OBLIGATIONS Article 1430.

When a will is declared void because it has not been executed

in accordance with the formalities required by law, but one of the intestate
heirs, after the settlement of the debts of the deceased, pays a legacy in
compliance with a clause in the defective will, the payment is effective and
A. In general irrevocable.
1. Definition
Article 1156. An obligation is a juridical necessity to give, to do or not to do. Article 1139. Actions prescribe by the mere lapse of time fixed by law. (1961)
(n)
2. Kinds of obligations as to basis and Article 1140. Actions to recover movables shall prescribe eight years from the
enforceability time the possession thereof is lost, unless the possessor has acquired the
Aticle 1423. Obligations are civil or natural. Civil obligations give a right of ownership by prescription for a less period, according to articles 1132, and
action to compel their performance. Natural obligations, not being based on without prejudice to the provisions of articles 559, 1505, and 1133. (1962a)
positive law but on equity and natural law, do not grant a right of action to
enforce their performance, but after voluntary fulfillment by the obligor, they Article 1141. Real actions over immovables prescribe after thirty years.
authorize the retention of what has been delivered or rendered by reason This provision is without prejudice to what is established for the acquisition of
thereof. Some natural obligations are set forth in the following articles. ownership and other real rights by prescription. (1963)
Article 1424. When a right to sue upon a civil obligation has lapsed by Article 1142. A mortgage action prescribes after ten years. (1964a)
extinctive prescription, the obligor who voluntarily performs the contract
cannot recover what he has delivered or the value of the service he has rendered. Article 1143. The following rights, among others specified elsewhere in this
Code, are not extinguished by prescription:
Article 1425. When without the knowledge or against the will of the debtor, a (1) To demand a right of way, regulated in article 649;
third person pays a debt which the obligor is not legally bound to pay because (2) To bring an action to abate a public or private nuisance. (n)
the action thereon has prescribed, but the debtor later voluntarily reimburses
the third person, the obligor cannot recover what he has paid. Article 1144. The following actions must be brought within ten years from
the time the right of action accrues:
Article 1426. When a minor between eighteen and twenty-one years of age (1) Upon a written contract;
who has entered into a contract without the consent of the parent or guardian, (2) Upon an obligation created by law;
after the annulment of the contract voluntarily returns the whole thing or price (3) Upon a judgment. (n)
received, notwithstanding the fact that he has not been benefited thereby,
there is no right to demand the thing or price thus returned. Article 1145. The following actions must be commenced within six years:
(1) Upon an oral contract;
Article 1427. When a minor between eighteen and twenty-one years of age, (2) Upon a quasi-contract. (n)
who has entered into a contract without the consent of the parent or guardian,
voluntarily pays a sum of money or delivers a fungible thing in fulfillment of Article 1146. The following actions must be instituted within four years:
the obligation, there shall be no right to recover the same from the obligee who (1) Upon an injury to the rights of the plaintiff;
has spent or consumed it in good faith. (1160A) (2) Upon a quasi-delict;
However, when the action arises from or out of any act, activity, or conduct of
Article 1428. When, after an action to enforce a civil obligation has failed the any public officer involving the exercise of powers or authority arising from
defendant voluntarily performs the obligation, he cannot demand the return Martial Law including the arrest, detention and/or trial of the plaintiff, the
of what he has delivered or the payment of the value of the service he has same must be brought within one (1) year. (As amended by PD No. 1755, Dec.
rendered. 24, 1980.)

Article 1429. When a testate or intestate heir voluntarily pays a debt of the Article 1147. The following actions must be filed within one year:
decedent exceeding the value of the property which he received by will or by (1) For forcible entry and detainer;
the law of intestacy from the estate of the deceased, the payment is valid and (2) For defamation. (n)
cannot be rescinded by the payer.
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Article 1148. The limitations of action mentioned in articles 1140 to 1142, and
1144 to 1147 are without prejudice to those specified in other parts of this Code, FACTS:
in the Code of Commerce, and in special laws. (n) Relevant Provision of Law:
On May 9, 1912, Alexandra F. Callao, mother of defendant John F. Villarroel,
Article 1149. All other actions whose periods are not fixed in this Code or in obtained from the spouses Mariano Estrada and Severina a loan of P1, 000
other laws must be brought within five years from the time the right of action payable after seven years. Alexandra died, leaving as the only heir the
accrues. (n) defendant. Spouses Mariano Estrada and Severina died too, leaving as the only
heir to the plaintiff Bernardino Estrada. On August 9, 1930, the defendant
Article 1150. The time for prescription for all kinds of actions, when there is signed a document which states in duty to the plaintiff the amount of P1, 000,
no special provision which ordains otherwise, shall be counted from the day with an interest of 12 percent per year. This action relates to the collection of
they may be brought. (1969) this amount.

Article 1151. The time for the prescription of actions which have for their LC: condemn the defendant to pay the claimed amount of P1, 000 with legal
object the enforcement of obligations to pay principal with interest or annuity interest of 12 percent per year from the August 9, 1930 until fully pay.
runs from the last payment of the annuity or of the interest. (1970a)
ISSUE:
Article 1152. The period for prescription of actions to demand the fulfillment RULING:
of obligation declared by a judgment commences from the time the judgment Although the action to recover the original debt has prescribed and when the
became final. (1971) lawsuit was filed in this case. However, this action is based on the original
obligation contracted by the mother of the defendant, who has prescribed, but
Article 1153. The period for prescription of actions to demand accounting in which the defendant contracted the August 9, 1930 (Exhibito B) to assume
runs from the day the persons who should render the same cease in their the fulfillment of that obligation, as prescribed. Being the only defendant of
functions. the primitive herdero debtor entitled to succeed him in his inheritance, that
The period for the action arising from the result of the accounting runs from debt legally brought by his mother, but lost its effectiveness by prescription, it
the date when said result was recognized by agreement of the interested is now, however, for a moral obligation, which is consideration enough to
parties. (1972) create and effective and enforceable his obligation voluntarily contracted the
August 9, 1930 in Exhibito B.
Article 1154. The period during which the obligee was prevented by a
fortuitous event from enforcing his right is not reckoned against him. (n) The rule that a new promise to pay a debt prrescrita must be made by the same
person obligated or otherwise legally authorized by it, is not applicable to this
Article 1155. The prescription of actions is interrupted when they are filed case that does not require compliance with the mandatory obligation
before the court, when there is a written extrajudicial demand by the creditors, orignalmente but from which they would voluntarily assume the obligation.
and when there is any written acknowledgment of the debt by the debtor.
(1973a) NOTE: The case is in Spanish.

VILLAROEL V. ESTRADA ANSAY V. NDC

Nature: Complaint for sum of money Nature: Complaint for 20% Christmas bonus
Ponente: AVANCEÑA Ponente: PARAS, C. J.
Date: December 19, 1940 Date: April 29, 1960

DOCTRINE: The rule that a new promise to pay a debt must be made by the DOCTRINE: Civil obligations are a right of action to compel their
same person obligated or otherwise legally authorized by it, is not applicable performance. Natural obligations, not being based on positive law but on
to this case since there was voluntarily assumption of the obligation. equity and natural law, do not grant a right of action to enforce their
performance, but after voluntary fulfillment by the obligor, they authorize the
retention of what has been delivered or rendered by reason thereof".
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 H. E. Heacock vs. National Labor Union: Even if a bonus is not
FACTS: demandable for not forming part of the wage, salary or compensation of an
Relevant Provision of Law: Article 1423 of the New Civil Code employee, the same may nevertheless, be granted on equitable consideration
as when it was given in the past, though withheld in succeeding two years from
low salaried employees due to salary increases.
On July 25, 1956, appellants filed against appellees in the Court of First
Instance of Manila a complaint praying for a 20% Christmas bonus for the Still the facts in said Heacock case are not the same as in the instant one, and
years 1954 and 1955. hence the ruling applied in said case cannot be considered in the present
action.
TC dismissed the complaint, and held, among others:
the Court does not see how petitioners may have a cause of action to secure DBP V. CONFESOR
such bonus because:
(a) A bonus is an act of liberality and the court takes it that it is not within Nature: Complaint for payment of loan
its judicial powers to command respondents to be liberal; Ponente: GANCAYCO, J.
(b) Petitioners admit that respondents are not under legal duty to give such Date: May 11, 1989
bonus but that they had only ask that such bonus be given to them because
it is a moral obligation of respondents to give that but as this Court DOCTRINE:
understands, it has no power to compel a party to comply with a moral FACTS:
obligation (Art. 142, New Civil Code.). Relevant Provision of Law: Art. 165 of the CC
Appellants contend that there exists a cause of action in their complaint [1st PN] On February 10, 1940 spouses Patricio Confesor and Jovita Villafuerte
because their claim rests on moral grounds or what in brief is defined by law obtained an agricultural loan from the Agricultural and Industrial Bank
as a natural obligation. (AIB), now the Development of the Philippines (DBP), in the sum of
P2,000.00, Philippine Currency, as evidenced by a promissory note of said
ISSUE: W/N a Christmas bonus is a demandable obligation. date whereby they bound themselves jointly and severally to pay the account
in ten (10) equal yearly amortizations.
RULING:
Generally, a Christmas bonus, being a natural obligation, is not demandable. [2nd PN] As the obligation remained outstanding and unpaid even after the
lapse of the aforesaid ten-year period, Confesor (only the H), who was by
Article 1423 of the New Civil Code classifies obligations into civil or natural. then a member of the Congress of the Philippines, executed a second
"Civil obligations are a right of action to compel their performance. promissory note on April 11, 1961 expressly acknowledging said loan and
Natural obligations, not being based on positive law but on equity and promising to pay the same on or before June 15, 1961. The new promissory
natural law, do not grant a right of action to enforce their performance, BUT note reads as follows —
after voluntary fulfillment by the obligor, they authorize the retention of what I hereby promise to pay the amount covered by my promissory note on or
has been delivered or rendered by reason thereof". before June 15, 1961. Upon my failure to do so, I hereby agree to the
foreclosure of my mortgage. It is understood that if I can secure a
It is thus readily seen that an element of natural obligation before it can be certificate of indebtedness from the government of my back pay I will be
cognizable by the court is voluntary fulfillment by the obligor. Certainly allowed to pay the amount out of it.
retention can be ordered but only after there has been voluntary performance.
But here there has been no voluntary performance. In fact, the court Said spouses not having paid the obligation on the specified date, the DBP filed
cannot order the performance. a complaint against the spouses for the payment of the loan.
Philippine Education Co. vs. CIR: From the legal point of view a bonus is CITY COURT: ordered the defendants Patricio Confesor and Jovita
not a demandable and enforceable obligation. It is so when it is made a part of Villafuerte Confesor to pay the plaintiff Development Bank of the Philippines,
the wage or salary compensation. jointly and severally the sum of P5,760.96 plus additional daily interest, etc

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CFI: reversed; dismissed the complaint lapse of time had become extinct) and thus enabling the creditor to recover
 in signing the promissory note alone, respondent Confesor cannot upon his original contract.
thereby bind his wife, respondent Jovita Villafuerte, pursuant to
Article 166 of the New Civil Code which provides: ISSUE #2: W/N the debt is chargeable against the conjugal partnership
considering that the husband, alone, signed the 2nd PN
Art. 166. Unless the wife has been declared a non compos mentis or a
spend thrift, or is under civil interdiction or is confined in a
leprosarium, the husband cannot alienate or encumber any real RULING:
property of the conjugal partnership without, the wife's consent. If she YES. The debt in favor of the bank is chargeable to the conjugal partnership.
ay compel her to refuses unreasonably to give her consent, the court
m grant the same. Under Article 165 of the Civil Code, the husband is the administrator of the
Petitioner Bank contends, conjugal partnership. As such administrator, all debts and obligations
 that the right to prescription may be renounced or waived; and contracted by the husband for the benefit of the conjugal partnership, are
 that in signing the second promissory note respondent Patricio Confesor chargeable to the conjugal partnership.
can bind the conjugal partnership; or otherwise said respondent became
liable in his personal capacity.
3. Elements of obligations
ISSUE: W/N the right to prescription may be renounced or waived

B. Sources of civil obligations

RULING:
YES. The right to prescription may be waived or renounced.
Article 1157. Obligations arise from:
Article 1112 of Civil Code provides: (1) Law;
Art. 1112. Persons with capacity to alienate property may renounce (2) Contracts;
prescription already obtained, but not the right to prescribe in the future. (3) Quasi-contracts;
Prescription is deemed to have been tacitly renounced when the (4) Acts or omissions punished by law; and
renunciation results from acts which imply the abandonment of the right (5) Quasi-delicts. (1089a)
acquired.
1. Law
There is no doubt that prescription has set in as to the first promissory note of
February 10, 1940. However, when respondent Confesor executed the second
promissory note on April 11, 1961 whereby he promised to pay the amount Article 1158. Obligations derived from law are not presumed. Only those
covered by the previous promissory note on or before June 15, 1961, and upon expressly determined in this Code or in special laws are demandable, and shall
failure to do so, agreed to the foreclosure of the mortgage, said respondent be regulated by the precepts of the law which establishes them; and as to what
thereby effectively and expressly renounced and waived his right to the has not been foreseen, by the provisions of this Book. (1090)
prescription of the action covering the first promissory note.
2. Contracts
This is not a mere case of acknowledgment of a debt that has prescribed but a
new promise to pay the debt. The consideration of the new promissory note is Article 1159. Obligations arising from contracts have the force of law between
the pre-existing obligation under the first promissory note. The statutory the contracting parties and should be complied with in good faith. (1091a)
limitation bars the remedy but does not discharge the debt.
Article 1305. A contract is a meeting of minds between two persons whereby
... It is this new promise, either made in express terms or deduced from an one binds himself, with respect to the other, to give something or to render
acknowledgement as a legal implication, which is to be regarded as some service. (1254a)
reanimating the old promise, or as imparting vitality to the remedy (which by

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 3. Quasi-contracts (2) If he has preferred his own interest to that of the owner;
(3) If he fails to return the property or business after demand by the
owner;
Article 1160. Obligations derived from quasi-contracts shall be subject to the (4) If he assumed the management in bad faith. (1891a)
provisions of Chapter 1, Title XVII, of this Book. (n)
Article 2148. Except when the management was assumed to save property
Article 2142. Certain lawful, voluntary and unilateral acts give rise to the or business from imminent danger, the officious manager shall be liable for
juridical relation of quasi-contract to the end that no one shall be unjustly fortuitous events:
enriched or benefited at the expense of another. (n) (1) If he is manifestly unfit to carry on the management;
(2) If by his intervention he prevented a more competent person from
Article 2143. The provisions for quasi-contracts in this Chapter do not taking up the management. (n)
exclude other quasi-contracts which may come within the purview of the
preceding article. (n) Article 2149. The ratification of the management by the owner of the
business produces the effects of an express agency, even if the business may
SECTION 1 not have been successful. (1892a)
Negotiorum Gestio
Article 2150. Although the officious management may not have been
Article 2144. Whoever voluntarily takes charge of the agency or management expressly ratified, the owner of the property or business who enjoys the
of the business or property of another, without any power from the latter, is advantages of the same shall be liable for obligations incurred in his interest,
obliged to continue the same until the termination of the affair and its and shall reimburse the officious manager for the necessary and useful
incidents, or to require the person concerned to substitute him, if the owner is expenses and for the damages which the latter may have suffered in the
in a position to do so. This juridical relation does not arise in either of these performance of his duties.
instances: The same obligation shall be incumbent upon him when the management had
(1) When the property or business is not neglected or abandoned; for its purpose the prevention of an imminent and manifest loss, although no
(2) If in fact the manager has been tacitly authorized by the owner. benefit may have been derived. (1893)
In the first case, the provisions of articles 1317, 1403, No. 1, and 1404 regarding
unauthorized contracts shall govern. Article 2151. Even though the owner did not derive any benefit and there has
In the second case, the rules on agency in Title X of this Book shall be been no imminent and manifest danger to the property or business, the owner
applicable. (1888a) is liable as under the first paragraph of the preceding article, provided:
(1) The officious manager has acted in good faith, and
Article 2145. The officious manager shall perform his duties with all the (2) The property or business is intact, ready to be returned to the
diligence of a good father of a family, and pay the damages which through his owner. (n)
fault or negligence may be suffered by the owner of the property or business
under management. Article 2152. The officious manager is personally liable for contracts which
The courts may, however, increase or moderate the indemnity according to the he has entered into with third persons, even though he acted in the name of
circumstances of each case. (1889a) the owner, and there shall be no right of action between the owner and third
persons. These provisions shall not apply:
Article 2146. If the officious manager delegates to another person all or some (1) If the owner has expressly or tacitly ratified the management, or
of his duties, he shall be liable for the acts of the delegate, without prejudice to (2) When the contract refers to things pertaining to the owner of the
the direct obligation of the latter toward the owner of the business. business. (n)
The responsibility of two or more officious managers shall be solidary, unless Article 2153. The management is extinguished:
the management was assumed to save the thing or business from imminent (1) When the owner repudiates it or puts an end thereto;
danger. (1890a) (2) When the officious manager withdraws from the management,
subject to the provisions of article 2144;
Article 2147. The officious manager shall be liable for any fortuitous event: (3) By the death, civil interdiction, insanity or insolvency of the owner
(1) If he undertakes risky operations which the owner was not or the officious manager. (n)
accustomed to embark upon;
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SECTION 2 but he from whom the return is claimed may prove that the delivery was made
Solutio Indebiti out of liberality or for any other just cause. (1901)

Article 2154. If something is received when there is no right to demand it, SECTION 3
and it was unduly delivered through mistake, the obligation to return it arises. Other Quasi-Contracts
(1895)
Article 2164. When, without the knowledge of the person obliged to give
Article 2155. Payment by reason of a mistake in the construction or support, it is given by a stranger, the latter shall have a right to claim the same
application of a doubtful or difficult question of law may come within the scope from the former, unless it appears that he gave it out of piety and without
of the preceding article. (n) intention of being repaid. (1894a)

Article 2156. If the payer was in doubt whether the debt was due, he may Article 2165. When funeral expenses are borne by a third person, without the
recover if he proves that it was not due. (n) knowledge of those relatives who were obliged to give support to the deceased,
said relatives shall reimburse the third person, should the latter claim
Article 2157. The responsibility of two or more payees, when there has been reimbursement. (1894a)
payment of what is not due, is solidary. (n)
Article 2166. When the person obliged to support an orphan, or an insane or
Article 2158. When the property delivered or money paid belongs to a third other indigent person unjustly refuses to give support to the latter, any third
person, the payee shall comply with the provisions of article 1984. (n) person may furnish support to the needy individual, with right of
reimbursement from the person obliged to give support. The provisions of this
Article 2159. Whoever in bad faith accepts an undue payment, shall pay legal article apply when the father or mother of a child under eighteen years of age
interest if a sum of money is involved, or shall be liable for fruits received or unjustly refuses to support him.
which should have been received if the thing produces fruits.
He shall furthermore be answerable for any loss or impairment of the thing Article 2167. When through an accident or other cause a person is injured or
from any cause, and for damages to the person who delivered the thing, until becomes seriously ill, and he is treated or helped while he is not in a condition
it is recovered. (1896a) to give consent to a contract, he shall be liable to pay for the services of the
physician or other person aiding him, unless the service has been rendered out
Article 2160. He who in good faith accepts an undue payment of a thing of pure generosity.
certain and determinate shall only be responsible for the impairment or loss
of the same or its accessories and accessions insofar as he has thereby been Article 2168. When during a fire, flood, storm, or other calamity, property is
benefited. If he has alienated it, he shall return the price or assign the action saved from destruction by another person without the knowledge of the owner,
to collect the sum. (1897) the latter is bound to pay the former just compensation.

Article 2161. As regards the reimbursement for improvements and expenses Article 2169. When the government, upon the failure of any person to comply
incurred by him who unduly received the thing, the provisions of Title V of with health or safety regulations concerning property, undertakes to do the
Book II shall govern. (1898) necessary work, even over his objection, he shall be liable to pay the expenses.

Article 2162. He shall be exempt from the obligation to restore who, Article 2170. When by accident or other fortuitous event, movables
believing in good faith that the payment was being made of a legitimate and separately pertaining to two or more persons are commingled or confused, the
subsisting claim, destroyed the document, or allowed the action to prescribe, rules on co-ownership shall be applicable.
or gave up the pledges, or cancelled the guaranties for his right. He who paid Article 2171. The rights and obligations of the finder of lost personal property
unduly may proceed only against the true debtor or the guarantors with regard shall be governed by articles 719 and 720.
to whom the action is still effective. (1899)
Article 2172. The right of every possessor in good faith to reimbursement for
Article 2163. It is presumed that there was a mistake in the payment if necessary and useful expenses is governed by article 546.
something which had never been due or had already been paid was delivered;

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Article 2173. When a third person, without the knowledge of the debtor, pays ten years from and after date of signing of the compromise
the debt, the rights of the former are governed by articles 1236 and 1237. agreement", as consideration for his services.

Article 2174. When in a small community a majority of the inhabitants of age Defendants filed a MD on the following grounds:
decide upon a measure for protection against lawlessness, fire, flood, storm or (1) As regards that improvements made by plaintiff, that the complaint
other calamity, any one who objects to the plan and refuses to contribute to the states no cause of action, the agreement regarding the same having
expenses but is benefited by the project as executed shall be liable to pay his been made by plaintiff with the Deudors and not with the defendants,
share of said expenses. hence the theory of plaintiff based on Article 2142 of the Code on
unjust enrichment is untenable; and
Article 2175. Any person who is constrained to pay the taxes of another shall (2) anent the alleged agreement about plaintiffs services as intermediary
be entitled to reimbursement from the latter. in consideration of which, defendants promised to convey to him
3,000 square meters of land, that the same is unenforceable under the
Statute of Frauds, there being nothing in writing about it, and, in any
CRUZ V. TUASON AND CO.
event,
(3) that the action of plaintiff to compel such conveyance has already
Nature: complaint for recovery of improvements and conveyance of land
prescribed.
Ponente: BARREDO, J
Date: April 29, 1977
CFI: dismissed the complaint on three grounds: (1) failure of the complaint to
state a cause of action (defendant is not privy to the agreement between
DOCTRINE: a presumed qauasi-contract cannot emerge as against one party
plaintiff and the Deudors); (2) the cause of action of plaintiff is unenforceable
when the subject matter thereof is already covered by an existing contract with
under the Statute of Frauds; and (3) the action of the plaintiff has already
another party.
prescribed.
FACTS:
ISSUE: W/N plaintiff’s claim (2nd COA) is unenforceable under the State of
Relevant Provision of Law: Art 2141, CC (quasi-contract)
Frauds
Faustino Cruz filed a complaint for recovery of improvements and conveyance
RULING:
of land. He alleged two separate causes of action, namely:
No. Statute of Frauds is inapplicable. Nevertheless, plaintiff still cannot claim
(1) that upon request of the Deudors (the family of Telesforo Deudor who
from defendant.
laid claim on the land in question on the strength of an "informacion
posesoria" ) plaintiff made permanent improvements valued at
It is elementary that the Statute refers to specific kinds of transactions and that
P30,400.00 on said land having an area of more or less 20 quinones
it cannot apply to any that is not enumerated therein.
and for which he also incurred expenses in the amount of P7,781.74,
and since defendants-appellees are being benefited by said
The contract is not a sale of real property or any interest therein: In the
improvements, he is entitled to reimbursement from them of said
instant case, what appellant is trying to enforce is the delivery to him of 3,000
amounts and
square meters of land which he claims defendants promised to do in
(2) that in 1952, defendants availed of plaintiff's services as an
consideration of his services as mediator or intermediary in effecting a
intermediary with the Deudors to work for the amicable settlement of
compromise of the civil action, Civil Case No. 135, between the defendants and
Civil Case No. Q-135, then pending also in the Court of First Instance
the Deudors. In no sense may such alleged contract be considered as being a
of Quezon City, and involving 50 quinones of land, of Which the 20
"sale of real property or of any interest therein." Indeed, not all dealings
quinones aforementioned form part, and notwithstanding his having
involving interest in real property come under the Statute.
performed his services, as in fact, a compromise agreement entered
into on March 16, 1963 between the Deudors and the defendants was
There is already partial execution of the agreement: Moreover, appellant's
approved by the court, the latter have refused to convey to him the
complaint clearly alleges that he has already fulfilled his part of the bargains
3,000 square meters of land occupied by him, (a part of the 20
to induce the Deudors to amicably settle their differences with defendants as,
quinones above) which said defendants had promised to do "within
in fact, on March 16, 1963, through his efforts, a compromise agreement
between these parties was approved by the court. In other words, the
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agreement in question has already been partially consummated, and is no In the case at bar, since appellant has a clearer and more direct recourse
longer merely executory. And it is likewise a fundamental principle governing against the Deudors with whom he had entered into an agreement regarding
the application of the Statute that the contract in dispute should be purely the improvements and expenditures made by him on the land of appellees. it
executory on the part of both parties thereto. Cannot be said, in the sense contemplated in Article 2142, that appellees have
been enriched at the expense of appellant.
We cannot, however, escape taking judicial notice, in relation to the
compromise agreement relied upon by appellant, that in several SIDE ISSUE (Procedural): the impugned main order was issued on August 13,
cases We have decided, We have declared the same rescinded and 1964, while the appeal was made on September 24, 1964 or 42 days later.
of no effect. Thus, viewed from what would be the ultimate conclusion of Clearly, this is beyond the 30-day reglementary period for appeal. Hence, the
appellant's case, We entertain grave doubts as to whether or not he can subject order of dismissal was already final and executory when appellant filed
successfully maintain his alleged cause of action against defendants, his appeal.
considering that the compromise agreement that he invokes did not actually
materialize and defendants have not benefited therefrom GUTIERREZ HERMANOS V. ORENSE

ISSUE #2 (TOPICAL): W/N plaintiff can claim based on a quasi-contract Nature: Complaint to compel defendant to execute an instrument
(unjust enrichment). transferring all the right, interest, title and share which the defendant has in
the subject property.
RULING: Ponente: TORRES, J.
No. Art 2142, CC is not applicable. Date: December 4, 1914

Art. 2142 states, DOCTRINE:

Certain lawful, voluntary and unilateral acts give rise to the juridical
relation of quasi-contract to the end that no one shall be unjustly enriched FACTS:
or benefited at the expense of another. Relevant Provision of Law: Article 1259 of the Civil Code

From the very language of this provision, it is obvious that a presumed qauasi- On March 5, 1913, counsel for Gutierrez Hermanos filed a complaint,
contract cannot emerge as against one party when the subject matter thereof afterwards amended, against Engacio Orense, in which he set forth,
is already covered by an existing contract with another party.  that on and before February 14, 1907, the defendant Orense had been
the owner of a parcel of land, with the buildings and improvements
Predicated on the principle that no one should be allowed to unjustly enrich thereon (masonry house with the nipa roof), situated in the pueblo of
himself at the expense of another, Article 2124 creates the legal fiction of a Guinobatan, Albay, xxx;
quasi-contract precisely because of the absence of any actual agreement  hat the said property has up to date been recorded in the new property
between the parties concerned. Corollarily, if the one who claims having registry in the name of the said Orense xxx;
enriched somebody has done so pursuant to a contract with a third party, his  that, on February 14, 1907, Jose Duran, a nephew of the defendant,
cause of action should be against the latter, who in turn may, if there is any with the latter's knowledge and consent, executed before a notary a
ground therefor, seek relief against the party benefited. public instrument whereby he sold and conveyed to the plaintiff
company, for P1,500, the aforementioned property, the vendor Duran
It is essential that the act by which the defendant is benefited must have been reserving to himself the right to repurchase it for the same price within
voluntary and unilateral on the part of the plaintiff. As one distinguished a period of four years from the date of the said instrument;
civilian (Ambrosio Padilla) puts it, "The act is voluntary, because the actor in  that the plaintiff company had not entered into possession of the
quasi-contracts is not bound by any pre-existing obligation to act. It is purchased property, owing to its continued occupancy by the
unilateral, because it arises from the sole will of the actor who is not previously defendant and his nephew, Jose Duran, by virtue of a contract of lease
bound by any reciprocal or bilateral agreement. The reason why the law creates executed by the plaintiff to Duran, which contract was in force up to
a juridical relation and imposes certain obligation is to prevent a situation February 14, 1911;
where a person is able to benefit or take advantage of such lawful, voluntary
and unilateral acts at the expense of said actor."

Page 8 of 115
  that the said instrument of sale of the property, executed by Jose said property. The principal must therefore fulfill all the obligations
Duran, was publicly and freely confirmed and ratified by the contracted by the agent, who acted within the scope of his authority.
defendant Orense; (Civil Code, arts. 1709, 1710 and 1727.)
 that, in order to perfect the title to the said property, but that the
defendant Orense refused to do so, without any justifiable cause or Even should it be held that the said consent was granted subsequently to the
reason, wherefore he should be compelled to execute the said deed by sale, it is unquestionable that the defendant, the owner of the property,
an express order of the court, xxx approved the action of his nephew, who in this case acted as the
 that the defendant had been occupying the said property since manager of his uncle's business, and Orense'r ratification produced the
February 14, 1911, and refused to pay the rental thereof, effect of an express authorization to make the said sale. (Civil Code, arts. 1888
notwithstanding the demand made upon him for its payment at the and 1892.)
rate of P30 per month, the just and reasonable value for the occupancy Article 1259 of the Civil Code prescribes:
of the said property, the possession of which the defendant likewise "No one can contract in the name of another without being authorized by
refused to deliver to the plaintiff company, in spite of the continuous him or without his legal representation according to law.
demands made upon him, the defendant, with bad faith and to the
prejudice of the firm of Gutierrez Hermanos, claiming to have rights A contract executed in the name of another by one who has neither his
of ownership and possession in the said property. authorization nor legal representation shall be void, unless it should be
ratified by the person in whose name it was executed before being revoked
CFI: ordered the defendant to make immediate delivery of the property in by the other contracting party.
question, through a public instrument, by transferring and conveying to the
plaintiff all his rights in the property described in the complaint The sale of the said property made by Duran to Gutierrez Hermanos was
indeed null and void in the beginning, but afterwards became perfectly valid
and cured of the defect of nullity it bore at its execution by the confirmation
(FACTS WHICH LED TO THE FILING OF CIVIL CASE) After the lapse of the solemnly made by the said owner upon his stating under oath to the judge that
four years stipulated for the redemption, the defendant refused to deliver the he himself consented to his nephew Jose Duran's making the said sale.
property to the purchaser, the firm of Gutierrez Hermanos, and to pay the
rental thereof. His refusal was based on the allegations If the defendant Orense acknowledged and admitted under oath that he had
 that he had not executed any written power of attorney to Jose Duran, consented to Jose Duran's selling the property in litigation to Gutierrez
nor had he given the latter any verbal authorization to sell the said Hermanos, it is not just nor is it permissible for him afterward to deny that
property to the plaintiff firm in his name; and admission, to the prejudice of the purchaser, who gave P1,500 for the said
 that, prior to the execution of the deed of sale, the defendant property.
performed no act such as might have induced the plaintiff to believe
that Jose Duran was empowered and authorized by the defendant to ADILLE V. CA
effect the said sale.
Nature: Action for partition with accounting
Ponente: SARMIENTO, J
The plaintiff firm, therefore, charged Jose Duran, in the Court of First Instance Date: January 29, 1988
of the said province, with estafa (CRIMINAL CASE). CFI acquitted Duran
since Orense, when called to the witness stand, stated that he had consented DOCTRINE:
to the sale of the property. Thus, plaintiff firm filed the present civil case.
ISSUE: W/N defendant must fulfill the obligation contracted by his nephew. FACTS:
Relevant Provision of Law: Art. 1456, implied trust
RULING:
YES. The owner of the property consented to the sale made by the nephew. The land in question Lot 14694 of Cadastral Survey of Albay located in Legaspi
City with an area of some 11,325 sq. m. originally belonged to one Felisa Alzul
It having been proven at the trial that he gave his consent to the said sale, it as her own private property; she married twice in her lifetime;
follows that the defendant conferred verbal, or at least implied, power of
agency upon his nephew Duran, who accepted it in the same way by selling the
Page 9 of 115
  the first, with one Bernabe Adille, with whom she had as an only child, Necessary expenses may be incurred by one co-owner, subject to his right to
herein defendant Rustico Adille; collect reimbursement from the remaining co-owners. There is no doubt that
 in her second marriage with one Procopio Asejo, her children were redemption of property entails a necessary expense. Under the Civil Code:
herein plaintiffs, ART. 488. Each co-owner shall have a right to compel the other co-owners
to contribute to the expenses of preservation of the thing or right owned
[sale] Now, sometime in 1939, said Felisa sold the property in pacto de retro in common and to the taxes. Any one of the latter may exempt himself
to certain 3rd persons, period of repurchase being 3 years, but she died in 1942 from this obligation by renouncing so much of his undivided interest as
without being able to redeem and after her death, but during the period of may be equivalent to his share of the expenses and taxes. No such waiver
redemption, herein defendant (child of 1st M) repurchased, by himself alone, shall be made if it is prejudicial to the co-ownership.
and after that, he executed a deed of extra-judicial partition representing
himself to be the only heir and child of his mother Felisa with the consequence The result is that the property remains to be in a condition of co-ownership.
that he was able to secure title in his name alone also, so that OCT. No. 21137 While a vendee a retro, under Article 1613 of the Code, "may not be compelled
in the name of his mother was transferred to his name, that was in 1955. to consent to a partial redemption," the redemption by one co-heir or co-owner
of the property in its totality does not vest in him ownership over it. Failure on
After some efforts of compromise had failed, his half-brothers and sisters, the part of all the co-owners to redeem it entitles the vendee a retro to retain
herein plaintiffs, filed present case for partition with accounting on the the property and consolidate title thereto in his name. ut the provision does
position that he was only a trustee on an implied trust when he redeemed,-and not give to the redeeming co-owner the right to the entire property. It does not
this is the evidence, but as it also turned out that one of plaintiffs, Emeteria provide for a mode of terminating a co-ownership.
Asejo was occupying a portion, defendant counterclaimed for her to vacate.
Neither does the fact that the petitioner had succeeded in securing
LC: defendant was and became absolute owner, he was not a trustee, and title over the parcel in his name terminate the existing co-
therefore, dismissed case and also condemned plaintiff occupant, Emeteria to ownership. Registration of property is not a means of acquiring ownership.
vacate It operates as a mere notice of existing title, that is, if there is one.

CA: reversed TC; The petitioner must then be said to be a trustee of the property on
behalf of the private respondents. The Civil Code states:
Petitioner (defendant) contends, ART. 1456. If property is acquired through mistake or fraud, the person
the property subject of dispute devolved upon him upon the failure of his obtaining it is, by force of law, considered a trustee of an implied trust for
co-heirs to join him in its redemption within the period required by law. the benefit of the person from whom the property comes.
He relies on the provisions of Article 1515 of the old Civil Article 1613 of
the present Code, giving the vendee a retro the right to demand The petitioner's pretension that he was the sole heir to the land in the affidavit
redemption of the entire property. of extrajudicial settlement he executed preliminary to the registration thereof
betrays a clear effort on his part to defraud his brothers and sisters and to
ISSUE: May petitioner, as a co-owner, acquire exclusive ownership over the exercise sole dominion over the property.
property held in common?

If not, whether petitioner acts as a TRUSTEE or a NEGOTIORUM GESTOR. RE: negotiorum gestio
It is the view of the CA that the petitioner, in taking over the property, did so
RULING: either on behalf of his co-heirs, in which event, he had constituted himself a
No, petitioner cannot acquire exclusive ownership under the circumstances. negotiorum gestor under Article 2144 of the Civil Code, OR for his exclusive
Since there is fraud, petitioner is a mere trustee of the property. The doctrine benefit, in which case, he is guilty of fraud, and must act as trustee, the private
of negotiorum gestio cannot apply in the case at bar. respondents being the beneficiaries, under the Article 1456.

The right of repurchase may be exercised by a co-owner with The evidence, of course, points to the second alternative (TRUST) the
respect to his share alone. petitioner having asserted claims of exclusive ownership over the property and
having acted in fraud of his co-heirs. He cannot therefore be said to have
assume the mere management of the property abandoned by his co-heirs, the
Page 10 of 115
situation Article 2144 of the Code contemplates. In any case, as the CA itself the payee designated in the telex was only "Wearing Apparel." Upon query by
affirms, the result would be the same whether it is one or the other. The PNB, private respondent sent PNB another telex dated August 27, 1980 stating
petitioner would remain liable to the Private respondents, his co-heirs. that the payment was to be made to "Irene's Wearing Apparel." On August 28,
1980, petitioner received the remittance of $10,000.00 through Demand Draft
RE: prescription No. 225654 of the PNB.
This Court is not unaware of the well-established principle that prescription
bars any demand on property (owned in common) held by another (co-owner) Meanwhile, on August 25, 1980, after learning about the delay in the
following the required number of years. In that event, the party in possession remittance of the money to petitioner, FACETS informed FNSB about the
acquires title to the property and the state of co-ownership is ended. In the situation. On September 8, 1980, unaware that petitioner had already received
case at bar, the property was registered in 1955 by the petitioner, solely in his the remittance, FACETS informed private respondent about the delay and at
name, while the claim of the private respondents was presented in 1974. Has the same time amended its instruction by asking it to effect the payment
prescription then, set in? through the Philippine Commercial and Industrial Bank (hereinafter referred
to as PCIB) instead of PNB.
We hold in the negative. Prescription, as a mode of terminating a relation of
co-ownership, must have been preceded by repudiation (of the co-ownership). Accordingly, private respondent, which was also unaware that petitioner had
(No repudiation on the part of the private respondents/plaintiffs. already received the remittance of $10,000.00 from PNB instructed the PCIB
to pay $10,000.00 to petitioner. Hence, on September 11, 1980, petitioner
ANDRES v. MANTRUST received a second $10,000.00 remittance.

Ponente: CORTES, J. Private respondent (Mantrust) asked petitioner for the return of the second
Date: September 15, 1989 remittance of $10,000.00 but the latter refused to pay.

DOCTRINE: Requisites of solution indebiti: LC: in favor of petitioner as defendant; Art. 2154 of the New Civil Code is not
(1) that he who paid was not under obligation to do so; and, applicable to the case because the second remittance was made not by mistake
(2) that payment was made by reason of an essential mistake of fact but by negligence and petitioner was not unjustly enriched by virtue thereof

FACTS: CA: Art 2154 is applicable; reversed CFI

Relevant Provision of Law: Art. 2154, CC
ISSUE: W/N petitioner has an obligation to return the $10,000.
Petitioner, using the business name "Irene's Wearing Apparel," was engaged
in the manufacture of ladies garments, children's wear, men's apparel and RULING:
linens for local and foreign buyers. Among its foreign buyers was Facets Art. 2154 of the New Civil Code provides that:
Funwear, Inc. (hereinafter referred to as FACETS) of the United States.
Art. 2154. If something received when there is no right to demand it, and
In the course of the business transaction between the two, FACETS from time it was unduly delivered through mistake, the obligation to return it arises.
to time remitted certain amounts of money to petitioner in payment for the
items it had purchased. Sometime in August 1980, FACETS instructed the This provision is taken from Art. 1895 of the Spanish Civil Code which
First National State Bank of New Jersey, Newark, New Jersey, U.S.A. provided that:
(hereinafter referred to as FNSB) to transfer $10,000.00 to petitioner via PNB.
Art. 1895. If a thing is received when there was no right to claim it and
Acting on said instruction, FNSB instructed private respondent Manufacturers which, through an error, has been unduly delivered, an obligation to
Hanover and Trust Corporation to effect the above- mentioned transfer restore it arises.
through its facilities and to charge the amount to the account of FNSB with
private respondent. Although private respondent was able to send a telex to Article 1895 [now Article 2154] of the Civil Code abovequoted, is
PNB to pay petitioner $10,000.00 through the Pilipinas Bank, where therefore applicable. This legal provision, which determines the quasi-
petitioner had an account, the payment was not effected immediately because contract of solution indebiti, is one of the concrete manifestations of the

Page 11 of 115
ancient principle that no one shall enrich himself unjustly at the expense of
another. SC: The rule is that principles of equity cannot be applied if there is a provision
of law specifically applicable to a case.
For this article to apply the following requisites must concur:
(1) that he who paid was not under obligation to do so; and, PUYAT AND SONS V. MANILA
(2) that payment was made by reason of an essential mistake of fact" [City of
Cebu v. Piccio, 110 Phil. 558, 563 (1960)]. Nature: action for refund
Ponente: PAREDES, J
Date: April 30, 1963
Petitioner: he had the right to demand and therefore to retain the second
$10,000.00 remittance. It is alleged that even after the two $10,000.00 DOCTRINE: (Citing a US case) It is too well settled in this state to need the
remittances are credited to petitioner's receivables from FACETS, the latter citation of authority that if money be paid through a clear mistake of law or
allegedly still had a balance of $49,324.00. Hence, it is argued that the last fact, essentially affecting the rights of the parties, and which in law or
$10,000.00 remittance being in payment of a pre-existing debt, petitioner was conscience was not payable, and should not be retained by the party receiving
not thereby unjustly enriched. it, it may be recovered. Both law and sound morality so dictate

FACTS:
SC: The contract of petitioner, as regards the sale of garments and other textile Relevant Provision of Law:
products, was with FACETS. It was the latter and not private respondent which On August 11, 1958, the plaintiff Gonzalo Puyat & Sons, Inc., filed an action
was indebted to petitioner. On the other hand, the contract for the transmittal for refund of Retail Dealerls Taxes paid by it, corresponding to the first
of dollars from the United States to petitioner was entered into by private Quarter of 1950 up to the third Quarter of 1956, amounting to P33,785.00,
respondent with FNSB. Petitioner, although named as the payee was not privy against the City of Manila and its City Treasurer. The case was submitted on
to the contract of remittance of dollars. There being no contractual relation the following stipulation of facts, to wit—
between them, petitioner has no right to apply the second $10,000.00
remittance delivered by mistake by private respondent to the outstanding "1. That the plaintiff is a corporation duly organized and existing according to
account of FACETS. the laws of the Philippines, with offices at Manila; while defendant City Manila
is a Municipal Corporation duly organized in accordance with the laws of the
Petitioner: the payment by respondent bank of the second $10,000.00 Philippines, and defendant Marcelino Sarmiento is the duly qualified
remittance was not made by mistake but was the result of negligence of its incumbent City Treasurer of Manila;
employees.
"2. That plaintiff is engaged in the business of manufacturing and selling all
SC: The Court holds that the finding by the Court of Appeals that the second kinds of furniture xxx
$10,000.00 remittance was made by mistake, being based on substantial
evidence, is final and conclusive. CA held: "3. That acting pursuant to the provisions of Sec. 1. group II, of Ordinance
No. 3364, defendant City Treasurer of Manila assessed from plaintiff retail
The fact that Facets sent only one remittance of $10,000.00 is not dealer's tax corresponding to the quarters hereunder stated on the sales of
disputed. In the written interrogatories sent to the First National State furniture manufactured and sold by it at its factory site, all of which
Bank of New Jersey through the Consulate General of the Philippines in assessments plaintiff paid without protest in the erroneous belief that it was
New York, Adelaide C. Schachel, the investigation and reconciliation clerk liable therefor xxx
in the said bank testified that a request to remit a payment for Facet
Funwear Inc. was made in August, 1980. That there was a mistake in the "4. That plaintiff, being a manufacturer of various kinds of furniture, is
second remittance of US $10,000.00 is borne out by the fact that both exempt from the payment of taxes imposed under the provisions of Sec.
remittances have the same reference invoice number which is 263 80. 1, Group II, of Ordinance No. 3364, which took effect on September 24,
1956, on the sale of the various kinds of furniture manufactured by it pursuant
Petitioner: when one of two innocent persons must suffer by the wrongful to the provisions of Sec. 18(n) of Republic Act No. 409 (Revised Charter of
act of a third person, the loss must be borne by the one whose negligence was Manila), as restated in Section 1 of Ordinance No.3816.
the proximate cause of the loss.
Page 12 of 115
 In the opinion of the Secretary of Justice (Op. 90,Series of 1957, in a question
xxx similar to the case at bar, it was held that the requiredment of protest refers
"6. That on October 30, 1956, the plaintiff filed with defendant City Treasurer only to the payment of taxes which are directly imposed by the charter itself,
of Manila, a formal request for refund of the retail dealer's taxes unduly that is, real estate taxes, which view was sustained by judicial and
paid by it. administrative precedents, one of which is the case of Medina, et al., v. City of
Baguio, G.R. No. L-4269, Aug. 29, 1952. In other words, protest is not
"7. That on July 24, 1958, the defendant City Treasurer of Manila definitely necessary for the recovery of retail dealer's taxes, like the present, because they
denied said request for refund. are not directly imposed by the charter.

LC: ordered the defendants to refund the amount of P29,824.00; Of the

payments made by the plaintiff, only that made on October 25, 1950 in the ISSUE #2: IF yes on #1, W/N the claim for refund filed in October 1956, in so
amount of P1,250.00 has prescribed Payments made in 1951 and thereafter are far as said claim refers to taxes paid from 1950 to 1952 has already prescribed
still recoverable since the extra-judicial demand made on October 30, 1956
was well within the six-year prescriptive period of the New Civil Code.
CITY OF MANILA: article 1146 (NCC), which provides for a period of four
CITY OF MANILA (defendants): the taxes in question were voluntarily (4) years (upon injury to the rights of the plaintiff), apply to the case.
paid by appellee company and since, in this jurisdiction, in order that a legal
basis arise for claim of refund of taxes erroneously assessed, payment thereof PUYAT AND SONS: provisions of Act 190 (Code of Civ. Procedure) should
must be made under protest, and this being a condition sine qua non, and no apply, insofar as payments made before the effectivity of the New Civil Code
protest having been made, -- verbally or in writing, thereby indicating that the on August 30, 1950, the period of which is ten (10) years, (Sec. 40,Act No. 190;
payment was voluntary, the action must fail. Osorio v. Tan Jongko, 51 O.G. 6211) and article 1145 (NCC), for payments made
after said effectivity, providing for a period of six (6) years (upon quasi-
PUYAT AND SONS: the payments could not have been voluntary. At most, contracts like solutio indebiti).
they were paid "mistakenly and in good faith" and "without protest in the
erroneous belief that it was liable thereof." Voluntariness is incompatible with RULING:
protest and mistake. It submits that this is a simple case of "solutio indebiti" Even if the provisions of Act No. 190 should apply to those payments made
before the effectivity of the new Civil Code, because "prescription already
ISSUE: W/N the amounts paid by plaintiff-appelele, as retail dealer's taxes running before the effectivity of of this Code shall be govern by laws previously
under Ordinance 1925, as amended by Ordinance No. 3364of the City of in force xxx " (Art. 1116, NCC), Still payments made before August 30,
Manila, without protest, are refundable 1950 are no longer recoverable in view of the second paragraph of
said article (1116), which provides:
RULING:
"but if since the time this Code took effect the entire period herein required
Plaintiff-Appellee is entitled to the refund. for prescription should elapse the present Code shall be applicable even
though by the former laws a longer period might be required".
Appellants do not dispute the fact that appellee-company is exempted from the
payment of the tax in question. Anent the payments made after August 30, 1950, it is obvious that the action
has prescribed with respect to those made before October 30, 1950 only,
Newport v. Ringo (US case): "It is too well settled in this state to need the considering the fact that the prescription of action is interrupted xxx when is a
citation of authority that if money be paid through a clear mistake of law or written extra-judicial demand x x x" (Art. 1155, NCC), and the written demand
fact, essentially affecting the rights of the parties, and which in law or in the case at bar was made on October 30, 1956 (Stipulation of Facts).
conscience was not payable, and should not be retained by the party receiving
it, it may be recovered. Both law and sound morality so dictate. Especially MODIFIED in the sense that only payments made on or after October 30, 1950
should this be the rule as to illegal taxation…” should be refunded, the decision appealed from is affirmed, in all other
respects.
RE: Requirement of protest

Page 13 of 115
 4. Acts or omissions punished by law Petitioner Joseph Saludaga was a sophomore law student of respondent Far
Eastern University (FEU) when he was shot by Alejandro Rosete (Rosete), one
of the security guards on duty at the school premises on August 18, 1996.
Article 1167. If a person obliged to do something fails to do it, the same shall Petitioner was rushed to FEU-Dr. Nicanor Reyes Medical Foundation (FEU-
be executed at his cost. NRMF) due to the wound he sustained. Meanwhile, Rosete was brought to the
This same rule shall be observed if he does it in contravention of the tenor of police station where he explained that the shooting was accidental. He was
the obligation. Furthermore, it may be decreed that what has been poorly done eventually released considering that no formal complaint was filed against
be undone. (1098) him.

Article 2177. Responsibility for fault or negligence under the preceding Petitioner thereafter filed a complaint for damages against respondents on
article is entirely separate and distinct from the civil liability arising from the ground that they breached their obligation to provide students with a safe
negligence under the Penal Code. But the plaintiff cannot recover damages and secure environment and an atmosphere conducive to learning.
twice for the same act or omission of the defendant.(n) Respondents, in turn, filed a Third-Party Complaint against Galaxy
Development and Management Corporation (Galaxy), the agency contracted
RPC Article 100. Civil liability of a person guilty of felony. - Every person by respondent FEU to provide security services within its premises and
criminally liable for a felony is also civilly liable. Mariano D. Imperial (Imperial), Galaxy's President, to indemnify them for
whatever would be adjudged in favor of petitioner, if any; and to pay attorney's
RPC Article 104. What is included in civil liability. - The civil liability fees and cost of the suit. On the other hand, Galaxy and Imperial filed a
established in Articles 100, 101, 102, and 103 of this Code includes: Fourth-Party Complaint against AFP General Insurance.
1. Restitution;
2. Reparation of the damage caused; TC: held FEU and GALAXY liable
3. Indemnification for consequential damages.
CA: reversed; dismissed the complaint; shooting was a fortuitous event
5. Quasi-delicts
ISSUE: W/N FEU is liable based on the contract between it and its student

Article 1162. Obligations derived from quasi-delicts shall be governed by the RULING:
provisions of Chapter 2, Title XVII of this Book, and by special laws. (1093a)
YES. FEU is liable (culpa contractual).
Article 2176. Whoever by act or omission causes damage to another, there
being fault or negligence, is obliged to pay for the damage done. Such fault or PSBA v CA: When an academic institution accepts students for enrollment,
negligence, if there is no pre-existing contractual relation between the parties, there is established a contract between them, resulting in bilateral obligations
is called a quasi-delict and is governed by the provisions of this Chapter. which both parties are bound to comply with. For its part, the school
(1902a) undertakes to provide the student with an education that would presumably
suffice to equip him with the necessary tools and skills to pursue higher
education or a profession. On the other hand, the student covenants to abide
SALUDAGA V. FEU by the school's academic requirements and observe its rules and regulations.
Nature: Complaint for damages It is settled that in culpa contractual, the mere proof of the existence of the
Ponente: YNARES-SANTIAGO, J. contract and the failure of its compliance justify, prima facie, a corresponding
Date: April 30, 2008 right of relief. In the instant case, we find that, when petitioner was shot inside
the campus by no less the security guard who was hired to maintain peace and
DOCTRINE: secure the premises, there is a prima facie showing that respondents
failed to comply with its obligation to provide a safe and secure
FACTS: environment to its students.
Relevant Provision of Law:
Re: Force majeure
Page 14 of 115
 P100,000.00; and attorney's fees and litigation expenses in the amount of
Respondents failed to discharge the burden of proving that they exercised due P50,000.00;
diligence in providing a safe learning environment for their students. They c. the award of exemplary damages is DELETED.
failed to prove that they ensured that the guards assigned in the campus met The Complaint against respondent Edilberto C. De Jesus (Prfesident of FEU)
the requirements stipulated in the Security Service Agreement. Indeed, certain is DISMISSED. The counterclaims of respondents are
documents about Galaxy were presented during trial; however, no evidence likewise DISMISSED.
as to the qualifications of Rosete as a security guard for the
university was offered.
SAGRADA ORDEN VS NACOCO
It was not proven that they examined the clearances, psychiatric test results,
Nature: Action to recover the possession of a parcel of land and the
201 files, and other vital documents enumerated in its contract with Galaxy.
warehouses, as well as the rentals for its occupation and use
Total reliance on the security agency about these matters or failure to check
Ponente: Labrador
the papers stating the qualifications of the guards is negligence on the part
Date: June 30, 1952
of respondents. A learning institution should not be allowed to completely
relinquish or abdicate security matters in its premises to the security agency it
DOCTRINE: In order for an obligation to exist, it must be created
hired. To do so would result to contracting away its inherent obligation to
by law, contract, quasi-contract, delicts, or quasi-delicts.
ensure a safe learning environment for its students.
FACTS:
Consequently, respondents' defense of force majeure must fail. In order
Relevant Provision of Law:
for force majeure to be considered, respondents must show that no
Old Civil Code Article 1089. Obligations are created by law, by contracts, by
negligence or misconduct was committed that may have occasioned
quasi-contracts, and by illicit acts and omissions or by those in which any
the loss. An act of God cannot be invoked to protect a person who has failed
kind of fault or negligence occur
to take steps to forestall the possible adverse consequences of such a loss. One's
negligence may have concurred with an act of God in producing damage and
On January 4, 1942, during the Japanese occupation, a Japanese corporation
injury to another; nonetheless, showing that the immediate or proximate cause
by the name of Taiwan Tekkosho acquired a certain parcel of land owned by
of the damage or injury was a fortuitous event would not exempt one from
the plaintiff for the sum of Php140,000.00, and title was issued in its name.
liability. When the effect is found to be partly the result of a person's
After the end of World War 2, the Alien Property Custodian of the USA took
participation - whether by active intervention, neglect or failure to act - the
possession, control and custody thereof for the reason that the land belonged
whole occurrence is humanized and removed from the rules applicable to acts
to an enemy national. Afterwards the property was occupied by the Copra
of God
Export Management Company, which later vacated it in favor of the National
Coconut Corporation.
Re: Damages
Sagrada Orden made a claim of the property before the Alien Property
Article 1170 of the Civil Code provides that those who are negligent in the
Custodian but this was denied, so it brought an action at the CFI of Manila to
performance of their obligations are liable for damages. Accordingly, for
annul the sale of the property to Taiwan Tekkosho and to recover its
breach of contract due to negligence in providing a safe learning environment,
possession.
respondent FEU is liable to petitioner for damages.
The case did not come to trial as the parties presented a joint petition where it
DISPOSITIVE:
was claimed that the sale in favor of Taiwan Tekkosho was null and voide
a. respondent Far Eastern University (FEU) is ORDERED to pay petitioner
because it was executed under threats, duress, and intimidation, and it was
actual damages in the amount of P35,298.25, plus 6% interest per annum
agreed that the title should be re-issued in favor of Sagrada Orden. The parties
from the filing of the complaint until the finality of this Decision. After this
also prayed that NACOCO and the Alien Property Administration be released
decision becomes final and executory, the applicable rate shall be twelve
from liability, and that NACOCO would pay rentals.
percent (12%) per annum until its satisfaction;
b. respondent FEU is also ORDERED to pay petitioner temperate
CFI released NACOCO from any liability but denied plaintiff the right to
damages in the amount of P20,000.00; moral damages in the amount of
recover reasonable rentals.
Page 15 of 115
 PEOPLE’S CAR INC. VS COMMANDO SECURITY SERVICE
Plaintiff appeals to recover reasonable rentals from August 1946, which as AGENCY
when NACOCO began occupying the premises, and to vacate it.
Nature: Action for damages
Respondent, on the other hand, admits rentals but only starting February 28, Ponente: Teehankee
1949, when the judgment of the CFI was issued. It defends itself by saying it Date: May 22, 1973
occupied the property in good faith, and had no obligation whatsoever to pay
rentals for the use and occupation of the warehouse. DOCTRINE: Obligations arising from contracts have the force of
law between the contracting parties and should be complied with in
ISSUE: good faith
Whether or not NACOCO is liable for rentals from the time of its occupancy
or from the time of the judgment of the CFI. FACTS:
Relevant Provision of Law:
RULING: It is not liable for rentals at all. NCC Article 1159. Obligations arising from contracts have the force of law
If defendant is liable at all, its obligations must arise from any of the four between the contracting parties and should be complied with in good faith.
sources of obligations: law, contract or quasi-contract, crime, or negligence.
People’s Car Inc and Commando Security Service Agency entered into a Guard
NACOCO is not guilty of any offense at all since it entered the premises and Service Contract where the latter would safeguard and protect the business
occupied the same with the permission of the Alien Property Administration, premises of People’s Car from theft, pilferage, robbery, vandalism and all other
which had legal control and administration. It’s not negligent of anything unlawful acts of any person or persons prejudicial to the interest of the
either. There was no privity of contract or obligation between the Alien plaintiff.
Property Custodian and Taiwan Tekkosho such that the Alien Property
Custodian or its permittee (NACOCO) can be held responsible for the illegal On April 5, 1970, at around 1AM, one of the security guards, without any
occupation by Taiwan Takkosho. Note: the Alien Property Custodian did not authority or consent whatsoever, brought out of the compound of the plaintiff
occupy the property as successor to the interests of Taiwan Tekkosho, but by a car belonging to Joseph Luy, a customer, and eventually lost control of the
expression provision of the law. When NACOCO took possession of the said car, causing the same to fall into a ditch. Plaintiff filed a complaint of
property, the Alien Property Administration had the absolute control of the qualified theft against the security guard; plaintiff alleges that it had to suffer
property as the trustee of the US Government; as such, if NACOCO is liable for damages by way of payment for the repairs of the car in the amount of
rentals, it would accrue to the US Government and not to Sagrada Orden. Php7,079, as well as car rental value in the sum of Php1,410 as plaintiff had to
loan a car to Joseph Luy for 47 days while the car was being repaired. As such,
Furtehrmore, there was no agreement between the Alien Property Custodian plaintiff incurred a total of Php8,489.10 in damages.
and NACOCO for the payment of rentals on the property. The predecessor of
NACOCO, Copra Export, did not pay any rentals or had to pay any Plaintiff claimed that the entire amount is imputable to Commando Security
compensation of any kind. When the NACOCO succeeded Copra Export, it as, under paragraph 5 of their contract, defendant assumed liability for acts
must have also been free from payment of rentals, especially since it’s a done during their watch hours by guards, while Commando alleges, under
Government corporation. paragraph 4 of the contract, that its liability should not exceed Php1,000.

As such, there is no basis on any of the sources of obligations to find that TC ruled in favor of the interpretation of Commando Security.
NACOCO is liable for rentals to Sagrada Orden.
ISSUE: What is the extent of the liability of Commando Security in light of
the contract that the parties entered into

RULING: It is liable for the entire Php8,489.10.

The limitation to Php1,000 per guard post is only applicable for loss or damage
“through the negligence of its guards during watch hours” provided that the
same is duly reported to the plaintiff within 24 hours of the occurrence and the
negligence is verified after proper investigation with the attendance of both
Page 16 of 115
contracting parties. It’s inapplicable in this case as the property of the plaintiff Jose Cango was an employee of the Mania Railroad Company as a clerk. To
was not lost or damaged at its premises, and was there just mere negligence of travel from his home to his place of work, he used a pass, as supplied by the
the security guard. company, which entitled him to ride on the company’s trains for free.

Rather, this case involves a security guard who willfully and unlawfully drove On January 20, 1915, at around 7 to 8PM, Cangco was about to disembark
out a car and lost control of the same, causing the plaintiff to incur actual from the slowing train, when one or both of his feet came in contact with sack
damages in the amount of Php8,489.10. Consequently, defendant is liable for of watermelons resulting in him falling violently on the platform; his body
the entire damages under paragraph 5, where the defendant assumes “liability rolled from the platform and was drawn under the moving car where his right
for the acts during their watch hours” and that it “releases plaintiff from any arm was badly crushed and lacerated. The platform was dimly lit so that it was
and all liabilities to the third parties arising from acts or omissions done by difficult to discern the objects on the platform.
guards during their tour of duty.” As the act here is wanton and unlawful, the
defendant is liable. Pit appears that the sack of melons were on the platform as it was customary
season for harvesting and a large lot had been brought to the station for the
Contrary to TC’s determination, plaintiff was not required to tell Luy that it shipment to the market. They were contained in numbers sacks, which had
was not liable under the Guard Service Contract with Commando, and that it been piled on the platform in a row upon another near the edge of the platform.
should have brought the action in court. The TC also required that Luy would
file a third-party complaint (rather than dismiss the action vs. plaintiff) or to As a result of the accident, Cangco had to undergo two surgeries resulting in
have plaintiff file a crossclaim (if Luy did not opt to dismiss the action). The the amputation of his arm until near the shoulder, and he expended actual
recommendations of the TC are unduly technical and unrealistic medical damages in the amount of Php790.25. He thus filed an action with the
CFI of Manila to recover damages based on the negligence of the employees in
Plaintiff was in law liable to Luy for the damages caused by the security guard, leaving the sacks of watermelons at the edge of the platform.
but it was also justified in making good such damages and relying in turn on
the defendant’s honoring its contract. Plaintiff couldn’t tell its customer that it CFI ruled that while negligence was attributable to the defendant, the plaintiff
was not liable since the customer could not hold defendant to account for had failed to exercise due caution in alighting from the train and so was
damages as the customer had no privity of contract with the defendant. precluded from recovering

CANGCO VS MANILA RAILROAD ISSUE: Whether or not Cangco is entitled to recover damages from
MRR for the negligent actions of MRR’s employees in placing the
Nature: Action for damages based on quasi-delict sacks of watermelons at the edge of the platform
Ponente: Fisher
Date: October 4, 1918 RULING: Yes, Manila railroad is liable for damages for breach of
contract of carriage.
DOCTRINE: The liability arising from culpa aquillana is based on a It cannot be doubted that the employees of the railroad company were
voluntary act or omission, which, without willful intent but by mere negligent in piling the sacks on the platform and that their presence caused the
negligence, has caused damage to another. An employer who exercises all plaintiff to suffer his injuries; as such, they constituted an effective legal cause
possible care in the selection and direction of his employee would not occur of the injuries sustained by the plaintiff. However, it must still be weighed
any liability. For the liability to exist, there should actually be some fault against the contributory negligence of the plaintiff.
attributable to the defendant personally.
The foundation of the legal liability of the defendant is the contract of carriage;
FACTS: the obligation to respond for the damage arises from the failure of the
Relevant Provision of Law: defendant to exercise due care in its performance. The liability of is direct and
Civil Code ART. 1903. The obligation imposs=ed by the next preceding articles immediate, and differs from the presumptive responsibility for the negligence
is enforceable not only for personal acts and omissions, but also for those of of its employees as imposed by Civil Code Article 1903, which can be rebutted
persons for whom another is responsible.. by proof of the exercise of due care in the selection and supervision of
employees. Article 1903 is not applicable to contractual obligations (culpa
contractual), but only to extra-contractual obligations (culpa aquiliana).

Page 17 of 115
Court cites precedent in the Rakes case where the Court stated that Article negligence per se for a passenger to alight from a moving train. The train here
1903 of the Civil Code is inapplicable to acts of negligence which constitute the was “barely moving” and it seems to be a common practice to do so without
breach of contract; they would be subject instead to articles 1101, 1103 and any injury. Any contributory negligence on the part of the plaintiff would still
1104. be on the negligence of the defendant as the platform was dark and dimly lit.

The distinction is important as the liability imposed on employers for damages Dissent: J. Malcolm
based on the negligence of the employees is not based on respondeat superior The contributory negligence of the plaintiff, in attempting to alight from a
– which would impose the master liable in every case and unconditionally – moving train should absolve defendant from liability.
but on the principle in Article 1902, which imposes upon all persons who by
their own fault or negligence cause injury to another, the obligation to GUTIERREZ VS. GUTIERREZ
indemnify the damages. As such, the employer would not be liable for damages
done by a negligent employee if the employer were not negligent in the Nature: Action to recover damages from physical injuries from an
selection and direction of the employee, and the act did not amount to breach automobile accident
of the contract between the third person and the employer. Ponente: Malcolm
Date: September 23, 1931
The liability arising from culpa aquillana is based on a voluntary act or
omission, which, without willful intent but by mere negligence, has caused DOCTRINE: The head of the house, the owner of an automobile, who
damage to another. An employer who exercises all possible care in the maintains it for the general use of the family, is liable for its negligent
selection and direction of his employee would not occur any liability. For the operation by one of his children where the car is occupied and being used at
liability to exist, there should actually be some fault attributable to the the time of the injury for the pleasure of other members of the owner’s family.
defendant personally.
FACTS:
On the other hand, the liability of masters and employers for the negligent acts Relevant Provision of Law:
or omissions of their servants or agents, when such acts or omissions cause Spanish Civil Code ART. 1903. The obligation imposed by the next preceding
damages which amount to the breach of a contact, is not based upon a mere articles is enforceable not only for personal acts and omissions, but also for
presumption of the master's negligence in their selection or control, and proof those of persons for whom another is responsible.
of exercise of the utmost diligence and care in this regard does not relieve the The father, and, in case of his death or incapacity, the mother, are
master of his liability for the breach of his contract. liable for any damages caused by the minor children who live with them.

The Court describes extra-contractual obligations arise from the breach or On February 2, 1930, a passenger truck, and an automobile, driven by
omission of the mutual duties which civilized society imposes on its members Bonifacio Gutierrez and owned by his parents, Mr. and Mrs. Manuel Gutierrez,
such that the breach of these will result in the obligation to indemnify. The collided with one another as they were passing on the Talon Bridge on the
viniculum juris is the wrongful or negligent act or omission itself, while in Manila South Road. Narciso was a passenger on the truck, and he suffered a
contractual relations, the viniculum exists independently from the breach of fracture in his right leg, which required medical attendance and had not yet
the voluntary duty. healed at the date of the trial.

The positions of parties who have taken a contract with each other versus those The parties conceded that the collusion was caused by negligence. However,
who haven’t are different. The burden of proof is on the plaintiff to show the the plaintiff blames both sets of drivers, while the truck owner blames the
negligence in culpa aquillana, while in a contract, it is sufficient to prove the automobile driver, while the automobile owners blame the truck driver.
contract and the nonperformance.
ISSUE: Who among the defendants are liable – the truck owner or the
Here: the duty was based on a contract of carriage, which is direct and automobile owner?
immediate, and its non-performance could not be excused by proof that the
fault was morally imputable to defendant’s employees. RULING:
Bonifacio, at the time of the accident, was only 18 and was driving at an
Defendant’s allegation that the plaintiff should not have gotten off from the excessive rate and so contributed to the accident by his negligence. As such,
train prior to its slowing down is insufficient to deny damages as it is not
Page 18 of 115
based on article 1903 of the Civil Code, the father would be liable for damages Article 1166. The obligation to give a determinate thing includes that of
caused by the minor. delivering all its accessions and accessories, even though they may not have
been mentioned. (1097a)
Citing US cases as precedent, the Court ruled that it has been held that the
head of the house, the owner of an automobile, who maintains it for the general Article 1244. The debtor of a thing cannot compel the creditor to receive a
use of the family, is liable for its negligent operation by one of his children different one, although the latter may be of the same value as, or more valuable
where the car is occupied and being used at the time of the injury for the than that which is due.
pleasure of other members of the owner’s family. In obligations to do or not to do, an act or forbearance cannot be substituted
by another act or forbearance against the obligee's will. (1166a)
On the other hand, the liability of Cortez, the owner of the passenger truck,
and Velasco, the drier, rests on a contract, which was sufficiently proven in Article 1246. When the obligation consists in the delivery of an
evidence. The trial court found that the speed of the truck at the time and lack indeterminate or generic thing, whose quality and circumstances have not
of care of the driver also contributed to the accident. been stated, the creditor cannot demand a thing of superior quality. Neither
can the debtor deliver a thing of inferior quality. The purpose of the obligation
Cortez and Velasco’s contention that Narciso contributed to the accident by and other circumstances shall be taken into consideration. (1167a)
sticking his leg outside the truck can’t be counted on as it was not pleaded in
court and there was no evidence presented. Article 1260. Once the consignation has been duly made, the debtor may ask
the judge to order the cancellation of the obligation.
NOTES: Villa-Real had a concurring opinion which merely voted for an Before the creditor has accepted the consignation, or before a judicial
indemnity of Php7,500. declaration that the consignation has been properly made, the debtor may
withdraw the thing or the sum deposited, allowing the obligation to remain in
C. Compliance with obligations force. (1180)

Article 440. The ownership of property gives the right by accession to

Article 19. Every person must, in the exercise of his rights and in the everything which is produced thereby, or which is incorporated or attached
performance of his duties, act with justice, give everyone his due, and observe thereto, either naturally or artificially. (353)
honesty and good faith.
Article 442. Natural fruits are the spontaneous products of the soil, and the
Article 1163. Every person obliged to give something is also obliged to take young and other products of animals.
care of it with the proper diligence of a good father of a family, unless the law Industrial fruits are those produced by lands of any kind through cultivation
or the stipulation of the parties requires another standard of care. (1094a) or labor.
Civil fruits are the rents of buildings, the price of leases of lands and other
Article 1164. The creditor has a right to the fruits of the thing from the time property and the amount of perpetual or life annuities or other similar income.
the obligation to deliver it arises. However, he shall acquire no real right over (355a)
it until the same has been delivered to him. (1095)

Article 1165. When what is to be delivered is a determinate thing, the D. Kinds of civil obligations
creditor, in addition to the right granted him by article 1170, may compel the
debtor to make the delivery. 1. As to perfection and extinguishment
If the thing is indeterminate or generic, he may ask that the obligation be a. Pure
complied with at the expense of the debtor.
If the obligor delays, or has promised to deliver the same thing to two or more Article 1179. Every obligation whose performance does not depend upon a
persons who do not have the same interest, he shall be responsible for any future or uncertain event, or upon a past event unknown to the parties, is
fortuitous event until he has effected the delivery. (1096) demandable at once.
Every obligation which contains a resolutory condition shall also be
demandable, without prejudice to the effects of the happening of the event.
(1113)
Page 19 of 115
Article 1197. If the obligation does not fix a period, but from its nature and RULING: Yes.
the circumstances it can be inferred that a period was intended, the courts may Based on the evidence presented, the only argument that merits the attention
fix the duration thereof. of the Court is that of prescription. As noted by NCC 1179, any obligation that
does not depend on a future or uncertain event, or upon a past event unknown
The courts shall also fix the duration of the period when it depends upon the to the parties is demandable at once.
will of the debtor.
As the obligation was due and demandable, the filing of the suit after 15 years
In every case, the courts shall determine such period as may under the was much too late. The Civil Code additionally states that the prescriptive
circumstances have been probably contemplated by the parties. Once fixed by period of a written contract is 10 years.
the courts, the period cannot be changed by them. (1128a)
SMITH BELL VS SOTELO MATTI
(NOTE: My syllabus is cut and I don’t know what follows after these
provisions, I’m sorry. Macel) Nature: Specific Performance – payment of goods and to receive the same
Ponente: Romualdez
PAY VS PALANCA Date: March 9, 1922

Nature: Action for a sum of money based on a promissory note FACTS:

Ponente: Fernando Relevant Provision of Law:
Date: June 28, 1974 Civil Code 1125. Obligations for the performance of which a day certain has
been fixed shall be demandable only when the day arrives.
DOCTRINE: An obligation that does not depend on a future or uncertain A day certain is understood to be one which must necessarily arrive,
event, or upon a past event unknown to the parties, is demandable at once. The even though its date be unknown.
filing of an action only 15 years after is too late to enforce. If the uncertainty should consist in the arrival or non-arrival of the
day, the obligation is conditional and shall be governed by the rules of the
FACTS: next preceding section.
Relevant Provision of Law:
NCC 1179. Every obligation whose performance does not depend upon a In August 1918, Smith Bell and Sotelo entered into contracts whereby the
future or uncertain event, or upon a past event unknown to the parties, is former obligated itself to sell to Sotelo two steel tanks for the price of
demandable at once Php21,000, the tanks were to be shipped from New York and delivered at
Manila within 3-4 months; two expellers for the price of Php25,000, which
George Pay is a creditor of the late Justo Palanca. Pay’s claim is based on a were to be shipped from San Francisco in the month of September 1918 or as
promissory noted dated January 30, 1952, wherein Justo Palanca and Rosa soon as possible; and two electric motors at the price of Php2,000 each – the
Palanca promised to pay the amount of Php26,900.00. Pay comes to the court delivery stipulation read “approximate delivery within 90 days – this is not
seeking that Segunda, the widow, be appointed as the administratrix under the guaranteed.” All of the contracts were subject to contingencies such as the
belief that once a certain parcel of land is under her administration, Pay, as the sellers not being responsible for delays caused by force majeure.
creditor, could seek his claim against the administratrix.
The tanks arrived on April 27, 1919, the expellers on October 26 1918, and the
Palanca denies stating that she had refused to be appointed as the motors on February 27, 1919. Plaintiff notified Sotelo of the arrival of the
administratrix, that the property no longer belonged to the deceased, and that goods, but he refused to receive and pay for them.
the rights of Pay on the instrument had already prescribe; the note had been
executed 15 years prior. Smith Bell alleges that it immediately notified Sotelo of the arrival of the goods
yet Sotelo has refused to receive any of them to pay for their price.
TC ruled in favor of Palanca and dismissed the case
Sotelo counters that the he made the contracts as the manager of the Manila
ISSUE: Whether a creditor is barred by prescription in his attempted to Oil Refining and By-Products Company, and that it was only in May 1919 that
collect on a promissory note executed more than 15 years earlier. he was notified of the arrival of the goods, which arrived incomplete and long
Page 20 of 115
after the dates stipulated. They allege that the delay in the delivery resulted in
suffering damages for the non-delivery of the tanks (P116,783.91) and on the Nature: Action for damages
expellers and motors (P21,250) Ponente: Reyes
Date: April 30, 1970
TC absolved the defendant from paying for the tanks and motors but ordered DOCTRINE: When the time for compliance of an obligation had evidently
that defendant pay P50,000 for the expellers, which includes legal interest expired, even if a term was not properly fixed by the parties, there is a breach
of contract by non-performance.
ISSUE: Whether or not under the contracts entered into and the
circumstances established in record, the plaintiff fulfilled its obligation to FACTS:
bring the goods and in due time. Relevant Provision of Law:
NCC 1167. If a person obliged to do something fails to do it, the same shall be
RULING: Yes, the obligations were conditional. executed at his cost.
None of the contracts fixed a specific date for the delivery of goods – they The same shall be observed if he does it in contravention of the tenor
stated “within 3-4 months”, “in September 1918, or as soon as possible” or of the obligation. Furthermore, it may be decreed that what has been poorly
“approximate delivery within 90 days – this is not guaranteed” and all of them done be undone
were subject to the clause that force majeure was a possible defense in case of
delays. NCC 1170. Those who in the performance of their obligations are guilty of
fraud, negligence, or delay, and those who in any manner contravene the
The record discloses that the contracts were executed at the time of World War tenor thereof, are liable for damages.
I, which mean that there were rigid restrictions on exports from the USA of
articles such as machinery in question, and that transportation was difficult, NCC 1197. If the obligation does not fix a period, but from its nature and the
which was known to the parties. circumstances it can be inferred that a period was intended, the courts may
fix the duration thereof.
Considering these contracts in light of civil law, the Court ruled that the term The courts shall also fix the duration of the period when it depends
the parties attempted to fix is so uncertain that one cannot tell whether or not upon the will of the debtor.
the goods could actually be brought to Manila, so the obligations must be In every case, the courts shall determine such period as may under
considered as conditional. the circumstances have been probably contemplated by the parties. Once
fixed by the courts, the period cannot be changed by them.
The export of the machinery was contingent on the sellers obtaining certificate
of priority and permission of the US Government, so it was subject to a In July 1963, Chaves delivered to Gonzales a typewriter for routine cleaning
condition that depended on the effort of Smith Bell and on the will of third and servicing. Gonzales was unable to finish the job after some time in spite of
persons who could in no way be compelled to fulfill the obligation. The obligor repeated reminders made by Chaves. Instead, he constantly gave assurances.
is considered as having sufficiently performed his part of the obligation if he
has done all in his power, even if the condition has not been fulfilled. In October 1963, defendant asked from plaintiff the sum of P6.00 for the
purchase of spare parts, which plaintiff gave. On October 26, finally fed up with
As such, Soleto is sentenced to accept and receive the machinery and to pay the delay, plaintiff demanded that the typewriter be returned. The defendant
Php96,000.00 including legal interest from the date of the filing of the returned the same in a wrapped package; the plaintiff discovered that the same
complaint until fully paid. was completely in shames with the interior cover and some parts and screws
missing. Plaintiff sent a letter formally demanded the return of the missing
parts, the interior cover and P6.00. The next day, defendant returned some of
the missing parts, the interior cover and P6.00

The plaintiff had his typewriter repaired by Freixas Business Machines, which
was successful in doing so for the cost of P89.85.

Plaintiff commenced an action at the CFI of Manila, asking for P90 as actual
CHAVES VS GONZALES damages, P100 as temperate, P500 for moral, and P500 as attorney’s fees.
Page 21 of 115
 Nature:
TC ruled that the defendant should not be liable for the repairs made by Ponente: Hilado
Freixas, but should only be liable for the value of the missing parts. As such it Date: October 4, 1946
ordered the defendant to pay the sum of P31.10, and the costs of the suit.
DOCTRINE: The validity and fulfillment of a contract of lease cannot be left
Plaintiff alleges that based on NCC 1167, he should be entitled to the whole cost solely and exclusively to the will of one of the parties – here the lessees – as it
of labor and materials that went into the repair of the machine. would deprive the owner from being able discontinue the lease

Defendant alleges that it should not be held liable as his contract with the FACTS:
plaintiff did not contain a period under NCC 1197, such that the plaintiff should Encarnacion leased a house to Jacinto Baldomar and her son Lefrado
have first filed an action to fix the period, within which he should have Fernando on a month-to-month basis for the monthly rental of P35. After the
complied with the contract before he is liable for breach end of World War 2, Encarnacion informed Baldomar and her son to vacate
the house by April 15, 1945 as he needed it for his offices as a result of the
ISSUE: Whether or not defendant is liable to plaintiff for the cost of actually destruction of the building where his office previously was. In spite of his
repairing the typewriter, which it had failed to do demand, the defendants insisted on their occupancy.

RULING: Baldomar and Fernanco contend that Encarnacion authorized them to

The Court ruled that there was a perfected contract for cleaning and servicing continue their occupancy indefinitely while they are able to faithfully fulfill
a typewriter, which was properly intended that the defendant finish it at a their obligation with respect to the payment of rentals.
future time though it was not specified. Furthermore, some time had passed
without the work having been finished, and the defendant returned the Encarnacion contends that the lease had always been on a month-to-moth
typewriter “cannibalized” and unrepaired, which is a breach of his contract, basis.
and he did so without asking for more time to finish the job or for
compensation for the work he had done. CFI ruled in favor of Encarnacion

Consequently, the Court rules that the time for compliance had evidently ISSUE: Whether or not Encarnacion is justified in ordering the ejectment of
expired and there was already breach of contract by non-performance. Baldomar and Fernando from the house that he leased to them
Defendant cannot invoke NCC 1197 as the fixing of a period would be a mere
formality and would only serve as a delay. RULING: Yes. The Court puts more credit on the witness of Encarnacion
that the lease was for a month to month basis.
Clear that the defendant breached his obligation, so he is liable under NCC
1167 for the cost of the execution of the obligation in the proper manner, which The defense set up by Fernando basically left the validity and fulfillment of the
is P89.85 He is also liable under NCC 1170 for the cost of the missing parts for contract of lease solely and exclusively to the will of one of the parties –
his negligence in returning the typewriter in the same condition in which he whether or not they would continue paying rentals or not – and would deprive
had received it. the owner from any say in the matter. If this defense were allowed, the owner
could potentially never be able to discontinue the lease. Conversely, if the
The other damages were correctly rejected as they were not alleged in his owner wished the lease to continue, the lessees could just stop paying in order
complaint. to terminate the lease. The Court states that this is void according to 1256 of
the Spanish Civil Code.

ENCARNACION VS BALDOMAR

Page 22 of 115
 ELEIZEGUI VS MANILA LAWN TENNIS CLUB this notice is necessary only when it becomes necessary to have recourse to the
legal term.
Nature: Action for ejectment
Ponente: Arellano It is also evident that the lessors did not intend to reserve to themselves the
Date: May 19, 1903 right to rescind which they expressly conferred upon the lessee by establishing
it exclusively with the latter.
DOCTRINE:
(2) Whether or not the lease depends upon the will of the lessee.
FACTS: RULING:
Relevant Provision of Law: However, It cannot be concluded that the termination of the contract is to be
Art 1128 Should the obligation not fix a period, but it can be inferred from its left completely at the will of the lessee simply because it has been stipulated
nature and circumstances that there was an intention to grant it to the that its duration is to be left to his will.
debtor, the courts shall fix the duration of the same.
The court shall also fix the duration of the period when it may have The Civil Code has made provision for such a case in all kinds of obligations.
been left to the will of the debtor. In speaking in general of obligations with a term it has supplied the deficiency
of the former law with respect to the "duration of the term when it has been
Eleizegui leased a parcel of land for a fixed consideration and to endure at the left to the will of the debtor," and provides that in this case the term shall be
will of the lessee, who was authorized to make improvements upon the land fixed by the courts. (Art. 1128, sec. 2.) In every contract, as laid down by the
such as erecting buildings of both permanent and temporary character, by authorities, there is always a creditor who is entitled to demand the
making fills, laying pipes, and making such other improvements as may be performance, and a debtor upon whom rests the obligation to perform the
desirable for the comfort and amusement of the members. undertaking. In bilateral contracts the contracting parties are mutually
creditors and debtors. Thus, in this contract of lease, the lessee is the creditor
Eleizegui later tried to terminate the lease by sending notice to the Tennis Club with respect to the rights enumerated in article 1554, and is the debtor with
but this was ignored. As such, he filed an action to recover the land. Elezegui respect to the obligations imposed by articles 1555 and 1561. The term within
contends that, based on Article 1569 of the Spanish Civil Code, the lessor may which performance of the latter obligation is due is what has been left to the
judicially dispossess the lessee upon the expiration of the conventional term or will of the debtor. This term it is which must be fixed by the courts.
of the legal term.
The only action which can be maintained under the terms of the contract is
TC ruled in favor of Eleizegui contending that the lease was on a per month that by which it is sought to obtain from the judge the determination of this
basis period, and not the unlawful detainer action which has been brought — an
action which presupposes the expiration of the term and makes it the duty of
ISSUES the judge to simply decree an eviction. To maintain the latter action it is
(1) Whether or not there was a conventional term sufficient to show the expiration of the term of the contract, whether
RULING: Yes, so 1581 which imposes a legal term is not applicable conventional or legal; in order to decree the relief to be granted in the former
action it is necessary for the judge to look into the character and conditions of
The Court notes that there are clauses, which do stipulate a term, so the legal the mutual undertakings with a view to supplying the lacking element of a time
term as imposed by 1581 cannot be applied. at which the lease is to expire.

Clause 3 of the contract states that “Mr. Williamson, or whoever may succeed The lower court’s judgment is erroneous and therefore reversed and the case
him as secretary of the club, may terminate this lease whenever desired was remanded with directions to enter a judgment of dismissal of the action
without other formality other than that of giving a month’s notice. The owners in favor of the defendant, the Manila Lawn Tennis Club.
of the land undertake to maintain the club as tenant as long as the latter shall
see fit.” SEPARATE OPINION: Concurring by J. Willard:
Willard contends that 1128 should apply generally to unilateral contracts –
As such, the contract of lease cannot be considered as being one without a those in which the credit parted with something of value, leaving it to the
conditional term as there is one, which is dependent on the lessee. As such, the debtor to say when it should be returned. It should not be applied to the
lease could not be considered terminated by the notice given by Eleizegui as contract of lease. But he agrees that 1581 is inapplicable
Page 23 of 115
 PHILIPPINE BANKING representing estate of JUSTINA SANTOS RULING: Yes, they should be.
v. LUI SHE as administratrix of WONG HENG
1. But they cannot be annulled on the ground of 1308 – that “the contract
Nature: Annulment of contract must bind both contracting parties; its validity or compliance cannot be left
Ponente: Castro to the will of one of them.” At bar, the contract of lease was not dependent on
Date: 12 September 1962 Wong’s will, as there was a fixed term.

DOCTRINE: Contracts at bar cannot be annulled on the ground of 1308 – 2. They cannot also be annulled on the ground that Santos was not the owner.
that “the contract must bind both contracting parties; its validity or When Lorenzo died, the entire property became Santos’ therefore she could
compliance cannot be left to the will of one of them.” At bar, the contract of validly dispose.
lease was not dependent on Wong’s will, as there was a fixed term.
3. Neither can they be annulled because a fiduciary relationship existed
FACTS: between Santos and Wong, with the latter as agent, contrary to article 1646,
Relevant Provision of Law: 1308, 1416 in relation to article 1941 of the Civil Code, which disqualifies "agents (from
leasing) the property whose administration or sale may have been entrusted
Santos and her sister Lorenzo both owned a Manila compound. Wong was to them." Wong was never an agent of Justina Santos.
their lessor. He had a restaurant on the compound and also lived therein.
4. Cannot annul based on fraud. There was no fraud employed, as Santos
When Lorenzo died, Santos exclusively owned the property. It was at this dictated the terms of these contracts to her lawyer with Wong’s aid. The
time when she became close with Wong’s children. Wong himself was the lawyer fully explained the effects of the contracts.
trusted man to whom she delivered various amounts for safekeeping,
including rentals from her property. He also took care of the payment; in her 5. Neither can these contracts be annulled on the grounds that Santos was
behalf, of taxes, lawyers' fees, funeral expenses, masses, salaries of maids and blind, and that the contracts were in English, which she did not understand.
security guard, and her household expenses. Nor can they be voided because of an alleged mistaken belief that Wong
rescued Santos and her sister from a fire.
Santos and Wong then entered into several contracts with each other:
1. Contract of lease covering the area already leased to Wong and an 6. But they are invalidated because of an illegal cause! Contracts were
additional area for 50 years, with right to lessee to withdraw. The contract executed to circumvent the constitutional prohibition against alien
was then amended to include the entire compound of Santos, including the ownership of land. If an alien is given not only a lease of, but also an option
very house where she loved; to buy, a piece of land, by virtue of which the Filipino owner cannot sell or
2. An option to buy the leased premises in favor of Wong. This was otherwise dispose of his property, this to last for 50 years, then it becomes
conditioned on his obtaining Filipino citizenship; clear that the arrangement is a virtual transfer of ownership.
3. A contract extending the lease to 99 years; and
4. Another fixing the option to buy at 50 years. But pari delicto does not avail at bar because: 1) the parties are dead; and 2)
article 1416 of the Civil Code provides, as an exception to the rule on pari
Santos then executed two wills where she asked her heirs to respect the delicto, that "When the agreement is not illegal per se but is merely
contracts made. prohibited, and the prohibition by law is designed for the protection of the
plaintiff, he may, if public policy is thereby enhanced, recover what he has
However, a codicil later executed said differently: it claimed that the paid or delivered."
contracts were made only because of inducement and machination employed
by Wong. Santos then filed a case to annul the above contracts and for Further, if the pari delicto rule were to apply and neither party may have
collection of unpaid rentals. recourse against the other, then this would further defeat the constitutional
prohibition.
CFI ruled for Santos, and annulled all contracts except the first contract of
lease. At this point, the original parties passed away. Since all contracts are annulled, the property is returned to the Santos estate.

ISSUE: W/N contracts should be annulled

Page 24 of 115
 ARANETA V. PHILIPPINE SUGAR ESTATES DEVT. CO. LTD
LIM V. PEOPLE
Nature: Specific performance
Nature: Estafa Ponente: Reyes, JBL
Ponente: Relova Date: 31 May 1967
Date: 21 November 1984
DOCTRINE: 1197 provides a two-step process:
DOCTRINE: Since the agreement fixed a period, Article 1197 of the New Civil 1. The court must first determine that "the obligation does not fix a period (or
Code, which provides that the courts may fix the duration of the obligation if it that the period is made to depend upon the will of the debtor), but from the
does not fix a period, does not apply. nature and the circumstances it can be inferred that a period was intended."
2. This preliminary point settled, the court must then proceed to the second
FACTS: step, and decide what period was "probably contemplated by the parties."

Relevant Provision of Law: 1197 FACTS:

Lim was a businesswoman. She went to the home of Maria Ayroso and offered Relevant Provision of Law: 1197
to sell the latter’s tobacco. They agreed that Lim would receive the overprice
for which she would sell the tobacco for. The product was then loaded in Lim’s Araneta sold part of its Sta. Mesa Hts. Subdivision to Phil. Sugar. The contract
jeep. Lim eventually only paid for part of the tobacco she took. Ayroso included an obligation on the seller’s end to construct roads on the NE, NW
demanded payment for the rest. and SW sides of the buyer’s land within a reasonable time. However, the
respondent already finished constructing a church and convent but the NE
But Lim alleges that the contract between them was not one of agency but one street was not yet constructed. They filed action to compel petitioner to fulfill
of sale. She alleged that since a sale took place, ownership was now vested in its end of the deal.
her and she is not obligated to remit anything further to Ayroso.
Petitioner attempts to excuse itself by reasoning that such failure is because of
The CFI found Lim guilty of estafa. CA affirmed, and in doing so stated that a squatter, Abundo who still refuses to vacate.
the contract contained a fixed period so the obligation was immediately
demandable as soon as the tobacco was sold. The CFI and CA ruled in favor of respondent, even fixing a two-year period for
petitioner to comply with its obligation to construct the NE street. Petitioner
ISSUE: W/N Lim is guilty of estafa questions this ruling.

RULING: Yes, Lim is guilty. ISSUE: W/N the lower courts were correct to impose a period

From the agreement of Lim and Ayroso, it is clear that the proceeds of the sale RULING: No.
of the tobacco should be turned over to the Ayroso as soon as the same was
sold, or, that the obligation was immediately demandable as soon as the The contract between petitioner and respondent granted the former
tobacco was disposed of. Hence, Article 1197 of the New Civil Code, which “reasonable time within which to comply” – the lower courts should not have
provides that the courts may fix the duration of the obligation if it does not fix imposed their own period of two years. Instead, they should have limited
a period, does not apply. themselves to ruling whether or not this “reasonable period” had lapsed. If it
did, then there is breach, if not, then the action should be dismissed for it was
The fact that appellant received the tobacco to be sold at P1.30 per kilo and the filed prematurely.
proceeds to be given to complainant as soon as it was sold, strongly negates
transfer of ownership of the goods to the petitioner. Their agreement Further, the two-year period was arbitrarily set. 1197 provides a two-step
constituted Lim as an agent with the obligation to return the tobacco if the process:
same was not sold. 1. The court must first determine that "the obligation does not fix a period (or
that the period is made to depend upon the will of the debtor), but from the
nature and the circumstances it can be inferred that a period was intended."
Page 25 of 115
2. This preliminary point settled, the court must then proceed to the second
step, and decide what period was "probably contemplated by the parties." The Co spouses went to court to ask for the renewal of the lease contract at
P700 for 10 years. The CFI ruled on their behalf. The lower court judge
This process was not followed. The two-year period was made out of thin air. interpreted paragraph 13 to mean that since the original lease was fixed for five
years, it follows, therefore, that the lease contract is renewable for another five.
At bar, the parties were both aware that squatters existed. This, the conclusion
is that the parties must have intended to defer the performance of the ISSUE: W/N the lease was renewed.
obligations under the contract until the squatters were duly evicted.
RULING: No.
MILLARE V. HERNANDO
The lease contract (paragraph 13) can only mean that the lessor and lessee may
Nature: To order renewal of lease agree to renew the contract upon their reaching agreement on the terms and
Ponente: Feliciano conditions. Failure to reach agreement will of course prevent the contract from
Date: 30 June 1987 being renewed at all. In the instant case, the lessor and the lessee
conspicuously failed to reach agreement both on the amount of the rental to
DOCTRINE: The first paragraph of Article 1197 is inapplicable when the be payable during the renewal term, therefore there was no renewal.
contract fixes a period. The second paragraph of Article 1197 is equally
inapplicable when the duration of the renewal period was not left to the will of The first paragraph of Article 1197 is clearly inapplicable, since the Contract of
one party alone. Lease did in fact fix an original period of five years, which had expired. The
second paragraph of Article 1197 is equally clearly inapplicable since the
Relevant Provision of Law: 1197. If the obligation does not fix a period, duration of the renewal period was not left to the will of the lessee alone, but
but from its nature and the circumstances it can be inferred that a period was rather to the will of both the lessor and the lessee. Most importantly, Article
intended, the courts may fix the duration thereof. 1197 applies only where a contract of lease clearly exists. Here, the contract was
not renewed at all, there was in fact no contract at all the period of which could
The courts shall also fix the duration of the period when it depends upon the have been fixed.
will of the debtor.
Even if an implied lease took place, this would not be for an entire five-year
In every case, the courts shall determine such period as may under the period, but only for month-to-month.
circumstances have been probably contemplated by the parties. Once fixed by
the courts, the period cannot be changed by them 2. As to plurality of prestation
a. Conjunctive
FACTS: b. Alternative
The Cos were lessees to Millare under a lease contract for a five-year period.
In May 1980, Millare informed the Cos that they could continue leasing so long ARTICLE 1199. A person alternatively bound by different prestations shall
as they were amenable to paying creased rentals of P1,200.00 a month. In completely perform one of them.
response, a counteroffer of P700.00 a month was made and to this, Millare The creditor cannot be compelled to receive part of one and part of the other
allegedly stated that the amount of monthly rentals could be resolved at a later undertaking. (1131)
time since "the matter is simple among us." This led the spouses Co to think
that the lease had been renewed, but Millare thought otherwise and demanded Article 1200. The right of choice belongs to the debtor, unless it has been
that they vacate the property. expressly granted to the creditor.
The debtor shall have no right to choose those prestations which are
Paragraph 13 of the lease contract states the following: This contract of lease impossible, unlawful or which could not have been the object of the obligation.
is subject to the laws and regulations of the government; and that this contract (1132)
of lease may be renewed after a period of five (5) years under the terms and
conditions as will be mutually agreed upon by the parties at the time of Article 1201. The choice shall produce no effect except from the time it has
renewal. been communicated. (1133)
Page 26 of 115
Article 1202. The debtor shall lose the right of choice when among the 3. As to rights and obligations of multiple
prestations whereby he is alternatively bound, only one is practicable. (1134) parties

Article 1203. If through the creditor's acts the debtor cannot make a choice Article 1207. The concurrence of two or more creditors or of two or more
according to the terms of the obligation, the latter may rescind the contract debtors in one and the same obligation does not imply that each one of the
with damages. (n) 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
Article 1204. The creditor shall have a right to indemnity for damages when, the obligation expressly so states, or when the law or the nature of the
through the fault of the debtor, all the things which are alternatively the object obligation requires solidarity. (1137a)
of the obligation have been lost, or the compliance of the obligation has
become impossible.
Article 1208. If from the law, or the nature or the wording of the obligations
The indemnity shall be fixed taking as a basis the value of the last thing which
to which the preceding article refers the contrary does not appear, the credit
disappeared, or that of the service which last became impossible.
or debt shall be presumed to be divided into as many shares as there are
Damages other than the value of the last thing or service may also be awarded.
creditors or debtors, the credits or debts being considered distinct from one
(1135a)
another, subject to the Rules of Court governing the multiplicity of suits.
(1138a)
Article 1205. When the choice has been expressly given to the creditor, the
obligation shall cease to be alternative from the day when the selection has
been communicated to the debtor. Article 1209. If the division is impossible, the right of the creditors may be
Until then the responsibility of the debtor shall be governed by the following prejudiced only by their collective acts, and the debt can be enforced only by
rules: proceeding against all the debtors. If one of the latter should be insolvent, the
(1) If one of the things is lost through a fortuitous event, he shall others shall not be liable for his share. (1139)
perform the obligation by delivering that which the creditor should
choose from among the remainder, or that which remains if only one Article 1210. The indivisibility of an obligation does not necessarily give rise
subsists; to solidarity. Nor does solidarity of itself imply indivisibility. (n)
(2) If the loss of one of the things occurs through the fault of the
debtor, the creditor may claim any of those subsisting, or the price of Article 1211. Solidarity may exist although the creditors and the debtors may
that which, through the fault of the former, has disappeared, with a not be bound in the same manner and by the same periods and conditions.
right to damages; (1140)
(3) If all the things are lost through the fault of the debtor, the choice
by the creditor shall fall upon the price of any one of them, also with Article 1212. Each one of the solidary creditors may do whatever may be
indemnity for damages. useful to the others, but not anything which may be prejudicial to the latter.
The same rules shall be applied to obligations to do or not to do in case one, (1141a)
some or all of the prestations should become impossible. (1136a)
Article 1213. A solidary creditor cannot assign his rights without the consent
c. Facultative of the others. (n)

Article 1206. When only one prestation has been agreed upon, but the Article 1214. The debtor may pay any one of the solidary creditors; but if any
obligor may render another in substitution, the obligation is called facultative. demand, judicial or extrajudicial, has been made by one of them, payment
The loss or deterioration of the thing intended as a substitute, through the should be made to him. (1142a)
negligence of the obligor, does not render him liable. But once the substitution
has been made, the obligor is liable for the loss of the substitute on account of Article 1215. Novation, compensation, confusion or remission of the debt,
his delay, negligence or fraud. (n) made by any of the solidary creditors or with any of the solidary debtors, shall
extinguish the obligation, without prejudice to the provisions of article 1219.

Page 27 of 115
The creditor who may have executed any of these acts, as well as he who If through a fortuitous event, the thing is lost or the performance has become
collects the debt, shall be liable to the others for the share in the obligation impossible after one of the solidary debtors has incurred in delay through the
corresponding to them. (1143) judicial or extrajudicial demand upon him by the creditor, the provisions of
the preceding paragraph shall apply. (1147a)
Article 1216. The creditor may proceed against any one of the solidary
debtors or some or all of them simultaneously. The demand made against one Article 1222. A solidary debtor may, in actions filed by the creditor, avail
of them shall not be an obstacle to those which may subsequently be directed himself of all defenses which are derived from the nature of the obligation and
against the others, so long as the debt has not been fully collected. (1144a) of those which are personal to him, or pertain to his own share. With respect
to those which personally belong to the others, he may avail himself thereof
Article 1217. Payment made by one of the solidary debtors extinguishes the only as regards that part of the debt for which the latter are responsible.
obligation. If two or more solidary debtors offer to pay, the creditor may choose (1148a)
which offer to accept.
a. Joint
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
b. Solidary
may be demanded.
Article 927. If two or more heirs take possession of the estate, they shall be
When one of the solidary debtors cannot, because of his insolvency, reimburse solidarily liable for the loss or destruction of a thing devised or bequeathed,
his share to the debtor paying the obligation, such share shall be borne by all even though only one of them should have been negligent. (n)
his co-debtors, in proportion to the debt of each. (1145a)
Article 1824. All partners are liable solidarily with the partnership for
Article 1218. Payment by a solidary debtor shall not entitle him to everything chargeable to the partnership under articles 1822 and 1823. (n)
reimbursement from his co-debtors if such payment is made after the
obligation has prescribed or become illegal. (n) Article 1911. Even when the agent has exceeded his authority, the principal
is solidarily liable with the agent if the former allowed the latter to act as
though he had full powers. (n)
Article 1219. The remission made by the creditor of the share which affects
one of the solidary debtors does not release the latter from his responsibility Article 1915. If two or more persons have appointed an agent for a common
towards the co-debtors, in case the debt had been totally paid by anyone of transaction or undertaking, they shall be solidarily liable to the agent for all
them before the remission was effected. (1146a) the consequences of the agency. (1731)

Article 1220. The remission of the whole obligation, obtained by one of the Article 1945. When there are two or more bailees to whom a thing is loaned
solidary debtors, does not entitle him to reimbursement from his co-debtors. in the same contract, they are liable solidarily. (1748a)
(n)
Article 2157. The responsibility of two or more payees, when there has been
Article 1221. If the thing has been lost or if the prestation has become payment of what is not due, is solidary. (n)
impossible without the fault of the solidary debtors, the obligation shall be
Article 2194. The responsibility of two or more persons who are liable for
extinguished.
quasi-delict is solidary. (n)
If there was fault on the part of any one of them, all shall be responsible to the Article 2146. If the officious manager delegates to another person all or some
creditor, for the price and the payment of damages and interest, without of his duties, he shall be liable for the acts of the delegate, without prejudice to
prejudice to their action against the guilty or negligent debtor. the direct obligation of the latter toward the owner of the business.

Page 28 of 115
The responsibility of two or more officious managers shall be solidary, unless If the community property is insufficient to cover the foregoing liabilities,
the management was assumed to save the thing or business from imminent except those falling under paragraph (9), the spouses shall be solidarily liable
danger. (1890a) for the unpaid balance with their separate properties. (161a, 162a, 163a, 202a-
205a)
Family Code—
Art. 121. The conjugal partnership shall be liable for:
Art. 94. The absolute community of property shall be liable for:
(1) The support of the spouse, their common children, and the legitimate
(1) The support of the spouses, their common children, and legitimate children children of either spouse; however, the support of illegitimate children shall
of either spouse; however, the support of illegitimate children shall be be governed by the provisions of this Code on Support;
governed by the provisions of this Code on Support;
(2) All debts and obligations contracted during the marriage by the designated
(2) All debts and obligations contracted during the marriage by the designated administrator-spouse for the benefit of the conjugal partnership of gains, or by
administrator-spouse for the benefit of the community, or by both spouses, or both spouses or by one of them with the consent of the other;
by one spouse with the consent of the other;
(3) Debts and obligations contracted by either spouse without the consent of
(3) Debts and obligations contracted by either spouse without the consent of the other to the extent that the family may have benefited;
the other to the extent that the family may have been benefited;
(4) All taxes, liens, charges, and expenses, including major or minor repairs
(4) All taxes, liens, charges and expenses, including major or minor repairs, upon the conjugal partnership property;
upon the community property;
(5) All taxes and expenses for mere preservation made during the marriage
(5) All taxes and expenses for mere preservation made during marriage upon upon the separate property of either spouse;
the separate property of either spouse used by the family;
(6) Expenses to enable either spouse to commence or complete a professional,
(6) Expenses to enable either spouse to commence or complete a professional vocational, or other activity for self-improvement;
or vocational course, or other activity for self-improvement;
(7) Antenuptial debts of either spouse insofar as they have redounded to the
(7) Antenuptial debts of either spouse insofar as they have redounded to the benefit of the family;
benefit of the family;
(8) The value of what is donated or promised by both spouses in favor of their
(8) The value of what is donated or promised by both spouses in favor of their common legitimate children for the exclusive purpose of commencing or
common legitimate children for the exclusive purpose of commencing or completing a professional or vocational course or other activity for self-
completing a professional or vocational course or other activity for self- improvement; and
improvement;
(9) Expenses of litigation between the spouses unless the suit is found to
(9) Antenuptial debts of either spouse other than those falling under groundless.
paragraph (7) of this Article, the support of illegitimate children of either
spouse, and liabilities incurred by either spouse by reason of a crime or a quasi- If the conjugal partnership is insufficient to cover the foregoing liabilities, the
delict, in case of absence or insufficiency of the exclusive property of the spouses shall be solidarily liable for the unpaid balance with their separate
debtor-spouse, the payment of which shall be considered as advances to be properties. (161a)
deducted from the share of the debtor-spouse upon liquidation of the
community; and Revised Penal Code—

(10) Expenses of litigation between the spouses unless the suit is found to be Article 100. Civil liability of a person guilty of felony. - Every person
groundless. criminally liable for a felony is also civilly liable.

Page 29 of 115
Article 101. Rules regarding civil liability in certain cases. - The of such goods within the inn; and shall furthermore have followed the
exemption from criminal liability established in subdivisions 1, 2, 3, 5 and 6 of directions which such innkeeper or his representative may have given them
Article 12 and in subdivision 4 of Article 11 of this Code does not include with respect to the care and vigilance over such goods. No liability shall attach
exemption from civil liability, which shall be enforced subject to the following in case of robbery with violence against or intimidation of persons unless
rules: committed by the innkeeper's employees.

First. In cases of subdivisions 1, 2, and 3 of Article 12, the civil liability for acts Article 103. Subsidiary civil liability of other persons. - The
committed by an imbecile or insane person, and by a person under nine years subsidiary liability established in the next preceding article shall also apply to
of age, or by one over nine but under fifteen years of age, who has acted without employers, teachers, persons, and corporations engaged in any kind of
discernment, shall devolve upon those having such person under their legal industry for felonies committed by their servants, pupils, workmen,
authority or control, unless it appears that there was no fault or negligence on apprentices, or employees in the discharge of their duties.
their part.
c. Disjunctive
Should there be no person having such insane, imbecile or minor under his
authority, legal guardianship or control, or if such person be insolvent, said
insane, imbecile, or minor shall respond with their own property, excepting
property exempt from execution, in accordance with the civil law. CALANG V. PEOPLE
Second. In cases falling within subdivision 4 of Article 11, the persons for Nature: Criminal, reckless imprudence
whose benefit the harm has been prevented shall be civilly liable in proportion Ponente: Brion
to the benefit which they may have received. Date: 3 August 2010
The courts shall determine, in sound discretion, the proportionate amount for
which each one shall be liable. DOCTRINE: Since the charge was criminal, it was error for the lower courts
to hold Philtranco jointly and severally liable under Articles 2176 and 2180 on
When the respective shares cannot be equitably determined, even
quasi delicts.
approximately, or when the liability also attaches to the Government, or to the
majority of the inhabitants of the town, and, in all events, whenever the
FACTS:
damages have been caused with the consent of the authorities or their agents,
Relevant Provision of Law: 2168, 2180, RPC 102, 103
indemnification shall be made in the manner prescribed by special laws or
regulations.
Calang was driving a Philtranco bus when its rear left side hit the front left of
Third. In cases falling within subdivisions 5 and 6 of Article 12, the persons a Sarao jeep coming from the opposite direction. As a result of the collision,
using violence or causing the fears shall be primarily liable and secondarily, or, the jeep driver Pinohermoso lost control and bumped and killed bystander
if there be no such persons, those doing the act shall be liable, saving always to Mabansag. Two jeep passengers were also killed and others injured.
the latter that part of their property exempt from execution.
RTC ruled that Calang was guilty of multiple homicide, multiple physical
Article 102. Subsidiary civil liability of innkeepers, tavernkeepers and injuries and damage to property through reckless imprudence. It ordered that
proprietors of establishments. - In default of the persons criminally liable, Calang be liable jointly and severally with Philtranco to pay damages. CA
innkeepers, tavernkeepers, and any other persons or corporations shall be affirmed this ruling.
civilly liable for crimes committed in their establishments, in all cases where a
violation of municipal ordinances or some general or special police regulation ISSUE: W/N the lower courts were correct in imposing joint and several
shall have been committed by them or their employees. liability

Innkeepers are also subsidiarily liable for the restitution of goods taken by RULING: No. Philtranco should not be held jointly and severally liable
robbery or theft within their houses from guests lodging therein, or for the with Calang. The charge against Calang was criminal, therefore it was
payment of the value thereof, provided that such guests shall have notified in
advance the innkeeper himself, or the person representing him, of the deposit
Page 30 of 115
error for the lower courts to hold Philtranco jointly and severally liable The obligation in the case at bar being described as "individually and jointly",
under Articles 2176 and 2180 on quasi delicts. the same is therefore enforceable against one of the numerous obligors.

If at all, Philtranco’s liability may only be subsidiary under RPC, Articles 102 MALAYAN INSURANCE V. CA
and 103. These liabilities are deemed written into the judgments in cases to
which they are applicable. Thus, in the dispositive portion of its decision, the Nature: Action for damages
trial court need not expressly pronounce the subsidiary liability of the Ponente: Padilla
employer. Date: 26 September 1988

Nonetheless, before the employers’ subsidiary liability is enforced, adequate DOCTRINE: Direct liability of the insurer under indemnity contracts against
evidence must exist establishing that (1) they are indeed the employers of the third party liability does not mean that the insurer can be held solidarily liable
convicted employees; (2) they are engaged in some kind of industry; (3) the with the insured and/or the other parties found at fault. The liability of the
crime was committed by the employees in the discharge of their duties; and insurer is based on contract; that of the insured is based on tort.
(4) the execution against the latter has not been satisfied due to insolvency.
FACTS:
RONQUILLO V. CA and SO Relevant Provision of Law: 1217, 2180, 2184

Nature: Collection suit and execution thereof Malayan issued an insurance policy for respondent Sio Choy covering a jeep.
Ponente: Cuevas While the policy was in effect, the insured jeep, while driven by Campollo
Date: 28 September 1984 (employee of San Leon Rice Mill), collided with a Pantranco bus, causing
injuries to jeep passenger Vallejos and driver Campollo, as well as damage to
DOCTRINE: The obligation in the case at bar being described as "individually the jeep.
and jointly", the same is therefore enforceable against one of the numerous
obligors. Vallejos filed an action for damages against Sio Choy, Malayan, and San Leon
Rice Mill, praying that they be held jointly and severally liable. The RTC and
FACTS: CA ruled in Vallejos’ favor finding all three solidarily liable.
Relevant Provision of Law: None mentioned
1st ISSUE: W/N Malayan should be held solidarily liable alongside Sio Choy
Ronquillo was one of four defendants in a collection case filed by private and San Leon Rice Mill
respondent So. A compromise agreement was reached between the parties,
which stated that the debtors obligated themselves to pay their obligation RULING: No. Only respondents Sio Choy and San Leon Rice Mill are
“individually and jointly.” solidarily liable to respondent Vallejos for the damages. Respondents Sio Choy
and San Leon Rice Mill are the principal tortfeasors who are primarily liable
In a motion for modification of the order to execute the compromise, So prayed to respondent Vallejos. The law states that the responsibility of two or more
that the execution be done against all defendants, jointly and severally. persons who are liable for a quasi-delict is solidarily (2180, 2184).

The writ of execution was then issued for the satisfaction of P 82,500, with While it is true that where the insurance contract provides for indemnity
debtors (including petitioner) “singly or jointly liable.” against liability to third persons, such third persons can directly sue the
insurer, however, the direct liability of the insurer under indemnity contracts
ISSUE: How should payment be enforced? against third party liability does not mean that the insurer can be held
solidarily liable with the insured and/or the other parties found at fault. The
RULING: Individually and jointly. liability of the insurer is based on contract; that of the insured is based on tort.

The term "individually" has the same meaning as "collectively", "separately", 2nd ISSUE: W/N Malayan is entitled to be reimbursed by respondent San
"distinctively", respectively or "severally". An agreement to be "individually Leon Rice Mill, Inc. even if the latter respondent is not privy to the contract of
liable" undoubtedly creates a several obligation, and a "several obligation is insurance
one by which one individual binds himself to perform the whole obligation.
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 4. As to performance of prestation
RULING: Yes, Malayan is entitled to reimbursement. Since Malayan paid
Vallejos, it has become the subrogee of the insured, the respondent Sio Choy; Article 1221. If the thing has been lost or if the prestation has become
as such, it is subrogated to whatever rights the latter has against respondent impossible without the fault of the solidary debtors, the obligation shall be
San Leon Rice Mill. Article 1217 of the Civil Code gives to a solidary debtor who extinguished.
has paid the entire obligation the right to be reimbursed by his co-debtors for
the share which corresponds to each.
If there was fault on the part of any one of them, all shall be responsible to the
creditor, for the price and the payment of damages and interest, without
PNB V. INDEPENDENT PLANTERS ASSN. prejudice to their action against the guilty or negligent debtor.

Nature: Collection suit

If through a fortuitous event, the thing is lost or the performance has become
Ponente: Plana
impossible after one of the solidary debtors has incurred in delay through the
Date: 16 May 1983
judicial or extrajudicial demand upon him by the creditor, the provisions of
DOCTRINE: In case of the death of one of the solidary debtors, the creditor the preceding paragraph shall apply. (1147a)
may, if he so chooses, proceed against the surviving solidary debtors without
necessity of filing a claim in the estate of the deceased debtors Article 1222. A solidary debtor may, in actions filed by the creditor, avail
himself of all defenses which are derived from the nature of the obligation and
FACTS: of those which are personal to him, or pertain to his own share. With respect
Relevant Provision of Law: 1216 to those which personally belong to the others, he may avail himself thereof
only as regards that part of the debt for which the latter are responsible.
PNB filed a complaint with the CFI against several solidary debtors for the (1148a)
collection of a sum of money. But the CFI dismissed this because one of the
defendants (Ceferino Valencia) died. CFI directed PNB to instead file a money Article 1223. The divisibility or indivisibility of the things that are the object
claim in the testate or intestate proceeding for the settlement of the estate of of obligations in which there is only one debtor and only one creditor does not
the deceased. alter or modify the provisions of Chapter 2 of this Title. (1149)

Article 1224. A joint indivisible obligation gives rise to indemnity for

PNB challenged this decision based on Art. 1216, where the creditor may damages from the time anyone of the debtors does not comply with his
proceed against any one, some or all of the solidary debtors. undertaking. The debtors who may have been ready to fulfill their promises
shall not contribute to the indemnity beyond the corresponding portion of the
ISSUE: W/N CFI was correct to dismiss case because of the death of one price of the thing or of the value of the service in which the obligation consists.
debtor (1150)
RULING: No. CFI was wrong.
Article 1225. For the purposes of the preceding articles, obligations to give
The choice is undoubtedly left to the creditor to determine against whom he definite things and those which are not susceptible of partial performance shall
will enforce collection. In case of the death of one of the solidary debtors, the be deemed to be indivisible.
creditor may, if he so chooses, proceed against the surviving solidary debtors
without necessity of filing a claim in the estate of the deceased debtors. It is When the obligation has for its object the execution of a certain number of days
not mandatory for him to have the case dismissed against the surviving debtors of work, the accomplishment of work by metrical units, or analogous things
and file its claim in the estate of the deceased solidary debtor. 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.

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In obligations not to do, divisibility or indivisibility shall be determined by the Case 28498: Balance of P4,208.28 with interest at 12 per cent per annum from
character of the prestation in each particular case. (1151a) December 1, 1925 until fully paid, and 25 per cent thereon as penalty.

Article 1209. If the division is impossible, the right of the creditors may be Espiritu assails the 25 % penalty upon the debt, in addition to the interest of
prejudiced only by their collective acts, and the debt can be enforced only by 12 % per annum. He claims the contract is usurious.
proceeding against all the debtors. If one of the latter should be insolvent, the
others shall not be liable for his share. (1139) ISSUE: W/N the contract is usurious

RULING: No, it is not usurious. Article 1152 of the Civil Code permits the
Article 1210. The indivisibility of an obligation does not necessarily give rise agreement upon a penalty apart from the interest. Should there be such an
to solidarity. Nor does solidarity of itself imply indivisibility. (n) agreement, the penalty does not include the interest, and may be demanded
separately. The penalty is not to be added to the interest for the determination
a. Divisible of whether the interest exceeds the rate fixed by the law, since said rate was
b. Indivisible fixed only for the interest. But considering that the obligation was partly
c. Joint indivisible performed, and making use of the power given to the court by article 1154 of
d. Solidary indivisible the Civil Code, this penalty is reduced to 10 per cent of the unpaid debt.

ROBES-FRANCISCO v. CFI
5. As to presence of an accessory
undertaking in case of breach Nature: Direct appeal on questions of law
a. With a penal clause; Distinguish from Ponente: J. Munoz Palma
liquidated damages Date: October 30, 1978

DOCTRINE: A stipulation in a deed of absolute sale that should the vendor

THE BACHRACH MOTOR CO. INC. V. ESPIRITU fail to issue the transfer certificate of title within six months from date of full
payment, the vendor shall refund to the vendee the total amount cannot be
Nature: Collection suit considered a penal clause in contemplation of Article 1226 of the New Civil
Ponente: Avanceña Code as to preclude recovery of damages. For obvious reasons, the clause does
Date: 6 November 1928 not convey any penalty, for even without it, pursuant to Article 2209 of the
Civil Code, the vendee would still recover the amount paid by her with legal
rate of interest which is even more than the 4% provided for in the clause.
DOCTRINE: Article 1152 of the Old Civil Code permits the agreement upon a
penalty apart from the interest. Should there be such an agreement, the
FACTS:
penalty does not include the interest, and may be demanded separately.
Relevant Provision of Law: Article 1226 and 2209 (Civil Code)
FACTS:
Private respondent Millan bought a lot from petitioner Robes Realty
Relevant Provision of Law: Article 1152, Old Civil Code corporation in May, 1962, and paid in full her installments on December 22,
1971, but it was only on March 2, 1973, that a deed of absolute sale was
Espiritu purchased two white trucks from petitioner. Both were secured by executed in her favor.
mortgage on other trucks and by promissory notes. However, Espiritu failed
to make full payment on both trucks. After the securities were sold and the The deed had the provision:
proceeds applied to the loan: - The seller warrants that the TCT shall be transferred in the name of
the buyer within 6 months from full payment.
Case 28497: Balance of P7,732.09 with interest at the rate of 12 per cent per
- In case the seller fails to issue the TCT, the seller bears the obligation
annum from May 1, 1926 until fully paid, and 25 per cent thereof in addition
to refund the total amount already paid, plus 4% per annum interest.
as penalty.

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Notwithstanding the lapse of almost three years since she made her last to the extent of the harm done to the injured party. A nominal damage is a
payment, petitioner still failed to convey the corresponding transfer certificate substantial claim if based upon the violation of a legal right; in such case the
of title to private respondent who accordingly was compelled to file a law presumes a damage, although actual or compensatory damages are not
complaint for specific performance. The complaint prays: Judgment ordering proven ; in truth, nominal damages are damages in name only, and not in fact
the reformation of the deed of absolute sale; Judgment ordering the seller and are allowed, not as an equivalent of a wrong inflicted, but simply in
corporation to deliver the TCT; or, if not possible, pay buyer Millan the value recognition of the existence of a technical injury. It cannot co-exist with
of the lot and Judgment ordering the seller corp to pay damages, corrective compensatory or exemplary damages. The circumstances of a particular case
and actual (P15k). determine whether or not the amount assessed as nominal damages is within
the scope or intention of Article 2221 of the Civil Code.
Seller corp answered. They want the complaint to be dismissed because the
deed of absolute sale was voluntarily executed between them and the interest Bad faith is not to be presumed. Thus, the fact that the reality corporation
of the buyer Millan was protected by the provision of interest at 4% per annum. failed to convey a transfer certificate of title to the buyer because the
subdivision property was mortgaged does not itself show that there was bad
The case was submitted for decision on the pleadings. The trial court awarded faith or fraud; especially where the vendor expected that arrangements were
nominal damages for P20,000. possible from the mortgagee to make partial releases of the subdivision lots
from the overall real estate mortgage but the vendor did not simply succeed in
PETITIONER - The deed of absolute sale executed between the parties that regard.
stipulates that should the vendor fail to issue the transfer certificate of title
within six months from the date of full payment, it shall refund to the vendee The amount of P20,000 awarded as nominal damages against realty
the total amount paid for with interest at the rate of 4% per annum, Hence, the corporation for failure to convey a transfer certificate of title to the buyer who
vendee is bound by the terms of the provision and cannot recover more than had fully paid the purchase price of the lot is excessive. Nor may such award
what is agreed upon. Article 1226 of the Civil: in obligations with a penal be considered in the nature of exemplary damages where the failure to convey
clause, the penalty shall substitute the indemnity for damages and the the transfer certificate of title was not attended by fraud or bad faith, because
payment of interests in case of noncompliance, if there is no stipulation to the in breach of a contract exemplary damages are awarded if the guilty party acted
contrary. in wanton, fraudulent, reckless, oppressive or malevolent manner. Exemplary
or corrective damages are imposed by way of example or correction for the
ISSUE: WON the award of nominal damages was proper under the public good only if the injured party has shown that he is entitled to recover
circumstances moral, temperate or compensatory damages.

RULING: The trial court did not err in awarding nominal damages; however, PAMINTUAN v. CA
the circumstances of the case warrant a reduction of the amount to P10,000.
Nature: Complaint for Damages
A stipulation in a deed of absolute sale that should the vendor fail to issue the Ponente: J. Aquino
transfer certificate of title within six months from date of full payment, the Date: December 14, 1979
vendor shall refund to the vendee the total amount cannot be considered a
penal clause in contemplation of Article 1226 of the New Civil Code as to DOCTRINE: Responsibility arising from fraud is demandable in all
preclude recovery of damages. For obvious reasons, the clause does not convey obligations.
any penalty, for even without it, pursuant to Article 2209 of the Civil Code, the
vendee would still recover the amount paid by her with legal rate of interest FACTS:
which is even more than the 4% provided for in the clause. Relevant Provision of Law: Article 1171 (Civil Code)

Under Articles 2221 and 2222 of the New Civil Code, nominal damages are not In 1960, Pamintuan was the holder of a barter license wherein he was
intended as indemnification for the loss suffered but for the vindication or authorized to export to Japan 1,000 metric tons of white flint corn valued at
recognition of a right violated or invaded. They are recoverable where some 47,000 US dollars in exchange for a collateral importation of plastic sheetings
injury has been done the amount of which the evidence fails to show, the of an equivalent value.
assessment of damages being left to the discretion of the court. Nominal
damages are by their very nature small sums fixed by the court without regard
Page 34 of 115
By virtue of that license, he entered into an agreement to ship his corn to Tokyo Pl,102.85 as premium paid by the company on the bond of P102,502.13 for the
Menka Kaisha, Ltd. of Osaka, Japan in exchange for plastic sheetings. He issuance of the writ of preliminary attachment and (d) P10,000 as attorney's
contracted to sell the plastic sheetings to Yu Ping Kun Co., Inc. for P265,550. fees, or total damages of P110,559.28.
The company undertook to open an irrevocable domestic letter of credit for
that amount in favor of Pamintuan. CA found that the contract of sale between Pamintuan and the company was
partly consummated. The company fulfilled its obligation to obtain the
It was further agreed that Pamintuan would deliver the plastic sheetings to the Japanese suppliers' confirmation of their acceptance of firm offers totalling
company at its bodegas in Manila or suburbs directly from the piers "within $47,000. Pamintuan reaped certain benefits from the contract. Hence, he is
one month upon arrival of" the carrying vessels. Any violation of the contract estopped to repudiate it; otherwise, he would unjustly enrich himself at the
of sale would entitle the aggrieved party to collect from the offending party expense of the company.
liquidated damages in the sum of P10,000.
PETITIONER: The buyer, Yu Ping Kun Co., Inc., is entitled to recover only
Upon receipt of the letter from the Manila branch of Tokyo Menka confirming
liquidated damages based on the stipulation "that any violation of the
the acceptance by Japanese suppliers of firm offers for the consignment to
provisions of this contract (of sale) shall entitle the aggrieved party to collect
Pamintuan of plastic sheetings, the company immediately secured an
from the offending party liquidated damages in the sum of P10,000 ". In
irrevocable letter of credit for Pamintuan.
obligations with a penal clause, the penalty shall substitute the indemnity for
damages and the payment of interests in case of non-compliance, if there is no
On September 27 and 30 and October 4, 1960, the Japanese suppliers shipped
stipulation to the contrary " (1st sentence of Art. 1226, Civil Code).
to Pamintuan, through Toyo Menka Kaisha, Ltd., the plastic sheetings in four
shipments. The plastic sheetings arrived in Manila and were received by
Pamintuan. Out of the shipments, Pamintuan delivered to the company's ISSUE: WON the buyer is entitled to recover only liquidated damages
warehouse only a part of the shipments.
RULING: NO. The second sentence of article 1226 itself provides that I
He withheld delivery of (1) 50 cases of plastic sheetings containing 26,000 nevertheless, damages shall be paid if the obligor ... is guilty of fraud in the
yards valued at $5,200; (2) 37 cases containing 18,440 yards valued at $2,305; fulfillment of the obligation". "Responsibility arising from fraud is demandable
(3) 60 cases containing 30,000 yards valued at $5,400 and (4) 83 cases in all obligations" (Art. 1171, Civil Code). "In case of fraud, bad faith, malice or
containing 40,850 yards valued at $5,236.97. While the plastic sheetings were wanton attitude, the obligor shall be responsible for an damages which may be
arriving in Manila, Pamintuan informed the president of Yu Ping Kun Co., Inc. reasonably attributed to the non-performance of the obligation" (Ibid, art.
that he was in dire need of cash with which to pay his obligations to the PNB. 2201).
Inasmuch as the computation of the prices of each delivery would allegedly be
a long process, Pamintuan requested that he be paid immediately. The trial court and the Court of Appeals found that Pamintuan was guilty of
fraud because he did not make a complete delivery of the plastic sheetings and
Pamintuan and the president of the company agreed to fix the price of the he overpriced the same. That factual finding is conclusive upon this Court.
plastic sheetings at P0.782 a yard, regardless of the kind, quality or actual
invoice value thereof. The parties arrived at that figure by dividing the total There is no justification for the Civil Code to make an apparent distinction
price of P265,550 by 339,440 yards, the aggregate quantity of the shipments. between penalty and liquidated damages because the settled rule is that there
is no difference between penalty and liquidated damages insofar as legal
After Pamintuan had delivered 224,150 yards of sheetings of inferior quality results are concerned and that either may be recovered without the necessity
valued at P163,.047.87, he refused to deliver the remainder of the shipments of proving actual damages and both may be reduced when proper (Arts. 1229,
with a total value of P102,502.13. As justification for his refusal, Pamintuan 2216 and 2227, Civil Code. See observations of Justice J.B.L. Reyes, cited in 4
said that the company failed to comply with the conditions of the contract and Tolentino's Civil Code, p. 251).
that it was novated with respect to the price.
Castan Tobeñas notes that the penal clause in an obligation has three
The company filed its amended complaint for damages. RTC awarded the functions: "1. Una funcion coercitiva o de garantia, consistente en estimular al
company actual damages for unrealized profits and overpayment as well as (a) deudor al complimiento de la obligacion principal, ante la amenaza de tener
P10,000 as stipulated liquidated damages, (b) P10,000 as moral damages, (c) que pagar la pena. 2. Una funcion liquidadora del daño, o sea la de evaluar por
Page 35 of 115
anticipado los perjuicios que habria de ocasionar al acreedor el Manner of breach—
incumplimiento o cumplimiento inadecuado de la obligacion. 3. Una
funcionestrictamente penal, consistente en sancionar o castigar dicho 1. Fraud
incumplimiento o cumplimiento inadecuado, atribuyendole consecuencias
mas onerosas para el deudor que las que normalmente lleva aparejadas la Article 1171. Responsibility arising from fraud is demandable in all
infraccion contractual. " (3 Derecho Civil Espanol, 9th Ed., p. 128). obligations. Any waiver of an action for future fraud is void. (1102a)

[Rough Translation] Castan Tobeñas notes that the penal clause in an Article 1338. There is fraud when, through insidious words or machinations
obligation has three functions: "1. A coercive function or warranty, of of one of the contracting parties, the other is induced to enter into a contract
stimulating the debtor to comply with the principal obligation, under the which, without them, he would not have agreed to. (1269)
threat of having to pay the penalty. 2. A liquidation of the damage function, ie
to evaluate in advance the damages that the creditor would have to cause the Article 1344. In order that fraud may make a contract voidable, it should be
failure or inadequacy of the obligation. 3 A criminal function consisting of a serious and should not have been employed by both contracting parties.
sanction or punish such failure or inadequate performance, attributing more Incidental fraud only obliges the person employing it to pay damages. (1270)
onerous consequences for the debtor that normally carries with it the
contractual breach.” 2. Negligence

The penalty clause is strictly penal or cumulative in character and does not Article 1171. Responsibility arising from fraud is demandable in all
partake of the nature of liquidated damages (pena sustitutiva) when the obligations. Any waiver of an action for future fraud is void. (1102a)
parties agree "que el acreedor podra pedir, en el supuesto incumplimiento o
mero retardo de la obligacion principal, ademas de la pena, los danos y Article 1172. Responsibility arising from negligence in the performance of
perjuicios. Se habla en este caso de pena cumulativa, a differencia de aquellos every kind of obligation is also demandable, but such liability may be regulated
otros ordinarios, en que la pena es sustitutiva de la reparacion ordinaria." by the courts, according to the circumstances. (1103)
(Ibid, Castan Tobenas, p. 130).
Article 1173. The fault or negligence of the obligor consists in the omission of
[Rough Translation] The penalty clause is strictly penal or cumulative in that diligence which is required by the nature of the obligation and
character and does not partake of the nature of liquidated damages (pena corresponds with the circumstances of the persons, of the time and of the
sustitutiva) when the parties agree that the creditor may request, assuming place. When negligence shows bad faith, the provisions of articles 1171 and
there is mere breach or delay principal obligation, in addition to the sentence, 2201, paragraph 2, shall apply.
damages, where the penalty is a substitute for the ordinary repair. If the law or contract does not state the diligence which is to be observed in the
performance, that which is expected of a good father of a family shall be
In this case, Yu Ping Kun Co., Inc. is allowed to recover only the actual damages required. (1104a)
proven and not to award to it the stipulated liquidated damages of ten
thousand pesos for any breach of the contract. The proven damages supersede 3. Delay
the stipulated liquidated damages.
Article 1169. Those obliged to deliver or to do something incur in delay from
E. Breach of obligations the time the obligee judicially or extrajudicially demands from them the
fulfillment of their obligation.
Article 1170. Those who in the performance of their obligations are guilty of However, the demand by the creditor shall not be necessary in order that delay
fraud, negligence, or delay, and those who in any manner contravene the tenor may exist:
thereof, are liable for damages. (1101) (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

Page 36 of 115
 (3) When demand would be useless, as when the obligor has rendered (4) If he lends or leases the thing to a third person, who is not a
it beyond his power to perform. member of his household;
In reciprocal obligations, neither party incurs in delay if the other does not (5) If, being able to save either the thing borrowed or his own thing,
comply or is not ready to comply in a proper manner with what is incumbent he chose to save the latter. (1744a and 1745)
upon him. From the moment one of the parties fulfills his obligation, delay by
the other begins. (1100a) 4. Any other manner of contravention

Article 1165. When what is to be delivered is a determinate thing, the Excuse for non-performance—
creditor, in addition to the right granted him by article 1170, may compel the
debtor to make the delivery. 1. Fortuitous event
If the thing is indeterminate or generic, he may ask that the obligation be
complied with at the expense of the debtor. Article 1174. Except in cases expressly specified by the law, or when it is
If the obligor delays, or has promised to deliver the same thing to two or more otherwise declared by stipulation, or when the nature of the obligation
persons who do not have the same interest, he shall be responsible for any requires the assumption of risk, no person shall be responsible for those events
fortuitous event until he has effected the delivery. (1096) which could not be foreseen, or which, though foreseen, were inevitable.
(1105a)
Article 1786. Every partner is a debtor of the partnership for whatever he
may have promised to contribute thereto. Article 552. A possessor in good faith shall not be liable for the deterioration
He shall also be bound for warranty in case of eviction with regard to specific or loss of the thing possessed, except in cases in which it is proved that he has
and determinate things which he may have contributed to the partnership, in acted with fraudulent intent or negligence, after the judicial summons.
the same cases and in the same manner as the vendor is bound with respect to A possessor in bad faith shall be liable for deterioration or loss in every case,
the vendee. He shall also be liable for the fruits thereof from the time they even if caused by a fortuitous event. (457a)
should have been delivered, without the need of any demand. (1681a)
Article 1165. When what is to be delivered is a determinate thing, the
Article 1788. A partner who has undertaken to contribute a sum of money creditor, in addition to the right granted him by article 1170, may compel the
and fails to do so becomes a debtor for the interest and damages from the time debtor to make the delivery.
he should have complied with his obligation. If the thing is indeterminate or generic, he may ask that the obligation be
The same rule applies to any amount he may have taken from the partnership complied with at the expense of the debtor.
coffers, and his liability shall begin from the time he converted the amount to If the obligor delays, or has promised to deliver the same thing to two or more
his own use. (1682) persons who do not have the same interest, he shall be responsible for any
fortuitous event until he has effected the delivery. (1096)
Article 1896. The agent owes interest on the sums he has applied to his own
use from the day on which he did so, and on those which he still owes after the Article 2147. The officious manager shall be liable for any fortuitous event:
extinguishment of the agency. (1724a) (1) If he undertakes risky operations which the owner was not
accustomed to embark upon;
Article 1942. The bailee is liable for the loss of the thing, even if it should be (2) If he has preferred his own interest to that of the owner;
through a fortuitous event: (3) If he fails to return the property or business after demand by the
(1) If he devotes the thing to any purpose different from that for which owner;
it has been loaned; (4) If he assumed the management in bad faith. (1891a)
(2) If he keeps it longer than the period stipulated, or after the
accomplishment of the use for which the commodatum has been Article 2159. Whoever in bad faith accepts an undue payment, shall pay legal
constituted; interest if a sum of money is involved, or shall be liable for fruits received or
(3) If the thing loaned has been delivered with appraisal of its value, which should have been received if the thing produces fruits.
unless there is a stipulation exempting the bailee from responsibility He shall furthermore be answerable for any loss or impairment of the thing
in case of a fortuitous event; from any cause, and for damages to the person who delivered the thing, until
it is recovered. (1896a)
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 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
2. Acts of creditor 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
SICAM v. JORGE 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
Nature: Complaint for indemnification for the loss of pawned jewelry and manner; and, (d) the obligor must be free from any participation in the
payment of actual, moral and exemplary damages as well as attorney's fees aggravation of the injury or loss.
Ponente: J. Austria-Martinez The burden of proving that the loss was due to a fortuitous event rests on him
Date: August 8, 2007 who invokes it. And, in order for a fortuitous event to exempt one from
liability, it is necessary that one has committed no negligence or misconduct
DOCTRINE: The burden of proving that the loss was due to a fortuitous event that may have occasioned the loss.
rests on him who invokes it. And, in order for a fortuitous event to exempt one
from liability, it is necessary that one has committed no negligence or An act of God cannot be invoked to protect a person who has failed to take
misconduct that may have occasioned the loss. steps to forestall the possible adverse consequences of such a loss. When the
effect is found to be partly the result of a person's participation -- whether by
When the effect is found to be partly the result of a person's participation -- active intervention, neglect or failure to act -- the whole occurrence is
whether by active intervention, neglect or failure to act -- the whole occurrence humanized and removed from the rules applicable to acts of God.
is humanized and removed from the rules applicable to acts of God.
FACTS: Here, petitioner failed to prove that the robbery was a fortuitous event.
Relevant Provision of Law: Article 1174 (Civil Code) Robbery per se, just like carnapping, is not a fortuitous event. It does not
foreclose the possibility of negligence on the part of herein petitioners.
Lulu Jorge pawned several pieces of jewelry with Agencia de R. C. Sicam to
secure a loan. On October 19, 1987, two armed men entered the pawnshop and Pawnshops’ Responsibility
took away whatever cash and jewelry were found inside the pawnshop vault. Art. 2123 of the Civil Code provides that with regard to pawnshops and other
Sicam sent respondent Lulu a letter informing her of the loss of her jewelry establishments which are engaged in making loans secured by pledges, the
due to the robbery incident in the pawnshop. Respondent Lulu expressed special laws and regulations concerning them shall be observed, and
disbelief stating that when the robbery happened, all jewelry pawned were subsidiarily, the provisions on pledge, mortgage and antichresis.
deposited with Far East Bank near the pawnshop since it had been the practice The provision on pledge, particularly Art. 2099, provides that the creditor shall
that before they could withdraw, advance notice must be given to the take case of the thing pledged with the diligence of a good father of a family.
pawnshop so it could withdraw the jewelry from the bank. Respondent Lulu This means that the petitioners (Sicam and his incorporated pawnshop) must
then requested petitioner Sicam to prepare the pawned jewelry for withdrawal take care of the pawns the way a prudent person would as to his own property.
on but petitioner Sicam failed to return the jewelry.
Respondent Lulu is seeking indemnification for the loss of pawned jewelry and Sicam was Negligent
payment of damages. Petitioner is interposing the defense of caso fortuito on Negligence is the omission to do something which a reasonable man, guided
the robbery committed against the pawnshop. by those considerations which ordinarily regulate the conduct of human
affairs, would do; or the doing of something which a prudent and reasonable
ISSUE: WON petitioners are liable for the loss of the pawned articles in their man would not do. It is want of care required by the circumstances.
possession
Petitioners were guilty of negligence in the operations of their pawnshop
RULING: YES. Fortuitous events by definition are extraordinary events not business. There were no security measures adopted by petitioners in the
foreseeable or avoidable. It is therefore, not enough that the event should not operations of the pawnshop. Evidently, no sufficient precaution and vigilance
have been foreseen or anticipated, as is commonly believed but it must be one were adopted by petitioners to protect the pawnshop from unlawful intrusion.
impossible to foresee or to avoid. The mere difficulty to foresee the happening There was no clear showing that there was any security guard at all. Or if there
is not impossibility to foresee the same. was one, that he had sufficient training in securing a pawnshop. Further, there
is no showing that the alleged security guard exercised all that was necessary
to prevent any untoward incident or to ensure that no suspicious individuals
Page 38 of 115
were allowed to enter the premises. In fact, it is even doubtful that there was out that the residence of the plaintiffs-spouses was indeed outside the NPC
a security guard, since it is quite impossible that he would not have noticed property.
that the robbers were armed with calibre .45 pistols each, which were allegedly
poked at the employees. Plaintiff Leoncio Ramoy testified that he and his wife are the registered owners
of a parcel of land covered by TCT No. 326346. When the MERALCO
Furthermore, petitioner Sicam’s admission that the vault was open at the time employees were disconnecting plaintiffs' power connection, plaintiff Leoncio
of robbery is clearly a proof of petitioners’ failure to observe the case, Ramoy objected by informing the Meralco foreman that his property was
precaution and vigilance that the circumstances justly demanded. Petitioner outside the NPC property and pointing out the monuments showing the
Sicam testified that once the pawnshop was open, the combination to the vault boundaries of his property. However, he was threatened and told not to
was already off. Instead of taking the precaution to protect them, they let open interfere by the armed men who accompanied the MERALCO employees. After
the vault, providing no difficulty for the robbers to cart away the pawned the electric power in Ramoy's apartment was cut off, the plaintiffs-lessees left
articles. the premises.

The robbery in this case took place in 1987 when robbery was already prevalent
ISSUES:
and petitioners in fact had already foreseen it as they wanted to deposit the
(1) WON the Court of Appeals gravely erred when it found MERALCO
pawn with a nearby bank for safekeeping. Moreover, unlike in Austria v. CA
negligent when it disconnected the subject electric service
[148-A Phil. 462 (1971)], where no negligence was committed, we found
of respondents
petitioners negligent in securing their pawnshop as earlier discussed.
(2) WON the Court of Appeals gravely erred when it awarded moral and
exemplary damages and attorney’s fees against MERALCO under the
MERALCO v. RAMOY circumstances that the latter acted in good faith in the disconnection
of the electric services of the respondents
Nature: Case for Ejectment
Ponente: J. Austria-Martinez RULING:
Date: March 4, 2008 (1) NO. The Court agrees with the CA that under the factual
milieu of the present case, MERALCO failed to exercise the utmost
DOCTRINE: Article 1173 provides that the fault or negligence of the obligor degree of care and diligence required of it, pursuant to Articles 1170 &
consists in the omission of that diligence which is required by the nature of the 1173 of the Civil Code. It was not enough for MERALCO to merely rely
obligation and corresponds with the circumstances of the persons, of the time on the Decision of the MTC without ascertaining whether it had
and of the place. become final and executory. Verily, only upon finality of the said
Decision can it be said with conclusiveness that respondents have no
FACTS: right or proper interest over the subject property, thus, are not entitled
Relevant Provision of Law: Article 1170 (Civil Code) to the services of MERALCO.
In the year 1987, the National Power Corporation (NPC) filed with the MTC (2) Should be moral damages only. MERALCO willfully
Quezon City a case for ejectment against several persons allegedly illegally caused injury to Leoncio Ramoy by withholding from him and his
occupying its properties in Baesa, Quezon City. Among the defendants in the tenants the supply of electricity to which they were entitled under the
ejectment case was Leoncio Ramoy, one of the plaintiffs in the case at bar. On Service Contract. This is contrary to public policy because, MERALCO,
April 28, 1989 the MTC rendered judgment for MERALCO, to demolish or being a vital public utility, is expected to exercise utmost care and
remove the building and structure they built on the land of the plaintiff and to diligence in the performance of its obligation. Thus, MERALCO’s
vacate the premises. On June 20, 1999 NPC wrote to MERALCO requesting failure to exercise utmost care and diligence in the performance of its
the immediate disconnection of electric power supply to all residential and obligation to Leoncio Ramoy is tantamount to bad faith. Leoncio
commercial establishments beneath the NPC transmission lines along Baesa, Ramoy testified that he suffered wounded feelings because of
Quezon City. In a letter dated August 17, 1990 MERALCO requested NPC for a MERALCO’s actions. Furthermore, due to the lack of power supply,
joint survey to determine all the establishments which are considered under the lessees of his four apartments on subject lot left the premises.
NPC property. In due time, the electric service connection of the plaintiffs was Clearly, therefore Leoncio Ramoy is entitled to moral damages in the
disconnected. During the ocular inspection ordered by the Court, it was found amount awarded by the CA. Nevertheless, Leoncio is the soleperson
Page 39 of 115
 entitled to moral damages as he is the only who testified on the witness 1998 Solar Harvest’s representative Bobby Que even went to the warehouse to
stand of his wounded feelings. Pursuant to Article 2232 of the Civil inspect and saw that indeed boxes were ready for pick up. On Feb. 20, 1999,
Code, exemplary damages cannot be awarded as MERALCO’s acts Que visited the factory again and said that they ought to sell the boxes to
cannot be considered wanton, fraudulent, reckless, oppressive or recoup some of the costs of the 14,000 additional orders because their
malevolent. Since the Court does not deem it proper to award transaction to ship the bananas did not materialize. Solar Harvest denies that
exemplary damages in this case then the CA’s award of attorney’s fees they made the additional order. On March 20, 2004, the RTC ruled in favor of
should likewise be deleted, as pursuant to Article 2208 of the Civil Davao Corrugated. CA denied the appeal. In this petition, petitioner insists
Code of which grounds were not present. that respondent did not completely manufacture the boxes and that it was
respondent which was obliged to deliver the boxes to TADECO.
SOLAR HARVEST, INC. v. DAVAO CORRUGATED CARTON CORP.
ISSUE: WON Davao Corrugated was responsible for breach of contract as
Nature: Complaint for sum of money and damages Solar Harvest had not yet demanded from it the delivery of the boxes
Ponente: J. Nachura
Date: July 26, 2010 RULING: NO.

DOCTRINE: Even in reciprocal obligations, if the period for the fulfillment The CA held that it was unthinkable that for around 2 years petitioner merely
of the obligation is fixed, demand upon the obligee is still necessary before the followed up and did not demand the delivery of the boxes. Even assuming that
obligor can be considered in default and before a cause of action for rescission the agreement is for delivery by Davao Corrugated, respondent would not be
will accrue. liable for breach of contract as petitioner had not yet demanded from it the
delivery of the boxes. There is no error in the decision of the RTC.
FACTS:
Relevant Provision of Law: Articles 1191 and 1169 (Civil Code) Furthermore, the claim for reimbursement is actually one for rescission or
resolution of contract under Article 1191 of the Civil Code. The right to rescind
In the 1st Quarter of 1998, Solar Harvest and Davao Corrugated entered into contracts arises once the party defaults in the performance of his obligation.
an unwritten agreement. Solar Harvest placed orders for customized boxes for Article 1191 should be taken in conjunction with Article 1169: Those obliged to
its business of exporting bananas at USD 1.10 each. Petitioner made a full deliver or to do something incur in delay from the time the obligee judicially
payment of USD 40,150.00. By Jan. 3, 2001 petitioner had not received any of or extrajudicially demands form them the fulfilment of their obligation.
the ordered boxes. On Feb. 19, 2001, Davao Corrugated replied that as early as However the demand from creditor shall not be necessary in order that delay
April 3, 1998, order/boxes are completed and Solar Harvest failed to pick them may exist: 1. When the obligation or the law expressly so declares,; 2. When
up from their warehouse within 30 days from completion as agreed upon. from the nature and the circumstance of the obligation it appears that the
Respondent mentioned that petitioner even placed additional order of designation of the timewhen the thing is to be delivered or the service is to be
24,000.00 boxes, out of which, 14,000 had already been manufactured rendered was a controlling motive for theestablishment of the contract; OR 3.
without any advance payment from Solar Harvest. Davao Corrugated then When the demand would be useless, as when the obligor has rendered it
demanded that Solar Harvest remove boxes from their warehouse, pay balance beyond his power to perform.
of USD 15,400.00 for the additional boxes and P132,000 as storage fee. On
August 17, 2001 Solar harvest filed complaint against Davao Corrugated for In reciprocal obligations, as in a contract of sale, the general rule is that the
sum of money and damages claiming that the agreement was for the delivery fulfillment of the parties’ respective obligations should be
of the boxes, which Davao Corrugated did not do. They further alleged that simultaneous. Hence, no demand is generally necessary because, once a party
whenever repeated follow-up was made to Davao Corrugated, they would only fulfills his obligation and the other party does not fulfill his, the latter
see sample boxes and get promise of delivery. Due to Davao Corrugated’s automatically incurs in delay. But when different dates for performance of the
failure to deliver, Solar Harvest had to cancel the order and demanded obligations are fixed, the default for each obligation must be determined by the
payment and/or refund which Davao Corrugated refused to pay. Davao rules given in the first paragraph of Article 1169, that is, the other party would
Corrugated counterclaimed that they had already completed production of the incur in delay only from the moment the other party demands fulfillment of
36,500 boxes plus an additional 14,000 boxes (which was part of the the former’s obligation. Thus, even in reciprocal obligations, if the period for
additional 24,000 order that is unpaid). The agreement was for Solar Harvest the fulfillment of the obligation is fixed, demand upon the obligee is still
to pick up the boxes, which they did not do. They even averred that on Oct. 8, necessary before the obligor can be considered in default and before a cause of
action for rescission will accrue.
Page 40 of 115
 RTC dismissed the complaint holding that the only participation of Mindanao
In the case of Solar Harvest, merely following up the order was not the same as Terminal was to load the cargoes on board the M/V Mistrau under the
demanding for the boxes. The SC held that Solar Harvests petition is denied direction and supervision of the ship’s officers, who would not have accepted
and that Davao Corrugated did not commit breach of contract and may remove the cargoes on board the vessel and signed the foreman’s report unless they
the boxes from their premises after petitioner is given a period of time to were properly arranged and tightly secured to withstand voyage across the
remove them from their warehouse as they deem proper. The Court gave 30- open seas. Accordingly, Mindanao Terminal cannot be held liable for whatever
day period to comply with this. happened to the cargoes after it had loaded and stowed them. It was further
held that Phoenix and McGee had no cause of action against Mindanao
MINDANAO TERMINAL v. PHOENIX ASSURANCE Terminal because the latter, whose services were contracted by Del Monte, a
distinct corporation from Del Monte Produce, had no contract with the assured
Nature: Complaint for Damages Del Monte Produce.
Ponente: J. Tinga
Date: May 8, 2009 CA reversed and set aside. MR denied.

DOCTRINE: If the law or contract does not state the degree of diligence ISSUES:
which is to be observed in the performance of an obligation then that which is (1) WON Phoenix and McGee have a cause of action against Mindanao
expected of a good father of a family or ordinary diligence shall be required. Terminal
(2) WON Mindanao Terminal, as a stevedoring company, is under
FACTS: obligation to observe the same extraordinary degree of diligence in the
Relevant Provision of Law: Article 1173 (Civil Code) conduct of its business as required by law for common carriers and
warehousemen
Del Monte Philippines, Inc. contracted petitioner Mindanao Terminal and (3) WON Mindanao Terminal observed the degree of diligence required
Brokerage Service, Inc., a stevedoring company, to load and stow a shipment by law of a stevedoring company
of 146,288 cartons of fresh green Philippine bananas and 15,202 cartons of
fresh pineapples belonging to Del Monte Fresh Produce into the cargo hold of RULING:
the vessel M/V Mistrau. The vessel was docked at the port of Davao City and (1) YES.
the goods were to be transported by it to the port of Incheon, Korea in favor of The present action is based on quasi-delict, arising from the negligent and
consignee Taegu Industries, Inc. Del Monte Produce insured the shipment careless loading and stowing of the cargoes belonging to Del Monte Produce.
under an “open cargo policy” with private respondent Phoenix Assurance Even assuming that both Phoenix and McGee have only been subrogated in
Company of New York, a non-life insurance company, and private respondent the rights of Del Monte Produce, who is not a party to the contract of service
McGee & Co. Inc. (McGee), the underwriting manager/agent of Phoenix. between Mindanao Terminal and Del Monte, still the insurance carriers may
have a cause of action in light of the Court’s consistent ruling that the act that
Upon arrival of the vessel at the port of Incheon, Korea, it was discovered upon breaks the contract may be also a tort. In fine, a liability for tort may arise even
discharge that some of the cargo was in bad condition. The Marine Cargo under a contract, where tort is that which breaches the contract. In the present
Damage Surveyor of Incok Loss and Average Adjuster of Korea, through its case, Phoenix and McGee are not suing for damages for injuries arising from
representative Byeong Yong Ahn (Byeong), surveyed the extent of the damage the breach of the contract of service but from the alleged negligent manner by
of the shipment. In a survey report, it was stated that 16,069 cartons of the which Mindanao Terminal handled the cargoes belonging to Del Monte
banana shipment and 2,185 cartons of the pineapple shipment were so Produce. Despite the absence of contractual relationship between Del Monte
damaged that they no longer had commercial value. Produce and Mindanao Terminal, the allegation of negligence on the part of
the defendant should be sufficient to establish a cause of action arising from
quasi-delict.
Del Monte Produce filed a claim under the open cargo policy for the damages
to its shipment. A check for the recommended amount was sent to Del Monte Article 1173 of the Civil Code is very clear that if the law or contract does not
Produce; the latter then issued a subrogation receipt to Phoenix and state the degree of diligence which is to be observed in the performance of an
McGee. Phoenix and McGee instituted an action for damages in the RTC obligation then that which is expected of a good father of a family or ordinary
Davao City. diligence shall be required. Mindanao Terminal, a stevedoring company which
was charged with the loading and stowing the cargoes of Del Monte Produce
Page 41 of 115
aboard M/V Mistrau, had acted merely as a labor provider in the case at bar. foreman’s report, as proof of work done on board the vessel, was
There is no specific provision of law that imposes a higher degree of diligence prepared by the checkers of Mindanao Terminal and concurred in by
than ordinary diligence for a stevedoring company or one who is charged only the Chief Officer of M/V Mistrau after they were satisfied that the
with the loading and stowing of cargoes. It was neither alleged nor proven cargoes were properly loaded.
by Phoenix and McGee that Mindanao Terminal was bound by contractual
stipulation to observe a higher degree of diligence than that required of a good However, there is no basis for an award of attorney’s fees.
father of a family. We therefore conclude that following Article 1173, Mindanao
Terminal was required to observe ordinary diligence only in loading and AGCAOILI v. GSIS
stowing the cargoes of Del Monte Produce aboard M/V Mistrau.
Nature: Action for Specific Performance and Damages
(2) NO. There is a distinction between an arrastre and a Ponente: J. Narvasa
stevedore. Arrastre, a Spanish word which refers to hauling of cargo, Date: August 30, 1988
comprehends the handling of cargo on the wharf or between the
establishment of the consignee or shipper and the ship's tackle. The DOCTRINE: In reciprocal obligations, neither party incurs in delay if the
responsibility of the arrastre operator lasts until the delivery of the other does not comply or is not ready to comply in a proper manner with what
cargo to the consignee. The service is usually performed by is incumbent upon him.
longshoremen. On the other hand, stevedoring refers to the handling
of the cargo in the holds of the vessel or between the ship's tackle and Relevant Provision of Law: Article 1169 (Civil Code)
the holds of the vessel. The responsibility of the stevedore ends upon
the loading and stowing of the cargo in the vessel. FACTS: The appellant Government Service Insurance System (GSIS)
approved the application of the appellee Marcelo Agcaoili for the purchase of
In the present case, Mindanao Terminal, as a stevedore, was only charged with the house and lot in the GSIS Housing Project in Nangka, Marikina, Rizal, but
the loading and stowing of the cargoes from the pier to the ship’s cargo hold; said application was subject to the condition that the latter should forthwith
it was never the custodian of the shipment of Del Monte Produce. A stevedore occupy the house. Agcaoili lost no time in occupying the house but he could
is not a common carrier for it does not transport goods or passengers; it is not not stay in it and had to leave the very next day because the house was nothing
akin to a warehouseman for it does not store goods for profit. The loading and more than a shell, in such a state that civilized occupation was not possible:
stowing of cargoes would not have a far reaching public ramification as that of ceiling, stairs, double walling, lighting facilities, water connection, bathroom,
a common carrier and a warehouseman; the public is adequately protected by toilet, kitchen, drainage, were inexistent. Agcaoili did, however, ask a homeless
our laws on contract and on quasi-delict. The public policy considerations in friend, a certain Villanueva, to stay in the premises as some sort of watchman,
legally imposing upon a common carrier or a warehouseman a higher degree pending the completion of the construction of the house. He thereafter
of diligence is not present in a stevedoring outfit which mainly provides labor complained to the GSIS, but to no avail.
in loading and stowing of cargoes for its clients.
Subsequently, the GSIS asked Agcaoili to pay the monthly amortizations of
(3) YES. The only participation of Mindanao Terminal was to P35.36 and other fees. He paid the first monthly amortizations and incidental
load the cargoes on board M/V Mistrau. It was not disputed fees but he refused to make further payments until and unless the GSIS
by Phoenix and McGee that the materials, such as ropes, pallets, and completed the housing unit. Thereafter, GSIS cancelled the award and
cardboards, used in lashing and rigging the cargoes were all provided required Agcaoili to vacate the premises. The house and lot was consequently
by M/V Mistrau and these materials meets industry standard. awarded to another applicant. Agcaoili reacted by instituting suit in the CFI
Mindanao Terminal loaded and stowed the cargoes of Del Monte Manila for specific performance and damages. Judgment was rendered in
Produce aboard the M/V Mistrau in accordance with the stowage favor of Agcaoili. GSIS then appealed from that judgment.
plan, a guide for the area assignments of the goods in the vessel’s hold,
prepared by Del Monte Produce and the officers of M/V Mistrau. The ISSUES: WON the cancellation by the GSIS of the award in favor of petitioner
loading and stowing was done under the direction and supervision of Agcaoili just and proper
the ship officers. The said ship officers would not have accepted the
cargoes on board the vessel if they were not properly arranged and RULING: NO. Respondent GSIS did not fulfill its obligation to deliver the
tightly secured to withstand the voyage in open seas. They would order house in a habitable state, therefore, it cannot invoke the petitioner’s
the stevedore to rectify any error in its loading and stowing. A
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suspension of payment as a cause to cancel the contract between them. There corporation committed itself to pay for the imported rice "by means of an
was a perfected contract of sale, it was then the duty of GSIS as seller to deliver irrevocable, confirmed and assignable letter of credit in U.S. currency in favor
the thing sold in a condition suitable for its enjoyment by the buyer and for the of the plaintiff-appellee and/or supplier in Burma, immediately."
purpose contemplated. The house contemplated was one that could be
occupied for purpose of residence in reasonable comfort and convenience. However, it was only on July 30, 1952, or a full month from the execution of
There would be no sense in requiring the awardee to immediately occupy and the contract, that the defendant corporation took the first to open a letter of
live in a shell of a house, the structure consisting only of four walls with credit by forwarding to the PNB its Application for Commercial Letter Credit.
openings, and a roof.
On the same day, Arrieta thru counsel, advised NARIC of the extreme necessity
Since GSIS did not fulfill the obligation, and was not willing to put the house for the immediate opening of the letter credit since she had by then made a
in habitable state, it cannot invoke Agcaoili's suspension of payment of tender to her supplier in Rangoon, Burma, equivalent to 5% of the F.O.B. price
amortizations as cause to cancel the contract between them. In reciprocal of 20,000 tons at $180.70 and in compliance with the regulations in Rangoon
obligations, neither party incurs in delay if the other does not comply or is not this 5% will be confiscated if the required letter of credit is not received by them
ready to comply in a proper manner with what is incumbent upon him. before August 4, 1952.

The contract between the parties relative to the property should be modified On August 4, 1952, PNB informed NARIC that its application for a letter of has
by adding to the cost of the land, as of the time of perfection of the contract, been approved by the Board of Directors with the condition that 50% marginal
the cost of the house in its unfinished state also as of the time of perfection of cash deposit be paid and that drafts are to be paid upon presentment. It turned
the contract, and correspondingly adjusting the amortizations to be paid by out, however, NARIC was not in a financial position to meet the condition.
petitioner Agcaoili, the modification to be effected after determination by the
As a result of the delay in the opening of the letter of credit by NARIC, the
Court a quo of the value of said house on the basis of the agreement of the
allocation of Arrieta’s supplier in Rangoon was cancelled and the 5% deposit
parties, or if this is not possible by such commissioner or commissioners as the
amounting to an equivalent of P200,000 was forfeited. Arrieta endeavored but
Court may appoint.
failed to restore the cancelled Burmese rice allocation, and thus offered
Thailand rice instead. Such offer was rejected by NARIC. Subsequently, Arrieta
ARRIETA v. NARIC sent a letter to NARIC, demanding compensation for the damages caused her
in the sum of US$286,000 representing unrealized profit. The demand having
Nature: Complaint for Damages been rejected, she instituted the case.
Ponente: J. Regala
Date: January 24, 1964 ISSUES:
(1) WON NARIC is liable for damages
DOCTRINE: One who assumes a contractual obligation and fails to perform (2) WON the rate of exchange to be applied in the conversion is that
the same on account of his inability to meet certain bank requirements, which prevailing at the time of breach, or at the time the obligation was
inability he knew and was aware of when he entered into the contract, should incurred, or on the promulgation of the decision
be held liable in damages for breach of contract.
RULING:
FACTS:
Relevant Provision of Law: Article 1170 (Civil Code) (1) YES. One who assumes a contractual obligation and fails to
perform the same on account of his inability to meet certain bank
On May 19, 1952, Paz and Vitaliado Arrieta participated in the public bidding requirements, which inability he knew and was aware of when he
called by NARIC for the supply of 20,000 metric tons of Burmese rice. As her entered into the contract, should be held liable in damages for breach
bid of $203 per metric ton was the lowest, she was awarded the contract for of contract.
the same.
Under Article 1170 of the Civil Code, not only debtors guilty of fraud,
On July 1, 1952, Arrieta and NARIC entered into a Contract of Sale of Rice negligence or default but also every debtor, in general, who fails in the
under the term of which Arrieta obligated hersef to deliver to NARIC 20,000 performance of his obligations is bound to indemnify for the losses and
metric tons of Burmese rice at $203,000 per metric ton. In turn, the defendant
Page 43 of 115
damages caused thereby. defendants, after receiving the required fees and charges, accepted the
telegram for transmission.
The phrase "in any manner contravene the tenor" of the obligation in Art. 1170,
Civil Code, includes any illicit task which impairs the strict and faithful Unfortunately, the deceased had already been interred but not one from the
fulfillment of the obligation, or every kind of defective performance. relatives abroad was able to pay their last respects. Sofia found out upon her
return in the US that the telegram was never received. Hence, the present suit
Waivers are not presumed, but must be clearly and convincingly shown, either for damages on the ground of breach of contract. The only defense of
by express stipulation or acts admitting of no other reasonable explanation. defendants was that the failure was due to “the technical and atmospheric
factors beyond its control.” The defendant-petitioner argues that it should only
(2) In view of Republic Act 529 which specifically requires the pay the actual amount paid to it.
discharge of obligations only "in any coin or currency which at the time No evidence appeared on record that the defendant ever made any attempt to
of payment is legal tender for public and private debt", the award of advise Sofia as to why they could not transmit the telegram.
damages in U.S. dollars made by the lower court in the case at bar is
modified by converting it into Philippine pesos at the rate of exchange The lower court ruled in favor of the plaintiffs and awarded compensatory,
prevailing at the time the obligation was incurred or when the contract moral, exemplary, damages to each of the plaintiffs with 6% interest per
in question was executed. annum plus attorney’s fees. The Court of Appeals affirmed this ruling but
modified and eliminated the compensatory damages to Sofia and exemplary
As pronounced in Eastboard Navigation vs. Ismael, if there is any agreement damages to each plaintiff, it also reduced the moral damages for each. The
to pay an obligation in the currency other than Philippine legal tender, the petitioner appealed contending that, it can only be held liable for P 31.92, the
same is null and void as contrary to public policy (RA 529), and the most that fee or charges paid by Sofia C. Crouch for the telegram that was never sent to
could be demanded is to pay said obligation in Philippine currency to be the addressee, and that the moral damages should be removed since
measured in the prevailing rate of exchange at the time the obligation was defendant's negligent act was not motivated by "fraud, malice or recklessness.”
incurred. Herein, the rate of exchange to be applied is that of 1 July 1952, when
the contract was executed. ISSUE: WON the award of the moral, compensatory and exemplary damages
is proper
TELEFAST v. CASTRO
RULING: YES. There was a contract between the petitioner and private
Nature: Complaint for Damages respondent Sofia C. Crouch whereby, for a fee, petitioner undertook to send
Ponente: J. Padilla said private respondent's message overseas by telegram. Petitioner failed to do
Date: February 29, 1988 this despite performance by said private respondent of her obligation by
paying the required charges. Petitioner was therefore guilty of contravening its
DOCTRINE: Art. 1170 of the Civil Code provides that "those who in the and is thus liable for damages. This liability is not limited to actual or
performance of their obligations are guilty of fraud, negligence or delay, and quantified damages. To sustain petitioner's contrary position in this regard
those who in any manner contravene the tenor thereof, are liable for damages." would result in an inequitous situation where petitioner will only be held liable
Art. 2176 also provides that "whoever by act or omission causes damage to for the actual cost of a telegram fixed thirty (30) years ago.
another, there being fault or negligence, is obliged to pay for the damage done."
Art. 1170 of the Civil Code provides that "those who in the performance of their
FACTS: obligations are guilty of fraud, negligence or delay, and those who in any
Relevant Provision of Law: Article 1170 (Civil Code) manner contravene the tenor thereof, are liable for damages." Art. 2176 also
provides that "whoever by act or omission causes damage to another, there
The petitioner is a company engaged in transmitting telegrams. The plaintiffs being fault or negligence, is obliged to pay for the damage done."
are the children and spouse of Consolacion Castro who died in the Philippines.
One of the plaintiffs, Sofia was in the Philippines for vacation when their Award of Moral, compensatory and exemplary damages is proper
mother died. On the same day, Sofia sent a telegram thru Telefast to her father The petitioner's act or omission, which amounted to gross negligence, was
and other siblings in the USA to inform about the death of their mother. The precisely the cause of the suffering private respondents had to undergo. Art.
2217 of the Civil Code states: "Moral damages include physical suffering,
Page 44 of 115
mental anguish, fright, serious anxiety, besmirched reputation, wounded longer needed there were transferred to the Ipo site where some projects were
feelings, moral shock, social humiliation, and similar injury. Though yet to be completed.
incapable of pecuniary computation, moral damages may be recovered if
they are the proximate results of the defendant's wrongful act or omission." Typhoon 'Welming' hit Central Luzon, passing through National Power
Corporation's (NPC) Angat Hydro-electric Project and Dam at lpo,
Then, the award of P16,000.00 as compensatory damages to Sofia C. Crouch Norzagaray, Bulacan. Strong winds struck the project area, and heavy rains
representing the expenses she incurred when she came to the Philippines from intermittently fell. Due to the heavy downpour brought about by typhoon
the United States to testify before the trial court. Had petitioner not been “Welming,” the water in the reservoir of the Angat Dam was rising perilously
remiss in performing its obligation, there would have been no need for this suit at the rate of 60 centimeters per hour. To prevent an overflow of water from
or for Mrs. Crouch's testimony. the dam, NPC caused the opening of the spillway gates.

The award of exemplary damages by the trial court is likewise justified and, ECI sued NPC for damages. The trial court and the CA found that NPC was
therefore, sustained in the amount of P1,000.00 for each of the private negligent when it opened the gates only at the height of the typhoon holding
respondents, as a warning to all telegram companies to observe due diligence that it could have opened the spill gates gradually and should have done so
in transmitting the messages of their customers. before the ‘typhoon’ came. Both courts awarded ECI for damages.

NPC v. CA NPC assails the decision of the CA as being erroneous on the grounds, inter
alia, that the loss sustained by ECI was due to force majeure. The rapid rise of
Nature: Action for damages water level in the reservoir due to heavy rains brought about by the typhoon is
Ponente: Gutierrez, J. an extraordinary occurrence that could not have been foreseen. On the other
Date: May 16, 1988 hand, ECI assails the decision of the court of appeals modifying the decision of
the trial court eliminating the awarding of exemplary damages.
DOCTRINE: When the negligence of a person concurs with an act of God in
producing a loss, such person is not exempt from liability by showing that the ISSUES
immediate cause of the damage was the act of God. To be exempt from liability (1) WON NPC is liable for damages in light of the typhoon which hit the area
for loss because of an act of God, he must be free from any previous negligence
or misconduct by which the loss or damage may have been occasioned. RULING: YES. NPC was undoubtedly negligent because it opened the
spillway gates of the Angat Dam only at the height of typhoon "Welming" when
FACTS: it knew very well that it was safer to have opened the same gradually and
Engineering Construction, Inc. (ECI), being a successful bidder, executed a earlier, as it was also undeniable that NPC knew of the coming typhoon at least
contract with the National Waterworks and Sewerage Authority (NAWASA), four days before it actually struck. And even though the typhoon was an act of
whereby the former undertook to furnish all tools, labor, equipment, and God or what we may call force majeure, NPC cannot escape liability because
materials, and to construct the proposed 2nd lpo-Bicti Tunnel, Intake and its negligence was the proximate cause of the loss and damage.
Outlet Structures, and Appurtenant Structures, and Appurtenant Features, at
Norzagaray, Bulacan, and to complete said works within 800 calendar days As was held in Nakpil & Sons v. CA:
from the date the Contractor receives the formal notice to proceed.
Thus, if upon the happening of a fortuitous event or an act of God,
The project involved 2 major phases: the first phase comprising, the tunnel there concurs a corresponding fraud, negligence, delay or violation or
work covering a distance of 7 kilometers, passing through the mountain, from contravention in any manner of the tenor of the obligation as provided
the Ipo river, a part of Norzagaray, Bulacan, where the Ipo Dam of the for in Article 1170 of the Civil Code, which results in loss or damage,
defendant National Power Corporation is located, to Bicti; the other phase the obligor cannot escape liability.
consisting of the outworks at both ends of the tunnel.
The principle embodied in the act of God doctrine strictly requires that
ECI already had completed the first major phase of the work. Some portions of the act must be one occasioned exclusively by the violence of nature
the outworks at the Bicti site were still under construction. As soon as the ECI and human agencies are to be excluded from creating or entering into
had finished the tunnel excavation work at the Bicti site, all the equipment no the cause of the mischief. When the effect, the cause of which is to be
considered, is found to be in part the result of the participation of man,
Page 45 of 115
 whether it be from active intervention or neglect, or failure to act, the leg swelled with great pain. He was then rushed to the Veterans Memorial
whole occurrence is thereby humanized, as it was, and removed from Hospital where he had to be confined for 20 days due to high fever and severe
the rules applicable to the acts of God. (1 Corpus Juris, pp. 1174-1175). pain.

(2) WON ECI is entitled to exemplary damages? Upon his discharge from the hospital, he had to walk around with crutches for
15 days. His injury prevented him from attending to the school buses he was
RULING: NO. CA did not err in eliminating the award since it found that operating; he had to engage the services of one Bienvenido Valdez to supervise
there was no bad faith on the part of NPC and that neither can the latter's his business, paying him P900.
negligence be considered gross. In Dee Hua Liong Electrical Equipment Corp.
v. Reyes, the Court ruled: Jimenez sued the City of Manila and the Asiatic Integrated Corp., under whose
administration the Sta. Ana Public Market had been placed by virtue of a
Neither may private respondent recover exemplary damages since he Management and Operating Contract, for damages.
is not entitled to moral or compensatory damages, and again because
the petitioner is not shown to have acted in a wanton, fraudulent, The lower court decided in favor of the City of Manila and Asiatic Integrated
reckless or oppressive manner (Art. 2234, Civil Code) Corp. On appeal, the Intermediate Appellate Court held that Asiatic Integrated
_____________________________________________________ Corp liable for damages but absolved the City of Manila from any liability.

JIMENEZ v. CITY OF MANILA ISSUE: WON the City of Manila should be held jointly and severally liable
with Asiatic for damages
Nature: Action for Damages
Ponente: Paras, J. RULING: YES. There is no question that the Sta. Ana Public Market, despite
Date: May 29, 1987 the Management and Operating Contract between respondent City and Asiatic
Integrated Corporation remained under the control of the former, and as such
DOCTRINE: Under Article 2189 of the Civil Code, it is not necessary for the it is liable under Art. 2189 of the Civil Code.
liability therein established to attach, that the defective public works belong to
the province, city or municipality from which responsibility is exacted. What The Management and Operating Contract is explicit in this regard when its
said article requires is that the province, city or municipality has either several provisions impose obligations on the Asiatic Integrated Corp., but still
"control or supervision" over the public building in question. subject to the control of the City:
 “start the painting, cleaning, sanitizing and repair of the public
FACTS: markets and talipapas... submit a program of improvement,
Relevant Provision of Law: development, rehabilitation and reconstruction of the city public
Art. 2189, Civil Code. Provinces, cities and municipalities shall be liable for markets and talipapas subject to prior approval of the FIRST PARTY
damages for the death of, or injuries suffered by, any person by reason of the (the City)”
defective condition of roads, streets, bridges, public buildings, and other  “all present personnel of the City public markets and talipapas shall be
public works under their control or supervision. retained by the SECOND PARTY (Asiatic Integrated Corp.) as long as
their services remain satisfactory and they shall be extended the same
In the morning of August 15, 1974 Bernardino Jimenez, together with his rights and privileges as heretofore enjoyed by them”
neighbors, went to the Sta. Ana Public Market to buy bagoong. The market was  “the SECOND PARTY may from time to time be required by the FIRST
flooded with ankle-deep rainwater. After purchasing the bagoong, he turned PARTY, or his duly authorized representative or representatives, to
around to return home but he stepped on an uncovered opening which could report, on the activities and operation of the City public markets and
not be seen because of the dirty rainwater, causing a dirty and rusty four- inch talipapas and the facilities and conveniences installed therein,
nail which was stuck inside the uncovered opening to pierce his left leg, particularly as to their cost of construction, operation and
penetrating to a depth of about one and a half inches. maintenance”

After administering first aid treatment at a nearby drugstore, his companions Also, the fact of supervision and control of the City over subject public market
helped him hobble home. He felt ill and developed fever and he had to be was admitted by Mayor Ramon Bagatsing in his letter to Secretary of Finance
carried to Dr. Juanita Mascardo; despite the medicine administered, his left
Page 46 of 115
Cesar Virata wherein it is stated that “the City retains the power of supervision FACTS:
and control over its public markets and talipapas under the terms of the Relevant Provision of Law:
contract.” In fact, the City of Manila employed a market master for the Sta. Ana Art. 1723, Civil Code. The engineer or architect who drew up the plans and
Public Market whose primary duty is to take direct supervision and control of specifications for a building is liable for damages if within fifteen years from
that particular market, more specifically, to check the safety of the place for the completion of the structure, the same should collapse by reason of a defect
the public. in those plans and specifications, or due to the defects in the ground. The
contractor is likewise responsible for the damages if the edifice falls, within
The contention of respondent City of Manila that petitioner should not have the same period, on account of defects in the construction or the use of
ventured to go to Sta. Ana Public Market during a stormy weather is indeed materials of inferior quality furnished by him, or due to any violation of the
untenable. As a defense against liability on the basis of a quasi-delict, one must terms of the contract. If the engineer or architect supervises the construction,
have exercised the diligence of a good father of a family. (Art. 1173 of the Civil he shall be solidarily liable with the contractor.
Code). While it may be conceded that the fulfillment of such duties is extremely
difficult during storms and floods, it must however, be admitted that ordinary Acceptance of the building, after completion, does not imply waiver of any of
precautions could have been taken during good weather to minimize the the cause of action by reason of any defect mentioned in the preceding
dangers to life and limb under those difficult circumstances. paragraph.

For instance, the drainage hole could have been placed under the stalls instead The action must be brought within ten years following the collapse of the
of on the passageways. Even more important is the fact, that the City should building.
have seen to it that the openings were covered. Sadly, the evidence indicates
that long before petitioner fell into the opening, it was already uncovered, and Art. 1174, Civil Code. Except in cases expressly specified by the law, or when
5 months after the incident happened, the opening was still uncovered. it is otherwise declared by stipulation, or when the nature of the obligation
Moreover, while there are findings that during floods the vendors remove the requires the assumption of risk, no person shall be responsible for those
iron grills to hasten the flow of water, there is no showing that such practice events which could not be foreseen, or which, though foreseen, were
has ever been prohibited, much less penalized by the City of Manila. Neither inevitable.
was it shown that any sign had been placed thereabouts to warn passersby of
the impending danger. The Philippine Bar Association (PBA) decided to construct an office building
on its 840 square meter lot. It engaged the services of United Construction
Petitioner had the right to assume that there were no openings in the middle Inc., as contractor, and the architect was Juan F. Nakpil & Sons. The building
of the passageways and if any, that they were adequately covered. Had the was completed in June, 1966.
opening been covered, petitioner could not have fallen into it. Thus the
negligence of the City of Manila is the proximate cause of the injury suffered; In the early morning of August 2, 1968, an unusually strong earthquake hit
the City is therefore liable for the injury suffered by the petitioner. Manila and the building sustained major damage. The front columns of the
building buckled, causing the building to tilt forward dangerously.
Respondent City of Manila and Asiatic Integrated Corporation being joint tort-
feasors are solidarily liable under Article 2194 of the Civil Code. On November 29, 1968 PBA commenced action or the recovery of damages
_____________________________________________________ arising from the partial collapse of the building. PBA claims that the collapse
was due to defects in the construction, the failure of contractors to follow plans
NAKPIL & SONS v. CA and specifications and violations by the defendants of the terms of the
contract. On the other hand, United Construction Inc. filed a third-party
Nature: Action for Damages complaint against the Nakpils, alleging in essence that the collapse of the
building was due to the defects in the architects" plans, specifications and
DOCTRINE: If upon the happening of a fortuitous event or an act of God, design.
there concurs a corresponding fraud, negligence, delay or violation or
contravention in any manner of the tenor of the obligation as provided for in PBA moved twice for the demolition of the building on the ground that it would
Article 1170 of the Civil Code, which results in loss or damage, the obligor topple down in case of a strong earthquake. Three more earthquakes occurred
cannot escape liability. and with the PBA’s request for demolition was granted.

Page 47 of 115
The appointed Commissioner, Hizon, submitted his report which stated that
the damage sustained by the PBA building was directly caused by the The principle embodied in the act of God doctrine strictly requires that the act
earthquake and was also caused by the defects in the plans and specifications must be one occasioned exclusively by the violence of nature and all human
prepared by the architects, deviations from said plans and specifications by the agencies are to be excluded from creating or entering into the cause of the
contractor and failure of the contractor to observe the requisite workmanship mischief. When the effect, the cause of which is to be considered, is found to
in the construction of the building. be in part the result of the participation of man, whether it be from active
intervention or neglect, or failure to act, the whole occurrence is thereby
The trial court agreed with the findings of the Commissioner. Thus, it held that humanized, as it were, and removed from the rules applicable to the acts of
United is entitled to the claim for damages. CA affirmed the decision of the God. (1 Corpus Juris, pp. 1174-1175).
trial court but modified the decision by granting PBA an additional P200,000
to be paid by the contractor and architects jointly. The parties appealed from NOTES: The defendants filed Motions for Reconsideration from the decision
the decision of the CA. of the 2nd Division of the Supreme Court. The Court held:

The United Architects of the Philippines and The Philippine Institute of ISSUE: Article 1723 does not apply in view of the findings of the Commissioner
Architects intervened as amicus curiae and submitted a position paper which that the building did not collapse as a result of the earthquake.
said that the plans and specifications of the Nakpils were not defective. When
asked by the Court to comment, the Commissioner reiterated his findings and COURT: In the assasiled decision, the Court is in complete accord with the
said that there were deficiencies in the design of the architects which findings of the trial court and affirmed by the CA, that after the earthquake
contributed to the collapse of the building. the building was not totally lost, the collapse was only partial and the building
could still be restored. But after the subsequent earthquakes on there was no
Petitioners Nakpil and UCCI on the other hand claimed that it was an act of question that further damage was caused to the property resulting in an
God that caused the failure of the building which should exempt them from eventual and unavoidable collapse or demolition (compete collapse). Note that
responsibility. a needed demolition is in fact a form of "collapse".

ISSUE: WON the defendants are exempt from liability (WON an act of God- The bone of contention is therefore, not on the fact of collapse but on who
an unusually strong earthquake-which caused the failure of the building, should shoulder the damages resulting from the partial and eventual collapse.
exempts from liability, parties who are otherwise liable because of their As ruled by this Court in said decision, there should be no question that the
negligence.) NAKPILS and UNITED are liable for the damage.

RULING: NO. The negligence of the defendants was established beyond ISSUE: The finding of bad faith is not warranted in fact and is without basis in
dispute. United Construction Co., Inc. was found to have made substantial law.
deviations from the plans and specifications. and to have failed to observe the
requisite workmanship in the construction as well as to exercise the requisite COURT: A careful study of the decision will show that there is no contradiction
degree of supervision; while the Nakpils were found to have inadequacies or between the above finding of negligence by the trial court which was formed
defects in the plans and specifications prepared by them. As correctly assessed by the CA and the ruling of this Court. On the contrary, on the basis of such
by both courts, the defects in the construction and in the plans and finding, it was held that such wanton negligence of both the defendant and the
specifications were the proximate causes that rendered the PBA building third-party defendants in effecting the plans, designs, specifications, and
unable to withstand the earthquake. construction of the PBA building is equivalent to bad faith in the performance
of their respective tasks.
There is no dispute that the earthquake is a fortuitous event or an act of God. ************************************************************************
To exempt the obligor from liability under Article 1174 of the Civil Code, for a
breach of an obligation due to an "act of God," the following must concur: (a) F. Remedies for breach of obligations
the cause of the breach of the obligation must be independent of the will of the
debtor; (b) the event must be either unforseeable or unavoidable; (c) the event Article 1165. When what is to be delivered is a determinate thing, the
must be such as to render it impossible for the debtor to fulfill his obligation creditor, in addition to the right granted him by article 1170, may compel the
in a normal manner; and (d) the debtor must be free from any participation in, debtor to make the delivery.
or aggravation of the injury to the creditor.
Page 48 of 115
If the thing is indeterminate or generic, he may ask that the obligation be cannot be determined which of the parties first violated the contract, the same
complied with at the expense of the debtor. shall be deemed extinguished, and each shall bear his own damages. (n)
If the obligor delays, or has promised to deliver the same thing to two or more
persons who do not have the same interest, he shall be responsible for any Article 2236. The debtor is liable with all his property, present and future,
fortuitous event until he has effected the delivery. (1096) for the fulfillment of his obligations, subject to the exemptions provided by
law. (1911a)
Article 1166. The obligation to give a determinate thing includes that of
delivering all its accessions and accessories, even though they may not have Article 302. Neither the right to receive legal support nor any money or
been mentioned. (1097a) property obtained as such support or any pension or gratuity from the
government is subject to attachment or execution. (n)
Article 1167. If a person obliged to do something fails to do it, the same shall
be executed at his cost. Article 1708. The laborer's wages shall not be subject to execution or
This same rule shall be observed if he does it in contravention of the tenor of attachment, except for debts incurred for food, shelter, clothing and medical
the obligation. Furthermore, it may be decreed that what has been poorly done attendance.
be undone. (1098)
FC Art. 153. The family home is deemed constituted on a house and lot from
Article 1168. When the obligation consists in not doing, and the obligor does the time it is occupied as a family residence. From the time of its constitution
what has been forbidden him, it shall also be undone at his expense. (1099a) and so long as any of its beneficiaries actually resides therein, the family home
continues to be such and is exempt from execution, forced sale or attachment
Article 1170. Those who in the performance of their obligations are guilty of except as hereinafter provided and to the extent of the value allowed by law.
fraud, negligence, or delay, and those who in any manner contravene the tenor (223a)
thereof, are liable for damages. (1101)
FC Art. 155. The family home shall be exempt from execution, forced sale or
Article 1177. The creditors, after having pursued the property in possession attachment except:
of the debtor to satisfy their claims, may exercise all the rights and bring all the (1) For nonpayment of taxes;
actions of the latter for the same purpose, save those which are inherent in his (2) For debts incurred prior to the constitution of the family home;
person; they may also impugn the acts which the debtor may have done to (3) For debts secured by mortgages on the premises before or after
defraud them. (1111) such constitution; and
(4) For debts due to laborers, mechanics, architects, builders,
Article 1178. Subject to the laws, all rights acquired in virtue of an obligation materialmen and others who have rendered service or furnished
are transmissible, if there has been no stipulation to the contrary. (1112) material for the construction of the building. (243a)

Article 1191. The power to rescind obligations is implied in reciprocal ones, RULE 39, ROC—
in case one of the obligors should not comply with what is incumbent upon Sec. 13. Property exempt from execution. Except as otherwise
him. expressly provided by law, the following property, and no other, shall
The injured party may choose between the fulfillment and the rescission of the be exempt from execution:
obligation, with the payment of damages in either case. He may also seek (a) The judgment obligor's family home as provided by law, or the
rescission, even after he has chosen fulfillment, if the latter should become homestead in which he resides, and land necessarily used in
impossible. connection therewith;
The court shall decree the rescission claimed, unless there be just cause (b) Ordinary tools and implements personally used by him in his
authorizing the fixing of a period. trade, employment, or livelihood;
This is understood to be without prejudice to the rights of third persons who (c) Three horses, or three cows, or three carabaos, or other beasts of
have acquired the thing, in accordance with articles 1385 and 1388 and the burden such as the judgment obligor may select necessarily used by
Mortgage Law. (1124) him in his ordinary occupation;
(d) His necessary clothing and articles for ordinary personal use,
Article 1192. In case both parties have committed a breach of the obligation, excluding jewelry;
the liability of the first infractor shall be equitably tempered by the courts. If it
Page 49 of 115
 (e) Household furniture and utensils necessary for housekeeping, Article 1526. Subject to the provisions of this Title, notwithstanding that the
and used for that purpose by the judgment obligor and his family, ownership in the goods may have passed to the buyer, the unpaid seller of
such as the judgment obligor may select, of a value not exceeding one goods, as such, has:
hundred thousand pesos; (1) A lien on the goods or right to retain them for the price while he is
(f) Provisions for individual or family use sufficient for four months; in possession of them;
(g) The professional libraries and equipment of judges, lawyers, (2) In case of the insolvency of the buyer, a right of stopping the goods
physicians, pharmacists, dentists, engineers, surveyors, clergymen, in transitu after he has parted with the possession of them;
teachers, and other professionals, not exceeding three hundred (3) A right of resale as limited by this Title;
thousand pesos in value; (4) A right to rescind the sale as likewise limited by this Title.
(h) One fishing boat and accessories not exceeding the total value of Where the ownership in the goods has not passed to the buyer, the unpaid
one hundred thousand pesos owned by a fisherman and by the lawful seller has, in addition to his other remedies a right of withholding delivery
use of which he earns his livelihood; similar to and coextensive with his rights of lien and stoppage in transitu where
(i) So much of the salaries, wages, or earnings of the judgment the ownership has passed to the buyer. (n)
obligor of his personal services within the four months preceding the
levy as are necessary for the support of his family;
(j) Lettered gravestones; b. Stipulated
(k) Monies benefits, privileges, or annuities accruing or in any
manner growing out of any life insurance;
(l) The right to receive legal support, or money or property obtained
as such support, or any pension or gratuity from the Government; 2. Judicial remedies
(m) Properties specially exempt by law.
a. Principal remedies
But no article or species of property mentioned in his section shall be exempt
from execution issued upon a judgment recovered for its price or upon a Article 1191. The power to rescind obligations is implied in reciprocal ones,
judgment of foreclosure of a mortgage thereon. in case one of the obligors should not comply with what is incumbent upon
him.
1. Extra judicial remedies The injured party may choose between the fulfillment and the rescission of the
obligation, with the payment of damages in either case. He may also seek
a. Expressly granted by law
rescission, even after he has chosen fulfillment, if the latter should become
Article 1786. Every partner is a debtor of the partnership for whatever he impossible.
may have promised to contribute thereto. The court shall decree the rescission claimed, unless there be just cause
He shall also be bound for warranty in case of eviction with regard to specific authorizing the fixing of a period.
and determinate things which he may have contributed to the partnership, in This is understood to be without prejudice to the rights of third persons who
the same cases and in the same manner as the vendor is bound with respect to have acquired the thing, in accordance with articles 1385 and 1388 and the
the vendee. He shall also be liable for the fruits thereof from the time they Mortgage Law. (1124)
should have been delivered, without the need of any demand. (1681a)
Article 1170. Those who in the performance of their obligations are guilty of
Article 1788. A partner who has undertaken to contribute a sum of money fraud, negligence, or delay, and those who in any manner contravene the tenor
and fails to do so becomes a debtor for the interest and damages from the time thereof, are liable for damages. (1101)
he should have complied with his obligation.
The same rule applies to any amount he may have taken from the partnership
b. Subsidiary remedies
coffers, and his liability shall begin from the time he converted the amount to
his own use. (1682) Article 1380. Contracts validly agreed upon may be rescinded in the cases
established by law. (1290)

Page 50 of 115
Article 1177. The creditors, after having pursued the property in possession Article 1191, Civil Code. The power to rescind reciprocal obligations is implied
of the debtor to satisfy their claims, may exercise all the rights and bring all the in reciprocal ones, in case one of the obligors should not comply with what is
actions of the latter for the same purpose, save those which are inherent in his incumbent upon him.
person; they may also impugn the acts which the debtor may have done to
defraud them. (1111) The injured party may choose between the fulfillment and the rescission of
the obligation, with the payment of damages in either case. He may also seek
c. Ancillary remedies – Rules of Court rescission, even after he has chosen fulfillment, if the latter should become
impossible.
**********************************************************************
The court shall decree the rescission claimed, unless there be just cause
UNLAD RESOURCES DEVELOPMENT v. DRAGON authorizing the fixing of a period.

Nature: Rescission of the agreement and the return of control and This is understood to be without prejudice to the rights of third persons who
management of the Rural Bank, plus damages have acquired the thing, in accordance with Articles 1385 and 1388 and the
Ponente: Nachura J. Mortgage Law.
Date: July 28, 2008
On December 29, 1981, Respondents and Unlad Resources, through its
DOCTRINE: Rescission has the effect of “unmaking a contract, or its undoing Chairman, Helena Benitez, entered into a Memorandum of Agreement
from the beginning, and not merely its termination.” Hence, rescission creates wherein it is provided that respondents, as controlling stockholders of the
the obligation to return the object of the contract. It can be carried out only Rural Bank of Noveleta shall allow Unlad Resources to invest P4,800,000.00
when the one who demands rescission can return whatever he may be obliged in the Rural Bank in the form of additional equity. On the other hand, Unlad
to restore. Resources bound itself to invest the said amount in the Rural Bank; upon
signing, it was, likewise, agreed that Unlad Resources shall subscribe to a
FACTS: minimum P480,000 common or preferred non-voting shares of stock; that the
Relevant Provision of Law: respondents, upon the signing of the said agreement shall transfer control and
Art. 1389, Civil Code. The action to claim rescission must be commenced management over the Rural Bank to Unlad Resources.
within four years. x x x
Immediately after the signing of the agreement, the respondents complied
Art. 1144. The following actions must be brought within ten years from the with their obligation and transferred control of the Rural Bank to Unlad
time the right of action accrues: Resources and its nominees and the Bank was renamed the Unlad Rural Bank
(1) Upon a written contract; of Noveleta, Inc. However, they claim that despite repeated demands, Unlad
(2) Upon an obligation created by law; Resources has failed and refused to comply with their obligation under the said
(3) Upon a judgment. Memorandum of Agreement

Art. 1381. The following contracts are rescissible: On July 3, 1987, respondents filed before the RTC of Makati City, a Complaint
(1) Those which are entered into by guardians whenever the wards whom for rescission of the agreement and the return of control and management of
they represent suffer lesion by more than one-fourth of the value of the things the Rural Bank from petitioners to respondents, plus damages. RTC declared
which are the object thereof; that the MOA is rescinded and that the Unlad should return control and
(2) Those agreed upon in representation of absentees, if the latter suffer the management of the Rural Bank to the respondents. CA affirmed the decision
lesion stated in the preceding number; of the RTC.
(3) Those undertaken in fraud of creditors when the latter cannot in any other
manner collect the claims due them; Hence, the present petition. Petitioners argue, inter alia, that the action for
(4) Those which refer to things under litigation if they have been entered into rescission has prescribed under Article 1398 of the Civil Code. Also, they argue
by the defendant without the knowledge and approval of the litigants or of that they have fully complied with their undertaking, but that the undertaking
competent judicial authority; has become a “legal and factual impossibility” because the authorized capital
(5) All other contracts specially declared by law to be subject to rescission. stock of the Rural Bank was increased from P1.7 million to only P5 million, and
could not accommodate the subscription by petitioners of P4.8 million worth
Page 51 of 115
of shares. Such deficiency, petitioners contend, is with the knowledge and Thus, petitioners should have exacted fulfillment from the respondents or
approval of respondent Renato P. Dragon and his nominees to the Board of asked for the rescission of the contract instead of simply not performing their
Directors. part of the Agreement. But in the course of things, it was the respondents who
availed of the remedy under Article 1191, opting for the rescission of the
ISSUES: Agreement in order to regain control of the Rural Bank.

(1) WON the action for rescission has prescribed Mutual restitution is required in cases involving rescission under Article 1191.
This means bringing the parties back to their original status prior to the
RULING: NO. The prescriptive period applicable to rescission under Articles inception of the contract. Article 1385 of the Civil Code provides, thus:
1191 and 1592, is found in Article 1144, which provides that the action upon a
written contract should be brought within ten years from the time the right of ART. 1385. Rescission creates the obligation to return the things which
action accrues. were the object of the contract, together with their fruits, and the price
with its interest; consequently, it can be carried out only when he who
Article 1389 specifically refers to rescissible contracts as, clearly, this provision demands rescission can return whatever he may be obligated to
is under the chapter entitled “Rescissible Contracts.” restore.

In the case of Iringan, the Court has held that Article 1389 applies to rescissible Neither shall rescission take place when the things which are the
contracts, as enumerated and defined in Articles 1380 and 1381. The object of the contract are legally in the possession of third persons who
“rescission” in Article 1381 is not akin to the term “rescission” in Article 1191 did not act in bad faith.
and Article 1592. In Articles 1191 and 1592, the rescission is a principal action
which seeks the resolution or cancellation of the contract while in Article 1381, In this case, indemnity for damages may be demanded from the
the action is a subsidiary one limited to cases of rescission for lesion as person causing the loss.
enumerated in said article.
To rescind is to declare a contract void at its inception and to put an end to it
The MOA does not fall under the enumeration in Article 1381. Accordingly, as though it never was. It is not merely to terminate it and release the parties
the prescriptive period that should apply to this case is that provided for in from further obligations to each other, but to abrogate it from the beginning
Article 1144 for written contracts (10 years) and restore the parties to their relative positions as if no contract has been
made.
The action was commenced on July 3, 1987, while the MOA was entered into _____________________________________________________
on December 29, 1981. Article 1144 specifically provides that the 10-year
period is counted from “the time the right of action accrues.” The right of UNIVERSAL FOOD CORP. v. CA
action accrues from the moment the breach of right or duty occurs. Thus, the
original Complaint was filed well within the prescriptive period. Nature: Action for Rescission of Contract
Ponente: Castro, J.
(2) WON the trial court correctly ruled for the rescission of the Agreement Date: May 13, 1970

RULING: NO. Petitioners failed to fulfill their end of the agreement, and thus, DOCTRINE: In Art. 1191 (unlike in Art. 1383), the power to rescind
there was just cause for rescission. With the contract thus rescinded, the obligations is implied in reciprocal ones, in case one of the obligors should not
parties must be restored to the status quo ante, that is, before they entered into comply with what is incumbent upon him.
the Memorandum of Agreement.
FACTS:
It is true that respondents increased the Rural Bank’s authorized capital stock Relevant Provision of Law:
to only P5 million, which was not enough to accommodate the P4.8 million ART. 1191, Civil Code. The power to rescind obligations is implied in
worth of stocks that petitioners were to subscribe to and pay for. However, reciprocal ones, in case one of the obligors should not comply with what is
respondents’ failure to fulfill their undertaking would have given rise to the incumbent upon him.
scenario contemplated by Article 1191 of the Civil Code.

Page 52 of 115
The injured party may choose between the fulfillment and the rescission of Within a month, the corporation through its president authorized Zarraga and
the obligation, with the payment of damages in either case. He may also seek Bacula to look for a buyer of the corporation including its formula, trademarks
rescission even after he has chosen fulfillment, if the latter should become and assets at a price not less than P300.00 without Francisco being recalled
impossible. back to work. Because of this, Magdalo Francisco filed an action for rescission
of the contract called “Bill of Assignment” in the CFI against Universal Food,
The court shall decree the rescission claimed, unless there be just cause rejecting the subsequent offer of the corporation to recall him to work after the
authorizing the fixing of a period. action was filed.

This is understood to be without prejudice to the rights of third persons who The CFI dismissed the case but the CA reversed the decision, rescinding the
have acquired the thing, in accordance with articles 1385 and 1388 of the contract and ordering the corporation to return the trademark and formula of
Mortgage Law. the sauce to Francisco and pay him his salary until those were returned.

ART. 1383, Civil Code. The action for rescission is subsidiary; it cannot be Hence, the present petition. The corporation appealed the decision, saying that
instituted except when the party suffering damage has no other legal means Francisco is not entitled to rescission under Art. 1191 of the Civil Code.
to obtain reparation for the same.
ISSUE: WON Magdalo Francisco is entitled to the rescission of the Bill of
ART. 1384, Civil Code. Rescission shall be only to the extent necessary to cover Assignment
the damages caused.
As far back as 1938, Magdalo Francisco, Sr. discovered or invented a formula RULING: YES. The dismissal of the respondent patentee Magdalo Francisco,
for the manufacture of a food seasoning (sauce) derived from banana fruits Sr. as the permanent chief chemist of the corporation is a fundamental and
popularly known as MAFRAN sauce. substantial breach of the Bill of Assignment. Thus, apart from the legal
principle that the option — to demand performance or ask for rescission of a
Due to lack of sufficient capital to finance the expansion of the business, in contract — belongs to the injured party, the fact remains that the respondents-
1960, he secured the financial assistance of Tirso Reyes who, after a series of appellees had no alternative but to file the present action for rescission and
negotiations, formed with others defendant Universal Food Corporation damages.
eventually leading to the execution on May 11, 1960 a "Bill of Assignment".
In accordance with the provisions of the Bill of Assignment, what was ceded
Conformably with the terms and conditions, Magdalo Francisco, Sr. was and transferred by Francisco was only the use of the Mafran sauce formula.
appointed Chief Chemist and his son, Victoriano Francisco, was appointed The word royalty was used in the contract which means compensation paid by
auditor and superintendent. Since the start of the operation of the corporation, the licensee to the licensor for the use of the licensor’s invention. Moreover, it
Magdalo Francisco, Sr., when preparing the secret materials inside the is stipulated that in case of the dissolution of the corporation, the property
laboratory, never allowed anyone, not even his own son, or the President and rights over the trademark and formula shall revert back to Francisco.
General Manager Tirso Reyes, of defendant, to enter the laboratory in order to
keep the formula secret to himself. First, royalty was paid by UFC to Magdalo Francisco. Second, the formula of
said Mafran sauce was never disclosed to anybody else. Third, the Bill
Thereafter, however, due to the alleged scarcity and high prices of raw acknowledged the fact that upon dissolution of said Corporation, the patentee
materials, Secretary-Treasurer Ciriaco de Guzman of Universal Food issued a rights and interests of said trademark shall automatically revert back to
Memorandum, that only Supervisor Ricardo Francisco should be retained in Magdalo Francisco. Fourth, paragraph 3 of the Bill declared only the transfer
the factory and that the salary of Magdalo Francisco, Sr., should be stopped of the use of the Mafran sauce and not the formula itself which was admitted
for the time being until the corporation should resume its operation. by UFC in its answer. Fifth, the facts of the case undeniably show that what
was transferred was only the use. Finally, the Civil Code allows only “the least
Magdalo Francisco, Sr. received his salary as Chief Chemist in the amount of transmission of right, hence, what better way is there to show the least
P300.00 a month only until his services were terminated. After a few days, the transmission of right of the transfer of the use of the transfer of the formula
president issued another memorandum to allow the supervisor, now assistant itself.”
chief chemist, to recall some employees to produce the sauce and Porky Pops.
The facts indicate that the petitioner, acting through its corporate officers,
schemed and maneuvered to ease out, separate and dismiss the said
Page 53 of 115
respondent from the service as permanent chief chemist, in flagrant absolute control and supervision over the laboratory assistants and personnel
violation of paragraph 5-(a) and (b) of the Bill of Assignment. The late request and in the purchase and safekeeping of the chemicals and other mixtures used
to call him back to work was only to placate Francisco. in the preparation of said product — all these provisions of the Bill of
Assignment are so interdependent that violation of one would result in virtual
The power to rescind obligations is implied in reciprocal ones, in case one of nullification of the rest.
the obligors should not comply with what is incumbent upon him. The injured _____________________________________________________
party may choose between fulfillment and rescission of the obligation, with
payment of damages in either case. There is no controversy that the provisions MAGDALENA ESTATE v. MYRICK
of the Bill of Assignment are reciprocal in nature. The petitioner corporation
violated the Bill of Assignment, specifically paragraph 5-(a) and (b), by Nature: Action for Collection
terminating the services of the respondent patentee Magdalo V. Francisco, Sr., Ponente: Laurel, J.
without lawful and justifiable cause. Date: March 14, 1941

The general rule is that rescission of a contract will not be permitted for a slight DOCTRINE: Under Art. 1124 of the old Civil Code (basis of Article 1191, New
or casual breach, but only for such substantial and fundamental breach as Civil Code), the injured party may choose between demanding the fulfillment
would defeat the very object of the parties in making the agreement. 12 The of the contract or its resolution. These remedies are alternative and not
question of whether a breach of a contract is substantial depends upon the cumulative.
attendant circumstances.
FACTS:
The petitioner contends that rescission of the Bill of Assignment should be The Magdalena Estate, Inc., sold to Louis Myrick lots Nos. 28 and 29 of Block
denied, because under article 1383, rescission is a subsidiary remedy which 1, Parcel 9 of the San Juan Subdivision, San Juan Rizal, their contract of sale
cannot be instituted except when the party suffering damage has no other legal No. SJ-639 providing that the price of P7,953 shall be payable in 120 equal
means to obtain reparation for the same. However, in this case the dismissal monthly installments of P96.39 each on the second day of every month
of the respondent patentee Magdalo Francisco, Sr. as the permanent chief beginning the date of execution of the agreement. Simultaneously, the vendee
chemist of the corporation is a fundamental and substantial breach of the Bill executed and delivered to the vendor a promissory note for the whole purchase
of Assignment. price.

Thus, apart from the legal principle that the option — to demand performance In pursuance of said agreement, the vendee made several monthly payments
or ask for rescission of a contract — belongs to the injured party, the fact amounting to P2,596.08, the last being on October 4, 1930, although the first
remains that the respondents-appellees had no alternative but to file the installment due and unpaid was that of May 2, 1930. By reason of this default,
present action for rescission and damages. It is to be emphasized that the the vendor, through its president, K.H. Hemady, on December 14, 1932,
respondent patentee would not have agreed to the other terms of the Bill of notified the vendee that, in view of his inability to comply with the terms of
Assignment were it not for the basic commitment of the petitioner corporation their contract, said agreement had been cancelled as of that date, thereby
to appoint him as its Second Vice-President and Chief Chemist on a permanent relieving him of any further obligation thereunder, and that all amounts paid
basis; that in the manufacture of Mafran sauce and other food products he by him had been forfeited in favor of the vendor, who assumes the absolute
would have "absolute control and supervision over the laboratory assistants right over the lots in question. To this communication, the vendee did not
and personnel and in the purchase and safeguarding of said products;" and reply, and it appears likewise that the vendor thereafter did not require him to
that only by all these measures could the respondent patentee preserve make any further disbursements on account of the purchase price.
effectively the secrecy of the formula, prevent its proliferation, enjoy its
monopoly, and, in the process afford and secure for himself a lifetime job and Louis Myrick commenced the present action in the CFI, praying for an entry
steady income. of judgment against the Magdalena Estate, Inc. for the sum of P2,596.08 with
legal interest thereon from the filing of the complaint until its payment, and
The salient provisions of the Bill of Assignment, namely, the transfer to the for costs of the suit.
corporation of only the use of the formula; the appointment of the respondent
patentee as Second Vice-President and chief chemist on a permanent status; CFI rendered its decision ordering the defendant to pay the plaintiff the sum
the obligation of the said respondent patentee to continue research on the of P2,596.08 with legal interest from December 14, 1932 until paid and costs,
patent to improve the quality of the products of the corporation; the need of and dismissing defendant's counterclaim. CA confirmed the decision of the
Page 54 of 115
lower court, with the only modification that the payment of interest was to be UP v. DE LOS ANGELES
computed from the date of the filing of the complaint instead of from the date
of the cancellation of the contract. Nature: Petition for Injunction
Ponente: Reyes, J.B.L., J.
Hence, the present petition. It is argued that the contract being a bilateral Date: September 29, 1970
agreement, in the absence of a stipulation permitting its cancellation, may not
be resolved by the mere act of the petitioner. DOCTRINE: Article 1191 of the Civil Code allows that the resolution of
reciprocal contracts may be made extra-judicially unless successfully
ISSUE: WON forfeiture of the payments was valid impugned in court. This gives the obligee the opportunity to prevent imminent
losses which may be incurred due to the blatant negligence of the obligor.
RULING: NO. The contract of sale contains no provision authorizing the
vendor, in the event of failure of the vendee to continue in the payment of the FACTS:
stipulated monthly installments, to retain the amounts paid to him on account UP and Associated Lumber Manufacturing Company, Inc. (ALUMCO) entered
of the purchase price into a logging agreement under which the latter was granted exclusive
authority, for a period starting from the date of the agreement to 31 December
The fact that the contracting parties herein did not provide for resolution is 1965, extendible for a further period of 5 years by mutual agreement, to cut,
now of no moment, for the reason that the obligations arising from the contract collect and remove timber from the Land Grant, in consideration of payment
of sale being reciprocal, such obligations are governed by article 1124 of the to UP of royalties, forest fees, etc..
Civil Code which declares that the power to resolve, in the event that one of the
obligors should not perform his part, is implied. As of 8 December 1964, ALUMCO had incurred unpaid account which, despite
repeated demands, it had failed to pay. ALUMCO received notice that UP
Upon the other hand, where, as in this case, the petitioner cancelled the would rescind or terminate the logging agreement, thus, it executed an
contract, advised the respondent that he has been relieved of his obligations instrument, entitled "Acknowledgment of Debt and Proposed Manner of
thereunder, and led said respondent to believe it so and act upon such belief, Payments," in which it guaranteed that it would pay its debt otherwise they
the petitioner may not be allowed, in the language of section 333 of the Code would agree to the rescission of the contract without necessity of suit and shall
of Civil Procedure (now section 68 (a) of Rule 123 of the New Rules of Court), pay the creditor P 50,ooo in liquidated damages. Despite this, ALUMCO
in any litigation the course of litigation or in dealings in nais, be permitted to continued its operations and incurred another debt in addition to the previous
repudiate his representations, or occupy inconsistent positions, or, in the letter one.
of the Scotch law, to "approbate and reprobate."
On 19 July 1965, UP informed ALUMCO that it had considered as rescinded
The claim, therefore, of the petitioner that it has the right to forfeit said sums and of no further legal effect the logging agreement that they had entered into.
in its favor is untenable. Under article 1124 of the Civil Code, however, he may UP filed a complaint against ALUMCO in the CFI, for the collection or payment
choose between demanding the fulfillment of the contract or its resolution. of the debts and for preliminary attachment and preliminary injunction
These remedies are alternative and not cumulative, and the petitioner in this restraining ALUMCO from continuing its logging operations.
case, having to cancel the contract, cannot avail himself of the other remedy of
exacting performance. Before the issuance of the aforesaid preliminary injunction UP had awarded a
concession to Sta. Clara Lumber Company, Inc.; the logging contract was
As a consequence of the resolution, the parties should be restored, as far as signed on 16 February 1966.
practicable, to their original situation which can be approximated only by
ordering, as we do now, the return of the things which were the object of the ALUMCO filed a petition for injunction to enjoin UP from conducting the
contract, with their fruits and of the price, with its interest (article 1295, Civil bidding. The respondent judge issued the orders, enjoining UP from awarding
Code), computed from the date of the institution of the action. logging rights over the concession to any other party.
ALUMCO contended, that it is only after a final court decree declaring the
contract rescinded for violation of its terms that UP could disregard
ALUMCO's rights under the contract and treat the agreement as breached and
of no force or effect.

Page 55 of 115
ISSUE: WON UP can treat its contract with ALUMCO rescinded, and may discretion, correctible by certiorari, since appeal was not available or adequate.
disregard the same before any judicial pronouncement to that effect. Such injunction, therefore, must be set aside.
_____________________________________________________
RULING: YES. UP and ALUMCO had expressly stipulated in the
"Acknowledgment of Debt and Proposed Manner of Payments" that, upon ZULUETA v. MARIANO
default by the debtor ALUMCO, UP has "the right and the power to consider,
the Logging Agreement dated 2 December 1960 as rescinded without the Nature: Ejectment suit
necessity of any judicial suit." Ponente: Melencio-Herrera, J.
Date: January 30, 1982
It was held in Froilan vs. Pan Oriental Shipping Co., as to such special
stipulation, and in connection with Article 1191 of the Civil Code, that: DOCTRINE: A stipulation entitling one party to take possession of the
there is nothing in the law that prohibits the parties from entering into land and building if the other party violates the contract does not ex
agreement that violation of the terms of the contract would cause proprio vigore confer upon the former the right to take possession thereof
cancellation thereof, even without court intervention. In other words, if objected to without judicial intervention and' determination.
it is not always necessary for the injured party to resort to court for
rescission of the contract. FACTS:
Petitioner Jose Zulueta is the registered owner of a residential house and lot
The act of a party in treating a contract as cancelled or resolved on account of situated within the Antonio Subdivision, Pasig, Rizal.
infractions by the other contracting party must be made known to the other
and is always provisional, being ever subject to scrutiny and review by the Zulueta and private respondent Lamberto Avellana, a movie director, entered
proper court. If the other party denies that rescission is justified, it is free to into a "Contract to Sell" the aforementioned property for P75,000.00 payable
resort to judicial action in its own behalf, and bring the matter to court. Then, in twenty years with respondent buyer assuming to pay a down payment of
should the court, after due hearing, decide that the resolution of the contract P5,000.00 and a monthly installment of P630.00 payable in advance before
was not warranted, the responsible party will be sentenced to damages; in the the 5th day of the corresponding month, starting with December, 1964.
contrary case, the resolution will be affirmed, and the consequent indemnity
awarded to the party prejudiced. It was stipulated, among others, that upon failure of the buyer to fulfill any of
the conditions being stipulated, the buyer automatically and irrevocably
There is no conflict between the present ruling and the previous jurisprudence authorizes owner to recover extrajudicially, physical possession of the land,
of the Court invoked by respondent declaring that judicial action is necessary building and other improvements, which were the subject of the said contract,
for the resolution of a reciprocal obligation, since in every case where the and to take possession also extra-judicially whatever personal properties may
extrajudicial resolution is contested only the final award of the court of be found within the aforesaid premises from the date of said failure to answer
competent jurisdiction can conclusively settle whether the resolution was for whatever unfulfilled monetary obligations buyer may have with owner.
proper or not. It is in this sense that judicial action will be necessary, as without Demand was also waived.
it, the extrajudicial resolution will remain contestable and subject to judicial
invalidation, unless attack thereon should become barred by acquiescence, Upon the allegation that Avellana had failed to comply with the monthly
estoppel or prescription. amortizations, despite demands to pay and to vacate the premises, and that
thereby the contract was converted into one of lease, petitioner commenced an
Even without express provision conferring the power of cancellation upon one Ejectment suit against respondent before the Municipal Court of Pasig,
contracting party, the Supreme Court of Spain, in construing the effect of praying that judgment be rendered ordering respondent 1) to vacate the
Article 1124 of the Spanish Civil Code (of which Article 1191 of the Civil; Code premises; 2) to pay petitioner the sum of P11,751.30 representing respondent's
is practically a reproduction), has repeatedly held that, a resolution of balance owing as of May, 1966; 3) to pay petitioner the sum of P 630.00 every
reciprocal or synallagmatic contracts may be made extrajudicially unless month after May, 1966, and costs. Respondent controverted by contending
successfully impugned in court. that the Municipal Court had no jurisdiction over the nature of the action as it
involved the interpretation and/or rescission of the contract.
The acts of the court a quo in enjoining petitioner's measures to protect its
interest without first receiving evidence on the issues tendered by the parties,
and in subsequently refusing to dissolve the injunction, were in grave abuse of
Page 56 of 115
Municipal Court ruled in favor of Zulueta. The conclusion was premised on agree to the exercise by the CFI of its original jurisdiction to try the case on the
title finding that breach of any of the conditions by private respondent merits.
converted the agreement into a lease contract. ______________________________________________________

Upon appeal, CFI Judge dismissed the case on the ground of lack of PALAY, INC v. CLAVE
jurisdiction of the Municipal Court.
Nature: Complaint for Reconveyance with alternative prayer for Refund
ISSUE: WON the action before the Municipal Court is essentially for detainer Ponente: Melencio-Herrera, J.
and, therefore, within its exclusive original jurisdiction, or one for rescission Date: September 21, 1983
or annulment of a contract, which should be litigated before the CFI
DOCTRINE: A written notice is required to be sent to the defaulter for the
RULING: RESCISSION. The basic issue is not possession but one of rescission of a contract even though the contract provides that it may be
rescission or annulment of a contract. which is beyond the jurisdiction of the revoked and cancelled for violation of any of its terms and conditions.
Municipal Court to hear and determine.
FACTS:
The Municipal Court of Pasig was bereft of jurisdiction to take cognizance of the Relevant Provision of Law:
case filed before it. In his Complaint, petitioner had alleged violation by ART. 1385, Civil Code. Rescission creates the obligation to return the things
respondent Avellana of the stipulations of their agreement to sell and thus which were the object of the contract, together with their fruits, and the price
unilaterally considered the contract rescinded. Respondent Avellana denied any with its interest; consequently, it can be carried out only when he who
breach on his part and argued that the principal issue was one of interpretation demands rescission can return whatever he may be obliged to restore.
and/or rescission of the contract as well as of set-off. Under those
circumstances, proof of violation is a condition precedent to resolution or Neither sham rescission take place when the things which are the object of the
rescission. It is only when the violation has been established that the contract contract are legally in the possession of third persons who did not act in bad
can be declared resolved or rescinded. Upon such rescission, in turn, hinges a faith.
pronouncement that possession of the realty has become unlawful.
Palay, Inc., through its President, Albert Onstott executed in favor of private
True, the contract between the parties provided for extrajudicial rescission. This respondent, Nazario Dumpit, a Contract to Sell a parcel of Land of the
has legal effect, however, where the other party does not oppose it. Where it is Crestview Heights Subdivision in Antipolo, Rizal,. Paragraph 6 of the contract
objected to, a judicial determination of the issue is still necessary. provided for automatic extrajudicial rescission upon default in payment of any
monthly installment after the lapse of 90 days from the expiration of the grace
But while respondent Judge correctly ruled that the Municipal Court had no period of one month, without need of notice and with forfeiture of all
jurisdiction over the case and correctly dismissed the appeal, he erred in installments paid.
assuming original jurisdiction, in the face of the objection interposed by
petitioner. Section 11, Rule 40, leaves no room for doubt on this point: Respondent Dumpit paid the downpayment and several installments
amounting to P13,722.50. The last payment was made on December 5, 1967
Section 11. Lack of jurisdiction —A case tried by an inferior court for installments up to September 1967.
without jurisdiction over the subject matter shall be dismiss on appeal
by the Court of First Instance. But instead of dismissing the case, the On May 10, 1973, or almost 6 years later, private respondent wrote petitioner
Court of First Instance may try the case on the merits, if the parties offering to update all his overdue accounts with interest, and seeking its
therein file their pleadings and go to trial without any objection to such written consent to the assignment of his rights to a certain Lourdes Dizon. He
jurisdiction. followed this up with another letter reiterating the same request. Replying
petitioners informed respondent that his Contract to Sell had long been
There was no other recourse left for respondent Judge, therefore, except to rescinded pursuant to paragraph 6 of the contract, and that the lot had already
dismiss the appeal. If an inferior court tries a case without jurisdiction over the been resold.
subject-matter on appeal, the only authority of the CFI is to declare the inferior
court to have acted without jurisdiction and dismiss the case, unless the parties Respondent filed a letter complaint with the National Housing Authority
(NHA) for reconveyance with an altenative prayer for refund. NHA, finding the
Page 57 of 115
rescission void in the absence of either judicial or notarial demand, ordered defaulted in the timely payment of the installments, the contract between the
Palay, Inc. and Alberto Onstott in his capacity as President of the corporation, parties was deemed ipso facto rescinded." However, it should be noted that
jointly and severally, to refund Nazario Dumpit immediately. even in that case notice in writing was made to the vendee of the cancellation
and annulment of the contract although the contract entitled the seller to
On appeal to the Office of the President, upon the allegation that the NHA immediate repossessing of the land upon default by the buyer.
Resolution was contrary to law, respondent Presidential Executive Assistant,
affirmed the Resolution of the NHA. The indispensability of notice of cancellation to the buyer was to be later
underscored in Republic Act No. 6551 entitled "An Act to Provide Protection
Petitioners argue that it was justified in cancelling the contract to sell without to Buyers of Real Estate on Installment Payments." which took effect on
prior notice or demand in view of paragraph 6 of the Contract to Sell. September 14, 1972, when it specifically provided:

ISSUES: Sec. 3(b) ... the actual cancellation of the contract shall take place after
(1) WON demand was necessary before the Contract to Sell may be rescinded thirty days from receipt by the buyer of the notice of cancellation or
the demand for rescission of the contract by a notarial act and upon
RULING: YES. Resolution by petitioners of the contract was ineffective and full payment of the cash surrender value to the buyer.
inoperative against private respondent for lack of notice of resolution, as held
in the U.P. vs. Angeles case. The contention that private respondent had waived his right to be notified
under paragraph 6 of the contract is neither meritorious because it was a
Well-settled is the rule, as held in previous jurisprudence, that judicial action contract of adhesion, a standard form of petitioner corporation, and private
for the rescission of a contract is not necessary where the contract provides respondent had no freedom to stipulate. A waiver must be certain and
that it may be revoked and cancelled for violation of any of its terms and unequivocal, and intelligently made; such waiver follows only where liberty of
conditions. However, even in these cases, there was at least a written notice choice has been fully accorded. Moreover, it is a matter of public policy to
sent to the defaulter informing him of the rescission. As stressed in UP vs. De protect buyers of real estate on installment payments against onerous and
Los Angeles the act of a party in treating a contract as cancelled should be made oppressive conditions. Waiver of notice is one such onerous and oppressive
known to the other. condition to buyers of real estate on installment payments.

Of similar import is the ruling in Nera vs. Vacante, reading: (2) WON petitioners may be held liable for the refund of the installment
payments made by respondent Nazario Dumpit.
A stipulation entitling one party to take possession of the land and
building if the other party violates the contract does not ex propio RULING: YES. Indemnity for damages may be demanded from the person
vigore confer upon the former the right to take possession thereof if causing the loss under Article 1385 of the Civil Code.
objected to without judicial intervention and determination.
As a consequence of the resolution by petitioners, rights to the lot should be
This was reiterated in Zulueta vs. Mariano where the Court held that restored to private respondent or the same should be replaced by another
extrajudicial rescission has legal effect where the other party does not oppose acceptable lot. However, considering that the property had already been sold
it. Where it is objected to, a judicial determination of the issue is still necessary. to a third person and there is no evidence on record that other lots are still
available, private respondent is entitled to the refund of installments paid plus
In other words, resolution of reciprocal contracts may be made extrajudicially interest at the legal rate of 12% computed from the date of the institution of
unless successfully impugned in Court. If the debtor impugns the declaration, the action. 10 It would be most inequitable if petitioners were to be allowed to
it shall be subject to judicial determination. retain private respondent's payments and at the same time appropriate the
proceeds of the second sale to another.
In this case, private respondent has denied that rescission is justified and has
resorted to judicial action. It is now for the Court to determine whether
resolution of the contract by petitioners was warranted.

Petitioner relies on Torralba vs. De los Angeles where it was held that "there
was no contract to rescind in court because from the moment the petitioner
Page 58 of 115
 be revoked and cancelled for violation of any of its terms and conditions.
ANGELES V CALASANZ However, the right to rescind the contract for non-performance of one of its
stipulations, therefore, is not absolute. The general rule is that rescission of a
Nature: Action to compel execution of deed of sale contract will not be permitted for a slight or casual breach, but only for such
Ponente: Gutierrez substantial and fundamental breach as would defeat the very object of the
Date: March 18, 1985 parties in making the agreement. The question of whether a breach of a
contract is substantial depends upon the attendant circumstances.
Doctrine: The general rule is that rescission of a contract will not be
permitted for a slight or casual breach, but only for such substantial and Here, the breach of the contract adverted to by the defendants is so slight and
fundamental breach as would defeat the very object of the parties in making casual when we consider that apart from the initial downpayment of P392.00
the agreement. The question of whether a breach of a contract is substantial the plaintiffs-appellees had already paid the monthly installments for a period
depends upon the attendant circumstances. of almost nine (9) years. To sanction the rescission made by the defendants-
appellants will work injustice to the plaintiffs. It would unjustly enrich the
FACTS: defendants.
Ursula and Tomas Calasanz and plaintiffs Buenaventura Angeles and Teofila _____________________________________________________
Juani entered into a contract to sell a piece of land in Cainta, Rizal for the
amount of P3,920.The plaintiffs made a downpayment of P392.00 upon the BOYSAW V. INTERPHIL PROMOTIONS
execution of the contract. They promised to pay the balance in monthly
installments of P 41.20 until fully paid which they paid monthly until July Nature: Action for damages
1966, when their aggregate payment already amounted to P4,533.38. On Ponente: Fernan
numerous occasions, the defendants-appellants accepted and received delayed Date: March 20, 1987
installment payments. The Calasanzes then cancelled the contract because the
plaintiffs failed to meet subsequent payments. Plaintiffs seek to compel the DOCTRINE: While the contract imposed no penalty for such violation, this
defendants to execute in their favor the final deed of sale alleging that after does not grant any of the parties the unbridled liberty to breach it with
computing all subsequent payments, they have already paid the total amount impunity. Our law on contracts recognizes the principle that actionable injury
of P4,533.38. Defendants alleged that plaintiffs violated par. 6 of the contract inheres in every contractual breach. Thus, Art. 1170 and 1191 of the Civil Code.
to sell when they failed and refused to pay and/or offer to pay the monthly Under the law when a contract is unlawfully novated by an applicable and
installments, constraining the defendants-appellants to cancel the said unilateral substitution of the obligor by another, the aggrieved creditor is not
contract. bound to deal with the substitute.

ISSUE: WON the contract to sell has been automatically and validly cancelled FACTS:
by the defendants. NO Solomon Boysaw and his then Manager, Willie Ketchum, signed with Interphil
Promotions, Inc. represented by Lope Sarreal, Sr., a contract to engage Gabriel
The defendants argue that the plaintiffs failed to pay the August, 1966 "Flash" Elorde in a boxing contest for the junior lightweight championship of
installment despite demands for more than 4 months, thus he may the world. It was stipulated that the bout would be held at the Rizal Memorial
automatically cancel a contract to sell on the strength of a provision or Stadium in Manila on September 30, 1961 or not later than 30 days thereafter
stipulation (paragraph 6) of the contract in this case. Also, they alleged that should a postponement be mutually agreed upon, and that Boysaw would not,
they had the right to cancel the contract to sell under Article 1191. prior to the date of the boxing contest, engage in any other such contest
without the written consent of Interphil Promotions, Inc. Afterwards,
SC RULING: Article 1191 is explicit. In reciprocal obligations, either party the Ketchum assigned to J. Amado Araneta who then assigned to Yulo the
right to rescind the contract upon the failure of the other to perform the managerial rights over Solomon Boysaw. Boysaw arrived in the Philippines.
obligation assumed thereunder. Moreover, there is nothing in the law that Yulo then wrote to Sarreal informing him of his acquisition of the managerial
prohibits the parties from entering into an agreement that violation of the rights over Boysaw and indicating his and Boysaw's readiness to comply with
terms of the contract would cause its cancellation even without court the boxing contract. Sarreal wrote a letter to the Games and Amusement Board
intervention. Well settled is, however, the rule that a judicial action for the expressing concern over reports that there had been a switch of managers in
rescission of a contract is not necessary where the contract provides that it may the case of Boysaw. Thus, GAB decided to schedule the Elorde-Boysaw fight
for November 4, 1961. Yulo, Jr. refused to accept the change in the fight date.
Page 59 of 115
While an Elorde-Boysaw fight was eventually staged, the fight contemplated in PILIPINAS BANK V IAC
the May 1, 1961 boxing contract never materialized.
Nature: Complaint for Specific Performance with Damages to compel
ISSUE 1: Whether or not there was a violation of the fight contract; who was petitioner to execute a deed of sale
guilty of such violation. YES. BOYSAW IS GUILTY. Ponente: Paras
Date: June 30, 1987
On the issue pertaining to the violation of the May 1, 1961 fight contract, the
evidence established that the contract was violated by appellant Boysaw DOCTRINE: There is a clear WAIVER of the stipulated right of "automatic
himself when, without the approval or consent of Interphil, he fought Louis rescission," as evidenced by the many extensions and the fact that the
Avila on June 19, 1961 in Las Vegas Nevada. While the contract imposed no petitioner never called attention to the proviso on "automatic rescission.".
penalty for such violation, this does not grant any of the parties the unbridled
liberty to breach it with impunity. Our law on contracts recognizes the FACTS:
principle that actionable injury inheres in every contractual breach. Thus, Art. Hacienda Benito, Inc. (petitioner's predecessor-in-interest) as vendor, and
1170 and 1191 of the Civil Code. private respondents, as vendees executed a Contract to Sell over a parcel of
land in Antipolo with a provision that “the contract shall be considered
The power to rescind is given to the injured party. "Where the plaintiff is the automatically rescinded and cancelled and of no further force and effect upon
party who did not perform the undertaking which he was bound by the terms failure of the vendee to pay when due, three or more consecutive installments
of the agreement to perform 4 he is not entitled to insist upon the performance as stipulated therein or to comply with any of the terms and conditions thereof,
of the contract by the defendant, or recover damages by reason of his own in which case the vendor shall have right to resell the said parcel of land to any
breach " person interested…” Eventually, petitioner sent private respondents a simple
demand letter showing a delinquency in their monthly amortizations for 19
Another violation of the contract in question was the assignment and transfer, months. They then again sent private respondents a demand letter showing
first to J. Amado Araneta, and subsequently, to appellant Yulo, Jr., of the total arrearages of 20 months as of April 1965, but this time advising that
managerial rights over Boysaw without the knowledge or consent of Interphil. unless they up-date their installment payments, petitioner shall be constrained
The assignments, from Ketchum to Araneta, and from Araneta to Yulo, were to avail of the automatic rescission clause. Respondents made a partial
in fact novations of the original contract which, to be valid, should have been payment with the request for an extension (repeated a number of times).
consented to by Interphil. However, private respondents failed to update their arrearages and did not
request for any further extension of time within which to update their account.
Under the law when a contract is unlawfully novated by an applicable and Petitioner then wrote a letter to private respondents, informing them that the
unilateral substitution of the obligor by another, the aggrieved creditor is not contract to sell had been rescinded/cancelled by a notarial act, to which letter
bound to deal with the substitute. was annexed a "Demand for Rescission of Contract".

From the evidence, it is clear that the appellees, instead of availing themselves TC: Petitioner could not rescind the contract to sell, because: (a) petitioner
of the options given to them by law of rescission or refusal to recognize the waived the automatic rescission clause by accepting payment on September
substitute obligor Yulo, really wanted to postpone the fight date owing to an 1967, and by sending letters advising private respondents of the balances due,
injury that Elorde sustained in a recent bout. That the appellees had the thus, looking forward to receiving payments thereon.
justification to renegotiate the original contract, particularly the fight date is
undeniable from the facts aforestated. Under the circumstances, the appellees' ISSUE: WON the contract was rescinded or cancelled, under the automatic
desire to postpone the fight date could neither be unlawful nor unreasonable. rescission clause contained therein. NO.

ISSUE 2: Whether or not there was legal ground for the postponement of the While it is true that the Supreme Court reiterated among other things that a
fight date from September 1, 1961, as stipulated in the May 1, 1961 boxing contractual provision allowing "automatic rescission" (without prior need of
contract, to November 4,1961. YES. Since all the rights on the matter rested judicial rescission, resolution or cancellation) is VALID, the remedy of one who
with the appellees, and appellants' claims, if any, to the enforcement of the feels aggrieved being to go to Court for the cancellation of the rescission itself,
contract hung entirely upon the former's pleasure and sufferance, the GAB did in case the rescission is found unjustified under the circumstances, still in the
not act arbitrarily in acceding to the appellee's request to reset the fight date instant case there is a clear WAIVER of the stipulated right of "automatic
to November 4, 1961. rescission," as evidenced by the many extensions granted private respondents
Page 60 of 115
by the petitioner. In all these extensions, the petitioner never called attention Island Savings Bank and Tolentino undertook reciprocal obligations. In
to the proviso on "automatic rescission." reciprocal obligations, the obligation or promise of each party is the
_____________________________________________________ consideration for that of the other and when one party has performed or is
ready and willing to perform his part of the contract, the other party who has
CENTRAL BANK V CA not performed or is not ready and willing to perform incurs in delay (Art. 1169
of the Civil Code). The promise of Sulpicio M. Tolentino to pay was the
Nature: Petition for injunction, specific performance or rescission, and consideration for the obligation of Island Savings Bank to furnish the
damages with preliminary injunction. P80,000.00 loan. The Bank's delay in furnishing the entire loan lasted for a
Ponente: Makasiar period of 3 years or when the Monetary Board of the Central Bank issued
Date: October 3, 1985 Resolution No. 967. Such resolution made it legally impossible for Island
Savings Bank to furnish the P63,000.00 balance.
DOCTRINE: When one is in default in fulfilling its reciprocal obligation
under their loan agreement, the other party, under Article 1191 of the Civil Since Island Savings Bank was in default in fulfilling its reciprocal obligation
Code, may choose between specific performance or rescission with damages in under their loan agreement, Sulpicio M. Tolentino, under Article 1191 of the
either case. But since the defaulting party is already prohibited from fulfilling Civil Code, may choose between specific performance or rescission with
its obligation, rescission is the only alternative remedy left. damages in either case. But since Island Savings Bank is now prohibited from
doing further business by Monetary Board Resolution No. 967, WE cannot
FACTS: grant specific performance in favor of Sulpicio M, Tolentino.
Island Savings Bank approved the loan application for P80,000.00 of Sulpicio
M. Tolentino, who, as a security for the loan, executed on the same day a real Rescission is the only alternative remedy left. WE rule, however, that
estate mortgage over his 100-hectare land in Agusan. The approved loan rescission is only for the P63,000.00 balance of the P80,000.00 loan, because
application called for a lump sum P80,000.00 loan, repayable in semi-annual the bank is in default only insofar as such amount is concerned, as there is no
installments for a period of 3 years. It was required that Tolentino shall use the doubt that the bank failed to give the P63,000.00. As far as the partial release
loan proceeds solely as an additional capital to develop his other property into of P17,000.00, which Sulpicio M. Tolentino accepted and executed a
a subdivision. A mere P17,000.00 partial release of the P80,000.00 loan was promissory note to cover it, the bank was deemed to have complied with its
made by the Bank. An advance interest for the P80,000.00 loan covering a 6- reciprocal obligation to furnish a P17,000.00 loan. The promissory note gave
month period amounting to P4,800.00 was deducted from the partial release rise to Sulpicio M. Tolentino's reciprocal obligation to pay the P17,000.00 loan
of P17,000.00. when it falls due. His failure to pay the overdue amortizations under the
promissory note made him a party in default, hence not entitled to rescission
The Monetary Board of the Central Bank, after finding Island Savings Bank (Article 1191 of the Civil Code). If there is a right to rescind the promissory
was suffering liquidity problems, issued Resolution No. 1049, which note, it shall belong to the aggrieved party, that is, Island Savings Bank.
prohibited the bank from making new loans and investments excluding
extensions or renewals of already approved loans, provided that such RE: DAMAGES AND REAL ESTATE MORTGAGE
extensions or renewals shall be subject to review by the Superintendent of Since both parties were in default in the performance of their respective
Banks, reciprocal obligations, that is, Island Savings Bank failed to comply with its
obligation to furnish the entire loan and Sulpicio M. Tolentino failed to comply
Island Savings Bank, in view of non-payment of the P17,000.00 covered by the with his obligation to pay his P17,000.00 debt within 3 years as stipulated,
promissory note, filed an application for the extra-judicial foreclosure of the they are both liable for damages.
real estate mortgage. Tolentino filed for injunction, specific performance or
rescission alleging that since Island Savings Bank failed to deliver the We hold, however, that the real estate mortgage of Sulpicio M. Tolentino
P63,000.00 balance of the P80,000.00 loan, he is entitled to specific cannot be entirely foreclosed to satisfy his P 17,000.00 debt. When there is
performance by ordering Island Savings Bank to deliver the P63,000.00 and partial failure of consideration, the mortgage becomes unenforceable to the
if said balance cannot be delivered, to rescind the real estate mortgage. extent of such failure.
************************************************************************
ISSUE 1: WON the action for specific performance may prosper? NO, only
rescission.

Page 61 of 115
G. Modes of extinguishment of obligations deny that the factory he was building in Davao was for the manufacture of bags
from local raw materials. The explanatory note on page 1 of the same brochure
Article 1231. Obligations are extinguished: states that, the venture "is the first serious attempt in this country to use 100%
(1) By payment or performance; locally grown raw materials notably kenaf which is presently grown
(2) By the loss of the thing due; commercially in theIsland of Mindanao where the proposed jutemill is located
(3) By the condonation or remission of the debt; ..." This fact, according to defendant DBP, is what moved RFC to approve the
(4) By the confusion or merger of the rights of creditor and debtor; loan application in the first place.
(5) By compensation;
(6) By novation. ISSUE: WON there was a perfected contract to speak of. YES but there was
Other causes of extinguishment of obligations, such as annulment, rescission, mutual desistance.
fulfillment of a resolutory condition, and prescription, are governed elsewhere
in this Code. (1156a) We hold that there was indeed a perfected consensual contract, as recognized
************************************************************************ in Article 1934 (An accepted promise to deliver something, by way of
SAURA V DBP commodatum or simple loan is binding upon the parties, but the commodatum
or simple loan itself shall not be perferted until the delivery of the object of the
Nature: Action for damages contract.) There was undoubtedly offer and acceptance in this case: the
Ponente: Makalintal application of Saura, Inc. for a loan of P500,000.00 was approved by
Date: April 27, 1972 resolution of the defendant, and the corresponding mortgage was executed
and registered. But this fact alone falls short of resolving the basic claim that
DOCTRINE: Mutual desistance or "mutuo disenso" is a mode of the defendant failed to fulfill its obligation and the plaintiff is therefore entitled
extinguishing obligations. It is a concept that derives from the principle that to recover damages.
since mutual agreement can create a contract, mutual disagreement by the
parties can cause its extinguishment. It should be noted that RFC entertained the loan application of Saura, Inc. on
the assumption that the factory to be constructed would utilize locally grown
FACTS: raw materials, principally kenaf. There is no serious dispute about this. It was
Saura, Inc applied to the Rehabilitation Finance Corporation (RFC), before its in line with such assumption that when RFC, by Resolution No. 9083 approved
conversion into DBP, for an industrial loan of P500,000.00, to be used as on December 17, 1954, restored the loan to the original amount of
follows: P250,000.00 for the construction of a factory building (for the P500,000.00. it imposed two conditions, to wit: "(1) that the raw materials
manufacture of jute sacks); P240,900.00 to pay the balance of the purchase needed by the borrower-corporation to carry out its operation are available in
price of the jute mill machinery and equipment; and P9,100.00 as additional the immediate vicinity; and (2) that there is prospect of increased production
working capital. RFC passed Resolution No. 145 approving the loan thereof to provide adequately for the requirements of the factory." The
application for P500,000.00, to be secured by a first mortgage on the factory imposition of those conditions was by no means a deviation from the terms of
building to be constructed, the land site thereof, and the machinery and the agreement, but rather a step in its implementation.
equipment to be installed. In a meeting of the RFC Board of Governors it was
decided to reduce the loan from P500,000.00 to P300,000.00. F.R. Halling, Evidently Saura, Inc. realized that it could not meet the conditions required by
who had signed the promissory note for China Engineers Ltd. jointly and RFC, and so wrote its letter of January 21, 1955, stating that local jute "will not
severally with the other RFC that his company no longer to of the loan and be able in sufficient quantity this year or probably next year," and asking that
therefore considered the same as cancelled as far as it was concerned. On out of the loan agreed upon the sum of P67,586.09 be released "for raw
December 17, 1954 RFC passed Resolution No. 9083, restoring the loan to the materials and labor." This was a deviation from the terms laid down in
original amount of P500,000.00, "it appearing that China Engineers, Ltd. is Resolution No. 145 and embodied in the mortgage contract, implying as it did
now willing to sign. a diversion of part of the proceeds of the loan to purposes other than those
agreed upon. When RFC turned down the request in its letter of January 25,
The action thus taken was communicated to Saura, Inc. in a letter of RFC dated 1955 the negotiations which had been going on for the implementation of the
December 22, 1954, wherein it was explained that the certification by the agreement reached an impasse. Saura, Inc. obviously was in no position to
Department of Agriculture and Natural Resources was required "as the comply with RFC's conditions. So instead of doing so and insisting that the
intention of the original approval (of the loan) is to develop the manufacture loan be released as agreed upon, Saura, Inc. asked that the mortgage be
of sacks on the basis of locally available raw materials." Saura, Inc. does not cancelled, which was done on June 15, 1955. The action thus taken by both
Page 62 of 115
parties was in the nature of mutual desistance — what Manresa terms "mutuo debtor's consent. But the payment is in any case valid as to the creditor who
disenso" 1 — which is a mode of extinguishing obligations. It is a concept that has accepted it. (n)
derives from the principle that since mutual agreement can create a contract,
mutual disagreement by the parties can cause its extinguishment. Article 1239. In obligations to give, payment made by one who does not have
the free disposal of the thing due and capacity to alienate it shall not be valid,
The subsequent conduct of Saura, Inc. confirms this desistance. It did not without prejudice to the provisions of article 1427 under the Title on "Natural
protest against any alleged breach of contract by RFC, or even point out that Obligations." (1160a)
the latter's stand was legally unjustified. Its request for cancellation of the
mortgage carried no reservation of whatever rights it believed it might have Article 1240. Payment shall be made to the person in whose favor the
against RFC for the latter's non-compliance. In 1962 it even applied with DBP obligation has been constituted, or his successor in interest, or any person
for another loan to finance a rice and corn project, which application was authorized to receive it. (1162a)
disapproved. It was only in 1964, nine years after the loan agreement had been
cancelled at its own request, that Saura, Inc. brought this action for Article 1241. Payment to a person who is incapacitated to administer his
damages.All these circumstances demonstrate beyond doubt that the said property shall be valid if he has kept the thing delivered, or insofar as the
agreement had been extinguished by mutual desistance — and that on the payment has been beneficial to him.
initiative of the plaintiff-appellee itself. Payment made to a third person shall also be valid insofar as it has redounded
************************************************************************ to the benefit of the creditor. Such benefit to the creditor need not be proved
1. Payment or performance in the following cases:
(1) If after the payment, the third person acquires the creditor's rights;
Article 1232. Payment means not only the delivery of money but also the (2) If the creditor ratifies the payment to the third person;
performance, in any other manner, of an obligation. (n) (3) If by the creditor's conduct, the debtor has been led to believe that
the third person had authority to receive the payment. (1163a)
Article 1233. A debt shall not be understood to have been paid unless the
thing or service in which the obligation consists has been completely delivered Article 1242. Payment made in good faith to any person in possession of the
or rendered, as the case may be. (1157) credit shall release the debtor. (1164)

Article 1234. If the obligation has been substantially performed in good faith, Article 1243. Payment made to the creditor by the debtor after the latter has
the obligor may recover as though there had been a strict and complete been judicially ordered to retain the debt shall not be valid. (1165)
fulfillment, less damages suffered by the obligee. (n)
Article 1244. The debtor of a thing cannot compel the creditor to receive a
Article 1235. When the obligee accepts the performance, knowing its different one, although the latter may be of the same value as, or more valuable
incompleteness or irregularity, and without expressing any protest or than that which is due.
objection, the obligation is deemed fully complied with. (n) In obligations to do or not to do, an act or forbearance cannot be substituted
by another act or forbearance against the obligee's will. (1166a)
Article 1236. The creditor is not bound to accept payment or performance by
a third person who has no interest in the fulfillment of the obligation, unless Article 1246. When the obligation consists in the delivery of an
there is a stipulation to the contrary. indeterminate or generic thing, whose quality and circumstances have not
Whoever pays for another may demand from the debtor what he has paid, been stated, the creditor cannot demand a thing of superior quality. Neither
except that if he paid without the knowledge or against the will of the debtor, can the debtor deliver a thing of inferior quality. The purpose of the obligation
he can recover only insofar as the payment has been beneficial to the debtor. and other circumstances shall be taken into consideration. (1167a)
(1158a)
Article 1247. Unless it is otherwise stipulated, the extrajudicial expenses
Article 1237. Whoever pays on behalf of the debtor without the knowledge or required by the payment shall be for the account of the debtor. With regard to
against the will of the latter, cannot compel the creditor to subrogate him in judicial costs, the Rules of Court shall govern. (1168a)
his rights, such as those arising from a mortgage, guaranty, or penalty. (1159a)
Article 1238. Payment made by a third person who does not intend to be
reimbursed by the debtor is deemed to be a donation, which requires the
Page 63 of 115
Article 1248. Unless there is an express stipulation to that effect, the creditor Republic Act No. 529, as repealed by RA 8183
cannot be compelled partially to receive the prestations in which the obligation June 16, 1950
consists. Neither may the debtor be required to make partial payments.
However, when the debt is in part liquidated and in part unliquidated, the AN ACT TO ASSURE UNIFORM VALUE TO PHILIPPINE COIN
creditor may demand and the debtor may effect the payment of the former AND CURRENCY
without waiting for the liquidation of the latter. (1169a) Be it enacted by the Senate and House of Representatives of the Philippines
in Congress assembled;
Article 1249. The payment of debts in money shall be made in the currency
stipulated, and if it is not possible to deliver such currency, then in the currency WHEREAS, the value of Philippine coin and currency affects public interest
which is legal tender in the Philippines. and is subject to regulation by the Congress of the Philippines; and
The delivery of promissory notes payable to order, or bills of exchange or other
mercantile documents shall produce the effect of payment only when they have WHEREAS, it has been disclosed that the provisions of certain obligations
been cashed, or when through the fault of the creditor they have been contracted in the Philippines purport to give the obligee the right to require
impaired. payment in gold or in a particular kind of coin or currency or in an amount in
In the meantime, the action derived from the original obligation shall be held money of the Philippines measured thereby, thus obstructing the power of the
in the abeyance. (1170) Congress to regulate the value of the money of the Philippines and
contravening the policy of the Congress, here declared, to maintain at all times
Article 1250. In case an extraordinary inflation or deflation of the currency the equal and stable power of every peso coined or issued by the Philippines,
stipulated should supervene, the value of the currency at the time of the in the markets and in the payment of debts; Now, therefore.
establishment of the obligation shall be the basis of payment, unless there is
an agreement to the contrary. (n) Section 1. Every provision contained in, or made with respect to, any
obligation which provision purports to give the obligee the right to require
Article 1251. Payment shall be made in the place designated in the obligation. payment in gold or in a particular kind of coin or currency other than
There being no express stipulation and if the undertaking is to deliver a Philippine currency or in an amount of money of the Philippines measured
determinate thing, the payment shall be made wherever the thing might be at thereby, be as it is hereby declared against public policy, and null, void and of
the moment the obligation was constituted. no effect, and no such provision shall be contained in, or made with respect to,
In any other case the place of payment shall be the domicile of the debtor. any obligation hereafter incurred. Every obligation heretofore or hereafter
If the debtor changes his domicile in bad faith or after he has incurred in delay, incurred, whether or not any such provision as to payment is contained therein
the additional expenses shall be borne by him. or made with respect thereto, shall be discharged upon payment in any coin or
These provisions are without prejudice to venue under the Rules of Court. currency which at the time of payment is legal tender for public and private
(1171a) debts: Provided, That, if the obligation was incurred prior to the enactment of
this Act and required payment in a particular kind of coin or currency other
Article 1302. It is presumed that there is legal subrogation: than Philippine currency, it shall be discharged in Philippine currency
(1) When a creditor pays another creditor who is preferred, even measured at the prevailing rates of exchange at the time the obligation was
without the debtor's knowledge; incurred, except in case of a loan made in a foreign currency stipulated to be
(2) When a third person, not interested in the obligation, pays with the payable in the same currency in which case the rate of exchange prevailing at
express or tacit approval of the debtor; the time of the stipulated date of payment shall prevail. All coin and currency,
(3) When, even without the knowledge of the debtor, a person including Central Bank notes, heretofore or hereafter issued and declared by
interested in the fulfillment of the obligation pays, without prejudice the Government of the Philippines shall be legal tender for all debts, public
to the effects of confusion as to the latter's share. (1210a) and private.

Section 2. All acts and parts of acts inconsistent with this Act are hereby
repealed.

Section 3. This Act shall take effect upon its approval.

Approved: June 16, 1950

Page 64 of 115
Republic Act No. 8183, Repealing RA 529 LANDBANK V ONG
June 11, 1996
Nature: Action for recovery of sum of money with damages
AN ACT REPEALING REPUBLIC ACT NUMBERED FIVE Ponente: Velasco
HUNDRED TWENTY-NINE AS AMENDED, ENTITLED Date: November 24, 2010
"AN ACT TO ASSURE THE UNIFORM VALUE OF PHILIPPINE
COIN AND CURRENCY." DOCTRINE: The second paragraph of Art. 1236 does not apply to a third
Be it enacted by the Senate and House of Representatives of the Philippines person who does not have an interest in the fulfillment of the obligation.
in Congress assembled;
FACTS:
Section 1. All monetary obligations shall be settled in the Philippine currency Sps Johnson and Evangeline Sy secured a loan from Land Bank in the amount
which is legal tender in the Philippines. However, the parties may agree that of PhP 16 million. The loan was secured by three 3 residential lots, 5 cargo
the obligation or transaction shall be settled in any other currency at the time trucks, and a warehouse. Under the loan agreement, PhP 6 million of the loan
of payment. would be short-termwhile the balance of PhP 10 million would be payable in 7
years. Spouses Sy found they could no longer pay their loan, they sold three 3
Sec. 2. Republic Act Numbered Five Hundred Twenty-Nine (R.A. No. 529), as of their mortgaged parcels of land for PhP 150,000 to Angelina Gloria Ong,
amended entitled "An Act to Assume the Uniform Value of Philippine Coin Evangeline’s mother, under a Deed of Sale with Assumption of Mortgage.
and Currency," is hereby repealed. Evangeline’s father, petitioner Alfredo Ong, later went to Land Bank to inform
it about the sale and assumption of mortgage. They were also told that Alfredo
Sec. 3. This Act shall take effect fifteen (15) days after its publication in the should pay part of the principal which was computed at PhP 750,000 so
Official Gazette or in two (2) national newspapers of general circulation. The Alfredo issued a check for PhP 750,000 and personally gave it to Atty. Hingco.
Bangko Sentral ng Pilipinas and the Department of Finance shall conduct an Alfredo later found out that his application for assumption of mortgage was
intensive information campaign on the effect of this Act. not approved by Land Bank after a credit investigation. Land Bank foreclosed
Approved: June 11, 1996 the mortgage of the Spouses Sy after several months. Alfredo only learned of
the foreclosure when he saw the subject mortgage properties included in a
PD 72 Notice of Foreclosure of Mortgage and Auction Sale at the RTC.
Section 31. Section fifty-four of the same Act is hereby amended to read as
follows: "Sec. 54. Legal tender power. All notes and coins issued by the Issue: WON Art. 1236 of the Civil Code is applicable. Partly
Central Bank shall fully guaranteed by the Government of the Republic of the
Philippines and shall be legal tender in the Philippines for all debts, both Land Bank contends that Art. 1236 of the Civil Code backs their claim that
public and private: Provided, however, That coins shall be legal tender in Alfredo should have sought recourse against the Spouses Sy instead of Land
amounts not exceeding fifty pesos for denominations from ten centavos to Bank. Art. 1236 provides:
one peso, and in amounts not exceeding twenty pesos for denominations of
five centavos or less." The creditor is not bound to accept payment or performance by a third
PD 72 Section 32. Section sixty-three of the same Act is hereby amended to person who has no interest in the fulfillment of the obligation, unless there is
read as follows: "Sec. 63. Legal character. Checks representing deposit money a stipulation to the contrary.
do not have legal tender power and their acceptance in the payment of debts,
both public and private, is at the option of the creditor: Provided, however, Whoever pays for another may demand from the debtor what he has paid,
That a check which has been cleared and credited to the account of the except that if he paid without the knowledge or against the will of the debtor,
creditor shall be equivalent to a delivery to the creditor of cash in an amount he can recover only insofar as the payment has been beneficial to the
equal to the amount credited to his account." debtor.1avvphi1

We agree with Land Bank on this point as to the first part of paragraph 1 of Art.
1236. Land Bank was not bound to accept Alfredo’s payment, since as far as
the former was concerned, he did not have an interest in the payment of the
loan of the Spouses Sy. However, in the context of the second part of said

Page 65 of 115
paragraph, Alfredo was not making payment to fulfill the obligation of the FACTS:
Spouses Sy. Alfredo made a conditional payment so that the properties subject On September 7, 1954, petitioner J.M. Tuason & Co., Inc. entered a contract to
of the Deed of Sale with Assumption of Mortgage would be titled in his name. sell with respondent Ligaya Javier a parcel of land known as Lot No. 28, Block
It is clear from the records that Land Bank required Alfredo to make payment No. 356, PSD 30328, of the Sta. Mesa Heights Subdivision for the sum of
before his assumption of mortgage would be approved. He was informed that Php3,691.20 with 10% interest per annum; Php396.12 will be payable upon
the certificate of title would be transferred accordingly. He, thus, made execution of the contract, and an installment of Php43.92 monthly for a period
payment not as a debtor but as a prospective mortgagor. of ten (10) years. It was further stipulated in the contract, particularly the sixth
paragraph, that upon failure of respondent to pay the monthly installment, she
But the trial court stated that the contract was not perfected or consummated is given a one month grace period to pay such installment together with the
because of the adverse finding in the credit investigation which led to the monthly installment falling on the said grace period. Furthermore, failure to
disapproval of the proposed assumption. Alfredo, as a third person, did not, pay both monthly installments, respondent will pay an additional 10% interest.
therefore, have an interest in the fulfillment of the obligation of the Spouses And after 90 days from the end of the grace period, petitioner can rescind the
Sy, since his interest hinged on Land Bank’s approval of his application, which contract, the payments made by respondent will be considered as rentals.
was denied. The circumstances of the instant case show that the second Upon the execution of the contract, respondent religiously paid the monthly
paragraph of Art. 1236 does not apply. As Alfredo made the payment for his installment until January 5, 1962. Respondent, however, was unable to the pay
own interest and not on behalf of the Spouses Sy, recourse is not against the the monthly installments within the grace period which petitioner,
latter. And as Alfredo was not paying for another, he cannot demand from the subsequently, sent a letter to respondent on May 22, 1964 that the contract has
debtors, the Spouses Sy, what he has paid. been rescinded and asked the respondent to vacate the said land. So, upon
failure of respondent to vacate the said land, petitioner filed an action to the
ISSUE 2: WON there was a novation. NO Court of First Instance of Rizal for the rescission of the contract. The CFI
rendered a decision in favor of respondent in applying Article 1592 of the New
We do not agree with the CA in holding that there was a novation in the Civil Code. Hence, petitioner made an appeal to the Supreme Court alleging
contract between the parties. Not all the elements of novation were present. that since Article 1592 of the New Civil applies only to contracts of sale and not
Novation must be expressly consented to. Moreover, the conflicting intention in contracts to sell.
and acts of the parties underscore the absence of any express disclosure or
circumstances with which to deduce a clear and unequivocal intent by the ISSUE: Did the CFI erroneously apply Article 1592 of the New Civil Code?
parties to novate the old agreement.15 Land Bank is thus correct when it argues
that there was no novation in the following: Yes. Regardless, however, of the propriety of applying Article 1592, petitioner
[W]hether or not Alfredo Ong has an interest in the obligation and payment has not been denied substantial justice under Article 1234 of the New Civil
was made with the knowledge or consent of Spouses Sy, he may still pay the Code. In this connection, respondent religiously satisfied the monthly
obligation for the reason that even before he paid the amount of P750,000.00 installments for almost eight (8) years or up to January 5, 1962. It has been
on January 31, 1997, the substitution of debtors was already perfected by and shown that respondent had already paid Php4,134.08 as of January 5, 1962
between Spouses Sy and Spouses Ong as evidenced by a Deed of Sale with which is beyond the stipulated amount of Php3,691.20. Also, respondent has
Assumption of Mortgage executed by them on December 9, 1996. And since offered to pay all installments overdue including the stipulated interest,
the substitution of debtors was made without the consent of Land Bank – a attorney’s fees and the costs which the CFI accordingly sentenced respondent
requirement which is indispensable in order to effect a novation of the to pay such installment, interest, fees and costs. Thus, petitioner will be able
obligation, it is therefore not bound to recognize the substitution of debtors. recover everything that was due thereto. Under these circumstances, the SC
Land Bank did not intervene in the contract between Spouses Sy and Spouses feel that, in the interest of justice and equity, the decision appealed from may
Ong and did not expressly give its consent to this substitution. be upheld upon the authority of Article 1234 of the New Civil Code.
_____________________________________________________
NOTE: I couldn’t find a copy online of this case. I got this from other online
JM TUASON V JAVIER digests.

DOCTRINE: When a party religiously satisfied the monthly installments and

already paid beyong the stipulated amount, he may be able to recover
everything due thereto in the interest of justice and equity in accord with Art.
1234.
Page 66 of 115
 LEGARDA V SALDANA the already paid by way of principal (P1,682.28) more than the full value
of one lot (P1,500.00).
Nature: Complaint for delivery of land
Ponente: Teehankee The Court's doctrine in J.M. Tuason & Co. Inc. vs. Javier is applicable, with
Date: January 28, 1974 the respondent at bar being granted lesser benefits, since no rescission of
contract was therein permitted. There, the Court held that "Regardless,
DOCTRINE: A defaulting party may be granted lesser benefits, however, of the propriety of applying said Art. 1592 thereto, We find that
since no rescission of contractmay be permitted, for, according to Art. 1234 of plaintiff herein has not been denied substantial justice, for, according to Art.
said Code: 'If the obligation has been substantially performed in good faith, 1234 of said Code: 'If the obligation has been substantially performed in good
the obligor may recover as though there had been a strict and complete faith, the obligor may recover as though there had been a strict and complete
fulfillment, less damages suffered by the obligee. fulfillment, less damages suffered by the obligee,'" and "that in the interest
of justice and equity, the decision appealed from may be upheld upon the
FACTS: authority of Article 1234 of the Civil Code."
The action originated as a complaint for delivery of two parcels of land in ____________________________________________________________________________
Sampaloc, Manila and for execution of the corresponding deed of conveyance
after payment of the balance still due on their purchase price. Private AZCONA V JAMANDRE
respondent entered into two written contracts with petitioner subdivision
owner, whereby the latter agreed to sell to him 2 lots for the sum of P1,500.00 Nature: Action for damages
per lot, payable over the span of ten years divided into 120 equal monthly Ponente: Cruz
installments of P19.83. Subsequently, Legarda Hermanos partitioned the Date: June 30, 1987
subdivision among the brothers and sisters, and the two lots were among those
allotted to co-petitioner Jose Legarda. Respondent faithfully paid for eight DOCTRINE: The applicable provision is Article 1235 of the Civil Code,
continuous years about 95 (of the stipulated 120) monthly installments declaring that: Art. 1235. When the obligee accepts the performance, knowing
totalling P3,582.06 up to the month of February, 1956. After that, respondent its incompleteness or irregularity, and without expressing any protest or
did not make further payments, leaving a balance of P1,317.72. Almost five objection, the obligation is deemed fully complied with.
years later, respondent wrote petitioners stating that his desire to build a
house on the lots was prevented by their failure to introduce improvements on FACTS:
the subdivision as "there is still no road to these lots," and requesting Through a contract, Guillermo Azcona leased 80 hectares of his 150-
information of the amount owing to update his account as "I intend to continue hectarepro indiviso share in Hacienda Sta. Fe in Escalante, Negros Occidental,
paying the balance due on said lots." to Cirilo Jamandre. The agreed yearly rental was P7,200.00. The lease was for
Petitioners replied that cancellation was in order three agricultural years beginning 1960, extendible at the lessee's option to two
more agricultural years. The first annual rental was due but because the
ISSUE: WON defendants be compelled to allow plaintiff to complete payment petitioner did not deliver possession, he "waived" payment. The respondent
of the purchase price of the two lots in dispute and to execute the final deeds actually entered the premises. Petitioner notified the respondent that the
of conveyance. NO. However, 1 lot should be given. contract of lease was deemed cancelled, terminated pursuant to its paragraph
8, for violation of the conditions specified in the said agreement. Earlier, in
The Court finds that the appellate court's judgment finding that of the total fact, the respondent had been ousted from the possession of 60 hectares of the
sum of P3,582.06 already paid by respondent (which was more than the value leased premises.
of two lots), the sum applied by petitioners to the principal alone in the
amount of P1,682.28 was already more than the value of one lot ISSUE 1: WON the lack of the parcelary plan nullified the contract. NO
of P1,500.00 and hence one of the two lots as chosen by respondent would be
considered as fully paid, is fair and just and in accordance with law and equity. According to the petitioners, the parcelary plan was never agreed upon or
The monthly payments for eight years made by respondent were applied to his annexed to the contract, which thereby became null and void under Article
account without specifying or distinguishing between the two lots subject of 1318 of the Civil Code for lack of a subject matter. The correct view, as we see
the two agreements under petitioners' own statement of account. Even it, is that there was an agreed subject-matter, to wit, the 80 hectares of the
considering respondent as having defaulted after February 1956, he had as of petitioner's share in the Sta. Fe hacienda, although it was not expressly defined
Page 67 of 115
because the parcelary plan was not annexed and never approved by the parties. corresponding to crop year 1961-62" and "corresponds to the rentals due on or
Despite this lack, however, there was an ascertainable object because the before January 30, 1961, as per contract.
leased premises were sufficiently Identified and delineated as the petitioner
admitted in his amended answer and in his direct testimony. Moreover, it The applicable provision is Article 1235 of the Civil Code, declaring that: Art.
appears that the failure to attach the parcelary plan to the contract is imputable 1235. When the obligee accepts the performance, knowing its incompleteness
to the petitioner himself because it was he who was supposed to cause the or irregularity, and without expressing any protest or objection, the obligation
preparation of the said plan. The Identification of the 80 hectares being leased is deemed fully complied with.
rendered the parcelary plan unnecessary, and its absence did not nullify the _____________________________________________________
agreement. ARAÑAS VS. TUTAAN

ISSUE 2: WON respondent has fully paid the rentals in the amount of 7,200 FACTS:
(not 7,000). YES On May 3, 1971 the lower court declared thatPetitioner Luisa Quijencio (and
by her spouse Jose Arañas)was the owner of 400 shares including the stock
When the parties agreed on the lease for the succeeding agricultural year 1961- dividendsthat accrued to said shares, of respondent Universal Textile Mills,
62, the respondent paying and the petitioner receiving therefrom the sum of Inc. (UTEX) as defendant and Gene Manueland B. R. Castañeda as co-
P7,000.00…Citing the stipulation in the lease contract for an annual rental of defendants, and subsequently ordered UTEX to cancel said certificates and
P7,200.00, the petitioner now submits that there was default in the payment issue new ones in the name of Plaintiff and to deliver all dividendsappertaining
thereof by the respondent because he was P200.00 short of such rental. That to the same, whether in cash or in stocks.UTEX filed a motion for clarification
deficiency never having been repaired, the petitioner concludes, the contract whether thephrase “to deliver to her all dividends appertaining to thesame,
should be deemed cancelled in accordance with its paragraph 8. whether in cash or in stocks” meant dividends properly pertaining to plaintiffs
after the court’sdeclaration of plaintiff ownership of said 400 shares of stock.
Court holds that the amount of P7,000.00 paid to by the respondent and Defendant UTEX has always maintained it would rightfully abide by whatever
received by the petitioner represented payment in full of the rental for the decision may be rendered since such would be the logical consequence after
agricultural year 1961-62. The language is clear enough: "The amount of the ruling in respect to the rightful ownership of said shares of stock. The
P7,000.00, Philippine Currency, as payment for the rental corresponding to motion was granted which ruled against UTEX, ordering it to pay plaintiff the
crop year 1961-62 ... to the rental due on or before January 30, 1961, as per cash dividends, which accrued to the stocks in question after rendition of its
contract." The conclusion should be equally clear. The words "as per contract" current decision excluding cash dividends already paid to Gene Manuel and B.
are especially significant as they suggest that the parties were aware of the R. Castañeda which accrued before its decision. UTEX alleged that the cash
provisions of the agreement, which was described in detail elsewhere in the dividends had already been paid thereby absolving it from payment thereof.
receipt. The rental stipulated therein was P7,200.00. The payment being
acknowledged in the receipt was P7,000.00 only. Yet no mention was made in ISSUE: Was the contention of UTEX, alleging that the cash dividends of stock
the receipt of the discrepancy and, on the contrary, the payment was had already been paid and thereby absolving it from any further payment,
acknowledged "as per contract." We read this as meaning that the provisions valid?
of the contract were being maintained and respected except only for the
reduction of the agreed rental. RULING: No. The final and executory judgment against UTEX declared
petitioners as the owners of the questioned UTEX shares of stock against its
The respondent court held that the amount of P200.00 had been condoned, co-defendants. It was further made clear in the motion for clarification that all
but we do not think so. The petitioner is correct in arguing that the requisites dividends accruing to the said shares after the rendition of the decision of Aug.
of condonation under Article 1270 of the Civil Code are not present. What we 7, 1971 rightfully belonged to petitioners. If UTEX nevertheless chose to pay
see here instead is a mere reduction of the stipulated rental in consideration of the wrong parties, notwithstanding its full knowledge and understanding of
the withdrawal from the leased premises of the 16 hectares where the the final judgment, it was still liable to pay the petitioners as the lawful
petitioner intended to graze his cattle. declared owners of the questions shares of stocks. The burden of recovering
the supposed payment of the cash dividends made by UTEX to the wrong
It seems to us that this meaning was adequately conveyed in the parties Castañeda and Manuel falls upon itself by its own action and cannot be
acknowledgment made by the petitioner that this was "payment for the rental passed by it to the petitioner as the innocent parties. It is elementary that
payment made by a judgment debtor to a wrong party cannot extinguish the
judgment obligation of such debtor to its creditor.
Page 68 of 115
 there was due him fees in sums consisting of $28,000 (U.S.) and P100,204.46,
KALALO vs. LUZ excluding interests, of which sums only P69,323.21 had been paid, thus leaving
unpaid the $28,000.00 and the balance of P30,881.25. In the second cause of
NATURE: Collection of Sum of Money and Damages action, appellee claimedP17,000.00 as consequential and moral damages; in
Zaldivar, J. the third cause of action he claimed P55,000.00 as moral damages, attorney's
July 31, 1970 fees and expenses of litigation; and in the fourth cause of action he claimed
P25,000.00 as actual damages, and also for attorney's fees and expenses of
DOCTRINE: If an obligation was incurred prior to the enactment of the litigation.
Act and require payment in a particular kind of coin or currency other than - In his answer, appellant admitted that appellee rendered engineering
the Philippine currency the same shall be discharged in Philippine currency services, as alleged in the first cause of action, but averred that some of
measured at the prevailing appellee's services were not in accordance with the agreement and appellee's
Rate of exchange at the time the obligation was incurred. claims were not justified by the services actually rendered, and that the
aggregate amount actually due to appellee was only P80,336.29, of which
FACTS: P69,475.21 had already been paid, thus leaving a balance of only P10,861.08.
PROVISION/S: RA 529 Appellant denied liability for any damage claimed by appellee to have suffered,
- On November 17, 1959, appellee Kalalo, a licensed civil engineer doing as alleged in the second, third and fourth causes of action. Appellant set up
business under the firm name of O. A. Kalalo and Associates, entered into an affirmative and special defenses, alleging that appellee had no cause of action,
agreement with appellant Luz, a licensed architect, doing business under the that appellee was in estoppel because of certain acts, representations,
firm name of AJ. Luz and Associates, whereby the former was to render admissions and/or silence, which led appellant to believe certain facts to exist
engineering design services to the latter for fees, as stipulated in the and to act upon said facts, that appellee's claim regarding the Menzi project
agreement. The services included design computation and sketches, contract was premature because appellant had not yet been paid for said project, and
drawing and technical specifications of all engineering phases of the project that appellee's services were not complete or were performed in violation of
designed by O.A. Kalalo and Associates, bill of quantities and cost estimate, the agreement and/or otherwise unsatisfactory. Appellant also set up a
and consultation and advice during construction relative to the work. Pursuant counterclaim for actual and moral damages for such amount as the court may
to said agreement, appellee rendered engineering services to appellant in the deem fair to assess, and for attorney's fees of P10,000.00.- Inasmuch as the
following projects:(a)Fil-American Life Insurance Building at Legaspi pleadings showed that the appellee's right to certain fees for services rendered
City;(b)Fil-American Life Insurance Building at Iloilo City;(c)General Milling was not denied, the only question being the assessment of the proper fees and
Corporation Flour Mill at Opon, Cebu;(d)Menzi Building at Ayala Blvd., the balance due to appellee after deducting the admitted payments made by
Makati, Rizal;(e)International Rice Research Institute, Research Center, Los appellant, the trial court, upon agreement of the parties, authorized the case
Baños, Laguna;(f)Aurelia's Building at Mabina, Ermita, Manila;(g)Far East to be heard before a Commissioner. The Commissioner rendered a report
Bank's Office at Fil-American Life Insurance Building at Isaac Peral,Ernita, which, in resume, states that the amount due to appellee was $28,000.00
Manila;(h)Arthur Young's residence at Forbes Park, Makati, Rizal;(i) L & S (U.S.) as his fee in the International Research Institute Project which was 20%
Building at Dewey Blvd., Manila; and (j)Stanvac Refinery Service Building at of the$140,000.00 that was paid to appellant, and P51,539.91 for the other
Limay, Bataan. projects, less the sum of P69,475.46 which was already paid by the appellant.
- On December 11, 1961, appellee sent to appellant a statement of account to The trial court ruled in favor of Kalalo by ordering Luz to pay him the sum of
which was attached an itemized statement of defendant-appellant's account, P51,539.91 and$28,000.00, the latter to be converted into the Philippine
according to which the total engineering fee asked by appellee for services currency on the basis of the current rate of exchange at the time of the payment
rendered amounted to P116,565.00 from which sum was to be deducted the of this judgment, as certified to by the Central Bank of the Philippines.
previous payments made in the amount of P57,000.00, thus leaving a balance
due in the amount of P59,565.00. On May 18, 1962 appellant sent appellee a ISSUE: WON payment of the amount due to the appellee in dollars is legally
resume of fees due to the latter. Said fees, according to appellant, amounted to permissible, and if not, at what rate of exchange it should be paid in pesos
P10,861.08 instead of the amount claimed by the appellee. On June 14, 1962
appellant sent appellee a check for said amount, which appellee refused to RULING:
accept as full paymentof the balance of the fees due him. NO. Payment in dollars is prohibited by Republic Act (RA) No. 529
- On August 10, 1962, appellee filed a complaint against appellant, containing which provides that if the obligation was incurred prior to the
four causes of action. In the first cause of action, appellee alleged that for enactment of the Act and require payment in a particular kind of
services rendered in connection with the different projects therein mentioned
Page 69 of 115
coin or currency other than the Philippine currency the same shall the debtors shall execute a first mortgage in favor of the creditor over their
be discharged in Philippine currency measured at the prevailing properties or of the Carmen Planas Memorial, Inc
Rate of exchange at the time the obligation was incurred. RA No. 529
was enacted on June 16, 1950. In the case now before Us the obligation of For failure to comply w/Ø, a Complaint was filed by PONCE at CFI-Manila for
appellant to pay appellee the 20% of $140,000.00, or the sum of $28,000.00, the recovery of the principal sum of P814,868.42, plus interest and damages
accrued on August 25, 1961, or after the enactment of RA No. 529. It follows
that the provision of RA No. 529 which requires payment at the prevailing rate
Trial Court rendered judgment ordering respondent Afable and her co-
of exchange when the obligation was incurred cannot be applied. RA No. 529
debtors, Felisa L. Mendoza and Ma. Aurora C. Diño , to pay petitioners, jointly
does not provide for the rate of exchange for the payment of obligation
and severally, the sum of P814,868.42, plus 12% interest per annum from July
incurred after the enactment of said Act. The logical conclusion, therefore, is
31, 1969 until full payment, and a sum equivalent to 10% of the total amount
that the rate of exchange should be that prevailing at the time of payment. This
due as attorney's fees and costs
view finds support in the ruling of this Court in the case of Engel vs. Velasco &
Co. where this Court held that even if the obligation assumed by the defendant
was to pay the plaintiff a sum of money expressed in American currency, the From said Decision, by respondent Afable appealed to the Court of Appeals.
indemnity to be allowed should be expressed in Philippine currency at the rate She argued that the contract under consideration involved the payment of US
of exchange at the time of judgment rather than at the rate of exchange dollars and was, therefore, illegal; and that under the in pari delicto rule, since
prevailing on the date of defendant's breach. Therefore, appellant should pay both parties are guilty of violating the law, neither one can recover. It is to be
the appellee the equivalent in pesos of the $28,000.00 at the free market rate noted that said defense was not raised in her Ans
of exchange at the time of payment. The trial court did not err when it held that
herein appellant should pay appellee$28,000.00 to be converted into the CA affirmed TC. MR denied. CA’s holding: the agreement is null and void and
Philippine currency on the basis of the current rate of exchange at the time of of no effect under Republic Act No. 529. Under the doctrine of pari delicto, no
payment of this judgment, as certified to by the Central Bank of the recovery can be made in favor of the plaintiffs for being themselves guilty of
Philippines. violating the law
_____________________________________________________
PONCE vs. CA ISSUE: WON the subject matter of the transaction is illegal and against public
policy, thus, doctrine of pari delicto applies.
NATURE: Recovery of sum of money
Melencio Herrera, J. RULING: NO. It is to be noted that while an agreement to pay in
May 31, 1979 dollars is declared as null and void and of no effect, what the law
specifically prohibits is payment in currency other than legal
DOCTRINE: While an agreement to pay in dollars is declared as null and void tender. It does not defeat a creditor's claim for payment, as it specifically
and of no effect, what the law specifically prohibits is payment in currency provides that "every other domestic obligation ... whether or not any such
other than legal tender. provision as to payment is contained therein or made with respect thereto,
shall be discharged upon payment in any coin or currency which at the time of
FACTS: payment is legal tender for public and private debts." A contrary rule would
PROVISION/S: RA 529 (cited below) allow a Section 1 of Republic Act No. 529, which was enacted on June
16, 1950:
June 3, 1969, private respondent Jesusa B. Afable, together with Felisa L.
Mendoza and Ma. Aurora C. Diño executed a promissory note in favor of Section 1. Every provision contained in, or made with respect to, any
petitioner Nelia G. Ponce in the sum of P814,868.42, Philippine Currency, domestic obligation to wit, any obligation contracted in the Philippines which
payable, without interest, on or before July 31, 1969. It was further provided provision purports to give the obligee the right to require payment
therein that should the indebtedness be not paid at maturity, it shall draw in gold or in a particular kind of coin or currency other than
interest at 12% per annum, without demand; that should it be necessary to Philippine currency or in an amount of money of the Philippines
bring suit to enforce pay ment of the note, the debtors shall pay a sum measured thereby, be as it is hereby declared against public
equivalent to 10% of the total amount due for attorney's fees; and, in the event policy, and null and void and of no effect and no such provision
of failure to pay the indebtedness plus interest in accordance with its terms, shall be contained in, or made with respect to, any obligation
Page 70 of 115
hereafter incurred. The above prohibition shall not apply to (a) would be made in dollars, petitioners can still recover the amount of
transactions were the funds involved are the proceeds of loans or investments US$194,016.29, which respondent Afable and her co-debtors do not deny
made directly or indirectly, through bona fide intermediaries or agents, by having received, in its peso equivalent. As held in Eastboard Navigation, Ltd.
foreign governments, their agencies and instrumentalities, and international vs. Juan Ysmael & Co. Inc., 102 Phil. 1 (1957), and Arrieta vs. National Rice &
financial and banking institutions so long as the funds are Identifiable, as Corn Corp., if there is any agreement to pay an obligation in a currency other
having emanated from the sources enumerated above; (b) transactions than Philippine legal tender, the same is nun and void as contrary to public
affecting high priority economic projects for agricultural industrial and power policy, pursuant to Republic Act No. 529, and the most that could be
development as may be determined by the National Economic Council which demanded is to pay said obligation in Philippine currency. In other words,
are financed by or through foreign funds; (c) forward exchange transactions what is prohibited by RA No. 529 is the payment of an obligation in dollars,
entered into between banks or between banks and individuals or juridical meaning that a creditor cannot oblige the debtor to pay him in dollars, even if
persons; (d) import-export and other international banking financial the loan were given in said currency. In such a case, the indemnity to be
investment and industrial transactions. With the exception of the cases allowed should be expressed in Philippine currency on the basis of the current
enumerated in items (a) (b), (c) and (d) in the foregoing provision, in, which rate of exchange at the time of payment.
cases the terms of the parties' agreement shall apply, every other domestic _____________________________________________________
obligation heretofore or hereafter incurred whether or not any
such provision as to payment is contained therein or made with- NEW PACIFIC TIMBER vs. SENERIS
respect thereto, shall be discharged upon payment in any coin or
currency which at the time of payment is legal tender for public NATURE: Collection of Money
and private debts: Provided, That if the obligation was incurred Concepcion, J.
prior to the enactment of this Act and required payment in a December 19, 1980
particular kind of coin or currency other than Philippine currency,
it shall be discharge in Philippine currency measured at the DOCTRINE: It is well known & accepted practice in the business sector that a
prevailing rates of exchange at the time the obligation was Cashier's check is deemed as cash
incurred, except in case of a loan made in foreign currency
stipulated to be payable in the currency in which case the rate of FACTS:
exchange prevailing at the time of the stipulated date of payment PROVISION/S: Sec. 63 CB Act
shall prevail All coin and currency, including Central Bank notes, Petitioner, New Pacific Timber & Supply Co. Inc. was the defendant in a
heretofore and hereafter issued and d by the Government of the complaint for collection of money filed by private respondent, Ricardo A. Tong.
Philippines shall be legal tender for all debts, public and private. In this complaint, respondent Judge rendered a compromise judgment based
(As amended by RA 4100, Section 1, approved June 19, 1964) on the amicable settlement entered by the parties wherein petitioner will pay
to private respondent P54,500.00 at 6% interest per annum and P6,000.00 as
As the Court of Appeals itself found, the promissory note in question provided attorney’s fee of which P5,000.00 has been paid. Upon failure of the petitioner
on its face for payment of the obligation in Philippine currency, i.e., to pay the judgment obligation, a writ of execution worth P63,130.00 was
P814,868.42. So that, while the agreement between the parties originally issued levied on the personal properties of the petitioner. Before the date of
involved a dollar transaction and that petitioners expected to be paid in the the auction sale, petitioner deposited with the Clerk of Court in his capacity as
amount of US$194,016.29, petitioners are not now insisting on their the Ex-Officio Sheriff P50,000.00 in Cashier’s Check of the Equitable Banking
agreement with respondent Afable for the payment of the obligation in dollars. Corporation and P13,130.00 in cash for a total of
On the contrary, they are suing on the basis of the promissory note whereby P63,130.00. Private respondent refused to accept the check and the cash and
the parties have already agreed to convert the dollar loan into Philippine requested for the auction sale to proceed. The properties were sold for
currency at the rate of P4.20 to $1.00. It may likewise be pointed out that the P50,000.00 to the highest bidder with a deficiency of P13,130.00. Petitioner
Promissory Note contains no provision "giving the obligee the right to require subsequently filed an ex-parte motion for issuance of certificate of satisfaction
payment in a particular kind of currency other than Philippine currency, " of judgment which was denied by the respondent Judge. Hence this present
which is what is specifically prohibited by RA No. 529. petition, alleging that the respondent Judge capriciously and whimsically
At any rate, even if we were to disregard the promissory note providing for the abused his discretion in not granting the requested motion for the reason that
payment of the obligation in Philippine currency and consider that the the judgment obligation was fully satisfied before the auction sale with the
intention of the parties was really to provide for payment of the obligation deposit made by the petitioner to the Ex-Officio Sheriff. In upholding the
refusal of the private respondent
Page 71 of 115
to accept the check, the respondent Judge cited Article 1249 of the New Civil ROMAN CATHOLIC BISHOP OF MALOLOS, INC. vs. IAC
Code which provides that payments of debts shall be made in the currency
which is the legal tender of the Philippines and Section 63 of the Central Bank NATURE: Specific performance with damages
Act which provides that checks representing deposit money do not have legal SARMIENTO, J.
tender power. In sustaining the contention of the private respondent to refuse Nov. 16, 1990
the acceptance of the cash, the respondent Judge cited Article 1248 of the New
Civil Code which provides that creditor cannot be compelled to accept partial DOCTRINE: Tender of payment involves a positive and unconditional act by
payment unless there is an express stipulation to the contrary. the obligor of offering legal tender currency as payment to the obligee for the
former’s obligation and demanding that the latter accept the same.
ISSUE: Can the check be considered a valid payment of the judgment
obligation? FACTS:
PROVISION/S: NCC 1249
RULING: YES. It is to be emphasized that the check deposited by the petitioner The property subject matter of the contract consists of a parcel of land in the
in the amount of P50,000 is not an ordinary check but a Cashier's check of Province of Bulacan, issued and registered in the name of the petitioner which
the Equitable Banking Corp., a bank of good standing & reputation. It was even it sold to the private respondent.
a certified crossed check. It is well known & accepted practice in the business On July 7, 1971, the subject contract over the land in question was executed
sector that a Cashier's check is deemed as cash between the petitioner as vendor and the private respondent through its then
president, Mr. Carlos F. Robes, as vendee, stipulating for a downpayment of
Moreover, since the said check has been certified by the drawee bank, by the P23,930.00 and the balance of P100,000.00 plus 12% interest per annum to
certification, the funds represented by the check are transferred fr. the credit of be paid within four (4) years from execution of the contract. The contract
the maker to that of the payee or holder, & for all intents & purposes, the latter likewise provides for cancellation, forfeiture of previous payments, and
becomes the depositor of the drawee bank, w/ rights & duties of one in such reconveyance of the land in question in case the private respondent would fail
situation. Where a check is certified by the bank on w/c it is drawn, to complete payment within the said period.
the certification is equivalent to acceptance. Said certification "implies
that the check is drawn upon sufficient funds in the hands of the After the expiration of the stipulated period for payment, Atty. Adalia
drawee, that they have been set apart fort its satisfaction, & that they Francisco (president of the company who bought land) wrote the petitioner a
shall be so applied whenever the check is presented for payment. It formal request that her company be allowed to pay the principal amount of
is an understanding that the check is good then, & shall continue to be good, & P100,000.00 in three (3) equal installments of six (6) months each with the
this agreement is as binding on the bank as its notes in circulation, a certificate first installment and the accrued interest of P24,000.00 to be paid
of deposit payable to the order of the depositor, or any other obligation it can immediately upon approval of the said request.
assume. The object of certifying a check, as regards both parties, is to enable the
holder to use it as money." When the holder procures the check to be certified, The petitioner formally denied the said request of the private respondent, but
"the check operates as an assignment of a part of the funds to the creditors." granted the latter a grace period of five (5) days from the receipt of the denial
Hence, the exception to the rule enunciated under Sec. 63 of the CB Act shall to pay the total balance of P124,000.00. The private respondent wrote the
apply in this case: petitioner requesting an extension of 30 days from said date to fully settle its
Sec. 63. Legal Character – Checks representing deposit do not have legal account but this was still denied.
tender power and their acceptance in payment of debts, both pub & priv, is at Consequently, Atty. Francisco wrote a letter directly addressed to the
the option of the Cr. Provided, however that a check w/c has been petitioner, protesting the alleged refusal of the latter to accept tender of
cleared & credited to the account of the creditor shall be equivalent payment made by the former on the last day of the grace period. But the private
to a delivery to the creditor in cash in an amount equal to the amount respondent demanded the execution of a deed of absolute sale over the land in
credited to his account. The Cashier’s Check and the cash are valid payment question
of the obligation of the petitioner. The private respondent has no valid reason
to refuse the acceptance of the check and cash as full payment of the obligation Atty. Fernandez, wrote a reply to the private respondent stating the refusal of
his client to execute the deed of absolute sale so the petitioner cancelled the
contract and considered all previous payments forfeited and the land as ipso
facto reconveyed.

Page 72 of 115
From a perusal of the foregoing facts, SC found that both the contending tender of payment and may be refused receipt by the obligee or
parties have conflicting versions on the main question of tender of payment. creditor. Hence, where the tender of payment by the private respondent was
According to the trial court: not valid for failure to comply with the requisite payment in legal tender or
. . . What made Atty. Francisco suddenly decide to pay plaintiff’s obligation on currency stipulated within the grace period and as such, was validly refused
tender her payment, when her request to extend the grace period has not yet receipt by the petitioner, the subsequent consignation did not operate to
been acted upon? Atty. Francisco’s claim that she made a tender of payment is discharge the former from its obligation to the latter. In view of the foregoing,
not worthy of credence. the petitioner in the legitimate exercise of its rights pursuant to the subject
The trial court considered as fatal the failure of Atty. Francisco to present in contract, did validly order therefore the cancellation of the said contract, the
court the certified personal check allegedly tendered as payment or, at least, forfeiture of the previous payment, and the reconveyance ipso facto of the land
its xerox copy, or even bank records thereof. in question.
Not satisfied with the said decision, the private respondent appealed to the
IAC. The IAC reversed the decision of the trial court. The IAC, in finding that _____________________________________________________
the private respondent had sufficient available funds, ipso facto concluded that
the latter had tendered payment. TIBAJIA, JR. vs. CA

ISSUE1: WON a finding that private respondent had sufficient available NATURE: Motion to lift writ of execution
funds on or before the grace period for the payment of its obligation proof that Padilla, J.
it (private respondent) did a tender of payment for its said obligation within June 4, 1993
the said period?
DOCTRINE: Payment by means of check (even by cashier's check) is not
RULING1: No. Tender of payment involves a positive and considered payment in legal tender as required by the Civil Code, Republic Act
unconditional act by the obligor of offering legal tender currency as No. 529, and the Central Bank Act.
payment to the obligee for the former’s obligation and demanding
that the latter accept the same. Thus, tender of payment cannot be FACTS:
presumed by a mere inference from surrounding circumstances. At most, PROVISION/S: RA 265 Sec. 63, RA 529 Sec. 1, Art. 1249, NCC
sufficiency of available funds is only affirmative of the capacity or ability of the Case No. 54863 was a suit for collection of a sum of money filed by Eden Tan
obligor to fulfill his part of the bargain. But whether or not the obligor avails against the Tibajia spouses. A writ of attachment was issued by the trial court
himself of such funds to settle his outstanding account remains to be proven on 17 August 1987 and on 17 September 1987, the Deputy Sheriff filed a return
by independent and credible evidence. Tender of payment presupposes not stating that a deposit made by the Tibajia spouses in RTC Kalookan City in the
only that the obligor is able, ready, and willing, but more so, in the act of amount of P442,750.00 in another case, had been garnished by him. On 10
performing his obligation. Ab posse ad actu non vale illatio. “A proof that an March 1988, the RTC of Pasig, rendered its decision in Civil Case No. 54863 in
act could have been done is no proof that it was actually done.” favor of the plaintiff Eden Tan, ordering the Tibajia spouses to pay her an
amount in excess of P300,000.00. On appeal, the CA modified the decision by
The respondent court was therefore in error to have concluded from the sheer reducing the award of moral and exemplary damages. The decision having
proof of sufficient available funds on the part of the private respondent to meet become final, Eden Tan filed the corresponding motion for execution and
more than the total obligation within the grace period, the alleged truth of thereafter, the garnished funds which by then were on deposit with the cashier
tender of payment. The same is a classic case of non-sequitur. of the RTC Pasig, were levied upon.

ISSUE2: Whether or not an offer of a check is a valid tender of payment of an On 14 December 1990, the Tibajia spouses delivered to Deputy Sheriff
obligation under a contract which stipulates that the consideration of the sale Eduardo Bolima the total money judgment in the following form:
is in Philippine Currency.

RULING2: No. In the case of Philippine Airlines v. Court of Appeals: Since Cashier's Check P262,750.00
a negotiable instrument is only a substitute for money and not money, the Cash 135,733.70
delivery of such an instrument does not, by itself, operate as payment. A ————
check, whether a manager’s check or ordinary check, is not legal Total P398,483.70
tender, and an offer of a check in payment of a debt is not a valid
Page 73 of 115
Private respondent, Eden Tan, refused to accept the payment made by the effect, and no such provision shall be contained in, or made
Tibajia spouses and instead insisted that the garnished funds deposited with with respect to, any obligation thereafter incurred. Every
the cashier of Pasig RTC be withdrawn to satisfy the judgment obligation. On obligation heretofore and hereafter incurred, whether or not
15 January 1991, defendant spouses (petitioners) filed a motion to lift the writ any such provision as to payment is contained therein or made
of execution on the ground that the judgment debt had already been paid. On with respect thereto, shall be discharged upon payment in any
29 January 1991, the motion was denied by the trial court on the ground that coin or currency which at the time of payment is legal tender
payment in cashier's check is not payment in legal tender and that payment for public and private debts.
was made by a third party other than the defendant. A motion for
reconsideration was denied on 8 February 1991. Thereafter, the spouses c. Section 63 of Republic Act No. 265, as amended (Central Bank Act) which
Tibajia filed a petition for certiorari, prohibition and injunction in the Court provides:
of Appeals. The appellate court dismissed the petition on 24 April 1991 holding
that payment by cashier's check is not payment in legal tender as required by
Sec. 63. Legal character — Checks representing deposit
Republic Act No. 529. The motion for reconsideration was denied on 27 May
money do not have legal tender power and their acceptance in
1991.
the payment of debts, both public and private, is at the option
of the creditor: Provided, however, that a check which has
ISSUE: Whether or not payment by means of check (even by cashier's check) been cleared and credited to the account of the creditor shall
is considered payment in legal tender as required by the Civil Code, Republic be equivalent to a delivery to the creditor of cash in an amount
Act No. 529, and the Central Bank Act. equal to the amount credited to his account.

From the aforequoted provisions of law, it is clear that this petition must fail.
HELD: The provisions of law applicable to the case at bar are the following:
In the recent cases of Philippine Airlines, Inc. vs. Court of Appeals and Roman
a. Article 1249 of the Civil Code which provides: Catholic Bishop of Malolos, Inc. vs. Intermediate Appellate Court, this Court
held that —
Art. 1249. The payment of debts in money shall be made in the
currency stipulated, and if it is not possible to deliver such A check, whether a manager's check or ordinary check, is not
currency, then in the currency which is legal tender in the legal tender, and an offer of a check in payment of a debt is
Philippines. not a valid tender of payment and may be refused receipt by
the obligee or creditor.
The delivery of promissory notes payable to order, or bills of
exchange or other mercantile documents shall produce the The ruling in these 2 cases merely applies the statutory provisions which lay
effect of payment only when they have been cashed, or when down the rule that a check is not legal tender and that a creditor may validly
through the fault of the creditor they have been impaired. refuse payment by check, whether it be a manager's, cashier's or personal
check.
In the meantime, the action derived from the original _____________________________________________________
obligation shall be held in abeyance.;
VELASCO vs. MERALCO
b. Section 1 of Republic Act No. 529, as amended, which provides:
(Note: Case cited in the syllabus is a resolution of an MR. Hence, no facts are
Sec. 1. Every provision contained in, or made with respect to, indicated. However, the doctrine is clear in this case.)
any obligation which purports to give the obligee the right to NATURE: MR from the decision of the Court
require payment in gold or in any particular kind of coin or Reyes, JBL
currency other than Philippine currency or in an amount of December 20, 1971
money of the Philippines measured thereby, shall be as it is
hereby declared against public policy null and void, and of no
Page 74 of 115
DOCTRINE: It can be seen from the employment of the words "extraordinary COMMISSIONER VS. BURGOS
inflation or deflation of the currency stipulated" that the legal rule envisages
contractual obligations where a specific currency is selected by the parties as NATURE: Complaint for recovery of ownership and possession of land
the medium of payment; hence it is inapplicable to obligations arising from De Castro, J.
tort and not from contract March 31, 1980

FACTS: DOCTRINE: Art. 1250 applies only to cases where a contract or agreement is
PROVISION/S: Art. 1250 NCC involved. It does not apply where the obligation to pay arises from law,
Both appellant Velasco and appellee Manila Electric have filed their respective independent of contracts.
motions to reconsider the decision of the Court dated 6 August 1971.
The only motion relevant to this case is that of the appellant. The thrust of this FACTS:
motion is that the decision has incorrectly assessed appellant's damages and PROVISION/S: 1250, NCC
unreasonably reduced their amount. It is first argued that the decision erred
in not taking into account, in computing appellant's loss of income, the On 1924, the government took private respondent Victor Amigable's land for
appellant's undeclared income of P8,338.20, assessed by the Bureau of road-right-of-way purpose.
Internal Revenue for the year 1954, in addition to his declared income for that
year (P10,975), it being argued that appellant never claim any other source of On 1959, Amigable filed in the Court of First Instance a complaint to recover
income besides his professional earnings. Court ruled however that several the ownership and possession of the land and for damages for the alleged
circumstances of record disprove this claim. Appellant further urges that the illegal occupation of the land by the government (entitled Victor Amigable vs.
damages awarded him are inadequate considering the present high Nicolas Cuenco, in his capacity as Commissioner of Public Highways and
cost of living, and calls attention to Article 1250 of the present Civil Republic of the Philippines).
Code, and to the doctrines laid down in People vs. Pantoja.
ISSUE: WON legal rule contemplated in Sec. 1249 of the NCC is applicable to Amigable's complaint was dismissed on the grounds that the land was either
obligations arising from tort. donated or sold by its owners to enhance its value, and that in any case, the
RULING: NO. It can be seen from the employment of the words right of the owner to recover the value of said property was already barred by
"extraordinary inflation or deflation of the currency stipulated" estoppel and the statute of limitations. Also, the non-suability of the
that the legal rule envisages contractual obligations where a government was invoked.
specific currency is selected by the parties as the medium of
payment; hence it is inapplicable to obligations arising from tort In the hearing, the government proved that the price of the property at the time
and not from contract, as in the case at bar, besides there being no of taking was P2.37 per square meter. Amigable, on the other hand, presented
showing that the factual assumption of the article has come into existence. As a newspaper showing that the price was P6.775.
to the Pantoja ruling, the regard paid to the decreasing purchase of the peso
was considered a factor in estimating the indemnity due for loss of life, which
The public respondent Judge ruled in favor of Amigable and directed the
in itself is not susceptible of accurate estimation. It should not be forgotten
Republic of the Philippines to pay Amigable the value of the property taken
that the damages awarded to herein appellant were by no means full
with interest at 6% and the attorney's fees.
compensatory damages, since the decision makes clear that appellant, by his
failure to minimize his damages by means easily within his reach, was declared
entitled only to a reduced award for the nuisance sued upon and the amount ISSUE: WON Article 1250 is applicable in determining just compensation
granted him had already taken into account the changed economic payable to Amigable from the taking in 1924.
circumstances.
HELD: No. Art. 1250 applies only to cases where a contract or
agreement is involved. It does not apply where the obligation to pay
arises from law, independent of contracts. It is to be noted that
respondent judge did consider the value of the property at the time of the
taking, which as proven by the petitioner was P2.37 per square meter in 1924.
However, applying Article 1250 of the New Civil Code, and considering that

Page 75 of 115
the value of the peso to the dollar during the hearing in 1972 was P6.775 to a In the present case, the unusually long delay of private respondent in bringing
dollar, as proven by the evidence of the private respondent Victoria Amigable the present action-period of almost 25 years which a stricter application of the
the Court fixed the value of the property at the deflated value of the peso in law on estoppel and the statute of limitations and prescription may have
relation, to the dollar, and came up with the sum of P49,459.34 as the just divested her of the rights she seeks on this action over the property in question,
compensation to be paid by the Government. To this action of the respondent is an added circumstance militating against payment to her of an amount
judge, the Solicitor General has taken exception. bigger-may three-fold more than the value of the property as should have been
paid at the time of the taking. For conformably to the rule that one should take
Article 1250 of the New Civil Code seems to be the only provision in our good care of his own concern, private respondent should have commenced
statutes which provides for payment of an obligation in an amount different proper action soon after she had been deprived of her right of ownership and
from what has been agreed upon by the parties because of the supervention of possession over the land, a deprivation she knew was permanent in character,
extra-ordinary inflation or deflation. It is clear that the provision applies only for the land was intended for, and had become, avenues in the City of Cebu. A
to cases where a contract or agreement is involved. It does not apply where the penalty is always visited upon one for his inaction, neglect or laches in the
obligation to pay arises from law, independent of contract. The taking of assertion of his rights allegedly withheld from him, or otherwise transgressed
private property by the Government in the exercise of its power of eminent upon by another.
domain does not give rise to a contractual obligation. Moreover, the law as _____________________________________________________
quoted, clearly provides that the value of the currency at the time of the
establishment of the obligation shall be the basis of payment which, in cases of FILIPINO PIPE & FOUNDRY CORP. vs. NAWASA
expropriation, would be the value of the peso at the time of the taking of the
property when the obligation of the Government to pay arises. It is only when NATURE: Complaint seeking for adjustment of unpaid balance
there is an "agreement to the contrary" that the extraordinary inflation will Grino Aquino, J
make the value of the currency at the time of payment, not at the time of the June 3, 1988
establishment of the obligation, the basis for payment. In other words, an
agreement is needed for the effects of an extraordinary inflation to be taken DOCTRINE: Extraordinary inflation exists "when there is a decrease or
into account to alter the value of the currency at the time of the establishment increase in the purchasing power of the Philippine currency which is unusual
of the obligation which, as a rule, is always the determinative element, to be or beyond the common fluctuation in the value said currency, and such
varied by agreement that would find reason only in the supervention of decrease or increase could not have reasonably foreseen or was manifestly
extraordinary inflation or deflation. beyond contemplation the parties at the time of the establishment of the
obligation.”
Under the law, in the absence of any agreement to the contrary, even assuming
that there has been an extraordinary inflation within the meaning of Article FACTS:
1250 of the New Civil Code, a fact SC declines to declare categorically, the value PROVISION/S: NCC 1250
of the peso at the time of the establishment of the obligation, which in the
instant case is when the property was taken possession of by the Government, On June 12,1961, the NAWASA entered into a contract with the plaintiff FPFC
must be considered for the purpose of determining just compensation. for the latter to supply it with 4" and 6" diameter centrifugally cast iron
Obviously, there can be no "agreement to the contrary" to speak of because the pressure pipes worth P270,187.50 to be used in the construction of the Anonoy
obligation of the Government sought to be enforced in the present action does Waterworks in Masbate and the Barrio San Andres-Villareal Waterworks in
not originate from contract, but from law which, generally is not subject to the Samar. Defendant NAWASA paid in instalments on various dates, a total of
will of the parties. And there being no other legal provision cited which would P134,680.00 leaving a balance of P135,507.50 excluding interest. Having
justify a departure from the rule that just compensation is determined on the completed the delivery of the pipes, the plaintiff demanded payment from the
basis of the value of the property at the time of the taking thereof in defendant of the unpaid balance of the price with interest in accordance with
expropriation by the Government, the value of the property as it is when the the terms of their contract. When the NAWASA failed to pay the balance of its
Government took possession of the land in question, not the increased value account, the plaintiff filed a collection suit on March 16, 1967 which was
resulting from the passage of time which invariably brings unearned docketed as Civil Case No. 66784 in the Court of First Instance of Manila.
increment to landed properties, represents the true value to be paid as just
compensation for the property taken. On November 23, 1967, the trial court rendered judgment in Civil Case No.
66784 ordering the defendant to pay the unpaid balance of P135,507.50 in
Page 76 of 115
NAWASA negotiable bonds, redeemable after ten years from their issuance ISSUE: WON on the basis of the continuously spiralling price index
with interest at 6% per annum, P40,944.73 as interest up to March 15, 1966 indisputably shown by the plaintiff, there exists an extraordinary inflation of
and the interest accruing thereafter to the issuance of the bonds at 6% per the currency justifying an adjustment of defendant appellee's unpaid judgment
annum and the costs. Defendant, however, failed to satisfy the decision. It did obligation the plaintiff-appellant.
not deliver the bonds to the judgment creditor. On February 18, 1971, the
plaintiff FPFC filed another complaint which was docketed as Civil Case No. HELD: NO. Extraordinary inflation exists "when there is a decrease
82296, seeking an adjustment of the unpaid balance in accordance with the or increase in the purchasing power of the Philippine currency
value of the Philippine peso when the decision in Civil Case No. 66784 was which is unusual or beyond the common fluctuation in the value
rendered on November 23, 1967. said currency, and such decrease or increase could not have
reasonably foreseen or was manifestly beyond contemplation the
On May 3, 1971, the defendant filed a motion to dismiss the complaint on the parties at the time of the establishment of the obligation. an example
ground that it is barred by the 1967 decision in Civil Case No. 66784. of extraordinary inflation is the following description of what happened to the
Deutschmark in 1920:
The trial court, in its order dated May 26, 1971, denied the motion to dismiss
on the ground that the bar by prior judgment did not apply to the case because More recently, in the 1920's Germany experienced a case of
the causes of action in the two cases are different: the first action being for hyperinflation. In early 1921, the value of the German mark
collection of the defendant's indebtedness for the pipes, while the second case was 4.2 to the U.S. dollar. By May of the same year, it had
is for adjustment of the value of said judgment due to alleged supervening stumbled to 62 to the U.S. dollar. And as prices went up
extraordinary inflation of the Philippine peso which has reduced the value of rapidly, so that by October 1923, it had reached 4.2 trillion to
the bonds paid to the plaintiff. the U.S. dollar! (Bernardo M. Villegas & Victor R. Abola,
Economics, An Introduction [Third Edition]).
Article 1250 of the Civil Code provides:
As reported, "prices were going up every week, then every day, then every hour.
In case an extraordinary inflation or deflation of the currency Women were paid several times a day so that they could rush out and exchange
stipulated should supervene, the value of the currency at the their money for something of value before what little purchasing power was
time of the establishment of the obligation shall be the basis left dissolved in their hands. Some workers tried to beat the constantly rising
of payment, unless there is an agreement to the contrary.. prices by throwing their money out of the windows to their waiting wives, who
would rush to upload the nearly worthless paper. A postage stamp cost
millions of marks and a loaf of bread, billions."
The court suggested to the parties during the trial that they present expert
testimony to help it in deciding whether the economic conditions then, and
still prevailing, would justify the application of Article 1250 of the Civil Code. While appellant's voluminous records and statistics proved that there has been
The plaintiff presented voluminous records and statistics showing that a a decline in the purchasing power of the Philippine peso, this downward fall of
spiralling inflation has marked the progress of the country from 1962 up to the the currency cannot be considered "extraordinary." It is simply a universal
present. There is no denying that the price index of commodities, which is the trend that has not spared our country.
usual evidence of the value of the currency, has been rising. _____________________________________________________

The trial court pointed out, however, than this is a worldwide occurrence, but DEL ROSARIO vs. SHELL
hardly proof that the inflation is extraordinary in the sense contemplated by
Article 1250 of the Civil Code, which was adopted by the Code Commission to Nature: Complaint to compel payment of increased monthly rentals
provide "a just solution" to the "uncertainty and confusion as a result of Ponente: Paras
Malabanan contracts entered into or payments made during the last war." Date: August 19, 1988

DOCTRINE: In the interpretation of the contract of lease between the parties,

Noting that the situation during the Japanese Occupation "cannot be
the term “devaluation” was held to be synonymous to “depreciation” because
compared with the economic conditions today," the Malabanan trial court, on
September 5, 1973, rendered judgment dismissing the complaint.
Page 77 of 115
the Court interpreted it in the layman’s point of view even though they have laymen who are unskilled in economics use the term devaluation or
different technical meanings. depreciation, they mean them in their ordinary signification which is decrease
in value. Therefore, devaluation in the contract should be held synonymous
FACTS: with depreciation because they refer both to a decrease in the value of the
Relevant Provision of Law: None used. currency. Therefore, the rentals should be adjusted accordingly.

On September 20, 1960, the parties entered into a least agreement wherein the ************************************************************************
herein plaintiff leased a parcel of land in Albay from defendant with a monthly Special forms of payment
rate of 250php. Paragraph 14 of their contract provides that in the event of an
official “devaluation” or appreciation of the Philippine Peso, the rental shall be
adjusted in accordance with the provisions of any law or decree declaring such a. Dation in payment
devaluation or appreciation as may specifically apply to rentals.

On November 6, 1965, President Diosdado Macapagal promulgated E.O. No. Article 1245. Dation in payment, whereby property is alienated to the
195 which changed the par value of the peso from $0.5 to $0.2564103. Because creditor in satisfaction of a debt in money, shall be governed by the law of sales.
of the enacted EO, plaintiff demanded that the rent be increased from 250php (n)
to 487.50php a month. Defendant refused so plaintiff filed a complaint with
the CFI of Manila praying that defendant be ordered to pay the increased rent. b. Application of payments
She also asked for damages. Article 1248. Unless there is an express stipulation to that effect, the creditor
cannot be compelled partially to receive the prestations in which the obligation
However, the CFI dismissed the complaint. It stated that the EO has not consists. Neither may the debtor be required to make partial payments.
officially devalued the peso because the changing of the par value did not However, when the debt is in part liquidated and in part unliquidated, the
change the gold value of the Philippine Peso which at the time was set at 7- creditor may demand and the debtor may effect the payment of the former
13/21 grains of gold 0.900 fine. without waiting for the liquidation of the latter. (1169a)

Plaintiff appeals stating that by virtue of the EO there has been an effective Article 1252. He who has various debts of the same kind in favor of one and
“devaluation” or “depreciation” of the peso which justifies the increase in rent. 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
ISSUE: Should the rent be increased because of the enactment of the EO? 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
RULING: Yes. The Court defined the important terms found in the contract due.
which is mainly “devaluation” and “appreciation.” According to Sloan and If the debtor accepts from the creditor a receipt in which an application of the
Zurcher’s classic treatise, “A Dictionary of Economics”, devaluation is a payment is made, the former cannot complain of the same, unless there is a
reduction in its metallic content as determined by law resulting in the lowering cause for invalidating the contract. (1172a)
of the value of one nation’s currency in terms of the currencies of other
nations’. In the book of Samuelson and Nordhaus, devaluation is when a Article 1253. If the debt produces interest, payment of the principal shall not
country’s official exchange rate relative to gold or another currency is lowered. be deemed to have been made until the interests have been covered. (1173)
Gerardo Sicat states that depreciation (opposite of appreciation) occurs when
a currency’s value falls in relation to foreign currencies. Article 1254. When the payment cannot be applied in accordance with the
preceding rules, or if application can not be inferred from other circumstances,
The Court also noted that devaluation is an official act of the government the debt which is most onerous to the debtor, among those due, shall be
which refers to a reduction in metallic content while depreciation can take deemed to have been satisfied.
place with or without an official act and does not depend on metallic content. If the debts due are of the same nature and burden, the payment shall be
applied to all of them proportionately. (1174a)
Although the contract uses the term devaluation and admittedly the EO did
not decrease the gold equivalent of the peso, the Court ruled that there has
been a diminution or lessening in the purchasing power of the peso. When the
Page 78 of 115
 c. Payment by cession or assignment Article 1261. If, the consignation having been made, the creditor should
authorize the debtor to withdraw the same, he shall lose every preference
Article 1255. The debtor may cede or assign his property to his creditors in which he may have over the thing. The co-debtors, guarantors and sureties
payment of his debts. This cession, unless there is stipulation to the contrary, shall be released. (1181a)
shall only release the debtor from responsibility for the net proceeds of the **********************************************************************
thing assigned. The agreements which, on the effect of the cession, are made FILINVEST VS. PHIL. ACETYLENE
between the debtor and his creditors shall be governed by special laws. (1175a)
Nature: Collection of a sum of money with damages
Ponente: De Castro
d. Tender of payment and consignation Date: January 30, 1982

Article 1256. If the creditor to whom tender of payment has been made DOCTRINE: The mere return of the mortgaged motor vehicle by the
refuses without just cause to accept it, the debtor shall be released from mortgagor, the herein appellant, to the mortgagee, the herein appellee, does
responsibility by the consignation of the thing or sum due. not constitute dation in payment or dacion en pago in the absence, express or
Consignation alone shall produce the same effect in the following cases: implied of the true intention of the parties.
(1) When the creditor is absent or unknown, or does not appear at the
place of payment; FACTS:
(2) When he is incapacitated to receive the payment at the time it is Relevant Provision of Law: Articles 1484, 1232, 1245 and 1497 of the Civil
due; Code
(3) When, without just cause, he refuses to give a receipt;
(4) When two or more persons claim the same right to collect; Article 1484. Civil Code. - In a contract of sale of personal property the price of which is payable
(5) When the title of the obligation has been lost. (1176a) in installments, the vendor may exercise any of the following remedies:
1) Exact fulfillment of the obligation, should the vendee fail to pay;
2) Cancel the sale, should the vendee's failure to pay cover two or more installments;
Article 1257. In order that the consignation of the thing due may release the 3) Foreclose the chattel mortgage on the thing sold, if one has been constituted, should the
obligor, it must first be announced to the persons interested in the fulfillment vendee's failure to pay cover two or more installments. In this case, he shall have no further
of the obligation. action against the purchaser to recover any unpaid balance of the price. Any agreement to the
contrary shall be void.
The consignation shall be ineffectual if it is not made strictly in consonance
with the provisions which regulate payment. (1177) Article 1232. Payment means not only the delivery of money but also the performance, in any
manner, of an obligation.
Article 1258. Consignation shall be made by depositing the things due at the
disposal of judicial authority, before whom the tender of payment shall be Article 1245. Dation in payment, whereby property is alienated to the creditor in satisfaction of
a debt in money, shall be governed by the law of sales.
proved, in a proper case, and the announcement of the consignation in other
cases. Article 1497. The thing sold shall be understood as delivered, when it is placed in the control and
The consignation having been made, the interested parties shall also be possession of the vendee.
notified thereof. (1178)
On October 30, 1971, the Philippine Acetylene Co. (PAC) purchased from
Article 1259. The expenses of consignation, when properly made, shall be Alexander Lim (Lim), as evidenced by a deed of sale, a 1969 Chevrolet for
charged against the creditor. (1179) 55,257.80php. PAC paid a down payment of 20,000php and the balance was
payable, according to the promissory note PAC issued, at a monthly
Article 1260. Once the consignation has been duly made, the debtor may ask installment for 34 months which was due and payable at the first day of each
the judge to order the cancellation of the obligation. month. Any unpaid installment will earn 12% interest per annum.
Before the creditor has accepted the consignation, or before a judicial
declaration that the consignation has been properly made, the debtor may As security, PAC executed a chattel mortgage over the vehicle in favor of Lim.
withdraw the thing or the sum deposited, allowing the obligation to remain in Subsequently, Lim assigned to Filinvest Finance Corporation (FFC) all his
force. (1180) rights, title and interests in the promissory note and chattel mortgage by virtue
of a deed of assignment. Subsequently, FFC merged with the Credit and
Development Corporation (CDC) and FFC assigned all its rights to the
Page 79 of 115
promissory note and chattel mortgage to the new corporation formed by the is considered as the object of the contract of sale, while the debt is considered
merger, Filinvest Credit Corporation (FCC). In effect, FCC financed the unpaid as the purchase price. In any case, common consent is an essential
balance owed by PAC to Lim such that Lim became fully paid. prerequisite, be it sale or innovation to have the effect of totally extinguishing
the debt or obligation.
PAC defaulted and failed to pay 9 successive installments. FCC sent a demand
letter where its counsel asked that the amount be paid in full with interests and The evidence on the record fails to show that the mortgagee, the herein
charges or that the vehicle be returned. PAC wrote FCC stating that it decided appellee, consented, or at least intended, that the mere delivery to, and
to merely return the vehicle as full satisfaction of its indebtedness pursuant to acceptance by him, of the mortgaged motor vehicle be construed as actual
Article 1484 of the Civil Code. PAC returned the vehicle and gave FCC a payment, more specifically dation in payment or dacion en pago. The fact that
document entitled “Voluntary Surrender with Special Power of Attorney to the mortgaged motor vehicle was delivered to him does not necessarily mean
Sell.” that ownership thereof, as juridically contemplated by dacion en pago, was
transferred from appellant to appellee. In the absence of clear consent of
FCC subsequently wrote PAC that it cannot sell the vehicle because of unpaid appellee to the proferred special mode of payment, there can be no transfer of
taxes in the sum of 70,122php so it asked that PAC pay the corresponding ownership of the mortgaged motor vehicle from appellant to appellee. If at all,
indebtedness instead. FCC offered to give back the vehicle to PAC but PAC only transfer of possession of the mortgaged motor vehicle took place, for it is
refused to accept it. FCC then filed a case for collection of sum of money with quite possible that appellee, as mortgagee, merely wanted to secure possession
damages with the CFI of Manila. to forestall the loss, destruction, fraudulent transfer of the vehicle to third
persons, or its being rendered valueless if left in the hands of the appellant.
PAC states in its answer that FCC has no cause of action because its return of
the vehicle satisfied all its indebtedness to FCC and assuming that it didn’t, Moreover, the document given which is denominated as a “Voluntary
that FCC still cannot recover because of the original vendor Lim’s breach of Surrender with Power of Attorney to Sell” shows clearly that it was never the
warranty for the unpaid taxes. CFI ruled in favor of FCC and ordered PAC to intention of the parties to transfer ownership. If it was, then there would be no
pay and accept the vehicle. need for such power of attorney because FCC would have full power to dispose
of the vehicle as it sees fit.
ISSUE: Did the return by PAC of the mortgaged vehicle extinguish the
obligation? FCC is also not estopped to ask for payment when it accepted the return of the
vehicle. Such return only extinguishes the obligation if the mortgagee causes
RULING: No. PAC argues that FCC already chose its remedy when it accepted the foreclosure sale. If the mortgagee desisted on his own initiative, such
the return of the vehicle which is tantamount to foreclosing the chattel desistance is a timely disavowal of the remedy and the vendor can still sue for
mortgage. PAC states that FCC then is precluded from exercising any of the specific performance.
other remedies in Article 1484. PAC also argues that its return of the vehicle is
already a mode of payment by virtue of dacion en pago citing Articles 1232, On the issue of the breach of warranty, it is Lim who should be held liable and
1245, and 1497 of the Civil Code. not FFC. The assignment between Lim and FFC has a specific provision
absolves FFC of any liability. The taxes on the vehicle is a burden on the
Court ruled however that there was no dacion en pago in this case because property and therefore should be borne by owner which is PAC. Although PAC
there is an absence of the express or implied intention of the parties. Dacion may have an action against Lim, the original vendor, such remedy though
en pago, according to Manresa, is the transmission of the ownership of a thing cannot be held against FFC.
by the debtor to the creditor as an accepted equivalent of the performance of _____________________________________________________
obligation. In dacion en pago, as a special mode of payment, the debtor offers
another thing to the creditor who accepts it as equivalent of payment of an CITIZENS SURETY VS. CA
outstanding debt. The undertaking really partakes in one sense of the nature
of sale, that is, the creditor is really buying the thing or property of the debtor, Nature: Action for a sum of money
payment for which is to be charged against the debtor's debt. As such, the Ponente: Gutierrez Jr.
essential elements of a contract of sale, namely, consent, object certain, and Date: June 28, 1988
cause or consideration must be present. In its modern concept, what actually
takes place in dacion en pago is an objective novation of the obligation where DOCTRINE: A deed of assignment the content of which purports to be an
the thing offered as an accepted equivalent of the performance of an obligation absolute deed of assignment cannot be held to be a valid dacion en pago when
Page 80 of 115
it is clear from the circumstances and subsequent action of the parties that the In this case, the assignment could not have been a dacion en pago because as
intention was to make it a security. Moreover, it cannot be a valid dacion en correctly stated by the dissenting opinions of the CA decision, at the time the
pago when at the date of the assignment, there was no obligation yet to be assignment was done, there was no obligation yet to be extinguished because
fulfilled. Citizens had not yet advanced or paid anything yet by virtue of the surety
bonds.
FACTS:
Relevant Provision of Law: Article 1245 of the Civil Code Moreover, the subsequent acts of Pascual show that the deed was merely a
security and not an absolute assignment. Pascual paying partial payments of
Article 1245. Dation in payment, whereby property is alienated to the creditor in satisfaction of 55,600php shows that the assignment was merely a security. If the assignment
a debt in money, shall be governed by the law of sales. (n)
was absolute, there would have been no reason for subsequent payments
because it extinguished the obligation. Also, the execution of a second real
Pascual M. Perez Enterprises (Enterprises) purchased some goods from Singer estate mortgage, although it was later cancelled, after the execution of the deed
Sewing Machine Co. under a Contract of Sale of Goods. Petitioner Citizens of assignment shows further that there still exists an obligation on the
Surety (Citizens) issued 2 surety bonds to guarantee compliance of Pascual indemnity agreements.
with its obligation. In consideration of the surety bonds, Pascual in his
personal capacity and as attorney in fact of his wife Nicasia Sarmiento, and in However, the case against the estate of Nicasia Sarmiento should still be
behalf of Pascual Enterprises executed 2 indemnity agreements in favor of dismissed because Citizens is more than adequately protected. It should have
Citizens wherein he obligated himself and the Enterprises to indemnify collected the remaining balance of 88,400php from the sales of the lumber and
Citizens whatever payments, advances and damages it may suffer as a result of returned the excess to Pascual. Citizens is also not entitled to attorney’s fees
the surety bonds. and interest because it had the means to recoup its investment but instead
chose to litigate therefore it should bear the burden.
In addition, Enterprises were required to put up collateral security so it _____________________________________________________
assigned by virtue of a deed of assignment a stock of lumber worth
400,000php. A second real estate mortgage was also executed in favor of SOCO VS. MILITANTE
Citizens as security but such was subsequently cancelled.
Nature: Case for illegal detainer
Enterprises failed to pay for its obligation and Citizens had to pay Singer Ponente: Guerrero
144,000php. Enterprises was able to pay Citizens 55,600php but failed to pay Date: June 28, 1983
the rest. Enterprises filed a claim for sum of money against the estate of Nicasia
Sarmiento. Pasual opposed such claim stating that the deed of assignment DOCTRINE: The following are requirements for a valid consignation:
extinguished the indemnity agreements. The CFI ruled in favor of the 1. That there was a debt due
Enterprises and ordered Pascual as administrator to pay. 2. That the consignation of the obligation had been made because the
creditor to whom tender of payment was made refused to accept it or
On appeal to the CA however, the CA reversed the CFI stating that by virtue of because he was absent or incapacitated or because several persons
the execution of the deed of assignment wherein the ownership of the lumber claimed to be entitled to receive the amount due
was transferred to Citizens, it amounted to a dacion en pago under Article 1245 3. That previous notice of the consignation had been given to the person
of the Civil Code. interested in the performance of the obligation
4. That the amount due was placed at the disposal of the Court
ISSUE: Was the deed of assignment a dacion en pago? 5. That after the consignation had been made the person interested was
notified thereof.
RULING: No. On the face of the deed of assignment, there seems to be a
complete conveyance of the stocks of lumber to Citizens. However, the FACTS:
circumstances surrounding the assignment disproves this. The Court cited Sy Relevant Provision of Law: Articles 1249, 1256-1261 of the Civil Code
vs. CA stating that if the terms of a contract are clear, the literal meaning of the
stipulations shall control except when the words appear contrary to the evident Article 1249. The payment of debts in money shall be made in the currency stipulated, and if it is
intention of the parties. In that situation the intent of the parties shall prevail. not possible to deliver such currency, then in the currency which is legal tender in the Philippines.

Page 81 of 115
The delivery of promissory notes payable to order, or bills of exchange or other mercantile Soco subsequently through her lawyer sent a letter to Francisco asking him to
documents shall produce the effect of payment only when they have been cashed, or when
through the fault of the creditor they have been impaired.
vacate the premises for alleged non-payment starting from May 1977. Soco
alleged that she had sent her daughter and salesgirl to collect the rental
In the meantime, the action derived from the original obligation shall be held in the abeyance. payments but Francisco refused to pay. Francisco also through his lawyer
(1170) answered that she had been paying through Comtrust and that the checks were
deposited with the Clerk of the Court of Cebu City. He argues that Soco refused
Article 1256. If the creditor to whom tender of payment has been made refuses without just cause
to accept it, the debtor shall be released from responsibility by the consignation of the thing or to accept the checks when he sent it through the messengerial services of FAR
sum due. Corporation so he ordered Comtrust to consign it with the clerk. Despite this
explanation, Soco still filed a case for illegal detainer on January 8, 1979.
Consignation alone shall produce the same effect in the following cases:
(1) When the creditor is absent or unknown, or does not appear at the place of payment;
(2) When he is incapacitated to receive the payment at the time it is due; Francisco alleges that Soco had been trying to find ways to terminate their
(3) When, without just cause, he refuses to give a receipt; lease contract because she found out that Francisco had been subleasing the
(4) When two or more persons claim the same right to collect; same property to NACIDA for 3,000php a month which is a lot higher that
(5) When the title of the obligation has been lost. (1176a)
what Francisco is paying Soco.
Article 1257. In order that the consignation of the thing due may release the obligor, it must first
be announced to the persons interested in the fulfillment of the obligation. The City Court ruled that there was no valid consignation because there was
no showing that the letter delivered by the FAR Corporation contained cash
The consignation shall be ineffectual if it is not made strictly in consonance with the provisions money, check, money order or any other form of note of value therefore there
which regulate payment. (1177)
was no valid tender of payment. The City Court further stated that assuming
Article 1258. Consignation shall be made by depositing the things due at the disposal of judicial that there was tender, there was no evidence presented to establish actual
authority, before whom the tender of payment shall be proved, in a proper case, and the deposit with the clerk and that he notified Soco after such deposit. The Court
announcement of the consignation in other cases. ordered Francisco to pay and vacate the premises and to pay damages.
The consignation having been made, the interested parties shall also be notified thereof. (1178)
Article 1259. The expenses of consignation, when properly made, shall be charged against the On appeal to the CFI however, it reversed the decision of the City Court stating
creditor. (1179) that there was substantial compliance in the requisites for a valid consignation
and ruled in favor of Francisco thereby dismissing the case of illegal detainer
Article 1260. Once the consignation has been duly made, the debtor may ask the judge to order
against him. Hence this case.
the cancellation of the obligation.

Before the creditor has accepted the consignation, or before a judicial declaration that the ISSUE: Was there a valid consignation in this case?
consignation has been properly made, the debtor may withdraw the thing or the sum deposited,
allowing the obligation to remain in force. (1180)
RULING: No. At the outset, the SC clearly and unequivocally stated that the
Article 1261. If, the consignation having been made, the creditor should authorize the debtor to essential requisites of a valid consignation must be complied with fully and
withdraw the same, he shall lose every preference which he may have over the thing. The co- strictly in accordance with the law, specifically Articles 1256-1261 of the Civil
debtors, guarantors and sureties shall be released. (1181a) Code. The SC stated that the language of the provisions which use the words
“shall” and “must” readily show that strict compliance is mandatory.
Soco as lessor and Francisco as lessee entered into a contract of lease on
January 17, 1973 wherein Soco leased her commercial building and lot in Cebu Next, the SC looked on the jurisprudence regarding the matter. The Court in
to Francisco for period of 10 years renewable for another 10 at the option of the case of Jose Ponce de Leon vs. Santiago Syjuco laid down the requirements
the lessee in consideration for 800php per month. for a valid consignation mainly:
1. That there was a debt due
Francisco started paying Soco by checks when Soco stopped sending her 2. That the consignation of the obligation had been made because the
collector and when sometimes the collector failed to issue receipts. She issued creditor to whom tender of payment was made refused to accept it or
checks under Commercial Bank and Trust Company (Comtrust) and Soco duly because he was absent or incapacitated or because several persons
received them because she admits that Francisco has been paying religiously claimed to be entitled to receive the amount due
prior to May 1977. 3. That previous notice of the consignation had been given to the person
interested in the performance of the obligation
4. That the amount due was placed at the disposal of the Court
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 5. That after the consignation had been made the person interested was monthly debit to his account. But the SC brushed this aside stating that such
notified thereof. memorandums are merely internal banking practices or office procedures
Failure in any of these requirements is enough ground to render the which are not binding on third parties.
consignation ineffective.
For failure to prove valid consignation, therefore in effect there was no valid
Moreover, the Court stressed that In order to be valid, the tender of payment payment for certain months, Francisco as lessee has violated the terms of the
must be made in lawful currency. While payment in check by the debtor may contract and may be judicially ejected.
be acceptable as valid, if no prompt objection to said payment is made the fact _____________________________________________________
that in previous years payment in check was accepted does not place its
creditor in estoppel from requiring the debtor to pay his obligation in cash. IMMACULATA VS. NAVARRO
Thus, the tender of a check to pay for an obligation is not a valid tender of
payment thereof. Nature: Motion for consideration on issue of legal redemption
Ponente: Paras
Tender of payment must be distinguished from consignation. Tender is the Date: April 15, 1988
antecedent of consignation, that is, an act preparatory to the consignation,
which is the principal, and from which are derived the immediate DOCTRINE: The right to redeem is a right, not an obligation, therefore, there
consequences which the debtor desires or seeks to obtain. Tender of payment is no consignation required to preserve the right to redeem.
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 FACTS:
solemnities of consignation. Relevant Provision of Law: None used

The SC reviewed the evidence presented by Francisco on which the CFI This case is a motion for reconsideration of a previous case wherein petitioner
concluded that there was substantial compliance and the SC found that the Lauro Immaculata represented by his wife Amparo Velasco tried to annul a
CFI’s conclusion is manifestly wrong and based on misapprehension of facts. judgment and deed of sale with reconveyance of property in favor of Juanita
Such evidence scrutinized were mainly: Victoria (one of the respondents, Navarro is the judge who issued the
1. Exhibit 10 – Letter of Atty. Abarintos dated June 9, 1977 judgment). The SC upheld the deed of sale. However, in the decision, they
2. Exhibit 12 – Letter of Atty. Abarintos dated July 6, 1977 failed to take into consideration the alternative prayer of the petitioner to allow
3. Exhibit 14 – Answer of Francisco in a related civil case for reformation legal redemption in case the validity of the deed of sale is upheld.
of the contract of lease (not related to consignation)
4. Exhibit 1 – Letter of Atty. Menchavez dated November 28, 1977 Therefore, the SC granted the reconsideration. However, the respondents
argue against legal redemption stating that the offer to redeem was not sincere
SC ruled that each of the letters at most may prove valid tender of payment for since it was not accompanied by consignation of the amount in Court.
a specific month but failed to prove the other requirements mainly previous
notice and notice after the consignation. Exhibit 14 was held to be self-serving. ISSUE: Does legal redemption require consignation to preserve the right?

Francisco tried to prove valid tender and first notice by proving his monthly RULING: No. First, the SC stated that although the sale was done in
requests to his bank to write a check for the rentals. However, the arrangement December 1969, the deed of conveyance was only executed on February 3,
specifically stated that the bank would issue the checks but it was still the job 1974. So the offer to redeem made on March 24, 1975 was clearly within the 5
of Francisco to pick it up and tender it to Soco. year period allowed by the Public Land Act. This shows that the period is
counted not from the date of the sale, but on the date of formal conveyance.
Francisco also failed to prove notice after consignation. The testimony of Bank
Comptroller clearly stated that after he deposited the check with the clerk, he The SC ruled that the right to redeem is a right and not an obligation, therefore,
did not send any notice to Soco. there is no consignation required to preserve the right to redeem. Therefore,
the petitioner is allowed to redeem the property.
Last, there was no proof of actual deposit with the clerk because no receipts
issued by the clerk were presented in evidence. Francisco tried to prove actual
deposit by virtue of the debt memorandums of the bank wherein it shows a
Page 83 of 115
 2. Loss of the thing due or impossibility of performance (1) If the thing is lost without the fault of the debtor, the obligation
shall be extinguished;
Article 1262. An obligation which consists in the delivery of a determinate (2) If the thing is lost through the fault of the debtor, he shall be
thing shall be extinguished if it should be lost or destroyed without the fault of obliged to pay damages; it is understood that the thing is lost when it
the debtor, and before he has incurred in delay. perishes, or goes out of commerce, or disappears in such a way that its
When by law or stipulation, the obligor is liable even for fortuitous events, the existence is unknown or it cannot be recovered;
loss of the thing does not extinguish the obligation, and he shall be responsible (3) When the thing deteriorates without the fault of the debtor, the
for damages. The same rule applies when the nature of the obligation requires impairment is to be borne by the creditor;
the assumption of risk. (1182a) (4) If it deteriorates through the fault of the debtor, the creditor may
choose between the rescission of the obligation and its fulfillment,
Article 1263. In an obligation to deliver a generic thing, the loss or with indemnity for damages in either case;
destruction of anything of the same kind does not extinguish the obligation. (5) If the thing is improved by its nature, or by time, the improvement
(n) shall inure to the benefit of the creditor;
(6) If it is improved at the expense of the debtor, he shall have no other
Article 1264. The courts shall determine whether, under the circumstances, right than that granted to the usufructuary. (1122)
the partial loss of the object of the obligation is so important as to extinguish
the obligation. (n) Article 1174. Except in cases expressly specified by the law, or when it is
otherwise declared by stipulation, or when the nature of the obligation
Article 1265. Whenever the thing is lost in the possession of the debtor, it requires the assumption of risk, no person shall be responsible for those events
shall be presumed that the loss was due to his fault, unless there is proof to the which could not be foreseen, or which, though foreseen, were inevitable.
contrary, and without prejudice to the provisions of article 1165. This (1105a)
presumption does not apply in case of earthquake, flood, storm, or other
natural calamity. (1183a) Article 1165. When what is to be delivered is a determinate thing, the
creditor, in addition to the right granted him by article 1170, may compel the
Article 1266. The debtor in obligations to do shall also be released when the debtor to make the delivery.
prestation becomes legally or physically impossible without the fault of the If the thing is indeterminate or generic, he may ask that the obligation be
obligor. (1184a) complied with at the expense of the debtor.
If the obligor delays, or has promised to deliver the same thing to two or more
Article 1267. When the service has become so difficult as to be manifestly persons who do not have the same interest, he shall be responsible for any
beyond the contemplation of the parties, the obligor may also be released fortuitous event until he has effected the delivery. (1096)
therefrom, in whole or in part. (n)
Article 1268. When the debt of a thing certain and determinate proceeds
Article 1268. When the debt of a thing certain and determinate proceeds from a criminal offense, the debtor shall not be exempted from the payment of
from a criminal offense, the debtor shall not be exempted from the payment of its price, whatever may be the cause for the loss, unless the thing having been
its price, whatever may be the cause for the loss, unless the thing having been offered by him to the person who should receive it, the latter refused without
offered by him to the person who should receive it, the latter refused without justification to accept it. (1185)
justification to accept it. (1185)
Article 1942. The bailee is liable for the loss of the thing, even if it should be
Article 1269. The obligation having been extinguished by the loss of the through a fortuitous event:
thing, the creditor shall have all the rights of action which the debtor may have (1) If he devotes the thing to any purpose different from that for which
against third persons by reason of the loss. (1186) it has been loaned;
(2) If he keeps it longer than the period stipulated, or after the
Article 1189. When the conditions have been imposed with the intention of accomplishment of the use for which the commodatum has been
suspending the efficacy of an obligation to give, the following rules shall be constituted;
observed in case of the improvement, loss or deterioration of the thing during (3) If the thing loaned has been delivered with appraisal of its value,
the pendency of the condition: unless there is a stipulation exempting the bailee from responsibility
in case of a fortuitous event;
Page 84 of 115
 (4) If he lends or leases the thing to a third person, who is not a from custody upon a bail bond posted by the Asian Surety & Insurance
member of his household; Company (Company) in the amount of 2,000php.
(5) If, being able to save either the thing borrowed or his own thing,
he chose to save the latter. (1744a and 1745) The CFI set her arraignment on July 14, 1962 but Franklin failed to appear.
The Company filed a motion to postpone the arraignment to July 28 but still
Article 1979. The depositary is liable for the loss of the thing through a Franklin failed to appear. Her arrest was ordered and the Court required the
fortuitous event: Company to show cause why the bail bond should not be forfeited.
(1) If it is so stipulated;
(2) If he uses the thing without the depositor's permission; On September 25, 1962, the Court granted the Company a period of 30 days to
(3) If he delays its return; produce the accused and warned them that failure to do so would cause the
(4) If he allows others to use it, even though he himself may have been forfeiture of the bond. On October 25, 1962, the Company filed another Motion
authorized to use the same. (n) for Extension for another 30 days but still failed to produce the accused.

Article 2147. The officious manager shall be liable for any fortuitous event: Subsequently, the Company filed a motion to reduce bail stating that the
(1) If he undertakes risky operations which the owner was not reason why it cannot surrender the accused is that the Government allowed
accustomed to embark upon; the accused to leave the country for the US on February 27, 1962. Such motion
(2) If he has preferred his own interest to that of the owner; was denied, and the subsequent MR also denied.
(3) If he fails to return the property or business after demand by the
owner; The Company appeals its case using as basis Article 1266 of the Civil Code. It
(4) If he assumed the management in bad faith. (1891a) argues that it should be released from liability because it became impossible to
produce the accused because of the negligence of the Government in issuing a
Article 2159. Whoever in bad faith accepts an undue payment, shall pay legal passport to Franklin thus enabling her to leave.
interest if a sum of money is involved, or shall be liable for fruits received or
which should have been received if the thing produces fruits. ISSUE: Should the Company be absolved from liability?
He shall furthermore be answerable for any loss or impairment of the thing
from any cause, and for damages to the person who delivered the thing, until RULING: No. The SC ruled that Article 1266 is inapplicable because it refers
it is recovered. (1896a) to a situation where there is a debtor-creditor relationship which is absent in
********************************************************************** the relationship of a bail bond surety and the State.
PEOPLE VS. FRANKLIN
Nature: Appeal by surety company of forfeiture of bail bond and denial of The Court also noted the difference between an ordinary surety (those sureties
petition for reduction of bail on ordinary bonds or commercial contracts) and a bail bond surety. Citing the
Ponente: Dizon case of US vs. Bonoan, the Court stated that a bail bond surety may discharge
Date: June 7, 1971 themselves from liability by surrendering their principal while an ordinary
surety can only be released by payment of the debt or performance of the act
DOCTRINE: Article 1266 of the Civil Code does not apply to a surety upon a stipulated.
bail bond because 1266 speaks of a debtor-creditor relationship which is not
present between a bail bond surety and the State. Moreover, citing the case of Uy Tuising, the Court stated that it is the
responsibility of the bail bond surety to keep the principal from leaving the
FACTS: jurisdiction because in the eyes of the law, the bail bond surety becomes the
Relevant Provision of Law: Article 1266 of the Civil Code legal custodian and jailer of the accused. The Court stated that the Company
should have informed the DFA and other government agencies of the fact that
Article 1266. The debtor in obligations to do shall also be released when the prestation becomes
legally or physically impossible without the fault of the obligor. Franklin was facing a criminal charge. She would not have been issued a
passport if the Company had done this, according to the Court.
An information was filed with the Justice of the Peace Court of Angeles,
Pampanga against Natividad Franklin for the crime of estafa. She was released

Page 85 of 115
LAGUNA VS. MANABAT allocation, and the lack of passenger traffic which leads to financial losses.
Nature: Action for sum of money for rentals They asked that they be allowed to suspend operations until operating
Ponente: Makasiar expenses went back to normal levels.
Date: August 29, 1974
Manabat and others opposed the petition stating that it will impair the
DOCTRINE: Article 1680 of the Civil Code is not a general provision that can obligation of contracts and the fact that the PSC does not have authority to
be applied to leases of all kinds. Moreover, even if it were held to apply to this interpret contracts. The PSC brushed aside their oppositions stating that they
case, increase in operating costs is not an unforeseen fortuitous event that can were not interpreting the lease contracts but were merely exercising its
excuse them from obligation. regulatory power over the leased contract.

FACTS: While proceedings in the PSC were going on, Manabat filed an action against
Relevant Provision of Law: Article 1680 of the Civil Code the LTBC and BATC in the CFI of Laguna for the recovery of 42,500php in
accrued rentals and the unauthorized deduction. Meanwhile , the PSC granted
Article 1680. The lessee shall have no right to a reduction of the rent on account of the sterility of the petition of LTBC and BATC and granted them authority to suspend their
the land leased, or by reason of the loss of fruits due to ordinary fortuitous events; but he shall
have such right in case of the loss of more than one-half of the fruits through extraordinary and
operations.
unforeseen fortuitous events, save always when there is a specific stipulation to the contrary.
In the CFI, LTBC and BATC pointed to the authority to suspend and argued
Extraordinary fortuitous events are understood to be: fire, war, pestilence, unusual flood, that the rentals should be reduced because the lease is suspended during that
locusts, earthquake, or others which are uncommon, and which the contracting parties could not
period. They argued further that when the BITC became insolvent, the lease
have reasonably foreseen. (1575)
lost force and the rentals paid after were by mistake and should be returned to
On January 20, 1956, the Binan Transportation Company (BITC) leased to the them.
Laguna Tayabas Bus Company (LTBC) its certificates of public convenience
over the its Manila-Binan, Manila-Canlubang, And Sta. Rosa-Manila lines for The CFI ruled in favor of BITC and ordered that LTBC and BATC pay for
2,50ophp per month. It also leased to Batangas Transportation Company accrued rentals even for the months where the suspension was effective, as well
(BATC) its certificates over its life Manila-Batangas Wharf and an as to pay for the unauthorized deduction, and the rentals that may accrue after
international truck for 5 years renewable for another 5. The Public Service the suspension is lifted as well as interest. On appeal to the CA, the CA affirmed
Commission provisionally approved the lease contracts on the same date on the CFI.
the condition that the lessees should operate the lines in accordance with the
prescribed time schedule and was subject to modification or cancellation and On appeal to the SC, LTBC and BATC basically stated that it was wrong for the
to whatever decision might be rendered in the case. CA to completely disregard the fact that they could not enjoy the thing leased
during the time of suspension and therefore the rentals should be reduced.
Subsequently, the BITC was declared insolvent and Francisco Manabat was However, the SC denied such for lack of merit.
appointed as its assignee. From the time of declaration of insolvency, the
defendants paid the rentals to Manabat. However, beginning January 1958, One day before the resolution of the SC became final, LTBC and BATC filed a
notwithstanding demands, defendants failed to pay rentals despite assurances motion to admit amended petition stating that there is another authority for
they gave Manabat. The defendants also deducted the amount of 1,862.92 the reduction of rentals which is Article 1680 of the Civil Code and the case of
without authorization from the rent they paid for August 1957 because their Reyes vs. Caltex.
workers went on strike. Manabat also opposed such unauthorized deduction
as the agreement states that the deduction can only be made if the lessor’s ISSUE: Should the rentals be reduced pursuant to Article 1680 of the Civil
workers or officers went on strike and not the lessees. Additionally, such Code?
deduction gave undue preference to LTBC and BATC in the insolvency
proceedings. RULING: No. The Court ruled that Article 1680 is a special provision for
leases of rural lands. If it was the intention of the lawmakers to make it
On February 18, 1958, the LTBC and BATC filed with the Public Service applicable to ordinary leases, they would have placed the article among the
Commission a petition for authority to suspend the operation of the lines citing general provisions on lease. Even if it were a general rule on leases, it would
increase in costs of procuring spare parts abroad, reduction of dollar still not extend to petitioners because the requisite is that the loss of the fruits
of leased property must be an “extraordinary and unforeseen fortuitous event.”
Page 86 of 115
The alleged causes for suspension were the high prices of spare parts and OCCENA VS. JABSON
gasoline and the reduction of dollar allocations were already existing when the Nature: Appeal from the decision of the CA allowing modification of contract
contracts of lease were executed. Therefore, the cause of inability of petitioners Ponente: Teehankee
cannot be ascribed to fortuitous events but to their voluntary desistance. Date: October 29, 1976

Absent the requisite of fortuitous event, Article 1680 militates strongly against DOCTRINE: Article 1267 of the Civil Code allows the release of the obligor
their plea as evidenced by the Article’s opening statement. No reduction can when the service has become so difficult as to be manifestly beyond the
be sustained by the suspension based on mere speculation that operating will contemplation of the parties. But such Article does not authorize the Courts to
yield no profits. modify or alter the terms and conditions of the contract.

The SC also took note of the fact that despite the suspension, there is still FACTS:
benefit to the lessees. Because the suspension would only cover the operation Relevant Provision of Law: Article 1267 of the Civil Code
of the lessees, but it does not cover the obligation of the lessor not to operate
or own certificates covering the same lines. Because petitioners LBTC and Article 1267. When the service has become so difficult as to be manifestly beyond the
contemplation of the parties, the obligor may also be released therefrom, in whole or in part. (n)
BATC still have their own certificates covering the same lines which are not
covered by the suspension, the public would have no choice except to patronize
them. Tropical Homes Inc. (Tropical) filed a complaint in the CFI of Rizal for
modification of the terms and conditions of its subdivision contract with
The cited case by petitioners actually does not help their case because in Reyes petitioners who are landowners in Davao City. Tropical alleged:
vs. Caltex, the plea for equitable reduction was denied.
“That due to the increase in price of oil and its derivatives and the concomitant
worldwide spiralling of prices, which are not within the control of plaintiff, of all
“Where a person by his contract charges himself with an obligation possible to be performed, he
must perform it, unless the performance is rendered impossible by the act of God, by the law, or commodities including basis raw materials required for such development work, the
by the other party, it being the rule that in case the party desires to be excused from the cost of development has risen to levels which are unanticipated, unimagined and not
performance in the event of contingencies arising, it is his duty to provide therefor in his within the remotest contemplation of the parties at the time said agreement was
contract. Hence, performance is not excused by subsequent inability to perform, by unforeseen entered into and to such a degree that the conditions and factors which formed the
difficulties, by unusual or unexpected expenses, by danger, by inevitable accident, by breaking original basis of said contract, Annex 'A', have been totally changed; 'That further
of machinery, by strikes, by sickness, by failure of a party to avail himself of the benefits to be performance by the plaintiff under the contract.
had under the contract, by weather conditions, by financial stringency or by stagnation of
business. Neither is performance excused by the fact that the contract turns out to be hard and
That further performance by the plaintiff under the contract,Annex 'S', will result in
improvident, unprofitable, or impracticable, ill-advised, or even foolish, or less profitable,
unexpectedly burdensome. situation where defendants would be unustly enriched at the expense of the plaintiff;
will cause an inequitous distribution of proceeds from the sales of subdivided lots in
Since, by the lease, the lessee was to have the advantage of casual profits of the leased premises, manifest actually result in the unjust and intolerable exposure of plaintiff to
he should run the hazard of casual losses during the term and not lay the whole burden upon the implacable losses, all such situations resulting in an unconscionable, unjust and
lessor." immoral situation contrary to and in violation of the primordial concepts of good
faith, fairness and equity which should pervade all human relations.”
Lastly, the Court noted that the conduct of petitioners were not according to
fair play and justice. They promised Manabat that they would pay rentals. But Tropical sought to change, based on the reasons cited, the provision which
when they found an opportunity to excuse themselves, they reneged on this granted the landowners 40% of all cash receipts from the sale of subdivision
promise. Moreover, the Court is of the opinion that the petition for suspension lots. The CFI and CA ruled in favor of Tropical citing Article 1267 as basis. (but
is malicious because they did not ask their own certificates to be suspended, the decision did not state how such provision should be modified)
only those they leased. If the reasons for the suspension were true, why should
they not petition their own certificates to be suspended as well. It becomes Petitioners appeal to the SC stating that the CFI and CA were erroneous in the
clear that the petition for suspension was a scheme to lessen their operating application of 1267 and that Tropical has no cause of action.
costs for greater profit.
ISSUE: Can the Courts modify or alter the contract when it has become so
difficult as to be manifestly beyond the contemplation of parties?

Page 87 of 115
RULING: No. The SC stated that the CFI and the CA would have been correct Article 749. In order that the donation of an immovable may be valid, it must
in applying Article 1267 if the complaint of Tropical sought to have itself be be made in a public document, specifying therein the property donated and the
excused from complying with the obligation. However, what Tropical seeks value of the charges which the donee must satisfy.
here is not release but that the Court modify the terms and conditions of the The acceptance may be made in the same deed of donation or in a separate
Contract which the Article does not authorize the Court to do so. His complaint public document, but it shall not take effect unless it is done during the lifetime
for modification has no basis in law and therefore does not state a cause of of the donor.
action. If the acceptance is made in a separate instrument, the donor shall be notified
thereof in an authentic form, and this step shall be noted in both instruments.
Procedural: SC stated that the general rule is that the denial of a motion to (633)
dismiss is interlocutory and should not be corrected by certiorari but by appeal
in due course. But this case falls under the exception that an appeal would not 4. Confusion or merger of rights
prove to be a speedy and adequate remedy.
************************************************************************ Article 1275. The obligation is extinguished from the time the characters of
3. Condonation or remission of debt creditor and debtor are merged in the same person. (1192a)

Article 1270. Condonation or remission is essentially gratuitous, and Article 1276. Merger which takes place in the person of the principal debtor
requires the acceptance by the obligor. It may be made expressly or impliedly. or creditor benefits the guarantors. Confusion which takes place in the person
One and the other kind shall be subject to the rules which govern inofficious of any of the latter does not extinguish the obligation. (1193)
donations. Express condonation shall, furthermore, comply with the forms of
donation. (1187) Article 1277. Confusion does not extinguish a joint obligation except as
regards the share corresponding to the creditor or debtor in whom the two
Article 1271. The delivery of a private document evidencing a credit, made characters concur. (1194)
voluntarily by the creditor to the debtor, implies the renunciation of the action
which the former had against the latter. Article 1215. Novation, compensation, confusion or remission of the debt,
If in order to nullify this waiver it should be claimed to be inofficious, the made by any of the solidary creditors or with any of the solidary debtors, shall
debtor and his heirs may uphold it by proving that the delivery of the document extinguish the obligation, without prejudice to the provisions of article 1219.
was made in virtue of payment of the debt. (1188) The creditor who may have executed any of these acts, as well as he who
collects the debt, shall be liable to the others for the share in the obligation
Article 1272. Whenever the private document in which the debt appears is corresponding to them. (1143)
found in the possession of the debtor, it shall be presumed that the creditor
delivered it voluntarily, unless the contrary is proved. (1189) Article 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
Article 1273. The renunciation of the principal debt shall extinguish the which offer to accept.
accessory obligations; but the waiver of the latter shall leave the former in He who made the payment may claim from his co-debtors only the share which
force. (1190) 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
Article 1274. It is presumed that the accessory obligation of pledge has been may be demanded.
remitted when the thing pledged, after its delivery to the creditor, is found in When one of the solidary debtors cannot, because of his insolvency, reimburse
the possession of the debtor, or of a third person who owns the thing. (1191a) his share to the debtor paying the obligation, such share shall be borne by all
his co-debtors, in proportion to the debt of each. (1145a)
Article 748. The donation of a movable may be made orally or in writing.
An oral donation requires the simultaneous delivery of the thing or of the 5. Compensation
document representing the right donated.
If the value of the personal property donated exceeds five thousand pesos, the Article 1278. Compensation shall take place when two persons, in their own
donation and the acceptance shall be made in writing. Otherwise, the donation right, are creditors and debtors of each other. (1195)
shall be void. (632a)
Article 1279. In order that compensation may be proper, it is necessary:
Page 88 of 115
 (1) That each one of the obligors be bound principally, and that he be Article 1287. Compensation shall not be proper when one of the debts arises
at the same time a principal creditor of the other; from a depositum or from the obligations of a depositary or of a bailee in
(2) That both debts consist in a sum of money, or if the things due are commodatum.
consumable, they be of the same kind, and also of the same quality if Neither can compensation be set up against a creditor who has a claim for
the latter has been stated; support due by gratuitous title, without prejudice to the provisions of
(3) That the two debts be due; paragraph 2 of article 301. (1200a)
(4) That they be liquidated and demandable;
(5) That over neither of them there be any retention or controversy, Article 1288. Neither shall there be compensation if one of the debts consists
commenced by third persons and communicated in due time to the in civil liability arising from a penal offense. (n)
debtor. (1196)
Article 1289. If a person should have against him several debts which are
Article 1280. Notwithstanding the provisions of the preceding article, the susceptible of compensation, the rules on the application of payments shall
guarantor may set up compensation as regards what the creditor may owe the apply to the order of the compensation. (1201)
principal debtor. (1197)
Article 1290. When all the requisites mentioned in article 1279 are present,
Article 1281. Compensation may be total or partial. When the two debts are compensation takes effect by operation of law, and extinguishes both debts to
of the same amount, there is a total compensation. (n) the concurrent amount, even though the creditors and debtors are not aware
of the compensation. (1202a)
Article 1282. The parties may agree upon the compensation of debts which
are not yet due. (n) Article 1243. Payment made to the creditor by the debtor after the latter has
been judicially ordered to retain the debt shall not be valid. (1165)
Article 1283. If one of the parties to a suit over an obligation has a claim for
damages against the other, the former may set it off by proving his right to said Article 1215. Novation, compensation, confusion or remission of the debt,
damages and the amount thereof. (n) made by any of the solidary creditors or with any of the solidary debtors, shall
extinguish the obligation, without prejudice to the provisions of article 1219.
Article 1284. When one or both debts are rescissible or voidable, they may The creditor who may have executed any of these acts, as well as he who
be compensated against each other before they are judicially rescinded or collects the debt, shall be liable to the others for the share in the obligation
avoided. (n) corresponding to them. (1143)

Article 1285. The debtor who has consented to the assignment of rights made Kinds of compensation—
by a creditor in favor of a third person, cannot set up against the assignee the a. legal
compensation which would pertain to him against the assignor, unless the b. conventional; facultative
assignor was notified by the debtor at the time he gave his consent, that he c. judicial
reserved his right to the compensation. **********************************************************************
If the creditor communicated the cession to him but the debtor did not consent
thereto, the latter may set up the compensation of debts previous to the BPI VS. CA
cession, but not of subsequent ones.
If the assignment is made without the knowledge of the debtor, he may set up Nature: Action to recover a sum of money
the compensation of all credits prior to the same and also later ones until he Ponente: Azcuna
had knowledge of the assignment. (1198a) Date: January 25, 2007

Article 1286. Compensation takes place by operation of law, even though the DOCTRINE: Legal compensation may take place when all the requisites in
debts may be payable at different places, but there shall be an indemnity for Article 1279 are present. But when done maliciously by a bank, even if it is
expenses of exchange or transportation to the place of payment. (1199a) entitled to set off, it can be liable for damages.

FACTS:
Relevant Provision of Law: Article 1278 and 1279 of the Civil Code
Page 89 of 115
 RULING: Yes. However, it is still liable for damages for its failure to act
Article 1278. Compensation shall take place when two persons, in their own right, are creditors judiciously in its exercise of its right. The SC stated that the CFI and the CA
and debtors of each other. (1195)
were wrong in holding that the Salazar had sufficiently proven that she was
Article 1279. In order that compensation may be proper, it is necessary: entitled to the checks. The Court stated that transferees who are neither payees
(1) That each one of the obligors be bound principally, and that he be at the same time a principal or indorsees do not have any presumption in their favor. Transferees in this
creditor of the other; situation do not enjoy the presumption of ownership in favor of holders since
(2) That both debts consist in a sum of money, or if the things due are consumable, they be of the
they are neither payees nor indorsees of such instruments. The weight of
same kind, and also of the same quality if the latter has been stated;
(3) That the two debts be due; authority is that the mere possession of a negotiable instrument does not in
(4) That they be liquidated and demandable; itself conclusively establish either the right of the possessor to receive
(5) That over neither of them there be any retention or controversy, commenced by third persons payment, or of the right of one who has made payment to be discharged from
and communicated in due time to the debtor. (1196)
liability. Thus, something more than mere possession by persons who are not
A.A. Salazar Construction and Engineering, which was later substituted by payees or indorsers of the instrument is necessary to authorize payment to
Anabelle A. Salazar as the real party in interest, filed a case for a sum of money them in the absence of any other facts from which the authority to receive
against amounting to 267,707.70php BPI in the RTC of Pasig City. The case payment may be inferred.
stemmed from the claim of Julio R. Templonuevo who demanded from BPI
the amount representing the aggregate value of 3 checks which were payable The Court also stated that the presumption stated in Section 131(s) of the Rules
to JRT Construction which belonged to Templonuevo but which were allegedly of Court cannot inure to the benefit of Salazar because it assumes that there
maliciously deposited by Salazar to her own personal account. has been a valid transfer which in the case of checks which are order
instruments, require both delivery and endorsement.
Because of Templonuevo’s claim, BPI froze account No. 0201-0588-48 of AA
Salazar and Construction instead of Salazar’s personal account where the Regarding the right to set off, the SC cited the case of Associated Bank vs. Tan.
checks were deposited because the account was already closed. BPI guaranteed The right of set-off was explained in Associated Bank v. Tan which states that
Salazar that her company’s account would not be touched until the matter was abank generally has a right of set-off over the deposits therein for the payment
settled, but 2 weeks after, BPI debited the amount from her account. of any withdrawals on the part of a depositor. The right of a collecting bank to
debit a client's account for the value of a dishonored check that has previously
The CFI and the CA both ruled in favor of Salazar and ordered BPI to return been credited has fairly been established by jurisprudence. To begin with,
the amount to Salazar because they believed Salazar was entitled to the checks Article 1980 of the Civil Code provides that fixed, savings, and current deposits
notwithstanding the lack of endorsement by the payee, JRT Construction, of money in banks and similar institutions shall be governed by the provisions
because of an internal arrangement between JRT and Salazar with the concerning simple loan. Hence, the relationship between banks and depositors
acquiescence and knowledge of BPI. The CFI and the CA took note of the fact is one of creditor and debtor, thus legal compensation may take place once the
that BPI honored the checks and deposited them in Salazar’s account 3 requirements set forth in Article 1279 have been complied with.
separate instances. Both Courts explained that the only probable reason why a
bank would deposit in 3 separate instances a check without the endorsement However, the bank is still liable for damages because it is in a business affected
of the payee is that it had knowledge of the internal arrangement between JRT with public interest and therefore they should treat the accounts of their
and Salazar. Lastly, they also took note of the fact that Templonuevo only customers with meticulous care. To begin with, it was the bank’s negligence
claimed the amount a year after the last check was deposited, which according which allowed Salazar to deposit 3 checks at 3 separate instances without
to both Courts, show the existence of the internal arrangement because of the endorsement. Moreover, the bank assured Salazar that it would not touch the
lapse of time. account of Salazar’s company pending the resolution of the dispute with
Templonuevo. But contrary to their assurances, in less than 2 weeks, the bank
For BPI’s part, it simply admits to the mistake of depositing the check to already debited the account of her company. This led to damages suffered by
Salazar’s account and defends the act of debiting by citing Articles 1278 and Salazar because she had already issued checks drawn on her company’s
1279 of the Civil Code and its right to set off. account. The debiting of BPI contrary to their assurances caused her checks to
bounce causing her embarrassment and damage to her standing in the
ISSUE: Did BPI had the right to set off? business community. Therefore, she is still entitled to damages, but she is not
entitled to the return of the money that BPI debited.

Page 90 of 115
 GAN TIONCO v. COURT OF APPEALS Tion went on certiorari to the Court of Appeals, where he pleaded legal
compensation, claiming that Ong Wan Sieng was indebted to him in the sum
Nature: Ejectment Case of P4,320 for unpaid rents.
Ponente: Makalintal, J.
Date: May 21, 1969 The appellate court accepted the petition but eventually decided for the
respondent Ong, holding that Ong is indebted to the petitioner for unpaid
DOCTRINE: Attorney’s Fees can be the proper subject of legal compensation rentals in an amount of more than P4,000.00," the sum of P500 could not be
because it is the litigant, not his counsel, who is the judgment creditor and who the subject of legal compensation, it being a "trust fund for the benefit of the
may enforce the judgment by execution. Such credit, therefore, may properly lawyer, which would have to be turned over by the client to his counsel."
be the subject of legal compensation
Appellate Court: The requisites of legal compensation, namely, that the parties
FACTS: must be creditors and debtors of each other in their own right (Art. 1278, Civil
Art. 1278. Compensation shall take place when two persons, in their own Code) and that each one of them must be bound principally and at the same
right, are creditors and debtors of each other. (1195) time be a principal creditor of the other (Art. 1279), are not present in the
instant case, since the real creditor with respect to the sum of P500 was the
Art. 1279. In order that compensation may be proper, it is necessary: defendant's counsel.
(1) That each one of the obligors be bound principally, and that he be at the
same time a principal creditor of the other; ISSUE: WON there has been legal compensation between petitioner Gan
(2) That both debts consist in a sum of money, or if the things due are Tion and respondent Ong Wan Sieng.
consumable, they be of the same kind, and also of the same quality if the latter Or WON legal compensation can occur between a judgment debt and a
has been stated; judgment awarding attorney’s fees
(3) That the two debts be due;
(4) That they be liquidated and demandable; RULING: The award is made in favor of the litigant, not of his counsel, and
(5) That over neither of them there be any retention or controversy, is justified by way of indemnity for damages recoverable by the former in the
commenced by third persons and communicated in due time to the debtor. cases enumerated in Article 2208 of the Civil Code. It is the litigant, not his
(1196) counsel, who is the judgment creditor and who may enforce the judgment by
execution. Such credit, therefore, may properly be the subject of legal
Ong Wan Sieng was a tenant in certain premises owned by Gan Tion. compensation. Quite obviously it would be unjust to compel petitioner to pay
his debt for P500 when admittedly his creditor is indebted to him for more
In 1961 Gan Tion filed an ejectment case against the former, alleging non- than P4,000.
payment of rents for August and September of that year, at P180 a month, or _____________________________________________________
P360 altogether. Ong Wang Sen denied the allegation and said that the agreed
monthly rental was only P160, which he had offered to pay but he was refused PHILIPPINE NATIONAL BANK v. GLORIA G. VDA. DE ONG
by the plaintiff. ACERO, ARNOLFO ONG ACERO & SOLEDAD ONG ACERO CHUA

Gan Tion won in the municipal trial court but upon appeal, was reversed by Nature: Action to enforce executory judgment
the CFI. Gan Tion was ordered to pay the defendant the sum of P500 as Ponente: Narvasa, J.
attorney's fees. That judgment became final. Date: February 27, 1987

On October 10, 1963 Gan Tion served notice on Ong Wan Sieng that he was FACTS:
increasing the rent to P180 a month, effective November 1st, and at the same Depositor Isabela Wood Construction & Development Corporation opened a
time demanded the rents in arrears at the old rate in the aggregate amount of Savings Account with PNB in the amount of 2 million. The Aceros are
P4,320.00, corresponding to a period from August 1961 to October 1963. judgment creditors of Isabela Corporation, who seek to enforce against said
savings account the final and executory judgment rendered in their favor.
In the meantime, over Gan Tion's opposition, Ong Wan Sieng was able to
obtain a writ of execution of the judgment for attorney's fees in his favor. Gan
Page 91 of 115
The partial judgment ordered payment by ISABELA to the ACEROS of the but not that the credit was ever availed of (by ISABELA's foreign
amount of P1,532,000.07. Notice of garnisment was served on the PNB on correspondent MAN, or that the goods thereby covered were in fact shipped,
January 9, 1980, pursuant to the writ of execution dated December 23, 1979. and received by ISABELA. The Failure is fatal to its claim.
This was followed by an Order issued on February 15, 1980 directing PNB to
hand over this amount of P1,532,000.07 to the sheriff for delivery, in turn, to (2) WON 2M Deposit applied as collateral can be subject to voluntary
the ACEROS. This partial judgment was made final plus interest. compensation
RULING:
Meanwhile, PNB's claim to the two-million-peso deposit in question is made Petitioner: PNB has however deposited an alternative theory, which is that the
to rest on an agreement between it and ISABELA in virtue of which, according P2M deposit had been assigned to it by ISABELA as "collateral," although not
to PNB: (1) the deposit was made by ISABELA as "collateral" in connection by way of pledge; that ISABELA had explicitly authorized it to apply the P2M
with its indebtedness to PNB as to which it (ISABELA) had assumed certain deposit in payment of its indebtedness; and that PNB had in fact applied the
contractual undertakings; and (2) in the event of ISABELA's failure to fulfill deposit to the payment of ISABELA's debt on February 26, 1980, in concept of
those undertakings, PNB was empowered to apply the deposit to the payment voluntary compensation.
of that indebtedness. This agreement concerned a Letter of Credit issued in
favor of a German company from whom Isabela bought 35 trucks. Since Supreme Court: This second, alternative theory, is as untenable as the first.
Isabela failed to deliver to PNB by way of mortgage its Paranaque property,
and secure consent of Metropolitan Bank and Homeowners Savings and Loan In the first place, there being no indebtedness to PNB on ISABELA's part, there
Association to secure a 2nd mortgage, and considering that the obligation of is in consequence no occasion to speak of any mutual set-off, or compensation,
defendant corporation to PNB have been due and unsettled, PNB applied the whether it be legal, i.e., which automatically occurs by operation of law, or
amount of P 2,102804.11 in defendant's savings account of PNB. voluntary, i.e., which can only take place by agreement of the parties.

With this basis, PNB intervened in the action between the Aceros and Isabela. In the second place, the documents indicated by PNB as constitutive of the
PNB claims that since ISABELA was at some point in time both its debtor and claimed assignment do not in truth make out any such transaction. While the
creditor-ISABELA's deposit being deemed a loan to it (PNB)-there had Credit Agreement declares it to be ISABELA's intention to "assign to the BANK
occurred a mutual set-off between them, which effectively precluded the the proceeds of its contract with the Department of Public Works for the
ACEROS' recourse to that deposit. construction of Nagapit Suspension Bridge (Substructure) in Cagayan," it does
not appear that that intention was adhered to, much less carried out.
The Trial Court ruled in favor of PNB. But, the Intermediate Appellate Court
ruled in favor of the Aceros. Even if it be assumed that such an assignment had indeed been made, and PNB
had been really authorized to apply the P2M deposit to the satisfaction of
ISSUE: ISABELA's indebtedness to it, nevertheless, since the record reveals that the
(1) WON legal compensation can take place between PNB and Isabela application was attempted to be made by PNB only on February 26, 1980, that
essayed application was ineffectual and futile because at that time, the deposit
RULING: Article 1278 of the Civil Code does indeed provide that was already in custodia legis, notice of garnishment thereof having been served
"Compensation shall take when two persons, in their own right, are creditors on PNB on January 9, 1980 (pursuant to the writ of execution issued by the
and debtors of each other. " Also true is that compensation may transpire by Court of First Instance on December 23, 1979 for the enforcement of the partial
operation of law, as when all the requisites therefor, set out in Article 1279, are judgment in the ACEROS' favor rendered on November 18,1979).
present. Nonetheless, these legal provisions can not apply to PNB's advantage ________________________________________________
under the circumstances of the case at bar.
ENGRACIO FRANCIA V. IAC
The insuperable obstacle to the success of PNB's cause is the factual finding of
the IAC, by which upon firmly established rules even this Court is bound, that Nature: Complaint to annul sale
it has not proven by competent evidence that it is a creditor of ISABELA. The Ponente: Gutierrez
only evidence present by PNB towards this end consists of two (2) documents Date: June 28, 1988
marked in its behalf as Exhibits 1 and 2, But as the IAC has cogently observed,
these documents do not prove any indebtedness of ISABELA to PNB. All they DOCTRINE: The Court had consistently ruled that there can be no off-setting
do prove is that a letter of credit might have been opened for ISABELA by PNB, of taxes against the claims that the taxpayer may have against the government.
Page 92 of 115
A person cannot refuse to pay a tax on the ground that the government owes a taxpayer cannot refuse to pay his tax when called upon by the collector
him an amount equal to or greater than the tax being collected. because he has a claim against the governmental body not included in the tax
levy.
FACTS: Engracio Francia is the registered owner of a residential lot, 328
square meters, and a two-story house built upon it situated at Barrio San There are also other factors which compelled the Court to rule against the
Isidro, now District of Sta. Clara, Pasay City, Metro Manila. petitioner. The tax was due to the city government while the expropriation was
effected by the national government. Moreover, the amount of P4,116.00 paid
On October 15, 1977, a 125 square meter portion of Francia's property was by the national government for the 125 square meter portion of his lot was
expropriated by the Republic of the Philippines for the sum of P4,116.00 deposited with the Philippine National Bank long before the sale at public
representing the estimated amount equivalent to the assessed value of the auction of his remaining property. Notice of the deposit dated September 28,
aforesaid portion. 1977 was received by the petitioner on September 30, 1977. The petitioner
admitted in his testimony that he knew about the P4,116.00 deposited with the
Since 1963 up to 1977 inclusive, Francia failed to pay his real estate taxes. bank but he did not withdraw it. It would have been an easy matter to withdraw
P2,400.00 from the deposit so that he could pay the tax obligation thus
Thus, on December 5, 1977, his property was sold at public auction pursuant aborting the sale at public auction.
to Section 73 of Presidential Decree No. 464 known as the Real Property Tax
Code in order to satisfy a tax delinquency of P2,400.00. Ho Fernandez was the And finally, even if we are inclined to give relief to the petitioner on equitable
highest bidder for the property. grounds, there are no strong considerations of substantial justice in his favor.
Mr. Francia failed to pay his taxes for 14 years from 1963 up to the date of the
On March 20, 1979, Francia filed a complaint to annul the auction sale. He auction sale. He claims to have pocketed the notice of sale without reading it
later amended his complaint on January 24, 1980. The petitioner seeks to set which, if true, is still an act of inexplicable negligence. He did not withdraw
aside the auction sale of his property which took place on December 5, 1977, from the expropriation payment deposited with the Philippine National Bank
and to allow him to recover a 203 square meter lot which was sold at public an amount sufficient to pay for the back taxes. The petitioner did not pay
auction to Ho Fernandez and ordered titled in the latter's name. He further attention to another notice sent by the City Treasurer on November 3, 1978,
averred that his tax delinquency of P2,400.00 has been extinguished by legal during the period of redemption, regarding his tax delinquency. There is
compensation since the government owed him P4, 116.00 when a portion of furthermore no showing of bad faith or collusion in the purchase of the
his land was expropriated. property by Mr. Fernandez. The petitioner has no standing to invoke equity in
his attempt to regain the property by belatedly asking for the annulment of the
The lower court rendered a decision in favor Fernandez which was affirmed by sale.
the Intermediate Appellate Court. Fernandez appealed to the court.
The petition for review was dismissed.
ISSUE: Whether or not the tax delinquency of Francia has been extinguished ________________________________________________
by legal compensation.
REPUBLIC, in behalf of the RICE AND CORN ADMINISTRATION
RULING: There is no legal basis for the contention. By legal compensation, v. HON. WALFRIDO DE LOS ANGELES
obligations of persons, who in their own right are reciprocally debtors and
creditors of each other, are extinguished (Art. 1278, Civil Code). The Nature: Complaint to annul sale
circumstances of the case do not satisfy the requirements provided by Article Ponente: Concepcion, J.
1279, to wit: (1) that each one of the obligors be bound principally and that he Date: June 25, 1980
be at the same time a principal creditor of the other; (2) that the two debts be
due. DOCTRINE: Proof of the liquidation of a claim, in order that there be
compensation of debts, is proper if such claim is disputed. But, if the claim is
The Court had consistently ruled that there can be no off-setting of taxes undisputed, as in the case at bar, the statement is sufficient and no other proof
against the claims that the taxpayer may have against the government. A may be required.
person cannot refuse to pay a tax on the ground that the government owes him
an amount equal to or greater than the tax being collected. The collection of a
tax cannot await the results of a lawsuit against the government. In addition,
Page 93 of 115
FACTS: RULING:
On Oct 29, 1964 spouses Petra and Benjamin Farin obtained a loan from Insofar as it recognized the right of the herein private respondent, Marcelo
Marcelo Steel Corporation in the amount of P600k, with a real estate mortgage Steel Corporation, to collect and receive rentals from the lessees of the Doña
on a parcel of land in Quezon City as security. Mortgagee Marcelo Steel Petra Building, the order of December 23, 1967 was within the competence of
requested for extrajudicial foreclosure which the sheriff advertised and the respondent Judge, since the lessor-mortgagor, Petra Farin, had
scheduled. Spouses Farin filed petition for prohibition against the sheriff and empowered the said corporation to collect and receive any interest, dividend,
mortgagee. rents, profits or other income or benefit produced by or derived from the
Acting upon petition, Hon. De los Angeles issued an order commanding the mortgaged property under the terms of the real estate mortgage contract
Sheriff from proceeding with the public auction sale. executed by them.
While the above case was pending, Petra Farin lease portions of the "Doña
Petra Building situated on the mortgaged premises, to the Rice and Corn The respondent Judge also erred in denying the claim of the RCA that
Administration, (RCA). compensation of debts had taken place allegedly because "The records does
On December 9, 1967, Marcelo Steel filed a motion praying that RCA to not show any proof that the plaintiff is indebted to the aforesaid movant, RCA,
channel its rental payments to Marcelo Steel, by invoking paragraph 5 of as alleged in the said motion and assuming that the herein plaintiff is really
mortgage consent. Respondent judge de los Angeles issued assailed order indebted to the RCA, the records further does not show that a case has been
granting said motion. filed against her, or a decision has been rendered against her for the payment
of such obligation."
The RCA filed a motion for the reconsideration of said order, praying that it be
excluded therefrom, for the reasons that (a) the rents due Petra Farin had been Proof of the liquidation of a claim, in order that there be compensation of
assigned by her, with the conformity with the RCA, to Vidal A. Tan; (b) Petra debts, is proper if such claim is disputed. But, if the claim is undisputed, as in
Farin has an outstanding obligation with the RCA in the amount of the case at bar, the statement is sufficient and no other proof may be required.
P263,062.40, representing rice shortages incurred by her as a bonded
warehouse under contract with the RCA, which should be compensated with In the instant case, the claim of the RCA that Petra R. Farin has an outstanding
the rents due and may be due; and (c) RCA was never given an opportunity to obligation to the RCA in the amount of P263,062.40 which should be
be heard on these matters compensated against the rents already due or may be due, was raised by the
RCA in its motion for the reconsideration of the order of December 23, 1967.
RTC denied said motion and said that he records does not show any proof that
the plaintiff, Petra Farin, is indebted to the aforesaid movant, RCA, as allegedly A copy of said motion was duly furnished counsel for Petra R. Farin and
in the said motion and assuming that the herein plaintiff is really indebted to although the said Petra R. Farin subsequently filed a similar motion for the
the RCA, the records further does not show that a case has been filed against reconsideration of the order of December 23, 1967, she did not dispute nor
her for the payment of such obligation, and therefore, there is no apparent deny such claim
legal ground to hold the payment of the rentals due the plaintiff.
Neither did the Marcelo Steel Corporation dispute such claim of compensation
On August 28, 1968, the RCA filed a motion to vacate the orders directing the in its opposition to the motion for the reconsideration of the order of December
RCA to pay rentals to Marcelo Steel Corporation, reiterating therein the 23, 1967.
grounds alleged in its motion for reconsideration dated January 19, 1968, and
in its second motion for reconsideration dated April 17, 1968, which has The silence of Petra R. Farin, order of December 23, 1967. although the
remained unacted upon. In said motion, the RCA emphasized that it is not a declaration is such as naturally one to call for action or comment if not true,
party to the case; that it had been denied due process for lack of notice and the could be taken as an admission of the existence and validity of such a claim.
right to be heard; that compensation took place by operation of law pursuant Therefore, since the claim of the RCA is undisputed, proof of its liquidation is
to Art. 1286 of the Civil Code without the need of a case against Petra R. Farin, not necessary. At any rate, if the record is bereft of the proof mentioned by the
or a decision rendered against her for the payment of such obligation. Motion respondent Judge of first instance, it is because the respondent Judge did not
was denied, and so RCA filed petition for review. call for the submission of such proof. Had the respondent Judge issued an
order calling for proof, the RCA would have presented sufficient evidence to
ISSUE: WON RCA can validly claim that compensation of debts had taken the satisfaction of the court.
place, even if no case had been filed.

Page 94 of 115
Aquino concurs: I concur in the result and on the understanding that the Petitioner filed a petition for certiorari before this Court, assailing the above
trial court should hold a hearing to determine the merits of the claim of order, which the Court Dismissed.
petitioner RCA that it is entitled to retain the rentals by way of compensation.
Respondent Luteros then filed a Motion for Execution of the payment for
Petition of RCA granted. reimbursement. Thereafter the Petitioner Solinap filed with the respondent
________________________________________________ court a motion raising that the amount payable to Luteros should be
compensated against the latter's indebtedness to Solinap amounting to P7
LORETO J. SOLINAP v. HON. AMELIA K. DEL ROSARIO, as 1,000.00.
Presiding Judge of Branch IV, Court of First Instance of Iloilo,
SPOUSES JUANITO and HARDEVI R. LUTERO, and THE This motion was denied by respondent judge on the ground that "the claim of
PROVINCIAL SHERIFF OF ILOILO Loreto Solinap against spouses was yet to be liquidated and determined, such
that the requirement in Article 1279 of the New Civil Code that both debts are
Nature: Complaint to annul sale liquidated for compensation to take place has not been established by the
Ponente: Escolin, J. oppositor Loreto Solinap.
Date: July 25, 1983
Petitioner filed a motion for reconsideration of this order, but the same was
DOCTRINE: Compensation cannot take place where one's claim against the denied. Hence, this petition.
other is still the subject of court litigation. It is a requirement, for
compensation to take place, that the amount involved be certain and ISSUE: WON the obligation of petitioner to private respondents may be
liquidated." compensated or set-off against the amount sought to be recovered in an
action for a sum of money filed by the former against the latter
FACTS:
The spouses Tiburcio Lutero and Asuncion Magalona, owners of the Hacienda RULING:
Tambal, leased the said hacienda to petitioner Loreto Solinap for 10 years for The petition is devoid of merit.
the stipulated rental of P50,000.00 a year.
Petitioner: Judge erred in not declaring the mutual obligations of the parties
It was further agreed in the lease contract that P25,000.00 from the rental extinguished to the extent of their respective amounts. He relies on Article
should be paid by Solinap to the PNB to amortize the indebtedness of the 1278 of the Civil Code to the effect that compensation shall take place when
spouses Lutero. two persons, in their own right, are creditors and debtors of each other.

When Tiburcio Lutero died, his heirs instituted the testate estate proceedings. Supreme Court: The argument fails to consider Article 1279 of the Civil Code
On the basis of an order, respondents Juanito Lutero [grandson and heir of the which provides that compensation can take place only if both obligations are
late Tiburcio] and his wife Hardivi R. Lutero paid the PNB the sum of liquidated.
P25,000.00 as partial settlement of the deceased's obligations. Spouses Lutero
filed a motion seeking reimbursement from the petitioner. They argued that In the case at bar, the petitioner's claim against the respondent Luteros in Civil
the said amount should have been paid by petitioner to the PNB, as stipulated Case No. 12379 is still pending determination by the court. While it is not for
in the lease contract. the Court to pass upon the merits of the plaintiffs' cause of action in that case,
it appears that the claim asserted therein is disputed by the Luteros on both
Before the motion could be resolved, petitioner Solinap a separate action factual and legal grounds. More, the counterclaim interposed by them, if
against the spouses Lutero for collection of P71,000.00 they borrowed from ultimately found to be meritorious, can defeat petitioner's demand. Upon this
the petitioner. The spouses answered and pleaded a counterclaim against premise, his claim in that case cannot be categorized as liquidated credit which
petitioner for P125,000.00 representing unpaid rentals on Hacienda Tambal may properly be set-off against his obligation.
and that petitioners purchased one-half of Hacienda Tambal.
As this Court ruled in Mialhe vs. Halili, “Compensation cannot take place
The respondent judge issued an order granting the spouses’ motion for where one's claim against the other is still the subject of court litigation. It is a
reimbursement from petitioner of the sum of P25,000.00, plus interest. requirement, for compensation to take place, that the amount involved be
certain and liquidated."
Page 95 of 115
 Jose K. Lapuz testified. He had to pay Albert Smith the value of the 500 shares
WHEREFORE, the petition is dismissed, with costs against petitioner. of stock."

Abad Concurring: Petition is frivolous, and petitioner should be assessed The Trial Court convicted Sycip of Estafa which the Court of Appeals Affirmed.
treble costs.
_____________________________________________________ ISSUE:

FRANCISCO SYCIP, JR., v. COURT OF APPEALS (1) WON legal compensation can take place
RULING:
Nature: Estafa Case Petitioner contends that respondent Court of Appeals erred in not applying the
Ponente: Relova, J. provisions on compensation or setting-off debts under Articles 1278 and 1279
Date: January 31, 1985 of the New Civil Code, despite evidence showing that Jose K. Lapuz still owed
him an amount of more than P5,000.00 and in not dismissing the appeal
DOCTRINE: Compensation takes place only when two persons in their own considering that the latter is not legally the aggrieved party.
right are creditors and debtors of each other, and that each one of the obligors
is bound principally and is at the same time a principal creditor of the other. This contention is untenable. Compensation cannot take place in this case
since the evidence shows that Jose K. Lapuz is only an agent of Albert Smith
FACTS: and/or Dr. Dwight Dill.
Jose Lapuz received from Albert Smith in Manila 2000 shares of stock from
Republic Flour Mills in the name of Dwight Dill who had left for Honolulu, Compensation takes place only when two persons in their own right are
with the understanding that Lapuz was supposed to sell the shares of stock, the creditors and debtors of each other, and that each one of the obligors is bound
value out of which he would get a commission. Lapuz made it clear that he did principally and is at the same time a principal creditor of the other. Moreover,
not own the shares. He was approached by defendant Sycip who assured him as correctly pointed out by the trial court, Lapuz did not consent to the off-
he could sell it for a good price. Thereafter, Jose K. Lapuz received a letter from setting of his obligation with petitioner's obligation to pay for the 500 shares.
the Sycip, informing him that "1,758 shares has been sold for a net amount of
P29,000.00," but that the transaction could not be concluded until they (2) WON the Court of Appeals denied him due process when they refused
received the Power of Attorney duly executed by Dwight Dill, appointing a his prayer that the appealed case be heard.
person to endorse the certificate of stock and a resolution from Biochemical
Research Laboratory authorizing transfer of certificate. Lapuz signed his RULING: It is discretionary on its part whether or not to set a case for oral
conformity to such document. Power of attorney only authorized sale of 1758 argument. If it desires to hear the parties on the issues involved, motu propio
shares. or upon petition of the parties, it may require contending parties to be heard
Jose K. Lapuz managed to sell 758 shares, the sum of which was remitted to on oral arguments. Stated differently, if the Court of Appeals chooses not to
Albert Smith. hear the case, the Justices composing the division may just deliberate on the
The accused-appellant sold and paid for the other 500 shares of stock, for the case, evaluate the recorded evidence on hand and then decide it. Accused-
payment of which Jose K. Lapuz issued in his favor a receipt, dated June 9, appellant need not be present in the court during its deliberation or even
1961 during the hearing of the appeal before the appellate court; it will not be heard
The draft for P8,000.00, "the full value of the 500 shares' mentioned in the in the manner or type of hearing contemplated by the rules for inferior or trial
letter of the accused-appellant was dishonored by the bank, for lack of funds. courts.
Jose K. Lapuz then "discovered from the bookkeeper that he got the money ________________________________________________
and he pocketed it already, so he started hunting for Mr. Sycip. When he found
the accused-appellant, the latter gave him a check in the amount of P5,000.00,
issued by his daughter on July 12, 1961. This also was dishonored by the bank
for lack of sufficient funds to cover it.
When Jose K. Lapuz sent a wire to him, telling him that he would "file estafa
case (in the) fiscals office ... against him' unless he raise [the] balance left eight
thousand" the accused-appellant answered him by sending a wire, "P5,000
remitted ask boy check Equitable. But "the check was never made good," so
Page 96 of 115
 CIA MARITIMA V. COURT OF APPEALS ruled in his favor, granting him an award of (1) 2.5 M (2) 20 k (3) 20 K for the
three cases. Petitioners appealed.
Nature: Complaint to recover attorney’s fees
Ponente: Mendoza, J.
Date: November 16, 1999 ISSUE: WON the amount of attorney's fees awarded to the private
respondent by the court a quo and affirmed by the Honorable Court is
DOCTRINE: Generally, the amount of attorney's fees due is that stipulated reasonable.
in the retainer agreement which is conclusive as to the amount of the lawyer's
compensation. In the absence thereof, the amount of attorney's fees is fixed on RULING:
the basis of quantum meruit, i.e., the reasonable worth of his services. In The issue in this case concerns attorney's fees in the ordinary concept.
determining the amount of attorney's fees, the following factors are Generally, the amount of attorney's fees due is that stipulated in the retainer
considered: (1) the time spent and extent of services rendered; (2) the novelty agreement which is conclusive as to the amount of the lawyer's compensation.
and difficulty of the questions involved; (3) the importance of the subject In the absence thereof, the amount of attorney's fees is fixed on the basis of
matter; (4) the skill demanded; (5) the probability of losing other employment quantum meruit, i.e., the reasonable worth of his services. In determining the
as a result of the acceptance of the proffered case; (6) the amount involved in amount of attorney's fees, the following factors are considered: (1) the time
the controversy and the benefits resulting to the client; (7) the certainty of spent and extent of services rendered; (2) the novelty and difficulty of the
compensation; (8) the character of employment; and (9) the professional questions involved; (3) the importance of the subject matter; (4) the skill
standing of the lawyer. demanded; (5) the probability of losing other employment as a result of the
acceptance of the proffered case; (6) the amount involved in the controversy
FACTS: and the benefits resulting to the client; (7) the certainty of compensation; (8)
Maritime Company of the Philippines was sued by Genstar Container the character of employment; and (9) the professional standing of the lawyer.
Corporation before the Regional Trial Court, Branch 31, Manila. On November
29, 1985, it was ordered to pay Genstar Container Corporation, judgment debt Both the Court of Appeals and the trial court approved attorney's fees in the
and attorney’s fees. total amounts of P50,000.00 and P30,000.00 for the services of Atty.
As a result, properties of petitioners Compania Maritima, Inc., El Varadero de Consulta in Civil Case No. 85-30134 and TBP Case No. 86-03662, respectively.
Manila, and Mindanao Terminal and Brokerage Services at Sangley Point, Based on the above criteria, we think said amounts are reasonable, , although
Cavite, were levied upon in execution. the third-party claim and motion for the issuance of a writ of preliminary
Petitioners Compania Maritima, Inc., El Varadero de Manila, and Mindanao injunction filed by Atty. Consulta in Civil Case No. 85-30134 was dismissed by
Terminal and Brokerage Services engaged the services of private respondent, the trial court, while TBP Case No. 86-03662 was given by petitioners to
Atty. Exequiel S. Consulta for (3) cases. another lawyer after Atty. Consulta had filed the complaint. On the other hand,
although the order of the trial court in Civil Case No. 86-37196 granting the
The cases were eventually resolved in this wise: (1) in Civil Case No. 85-30134, motion to dismiss filed by both parties did not state the grounds therefor, it is
the trial court dismissed the third-party claim and motion for the issuance of reasonable to infer that petitioners agreed thereto in consideration of some
a writ of preliminary injunction filed by Atty. Consulta; (2) after Atty. Consulta advantage.
filed the complaint with the Tanodbayan in TBP Case No. 86-03662,
petitioners transferred the handling of the case to another lawyer; and (3) Civil Hence, the rulings of the Court of Appeals and the trial court that, because of
Case No. 86-37196 was eventually dismissed on motion of both parties, but the complexity of the issues involved and the work done by counsel, the
only after the trial court's denial of the motion to dismiss filed by Genstar amount of P2,550,000.00 was reasonable for Atty. Consulta's services.
Container Corporation was upheld on appeal by both the Court of Appeals and
the Supreme Court. In addition, the value of the properties involved was considerable. As already
stated, to satisfy the judgment in favor of Genstar Container Corporation in
For the three cases Atty. Consulta billed them amounts which petitioners did Civil Case No. 85-30134, properties of petitioners worth P51,000,000.00 were
not fully pay. sold at public auction. Only P1,235,000.00 was realized from the sale and
petitioners were in danger of losing their properties. As the appellate court
Because of the failure of corporate petitioners to pay the balance of his pointed out, Atty. Consulta rendered professional services not only in the trial
attorney's fees, Atty. Consulta brought suit against petitioners in the Regional court but in the Court of Appeals and in this Court. There is no question that
Trial Court, Branch 94, Quezon City. The Trial Court and Court of Appeals
Page 97 of 115
through his efforts, properties owned by petitioners were saved from Corporation (appellee), were creditors and debtors of each other, their debts
execution. to each other consisting in final and executory judgments of the Court of First
Instance in two (2) separate cases, ordering the payment to each other of the
In the present case, the Court of Appeals affirmed the factual conclusions of sum of P10,000.00 by way of attorney's fees. The two (2) obligations,
the trial court that: (1) the issues in Civil Case No. 86-03662, including the therefore, respectively offset each other, compensation having taken effect by
appeals taken therefrom to the Court of Appeals and the Supreme Court, were operation of law and extinguished both debts to the concurrent amount of
quite complex; (2) the pleadings filed by Atty. Consulta were well-researched; P10,000.00, pursuant to the provisions of Arts. 1278, 1279 and 1290 of the
and (3) as a result of Atty. Consulta's efforts, the adv Civil Code, since all the requisites provided in Art. 1279 of the said Code for
erse parties were induced to agree to the dismissal of the case. automatic compensation "even though the creditors and debtors are not aware
of the compensation" were duly present.**
Note: Other Issues about Piercing Corporate Fiction.
_____________________________________________________ Necessarily, the appealed order of June 26, 1978 granting Atty. Laquihon's
motion for amendment of the judgment of September 14, 1976 against
MINDANAO PORTLAND CEMENT v. COURT OF APPEALS Mindanao Portland Cement Corporation so as to make the award therein of
P10,000.00 as attorney's fees payable directly to himself as counsel of Pacweld
Nature: Complaint to annul sale Steel Corporation instead of payable directly to said corporation as provided
Ponente: Teehankee, J. in the judgment, which had become final and executory long before the
Date: February 28, 1983 issuance of said "amendatory" order was a void alteration of judgment. It was
a substantial change or amendment beyond the trial court's jurisdiction and
DOCTRINE: Trial Court should not defeat the compensation or set-off of the authority and it could not defeat the compensation or set-off of the two (2)
two (2) obligations of the corporations to each other which had already obligations of the corporations to each other which had already extinguished
extinguished both debts by operation of law, by virtue of two separate cases both debts by operation of law.
filed in the same court. ________________________________________________

FACTS: THE INTERNATIONAL CORPORATE BANK INC. v. THE

On January 3, 1978, one Atty. Casiano P. Laquihon, in behalf of third-party IMMEDIATE APPELLATE COURT
defendant Pacweld Steel Corporation (Pacweld for short) as the latter's
attorney, filed a 'motion to direct payment of attorney's fee to Nature: Complaint for recovery of money market placements
counsel'addressed to Mindanao Portland Cement Corporation (MPCC for Ponente: Paras, J. ;
short), (himself ), invoking in his motion the fact that in the decision of the Date: June 30, 1988
court of Sept. 14, 1976, MPCC was adjudged to pay Pacweld the sum of
P10,000.00 as attorney's fees DOCTRINE: Compensation is not proper where the claim of the person
asserting the set-off against the other is not clear nor liquidated; compensation
On March 14, 1978, MPCC filed an opposition to Atty. Laquihon's motion, cannot extend to unliquidated, disputed claim arising from breach of contract.
stating, as grounds therefor, that said amount is set-off by a like sum of
P10,000.00 which it MPCC has collectible in its favor from Pacweld also by FACTS:
way of attorney's fees which MPCC recovered from the same CFI in an another Private respondent secured from petitioner's predecessors-in-interest, the
case. then Investment and Underwriting Corp. of the Philippines and Atrium
Capital Corp., a loan in the amount of P50,000,000.00. To secure this loan,
On June 26, 1978 the court issued the order appealed from and despite MPCCs private respondent mortgaged her real properties in Quiapo, Manila and in
motion for reconsideration of said order, citing the law applicable and San Rafael, Bulacan, which she claimed have a total market value of
Supreme Court decisions denied the same in its order of August 28, 1978 also P110,000,000.00. Of this loan, only the amount of P20,000,000.00 was
subject matter of this appeal. approved for release. The same amount was applied to pay her other
obligations to petitioner, bank charges and fees. Thus, private respondent's
RULING: claim that she did not receive anything from the approved loan.
It is clear from the record that both corporations, petitioner Mindanao
Portland Cement Corporation (appellant) and respondent Pacweld Steel
Page 98 of 115
Private respondent then made a money market placement with Atrium. But There can be no doubt that petitioner is indebted to private respondent in the
she allegedly failed to pay her mortgaged indebtedness to the bank so that the amount of P1,062,063.83 representing the proceeds of her money market
latter refused to pay the proceeds of the money market placement on maturity investment. This is admitted. But whether private respondent is indebted to
but applied the amount instead to the deficiency in the proceeds of the auction petitioner in the amount of P6.81 million representing the deficiency balance
sale of the mortgaged properties. With Atrium as the only bidder, the after the foreclosure of the mortgage executed to secure the loan extended to
properties were sold for 20,000,000. Petitioner ICB now claims that private her, is vigorously disputed. This circumstance prevents legal compensation
respondent still owed them 6.81 M. from taking place.

Private respondent filed a complaint with the trial court against petitioner for 6. Novation
annulment of the sheriff's sale of the mortgaged properties, for the release to
her of the balance of her loan from petitioner in the amount of Article 1291. Obligations may be modified by:
P30,000,000,00, and for recovery of P1,062,063.83 representing the (1) Changing their object or principal conditions;
proceeds of her money market investment and for damages. (2) Substituting the person of the debtor;
(3) Subrogating a third person in the rights of the creditor. (1203)
Petitioner denies private respondent's allegations and asserts among others, Article 1292. In order that an obligation may be extinguished by another
that it has the right to apply or set off private respondent's money market claim which substitute the same, it is imperative that it be so declared in unequivocal
of P1,062,063.83. Petitioner thus interposes counterclaims for the recovery of terms, or that the old and the new obligations be on every point incompatible
P5,763,741.23, representing the balance of its deficiency claim after deducting with each other. (1204)
the proceeds of the money market placement, and for damages. 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
During trial, private respondent filed a motion to order petitioner to release in the will of the latter, but not without the consent of the creditor. Payment by
her favor the sum of P1,062,063.83, representing the proceeds of the money the new debtor gives him the rights mentioned in articles 1236 and 1237.
market placement. petitioner filed an opposition thereto, claiming that the (1205a)
proceeds of the money market investment had already been applied to partly Article 1294. If the substitution is without the knowledge or against the will
satisfy its deficiency claim. of the debtor, the new debtor's insolvency or non-fulfillment of the obligations
Trial Court ruled in favor of private respondent shall not give rise to any liability on the part of the original debtor. (n)
Article 1295. The insolvency of the new debtor, who has been proposed by
the original debtor and accepted by the creditor, shall not revive the action of
ISSUE: WON there can be legal compensation in the case at bar, involving the latter against the original obligor, except when said insolvency was already
money market interests and a mortgage loan deficiency. existing and of public knowledge, or known to the debtor, when the delegated
his debt. (1206a)
RULING: Article 1296. When the principal obligation is extinguished in consequence
Petitioner: After foreclosing the mortgage, there is still due from private of a novation, accessory obligations may subsist only insofar as they may
respondent as deficiency the amount of P6.81 million against which it has the benefit third persons who did not give their consent. (1207)
right to apply or set off private respondent's money market claim of Article 1297. If the new obligation is void, the original one shall subsist,
P1,062,063.83. unless the parties intended that the former relation should be extinguished in
any event. (n)
Compensation shall take place when two persons, in their own right, are Article 1298. The novation is void if the original obligation was void, except
creditors and debtors of each other. (Art. 1278, Civil Code). "When all the when annulment may be claimed only by the debtor or when ratification
requisites mentioned in Art. 1279 of the Civil Code are present, compensation validates acts which are voidable. (1208a)
takes effect by operation of law, even without the consent or knowledge of the Article 1299. If the original obligation was subject to a suspensive or
debtors." (Art. 1290, Civil Code). Article 1279 of the Civil Code requires among resolutory condition, the new obligation shall be under the same condition,
others, that in order that legal compensation shall take place, "the two debts unless it is otherwise stipulated. (n)
be due" and "they be liquidated and demandable." Compensation is not proper Article 1300. Subrogation of a third person in the rights of the creditor is
where the claim of the person asserting the set-off against the other is not clear either legal or conventional. The former is not presumed, except in cases
nor liquidated; compensation cannot extend to unliquidated, disputed claim
arising from breach of contract.
Page 99 of 115
expressly mentioned in this Code; the latter must be clearly established in FACTS:Respondent is a corporation engaged in the business of selling sugar,
order that it may take effect. (1209a) rice and other commodities. The petitioner, Anamer Salazar, a freelance sales
Article 1301. Conventional subrogation of a third person requires the agent, was approached by Isagani Calleja and Jess Kallos, if she knew a
consent of the original parties and of the third person. (n) supplier of rice. Answering in the positive, petitioner accompanied the two to
Article 1302. It is presumed that there is legal subrogation: the respondent. As a consequence, Salazar with Calleja and Kallos procured
(1) When a creditor pays another creditor who is preferred, even from J. Y. Bros. 300 cavans of rice worth P214,000.00. As payment, Salazar
without the debtor's knowledge; negotiated and indorsed to J.Y. Bros. Prudential Bank Check issued by Nena
(2) When a third person, not interested in the obligation, pays with the Jaucian Timario in the amount of P214,000.00 with the assurance that the
express or tacit approval of the debtor; check is good as cash. On that assurance, J.Y. Bros. parted with 300 cavans of
(3) When, even without the knowledge of the debtor, a person rice to Salazar. However, upon presentment, the check was dishonored due to
interested in the fulfillment of the obligation pays, without prejudice “closed account.”
to the effects of confusion as to the latter's share. (1210a)
Article 1303. Subrogation transfers to the persons subrogated the credit with Informed of the dishonor of the check, Calleja, Kallos and Salazar delivered to
all the rights thereto appertaining, either against the debtor or against third J.Y. Bros. a replacement cross Solid Bank Check again issued by Nena Jaucian
person, be they guarantors or possessors of mortgages, subject to stipulation Timario in the amount of P214,000.00 but which, just the same, bounced due
in a conventional subrogation. (1212a) to insufficient funds. When despite the demand letter Salazar failed to settle
Article 1304. A creditor, to whom partial payment has been made, may the amount due J.Y. Bros., the latter charged Salazar and Timario with the
exercise his right for the remainder, and he shall be preferred to the person crime of estafa. The petitioner was acquitted but was ordered to pay the
who has been subrogated in his place in virtue of the partial payment of the respondent the sum of P214,000. Petitioner appealed and was allowed to
same credit. (1213) present evidence regarding the civil aspect of the case.
Article 1215. Novation, compensation, confusion or remission of the debt,
made by any of the solidary creditors or with any of the solidary debtors, shall RTC dismissed the civil aspect of the criminal case as against the petitioner on
extinguish the obligation, without prejudice to the provisions of article 1219. the ground that after the Prudential Bank check was dishonored, it was
The creditor who may have executed any of these acts, as well as he who replaced by a Solid Bank check which, however, was also subsequently
collects the debt, shall be liable to the others for the share in the obligation dishonored; that since the Solid Bank check was a crossed check, which meant
corresponding to them. (1143) that such check was only for deposit in payee’s account, a condition that
rendered such check non-negotiable, the substitution of a non-negotiable Solid
Kinds of novation Bank check for a negotiable Prudential Bank check was an essential change
a. As to its nature which had the effect of discharging from the obligation whoever may be the
i. Subjective or personal endorser of the negotiable check. The RTC concluded that the absence of
ii. Objective or real negotiability rendered nugatory the obligation arising from the technical act of
b. As to its form indorsing a check and, thus, had the effect of novation; and that the ultimate
i. Express effect of such substitution was to extinguish the obligation arising from the
ii. Implied issuance of the Prudential Bank check. CA reversed the RTC stating that the
petitioner was considered an indorser of the checks paid to respondent and
SALAZAR V. J.Y BROTHERS MARKETING GROUP considered her as an accommodation indorser, who was liable on the
Nature: Action to declare that a novation existed and thus petitioner is not instrument to a holder for value, notwithstanding that such holder at the time
liable as indorser to the respondent. of the taking of the instrument knew her only to be an accommodation party.
Ponente: PERALTA, J.
Date:OCTOBER 20, 2010 ISSUE: W/N the issuance of a crossed check after the first negotiable check
produced the effect of novation and thus making the petitioner incur no civil
DOCTRINE: For extinctive novation to existsthe following requisites must be liability.
fulfilled: (1) a previous valid obligation, (2) an agreement of all parties
concerned to a new contract, (3) the extinguishment of the old obligation, and HELD: No, there was no novation intended by the parties in this
(4) the birth of a valid new obligation. case and thus there is no novation and the petitioner is still liable
as an indorser of the check.Novation is done by the substitution or change
of the obligation by a subsequent one which extinguishes the first, either by
Page 100 of 115
changing the object or principal conditions, or by substituting the person of was an essential change in the circumstance of each check, was shot down by
the debtor, or by subrogating a third person in the rights of the creditor. the court. Taking judicial cognizance of the practice that a check with two
Novation may either be extinctive or modificatory, much being dependent on parallel lines in the upper left hand corner means that it could only be
the nature of the change and the intention of the parties. Extinctive novation deposited and could not be converted into cash. Thus, the effect of crossing a
is never presumed; there must be an express intention to novate; in check relates to the mode of payment, meaning that the drawer had intended
cases where it is implied, the acts of the parties must clearly demonstrate their the check for deposit only by the rightful person, i.e., the payee named
intent to dissolve the old obligation as the moving consideration for the therein.The change in the mode of paying the obligation was not a
emergence of the new one. Implied novation necessitates that the change in any of the objects or principal condition of the contract
incompatibility between the old and new obligation be total on every point for novation to take place.
such that the old obligation is completely superceded by the new one. The test
of incompatibility is whether they can stand together, each one having an METROPOLITAN BANK V. RURAL BANK OF GERONA INC.
independent existence; if they cannot and are irreconcilable, the subsequent Nature: Appeal on certiorari questioning the CA re: the need to include
obligation would also extinguish the first. Central Bank as a necessary party.
Ponente: BRION, J.
An extinctive novation would thus have the twin effects of, first, extinguishing Date: July 5, 2010
an existing obligation and, second, creating a new one in its stead. This kind of
novation presupposes a confluence of four essential requisites: (1) a previous DOCTRINE: When a third person not interested in the obligation, pays with
valid obligation, (2) an agreement of all parties concerned to a new contract, the express or tacit approval of the debtor there is a presumed legal
(3) the extinguishment of the old obligation, and (4) the birth of a valid new subrogation and when such occurs the party who is subrogated is no longer
obligation. Novation is merely modificatory where the change brought about required as a necessary party.
by any subsequent agreement is merely incidental to the main obligation (e.g.,
a change in interest rates or an extension of time to pay; in this instance, the FACTS: Rural Bank of Gerona, Inc. (RBG), and the Central Bank of the
new agreement will not have the effect of extinguishing the first but would Philippines (Central Bank) entered into an agreement providing that RBG
merely supplement it or supplant some but not all of its provisions.) shall facilitate the loan applications of farmers-borrowers under the Central
Bank-International Bank for Reconstruction and Development’s (IBRD’s) 4th
In this case, respondent’s acceptance of the Solid Bank check, which replaced Rural Credit Project. The agreement required RBG to open a separate bank
the dishonored Prudential Bank check, did not result to novation as there was account where the IBRD loan proceeds shall be deposited. The RBG
no express agreement to establish that petitioner was already discharged from accordingly opened a special savings account with Metrobank’s Tarlac Branch.
his liability to pay respondent the amount of P214,000.00 as payment for the As the depository bank of RBG, Metrobank was designated to receive the credit
300 bags of rice. In fact, when the Solid Bank check was delivered to advice released by the Central Bank representing the proceeds of the IBRD
respondent, the same was also indorsed by petitioner which shows petitioner’s loan of the farmers-borrowers; Metrobank, in turn, credited the proceeds to
recognition of the existing obligation to respondent to pay P214,000.00 RBG’s special savings account for the latter’s release to the farmers-borrowers.
subject of the replaced Prudential Bank check.
Three loans applications were granted and accordingly a deposit was made in
Moreover, respondent’s acceptance of the Solid Bank check did not result to Metrobank’s demand deposit account. One for P178,653 in favor of Dominador
any incompatibility, since the two checks − Prudential and Solid Bank checks de Jesus, another for Basilio Panopio in the amount of P189,052.00, and
− were precisely for the purpose of paying the amount of P214,000.00, i.e., the finally Ponciano Lagman’s loan application for P220,000.00. RBG withdrew
credit obtained from the purchase of the 300 bags of rice from respondent. all the deposits except for Lagman’s loan from which it only withdrew 75,375.
Indeed, there was no substantial change in the object or principal condition of
the obligation of petitioner as the indorser of the check to pay the amount of A month later Central Bank issued debit advices, reversing all the approved
P214,000.00. It would appear that respondent accepted the Solid Bank check IBRD loans. The Central Bank implemented the reversal by debiting from
to give petitioner the chance to pay her obligation. Metrobank’s demand deposit account the amount corresponding to all three
IBRD loans.
The argument of the petitioner that the acceptance of the Solid Bank check, a
non-negotiable check being a crossed check, which replaced the dishonored Upon receipt of the debit advices, Metrobank, in turn, debited the following
Prudential Bank check, a negotiable check, is a new obligation in lieu of the old amounts from RBG’s special savings account: P189,052.00, P115,000.00, and
obligation arising from the issuance of the Prudential Bank check, since there
Page 101 of 115
P8,000.41. Metrobank, however, claimed that these amounts were and Conditions, Metrobank had no responsibility over the proceeds of the
insufficient to cover all the credit advices that were reversed by the Central IBRD loans other than serving as a conduit for their transfer from the Central
Bank. It demanded payment from RBG which could make partial payments. Bank to the RBG once credit advice has been issued. Thus, the agreement
As of October 17, 1979, Metrobank claimed that RBG had an outstanding
governed only the parties involved – the Central Bank and the RBG.
balance of P334,220.00. To collect this amount, it filed a complaint for
collection of sum of money against RBG before the RTC. RTC ruled for the Metrobank was simply an outsider to the agreement.
petitioner stating that legal subrogation occurred.
Article 1302 of the Civil Code which provides “It is presumed that there is legal
On appeal, the CA noted that this was not a case of legal subrogation under subrogation:
Article 1302 of the Civil Code. Nevertheless, the CA recognized that Metrobank
had a right to be reimbursed of the amount it had paid and failed to recover, (2) When a third person, not interested in the obligation, pays with
as it suffered loss in an agreement that involved only the Central Bank and the the express or tacit approval of the debtor;
RBG. It clarified, however, that a determination still had to be made on who
should reimburse Metrobank. Noting that no evidence exists why the Central Metrobank as a third party to the Central Bank-RBG agreement, had no
Bank reversed the credit advices it had previously confirmed, the CA declared interest except as a conduit, and was not legally answerable for the IBRD loans.
that the Central Bank should be impleaded as a necessary party so it could shed Despite this, it was Metrobank’s demand deposit account, instead of RBG’s,
light on the IBRD loan reversals. Thus, the CA set aside the RTC decision, and
which the Central Bank proceeded against, on the assumption perhaps that
remanded the case to the trial court for further proceedings after the Central
Bank is impleaded as a necessary party. After the CA denied its motion for this was the most convenient means of recovering the cancelled loans. That
reconsideration, Metrobank filed the present petition for review on certiorari. Metrobank’s payment was involuntarily made does not change the reality that
it was Metrobank which effectively answered for RBG’s obligations.
ISSUE: W/N there was a legal subrogation and W/N Central Bank is a
necessary party Was there express or tacit approval by RBG of the payment enforced against
Metrobank? After Metrobank received the Central Bank’s debit advices in
HELD: Yes, there was legal subrogation and because of such November 1978, it (Metrobank) accordingly debited the amounts it could from
Central Bank is no longer a necessary party. The Terms and Conditions RBG’s special savings account without any objection from RBG. RBG’s
of the IBRD 4th Rural Credit Project executed by the Central Bank and the President and Manager, Dr. Aquiles Abellar, even wrote Metrobank, on August
RBG shows that the farmers-borrowers to whom credits have been extended, 14, 1979, with proposals regarding possible means of settling the amounts
are primarily liable for the payment of the borrowed amounts. The loans were debited by Central Bank from Metrobank’s demand deposit account. These
extended through the RBG which also took care of the collection and of the instances are all indicative of RBG’s approval of Metrobank’s payment of the
remittance of the collection to the Central Bank. RBG, however, was not a IBRD loans. That RBG’s tacit approval came after payment had been made
mere conduit and collector. While the farmers-borrowers were the principal does not completely negate the legal subrogation that had taken place.
debtors, RBG assumed liability under the Project Terms and Conditions by
solidarily binding itself with the principal debtors to fulfill the obligation. Article 1303 of the Civil Code states that subrogation transfers to the person
subrogated the credit with all the rights thereto appertaining, either against
If RBG delays in remitting the amounts due, the Central Bank imposed a 14% the debtor or against third persons. As the entity against which the collection
per annum penalty rate on RBG until the amount is actually remitted. The was enforced, Metrobank was subrogated to the rights of Central Bank and has
Central Bank was further authorized to deduct the amount due from RBG’s a cause of action to recover from RBG the amounts it paid to the Central Bank,
demand deposit reserve should the latter become delinquent in payment. plus 14% per annum interest.

Based on these arrangements, the Central Bank’s immediate recourse, Impleading the Central Bank as a party is completely unnecessary. CA
therefore should have been against the farmers-borrowers and the RBG; thus, erroneously believed that the Central Bank’s presence is necessary “in order x
it erred when it deducted the amounts covered by the debit advices x x to shed light on the matter of reversals made by it concerning the loan
from Metrobank’s demand deposit account. Under the Project Terms applications of the end users and to have a complete determination or
Page 102 of 115
settlement of the claim.” In so far as Metrobank is concerned, however, the auction to the plaintiff for P1,923.32. The provincial sheriff executed a final
Central Bank’s presence and the reasons for its reversals of the IBRD loans are deed in favor of the plaintiff. On August 29, 1939, the plaintiff instituted the
immaterial after subrogation has taken place; Metrobank’s interest is simply present action in the Court of First Instance of Sorsogon against the appellants
in view of their refusal to recognize plaintiff’s title and to vacate the land. The
to collect the amounts it paid the Central Bank. Whatever cause of action RBG
defendants relied on the legal defenses that their obligation under the
may have against the Central Bank for the unexplained reversals and any judgment in civil case No. 42125 was novated by the mortgage executed by
undue deductions is for RBG to ventilate as a third-party claim; if it has not them in favor of the plaintiff and that the sheriffs sale was void for lack of
done so at this point, then the matter should be dealt with in a separate case necessary publication. These contentions were overruled by the lower court
that should not in any way further delay the disposition of the present case that which rendered judgment declaring the plaintiff to be the owner of the land
had been pending before the courts since 1980. and ordering the appellants to deliver the same to him, without special
pronouncement as to costs. The defendants seek the reversal of this judgment.
FUA LU V. YAP
Nature: ISSUE: W/N there was a novation entered into by the parties to make the
Ponente: N/A purchase of the land by the plaintiff invalid.
Date: July 30, 1943
HELD: Yes, there is a novation and thus the liability under the prior
DOCTRINE: Even if a subsequent obligation does not expressly can cancel obligation has been extinguished. The judgment in the civil case had been
the old obligation, if it is incompatible with the former, there is an implied extinguished by the settlement evidenced by the mortgage executed. Although
novation by reason of incompatibility. said mortgage did not expressly cancel the old obligation, this was impliedly
novated by reason of incompatibly resulting from the fact that, whereas the
FACTS: Plaintiff obtained a judgment against defendant and was ordered to
judgment was for P1,538.04 payable at one time, did not provide for attorney's
pay P1,538.04 with legal interest. A parcel of land was levied upon by the
sheriff. However, it was agreed that the defendants would execute a mortgage fees, and was not secured, the new obligation is or P1,200 payable in
in favor of the plaintiffs and that the obligation would be reduced to P1,200 installments, stipulated for attorney's fees, and is secured by a mortgage. The
payable in four installments of P300. It was also agree that that in case the plaintiff, however, argues that the later agreement merely extended the time
defendants defaulted in the payment of any of the installments, they would pay of payment and did not take away his concurrent right to have the judgment
ten per cent of the unpaid balance as attorney's fees plus the costs of the action executed. This could not have been the purpose for executive the mortgage,
to be brought by the petitioner by reason of such default, and the further because it was therein recited that the defendants promised to pay P1,200 to
amount of P338, representing the discount conceded to the defendants.
the plaintiffs as a settlement of the judgment in the civil case No. 42125 .
As a result of the agreement thus reached by the parties, the sale of the land
advertised by the provincial sheriff did not take place. However, pursuant to Moreover, the sheriff's sale in favor of the plaintiff is void because no notice
an alias writ of execution issued by the Court of First instance of manila the thereof was published other than that which appeared in the Mamera Press
provincial sheriff, without publishing a new notice, sold said land at a public regarding the sale to be held on the prior auction sale. 1

1
Morran, J dissents: The majority sustained appellants' theory upon two grounds: sum of money. Thereafter, the parties entered into an agreement by virtue of which
(1) that their liability under the judgment has been extinguished by the agreement the obligation under the judgment was to be paid in installments and that, upon
and that accordingly there was legally no judgment to execute; and (2) that the default of defendant to comply with the terms of one agreement, plaintiff shall be
auction sale was void not only because the judgment sought to be executed has at liberty to enter suit against him. Defendant defaulted and plaintiff sued out a
been extinguished but also because there was no publication thereof as required by writ of execution to recover the balance due upon the judgment credit and by
law. virtue thereof defendant's property was levied upon and sold at public auction.
Here, as in the Zapanta case, there was an agreement providing for the manner of
The first ground is contrary to a doctrine laid down by this Court in a previous case. payment of the obligation under the judgment. In both cases plaintiff has by
In Zapanta vs. De Rotaeche, plaintiff obtained judgment against defendant for a express stipulation, the option to enter an independent suit against defendant
Page 103 of 115
MILLAR V. CA of Manila against Antonio P. Gabriel, MORTGAGOR, in the amount of ONE
Nature: Certiorari seeking to reverse the CA’s decision if recognizing a THOUSAND SEVEN HUNDRED (P1,700.00) PESOS, Philippine currency,
novation. which MORTGAGOR agrees to pay as follows:
Ponente: CASTRO, J. March 31, 1957 — EIGHT HUNDRED FIFTY (P850) PESOS;
Date: April 30, 1971 April 30, 1957 — EIGHT HUNDRED FIFTY (P850.00) PESOS.”

DOCTRINE: The defense of implied novation requires clear and convincing Upon failure of the respondent to pay the first installment due on March 31,
proof of complete incompatibility between the two obligations. The law 1957, the petitioner obtained an alias writ of execution. This writ which the
requires no specific form for an effective novation by implication. The test is sheriff served on the respondent only on May 30, 1957 — after the lapse of the
whether the two obligations can stand together. If they cannot, incompatibility entire period stipulated in the chattel mortgage for the respondent to comply
arises, and the second obligation novates the first. If they can stand together, with his obligation — was returned unsatisfied.
no incompatibility results and novation does not take place.
So on July 17, 1957 and on various dates thereafter, the lower court, at the
FACTS: Petitioner obtained a favorable judgment from the Court of First instance of the petitioner, issued several alias writs, which writs the sheriff also
Instance of Manila, ordering respondent to pay him the sum of P1,746.98 with returned unsatisfied. On September 20, 1961, the petitioner obtained a fifth
interest at 12% per annum from the date of the filing of the complaint, the sum alias writ of execution. Pursuant to this last writ, the sheriff levied on certain
of P400 as attorney's fees, and the costs of suit. From the said judgment, the personal properties belonging to the respondent, and then scheduled them for
respondent appealed to the Court of Appeals which, however, dismissed the execution sale.
appeal.
However, the respondent filed an urgent motion for the suspension of the
Subsequently, after remand by the Court of Appeals of the case, the petitioner execution sale on the ground of payment of the judgment obligation. The lower
moved ex parte in the court of origin for the issuance of the corresponding writ court, ordered the suspension of the execution sole to afford the respondent
of execution to enforce the judgment. Acting upon the motion, the lower court the opportunity to prove his allegation of payment of the judgment debt. After
issued the writ of execution applied for, on the basis of which the sheriff of hearing, the lower court, issued an order reiterating the P1,700 debt and costs
Manila seized the respondent's Willy's Ford jeep . of execution. The lower court ruled that no novation had taken place, and that
the parties had executed the chattel mortgage only "to secure or get better
The respondent, however, pleaded with the petitioner to release the jeep under security for the judgment.
an arrangement whereby the respondent, to secure the payment of the
judgement debt, agreed to mortgage the vehicle in favor of the petitioner. The The respondent duly appealed the aforesaid order to the Court of Appeals,
petitioner agreed to the arrangement; thus, the parties, executed a chattel which set aside the order of holding that the subsequent agreement of the
mortgage on the jeep, stipulating, that “This mortgage is given as security for parties impliedly novated the judgment obligation in civil case 27116.
the payment to the said EUSEBIO S. MILLAR, mortgagee, of the judgment and
other incidental expenses in Civil Case No. 27116 of the Court of First Instance

should the latter fail to comply with the terms of the settlement. If, in the Zapante should be noted that, "while the obligation under the judgment was reduced to
case plaintiff alternative right to execute the judgment has been upheld. I perceive P1,200, there was, however, a stipulation to the effect that the discount would be
no cogent reason why plaintiff in the instant case would be denied a like option to recoverable in the event of appellants' default to comply with the terms of the
merely execute the judgment and be compelled, instead, to enter an independent agreement. And as to attorney's fees and the security by way of mortgage, the
suit on the terms of the settlement The spirit of the new Rules which frowns upon stipulation therefor contained in the agreement is of no moment, for it is merely
multiplicity of suits lends additional argument against the majority view. incidental to, and anticipatory of, a suit which appellee may choose to take against
appellants. Far, therefore, from extinguishing the obligation under the judgment,
The majority maintains that here there is an implied novation by "reason of the agreement ratifies it and provides merely a new method and more time for the
incompatibility resulting from the fact that, whereas the judgment was for judgment debtor to satisfy it. If the judgment debtor fail to comply with the terms
P1,538.04 payable at one time, did not provide for attorney's fees, and was not of the agreement, the judgment creditor shall be deemed remitted to his original
secured, the new obligation is for P1,200 payable in installments, stipulates for rights under the judgment which he may choose to execute or enter, instead, a
attorney's fees, and is secured by a mortgage." With respect to the amount, it separate suit on the terms of the settlement.
Page 104 of 115
ISSUE: W/N there was novation when the respondent pleaded to release the With regards to the 3rd circumstance the SC stated that the discrepancy
jeep from execution and a new means of payment was agreed upon. between the amount of P400 and tile sum of P300 fixed as attorney's fees in
the judgment and the deed of chattel mortgage, respectively, is explained by
HELD: No, the CA erred in its appreciation the circumstances. The appellate
the petitioner, thus: the partial payments made by the respondent before the
court stated that the following circumstances sufficiently demonstrate the
execution of the chattel mortgage agreement were applied in satisfaction of
incompatibility between the judgment debt and the obligation embodied in the
part of the judgment debt and of part of the attorney's fee fixed in the
deed of chattel mortgage, warranting a conclusion of implied novation:
judgment, thereby reducing both amounts.
1. Whereas the judgment orders the respondent to pay the petitioner the
Lastly with regards to the 2nd and 4th the courts stated that there was no
sum of P1,746.98 with interest at 12% per annum from the filing of the
substantial incompatibility between the mortgage obligation and the judgment
complaint, plus the amount of P400 and the costs of suit, the deed of chattel
liability of the respondent sufficient to justify a conclusion of implied novation.
mortgage limits the principal obligation of the respondent to P1,700; The stipulation for the payment of the obligation under the terms of the deed
2. Whereas the judgment mentions no specific mode of payment of the of chattel mortgage serves only to provide an express and specific method for
amount due to the petitioner, the deed of chattel mortgage stipulates payment its extinguishment — payment in two equal installments. The chattel mortgage
simply gave the respondent a method and more time to enable him to fully
of the sum of P1,700 in two equal installments;
satisfy the judgment indebtedness. The chattel mortgage agreement in no
3. Whereas the judgment makes no mention of damages, the deed of manner introduced any substantial modification or alteration of the judgment.
chattel mortgage obligates the respondent to pay liquidated damages in the Instead of extinguishing the obligation of the respondent arising from the
amount of P300 in case of default on his part; and judgment, the deed of chattel mortgage expressly ratified and confirmed the
existence of the same, amplifying only the mode and period for compliance by
the respondent.

4. Whereas the judgment debt was unsecured, the chattel mortgage, The Court of Appeals also considered the terms of the deed of chattel mortgage
which may be foreclosed extrajudicially in case of default, secured the incompatible with the judgment because the chattel mortgage secured the
obligation. obligation under the deed, whereas the obligation under the judgment was
unsecured. The petitioner argues that the deed of chattel agreement clearly
The SC shot it down stating with regards to “1.” that in the case at bar, the mere shows that the parties agreed upon the chattel mortgage solely to secure, not
reduction of the amount due in no sense constitutes a sufficient indictum of the payment of the reduced amount as fixed in the aforesaid deed, but the
incompatibility, especially in the light of (a) the explanation by the petitioner payment of the judgment obligation and other incidental expenses in civil case
that the reduced indebtedness was the result of the partial payments made by 27116.
the respondent before the execution of the chattel mortgage agreement and (b)
the latter's admissions bearing thereon. The unmistakable terms of the deed of chattel mortgage reveal that the parties
constituted the chattel mortgage purposely to secure the satisfaction of the
At best, the deed of chattel mortgage simply specified exactly how much the then existing liability of the respondent arising from the judgment against him
respondent still owed the petitioner by virtue of the judgment in civil case in civil case 27116. As a security for the payment of the judgment obligation,
27116. The parties apparently in their desire to avoid any future confusion as
to the amounts already paid and as to the sum still due, decoded to state with
specificity in the deed of chattel mortgage only the balance of the judgment
debt properly collectible from the respondent. All told, therefore, the first
circumstance fails to satisfy the test of substantial and complete
incompatibility between the judgment debt and the pecuniary liability of the
respondent under the chattel mortgage agreement.
Page 105 of 115
the chattel mortgage agreement effectuated no substantial alteration in the Subsequently, the petitioners sent the respondent a letter demanding
liability of the respondent.2 compliance by the latter with the portion of the judgment in civil case 1554
relative to the reconstruction and reopening of the irrigation canal.
SANDICO V. PIGUING
Nature: Certiorari seeking to set aside the order of the respondent judge Upon failure and refusal of the respondent to rebuild and reopen the irrigation
setting the aside the writ of executions. canal, the petitioners, filed with the respondent judge, a motion to declare the
Ponente: CASTRO, J. said private respondent in contempt of court. Opposing the motion, the
Date: November 29, 1971 respondent alleged recognition by him of the existence of the easement and
compliance with the appellate court's judgment, stating that he had dug a canal
DOCTRINE: For novation to exist there must be a substitution or in its former place, measuring about one and-a-half feet deep, for the
modification of an obligation by another or an extinguishment of one petitioners' use.
obligation in the creation of another.
The respondent judge issued an order denying the petitioners' motion to
FACTS: Petitioners (the spouses Carlos Sandico and Enrica Timbol, and declare the respondents in contempt of court, ruling that “it appears from the
Teopisto P. Timbol, administrator of the estate of the late Sixta Paras) obtained dispositive part of the decision that the defendant was only ordered to
a judgment in their favor against Desiderio Paras (hereinafter referred to as recognize the easement which is held binding as to him and to pay the plaintiffs
the respondent) in an action for easement and damages in the CFI of the sums P5,000.00 of actual, and P500.00 exemplary damages.”
Pampanga. On appeal, the Court of Appeals affirmed and modified the
judgment, condemning the respondent to recognize the easement which is Apparently, it is clear from the dispositive part of the decision that there is
held binding as to him; sentencing him to pay plaintiffs the sums of P5,000.00 nothing to show that the defendant was ordered to reconstruct the canal.
actual, and P500.00 exemplary damages, and P500.00 attorney's fees; plus
costs in both instances. The petitioners moved for issuance of an alias writ of execution to enforce the
judgement of the Court of Appeals. This motion the respondent judge granted.
Petitioners then moved for the issuance of a writ of execution to enforce the Tespondent moved to set aside the said alias writ, alleging full satisfaction of
appellate court's judgment which had acquired finality. Acting upon the the judgment per agreement of the parties when the petitioner received the
motion, the court a quo issued a writ of execution. sum of P4, as evidenced by the receipt.

Meanwhile the petitioners and the respondent reached a settlement, finally The respondent judge then issued an order directing the provincial sheriff to
agreeing to the reduction of the money judgment from P6,000 to P4,000. suspend the execution of the alias writ until further orders. The respondent
Thus, the respondent, paid the petitioners the sum of P3,000 and P1,000 in judge issued an order calling, and directing the quashal of the alias writ of
two separate payments as evidenced by a receipt issued by the petitioners' execution. The respondent judge stated in her order that the agreement of the
counsel. “P1,000.00, RECEIVED from Mr. Desiderio Paras the sum of ONE parties "novated" the money judgment provided for in the decision of the Court
THOUSAND PESOS (P1,000.00), Philippine Currency, in full satisfaction of of Appeals, ruling that the said decision.
the money judgment rendered against him in Civil Case No. 1554 of the Court
of First Instance of Pampanga, it being understood that the portion of the final ISSUES: (1) W/N the respondent judge correctly constructed the judgment of
judgment rendered in the said case ordering him to reconstruct the irrigation the Court of Appeals as not requiring the respondent to reconstruct and reopen
canal in question shall be complied with by him immediately.” the irrigation canal
(2) W/N the payment of the P4,000 novated the obligation of the respondent

2
BARREDO, J concurs stating that it was unmistakably the intent of the parties that explicit covenant, the parties contemplated the chattel mortgage to be a security
the said mortgage be merely a "security for the payment to the said Eusebio Millar, for the payment of the judgment and not the payment itself thereof. Such being the
mortgagee, of the judgment and other incidental expenses in Civil Case No. 27116 case, and it appearing that respondent Gabriel has not paid the judgment remains
of the Court of First Instance of Manila against Antonio P. Gabriel, mortgagor," to unimpaired in its full existence and vigor, and the resort to the execution thereof
be paid in the amount and manner therein stated. If this can in any sense in which thru the ordinary procedure of a writ of execution by the petitioner is an election to
the parties must be held to have newly bound themselves. In other words, by their which every mortgage creditor is entitled when he decides to abandon his security.
Page 106 of 115
HELD: (1) Yes, although the dispositive portion of the appellate Court of Appeals' judgment. In fact, the petitioners themselves, in their letter
court's judgment omitted any directive to the respondent to dated November 5, 1964, sent to the respondent, demanding that the latter
reconstruct and reopen the irrigation canal, the Court of Appeals' reconstruct the irrigation canal immediately, referred to the same not as a
order requiring recognition of the easement on the part of the said condition but as "the portion of the judgment" in civil case 1594.
respondent suffices to make him aware of his obligation under the
judgment. The reconstruction and reopening of the irrigation canal may be NATIONAL POWER CORPORATION V DAYRIT
done by same other person designated by the court, at the cost of the Nature: Petition to set aside the Order, of the respondent judge on the
allegation that the questioned Order was issued with grave abuse of discretion.
respondent. In fact, the respondent in his attempt to rebuild the irrigation Ponente: ABAD SANTOS, J.
canal, contracted the services of one Gerardo Salenga. Accordingly, in Date: November 25, 1983
conformity with the appellate court's judgment as further mutually interpreted
by the parties themselves, the court a quo, because of the failure and refusal of DOCTRINE: Novation is never presumed; it must be explicitly stated or there
the respondent to restore the irrigation canal to its former condition and to must be manifest incompatibility between the old and the new obligations in
reopen it, should have appointed some other person to do the reconstruction, every aspect.
charging the expenses therefor to the said respondent.
FACTS: DANIEL E. ROXAS, doing business under the name and style of
United Veterans Security Agency and Foreign Boats Watchmen, sued the
Consequently, the respondent judge, when she granted the motion of the
NATIONAL POWER CORPORATION (NPC) and two of its officers in Iligan
respondent to set aside the alias writ of execution and issued the order City. The purpose of the suit was to compel the NPC to restore the contract of
recalling and quashing the said alias writ, acted correctly. Courts have Roxas for security services which the former had terminated.
jurisdiction to entertain motions to quash previously issued writs of execution
because courts have the inherent power, for the advancement of justice, to After several incidents, the litigants entered into a Compromise Agreement
correct the errors of their ministerial officers and to control their own asked the Court to approve it. Accordingly, a decision was rendered allowing
processes. the parties to enter into a compromise agreement instead of going through
trial. The agreement stated that:
(2) No, there is no new or modified obligation that arose out of the
1. The defendant National Power Corporation shall pay to plaintiff the
payment by the respondent of the reduced amount of P4,000 and sum of P7,277.45, representing the amount due to plaintiff for the services of
substitute the monetary liability for P6,000. Additionally, to sustain one of plaintiff's supervisors;
novation necessitates that the same be so declared in unequivocal terms —
clearly and unmistakably shown by the express agreement of the parties or by 2. The defendant shall pay plaintiff the value of the line materials which
acts of equivalent import — or that there is complete and substantial were stolen but recovered, by plaintiff's agency which value is to be determined
incompatibility between the two obligations. Novation results in two after a joint inventory by the representatives of both parties;
stipulations — one to extinguish an existing obligation, the other to substitute
3. The parties shall continue with the contract of security services under
a new one in its place. Fundamental it is that novation effects a substitution the same terms and conditions as the previous contract effective upon the
or modification of an obligation by another or an extinguishment of one signing thereof;
obligation in the creation of another.
4. The parties waive all their respective claims and counterclaims in
The receipt neither expressly nor impliedly declares that the reduction of the favor of each other;
money judgment was conditioned on the respondent's reconstruction and
reopening of the irrigation canal. The receipt merely embodies the recognition 5. The parties agree to faithfully comply with the foregoing agreement.
by the respondent of his obligation to reconstruct the irrigation canal. And the
The judgment was not implemented. Later on, the NPC executed another
receipt simply requires the respondent to comply with such obligation
contract for security services with Josette L. Roxas whose relationship to
"immediately." The obligation of the respondent remains as a portion of the Daniel is not shown. At any rate Daniel has owned the contract. The NPC
Page 107 of 115
refused to implement the new contract for which reason Daniel filed a Motion The Arbitration Board, after extensive hearings, rendered its decision-award
for Execution . Respondent Judge confirmed the Award and the same has long since become
final and executory.
Acting on the motion the Court, considering that the decision was based on a
Compromise Agreement entered into by and between the parties which The decision-award ordered MWSS to pay petitioners P15,518,383.61-less
decidedly, become final and executory, is inclined to grant said action. P2,329,433.41, to be set aside as a trust fund to pay creditors of the joint
venture in connection with the projector a net award of P13,188,950.20 with
The NPC assails the Order on the ground that it directs execution of a contract interest thereon from the filing of the complaint until fully paid.
which had been novated. Upon the other hand, Roxas claims that said contract
was executed precisely to implement the compromise agreement for which Subsequently, however, petitioners agreed to give MWSS some discounts in
reason there was no novation. consideration of an early payment of the award. Thus, on September 21, 1972,
MWSS adopted Board Resolution No. 132-72, embodying the terms and
ISSUES: W/N the subsequent contract of NPC with Josette L. Roxas conditions of their agreement. MWSS sent a letter-agreement to petitioners,
constituted a novation. quoting Board Resolution No. 13272, granting MWSS some discounts from the
amount payable under the decision award (consisting of certain reductions in
HELD: No, there is no novation in this case. It is elementary that interests, in the net principal award and in the trust fund), provided that
novation is never presumed; it must be explicitly stated or there must be MWSS would pay the judgment, less the said discounts, within fifteen days
manifest incompatibility between the old and the new obligations in every therefrom.
aspect. Thus the Civil Code provides:
Upon MWSS' request, the petitioners signed their "Conforme" to the said
letter-agreement, and extended the period to pay the judgment less the
Art. 1292. In order that an obligation may be extinguished by another which
discounts aforesaid to October 31, 1972. MWSS, however, paid only on
substitutes the same, it is imperative that it be so declared in unequivocal December 22, 1972, the amount stated in the decision but less the reductions
terms, or that the old and the new obligations be on every point incompatible provided for in the October 2, 1972 letter-agreement.
with each other.
Three years thereafter, or on June, 1975, after the last balance of the trust fund
In the case at bar there is nothing in the May 14, 1982, agreement which had been released and used to satisfy creditors' claims, the petitioners filed a
supports the petitioner's contention. There is neither explicit novation nor motion for execution in said civil case against MWSS for the balance due under
incompatibility on every point between the "old" and the "new" agreements. the decision-award. Respondent MWSS opposed execution setting forth the
defenses of payment and estoppel.
INTEGRATED CONSTRUCTION V. RELOVA
Nature: Mandamus to compel the respondent judge to grant the writ of Respondent judge denied the motion for execution on the ground that the
execution. parties had novated the award by their subsequent letter-agreement.
Ponente: PARAS, J. Petitioners moved for reconsideration but respondent judge denied the same.
Date: December 29, 1986
Hence, this Petition for Mandamus, alleging that respondent judge unlawfully
DOCTRINE: When a novation is subject to a suspensive condition, failure to refused to comply with his mandatory duty-to order the execution of the
comply with the said condition reverts the parties to their original rights. unsatisfied portion of the final and executory award.

FACTS: Petitioners sued the respondent Metropolitan Waterworks and ISSUES: W/N the subsequent contract of NPC with Josette L. Roxas
Sewerage System (MWSS), formerly the National Waterworks and Sewerage constituted a novation.
Authority (NAWASA), in the Court of First Instance of Manila for breach of
contract. Meanwhile, the parties submitted the case to arbitration. HELD: No, while the tenor of the subsequent letter-agreement in a
sense novates the judgment award there being a shortening of the
period within which to pay is expressly acknowledged. 14th
whereas clause of MWSS' Resolution No. 132-72, (p. 23, Rollo)
Page 108 of 115
which states: “WHEREAS, all the foregoing benefits and advantages secured discharge of the old debt by the express terms of the new agreement or by the
by the MWSS out of said conferences were accepted by the Joint Venture acts of the parties whose intention to dissolve the old obligation as a
provided that the remaining net amount payable to the Joint Venture will be consideration of the emergence of the new one must be clearly discernible.
paid by the MWSS within fifteen (15) days after the official release of this
resolution and a written CONFORME to be signed by the Joint Venture” FACTS: Pacific Agricultural Suppliers, Inc. (PAGRICO) applied for and was
granted an increase in its line of credit from P400,000.00 to P800,000.00
MWSS' failure to pay within the stipulated period removed the very cause and (the "Principal Obligation"), with the Philippine National Bank (PNB). To
secure PNB's approval, PAGRICO had to give a good and sufficient bond in the
reason for the agreement, rendering some ineffective. Petitioners, therefore,
amount of P400,000.00, representing the increment in its line of credit, to
were remitted to their original rights under the judgment award. secure its faithful compliance with the terms and conditions under which its
line of credit was increased. In compliance with this requirement, PAGRICO
The placing of MWSS under the control and management of the Secretary of submitted Surety Bond No. 4765, issued by the respondent R & B Surety and
National Defense thru Letter of Instruction No. 2, dated September 22, 1972 Insurance Co., Inc. (R & B Surety") in the specified amount in favor of the PNB.
was not an unforeseen supervening factor because when MWSS forwarded the Under the terms of the Surety Bond, PAGRICO and R & B Surety bound
letter-agreement to the petitioners, the MWSS was already aware of LOI No. themselves jointly and severally to comply with the "terms and conditions of
2. the advance line [of credit] established by the [PNB]." PNB had the right under
the Surety Bond to proceed directly against R & B Surety "without the necessity
MWSS' contention that the stipulated period was intended to pressure MWSS of first exhausting the assets" of the principal obligor, PAGRICO. The Surety
officials to process the voucher is untenable. As aforestated, it is apparent from Bond also provided that R & B Surety's liability was not to be limited to the
principal sum of P400,000.00, but would also include "accrued interest" on
the terms of the agreement that the 15-day period was intended to be a
the said amount "plus all expenses, charges or other legal costs incident to
suspensive condition. MWSS, admittedly, was aware of this, as shown by the collection of the obligation [of R & B Surety]" under the Surety Bond.
internal memorandum of a responsible MWSS official, stating that necessary
steps should be taken to effect payment within 15 days, for otherwise, MWSS In consideration of R & B Surety's issuance of the Surety Bond, two Identical
would forego the advantages of the discount. " indemnity agreements were entered into with R & B Surety: (a) one agreement
was executed by the Catholic Church Mart (CCM) and by petitioner Joseph
As to whether or not petitioners are now in estoppel to question the subsequent Cochingyan, Jr, the latter signed not only as President of CCM but also in his
agreement, suffice it to state that petitioners never acknowledged full personal and individual capacity; and (b) another agreement was executed by
PAGRICO, Pacific Copra Export Inc. (PACOCO), Jose K. Villanueva and Liu
payment; on the contrary, petitioners refused MWSS' request for a conforme
Tua Ben Mr. Villanueva signed both as Manager of PAGRICO and in his
or quitclaim. personal and individual capacity; Mr. Liu signed both as President of PACOCO
and in his individual and personal capacity.
Accordingly, the award is still subject to execution by mere motion, which may
be availed of as a matter of right any time within (5) years from entry of final Under both indemnity agreements, the indemnitors bound themselves jointly
judgment in accordance with Section 5, Rule 39 of the Rules of Court. and severally to R & B Surety to pay an annual premium of P5,103.05 and "for
the faithful compliance of the terms and conditions set forth in said SURETY
COCHINGYAN, JR. and JOSE K. VILLANUEVA, v. R & B SURETY AND BOND for a period beginning ... until the same is CANCELLED and/or
INSURANCE COMPANY, INC. DISCHARGED."
Nature: Appeal to the SC
Ponente: FELICIANO, J. When PAGRICO failed to comply with its Principal Obligation to the PNB, the
Date: June 30, 1987 PNB demanded payment from R & B Surety of the sum of P400,000.00, the
full amount of the Principal Obligation. R & B Surety made a series of
DOCTRINE: If objective novation is to take place, it is imperative that the payments to PNB by virtue of that demand totalling P70,000.00 evidenced by
new obligation expressly declare that the old obligation is thereby detailed vouchers and receipts.
extinguished, or that the new obligation be on every point incompatible with
the old one. Novation is never presumed: it must be established either by the
Page 109 of 115
R & B Surety in turn sent formal demand letters to petitioners Joseph No. 4765, and interest at the rate of 6% per annum on the premium amounts.
Cochingyan, Jr. and Jose K. Villanueva for reimbursement of the payments (b) ordering said defendants to pay, jointly and severally, unto the plaintiff the
made by it to the PNB and for a discharge of its liability to the PNB under the sum of P20,412.00 as the unpaid premiums for Surety Bond No. 4765, with
Surety Bond. When petitioners failed to heed its demands, R & B Surety legal interest thereon from the filing of plaintiff's complaint on August 1, 1968
brought suit against Joseph Cochingyan, Jr., Jose K. Villanueva and Liu Tua until fully paid, and the further sum of P4,000.00 as and for attorney's fees
Ben. and expenses of litigation which this Court deems just and equitable.

Petitioner Joseph Cochingyan, Jr. maintained that the Indemnity Agreement Not satisfied with the decision of the trial court, the petitioners took this appeal
he executed in favor of R & B Surety: (i) did not express the true intent of the to the Court of Appeals which, as already noted, certified the case to us as one
parties thereto in that he had been asked by R & B Surety to execute the raising only questions of law.
Indemnity Agreement merely in order to make it appear that R & B Surety had
complied with the requirements of the PNB that credit lines be secured; (ii) ISSUES: W/N the Trust Agreement had extinguished, by novation, the
was executed so that R & B Surety could show that it was complying with the obligation of R & B Surety to the PNB under the Surety Bond which, in turn,
regulations of the Insurance Commission concerning bonding companies; (iii) extinguished the obligations of the petitioners under the Indemnity
that R & B Surety had assured him that the execution of the agreement was a Agreements
mere formality and that he was to be considered a stranger to the transaction
between the PNB and R & B Surety; and (iv) that R & B Surety was estopped HELD: No, the Surety Bond and their respective obligations under
from enforcing the Indemnity Agreement as against him. the Indemnity Agreements were not extinguished by novation
brought about by the subsequent execution of the Trust Agreement.
Petitioner Jose K. Villanueva claimed in his answer that. (i) he had executed
Novation is the extinguishment of an obligation by the substitution or change
the Indemnity Agreement in favor of R & B Surety only "for accommodation
purposes" and that it did not express their true intention; (ii) that the Principal of the obligation by a subsequent one which terminates it, either by changing
Obligation of PAGRICO to the PNB secured by the Surety Bond had already its object or principal conditions, or by substituting a new debtor in place of
been assumed by CCM by virtue of a Trust Agreement entered into with the the old one, or by subrogating a third person to the rights of the creditor.
PNB, where CCM represented by Joseph Cochingyan, Jr. undertook to pay the Novation through a change of the object or principal conditions of an existing
Principal Obligation of PAGRICO to the PNB; (iii) that his obligation under the obligation is referred to as objective (or real) novation. Novation by the change
Indemnity Agreement was thereby extinguished by novation arising from the of either the person of the debtor or of the creditor is described as subjective
change of debtor under the Principal Obligation; and (iv) that the filing of the
(or personal) novation. Novation may also be both objective and subjective
complaint was premature, considering that R & B Surety filed the case against
him as indemnitor although the PNB had not yet proceeded against R & B (mixed) at the same time. In both objective and subjective novation, a dual
Surety to enforce the latter's liability under the Surety Bond. purpose is achieved-an obligation is extinguished and a new one is created in
lieu thereof.
Petitioner Cochingyan, however, did not present any evidence at all to support
his asserted defenses. Petitioner Villanueva did not submit any evidence either If objective novation is to take place, it is imperative that the new obligation
on his "accommodation" defense. The trial court was therefore constrained to expressly declare that the old obligation is thereby extinguished, or that the
decide the case on the basis alone of the terms of the Trust Agreement and new obligation be on every point incompatible with the old one. Novation is
other documents submitted in evidence. never presumed: it must be established either by the discharge of the old debt
Judgment was rendered ordering the defendants Joseph Cochingyan, Jr. and by the express terms of the new agreement or by the acts of the parties whose
Jose K. Villanueva to pay, jointly and severally, unto the plaintiff the sum of intention to dissolve the old obligation as a consideration of the emergence of
400,000,00, representing the total amount of their liability on Surety Bond the new one must be clearly discernible.
No. 4765, and interest at the rate of 6% per annum on the premium amounts.
Again, if subjective novation by a change in the person of the debtor is to occur,
it is not enough that the juridical relation between the parties to the original
judgment was rendered: (a) ordering the defendants Joseph Cochingyan, Jr. contract is extended to a third person. It is essential that the old debtor be
and Jose K. Villanueva to pay, jointly and severally, unto the plaintiff the sum released from the obligation, and the third person or new debtor take his place
of 400,000,00, representing the total amount of their liability on Surety Bond
Page 110 of 115
in the new relation. If the old debtor is not released, no novation occurs and obligors directly and solidarily bound in favor of the PNB: PAGRICO, R & B
the third person who has assumed the obligation of the debtor becomes merely Surety and the Trustor. And the PNB could proceed against any of the three,
a co-debtor or surety or a co-surety. in any order or sequence. Clearly, PNB never intended to release, and never
did release, R & B Surety. Thus, R & B Surety, which was not a party to the
Applying the above principles to the instant case, it is at once evident that the Trust Agreement, could not have intended to release any of its own
Trust Agreement does not expressly terminate the obligation of R & B Surety indemnitors simply because one of those indemnitors, the Trustor under the
under the Surety Bond. On the contrary, the Trust Agreement expressly Trust Agreement, became also directly liable to the PNB.
provides for the continuing subsistence of that obligation by stipulating that
"[the Trust Agreement] shall not in any manner release" R & B Surety from its The Surety Bond was not novated by the Trust Agreement. Both
obligation under the Surety Bond. agreements can co-exist. The Trust Agreement merely furnished to
PNB another party obligor to the Principal Obligation in addition to
Neither can the petitioners anchor their defense on implied novation. Absent PAGRICO and R & B Surety.
an unequivocal declaration of extinguishment of a pre-existing obligation, a
showing of complete incompatibility between the old and the new obligation SPOUSES BALILA v. IAC
(and nothing else) would sustain a finding of novation by implication. 9 But Nature: Petition for review of certiorari
where, as in this case, the parties to the new obligation expressly recognize the Ponente: PARAS, J.
continuing existence and validity of the old one, where, in other words, the Date: October 29, 1987
parties expressly negated the lapsing of the old obligation, there can be no
DOCTRINE: The decisions of lower courts may be novated, if such is the
novation. The issue of implied novation is not reached at all.
intention of the parties
What the trust agreement did was, at most, merely to bring in another person
FACTS: There was an amicable settlement between petitioners and private
or persons-the Trustor[s]-to assume the same obligation that R & B Surety was respondents as defendants and plaintiffs in a Civil Case, which was approved
bound to perform under the Surety Bond. It is not unusual in business for a by the trial court and made as the basis of its Decision ordering the parties to
stranger to a contract to assume obligations thereunder; a contract of comply strictly with the terms and conditions embodied in said amicable
suretyship or guarantee is the classical example. The precise legal effect is the settlement. The salient points therein show that defendants admitted "having
increase of the number of persons liable to the obligee, and not the sold under a pacto de retro sale the parcels of land described in the complaint
extinguishment of the liability of the first debtor. Thus, in Magdalena Estates in the amount of P84,000.00" and that they "hereby promise to pay the said
amount within the period of four (4) months but not later than May 15,1981."
vs. Rodriguez, it was held that:
On December 30, 1981 or more than seven months after the last day for making
payments, defendants redeemed from plaintiff Guadalupe (one of the private
respondents herein) Lot No. 52 with an area of 294 sq.m. covered by TCT
[t]he mere fact that the creditor receives a guaranty or accepts payments from 101352 which was one of the three parcels of land described in the complaint
a third person who has agreed to assume the obligation, when there is no by paying the amount of P20,000.00.
agreement that the first debtor shall be released from responsibility, does not
constitute a novation, and the creditor can still enforce the obligation against On August 4, 1982, plaintiff filed a motion for a hearing on the consolidation
the original debtor. of title over the remaining two (2) parcels of land namely Lot 965 and Lot 16
alleging that the court's decision dated December 11, 1980 remained
In the present case it was noted that the Trustor under the Trust Agreement, unenforced for no payment of the total obligation due from defendants.
the CCM, was already previously bound to R & B Surety under its Indemnity Defendants opposed said motion alleging that they had made partial payments
of their obligation through plaintiff's attorney in fact and son, Waldo del
Agreement. Under the Trust Agreement, the Trustor also became directly
Castillo, as well as to the Sheriff. On April 26, 1983, the lower court issued the
liable to the PNB. So far as the PNB was concerned, the effect of the Trust questioned order affirming consolidation.
Agreement was that where there had been only two, there would now be three
Page 111 of 115
On June 8, 1983, while the Order of the lower court had not yet been enforced, consolidation of ownership against the same petitioners herein before the
defendants paid plaintiff Guadalupe Vda. del Castillo by tendering the amount Court of First Instance of Pangasinan, docketed as Civil Case No. U-3650, the
of P28,800.00 to her son Waldo del Castillo (one of the private respondents allegations of which are Identical to the complaint filed in Civil Case No. U-
herein) thus leaving an unpaid balance of P35,200.00. A Certification dated
3501 of the same court. This case U-3650 was, however, dismissed in an Order
June 8, 1983, (Annex D, Rollo, page 31) and signed by Waldo shows that
defendants were given a period of 45 days from date or up to July 23, 1983 dated May 27, 1983, in view of the order of consolidation issued in Civil Case
within which to pay the balance. Said Certification supported defendants' No. U-350 1.
motion for reconsideration and supplemental motion for reconsideration of
the Order reconsolidation of title, which motions were both denied by the The fact therefore remains that the amount of P84,000.00 payable on or
lower court, prompting defendants to file a petition for certiorari, prohibition before May 15, 1981 decreed by the trial court in its judgment by compromise
and mandamus with pre injunction petition with the Intermediate Appellate was novated and amended by the subsequent mutual agreements and actions
Court to seeking to annul and set aside the assailed Order dated April 26, 1983 of petitioners and private respondents. Petitioners paid the aforestated
and the Order denying their motion for reconsideration. After due amount on an insatalment basis and they were given by private respondents
consideration of the records of the case, the appellate tribunal sustained the
no less than eight extensions of time pay their obligation. These transactions
lower court, hence the present petition for certiorari.
took place during the pendency of the motion for reconsideration of the Order
ISSUES: W/N the judgment by compromise was novated by the subsequent of the trial court dated April 26, 1983 in Civil Case No. U-3501, during the
act of the parties. pendency of the petition for certiorari in AC-G.R. SP-01307 before the
Intermediate Appellate Court and after the filing of the petition before us. This
HELD: Yes, it was novated and amended by the subsequent mutual answers the claim of the respondents on the failure of the petitioners to present
agreements and actions of petitioners and private respondents. The evidences or proofs of payment in the lower court and the appellate court.
root of all the issues raised before Us is that judgment by compromise rendered
by the lower court based on the terms of the amicable settlement of the As early as Molina vs. De la Riva the principle has been laid down that, when,
contending parties. Such agreement not being contrary to law, good morals or after judgment has become final, facts and circumstances transpire which
public policy was approved by the lower court and therefore binds the parties render its execution impossible or unjust, the interested party may ask the
who are enjoined to comply therewith. court to modify or alter the judgment to harmonize the same with justice and
the facts.

For this reason in Amor vs. Judge Jose, it was ruled that: The Court cannot
However, the records show that petitioners made partial payments to private refuse to issue a writ of execution upon a final and executory judgment, or
respondent Waldo del Castillo after May 15, 1981 or the last day for making quash it, or order its stay, for, as a general rule, parties will not be allowed,
payments, redeeming Lot No. 52 as earlier stated. (Annex "A," Petition). after final judgment, to object to the execution by raising new issues of fact or
of law, except when there had been a change in the situation of the parties
There is no question that petitioners tendered several payments to Waldo del which makes such execution in- equitable; or when it appears that the
Castillo even after redeeming lot No. 52. A total of these payments reveals that controversy has never been submitted to the judgment of the court, or when it
petitioners share. fulIy paid the amount stated in the judgment by com appears that the writ of execution has been improvidently issued, or that it is
promise. The only issue is whether Waldo del Castillo was a person duly defective in substance, or issued against the wrong party or that judgment debt
authorized by his mother Guadalupe Vda. de del Castillo, as her attorney-in- has been paid or otherwise satisfied or when the writ has been issued without
fact to represent her in transactions involving the properties in question. We authority.
believe that he was so authorized in the same way that the appellate court took
cognizance of such fact as embodied in its assailed decision. What was done by respondent Judge in setting aside the writ of execution in
Civil Case No. 5111 finds support in the applicable authorities. There is this
It may be mentioned that on May 25,1981, Guadalupe Vda. de Del Castillo, relevant excerpt in Barretto v. Lopez this Court speaking through the then
represented by her attorney in fact Waldo Castillo, filed a complaint for Chief Justice Paras: "Allegating that the respondent judge of the municipal
Page 112 of 115
court had acted in excess of her jurisdiction and with grave abuse of discretion Petitioners contend that these partial payments were subsequent mutual
in issuing the writ of execution of December 15, 1947, the petitioner has filed agreements of the parties which novated the agreement in the amicable
the present petition for certiorari and prohibition for the purpose of having settlement from which the trial court’s decision was based, so that the period
of payment was further extended beyond the period in the trial court
said writ of execution annulled. Said petition is meritorious. The agreement
decision.
filed by the parties in the ejectment case created as between them new rights
and obligations which naturally superseded the judgment of the municipal ISSUE:
court." In Santos v. Acuna, it was contended that a lower court decision was WON subsequent mutual agreements between the parties novated the prior
novated by the subsequent agreement of the parties. Implicit in this Court's agreement which was made the basis of the trial court decision, so that the
ruling is that such a plea would merit approval if indeed that was what the period of payment was further extended.
parties intended.
RULING:
BALILA v. IAC YES. The payment period in the trial court’s judgment by
compromise was novated and amended by the subsequent mutual
Nature: Petition for certiorari to review the decision of the IAC regarding agreements and actions of the parties.
the consolidation of ownership over parcels of land in the name of private
respondents The fact therefore remains that the amount of P84,000.00 payable on or
Ponente: Paras, J. before May 15, 1981 decreed by the trial court in its judgment by compromise
Date: October 29, 1987 was novated and amended by the subsequent mutual agreements and actions
of petitioners and private respondents.
DOCTRINE: Subsequent mutual agreements and actions of the plaintiffs
and the defendants will result in the novation of and amended to the order of De Los Santos v Rodriguez:
the court in its judgment of compromise. When, after judgment has become final, facts and circumstances transpire
which render its execution impossible or unjust, the interested party may ask
FACTS: the court to modify or alter the judgment to harmonize the same with justice
Relevant Provision of Law: and the facts.
No provision of law cited
Dormitorio v Fernandez:
Petitioners sold parcels of land to respondents under a pacto de retro sale. The agreement filed by the parties in the ejectment case created as between
Petitioners failed to repurchase within the agreed period. A civil case was them new rights and obligations which naturally superseded the judgment of
filed by respondents against petitioners. However, an amicable settlement the municipal court. In Santos v. Acuna, it was contended that a lower court
was reached between the parties and was approved by the trial court and was decision was novated by the subsequent agreement of the parties. Implicit in
made as the basis of the court’s decision. In the amicable settlement, the this Court's ruling is that such a plea would merit approval if indeed that was
period of payment was extended to May 15, 1981. what the parties intended.

Unfortunately, petitioners failed to pay within the extended period. It was PEOPLE’S BANK v. SYVEL’S
only on December 30, 1981, that petitioners offered to redeem the property.
On August 4, 1982, respondents filed a case for the consolidation of Nature: Appeal from the decision of the CFI; originally, action for
ownership over the parcels of land. The court ordered the consolidation, foreclosure of chattel mortgage
which was eventually appealed to the IAC. The IAC affirmed the trial court. Ponente: Paras, J.
Petitioners then elevated the case to the SC. Date: August 11, 1968

While the case was pending before the IAC and the SC, however, petitioners DOCTRINE: It is elementary that novation is never presumed; it must be
made partial payments to respondent Vda. de Del Castillo’s son and attorney explicitly stated or there must be manifest incompatibility between the old
in fact, Waldo del Castillo, which the latter received and accepted. and the new obligations in every aspect.

FACTS:
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Relevant Provisions of Law: Moreover, records show that in the real estate mortgage, appellants agreed
No provision of law cited that the chattel mortgage “shall remain in full force and shall not be impaired
by this (real estate) mortgage.”
The plaintiff-appellee bank granted the defendant-appellant corporation a
credit commercial line, secured by a chattel mortgage on the corporation’s It is clear, therefore, that a novation was not intended. The real estate
stocks of goods, personal properties and other materials. The appellant drew mortgage was evidently taken as additional security for the performance of
advances on the credit line. However, the appellant failed to make payments the contract.
in accordance with the terms and conditions agreed upon in the credit line.
The appellee started to foreclose extrajudicially the chattel mortgage, and a RODRIGUEZ v. REYES
case was eventually filed in court. The appellant proposed to have the case
settled amicably and requested to dismiss the case to avoid the impairment of Nature: Original action in the Supreme Court. Certiorari with preliminary
the corporation’s goodwill. Appellant offered to execute a real estate injunction. Sale of properties at public auction, where properties mortgaged.
mortgage on real property, and this was executed in favor of appellee. In the Ponente: Reyes, J.B.L., J.
contract of real estate mortgage, it was stipulated that the chattel mortgage Date: January 30, 1971
shall remain in full force and shall not be impaired by the real estate
mortgage. DOCTRINE: The mere fact that the purchaser of an immovable has notice
that the required realty is encumbered with a mortgage does not render him
A motion to dismiss was prepared by the appellee, following the agreement to liable for the payment of the debt guaranteed by the mortgage, in the absence
dismiss the case, but appellant did not want to agree with such dismissal of stipulation or condition that he is to assume payment of the mortgage
since it would mean that the counterclaim of appellant against the appellee debt. Here, the purchaser does not obligate himself to replace the debtor in
would also be dismissed. Trial proceeded. the principal obligation, and he could not do so in law without the creditor’s
consent, as explicitly provided in Art. 1293
The trial court ruled in favor of appellee, and ordered the payment of the debt
by the appellant to the appellee. If appellant failed to pay, then the chattel FACTS:
mortgaged would be foreclosed. Relevant Provisions of Law:
Article 1293. Novation which consists in substituting a new debtor in the
ISSUE: place of the original one, may be made even without the knowledge or against
WON there was a novation of the contract so that the chattel mortgage has the will of the latter, but not without the consent of the creditor. Payment by
been replaced by the real estate mortgage the new debtor gives him the rights mentioned in articles 1236 and 1237.
(1205a)
RULING:
NO. The real estate mortgage is merely a new additional security Petitioners filed a complaint against respondent, their brother, for the
to the chattel mortgage previously entered into by the parties. partition of properties held in common. During the pre-trial conference, the
co-owners (siblings) agreed to have the property in litigation sold at public
Novation takes place when the object or principal condition of an obligation auction to the highest bidder. At that time, the property was mortgaged to
is changed or altered. It is elementary that novation is never presumed; it the DBP. An auction sale was held, where respondent Dualan was the
must be explicitly stated or there must be manifest incompatibility between highest bidder. When the petitioners moved for the approval of the sale,
the old and the new obligations in every aspect. respondents (brother and highest bidder) commented that court should
order that the property sold is free from all liens and encumbrances,
In the case at bar, there is nothing in the Real Estate Mortgage which including the mortgage to DBP.
supports appellants’ submission. The contract on its face does not show the
existence of an explicit novation nor incompatibility on every point between Petitioners contend that the doctrine of caveat emptor should apply, so that
the “old” and the “new” agreements as the second contract evidently indicates since the highest bidder bought the property at his own peril, with knowledge
that the same was executed as new additional security to the chattel mortgage of the encumbrance, he should assume payment of the indebtedness secured
previously entered into by the parties. thereby.

ISSUE:
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WON, by virtue of the auction sale, the highest bidder assumed the mortgage
indebtedness, so that there is a novation substituting the highest bidder in
place of the original debtor.

RULING:
NO. A buyer cannot be obligate himself to replace the debtor in
the principal obligation without the creditor’s consent.

We find the stand of petitioners-appellants to be unmeritorious and

untenable. The maxim “caveat emptor” applies only to execution sales, and
this was not one such. The mere fact that the purchaser of an immovable has
notice that the required realty is encumbered with a mortgage does not
render him liable for the payment of the debt guaranteed by the mortgage, in
the absence of stipulation or condition that he is to assume payment of the
mortgage debt.

By buying the property with notice that it was mortgaged, respondent Dualan
only undertook either to pay or else allow the land’s being sold if the
mortgage creditor could not or did no obtain payment from the principal
debtor when the debt matured. Nothing else. Certainly the buyer did not
obligate himself to replace the debtor in the principal obligation, and he
could not do so in law without the creditor’s consent, under Art. 1293.

The obligation to discharge the mortgage indebtedness, therefore, remained

on the shoulders of the original debtors and their heirs, petitioners herein,
since the record is devoid of any evidence of contrary intent.

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