259. NATELCO v.

CA
G.R. No. 107112
FACTS:

NATELCO Entered into contract with Camarines Sur II Electric Cooperative for the use in
operation of its telephone service, electric light posts of CASURECO II and in return, there will
be free use of 10 telephone connections as long as NATELCO needs electric light posts. The
contract will terminate when they are forced to stop, abandon operation and remove light posts.
After 10 years, CASURECO files for reformation of contract with damages, not conforming to
the guidelines of National Electrification Administration of reasonable compensation for use of
posts. Compensation is worth P10, but the consumption of telephone cables costs P2630
NATELCO, who used 319, without the contract of P10 each, refused to pay. The latter barred by
the prescription.
ISSUE:
WON the filing of reformation of contract prescribed
RULING:
Contract eventually became unfair due to increase in volume of subscribers without increase of
telephone connections which are free of charge to CASURECO. ARTICLE 1267 is applicable,
since the contract is subject to a potestative condition, the agreement is void.

260. REYNA V. COA

G.R. No. 167219
FACTS:
The Land Bank of the Philippines (Land Bank) was engaged in a cattle-financing
program wherein loans were granted to various cooperatives. Pursuant thereto, Land Bank's
Ipil, Zamboanga del Sur Branch (Ipil Branch) went into a massive information campaign offering
the program to cooperatives.Cooperatives who wish to avail of a loan under the program must
fill up a Credit Facility Proposal (CFP) which will be reviewed by the Ipil Branch. The Ipil Branch
approved the applications of four cooperatives.One of the conditions stipulated in the CFP is
that prior to the release of the loan, a Memorandum of Agreement (MOA) between the supplier
of the cattle, Remad Livestock Corporation (REMAD), and the cooperative, shall have been
signed. As alleged by petitioners, the terms of the CFP allowed for pre-payments or
advancement of the payments prior to the delivery of the cattle by the supplier REMAD but such
was not stipulated in the contracts.
Three checks were issued by the Ipil Branch to REMAD to serve as advanced payment
for the cattle. REMAD, however, failed to supply the cattle on the dates agreed upon.
In post audit, the Land Bank Auditor disallowed the amount of P3,115,000.00 under CSB
No. 95-005 dated December 27, 1996 and Notices of Disallowance Nos. 96-014 to 96-019 in
view of the non-delivery of the cattle. Also made as the basis of the disallowance was the fact
that advanced payment was made in violation of bank policies and COA rules and regulations.
Petitioners were made liable for the amount
ISSUE:
Whether or not the writing off of a loan is considered as condonation
RULING:
This Court rules that writing-off a loan does not equate to a condonation or release of a
debt by the creditor.
As an accounting strategy, the use of write-off is a task that can help a company maintain a
more accurate inventory of the worth of its current assets. In general banking practice, the writeoff method is used when an account is determined to be uncollectible and an uncollectible
expense is recorded in the books of account. If in the future, the debt appears to be collectible,
as when the debtor becomes solvent, then the books will be adjusted to reflect the amount to be
collected as an asset. In turn, income will be credited by the same amount of increase in the
accounts receivable.
Write-off is not one of the legal grounds for extinguishing an obligation under the Civil Code. It
is not a compromise of liability. Neither is it a condonation, since in condonation gratuity on the
part of the obligee and acceptance by the obligor are required. In making the write-off, only the
creditor takes action by removing the uncollectible account from its books even without the
approval or participation of the debtor.

261. Trans Pacific v. CA

G.R.No. 109172 August 19, 1994
FACTS:
Sometime in 1979, petitioner applied for and was granted several financial
accommodations amounting to P1,300,000.00 by respondent Associated Bank. The loans were
evidence and secured by four (4) promissory notes, a real estate mortgage covering three
parcels of land and a chattel mortgage over petitioner's stock and inventories.
Unable to settle its obligation in full, petitioner requested for, and was granted by respondent
bank, a restructuring of the remaining indebtedness which then amounted to P1,057,500.00, as
all the previous payments made were applied to penalties and interests.
The mortgaged parcels of land were substituted by another mortgage covering two other
parcels of land and a chattel mortgage on petitioner's stock inventory. The released parcels of
land were then sold and the proceeds amounting to P1,386,614.20, according to petitioner,
were turned over to the bank and applied to Trans-Pacific's restructured loan. Subsequently,
respondent bank returned the duplicate original copies of the three promissory notes to TransPacific with the word "PAID" stamped thereon. Despite the return of the notes, or on December
12, 1985, Associated Bank demanded from Trans-Pacific payment of the amount of
P492,100.00 representing accrued interest on PN No. TL-9077-82. According to the bank, the
promissory notes were erroneously released.
ISSUE :
Whether or not petitioner has indeed paid in full its obligation to respondent bank.
RULING:
Art. 1271. The delivery of a private document evidencing a credit, made voluntarily by
the creditor to the debtor, implies the renunciation of the action which the former had against the
latter."
The surrender and return to plaintiffs of the promissory notes evidencing the
consolidated obligation as restructured, produces a legal presumption that Associated had
thereby renounced its actionable claim against plaintiffs (Art. 1271, NCC). The presumption is
fortified by a showing that said promissory notes all bear the stamp "PAID", and has not been
otherwise overcome. Upon a clear perception that Associated's record keeping has been less
than exemplary . . . , a proffer of bank copies of the promissory notes without the "PAID" stamps
thereon does not impress the Court as sufficient to overcome presumed remission of the
obligation vis-a-vis the return of said promissory notes. Indeed, applicable law is supportive of a
finding that in interest bearing obligations-as is the case here, payment of principal (sic) shall
not be deemed to have been made until the interests have been covered (Art. 1253, NCC).
Conversely, competent showing that the principal has been paid, militates against postured
entitlement to unpaid interests.

262. DALUPAN V HARDEN

G.R.No. L-3975 November 27, 1951
FACTS:
On August 26, 1948, plaintiff filed an action against the defendant for the collection of
P113,837.17, with interest thereon from the filing of the complaint, which represents 50 per cent
of the reduction plaintiff was able to secure from the Collector of Internal Revenue in the amount
of unpaid taxes claimed to be due from the defendant. Defendant acknowledged this claim and
prayed that judgment be rendered accordingly. In the meantime, the receiver in the liquidation
case No. R-59634 and the wife of the defendant, Esperanza P. de Harden, filed an answer in
intervention claiming that the amount sought by the plaintiff was exorbitant and prayed that it be
reduced to 10 per cent of the rebate. By reason of the acquiescence of the defendant to the
claim on one hand, and the opposition of the receiver and of the wife on the other, an amicable
settlement was concluded by the plaintiff and the intervenor whereby it was agreed that the sum
of P22,767.43 be paid to the plaintiff from the funds under the control of the receiver "and the
balance of P91,069.74 shall be charged exclusively against the defendant Fred M. Harden from
whatever share he may still have in the conjugal partnership between him and Esperanza P. de
Harden.
ISSUE :
Whether or not the writ of execution asked for by the plaintiff on the two checks is
premature.
RULING:
Examining the terms the court finds that the stipulation limits the right of the plaintiff to
ask for the execution of the judgment to whatever share Fred M. Harden may still have in the
conjugal partnership between him and his wife after the final liquidation and partition thereof.
The execution of the judgment is premised upon a condition precedent, which is the final
liquidation and partition of the conjugal partnership. Note that the condition does not refer to the
liquidation of a particular property of the partnership. It refers to the over-all and final liquidation
of the partnership. Such being the stipulation of the parties which was sanctioned and embodied
by the Court in its decision, it is clear that the writ of execution asked for by the plaintiff on the
two checks is premature.

263. LOPEZ V TAMBUNTING

G.R.No. 9806 January 19, 1916
FACTS:
These proceedings were brought to recover from the defendant the sum of P2,000,
amount of the fees, which, according to the complaint, are owing for professional medical
services rendered by the plaintiff to a daughter of the defendant from March 10 to July 15, 1913,
which fees the defendant refused to pay, notwithstanding the demands therefor made upon him
by the plaintiff.
The defendant denied the allegations of the complaint, and furthermore alleged that the
obligation which the plaintiff endeavored to compel him to fulfill was already extinguished.
ISSUE:
Whether or not implied condonation can be legally pressumed in the instant case?
RULING:
It is true that number 8 of section 334 of the Code of Civil Procedure provides as a legal
presumption "that an obligation delivered up to the debtor has been paid." Article 1188 of the
Civil Code also provides that the voluntary surrender by a creditor to his debtor, of a private
instrument proving a credit, implies the renunciation of the right of action against the debtor; and
article 1189 prescribes that whenever the private instrument which evidences the debt is in the
possession of the debtor, it will be presumed that the creditor delivered it of his own free will,
unless the contrary is proven.
But the legal presumption established by the foregoing provisions of law cannot stand if
sufficient proof is adduced against it. In the case at bar the trial court correctly held that there
was sufficient evidence to the contrary, in view of the preponderance thereof in favor of the
plaintiff and of the circumstances connected with the defendant's possession of said receipt
Exhibit 1. Furthermore, in order that such a presumption may be taken into account, it is
necessary, as stated in the laws cited, that the evidence of the obligation be delivered up to the
debtor and that the delivery of the instrument proving the credit be made voluntarily by the
creditor to the debtor. In the present case, it cannot be said that these circumstances concurred,
inasmuch as when the plaintiff sent the receipt to the defendant for the purpose of collecting his
fee, it was not his intention that that document should remain in the possession of the defendant
if the latter did not forthwith pay the amount specified therein.

264. ESTATE OF MOTA V SERRA

G.R.No. 22825 February 14, 1925
FACTS:
On February 1, 1919, plaintiffs and defendant entered into a contract of partnership,
marked Exhibit A, for the construction and exploitation of a railroad line from the "San Isidro"
and "Palma" centrals to the place known as "Nandong". The original capital stipulated was
P150,000. It was covenanted that the parties should pay this amount in equal parts and the
plaintiffs were entrusted with the administration of the partnership.
January 29, 1920, the defendant entered into a contract of sale with Venancio
Concepcion, Phil. C. Whitaker, and Eusebio R. de Luzuriaga, whereby he sold to the latter the
estate and central known as "Palma" with its running business, as well as all the improvements,
machineries and buildings, real and personal properties, rights, choses in action and interests,
including the sugar plantation of the harvest year of 1920 to 1921, covering all the property of
the vendor. Before the delivery to the purchasers of the hacienda thus sold, Eusebio R. de
Luzuriaga renounced all his rights under the contract of January 29, 1920, in favor of Messrs.
Venancio Concepcion and Phil. C. Whitaker.
Afterwards, on January 8, 1921, Venancio Concepcion and Phil. C. Whitaker bought from the
plaintiffs the one half of the railroad line pertaining to the latter executing therefor the document
Exhibit 5. The price of this sale was P237,722.15, excluding any amount which the defendant
might be owing to the plaintiffs.
ISSUE:
Whether or not there was confusion of the rights of the creditor and debtor
RULING:
The purchasers, Phil. C. Whitaker and Venancio Concepcion, to secure the payment of
the price, executed a mortgage in favor of the plaintiffs on the same rights and titles that they
had bought and also upon what they had purchased from Mr. Salvador Serra. In other words,
Phil C. Whitaker and Venancio Concepcion mortgaged unto the plaintiffs what they had bought
from the plaintiffs and also what they had bought from Salvador Serra. If Messrs. Phil. C.
Whitaker and Venancio Concepcion had purchased something from Mr. Salvador Serra, the
herein defendant, regarding the railroad line, it was undoubtedly the one-half thereof pertaining
to Mr. Salvador Serra. This clearly shows that the rights and titles transferred by the plaintiffs to
Phil. C. Whitatker and Venancio Concepcion were only those they had over the other half of the
railroad line. Therefore, as already stated, since there was no novation of the contract between
the plaintiffs and the defendant, as regards the obligation of the latter to pay the former one-half
of the cost of the construction of the said railroad line, and since the plaintiffs did not include in
the sale, evidenced by Exhibit 5, the credit that they had against the defendant, the allegation
that the obligation of the defendant became extinguished by the merger of the rights of creditor
and debtor by the purchase of Messrs. Phil. C. Whitaker and Venancio Concepcion is wholly
untenable.

265. YEK TON LIN V YUSINGCO

G.R.No. 43608 July 20, 1937
FACTS:
Defendant Pelagio Yusingco was the owner of the steamship Yusingco and, as such, he
executed, on November 19, 1927, a power of attorney in favor of Yu Seguioc to administer,
lease, mortgage and sell his properties, including his vessels or steamship. Yu Seguioc
mortgaged to the plaintiff Yek Tong Lin Fire & Marine Insurance Co., Ltd., with the approval of
the Bureau of Customs, the steamship Yusingco belonging to the defendant. One year and
some months later, the steamship Yusingco needed some repairs which were made by the
Earnshaw Docks & Honolulu Iron Works. The repairs were made upon the guaranty of the
defendant and appellant Vicente Madrigal at a cost of P8,244.66. When neither A. Yusingco
Hermanos nor Pelagio Yusingco could pay said sum to the Earnshaw Docks & Honolulu Iron
Works, the defendant and appellant Vicente Madrigal had to make payment thereof with the
stipulated interest thereon, which was at the rate of 9 per cent per annum, on March 9, 1932,
because he was bound thereto by reason of the bond filed by him, the payment then made by
him having amounted to P8,777.60. When said defendant discovered that he was not to be
reimbursed for the repairs made on the steamship Yusingco, he brought an action against his
codefendant Pelagio Yusingco and A. Yusingco Hermanos to compel them to reimburse,
thereby giving rise to civil case No. 41654 of the Court of First Instance of Manila, entitled
"Vicente Madrigal, plaintiff, vs. Pelagio Yusingco and A. Yusingco Hermanos, defendants"
which resulted in a judgment favorable to him and adverse to the Yusingcos.
ISSUE:
Whether or not obligations were extinguished by reason of the merger of the rights of the
debt or and creditor?
RULING:
After the steamship Yusingco had been sold by virtue of the judicial writ issued in civil
case No. 41654 for the execution of the judgment rendered in favor of Vicente Madrigal, the
only right left to the plaintiff was to collect its mortgage credit from the purchaser thereof at
public auction, inasmuch as the rule is that a mortgage directly and immediately subjects the
property on which it is imposed, whoever its possessor may be, to the fulfillment of the
obligation for the security of which it was created (article 1876, Civil code); but it so happens
that it can not take such steps now because it was the purchaser of the steamship Yusingco at
public auction, and it was so with full knowledge that it had a mortgage credit on said vessel.
Obligations are extinguished by the merger of the rights of the creditor and debtor (articles 1156
and 1192, Civil Code).

266. E.G.V. REALTY V CA

G.R.No. 120236 July 20, 1999
FACTS:
Petitioner E.G.V. Realty Development Corporation is the owner/developer of a sevenstorey condominium building known as Cristina Condominium. Cristina Condominium
Corporation holds title to all common areas of Cristina Condominium and is in charge of
managing, maintaining and administering the condominiums common areas and providing for
the buildings security. Respondent Unisphere International, Inc. (hereinafter referred to as
Unisphere) is the owner/occupant of Unit 301 of said condominium. On November 28, 1981,
respondent Unispheres Unit 301 was allegedly robbed of various items valued at P6,165.00.
The incident was reported to petitioner CCC. On July 25, 1982, another robbery allegedly
occurred at Unit 301 where the items carted away were valued at P6,130.00, bringing the total
value of items lost to P12,295.00. This incident was likewise reported to petitioner CCC. On
October 5, 1982, respondent Unisphere demanded compensation and reimbursement from
petitioner CCC for the losses incurred as a result of the robbery. On January 28, 1987,
petitioners E.G.V. Realty and CCC jointly filed a petition with the Securities and Exchange
Commission (SEC) for the collection of the unpaid monthly dues in the amount of P13,142.67
against respondent Unisphere.
ISSUE :
Whether or not set-off or compensation has taken place in the instant case.
RULING:
Compensation or offset under the New Civil Code takes place only when two persons or
entities in their own rights, are creditors and debtors of each other. (Art. 1278).
A distinction must be made between a debt and a mere claim. A debt is an amount
actually ascertained. It is a claim which has been formally passed upon by the courts or quasijudicial bodies to which it can in law be submitted and has been declared to be a debt. A claim,
on the other hand, is a debt in embryo. It is mere evidence of a debt and must pass thru the
process prescribed by law before it develops into what is properly called a debt. Absent,
however, any such categorical admission by an obligor or final adjudication, no compensation or
off-set can take place. Unless admitted by a debtor himself, the conclusion that he is in truth
indebted to another cannot be definitely and finally pronounced, no matter how convinced he
may be from the examination of the pertinent records of the validity of that conclusion the
indebtedness must be one that is admitted by the alleged debtor or pronounced by final
judgment of a competent court or in this case by the Commission.
There can be no doubt that Unisphere is indebted to the Corporation for its unpaid
monthly dues in the amount of P13,142.67. This is admitted.

267. AEROSPACE CHEMICAL V CA

g.r.no. 108129 september 23, 1999
FACTS:
On June 27, 1986, petitioner Aerospace Industries, Inc. (Aerospace) purchased five
hundred (500) metric tons of sulfuric acid from private respondent Philippine Phosphate
Fertilizer Corporation (Philphos). Initially set beginning July 1986, the agreement provided that
the buyer shall pay its purchases in equivalent Philippine currency value, five days prior to the
shipment date. Petitioner as buyer committed to secure the means of transport to pick-up the
purchases from private respondent's loadports. Per agreement, one hundred metric tons (100
MT) of sulfuric acid should be taken from Basay, Negros Oriental storage tank, while the
remaining four hundred metric tons (400 MT) should be retrieved from Sangi, Cebu. On
December 18, 1986, M/T Sultan Kayumanggi docked at Sangi, Cebu, but withdrew only 157.51
MT of sulfuric acid. Again, the vessel tilted. Further loading was aborted. Two survey reports
conducted by the Societe Generale de Surveillance (SGS) Far East Limited, dated December
17, 1986 and January 2, 1987, attested to these occurrences. Later, on a date not specified in
the record, M/T Sultan Kayumanggi sank with a total of 227.51 MT of sulfuric acid on board.
Petitioner chartered another vessel, M/T Don Victor, with a capacity of approximately 500 MT.6
[TSN, September 1, 1989, pp. 28-29.] On January 26 and March 20, 1987, Melecio Hernandez,
acting for the petitioner, addressed letters to private respondent, concerning additional orders of
sulfuric acid to replace its sunken purchases.
ISSUE:
Should expenses for the storage and preservation of the purchased fungible goods,
namely sulfuric acid, be on seller's account pursuant to Article 1504 of the Civil Code?
RULING:
Petitioner tries to exempt itself from paying rental expenses and other damages by
arguing that expenses for the preservation of fungible goods must be assumed by the seller.
Rental expenses of storing sulfuric acid should be at private respondent's account until
ownership is transferred, according to petitioner. However, the general rule that before delivery,
the risk of loss is borne by the seller who is still the owner, is not applicable in this case because
petitioner had incurred delay in the performance of its obligation. Article 1504 of the Civil Code
clearly states: "Unless otherwise agreed, the goods remain at the seller's risk until the
ownership therein is transferred to the buyer, but when the ownership therein is transferred to
the buyer the goods are at the buyer's risk whether actual delivery has been made or not,
except that: (2) Where actual delivery has been delayed through the fault of either the buyer or
seller the goods are at the risk of the party at fault."
On this score, we quote with approval the findings of the appellate court, thus: The
defendant [herein private respondent] was not remiss in reminding the plaintiff that it would have
to bear the said expenses for failure to lift the commodity for an unreasonable length of time.But
even assuming that the plaintiff did not consent to be so bound, the provisions of Civil Code
come in to make it liable for the damages sought by the defendant.

268. APODACA V NLRC

G.R.No. 80039 April1 8, 1989
FACTS:
Petitioner was employed in respondent corporation. On August 28, 1985, respondent
Jose M. Mirasol persuaded petitioner to subscribe to P1,500 shares of respondent corporation it
P100.00 per share or a total of P150,000.00. He made an initial payment of P37,500.00. On
September 1, 1975, petitioner was appointed President and General Manager of the respondent
corporation. However, on January 2, 1986, he resigned.
On December 19, 1986, petitioner instituted with the NLRC a complaint against private
respondents for the payment of his unpaid wages, his cost of living allowance, the balance of
his gasoline and representation expenses and his bonus compensation for 1986. Petitioner and
private respondents submitted their position papers to the labor arbiter. Private respondents
admitted that there is due to petitioner the amount of P17,060.07 but this was applied to the
unpaid balance of his subscript in the amount of P95,439.93. Petitioner questioned the set-off
alleging that there was no call or notice for the payment of unpaid subscription and that,
accordingly, the alleged obligation is not enforceable.
ISSUE :
Does the National Labor Relations Commission (NLRC) have jurisdiction to resolve a
claim for non-payment of stock subscriptions to a corporation? Assuming that it has, can an
obligation arising therefrom be offset against a money claim of an employee against the
employer?
RULING:
Firstly, the NLRC has no jurisdiction to determine such intra-corporate dispute between
the stockholder and the corporation as in the matter of unpaid subscriptions. This controversy is
within the exclusive jurisdiction of the Securities and Exchange Commission.
Secondly, assuming arguendo that the NLRC may exercise jurisdiction over the said
subject matter under the circumstances of this case, the unpaid subscriptions are not due and
payable until a call is made by the corporation for payment. Private respondents have not
presented a resolution of the board of directors of respondent corporation calling for the
payment of the unpaid subscriptions. It does not even appear that a notice of such call has been
sent to petitioner by the respondent corporation.

269. SPOUSES CHUNG V. ULANDAY CONSTRUCTION

OCTOBER 11, 2010
FACTS:
In February 1985, the petitioners contracted with respondent Ulanday Construction, Inc. to
construct, within a 150-day period,the concrete structural shell of the formers two-storey
residential house in Urdaneta Village, Makati City at the contract price of P3, 291,142.00.
The
contract
stipulated
among
others
that
the
petitioners
shall
pay
a
P987,342.60 downpayment, with the balance to be paid in progress payments based on actual
work completed; (c) the Construction Manager or Architect shall check the respondents request
for progress payment and endorse it to the petitioners for payment within 3 days from
receipt, (d) the petitioners shall pay the respondents within 7 days from receipt of the
Construction Managers or Architects certificate; (e) the respondent cannot change or alter the
plans, specifications, and works without the petitioners prior written approval. Respondent gave
12 progress billings but the petitioners were only able to pay 7 of them. On their part, the
respondent effected 19 change orders without the consent of the petitioners amounting to P912,
885.91. Respondents demanded the remaining balance from the petitioners which the
petitioners denied asserting that the respondents violated the contract.
ISSUE:
Whether or not the petitioners are liable for the remaining balance
RULING:
In contractual relations, the law allows the parties leeway and considers their agreement as the
law between them.Contract stipulations that are not contrary to law, morals, good customs,
public order or public policy shall be binding and should be complied with in good faith. No party
is permitted to change his mind or disavow and go back upon his own acts, or to proceed
contrary thereto, to the prejudice of the other party. In the present case, we find that both parties
failed to comply strictly with their contractual stipulations on the progress billings and change
orders that caused the delays in the completion of the project.
Under the circumstances, fairness and reason dictate that we simply order the set-off of the
petitioners contractual liabilities totaling P575,922.13 against the repair cost for the defective
gutter, pegged at P717,524.00, leaving the amount of P141,601.87 still due from the
respondent. Support in law for this ruling for partial legal compensation proceeds from Articles
1278, 1279, 1281, and 1283 of the Civil Code. In short, both parties are creditors and debtors of
each other, although in different amounts that are already due and demandable.

270. MONDRAGON V. SOLA, JR.

G.R. No. 154188
Facts:
Mondragon International Philippines, Inc., Mondragon Securities Corporation and herein
petitioner entered into a lease agreement with the Clark Development Corporation for the
development of what is now known as the Mimosa Leisure Estate.To help finance the project,
petitioner, entered into an Omnibus Loan and Security Agreement with respondent banks for a
syndicated term loan in the aggregate principal amount of US$20M. Under the agreement, the
proceeds of the loan were to be released through advances evidenced by promissory notes to
be executed by petitioner in favor of each lender-bank, and to be paid within a six-year period
from the date of initial advance inclusive of a one year and two quarters grace period. Petitioner,
which had regularly paid the monthly interests due on the promissory notes until October 1998,
thereafter failed to make payments. Consequently, written notices of default, acceleration of
payment and demand letters were sent by the lenders to the petitioner. Then, respondents filed
a complaint for the foreclosure of leasehold rights against petitioner. Petitioner moved for the
dismissal of the complaint but was denied.
Issue:
Whether or not respondents have a cause of action against the petitioner?
Held:
Under the foregoing provisions of the Agreement, petitioner may be validly declared in default
for failure to pay the interest. As a consequence of default, the unpaid amount shall earn default
interest, and the respondent-banks have four alternative remedies without prejudice to the
application of the provisions on collaterals and any other steps or action which may be adopted
by the majority lender. The four remedies are alternative, with the right of choice given to the
lenders, in this case the respondents. Under Article 1201 of the Civil Code, the choice shall
produce no effect except from the time it has been communicated. In the present case, we find
that written notices were sent to the petitioner by the respondents. The notices clearly indicate
respondents choice of remedy: to accelerate all payments payable under the loan agreement It
should be noted that the agreement also provides that the choice of remedy is without prejudice
to the action on the collaterals. Thus, respondents could properly file an action for foreclosure of
the leasehold rights to obtain payment for the amount demanded.

271. INSULAR INVESTMENT V. CAPITOL ONE

G.R. No. 183308
Facts:
Insular and Capital One and Planters are regularly engaged in trading, sale and purchase of
Philippine treasury bills. Then on May 10, 1994, Capital One wrote a letter to Insular demanding
the physical delivery of the treasury bills which the Capital one purchased. Then on July 1,
1994, the 3 companies entered into a tripartite agreement whrein Planters assigned to Insular,
which in turn assigned to Capital one, bills with the total value of P50million. But despite the
repeated demands, Planters failed to deliver the balance worth of bills making Capital one
likewise unable to deliver the remaining bills to Insular.
RTC: the trial court ordered (a) IITC to pay COEC P17,056,608.00 with interest at the rate of 6%
from June 10, 1994 until full payment and (b) PDB to pay IITC P136,790,000.00 with interest at
the rate of 6% from March 21, 1995 until full payment.CA affirmed the RTC finding that IITC was
not a mere conduit but rather a direct seller to COEC of the treasury bills. The CA, however,
absolved PDB from any liability, ruling that because PDB was not involved in the transactions
between IITC and COEC, IITC should have alleged and proved that PDB sold treasury bills to
IITC.
Hence, this petition.
Issues: (1) Whether IITC acted as a conduit in the transaction between COEC and PDB; (2)
Whether COEC can set-off its obligation to IITC as against the latters obligation to it; and (3)
Whether PDB has the obligation to deliver treasury bills to IITC.
Held:
Petition is meritorious.
(1) IITC did not act as conduit
Petitioner IITC insists that the issue of whether it acted as a conduit is a question of law which
can properly be the subject of a petition for review before this Court. Because the parties
already entered into a stipulation of facts and documents, the facts are no longer at issue;
rather, the court must now determine the applicable law based on the admitted facts, thereby
making it a question of law. Even assuming that the determination of IITCs role in the two
transactions is a pure question of fact, it falls under the exceptions when the Court may decide
to review a question of fact.
(2) The issue raised by IITC is factual in nature as it requires the Court to delve into the records
and review the evidence presented by the parties to determine the validity of the findings of both
the RTC and the CA as to IITCs role in the transactions in question. These are purely factual
issues which this Court cannot review.Well-established is the principle that factual findings of
the trial court, when adopted and confirmed by the Court of Appeals, are binding and conclusive
on this Court and will generally not be reviewed on appeal.
Petition partially granted.

272. SELWIN LAO V. SPECIAL PLANS, INC.

GR No. 164729; June 29, 2010
FACTS:
Petitioners Selwyn F. Lao and Edgar Manansala (Manansala), together with Benjamin Jim (Jim),
entered into a Contract of Lease with respondent Special Plans, Inc. (SPI) for the
period January 16, 1993 to January 15, 1995 over SPIs building at No. 354 Quezon
Avenue, Quezon City. Petitioners intended to use the premises for their karaoke and restaurant
business known as Saporro Restaurant.
Upon expiration of the lease contract, it was renewed for a period of eight months at a monthly
rate of P23, 000.00. On June 3, 1996, SPI sent a Demand Letter to the petitioners asking for full
payment of rentals in arrears.Receiving no payment, SPI filed on July 23, 1996 a Complaint for
sum of money with the MeTC of Quezon City, claiming unpaid rentals of P118, 000.00 covering
the period March 16, 1996 to August 16, 1996.
Petitioners answered faulting SPI for making them believe that it owns the leased property and
that SPI did not deliver the leased premises in a condition fit for petitioners intended use. Thus,
petitioners claimed that they were constrained to incur expenses for necessary repairs as well
as expenses for the repair of structural defects, which SPI failed and refused to
reimburse. Petitioners prayed that the complaint be dismissed and judgment on their
counterclaims be rendered ordering SPI to pay them the sum of P422, 920.40 as actual
damages, as well as moral damages, attorneys fees and exemplary damages.
ISSUE:
Whether or not the cost of repairs incurred by the petitioners should be compensated against
the unpaid rentals.
RULING:

Petitioners failed to properly discharge their burden to show that the debts are liquidated and
demandable. Consequently, legal compensation is inapplicable.
The petitioners attempted to prove that they spent for the repair of the roofing, ceiling and
flooring, as well as for waterproofing. However, they failed to appreciate that, as per their lease
contract, only structural repairs are for the account of the lessor, herein respondent SPI. In
which case, they overlooked the need to establish that aforesaid repairs are structural in nature,
in the context of their earlier agreement. It would have been an altogether different matter if the
lessor was informed of the said structural repairs and he implicitly or expressly consented and
agreed to take responsibility for the said expenses. Such want of evidence on this respect is
fatal to this appeal. Consequently, their claim remains unliquidated and, legal compensation is
inapplicable.

273. UNITED PLANTERS MILLING CO. V. CA

GR No. 126890; April 2, 2009
FACTS:
In 1987, the Republic of the Philippines lost around 1.5 Billion Pesos after it had waived its right
to collect on an outstanding indebtedness from petitioner, by virtue of a so-called friendly
foreclosure agreement that ultimately was friendly only to petitioner.
Petitioner United Planters Sugar Milling Co. (UPSUMCO) was engaged in the business of
milling sugar. In 1974, as UPSUMCO commenced operations, it obtained a set of loans from
respondent
Philippine
National
Bank
(PNB).
The
loans
were
secured
over two parcels of land where the milling plant stood and chattel mortgages over the
machineries and equipment.
On 27 February 1987, through a Deed of Transfer, PNB assigned to the Government its rights,
titles and interests over UPSUMCO, among several other assets.[6] The Deed of Transfer
acknowledged that said assignment was being undertaken in compliance with Presidential
Proclamation No. 50. The Government subsequently transferred these rights, titles and
interests over UPSUMCO to the respondent Asset and Privatization Trust (APT).
ISSUE:
Whether or not there was compensation in the present case.
RULING:
The right of PNB to set-off payments from UPSUMCO arose out of conventional compensation
rather than legal compensation, even though all of the requisites for legal compensation were
present as between those two parties. The determinative factor is the mutual agreement
between PNB and UPSUMCO to set-off payments. Even without an express agreement
stipulating compensation, PNB and UPSUMCO would have been entitled to set-off of payments,
as the legal requisites for compensation under Article 1279 were present.
As soon as PNB assigned its credit to APT, the mutual creditor-debtor relation between PNB
and UPSUMCO ceased to exist. However, PNB and UPSUMCO had agreed to a conventional
compensation, a relationship which does not require the presence of all the requisites under
Article 1279. And PNB too had assigned all its rights as creditor to APT, including its rights under
conventional compensation. The absence of the mutual creditor-debtor relation between the
new creditor APT and UPSUMCO cannot negate the conventional compensation. Accordingly,
APT, as the assignee of credit of PNB, had the right to set-off the outstanding obligations of
UPSUMCO on the basis of conventional compensation before the condonation took effect on 3
September 1987.

274. PNB MANAGEMENT V R&R METAL

G.R.No. 132245 January 1, 2002
FACTS:
It appears that on November 19, 1993, respondent R&R Metal Casting and Fabricating,
Inc. (R&R) obtained a judgment in its favor against Pantranco North Express, Inc. (PNEI). PNEI
was ordered to pay respondent P213,050 plus interest as actual damages, P50,000 as
exemplary damages, 25 percent of the total amount payable as attorneys fees, and the costs of
suit. However, the writ of execution was returned unsatisfied since the sheriff did not find any
property of PNEI recorded at the Registries of Deeds of the different cities of Metro Manila.
Neither did the sheriff receive a reply to the notice of garnishment he sent to PNB-Escolta.On
March 27, 1995, respondent filed with the trial court a motion for the issuance of subpoenae
duces tecum and ad testificandum requiring petitioner PNB Management and Development
Corp. (PNB MADECOR) to produce and testify on certain documents pertaining to transactions
between petitioner and PNEI from 1981 to 1995.
ISSUE:
Whether or not legal compensation have occured in the instant case?
RULING:
Legal compensation could not have occurred because of the absence of one requisite in
this case: that both debts must be due and demandable.
Petitioners obligation to PNEI appears to be payable on demand, following the above
observation made by the CA and the assertion made by petitioner. Petitioner is obligated to pay
the amount stated in the promissory note upon receipt of a notice to pay from PNEI.
If
petitioner fails to pay after such notice, the obligation will earn an interest of 18 percent per
annum.
Since petitioners obligation to PNEI is payable on demand, and there being no demand
made, it follows that the obligation is not yet due. Therefore, this obligation may not be subject
to compensation for lack of a requisite under the law. Without compensation having taken
place, petitioner remains obligated to PNEI to the extent stated in the promissory note. This
obligation may undoubtedly be garnished in favor of respondent to satisfy PNEIs judgment
debt.

275. SILAHIS V IAC

G.R.No. 74027 December 7, 1989
FACTS:
Petitioner Silahis Marketing Corporation seeks in this petition for review on certiorari a
reversal of the decision of the then Intermediate Appellate Court (IAC) in AC-G.R. CV No. 67162
entitled "De Leon, etc. v. Silahis Marketing Corporation", disallowing petitioner's counterclaim for
commission to partially offset the claim against it of private respondent Gregorio de Leon for the
purchase price of certain merchandise. A review of the record shows that on various dates in
October, November and December, 1975, Gregorio de Leon doing business under the name
and style of Mark Industrial Sales sold and delivered to Silahis Marketing Corporation various
items of merchandise covered by several invoices in the aggregate amount of P22,213.75
payable within thirty (30) days from date of the covering invoices.Allegedly due to Silahis' failure
to pay its account upon maturity despite repeated demands, de Leon filed before the then Court
of First Instance of Manila a complaint for the collection of the said accounts including accrued
interest thereon in the amount of P661.03 and attorney's fees of P5,000.00 plus costs of
litigation.
ISSUE:
Whether or not private respondent is liable to the petitioner for the commission or margin
for the direct sale which the former concluded and consummated with Dole Philippines,
Incorporated without coursing the same through herein petitioner.
RULING:
It must be remembered that compensation takes place when two persons, in their own
right, are creditors and debtors to each other. Article 1279 of the Civil Code provides that: "In
order that compensation may be proper, it is necessary: [1] that each one of the obligors be
bound principally, and that he be at the same time a principal creditor of the other; [2] that both
debts consist in a sum of money, or if the things due are consumable, they be of the same kind,
and also of the same quality if the latter has been stated; [3] that the two debts be due; [4] that
they be liquidated and demandable; [5] that over neither of them there be any retention or
controversy, commenced by third persons and communicated in due time to the debtor."
When all the requisites mentioned in Art. 1279 of the Civil Code are present,
compensation takes effect by operation of law, even without the consent or knowledge of the
creditors and debtors. 5 Article 1279 requires, among others, that in order that legal
compensation shall take place, "the two debts be due" and "they be liquidated and
demandable." Compensation is not proper where the claim of the person asserting the set-off
against the other is not clear nor liquidated; compensation cannot extend to unliquidated,
disputed claim existing from breach of contract. Undoubtedly, petitioner admits the validity of its
outstanding accounts with private respondent in the amount of P22,213.75 as contained in its
answer. But whether private respondent is liable to pay the petitioner a 20% margin or

commission on the subject sale to Dole Philippines, Inc. is vigorously disputed. This
circumstance prevents legal compensation from taking place.

276. FRANCIA V CA
G.R.No. 67649 June 28, 1998
FACTS:
Engracio Francia is the registered owner of a residential lot and a two-story house built
upon it situated at Barrio San Isidro, now District of Sta. Clara, Pasay City, Metro Manila. On
October 15, 1977, a 125 square meter portion of Francia's property was expropriated by the
Republic of the Philippines for the sum of P4,116.00 representing the estimated amount
equivalent to the assessed value of the aforesaid portion.Since 1963 up to 1977 inclusive,
Francia failed to pay his real estate taxes. Thus, on December 5, 1977, his property was sold at
public auction by the City Treasurer of Pasay City pursuant to Section 73 of Presidential Decree
No. 464 known as the Real Property Tax Code in order to satisfy a tax delinquency of
P2,400.00. Ho Fernandez was the highest bidder for the property. Francia was not present
during the auction sale since he was in Iligan City at that time helping his uncle ship bananas.
On March 3, 1979, Francia received a notice of hearing of LRC Case No. 1593-P "In re: Petition
for Entry of New Certificate of Title" filed by Ho Fernandez, seeking the cancellation of TCT No.
4739 (37795) and the issuance in his name of a new certificate of title. On March 20, 1979,
Francia filed a complaint to annul the auction sale. He later amended his complaint on January
24, 1980.
ISSUE:
Whether or not francias tax delinquency of P2,400.00 has been extinguished by legal
compensation.
RULING:
There is no legal basis for the contention. By legal compensation, obligations of persons,
who in their own right are reciprocally debtors and creditors of each other, are extinguished (Art.
1278, Civil Code). The circumstances of the case do not satisfy the requirements provided by
Article 1279, to wit:
"(1) that each one of the obligors be bound principally and that he be at the same time a
principal creditor of the other;
We have consistently ruled that there can be no off-setting of taxes against the claims that the
taxpayer may have against the government. A person cannot refuse to pay a tax on the ground
that the government owes him an amount equal to or greater than the tax being collected. The
collection of a tax cannot await the results of a lawsuit against the government.
A claim for taxes is not such a debt, demand, contract or judgment as is allowed to be
set-off under the statutes of set-off, which are construed uniformly, in the light of public policy, to
exclude the remedy in an action or any indebtedness of the state or municipality to one who is
liable to the state or municipality for taxes. Neither are they a proper subject of recoupment
since they do not arise out of the contract or transaction sued on. "The general rule based on
grounds of public policy is well-settled that no set-off admissible against demands for taxes
levied for general or local governmental purposes. The reason on which the general rule is

based, is that taxes are not in the nature of contracts between the party and party but grow out
of duty to, and are the positive acts of the government to the making and enforcing of which, the
personal consent of individual taxpayers is not required

277. TRINIDAD V ACAPULCO

G.R.No. 147477 June 27, 2006
FACTS:
On May 6, 1991, respondent Estrella Acapulco filed a Complaint before the RTC seeking
the nullification of a sale she made in favor of petitioner Hermenegildo M. Trinidad. She alleged:
Sometime in February 1991, a certain Primitivo Caete requested her to sell a Mercedes Benz
for P580,000.00. Caete also said that if respondent herself will buy the car, Caete was willing
to sell it for P500,000.00. Petitioner borrowed the car from respondent for two days but instead
of returning the car as promised, petitioner told respondent to buy the car from Caete for
P500,000.00 and that petitioner would pay respondent after petitioner returns from Davao.
Following petitioners instructions, respondent requested Caete to execute a deed of sale
covering the car in respondents favor for P500,000.00 for which respondent issued three
checks in favor of Caete. Respondent thereafter executed a deed of sale in favor of petitioner
even though petitioner did not pay her any consideration for the sale. When petitioner returned
from Davao, he refused to pay respondent the amount of P500,000.00 saying that said amount
would just be deducted from whatever outstanding obligation respondent had with petitioner.
Due to petitioners failure to pay respondent, the checks that respondent issued in favor of
Caete bounced, thus criminal charges were filed against her.[3] Respondent then prayed that
the deed of sale between her and petitioner be declared null and void; that the car be returned
to her; and that petitioner be ordered to pay damages.
ISSUE:
Whether or not petitioners claim for legal compensation was already too late
RULING:
The court ruled in favor of the petitioner. Compensation takes effect by operation of law
even without the consent or knowledge of the parties concerned when all the requisites
mentioned in Article 1279 of the Civil Code are present.[26] This is in consonance with Article
1290 of the Civil Code which provides that: Article 1290. When all the requisites mentioned in
article 1279 are present, compensation takes effect by operation of law, and extinguishes both
debts to the concurrent amount, even though the creditors and debtors are not aware of the
compensation. Since it takes place ipso jure,[27] when used as a defense, it retroacts to the
date when all its requisites are fulfilled.

278. HEIRS OF FRANCO V. SPS. GONZALES

G.R. No. 159709
FACTS:
Defendants Servando Franco and Leticia Mendel obtained loans from Veronica Gonzales for
the latter was engaged in the business of financing under the company Gonzales Credit
Enterprises. There were three loans which the Servando and Leticia secured with the
respondent, which was not paid on maturity. The third loan was secured by a property was
owned by one Leticia Makalintal Yapintchay, who issued a special power of attorney in favor of
Leticia Medel, authorizing her to execute the mortgage. The fourth loan was engaged with Dr.
Rafael Mendel, the husband of Leticia Mendel of P 60,000 by executing a promissory note
which consolidates the other previous loans which totals to P 500,000. Upon maturity of the new
promissory note, the defendants failed to pay their obligation. So, the plaintiffs filed a complaint
for the collection of the full amount of the loan, plus interests and other charges. Servando
contended that he did not obtain any loan from the respondents, he was not benefited from its
proceed and he signed the promissory note as a witness. With the various appeals and motion
for reconsideration with the RTC and CA, it was decided that the parties should be liable for the
loans. Servando opposed that he and the respondents had agreed to fix the entire obligation at
P775,000.00. According to Servando, their agreement, which was allegedly embodied in a
receipt dated February 5, 1992, whereby he made an initial payment of P400,000.00 and
promised to pay the balance of P375,000.00 on February 29, 1992, superseded the July 23,
1986 promissory note. But the RTC ruled over Servandos opposition and moved to the
execution of the judgment for it is final and executory. Then, Servandos heirs, on account of his
intervening death, appealed that there was novation is the judgment that transpired upon the
decision of the court on December 9, 1991 and February 5, 1992.
ISSUE:
Whether or not there is novation between the judgments rendered by the courts?
HELD:
No, the court rule that there is no novation when there is no irreconcilable incompatibility
between the old and the new obligations. There is no novation in case of only slight
modifications; hence, the old obligation prevails. Extinguishment of the old obligation is an
necessary element for novation and the new one will arise from such. Novation arises when
there is a substitution of an obligation by a subsequent one that extinguishes the first, either by
changing the object or the principal conditions, or by substituting the person of the debtor, or by
subrogating a third person in the rights of the creditor. For a valid novation to take place, there
must be, therefore: (a) a previous valid obligation; (b) an agreement of the parties to make a
new contract; (c) an extinguishment of the old contract; and (d) a valid new contract. In short,
the new obligation extinguishes the prior agreement only when the substitution is unequivocally
declared, or the old and the new obligations are incompatible on every point. A compromise of a
final judgment operates as a novation of the judgment obligation upon compliance with either of
these two conditions.

On the receipt of February 5, 1992 did not create a new obligation incompatible with the old one
under the promissory note that was issued. It was only a payment of the obligation of Servando
and did not establish a new obligation. The Court ruled that the payment of the obligation does
not novate the instrument that only expressly recognize the old obligation, or changes only the
terms of the payment, or adds other obligation that is not incompatible with the old ones, or the
new contract merely supplements the old one. The new contract that is a mere reiteration,
acknowledgement or ratification of the old contract with slight modifications or alterations as to
the cause or object or principal conditions can stand together with the former
one, and there can be no incompatibility between them. Moreover, a creditors acceptance of
payment after demand does not operate as a modification of the original contract. Novation is
not presumed by the parties, there should be an expressed agreement that would abrogate the
old one in favor of the new one. In the absence of the express agreement, the old and the new
obligation should be incompatible on every point. The incompatibility of the obligation is that the
two obligations cannot stand together, each one having independence from each other. Thus,
the court affirms the decision of the CA promulgated on March 19, 2003.

279. CAROLINA HERNANDEZ-NIEVERA V. WILFREDO HERNANDEZ

GR No. 171165; February 14, 2011
FACTS:
Project Movers Realty & Development Corporation (PMRDC) is a duly organized
domestic corporation engaged in real estate development. It entered into a Memorandum of
Agreement (MOA) whereby it was given the option to buy pieces of land owned by petitioners
Carolina Hernandez-Nievera, Margarita H. Malvar and Demetrio P. Hernandez, Jr. Demetrio,
under authority of a Special Power of Attorney to Sell or Mortgage, signed the MOA also in
behalf of Carolina and Margarita. In the aggregate, the realty measured 4,580,451 square
meters and was segregated by agreement into Area I and Area II.
On March 23, 1998, the PMRDC entered with LBP and Demetrio - the latter purportedly
acting under authority of the same special power of attorney as in the MOA - into a Deed of
Assignment and Conveyance (DAC). PMRDC delivered to petitioners certain checks
representing the money, the same however allegedly bounced. Hence, on January 8, 1999,
petitioners demanded the return of the corresponding TCTs over the land but PMRDC said that
the TCTs could no longer be delivered back to petitioners as the covered properties had already
been conveyed and assigned to the Asset Pool pursuant to the March 23, 1998 DAC. Petitioner
contended that Demetrio could not have entered into the said agreement as his power of
attorney was limited only to selling or mortgaging the properties and not conveying the same to
the Asset Pool.
ISSUE:
Whether or not the novation of the MOA is valid.
RULING:
Thus, it becomes clear that Demetrio's special power of attorney to sell is sufficient to
enable him to make a binding commitment under the DAC in behalf of Carolina and Margarita.
In particular, it does include the authority to extinguish PMRDC's obligation under the MOA to
deliver option money and agree to a more flexible term by agreeing instead to receive shares of
stock in lieu thereof and in consideration of the assignment and conveyance of the properties to
the Asset Pool. Indeed, the terms of his special power of attorney allow much leeway to
accommodate not only the terms of the MOA but also those of the subsequent agreement in the
DAC which, in this case, necessarily and consequently has resulted in a novation of PMRDC's
integral obligations.
There are two ways which could indicate, in fine, the presence of novation and thereby
produce the effect of extinguishing an obligation by another which substitutes the same. The
first is when novation has been explicitly stated and declared in unequivocal terms. The second
is when the old and the new obligations are incompatible on every point. 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.

280. ST. JAMES COLLEGE V. EQUITABLE PCI BANK

GR No. 179441; August 9, 2010
FACTS:
Petitioners-spouses owned and operated St. James College of Paranaque. Sometime in
1995, the Philippine Commercial and International Bank (PCIB), respondent, granted the Torres
spouses and/or St. James College a credit line facility of up to 25,000,000 secured by a real
estate mortgage over a parcel of land in Paranaque. Petitioners had defaulted in the payment of
the loan obtained from the secured credit accommodation, their total unpaid loan obligation, as
of September 2001, stood at 18,300,000. Respondent proposed a payment scheme to pay
annually which the petitioners agreed upon but failed to comply with. Respondent then
demanded full settlement of the loan. Petitioners contended that the the full amount is still not
due owing to the implied novation of the terms of payment previously agreed upon. As
petitioners assert in this regard that the acceptance by respondent, particularly of the June 23,
2003 PhP 2,521,609.62 payment, without any objection on the new terms set forth in their June
23, 2003 complementing covering letter, novated the terms of payment of the 18,300,000
secured loan.
ISSUE:
Whether or not there was novation of contract
RULING:
As a civil law concept, novation is the extinguishment of an obligation by the substitution
or change of the obligation by a subsequent one which terminates it, either by changing its
objects or principal conditions, or by substituting a new debtor in place of the old one, or by
subrogating a third person to the rights of the creditor. Novation may be extinctive or
modificatory. It is extinctive when an old obligation is terminated by the creation of a new one
that takes the place of the former; it is merely modificatory when the old obligation subsists to
the extent that it remains compatible with the amendatory agreement. Novation may either be
express, when the new obligation declares in unequivocal terms that the old obligation is
extinguished, or implied, when the new obligation is on every point incompatible with the old
one. The test of incompatibility lies on whether the two obligations can stand together, each one
with its own independent existence.
For novation, as a mode of extinguishing or modifying an obligation, to apply, the following
requisites must concur:
1) There must be a previous valid obligation.
2) The parties concerned must agree to a new contract.
3) The old contract must be extinguished.
4) There must be a valid new contract.

281. MINDANAO SAVINGS AND LOAN ASSOCIATION INC. V. EDWARD WILLKOM

GR No. 178618; October 11, 2010
FACTS:
The First Iligan Savings and Loan Association, Inc. (FISLAI) and the Davao Savings and
Loan Association, Inc. (DSLAI) banks that entered into a merger, with DSLAI as the surviving
corporation. The articles of merger were not registered with the SEC but when DSLAI changed
its corporate name to MSLAI the amendment was approved by the SEC.Meanwhile, the Board
of Directors of FISLAI passed a resolution, assigning its assets in favor of DSLAI which in turn
assumed the formers liabilities.The business of MSLAI, however, failed was ordered its closure
and placed under receivership.
Prior to the closure of MSLAI, Uy filed an action for collection of sum of money against
FISLAI. The RTC issued a summary decision in favor of Uy, directing defendants therein (which
included FISLAI) to pay the former the sum of P136, 801.70. Therafter,sheriff Bantuas levied on
six (6) parcels of land owned by FISLAI and Willkom was the highest bidder. New certificates
of title covering the subject properties were issued in favor of Willkom who sold one of the
subject parcels of land to Go.
MSLAI, represented by PDIC, filed a complaint forAnnulment of Sheriffs Sale,
Cancellation of Title and Reconveyance of Properties against respondents. Therespondents
averred that MSLAI had no cause of action against them or the right to recover the subject
properties because MSLAI is a separate and distinct entity from FISLAI as the merger did not
take effect.
ISSUE:
Whether or not there was novation of the obligation by substituting the person of the
debtor
RULING:
It is a rule that novation by substitution of debtor must always be made with the consent
of the creditor. Article 1293 of the Civil Code is explicit, thus:
Art. 1293. Novation which consists in substituting a new debtor in the place of the
original one, may be made even without the knowledge or against the will of the latter, but not
without the consent of the creditor. Payment by the new debtor gives him the rights mentioned
in Articles 1236 and 1237. In this case, there was no showing that Uy, the creditor, gave her
consent to the agreement that DSLAI (now MSLAI) would assume the liabilities of FISLAI. Such
agreement cannot prejudice Uy. Thus, the assets that FISLAI transferred to DSLAI remained
subject to execution to satisfy the judgment claim of Uy against FISLAI. The subsequent sale of
the properties by Uy to Willkom, and of one of the properties by Willkom to Go, cannot,
therefore, be questioned by MSLAI. The consent of the creditor to a novation by change of
debtor is as indispensable as the creditors consent in conventional subrogation in order that a
novation shall legally take place. Since novation implies a waiver of the right which the creditor
had before the novation, such waiver must be express.

282. Loadmasters vs Glodel and R&B Digest

G.R. No.179446: January 10, 2011
FACTS:
Columbia Wire and Cable Corporation (Columbia) insured a cargo of copper cathodes through
R&B Insurance Corporation (R&B). Columbia also engaged the services of Glodel Brokerage
Corporation (Glodel) for the transport of the cargo to Columbia facilities. Glodel then engaged
the services of Loadmasters Customs Services (Loadmasters) for the delivery of said cargo to
Columbia. Out of 12 trucks, owned by Loadmasters, used to deliver the cargo of Columbia, only
11 made it to their respective destinations. /span>Columbia claimed the amount of loss from
R&B, which sued both Glodel and Loadmasters. The RTC ruled in favor of R&B, but did not hold
Loadmasters liable. Both R&B and Glodelappealed the judgement. The Court of Appeals
modified the decision of the RTC and ruled that Loadmasters, being the agent of Glodel, is
liable to Glodel for all the damages it might be required to pay.
ISSUES:
Whether or not Loadmasters is an agent of Glodel, and whether or not it may be held liable
under the transaction between Glodel and Columbia.
HELD: Petition is partly meritorious
Civil Law: Glodel and Loadmasters are both common carriers, as they hold out their carriage
services to the public. As such, under the Civil Code, they are mandated to show extraordinary
diligence in the conduct of transport. In the case at bar, both Glodel and Loadmasters were
negligent as the cargo failed to reach its destination. Loadmasters failed to ensure that its
employees would not tamper with the cargo. Glodel failed to ensure that Loadmasters is
sufficiently capable of completing the delivery. Glodel and Loadmasters are therefore joint
tortfeasors and are solidarily liable to R&B Insurance.
Loadmasters cannot be considered an agent of Glodel. Loadmasters in no way represented
itself as such, and in the transfer of cargo, did not represent itself as doing such in behalf of
Glodel. In fact, Loadmasters is not privy to the agreement between Glodel and Columbia. It
cannot be considered an agent of Glodel, and cannot be held liable to Glodel.
Remedial Law: Though Glodel has, admittedly, a cause of action against Loadmasters, it has
effectively waived it by failing to raise the cross-claim. The rules of procedure states that
compulsory counterclaims and cross-claims not pleaded are deemed waived. They cannot be
raised for the first time on appeal.

283. METROBANK V. RURAL BANK OF GERONA

G.R. NO. 159097
FACTS:
RBG is a rural banking corporation organized under Philippine laws and located in Gerona,
Tarlac. In the 1970s, the Central Bank and the RBG entered into an agreement providing that
RBG shall facilitate the loan applications of farmers-borrowers under the Central BankInternational Bank for Reconstruction and Developments (IBRDs) 4th Rural Credit Project. The
agreement required RBG to open a separate bank account where the IBRD loan proceeds shall
be deposited. The RBG accordingly opened a special savings account with Metrobanks Tarlac
Branch. As the depository bank of RBG, Metrobank was designated to receive the credit advice
released by the Central Bank representing the proceeds of the IBRD loan of the farmersborrowers; Metrobank, in turn, credited the proceeds to RBGs special savings account for the
latters release to the farmers-borrowers. In its July 7, 1994 decision, the RTC ruled for
Metrobank, finding that legal subrogation had ensued: [Metrobank] had allowed releases of the
amounts in the credit advices it credited in favor of [RBGs special savings account] which credit
advices and deposits were under its supervision. Being faulted in these acts or omissions, the
Central Bank [sic] debited these amounts against [Metrobanks] demand [deposit] reserve; thus[,
Metrobanks] demand deposit reserves diminished correspondingly, [Metrobank as of this time,]
suffers prejudice in which case legal subrogation has ensued. the CA declared that the
Central Bank should be impleaded as a necessary party so it could shed light on the IBRD
loan reversals. Thus, the CA set aside the RTC decision, and remanded the case to the trial
court for further proceedings after the Central Bank is impleaded as a necessary party. After the
CA denied its motion for reconsideration, Metrobank filed the present petition for review
on certiorari.
ISSUE:
W/N Metrobanks claims that RGBs letters more than sufficiently proved its liability.
HELD:
Central Banks immediate recourse, therefore should have been against the farmers-borrowers
and the RBG; thus, it erred when it deducted the amounts covered by the debit advices from
Metrobanks demand deposit account. Under the Project Terms and Conditions, Metrobank had
no responsibility over the proceeds of the IBRD loans other than serving as a conduit for their
transfer from the Central Bank to the RBG once credit advice has been issued. Thus, we agree
with the CAs conclusion that the agreement governed only the parties involved the Central Bank
and the RBG. Metrobank was simply an outsider to the agreement. Our disagreement with the
appellate court is in its conclusion that no legal subrogation took place; the present case, in fact,
exemplifies the circumstance contemplated under paragraph 2, of Article 1302 of the Civil Code.
Under this situation, impleading the Central Bank as a party is completely unnecessary. We note
that the CA erroneously believed that the Central Banks presence is necessary in order x x x to
shed light on the matter of reversals made by it concerning the loan applications of the end

users and to have a complete determination or settlement of the claim. As this Court is not a
trier of facts, we deem it proper to remand this factual issue to the RTC for determination and
computation of the actual amount RBG owes to Metrobank, plus the corresponding interest and
penalties.
WHEREFORE, we GRANT the petition for review on certiorari.
284. SWAGMAN V CA
G.R.No. 161135 April 8, 2005
FACTS:
Sometime in 1996 and 1997, petitioner Swagman Hotels and Travel, Inc., through Atty.
Leonor L. Infante and Rodney David Hegerty, its president and vice-president, respectively,
obtained from private respondent Neal B. Christian loans evidenced by three promissory notes
dated 7 August 1996, 14 March 1997, and 14 July 1997. Each of the promissory 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 loans and demanded from the latter payment
in the total amount of US$150,000 plus unpaid interests in the total amount of US$13,500. On 2
February 1999, private respondent Christian filed with the Regional Trial Court of Baguio City,
Branch 59, 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 vicepresident, filed an Answer raising as defenses lack of cause of action and novation of the
principal obligations. According to them, Christian had no cause of action because the three
promissory notes were not yet due and demandable.
ISSUE:
Where there is a valid novation, may the original terms of contract which has been
novated still prevail?
HELD:
The receipts, as well as private respondents summary of payments, lend credence to
petitioners claim that the payments were for the principal loans and that the interests on the
three consolidated loans were waived by the private respondent during the undisputed
renegotiation of the loans on account of the business reverses suffered by the petitioner at the
time.
There was therefore a novation of the terms of the three promissory notes in that the
interest was waived and the principal was payable in monthly installments of US$750.
Alterations of the terms and conditions of the obligation would generally result only in
modificatory novation unless such terms and conditions are considered to be the essence of the
obligation itself.[25] The resulting novation in this case was, therefore, of the modificatory type,
not the extinctive type, since the obligation to pay a sum of money remains in force.
Thus, since the petitioner did not renege on its obligation to pay the monthly installments
conformably with their new agreement and even continued paying during the pendency of the
case, the private respondent had no cause of action to file the complaint. It is only upon
petitioners default in the payment of the monthly amortizations that a cause of action would
arise and give the private respondent a right to maintain an action against the petitioner.

285. AZOLLA FARMS V CA

G.R.No. 138085 November 11, 2004
FACTS:
Petitioner Francis R. Yuseco, Jr., is the Chairman, President and Chief Operating Officer
of petitioner Azolla Farms International Philippines. In 1982, Azolla Farms undertook to
participate in the National Azolla Production Program wherein it will purchase all the Azolla
produced by the Azolla beneficiaries in the amount not exceeding the peso value of all the
inputs provided to them. The project also involves the then Ministry of Agriculture, the Kilusang
Kabuhayan at Kaunlaran, and the Kiwanis. To finance its participation, petitioners applied for a
loan with Credit Manila, Inc., which the latter endorsed to its sister company, respondent
Savings Bank of Manila (Savings Bank). The Board of Directors of Azolla Farms, meanwhile,
passed a board resolution on August 31, 1982, authorizing Yuseco to borrow from Savings Bank
in an amount not exceeding P2,200,000.00.
The loan having been approved, Yuseco executed a promissory note on September 13,
1982, promising to pay Savings Bank the sum of P1,400,000.00 on or before September 13,
1983. the Azolla Farms project collapsed. Blaming Savings Bank, petitioners Yuseco and Azolla
Farms filed on October 3, 1983 with the Regional Trial Court of Manila (Branch 25), a complaint
for damages. In essence, their complaint alleges that Savings Bank unjustifiably refused to
promptly release the remaining P300,000.00 which impaired the timetable of the project and
inevitably affected the viability of the project resulting in its collapse, and resulted in their failure
to pay off the loan. Thus, petitioners pray for P1,000,000.00 as actual damages, among others.
ISSUE:
Whether the trial court erred in admitting petitioners amended complaint
RULING:
SEC. 5. Amendment to conform to or authorize presentation of evidence .When issues
not raised by the pleadings are tried by express or implied consent of the parties, they shall be
treated in all respects, as if they had been raised in the pleadings. Such amendment of the
pleadings as may be necessary to cause them to conform to the evidence and to raise these
issues may be made upon motion of any party at any time, even after judgment; but failure so to
amend does not affect the result of the trial of these issues. If evidence is objected to at the trial
on the ground that it is not within the issues made by the pleadings, the court may allow the
pleadings to be amended and shall do so freely when the presentation of the merits of the
action will be subserved thereby and the objecting party fails to satisfy the court that the
admission of such evidence would prejudice him in maintaining his action or defense upon the
merits.
As can be gleaned from the records, it was petitioners belief that respondents evidence
justified the amendment of their complaint. The trial court agreed thereto and admitted the
amended complaint. On this score, it should be noted that courts are given the discretion to
allow amendments of pleadings to conform to the evidence presented during the trial.

286. BAUTISTA V PILAR DEVELOPMENT

G.R.NO. 135046 august 17, 1999
FACTS:
In 1978, petitioner spouses Florante and Laarni Bautista purchased a house and lot in
Pilar Village, Las Pinas, Metro Manila. To partially finance the purchase, they obtained from the
Apex Mortgage & Loan Corporation a loan in the amount of P100,180.00. They executed a
promissory note on December 22, 1978 obligating themselves, jointly and severally, to pay the
"principal sum of P100,180.00 with interest rate of 12% and service charge of 3%" for a period
of 240 months, or twenty years, from date, in monthly installments of P1,378.83. Late payments
were to be charged a penalty of one and one-half per cent (1 1/2%) of the amount due. In the
same promissory note, petitioners authorized Apex to "increase the rate of interest and/or
service charges" without notice to them in the event that a law, Presidential Decree or any
Central Bank regulation should be enacted increasing the lawful rate of interest and service
charges on the loan. Payment of the promissory note was secured by a second mortgage on
the house and lot purchased by petitioners.Petitioner spouses failed to pay several installments.
On September 20, 1982, they executed another promissory note in favor of Apex. This note
was in the amount of P142,326.43 at the increased interest rate of twenty-one per cent (21%)
per annum with no provision for service charge but with penalty charge of 1 1/2% for late
payments.
ISSUE:
Whether or not there was valid novation in the case at bar?
RULING:
Novation has four (4) essential requisites: (1) the existence of a previous valid
obligation; (2) the agreement of all parties to the new contract; (3) the extinguishment of the old
contract; and (4) the validity of the new one. In the instant case, all four requisites have been
complied with. The first promissory note was a valid and subsisting contract when petitioner
spouses and Apex executed the second promissory note. The second promissory note
absorbed the unpaid principal and interest of P142,326.43 in the first note which amount
became the principal debt therein, payable at a higher interest rate of 21% per annum. Thus,
the terms of the second promissory note provided for a higher principal, a higher interest rate,
and a higher monthly amortization, all to be paid within a shorter period of 16.33 years. These
changes are substantial and constitute the principal conditions of the obligation. Both parties
voluntarily accepted the terms of the second note; and also in the same note, they
unequivocally stipulated to extinguish the first note. Clearly, there was animus novandi, an
express intention to novate. The first promissory note was cancelled and replaced by the
second note. This second note became the new contract governing the parties' obligations.

287. EVADEL REALTY V SORIANO

G.R.No. 144291 April 20, 2001
FACTS:
On April 12, 1996, the spouses Antero and Virginia Soriano (respondent spouses), as
sellers, entered into a "Contract to Sell " with Evadel Realty and Development Corporation
(petitioner), as buyer, over a parcel of land denominated as Lot 5536-C of the Subdivision Plan
of Lot 5536 covered by Transfer Certificate of Title No. 125062 which was part of a huge tract of
land known as the Imus Estate. Upon payment of the first installment, petitioner introduced
improvements thereon and fenced off the property with concrete walls. Later, respondent
spouses discovered that the area fenced off by petitioner exceeded the area subject of the
contract to sell by 2,450 square meters. Upon verification by representatives of both parties, the
area encroached upon was denominated as Lot 5536-D-1 of the subdivision plan of Lot 5536-D
of Psd-04-092419 and was later on segregated from the mother title and issued a new transfer
certificate of title, TCT No. 769166, in the name of respondent spouses. Respondent spouses
successively sent demand letters to petitioner on February 14, March 7, and April 24, 1997, to
vacate the encroached area. Petitioner admitted receiving the demand letters but refused to
vacate the said area.
ISSUE:
Whether or not there was novation of contract?
RULING:
Petitioner's claim that there was a novation of contract because there was a "second"
agreement between the parties due to the encroachment made by the national road on the
property subject of the contract by 1,647 square meters, is unavailing. Novation, one of the
modes of extinguishing an obligation, requires the concurrence of the following: (1) there is a
valid previous obligation; (2) the parties concerned agree to a new contract; (3) the old contract
is extinguished; and (4) there is valid new contract. Novation may be express or implied. In
order that an obligation may be extinguished by another which substitutes the same, it is
imperative that it be so declared in unequivocal terms (express novation) or that the old and the
new obligations be on every point incompatible with each other (implied novation).
In the instant case, there was no express novation because the "second" agreement
was not even put in writing. Neither was there implied novation since it was not shown that the
two agreements were materially and substantially incompatible with each other. We quote with
approval the following findings of the trial court: Since the alleged agreement between the
plaintiffs [herein respondents] and defendant [herein petitioner] is not in writing and the alleged
agreement pertains to the novation of the conditions of the contract to sell of the parcel of land
subject of the instant litigation, ipso facto, novation is not applicable in this case since, as stated
above, novation must be clearly proven by the proponent thereof and the defendant in this case
is clearly barred by the Statute of Frauds from proving its claim.

288. ROSARIO V. DE GUZMAN

G.R. No. 191247
FACTS:
Sometime in August 1990, Spouses Pedro and Rosita de Guzman (Spouses de Guzman)
engaged the legal services of Atty. Francisco L. Rosario, Jr. (petitioner) as defense counsel in
the complaint filed against them by one Loreta A. Chong (Chong) for annulment of contract and
recovery of possession with damages involving a parcel of land in Paraaque City, covered by
Transfer Certificate of Title (TCT) No. 1292, with an area of 266 square meters, more or less.
Petitioners legal services commenced from the RTC and ended up in this Court.3 Spouses de
Guzman, represented by petitioner, won their case at all levels. While the case was pending
before this Court, Spouses de Guzman died in a vehicular accident. Thereafter, they were
substituted by their children, namely: Rosella de Guzman-Bautista, Lellani de Guzman, Arleen
de Guzman, and Philip Ryan de Guzman (respondents).4
On September 8, 2009, petitioner filed the Motion to Determine Attorneys Fees5 before the
RTC. He alleged, among others, that he had a verbal agreement with the deceased Spouses de
Guzman that he would get 25% of the market value of the subject land if the complaint filed
against them by Chong would be dismissed. Despite the fact that he had successfully
represented them, respondents refused his written demand for payment of the contracted
attorneys fees. Petitioner insisted that he was entitled to an amount equivalent to 25% percent
of the value of the subject land on the basis of quantum meruit.
On November 23, 2009, the RTC rendered the assailed order denying petitioners motion on the
ground that it was filed out of time. The RTC stated that the said motion was filed after the
judgment rendered in the subject case, as affirmed by this Court, had long become final and
executory on October 31, 2007. The RTC wrote that considering that the motion was filed too
late, it had already lost jurisdiction over the case because a final decision could not be amended
or corrected except for clerical errors or mistakes. There would be a variance of the judgment
rendered if his claim for attorneys fees would still be included.
Petitioner filed a motion for reconsideration, but it was denied by the RTC for lack of merit.
Hence, this petition.
ISSUE:
THE TRIAL COURT COMMITTED A REVERSIBLE ERROR IN DENYING THE MOTION TO
DETERMINE ATTORNEYS FEES ON THE GROUND THAT IT LOST JURISDICTION OVER
THE CASE SINCE THE JUDGMENT IN THE CASE HAS BECOME FINAL AND EXECUTORY
HELD:
With respect to the merits of the case, the Court finds in favor of petitioner. In the case at bench,
the attorneys fees being claimed by the petitioner refers to the compensation for professional
services rendered, and not as indemnity for damages. He is demanding payment from

respondents for having successfully handled the civil case filed by Chong against Spouses de
Guzman. The award of attorneys fees by the RTC in the amount of P10,000.00 in favor of
Spouses de Guzman, which was subsequently affirmed by the CA and this Court, is of no
moment. The said award, made in its extraordinary concept as indemnity for damages, forms
part of the judgment recoverable against the losing party and is to be paid directly to Spouses
de Guzman (substituted by respondents) and not to petitioner. Thus, to grant petitioners motion
to determine attorneys fees would not result in a double award of attorneys fees. And, contrary
to the RTC ruling, there would be no amendment of a final and executory decision or variance in
judgment. With respect to petitioners entitlement to the claimed attorneys fees, it is the Courts
considered view that he is deserving of it and that the amount should be based on quantum
meruit. The Court, however, is resistant in granting petitioner's prayer for an award of 25%
attorney's fees based on the value of the property subject of litigation because petitioner failed
to clearly substantiate the details of his oral agreement with Spouses de Guzman. A fair and
reasonable amount of attorney's fees should be 15% of the market value of the property.

289. VECTOR SHIPPING V. AMERICAN HOME

G.R. No. 159213. July 3, 2013
Facts:
Caltex entered into a contract of affreightment3 with Vector for the transport of Caltexs
petroleum cargo through the M/T Vector. Caltex insured the petroleum cargo with respondent for
7,455,421.08 under Marine Open Policy. After approximately three months, the entire
petroleum cargo of Caltex on board the M/T Vector perished due to an accident during voyage
on December 20, 1987. The respondent indemnified Caltex for 7,455,421.08.
The respondent filed a complaint against Vector, Soriano, and Sulpicio Lines, Inc. to recover the
full amount of 7,455,421.08 it paid to Caltex only on March 5, 1992.
ISSUE:
Whether or not Vector Shipping is liable.
HELD:
Yes. The legal provision governing this case was not Article 1146 of the Civil Code, but Article
1144 of the Civil Code. However, the present action was not upon a written contract, but upon
an obligation created by law. Hence, it came under Article 1144 (2) of the Civil Code. This is
because the subrogation of respondent to the rights of Caltex as the insured was by virtue of the
express provision of law embodied in Article 2207 of the Civil Code, to wit:
Article 2207. If the plaintiffs property has been insured, and he has received indemnity
from the insurance company for the injury or loss arising out of the wrong or breach of contract
complained of, the insurance company shall be subrogated to the rights of the insured against
the wrongdoer or the person who has violated the contract. If the amount paid by the insurance
company does not fully cover the injury or loss, the aggrieved party shall be entitled to recover
the deficiency from the person causing the loss or injury. (Emphasis supplied)
Subrogation under Article 2207 of the Civil Code gives rise to a cause of action created
by law. For purposes of the law on the prescription of actions, the period of limitation is ten
years.

290. Villeza v. German Management

177 SCRA 495
FACTS:
In February 1982, the spouses Manuel and Cynthia Jose contracted with German Management
and Services, Inc. for the latter to develop their landholdings into a residential subdivision. The
spouses also executed a special power of attorney to that effect. German Management started
the project in February 1983, however, German Management discovered that the land was
being possessed by Ernest0 Villeza et al who were the farmers tilling the said land at that time.
German Management spoke with Villeza et al but the farmers refused to vacate the land as the
farmers claimed that they have been occupying the land for twelve years. Nevertheless,
German Management went on to develop the property and demolished the properties of the
farmers without acquiring a court order. In turn, Villeza et al filed a case of forcible entry against
German Management. In its defense, German Management invoked the Doctrine of Self-help
which provides that: The owner or lawful possessor of a thing has the right to exclude any
person from the enjoyment and disposal thereof. For this purpose, he may use such force as
may be reasonably necessary to repel or prevent an actual or threatened unlawful physical
invasion or usurpation of his property. (Article 429, Civil Code)
ISSUE:
Whether or not the doctrine of self-help is applicable in this case.
HELD:
No. The Doctrine of Self-help is not applicable because at the time when German Management
excluded the farmers, theres no longer an actual or threatened unlawful physical invasion or
usurpation. That actual or threatened unlawful physical invasion by the farmers have already
lapsed 12 years ago when they began occupying the said land. In fact, they were already
peaceably farming the land.
What should have been the remedy by German Management?
German Management should have filed either accion publiciana or accion reivindicatoria to
lawfully eject the farmers.
But the farmers are not the real owners and in fact, the spouses Jose have a lawful title over the
land?
Regardless of the actual condition of the title to the property, the party in peaceable quiet
possession shall not be turned out by a strong hand, violence or terror. Further, there is now a
presumption of ownership in favor of the farmers since they are the ones occupying the said
property. They can only be ejected either by accion publiciana or accion reivindicatoria through
which the spouses Joses better right may be proven.

291. IPIC vs. Gregorio & Gregorio Digest

G.R. No. 174104, February 14, 2011
FACTS:
Spouses Vidal Gregorio and Julita Gregorio obtained loans from the Insurance of the Philippine
Islands Corporation. By way of security for the said loan, respondents executed Real Estate
Mortgage. Respondents failed to pay their loans, as a result of which the mortgaged properties
were extrajudicially foreclosed.
Petitioner filed a Complaint for damages against respondents alleging that in 1995, when it was
in the process of gathering documents for the purpose of filing an application for the registration
and confirmation of its title over the foreclosed properties, it discovered that the said lots were
already registered in the names of third persons and transfer certificates of title (TCT) were
issued to them.
The RTC of Morong, Rizal, ruled in favor of petitioner, while the CA rendered a Decision
reversing and setting aside the decision of the RTC and dismissing the complaint of petitioner. It
ruled that petitioner's action for damages is barred by prescription and laches.
ISSUE: Whether or not petitioner's right of action prescribed four years after the subject
properties were registered with the Register of Deeds of Morong, Rizal and TCTs were
subsequently issued in the names of third persons.
HELD:
The petition is meritorious.
The Court finds no error in the ruling of the CA that petitioner's cause of action accrued at the
time it discovered the alleged fraud committed by respondents. It is at this point that the fouryear prescriptive period should be counted. However, the Court does not agree with the CA in
its ruling that the discovery of the fraud should be reckoned from the time of registration of the
titles covering the subject properties. The reckoning period for prescription of petitioner's action
should be from the time of actual discovery of the fraud.
Neither may the principle of laches apply in the present case. The essence of laches or stale
demands is the failure or neglect for an unreasonable and unexplained length of time to do that
which, by exercising due diligence, could or should have been done earlier, thus, giving rise to a
presumption that the party entitled to assert it either has abandoned or declined to assert it. It is
not concerned with mere lapse of time; the fact of delay, standing alone, being insufficient to
constitute laches.
Petition is DENIED.
The decision of CA is affirmed.

292. MARIANO V. PETRON

GR 169438
FACTS:
Pacita V. Aure, Nicomedes Aure Bundac, and Zeny Abundo (Aure Group), owners of a 2,064
square meter parcel of land in Tagaytay City4 (Property),leased the Property to ESSO Standard
Eastern, Inc.,(ESSO Eastern), a foreign corporation doing business in the country through its
subsidiary ESSO Standard Philippines, Inc. (ESSO Philippines). The lease period is 90 years5
and the rent is payable monthly for the rst 10 years, and annually for the remainingperiod.6
The lease contract (Contract) contained an assignment veto clause barring the parties from
assigning the lease without prior consent of theother.7 Excluded from the prohibition were
certain corporations to whom ESSO Eastern may unilaterally assign its leasehold right. On 23
December 1977, ESSO Eastern sold ESSO Philippines to the Philippine National Oi
lCorporation (PNOC).9 Apparently, the Aure Group was not informed of the sale. ESSO
Philippines, whose corporate name was successively changed to Petro phil Corporation then to
Petron Corporation (Petron), took possession of the Property. On 18 November 1993, petitioner
Romeo D. Mariano (petitioner) bought the Property from the Aure Group and obtained title to the
Property issued in his name bearing an annotation of ESSO Easterns lease.10On 17
December 1998, petitioner sent to Petron a notice to vacate the Property. Petitioner informed
Petron that Presidential Decree No. 471 (PD 471),11dated 24 May 1974, reduced the Contracts
duration from 90 to 25 years, ending on 13 November 1993.12 Despite receiving the notice to
vacate on 21December 1998, Petron remained on the Property. On 18 March 1999, petitioner
sued Petron in the Regional Trial Court of Tagaytay City, Branch 18, (trial court) to rescind the
Contract and recover possession of the Property. Aside from invoking PD471, petitioner
alternatively theorized that the Contract was terminated on 23 December 1977 when ESSO
Eastern sold ESSO Philippines to PNOC, thus assigning to PNOC its lease on the Property,
without seeking the Aure Groups prior consent. In its Answer, Petron countered that the
Contract was not breached because PNOC merely acquired ESSO Easterns shares in ESSO
Philippines, a separate corporate entity. Alternatively, Petron argued that petitioners suit, led
on 18 March 1999, was barred by prescription under Article 1389 and Article 1146(1) of the Civil
Code as petitioner should have sought rescission within four years from PNOCs purchase of
ESSO Philippines on 23 December197713 or before 23 December 1981.
Issue:
W/N the action is barred by Prescription
Ruling:
Petitioners Suit Barred by Prescription Petitioners waiver of Petrons contractual breach was
compounded by his long inaction to seek judicial redress. Petitioner led his complaint nearly
22years after PNOC acquired the leasehold rights to the Property and almost six years after
petitioner bought the Property from the Aure Group. The more than two decades lapse puts this

case well within the territory of the 10 year prescriptive bar to suits based upon a written
contract under Article 1144 (1)of the Civil Code.

293. SPOUSES PATRICIO and MYRNA BERNALES vs. HEIRS OF JULIAN SAMBAAN
G.R.No. 163271
Facts:
Spouses Julian and Guillerma Sambaan were the registered owner of a property located in
Bulua, Cagayan de oro City. The respondents and the petitioner Myrna Bernales are the
children of Julian and Guillerma. Myrna, who is the eldest of the siblings, is the present owner
and possessor of the property in question. Julian died in an ambush in 1975. Before he died, he
requested that the property in question be redeemed from Myrna and her husband Patricio
Bernales. Thus, in 1982 one of Julians siblings offered to redeem the property but the
petitioners refused because they were allegedly using the property as tethering place for their
cattle. In January 1991, respondents received an information that the subject property was
already transferred to Myrna Bernales. The Deed of Absolute Sale dated December 7, 1970
bore the forged signatures of their parents, Julian and Guillerma. On April 1993, the
respondents, together with their mother Guillerma, filed a complaint for Annulment of Deed of
Absolute Sale and cancellation of TCT No. T-14204 alleging that their parents signatures were
forged. The trial court rendered a decision on August 2, 2001 cancelling the TCT and ordering
another title to be issued in the name of the late Julian Sambaan. Petitioners went to the CA and
appealed the decision. The CA affirmed the decision of the lower court. A motion for
reconsideration of the decision was, likewise, denied in 2004. Hence, this petition for certiorari.
Issue:
Whether or not the Deed of Absolute Sale is authentic as to prove the ownership of the
petitioners over the subject property.
Held:
It is a question of fact rather than of law. Well-settled is the rule that the Supreme Court is not a
trier of facts. Factual findings of the lower courts are entitled to great weight and respect on
appeal, and in fact accorded finality when supported by substantial evidence on the record.
Substantial evidence is more than a mere scintilla of evidence. It is that amount of relevant
evidence that a reasonable mind might accept as adequate to support a conclusion, even if
other minds, equally reasonable, might conceivably opine otherwise. But to erase any doubt on
the correctness of the assailed ruling, we have carefully perused the records and, nonetheless,
arrived at the same conclusion. We find that there is substantial evidence on record to support
the Court of Appeals and trial courts conclusion that the signatures of Julian and Guillerma in
the Deed of Absolute Sale were forged. Conclusions and findings of fact by the trial court are
entitled to great weight on appeal and should not be disturbed unless for strong and cogent
reasons because the trial court is in a better position to examine real evidence, as well as to
observe the demeanor of the witnesses while testifying in the case. The fact that the CA
adopted the findings of fact of the trial court makes the same binding upon this court.

Thus, we hold that with the presentation of the forged deed, even if accompanied by the owners
duplicate certificate of title, the registered owner did not thereby lose his title, and neither does
the assignee in the forged deed acquire any right or title to the said property.

294. B & I REALTY V. CASPE

G.R. No. 146972 January 29, 2008
FACTS:
Consorcia L. Venegas was the owner of a parcel of land located in Barrio Bagong-Ilog in
Pasig, Rizal and covered by TCT No. 247434. She delivered said title to, and executed a
simulated deed of sale in favor of, Datuin for purposes of obtaining a loan with the RCBC.
Datuin claimed that he had connections with the management of RCBC and offered his
assistance to Venegas in obtaining a loan from the bank. He issued a receipt to the Venegases,
acknowledging that the lot was to be used as a collateral for bank financing and that the deed of
sale was executed only as a device to obtain the loan. However, Datuin prepared a deed of
absolute sale and, through forgery, made it appear that the spouses Venegas executed the
document in his favor. Venegas learned of Datuin's fraudulent scheme when she sold the lot to
herein respondents for P160,000 in a deed of conditional sale. She, along with her husband,
instituted a complaint against Datuin in the then Court of First Instance CFI of Rizal, Branch 11,
docketed as Civil Case No. 188893, for recovery of property and nullification of TCT No.
377734, with damages. However, when the case was called for pre-trial, the Venegases'
counsel failed to appear and the complaint was eventually dismissed without prejudice.
ISSUE:
Whether or not filing of Civil Case No. 36852 by the Venegases had the effect of
interrupting the prescriptive period for the filing of the complaint for judicial foreclosure of
mortgage?
RULING:
We agree with the CA's ruling that Civil Case No. 36852 did not have the effect of interrupting
the prescription of the action for foreclosure of mortgage as it was not an action for foreclosure
but one for annulment of title and nullification of the deed of mortgage and the deed of sale. It
was not at all the action contemplated in Article 1155 of the Civil Code which explicitly provides
that the prescription of an action is interrupted only when the action itself is filed in court.
Petitioner could have protected its right

295. MESINA V. GARCIA

G.R. No. 168035 November 30, 2006
FACTS:
Atty. Honorio Valisno Garcia and Felicisima Mesina, during their lifetime, enstered into a
Contract to Sell over a lot consisting of 235 square meters, situated at Diversion Road,
Sangitan, Cabanatuan City, covered and embraced by TCT No. T-31643 in the name of
Felicisima Mesina which title was eventually cancelled and TCT No. T-78881 was issued in the
name of herein petitioners. The Contract to Sell provides that the cost of the lot is P70.00 per
square meter for a total amount of P16,450.00; payable within a period not to exceed 7 years at
an interest rate of 12% per annum, in successive monthly installments of P260.85 per month,
starting May 1977. Thereafter, the succeeding monthly installments are to be paid within the
first week of every month, at the residence of the vendor at Quezon City, with all unpaid monthly
installments earning an interest of 1% per month. Instituting this case at bar, respondent
asserts that despite the full
payment made on 7 February 1984 for the consideration of the
subject lot, petitioners refused to issue the necessary Deed of Sale to effect the transfer of the
property to her.
ISSUE:
Whether or not respondents cause of action had already prescribed?
RULING:
Article 1155 of the Civil Code is explicit that the prescriptive period is interrupted when
an action has been filed in court; when there is a written extrajudicial demand made by the
creditors; and when there is any written acknowledgment of the debt by the debtor.
The records reveal that starting 19 April 1986 until 2 January 1997 respondent
continuously demanded from the petitioners the execution of the said Deed of Absolute Sale but
the latter conjured many reasons and excuses not to execute the same. Respondent even filed
a Complaint before the Housing and Land Use Regulatory Board way back in June, 1986, to
enforce her rights and to compel the mother of herein petitioners, who was still alive at that time,
to execute the necessary Deed of Absolute Sale for the transfer of title in her name. On 2
January 1997, respondent, through her counsel, sent a final demand letter to the petitioners for
the execution of the Deed of Absolute Sale, but still to no avail. Consequently, because of utter
frustration of the respondent, she finally lodged a formal Complaint for Specific Performance
with Damages before the trial court on 20 January 1997.
Hence, from the series of written extrajudicial demands made by respondent to have the
execution of the Deed of Absolute Sale in her favor, the prescriptive period of 10 years has been
interrupted. Therefore, it cannot be said that the cause of action of the respondent has already
been prescribed.

296. HEIRS OF GAUDIANE Vs. Court of Appeals

G.R.No. 119879 March 11, 2004
FACTS:
The lot in controversy is Lot 4389 located at Dumaguete City and covered by Original Certificate
of Title No. 2986-A (OCT 2986-A) in the names of co-owners Felix and Juana Gaudiane. Felix
died in 1943 while his sister Juana died in 1939. Herein respondents are the descendants of
Felix while petitioners are the descendants of Juana.
On November 4, 1927, Felix executed a document entitled Escritura de Compra-Venta
(Escritura, for brevity) whereby he sold to his sister Juana his one-half share in Lot No. 4156
covered by Transfer Certificate of Title No. 3317-A.
Petitioners predecessors-in-interest, Geronimo and Ines Iso (the Isos), believed that the sale by
Felix to their mother Juana in 1927 included not only Lot 4156 but also Lot 4389. In 1974, they
filed a pleading in the trial court seeking to direct the Register of Deeds of Dumaguete City to
cancel OCT 2986-A covering Lot 4389 and to issue a new title in favor of the Isos. This was later
withdrawn after respondents predecessors-in-interest, Procopio Gaudiane and Segundo
Gaudiane, opposed it on the ground that the Isos falsified their copy of the Escritura by erasing
Lot 4156 and intercalating in its place Lot 4389.
ISSUE:
Whether the court gravely erred in not giving due course to the claim of petitioners and legal
effect of prescription and laches adverted by defendants-appellants in their answer and
affirmative defenses proven during the hearing by documentary and testimonial evidence.
RULING:
As a general rule, ownership over titled property cannot be lost through prescription.[12]
Petitioners, however, invoke our ruling in Tambot vs. Court of Appeals[13] which held that titled
property may be acquired through prescription by a person who possessed the same for 36
years without any objection from the registered owner who was obviously guilty of laches.
Petitioners claim is already rendered moot by our ruling barring petitioners from raising the
defense of exclusive ownership due to res judicata. Even assuming arguendo that petitioners
are not so barred, their contention is erroneous. As correctly observed by the appellate court.
As explained earlier, only Lot No. 4156 was sold. It was through this misrepresentation that
appellees predecessor-in-interest succeeded in withholding possession of appellees share in
Lot No. 4389. Appellees cannot, by their own fraudulent act, benefit therefrom by alleging
prescription and laches.

297. LAUREANO V. COURT OF APPEALS

324 SCRA 414
FACTS:

In 1978, Menandro Laureano was hired as a pilot by the Singapore Airlines Limited (SAL). In
1982 however, SAL was hit by recession and so it had to lay off some employees. Laureano
was one of them. Laureano asked for reconsideration but it was not granted. Aggrieved,
Laureano filed a labor case for illegal dismissal against SAL. But in 1987, he withdrew the labor
case and instead filed a civil case for damages due to illegal termination of contract against
SAL. Laureano filed the case here in the Philippines. SAL moved for the dismissal of the case
on the ground of lack of jurisdiction. The motion was denied. On trial, SAL alleged that the
termination of Laureano is valid pursuant to Singaporean law.
The trial court ruled in favor of Laureano. SAL appealed the case raising the issue of lack of
jurisdiction, non applicability of Philippine laws, and estoppel, among others. The Court of
Appeals reversed the trial court.
ISSUE:
Whether or not Singaporean Law is applicable to this case.
HELD:

No. The specific Singaporean Law which holds valid the dismissal of Laureano is not proved in
court. As such, the trial court cannot make a determination if the termination is indeed valid
under Singaporean Law. Philippine courts do not take judicial notice of the laws of Singapore.
SAL has the burden of proof. SAL failed to prove such law hence Philippine law shall apply.
However, the case must be dismissed on the ground of estoppel. Under our laws, all money
claims arising from employer-employee relationships must be filed within three years from the
time the cause of action accrued. Laureanos cause of action accrued in 1982 when he was

terminated but he only filed the money claim in 1987 or more than three years from 1982.
Hence he is already barred by prescription.

298. Banco Filipino Savings and Mortgage Bank v CA

334 SCRA 305
FACTS:
Banco Fil sold to Tala Realty 4 lots in Iloilo. Tala then leased the properties back to Banco Fil for
a monthly rental of P21,000 for a period of 20 years. Tala demanded payment for rentals but
Banco Fil failed to comply with their obligation so Tala filed numerous ejectment suits against
Banco Fil. Incidentally, Banco Fil also filed 16 other complaints for recovery of real property to
which Tala filed a Motion to Dismiss (MtD). The trial court granted the MtD and denied Banco
Fils Motion for Reconsideration.
Banco Fil, instead of filing an appeal, filed a petition for certiorari with the CA under Rule 65
alleging that the trial court acted with grave abuse of discretion because it did not comply with
the constitutional mandate on the form for decisions. CA dismissed the certiorari stating that
Rule 65 may be granted only when theres no appeal or plain, speedy and adequate remedy in
the course of law.
Banco Fil received the copy of the CAs decision and filed a Motion for Reconsideration to which
the CA again denied. Banco Fil filed another petition for certiorari under Rule 65 this time with
the SC.
ISSUE:
Whether appeal to SC under Rule 65 is proper.
HELD:
NO. SC immediately dismissed petition for the violation of the basic rules of Remedial Law. The
proper remedy from the CAs adverse resolutions to the SC is an ordinary appeal via petition for
review under Rule 45.
Certiorari under Rule 65 is proper if a tribunal, board or officer exercising judicial/quasi-judicial
functions acted without or in excess of jurisdiction or with grave abuse of discretion and that
there is no appeal or plain, speedy and adequate remedy in the ordinary course of law. The
abuse of discretion must be so patent and gross as to amount to an evasion of positive duty. It
seeks to correct errors of jurisdiction. Also certiorari is not allowed when a party to a case fails to
appeal a judgment despite the availability of that remedy.

On the other hand, Rule 45 as a petition for review seeks to correct errors of judgment which
include errors of procedure or mistakes in the courts findings. All errors committed in the
exercise of such jurisdiction are merely errors of judgment.
In the case, Banco Fils allegations that the CA committed grave abuse of discretion were only
bare allegations since Banco Fil even admitted that the CA labored out a 33-page rationale on
the decision of their case, thus, the CA did not commit any grave abuse of discretion.
Note that, the remedies of appeal and certiorari are mutually exclusive and not alternative or
successive. Hence, the availability to Banco Fil of the remedy under Rule 45 effectively
foreclosed its right to resort to a petition for certiorari under Rule 65.
Also note that certiorari cannot be used as a substitute for the lapsed or lost remedy of appeal.
In the case, Banco Fils recourse under Rule 65 cannot be taken, because when it filed a
petition for certiorari to the SC, the reglementary period for filing a petition for review under Rule
45 to the CA had already lapsed.

299. VDA. DE DEL GADO vs. COURT OF APPEALS

363 SCRA 58
FACTS:
Carlos Delgado was the absolute owner of a parcel of land with an area of 692,549
square meter situated in the Municipality of Catarman Samar. Carlos Delgado granted and
conveyed by way of donation with quitclaim all rights, title, interest claim and demand over a
portion of land with an area of 165,000 square meter in favor of the Commonwealth of the
Philippines. The acceptance was then made to President Quezon in his capacity as
Commander-in-Chief. The Deed of Donation was executed with a condition that the said land
will be used for the formation of the National Defense of the Philippines. The said parcel of land
then covered by the Torrens System of the Philippines and was registered in the name of
Commonwealth of the Philippines for a period of 40 years. The land was registered under TCT
0-2539-160 in favor of the Commonwealth however without any annotation.
Upon declaration of independence, the Commonwealth was replaced by Republic of the
Philippines which took over the subject land and turned over to Civil Aeronautics Administration,
later named Bureau of Air Transportation Office. The said agency utilizes the said land a
domestic airport.
Jose Delgado filed a petition for reconveyance for a violation of the condition. The RTC
ruled in favor of the plaintiff Delgado. But the CA reversed the said decision because of
prescription. The petitioner filed only before 24 years o discovery which the law only requires 10
years of filing.
ISSUE:
Whether or not the petitioners action for reconveyance is already barred by prescription.
RULING:
The Supreme Court denied the petition and affirmed the decision of the Court of Appeals
because the time of filing has been prescribed. Under Article 1144 of the Civil Code on

Prescription based on written contracts, the filing of action for reconveyance is within 10 years
from the time the condition in the Deed of Donation was violated. The petitioner herein filed only
24 years in the first action and 43 years in the second filing of the 2nd action.
The action for reconveyance on the alleged excess of 33, 607 square meter mistakenly
included in the title was also prescribed Article 1456 of the Civil Code states, if property is
acquired through mistake or fraud, the person obtaining it is, by force of law, considered a
trustee of an implied trust for the benefits of the person from whom the property comes, if within
10 years such action for reconveyance has not been executed.

300. MAESTRADO vs. COURT OF APPEALS

327 SCRA 678
FACTS:
These consolidated cases involve Lot No. 5872 and the rights of the contending parties
thereto. The lot has an area of 57.601 sq.m. and is registered in the name of the deceased
spouses Ramon and Rosario Chaves. The spouses died intestate in 1943 and 1944,
respectively. They were survived by six heirs. To settle the estate of said spouse, Angel Chaves,
one of the heirs, initiated intestate proceedings and was appointed administrator of said estates
in the process. An inventory of the estates was made and thereafter, the heirs agreed on a
project partition. The court approved the partition but a copy of said decision was missing.
Nonetheless, the estate was divided among the heirs. Subsequently, in 1956, the partition case
effected and the respective shares of the heirs were delivered to them.
Significantly, Lot No.5872 was not included in a number of documents. Parties offered
different explanations as to the omission of said lot in the documents. Petitioners maintain the
existence of an oral partition agreement entered into by all heirs after the death of their parents.
To set things right, petitioners then prepared a quitclaim to confirm the alleged oral agreement.
Respondents dispute voluntariness of their consent to the quitclaims.
Six years after the execution of the quitclaims, respondents discovered that indeed subject lot
was still a common property in the name of the deceased spouses. Eventually, an action for
Quieting of Title was filed by petitioners on December 22, 1983.
The trial court considered Lot No. 5872 as still a common property and therefore must
be divided into six parts, there being six heirs. Petitioners appealed to the Court of Appeals
which sustained the decision of the trial court.
ISSUE:
Whether or not the action for quieting of title had already prescribed.

RULING:
The Supreme Court ruled that an action for quieting of title is imprescriptible especially if
the plaintiff is in possession of the property being litigated. One who is in actual possession of a
land, claiming to be the owner thereof may wait until his possession is disturbed or his title is
attacked before making steps to vindicate his right because his undisturbed possession gives
him a continuing right to seek the aid of the courts to ascertain the nature of the adverse claim
and its effect on his title. Moreover, the Court held that laches is inapplicable in this case. This is
because, as mentioned earlier, petitioners possession of the subject lot has rendered their right
to bring an action for quieting of title imprescriptible.

301. F.A.T. KEE COMPUTER SYSTEMS, INC., v. ONLINE NETWORKS INTERNATIONAL,

INC.
FACTS:
Petitioner F.A.T. Kee Computer Systems, Inc. (FAT KEE) is a domestic corporation engaged in
the business of selling computer equipment and conducting maintenance services for the units it
sold. ONLINE is also a domestic corporation principally engaged in the business of selling
computer units, parts and software.
ONLINE sold computer printers to FAT KEE. However, FAT KEE failed to pay its obligations to
ONLINE without any valid reason. ONLINE filed a Complaint for Sum of Money against FAT
KEE.
During the trial FAT KEE insisted that the conversion rate they agreed upon was P34:US$1 and
not P40 as insisted by ONLINE.
The RTC dismissed the complaint of ONLINE for the latters failure to establish its claim. The
appellate court reversed and set aside the Decision of the RTC. The CA ruled that even granting
that FAT KEE was of the impression that P34:$1 was the applicable rate for its obligation,
ONLINE cannot be put in estoppel as this was immediately rectified by ONLINE.
ISSUES:
Whether or not the non-attachment of the relevant portions of the TSN renders the petition of
FAT KEE fatally defective.
Whether or not ONLINE is estopped as to the conversion rate used.
HELD: The petition is partly meritorious.
First issue: REMEDIAL LAW: Attachments
Rule 45, Section 4 of the Rules of Court indeed requires the attachment to the petition for
review on certiorari such material portions of the record as would support the petition.
However, such a requirement was not meant to be an ironclad rule such that the failure to follow

the same would merit the outright dismissal of the petition.

Second issue: CIVIL LAW: Estoppel
One who claims the benefit of an estoppel on the ground that he has been misled by the
representations of another must not have been misled through his own want of reasonable care
and circumspection. A lack of diligence by a party claiming an estoppel is generally fatal. Thus,
after participating in the meeting on January 15, 1998, submitting its own proposals and further
negotiating for the lowering of the exchange rate, FAT KEE cannot anymore insist that it was
completely under the impression that the applicable exchange rate was P34:US$1.
DENIED.