COMPILATION OF CIVIL LAW REVIEW

CASE DIGEST
WEEK 14&15

I.
CONTRIBUTOR: TIU, JOMARIE C.
CASE TITLE: VICTORIA ONG vs. ERNESTO BOGÑALBAL and HON. COURT OF APPEALS
G.R. No. 149140 September 12, 2006
PRINCIPLE: Novation is never presumed. Unless it is clearly shown either by express agreement
of the parties or by acts of equivalent import, this defense will never be allowed.
Facts:
Respondents, Ernesto, entered into an "Owner-Contractor Agreement" with petitioner,
Victoria Ong for the construction of a proposed boutique. During the billing no. 4 Ong refused to
pay the same despite demands made. The reason for the refusal was the request of Ong that the
flooring would be changed from vinyl tiles to kenzo flooring where polyurethane is to be used as
coating, be first completed within three (3) days. Due to the insistence of [petitioner Ong] the
rushed work resulted in the reddish reaction of the polyurethane on the floor, which was not
acceptable to respondent. Petitioner Ong also claims, as a defense against payment of the fourth
progress billing, that "the only reason why the fourth billing was not paid was because Ernesto
himself agreed and committed to collect the fourth progress billing after he completed the Kenzo
flooring."
Due to Ong`s continued refusal to pay, Ernesto filed a collection case in the MeTC. The
Court of appeal decided that there was novation.
Issue:
Whether or not there was novation.

Held:
No.

Novation is never presumed. Unless it is clearly shown either by express agreement of the
parties or by acts of equivalent import, this defense will never be allowed.

The evidence preponderates in favor of respondent Bogñalbal that there had been no
novation of the contract. At best, what was proven was a grudging accommodation on the part
of respondent Bogñalbal to continue working on the project despite petitioner Ong's failure to
pay the fourth progress billing. Respondent Bogñalbal's fourth partial billing demand letters dated
21 April 1995 and 15 May 1995, both of which were served upon petitioner Ong after the alleged
20 April 1995 meeting, is inconsistent with the theory that the meeting had produced a novation
of the petitioner Ong's obligation to pay the subject billing.

II.

Contributor: JAYME, ANNALIZA P.

Case Title: ARCO PULP AND PAPER CO., INC. and CANDIDA A. SANTOS vs. DAN
T.
LIM, doing business under the name and style of QUALITY PAPERS & PLASTIC
PRODUCTS ENTERPRISES
[G.R. No. 206806. June 25, 2014.]
LEONEN, J p:

PRINCIPLE:
* “In an alternative obligation, there is more than one object, and the fulfillment of one is
sufficient, determined by the choice of the debtor who generally has the right of
election.” The right of election is extinguished when the party who may exercise that
option categorically and unequivocally makes his or her choice known. The choice of
the debtor must also be communicated to the creditor who must receive notice of it
since:

The object of this notice is to give the creditor . . . opportunity to express his consent, or
to impugn the election made by the debtor, and only after said notice shall the election
take legal effect when consented by the creditor, or if impugned by the latter, when
declared proper by a competent court.

FACTS:
Dan T. Lim (Lim) works in the business of supplying scrap papers, cartons, and other
raw
materials, under the name and Quality Paper and Plastic Products, Enterprises, to
factories engaged in the paper mill business. He delivered scrap papers to Arco Pulp
and
Paper Company, Inc. (Arco Pulp and Paper) through its CEO and President, Candida A.
Santos. The parties allegedly agreed that Arco Pulp and Paper would either pay Lim the
value of the raw materials or deliver to him their finish products of equivalent value.

Lim alleged that when he delivered the raw materials, Arco Pulp and Paper issued a
post-
dated check, with the assurance that the check would not bounce. When he deposited
the
check, it was dishonored for being drawn against a closed account.

On the same day, Arco Pulp and Paper, and a certain Eric Sy executed a memorandum
of
agreement where Arco Pulp and Paper bound themselves to deliver their finished
products to Megapack Container Corp., owned by Eric Sy. According to the
memorandum, the raw materials would be supplied by Lim, through his company,
Quality Paper and Plastic Products.

Lim sent a demand letter to Arco Pulp and Paper but no payment was made to him.
Hence, he filed a complaint for collection of sum of money.

The RTC rendered a judgment in favor of Arco Pulp and Paper and dismissed the
complained, holding that when Arco Pulp and Paper and Eric Sy and entered into the
memorandum of agreement, novation took place, which extinguished Arco Pulp and
Paper;s obligation to Lim.

On appeal, Lim argued that novation did not take place since the memorandum of
agreement between Arco Pulp and Paper and Eric Sy was an exclusive and private
agreement between them.

The CA reversed the RTC decision and ruled that the facts and circumstances in this
case
clearly showed the existence of an alternative obligation.

ISSUES:
1. Whether the obligation between the parties was an alternative obligation.

2. Whether the obligation between the parties was extinguished by novation

3. Whether Candida A. Santos was solidarily liable with Arco Pulp and Paper Co., Inc.

HELD:
1. Yes. The obligation between the parties was an alternative obligation. The rule on
alternative obligation is governed by Article 1199 of the Civil Code.

In an alternative obligation, there is more than one object, and the fulfillment of one is
sufficient, determined by the choice of debtor who generally has the right of election.
The right of election is extinguished when the party who may exercise that option
categorically and unequivocally makes his or her choice known. The choice of the
debtor must also be communicated to the creditor who must receive notice of it since
the object of this notice is to give the creditor… opportunity to express his consent, or to
impugn the election made by the debtor, and only after said notice shall the election
take legal effect when consented by the creditor, or if impugned by the latter, when
declared proper by a competent court.

According to the factual findings of the trial court and appellate court, the original
contract
between the parties was for respondent to deliver scrap papers worth Php7,220,968.31
to
petitioner Arco Pulp and Paper. The payment for this delivery became petitioner Arco
Pulp and
Paper’s obligation. By agreement, petitioner Arco Pulp and Paper, as the debtor, had
the option to either (1) pay the price or (2) deliver the finished products of equivalent
value of respondent.

The appellate court, therefore, correctly identified the obligation between the parties as
an alternative obligation, whereby petitioner, Arco Pulp and Paper, after receiving the
raw materials from respondent, would either pay him the price of the raw materials or in
the alternative, deliver to him the finished products of equivalent value.

When petitioner Arco Pulp and Paper tendered a check to respondent in partial
payment for the
scrap papers, they exercised their options to pay the price. Respondent’s receipt of the
check and his subsequent act of depositing it constituted his notice of petitioner Arco
Pulp and Paper’soption to pay. This choice was also shown by the terms of the
memorandum of agreement, which was executed on the same day. The memorandum
declared in clear terms that the delivery of petitioner Arco Pulp and Paper’s finished
products would be to a third person, thereby extinguishing the option
to deliver the finished product of equivalent value to respondent.

2. No. The trial court erroneously ruled that the execution of the memorandum of
agreement constituted a novation of the contract between the parties. When petitioner
Arco Pulp and Paper opted instead to deliver the finished products to a third person, it
did not novate the original obligation between the parties.

The rules on novation are outlined in the Civil Code, thus:chanRoblesvirtualLawlibrary

Article 1291. Obligations may be modified by:

(1) Changing their object or principal conditions;

(2) Substituting the person of the debtor;
(3) Subrogating a third person in the rights of the creditor. (1203)

Article 1292. In order that an obligation may be extinguished by another which

substitute the same, it is imperative that it be so declared in unequivocal terms, or that
the old and the new obligations be on every point incompatible with each other. (1204)

Article 1293. 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. (1205a)
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.”

3. Yes. Petitioner Candida A. Santos is solidarily liable with petitioner

corporation.

In Heirs of Fe Tan Uy v. International Exchange Bank,52 we stated

that:chanRoblesvirtualLawlibrary

Basic is the rule in corporation law that a corporation is a juridical entity which is vested
with a legal personality separate and distinct from those acting for and in its behalf and,
in general, from the people comprising it. Following this principle, obligations incurred by
the corporation, acting through its directors, officers and employees, are its sole
liabilities. A director, officer or employee of a corporation is generally not held personally
liable for obligations incurred by the corporation. Nevertheless, this legal fiction may be
disregarded if it is used as a means to perpetrate fraud or an illegal act, or as a vehicle
for the evasion of an existing obligation, the circumvention of statutes, or to confuse
legitimate issues.

....

Before a director or officer of a corporation can be held personally liable for corporate
obligations, however, the following requisites must concur: (1) the complainant must
allege in the complaint that the director or officer assented to patently unlawful acts of
the corporation, or that the officer was guilty of gross negligence or bad faith; and (2)
the complainant must clearly and convincingly prove such unlawful acts, negligence or
bad faith.

As a general rule, directors, officers, or employees of a corporation cannot be held

personally liable for obligations incurred by the corporation. However, this veil of
corporate fiction may be pierced if complainant is able to prove, as in this case, that (1)
the officer is guilty of negligence or bad faith, and (2) such negligence or bad faith was
clearly and convincingly proven.

Here, petitioner Santos entered into a contract with respondent in her capacity as the
President and Chief Executive Officer of Arco Pulp and Paper. She also issued the
check in partial payment of petitioner corporation’s obligations to respondent on behalf
of petitioner Arco Pulp and Paper. This is clear on the face of the check bearing the
account name, “Arco Pulp & Paper, Co., Inc.”54 Any obligation arising from these acts
would not, ordinarily, be petitioner Santos’ personal undertaking for which she would be
solidarily liable with petitioner Arco Pulp and Paper.
DISPOSITIVE: WHEREFORE, the petition is DENIED in part. The decision in CA-G.R.
CV
No. 95709 is AFFIRMED.

III.
Contributor: Hana Rea O. Tamse
Case Title: Republic of the Philippines v. Court of Appeals
Citation: G.R. No. 103073, March 13, 2001

Principle:
▪ Section 176 of the Insurance Code provides that, the liability of the surety of sureties shall
be joint and several with the obligor and shall be limited to the amount of the bond. It is
determined strictly by the terms of the contract of suretyship in relation to the principal
contract between the obligor and the obligee, (as amended by P.D. No. 1455).

Facts:
1. Sometime between 1969 and 1970, Endelo Manufacturing Corporation (Endelo) imported
from Kobe, Keelung, and New York, several bales of raw materials.
2. To release said materials from the customs warehouse, Endelo secured embroidery re-
export bonds from the Communications Insurance Company, Inc. (CICI), and R & B Surety
Company and Insurance Co., Inc. (R & B Surety).
3. The bonds served to guarantee the payment of duties, taxes and other charges due
thereon to the Bureau of Customs should Endelo default in its obligation to re-export the
finished goods or the imported materials, in their original state, within two years from the
date of arrival thereof.
4. Subsequently, Endelo's license to operate was suspended by the Embroidery and Apparel
Control and Inspection Board on the ground of alleged pilferage of the imported materials
from the customs warehouse by one Enrique Jocson, a representative of Endelo.
5. According to Endelo, the suspension of its license resulted in its failure to re-export the
imported materials or the finished goods. As a consequence, the Commissioner of Custom
sent a letter of demand to Endelo, CICI and R & B Surety, for the payment of the customs
duties and taxes due to the Bureau of Customs.
6. On February 21, 1973, in view of failure to heed its demand, the Bureau commenced a
case for collection of sum of money against them.
7. After trial, the court a quo adjudged the three defendants liable. However, the Court of
Appeals reversed the judgment of the trial court.
8. Submitted for resolution is a motion for reconsideration of the decision of the Court.
Respondent-movant R & B Surety and Insurance, Inc. ("R & B"), contends that,
assuming arguendo that R & B Surety is liable, its liability should be pro-rated
with that of CICI since R & B's liability is solidary with that of Endelo and not
with CICI.

Issue: Whether or not the contention of R & B Surety and Insurance, Inc. is meritorious.

Ruling:
 No, the contention of R & B Surety and Insurance, Inc. is unmeritorious.

Section 176 of the Insurance Code provides that, the liability of the surety of sureties shall
be joint and several with the obligor and shall be limited to the amount of the bond. It is
determined strictly by the terms of the contract of suretyship in relation to the principal contract
between the obligor and the obligee, (as amended by P.D. No. 1455).

In the problem given, respondent-movant opines that its liability should be pro-rated with
that of CICI since R & B's liability is solidary with that of Endelo and not with CICI. The contention
is unacceptable considering that the joint and several liability of the surety (R & B) and the obligor
(Endelo) gave petitioner the right to compel performance of the full obligation from both Endelo
and R & B or from either of them.

Therefore, R & B Surety is solidarily liable with the other surety, Communications
Insurance Company, Inc.

IV.

CONTRIBUTOR: MORALDE, KATRAENA P.

CASE TITLE: AFP RETIREMENT AND SEPARATION BENEFITS SYSTEM (AFPRSBS) vs.
EDUARDO SANVICTORES, G.R. No. 207586, August 17, 2016

PRINCIPLE: Article 1207 of the Civil Code provides: 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 prestation. There is a solidary liability only when the obligation expressly so
states, or when the law or the nature of the obligation requires solidarity.

FACTS: Sometime in 1994, PEPI, formerly Antipolo Properties, Inc., offered to Sanvictores for
sale on instalment basis a parcel of land in Village East Executive Homes situated in Binangonan,
Rizal. On April 20, 1994, Sanvictores paid the required down payment of ₱81,949.04; that on
June 9,1994, a Contract to Sell was executed by and between PEPI and AFPRSBS, as the seller,
and Sanvictores, as the buyer on February 27,1999, Sanvictores paid in full the purchase price of
the subject property in the amount of ₱534,378.79. Despite the full payment, PEPI and AFPRSBS
failed to execute the corresponding deed of absolute sale on the subject property and deliver the
corresponding title thereto; that on September 6, 2000, Sanvictores demanded from PEPI the
execution of the deed of sale and the delivery of the transfer certificate of title. PEPI claimed that
the title of the subject property was still with the Philippine National Bank (PNB) and could not
be released due to the economic crisis. However, despite several follow-ups with PEPI, the latter
did not communicate with Sanvictores for a period of four (4) years. Thereafter, Sanvictores filed
a complaint for rescission of the contract to sell, refund of payment, damages, and attorney's
fees against PEPI and AFPRSBS as being the subdivision developer and Espina as the treasurer
of PEPI.
ISSUE: Whether or not the nature of the obligation of the parties under the contract to sell was
solidary despite the absence of stipulation.

HELD: Yes. The law provides that a solidary obligation is one in which each of the debtors is
liable for the entire obligation, and each of the creditors is entitled to demand the satisfaction of
the whole obligation from any or all of the debtors. On the other hand, a joint obligation is one
in which each debtor is liable only for a proportionate part of the debt, and the creditor is entitled
to demand only a proportionate part of the credit from each debtor. The well-entrenched rule is
that solidary obligations cannot be inferred lightly. They must be positively and clearly expressed.
A liability is solidary "only when the obligation expressly so states, when the law so provides or
when the nature of the obligation so requires."

In this regard, Article 1207 of the Civil Code provides: “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 prestation. There is a solidary liability only when the obligation expressly so states, or
when the law or the nature of the obligation requires solidarity.”

In this case, there was thus no delineation as to the rights and obligations of PEPI and AFPRSBS.
The Supreme Court held that there is no doubt that the nature of the obligation of PEPI and
AFPRSBS under the subject contract to sell was solidary. In the said contract, PEPI and AFPRSBS
were expressly referred to as the "SELLER" while Sanvictores was referred to as the "BUYER."
Indeed, the contract to sell did not state "SELLERS" but "SELLER." This could only mean that PEPI
and AFPRSBS were considered as one seller in the contract. Being that said, there could be no
other conclusion except that PEPI and AFPRSBS came to the contracting table with the intention
to be bound jointly and severally. Also, the signatories were Espina, representing PEPI; Mena,
representing AFPRSBS; and Sanvictores. Espina signed under PEPI as seller while Mena signed
under AFPRSBS also as seller. Furthermore, the signatures of Espina and Mena were affixed again
in the last portion of the Deed of Restrictions under the word "OWNER" with Espina signing for
PEPI and Mena for AFPRSBS. AFPRSBS is estopped from denying Mena's authority to represent
it. It is quite obvious that AFPRSBS clothed Mena with apparent authority to act on its behalf in
the execution of the contract to sell.

V.

CONTRIBUTOR: JOHNSON VERGARA SARSONAS

CASE TITLE: ESCAŃO vs ORTIGAS Jr.
Doctrine: There is a solidary liability only when the obligation expressly so states or when the
law or the nature of the obligation requires solidary

Facts:
Private Development Corporation of the Philippines (PDCP, for brevity) entered into a loan
agreement with Falcon Minerals, Inc (Falcon), in the amount of $320,000.00 with terms and
conditions apply. Thereafter, 3 of the stockholders of Falcon who are all officers executed an
Assumption of Solidary Liability “to assume in their individual capacity, solidary liability with
falcon” of the loan entered into PDCP and Falcon.

Two separate guaranties were executed to guarantee payment of the said loan by other
stockholders nd officers of Falcon, acting in their personal and individual capacities. It was
executed by Escaño, Silos, Silverio, Inductivo, and Rodriguez.

Two years later, an agreement to developed to cede control of Falcon to Escarios, Silos and
Matti. Contracts were executed whereby Ortigas, George A. Scholey, inductivo and the heirs of
then George T. Scholey assigned their share of stocks in Falcon to Escańo, Silos and Matti. An
undertaking dated July 11, 1982 was executed by the concerned parties- Escano, Silos and
Matti as sureties and Ortigas, Inductivo and Scholeys as Obligors.

Falcon eventually obtained the loan amount from the credit line extended by PDCP. It also
execute a Deed of Chattel mortgage over its personal properties to further secure the loan.
However, Falcon defaulted in its payments. PDCP foreclosed on the chattel mortgage, there
remain a subsisting deficiency in the amount of Php 5,031,004.07 which Falcon did not pay
despite demand.

Issue: Whether the obligation to pay is solidary as argued by respondent and lower courts or
joint

Held:

The SC ruled that, in case there is a concurrence of two or more creditors or of two or more
debtors in one and the same obligation, Art. 1207 states that among them ‘there is a solidary
liability only when the obligation expressly so states, or when the law or the nature of the
obligation requires solidarity. Art 1210 supplies further caution against broad interpretation of
solidarity by stating that ‘The indivisibility of an obligation does not necessarily give rise to
solidarity. Nor does solidarity of itself imply indivisibility’. In other words, the presumption is
joint. It thus becomes incumbent upon the party alleging that the obligation is indeed solidary
in character to prove such fact with a preponderance in evidence.

Also Art. 2047 itself spefically calls for the application on the provisions on joint and solidary
obligations to suretyship contracts. Art 1217 comes into play, recognizing the right of
reimbursement from a co-debtor (the principal debtor, in case of suretyship) in favor of one
who paid the surety.

VI.

CONTRIBUTOR: AGUILANDO, MA. LOURDES M.

CASE TITLE: INDUSTRIAL MANAGEMENT INTERNATIONAL DEVELOPMENT CORP. (INIMACO)
vs. NATIONAL LABOR RELATIONS COMMISSION, (FOURTH DIVISION) CEBU CITY, AND
ENRIQUE SULIT, SOCORRO MAHINAY, ESMERALDO PEGARIDO, TITA BACUSMO, GINO NIERE,
VIRGINIA BACUS, ROBERTO NEMENZO, DARIO GO, AND ROBERTO ALEGARBES, G.R. No.
101723, May 11, 2000

PRINCIPLE:
● Well-entrenched is the rule that solidary obligation cannot lightly be inferred. There is a
solidary liability only when the obligation expressly so states, when the law so provides or
when the nature of the obligation so requires.
● Moreover, it is already a well-settled doctrine in this jurisdiction that, when it is not
provided in a judgment that the defendants are liable to pay jointly and severally a certain
sum of money, none of them may be compelled to satisfy in full said judgment.

FACTS:

In September 1984, private respondent Enrique Sulit, Socorro Mahinay, Esmeraldo Pegarido, Tita
Bacusmo, Gino Niere, Virginia Bacus, Roberto Nemenzo, Dariogo, and Roberto Alegarbes filed a
complaint with the Department of Labor and Employment, Regional Arbitration Branch No. VII in
Cebu City against Filipinas Carbon Mining Corporation, Gerardo Sicat, Antonio Gonzales, Chiu Chin
Gin, Lo Kuan Chin, and petitioner Industrial Management Development Corporation (INIMACO),
for payment of separation pay and unpaid wages.

The Labor Arbiter rendered judgment ordering respondents Filipinas Carbon and Mining Corp.
Gerardo Sicat, Antonio Gonzales/Industrial Management Development Corp. (INIMACO), Chiu
Chin Gin and Lo Kuan Chin, to pay complainants Enrique Sulit.

No appeal was filed within the reglementary period thus, the above Decision became final and
executory. On June 16, 1987, the Labor Arbiter issued a writ of execution but it was returned
unsatisfied. On August 26, 1987, the Labor Arbiter issued an Alias Writ of Execution. On
September 3, 1987, petitioner filed a "Motion to Quash Alias Writ of Execution and Set Aside
Decision," alleging among others that the alias writ of execution altered and changed the tenor
of the decision by changing the liability of therein respondents from joint to solidary, by the
insertion of the words "AND/OR" between "Antonio Gonzales/Industrial Management
Development Corporation and Filipinas Carbon and Mining Corporation, et al." However, in an
order dated September 14, 1987, the Labor Arbiter denied the motion.

The respondent NLRC dismissed the appeal in a Decision dated August 31, 1988.

ISSUE:

Whether petitioner’s liability pursuant to the Decision of the Labor Arbiter dated March 10, 1987,
is solidary or not.

RULING:
Upon careful examination of the pleadings filed by the parties, the Court finds that petitioner
INIMACO’s liability is not solidary but merely joint and that the respondent NLRC acted with grave
abuse of discretion in upholding the Labor Arbiter’s Alias Writ of Execution and subsequent Orders
to the effect that petitioner’s liability is solidary.

A solidary or joint and several obligation is one in which each debtor is liable for the entire
obligation, and each creditor is entitled to demand the whole obligation. In a joint obligation each
obligor answers only for a part of the whole liability and to each obligee belongs only a part of
the correlative rights.

Well-entrenched is the rule that solidary obligation cannot lightly be inferred. There is a solidary
liability only when the obligation expressly so states, when the law so provides or when the nature
of the obligation so requires.

In the dispositive portion of the Labor Arbiter, the word "solidary" does not appear. The said fallo
expressly states the following respondents therein as liable, namely: Filipinas Carbon and Mining
Corporation, Gerardo Sicat, Antonio Gonzales, Industrial Management Development Corporation
(petitioner INIMACO), Chiu Chin Gin, and Lo Kuan Chin. Nor can it be inferred therefrom that the
liability of the six (6) respondents in the case below is solidary, thus their liability should merely
be joint.

Moreover, it is already a well-settled doctrine in this jurisdiction that, when it is not provided in a
judgment that the defendants are liable to pay jointly and severally a certain sum of money, none
of them may be compelled to satisfy in full said judgment.

VII.

CONTRIBUTOR: LYN M. MONDONEDO

CASE TITLE: RUKS KONSULT AND CONSTRUCTION vs ADWORLD SIGN AND ADVERTISING
CORPORATION* and TRANSWORLD MEDIA ADS, INC. (G.R. No. 204866, January 21, 2015)

PRINCIPLE:

● Jurisprudence defines negligence as 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.

● Under Article 219429 of the Civil Code, joint tortfeasors are solidarily liable for the
resulting damage. In other words, joint tortfeasors are each liable as principals, to the
same extent and in the same manner as if they had performed the wrongful act
themselves.

FACTS:
A complaint for damages filed by Adworld against Transworld and Comark International
Corporation (Comark), alleging that it is the owner of a billboard structure, which was
misaligned and its foundation impaired when, the adjacent billboard structure owned by
Transworld and used by Comark collapsed and crashed against it. Resultantly, Adworld sent
Transworld and Comark a letter demanding payment for the repairs of its billboard as well as
loss of rental income. On August 29, 2003, Transworld sent its reply, admitting the damage
caused by its billboard structure on Adworld’s billboard, but nevertheless, refused and failed to
pay the amounts demanded by Adworld.

Transworld averred that the collapse of its billboard structure was due to extraordinarily strong
winds that occurred instantly and unexpectedly, and maintained that the damage caused to
Adworld’s billboard structure was hardly noticeable.

Lastly, Ruks admitted that it entered into a contract with Transworld for the construction of the
latter’s billboard structure, but denied liability for the damages caused by its collapse. It
contended that when Transworld hired its services, there was already an existing foundation for
the billboard and that it merely finished the structure according to the terms and conditions of
its contract with the latter.

ISSUE:

Whether or not Ruks is jointly and severally liable with Transworld for damages sustained by
Adworld.

RULING:

Yes.

Jurisprudence defines negligence as 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.27 It is the failure
to observe for the protection of the interest of another person that degree of care, precaution,
and vigilance which the circumstances justly demand, whereby such other person suffers injury.

In this case, both Transworld and Ruks are guilty of negligence in the construction of the former’s
billboard, and perforce, should be held liable for its collapse and the resulting damage to Adworld’s
billboard structure. As joint tortfeasors, therefore, they are solidarily liable to Adworld. Verily,
"[j]oint tortfeasors are those who command, instigate, promote, encourage, advise, countenance,
cooperate in, aid or abet the commission of a tort, or approve of it after it is done, if done for
their benefit. They are also referred to as those who act together in committing wrong or whose
acts, if independent of each other, unite in causing a single injury. Under Article 219429 of the
Civil Code, joint tortfeasors are solidarily liable for the resulting damage. In other words, joint
tortfeasors are each liable as principals, to the same extent and in the same manner as if they
had performed the wrongful act themselves.

VIII.

Contributor: Flora May Mondares

Case Title: R TRANSPORT CORPORATION vs. LUISITO G. YU, G.R. No. 174161,
February 18, 2015
Principle: " holding the registered owner liable for damages notwithstanding that ownership of
the offending vehicle has already been transferred to another is designed to protect the public
and not as a shield on the part of unscrupulous transferees of the vehicle to take refuge in, in
order to free itself from liability arising from its own negligent act. "
FACTS:

After having alighted from a passenger bus in front of Robinson's Galleria, Loreta was hit
and run over by a bus driven by Antonio P. Gimena, who was then employed by petitioner R
Transport Corporation. Loreta was immediately rushed to the hospital where she was pronounced
dead on arrival. The husband of the deceased, respondent Luisito G. Yu, filed a Complaint for
damages against petitioner R Transport, Antonio Gimena, and Metro Manila Transport Corporation
(MMTC) for the death of his wife. MMTC denied its liability reasoning that it is merely the
registered owner of the bus involved in the incident, the actual owner, being petitioner R
Transport. It explained that under the Bus Installment Purchase Program of the government,
MMTC merely purchased the subject bus, among several others, for resale to petitioner R
Transport, which will in turn operate the same within Metro Manila. Since it was not actually
operating the bus which killed respondent's wife, nor was it the employer of the driver thereof,
MMTC alleged that the complaint against it should be dismissed. For its part, petitioner R
Transport alleged that respondent had no cause of action against it for it had exercised due
diligence in the selection and supervision of its employees and drivers and that its buses are in
good condition. Meanwhile, the driver Antonio Gimena was declared in default for his failure to
file an answer to the complaint.

ISSUE: Wether or not petitioner is correct in its argument that since it is not the registered owner
of the bus which bumped the victim, it cannot be held liable for the damage caused by the same.

RULING:
Indeed, this Court has consistently been of the view that it is for the better protection of
the public for both the owner of record and the actual operator to be adjudged jointly and
severally liable with the driver. As aptly stated by the appellate court, "the principle of holding the
registered owner liable for damages notwithstanding that ownership of the offending vehicle has
already been transferred to another is designed to protect the public and not as a shield on the
part of unscrupulous transferees of the vehicle to take refuge in, inorder to free itself from liability
arising from its own negligent act.

The liability for which petitioner is being made responsible actually arises not from a pre-
existing contractual relation between petitioner and the deceased, but from a damage caused by
the negligence of its employee. Petitioner cannot, therefore, escape its solidary liability for the
liability of the employer for the negligent conduct of its subordinate is direct and primary, subject
only to the defense of due diligence in the selection and supervision of the employee.

IX.
Contributor: Rodolfo B. Demonteverde III
Case Title: SPOUSES AMADO O. IBAÑEZ and ESTHER R. IBAÑEZ, petitioners vs. JAMES HARPER
as Representative of the Heirs of FRANCISCO MUÑOZ, SR., the REGISTER OF DEEDS OF MANILA
and the SHERIFF OF MANILA, respondents. G.R. No. 194272 February 15, 2017

Principle: In any case, solidary obligations cannot be inferred lightly. They must be positively
and clearly expressed. Articles 1207 and 1208 of the Civil Code provide:
Art. 1207. 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.
Art. 1208. If from the law, or the nature or the wording of the obligations to which the preceding
article refers the contrary does not appear, the credit or debt shall be presumed to be
divided into as many equal shares as there are creditors or debtors, the credits or
debts being considered distinct from one another, subject to the Rules of Court
governing the multiplicity of suits. (Emphasis supplied.)
In this case, given that solidarity could not be inferred from the agreement, the presumption
under the law applies-the obligation is joint.
Facts:
Sometime on October 1996, spouses Amado and Esther Ibañez borrowed from Francisco E.
Muñoz, Sr., Consuelo Estrada, and Ma. Consuelo E. Muñoz the amount of ₱1,300,000. The
petitioners issued a promissory note to respondents to pay the loan amount with interest and
executed a deed of real estate over a parcel of land as security. Thereafter, petitioner extra-
judicially foreclosed the mortgage for failure of respondents to pay the loan plus interests within
the agreed period. The property in question was also not redeemed within the period prescribed
by law; hence it was sold at a public auction where defendant Francisco E. Munoz, Sr. was the
highest bidder.
On June 11, 2002, the parties filed a Joint Motion for Approval of Amended Compromise
Agreement, which the RTC approved and adopted it as its Hatol. On February 28, 2006, Atty.
Roberto C. Bermejo representing as collaborating counsel of respondents filed an Omnibus Motion
for Execution and Lifting of the Status Quo Order and for the Issuance of Writ of Possession. Atty.
Bermejo alleged that the spouses Ibañez failed to comply with their obligation under the Amended
Compromise Agreement.
Petitioners moved to reconsider on grounds that respondents failed to inform the court of
Francisco’s death and that there was no valid substitution of parties.
Atty. Bermejo then filed a Notice of Death of Francisco and named James Harper as Francisco's
legal representative. The spouses Ibañez filed a motion to adopt the Judicial Compromise
Agreement as the final and executory decision.
The RTC granted the spouses Ibañez' motion. However, James sought reconsideration of the
RTC's order, which was later on denied. Aggrieved, the heirs of Francisco filed before the CA a
Petition for Certiorari.
The CA resolved James' petition and reinstating the status quo order.

Issues:
1. Whether or not Francisco was a real party in interest.
2. Whether or not there was valid substitution of parties.
3. Whether or not all the provisions of the Amended Compromise Agreement have been complied
with.

Ruling:
1. Yes.
In their complaint and amended complaint, petitioners impleaded Francisco as a defendant and
described him as the capitalist. They also alleged that they took a loan from Francisco, Ma.
Consuelo and Consuelo and narrated that a public auction over the mortgaged property was
conducted where Francisco emerged as the highest bidder.
Further, attachments to the complaints show that Amado and Francisco communicated with each
other regarding the payment of the loan. The Amended Compromise Agreement, approved by
the trial court and which served as the basis for the Hatol, referred to the spouses Ibañez as the
plaintiffs while the defendants are Francisco, Consuelo and Ma. Consuelo. It was signed by the
spouses Ibañez and Francisco, for himself and on behalf of Ma. Consuelo and Consuelo. These
facts indicate that Francisco has a material interest in the case as it is in his interest to be paid
the money he lent the spouses Ibañez. Any judgment which will be rendered will either benefit
or injure Francisco; thus, he is a real party in interest.
2. Yes.
While there may have been a failure to strictly observe the provisions of the rules and there was
no formal substitution of heirs, the heirs of Francisco, represented by James, voluntarily appeared
and actively participated in the case, particularly in the enforcement of the Hatol. As the records
show, they have filed multiple pleadings and moved several times to implement the Hatol to
protect Francisco's interest. Following the court’s ruling in Vda. de Salazar and Berot, a formal
substitution of parties is no longer required under the circumstances.
3. No.
The spouses Ibañez assigned the proceeds of the GSIS loan and executed a real estate mortgage
over the Puerto Azul property only in Ma. Consuelo and Consuelo's favour. By doing so, they did
not discharge their obligation in accordance with the terms of the Amended Compromise
Agreement and left their loan obligation to Francisco unsettled. Thus, and as correctly held by
the CA, it was gravely erroneous for the trial court to rule that all the stipulations in the Hatol
have been complied with. Under the circumstances, the obligations to Francisco, and
consequently, his heirs, have clearly not been complied with.
In any case, solidary obligations cannot be inferred lightly. They must be positively and clearly
expressed.82 Articles 1207 and 1208 of the Civil Code provide:
Art. 1207. 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.
Art. 1208. If from the law, or the nature or the wording of the obligations to which the preceding
article refers the contrary does not appear, the credit or debt shall be presumed to be
divided into as many equal shares as there are creditors or debtors, the credits or
debts being considered distinct from one another, subject to the Rules of Court
governing the multiplicity of suits. (Emphasis supplied.)
In this case, given that solidarity could not be inferred from the agreement, the presumption
under the law applies-the obligation is joint.

X.

CONTRIBUTOR: Apellido, Ana Hannesa S.

CASE TITLE: Quiombing v CA, GR No. 93010, August 1990
PRINCIPLE:
A solidary obligation is one in which each debtor is liable for the entire obligation, and each
creditor is entitled to demand the whole obligation.

The essence of active solidarity consists in the authority of each creditor to claim and enforce
the rights of all, with the resulting obligation of paying every one what belongs to him; there is
no merger, much less a renunciation of rights, but only mutual representation.

FACTS:
Nicencio Tan Quiombing and Dante Biscocho, petitioners entered a Construction and Service
Agreement where they jointly and severally bound themselves to construct a house for private
respondents Francisco and Manuelita Saligo for the contract price of P137,940.00, which the
latter agreed to pay.

The petitioners were able to complete the house. Respondents then undertook to pay the
balance of the contract price in the manner prescribed in their second agreement. Manuelita
Saligo signed a promissory note for P125,363.50 representing the amount still due payable on
or before December 31, 1984, to Nicencio Tan Quiombing.

Quiombing filed a complaint for recovery of the said amount, plus charges and interests, which
the private respondents had acknowledged and promised to pay — but despite repeated
demands respondent still failed to pay their obligation.

Instead of filing an answer, the defendants moved to dismiss the complaint on contending that
Biscocho(other plaintiff) was an indispensable party and therefore should have been included as
a co-plaintiff.
The trial court and appellate court ruled in favour of the respondents spouses Saligo.
Quiombing chose to appeal the order of dismissal to the respondent court, where he argued
that as a solidary creditor he could act by himself alone in the enforcement of his claim against
the private respondents.

ISSUE:
Whether or not one of the two solidary creditors sue by himself alone for the recovery of
amounts due to both of them without joining the other creditor as a co-plaintiff.

RULING:
Yes, one of the two solitary creditors can sue by himself alone.

The law provides that a solidary obligation is one in which each debtor is liable for the entire
obligation, and each creditor is entitled to demand the whole obligation. The essence of active
solidarity consists in the authority of each creditor to claim and enforce the rights of all, with
the resulting obligation of paying every one what belongs to him; there is no merger, much less
a renunciation of rights, but only mutual representation.

Further Article 1212 of the Civil Code states:

Each one of the solidary creditors may do whatever may be useful to the others, but not
anything which may be prejudice to the latter.

Therefore, suing for the recovery of the contract price is certainly a useful act that Quiombing
could do by himself alone.

In the case, the question of who should sue the private respondents was a personal issue
between Quiombing and Biscocho in which the spouses Saligo had no right to interfere. It did
not matter who as between them filed the complaint because the private respondents were
liable to either of the two as a solidary creditor for the full amount of the debt.

Full satisfaction of a judgment obtained against them by Quiombing would discharge their
obligation to Biscocho, and vice versa; hence, it was not necessary for both Quiombing and
Biscocho to file the complaint. Inclusion of Biscocho as a co-plaintiff, when Quiombing was
competent to sue by himself alone, would be a useless formality.

Also, in this case JOINT OBLIGATION was distinguished from SOLIDARY OBLIGATION

As to the liability of debtor:

In joint obligation each of the debtors is liable only for a proportionate part of the debt. On the
other hand, a solidary obligation is one in which each debtor is liable for the entire obligation.

As to the liability of creditor:

In joint obligation each creditor is entitled only to a proportionate part of the credit. On the
other hand, in a solidary obligation, each creditor is entitled to demand the whole obligation.
Hence, in the former, each creditor can recover only his share of the obligation, and each
debtor can be made to pay only his part; whereas, in the latter, each creditor may enforce the
entire obligation, and each debtor may be obliged to pay it in full.

XI.

CONTRIBUTOR: Causin, Ingrid

CASE TITLE: Petron Corporation vs spouses Cesar Jovero GR no. 151038 January 18, 2012

PRINCIPLE: Art. 1217: Payment made by one of the solidary debtors extinguishes the
obligation. If two or more solidary debtors offer to pay, the creditor may choose which offer to
accept.
He who made the payment may claim from his co-debtors only the share which corresponds to
each, with the interest for the payment already made. If the payment is made before the debt is
due, no interest for the intervening period may be demanded.
In Art. 1208, to wit:
If from the law, or the nature of the wording of the obligations to which the preceding article
refers the contrary does not appear, the credit of debt shall be presumed to be divided into as
many equal shares as there are creditors or debtors, the credits or debts being considered distinct
from one another, subject to the Rules of Court governing the multiplicity of suits.
Rules for the imposition of legal interest as follows:
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. Furthermore, the interest due shall itself earn legal interest from the time it is judicially
demanded. In the absence of stipulation, the rate of interest shall be 12% per annum to be
computed from default, i.e., from judicial or extrajudicial demand under and subject to the
provisions of Article 1169 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 at the rate of
6% per annum. No interest, however, shall be adjudged on unliquidated claims or damages
except when or until the demand can be established with reasonable certainty. Accordingly, where
the demand is established with reasonable certainty, the interest shall begin to run from the time
the claim is made judicially or extrajudicially (Art. 1169, Civil Code) but when such certainty
cannot be so reasonably established at the time the demand is made, the interest shall begin to
run only from the date 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.

FACTS: Rubin Uy entered into a Contract of Lease with Cesar J. Jovero for the purpose of
operating a gasoline station for a period of five (5) years. Petitioner, a domestic corporation
engaged in the importation and distribution of gasoline and other petroleum products, entered
into a Retail Dealer Contract with Rubin Uy. In order to comply with its obligation to deliver the
petroleum products to the dealer, petitioner contracted the hauling services of Jose Villaruz, who
did business under the name Gale Freight Services. Under the hauling contract, Villaruz specifically
assigned three (3) units of tank trucks exclusively for the hauling requirements of petitioner for
the delivery of the latter’s products. Delivery “includes not only transportation but also proper
loading and unloading and delivery.” Meanwhile, Rubin Uy executed a Special Power of Attorney
(SPA) in favor of Chiong Uy authorizing the latter to manage and administer the gasoline station.
Chiong Uy and his wife, Dortina M. Uy, operated the gasoline station as agents of Rubin Uy.
However, Chiong Uy left for Hong Kong, leaving Dortina Uy to manage the gasoline station.
Ronnie Allanaraiz, an employee of the gasoline station, ordered from petitioner various petroleum
products. Petitioner then requested the services of Villaruz for the delivery of the products to the
gasoline station in Estancia, Iloilo. He, however, used a tank truck different from the trucks
specifically enumerated in the hauling contract executed with petitioner. Petitioner nevertheless
allowed the transport and delivery of its products to Estancia in the tank truck driven by Pepito
Igdanis.

During the unloading of the petroleum from the tank truck into the fill pipe that led to the
gasoline station’s underground tank, for reasons unknown, a fire started in the fill pipe and spread
to the rubber hose connected to the tank truck. During this time, driver Pepito Igdanis was
nowhere to be found. Bystanders then tried to put out the flames. It was then that Igdanis
returned to the gasoline station with a bag of dried fish in hand. Seeing the fire, he got into the
truck without detaching the rubber hose from the fill pipe and drove in reverse, dragging the
burning fuel hose along the way. As a result, a conflagration started and consumed the nearby
properties of herein defendants, spouses Cesar J. Jovero and Erma Cudilla-Jovero, amounting
to P1,500,000; of spouses Leonito Tan and Luzvilla Samson, amounting to P800,000; and of
spouses Rogelio Limpoco and Lucia Josue Limpoco, amounting to P4,112,000.

Herein respondents thereafter filed actions for damages against petitioner, Villaruz, Rubin
Uy, and Dortina Uy. Respondents alleged that the negligence of petitioner and its co-defendants
in the conduct of their businesses caused the fire that destroyed the former’s properties.

In its separate Answer, petitioner Petron alleged that the petroleum products were already
paid for and owned by Rubin Uy and Dortina Uy. Moreover, it alleged that Villaruz was responsible
for the safe delivery of the products by virtue of the hauling contract. Thus, petitioner asserted,
liability for the damages caused by the fire rested on Rubin Uy and Villaruz. Petitioner likewise
filed a cross-claim against its co-defendants for contribution, indemnity, subrogation, or other
reliefs for all expenses and damages that it may have suffered by virtue of the incident. It also
filed a counterclaim against respondents herein. The appellate court upheld the findings of the
RTC that petitioner Petron was negligent for having allowed the operation of the gasoline station
absent a valid dealership contract. Thus, the CA considered the gasoline station as one run by
petitioner itself, and the persons managing the gasoline station as petitioner’s mere agents. Even
if a valid dealership contract existed, petitioner was still liable for damages, because there was
as yet no complete delivery of its products. The fire had broken out while petroleum was being
unloaded from the tank truck to the storage tank.

ISSUE: Whether or not Petitioner is liable?

HELD: Yes. Art. 1217 states that payment made by one of the solidary debtors extinguishes the
obligation. If two or more solidary debtors offer to pay, the creditor may choose which offer to
accept.

He who made the payment may claim from his co-debtors only the share which corresponds to
each, with the interest for the payment already made. If the payment is made before the debt is
due, no interest for the intervening period may be demanded.

The share, meanwhile, of solidary debtors is contained in Art. 1208, to wit:

If from the law, or the nature of the wording of the obligations to which the preceding article
refers the contrary does not appear, the credit of debt shall be presumed to be divided into as
many equal shares as there are creditors or debtors, the credits or debts being considered distinct
from one another, subject to the Rules of Court governing the multiplicity of suits.

Petitioner, as an importer and a distributer of gasoline and other petroleum product, executed
with a dealer of these products an exclusive dealership agreement for mutual benefit and gain.
On one hand, petitioner benefits from the sale of its products, as well as the advertisement it
gains when it broadens its geographical coverage in contracting with independent dealers in
different areas. The products sold and the services rendered by the dealer also contribute to its
goodwill. Thus, despite the transfer of ownership upon the sale and delivery of its products,
petitioner still imposes the obligation on the dealer to exclusively carry its products.

The dealer also benefits from the dealership agreement, not only from the resale of the products
of petitioner, but also from the latter’s goodwill.

However, with the use of its trade name and trademark, petitioner and the dealer inform and
guarantee to the public that the products and services are of a particular standard or quality.
More importantly, the public, which is not privy to the dealership contract, assumes that the
gasoline station is owned or operated by petitioner. Thus, respondents, who suffered damages
from the act or omission that occurred in the gasoline station and that caused the fire, may file
an action against petitioner based on the representations it made to the public. As far as the
public is concerned, it is enough that the establishment carries exclusively the name and products
of petitioner to assume that the latter is liable for acts done within the premises. The expiration
or nonexistence of a dealership contract did not ipso facto transform the relationship of the dealer
and petitioner into one of agency. As far as the parties to the dealership contract were concerned,
the rights and obligations as to them still subsisted, since they continued to mutually benefit from
the agreement. Thus, neither party can claim that it is no longer bound by the terms of the
contract and the expiration thereof.

Moreover, it cannot be denied that petitioner likewise obligated itself to deliver the products to
the dealer. When the incident occurred, petitioner, through Gale Freight Services, was still in the
process of fulfilling its obligation to the dealer. There was yet no complete delivery of the goods
as evidenced by the aforementioned hauling contract petitioner executed with Villaruz. That
contract made it clear that delivery would only be perfected upon the complete unloading of the
gasoline.

Thus, with regard to the delivery of the petroleum, Villaruz was acting as the agent of petitioner
Petron. For a fee, he delivered the petroleum products on its behalf. Notably, petitioner even
imposed a penalty clause in instances when there was a violation of the hauling contract, wherein
it may impose a penalty ranging from a written warning to the termination of the contract.
Therefore, as far as the dealer was concerned with regard to the terms of the dealership contract,
acts of Villaruz and his employees are also acts of petitioner. Both the RTC and the CA held that
Villaruz failed to rebut the presumption that the employer was negligent in the supervision of an
employee who caused damages to another; and, thus, petitioner should likewise be held
accountable for the negligence of Villaruz and Igdanis.

To reiterate, petitioner, the dealer Rubin Uy – acting through his agent, Dortina Uy – shared the
responsibility for the maintenance of the equipment used in the gasoline station and for making
sure that the unloading and the storage of highly flammable products were without incident. As
both were equally negligent in those aspects, petitioner cannot pursue a claim against the dealer
for the incident. Therefore, both are solidarily liable to respondents for damages caused by the
fire.

Furthermore, the incident occurred in 1992. Almost 20 years have passed; yet, respondents, who
were innocent bystanders, have not been compensated for the loss of their homes, properties
and livelihood. Notably, neither the RTC nor the CA imposed legal interest on the actual damages
that it awarded respondents. In Eastern Shipping Lines v. Court of Appeals, enunciated in PCI
Leasing & Finance Inc. v. Trojan Metal Industries, Inc., laid down the rules for the imposition of
legal interest as follows:

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. Furthermore, the interest due shall itself earn legal interest from the time it is judicially
demanded. In the absence of stipulation, the rate of interest shall be 12% per annum to be
computed from default, i.e., from judicial or extrajudicial demand under and subject to the
provisions of Article 1169 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 at the rate of
6% per annum. No interest, however, shall be adjudged on unliquidated claims or damages
except when or until the demand can be established with reasonable certainty. Accordingly, where
the demand is established with reasonable certainty, the interest shall begin to run from the time
the claim is made judicially or extrajudicially (Art. 1169, Civil Code) but when such certainty
cannot be so reasonably established at the time the demand is made, the interest shall begin to
run only from the date 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.

In the interest of substantial justice, it is necessary to impose legal interest on the awarded actual
damages at the rate of 6% per annum from the time the cases were filed with the lower court;
and 12% from the time the judgment herein becomes final and executory up to the satisfaction
of such judgment.

XII.

CONTRIBUTOR: Viagedor, Jay L.

CASE TITLE: HEIRS OF SERVANDO FRANCO vs SPOUSES VERONICA AND DANILO
GONZALES
PRINCIPLE: There is novation when there is an irreconcilable incompatibility between the old
and the new obligations. There is no novation in case of only slight modifications; hence, the
old obligation prevails.

FACTS: Servando Franco and Leticia Medel (hereafter Servando and Leticia) obtained a loan from
Veronica R. Gonzales (hereafter Veronica), who was engaged in the money lending business
under the name Gonzales Credit Enterprises, in the amount of P50,000.00, payable in two
months. Servado and Leticia executed a promissory note for P50,000.00, to evidence the loan,
payable on January 7, 1986.

On November 19, 1985, Servando and Leticia obtained from Veronica another loan in the
amount of P90,000.00, payable in two months They executed a promissory note to evidence the
loan, maturing on January 19, 1986.On maturity of the two promissory notes, the borrowers
failed to pay the indebtedness.

On June 11, 1986, Servando and Leticia secured from Veronica still another loan in the
amount of P300,000.00. Like the previous loans, Servando and Medel failed to pay the third loan
on maturity.

On July 23, 1986, Servando and Leticia consolidated all their previous unpaid loans
bringing their indebtedness to a total of P500,000.00, payable on August 23, 1986. They executed
a promissory note. On maturity of the loan, the borrowers failed to pay the indebtedness of
P500,000.00, plus interests and penalties,

Veronica R. Gonzales filed a complaint for collection of the full amount of the loan including
interests and other charges. The court ruled in favor of Gonzales. On appeal, Servando Franco
opposed, claiming that he and the respondents had agreed to fix the entire obligation at
P775,000.00.According to Servando, their agreement, which was allegedly embodied in a receipt
dated February 5, 1992, whereby he made an initial payment of P400,000.00 and promised to
pay the balance of P375,000.00 on February 29, 1992, superseded the July 23, 1986 promissory
note.

The petitioners insist that the RTC could not validly enforce a judgment based on a
promissory note that had been already novated; that the promissory note had been impliedly
novated when the principal obligation of P500,000.00 had been fixed at P750,000.00, and the
maturity date had been extended from August 23, 1986 to February 29, 1992.

Issue: Was there a novation of the August 23, 1986 promissory note when respondent Veronica
Gonzales issued the February 5, 1992 receipt?

Ruling: No. A novation arises when there is a substitution of an obligation by a subsequent one
that extinguishes the first, either by changing the object or the principal conditions, or by
substituting the person of the debtor, or by subrogating a third person in the rights of the creditor.
For a valid novation to take place, there must be, therefore: (a) a previous valid obligation; (b)
an agreement of the parties to make a new contract; (c) an extinguishment of the old contract;
and (d) a valid new contract. In short, the new obligation extinguishes the prior agreement only
when the substitution is unequivocally declared, or the old and the new obligations are
incompatible on every point.

The receipt dated February 5, 1992 did not create a new obligation incompatible with the
old one under the promissory note.To be clear, novation is not presumed. This means that the
parties to a contract should expressly agree to abrogate the old contract in favor of a new one.
In the absence of the express agreement, the old and the new obli gations must be incompatible
on every point

There is incompatibility when the two obligations cannot stand together, each one having
its independent existence. If the two obligations cannot stand together, the latter obligation
novates the first.
 The incompatibility must affect any of the essential elements of the obligation, such as its
object, cause or principal conditions thereof; otherwise, the change is merely modificatory in
nature and insufficient to extinguish the original obligation

In light of the foregoing, the issuance of the receipt created no new obligation. Instead,
the respondents only thereby recognized the original obligation by stating in the receipt that the
P400,000.00 was partial payment of loan and by referring to the promissory note subject of the
case in imposing the interest. The loan mentioned in the receipt was still the same loan involving
the P500,000.00 extended to Servando

Indeed, the Court has ruled that an obligation to pay a sum of money is not novated by
an instrument that expressly recognizes the old, or changes only the terms of payment, or adds
other obligations not incompatible with the old ones, or the new contract merely supplements the
old one. A new contract that is a mere reiteration, acknowledgment or ratification of the old
contract with slight modifications or alterations as to the cause or object or principal conditions
can stand together with the former one, and there can be no incompatibility between them.

XIII.
CONTRIBUTOR: Kimberly Q. Arizala

CASE TITLE: STRONGHOLD INSURANCE COMPANY, INC., Petitioner, vs. REPUBLIC-

ASAHI GLASS CORPORATION, Respondent. G.R. No. 147561, June 22, 2006

PRINCIPLE: Death of a Party; As a general rule, the death of either the creditor or the debtor
does not extinguish the obligation—obligations are transmissible to the heirs, except when the
transmission is prevented by the law, the stipulations of the parties, or the nature of the
obligation.
FACTS: Republic-Asahi Glass Corporation (Asahi) entered into a contract with Jose D. Santos,
Jr., the proprietor of JDS Construction (JDS), for the construction of roadways and a drainage
system in Asahi’s compound in Pasig City. Asahi was to pay JDS P5,300,000.00 for the
construction, which was supposed to be completed by JDS within 240 days.

To guarantee the faithful and satisfactory performance of its undertakings, JDS shall post a
performance bond of P795,000. JDS executed solidarily with Stronghold Insurance Co., Inc.
(Stronghold) the Performance Bond.

During the construction, Asahi called the attention of JDS to the alarmingly slow pace of the
construction, which resulted in the fear that the construction will not be finished within the
stipulated 240-day period. However, said reminders went unheeded by JDS.

Dissatisfied with the progress of the work undertaken by JDS, Asahi extrajudicially rescinded the
contract. Because of the rescission, Asahi had to hire another contractor to finish the project,
incurring an additional P3,256,874.00.

Asahi then sent a letter to SICI filing its claim under the performance bond, but the letter went
unheeded.
Asahi eventually filed a complaint against JDS and Stronghold for damages. However, Jose D.
Santos, Jr. had already died and JDS Construction was no longer at its registered address, with
its whereabouts unknown.

In its defense, On July 10, 1991, Stronghold filed its answer alleging that Asahi could not claim
damages because their obligation had been extinguished by the death of Santos. Even if this was
not the case, SICI had been released from its liability under the performance bond because there
were no liquidation with the active participation of the surety and Santos. Since SICI was not
informed of the extrajudicial unilateral rescission of Asahi, SICI was deprived of the right to
protect its interest as a surety and therefore shall be released from liability.

ISSUE: Whether or not Stronghold’s liability under the performance bond was automatically
extinguished by the death of Santos, the principal?

RULING: No.

Petitioner contends that the death of Santos, the bond principal, extinguished his liability under
the surety bond. Consequently, it says, it is automatically released from any liability under the
bond.

As a general rule, the death of either the creditor or the debtor does not extinguish the obligation.
Obligations are transmissible to the heirs, except when the transmission is prevented by the law,
the stipulations of the parties, or the nature of the obligation. Only obligations that are personal
or are identified with the persons themselves are extinguished by death.

Section 5 of Rule 86 of the Rules of Court expressly allows the prosecution of money claims arising
from a contract against the estate of a deceased debtor. Evidently, those claims are not actually
extinguished. What is extinguished is only the obligee's action or suit filed before the court, which
is not then acting as a probate court.

In the present case, whatever monetary liabilities or obligations Santos had under his contracts
with respondent were not intransmissible by their nature, by stipulation, or by provision of law.
Hence, his death did not result in the extinguishment of those obligations or liabilities, which
merely passed on to his estate. Death is not a defense that he or his estate can set up to wipe
out the obligations under the performance bond. Consequently, petitioner as surety cannot use
his death to escape its monetary obligation under its performance bond.

"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."
the Court in Garcia v. Court of Appeals stated thus:
"x x x. The surety's obligation is not an original and direct one for the performance of his own
act, but merely accessory or collateral to the obligation contracted by the principal. Nevertheless,
although the contract of a surety is in essence secondary only to a valid principal obligation, his
liability to the creditor or promisee of the principal is said to be direct, primary and absolute; in
other words, he is directly and equally bound with the principal. x x x."
Under the law and jurisprudence, respondent may sue, separately or together, the principal
debtor and the petitioner herein, in view of the solidary nature of their liability. The death of the
principal debtor will not work to convert, decrease or nullify the substantive right of the solidary
creditor. Evidently, despite the death of the principal debtor, respondent may still sue petitioner
alone, in accordance with the solidary nature of the latter's liability under the performance bond.

XIV.

Contributor: Cabrido, Leslie Mae O.

CASE TITLE: CONSTANTE AMOR DE CASTRO and CORAZON AMOR DE CASTRO vs. COURT OF
APPEALS and FRANCISCO ARTIGO (G.R. No. 115838. July 18, 2002.)
Principle:

● Art. 1915. If two or more persons have appointed an agent for a common transaction or
undertaking, they shall be solidarily liable to the agent for all the consequences of the
agency.

● 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.

Facts:

Petitioners Constante and Corazon Amor de Castro were co-owners of four lots located
in Cubao, Quezon City. They authorized respondent Francisco Artigo to act as real estate broker
in the sale of these properties for the amount of P23,000,000.00 at a 5% commission. It was
private respondent who first found Times Transit Corporation as a prospective buyer of two
lots. Sometime in May 1985, the sale was consummated. Artigo received P48,893.76 as
commission.

Artigo’s Contention:

However, Artigo felt aggrieved because according to him, his total commission should be
P352,500.00 which is 5% of the agreed price of P7,050,000 for the two lots and it was he who
introduced the buyer to appellants and unceasingly facilitated the negotiation which ultimately
led to the consummation of the sale.

De Castro’s Contention:

Appellee is selfishly asking for more than what he truly deserved as commission to the prejudice
of other agents who were more instrumental in the consummation of the sale. Although
appellants readily conceded that it was appellee who first introduced Times Transit Corp. to
them, appellee was not designated by them as their exclusive real estate agent but that in fact
there were more or less eighteen (18) others whose collective efforts in the long run dwarfed
those of appellee's, considering that the first negotiation for the sale where appellee took active
participation failed and it was these other agents who successfully brokered in the second
negotiation. But despite this and out of appellants' "pure liberality, beneficence and
magnanimity", appellee nevertheless was given the largest cut in the commission (P48,893.76),
although on the principle of quantum meruit he would have certainly been entitled to less.

Thus, he sued the petitioners in order to collect the unpaid balance of his broker's commission.

ISSUE:

WON the agent may recover the whole compensation from any one of the co-principals.

HELD:
Yes.

Art. 1915. If two or more persons have appointed an agent for a common transaction or
undertaking, they shall be solidarily liable to the agent for all the consequences of the agency.

The solidary liability of the four co-owners, however, militates against the De Castros'
theory that the other co-owners should be impleaded as indispensable parties.

A noted commentator explained Article 1915 thus — "The rule in this article applies even
when the appointments were made by the principals in separate acts, provided that they are for
the same transaction. The solidarity arises from the common interest of the principals, and not
from the act of constituting the agency. By virtue of this solidarity, the agent can recover from
any principal the whole compensation and indemnity owing to him by the others. The parties,
however, may, by express agreement, negate this solidary responsibility. The solidarity does
not disappear by the mere partition effected by the principals after the accomplishment of the
agency.

If the undertaking is one in which several are interested, but only some create the
agency, only the latter are solidarily liable, without prejudice to the effects of negotiorum gestio
with respect to the others. And if the power granted includes various transactions some of
which are common and others are not, only those interested in each transaction shall be liable
for it.”When the law expressly provides for solidarity of the obligation, as in the liability of
co-principals in a contract of agency, each obligor may be compelled to pay the entire
obligation.

The agent may recover the whole compensation from any one of the coprincipals,
as in this case.

Indeed, Article 1216 of the Civil Code provides that a creditor may sue any of the
solidary debtors. This article reads:

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.
 XV.

CONTRIBUTOR: NOVAL, EFREN JUNE

CASE TITLE: REPUBLIC GLASS CORPORATION VS QUA
PRINCIPLE:

FACTS:
Republic Glass Corporation (RGC) and Gervel, Inc. together with respondent lawrence Qua were
stockholders of ladtek Inc., ladtek obtained loans from Metrobank and Private Development Corporation
of the Philippines (PDCP) with RGC, Gervel and Qua as sureties. Among themselves, RGC, Gervel and Qua
executed Agreements.
The Agreements all state that in case of default in the paymeent of ladtek's loans, the parties would
reimburse each other the proportionate share of any sum that any might pay to the creditors. Thus, a
common provision appears in the Agreements: RGC, GERVEL and QUA each covenant that each will
respectively reimburse the party made to pay the lenders all sums of money which the party made to pay
the lenders, that it shall have become liable therefor and has advised the lenders of its willingness to pay
whether or not it shall have already paid out such sum or any part there of to the lenders or to the persons
entitled thereto.
ladtek defaulted on its loan obligations to metrobank and PDCP. Hence, Metrobank filed a collection case
against ladtek, RGC, Gervel and Qua. during the pendency of Collection Case, RGC and Gervel paid
Metrobank 7M (not full payment of the account due), Republic Glass and Gervel demanded to Qua
reimbursement of the total amount that RGC and GC paid to Metrobank. Qua refused to pay.
ISSUES:
1) W/N payment of the entire obligation is an essential condition for reimbursement?
2) W/N there was novation of agreements as held by CA (that there was implied novation)
RULING:
On the first issue:
Contrary to RGC and GC’s claim, payment of any amount will not automatically result in reimbursement.
If a solidary debtor pays the obligation in part, he can recover reimbursement from the co-debtors only
in so far his payment exceeded his share in the obligation. This is precisely because if solidary debtor pays
an amount equal to his proportionate share in the obligation, then he in effects pay only what is due to
him. If the debtor pays less than his share in the obligation, he cannot demand reimbursement because
his payment is less than his actual debt.
Since they only made partial payments, RGC and GC should clearly and convincingly show that their
payments to Metro bank and PDCP exceeded their proportionate shares in the obligations before they
can seek reimbursement from Qua. RGC and GC failed to do this, thus they cannot seek reimbursement
from Qua.
On the second issue:
There was no novation of the agreements. The parties did not constitute new obligations to substitute
the agreements. The terms and conditions of the agreement remains the same.
Novation extinguishes obligation by 1) changing the object or principal conditions; 2) substituting the
person of the debtor and 3) subrogating a third person in the rights of the creditor.

XVI.

Contributor: Chini G. Noynay

Case Title: Benigno Vigilla, et al. v Philippine College of Criminology, Inc.

GR No. 200094, June 10, 2013

Principles: Sec 122 of the Corporation Code is that the conveyance to the trustees must be
made within the Three year period. But it may be found impossible to complete the work of
liquidation within the three year period or to reduce disputed claims to judgment .The trustees
to whom the corporate assets have been conveyed pursuant to the authority of Section 122
may sue and be sued as such in all matters connected with the liquidation. Furthermore,
Section 145 of the Corporation Code clearly provides that no right or remedy in favor of or
against any corporation, its stockholders, members, directors, trustees, or officers shall be
removed or impaired either by the subsequent dissolution of said corporation. Even if no trustee
is appointed or designated during the three year period of the liquidation of the corporation.
The court has held that the board of directors may be permitted to complete the corporate
liquidation by continuing as trustees by legal implication.
Facts:

Philippine College of Criminology (PCCr) is a non stock educational institution, while the
petitioners were janitors, janitresses and supervisor in the Maintenance Department of PCCr.
The petitioners were made to understand upon application with respondent school that they
were under MBMSI, a corporation engaged in providing janitorial services to clients. PCCr later
on discovered that the Certificate of Incorporation of MBMSI had been revoked. Hence, PCCr,
through its President Bautista, citing the revocation, terminated the school’s relationship with
MBMSI, resulting in the dismissal of the employees or maintenance personnel under MBMSI,
except Alfonso Bongot who was retired. The dismissed employees then filed their respective
complaints for illegal dismissal against MBMSI. Atty Seril(Pres. Of MBMSI) and Bautista (Pres.
Of PCCr). They alleged that it was really PCCr which was their real employer based on the
following grounds: MBMSI's certification had been revoked, PCCr had direct control over
MBMSI's operations, there was no contract between MBMSI and PCCr, and the selection and
hiring of employees were undertaken by PCCr. In labor Arbiter decision, PCCr was the real
principal employer of the petitioners and that MBMSI was a mere adjunct or alter ego labor only
contractor. The Labor Arbiter explained that PCCr was actually the one which exercised control
over the means and methods of the work of the petitioners thru Atty.Seril who was acting
throughout the time in his capacity as Senior Vice-president for Administration of PCCr, not in
any way or time as the supposed employer/general manager of president of MBMSI. In NLRC
decision, it affirmed Labor Arbiter's decision but released PCCr and Bautista from liability by
virtue of the quitclaims executed by petitioners. In Court of Appeals decision, it was upheld the
NLRC decision. Hence, this petition.

Issue:

Whether or not a dissolved corporation can enter into an agreement such as releases, waivers
and quitclaims beyond the 3-year winding up period under Sec.122 of Corporation Code.

Held:

Yes, Sec.122 of Corporation Code provides for a three-year winding up period for a corporation
whose charter is annulled by forfeiture or otherwise to continue as a body corporate for the
purpose, among others, of settling and closing its affairs. In this case, petitioners argue that
MBMSI had no legal personality to incur civil liabilities as it did not exist as a corporation on the
account of fact that its Certificate of Incorporation had been revoked. The Supreme Court holds
that the executed releases, waivers and quitclaims are valid and binding notwithstanding the
revocation of MBMSI's Certificate of Incorporation. Even if said documents were executed six
(6) years after MBMSI's dissolution, the same are still valid and binding upon the parties and
the dissolution will not terminate the liabilities incurred by the dissolved corporation pursuant to
Sec. 122 and 145 of the Corporation Code.

XVII.

Name: Santiago, Vincent Francis Bien B.

Case: SPOUSES ALEXANDER AND JULIE LAM vs. KODAK PHILIPPINES, LTD., G.R. No.
167615, January 11, 2016

Doctrines:
• Article 1225. Obligations to give definite things and those which are not susceptible of
partial performance shall be deemed to be indivisible.
When the obligation has for its object the execution of a certain number of days of work,
the accomplishment of work by metrical units, or analogous things which by their nature
are susceptible of partial performance, it shall be divisible.
However, even though the object or service may be physically divisible, an obligation is
indivisible if so provided by law or intended by the parties.

• Article 1191. The power to rescind obligations is implied in reciprocal ones, in case one
of the obligors should not comply with what is incumbent upon him.
The injured party may choose between the fulfilment and the rescission of the obligation,
 with the payment of damages in either case. He may also seek rescission, even after he
has chosen fulfilment, if the latter should become impossible.
The court shall decree the rescission claimed, unless there be just cause authorizing the
fixing of a period.

• Rescission creates the obligation to return the object of the contract. It can be carried out
only when the one who demands rescission can return whatever he may be obliged to
restore. To rescind is to declare a contract void at its inception and to put an end to it as
though it never was. It is not merely to terminate it and release the parties from further
obligations to each other, but to abrogate it from the beginning and restore the parties to
their relative positions as if no contract has been made.

Facts:
Lam Spouses and Kodak Philippines, Ltd. entered into an agreement (Letter Agreement) for the
sale of three (3) units of the Kodak Minilab System 22XL. Kodak Philippines, Ltd. delivered one
(1) unit of the Minilab Equipment and the Lam Spouses issued postdated checks amounting to
₱35,000.00 each for 12 months as payment for the first delivered unit. The Lam Spouses
requested that Kodak Philippines, Ltd. not to negotiate the first and second check due to
insufficiency of funds. However, both checks were negotiated by Kodak Philippines, Ltd. and
were honored by the depository bank. The 10 other checks were subsequently dishonored after
the Lam Spouses ordered the depository bank to stop payment. Kodak Philippines, Ltd.
canceled the sale and demanded that the Lam Spouses return the unit it delivered together with
its accessories. The Lam Spouses ignored the demand but also rescinded the contract through
a letter on account of Kodak Philippines, Ltd.’s failure to deliver the two (2) remaining Minilab
Equipment units. As such, Kodak Philippines, Ltd. filed a Complaint for replevin and/or recovery
of sum of money.

The spouses were declared in default and issued a decision in favor of Kodak Philippines, Ltd.
The Lam Spouses then filed a Petition to Set Aside the Orders issued by the trial court which
were subsequently set aside by the Court of Appeals and remand the case to the trial court.
The trial court found that Kodak Philippines, Ltd. defaulted in the performance of its obligation
under its Letter Agreement with the Lam Spouses. It also ruled that when the Lam Spouses
accepted delivery of the first unit, they became liable for the fair value of the goods received,
and since Kodak Philippines, Ltd. had elected to cancel the sale and retrieve the delivered unit,
it could no longer seek payment for any deterioration that the unit may have suffered while
under the custody of the Lam Spouses.
On appeal, the CA agreed with the trial court but further ruled that the obligations of both parties
are susceptible of partial performance. Thus, Sps. Lam shall be liable for the entire amount of
the purchase price of the Minilab Equipment delivered considering that Kodak had already
completely fulfilled its obligation to deliver the same. The Court of Appeals noted that Kodak
Philippines, Ltd. sought the rescission of its contract with the Lam Spouses. As a result of this
rescission under Article 1191, the Court of Appeals ruled that "both parties must be restored to
their original situation, as far as practicable, as if the contract was never entered into."

Issue:
1. Whether or not the obligations of both parties are divisible.
2. Upon rescission of the contract, what are the rights of the parties under the law.

Ruling:
1. The Letter Agreement contained an indivisible obligation.
Article 1225 provides, obligations to give definite things and those which are not susceptible of
partial performance shall be deemed to be indivisible.
When the obligation has for its object the execution of a certain number of days of work, the
accomplishment of work by metrical units, or analogous things which by their nature are
susceptible of partial performance, it shall be divisible.
However, even though the object or service may be physically divisible, an obligation is
indivisible if so provided by law or intended by the parties.

There is no indication in the Letter Agreement that the units petitioners ordered were covered by
three (3) separate transactions. The factors considered by the Court of Appeals are mere
incidents of the execution of the obligation, which is to deliver three units of the Minilab
Equipment on the part of respondent and payment for all three on the part of petitioners. The
intention to create an indivisible contract is apparent from the benefits that the Letter Agreement
afforded to both parties. Petitioners were given the 19% discount on account of a multiple order,
with the discount being equally applicable to all units that they sought to acquire. The provision
on "no down payment" was also applicable to all units. Respondent, in turn, was entitled to
payment of all three Minilab Equipment units, payable by installments.

2. Under Article 1191 of the New Civil Code, the power to rescind obligations is implied in
reciprocal ones, in case one of the obligors should not comply with what is incumbent upon him.
The injured party may choose between the fulfilment and the rescission of the obligation, with
the payment of damages in either case. He may also seek rescission, even after he has chosen
fulfilment, if the latter should become impossible.
The court shall decree the rescission claimed, unless there be just cause authorizing the fixing
of a period.

Rescission creates the obligation to return the object of the contract. It can be carried out only
when the one who demands rescission can return whatever he may be obliged to restore. To
rescind is to declare a contract void at its inception and to put an end to it as though it never
was. It is not merely to terminate it and release the parties from further obligations to each other,
but to abrogate it from the beginning and restore the parties to their relative positions as if no
contract has been made.

The Court of Appeals correctly ruled that both parties must be restored to their original situation
as far as practicable, as if the contract was never entered into. Petitioners must relinquish
possession of the delivered Minilab Equipment unit and accessories, while respondent must
return the amount tendered by petitioners as partial payment for the unit received. Further,
respondent cannot claim that the two (2) monthly installments should be offset against the
amount awarded by the Court of Appeals to petitioners because the effect of rescission under
Article 1191 is to bring the parties back to their original positions before the contract was
entered into.

XVIII.

CONTRIBUTOR: JULIE TANYA P. LANZAR

CASE TITLE: CONTINENTAL CEMENT CORPORATION Petitioner, vs.
ASEA BROWN BOVERI, INC., BBC BROWN BOVERI, CORP., AND TORD B.
ERIKSON,** Respondents. G.R. No. 171660 October 17, 2011
PRINCIPLE:
Art. 1167. 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.
Under Article 1226 of the Civil Code, the penalty clause takes the place of indemnity for
damages and the payment of interests in case of non-compliance with the obligation,
unless there is a stipulation to the contrary.
FACTS:
Sometime in July 1990, petitioner Continental Cement Corporation (CCC),
a corporation engaged in the business of producing cement, obtained the services of
respondents Asea Brown Boveri, Inc. (ABB) and BBC Brown Boveri, Corp. to repair its 160 KW
Kiln DC Drive Motor (Kiln Drive Motor).

Petitioner and respondent ABB entered into a contract for the repair of petitioners Kiln
Drive Motor, evidenced by Purchase Order Nos. 17136-37, with the following terms and
conditions:
 a) Total Price: P197,450.00

b) Delivery Date: August 29, 1990 or six (6) weeks from receipt of order and down
payment

c) Penalty: One half of one percent of the total cost or Nine Hundred Eighty Seven
Pesos and Twenty five centavos (P987.25) per day
of delay.

On July 11, 1990, the plaintiff delivered the 160 KW Kiln DC Drive Motor to the
defendants. After the first repair by the defendants, the 160 KW Kiln Drive Motor was
installed for testing on October 3, 1990. On October 4, 1990 the test failed. On November
14, 1990, after the defendants had undertaken the second repair of the motor in question,
it was installed in the kiln. The test failed again. The plaintiff resumed operation with its
old motor on November 19, 1990. The plaintiff suffered production losses for five days at
the rate of 1,040 MTD daily.
The defendants were given a third chance to repair the 160 KW Kiln DC Drive Motor. On
March 13, 1991, the motor was installed and tested. Again, the test failed. The plaintiff
resumed operation on March 15, 1991. The plaintiff sustained production losses at the
rate of 1,040 MTD for two days.

The plaintiff has made several demands on the defendants for the payment, but the latter
refused to do so without valid justification. The plaintiff was constrained to file this action
and has undertaken to pay its counsel Twenty Percentum (20%) of the amount sought to
be recovered as attorneys fees.

ISSUE:

Whether or not Respondent ABB incurred delay in performing its obligation and also whether it
failed to repair the Kiln Drive Motor; that will entitle petitioner to sue for damages

HELD:

YES. Respondent ABB, not only incurred delay in performing its obligation but likewise
failed to repair the Kiln Drive Motor; thus, prompting petitioner to sue for damages.
Having breached the contract it entered with petitioner, respondent ABB is liable for
damages pursuant to Articles 1167, 1170, and 2201 of the Civil Code, which state:

Art. 1167. 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.
 Art. 1170. Those who in the performance of their obligations are guilty of
fraud, negligence, or delay, and those who in any manner contravene the tenor
thereof, are liable for damages.

Art. 2201. In contracts and quasi-contracts, the damages for which the
obligor who acted in good faith is liable shall be those that are the natural and
probable consequences of the breach of the obligation, and which the parties have
foreseen or could have reasonably foreseen at the time the obligation was
constituted.

In case of fraud, bad faith, malice or wanton attitude, the obligor shall be
responsible for all damages which may be reasonably attributed to the non-
performance of the obligation.

Based on the foregoing, a repairman who fails to perform his obligation is liable to pay for
the cost of the execution of the obligation plus damages. Though entitled, petitioner in this case
is not claiming reimbursement for the repair allegedly done by Newton Contractor, but is instead
asking for damages for the delay caused by respondent ABB

As per Purchase Order Nos. 17136-37, petitioner is entitled to penalties in the amount
of P987.25 per day from the time of delay, August 30, 1990, up to the time the Kiln Drive Motor
was finally returned to petitioner. Records show that although the testing of Kiln Drive Motor was
done on March 13, 1991, the said motor was actually delivered to petitioner as early as January
7, 1991. The installation and testing was done only on March 13, 1991 upon the request of
petitioner because the Kiln was under repair at the time the motor was delivered; hence, the load
testing had to be postponed.

Under Article 1226 of the Civil Code, the penalty clause takes the place of indemnity for
damages and the payment of interests in case of non-compliance with the obligation, unless there
is a stipulation to the contrary. In this case, since there is no stipulation to the contrary, the
penalty in the amount of P987.25 per day of delay covers all other damages (i.e. production loss,
labor cost, and rental of the crane) claimed by petitioner.

Article 1226 of the Civil Code further provides that if the obligor refuses to pay the penalty,
such as in the instant case, damages and interests may still be recovered on top of the
penalty. Damages claimed must be the natural and probable consequences of the breach, which
the parties have foreseen or could have reasonably foreseen at the time the obligation was
constituted.

Thus, in addition to the penalties, petitioner seeks to recover as damages production loss,
labor cost and the rental of the crane. Considering the nature of the obligation in the instant case,
respondent ABB, at the time it agreed to repair petitioners Kiln Drive Motor, could not have
reasonably foreseen that it would be made liable for production loss, labor cost and rental of the
crane in case it fails to repair the motor or incurs delay in delivering the same, especially since
the motor under repair was a spare motor.
 XIX.

CONTRIBUTOR: KENT FRANCESCO C. JONGOY

CASE TITLE: RODRIGO RIVERA VS. SPOUSES SALVADOR AND VIOLETA CHUA
GR NO. 184458 JANUARY 14, 2016
PRINCIPLE:

Art. 1169. 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 their 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 declare; 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.

In reciprocal obligations, neither party incurs in delay if the other does not comply or is not
ready to comply in a proper manner with what is incumbent upon him. From the moment
one of the parties fulfills his obligation, delay by the other begins.

Art. 2209. If the obligation consists in the payment of a sum of money, and the debtor incurs
in delay, the indemnity for damages, there being no stipulation to the contrary, shall be the
payment of the interest agreed upon, and in the absence of stipulation, the legal interest,
which is six percent per annum.

Art. 1226. In obligations with a penal clause, the penalty shall substitute the indemnity for
damages and the payment of interests in case of noncompliance, if there is no stipulation to
the contrary. Nevertheless, damages shall be paid if the obligor refuses to pay the penalty or
is guilty of fraud in the fulfillment of the obligation.

The penalty may be enforced only when it is demandable in accordance with the provisions
of this Code.

Facts:

Rodrigo Rivera obtained a loan from Spouses Salvador and Violeta Chua in February 1995.
A promissory note was then executed by Rivera, to wit:

PROMISSORY NOTE

120,000.00
FOR VALUE RECEIVED, I, RODRIGO RIVERA promise to pay spouses SALVADOR C. CHUA and
VIOLETA SY CHUA, the sum of One Hundred Twenty Thousand Philippine Currency
(P120,000.00) on December 31, 1995.

It is agreed and understood that failure on my part to pay the amount of (P120,000.00) One
Hundred Twenty Thousand Pesos on December 31, 1995. (sic) I agree to pay the sum
equivalent to FIVE PERCENT (5%) interest monthly from the date of default until the entire
obligation is fully paid for.

Should this note be referred to a lawyer for collection, I agree to pay the further sum
equivalent to twenty percent (20%) of the total amount due and payable as and for attorney’s
fees which in no case shall be less than P5,000.00 and to pay in addition the cost of suit and
other incidental litigation expense.

Any action which may arise in connection with this note shall be brought in the proper Court
of the City of Manila.

Manila, February 24, 1995.

However, Rivera failed to pay upon its due date. In 1998, Spouses Chua received two (2)
postdated checks drawn from the account of Rivera in the amount of P 25,000.00 and P
133,454.00 presumed to be the payment of the existing loan in the principal amount of P
120,000.00. However, upon encashment, both checks were dishonored for the reason of
being drawn from a “closed account.” In 1999, Spouses Chua filed a civil suit against Rivera
for the unjustified refusal to pay his loan. Rivera denied having executed a promissory note.
He likewise alleged that arguendo the promissory note was valid, demand is still necessary
to held him liable for the obligation. He alleged that there was no demand from the Spouses
Chua. During the trial, the spouses presented an NBI handwriting expert as witness to
corroborate their allegations. The handwriting expert confirmed that the purported
promissory note was indeed written and executed by the Rivera. The trial courts (MeTC and
RTC) ruled in favor of Spouses Chua. In its appeal, the decision was likewise affirmed but
reduced the interest from 60% per annum to 12% per annum.

Issue:

1. Whether or not demand is necessary to incur liability for the failure to pay the
obligation.
2. Whether or not there is liability when one (debtor) incurs delay.
3. Whether or not the payment of interest due to delay of payment is a penal clause.

Ruling:

1. YES. Article 1169 of the Civil Code explicitly provides:

Art. 1169. 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 their 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 declare; 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.
In reciprocal obligations, neither party incurs in delay if the other does not comply or is not
ready to comply in a proper manner with what is incumbent upon him. From the moment
one of the parties fulfills his obligation, delay by the other begins.

There are four instances when demand is not necessary to constitute the debtor in default:
(1) when there is an express stipulation to that effect; (2) where the law so provides; (3)
when the period is the controlling motive or the principal inducement for the creation of the
obligation; and (4) where demand would be useless. In the first two paragraphs, it is not
sufficient that the law or obligation fixes a date for performance; it must further state
expressly that after the period lapses, default will commence.

We refer to the clause in the Promissory Note containing the stipulation of interest:

It is agreed and understood that failure on my part to pay the amount of (P120,000.00) One
Hundred Twenty Thousand Pesos on December 31, 1995. (sic) I agree to pay the sum
equivalent to FIVE PERCENT (5%) interest monthly from the date of default until the entire
obligation is fully paid for.

which expressly requires the debtor (Rivera) to pay a 5% monthly interest from the “date of
default” until the entire obligation is fully paid for. The parties evidently agreed that the
maturity of the obligation at a date certain, 31 December 1995, will give rise to the obligation
to pay interest. The Promissory Note expressly provided that after 31 December 1995,
default commences and the stipulation on payment of interest starts.

The date of default under the Promissory Note is 1 January 1996, the day following 31
December 1995, the due date of the obligation. On that date, Rivera became liable for the
stipulated interest which the Promissory Note says is equivalent to 5% a month. In sum, until
31 December 1995, demand was not necessary before Rivera could be held liable for the
principal amount of P120,000.00. Thereafter, on 1 January 1996, upon default, Rivera
became liable to pay the Spouses Chua damages, in the form of stipulated interest.

2. YES. The liability for damages of those who default, including those who are guilty of delay,
in the performance of their obligations is laid down on Article 117024 of the Civil Code.

Corollary thereto, Article 2209 solidifies the consequence of payment of interest as an

indemnity for damages when the obligor incurs in delay:
Art. 2209. If the obligation consists in the payment of a sum of money, and the debtor incurs
in delay, the indemnity for damages, there being no stipulation to the contrary, shall be the
payment of the interest agreed upon, and in the absence of stipulation, the legal interest,
which is six percent per annum.

Article 2209 is specifically applicable in this instance where: (1) the obligation is for a sum
of money; (2) the debtor, Rivera, incurred in delay when he failed to pay on or before 31
December 1995; and (3) the Promissory Note provides for an indemnity for damages upon
default of Rivera which is the payment of a 5% monthly interest from the date of default.

3. NO. The Supreme Court does not consider the stipulation on payment of interest in this
case as a penal clause although Rivera, as obligor, assumed to pay additional 5% monthly
interest on the principal amount of P120,000.00 upon default.

Article 1226 of the Civil Code provides:

Art. 1226. In obligations with a penal clause, the penalty shall substitute the indemnity for
damages and the payment of interests in case of noncompliance, if there is no stipulation to
the contrary. Nevertheless, damages shall be paid if the obligor refuses to pay the penalty or
is guilty of fraud in the fulfillment of the obligation.

The penalty may be enforced only when it is demandable in accordance with the provisions
of this Code.

The penal clause is generally undertaken to insure performance and works as either, or both,
punishment and reparation. It is an exception to the general rules on recovery of losses and
damages. As an exception to the general rule, a penal clause must be specifically set forth in
the obligation.

In high relief, the stipulation in the Promissory Note is designated as payment of interest, not
as a penal clause, and is simply an indemnity for damages incurred by the Spouses Chua
because Rivera defaulted in the payment of the amount of P120,000.00. The measure of
damages for the Rivera’s delay is limited to the interest stipulated in the Promissory Note. In
apt instances, in default of stipulation, the interest is that provided by law.

Thus, the appeal of petitioner Rivera is DENIED.

XX.
Contributor: Rizyl Yapsangco
Case Title: R.S. Tomas, Inc. v. Rizal Cement Company, Inc. G.R. No. 173155 March 21, 2012
Doctrine: Breach of contract is defined as the failure without legal reason to comply with the
terms of a contract. It is also defined as the failure, without legal excuse, to perform any promise
which forms the whole or part of the contract.

Facts:
Petitioner undertook to supply labor, equipment, supervision, and materials under job orders with
the respondent, who in his part agreed to pay P2,944,000.00. The project was to be completed
by the petitioner within 120 days from the effectivity of the contract and he shall be liable to the
respondent for liquidated damages of P29,440.00 per day of delay in the completion which shall
be limited to 10% of the project cost. After series of requests for an extension due to import of
materials and manifestations of desire to complete the project as soon as possible, petitioner
failed, not only to perform its part of the contract on time but, in fact, to complete the projects.
Respondent notified petitioner that the former was terminating the contract. It also demanded
for the refund of the amount already paid to petitioner. For failure to complete the projects and
heed to the respondents demand, a complaint for sum of money was instituted by the
respondents. Petitioner's defense relied in good faith on respondents representation that the
subject of the contract which the transformer could still be rewound and converted but upon
dismantling the core-coil assembly, it discovered that the coils were already badly damaged and
the primary bushing broken. Thus the need for additional time and amount to finance the same.
Petitioner also insisted that the proximate cause of the delay is the misrepresentation of the
respondent on the extent of the defect of the transformer.

RTC rendered in favor of the petitioner. CA reversed and set aside RTC decision on the ground
that petitioner failed to prove fraudulent misrepresentation to induce former to enter into the
contract.

Issue: Whether or not CA is correct?

Held: Yes, the petition lacks merit.

As a general rule, the Court cannot ignore the freedom of the parties to agree on such terms and
conditions as they see fit as long as they are not contrary to law, morals, good customs, public
order or public policy.

The scope of work presented by respondent specifically stated that the wires to be used shall be
pure copper and that there was a need to supply new bushings for the complete rewinding and
conversion of the transformer, in which the petitioner is well aware. It is, therefore, improper for
petitioner to ask for additional amount to answer for the expenses that were already part and
parcel of the undertaking it was bound to perform. The contract entered into may have turned
out to be an unwise investment, but there is no one to blame but petitioner for plunging into an
undertaking without fully studying it in its entirety. For petitioner, the contract entered into may
have turned out to be an unwise investment, but there is no one to blame but petitioner for
plunging into an undertaking without fully studying it in its entirety

There was not only delay but non-completion of the projects undertaken by petitioner without
justifiable ground. Undoubtedly, petitioner is guilty of breach of contract. Breach of contract is
defined as the failure without legal reason to comply with the terms of a contract. It is also
defined as the failure, without legal excuse, to perform any promise which forms the whole or
part of the contract. In the present case, petitioner did not complete the projects. This gives
respondent the right to terminate the contract by serving petitioner a written notice as agreed in
the terms of the contract. Considering that petitioner was already in delay and in breach of
contract, it is liable for damages that are the natural and probable consequences of its breach of
obligation. Since advanced payments had been made by respondent, petitioner is bound to return
the excess vis--vis its work accomplishments. In order to finish the projects, respondent had to
contract the services of another contractor.

XXI.
CONTRIBUTOR: Porcadilla, Mark
CASE TITLE: SPOUSES JAIME and MATILDE POON v. PRIME SAVINGS BANK
represented by the PHILIPPINE DEPOSIT INSURANCE CORPORATION as Statutory
Liquidator. (GR No. G.R. No. 183794, June 13, 2016)

PRINCIPLES:

Principle No. 1: Closure of business is only considered as a fortuitous event if it is shown

that the government's action to place a bank under receivership or liquidation proceedings
is tainted with arbitrariness, or that the regulatory body has acted without jurisdiction.
Principle No. 2: A provision is a penal clause if it calls for the forfeiture of any 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 thereof.
Principle No. 3: A departure from the terms of the agreement is warranted if it is shown
that strict adherence to the doctrine of freedom of contracts will only work injustice rather
than promote justice, at the expense of the rights of innocent creditors and investors.

FACTS:

Matilde Poon and respondent executed a 10-year Contract of Lease (Contract) over a building.
Under the the agreement, both parties agreed to a fixed monthly rental with an advance payment
of the rentals for the first 100 months.

Barely three years later, however, the BSP placed respondent under the receivership of the
Philippine Deposit Insurance Corporation (PDIC). Subsequently, the PDIC demands for the return
of the unused advance rental on the ground that paragraph 24 of the lease agreement had
become inoperative because respondent's closure constituted force majeure. The PDIC likewise
invoked the principle of rebus sic stantibus under Article 1267 of Republic Act No. 386 (Civil Code)
as alternative legal basis for demanding the refund.

Petitioners, however, refused the PDIC's demand on the ground that they were entitled to retain
the remainder of the advance rentals following paragraph 24 of their Contract, which reads:

“Should the lease[d] premises be closed, deserted or vacated by the LESSEE, the LESSOR
shall have the right to terminate the lease without the necessity of serving a court order
and to immediately repossess the leased premises. Thereafter the LESSOR shall open and
enter the leased premises in the presence of a representative of the LESSEE (or of the
 proper authorities) for the purpose of taking a complete inventory of all furniture, fixtures,
equipment and/or other materials or property found within the leased premises.
The LESSOR shall thereupon have the right to enter into a new contract with another
party. All advanced rentals shall be forfeited in favour of the LESSOR.”
Consequently, respondent sued petitioners for a partial rescission of contract and/or recovery of
a sum of money.

ISSUE/s:

a) Whether or not respondent had a cause of action for rescission and may be released from
its contractual obligations to petitioners on grounds of fortuitous event under Article 1174
of the Civil Code and unforeseen event under Article 1267 of the Civil Code;
b) Whether or not paragraph 24 of the contract is a penal clause which may be equitably
reduced under Article 1229 of the Civil Code.

RULING:

a) The court ruled that the closure of respondent's business was neither a fortuitous nor an
unforeseen event that rendered the lease agreement functus officio. The period during
which the bank cannot do business due to insolvency is not a fortuitous event, unless it is
shown that the government's action to place a bank under receivership or liquidation
proceedings is tainted with arbitrariness, or that the regulatory body has acted without
jurisdiction.

Here, there is no indication or allegation that the BSP's action in this case was tainted with
arbitrariness or bad faith since it is anchored from a correct legal basis or Section 30 of
Republic Act No. 7653. In which case, it shows respondent was partly accountable for the
closure of its banking business. It cannot be said, then, that the closure of its business
was independent of its will.

Whereas, the Court once again cautioned that the doctrine of unforeseen event under
Article 1267 is not an absolute application of the principle of rebus sic stantibus, otherwise,
it would endanger the security of contractual relations. After all, parties to a contract are
presumed to have assumed the risks of unfavorable developments. It is only in absolutely
exceptional changes of circumstance, therefore, that equity demands assistance for the
debtor.

The difficulty of performance should be such that the party seeking to be released from a
contractual obligation would be placed at a disadvantage by the unforeseen event. Mere
inconvenience, unexpected impediments, increased expenses, or even pecuniary inability
to fulfil engagement, will not relieve the obligor from an undertaking that it has knowingly
and freely contracted.
 Clearly, the closure of respondent's business was not an unforeseen event. As the lease
was long-term, it was not lost on the parties that such an eventuality might occur, as it
was in fact covered by the terms of their Contract.

b) It is settled that a provision is a penal clause if it calls for the forfeiture of any 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 thereof.

Verily, the penalty was to compel respondent to complete the 10-year term of the lease.
Petitioners, too, were similarly obliged to ensure the peaceful use of their building by
respondent for the entire duration of the lease under pain of losing the remaining advance
rentals paid by the latter.

The forfeiture clauses of the Contract, therefore, served the two functions of a penal
clause, i.e., (1) to provide for liquidated damages and (2) to strengthen the coercive force
of the obligation by the threat of greater responsibility in case of breach.

Finally, the reasonableness of a penalty depends on the circumstances in each case,

because what is iniquitous and unconscionable in one may be totally just and equitable in
another.

Under the circumstances, it is neither fair nor reasonable to deprive depositors and
creditors of what could be their last chance to recoup whatever bank assets or receivables
the PDIC can still legally recover. Besides, nothing has prevented petitioners from putting
their building to other profitable uses, since respondent surrendered the premises
immediately after the closure of its business.

Therefore, in view of the aforesaid overriding considerations, it justifies the reduction of

the penalty agreed upon by petitioners and respondent lessee in keeping with Article 1229
of the Civil Code. Otherwise, strict adherence to the doctrine of freedom of contracts, at
the expense of the rights of innocent creditors and investors, will only work injustice rather
than promote justice in this case. Such adherence may even be misconstrued as
condoning profligate bank operations.

XXII.
Contributor: Otadoy, Charmaine Regine
Case Title : HEIRS OF MANUEL UY EK LIONG, represented by BELEN LIM VDA. DE
UY, Petitioners,
vs. MAURICIA MEER CASTILLO, HEIRS OF BUENAFLOR C. UMALI, represented by NANCY UMALI,
VICTORIA H. CASTILLO, BERTILLA C. RADA, MARIETTA C. CAVANEZ, LEOVINA C. JALBUENA and
PHILIP M. CASTILLO, Respondents.
G.R. No. 176425
Principle:
Art. 1226. In obligations with a penal clause, the penalty shall substitute the indemnity
for damages and the payment of interests in case of noncompliance, if there is no
stipulation to the contrary. Nevertheless, damages shall be paid if the obligor refuses to
pay the penalty or is guilty of fraud in the fulfillment of the obligation.
The penalty may be enforced only when it is demandable in accordance with the provisions
of this Code.
Art. 1227. The debtor cannot exempt himself from the performance of the obligation by
paying the penalty, save in the case where this right has been expressly reserved for him.
Neither can the creditor demand the fulfillment of the obligation and the satisfaction of
the penalty at the same time, unless this right has been clearly granted to him. However,
if after the creditor has decided to require the fulfillment of the obligation, the performance
thereof should become impossible without his fault, the penalty may be enforced."

Facts:
Alongside her husband, Felipe Castillo, respondent Mauricia Meer Castillo was the owner of four
parcels of land. With the death of Felipe, a deed of extrajudicial partition over his estate was
executed by his heirs, namely, Mauricia, Buenaflor Umali and respondents Victoria Castillo, Bertilla
Rada, Marietta Cavanez, Leovina Jalbuena and Philip Castillo. Utilized as security for the payment
of a tractor purchased by Mauricia’s nephew, Santiago Rivera, from Bormaheco, Inc., it appears,
however, that the subject properties were subsequently sold at a public auction where Insurance
Corporation of the Philippines (ICP) tendered the highest bid. Having consolidated its title, ICP
likewise sold said parcels in favor of Philippine Machinery Parts Manufacturing Co., Inc. (PMPMCI)
which, in turn, caused the same to be titled in its name.
Respondents and Buenaflor instituted Civil Case for the purpose of seeking the annulment of the
transactions and/or proceedings involving the subject parcels, as well as the TCTs procured by
PMPMCI. Encountering financial difficulties in the prosecution of Civil Case, respondents and
Buenaflor entered into an Agreement whereby they procured the legal services of Atty.
Edmundo Zepeda and the assistance of Manuel Uy Ek Liong who, as financier, agreed to
underwrite the litigation expenses entailed by the case. In exchange, it was stipulated in the
notarized Agreement that, in the event of a favorable decision in Civil Case, Atty. Zepeda and
Manuel would be entitled to "a share of forty (40%) percent of all the realties and/or monetary
benefits, gratuities or damages" which may be adjudicated in favor of respondents.
On the same date, respondents and Buenaflor entered into another notarized agreement
denominated as a Kasunduan whereby they agreed to sell their remaining sixty (60%) percent
share in the subject parcels in favor of Manuel for the sum of ₱180,000.00. The parties stipulated
that Manuel would pay a downpayment in the sum of ₱1,000.00 upon the execution of the
Kasunduan and that respondents and Buenaflor would retain and remain the owners of a 1,750-
square meter portion of said real properties. It was likewise agreed that any party violating the
Kasunduan would pay the aggrieved party a penalty fixed in the sum of ₱50,000.00, together
with the attorney’s fees and litigation expenses incurred should a case be subsequently filed in
court. The parties likewise agreed to further enter into such other stipulations as would be
necessary to ensure that the sale would push through and/or in the event of illegality or
impossibility of any part of the Kasunduan.
The record also shows that the proceedings in Civil Case No. 8085 culminated in this Court’s
rendition of a 13 September 1990 Decision in G.R. No. 89561 in favor of respondents and
Buenaflor. Subsequent to the finality of the Court’s Decision, it appears that the subject parcels
were subdivided in accordance with the Agreement, with sixty (60%) percent thereof consisting
of 31,983 square meters equally apportioned among and registered in the names of respondents
and Buenaflor. Consisting of 21,324 square meters, the remaining forty (40%) percent was, in
turn, registered in the names of petitioners and Atty. Zepeda.
Petitioners commenced the instant suit with the filing of their complaint for specific performance
and damages against the respondents and respondent Heirs of Buenaflor, as then represented
by Menardo Umali. Faulting respondents with unjustified refusal to comply with their obligation
under the Kasunduan, petitioners prayed that the former be ordered to execute the necessary
Deed of Absolute Sale over their shares in the subject parcels, with indemnities for moral and
exemplary damages, as well as attorney’s fees, litigation expenses and the costs of the suit.
Issue: Whether the Agreement and Kasunduan is invalid for violating Art. 1491 of the NCC and
the Canons of Professional Responsibility
Ruling: Valid
The fact that Atty. Zepeda was not properly impleaded in the suit and given a chance to present
his side of the controversy before the RTC should have dissuaded the CA from invalidating the
Agreement and holding that attorney’s fees should, instead, be computed on a quantum meruit
basis. Admittedly, Article 1491 (5) of the Civil Code prohibits lawyers from acquiring 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 CA lost sight of the fact, however, that the prohibition
applies only during the pendency of the suit and generally does not cover contracts for contingent
fees where the transfer takes effect only after the finality of a favorable judgment.
Although executed on the same day, it cannot likewise be gainsaid that the Agreement and the
Kasunduan are independent contracts, with parties, objects and causes different from that of the
other. Defined as a meeting of the minds between two persons whereby one binds himself, with
respect to the other to give something or to render some service, a contract requires the
concurrence of the following requisites: (a) consent of the contracting parties; (b) object certain
which is the subject matter of the contract; and, (c) cause of the obligation which is
established. Executed in exchange for the legal services of Atty. Zepeda and the financial
assistance to be extended by Manuel, the Agreement concerned respondents’ transfer of 40% of
the avails of the suit, in the event of a favorable judgment in Civil Case No. 8085. While
concededly subject to the same suspensive condition, the Kasunduan was, in contrast, concluded
by respondents with Manuel alone, for the purpose of selling in favor of the latter 60% of their
share in the subject parcels for the agreed price of ₱180,000.00. Given these clear distinctions,
petitioners correctly argue that the CA reversibly erred in not determining the validity of the
Kasunduan independent from that of the Agreement.
Viewed in the light of the autonomous nature of contracts enunciated under Article 1306 of the
Civil Code, on the other hand, we find that the Kasunduan was correctly found by the RTC to be
a valid and binding contract between the parties. Already partially executed with respondents’
receipt of ₱1,000.00 from Manuel upon the execution thereof, the Kasunduan simply concerned
the sale of the former’s 60% share in the subject parcel, less the 1,750-square meter portion to
be retained, for the agreed consideration of ₱180,000.00. As a notarized document that carries
the evidentiary weight conferred upon it with respect to its due execution, the Kasunduan was
shown to have been signed by respondents with full knowledge of its contents, as may be gleaned
from the testimonies elicited from Philip and Leovina.
At any rate, our perusal of the record shows that respondents’ main objection to the enforcement
of the Kasunduan was the perceived inadequacy of the ₱180,000.00 which the parties had fixed
as consideration for 60% of the subject parcels.
In the absence of any showing, however, that the parties were able to agree on new stipulations
that would modify their agreement, we find that petitioners and respondents are bound by the
original terms embodied in the Kasunduan. Obligations arising from contracts, after all, have the
force of law between the contracting parties who are expected to abide in good faith with their
contractual commitments, not weasel out of them. Moreover, when the terms of the contract are
clear and leave no doubt as to the intention of the contracting parties, the rule is settled that the
literal meaning of its stipulations should govern. In such cases, courts have no authority to alter
a contract by construction or to make a new contract for the parties.
Our perusal of the Kasunduan also shows that it contains a penal clause which provides that a
party who violates any of its provisions shall be liable to pay the aggrieved party a penalty fixed
at ₱50,000.00, together with the attorney’s fees and litigation expenses incurred by the latter
should judicial resolution of the matter becomes necessary. An accessory undertaking to assume
greater liability on the part of the obligor in case of breach of an obligation, the foregoing
stipulation is a penal clause which serves to strengthen the coercive force of the obligation and
provides for liquidated damages for such breach. "The obligor would then be bound to pay the
stipulated indemnity without the necessity of proof of the existence and the measure of damages
caused by the breach." Articles 1226 and 1227 of the Civil Code state:
Art. 1226. In obligations with a penal clause, the penalty shall substitute the indemnity for
damages and the payment of interests in case of noncompliance, if there is no stipulation to the
contrary. Nevertheless, damages shall be paid if the obligor refuses to pay the penalty or is guilty
of fraud in the fulfillment of the obligation.
The penalty may be enforced only when it is demandable in accordance with the provisions of
this Code.
Art. 1227. The debtor cannot exempt himself from the performance of the obligation by paying
the penalty, save in the case where this right has been expressly reserved for him. Neither can
the creditor demand the fulfillment of the obligation and the satisfaction of the penalty at the
same time, unless this right has been clearly granted to him. However, if after the creditor has
decided to require the fulfillment of the obligation, the performance thereof should become
impossible without his fault, the penalty may be enforced."
In the absence of a showing that they expressly reserved the right to pay the penalty in lieu of
the performance of their obligation under the Kasunduan, respondents were correctly ordered by
the RTC to execute and deliver a deed of conveyance over their 60% share in the subject parcels
in favor of petitiOners. Considering that the Kasunduan stipulated that respondents would retain
a portion of their share consisting of 1,750 square meters, said disposition should, however, be
modified to give full effect to the intention of the contracting parties. Since the parties also fixed
liquidated damages in the sum of ₱50,000.00 in case of breach, we find that said amount should
suffice as petitioners' indemnity, without further need of compensation for moral and exemplary
damages. In obligations with a penal clause, the penalty generally substitutes the indemnity for
damages and the payment of interests in case of non-compliance. Usually incorporated to create
an effective deterrent against breach of the obligation by making the consequences of such
breach as onerous as it may be possible, the rule is settled that a penal clause is not limited to
actual and compensatory damages69
The RTC's award of attorney's fees in the sum of ₱50,000.00 is, however, proper.1âwphi1 Aside
from the fact that the penal clause included a liability for said award in the event of litigation over
a breach of the Kasunduan, petitioners were able to prove that they incurred said sum in engaging
the services of their lawyer to pursue their rights and protect their interests.

XXIII.

CONTRIBUTOR: Princes Charmine M. Rodriguez

CASE TITLE: TOLOMEO LIGUTAN and LEONIDAS DE LA LLANA vs. HON. COURT OF
APPEALS & SECURITY BANK & TRUST COMPANY G.R. No. 138677 February
12, 2002

PRINCIPLE:
∗ Extinctive novation requires, first, a previous valid obligation; second, the agreement of
all the parties to the new contract; third, the extinguishment of the obligation;
and fourth, the validity of the new one. In order that an obligation may be extinguished
by another which substitutes the same, it is imperative that it be so declared in
unequivocal terms, or that the old and the new obligation be on every point incompatible
with each other. An obligation to pay a sum of money is not extinctively novated by a new
instrument which merely changes the terms of payment or adding compatible covenants
or where the old contract is merely supplemented by the new one. When not expressed,
incompatibility is required so as to ensure that the parties have indeed intended such
novation despite their failure to express it in categorical terms.

FACTS:
Tolomeo Ligutan and Leonidas dela Llana for obtaining a loan in the amount of
P120,000.00 which they executed a promissory note binding themselves, jointly and severally to
pay the sum borrowed with an interest of 15.189% per annum upon maturity and to pay a penalty
of 5% every month on the outstanding principal and interest in case of default but the petitioners
defaulted on their obligation.The obligation matured and the bank granted an extension. Despite
several demands from the Bank, petitioners failed to settle the debt which then amounted to
P114,416.10. The Bank sent a final demand letter however petitioners still defaulted on their
obligation. The Bank then filed a complaint for recovery of the due amount. Petitioners instead
of presenting their evidence had the schedule reset for two consecutive occasions. On the third
hearing date, the trial court resolved to consider the case submitted for decision.

Two years later petitioners filed a motion for reconsideration but the court denied the
motion. Then the petitioners interposed an appeal with the Court of Appeals, questioning the
rejection by the trial court of their motion to present evidence and assailing the imposition of the
2% service charge, the 5% per month penalty charge and 10% attorney’s fees. CA affirmed the
judgment of RTC. Petitioners filed an omnibus motion for reconsideration and to admit newly
discovered evidence, alleging that while the case was pending before the trial court, petitioner
Tolomeo Ligutan and his wife Bienvenida Ligutan executed a real estate mortgage on 18 January
1984 to secure the existing indebtedness of petitioners Ligutan and dela Llana with the bank.
Petitioners contended that the execution of the real estate mortgage had the effect of novating
the contract between them and the bank. Petitioners further averred that the mortgage was
extrajudicially foreclosed on 26 August 1986, that they were not informed about it, and the bank
did not credit them with the proceeds of the sale. CA denied the omnibus motion for
reconsideration and to admit newly discovered evidence, ratiocinating that such a second motion
for reconsideration cannot be entertained under Section 2, Rule 52, of the 1997 Rules of Civil
Procedure. Furthermore, the appellate court said, the newly-discovered evidence being invoked
by petitioners had actually been known to them when the case was brought on appeal and when
the first motion for reconsideration was filed.

ISSUE:

Whether or not the execution of the real estate mortgage had the effect of novating the contract
between them and the bank

HELD:

NO.The subsequent execution of the real estate mortgage as security for the existing loan would
not have resulted in the extinguishment of the original contract of loan because of novation.
Petitioners acknowledge that the real estate mortgage contract does not contain any express
stipulation by the parties intending it to supersede the existing loan agreement between the
petitioners and the bank. Respondent bank has correctly postulated that the mortgage is but an
accessory contract to secure the loan in the promissory note.

Extinctive novation requires, first, a previous valid obligation; second, the agreement of all the
parties to the new contract; third, the extinguishment of the obligation; and fourth, the validity
of the new one. In order that an obligation may be extinguished by another which substitutes the
same, it is imperative that it be so declared in unequivocal terms, or that the old and the new
obligation be on every point incompatible with each other. An obligation to pay a sum of money
is not extinctively novated by a new instrument which merely changes the terms of payment or
adding compatible covenants or where the old contract is merely supplemented by the new one.
When not expressed, incompatibility is required so as to ensure that the parties have indeed
intended such novation despite their failure to express it in categorical terms. The incompatibility,
to be sure, should take place in any of the essential elements of the obligation, i.e., (1) the
juridical relation or tie, such as from a merecommodatum to lease of things, or
from negotiorum gestio to agency, or from a mortgage to antichresis, or from a sale to one of
loan; (2) the object or principal conditions, such as a change of the nature of the prestation; or
(3) the subjects, such as the substitution of a debtor or the subrogation of the creditor. Extinctive
novation does not necessarily imply that the new agreement should be complete by itself; certain
terms and conditions may be carried, expressly or by implication, over to the new obligation.

XXIV.

CONTRIBUTOR: SURALTA, AGAPITO JR.

LOUH VS. BPI, G.R. No. 225562, MAR. 8, 2017
PRINCIPLE: 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

FACTS:
The herein respondent, Bank of the Philippine Islands (BPI), issued a credit card in
William's name, with Irene as the extension card holder. Pursuant to the terms and
conditions of the cards' issuance, 3.5% finance charge and 6% late payment charge shall be
imposed monthly upon unpaid credit availments.4
The Spouses Louh made purchases from the use of the credit cards in the amount of
Php 533,836.27; the spouses failed pay their obligations and this prompted the bank to a
collection case before the RTC of Makati. The RTC ordered the Spouses Louh to solidarily pay
BPI (1) P533,836.27 plus 12% finance and 12% late payment annual charges starting from
August 7, 2010 until full payment, and (2) 25% of the amount due as attorney's fees, plus
₱l,000.00 per court hearing and ₱8,064.00 as filing or docket fees; and (3) costs of suit. The
RTC explained that BPI had adduced preponderant evidence proving that the Spouses Louh
had in fact availed of credit accommodations from the use of the cards. However, the RTC
found the 3.5% finance and 6% late payment monthly charges18 imposed by BPI as
iniquitous and unconscionable. Hence, both charges were reduced to 1 % monthly. Anent the
award of attorney's fees equivalent to 25% of the amount due, the RTC found the same to be
within the terms of the parties' agreement.

ISSUE: Whether or not finance and penalty charges may be reduced by the Court.

HELD: Yes.
In Macalinao,37 where BPI charged the credit cardholder of 3.25% interest and 6%
penalty per month,38 and 25% of the total amount due as attorney's fees, the Court
unequivocally declared that:
[T]his is not the first time that this Court has considered the interest rate of 36% per
annum as excessive and unconscionable. We held in Chua vs. Timan:
The stipulated interest rates of 7% and 5% per month imposed on respondents' loans
must be equitably reduced to 1% per month or 12% per annum. We need not unsettle· the
principle we had affirmed in a plethora of cases that stipulated interest rates of 3% per
month and higher are excessive, iniquitous, unconscionable and exorbitant. Such
stipulations are void for being contrary to morals, if not against the law. While C.B. Circular
No. 905-82, which took effect on January 1, 1983, effectively removed the ceiling on interest
rates for both secured and unsecured loans, regardless of maturity, nothing in the said
circular could possibly be read as granting carte blanche authority to lenders to raise interest
rates to levels which would either enslave their borrowers or lead to a hemorrhaging of their
assets. x x x

Since the stipulation on the interest rate 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 same is true with respect to the penalty charge. x x x Pertinently, Article 1229 of the
Civil Code states:
Art. 1229. The judge shall equitably reduce the penalty when the principal obligation has
been partly or irregularly complied with by the debtor. Even if there has been no
performance, the penalty may also be reduced by the courts if it is iniquitous or
unconscionable. x x xx
x x x [T]he stipulated penalty charge of 3% per month or 36% per annum, in addition to
regular interests, is indeed iniquitous and unconscionable.39 (Citations and emphasis in the
original omitted, and emphasis ours)
Thus, in Macalinao, the Court reduced both the interest and penalty charges to 12% each,
and the attorney's fees to ₱l0,000.00.

XXV.

CONTRIBUTOR: ANN Q. COMENDADOR

CASE TITLE:
G.R. No. 153201 January 26, 2005
JOSE MENCHAVEZ vs. FLORENTINO TEVES JR.,
PRINCIPLES:
a. Parties to a void agreement cannot expect the aid of the law; the courts leave them as
they are, because they are deemed in pari delicto or "in equal fault."
b. To this rule, however, there are exceptions that permit the return of that which may have
been given under a void contract. One of the exceptions is found in Article 1412 of the
Civil Code, which states:
"Art. 1412. If the act in which the unlawful or forbidden cause consists does not
constitute a criminal offense, the following rules shall be observed:
"(1) When the fault is on the part of both contracting parties, neither may
recover what he has given by virtue of the contract, or demand the
performance of the other’s undertaking;
"(2) When only one of the contracting parties is at fault, he cannot recover
what he has given by reason of the contract, or ask for the fulfillment of
what has been promised him. The other, who is not at fault, may demand
the return of what he has given without any obligation to comply with his
promise."
FACTS: On February 28, 1986, a "Contract of Lease" was executed by Jose S. Menchavez, Juan
S. Menchavez Sr., Juan S. Menchavez Jr., Rodolfo Menchavez, Simeon Menchavez, Reynaldo
Menchavez, Cesar Menchavez, Charito M. Maga, Fe M. Potot, Thelma R. Reroma, Myrna Ybañez,
Sonia S. Menchavez, Sarah Villaver, Alma S. Menchavez, and Elma S. Menchavez, as lessors; and
Florentino Teves Jr. as lessee.
On June 2, 1988, Cebu RTC Sheriffs Gumersindo Gimenez and Arturo Cabigon demolished the
fishpond dikes constructed by respondent and delivered possession of the subject property to
other parties. As a result, he filed a Complaint for damages with application for preliminary
attachment against petitioners. In his Complaint, he alleged that the lessors had violated their
Contract of Lease, specifically the peaceful and adequate enjoyment of the property for the entire
duration of the Contract. He claimed ₱157,184.40 as consequential damages for the demolition
of the fishpond dikes, ₱395,390.00 as unearned income, and an amount not less than
₱100,000.00 for rentals paid.
Respondent further asserted that the lessors had withheld from him the findings of the trial court
in Civil Case No. 510-T, entitled "Eufracia Colongan and Paulino Pamplona v. Juan Menchavez Sr.
and Sevillana S. Menchavez." In that case involving the same property, subject of the lease, the
Menchavez spouses were ordered to remove the dikes illegally constructed and to pay damages
and attorney’s fees.
After trial on the merits, the RTC ruled to dismissing the complaint.
Respondent elevated the case to the Court of Appeals, where the CA disagreed with the RTC’s
finding that petitioners and respondent were in pari delicto. It contended that while there was
negligence on the part of respondent for failing to verify the ownership of the subject property,
there was no evidence that he had knowledge of petitioners’ lack of ownership.
ISSUE: Whether the parties are in pari delicto.
HELD: Yes.
In Pari Delicto Rule on Void Contracts
The parties do not dispute the finding of the trial and the appellate courts that the Contract of
Lease was void. Indeed, the RTC correctly held that it was the State, not petitioners, that owned
the fishpond. The 1987 Constitution specifically declares that all lands of the public domain,
waters, fisheries and other natural resources belong to the State. Included here are fishponds,
which may not be alienated but only leased. Possession thereof, no matter how long, cannot
ripen into ownership.
Being merely applicants for the lease of the fishponds, petitioners had no transferable right over
them. And even if the State were to grant their application, the law expressly disallowed sublease
of the fishponds to respondent. Void are all contracts in which the cause, object or purpose is
contrary to law, public order or public policy.
A void contract is equivalent to nothing; it produces no civil effect. It does not create, modify or
extinguish a juridical relation. Parties to a void agreement cannot expect the aid of the law; the
courts leave them as they are, because they are deemed in pari delicto or "in equal fault." To this
rule, however, there are exceptions that permit the return of that which may have been given
under a void contract. One of the exceptions is found in Article 1412 of the Civil Code, which
states:
"Art. 1412. If the act in which the unlawful or forbidden cause consists does not constitute a
criminal offense, the following rules shall be observed:
 "(1) When the fault is on the part of both contracting parties, neither may recover what
he has given by virtue of the contract, or demand the performance of the other’s
undertaking;
"(2) When only one of the contracting parties is at fault, he cannot recover what he has
given by reason of the contract, or ask for the fulfillment of what has been promised him.
The other, who is not at fault, may demand the return of what he has given without any
obligation to comply with his promise."
On this premise, respondent contends that he can recover from petitioners, because he is an
innocent party to the Contract of Lease. Petitioners allegedly induced him to enter into it through
serious misrepresentation.
Finding of In Pari Delicto:
A Question of Fact
The issue of whether respondent was at fault or whether the parties were in pari delicto is a
question of fact not normally taken up in a petition for review on certiorari under Rule 45 of the
Rules of Court. The present case, however, falls under two recognized exceptions to this rule. This
Court is compelled to review the facts, since the CA’s factual findings are (1) contrary to those of
the trial court; and (2) premised on an absence of evidence, a presumption that is contradicted
by the evidence on record.
Unquestionably, petitioners leased out a property that did not belong to them, one that they had
no authority to sublease. The trial court correctly observed that petitioners still had a pending
lease application with the State at the time they entered into the Contract with respondent.
Respondent, on the other hand, claims that petitioners misled him into executing the Contract. He
insists that he relied on their assertions regarding their ownership of the property. His own
evidence, however, rebuts his contention that he did not know that they lacked ownership. At
the very least, he had notice of their doubtful ownership of the fishpond.
Respondent himself admitted that he was aware that the petitioners’ lease application for the
fishpond had not yet been approved. Thus, he knowingly entered into the Contract with the risk
that the application might be disapproved. Noteworthy is the fact that the existence of a fishpond
lease application necessarily contradicts a claim of ownership. That respondent did not know of
petitioners’ lack of ownership is therefore incredible.
The evidence of respondent himself shows that he negotiated the lease of the fishpond with both
Juan Menchavez Sr. and Juan Menchavez Jr. in the office of his lawyer, Atty. Jorge
Esparagoza. His counsel’s presence during the negotiations, prior to the parties’ meeting of minds,
further debunks his claim of lack of knowledge. Lawyers are expected to know that fishponds
belong to the State and are inalienable. It was reasonably expected of the counsel herein to
advise his client regarding the matter of ownership.
Indeed, the evidence presented by respondent demonstrates the contradictory claims of
petitioners regarding their alleged ownership of the fishpond. On the one hand, they claimed
ownership and, on the other, they assured him that their fishpond lease application would be
approved. This circumstance should have been sufficient to place him on notice. It should have
compelled him to determine their right over the fishpond, including their right to lease it.
The Contract itself stated that the area was still covered by a fishpond application. Nonetheless,
although petitioners declared in the Contract that they co-owned the property, their erroneous
declaration should not be used against them. A cursory examination of the Contract suggests that
it was drafted to favor the lessee. It can readily be presumed that it was he or his counsel who
prepared it -- a matter supported by petitioners’ evidence. The ambiguity should therefore be
resolved against him, being the one who primarily caused it.
The CA erred in finding that petitioners had failed to prove actual knowledge of respondent of
the ownership status of the property that had been leased to him. On the contrary, as the party
alleging the fact, it was he who had the burden of proving – through a preponderance of
evidence -- that they misled him regarding the ownership of the fishpond. His evidence fails to
support this contention. Instead, it reveals his fault in entering into a void Contract. As both
parties are equally at fault, neither may recover against the other.

XXVI.

CONTRIBUTOR: BYRONE PABILONA

CASE TITLE: Ruben Reyna and Lloyd Soria vs Commission on Audit, G.R. No. 167219,
February 8, 2011

PRINCIPLES:

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

Write-off is not one of the legal grounds for extinguishing an obligation under the Civil
Code. It is not a compromise of liability. Neither is it a condonation, since in
condonation gratuity on the part of the obligee and acceptance by the obligor are
required. In making the write-off, only the creditor takes action by removing the
uncollectible account from its books even without the approval or participation of the
debtor.

Furthermore, write-off cannot be likened to a novation, since the obligations of both

parties have not been modified. When a write-off occurs, the actual worth of the asset
is reflected in the books of accounts of the creditor, but the legal relationship between
the creditor and the debtor still remains the same the debtor continues to be liable to
the creditor for the full extent of the unpaid debt.

FACTS:
 The Land Bank of the Philippines (Land Bank) was engaged in a cattle-financing program
wherein loans were granted to various cooperatives. Pursuant thereto, Land Banks Ipil,
Zamboanga del Sur Branch (Ipil Branch) went into a massive information campaign offering the
program to cooperatives.

Cooperatives who wish to avail of a loan under the program must fill up a Credit Facility
Proposal (CFP) which will be reviewed by the Ipil Branch.

One of the conditions stipulated in the CFP is that prior to the release of the loan, a
Memorandum of Agreement (MOA) between the supplier of the cattle, Remad Livestock
Corporation (REMAD), and the cooperative, shall have been signed providing the level of inventory
of stocks to be delivered, specifications as to breed, condition of health, age, color, and weight.
The MOA shall further provide for a buy-back agreement, technology, transfer, provisions
for biologics requirement and technical visits and replacement of sterile, unproductive
stocks. Allegedly contained in the contracts was a stipulation that the release of the loan shall be
made sixty (60) days prior to the delivery of the stocks.

The Ipil Branch approved the applications of four cooperatives.

R.T. Lim Rubber Marketing Cooperative (RT Lim RMC) and
Buluan Agrarian Reform Beneficiaries MPC (BARBEMCO) were each granted two loans.
Tungawan Paglaum Multi-Purpose Cooperative (Tungawan PFMPC) and Siay Farmers
Multi-Purpose Cooperative (SIFAMCO) were each granted one loan.

Three checks were issued by the Ipil Branch to REMAD to serve as advanced payment for
the cattle. REMAD, however, failed to supply the cattle on the dates agreed upon.

In post audit, the Land Bank Auditor disallowed the amount of P3,115,000.00 under CSB
No. 95-005 dated December 27, 1996 and Notices of disallowance Nos. 96-014 to 96-
019 in view of the non-delivery of the cattle.

ISSUES:

IS A WRITE OFF A VALID METHOD OF EXTINGUISHMENT OF A LOAN?

RULING:

The foregoing pronouncements notwithstanding, this Court rules that writing-off a loan
does not equate to a condonation or release of a debt by the creditor.
 1. As an accounting strategy, the use of write-off is a task that can help a company
maintain a more accurate inventory of the worth of its current assets. In general
banking practice, the write-off method is used when an account is determined to be
uncollectible and an uncollectible expense is recorded in the books of account. If in
the future, the debt appears to be collectible, as when the debtor becomes solvent,
then the books will be adjusted to reflect the amount to be collected as an asset. In
turn, income will be credited by the same amount of increase in the accounts
receivable.

2. Write-off is not one of the legal grounds for extinguishing an obligation under the Civil
Code. It is not a compromise of liability. Neither is it a condonation, since in
condonation gratuity on the part of the obligee and acceptance by the obligor are
required. In making the write-off, only the creditor takes action by removing the
uncollectible account from its books even without the approval or participation of the
debtor.

Furthermore, write-off cannot be likened to a novation, since the obligations of both

parties have not been modified. When a write-off occurs, the actual worth of the asset is
reflected in the books of accounts of the creditor, but the legal relationship between the
creditor and the debtor still remains the same the debtor continues to be liable to the
creditor for the full extent of the unpaid debt

XXVII.

CONTRIBUTOR: Cases, Deode Wynne L.

CASE TITLE: Royal Cargo Corporation, petitioner vs DFS Sports Unlimited, Inc., G. R. 158621,
December 10, 2008
PRINCIPLE/S:
Article 1169, par. 2, 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 at the rate of 6% per annum. No interest, however, shall be
adjudged on unliquidated claims or damages except when or until the demand can be
established with reasonable certainty. Accordingly, where the demand is established with
reasonable certainty, the interest shall begin to run from the time the claim is made
judicially or extrajudicially (Art. 1169, Civil Code) but when such certainty cannot be so
reasonably established at the time the demand is made, the interest shall begin to run
only from the date 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.

Article 2208 (2) of the Civil Code

 Attorney's fees may be recovered in cases where the defendant's act or omission
has compelled the plaintiff to litigate with third persons or to incur expenses to protect his
interest.

Article 2208 (5) of the Civil Code

Attorney's fees may also be recovered where the defendant acted in gross and
evident bad faith in refusing to satisfy the plaintiff's plainly valid, just and demandable
claim.

FACTS:

In October ,1993, DFS Sports Unlimited, the respondent, who is a concessionaire of the
Subic Bay Metropolitan Authority (SBMA) and principally engaged in the importation and local
sale of duty-free sporting goods and other similar products engaged the services of Royal Cargo
Corporation, the petitioner, which is an international freight forwarder who offers trucking,
brokerage, storage and other services to the public, and serves as conduit between shippers,
consignees, and carriers for the transportation of cargos from one point of the globe to another,
to attend and undertake the respondent’s brokerage and trucking requirements. Between April to
July, 1994 , the same petitioner rendered trucking, brokerage, storage and other services to the
respondent in connection with the latter's importation business, and as a consequence it incurred
expenses which amounted to the total of ₱ 248,449.63. It then demanded for the payment of the
said amount from the respondent which it failed and refused to pay claiming that they have
already paid their obligation as evidenced by the original invoices it presented which were
stamped on its face with the words PAID and AUDITED. Hence, the petitioner filed a complaint
for Collection of Sum of Money seeking to recover the amount of ₱ 248,449.63 plus legal interest
as well as attorney’s fees and costs of suit against the respondent.

ISSUE/S:
1. Whether or not respondent, who is the debtor, has the burden of proving payment
2. Whether or not the subject invoices prove such payment or at least raise a disputable
presumption that payment has been made
HELD:

1. YES. As to the first issue raised, the settled rule is that one who pleads payment has
the burden of proving it. Even where the creditor alleges non-payment, the general
rule is that the onus rests on the debtor to prove payment, rather than on the creditor to
prove non-payment. The debtor has the burden of showing with legal certainty that the
obligation has been discharged by payment. Where the debtor introduces some evidence
of payment, the burden of going forward with the evidence as distinct from the general
burden of proof shifts to the creditor, who is then under a duty of producing some
evidence to show non-payment. Since respondent claims that it had already paid petitioner
for the services rendered by the latter, it follows that the former carries the burden of
proving such payment.

2. NO. The Court rules in the negative. In Commissioner of Internal Revenue v. Manila Mining
Corporation, sales or commercial invoice is defined as a written account of goods sold or
services rendered indicating the prices charged therefor or a list by whatever name it is
known which is used in the ordinary course of business evidencing sale and transfer or
 agreement to sell or transfer goods and services. On the other hand, the same case
defines receipt as a written acknowledgment of the fact of payment in money or other
settlement between seller and buyer of goods, debtor or creditor, or person rendering
services, and client or customer. Black's Law Dictionary defines an invoice as an itemized
list of goods or services furnished by a seller to a buyer, usually specifying the price and
terms of a sale; a bill of costs. From the foregoing definitions, an invoice, in and by itself,
and as opposed to a receipt, may not be considered evidence of payment. In addition, it
does not mean that possession by a debtor of an invoice raises the presumption that it
has already paid its obligation. An invoice is simply a list sent to a purchaser, factor,
consignee, etc., containing the items, together with the prices and charges, of
merchandise sent or to be sent to him; a mere detailed statement of the nature, quantity
and cost or price of the things invoiced. Respondent's defense of payment is made more
untenable by its failure to present any supporting evidence, such as official receipts or the
testimony of its employee who actually paid or the one who had direct knowledge of the
payment allegedly made in petitioner's favor, to prove that it had indeed paid its
obligations to the latter. In the instant case, respondent's indebtedness to petitioner has
been established. However, respondent failed to meet its burden of proving
payment. Hence, judgment must be rendered in petitioner's favor.

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: ( Article
1169, Civil Code )

1. When an obligation is breached, and it consists in the payment of a sum of money, i.e.,
a loan or forbearance of money, the interest due should be that which may have been stipulated
in writing. Furthermore, the interest due shall itself earn legal interest from the time it is judicially
demanded. In the absence of stipulation, the rate of interest shall be 12% per annum to be
computed from default, i.e., from judicial or extrajudicial demand under and subject to the
provisions of Article 1169 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 at the
rate of 6% per annum. No interest, however, shall be adjudged on unliquidated claims or
damages except when or until the demand can be established with reasonable certainty.
Accordingly, where the demand is established with reasonable certainty, the interest shall begin
to run from the time the claim is made judicially or extrajudicially (Art. 1169, Civil Code) but when
such certainty cannot be so reasonably established at the time the demand is made, the interest
shall begin to run only from the date 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.

In the present case, respondent's obligation does not constitute a loan or forbearance of
money. Hence, the principal amount owed to petitioner shall earn interest of 6% per annum to
be computed from the time extrajudicial demand for payment was made on February 10,
1995 until finality of this decision. Thereafter, the amount due shall earn interest of 12% per
annum computed from such finality until the same is fully paid.

The award of attorney's fees depends on the circumstances of each case and lies within the
discretion of the court. They may be awarded when a party is compelled to litigate or to incur
expenses to protect its interest by reason of an unjustified act by the other party. In the instant
case, the Court finds that petitioner is entitled to attorney's fees. First, Article 2208
(2) of the Civil Code provides that attorney's fees may be recovered in cases where
the defendant's act or omission has compelled the plaintiff to litigate with third
persons or to incur expenses to protect his interest. Second, there is a stipulation in
the subject invoices allowing petitioner to recover attorney's fees in case it is
compelled to file an action to enforce collection. Third, Article 2208 (5) of the same
Code provides that attorney's fees may also be recovered where the defendant acted
in gross and evident bad faith in refusing to satisfy the plaintiff's plainly valid, just
and demandable claim. In the instant case, it is established that respondent's refusal to satisfy
petitioner's claim is unreasonable and is, in fact, without basis which compelled petitioner to
resort to the instant case to recover what is due it.

XXVIII.

CONTRIBUTOR: EDWARD L. REMO

CASE TITLE: Go tong Electrical Co. Vs. BPI Family Savings Bank
G.R. No. 187487, June 29, 2015

Principle: A surety is usually bound with his principal by the same instrument, executed at the
same time, and on the same consideration. As provided in Article 2047 of the Civil Code, "the
surety undertakes to be bound solidarity with the principal obligor”.

FACTS:

On October 4, 2002, respondent filed a complaint against petitioners Go Tong Electrical

Supply Co., Inc. (Go Tong Electrical) and its President, George C. Go (Go; collectively petitioners),
docketed as Civil Case No. 02-1203, seeking that the latter be held jointly and severally liable to
it for the payment of their loan obligation in the aggregate amount of P87,086,398.71, inclusive
of the principal sum, interests, and penalties as of May 28, 2002, as well as attorney's fees,
litigation expenses, and costs of suit.

The application for financial assistance was renewed on January 6, 1999 through a Credit
Agreement. Go Tong Electrical, represented by Go, among others, obtained a loan in the principal
amount of P40,491,051.65, for which Go Tong Electrical executed Promissory Note No. 82-91 -
00176-7 (PN) for the same amount in favor of the bank, maturing on February 5, 2000. Under
the PN's terms, Go Tong Electrical bound itself to pay a default penalty interest at the rate of one
percent (1%) per month in addition to the current interest rate, as well as attorney's fees
equivalent to twenty-five percent (25%) of the amount sought to be recovered. As additional
security, Go executed a Comprehensive Surety Agreement, (CSA) covering any and all obligations
undertaken by Go Tong Electrical, including the aforesaid loan.Upon default of petitioners, herein
respondent demanded payment from petitioners, but to no avail,hence, the aforesaid complaint.

By way of special and affirmative defenses, petitioners argued, among others that Go cannot be
held liable under the CSA since there was supposedly no solidarity of debtors.

ISSUES:
Whether or not a surety is bound with the principal and is solidarily liable

HELD:

Yes. The Court finds as untenable petitioners' theory on Go's supposed non-liability. As
established through the CSA, Go had clearly bound himself as a surety to Go Tong Electrical's
loan obligation. Thus, there is no question that Go's liability thereto is solidary with the former.
As provided in Article 2047 of the Civil Code, "the surety undertakes to be bound solidarity with
the principal obligor.” That undertaking makes a surety agreement an ancillary contract as it
presupposes the existence of a principal contract. Although the contract of a surety is in essence
secondary only to a valid principal obligation, the surety becomes liable for the debt or duty of
another although it possesses no direct or personal interest over the obligations nor does it
receive any benefit therefrom. Let it be stressed that notwithstanding the fact that the surety
contract is secondary to the principal obligation, the surety assumes liability as a regular party to
the undertaking, as Go in this case.

XXIX.

Contributor: Engrid M. Rebucas

Case Title: AURELIO P. ALONZO and TERESITA A. SISON, petitioners, vs. JAIME AND PERLITA
SAN JUAN, respondents [G.R. No. 137549. February 11, 2005]
Principle: Article 1374 of the Civil Code requires that the various stipulations of a contract shall
be interpreted together, attributing to the doubtful ones that sense which may result from all of
them taken jointly.

Facts:
Aurelio P. Alonzo and Teresita A. Sison (plaintiffs) filed a complaint for recovery of possession
against Jaime and Perlita San Juan over a parcel of land with an area of 125 square meters, more
or less. A Compromise Agreement was entered into and approved by the trial court.

The terms and conditions of the Compromise Agreement are quoted as follows:
1. The Spouses Jaime San Juan and Perlita San Juan as well as the Spouses Elbert and his
wife, Susan Y. Manalili have occupied and continue to occupy a portion consisting of one
 hundred twenty-five (125) square meters, more or less, of that parcel of land identified
as Lot 3, Block 11 of the consolidation and subdivision plan PCS-4682, located along M.
Agoncillo Street, Dona Rosario Heights, Nova Proper, Novaliches, Quezon City, which is
owned by and registered in the names of the plaintiffs under Transfer Certificate of Title
No. N-152153 issued by the Registry of Deeds for Quezon City;
2. Spouses Jaime and Perlita San Juan are occupying the front area, while Spouses Elbert
and Susan Manalili are occupying the rear area of the aforesaid 125 square meters’ portion
of Plaintiffs parcel of land;
3. Said parties have occupied said portion of the Plaintiffs parcel of land without the
knowledge or consent of the Plaintiffs;
4. By way of amicably settling the dispute in the instant case, the said parties have offered
to purchase the said portion of Plaintiffs parcel of land being occupied by them, to which
the Plaintiffs had acceded, under the following terms and conditions:
a. The purchase price for the said portion consisting of one hundred twenty-five (125)
square meters, more [or] less, shall be Two Hundred Thirty-Five Thousand Two
Hundred Ninety-Four Pesos (P235,294.00), Philippine Currency;
5. The aforesaid purchase price shall be paid in the following manner:
a. The sum of P44,117.65, Philippine Currency, upon the signing of this Agreement;
b. The sum of P44,117.65, Philippine Currency, on or before May 31, 1997;
c. The sum of P29,411.75, Philippine Currency, on or before June 30, 1997;
d. The sum of P58,823.50, Philippine Currency, on or before July 31, 1997;
e. The sum of P58,823.50, Philippine Currency, on or before August 31, 1997.
6. Upon full payment of the said purchase price, the herein Plaintiffs shall execute in favor
of the Spouses Elbert Manalili and Susan Manalili a Deed of Absolute Sale over the
aforementioned portion subject of the instant Agreement;
7. The said Spouses Elbert Manalili and Susan Manalili shall take care of all expenses and
taxes corresponding to the said transaction, such as the capital gains tax, documentary
stamps tax, notarial fees, registration fees and other expenses of the said Deed of
Absolute Sale, the registration thereof with the Registry of Deeds and the issuance of a
new certificate of title in favor of said spouses, as well [as] the expenses for the relocation
and subdivision survey of the said parcel of land and the real estate taxes due on the said
property starting the year 1997;
8. It is agreed that the title to the said portion of Plaintiffs parcels of land shall remain with
the Plaintiffs and shall pass to and be transferred to the Spouses Elbert Manalili and Susan
Manalili only upon complete payment of the full purchase price agreed upon;
9. Before the purchase price shall have been paid in full, said Spouses Elbert Manalili and
Susan Manalili hereby agree not to alienate, encumber, assign or otherwise dispose in any
manner of their rights under this Agreement without the prior written consent of the
Plaintiffs;
10. Should any two (2) of the subsequent amounts be not paid on the date fixed in the
foregoing schedule, then this Agreement shall be considered as automatically and without
any further formality null and void and the amount of P44,117.65 initially paid hereunder
shall be considered as penalty as well as rentals and forfeited in favor of the Plaintiffs;
11. In the event of such non-payment, herein Defendants Jaime and Perlita San Juan and
Spouses Elbert Manalili and Susan Manalili hereby agree to vacate and surrender the
possession of said portion of the parcel of land being occupied by them within thirty (30)
days upon demand by the Plaintiffs;
 12. Should any of said parties fail and/or refuse to vacate and surrender the said parcel of
land being occupied by them to the Plaintiffs, the latter shall be entitled to obtain
immediately from this Honorable Court the corresponding writ of execution for the
ejectment of the said party or parties, or other persons occupying said property for and
on their behalf or upon their authority from the said property in question.

However, as alleged in the complaint, the defendants failed to abide by the provisions of the
Compromise Agreement by their failure to pay the amounts due thereon, plaintiffs sent a letter
demanding that the defendants vacate the premises. Plaintiffs subsequently filed an Amended
Motion for Execution.

The trial court denied said Amended Motion for Execution for the reason that in the said
Compromise Agreement, it was expressly stipulated that should any two of the installments of
the purchase price be not paid by the defendants, the said agreement shall be considered null
and void. Since the plaintiffs expressly admitted in their amended motion for execution that the
defendants failed to pay the installments for July 31, 1997 and August 31, 1997 on their due
dates; hence, the Compromise Agreement submitted by the parties became null and void. The
Court, therefore, has no basis to direct the issuance of a writ of execution.

Hence the instant petition.

Issue:
Whether or not the trial court erred in the interpretation of the Compromise Agreement.

Ruling:
In this case, it was error on the part of the trial court to have interpreted the compromise
agreement in the manner it has done so.

Compromise agreements are contracts, whereby the parties undertake reciprocal obligations to
resolve their differences thus avoiding litigation, or put an end to one already commenced.

It is a cardinal rule in contract interpretation that the ascertainment of the intention of the
contracting parties is to be discharged by looking to the words they used to project that intention
in their contract, that is, all the words, not just a particular word or two, and words in context,
not words standing alone.

Article 1374 of the Civil Code requires that the various stipulations of a contract shall
be interpreted together, attributing to the doubtful ones that sense which may result
from all of them taken jointly.

Applying the rule that the various stipulations of a contract should be taken together, the trial
court should have interpreted paragraph 10, in relation to paragraphs 11 and 12. If we were to
follow the interpretation of the trial court, the respondents would only have to default in the
payment of their obligation and the contract would be rendered null and void to their benefit and
advantage leaving the petitioners without any recourse at all. This surely was not what was
envisioned when the parties entered into the compromise. The Court itself would not have
approved the same for being contrary to law, morals and public policy. Certainly, to sustain the
interpretation of the trial court would be to sanction an absurdity as it would go against the very
rationale of entering into a Compromise Agreement, i.e., to put an end to litigation. If we were
to follow the argument of the trial court to its logical conclusion, then it would mean that the
parties would have to go back to square one and re-litigate what they had already put to rest
when they entered into the subject Compromise Agreement.

This is a good time as any to re-echo the fact that reciprocal concessions are the very heart and
life of every compromise agreement. By the nature of a compromise agreement, it brings the
parties to agree to something which neither of them may actually want, but for the peace it will
bring them without a protracted litigation. Essentially, the parties to it have to bend a little or else
break in the process. In Raneses v. Teves, it was stated it is the trial courts duty to examine and
study the compromise agreement with utmost attention and caution and to assure itself that the
stipulations thereof are valid and proper so as to avoid misunderstanding and controversies. A
casual or superficial perusal of the compromise agreement should be eschewed. A watchful fidelity
to this doctrinal yardstick has always been enjoined to arrive at a peaceful settlement of a mired
justiciable issue.

In the same vein, the principle of autonomy of contracts must be respected. Respondents contract
with the petitioners have the force of law between them. Respondents are thus bound to fulfill
what has been expressly stipulated therein. Items 11 and 12 of the Compromise Agreement
provided, in clear terms, that in case of failure to pay on the part of the respondents, they shall
vacate and surrender possession of the land that they are occupying and the petitioners shall be
entitled to obtain immediately from the trial court the corresponding writ of execution for the
ejectment of the respondents. This provision must be upheld, because the Agreement supplanted
the Complaint itself. When the parties entered into a Compromise Agreement, the original action
for recovery of possession was set aside and the action was changed to a monetary obligation.
Once approved judicially, the Compromise Agreement cannot and must not be disturbed except
for vices of consent or forgery.

Courts do not have the power to relieve parties of obligations voluntarily assumed.

For failure of the respondents to abide by the judicial compromise, petitioners are vested with
the absolute right under the law and the agreement to enforce it by asking for the issuance of
the writ of execution. Doctrinally, a Compromise Agreement is immediately final and executory.
Petitioners course of action, asking for the issuance of a writ of execution was in accordance with
the very stipulation in the agreement that the lower court could not change.

XXX.
CONTRIBUTOR: Edeline Cosicol
CASE TITLE: Multi-International Business Data System, Inc. V Martinez [G.R. No. 175378,
November 11, 2015]
Principle: One who pleads payment has the burden of proving it. Even where the creditor alleges
non-payment, the general rule is that the debtor has the burden to prove payment, rather than
the creditor. The debtor has the burden of showing with legal certainty that the obligation has
been discharged by payment.
Facts: Ruel was the Operations Manager of Petitioner company. Ruel was granted a car loan by
petitioner. Both parties agreed that such loan would be payable through deductions from
respondent’s bonuses or commissions, and if Ruel would be terminated for any cause before the
end of the term of the loan obligation, the unpaid balance would be immediately due and
demandable without need of demand. Years later, petitioner terminated Ruel for cause and
demanded payment of the outstanding loan. Despite repeated demands, Ruel failed to pay the
outstanding balance. Petitioner filed a collection suit. Ruel alleged that he has already paid his
loan through deductions made from his compensation and salaries and presented a certification
issued by the petitioner’s president stating that the respondent has already paid P337,650.00 of
the loan.

Issue: Did Ruel fulfill his obligation with petitioner and should the certification be admitted as
basis for Ruel’s payment of the loan?

Held: No. It is established that the one who pleads payment has the burden of proving it. Even
where the creditor alleges non-payment, the general rule is that the debtor has the burden to
prove payment, rather than the creditor. The debtor has the burden of showing with legal
certainty that the obligation has been discharged by payment. Where the debtor introduces some
evidence of payment, the burden of going forward with the evidence — as distinct from the
general burden of proof — shifts to the creditor, who is then under a duty of producing some
evidence to show non-payment.

It has been established that Ruel obtained a car loan from petitioner. Thus, the burden is
now on Ruel to prove that the obligation has already been extinguished by payment. Although
not exclusive, a receipt of payment is the best evidence of the fact of payment. The fact of
payment may be established not only by documentary evidence but also by parol evidence.

Except for Ruel’s bare allegations that he has fully paid the P648,288.00 car loan, there is
nothing in the records which shows that full payment has indeed been made. Ruel did not present
any receipt other than the certification which only proves that Ruel has already paid P337,650.00
of the car loan. A balance of P310,638.00 still remained.

XXXI.

CONTRIBUTOR: TOMARONG, JESSEL O.

CASE TITLE: Desamparados M. Soliva vs. The Intestate Estate of Marcelo M. Villalba, et. al
G.R. No. 154017 December 08, 2003
PRINCIPLES: Under Article 1318 of the Civil Code, the following are the essential requisites of
a valid contract: 1) the consent of the contracting parties, 2) the object certain which is the
subject matter of the contract, and 3) the cause of the obligation which is established. When all
the essential requisites are present, a contract is obligatory in whatever form it may have been
entered into, save in cases where the law requires that it be in a specific form to be valid and
enforceable.
The following are the essential elements of laches: (1) Conduct on the part of the
defendant that gave rise to the situation complained of; or the conduct of another which the
defendant claims gave rise to the same; (2) Delay by the complainant in asserting his right after
he has had knowledge of the defendants conduct and after he has had an opportunity to sue; (3)
Lack of knowledge by or notice to the defendant that the complainant will assert the right on
which he bases his suit; and (4) Injury or prejudice to the defendant in the event relief is accorded
to the complainant.

Facts:
On May 5, 1982, Petitioner filed a complaint for recovery of ownership, possession and
damages against respondent alleging that she is the owner of the subject parcel of land; that on
January 4, 1966, the late Capt. Marcelo Villalba asked her permission to occupy her house on said
land, promised to buy the house and lot upon receipt of his money from Manila and gave her
P600.00 for the occupation of the house; that Capt. Villalba died in 1978 without having paid the
consideration for the house and lot; and that after the death of Capt. Villalba, his widow,
respondent, refused to vacate the house and lot despite demands, destroyed the house thereon
and constructed a new one.

Respondent has a meritorious defense as her late husband had already paid the amount
of P2,250.00 out of the purchase price of P3,500.00 for the house and lot.

Petitioner further contends that the oral contract of sale between the parties was invalid,
because the late Captain Marcelo Villalba and his wife had failed to comply with their obligation
to pay in full the purchase price of the house and lot.

The CA held that laches had already set in. The inaction of petitioner for almost 16 years
had barred her action to recover the disputed property from the Villalbas.The appellate court
found that 1) until the death of Marcelo Villalba in 1978, his payment of the full purchase price
of the disputed house and lot was never demanded; 2) no evidence was presented to show when
petitioner had made a verbal demand on Valenta Villalba to vacate the premises; and 3) the
complaint for recovery of ownership and possession was filed only on May 5, 1982 -- 16 years
after the formers cause of action had accrued.

Hence, this Petition.

Issues:
Whether or not there is a valid contract of sale.
Whether petitioner is barred from recovering the disputed property.

Held:
1. Yes.
Under Article 1318 of the Civil Code, the following are the essential requisites of a valid
contract: 1) the consent of the contracting parties, 2) the object certain which is the subject
matter of the contract, and 3) the cause of the obligation which is established. When all the
essential requisites are present, a contract is obligatory in whatever form it may have been
entered into, save in cases where the law requires that it be in a specific form to be valid and
enforceable.

With respect to real property, Article 1358(1) of the Civil Code specifically requires that a
contract of sale thereof be in a public document. However, an otherwise unenforceable oral
contract of sale of realty under Article 1403(2) of the Civil Code may be ratified by the failure to
object to the presentation of oral evidence to prove it or by the acceptance of benefits granted
by it.
All the essential elements of a valid contract are present in this case. No issue was raised
by petitioner on this point. Moreover, while the contract between the parties might have been
unenforceable under Article 1403(2) of the Civil Code, the admission by petitioner that she had
accepted payments under the oral contract of sale took the case out of the scope of the Statute
of Frauds. The ratification of the contract rendered it valid and enforceable.

Furthermore, contrary to petitioners submission, the nonpayment of the full consideration

did not invalidate the contract of sale. Under settled doctrine, nonpayment is a resolutory
condition that extinguishes the transaction existing for a time and discharges the obligations
created thereunder. The remedy of the unpaid seller is to sue for collection or, in case of a
substantial breach, to rescind the contract.

2. Yes.
In general, laches is the failure or neglect, for an unreasonable and unexplained length of
time, to do that which -- by the exercise of due diligence -- could or should have been done
earlier. It is the negligence or omission to assert a right within a reasonable period, warranting
the presumption that the party entitled to assert it has either abandoned or declined to assert it.

Under this time-honored doctrine, relief has been denied to litigants who, by sleeping on
their rights for an unreasonable length of time -- either by negligence, folly or inattention -- have
allowed their claims to become stale. Vigilantibus, sed non dormientibus, jura subveniunt. The
laws aid the vigilant, not those who slumber on their rights.

The following are the essential elements of laches:

(1) Conduct on the part of the defendant that gave rise to the situation complained of; or
the conduct of another which the defendant claims gave rise to the same;
(2) Delay by the complainant in asserting his right after he has had knowledge of the
defendants conduct and after he has had an opportunity to sue;
(3) Lack of knowledge by or notice to the defendant that the complainant will assert the
right on which he bases his suit; and
(4) Injury or prejudice to the defendant in the event relief is accorded to the complainant.

Nonetheless, petitioner failed to sue for collection or rescission. Due to insufficiency of

evidence, the lower courts brushed aside her assertions that she had availed herself of
extrajudicial remedies to collect the balance or to serve an extrajudicial demand on Villalba, prior
to her legal action in 1982. Meanwhile, respondent had spent a considerable sum in renovating
the house and introducing improvements on the premises.

In view thereof, the appellate court aptly ruled that petitioners claim was already barred
by laches. It has been consistently held that laches does not concern itself with the character of
the defendant’s title, but only with the issue of whether or not the plaintiff -- by reason of long
inaction or inexcusable neglect -- should be barred entirely from asserting the claim, because to
allow such action would be inequitable and unjust to the defendant.

Likewise, it must be stressed that unlike prescription, laches is not concerned merely with
the fact of delay, but even more with the effect of unreasonable delay.

XXXII.

CONTRIBUTOR: BORCES, JO DAVID Z.

CASE TITLE: International Hotel Corporation v. Francisco B. Joaquin Jr and Rafael Suarez, GR
No. 158361, April 10, 2013.

PRINCIPLE:
(1) Obligations – Suspensive Condition: Article 1186 of the NCC refers to the constructive
fulfilment of a suspensive condition, whose application calls for two requisites, namely:
(a) the intent of the obligor to prevent the fulfilment of the condition, and (b) the actual
prevention of the fulfilment.
(2) Breach of Contract: It is well to note that Article 1234 applies only when an obligor
admits breaching the contract after honestly and faithfully performing all the material
elements thereof except for some technical aspects that cause no serious harm to the
obligee.
(3) Quantum Meruit: Considering the absence of an agreement, and in view of
respondents’ constructive fulfilment of their obligation, the Court has to apply the principle
of quantum meruit in determining how much was still due and owing to respondents.
Under the principle of quantum meruit, a contractor is allowed to recover the reasonable
value of the services rendered despite the lack of a written contract.

FACTS:

On February 1, 1969, respondent Francisco B. Joaquin, Jr. submitted a proposal to International

Hotel Corporation (IHC) for him to render technical assistance in securing a foreign loan for the
construction of a hotel, to be guaranteed DBP. Of the nine phases, the IHC Board of Directors
approved phase one to phase six of the proposal. IHC applied for and was granted a foreign loan
guaranty with DBP.

On July 11, 1969, Joaquin requested IHC for the payment of his fees. Due to IHC’s financial
situation, Joaquin was amenable that he paid in shares of stock instead of cash. IHC agreed.

Joaquin commenced negotiations with a prospective financier, Materials Handling Corp. and
thereafter, with its principal, Barnes International. While negotiations were ongoing with Barnes,
Joaquin and Jose Valero, the Executive Director of IHC, met with another financier, Weston
International Corp. to explore possible financing. Barnes failed to deliver the needed loan. When
IHC informed DBP that it would submit Weston for DBP’s consideration, DBP cancelled its previous
guaranty.

Due to Joaquin’s failure to secure the needed loan, IHC, through its President Bautista, canceled
the 17,000 shares of stock previously issued to Joaquin and Suarez as payment for their services.
The latter requested a reconsideration of the cancellation, but their request was rejected.

Consequently, Joaquin and Suarez commenced this action for specific performance, annulment,
damages against IHC and the members of its BOD. IHC lost.

ISSUES:

1. Was there “constructive fulfillment” in this case?

No. IHC’s argument is meritorious.

Article 1186 of the Civil Code reads:

Article 1186. The condition shall be deemed fulfilled when the obligor voluntarily prevents its
fulfillment.

This provision refers to the constructive fulfillment of a suspensive condition,32 whose application
calls for two requisites, namely: (a) the intent of the obligor to prevent the fulfillment of the
condition, and (b) the actual prevention of the fulfillment. Mere intention of the debtor to prevent
the happening of the condition, or to place ineffective obstacles to its compliance, without actually
preventing the fulfillment, is insufficient.

In this case, Evidently, IHC only relied on the opinion of its consultant in deciding to transact with
Materials Handling and, later on, with Barnes. In negotiating with Barnes, IHC had no intention,
willful or otherwise, to prevent Joaquin and Suarez from meeting their undertaking. Such absence
of any intention negated the basis for the CA’s reliance on Article 1186 of the Civil Code.

Issue 2: Should Joaquin be paid for substantially performing his obligations?

No. Under Article 1234. If the obligation has been substantially performed in good faith, the
obligor may recover as though there had been a strict and complete fulfillment, less damages
suffered by the obligee.
In order that there may be substantial performance of an obligation,1. there must have been an
attempt in good faith to perform, without any willful or intentional departure therefrom. 2. The
deviation from the obligation must be slight, and the 3. omission or defect must be technical and
unimportant, and must not pervade the whole or be so material that the object which the parties
intended to accomplish in a particular manner is not attained. The non-performance of a material
part of a contract will prevent the performance from amounting to a substantial compliance.

Here, finding the foreign financier that DBP would guarantee was the essence of the parties’
contract, so that the failure to completely satisfy such obligation could not be characterized as
slight and unimportant as to have resulted in Joaquin and Suarez’s substantial performance that
consequentially benefitted IHC. Whatever benefits IHC gained from their services could only be
minimal, and were even probably outweighed by whatever losses IHC suffered from the delayed
construction of its hotel. Consequently, Article 1234 did not apply.

Issue 3: WON there is still constructive fulfillment (on the part of the debtor)?

Yes. IHC is nonetheless liable to pay under the rule on constructive fulfillment of a mixed
conditional obligation

Notwithstanding the inapplicability of Article 1186 and Article 1234 of the Civil Code, IHC was
liable based on the nature of the obligation.

Considering that the agreement between the parties was not circumscribed by a definite period,
its termination was subject to a condition – the happening of a future and uncertain event. The
prevailing rule in conditional obligations is that the acquisition of rights, as well as the
extinguishment or loss of those already acquired, shall depend upon the happening of the event
that constitutes the condition.

To secure a DBP-guaranteed foreign loan did not solely depend on the diligence or the sole will
of the respondents because it required the action and discretion of third persons – an able and
willing foreign financial institution to provide the needed funds, and the DBP Board of Governors
to guarantee the loan. Such third persons could not be legally compelled to act in a manner
favorable to IHC. There is no question that when the fulfillment of a condition is dependent partly
on the will of one of the contracting parties, or of the obligor, and partly on chance, hazard or
the will of a third person, the obligation is mixed. The existing rule in a mixed conditional
obligation is that when the condition was not fulfilled but the obligor did all in his power to comply
with the obligation, the condition should be deemed satisfied.

Considering that the respondents were able to secure an agreement with Weston, and
subsequently tried to reverse the prior cancellation of the guaranty by DBP, we rule that they
thereby constructively fulfilled their obligation.
Issue 4. How much should IHC pay Joaquin?

Quantum meruit should apply in the absence of an express agreement on the fees

It is notable that the confusion on the amounts of compensation arose from the parties’ inability
to agree on the fees that respondents should receive. Considering the absence of an agreement,
and in view of respondents’ constructive fulfillment of their obligation, the Court has to apply the
principle of quantum meruit in determining how much was still due and owing to respondents.
Under the principle of quantum meruit, a contractor is allowed to recover the reasonable value
of the services rendered despite the lack of a written contract. The measure of recovery under
the principle should relate to the reasonable value of the services performed. The principle
prevents undue enrichment based on the equitable postulate that it is unjust for a person to
retain any benefit without paying for it. Being predicated on equity, the principle should only be
applied if no express contract was entered into, and no specific statutory provision was applicable.

Under the established circumstances, we deem the total amount of P200,000.00 to be reasonable
compensation for respondents’ services under the principle of quantum meruit.

XXXIII.

CONTRIBUTOR: NAVARRO, JON KRISTOFFER L.

CASE TITLE: ALEJANDRO V. TANKEH, Petitioner, vs. DEVELOPMENT BANK OF THE
PHILIPPINES, STERLING SHIPPING LINES, INC., RUPERTO V. TANKEH, VICENTE ARENAS, and
ASSET PRIVATIZATION TRUST, Respondents., G.R. No. 171428, November 11, 2013
PRINCIPLE:
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.
Article 1340 of the Civil Code recognizes the reality of some exaggerations in trade which
negates fraud. It reads: “The usual exaggerations in trade, when the other party had an
opportunity to know the facts, are not in themselves fraudulent.”
Neither law nor jurisprudence distinguishes whether it is dolo incidente or dolo causante
that must be proven by clear and convincing evidence. It stands to reason that both dolo
incidente and dolo causante must be proven by clear and convincing evidence.
The effects of dolo causante are the nullity of the contract and the indemnification of
damages, and dolo incidente also obliges the person employing it to pay damages.

FACTS:
Respondent Ruperto V. Tankeh is the president of Sterling Shipping Lines, Inc. Ruperto V. Tankeh
applied for a $3.5 million loan from public respondent Development Bank of the Philippines for
the partial financing of an ocean-going vessel named the M/V Golden Lilac. To authorize the loan,
Development Bank of the Philippines required that the following conditions be met: 1) A first
mortgage must be obtained over the vessel, which by then had been renamed the M/V Sterling
Ace; 2) Ruperto V. Tankeh, petitioner Dr. Alejandro V. Tankeh, Jose Marie Vargas, as well as
respondents Sterling Shipping Lines, Inc. and Vicente Arenas should become liable jointly and
severally for the amount of the loan; 3) The future earnings of the mortgaged vessel, including
proceeds of Charter and Shipping Contracts, should be assigned to Development Bank of the
Philippines.
According to petitioner Dr. Alejandro V. Tankeh, Ruperto V. Tankeh approached him sometime in
1980. Ruperto informed petitioner that he was operating a new shipping line business. Petitioner
claimed that respondent, who is also petitioner’s younger brother, had told him that petitioner
would be given one thousand (1,000) shares to be a director of the business. The shares were
worth ₱1,000,000.00. On May 12, 1981, petitioner then signed the promissory note. The loan
was approved by respondent Development Bank of the Philippines on March 18, 1981. The vessel
was acquired on September 29, 1981 for $5.3 million.
On June 16, 1983, petitioner wrote a letter to respondent Ruperto V. Tankeh saying that he was
severing all ties and terminating his involvement with Sterling Shipping Lines, Inc. He required
that its board of directors pass a resolution releasing him from all liabilities, particularly the loan
contract with Development Bank of the Philippines.
On January 29, 1987, the M/V Sterling Ace was sold in Singapore for $350,000.00 by Development
Bank of the Philippines. When petitioner came to know of the sale, he wrote respondent
Development Bank of the Philippines to express that the final price was inadequate, and therefore,
the transaction was irregular. At this time, petitioner was still bound as a debtor because of the
promissory note dated May 12, 1981, which petitioner signed in December of 1981. The
promissory note subsisted despite Sterling Shipping Lines, Inc.’s assignment of all future earnings
of the mortgaged M/V Sterling Ace to Development Bank of the Philippines.
Petitioner filed several Complaints against respondents, praying that the promissory note be
declared null and void and that he be absolved from any liability from the mortgage of the vessel
and the note in question.
In the Complaints, petitioner alleged that respondent Ruperto V. Tankeh, together with Vicente
L. Arenas, Jr. and Jose Maria Vargas, had exercised deceit and fraud in causing petitioner to bind
himself jointly and severally to pay respondent Development Bank of the Philippines the amount
of the mortgage loan. Although he had been made a stockholder and director of the respondent
corporation Sterling Shipping Lines, Inc., petitioner alleged that he had never invested any
amount in the corporation and that he had never been an actual member of the board of directors.
He claimed that he only attended one meeting of the board and that he had never been notified
of another meeting of the board of directors.
Petitioner further claimed that he had been excluded deliberately from participating in the affairs
of the corporation and had never been compensated by Sterling Shipping Lines, Inc. as a director
and stockholder. Ruperto V. Tankeh had promised him that he would become part of the
administration staff and oversee company operations. Respondent Ruperto V. Tankeh had also
promised petitioner that the latter’s son would be given a position in the company. However, after
being designated as vice president, petitioner had not been made an officer and had been
alienated from taking part in the respondent corporation.
Petitioner also alleged that respondent Development Bank of the Philippines had been inexcusably
negligent in the performance of its duties. He alleged that Development Bank of the Philippines
must have been fully aware of Sterling Shipping Lines, Inc.’s financial situation. Petitioner further
alleged that the Development Bank of the Philippines had allowed "highly questionable acts" to
take place, including the gross undervaluing of the M/V Sterling Aces.

ISSUE: Whether or not respondent Rupert V. Tankeh committed fraud against the petitioner.
RULING: Yes. 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. Respondent Rupert V. Tankeh committed
incidental fraud.
There are two types of fraud contemplated in the performance of contracts: dolo incidente or
incidental fraud and dolo causante or fraud serious enough to render a contract voidable.
An assessment of the allegations in the pleadings and the findings of fact of both the trial court
and appellate court based on the evidence on record led to the conclusion that there had been
no dolo causante committed against the petitioner by Ruperto V. Tankeh. The petitioner had
given his consent to become a shareholder of the company without contributing a single peso to
pay for the shares of stock given to him by Ruperto V. Tankeh. Petitioner admitted that "he had
never invested any amount in said corporation and that he had never been an actual member of
said corporation. This fact alone should have already alerted petitioner to the gravity of the
obligation that he would be undertaking as a member of the board of directors and the attendant
circumstances that this undertaking would entail. It also does not add any evidentiary weight to
strengthen petitioner’s claim of fraud. If anything, it only strengthens the position that petitioner’s
consent was not obtained through insidious words or deceitful machinations.
Article 1340 of the Civil Code recognizes the reality of some exaggerations in trade which negates
fraud. It reads: “The usual exaggerations in trade, when the other party had an opportunity to
know the facts, are not in themselves fraudulent.”
Given the standing and stature of the petitioner, he was in a position to ascertain more
information about the contract.
In Geraldez v. Court of Appeals, this Court held that: This fraud or dolo which is present or
employed at the time of birth or perfection of a contract may either be dolo causante or dolo
incidente. The first, or causal fraud referred to in Article 1338, are those deceptions or
misrepresentations of a serious character employed by one party and without which the other
party would not have entered into the contract. Dolo incidente, or incidental fraud which is
referred to in Article 1344, are those which are not serious in character and without which the
other party would still have entered into the contract. The effects of dolo causante are the nullity
of the contract and the indemnification of damages, and dolo incidente also obliges the person
employing it to pay damages.
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. Second, this fraud must be proven by clear and convincing evidence.
Neither law nor jurisprudence distinguishes whether it is dolo incidente or dolo causante that
must be proven by clear and convincing evidence. It stands to reason that both dolo incidente
and dolo causante must be proven by clear and convincing evidence.
 XXXIV.

CONTRIBUTOR: ESTOQUE, JULIUS JEFFERSON S.

CASE TITLE: Pagsibigan v. CA PILAR PAGSIBIGAN, petitioner, vs. COURT OF
APPEALS and PLANTERS DEVELOPMENT BANK, respondents.
G.R. No. 90169, April 7, 1993.
PRINCIPLE:
Article 1234. If the obligation has been substantially performed in good faith, the obligor
may recover as though there had been a strict and complete fulfillment, less damages
suffered by the obligee.
Article 1235: when the creditor accepts performance, knowing its incompleteness and
irregularity without protest or objection, the obligation is deemed complied with

FACTS:

On November 3, 1976, Petitioner Pilar Pagsigiban obtained a loan from Respondent Planters
Development Bank ("Bank") for P4,500.00, secured by a mortgage over a parcel of land. The
Promissory Note for the said loan stipulated for the first payment to be made on May 3, 1977 and
payments every six months thereafter at P1,018.14 with 19% interest for unpaid amortizations.
It also contained an acceleration clause. Initial payment was made in July 6, 1977, followed by
several payments in the total amount of P11,900.00. However, only four of these payments were
applied to the loan, while the rest were "temporarily lodged to accounts payable since the account
was already past due". In 1984, the property was foreclosed extrajudicially upon Petition by the
bank for failure to pay an outstanding balance of P29,554.81. This resulted in the property being
sold to the bank for P8,163.00, and later claimed a deficiency of P21,391.81. Petitioner filed an
action for annulment of sale by Petitioner, which the lower court granted. However, it was
overturned by CA.

ISSUE: Whether or not the auction sale is valid.

RULING:

No. The respondent bank had the right to foreclose the mortgage upon the first default of
petitioner on May 3, 1977, but it did not. When it received payment of petitioner on July 6, 1977,
the respondent bank had clearly waived its right under the acceleration clause since instead of
claiming penalty charges on the entire amount of P4,500.00, it only computed the penalty based
on the defaulted amortization payment which is P1,018.14. Further, for more than four years, the
bank made petitioner believe that it was applying her payment on the loan and interest. It is now
bound by estoppel to apply the payments to petitioner's debt and from foreclosing the property.
Accordingly, the legality of the foreclosure cannot be sustained because of substantial
performance on the part of petitioner (Article 1234. If the obligation has been substantially
performed in good faith, the obligor may recover as though there had been a strict and complete
fulfillment, less damages suffered by the obligee.) and acceptance of payment by the bank (Article
1235: when the creditor accepts performance, knowing its incompleteness and irregularity
without protest or objection, the obligation is deemed complied with).
 XXXV.

Contributor: Michelle Corbie V. Laurente

Case Title: MANILA INTERNATIONAL AIRPORT AUTHORITY,

Petitioner, versus AVIA FILIPINAS INTERNATIONAL, INC., Respondent.

G.R. No. 180168

Principle: Article 1235 of the Civil Code clearly states that when the obligee accepts the
performance knowing its incompleteness or irregularity, and without expressing any protest or
objection, the obligation is deemed fully complied with. For failing to make any protest or objection,
petitioner is already estopped from seeking recovery of the amount claimed.

Article 22 of the same Code also states that every person who through an act of performance by
another, or any other means, acquires or comes into possession of something at the expense of
the latter without just or legal ground, shall return the same to him. In accordance with
jurisprudence, there is unjust enrichment when a person unjustly retains a benefit to the loss of
another, or when a person retains money or property of another against the fundamental
principles of justice, equity and good conscience. The principle of unjust enrichment essentially
contemplates payment when there is no duty to pay, and the person who receives the payment
has no right to receive it.
Facts:

Before the Court is a petition for review on certiorari under Rule 45 of the Rules of Court, seeking
the reversal and setting aside of the June 19, 2007 Decision1 and the October 11, 2007 Resolution2
of the Court of Appeals (CA) in CA-G.R. CV No. 79325. The assailed CA Decision affirmed with
modification the Decision3 dated March 21, 2003 of the Regional Trial Court (RTC) of Quezon
City, Branch 224, in Civil Case No. Q-98-34395, while the CA Resolution denied petitioner's Motion
for Reconsideration.

In September 1990, herein petitioner Manila International Airport Authority (MIAA) entered into
a contract of lease with herein respondent Avia Filipinas International Corporation (AFIC), wherein
MIAA allowed AFIC to use specific portions of land as well as facilities within the Ninoy Aquino
International Airport exclusively for the latter's aircraft repair station and chartering operations.
The contract was for one (1) year, beginning September 1, 1990 until August 31, 1991, with a
monthly rental of P6,580.00.

In December 1990, MIAA issued Administrative Order No. 1, Series of 1990, which revised the
rates of dues, charges, fees or assessments for the use of its properties, facilities and services
within the airport complex. The Administrative Order was made effective on December 1, 1990.
As a consequence, the monthly rentals due from AFIC was increased to P15,996.50. Nonetheless,
MIAA did not require AFIC to pay the new rental fee. Thus, it continued to pay the original fee of
P6,580.00.
After the expiration of the contract, AFIC continued to use and occupy the leased premises
giving rise to an implied lease contract on a monthly basis. AFIC kept on paying the original
rental fee without protest on the part of MIAA.

Three years after the expiration of the original contract of lease, MIAA informed AFIC, through
a billing statement dated October 6, 1994, that the monthly rental over the subject premises
was increased to P15,966.50 beginning September 1, 1991, which is the date immediately
following the expiration of the original contract of lease. MIAA sought recovery of the difference
between the increased rental rate and the original rental fee amounting to a total of
P347,300.50 covering thirty-seven (37) months between September 1, 1991 and September 31,
1994. Beginning October 1994, AFIC paid the increased rental fee. However, it refused to pay
the lump sum of P347,300.50 sought to be recovered by MIAA. For the continued refusal of
AFIC to pay the said lump sum, its employees were denied access to the leased premises from
July 1, 1997 until March 11, 1998. This, notwithstanding, AFIC continued paying its rentals.
Subsequently, AFIC was granted temporary access to the leased premises.

AFIC then filed with the RTC of Quezon City a Complaint for damages with injunction against
MIAA and its General Manager seeking uninterrupted access to the leased premises, recovery of
actual and exemplary damages, refund of its monthly rentals with interest at the time that it was
denied access to the area being rented as well as attorney's fees.

In its Answer with Counterclaim, MIAA contended that under its lease contract with AFIC, MIAA
is allowed to either increase or decrease the monthly rental; AFIC has rental arrears in the amount
of P347,300.50; AFIC was wrong in claiming that MIAA took the law into its own hands in denying
AFIC and its employees access to the leased premises, because under the lease contract, in case
of failure on the part of AFIC to pay rentals for at least two (2) months, the contract shall become
automatically terminated and canceled without need of judicial action or process and it shall be
lawful for MIAA or any person or persons duly authorized on its behalf to take possession of the
property either by padlocking the premises or posting its guards to prevent the entry of any
person. MIAA prayed for the award of exemplary damages as well as attorney's fees and litigation
expenses.

The RTC rendered its Decision in favor of the plaintiff (AFIC) and as against defendants (MIAA)
ordering the defendants to pay damages, attorney’s fees and refund of the monthly payments
beginning July 1, 1997 up to March 11, 1998 with interest at 12%.

MIAA filed an appeal with the CA. The CA affirmed the RTC Decision with modification. The
awards of actual/compensatory damages and exemplary damages are deleted. The refund of
monthly rental payments from July 1, 1997 to March 11, 1998 shall earn interest of six percent
(6%) per annum from the date of the filing of the complaint until the finality of this decision. An
interest of twelve percent (12%) per annum shall be imposed upon any unpaid balance from such
finality until the judgment amount is fully satisfied. The award of attorney's fees stands. MIAA
filed a Motion for Reconsideration, but the CA denied it via its Resolution dated October 11, 2007.

Issues of the Case:

1. WHETHER OR NOT THE HONORABLE COURT OF APPEALS CORRECTLY

INTERPRETED THE PROVISIONS OF THE LEASE CONTRACT IN LINE WITH THE
PROVISIONS OF THE CIVIL CODE AND EXISTING JURISPRUDENCE ON
CONTRACTS.

2. WHETHER OR NOT THE PRINCIPLE OF UNJUST ENRICHMENT IS APPLICABLE

TO THE INSTANT CASE.

3. WHETHER OR NOT RESPONDENT IS ENTITLED TO ATTORNEY'S FEES.6

RULING:

Petitioner MIAA contends that, as an administrative agency possessed of quasi-legislative and

quasi-judicial powers as provided for in its charter, it is empowered to make rules and regulations
and to levy fees and charges; that its issuance of Administrative Order No. 1, Series of 1990 is
pursuant to the exercise of the abovementioned powers; that by signing the lease contract,
respondent AFIC already agreed and gave its consent to any further increase in rental rates; as
such, the provisions of the lease contract being cited by the CA which provides that any
amendment, alteration or modification [of the lease contract] shall not be valid and binding,
unless and until made in writing and signed by the parties thereto is deemed complied with
because respondent already consented to having any subsequent amendments to Administrative
Order No. 1 automatically incorporated in the lease contract; that the above-quoted provisions
should not also be interpreted as having the effect of limiting the authority of MIAA to impose
new rental rates in accordance with its authority under its charter.

Petitioner also argues that it is not guilty of unjust enrichment when it denied respondent access
to the leased premises, because there is nothing unlawful in its act of imposing sanctions against
respondent for the latter's failure to pay the increased rental.

Lastly, petitioner avers that respondent is not entitled to attorney's fees, considering that it was
not compelled to litigate and incur expenses to protect its interest by reason of any unjustified
act on the part of petitioner. Petitioner reiterates that it was merely exercising its right as the
owner and administrator of the leased property and, as such, its acts may not be deemed
unwarranted.

The petition lacks merit.

Article 1306 of the Civil Code provides that he contracting parties may establish such
stipulations, clauses, terms and conditions as they may deem convenient, provided they are not
contrary to law, morals, good customs, public order, or public policy.

Moreover, Article 1374 of the Civil Code clearly provides that the various stipulations of a
contract shall be interpreted together, attributing to the doubtful ones that sense which may
result from all of them taken jointly. Indeed, in construing a contract, the provisions thereof
should not be read in isolation, but in relation to each other and in their entirety so as to render
them effective, having in mind the intention of the parties and the purpose to be achieved.7 In
other words, the stipulations in a contract and other contract documents should be interpreted
together with the end in view of giving effect to all.

In the present case, the Court finds nothing repugnant to law with respect to the questioned
provisions of the contract of lease between petitioner and respondent. It is true that Article II,
Paragraph 2.04 of the Contract of Lease states that any subsequent amendment to
Administrative Order No. 4, Series of 1982, which will effect a decrease or escalation of the
monthly rental or impose new and additional fees and charges, including but not limited to
government/MIAA circulars, rules and regulation to this effect, shall be deemed incorporated
herein and shall automatically amend this Contract insofar as the monthly rental is concerned.
However, the Court agrees with the CA that the above quoted provision of the lease contract
should not be read in isolation. Rather, it should be read together with the provisions of Article
VIII, Paragraph 8.13, which provide that any amendment, alteration or modification of the
Contract shall not be valid and binding, unless and until made in writing and signed by the
parties thereto. It is clear from the foregoing that the intention of the parties is to subject such
amendment to the conformity of both petitioner and respondent. In the instant case, there is no
showing that respondent gave his acquiescence to the said amendment or modification of the
contract.

The situation is different with respect to the payments of the increased rental fee made by
respondent beginning October 1994 because by then the amendment to the contract was made
in writing through a bill sent by petitioner to respondent. The fact that respondent subsequently
settled the said bill proves that he acceded to the increase in rental fee. The same may not be
said with respect to the questioned rental fees sought to be recovered by petitioner between
September 1991 and September 1994 because no bill was made and forwarded to respondent
on the basis of which it could have given or withheld its conformity thereto.

It may not be amiss to point out that during the abovementioned period, respondent continued
to pay and petitioner kept on receiving the original rental fee of P6,580.00 without any
reservations or protests from the latter. Neither did petitioner indicate in the official receipts it
issued that the payments made by respondent constitute only partial fulfillment of the latter's
obligations. Article 1235 of the Civil Code clearly states that when the obligee accepts the
performance knowing its incompleteness or irregularity, and without expressing any protest or
objection, the obligation is deemed fully complied with. For failing to make any protest or
objection, petitioner is already estopped from seeking recovery of the amount claimed.

Anent the second issue, since it has been established that petitioner has no legal basis in
requiring respondent to pay additional rental fees from September 1, 1991 to September 30,
1994, it, thus, follows that petitioner's act of denying respondent and its employees access to the
leased premises from July 1, 1997 until March 11, 1998, by reason of respondent's non-payment
of the said additional fees, is likewise unjustified.

Under Paragraph 3, Article 1654 of the Civil Code provides that the lessor is obliged to maintain
the lessee in the peaceful and adequate enjoyment of the lease for the entire duration of the
contract.

Moreover, Article 1658 of the same Code provides that the lessee may suspend the payment of
the rent in case the lessor fails to make the necessary repairs or to maintain the lessee in peaceful
and adequate enjoyment of the property leased.

Furthermore, as correctly cited by the RTC, Article 19 of the Civil Code provides that every person
must, in the exercise of his rights and in the performance of his duties, act with justice, give
everyone his due, and observe honesty and good faith.

Article 22 of the same Code also states that every person who through an act of performance by
another, or any other means, acquires or comes into possession of something at the expense of
the latter without just or legal ground, shall return the same to him. In accordance with
jurisprudence, there is unjust enrichment when a person unjustly retains a benefit to the loss of
another, or when a person retains money or property of another against the fundamental
principles of justice, equity and good conscience. The principle of unjust enrichment essentially
contemplates payment when there is no duty to pay, and the person who receives the payment
has no right to receive it.

In the instant case, it is clear that petitioner failed to maintain respondent in the peaceful and
adequate enjoyment of the leased premises by unjustifiably preventing the latter access thereto.
Consequently, in accordance with Article 1658 of the Civil Code, respondent had no duty to make
rent payments. Despite that, respondent still continued to pay the rental fees agreed upon in the
original contract. Thus, it would be the height of inequity and injustice as well as unjust
enrichment on the part of petitioner if the rental fees paid by respondent during the time that it
was denied access to and prevented from using the leased premises be not returned to it.

With respect to attorney's fees, the Court finds no error on the part of the CA in sustaining such
award on the ground that petitioner's act of denying respondent and its employees access to the
leased premises has compelled respondent to litigate and incur expenses to protect its interest.
The Court likewise agrees with the CA that, under the circumstances prevailing in the present
case, attorney's fees may be granted on grounds of justice and equity.
Finally, the Court deems it proper to reiterate the provisions of Supreme Court Administrative
Circular No. 10-2000 which enjoins all judges of lower courts to observe utmost caution, prudence
and judiciousness in the issuance of writs of execution to satisfy money judgments against
government agencies and local government units.

The petition was denied. The resolution of the Court of Appeals was affirmed.

XXXVI.

CONTRIBUTOR : LACIDA, NIÑA VIOLA G.

CASE TITLE : MANILA INTERNATIONAL AIRPORT AUTHORITY
VS DING VELAYO SPORTS CENTER, INC.,
GR NO. 161718, DECEMBER 14, 2011
PRINCIPLE : 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. 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.

FACTS :

Petitioner and Salem Investment Corporation (Salem) entered into a Contract of Lease
over a parcel of land located in front of the Manila International Airport (MIA) whereby the lessee
undertakes to cooperate with the lessor in the implementation general development plan for the
airport premises by constructing a modern hotel.

Subsequently, in a Transfer of Lease Rights and Existing Improvements, Salem conveyed

in favor of Velayo Export and in turn, Velayo Export executed a Transfer of Lease Rights to
respondent its leasehold rights over the subject property. As a result, petitioner and respondent
executed another Contract of Lease for a period of 25 years. Among the provisions of the contract
reads that 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.

Thus, more than 60 days prior to the expiration of the lease between petitioner and
respondent, the latter, sent the former a Letter stating that respondent was interested in
renewing the lease for another 25 years. Petitioner however declined to renew the lease, ordered
respondent to vacate the subject property within five days, demanded respondent to pay arrears
in lease rentals and threatened to take-over the subject property.

Respondent filed against petitioner before the RTC a Complaint for Injunction,
Consignation, and Damages with a Prayer for a Temporary Restraining Order. Respondent
essentially prayed for the RTC to order the renewal of the Contract of Lease between the parties
for another 25-year term. In its Answer, petitioner contended that the renewal of the Contract of
Lease cannot be made to depend on the sole will of respondent for the same would then be void
for being a potestative condition.

ISSUE: Whether or not petitioner is correct.

RULING:

No, petitioner is not correct. As we have already explained in Allied Banking Corporation
v. Court of Appeals:

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." This binding effect of a contract on both parties is based on the principle
that the obligations arising from contracts have the force of law between the
contracting parties, and there must be mutuality between them based essentially
on their equality under which it is repugnant to have one party bound by the
contract while leaving the other free therefrom. The ultimate purpose is to render
void a contract containing a condition which makes its fulfillment dependent solely
upon the uncontrolled will of one of the contracting parties.

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. And while the lessee has a right to elect whether to continue with the
lease or not, once he exercises his option to continue and the lessor accepts, both
parties are thereafter bound by the new lease agreement. Their rights and
obligations become mutually fixed, and the lessee is entitled to retain possession
of the property for the duration of the new lease, and the lessor may hold him
liable for the rent therefor. The lessee cannot thereafter escape liability even if he
should subsequently decide to abandon the premises. Mutuality obtains in such a
contract and equality exists between the lessor and the lessee since they remain
with the same faculties in respect to fulfillment.

The Contract of Lease 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.

XXXVII.

Contributor: Paul P. Tolomia

Case Title: Osmena-Jalandoni v Encomienda, GR No. 205578, March 1, 2017
Principles:
1. 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.
2. Contracts are binding between the parties, whether oral or written. The law is explicit that
contracts shall be obligatory in whatever form they may have been entered into, provided
all the essential requisites for their validity are present.
3. There is unjust enrichment under Article 22 of the Civil Code when (1) a person is unjustly
benefited, and (2) such benefit is derived at the expense of or with damages to another.

Facts:
Encomienda met petitioner Georgia Osmeña-Jalandoni when the former was purchasing a
condominium unit and the latter was the real estate broker. Thereafter, Encomienda and
Jalandoni became close friends. Jalandoni borrowed money from Encomienda for the search and
rescue operation of her children in Manila, who were allegedly taken by their father, Luis
Jalandoni. Encomienda then went to Jalandoni's house and handed ₱l00,000.00. While in Manila,
Jalandoni again borrowed money for the some errands. Again, Jalandoni borrowed ₱l Million from
Encomienda and promised that she would pay the same when her money in the bank matured.
Thereafter, Encomienda went to Manila to attend the hearing of Jalandoni's habeas corpus case
before the CA where ₱100,000.00 more was requested. On May 26, 1997, now crying, Jalandoni
asked if Encomienda could lend her an additional ₱900,000.00. Encomienda still acceded, albeit
already feeling annoyed. All in all, Encomienda spent around ₱3,245,836.02 and $6,638.20 for
Jalandoni.

Encomienda then gave Jalandoni six (6) weeks to settle her debts. Despite several demands, no
payment was made. Jalandoni insisted that the amounts given were not in the form of loans.
Jalandoni claimed that there was never a discussion or even just an allusion about a loan. She
confirmed that Encomienda would indeed deposit money in her bank account and pay her bills in
Cebu. But when asked, Encomienda would tell her that she just wanted to extend some help and
that it was not a loan.

The RTC of Cebu City dismissed Encomienda's complaint. On appeal, the appellate court granted
the appeal and reversed the RTC Decision.

Issue: Whether or not Encomienda is entitled to be reimbursed for the amounts she defrayed
for Jalandoni.
Held: Yes.

The second paragraph of Article 1236 of the Civil Code provides:

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.

Clearly, Jalandoni greatly benefited from the purportedly unauthorized payments. Thus, even if
she asseverates that Encomienda's payment of her household bills was without her knowledge or
against her will, she cannot deny the fact that the same still inured to her benefit and Encomienda
must therefore be consequently reimbursed for it. Also, when Jalandoni learned about the
payments, she did nothing to express her objection to or repudiation of the same, within a
reasonable time. Even when she claimed that she was prepared with her own money, she still
accepted the financial assistance and actually made use of it. While she asserts to have been
upset because of Encomienda's supposedly intrusive actions, she failed to protest and, in fact,
repeatedly accepted money from her and further allowed her to pay her driver, security guard,
househelp, and bills for her cellular phone, cable television, pager, gasoline, food, and other
utilities. She cannot, therefore, deny the benefits she reaped from said acts now that the time for
restitution has come. The debtor who knows that another has paid his obligation for him and who
does not repudiate it at any time, must corollarily pay the amount advanced by such third person.

In a similar case, the Court upheld the CA' s pronouncement that the existence of a contract of
loan cannot be denied merely because it was not reduced in writing. Surely, there can be a verbal
loan. Contracts are binding between the parties, whether oral or written. The law is explicit that
contracts shall be obligatory in whatever form they may have been entered into, provided all the
essential requisites for their validity are present. A simple loan or mutuum exists when a person
receives a loan of money or any other fungible thing and acquires its ownership. He is bound to
pay to the creditor the equal amount of the same kind and quality. Jalandoni posits that the more
logical reason behind the disbursements would be what Encomienda candidly told the trial court,
that her acts were plainly an "unselfish display of Christian help" and done out of "genuine concern
for Georgia's children." However, the "display of Christian help" is not inconsistent with the
existence of a loan. Encomienda immediately offered a helping hand when a friend asked for it.
But this does not mean that she had already waived her right to collect in the future.

The principle of unjust enrichment finds application in this case. Unjust enrichment exists when
a person unfairly retains a benefit to the loss of another, or when a person retains money or
property of another against the fundamental principles of justice, equity, and good conscience.
There is unjust enrichment under Article 22 of the Civil Code when (1) a person is unjustly
benefited, and (2) such benefit is derived at the expense of or with damages to another. The
principle of unjust enrichment essentially contemplates payment when there is no duty to pay,
and the person who receives the payment has no right to receive it. The CA is then correct when
it ruled that allowing Jalandoni to keep the amounts received from Encomienda will certainly
cause an unjust enrichment on Jalandoni' s part and to Encomienda's damage and prejudice.
 XXXVIII.

Contributor: SR. TERESITA ABASTILLAS, D.C.

Case Title: VICTORIA MOREO-LENTFER, et. al., vs. HANS JURGEN WOLFF
G.R. No. 152317. November 10, 2004
PRINCIPLES:

1. The quasi-contract of solutio indebiti under Article 2154 harks back to the ancient principle
that no one shall enrich himself unjustly at the expense of another. It applies where (1) a
payment is made when there exists no binding relation between the payor, who has no
duty to pay, and the person who received the payment, and (2) the payment is made
through mistake, and not through liberality or some other cause.
2. Article 22 of the New Civil Code, two conditions must concur to declare that a person has
unjustly enriched himself or herself, namely: (a) a person is unjustly benefited, and (b)
such benefit is derived at the expense of or to the damage of another.
FACTS:
On March 6, 1992, petitioners and respondent engaged the notarial services of Atty.
Rodrigo C. Dimayacyac for: (1) the sale of a beach house owned by petitioner Cross in Sabang,
Puerto Galera, Oriental Mindoro, and (2) the assignment of Cross' contract of lease on the land
where the house stood. The sale of the beach house and the assignment of the lease right would
be in the name of petitioner Victoria Moreño-Lentfer, but the total consideration of 220,000
Deutschmarks (DM) would be paid by respondent Hans Jurgen Wolff. A promissory note was
executed by said respondent in favor of petitioner Cross.
According to respondent, the Lentfer spouses were his confidants who held in trust for
him, a time deposit account in the amount of DM 200,000 at Solid Bank Corporation. Apprised of
his interest to own a house along a beach, the Lentfer couple urged him to buy petitioner Cross'
beach house and lease rights in Puerto Galera. Respondent agreed and through a bank-to-bank
transaction, he paid Cross the amount of DM 221,700 as total consideration for the sale and
assignment of the lease rights. However, Cross, Moreño-Lentfer and Atty. Dimayacyac
surreptitiously executed a deed of sale whereby the beach house was made to appear as sold to
Moreño-Lentfer for only P100,000. The assignment of the lease right was likewise made in favor
of Moreño-Lentfer. Upon learning of this, respondent filed a Complaint with the lower court for
annulment of sale and reconveyance of property with damages and prayer for a writ of
attachment.
The lower court dismissed the respondent's complaint, but the Court of Appeals reversed
the lower court's decision. Hence, this petition.

ISSUE:

WON the principle of Solutio Indebiti under article 2154 of the New Civil code, the principle
of justice and equity, apply in the case at bar.

HELD:
The quasi-contract of solutio indebiti states that no one shall enrich himself unjustly at the
expense of another. It applies where (1) a payment is made when there exists no binding relation
between the payor, who has no duty to pay, and the person who received the payment, and (2)
the payment is made through mistake, and not through liberality or some other cause.
In the instant case, records show that a bank-to-bank payment was made by respondent
Wolff to petitioner Cross in favor of co-petitioner Moreo-Lentfer. Respondent was under no duty
to make such payment for the benefit of Moreo-Lentfer. There was no binding relation between
respondent and the beneficiary, Moreo-Lentfer. The payment was clearly a mistake. Since Moreo-
Lentfer received something when there was no right to demand it, she had an obligation to return
it.
Following Article 22 of the New Civil Code, two conditions must concur to declare that a
person has unjustly enriched himself or herself, namely: (a) a person is unjustly benefited, and
(b) such benefit is derived at the expense of or to the damage of another.
The Court is convinced petitioner Moreo-Lentfer had been unjustly enriched at the expense
of respondent. She acquired the properties through deceit, fraud and abuse of confidence. The
principle of justice and equity does not work in her favor but in favor of respondent Wolff.
Whatever she may have received by mistake from and at the expense of respondent should thus
be returned to the latter, if the demands of justice are to be served.

The Court DENIED the Petition and the spouses Lentfer are ORDERED to:
1. RECONVEY to respondent Hans Jurgen Wolff the beach house and the lease right
over the land on which it is situated; and
2. PAY respondent Wolff nominal damages in the amount of P50,000.00.

XXXIX.

CONTRIBUTOR: LENIZO, JOAN KARL L.

CASE TITLE: SPOUSES MINIANO B. DELA CRUZ and LETA L. DELA CRUZ, Petitioners, vs.ANA
MARIE CONCEPCION, Respondent.
PRINCIPLE: Article 1240. Payment shall be made to the person in whose favor the obligation
has been constituted, or his successor in interest, or any person authorized to receive it.

FACTS:

On March 25, 1996, petitioners (as vendors) entered into a Contract to Sell3 with respondent (as
vendee) involving a house and lot in Cypress St., Phase I, Town and Country Executive Village,
Antipolo City for a consideration of P2,000,000.

Respondent made the following payments, to wit: (1) P500,000.00 by way of downpayment; (2)
P500,000.00 on May 30, 1996; (3) P500,000.00 paid on January 22, 1997; and (4) P500,000.00
bounced check dated June 30, 1997 which was subsequently replaced by another check of the
same amount, dated July 7, 1997. Respondent was, therefore, able to pay a total of
P2,000,000.00

Respondent alleged that before issuing the replacement check, that based on her computation
as of July 6, 1997, her unpaid obligation which includes interests and penalties was only
P200,000.00. petitioners agreed with the respondent.

The transfer to property was transferred to respondent. However, despite repeated demands,
petitioners failed to collect the amounts they claimed from respondent. Hence, petitioners filed a
complaint for sum of money against the respondent. In her Answer with Compulsory
Counterclaim,12 respondent claimed that her unpaid obligation to petitioners is only P200,000.00
as earlier confirmed by petitioners and not P487,384.15 as later alleged in the complaint. During
trial, respondent presented a receipt purportedly indicating payment of the remaining balance of
P200,000.00 to Adoracion Losloso who allegedly received the same on behalf of petitioner. The
trial court rendered a decision in favor of the respondent. On appeal, the Court affirmed the
decision of the trial court.

ISSUE:

Whether or not payment made by respondent to Losloso constitutes payment as contemplated

under the Civil Code which extinguishes the obligation.

HELD:

Respondent’s obligation consists of payment of a sum of money. In order to extinguish said

obligation, payment should be made to the proper person set forth in Article 1240 of the Civil
Code.

Article 1240. Payment shall be made to the person in whose favor the obligation has been
constituted, or his successor in interest, or any person authorized to receive it.

Payment made by the debtor to the person of the creditor or to one authorized by him or by the
law to receive it extinguishes the obligation. When payment is made to the wrong party, however,
the obligation is not extinguished as to the creditor who is without fault or negligence even if the
debtor acted in utmost good faith and by mistake as to the person of the creditor or through error
induced by fraud of a third person.

In general, a payment in order to be effective to discharge an obligation, must be made to the

proper person. Thus, payment must be made to the obligee himself or to an agent having
authority, express or implied, to receive the particular payment. Payment made to one having
apparent authority to receive the money will, as a rule, be treated as though actual authority had
been given for its receipt. Likewise, if payment is made to one who by law is authorized to act
for the creditor, it will work a discharge. The receipt of money due on a judgment by an officer
authorized by law to accept it will, therefore, satisfy the debt.38

Admittedly, payment of the remaining balance of P200,000.00 was not made to the creditors
themselves. Rather, it was allegedly made to a certain Losloso. Respondent claims that Losloso
was the authorized agent of petitioners, but the latter dispute it.

Losloso’s authority to receive payment was embodied in petitioners’ Letter39 addressed to

respondent, dated August 7, 1997, where they informed respondent of the amounts they
advanced for the payment of the 1997 real estate taxes. In said letter, petitioners reminded
respondent of her remaining balance, together with the amount of taxes paid. Taking into
consideration the busy schedule of respondent, petitioners advised the latter to leave the payment
to a certain "Dori" who admittedly is Losloso, or to her trusted helper. This is an express authority
given to Losloso to receive payment.
 XL.

Contributor: Corton, Arthur Bryan P.

Case Title: GIL M. CEMBRANO AND DOLLFUSS R. GO, Petitioners V. CITY OF BUTUAN,
represented by CITY MAYOR LEONIDES R. THERESA PLAZA, CVC INDUSTRIES, INC.,
MONICO PAG - ONG AND ISIDRO PLAZA, Respondents GR NO. 163605 September 20,
2006
Principles:

Article 1240 of the Civil Code provides that payment shall be made to the person in whose
favor the obligation has been constituted, or his successor-in-interest, or any person authorized
to receive it.

Payment made by the debtor to the person of the creditor or to one authorized by him or
by the law to receive it extinguishes the obligation. When payment is made to the wrong party,
however, the obligation is not extinguished as to the creditor who is without fault or negligence
even if the debtor acted in utmost good faith and by mistake as to the person of the creditor or
through error induced by fraud of a third person.

In general, a payment in order to be effective to discharge an obligation, must be made

to the proper person. Thus, payment must be made to the obligee himself or to an agent having
authority, express or implied, to receive the particular payment. Payment made to one having
apparent authority to receive the money will, as a rule, be treated as though actual authority had
been given for its receipt. Likewise, if payment is made to one who by law is authorized to act
for the creditor, it will work a discharge. The receipt of money due on a judgment by an officer
authorized by law to accept it will, therefore, satisfy the debt.

Facts:

CVC Lumber Industries, Inc. (CVC) through Cembrano, then its Marketing Manager, was awarded
a contract for the supply of piles and poles which were to be used for the construction of the new
City Hall of Butuan City. To partly finance the purchase of the merchandise, petitioner Cembrano,
along with Gener Cembrano, secured a P150,000.00 loan from the DBP, as evidenced by a
Promissory Note. To secure the loan, they executed a real estate mortgage over a parcel of land.

CVC was able to make two (2) deliveries. Cembrano received payment as evidenced by the
disbursement vouchers issued by the City in favor of CVC Lumber Industries, Inc. However, CVC
failed to make deliveries of the remaining timber files within the 60-day period. They offered to
deliver but the respondent refused. Further, they requested for an extension to make complete
delivery but again it was denied. CVC and Cembrano filed a complaint for breach of contract and
damages against respondent. In its Answer, the City of Butuan admitted the allegations in the
complaint.

Meanwhile, during a meeting of the CVC Board of Directors, Monico Pag-Ong was elected
President and Isidro B. Plaza as Corporate Secretary. Plaza also became the resident manager of
the corporation.
The trial court rendered judgment in favor of the defendants. Cembrano appealed the decision
to the CA. The CA rendered judgment reversing the decision of the trial court and ordered the
City of Butuan to pay its liability to Cembrano and CVC. The City of Butuan thereafter filed a
petition for review on certiorari with the Supreme Court. However, the petition was denied. The
City filed a motion for reconsideration, which the Court denied with finality. Thus, the CA decision
became final and executory.

The City of Butuan, Cembrano and Go agreed that under the decision, the amount due to CVC
was P926,845.00 with 6% interest per year. The City Treasurer and the City Mayor signed a check
for the said amount with CVC LUMBER INDUSTRIES, INC/MONICO E. PAG-ONG as payee. The
check was received by Pag-Ong for CVC, as evidenced by a disbursement voucher.

Go filed an Urgent Motion (To Direct Sheriffs To Garnish Defendants Bank Account), alleging that
the payment by the City of Butuan to Monico Pag-Ong was not in compliance with the decision
in CA as affirmed by the Supreme Court. It asserted that the creditors under the CA decision were
CVC Unit VI and Cembrano, not Plaza or Pag-Ong. It insisted that the payment made by the
City to Pag-Ong did not discharge its obligation to Cembrano. The City of Butuan opposed the
motion.

The court granted the motion and ordered the Sheriff to garnish the bank account of the City of
Butuan in the DBP. For their part, Go and Cembrano filed a motion to compel the DBP to remit
the garnished amount to them. The trial court issued an Order granting the motion and ordered
the DBP to remit P926,845.00 to Cembrano and Go in cash. The City of Butuan filed a Petition
for Certiorari and Prohibition with the CA against CVC, Pag-Ong, Plaza and Cembrano, assailing
the Order of the trial court. It insisted that it had already paid respondent CVC and Cembrano as
ordered by the CA.

The CA rendered judgment granting the petition. Go and Cembrano filed a Motion for
Reconsideration but The CA, however, denied the motion for reconsideration. Cembrano and Go,
now petitioners, assail the Decision and Resolution of the CA.

Issue:

Whether or not the remittance of the P926,845.00 made by respondent City of Butuan to the
respondent CVC, through its president respondent Pag-Ong, released it from its obligation under
the decision in CA.

Held:

No. Payment made by the City of Butuan to CVC did not totally released it from its obligation.

Article 1240 of the Civil Code provides that payment shall be made to the person in whose favor
the obligation has been constituted, or his successor-in-interest, or any person authorized to
receive it.
Payment made by the debtor to the person of the creditor or to one authorized by him or by the
law to receive it extinguishes the obligation. When payment is made to the wrong party, however,
the obligation is not extinguished as to the creditor who is without fault or negligence even if the
debtor acted in utmost good faith and by mistake as to the person of the creditor or through error
induced by fraud of a third person.

In general, a payment in order to be effective to discharge an obligation, must be made to the

proper person. Thus, payment must be made to the obligee himself or to an agent having
authority, express or implied, to receive the particular payment. Payment made to one having
apparent authority to receive the money will, as a rule, be treated as though actual authority had
been given for its receipt. Likewise, if payment is made to one who by law is authorized to act
for the creditor, it will work a discharge. The receipt of money due on a judgment by an officer
authorized by law to accept it will, therefore, satisfy the debt.

When there is a concurrence of several creditors or of several debtors or of several creditors and
debtors in one and the same obligation, it is presumed that the obligation is joint and not solidary.
The most fundamental effect of joint divisible obligations is that each creditor can demand only
for the payment of his proportionate share of the credit, while each debtor can be held liable only
for the payment of his proportionate share of the debt. As a corollary to this rule, the credit or
debt shall be presumed, in the absence of any law or stipulation to the contrary, to be divided
into as many shares as there are creditors and debtors, the credits or debts being considered
distinct from one another. It necessarily follows that a joint creditor cannot act in representation
of the others. Neither can a joint debtor be compelled to answer for the liability of the others.
The pertinent rules are provided in Articles 1207 and 1208 of the Civil Code.

In the case at bar, the Court held that, under the fallo of the CA decision, respondent City was
ordered to pay P926,845.00 to the plaintiffs:

IN VIEW OF THE FOREGOING, the decision appealed from is hereby REVERSED and
SET ASIDE. Defendant City of Butuan is directed to pay the plaintiffs the total sum of
P926,845.00 in accordance with the above computation with 6% interest as of the date
this decision attains finality.

As gleaned from the complaint, the plaintiffs therein are petitioner Gil Cembrano and respondent
CVC; as such, the judgment creditors under the fallo of the CA decision are petitioner Cembrano
and respondent CVC. Each of them is entitled to one-half (1/2) of the amount of P926,845.00
or P463,422.50 each.

In compliance with the decision of the CA, respondent City remitted the P926,845.00 to
respondent CVC, and that respondent Pag-Ong received the amount for and in behalf of CVC.
Considering that respondent Pag-ong as CVC president was authorized to receive the money,
respondent Citys payment discharged respondent City of its obligation under the decision in CA.
However, since petitioner Cembrano did not receive any centavo out of the P926,845.00 remitted
to respondent CVC, the obligation to remit one-half of the amount, or P463,422.50, to petitioner
Cembrano was not extinguished.

To reiterate, it is the dispositive part of the judgment that actually settles and declares the rights
and obligations of the parties, finally, definitively, authoritatively, notwithstanding the existence
of inconsistent statements in the body that may tend to confuse; it is the dispositive part that
controls, for purposes of execution.

XLI.

CONTRIBUTOR: EDWARD L. REMO

CASE TITLE: REPUBLIC OF THE PHILIPPINES vs.THI THU THUY T. DE GUZMAN
G.R. No. 175021 June 15, 2011

Principle: In order for obligor’s payment to be effective in extinguishing its

obligation, it must be made to the proper person.

Art. 1240. Payment shall be made to the person in whose favor the obligation has
been constituted, or his successor in interest, or any person authorized to receive
it.

FACTS:
Respondent is the proprietress of Montaguz General Merchandise (MGM), a
contractor accredited by the PNP for the supply of office and construction materials and
equipment, and for the delivery of various services such as printing and rental, repair of
various equipment, and renovation of buildings, facilities, vehicles, tires, and spare parts.
MGM, on March 1, 1996, proceeded with the delivery of the construction
materials, as evidenced by Delivery Receipt Nos. 151-153, Sales Invoice Nos. 038 and
041, and the Report of Public Property Purchase issued by the PNPs Receiving and
Accounting Officers to their Internal Auditor Chief. Respondent asseverated that following
the PNPs inspection of the delivered materials on March 4, 1996, the PNP issued two
Disbursement Vouchers; one in the amount of P2,226,147.26 in favor of MGM, and the
other, in the amount of P62,415.34, representing the three percent (3%) withholding tax,
in favor of the Bureau of Internal Revenue (BIR).

On November 5, 1997, the respondent, through counsel, sent a letter dated

October 20, 1997 to the PNP, demanding the payment of P2,288,562.60 for the
construction materials MGM procured for the PNP under their December 1995 Contract.

On November 17, 1997, the PNP, through its Officer-in-Charge, replied to

respondents counsel, informing her of the payment made to MGM via Land Bank of the
Philippines (LBP) Check No. 0000530631, as evidenced by Receipt No. 001, issued by
the respondent to the PNP on April 23, 1996. However, respondent averred, the PNPs
own Checking Account Section Logbook or the Warrant Register, showed that it was one
Edgardo Cruz (Cruz) who signed for the check due to MGM. The PNP further contended
that its obligation to MGM has been extinquished.
ISSUES:
Whether or not the PNP’s obligation to MGM has been extinquished

HELD:
No. The petitioners obligation has not been extinguished. The petitioners
obligation consists of payment of a sum of money. In order for petitioners payment to be
effective in extinguishing its obligation, it must be made to the proper person. Article 1240
of the Civil Code states:

Art. 1240. Payment shall be made to the person in whose favor the
obligation has been constituted, or his successor in interest, or any person
authorized to receive it.

The respondent was able to establish that the LBP check was not received by her or by
her authorized personnel. The PNPs own records show that it was claimed and signed
for by Cruz, who is openly known as being connected to Highland Enterprises, another
contractor. Hence, absent any showing that the respondent agreed to the payment of the
contract price to another person, or that she authorized Cruz to claim the check on her
behalf, the payment, to be effective must be made to her.

XLII.

Contributor: Braga, Michael Vencynth H.

Case Title: Megan Sugar Corporation v. Regional Trial Court of Iloilo, et al

G.R. No. 170352, 1 June 2011, (Peralta, J.)

Principle:

1) A corporation may be held in estoppel from denying as against innocent third persons
the authority of its officers or agents who have been clothed by it with ostensible or
apparent authority.

2) The active participation of the party against whom the action was brought, coupled
with his failure to object to the jurisdiction of the court or administrative body where the
action is pending, is tantamount to an invocation of that jurisdiction and a willingness to
 abide by the resolution of the case and will bar said party from later on impugning the
court or body’s jurisdiction.

FACTS:

New Frontier Sugar Corporation (NFSC) obtained a loan from Equitable PCI Bank secured by a
real estate mortgage over NFSC’s land and a chattel mortgage over NFSC’s sugar mill. Due to
illiquidity problems, NFSC entered into a MOA with Central Iloilo Milling Corporation (CIMICO)
whereby the latter would take-over the operation and management of NFSC.

NFSC filed a complaint for specific performance against CIMICO for failure to pay its obligations.
CIMICO countered by filing a case for sum of money and breach of contract.

Meanwhile, Equitable PCI Bank instituted extra-judicial foreclosure proceedings due to NFSC’s
failure to pay. During the public auction, Equitable was the sole bidder. It was able to consolidate
the titles in its name. Equitable then hired Industrial Security Agency (PISA) to secure the land
and mill. Afterwards, Equitable sold the same to Passi Iloilo Sugar Central.

Despite the consolidation of title and the subsequent sale of the property to Passi, CIMICO was
able to retain the property due to a restraining order it filed. Afterwards, CIMICO and Megan
Sugar Corporation entered into a MOA whereby Megan assumed CIMICO’s rights and interests
over the property.

Passi Sugar then filed a motion for intervention claiming to be the vendee of Equitable. During
the hearing for the said motion, Atty. Reuben Mikhail Sabig appeared before the RTC as counsel
for Megan. He manifested that his statements would bind Megan. Several motions were filed by
Equitable to hold in escrow the sugar quedans or the proceeds therefrom. The RTC granted such
motion. Megan Corporation or its director officer was ordered to deposit in escrow the sugar
quedans.

Atty. Sabig appearing for Megan, filed a motion for reconsideration which was denied. Then,
Megan on its own, appealed before the CA alleging that the RTC which rendered the decision had
no jurisdiction over Megan. CA denied such motion ruling that Megan was already estopped from
assailing the RTC’s jurisdiction since Atty. Sabig who represented that he was the counsel for
Megan, had actively participated before the RTC.

ISSUE:

Whether or not Megan Sugar Corporation is estopped from questioning the jurisdiction of the RTC

RULING:

Petition DENIED. Megan Sugar Corporation is already estopped.

MEGAN points out that its board of directors did not issue a resolution authorizing Atty. Sabig to
represent the corporation before the RTC. It contends that Atty. Sabig was an unauthorized agent
and as such his actions should not bind the corporation. In addition, MEGAN argues that the
counsels of the different parties were aware of Atty. Sabig’s lack of authority because he declared
in court that he was still in the process of taking over the case and that his voluntary appearance
was just for the hearing of the motion for intervention of Passi Sugar.

After a judicial examination of the records pertinent to the case at bar, this Court agrees with the
finding of the CA that MEGAN is already estopped from assailing the jurisdiction of the RTC.

The doctrine of estoppel is based upon the grounds of public policy, fair dealing, good faith and
justice, and its purpose is to forbid one to speak against his own act, representations, or
commitments to the injury of one to whom they were directed and who reasonably relied thereon.
The doctrine of estoppel springs from equitable principles and the equities in the case. It is
designed to aid the law in the administration of justice where without its aid injustice might result.
It has been applied by this Court wherever and whenever special circumstances of a case so
demand.

MEGAN can no longer deny the authority of Atty. Sabig as they have already clothed him with
apparent authority to act in their behalf. It must be remembered that when Atty. Sabig entered
his appearance, he was accompanied by Concha, MEGAN’s director and general manager. Concha
himself attended several court hearings, and on December 17, 2002, even sent a letter to the
RTC asking for the status of the case. A corporation may be held in estoppel from denying
as against innocent third persons the authority of its officers or agents who have been
clothed by it with ostensible or apparent authority.

Apparent authority, or what is sometimes referred to as the "holding out" theory, or

doctrine of ostensible agency, imposes liability, not as the result of the reality of a
contractual relationship, but rather because of the actions of a principal or an
employer in somehow misleading the public into believing that the relationship or the
authority exists.

Like the CA, this Court notes that MEGAN never repudiated the authority of Atty. Sabig when all
the motions, pleadings and court orders were sent not to the office of Atty. Sabig but to the office
of MEGAN, who in turn, would forward all of the same to Atty. Sabig. One of the instances of
estoppel is when the principal has clothed the agent with indicia of authority as to
lead a reasonably prudent person to believe that the agent actually has such
authority. With the case of MEGAN, it had all the opportunity to repudiate the authority of Atty.
Sabig since all motions, pleadings and court orders were sent to MEGAN’s office. However, MEGAN
never questioned the acts of Atty. Sabig and even took time and effort to forward all the court
documents to him.

In addition, it bears to point out that MEGAN was negligent when it did not assail the
authority of Atty. Sabig within a reasonable time from the moment when the first
adverse order was issued. With such an order that directly affects the disposition of MEGAN’s
assets and one that involves a substantial amount, it is inconceivable for Atty. Sabig or for Concha
not to inform MEGAN’s board of such an order or for one of the directors not to hear of such
order thru other sources. As manifested by NFSC, MEGAN is a family corporation and Concha is
the son-in-law of Eduardo Jose Q. Miranda (Eduardo), the President of MEGAN. Elizabeth Miranda,
one of the directors, is the daughter of Eduardo. MEGAN’s treasurer, Ramon Ortiz is a cousin of
the Mirandas. Thus, given the nature and structure of MEGAN’s board, it is unimaginable that not
a single director was aware of the January 16, 2003 RTC Order. However, far from repudiating
the authority of Atty. Sabig, Atty. Sabig even filed a Manifestation36 that MEGAN will deposit the
quedans, as directed by the RTC, every "Friday of the week."

The rule is that the active participation of the party against whom the action was brought, coupled
with his failure to object to the jurisdiction of the court or administrative body where the action
is pending, is tantamount to an invocation of that jurisdiction and a willingness to abide by the
resolution of the case and will bar said party from later on impugning the court or body’s
jurisdiction.

XLIII.

CONTRIBUTOR: Sir Laurence T. Peña

CASE TITLE: National Power Corporation vs. Ibrahim, et al., G.R. no. 175863, February 18, 2015
PRINCIPLE/S:
Bad faith is a breach of a known duty through some motive of interest or ill will. It is a
state of mind affirmatively operating with furtive design or with some motive of self-
interest or will or for ulterior purpose. Bad faith does not simply connote bad judgment or
negligence; it imports a dishonest purpose or some moral obliquity and conscious doing
of wrong. It means breach of a known duty thru some motive or interest of ill will; it
partakes of the nature of fraud. Malice or bad faith implies a conscious and intentional
design to do a wrongful act for a dishonest purpose or moral obliquity.

A finding of bad faith, thus, usually assumes the presence of two (2) elements: first, that
the actor knew or should have known that a particular course of action is wrong or illegal,
and second, that despite such actual or imputable knowledge, the actor, voluntarily,
consciously and out of his own free will, proceeds with such course of action.

"Payment made in good faith to any person in possession of the credit shall release the
debtor." Article 1242 of the Civil Code is an exception to the rule that a valid payment of
an obligation can only be made to the person to whom such obligation is rightfully owed.
It contemplates a situation where a debtor pays a "possessor of credit" i.e., someone who
is not the real creditor but appears, under the circumstances, to be the real creditor. In
such scenario, the law considers the payment to the "possessor of credit" as valid even
as against the real creditor taking into account the good faith of the debtor.

FACTS:

In 1978, petitioner took possession of a 21,995 square meter parcel of land in Marawi City (subject
land) for the purpose of building thereon a hydroelectric power plant pursuant to its Agus 1
project. The subject land, while in truth a portion of a private estate registered under Transfer
Certificate of Title (TCT) No. 378-A in the name of herein respondent Macapanton K. Mangondato
(Mangondato), was occupied by petitioner under the mistaken belief that such land is part of the
vast tract of public land reserved for its use by the government under Proclamation No. 1354, s.
1974.
Mangondato first discovered petitioner’s occupation of the subject land in 1979—the year that
petitioner started its construction of the Agus 1 plant. Shortly after such discovery, Mangondato
began demanding compensation for the subject land from petitioner.

Thus, during the early 1990s, petitioner and Mangondato partook in a series of communications
aimed at settling the amount of compensation that the former ought to pay the latter in exchange
for the subject land. Ultimately, however, the communications failed to yield a genuine consensus
between petitioner and Mangondato as to the fair market value of the subject land.

With an agreement basically out of reach, Mangondato filed a complaint for reconveyance against
petitioner before the Regional Trial Court (RTC) of Marawi City in July 1992. In his complaint,
Mangondato asked for, among others, the recovery of the subject land and the payment by
petitioner of a monthly rental from 1978 until the return of such land.

For its part, petitioner filed an expropriation complaint before the RTC

The decision upheld petitioner’s right to expropriate the subject land: it denied Mangondato’s
claim for reconveyance and decreed the subject land condemned in favor of the petitioner
disagreeing with the amount of just compensation that it was adjudged to pay under the said
decision, petitioner filed an appeal with the Court of Appeals.

During the pendency of the appeal in the Court of Appeals, herein respondents the Ibrahims and
Maruhoms filed before the RTC of Marawi City a complaint against Mangondato and petitioner.
In their complaint, the Ibrahims and Maruhoms disputed Mangondato’s ownership of the lands
covered by TCT No. 378-A, including the subject land. The Ibrahims and Maruhoms asseverate
that they are the real owners of the lands covered by TCT No. 378-A; they being the lawful heirs
of the late Datu Magayo-ong Maruhom, who was the original proprietor of the said lands.

In the same complaint, the Ibrahims and Maruhoms also prayed for the issuance of a temporary
restraining order (TRO) and a writ of preliminary injunction to enjoin petitioner, during the
pendency of the suit, from making any payments to Mangondato concerning expropriation
indemnity for the subject land. The prayer for TRO was granted.

The cases eventually became final and executory, and the petitioner paid rental fees and
expropriation indemnity to Mangondato.

ISSUE/S:

Whether or not the petitioner acted in bad faith in paying Mangondato the rental fees and
expropriation indemnity.

HELD:

No "bad faith" may be taken against it in paying Mangondato the rental fees and expropriation
indemnity due the subject land.

Bad faith is a breach of a known duty through some motive of interest or ill will. It is a state of
mind affirmatively operating with furtive design or with some motive of self-interest or will or for
ulterior purpose. Bad faith does not simply connote bad judgment or negligence; it imports a
dishonest purpose or some moral obliquity and conscious doing of wrong. It means breach of a
known duty thru some motive or interest of ill will; it partakes of the nature of fraud. Malice or
bad faith implies a conscious and intentional design to do a wrongful act for a dishonest purpose
or moral obliquity.

Verily, the clear denominator in all of the foregoing judicial definition of bad faith is that the
essence of it consists in the deliberate commission of a wrong.

A finding of bad faith, thus, usually assumes the presence of two (2) elements: first, that the
actor knew or should have known that a particular course of action is wrong or illegal, and second,
that despite such actual or imputable knowledge, the actor, voluntarily, consciously and out of
his own free will, proceeds with such course of action. Only with the concurrence of these two
elements can we begin to consider that the wrong committed had been done deliberately and,
thus, in bad faith.

In this case, both Marawi City RTC and the Court of Appeals held that petitioner was in bad faith
when it paid to Mangondato the rental fees and expropriation indemnity due the subject land.
The two tribunals, in substance, fault petitioner when it "allowed" such payment to take place
despite the latter’s alleged knowledge of the existing claim of the Ibrahims and Maruhoms upon
the subject land and the issuance of a TRO.
Both tribunals are erroneous.

Marawi City RTC and the Court of Appeals erred in their finding of bad faith because they have
overlooked the utter significance of one important fact: that petitioner’s payment to Mangondato
of the rental fees and expropriation indemnity was required by the final and executory decision
in the said two cases and was compelled thru a writ of garnishment issued by the court that
rendered such decision. In other words, the payment to Mangondato was not a product of a
deliberate choice on the part of the petitioner but was made only in compliance to the lawful
orders of a court with jurisdiction.

Without the existence of bad faith, the ruling of the RTC and of the Court of Appeals apropos
petitioner’s remaining liability to the Ibrahims and Maruhoms becomes devoid of legal basis. In
fact, petitioner’s previous payment to Mangondato of the rental fees and expropriation indemnity
due the subject land pursuant to the final judgment may be considered to have extinguished the
former’s obligation regardless of who between Mangondato, on one hand, and the Ibrahims and
Maruhoms, on the other, turns out to be the real owner of the subject land. Either way, petitioner
cannot be made liable to the Ibrahims and Maruhoms:

First. If Mangondato is the real owner of the subject land, then the obligation by petitioner to pay
for the rental fees and expropriation indemnity due the subject land is already deemed
extinguished by the latter’s previous payment under the final judgment. This would be a simple
case of an obligation being extinguished through payment by the debtor to its creditor. Under
this scenario, the Ibrahims and Maruhoms would not even be entitled to receive anything from
anyone for the subject land. Hence, petitioner cannot be held liable to the Ibrahims and
Maruhoms.
Second. We, however, can reach the same conclusion even if the Ibrahims and Maruhoms turn
out to be the real owners of the subject land.

Should the Ibrahims and Maruhoms turn out to be the real owners of the subject land, petitioner’s
previous payment to Mangondato, given the absence of bad faith on petitioner’s part as previously
discussed, may nonetheless be considered as akin to a payment made in "good faith "to a person
in "possession of credit" per Article 1242 of the Civil Code that, just the same, extinguishes its
obligation to pay for the rental fees and expropriation indemnity due for the subject land. Article
1242 of the Civil Code reads:

"Payment made in good faith to any person in possession of the credit shall release the debtor."
Article 1242 of the Civil Code is an exception to the rule that a valid payment of an obligation can
only be made to the person to whom such obligation is rightfully owed. It contemplates a situation
where a debtor pays a "possessor of credit" i.e., someone who is not the real creditor but appears,
under the circumstances, to be the real creditor. In such scenario, the law considers the payment
to the "possessor of credit" as valid even as against the real creditor taking into account the good
faith of the debtor.

Borrowing the principles behind Article 1242 of the Civil Code, we find that Mangondato—being
the judgment creditor as well as the registered owner of the subject land at the time —may be
considered as a "possessor of credit" with respect to the rental fees and expropriation indemnity
adjudged due for the subject land in the two cases, if the Ibrahims and Maruhoms turn out to be
the real owners of the subject land. Hence, petitioner’s payment to Mangondato of the fees and
indemnity due for the subject land as a consequence of the execution could still validly extinguish
its obligation to pay for the same even as against the Ibrahims and Maruhoms.

XLIV.

CONTRIBUTOR: TIU, JOMARIE C.

CASE TITLE: DAO HENG BANK, INC.vs. SPS. LILIA and REYNALDO LAIGO
G.R. No. 173856 November 20, 2008
PRINCIPLE: Dacion en pago as a mode of extinguishing an existing obligation partakes of the
nature of sale whereby property is alienated to the creditor in satisfaction of a debt in money. It
is an objective novation of the obligation, hence, common consent of the parties is required in
order to extinguish the obligation.

Facts:
Respondents, Spouses Laigo, Loaned money from petitioner, Dao Heng Bank(DHB),
secured by a real estate mortgage. Laigo failed to pay DHB and verbally offered to cede their
property to the latter by way of dacion en pago. Both appraised the property but the offer was
not acted upon and DHB proceeded to foreclose the mortgaged property. Laigo filed a complaint
in RTC for them to be allowed to deliver by way of dacion en pago the mortgaged properties as
full payment of their mortgaged obligation.
Issue:
Whether or not there was Dacion en Pago.

Held:
Yes.
Dacion en pago as a mode of extinguishing an existing obligation partakes of the nature
of sale whereby property is alienated to the creditor in satisfaction of a debt in money. It is an
objective novation of the obligation, hence, common consent of the parties is required in order
to extinguish the obligation.
In any case, common consent is an essential prerequisite, be it sale or novation,
to have the effect of totally extinguishing the debt or obligation.
In the case at bar, There is no concrete showing, however, that after the appraisal of the
properties, petitioner approved respondents proposal to settle their obligation via dacion en
pago. The delivery to petitioner of the titles to the properties is a usual condition sine qua non to
the execution of the mortgage, both for security and registration purposes. For if the title to a
property is not delivered to the mortgagee, what will prevent the mortgagor from again
encumbering it also by mortgage or even by sale to a third party.

XLV.

Contributor: Jayme, Annaliza P.

Case Title: SPS. JUAN CHUY TAN and MARY TAN (deceased) substituted by surviving heirs,
JOEL TAN and ERIC TAN vs. CHINA BANKING CORPORATION
G.R. No. 200299, August 17, 2016
Ponente: J. Perez, 3rd Division

Principle/s:
*Under Article 1232 of the Civil Code, payment means not only the delivery of money but
also the performance, in any other manner, of an obligation. Article 1233 of the Code states
that a debt shall not be understood to have been paid unless the thing or service in which the
obligation consists has been completely delivered or rendered, as the case may be. In
contracts of loan, the debtor is expected to deliver the sum of money due the creditor.
*The rights and obligations of parties are governed by the terms and conditions of the
contract and not by assumptions and presuppositions of the parties.

Facts:
Petitioners Joel and Eric Tan, as substitutes for their deceased parents, represented Lorenze
Realty and Development Corporation—a domestic corporation duly authorized by
Philippine laws to engage in real estate business. Respondent China Banking Corporation, on
the other hand, is a universal banking corporation duly authorized by Bangko Sentral ng
Pilipinas to engage in banking business. In 1997, Lorenze Realty obtained various amounts
of loan and credit accommodations from China Bank—the sum of which amounting to
P71,050,000. Lorenze Realty in their Promissory Notes, agreed to pay the additional amount
of 1/10 of 1% per day of the total amount of obligation due as penalty to be computed from
the day that the default was incurred up to the time that the loan obligations are fully paid.
They also undertook to pay an additional 10% of the total amount due including interests,
surcharges and penalties as attorney’s fees.

As security for the said obligations, Lorenze Realty executed Real Estate executed Real Estate
Mortgages (REM) over 11 parcels of land in Valenzuela City. When Lorenze Realty defaulted
in paying its amortization, China Bank caused the extra-judicial foreclosure of the REM
constituted on the securities. China Bank emerged as the highest bidder after bidding
P85,000,000. However, there still remained a balance. China Bank demanded payment for
the deficiency but petitioners did not pay the same. Hence, China Bank filed an action for
collection of sum of money against Lorenze Realty and its officers. RTC ruled in favor of China
Bank. Aggrieved, China Bank appealed to CA. CA affirmed the RTC Decision with
modification.

Issue:
Whether Lorenze Realty’s obligation is extinguished upon the extra-judicial foreclosure of
the REM despite the deficiency?

Ruling: No. Obligations are extinguished, among others, by payment or performance, the
mode most relevant to the factual situation in the present case. Under Article 1232 of the
Civil Code, payment means not only the delivery of money but also the performance, in any
other manner, of an obligation. Article 1233 of the Code states that a debt shall not be
understood to have been paid unless the thing or service in which the obligation consists has
been completely delivered or rendered, as the case may be. In contracts of loan, the debtor
is expected to deliver the sum of money due the creditor. These provisions must be read in
relation with the other rules on payment under the Civil Code, such as the application of
payment, to wit:

Art. 1252. He who has various debts of the same kind in favor of one and the same creditor,
may declare at the time of making the payment, to which of them the same must be applied.
Unless the parties so stipulate, or when the application of payment is made by the party for
whose benefit the term has been constituted, application shall not be made as to debts which
are not yet due.

If the debtor accepts from the creditor a receipt in which an application of the payment is
made, the former cannot complain of the same, unless there is a cause for invalidating the
contract. In interpreting the foregoing provision of the statute, the Court in Premiere
Development Bank vs. Central Surety & Insurance Company Inc., held that the right of the
debtor to apply payment is merely directory in nature and must be promptly exercised, lest,
such right passes to the creditor.
Article 1252 gives the right to the debtor to choose to which of several obligations to apply·
a particular payment that he tenders to the creditor. But likewise granted in the same
provision is the right of the creditor to apply such payment in case the debtor fails to direct
its application. This is obvious in Art. 1252, par. 2, viz.: If the debtor accepts from the creditor
a receipt in which an application of payment is made, the former cannot complain of the
same. It is the directory nature of this right and the subsidiary right of the creditor to apply
payments when the debtor does not elect to do so that make this right, like any other right,
waivable.

Rights may be waived, unless the waiver is contrary to law, public order, public policy,
morals or good customs, or prejudicial to a third person with a right recognized by law.

A debtor, in making a voluntary payment, may at the time of payment direct an application
of it to whatever account he chooses, unless he has assigned or waived that right. If the
debtor does not do so, the right passes to the creditor, who may make such application as he
chooses. But if neither party has exercised its option, the court will apply the payment
according to the justice and equity of the case, taking into consideration all its
circumstances." [Emphasis supplied, citations omitted.]

In the event that the debtor failed to exercise the right to elect, the creditor may choose to
which among the debts the payment is applied as in the case at bar. It is noteworthy that
after the sale of the foreclosed properties at the public auction, Lorenze Realty failed to
manifest its preference as to which among the obligations that were all due the proceeds of
the sale should be applied. Its silence can be construed as acquiescence to China Bank's
application of the payment first to the interest and penalties and the remainder to the
principal which is sanctioned by Article 1253 of the New Civil Code which provides that:. Art.
1253. If the debt produces interest, payment of the principal shall not be deemed to have
been made until the interests have been covered.

That they assume that the obligation is fully satisfied by the sale of the securities does not
hold any water. Nowhere in our statutes and jurisprudence do they provide that the sale of
the collaterals constituted as security of the obligation results in the extinguishment of the
obligation. The rights and obligations of parties are governed by the terms and conditions of
the contract and not by assumptions and presuppositions of the parties. The amount of their
entire liability should be computed on the basis of the rate of interest as imposed by the CA
minus the proceeds of the sale of the foreclosed properties in public auction.

XLVI.

Contributor: Hana Rea O. Tamse

Case Title: Estanislao and Africa Sinamban vs. China Banking Corporation G.R. No. 193890,
March 11, 2015

Principle:
▪ Where there is a concurrence of two (2) or more creditors or of two or more debtors in
one (1) and the same obligation, Article 1207 provides that among them, “[t]here is a
solidary liability only when the obligation expressly so states, or when the law or the
nature of the obligation requires solidarity.

Facts:
1. On February 19, 1990, spouses Danilo and Magdalena Manalastas executed a Real Estate
Mortgage in favor of respondent, China Banking Corporation, over 2 real estate properties
to secure a loan amounting P700,000.00.
2. During the next few years, the executed several amendments to the mortgage contract
progressively increasing their credit line secured by the aforesaid mortgage.
3. The spouses Manalastas executed several promissory notes in favor of China Bank. In the
2 of the promissory notes, petitioners, spouses Estanislao and Africa Sinamban, signed as
co-makers.
4. Chinabank filed a complaint for sum of money against spouses Manalastas and spouses
Sinamban for allegedly stating that they reneged on their loan obligations under the PNs
which spouses Manalastas executed in favor of Chinabank on different dates:
▪ PN 1: April 24, 1995 – P1,800,000.00 with 23% interest per annum with spouses
Manalastas signed alone as makers;
▪ PN 2: May 23, 1995 – P325,000.00 with 21% interest per annum with spouses
Sinamban signed as solidary co-makers; and
▪ PN 3: February 26, 1991 – P1,300,000.00 with 22.5% interest per annum with
only Estanislao Sinamban signed as solidary co-maker.
5. Pursuant to the PNs, Chinabank instituted extrajudicial foreclosure proceedings against
the mortgage security.
6. The spouses Sinamban denied having executed or participated in the execution the
aforementioned PNs. They however admitted that they signed some PN forms as co-
makers upon the request of the spouses Manalastas who are their relatives; although they
insisted that they derived no money or other benefits from the loans. And they denied
knowing about the mortgage security provided by the spouses Manalastas, or that the
latter defaulted on their loans.

Issues: Whether or not spouses Sinamban are solidarily liable with the principal makers of the
PNs.

Ruling:
Yes, spouses Sinamban are solidarily liable with the principal makers of the PNs.

According to Article 2047 of the Civil Code, if a person binds himself solidarily with the
principal debtor, the provisions of Articles 1207 to 1222 of the Civil Code (Section 4,Chapter 3,
Title I, Book IV) on joint and solidary obligations shall be observed. Thus, where there is a
concurrence of two or morecreditors or of two or more debtors in one and the same obligation,
Article 1207 provides that among them, “[t]here is a solidary liability only when the obligation
expressly so states, or when thelaw or the nature of the obligation requires solidarity.” It is settled
that when the obligor or obligors undertake to be “jointly and severally” liable, it means that the
obligation is solidary.

In this case, the spouses Sinamban expressly bound themselves to be jointly and severally,
or solidarily, liable with the principal makers of the PNs, the spouses Manalastas.

Therefore, spouses Sinamban are solidarily liable with the principal makers of the PNs.

XLVII.

CONTRIBUTOR: MORALDE, KATRAENA P.

CASE TITLE: NUNELON R. MARQUEZ v. ELISAN CREDIT CORPORATION
G.R. No. 194642, April 06, 2015

PRINCIPLE: Article 1176 vis-a-vis Article 1253. The law provides that there is a need to
analyze and harmonize Article 1176 and Article 1253 of the Civil Code to determine whether the
daily payments made after the second loan's maturity should be credited against the interest or
against the principal. Article 1176 provides that: "The receipt of the principal by the creditor,
without reservation with respect to the interest, shall give rise to the presumption
that said interest has been paid. xxx." On the other hand, Article 1253 states: "If the debt
produces interest, payment of the principal shall not be deemed to have been made
until the interests have been covered."

FACTS: Nunelon R. Marquez (petitioner) obtained a (first loan) from Elisan Credit Corporation
(ECC) (respondent) for Php 53,000.00 payable in 180 days. Marquez signed a promissory note
which provided that it is payable in weekly instalments and subject to 26% annual interest. In
case of non-payment, the petitioner agreed to pay 10% monthly penalty based on the total
amount unpaid. To further secure payment of the loan, Marquez executed a chattel mortgage
over a motor vehicle. The contract of chattel mortgage provided among others, that the motor
vehicle shall stand as a security for the first loan and "all other obligations of every kind already
incurred or which may hereafter be incurred." Both Marquez and ECC acknowledged the full
payment of the first loan. Subsequently, Marquez obtained another loan (second loan) from ECC
for P55,000.00 evidenced by a promissory note10 and a cash voucher11 both dated June 15, 1992.
The promissory note covering the second loan contained exactly the same terms and conditions
as the first promissory note. When the second loan matured, Marquez had only paid P29,960.00,
leaving an unpaid balance of P25,040.00. Due to liquidity problems, the Marquez asked ECC if he
could pay in daily instalments (daily payments) until the second loan is paid. ECC granted the
Marquez's request. Thus, as of September 1994 or twenty-one (21) months after the second
loan's maturity, Marquez had already paid a total of P56,440.00, an amount greater than the
principal.
Despite the receipt of more than the amount of the principal, ECC filed a complaint for judicial
foreclosure of the chattel mortgage because Marquez allegedly failed to settle the balance of the
second loan despite demand. ECC prayed that the Marquez be ordered to pay the balance of the
second loan plus accrued penalties and interest. Before Marquez could file an answer, ECC applied
for the issuance of a writ of replevin. The MTC issued the writ and by virtue of which, the motor
vehicle covered by the chattel mortgage was seized from Marquez and delivered to the
respondent, ECC. Trial on the merits thereafter ensued.

On appeal, Marquez argued that he has fully paid his obligation. He insisted that his daily
payments should be deemed to have been credited against the principal, as the official receipts
issued by the respondent were silent with respect to the payment of interest and penalties. He
cited Article 1176 of the Civil Code which ordains that [t]he receipt of the principal by the creditor
without reservation with respect to the interest, shall give rise to the presumption that the interest
has been paid. He also invoked Article 1235 of the Civil Code which states that "[w]hen the
obligee accepts the performance of an obligation, knowing its incompleteness or irregularity, and
without expressing any protest or objection, the obligation is deemed fully complied with."

ECC, on the other hand claimed that the daily payments were properly credited against the
interest and not against the principal because the petitioner incurred delay in the full payment of
the second loan. It argued that pursuant to the terms and conditions of the promissory note, the
interest and penalties became due and demandable when the petitioner failed to pay in full upon
maturity. It relied on Article 1253 of the Civil Code which provides that if the debt produces
interest, payment of the principal shall not be deemed to have been made until the interests have
been covered. ECC likewise maintained that the chattel mortgage could validly secure the second
loan invoking its provision which provided that it covers "obligations...which may hereafter be
incurred."

ISSUES: Whether or not the respondent act lawfully when it credited the daily payments against
the interest instead of the principal? Could the chattel mortgage cover the second loan?

HELD: The Supreme Court found the petition partly meritorious. It ruled that: (1) the
respondent acted pursuant to law and jurisprudence when it credited the daily payments against
the interest instead of the principal; and (2) the chattel mortgage could not cover the second
loan.

Rebuttable presumptions; Article 1176 vis-a-vis Article 1253. There is a need to analyze
and harmonize Article 1176 and Article 1253 of the Civil Code to determine whether the daily
payments made after the second loan's maturity should be credited against the interest or against
the principal. Article 1176 provides that: "The receipt of the principal by the creditor,
without reservation with respect to the interest, shall give rise to the presumption
that said interest has been paid. xxx."
On the other hand, Article 1253 states: "If the debt produces interest, payment of the
principal shall not be deemed to have been made until the interests have been
covered." The two provisions appear to be contradictory but they in fact support, and are in
conformity with, each other. Both provisions are also presumptions and, as such, lose their legal
efficacy in the face of proof or evidence to the contrary. Thus, the settlement of the first issue
depends on which of these presumptions prevails under the given facts of the case. There are
two undisputed facts crucial in resolving the first issue: (1) the petitioner failed to pay the full
amount of the second loan upon maturity; and (2) the second loan was subject to interest, and
in case of default, to penalty and attorney's fees.

Further, Article 1176 falls under Chapter I (Nature and Effect of Obligations) while Article
1253 falls under Subsection I (Application of Payments), Chapter IV (Extinguishment of
Obligations) of Book IV (Obligations and Contracts) of the Civil Code. The structuring of these
provisions, properly taken into account, means that Article 1176 should be treated as a general
presumption subject to the more specific presumption under Article 1253. Article 1176 is relevant
on questions pertaining to the effects and nature of obligations in general, while Article 1253 is
specifically pertinent on questions involving application of payments and extinguishment of
obligations. Correlating the two provisions, the rule under Article 1253 that payments shall first
be applied to the interest and not to the principal shall govern if two facts exist: (1) the debt
produces interest (e.g., the payment of interest is expressly stipulated) and (2) the principal
remains unpaid.

The exception is a situation covered under Article 1176, i.e., when the creditor waives payment
of the interest despite the presence of (1) and (2) above. In such case, the payments shall
obviously be credited to the principal. Since the doubt in the present case pertains to the
application of the daily payments, Article 1253 shall apply. Only when there is a waiver of interest
shall Article 1176 become relevant.
Under this analysis, the Supreme Court ruled that the respondent properly credited the daily
payments to the interest and not to the principal because: (1) the debt produces interest, i.e.,
the promissory note securing the second loan provided for payment of interest; (2) a portion of
the second loan remained unpaid upon maturity; and (3) the respondent did not waive the
payment of interest.

In the present case, it was not proven that the respondent accepted the payment of the principal.
The silence of the receipts on whether the daily payments were credited against the unpaid
balance of the principal or the accrued interest does not mean that the respondent waived the
payment of interest. There is no presumption of waiver of interest without any evidence showing
that the respondent accepted the daily installments as payments for the principal.

The Chattel Mortgage could not cover the second loan.

The chattel mortgage could not validly cover the second loan. The order for foreclosure was
without legal and factual basis. The Supreme Court ordered Respondent Elisan Credit Corporation
to return/deliver the seized motor vehicle with Plate No. UV-TDF-193, subject of the chattel
mortgage, to the possession of the petitioner; in the event its delivery is no longer possible, to
pay the petitioner the amount of P30,000.00 corresponding to the value of the said vehicle.

XLVIII.

CONTRIBUTOR: JOHNSON VERGARA SARSONAS

CASE TITLE: Spouses Villaluz vs Landbank of the Philippines
Doctrine: the rule is that an agent is allowed to appoint a sub-agent in the absence of an
express agreement to the contrary and that "a scrutiny of the Special Power of Attorney dated
March 25, 1996 executed by appellants in favor of [Agbisit] contained no prohibition for the
latter to appoint a sub-agent."[15] Therefore, Agbisit was allowed to appoint Milflores
Cooperative as her sub-agent.
Facts:
Sometime in 1996, Paula Agbisit (Agbisit), mother of petitioner May S. Villaluz (May), requested
the latter to provide her with collateral for a loan. At the time, Agbisit was the chairperson of
Milflores Cooperative and she needed P600,000 to P650,000 for the expansion of her backyard
cut flowers business.[4] May convinced her husband, Johnny Villaluz (collectively, the Spouses
Villaluz), to allow Agbisit to use their land, located in Calinan, Davao City and covered by
Transfer Certificate of Title (TCT) No. T-202276, as collateral.[5] On March 25, 1996, the
Spouses Villaluz executed a Special Power of Attorney[6] in favor of Agbisit authorizing her to,
among others, "negotiate for the sale, mortgage, or other forms of disposition a parcel of land
covered by Transfer Certificate of Title No. T-202276" and "sign in our behalf all documents
relating to the sale, loan or mortgage, or other disposition of the aforementioned property."
On June 19, 1996, Agbisit executed her own Special Power of Attorney,[8] appointing Milflores
Cooperative as attorney-in-fact in obtaining a loan from and executing a real mortgage in favor
of Land Bank of the Philippines (Land Bank). On June 21, 1996, Milflores Cooperative, in a
representative capacity, executed a Real Estate Mortgage[9] in favor of Land Bank in
consideration of the P3,000,000 loan to be extended by the latter. On June 24, 1996, Milflores
Cooperative also executed a Deed of Assignment of the Produce/Inventory[10] as additional
collateral for the loan. Land Bank partially released one-third of the total loan amount, or
P995,500, to Milflores Cooperative on June 25, 1996. On the same day, Agbisit borrowed the
amount of P604,750 from Milflores Cooperative. Land Bank released the remaining loan amount
of P2,000,500 to Milflores Cooperative on October 4, 1996.[11]
Unfortunately, Milflores Cooperative was unable to pay its obligations to Land Bank. Thus, Land
Bank filed a petition for extra-judicial foreclosure sale with the Office of the Clerk of Court of
Davao City. Sometime in August, 2003, the Spouses Villaluz learned that an auction sale
covering their land had been set tor October 2, 2003. Land Bank won the auction sale as the
sole bidder.
The Spouses Villaluz filed a complaint with the Regional Trial Court (RTC) of Davao City seeking
the annulment of the foreclosure sale.
Issues:
whether Agbisit could have validly delegated her authority as attorney-in-fact to Milflores
Cooperative
Ruling:
Citing Article 1892 of the Civil Code, the RTC held that the delegation was valid since the
Special Power of Attorney executed by the Spouses Villaluz had no specific prohibition against
Agbisit appointing a substitute. Accordingly, the RTC dismissed the complaint... the CA affirmed
the RTC Decision... the petition is DENIED. The Decision dated September 22, 2009 and
Resolution dated May 26, 2010 of the Court of Appeals in CA-G.R. CV No. 01307 are AFFIRMED

XLIX.

CONTRIBUTOR: AGUILANDO, MA. LOURDES M.

CASE TITLE: SPOUSES OSCAR AND THELMA CACAYORIN vs. ARMED FORCES AND POLICE
MUTUAL BENEFIT ASSOCIATION, INC., G.R. No. 171298, April 15, 2013

PRINCIPLES:
● Consignation is necessarily judicial. Article 1258 of the Civil Code specifically provides that
consignation shall be made by depositing the thing or things due at the disposal of judicial
authority. The said provision clearly precludes consignation in venues other than the
courts.

● Under Article 1256 of the Civil Code,[24] the debtor shall be released from responsibility
by the consignation of the thing or sum due, without need of prior tender of payment,
when the creditor is absent or unknown, or when he is incapacitated to receive the
payment at the time it is due, or when two or more persons claim the same right to collect,
or when the title to the obligation has been lost.

FACTS:

Oscar Cacayorin filed an application with AFPMBAI to purchase a piece of property which the
latter owned, specifically Lot 5, Block 8, Phase I, Kalikasan Mutual Homes, San Pedro, Puerto
Princesa City (the property), through a loan facility.

Oscar and his wife and co-petitioner herein, Thelma, on one hand, and the Rural Bank of San
Teodoro (the Rural Bank) on the other, executed a Loan and Mortgage Agreement with the former
as borrowers and the Rural Bank as lender, under the auspices of Pag-IBIG or Home Development
Mutual Fund’s Home Financing Program.
The Rural Bank issued a letter of guaranty informing AFPMBAI that the proceeds of petitioners’
approved loan in the amount of P77,418.00 shall be released to AFPMBAI after title to the property
is transferred in petitioners’ name and after the registration and annotation of the parties’
mortgage agreement. AFPMBAI executed in petitioners’ favor a Deed of Absolute Sale, and a new
title – Transfer Certificate of Title No. 37017 (TCT No. 37017) – was issued in their name, with
the corresponding annotation of their mortgage agreement with the Rural Bank, under Entry No.
3364.

Unfortunately, the Pag-IBIG loan facility did not push through and the Rural Bank closed and was
placed under receivership by the Philippine Deposit Insurance Corporation (PDIC). Meanwhile,
AFPMBAI somehow was able to take possession of petitioners’ loan documents and TCT No.
37017, while petitioners were unable to pay the loan/consideration for the property.

Petitioners filed a Complaint for consignation of loan payment, recovery of title and cancellation
of mortgage annotation against AFPMBAI, PDIC and the Register of Deeds of Puerto Princesa
City. Petitioners alleged in their Complaint that as a result of the Rural Bank’s closure and PDIC’s
claim that their loan papers could not be located, they were left in a quandary as to where they
should tender full payment of the loan and how to secure cancellation of the mortgage annotation
on TCT No. 37017.
AFPMBAI filed a Motion to Dismiss claiming that petitioners’ Complaint falls within the jurisdiction
of the Housing and Land Use Regulatory Board (HLURB) and not the Puerto Princesa RTC, as it
was filed by petitioners in their capacity as buyers of a subdivision lot and it prays for specific
performance of contractual and legal obligations decreed under Presidential Decree No. 957 (PD
957). It added that since no prior valid tender of payment was made by petitioners, the
consignation case was fatally defective and susceptible to dismissal.

The trial court denied AFPMBAI’s Motion to Dismiss, declaring that since title has been transferred
in the name of petitioners and the action involves consignation of loan payments, it possessed
jurisdiction to continue with the case. It further held that the only remaining unsettled transaction
is between petitioners and PDIC as the appointed receiver of the Rural Bank.

The CA held that this a case for specific performance of AFPMBAI’s contractual and statutory
obligations as owner/developer of Kalikasan Mutual Homes, which makes PD 957 applicable and
thus places the case within the jurisdiction of the HLURB. It said that since one of the remedies
prayed for is the delivery to petitioners of TCT No. 37017, the case is cognizable exclusively by
the HLURB.

ISSUE:

Does the Complaint fall within the exclusive jurisdiction of the HLURB?

RULING:

No. Consignation is necessarily judicial, as the Civil Code itself provides that consignation shall be
made by depositing the thing or things due at the disposal of judicial authority, thus:
Art. 1258. Consignation shall be made by depositing the things due at the disposal of judicial
authority, before whom the tender of payment shall be proved, in a proper case, and the
announcement of the consignation in other cases.

The consignation having been made, the interested parties shall also be notified thereof.
(Emphasis and underscoring supplied)

The above provision clearly precludes consignation in venues other than the courts. Elsewhere,
what may be made is a valid tender of payment, but not consignation. The two, however, are to
be distinguished.

Tender of payment must be distinguished from consignation. Tender is the antecedent of

consignation, that is, an act preparatory to the consignation, which is the principal, and from
which are derived the immediate consequences which the debtor desires or seeks to obtain.
Tender of payment may be extrajudicial, while consignation is necessarily judicial, and the priority
of the first is the attempt to make a private settlement before proceeding to the solemnities of
consignation.

Under Article 1256 of the Civil Code, the debtor shall be released from responsibility by the
consignation of the thing or sum due, without need of prior tender of payment, when the creditor
is absent or unknown, or when he is incapacitated to receive the payment at the time it is due,
or when two or more persons claim the same right to collect, or when the title to the obligation
has been lost. Applying Article 1256 to the petitioners’ case as shaped by the allegations in their
Complaint, the Court finds that a case for consignation has been made out, as it now appears
that there are two entities which petitioners must deal with in order to fully secure their title to
the property: 1) the Rural Bank (through PDIC), which is the apparent creditor under the July 4,
1994 Loan and Mortgage Agreement; and 2) AFPMBAI, which is currently in possession of the
loan documents and the certificate of title, and the one making demands upon petitioners to pay.
Clearly, the allegations in the Complaint present a situation where the creditor is unknown, or
that two or more entities appear to possess the same right to collect from petitioners.

Finally, the lack of prior tender of payment by the petitioners is not fatal to their consignation
case. They filed the case for the exact reason that they were at a loss as to which between the
two – the Rural Bank or AFPMBAI – was entitled to such a tender of payment. Besides, as earlier
stated, Article 1256 authorizes consignation alone, without need of prior tender of payment,
where the ground for consignation is that the creditor is unknown, or does not appear at the
place of payment; or is incapacitated to receive the payment at the time it is due; or when,
without just cause, he refuses to give a receipt; or when two or more persons claim the same
right to collect; or when the title of the obligation has been lost.

L.

CONTRIBUTOR: LYN M. MONDONEDO

CASE TITLE: JAIME B. BIANA vs GEORGE GIMENEZ, (G.R. No. 132768)

PRINCIPLE:

● REDEMPTION – A mere tender of a check is sufficient to compel redemption.

● The court agrees with the ruling of the two courts below that there has been a valid
payment of the redemption price which would entitle respondent to the issuance of a
Deed of Redemption in his favor.
FACTS:

Gimenez was one of the defendants who lost in labor case. As such, he land his co-defendants
had to pay their opponent Mendones. The petitioner failed to pay, so Sheriff Madera issued a levy
on 4 parcels of land titled to them. Subsequently, a public aution was held, and Mendones
acquired the lots under Deed of Sale. For purposes of paying the redemption price of the subject
properties, Gimenez deposited with Sheriff Manuel the sum of Php 5,625 for which the latter
issued a receipt.

Madera wrote a letter to Gimenez that he still owed a sum for the redemption price including the
publication fee. Gimenez claims to have paid the publication fee in full already. The 1-yrar
redemption period lapsed so an Absolute Deed of Sale was issued to Mendones who later assigned
all his rights to Jaime. Gimenez, thus filed a petition for mandamus to order the sheriff to issue a
deed of redemption in his favor.

ISSUE:

Whether or not the sheriff be legally compelled to executed a deed of redemption in favor of
Gimenez?

RULING:

Yes.

SC ruled that when Gimenez deposited the checks the redemption of the properties were valid
even though they were postdated, because a tender of a check is sufficient for purposes of
redemption although it does not lift the obligation of the redemptioner to pay for the property to
be redeemed .

On surface, petitioners posture appears to hold water. However, a close scrutiny of the facts
obtaining in PAL reveals that petitioners reliance on the ruling thereon is misplaced. First and
foremost, what is involved in PAL is the payment of a judgment obligation and thus, the Civil
Code provisions on payment of obligations, particularly Article 1249 thereof, are applicable. In
glaring contrast, the instant case involves not the payment of an obligation but the exercise of a
right, i.e., the right of redemption. Accordingly, the Civil Code provisions on payment of
obligations may not be applied here. What applies is the settled rule that a mere tender of a
check is sufficient to compel redemption.
 LI.

Contributor: Flora May Mondares

Case Title: DEVELOPMENT BANK OF THE PHILIPPINES, vs. CLARGES REALTY
CORPORATIONV G.R. No. 170060
Principle: Article 1266 of the Civil Code, which releases the obligor from the prestation, only
applies to obligations to do, not obligations to give. In this case, the obligation involved is an
obligation to give, specifically, to deliver a clean title to the property in the Deed of Absolute
Sale. Petitioner cannot avoid its obligation.

FACTS:

The property is a 12,355-square-meter parcel of land located along Pasong Tamo

Extension, Makati City registered under the name of Marinduque Mining and Industrial
Corporation. To secure a loan, Marinduque Mining and Industrial Corporation first
mortgaged the property to Caltex Philippines, Inc. A second mortgage was constituted over
the property, this time in favor of the Development Bank of the Philippines and the Philippine
National Bank.
When Marinduque Mining and Industrial Corporation failed to pay its loan obligations, the
Development Bank of the Philippines and the Philippine National Bank jointly instituted
extrajudicial foreclosure proceedings over the property sometime in July and August
1984. The mortgagee banks emerged as the highest bidders during the public sale but were
unable to redeem the property because of Caltex Philippines, Inc. 's first mortgage.
On January 20, 1986, first mortgagee Caltex Philippines, Inc. foreclosed its mortgage on the
property. As second mortgagee, the Development Bank of the Philippines redeemed the
property from Caltex Philippines, Inc. and the property formed part of the Development
Bank of the Philippines' physical assets. The Development Bank of the Philippines then
offered the property for public sale, where Clarges Realty Corporation emerged as the
highest bidder. Clarges Realty Corporation offered P24,070,000.00 as payment for the
property.

Development Bank of the Philippines (as vendor) and Clarges Realty Corporation (as
vendee) executed a Deed of Absolute Sale for the property. Development Bank of the
Philippines bound itself under Clause 6 of the Deed of Absolute Sale to deliver a title to the
property "free from any and all liens and encumbrances."The Development Bank of the
Philippines succeeded in having the property registered under its name. However, new TCT
contained annotations from the former TCT, specifically, the mortgage lien of the Philippine
National Bank and a tax lien for unpaid taxes incurred by Marinduque Mining and Industrial
Corporation. Clarges Realty Corporation had already rested its case when the Development
Bank of the Philippines moved for leave of court to file a third-party complaint. The
Development Bank of the Philippines sought to implead the Asset Privatization Trust as a
third-party defendant and maintained that the Asset Privatization Trust had assumed the
"direct and personal" obligation to pay for Marinduque Mining and Industrial Corporation's
tax liability and to have the partially reduced tax lien cancelled.
ISSUE: Whether or not petitioner Development Bank of the Philippines is bound to terms
under Clause 6 of the Contract of Sale with Clarges Realty Corporation.

RULING:

Petitioner need not to wait for contribution from the Asset Privatization Trust before
it can fulfill its obligation to deliver a clean title to the property to respondent. Petitioner, as
mortgagee of the property, can very well pay the tax liability and cause the cancellation of
the tax lien. There was no legal impossibility to speak of, as the proviso in Section 219of the
National Internal Revenue Code states that "any mortgagee, purchaser or judgment creditor"
to whom no tax lien shall be valid until notice of the lien is filed before the Register of Deeds.
This suggests that the tax lien may be enforced against any mortgagee.

Petitioner cannot invoke Articles 1266 and 1267 of the Civil Code. These provisions-
which release debtors from their obligations if they become legally or physical impossible or
so difficult to be manifestly beyond the contemplation of the parties-only apply to obligations
to do. They do not apply to obligations to give as when a party is obliged to deliver a
thing which, in this case, is a certificate of title to a real property free from liens and
encumbrances.

When petitioner acquired the property, the bank also acquired the liabilities attached
to it, among them being the tax liability to the Bureau of Internal Revenue. That the unpaid
taxes were incurred by the defunct Marinduque Industrial and Mining Corporation is
immaterial. In acquiring the property, petitioner assumed the obligation to pay for the
unpaid taxes.

LII.

Contributor: Rodolfo B. Demonteverde III

Case Title: ILOILO JAR CORPORATION vs. COMGLASCO CORPORATION AGUILA GLASS, G.R.
No. 219509 January 18, 2017

Principle:
Art. 1267 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. (n)
The principle of rebus sic stantibus neither fits in with the facts of the case. Under this
theory, the parties stipulate in the light of certain prevailing conditions, and once these
conditions cease to exist, the contract also ceases to exist
Comglasco’s position fails to impress because Article 1267 applies only to obligations to
do and not to obligations to give.
Facts:

Petitioner Iloilo Jar Corporation as lessor, and respondent Comglasco as lessee, entered into a
lease contract over a portion of a warehouse building, for a period of three (3) years or until
August 15, 2003.

On December 1, 2001, Comglasco requested for the pre-termination of the lease effective on the
same date. Iloilo Jar, however, rejected the request on the ground that the pre-termination of
the lease contract was not stipulated therein.

Despite the denial of the request for pre-termination, Comglasco still removed all its stock,
merchandise and equipment from the leased premises on January 15, 2002. From the time of the
withdrawal of the equipment, and notwithstanding several demand letters, Comglasco no longer
paid all rentals accruing from the said date.

On September 14, 2003, Iloilo Jar sent a final demand letter to Comglasco, but it was again
ignored. Consequently, Iloilo Jar filed a civil action for breach of contract and damages before
the RTC on October 10, 2003.

On June 28, 2004, Comglasco filed its Answer and raised an affirmative defense, arguing that by
virtue of Article 1267 of the Civil Code (Article 1267) it was released from its obligation from the
lease contract. It explained that the consideration thereof had become so difficult due to the
global and regional economic crisis that had plagued the economy.

Comglasco admitted that it had removed its stocks and merchandise but it did not refuse to pay
the rentals because the lease contract was already deemed terminated. Further, it averred that
though it received the demand letters, it did not amount to a refusal to pay the rent because the
lease contract had been pre-terminated in the first place.

Iloilo Jar insisted that Comglasco cannot rely on Article 1267 because it does not apply to lease
contracts, which involves an obligation to give, and not an obligation to do.

Issue:

Whether or not Article 1267 of the Civil Code is applicable to obligation to give therefor making
Comglasco’s claim that it was released from the lease agreement because the lease contact was
terminated due to economic circumstances is proper under the said article.

Ruling:

No.

Art. 1267 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. (n)
The principle of rebus sic stantibus neither fits in with the facts of the case. Under this theory,
the parties stipulate in the light of certain prevailing conditions, and once these conditions cease
to exist, the contract also ceases to exist. This article, which enunciates the doctrine of unforeseen
events, is not, however, an absolute application of the principle of rebus sic stantibus, which
would endanger the security of contractual relations. The parties to the contract must be
presumed to have assumed the risks of unfavorable developments. It is therefore only in
absolutely exceptional changes of circumstances that equity demands assistance for the debtor.

In the case at bar, considering that Comglasco’ s obligation of paying rent is not an obligation to
do, it could not rightfully invoke Article 1267 of the Civil Code. Even so, its position is still without
merit as financial struggles due to an economic crisis is not enough reason for the courts to grant
reprieve from contractual obligations.

Thus, Comglasco’s position fails to impress because Article 1267 applies only to obligations to do
and not to obligations to give. The obligation to pay rentals or deliver the thing in a contract of
lease falls within the prestation “to give”;

LIII.

CONTRIBUTOR: Apellido, Ana Hannesa S.

CASE TITLE: Tagaytay Realty v Gacutan, GR No. 16003, July 2015
PRINCIPLE:
The installment buyer of a subdivision lot has the right to withhold payment of his
amortizations for the duration that the subdivision developer has not complied with its
contractual undertaking to build the promised amenities in the subdivision.

The Civil Code under Article 1267 provides that 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. Here, the difficulty of the performance
contemplated under the Civil Code should be such that one party would be placed at a
disadvantage by the unforeseen event.

Mere inconvenience or unexpected impediments or increased expenses did not suffice to

relieve the debtor from a bad bargain.

FACTS
Arturo Gacutan (respondent) entered into a contract to sell with Tagaytay Realty (petitioner) for
the purchase on installment of a residential lot with an area of 308 square meters situated in the
Foggy Heights Subdivision then being developed by the latter.

Tagaytay Realty in the contract undertake to complete the development of the roads, curbs,
gutters, drainage system, water and electrical systems, as well as all the amenities to be
introduced in FOGGY HEIGHTS SUBDIVISION, such as, swimming pool, pelota court, tennis
and/or basketball court, bath house, children's playground and a clubhouse within a period of
two years from 15 July 1976.
In case of failure on their part to complete such development within the stipulated period shall
give the VENDEE or Gacutan (in this case) the option to suspend payment of the monthly
amortization on the lots he purchased until completion of such development without incurring
penalty interest.

Two years after, Gacutan notified Tagaytay Realty that he was suspending his amortizations
because the amenities had not been constructed in accordance with the undertaking and despite
receipt of the respondent's other communications requesting updates on the progress of the
construction of the amenities so that he could resume his amortization, the petitioner did not
reply.

Instead, of replying, the petitioner sent to him a statement of account demanding the balance of
the price, plus interest and penalty. Gacutan refused to pay the interest and penalty. Also, he
sued the petitioner for specific performance in the HLURB, praying that the Tagaytay Realty be
ordered to accept his payment of the balance of the contract without interest and penalty, and
to deliver to him the title of the property.

In its answer, the Tagaytay Realty sought to be excused from performing its obligations under
the contract, invoking Article 1267 of the Civil Code as his basis. It contended that the depreciation
of the Philippine Peso since the time of the execution of the contract, the increase in the cost of
labor and construction materials, and the increase in the value of the lot in question were valid
justifications for its release from the obligation to construct the amenities.

ISSUE
Whether or not the petitioner was released from its obligation to construct the amenities in the
Foggy Heights Subdivision.

RULING
No, petitioners was not relieved from its statutory and contractual obligations to complete the
amenities.

Article 1267 of the Civil Code state, 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. In order for this provision to apply, the following conditions should concur, namely:

a. the event or change in circumstances could not have been foreseen at the time of the execution
of the contract;

b. it makes the performance of the contract extremely difficult but not impossible;

c. must not be due to the act of any parties;

d. the contract is for future prestation.

The requisites did not concur herein because the difficulty of the performance under Article 1267
of the Civil Code should be such that one party would be placed at a disadvantage by the
unforeseen event. Mere inconvenience or unexpected impediments or increased expenses did not
suffice to relieve the debtor from a bad bargain. The basis of Tagaytay Realty was therefore
factually unfounded.

The unilateral suspension of the construction had preceded the worsening of economic conditions
in 1983; hence, the latter could not reasonably justify the petitioner’s plea for release from its
statutory and contractual obligations to its lot buyers, particularly the respondent Gacutan.

Further, under Section 20 of Presidential Decree No. 957, all developers, including the petitioner,
are mandated to complete their subdivision projects, including the amenities, within one year
from the issuance of their licenses.

There is no question that the petitioner did not comply with its legal obligation to complete the
construction of the subdivision project, including the amenities, within one year from the issuance
of the license. Instead, it unilaterally opted to suspend the construction of the amenities to avoid
incurring maintenance expenses.

In so opting, it was not driven by any extremely difficult situation that would place it at any
disadvantage, but by its desire to benefit from cost savings. Such cost-saving strategy dissuaded
the lot buyers from constructing their houses in the subdivision, and from residing therein.

LIV.

CONTRIBUTOR: Causin, Ingrid

CASE TITLE: California Manufacturing Co vs Advanced Technology Systerm GR No. 202454,
April 25, 2017

PRINCIPLE:

Article 1279 of the Civil Code provides:

ARTICLE 1279. 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.
FACTS: Petitioner CMCI is a domestic corporation engaged in the food and beverage
manufacturing business. Respondent ATSI is also a domestic corporation that fabricates and
distributes food processing machinery and equipment, spare parts, and its allied products.
CMCI leased from ATSI a Prodopak machine which was used to pack products in 20-ml.
pouches. The parties agreed to a monthly rental of ₱98,000 exclusive of tax. Upon receipt of an
open purchase order, ATSI delivered the machine to CMCI's plant.

ATSI filed a Complaint for Sum of Money against CMCI to collect unpaid rentals for the months
of June, July, August, and September 2003. ATSI alleged that CMCI was consistently paying the
rents until June 2003 when the latter defaulted on its obligation without just cause. ATSI also
claimed that CMCI ignored all the billing statements and its demand letter.

CMCI moved for the dismissal of the complaint on the ground of extinguishment of obligation
through legal compensation.

CMCI averred that ATSI was one and the same with Processing Partners and Packaging
Corporation (PPPC), which was a toll packer of CMCI products. To support its allegation, CMCI
submitted copies of the Articles of Incorporation and General Information Sheets (GIS) of the
two corporations. CMCI pointed out that ATSI was even a stockholder of PPPC as shown in the
latter's GIS.

CMCI alleged that in 2000, PPPC agreed to transfer the processing of CMCI's product line from
its factory in Meycauayan to Malolos, Bulacan. Upon the request of PPPC, through its Executive
Vice President Felicisima Celones, CMCI advanced ₱4 million as mobilization fund. PPPC
President and Chief Executive Officer Francis Celones allegedly committed to pay the amount in
12 equal instalments deductible from PPPC's monthly invoice to CMCI beginning in October
2000. CMCI likewise claims that in a letter dated 30 July 2001, Felicisima proposed to set off
PPPC's obligation to pay the mobilization fund with the rentals for the Prodopak machine.

CMCI argued that the proposal was binding on both PPPC and ATSI because Felicisima was an
officer and a majority stockholder of the two corporations. Moreover, in a letter dated 16
September 2003, she allegedly represented to the new management of CMCI that she was
authorized to request the offsetting of PPPC's obligation with ATSI's receivable from CMCI.
When ATSI filed suit in November 2003, PPPC's debt arising from the mobilization fund
allegedly amounted to ₱10,766.272.24.

Based on the above, CMCl argued that legal compensation had set in and that ATSI was even
liable for the balance of PPPC's unpaid obligation after deducting the rentals for the Prodopak
machine.

ISSUE:

Whether or not legal compensation had set in?

RULING: No.

ATSI is distinct and separate from PPPC, or from the Spouses Celones.

CMCI 's alter ego theory rests on the alleged interlocking boards of directors and stock
ownership of the two corporations. The CA, however, rejected this theory based on the settled
rule that mere ownership by a single stockholder of even all or nearly all of the capital stocks of
a corporation, by itself, is not sufficient ground to disregard the corporate veil. The
instrumentality or control test of the alter ego doctrine requires not mere majority or complete
stock control, but complete domination of finances, policy and business practice with respect to
the transaction in question. The corporate entity must be shown to have no separate mind, will,
or existence of its own at the time of the transaction.

Without question, the Spouses Celones are incorporators, directors, and majority stockholders
of the ATSI and PPPC. But that is all that CMCI has proven. There is no proof that PPPC
controlled the financial policies and business practices of ATSI either in July 2001 when
Felicisima proposed to set off the unpaid ₱3.2 million mobilization fund with CMCI's rental of
Prodopak machines; or in August 2001 when the lease agreement between CMCI and ATSI
commenced. Assuming arguendo that Felicisima was sufficiently clothed with authority to
propose the offsetting of obligations, her proposal cannot bind ATSI because at that time the
latter had no transaction yet with CMCI. Besides, CMCI had leased only one Prodopak machine.
Felicisima's reference to the Prodopak machines in its letter in July 2001 could only mean that
those were different from the Prodopak machine that CMCI had leased from A TSI.

Contrary to the claim of CMCI, none of the letters from the Spouses Celones tend to show that
ATSI was even remotely involved in the proposed offsetting of the outstanding debts of CMCI
and PPPC. Even Felicisima's letter to the new management of CMCI in 2003 contains nothing to
support CMCI's argument that Felicisima represented herself to be clothed with authority to
propose the offsetting.

Article 1279 of the Civil Code provides:

ARTICLE 1279. 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.

The law, therefore, requires that the debts be liquidated and demandable. Liquidated debts are
those whose exact amounts have already been determined.

CMCI has not presented any credible proof, or even just an exact computation, of the supposed
debt of PPPC. It claims that the mobilization fund that it had advanced to PPPC was in the
amount of ₱4 million. Yet, Felicisima's proposal to conduct offsetting in her letter dated 30 July
2001 pertained to a ₱3.2 million debt of PPPC to CMCI. Meanwhile, in its Answer to ATSI's
complaint, CMCI sought to set off its unpaid rentals against the alleged ₱10 million debt of
PPPC. The uncertainty in the supposed debt of PPPC to CMCI negates the latter's invocation of
legal compensation as justification for its non-payment of the rentals for the subject Prodopak
machine.
 LV.

CONTRIBUTOR: Jay L. Viagedor

CASE TITLE: PHILIPPINE TRUST COMPANY vs. FLORO ROXAS AND EUFEMIA
ROXAS [G.R. No. 171897, October 14, 2015]
PRINCIPLE: In order for legal compensation to take place, the following requisites must
concur: (a) that each one of the obligors be bound principally, and that he be at the same
time a principal creditor of the other; (b) 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; (c) that the two debts be due; (d) that they be liquidated and
demandable; and (e) that over neither of them there be any retention or controversy,
commenced by third persons and communicated in due time to the debtor.

Facts: Spouses Roxas procured loans from Philippine Trust Company ("PTC")in the
amount of Php 2,523,200 to finance their real estate business. These loans were secured
by real estate mortgages on the Spouses Roxas' real properties.
On April 10, 1979, the Spouses Roxas, PTC, and Roben Construction and
Furnishing Group, Inc. entered into "a contract of building construction," under which PTC
granted an additional loan of Php 900,000 to the Spouses Roxas to enable them to finish
their ongoing housing projects. This was superseded by a new "contract of building
construction" executed by and among PTC, Spouses Roxas, and Rosendo P.
Dominguez, Jr. The new contract stipulated that the money loaned from PTC shall be
devoted to the funding of the housing projects, the rentals of which when finished, would
then be used to liquidate the loan. It also provided that PTC may only release the
proceeds of the loan for the purchase of materials and supplies when requested by
Dominguez and with the conformity of the Spouses Roxas. Invoices covering materials
previously purchased with the funds should also be submitted to PTC before any
subsequent release of funds is made. PTC, however, released to Dominguez the sum of
Php 870,000 out of the Php 900,000 although the Spouses Roxas had agreed only to the
release of not more than Php 450,000.
Due to financial difficulties, however, the Spouses Roxas did not finish the housing
project. As a result, they did not receive monthly rentals from prospective lessees of the
houses, which led to missed amortization payments in their loans from PTC.
Dominguez filed a complaint (Civil Case No. 130783) against PTC and the
Spouses Roxas for breach of the contract of building construction. The Spouses Roxas
in turn filed a civil case (Civil Case No. 130892) against Dominguez and the insurance
company that issued his performance bond. These two cases were later consolidated.
 While Civil Case No. 130783 was still pending in the trial court, PTC, filed with the
provincial sheriff of Bataan a petition for extra judicial foreclosure of the same real estate
mortgages. The Court rendered judgment ordering the issuance of a writ of permanent
injunction perpetually enjoining defendant Philippine Trust Company and defendant
provincial sheriff of Bataan or any of his deputies from foreclosing extrajudicially the real
estate mortgage(s); and condemning said defendant bank to pay to plaintiffs: (1) Ordinary
damages for breach of the provisions of the contract of building construction, in the sum
of One Hundred Thousand Pesos (Pl00,000.00); (2) Moral damages for the improvident
extrajudicial foreclosure of plaintiffs' mortgage(s) after it had elected judicial foreclosure
thereof, in the amount of Three Hundred Thousand Pesos (P300,000.00) for both
plaintiffs; (3) Exemplary damages by way of example or correction for the public good in
the sum of Fifty Thousand Pesos (P50,000.00); (4) Attorney's fees in the amount of Fifty
Thousand Pesos (P50,000.00); and (5) Double costs of suit.
The Court of Appeals (CA) affirmed the decision of the RTC. The decision became
final and executory, prompting the Spouses Roxas to file a Motion for Execution. PTC
responded by filing an Opposition to the Motion for Execution, where it raised for the first
time legal compensation to offset the judgment debt due to the Spouses Roxas.
The trial court denied PTC's Opposition and issued a writ of execution, holding that
PTC is deemed to have waived legal compensation as a defense because it failed to
invoke the same as an affirmative defense in its answer. Upon appeal to the CA, the same
was also dismissed for lack of merit.
PTC argues that there is a change in the situation of the parties that makes
execution inequitable. In response, the Spouses Roxas dispute the applicability of legal
compensation because both the demandability of the loan as well as the exact amount
due had been put in issue in issue in Civil Case No. 130873, which is now pending appeal
with the Court of Appeals as CA-G.R. CV No. 30340.
Issue: Whether or not the principle of legal compensation may be applied to offset the
judgment debt of PTC and the loan obligation of Spouses Roxas.
Ruling:No. Legal compensation cannot be applied.
It was too late for PTC to set up legal compensation as a defense because the
Main Case had already reached the execution stage. The rule is that once a decision
becomes final and executory, execution shall issue as a matter of right, and the issuance
of a writ of execution is the court's ministerial duty, compellable by mandamus.
PTC should have raised the argument on legal compensation at the trial stage. Although
legal compensation takes place by operation of law, it must be alleged and proved as a
defense by the debtor who claims its benefits. Only after it is proved will its effects retroact
to the moment when all the requisites under Article 1279 of the Civil Code have concurred.

Even if we assume that legal compensation was not waived and was otherwise timely
raised, we find that not all requisites of legal compensation are present in this case. Under
Article 1279, in order for legal compensation to take place, the following requisites must
concur: (a) that each one of the obligors be bound principally, and that he be at the same
time a principal creditor of the other; (b) 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; (c) that the two debts be due; (d) that they be liquidated and
demandable; and (e) that over neither of them there be any retention or controversy,
commenced by third persons and communicated in due time to the debtor.

Here, the fourth requisite is absent. A debt is liquidated when its existence and amount
are determined. Compensation can only take place between certain and liquidated debts;
it cannot extend to unliquidated, disputed claims. Since the loan obligation, including its
amount and demandability, is still being disputed in CA-G.R. CV No. 30340, PTC's credit
cannot be considered liquidated as of yet. Consequently, no legal compensation could
have taken place between PTC's loan credit and the Spouses Roxas' judgment credit.

LVI.

Contributor: Kimberly Q. Arizala

CASE TITLE: Mondragon Personal Sales, Inc., v. Victoriano Sola, G.R. No.174882,
January 21, 2013
PRINCIPLE: Compensation is a mode of extinguishing to the concurrent amount the
obligations of persons who in their own right and as principals are reciprocally debtors and
creditors of each other. Legal compensation takes place by operation of law when all the
requisites are present, as opposed to conventional compensation which takes place when the
parties agree to compensate their mutual obligations even in the absence of some requisites.

Facts:
Petitioner Mondragon Personal Sales entered into a Contract of Services with respondent
Sola whereby the latter would provide service facilities (bodega cum office) to petitioner’s
products, sales force and customers for a consideration of commission or service fee which at a
certain rate of the monthly sales of Mondragon.

Prior to the execution of the said contract, respondent’s wife had an existing obligation
with petitioner. Such obligation was acknowledged and confirmed by the respondent and made
himself (with his wife) liable to pay such debt on installment basis. By virtue of which, the
petitioner withheld the payment of the respondent’s service fees and applied the same as partial
payments to the debt which he obligated to pay. Thereafter, respondent closed and suspended
the operation of his office cum bodega.
Respondent then filed with the Regional Trial Court (RTC) of Davao, a Complaint for
accounting and rescission against petitioner alleging that petitioner withheld portions of his
service fees covering the months from October 1994 to January 1995 and his whole service fees
for the succeeding months of February to April 1995, the total amount of which was ₱222,202.84;
that petitioner's act grossly hampered, if not paralyzed, his business operation, thus left with no
other recourse, he suspended operations to minimize losses. He prayed for the rescission of the
contract of services and for petitioner to render an accounting of his service fees.
In its Answer with Counterclaim, petitioner contended that respondent’s letter dated January 26,
1995 addressed to petitioner's Vice-President for Finance, confirmed and obligated himself to pay
on installment basis the accountability of his wife with petitioner, thus respondent's service
fees/commission earned for the period of February to April 1995 amounting to ₱125,040.01 was
applied by way of compensation to the amounts owing to it; that all the service fees earned by
respondent prior to February 1995 were fully paid to him.
The RTC ruled in favor of the petitioner Mondragon and held that there was no fraud on
the part of the latter that would rescind their contract and that it is correct when it deducted the
service commission of Sola to his wife’s account. The CA reversed the RTC’s decision.

Issue:
Whether or not legal compensation under Art. 1279 of the Civil Code would apply in this
case.

Held:
We find that petitioner's act of withholding respondent's service fees/commissions and
applying them to the latter's outstanding obligation with the former is merely an acknowledgment
of the legal compensation that occurred by operation of law between the parties. Compensation
is a mode of extinguishing to the concurrent amount the obligations of persons who in their own
right and as principals are reciprocally debtors and creditors of each other. Legal compensation
takes place by operation of law when all the requisites are present, as opposed to conventional
compensation which takes place when the parties agree to compensate their mutual obligations
even in the absence of some requisites. Legal compensation requires the concurrence of the
following conditions:
(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.

We find the presence of all the requisites for legal compensation. Petitioner and respondent are
both principal obligors and creditors of each other. Their debts to each other consist in a sum of
money. Respondent acknowledged and bound himself to pay petitioner the amount of
₱1,973,154.73 which was already due, while the service fees owing to respondent by petitioner
become due every month. Respondent's debt is liquidated and demandable, and petitioner's
payments of service fees are liquidated and demandable every month as they fall due. Finally,
there is no retention or controversy commenced by third persons over either of the debts. Thus,
compensation is proper up to the concurrent amount where petitioner owes respondent
₱125,040.01 for service fees, while respondent owes petitioner ₱1,973,154.73.

As legal compensation took place in this case, there is no basis for respondent to ask for rescission
since he was the first to breach their contract when, on April 29, 1995, he suddenly closed and
padlocked his bodega cum office in General Santos City occupied by petitioner.

LVII.

Contributor: Cabrido, Leslie Mae O.

CASE TITLE: (eee) SM SYSTEMS CORPORATION (formerly SPRINGSUN MANAGEMENT

SYSTEMS CORPORATION), vs. OSCAR CAMERINO, EFREN CAMERINO, CORNELIO MANTILE,
DOMINGO ENRIQUEZ AND HEIRS OF NOLASCO DEL ROSARIO [G.R. No. 178591. March 29,
2017.]

Principle:

A novation arises when there is a substitution of an obligation by a subsequent one that

extinguishes the first, either by changing the object or the principal conditions, or by
substituting the person of the debtor, or by subrogating a third person in the rights of
the creditor. For a valid novation to take place, there must be, therefore:

(a) a previous valid obligation;

(b) an agreement of the parties to make a new contract;
(c) an extinguishment of the old contract; and
(d) a valid new contract. In short, the new obligation extinguishes the prior agreement
only when the substitution is unequivocally declared, or the old and the new obligations
are incompatible on every point. A compromise of a final judgment operates as a
novation of the judgment obligation upon compliance with either of these two
conditions.

FACTS:

Victoria Homes, Inc. was the registered owner of the subject lots. Respondents were
farmers-tenants of Victoria Homes, cultivating and planting rice and corn on the lots. Victoria
Homes sold them to Springsun (Predecessor of SMS). Springsun subsequently mortgaged the
subject lots to Banco Filipino Savings as security for its various loans amounting to
P11,525,000.00. When springsun failed to pay its loans, the mortgage was foreclosed extra-
judicially. At the public auction sale, the lots were sold to Banco Filipino, being the highest
Bidder but were eventually redeemed by Springsun.

Respondent farmers filed with the RTC a complaint against Springsun and Banco Filipino
for Prohibition/Certiorari, Reconveyance/Redemption, Damages, Injunction with Preliminary
Injunction and Temporary Restraining Order or, simply, an action for Redemption. On August
20, 2005, SMS and the farmers (except Oscar) executed a document, denominated as
Kasunduan, wherein the latter agreed to receive P300,000.00 each from the former, as
compromise settlement. SMS then filed a Motion to Hold Execution in Abeyance on the Ground
of Supervening Event. RTC rendered a decision in favour of the respondents authorizing them
to redeem. On appeal, CA affirmed the RTC decision.

ISSUE: Whether the Kasunduan effectively novated the judgment obligation.

HELD:

Yes. In Heirs of Servando Franco v. Spouses Gonzales, the Court discussed novation in
this wise:

A novation arises when there is a substitution of an obligation by a subsequent one that

extinguishes the first, either by changing the object or the principal conditions, or by
substituting the person of the debtor, or by subrogating a third person in the rights of the
creditor. For a valid novation to take place, there must be, therefore:

(a) a previous valid obligation;

(b) an agreement of the parties to make a new contract;
(c) an extinguishment of the old contract; and
(d) a valid new contract. In short, the new obligation extinguishes the prior agreement only
when the substitution is unequivocally declared, or the old and the new obligations are
incompatible on every point. A compromise of a final judgment operates as a novation of the
judgment obligation upon compliance with either of these two conditions.

In the case at bar, SMS' obligation to allow redemption of the three parcels of land was
superseded by the terms of the compromise agreements executed with the four farmers. SMS'
new obligation consisted of the payment of P300,000.00 each to the four farmers, who, in turn,
waived their redemption rights. Novation, thus, arose as the old obligation became incompatible
with the new.The Court also notes that Oscar, the farmer who did not execute a compromise
agreement with SMS, filed before the RTC a Manifestation and Motion, dated September 15,
2006, indicating that "he has no plans, as he is in no financial position, to exercise the right of
redemption" granted to him.

LVIII.

Contributor: Noval, Efren

NYMPHA S. ODIAMAR vs. LINDA ODIAMAR VALENCIA,
G.R. NO. 213582. JUNE 28, 2016
Facts:
Respondent filed a complaint for sum of money and damages against petitioner, alleging that the latter
owed her P2.1 Million. Petitioner purportedly issued a check for the said amount to guarantee the
payment of the debt, put upon presentment, the same was dishonored.
For her part, petitioner sought the dismissal of the complaint on the ground that it was her deceased
parents who owed respondent money. Accordingly, respondent's claim should be filed in the proceedings
for the settlement of their estates. Petitioner averred that respondent had, in fact, participated in the
settlement proceedings and had issued a certification stating that it was petitioner's deceased parents
who were indebted to respondent for P2,000,000.00.
Respondent countered that petitioner personally Borrowed almost half of the P2,100,000.00 from her, as
evidenced by the check which she issued after agreeing to settle the same in installments. While
respondent conceded that petitioner made several installment payments from december 29, 2000 until
may 31, 2003, she pointed out that the latter failed to make any succeeding payments. she also denied
participating in settlement proceedings.
RTC and CA ruled that petitioner was liable in view of her admission that she borrowed money from the
respondent several times. RTC even ruled that a novation took place in view of her assuming the liability
of her deceased parents and agreeing to pay their debt in installments which she in fact paid from
december 29, 2000 to may 31, 2003. CA concurred with the RTC that novation took place insofar as
petitioner was substituted in place of petitioner's late parents, considering that petitioner undertook to
pay her deceased parents' debt. However, the CA opined that there was no novation with respect to the
object of the contract, following the rule that an obligation is not novated by an instrument which
expressly recognizes the old obligation and changes only the terms of paying the same, as in this case
where the parties merely modified the terms of payment of the P2,100,000.00
Issue: W/N Respondent should be liable for the whole debt amounting to 2.1 million PHP because
novation took place?
Held: She is not Liable and novation did not take place.
At the outset, it must be emphasized that the fact of petitioner's liability to respondent is well-established.
As correctly pointed out by the RTC and the CA, while respondent acknowledged that petitioner's
deceased parents owed her money, petitioner also admitted obtaining loans from respondent. However,
based on the records of this case, respondent, for her part, admitted that petitioner's deceased parents
owed her P700,000.00 of the P2,100,000.00 debt and that petitioner owed her P1,400,000.00 only. thus
she is liable for her part only.
At this juncture, the Court finds it apt to correct the mistaken notions that: (a) novation by substitution of
the debtor took place so as to release the estates of the petitioner's deceased parents from their
obligation, which, thus, rendered petitioner solely liable for the entire P2,100,000.00 debt; and (b) the
P100,000.00 of the P2,100,000,00 debt was in the nature of accrued monetary interests. The Court held
that to constitute novation by substitution of debtor, the former debtor must be expressly released from
the obligation and the third person or new debtor must assume the former's place in the contractual
relations. Moreover, the Court ruled that the "fact that the creditor accepts payments from a third person,
who has assumed the obligation, will result merely in the addition of debtors and not novation. At its core,
novation is never presumed, and the animus novandi, whether totally or partially, must appear by express
agreement of the parties, or by their acts that are too clear and unequivocal to be mistaken.
Here, the intent to novate was not satisfactorily proven by respondent. At best, petitioner only
manifested her desire to shoulder the debt of her parents, which, as above-discussed, does not amount
to novation. thus, the courts a quo erred in holding petitioner liable for the debts obtained by her
deceased parents on account of novation by substitution of the debtor.

LIX.

Contributor: Chini G. Noynay

Case Title: BANK OF THE PHILIPPINE ISLANDS vs AMADOR DOMINGO

G.R. No. 169407, March 25, 2015LEONARDO-DE CASTRO, J

Principle: Article 1293 of the New 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.

FACTS:

Respondent Amador Domingo and his wife, the late Mercy Maryden Domingo executed a
Promissory Note in favor of Makati Auto Center, Inc. payable in 48successive
monthly installments. They simultaneously executed a Deed of Chattel Mortgage
over a 1993 Mazda 323 to secure the payment of their Promissory Note. Makati Auto Center,
Inc. then assigned all its rights and interests over the said Promissory Note and
chattel mortgage to Far East Bank and Trust Company (FEBTC).On April 7, 2000 FEBTC and BPI
merged with BPI as the surviving corporation, FEBTC the absorbed corporation. By virtue of
said merger, all the assets and liabilities of FEBTC were transferred to and absorbed by
BPI.The spouses Domingo failed to pay 21 monthly installments from January 15, 1996 to
September 15, 1997. BPI, being the surviving corporation after the merger, demanded that the
spouses Domingo pay the balance of the Promissory Note including accrued late payment
charges/interests or to return the possession of the subject vehicle for the purpose of
foreclosure in accordance with the undertaking stated in the chattel mortgage.
When the spouses Domingo still failed to comply with its demands, BPI filed on November 14,
2000 a Complaint for Replevin and Damages. BPI included a John Doe as defendant because at
the time of filing of the Complaint, BPI was already aware that the subject vehicle was in the
possession of a third person but did not yet know the identity of said person. MeTc rendered a
Decision in favor of BPI as the bank was able to establish by preponderance
of evidence a valid cause of action against the spouses Domingo. According to
the MeTC, novation is never presumed and must be clearly shown by express agreement or by
acts of equal import. To effect a subjective novation by a change in the person of the debtor, it
is necessary that the old debtor be released expressly from the obligation and the third person
or new debtor assumes his place. Without such release, there is no novation and the third
person who assumes the debtor’s obligation merely becomes a co-debtor or surety. On appeal
the RTC held that in novation, consent of the creditor to the substitution of the debtor need not
be by express agreement, it can be merely implied.

ISSUE:

Whether or not, there is novation on the loan obligation of the spouses Domingo to BPI that
would release the obligation and for Carmelita to be substituted as a debtor?

HELD:

No. Article 1293 of the New 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. Under this provision, there are two
forms of novation by substituting the person of the debtor, and they are: (1) expromision and
(2) delegacion. In the former, the initiative for the change does not come from the
debtor and may even be made without his knowledge, since it consists in a third
person assuming the obligation. As such, it logically requires the consent of the third
person and the creditor. In the latter, the debtor offers and the creditor accepts a third
person who consents to the substitution and assumes the obligation, so that the intervention
and the consent of these three persons are necessary. In these two modes of substitution, the
consent of the creditor isan indispensable requirement. Both the RTC and the Court of Appeals
found that there was novation by delegacion in the case at bar. The Deed of Sale with
Assumption ofMortgage was executed between Mercy and Carmelita, thus, their
consent to the substitution as debtors and third person, respectively, are deemed
undisputed.It should be noted that in order to give novation its legal effect, the law requires
that the creditor should consent to the substitution of a new debtor. This consent must be given
expressly for the reason that, since novation extinguishes the personality of the first debtor who
is to be substituted by a new one, it implies on the part of the creditor a waiver of the right that
he had before the novation, which waiver must be express under the principle that renuntiatio
non praesumitor, recognized by the law in declaring that a waiver of right may not be
performed unless the will to waive is indisputably shown by him who holds the right.

LX.

CONTRIBUTOR: SANTIAGO, VINCENT FRANCIS

Case: Y-1 Leisure Philippines, Inc., et. al., v. James Yu
Doctrine:
The Nell Doctrine states the general rule that the transfer of all the assets of a corporation to another shall not render
the latter liable to the liabilities of the transferor (principle of relativity under Article 1311 of the Civil Code), except:
1. Where the purchaser expressly or impliedly agrees to assume such debts (Article 2047 of the Civil Code);
2. Where the transaction amounts to a consolidation or merger of the corporations;
3. Where the purchasing corporation is merely a continuation of the selling corporation; and
4. Where the transaction is entered into fraudulently in order to escape liability for such debts (Article 1388 of
the Civil Code).
Facts:
Yu bought several golf and country club shares from MADCI. Regrettably, the latter did not develop the supposed
project. Yu then demanded the return of his payment, but MADCI could not return it anymore because all its assets
had been transferred. Through the acts of YIL, MADCI sold all its lands to YILPI, and, subsequently to YICRI. Thus,
Yu now claims that YIL, YILPI, and YICRI (Y Group) inherited the obligations of MADCI. On the other hand, Y Group
counter that they did not assume such liabilities because the transfer of assets was not committed in fraud of the
MADCI’s creditors.
Issue: Whether or not fraud must exist in the transfer of all the corporate assets in order for the transferee to assume
the liabilities of the transferor.
Ruling: No.
The Nell Doctrine states the general rule that the transfer of all the assets of a corporation to another shall not render
the latter liable to the liabilities of the transferor, except:
1. Where the purchaser expressly or impliedly agrees to assume such debts;
2. Where the transaction amounts to a consolidation or merger of the corporations;
3. Where the purchasing corporation is merely a continuation of the selling corporation; and
4. Where the transaction is entered into fraudulently in order to escape liability for such debts.
The general rule expressed by the doctrine reflects the principle of relativity under Article 1311 of the Civil
Code. Contracts, including the rights and obligations arising therefrom, are valid and binding only between
the contracting parties and their successors-in-interest. Thus, despite the sale of all corporate assets, the
transferee corporation cannot be prejudiced as it is not in privity with the contracts between the transferor
corporation and its creditors.
The first exception under the Nell Doctrine, where the transferee corporation expressly or impliedly agrees
to assume the transferor's debts, is provided under Article 2047 of the Civil Code. When a person binds
himself solidarity with the principal debtor, then a contract of suretyship is produced. Necessarily, the
corporation which expressly or impliedly agrees to assume the transferor's debts shall be liable to the same.
The second exception under the doctrine, as to the merger and consolidation of corporations, is well-
established under Sections 76 to 80, Title X of the Corporation Code. If the transfer of assets of one
corporation to another amounts to a merger or consolidation, then the transferee corporation must take
over the liabilities of the transferor.
Another exception of the doctrine, where the sale of all corporate assets is entered into fraudulently to
escape liability for transferor's debts, can be found under Article 1388 of the Civil Code. It provides that
whoever acquires in bad faith the things alienated in fraud of creditors, shall indemnify the latter for
damages suffered. Thus, if there is fraud in the transfer of all the assets of the transferor corporation, its
creditors can hold the transferee liable.
Jurisprudence dictates that fraud is not an essential consideration in a business-enterprise transfer. The law
provides that the transferee corporation assumes the debts and liabilities of the transferor corporation
because it is merely a continuation of the latter business.
The purpose of the business-enterprise transfer is to protect the creditors of the business by allowing them a
remedy against the new owner of the assets and business enterprise. Otherwise, creditors would be left
"holding the bag," because they may not be able to recover from the transferor who has "disappeared with
the loot," or against the transferee who can claim that he is a purchaser in good faith and for value. Based
on the foregoing, as the exception of the Nell doctrine relates to the protection of the creditors of the
transferor corporation, and does not depend on any deceit committed by the transferee -corporation, then
fraud is certainly not an element of the business enterprise doctrine.
Based on the previous ruling of the Court, it is apparent that the business-enterprise transfer rule applies
when two requisites concur: (a) the transferor corporation sells all or substantially all of its assets to another
entity; and (b) the transferee corporation continues the business of the transferor corporation. Both
requisites are present in this case.

LXI.

CONTRIBUTOR: JULIE TANYA P. LANZAR

CASE TITLE: EVER ELECTRICAL MANUFACTURING, INC/. VICENTE C. GO and
GEORGE C. GO, Petitioners vs. PHILIPPINE BANK OF COMMUNICATIONS (PBCOM),
represented by its Vice-President, MR. DOMINGO S. AURE, Respondent,
PRINCIPLE: The general rule is that novation is never presumed; it must always be clearly
and unequivocally shown. Thus, "the mere fact that the creditor receives a guaranty or accepts
payments from a third person who has agreed to assume the obligation, when there is no
agreement that the first debtor shall be released from responsibility, does not constitute
novation, and the creditor can still enforce the obligation against the original debtor.

FACTS:

On December 13, 2002, Ever, represented by Vicente, took out a loan from PBCom in the
amount of ₱65,000,000.00 for its working capital.6 As security, Ever mortgaged two parcels of
land. On December 27, 2002, Ever executed Promissory Note No. 8200013327,8 which stated
that the loan had a maturity date of December 27, 2010, and an interest rate of 8.5937% per
annum for 10 years.

On February 14, 2003, the parties entered into a compromise agreement whereby Vicente
voluntarily undertook to pay for Ever's loan with PBCom. Under the terms of the compromise
agreement, Vicente would make partial payments as stated in the promissory note with a
caveat that any failure on his part to pay the installment due would make the whole amount
immediately demandable. The compromise agreement reads as follows:

WHEREAS, [VICENTE] has offered to assume full liability and to undertake the full
payment of all the past due accounts of [EVER] and to exempt from any and all
obligations/liabilities his co-defendants-sureties GEORGE C. GO and NG MENG TAM arising from
and subject of the above-captioned litigation, without prejudice to the right of [VICENTE] to
avail himself of his right for reimbursement under Art. 1236 of the Civil Code of the
Philippines;

WHEREAS, [PBCom] has agreed and accepted [VICENTE's] aforementioned offer to pay, in
accordance with the terms and conditions of the Promissory Note 8200013327 dated 27 Dec.
2002, copy of which is hereto attached as Annex "A" hereof.

WHEREAS, [VICENTE] fully understands. that failure on his part to make partial
payments of the amount due under the said Promissory Note shall make the whole
balance of the unpaid amounts due and demandable, less the amounts actually paid on
account, without any necessity of notice to him and [PBCom] shall be entitled to the
issuance of the corresponding writ of execution for the full amounts due as specified in
the prayer of the above-mentioned complaint.9 (Emphasis ours)

On February 21, 2003, the RTC approved the compromise agreement.10 Consequently, the loan
was restructured.

However, Vicente was not able to make the necessary payments as stipulated in the
compromise agreement. PBCom, thus, filed with the RTC a motion for execution. PBCom
alleged that Vicente violated the terms of the compromise agreement for non-payment of
installments from September to December 2003 and the first quarter of 2004. It prayed that a
writ of execution be issued per the terms of the compromise agreement.11
ISSUE:

Whether or not the judicially approved compromise agreement novated the original loan
agreement

HELD:

The Court disagrees. Under the Civil Code, novation is one of the means to extinguish an
obligation. This is done either by changing the object or principal conditions, by substituting the
person of the debtor, or by subrogating a third person in the rights of the crditor.32 It is a
relative extinguishment since a new obligation is created in lieu of the old obligation. The
following requisites must be met for novation to take place:

(1) There must be a previous valid obligation;

(2) There must be an agreement of the parties concerned to a new contract;

(3) There must be the extinguishment of the old contract; and

(4) There must be the validity of the new contract.

However, novation is never presumed. 34

Article 1292 of the Civil Code provides:

Art. 1292. In order that an obligation may be extinguished by another which substitutes the
same, it is imperative that it be so declared in unequivocal terms, or that the old and the new
obligations be on every point incompatible with each other.

It must be established that the old and new contracts are incompatible on all points, or that the
will to novate appear by express agreement of the parties or acts of equivalent import. 35 In the
absence of an express provision, a contract may still be considered novated impliedly if it
passes the test of incompatibility, that is, whether the contracts can stand together, each one
having an independent existence.36

As stated in Article 1291, novation may also be brought about by a change in the person of the
debtor. Article 1293 of the Civil Code states:

Art 129. 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 he 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 the present case, the compromise agreement entered into by the parties does not contain
any provision releasing Ever (the debtor) from its liability to PBCom (the lender)

There is nothing to be construed from the agreement releasing Ever from its obligation. Under
the terms of the agreement, Vicente is an additional person who would ensure that the loan of
Ever to PBCom would be paid. Under the rules of novation, the mere act of adding another
person to be personally liable, who in this case is Vicente, did not constitute novation since
there was no agreement to release Ever from its responsibility to PBCom. Thus, absent the
release of Ever from the original obligation, PBCom may still enforce te obligation against it.

Since there was no novation, PBCom may proceed to collect from the original debtor, Ever,
under the terms of the original loan agreement.1âwphi1 The Court holds that there was no
irregularity in the issuance of the writ of execution, levy on the properties and the subsequent
sale of the auction sale.

LXII.
jjj kent

LXIII.

Contributor: Rizyl M. Yapsangco

Title: Florita Liam v. United Coconut Planters Bank
Citation: G.R. No. 194664, June 15, 2016

Doctrine: The primary consideration in determining the true nature of a contract is the intention of the
parties. If the words of a contract appear to contravene the evident intention of the parties, the latter
shall prevail. Such intention is determined not only from the express terms of their agreement, but also
from the contemporaneous and subsequent acts of the parties." However, if the terms of a contract are
clear and leave no doubt upon the intention of the contracting parties, the literal meaning of its
stipulations shall control.
An assignment of credit is an agreement by virtue of which the owner of a credit, known as the assignor,
by a legal cause, such as sale, dation in payment, exchange or donation, and without the consent of the
debtor, transfers his credit and accessory rights to another, known as the assignee, who acquires the
power to enforce it to the same extent as the assignor could enforce it against the debtor. It may be in
the form of sale, but at times it may constitute a dation in payment, such as when a debtor, in order to
obtain a release from his debt, assigns to his creditor a credit he has against a third person.

Facts:
Liam entered into a contract to sell with PPGI for the purchase od Condo unit no. 603 for the price of
P2,614,652.66. The parties also stipulated that the unit will be delivered not later than 35 months
from the start of actual construction. To financethe construction, PPGI transferred its right to collect
all receivables from the condo buyers including Liam to UCPB as a partial settlement for the loan.
Later, PPGI notified Liam of the sale of its receivables to UCPB and further stated that the terms and
conditions were in no way amended by the new payment arrangement. Liam, at first, heeded and
remitted her payments to UCPB, but later wrote UCPB asking to defer her amortization until the unit
is ready for delivery. At that point, Liam stopped making payments. Liam demanded refund of all the
payments she made for PPGI's failure to deliver the unit on the stipulated date.

Few years later, as they were restructuring the financing package for the full settlement of the
balance, Liam requested that she be given a unit equivalent to what she already paid, since the units
were already advertised as ready for occupancy. This request was left unheeded, hence she filed a
complaint with HLURB for specific performance.
HLURB ordered UCPB to refund Liam the total intallment. On appeal with CA, CA ruled that Liam had
no right to demand for specific performance from UCPB because it was not a privy to the contract to
sell. The obligations of PPGI to Liam remained subsisting and it continued to be Liam's obligor with
respect to the delivery of the condominium units even after the assignment. Thus, UCPB cannot be
held liable for PPGI's breach of its obligation to Liam.

Issue: Whether or not CA is correct.

Held: Yes,

An assignment of credit is an agreement by virtue of which the owner of a credit, known as the
assignor, by a legal cause, such as sale, dation in payment, exchange or donation, and without the
consent of the debtor, transfers his credit and accessory rights to another, known as the assignee,
who acquires the power to enforce it to the same extent as the assignor could enforce it against the
debtor. It may be in the form of sale, but at times it may constitute a dation in payment, such as when
a debtor, in order to obtain a release from his debt, assigns to his creditor a credit he has against a
third person.

The terms of the MOA and Deed of Sale/Assignment between PPGI and UCPB unequivocally show
that the parties intended an assignment of PPGPs credit in favor of UCPB.

Further, the primary consideration in determining the true nature of a contract is the intention of the
parties. If the words of a contract appear to contravene the evident intention of the parties, the latter
shall prevail. Such intention is determined not only from the express terms of their agreement, but
also from the contemporaneous and subsequent acts of the parties." However, if the terms of a
contract are clear and leave no doubt upon the intention of the contracting parties, the literal
meaning of its stipulations shall control.

The provisions of agreement between PPGI and UCPB are clear, explicit and unambiguous as to leave
no doubt about their objective of executing an assignment of credit instead of subrogation. The MOA
and the Deed of Sale/Assignment clearly state that UCPB became an assignee of UCPB's outstanding
receivables of its condominium buyers. The Court perceives no proviso or any extraneous factor that
incites a contrary interpretation. Even the simultaneous and subsequent acts of the parties
accentuate their intention to treat their agreements as assignment of credit.

The absence of Liam's consent to the transactions between PPGI and UCPB affirms their nature as
assignment of credit. As already mentioned, the consent of the debtor is not essential in assignment
of credit. What the law requires is merely notice to him. A creditor may, therefore, validly assign his
credit and its accessories without the debtor's consent. The purpose of the notice is only to inform
the debtor that from the date of the assignment, payment should be made to the assignee and not to
the original creditor.

LXIV.

CONTRIBUTOR: Porcadilla, Mark

CASE TITLE: INDUSTRIAL PERSONNEL & MANAGEMENT SERVICES, INC. (IP AMS),
SNC LAV ALIN ENGINEERS & CONTRACTORS, INC. AND ANGELITO C. HERNANDEZ v.
JOSE DE VERA & ALBERTO ARRIOLA (G.R. No. 205703, March 7, 2016)
Principle: Generally, Philippine laws apply even to overseas employment contracts. As an
exception to the rule, the following requisites must be present: 1.) That it is expressly stipulated
in the overseas employment contract that a specific foreign law shall govern; 2.) That the foreign
law invoked must be proven before the courts pursuant to the Philippine rules on evidence; 3.)
That the foreign law stipulated in the overseas employment contract must not be contrary to law,
morals, good customs public order, or public policy of the Philippines; and 4.) That the overseas
employment contract must be processed through the POEA.

Facts:
Petitioner Industrial Personnel & Management Services, Inc. (IPAMS) is a duly organized local
placement agency with its principal, petitioner SNC Lavalin Engineers & Contractors, Inc.
(SNCLavalin), a Canadian company. While, respondent Alberto Arriola (Arriola) is a licensed
general surgeon in the Philippines, who was offered by SNC-Lavalin, the position of Safety Officer
in Madagascar.
After three months from employment, Arriola received a notice of pre-termination of employment
from SNC-Lavalin. It stated that his employment would be pre-terminated due to diminishing
workload in the area of his expertise and the unavailability of alternative assignments.
Arriola filed a complaint against the petitioners for illegal dismissal and non-payment of overtime
pay, vacation leave and sick leave pay. The petitioners denied the charge of illegal dismissal
against them claiming that SNC-Lavalin was greatly affected by the global financial crises during
the latter part of 2008. In addition, they argued that the pre-termination of Arriola’s contract was
valid for being consistent with the provisions of both the Expatriate Policy and laws of Canada.
The said foreign law did not require any ground for early termination of employment, and the
only requirement was the written notice of termination which was properly made to Arriola.
Arriola countered that foreign laws could not apply to employment contracts if they were contrary
to law, morals, good customs, public order or public policy.
ISSUE: Whether or not the subject foreign law shall be applied in the employment contract.
RULING:
The court ruled in the negative stating that the general rule is that Philippine laws apply even to
overseas employment contracts. This rule is rooted in the constitutional provision of Section 3,
Article XIII that the State shall afford full protection to labor, whether local or overseas. Hence,
even if the OFW has his employment abroad, it does not strip him of his rights to security of
tenure, humane conditions of work and a living wage under our Constitution.
As an exception, the parties may agree that a foreign law shall govern the employment contract,
subject to the following requisites:
1. That it is expressly stipulated in the overseas employment contract that a specific foreign law
shall govern;
2. That the foreign law invoked must be proven before the courts pursuant to the Philippine rules
on evidence;
3. That the foreign law stipulated in the overseas employment contract must not be contrary to
law, morals, good customs public order, or public policy of the Philippines; and
4. That the overseas employment contract must be processed through the POEA.
In this case, the petitioners miserably failed to adhere to the first and third requisites. They failed
to show on the face of the contract that a foreign law was agreed upon by the parties. Hence, to
allow such, it would give any foreign employer the superfluous advantage to improperly invoke a
foreign law even if it is not anymore reasonably contemplated by the parties to control the
overseas employment.
Likewise, the foreign law invoked is contrary to the Constitution and the Labor Code since it does
not require any ground for the early termination of employment and it allows the employer to
dispense with the prior notice of termination to an employee. In fine, as the petitioners failed to
meet all the four (4) requisites on the applicability of a foreign law, then the Philippine labor laws
must govern the overseas employment contract of Arriola.

LXV.

Contributor: Otadoy, Charmaine Regine

Case Title: TERESITA I. BUENAVENTURA, Petitioner, v. METROPOLITAN BANK AND
TRUST COMPANY, Respondent. G.R. No. 167082, August 03, 2016
Principle: A duly executed contract is the law between the parties, and, as such, commands
them to comply fully and not selectively with its terms. A contract of adhesion, of itself, does
not exempt the parties from compliance with what was mutually agreed upon by them.
Facts:
On January 20, 1997 and April 17, 1997, Teresita Buenaventura (or "appellant") executed
Promissory Note (or "PN") Nos. 232663 and 232711, respectively, each in the amount of
PI,500,000.00 and payable to Metropolitan Bank and Trust Company (or "appellee"). PN No.
232663 was to mature on July 1, 1997, with interest and credit evaluation and supervision fee
(or "CESF") at the rate of 17.532% per annum, while PN No. 232711 was to mature on April 7,
1998, with interest and CESF at the rate of 14.239% per annum. Both PNs provide for penalty
of 18% per annum on the unpaid principal from date of default until full payment of the
obligation.

Despite demands, it remained unpaid. Consequently, appellee filed an action against appellant
for recovery of said amounts, interest, penalty and attorney's fees.

In answer, appellant averred that in 1997, she received from her nephew, Rene Imperial (Or
"Imperial"), three postdated checks drawn against appellee (Tabaco Branch) as partial
payments for the purchase of her properties; that she rediscounted the subject checks with
appellee (Timog Branch), for which she was required to execute the PNs to secure payment
thereof; and that she is a mere guarantor and cannot be compelled to pay unless and until
appellee shall have exhausted all the properties of Imperial.

Issue: Whether petitioner is liable in the promissory notes

Ruling: YES

The promissory notes were written as follows:

FOR VALUE RECEIVED, I/we jointly and severally promise to pay Metropolitan Bank and Trust
Company, at its office x x x the principal sum of PESOS xxx, Philippine currency, together with
interest and credit evaluation and supervision fee (CESF) thereon at the effective rate of xxx per
centum xxx per annum, inclusive, from date hereof and until fully paid.
What the petitioner advocates is for the Court to now read into the promissory notes terms and
conditions that would contradict their clear and unambiguous terms in the guise of such
promissory notes being contracts of adhesion. This cannot be permitted, for, even assuming
that the promissory notes were contracts of adhesion, such circumstance alone did not
necessarily entitle her to bar their literal enforcement against her if their terms were
unequivocal. It is preposterous on her part to disparage the promissory notes for being
contracts of adhesion, for she thereby seems to forget that the validity and enforceability of
contracts of adhesion were the same as those of other valid contracts.

Accordingly, 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.
As a rule, indeed, the contract of adhesion is no different from any other contract. Its
interpretation still aligns with the literal meaning of its terms and conditions absent any
ambiguity, or with the intention of the parties. The terms and conditions of the promissory
notes involved herein, being clear and beyond doubt, should then be enforced accordingly.

Secondly, the petitioner submits that the promissory notes were null and void for being
simulated and fictitious; hence, the CA erred in enforcing them against her.

The submission contradicts the records and the law pertinent to simulated contracts.

Based on Article 1345 of the Civil Code, simulation of contracts is of two kinds, namely: (1)
absolute; and (2) relative. Simulation is absolute when there is color of contract but without any
substance, the parties not intending to be bound thereby. It is relative when the parties come
to an agreement that they hide or conceal in the guise of another contract.

The effects of simulated contracts are dealt with in Article 1346 of the Civil Code, to wit:
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.
The burden of showing that a contract is simulated rests on the party impugning the contract.
This is because of the presumed validity of the contract that has been duly executed. The proof
required to overcome the presumption of validity must be convincing and preponderant.
Without such proof, therefore, the petitioner's allegation that she had been made to believe
that the promissory notes would be guaranties for the rediscounted checks, not evidence of her
primary and direct liability under loan agreements could not stand.

Thirdly, the petitioner insists that the promissory notes, even if valid, were meant as guaranties
to secure payment of the checks by the issuer, Rene Imperial; hence, her liability was that of a
guarantor, and would take effect only upon exhaustion of all properties and after resort to all
legal remedies against Imperial.

The insistence of the petitioner is bereft of merit.

A guaranty is not presumed; it must be expressed (Art. 2055, New Civil Code). The PNs
provide, in clear language, that appellant is primarily liable thereunder. On the other hand, said
PNs do not state that Imperial, who is not even privy thereto, is the one primarily liable and
that appellant is merely a guarantor. Parenthetically, the disclosure statement (Exh. "D")
executed by appellant states that PN No. 232711 is "secured by postdated checks". In other
words, it does not appear that the PNs were executed as guaranty for the payment of the
subject checks.

Stated differently, appellant is primarily liable under the subject checks. She is a principal
debtor and not a guarantor. Consequently, the benefit of excussion may not be interposed as a
defense in an action to enforce appellant's warranty as indorser of the subject checks.

Moreover, it is absurd that appellant (as maker of the PNs) may act as guarantor of her own
obligations (as indorser of the subject checks). Thus, Art. 2047 of the New Civil Code provides
that "(b)y guaranty, a person called the guarantor, binds himself to the creditor to fulfill the
obligation of the principal debtor in case the latter should fail to do so."(Emphasis supplied)

After having determined that the terms and conditions of the promissory notes were clear and
unambiguous, and thus should be given their literal meaning and not be interpreted differently,
we insist and hold that she should be bound by such terms and conditions. Verily, the
promissory notes as contracts should bind both contracting parties; hence, the validity or
compliance therewith should not be left to the will of the petitioner. Otherwise, she would
contravene and violate the principles of mutuality and of the obligatory force of contracts.

Just as nobody can be forced to enter into a contract, in the same manner once a contract is
entered into, no party can renounce it unilaterally or without the consent of the other. It is a
general principle of law that no one may be permitted to change his mind or disavow and go
back upon his own acts, or to proceed contrary thereto, to the prejudice of the other party.

If, after a perfect and binding contract has been executed between the parties, it occurs to one
of them to allege some defect therein as a reason for annulling it, the alleged defect must be
conclusively proven, since the validity and fulfillment of contracts cannot be left to the will of
one of the contracting parties. The fact that a party may not have fully understood the legal
effect of the contract is no ground for setting it aside.

LXVI.

Contributor: LALAINE J. GABUYA

Case Title: GAMES AND GARMENTS DEVELOPERS, INC. vs ALLIED
BANKING CORPORATION (Gr No. 181426 July 13, 2015)
Principle:
A contract constitutes the law between the parties who are bound by its stipulations which,
when couched in clear and plain language, should be applied according to their literal
tenor. We cannot supply material stipulations, read into the contract words it do not
contain or, for that matter, read into in any other intention that would contradict its plain
import.

Art. 2047. By guaranty a person, called the guarantor, binds himself to the creditor to
fulfill the obligation of the principal debtor in case the latter should fail to do so. While a
surety undertakes to pay if the principal does not pay, the guarantor only binds himself
to pay if the principal cannot pay.

FACTS:

Bienvenida, married to Benedicto Pantaleon, agreed to purchase a parcel of land located at

Bayanan, Muntinlupa owned by petitioner Games and Garments Developers, Inc. (GGDI).

On Aug. 22, 1996, Mercado, Branch Manager of Allied Banking-Pasong Tamo, issued a letter to
GGDI and with Bienvenida’s conforme, which reads:

“This is with reference to the real property located at National Road, Bayanan, Muntinlupa
City.

Please be advised that Bienvenida Pantaleon who is purchasing the above-mentioned

property has an approved real estate loan with us in the amount of PESOS: ELEVEN
MILLION ONLY (P 11,000,000.00), the portion of the proceeds of which shall be used to
partially liquidate the account with you. Succeeding releases which is secured by the
subject property will be made payable to GGDI. After said TCT covering said property is
already transferred in our client’s name, our mortgage duly annotated thereon, we
guarantee to pay directly to you the amount of P 8,360,000.00. It is understood that this
guaranty is irrevocable.”

Atty. Lao requested for the immediate payment of the balance of the purchase price amounting
to P 8,360,000.00 considering that the guaranty letter aforecited in favor of GGDI was irrevocable
and that the TCT for the subject property was already finished and had in fact been transferred
in Bienvenida’s name.

Without any favorable action from Allied Bank, GGDI, sent a demand letter asking the said bank
to immediately pay them, otherwise they would be filing the necessary action.

On April 15. 1998, GGDI filed before the RTC a Complaint for Breach of Contract and Damages.

ISSUE:

Whether there is a contract of guaranty entered into by Allied bank through the letter of its branch
manager, Mercado, to GGDI.

RULING:
None. It is undisputed that Mercado wrote “letters of guaranty”. Consequently, we rely on the
general definitions of contracts of guaranty and suretyship under Article 2047 of the Civil Code.
Art. 2047. By guaranty a person, called the guarantor, binds himself to the creditor to
fulfill the obligation of the principal debtor in case the latter should fail to do so.
If a person binds himself solidarily with the principal debtor, the provisions of Section 4,
Chapter 3, Title I of this Book shall be observed. In such case the contract is called a
suretyship.

While a surety undertakes to pay if the principal does not pay, the guarantor only binds himself
to pay if the principal cannot pay. The former is the insurer of the debt, the latter is an insurer
of the solvency of the debtor.

There was no express undertaking in Mercado’s letters to pay Bienvenida’s debt to GGDI in case
Bienvenida failed to do so. In said letters, Mercado merely acknowledged that Bienvenida and/or
her company had an approved real estate loan with Allied Bank and guaranteed that subsequent
releases from the loan would be made directly to GGDI provided that the certificate of title over
the subject property would be transferred to Bienvenida’s name and the real estate mortgage
constituted on the subject property in favor of Allied Bank would be annotated on the said
certificate.

Mercado, by the plain language of his letters, merely committed to the manner by which the
proceeds of Bienvenida’s approved loan from Allied Bank would be released, but did not obligate
Allied Bank to be answerable with its own money to GGDI should Bienvenida default on the
payment of the purchase price for the subject property.

For this reason, Mercado’s letters may not be deemed as contracts of guaranty, although they
may be binding as innominate contracts. The rule is settled that a contract constitutes the law
between the parties who are bound by its stipulations which, when couched in clear and plain
language, should be applied according to their literal tenor. We cannot supply material
stipulations, read into the contract words it do not contain or, for that matter, read into in any
other intention that would contradict its plain import.

LXVII.

CONTRIBUTOR: SURALTA, AGAPITO

CASE TITLE: DOÑA ADELA EXPORT INTERNATIONAL, INC. vs. TRADE AND
INVESTMENT DEVELOPMENT CORPORATION (TIDCORP), AND THE BANK OF
THE PHILIPPINE ISLANDS (BPI)
G.R. No. 201931 February 11, 2015

PRINCIPLES:
(1) It is an elementary rule that the existence of a waiver must be positively demonstrated since a waiver by
implication is not normally countenanced. The norm is that a waiver must not only be voluntary, but must have been
made knowingly, intelligently, and with sufficient awareness of the relevant circumstances and likely consequences.
There must be persuasive evidence to show an actual intention to relinquish the right. Mere silence on the part of
the holder of the right should not be construed as a surrender thereof; the courts must indulge every reasonable
presumption against the existence and validity of such waiver;
(2) It is basic in law that a compromise agreement, as a contract, is binding only upon the parties to the
compromise, and not upon non-parties. This is the doctrine of relativity of contracts.32 The rule is based on Article
1311 (1) of the Civil Code which provides that "contracts take effect only between the parties, their assigns and
heirs x x x."33 The sound reason for the exclusion of non-parties to an agreement is the absence of a vinculum or
juridical tie which is the efficient cause for the establishment of an obligation.34 Consistent with this principle, a
judgment based entirely on a compromise agreement is binding only on the parties to the compromise the court
approved, and not upon the parties who did not take part in the compromise agreement and in the proceedings
leading to its submission and approval by the court. Otherwise stated, a court judgment made solely on the basis of
a compromise agreement binds only the parties to the compromise, and cannot bind a party litigant who did not take
part in the compromise agreement.35

FACTS:
Petitioner Doña Adela Export International, Inc. filed a Petition for Voluntary Insolvency; the
RTC, after finding the petition sufficient in form and substance, issued an order declaring
petitioner as insolvent and staying all civil proceedings against petitioner. Pursuant to a Motion
for Parties to Enter Into Compromise Agreement filed by the appointed receiver, creditors
TIDCORP and BPI filed a Joint Motion to Approve Agreement which contained that: (a) assets
of petitioner shall be transferred and distributed to TIDCORP and BPI for the satisfaction of
petitioner’s debt; (b) petitioner shall waive its rights to confidentiality under the provisions of the
Law on Secrecy of Bank Deposits; (c) expenses for transfer taxes shall be shouldered by the
petitioner’s President, Mr. Epifanio Ramos, Jr.
The RTC rendered the assailed Decision approving the Joint Motion to Approve
Agreement. Petitioner filed a motion for partial reconsideration and claimed that TIDCORP and
BPI’s agreement imposes on it several obligations such as payment of expenses and taxes and
waiver of confidentiality of its bank deposits but it is not a party and signatory to the said
agreement. The RTC denied the motion and held that petitioner’s silence and acquiescence to the
joint motion to approve compromise agreement while it was set for hearing by creditors BPI and
TIDCORP is tantamount to admission and acquiescence thereto. There was no objection filed by
petitioner to the joint motion to approve compromise agreement prior to its approval, said the
RTC. The RTC also noted that petitioner’s President attended every hearing of the case but did
not interpose any objection to the said motion when its conditions were being discussed and
formulated.
Petitioner asserts that express and written waiver from the depositor concerned is
required by law before any third person or entity is allowed to examine bank deposits or bank
records. According to petitioner, it is not a party to the compromise agreement between BPI and
TIDCORP and its silence or acquiescence is not tantamount to an admission that binds it to the
compromise agreement of the creditors especially the waiver of confidentiality of bank deposits.
Petitioner cites the rule on relativity of contracts which states that contracts can only bind the
parties who entered into it, and it cannot favor or prejudice a third person, even if he is aware of
such contract and has knowledge thereof. Petitioner also maintains that waivers are not
presumed, but must be clearly and convincingly shown, either by express stipulation or acts
admitting no other reasonable explanation.
Respondent BPI counters that petitioner is estopped from questioning the BPI-TIDCORP
compromise agreement because petitioner and its counsel participated in all the proceedings
involving the subject compromise agreement and did not object when the compromise agreement
was considered by the RTC.
Respondent TIDCORP contends that the waiver of confidentiality under Republic Act
(R.A.) Nos. 1405 and 8791 does not require the express or written consent of the depositor. It is
TIDCORP’s position that upon declaration of insolvency, the insolvency court obtains complete
jurisdiction over the insolvent’s property which includes the authority to issue orders to look into
the insolvent’s bank deposits. Since bank deposits are considered debts owed by the banks to the
petitioner, the receiver is empowered to recover them even without petitioner’s express or
written consent, said TIDCORP.
TIDCORP further avers that the BPI-TIDCORP compromise agreement approved by the
RTC is binding on petitioner and its Board of Directors by reason of estoppel. The compromise
agreement is not an ordinary contract. Since it was approved by the insolvency court, the
compromise agreement has the force and effect of judgment; it is immediately executory and not
appealable, except for vices of consent or forgery, TIDCORP concluded.

ISSUE:
(1) Whether or not a waiver was validly made by petitioner;
(2) Whether or not the petitioner is bound by the provision in the BPI-TIDCORP Joint
Motion to Approve Agreement.

HELD:
The petition is meritorious.
(1) In this case, the Joint Motion to Approve Agreement was executed by BPI and TIDCORP
only. There was no written consent given by petitioner or its representative, Epifanio
Ramos, Jr., that petitioner is waiving the confidentiality of its bank deposits. The
provision on the waiver of the confidentiality of petitioner’s bank deposits was merely
inserted in the agreement. It is clear therefore that petitioner is not bound by the said
provision since it was without the express consent of petitioner who was not a party and
signatory to the said agreement. Neither can petitioner be deemed to have given its
permission by failure to interpose its objection during the proceedings. It is an elementary
rule that the existence of a waiver must be positively demonstrated since a waiver by
implication is not normally countenanced. The norm is that a waiver must not only be
voluntary, but must have been made knowingly, intelligently, and with sufficient
awareness of the relevant circumstances and likely consequences. There must be
persuasive evidence to show an actual intention to relinquish the right. Mere silence on
the part of the holder of the right should not be construed as a surrender thereof; the
 courts must indulge every reasonable presumption against the existence and validity of
such waiver.

(2) Clearly, the waiver of confidentiality of petitioner’s bank deposits in the BPI-TIDCORP
Joint Motion to Approve Agreement lacks the required written consent of petitioner and
conformity of the receiver. We, thus, hold that petitioner is not bound by the said
provision.
It is basic in law that a compromise agreement, as a contract, is binding only upon the
parties to the compromise, and not upon non-parties. This is the doctrine of relativity of
contracts.32 The rule is based on Article 1311 (1) of the Civil Code which provides that
"contracts take effect only between the parties, their assigns and heirs x x x."33 The
sound reason for the exclusion of non-parties to an agreement is the absence of a
vinculum or juridical tie which is the efficient cause for the establishment of an
obligation.34 Consistent with this principle, a judgment based entirely on a compromise
agreement is binding only on the parties to the compromise the court approved, and not
upon the parties who did not take part in the compromise agreement and in the
proceedings leading to its submission and approval by the court. Otherwise stated, a court
judgment made solely on the basis of a compromise agreement binds only the parties to
the compromise, and cannot bind a party litigant who did not take part in the compromise
agreement.

LXVIII.

CONTRIBUTOR: ANN Q. COMENDADOR

CASE TITLE:

G.R. No. 221513, December 05, 2016

SPOUSES LUISITO PONTIGON AND LEODEGARIA SANCHEZ PONTIGON, v. HEIRS OF MELITON

SANCHEZ

PRINCIPLES:

a. It is established in jurisprudence that non-observance of the prescribed formalities does

not necessarily excuse the contracting parties from complying with their respective
obligations under their covenant, and merely grants them the right to compel each other
to execute the proper deed.
b. The principle of relativity of contracts dictates that contractual agreements can only bind
the parties who entered into them, and cannot favor or prejudice third persons, even if
he is aware of such contract and has acted with knowledge thereof.
FACTS: Meliton Sanchez (Meliton) had been the owner of a 24-hectare parcel of land situated in
Gutad, Floridablanca, Pampanga. Said property was duly registered in his name under Original
Certificate of Title (OCT) No. 207 issued on October 15, 1938.

On August 11, 1948, Meliton died intestate, leaving the subject property to his surviving heirs,
his three children, namely: Apolonio, Flaviana, and Juan, all surnamed Sanchez. Petitioner
Leodegaria Sanchez Pontigon (Leodegaria) is the daughter of Juan and petitioner Luisito Pontigon
(Luisito) is the husband of Leodegaria. The respondents herein, who are all represented by
Teresita S. Manalansan (Teresita), are Meliton's grandchildren with Flaviana.

On September 17, 2000, the respondents filed a Complaint for Declaration of Nullity of Title and
Real Estate Mortgage with Damages against petitioners. Respondents posited that the property
in issue had never been partitioned among the heirs of Meliton, but when respondents verified
with the Register of Deeds of Pampanga (RD) the status of the parcels of land sometime in August
2000, they discovered that OCT No. 207 was nowhere to be found — what was only with the
RD's custody was the owner's copy of OCT No. 207, free of any annotation of cancellation or
description of any document that could have justified the transfer of the property covered. Despite
this tact, petitioners, even without any document of conveyance, were able to transfer the title
of the subject lot to their names, resulting in the issuance of Transfer Certificate of Title (TCT)
No. 162403-R on May 21, 1980 covering the same parcel of land. Hence, respondents, argued
that the transfer of title to petitioners was fraudulent and invalid, and that petitioners merely held
title over the subject property in trust for Meliton's heirs.

It was further averred that post-transfer, petitioners unlawfully and fraudulently obtained a loan
from, and mortgaged the subject property to, Quedan and Rural Credit Guarantee Corporation
(Quedancor) - an additional defendant in Civil Case No. G-06-3792. Quedancor allegedly did not
take the necessary steps to verify the title over and the true ownership of the subject property.

Deprived of their inheritance over the subject property, to their damage and prejudice,
respondents prayed that TCT No. 162403-R be declared null and void; that the real estate
mortgage in favor of Quedancor likewise be nullified; that OCT No. 207 registered under Meliton's
name be reinstated; and that damages be awarded in their favor.

In their Answer, petitioners denied the material allegations in the Complaint. They countered that
the conveyance in their favor is evidenced by an Extra-judicial Settlement of Estate of Meliton
Sanchez and Casimira Baluyut with Absolute Sale (Extrajudicial Settlement) that was prepared
and notarized by Atty. Emiliano Malit on November 10, 1979. In fact, Apolonio, Juan, and Flaviana
filed before Branch 2 of the then Court of First Instance (CFI) of Pampanga a Petition for Approval
of the Extrajudicial Partition (Petition for Approval). Petitioners further alleged that on December
29, 1979, a Decision was rendered granting the petition adverted to, which ruling became final
and executory based on a certification dated February 15, 1980 issued by the then clerk of court.

During the course of the trial, the RTC issued its Order dated May 28, 2003 denying petitioners'
motion to dismiss, ruling that respondents' cause of action has not yet prescribed. The RTC
ratiocinated that by filing a motion to dismiss, petitioners hypothetically admitted the allegations
in the complaint that they and respondents are co-owners of the subject property, being the heirs
of Meliton. Having fraudulently obtained title over the subject property to the prejudice of
respondents, a trust relation was created by operation of law, whereby petitioners merely held
the subject property in trust for and in behalf of their co-owners. As held, an action based on this
trust relation could not be barred by prescription.

Subsequently, on June 28, 2012, the RTC promulgated a Decision in favor of respondents. The
RTC maintained that the transfer of title of the subject property to petitioners was tainted with
irregularities. While the trial court took judicial notice of the floods and lahar that inundated the
Provincial Capitol, it found strange that the owner's duplicate certificate, but not the original copy,
of OCT No. 207, would remain with the RD, clean of any annotation or marking at that.

Through its assailed Decision, the appellate court affirmed the findings of the RTC.

Unfazed, petitioners again filed a Motion for Reconsideration, this time from the September 14,
2015 Resolution. The said motion remains pending with the CA to date. In the interim, the
appellate court remanded the folders of this case to the court of origin.

Hence, the instant recourse.

ISSUE: Whether or not the appellate court correctly held that the Extrajudicial Settlement does
not bind the respondents;

HELD: The Extrajudicial Settlement is a private document that is binding on the respondents.

While Art. 1358 of the New Civil Code seemingly requires that contracts transmitting or
extinguishing real rights over immovable property should be in a public document, hornbook
doctrine is that the embodiment of certain contracts in a public instrument is only for
convenience. It is established in jurisprudence that non-observance of the prescribed formalities
does not necessarily excuse the contracting parties from complying with their respective
obligations under their covenant, and merely grants them the right to compel each other to
execute the proper deed. A contract of sale has the force of law between the contracting parties
and they are expected to abide, in good faith, by their respective contractual
commitments notwithstanding their failure to comply with Art. 1358.

As similarly observed by the appellate court, the Extrajudicial Settlement is not a nullity, but a
valid document, albeit a private one. The CA never declared the document as void, but only that
it cannot be considered as binding on third parties. It added, however, that respondents fall within
the category of "third persons" against whom the stipulations in the private document can never
be invoked. On this point, we digress.

The principle of relativity of contracts dictates that contractual agreements can only bind the
parties who entered into them, and cannot favor or prejudice third persons, even if he is aware
of such contract and has acted with knowledge thereof. The doctrine finds statutory basis under
Art. 1311 of the New Civil Code, which provides:

Article 1311. 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. xxx (Emphasis supplied)
The law is categorical in declaring that as a general rule, the heirs of the contracting parties are
precluded from denying the binding effect of the valid agreement entered into by their
predecessors-in-interest. This is so because they are not deemed "third persons" to the contract
within the contemplation of law. Additionally, neither the provision nor the doctrine makes a
distinction on whether the contract adverted to is oral or written, and, even more so, whether it
is embodied in a public or private instrument. It is then immaterial that the Extrajudicial
Settlement executed by Flaviana was not properly notarized for the said document to be binding
on her heirs, herein respondents.

Reliance by the trial court on the so-called "damning rebuttal evidence" is misplaced and cannot
be countenanced. Said evidence contradicts the very allegations in their Complaint. It effectively
modifies the respondents' theory of the case and transforms the action so as to include a collateral
attack on the deed of conveyance. It cannot escape the attention of the court that despite alleging
in their Complaint and in their initial presentation of evidence that there was no document of
conveyance that justifies the issuance of TCT No. 162403-R, respondents made a complete
turnabout and virtually admitted the existence of the Extrajudicial Settlement on rebuttal, but
nevertheless argued against its validity.

To review, Thiogenes, son of respondent Perla Manalansan, testified that on November 7, 1979,
Juan, Luisito, and Leodegaria forcibly took Flaviana and coerced the latter to execute the sale in
favor of petitioners. If this version of the facts were to be believed, this could only mean: (a) that
the Extrajudicial Settlement existed, (b) that Flaviana's heirs knew of its existence; and (c) that
Flaviana's consent was vitiated through force and intimidation. Noteworthy, too, is that Agustin
Manalansan, one of the respondents in this case, even signed the deed as an instrumental witness
to the execution of the deed. Yet, he did not testify to disavow the signature appearing above his
name in the Extrajudicial Settlement.

The above circumstances render the Extrajudicial Settlement voidable, not void. Under the law,
a voidable contract retains the binding effect of a valid one unless otherwise annulled. And as
prescribed, the action for annulment shall be brought within four (4) years, in cases of
intimidation, violence or undue influence, from the time the defect of the consent
ceases. Unfortunately for respondents, the prescriptive period for annulment had long since
expired before they filed their Complaint. They cannot be permitted to circumvent the law by
belatedly attacking, collaterally and as an afterthought at that, the validity of the erstwhile
voidable instrument in the present action for declaration of nullity of title.

The validity of the Extrajudicial Settlement cannot then be gainsaid. Ratified by their inaction, the
document of conveyance, as well as the consequences of its registration, would then bind the
respondents. This still holds true notwithstanding the glaring irregularities in the Petition for
Approval. Obvious to the eye and intellect as the errors may be, they are of no moment since the
Extrajudicial Settlement, a private writing and unpublished as it were, nevertheless remains to be
binding upon any person who participated thereon or had notice thereof.

LXIX.

CONTRIBUTOR: BYRONE PABILONA

CASE TITLE: Heirs of Ureta v. Heirs of Ureta; G.R. No. 165748, 14 September 2011
Principles:

Art. 1403. The following contracts are unenforceable, unless they are ratified:

(1) Those entered into in the name of another person by one who has been given
no authority or legal representation, or who has acted beyond his powers;

Art. 1404. Unauthorized contracts are governed by Article 1317 and the principles
of agency in Title X of this Book.

Art. 1317. 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.

FACTS:

Alfonso Ureta was financially well-off and owned several properties. He begot fourteen children,
including herein petitioners and Policronio, father of respondents.

For taxation purposes, Alfonso sold, without monetary consideration, several parcels of land to
four of his children, including Policronio. Alfonso continued to own, possess and enjoy the lands
and their produce.

Upon his death, Liberato acted as the administrator. The Fernandez Family rented the portion
transferred to Policronio. But even after the fact, the tenants never turned over the produce of
the lands to Policronio or any of this heirs, but to Alfonso and, later, to the administrators of his
estate. When Policronio died, except for a portion of one of the parcels of land, neither Policronio
nor his heirs ever took possession of the subject lands.

Alfonso’s heirs executed a Deed of Extra-Judicial Partition,8 which included all the lands that were
covered by the four (4) deeds of sale that were previously executed by Alfonso for taxation
purposes.

Conrado, Policronio’s eldest son, representing the Heirs of Policronio, signed the Deed
of Extra-Judicial Partition in behalf of his co-heirs.

Heirs of Policronio allegedly learned about the Deed of Extra-Judicial Partition involving Alfonso’s
estate when it was published in the July 19, 1995 issue of the Aklan Reporter.

The Heirs of Policronio averred that the extra-judicial partition is void because Conrado signed
the same without written authority form his siblings.
ISSUE:

Whether or not Conrado Ureta’s lack of capacity to give his co-heirs’ consent to the Extra-Judicial
Partition rendered the same voidable.

RULING:

No. Article 1390 is not applicable in this case.

Article 1390 (1) contemplates the incapacity of a party to give consent to a contract. What is
involved in the case at bench though is not Conrado’s incapacity to give consent to the contract,
but rather his lack of authority to do so.

Instead, Articles 1403 (1), 1404, and 1317 of the Civil Code find application to the circumstances
prevailing in this case. The Deed of Extrajudicial Partition and Sale is not a voidable or an
annullable contract under Article 1390 of the New Civil Code.

Article 1390 renders a contract voidable if one of the parties is incapable of giving consent to the
contract or if the contracting party’s consent is vitiated by mistake, violence, intimidation, undue
influence or fraud.

Therefore, Conrado’s failure to obtain authority from his co-heirs to sign the Deed of Extra-Judicial
Partition in their behalf did not result in his incapacity to give consent so as to render the contract
voidable, but rather, it rendered the contract valid but unenforceable against Conrado’s co-heirs
for having been entered into without their authority.

LXX.

CONTRIBUTOR: Cases, Deode Wynne L.

CASE TITLE: Kabisig Real Wealth Development, Incorporated and Fernando C. Tio, petitioners,
vs Young Builders Corporation, G. R. No. 212375, January 25, 2017
PRINCIPLE/S:

Art. 1318. There is no contract unless the following requisites concur:

(1) Consent of the contracting parties;
(2) Object certain which is the subject matter of the contract; and
(3) Cause of the obligation which is established.

Art. 1356. Contracts shall be obligatory in whatever form they may

have been entered into, provided all the essential requisites for their validity are
present.

Article 2199 of the Civil Code, actual or compensatory damages are those
awarded in satisfaction of, or in recompense for, loss or injury sustained.
 The principle of Quantum Meruit
A contractor is allowed to recover the reasonable value of the services rendered despite
the lack of a written contract. The measure of recovery under the principle should relate
to the reasonable value of the services performed.

FACTS:
On April 2001, Kabisig Real Wealth Development Incorporated through Fernando C. Tio,
contracted the services of Young Builders Corporation (Young Builders) to supply labor, tools,
equipment, and materials for the renovation of its building in Cebu City. When Young Builders
finished the work on September 2001, it billed Kabisig for P4,123,320.95 which it failed to pay. It
contended that no written contract was ever entered into between the parties and it was never
informed of the estimated cost of the renovation. Thus, Young Builders filed an action for
Collection of Sum of Money against Kabisig.

ISSUE/S:
Whether or not Kabisig is liable to Young Builders for the damages claimed even though
there was no written contract

HELD:
YES, IT IS LIABLE. Accordingly, for a contract to be valid, it must have the following
essential elements: (1) consent of the contracting parties; (2) object certain, which is
the subject matter of the contract; and (3) cause of the obligation which is
established. Consent must exist, otherwise, the contract is nonexistent. Consent is manifested
by the meeting of the offer and the acceptance of the thing and the cause, which are to constitute
the contract. By law, a contract of sale, is perfected at the moment there is a meeting of the
minds upon the thing that is the object of the contract and upon the price. Indeed, it is a
consensual contract which is perfected by mere consent. Kabisig's claim as to the absence of a
written contract between it and Young Builders simply does not hold water. It is settled that once
perfected, a contract is generally binding in whatever form, whether written or oral, it may have
been entered into, provided the aforementioned essential requisites for its validity are present.
Article 1356 of the Civil Code provides:
Art. 1356. Contracts shall be obligatory in whatever form they may have been entered
into, provided all the essential requisites for their validity are present.

There is nothing in the law that requires a written contract for the agreement in question to be
valid and enforceable. Also, the Court notes that neither Kabisig nor Tio had objected to the
renovation work, until it was already time to settle the bill.

Likewise, the appellate court aptly reduced the amount of damages awarded by the RTC from
₱4,123,320.95 to ₱2,400,000.00. Under Article 2199 of the Civil Code, actual or
compensatory damages are those awarded in satisfaction of, or in recompense for,
loss or injury sustained. They proceed from a sense of natural justice and are designed to
repair the wrong that has been done, to compensate for the injury inflicted. They either refer to
the loss of what a person already possesses (dano emergente ), or the failure to receive as a
benefit that which would have pertained to him (lucro cesante ), as in this case.

To determine the compensation due and to avoid unjust enrichment from resulting out of
a fulfilled contract, the principle of quantum meruit may be used. Under this principle, a
contractor is allowed to recover the reasonable value of the services rendered despite
the lack of a written contract. The measure of recovery under the principle should
relate to the reasonable value of the services performed. The principle prevents undue
enrichment based on the equitable postulate that it is unjust for a person to retain any benefit
without paying for it. Being predicated on equity, said principle should only be applied if no
express contract was entered into, and no specific statutory provision was applicable.

LXXI.

CONTRIBUTOR: EDWARD L. REMO

CASE TITLE: Joey R. Peña vs. Jesus Delos Santos and the Heirs of Rosita Delos
Santos FloresG.R. No. 202223 March 2, 2016Reyes, J.

Principle: Article 1409 of the Code, contracts, which are expressly prohibited or
declared void by law, are considered inexistent and void from the beginning.

FACTS:
Jesus Delos Santos and Rosita Delos Santos Flores were the
judgmentawardees of the two-thirds portion or 9,915 square meters of four adjoining
lots designated asLots 393-A, 393-B, 394-D and 394-E, located in Boracay Island,
Malay, Aklan, representing astheir shares in the intestate estate of Leonardo delos
Santos.Peña averred that he is the transferee of Jesus and Rosita's adjudged
allotments overthe subject lots. He claimed that he bought the same from Atty. Romeo
Robiso who acquired theproperties from Jesus and Rosita through assignment and
sale.The plaintiffs opposed Pefia's motion claiming that the conveyance made by Jesus
andRosita in favor of Atty. Robiso was null and void for being a prohibited transaction
because thelatter was their counsel in the case.RTC upheld that the conveyance made
by Jesus and Rosita in favor of Atty. Robiso isvalid since it was not made during the
pendency of litigation but after judgment has beenrendered. CA reversed the decision
of the RTC.

ISSUES:
Whether or not the deeds of conveyance between Atty. Robiso and Jesus and
Rosita were void.
HELD:
Yes. Article 1491(5) of the Civil Code expressly prohibits lawyers from acquiring
property or rights that may be the object of any litigation in which they may take part by
virtue of their profession. Records show that the judicial action over the subject lots
was still in the appellate proceedings stage when they were conveyed to Jesus and
Rosita's counsel, Atty.Robiso. Clearly then, since the property conveyed to Atty.
Robiso by Jesus and Rosita was still the object o f litigation, the deeds o f conveyance
executed by the latter are deemed inexistent. Under Article 1409 of the Code, contracts,
which are expressly prohibited or declared void by law, are considered inexistent and
void from the beginning.

LXXII.

Contributor: Engrid M. Rebucas

Case Title: Vicente Manzano, Jr., petitioner vs. Marcelino Garcia, respondent. [G.R. No.
179323, November 28, 2011]
Principle:
At this point, however, we should clarify that the proper basis for the nullity of the
forged pacto de retro sale is not Article 1409 (which enumerates examples of void
contracts) in relation to Article 1505 (which refers to an unenforceable contract and is
applicable only to goods) of the Civil Code as stated by the Court of Appeals, but Article
1318 of the Civil Code, which enumerates the essential requisites of a valid contract:

Article 1318. There is no contract unless the following requisites concur:

(1) Consent of the contracting parties;
(2) Object certain which is the subject matter of the contract;
(3) Cause of the obligation which is established.

Facts:

Marcelino D. Garcia (Marcelino) is the owner of a parcel of land with an area of 6,951 square
meters. The said property was the subject of a deed of pacto de retro sale dated May 26, 1992
allegedly executed by Garcia in favor of Constancio Manzano, the predecessor-in-interest and
brother of petitioner, Vicente Manzano, Jr. (Vicente) for the amount of Eighty thousand five
hundred pesos (P80,500.00). Under said contract, Garcia purportedly reserved the right to
repurchase the subject property for the same price within three months from the date of the
instrument.

However, the subject property was not redeemed within the three-month period thus, Vicente
instituted a petition for consolidation of ownership over the property. Marcelino filed an opposition
and answer, alleging that the document evidencing the pacto de retro sale was a forgery. He
claimed that he and his wife were in the USA from June 1, 1988 to November 14, 1992, and
therefore could not have possibly executed the said pacto de retro sale on May 26, 1992.
In a complaint for annulment of pacto de retro sale and recovery of the owner’s title with
preliminary injunction filed by Marcelino against Vicente, it reiterated that Marcelino and his wife
never participated in the execution of the alleged deed and that in fact they are still in possession
of the said property. It also alleges that Marcelino knew the existence of said document only
when the counsel of Vicente sent him a letter demanding that he should repurchase the property
pursuant to the purported terms of the pacto de retro sale within fifteen days from receipt of said
letter. Upon further inquiry, Marcelino discovered that a certain Mr. P. Pacot had executed the
questioned document by misrepresenting himself as Marcelino G. Garcia (bearing the wrong
middle initial) who resided in Casinglot, Misamis Oriental, as evidence by the Residence Certificate
used in the acknowledgement page of the pacto de retro sale.

During the consolidated trial of the two cases, Vicente presented TCT and Tax Declaration to
prove the due execution of the pacto de retro sale which was recorded in the Register of Deeds
of CDO.

While Marcelino testified that he went to the USA on November 7, 1987. A few months later, he
returned to the Philippines. He went back to the USA on June 1, 1988. His three children were
left in the Philippines, while the titles to his properties were left in the office of his business
establishment with two of their children. Also, the signatures appearing in the pacto de retro sale
were not his and his wife’s. He presented his passport and driver’s license, both of which bear
an entirely different signature than what appeared in the pacto de retro sale document.

Also, Atty. Mediante, the person who notarized the deed of the conveyance in question, testified
that the Marcelino who appeared in his office and who executed the pacto de retro sale is not
same Marcelino who was in court. Likewise, Perla Babano, one of the witnesses to the execution
of the pacto de retro sale, testified that the person who introduced himself as Marcelino G. Garcia
and signed the document on May 26, 1992 is not the same Marcelino Garcia who was in court.

Trial court rendered its decision in favor of Vicente. CA reversed the decision.

Issue:

Whether or not the pacto de retro sale was forged and, therefore, void ab initio.

Ruling:

Yes, from an assiduous examination of the records of the case, it is plainly apparent that the
alleged signature of Marcelino in the pacto de retro sale is utterly dissimilar from his customary
signature appearing in the evidence on record, as well as in the verifications of the pleadings
before the Court and the courts a quo.

In the case at bar, however, the variance in the alleged signature of Garcia in the pacto de
retro sale, on one hand, and in the evidence on record and in the verifications of the pleadings
before this Court and the courts a quo, on the other hand, was enormous and obvious, such that
this Court can readily conclude that the pacto de retro sale was in all likelihood made by someone
who has not even seen the customary signature of Garcia.
Furthermore, the falsity of the signature on the pacto de retro sale was affirmed by two persons
present when the instrument was signed, one of which is the very person who notarized the
same. An examination of their testimonies reveals that the trial court had disregarded their
statements for very flimsy reasons.

At this point, however, we should clarify that the proper basis for the nullity of the forged pacto
de retro sale is not Article 1409 (which enumerates examples of void contracts) in relation to
Article 1505 (which refers to an unenforceable contract and is applicable only to goods) of the
Civil Code as stated by the Court of Appeals, but Article 1318 of the Civil Code, which enumerates
the essential requisites of a valid contract:

Article 1318. There is no contract unless the following requisites concur:

(1) Consent of the contracting parties;
(2) Object certain which is the subject matter of the contract;
(3) Cause of the obligation which is established.

There are two types of void contracts: (1) those where one of the essential requisites of a valid
contract as provided for by Article 1318 of the Civil Code is totally wanting; and (2) those declared
to be so under Article 1409 of the Civil Code. Conveyances by virtue of a forged signature x x x
are void ab initio. The absence of the essential [requisites] of consent and cause or consideration
in these cases rendered the contract inexistent. x x x.

LXXIII.

CONTRIBUTOR: Edeline Cosicol

CASE TITLE: Prudential Bank v Rapanot [G.R No. 191636; January 16, 2017]
Principle: Banks are required to exercise the highest degree of diligence in the conduct
of their affairs. As such, a bank who failed to secure HLURB’s prior approval before
granting a mortgage as required by PD 957 cannot be considered a mortgagee in good
faith. Acts executed against the provisions of mandatory or prohibitory laws shall be void.
Hence, such mortgage agreement is null and void.

Facts: G is the developer of a condominium. R paid G a fee as reservation fee for a

condominium unit, covered by a Condominium Certificate of Title (CCT) in the name of
G. Thereafter, Bank P extended a loan to G to be utilized by the latter as additional
working capital. To secure the loan, G executed a Mortgage Agreement in favor of P,
which had the effect of constituting a real estate mortgage over G’s condominium units,
one of which was the one paid for by R. R and G then entered into a Contract to Sell of
the condominium unit, and when R completed payment, R made demands for the delivery
of the unit to him, thereby putting his name on the CCT. G was unable to deliver the unit
as it was still mortgaged to P and G’s loan was still unpaid. The case was submitted to
HLURB and the Arbiter decided that the mortgage in favor of P is null and void for violation
of PD 957, ordering P to cancel the mortgage and release title to R. P contended that it
was a mortgagee in good faith and for value.

Issue: Can P be considered a mortgagee in good faith and can the mortgage agreement
be enforced against R?

Held: No. First of all, under PD 957, no mortgage on any condominium unit may be
constituted by a developer without prior written approval of the National Housing
Authority, now HLURB. Acts executed against the provisions of mandatory or prohibitory
laws shall be void. Thus, the Mortgage Agreement cannot have the effect of curtailing R’s
right as buyer of the unit, precisely because of P’s failure to comply with PD 957. The
Mortgage Agreement is null and void as against R, and thus cannot be enforced against
him. Moreover, contrary to the Bank's assertions, it cannot be considered a mortgagee in
good faith.

LXXIV.

CONTRIBUTOR: TOMARONG, JESSEL O.

CASE TITLE: Miguel Guillermo, et. al vs. Philippine Information Agency & DPWH
G.R. No. 223751 March 15, 2017
PRINCIPLE: Administrative Code of 1987 expressly prohibits the entering into contracts
involving the expenditure of public funds unless two prior requirements are satisfied. First, there
must be an appropriation law authorizing the expenditure required in the contract. Second, there
must be attached to the contract a certification by the proper accounting official and auditor that
funds have been appropriated by law and such funds are available. Failure to comply with any of
these two requirements renders the contract void.

Facts:
On December 10, 2010, Miguel "Lucky" Guillermo (Guillermo) and AV Manila Creative
Production, Co. (AV Manila) filed a Complaint3 for a sum of money and damages against the
respondents.

They alleged that in the last few months of the Administration of Former President Gloria
Macapagal-Arroyo (Arroyo Administration), then Acting Secretary of the Department of Public
Works and Highways Victor Domingo (Acting Secretary Domingo), consulted and discussed with
them the urgent need for an advocacy campaign (Campaign).The purpose of the Campaign was
to counteract the public's negative perception of the performance of the outgoing Arroyo
Administration. After meetings with Acting Secretary Domingo and some preliminary work,
Guillermo and AV Manila formally submitted in a letter-proposal dated February 26, 2010 the
concept of "Joyride," a documentary film showcasing milestones of the Arroyo Administration.
Acting Secretary Domingo signed a marginal note on the letter-proposal, which read, "OK,
proceed!" Guillermo and AV Manila allegedly worked on "Joyride" on a tight schedule and
submitted the finished product on April 4, 2010. "Joyride" was aired on NBN-Channel 4 on April
5, 2010.

After all the deliverables had been delivered, petitioners followed up on the payment from
the Philippine Information Agency. Despite several demands, no payments were made. Petitioners
said that they made demands through letters dated August 19, September 20, and October 12,
2010, to various officials of the Philippine Information Agency, under the Administration of Former
President Benigno Aquino III. However, respondents refused and failed to pay the amount of
₱25,000,000.00. The Office of the Solicitor General moved to dismiss the Complaint for failure to
state a cause of action and for failure to exhaust administrative remedies.

The Court of Appeals also found the doctrine of quantum meruit inapplicable because of
absence of any contract or legal right in favor of petitioners, and lack of evidence of public benefit
derived from the "Joyride" project.

Issue:
Is there a valid contract between petitioners and respondents?

Held:
No.

In Philippine National Railways v. Kanlaon Construction Enterprises Co., lnc, it was held
that contracts that do not comply with the foregoing requirements are void: Thus, the
Administrative Code of 1987 expressly prohibits the entering into contracts involving the
expenditure of public funds unless two prior requirements are satisfied. First, there must be an
appropriation law authorizing the expenditure required in the contract. Second, there must be
attached to the contract a certification by the proper accounting official and auditor that funds
have been appropriated by law and such funds are available. Failure to comply with any of these
two requirements renders the contract void.

In COMELEC v. Quijano-Padilla, it is quite evident from the tenor of the language of the
law that the existence of appropriations and the availability of funds are indispensable pre-
requisites to or conditions sine qua non for the execution of government contracts. The obvious
intent is to impose such conditions as a priori requisites to the validity of the proposed contract.

The law expressly declares void a contract that fails to comply with the two requirements,
namely, an appropriation law funding the contract and a certification of appropriation and fund
availability. The clear purpose of these requirements is to insure that government contracts are
never signed unless supported by the corresponding appropriation law and fund availability.

Finally, petitioners' invocation of the principle of quantum meruit could not save the
Complaint from dismissal. A careful reading reveals that the Complaint does not mention the
principle of quantum meruit, or any facts showing that the public has derived any benefit from
the "Joyride" project. Even assuming that basis exists to reimburse petitioners under the principle
of quantum meruit, no factual basis for its application was laid down in the Complaint. Its belated
invocation does not retroactively make the Complaint sufficient.
 LXXV.

CONTRIBUTOR: BORCES, JO DAVID Z.

CASE TITLE: Spouses Salvador Abella and Alma Abella v. Spouses Romeo Abella and Annie
Abella, GR No. 195166, July 08, 2015.

PRINCIPLE: In the absence of an express stipulation as to the rate of interest that would govern
the parties, the rate of legal interest for loans or forbearance of any money, goods or credits and
the rate allowed in judgments shall no longer be twelve percent (12%) per but will now be six
percent (6%) per annum effective July 1, 2013.

Facts:

On July 31, 2002, petitioners Spouses Salvador and Alma Abella filed a Complaint for sum of
money and damages with prayer for preliminary attachment against respondents Spouses Romeo
and Annie Abella before the Regional Trial Court, Branch 8, Kalibo, Aklan. In their Complaint,
petitioners alleged that respondents obtained a loan from them in the amount of P500,000.00.
The loan was evidenced by an acknowledgment receipt dated March 22, 1999 and was payable
within one (1) year. Petitioners added that respondents were able to pay a total of P200,000.00—
P100,000.00 paid on two separate occasions—leaving an unpaid balance of P300,000.00.

In their Answer (with counterclaim and motion to dismiss), respondents alleged that the amount
involved did not pertain to a loan they obtained from petitioners but was part of the capital for a
joint venture involving the lending of money.

In the Decision dated December 28, 2005, the Regional Trial Court ruled in favor of petitioners.
It noted that the terms of the acknowledgment receipt executed by respondents clearly showed
that: (a) respondents were indebted to the extent of P500,000.00; (b) this indebtedness was to
be paid within one (1) year; and (c) the indebtedness was subject to interest. Thus, the trial court
concluded that respondents obtained a simple loan, although they later invested its proceeds in
a lending enterprise.

The Regional Trial Court adjudged respondents solidarily liable to petitioners. The Court of
Appeals noted that while the acknowledgement receipt showed that interest was to be charged,
no particular interest rate was specified. Thus, at the time respondents were making interest
payments of 2.5% per month, these interest payments were invalid for not being properly
stipulated by the parties.

Issue:
Whether or not interest accrued on respondents’ loan from petitioners. If so, at what rate?
Held:
Yes, interest accrued on respondents’ loan.

Article 1956 of the Civil Code spells out the basic rule that "no interest shall be due unless it has
been expressly stipulated in writing." The controversy, however, stems from the acknowledgment
receipt’s failure to state the exact rate of interest. Jurisprudence is clear about the applicable
interest rate if a written instrument fails to specify a rate.

In Spouses Toring v. Spouses Olan, this court clarified the effect of Article 1956 of the Civil Code
and noted that the legal rate of interest (then at 12%) is to apply: "In a loan or forbearance of
money, according to the Civil Code, the interest due should be that stipulated in writing, and in
the absence thereof, the rate shall be 12% per annum." The Monetary Board, in its Resolution
No. 796 dated 16 May 2013, approved the following revisions governing the rate of interest in
the absence of stipulation in loan contracts, thereby amending Section 2 of Circular No. 905,
Series of 1982.

Thus, from the foregoing, in the absence of an express stipulation as to the rate of interest that
would govern the parties, the rate of legal interest for loans or forbearance of any money, goods
or credits and the rate allowed in judgments shall no longer be twelve percent (12%) per but will
now be six percent (6%) per annum effective July 1, 2013.

LXXVI.

CONTRIBUTOR: NAVARRO, JON KRISTOFFER L.

CASE TITLE: SPOUSES FLORANTE E. JONSAY and LUZVIMINDA L. JONSAY and MOMARCO
IMPORT CO., INC., Petitioners, vs. SOLIDBANK CORPORATION (now METROPOLITAN BANK AND
TRUST COMPANY), Respondent., G.R. No. 206459, April 6, 2016

PRINCIPLE: In Philippine Savings Bank v. Spouses Geronimo, the Court stressed that the right
of a bank to extrajudicially foreclose on a real estate mortgage is well-recognized, provided it
faithfully complies with the statutory requirements of foreclosure. While the law recognizes the
right of a bank to foreclose a mortgage upon the mortgagor's failure to pay his obligation, it is
imperative that such right be exercised according to its clear mandate.

In Cristobal v. CA, 50 the Court explicitly held that foreclosure proceedings enjoy the presumption
of regularity and the mortgagor who alleges the absence of a requisite has the burden of proving
such fact. Petitioners failed in this regard.

The petitioners' mere proposal to extinguish their loan obligations by way of dacion en pago
does not novate the mortgage contract. On the question of the petitioners' failed proposal to
extinguish their loan obligations by way of dacion en pago, no bad faith can be imputed to
Solidbank for refusing the offered settlement as to render itself liable for moral and exemplary
damages after opting to extrajudicially foreclose on the mortgage.

In Tecnogas Philippines Manufacturing Corporation v. Philippine National Bank, the Court held:
Dacion en pago is a special mode of payment whereby the debtor offers another thing to the
creditor who accepts it as equivalent of payment of an outstanding obligation. The undertaking
is really one of sale, that is, the creditor is really buying the thing or property of the debtor,
payment for which is to be charged against the debtor's debt. As such, the essential elements of
a contract of sale, namely, consent, object certain, and cause or consideration must be present.
It is only when the thing offered as an equivalent is accepted by the creditor that novation takes
place, thereby, totally extinguishing the debt.

An escalation clause in a loan agreement granting the lending bank authority to unilaterally
increase the interest rate without prior notice to and consent of the borrower is void. In New
Sampaguita Builders Construction, Inc. (NSBCJ) v. PNB,77 the Court condemned as the "zenith
of farcicality" a mortgage contract whereby the parties "specify and agree upon rates that could
be subsequently upgraded at whim by only one party to the agreement." The Court declared as
a contract of adhesion a pro forma promissory note which creates a "take it or leave it"
dilemma for borrower and gives the mortgagee bank an unbridled right to adjust the interest
independently and upwardly, thereby completely taking away from the borrower the "right to
assent to an important modification in their agreement," thus negating the element of mutuality
in their contracts.

Although escalation clauses are valid in maintaining fiscal stability and retaining the value of
money on long-term contracts, giving respondent an unbridled right to adjust the interest
independently and upwardly would completely take away from petitioners the "right to assent to
an important modification in their agreement" and would also negate the element of mutuality in
their contracts. The clause cited earlier made the fulfillment of the contracts "dependent
exclusively upon the uncontrolled will" of respondent and was therefore void.

While the Usury Law ceiling on interest rates was lifted by [Central Bank] 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.

Although such increases are not usurious, since the "Usury Law is now legally inexistent" - the
interest ranging from 26 percent to 35 percent in the statements of account - "must be equitably
reduced for being iniquitous, unconscionable and exorbitant." Rates found to be iniquitous or
unconscionable are void, as if it there were no express contract thereon. Above all, it is
undoubtedly against public policy to charge excessively for the use of money.

In New Sampaguita, the Court invoked Article 1310 of the Civil Code which grants courts authority
to reduce or increase interest rates equitably. It eliminated the escalated rates, insurance and
penalties and imposed only the stipulated interest rates of 19.5% and 21.5% on the notes, to be
reduced to the legal rate of 12% upon their automatic conversion into medium-term loans after
maturity.
Incidentally, under Monetary Board Circular No. 799, the rate of interest for the loan or
forbearance of money, in the absence of stipulation, shall now be 6% per annum starting
July 1, 2013.

Attorney's fees do not form an integral part of the cost of borrowing, but arise only when collecting
upon the notes or loans becomes necessary. Concerning the P3,000,000.00 attorney's fees
charged by Solidbank and added to the amount of its auction bid, as part of the cost of collecting
the loans by way of extrajudicial foreclosure, the Court finds no factual basis to justify such an
excessive amount. The Court has not hesitated to delete or equitably reduce attorney's fees which
are baseless or excessive. In New Sampaguita, the Court reduced from 10% to 1% the attorney's
fees, holding that they are not an integral part of the cost of borrowing but arise only on the basis
of quantum meruit when the lender collects upon the notes.

The recomputation of the petitioners' total loan indebtedness based on the stipulated interest,
and the exclusion of the penalties and reduction of the attorney's fees results in an excess of the
auction proceeds which must be paid to the petitioners. The question of whether Solidbank must
refund anything to the petitioners, the contracted rate of 18.75%, not the legal rate of 12%, will
be applied to the petitioners' loans. Any excess either in the interest payments of the petitioners
or in the auction proceeds, over what is validly due to Solidbank on the loans, will be refunded
or paid to the petitioners.

FACTS: Momarco, controlled and owned by the Spouses Jonsay, is an importer, manufacturer
and distributor of animal health and feedmill products catering to cattle, hog and poultry
producers. On November 9, 1995, and again on April 28, 1997, Momarco obtained loans of
P40,000,000.00 and P20,000,000.00, respectively, from Solidbank for which the Spouses Jonsay
executed a blanket mortgage over three parcels of land they owned in Calamba City, On
November 3, 1997, the loans were consolidated under one promissory note for the combined
amount of P60,000,000.00, signed by Florante as President of Momarco, with his wife Luzviminda
also signing as co-maker. The stipulated rate of interest was 18.75% per annum, along with an
escalation clause tied to increases in pertinent Central Bank-declared interest rates, by which
Solidbank was eventually able to unilaterally increase the interest charges up to 30% per annum.

Momarco religiously paid the monthly interests charged by Solidbank from November 1995 until
January 1998, when it paid P1,370,321.09. Claiming business reverses brought on by the 1997
Asian financial crisis, Momarco tried unsuccessfully to negotiate a moratorium or suspension in
its interest payments. Due to persistent demands by Solidbank, Momarco made its next, and its
last, monthly interest payment in April 1998 in the amount of P1,000,000.00. Solidbank applied
the said payment to Momarco's accrued interest for February 1998. Momarco sought a loan from
Landbank of the Philippines to pay off its aforesaid debt but its application fell through. The
anticipated expropriation by the Department of Public Works and Highways of the mortgaged lots
for the extension of the South Luzon Expressway (SLEX) also did not materialize.

Solidbank proceeded to extrajudicially foreclose on the mortgage, and at the auction sale held on
March 5, 1999, it submitted the winning bid of P82,327,249.54, representing Momarco's
outstanding loans, interests and penalties, plus attorney's fees of P3,600,000.00. But Momarco
now claims that on the date of the auction the fair market value of their mortgaged lots had
increased sevenfold to P441,750,000.00. On March 22, 1999, Sheriff Adelio Perocho (Sheriff
Perocho) issued a certificate of sale to Solidbank, duly annotated on April 15, 1999 on the lots'
titles.

On March 9, 2000, a month before the expiration of the period to redeem the lots, the petitioners
filed a Complaint against Solidbank, Sheriff Perocho and the Register of Deeds of Calamba,
Laguna, docketed as Civil Case No. 2912-2000-C, for Annulment of the Extrajudicial Foreclosure
of Mortgage, Injunction, Accounting and Damages with Prayer for the Immediate Issuance of a
Writ of Preliminary Prohibitory Injunction.

ISSUE: Whether Solidbank’s refusal to accept payment thru dacion en pago constitutes bad faith.

RULING: No. The SC held that the refusal of Solidbank does not constitute bad faith. According
to the SC, on the question of the petitioners' failed proposal to extinguish their loan obligations
by way of dacion en pago, no bad faith can be imputed to Solidbank for refusing the offered
settlement as to render itself liable for moral and exemplary damages after opting to
extrajudicially foreclose on the mortgage.

In Philippine Savings Bank v. Spouses Geronimo, the Court stressed that the right of a bank to
extrajudicially foreclose on a real estate mortgage is well-recognized, provided it faithfully
complies with the statutory requirements of foreclosure. While the law recognizes the right of a
bank to foreclose a mortgage upon the mortgagor's failure to pay his obligation, it is imperative
that such right be exercised according to its clear mandate.

In Cristobal v. CA, 50 the Court explicitly held that foreclosure proceedings enjoy the presumption
of regularity and the mortgagor who alleges the absence of a requisite has the burden of proving
such fact. Petitioners failed in this regard.

In Tecnogas Philippines Manufacturing Corporation v. Philippine National Bank, the Court held:
Dacion en pago is a special mode of payment whereby the debtor offers another thing to the
creditor who accepts it as equivalent of payment of an outstanding obligation. The undertaking
is really one of sale, that is, the creditor is really buying the thing or property of the debtor,
payment for which is to be charged against the debtor's debt. As such, the essential elements of
a contract of sale, namely, consent, object certain, and cause or consideration must be present.
It is only when the thing offered as an equivalent is accepted by the creditor that novation takes
place, thereby, totally extinguishing the debt.

LXXVII

CONTRIBUTOR: ESTOQUE, JULIUS JEFFERSON S.

CASE TITLE: Jacobs Bernhard Hulst- petitioner vs. PR Builders Inc. – respondent
GR. No. 156364 Sept. 3, 2007
PRINCIPLE:
Gross inadequacy of price does not nullify an execution made. Secondly, the Rules
of Court do not require that the value of the levied property be exactly the same as the
judgment debt. Third, the Sherriff is allowed a reasonable margin of error in determining
 the amount of property to be levied in order to satisfy judgment –as it is impossible to
know the precise quantity thereof.

FACTS:

Petitioner and his spouse (Ida) dutch nationals entered into a contract to sell with PR Builders
Inc. for the purchase of a 210 sq m residential unit in respondent town house in Niyugan, Laurel,
Batangas. On June 1995, the petitioner filed rescission of contract before housing and land Use
Regulatory Board (HLURB) for respondent’s failure to comply. On April 22, 1997, HLURB arbiter
Ma. Perpetua y Aquino(arbiter) rendered a decision in favor of petitioner. contract is rescinded.
(reimburst complaint the sum of P3,187, 500.00 PLUS 12% per anum from time complaint was
filed). Spouses Hulst divorced, Ida assigned her rights over the purchased property to petitioner
and alone pursued the case. August 21, 1997, HLURB arbiter issued a writ of execution addressed
to ex-officio shrift of RTC of Tanuan, Batangas directing the latter to execute its judgment. April
13, 1998, The ex-officio sheriff proceed to implement the writ of execution. Respondent filed
complaint with CA on Petition for Certiorari and prohibition, levy made by the sheriff was set
aside, requiring the sheriff to levy first on respondents personal properties. On January 26, 1999,
upon petitioner’s motion, HLURB issued an alias writ of execution. March 23, 1999, the sheriff
levied on respondent’s 15 parcels of land covered by 13 transfer of title in Brgy. Niyugan, Laurel
, Batangas. In a Notice of sale sent to both parties, the sheriff set the public auction of the levied
properties on April 28, 2000 at 10 am. April 26, 2000, respondent filed an urgent motion to quash
writ of levy with HLURB on the ground that sheriff made a over levy. However, Public Auction
was conducted and the sum of P5,313,040.00 from Holly Properties Realty Corp(winning bidder)
was turned over to petitioner after deducting the legal fees. On September 27, 2000, petitioner
filed a petition for certiorari and prohibition with Court of Appeals (SEC 1(N) RULE IV of
1996HLURB)- Motion for recon is prohibited). On October 30,2002, CA dismissed the petition,
held that when there is a right to redeem, inadequacy of price should not be material holds no
water as what is obtaining in this case but an inadequacy that shock the senses. Petitioner took
the present recourse on the sole ground that the honorable CA gravely erred in affirming the
arbiter’s order setting aside the levy made by the sheriff on the subject properties.

ISSUE: Whether or not that the foreign nationals were proscribed to own real property under
the rules, but is entitled to recover only the amount paid representing the purchase upon the
rescission of the contract.

HELD: Yes, thus exception finds application in this case, under article 1414, one who repudiates
the agreement and demand his money before the illegal act has taken place is entitled to recover.
Petitioner is therefore entitled to recover what he has paid, although the basis of his claim for
rescission, which was granted by the HLURB Was not the fact that he is not allowed to acquire
private land under the Phil. Constitution but petitioner is entitled to the recovery only the amount
of P3,187,500.00 representing the purchase price paid to respondent. No damages may be
recovered on the basis of void contract; being nonexistent, the agreement produces no judicial
tie between the parties involved. Further , petitioner is not entitled to actual as well as interest
thereon, moral and exemplary damages and Atty’s fees. A sense of justice and fairness demands
that petitioner should not be allowed to benefit from his act of entering into a contract to sell that
violates the constitutional prescription. The instant Petition is granted. The decision dated Oct.
30, 2002 of CA is reversed and set aside. The order dated August 28,2000 of HLURB Arbiter and
director Ceniza is declared null and void. Petitioner is ordered to return to respondent the amount
of P2,125,540 without interest in excess of the proceeds of the auction sale delivered to petitioner.

It must be noted, that in the second case, Hulst filed a Motion for Partial Reconsideration –
contending that the Contract to Sell entered into with the respondent fell within the purview of
R.A. 4726 (the Condominium Act). Therein provided is that foreigners are allowed to acquire
condominium units and shares in condominium corporations up to a maximum of 40% of total
and outstanding capital stock. Impliedly, the law separates ownership of the land from ownership
of the unit itself. Taking into consideration the petitioner’s legal basis, the Court modified its
previous decision –deleting the amount initially ordered to be returned to respondent in excess
of proceeds of the auction sale delivered to petitioner.

LXXVIII.

Contributor: Michelle Corbie V. Laurente

Case Title: OSCAR CONSTANTINO, MAXIMA CONSTANTINO and CASIMIRA

MATURINGAN, Petitioners,
vs.
HEIRS OF PEDRO CONSTANTINO, JR., represented by ASUNCION LAQUINDANUM,
Respondents. G.R. No. 181508 October 2, 2013

Principle:

Section 4 of Rule 129 of the Rules of Court, provides that:

An admission, verbal or written, made by a party in the course of the proceedings in the
same case, does not require proof. The admission may be contradicted only by showing
that it was made through palpable mistake or that no such admission was made.

As contemplated in the aforementioned provision of the Rules of Court, the general rule
regarding conclusiveness of judicial admission upon the party making it and the
dispensation of proof admits of two exceptions: 1) when it is shown that the admission
was made through palpable mistake, and 2) when it is shown that no such admission was
in fact made. The latter exception allows one to contradict an admission by denying that
he made such an admission.

Facts:

Before the Court is a Petition for Review on Certiorari under Rule 45 of the Rules of Court assailing
the 31 May 2007 Decision of the Court of Appeals in CA-G.R. CV No. 81329, which reversed the
27 October 2003 Decision of the Regional Trial Court (RTC), Branch 18 of Malolos City, Bulacan,
in a complaint for Declaration of Nullity of "Pagmamana sa Labas ng Hukuman," Tax Declaration
Nos. 96-10022-02653 & 1002655, With Prayer for a Writ of Preliminary Injunction & Damages
docketed as Civil Case No. 630-M-99.
This involves a controversy over a parcel of land claimed to be part of an estate which needed to
be proportionally subdivided among heirs.

Pedro Constantino, Sr., (Pedro Sr.) ancestors of the petitioners and respondents, owned several
parcels of land, one of which is an unregistered parcel of land declared for taxation purposes
under Tax Declaration 20814 consisting of 240 square meters situated at Sta. Monica, Hagonoy,
Bulacan. Pedro, Sr., upon his death, was survived by his six (6) children, namely: 1) PEDRO
CONSTANTINO, JR. (Pedro Jr.), the grandfather of the respondents; 2) ANTONIA CONSTANTINO,
who later died without issue; 3) CLARA CONSTANTINO, who also later died without issue; 4)
BRUNOCONSTANTINO, who was survived by his 6 children including petitioner Casimira
Constantino-Maturingan; 5) EDUARDO CONSTANTINO, who is survived by his daughter Maura;
and 6) SANTIAGO CONSTANTINO, who was survived by his five (5) children which includes
petitioner Oscar Constantino.

On 17 June 1999, respondents Asuncion Laquindanum (Asuncion)and Josefina Cailipan (Josefina),

great grandchildren of Pedro Sr., in representation of Pedro, Jr. filed a complaint against
petitioners Oscar Constantino, Maxima Constantino and Casimira Maturingan, grandchildren of
Pedro Sr., for the nullification of a document denominated as "Pagmamana sa Labas ng Hukuman"
dated 10 August 1992, Tax Declaration Nos. 96-10022 (02653) and 96-10022 (02655) and
reinstatement of Tax Declaration No. 20814 in the name of Pedro Sr.

On 15 August 2000, pre-trial conference was conducted wherein the parties entered into
stipulations and admissions as well as identification of the issues to be litigated. Thereupon, trial
on the merits ensued.

The RTC rendered a Decision in favor of the respondents finding that:

As a result of execution of "Extrajudicial Settlement with Waiver" dated December 5, 1968 (Exh.
"2") executed by the heirs of Pedro Constantino, Jr., a son of Pedro Constantino, Sr. and the
subsequent execution of another deed denominated as "Pagmamana sa Labas ng Hukuman"
dated August 10, 1992 (Exh. "E") executed by the heirs of Santiago and Bruno Constantino, also
other sons of Pedro Constantino, Sr., to the exclusion of the other heirs, namely, those of
ANTONIA, CLARA, and EDUARDO CONSTANTINO, both plaintiffs and defendants acted equally at
fault. They are in pari delicto, whereby the law leaves them as they are and denies recovery by
either one of them. Parties who are equally guilty cannot complain against each other.

Although, plaintiffs-heirs of Pedro Constantino, Jr., including Asuncion Laquindanum and Josefina
Cailipan, are not parties or signatories to the "Extrajudicial Settlement with Waiver" dated
December 5, 1968, they are successors-in-interest of Pedro Constantino, Jr. They are considered
"privies" to said deed, and are bound by said extrajudicial settlement.

The deed denominated as "Pagmamana sa Labas ng Hukuman" of August10, 1992 and Tax
Declaration No. 96-10022-02653 in the name of Oscar Constantino and Tax Declaration No. 96-
10022-02655 in the name of Casimira C. Maturingan (from Maxima Constantino to Casimira C.
Maturingan) stand. Plaintiffs’ Complaint for nullification thereof with damages was dismissed.

Not convinced, the respondents appealed the afore quoted decision to the Court of Appeals
(CA) raising, among others, the erroneous application by G.R. No. 180168

The trial court of the doctrine of "in pari delicto" in declaring the validity of the document
"Pagmamana sa Labas ng Hukuman."

The CA ruled in favor of the respondents heirs of Pedro, Jr., declaring that the "Extrajudicial
Settlement with Waiver" dated 5 December 1968 they executed covering the 192 sq mlot actually
belongs to Pedro Jr., hence, not part of the estate of Pedro Sr.

Issue of the Case:

Whether or not the CA failed to appreciate the existence of misrepresentation in both documents,
thereby ignoring the propriety of the application of the in pari delicto doctrine.

Whether or not the CA erred in disregarding the stipulations and admissions during the pre-trial
conference on which the application of the doctrine of in pari delicto was based.

Ruling:

Latin for "in equal fault," in pari delicto connotes that two or more people are at fault or are guilty
of a crime. Neither courts of law nor equity will interpose to grant relief to the parties, when an
illegal agreement has been made, and both parties stand in pari delicto. Under the pari delicto
doctrine, the parties to a controversy are equally culpable or guilty, they shall have no action
against each other, and it shall leave the parties where it finds them. This doctrine finds
expression in the maxims "ex dolo malo nonoritur actio" and "in pari delicto potior est conditio
defendentis."

As a doctrine in civil law, the rule on pari delicto is principally governed by Articles 1411 and 1412
of the Civil Code, which state that:

Article 1411. When the nullity proceeds from the illegality of the cause or object of the contract,
and the act constitutes a criminal offense, both parties being in pari delicto, they shall have no
action against each other, and both shall be prosecuted.

Article 1412. If the act in which the unlawful or forbidden cause consists does not constitute a
criminal offense, the following rules shall be observed:

1. When the fault is on the part of both contracting parties, neither may recover what he has
given by virtue of the contract, or demand the performance of the other’s undertaking;

The petition at bench does not speak of an illegal cause of contract constituting a criminal offense
under Article 1411. Neither can it be said that Article 1412 finds application although such
provision which is part of Title II, Book IV of the Civil Code speaks of contracts in general, as well
as contracts which are null and void ab initio pursuant to Article 1409 of the Civil Code – such as
the subject contracts, which as claimed, are violative of the mandatory provision of the law on
legitimes.

We do not dispute that herein parties, through the Deeds they separately executed deprived each
other of rightful shares in the two lots subject of the separate contracts – that is, if the two (2)
parcels of land subject matter thereof, form part of the estate of the late Pedro Sr.

It is asserted by the petitioners that their execution in 1992 of the contract denominated as
"Pagmamana sa Labas ng Hukuman" which excluded other heirs of Pedro Sr., was with an
underlying agreement with the other heirs including Maria Constantino, daughter of Pedro Jr. and
grandmother of respondents. The agreement was for the other heirs to recognize the 192 square
meters lot subject matter of the "Extrajudicial Settlement with Waiver" executed in 1968 as the
share of the heirs of Pedro Sr. in the estate of Pedro Sr., Petitioners respected such agreement,
as in fact, Maria Laquindanum and that of her heirs, herein respondents, were not disturbed in
their possession or ownership over the said parcel of land; thus, the heirs of Pedro Jr. were said
to have acquiesced to the "Pagmamana sa Labas ng Hukuman" and the underlying agreement
and therefore they have no recourse or reason to question it taking cue from the doctrine of in
paridelicto. This was the basis of the trial court’s findings that respondents are now estopped
from claiming otherwise.

The Court found that the trial court erroneously applied the doctrine.

This is not to say, however, that the CA was correct in upholding the validity of the contract
denominated as "Pagmamana sa Labas ng Hukuman." The CA decision being, likewise, based on
pari delicto, is also incorrect.

Finding the inapplicability of the in pari delicto doctrine, We find occasion to stress that Article
1412 of the Civil Code that breathes life to the doctrine speaks of the rights and obligations of
the parties to the contract with an illegal cause or object which does not constitute a criminal
offense. It applies to contracts which are void for illegality of subject matter and not to contracts
rendered void for being simulated, or those in which the parties do not really intend to be bound
thereby. Specifically, in pari delicto situations involve the parties in one contract who are both at
fault, such that neither can recover nor have any action against each other.

In this case, there are two Deeds of extrajudicial assignments unto the signatories of the portions
of the estate of an ancestor common to them and another set of signatories likewise assigning
unto themselves portions of the same estate. The separate Deeds came into being out of an
identical intention of the signatories in both to exclude their co-heirs of their rightful share in the
entire estate of Pedro Sr. It was, in reality, an assignment of specific portions of the estate of
Pedro Sr., without resorting to a lawful partition of estate as both sets of heirs intended to exclude
the other heirs.

Clearly, the principle of in pari delicto cannot be applied. The inapplicability is dictated not only
by the fact that two deeds, not one contract, are involved, but because of the more important
reason that such an application would result in the validation of both deeds instead of their
nullification as necessitated by their illegality. It must be emphasized that the underlying
agreement resulting in the execution of the deeds is nothing but a void agreement. Article 1409
of the Civil Code provides that:
ART. 1409. The following contracts are in existent and void from the beginning:

(1) Those whose cause, object or purpose is contrary to law; morals, good customs, public order
or public policy;

Corollarily, given the character and nature of the deeds as being void and in existent, it has, as a
consequence, of no force and effect from the beginning, as if it had never been entered into and
which cannot be validated either by time or ratification.

That said, we cannot give credence to the contention of respondents that no fault can be
attributed to them or that they are free from the effects of violation of any laws arising from the
supposed unlawful agreement entered into between Maria Laquindanum, their predecessor-in-
interest, and the other heirs, including petitioners herein, based on the fact that they are not
signatories to said agreement, thus, the lack of any binding effect to them. Respondents argued
and set forth as an issue during the trial that they were not signatories to any of the contract or
privies to such an arrangement. It is not disputed, however, that respondents are successors-in-
interest of Maria Laquindanum, one of the signatories in the Extrajudicial Settlement with Waiver
who was also allegedly in agreement with the petitioners.

The Court agrees with the trial court that respondents are "privies" to Maria Laquindanum. By
the term "privies" is meant those between whom an action is deemed binding although they are
not literally parties to the said action. A privy in estate is one, it has been said, who derives his
title to the property in question by purchase; one who takes by conveyance." In fine, respondents,
as successors-in-interest, derive their right from and are in the same position as their predecessor
in whose shoes they now stand.

Thus, any condition attached to the property or any agreement precipitating the execution of the
Deed of Extrajudicial Settlement with Waiver which was binding upon Maria Laquindanum is
applicable to respondents who merely succeeded Maria.

This notwithstanding, it must however be shown that the Deed of Extrajudicial Settlement with
Waiver, referred to a property owned by Pedro Sr. There is such basis from the facts of this case.

The records show that apart from respondent Asuncion Laquindanums’s statement that the parcel
of land subject matter of the Deed of Extrajudicial Settlement with Waiver is not part of the estate
of Pedro Sr., their common ancestor, no other evidence was offered to support it. The CA in
giving credence to the respondents’ claim, merely relied on the alleged typographical error in the
Deed. The basis for the CA’s conclusion was the inclusion of the wife of Pedro Jr. and that of their
children, which the CA considered as proof that the property was owned by Pedro Jr. and not
part of the estate of Pedro Sr. As pointed out by the petitioners, the mention of the names of the
children of Pedro Jr. in the Extrajudicial Settlement is not proof that the subject of the deed is
the property of Pedro Jr. Meant to exclude all the other heirs of Pedro Sr., only the children of
Pedro Jr. appeared in the Extrajudicial Settlement as heirs.

Weak as the reasoning is, the CA actually contradicted the admissions made no less by the
respondents during the pre-trial conference where they stipulated that the land covered by Tax
Declaration No. 9534 consisting of 192 sq. m belongs to Pedro Sr.
Judicial admissions are legally binding on the party making the admissions. Pre-trial admission in
civil cases is one of the instances of judicial admissions explicitly provided for under Section 7,
Rule 18 of the Rules of Court, which mandates that the contents of the pre-trial order shall control
the subsequent course of the action, thereby, defining and limiting the issues to be tried.

The last paragraph of Section 7, Rule 18 of the Rules of Court serves as a caveat for the rule of
conclusiveness of judicial admissions – for, in the interest of justice, issues that may arise in the
course of the proceedings but which may not have been taken up in the pre-trial can still be taken
up.

Section 7, Rule 18 of the Rules of Court reads:

Section 7. Record of pre-trial. – The proceedings in the pre-trial shall be recorded. Upon the
termination thereof, the court shall issue an order which shall recite in detail the matters taken
up in the conference, the action taken thereon, the amendments allowed to the pleadings, and
the agreements or admissions made by the parties as to any of the matters considered. Should
the action proceed to trial, the order shall, explicitly define and limit the issues to be tried. The
contents of the order shall control the subsequent course of the action, unless modified before
trial to prevent injustice.

Section 4 of Rule 129 of the Rules of Court, provides that:

An admission, verbal or written, made by a party in the course of the proceedings in the same
case, does not require proof. The admission may be contradicted only by showing that it was
made through palpable mistake or that no such admission was made.

As contemplated in the aforementioned provision of the Rules of Court, the general rule regarding
conclusiveness of judicial admission upon the party making it and the dispensation of proof admits
of two exceptions: 1) when it is shown that the admission was made through palpable mistake,
and 2) when it is shown that no such admission was in fact made. The latter exception allows
one to contradict an admission by denying that he made such an admission.

However, respondents failed to refute the earlier admission/stipulation before and during the trial.
While denying ownership by Pedro Sr. of the 192 sq m lot, respondent Asuncion Laquindanum,
when placed on the stand, offered a vague explanation as to how such parcel of land was acquired
by Pedro Jr.

In light of the foregoing, while both parties acted in violation of the law on legitimes, the pari
delicto rule, expressed in the maxims "Ex dolo malo non oritur action" and "in pari delicto potior
est condition defendentis," which refuses remedy to either party to an illegal agreement and
leaves them where they are, does not apply in this case.

Since the Letter-Agreement was repudiated before the purpose has been accomplished and to
adhere to the pari delicto rule in this case is to put a premium to the circumvention or the laws,
positive relief should be granted to Macaria. Justice would be served by allowing her to be placed
in the position in which she was before the transaction was entered into.
Accordingly, in order not to put a premium to the circumvention or the laws as contemplated by
the parties in the instant case, we must declare both contracts as void. Indeed, any circumvention
of the law cannot be countenanced.

The 31 May 2007 Decision of the Court of Appeals in CA-G.R. CV No. 81329 was hereby
REVERSED. The Pagmamana sa Lahas ng Hukuman and Extrajudicial Settlement with Waiver was
hereby declared void without prejudice to the partition of the estate of Pedro Constantino Sr. with
the full participation of all the latter's heirs.