations of respondent). Replevin is
possessory in character and determines nothing more
than the right of possession. However, when the title to
the property is distinctly put in issue by the
defendants plea and by reason of the policy to settle
in one action all the conflicting claims of the parties to
the possession of the property in controversy, the
question of ownership may be resolved in the same
proceeding. In this case, the ownership was established
through evidence and testimonies presented by
defendant. Also, replevin is sufficiently flexible to
authorize a settlement of all equities between the
parties, arising from or growing out of the main
controversy. Hence, the winning party may in the same
court procure relief for the return of the property.
105. Gicano v. Gegato
Facts:
Petitioner claims to be the owner of a motor
vehicle, Isuzu Elf van, relying on the Certificate of
Registration in his name. He claims that he sent his
brother to look and purchase a car which the latter did.
However, the brother is claiming ownership on the van.
The brothers contention is that the purchase money
was from the loan he acquired from a friend-lender. He
This case concerns a rather large tract of land, with an
area of 225,322 square meters, situated in Hinigaran,
Negros Occidental. The land, known as Lot 818, was
originally owned, at least as far as this case is
concerned, by two co-owners in equal shares: (1)
Maximo Juanico, married to Rosa Gegato, and (2)
Matilde Geolingo, married to Dionisio Mongcal. Their
co-ownership was so set out in their certificate of title,
TCT No. 30009. Maximo Juanico died on May 21, 1942,
survived by his wife, the aforenamed Rosa Gegato, and
three (3) minor children: Presentacion, Resurreccion,
and Catalina. The other co-owner, Matilde Geolingo,
and her husband, Dionisio Mongcal, also died; and their
only child, Loreto Mongcal, executed an affidavit
 Civil Law Review II Case Digests
adjudicating to herself, as sole heir, her mother's one-
half (1/2) share in Lot 818. That share she sold on
December 14, 1951 to Rosa Gicano. In virtue thereof,
TCT No. 30009 of the original co-owners was cancelled
and a new one, TCT No. 8878, was issued in the names
of (1) Maximo Juanico, married to Rosa Gegato (1/2
share) and (2) Rosa Gicano, married to Gorgonio
Geollegue (1/2 share). On August 23, 1952, a
document was executed which gave rise to the
controversy at bar. That document purported to be a
Deed of Sale, or more properly, a deed of dacion en
pago de deuda, intended to satisfy a debt of P2,333.33
of the late Maximo Juanico to Rosa Gicano by the
conveyance, according to the express terms of the
document, of said Maximo Juanico's one-half (1/2)
share in Lot 818. It was signed by Rosa Gegato and her
second husband, Raymundo Pundon. The latter took
part in the transaction as judicial guardian of two (2) of
Rosa's surviving minor children, Resurreccion and
Catalina the third, Presentacion, having earlier died
without issue. It was acknowledged by them before
Notary Public Vicente T. Remitio. The sale was
registered, TCT No. 8878 was cancelled, and on
September 8, 1952 the Register of Deeds issued TCT
No. 10189, covering the entirety of Lot 818, solely in
the name of Rosa Gicano, married to Gorgonio
Geollegue. Twenty-three (23) years afterwards, or on
February 13, 1976, Rosa Gegato and her daughters,
Resurreccion and Catalina, brought an action in the
Court of First Instance of Negros Occidental against
Rosa Gicano and her husband, Gorgonio Geollegue, to
compel the latter to reconvey Lot No. 818 to them
and/or pay damages. Rosa Gegato and her daughters
alleged that it had never been their intention to
transfer the entire one-half (1/2) share in Lot No. 818 to
Rosa Gicano in payment of Maximo Juanico's debt in
the sum of P2,333.33, but only one-third of the share of
the minors in said undivided half of the property; that
they were deceived into believing that it was only this
one-third interest which was really being conveyed by
the Deed of Sale of August 23, 1952, and it was on that
understanding that Rosa Gegato and her minor
children's judicial guardian, Raymundo Pundon, had
signed the deed, both of them being unable to read
and write English; that they discovered the fraud
perpetrated on them only in 1975, when they hired a
surveyor to partition the property and the latter
informed them that title to Lot No. 818 had long since
issued solely in the name of Nenita Geollegue, who had
purchased it from her mother, Rosa Gegato Geollegue
and had mortgaged the lot to the Philippine
Commercial and Industrial Bank as security for a loan
of P156,000.00.
Rosa Gicano and her co-defendants filed a motion
to dismiss the complaint alleging as grounds therefor,
plaintiffs' lack of cause of action, laches, estoppel, and
prescription. The Trial Court promulgated an Order
dismissing the complaint on the ground of prescription
and laches. It opined that the action, being one for
reconveyance predicated on an implied trust,
prescribed in 10 years, commencing from the date that
the initial document of transfer was registered and title
issued; and since 23 years had already elapsed on the
day of the institution of the action at bar, reckoned
from the registration of the deed of sale and issuance
of title, the suit was time-barred. The Trial Court's
Order was however reversed by the Court of Appeals
declaring that the outright dismissal of complaint on
the ground of prescription was premature and violative
of due process because it denied the parties the
opportunity to prove their claims and defenses.
Issue: Whether or not prescription has set in.
Held: Yes, because the action instituted by the
plaintiffs Rosa Gegato, et al. was not one to declare the
deed of sale of August 23, 1952 void ab initio, for lack
of cause or object in accordance with Article 1409 of
the Civil Code, which is really imprescriptible, but to
annul it on account of fraud, on the theory of
constructive trust, which prescribes in ten (10) years.
In the case at bar, Rosa Gegato and her minor children
by her deceased husband, Maximo Juanico (said
children being represented by their judicial guardian,
Raymundo Pundon) had executed a deed of sale and
acknowledged it before a notary public which, upon its
face, transferred the entirety of Maximo Juanico's right,
share and interest in Lot 181 to Rosa Gicano. Now, if it
be true that they were deceived into executing that
deed of sale by Rosa Gicano, who taking advantage of
their ignorance had made them believe that the deed
conveyed only 1/3 of the children's share in their
inheritance from their father, they certainly had the
right to sue Rosa Gicano, and after presenting evidence
of the fraud perpetrated upon them, recover so much
of the property as they had never intended to transfer,
and recover the damages thereby suffered by them.
But they certainly did not have all the time in the world
to bring that suit. They had to do it within ten (10)
years from the issuance to Rosa Gicano of title to the
property on the strength of the supposedly fraudulent
deed of sale. They did not file their action within this
statutory period. They filed it only after twenty-three
(23) years. When filed, their action had already been
extinguished by prescription. They had slept on their
rights. Time eroded their right of action and ultimately
erased it, as a sand castle on a shore is slowly and
inexorably obliterated by the rising tide. Their action
was therefore correctly dismissed, even without a trial
on the merits being first had. We have ruled that trial
courts have authority and discretion to dismiss an
action on the ground of prescription when the parties'
pleadings or other facts on record show it to be indeed
time-barred. What is essential only, to repeat, is that
the facts demonstrating the lapse of the prescriptive
period, be otherwise sufficiently and satisfactorily
apparent on the record: either in the averments of the
plaintiffs complaint, or otherwise established by the
evidence.
106. Sps. Cruz v. Fernando (2005)
Facts:
Petitioners are occupants of the front portion of a
property in Baliuag, Bulacan. In 1994, respondents filed
RTC a complaint for accion publiciana against
petitioners, demanding the latter to vacate the
premises and pay the rentals.
 Civil Law Review II Case Digests
Respondent alleged that prior to their acquisition of
the property, the original owners, in a Kasunduan,
offered to sell the property to petitioners but the latter
failed to purchase it, hence, they were the ones who
bought it.
Petitioners filed a motion to dismiss but the RTC
dismissed it for lack of merit. They assert that the
Kasunduan is perfected contract of sale, hence,
respondents are buyers in bad faith having bought that
portion of the property despite the knowledge of the
prior sale to them.
However, the RTC ruled in favor of respondents. On
appeal before the CA, the appelate court affirmed the
decision of the RTC. Hence, this present case.
Issue: Whether or not the Kasunduan was a valid
contract of sale.
Held: No. Under Article 1458 of the Civil Code, a
contract of sale is a contract by which one of the
contracting parties obligates himself to transfer the
ownership and to deliver a determinate thing, and the
other to pay therefor a price certain in money or its
equivalent. Article 1475 of the Code further provides
that the contract of sale is perfected at the moment
there is meeting of the minds upon the thing which is
the object of the contract and upon the price. From
that moment the parties may reciprocally demand
performance subject to the provisions of the law
governing the form of contracts. In a contract of sale,
the title to the property passes to the vendee upon the
delivery of the thing sold, as distinguished from a
contract to sell where ownership is, by agreement,
reserved in the vendor and is not to pass to the vendee
until full payment of the purchase price. Otherwise
stated, in a contract of sale, the vendor loses
ownership over the property and cannot recover it until
and unless the contract is resolved or rescinded;
whereas, in a contract to sell, title is retained by the
vendor until full payment of the price. In the latter
contract, payment of the price is a positive suspensive
condition, failure of which is not a breach but an event
that prevents the obligation of the vendor to convey
title from becoming effective.
The Kasunduan provides for the following terms
and conditions: (a) that the Gloriosos agreed to sell to
petitioners a portion of the property with an area of
213 meters at the price of P40.00 per square meter;
(b) that in the title that will be caused to be issued, the
aggregate area is 223 square meters with 10 meters
thereof serving as right of way; (c) that the right of way
shall have a width of 1.75 meters from Lopez Jaena
road going towards the back of the lot where
petitioners will build their house on the portion of the
lot that they will buy; (d) that the expenses for the
survey and for the issuance of the title will be divided
between the parties with each party giving an amount
of no less than P400.00; and (e) that petitioners will
definitely relocate their house to the portion they
bought or will buy by January 31, 1984.
The foregoing terms and conditions show that it is
a contract to sell and not a contract of sale. For one,
the conspicuous absence of a definite manner of
payment of the purchase price in the agreement
confirms the conclusion that it is a contract to sell. This
is because the manner of payment of the purchase
price is an essential element before a valid and binding
contract of sale can exist. Although the Civil Code does
not expressly state that the minds of the parties must
also meet on the terms or manner of payment of the
price, the same is needed, otherwise there is no sale.
As held in Toyota Shaw, Inc. vs. Court of Appeals, a
definite agreement on the manner of payment of the
price is an essential element in the formation of a
binding and enforceable contract of sale.
For another, the telltale provision in the Kasunduan
that: Na pumayag ang mga maysumbong na pagbilhan
ang mga ipinagsumbong na bahagi ng lupa at ang
ipagbibili ay may sukat na 213 metrong parisukat
humigit kumulang sa halagang P40.00 bawat metrong
parisukat, simply means that the Gloriosos only agreed
to sell a portion of the property and that the portion to
be sold measures 213 square meters.
107. Sps. Pingol v. CA (1993)
Facts:
Vicente Pingol was the owner of a parcel of land in
Caloocan. In 1969, he executed a Deed of Absolute
Sale of half of the land in favor of Francisco Donasco
payable in monthly installments for six years beginning
January 1970. Donasco, however, was only able to pay
up to 1972. And in 1984, Donasco died. At the time of
his death, he had paid P8,369.00, plus P2,000.00
advanced payment, leaving a balance of P10,161.00.
The heirs of Donasco filed an action for specific
performance against Pingol, alleging that they tried to
pay for the remaining balance, but Pingol was
demanding an unreasonable amount.
The RTC ruled in favor of Pingol, holding that the
contract entered into between Pingol and Donasco was
actually a contract to sell. The CA reversed the RTC,
finding that the contract was a contract of sale.
Issue: Whether or not the contract between Pingol and
Donasco is a contract of sale.
Held: Yes. A perusal of Exhibit "A" leads to no other
conclusion than that it embodies a contract of sale. The
plain and clear tenor of the "DEED OF ABSOLUTE SALE
OF ONE-HALF (1/2) [OF] AN UNDIVIDED PORTION OF A
PARCEL OF LAND" is that "the VENDOR hereby . . .
SELL, CONVEY AND CONVEY by way Absolute Sale the
one-half (1/2) portion . . . to the VENDEE . . . his heirs,
assigns and successors-in-interest." That the vendor,
petitioner Vicente Pingol, had that clear intention was
further evidenced by his failure to reserve his title
thereto until the full payment of the price.
The delivery of the object of the contract divested
the vendor of the ownership over the same and he
cannot recover the title unless the contract is resolved
or rescinded pursuant to Article 1592 of the New Civil
Code which provides that: In the sale of immovable
property, even though it may have been stipulated that
upon failure to pay the price at the time agreed upon
the rescission of the contract shall of right take place,
the vendee may pay, even after the expiration of the
period, as long as no demand for rescission of the
 Civil Law Review II Case Digests
contract has been made upon him either judicially or
by a notarial act. After the demand, the court may not
grant him a new term.
Both the trial court and the Court of Appeals did
not find that a notarial or judicial rescission of the
contract had been made. Although Vicente Pingol
asserts that he had declared to Francisco Donasco that
he was cancelling the contract, he did not prove that
his demand for rescission was made either judicially or
by a notarial act.
Petitioners fault the respondent Court for holding
that the action of the petitioners is not barred by the
statute of limitations. They argue that the private
respondents' action, being based upon a written
contract, has prescribed since it was brought only in
1988 or more than ten years from the time when the
latter could have lawfully demanded performance. We
disagree. Although the private respondents' complaint
before the trial court was denominated as one for
specific performance, it is in effect an action to quiet
title. In this regard, the following excerpt from Bucton
vs. Gabar is apropos: The real and ultimate basis of
petitioners' action is their ownership of one- half of the
lot coupled with their possession thereof, which entitles
them to a conveyance of the property. In Sapto, et al. v.
Fabiana [103 Phil. 683, 686-87 (1958)], this Court,
speaking thru Mr. Justice J.B.L. Reyes, explained that
under the circumstances no enforcement of the
contract is needed, since the delivery of possession of
the land sold had consummated the sale and
transferred title to the purchaser, and that, actually,
the action for conveyance is one to quiet title, i.e., to
remove the cloud upon the appellee's ownership by the
refusal of the appellants to recognize the sale made by
their predecessors.
Prescription thus cannot be invoked against the
private respondents for it is aphoristic that an action to
quiet title to property in one's possession is
imprescriptible.
108. Vda. De Portugal v. IAC (1988)
Facts:
Spouses Cornelia and Pascual Portugal owned
several parcels of land in Cavite. Sometime in 1967,
private respondent Hugo Portugal, a son of Cornelia
and Pascual, borrowed the certificates of title to the
Cavite lands on the pretext that he had to use them in
securing a loan that he was negotiating. Cornelia, the
loving and helpful mother that she was, assented and
delivered the titles to her son. After Pascual died in
1974, Cornelia asked Hugo for the return of the titles
for the purpose of collation. But Hugo informed her that
the titles no longer existed, and new titles were issued
in his name on the basis of a falsified deed of sale.
In 1976, Cornelia and her other children filed an
action for the annulment of the falsified deed of sale.
The RTC ruled in favor Cornelia, but the IAC
reversed on the ground that the action, which was one
for annulment of a fraudulent contract, had already
prescribed after 4 years counted from Jan. 23, 1967
when the assailed deed of sale was registered.
Issue: Whether or not the action has prescribed.
Held: No. The case at bar is not purely an action for
reconveyance based on an implied or constructive
trust, as found by the RTC. Neither is it one for the
annullment of a fraudulent contract. A closer scrutiny
of the records of the case readily supports a finding
that fraud and mistake are not the only vices present in
the assailed contract of sale as held by the trial court.
More than these, the alleged contract of sale is vitiated
by the total absence of a valid cause or consideration.
The petitioners in their complaint, assert that they,
particularly Cornelia, never knew of the existence of
the questioned deed of sale. They claim that they
came to know of the supposed sale only after the
private respondent, upon their repeated entreaties to
produce and return the owner's duplicate copy of the
transfer certificate of title covering the two parcels of
land, showed to them the controversial deed. And their
claim was immeasurably bolstered when the private
respondent's co-defendant below, his brother Emiliano
Portugal, who was allegedly his co-vendee in the
transaction, disclaimed any knowledge or participation
therein. If this is so, and this is not contradicted by the
decisions of the courts below, the inevitable implication
of the allegations is that contrary to the recitals found
in the assailed deed, no consideration was ever paid at
all by the private respondent. Applying the provisions
of Articles 1350, 1352, and 1409 of the new Civil Code
in relation to the indispensable requisite of a valid
cause or consideration in any contract, and what
constitutes a void or inexistent contract, we rule that
the disputed deed of sale is void ab initio or inexistent,
not merely voidable. And it is provided in Article 1410
of the Civil Code, that '(T)he action or defense for the
declaration of the inexistence of a contract does not
prescribe.
But even if the action of the petitioners is for
reconveyance of the parcel of land based on an implied
or constructive trust, still it has been seasonably filed.
For as heretofore stated, it is now settled that actions
of this nature prescribe in ten years, the point of
reference being the date of registration of the deed or
the date of the issuance of the certificate of title over
the property. In this case, the petitioner commenced
the instant action for reconveyance in the trial court on
October 26, 1976, or less than ten years from January
23, 1967 when the deed of sale was registered with the
Register of Deeds. Clearly, even on this basis alone,
the present action has not yet prescribed.
109. Sanchez v. Rigos (1972)
Facts:
In an instrument entitled "Option to Purchase,"
executed on April 3, 1961, defendant-appellant
Severina Rigos "agreed, promised and committed ... to
sell" to plaintiff-appellee Nicolas Sanchez for the sum
of P1,510.00 within two (2) years from said date, a
parcel of land situated in the barrios of Abar and Sibot,
San Jose, Nueva Ecija. It was agreed that said option
shall be deemed "terminated and elapsed," if Sanchez
shall fail to exercise his right to buy the property"
within the stipulated period. On March 12, 1963,
Sanchez deposited the sum of Pl,510.00 with the CFI of
 Civil Law Review II Case Digests
Nueva Ecija and filed an action for specific
performance and damages against Rigos for the
latters refusal to accept several tenders of payment
that Sanchez made to purchase the subject land.
Defendant Rigos contended that the contract
between them was only a unilateral promise to sell,
and the same being unsupported by any valuable
consideration, by force of the New Civil Code, is null
and void." Plaintiff Sanchez, on the other hand, alleged
in his compliant that, by virtue of the option under
consideration, "defendant agreed and committed to
sell" and "the plaintiff agreed and committed to buy"
the land described in the option. The lower court
rendered judgment in favor of Sanchez and ordered
Rigos to accept the sum Sanchez judicially consigned,
and to execute in his favor the requisite deed of
conveyance. The Court of Appeals certified the case at
bar to the Supreme Court for it involves a question
purely of law.
Issue: Was there a contract to buy and sell between
the parties or only a unilateral promise to sell?
Held: The Supreme Court affirmed the lower courts
decision. The instrument executed in 1961 is not a
"contract to buy and sell," but merely granted plaintiff
an "option" to buy, as indicated by its own title "Option
to Purchase." The option did not impose upon plaintiff
Sanchez the obligation to purchase defendant Rigos'
property. Rigos "agreed, promised and committed"
herself to sell the land to Sanchez for P1,510.00, but
there is nothing in the contract to indicate that her
aforementioned agreement, promise and undertaking
is supported by a consideration "distinct from the
price" stipulated for the sale of the land. The lower
court relied upon Article 1354 of the Civil Code when it
presumed the existence of said consideration, but the
said Article only applies to contracts in general.
However, it is not Article 1354 but the Article 1479
of the same Code which is controlling in the case at bar
because the latters 2nd paragraph refers to "sales" in
particular, and, more specifically, to "an accepted
unilateral promise to buy or to sell." Since there may
be no valid contract without a cause or consideration,
the promisor is not bound by his promise and may,
accordingly, withdraw it. Pending notice of its
withdrawal, his accepted promise partakes, however,
of the nature of an offer to sell which, if accepted,
results in a perfected contract of sale. Upon mature
deliberation, the Court reiterates the doctrine laid
down in the Atkins case and deemed abandoned or
modified the view adhered to in the Southwestern
Company case.
110. Sps. Rosario v. PCI Leasing and Finance Inc.
(2005)
Facts:
Petitioners spouses Rosario bought an Isuzu Elf
Pick-up Ultility vehicle from CarMerchants, Inc. The
transaction was covered by a Purchase Agreement
whereby the spouses undertook to make a
downpayment of P190,000.00 of the total purchase
price of P380,000.00. The spouses then applied for a
loan with respondent PCI Leasing to pay for the
balance of P190,000.00. To secure the payment of the
loan, they executed, on the same day, a Chattel
Mortgage in favor of PCI Leasing over the Isuzu Elf.
However, petitioners failed to pay the amortizations,
prompting respondent to file a complaint for sum of
money with a prayer for a writ of replevin against
petitioners. The RTC issued an order for the issuance of
a writ of replevin, causing the turnover of the Isuzu
vehicle to respondent.
In their Answer to the complaint, the spouses
Rosario alleged that the chattel mortgage they
executed in favor of PCI Leasing covering the motor
vehicle was in effect a contract of sale of personal
property, payable in installments to be governed by
Article 1484 of the New Civil Code of the Philippines.
They further alleged that since PCI Leasing opted to
foreclose the chattel mortgage, it was estopped from
collecting the balance of their account under the
promissory note and chattel mortgage. Moreover,
petitioners argued that CarMerchants, Inc. had
assigned to PCI Leasing its right to collect the balance
of the purchase price of the motor vehicle; hence, it
was subrogated to the rights of CarMerchants, Inc.,
subject to the limitations and burdens provided for by
law. The spouses Rosario maintained that, by securing
a writ of replevin from the RTC, PCI Leasing had opted
to foreclose the chattel mortgage under Article 1484 of
the New Civil Code; thus, it was barred from suing for
the unpaid balance of the purchase price of the
vehicle.
Issue: Whether or not respondent is barred from suing
for the unpaid balance of the purchase price of the
vehicle.
Held: No. On the first issue, there is no factual basis
for the petitioners claim that CarMerchants, Inc. had
assigned its rights to collect the balance of the
purchase price to the respondent. The fact of the
matter is that the petitioners admitted in their petition
at bench that they were declared in default and failed
to prove such claim. The evidence on record clearly
shows that the petitioners secured a loan from the
respondent to pay the P190,000.00 balance to
CarMerchants, Inc., and even executed a promissory
note evidencing their loan in favor of the respondent.
The petitioners forthwith executed a chattel mortgage
in favor of the respondent over the vehicle as security
for the payment of their loan and the interests thereon.
It bears stressing that, under Article 1625 of the New
Civil Code, an assignment of credit, right or action
must appear in a public document to bind third
persons. There is no evidence on record to prove that
Car Merchants, Inc. executed such a deed, assigning its
right to collect the balance of the purchase price of the
vehicle from the petitioners; hence, Article 1484 of the
New Civil Code does not apply in this case. Even a
cursory reading of the respondents complaint in the
RTC will readily show that the respondent did not allege
that it was the assignee of CarMerchants, Inc. insofar
as the right to collect the balance of the purchase price
of the vehicle from the petitioners was concerned.
Neither did the respondent adduce any evidence that it
was such assignee. The respondent sued the
petitioners for sum of money with prayer for a writ of
 Civil Law Review II Case Digests
replevin based on the promissory note and the chattel
mortgage executed by the petitioners in its favor.
Even assuming that the respondent is the assignee
of CarMerchants, Inc. and that Article 1484 of the New
Civil Code is applicable, it is not proscribed from suing
the petitioners for their unpaid balance. The fact of the
matter is that the respondent did not foreclose the
chattel mortgage, but opted to sue the petitioners for
the balance of their account under the promissory
note, with a plea for a writ of replevin. By securing a
writ of replevin, the respondent did not thereby
foreclose the chattel mortgage.
111. Fornilda v. RTC (1989)
Facts:
The estate of Julio Catolos was the subject of
settlement with the CFI of Rizal. On Jan. 12, 1965, the
CFI approved the project of partition, but it was not
until Aug. 6 1969 when the estate was declared closed
and terminated after estate and inheritance taxes had
been paid, the claims against the estate settled and all
properties adjudicated. Meanwhile, on Jan. 20, 1965,
the heirs of Julio executed a mortgaged the lands
subject of settlement proceedings to Atty. Sergio
Amonoy as security for the payment of his attorneys
fees. Since the mortgage indebtedness was not paid,
on 21 January 1970, Respondent Amonoy instituted
foreclosure proceedings, which the trial court ruled
favorably upon leading to an auction sale wherein
Amonoy was the sole bidder.
In 1973, or a year after the foreclosure judgment,
an action for annulment of judgment (of the foreclosure
proceeding) was filed. Amonoy argued the following:
(1) The transaction involved herein being a mortgage,
Article 1491[51 of the Civil Code does not apply.
Consequently, the mortgage contract executed in favor
of respondent Amonoy is valid; and (2) Article 1491[5]
does not apply to foreclosure sales in favor of
judgment creditors.
Issue: Whether or not the mortgage in favor of
Amonoy void.
Held: Yes. Respondent Amonoy avers that at the time
of the execution of the mortgage on 20 January 1965,
subject properties were no longer "properties in
litigation" since the Project of Partition (as signed by
the intestate heirs) covering said properties was
approved by the lower Court as early as 12 January
1965. This argument must fail for the reason that while
the Project of Partition was approved on 12 January
1965, it was only on 6 August 1969, and after all
charges against the estate had been paid, that the
estate was declared closed and terminated. In fact, by
his own admission, he had acted as counsel from 1959
until 1968 (Comment, p. 145, Rollo). Thus, at the time
of the execution of the mortgage contract, the
Controverted Parcels were still in litigation and a
fiduciary relationship of lawyer and client, which Article
1491[5] precisely seeks to protect, still existed
between the parties. To state that mortgages are not
included within the prohibition is to open the door to an
indirect circumvention of that statutory injunction,
acquisition of the property being merely postponed till
eventual foreclosure.
Respondent asserts further that Article 1491[5]
does not apply to judgment creditors of which, he
claims, he was one. Under ordinary circumstances, the
argument of respondent could be considered plausible.
Unfortunately, however, as heretofore explained, the
mortgage was executed in violation of Article 1491[5]
so that this Article has a direct bearing on this case
and respondent can not escape its provision. Having
violated the same, he cannot be considered in the
general run of a judgment creditor.
Respondent likewise stresses that res judicata
should apply herein since it was a little more than four
(4) years from the 22 July 1981 Decision of the Court of
Appeals in the Annulment Case (CAG.R. No. 63214-R)
when this Petition was filed. Consequently, he contends
that this Petition should be dismissed since it merely
raises the same issues brought up and already
resolved in the earlier case. The question of res
judicata and jurisdiction of the lower Court over the
subject matter of the Foreclosure Case had been amply
discussed in the Decision sought to be reconsidered,
citing the case of Municipality of Antipolo vs. Zapanta
(133 SCRA 822 [1984]), and we find no need to dwell
on them again. Neither of the cases cited by
respondent to support his contention that the lower
Court had jurisdiction over the Foreclosure Case
notwithstanding the invalidity of the mortgage
contract, viz., Florentino vs. Galera (5 SCRA 500 [1962]
and Talosig vs. Vda. de Nieba (43 SCRA 472 [1972]),
refers to a void subject matter over which the Courts
involved could not acquire jurisdiction.
112. Norkis Distributors Inc. v. CA (1991)
Facts:
On September 20, 1979, private respondent
Alberto Nepales bought from the Norkis Distributors,
Inc. (Norkis) in its Bacolod branch a brand new Yamaha
Wonderbike motorcycle Model YL2DX with Engine
No.L2-329401K Frame No.NL2-0329401, color maroon,
which was then on display in the Norkis showroom. The
Branch Manager Avelino Labajo agreed to accept the
P7,500.00 price payable by means of a Letter of
Guaranty from the Development Bank of the
Philippines (DBP), Kabankalan. Hence, credit was
extended to Nepales, and as security for the loan, he
executed a chattel mortgage on the motorcycle in
favor of DBP. Labajo issued the Norkis Sales Invoice No.
0120 perfecting the contract of sale, and Nepales
signed the same to conform to the terms of the sale,
while the unit remained in Norkis' possession. On
November 6, 1979, it was registered under Alberto
Nepales name in the Land Transportation Commission.
On January 22, 1980, the motorcycle was delivered
to a certain Julian Nepales who was allegedly the agent
of Alberto Nepales but the latter denies it. The record
shows, however, that Alberto and Julian Nepales
presented the unit to DBP's Appraiser-Investigator
Ernesto Arriesta at the DBP offices in Kabankalan,
Negros Occidental Branch. On February 3, 1980, the
motorcycle met an accident at Binalbagan, Negros
Occidental while being driven by a certain Zacarias
 Civil Law Review II Case Digests
Payba. The unit was a total wreck, was returned, and
stored inside Norkis' warehouse.
On March 20, 1980, DBP released the proceeds of
private respondent's motorcycle loan to Norkis in the
total sum of P7,500. As the price of the motorcycle
later increased to P7,828 in March, 1980, Nepales paid
the difference of P328 and demanded the delivery of
the motorcycle. Norkis failed to deliver the unit, and
Nepales filed an action for specific performance with
damages in the RTC of Himamaylan, Negros
Occidental. Norkis answered that the motorcycle had
already been delivered to private respondent before
the accident, hence, he should bear the risk of loss or
damage as owner of the unit. The lower court ruled in
favor of Nepales, and the Court of Appeals affirmed the
decision but deleted the award of damages "in the
amount of P50.00 a day from February 3, 1980 until
payment of the present value of the damaged vehicle."
Norkis concedes that there was no "actual" delivery of
the vehicle, but insists that there was constructive
delivery of the unit upon the issuance of the sales
invoice, upon the registration of the unit in Nepales
name, and upon the issuance of the official receipt.
Issue: Who should bear the risk of loss?
Held: Affirming the decision of the Court of Appeals,
the Supreme Court reiterated that Article 1496 of the
Civil Code which provides that "in the absence of an
express assumption of risk by the buyer, the things
sold remain at seller's risk until the ownership thereof
is transferred to the buyer," is applicable in the case at
bar for there was neither an actual nor constructive
delivery of the thing sold.
The Court of Appeals correctly ruled that the
purpose of the execution of the sales invoice dated
September 20, 1979 and the registration of the vehicle
in the name of Alberto Nepales with the Land
Registration Commission was not to transfer the
ownership and dominion over the motorcycle to him,
but only to comply with the requirements of the DBP
for processing private respondent's motorcycle loan.
The circumstances in the case itself more than amply
rebut the disputable presumption of delivery upon
which Norkis anchors its defense to Nepales' action.
113. Gaisano v. ICNA (2006)
Facts:
Intercapitol Marketing Corporation (IMC) and Levi
Strauss (Phils.) Inc. (LSPI) are corporations engaged in
the manufacturing and distribution of clothing
materials. IMC and LSPI separately obtained from
respondent fire insurance policies with book debt
endorsements. The insurance policies provide for
coverage on "book debts in connection with ready-
made clothing materials which have been sold or
delivered to various customers and dealers of the
Insured anywhere in the Philippines." The policies
defined book debts as the "unpaid account still
appearing in the Book of Account of the Insured 45
days after the time of the loss covered under this
Policy." Petitioner is a customer and dealer of the
products of IMC and LSPI. On February 25, 1991, the
Gaisano Superstore Complex in Cagayan de Oro City,
owned by petitioner, was consumed by fire. Included in
the items lost or destroyed in the fire were stocks of
ready-made clothing materials sold and delivered by
IMC and LSPI.
Subsequently, respondent filed a complaint for
damages against petitioner. Respondent alleged that
IMC and LPSI filed with respondent their claims under
their respective fire insurance policies, respondent paid
the claims of IMC and LPSI, and as a consequence
thereof, respondent was subrogated to their rights
against petitioner. In its Answer, petitioner contends
that it could not be held liable because the property
covered by the insurance policies were destroyed due
to fortuitous event or force majeure.
After trial, the RTC rendered a decision dismissing
the complaint of respondent. It ruled that the fire was
purely accidental, thus petitioner could not be held
liable. Furthermore, the trial court ruled that since the
sales invoices covering the products of IMC and LSPI
state that "for purpose of securing the payment of
purchase price, the above-described merchandise
remains the property of the vendor until the purchase
price is fully paid", IMC and LSPI retained ownership of
the delivered goods and must bear the loss. On appeal,
the CA reversed the decision of the trial court and
ordered petitioner to pay respondent. Hence, this
petition.
Issue: Whether or not petition is liable for the unpaid
account.
Held: Yes. The present case clearly falls under
paragraph (1), Article 1504 of the Civil Code: "Where
delivery of the goods has been made to the buyer or to
a bailee for the buyer, in pursuance of the contract and
the ownership in the goods has been retained by the
seller merely to secure performance by the buyer of his
obligations under the contract, the goods are at the
buyer's risk from the time of such delivery."
Thus, when the seller retains ownership only to
insure that the buyer will pay its debt, the risk of loss is
borne by the buyer. Accordingly, petitioner bears the
risk of loss of the goods delivered.
Moreover, it must be stressed that the insurance in
this case is not for loss of goods by fire but for
petitioner's accounts with IMC and LSPI that remained
unpaid 45 days after the fire. Accordingly, petitioner's
obligation is for the payment of money. As correctly
stated by the CA, where the obligation consists in the
payment of money, the failure of the debtor to make
the payment even by reason of a fortuitous event shall
not relieve him of his liability. The rationale for this is
that the rule that an obligor should be held exempt
from liability when the loss occurs thru a fortuitous
event, only holds true when the obligation consists in
the delivery of a determinate thing and there is no
stipulation holding him liable even in case of fortuitous
event. It does not apply when the obligation is
pecuniary in nature.
Under Article 1263 of the Civil Code, "in an
obligation to deliver a generic thing, the loss or
destruction of anything of the same kind does not
extinguish the obligation." If the obligation is generic in
the sense that the object thereof is designated merely
 Civil Law Review II Case Digests
by its class or genus without any particular designation
or physical segregation from all others of the same
class, the loss or destruction of anything of the same
kind even without the debtor's fault and before he has
incurred in delay will not have the effect of
extinguishing the obligation. This rule is based on the
principle that the genus of a thing can never perish.
Genus nunquan perit. An obligation to pay money is
generic; therefore, it is not excused by fortuitous loss
of any specific property of the debtor. Thus, whether
fire is a fortuitous event or petitioner was negligent are
matters immaterial to this case. What is relevant here
is whether it has been established that petitioner has
outstanding accounts with IMC and LSPI.
114. Lawyers Publishing v. Tabora (1965)
Facts:
Perfecto Tabora bought one complete set of
American Jurisprudence from the Lawyers Cooperative
Publishing Company (Lawyers Publishing) for P1,675.50
which, in addition to the cost of freight of P6.90, makes
a total of P1,682.40. Tabora made a partial payment of
P300.00, leaving a balance of P1,382.40. The books
were duly delivered and received by Tabora on May 15,
1955 in his law office in Naga City. But in the midnight
of the same date, a big fire broke out in the locality
which burned several buildings, including Taboras law
office. Thus, the books bought from Lawyers Publishing
were burned. Thereafter, Tabora did not any more pay
for the remaining balance.
Lawyers Publishing filed a collection suit against
Tabora, who invoked force majeure as a defense.
According to Tabora, since it was agreed that the title
to and the ownership of the books shall remain with
the seller until the purchase price shall have been fully
paid, and the books were burned or destroyed
immediately after the transaction, appellee should be
the one to bear the loss for, as a result, the loss is
always borne by the owner. Moreover, even assuming
that the ownership of the books were transferred to the
buyer after the perfection of the contract the latter
should not answer for the loss since the same occurred
through force majeure.
The RTC ruled in favor of Lawyers Publishing.
Issue: Whether or not Tabora is liable for the
remaining balance.
Held: Yes. While as a rule the loss of the object of the
contract of sale is borne by the owner or in case of
force majeure the one under obligation to deliver the
object is exempt from liability, the application of that
rule does not here obtain because the law on the
contract entered into on the matter argues against it. It
is true that in the contract entered into between the
parties the seller agreed that the ownership of the
books shall remain with it until the purchase price shall
have been fully paid, but such stipulation cannot make
the seller liable in case of loss not only because such
was agreed merely to secure the performance by the
buyer of his obligation but in the very contract it was
expressly agreed that the "loss or damage to the books
after delivery to the buyer shall be borne by the buyer."
Any such stipulation is sanctioned by Article 1504 of
our Civil Code, which in part provides: (1) Where
delivery of the goods has been made to the buyer or to
a bailee for the buyer, in pursuance of the contract and
the ownership in the goods has been retained by the
seller merely to secure performance by the buyer of his
obligations under the contract, the goods are at the
buyer's risk from the time of such delivery.
Neither can appellant find comfort in the claim that
since the books were destroyed by fire without any
fault on his part he should be relieved from the
resultant obligation under the rule that an obligor
should be held exempt from liability when the loss
occurs thru a fortuitous event. This is because this rule
only holds true when the obligation consists in the
delivery of a determinate thing and there is no
stipulation holding him liable even in case of fortuitous
event. Here these qualifications are not present. The
obligation does not refer to a determinate thing, but is
pecuniary in nature, and the obligor bound himself to
assume the loss after the delivery of the goods to him.
In other words, the obligor agreed to assume any risk
concerning the goods from the time of their delivery,
which is an exception to the rule provided for in Article
1262 of our Civil Code.
115. Duran v. IAC (2011)
Facts:
Petitioner Duran owned 2 parcels of land. She left
the Philippines in June 1954 and returned in May 1966.
On 1963, a Deed of Sale was made in favor of the
petitioners mother. On December 1965, Durans
mother mortgaged the same property to private
respondent Erlinda Marcelo-Tiangco. When Duran came
to know about the mortgage made by her mother, she
wrote the Register of Deeds informing the latter that
she had not given her mother any authority to sell or
mortgage any of her properties in the Philippines.
Meanwhile, foreclosure proceedings were initiated by
Tiangco upon the failure of Durans mother to redeem
the mortgaged properties. Duran claims that the Deed
of Sale is a forgery, saying that at the time of its
execution in 1963 she was in the United States.
Respondent Court ruled that there is a presumption of
regularity in the case of a public document.
Issue: Whether or not private respondent was a buyer
in good faith and for value.
Held: Yes. Good faith consists in the possessors belief
that the person from who he received the thing was
the owner of the same and could convey his title
(Arriola v. Gomez Dela Serna, 14 Phil. 627). Good faith,
while it is always to be presumed in the absence of
proof to the contrary, requires a well-founded belief
that the person from whom title was received was
himself the owner of the land, with the right to convey
it (Santiago v. Cruz, 19 Phil. 148).
The mortgagee has the right to rely on what
appears in the certificate of title and, in the absence of
anything to excite suspicion, he is under no obligation
to look beyond the certificate and investigate the title
of the mortgagor appearing on the face of the said
certificate. Every person dealing with registered land
may safely rely on the correctness of the certificate of
 Civil Law Review II Case Digests
title issued therefore and the law will in no way oblige
him to go behind the certificate to determine the
condition of the property. If the rule were otherwise,
the efficacy and conclusiveness of the Torrens
Certificate of Titles would be futile and nugatory. Thus
the rule is simple: the fraudulent and forged document
of sale may become the root of a valid title if the
certificate has already been transferred from the name
of the true owner to the name indicated by the forger.
While it is true that under Article 2085 of the Civil
Code, it is essential that the mortgagor be the absolute
owner of the property mortgaged, and while as
between the daughter and her mother, it was the
daughter who still owns the lots, STILL insofar as
innocent third persons are concerned the owner was
already the mother inasmuch as she had already
become the registered owner.
116. Aznar v. Yapdiangco (1965)
Facts:
Teodoro Santos advertised the sale of his FORD
FAIRLANE 500 in a newspaper. On L. De Dios went to
the house of Teodoro and talked to his son Ireneo
Santos and said that his uncle Vicente Marella is
interested in buying the said car. The next day, Ireneo
went to the house of Marella and they agreed to the
price of P14,700 on the understanding that it will be
paid after the car has been registered in the latters
name. A deed of sale was executed and the
registration was changed to the name of Marella.
Ireneo went to Marella to get the payment and deliver
the car who informed him that he is P2,000 short of the
money and that they need to go to his sister to get it.
Ireneo, together with De Dios and an unidentified man
went to a house. Once inside, De Dios asked Ireneo to
wait in the sale. After waiting in vain, he went down
and discovered that the car was gone. Marella was able
to sell the car to plaintiff-appellant Jose Aznar and
while attending to registration, the car was seized by
Phil. Constabulary due to the report of the incident.
Issue: Which of the parties has the better right?
Held: Teodoro Santos has the better right. Marella did
not have any title to the property under litigation
because the same was never delivered to him. He may
have the contract but he never acquired valid title.
Although the keys to the car may have been given to
the unidentified companion, it may be done only
because that companion took them to the place where
the sister of Marella was supposed to live. The car was
evidently stolen and that the buyer did not acquire any
valid title thereto.
Marella never had title to the car as the car wasn't
ever delivered to him. While there was a deed of sale in
his favor, he was only able to obtain possession of the
car since he stole it from Santos. The applicable law is
Article 559. The rule is to the effect that if the owner
has lost a thing, or if he has been unlawfully deprived
of it, he has a right to recover it, not only from its
finder, thief or robber, but also from third persons who
may have acquired it in good faith from such finder,
thief or robber. The said article establishes 2
exceptions to the general rule of irrevindicabiltyto
wit, the owner has lost the thing or has been unlawfully
deprived thereof. In these cases, the possessor cannot
retain the thing as against the owner who may recover
it without paying any indemnity, except when the
possessor acquired it in a public sale. Furthermore, the
common law principle that where one of two innocent
persons must suffer a fraud perpetrated by another,
the law imposes the loss upon the party who, by his
misplaced confidence, has enable the fraud to be
committed, cannot be applied in this case, which is
covered by an express provision of law.
117. Radiowelath v. Palileo (1991)
Facts:
Spouses Castro sold a parcel of unregistered
coconut land in Surigao del Norte to Manuelito Palileo.
The sale is evidenced by a notarized deed of sale and
Palileo exercised acts of ownership through his mother
and also paid real estate taxes. Meanwhile, a judgment
over a civil case was rendered agains Enriqur Castro
ordering him to pay 22K to Radiowealth Finance Co.
Pursuant to this, the provincial sheriff levied upon and
sold in public auction the subject land that was
previously sold to Palileo. A certificate of sale was
issued in favor of Radiowealth being the lone bidder
and after the expiration of the period of redemption, a
deed of final sale was also executed in their favor and
both deeds was registered to the Registry of Deeds.
Issue: Whether or not the sale in public auction is
valid.
Held: Had Art.1544 been applied, the judgment should
be rendered in favor of Radiowealth being the one who
registered the land first. But since the subject land is
an unregistered land, a different rule should apply.
Under Act.3344 mere registration of a sale in one's
favor does not give him any right over the land if the
vendor was not anymore the owner of the land having
previously sold the same to somebody else even if the
earlier sale was unrecorded. Article 1544 of the Civil
Code has no application to land not registered under
the torrens system. It was explained that this is
because the purchaser of unregistered land at a
sheriffs execution sale only steps into the shoes of the
judgment debtor, and merely acquires the latter's
interest in the property sold as of the time the property
was levied upon. As such, the execution sale of the
unregistered land in favor of petitioner is of no effect
because the land no longer belonged to the judgment
debtor as of the time of the said execution sale.
118. Nuguid v. CA (1989)
Facts:
Deceased spouses Victorino and Crisanta dela Rosa
were the registered owners of a parcel. On or about
May 4, 1931, Victorino, widowed by then, sold one-half
of the said property to Juliana Salazar for P95.00.
Though evidenced by a document, such sale was not
registered. Immediately after the sale, Juliana
constructed a house on the lot she purchased.
On March 10, 1964, petitioner spouses Diosdado
Nuguid and Mariqueta Venegas caused the registration
of a document entitled "Kasulatan ng Partihan at
 Civil Law Review II Case Digests
Bilihan"' (Exhibit "D"), dated June 6, 1961. In this
document, Marciana dela Rosa (who is among the
private respondents), Victoria, Ernesto, Virgilio, and
Felicisimo Buenaventura- all heirs of Victorino and
Crisanta dela Rosa- sold to the petitioners the entire
area of the property for the sum of P300.00.
Subsequently, OCT was cancelled and TCT was issued
in the names of the petitioners.
The private respondents claim that Exhibit "D" is a
forged deed. They allegedly discovered the forged
deed and certificate of title in the name of the
petitioners much later, i.e., on February 28, 1978,
when respondents Amorita and Teresita Guevarra
thought of having the title of their grandmother Juliana
Salazar, registered.
On the other hand, the petitioners assert that it
was Nicolas dela Rosa, uncle of respondent Marciana
dela Rosa and grandfather of the other heirs-
signatories to Exhibit "D", who offered the sale to
them. Nicolas promised that he would arrange for a
direct sale to be made by the heirs in favor of the
petitioners. Consequently, Exhibit "D" was executed.
The petitioners stress that even before they decided to
buy the subject property, they made an ocular
inspection thereof and questioned the occupants
therein to verify its real ownership. They underscore
the fact that the persons whom they found occupying
the property did not at all assert adverse ownership
over the same. Trial court dismissed the complaint, CA
reversed.
Issues: (1) Whether or not the entire lot is owned by
the petitioners; (2) Whether or not there was double
sale; and (3) Whether or not the petitioners are
purchasers in good faith.
Held:
(1) Only one-half of the property is owned by the
petitioners while the other half is the subject of this
dispute. The respondent court erred in treating the
private respondents as one group of heirs whose right
is derived from one ancestor, when actually, the
private respondents should be categorized into two
groups. FIRST GROUP: Amorita, Teresita and Narcism,
all surnamed Guevarra and grandchildren of Juliana
Salazar, claiming to have succeeded to the ownership
over the one-half portion of land which was sold to
Juliana Salazar. SECOND GROUP: Marciana dela Rosa,
Bernabe and Julieta Buenaventura who claim to have
derived their ownership over the other half of the
subject property from their predecessors-in-interest,
the original registrants, Victorino and Crisanta dela
Rosa. Respondent CA erred in ruling that all of the
respondents are co-owners of the one-half of the
subject property since, as a matter of fact, respondent
heirs of Victorino dela Rosa (SECOND GROUP) were
claiming a half of the entire property which is separate
and distinct from the other half claimed by the
respondents Guevarras (FIRST GROUP). Note that none
of the private respondents appealed the above
decision of the CA. Thus, they are deemed to have
accepted the said erroneous decision declaring them,
collectively, owners of one-half of the subject property.
In effect, only such one-half portion of the property is
being disputed, since by virtue of the acceptance of
the erroneous decision, it is now settled that the other
one-half portion is the property of the petitioners.
Undoubtedly respondent heirs of Victorino dela Rosa
(SECOND GROUP) are not entitled to any portion of the
disputed property as they failed to prove forgery.
Forgery cannot be presumed. It must be proved. Thus,
Exhibit D being executed with all the legal formalities
of a public document, the legal presumption of the
regularity of the notarized contract was not rebutted
successfully. Likewise, the private respondents'
allegation of absence of consideration of the contract
was not substantiated. Under Art. 1354 of the Civil
Code, it is presumed that consideration exists and is
lawful, unless the debtor proves the contrary. At any
rate, the question of whether or not the signatures of
Marciana and Bernabe were forged would become
irrelevant if, on the other hand, the petitioners are able
to establish that they acquired the subject property in
good faith. For, indeed, an innocent purchaser for value
is protected such that when land has already passed
into the hands of an innocent purchaser for value,
reconveyance of the same can no longer be made.
(2) Yes, there was double sale of the disputed one-
half of the property. The claimed ownership of the
respondent heirs of Juliana Salazar (FIRST GROUP) is a
situation contemplated under Art. 1544 of the Civil
Code, which is a double sale. Although the second sale
(to the petitioners) was made by the heirs of the
deceased Victorino dela Rosa, the said heirs are
deemed the judicial continuation of the personality of
the decedent. Essentially, therefore, the first and
second sales were made by the same person. The
disputed property being immovable property, the
ownership should belong to the vendee who in good
faith first recorded it in the Registry of Property,
pursuant to the same article. It is an established fact
that the first sale to Juliana Salazar was not registered
while the sale to the petitioners was registered.
However, it is contended by the respondents Guevarras
that they have a better right as against the petitioners
because the element of good faith was lacking as
regards the latter. It is necessary, then, to resolve the
third issue.
(3) Yes, the petitioners are purchasers in good
faith. The OCT covering the entire property was clean
and free from any annotation of an encumbrance, and
there was nothing whatsoever to indicate on its face
any vice or infirmity in the title of the registered
owners-the spouses Victorino and Crisanta dela Rosa.
Thus, the petitioners could not have known of the prior
sale to Juliana Salazar as, precisely, it was not
registered. The general rule is that if the property sold
is registered land, the purchaser in good faith has a
right to rely on the certificate of title and is under no
duty to go behind it to look for flaws. This,
notwithstanding, the petitioners did not rely solely
upon the certificate of title. They personally inspected
the subject property. Undeniably, they found the same
to be occupied by two houses, one belonging to a
certain Doray dela Rosa and the other to spouses
Guevarra, parents of the respondents Guevarras (FIRST
GROUP). Upon being informed of the petitioners' desire
to purchase the land, Doray apparently offered to sell
her house, which offer was accepted by the petitioners.
 Civil Law Review II Case Digests
As regards the spouses Guevarra, they themselves
requested that they be allowed to refrain on the
property until such time that the petitioners would
need the entire premises; and in lieu of rentals to the
petitioners, they offered to continue paying the real
estate taxes for one-half of the property as this was
their arrangement with the previous owners-to which
request the petitioners acceded. Evidently, neither
Doray nor the spouses Guevarra professed ownership
over the portions of land they were occupying; on the
contrary, by their actuations they expressly
acknowledged that they were not the real owners of
the said property. The spouses Guevarra, in particular,
made no mention of the prior unregistered sale to their
predecessor-in-interest, Juliana Salazar. Thus, when the
petitioners registered the sale in their favor with the
Register of Deeds, they did so without any knowledge
about the prior sale in favor of Juliana Salazar. The
petitioners, therefore, had acted in good faith.
CAs conclusion that petitioners were buyers in bad
faith is based on the singular circumstance that the
petitioners are, like the respondents, from Orani
Bataan, and as such, according to the court, they
should have personally known that the private
respondents were the persons in actual possession and
not Doray and spouses Guevarra. The respondent
court's premise, therefore, is that the private
respondents were the actual occupants of the property.
There is, however, nothing in the record to sustain the
validity of the above premise. At the time of the
purchase, the petitioners dealt with spouses Guevarra,
the latter being the actual occupants. The respondents
Guevarras (FIRST GROUP) children of the spouses
Guevarra, came into the picture only after their parents
died. As for the respondent heirs of Victorino dela Rosa
(SECOND GROUP), their being in actual possession of
any portion of the property was, likewise, simply
presumed or taken for granted by the CA. The private
respondents cannot claim that they became aware of
the petitioners' title only in 1978. Ever since the
petitioners bought the property in 1961, they have
occupied the same openly, publicly, and continuously
in the concept of owners, even building their house
thereon. For seventeen years they were in peaceful
possession, with the respondents Guevarras occupying
less than one-half of the same property. Consequently,
the Court is more inclined to accept the petitioners'
explanation that the private respondents have initiated
this suit because of their (the petitioners') refusal to
sell to the respondents Guevarras that portion of the
land which the latter are occupying, coupled with the
petitioners' demand for the said private respondents to
vacate the same.
119. Gurrea v. Suplico (2006)
Facts:
The lot in question situated at 245 Marne Street,
San Juan, Metro Manila was originally owned by one of
herein plaintiffs Attorney-in-Fact, Rosalina Gurrea. That
sometime in 1958, Rosalina Gurrea transferred the
ownership of said lot to Adelina Gurrea. That Adelina
Gurrea continued to be the owner of the lot until her
death. Thereafter, Special Proceedings No. 7185 was
instituted to have the will she executed during her
lifetime probated and to settle her estate. Under the
said will, the San Juan lot was bequeathed to Pilar and
Luis Gurrea, while 700,000 pesetas, of the lot in
Baguio City and a one-hectare piece of land in
Pontevedra, Negros Occidental were given to Ricardo
Gurrea.
Ricardo Gurrea, represented by and through his
counsel Atty. Enrique Suplico (the defendant), filed an
Opposition in Special Proc. No. 7185. In consideration
of said representation, Ricardo Gurrea agreed to pay
Atty. Suplico "a contingent fee of twenty (20%) of
whatever is due me, either real or personal property".
During the pendency of the proceedings and upon the
oral instructions of Ricardo Gurrea, Atty. Suplico
negotiated with the other heirs of Adelina Gurrea
regarding the transfer of the piso (apartment building)
in Spain to Ricardo Gurreas daughter, Juliet Gurrea de
Melendres. Ricardo Gurrea further instructed Atty.
Suplico not to enter into any settlement with the heirs
unless the piso is transferred to his daughter. Finally,
the transfer of the piso worth P64,000.00 was executed
and the heirs arrived at an amicable settlement
regarding the estate of Adelina Gurrea. Hence, Ricardo
Gurrea withdrew his Opposition and the heirs then
drew up a project of partition which was eventually
approved by the probate court. Pursuant to the project
of partition, the following properties were adjudicated
to Ricardo Gurrea: (1) the whole of the Baguio lot (with
assessed value of P26,350.00); (2) the whole of the
San Juan lot (with assessed value of P9,630.00); and
(3) a parcel of land in Pontevedra, Negros Occidental
(with assessed value of P300.00).
As payment of his attorneys fees, Ricardo Gurrea
offered the San Juan lot to Atty. Suplico who was
initially hesitant to accept the same as the property is
occupied by squatters. However, in order not to
antagonize his client, Atty. Suplico agreed to Ricardo
Gurreas proposal with the further understanding that
he will receive an additional commission of 5% if he
sells the Baguio property. Thereafter, the deed of
Transfer of Rights and Interest was drafted.. On August
20, 1975, the deed was finally signed by Ricardo
Gurrea at the office of Atty. Pama, in the presence of
the latter, Atty. Suplico, Victor Tupas and another
person, the last two acting as witnesses. Later, on
October 7, 1980, Atty. Suplico registered the deed and
obtained a title/TCT to the San Juan property under his
name. Ricardo Gurrea died on October 22, 1980. After
his death, his heirs instituted Special Pro. No. 2722 for
the settlement of Ricardo Gurreas estate. In the said
proceedings, Atty. Suplico filed several claims for
unpaid attorneys fees; however, all were dismissed
with finality.
A complaint for annulment of title with prayer for
preliminary injunction was filed with the Court of First
Instance (CFI) of Rizal, by Rosalina Gurrea (plaintiff) in
her capacity as attorney-in-fact of the heirs of Ricardo
Gurrea (Ricardo), namely: Natividad, Carlos, Juliet and
Ricardo, Jr., all surnamed Gurrea, and Teresa Gurrea
Colemenares. The complaint was filed against Atty.
Enrique Suplico (defendant).
Issue:
 Civil Law Review II Case Digests
Whether or not the subject property was still the
object of litigation at the time the deed of Transfer of
Rights and Interest in favor of respondent was
executed; and if so, whether the same should be
considered null and void for being violative of the
provisions of Article 1491 of the Civil Code.
Held: Yes. The trial courts sole basis in concluding
that Special Proceedings No. 7185 had been
terminated and that the subject property is no longer
the object of litigation at the time the deed of Transfer
of Rights and Interest was executed on August 20,
1975 is the allegation of the executor, Angel E.
Ordoez, in his Motion for Termination of Proceeding
and Discharge of the Executor and Bond dated June 20,
1975, that he had already turned over to the respective
heirs and devisees all their respective shares in
accordance with the project of partition duly approved
by the probate court.
The Court finds the trial courts inference to be
without sufficient basis. How can the trial court
conclude that Special Proceedings No. 7185 had been
terminated and the subject property no longer the
object of litigation when no evidence was presented to
show that when the Transfer of Rights and Interest was
executed, the probate court had already issued an
order declaring the estate proceedings closed and
terminated? A thing is said to be in litigation not only if
there is some contest or litigation over it in court, but
also from the moment that it becomes subject to the
judicial action of the judge. In the present case, there is
no proof to show that at the time the deed of Transfer
of Rights and Interest was executed, the probate court
had issued an order granting the Motion for
Termination of Proceeding and Discharge of the
Executor and Bond. Since the judge has yet to act on
the above-mentioned motion, it follows that the subject
property which is the subject matter of the deed of
Transfer of Rights and Interest, is still the object of
litigation, that is Special Proceedings No. 7185.
Furthermore, we agree with the petitioners undisputed
contention that when the deed of Transfer of Rights
and Interest was executed, the title over the subject lot
was still in the name of Adelina Gurrea and that it was
only on October 7, 1980 that the title was transferred
in the name of Ricardo. The rule is that as long as the
order for the distribution of the estate has not been
complied with, the probate proceedings cannot be
deemed closed and terminated. The probate court
loses jurisdiction of an estate under administration only
after the payment of all the debts and the remaining
estate delivered to the heirs entitled to receive the
same. In the present case, while the subject lot was
assigned as Ricardos share in the project of partition
executed by the heirs of Adelina Gurrea, the title over
the subject lot was still in the name of the latter and
was not yet conveyed to Ricardo when the Transfer of
Rights and Interest was executed.
It follows that, since at the time of execution of the
deed of Transfer of Rights and Interest, the subject
property still formed part of the estate of Adelina, and
there being no evidence to show that material
possession of the property was given to Ricardo, the
probate proceedings concerning Adelinas estate
cannot be deemed to have been closed and terminated
and the subject property still the object of litigation.
Having been established that the subject property was
still the object of litigation at the time the subject deed
of Transfer of Rights and Interest was executed, the
assignment of rights and interest over the subject
property in favor of respondent is null and void for
being violative of the provisions of Article 1491 of the
Civil Code which expressly prohibits lawyers from
acquiring property or rights which may be the object of
any litigation in which they may take part by virtue of
their profession. Article 1409 of the same Code
provides, among others, that contracts which are
expressly prohibited or declared void by law are
considered inexistent and void from the beginning. A
new judgment is rendered canceling Transfer
Certificate of Title No. 24474 in the name of
respondent Enrique P. Suplico and reinstating Transfer
Certificate of Title No. 24473 in the name of Ricardo
Gurrea.
120. Moles v. IAC (1989)
Facts:
Jerry Moles (petitioner) bought from Mariano
Diolosa owner of Diolosa Publishing House a linotype
printing machine(secondhand machine). Moles
promised Diolosa that will pay the full amount after the
loan from DBP worth P50,000.00 will be released.
Private respondent on return issued a certification
wherein he warrated that the machine was in A-1
condition, together with other express warranties. After
the release of the of the money from DBP, Petitioner
required the Respondent to accomplish some of the
requirements. On which the dependant complied the
requirements on the same day.
On November 29, 1977, petitioner wrote private
respondent that the machine was not functioning
properly. The petitioner found out that the said
machine was not in good condition as experts advised
and it was worth lesser than the purchase price. After
several telephone calls regarding the defects in the
machine, private respondent sent two technicians to
make necessary repairs but they failed to put the
machine in running condition and since then the
petitioner wan unable to use the machine anymore.
Issues: (1) Whether or not there is an implied
warranty of its quality or fitness; and (2) Whether the
hidden defects in the machine is sufficient to cause the
rescission of the sale.
Held:
(1) It is generally held that in the sale of a
designated and specific article sold as secondhand,
there is no implied warranty as to its quality or fitness
for the purpose intended, at least where it is subject to
inspection at the time of the sale. On the other hand,
there is also authority to the effect that in a sale of
secondhand articles there may be, under some
circumstances, an implied warranty of fitness for the
ordinary purpose of the article sold or for the particular
purpose of the buyer. Said general rule, however, is not
without exceptions. Article 1562 of our Civil Code,
which was taken from the Uniform Sales Act, provides:
"Art. 1562. In a sale of goods, there is an implied
 Civil Law Review II Case Digests
warranty or condition as to the quality or fitness of the
goods, as follows: (1) Where the buyer, expressly or by
implication, makes known to the seller the particular
purpose for which the goods are acquired, and it
appears that the buyer relies on the seller's skill or
judgment (whether he be the grower or manufacturer
or not), there is an implied warranty that the goods
shall be reasonably fit for such purpose;"
(2) We have to consider the rule on redhibitory
defects contemplated in Article 1561 of the Civil Code.
A redhibitory defect must be an imperfection or defect
of such nature as to engender a certain degree of
importance. An imperfection or defect of little
consequence does not come within the category of
being redhibitory. As already narrated, an expert
witness for the petitioner categorically established that
the machine required major repairs before it could be
used. This, plus the fact that petitioner never made
appropriate use of the machine from the time of
purchase until an action was filed, attest to the major
defects in said machine, by reason of which the
rescission of the contract of sale is sought. The factual
finding, therefore, of the trial court that the machine is
not reasonably fit for the particular purpose for which it
was intended must be upheld, there being ample
evidence to sustain the same. At a belated stage of
this appeal, private respondent came up for the first
time with the contention that the action for rescission
is barred by prescription. While it is true that Article
1571 of the Civil Code provides for a prescriptive
period of six months for a redhibitory action, a cursory
reading of the ten preceding articles to which it refers
will reveal that said rule may be applied only in case of
implied warranties. The present case involves one with
an express warranty. Consequently, the general rule on
rescission of contract, which is four years shall apply.
Considering that the original case for rescission was
filed only one year after the delivery of the subject
machine, the same is well within the prescriptive
period. This is aside from the doctrinal rule that the
defense of prescription is waived and cannot be
considered on appeal if not raised in the trial court, and
this case does not have the features for an exception
to said rule.
121. Villostas v. CA (1992)
Facts:
Petitioner Natividad Villostas and her husband
decided to buy a water purifier. Private respondent
Electrolux Marketing, Inc.'s (Electrolux) sales agents
assured Villostas of the very special features of their
brand of water purifier so she ordered one unit. On
September 13, 1986, an Electrolux Aqua Guard water
purifier was delivered and installed at Villostas's
residence. Consequently, petitioner Villostas signed the
Sales Order and the Contract of Sale with Reservation
of Title in October 1986. Electrolux issued a warranty
certificate which provided that it warrants the quality
product to perform efficiently for 1 full year from the
date of its original purchase. The purchase of said unit
was on installment basis under which Villostas would
pay the amount of P16,190.00 in 20 monthly
installments of P635.00 per month.
After two weeks, the unit began to perform badly
and dirty water started coming out of it. Upon Villostas
complaint, Electroluxs technician changed the units
filter, without any charge. Villostas, then, paid the
amount of P1,650.00 on November 18, 1986 which
included the first amortization of P700.00. However,
dirty water still came out of the unit after the
replacement of the filter. Villostas complained for the
2nd and the 3rd time, and, after being advised that the
filter should be changed every 6 months which costs
P300, she finally decided to return the unit as early as
December 9, 1986 and demand a refund for the
amount paid. Electrolux offered to change the water
purifier with another brand of any of its appliance of
the unit in her favor, but Villostas did not accept it as
she was disappointed with the original unit which did
not perform as warranted. Consequently, Villostas
refused pay any more the subsequent installments in
the amount of P14,540.00 exclusive of interests when
Electrolux demanded her payment.
Electrolux filed a complaint against Villostas with
the MTC of Makati for the recovery of the sum of
P14,540.00 as the unpaid balance of the purchase
price of the water purifeir plus interest at the rate of
42% per annum. The MTC rendered its judgment in
favor of Electrolux, and upon appeal, the RTC of Makati
affirmed said decision, and the Court of Appeals denied
her petition for review.
Issue: Whether or not rescission is proper.
Held: Yes. Electroluxs contention that the action for
rescission is barred by prescription under Article 1571
of the Civil Code providing for a prescriptive period of
six months is bereft of merit. A cursory reading of the
ten preceding articles to which Article 1571 refers will
reveal that said rule may be applied only in cases of
implied warranties. The Warranty Certificate that
Electrolux issued to Villostas when the unit was
delivered is an example of an express warranty, and
consequently, the general rule on rescission of
contracts, which is four years (Article 1389, Civil Code)
should apply in the case at bar.
122. Spouses Uy v. Arriza (2006)
Facts:
Spouses Uy (petitioners) bought 200 square meters
of parcel of land from respondents. The contract
stipulated that Spouses Uy had the right of choice to
designate which portion of the lot would be the subject
of the sale. Later on, petitioners bought another 200
square meters of the same lot, choosing an adjoining
portion to the lot in their first sale. However, it turned
out that the land petitioners had chosen were already
titled in the names of the Delgados.
Petitioners were sued for unlawful detainer by the
Delgados. In September 1998, petitioners entered into
a compromise agreement with the Delgados and
surrendered possession of the subject parcels of land.
Petitioners compromised the case without giving notice
to respondents.
Respondents filed their answer and by way of
special and affirmative defenses alleged that they had
already complied with their obligation to deliver, as
 Civil Law Review II Case Digests
petitioners had already chosen and been in possession
of the parcels of land they chose. Respondents also
faulted petitioners for losing possession of the parcels
of land by entering into a compromise agreement with
the Delgados on two grounds: first, because
respondents have allegedly initiated the necessary
legal steps to defend their possessory rights to the
disputed land by filing a case for the declaration of
nullity of the title of the Delgados, and second,
because petitioners failed to interpose a third-party
complaint to implead respondents in the unlawful
detainer case.
The RTC ruled in favor of petitioner, but the CA
reversed the lower courts ruling.
Issue: Whether or not petitioners have a cause of
action for specific performance.
Held: No. At the outset, it could already be seen that
indeed, [petitioners] have no cause of action against
[respondents]. The case for specific performance which
was filed by [petitioners] against [respondents] is not
the proper remedy in this case. Rather, said action was
purely an afterthought on the part of [petitioners] when
they were eventually evicted from the lots they bought
from [respondents]. The facts of the case are very
clear. [Petitioners] bought from [respondents] a 200
square meter lot which was part of a bigger parcel of
land covered by TCT No. 20007 registered in the names
of [respondents], and which [petitioners] immediately
took possession of. After a year, [petitioners] again
bought from [respondents] and took possession of the
adjacent lot also measuring 200 square meters. Since
the sale, [petitioners] had been in peaceful possession
of the lots until they were evicted from the same by
third persons claiming to be the owners of the said lots.
Thus, if [petitioners] have a cause of action against
[respondents], it would be one for the enforcement of
warranty against eviction and not one for specific
performance.
The core of [petitioners] argument to support their
action for specific performance was that [respondents]
failed to deliver to them the lots subject matter of the
sale, since what was delivered were not owned by
[respondents] but by third persons. They likewise
maintain that they were not able to exercise their
choice on which lot to occupy as agreed upon by them.
We do not find these arguments tenable. The truth of
the matter is that [respondents] were able to deliver
the said parcels of land to [petitioners]. It could not be
said that [petitioners were] deprived of their choice on
which parcel of land they were to buy and occupy. The
fact that they even decided to buy the lot adjacent to
the first lot they bought would clearly indicate that the
said lots were their choice. Moreover, [petitioners] had
been enjoying possession of the same until an unlawful
detainer case was filed against them by third persons.
After having enjoyed the property for sometime,
[petitioners] cannot now come before the court
claiming that [respondents] failed to deliver the
property subject of the sale. There is no denying also
that these lots were originally part of a bigger parcel of
land owned by [respondents] and covered by TCT No.
20007. That third persons armed with a certificate of
title in their favor suddenly surfaced claiming to be the
owners of the subject lots does not automatically
render the delivery made by [respondents] to
[petitioners] ineffectual. Stated otherwise, although
third persons later on claimed ownership over the
property, it does not mean that [respondents] failed to
deliver the lots subject matter of the sale. It is also
worth mentioning that the claim of these third persons
to the subject lots is being disputed by [respondents]
as in fact, they filed an action for the declaration of
nullity of the title of Allan, Carlos and Antonio Delgado
over the subject lots and which up to now is still
pending before the Court of Appeals. This action on the
part of [respondents] would show that they do not
recognize the right of these third persons to the subject
lots and that [respondents] still maintain that they are
the lawful owners of the same.
What is before Us is a clear case of eviction. Thus,
the action for specific performance filed by
[petitioners] against [respondents] must necessarily
fail. If at all, [petitioners] may file an action for the
enforcement of warranty in case of eviction which
every vendor of a parcel of land is enjoined by law to
guarantee as provided under Article 1548 of the New
Civil Code: Eviction shall take place whenever by a
final judgment based on a right prior to the sale or an
act imputable to the vendor, the vendee is deprived of
the whole or part of the thing purchased. The vendor
shall answer for the eviction even though nothing has
been said in the contract on the subject. The
contracting parties, however, may increase, diminish or
suppress this legal obligation of the vendor.
But even if [petitioners] would file an action for the
enforcement of warranty in case of eviction against
[respondents], We are afraid that the same will not
prosper. The records of the case reveal that the
unlawful detainer case filed by third persons against
[petitioners], which led to the ouster of the latter from
the subject lots, was decided by compromise
agreement without impleading [respondents] as third-
party defendants. It should be stressed that in order for
the case to prosper, it is a precondition that the seller
must have been summoned in the suit for the eviction
of the buyer. This rule is provided under the provisions
of Articles 1558 and 1559 of the New Civil Code, to wit:
Art. 1558. The vendor shall not be obliged to make
good the proper warranty, unless he is summoned in
the suit for eviction at the instance of the vendee.
Art. 1559. The defendant vendee shall ask, within
the time fixed in the Rules of Court for answering the
complaint, that the vendor be made a co-defendant.
Applying the above-quoted provisions of law, the
Supreme Court enumerated the requisites in the
enforcement of a vendors liability for eviction, in the
case of Maria Luisa De Leon Escaler and Ernesto
Escaler v. Court of Appeals, et al., [G.R. No. L-42636.
August 1, 1985.], to wit:
In order that a vendors liability for eviction may be
enforced, the following requisites must concur a) there
must be a final judgment; b) the purchaser has been
deprived of the whole or part of the thing sold; c) said
deprivation was by virtue of a right prior to the sale
made by the vendor; and d) the vendor has been
 Civil Law Review II Case Digests
summoned and made co-defendant in the suit for
eviction at the instance of the vendee.
We need only add that petitioners could have filed
a third-party complaint against the respondents when
they were sued for eviction by the Delgados under Rule
6, Section 11. If petitioners filed the third-party
complaint against the respondents, they could have
sought from the respondents x x x contribution,
indemnity, subrogation or any other relief in respect of
the claim of the Delgados. The phrase any other relief
includes a claim of a vendee for warranty against the
vendor.
123. De Guzman v. Toyota (2006)
Facts:
On November 27, 1997, petitioner purchased from
respondent a brand new white Toyota Hi-Lux. The
vehicle was delivered to petitioner two days later. On
October 18, 1998, Mr. de Guzman demanded for the
replacement of the engine of the vehicle because it
showed a crack during a trip that passes Marcos
Highway during a heavy rain. Mr. De Guzman
demanded for the Toyota dealer to replace the engine
with a new one based on an implied warranty. On the
other hand, Toyota Cubao maintains that Mr De
Guzman's claim for replacement was already barred by
the statute of limitations amd had therefore prescribed
under Article 1571 of the Civil Code for claiming cause
of action for more than six months from the time the
vehicle was purchased and/or delivered. Respondent
reiterates that Article 169 of Republic Act No. 7394
does not apply.
Issues: (1) Whether or not Toyota is liable for the
redhibitory defects of the vehicle; and (2) whether or
not petitioners cause of action had prescribed.
Held: Under Article 1599 of the Civil Code, once an
express warranty is breached, the buyer can accept or
keep the goods and maintain an action against the
seller for damages. In the absence of an existing
express warranty on the part of the respondent, as in
this case, the allegations in petitioners complaint for
damages were clearly anchored on the enforcement of
an implied warranty against hidden defects, in which in
this case, that the engine of the vehicle which Toyota
had sold to Mr. de Guzman was not defective.
By filing this case, Mr. de Guzman wants to hold
Toyota responsible for breach of implied warranty for
having sold a vehicle with defective engine. Such being
the case, petitioner should have exercised this right
within six months from the delivery of the thing sold.
Since petitioner filed the complaint on April 20, 1999,
or more than nineteen months counted from November
29, 1997 (the date of the delivery of the motor
vehicle), his cause of action had prescribed.
124. Goodyear v. Sy (2005)
Facts:
Goodyear was the owner of an Isuzu vehicle which
had been hijacked but subsequently recovered. It was
then sold to Anthony Sy on Sept. 12, 1996, and the
latter sold it to Jose Lee on Jan. 29, 1997. But the latter
on December 4, 1997, filed an action for rescission of
contract with damages against Sy, because he could
not register the vehicle in his name due to the
certification from the PNP Regional Traffic Management
Office in Legazpi City that it was a stolen vehicle and
the alarm covering the same was not lifted. Instead,
the PNP in Legazpi City impounded the vehicle and
charged Lee criminally. Upon being informed by Sy of
the denial of the registration of the vehicle in Lees
name, Goodyear requested on July 10, 1997 the PNP to
lift the stolen vehicle alarm status. This
notwithstanding, Goodyear was impleaded as third-
party defendant in the third-party complaint filed by Sy
on January 9, 1998.
Issues: (1) Whether or not Sy has a cause of action for
breach of warranty against Goodyear; and (2)
Assuming that there is such a cause of action, whether
or not the same had already prescribed.
Held:
(1) No. Upon the execution of the Deed of Sale,
petitioner did transfer ownership of and deliver the
vehicle to Respondent Sy. No other owner or possessor
of the vehicle had been alleged, and the ownership and
possession rights of petitioner over it had never been
contested. The Deed of Sale executed on September
12, 1996 showed that petitioner was the absolute
owner. Therefore, at the time that ownership passed to
Sy, petitioner alone had the right to sell the vehicle. In
the same manner, when he sold the same truck to Jose
L. Lee, Respondent Sy was exercising his right as
absolute owner. The impoundment of the vehicle and
the failure to register it were clearly acts that were not
deliberately caused by petitioner, but that resulted
solely from the failure of the PNP to lift the latters own
alarm over the vehicle. Pursuant to Republic Act 6975,
these matters were purely administrative and
governmental in nature. Petitioner had no authority,
much less power, over the PNP. Hence, the former did
not breach its obligation as a vendor to Respondent Sy;
neither did it violate his right for which he could
maintain an action for the recovery of damages.
Without this crucial allegation of a breach or violation,
no cause of action exists.
A warranty is an affirmation of fact or any promise
made by a vendor in relation to the thing sold. As such,
a warranty has a natural tendency to induce the
vendee -- relying on that affirmation or promise -- to
purchase the thing. The vendor impliedly warrants that
that which is being sold is free from any charge or
encumbrance not declared or known to the vendee.
The decisive test is whether the vendor assumes to
assert a fact of which the vendee is ignorant.
(2) Yes. Gratia argumenti that there was a breach
of the implied warranty against hidden encumbrances,
notice of the breach was not given to petitioner within
a reasonable time. Article 1586 of the Civil Code
requires that notice be given after the breach, of which
Sy ought to have known. In his Third-Party Complaint
against petitioner, there was no allegation at all that
respondent had given petitioner the requisite notice.
More important, an action for damages for a
breach of implied warranties must be brought within
 Civil Law Review II Case Digests
six months from the delivery of the thing sold. The
vehicle was understood to have been delivered to Sy
when it was placed in his control or possession. Upon
execution of the Deed of Sale on September 12, 1996,
control and possession of the vehicle was transferred
to respondent. That the vehicle had been delivered is
bolstered by the fact that no contrary allegation was
raised in the Third-Party Complaint. Whether the period
should be reckoned from the actual or from the
constructive delivery through a public instrument,
more than six months had lapsed before the filing of
the Third-Party Complaint. Finally, the argument that
there was a breach of the implied warranty against
eviction does not hold water, for there was never any
final judgment based on either a right prior to the sale;
or an act that could be imputed to petitioner and
deprive Sy of ownership or possession of the vehicle
purchased.
125. Villarica v. CA (1968)
Facts:
Spouses Villarica (petitioners) sold their parcel of
land in Davao to Spouses Consunji (respondents) for
P35,000. Later on, respondents executed a public
instrument whereby they granted petitioners an option
to buy the same property within the period of one year
of the price of P37,750. Since petitioners failed to
exercise their option after one year and a one-month
extension, respondents sold the land to a third person.
Petitioners thus filed an action for reformation of
instrument of the sale. According to them, the sale was
actually an equitable mortgage, because of the
following factors: (1) The price of P35,000 was
unusually inadequate; (2) The vendors remained in
possession of the property sold; (3) The period of one
year for repurchase was extended for one month; and
(4) The vendors paied the taxes on the land sold.
Issue: Whether or not the sale was actually an
equitable mortgage.
No. (1) The price of P35,000 was not even
inadequate, considering that petitioners originally
bought the land in 1950 for P20,000, while the sale to
respondents took place in 1951. (2) The vendors did
not remain in possession of the land sold as lessees or
otherwise. On their request in order to help them in the
expenses of their children in Manila, the vendors were
merely allowed by the vendees to collect the monthly
rents of P300 for five months up to October, 1951, on
the understanding that the amounts so collected would
be charged against them.
(3) In Exh. "D" the Consunjis as new owners of the
lot granted the Villaricas an option to buy the property
within the period of one year from May 25, 1951 for the
price of P37,750. Said option to buy is different and
distinct from the right of repurchase which must be
reserved by the vendor, by stipulation to that effect, in
the contract of sale. This is clear from Article 1601 of
the Civil Code, which provides: Conventional
redemption shall take place when the vendor reserves
the right to repurchase the thing sold, with the
obligation to comply with the provisions of article 1616
and other stipulation which may have been agreed
upon. The right of repurchase is not a right granted
the vendor by the vendee in a subsequent instrument,
but is a right reserved by the vendor in the same
instrument of sale as one of the stipulations of the
contract. Once the instrument of absolute sale is
executed, the vendor can no longer reserve the right to
repurchase, and any right thereafter granted the
vendor by the vendee in a separate instrument cannot
be a right of repurchase but some other right like the
option to buy in the instant case. Hence, Exhibits "B"
and "D" cannot be considered as evidencing a contract
of sale with pacto de retro. Since Exh. "D" did not
evidence a right to repurchase but an option to buy,
the extension of the period of one year for the exercise
of the option by one month does not fall under No. 3, of
Article 1602 of the Civil Code, which provides that:
When upon or after the expiration of the right to
repurchase another instrument extending the period of
redemption or granting a new period is executed.
(4) The taxes paid by the vendors were back taxes
up to the time of the sale on May 19, 1951. The
vendors had the obligation to pay the back taxes
because they sold the land free of all liens and
encumbrances. The taxes due after the sale were paid
by the vendees.
126. Leal v. CA (1987)
Facts:
In 1941, a document entitled "Compraventa,"
written entirely in the Spanish language, involving
three parcels of land, was executed by the private
respondent's predecessors-in-interest, Vicente
Santiago and his brother, Luis Santiago, in favor of
Cirilio Leal the deceased father of some of the
petitioners, Pursuant to this "Compraventa," the title
over the three parcels of land in the name of the
vendors was cancelled and a new one was issued in
the name of Cirilo Leal who immediately took
possession and exercised ownership over the said
lands. When Cirilo died on December 10, 1959, the
subject lands were inherited by his six children, who
are among the petitioners, and who caused the
consolidation and subdivision of the properties among
themselves. Between the years 1960 and 1965, the
properties were either mortgaged or leased by the
petitioners-children of Cirilo Leal to their co-
petitioners. Sometime before the agricultural year
1966-1967, Vicente Santiago approached the
petitioners and offered re- repurchase the subject
properties. Petitioners, however, refused the offer.
Consequently, Vicente Santiago instituted a complaint
for specific performance before the then Court of First
Instance of Quezon City on August 2, 1967.
All the trial, the court a quo rendered its decision,-
dismissing the complaint on the ground that the same
was still premature considering that there was, as yet,
no sale nor any alienation equivalent to a sale. Not
satisfied with this decision, the private respondent
appealed to the Court of Appeals and the latter, acting
through the Fourth Division and with Justice Edgardo
Paras as ponente affirmed the decision of the court a
quo.
 Civil Law Review II Case Digests
The petitioners seasonably filed a motion to amend
the dispositive portion of the decision so as to include
an order for the cancellation of the annotations at the
back of the Transfer certificates of Title issued in their
favor. The private respondent,-on the other hand, filed
a-timely motion for reconsideration of the above
decision and an opposition to petitioners' motion to
amend. These incidents were not resolved until then
Court of Appeals was abolished and in lieu of which the
Intermideate Appellate Court was established In view
of the said reorganization, case was reassigned to the
Fourth Civil in this cases Division. Resolving the
abovestated motion for reconsideration, the
respondent court, in a resolution penned by Justice
Sison and promulgated on September 27, 1983,
reversed the previous CA ruling, holding that the
Compraventa granted a right of repurchase.
The disputed provision of the Compraventa
provides: In case of sale, they will not be able to sell
to others said three lots of land but to the seller
Vicente Santiago, or the heirs or successors of this one
by the niismo price of FIVE THOUSAND SIX HUNDRED
PESOS (P5,600.00) as long as the latter can do the
purchase.2
Issue: Whether or not there the Compraventa granted
a right to repurchase.
Held: No. At the onset, the Supreme Court agreed with
Justice Paras that the prohibition to sell the lots oter
than to Vicente Santiago is void. A prohibition to
alienate should not exceed at most a period of twenty
years, otherwise there would be subversion of public
policy, which naturally frowns on unwarranted
restrictions on the right of ownership.
The law provides that for conventional redemption to
take place, the vendor should reserve, in no uncertain
terms, the right to repurchase the thing sold. Thus, the
right to redeem must be expressly stipulated in the
contract of sale in order that it may have legal
existence. In the case before us, we cannot and any
express or implied grant of a right to repurchase, nor
can we infer, from any word or words in the questioned
paragraph, the existence of any such right. The
interpretation in the resolution (Justice Sison) is rather
strained. The phrase "in case case" of should be
construed to mean "should the buyers wish to sell
which is the plain and simple import of the words, and
not "the buyers should sell," which is clearly a
contorted construction of the same phrase. The resort
to Article 1373 of the Civil Code of the Philippines is
erroneous. The subject phrase is patent and
unambiguous, hence, it must not be given another
interpretation But even assuming that such a right of
repurchase is granted under the "Compraventa," the
petitioner correctly asserts that the same has already
prescribed. Under Art. 1508 of the Civil Code of Spain
(Art,. 1606 of the Civil Code of the Philippines), the
right to redeem or repurchase, in the absence of an
express agreement as to time, shall last four years
from the date of the contract. In this case then, the
2 Translated from Spanish to English by
Google Translate.
right to repurchase, if it was at four guaranteed under
in the "Compraventa," should have been exercise
within four years from March 21, 1941 (indubitably the
date of execution of the contract), or at the latest in
1945. In the respondent court's resolution, it is further
ruled that the right to repurchase was given birth by
the condition precedent provided for in the phrase
"siempre y cuando estos ultimos pueden hacer la
compra" (when the buyer has money to buy). In other
words, it is the respondent court's contention that the
right may be exercised only when the buyer has money
to buy. If this were so, the second paragraph of Article
1508 would apply there is agreement as to the time,
although it is indefinite, therefore, the right should be
exercised within ten years, because the law does not
favor suspended ownership. Since the alleged right to
repurchase was attempted to be exercised by Vicente
Santiago only in 1966, or 25 years from the date of the
contract, the said right has undoubtedly expired.
127. Buce v. CA (2000)
Facts:
Petitioner Anita Buce leased a 56 square meter of
land located at Quirino Avenue, Pandacan, Manila. The
lease was for a period of 15 years to commence on
June 1, 1979 and subject to renewal for another 10
years,under the same terms and conditions.
Respondent Jose Tiongco, demanded a gradual
increase in the rent for Php 1,000 on 1991. On
December 1991, respondent wrote petitioner informing
the increase of rent pursuant to the Rent Control Law,
effective on January 1992. However, petitioner
tendered checks dated October 1991 to January 1993
for only Php 400 payable to respondent as
administrator which the latter refused to accept.
Petitioner filed a complaint for specific performance
which the trial court ruled in favor of petitioner.
Appellate court reversed the decision.
Issue: Whether or not the clause subject to renewal
for another ten years is an automatic renewal or just
an option to renew the contract.
Held: The court held that nothing in the contract
expresses automatic renewal. Allowance on
improvements and constructions are not indicative of
extension of contract. It was not, in fact, indicated who
may exercise the option to renew. Thus, a period of
lease should be set for the benefit of both parties upon
mutual agreement. Since respondents were not
amenable of the renewal, they cannot be compelled to
execute new. It is their prerogative to terminate lease
at its expiration.
128. Santos v. CA (1989)
Facts:
Spouses Ferrera (respondents) sold a parcel of land
in favor of Spouses Santos (petitioners). Simultaneous
with the execution of the deed of sale (Exh. "A"), an
-instrument entitled Promise to Sell dated February 1,
1971 was executed by the spouses Santos in favor of
defendants Ferrera, whereby the former promised to
sell back the land in question to the latter for
P22,00.00 within a period of six months from February
 Civil Law Review II Case Digests
1, 1971. Since respondents failed to exercise the
option, petitioners sold the land to their daughter.
Notwithstanding, the sale of the property to the
Santoses, spouses Ferrera continued in possession of
the property thru their tenants, the Nazareths. The
Santoses informed the Nazareths that they are the new
owners of the property in question and required the
latter to pay the rent for the property in question to
them but the Nazareths refused to recognize them as
the owner of the property and continued to deliver the
harvest shares to the Ferreras.
Thus, Spouses Santos filed an action for breach of
warranty and damages against the defendants based
on the alleged Deed of Absolute Sale. The defendants
argue that they never intended to sell their land for
such an inadequate price; that they were in dire need
of money so they obtained the loan of P22,000.00; that
to secure payment of the loan, defendants were
required to execute a Deed of Absolute Sale over the
property in dispute, with the agreement that the deed
of sale will merely serve as collateral; that they remain
in possession of the land; and that the transfer
certificate of title in favor of Apolonia Santos is null and
void, the real contract between the parties being one
of equitable mortgage only.
Issue: Whether or not the contract was an equitable
mortgage.
Held: Yes. ln the case at bar, the terms of the
transaction in question do not plainly and distinctly
indicate the intention of the contracting parties. Since
such intention cannot be discerned from the Deed of
Absolute Sale executed by the parties, their
contemporaneous and subsequent act shall be taken
into consideration to be able to determine their true
intention. It is an undisputed fact that respondent
spouses were "in dire need of money" to settle certain
obligations when they entered into the subject
transaction with the petitioners. They entered into a
loan agreement but were however made to execute a
Deed of Absolute Sale for the amount of P22,000.00.
Simultaneous with the execution of the said
document., petitioners executed a separate document,
which is the Promise to Sell for the same amount of
money. From the time the Deed of Absolute Sale was
executed up to the time the action was instituted in
court, respondent spouses continued to remain in
actual physical possession of the land in dispute,
through their tenants Nazareths) who were also made
respondents. The existence of this tenancy relationship
between the respondents was also admitted by the
petitioner. From the foregoing contemporaneous and
subsequent acts of the parties, the trial court found
that the contract in issue could not be deemed to be an
absolute sale. We agree with the trial court's findings.
The acts of the parties indicate the presence of an
equitable mortgage. Equitable mortgage has been
defined as one in which although lacking in some
formality, form or words or other requisites demanded
by a statute nevertheless reveals the intention of the
parties to charge a real property as security for a debt,
and contains nothing impossible or contrary to law" (41
Corpus Juris 303).
129. Adorable v. Inacala (1958)
Facts:
This is an appeal by the petitioners from the
decision of the Court of Appeals, holding that the deed
of sale between respondent Irinea Inacala and one
Arcadio Mendoza should be given the effect of a mere
pacto de retro sale and that, in accordance with the
third paragraph of Article 1606 of the Civil Code of the
Philippines, said respondent should be permitted to
exercise the right of repurchase.
Respondent Inacala was the registered owner of a
parcel of land located in barrio Valdefuente,
Cabanatuan, Nueva Ecija. On July 1, 1941, through the
intervention of Claro Pacis, she executed a deed of sale
(Exhibit B) covering a 15-hectare lot in favor of Arcadio
Mendoza for P420.00. The latter thereupon executed a
private instrument (Exhibit C) granting said respondent
the option to repurchase the lot for the same
consideration within the period of one year from the
date of the sale. Mendoza afterwards sold the property
to the spouses Eugenio and Margarita Ramos to whom
a transfer certificate of title was issued. The petitioners
herein, all surnamed Adorable, in turn bought the land
from the Ramos spouses, and the corresponding
transfer certificate of title No. 19736 was issued.
Since the first sale in 1941, Inacala, who had not
redeemed the land from Mendoza, never relinquished
the possession thereof. It was only in 1951, during the
opening of the Pampanga River Irrigation Project, when
the petitioners attempted to take physical possession
through one Geronimo Fajardo, who leased it from
them, that said petitioners were apprised for the first
time of Inacala's claim over the lot.
Issue: Whether or not the contract of sale should be
treated as a pacto de retro sale.
Held: Yes. There can be no question about the
correctness of the correctness of the Court of Appeals
that the transaction at bar is a pacto de retro sale.
Exhibit "C" is conclusive on the point. But, as
contended by the petitioners, the Court of Appeals
erred in applying the third paragraph of Article 1606 of
the new Civil Code. In our opinion, this provision refers
to cases involving a transaction where one of the
parties contests or denies that the true agreement is
one of sale with right of repurchase. In the case now
before us, the sale (Exhibit B) is expressly with right to
repurchase in virtue of Exhibit "C" granting respondent
Inacala the right to redeem within one year. As this
stipulated period has expired without said respondent
having redeemed the land in question, the original
purchaser, Arcadio Mendoza, had irrevocably acquired
ownership over the property in accordance with Article
1509 of the old Civil Code which was in force at the
time of the transaction in dispute. (Angao vs. Clavano,
17 Phil., 152; Rafols vs. Rafols, 22 Phil., 236; Gonzales
vs. Javellana, 49 Phil., 1; Racca vs. Viloria, 26 Phil.,
120.) It therefore becomes unnecessary to discuss
petitioners' other contention that the Court of Appeals
erred in holding that the petitioners were not
purchasers in good faith. In view of the foregoing, the
decision appealed from is hereby reversed, and the
petitioners declared owners, of the land in controversy.
So ordered without pronouncement as to costs.
 Civil Law Review II Case Digests
130. Bandong v. Austria (1915)
Facts:
In 1905, plaintiff sold a parcel of land to Antonio
Ventenilla, while reserving the right to repurchase the
land for the same price (P350) without interest in the
month of March of any year. Plaintiff exercised the right
to repurchase in 1913, but defendant declined on the
ground that the right to repurchase had prescribed.
Issue: Whether or not the right to repurchase had
prescribed.
Held: No. The four-year prescriptive period provided by
law presupposes the absence of stipulation to the
contrary. If there is a stipulation to the contrary, the
period of redemption shall not exceed 10 years.
131. Bayquen v. Balaoro (1986)
Facts:
Eufemia and Estefania (plaintiffs) sold a parcel of
land to Eulalio (defendant) reserving their right to
repurchase the land within 4 years. Plaintiffs failed to
repurchase the land within the four-year period.
Theynow assert their right to repurchase the land after
more than 13 years. The trial court ruled that Bayquen
and Bayon have lost their right torepurchase the land
under controversy and that by operation of law,
ownership of such land hadbecome consolidated in the
name of Balaoro. Bayquen and Bayon contend that the
transaction is actually an equitable mortgage.
Issue: Whether or not the contract is an equitable
mortgage.
Held: No. The deed of conveyance states the purchase
price as P2,000.00 for a parcel of land,partly riceland
and partly pasture land, with an assessed value of
P440.00. Based on the size,productivity and
accessibility, the price of P2,000.00 for said parcel is
adequate. The vendeeadmittedly took immediate
possession after the execution of the contract; no
extension of the periodof redemption, at or after its
expiration, was made. The vendee did not retain any
part of thepurchase price. The vendee has declared the
property under his name and paid the
correspondingreal estate taxes, and there is no
circumstance by which the Court could fairly infer that
thetransaction was intended by the parties to secure
the payment of a debt or loan. Hence, there is nodoubt
as to the true nature of the transaction and it was a
contract of sale with right to purchase.
Besides, not one of the instances enumerated in
Article 1602 of the Civil Code (represumption that the
contract is one of equitable mortgage) exists in this
case. Lastly, where thecontract between the parties is
admitted and which has been stipulated by the parties
to be a deed ofsale with right to repurchase, there
should be no issue or dispute about the effects thereof
that oncethere is failure to redeem within the
stipulated period, ownership thereof becomes vested
orconsolidated by operation of law on the vendee. Any
other interpretation would be violative of thesanctity of
the contract between the parties.
132. Uy v. CA (1995)
Facts:
Spouses Catador was the owner of a parcel of land
located in Valenzuela. They offered to sell it to Rosa
Sauler (private respondent) who paid an initial amount
of P45,000. The Spouses promised to execute a deed of
sale upon fully payment of the purchase price. On 18
October 1978, the Catador spouses hypothecated the
property to the State Investment House, Inc. ("SIHI"),
to "accommodate" their niece, Angelina Cadieva-
Lacson, who had secured a loan of P250,000.00 from
SIHI. The mortgage was registered with the Registry of
Deeds in Bulacan and annotated on the transfer
certificate of title of the property. Upon learning of the
mortgage, private respondent met with the Catador
spouses in order to "renegotiate" their standing
agreement. It would appear that private respondent
gave up a claim to get the entire property and agreed
to instead retain, with the conformity of the Catador
spouses, an area within the lot as the "katumbas" or as
equivalent of the downpayment of P45,000.00. Private
respondent opted for the 555-square-meter area which
she was then occupying and on which she had
theretofore made improvements. Her request for a
survey and subdivision of the property, as well as a
separate title, could not, however, be granted by the
Catador spouses since the certificate of title over the
whole lot was by then already handed over to SIHI.
Angelina Cadieva-Lacson, the niece of the Catador
spouses, defaulted on her loan; whereupon, SIHI
foreclosed on the security. At the extrajudicial
foreclosure sale, SIHI came out to be the highest bidder
at P309,515.15. The certificate of sale issued by the
Provincial Sheriff of Bulacan was registered in the
Registry of Deeds and annotated at the back of the
certificate of title on 17 March 1980. One year
thereafter, or on 17 March 1981 (the expiry date of the
one-year redemption period under Act No. 3135), SIHI
received a letter from private respondent asserting her
ownership over the 555 square meters of the
foreclosed land. The letter was followed, on 13 August
1981, by another communication sent this time by
private respondent's son, William Ang, who offered to
buy from SIHI one-half of the property for P225,000.00.
SIHI did not respond to both letters. In the meantime,
or on 21 April 1981, SIHI consolidated ownership over
the property. On 19 October 1981, TCT No. (170692)
9968 was canceled and replaced by TCT No. 48467 in
SIHl's name.
Two years later, Michael Uy (petitioner) bought the
property from SIHI. This prompted private respondent
to file an action for legal redemption with damages
against petitioner and SIHI.
The RTC and the CA ruled in favor of private
respondent on the basis of the verbal agreement
between the Catador spouses and private respondent
over the portion of the lot which she bought.
Issue: Whether or not private respondent is entitled to
redeem the lot.
Held: Not exactly. The facts that would indicate private
respondent's rightful title to a specific portion of the
 Civil Law Review II Case Digests
foreclosed asset, i.e., her being in possession of the
555-square-meter area, her repairing and improving
the house standing thereon, her enclosing the
premises with concrete fence and a steel gate,
installing drainage (pipes), as well as filling up the site
with earth ("tambak") and her constructing a bodega
for the raw materials and supplies of her "Kastiron
Foundry & Machine Shop" business, verily, are the
circumstances that negate, rather than bolster, her
claim for legal redemption over the entire property on
the basis of Article 1620, in relation to Article 1623, of
the Civil Code. The exercise of a right of legal
redemption thereunder presupposes the existence of a
co-ownership at the time the conveyance is made by a
co-owner and when it is demanded by the other co-
owner or co-owners. There is co-ownership when "the
ownership of an undivided thing or right belongs to
different persons."
At no time in the case at bench has co-ownership
over the entire lot ever existed between private
respondent and SIHI or, later, its successor Michael Uy.
Not being a co-owner of Lot No. 1551-C-1-J, private
respondent's plea to have her right of redemption
upheld by us cannot be sustained. For his part,
petitioner may not successfully pretend to be an
innocent purchaser for value of the disputed lot so as
to warrant his sole ownership over the entire property
and thereby preclude private respondent from
asserting her prior purchase of the 555-square-meter
portion thereof, because petitioner was fully aware of
private respondents possession of her portion. Neither
can SIHI, petitioner's predecessor-in-interest, claim to
be an innocent mortgagee for failing to take
precautions, considering that it is an investment and
financing corporation.
WHEREFORE, the decision appealed from, as well
as that of the trial court in Civil Case No. 2263-V-85, is
SET ASIDE. Instead, a new one is RENDERED (a)
upholding the right of petitioner over the lot covered
by Transfer Certificate of Title No. 108486 excluding,
however, the 555-square meter area bought by private
respondent which ownership is similarly hereby
DECLARED to be that of the latter and (b) denying the
demand for legal redemption by private respondent.
No special pronouncement on costs.
133. Verdad v. CA (1996)
Facts:
Zosima Verdad (petitioner) bought a parcel of land
in Butuan City, while Socorro Rosales (private
respondent) seeks to exercise a right of legal
redemption over the same property, tracing her title to
the late Macaria Atega, her mother-in-law who earlier
died intestate.
During her lifetime, Macaria contracted two
marriages: the first with Angel Burdeos and the second,
following the latters death, with Canuto Rosales. At the
time of her own death, Macaria was survived by her
son Ramon A. Burdeos and her grandchild (by her
daughter Felicidad A. Burdeos) Estela Lozada of the
first marriage and her children of the second marriage,
namely, David Rosales, Justo Rosales, Romulo Rosales,
and Aurora Rosales. Socorro Rosales is the widow of
David Rosales who himself, some time after Macarias
death, died intestate without an issue. In an
instrument, dated 14 June 1982, the heirs of Ramon
Burdeos, namely, his widow Manuela Legaspi Burdeos
and children Felicidad and Ramon, Jr., sold to petitioner
Zosima Verdad (their interest on) the disputed lot
supposedly for the price of P55,460.00. In a duly
notarized deed of sale, dated 14 November 1982, it
would appear, however, that the lot was sold for only
P23,000.00. Petitioner explained that the second deed
was intended merely to save on the tax on capital
gains. Socorro discovered the sale on 30 March 1987
while she was at the City Treasurers Office. On 31
March 1987, she sought the intervention of the Lupong
Tagapayapa of Barangay 9, Princess Urduja, for the
redemption of the property. She tendered the sum of
P23,000.00 to Zosima. The latter refused to accept the
amount for being much less than the lots current value
of P80,000.00. No settlement having been reached
before the Lupong Tagapayapa, private respondents,
on 16 October 1987, initiated against petitioner an
action for Legal Redemption with Preliminary Injunction
before the Regional Trial Court of Butuan City.
Issue: Whether or not private respondent may redeem
the property, considering that she is merely the spouse
of David Rosales, a son of Macaria, and not a co-heir
herself in the estate of Macaria.
Held: Yes. It is true that Socorro, a daughter-in-law (or,
for that matter, a mere relative by affinity), is not an
intestate heir of her parents-in-law; however, Socorro s
right to the property is not because she rightfully can
claim heirship in Macarias estate but that she is a legal
heir of her husband, David Rosales, part of whose
estate is a share in his mothers inheritance. David
Rosales, incontrovertibly, survived his mothers death.
When Macaria died on 08 March 1956 her estate
passed on to her surviving children, among them David
Rosales, who thereupon became co-owners of the
property. When David Rosales himself later died, his
own estate, which included his undivided interest over
the property inherited from Macaria, passed on to his
widow Socorro and her co-heirs pursuant to the law on
succession.
When their interest in the property was sold by the
Burdeos heirs to petitioner, a right of redemption arose
in favor of private respondents; thus:
ART. 1619. Legal redemption is the right to be
subrogated, upon the same terms and conditions
stipulated in the contract, in the place of one who
acquires a thing by purchase or dation in payment, or
by any other transaction whereby ownership is
transmitted by onerous title.
ART. 1620. A co-owner of a thing may exercise the
right of redemption in case the shares of all the other
co-owners or of any of them, are sold to a third person.
If the price of the alienation is grossly excessive, the
redemptioner shall pay only a reasonable one.
We hold that the right of redemption was timely
exercised by private respondents. Concededly, no
written notice of the sale was given by the Burdeos
heirs (vendors) to the co-owners required under Article
1623 of the Civil Code: The right of legal pre-emption
 Civil Law Review II Case Digests
or redemption shall not be exercised except within
thirty days from the notice in writing by the
prospective vendor, or by the vendor, as the case may
be. The deed of sale shall not be recorded in the
Registry of Property, unless accompanied by an
affidavit of the vendor that he has given written notice
thereof to all possible redemptioners.
Hence, the thirty-day period of redemption had yet
to commence when private respondent Rosales sought
to exercise the right of redemption on 31 March 1987,
a day after she discovered the sale from the Office of
the City Treasurer of Butuan City, or when the case was
initiated, on 16 October 1987, before the trial court.
The written notice of sale is mandatory. This Court has
long established the rule that notwithstanding actual
knowledge of a co-owner, the latter is still entitled to a
written notice from the selling co-owner in order to
remove all uncertainties about the sale, its terms and
conditions, as well as its efficacy and status.
We realize that in arriving at our conclusion today,
we are deviating from the strict letter of the law, which
the respondent court understandably applied pursuant
to existing jurisprudence. The said court acted properly
as it had no competence to reverse the doctrines laid
down by this Court in the above-cited cases. In fact,
and this should be clearly stressed, we ourselves are
not abandoning the De Conejero and Buttle doctrines.
What we are doing simply is adopting an exception to
the general rule, in view of the peculiar circumstances
of this case.
AGENCY
1. Doles v. Angeles (2006)
Facts:
Ma. Aura Tina Angeles (respondent) filed a
complaint for specific performance with damages
against Jocelyn Doles (petitioner). Respondent alleged
that petitioner obtained a loan from her in the amount
of P400,000, and that petitioner ceded to respondent a
parcel of land in Cavite in order to satisfy the loan. The
land was mortgaged to National Home Mortgage
Finance Corporation to secure petitioners loan with it,
so respondent agreed to assume the balance of the
mortgage amounting to P4,700 for the remainder of 25
years. But respondent later on found out that petitioner
had incurred arrearages amounting to P27,000.
Because petitioner failed to settle such amount,
respondent filed this suit.
On the other hand, petitioner denied that she
borrowed money from respondent. According to her,
she merely referred her friends to respondent whom
she knew to be engaged in the business of lending
money in exchange for personal checks through her
capitalist Arsenio Pua. The petitioners friends,
however, issued checks in payment of the loan but
they all bounced. Since petitioners friends could no
longer be located, respondent decided to run after
petitioner. In sum, petitioner argued that she was not
the borrower, acting merely as agent for her friends,
and that respondent was not the lender, because she
merely acted as agent for Arsenio Pua. Proceeding from
that premise, petitioner argued that the sale of the
Cavite land was void for lack of consideration.
Respondent did not deny that she was the agent of
Arsenio Pua.
The RTC ruled in favor of respondent. The CA
affirmed, holding that petitioner was the borrower and,
in turn, would re-lend the amount borrowed to her
friends. Hence, the sale was supported by a valid
consideration.
Issue: Whether or not the sale was supported by a
valid consideration.
Held: No. In this case, petitioner knew that the
financier of respondent is Pua; and respondent knew
that the borrowers are friends of petitioner.
The CA is incorrect when it considered the fact that
the "supposed friends of [petitioner], the actual
borrowers, did not present themselves to [respondent]"
as evidence that negates the agency relationshipit is
sufficient that petitioner disclosed to respondent that
the former was acting in behalf of her principals, her
friends whom she referred to respondent. For an
agency to arise, it is not necessary that the principal
personally encounter the third person with whom the
agent interacts. The law in fact contemplates, and to a
great degree, impersonal dealings where the principal
need not personally know or meet the third person with
whom her agent transacts: precisely, the purpose of
agency is to extend the personality of the principal
through the facility of the agent.
In the case at bar, both petitioner and respondent
have undeniably disclosed to each other that they are
representing someone else, and so both of them are
estopped to deny the same. It is evident from the
record that petitioner merely refers actual borrowers
and then collects and disburses the amounts of the
loan upon which she received a commission; and that
respondent transacts on behalf of her "principal
financier", a certain Arsenio Pua. If their respective
principals do not actually and personally know each
other, such ignorance does not affect their juridical
standing as agents, especially since the very purpose
of agency is to extend the personality of the principal
through the facility of the agent.
With respect to the admission of petitioner that she
is "re-lending" the money loaned from respondent to
other individuals for profit, it must be stressed that the
manner in which the parties designate the relationship
is not controlling.
That both parties acted as mere agents is shown
by the undisputed fact that the friends of petitioner
issued checks in payment of the loan in the name of
Pua. If it is true that petitioner was "re-lending", then
the checks should have been drawn in her name and
not directly paid to Pua.
In view of the two agency relationships, petitioner
and respondent are not privy to the contract of loan
between their principals. Since the sale is predicated
on that loan, then the sale is void for lack of
consideration.
 Civil Law Review II Case Digests
A further scrutiny of the record shows, however,
that the sale might have been backed up by another
consideration that is separate and distinct from the
debt: respondent averred in her complaint and testified
that the parties had agreed that as a condition for the
conveyance of the property the respondent shall
assume the balance of the mortgage loan which
petitioner allegedly owed to the NHMFC. This Court in
the recent past has declared that an assumption of a
mortgage debt may constitute a valid consideration for
a sale. Although the record shows that petitioner
admitted at the time of trial that she owned the
property described in the TCT, the Court must stress
that the Transfer Certificate of Title No. 382532 on its
face shows that the owner of the property which
admittedly forms the subject matter of the Deed of
Absolute Sale refers neither to the petitioner nor to her
father, Teodorico Doles, the alleged coowner. Rather, it
states that the property is registered in the name of
"Household Development Corporation." Although there
is an entry to the effect that the petitioner had been
granted a special power of attorney "covering the
shares of Teodorico Doles on the parcel of land
described in this certificate," it cannot be inferred from
this bare notation, nor from any other evidence on the
record, that the petitioner or her father held any direct
interest on the property in question so as to validly
constitute a mortgage thereon and, with more reason,
to effect the delivery of the object of the sale at the
consummation stage. What is worse, there is a
notation that the TCT itself has been "cancelled." In
view of these anomalies, the Court cannot entertain
the possibility that respondent agreed to assume the
balance of the mortgage loan which petitioner
allegedly owed to the NHMFC, especially since the
record is bereft of any factual finding that petitioner
was, in the first place, endowed with any ownership
rights to validly mortgage and convey the property.
2. Rallos v. Yangco (1911)
Facts:
Teodoro Yangco sent a letter inviting Florentino
Rallos to be the consignor in the business of buying
and selling leaf tobacco and other native products.
Accepting the invitation, Rallos proceeded to do
business with Yangco through the latters agent,
Florentino Collantes, who was introduced as such in
Yangcos letter. Rallos sent to Collantes 218 bundles of
tobacco to be sold on commission. Collantes received
said tobacco and sold it for the sum of P1,744. The
charges for such sale were P206.96, leaving in the
hands of said Collantes the sum of 1,537.08 belonging
to Rallos. This sum was, apparently, converted to his
own use by said agent.
It appears, however, that prior to the sending of
said tobacco Yangco had severed his relations with
Collantes and that the latter was no longer acting as
his factor. This fact was not known to Rallos; and it is
conceded in the case that no notice of any kind was
given by Yangco of the termination of the relations
between Yangco and his agent, Collantes.
Sued for collection, Yangco refused to pay. His
defense was that at the time the tobacco was received
and sold by Collanted, he was acting personally and
not as his agent.
Issue: Whether or not Yangco is liable to pay the sum
demanded by Rallos.
Held: Yes. Yangco, as principal is liable. Having
advertised the fact that Collantes was his agent and
having given special notice to Rallos of that fact, and
having given them a special invitation to deal with
such agent, it was the duty of Yangco on the
termination of the relationship of the principal and
agent to give due and timely notice thereof to Rallos.
Failing to do so, he is responsible to them for whatever
goods may been in good faith and without negligence
sent to the agent without knowledge, actual or
constructive, of the termination of such relationship.
3. Gozun v. Mercado (2006)
Facts:
In 1995, Jose Mercado (respondent) ran for
Pampanga governor. Upon respondents request,
Gozun (petitioner), who was the owner of a printing
shop, submitted draft samples and price quotation of
campaign materials. Respondents wife allegedly told
petitioner that respondent already approved the price
quotation, so petitioner started printing campaign
materials. He even subcontracted the services of two
other printing shops owned by his daughter and his
mother. Meanwhile, respondents, sister-in-law, Lilian,
obtained from petitioner a cash advance of P253,000
allegedly for the allowances of poll watchers who were
attending a seminar and for other related expenses.
Lilian acknowledged on petitioners 1995 diary the
receipt of the amount.
Petitioner later sent respondent a Statement of
Account in the total amount of P2,177,906 itemized as
follows: P640,310 for JMG Publishing House; P837,696
for Metro Angeles Printing; P446,900 for St. Joseph
Printing Press; and P253,000, the "cash advance"
obtained by Lilian.
On August 11, 1995, respondents wife partially
paid P1,000,000 to petitioner who issued a receipt
therefor. Despite repeated demands and respondents
promise to pay, respondent failed to settle the balance
of his account to petitioner.
Petitioner thus filed a complaint for collection
against respondent for the remaining balance of
P1,177,906.
Respondent denied ever having transacted with
petitioner as the campaign materials delivered to him
were represented as donations. According to him, the
P1 million which his wife gave petitioner was merely a
gesture of good will. He also denied having given Lilian
authority to ask for a cash advance.
The RTC ruled in favor petitioner, but the CA
reversed the trial courts decision.
Issue: Whether or not the cash advance given to Lilian
may be enforced against respondent.
Held: No. Petitioners testimony failed to categorically
state, however, whether the loan was made on behalf
 Civil Law Review II Case Digests
of respondent or of his wife. While petitioner claims
that Lilian was authorized by respondent, the
statement of account marked as Exhibit "A" states that
the amount was received by Lilian "in behalf of Mrs.
Annie Mercado." Invoking Article 1873 of the Civil
Code, petitioner submits that respondent informed him
that he had authorized Lilian to obtain the loan, hence,
following Macke v. Camps which holds that one who
clothes another with apparent authority as his agent,
and holds him out to the public as such, respondent
cannot be permitted to deny the authority.
Petitioners submission does not persuade. As the
appellate court observed: . . . Exhibit "B" [the receipt
issued by petitioner] presented by plaintiff-appellee to
support his claim unfortunately only indicates the Two
Hundred Fifty Three Thousand Pesos (P253,0000.00)
was received by one Lilian R. Soriano on 31 March
1995, but without specifying for what reason the said
amount was delivered and in what capacity did Lilian R.
Soriano received [sic] the money. It bears noting that
Lilian signed in the receipt in her name alone, without
indicating therein that she was acting for and in behalf
of respondent. She thus bound herself in her personal
capacity and not as an agent of respondent or anyone
for that matter. It is a general rule in the law of agency
that, in order to bind the principal by a mortgage on
real property executed by an agent, it must upon its
face purport to be made, signed and sealed in the
name of the principal, otherwise, it will bind the agent
only. It is not enough merely that the agent was in fact
authorized to make the mortgage, if he has not acted
in the name of the principal.
In sum, respondent has the obligation to pay the
total cost of printing his campaign materials delivered
by petitioner in the total of P1,924,906, less the partial
payment of P1,000,000, or P924,906.
4. Angeles vs PNR (2006)
Facts:
Respondent Philippine National Railways (PNR)
informed a certain Gaudencio Romualdez (Romualdez,
hereinafter) that it has accepted the latters offer to
buy the PNRs scrap/unserviceable rails located in Del
Carmen and Lubao, Pampanga for P1,300.00 and
P2,100.00 per metric ton, respectively, for the total
amount of P96,600.00. Romualdez paid the purchase
price and addressed a letter to Atty. Cipriano Dizon,
PNRs Acting Purchasing Agent. The letter authorized
LIZETTE R. WIJANCO to be his (Romualdez) lawful
representative in the withdrawal of the
scrap/unserviceable rails awarded to him. Furthermore,
the original copy of the award which indicates the
waiver of rights, interest and participation in favor of
Lizette R. Wijanco was also given.
The Lizette R. Wijanco referred to in the letter was
actually Lizette W. Angeles (petitioner's now deceased
wife). That very same day, Lizette requested the PNR
to transfer the location of withdrawal for the reason
that the scrap/unserviceable rails located in Del
Carmen and Lubao, Pampanga were not ready for
hauling. The PNR granted said request and allowed
Lizette to withdraw scrap/unserviceable railsin Murcia,
Capas and San Miguel, Tarlac instead.
However, PNR subsequently suspended the
withdrawal in view of what it considered as
documentary discrepancies coupled by reported
pilferages of over P500,000.00 worth of PNR scrap
properties in Tarlac. Consequently, the spouses
Angeles demanded the refund of the amount of
P96,000.00. The PNR, however, refused to pay, alleging
that as per delivery receipt duly signed by Lizette,
54.658 metric tons of unserviceable rails had already
been withdrawn. The spouses Angeles filed suit against
the PNR for specific performance and damages before
the Regional Trial Court. Lizette W. Angeles passed
away and was substituted by her heirs, among whom is
her husband, herein petitioner Laureno T. Angeles. The
trial court, on the postulate that the spouses Angeles
are not the real parties-in-interest, rendered judgment
dismissing their complaint for lack of cause of action.
As held by the court, Lizette was merely a
representative of Romualdez in the withdrawal of scrap
or unserviceable rails awarded to him and not an
assignee to the latter's rights with respect to the
award. Petitioner appealed with the Court of Appeals
which dismissed the appeal and affirmed that of the
trial court.
Issue: Whether or not the CA erred in affirming the trial
court's holding that petitioner and his spouse, as
plaintiffs a quo, had no cause of action as they were
not the real parties-in-interest in this case.
Held: No. The CAs conclusion, affirmatory of that of
the trial court, is that Lizette was not an assignee, but
merely an agent whose authority was limited to the
withdrawal of the scrap rails, hence, without
personality to sue. Where agency exists, the third
party's (in this case, PNR's) liability on a contract is to
the principal and not to the agent and the relationship
of the third party to the principal is the same as that in
a contract in which there is no agent. Normally, the
agent has neither rights nor liabilities as against the
third party. He cannot thus sue or be sued on the
contract. Since a contract may be violated only by the
parties thereto as against each other, the real party-in-
interest, either as plaintiff or defendant in an action
upon that contract must, generally, be a contracting
party.
The legal situation is, however, different where an
agent is constituted as an assignee. In such a case, the
agent may, in his own behalf, sue on a contract made
for his principal, as an assignee of such contract. The
rule requiring every action to be prosecuted in the
name of the real party-in-interest recognizes the
assignment of rights of action and also recognizes that
when one has a right assigned to him, he is then the
real party-in-interest and may maintain an action upon
such claim or right.
Petitioner makes much of the fact that the terms
agent or attorney-in-fact were not used in the
Romualdez letter aforestated. It bears to stress,
however, that the words principal and agent, are not
the only terms used to designate the parties in an
agency relation. The agent may also be called an
attorney, proxy, delegate or, as here, representative.
 Civil Law Review II Case Digests
5. Siasat vs IAC (1985)
Facts:
Teresita Nacianceno succeeded in convincing officials
of the Department of Education and Culture to buy
without public bidding P1 million worth of national flags
for the use of public schools throughout the country.
She was informed by the Department that the
purchase orders could not be released unless a formal
offer to deliver the flags in accordance with the
required specifications was first sunbmitted for
approval, so she contacted the owners of the United
Flag Industry. Primitivo Siasat, the owner of United Flag
Industry, executed a document addressed to Siasat,
which states: This is to formalize our agreement for
you to represent United Flag Industry to deal with any
entity or organization, private or government in
connection with the marketing of our products-flags
and all its accessories. For your service, you will be
entitled to a commission of thirty (30%) percent.
After the first (out of two) batch of delivery of the
flags was made, Siasat revoked the authority to
represent the United Flag Industry. After receiving
P469,980, Siasat only gavea 5% commission instead of
the agreed 30% to Nacianceno. Nacianceno sued
Siasat, to which the RTC and IAC ruled in favor of
Nacianceno.
Siasat argues that there was no specific
authorization for the sale of 15,666 flags to the
Department.
Issue: Whether or not Nacianceno had the capacity to
represent United Flag Industry.
Held: Yes. An agent may be (1) universal: (2) general,
or (3) special. A universal; agent is one authorized to
do all acts for his principal which can lawfully be
delegated to an agent. So far as such a condition is
possible, such an agent may be said to have universal
authority. A general agent is one authorized to do all
acts pertaining to a business of a certain kind or at a
particular place, or all acts pertaining to a business of a
particular class or series. He has usually authority
either expressly conferred in general terms or in effect
made general by the usages, customs or nature of the
business which he is authorized to transact. An agent,
therefore, who is empowered to transact all the
business of his principal of a particular kind or in a
particular place, would, for this reason, be ordinarily
deemed a general agent. A special agent is one
authorized to do some particular act or to act upon
some particular occasion. lie acts usually in accordance
with specific instructions or under limitations
necessarily implied from the nature of the act to be
done.
One does not have to undertake a close scrutiny of
the document embodying the agreement between the
petitioners and the respondent to deduce that the
'latter was instituted as a general agent. Indeed, it can
easily be seen by the way general words were
employed in the agreement that no restrictions were
intended as to the manner the agency was to be
carried out or in the place where it was to be executed.
The power granted to the respondent was so broad
that it practically covers the negotiations leading to,
and the execution of, a contract of sale of petitioners'
merchandise with any entity or organization.
There is no merit in petitioners' allegations that the
contract of agency between the parties was entered
into under fraudulent representation because
respondent "would not disclose the agency with which
she was supposed to transact and made the petitioner
believe that she would be dealing with The Visayas",
and that "the petitioner had known of the transactions
and/or project for the said purchase of the Philippine
flags by the Department of Education and Culture and
precisely it was the one being followed up also by the
petitioner." If the circumstances were as claimed by the
petitioners, they would have exerted efforts to protect
their interests by limiting the respondent's authority.
There was nothing to prevent the petitioners from
stating in the contract of agency that the respondent
could represent them only in the Visayas. Or to state
that the Department of Education and Culture and the
Department of National Defense, which alone would
need a million pesos worth of flags, are outside the
scope of the agency. As the trial court opined, it is
incredible that they could be so careless after being in
the business for fifteen years.
A cardinal rule of evidence embodied in Section 7
Rule 130 of our Revised Rules of Court states that
"when the terms of an agreement have been reduced
to writing, it is to be considered as containing all such
terms, and, therefore, there can be between the
parties and their successors-in-interest, no evidence of
the terms of the agreement other than the contents of
the writing", except in cases specifically mentioned in
the same rule. Petitioners have failed to show that their
agreement falls under any of these exceptions. The
respondent was given ample authority to transact with
the Department in behalf of the petitioners. Equally
without merit is the petitioners' proposition that the
transaction involved two separate contracts because
there were two purchase orders and two deliveries. The
petitioners' evidence is overcome by other pieces of
evidence proving that there was only one transaction.
6. Veloso vs CA (1996)
Facts:
Petitioner Francisco Veloso was the owner of a parcel of
land situated in the district of Tondo, Manila, with an
 Civil Law Review II Case Digests
area of 177 square meters. The title was registered in
the name of Francisco A. Veloso. The said title was
subsequently cancelled and a new one issued in the
name of Aglaloma B. Escario, married to Gregorio L.
Escario, on May 24, 1988.
On August 24, 1988, petitioner Veloso filed an action
for annulment of documents, reconveyance of property
with damages and preliminary injunction and/or
restraining order. Petitioner alleged therein that he was
the absolute owner of the subject property and he
never authorized anybody, not even his wife, to sell it.
He alleged that he was in possession of the title but
when his wife, Irma, left for abroad, he found out that
his copy was missing. He then verified with the
Registry of Deeds of Manila and there he discovered
that his title was already canceled in favor of
defendant Aglaloma Escario.
The transfer of property was supported by a
General Power of Attorney dated November 29, 1985
and Deed of Absolute Sale, dated November 2, 1987,
executed by Irma Veloso, wife of the petitioner and
appearing as his attorney-in-fact, and defendant
Aglaloma Escario.
Petitioner Veloso, however, denied having executed the
power of attorney and alleged that his signature was
falsified. He also denied having seen or even known
Rosemarie Reyes and Imelda Santos, the supposed
witnesses in the execution of the power of attorney. He
vehemently denied having met or transacted with the
defendant. Thus, he contended that the sale of the
property, and the subsequent transfer thereof, were
null and void.
Defendant Aglaloma Escario in her answer alleged that
she was a buyer in good faith and denied any
knowledge of the alleged irregularity. She allegedly
relied on the general power of attorney of Irma Veloso
which was sufficient in form and substance and was
duly notarized.
Issue: Whether there was a valid sale of the subject
property.
Held: Yes, the sale of the subject property is valid. The
Supreme Court held that an examination of the records
showed that the assailed power of attorney was valid
and regular on its face. It was notarized and as such, it
carries the evidentiary weight conferred upon it with
respect to its due execution. While it is true that it was
denominated as a general power of attorney, a perusal
thereof revealed that it stated an authority to sell.
Respondent Aglaloma relied on the power of attorney
presented by petitioner's wife, Irma. Being the wife of
the owner and having with her the title of the property,
there was no reason for the private respondent not to
believe, in her authority. Thus, having had no inkling on
any irregularity and having no participation thereof,
private respondent was a buyer in good faith. It has
been consistently held that a purchaser in good faith is
one who buys property of another, without notice that
some other person has a right to, or interest in such
property and pays a full and fair price for the same, at
the time of such purchase, or before he has notice of
the claim or interest of some other person in the
property.
7. Cuison v. CA (1993)
Facts:
Kue Cuison is a sole proprietorship engaged in the
purchase and sale of newsprint, bond paper and scrap.
Valiant Investment Associates delivered various
kinds of paper products to a certain Tan. The deliveries
were made by Valiant pursuant to orders allegedly
placed by Tiac who was then employed in the Binondo
office of petitioner. Upon delivery, Tan paid for the
merchandise by issuing several checks payable to cash
at the specific request of Tiac. In turn, Tiac issued nine
(9) postdated checks to Valiant as payment for the
paper products. Unfortunately, sad checks were later
dishonored by the drawee bank. Thereafter, Valiant
made several demands upon petitioner to pay for the
merchandise in question, claiming that Tiac was duly
authorized by petitioner as the manager of his Binondo
office, to enter into the questioned transactions with
Valiant and Tan. Petitioner denied any involvement in
the transaction entered into by Tiac and refused to pay
Valiant.
Left with no recourse, private respondent filed an
action against petitioner for the collection of sum of
money representing the price of the merchandise. After
due hearing, the trial court dismissed the complaint
against petitioner for lack of merit. On appeal,
however, the decision of the trial court was modified,
but was in effect reversed by the CA. CA ordered
petitioner to pay Valiant with the sum plus interest, AF
and costs.
Issue: Whether or not Tiac possessed the required
authority from petitioner sufficient to hold the latter
liable for the disputed transaction.
Held: YES. As to the merits of the case, it is a well-
established rule that one who clothes another with
apparent authority as his agent and holds him out to
the public as such cannot be permitted to deny the
authority of such person to act as his agent, to the
prejudice of innocent third parties dealing with such
person in good faith and in the honest belief that he is
what he appears to be It matters not whether the
representations are intentional or merely negligent so
long as innocent, third persons relied upon such
representations in good faith and for value. Article
1911 of the Civil Code provides: Even when the agent
has exceeded his authority, the principal is solidarily
liable with the agent if the former allowed the latter to
act as though he had full powers. The above-quoted
article is new. It is intended to protect the rights of
 Civil Law Review II Case Digests
innocent persons. In such a situation, both the principal
and the agent may be considered as joint tortfeasors
whose liability is joint and solidary.
It is evident from the records that by his own acts
and admission, petitioner held out Tiac to the public as
the manager of his store in Binondo. More particularly,
petitioner explicitly introduced to Villanueva, Valiants
manager, as his (petitioners) branch manager as
testified to by Villanueva. Secondly, Tan, who has been
doing business with petitioner for quite a while, also
testified that she knew Tiac to be the manager of the
Binondo branch. Even petitioner admitted his close
relationship with Tiu Huy Tiac when he said that they
are like brothers There was thus no reason for
anybody especially those transacting business with
petitioner to even doubt the authority of Tiac as his
manager in the Binondo branch.
Tiac, therefore, by petitioners own representations
and manifestations, became an agent of petitioner by
estoppel, an admission or representation is rendered
conclusive upon the person making it, and cannot be
denied or disproved as against the person relying
thereon (Article 1431, Civil Code of the Philippines). A
party cannot be allowed to go back on his own acts and
representations to the prejudice of the other party who,
in good faith, relied upon them. Taken in this light,.
petitioner is liable for the transaction entered into by
Tiac on his behalf. Thus, even when the agent has
exceeded his authority, the principal is solidarily liable
with the agent if the former allowed the latter to fact
as though he had full powers (Article 1911 Civil Code),
as in the case at bar. Finally, although it may appear
that Tiac defrauded his principal (petitioner) in not
turning over the proceeds of the transaction to the
latter, such fact cannot in any way relieve nor
exonerate petitioner of his liability to private
respondent. For it is an equitable maxim that as
between two innocent parties, the one who made it
possible for the wrong to be done should be the one to
bear the resulting loss.
8. Rural Bank of Bombon v. CA (1992)
Facts:
Erlinda Gallardo authorized Rufina Aquino by virtue
of an SPA to secure a loan from any bank for any
amount or otherwise mortgage the property covered
by a TCT in her name. Thereafter, a Deed of Real Estate
Mortgage was executed by Aquino in favor of Rural
Bank of Bombon over Erlindas lands in Bicol. The deed
stated that the property was being given as security for
the payment of "certain loans, advances, or other
accommodations obtained by the mortgagor from the
mortgagee in the total sum of P350,000 plus interest.
Later on, Erlinda and her husband filed an action
against the bank and Rufino to annul the mortgaged,
alleging that Aquino mortgaged the properties to pay
for the personal loans obtained by Aquino from the
bank. Aquino in his answer said that the plaintiff
authorized him to mortgage her property to a bank so
that he could use the proceeds to liquidate her
obligation of P350,000 to him. The obligation to pay
the Rural Bank devolved on Gallardo. Of late, however,
she asked him to pay the Bank but defendant Aquino
set terms and conditions which plaintiff did not agree
to. Aquino asked for payment to him of moral damages
in the sum of P50,000 and lawyer's fees of P35,000.
The Rural Bank contended that the real estate
mortgage executed by respondent Aquino is valid
because he was expressly authorized by Gallardo to
mortgage her property under the special power of
attorney she made in his favor which was duly
registered and annotated on Gallardo's title. Since the
Special Power of Attorney did not specify or indicate
that the loan would be for Gallardo's benefit, then it
could be for the use and benefit of the attorney-in-fact,
Aquino.
Issue: Whether or not Erlina is bound by the deed of
mortgage executed by Rufino.
Held: No. It is a general rule in the law of agency that,
in order to bind the principal by a mortgage on real
property executed by an agent, it must upon its face
purport to be made, signed and sealed in the name of
the principal, otherwise, it will bind the agent only. It is
not enough merely that the agent was in fact
authorized to make the mortgage, if he has not acted
in the name of the principal. Neither is it ordinarily
sufficient that in the mortgage the agent describes
himself as acting by virtue of a power of attorney, if in
fact the agent has acted in his own name and has set
his own hand and seal to the mortgage. This is
especially true where the agent himself is a party to
the instrument. However clearly the body of the
mortgage may show and intend that it shall be the act
of the principal, yet, unless in fact it is executed by the
agent for and on behalf of his principal and as the act
and deed of the principal, it is not valid as to the
principal.
In view of this rule, Aquino's act of signing the
Deed of Real Estate Mortgage in his name alone as
mortgagor, without any indication that he was signing
for and in behalf of the property owner, Ederlinda
Gallardo, bound himself alone in his personal capacity
as a debtor of the petitioner Bank and not as the agent
or attorney-in-fact of Gallardo.
The appellant is correct in claiming that the
defendant Rural Bank should not have agreed to
extend or constitute the mortgage on the properties of
Gallardo who had no existing indebtedness with it at
the time. Under the facts the defendant Rural Bank
appeared to have ignored the representative capacity
of Aquino and dealt with him and his wife in their
personal capacities. Said appellee Rural Bank also did
not conduct an inquiry on whether the subject loans
were to benefit the interest of the principal (plaintiff
Gallardo) rather than that of the agent although the
deed of mortgage was explicit that the loan was for
purpose of the bangus and sugpo production of
defendant Aquino. In effect, with the execution of the
mortgage under the circumstances and assuming it to
be valid but because the loan taken was to be used
exclusively for Aquino's business in the "bangus" and
"sugpo" production, Gallardo in effect becomes a
surety who is made primarily answerable for loans
taken by Aquino in his personal capacity in the event
Aquino defaults in such payment. Under Art. 1878 of
the Civil Code, to obligate the principal as a guarantor
 Civil Law Review II Case Digests
or surety, a special power of attorney is required. No
such special power of attorney for Gallardo to be a
surety of Aquino had been executed.
Petitioner claims that the Deed of Real Estate
Mortgage is enforceable against Gallardo since it was
executed in accordance with Article 1883 which
provides: "If an agent acts in his own name, the
principal has no right of action against the persons with
whom the agent has contracted; neither have such
persons against the principal. In such case the agent is
the one directly bound in favor of the person with
whom he has contracted, as if the transaction were his
own, except when the contract involves things
belonging to the principal."
The above provision of the Civil Code relied upon
by the petitioner Bank, is not applicable to the case at
bar. Herein respondent Aquino acted purportedly as an
agent of Gallardo, but actually acted in his personal
capacity. Involved herein are properties titled in the
name of respondent Gallardo against which the Bank
proposes to foreclose the mortgage constituted by an
agent (Aquino) acting in his personal capacity. There is
no principle of law by which a person can become
liable on a real mortgage which she never executed
either in person or by attorney in fact. It should be
noted that this is a mortgage upon real property, the
title to which cannot be divested except by sale on
execution or the formalities of a will or deed. For such
reasons, the law requires that a power of attorney to
mortgage or sell real property should be executed with
all of the formalities required in a deed. For the same
reason that the personal signature of Poizat, standing
alone, would not convey the title of his wife in her own
real property, such a signature would not bind her as a
mortgagor in real property, the title to which was in her
name.
9. DBP v. CA (1994)
Facts:
Juan Dans, together with his wife Candida, his son
and daughter in law, applied for P500,000 loan with
DBP, which advised Dans, then 76 years old, to obtain
a mortgage redemption insurance (MRI) with the DBP
MRI Pool. A loan, in the reduced amount of
P300,000.00, was approved by DBP on August 4, 1987
and released on August 11, 1987. From the proceeds of
the loan, DBP deducted the amount of P1,476.00 as
payment for the MRI premium. On August 15, 1987,
Dans accomplished and submitted the "MRI Application
for Insurance" and the "Health Statement for DBP MRI
Pool."
Dans, however, died 19 days later. DBP informed
his family that the MRI application was disapproved
and tried to return the premium, but Danss family
rejected.
Danss estatefiled a collection suit against DBP and
its MRI pool. Respondent Estate alleged that Dans
became insured by the DBP MRI Pool when DBP, with
full knowledge of Dans' age at the time of application,
required him to apply for MRI, and later collected the
insurance premium thereon.
The RTC and the CA ruled in favor of the estate.
Issue: Whether or not DBP is liable.
Held: Yes. Undisputably, the power to approve MRI
applications is lodged with the DBP MRI Pool. The pool,
however, did not approve the application of Dans.
There is also no showing that it accepted the sum of
P1,476.00, which DBP credited to its account with full
knowledge that it was payment for Dan's premium.
There was, as a result, no perfected contract of
insurance; hence, the DBP MRI Pool cannot be held
liable on a contract that does not exist.
In dealing with Dans, DBP was wearing two legal
hats: the first as a lender, and the second as an
insurance agent. As an insurance agent, DBP made
Dans go through the motion of applying for said
insurance, thereby leading him and his family to
believe that they had already fulfilled all the
requirements for the MRI and that the issuance of their
policy was forthcoming. Apparently, DBP had full
knowledge that Dan's application was never going to
be approved. The maximum age for MRI acceptance is
60 years as clearly and specifically provided in Article 1
of the Group Mortgage Redemption Insurance Policy
signed in 1984 by all the insurance companies
concerned (Exh. "1-Pool").
Under Article 1987 of the Civil Code of the
Philippines, "the agent who acts as such is not
personally liable to the party with whom he contracts,
unless he expressly binds himself or exceeds the limits
of his authority without giving such party sufficient
notice of his powers."
The DBP is not authorized to accept applications
for MRI when its clients are more than 60 years of age
(Exh. "1-Pool"). Knowing all the while that Dans was
ineligible for MRI coverage because of his advanced
age, DBP exceeded the scope of its authority when it
accepted Dan's application for MRI by collecting the
insurance premium, and deducting its agent's
commission and service fee. The liability of an agent
who exceeds the scope of his authority depends upon
whether the third person is aware of the limits of the
agent's powers. There is no showing that Dans knew of
the limitation on DBP's authority to solicit applications
for MRI. If the third person dealing with an agent is
unaware of the limits of the authority conferred by the
principal on the agent and he (third person) has been
deceived by the non-disclosure thereof by the agent,
then the latter is liable for damages to him (V
Tolentino, Commentaries and Jurisprudence on the Civil
Code of the Philippines, p. 422 [1992], citing Sentencia
[Cuba] of September 25, 1907).
10. Green Valley v. IAC (1984)
Facts:
In 1969, GREEN VALEY POULTRY AND ALLIED
PRODUCTS entered into a letter agreement with
SQUIBB & SONS PHILIPPINE CORPORATION. The details
of the agreement state that Green Valley will be the
nonexclusive distributor of the products of Squibb
Veterinary Products. As its distributor Green Valley is
entitled to 10% discount on Squibbs whole sale price
and catalogue price. Green Valley is also limited to
selling Squibbs products to central and northern
 Civil Law Review II Case Digests
Luzon. Payment for purchases from Squibb will be due
60 days from date of invoice, etc. For goods delivered
to Green Valley but unpaid, Squibb filed a suit to
collect. Squibb argues that their relationship with
Green Valley is a mere contract of sale as evidenced by
the stipulation that Green Valley was obligated to pay
for the goods received upon the expiration of the 60-
day credit period. Green Valley counters that the
relationship between itself and Squibb is that of an
agency to sell.
Issue: Whether or not Green Valley is an agent of
Squibb.
Held: Whether viewed as an agency to sell or as a
contract of sale GREEN VALLEY is liable to Squibb for
the unpaid products. If it is a contract of sale then the
Green Valley is liable by just merely enforcing the clear
words of the contract. If it is an agency then Green
Valley is liable because it sold on credit without
authority from its principal. The Civil Code says: Art.
1905 The commission agent cannot without the
express or implied consent of the principal, sell on
credit. Should he do so, the principal may demand from
him payment in cash, but the commission agent shall
be entitled to any interest or benefit, which may result
from such sale.
11. Green Valley v. IAC (1984)
Facts:
Tourist World Service, Inc. leased the premises
belonging to Mrs. Noguerra for the formers use as a
branch office. Lina Sevilla bound herself solidarily liable
with TWS for the payment of the monthly rental. When
the branch office was opened, the same was run by
Sevilla. TWS was later informed that Lina Sevilla was
connected with a rival firm, and, alleging that since the
branch office was anyhow losing, TWS considered
closing down its office. When neither the appellant Lina
Sevilla nor any of her employees could enter the
branch office after it has been locked by TWS
corporate secretary, a complaint was filed by
appellants against the appellees with a prayer for the
issuance of mandatory preliminary injunction. Lina
Sevilla claims that a joint business venture was entered
into by and between her and appellee TWS and that
she was not an employee of the TWS. The trial court
held for the private respondent on the premise that
Tourist World Service, Inc., being the true lessee, has
the right to terminate the lease and padlock the
premises. It likewise found Lina Sevilla, to be a mere
employee of said Tourist World Service, Inc. and as
such, she was bound by the acts of her employer. The
respondent Court of Appeal rendered an affirmance.
Issue: Whether or not Sevilla is an employee of Tourist
World.
Held: No. Rather, she is an agent of Tourist World.
When Lina managed TWS office, she must have done
so pursuant to a contract of agency. It is the essence of
this contract that the agent renders services "in
representation or on behalf of another. In the case at
bar, Sevilla solicited airline fares, but she did so for and
on behalf of her principal, TWS. As compensation, she
received commissions. The agency compatible with the
intent of the parties, cannot be revoked at will. The
reason is that it is one coupled with an interest, the
agency having been created for mutual interest, of the
agent and the principal. 19 It appears that Lina is a
travel agent herself, and as such, she had acquired an
interest in the business entrusted to her. Moreover, she
had bound herself solidarily liable for the payment of
rentals. She continued the business, using her own
name, after Tourist World had stopped further
operations. Her interest is not to the commissions she
earned, but one that extends to the very subject
matter of the power of management delegated to her.
It is an agency that, as we said, cannot be revoked at
the pleasure of the principal. Accordingly, the
revocation complained of should entitle the petitioner,
Lina Sevilla, to damages.
12. Valenzuela v. CA (1990)
Facts:
Petitioner Valenzuela, a General Agent respondent
Philamgen, was authorized to solicit and sell all kinds
of non-life insurance. He had a 32.5% commission rate.
From 1973 to 1975, Valenzuela solicited marine
insurance from Delta Motors, Inc. in the amount of P4.4
Million from which he was entitled to a commission of
32%. However, Valenzuela did not receive his full
commission which amounted to P1.6 Million from the
P4.4 Million. Premium payments amounting to
P1,946,886.00 were paid directly to Philamgen.
Valenzuelas commission amounted to P632,737.00.
Philamgen wanted to cut Valenzuelas commission to
50% of the amount. He declined. When Philamgen
offered again, Valenzuela firmly reiterated his
objection. Philamgen took drastic action against
Valenzuela. They: reversed the commission due him,
threatened the cancellation of policies issued by his
agency, and started to leak out news that Valenzuela
has a substantial debt with Philamgen. His agency
contract was terminated. The petitioners sought relief
by filing the complaint against the private respondents.
The trial court found that the principal cause of the
termination as agent was his refusal to share his Delta
commission. The court considered these acts as
harassment and ordered the company to pay for the
resulting damage in the value of the commission. They
also ordered the company to pay 350,000 in moral
damages. The company appealed. The CA ordered
Valenzuela to pay the entire amount of the
commission. Hence, this appeal by Valenzuela.
Issue: Whether or not the agency contract is coupled
with an interest on the part of Valenzuela.
Held: Yes. In any event the principal's power to revoke
an agency at will is so pervasive, that the Supreme
Court has consistently held that termination may be
effected even if the principal acts in bad faith, subject
only to the principal's liability for damages. The
Supreme Court accorded great weight on the trial
courts factual findings and found the cause of the
conflict to be Valenzuelas refusal to share the
commission. Philamgen told the petitioners of its desire
to share the Delta Commission with them. It stated that
should Delta back out from the agreement, the
petitioners would be charged interests through a
 Civil Law Review II Case Digests
reduced commission after full payment by Delta.
Philamgen proposed reducing the petitioners'
commissions by 50% thus giving them an agent's
commission of 16.25%. The company insisted on the
reduction scheme. The company pressured the agents
to share the income with the threat to terminate the
agency. The petitioners were also told that the Delta
commissions would not be credited to their account.
This continued until the agency was terminated.
Records also show that the agency is one "coupled with
an interest," and, therefore, should not be freely
revocable at the unilateral will of the company. The
records sustain the finding that the private respondent
started to covet a share of the insurance business that
Valenzuela had built up, developed and nurtured. The
company appropriated the entire insurance business of
Valenzuela. Worse, despite the termination of the
agency, Philamgen continued to hold Valenzuela jointly
and severally liable with the insured for unpaid
premiums. Under these circumstances, it is clear that
Valenzuela had an interest in the continuation of the
agency when it was unceremoniously terminated not
only because of the commissions he procured, but also
Philamgens stipulation liability against him for unpaid
premiums. The respondents cannot state that the
agency relationship between Valenzuela and Philamgen
is not coupled with interest. There is an exception to
the principle that an agency is revocable at will and
that is when the agency has been given not only for
the interest of the principal but also for the mutual
interest of the principal and the agent. The principal
may not defeat the agent's right to indemnification by
a termination of the contract of agency. Also, if a
principal violates a contractual or quasi-contractual
duty which he owes his agent, the agent may as a rule
bring an appropriate action for the breach of that duty.
Hence, if a principal acts in bad faith and with
abuse of right in terminating the agency, then he is
liable in damages. The Civil Code says that "every
person must in the exercise of his rights and in the
performance of his duties act with justice, give every
one his due, and observe honesty and good faith: (Art.
19, Civil Code), and every person who, contrary to law,
wilfully or negligently causes damages to another, shall
indemnify the latter for the same (Art. 20, Civil Code).
As to the issue of whether or not the petitioners are
liable to Philamgen for the unpaid and uncollected
premiums which the appellate court ordered
Valenzuela to pay, the respondent court erred in
holding Valenzuela liable. Under Section 77 of the
Insurance Code, the remedy for the non-payment of
premiums is to put an end to and render the insurance
policy not binding. Philippine Phoenix- non-payment of
premium does not merely suspend but puts an end to
an insurance contract since the time of the payment is
peculiarly of the essence of the contract. Section 776
of the insurance Code says that no contract of
insurance by an insurance company is valid and
binding unless and until the premium has been paid,
notwithstanding any agreement to the contrary Since
the premiums have not been paid, the policies issued
have lapsed. The insurance coverage did not go into
effect or did not continue and the obligation of
Philamgen as insurer ceased. Philam cant demand
from or sue Valenzuela for the unpaid premiums. The
court held that the CAs giving credence to an audit
that showed Valenzuela owing Philamgen
P1,528,698.40 was unwarranted. Valenzuela had no
unpaid account with Philamgen. But, facts show that
the beginning balance of Valenzuela's account with
Philamgen amounted to P744,159.80. 4 statements of
account were sent to the agent. It was only after the
filing of the complaint that a radically different
statement of accounts surfaced in court. Certainly,
Philamgen's own statements made by its own
accountants over a long period of time and covering
examinations made on four different occasions must
prevail over unconfirmed and unaudited statements
made to support a position made in the course of
defending against a lawsuit. The records of Philamgen
itself are the best refutation against figures made as an
afterthought in the course of litigation. Moreover,
Valenzuela asked for a meeting where the figures
would be reconciled. Philamgen refused to meet with
him and, instead, terminated the agency agreement.
After off-setting the amount, Valenzuela had overpaid
Philamgen the amount of P530,040.37 as of November
30, 1978. Philamgen cannot later be heard to complain
that it committed a mistake in its computation. The
alleged error may be given credence if committed only
once. But as earlier stated, the reconciliation of
accounts was arrived at four (4) times on different
occasions where Philamgen was duly represented by
its account executives. On the basis of these
admissions and representations, Philamgen cannot
later on assume a different posture and claim that it
was mistaken in its representation with respect to the
correct beginning balance as of July 1977 amounting to
P744,159.80. The audit report commissioned by
Philamgen is unreliable since its results are admittedly
based on an unconfirmed and unaudited beginning
balance of P1,758,185.43. Philamgen has been
appropriating for itself all these years the gross billings
and income that it took away from the petitioners. A
principal can be held liable for damages in cases of
unjust termination of agency. This Court ruled that
where no time for the continuance of the contract is
fixed by its terms, either party is at liberty to terminate
it at will, subject only to the ordinary requirements of
good faith. The right of the principal to terminate his
authority is absolute and unrestricted, except only that
he may not do so in bad faith. The circumstances of
the case, however, require that the contractual
relationship between the parties shall be terminated
upon the satisfaction of the judgment. No more claims
arising from or as a result of the agency shall be
entertained by the courts after that date.
CREDIT TRANSACTIONS
1. Eastern Shipping Lines v. CA (1994)
Parties:
Mercantile Insurance Company Insurer
(plaintiff in this case)
Eastern Shipping Lines Shipping Company
Metro Port Service, Inc. Arrastre Operator
Allied Brokerage Corporation Customs Broker
Facts:
 Civil Law Review II Case Digests
Two fiber drums of riboflavin were shipped from
Japan via a vessel owned by Eastern Shipping Lines.
The shipment was insured by Mercantile Insurance
Company. Upon arrival of the shipment in Manila, it was
discharged unto the custody of Metro Port, which
excepted to one drum said to be in bar order, which
damage was unknown to the Insurer. Later on, Allied
Brokerage received the shipment, one drum opened
and without seal. It then delivered the shipment to the
consignees warehouse, which excepted to one drum
which contained spillages, while the rest of the
contents was adulterated/fake. As a result of the
losses, Insurer paid the consignee in accordance with
its insurance policy. Exercising its right of subrogation,
the Insurer sued Eastern Shipping Lines, Metro Port
Service and Allied Brokerage Corporation for damages.
The trial court (upheld by the CA) ruled in favour of
the Insurer and adjudged defendants jointly and
severally liable to pay:
The amount of P19,032.95, with the present legal
interest of 12% per annum from October 1, 1982,
the date of filing of this complaints, until fully paid
(the liability of defendant Eastern Shipping, Inc.
shall not exceed US$500 per case or the CIF value
of the loss, whichever is lesser, while the liability of
defendant Metro Port Service, Inc. shall be to the
extent of the actual invoice value of each package,
crate box or container in no case to exceed
P5,000.00 each, pursuant to Section 6.01 of the
Management Contract);
Issues:
1. Whether or not the payment of legal interest on
an award for loss or damage is to be computed from
the complaint is filed or from the date the decision
appealed from is rendered.
2. Whether the applicable rate of interest, referred
to above, is 12% or 6%.
Ruling:
I. 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. The provisions under Title XVIII on
"Damages" of the Civil Code govern in determining the
measure of recoverable damages.
II. 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. 21 Furthermore, the interest due shall itself
earn legal interest from the time it is judicially
demanded. 22 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 an 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 24 at the rate of
6% per annum. 25 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 the judgment of the court is
made (at which time the quantification of damages
may be deemed to have been reasonably
ascertained). The actual base for the computation
of legal interest shall, in any case, be on the
amount finally adjudged.
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.
2. Sps. Florendo v. CA (1996)
Facts:
Gilda Florendo was an employee of Land Bank from
May 17, 1976 until August 16, 1984 when she
voluntarily resigned. However, before her resignation,
she applied for a housing loan of P148,000.00, payable
within 25 years from Land Banks Provident Fund on
July 20, 1983. On March 19, 1985, Land Bank increased
the interest rate on Florendos loan from 9% per
annum to 17%, the said increase to take effect on
March 19, 1985. Spouses Florendo protested the
increase in a letter dated June 11, 1985 to which Land
Bank replied through a letter. Thereafter, Land Bank
kept on demanding that Florendo pay the increased
interest or the new monthly installments based on the
increased interest rate, but Spouses Florendo
vehemently maintained that the said increase is
unlawful and unjustifiable. Because of Land Banks
repeated demands, Spouses Florendo were forced to
file the instant suit for injunction and damages.
Issue: Whether the respondent bank has a valid and
legal basis to impose an increased interest rate on the
Florendo's housing loan.
Ruling: NONE. In Banco Filipino Savings & Mortgage
Bank vs. Navarro 152 SCRA 346 (1987), the Supreme
 Civil Law Review II Case Digests
Court in essence ruled that in general there is nothing
inherently wrong with escalation clauses. In IBAA vs.
Spouses Salazar 159 SCRA 133 (1988), the Court
reiterated the rule that escalation clauses are valid
stipulations in commercial contracts to maintain fiscal
stability and to retain the value of money in long term
contracts. However, the unilateral determination and
imposition of increased interest rates by Land Bank is
obviously violative of the principle of mutuality of
contracts ordained in Article 1308 of the Civil Code.
3. PNB v. CA and Spouses Fernandez (1994)
Facts:
Spouses Fernandez (private respondents) obtained
a loan from PNB in the amount of P50,000 as
evidenced by a Credit Agreement. The credit
agreement, promissory note and the deed of real
estate mortgage executed by private respondents. all
contained a stipulation to the effect that PNB reserves
the right to increase the interest rate within the limits
allowed by law at any time depending on whatever
policy it may adopt in the future. Later on, private
respondents were granted another loan secured by
another real estate mortgage with the same
stipulations. Meanwhile, PNB gradually increased the
interest rate from 6% to 30% to 12%.
Private respondents filed an action for specific
performance against PNB and NACIDA praying that the
court orders PNB and NACIDA to issue in their favor a
release of mortgage among others.
The RTC dismissed the complaint, while the CA
reversed the dismissal with respect to PNB and
disallowed the increases in interest rates.
Issue: Whether or not PNBs unilateral increase of the
interest rate proper.
Ruling: No. P.D. No. 1684 and C.B. Circular No. 905 no
more than allow contracting parties to stipulate freely
regarding any subsequent adjustment in the interest
rate that shall accrue on a loan or forbearance of
money, goods or credits. In fine, they can agree to
adjust, upward or downward, the interest previously
stipulated. However, contrary to the stubborn
insistence of petitioner bank, the said law and circular
did not authorize either party to unilaterally raise the
interest rate without the other's consent. It is basic that
there can be no contract in the true sense in the
absence of the element of agreement, or of mutual
assent of the parties. If this assent is wanting on the
part of the one who contracts, his act has no more
efficacy than if it had been done under duress or by a
person of unsound mind. Similarly, contract changes
must be made with the consent of the contracting
parties. The minds of all the parties must meet as to
the proposed modification, especially when it affects
an important aspect of the agreement. In the case of
loan contracts, it cannot be gainsaid that the rate of
interest is always a vital component, for it can make or
break a capital venture. Thus, any change must be
mutually agreed upon, otherwise, it is bereft of any
binding effect. We cannot countenance petitioner
bank's posturing that the escalation clause at bench
gives it unbridled right to unilaterally upwardly adjust
the interest on private respondents' loan. That would
completely take away from private respondents the
right to assent to an important modification in their
agreement, and would negate the element of mutuality
in contracts.
4. Medel v. CA (1998)
Facts:
In this case, there were three loan transactions on
November 7 and 19, 1985 and on June 11, 1986.
Servando and Medel obtained a loan from Veronica
who was engaged in the money lending business under
the name "Gonzales Credit Enterprises" as evidenced
by promissory notes. On maturity of the first two
promissory notes, the borrowers failed to pay their
indebtedness. Consequently, like the previous loans,
Servando and Medel failed to pay the third loan on
maturity. Servando and Medel 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. In the
promissory note it was stipulated that Servando and
Medels loan would earn interest at 5.5% per month
plus 2% service charge per annum until fully paid
according to the amortization schedule contained
therein.
Issue: Whether the stipulated rate of interest at 5.5%
per month on the loan of P500,000.00 is usurious.
Ruling: NO. The stipulated rate of interest at 5.5% per
month is excessive, iniquitous, unconscionable and
exorbitant. However it is not usurious because as
consistently held, Circular No. 905 of the Central Bank,
adopted on December 22, 1982, has expressly
removed the interest ceilings of the Usury Law and that
the Usury Law is now legally inexistent. Interest can
now be charged as lender and borrower may agree
upon. The interest of 5.5% per month, or 66% per
annum, stipulated upon by the parties in the
promissory note is iniquitous or unconscionable, and,
hence, contrary to morals ("contra bonos mores"), if
not against the law. 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.
5. PNB v. CA and Spouses Fernandez (1994)
Facts:
On 1986, 1987, and 1990 the Solangons executed
3 real estate mortgages in which they mortgaged a
parcel of land situated in Sta. Maria, Bulacan, in favor
of the Salazar to secure payment of a loan of P60,
000.00 payable within a period of four (4) months, with
interest thereon at the rate of 6% per month, to secure
payment of a loan of P136, 512.00, payable within a
period of one (1) year, with interest thereon at the
legal rate, and to secure payment of a loan in the
amount of P230, 000.00 payable within a period of four
(4) months, with interest thereon at the legal rate. This
action was initiated by the Solangons to prevent the
foreclosure of the mortgaged property. They alleged
 Civil Law Review II Case Digests
that they obtained only one loan form the defendant-
appellee, and that was for the amount of P60, 000.00,
the payment of which was secured by the first of the
above-mentioned mortgages. The subsequent
mortgages were merely continuations of the first one,
which is null and void because it provided for
unconscionable rate of interest. They have already paid
the defendant-appellee P78, 000.00 and tendered P47,
000.00 more, but the latter has initiated foreclosure
proceedings for their alleged failure to pay the loan
P230, 000.00 plus interest.
Issue: Whether or not the interest rate of 6% per
month unconscionable.
Ruling: Yes, although the C.B. Circular No 905 lifted
the ceiling on interest rates there is nothing in the said
circular that grants lenders carte blanche authority to
raise interest rates to levels which will either enslave
their borrowers or lead to hemorrhaging of their assets.
In the case of Medel vs. C.A. the S.C. has held that
5.5% per month was reduced for being iniquitous,
unconscionable and exorbitant hence it is contrary to
morals (contra bonos mores). In this case, the
Solangons are in a worse situation than the Medel
case (6% per month interest rate) the said interest rate
should be reduced equitably.
6. Dio v. Jardines (2006)
Facts:
On December 14, 1992, Leonides C. Dio
(petitioner) filed a Petition for Consolidation of
Ownership with the Regional Trial Court of Baguio City,
Branch 7 (RTC). She alleged that: on January 31, 1987,
Lina Jardines (respondent) executed in her favor a
Deed of Sale with Pacto de Retro over a parcel of land
with improvements thereon covered by Tax Declaration
No. 44250, the consideration for which amounted to
P165,000.00; it was stipulated in the deed that the
period for redemption would expire in six months or on
July 29, 1987; such period expired but neither
respondent nor any of her legal representatives were
able to redeem or repurchase the subject property; as
a consequence, absolute ownership over the property
has been consolidated in favor of petitioner.
Respondent countered in her Answer that: the
Deed of Sale with Pacto de Retro did not embody the
real intention of the parties; the transaction actually
entered into by the parties was one of simple loan and
the Deed of Sale with Pacto de Retro was executed just
as a security for the loan; the amount borrowed by
respondent during the first week of January 1987 was
only P50,000.00 with monthly interest of 9% to be paid
within a period of six months, but since said amount
was insufficient to buy construction materials for the
house she was then building, she again borrowed an
additional amount of P30,000.00; it was never the
intention of respondent to sell her property to
petitioner; the value of respondents residential house
alone is over a million pesos and if the value of the lot
is added, it would be around one and a half million
pesos; it is unthinkable that respondent would sell her
property worth one and a half million pesos for only
P165,000.00; respondent has even paid a total of
P55,000.00 out of the amount borrowed and she is
willing to settle the unpaid amount, but petitioner
insisted on appropriating the property of respondent
which she put up as collateral for the loan; respondent
has been the one paying for the realty taxes on the
subject property; and due to the malicious suit filed by
petitioner, respondent suffered moral damages.
The RTC ruled in favor of petitioner, but the CA
reversed, holding that the true nature of the contract
between the parties was one of equitable mortgage.
The Supreme Court agreed with the CA.
Issue: Whether or not the 9% or 10% monthly interest
rate unconscionable.
Ruling: Yes. Applying the afore-cited rulings to the
instant case, the inescapable conclusion is that the
agreed interest rate of 9% per month or 108% per
annum, as claimed by respondent; or 10% per month
or 120% per annum, as claimed by petitioner, is clearly
excessive, iniquitous, unconscionable and exorbitant.
Although respondent admitted that she agreed to the
interest rate of 9%, which she believed was exorbitant,
she explained that she was constrained to do so as she
was badly in need of money at that time. As declared
in the Medel case and Imperial vs. Jaucian, [i]niquitous
and unconscionable stipulations on interest rates,
penalties and attorneys fees are contrary to morals.
Thus, in the present case, the rate of interest being
charged on the principal loan of P165,000.00, be it 9%
or 10% per month, is void. The CA correctly reduced
the exhorbitant rate to legal interest.
Applied to the present case, since the agreed
interest rate is void, the parties are considered to have
no stipulation regarding the interest rate. Thus, the
rate of interest should be 12% per annum to be
computed from judicial or extrajudicial demand,
subject to the provisions of Article 1169 of the Civil
Code: Those obliged to deliver or to do something
incur in delay from the time the obligee judicially or
extrajudicially demands from them the fulfillment of
the obligation. However, the demand by the creditor
shall not be necessary in order that delay may exist:
(1) When the obligation or the law expressly so
declares; or (2) When from the nature and the
circumstances of the obligation it appears that the
designation of the time when the thing is to be
delivered or the service is to be rendered was a
controlling motive for the establishment of the
contract; or (3) When demand would be useless, as
when the obligor has rendered it beyond his power to
perform.
The records do not show any of the circumstances
enumerated above. Consequently, the 12% interest
should be reckoned from the date of extrajudicial
demand. Petitioner testified that she went to
respondents place several times to try to collect
payment, but she (petitioner) failed to specify the
dates on which she made such oral demand. The only
evidence which clearly shows the date when petitioner
made a demand on respondent is the demand letter
dated March 19, 1989 (Exh. C), which was received by
respondent or her agent on March 29, 1989 per the
Registry Return Receipt (Exh. C- 1). Hence, the interest
of 12% per annum should only begin to run from March
 Civil Law Review II Case Digests
29, 1989, the date respondent received the demand
letter from petitioner.
7. Imperial v. Jaucian (2004)
Facts:
Petitioner obtained six (6) separate loans
amounting to P 320,000.00 from the respondent. In the
written agreement, they agreed upon the 16% interest
per month plus penalty charge of 5% per month and
the 25% attorneys fee, failure to pay the said loans on
the stipulated date. Petitioner executed six (6)
separate promissory notes and issued several checks
as guarantee for payment. When the said loans
become overdue and unpaid, especially when the
petitioners checks issued were dishonored, respondent
made repeated oral and written demands for payment.
The petitioner was able to pay only P 116,540.00 as
found by the RTC. Although she alleged that she had
already paid the amount of P 441,780.00 and the
excess of P 121,780.00 is more than the interest that
could be legally charged, the Court affirms the findings
of RTC that petitioner is still indebted to the
respondent.
Issue: Whether or not the stipulated interest of 16%
per month, 5% per month for penalty charge and 25%
attorneys fee are unconscionable.
Ruling: YES. The rate must be equitably reduced for
being iniquitous, unconscionable and exorbitant. While
the Usury Law ceiling on interest rates was lifted by
C.B. Circular No. 905, nothing in the said circular grants
lenders carte blanche authority to raise interests rates
to levels which will either enslave their borrowers or
lead to a hemorrhaging of their assets. When the
agreed rate is iniquitous or unconscionable, it
considered contrary to morals, if not against the law.
Such stipulation is void. Since the stipulation is void, it
is as if there was no express contract thereon. Hence,
courts may reduce the interest rate as reason and
equity demand. The interest rate of 16% per month
was reduced to 1.167% per month or 14% per annum
and the penalty charge of 5% per month was also
reduced to 1.167% per month or 14% per annum. 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, morals, public order or public
policy, it is binding upon the obligor. Nevertheless, in
the case at bar, petitioners failure to comply fully with
her obligation was not motivated by ill will or malice.
The partial payments she made were manifestations of
her good faith. Hence the attorneys fees were reduced
to 10% of the total due and payable.
The trial court, as affirmed by the CA, reduced the
interest rate from 16 percent to 1.167 percent per
month or 14 percent per annum; and the stipulated
penalty charge, from 5 percent to 1.167 percent per
month or 14 percent per annum. Petitioner alleges that
absent any written stipulation between the parties, the
lower courts should have imposed the rate of 12
percent per annum only. The records show that there
was a written agreement between the parties for the
payment of interest on the subject loans at the rate of
16 percent per month. As decreed by the lower courts,
this rate must be equitably reduced for being
iniquitous, unconscionable and exorbitant. "While the
Usury Law ceiling on interest rates was lifted by C.B.
Circular No. 905, nothing in the said circular grants
lenders carte blanche authority to raise interest rates
to levels which will either enslave their borrowers or
lead to a hemorrhaging of their assets." In Medel v. CA,
the Court found the stipulated interest rate of 5.5
percent per month, or 66 percent per annum,
unconscionable. In the present case, the rate is even
more iniquitous and unconscionable, as it amounts to
192 percent per annum. When the agreed rate is
iniquitous or unconscionable, it is considered "contrary
to morals, if not against the law. [Such] stipulation is
void." Since the stipulation on the interest rate is void,
it is as if there were no express contract thereon.
Hence, courts may reduce the interest rate as reason
and equity demand.3 We find no justification to reverse
or modify the rate imposed by the two lower courts.
8. Gullas v. PNB (1935)
Facts:
Cebu The Treasurer for the US Veterans Bureau
issued a warrant in the amount of $361 payable to the
order of Francisco Bascos who indorsed it to Atty.
Paulino Gullas and Pedro Lopez. Gullas and Lopez
further indorsed the warrant to PNB. However, the US
Veterans Bureau later on dishonored the instrument.
PNB notified Gullas, who happened to be a depositor of
PNB, it applied the outstanding balance of Gullas with
PNB for the partial payment of the warrant. Gullas, who
was in Manila at that time, so he did not get the notice.
Because of the deduction PNB made, checks issued
by Gullas for the payment of his insurance were not
paid.
Issues: (1) Whether or not PNB had the right to apply
the deposit to the debt of Gullas; and (2) Whether or
not PNB is liable to Gullas for damages.
Ruling:
(1) Yes. As a general rule, a bank has a right of set
off of the deposits in its hands for the payment of any
indebtedness to it on the part of a depositor.
(2) Yes. Starting, therefore, from the premise that
the Philippine National Bank had with respect to the
deposit of Gullas a right of set off, we next consider if
that remedy was enforced properly. The fact we believe
is undeniable that prior to the mailing of notice of
dishonor, and without waiting for any action by Gullas,
the bank made use of the money standing in his
account to make good for the treasury warrant. At this
point recall that Gullas was merely an indorser and had
issued in good faith. As to a depositor who has funds
sufficient to meet payment of a check drawn by him in
favor of a third party, it has been held that he has a
right of action against the bank for its refusal to pay
such a check in the absence of notice to him that the
bank has applied the funds so deposited in
3 Note: Just because a stipulated interest rate is
unconscionable, it does not follow that the court would
automatically impose the legal interest rate.
 Civil Law Review II Case Digests
extinguishment of past due claims held against him.
(Callahan vs. Bank of Anderson [1904], 2 Ann. Cas.,
203.) The decision cited represents the minority
doctrine, for on principle it would seem that notice is
not necessary to a maker because the right is based on
the doctrine that the relationship is that of creditor and
debtor. However this may be, as to an indorser the
situation is different, and notice should actually have
been given him in order that he might protect his
interests.
9. Guingona v. City Fiscal of Manila (1984)
Facts:
Clement David charged Guingona, Martin, and
Santos with estafa and violation of Central Bank
Circular No. 364 and related Central Bank regulations
on foreign exchange transactions. David invested with
the Nation Savings and Loan Association, (NSLA) the
sum of P1,145,546.20 on nine deposits, P13,531.94 on
savings account deposits (jointly with his sister, Denise
Kuhne), US$10,000.00 on time deposit, US$15,000.00
under a receipt and guarantee of payment and
US$50,000.00 under a receipt that David was induced
into making the aforestated investments by Robert
Marshall, an Australian national who was allegedly a
close associate of petitioner Guingona Jr., then NSLA
President, Martin, then NSLA Executive Vice-President
of NSLA and Santos, then NSLA General Manager; that
on March 21, 1981 NSLA was placed under receivership
by the Central Bank, so that David filed claims
therewith for his investments and those of his sister;
that on July 22, 1981 David received a report from the
Central Bank that only P305,821.92 of those
investments were entered in the records of NSLA; that,
therefore, the respondents in I.S. No. 81-31938
misappropriated the balance of the investments, at the
same time violating Central Bank Circular No. 364 and
related Central Bank regulations on foreign exchange
transactions; that after demands, petitioner Guingona
Jr. paid only P200,000.00, thereby reducing the
amounts misappropriated to P959,078.14 and
US$75,000.00." At the inception of the preliminary
investigation before respondent Lota, petitioners
moved to dismiss the charges against them for lack of
jurisdiction because David's claims allegedly comprised
a purely civil obligation which was itself novated. Fiscal
Lota denied the motion to dismiss. But, after the
presentation of David's principal witness, the
petitioners filed the instant petition because: (a) the
production of the Promissory Notes, Banker's
Acceptance, Certificates of Time Deposits and Savings
Account allegedly showed that the transactions
between David and NSLA were simple loans, i.e., civil
obligations on the part of NSLA which were novated
when Guingona, Jr. and Martin assumed them; and (b)
David's principal witness allegedly testified that the
duplicate originals of the aforesaid instruments of
indebtedness were all on file with NSLA, contrary to
David's claim that some of his investments were not
recorded.
Issue: Whether there was a contract of deposit
between David and the bank.
Ruling: NONE. When David invested his money on
nine savings deposits with the aforesaid bank, the
contract that was perfected was a contract of simple
loan or mutuum and not a contract of deposit. Under
Art. 1980 of the New Civil Code, [f]ixed, savings, and
current deposits of-money in banks and similar
institutions shall be governed by the provisions
concerning simple loan. In the case of Serrano v.
Central Bank of the Philippines (96 SCRA 102 [1980]), it
was ruled that bank deposits are in the nature of
irregular deposits. They are really loans because they
earn interest. Hence, the relationship between Clement
David and the Nation Savings and Loan Association is
that of creditor and debtor; consequently, the
ownership of the amount deposited was transmitted to
the Bank upon the perfection of the contract and it can
make use of the amount deposited for its banking
operations, such as to pay interests on deposits and to
pay withdrawals. While the Bank has the obligation to
return the amount deposited, it has, however, no
obligation to return or deliver the same money that
was deposited. And, the failure of the Bank to return
the amount deposited will not constitute estafa
through misappropriation punishable under the Revised
Penal Code, but it will only give rise to civil liability over
which the public respondents have no jurisdiction.
10. BPI v. Reyes (1996)
Facts:
Edvin F. Reyes opened a joint savings account with
his wife, Sonia at BPI Cubao. Reyes also held a joint
AND/OR Savings Account with his grandmother,
Emeteria Fernandez, at the same BPI branch. He
regularly deposited in this account the U.S. Treasury
Warrants payable to the order of Emeteria as her
monthly pension. Emeteria died on December 28, 1989
without the knowledge of the U.S. Treasury
Department. She was still sent U.S. Treasury Warrant in
the amount of U.S. $377.003 or P10,556.00. Reyes
deposited the said U.S. treasury check of Fernandez to
his joint savings account with his wife. Two months
after Reyes transferred the funds of his joint account
with Fernandez amounting to P13,112.91 to his joint
account with his wife. The U.S. Treasury Warrant was
dishonored as it was discovered that Fernandez died
three days prior to its issuance. The U.S. Department of
Treasury requested the bank for a refund. For the first
time the bank came to know of the death of Fernandez.
Reyes was informed that the treasury check was the
subject of a claim by Citibank NA, correspondent of BPI.
He verbally authorized them to debit from his other
joint account the amount stated in the dishonored U.S.
Treasury Warrant. On the same day, BPI debited the
amount of P10,556.00 from spouses Reyes joint
account. Reyes demanded from BPI the restitution of
the debited amount. He claimed that because of the
debit, he failed to withdraw his money when he needed
them. He then filed a suit for Damages against BPI
before the RTC. BPI, averred that Reyes gave them his
express verbal authorization to debit the questioned
amount. RTC dismissed the complaint for lack of cause
of action. On appeal, the CA reversed the RTCs
decision.
 Civil Law Review II Case Digests
Issue: (1) Whether or not Reyes verbally authorized
BPI to debit from his other joint account the amount
claimed by the US Department of Treasury; and (2)
Whether a creditor-debtor relationship exists between
Reyes and BPI for legal compensation to be proper.
Ruling:
(1) Yes. We are not disposed to believe private
respondents allegation that he did not give any verbal
authorization. His testimony is uncorroborated. Nor
does he inspire credence. His past and fraudulent
conduct is an evidence against him. He concealed from
petitioner bank the death of Fernandez on December
28, 1989. As of that date, he knew that Fernandez was
no longer entitled to receive any pension. Nonetheless,
he still received the U.S. Treasury Warrant of
Fernandez, and on January 4, 1990 deposited the same
in Savings Account No. 3185-0128-82. To pre-empt a
refund, private respondent closed his joint account with
Fernandez (Savings Account No. 31- 85- 0128-82) on
March 8, 1990 and transferred its balance to his joint
account with his wife (Savings Account No. 3 185-0172-
56). Worse, private respondent declared under the
penalties of perjury in the withdrawal slip dated March
8, 1990 that his co-depositor, Fernandez, is still living.
By his acts, private respondent has stripped himself of
credibility.
(2) YES; therefore, legal compensation is proper.
Compensation shall take place when two persons, in
their own right, are creditors and debtors of each other.
Article 1290 of the Civil Code provides that 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.
Legal compensation operates even against the will of
the interested parties and even without the consent of
them. Since this compensation takes place ipso jure, its
effects arise on the very day on which all its requisites
concur. When used as a defense, it retroacts to the
date when its requisites are fulfilled. The elements of
legal compensation are all present in the case at bar.
The obligors bound principally are at the same time
creditors of each other. BPI stands as a debtor of
Reyes, a depositor. At the same time, BPI is the creditor
of Reyes with respect to the dishonored U.S. Treasury
Warrant which the latter illegally transferred to his joint
account. The debts involved consist of a sum of money.
They are due, liquidated, and demandable.
11. Traders Insurance v. Dy Eng Giok (1958)
Facts:
From 1948 to 1952 the corporation "Destilleria Lim
Tuaco & Co., Inc." had one Dy Eng Giok as its provincial
sales agent, with the duty of turning over the proceeds
of his sales to the principal, the distillery company. As
of August 3, 1951, the agent Dy Eng Giok had an
outstanding running account in favor of his principal in
the sum of P12,898.61. On August 4, 1951, a surety
bond (Annex A, complaint) was executed by Dy Eng
Giok, as principal and appellant Traders Insurance and
Surety Co., as solidary guarantor, whereby they bound
themselves, jointly and severally, in the sum of
P10,000.00 in favor of the Destilleria Lim Tuaco & Co.,
Inc.
From August 4, 1951 to August 3, 1952, agent Dy
Eng Giok contracted obligations in favor of the
Destilleria Lim Tuaco & Co., in the total amount of
P41,449.93; and during the same period, he made
remittances amounting to P41,864.49. The distillary
company, however, applied said remittances first to Dy
Eng Giok's outstanding balance prior to August 4, 1951
(before the suretyship agreement was executed) in the
sum of P12,898.61; and the balance of P28,965.88 to
Dy's obligations between August 4, 1951 and August 3,
1952. It then demanded payment of the remainder
(P12,484.05) from the agent, and later, from the
appellant Surety Company. The latter paid P10,000.00
(the maximum of its bond) on July 17, 1953,
apparently, without questioning the demand; and then
sought reimbursement from Dy Eng Giok and his
counter guarantors, appellees herein. Upon their failure
to pay, it began the present action to enforce
collection.
Issue: Whether or not Destilleria Lim Tuaco & Co.
acted properly when it applied the remittances first to
Dy Eng Gioks outstanding balance prior to Aug. 4,
1951. (This, in turn, would determine whether or not
Traders Insurance has a cause of action against Dy Eng
Giok.)
Ruling: No, for two reasons:
The first is that, in the absence of express
stipulation, a guaranty or suretyship operates
prospectively and not retroactively; that is to say, it
secures only the debts contracted after the guaranty
takes effect (El Vencedor vs. Canlas, 44 Phil. 699). This
rule is a consequence of the statutory directive that a
guaranty is not presumed, but must be express, and
can not extend to more than what is stipulated. (New
Civil Code, Art. 2055). To apply the payments made by
the principal debtor to the obligations he contracted
prior to the guaranty is, in effect, to make the surety
answer for debts incurred outside of the guaranteed
period, and this can not be done without the express
consent of the guarantor. Note that the suretyship
agreement, Annex A, did not guarantee the payment of
any outstanding balance due from the principal debtor,
Dy Eng Giok; but only that he would turn over the
proceeds of the sales to the "Destilleria Lim Tuaco &
Co., Inc.", and this he has done, since his remittances
during the period of the guaranty exceed the value of
his sales. There is no evidence that these remittances
did not come from his sales.
The second reason is that, since the obligations of
Dy Eng Giok between August 4, 1951 to August 4,
1952, were guaranteed, while his indebtedness prior to
that period was not secured, then in the absence of
express application by the debtor, or of any receipt
issued by the creditor specifying a particular
imputation of the payment (New Civil Code, Art. 1252),
any partial payments made by him should be imputed
or applied to the debts that were guaranteed, since
they are regarded as the more onerous debts from the
standpoint of the debtor (New Civil Code, Art. 1254).
12. Spouses Toh v. Solidbank (2003)
Facts:
 Civil Law Review II Case Digests
Solid Bank extended a credit facility worth P10
million in favor of First Business Paper Corporation
(FBPC). Spouses Toh (Chairman and Vice-President of
FBPC) and spouses Li (President and General Manager
of FBPC) signed the Continuing Guaranty prepared by
Solid Bank. The contract was a surety agreement and
provided for the solidary liability of the signatories in
consideration of loans for the account of FBPC. The
surety agreement also contained an acceleration
clause waiving rights of the sureties against delay and
gave future consent to the Banks action to extend the
time of payment without notice to the sureties. FBPC
started to avail of the credit facility. The Bank learned
that spouses Li had fraudulently departed from their
conjugal home and claimed payment plus interests
from FBPC, invoking the Continuing Guaranty. The Bank
filed a complaint for sum of money.
Issue: Whether the petitioner-spouses Li are liable for
their obligations as sureties of FBPC.
Ruling: NO. The extensions of the letters of credit
made by respondent Bank without observing the
restrictions for exercising the privilege constitute illicit
extensions prohibited under the Civil Code which
provides that an extension granted to the debtor by
the creditor without the consent of the guarantor
extinguishes the guaranty. This act of the Bank is not a
mere failure or delay on its part to demand payment
after the debt has become due, as was the case in
unpaid five letters of credit which the Bank did not
extend, but comprises separate and binding
agreements to extend the due date admitted by the
Bank itself. As a result of these illicit extensions,
petitioner-spouses are relieved of their obligations as
sureties of respondent FBPC under Art. 2079 of the
Civil Code. The attached properties of FBPC, except for
two of them, were abandoned by the Bank. The
consequence of these omissions is to discharge the
surety, under Art. 2080 of the Civil Code, or at the very
least, mitigate the liability of the surety up to the value
of the property released. The negligence of the Bank in
failing to safe-keep the security results in the material
alteration of the principal contract and consequently
releases the surety.
13. Dizon v. Suntay (1972)
Facts:
Lourdes G. Suntay is the owner of a 3-carat
diamond ring which was delivered to Clarita R. Sison
for sale on commission. Upon receiving the ring, Clarita
delivered the receipt to Lourdes. After the lapse of a
considerable time without Clarita having returned the
ring, Lourdes made demands but Clarita could not
comply because the ring was pledged by Melia Sison
with Dominador Dizon's pawnshop. When Lourdes
found out about the pledge, she filed a case for Estafa.
Lourdes asked for the return of her ring but Dominador
refused.
Issue: Whether Lourdes can recover the ring from
Dominador.
Ruling: YES. The possession of movable property
acquired in good faith is equivalent to a title.
Nevertheless, one who has lost any movable or has
been unlawfully deprived thereof may recover it from
the person in possession of the same. If the possessor
of a lost movable of which the owner has been
unlawfully deprived, has acquired it in good faith at a
public sale, the owner cannot obtain its return without
reimbursing the price paid therefor. The right of the
owner cannot be defeated even by proof that there
was good faith in the acquisition by the possessor. The
right of the owner to recover personal property
acquired in good faith by another, is based on his being
dispossessed without his consent. Dominador cannot
invoke estoppel to bar Lourdes from recovering the
ring. He is engaged in a business where ordinary
prudence is needed to ascertain whether an individual
who is offering a jewelry through pledge is entitled to
do so. If no such care be taken, he should be the last to
complain if thereafter the right of the true owner of
such jewelry should be recognized. He ought to have
been on his guard before accepting the pledge in
question. Evidently, there was no such precaution
availed of.
14. Uy Tong v. CA (1988)
Facts:
Petitioner spouses Uy Tong and Kho Po Giok used to
be the owners of Apartment No. 307 of the Ligaya
Building, together with the leasehold right for 99 years
over the land on which the building stands. The
spouses purchased from private respondent Bayanihan
seven units of motor vehicles which was evidenced by
a written Agreement containing a stipulation that if the
spouses should fail to pay their obligation to the
Bayanihan, the latter shall become automatically the
owner of the former's apartment which is located at
No. 307, Ligaya Building and in such event the spouses
shall execute the corresponding Deed of Absolute Sale
in favor of Bayanihan and/or the Assignment of
Leasehold Rights. The spouses failed to pay their
obligation so Bayanihan filed an action for specific
performance where spouses were ordered to pay their
balance and in case of failure to do so, to execute a
deed of assignment over the property involved. The
spouses elected to execute the deed of assignment
pursuant to said judgment. An order for execution of
the deed of assignment was issued by the trial court.
Notwithstanding said execution, the spouses remained
in the possession of premises as lessees for a given
period. Upon expiration of the said period, the spouses
failed to surrender the possession of the premises in
favor of Bayanihan. An action for recovery of
possession with damages was filed against the
spouses. The CFI ruled in favor of Bayanihan. CA
affirmed CFIs ruling. Hence, the present petition. The
spouses contended that the deed of assignment is null
and void because it is in the nature of a pactum
commissorium and/or was borne out of the same.
Issue: Whether the deed of assignment is null void,
being in the nature of a pactum commissorium.
Ruling: NO. A perusal of the terms of the questioned
agreement evinces no basis for the application of the
pactum commissorium provision. First, there is no
indication of any contract of mortgage entered into by
the parties. It is a fact that the parties agreed on the
 Civil Law Review II Case Digests
sale and purchase of motor vehicles. Second, there is
no case of automatic appropriation of the property by
Bayanihan. When the spouses defaulted in their
installment payments, Bayanihan filed an action in
court for specific performance. Clearly, there was no
automatic vesting of title on Bayanihan because it took
the intervention of the trial court to exact fulfillment of
the obligation, which by its very nature is anathema to
pactum commissorium. Even granting that the original
agreement between the parties had the badges of
pactum commissorium, the deed of assignment does
not suffer the same fate as this was executed pursuant
to a valid judgment in the action for specific
performance filed by Bayanihan. The intervention of a
trial court to exact fulfillment of the obligation is by its
very nature, anathema to pactum commissorium.
15. Acme Shoe Rubber v. CA (1996)
Facts:
Chua Pac, president of Acme Shoe, Rubber &
Plastic Corporation, executed a chattel mortgage in
favor of Producers Bank as security for Acmes
corporate loan of P3 million. The deed of chattel
mortgage contained a stipulation which provides: This
mortgage shall also stand as security for said
obligations and any and all other obligations of the
MORTGAGOR to the MORTGAGEE of whatever kind and
nature, whether such obligations have been contracted
before, during or after the constitution of this
mortgage.
After the P3 million was paid, Acme borrowed P1
million from the bank. This time, it was unpaid. Thus,
the bank applied for extrajudicial foreclosure of the
chattel mortgage prompting Chua Pac to file an action
for injunction.
The RTC and the CA ruled in favor of the bank.
Issue: Would it be valid and effective to have a clause
in a chattel mortgage that purports to likewise extend
its coverage to obligations yet to be contracted or
incurred?
Ruling: No. While a pledge, real estate mortgage, or
antichresis may exceptionally secure after-incurred
obligations so long as these future debts are accurately
described, a chattel mortgage, however, can only
cover obligations existing at the time the mortgage is
constituted.
A chattel mortgage, as hereinbefore so intimated,
must comply substantially with the form prescribed by
the Chattel Mortgage Law itself. One of the requisites,
under Section 5 thereof, is an affidavit of good faith.
While it is not doubted that if such an affidavit is not
appended to the agreement, the chattel mortgage
would still be valid between the parties (not against
third persons acting in good faith), the fact, however,
that the statute has provided that the parties to the
contract must execute an oath that - "x x x (the)
mortgage is made for the purpose of securing the
obligation specified in the conditions thereof, and for
no other purpose, and that the same is a just and valid
obligation, and one not entered into for the purpose of
fraud." makes it obvious that the debt referred to in the
law is a current, not an obligation that is yet merely
contemplated. In the chattel mortgage here involved,
the only obligation specified in the chattel mortgage
contract was the P3,000,000.00 loan which petitioner
corporation later fully paid. By virtue of Section 3 of the
Chattel Mortgage Law, the payment of the obligation
automatically rendered the chattel mortgage void or
terminated.
16. Roxas v. CA and Rural Bank of Dumalag
(1993)
Facts:
Petitioner Roxas is the owner of a parcel of land
located at Tanza Norte, Capiz. She obtained an
agricultural loan in the amount of PhP 2000. Real
estate mortgage was executed over the subject land as
security for the loan for failure to pay upon the loan's
maturity, private respondent foreclosed the mortgage;
subject land was sold at public auction to the bank,
being the highest bidder. Roxas filed a complaint for
cancellation of foreclosure of mortgage an annulment
of sale against private respondent claiming that the
foreclosure did not comply with the notice
requirements: there was failure to post notices in the
barrio where the land lies. The RTC rendered judgment
in favor of petitioner. However, on elevating the matter
to the CA, said court reversed the decision of the trial
court: section 5 of RA 720 does not require personal
notification to the mortgagor in case of foreclosure and
there was substantial requirement of said law.
Issue: Whether or not the auction sale was valid.
Ruling: No. It is settled doctrine that failure to publish
notice of auction sale as required by the statute
constitutes a jurisdiction defects with invalidates the
sale. Even slight deviations therefrom are not allowed.
Section 5 of R.A. No. 720, as amended by R.A. No.
5939, provides that notices of foreclosure should be
posted in at least three (3) of the most conspicuous
public places in the municipality and barrio where the
land mortgaged is situated.
In the case at bar, the Certificate of Posting which
was executed by the sheriff states that he posted three
(3) copies of the notice of public auction sale in three
(3) conspicuous public places in the municipality of
Panay, where the subject land was situated and in like
manner in Roxas City, where the public auction sale
took place. It is beyond despute that there was a
failure to publish the notices of auction sale as required
by law. Section 5 provides further that proof of
publication shall be accomplished by an affidavit of the
sheriff or officer conducting the foreclosure sale. In this
case, the sheriff executed a certificate of posting,
which is not the affidavit required by law. The rationale
behind this is simple: an affidavit is a sworn statement
in writing. Strict compliance with the aforementioned
provisions is mandated. We, therefore, cannot sustain
the view of respondent court that there was substantial
compliance with Section 5 of R.A. No. 720, as
amended, with respect to the affidavit of posting by
the sheriff and the non-posting of the required notice in
the barrio where the land mortgaged is situated.
Instead, We declare the foreclosure and public auction
sale of the subject land void.
 Civil Law Review II Case Digests
17. Cerna v. CA (1993)
Facts:
Celerino Delgado and Conrad Leviste entered into a
loan agreement for P17,500 with interest evidenced by
a promissory note. On the same day, Delgado also
executed a chattel mortgage over a Willys jeep owned
by him. Acting as attorney-in-fact of Manolo Cerna, he
also mortgaged a Tanaus car owned by Cerna. Delgado
failed to pay the loan. Leviste filed a collection suit with
the CFI of Rizal against Delgado and Cerna as solidary
debtors. Cerna filed his Motion to Dismiss on the
grounds of lack of cause of action and death of
Delgado. He also alleged that since Leviste opted to
collect on the note, he could no longer foreclose the
mortgage. The CFI denied his motion to dismiss. The
CA also denied his motion to dismiss on the ground
that he was not able to prove Delgados death and the
consequent settlement proceedings of the latters
estate. He also failed to prove his claim that the special
power of attorney in favor of Delgado was forged. This
decision of the CA became final. He filed a second
motion to dismiss but was denied by the trial court.
The CA again denied his motion to dismiss, hence the
appeal to the SC. The CA ruled that the mortgage
contract prima facie shows that it created a solidary
obligation between Delgado and Cerna against Leviste.
Cerna contends that since he did not sign as joint
obligor in the promissory note signed by Delgado,
there is no cause of action and that Leviste opted to
collect from the promissory note, abandoning his right
to foreclose on the chattel mortgage.
Issues:
1. Whether Cerna was solidarily liable with Delgado for
the payment of the loan.
2. Whether the filing of the collection suit barred
foreclosure of the mortgage.
Ruling:
(1) No. Cerna was not solidarily liable with Delgado
for the payment of the loan. The contract of loan, as
evidenced by the promissory note, was signed by
Delgado only. Cerna 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. 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 Cerna was a co-debtor. The
law is clear that contracts take effect only between the
parties. Cerna is not solidarily liable even if he was
allegedly a co-mortgagor of the principal debtor,
Delgado. There is solidarily liability only when the
obligation expressly so states, or when the law or the
nature of the obligation requires solidarity. There is also
no legal provision nor jurisprudence in our jurisdiction
which makes a third person who secures the fulfillment
of another's obligation by mortgaging his own property
to be solidarily bound with the principal obligor. It is
true that the contract stated that the chattel mortgage
was signed by Delgado for himself and by Delgado as
attorney-in-fact of Cerna but this alone does not make
petitioner a co-mortgagor especially so since only
Delgado signed the chattel mortgage as mortgagor.
The Special Power of Attorney did not make petitioner
a mortgagor. All it did was to authorize Delgado to
mortgage certain properties belonging to petitioner
and this is in compliance with the requirement in
Article 2085 of the Civil Code which states that an
essential requisite to the contract of mortgage is that
the persons constituting the pledge or mortgage have
the free disposal of their property, and in the absence
thereof, that they be legally authorized for the
purpose. In effect, petitioner lent his car to Delgado so
that the latter may mortgage the same to secure his
debt. Thus, from the contract itself, it was clear that
only Delgado was the mortgagor regardless of the fact
the he used properties belonging to a third person to
secure his debt.
(2) Yes. By filing the collection suit against Delgado
and Cerna, Leviste cannot foreclose on the mortgage.
Granting arguendo that Cerna is liable to answer for
Delgados indebtedness, Cerna could not be held liable
because the complaint was for recovery of a sum of
money, and not for the foreclosure of the security. We
agree with Cerna that the filing of collection suit barred
the foreclosure of the mortgage. A mortgagee who files
a suit for collection abandons the remedy of
foreclosure of the chattel mortgage constituted over
the personal property as security for the debt or value
of the promissory note which he seeks to recover in the
said collection suit. Hence, Leviste, having chosen to
file the collection suit, could not now run after
petitioner for the satisfaction of the debt. This is even
more true in this case because of the death of the
principal debtor, Delgado. Leviste was pursuing a
money claim against a deceased person. A person
holding a mortgage against the estate of a deceased
person may abandon such security and prosecute his
claim before the committee, and share in the
distribution of the general assets of the estate. It
provides also that he may, at his own election,
foreclose the mortgage and realize upon his security.
But the law does not provide that he may have both
remedies. If he elects one he must abandon the other.
If he fails in one he fails utterly.
18. & 19. Northern Motors v. Coquia (1975)
Facts:
Manila Yellow Taxicab Co. purchased on installment
from Northern Motors 200 Holden Torana cars. It made
a down payment of P1,000 on each car. It executed
chattel mortgages on the cars in favor of Northern
Motors Inc. as security for the promissory notes
covering the balance of the price. The notes and
mortgages for 172 cars were assigned to Filinvest
Credit Corp.
Tropical Commercial Co. obtained a judgment for
P167,311.27 against Manila Yellow Taxicab Co.
P110,000 of the judgment was assigned to Honesto
Ong. To satisfy the judgment, the sheriff levied upon 20
taxi cabs, 8 of which were mortgaged to Northern
Motors, 12 assigned to Filinvest. Northern Motors and
Filinvest filed their third-party claims with the sheriff.
Tropical Commercial posted indemnity bonds. The cars
were subsequently sold at public auction and the lower
 Civil Law Review II Case Digests
court cancelled the indemnity bonds without notice.
The sheriff made an additional levy on 35 cars to
satisfy the unpaid balance. Meanwhile, 7 were
mortgaged to Northern Motors, 28 with Filinvest.
The lower court refused to reinstate the indemnity
bonds and ruled that the chattel mortgagee Northern
Motors was not entitled to the possession of the
mortgaged taxicabs by the mere fact of the execution
of the mortgage and that the mortgage lien followed
the chattel whoever might be its actual possessor.
Northern Motors filed a petition for certiorari to annul
the decision of the lower court which the SC denied,
hence the motion for reconsideration. Northern Motors
contends that as chattel mortgagee and unpaid vendor
it has the better right to the possession of the
mortgaged taxicabs.
Issue: Whether Northern Motors (mortgagee) has a
better right to the possession of the taxi cabs as
against an unsecured judgment creditor.
Ruling: YES, the mortgagee and unpaid vendor
Northern Motors has a better right to the possession of
the taxi cabs as against the unsecured judgment
creditor. Inasmuch as the condition of the chattel
mortgages had already been broken and Northern
Motors, Inc. had in fact instituted an action for replevin
so that it could take possession of the mortgaged
taxicabs, it has a superior, preferential and paramount
right to have possession of the mortgaged taxicabs
and to claim the proceeds of the execution sale. The
sheriff wrongfully levied upon the mortgaged taxicabs
and erroneously took possession of them. He could
have levied only upon the right or equity of redemption
pertaining to the Manila Yellow Taxicab Co., Inc. as
chattel mortgagor and judgment debtor, because that
was the only leviable or attachable property right of
the company in the mortgaged taxicabs. Jurisprudence
holds that after a chattel mortgage is executed, there
remains in the mortgagor a mere right of redemption.
To levy upon the mortgagor's incorporeal right or
equity of redemption, it was not necessary for the
sheriff to have taken physical possession of the
mortgaged taxicabs. In this case what the sheriff could
have sold at public auction was merely the mortgagor's
right or equity of redemption. The sheriff and the
judgment creditor are deemed to have constructive
notice of the chattel mortgages on the taxicabs. As a
consequence of the registration of the mortgages,
Northern Motors, Inc. had the symbolical possession of
the taxicabs. If the judgment creditor, Tropical
Commercial Co., Inc., or the assignee, Ong, bought the
mortgagor's equity of redemption at the auction sale,
then it would step into the shoes of the mortgagor,
Manila Yellow Taxicab Co., Inc. and be able to redeem
the vehicles from Northern Motors, Inc., the
mortgagee, by paying the mortgage debt. Inasmuch as
what remains to the mortgagor is only the equity of
redemption, it follows that the right of the judgment or
attaching creditor, who purchased the mortgaged
chattel at an execution sale, is subordinate to the lien
of the mortgagee who has in his favor a valid chattel
mortgage. It is neither right nor just that the lien of a
secured creditor should be rendered nugatory by a
wrongful execution engineered by an unsecured
creditor. Motion for reconsideration is granted. The
sheriff is directed to deliver to Northern Motors the
proceeds of the first auction sale and the seven taxi
cabs levied upon which are mortgaged with Northern
Motors.
20. Makati Leasing v. Wearever Textile (1983)
Facts:
In order to obtain financial accommodations from
Makati Leasing and Finance Corporation (MLFC),
Wearever Textile Mills, Inc., (WTMI) discounted and
assigned several receivables with the former under a
Receivable Purchase Agreement. To secure the
collection of the receivables assigned, Wearever Textile
Mills executed a Chattel Mortgage over certain raw
materials inventory as well as machinery described as
Artos Aero Dryer Stentering Range.
Upon WTMIs default, MLFC filed a petition for
extrajudicial foreclosure of the properties mortgage to
it but the Deputy Sheriff was not able to effect the
seizure of the machinery.
MLFC thereafter filed a complaint for judicial
foreclosure with the Court of First Instance of Rizal.
Acting on MLFCs application for replevin, the lower
court issued a writ of seizure, the enforcement of which
was however subsequently restrained upon WTMI's
filing of a motion for reconsideration. Later, the CFI
order the lifting the restraining order for the
enforcement of the writ of seizure and an order to
break open the premises of WTMI to enforce said writ.
Motion for reconsideration was likewise denied.
On appeal, CA set aside the Orders of the lower
court and ordered the return of the drive motor seized
by the sheriff. It ruled that machinery in suit cannot be
the subject of replevin, much less of a chattel
mortgage, because it is a real property pursuant to
Article 415 of the new Civil Code. The motion for
reconsideration filed by MLFC was likewise denied.
Issue: Whether the machinery in suit, considered as
real property under the law, be a proper subject of a
chattel mortgage.
Ruling: YES. A similar, if not identical issue was raised
in Tumalad v. Vicencio (41 SCRA 143, September 30,
1971), where Supreme Court ruled that a house of
strong materials may be considered as personal
property for purposes of executing a chattel mortgage
thereon as long as the parties to the contract so agree
and no innocent third party will be prejudiced thereby.
Hence, there is absolutely no reason why a machinery,
which is movable in its nature and becomes
immobilized only by destination or purpose, may not
be likewise treated as such. This is really because one
who has so agreed is estopped from denying the
existence of the chattel mortgage. It must be pointed
out that the characterization of the subject machinery
as chattel by the WTMI is indicative of intention and
impresses upon the property the character determined
by the parties. As stated in Standard Oil Co. of New
York v. Jaramillo (44 SCRA 630, March 16, 1923) it is
undeniable that the parties to a contract may by
agreement treat as personal property that which by
nature would be real property, as long as no interest of
third parties would be prejudiced thereby.
 Civil Law Review II Case Digests
21. Associated Insurance v. Iya (1958)
Facts:
Spouses Valino were the owners of a house and lot
which they bought from Philippine Realty Corporation
(PRC). In 1951, Spouses Valino filed a bond subscribed
by the Associated Insurance and Surety Co., Inc., in
favor of NARIC to enable Spouses Valino to purchase on
credit rice from NARIC. And as counter-guaranty
therefore, Spouses Valino executed an alleged chattel
mortgage in favor of Associated Insurance. At the time
of the execution of the alleged chattel mortgage, the
title to the house was still registered in the name of
PRC. Subsequently in 1952, Spouses Valino executed a
real estate mortgage over the house and lot to secure
payment of their debt in favor of Isabel Iya.
Spouses Valino failed to pay NARIC, resulting in
Associated Insurances liability to pay NARIC.
Associated Insurance foreclosed the chattel mortgage,
and eventually the house was awarded to it as highest
bidder in the public sale.
When Associated Insurance found out about the
real estate mortgage, it filed a complaint against
Spouses Valino and Spouses Iya for the exclusion of the
house from the real estate mortgage.
Issue: Whether or not the house should be excluded
from the real estate mortgage.
Ruling: No. There is no question as to appellant's right
over the land covered by the real estate mortgage;
however, as the building constructed thereon has been
the subject of 2 mortgages; controversy arise as to
which of these encumbrances should receive
preference over the other. The decisive factor in
resolving the issue presented by this appeal is the
determination of the nature of the structure litigated
upon, for where it be considered a personality, the
foreclosure of the chattel mortgage and the
subsequent sale thereof at public auction, made in
accordance with the Chattel Mortgage Law would be
valid and the right acquired by the surety company
therefrom would certainly deserve prior recognition;
otherwise, appellant's claim for preference must be
granted. The lower Court, deciding in favor of the
surety company, based its ruling on the premise that
as the mortgagors were not the owners of the land on
which the building is erected at the time the first
encumbrance was made, said structure partook of the
nature of a personal property and could properly be the
subject of a chattel mortgage. We find reason to hold
otherwise, for as this Court, defining the nature or
character of a building, has said: . . . while it is true
that generally, real estate connotes the land and the
building constructed thereon, it is obvious that the
inclusion of the building, separate and distinct from the
land, in the enumeration of what may constitute real
properties (Art. 415, new Civil Code) could only mean
one thing that a building is by itself an immovable
property . . . Moreover, and in view of the absence of
any specific provision to the contrary, a building is an
immovable property irrespective of whether or not said
structure and the land on which it is adhered to belong
to the same owner. (Lopez vs. Orosa, G.R. Nos. supra,
p. 98).
A building certainly cannot be divested of its
character of a realty by the fact that the land on which
it is constructed belongs to another. To hold it the other
way, the possibility is not remote that it would result in
confusion, for to cloak the building with an uncertain
status made dependent on the ownership of the land,
would create a situation where a permanent fixture
changes its nature or character as the ownership of the
land changes hands. In the case at bar, as personal
properties could only be the subject of a chattel
mortgage (Section 1, Act 3952) and as obviously the
structure in question is not one, the execution of the
chattel mortgage covering said building is clearly
invalid and a nullity. While it is true that said document
was correspondingly registered in the Chattel Mortgage
Register of Rizal, this act produced no effect
whatsoever for where the interest conveyed is in the
nature of a real property, the registration of the
document in the registry of chattels is merely a futile
act. Thus, the registration of the chattel mortgage of a
building of strong materials produce no effect as far as
the building is concerned (Leung Yee vs. Strong
Machinery Co., 37 Phil., 644). Nor can we give any
consideration to the contention of the surety that it has
acquired ownership over the property in question by
reason of the sale conducted by the Provincial Sheriff
of Rizal, for as this Court has aptly pronounced: A
mortgage creditor who purchases real properties at an
extrajudicial foreclosure sale thereof by virtue of a
chattel mortgage constituted in his favor, which
mortgage has been declared null and void with respect
to said real properties, acquires no right thereto by
virtue of said sale (De la Riva vs. Ah Keo, 60 Phil., 899).
22. Republic v. Peralta (1987)
Facts:
In the voluntary insolvency proceedings
commenced by Quality Tobacco Corporation, the
following claims of creditors were filed: (1) P2.8 million
separation pay awarded by the NLRC to the
corporations employees; (2) P1.1 million by the BIR for
tobacco inspection fees; and (3) P280,000 by the BOC
for customs duties and taxes payable on various
importations.
Issue: Whether or not the employees claims should
be preferred in view of Art. 110 of the Labor Code.
Ruling: No. The resolution of the issue of priority
among the several claims filed in the insolvency
proceedings instituted by the Insolvent cannot,
however, rest on a reading of Article 110 of the labor
Code alone. Article 110 of the Labor Code, in
determining the reach of its terms, cannot be viewed in
isolation. Rather, Article 110 must be read in relation to
the provisions of the Civil Code concerning the
classification, concurrence and preference of credits,
which provisions find particular application in
insolvency proceedings where the claims of all
creditors, preferred or non-preferred, may be
adjudicated in a binding manner.
We believe and so hold that Article 110 of the
Labor Code did not sweep away the overriding
preference accorded under the scheme of the Civil
Code to tax claims of the government or any
 Civil Law Review II Case Digests
subdivision thereof which constitute a lien upon
properties of the Insolvent. It is frequently said that
taxes are the very lifeblood of government. The
effective collection of taxes is a task of highest
importance for the sovereign. It is critical indeed for its
own survival. It follows that language of a much higher
degree of specificity than that exhibited in Article 110
of the Labor Code is necessary to set aside the intent
and purpose of the legislator that shines through the
precisely crafted provisions of the Civil Code. It cannot
be assumed simpliciter that the legislative authority,
by using in Article 110 the words "first preference" and
"any provision of law to the contrary notwithstanding"
intended to disrupt the elaborate and symmetrical
structure set up in the Civil Code. Neither can it be
assumed casually that Article 110 intended to subsume
the sovereign itself within the term "other creditors" in
stating that "unpaid wages shall be paid in full before
other creditors may establish any claim to a share in
the assets of employer." Insistent considerations of
public policy prevent us from giving to "other creditors"
a linguistically unlimited scope that would embrace the
universe of creditors save only unpaid employees.
We, however, do not believe that Article 110 has
had no impact at all upon the provisions of the Civil
Code. Bearing in mind the overriding precedence given
to taxes, duties and fees by the Civil Code and the fact
that the Labor Code does not impress any lien on the
property of an employer, the use of the phrase "first
preference" in Article 110 indicates that what Article
110 intended to modify is the order of preference found
in Article 2244, which order relates, as we have seen,
to property of the Insolvent that is not burdened with
the liens or encumbrances created or recognized by
Articles 2241 and 2242. We have noted that Article
2244, number 2, establishes second priority for claims
for wages for services rendered by employees or
laborers of the Insolvent "for one year preceding the
commencement of the proceedings in insolvency."
Article 110 of the Labor Code establishes "first
preference" for services rendered "during the period
prior to the bankruptcy or liquidation, " a period not
limited to the year immediately prior to the bankruptcy
or liquidation. Thus, very substantial effect may be
given to the provisions of Article 110 without
grievously distorting the framework established in the
Civil Code by holding, as we so hold, that Article 110 of
the Labor Code has modified Article 2244 of the Civil
Code in two respects: (a) firstly, by removing the one
year limitation found in Article 2244, number 2; and (b)
secondly, by moving up claims for unpaid wages of
laborers or workers of the Insolvent from second
priority to first priority in the order of preference
established I by Article 2244.
23. DBP v. NLRC (1994)
Facts:
Resort Hotel Corporation ("RHC") was the former
owner and operator of the Pines Hotel in Baguio City,
where private respondents were employed. The
property was hypothecated to petitioner Development
Bank of the Philippines ("DBP"). When RHC failed to
comply with its obligations, DPB foreclosed on the
mortgage. Following the foreclosure, Hotel
Development Corporation ("HDC"), a subsidiary of DBP,
assumed the management and operations of the hotel.
Private respondents were rehired by HDC. On 23
October 1984, Pines Hotel, unfortunately, was razed by
fire. On 05 November 1985, private respondents filed a
complaint against RHC for money claims still
outstanding in their favor at the time the foreclosure
was effected. HDC and DBP were also impleaded upon
the thesis that, should RHC be bereft of sufficient
property to answer for those claims, the foreclosed
property could be levied against in accordance with
Article 110 of the Labor Code.
The Labor Arbiter and the NLRC ruled in favor of
private respondents. DBP was ordered to deliver to
private respondents their claims for separation pay and
other money claims. No appeal from the NLRCs
decision was filed. When private respondents moved
for execution, DBP filed a motion for clarification with
the Labor Arbiter, claiming that the body of the
decision which says that RHC, not DBP, is liable to
private respondents is inconsistent with the dispositive
portion of the NLRCs decision which dismissed DBPs
appeal. The Labor Arbiter denied the motion, saying
that there is no such inconsistency. It also pointed out
that DBP was impleaded for reason that it foreclosed
the assets of RHC, and that private respondents would
like to ensure the enforcement of their money claims
against the foreclosed properties of their employer
invoking Art. 110 of the Labor Code.
Issue: Whether or not the private respondents may
pursue their claims against the foreclosed properties of
RHC.
Ruling: Yes. The Supreme Court, while upholding its
ruling in Republic v. Peralta (1987), held that private
respondents may still pursue the foreclosed properties
for the reason that NLRCs decision had not been
appealed, hence it has attained finality and can no
longer be challenged.
TORTS AND DAMAGES
1. Glan Peoples Lumber v. IAC (1989)
Facts:
Engineer Orlando T. Calibo, Agripino Roranes, and
Maximo Patos were on the jeep owned by the Bacnotan
Consolidated Industries, Inc., with Calibo at the wheel,
as it approached from the South Lizada Bridge going
towards the direction of Davao City at about 1:45 in the
afternoon of July 4,1979. At about that time, the cargo
track, loaded with cement bags, GI sheets, plywood,
driven by defendant Paul Zacarias y Infants, coming
from the opposite direction of Davao City and bound
for Glan, South Cotabato, had just crossed said bridge.
At about 59 yards after crossing the bridge, the cargo
truck and the jeep collided as a consequence of which
Engineer Calibo died while Roranes and Patos
sustained physical injuries. Zacarias was unhurt. As a
result of the impact, the left side of the truck was
slightly damaged while the left side of the jeep,
including its fender and hood, was extensively
damaged. After the impact, the jeep fell and rested on
its right side on the asphalted road a few meters to the
rear of the truck, while the truck stopped on its wheels
 Civil Law Review II Case Digests
on the road. On November 27, 1979, the instant case
for damages was filed by the surviving spouse and
children of the late Engineer Calibo who are residents
of Tagbilaran City against the driver and owners of the
cargo truck. For failure to file its answer to the third
party complaint, third party defendant, which insured
the cargo truck involved, was declared in default.
The RTC dismissed the complaint, but the CA
reversed, holding that Zacarias negligence gave rise
to the presumption of negligence on the part of his
employer, and their liability is both primary and
solidary.
Issue: Whether or not Zacarias was negligent.
Ruling: No. The finding that "the truck driven by
defendant Paul Zacarias occupied the lane of the jeep
when the collision occurred" is a loose one, based on
nothing more than the showing that at the time of the
accident, the truck driven by Zacarias had edged over
the painted center line of the road into the opposite
lane by a width of twenty-five (25) centimeters. It
ignores the fact that by the uncontradicted evidence,
the actual center line of the road was not that
indicated by the painted stripe but, according to
measurements made and testified by Patrolman Juanita
Dimaano, one of the two officers who investigated the
accident, correctly lay thirty-six (36) centimeters
farther to the left of the truck's side of said stripe.
Nor was the Appellate Court correct in finding that
Paulino Zacarias had acted negligently in applying his
brakes instead of getting back inside his lane upon
qqqespying the approaching jeep. Being well within his
own lane, as has already been explained, he had no
duty to swerve out of the jeep's way as said Court
would have had him do. And even supposing that he
was in fact partly inside the opposite lane, coming to a
full stop with the jeep still thirty (30) meters away
cannot be considered an unsafe or imprudent action,
there also being uncontradicted evidence that the jeep
was "zigzagging" and hence no way of telling in which
direction it would go as it approached the truck.
The evidence not only acquits Zacarias of any
negligence in the matter; there are also quite a few
significant indicators that it was rather Engineer
Calibo's negligence that was the proximate cause of
the accident. Zacarias had told Patrolman Dimaano at
the scene of the collision and later confirmed in his
written statement at the police headquarters that the
jeep had been "zigzagging," which is to say that it was
travelling or being driven erratically at the time. The
other investigator, Patrolman Jose Esparcia, also
testified that eyewitnesses to the accident had
remarked on the jeep's "zigzagging." There is moreover
more than a suggestion that Calibo had been drinking
shortly before the accident. The decision of the Trial
Court adverts to further testimony of Esparcia to the
effect that three of Calibo's companions at the beach
party he was driving home from when the collision
occurred, who, having left ahead of him went to the
scene when they heard about the accident, had said
that there had been a drinking spree at the party and,
referring to Calibo, had remarked: "Sabi na huag nang
mag drive . . . . pumipilit," (loosely translated, "He was
advised not to drive, but he insisted.") It was Calibo
whose driver's license could not be found on his person
at the scene of the accident, and was reported by his
companions in the jeep as having been lost with his
wallet at said scene, according to the traffic accident
report, Exhibit "J". Said license unexplainedly found its
way into the record some two years later.
Even, however, ignoring these telltale indicia of
negligence on the part of Calibo, and assuming some
antecedent negligence on the part of Zacarias in failing
to keep within his designated lane, incorrectly
demarcated as it was, the physical facts, either
expressly found by the Intermediate Appellate Court or
which may be deemed conceded for lack of any
dispute, would still absolve the latter of any actionable
responsibility for the accident under the rule of the last
clear chance. Both drivers, as the Appellate Court
found, had had a full view of each other's vehicle from
a distance of one hundred fifty meters. Both vehicles
were travelling at a speed of approximately thirty
kilometers per hour. The private respondents have
admitted that the truck was already at a full stop when
the jeep plowed into it. And they have not seen fit to
deny or impugn petitioners' imputation that they also
admitted the truck had been brought to a stop while
the jeep was still thirty meters away. From these facts
the logical conclusion emerges that the driver of the
jeep had what judicial doctrine has appropriately called
the last clear chance to avoid the accident, while still
at that distance of thirty meters from the truck, by
stopping in his turn or swerving his jeep away from the
truck, either of which he had sufficient time to do while
running at a speed of only thirty kilometers per hour. In
those circumstances, his duty was to seize that
opportunity of avoidance, not merely rely on a
supposed right to expect, as the Appellate Court would
have it, the truck to swerve and leave him a clear path.
2. Africa v. Caltex (1966)
Facts:
In March 1948, in Rizal Avenue, Manila, a tank
truck was hosing gasoline into the underground
storage of Caltex. Apparently, a fire broke out from the
gasoline station and the fire spread and burned several
houses including the house of Spouses Bernabe and
Soledad Africa. Allegedly, someone (a passerby) threw
a cigarette while gasoline was being transferred which
caused the fire. But there was no evidence presented
to prove this theory and no other explanation can be
had as to the real reason for the fire. Apparently also,
Caltex and the branch owner (Mateo Boquiren) failed to
install a concrete firewall to contain fire if in case one
happens. When Spouses Africa sued Caltex and
Boquiren, the latter disclaimed liability on the ground
that the spouses failed to show any specific act of
negligence.
Issue:
Whether or not Caltex and Boquiren are liable to
pay for damages.
Ruling:
Yes, pursuant to the application of the principle of
res ipsa loquitur, the elements of which are: (1) The
accident is of such nature which could not occur
 Civil Law Review II Case Digests
without negligence of the defendant; (2) The
instrumentality which caused the accident is within the
exclusive control of the defendant; (3) There was no
fault on the part of the plaintiff. In this case, gasoline
station, with all its appliances, equipment and
employees, was under the control of Caltex and
Boquiren. A fire occurred therein and spread to and
burned the neighboring houses. The persons who knew
or could have known how the fire started were
Boquiren, Caltex and their employees, but they gave
no explanation thereof whatsoever. It is a fair and
reasonable inference that the incident happened
because of want of care.
Note that ordinarily, he who charges
negligence shall prove it. However, res ipsa loquitur is
the exception because the burden of proof is shifted to
the party charged of negligence as the latter is the one
who had exclusive control of the thing that caused the
injury complained of.
3. Dulay v. CA (1995)
Facts:
On December 7, 1988, an altercation between
Benigno Torzuela and Atty. Napoleon Dulay occurred at
the Big Bang Sa Alabang, Alabang Village,
Muntinlupa as a result of which Benigno Torzuela, the
security guard on duty at the said carnival, shot and
killed Atty. Napoleon Dulay.
Petitioner Maria Benita A. Dulay, widow of the
deceased Napoleon Dulay, in her own behalf and in
behalf of her minor children, filed an action for
damages against Benigno Torzuela and private
respondents Safeguard and/or Superguard, alleged
employers of defendant Torzuela. Respondent
Superguard filed a Motion to Dismiss on the ground
that the complaint does not state a valid cause of
action. Superguard claimed that Torzuelas act of
shooting Dulay was beyond the scope of his duties, and
that since the alleged act of shooting was committed
with deliberate intent (dolo), the civil liability therefor is
governed by Article 100 of the Revised Penal Code.
Superguard further alleged that a complaint for
damages based on negligence under Article 2176 of
the New Civil Code, such as the one filed by
petitioners, cannot lie, since the civil liability under
Article 2176 applies only to quasi-offenses under
Article 365 of the Revised Penal Code. In addition, the
respondent argued that petitioners filing of the
complaint is premature considering that the conviction
of Torzuela in a criminal case is a condition sine qua
non for the employers subsidiary liability. Respondent
Safeguard also filed a motion praying that it be
excluded as defendant on the ground that defendant
Torzuela is not one of its employees. Petitioners
opposed both motions, stating that their cause of
action against the private respondents is based on
their liability under Article 2180 of the New Civil Code.
Respondent judge declared that the complaint was one
for damages founded on crimes punishable under
Articles 100 and 103 of the Revised Penal Code as
distinguished from those arising from, quasi-delict.
Issues: (1) Whether or not Torzuelas act of shooting
Napoleon Dulay constitutes a quasi-delict actionable
under Article 2176 of the New Civil Code; (2) Whether
or not Article 33 of the New Civil Code applies only to
injuries intentionally committed; and (3) Whether or
not the liability or respondents is subsidiary under the
Revised Penal Code.
Held:
(1) Yes. Article 2176 of the New 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 and is governed by
the provisions of this Chapter. Contrary to the theory
of private respondents, there is no justification for
limiting the scope of Article 2176 of the Civil Code to
acts or omissions resulting from negligence. Well-
entrenched is the doctrine that article 2176 covers not
only acts committed with negligence, but also acts
which are voluntary and intentional.
(2) No. The term physical injuries in Article 33
has already been construed to include bodily injuries
causing death. It is not the crime of physical injuries
defined in the Revised Penal Code. It includes not only
physical injuries but also consummated, frustrated, and
attempted homicide. Although in the Marcia case, it
was held that no independent civil action may be filed
under Article 33 where the crime is the result of
criminal negligence, it must be noted, however, that
Torzuela, the accused in the case at bar, is charged
with homicide, not with reckless imprudence, whereas
the defendant in Marcia was charged with reckless
imprudence. Therefore, in this case, a civil action
based on Article 33 lies.
(3) No. Under Article 2180 of the New Civil Code,
when an injury is caused by the negligence of the
employee, there instantly arises a presumption of law
that there was negligence on the part of the master or
employer either in the selection of the servant or
employee, or in supervision over him after selection or
both. The liability of the employer under Article 2180 is
direct and immediate; it is not conditioned upon prior
recourse against the negligent employee and a prior
showing of the insolvency of such employee. Therefore,
it is incumbent upon the private respondents to prove
that they exercised the diligence of a good father of a
family in the selection and supervision of their
employee.
4. Rafael Reyes v. People (2000)
Facts:
Rafael Reyes Trucking Corporation is a domestic
corporation engaged in the business of transporting
beer products for the San Miguel Corporation (SMC for
short) from the latters San Fernando, Pampanga plant
to its various sales outlets in Luzon. Among its fleets of
vehicles for hire is the white truck trailer described
above driven by Romeo Dunca. "In the early morning of
June 20, 1989, the White Truck driven by Dunca left
Tuguegarao, Cagayan bound to San Fernando,
Pampanga loaded with 2,000 cases of empty beer
"Grande" bottles. Seated at the front right seat beside
him was Ferdinand Domingo, his truck helper
 Civil Law Review II Case Digests
("pahinante" in Pilipino). At around 4:00 oclock that
same morning while the truck was descending at a
slight downgrade along the national road at Tagaran,
Cauayan, Isabela, it approached a damaged portion of
the road covering the full width of the trucks right lane
going south and about six meters in length. These
made the surface of the road uneven because the
potholes were about five to six inches deep. The left
lane parallel to this damaged portion is smooth. As
narrated by Ferdinand Domingo, before approaching
the potholes, he and Dunca saw the Nissan with its
headlights on coming from the opposite direction. They
used to evade this damaged road by taking the left
lance but at that particular moment, because of the
incoming vehicle, they had to run over it. This caused
the truck to bounce wildly. Dunca lost control of the
wheels and the truck swerved to the left invading the
lane of the Nissan. As a result, Duncas vehicle rammed
the incoming Nissan dragging it to the left shoulder of
the road and climbed a ridge above said shoulder
where it finally stopped. The Nissan was severely
damaged and its two passengersFeliciano Balcita and
Francisco Dy, Jr.died instantly.
Dunca was charged with reckless imprudence
resulting in double homicide and damage to property.
The offended parties made a reservation to file a
separate civil action. And the offended parties actually
filed a damage suit against petitioner Rafael Reyes
Trucking Corporation based on quasi delict. The
petitioner settled the claim of the heirs of Feliciano
Balcita. The private respondents opted to pursue the
criminal action but did not withdraw the civil case quasi
ex delicto they filed against petitioner. On December
15, 1989, private respondents withdrew the reservation
to file a separate civil action against the accused and
manifested that they would prosecute the civil aspect
ex delicto in the criminal action. However, they did not
withdraw the separate civil action based on quasi
delictagainst petitioner as employer arising from the
same act or omission of the accused driver. Upon
agreement of the parties, the trial court consolidated
both criminal and civil cases and conducted a joint trial
of the same.
The RTC convicted Dunca and ordered petitioner
subsidiarily liable. During the pendency of the appeal,
Dunca fled to a foreign country.
Issue: Whether or not petitioner can be held
subsidiarily liable in the criminal case.
Ruling: No. We grant the petition, resolving under the
circumstances pro hac vice to remand the cases to the
trial court for determination of the civil liability of
petitioner as employer of the accused driver in the civil
action quasi ex delicto re-opened for the purpose.
As regards the first issue, the answer is in the
negative. Rafael Reyes Trucking Corporation, as
employer of the accused who has been adjudged guilty
in the criminal case for reckless imprudence, can not
be held subsidiarily liable because of the filing of the
separate civil action based on quasi delict against it. In
view of the reservation to file, and the subsequent
filing of the civil action for recovery of civil liability, the
same was not instituted with the criminal action. Such
separate civil action was for recovery of damages
under Article 2176 of the Civil Code, arising from the
same act or omission of the accused.
The intention of private respondents to proceed
primarily and directly against petitioner as employer of
accused truck driver became clearer when they did not
ask for the dismissal of the civil action against the
latter based on quasi delict. Consequently, the Court of
Appeals and the trial court erred in holding the accused
civilly liable, and petitioner-employer of the accused
subsidiarily liable for damages arising from crime (ex
delicto) in the criminal action as the offended parties in
fact filed a separate civil action against the employer
based on quasi delict resulting in the waiver of the civil
action ex delicto.
It might be argued that private respondents as
complainants in the criminal case withdrew the
reservation to file a civil action against the driver
(accused) and manifested that they would pursue the
civil liability of the driver in the criminal action.
However, the withdrawal is ineffective to reverse the
effect of the reservation earlier made because private
respondents did not withdraw the civil action against
petitioner based on quasi delict. In such a case, the
provision of Rule 111, Section 1, paragraph 3 of the
1985 Rules on Criminal Procedure is clear that the
reservation to file or the filing of a separate civil action
results in a waiver of other available civil actions
arising from the same act or omission of the accused.
Rule 111, Section 1, paragraph 2 enumerated what are
the civil actions deemed waived upon such reservation
or filing, and one of which is the civil indemnity under
the Revised Penal Code. Rule 111, Section 1, paragraph
3 of the 1985 Rules on Criminal Procedure specifically
provides: "A waiver of any of the civil actions
extinguishes the others. The institution of, or the
reservation of the right to file, any of said civil actions
separately waives the others."
With regard to the second issue, the award of
damages in the criminal case was improper because
the civil action for the recovery of civil liability was
waived in the criminal action by the filing of a separate
civil action against the employer.
5. Custodio v. CA (1996)
Facts:
Pacifico Mabasa owned a two-door apartment
somewhere in Taguig. The apartment was surrounded
by other immovables and a septic tank. As an access
to P. Burgos Street from plaintiffs property, there are
two possible passageways. The first passageway is
approximately one meter wide and is about 20 meters
distant from Mabasas residence to P. Burgos Street.
Such path is passing in between the previously
mentioned row of houses. The second passageway is
about 3 meters in width and length from plaintiff
Mabasas residence to P. Burgos Street; it is about 26
meters. In passing thru said passageway, a less than a
meter wide path through the septic tank and with 5-6
meters in length has to be traversed. Later on,
Mabasas tenants started leaving, supposedly, because
of an adobe fence built. Said adobe fence was first
constructed by defendants Santoses along their
property which is also along the first passageway.
 Civil Law Review II Case Digests
Defendant Morato constructed her adobe fence and
even extended said fence in such a way that the entire
passageway was enclosed. Defendant Ma. Cristina
Santos testified that she constructed said fence
because there was an incident when her daughter was
dragged by a bicycle pedalled by a son of one of the
tenants in said apartment along the first passageway.
Aggrieved, Mabasa filed a complaint against his
neighbors for the grant of easement. The trial court
granted the complaint and also awarded damages, and
the appellate court affirmed the same.
Issue:
Whether or not the award of damages is proper.
Ruling:
No. To warrant the recovery of damages, there
must be both a right of action for a legal wrong
inflicted by the defendant, and damage resulting to the
plaintiff therefrom. Wrong without damage, or damage
without wrong, does not constitute a cause of action,
since damages are merely part of the remedy allowed
for the injury caused by a breach or wrong. There is a
material distinction between damages and injury. Injury
is the illegal invasion of a legal right; damage is the
loss, hurt, or harm which results from the injury; and
damages are the recompense or compensation
awarded for the damage suffered. Thus, there can be
damage without injury in those instances in which the
loss or harm was not the result of a violation of a legal
duty. These situations are often called damnum absque
injuria in order that a plaintiff may maintain an action
for the injuries of which he complains, he must
establish that such injuries resulted from a breach of
duty which the defendant owed to the plaintiff - a
concurrence of injury to the plaintiff and legal
responsibility by the person causing it.
In the case at bar, although there was damage,
there was no legal injury. Contrary to the claim of
private respondents, petitioners could not be said to
have violated the principle of abuse of right. In order
that the principle of abuse of right provided in Article
21 of the Civil Code can be applied, it is essential that
the following requisites concur: (1) The defendant
should have acted in a manner that is contrary to
morals, good customs or public policy; (2) The acts
should be willful; and (3) There was damage or injury
to the plaintiff. The act of petitioners in constructing a
fence within their lot is a valid exercise of their right as
owners, hence not contrary to morals, good customs or
public policy. The law recognizes in the owner the right
to enjoy and dispose of a thing, without other
limitations than those established by law. It is within
the right of petitioners, as owners, to enclose and
fence their property. Article 430 of the Civil Code
provides that every owner may enclose or fence his
land or tenements by means of walls, ditches, live or
dead hedges, or by any other means without detriment
to servitudes constituted thereon.
6. Libi v. IAC (1992)
Facts:
On January 14, 1979, Julie Ann Gotiong and
Wendell Libi died, each from a single gunshot wound
from a revolver licensed in the name of petitioner
Cresencio Libi. The respondents, parents of Julie Ann,
filed a case against the parents of Wendell to recover
damages arising from the latters vicarious liability
under Article 2180 of the Civil Code. The trial court
dismissed the complaint. On appeal, the IAC set aside
the judgment of the lower court dismissing the
complaint of Julie Anns parents.
Issue: Whether or not Article 2180 of the Civil Code
was correctly interpreted by the respondent Court to
make petitioners liable for vicarious liability.
Ruling: Yes. The petitioners were gravely remiss in
their duties as parents in not diligently supervising the
activities of their son. Both parents were wanting in
their duty and responsibility in monitoring and knowing
the activities of their son. The petitioners utterly failed
to exercise all the diligence of a good father of a family
in preventing their son from committing the crime by
means of the gun which was freely accessible to
Wendell Libi because they have not regularly checked
whether the gun was still under lock, but learned that it
was missing from the safety deposit box only after the
crime had been committed. The civil liability of parents
for quasi-delicts of their minor children, as
contemplated in Article 2180, is primary and not
subsidiary.
7. Coca-Cola v. CA (1993)
Facts:
Respondent Lydia Geronimo was the proprietess of
Kindergarten Wonderland Canteen, engaged in the sale
of soft drinks and other goods to the students of
Kindergarten Wonderland and to the public. On August
12, 1989, some parents of the students complained
that the Coke and Sprite soft drinks contained fiber-like
matter and other foreign substances. She discovered
the presence of some fiber-like substances in the
contents of some unopened Coke bottles and a plastic
matter in the contents of an unopened Sprite bottle.
The Department of Health informed her that the
samples she submitted are adulterated. Her sales of
soft drinks plummeted, and not long after that, she had
to close shop. She became jobless and destitute. She
demanded from the petitioner the payment of
damages but was rebuffed by it. She then filed a
complaint before the RTC of Dagupan City, which
granted the motion to dismiss filed by petitioner, on
the ground that the complaint is based on contract,
and not on quasi-delict, as there exists pre-existing
contractual relation between the parties. Thus, on the
basis of Article 1571, in relation to Article 1562, the
complaint should have been filed within six months
from the delivery of the thing sold. The CA reversed the
RTC decision and held that Geronimos complaint is one
for quasi-delict because of petitioners act of
negligently manufacturing adulterated food items
intended to be sold for public consumption; and that
the existence of contractual relations between the
parties does not absolutely preclude an action by one
against the other for quasi-delict arising from
negligence in the performance of a contract. Hence,
this petition.
 Civil Law Review II Case Digests
Issue: Whether the action for damages by the
proprietess against the soft drinks manufacturer should
be treated as one for breach of implied warranty
against hidden defects, which must be filed within six
months from the delivery of the thing sold, or one for
quasi-delict, which can be filed within four years
pursuant to Article 1146 of the Civil Code.
Held: The action in based on quasi-delict, therefore, it
prescribes in four years. The allegations in the
complaint makes a reference to the reckless and
negligent manufacture of adulterated food items
intended to be sold for public consumption. The
vendees remedies are not limited to those prescribed
in Article 1567 of the Civil Code. The vendor could be
liable for quasi-delict under Article 2176, and an action
based thereon may be brought by the vendee. The
existence of a contract between the parties does not
bar the commission of a tort by the one against the
other and the consequent recovery of damages
therefor. Liability for quasi-delict may still exist despite
the presence of contractual relations.
8. City of Manila v. Teotico (1968)
Facts:
At around 8 pm, Genaro Teotico was at the corner
of Old Luneta and P. Burgos Avenue waiting for a
jeepney. As he was about to board the jeep, he fell on a
manhole resulting in his injuries and inability to wark
for 20 days. Thus, he filed a complaint for damages
against the City of Manila, the mayor, city engineer,
city health officer, city treasurer and chief of police.
Teotico invoked Art. 2189 of the Civil Code. The City of
Manila claimed that RA 409 (the Charter of Manila)
prevails, because it was a special law; that it did not
receive a report of the incident; and that P. Burgos is a
national highway. The CFI of Manila dismissed the
complaint. On appeal before the CA, the appellate
court affirmed the ruling of the trial court except with
respect to the City of Manila, which was sentenced to
pay damages.
Issue: W/N City of Manila is liabile.
Held: Yes!
1. Although RA 409 is a special law and the Civil
Code a general law, with respect to the subject-matter
of the provisions, Sec. 4 of RA 409 establishes merely a
general rule regarding the liability of the City for
damages/injury to persons arising from the failure of
city officers to enforce the provisions of the Act or any
other law/ordinance or from the negligence of the
Mayor, Municipal Board or other officers while
enforcing or attempting to enforce said provisions.
2. Even if P. Burgos Ave were a National Highway,
this does not detract from its control or supervision by
the City.
9. Guilatco v. City of Dagupan (1989)
Facts:
Florentina Guilatco, a court interpreter, was about
to board a tricycle at a sidewalk located at Perez
Boulevard when she accidentally fell into a manhole
located in said side walk, causing her right leg to be
fractured. She was hospitalized and also as a result,
suffered loss of income and moral damages. Guilatco
sued the City of Dagupan. The City replied that Perez
Boulevard, where the deadly manhole was located, is a
natonal road not under the control and supervision of
Dagupan. It is submitted that it is actually the Ministry
of Public Highways that has control and supervision
thru the Highway Engineer, who by mere coincidence,
is also the City Engineer of Dagupan (malas naman
natin, City Engineer).
Issue: Whether or not the City of Dagupan is liable.
Ruling: Yes. The City of Dagupan argued that the
supervision and control over Perez Boulevard belongs
more to his function as ex-officio Highway Engineer,
thus the Ministry of Public Highways should be held
liable. However, the court gave this arguments:
Alfredo G. Tangco, in his official capacity as City
Engineer of Dagupan, as Ex-Officio Highway Engineer,
as Ex-Officio City Engineer of the Bureau of Public
Works, and, last but not the least, as Building Official
for Dagupan City, receives the following monthly
compensation: P1,810.66 from Dagupan City, P200.00
from the Ministry of Public Highways, P100.00 from the
Bureau of Public Works and P500.00 by virtue of PD
1096, respectively. This function of supervision over
streets, public buildings, and other public works
pertaining to the City Engineer is coursed through
Maintenance Foreman and a Maintenance Engineer.
Although these last two officials are employees of the
National Government, they are detailed with the City of
Dagupan and hence receive instruction and supervision
from the city through the City Engineer. There is,
therefore, no doubt that the City Engineer exercises
control or supervision over the public works in
question. Hence, the liability of the city to the
petitioner under article 2198 of the City Code is clear.
10. Gotesco v. Chatto (1992)
Facts:
In the afternoon of June 4, 1982 plaintiff Gloria E.
Chatto, and her 15-year old daughter, plaintiff Lina
Delza E. Chatto went to see the movie 'Mother Dear' at
Superama I theater, owned by defendant Gotesco
Investment Corporation. They bought balcony tickets
but even then were unable to find seats considering
the number of people patronizing the movie. Hardly ten
(10) minutes after entering the theater, the ceiling of
its balcony collapsed. The theater was plunged into
darkness and pandemonium ensued. Shocked and
hurt, plaintiffs managed to crawl under the fallen
ceiling. As soon as they were able to get out to the
street they walked to the nearby FEU Hospital where
they were confined and treated for one (1) day. The
next day, they transferred to the UST hospital. Plaintiff
Gloria Chatto was treated in said hospital from June 5
to June 19 and plaintiff Lina Delza Chatto from June 5 to
11. Due to continuing pain in the neck, headache and
dizziness, plaintiff went to Illinois, USA in July 1982 for
further treatment (Exh. "E") She was treated at the
Cook County Hospital in Chicago, Illinois. She stayed in
the U.S. for about three (3) months during which time
she had to return to the Cook County Hospital five (5)
or six (6) times.
 Civil Law Review II Case Digests
Gloria Chatto sued Gotesco for damages, and the
RTC ruled in her favor.
Issue: Whether or not Gotesco is liable for damage.
Ruling: Yes Petitioner's claim that the collapse of the
ceiling of the theater's balcony was due to force
majeure is not even founded on facts because its own
witness, Mr. Jesus Lim Ong, admitted that "he could not
give any reason why the ceiling collapsed." Clearly,
there was no authoritative investigation conducted by
impartial civil and structural engineers on the cause of
the collapse of the theater's ceiling. Jesus Lim Ong is
not an engineer, he is a graduate of architecture from
the St. Louie (sic) University in Baguio City. It does not
appear he has passed the government examination for
architects. (TSN, June 14, 1985, p. 4) In fine, the
ignorance of Mr. Ong about the cause of the collapse of
the ceiling of their theater cannot be equated as an act
of God. To sustain that proposition is to introduce
sacrilege in our jurisprudence." Having interposed it as
a defense, it had the burden to prove that the collapse
was indeed caused by force majeure. It could not have
collapsed without a cause. That Mr. Ong could not offer
any explanation does not imply force majeure. Verily,
the post-incident investigation cannot be considered as
material to the present proceedings. What is significant
is the finding of the trial court, affirmed by the
respondent Court, that the collapse was due to
construction defects. There was no evidence offered to
overturn this finding. The building was constructed
barely four (4) years prior to the accident in question. It
was no shown that any of the causes denominated as
force majeure obtained immediately before or at the
time of the collapse of the ceiling. Such defects could
have been easily discovered if only petitioner exercised
due diligence and care in keeping and maintaining the
premises. But as disclosed by the testimony of Mr. Ong,
there was no adequate inspection of the premises
before the date of the accident. His answers to the
leading questions on inspection disclosed neither the
exact dates of said inspection nor the nature and
extent of the same. That the structural designs and
plans of the building were duly approved by the City
Engineer and the building permits and certificate of
occupancy were issued do not at all prove that there
were no defects in the construction, especially as
regards the ceiling, considering that no testimony was
offered to prove that it was ever inspected at all. It is
settled that: "The owner or proprietor of a place of
public amusement impliedly warrants that the
premises, appliances and amusement devices are safe
for the purpose for which they are designed, the
doctrine being subject to no other exception or
qualification than that he does not contract against
unknown defects not discoverable by ordinary or
reasonable means." This implied warranty has given
rise to the rule that: "Where a patron of a theater or
other place of public amusement is injured, and the
thing that caused the injury is wholly and exclusively
under the control and management of the defendant,
and the accident is such as in the ordinary course of
events would not have happened if proper care had
been exercised, its occurrence raises a presumption or
permits of an inference of negligence on the part of the
defendant." That presumption or inference was not
overcome by the petitioner. As gleaned from Bouvier's
definition of and Cockburn's elucidation on force
majeure, for one to be exempt from any liability
because of it, he must have exercised care, i.e., he
should not have been guilty of negligence.
11. MMTC v. CA (1998)
Facts:
MMTC is the operator of a fleet of passenger buses
within the Metro Manila area and Musa was its driver .
The spouses Rosales were parents of Liza Rosalie, a
third-year high school student at the University of the
Philippines Integrated School.
At around a quarter past one in the afternoon of
August 9, 1986, MMTC Bus No. 27, which was driven by
Musa, hit Liza Rosalie who was then crossing Katipunan
Avenue in Quezon City. An eye witness said the girl was
already near the center of the street when the bus,
then bound for the south, hit her. She fell to the ground
upon impact, rolled between the two front wheels of
the bus, and was run over by the left rear tires thereof.
Her body was dragged several meters away from the
point of impact. Liza Rosalie was taken to the Philippine
Heart Center, but efforts to revive her proved futile.
Pedro Musa was found guilty of reckless
imprudence resulting in homicide. However, for the
civil liability, Souses Rosales filed an independent civil
action for damages against MMTC, Musa, MMTC Acting
General Manager Conrado Tolentino, and the
Government Service Insurance System (GSIS). They
subsequently amended their complaint to include
Feliciana Celebrado, a dispatcher of the MMTC, as a
defendant therein.
To free themselves from liability, petitioners
attempted to prove that it exercise diligentissimi patris
familias in the selcetion and supervision of employees
through oral evidence. The RTC ruled in favor of
Spouses Rosales, but made MMTC primarily liable and
Musa secondarily liable.
Issue: Whether or not MMTC is solidarily liable with
Musa.
Ruling: Yes! Petitioners attempt to prove its
diligentissimi 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.
Although, MMTC submitted brochures and
programs of seminars for prospective employees on
vehicle maintenance, traffic regulations, and driving
skills and claimed that applicants are given tests to
determine driving skills, concentration, reflexes, and
vision, there is no record that Musa attended such
training programs and passed the said examinations
before he was employed. No proof was presented that
Musa did not have any record of traffic violations. Nor
were records of daily inspections, allegedly conducted
by supervisors, ever presented.
The failure of the defendant company to produce in
court any record or other documentary proof tending to
establish that it had exercised all the diligence of a
 Civil Law Review II Case Digests
good father of a family in the selection and supervision
of its drivers and buses, notwithstanding the calls
therefor by both the trial court and the opposing
counsel, argues strongly against its pretensions.
As already stated, MMTC is primarily liable for
damages for the negligence of its employee in view of
Art. 2180. Pursuant to Art. 2181, it can recover from its
employee what it may pay. This does not make the
employees liability subsidiary. It only means that if the
judgment for damages is satisfied by the common
carrier, the latter has a right to recover what it has paid
from its employee who committed the fault or
negligence which gave rise to the action based on
quasi-delict. Hence, the spouses Rosales have the
option of enforcing the judgment against either MMTC
or Musa.
From another point of view, Art. 2194 provides that
the responsibility of two or more persons who are
liable for a quasi-delict is solidary. We ruled in Gelisan
v. Alday that the registered owner/operator of a public
service vehicle is jointly and severally liable with the
driver for damages incurred by passengers or third
persons as a consequence of injuries sustained in the
operation of said vehicle. In Baliwag Transit, Inc. v.
Court of Appealsit was held that to escape solidary
liability for a quasi-delict committed by an employee,
the employer must adduce sufficient proof that it
exercised such degree of care. Finally, we held in the
recent case of Philtranco Service Enterprises, Inc. v.
Court of Appeals that the liability of the registered
owner of a public service vehicle . . . for damages
arising from the tortious acts of the driver is primary,
direct, and joint and several or solidary with the
driver.
Rationale for Imposing Vicarious liability 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 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.
12. Geluz v. CA (1961)
Facts: Nita Villanueva became pregnant for a third
time with her husband Antonio Geluzs child. Unknown
to Antonio, Nita had two (2) previous abortions and is
planning another one through the aid of Dr. Oscar Lazo.
Nita succeeded again in aborting her two-month old
fetus; but this time, Antonio discovered the latest
abortion. Thereafter, Antonio, for and in behalf of the
dead foetus, filed an action for damages against Dr.
Oscar.
Issue: Whether or not an action for damages may be
instituted in behalf of the unborn child on account of
the injuries it received.
Ruling: No. An action for damages on account of
personal injury or death pertains primarily to the one
injured. The action presupposes that the one injured
has juridical personality. Under Article 40 of the Civil
Code, a conceived child only has a provisional
personality (conceptus pro nato habetur), or a
personality burdened with a condition or an express
limitation that the child be subsequently born alive.
Here, there is no dispute that the child was dead when
separated from its mothers womb. Since the
conceived childs personality was extinguished by its
pre-natal death, no cause of action for such damages
accrued in behalf of the said unborn child. Likewise,
since no action for damages could be instituted on
account of the injuries the unborn child received, no
such right of action could derivatively accrue to its
parents or heirs.
13. Villanueva v. UCPB (2000)
Facts:
Hermenegildo Villanueva, father of petitioner
Hector C. Villanueva, applied for and was granted a
loan by respondent United Coconut Planters Bank
(UCPB), Dumaguete City Branch, which at that time
was managed by one Bobby Cafe. The loan was for the
alleged purpose of agricultural coconut production and
for processing under the Coconut Production Loan
Program. As security therefor, Hermenegildo Villanueva
mortgaged to the bank a parcel of land registered in
his name located at Mauban, Quezon. In the course of
a bank audit, certain fraud, anomalies and irregularities
were discovered in the application, processing and
granting of said loan prompting UCPB to conduct
further investigation on the matter. After due inquiry,
the bank found and concluded that petitioner, together
with his father, Hermenegildo Villanueva, Bobby Cafe
(UCPB Dumaguete City Branch Manager) and a certain
Reynaldo Ramos, confederated and conspired with
each other in perpetrating the fraud, anomalies and
irregularities to the detriment of the bank. Thus, UCPB,
through its counsel, filed the following criminal
complaints with the Office of the City Fiscal (now
Prosecutor) of Dumaguete City.
The prosecutor charged petitioner, Hermenegildo
and Bobby with estafa and violation of the provisions of
the General Banking Act.
The RTC acquitted all the accused except for
Bobby. In view of his acquittal, petitioner sued UCPB for
malicious prosecution. UCPB contended that the filing
of the criminal action was not tainted with malice and
that it was the prosecutor who prosecuted the criminal
case against the petitioner.
Issue: Whether or not petitioners action for malicious
prosecution will prosper.
 Civil Law Review II Case Digests
Ruling: No. For a malicious prosecution suit to prosper,
the plaintiff must prove the following: (1) the
prosecution did occur, and the defendant was himself
the prosecutor or that he instigated its
commencement; (2) the criminal action finally ended
with an acquittal; (3) in bringing the action, the
prosecutor acted without probable cause; and (4) the
prosecution was impelled by legal malice -- an
improper or a sinister motive. Stripped of legal jargon,
malicious prosecution means persecution through the
misuse or abuse of judicial processes; or the institution
and pursuit of legal proceedings for the purpose of
harassing, annoying, vexing or injuring an innocent
person.
The Supreme Court was convinced that there was
probable cause in charging petitioner with the crimes
of which he was accused of. The bank cannot be
faulted for its desire to protect its interest in the
subject loans. Since the proceeds thereof were already
released and transferred to the bank account of
petitioner from that of his father, the bank had to
implead the petitioner in the criminal cases.
In malicious prosecution, even if the act
complained of does not constitute a crime, there can
still be probable cause behind the commission of a civil
wrong. The gravamen of malicious prosecution is not
the filing of a complaint based on the wrong provision
of law, but the deliberate initiation of an action with the
knowledge that the charges were false and groundless.
In the case at bar, even if Secs. 87-A-1, 87-A-1(d), 87-A-
2, and 87-A-2(b) of the General Banking Act punish
only bank officers, employees, borrowers or banking
institutions, the respondent bank nonetheless filed
these Complaints based on a theory of a conspiracy to
defraud it. The petitioners acquittal, by itself, did not
disprove the presence of probable cause. Evidence of
probable cause to warrant the filing of a criminal
information may not suffice to procure a conviction,
which requires proof beyond reasonable doubt. In other
words, an acquittal does not necessarily imply lack of
probable cause.
Petitioner avers that the CA erred in absolving the
respondent bank on the basis merely of the fact that
the fiscal had absolute control and supervision of the
prosecution. We agree that the CA erred on this point.
As held in Lagman v. Intermediate Appellate Court, the
second requisite of malicious prosecution is "that the
defendant was himself the prosecutor or that he
instigated its commencement." Indeed, the right to
institute a criminal action cannot be exercised
maliciously and in bad faith, as when a criminal
complaint is used "as a weapon to force an alleged
debtor to pay an indebtedness." Such complaint
designed to annoy or harass may be the basis of a suit
for malicious prosecution. Clearly, the mere fact that
the fiscal took full control of a litigation does not grant
immunity to persons who misuse their rights to
instigate criminal actions.
14. Inhelder v. CA (1983)
Facts:
Inhelder Corporation (petitioner) was a same cashiers check from the account of Tan. RCBC
manufacturer and seller of medicines and drugs. The
Panganibans (private respondents) were physicians
who owned a clinic. In 1972, they bought medicines
and drugs from petitioner in the amount of P1,385.00.
Private respondents were able to pay P824.10 leaving
a balance of P561 which had remained unpaid for two
years. In 1975, after repeated demands, private
respondents sent a check to petitioner. Thereafter,
petitioner filed a collection suit against private
respondents which was eventually dismissed.
Aggrieved, private respondents sued petitioner for
malicious prosecution.
Issue: Whether or not private respondents action for
malicious prosecution will prosper.
Ruling: No. It is true that when the check of the
PANGANIBANS was received on February 5, 1975, the
better procedure would have been to withhold a
complaint pending determination of whether or not the
check was good. If dishonored, that would be the time
to file the complaint. That procedure was not followed
because of the failure of the corresponding advice
which could have been given to Atty. Fajardo by the
INHELDER Credit and Collection Manager. But the lack
of that advice should not justify qualifying the
COLLECTION CASE as clearly unfounded. If the check
had bounced, the COLLECTION CASE would have been
tried and acted upon by the MANDALUYONG COURT on
the merits. Neither may it be said that the COLLECTION
CASE was malicious. Malicious prosecution, to be the
basis of a suit, requires the elements of malice and
want of probable cause. There must be proof that the
prosecution was prompted by a sinister design to vex
and humiliate a person, and that it was initiated
deliberately knowing that the charge was false and
groundless. In the present case, there is no evidence
on record, clearly establishing these two elements.
Although there may be want of probable cause, there is
no proof that petitioner deliberately initiated the
COLLECTION CASE knowing that the same was false
and groundless. And the rule is the same for criminal
prosecution and civil suits.
It should also be stressed that the mere filing of a
suit does 'not render a person liable for malicious
prosecution should he be unsuccessful. The law could
not have meant to impose a penalty on the right to
litigate. Sound principles of justice and public policy
demand that persons shall have free resort to Courts of
law for redress of wrongs and vindication of their rights
without fear of later on standing trial for damages
should their actions lose ground.
15. Tan v. CA (1994)
Facts:
Ramon Tan, a prominent businessman in Puerto
Princesa, had a current account with RCBC Binondo.
One day, to avoid carrying cash while enroute to
Manila, he secured a cashiers check from the PCIB in
the amount of P30,000 and deposited the same in his
account with RCBC Binondo. On the same day, RCBC
erroneously sent the check for clearing to the Central
Bank which was returned for having been misspent.
The next day, RCBC debited the amount covered by the
did not inform Tan about the debit, and the latter only
 Civil Law Review II Case Digests
learned about this 42 days later. Unknown of what
RCBC did, Tan issued two personal checks pursuant to
his transactions. The checks bounced.
Tan, alleging to have suffered humiliation and loss
of face in the business sector due to the bounced
checks, sued RCBC for damages. In its defense, RCBC
disowning any negligence, put the blame for the
"misrouting" on the petitioner for using the wrong
check deposit slip. It insisted that the misuse of a local
check deposit slip, instead of a regional check deposit
slip, triggered the "misrouting" by RCBC of the
cashier's check to the Central Bank and it was
petitioner's negligent "misuse" of a local deposit slip
which was the proximate cause of the "misrouting,"
thus he should bear the consequence.
The RTC ruled in favor of Tan, but the CA reversed
the lower courts ruling.
Issues: (1) Whether or not RCBC is liable; and (2)
Whether or not Tan may be awarded moral damages
Ruling:
(1) Yes. The respondent bank cannot exculpate
itself from liability by claiming that its depositor
"impliedly instructed" the bank to clear his check with
the Central Bank by filling a local check deposit slip.
Such posture is disingenuous, to say the least. First,
why would RCBC follow a patently erroneous act born
of ignorance or inattention or both. Second, bank
transactions pass through a succession of bank
personnel whose duty is to check and countercheck
transactions for possible errors. In the instant case, the
teller should not have accepted the local deposit slip
with the cashier's check that on its face was clearly a
regional check without calling the depositor's attention
to the mistake at the very moment this was presented
to her. Neither should everyone else down the line who
processed the same check for clearing have allowed
the check to be sent to Central Bank. Depositors do not
pretend to be past master of banking technicalities,
much more of clearing procedures. As soon as their
deposits are accepted by the bank teller, they wholly
repose trust in the bank personnel's mastery of
banking, their and the bank's sworn profession of
diligence and meticulousness in giving irreproachable
service. We do not subscribe to RCBC's assertion that
petitioner's use of the wrong deposit slip was the
proximate cause of the clearing fiasco and so,
petitioner must bear the consequence. In Pilipinas Bank
v. CA, this Court said: The bank is not expected to be
infallible but, as correctly observed by respondent
Appellate Court, in this instance, it must bear the
blame for not discovering the mistake of its teller
despite the established procedure requiring the papers
and bank books to pass through a battery of bank
personnel whose duty it is to check and countercheck
them for possible errors. Apparently, the officials and
employees tasked to do that did not perform their
duties with due care
So it is in the instance case, where the conclusion
is inevitable that respondent RCBC had been remiss in
the performance of its duty and obligation to its client,
as well as to itself. We draw attention to the fact that
the two dishonored checks issued by petitioner, Check
No. 040719 and Check No. 040718 were presented for
payment more than 45 days from the day the cashier's
check was deposited. This gave RCBC more than ample
time to have cleared the cashier's check had it
corrected its "missending" the same upon return from
Central Bank using the correct slip this time so it can
be cleared properly. Instead, RCBC promptly debited
the amount of P30,000.00 against petitioner's account
and left it at that.
Now, what was presented for deposit in the instant
cases was not just an ordinary check but a cashier's
check payable to the account of the depositor himself.
A cashier's check is a primary obligation of the issuing
bank and accepted in advance by its mere issuance.
By its very nature, a cashier's check is the bank's order
to pay drawn upon itself, committing in effect its total
resources, integrity and honor behind the check. A
cashier's check by its peculiar character and general
use in the commercial world is regarded substantially
to be as good as the money which it represents. 28 In
this case, therefore, PCIB by issuing the check created
an unconditional credit in favor of any collecting bank.
All these considered, petitioner's reliance on the
layman's perception that a cashier's check is as good
as cash is not entirely misplaced, as it is rooted in
practice, tradition, and principle. We see no reason
thus why this so-called discretion was not exercised in
favor of petitioner, specially since PCIB and RCBC are
members of the same clearing house group relying on
each other's solvency. RCBC could surely rely on the
solvency of PCIB when the latter issued its cashier's
check.
(2) Yes. We hold that petitioner has the right to
recover moral damages even if the bank's negligence
may not have been attended with malice and bad faith.
In American Express International, Inc. v. IAC, we held:
While petitioner was not in bad faith, its negligence
caused the private respondent to suffer mental
anguish, serious anxiety, embarrassment and
humiliation, for which he is entitled to recover,
reasonable moral damages (Art. 2217, Civil Code).
16. Geraldez v. CA (1994)
Facts:
Lydia Geraldez (petitioner) availed of the European
tour being offered by Kenstar Travel Corporation
(private respondent). She paid the total amount of
P190,000. However, petitioner claimed that, during the
tour, she was very uneasy and disappointed when it
turned out that, contrary to what was stated in the
brochure, there was no European tour manager for
their group of tourists, the hotels in which she and the
group were bullited were not first-class, the UGC
Leather Factory which was specifically added as a
highlight of the tour was not visited, and the Filipino
lady tour guide by private respondent was a first timer,
that is, she was performing her duties and
responsibilities as such for the first time.
Thus, petitioner sued private respondent for
damages based on breach of contract.
The RTC rendered its decision ordering private
respondent to pay petitioner P500.000.00 as moral
 Civil Law Review II Case Digests
damages, P200,000.00 as nominal damages,
P300,000.00 as exemplary damages, P50,000.00 as
and for attorney's fees, and the costs of the suit. On
appeal, the CA deleted the award for moral and
exemplary damages, and reduced the awards for
nominal damages and attorney's fees to P30,000.00
and P10,000.00, respectively. While clearly there was
therefore a violation of the rights of petitioner under
the aforementioned circumstances, the CA, contrary to
the findings of the trial court, ruled that no malice or
bad faith could be imputed to private respondent,
hence there is no justification for the award of moral
and exemplary damages.
Issue: Whether or not petitioner is entitled to moral
and exemplary damages.
Ruling: Yes. By providing the Volare 3 tourist group, of
which petitioner was a member, with rookie tour
escort, private respondent manifested its indifference
to the convenience, satisfaction and peace of mind of
its clients during the trip, despite its express
commitment to provide such facilities under the Volare
3 Tour Program which had the grandiose slogan "Let
your heart sing.
The inability of the group to visit the leather factory
is likewise reflective of the neglect and ineptness of
Zapanta in attentively following the itinerary of the
day. This incompetence must necessarily be traced to
the lack of due diligence on the part of private
respondent in the selection of its employees. It is true
that among the thirty-two destinations, which included
twenty-three cities and special visits to nine tourist
spots, this was the only place that was not visited. It
must be noted, however, that the visit to the UGC
Leather Factory was one of the highlights of the Volare
3 program which even had to be specifically inserted in
the itinerary, hence it was incumbent upon the
organizers of the tour to take special efforts to ensure
the same. Besides, petitioner did expect much from the
visit to that factory since it was represented by private
respondent that quality leather goods could be bought
there at lower prices.
In the belief that an experienced tour escort and a
European tour manager would accompany them, with
the concomitant reassuring and comforting thought of
having security and assistance readily at hand,
petitioner was induced to join the Volare 3 tourists,
instead of travelling alone She likewise suffered serious
anxiety and distress when the group was unable to visit
the leather factory and when she did not receive first-
class accommodations in their lodgings which were
misrepresented as first-class hotels. These, to our
mind, justify the award for moral damages, which are
in the category of an award designed to compensate
the claimant for that injury which she had suffered, and
not as a penalty on the wrongdoer, we believe that an
award of P100,000.00 is sufficient and reasonable.
When moral damages are awarded, especially for
fraudulent conduct, exemplary damages may also be
decreed. Exemplary damages are imposed by way of
example or correction for the public good, in addition
to moral, temperate, liquidated or compensatory
damages. According to the code Commission,
exemplary damages are required by public policy, for
wanton acts must be suppressed. An award, therefore,
of P50,000.00 is called for to deter travel agencies
from resorting to advertisements and enticements with
the intention of realizing considerable profit at the
expense of the public, without ensuring compliance
with their express commitments. While, under the
present state of the law, extraordinary diligence is not
required in travel or tour contracts, such as that in the
case at bar, the travel agency acting as tour operator
must nevertheless be held to strict accounting for
contracted services, considering the public interest in
tourism, whether in the local or in the international
scene. Consequently, we have to likewise reject the
theory of private respondent that the promise it made
in the tour brochure may be regarded only as
"commendatory trade talk."
With regard to the honorarium for counsel as an
item of damages, since we are awarding moral and
exemplary damages, and considering the legal
importance of the instant litigation and the efforts of
counsel evident from the records of three levels of the
judicial hierarchy, we favorably consider the amount of
P20,000.00 therefor.
17. People v. Prades (1998)
Facts:
Emmie Rosales, a 17-year-old girl was sleeping in
her home when she awoke to a man lying on top of her.
She was about to shout when the man poked a gun at
her neck and warned her not to create any noise.
Although the house lights were off, moonlight streamed
through the door of the room, enabling Emmie to
recognize the intruder as Senen Prades, her
barriomate. Prades proceeded to rape Emmie. Later on,
Prades was charged with rape. The RTC convicted him
as charged and awarded Emmie P50,000 as moral
damages.
Issue: Whether or not the RTC was correct in
classifying the award of P50,000 as moral damages.
Ruling: No. The lower court, however, erred in
classifying the award of P50,000.00 to the offended
party as being in the character of moral damages.
Jurisprudence has elucidated that the award authorized
by the criminal law as civil indemnity ex delicto for the
offended party, in the amount authorized by the
prevailing judicial policy and aside from other proven
actual damages, is itself equivalent to actual or
compensatory damages in civil law. For that matter,
the civil liability ex delicto provided by the Revised
Penal Code, that is, restitution, reparation and
indemnification, all correspond to actual or
compensatory damages in the Civil Code, since the
other damages provided therein are moral, nominal,
temperate or moderate, liquidated, and exemplary or
corrective damages which have altogether different
concepts and fundaments.
We reiterate here that said civil indemnity is
mandatory upon the finding of the fact of rape; it is
distinct from and should not be denominated as moral
damages which are based on different jural
foundations and assessed by the court in the exercise
of sound discretion. Evidently, therefore, the lower
 Civil Law Review II Case Digests
court actually intended the award of P50,000.00 as
indemnification to be paid to the victim.
On this score, we have to take note of a new policy
adopted by the Court. The recent judicial prescription is
that the indemnification of the victim shall be in the
increased amount of P75,000.00 if the crime of rape is
committed or effectively qualified by any of the
circumstances under which the death penalty is
authorized by the applicable amendatory laws.
Applying the foregoing policy, the civil indemnity to be
awarded to the offended party in the case at bar is and
should be P75,000.00.
One other cognate development in the case law on
rape is applicable to the present disposition. The Court
has also resolved that in crimes of rape, such as that
under consideration, moral damages may additionally
be awarded to the victim in the criminal proceeding, in
such amount as the Court deems just, without the need
for pleading or proof of the basis thereof as has
heretofore been the practice. Indeed, the conventional
requirement of allegata et probata in civil procedure
and for essentially civil cases should be dispensed with
in criminal prosecutions for rape with the civil aspect
included therein, since no appropriate pleadings are
filed wherein such allegations can be made.
Corollarily, the fact that complainant has suffered
the trauma of mental, physical and psychological
sufferings which constitute the bases for moral
damages are too obvious to still require the recital
thereof at the trial by the victim, since the Court itself
even assumes and acknowledges such agony on her
part as a gauge of her credibility. What exists by
necessary implication as being ineludibly present in the
case need not go through superfluity of still being
proven through a testimonial charade.
The People having established the guilt of
appellant beyond reasonable doubt, his conviction and
the penalty imposed by the court a quo is correct and
must consequently be affirmed. Withal, four Members
of this Court maintain their position that Republic Act
No. 7659 insofar as it prescribes the death penalty is
unconstitutional; but they nevertheless submit to the
ruling of the majority that the law is constitutional and
that the death penalty should be imposed in this case.
WHEREFORE, the judgment of the Regional Trial
Court of Iriga City, Branch 36, in Criminal Case No. IR-
3666 is hereby AFFIRMED, with the MODIFICATION that
accused-appellant Senen Prades is ordered to
indemnify the offended party, Emmie R. Rosales, in the
amount of P75,000.00 as compensatory damages, and
to pay the additional amount of P50,000.00 as moral
damages, with costs in all instances.
18. RCPI v. CA (1986)
Facts:
Radio Communications of the Philippines Inc. (RCPI)
sent a telegram sent through its Manila Office to the
offended party, Loreto Dionela, which read Sa iyo
walang pakinabang dumating ka diyan-wala-kang
padala dito kahit bulbul mo.
Aggrieved, Dionela sued RCPI for damages. In its
defense, RCPI claimed that the additional words in
Tagalog was a private joike between the sending and
receiving operators and that they were not address to
or intended for Dionela. The telegram sent through its
facilities was received in its station at Legaspi City. The
additional words in Tagalog were never noticed and
were included in the telegram when delivered.
The RTC and the CA ruled in favor of Dionela.
Issue: Whether or not RCPI is liable.
Ruling: Yes. Petitioner's contentions do not merit our
consideration. The action for damages was filed in the
lower court directly against respondent corporation not
as an employer subsidiarily liable under the provisions
of Article 1161 of the New Civil Code in relation to Art.
103 of the Revised Penal Code. The cause of action of
the private respondent is based on Arts. 19 and 20 of
the New Civil Code (supra). As well as on respondent's
breach of contract thru the negligence of its own
employees. 1 Petitioner is a domestic corporation
engaged in the business of receiving and transmitting
messages. Everytime a person transmits a message
through the facilities of the petitioner, a contract is
entered into. Upon receipt of the rate or fee fixed, the
petitioner undertakes to transmit the message
accurately. There is no question that in the case at bar,
libelous matters were included in the message
transmitted, without the consent or knowledge of the
sender. There is a clear case of breach of contract by
the petitioner in adding extraneous and libelous
matters in the message sent to the private respondent.
As a corporation, the petitioner can act only through its
employees. Hence the acts of its employees in
receiving and transmitting messages are the acts of
the petitioner. To hold that the petitioner is not liable
directly for the acts of its employees in the pursuit of
petitioner's business is to deprive the general public
availing of the services of the petitioner of an effective
and adequate remedy. In most cases, negligence must
be proved in order that plaintiff may recover. However,
since negligence may be hard to substantiate in some
cases, we may apply the doctrine of RES IPSA
LOQUITUR (the thing speaks for itself), by considering
the presence of facts or circumstances surrounding the
injury.
PARTNERSHIP
1. Agad v. Mabato (1968)
Facts:
Mauricio Agad filed a collection case against
Severino Mabato alleging that the two of them had
formed a partnership to manage a fishpond business in
1952. This was evidenced by a public instrument. Agad
contributed P1,000 with the right to receive 50% of the
profits, however, Mabato fad yet to render accounts. In
his answer, Mabato admitted the formal allegations of
the complaint and denied the existence of said
partnership, upon the ground that the contract therefor
had not been perfected, despite the execution of
Annex "A", because Agad had allegedly failed to give
his P1,000 contribution to the partnership capital.
Subsequently, Mabato filed a motion to dismiss, upon
 Civil Law Review II Case Digests
the ground that the complaint states no cause of action
and that the lower court had no jurisdiction over the
subject matter of the case, because it involves
principally the determination of rights over public
lands. After due hearing, the court issued the order
appealed from, granting the motion to dismiss the
complaint for failure to state a cause of action. This
conclusion was predicated upon the theory that the
contract of partnership, Annex "A", is null and void,
pursuant to Art. 1773 of our Civil Code, because an
inventory of the fishpond referred in said instrument
had not been attached thereto.
Issue: Whether or not the contract of partnership
between Agad and Mabato is valid.
Ruling: Yes. The issue before us hinges on whether or
not "immovable property or real rights" have been
contributed to the partnership under consideration.
Mabato alleged and the lower court held that the
answer should be in the affirmative, because "it is
really inconceivable how a partnership engaged in the
fishpond business could exist without said fishpond
property (being) contributed to the partnership." It
should be noted, however, that, as stated in Annex "A"
the partnership was established "to operate a
fishpond", not to "engage in a fishpond business".
Moreover, none of the partners contributed either a
fishpond or a real right to any fishpond. Their
contributions were limited to the sum of P1,000 each.
The operation of the fishpond mentioned in Annex "A"
was the purpose of the partnership. Neither said
fishpond nor a real right thereto was contributed to the
partnership or became part of the capital thereof, even
if a fishpond or a real right thereto could become part
of its assets.
2. Obillos v. CIR (1985)
Facts:
In 1973, Jose Obillos completed payment on two
lots located in Greenhills, San Juan. The next day, he
transferred his rights to his four children for them to
build their own residences. The Torrens title would
show that they were co-owners of the two lots.
However, the petitioners resold them to Walled City
Securities Corporation and Olga Cruz Canda for P313k
or P33k for each of them. They treated the profit as
capital gains and paid an income tax of P16,792.00 The
CIR requested the petitioners to pay the corporate
income tax of their shares, as this entire assessment is
based on the alleged partnership under Article 1767 of
the Civil Code; simply because they contributed each
to buy the lots, resold them and divided the profits
among them. But as testified by Obillos, they have no
intention to form the partnership and that it was
merely incidental since they sold the said lots due to
high demand of construction. Naturally, when they sell
them as co-partners, it will result to the share of
profits. Further, their intention was to divide the lots for
residential purposes.
Issue: Whether or not there was a partnership in this
case.
Ruling: No. As Article 1769 (3) of the Civil Code
provides: the sharing of gross returns does not in itself
establish a partnership, whether or not the persons
sharing them have a joint or common right or interest
in any property from which the returns are derived.
There must be an unmistakeable intention to form a
partnership or joint venture. In this case, the
Commissioner should have investigated if the father
paid donor's tax to establish the fact that there was
really no partnership. As testified by Jose Obillos, Jr.,
they had no such intention. They were co-owners pure
and simple. To consider them as partners would
obliterate the distinction between a co-ownership and
a partnership. The petitioners were not engaged in any
joint venture by reason of that isolated transaction.
Their original purpose was to divide the lots for
residential purposes. If later on they found it not
feasible to build their residences on the lots because of
the high cost of construction, then they had no choice
but to resell the same to dissolve the co-ownership.
The division of the profit was merely incidental to the
dissolution of the co-ownership which was in the nature
of things a temporary state. It had to be terminated
sooner or later.
3. Pascual v. CIR (1988)
Facts:
Mariano Pascual and Renato Dragon (petitioners)
bought two parcels of land and a year after, they
bought another three parcels of land. Petitioners
subsequently sold the said lots in 1968 and 1970, and
realized net profits. The corresponding capital gains
taxes were paid by petitioners in 1973 and 1974 by
availing of the tax amnesties granted in the said years.
However, the Acting BIR Commissioner assessed and
required Petitioners to pay a total amount of
P107,101.70 as alleged deficiency corporate income
taxes for the years 1968 and 1970. Petitioners
protested the said assessment asserting that they had
availed of tax amnesties way back in 1974. In a reply,
respondent Commissioner informed petitioners that in
the years 1968 and 1970, petitioners as co-owners in
the real estate transactions formed an unregistered
partnership or joint venture taxable as a corporation
under Section 20(b) and its income was subject to the
taxes prescribed under Section 24, both of the National
Internal Revenue Code that the unregistered
partnership was subject to corporate income tax as
distinguished from profits derived from the partnership
by them which is subject to individual income tax; and
that the availment of tax amnesty under P.D. No. 23, as
amended, by petitioners relieved petitioners of their
individual income tax liabilities but did not relieve them
from the tax liability of the unregistered partnership.
Hence, the petitioners were required to pay the
deficiency income tax assessed.
Issue: Whether or not petitioners should be treated as
an unregistered partnership for purposes of income
tax.
Ruling: No. The Petitioners are simply under the
regime of co-ownership and not under unregistered
partnership. By the contract of partnership two or more
persons bind themselves to contribute money,
property, or industry to a common fund, with the
intention of dividing the profits among themselves (Art.
 Civil Law Review II Case Digests
1767, Civil Code of the Philippines). In the present
case, there is no evidence that petitioners entered into
an agreement to contribute money, property or
industry to a common fund, and that they intended to
divide the profits among themselves. The sharing of
returns does not in itself establish a partnership
whether or not the persons sharing therein have a joint
or common right or interest in the property. There must
be a clear intent to form a partnership, the existence of
a juridical personality different from the individual
partners, and the freedom of each party to transfer or
assign the whole property. Hence, there is no adequate
basis to support the proposition that they thereby
formed an unregistered partnership. The two isolated
transactions whereby they purchased properties and
sold the same a few years thereafter did not thereby
make them partners. They shared in the gross profits
as co- owners and paid their capital gains taxes on
their net profits and availed of the tax amnesty
thereby. Under the circumstances, they cannot be
considered to have formed an unregistered partnership
which is thereby liable for corporate income tax, as the
respondent commissioner proposes.
4. Litonjua v. Litonjua (2005)
Facts:
Aurelio and Eduardo are brothers. In 1973, Aurelio
alleged that Eduardo entered into a contract of
partnership with him in the Odeon Theater business
which had expanded thru investment in Cineplex, Inc.,
LCM Theatrical Enterprises, Odeon Realty Corporation,
Avenue Realty, Inc., owner of lands and buildings,
among other corporations. Aurelio showed as evidence
a letter sent to him by Eduardo that the latter is
allowing Aurelio to manage their family business (if
Eduardos away) and in exchange thereof he will be
giving Aurelio P1 million or 10% equity, whichever is
higher. A memorandum was subsequently made for the
said partnership agreement. The memorandum this
time stated that in exchange of Aurelio, who just got
married, retaining his share in the family business
(movie theatres, shipping and land development) and
some other immovable properties, he will be given P1
Million or 10% equity in all these businesses and those
to be subsequently acquired by them whichever is
greater. In 1992 however, the relationship between the
brothers went sour. And so Aurelio demanded an
accounting and the liquidation of his share in the
partnership. Eduardo did not heed and so Aurelio sued
Eduardo.
Issue: Whether or not there exists a partnership.
Ruling: No. The partnership is void and legally
nonexistent. The documentary evidence (Annex A-1)
presented by Aurelio, i.e. the letter from Eduardo and
the Memorandum, did not prove partnership. The 1973
letter from Eduardo on its face, contains typewritten
entries, personal in tone, but is unsigned and undated.
As an unsigned document, there can be no quibbling
that said letter does not meet the public
instrumentation requirements exacted under Article
1771 (how partnership is constituted) of the Civil Code.
Moreover, being unsigned and doubtless referring to a
partnership involving more than P3,000.00 in money or
property, said letter cannot be presented for
notarization, let alone registered with the Securities
and Exchange Commission (SEC), as called for under
the Article 1772 (capitalization of a partnership) of the
Code. And inasmuch as the inventory requirement
under the succeeding Article 1773 goes into the matter
of validity when immovable property is contributed to
the partnership, the next logical point of inquiry turns
on the nature of Aurelios contribution, if any, to the
supposed partnership. The Memorandum is also not a
proof of the partnership for the same is not a public
instrument and again, no inventory was made of the
immovable property and no inventory was attached to
the Memorandum. Article 1773 of the Civil Code
requires that if immovable property is contributed to
the partnership an inventory shall be had and attached
to the contract.
The CA, addressing the foregoing query, correctly
stated that petitioners contribution consisted of
immovables and real rights. Wrote that court: A
further examination of the allegations in the complaint
would show that [petitioners] contribution to the so-
called partnership/joint venture was his supposed
share in the family business that is consisting of movie
theaters, shipping and land development under
paragraph 3.02 of the complaint. In other words, his
contribution as a partner in the alleged
partnership/joint venture consisted of immovable
properties and real rights.
Lest it be overlooked, the contract-validating
inventory requirement under Article 1773 of the Civil
Code applies as long real property or real rights are
initially brought into the partnership. In short, it is
really of no moment which of the partners, or, in this
case, who between petitioner and his brother Eduardo,
contributed immovables. In context, the more
important consideration is that real property was
contributed, in which case an inventory of the
contributed property duly signed by the parties should
be attached to the public instrument, else there is
legally no partnership to speak of. Petitioner, in an
obvious bid to evade the application of Article 1773,
argues that the immovables in question were not
contributed, but were acquired after the formation of
the supposed partnership. Needless to stress, the Court
cannot accord cogency to this specious argument. For,
as earlier stated, petitioner himself admitted
contributing his share in the supposed shipping, movie
theatres and realty development family businesses
which already owned immovables even before Annex
A-1 was allegedly executed.
Considering thus the value and nature of
petitioners alleged contribution to the purported
partnership, the Court, even if so disposed, cannot
plausibly extend Annex A-1 the legal effects that
petitioner so desires and pleads to be given. Annex A-
1, in fine, cannot support the existence of the
partnership sued upon and sought to be enforced. The
legal and factual milieu of the case calls for this
disposition. A partnership may be constituted in any
form, save when immovable property or real rights are
contributed thereto or when the partnership has a
capital of at least P3,000.00, in which case a public
instrument shall be necessary. And if only to stress
 Civil Law Review II Case Digests
what has repeatedly been articulated, an inventory to
be signed by the parties and attached to the public
instrument is also indispensable to the validity of the
partnership whenever immovable property is
contributed to it.
5. Ortega vs CA (1995)
Facts:
Ortega, then a senior partner in the law firm Bito,
Misa, and Lozada withdrew from the said firm. He filed
with SEC a petition for dissolution and liquidation of the
partnership. The SEC en banc ruled that withdrawal of
Misa from the firm had dissolved the partnership. Since
it is partnership at will, the law firm could be dissolved
by any partner at anytime, such as by withdrawal
therefrom, regardless of good faith or bad faith, since
no partner can be forced to continue in the partnership
against his will.
Issue: Whether or not a partnership at will can
dissolved by any partner at any time regardless of
good or bad faith.
Held: Yes. The only effect of bad faith is that the
partner who caused the dissolution may be liable for
damages. The birth and life of a partnership at will is
predicated on the mutual desire and consent of the
partners. The right to choose with whom a person
wishes to associate himself is the very foundation and
essence of that partnership. Its continued existence is,
in turn, dependent on the constancy of that mutual
resolve, along with each partner's capability to give it,
and the absence of a cause for dissolution provided by
the law itself. Verily, any one of the partners may, at
his sole pleasure, dictate a dissolution of the
partnership at will. He must, however, act in good faith,
not that the attendance of bad faith can prevent the
dissolution of the partnership but that it can result in a
liability for damages.
6. De los Reyes v. Lukban and Borja (1916)
Facts:
Teodoro de los Reyes was the creditor of the firm
Lukban & Borja for the merchandise the latter bought
on credit. In 1905, Teodoro secured a favorable
judgment in the amount of P1,100 in a collection suit
he filed against the firm. One of the partner, paid P522
leaving a balance of P610. Later on in 1913, Teodoro
filed a collection suit, this time against Vicente Lukban
and Esperidion Borja, to recover from them individually
the unpaid balance plus accrued interest. The pertinent
contentions of Lukban are as follows: (1) The action
was improper inasmuch as prior to its prosecution no
attachment was levied on the assets of the partnership
and (2) res judicata.
Issue: Whether or not Lukbans contentions are
meritorious.
Ruling: No. With respect to the first assignment of
error, the contents of the writ and the return of the
execution of the final judgment rendered in the said
case No. 3759 show that the dissolved partnership of
Lukban & Borja had absolutely no property whatever of
its own. Had any property whatever of the said
partnership still remained, the defendant Lukban would
have pointed it out inorder to avoid being obliged to
pay in solidum all the balance of the sum which the
firm was sentenced to pay by the said final judgment
of October 19, 1905. He did not do so because the firm
of Lukban & Borja no longer had any kind of property
or credits, as shown by the document setting forth the
agreement made by and between several creditors of
the said firm, a third party named Ramon Tinsay and
the former partner of the firm, Espiridion Borja, in
which document it appears that the firm Lukban &
Borja owed four creditors, among them the plaintiff De
los Reyes, the total sum of P10,165.01 and these
creditors with some difficulty succeeded in collecting
the sum of P5,000 through a transaction with the said
Ramon Tinsay who paid this last amount for the
account of the partner Espiridion Borja. It appears that
the latter paid to the creditor De los Reyes the
aforementioned sum of P522.69, on account of the
firm's debt to Teodoro de los Reyes, a debt which was
recognized in the said judgment of October 19, 1905.
The attachment, or recourse to the property, the lack
of which proceeding was complained of, is a
proceeding that was resorted to when attempt was
made to execute the final judgment rendered against
the partnership of Lukban & Borja, which proceeding
gave negative results; therefore, if the requirement of
article 237 of the Code of Commerce must be complied
with by the creditor it is evident that it has already
been done for the defendant Lukban was unable to
show that the partnership to which he belonged
actually possessed any more assets.
With respect to the second assignment of error, if
Teodoro de los Reyes is entitled to collect individually
from the partners Lukban and Borja the amount of the
debt that the dissolved partnership owed at the time of
its dissolution, it is unquestionable that such a right
has given rise to the corresponding right of action to
demand the payment of the debt from the partners
individually, or from each of them, by the insolvency of
the partnership, inasmuch as they are personally and
severally liable with all their property for the results of
the operations of the partnership which they
conducted. Although the action brought in case No.
10908 by the creditor Teodoro de los Reyes against the
partnership Lukban & Borja be not different from that
brought in the present case No. 11296, and although it
be deemed to have arisen out of the right of the
plaintiff-creditor to collect his credit, yet the first time it
was brought against the partnership. The action
against Vicente Lukban and Espiridion Borja
individually ca not be demurred to on the ground of res
judicata by the judgment of acquittal entered in case
No. 10908. There may be perfect identity between the
cause of action and the things demanded in case no.
10908, wherein the said partnership was absolved from
the complaint, and in the present case No. 11296; it is,
however, undeniable that the parties defendant are not
the same nor is their capacity as such. In the first case
it was the partnership that was sued, while in the
present case it is Lukban and Borja individually, as
former members of that dissolved partnership, who are
sued jointly and severally. Therefore, pursuant to the
above-cited article of the Civil Code, the provisions of
which harmonize with those of section 307 of the Code
 Civil Law Review II Case Digests

of Civil Procedure, the former judgment can not be set
up as res judicata in the present action. As to the issue
of prescription, suffice it to say that from October 19,
1905, to December 5, 1913, even without counting the
interruption caused by the action brought on August
18th of this latter year, the ten year period fixed by
section 43 of the Code of Civil Procedure has not
elapsed. In view of the negative results of the
proceedings had by the sheriff in levying execution of
the final judgment rendered against the partnership of
Lukban & Borja, the creditor in the exercise of his rights
has brought the proper action against those who were
the members of that firm for the recovery of the unpaid
balance of his credit, and he filed his complaint within
the period fixed by the law of procedure and the
defendants cannot allege that it is now res judicata.
1. YES. Tropical had every right to presume the
existence of the partnership:
a. Contract states that agreement was
entered into by Galan and Muasque
b. The first check issue in the name of
Muasque was indorsed to Galan
The relationship was made to appear as a
partnership.
2. YES. Muasque and Galan were partners when
the debts to the intervenors were incurred,
hence, they are also liable to third persons who
extended credit to their partnership.

7. Munasque vs CA (1985)
Facts:
Elmo Muasque, in behalf of Galan and
Muasque partnership as Contractor,entered into a
written contract with Tropical Commercial Co., through
its branchmanager Ramon Pons, for remodelling of
Tropicals building in Cebu. Theconsideration for the
entire services is P25,000 to be paid: 30% upon signing
of contract, and balance on 3 equal instalments of
P6,000 every 15working days.
First payment of check worth P7,000 was payable
3.
to Muasque, who indorsed it toGalan for purposes of
depositing the amount and paying the materials
already used.But since Galan allegedly
misappropriated P6,183.37 of the check for personal
use,Muasque refused to indorse the second check
worth P6,000. Galan then informed Tropical of the
misunderstanding between him and Muasque and
this prompted Tropical to change the payee of the
second check from Muasque to Galan andAssociates
(the duly registered name of Galan and Muasque
partnership).Despite the misappropriation, Muasque
alone was able to finish the project. Thetwo remaining
checks were properly issued to Muasque.
Muasque filed a complaint for payment of sum of
money plus damages againstGalan, Tropical and Pons
for the amount covered by the first and second
checks.Cebu Southern Hardware Co and Blue Diamond
Glass Palace were allowed asintervenors having legal
interest claiming against Muasue and Galan for
materialsused.
Isses:
1. W/N Muasque and Galan are partners?
2. W/N payment made by Tropical to Galan was
good payment?
3. W/N Galan should shoulder exclusively the
amounts payable to the intervenors (granting
he misappropriated the amount from the two
checks)?
Held:
yes-yes-no!
There is a general presumption that each
individual partner is an authorized agent for
the firm and that he has authority to bind the
firm in carrying on the partnership
transactions. The presumption is sufficient to
permit third persons to hold the firm liable on
transactions entered into by one of the
members of the firm acting apparently in its
behalf and within the scope of his authority
NO. Article 1816 BUT construed together with
Article 1824.
Art. 1816. All partners, including industrial
ones, shall be liable pro rata x x x for the
contracts which may be entered into the name
and for the account of the partnership, under
its signature and by a person authorized x x x
Art. 1824. All partners are liable solidarily with
the partnership for everything chargeable to
the partnership under Articles 1822 and 1823
Art. 1822. Where, by any wrongful act or
omission of any partner acting in the ordinary
course of the business x x x or with the
authority of his co-partners, loss or injury is
caused to any person x x x
Art. 1823. The partnership is bound to make
good the loss:
(1) Where one partner acting within
the scope of his apparent authority
receives money or property of a
third person and misapplies it, and
(2) Where the partnership in the
course of its business receives
money or property of a third person
x x x is misapplied by any partner
 Civil Law Review II Case Digests

while it is in the custody of the Reason for exception: the law protects him,
partnership. who in good faith relied upon the authority if a
partner, whether real or apparent.

GR: In transactions entered into by the

partnership, the liability of the partners is merely joint However, as between Muasque and Galan, justice also
dictates reimbursement in favour of Muasque as
Exception: In transactions involving third Galan was proven to be in bad faith in his dealings with
persons falling under Articles 1822 and 1823, his partner.
such third person may hold any partner
solidarily liable for the whole obligation with
the partnership.