Inchausti v Yulo

A solidary debtor may benefit in the reduction of debt granted to their co-debtors as

it would be impossible for the solidary debtor to be fully reimbursed from the other

co-debtors for the full payment if he is still subject to the older and bigger debt. In

regards to the manners and time of payment, this cannot be granted to the debtors

who were not granted the same.

● Teodoro Yulo, a property owner in Iloilo, had been borrowing money from the firm

of Inchausti & Co. for the exploitation and cultivation of his haciendas.

● Teodoro Yulo died testate on April 9, 1903 and for the execution of the provisions

of his will he had appointed as administrators his widow and five of his sons,

Gregorio Yulo being one of the latter. His wife, Gregoria Regalado, died a year later

on October 22, 1904. Their children preserved the same relations under the name of

Hijos de T. Yulo continuing their current account with Inchausti & Co. in the best

and most harmonious reciprocity until said balance amounted to P 200, 000.00. In

for the payment of the disbursements of money which until that time it had been

making in favor of its debtors, the Yulos.

● On June 26, 1908, Gregorio Yulo, for himself and in representation of his brothers

Pedro, Francisco, Manuel, Mariano, and Carmen, executed a notarial document

admitting their indebtedness to Inchausti & Company in the sum of P203,221.27

and, in order to secure the same with interest thereon at 10% per annum, they

mortgaged an undivided six-ninth of their 38 rural properties, their remaining

urban properties, lorchas, and family credits which were listed, obligating themselves

to make a formal inventory and to describe in due form all the said properties, as

well as to cure all the defects which might prevent the inscription of the said

instrument in the registry of property and finally to extend by the necessary

formalities the aforesaid mortgage over the remaining three-ninths part of all the

property and rights belonging to their other brothers, the incompetent Teodoro, and

the minors Concepcion and Jose.

● On January 11, 1909, Gregorio Yulo in representation of Hijos de T. Yulo answered

a letter of the firm of Inchausti & Company in these terms: "With your favor of the

2nd inst. we have received an abstract of our current account with your important

firm, closed on the 31st of last December, with which we desire to express our entire

conformity as also with the balance in your favor of P271, 863.12."

● On July 17, 1909, Inchausti & Co. informed Hijos de T. Yulo of the reduction of the

said balance to P253,445.42, with which balance Hijos de T. Yulo expressed its

conformity by means of a letter of the 19th of the same month and year. Regarding

this conformity a new document evidencing the mortgage credit was formalized.

● On August 12, 1909, Gregorio Yulo, for himself and in representation of his

brother Manuel Yulo, and in their own behalf Pedro Yulo, Francisco Yulo, Carmen

Yulo, and Concepcion Yulo, the latter being of age at the time, executed the notarial

instrument through which they ratified all the contents of the prior document of

June 26, 1908, severally and jointly acknowledged and admitted their indebtedness

to Inchausti & Co. for the net amount of P253,445.42

which they obligated themselves to pay, with interest at 10% per annum, in five

installments at the rate of P50,000, except the last, this being P53,445.42, beginning

June 30, 1910, continuing successively on the 30th of each June until the last

payment on June 30, 1914. Said instrument was neither ratified nor confirmed by

Mariano Yulo.

● However, the Yulos who executed the preceding instrument, did not pay the first

installment of the obligation.

● On March 27, 1911, Inchausti & Co. brought an ordinary action in the CFI of

Iloilo, against Gregorio Yulo for the payment of the said balance due of P253,445.42

with interest at 10% per annum, on that date aggregating P42,944.76.

● On May 12, 1911, Francisco, Manuel, and Carmen executed in favor Inchausti &

Co. another notarial instrument in recognition of the debt and obligation of payment

in the following terms: "First, the debt is reduced for them to P225,000; second, the

interest is likewise reduced for them to 6% per annum, from March 15, 1911; third,

the installments are increased to eight, the first of P20,000, beginning on June 30,

1911, and the rest of P30,000 each on the same date of each successive year until

the total obligation shall be finally and satisfactorily paid on June 30, 1919," it

being expressly agreed "that if any of the partial payments specified in the foregoing

clause be not paid at its maturity, the amount of the said partial payment together

with its interest shall bear interest at the rate of 15% per annum from the date of

said maturity, without the necessity of demand until its complete payment;" that "if

during two consecutive years the partial payments agreed upon be not made, they

shall lose the right to make use of the period granted to them for the payment of the
debt or the part thereof which remains unpaid, and that Messrs. Inchausti & Co.

may consider the total obligation due and demandable, and proceed to collect the

same together with the interest for the delay above stipulated through all legal

means."

● On July 10, 1911, Gregorio Yulo answered the complaint and alleged that: first, an

accumulation of interest had taken place and that compound interest was asked for

the Philippine currency at par with Mexican; second, that in the instrument of

August 21, 1909, two conditions were agreed—one of which ought to be approved by

the Court of First Instance, and the other ratified and confirmed by the other brother

Mariano Yulo, neither of which was complied with; third, that with regard to the

same debt claims were presented before the commissioners in the special proceedings

over the inheritances of Teodoro Yulo and Gregoria Regalado, though later they were

dismissed, pending the present suit; fourth and finally, that the instrument of August

12, 1909, was novated by that of May 12, 1911, executed by Manuel, Francisco and

Carmen Yulo.

● The CFI of Iloilo decided the case in favor of the defendant without prejudice to the

plaintiff's bringing within the proper time another suit for his proportional part of

the joint debt, and that the plaintiff pay the costs.

W/N the plaintiff can sue Gregorio Yulo alone, there being other obligors. YES.

The debtors having obligated themselves in solidum, the creditor can bring its action

in toto against any one of them.

"When the obligation is constituted as a conjoint and solidary obligation each one of

the debtors is bound to perform in full the undertaking which is the subject matter of

such obligation." (CC, articles 1137 and 1144.)

W/N Inchausti & Co. lost this right by the fact of its having agreed with the other

obligors in the reduction of the debt, the proroguing of the obligation and the

extension of the time for payment, in accordance with the instrument of May 12,

1911. NO.

Even though the creditor may have stipulated with some of the solidary debtors

diverse installments and conditions, as in this case, Inchausti & Co. did with its

debtors Manuel, Francisco, and Carmen Yulo through the instrument of May 12,
1911, this does not lead to the conclusion that the solidarity stipulated in the

instrument of August 12, 1909 is broken, as we already know the law provides that

"solidarity may exist even though the debtors are not bound in the same manner and

for the same periods and under the same conditions." (CC, article 1140.)

W/N the contract with said three obligors constitutes a novation of that of August 12,

1909, entered into with the six debtors who assumed the payment of P 253, 445.42,

the subject matter of the suit. NO.

If not, W/N it has any effect at all in the action brought and in the present suit. YES.

The contract of May 12, 1911 does not constitute a novation of the former one of

August 12, 1909 with respect to the other debtors who executed this contract, or more

concretely, with respect to the defendant Gregorio Yulo: First, because " in order that

an obligation may be extinguished by another which substitutes it, it is necessary

that it should be so expressly declared or that the old and the new be incompatible

in all points" (CC, Art 1204); and the instrument of May 12, 1911, far from

expressly declaring that the obligation of the three who executed it substitutes the

former signed by Gregorio Yulo and the other debtors, expressly and clearly stated

that the obligation of Gregorio Yulo to pay the P 253, 445.42 sued for exists,

stipulating that the suit must continue its course and, if necessary, these three parties

who executed the contract of May 12, 1911, would cooperate in order that the action

against Gregorio Yulo might prosper, with other undertakings concerning the

execution of the judgment which might be rendered against Gregorio Yulo in this

same suit. There exist no incompatibility between the old and the new obligation.

The legal doctrine that an obligation to pay a sum of money is not novated in a new

instrument wherein the old is ratified by changing only the term of payment and

adding other obligations not incompatible with the old one.

Although the contract of May 12, 1911, has not novated that of August 12, 1909, it

has affected that contract and the outcome of the suit brought against Gregorio Yulo

alone for the sum of P253,445.42; in consequence thereof, the amount stated in the

contract of August 12, 1909, cannot be recovered but only that stated in the contract

of May 12, 1911, by virtue of the remission granted to the three of the solidary

debtors in this instrument, in conformity with what is provided in article 1143 of

the Civil Code, cited by the creditor itself.

Alipio v CA

After the death of either spouse, no complaint for the collection of

indebtedness chargeable against CPG can be brought against the surviving

spouse, as held in Calma v Tanedo, … claim must be made in the proceedings

for the liquidation and settlement of CPG (Art 129 FC and Rule 78 Sec 2

ROC) *OBLIGATION is presumed to be only JOINT (not joint and solidary: Art

1208 NCC)

● Romeo Jaring leased fishpond to spouses Alipio and spouses Manuel for P

485,600 to be paid 300,000 then 185,600 2nd due on June 30, 1989. All

four signed the contract.

● Spouses paid partially still owed P 50,600 despite due demand after June

30, 1989

● Romeo Jaring sued Alipio and Manuel spouses in RTC 5 Battaan on

October 13, 1989

● Placido Alipio died December 1, 1988 before 2nd due date and prior to

suit.

● Purita Alipio moved to dismiss due to husband’s death incorrectly citing

Rule 3 Sec 21 1964 ROC amended and now Rule 3 Sec 20 1997 Civil

Procedure.

●RTC denied motion, since Purita was a party of the sublease she could be

independently impleaded in the suit with Manuel spouses. Dead husband

simply excluded.

●RTC ordered Purita and Manuel spouses who failed to file their answer thus

declared in default, to pay P 50,600 plus P 10,000 Atty plus cost on

February 26, 1991 Purita appealed. CA dismissed appeal and MR July 10,

1997 and June 4, 1998 cite incorrectly Climaco v Siy Uy and Imperial Ins.

Inc v David
W/N The creditor can sue the surviving spouse in an ordinary proceeding for

the collection of a sum of money chargeable against the CPG. Held: NO. The

proper remedy is for him to file a claim in the settlement of the estate of the

decedent.

Rule 3 Sec 21 1964 ROC dismissal applies if defendant dies during

pendency of suit.

Rule 3 Sec 20 1997 Rules Civil Procedure can allow suit to continue but

can a suit be filed in the first place.

Art 121(2) CPG liable for all debts and obligation contracted by… both

spouses.

Art 126(1) Death terminates CPG

Rule 73 Sec 2 ROC after death and termination of CPG debts chargeable

against it are to be paid in the settlement of the estate. Calma v Tanedo 66

Phil. 594, 598 (1938)

because power of administration of the surviving spouse ceases and needs to

be performed by a court appointed administrator.

Note: Rule 78 Sec 6 ROC allows for the possibility of the creditor applying

for the Administration of the estate as principal creditor 30 days from

debtor’s death.

Art 121(2) FC. When spouses are sued for debt by CPG they are being sued as

representatives of the CPG and so the concept of joint solidary liability as

between them does not apply.

Art 1207 NCC: … there is solidary liability only when the obligation

expressly states or when the nature of the obligation requires it.

Art 1208 … An obligation is presumed to be only joint….

Lafarge Cement Phil. v. Continental Cement

Obligations may be classified as either joint or solidary. "Joint" or "jointly" or

"conjoint" means mancum or mancomunada or pro rata obligation; on the

other hand, "solidary obligations" may be used interchangeably with "joint

and several" or "several." Thus, petitioners' usage of the term "joint and

solidary" is confusing and ambiguous.

The ambiguity in petitioners' counterclaims notwithstanding, respondents'

liability, if proven, is solidary. This characterization finds basis in Article

1207 of the Civil Code, which provides that obligations are generally

considered joint, except when otherwise expressly stated or when the law or

the nature of the obligation requires solidarity. However, obligations arising

from tort are, by their nature, always solidary. However, obligations arising

from tort are, by their nature, always solidary.

In a "joint" obligation, each obligor answers only for a part of the whole

liability; in a "solidary" or "joint and several" obligation, the relationship

between the active and the passive subjects is so close that each of them must

comply with or demand the fulfillment of the whole obligation. The fact that

the liability sought against the CCC is for specific performance and tort,

while that sought against the individual respondents is based solely on tort

does not negate the solidary nature of their liability for tortuous acts alleged

in the counterclaims. Article 1211 of the Civil Code is explicit on this point:

"Solidarity may exist although the creditors and the debtors may not be

bound in the same manner and by the same periods and conditions."

The solidary character of respondents' alleged liability is precisely why

credence cannot be given to petitioners' assertion. According to such assertion,

Respondent CCC cannot move to dismiss the counterclaims on grounds that

pertain solely to its individual co-debtors. In cases filed by the creditor, a

solidary debtor may invoke defenses arising from the nature of the obligation,

from circumstances personal to it, or even from those personal to its co-

debtors. Article 1222 of the Civil Code provides:

"A solidary debtor may, in actions filed by the creditor, avail itself of all

defenses which are derived from the nature of the obligation and of those

which are personal to him, or pertain to his own share. With respect to those

which personally belong to the others, he may avail himself thereof only as

regards that part of the debt for which the latter are responsible."

The act of Respondent CCC as a solidary debtor -- that of filing a motion to

dismiss the counterclaim on grounds that pertain only to its individual co-

debtors -- is therefore allowed.

On August 11, 1998, Petitioner Lafarge Cement Philippines, Inc. (Lafarge)

and Respondent Continental Cement Corporation (CCC) executed a Letter of

Intent in which Lafarge would buy CCC’s cement business. At the time of the

transaction, CCC had an ongoing case in the Supreme Court: Asset

Privatization Trust v. CA and CCC.

Anticipating that an unfavorable judgment would have deleterious effects on

the transaction, the parties agreed to retaining a portion of the purchase price

(P117,020,846.84) to be paid to Asset Privatization Trust should the case be

decided in the latter’s favor.

The case was decided in Asset Privatization Trust’s favor. Lafarge refused to

deliver the payment, causing CCC to file with the RTC a “Complaint with

Application for Preliminary Attachment” against Lafarge. The Complaint

included compelling Lafarge to deliver the payment.

Lafarge moved to dismiss the Complaint on grounds of forum shopping, as

CCC had allegedly made the same claim with the same parties in a case filed

with the International Chamber of Commerce. The RTC denied such motion,

prompting Lafarge to elevate the case to the CA. While the appeal was pending

in the CA,
Lafarge filed an “Answer and Compulsory Counterclaim ad Cautelam”,

praying by way of compulsory counterclaim for the actual damages,

exemplary damages, moral damages and attorney’s fees against CCC, its

President Gregory T. Lim, and its corporate secretary Anthony A. Mariano.

Lafarge alleged that CCC, through Lim and Mariano, filed the baseless

complaint in the International Chamber of Commerce and procured the Writ

of Attachment in bad faith. Relying on Sapugay vs. CA, Lafarge prayed that

both Lim and Mariano be held “jointly and solidarily” liable with CCC.

On behalf of Lim and Mariano, CCC moved to dismiss the compulsory

counterclaims.

The RTC dismissed Lafarge’s counterclaims, declaring the non-compulsory

nature of said counterclaims. It later clarified that it was dismissing the

counterclaims impleading Lim and Mariano, even if said counterclaims

included CCC.

Issue 1: WON the RTC gravely erred in ruling that (YES to all)

- (i) Lafarge’s' counterclaims against Lim and Mariano are not

compulsory

- (ii) Sapugay v. Court of Appeals is inapplicable here

- (iii) Lafarge violated the rule on joinder of causes of action.

Counterclaims may either be permissive or compulsory. The former “does not

arise out of or is not necessarily connected with the subject matter of the

opposing party's claim”; the latter “rises out of or is necessarily connected

with the transaction or occurrence constituting the subject matter of the

opposing party's claim and does not require for its adjudication the presence

of third parties of whom the court cannot acquire jurisdiction.” The former is

essentially an independent claim that can be a separate filing; the latter

MUST be set up in the same action or face a permanent bar by way of res

judicata.
To determine whether or not a counterclaim is permissive or compulsory, four

questions are asked (NAMARCO v. Federation of United Namarco Distributors):

1.) Are issues of fact and law raised by the claim and by the counterclaim

largely the same?

2.) Would res judicata bar a subsequent suit on defendant's claim, absent

the compulsory counterclaim rule?

3.) Will substantially the same evidence support or refute plaintiff's claim

as well as defendant's counterclaim?

4.) Is there any logical relation between the claim and the counterclaim?

Answering all 4 in the positive means that the counterclaim is compulsory.

Lafarge’s counterclaims of bad faith against Lim and Mariano have with

them the exact same evidence base that the present case provides. Thus,

Lafarge’s counterclaim is compulsory by nature and must be filed within the

same action.

(ii) Sapugay v. CA is applicable. The case dealt with the impleading of a new

party in a counterclaim, which was contested. The Court held thus:

“A counterclaim is defined as any claim for money or other relief which a

defending party may have against an opposing party. However, the general

rule that a defendant cannot by a counterclaim bring into the action any

claim against persons other than the plaintiff admits of an exception under

Section 14, Rule 6 which provides that 'when the presence of parties other

than those to the original action is required for the granting of complete

relief in the determination of a counterclaim or cross-claim, the court shall

order them to be brought in as defendants, if jurisdiction over them can be

obtained.”

In the instant case, CCC argues that the exception only applies when

“complete relief” cannot be obtained from the parties originally impleaded in

the case.
The Court rejects such a theory, stating that individual officers of a company

can be named for instances of fraud and bad faith pertaining to them. Such

allegations permit the “piercing the veil of corporate fiction” which assumes

that the company is responsible for its officer’s action.

(iii) CCC claims that Lafarge violated the rules on joinder of causes of action

since the original Complaint was for specific performance based on a

contract, while the counterclaim is based on allegations of bad faith. The

Court responded that the same rules that CCC relies on are the same rules

that discourage duplicity of suits that Lafarge’s counterclaim is in the nature

of avoiding. Moreover, parties in a compulsory counterclaim are declared real

parties-in-interest that must be joined therein.

Issue 2: WON the RTC gravely erred in refusing to rule that CCC has no

personality to move to dismiss Lafarge's compulsory counterclaims on Lim and

Mariano's behalf. – YES

Obligations are either “joint” or “solidary/several/joint and several”, thus

Lafrage’s use of the term “jointly and solidarily” is ambiguous. That

notwithstanding, the liability of CCC, Lim and Mariano, if proven, would be

solidary. This is due to it being based off a tort, which automatically makes

the obligation solidary. [Article 1207; tort rule dates back to the 1912 case of

Worcester v. Ocampo]

The fact that the counterclaim against CCC is for specific performance and

tort, and against Lim and Mariano only for tort, does not negate the solidary

nature of the obligation. [Article 1211]

Article 1222 of the NCC, however, allows a solidary debtor to avail of

defenses personal to him, based on the nature of the allegations. Thus, CCC

can file a motion to dismiss the counterclaim on grounds that pertain

exclusively to Lim and Mariano.

However, the filing done by CCC was on behalf of Lim and Mariano. CCC is

not authorized to do this action,

being a corporate entity that cannot act on behalf of its officers without being

so authorized. Unless explicitly authorized by Lim and Mariano, the

compulsory counterclaim has no force and effect insofar as the latter two are

affected. Thus, any of the 3 respondents (CCC, Lim, and Mariano) can file a

Motion to Dismiss the counterclaim on grounds that pertain exclusively to

them, but such Motion cannot be deemed to have been filed on behalf of

their co-defendants
RFC v CA

A creditor had no other right than to exact payment. After such payment, the

obligation in question, as regards said creditor, and the latter’s status and

rights as such creditor, become automatically extinguished. In order that the

rights of the payor may be subject to the limitation in Art 1158 (payor "may

only recover from the debtor insofar as the payment has been beneficial to

him"), the debtor must oppose the payments before or at the time the same

were made, not subsequently thereto. The question whether or not the

payment made by a third person for the debt of debtors is beneficial to the

debtors, depends upon the law, not upon the will of the debtors. If a third

person pays the entire debt on behalf of only one of the solidary debtors, the

other solidary debtor is benefited and may avail of said payment as defense.

In accordance with Art. 1222, the following are the defenses available:

1. Defenses derived from the nature of the obligation;

2. Defenses personal to the debtor-defendant; and

3. Defenses personal to the other solidary debtors.

FACTS

Jesus de Anduiza & Quinatana Cano borrowed money from the Agricultural

and Industrial Bank (now Rehabilitation Finance Corporation or RFC), as

evidenced by a promissory note dated October 31, 1941. In said note, they

promised to pay the AIB, or order, on or before October 31, 1951, the sum of

P13,800.00, with interest at the rate of 6% p.a.. Said note also recited that

payments were to be made in ten equal annual installments in accordance

with the given schedule of amortizations.

Mortgagors Anduiza and Cano failed to pay the yearly amortizations that

fell due on October 31,1942 and 1943. As Estelito Madrid, who was at the

outbreak of the last war the manager of the branch office of the National

Abaca and other Fiber Corporation in Sorsogon, and who temporarily lived
in the house of Jesus de Anduiza in said province during the Japanese

occupation, learned of the latters' failure to pay the aforesaid amortizations

due the creditor RFC, he went to its central office in Manila in October,

1944, and offered to pay the indebtedness of Jesus de Anduiza. Accordingly,

he paid on October 23, 1944, P7,374.83 for the principal, and 2,625.17 for

the interest, or a total of P10,000.00, thereby leaving a balance of

P6,425.17, which was likewise paid on October 30th of the same year.

July 30, 1948: Alleging that Anduiza has failed to pay the plaintiff in the

amount of P16,425.17 inspite of demands therefor, and that RFC refused to

cancel the mortgage, Madrid instituted an action in the Court of First Instance

of Manila, praying for judgment to (a) declare as paid the P16,425.17

Anduiza owed the RFC; (b) order RFC to cancel the mortgage and release the

properties; (c) condemn Anduiza to pay Madrid the P16,425.17 with legal

interest, etc. In answer, RFC prayed that the complaint be dismissed,

alleging that the loan of P13,800.00 had not become due and demandable

in October, 1944, as the same was payable in ten years at P1,874.98

annually; that up to October 30, 1944, plaintiff delivered the total sum of

P16,425.17 to RFC which accepted the same as deposit pending proof of the

existence of Jesus de Anduiza's authority and approval which plaintiff

promised to present; that it was agreed that if plaintiff could not prove said

authority the deposit will be annulled.

In view of the refusal of defendant Jesus de Anduiza to approve and

authorize the payment of his loan, it was declared null and void by

Executive Order No. 49 of June 6, 1945;

that on June 4, 1948, defendant Anduiza personally came to the office of the

RFC, apprising it that he did not authorize the plaintiff to pay for his loan

with the Agricultural and Industrial Bank; and that on June 4, 1948, he

paid the sum of P2,000.00 on account of his loan and interest in arrears.
Anduiza filed his answer and alleged that when Madrid paid his debt, the

same was not yet due and demandable; hence, he may not be compelled to

pay the latter.

RTC dismissed the complaint. On appeal, the CA reversed and directed RFC

to cancel the mortgage and Anduiza to pay Madrid the P16,425.17. Hence,

this appeal by certiorari by RFC.

Issue 1: WON Anduiza and Cano (debtors) were entitled to pay the obligation

prior to October 15, 1951? YES.

It should be noted that the makers of the promissory note quoted above

promised to pay the obligation evidenced thereby "on or before October 31,

1951." Although the full amount of said obligation was not demandable

prior to October 31, 1951, in view of the provision of the note relative to the

payment in ten (10) annual installments, it is clear, therefore, that the

makers or debtors were entitled to make a complete settlement of the

obligation at any time before said date.

Issue 2: WON the payment by Madrid (third person) was valid? YES.

Madrid was entitled to pay the obligation of Anduiza irrespective of the

latter's will or that of RFC, and even over the objection of either or both.

Article 1158 of the Civil Code of Spain, which was in force in the

Philippines at the time of the payments under consideration and of the

institution of the present case provides:

"Payment may be made by any person, whether he has an interest in the

performance of the obligation or not, and whether the payment is known and

approved by the debtor or whether he is unaware of it.

One who makes a payment for the account of another may recover from the

debtor the amount of the payment, unless it was made against his express

will
In the latter case he can recover from the debtor only in so far as the payment

has been beneficial to him."

Payments in question were not made against the objection either of Anduiza

or of the Bank. Anduiza impliedly, but clearly, acquiesced in the validity of

the payment when he joined Madrid in appealing the decision of CFI Manila.

Also, RFC issued receipts acknowledging payment without qualification and

demanded a signed statement of Anduiza sanctioning said payments merely

as a condition precedent, not to its acceptance, which had already been

made, but to the execution of the deed of cancellation of the mortgage

constituted in favor of said institution.

This condition imposed by RFC was null and void, for RFC as the creditor

had no other right than to exact payment. After such payment, the obligation

in question, as regards said creditor, and the latter’s status and rights as such

creditor, become automatically extinguished. Hence:

The good or bad faith of the payor is immaterial. The exercise of a right,

vested by law without any qualification, can hardly be legally considered as

tainted with bad faith. Accordingly, the circumstance that payment by

Madrid had been effected in the name of Anduiza, upon which RFC relies in

support of its aforesaid allegation of bad faith, does not prove the existence of

the latter. RFC cannot invoke the provision that the payor "may only recover

from the debtor insofar as the payment has been beneficial to him," when

made against his express will. This is a defense that may be availed of by the

debtor, not by RFC, for it affects solely the rights of the former. At any rate, in

order that the rights of the payor may be subject to said limitation, the debtor

must oppose the payments before or at the time the same were made, not

subsequently thereto.
Moreover, the question whether the same were beneficial or not to Anduiza,

depends upon the law, not upon his will. His former animosity towards

Madrid sufficed to negate the beneficial effects of the payment under

consideration; however, the subsequent change of front of Anduiza (accepting

tacitly Madrid’s act of payment when he joined him in his appeal in CFI

Manila), would constitute an admission and proof of said beneficial effects.

Quiombing v CA

The debtor may pay any one of the solidary creditors; but if any demand,
judicial or extrajudicial, has been made by one of them, payment should be
made to him.

A solidary obligation is one in which each debtor is liable for the entire
obligation, and each creditor is entitled to demand the whole obligation.
Hence, in the former, each creditor can recover only his share of the
obligation, and each debtor can be made to pay only his part; whereas, in
the latter, each creditor may enforce the entire obligation, and each debtor
may be obliged to pay it in full

A joint obligation is one in which each of the debtors is liable only for a

proportionate part of the debt, and each creditor is entitled only to a

proportionate part of the credit

Facts:

In a “Construction and Service Agreement”1 concluded on August 30, 1983,

Nicencio Tan Quiombing and Dante Biscocho, as the First Party, jointly and
severally bound themselves to construct a house for private respondents
Francisco and Manuelita Saligo, as the Second Party, for the contract price of
P137,940.00, which the latter agreed to pay

On October 10, 1984, Quiombing and Manuelita Saligo entered into a second
written agreement2 under which the latter acknowledged the completion of
the house and undertook to pay the balance of the contract price in the
manner prescribed in the said second agreement

On November 19, 1984, Manuelita Saligo signed a promissory note for

P125,363.50 representing the amount still due from her and her husband,
payable on or before December 31, 1984

November 19, 1984, Manuelita Saligo signed a promissory note for

P125,363.50 representing the amount still due from her and her husband,
payable on or before December 31, 1984, to Nicencio Tan Quiombing

October 9, 1986, Quiombing filed a complaint for Recovery

Defendants (Saligo) moved to dismiss the complaint on February 4, 1987,

contending that Biscocho was an indispensable party and therefore should
have been included as a co-plaintiff. The complaint was dismissed
Quiombing chose to appeal the order of dismissal to the respondent court,
where he argued that as a solidary creditor he could act by himself alone in
the enforcement of his claim against the private respondents

WON Quiombing can sue the spouses alone – YES

It did not matter who as between them filed the complaint because the
private respondents were liable to either of the two as a solidary creditor for
the full amount of the debt.

Full satisfaction of a judgment obtained against them by Quiombing would

discharge their obligation to Biscocho, and vice versa; hence, it was not
necessary for both Quiombing and Biscocho to file the complaint.

The complaint having been filed by Quiombing, whatever amount is

awarded against the debtor must be paid exclusively to him, pursuant to
Article 1214.

If Quiombing eventually collects the amount due from the solidary debtors,
Biscocho may later claim his share thereof, but that decision is for him alone
to make. It will affect only the petitioner as the other solidary creditor and
not the private respondents,

Payment of the judgment debt to the complainant will be considered payment

to the other solidary creditor even if the latter was not a party to the suit.

Issue 2: WON Biscocho was an indispensable party – NO

Indispensable parties are those with such an interest in the controversy that a
final decree would necessarily affect their rights, so that the court cannot
proceed without their presence. Necessary parties are those whose presence is
necessary to adjudicate the whole controversy, but whose interests are so far
separable that a final decree can be made in their absence without affecting
them. (Necessary parties are now called proper parties)

According to Justice Jose Y. Feria “where the obligation of the parties is

solidary, either one of the parties is indispensable, and the other is not even
necessary (now proper) because complete relief may be obtained from either.”
Although he signed the original Construction and Service Agreement Biscocho
need not be included as a co-plaintiff in the complaint filed by the
petitioner against the private respondents. Quiombing as solidary creditor can
by himself alone enforce payment of the construction costs by the private
respondents and as a solidary debtor may by himself alone be held liable for
any possible breach of contract that may be proved by the private respondents
In either case, the participation of Biscocho is not at all necessary, much less
indispensable
Country Bankers Insurance Corporation v. CA

- Oscar Ventanilla Enterprises Corporation (OVEC), as lessor, and Enrique

Sy, lessee, entered nito a lease agreement over the Avenue, Broadway
and Captiol Theaters (and the land where they’re situated), including
the aricons, projectors, and accessories needed for showing filmds, for 6
years (June 13, 1977 – June 12, 1983)
- After more than 2 yrs, OVEC demands for reposession of the theaters
because of Sy’s arrears in monthly rentals nad non-payment of
amusement taxes
- They were able to make a supplemental agreement and Enrique was
alloweed to continue operation sibject to certain conditions
implemented by OVEC
- Sy’s arrears of P125,455 became P71028 because of the new agremeent
but the accrued amusement tax liability had accumulated to P84000
- The letters of demand sent to Sy came with a warning that OVEC will
re-enter and repossess the theters in pursuance to their first agreement.
- After failure to pay, OVEC padlocked the gates of the 3 theaters and
posted its men around the premises to prevent the lessee’s employees
from entering
- Sy regained possession and operation because of an order directing the
issuance of a write of preliminary injunction that he prayed for from
the lower court
- Sy’s arguments: (1) that the amount of deposit = P600000, half of
whichh was to be paid on June 13, 1977 and the balane on Dec 13,
1977 – was too big; and that he was assured that forfeiture will not
come to pass. (2) that he is entitled to recover from OVEC: P100000 (for
major repairs on Broadway); P48000 (for cost of electrical current used
by OVEC in its illegal connection to Capitol Theater; P31000 (for the
cost of electrical current used in its illegla connection to Broadway and
for damages suffered by him as a result). (3) When OVEC padlocked the
theaters, he suffered damages at the rate of P5000 a day because of his
failure to go through the contracts he had entered into with movie and
booking companies. (4) Sy prayed for a preliminary injunction to
enjoin OVEC from repossessing the theaters, conditioned upon his filing
of a P500000 bond supplied by Country Bankers Insurance
Corporation (CBI)
- OVEC filed a counterclaim: (1) that by because of Sy’s violation of the
terms of the agreement, OVEC became authorized to repossess the
theaters and that the because of this, the balance of depositis given by
Sy to OVEC had thus become forfeited. (2) OVEC would lose P50000
every month that Sy is allowed to operate the 3 theaters. (3) P500000
for attorney’s services
- The trial court (TC) held:
 - Sy is not entitled to the reformation of the lease agreement; that the
repossession of the theaters was in accordance with the stipulations;
that Sy was not entitled to the writ of preliminary injunction issued
in his favor; and that the injunction bond filed is liable for
damages OVEC may have suffered
- That OVEC is entitled to recover damages in addition to the arrears
in rentals and amusement tax; that Sy was to pay attorney’s fees
- That Sy’s injunction bond is liable to pay P10000 every month rom
Feb-Nov, 1980.
- The CA held that the provisions of the agreement are fair and should
be enforced as law between the parties

W/N the lease agreement unjustly enriches OVEC at the expense of CBI and Sy

because it calls for forfeiture after default of payment – NO

- A provision which calls for the forfeiture of the remaining deposit still
in the possession of the lessor, without prejudice to any other obligation
still owing, in the event of the termination or cancellation of the
agreement by reason of the lessee's violation of any of the terms and
conditions of the agreement is a penal clause that may be validly
entered into.
- A penal clause is an accessory obligation which the parties attach to a
principal obligation for the purpose of insuring the performance
thereof by imposing on the debtor a special presentation (generally
consisting in the payment of a sum of money) in case the obligation is
not fulfilled or is irregularly or inadequately fulfilled.
- As a general rule, penal clauses in obligations substitute the indemnity
for damages (Art. 1228). However, the exception is when there is a
stipulation to the contrary; or when the obligor is sued for refusals to
pay the penalty; and when the obligor is guilty of fraud (Art. 1226)

Inasmuch as the forfeiture clause provides that the deposit shall be deemed

forfeited, without prejudice to any other obligation still owing by the lessee to

the lessor, the penalty cannot substitute for the P100,000.00 supposed

damage resulting from the issuance of the injunction against the

P290,000.00 remaining cash deposit. This supposed damage suffered by

OVEC was the alleged P10,000.00 a month increase in rental from

P50,000.00 to P60,000,00), which OVEC failed to realize for ten months

from February to November, 1980 in the total sum of P100,000.00.

This opportunity cost which was duly proven before the trial court, was

correctly made chargeable by the said court against the injunction bond

posted by CBISCO. The undertaking assumed by CBISCO under subject

injunction refers to "all such damages as such party may sustain by reason of

the injunction if the Court should finally decide that the Plaintiff was/were

not entitled thereto." (Rollo, p. 101) Thus, the respondent Court correctly

sustained the trial court in holding that the bond shall and may answer

only for damages which OVEC may suffer as a result of the injunction. The

arrears in rental, the unmeritted amounts of the amusement tax delinquency,

the amount of P100,000.00 (P10,000.00 portions of each monthly rental

which were not deducted from plaintiffs cash deposit from February to

November, 1980 after the forfeiture of said cash deposit on February 11,

1980) and attorney's fees which were all charged against Sy were correctly

considered by the respondent Court as damages which OVEC sustained not as

a result of the injunction.

Jaucian v Querol

- In October 1908, Lino Dayanante and Hermenegilda Rogero executed in

private writing in which they acknowledged themselves to be indebted
to Roman Jaucian in the sum of P13,332.33, bearing an interest rate
of 10% per annum
- Rogero signed the document in the capacity of surety for Dayandante,
but the document shows that they are both bound jointly and severally
to Jaucian
- In November 1909, Rogero brought an action against Jaucian, asking
that the document be canceled as she claims her signature was obtained
fraudulently. CFI rendered judgement in favor of Rogero.
- Jaucian appealed the decision to the SC, and while the case was
pending Rogero died. The administrator of her estate was substituted as
the plaintiff. SC rendered its decision reversing the original judgement
and holding that the disputed document was valid but Rogero was
declared as the surety of Dayandante.
- During the proceedings for the administration of the estate of Rogero,
Jaucian filed a claim against the estate, citing the 1908 document

Jacuian filed another petition averring that Dayandante was insolvent,

which the administrator opposed and CFI refused to grant.

WON Rogero was bound jointly and severally with Dayandante in the

obligation to pay Jaucian. YES.

Art 1822, 1144, 1830, and 1830 make it clear that Rogero was liable

absolutely and unconditionally for the full amount of the obligation. Her

position so far as the creditor was concerned was exactly the same as if she

had been the principal debtor

Makati Development Corp. v. Empire Insurance Co.

 While it is true that in obligations with a penal sanction, the penalty

takes the place of "damages and the payment of interest in case of non-
compliance" and that the obligee is entitled to recover upon the breach
of the obligation without the need of proving damages, it is nonetheless
true that in certain instances a mitigation of the obligor's liability is
allowed. Thus, article 1229 of the Civil Code states: "The judge shall
equitably reduce the penalty when the principal obligation has been
partly or irregularly complied with by the debtor. Even if there has
been no performance, the penalty may also be reduced by the courts if
it is iniquitous or unconscionable."
 Note: The "special condition" in the deed of sale was in reality an
obligation - to build a house at least 50% of which must be finished
within two years. It was to secure the performance of this obligation
that a penal clause was inserted. The penal clause was inserted not to
indemnify Makati Dev't for any damage it might suffer from a breach
of the contract, but rather to compel performance of the "special
condition" and encourage home-building among lot owners of Urdaneta
Village.

A valid standard to assess equity (or the lack thereof) is the purpose of the
penalty imposed.

 March 31, 1959 - Makati Development Corporation (MDC) sold to

Andal a lot (1,589 sq. m) in the Urdaneta Village, Makati, Rizal.

 The Deed of Sale included a “special condition” provided that:

o the vendee (Andal) shall “commence the construction of at least

50% of his/her/their/its residence on the property within two (2)
years from March 31, 1959 (the date of the sale) to the
satisfaction of the VENDOR (MDC)”;

o and in the event of failure to do so, the P11,123-bond delivered

by the Andal to the MDC will be forfeited in favor of the MDC by
the mere fact of failure of Andal to comply with the special
obligation.

 Andal gave a surety bond, backed by the Empire Insurance Company

(“Empire,”) to pay P12,000 in case Andal failed to comply with his
obligation under the deed of sale.

 Jan. 18, 1960 - Andal did not build his house, instead, he sold the lot
to Carlos. Neither of them built a house on the lot within the stipulated
period.
  Three days after the lapse of the 2-year period, the MDC sent a notice
of claim to Empire due to Andal’s failure to comply with his
undertaking. Empire refused to pay, whereupon MDC instituted a
complaint against the same at the CFI.

 Empire filed:

o answer asking that the complaint be dismissed, or that in the

event of judgment in favor of MDC, Andal must be ordered to pay
Empire whatever amount the latter maybe ordered to pay, plus
interest of 12% from date of filing plus attoney’s fees

o third part complaint against Andal

 Andal:

o admitted execution of bond

o alleged that special condition is contrary to law, morals, and

public plicy

 March 28. 1963 - CFI rendered judgment sentencing Empire to pay the
MDC (P1500 @ 12% interest, from the time the complaint was filed
until the amount was fully paid, as well as P500 in attorney’s fees.)
Also, it was directed that should Empire pay, Andal should in turn
pay Empire in the same manner.

 CFI reduced Andal’s liability for breaching the undertaking, from

P12,000 as stipulated in the bond, to P1,500 (reasons are the ff)

o owner's desire to construct his house with the least possible delay
was apparent

 entire area was already fenced with a stone wall

 building materials were also stocked in the premises

 MDC appealed directly to the SC, alleging:

o Andal became liable for the full amount of his bond upon his
failure to build a house within the two-year period which
expired on March 31, 1961

The CFI had no authority to reduce Andal’s liability on the basis of Carlos’
building of a house as there was no privity of contract between MDC and
Carlos
W/N Andal was liable for the full amount of the bond upon his failure to
build a house within the two-year period - NO

 The “special condition” is in reality an obligation – to build a house

at least 50% of which must be finished within two years. It was to
secure the performance of the obligation that a penal clause was
inserted.
 Generally, in obligations with a penal sanction, the penalty takes the
place of “damages and the payment of interest in case of non-
compliance,” and the oblige is entitled to recover upon breach without
proving damages. However, there are instances in which a mitigation of
the obligor’s liability is allowed.
 CC 1229: The judge shall equitably reduce the penalty when the
principal obligation has been partly or irregularly complied with by
the debtor. Even if there is no performance, the penalty may also be
reduced by the courts if it is iniquitous or unconscionable.
 Juan Carlos had finished more than 50% of his house barely a month
after the expiration on March 31, 1961 of the stipulated period. There
was therefore a partial performance of the obligation within the
meaning and intendment of article 1229.
 General Ins. & Surety Corp. v. Republic does not apply because in that
case, there was no performance at all. Where there is partial
compliance with the provisions of a contract for special
indemnification in the event of breach, courts will apply strict
construction against the enforcement of such, where it is clear from the
contract that the indemnity is fixed without regard to probable
damages which might be anticipated as a result of breach.
 The penal clause was not inserted to indemnify MDC for any damages
it might suffer. Rather, it is to compel performance of the “special
condition” to encourage home-building. Considering that a house had
been built shortly after the stipulated period, in view of the penal
clause’s purpose, the CFI was justified in reducing the penalty.

That it was Carlos, having no contractual relation with MDC, who is

building is of no importance to the case at bar. There is nothing in the deed
of sale restricting Andal’s right to sell the lot. If it were intended, it should
have been explicitly stated in the contract
Inciong v CA

In solidary obligations, any one, some or all of the debtors may be proceeded

against for the entire obligation. The choice is left to the solidary creditor to

determine against whom he will enforce collection. (in rel. to Art 1207)

There is a difference between a solidary co-debtor and a fiador in solidum

(surety).

Petitioner BALDOMERO INCIONG, Jr. along with Rene C. Naybe and Gregorio

D. Pantonasas signed a promissory note for the amount of P50, 000.00,

holding themselves JOINTLY and SEVERALLY liable to private respondent

Philippine Bank of Communications (PBC). The note was due on May 5,

1983.

Obligors did not pay

November 14, 1983 & June 8, 1984: PBC sent Inciong telegrams demanding

payment

December 11, 1984: PBC send a final letter of demand to Naybe.

January 24, 1986: Both did not respond, causing PBS to file a complaint for

collection of the sum of P50,000.00 against the three obligors

1987: Only summons addressed to Inciong were served since PBC prayed for

the dismissal of the case against Pantanonsas (judge) and Naybe (went to

Saudi Arabia)

CFI: found Inciong Solidarily Liable CA: Affirmed decision

Inciong’s Side: 1983: Rudy Campos, a friend of Inciong and partner of Pio Tio

(branch manager of PBC), approached Inciong regarding a log operation

business. Campos implied that

Naybe was interested in the business and would contribute a chainsaw.

Campos also said that Naybe did not have money to buy equipment but Pio

Tio has assured Naybe of an approval of a loan.

Campos persuaded Inciong to act as “co-maker” in the loan. Inciong accepted

with the understanding that the loan would only be for PHP 5,000.00.

Inciong signed 5 copies of a blank promissory note brought by Campos, at his

office. He affixed his signature and in ONE COPY INDICATED HE BOUND

HIMSELF FOR THE AMOUNT OF PHP 5,000.00.

Lower Court: typewritten figure of 50,000 clearly appears below signature of

Inciong hence, due to Sec. 5(q) of Rule 131, Inciong’s uncorroborated

testimony on his limited liability cannot prevail over the presumed

regularity and fairness of transaction.

Lower court also found it odd that it was in a copy and not in the original

that Inciong indicated the amount of PHP 5,000.00

“Finally, the lower court held that, even granting that said limited amount

had actually been agreed upon, the same would have been merely collateral

between him and Naybe and, therefore, not binding upon the private

respondent as creditor-bank.”

SC

The petition was initially denied for not following the Rules of Court and

Circular No. 1-88. After the petitioner complied, the Court reconsidered and

reinstated the case the petition contained for the first time Judge Pantanosa’s

affidavit attesting that he was induced the sign the promissory note on the

belief that the loan was for

5,000, and that it was Campos who caused the amount to be increased to

P50,000. The SC did not admit this piece of evidence because it was not

admitted in the lower court. The SC is not a trier of facts.

Petitioner’s contentions

a) the promissory note was signed in the office of Judge Pantanosas, outside

the premises of the bank;

b) the loan was incurred for the purpose of buying a second-hand chainsaw

which cost only P5,000.00;

c) even a new chainsaw would cost only P27,500.00;

d) the loan was not approved by the board or credit committee which was the

practice, at it exceeded P5,000.00;

(e) the loan had no collateral;

e) petitioner and Judge Pantanosas were not present at the time the loan was

released in contravention of the bank practice, and

f) notices of default are sent simultaneously and separately but no notice was

validly sent to him petitioner contends that in signing the promissory note,

his consent was vitiated by fraud as, contrary to their agreement that the

loan was only for the amount of P5,000. 00, the promissory note stated the

amount of P50,000.00

Issue 1:

WON the promissory note may be proven false by PAROL EVIDENCE* since it

isn’t “a public deed with the formalities prescribed by law but x x x a mere

commercial paper which does not bear the signature of x x x attesting

witnesses.” – NO

*PAROL EVIDENCE: verbal evidence such as testimonies or oral agreements, or

written agreement that isn’t included in the relevant written document. In

this case, Pantanosa’s affidavit.

Parol Evidence (Verbal evidence, Affidavit) can overcome the contents of the

promissory note since it isn’t a public document. - NO, as a general rule,

bills, notes and other instruments of a similar nature are not subject to be

varied or contradicted by parol or extrinsic evidence

Parol Evidence rule: “When the terms of an agreement have been reduced to

writing, it is considered as containing all the terms agreed upon and there

can be, between the parties and their successors in interest, no evidence of

such terms other than the contents of the written agreement.”

does not specify that written agreement should be a public document .

requires only that the agreement be written because written evidence is much

more certain and accurate. It would be unsafe to admit weaker (verbal)

evidence to control stronger (written) to show that parties intended a different

contract from that expressed in writing signed by them.

Thus, for the parol evidence rule to apply, a written contract need not be in

any particular form, or be signed by both parties. As a general rule, bills,

notes and other instruments of a similar nature are not subject to be varied or

contradicted by parol or extrinsic evidence

ALLEGATION OF FRAUD - FAILED, evidenced only by his own

uncorroborated and, expectedly, self-serving testimony. Could have convinced

the court to consider parol evidence since “where a parol contemporaneous

agreement was the inducing and moving cause of the written contract, it may

be shown by parol evidence” Fraud must be established by CLEAR AND

CONVINCING evidence.

Issue 2: WON the dismissal of the complaint against Naybe, the principal

debtor, and against Pantanosas, his co-maker, released Inciong of his

obligation ESPECIALLY since dismissal of case against Pantanosas was due to

private respondent itself. – NO

Inciong is released from his obligation due to Art. 2080 of NCC - No, Art.

2080 concerns guarantors not solidary debtors, and Inciong is a solidary

debtor.

NCC 2080: “The guarantors, even though they be solidary, are released from

their obligation whenever by some act of the creditor, they cannot be

subrogated to the rights, mortgages, and preferences of the latter.”

Inciong signed promissory note as SOLIDARY CO-MAKER and NOT as a

GUARANTOR “JOINTLY and SEVERALLY promise to pay…”

A solidary or joint and several obligation is one in which each debtor is

liable for the entire obligation, and each creditor is entitled to demand the

whole obligation.

Difference between guarantors and solidary debtors. SC contrasted above

provision with Art. 2047 of NCC: “By guaranty a person, called the

guarantor, binds himself to the creditor to fulfill the obligation of the

principal debtor in case the latter should fail to do so. If a person binds

himself solidarily with the principal debtor, the provisions of Section 4,

Chapter 3, Title I of this Book shall be observed. In such a case the contract is

called a suretyship.” (Italics supplied.)

Acc. to Tolentino:

“A guarantor who binds himself in solidum with the principal debtor under

the provisions of the second paragraph does not become a solidary co-debtor

to all intents and purposes. There is a difference between a solidary co-debtor

and a fiador in solidum (surety). The latter, outside of the liability he

assumes to pay the debt before the property of the principal debtor has been

exhausted, retains all the other rights, actions and benefits which pertain to

him by reason of the fiansa; while a solidary co-debtor has no other rights

than those bestowed upon him in Section 4, Chapter 3, Title I, Book IV of the

Civil Code.”
A guarantor and a surety are the same. Xe is the person who pays the

obligation WHEN principal debtor can’t. On the other hand, a solidary debtor

is someone who is liable for the entire obligation. Refer to underlined

portions above.

Rights of a solidary co-debtor as bestowed upon by Sec. 4, Chap. 3, Title I,

Book IV of the Civil Code

Art 1207: “when there are two or more debtors in one and the same

obligation, the presumption is that the obligation is joint so that each of the

debtors is liable only for a proportionate part of the debt . There is a solidary

liability only when the obligation expressly so states, when the law so

provides or when the nature of the obligation so requires.”

SC: Promissory note EXPRESSLY STATES that the 3 signatories are JOINTLY

AND SEVERALLY LIABLE, any one, some or all of them may be proceeded

against for the entire obligation. The choice is left to the solidary creditor to

determine against whom he will enforce collection.

Consequently, the dismissal of the case against Judge Pantanosas may not be

deemed as having discharged petitioner from liability as well. As regards

Naybe, suffice it to say that the court never acquired jurisdiction over him.

Petitioner, therefore, may only have recourse against his co-makers (as in he

can reimburse the money from the co-makers), as provided by law.

Tan v. CA

On May 14, 1978 and July 6, 1978, petitioner Antonio Tan obtained two

loans each in the principal amount of P2,000,000.00 or a total of four

million pesos from Cultural Center of the Philippines (CCP) evidenced by two

promissory notes with maturity dates on May 14, 1979 and July 6, 1979,

respectively.

Petitioner defaulted but after a few partial payments he had the loans

restructured by CCP, and petitioner executed a promissory note on August 31,

1979 in the amount of P3,411,421.32 payable in five instalments.

Tan failed to pay any instalment on restructured loan.

In a letter dated January 26, 1982, petitioner requested and proposed to

respondent CCP a mode of paying the restructured loan

20% of the principal amount of the loan upon the respondent giving its

conformity to his proposal

Balance on the principal obligation payable 36 monthly installments until

fully paid.

On October 20, 1983, petitioner again sent a letter to respondent CCP

requesting for a moratorium on his loan obligation until the following year

allegedly due to a substantial deduction in the volume of his business and on

account of the peso devaluation.

No favourable response was made to said letters.

CCP demanded full payment within ten (10) days from receipt of said letter

of the petitioner’s restructured loan which as of April 30, 1984 amounted to

P6,088,735.03.
On August 29, 1984, respondent CCP filed in the RTC of Manila a complaint

for collection of a sum of money, after Tan failed to settle his restructured

loan obligation.

Tan then gave the defense that he merely accommodated a friend, Wilson

Lucmen, who allegedly asked for his help to obtain a loan from respondent

CCP. Petitioner claimed that he has not been able to locate Wilson Lucmen.

While case was pending, Tan proposed to settle his debt by making a

downpayment of P140K and issuing 12 checks at the beginning of every year

to cover instalment payments until balance is fully paid.

CCP did not agree to proposal and case proceeded.

RTC rendered a decision in favour of the CCP:

“ordering defendant to pay plaintiff, the amount of P7,996,314.67,

representing defendants outstanding account as of August 28, 1986, with the

corresponding stipulated interest and charges thereof, until fully paid, plus

attorneys fees in an amount equivalent to 25% of said outstanding account,

plus P50,000.00, as exemplary damages, plus costs”

RTC gave 5 reasons:

Contention that loan was an accommodation of Wilson Lucmen was not

credible

Assuming, arguendo, that Tan did not personally benefit, he should have

filed a third party complaing against Lucmen – he did not.

Tan offered thrice to pay his loan obligation

Tan cannot avoid his liability under the promissory note which he has to

comply with in good faith pursuant to Art 1159

Tan is estopped from denying his liability or loan obligation to CCP

Tan appealed RTC decision to CA

Asked for the reduction of penalties and charges on his loan obligation

Abandoned defense that it was for his friend

Admitted validity of the loan

CA affirmed RTC decision

No alleged partial or irregular performance, as alleged by Tan, as nothing

was paid.

Deleted award for exemplary damages and reduced amount of attorney’s fees

to 5%

WON there are contractual and legal bases for the imposition of the penalty,

interest on the penalty and attorney’s fees – YES

Tan says CA should have eliminated attorney’s fees and reduced penalties

because he had actually made partial payments on the loan. Also, he asks

that interest not be imposed on surcharges as compounding of interest is not

in the promissory not. Interest, surcharge and principal were add together and

interest imposed on the total sum. He contends that there is no basis in law

for interest on surcharges.

SC cites Art 1226 of NCC (see above)

Promissory note provides for such imposition both interest and penaltyies in

case of default.

Interest charges in the note are allowed under Art 1956

Stipulation on additional interest rate is in the nature of a penalty clause

sanctioned under Art 2209

WON interest may accrue on the penalty or compensatory interest without

violating ART 1959 – YES

Tan says that there since there is no law that allows imposition of interest on

penalties, the penalties should not earn interest.

Court reiterates that penalty clauses can be in the form of penalty or

compensatory interest. Compounding of penalty of compensatory interest is

sanctioned by and allowed under Art 1959

There is an express stipulation in the promissory note permitting

compounding of interest

Art 2212 provides that interest due earns legal interest from the time it is

judicially demanded. Penalty interest began to run upon CCP’s filing of

complaint

WON TAN can file reduction of penalty due to made partial payments – YES,

however, reduction less than petitioner suggested

Tan contends that reduction of the penalty is justifiable pursuant to Article

1229 of the NCC. He insists that penalty be reduced to 10% of the unpaid

debt.

Court finds justification in reduction but not 10%.

“Inasmuch as petitioner has made partial payments which showed his good

faith, a reduction of the penalty charge from two percent (2%) per month on

the total amount due, compounded monthly, until paid can indeed be

justified under the said provision of Article 1229 of the New Civil Code.”

Court took into consideration several partial payments and the offers of the

petitioner to enter into a compromise by presenting payment scheme proposals

to CCP. These offers showed good faith.

Tan also contends that CA erred in not suspending running interest during

that period when the respondent allegedly failed to assist the petitioner in

applying for relief from liability. Tan cites a letter where CCP allegedly told
petitioner they would assist him in applying for relief with the COA and

Office of the Pres (OP).

alleges that his obligation to pay the interest and surcharge should have been

suspended because the obligation to pay such interest and surcharge has

become conditional

dependent on a future and uncertain event which consists of whether the

petitioners request for condonation of interest and surcharge would be

recommended by the Commission on Audit and the Office of the President to

the House of Representatives for approval

condition has not happened allegedly due to the private respondents reneging

on its promise, his liability to pay the interest and surcharge on the loan has

not arisen.

Court’s view is that the running of the interest and surcharge was not

suspended by the private respondents promise to assist.

CCP correctly asserted that it was the primary responsibility to infrom the

COA and the OP of his application for condonation of interest and surcharge