OBLIGATIONS then a member of the Congress of the Philippines, executed a second promissory note on
April 11, 1961 expressly acknowledging said loan and promising to pay the same on or
A. IN GENERAL
VILLAROEL VS ESTRADA
GR NO. L-4732 DEC. 19. 1940
FACTS:
Allejandra Calao is the mother of the defendant-appellant, John Villaroel. Alejandra
obtained a loan of P1,000.00 payable after 7 years from spouses Mariano and Severina
Estrada, parents of plaintiff-appellee, Bernardino Estrada. Said loan was obtained in 1012.
First parties died. The heirs entered into a new agreement wherein Villaroel executed a
document declaring the aforementioned loan with an interest of 12% PA. The original debt
already prescribed when John executed the document in August 9, 1930.
ISSUE:
Whether John should be held liable notwithstanding the prescription of the original debt.
HELD:
The action is based on the original obligation contracted by the mother of the defendant
[Alejandra], which already prescribed, but in which the defendant contracted in August 9,
1930, by assuming the fulfillment of that obligation. Being the only defendant inherited or
the only heir of his mother, the debt although lost its effectiveness by prescription, is now,
however, for a moral obligation that is consideration enough to create and make effective
and enforceable the obligation voluntarily contracted in 1930.
PRIMITIVO ANSAY, ETC., ET AL., plaintiffs-appellants, vs.
THE BOARD OF DIRECTORS OF THE NATIONAL DEVELOPMENT COMPANY, ET
AL., defendants-appellees.
G.R. No. L-13667 April 29, 1960
FACTS:
On July 25, 1956, appellants filed against appellees in the Court of First Instance of Manila
a complaint praying for a 20% Christmas bonus for the years 1954 and 1955 against Board
of Directors of National Dev’t Company. The Court does not see how petitioners may have
a cause of action to secure such bonus because:
(a) A bonus is an act of liberality and the court takes it that it is not within its judicial powers
to command respondents to be liberal;
(b) Petitioners admit that respondents are not under legal duty to give such bonus but that
they had only ask that such bonus be given to them because it is a moral obligation of
respondents to give that but as this Court understands, it has no power to compel a party
to comply with a moral obligation (Art. 142, New Civil Code.).
ISSUE:
Whether or not the Christmas bonus is a moral obligation and a demandable obligation.
HELD:
NO. Since appellants admit that appellees are not under legal obligation to give such
claimed bonus; that the grant arises only from a moral obligation or the natural obligation
that they discussed in their brief, this Court feels it urgent to reproduce at this point, the
definition and meaning of natural obligation.
Article 1423 of the New Civil Code classifies obligations into civil or natural. "Civil obligations
are a right of action to compel their performance. Natural obligations, not being based on
positive law but on equity and natural law, do not grant a right of action to enforce their
performance, but after voluntary fulfillment by the obligor, they authorize the retention of
what has been delivered or rendered by reason thereof".
It is thus readily seen that an element of natural obligation before it can be cognizable by
the court is voluntary fulfillment by the obligor. Certainly retention can be ordered but only
after there has been voluntary performance. But here there has been no voluntary
performance. In fact, the court cannot order the performance.
DEVELOPMENT BANK OF THE PHILIPPINES (DBP), petitioner, vs.
THE HONORABLE MIDPAINTAO L. ADIL, Judge of the Second Branch of the Court
of First Instance of Iloilo and SPOUSES PATRICIO CONFESOR and JOVITA
VILLAFUERTE, respondents.
G.R. No. L-48889 May 11, 1989 GANCAYCO, J.:
FACTS:
On February 10, 1940 spouses Patricio Confesor and Jovita Villafuerte obtained an
agricultural loan from the Agricultural and Industrial Bank (AIB), now the Development of
the Philippines (DBP), in the sum of P2,000.00, Philippine Currency, as evidenced by a
promissory note of said date whereby they bound themselves jointly and severally to pay
the account in ten (10) equal yearly amortizations. As the obligation remained outstanding
and unpaid even after the lapse of the aforesaid ten-year period, Confesor, who was by
before June 15, 1961.
The City Court of Iloilo rendered a decision against the spouses Confessor, ordering them
to jointly and severally pay DBP. Defendants-spouses appealed therefrom to the Court of
First Instance of Iloilo wherein in due course a decision was rendered on April 28, 1978
reversing the appealed decision and dismissing the complaint and counter-claim with costs
against the plaintiff.
A motion for reconsideration of said decision filed by plaintiff was denied in an order of
August 10, 1978. Hence this petition wherein petitioner alleges that the decision of
respondent judge is contrary to law and runs counter to decisions of this Court when
respondent judge (a) refused to recognize the law that the right to prescription may be
renounced or waived; and (b) that in signing the second promissory note respondent
Patricio Confesor can bind the conjugal partnership; or otherwise said respondent became
liable in his personal capacity.
ISSUE:
Whether or not Confesor should be held liable notwithstanding the original debt prescribed.
RULING:
The right to prescription may be waived or renounced. Article 1112 of Civil Code provides:
Art. 1112. Persons with capacity to alienate property may renounce prescription already
obtained, but not the right to prescribe in the future.
Prescription is deemed to have been tacitly renounced when the renunciation results from
acts which imply the abandonment of the right acquired.
There is no doubt that prescription has set in as to the first promissory note of February 10,
1940. However, when respondent Confesor executed the second promissory note on April
11, 1961 whereby he promised to pay the amount covered by the previous promissory note
on or before June 15, 1961, and upon failure to do so, agreed to the foreclosure of the
mortgage, said respondent thereby effectively and expressly renounced and waived his
right to the prescription of the action covering the first promissory note.
This Court had ruled in a similar case that –
... when a debt is already barred by prescription, it cannot be enforced by the creditor. But
a new contract recognizing and assuming the prescribed debt would be valid and
enforceable ... . 1
Thus, it has been held —
Where, therefore, a party acknowledges the correctness of a debt and promises to pay it
after the same has prescribed and with full knowledge of the prescription he thereby waives
the benefit of prescription. 2
This is not a mere case of acknowledgment of a debt that has prescribed but a new promise
to pay the debt. The consideration of the new promissory note is the pre-existing obligation
under the first promissory note. The statutory limitation bars the remedy but does not
discharge the debt.
A new express promise to pay a debt barred ... will take the case from the operation of the
statute of limitations as this proceeds upon the ground that as a statutory limitation merely
bars the remedy and does not discharge the debt, there is something more than a mere
moral obligation to support a promise, to wit a – pre-existing debt which is a sufficient
consideration for the new the new promise; upon this sufficient consideration constitutes, in
fact, a new cause of action. 3
... It is this new promise, either made in express terms or deduced from an
acknowledgement as a legal implication, which is to be regarded as reanimating the old
promise, or as imparting vitality to the remedy (which by lapse of time had become extinct)
and thus enabling the creditor to recover upon his original contract.
B. SOURCES OF OBLIGATIONS
SAGRADA ORDEN DE PREDICADORES DEL SANTISMO ROSARIO DE FILIPINAS
vs. NATIONAL COCONUT CORPORATION
G.R. No. L-3756 June 30, 1952
Facts:
This is an action to recover the possession of a piece of real property (land and warehouses)
situated in Pandacan Manila, and the rentals for its occupation and use. The land belongs
to the plaintiff, in whose name the title was registered before the war. On January 4, 1943,
during the Japanese military occupation, the land was acquired by a Japanese corporation
by the name of Taiwan Tekkosho. After liberation, the Alien Property Custodian of the
United States of America took possession, control, and custody thereof for the reason that
it belonged to an enemy national. During the year 1946 the property was occupied by the
Copra Export Management Company under a custodianship agreement with United States
Alien Property Custodian and when it vacated the property it was occupied by the
defendant. The Philippine Government made representations with the Office Alien Property
Custodian for the use of property by the Government. On March 31, 1947, the defendant
was authorized to repair the warehouse on the land. In 1948, defendant leased one-third of
the warehouse to one Dioscoro Sarile at a monthly rental of P500, which was later raised
to P1,000 a month. Sarile did not pay the rents, so action was brought against him.
Plaintiff made claim to the property before the Alien Property Custodian of the United States,
but as this was denied, it brought an action in court to annul the sale of property of Taiwan
Tekkosho, and recover its possession.
Issue:
w/n defendant is liable for the rentals in the subject property
Held:
No. We can not understand how the trial court, from the mere fact that plaintiff-appellee was
the owner of the property and the defendant-appellant the occupant, which used for its own
benefit but by the express permission of the Alien Property Custodian of the United States,
so easily jumped to the conclusion that the occupant is liable for the value of such use and
occupation. If defendant-appellant is liable at all, its obligations, must arise from any of the
four sources of obligations, namley, law, contract or quasi-contract, crime, or negligence.
(Article 1089, Spanish Civil Code.) Defendant-appellant is not guilty of any offense at all,
because it entered the premises and occupied it with the permission of the entity which had
the legal control and administration thereof, the Allien Property Administration. Neither was
there any negligence on its part. There was also no privity (of contract or obligation)
between the Alien Property Custodian and the Taiwan Tekkosho, which had secured the
possession of the property from the plaintiff-appellee by the use of duress, such that the
Alien Property Custodian or its permittee (defendant-appellant) may be held esponsible for
the supposed illegality of the occupation of the property by the said Taiwan Tekkosho. The
Allien Property Administration had the control and administration of the property not as
successor to the interests of the enemy holder of the title, the Taiwan Tekkosho, but by
express provision of law (Trading with the Enemy Act of the United States, 40 Stat., 411;
50 U.S.C.A., 189). Neither is it a trustee of the former owner, the plaintiff-appellee herein,
but a trustee of then Government of the United States (32 Op. Atty. Gen. 249; 50 U.S.C.A.
283), in its own right, to the exclusion of, and against the claim or title of, the enemy owner.
(Youghioheny & Ohio Coal Co. vs. Lasevich [1920], 179 N.W., 355; 171 Wis., 347; U.S.C.A.,
282-283.) From August, 1946, when defendant-appellant took possession, to the late of
judgment on February 28, 1948, Allien Property Administration had the absolute control of
the property as trustee of the Government of the United States, with power to dispose of it
by sale or otherwise, as though it were the absolute owner. (U.S vs. Chemical Foundation
[C.C.A. Del. 1925], 5 F. [2d], 191; 50 U.S.C.A., 283.) Therefore, even if defendant-appellant
were liable to the Allien Property Administration for rentals, these would not accrue to the
benefit of the plaintiff-appellee, the owner, but to the United States Government.
Art. 2176. Whoever by act or omission causes damage to another, there being fault or
negligence, is obliged to pay for the damage done. Such fault or negligence, if there is no
pre-existing contractual relation between the parties, is called a quasi-delict and is
governed by the provision of this chapter.
THE METROPOLITAN BANK AND TRUST COMPANY vs.
ROSALES and YO YUK TO
G.R. No. 183204, January 13, 2014
Second Division, J. Del Castillo
FACTS:
The respondent Rosales and her mother Yo Yuk To opened a joint peso account with the
Petitioner bank’s Pritil-Tondo branch. She also accompanied a Taiwanese client who was
applying for a retiree’s visa to its Escolta branch to open a savings account as required by
PLRA. Rosales interpreted for her client. Respondents again opened a new joint dollar
account with the Pritil-Tondo branch. Sometime later, Petitioner issued a hold-out order
against respondent’s accounts. According to the petitioner, Rosales fraudulently withdrew
the dollar savings of her Taiwanese client and opened a new account to deposit the same.
However, Rosales countered this by saying that she and her client were unaware of the
withdrawal and that the PLRA informed that that a withdrawal clearance was issued on the
basis of an SPA in favor of a certain Richard So, which was denied by the Taiwanese. The
bank assured her that the money would be returned. Metrobank filed a complaint of estafa
against the respondents with the Office of the City Prosecutor of Manila. The complaint was
dismissed for lack of probable cause. The respondents in turn filed with the RTC Manila a
complaint for breach of obligation and contract with damages, for denying their request
several times to withdraw their deposits due to the hold out order. RTC and CA found
Metrobank liable.
ISSUE: Whether or not there has been a breach of obligation on the part of Metrobank in
issuing the hold out order?
RULING: Yes. The hold out clause applies only if there is a valid and existing obligation
arising from any of the sources of obligation enumerated in Article 1157 of the Civil Code,
to wit: law, contracts, quasi-contracts, delict, and quasi-delict. In this case, petitioner failed
to show that respondents have an obligation to it under any law, contract, quasi-contract,
delict, or quasi-delict. And although a criminal case was filed by petitioner against
respondent Rosales, this is not enough reason for petitioner to issue a "Hold Out" order as
the case is still pending and no final judgment of conviction has been rendered against
respondent Rosales. In fact, it is significant to note that at the time petitioner issued the
"Hold Out" order, the criminal complaint had not yet been filed. Thus, considering that
respondent Rosales is not liable under any of the five sources of obligation, there was no
legal basis for petitioner to issue the "Hold Out" order. Accordingly, we agree with the
findings of the RTC and the CA that the "Hold Out" clause does not apply in the instant
case.
In view of the foregoing, we find that petitioner is guilty of breach of contract when it
unjustifiably refused to release respondents’ deposit despite demand. Having breached its
contract with respondents, petitioner is liable for damages.
SALUDAGA vs. FAR EASTERN UNIVERSITY
G.R. No. 179337 April 30, 2008
FACTS:
Petitioner Joseph Saludaga was a sophomore law student of respondent Far Eastern
University when he was shot by Alejandro Rosete, one of the security guards on duty at the
school premises on August 18, 1996. Rosete was brought to the police station where he
explained that the shooting was accidental. He was eventually released considering that no
formal complaint was filed against him.
Respondents, in turn, filed a Third-Party Complaint against Galaxy Development and
Management Corporation (Galaxy), the agency contracted by respondent FEU to provide
security services within its premises and Mariano D. Imperial (Galaxy’s President), to
indemnify them for whatever would be adjudged in favor of petitioner.
Petitioner is suing respondents for damages based on the alleged breach of student-school
contract for a safe and secure environment and an atmosphere conducive to learning.
ISSUE:
WON FEU was not negligent and such shooting was tantamount to a caso fortuito? NO, it
was negligent and such is not a fortuitous case.
HELD:
When an academic institution accepts students for enrollment, there is established a
contract between them, resulting in bilateral obligations which both parties are bound to
comply with. For its part, the school undertakes to provide the student with an education
that would presumably suffice to equip him with the necessary tools and skills to pursue
higher education or a profession. On the other hand, the student covenants to abide by the
school’s academic requirements and observe its rules and regulations.
Respondent FEU failed to discharge the burden of proving that they exercised due diligence
in providing a safe learning environment for their students. It failed to show that they
undertook steps to ascertain and confirm that the security guards assigned to them actually
possess the qualifications required in the Security Service Agreement. It was not proven
that they examined the clearances, psychiatric test results, 201 files, and other vital
documents enumerated in its contract with Galaxy. Total reliance on the security agency
about these matters or failure to check the papers stating the qualifications of the guards is
negligence on the part of respondents. A learning institution should not be allowed to
completely relinquish or abdicate security matters in its premises to the security agency it
hired. To do so would result to contracting away its inherent obligation to ensure a safe
learning environment for its students.
Respondent FEU is liable to petitioner for damages.
FEU cannot be held liable for damages under Art. 2180 of the Civil Code because
respondents are not the employers of Rosete. The latter was employed by Galaxy. The
instructions issued by respondents Security Consultant to Galaxy and its security guards
are ordinarily no more than requests commonly envisaged in the contract for services
entered into by a principal and a security agency. They cannot be construed as the element
of control as to treat respondents as the employers of Rosete. It had no hand in selecting
thesecurity guards. Thus, the duty to observe the diligence of a good father of a family
cannot be demanded from the said client
FALLO:
“For these acts of negligence and for having supplied respondent FEU with an unqualified
security guard, which resulted to the latters breach of obligation to petitioner, it is proper to
hold Galaxy liable to respondent FEU for such damages equivalent to the above-mentioned
amounts awarded to petitioner. Unlike respondent De Jesus, we deem Imperial to be
solidarily liable with Galaxy for being grossly negligent in directing the affairs of the security
agency.
 PEOPLE’S CAR V. COMMANDO SECURITY 51 SCRA 40
FACTS:
Plaintiff, a car dealer, entered into a contract with defendant, a security agency, and the
latter’s duty is to guard the former’s premises from theft, robbery, pilferage, vandalism and
other unlawful acts of any person or person prejudicial to the interest of plaintiff. At around
1 AM of April 1970, the security guard deployed by the defendant, without authority neither
from the plaintiff nor from defendant, drove a car, which was entrusted to the plaintiff by a
customer for service and maintenance, outside of the plaintiff’s compound and around the
city which after the security guard lost control of, fell into a ditch, causing it severe damage.
Plaintiff complained against the security guard for qualified theft. While the car is undergoing
repair, plaintiff rented a car for its customer for 47 days until the car was fixed, and took
pain to repair the damaged car. Then plaintiff instituted a claim against the defendant for
recovery of the actual damages amounting to P8,489.10 incurred due to the unlawful act of
the latter’s personnel, citing inter alia the Par. 5 of the contract that the defendant shall be
solely responsible for the acts done during their watch, and the Party of the First Part being
specifically released from any and all liabilities to the former’s employee or to the third
parties arising from the acts or omissions done by the guard during their tour of duty”.
Defendant on the other hand, interposed, that it may be liable but its liability is limited under
Par. 4 of said contract providing: “that its liability shall not exceed one thousand (P1,000.00)
pesos per guard post”.
ISSUE:
1. Whether or not, plaintiff is liable to its customer for the damages caused by the guard
wrongful act?
2. Whether or not the defendant, Commando Security, is liable to indemnify the plaintiff for
the entire damages thus incurred?
RULING:
1. Yes. Plaintiff was in law liable to its customer for the damages caused the customer's
car, which had been entrusted into its custody. Plaintiff therefore was in law justified in
making good such damages and relying in turn on defendant to honor its contract and
indemnify it for such undisputed damages, which had been caused directly by the unlawful
and wrongful acts of defendant's security guard in breach of their contract. As ordained in
Article 1159, Civil Code, "obligations arising from contracts have the force of law between
the contracting parties and should be complied with in good faith."
2. Yes. Instead of defendant, through its assigned security guards, complying with its
contractual undertaking 'to safeguard and protect the business premises of (plaintiff) from
theft, robbery, vandalism and all other unlawful acts of any person or persons," defendant's
own guard on duty unlawfully and wrongfully drove out of plaintiffs premises a customer's
car, lost control of it on the highway causing it to fall into a ditch, thereby directly causing
plaintiff to incur actual damages in the total amount of P8,489.10.
CRUZ V. TUAZON & CO
76 SCRA 546 APRIL 29, 1977 J. BARREDO
FACTS:
As requested by the Deudors (the family of Telesforo Deudor who laid claim on the land in
questionon the strength of an "informacion posesoria"), Cruz made permanent
improvements on said landhaving an area of more or less 20 quinones. The improvements
were valued at P30,400.00 and for which he incurred expenses amounting toP7,781.74.
In 1952, Tuason & Co. availed of Cruz' services as an intermediary with the Deudors to
work for theamicable settlement of Civil Case No. Q-135. The said case involved 50
quinones of land, of whichthe 20 quinones of land mentioned above formed part.
A compromise agreement between the Deudors and Tuason & Co. was entered into on
1963 and was approved by the Court.
Cruz alleged that Tuason & Co. Promised to convey to him the 3,000 sq. meters of land
occupied byhim (which was part of the 20 quinones of land) within ten years from the date
of signing of thecompromise agreement between the Deudors and the latter as
consideration for his services. Saidland was not conveyed to him by Tuason & Co.
Cruz further alleged that Tuason & Co. was unjustly enriched at his expense since they
enjoyed thebenefits of the improvements he made on the land acquired by the latter.
The trial court dismissed the case on the ground that there was no cause of action. Hence
this appeal.
ISSUE:
a.) Is Cruz’ theory on unjust enrichment tenable?
b.)Was there a quasi-contract between Cruz and Tuason & Co.?
c.) Is Tuason & Co. obliged to reimburse Cruz for the improvements on the land?
HELD:
No, reliance on Article 2142 of the Civil Code is misplaced. Said article provides:
Certain lawful, voluntary and unilateral acts give rise to the juridical relation of quasi-
contract to the end that no one shall be unjustly enriched or benefited atthe expense
of another.
On the quasi-contract:
It is obvious that a presumed quasi-contract cannot emerge as against one party when the
subject mater thereof is already covered by an existing contract with another party.
Predicated on the principle that no one should be allowed to unjustly enrich himself atthe
expense of another, Article 2124 creates the legal fiction of a quasi-contract precisely
because of the absence of any actual agreement between the parties concerned.
It is essential that the act by which the defendant is benefited must have been voluntary
and unilateral on the part of the plaintiff.
"The act is voluntary because the actor in quasi-contract is not bound by any pre-existing
obligation to act. It is unilateral because it arises from the sole will of the actor who is not
previously bound by any reciprocal or bilateral agreement. The reason why the law creates
a juridical relation and imposes a certain obligation is to prevent a situation where a person
is able to benefit or take advantage of such lawful, voluntary and unilateral acts at the
expense of said actor." (Ambrosio Padilla, Civil Law, Vol. VI, p. 748, 1969 ed.) In the case
at bar, since appellant has a clearer and more direct recourse against the Deudors with
whom he had entered into an agreement regarding the improvements and expenditures
made by him on the land of appellees. it Cannot be said, in the sense contemplated in
Article 2142, that appellees have been enriched at the expense of appellant.
GUTIERREZ HERMANOS V. ORENSE
28 PHIL 571
FACTS:
Engracio Orense is the owner of a parcel of land located in Albay. Jose Duran, his nephew
sold the said property to Hermanos’ company for P1500, with reservation of right to
repurchase the same for the same price within 4 years. The sale of the property was done
with the consent and knowledge of Engracio Orense. The company had not entered into
possession of the purchased property, owing to its continued occupancy by the defendant
and his nephew, Jose Duran, by virtue of a contract of lease executed by the plaintiff to
Duran, which contract was in force up to February 14, 1911. Jose Duran was unable to
repurchase the property within the stipulated period due insolvency. In spite of the
continuous demands made upon him, the defendant, with bad faith and to the prejudice of
the firm of Gutierrez Hermanos, claiming to have rights of ownership and possession in the
said property refused to vacate the property and execute a deed of conveyance. Petitioner
filed a case for estafa against Jose Duran. During trial, Engracio was called as a witness
for Jose Duran, to which he testified that he was aware of the sale made by Duran. Hence,
the court acquitted the latter from the charge of estafa.
As a result of the acquittal of Jose Duran, based on the explicit testimony of his uncle,
Engacio Orense, the owner of the property, to the effect that he had consented to his
nephew Duran's selling the property under right of repurchase to Gutierrez Hermanos,
counsel for this firm filed a complainant praying, among other remedies, that the defendant
Orense be compelled to execute a deed for the transfer and conveyance to the plaintiff
company of all the right, title and interest with Orense had in the property sold, and to pay
to the same the rental of the property due from February 14, 1911.
ISSUE:
WON there is a civil obligation to deliver the property to Hermanos by virtue of a sale
entered into by the former and Jose Duran?
RULING:
Yes. Xxx It having been proven at the trial that he gave his consent to the said sale, it
follows that the defendant conferred verbal, or at least implied, power of agency upon his
nephew Duran, who accepted it in the same way by selling the said property. The principal
must therefore fulfill all the obligations contracted by the agent, who acted within the scope
of his authority. (Civil Code, arts. 1709, 1710 and 1727.)
Even should it be held that the said consent was granted subsequently to the sale, it is
unquestionable that the defendant, the owner of the property, approved the action of his
nephew, who in this case acted as the manager of his uncle's business, and Orense'r
ratification produced the effect of an express authorization to make the said sale.(Civil
Code, arts. 1888 and 1892.)
Article 1259 of the Civil Code prescribes: "No one can contract in the name of another
without being authorized by him or without his legal representation according to law.
A contract executed in the name of another by one who has neither his authorization nor
legal representation shall be void, unless it should be ratified by the person in whose name
it was executed before being revoked by the other contracting party.
The sworn statement made by the defendant, Orense, while testifying as a witness at the
trial of Duran for estafa, virtually confirms and ratifies the sale of his property effected by
his nephew, Duran, and, pursuant to article 1313 of the Civil Code, remedies all defects
which the contract may have contained from the moment of its execution.
The sale of the said property made by Duran to Gutierrez Hermanos was indeed null and
void in the beginning, but afterwards became perfectly valid and cured of the defect of nullity
it bore at its execution by the confirmation solemnly made by the said owner upon his stating
under oath to the judge that he himself consented to his nephew Jose Duran's making the
said sale. Moreover, pursuant to article 1309 of the Code, the right of action for nullification
that could have been brought became legally extinguished from the moment the contract
was validly confirmed and ratified, and, in the present case, it is unquestionable that the
defendant did confirm the said contract of sale and consent to its execution.
Xxx
If the defendant Orense acknowledged and admitted under oath that he had consented to
Jose Duran's selling the property in litigation to Gutierrez Hermanos, it is not just nor is it
permissible for him afterward to deny that admission, to the prejudice of the purchaser, who
gave P1,500 for the said property.
The contract of sale of the said property contained in the notarial instrument of February
14, 1907, is alleged to be invalid, null and void under the provisions of paragraph 5 of
section 335 of the Code of Civil Procedure, because the authority which Orense may have
given to Duran to make the said contract of sale is not shown to have been in writing and
signed by Orense, but the record discloses satisfactory and conclusive proof that the
defendant Orense gave his consent to the contract of sale executed in a public instrument
by his nephew Jose Duran. Such consent was proven in a criminal action by the sworn
testimony of the principal and presented in this civil suit by other sworn testimony of the
same principal and by other evidence to which the defendant made no objection. Therefore
the principal is bound to abide by the consequences of his agency as though it had actually
been given in writing (Conlu vs. Araneta and Guanko, 15 Phil. Rep., 387; Gallemit vs.
Tabiliran, 20 Phil. Rep., 241; Kuenzle&Streiff vs. Jiongco, 22 Phil. Rep., 110.)
The repeated and successive statements made by the defendant Orense in two actions,
wherein he affirmed that he had given his consent to the sale of his property, meet the
requirements of the law and legally excuse the lack of written authority, and, as they are a
full ratification of the acts executed by his nephew Jose Duran, they produce the effects of
an express power of agency.
RUSTICO ADILLE VS. THE HON. COURT OF APPEALS ET. ALS.
G.R. NO. L-44546, JANUARY 29, 1988
FACTS:
Felisa Alzul married Bernabe Adille with whom she had an only child Rustico
Adille and in her second marriage to Procopio Asejo she had children namely, Emeteria,
Teodorica, Domingo, Josefa and Santiago all surnamed Asejo.
Felisa sold her property containing an area of 11,325 sq.m., under pacto de
retro to certain third persons and the period of repurchase being 3 years. Felisa died without
being able to redeem the property after her death. During the period of redemption, Rustico
Adille, repurchased by himself alone and then after executed a deed of extra-judicial
partition representing himself to be the only heir and child of Felisa. Rustico secured title in
his name in 1955.
The half brother and sisters of Rustico Adille filed a case for partition with
accounting on the position that he was only a trustee on an implied trust when he redeemed
the property.
RTC ruled in his favor and declared him as the absolute owner ans not as a trustee and
then dismissed the case. On appeal, the CA reversed the trial court decision, hence, this
case.
Issue:
Whether Rustico Adille in taking over the property in question is a trustee of 11,325 sq.m.,
on behalf of his half-brother and sisters which constituted himself a negotiorum gestor under
Art. 2155 of the Civil Code.
Held:
Art. 1456. 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 benefit of the person
from whom the property comes.
The Court agreed with the decision of the Court of Appeals that fraud attended
the registration of property. Rustico pretension that he was the sole heir to the land in the
affidavit of extrajudicial settlement he executed preliminary to the registration thereof
betrays a clear effort on his part to defraud his brothers and sisters and to exercise sole
dominion over the property.
It is view of the Court of Appeals that Rustico in taking over the property, did
so either on behalf of his co-heirs, in which event, he constituted himself a negotiorum
gestor under Article 2144 of the Civil Code, or for exclusive benefit, in which case, he is
guilty of fraud, and must act as trustee, the private respondents (Rustico’s half-brothers and
sisters or co-heirs) being the beneficiaries, under the Article 1456. Rustico’s claims of
exclusive ownership over the property and having acted in fraud of his co-heirs, he cannot
therefore be said to have assume the mere management of the property abandoned by his
co-heirs, the situation Article 2144 of the Codes contemplates. In any case, as the
respondent Court itself affirms, the result would be the same whether it is one or the other.
Rustico would remain liable to Private respondents, his co-heirs.
DOMETILA ANDRES, DOING BUSINESS UNDER THE NAME AND STYLE “IRENE’S
WEARING APPAREL”
VS. MANUFACTURERS HANOVER & TRUST CORPORATION, CA,
SEPTEMBER 15, 1989, J. CORTES.
FACTS:
Petitioner, using the business name "Irene's Wearing Apparel," was engaged in the
manufacture of ladies garments, children's wear, men's apparel and linens for local and
foreign buyers. Among its foreign buyers was Facets Funwear, Inc. (hereinafter referred to
as FACETS) of the United States. In the course of the business transaction between the
two, FACETS from time to time remitted certain amounts of money to petitioner in payment
for the items it had purchased. Sometime in August 1980, FACETS instructed the First
National State Bank of New Jersey, Newark, New Jersey, U.S.A. (hereinafter referred to as
FNSB) to transfer $10,000.00 to petitioner via Philippine National Bank, Sta. Cruz Branch,
Manila (hereinafter referred to as PNB).
Acting on said instruction, FNSB instructed private respondent Manufacturers Hanover and
Trust Corporation to effect the above- mentioned transfer through its facilities and to charge
the amount to the account of FNSB with private respondent. Although private respondent
was able to send a telex to PNB to pay petitioner $10,000.00 through the Pilipinas Bank,
where petitioner had an account, the payment was not effected immediately because the
payee designated in the telex was only "Wearing Apparel." Upon query by PNB, private
respondent sent PNB another telex dated August 27, 1980 stating that the payment was to
be made to "Irene's Wearing Apparel." On August 28, 1980, petitioner received the
remittance of $10,000.00 through Demand Draft No. 225654 of the PNB.
Meanwhile, on August 25, 1980, after learning about the delay in the remittance of the
money to petitioner, FACETS informed FNSB about the situation. On September 8, 1980,
unaware that petitioner had already received the remittance, FACETS informed private
respondent about the delay and at the same time amended its instruction by asking it to
effect the payment through the Philippine Commercial and Industrial Bank (hereinafter
referred to as PCIB) instead of PNB.
Accordingly, private respondent, which was also unaware that petitioner had already
received the remittance of $10,000.00 from PNB instructed the PCIB to pay $10,000.00 to
petitioner. Hence, on September 11, 1980, petitioner received a second $10,000.00
remittance.
Private respondent asked petitioner for the return of the second remittance of $10,000.00
but the latter refused to pay.
ISSUE:
Whether or not Mantrust can recover the second remittance worth $10,000.
RULING:
YES. The contract of petitioner, as regards the sale of garments and other textile products,
was with FACETS. It was the latter and not private respondent which was indebted to
petitioner.
On the other hand, the contract for the transmittal of dollars from the United States to
petitioner was entered into by private respondent with FNSB. Petitioner, although named
as the payee was not privy to the contract of remittance of dollars. Neither was private
respondent a party to the contract of sale between petitioner and FACETS. There being no
contractual relation between them, petitioner has no right to apply the second $10,000.00
remittance delivered by mistake by private respondent to the outstanding account of
FACETS.
Having shown that Art. 2154 of the Civil Code, which embodies the doctrine of solutio
indebiti, applies in the case at bar, the Court must reject the common law principle invoked
by petitioner.
Finally, in her attempt to defeat private respondent's claim, petitioner makes much of the
fact that from the time the second $10,000.00 remittance was made, five hundred and ten
days had elapsed before private respondent demanded the return thereof. Needless to say,
private respondent instituted the complaint for recovery of the second $10,000.00
remittance well within the six years prescriptive period for actions based upon a quasi-
contract [Art. 1145 of the New Civil Code].
 GONZALO PUYAT & SONS, INC., vs. CITY OF MANILA AND MARCELO
SARMIENTO, as City Treasurer of Manila
G.R. No. L-17447 April 30, 1963 PAREDES, J.:
FACTS:
Plaintiff Gonzalo Puyat & Sons, Inc., an entity engaged in the business of manufacturing
and selling all kinds of furniture, paid without protest the Retail Dealer's Taxes for the First
Quarter of 1950 up to the third Quarter of 1956, amounting to P33,785.00, to City of Manila,
in the erroneous belief that it was liable therefor.
On August 11, 1958, the plaintiff Puyat & Sons, Inc., filed an action for refund of Retail
Dealer's Taxes paid by it against the City of Manila and its City Treasurer on the ground
that plaintiff, being a manufacturer of various kinds of furniture, is exempt from the payment
of taxes imposed under the provisions of Sec. 1, Group II, of Ordinance No. 3364,which
took effect on September 24, 1956, on the sale of the various kinds of furniture
manufactured by it pursuant to the provisions of Sec. 18(n) of Republic Act No. 409
(Revised Charter of Manila), as restated in Section 1 of Ordinance No.3816.
Defendants do not dispute the fact that plaintiff is exempted from the payment of the tax in
question, however, it contend that the taxes in question were voluntarily paid by plaintiff and
since, in this jurisdiction, in order that a legal basis arise for claim of refund of taxes
erroneously assessed, payment thereof must be made under protest, and this being a
condition sine qua non, and no protest having been made, -- verbally or in writing, thereby
indicating that the payment was voluntary, the action must fail. In refutation of the above
stand of appellants, plaintiff avers that the payments could not have been voluntary. At
most, they were paid "mistakenly and in good faith"and "without protest in the erroneous
belief that it was liable thereof." Voluntariness is incompatible with protest and mistake.
It submits that this is a simple case of "solutio indebiti".
Defendants also maintain that article 1146 (NCC), which provides for a period of four (4)
years (upon injury to the rights of the plaintiff), apply to this case. On the other hand, plaintiff
contends that provisions of Act 190 (Code of Civ. Procedure) should apply, insofar as
payments made before the effectivity of the New Civil Code on August 30, 1950, the period
of which is ten (10) years, (Sec. 40,Act No. 190; Osorio v. Tan Jongko, 51 O.G. 6211) and
article 1145 (NCC), for payments made after said effectivity, providing for a period of six (6)
years (upon quasi-contracts like solutio indebiti).
ISSUE:
(1) Whether or not the amounts paid by plaintiff-appellee, as retail dealer's taxes under
Ordinance 1925, as amended by Ordinance No. 3364of the City of Manila, without protest,
are refundable;
(2) Assuming arguendo, that plaintiff-appellee is entitled to the refund of the retail taxes
in question, whether or not the claim for refund filed in October 1956, in so far as said claim
refers to taxes paid from 1950 to 1952 has already prescribed.
HELD:
1. Defendants do not dispute the fact that plaintiff is exempted from the payment of the tax
in question. With this admission, it would seem clear that the taxes collected from plaintiff
were paid, thru an error or mistake, which places said act of payment within the pale of the
new Civil Code provision on solutio indebiti. "If something is received when there is no right
to demand it, and it was unduly delivered through mistake, the obligation to retun it arises"
(Art. 2154, NCC). Thus the defendants, at the very start, notwithstanding the Ordinance
imposing the Retailer's Tax, had no right to demand payment thereof.
Plaintiff's payment was not voluntarily made, (a fact found also by the lower court),but on
the erroneous belief, that they were due. Under this circumstance, the amount paid, even
without protest is recoverable. "If the payer was in doubt whether the debt was due, he may
recover if he proves that it was not due" (Art. 2156, NCC). Plaintiff had duly proved that
taxes were not lawfully due. There is, therefore, no doubt that the provisions of solutio
indebtiti, the new Civil Code, apply to the admitted facts of the case.
"Payment by reason of a mistake in the construction or application of a doubtful or difficult
question of law may come within the scope of the preceding article" (Art. 2155). There is no
gainsaying the fact that the payments made by plaintiff was due to a mistake in the
construction of a doubtful question of law.
"Every person who through an act or performance by another, or any other means, acquires
or comes into possession of something at the expense of the latter without just or legal
grounds, shall return the same to him"(Art. 22, Civil Code). It would seems unedifying for
the government, (here the City of Manila), that knowing it has no right at all to collect or to
receive money for alleged taxes paid by mistake, it would be reluctant to return the same.
No one should enrich itself unjustly at the expense of another (Art. 2125, Civil Code)..
Lastly, being a case of solutio indebiti, protest is not required as a condition sine qua non
for its application..
2. Even if the provisions of Act No. 190 should apply to those payments made before the
effectivity of the new Civil Code, because "prescription already running before the effectivity
of this Code shall be governed by laws previously in force x x x" (art. 1116, NCC), for
payments made after said effectivity,providing for a period of six (6) years (upon quasi-
contracts like solutio indebiti). Even if the provisions of Act No. 190should apply to those
payments made before the effectivity of the new Civil Code, because "prescription already
running before the effectivity of of this Code shall be govern by laws previously in force xxx
" (Art. 1116, NCC), Still payments made before August 30, 1950 are no longer recoverable
in view of the second paragraph of said article (1116), which provides:"but if since the time
this Code took effect the entire period herein required for prescription should elapse the
present Code shall be applicable even though by the former laws a longer period might be
required". Anent the payments made after August 30, 1950, it is abvious that the action has
prescribed with respect to those made before October 30, 1950 only, considering the fact
that the prescription of action is interrupted xxx when is a writteen extra-judicial demand x
x x" (Art. 1155, NCC), and the written demand in the case at bar was made on October 30,
1956 (Stipulation of Facts).MODIFIED in the sense that only payments made on or after
October 30, 1950 should be refunded, the decision appealed from is affirmed, in all other
respects.
CBK POWER CO, LTD. Vs. COMMISSIONER OF INTERNAL REVENUE
G.R. No. 198729-30, January 15, 2014
First Division CJ Sereno
FACTS:
Petitioner is engaged, among others, in the operation, maintenance, and management of
the Kalayaan pumped-storage hydroelectric power plants and related facilities. They filed
for VAT Zero-Rate with the BIR, which was approved. Petitioner filed admin claims for
issueance of tax credit certificates for its alleged unutilized input taxes on its purchase of
capital goods and on its local purchases and/or importation of goods and services other
than capital goods. CIR did not act on the request, prompting them to elevate the case to
the CTA, which ruled that the some of the claim should be denied for having been filed out
of time. The CTA en banc ruled that all of the claims were belatedly filed, dismissing the
claims.
ISSUE: Whether the principle of solution indebiti is applicable?
RULING: No. Also devoid of merit is the applicability of the principle of solutio indebiti to the
present case. According to this principle, if something is received when there is no right to
demand it, and it was unduly delivered through mistake, the obligation to return it arises. In
that situation, a creditor-debtor relationship is created under a quasi-contract, whereby the
payor becomes the creditor who then has the right to demand the return of payment made
by mistake, and the person who has no right to receive the payment becomes obligated to
return it. The quasi-contract of solutio indebiti is based on the ancient principle that no one
shall enrich oneself unjustly at the expense of another.
There is solutio indebiti when:
(1) Payment is made when there exists no binding relation between the payor, who has no
duty to pay, and the person who received the payment; and
(2) Payment is made through mistake, and not through liberality or some other cause.
Though the principle of solutio indebiti may be applicable to some instances of claims for a
refund, the elements thereof are wanting in this case.
First, there exists a binding relation between petitioner and the CIR, the former being a
taxpayer obligated to pay VAT. Second, the payment of input tax was not made through
mistake, since petitioner was legally obligated to pay for that liability. The entitlement to a
refund or credit of excess input tax is solely based on the distinctive nature of the VAT
system. At the time of payment of the input VAT, the amount paid was correct and proper.
Finally, equity, which has been aptly described as "a justice outside legality," is applied only
in the absence of, and never against, statutory law or judicial rules of procedure.25 Section
112 is a positive rule that should preempt and prevail over all abstract arguments based
only on equity. Well-settled is the rule that tax refunds or credits, just like tax exemptions,
are strictly construed against the taxpayer. The burden is on the taxpayer to show strict
compliance with the conditions for the grant of the tax refund or credit.
JOSE CANGCO, plaintiff-appellant,
vs.MANILA RAILROAD CO., defendant-appellee.
G.R. No. L-12191 October 14, 1918 FISHER, J.:
FACTS:
Plaintiff, Jose Cangco, was in the employment of Manila Railroad Company in the capacity
of clerk. He used a pass, supplied by the company, which entitled him to ride upon the
company's trains free of charge.
As the train slowed down another passenger, named Emilio Zuñiga, also an employee of
the railroad company, got off the same car, alighting safely at the point where the platform
begins to rise from the level of the ground. When the train had proceeded a little farther the
plaintiff Jose Cangco stepped off also, but one or both of his feet came in contact with a
sack of watermelons with the result that his feet slipped from under him and he fell violently
on the platform. His body at once rolled from the platform and was drawn under the moving
car, where his right arm was badly crushed and lacerated. It appears that after the plaintiff
alighted from the train the car moved forward possibly six meters before it came to a full
stop.The accident occurred between 7 and 8 o'clock on a dark night, and as the railroad
station was lighted dimly by a single light located some distance away, objects on the
platform where the accident occurred were difficult to discern especially to a person
emerging from a lighted car.
The trial court ruled that although negligence was attributable to the defendant by reason
of the fact that the sacks of melons were so placed as to obstruct passengers passing to
and from the cars, nevertheless, the plaintiff himself had failed to use due caution in
alighting from the coach and was therefore precluded from recovering. Judgment was
accordingly entered in favor of the defendant company, and the plaintiff appealed.
ISSUE:
Whether or not Manila Railroad should be held liable?
RULING:
It is important to note that the foundation of the legal liability of the defendant is the contract
of carriage, and that the obligation to respond for the damage which plaintiff has suffered
arises, if at all, from the breach of that contract by reason of the failure of defendant to
exercise due care in its performance. That is to say, its liability is direct and immediate,
differing essentially, in legal viewpoint from that presumptive responsibility for the
negligence of its servants, imposed by article 1903 of the Civil Code, which can be rebutted
by proof of the exercise of due care in their selection and supervision. Article 1903 of the
Civil Code is not applicable to obligations arising ex contractu, but only to extra-contractual
obligations — or to use the technical form of expression, that article relates only to culpa
aquiliana and not to culpa contractual.
Manresa (vol. 8, p. 67) in his commentaries upon articles 1103 and 1104 of the Civil Code,
clearly points out this distinction, which was also recognized by this Court in its decision in
the case of Rakes vs. Atlantic, Gulf and Pacific Co. (7 Phil. rep., 359). In commenting upon
article 1093 Manresa clearly points out the difference between "culpa, substantive and
independent, which of itself constitutes the source of an obligation between persons not
formerly connected by any legal tie" and culpa considered as an accident in the
performance of an obligation already existing . . . ."
Every legal obligation must of necessity be extra-contractual or contractual. Extra-
contractual obligation has its source in the breach or omission of those mutual duties which
civilized society imposes upon it members, or which arise from these relations, other than
contractual, of certain members of society to others, generally embraced in the concept of
status. The legal rights of each member of society constitute the measure of the
corresponding legal duties, mainly negative in character, which the existence of those rights
imposes upon all other members of society. The breach of these general duties whether
due to willful intent or to mere inattention, if productive of injury, give rise to an obligation to
indemnify the injured party. The fundamental distinction between obligations of this
character and those which arise from contract, rests upon the fact that in cases of non-
contractual obligation it is the wrongful or negligent act or omission itself which creates the
vinculum juris, whereas in contractual relations the vinculum exists independently of the
breach of the voluntary duty assumed by the parties when entering into the contractual
relation.
With respect to extra-contractual obligation arising from negligence, whether of
act or omission, it is competent for the legislature to elect — and our Legislature has so
elected — whom such an obligation is imposed is morally culpable, or, on the contrary, for
reasons of public policy, to extend that liability, without regard to the lack of moral culpability,
so as to include responsibility for the negligence of those person who acts or mission are
imputable, by a legal fiction, to others who are in a position to exercise an absolute or limited
control over them. The legislature which adopted our Civil Code has elected to limit extra-
contractual liability — with certain well-defined exceptions — to cases in which moral
culpability can be directly imputed to the persons to be charged. This moral responsibility
may consist in having failed to exercise due care in the selection and control of one's agents
or servants, or in the control of persons who, by reason of their status, occupy a position of
dependency with respect to the person made liable for their conduct.
The position of a natural or juridical person who has undertaken by contract to
render service to another, is wholly different from that to which article 1903 relates. When
the sources of the obligation upon which plaintiff's cause of action depends is a negligent
act or omission, the burden of proof rests upon plaintiff to prove the negligence — if he does
not his action fails. But when the facts averred show a contractual undertaking by defendant
for the benefit of plaintiff, and it is alleged that plaintiff has failed or refused to perform the
contract, it is not necessary for plaintiff to specify in his pleadings whether the breach of the
contract is due to willful fault or to negligence on the part of the defendant, or of his servants
or agents. Proof of the contract and of its nonperformance is sufficient prima facie to warrant
a recovery.
As the case now before us presents itself, the only fact from which a conclusion can be
drawn to the effect that plaintiff was guilty of contributory negligence is that he stepped off
the car without being able to discern clearly the condition of the platform and while the train
was yet slowly moving. In considering the situation thus presented, it should not be
overlooked that the plaintiff was, as we find, ignorant of the fact that the obstruction which
was caused by the sacks of melons piled on the platform existed; and as the defendant was
bound by reason of its duty as a public carrier to afford to its passengers facilities for safe
egress from its trains, the plaintiff had a right to assume, in the absence of some
circumstance to warn him to the contrary, that the platform was clear. The place, as we
have already stated, was dark, or dimly lighted, and this also is proof of a failure upon the
part of the defendant in the performance of a duty owing by it to the plaintiff; for if it were by
any possibility concede that it had right to pile these sacks in the path of alighting
passengers, the placing of them adequately so that their presence would be revealed.
NARCISO GUTIERREZ vs. BONIFACIO GUTIERREZ, MARIA V. DE GUTIERREZ,
MANUEL GUTIERREZ, ABELARDO VELASCO, and SATURNINO CORTEZ
G.R. No. 34840 September 23, 1931
FACTS:
A passenger truck and an automobile of private ownership collided resulting to
an injury suffered by plaintiff passenger Narciso Gutierrez. The truck was driven by
Abelardo Velasco, and was owned by Saturnino Cortez. The automobile was being
operated by Bonifacio Gutierrez, 18 years of age, and was owned by Bonifacio's parents
Mr. and Mrs. Manuel Gutierrez.
ISSUE:
Whether or not the defendants are civilly liable for obligations which arise from fault or
negligence?
RULING:
YES. In relation to the liability, pursuant to the provisions of article 1903 of the
Civil Code, the father alone and not the minor or the mother, would be liable for the damages
caused by the minor.
Under the common law rule: The theory of the law is that the running of the
machine by a child to carry other members of the family is within the scope of the owner's
business, so that he is liable for the negligence of the child because of the relationship of
master and servant; The liability of Saturnino Cortez, the owner of the truck, and of his
chauffeur Abelardo Velasco rests on a different basis, namely, that of contractsufficiently
demonstrated by the allegations of the complaint, not controverted, and the evidence. In its
broader aspects, the case is one of two drivers approaching a narrow bridge from opposite
directions, with neither being willing to slow up and give the right of way to the other, with
the inevitable result of a collision and an accident.
D. KINDS OF OBLIGATIONS
HONGKONG AND SHANGHAI BANKING CORP., LTD. STAFF RETIREMENT PLAN,
Retirement Trust Fund, Inc.) Petitioner,
vs. SPOUSES BIENVENIDO AND EDITHA BROQUEZA, Respondents.
G.R. No. 178610 November 17, 2010 CARPIO, J.:
FACTS:
Petitioner Editha Broqueza is an employee of Hongkong and Shanghai Banking
Corporation (HSBC). She is also a member of respondent Hongkong Shanghai Banking
Corporation, Ltd. Staff Retirement Plan (HSBCL-SRP). The HSBCL-SRP is a retirement
plan established by HSBC through its Board of Trustees for the benefit of the employees.
On October 1, 1990, petitioner Editha Broqueza obtained a car loan in the amount of
Php175,000.00. On December 12, 1991, she again applied and was granted an appliance
loan in the amount of Php24,000.00. These loans are paid through automatic salary
deduction.
Meanwhile [in 1993], a labor dispute arose between HSBC and its employees. Majority of
HSBC’s employees were terminated, among whom is petitioner Editha Broqueza.
Because of their dismissal, petitioner was not able to pay the monthly amortizations of her
loans. Thus, respondent HSBCL-SRP considered the accounts of petitioner delinquent.
Demands to pay the obligations were made upon petitioner, but she failed to pay.
HSBCL-SRP, acting through its Board of Trustees and represented by Alejandro L.
Custodio, filed Civil Case No. 52400 against the spouses Broqueza on 31 July 1996. The
suit was civil actions for recovery and collection of sums of money.
MeTC promulgated its Decision in favor of HSBCL-SRP. The MeTC ruled that the nature of
HSBCL-SRP’s demands for payment is civil and has no connection to the ongoing labor
dispute. Editha Broqueza’s termination from employment resulted in the loss of continued
benefits under their retirement plans. Thus, the loans secured by their future retirement
benefits to which they are no longer entitled are reduced to unsecured and pure civil
obligations. As unsecured and pure obligations, the loans are immediately demandable.
RTC affirmed in toto. CA reversed ruling that the HSBCL-SRP’s complaints for recovery of
sum of money against Gerong and the spouses Broqueza are premature as the loan
obligations have not yet matured. Thus, no cause of action accrued in favor of HSBCL-
SRP.
ISSUE:
Whether or not the loan are demandable at once notwithstanding its maturity.
RULING:
We agree with the rulings of the MeTC and the RTC.
The Promissory Notes uniformly provide:
PROMISSORY NOTE
P_____ Makati, M.M. ____ 19__
FOR VALUE RECEIVED, I/WE _____ jointly and severally
promise to pay to THE HSBC RETIREMENT PLAN
(hereinafter called the "PLAN") at its office in the Municipality
of Makati, Metro Manila, on or before until fully paid the sum
of PESOS ___ (P___) Philippine Currency without discount,
with interest from date hereof at the rate of Six per cent (6%)
per annum, payable monthly.
I/WE agree that the PLAN may, upon written notice, increase
the interest rate stipulated in this note at any time depending
on prevailing conditions.
I/WE hereby expressly consent to any extensions or renewals
hereof for a portion or whole of the principal without notice to
the other(s), and in such a case our liability shall remain joint
and several.
In case collection is made by or through an attorney, I/WE
jointly and severally agree to pay ten percent (10%) of the
amount due on this note (but in no case less than P200.00)
as and for attorney’s fees in addition to expenses and costs
of suit.
In case of judicial execution, I/WE hereby jointly and severally
waive our rights under the provisions of Rule 39, Section 12
of the Rules of Court.
In ruling for HSBCL-SRP, we apply the first paragraph of Article 1179 of the Civil Code:
Art. 1179. Every obligation whose performance does not
depend upon a future or uncertain event, or upon a past event
unknown to the parties, is demandable at once.
x x x. (Emphasis supplied.)
We affirm the findings of the MeTC and the RTC that there is no date of payment indicated in
the Promissory Notes. The RTC is correct in ruling that since the Promissory Notes do not
contain a period, HSBCL-SRP has the right to demand immediate payment. Article 1179 of the
Civil Code applies. The spouses Broqueza’s obligation to pay HSBCL-SRP is a pure obligation.
The fact that HSBCL-SRP was content with the prior monthly check-off from Editha Broqueza’s
salary is of no moment. Once Editha Broqueza defaulted in her monthly payment, HSBCL-
SRP made a demand to enforce a pure obligation.
In their Answer, the spouses Broqueza admitted that prior to Editha Broqueza’s dismissal from
HSBC in December 1993, she "religiously paid the loan amortizations, which HSBC collected
through payroll check-off." A definite amount is paid to HSBCL-SRP on a specific date. Editha
Broqueza authorized HSBCL-SRP to make deductions from her payroll until her loans are fully
paid. Editha Broqueza, however, defaulted in her monthly loan payment due to her dismissal.
Despite the spouses Broqueza’s protestations, the payroll deduction is merely a convenient
mode of payment and not the sole source of payment for the loans. HSBCL-SRP never agreed
that the loans will be paid only through salary deductions. Neither did HSBCL-SRP agree that
if Editha Broqueza ceases to be an employee of HSBC, her obligation to pay the loans will be
suspended. HSBCL-SRP can immediately demand payment of the loans at anytime because
the obligation to pay has no period. Moreover, the spouses Broqueza have already incurred in
default in paying the monthly installments.
PAY VS. PALANCA
57 SCRA 618
FACTS:
Petitioner George Pay is a creditor of the Late Justo Palanca who died in Manila on July 3,
1963. The claim of the petitioner is based on a promissory note dated January 30, 1952,
whereby the late Justo Palanca and Rosa Gonzales Vda. de Carlos Palanca promised to
pay George Pay the amount of P26,900.00, with interest thereon at the rate of 12% per
annum.
The promissory note dated January 30, 1962, is worded thus:
" `For value received from time to time since 1947, we [jointly and severally
promise to] pay to Mr. [George Pay] at his office at the China Banking
Corporation the sum of [Twenty Six Thousand Nine Hundred Pesos]
(P26,900.00), with interest thereon at the rate of 12% per annum upon receipt
by either of the undersigned of cash payment from the Estate of the late Don
Carlos Palancaorupon demand'. . . .
This promissory note is signed by Rosa Gonzales Vda. de Carlos Palanca and Justo
Palanca." Pay filed an action before the the Court to bring a real property located in Taft
Avenue Manila under the administration of SegundinaVda de Palanca. However, his action
could not prosper because of the refusal on the part of Segundina to be appointed as
administratix and that his action already prescribed. The Court has inquired whether any
cash payment has been received by either of the signers of this promissory note from the
Estate of the late Carlos Palanca. Petitioner informed that he does not insist on this
provision but that petitioner is only claiming on his right under the promissory note ." 3 The
Court then ruled, that the wording of the promissory note being "upon demand," the
obligation was immediately due. Since it was dated January 30, 1952, it was clear that more
"than ten (10) years has already transpired from that time until to date. The action, therefore,
of the creditor has definitely prescribed." 4 The result, as above noted, was the dismissal of
the petition.
ISSUE:
1)WON the obligation embodied in the promissory note constitute a pure obligation?
2) WON the right to file action for the fulfillment of the obligation had already prescribed?
RULING:
1) Yes. X xxFrom the manner in which the promissory note was executed, it would
appear that petitioner was hopeful that the satisfaction of his credit could he
realized either through the debtor sued receiving cash payment from the estate
of the late Carlos Palanca presumptively as one of the heirs, or, as expressed
therein, "upon demand." There is nothing in the record that would indicate
whether or not the first alternative was fulfilled. What is undeniable is that on
August 26, 1967, more than fifteen years after the execution of the promissory
note on January 30, 1952, this petition was filed. The defense interposed was
prescription. Its merit is rather obvious. Article 1179 of the Civil Code provides:
"Every obligation whose performance does not depend upon a future or
uncertain event, or upon a past event unknown to the parties, is demandable
at once." This used to be Article 1113 of the Spanish Civil Code of 1889. As far
back as Floriano v. Delgado, 5 a 1908 decision, it has been applied according
to its express language. The well-known Spanish commentator, Manresa, on
this point, states: "Dejando con acierto, el caractermasteorico y grafico del
acto, o sea la perfeccion de este, se fija, para determinar el concepto de la
obligacionpura, en el distinctive de esta, y queesconsecuencia de aquel:
la exigibilidadimmediata."
2) Yes. The obligation being due and demandable, it would appear that the filing
of the suit after fifteen years was much too late. For again, according to the
Civil Code, which is based on Section 43 of Act No. 190, the prescriptive period
for a written contract is that of ten years. 7
SMITH BELL & CO., LTD. VS. VICENTE SOTELO MATTI
G.R. NO. L-16570, MARCH 9, 1922
FACTS:
Smith Bell & Co., Ltd., (Smith Bell) and Mr. Vicente Sotelo (Sotelo) entered into
contracts whereby Smith Bell obligated itself to sell and Sotelo to purchase from it the
following:
a.) 2 steel tanks for total price of P21, 000.00 to be shipped from New York and delivered
at Manila within 3 or 4 months;
b.) 2 expellers for P25, 000.00 per piece to be shipped from San Francisco in the month
of September 1918 or as soon as posible; and
c.) 2 Electricmotors for P2, 000.00 per piece approximate delivery within 90days - this is
not guaranteed.
The tanks arrived in Manila on April 27, 1919, expellers on October 26, 1918 and the
motors on February 27, 1919. Smith Bell brought a suit against Sotelo based on 4 separate
causes of action alleging among other facts, that immediately notified Sotelo of the arrival
of the goods and asked instructions from him as to the delivery thereof, and that Mr. Sotelo
refused to received any of them and to pay their price.
Mr. Sotelo denied the allegations and posits that it was only on May 1919 that he was
notified of the arrival of the steel tanks, the motors and the expellers having arrived
incomplete and long after the date stipulated. As a consequence of delay in making the
delivery of goods which the intervenor Manila Oil Refining Co., Ltd., intended to use it in the
manufacture of coconut oil it suffered damages in the amount of P116, 783.91 for non-
delivery of tanks an P21, 250.00 on account of expellers and the motors not having arrived
in due time.
Trial ensued and the Regional Trial Court absolved Mr. Sotelo from the complaint in so
far as the tanks and the eletric motors but rendered judgment against them to receive the
expellers and pay P50, 000.00, the price of goods and interests thereon.
ISSUE:
Whether Smith Bell fulfilled in due time its obligation to bring the goods to Manila, otherwise
held guilty of delay and liable for the consequences thereof.
RULING:
The Court determined what period was fixed for the delivery of the goods. As regard the
tanks within 3 or 4 months. With reference to expellers, to be shipped at San Francisco
within the month of September 1918 or as soon as possible and the motors approximate
delivery within 90 days- this is not guaranteed.
In all these contracts, there is a final clause that " sellers are not responsible for delays
caused by fire, riots on lands or on the sea, strikes or other causes known as Force Majeure
entirely beyond the control of the sellers or their representatives".
The stipulation fall short of fixing a period. From the records it appears that the contracts
were executed at the time of world war when there existed rigid restrictions on the export
from the United States of articles like the machinery in question, maritime as well as railroad,
transportation was difficult, which fact was known to the parties. Hence, clauses were
inserted in the contracts regarding the Government regulations, railroad embargoes, lack
of vessel space, the exigencies of the requirements of the United States Government, in
connection with the tanks and Priority Certificate, subject to the US Gov't., with respect to
the motors. At the time of the execution of tne contracts, the parties were not unmindful of
the contingency of the US Gov't., not allowing the export of the goods, nor of the fact that
the other foreseen circumstances therein stated might prevent it.
The Court conclude that the termwhich the parties attempted to fix is so uncertain that
one cannot tell just whether, as a matter of fact, those articles could be brought to Manila
or not. If that is the case, the obligations must be regarded as conditional.
obligations for the performance of which a day certain has been fixed shall be
demandable only when tne day arrives.
a day certain is understood to be one which must necessarily arrive, even though its
date be unknown.
if the uncertainty should consist in the arrival on non-arrival of the day, the obligation is
conditional and shall be governed by the rules of thd next preceding section. ( referring to
pure and conditional obligations). (art. 1125, Civ. Code).
and as the export of the machineries question was, as stated in the contract, contingent
upon the sellers obtaining certificate of priority and permissions of the US Government,
subject to the rules and regulations, as well as to railroad embargoes, then the delivery
was subject to a condition the fulfillment of which depended not only upon the effort of the
herein plaintiff, but upin the will of third person s who could in no way be compelled to fulfill
the condition. In cases like this, which are not expressly provided for, but impliedly covered
by the Civil Code, the obligor will be deemed to have sufficiently performed his part of the
obligation, if he has done all that was in his power, even the condition has not been fulfilled
in reality.
In such cases, the decision prior to the Civil Code have held that the obligee having done
all that was in his power, was entitled to enforce performance of the obligation. This
performance, which is fictitious - not real - is not expressly authorized by the Code, which
limit itself only to declare valid those conditions and the obligation thereby affected ; but it
is neither disallowed, and the Code being thus silent, the old view can be maintained as
doctrine.
Mr. Sotelo is sentenced to accept and receive from Smith Bell the tanks, the expellers and
the motors in question, and to pay Smith Bell the sum of P96, 000.00 with legal interest
thereon from July 17, 1919, the date of filing the complaint, until fully paid, and the costs of
both instances.
CHAVEZ VS. GONZALES
32 SCRA 547
FACTS:
In the early part of July 1963, Rosendo Chavez delivered to Fructuoso Gonzales, who is a
typewriter repairer, a portable typewriter for routine cleaning and servicing. Gonzales was
not able to finish job after some time despite repeated reminder. Gonzales merely gave
assurances but failed to comply with the same. In October 1963, Gonzales asked from
Chavez the sum of P6.00 for the purchase of spare parts which amount was duly given to
the former. On October 26, 1963, Chavez asked for the return of the typewriter. Gonzales
just delivered it in a wrapped package. And it was only upon reaching home that Chavez
found out that the typewriter was in shambles, with the interior cover and some parts and
screws missing. On October 29, 1963, Chavez demanded the return of the missing parts
and the P6.00 which was heeded to. Thereafter, Chavez had the typewriter repaired for
P89.85. Chavez sued for damages.
ISSUE:
Whether or not Gonzales is liable for damages for the subsequent repair of the typewriter
of Chavez.
RULING:
YES. The SC found that both Chavez and Gonzales had a perfected contract for cleaning
and servicing of typewriter intending for Gonzales to finish the work at some future time
although such time was not specified and that such time had passed without the work
having been accomplished, for Gonzales returned the typewriter cannibalized and
unrepaired, which in itself is a breach of obligation, without demanding that he should be
given more time to finish the job or compensation for the work he had already done. The
time for compliance having evidently expired and there being a breach of contract by non-
compliance, Gonzales cannot invoke Article 1197 for he admitted non-performance by
returning the typewriter that he was obliged to repair. The fixing of a period would thus be
a mere formality and would serve no purpose than to delay. For such, Gonzales is liable
under Article 1167 for the cost of the execution of the obligation in a proper manner.
VICENTE SINGSON ENCARNACION, plaintiff-appellee, vs. JACINTA BALDOMAR,
ET AL., defendants-appellants.
G.R. No. L-264 October 4, 1946 HILADO, J.:
FACTS:
Sometime in 1940, plaintiff Encarnacion, leased his house situated in Legarda,
Manila to defendants Baldomar and her son, upon a month-to-month basis. When Manila
was liberated in the last war on March 16, 1945, the plaintiff Encarnacion notified
defendants Baldomar on April 7, 1945 to vacate the house on or before April 15, 1945
because plaintiff Encarnacion needed it for his offices as a result of the destruction of the
building where said plaintiff Encarnacion had said offices before.
Despite this demand, defendants Baldomar insisted on continuing their
occupancy. The graveman of the defense interposed by defendants Baldomar was that the
contract which they had celebrated with plaintiff Encarnacion since the beginning authorized
them to continue occupying the house indefinitely and while they should faithfully fulfill their
obligations as respects the payment of the rentals, and that the lease agreement had been
ratified when another ejectment case between the parties filed during the Japanese regime
concerning the same house was allegedly compounded in the municipal court.
ISSUE:
Whether or not Defendants Baldomar can continuously and indefinitely occupy the house
as long as they pay rentals?
RULING:
NO. The defense set up by defendants Baldomar would leave to the sole and exclusive will
of one of the contracting parties (defendants in this case) the validity and fulfillment of the
contract of lease, within the meaning of article 1256 of the Civil Code, since the continuance
and fulfillment of the contract would then depend solely and exclusively upon their free and
uncontrolled choice between continuing paying the rentals or not, completely depriving the
owner of all say in the matter.
If this defense were to be allowed, so long as defendants elected to continue
the lease by continuing the payment of the rentals, the owner would never be able to
discontinue it; conversely, although the owner should desire the lease to continue, the
lessees could effectively thwart his purpose if they should prefer to terminate the contract
by the simple expedient of stopping payment of the rentals. This, of course, is prohibited by
the aforesaid article of the Civil Code.
ELEIZEGUI V. THE MANILA LAWN TENNIS CLUB
G.R. NO. 967 MAY 19, 1903
FACTS:
A contract of lease was executed on January 25, 1980 over a piece of land owned by the
plaintiffs Eleizegui (Lessor) to the Manila Lawn Tennis Club, an English association
(represented by Mr. Williamson) for a fixed consideration of P25 per month and accordingly,
to last at the will of the lessee. Under the contract, the lessee can make improvements
deemed desirable for the comfort and amusement of its members. It appeared that the
plaintiffs terminated the lease right on the first month. The defendant is in the belief
that there can be no other mode of terminating the lease than by its own will, as what they
believe has been stipulated.
As a result the plaintiff filed a case for unlawful detainer for the restitution of the land
claiming that article 1569 of the Civil Code provided that a lessor may judicially dispossess
the lessee upon the expiration of the conventional term or of the legal term;
the conventional term — that is, the one agreed upon by the parties; the legal term, in defect
of the conventional, fixed for leases by articles 1577 and 1581. The Plaintiffs argued that
the duration of the lease depends upon the will of the lessor on the basis of Art. 1581 which
provides that, "When the term has not been fixed for the lease, it is understood to be for
years when an annual rental has been fixed, for months when the rent is monthly. . . ." The
second clause of the contract provides as follows: "The rent of the said land is fixed at 25
pesos per month."
The lower court ruled in favor of the Plaintiffs on the basis of Article 1581 of the Civil Code,
the law which was in force at the time the contract was entered into. It is of the opinion that
the contract of lease was terminated by the notice given by the plaintiff. The judgment was
entered upon the theory of the expiration of a legal term which does not exist, as the case
requires that a term be fixed by the courts under the provisions of article 1128 with respect
to obligations which, as is the present, are terminable at the will of the obligee.
ISSUE:
a) Whether or not the parties have agreed upon the duration of the lease
b) Whether or not the lease depends upon the will of the lessee
RULING:
a) YES, the parties have agreed upon a term hence Art. 1581 is inapplicable.
The legal term cannot be applied under Art 1581 as it appears that there was actually an
agreement between the parties as to the duration of the lease, albeit implied that the lease
is to be dependent upon the will of the lessee. It would be absurd to accept the argument
of the plaintiff that the contract was terminated at its notice, given this implication.
Interestingly, the contract should not be understood as one stipulated as a life tenancy, and
still less as a perpetual lease since the terms of the contract express nothing to this effect,
even if they implied this idea. If the lease could last during such time as the lessee might
see fit, because it has been so stipulated by the lessor, it would last, first, as long as the will
of the lessee — that is, all his life; second, during all the time that he may have succession,
inasmuch as he who contracts does so for himself and his heirs. (Art. 1257 of the Civil
Code.) The lease in question does not fall within any of the cases in which the rights and
obligations arising from a contract can not be transmitted to heirs, either by its nature, by
agreement, or by provision of law. Moreover, being a lease, then it must be for
a determinate period. (Art. 1543.) By its very nature it must be temporary, just as by reason
of its nature, an emphyteusis must be perpetual, or for an unlimited period. (Art. 1608.)
B) The duration of the lease does not depend solely upon the will of the Lessee
(defendant).
It cannot be concluded that the termination of the contract is to be left completely at the will
of the lessee simply because it has been stipulated that its duration is to be left to his will.
The Civil Code has made provision for such a case in all kinds of obligations. In speaking
in general of obligations with a term it has supplied the deficiency of the former law with
respect to the "duration of the term when it has been left to the will of the debtor," and
provides that in this case the term shall be fixed by the courts. (Art. 1128, sec. 2.) In every
contract, as laid down by the authorities, there is always a creditor who is entitled to demand
the performance, and a debtor upon whom rests the obligation to perform the undertaking.
In bilateral contracts the contracting parties are mutually creditors and debtors. Thus, in this
contract of lease, the lessee is the creditor with respect to the rights enumerated in article
1554, and is the debtor with respect to the obligations imposed by articles 1555 and 1561.
The term within which performance of the latter obligation is due is what has been left to
the will of the debtor. This term it is which must be fixed by the courts.
The only action which can be maintained under the terms of the contract is that by which it
is sought to obtain from the judge the determination of this period, and not the unlawful
detainer action which has been brought — an action which presupposes the expiration of
the term and makes it the duty of the judge to simply decree an eviction. To maintain the
latter action it is sufficient to show the expiration of the term of the contract, whether
conventional or legal; in order to decree the relief to be granted in the former action it is
necessary for the judge to look into the character and conditions of the mutual undertakings
with a view to supplying the lacking element of a time at which the lease is to expire.
The lower court’s judgement is erroneous and therefore reversed and the case was
remanded with directions to enter a judgment of dismissal of the action in favor of the
defendant, the Manila Lawn Tennis Club.
PHILIPPINE BANKING CORPORATION, representing the estate of JUSTINA
SANTOS Y CANON FAUSTINO vs. LUI SHE in her own behalf and as administratrix
of the intestate estate of Wong Heng
G.R. No. L-17587 September 12, 1967
FACTS:
Justina Santos y Canon Faustino and her sister Lorenzo were the owners in common of a
piece of land in Manila. This parcel, with an area of 2,582.30 square meters, is located on
Rizal Avenue and opens into Florentino Torres street at the back and Katubusan street on
one side. In it are two residential houses with entrance on Florentino Torres street and the
Hen Wah Restaurant with entrance on Rizal Avenue. The sisters lived in one of the houses,
while Wong Heng, a Chinese, lived with his family in the restaurant. Wong had been a long-
time lessee of a portion of the property, paying a monthly rental of P2,620.
On September 22, 1957 Justina Santos became the owner of the entire property as her
sister died with no other heir. Then already well advanced in years, being at the time 90
years old, blind, crippled and an invalid, she was left with no other relative to live with. Her
only companions in the house were her 17 dogs and 8 maids. Her otherwise dreary
existence was brightened now and then by the visits of Wong's four children who had
become the joy of her life. Wong himself was the trusted man to whom she delivered various
amounts for safekeeping, including rentals from her property at the corner of Ongpin and
Salazar streets and the rentals which Wong himself paid as lessee of a part of the Rizal
Avenue property. Wong also took care of the payment; in her behalf, of taxes, lawyers' fees,
funeral expenses, masses, salaries of maids and security guard, and her household
expenses.
"In grateful acknowledgment of the personal services of the lessee to her," Justina Santos
executed on November 15, 1957 a contract of lease in favor of Wong, covering the portion
then already leased to him and another portion fronting Florentino Torres street. The lease
was for 50 years. Ten days later, the contract was amended so as to make it cover the
entire property, including the portion on which the house of Justina Santos stood, at an
additional monthly rental of P360. For his part Wong undertook to pay, out of the rental due
from him, an amount not exceeding P1,000 a month for the food of her dogs and the salaries
of her maids.
On December 21 she executed another contract giving Wong the option to buy the leased
premises for P120,000, payable within ten years at a monthly installment of P1,000. The
option was conditioned on his obtaining Philippine citizenship, a petition for which was then
pending in the Court of First Instance of Rizal. It appears, however, that this application for
naturalization was withdrawn when it was discovered that he was not a resident of Rizal.
On October 28, 1958 she filed a petition to adopt him and his children on the erroneous
belief that adoption would confer on them Philippine citizenship. The error was discovered
and the proceedings were abandoned.
On November 18, 1958 she executed two other contracts, one extending the term of the
lease to 99 years, and another fixing the term of the option of 50 years. Both contracts are
written in Tagalog.
In two wills executed on August 24 and 29, 1959, she bade her legatees to respect the
contracts she had entered into with Wong, but in a codicil of a later date (November 4, 1959)
she appears to have a change of heart. Claiming that the various contracts were made by
her because of machinations and inducements practiced by him, she now directed her
executor to secure the annulment of the contracts.
On November 18 the present action was filed in the Court of First Instance of Manila. The
complaint alleged that the contracts were obtained by Wong "through fraud,
misrepresentation, inequitable conduct, undue influence and abuse of confidence and trust
of and (by) taking advantage of the helplessness of the plaintiff and were made to
circumvent the constitutional provision prohibiting aliens from acquiring lands in the
Philippines and also of the Philippine Naturalization Laws."
ISSUE:
Whether or not the option given to Wong to buy the property despite him being an alien is
valid.
HELD:
NO. Taken singly, the contracts show nothing that is necessarily illegal, but considered
collectively, they reveal an insidious pattern to subvert by indirection what the Constitution
directly prohibits. To be sure, a lease to an alien for a reasonable period is valid. So is an
option giving an alien the right to buy real property on condition that he is granted Philippine
citizenship. As this Court said in Krivenko v. Register of Deeds:20
[A]liens are not completely excluded by the Constitution from the use of lands for residential
purposes. Since their residence in the Philippines is temporary, they may be granted
temporary rights such as a lease contract which is not forbidden by the Constitution. Should
they desire to remain here forever and share our fortunes and misfortunes, Filipino
citizenship is not impossible to acquire.
But if an alien is given not only a lease of, but also an option to buy, a piece of land, by
virtue of which the Filipino owner cannot sell or otherwise dispose of his property,21 this to
last for 50 years, then it becomes clear that the arrangement is a virtual transfer of
ownership whereby the owner divests himself in stages not only of the right to enjoy the
land ( jus possidendi, jus utendi, jus fruendi and jus abutendi) but also of the right to dispose
of it ( jus disponendi) — rights the sum total of which make up ownership. It is just as if
today the possession is transferred, tomorrow, the use, the next day, the disposition, and
so on, until ultimately all the rights of which ownership is made up are consolidated in an
alien. And yet this is just exactly what the parties in this case did within the space of one
year, with the result that Justina Santos' ownership of her property was reduced to a hollow
concept. If this can be done, then the Constitutional ban against alien landholding in the
Philippines, as announced in Krivenko v. Register of Deeds,22 is indeed in grave peril.
LIM V. PEOPLE 133 SCRA 333
FACTS:
On January 10, 1966, appellant Lourdes Valerion Lim who is a businesswoman went to the
house of Maria Ayroso and proposed to sell Ayroso’s tobacco consisting of 615 kilos at
P1.30 a kilo. The appellant shall receive the profit from sale of the tobacco. This agreement
was made in the presence of the plaintiff’s sister, Salud Bantug. Salvador Bantug drew the
document which apprised of a certification that appellant had received from Ayroso the
amount of 615 kilos of leaf tobacco to be sold at P1.30 per kilo or a total of P799.50. It is
also stated there that the proceeds in the amount of P799.50 will be given to Ayroso as
soon as it was sold. It was signed by the appellant and witnessed by the complainant’s
sister Salud Bantug and the latter’s maid Genoveva Ruiz. P240 out of P799.50 was paid by
the appellant to Ayroso on three installments. As no further amount was paid, complainant
Ayroso filed a complaint against appellant Lim for estafa. Judgment was rendered against
appellant. In this petition for review on certiorari, appellant claimed that the obligation does
not fix a period and that the court should fix the duration thereof pursuant to Article 1197 of
the Civil Code.
ISSUE:
Whether or not the obligation of Lourdes Lim to pay Ayroso the amount of P799.50 is an
obligation with a fix period?
RULING:
No. It is clear in the agreement that the proceeds of the sale of the tobacco will be turned
over to the complainant as soon as the same was sold, or, that the obligation was
immediately demandable as soon as the tobacco was disposed of. The agreement
constituted her as an agent with the obligation to return the tobacco if the same was not
sold. Furthermore, where a person obliged himself to pay to another the proceeds of the
latter’s tobacco as soon as they are disposed of, a period exists for payment of the
obligation and, therefore, Article 1197 does not apply.
GREGORIO ARANETA, INC., petitioner, vs. THE PHILIPPINE SUGAR ESTATES
DEVELOPMENT CO., LTD., respondent.
G.R. No. L-22558 May 31, 1967 REYES, J.B.L., J.:
FACTS:
J. M. Tuason & Co., Inc. is the owner of a big tract land situated in Quezon
City, otherwise known as the Sta. Mesa Heights Subdivision, and covered by a Torrens title
in its name. On July 28, 1950, through Gregorio Araneta, Inc., it (Tuason & Co.) sold a
portion thereof to Philippine Sugar Estates Development Co., Ltd. The parties stipulated,
among in the contract of purchase and sale with mortgage, that the buyer will — “Build on
the said parcel land the Sto. Domingo Church and Convent” while the seller for its part
will — “Construct streets on the NE and NW and SW sides of the land herein sold so
that the latter will be a block surrounded by streets on all four sides; and the street
on the NE side shall be named "Sto. Domingo Avenue;"
The buyer, Philippine Sugar Estates Development Co., Ltd., finished the
construction of Sto. Domingo Church and Convent, but the seller, Gregorio Araneta, Inc.,
which began constructing the streets, is unable to finish the construction of the street in the
Northeast side named (Sto. Domingo Avenue) because a certain third-party, by the name
of Manuel Abundo, who has been physically occupying a middle part thereof, refused to
vacate the same; hence, on May 7, 1958, Philippine Sugar Estates Development Co., Lt.
filed its complaint against J. M. Tuason & Co., Inc., and instance, seeking to compel the
latter to comply with their obligation, as stipulated in the above-mentioned deed of sale,
and/or to pay damages in the event they failed or refused to perform said obligation.
Both defendants J. M. Tuason and Co. and Gregorio Araneta, Inc. answered
the complaint, the latter particularly setting up the principal defense that the action was
premature since its obligation to construct the streets in question was without a definite
period which needs to be fixed first by the court in a proper suit for that purpose before a
complaint for specific performance will prosper.
The trial court dismissed plaintiff's complaint. Plaintiff moved to reconsider and
modify the above decision, praying that the court fix a period within which defendants will
comply with their obligation to construct the streets in question. The lower court ordered
defendant Gregorio Araneta, Inc., a period of two (2) years from notice, within which to
comply with its obligation under the contract. On appeal, the appellate court pointed out that
under the Deed of Sale between the parties, herein defendant has a reasonable time within
which to comply with its obligations to construct and complete the streets on the NE, NW
and SW sides of the lot in question; that under the circumstances, said reasonable time has
not elapsed; thus fixing the period is proper.
ISSUE:
Whether or not the clause in the parties contract “reasonable time” needs to be
fixed a period for the defendant to comply with its obligation
HELD:
NO. Article 1197 expressly prescribes that — “the Court shall determine such
period as may under the circumstances been probably contemplated by the parties.”
The fixing of a period by the courts under Article 1197 of the Civil Code of the
Philippines is sought to be justified on the basis that petitioner (defendant below) placed
the absence of a period in issue by pleading in its answer that the contract with respondent
Philippine Sugar Estates Development Co., Ltd. gave petitioner Gregorio Araneta, Inc.
"reasonable time within which to comply with its obligation to construct and complete the
streets." Neither of the courts below seems to have noticed that, on the hypothesis stated,
what the answer put in issue was not whether the court should fix the time of performance,
but whether or not the parties agreed that the petitioner should have reasonable time to
perform its part of the bargain. If the contract so provided, then there was a period fixed, a
"reasonable time;" and all that the court should have done was to determine if that
reasonable time had already elapsed when suit was filed if it had passed, then the court
should declare that petitioner had breached the contract, as averred in the complaint, and
fix the resulting damages. On the other hand, if the reasonable time had not yet elapsed,
the court perforce was bound to dismiss the action for being premature. But in no case can
it be logically held that under the plea above quoted, the intervention of the court to fix the
period for performance was warranted, for Article 1197 is precisely predicated on the
absence of any period fixed by the parties.
It must be recalled that Article 1197 of the Civil Code involves a two-step
process. The Court must first determine that "the obligation does not fix a period" (or that
the period is made to depend upon the will of the debtor)," but from the nature and the
circumstances it can be inferred that a period was intended" (Art. 1197, pars. 1 and 2). This
preliminary point settled, the Court must then proceed to the second step, and decide what
period was "probably contemplated by the parties" . So that, ultimately, the Court cannot fix
a period merely because in its opinion it is or should be reasonable, but must set the time
that the parties are shown to have intended. As the record stands, the trial Court appears
to have pulled the two-year period set in its decision out of thin air, since no circumstances
are mentioned to support it. Plainly, this is not warranted by the Civil Code.
The conclusion is thus forced that the parties must have intended to defer the
performance of the obligations under the contract until the squatters were duly evicted, as
contended by the petitioner Gregorio Araneta, Inc.
PACIFICA MILLARE vs. HON. HAROLD M. HERNANDO, In his capacity as Presiding
Judge, ANTONIO CO and ELSA CO
G.R. No. L-55480 June 30, 1987
FACTS:
A five year contract of lease was executed between petitioner Pacifica Millare
as lessor and private respondents’ spouses Elsa and Antonio Co. After the end of the five
year contract, Mrs. Millare wrote the Co spouses requesting them to vacate the leased
premises as she had no intention of renewing the Contract of Lease which had already
expired. Another letter of demand from Mrs. Millare was received by the Co spouses, who
responded by depositing the rentals for two months in court. Spouses Co thereafter filed a
complaint with the court of first instance seeking judgment ordering the renewal of the
Contract of Lease. Mrs. Millare countered with an Omnibus Motion to Dismiss which
respondent judge denied and ordered the renewal of the Contract of Lease. Respondent
judge had rendered a Judgment by Default against petitioner founding his decision under
Article 1197 and 1670 of the New Civil Code.
ISSUE:
Whether or not Article 1197 may be applied in this case?
RULING:
NO. Article 1197 provides that:
“If the obligation does not fix a period, but from its nature and the circumstances
it can be inferred that a period was intended, the courts may fix the duration
thereof. The courts shall also fix the duration of the period when it depends
upon the will of the debtor. In every case, the courts shall determine such
period as may, under the circumstances, have been probably contemplated by
the parties. Once fixed by the courts, the period cannot be changed by them. “
Since the Contract of Lease did in fact fix an original period of five years, which had expired.
It is also clear from paragraph 13 of the Contract of Lease that the parties reserved to
themselves the faculty of agreeing upon the period of the renewal contract. The second
paragraph of Article 1197 is equally clearly inapplicable since the duration of the renewal
period was not left to the wiu of the lessee alone, but rather to the will of both the lessor and
the lessee. Most importantly, Article 1197 applies only where a contract of lease clearly
exists. Here, the contract was not renewed at all, there was in fact no contract at all the
period of which could have been fixed.
 ARCO PULP and PAPER CO, INC. and SANTOS vs. LIM respondent’s debtor. It merely shows that petitioner Arco Pulp and Paper opted to deliver
G.R. No. 206806, June 25, 2014 the finished products to a third person instead.

FACTS:
Dan T. Lim works in the business of supplying scrap papers, cartons, and other raw
materials, under the name Quality Paper and Plastic Products, Enterprises, to factories
engaged in the paper mill business. From February 2007 to March 2007, he delivered scrap
papers worth 7,220,968.31 to Arco Pulp and Paper Company, Inc. (Arco Pulp and Paper)
through its Chief Executive Officer and President, Candida A. Santos. The parties allegedly
agreed that Arco Pulp and Paper would either pay Dan T. Lim the value of the raw materials
or deliver to him their finished products of equivalent value. Dan T. Lim alleged that when
he delivered the raw materials, Arco Pulp and Paper issued a post-dated check dated April
18, 2007 in the amount of 1,487,766.68 as partial payment, with the assurance that the
check would not bounce. When he deposited the check on April 18, 2007, it was dishonored
for being drawn against a closed account. On the same day, Arco Pulp and Paper and a
certain Eric Sy executed a memorandum of agreement where Arco Pulp and Paper bound
themselves to deliver their finished products to Megapack Container Corporation, owned
by Eric Sy, for his account. According to the memorandum, the raw materials would be
supplied by Dan T. Lim, through his company, Quality Paper and Plastic Products. The
memorandum of agreement reads as follows: Per meeting held at ARCO, April 18, 2007, it
has been mutually agreed between Mrs. Candida A. Santos and Mr. Eric Sy that ARCO will
deliver 600 tons Test Liner 150/175 GSM, full width 76 inches at the price of P18.50 per kg.
to Megapack Container for Mr. Eric Syâs account. It has been agreed further that the Local
OCC materials to be used for the production of the above Test Liners will be supplied by
Quality Paper & Plastic Products Ent., total of 600 Metric Tons at P6.50 per kg. (price
subject to change per advance notice). Quantity of Local OCC delivery will be based on the
quantity of Test Liner delivered to Megapack Container Corp. based on the above
production schedule. On May 5, 2007, Dan T.Lim sent a letter to Arco Pulp and Paper
demanding payment of the amount of 7,220,968.31, but no payment was made to him.
The consent of the creditor must also be secured for the novation to be valid: Novation must
be expressly consented to. Moreover, the conflicting intention and acts of the parties
underscore the absence of any express disclosure or circumstances with which to deduce
a clear and unequivocal intent by the parties to novate the old agreement.
In this case, respondent was not privy to the memorandum of agreement, thus, his
conformity to the contract need not be secured. If the memorandum of agreement was
intended to novate the original agreement between the parties, respondent must have first
agreed to the substitution of Eric Sy as his new debtor. The memorandum of agreement
must also state in clear and unequivocal terms that it has replaced the original obligation of
petitioner Arco Pulp and Paper to respondent. Neither of these circumstances is present in
this case. Petitioner Arco Pulp and Paper’s act of tendering partial payment to respondent
also conflicts with their alleged intent to pass on their obligation to Eric Sy. When respondent
sent his letter of demand to petitioner Arco Pulp and Paper, and not to Eric Sy, it showed
that the former neither acknowledged nor consented to the latter as his new debtor. These
acts, when taken together, clearly show that novation did not take place. Since there was
no novation, petitioner Arco Pulp and Paper’s obligation to respondent remains valid and
existing.

ISSUE:
Whether or not there was novation.

RULING:
Novation is a mode of extinguishing an obligation by changing its objects or principal
obligations, by substituting a new debtor in place of the old one, or by subrogating a third
person to the rights of the creditor. Article 1293 of the Civil Code defines novation as follows:

"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 rights mentioned
in articles 1236 and 1237."

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

Novation may also 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. Whether extinctive or modificatory, novation is made either by
changing the object or the principal conditions, referred to as objective or real novation; or
by substituting the person of the debtor or subrogating a third person to the rights of the
creditor, an act known as subjective or personal novation.

For novation to take place, 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. Novation may
also be express or implied. It is express when the new obligation declares in unequivocal
terms that the old obligation is extinguished. It is implied when the new obligation is
incompatible with the old one on every point. The test of incompatibility is whether the two
obligations can stand together, each one with its own independent existence.

Because novation requires that it be clear and unequivocal, it is never presumed, thus: In
the civil law setting, novation is literally construed as to make new. So it is deeply rooted in
the Roman Law jurisprudence, the principle of novation non praesumitur, that novation is
never presumed. At bottom, for novation to be a jural reality, its animus must be ever
present, debitum pro debito, basically extinguishing the old obligation for the new one.
There is nothing in the memorandum of agreement that states that with its execution, the
obligation of petitioner Arco Pulp and Paper to respondent would be extinguished. It also
does not state that Eric Sy somehow substituted petitioner Arco Pulp and Paper as