RECIPROCAL OBLIGATION

SWIRE REALTY DEVELOPMENT CORPORATION v. JAYNE YU

G. R. No. 207133, March 09, 2015

THIRD DIVISION

PERALTA, J.:

DOCTRINE: The right of rescission of a party to an obligation under Article 1191 of the Civil Code
predicated on a breach of faith by the other party who violates the reciprocity between them. The breac
contemplated in the said provision is the obligor’s failure to comply with an existing obligation. When th
obligor cannot comply with what is incumbent upon it, the obligee may seek rescission and, in th
absence of any just cause for the court to determine the period of compliance, the court shall decree th
rescission.

FACTS:

Respondent Jayne Yu and petitioner Swire Realty Development Corporation entered into a Contract t
Sell on July 25, 1995 covering one residential condominium unit payable in installments. Responden
paid the full purchase price for the unit while making a down payment of P20,000.00 for the parking lo
Notwithstanding full payment of the contract price, petitioner failed to complete and deliver the subjec
unit on time. This prompted respondent to file a Complaint for Rescission of Contract with Damage
before the Housing and Land Use Regulatory Board (HLURB).

ISSUE:

Is the recission of the contract proper?

HELD:

YES. The rescission is proper. At the time of the ocular inspection conducted by the HLURB, the un
was not yet completely finished as the kitchen cabinets and fixtures were not yet installed and the agree
amenities were not yet available.

It is evident that the report on the ocular inspection conducted on the subject condominium project an
subject unit shows that the amenities under the approved plan have not yet been provided and that th
subject unit has not been delivered to respondent, which is beyond the period of development of under th
license to sell.

Incontrovertibly, petitioner had incurred delay in the performance of its obligation amounting to breach o
contract as it failed to finish and deliver the unit to respondent within the stipulated period. The delay i
the completion of the project as well as of the delay in the delivery of the unit are breaches of statutor
and contractual reciprocal obligations which entitle respondent to rescind the contract, demand a refun
and payment of damages.
JOINT OBLIGATION

SPOUSES RODOLFO BEROT AND LILIA BEROT, vs. FELIPE C. SIAPNO

G.R. No. 188944 July 9, 2014

FIRST DIVISION

SERENO, CJ:

DOCTRINE: 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 o
the debtors. On the other hand, a joint obligation is one in which each debtors is liable only for
proportionate part of the debt, and the creditor is entitled to demand only a proportionate part of the cred
from each debtor. The well entrenched rule is that solidary obligations cannot be inferred lightly. The
must be positively and clearly expressed. A liability is solidary "only when the obligation expressly s
states, when the law so provides or when the nature of the obligation so requires."

FACTS:

Macaria and and Spouses Lilia and Rodolfo Berot obtained a loan from Felipe for Php 250,000 payabl
within one year together with interest theren at the rate of 2% per annum from that date until fully paid
Macaria and Lilia mortgaged a land to Felipe in the names of Macaria and her husband Pedro Berot wh
is already deceased. Macaria and Lilia defaulted which lead Felipe to file an action against them fo
foreclosure of mortgage and damages. Felipe said that Macaria and Lilia failed and refused to pay th
abovementioned sum of ₱250,000.00 plus the stipulated interest of 2% per month despite lapse of on
year from May 23, 2002.In defense, Spouses Berot said that the contested property is Rodolfo’
inheritance from his father Pedro, on said property is their family home, that the mortgage is void as
was constituted over the family home without the consent of their children, who are the beneficiarie
thereof; that their obligation is only joint. Macaria subsequently died.

ISSUE:

Is the obligation joint?

RULING:

No. Under Article 1207 of the Civil Code of the Philippines, the general rule is that when there is
concurrence of two or more debtors under a single obligation, the obligation is presumed to be joint. Th
law further provides that to consider the obligation as solidary in nature, it must expressly be stated a
such, or the law or the nature of the obligation itself must require solidarity. Here, no indication in th
plain wordings of the instrument that the debtors – the late Macaria and Spouses Berot – had expressl
intended to make their obligation to Felipe solidary in nature. Absent from the mortgage are the expres
and indubitable terms characterizing the obligation as solidary. Felipe was not able to prove by
preponderance of evidence that Spouses Berot’s obligation to him was solidary. Hence, applicable to th
case is the presumption under the law that the nature of the obligation herein can only be considered a
joint. It is incumbent upon the party alleging otherwise to prove with a preponderance of evidence tha
Spouses Berot's obligation under the loan contract is indeed solidary in character.
 UNITED COCONUT PLANTERS BANK vs. SPOUSES WALTER AND LILY UY

G.R. No. 204039 January 10, 2018

THIRD DIVISION

MARTIRES, J.:

DOCTRINE: An assignment of credit has been defined as an agreement by virtue of which the owner o
a credit, known as the assignor, by a legal cause - such as sale, dation in payment or exchange or donatio
- and without need of the debtor's consent, transfers that credit and its accessory rights to another, know
as the assignee, who acquires the power to enforce it to the same extent as the assignor could hav
enforced it against the debtor. In every case, the obligations between assignor and assignee will depen
upon the judicial relation which is the basis of the assignment. An assignment will be construed i
accordance with the rules of construction governing contracts generally, the primary object being alway
to ascertain and carry out the intention of the parties. This intention is to be derived from a consideratio
of the whole instrument, all parts of which should be given effect, and is to be sought in the words an
language employed.

FACTS:
Prime Town Property Group, Inc. (PPGI) and E. Ganzon Inc. were the joint developers of the Kiene
Hills Mactan Condominium Project (Kiener Hills). In 1997, spouses Walter and Lily Uy (respondents
entered into a Contract to Sell with PPGI for a unit in Kiener Hills. The total contract price amounted t
₱1, 151,718. 75 payable according to the following terms: (a) ₱l00,000.00 as down payment; and (b) th
balance paid in 40 monthly installments at ₱26,297.97 from 16 January 1997 to 16 April 2000.

On 23 April 1998, PPGI and petitioner United Coconut Planters Bank (UCPB) executed the following
Memorandum of Agreement (MOA) and Sale of Receivables and Assignment of Rights and Interests. B
virtue of the said agreements, PPGI transferred the right to collect the receivables of the buyers, whic
included respondents, of units in Kiener Hills. The parties entered into the said agreement as PPGI
partial settlement of its ₱l,814,500,000.00 loan with UCPB.

On 17 April 2006, the Housing and Land Use Regulatory Board Regional Office (HLURB Regiona
Office) received respondents' complaint for sum of money and damages against PPGI and UCPB. The
claimed that in spite of their full payment of the purchase price, PPGI failed to complete the constructio
of their units in Kiener Hills.

ISSUE:

Whether, under the Agreement between Primetown and UCPB, UCPB assumed the liabilities an
obligations of Primetown under its contract to sell with Spouses Choi.

RULING:

In the present case, the Agreement between Primetown and UCPB provided that Primetown, i
consideration of ₱748,000,000.00, "assigned, transferred, conveyed and set over unto [UCPB] a
Accounts Receivables accruing from [Primetown's Kiener] together with the assignment of all its right
titles, interests and participation over the units covered by or arising from the Contracts to Sell from
which the Accounts Receivables have arisen."

The Agreement conveys the straightforward intention of Primetown to "sell, assign, transfer, convey an
set over" to UCPB the receivables, rights, titles, interests and participation over the units covered by th
contracts to sell. It explicitly excluded any and all liabilities and obligations, which Primetown assume
under the contracts to sell. The intention to exclude Primetown's liabilities and obligations is furthe
shown by Primetown's subsequent letters to the buyers, which stated that "this payment arrangement sha
in no way cause any amendment of the other terms and conditions, nor the cancellation of the Contract t
Sell you have executed with [Primetown].

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

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

GR. No. 206806 June 25, 2014

THIRD DIVISION

LEONEN, J.
DOCTRINE: In an alternative obligation, there is more than one object, and the fulfillment of one
sufficient, determined by the choice of the debtor who generally has the right of election. The right o
election is extinguished when the party who may exercise that option categorically and unequivocall
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 th
election made by the debtor, and only after said notice shall the election take legal effect when consente
by the creditor, or if impugned by the latter, when declared proper by a competent court.

FACTS:

Dan T. Lim works in the business of supplying scrap papers, cartons, and other raw materials, under th
name Quality Paper and Plastic Products, Enterprises, to factories engaged in the paper mill busines
From February 2007 to March 2007, he delivered scrap papers to Arco Pulp and Paper Company, Inc
(Arco Pulp and Paper). The parties allegedly agreed that Arco Pulp and Paper would either pay Dan T
Lim the value of the raw materials or deliver to him their finished products of equivalent value.

Dan T. Lim alleged that when he delivered the raw materials, Arco Pulp and Paper issued a post-date
check as partial payment, with the assurance that the check would not bounce. When he deposited th
check on April 18, 2007, 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 agreement1
where Arco Pulp and Paper bound themselves to deliver their finished products to Megapack Containe
Corporation, owned by Eric Sy, for his account. According to the memorandum, the raw materials woul
be supplied by Dan T. Lim, through his company, Quality Paper and Plastic Products.
On May 5, 2007, Dan T.Lim sent a letter to Arco Pulp and Paper demanding but no payment was made t
him. Dan T. Lim filed a complaint for collection of sum of money with prayer for attachment with th
Regional Trial Court.

The trial court rendered a judgment in favor of Arco Pulp and Paper and dismissed the complaint, holdin
that when Arco Pulp and Paper and Eric Sy entered into the memorandum of agreement, novation too
place, which extinguished Arco Pulp and Paper’s obligation to Dan T. Lim. The Court of Appea
reversed this.

ISSUE:

What kind of obligation was created?

RULINGS:

The obligation between the parties was an alternative obligation.

The rule on alternative obligations is governed by Article 1199 of the Civil Code, which states that “A
person alternatively bound by different prestations shall completely perform one of them. The credito
cannot be compelled to receive part of one and part of the other undertaking.

In the case, the original contract between the parties was for respondent to deliver scrap papers t
petitioner Arco Pulp and Paper. The payment for this delivery became petitioner Arco Pulp and Paper’
obligation. By agreement, petitioner Arco Pulp and Paper, as the debtor, had the option to either (1) pa
the price or (2) deliver the finished products of equivalent value to respondent.
Here, the court identified the obligation between the parties as an alternative obligation, whereb
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 equivalen
value.

When petitioner Arco Pulp and Paper tendered a check to respondent in partial payment for the scra
papers, they exercised their option to pay the price. Respondent’s receipt of the check and his subsequen
act of depositing it constituted his notice of petitioner Arco Pulp and Paper’s option to pay.

SOLIDARY OBLIGATION

OLONGAPO CITY, vs.SUBIC WATER AND SEWERAGE CO., INC.,

G.R. No. 171626 August 6, 2014

SECOND DIVISION
BRION, J.:

DOCTRINE: There is a solidary liability only when the obligation expressly so states, or when the law
orthe nature of the obligation requires solidarity.

FACTS:

Pursuant to PD 198, petitioner Olongapo City transferred all its existing water facilities and assets to th
jurisdiction and ownership of the Olongapo City Water District (OCWD). It also allows local wate
districts (LWDs)which have acquired an existing water system of a local government unit (LGU) to ente
into a contract to pay the concerned LGU. Then, petitioner filed a complaint for sum of money an
damages against OCWD alleging that OCWD failed to pay its electricity bills to petitioner and remit i
payment under the contract to pay to which OCWD posed a counterclaim against petitioner for unpai
water bills amounting to ₱3,080,357.00.

In the interim, OCWD entered into a Joint Venture Agreement (JVA) to which a new corporation, Subi
Water, was incorporated. So, petitioner and OCWD entered into a compromise agreement to offset the
respective claims and counterclaims. The compromise agreement also contained a provision regarding th
parties’ request that Subic Water, Philippines, which took over the operations of the defendant Olongap
City Water District be made the co-maker for OCWD’s obligations.

With that agreement, the trial court issued a writ of execution and directed its issuance against OCWD
and/or Subic Water, to which the latter questions as it avers no solidary liability with the former.

ISSUE:

Is Subic Water solidarily liable with OCWD?

HELD:

No. Solidary liability must be expressly stated. As the rule stands, solidary liability is not presumed. Th
stems from Art. 1207 of the Civil Code, which provides: Art. 1207. x x x There is a solidary liability onl
when the obligation expressly so states, or when the law or the nature of the obligation requires solidarity

In the present case, the joint and several liability of Subic Water and OCWD was nowhere clear in th
agreement. The agreement simply and plainly stated that petitioner and OCWD were only requestin
Subic Water to be a co-maker, in view of its assumption of OCWD’s water operations. No evidence wa
presented to show that such request was ever approved by Subic Water’s board of directors.

Under these circumstances, petitioner cannot proceed after Subic Water for OCWD’s unpaid obligation
The law explicitly states that solidary liability is not presumed and must be expressly provided for. No
being a surety, Subic Water is not an insurer of OCWD’s obligations under the compromise agreemen
At best, Subic Water was merely a guarantor against whom petitioner can claim, provided it was fir
shown that: a) petitioner had already proceeded after the properties of OCWD, the principal debtor; b
and despite this, the obligation under the compromise agreement, remains to be not fully satisfied. But a
ruled by the court, Subic Water could not also be recognized as a guarantor of OCWD’s obligations.

ESTANISLAO and AFRICA SINAMBAN vs. CHINA BANKING CORPORATION

G.R. No. 193890 March 11, 2015

THIRD DIVISION

REYES, J.:
DOCTRINE: Article 1216 of the Civil Code provides that the creditor may proceed against any one o
the solidary debtors or some or all of them simultaneously. The demand made against one of them sha
not be an obstacle to those which may subsequently be directed against the others, so long as the debt ha
not been fully collected. Article 1252 of the Civil Code does not apply, as urged by the petitioner
because in the said article the situation contemplated is that of a debtor with several debts due, wherea
the reverse is true, with each solidary debt imputable to several debtors.

FACTS:

In 1990, spouses Manalastas executed a Real Estate Mortgage in favor of respondent China Bankin
Corporation over two real estate properties. During the next few years, they executed several amendmen
to the mortgage contract progressively increasing their credit line. They also executed several promissor
notes (PNs) in favor of Chinabank. In two of the PNs, petitioners Estanislao and Africa Sinamban signe
as co-makers. In 1998, Chinabank filed a Complaint for sum of money against the spouses Manalasta
and the spouses Sinamban before the RTC alleging that they reneged on their loan obligations under th
PNs.

The spouses Sinamban, in their Answer, averred that they do not recall having executed PN No. OAC
636-95 for ₱325,000.00 on May 23, 1995, or PN No. CLF 5-93 for ₱1,300,000.00 on February 26, 1991
and had no participation in the execution of PN No. OACL 634-95 for ₱1,800,000.00 on April 24, 1995
They however admitted that they signed some PN forms as co-makers upon the request of the spouse
Manalastas who are their relatives; although they insisted that they derived no money or other benefi
from the loans.

ISSUE:

Are spouses Sinamban liable?

HELD:
Yes. According to Article 2047 of the Civil Code, if a person binds himself solidarily with the principa
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 mor
creditors or of two or more debtors in one and the same obligation, Article 1207 provides that amon
them, "[t]here is a solidary liability only when the obligation expressly so states, or when the law or th
nature of the obligation requires solidarity." It is settled that when the obligor or obligors undertake to b
"jointly and severally" liable, it means that the obligation is solidary. In this case, the spouses Sinamba
expressly bound themselves to be jointly and severally, or solidarily, liable with the principal makers o
the PNs, the spouses Manalastas.

In the case, by deducting the auction proceeds from the aggregate amount of the three loans due
Chinabank in effect opted to apply the entire proceeds of the auction simultaneously to all the three loan
This implies that each PN will assume a pro rata portion of the resulting deficiency on the tota
indebtedness as bears upon each PN’s outstanding balance. Contrary to the spouses Sinamban’
insistence, none of the three PNs is more onerous than the others to justify applying the proceed
according to Article 1254 of the Civil Code, in relation to Articles 1252 and 1253.

Since each loan, represented by each PN, was obtained under a single credit line extended by Chinaban
for the working capital requirements of the spouses Manalastas’ rice milling business, which credit lin
was secured also by a single REM over their properties, then each PN is simultaneously covered by th
same mortgage security, the foreclosure of which will also benefit them proportionately. No PN enjoy
any priority or preference in payment over the others, with the only difference being that the spouse
Sinamban are solidarily liable for the deficiency on two of them.
 RAMON E. REYES and CLARA R. PASTOR vs. BANCOM DEVELOPMENT CORP.,

G.R. No. 190286 January 11, 2018

FIRST DIVISION

SERENO, CJ.:

DOCTRINE: The clear terms of the agreements cannot be negated and deemed non-binding simply o
the basis of the self-serving testimony of one of the guarantors of the loan.

FACTS:

The dispute in this case originated from a Continuing Guaranty executed in favor of respondent Bancom
by Angel E. Reyes, Sr., Florencio. Reyes, Jr., Rosario R. Du, Olivia Arevalo, and the two petitioner
herein, Ramon E. Reyes and Clara R. Pastor (the Reyes Group). In the instrument, the Reyes Grou
agreed to guarantee the full and due payment of obligations incurred by Marbella under an Underwritin
Agreement with Bancom. These obligations included certain Promissory Notes issued by Marbella i
favor of Bancom on 24 May 1979 for the aggregate amount of ₱2,828,140.32.

It appears from the records that Marbella was unable to pay back the notes at the time of their maturity
Consequently, it issued a set of replacement Promissory Notes on 22 August 1979, this time for th
increased amount of ₱2,901,466.48. It again defaulted on the payment of this second set of notes, leadin
to the execution of a third set for the total amount of ₱3,002,333.84, and finally a fourth set for the sam
amount.
Because of Marbella's continued failure to pay back the loan despite repeated demands, Bancom filed
Complaint for Sum of Money with a prayer for damages before the RTC of Makati on 7 July 1981. Th
case, which sought payment of the total sum of ₱4,300,247.35, was instituted against (a) Marbella a
principal debtor; and (b) the individuals comprising the Reyes Group as guarantors of the loan.

In their defense, Marbella and the Reyes Group argued that they had been forced to execute th
Promissory Notes and the Continuing Guaranty against their will. They also alleged that the foregoin
instruments should be interpreted in relation to earlier contracts pertaining to the development of
condominium project known as Marbella II.

ISSUE:

Will the guarantors of the loans of Marbella be liable to Bancom.

RULING:

YES. Having executed a Continuing Guaranty in favor of Bancom, petitioners are solidarily liable wit
Marbella for the payment of the amounts indicated on the Promissory Notes.

As the appellate court observed, petitioners did not challenge the genuineness and due execution of th
promissory notes. Neither did they deny their nonpayment of Marbella's loans or the fact that thes
obligations were covered by the guaranty. Their sole defense was that the promissory notes in questio
were not binding, because the funds released to Marbella by Bancom were not loans but merel
additional financing. This financial accommodation was supposedly meant to allow Marbella to rectif
the failure of Fereit to cause the release of receivables assigned to another entity.

The obligations of Marbella and the Reyes Group under the Promissory Notes and the Continuin
Guaranty, respectively, are plain and unqualified. Under the notes, Marbella promised to pay Bancom th
amounts stated on the maturity dates indicated. The Reyes Group, on the other hand, agreed to becom
liable if any of Marbella's guaranteed obligations were not duly paid on the due date. There is absolutel
no support for the assertion that these agreements were not meant to be binding.

Needless to state, the clear terms of these agreements cannot be negated and deemed non-binding simpl
on the basis of the self-serving testimony of Angel Reyes, one of the guarantors of the loan. The CA
therefore correctly rejected the attempt of petitioners to renege on their obligations. We also find th
award of ₱500,000 for attorney's fees in order, pursuant to the stipulation in the Promissory Note
allowing the recovery thereof. Nevertheless, in the interest of equity and considering that petitioners ar
already liable for penalties, we deem it proper to modify the stipulated rate of interest to conform to th
legal interest rates under prevailing jurisprudence.
OBLIGATION WITH A PENAL CLAUSE

J PLUS ASIA DEVELOPMENT CORPORATION, vs. UTILITY ASSURANCE CORPORATION

G.R. No. 199650 June 26, 2013

FIRST DIVISION

VILLARAMA, JR., J.

DOCTRINE: A penalty clause, expressly recognized by law, is an accessory undertaking to assum

greater liability on the part of the obligor in case of breach of an obligation. It functions to strengthen th
coercive force of obligation and to provide, in effect, for what could be the liquidated damages resultin
from such a breach. The obligor would then be bound to pay the stipulated indemnity without th
necessity of proof on the existence and on the measure of damages caused by the breach. It is well-settle
that so long as such stipulation does not contravene law, morals, or public order, it is strictly binding upo
the obligor.
FACTS:

Petitioner JPlus Asia Development Corporation represented by its Chairman, Joo Han Lee, and Mabunay
doing business under the name and style of Seven Shades of Blue Trading and Services, entered into
Construction Agreement whereby the latter undertook to build the former’s 72-room condominium
(Condotel Building 25) located at the Fairways & Bluewaters Gold & Resort In Boracay. The projec
cosing P42Million was to be completed within one year or 365 days reckoned from the 1st calendar da
after signing of the Notice of Award and Notice to Proceed and receipt of down payment which
P8.4Million (20% of contract price). The agreed work schedule stipulates that the completion date of th
project was 31 December 2008. Mabunay also submitted the required Performance Bond issued by Utilit
Assurance Corporation in the amount equivalent to P8.4 Million.

On 7 January 2008, Mabunay commenced work. It was found, however, as evidenced by the Join
Construction Evaluation Result and Status that the project was only 31.39% complete as of 14 Novembe
2008. Thus, JPlus Asia Terminated the contract and sent demand letters to Mabunay and the surety. JPlu
filed a request for arbitration before the Construction Industry Arbitration Commission and prayed tha
Mabunay and Surety be ordered to pay P8.9 Million as liquidated damages and P2.3 Million to th
unrecouped downpayment or overpayment made to Mabunay.

According to Mabunay, the delay was caused by retrofitting and other revision works ordered by Joo Ha
Lee. The surety filed a motion to dismiss for lack of cause of action. It argued that the performance bon
merely guaranteed the 20% down payment and not the entire obligation of Mabunay.

ISSUES:

Did the performance bond merely guarantee the 20% down payment?
HELD:

NO. The Construction Agreement authorizes petitioner to confiscate the Performance Bond to answer fo
all kinds of damages it may suffer as a result of the contractor’s failure to complete the building. Havin
terminated the contract, petitioner is entitled to the proceeds of the bond as indemnification for damages
sustained due to the breach committed by Mabunay. Such stipulation allowing the confiscation of th
contractor’s performance bond partakes the nature of a penal clause, which is an accessory undertaking t
assume greater liability on the part of the obligor in case of breach of an obligation. The Performanc
Bond guaranteed not only the 20% down payment but the full and faithful compliance of Mabunay’
obligations under the Construction Agreement. Nowhere in law or jurisprudence does it state that th
obligation or undertaking by a surety may be apportioned.

The imposition of interest on the claims of petitioner is in order. If a surety upon demand fails to pay, h
can be held liable for interest, even if in thus paying, its liability becomes more than the principa
obligation. The increased liability is not because of the contract but because of the default and th
necessity of judicial collection.
 DARIO NACAR, vs. GALLERY FRAMES AND/OR FELIPE BORDEY, JR.

G.R. No. 189871 August 13, 2013

EN BANC

PERALTA, J.:
DOCTRINE: The BSP-MB may prescribe the maximum rate or rates of interest for all loans or renewa
thereof or the forbearance of any money, goods or credits, including those for loans of low priority suc
as consumer loans, as well as such loans made by pawnshops, finance companies and similar cred
institutions.

FACTS:

Dario Nacar filed a labor case against Gallery Frames and/or its owner Felipe Bordey, Jr. Nacar allege
that he was dismissed without cause by Gallery Frames on January 24, 1997. On October 15, 1998, th
Labor Arbiter (LA) found Gallery Frames guilty of illegal dismissal hence the Arbiter awarded Naca
P158,919.92 in damages consisting of backwages and separation pay.

The case was appealed all the way to the Supreme Court. The Court affirmed the decision of the Labo
Arbiter and the decision became final on May 27, 2002.

After the finality of the SC decision, Nacar filed a motion for recomputation as he alleged that h
backwages should be computed from the time of his illegal dismissal until the finality of the SC decisio
with interest. The motion was denied with the reason that the reckoning point of the computation shoul
only be from the time Nacar was illegally dismissed (January 24, 1997) until the decision of the LA
because Nacar did not appeal. Hence as to him, that decision became final and executory.

ISSUE:

Is a re-computation in the course of execution of the labor arbiter's original computation of the award
made legally proper?

HELD:
Yes.The labor arbiter re-computed the award to include the separation pay and the backwages due up t
the finality of the CA decision that fully terminated the case on the merits. Unfortunately, the labo
arbiter's approved computation went beyond the finality of the CA decision (July 29, 2003) and include
as well the payment for awards the final CA decision had deleted specifically, the proportionate 13t
month pay and the indemnity awards. Hence, the CA issued the decision now questioned in the presen
petition.

To recapitulate and for future guidance, the guidelines laid down in the case of Eastern Shipping Line
are accordingly modified to embody BSP-MB Circular No. 799, as follows:

I. When an obligation, regardless of its source, i.e., law, contracts, quasi-contracts, delicts or quasi-delic
is breached, the contravenor can be held liable for damages. The provisions under Title XVIII o
"Damages" of the Civil Code govern in determining the measure of recoverable damages.1âwphi1

II. With regard particularly to an award of interest in the concept of actual and compensatory damage
the rate of interest, as well as the accrual thereof, is imposed, as follows:

When the obligation is breached, and it consists in the payment of a sum of money, i.e., a loan o
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 th
absence of stipulation, the rate of interest shall be 6% 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.

When an obligation, not constituting a loan or forbearance of money, is breached, an interest on th

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 th
demand can be established with reasonable certainty. Accordingly, where the demand is established wit
reasonable certainty, the interest shall begin to run from the time the claim is made judicially o
extrajudicially (Art. 1169, Civil Code), but when such certainty cannot be so reasonably established at th
time the demand is made, the interest shall begin to run only from the date the judgment of the court
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

When the judgment of the court awarding a sum of money becomes final and executory, the rate of lega
interest, whether the case falls under paragraph 1 or paragraph 2, above, shall be 6% per annum from
such finality until its satisfaction, this interim period being deemed to be by then an equivalent to
forbearance of credit.

And, in addition to the above, judgments that have become final and executory prior to July 1, 2013, sha
not be disturbed and shall continue to be implemented applying the rate of interest fixed therein.

VIRGINIA M. VENZON, vs. RURAL BANK OF BUENAVISTA (AGUSAN DEL NORTE), INC.
represented by LOURDESITA E. PARAJES.

G.R. No. 178031 August 28, 2013

SECOND DIVISION

DEL CASTILLO, J.:

DOCTRINE: If something is received when there is no right to demand it, and it was unduly delivere
through mistake, the obligation to return it arises.

FACTS:

Petitioner filed a petition to nullify foreclosure proceedings and Tax Declaration issued in the name o
Respondent Rural Bank of Buenavista. The case was raffled to RTC Butuan. Petitioner alleged that i
1983 she and her late spouse, George F. Venzon Sr. obtained a P5,000 loan from respondent against
mortgage on their house and lot in Libertad Butuan City.

Petitioner alleged that she was able to pay P 2,300 thus leaving an outstanding balance of only P 2,37
and that she offered to pay the said balance in full in March 1987. The bank refused and shoved petitione
out of the premises. The Respondent foreclosed the mortgage and the property was sold auction with th
Respondent as the highest bidder. Petitioner alleged that the foreclosure proceedings were null and voi
for lack of notice and publication of the sale.

Respondent argued that petitioner did not make any payment on the loan and that the foreclosur
proceedings were regularly done. Respondent also argued that petitioners cause of action has alread
prescribed. Petitioner filed a reply insisting the foreclosure proceedings were irregular and prescriptio
and laches do not apply as the foreclosure proceedings are null and void to begin with.

The RTC dismissed the complaint , rationating that under the Rural Banks Act, foreclosure of mortgage
covering loans granted by rural banks and executions of judgments thereon shall be exempt from
publication where the total amount of the loan excluding interests undue and unpaid do not exceed
10,000. Petitioner went to the CA via Petition for Certiorari. CA dismissed the petition ruling tha
Petitioner should have availed of Rule 41 of the rules of court because the RTC decision is a final order.
ISSUE:

Whether the CA erred in dismissing the petition for Certiorari thereby preventing the court from findin
out that actually no extrajudicial foreclosure was conducted by the office of the provincial sheriff

HELD:

NO. Petitioner insisted that no foreclosure proceeding took place but she had attached a Sheriff
Certificate of Sale in her petition and if true she should not have filed an action to annul the same sinc
there was no foreclosure to begin with.

Petitioner is entitled to a return of P6,000 she paid to respondent because it was made long after th
redemption period expired. Respondent in its answer did not deny being the issuer of an Official Receipt
instead averred that petitioners payment made to it of P 6,000 was false and self serving, but also argue
that , without necessarily admitting payment of P 6,000 was made, the same could not be considered as
redemption price.

Respondent made an ambiguous allegation and is deemed to have admitted to receiving the amount of
6,000 which under the circumstances it had no right to receive. Moreover, pursuant to Circular No. 799
series of 2013 of the Bangko Sentral ng Pilipinas which took effect July 1, 2013, the amount of ₱6,000.0
shall earn interest at the rate of 6% per annum computed from the filing of the Petition in Civil Case No
5535 up to its full satisfaction.
 S.C. MEGAWORLD CONSTRUCTION and DEVELOPMENT CORPORATION, vs.

ENGR. LUIS U. PARADA, represented by ENGR. LEONARDO A. PARADA of GENLITE

INDUSTRIES

G.R. No. 183804 September 11, 2013

FIRST DIVISION

REYES, J.:

DOCTRINE: In general, there are two modes of substituting the person of the debtor: (1) expromisio
and (2) delegacion. In expromision, the initiative for the change does not come from—and may even b
made without the knowledge of the debtor, since it consists of a third person’s assumption of th
obligation. As such, it logically requires the consent of the third person and the creditor. In delegacion
the debtor offers, and the creditor accepts, a third person who consents to the substitution and assumes th
obligation; thus, the consent of these three persons are necessary. Both modes of substitution by th
debtor require the consent of the creditor.

FACTS:

SC Megaworld, the petitioner, bought electrical lighting materials from Genlite Industries, a sol
proprietorship owned by respondent Parada. The petitioner was unable to pay the purchase price on th
agreed date and blamed its failure to collect under its subcontract with the Enviro Kleen Technologie
(Enviro). Petitioner was able to persuade Enviro to make the payments to the Respondent, which it did
However, after making a one-time payment, none were made subsequently. Despite various deman
which were unheeded, the respondent was prompted to file a complaint against the petitioner for th
collection of the balance with damages, costs and expenses. The petitioner alleged that since Envir
substituted it in the obligation, it has been released from its indebtedness.

ISSUE:

Whether or not there was a novation of the contract between the parties through the substitution of th
debtor.

HELD:

No. Novation is never presumed but must be clearly and unequivocally shown. Novation is a mode o
extinguishing an obligation by changing its objects or principal obligations, by subsituting a new debto
in place of the old one, or by subrogating a third person to the rights of the creditor.

In both cases of novation by way of substituting the person of the debtor whether by delegacion o
expromision, the consent of the creditor is indispensable. Thus, notwithstanding the fact that Enviro mad
payments to the Respondent, and the latter accepted it does not ipso facto result in novation. Novation t
be given its legal effect requires that the creditor should consent to the substitution of the new debtor an
the old debtor be released from its obligation. A perusal of the letters sent by respondent reveals nothin
as to show that he consented to the exchange of the person of the debtor from the petitioner to Enviro.

The mere substitution of debtors will not result in novation, and the fact that the creditor accep
payments from a third person who has assumed the obligation, will merely result in the addition o
debtors and not novation, and the creditor may enforce the obligation against both debtors.
 SECRETARY OF THE DEPARTMENT OF PUBLIC WORKS AND HIGHWAYS and
DISTRICT ENGINEER CELESTINO R. CONTRERAS, vs. SPOUSES HERACLEO and
RAMONA TECSON

G.R. No. 179334 April 21, 2015

EN BANC

PERALTA, J.:

DOCTRINE: The uniform rule of the Court, however, is that the compensation must be, not in the form
of rentals, but by way of 'interest from the date that the company [or entity] exercising the right o
eminent domain take possession of the condemned lands, and the amounts granted by the court sha
cease to earn interest only from the moment they are paid to the owners or deposited in court.

FACTS:

In 1940, the Department of Public Works and Highways (DPWH) took Spouses Tecson’
(respondents-movant)' subject property without the benefit of expropriation proceedings for th
construction of the MacArthur Highway. In a letter dated December 15, 1994,respondents-movan
demanded the payment of the fair market value of the subject parcel of land. Celestino R. Contrera
(Contreras), then District Engineer of the First Bulacan Engineering District of the DPWH, offered to pa
for the subject land at the rate of Seventy Centavos (P0.70) per square meter, per Resolution of th
Provincial Appraisal Committee (PAC) of Bulacan. Unsatisfied with the offer, respondents-movan
demanded the return of their property, or the payment of compensation at the current fair market valu
Hence, the complaint for recovery of possession with damages filed by respondents-movant
Respondents-movants were able to obtain favorable decisions in the Regional Trial Court (RTC) and th
Court of Appeals (CA), with the subject property valued at One Thousand Five Hundred Peso
(₱1,500.00) per square meter, with interest at six percent (6%) per annum.

ISSUES:

1. Whether the valuation would be based on the corresponding value at the time of the taking or at th
time of the filing of the action

2. Are the Spouses Tecson entitled to damages?

HELD:

1. Just compensation due Spouses TEcson in this case should, therefore, be fixed not as of the time o
payment but at the time of taking in 1940 which is Seventy Centavos (P0.70) per square meter, and no
One Thousand Five Hundred Pesos (₱1,500.00) per square meter, as valued by the RTC and CA. Th
State is not obliged to pay premium to the property owner for appropriating the latter's property; it is onl
bound to make good the loss sustained by the landowner, with due consideration of the circumstance
availing at the time the property was taken. More, the concept of just compensation does not impl
fairness to the property owner alone. Compensation must also be just to the public, which ultimately bear
the cost of expropriation.
Notwithstanding the foregoing, the court recognize that the owner's loss is not only his property but als
its income-generating potential. Thus, when property is taken, full compensation of its value mu
immediately be paid to achieve a fair exchange for the property and the potential income lost. Th
rationale for imposing the interest is to compensate the petitioners for the income they would have mad
had they been properly compensated for their properties at the time of the taking.

Considering that respondents-movants only resorted to judicial demand for the payment of the fair marke
value of the land on March 17, 1995, it is only then that the interest earned shall itself earn interest. Th
total amount due to respondents-movants shall earn a straight six percent (6%) legal interest, pursuant t
Circular No. 799 and the case of Nacar. Such interest is imposed by reason of the Court's decision an
takes the nature of a judicial debt. Clearly, the award of interest on the value of the land at the time o
taking in 1940 until full payment is adequate compensation to respondents-movants for the deprivation o
their property without the benefit of expropriation proceedings. Such interest, however meager o
enormous it may be, cannot be inequitable and unconscionable because it resulted directly from th
application of law and jurisprudence-standards that have taken into account fairness and equity insettin
the interest rates due for the use or forbearance of money. Thus, adding the interest computed to th
market value of the property at the time of taking signifies the real, substantial, full and ample value o
the property. Verily, the same constitutes due compliance with the constitutional mandate on eminen
domain and serves as a basic measure of fairness. In addition to the foregoing interest, additiona
compensation shall be awarded to respondents-movants by way of exemplary damages and attorney's fee
in view of the government's taking without the benefit of expropriation proceedings.

2. YES. Considering that respondents-movants were deprived of beneficial ownership over their propert
for more than seventy (70) years without the benefit of a timely expropriation proceedings, and to serv
as a deterrent to the State from failing to institute such proceedings within the prescribed period under th
law, a grant of exemplary damages in the amount of One Million Pesos (₱1,000,000.00) is fair an
reasonable. Moreover, an award for attorney's fees in the amount of Two Hundred Thousand Peso
(₱200,000.00) in favor of respondents-movants is in order. In sum, respondents-movants shall be entitle
to an aggregate amount of One Million Seven Hundred Eighteen Thousand Eight Hundred Forty-Eigh
Pesos and Thirty-Two Centavos (₱1,718,848.32) as just compensation as of September 30, 2014.

The Court emphasize that the government's failure, to initiate the necessary expropriation proceeding
prior to actual taking cannot simply invalidate the State's exercise of its eminent domain power, given tha
the property subject of expropriation is indubitably devoted for public use, and public policy impose
upon the public utility the obligation to continue its services to the public. To hastily nullify sai
expropriation in the guise of lack of due process would certainly diminish or weaken one of the State
inherent powers, the ultimate objective of which is to serve the greater good. Thus, the non-filing of th
case for expropriation will not necessarily lead to the return of the property to the landowner. What is le
to the landowner is the right of compensation.
EXTINGUISHMENT OF OBLIGATION

METRO CONCAST STEEL CORPORATION, SPOUSES JOSE S. DYCHIAO

AND TIUOH YAN, SPOUSES GUILLERMO AND MERCEDES DYCHIAO, AND
SPOUSES VICENTE AND FILOMENA DYCHIAO, vs. ALLIED BANK
CORPORATION

G.R. No. 177921 December 4, 2013

SECOND DIVISION

PERLAS-BERNABE, J.:

DOCTRINE: Fortuitous events by definition are extraordinary events not foreseeable or

avoidable. It is therefore, not enough that the event should not have been foreseen or
anticipated, as is commonly believed but it must be one impossible to foresee or to
avoid. The mere difficulty to foresee the happening is not impossibility to foresee the
same.

FACTS:

On various dates and for different amounts, Metro Concast through its officers, herein
individual petitioners, obtained several loans from Allied Bank. These loan transactions
were covered by a promissory note and separate letters of credit/trust receipts.

The interest rate under Promissory Note No. 96-21301 was pegged at 15.25% per annum
with penalty charge of 3% per month in case of default; while the twelve (12) trust
receipts uniformly provided for an interest rate of 14% p.a. and 1% penalty charge. By
way of security, the individual petitioners executed several Continuing
Guaranty/Comprehensive Surety Agreements in favor of Allied Bank. Petitioners failed
to settle their obligations. Hence, Allied Bank, through counsel, sent them demand letters
seeking payment but to no avail. Thus, Allied Bank was prompted to file a complaint for
collection of sum of money.

The petitioners alleged that the economic reverses suffered by the Philippine economy in
1998 as well as the devaluation of the peso against the US dollar contributed greatly to
the downfall of the steel industry, directly affecting the business of Metro Concast and
eventually leading to its cessation.

In order to settle their debts with Allied Bank, petitioners offered the sale of Metro
Concast’s remaining assets to Allied Bank. Allied Bank advised them to sell the
equipment and apply the proceeds of the sale to their outstanding obligations. Since there
were no takers, the equipment was reduced into ferro scrap or scrap metal over the years.
In 2002, Peakstar Oil Corporation expressed interest in buying the scrap metal.
Unfortunately, Peakstar reneged on all its obligations under the MoA. In this regard,
petitioners asseverated that their failure to pay their outstanding loan obligations to
Allied Bank must be considered as force majeure.

ISSUE:

Whether or not the loan obligations incurred by the petitioners under the subject
promissory note and various trust receipts have already been extinguished.

HELD:
No. Article 1231 of the Civil Code states that obligations are extinguished either by
payment or performance, the loss of the thing due, the condonation or remission of the
debt, the confusion or merger of the rights of creditor and debtor, compensation or
novation.

Peakstar’s breach of its obligations to Metro Concast arising from the MoA cannot be
classified as a fortuitous event under jurisprudential formulation.

To constitute a fortuitous event, the following elements must concur: (a) the cause of the
unforeseen and unexpected occurrence or of the failure of the debtor to comply with
obligations must be independent of human will; (b) it must be impossible to foresee the
event that constitutes the caso fortuito or, if it can be foreseen, it must be impossible to
avoid; (c) the occurrence must be such as to render it impossible for the debtor to fulfill
obligations in a normal manner; and (d) the obligor must be free from any participation
in the aggravation of the injury or loss.

While it may be argued that Peakstar’s breach of the MoA was unforeseen by petitioners,
the same us clearly not "impossible" to foresee or even an event which is independent of
human will." Neither has it been shown that said occurrence rendered it impossible for
petitioners to pay their loan obligations to Allied Bank and thus, negates the former’s
force majeure theory altogether. In any case, as earlier stated, the performance or breach
of the MoA bears no relation to the performance or breach of the subject loan
transactions, they being separate and distinct sources of obligations. The fact of the
matter is that petitioners’ loan obligations to Allied Bank remain subsisting for the basic
reason that the former has not been able to prove that the same had already been paid or,
in any way, extinguished.
PAYMENT / PERFORMANCE

INTERNATIONAL HOTEL CORPORATION vs. FRANCISCO B. JOAQUIN,

JR. and RAFAEL SUAREZ

G.R. No. 158361 April 10, 2013

FIRST DIVISION

BERSAMIN, J.:
DOCTRINE: To avoid unjust enrichment to a party from resulting out of a substantially
performed contract, the principle of quantum meruit may be used to determine his
compensation in the absence of a written agreement for that purpose. The principle of
quantum meruit justifies the payment of the reasonable value of the services rendered by
him.

FACTS:

In 1969, respondent Francisco B. Joaquin, Jr. submitted a proposal to the Board of

Directors of the International Hotel Corporation (IHC) for him to render technical
assistance in securing a foreign loan for the construction of a hotel, to be guaranteed by
the Development Bank of the Philippines (DBP).The proposal encompassed nine phases,
and they approved phase one to phase six of the proposal during the special board
meeting on February 11, 1969, and earmarked ₱2,000,000.00 for the project.

Anent the financing, IHC applied with DBP for a foreign loan guaranty. DBP processed
the application, and approved it on October 24, 1969 subject to several conditions.

On July 11, 1969, shortly after submitting the application to DBP, Joaquin wrote to IHC
to request the payment of his fees in the amount of ₱500,000.00 for the services that he
had provided and would be providing to IHC in relation to the hotel project that were
outside the scope of the technical proposal. Joaquin intimated his amenability to receive
shares of stock instead of cash in view of IHC’s financial situation. This was granted by
the stockholders.
IHC entered into an agreement with Weston, and communicated this development to
DBP. However, DBP denied the application for guaranty for failure to comply with the
conditions contained in its November 12, 1971 letter.

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.

ISSUE:

Are Joaquin and Suarez entitled to the shares of stocks issued as payment for their
services?

HELD:

Yes. The primary objective of the parties in entering into the services agreement was to
obtain a foreign loan to finance the construction of IHC’s hotel project. This objective
could be inferred from IHC’s approval of phase 1 to phase 6 of the proposal. Phase 1 and
phase 2, respectively the preparation of a new project study and the settlement of the
unregistered mortgage, would pave the way for Joaquin and Suarez to render assistance
to IHC in applying for the DBP guaranty and thereafter to look for an able and willing
foreign financial institution acceptable to DBP. All the steps that Joaquin and Suarez
undertook to accomplish had a single objective – to secure a loan to fund the
construction and eventual operations of the hotel of IHC. In that regard, Joaquin himself
admitted that his assistance was specifically sought to seek financing for IHC’s hotel
project.
Needless to say, 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 benefited IHC.

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 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 ₱200,000.00 to be
reasonable compensation for respondents’ services under the principle of quantum
meruit.
 NATIONAL POWER CORPORATION v. LUCMAN M. IBRAHIM ,ET. AL.

G.R. No. 175863, February 18, 2015

FIRST DIVISION

PEREZ, J.:

DOCTRINE: 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:

National Power Corporation (Napocor) took possession of a parcel of land in Marawi

City for the purpose of building thereon a hydroelectric power plant believing that the
same was a public land. However, the land was already registered in the Torrens Title
under a claimant named Macapanton Mangondato. The latter filed a complaint for
reconveyance and payment of monthly rentals from the time it took possession over the
land after the failure of the parties to yield to a genuine consensus as to the fair market
value of the property. Then, Napocor filed expropriation case against Mangodato. The
two cases were consolidated. The trial court ruled in favor of Mangondato which
decision was appealed to CA by Napocor.

Meanwhile, Ibrahims and Maruhoms filed a complaint against Mangondato. The former
disputed the ownership of the latter. They further asserted that they should be entitled to
the rental fees of Napocor.

The appeal of Napocor was denied hence the case become final and executory.
Mangondato, then, filed a motion for execution which led to the garnishment of the bank
accounts of Napocor. Consequently, the trial court ruled in favor of Ibrahims and
Maruhoms thus entitled to the expropriation indemnity. The trial court also ruled that
Napocor and Mangondato were solidarily liable to the rightful recipients of the said
indemnity. Napocor now questioned the decision as to the solidary liability adjudged by
the trial court. The Ibrahims and Maruhoms were able to secure a writ of execution
pending appeal. As a result, the bank account of Mangondato was garnished and the
same was paid to Ibrahims and Maruhoms for partial satisfaction of the decision of the
trial court.

ISSUE:

Whether it is correct to hold Napocor liable in favor of the Ibrahims and Maruhoms for
the rental fees and expropriation indemnity adjudged due for the subject land.

HELD:

No. Napocor is not liable to pay the expropriation indemnity due to the rightful owners
of the land. As a general rule, a valid payment of an obligation can only be made to the
person to whom such obligation is rightfully owed. Article 1242 of the Civil Code is an
exception to this rule. “Payment made in good faith to any person in possession of the
credit shall release the debtor.”

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.

The Court ruled 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, even if the Ibrahims and Maruhoms turn out to be the real owners
thereof. Hence, Napocor’s payment toMangondato of the fees and indemnity as a
consequence of the execution could still validly extinguish its obligation to pay for the
same even as against the Ibrahims and Maruhoms.

Hence, 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, the dismissal
of the case in so far as Napocor is concerned is called for. Payment by Napocor to the
possessesor of credit in good faith extinguishes its liability and therefore, it is erroneous
to hold him liable with Mangondato for the payment of expropriation indemnity and
rental fees to the Ibrahims and Maruhoms.
 NETLINK COMPUTER INCORPORATED, vs. ERIC DELMO

G.R. No. 160827 June 18, 2014

FIRST DIVISION

BERSAMIN, J.:
DOCTRINE: In the absence of a written agreement between the employer and the
employee that sales commissions shall be paid in a foreign currency, the latter has the
right to be paid in such foreign currency once the same has become an established
practice of the former. The rate of exchange at the time of payment, not the rate of
exchange at the time of the sales, controls.

FACTS:

Netlink Computer, Inc. Products and Services (Netlink) hired Eric S. Delmo (Delmo) as
account manager tasked to canvass and source clients and convince them to purchase the
products and services of Netlink. Delmo worked in the field most of the time. He was
able to generate sales so he requested payment of his commissions, but Netlink refused
and only gave him partial cash advances chargeable to his commissions. Later on,
Netlink began to nitpick and fault find, like stressing his supposed absences and
tardiness. Delmo was shocked when he was refused entry into the company premises by
the security guard pursuant to a memorandum to that effect.

In a labor compliant filed by Delmo, the Labor Arbiter ruled against Netlink and was
required to pay Delmo among others his unpaid commissions.

On appeal, the National Labor Relations Commission (NLRC) modified the decision of
the Labor Arbiter by setting aside the backwages and reinstatement decreed by the Labor
Arbiter and indicated that Delmo be paid his unpaid commission in the amount of
US$7,588.30.

The CA modified the NLRC'S decision but retained the commissions that are to be paid
in dollars.
Before the SC, Delmo claims that because he had earned in US dollars it was only fair
that his commissions be paid in US dollars. In its reply, Netlink maintains that the
commissions of Delmo should be based on sales generated, actually paid by and
collected from the customers; that commissions must be paid on the basis of the
conversion of the US dollar to the Philippine peso at the time of sale; and that no cogent
and justifiable reason existed for the award of attorney’s fees.

ISSUE:

Should Delmo be paid his commission in US dollars ?

HELD:

YES. As a general rule, all obligations shall be paid in Philippine currency. However, the
contracting parties may stipulate that foreign currencies may be used for settling
obligations.

In the absence of a written agreement between the employer and the employee that sales
commissions shall be paid in a foreign currency, the latter has the right to be paid in such
foreign currency once the same has become an established practice of the former. The
rate of exchange at the time of payment, not the rate of exchange at the time of the sales,
controls.

There was no written contract between Netlink and Delmo stipulating that the latter’s
commissions would be paid in US dollars. The absence of the contractual stipulation
notwithstanding, Netlink was still liable to pay Delmo in US dollars because the practice
of paying its sales agents in US dollars for their US dollar-denominated sales had
become a company policy.

With the payment of US dollar commissions having ripened into a company practice,
there is no way that the commissions due to Delmo were to be paid in US dollars or their
equivalent in Philippine currency determined at the time of the sales. To rule otherwise
would be to cause an unjust diminution of the commissions due and owing to Delmo.