OBLIGATIONS CASES

2. GERALDEZ VS CA and Tours

Kenstar Travel and

1. RCPI vs CA and Loreto Dionela FACTS: The basis of the complaint against the defendant corporation is a telegram sent through its Manila Office to the offended party, Loreto Dionela, reading as follows: SA IYO WALANG PAKINABANG DUMATING KA DIYAN-WALA-KANG PADALA DITO KAHIT BULBUL MO Plaintiff-respondent alleges that the defamatory (libelous) words on the telegram sent to him not only wounded his feelings but also caused him undue embarrassment and affected adversely his business as well because other people have come to know of said defamatory words. Defendant corporation as a defense, alleges that the additional words in Tagalog was a private joke between the sending and receiving operators and that they were not addressed to or intended for plaintiff ISSUE: WON the employer is directly and primarily liable to the civil liability arising from the criminal act of its employee. HELD: Yes. The action for damages was filed in the lower court directly against respondent corporation not as an employer subsidiarily liable under the provisions of Article 1161 of the New Civil Code in relation to Art. 103 of the Revised Penal Code. The cause of action of the private respondent is based on Arts. 19 and 20 of the New Civil Code (supra). As well as on respondent's breach of contract thru the negligence of its own employees. 1 Petitioner is a domestic corporation engaged in the business of receiving and transmitting messages. Everytime a person transmits a message through the facilities of the petitioner, a contract is entered into. There is no question that in the case at bar, libelous matters were included in the message transmitted, without the consent or knowledge of the sender. There is a clear case of breach of contract by the petitioner in adding extraneous and libelous matters in the message sent to the private respondent. As a corporation, the petitioner can act only through its employees. Hence the acts of its employees in receiving and transmitting messages are the acts of the petitioner. Since negligence may be hard to substantiate in some cases, we may apply the doctrine of RES IPSA LOQUITUR (the thing speaks for itself), by considering the presence of facts or circumstances surrounding the injury.

Facts: Petitioner opt a 22-day Europe tour travel package offered by Respondent Corporation. The tour did not end up as expected by herein petitioner, it did not as represented in the brochure: no European tour manager, hotels were not 1st class and the Filipino tour guide who is supposed to accompany them is a 1st timer. Petitioner then filed a breach of contract against Respondent Corporation for committing acts of representations constituting fraud in contracting the obligation. RTC rendered judgment ordering Respondent Corporation to pay petitioner 500,000 as moral damages, 200,000 as nominal damages, 300,000 as exemplary damages and 50,000 as litigation and attorneys fees (all in pesos). On appeal, award for moral and exemplary damages were deleted and a reduction of nominal damages to 40,000 pesos, this on account that the Respondent has substantially complied with the prestation and no malice or bad faith is imputable as a consequence . Issue: Whether or not private respondent acted in bad faith or with gross negligence in discharging its obligation under contract. Held: Yes.On the foregoing considerations, respondent court erred in deleting the award for moral and exemplary damages which may be awarded in breaches of contract where fraud is evident. Private respondent faulted with fraud in the inducement, which is employed by a party to a contract in securing the consent of the other. This fraud or dolo which is present or employed at the time of birth or perfection of the contract may either be dolo causante or dolo incidente Dolo Causante or Causal Fraud Referred to in Art 1338, are those deceptions or misrepresentations of a serious character employed by one party and without which the other party would not have entered into the contract. Dolo causante determines or is the essential cause of the consent. Effect: nullity of the contract and the indemnification of damages Dolo Incidente or Incidental Fraud Referred to in Art. 1344, are those which are not serious in character and without which the other party still would have entered into the contract. Dolo incidente refers only to some particular or accident of the obligation. Effect: obliges person employing it to pay damages In either case, whether Kenstar has committed dolo causante or dolo incidente, it is indubitably liable for damages both moral and exemplary. Nominal damages deleted.

3. SPS. CULABA VS CA and San Mig Corp. FACTS: The spouses engaged in the sale and distribution of San Miguel Corporations (SMC) beer products. SMC sold beer products on credit to the Culaba spouses. Thereafter, the Culaba spouses made a partial payment, leaving an unpaid balance. As they failed to pay despite repeated demands, SMC filed an action for collection of a sum of money against them . The defendant-spouses denied any liability, claiming that they had already paid the plaintiff in full on four separate occasions. To substantiate this claim, the defendants presented four (4) Temporary Charge Sales (TCS) Liquidation Receipts. According to the trial court, it was unusual that defendant Francisco Culaba forgot the name of the collector to whom he made the payments and that he did not require the said collector to print his name on the receipts. According to the petitioners, receiving receipts from the private respondents agents instead of its salesmen was a usual occurrence, as they had been operating the store since 1979. ISSUE: WoN petitioner is liable to pay again.

4. SANTOS VENTURA HOCORMA FOUNDATION, INC. VS ERNESTO SANTOS & RIVERLAND, INC. G.R. No. 1530004 November 5, 2004 FACTS: Subject of the present petition for review on certiorari is the Decision, dated January 30, 2002, as well as the April 12, 2002, Resolution of the Court of Appeals, The appellate court reversed the Decision, dated October 4, 1996, of the Regional Trial Court of Makati City, and likewise denied petitioner's Motion for Reconsideration. On October 26, 1990, the parties executed a Compromise Agreement which amicably ended all their pending litigations. The pertinent portions of the Agreement, include the following: (1) Defendant Foundation shall pay Plaintiff Santos P14.5 Million on (a) P1.5 Million immediately upon the execution of this agreement and (b) The balance of P13 Million shall be paid, whether in one lump sum or in installments, at the discretion of the Foundation, within a period of not more than two years from the execution of this agreement; (2) Immediately upon the execution of this agreement (and [the] receipt of the P1.5 Million), plaintiff Santos shall cause the dismissal with prejudice of Civil Cases; (3) Failure of compliance of any of the foregoing terms and conditions by either or both parties to this agreement shall ipso facto and ipso jure automatically entitle the aggrieved party to a writ of execution for the enforcement of this agreement. In compliance with the Compromise Agreement, respondent Santos moved for the dismissal of the aforesaid civil cases. He also caused the lifting of the notices of lis pendens on the real properties involved. For its part, petitioner SVHFI, paid P1.5 million to respondent Santos, leaving a balance of P13 million. On October 28, 1992, respondent Santos sent another letter to petitioner inquiring when it would pay the balance of P13 million. There was no response from petitioner. Consequently, respondent Santos applied with the Regional Trial Court of Makati City, for the issuance of a writ of execution of its compromise judgment dated September 30, 1991. The RTC granted the writ. Petitioner, however, filed numerous motions to block the enforcement of the said writ. The challenge of the execution of the aforesaid compromise judgment even reached the Supreme Court. All these efforts, however, were futile. On November 22, 1994, petitioner's real properties located in Mabalacat, Pampanga were auctioned. In the said auction, Riverland, Inc. was the highest bidder for P12 million and it was issued a Certificate of Sale covering the real properties subject of the auction sale. Subsequently, another auction sale was held on February 8, 1995, for the sale of real properties of petitioner in Bacolod City. Again, Riverland, Inc. was the highest bidder. The Certificates of Sale issued for both properties provided for the right of redemption within one year from the date of registration of the said properties.

HELD: Yes, payment must be made to true creditor not on impostor; they were negligent. Payment is a mode of extinguishing an obligation.Article 1240 of the Civil Code provides that payment shall be made to the person in whose favor the obligation has been constituted, or his successor-in-interest, or any person authorized to receive it. In this case, the payments were purportedly made to a supervisor of the private respondent, who was clad in an SMC uniform and drove an SMC van. He appeared to be authorized to accept payments as he showed a list of customers accountabilities and even issued SMC liquidation receipts which looked genuine. Unfortunately for petitioner Francisco Culaba, he did not ascertain the identity and authority of the said supervisor, nor did he ask to be shown any identification to prove that the latter was, indeed, an SMC supervisor. The petitioners relied solely on the mans representation that he was collecting payments for SMC. Thus, the payments the petitioners claimed they made were not the payments that discharged their obligation to the private respondent. Negligence is the omission to do something which a reasonable man, guided by those considerations which ordinarily regulate the conduct of human affairs, would do, or the doing of something, which a prudent and reasonable man would not do.] In the case at bar, the most prudent thing the petitioners should have done was to ascertain the identity and authority of the person who collected their payments. Failing this, the petitioners cannot claim that they acted in good faith when they made such payments. Their claim therefor is negated by their negligence, and they are bound by its consequences. Being negligent in this regard, the petitioners cannot seek relief on the basis of a supposed agency.

On June 2, 1995, Santos and Riverland Inc. filed a Complaint for Declaratory Relief and Damages alleging that there was delay on the part of petitioner in paying the balance of P13 million. Issues: a)W/N the CA committed reversible error when it awarded legal interest in favor of the respondents notwithstanding the fact that neither in the compromise agreement nor in the compromise of judgment by the judge provides for payment of interest to the respondent? b)W/N the CA erred in awarding legal interest to the respondents although the obligation of the petitioner to the respondent is to pay a sum of money that had been converted into an obligation to pay in kind? c)W/N respondents are barred from demanding payment of interest by reason of the waiver provision in the compromise agreement, which became the law among the parties. Held:On October 4, 1996, the trial court rendered a Decision dismissing the respondents' complaint and ordering them to pay attorney's fees and exemplary damages to petitioner. Respondents then appealed to the Court of Appeals. The only issue to be resolved is whether the respondents are entitled to legal interest. The appellate court reversed the ruling of the trial court: WHEREFORE, finding merit in the appeal, the appealed Decision is hereby REVERSED and judgment is hereby rendered ordering appellee SVHFI to pay appellants Santos and Riverland, Inc.: (1) legal interest on the principal amount of P13 million at the rate of 12% per annum from the date of demand on October 28, 1992 up to the date of actual payment of the whole obligation; and (2) P20,000 as attorney's fees and costs of suit. SO ORDERED. Delay Delay as used in this article is synonymous to default or mora which means delay in the fulfillment of obligations. It is the non-fulfillment of the obligation with respect to time. In the case at bar, the obligation was already due and demandable after the lapse of the two-year period from the execution of the contract. The two-year period ended on October 26, 1992. When the respondents gave a demand letter on October 28, 1992, to the petitioner, the obligation was already due and demandable. Furthermore, the obligation is liquidated because the debtor knows precisely how much he is to pay and when he is to pay it. The petition lacks merit In the case at bar, the Compromise Agreement was entered into by the parties on October 26, 1990. It was judicially approved on September 30, 1991. Applying existing jurisprudence, the compromise agreement as a consensual contract became binding between the parties upon its execution and not upon its court approval. From the time a compromise is validly entered into, it becomes the source of the rights and obligations of the parties thereto. The purpose of the compromise is precisely to replace and terminate controverted claims.

As to the remaining P13 million, the terms and conditions of the compromise agreement are clear and unambiguous. It provides that the balance of P13 Million shall be paid, whether in one lump sum or in installments, at the discretion of the Foundation, within a period of not more than two (2) years from the execution of this agreement. WHEREFORE, the petition is DENIED for lack of merit. The Decision dated January 30, 2002 of the Court of Appeals and its April 12, 2002 Resolution in CA-G.R. CV No. 55122 are AFFIRMED. Costs against petitioner. SO ORDERED

5. Santos vs. Pizarro; 465 SCRA 232

FACTS: In April 1994, Viron Transit driver Sibayan was charged with reckless imprudence resulting to multiple homicide and multiple physical injuries for which Sibayan was eventually convicted in December 1998. As there was a reservation to file a separate civil action, no pronouncement of civil liability was made by the MCTC. In October 2000 Santos filed a complaint for damages against Sibayan and Rondaris, the president and chairman of VironTransit. Viron Transit moved for the dismissal of the complaint citing, among others, prescription alleging that actions based on quasi delict prescribe in 4 years from the accrual of the cause of action. HELD: Petitioners expressly made a reservation of their right to file a separate civil action as a result of the crime committed by Sibayan. On account of this reservation the MCTC did not make any pronouncement as to the latters civil liability. Although there were allegations of negligence on the part of Sibayan and Viron Transit, such does not necessarily mean that petitioners were pursuing a cause of action based on quasi delict, considering that at the time of the filing of the complaint, the cause of action ex quasi delicto had already prescribed. Besides, in cases of negligence, the offended party has the choice between an action to enforce liability arising from crime under the Revised Penal Code and an action for quasi delict under the Civil Code. An act or omission causing damage to another may give rise to 2 separate civil liabilities on the part of the offender, i.e. (1) civil liability ex delicto, under Article 100 of the RPC; and (2)independent civil liabilities (a) not arising from an act or omission complained of as a felony, e.g., culpa contractual or obligations arising from law under Article 31 of the Civil Code, intentional torts under Articles 32 and 34, and culpa aquiliana under Article 2176 of the Civil Code; or (b) where the injured party is granted a right to file an action independent and distinct from the criminal proceedings. While the cause of action ex quasi delicto had already prescribed, petitioners can still pursue the remaining avenue opened for them by their reservation, i.e., the surviving cause of action ex delicto. This is so because the prescription of the action ex quasi delicto does not operate as a bar

to an action to enforce the civil liability arising from crime especially as the latter action had been expressly reserved. We held that the dismissal of the action based on culpa aquiliana is not a bar to the enforcement of the subsidiary liability of the employer. Once there is a conviction for a felony, final in character, the employer becomes subsidiarily liable if the commission of the crime was in discharge of the duties of the employees. This is so because Article 103 of the RPC operates the controlling force to obviate the possibility of the aggrieved party being deprived of indemnity even after the rendition of a final judgment convicting the employee. 6. L AND L FOOTWEAR; 468 SCRA 393 FACTS: "PCI Leasing and L & L Lawrence entered into several LOAN contracts embodied in several Memoranda of Agreement and Disclosure Statements from 1994 up to 1997 involving various shoe making equipment. x x x. "As a condition for the loan extended by PCI Leasing to L & L, the latter was also made to enter into several LEASE CONTRACTS embodied in numerous Lease Schedules whereby the imported shoe making equipment would be considered as the leased property. Pursuant to the agreement between the parties, L & L gave PCI Leasing a THIRTY (30%) PERCENT GUARANTY DEPOSIT for ALL the leased contracts between them in the total sum of US$359,525.90. Furthermore, PCI Leasing received from L & L a total of US$1,164,380.42 as rental payments under the numerous Lease Schedules. "Sae Chae Lee, the former President of L & L, was made to sign a x x x Continuing Guaranty of Lease Obligations dated 16 May 1994 securing the payment of the obligation of L & L under [a] Lease Agreement dated 13 May 1994. "L & L, by reason of the economic crisis that hit the country coupled with the cancellation of the contracts with its buyers abroad and its labor problems, failed to meet its obligations on time. For this reason, L & L tried its best to negotiate with the PCI Leasing for a possible amicable settlement between the parties. "In the course of the negotiation between the parties, PCI Leasing sent to L & L a letter dated 05 May 1998, stating that: Demand is hereby made on you to pay in full the outstanding balance in the amount of $826,003.27 plus penalty charges amounting to $6,329.05 on or before May 12, 1998 or to surrender to us the various equipments. PCI Leasing filed a complaint for recovery of sum of money and/or personal property with prayer for the issuance of a writ of replevin against L & L Lawrence Footwear, Inc., Sae Chae Lee and a certain John Doe with the Regional Trial Court of Quezon City. The RTC rendered a decision against the petitioner. CA affirmed the trial court decision.

ISSUE:Whether a corporation can be held in ESTOPPEL by reason of the representation of its officer HELD: No Estoppel Petitioners emphasize that the account officer of PCI Leasing testified that respondent had admittedly deducted the proceeds of the sale of the leased properties from the outstanding obligations. They argue that, by its admission, respondent recognized that the properties were in fact owned by L & L Lawrence Corporation. In turn, this fact allegedly proves that the Contract between the parties was one of loan, not of lease. This argument is patently without merit. No such inference can be made from the statements of the witness. On the contrary, her testimony reinforced the fact that the true intent of the parties was to enter into a contract known as a financial leasing agreement. In such an agreement, "a finance company purchases on behalf of or at the instance of the lessee the equipment which the latter is interested to buy but has insufficient funds for the purpose. The finance company therefore leases the equipment to the lessee in consideration of the periodic payment by the lessee of a fixed amount of rental." Recognized by this Court as being fairly common transactions in the commercial world, agreements such as these have been accepted as genuine and legitimate. In Cebu Contractors Consortium v. CA, the Court elucidated on the nature of a financial leasing agreement as follows: "A financing lease may be seen to be a contract sui generis, possessing some but not necessarily all the elements of an ordinary or civil law lease. Thus, legal title to the equipment leased is lodged in the financial lessor. The financial lessee is entitled to the possession and use of the leased equipment. At the same time, the financial lessee is obligated to make periodic payments denominated as lease rentals, which enable the financial lessor to recover the purchase price of the equipment which had been paid to the supplier thereof."

7. LALICON VS. NHA; JULY 31, 2011 FACTS: On November 25, 1980 the National Housing Authority (NHA) executed a Deed of Sale with Mortgage over a Quezon City lot in favor of the spouses Isidro and Flaviana Alfaro. It was provided in the deed of sale that the Alfaros could sell the land within five years from the date of its release from mortgage without NHAs prior written consent. Nine years later the Alfaros sold the land to their son, Victor Alfaro, who had a common-law wife, Cecilia, who had the means, had a house built on the property and paid for the amortizations. On March 21, 1991, the NHA released the mortgage. After four and a half years since the mortgaged was released Victor registered the sale of land in his favor,

resulting in the cancellation of his parents title. On December 14, 1995 Victor mortgaged the land to Marcela Lao Chua, Rosa Sy, Amparo Ong, and Ida See. Afterward, on February14, 1997 Victor sold the property to Chua, one of the mortgagees, resulting in the cancellation of his TCT140646 and the issuance of TCT N-172342 in Chuas name. Moreover, a year later the NHA instituted a case before the Quezon City Regional Trial Court (RTC) for the annulment of the NHAs 1980 sale of the land to their son Victor and the subsequent sale of Victor to Chua was a violation of NHA rules and regulations. The RTC ruled that although the Alfaros clearly violated the five-year prohibition, the NHA could no longer rescind its sale to them since its right to do so had already prescribed, applying Article 1389 of the New Civil Code. While the CA declared TCT 277321 in the name of the Alfaros and all subsequent titles and deeds of sale null and void. ISSUES:* Whether or not the CA erred in holding that the Alfaros violated their contract with the NHA; *Whether or not the NHAs right to rescind has prescribed; and *Whether or not the subsequent buyers of the land acted in good faith and their rights, therefore, cannot be affected by the rescission. HELD: The CA correctly ruled that such violation comes under Article 1191 where the applicable prescriptive period is that provided in Article 1144 which is 10 years from the time the right of action accrues. It is clearly said that the Alfaros violated the five-year restriction, thus entitling the NHA to rescind the contract. The NHAs right of action accrued on February 18, 1992 when it learned of the Alfaros forbidden sale of the property to Victor. Since the NHA filed its action for annulment of sale on April 10, 1998, it did so well within the 10-year prescriptive period. The Court also agrees with the CA that the Lalicons and Chua were not buyers in good faith. As regards Chua, she and a few others with her took the property by way of mortgage from Victor in 1995, well within the prohibited period. Since mutual restitution is required in cases involving rescission under Article 1191, the NHA must return the full amount of the amortizations it received for the property, plus the value of the improvements introduced on the same, with 6% interest per annum from the time of the finality of this judgment. Hence, the Court affirms the Decision of the Court of Appeals.

upon which their conjugal home was built. The spouses further agreed to put up a surety bond at the rate of PhP 20,000 per 1,000 chicks delivered by GMC. The Deed of Real Estate Mortgage extended to Spouses Ramos a maximum credit line of PhP 215,000 payable within an indefinite period with an interest of twelve percent (12%) per annum. Spouses Ramos eventually were unable to settle their account with GMC. They alleged that they suffered business losses because of the negligence of GMC and its violation of the Growers Contract. On March 31, 1997, the counsel for GMC notified Spouses Ramos that GMC would institute foreclosure proceedings on their mortgaged property. On May 7, 1997, GMC filed a Petition for Extrajudicial Foreclosure of Mortgage. On June 10, 1997, the property subject of the foreclosure was subsequently sold by public auction to GMC after the required posting and publication. Spouses Ramos filed a Complaint for Annulment and/or Declaration of Nullity of the Extrajudicial Foreclosure Sale with Damages. They contended that the extrajudicial foreclosure sale on June 10, 1997 was null and void, since there was no compliance with the requirements of posting and publication of notices under Act No. 3135, as amended. Librado Ramos alleged that, when the property was foreclosed, GMC did not notify him at all of the foreclosure. In its Answer, GMC argued that it repeatedly reminded Spouses Ramos of their liabilities under the Growers Contract. It argued that it was compelled to foreclose the mortgage because of Spouses Ramos' failure to pay their obligation. GMC insisted that it had observed all the requirements of posting and publication of notices under Act No. 3135. RTC rendered a decision in favor of the Spouses Ramos. The CA sustained the RTC decision. ISSUES: A. WHETHER [THE CA] MAY CONSIDER ISSUES NOT ALLEGED AND DISCUSSED IN THE LOWER COURT AND LIKEWISE NOT RAISED BY THE PARTIES ON APPEAL, THEREFORE HAD DECIDED THE CASE NOT IN ACCORD WITH LAW AND APPLICABLE DECISIONS OF THE SUPREME COURT. B. WHETHER [THE CA] ERRED IN RULING THAT PETITIONER GMC MADE NO DEMAND TO RESPONDENT SPOUSES FOR THE FULL PAYMENT OF THEIR OBLIGATION CONSIDERING THAT THE LETTER DATED MARCH 31, 1997 OF PETITIONER GMC TO RESPONDENT SPOUSES IS TANTAMOUNT TO A FINAL DEMAND TO PAY, THEREFORE IT DEPARTED FROM THE ACCEPTED AND USUAL COURSE OF JUDICIAL PROCEEDINGS. HELD: In Diamonon v. Department of Labor and Employment, [20] We explained that an appellate court has a broad discretionary power in waiving the lack of assignment of errors in the following instances:

8. GMC VS. SPS. RAMOS; JULY 20, 2011 FACTS: General Milling Corporation (GMC) entered into a Growers Contract with spouses Librado and Remedios Ramos (Spouses Ramos). Under the contract, GMC was to supply broiler chickens for the spouses to raise on their land. To guarantee full compliance, the Growers Contract was accompanied by a Deed of Real Estate Mortgage over a piece of real property

(a) Grounds not assigned as errors but affecting the jurisdiction of the court over the subject matter; (b) Matters not assigned as errors on appeal but are evidently plain or clerical errors within contemplation of law; (c) Matters not assigned as errors on appeal but consideration of which is necessary in arriving at a just decision and complete resolution of the case or to serve the interests of a justice or to avoid dispensing piecemeal justice; (d) Matters not specifically assigned as errors on appeal but raised in the trial court and are matters of record having some bearing on the issue submitted which the parties failed to raise or which the lower court ignored; (e) Matters not assigned as errors on appeal but closely related to an error assigned; (f) Matters not assigned as errors on appeal but upon which the determination of a question properly assigned, is dependent. Paragraph (c) above applies to the instant case, for there would be a just and complete resolution of the appeal if there is a ruling on whether the Spouses Ramos were actually in default of their obligation to GMC. Was there sufficient demand? Wedisagree. There are three requisites necessary for a finding of default. First, the obligation is demandable and liquidated; second, the debtor delays performance; and third, the creditor judicially or extrajudicially requires the debtor's performance. According to the CA, GMC did not make a demand on Spouses Ramos but merely requested them to go to GMC's office to discuss the settlement of their account. In spite of the lack of demand made on the spouses, however, GMC proceeded with the foreclosure proceedings. Neither was there any provision in the Deed of Real Estate Mortgage allowing GMC to extrajudicially foreclose the mortgage without need of demand. Indeed, Article 1169 of the Civil Code on delay requires the following: Those obliged to deliver or to do something incur in delay from the time the obligee judicially or extrajudicially demands from them the fulfilment of their obligation. However, the demand by the creditor shall not be necessary in order that delay may exist: (1) When the obligation or the law expressly so declares; x x x As the contract in the instant case carries no such provision on demand not being necessary for delay to exist, We agree with the appellate court that GMC should have first made a demand

on the spouses before proceeding to foreclose the real estate mortgage. Development Bank of the Philippines v. Licuanan finds application to the instant case: The issue of whether demand was made before the foreclosure was effected is essential. If demand was made and duly received by the respondents and the latter still did not pay, then they were already in default and foreclosure was proper. However, if demand was not made, then the loans had not yet become due and demandable. This meant that respondents had not defaulted in their payments and the foreclosure by petitioner was premature. Foreclosure is valid only when the debtor is in default in the payment of his obligation.

9. LILY LIM VS. KOU CO PING; AUGUST 23, 2012 Principle: A single act or omission that cause damage to an offended party may gave rise to two separate civil liabilities on the part of the offender (1)civil liability ex delicto, that is, civil liability arising from the criminal offense under Article 100 of the Revised Penal Code and (2) independent civil liability, that is civil liability that may be pursued independently of the criminal proceedings. The independent civil liability may be based on an obligation not arising from the act or omission complained of as felony. It may also be based on an act or omission that may constitute felony but, nevertheless, treated independently from the criminal action by specific provision of the Article 33 of the Civil Code. FACTS: FR Cement Corporation issued several withdrawal authorities for the account of cement dealers and traders, Fil-Cement and Tiger bilt. Each withdrawal authority contained provision that it is valid for six months from its date of issuance, unless revoked by FRCC Marketing Department .Filcement and Tigerbilt sold their withdrawal authorities to Co. On February Co then sold these withdrawal authorities to Lim. Using the withdrawal authorities Lim withdrew cement bags from FRCC on a staggered basis. Sometime in April 1999, FRCC did not allow Lim to withdraw the remaining bags covered by the withdrawal authorities. Lim clarified the matter with Co and administrative manager of FilCement, who explained that the plant implemented a price increase and would only release the goods once Lim pays the price difference or agrees to receive lesser quantity of cement. Lim filed case of Estafa through Misappropriation or Conversion against Co. The Regional Trial Court acquitted Co. After the trial on the civil aspect of the criminal case the court also found Co not civilly liable. Lim sought a reconsideration which the regional trial Court denied. On March 14, 2005 Lim filed her notice of appeal on the civil aspect of the criminal case. On April 19, 2005 Lim filed a complaint for specific performance and damages before the RTC.

ISSUE: Whether or not there is no forum shopping for a private complainant to pursue a civil complaint for specific performance and damages while appealing the judgment on the civil aspect of a criminal case for estafa? HELD: A single act or omission that cause damage to an offended party may gave rise to two separate civil liabilities on the part of the offender (1)civil liability ex delicto, that is, civil liability arising from the criminal offense under Article 100 of the Revised Penal Code and (2) independent civil liability, that is civil liability that may be pursued independently of the criminal proceedings. The independent civil liability may be based on an obligation not arising from the act or omission complained of as felony. It may also be based on an act or omission that may constitute felony but, nevertheless, treated independently from the criminal action by specific provision of the Article 33 of the Civil Code. Because of the distinct and independent nature of the two kinds of civil liabilities, jurisprudence holds that the offended party may pursue two types of civil liabilities simultaneously or cumulatively, without offending the rules on forum shopping, litis pendentia or res judicata. The criminal cases of estafa are based on culpa criminal while the civil action for collection is anchored on culpa contractual. The first action is clearly a civil action ex delicto, it having been instituted together with criminal action. On the other hand, the second action, judging by the allegations contained in the complaint, is a civil action arising from contractual obligation and fortuitous conduct. The Civil Case involves only the obligation arising from contract and from tort, whereas the appeal in the estafa case involves only the civil obligations of Co arising from the offense charged. 16. AGUILAR VS. CITY TRUST FINANCE CORP. Facts: Sometime in May 1992, Josephine Aguilar (Josephine) canvassed, via telephone, prices of cars from different car dealers listed in the yellow pages of the Philippine Long Distance Telephone directory. On May 23, 1992, World Cars, Inc. (World Cars) sent its representative Joselito Perez (Perez) and Vangie Tayag (Vangie) to the Aguilar residence in New Manila, Quezon City bringing with them calling cards, brochures and price list for different car models, among other things. The two representatives discussed with Josephine the advantages and disadvantages of the different models, their prices and terms of payment. Josephine having decided to purchase a white 1992 Nissan California at the agreed price of P370,000.00, payable in 90 days, Perez and Vangie repaired to the Aguilar residence on May 30, 1992, bringing with them a white 1992 Nissan California and the documents bearing on the sale.

As(the Aguilars) were being made to sign by the two representatives a promissory note, chattel mortgage, disclosures and other documents the dates of which were left blank and which showed that they would still be obliged to pay on installment in 12 months for the car even if checks in full payment thereof in 90 days were to be issued, the two replied that it was only for formality, for in case the checks were not cleared, the documents would take effect, otherwise they would be cancelled. The Aguilars did sign the promissory note binding them to be jointly and severally liable to World Cars. By Josephines claim, at the time she and her husband signed the promissory note, its date, May 30, 1992, and the due date of the monthly amortization which was agreed to be every 3rd day of each month starting July 1992 were not reflected therein. The Aguilars did execute too a chattel mortgage in favor of World Cars which embodied a deed of assignment in favor of Citytrust Finance Corporation (Citytrust). the date May 30, 1992 appearing in the chattel mortgage cum deed of assignment was not yet filled up at the time she and her husband signed it. After the Aguilars signing of the documents, Perez asked Josephine to make the check payments payable to him, prompting her to call up Perezs boss, a certain Lily Paloma, to inquire whether Perez could collect payment to which Lily replied in the affirmative, the latter advising her to just secure a receipt. Josephine thus issued four Far East Bank and Trust Company (FEBTC) checks. Three checks were made payable to Perez. The other one was made payable to World Cars represented payment of the premium on the car insurance. In mid-June of 1992, Perez and Vangie went back to the Aguilar residence requesting that the two checks issued to Perez be cancelled and that two be issued in replacement thereof, to be made payable to Sunny Motors, which appears to be a sales outlet of World Cars, for processing fee of the documents, and the other to be again made payable to Perez. Josephine obliged and accordingly issued the said checks. No official receipt for the checks having been issued to Josephine, she warned Perez that if she did not get any by the end of July 1992, she would request for stop payment of the last check she issued in his name. The clearing of one of the checks having been stopped on Josephines advice, Perez repaired to the Aguilar residence, asking the reason therefor. On being informed by Josephine of the reason, Perez explained that receipts were in Bulacan where the main office of World Cars is, and he had no time to go there owing to its distance. Perez then advised Josephine that if she did not issue another check to replace the check that was stopped the 12-month

installment term of payment under the documents she and her husband signed would take effect. Not wanting to be bound by the 12-month installment term, Josephine issued the check payable to Perez who issued her Sunny Motor Sales Provisional Receipt In September 1992, Josephine received a letter dated August 20, 1992 from Ana Marie Caber (Ana Marie), Account Specialist of Citytrust, advising her that as of August 20, 1992, her overdue account with it in connection with the purchase of the car had amounted to P1,045.39 inclusive of past due charges. Josephine at once informed Ana Marie that she had fully paid the car to which Ana Marie replied that maybe not all of the papers have been processed yet, hence, she advised Josephine not to worry about it. In December 1992, Josephine received another letter dated December 9, 1992 from Citytrust advising her that her account had been, as of December 9, 1992, overdue inclusive of unpaid installments plus accumulated penalty charges; and that if she failed to arrange for another payment scheme, her account would be referred to its legal counsel for collection. Josephine again called Ana Marie inquiring what was going on and the latter replied that no payment for the car had been received. Josephine also called up World Cars and spoke to its Vice-President, a certain Domondon, who informed her that based on company records, the last payment had not been received. The spouses Aguilar thus filed a complaint for annulment of chattel mortgage plus damages against Citytrust and World Cars before the Regional Trial Court (RTC) of Quezon City. In its Answer, Citytrust disclaimed knowledge of the alleged prior arrangement and the alleged subsequent payments made by the Aguilars to World Cars. And it claimed that it accepted the endorsement and assignment of the promissory note and chattel mortgage in good faith, relying on the terms and conditions thereof; and that assuming that the Aguilars claim were true, World Cars appeared to have violated the terms and conditions of the Receivables Financing Agreement (RFA) it executed with it In its Answer with Counterclaim, World Cars claimed that, among other things, it received only the check in the amount of P148,000.00 (Check No. 112703 payable to Perez) as downpayment for the car; and that the Aguilars defaulted in the payment of their monthly amortizations to Citytrust, and it should not be held accountable for the personal and unilateral obligations of the Aguilars to Citytrust.

RTC found Perez to be an agent of World Cars, hence, an extension of its personality as far as the sale of the car to the Aguilars was concerned. The trial court further found that Perez was authorized to receive payment for the car, hence, all payments made to him for the purchase of the car were payments made to his principal, World Cars; and that the Aguilars had no intention to be bound by the promissory note which they signed in favor of World Cars or its assignee nor by the terms of the Chattel Mortgage, the conforme in the undated Letter (Notice of Assignment) of World Cars and the Disclosure Statement of Loan/Credit Transaction having been predicated on the validity of the promissory note. Moreover, the trial court held that the fact that on May 30, 1992, the same date of the promissory note, Josephine issued three checks to fully cover the purchase price of the car (the fourth represented payment of insurance premium), the last of which was still to mature on July 30, 1992, proves that the Aguilars signed the promissory note without intending to be bound by its terms. In fine, the trial court held that the Aguilars had paid World Cars the full purchase price of the car, and Citytrust as the assignee of World Cars had no right to collect from them the amount stated in the Chattel Mortgage cum Deed of Assignment which is simulated and, therefore, void, following Art. 1346 of the Civil Code. On appeal, the appellate court modified that of the trial court.Hence, the present separate petitions of the Aguilars and World Cars. Held: Clearly, Perez was the agent of World Cars and was duly authorized to accept payment for the car. Josephines testimony that before issuing the checks in the name of Perez, she verified from his supervisor and the latter confirmed Perez authority to receive payment remains unrefuted by World Cars. In fact, World Cars admitted in its Answer with Counterclaim that [w]hat was actually paid [by the Aguilars] and received by [it] was [Josephines] check in the amount of P148,000.00 as downpayment for the said car. Parenthetically, as earlier stated, when Josephine spoke to World Cars Vice President Domondon, the latter informed her that the last payment had not been received. This information of Domondon does not jibe with the claim of World Cars that it received only Josephines first check in the amount of P148,000.00 as downpayment. Since the Aguilars payment to Perez is deemed payment to World Cars, the promissory note, chattel mortgage and other accessory documents they executed which were to take effect only in the event the checks would be dishonored were deemed nullified, all the checks having been cleared. Since the condition for the instruments to become effective was fulfilled, the obligation on

the part of the Aguilars to be bound thereby did not arise and World Cars did not thus acquire rights thereunder following Art. 1181 of the Civil Code which provides: ARTICLE 1181. In conditional obligations, the acquisition of rights, as well as the extinguishment or loss of those already acquired, shall depend upon the happening of the event which constitutes the condition. (Emphasis supplied) As no right against the Aguilars was acquired by World Cars under the promissory note and chattel mortgage, it had nothing to assign to Citytrust. Consequently, Citytrust cannot enforce the instruments against the Aguilars, for an assignee cannot acquire greater rights than those pertaining to the assignor. At all events, the Aguilars having fully paid the car before they became aware of the assignment of the instruments to Citytrust when they received notice thereof by Citytrust, they were released of their obligation thereunder. The Civil Code so provides: ARTICLE 1626. The debtor who, before having knowledge of the assignment, pays his creditor, shall be released from the obligation. While Citytrust cannot enforce the instruments against the Aguilars, since under the RFA, World Cars, its successors, and assigns, guaranteed that it has full right and legal authority to make the assignment or discounting; that the installment papers so discounted by virtue of this agreement, are subsisting, valid, enforceable and in all respects what they purport to be; that the papers contain the entire agreement between the customers and [World Cars]; x x x that it has absolute and good title to such contracts and the personalties covered thereby and the right to sell and transfer the same in favor of Citytrust.

17. FLORENTINO VS. SUPERVALUE FACTS:Petitioner is doing business under the business name Empanada Royale, a sole proprietorship engaged in the retail of empanada with outlets in different malls and business establishments within Metro Manila. Respondent, on the other hand, is a domestic corporation engaged in the business of leasing stalls and commercial store spaces located inside SM Malls found all throughout the country. On 8 March 1999, petitioner and respondent executed three Contracts of Lease containing similar terms and conditions over the cart-type stalls at SM North Edsa and SMSouthmall and a store space at SM Megamall. The term of each contract is for a period of four months and may be renewed upon agreement of the parties. Upon the expiration of the original Contracts of Lease, the parties agreed to renew the same by extending their terms until 31 March 2000.

Before the expiration of said Contracts of Lease, or on 4 February 2000, petitioner received two letters from the respondent, both dated 14 January 2000, transmitted through facsimile transmissions. In the first letter, petitioner was charged with violating Section 8 of the Contracts of Lease Respondent also charged petitioner with selling a new variety of empanada called mini-embutido and of increasing the price of her merchandise without the prior approval of the respondent. Respondent observed that petitioner was frequently closing earlier than the usual mall hours, either because of non-delivery or delay in the delivery of stocks to her outlets, again in violation of the terms of the contract. A stern warning was thus given to petitioner to refrain from committing similar infractions in the future in order to avoid the termination of the lease contract. Respondent informed the petitioner that it will no longer renew the Contracts of Lease for the three outlets, upon their expiration Petitioner explained that the miniembutido is not a new variety of empanada but had similar fillings, taste and ingredients as those of pork empanada; only, its size was reduced in order to make it more affordable to the buyers. Such explanation notwithstanding, respondent still refused to renew its Contracts of Lease with the petitioner. To the contrary, respondent took possession of the store space in SM Megamall and confiscated the equipment and personal belongings of the petitioner found therein after the expiration of the lease contract. An action for Specific Performance, Sum of Money and Damages was filed by the petitioner against the respondent before the RTC of Makati. In her Complaint petitioner alleged that the respondent made verbal representations that the Contracts of Lease will be renewed from time to time and, through the said representations, the petitioner was induced to introduce improvements upon the store space at SM Megamall in the sum of P200,000.00, only to find out a year later that the respondent will no longer renew her lease contracts for all three outlets. Petitioner alleged that the respondent, without justifiable cause and without previous demand, refused to return the security deposits. Petitioner claimed that the respondent seized her equipment and personal belongings found inside the store space in SM Megamall after the lease contract for the said outlet expired and despite repeated written demands from the petitioner, respondent continuously refused to return the seized items. The RTC rendered a Judgment in favor of the petitioner and found that the physical takeover by the respondent of the leased premises and the seizure of petitioners equipment and personal belongings without prior notice were illegal. Aggrieved, the respondent appealed the adverse RTC Judgment to the Court of Appeals. The Court of Appeals modified the RTC Judgment and found that the respondent was justified in forfeiting the security deposits and was not liable to reimburse the petitioner for the

value of the improvements introduced in the leased premises. Hence, this instant Petition for Review on Certiorari filed by the petitioner assailing the Court of Appeals Decision. ISSUES: I. Whether or not the respondent is liable to return the security deposits to the petitions. II. Whether or not the respondent is liable to reimburse the petitioner for the sum of the improvements she introduced in the leased premises. Held: I. The appellate court, in finding that the respondent is authorized to forfeit the security deposits, relied on the provisions of Sections 5 and 18 of the Contract of Lease, to wit: Section 5. DEPOSIT. The LESSEE shall make a cash deposit in the sum of SIXTY THOUSAND PESOS (P60,000.00) equivalent to three (3) months rent as security for the full and faithful performance to each and every term, provision, covenant and condition of this lease and not as a pre-payment of rent. Section 18. TERMINATION. Any breach, non-performance or non-observance of the terms and conditions herein provided shall constitute default which shall be sufficient ground to terminate this lease, its extension or renewal. and LESSOR shall forfeit in its favor the deposit tendered without prejudice to any such other appropriate action as may be legally authorized. Since it was already established by the trial court that the petitioner was guilty of committing several breaches of contract, the Court of Appeals decreed that she cannot therefore rightfully demand the return of the security deposits for the same are deemed forfeited by reason of evident contractual violations. It is undisputed that the above-quoted provision found in all Contracts of Lease is in the nature of a penal clause to ensure petitioners faithful compliance with the terms and conditions of the said contracts. A penal clause is an accessory undertaking to assume greater liability in case of breach. It is attached to an obligation in order to insure performance and has a double function: (1) to provide for liquidated damages, and (2) to strengthen the coercive force of the obligation by the threat of greater responsibility in the event of breach. The obligor would then be bound to pay the stipulated indemnity without the necessity of proof of the existence and the measure of damages caused by the breach. Article 1226 of the Civil Code states: Art. 1226. In obligations with a penal clause, the penalty shall substitute the indemnity for damages and the payment of interests in case of noncompliance, if there is no stipulation to the contrary. Nevertheless, damages shall be paid if the obligor refuses to pay the penalty or is guilty of fraud in the fulfillment of the obligation. The penalty may be enforced only when it is demandable in accordance with the provisions of this Code.

As a general rule, courts are not at liberty to ignore the freedoms of the parties to agree on such terms and conditions as they see fit as long as they are not contrary to law, morals, good customs, public order or public policy. Nevertheless, courts may equitably reduce a stipulated penalty in the contracts in two instances: (1) if the principal obligation has been partly or irregularly complied with; and (2) even if there has been no compliance if the penalty is iniquitous or unconscionable in accordance with Article 1229 of the Civil Code which clearly provides: Art. 1229. The judge shall equitably reduce the penalty when the principal obligation has been partly or irregularly complied with by the debtor. Even if there has been no performance, the penalty may also be reduced by the courts if it is iniquitous or unconscionable. In ascertaining whether the penalty is unconscionable or not, this court set out the following standard in Ligutan v. Court of Appeals, to wit: The question of whether a penalty is reasonable or iniquitous can be partly subjective and partly objective. Its resolution would depend on such factor as, but not necessarily confined to, the type, extent and purpose of the penalty, the nature of the obligation, the mode of breach and its consequences, the supervening realities, the standing and relationship of the parties, and the like, the application of which, by and large, is addressed to the sound discretion of the court. xxx. In the instant case, the forfeiture of the entire amount of the security deposits was excessive and unconscionable considering that the gravity of the breaches committed by the petitioner is not of such degree that the respondent was unduly prejudiced thereby. It is but equitable therefore to reduce the penalty of the petitioner to 50% of the total amount of security deposits. The forfeiture of the entire sum of P192,000.00 is clearly a usurious and iniquitous penalty for the transgressions committed by the petitioner. The respondent is therefore under the obligation to return the 50% of P192,000.00 to the petitioner. II. As to the liability of the respondent to reimburse the petitioner for one-half of the expenses incurred for the improvements on the leased store space at SMMegamall. The provisions in the Contract of Lease mandates that before the petitioner can introduce any improvement on the leased premises, she should first obtain respondents consent. In the case at bar, it was not shown that petitioner previously secured the consent of the respondent before she made the improvements on the leased space in SM Megamall. It was not even alleged by the petitioner that she obtained such consent or she at least attempted to secure the same. On the other hand, the petitioner asserted that respondent allegedly misrepresented to her that it would renew the terms of the contracts from time to time after their expirations, and that the petitioner was so induced thereby that she expended the sum of P200,000.00 for the improvement of the store space leased.

Moreover, it is consonant with human experience that lessees, before occupying the leased premises, especially store spaces located inside malls and big commercial establishments, would renovate the place and introduce improvements thereon according to the needs and nature of their business and in harmony with their trademark designs as part of their marketing ploy to attract customers. Certainly, no inducement or misrepresentation from the lessor is necessary for this purpose, for it is not only a matter of necessity that a lessee should re-design its place of business but a business strategy as well. In ruling that the respondent is liable to reimburse petitioner one half of the amount of improvements made on the leased store space should it choose to appropriate the same, the RTC relied on the provision of Article 1678 of the Civil Code. While it is true that under the abovequoted provision of the Civil Code, the lessor is under the obligation to pay the lessee one-half of the value of the improvements made should the lessor choose to appropriate the improvements, Article 1678 however should be read together with Article 448 and Article 546 of the same statute. Thus, to be entitled to reimbursement for improvements introduced on the property, the petitioner must be considered a builder in good faith. Further, Articles 448 and 546 of the Civil Code, which allow full reimbursement of useful improvements and retention of the premises until reimbursement is made, apply only to a possessor in good faith, i.e.,one who builds on land with the belief that he is the owner thereof. A builder in good faith is one who is unaware of any flaw in his title to the land at the time he builds on it. In this case, the petitioner cannot claim that she was not aware of any flaw in her title or was under the belief that she is the owner of the subject premises for it is a settled fact that she is merely a lessee thereof. Since petitioners interest in the store space is merely that of the lessee under the lease contract, she cannot therefore be considered a builder in good faith. Consequently, respondent may appropriate the improvements introduced on the leased premises without any obligation to reimburse the petitioner for the sum expended. 18. Gonzales vs. Lim 19. JEANETTE D. MOLINO VS. SECURITY DINER INTL. CORP. FACTS: The Security Diners International Corporation (SDIC) operates a credit card system under the name of Diners Club through which it extends credit accommodation to its cardholders for the purchase of goods and payment of services from its member establishments to be reimbursed later on by the cardholder upon proper billing. There are two types of credit cards issued: one, the Regular (Local) Card which entitles the cardholder to purchase goods and pay services from member establishments in an amount not exceeding P10,000.00; and two, the Diamond (Edition) Card which entitles the cardholder to purchase goods

and pay services from member establishments in unlimited amounts. One of the requirements for the issuance of either of these cards is that an applicant should have a surety. On July 24, 1987, Danilo A. Alto applied for a Regular (Local) Card with SDIC. He got as his surety his own sister-in-law Jeanette Molino Alto. On the basis of the completed and signed Application Form and Surety Undertaking, the SDIC issued to Danilo Diners Card The latter used this card and initially paid his obligations to SDIC. On February 8, 1988, Danilo wrote SDIC a letter requesting it to upgrade his Regular (Local) Diners Club Card to a Diamond (Edition) one. As a requirement of SDIC, Danilo secured from Jeanette her approval. The latter obliged and so on March 2, 1988, she signed a Note which states: This certifies that I, Jeanette D. Molino, approve of the request of Danilo and Gloria Alto with Card No. 3651-203216-0006 and 3651203412-5007 to upgrade their card from regular to diamond edition. Danilos request was granted and he was issued a Diamond (Edition) Diners Club Card. He used this card and made purchases from member establishments. On October 1, 1988 Danilo had incurred credit charged plus appropriate interest and service charges in the aggregate amount of P166,408.31. He defaulted in the payment of this obligation. SDIC demanded of Danilo and Jeanette to pay said obligation but they did not pay. So, SDIC filed an action to collect said indebtedness against Danilo and Jeanette. The trial court rendered a decision dismissing the complaint for failure of respondent to prove its case by a preponderance of the evidence. It found that while petitioner clearly bound herself as surety under the terms of Danilo Altos Regular Diners Club Card, there was no evidence that after the card had been upgraded to Diamond (Edition) petitioner consented or agreed to act as surety for Danilo. The trial court went on further to state that petitioner was not liable for any amount, not even for P10,000.00 which is the maximum credit limit for Regular Diners Club Cards, since at the time of the upgrading Danilo had no outstanding credit card debts.[6] The Court of Appeals found contrary to the lower court, and declared that the Surety Undertaking signed by petitioner when Danilo Alto first applied for a Regular Diners Club Card clearly applied to the unpaid purchases of Danilo Alto under the Diamond card. Petitioners motion for reconsideration of the above decision was denied Hence, the petition. ISSUES: 1. Whether petitioner is liable as surety under the Diamond card revolves around the effect of the upgrading by Danilo Alto of his card. 2. Was the upgrading a novation of the original agreement governing the use of Danilo Altos first credit card, as to extinguish that obligation and the Surety Undertaking which was simply accessory to it?

HELD: Petitioner posits that she did not expressly give her consent to be bound as surety under the upgraded card. She points out that the note she signed, registering her approval of the request of Danilo Alto to upgrade his card, renders the Surety Undertaking she signed under the terms of the previous card without probative value, immaterial and irrelevant as it covers only the liability of the surety in the use of the regular credit card by the principal debtor She argues further that because the principal debtor, Danilo Alto, was not held liable, having been dropped as a defendant, she could not be said to have incurred liability as surety. The petition is devoid of merit. Novation, as a mode of extinguishing obligations, may be done in two ways: by explicit declaration, or by material incompatibility (implied novation). As we stated in Fortune Motors vs. Court of Appeals, supra: xxx The test of incompatibility is whether the two obligations can stand together, each one having its independent existence. If they cannot, they are incompatible and the latter obligation novates the first. Novation must be established either by the express terms of the new agreement or by the acts of the parties clearly demonstrating the intent to dissolve the old obligation as a consideration for the emergence of the new one. The will to novate, whether totally or partially, must appear by express agreement of the parties, or by their acts which are too clear or unequivocal to be mistaken. There is no doubt that the upgrading was a novation of the original agreement covering the first credit card issued to Danilo Alto, basically since it was committed with the intent of cancelling and replacing the said card. However, the novation did not serve to release petitioner from her surety obligations because in the Surety Undertaking she expressly waived discharge in case of change or novation in the agreement governing the use of the first credit card. The nature and extent of petitioners obligations are set out in clear and unmistakable terms in the Surety Undertaking. Thus: 1. She bound herself jointly and severally with Danilo Alto to pay SDIC all obligations and charges in the use of the Diners Club Card, including fees, interest, attorneys fees, and costs; 2. She declared that any change or novation in the Agreement or any extension of time granted by SECURITY DINERS to pay such obligation, charges, and fees, shall not release (her) from this Surety Undertaking; 3. (S)aid undertaking is a continuous one and shall subsist and bind (her) until all such obligations, charges and fees have been fully paid and satisfied; and 4. The indication of a credit limit to the cardholder shall not relieve (her) of liability for charges and all other amounts voluntarily incurred by the cardholder in excess of said credit limit. We cannot give any additional meaning to the plain language of the subject undertaking. The extent of a suretys liability is determined by the language of the suretyship contract or bond

itself. Article 1370 of the Civil Code provides: If the terms of a contract are clear and leave no doubt upon the intention of the contracting parties, the literal meaning of its stipulations shall control. As a last-ditch measure, petitioner asseverates that, being merely a surety, a pronouncement should first be made declaring the principal debtor liable before she herself can be proceeded against. The argument, which is hinged upon the dropping of Danilo as defendant in the complaint, is bereft of merit. The Surety Undertaking expressly provides that petitioners liability is solidary. A surety is considered in law as being the same party as the debtor in relation to whatever is adjudged touching the obligation of the latter, and their liabilities are interwoven as to be inseparable. Although the contract of a surety is in essence secondary only to a valid principal obligation, his liability to the creditor is direct, primary and absolute; he becomes liable for the debt and duty of another although he possesses no direct or personal interest over the obligations nor does he receive any benefit therefrom. There being no question that Danilo Alto incurred debts of P166,408.31 in credit card advances, an obligation shared solidarily by petitioner, respondent was certainly within its rights to proceed singly against petitioner, as surety and solidary debtor, without prejudice to any action it may later file against Danilo Alto, until the obligation is fully satisfied. This is so provided under Article 1216 of the Civil Code: The creditor may proceed against any one of the solidary debtors or some or all of them simultaneously. The demand made against one of them shall not be an obstacle to those which may be subsequently directed against the others, so long as the debt has not been fully collected. Petitioner is a graduate of business administration, and possesses considerable work experience in several banks. She knew the full import and consequence of the Surety Undertaking that she executed. She had the option to withdraw her suretyship when Danilo upgraded his card to one that permitted unlimited purchases, but instead she approved the upgrading. While we commiserate in the financial predicament she now faces, it is also evident that the liability she incurred is only the legitimate consequence of an undertaking that she freely and intelligently obliged to. Prospective sureties to credit card applicants would be well-advised to study carefully the terms of the agreements prepared by the credit card companies before giving their consent, and pay heed to stipulations that could lead to onerous effects, like in the present case where the credit applied for was limitless. At the same time, it bears articulating that although courts in appropriate cases may equitably reduce the award for penalty as provided under such suretyship agreements if the same is iniquitous or unconscionable, we are unable to give relief to petitioner by way of reducing the amount of the principal liability as surety under the circumstances of this case.

20. FILINVEST LAND VS. CA FACTS: Filinvest Land, Inc. (FILINVEST, for brevity), a corporation engaged in the development and sale of residential subdivisions, awarded to defendant Pacific Equipment Corporation (PACIFIC, for brevity) the development of its residential subdivisions consisting of two (2) parcels of land located at Payatas, Quezon City, the terms and conditions of which are contained in an Agreement. To guarantee its faithful compliance and pursuant to the agreement, defendant Pacific posted two (2) Surety Bonds in favor of plaintiff which were issued by defendant Philippine American General Insurance (PHILAMGEN, for brevity). Notwithstanding three extensions granted by plaintiff to defendant Pacific, the latter failed to finish the contracted works. On 16 October 1979, plaintiff wrote defendant Pacific advising the latter of its intention to takeover the project and to hold said defendant liable for all damages which it had incurred and will incur to finish the project. On 26 October 1979, plaintiff submitted its claim against defendant Philamgen under its performance and guarantee bond but Philamgen refused to acknowledge its liability for the simple reason that its principal, defendant Pacific, refused to acknowledge liability therefore. Hence, this action. In defense, defendant Pacific claims that its failure to finish the contracted work was due to inclement weather and the fact that several items of finished work and change order which plaintiff refused to accept and pay for caused the disruption of work. Since the contractual relation between plaintiff and defendant Pacific created a reciprocal obligation, the failure of the plaintiff to pay its progressing bills estops it from demanding fulfillment of what is incumbent upon defendant Pacific. The acquiescence by plaintiff in granting three extensions to defendant Pacific is likewise a waiver of the formers right to cla im any damages for the delay. Further, the unilateral and voluntary action of plaintiff in preventing defendant Pacific from completing the work has relieved the latter from the obligation of completing the same. On the other hand, Philamgen contends that the various amendments made on the principal contract and the deviations in the implementation thereof which were resorted to by plaintiff and co-defendant Pacific without its (defendant Philamgens) written consent thereto, have automatically released the latter from any or all liability within the purview and contemplation of the coverage of the surety bonds it has issued. Upon agreement of the parties to appoint a commissioner to assist the court in resolving the issues confronting the parties, an order was issued naming Architect Antonio Dimalanta as Court Commissioner to conduct an ocular inspection and to determine the amount of work accomplished by the

defendant Pacific and the amount of work done by plaintiff to complete the project. According to the Commissioner, no better basis in the work done or undone could be made other than the contract billings and payments made by both parties as there was no proper procedure followed in terminating the contract, lack of inventory of work accomplished, absence of appropriate record of work progress (logbook) and inadequate documentation and system of construction management. Based on the billings of defendant Pacific and the payments made by plaintiff, the work accomplished by the former amounted to P11,788,282.40 with the exception of the last billing (which was not acted upon or processed by plaintiff) in the amount of P844,396.42. The total amount of work left to be accomplished by plaintiff was based on the original contract amount less value of work accomplished by defendant Pacific in the amount of P681,717.58 (12,470,000-11,788,282.42). As regards the alleged repairs made by plaintiff on the construction deficiencies, the Court Commissioner found no sufficient basis to justify the same. On the other hand, he found the additional work done by defendant Pacific in the amount of P477,000.00 to be in order. On the basis of the commissioners report, the trial court dismissed Filinvests complaint It held: The unpaid balance due defendant therefore is P1,939,191.67. To this amount should be added additional work performed by defendant at plaintiffs instance in the sum ofP475,000.00. And from this total of P2,414,191.67 should be deducted the sum of P532,324.01 which is the cost to repair the deficiency or defect in the work done by defendant. The commissioner arrived at the figure of P532,324.01 by getting the average between plaintiffs claim of P758,080.37 and defendants allegation of P306,567.67. The amount due to defendant per the commissioners report is therefore P1,881,867.66. Although the said amount of P1,881,867.66 would be owing to defendant Pacific, the fact remains that said defendant was in delay since April 25, 1979. The third extension agreement of September 15, 1979 is very clear in this regard. The pertinent paragraphs read: a) You will complete all the unfinished works not later than Oct. 15, 1979. It is agreed and understood that this date shall DEFINITELY be the LAST and FINAL extension & there will be no further extension for any cause whatsoever. b) We are willing to waive all penalties for delay which have accrued since April 25, 1979 provided that you are able to finish all the items of the contracted works as per revised CPM; otherwise you shall continue to be liable to pay the penalty up to the time that all the contracted

works shall have been actually finished, in addition to other damages which we may suffer by reason of the delays incurred. Defendant Pacific therefore became liable for delay when it did not finish the project on the date agreed on October 15, 1979. The court however, finds the claim of P3,990,000.00 in the form of penalty by reason of delay (P15,000.00/day from April 25, 1979 to Jan. 15, 1980) to be excessive. A forfeiture of the amount due defendant from plaintiff appears to be a reasonable penalty for the delay in finishing the project considering the amount of work already performed and the fact that plaintiff consented to three prior extensions. The Court of Appeals, finding no reversible error in the appealed decision, affirmed the same. Hence, the instant petition. ISSUE:Whether or not the liquidated damages agreed upon by the parties should be reduced considering that: (a) time is of the essence of the contract; (b) the liquidated damages was fixed by the parties to serve not only as penalty in case Pecorp fails to fulfill its obligation on time, but also as indemnity for actual and anticipated damages which Filinvest may suffer by reason of such failure; and (c) the total liquidated damages sought is only 32% of the total contract price, and the same was freely and voluntarily agreed upon by the parties. HELD: Filinvest argues that the penalty in its entirety should be respected as it was a product of mutual agreement and it represents only 32% of the P12,470,000.00 contract price, thus, not shocking and unconscionable under the circumstances. Moreover, the penalty was fixed to provide for actual or anticipated liquidated damages and not simply to ensure compliance with the terms of the contract; hence, courts should be slow in exercising the authority conferred by Art. 1229 of the Civil Code. We are not swayed. There is no question that the penalty of P15,000.00 per day of delay was mutually agreed upon by the parties and that the same is sanctioned by law. A penal clause is an accessory undertaking to assume greater liability in case of breach. It is attached to an obligation in order to insure performance and has a double function: (1) to provide for liquidated damages, and (2) to strengthen the coercive force of the obligation by the threat of greater responsibility in the event of breach. Article 1226 of the Civil Code states: Art. 1226. In obligations with a penal clause, the penalty shall substitute the indemnity for damages and the payment of interests in case of noncompliance, if there is no stipulation to the contrary. Nevertheless, damages shall be paid if the obligor refuses to pay the penalty or is guilty of fraud in the fulfillment of the obligation.

The penalty may be enforced only when it is demandable in accordance with the provisions of this Code. As a general rule, courts are not at liberty to ignore the freedom of the parties to agree on such terms and conditions as they see fit as long as they are not contrary to law, morals, good customs, public order or public policy. Nevertheless, courts may equitably reduce a stipulated penalty in the contract in two instances: (1) if the principal obligation has been partly or irregularly complied; and (2) even if there has been no compliance if the penalty is iniquitous or unconscionable in accordance with Article 1229 of the Civil Code which provides: Art. 1229. The judge shall equitably reduce the penalty when the principal obligation has been partly or irregularly complied with by the debtor. Even if there has been no performance, the penalty may also be reduced by the courts if it is iniquitous or unconscionable. In herein case, the trial court ruled that the penalty charge for delay pegged at P15,000.00 per day of delay in the aggregate amount of P3,990,000.00 -- was excessive and accordingly reduced it to P1,881,867.66 considering the amount of work already performed and the fact that [Filinvest] consented to three (3) prior extensions. The Court of Appeals affirmed the ruling but added as well that the penalty was unconscionable as the construction was already not far from completion. This Court finds no fault in the cost estimates of the court-appointed commissioner as to the cost to repair deficiency or defect in the works which was based on the average between plaintiffs claim of P758,080.37 and defendants P306,567.67 considering the following factors: that plaintiff did not follow the standard practice of joint survey upon take over to establish work already accomplished, balance of work per contract still to be done, and estimate and inventory of repair (Exhibit H). As for the cost to finish the remaining works, plaintiffs estimates were brushed aside by the commissioner on the reasoned observation that plaintiffs cost estimate for work (to be) done by the plaintiff to complete the project is based on a contract awarded to another contractor (JPT), the nature and magnitude of which appears to be inconsistent with the basic contract between defendant PECORP and plaintiff FILINVEST. We are hamstrung to reverse the Court of Appeals as it is rudimentary that the application of Article 1229 is essentially addressed to the sound discretion of the court. As it is settled that the project was already 94.53% complete and that Filinvest did agree to extend the period for completion of the project, which extensions Filinvest included in computing the amount of the penalty, the reduction thereof is clearly warranted. Filinvest, however, hammers on the case of Laureano v. Kilayco, decided in 1915, which

cautions courts to distinguish between two kinds of penalty clauses in order to better apply their authority in reducing the amount recoverable. We held therein that: . . . [I]n any case wherein there has been a partial or irregular compliance with the provisions in a contract for special indemnification in the event of failure to comply with its terms, courts will rigidly apply the doctrine of strict construction against the enforcement in its entirety of the indemnification, where it is clear from the terms of the contract that the amount or character of the indemnity is fixed without regard to the probable damages which might be anticipated as a result of a breach of the terms of the contract; or, in other words, where the indemnity provided for is essentially a mere penalty having for its principal object the enforcement of compliance with the contract. But the courts will be slow in exercising the jurisdiction conferred upon them in article 1154 so as to modify the terms of an agreed upon indemnification where it appears that in fixing such indemnification the parties had in mind a fair and reasonable compensation for actual damages anticipated as a result of a breach of the contract, or, in other words, where the principal purpose of the indemnification agreed upon appears to have been to provide for the payment of actual anticipated and liquidated damages rather than the penalization of a breach of the contract. (Emphases supplied) Filinvest contends that the subject penalty clause falls under the second type, i.e., the principal purpose for its inclusion was to provide for payment of actual anticipated and liquidated damages rather than the penalization of a breach of the contract. Thus, Filinvest argues that had Pecorp completed the project on time, it (Filinvest) could have sold the lots sooner and earned its projected income that would have been used for its other projects. Unfortunately for Filinvest, the abovequoted doctrine is inapplicable to herein case. The Supreme Court in Laureano instructed that a distinction between a penalty clause imposed essentially as penalty in case of breach and a penalty clause imposed as indemnity for damages should be made in cases where there has been neither partial nor irregular compliance with the terms of the contract. In cases where there has been partial or irregular compliance, as in this case, there will be no substantial difference between a penalty and liquidated damages insofar as legal results are concerned. The distinction is thus more apparent than real especially in the light of certain provisions of the Civil Code of the Philippines which provides in Articles 2226 and Article 2227 thereof: Art. 2226. Liquidated damages are those agreed upon by the parties to a contract to be paid in case of breach thereof. Art. 2227. Liquidated damages, whether intended as an indemnity or a penalty, shall be equitably reduced if they are iniquitous or unconscionable.

Thus, we lamented in one case that (t)here is no justification for the Civil Code to make an apparent distinction between a penalty and liquidated damages because the settled rule is that there is no difference between penalty and liquidated damages insofar as legal results are concerned and that either may be recovered without the necessity of proving actual damages and both may be reduced when proper. Finally, Filinvest advances the argument that while it may be true that courts may mitigate the amount of liquidated damages agreed upon by the parties on the basis of the extent of the work done, this contemplates a situation where the full amount of damages is payable in case of total breach of contract. In the instant case, as the penalty clause was agreed upon to answer for delay in the completion of the project considering that time is of the essence, the parties thus clearly contemplated the payment of accumulated liquidated damages despite, and precisely because of, partial performance. In effect, it is Filinvests position that the first part of Article 1229 on partial performance should not apply precisely because, in all likelihood, the penalty clause would kick in in situations where Pecorp had already begun work but could not finish it on time, thus, it is being penalized for delay in its completion. The above argument, albeit sound, is insufficient to reverse the ruling of the Court of Appeals. It must be remembered that the Court of Appeals not only held that the penalty should be reduced because there was partial compliance but categorically stated as well that the penalty was unconscionable. Otherwise stated, the Court of Appeals affirmed the reduction of the penalty not simply because there was partial compliance per se on the part of Pecorp with what was incumbent upon it but, more fundamentally, because it deemed the penalty unconscionable in the light of Pecorps 94.53% completion rate. In Ligutan v. Court of Appeals, we pointed out that the question of whether a penalty is reasonable or iniquitous can be partly subjective and partly objective as its resolution would depend on such factors as, but not necessarily confined to, the type, extent and purpose of the penalty, the nature of the obligation, the mode of breach and its consequences, the supervening realities, the standing and relationship of the parties, and the like, the application of which, by and large, is addressed to the sound discretion of the court. In herein case, there has been substantial compliance in good faith on the part of Pecorp which renders unconscionable the application of the full force of the penalty especially if we consider that in 1979 the amount of P15,000.00 as penalty for delay per day was quite steep indeed. Nothing in the records suggests that Pecorps delay in the performance of 5.47% of the contract was due to it having acted negligently or in bad faith. Finally, we factor in

the fact that Filinvest is not free of blame either as it likewise failed to do that which was incumbent upon it, i.e., it failed to pay Pecorp for work actually performed by the latter in the total amount of P1,881,867.66. Thus, all things considered, we find no reversible error in the Court of Appeals exercise of discretion in the instant case. 21. SWAGMAN VS. CA [GR NO. 161135, APRIL 8, 2005] FACTS: Sometime in 1996 and 1997, Swagman through Atty. Infante and Hegerty, its president and vice-president, respectively, obtained from Christian loans evidenced by three promissory notes dated 7 August 1996, 14 March 1997, and 14 July 1997. Each of thepromissory notes is in the amount of US$50,000 payable after three years from its date with an interest of 15% per annum payable every three months. In a letter dated 16 December 1998, Christian informed the petitioner corporation that he was terminating the loansand demanded from the latter payment of said loans. On 2 February 1999, Christian filed with the RTC a complaint for a sum of money and damages against the petitioner corporation, Hegerty, and Atty. Infante. The petitioner corporation, together with its president and vice-president, filed an Answer raising as defenses lack of cause of action. According to them, Christian had no cause of action because the three promissory notes were not yet due and demandable. The trial court ruled that under Section 5 of Rule 10 of the 1997 Rules of Civil Procedure, a complaint which states no cause of action may be cured by evidence presented without objection. Thus, even if the plaintiff had no cause of action at the time he filed the instant complaint, as defendants obligation are not yet due and demandable then, he may nevertheless recover on the first twopromissory notes in view of the introduction of evidence showing that the obligations covered by the two promissory notes are now due and demandable. When the instant case was filed on February 2, 1999, none of the promissory notes was due and demandable, but , the first and the second promissory notes have already matured during the course of the proceeding. Hence, payment is already due. This finding was affirmed in toto by the CA. ISSUE: Whether or not a complaint that lacks a cause of action at the time it was filed be cured by the accrual of a cause of action during the pendency of the case. HELD: No. Cause of action, as defined in Section 2, Rule 2 of the 1997 Rules of Civil Procedure, is the act or omission by which a party violates the right of another. Its essential elements are as follows:

1. A right in favor of the plaintiff by whatever means and under whatever law it arises or is created; 2. An obligation on the part of the named defendant to respect or not to violate such right; and 3. Act or omission on the part of such defendant in violation of the right of the plaintiff or constituting a breach of the obligation of the defendant to the plaintiff for which the latter may maintain an action for recovery of damages or other appropriate relief. It is, thus, only upon the occurrence of the last element that a cause of action arises, giving the plaintiff the right to maintain an action in court for recovery of damages or other appropriate relief. Such interpretation by the trial court and CA of Section 5, Rule 10 of the 1997 Rules of Civil Procedure is erroneous. The curing effect under Section 5 is applicable only if a cause of action in fact exists at the time the complaint is filed, but the complaint is defective for failure to allege the essential facts. Amendments of pleadings are allowed under Rule 10 of the 1997 Rules of Civil Procedure in order that the actual merits of a case may be determined in the most expeditious and inexpensive manner without regard to technicalities and that all other matters included in the case may be determined in a single proceeding, thereby avoiding multiplicity of suits. 22. CAROLYN M. GARCIA VS. RICA MARIE S. THIO, GR NO. 154878, 16 MARCH 2007 FACTS: Respondent Thio received from petitioner Garcia two crossed checks which amount to US$100,000 and US$500,000, respectively, payable to the order of Marilou Santiago. According to petitioner, respondent failed to pay the principal amounts of the loans when they fell due and so she filed a complaint for sum of money and damages with the RTC. Respondent denied that she contracted the two loans and countered that it was Marilou Satiago to whom petitioner lent the money. She claimed she was merely asked y petitioner to give the checks to Santiago. She issued the checks for P76,000 and P20,000 not as payment of interest but to accommodate petitioners request that respondent use her own checks instead of Santiagos. RTC ruled in favor of petitioner. CA reversed RTC and ruled that there was no contract of loan between the parties. ISSUE: (1) Whether or not there was a contract of loan between petitioner and respondent. (2) Who borrowed money from petitioner, the respondent or Marilou Santiago? HELD: (1) The Court held in the affirmative. A loan is a real contract, not consensual, and as such I perfected only upon the delivery of the object of the contract. Upon delivery of the contract of loan (in this case the money received

by the debtor when the checks were encashed) the debtor acquires ownership of such money or loan proceeds and is bound to pay the creditor an equal amount. It is undisputed that the checks were delivered to respondent. (2) However, the checks were crossed and payable not to the order of the respondent but to the order of a certain Marilou Santiago. Delivery is the act by which the res or substance is thereof placed within the actual or constructive possession or control of another. Although respondent did not physically receive the proceeds of the checks, these instruments were placed in her control and possession under an arrangement whereby she actually re-lent the amount to Santiago. Petition granted; judgment and resolution reversed and set aside.

Meanwhile, the transfer of credit from Pacific Bank to the petitioner did not involve an effective novation but an assignment of credit. As such, the petitioner has the right to collect the full value of the credit from the respondent subject to the conditions of the promissory note previously executed.

24. LICAROS v GATMAITAN

23. FAR EAST BANK & TRUST V. DIAZ REALTY INC., G.R. NO. 138588, AUGUST 23, 2001 FACTS: 1. Diaz and Co. obtained a loan from Pacific Banking Corp. in 1974 in the amount of P720,000 at 12% interest p.a. which was increased thereafter. The said loan was secured with a real estate mortgage over two parcels of land owned by Diaz Realty, herein respondent. Subsequently, the loan account was purchased by the petitioner Far East Bank (FEBTC). Two years after, the respondent through its President inquired about its obligation and upon learning of the outstanding obligation, it tendered payment in the form of an Interbank check in the amount of P1,450,000 in order to avoid the further imposition of interests. The payment was with a notation for the full settlement of the obligation. 2. The petitioner accepted the check but it alleged in its defense that it was merely a deposit. When the petitioner refused to release the mortgage, the respondent filed a suit. The lower court ruled that there was a valid tender of payment and ordered the petitioner to cancel the mortgage. Upon appeal, the appellate court affirmed the decision. ISSUE: Whether or not there was a valid tender of payment to extinguish the obligation of the respondent RULING: Yes. Although jurisprudence tells us that a check is not a legal tender and a creditor may validly refuse it, this dictum does not prevent a creditor from accepting a check as payment. Herein, the petitioner accepted the check and the same was cleared. A tender of payment is the definitive act of of offering the creditor what is due him or her, together with the demand that he accepts it. More important is that there must be a concurrence of intent, ability and capability to make good such offer, and must be absolute and must cover the amount due. The acts of the respondent manifest its intent, ability and capability. Hence, there was a valid tender of payment.

FACTS: Abelardo Licaros invested his money worth$150,000 with Anglo-Asean Bank, a money market placement by way of deposit, based in the Republic of Venatu. Unexpectedly, he had a hard time getting back his investments as well as the interest earned. He then sought the counsel of Antonio Gatmaitan, a reputable banker and investor. They entered into an agreement,where a non-negotiable promissory note was to be executed in favor of Licaros worth $150,000, and that Gatmaitan would take over the value of the investment made by Licaros with the AngloAsean Bank at the former's expense. When Gatmaitan contacted the foreign bank, it said they will look into it, but it didn't prosper. Because of the inability to collect,Gatmaitan did not bother to pay Licaros the value of the promissory note. Licaros, however, believing that he had a right to collect from Gatmaitan regardless of the outcome, demanded payment, but was ignore. Licaros filed a complaint against Gatmaitan for the collection of the note. The trial court ruled in favor of Licaros, but CA reversed. ISSUE:Whether the memorandum of agreement between petitioner and respondent is one of assignment of credit or one of conventional subrogation RULING: It is a conventional subrogation. An assignment of credit has been defined as the process of transferring the right of the assignor to the assignee who would then have a right to proceed against the debtor. Consent of the debtor is not required is not necessary to product its legal effects, since notice of the assignment would be enough. On the other hand, subrogation of credit has been defined as the transfer of all the rights of the creditor to a third person, who substitutes him in all his rights. It requires that all the related parties thereto, the original creditor, the new creditor and the debtor, enter into a new agreement, requiring the consent of the debtor of such transfer of rights. In the case at hand, it was clearly stipulated by the parties in the memorandum of agreement that the express conformity of the third party (debtor) is needed. The memorandum contains a space for the signature of the Anglo-ASEAN Bank written therein "with our conforme". Without such signature, there was no transfer of rights. The usage of the word "Assignment" was used as a general term, since Gatmaitan was not a lawyer, and therefore was not well-versed with the language of the law.

25. NEREO J. PACULDO, PETITIONER, VS. BONIFACIO C. REGALADO, RESPONDENT [2000] FACTS: On Dec. 27, 1990: Contract of Lease between Paculdo (lessee) & Regalado (lessor) over a parcel of land w/a wet market bldg located along Don Mariano Marcos Ave., Fairview Park, QC. Contract was for 5 yrs from this date w/monthly rental of P450k payable w/in first 5 days of each month at Regalados office + 2% penalty for every month of late payment. Paculdo leased 11 other properties from Regalado, 10 of w/c were located in Fairview while the 11th was located along Quirino Highway, QC. Paculdo also purchased 8 units of heavy equipment & vehicles from Regalado amounting to P1,020,000.00. Then, on July 15, 1991, Regalado informed Paculdo that his payment was to be applied to the following: monthly rentals for the wet market, Quirino lot, and the heavy equipment purchased. This letter had no conformity portion. Paculdo did not act on the letter. On Nov. 19, 1991, Regalado proposed that Paculdos security deposit for the Quirino lot be applied as partial payment for his account under the subject lot as well as to the real estate taxes on the Quirino lot. Paculdo did not object and he signed the conformity portion. Regalado claims that Paculdo failed to pay P361, 895.55 in rental for the month of May, 1992 and monthly rental of P450k for the months of June & July, 1992. Thus he sent 2 demand letters (both in July, 1992) asking for payment and later on asked Paculdo to vacate the property. Regalado mortgaged the land under the contract to Monte de Piedad Savings Bank. It included the improvements introduced by Paculdo amounting to P35M. Mortgage was used as security for a loan amounting to P20M. On Aug. 12, 1992 onwards, Regalado refused to accept Paculdos daily rental payments. Ultimately, on Aug. 20, 1992, Paculdo filed an action for injunction & damages to enjoin Regalado from disturbing his possession of property under the contract. Regalado on the other hand, filed a complaint for ejectment against Paculdo. Later on withdrawn and then refiled w/claim of P3,924,000.00. MTC: Ordered Paculdo to vacate the premises & pay P527,119.27 of unpaid monthly rentals as of June 30, 1992 w/2% interest + P450k/month w/2% interest from July 1992 onwards until place has been vacated & turned over to Regalado + P5M for attys fees + costs. Feb. 19, 1994: Regalado w/50 armed security guards forcibly entered the property & took possession of the wet market. RTC affirmed MTC decision. Issued a writ of execution thus Paculdo vacated the property voluntarily & there was complete turn over by July 12, 1994. Paculdo appealed to the CA claiming that: He paid P11,478,121.85 as security deposit & rentals on the wet market building. Portions of the amount paid was applied by Regalado w/o his consent, to his other obligations. Vouchers & receipts indicated that the payments were made for rentals, proof of

Paculdos declaration as to w/c obligation the payment must be applied. CA: Dismissed the petition for lack of merit. Paculdo impliedly consented to Regalados application of payment to his other obligations. ISSUE: WON Paculdo was truly in arrears in the payment of rentals on the subject property at the time of the filing of the complaint for ejectment. NO.

RATIO: 1. Based on MTC & RTC findings, Paculdo paid a total of P10,949,447.18 to Regalado as of July 2, 1992. And if this will be applied solely to the rentals on the Fairview wet market, there would even be an excess payment of P1,049,447.18. (see p.139 for computation) 2. Paculdo goes back to the July 15, 1991 letter. He emphasized that applying the payment to the purchased equipment was crucial because it was equivalent to 2 mos rental & was the basis for the ejectment case. He further claims that his silence/lack of protest did not mean consent; rather, it was a rejection. 3. CC Art. 1252 & 1254: Debtor has the rt to specify w/c among his various obligations to the same creditor is to be satisfied at the time of making the payment. If the debtor did not exercise this rt, law provides that no payment is to be made to a debt that is not yet due (CC Art. 1252) and payment has to be applied first to the debt most onerous to the debtor (CC Art. 1254). a. Paculdo made it clear that payments were to be applied to his rental obligations on the wet market property. b. Regalado claims that Paculdo assented to the application as inferred from his silence. c. A big chunk of the amount paid went into the satisfaction of an obligation w/c was not yet due & demandable (payment of heavy equipment). Application was contrary to law. d. Paculdos silence was not tantamount to consent. Consent must be clear & definite. There was no meeting of the minds. Though there was an offer by Regalado, there was no acceptance by Paculdo. Even if Paculdo did not exercise his rt to choose the obligation to be satisfied first & such rt was transferred to Regalado, latters choice is still subject to formers consent. e. Lease over the Fairview property is the most onerous among all the obligations of petitioner to respondent. Its a going-concern (?) and investments on the improvements were made amounting to P35M. Paculdo was bound to lose more if lease would be rescinded than if the contract of sale of heavy equipment would not proceed. Holding: Petition granted. CA decision reversed & set aside. 26. PNB MADECOR VS. UY (363 SCRA 128) FACTS: Guillermo Uy assigned to respondent his receivables due from Pantranco North Express Inc. (PNEI). Respondent filed a collection suit with an application for issuance of preliminary attachment against PNEI which was granted by the RTC. The sheriff issued a notice of

garnishment addressed to PNB and PNB MADECOR. The RTC rendered judgment against PNEI with writ of execution causing the sheriff to garnish the amount therein from the credits and collectibles of PNEI from petitioner and levy upon the assets of petitioner should its personal assets be insufficient to cover its debt with PNEI. Petitioner claimed that as debtor, it is likewise a creditor for PNEI considering unpaid rentals of PNEI for its parcel of land and by operation of law on compensation, it is actually the PNEI that still has outstanding obligations to it. ISSUE: Whether or not there was legal compensation between the petitioner and PNEI as a defense of the former. RULING: NO. There could not be any compensation between PNEIs receivables from PNB MADECOR and the latters obligation to the former because PNB MADECORs supposed debt to PNEI is the subject of attachment proceedings initiated by a third party, herein respondent Gerardo Uy. This is a controversy that would prevent legal compensation from taking place, per the requirements set forth in Article 1279 of the Civil Code. Moreover, it was not clear whether, at the time compensation was supposed to have taken place, the rentals being claimed by petitioner were indeed still unpaid. Petitioner did not present evidence in this regard, apart from a statement of account. 27. AZOLLA FARMS VS CA NOVEMBER 11, 2004 G.R.NO. 138085

FACTS: The trial court rendered its decision annulling the promissory notes and real estate mortgage, and awarding damages to petitioners. The dispositive portion of the decision reads: WHEREFORE, judgment is hereby rendered: (a) the promissory notes and real estate mortgage executed by plaintiff Yuseco novated, if not unenforceable; (b) any subsequent foreclosure or sale of the real estate property, without any binding effect; As alleged by petitioners, the testimony of respondents witness, Jesus Venturina, established the novation of the promissory notes and the real estate mortgage, and the illegality of the foreclosure of petitioner Yusecos property. The trial court agreed with petitioners, ruling that there was a novation of the promissory notes and real estate mortgage. ISSUE: W/N there was no novation, hence, the promissory notes and the real estate mortgage are valid and binding. RULING: YES, no novation took place. Novation is the extinguishment of an obligation by the substitution or change of the obligation by a subsequent one which extinguishes or modifies the first, either by changing the object or principal conditions, or, by substituting another in place of the debtor, or by subrogating a third person in the rights of the creditor. In order for novation to take place, the concurrence of the following requisites is indispensable: 1. there must be a previous valid obligation,

2. there must be an agreement of the parties concerned to a new contract, 3. there must be the extinguishment of the old contract, and 4. there must be the validity of the new contract. All these requisites are patently lacking in this case. In the first place, there is no new obligation that supposedly novated the promissory notes or the real estate mortgage, or a pre-existing obligation that was novated by the promissory notes and the real estate mortgage. In fact, there is only one agreement between the parties in this case, i.e., petitioners P2,000,000.00 loan with respondent, as evidenced by the 3 promissory notes dated September 13 and 27, 1982, and January 4, 1983, and the real estate mortgage. As the Court of Appeals held: There was only one single loan agreement in the amount of P2 million between the parties as evidenced by the promissory notes and real estate mortgage - how can it be possibly claimed by plaintiffs that these notes and mortgage were novated when no previous notes or mortgage or loan agreement had been executed? What transpired was an application for loan was filed by plaintiffs with Credit Manila in an amount greater than the P2 million eventually granted. This loan application was endorsed to defendant Savings Bank of Manila, processed by the latter and eventually approved by it in the amount of P2 million. It cannot be said that the loan application of plaintiffs or their initial representations with Credit Manilas Michael de Guzman was already in itself a binding original contract that was later novated by defendant. Plaintiff Yuseco being himself a banker, cannot pretend to have been unaware of banking procedures that normally recognize a loan application as just that, a mere application. Only upon the banks approval of the loan application in the amount and under such terms it deems viable and acceptable, that a binding and effective loan agreement comes into existence. Without any such first or original loan agreement as approved in the amount and under specified terms by the bank, there can be nothing whatsoever that can be subsequently novated. 28. HEIRS OF LUIS BACUS VS COURT OF APPEALS, SPOUSES FAUSTINO DURAY AND VICTORIANA DURAY G.R. NO. 127695 03DECEMBER2001

FACTS OF THE CASE: On 1984 Luis Bacus leased to Faustino Duray a parcel of agricultural land with total land area of 3,002 of square meters, in Cebu. The lease was for six years ending in 1990, the contract contained an option to buy clause. Under the said option, the lessee had the exclusive and irrevocable right to buy 2,000 square meters 5 years from a year after the effectivity of the contract, at P200 per square meter. That rate shall be proportionately adjusted depending on the peso rate against the US dollar, which at the time of the execution of the contract was 14 pesos.

Close to the expiration of the contract Luis Bacus died on 1989, after Duray informed the heirs of Bacus that they are willing and ready to purchase the property under the option to buy clause. The heirs refused to sell, thus Duray filed a complaint for specific performance against the heirs of Bacus. He showed that he is ready and able to meet his obligations under the contract with Bacus. The RTC ruled in favor of the Durays and the CA later affirmed the decision. ISSUE: Can the heirs of Luis Bacus be compelled to sell the portion of the lot under the option to buy clause? HELD: - Yes, Obligations under an option to buy are reciprocal obligations. The performance of one obligation is conditioned on the simultaneous fulfillment of the other obligation. In other words, in an option to buy, the payment of the purchase price by the creditor is contingent upon the execution and delivery of the deed of sale by the debtor. - When the Durays exercised their option to buy the property their obligation was to advise the Bacus of their decision and readiness to pay the price, they were not yet obliged to make the payment. Only upon the Bacus actual execution and delivery of the deed of sale were they required to pay. - The Durays did not incur in delay when they did not yet deliver the payment nor make a consignation before the expiration of the contract. In reciprocal obligations, neither party incurs in delay if the other party does not comply or is not ready to comply in a proper manner with what is incumbent upon him. Only from the moment one of the parties fulfils his obligation, does delay by the other begin. Obligations and Contracts Terms: Reciprocal Obligations- Those which arise from the same cause, and in which each party is a debtor and a creditor of the other, such that the obligation of one is dependent upon the obligation of the other. They are to be performed simultaneously such that the performance of one is conditioned upon the simultaneous fulfilment of the other.

for preliminary attachment against the university, Bautista, Jr. and his wife Milagros, before the RTC of Makati City. Five years later, on March 31, 1995, the bank amended the complaint and impleaded GDI as additional defendant. Consequently, even if the loan was overdue, the bank did not demand payment until February 8, 1989. By way of cross-claim, the university prayed that GDI be ordered to pay the university the amount it would have to pay the bank. On December 14, 1995, the bank and GDI executed a deed of dacion en pago. On March 19, 1998, the university moved to dismiss the amended complaint. On October 14, 1999 the university moved to set the case for pre-trial on December 2,1999. On August 3, 2000, the trial court resolved GDIs motion to resolve the motion to dismiss and defer pre-trial. On August 29, 2001, the university filed a manifestation with motion for reconsideration of the August 17, 1999 Order denying the universitys motion to dismiss the amended complaint. ISSUE: Whether or not the trial court erred in dismissing the amended complaint, without trial, upon motion of respondent university. \ RULING: In this case, the universitys March 19, 1998 motion to dismiss the amended complaint was improper under Rule 16 because it was filed after respondent university filed its responsive pleading, its Answer. Also the motions merit could not be determined based solely on the allegations of the initiatory pleading, the amended complaint, since the motion was based on the deed of dacion en pago, which was not even alleged in the complaint. And since the deed of dacion en pago had been expunged from the record, the trial court erred in its finding of payment and lack of cause of action base on the deed. In the case at bar, there had been no presentation of evidence yet and petitioner had not rested its case. Therefore the August 17, 1999 Order properly denied the motion to dismiss for being improper under either Rule 16 or 33. The trial court had also made a premature statement in its Omnibus Order dated April 21, 1997 that the dacion en pago settled the loan and the case, even as it also stated that respondent university was used as a dummy of GDI. If indeed there was fraud, considering the uncollateralized loan, its diversion, nonpayment, absence of demand although overdue, and the dacion en pago where title of the property accepted as payment cannot be transferred, the fraud should be uncovered to determine who are liable to pay the loan. Thus, this petition was granted and set aside the trial courts April 11, 2002 and June 27, 2003 Orders. The trial court is ordered to proceed with the pre-trial and hear this case with dispatch.

29. THE MANILA BANKING CORPORATION vs. UNIVERSITY OF BAGUIO,INC. and GROUP DEVELOPERS, INC. G.R. No. 159189 ; February 21, 2007

FACTS:On November 26, 1981, the herein petitioner granted a 14 million credit line to the herein respondents for the construction of additional buildings and purchase of new equipment. On behalf of the university, then Vice-Chairman Fernando C. Bautista, Jr. signed PN Nos. 10660, 10672, 10687, and 10708 and executed a continuing surety agreement. However, Bautista, Jr. diverted the net proceeds of the loan. He endorsed and delivered the four checks representing the net proceeds to respondent Group Developers, Inc. The loan was not paid. On February 12, 1990, the bank filed a complaint for a sum of money with application

30. UNION REFINERY VS. TOLENTINO SR. Doctrine: The basic civil law principle of relativity of contracts[9] demands that contracts only bind the parties (their heirs and assigns) who entered into it. It cannot favor or prejudice third persons. Thus, the appellate court was correct in holding that the MOA between petitioner and respondent Roland binds only them, and that any obligation arising therefrom may only be invoked against each or both of them. FACTS: Respondent Rolands UCPB Check No. 184124 bounced for insufficiency of funds. Petitioner filed a complaint for violation of Batas Pambansa Blg. 22 or the Bouncing Checks Law, but respondent Roland was acquitted. Respondent Rolands unpaid debt allegedly ballooned to P2,555,362.34, hence, petitioner terminated the dealership contract on August 24, 1987. When its formal demand for payment was unheeded, petitioner instituted an action for collection of sum of money with preliminary attachment against respondent Roland. His parents, respondents Reynaldo C. Tolentino, Sr. and Lucia B. Tolentino, and siblings, respondents Reynaldo, Jr. and Rex, were impleaded as codefendants. The respondents-spouses Reynaldo, Sr. and Lucia were impleaded in the suit allegedly because they were the ones who actually secured the dealership contract with petitioner. Respondents Reynaldo, Jr. and Rex were sued for the chattel mortgage of their vehicles executed as security for their brothers obligation with petitioner. Petitioner, however, contends that the appellate court erred in holding that respondent Roland only owes it P1,541,211.51 and not P2,183,895.43 as claimed. ISSUE: W/N the amount of P412,683.39, of which only P364,464.39 was credited by the Court of Appeals in favor of respondent Roland, does not represent payment duly made by respondent Roland. RULING: YES The Court rejects the claim of respondent Roland that he made several payments but were unrecorded by the petitioner. This claim runs against the grain of the rule that the one who pleads payment has the burden of proving it. In the world of business, it is unnatural to make payments and allow them to be unrecorded. To be sure, even where the plaintiff alleges nonpayment, the general rule is that the burden rests on the defendant to prove payment, rather than on the plaintiff to prove nonpayment.

10. Spouses Fernando Viloria and Lourdes Viloria vs Continental Airlines, Inc. September 23, 2012 FACTS: In 1997, while the spouses Viloria were in the United States, they approached Holiday Travel, a travel agency working for Continental Airlines, to purchase tickets from Newark to San Diego. The travel agent, Margaret Mager, advised the couple that they cannot travel by train because it is fully booked; that they must purchase plane tickets for Continental Airlines; that if they wont purchase plane tickets; theyll never reach their destination in time. The couple believed Magers representations and so they purchased two plane tickets worth $800.00. Later however, the spouses found out that the train trip isnt fully booked and so they purchased train tickets and went to their destination by train instead. Then they called up Mager to request for a refund for the plane tickets. Mager referred the couple to Continental Airlines. As the couple are now in the Philippines, they filed their request with Continental Airlines office in Ayala. The spouses Viloria alleged that Mager misled them into believing that the only way to travel was by plane and so they were fooled into buying expensive tickets. The spouses requested for a refund but instead offered by the airline to use the price of the ticket to purchase another ticket. So mr viloria went to purchase 1 roundtrip ticket for himself from Manila-Los Angeles which cost $1,867.40. CAI then said that theticket of mrs viloria was non transferrable and could not be applied to pay for the ticket of mr Viloria. And so sps Viloria wanted again to refund the ticket price. Continental Airlines refused to refund the amount of the ticket and so the spouses sued the airline company. In its defense, Continental Airlines claimed that the ticket sold to them by Mager is non-refundable; that, if any, they are not bound by the misrepresentations of Mager because theres no agency existing between Continental Airlines and Mager. The trial court ruled in favor of spouses Viloria but the Court of Appeals reversed the ruling of the RTC. ISSUE: 1. Agency. Whether or not a contract of agency exists between Continental Airlines and Mager. 2. Vicarious liability. Assuming that an agency relationship exists between CAI and Holiday Travel, is CAI bound by the acts of Holiday Travels agents and employees such as Mage 3. Rescission. did CAI act in bad faith or renege its obligation to Spouses Viloria to apply the value of the subject tickets in the purchase of new ones when it refused to allow Fernando to use Lourdes ticket and in charging a higher price for a round trip ticket to Los Angeles? HELD: 1.Yes. All the elements of agency are present, to wit:

there is consent, express or implied of the parties to establish the relationship; the object is the execution of a juridical act in relation to a third person; the agent acts as a representative and not for himself, and the agent acts within the scope of his authority. The first and second elements are present as Continental Airlines does not deny that it concluded an agreement with Holiday Travel to which Mager is part of, whereby Holiday Travel would enter into contracts of carriage with third persons on the airlines behalf. The third element is also present as it is undisputed that Holiday Travel merely acted in a representative capacity and it is Continental Airlines and not Holiday Travel who is bound by the contracts of carriage entered into by Holiday Travel on its behalf. The fourth element is also present considering that Continental Airlines has not made any allegation that Holiday Travel exceeded the authority that was granted to it. Continental Airlines also never questioned the validity of the transaction between Mager and the spouses. Continental Airlines is therefore in estoppels. Continental Airlines cannot be allowed to take an altogether different position and deny that Holiday Travel is its agent without condoning or giving imprimatur to whatever damage or prejudice that may result from such denial or retraction to Spouses Viloria, who relied on good faith on Continental Airlines acts in recognition of Holiday Travels authority. Estoppel is primarily based on the doctrine of good faith and the avoidance of harm that will befall an innocent party due to its injurious reliance, the failure to apply it in this case would result in gross travesty of justice. 2. In actions based on quasi-delict, a principal can only be held liable for the tort committed by its agents employees if it has been established by preponderance of evidence that the principal was also at fault or negligent or that the principal exercise control and supervision over them. An examination of this Courts pronouncements in China Air Lines will reveal that an airline company is not completely exonerated from any liability for the tort committed by its agents employees. A prior determination of the nature of the passengers cause of action is necessary. If the passengers cause of action against the airline company is premised on culpa aquiliana or quasi-delict for a tort committed by the employee of the airline companys agent, there must be an independent showing that the airline company was at fault or negligent or has contributed to the negligence or tortuous conduct committed by the employee of its agent. The mere fact that the employee of the airline companys agent has committed a tort is not sufficient to hold the airline company liable. There is no vinculum juris between the airline company and its agents employees and the contractual relationship between the airline company and its agent does not operate to create a juridical tie between the airline company and

its agents employees. Article 2180 of the Civil Code does not make the principal vicariously liable for the tort committed by its agents employees and the principal-agency relationship per se does not make the principal a party to such tort; hence, the need to prove the principals own fault or negligence. 3.Contracts cannot be rescinded for a slight or casual breach. CAIs refusal to accept Lourdes ticket for the purchase of a new ticket for Fernando is only a casual breach. Considering that the subject contracts are not annullable on the ground of vitiated consent, the next question is: Do Spouses Viloria have the right to rescind the contract on the ground of CAIs supposed breach of its undertaking to issue new tickets upon surrender of the subject tickets? Article 1191, as presently worded, states: The power to rescind obligations is implied in reciprocal ones, in case one of the obligors should not comply with what is incumbent upon him. The injured party may choose between the fulfilment and the rescission of the obligation, with the payment of damages in either case. He may also seek rescission, even after he has chosen fulfillment, if the latter should become impossible. The court shall decree the rescission claimed, unless there be just cause authorizing the fixing of a period. Nonetheless, the right to rescind a contract for non-performance of its stipulations is not absolute. 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 fundamental violations as would defeat the very object of the parties in making the agreement.40 Whether a breach is substantial is largely determined by the attendant circumstances.41 While CAIs refusal to allow Fernando to use the value of Lourdes ticket as payment for the purchase of a new ticket is unjustified as the non-transferability of the subject tickets was not clearly stipulated, it cannot, however be considered substantial. The endorsability of the subject tickets is not an essential part of the underlying contracts and CAIs failure to comply is not essential to its fulfillment of its undertaking to issue new tickets upon Spouses Vilorias surrender of the subject tickets. This Court takes note of CAIs willingness to perform its principal obligation and this is to apply the price of the ticket in Fernandos name to the price of the round trip ticket between Manila and Los Angeles. CAI was likewise willing to accept the ticket in Lourdes name as full or partial payment as the case may be for the purchase of any ticket, albeit under her name and for her exclusive use. In other words, CAIs willingness to comply with its undertaking under its March

24, 1998 cannot be doubted, albeit tainted with its erroneous insistence that Lourdes ticket is non-transferable. Art. 1192. In case both parties have committed a breach of the obligation, the liability of the first infractor shall be equitably tempered by the courts. If it cannot be determined which of the parties first violated the contract, the same shall be deemed extinguished, and each shall bear his own damages. (emphasis supplied) Therefore, CAIs liability for damages for its refusal to accept Lourdes ticket for the purchase of Fernandos round trip ticket is offset by Spouses Vilorias liability for their refusal to pay the amount, which is not covered by the subject tickets. Moreover, the contract between them remains, hence, CAI is duty bound to issue new tickets for a destination chosen by Spouses Viloria upon their surrender of the subject tickets and Spouses Viloria are obliged to pay whatever amount is not covered by the value of the subject tickets.

involved in any vehicular accident prior to the fatal collision with the train; that they even had their own son travel to and from school on a daily basis; and that Teodoro Perea himself sometimes accompanied Alfaro in transporting the passengers to and from school. The RTC gave scant consideration to such defense by regarding such defense as inappropriate in an action for breach of contract of carriage. We find no adequate cause to differ from the conclusions of the lower courts that the Pereas operated as a common carrier; and that their standard of care was extraordinary diligence, not the ordinary diligence of a good father of a family. 2. Yes. While only a high school student, had been enrolled in one of the reputable schools in the Philippines and that he had been a normal and able-bodied child prior to his death. The basis for the computation of Aarons earning capacity was not what he would have become or what he would have wanted to be if not for his untimely death, but the minimum wage in effect at the time of his death. Moreover, the RTCs computation of Aarons life expectancy rate was not reckoned from his age of 15 years at the time of his death, but on 21 years, his age when he would have graduated from college. 3. No. The moral damages of P 2,500,000.00 were really just and reasonable under the established circumstances of this case because they were intended by the law to assuage the Zarates deep mental anguish over their sons unexpected and violent death, and their moral shock over the senseless accident. That amount would not be too much, considering that it would help the Zarates obtain the means, diversions or amusements that would alleviate their suffering for the loss of their child. At any rate, reducing the amount as excessive might prove to be an injustice, given the passage of a long time from when their mental anguish was inflicted on them on August 22, 1996. Anent the P 1,000,000.00 allowed as exemplary damages, we should not reduce the amount if only to render effective the desired example for the public good. As a common carrier, the Pereas needed to be vigorously reminded to observe their duty to exercise extraordinary diligence to prevent a similarly senseless accident from happening again. Only by an award of exemplary damages in that amount would suffice to instill in them and others similarly situated like them the ever-present need for greater and constant vigilance in the conduct of a business imbued with public interest. 12. CHUA VS. CA FACTS: Chua entered into a contract with Valdes-Choy to purchase a house and lot of the latter at 10.8M. They executed a Deeds of sale for the above transaction. Valdes-Choy and Chua agreed on the following terms: (1) the balance of P10,215,000.00 is payable on or before 15 July

11. PERENA VS. CA The operator of a. school bus service is a common carrier in the eyes of the law. He is bound to observe extraordinary diligence in the conduct of his business. He is presumed to be negligent when death occurs to a passenger. His liability may include indemnity for loss of earning capacity even if the deceased passenger may only be an unemployed high school student at the time of the accident. FACTS: Spouses Zarate engaged the services of spouses Perea for the adequate and safe transportation carriage of the former spouses' son. During the effectivity of the contract of carriage and in the implementation thereof, Aaron, the minor son of spouses Zarate died in connection with a vehicular/train collision which occurred while Aaron was riding the contracted carrier Kia Ceres van of spouses Perea, then driven and operated by the latter's employee/authorized driver Clemente Alfaro, which van collided with the train of PNR. The Zarates claim against the Pereas was upon breach of the contract of carriage for the safe transport of Aaron; but that against PNR was based on quasi-delict under Article 2176, Civil Code. ISSUES: 1. Were the Pereas and PNR jointly and severally liable for damages? 2. Was the indemnity for loss of Aarons earning capacity proper? 3. Were the amounts of damages excessive?

RULING: 1. Yes. To start with, the Pereas defense was that they exercised the diligence of a good father of the family in the selection and supervision of Alfaro, the van driver, by seeing to it that Alfaro had a drivers license and that he had not been

1989; (2) the capital gains tax is for the account of Valdes-Choy; and (3) if Chua fails to pay the balance of P10,215,000.00 on or before 15 July 1989, Valdes-Choy has the right to forfeit the earnest money, provided that all papers are in proper order. On 13 July 1989, Chua gave Valdes-Choy the PBCom managers check for P485,000.00 to pay the capital gains tax. Also on july 13, 1989, Chua showed to ValdesChoy a PBCom managers check for P10,215,000.00 representing the balance of the purchase price. Chua, however, did not give this PBCom managers check to Valdes-Choy because the TCT was still registered in the name of Valdes-Choy. Chua required that the Property be registered first in his name before he would turn over the check to Valdes-Choy. This angered Valdes-Choy who tore up the Deeds of Sale, claiming that what Chua required was not part of their agreement. Instead of paying on July 15, Chua initiated a case to compel Valdes-Choy to tranfer the registration in his name plus damages. Granted by the trial court. Reversed by the CA. Hence, this petition. ISSUE: W/N the contract entered into by the parties is Contract of Sale or Contract to Sell? RULING: Nevertheless, in order to put to rest all doubts on the matter, we hold that the agreement between Chua and Valdes-Choy, as evidenced by the Receipt, is a contract to sell and not a contract of sale. The distinction between a contract of sale and contract to sell is well-settled: In a contract of sale, the title to the property passes to the vendee upon the delivery of the thing sold; in a contract to sell, ownership is, by agreement, reserved in the vendor and is not to pass to the vendee until full payment of the purchase price. Otherwise stated, in a contract of sale, the vendor loses ownership over the property and cannot recover it until and unless the contract is resolved or rescinded; whereas, in a contract to sell, title is retained by the vendor until full payment of the price. In the latter contract, payment of the price is a positive suspensive condition, failure of which is not a breach but an event that prevents the obligation of the vendor to convey title from becoming effective.[25] A perusal of the Receipt shows that the true agreement between the parties was a contract to sell. Ownership over the Property was retained by Valdes-Choy and was not to passed to Chua until full payment of the purchase price. WHY A CONTRACT TO SELL? First, the Receipt provides that the earnest money shall be forfeited in case the buyer fails to pay the balance of the purchase price on or before 15 July 1989. In such event, ValdesChoy can sell the Property to other interested parties. There is in effect a right reserved in favor of Valdes-Choy not to push through with the sale upon Chuas failure to remit the balance

of the purchase price before the deadline. This is in the nature of a stipulation reserving ownership in the seller until full payment of the purchase price. This is also similar to giving the seller the right to rescind unilaterally the contract the moment the buyer fails to pay within a fixed period.[26] Second, the agreement between Chua and ValdesChoy was embodied in a receipt rather than in a deed of sale, ownership not having passed between them. The signing of the Deeds of Sale came later when Valdes-Choy was under the impression that Chua was about to pay the balance of the purchase price. The absence of a formal deed of conveyance is a strong indication that the parties did not intend immediate transfer of ownership, but only a transfer after full payment of the purchase price. Third, Valdes-Choy retained possession of the certificate of title and all other documents relative to the sale. When Chua refused to pay Valdes-Choy the balance of the purchase price, Valdes-Choy also refused to turn-over to Chua these documents.[28] These are additional proof that the agreement did not transfer to Chua, either by actual or constructive delivery, ownership of the Property. It is true that Article 1482 of the Civil Code provides that [W]henever earnest money is given in a contract of sale, it shall be considered as part of the price and proof of the perfection of the contract. However, this article speaks of earnest money given in a contract of sale. In this case, the earnest money was given in a contract to sell. The Receipt evidencing the contract to sell stipulates that the earnest money is a forfeitable deposit, to be forfeited if the sale is not consummated should Chua fail to pay the balance of the purchase price. The earnest money forms part of the consideration only if the sale is consummated upon full payment of the purchase price. If there is a contract of sale, Valdes-Choy should have the right to compel Chua to pay the balance of the purchase price. Chua, however, has the right to walk away from the transaction, with no obligation to pay the balance, although he will forfeit the earnest money. Clearly, there is no contract of sale. The earnest money was given in a contract to sell, and thus Article 1482, which speaks of a contract of sale, is not applicable. Since the agreement between Valdes-Choy and Chua is a mere contract to sell, the full payment of the purchase price partakes of a suspensive condition. The non-fulfillment of the condition prevents the obligation to sell from arising and ownership is retained by the seller without further remedies by the buyer.[30] Article 1592 of the Civil Code permits the buyer to pay, even after the expiration of the period, as long as no demand for rescission of the contract has been made upon him either judicially or by notarial act. However, Article 1592 does not apply to a contract to sell where the seller reserves the ownership until full payment of the price.

13. STRONGHOLD INSURANCE VS. REPUBLICASAHI A surety companys liability under the performance bond it issues is solidary. The death of the principal obligor does not, as a rule, extinguish the obligation and the solidary nature of that liability. FACTS: Respondent Republic-Asahi contracted JDS Construction to construct roadways and drainage system for the former. In order to guarantee the faithful and satisfactory performance of its undertakings JDS, posted a performance bond of seven hundred ninety five thousand pesos (P795,000.00). JDS executed, jointly and severally with [petitioner] Stronghold Insurance Co., Inc. (SICI) Performance bond No. Xxxx. Unsatisfied with the performance of JDS, Republic rescinded the contract and hired another contractor to finish the construction. Republic then filed a case against JDS and SICI because it incurred additional expenses in hiring a new contractor. During the pendency of the case, the owner of JDS died. SICI contended that it it freed from all liabilities beacause of the death of the principal debtor. ISSUE: W/N the death of JDS extinguished the liability of SICI to Republic. RULING: No. As a general rule, the death of either the creditor or the debtor does not extinguish the obligation.[8] Obligations are transmissible to the heirs, except when the transmission is prevented by the law, the stipulations of the parties, or the nature of the obligation.[9] Only obligations that are personal[10] or are identified with the persons themselves are extinguished by death. In the present case, whatever monetary liabilities or obligations Santos had under his contracts with respondent were not intransmissible by their nature, by stipulation, or by provision of law. Hence, his death did not result in the extinguishment of those obligations or liabilities, which merely passed on to his estate.[15] Death is not a defense that he or his estate can set up to wipe out the obligations under the performance bond. Consequently, petitioner as surety cannot use his death to escape its monetary obligation under its performance bond. The liability of petitioner is contractual in nature. As a surety, petitioner is solidarily liable with Santos in accordance with the Civil Code, which provides as follows: Art. 2047. By guaranty a person, called the guarantor, binds himself to the creditor to fulfill the obligation of the principal debtor in case the latter should fail to do so. If a person binds himself solidarily with the principal debtor, the provisions of Section 4, Chapter 3, Title I of this Book shall be observed. In such case the contract is called a suretyship.

xxx

xxx

xxx

Art. 1216. The creditor may proceed against any one of the solidary debtors or some or all of them simultaneously. The demand made against one of them shall not be an obstacle to those which may subsequently be directed against the others, so long as the debt has not been fully collected. Under the law and jurisprudence, respondent may sue, separately or together, the principal debtor and the petitioner herein, in view of the solidary nature of their liability. The death of the principal debtor will not work to convert, decrease or nullify the substantive right of the solidary creditor. Evidently, despite the death of the principal debtor, respondent may still sue petitioner alone, in accordance with the solidary nature of the latters liability under the performance bond. 14. RIVERA VS. DEL ROSARIO Rescission under Art 1191 vs. Rescission under Art 1383. FACTS: Respondents sought to rescind a Kasunduan or an Agreement to sell against the petitioner. Petitioner contends that such action is barred by prescription. ISSUE: W/N the complaint for rescission was already barred by prescription. RULING: No. petitioners cite Articles 1383, 1389 and 1391 of the New Civil Code. They submit that the complaint for rescission of the Kasunduan should have been dismissed, for respondents failure to prove that there was no other legal means available to obtain reparation other than to file a case for rescission, as required by Article 1383. Moreover, petitioners contend that even assuming respondents had satisfied this requirement, prescription had already set in, the complaint having been filed in 1992 or five years after the execution of the Deed of Absolute Sale in March 10, 1987. Respondents counter that Article 1383 of the New Civil Code applies only to rescissible contracts enumerated under Article 1381 of the same Code, while the cause of action in this case is for rescission of a reciprocal obligation, to which Article 1191[43] of the Code applies. They assert that their cause of action had not prescribed because the four-year prescriptive period is counted from the date of discovery of the fraud, which, in this case, was only in 1992. Rescission of reciprocal obligations under Article 1191 of the New Civil Code should be distinguished from rescission of contracts under Article 1383 of the same Code. Both presuppose contracts validly entered into as well as subsisting, and both require mutual restitution when proper, nevertheless they are not entirely identical.[44]

In countless times there has been confusion between rescission under Articles 1381 and 1191 of the Civil Code. Through this case we again emphasize that rescission of reciprocal obligations under Article 1191 is different from rescissible contracts under Chapter 6 of the law on contracts under the Civil Code.[45] While Article 1191 uses the term rescission, the original term used in Article 1124 of the old Civil Code, from which Article 1191 was based, was resolution.[46] Resolution is a principal action that is based on breach of a party, while rescission under Article 1383 is a subsidiary action limited to cases of rescission for lesion under Article 1381 of the New Civil Code,[47] which expressly enumerates the following rescissible contracts: ART. 1381. rescissible: The following contracts are

(1) Those which are entered into by guardians whenever the wards whom they represent suffer lesion by more than one-fourth of the value of the things which are the object thereof; (2) Those agreed upon in representation of absentees, if the latter suffer the lesion stated in the preceding number; (3) Those undertaken in fraud of creditors when the latter cannot in any other manner collect the claims due them; (4) Those which refer to things under litigation if they have been entered into by the defendant without the knowledge and approval of the litigants or of competent judicial authority; (5) All other contracts specially declared by law to be subject to rescission. Obviously, the Kasunduan does not fall under any of those situations mentioned in Article 1381. Consequently, Article 1383 is inapplicable. Hence, we rule in favor of the respondents. May the contract entered into between the parties, however, be rescinded based on Article 1191? A careful reading of the Kasunduan reveals that it is in the nature of a contract to sell, as distinguished from a contract of sale. In a contract of sale, the title to the property passes to the vendee upon the delivery of the thing sold; while in a contract to sell, ownership is, by agreement, reserved in the vendor and is not to pass to the vendee until full payment of the purchase price.[48] In a contract to sell, the payment of the purchase price is a positive suspensive condition,[49] the failure of which is not a breach, casual or serious, but a situation that prevents the obligation of the vendor to convey title from acquiring an obligatory force.[50]

Respondents in this case bound themselves to deliver a deed of absolute sale and clean title covering Lot No. 1083-C after petitioners have made the second installment. This promise to sell was subject to the fulfillment of the suspensive condition that petitioners pay P750,000 on August 31, 1987, and deposit a postdated check for the third installment of P1,141,622.50.[51] Petitioners, however, failed to complete payment of the second installment. The non-fulfillment of the condition rendered the contract to sell ineffective and without force and effect. It must be stressed that the breach contemplated in Article 1191 of the New Civil Code is the obligors failure to comply with an obligation already extant, not a failure of a condition to render binding that obligation.[52] Failure to pay, in this instance, is not even a breach but an event that prevents the vendors obligation to convey title from acquiring binding force.[53] Hence, the agreement of the parties in the instant case may be set aside, but not because of a breach on the part of petitioners for failure to complete payment of the second installment. Rather, their failure to do so prevented the obligation of respondents to convey title from acquiring an obligatory force.[54] Coming now to the matter of prescription. Contrary to petitioners assertion, we find that prescription has not yet set in. Article 1391 states that the action for annulment of void contracts shall be brought within four years. This period shall begin from the time the fraud or mistake is discovered. Here, the fraud was discovered in 1992 and the complaint filed in 1993. Thus, the case is well within the prescriptive period. 15. PCI BANK VS. CA FACTS: Atlas agreed to purchase some of these properties owned jointly at that time by PCIB and MBC. The sale was evidenced by a Deed of Sale dated 8 February 1979, with the parties agreeing therein to an initial downpayment of P12,000,000.00 and the balance of P18,000,000.00 payable in six (6) monthly installments. It was also stipulated that the total purchase price would be finally adjusted to exclude items to be retained by the Bureau of Mines. The contract contained provisions expressly warranting the following: (1) full and sufficient title to the properties, (2) freeing the properties from all liens and encumbrances, (3) freeing Atlas from all claims and incidental actions of the National Mines and Allied Workers Union (NAMAWU), and (4) full rights and capacity of the seller to convey title to and effect peaceful delivery of the properties to Atlas. In accordance with the contract, Atlas paid the claim of NAMAWU against PCIB in the amount of P4,298,307.77. PCIB objected to the payment but Atlas paid NAMAWU anyway. Atlas now seeks to credit the amount it paid to NAMAWU against the purchase of the properties it bought from PCIB and MBC. PCIB contended that ATlas overpaid NAMAWU for PCIB already commenced

paying such claim by P601,260. Thus, entitling Atlas only to a creditable amount of P3,697,047.77 instead of P4,298,307.77. ISSUE: W/N Atlas should be fully credited for the amount of P4,298,307.77 it had paid to NAMAWU.

RULING: No. While the original amount sought to be garnished was P4,298,307.77, the partial payment of P601,260.00 naturally reduced it to P3,697,047.77. Clearly, Atlas overpaid NAMAWU. It will be recalled that upon receipt of the writ of garnishment, Atlas immediately paid NAMAWU, without making any investigation or consultation with PCIB. Article 1236 of the Civil Code applies in this instance. It provides that whoever pays for another may demand from the debtor what he has paid, except that if he paid without the knowledge or against the will of the debtor, he can recover only insofar as the payment has been beneficial to the debtor. PCIB is the debtor in this case, it having purchased along with MBC legally garnished properties, while Atlas is the third person who paid the obligation of the debtor without the latters knowledge and consent. Since Atlas readily paid NAMAWU without the knowledge and consent of PCIB, Atlas may only recover from PCIB or, more precisely charge to PCIB, only the amount of payment which has benefited the latter. Generally, the third person who paid anothers debt is entitled to recover the full amount he had paid. The law, however, limits his recovery to the amount by which the debtor has been benefited, if the debtor has no knowledge of, or has expressed his opposition to such payment. Where the defenses that could have been set up by the debtor against the creditor were existing and perfected, a payment by a third person without the knowledge of the debtor cannot obligate the debtor to such third person to an amount more than what he could have been compelled by the creditor to pay. Thus, if the debt has been remitted, paid, compensated or prescribed, a payment by a third person would constitute a payment of what is not due; his remedy would be against the person who received the payment under such conditions, and not against the debtor who did not benefit from the payment.