CONDITIONAL OBLIGATIONS
Mistica entered into a contract to sell with
ATIENZA VS ESPIDOL
respondent Naguiat over a portion of the
FACTS: On August 12, 2002 the Atienzas and
respondent Domingo P. Espidol entered into a
contract called Kasunduan sa Pagbibili ng Lupa
na may Paunang-Bayad (contract to sell land with
a down payment) covering the property. They
agreed on a price, payable in three installments.
When the Atienzas demanded payment of the
second installment of P1,750,000.00 in
December 2002, however, respondent Espidol
could not pay it. Claiming that Espidol breached
his obligation, on February 21, 2003 the Atienzas
filed a complaint for the annulment of their
agreement with damages before the Regional
Trial Court (RTC)of Cabanatuan City in a Civil
Case.
erred in the application of Art. 1191, as it ruled
ISSUE: Whether or not the Atienzas were entitled
to the cancellation of the contract to sell they
entered into with respondent Espidol on the
ground of the latter’s failure to pay the second
installment when it fell due.
to rescind the Contract under Article 1191
HELD: The Court declares the Kasunduan sa
Pagbibili ng Lupa na may Paunang-Bayad
between petitioner Heirs of Paulino Atienza and
respondent Domingo P. Espidol dated August 12,
2002 cancelled and the Heirs’ obligation under it
non-existent. Regarding the right to cancel the
contract for non-payment of an installment, there
is need to initially determine if what the parties
had was a contract of sale or a contract to sell. In
a contract of sale, the title to the property passes
to the buyer upon the delivery of the thing sold. In
a contract to sell, on the other hand, the
ownership is, by agreement, retained by the seller
and is not to pass to the vendee until full
payment of the purchase price. In the first place,
since Espidol failed to pay the installment on a
day certain fixed in their agreement, the Atienzas
can afterwards validly cancel and ignore the
contract to sell because their obligation to sell
under it did not arise. Since the suspensive
condition did not arise, the parties stood as if the
conditional obligation had never existed.
thus, the courts have no alternative but to
VDA. DE MISTICA v NAGUIAT
FACTS: Eulalio Mistica, predecessor-in-interest
of herein petitioner, is the owner of a parcel of
land located at Maycauayan, Bulacan. A portion
thereof was leased to respondent Naguiat.
aforementioned lot containing an area of 200
square meters. Pursuant to said agreement, the
respondent gave a down payment of P2,000.00
and another partial payment of P1,000.00 in
1980. The respondent failed to make any
payments thereafter. Mistica died in 1986. On
1991, the petitioner filed a complaint for
rescission alleging that the failure and refusal of
respondents to pay the balance of the purchase
price constitutes a violation of the contract which
entitles her to rescind the same. The petitioner
also ordered the respondents to vacate and
surrender the possession of the same to her.
ISSUE: Whether or not the Court of Appeals
that there is no breach of obligation in spite of the
lapse of the stipulated period and the failure of
the private respondents to pay.
HELD: NO. Petitioner claims that she is entitled
because respondents committed a substantial
breach when they did not pay the balance of the
purchase price within the 10 year period. We
disagree. The transaction between Mistica and
respondents was clearly a Contract of Sale. In a
contract of sale, the remedy of an unpaid seller is
either specific performance or rescission. Under
Article 1191 of the Civil Code, the right to rescind
an obligation is predicated on the violation of the
reciprocity between parties, brought about by a
breach of faith by one of them. Rescission,
however, is allowed only where the breach is
substantial and fundamental to the fulfillment of
the obligation. In the present case, the failure of
the respondents to pay the balance of the
purchase price within ten years from the
execution of the Deed did not amount to a
substantial breach. It was stipulated that
payment could be made even after ten years
from the execution of the Conract, provided the
vendee paid 12 % interest. The stipulations of the
contract constitute the law between the parties;
enforce them as agreed upon and written. The
petitioner also argues that the period cannot be
extended beyond ten years, because to do so
would annul the contract under Article 1182 of
the Civil Code. This contention is likewise
untenable. The Code prohibits purely potestative,
1
suspensive, conditional obligations that depend
on the whims of the debtor, because such
obligations are usually not meant to be fulfilled.
Indeed, to allow the fulfillment of conditions to
depend exclusively on the debtors would be to
sanction illusory obligations.
respondent's so-called breach seems to overlook
TAYA G v s . C O U RT O F A P P E A L S a n d
ALBRIGIDO LEYVA
FACTS: The deed of conveyance executed on
May 28, 1975 by Juan Galicia, Sr., prior to his
demise in 1979, and Celerina Labuguin, in favor
of Albrigido Leyva involving the undivided one-
half portion of a piece of land situated at
Poblacion, Guimba, Nueva Ecija for the sum of
P50,000.00 under the following terms.
Article 1191 of the Civil Code.
There is no dispute that the sum of P3,000.00
listed as first installment was received by Juan
Galicia, Sr. According to petitioners, of the
P10,000.00 to be paid within ten days from
execution of the instrument, only P9,707.00 was
tendered to, and received by, them on numerous
occasions from May 29, 1975, up to November 3,
1 9 7 9 . C o n c e r n i n g p r i v a t e re s p o n d e n t ' s
assumption of the vendors' obligation to the
Philippine Veterans Bank, the vendee paid only
the sum of P6,926.41 while the difference the
indebtedness came from Celerina Labuguin.
the latter acceded and transferred the claims
Petitioners are of the impression that the decision
a p p e a l e d f ro m , w h i c h a g re e d w i t h t h e
conclusions of the trial court, is vulnerable to
attack via the recourse before us on the principal
supposition that the full consideration of the
agreement to sell was not paid by private
respondent and, therefore, the contract must be
rescinded.
alleges that the payment of the balance was
ISSUE: whether the conditions of the instrument
were performed by herein private respondent as
vendee
ISSUE: W/N the 1 st shipment and sale of iron
HELD: Yes! Considering that the heirs of Juan
Galicia, Sr. accommodated private respondent by
accepting the latter's delayed payments not only
beyond the grace periods but also during the
pendency of the case for specific performance.
sale. A contract of sale is normally ONEROUS
Indeed, the right to rescind is not absolute and
will not be granted where there has been
substantial compliance by partial payments. By
and large, petitioners' actuation is susceptible of
but one construction — that they are now
2
estopped from reneging from their commitment
on account of acceptance of benefits arising from
overdue accounts of private respondent.
The suggestion of petitioners that the covenant
must be cancelled in the light of private
petitioners' demeanor who, instead of
immediately filing the case precisely to rescind
the instrument because of non-compliance,
allowed private respondent to effect numerous
payments posterior to the grace periods provided
in the contract. This apathy of petitioners who
even permitted private respondent to take the
initiative in filing the suit for specific performance
against them, is akin to waiver or abandonment
of the right to rescind normally conferred by
GAITE VS FONACIER
FACTS: Fonacier was the holder of 11 iron lode
mineral claims. By a Deed of Assignment, he
appointed Gaite as his attorney-in-fact for the
purpose of operating the same. Gaite then
executed a general assignment conveying the
right to develop and exploit the mining claim to
Larap Iron Mines, owned by him, and then
started to develop the same. Fonacier then
decided to revoke the authority granted to Gaite;
back to Fonacier but for consideration—royalties
and a sum of P75,000, P10,000 of which was
already paid. A balance of P65,000 remained for
which Fonacier issued 2 sureties, good for a year.
There was a stipulation that the P65,000 balance
will be paid from the 1st shipment of ores and its
local sale. Eventually, the sureties expired and
Fonacier defaulted in settling his debt. He now
subject to a suspensive condition—being the 1st
shipment and sale of iron ores.
ores are considered suspensive condition.
HELD: NO. It was only a SUSPENSIVE TERM.
What took place between Gaite and Fonacier,
regarding the transfer of the mining rights, was a
and COMMUTATIVE. Each party anticipates
performance form the very start. Since a sale is
essentially onerous, any doubts must be settled
in favor of the greatest reciprocity of rights—in
this case, that a period, and not a condition, was
contemplated. Had it been a suspensive
condition, Fonacier would have been able to
postpone payment indefinitely.
thereof. The lower court ruled for herein plaintiff-
respondents, which decision was affirmed by the
MACTAN-CEBU INTERNATIONAL AIRPORT
AUTHORITY and AIR TRANSPORTATION
OFFICE vs. BERNARDO L. LOZADA, SR.
R-1881 was absolute and unconditional, giving
FACTS: Anastacio Deiparine owned a lot (Lot No.
88) located in Lahug, Cebu City became subject
to expropriation proceedings, initiated by the
Republic, represented by the then Civil
Aeronautics Administration (CAA), for the
expansion and improvement of the Lahug Airport.
By 1947, the lots were already occupied by the
CAA. During the pendency of the expropriation
proceedings, respondent Bernardo L. Lozada, Sr.
acquired Lot No. 88 from Deiparine. The trial
court ruled for the Republic and ordered the latter
to pay Lozada the fair market value of the lot.
be devoted to the specific public purpose for
Lozada and other land owners appealed.
However, the CAA, now Air Transportation Office
(ATO), proposed a compromise settlement
whereby the owners of the lots affected by the
expropriation proceedings would either not
appeal or withdraw their respective appeals in
consideration of a commitment that the
expropriated lots would be resold at the price
they were expropriated in the event that the ATO
would abandon the Lahug Airport, pursuant to an
established policy involving similar cases.
Because of this promise, Lozada did not pursue
his appeal. However, the projected improvement
and expansion plan of the old Lahug Airport,
however, was not pursued. Instead, the old
airport was converted into a commercial
complex. Lot No. 88 became the site of a jail
known as Bagong Buhay Rehabilitation Complex,
while a portion thereof was occupied by
squatters. The old airport was converted into
what is now known as the Ayala I.T. Park, a
commercial area.
government in favor of the former. Constructive
They thus initiated a complaint for the recovery of
possession and reconveyance of ownership the
subject lot. On the other hand, the petitioners
asked for the immediate dismissal of the
complaint. They specifically denied that the
Government had made assurances to reconvey
Lot No. 88 to respondents in the event that the
property would no longer be needed for airport
operations. Petitioners instead asserted that the
judgment of condemnation was unconditional,
and respondents were, therefore, not entitled to
recover the expropriated property
notwithstanding non-use or abandonment
Court of Appeals. In this petition, the petitioners
argued that the judgment in Civil Case No.
title in fee simple to the Republic.
ISSUE: Whether or not respondents were able to
establish the existence of an oral compromise
agreement that entitled them to repurchase Lot
No. 88 should the operations of the Lahug Airport
be abandoned.
HELD: YES. The Court ruled that “the taking of
private property, consequent to the Governments
exercise of its power of eminent domain, is
always subject to the condition that the property
which it was taken. Corollarily, if this particular
purpose or intent is not initiated or not at all
pursued, and is peremptorily abandoned, then
the former owners, if they so desire, may seek
the reversion of the property, subject to the return
of the amount of just compensation received. In
such a case, the exercise of the power of eminent
domain has become improper for lack of the
required factual justification.” Furthermore, Art.
1454 of the Civil Code provides: “If an absolute
conveyance of property is made in order to
secure the performance of an obligation of the
grantor toward the grantee, a trust by virtue of
law is established. If the fulfillment of the
obligation is offered by the grantor when it
becomes due, he may demand the reconveyance
of the property to him.”
The right of respondents to repurchase Lot No.
88 may be enforced based on a constructive trust
constituted on the property held by the
trusts are fictions of equity which are bound by
no unyielding formula when they are used by
courts as devices to remedy any situation in
which the holder of legal title may not in good
conscience retain the beneficial interest. The
Court ruled that “The only problem of great
importance in the field of constructive trust is to
decide whether in the numerous and varying fact
situations presented to the courts there is a
wrongful holding of property and hence a
threatened unjust enrichment of the defendant.”
3
It was thus ruled that following Article 1187 of the
Civil Code, petitioners may keep whatever
income or fruits they may have obtained from Lot
No. 88, and respondents need not account for
the interests that the amounts they received as
just compensation may have earned in the
meantime. Ultimately, in Art. 1190 of the Civil
Code, “When the conditions have for their
purpose the extinguishment of an obligation to
give, the parties, upon the fulfillment of said
conditions, shall return to each other what they
have received x x x In case of the loss,
deterioration or improvement of the thing, the
provisions which, with respect to the debtor, are
laid down in the preceding article shall be applied
to the party who is bound to return x x x.
the title acquired by the expropriation
The petition was thus denied.
proceedings.
MACTAN CEBU INTERNATIONAL AIRPORT
AUTHORITY VS BENJAMIN TUDTUD, ET AL
 988 is absolute and unconditional
FACTS: Predecessors-in-interest of respondents
were the owners of a parcel of land in Cebu City,
identified as lot No. 988 of the Banilad Estate. In
1940, the National Airports Corporation
embarked on a program to expand the Cebu
Lahug Airport, for which purpose it sought to
acquire, by negotiated sale or
expropriation,several lots adjoining the then
existing airport. By virtue of judgment rendered
by the CFI, the NAC acquired the Lot and said
Lot was transferred to the name of the Republic
of the Philippines. No structures related to the
operation of the Cebu Lahug Airport were
constructed therein. The Lot was later transferred
to the Air Transport Office, then to petitioner by
virtue of RA 6958. When the Mactan International
Airport at Lapu- Lapu City was opened for
commercial flights, the Cebu Lahug Airport was
abandoned and significant parts thereof was
purchased by Cebu Property Ventures Inc for
commercial complex development. Lydia
Adlawan then acted as attorney-in-fact of the
original owners of the Lot demanding to
repurchase the lot at the same price paid at the
time of the taking, without interest, because no
structures or improvements had been erected
thereon and the Cebu Lahug Airport was closed
and abandoned—hence, the purpose for which
the lot was acquired was not fulfilled. The
demand remained unheeded, for which purpose
respondents filed Complaint for reconveyance
and damages, claiming the ground that NAC
claimed that the original owners and their
4
successors-in-interest would be entitled to
repurchase the lot when and in the event that it
was no longer used for airport purposes. MCIAA
however contends that there was no condition
made that the lots would revert to their owners in
case the expansion of the Cebu Lahug Airport
will not materialize. The petition was granted, and
upon appeal by MCIAA, motion by the latter was
denied, thus this petition. Petitioner mainly relies
on the ruling in Fery vs Municipality of
Cabanatuan, which held that “if the decree of
expropriation gives to the entity a fee simple title,
then, of course, the land becomes the absolute
property of the expropriator... in that case, the
non-user does not have the effect of defeating
ISSUE: Whether or not the expropriation of Lot
HELD: No. the decision in favor of the
respondents must be affirmed. In the Fery case, it
was held that if land is expropriated for a
particular purpose, with the condition that when
the purpose is ended or abandoned the property
shall return to its former owner, then of course,
when the purpose is terminated or abandoned,
former owner reacquires the property so
expropriated.

Further, in Heirs of Timoteo Moreno vs MCIAA,
involving rights of former owner of the lots also
involved in Civil Case r-1881, held:
While the trial court in Civil Case No. R-1881
could have simply acknowledged the presence of
public purpose for the exercise of eminent
domain regardless of the survival of Lahug
Airport, the trial court in its Decision chose not to
do so but instead prefixed its finding of public
purpose upon its understanding that Lahug
Airport will continue to be in operation. Verily,
these meaningful statements in the body of the
Decision warrant the conclusion that the
expropriated properties would remain to be so
until it was confirmed that Lahug Airport was no
longer in operation. This inference further implies
two (2) things: (a) after the Lahug Airport ceased
its undertaking as such and the expropriated lots
were not being used for any airport expansion
project, the rights vis—vis the expropriated Lots
Nos. 916 and 920 as between the State and their
former owners, petitioners herein, must be
equitably adjusted; and, (b) the foregoing
unmistakable declarations in the body of the
Decision should merge with and become an
intrinsic part of the fallo thereof which under the
premises is clearly inadequate since the
dispositive portion is not in accord with the
findings as contained in the body thereof.
but made a reservation as to the interest accrued.
The rights and duties between the MCIAA and
respondents are governed by Article 1190 of the
Civil Code. While the MCIAA is obliged to
re c o n v e y L o t N o . 9 8 8 t o re s p o n d e n t s ,
respondents must return to the MCIAA what they
re c e i v e d a s j u s t c o m p e n s a t i o n f o r t h e
expropriation of Lot No. 988, plus legal interest to
be computed from default, which in this case
runs from the time the MCIAA complies with its
obligation to the respondents.Respondents must
likewise pay the MCIAA the necessary expenses
it may have incurred in sustaining Lot No. 988
and the monetary value of its services in
managing it to the extent that respondents were
benefited thereby. Following Article 1187 of the
Civil Code, the MCIAA may keep whatever
income or fruits it may have obtained from Lot
No. 988, and respondents need not account for
the interests that the amounts they received as
just compensation may have earned in the
meantime. In accordance with the earlier-quoted
Article 1190 of the Civil Code vis-a-vis Article
1189 which provides that [i]f a thing is improved
by its nature, or by time, the improvement shall
inure to the benefit of the creditor x x x,
respondents, as creditors, do not have to settle
as part of the process of restitution the
appreciation in value of Lot 988 which is a natural
consequence of nature and time.
determined by the RTC in its Order dated 21 April
REPUBLIC OF THE PHILIPPINES VS HOLY
TRINITY DEVELOPMENT CORP.
FACTS: On 29 December 2000 Republic of the
Philippine through the Toll Regulatory Board
(TRB), filed with the RTC Complaint for
Expropriation against landowners whose
properties would be affected by the construction,
rehabilitation and expansion of the North Luzon
Expressway. Respondent Holy Trinity Realty and
Development Corporation (HTRDC) was one of
the affected landowners.
petitioner would transfer to their name the title of
March 19, 2002 the RTC issued a writ of
possession in favor of the petitioner after
compliance with the depositary requirements by
law. On 3 March 2003, HTRDC filed with the RTC
a Motion to Withdraw Deposit, praying that the
respondent or its duly authorized representative
be allowed to withdraw the amount of
P22,968,000.00, out of TRB’s advance deposit.
RTC issued an order allowing such withdrawal
On 11 March 2004, the RTC decided in favor of
the HTRDC declaring that the interest earnings
from the deposit, under the principle of
accession, are considered as fruits and should
properly pertain to the herein defendant/property
owner [HTRDC].
Republic contends that the respondent is entitled
only to an amount equivalent to the zonal value of
the expropriated property, nothing more and
nothing less."
ISSUE: Whether or not HTRDC has owns the
interest that accrued on the deposited amount.
HELD: YES. TRB does not object to HTRDC’s
withdrawal of the amount of P22,968,000.00 from
the expropriation account, provided that it is able
to show (1) that the property is free from any lien
or encumbrance and (2) that it is the absolute
owner thereof. The said conditions do not put in
abeyance the constructive delivery of the said
amount to HTRDC pending the latter’s
compliance therewith. Article 1187 of the Civil
Code provides that the "effects of a conditional
obligation to give, once the condition has been
fulfilled, shall retroact to the day of the
constitution of the obligation." Hence, when
HTRDC complied with the given conditions, as
2003, the effects of the constructive delivery
retroacted to the actual date of the deposit of the
amount in the expropriation account of DPWH
ROMULO CORONEL VS CA
FACTS: Petitioners Coronel executed a
document entitled "Receipt of Down Payment" in
favor of private respondent Ramona Patricia
Alcaraz who paid P50,000 down payment for the
P1,240,000.00 home owned by petitioner. The
parties agreed that after the down payment,
such house (as it was still in the name of their
father), and once it has been transferred, they
shall present the TCT and execute the deed of
absolute sale in favor of Alcaraz upon payment of
5
the remaining balance. Almost a month later, w/ improvements. Myers then entered into a
petitioners sold the house to a third party contract called a “Deed of Conditional Sale” with
Catalina and claimed that they have cancelled Maritime Building and sold the land for P1 million.
and rescinded the agreement with Alcaraz. A new They agreed on the manner of payment through
title over the subject property was issued in the installment, initial payment of which was upon
name of Catalina and private respondents are execution of contract, including interest rate. In
claiming that petitioners should have executed the contract it was stipulated that in case of
the deed of absolute sale in their favor once the failure of buyer to pay any of the installments, the
documents were in order (the transfer to contract will be annulled at the option of the
petitioner’s name) as the contract of sale has seller and all payments made by the buyer is
been perfected.
forfeited. Later on, the stipulated instalment of
P10,000 with 5% interest was amended to the
ISSUES: Whether or not the document "Receipt P5,000 with 5.5% per annum. Maritime paid the
of Down Payment" is a contract to sell or a monthly installments but failed to pay the
conditional contract of sale and whether or not monthly installment of March. VP of Maritime
petitioners had the obligation to execute the sale wrote to the President of Myers requesting for a
in favor of Alcaraz.
moratorium on the monthly payment of the
installments because the company was
HELD:
undergoing financial problems. Myers refused.
The document was considered as a conditional For the months of March, April, and May,
contract of sale. To differentiate, in contract to Maritime failed to pay and did not heed the
sell the prospective seller still owns the subject demand of Myers. Myers wrote Maritime
property and only binds himself to sell the said cancelling the “Deed of Conditional Sale”. Myers
property exclusively to the prospective buyer demanded return of possession of properties.
upon fulfillment of the condition agreed upon Held Maritime liable for use and occupation
which is the full payment (suspensive condition); amounting to P10,000 per month. In the
in conditional contract of sale, upon the meantime, Luzon Brokerage was leasing the
fulfillment of the suspensive condition, the sale property from Maritime. Myers demanded from
becomes absolute. In the case at bar, the Court Luzon the payment of monthly rentals of
ruled that based on the nature and circumstances P10,000. Myers also demanded surrender of
of the agreement, the petitioner had agreed to property. While actions and crossclaims between
sell the house to Alcaraz and the only Myers and Maritime were happening, the
impediment was that it was still in the name of contract between Maritime and Luzon was
their father. Based on "Receipt of Down extended for four more years. Maritime’s
Payment" document, it was held that the suspension of its payments to Myers Corporation
intention of the petitioner was to sell the property was a result of an award of back wages made by
once the title has been transferred in their name. 
 the Court of Industrial Relations in favor of Luzon
Labor Union. F.H. Myers was a major stockholder
Yes. The suspensive condition was that the title of Luzon Brokerage. F.H. Myers promised to
be transferred in petitioner’s name and such was indemnify Schedler, who controlled Maritime,
fulfilled; thus it gave rise to the respective when Shedler purchased F.H. Myers’s stock in
obligations: (1) petitioner must execute the deed Luzon Brokerage Company. Schedler claims that
of absolute sale in favor of Alcaraz and (2) after F.H. Myers estates closed, he was notified
Alacaraz must pay the remaining balance. that the indemnity on the Labor Union case will
Furthermore, the Court also ruled in favor of not be honored anymore. And so, Schedler
Alcaraz under Article 1186 of the Civil Code: [t]he advised Myers Corporation that Maritime is
condition shall be deemed fulfilled when the withholding payments to Myers Corporation in
obligor voluntarily prevents its fulfillment. 
 order to offset the liability when Myers heirs failed
112 
 to honor the indemnity agreement.

LUZON BROKERAGE CO & INC VS MARITIME ISSUES:

BUILDING CO
 1.) Whether or not there has been a breach of


 contract?

FACTS: In Manila, Myers owned 3 parcels of land

6
2.) Whether or not Myers can extra-judicially
terminate the contract?
 the needed loan, IHC informed DBP that it would
HELD: Yes on both questions. The Court ruled
that the failure to pay monthly installments
constitute a breach of contract. Default was not
made in good faith. The distinction between
contracts of sale and contract to sell with
reserved title has been recognized by this Court
in repeated decisions upholding the power of
promisors under contracts to sell in case of
failure of the other party to complete payment, to
extra-judicially terminate the operation of the
contract, refuse conveyance and retain the sums
or installments already received, where such
rights are expressly provided for, as in the case at
bar. Decision of affirmed.
reconsideration of the cancellation, but their
INTERNATIONAL HOTEL CORPORATION VS
FRANCISCO JOAQUIN
FACTS: On February 1, 1969, respondent
Francisco B. Joaquin, Jr. submitted a proposal to
the Board of Directors of the International Hotel
Corporation (IHC) for him to render technical
assistance in securing a foreign loan for the
construction of a hotel, to be guaranteed by the
Development Bank of the Philippines (DBP). The
IHC Board of Directors approved phase one to
phase six of the and earmarked P2,000,000.00
for the project. Anent the financing, IHC applied
with DBP for a foreign loan guaranty. DBP
processed the application, and approved it on
October 24, 1969 subject to several conditions.
P1,000,000.00.
Shortly after submitting the application to DBP,
Joaquin wrote to IHC to request the payment of
his fees in the amount of P500,000.00 for the
services that he had provided and would be
providing to IHC in relation to the hotel project
that were outside the scope of the technical
proposal. Joaquin intimated his amenability to
receive shares of stock instead of cash in view of
IHC’s financial situation. His request was then
granted.
conditional obligation. The court held that To
Joaquin presented to the IHC Board of Directors
the results of his negotiations with potential
foreign financiers. Negotiations with Materials
Handling Corporation and, later on, with its
principal, Barnes International (Barnes), ensued.
While the negotiations with Barnes were ongoing,
Joaquin and Jose Valero, the Executive Director
of IHC, met with another financier, the Weston
International Corporation (Weston), to explore
possible financing. When Barnes failed to deliver
submit Weston for DBP’s consideration. As a
result, DBP cancelled its previous guaranty
through a letter dated December 6, 1971. IHC
entered into an agreement with Weston, and
communicated this development to DBP on June
26, 1972. However, DBP denied the application
for guaranty for failure to comply with the
conditions.
Due to Joaquin’s failure to secure the needed
loan, IHC, through its President Bautista,
canceled the 17,000 shares of stock previously
issued to Joaquin and Suarez as payment for
their services. The latter requested a
request was rejected.
Consequently, Joaquin and Suarez commenced
this action for specific performance alleging that
the cancellation of the shares had been illegal,
and had deprived them of their right to participate
in the meetings and elections held by IHC; that
Barnes had been recommended by IHC
President Bautista, not by Joaquin; that they had
failed to meet their obligation because President
Bautista and his son had intervened and
negotiated with Barnes instead of Weston; that
DBP had canceled the guaranty because Barnes
had failed to release the loan; and that IHC had
agreed to compensate their services with 17,000
shares of the common stock plus cash of
ISSUE: Whether or not respondent International
Hotel Corporation is liable to pay under the rule
on constructive fulfillment
HELD: Yes. The court ruled that notwithstanding
the inapplicability of Article 1186 and Article 1234
of the Civil Code, IHC was liable based on the
nature of the obligation which is a mixed
secure a DBP-guaranteed foreign loan did not
solely depend on the diligence or the sole will of
the respondents because it required the action
and discretion of third persons – an able and
willing foreign financial institution to provide the
needed funds, and the DBP Board of Governors
to guarantee the loan. Such third persons could
not be legally compelled to act in a manner
favorable to IHC. There is no question that when
the fulfillment of a condition is dependent partly
7
on the will of one of the contracting parties, or of
the obligor, and partly on chance, hazard or the
will of a third person, the obligation is mixed. The
existing rule in a mixed conditional obligation is
that when the condition was not fulfilled but the
obligor did all in his power to comply with the
obligation, the condition should be deemed
satisfied.
the costs of the additional boxes because the
Considering that the respondents were able to
secure an agreement with Weston, and
subsequently tried to reverse the prior
cancellation of the guaranty by DBP, we rule that
they thereby constructively fulfilled their
obligation.
When he visited the factory, he saw that the
RESCISSION
SOLAR HARVEST INC VS DAVAO
CORRUGATED CARTON CORPORATION
FACTS: In the first quarter of 1998, petitioner
Solar Harvest Inc entered into an agreement,
albeit not formalized in writing, with respondent
Davao Corrugated Carton Corporation, for the
purchase of corrugated carton boxes specifically
designed for use of petitioner’s business of
exporting bananas, at US $1.10 each. The
petitioner deposited US$40,150.00 as full
payment in respondent’s US Dollar Savings
Account with Westmount Bank to get production
underway. However, no delivery of the boxes was
made. As such, petitioner wrote a demand letter
to respondent, asking for reimbursement of the
deposit made, to which the respondent replied
that the boxes had been completed beforehand
and that petitioner failed to pick up the boxes
from their warehouse as agreed upon. Further,
respondent also mentioned that petitioner placed
an additional order of 24,000 boxes. 14,000 of
those boxes were manufactured without initial
deposit from petitioner. Respondent then
demanded for the petitioner to pay for the costs
of the additional boxes and storage fees as well
as for the petitioner to remove the boxes from
their warehouse.
actually one for rescission or resolution of
Petitioner then filed for a Complaint for sum of
money and damages against respondent,
averring that the parties agreed that the boxes
will be delivered within 30 days from payment but
respondent failed to manufacture and deliver
boxes within such time, and that despite
repeated follow-up, the defendant would only
8
show sample boxes and make repeated promises
as to the delivery of the boxes. Respondents
again denied such, and averred that the
petitioner’s representative, Bobby Que, went to
the factory once and saw that the boxes were
ready for pick- up, and then visited again and
advised respondent to sell the boxes to recoup
petitioner’s shipment of bananas to China did not
materialize.
During the trial, Que testified that he ordered the
boxes and deposited the money as payment.
boxes had no logo. He then asked his partner
Alfred Ong to cancel the order as it was too late
to deliver shipments to China. The ship from
Chinese company China Food Zero did not
proceed to get the bananas, and at the time, the
bananas from Tagum Agricultural Development
Corporation were already there. Bienvenido
Estanislao testified for the respondent and said
that he met Que when the latter was visiting the
factory to get samples of the boxes. Que told him
that he cannot pick the boxes up because the
ship from the Chinese company, China Food
Zero, did not arrive. Jaime Tan, President of
respondent company, also testified to such as
being the reason why the boxes were not picked
up. Both the RTC and the CA on appeal denied
the petition.
ISSUE: Whether or not petitioner may claim
reimbursements from respondent because of the
delay in the fulfillment of obligation
HELD: No. Without a previous demand for the
fulfillment of the obligation, as is evident in the
instant petition when Que only made ‘follow-ups’
and not ‘demands’, petitioner would not have a
cause for rescission against respondent as the
latter would not yet be considered in breach of
contractual obligations.
The claim for reimbursement by petitioner is
contract, governed by Article 1191 of the Civil
Code. The right to rescind a contract arises once
the party defaults in the performance of his
obligation. This must be taken in conjunction with
Article 1169. In reciprocal obligations, as in a
contract of sale, the general rule is that the
fulfillment of the parties’ respective obligations
should be simultaneous. However, when different
dates are set for the performance of the
obligations, the default for each must be
determined according to the first paragraph of
1169. Thus, the party would incur in delay only
from the moment the other party demands
fulfillment of the obligation. Demand would be
necessary upon the obligee in such cases before
the obligor can be considered in default and
before a cause of action for rescission will
accrue.
fault or negligence on his part. Thus, apart from
UNIVERSAL FOOD CORPORATION vs. CA
FACTS: The petitioner contends that (a) under
the terms of the Bill of Assignment, exh. A, the
respondent Magdalo V. Francisco ceded and
transferred to the petitioner not only the right to
the use of the formula for Mafran sauce but also
the formula itself, because this, allegedly, was the
intention of the parties; (b) that on the basis of the
entire evidence on record and as found by the
trial court, the petitioner did not dismiss the
respondent Francisco because he was, and still
is, a member of the board of directors, a
stockholder, and an officer of the petitioner
corporation, and that as such, had actual
knowledge of the resumption of production by
the petitioner, but that despite such knowledge,
he refused to report back for work
notwithstanding the petitioner's call for him to do
so; (c) that the private respondents are not
entitled to rescind the Bill of Assignment; and (d)
that the evidence on record shows that the
respondent Francisco was the one not ready,
willing and able to comply with his obligations
under the Bill of Assignment, in the sense that he
not only irregularly reported for work but also
failed to assign, transfer and convey to the
petitioner of the said deed of conveyance.
quality of the products of the corporation; the
ISSUE:
laboratory assistants and personnel and in the
Whether or not respondent Francisco is entitled
to the rescission of the Bill of Assignment
other mixtures used in the preparation of said
HELD: The Supreme Court ruled in the
affirmative. The general rule is that rescission of a
contract will not be permitted for a slight or
casual breach, but only for such substantial and
fundamental breach as would defeat the very
object of the parties in making the agreement.
The question of whether a breach of a contract is
substantial depends upon the attendant
circumstances. The petitioner contends that
rescission of the Bill of Assignment should be
denied, because under article 1383, rescission is
a subsidiary remedy which cannot be instituted
except when the party suffering damage has no
other legal means to obtain reparation for the
same. However, in this case the dismissal of the
respondent patentee Magdalo V. Francisco, Sr. as
the permanent chief chemist of the corporation is
a fundamental and substantial breach of the Bill
of Assignment. He was dismissed without any
the legal principle that the option — to demand
performance or ask for rescission of a contract —
belongs to the injured party, the fact remains that
the respondents-appellees had no alternative but
to file the present action for rescission and
damages. It is to be emphasized that the
respondent patentee would not have agreed to
the other terms of the Bill of Assignment were it
not for the basic commitment of the petitioner
corporation to appoint him as its Second Vice-
President and Chief Chemist on a permanent
basis; that in the manufacture of Mafran sauce
and other food products he would have "absolute
control and supervision over the laboratory
assistants and personnel and in the purchase and
safeguarding of said products;" and that only by
all these measures could the respondent
patentee preserve effectively the secrecy of the
formula, prevent its proliferation, enjoy its
monopoly, and, in the process afford and secure
for himself a lifetime job and steady income. The
salient provisions of the Bill of Assignment,
namely, the transfer to the corporation of only the
use of the formula; the appointment of the
respondent patentee as Second Vice-President
and chief chemist on a permanent status; the
obligation of the said respondent patentee to
continue research on the patent to improve the
need of absolute control and supervision over the
purchase and safekeeping of the chemicals and
product — all these provisions of the Bill of
Assignment are so interdependent that violation
of one would result in virtual nullification of the
rest.
CANNU VS GALANG
FACTS: Gil and Fernandina Galang obtained a
loan from Fortune Savings & Loan Association for
P173, 800.00 to purchase a house and lot
located at Pulang Lupa, Las Piñas, To secure
9
payment, a real estate mortgage was constituted
on the said house and lot in favor of Fortune
Savings & Loan Association. In early 1990,
NHMFC purchased the mortgage loan of
respondents-spouses from Fortune Savings &
Loan Association for P173, 800.00. Petitioner
Leticia Cannu agreed to buy the property for
P120, 000.00 and to assume the balance of the
mortgage obligations with the NHMFC and with
CERF Realty. Of the P120, 000. 00, several
payments were made leaving a balance of P45,
000.00. A Deed of Sale with Assumption of
Mortgage Obligation was made and entered into
by and between spouses Fernandina and Gil
Galang and spouses Leticia and Felipe Cannu
over the house and lot. Petitioners immediately
took possession and occupied the house and lot.
Despite requests from Adelina R. Timbang and
Fernandina Galang to pay the balance of
P45,000.00 or in the alternative to vacate the
property in question, petitioners refused to do so.
has not been paid and that the monthly
ISSUES:
 fully updated, she made her intentions clear
1) Whether or not the breach of the obligation is
substantial.
rescind or annul the Deed of Sale with
2) Whether or not there was substantial
compliance with the obligation to pay the
monthly amortization with NHMFC.
to contracts enumerated in Articles 1381 of
3) Whether or not respondents-spouses Galang
demanded from petitioners a strict and/or faithful
compliance of the Deed of Sale with Assumption
of Mortgage. 4. Whether or not the action for
rescission is subsidiary.
rescission or, more accurately, resolution of
HELD:
Mortgage, it is the duty of the court to require
1) Rescission may be had only for such breaches
that are substantial and fundamental as to
defeat the object of the parties in making the
agreement. The question of whether a breach
of contract is substantial depends upon the
attending circumstances and not merely on
the percentage of the amount not paid. In the
case at bar, we find petitioners’ failure to pay
the remaining balance of P45,000.00 to be
substantial. Taken together with the fact that
the last payment made was on 28 November
1991, eighteen months before the respondent
Fernandina Galang paid the outstanding
balance of the mortgage loan with NHMFC,
the intention of petitioners to renege on their
obligation is utterly clear.
demanded payment but it failed to pay. ALUMCO
2) The petitioners were not religious in paying the
amortization with the NHMFC. As admitted by
them, in the span of three years from 1990 to
10
1993, their payments covered only thirty
months. This, indeed, constitutes another
breach or violation of the Deed of Sale with
Assumption of Mortgage. On top of this, there
was no formal assumption of the mortgage
obligation with NHMFC because of the lack of
approval by the NHMFC on account of
petitioners’ non-submission of requirements in
order to be considered as assignees/
successors-in- interest over the property
covered by the mortgage obligation.
3) There is sufficient evidence showing that
demands were made from petitioners to
comply with their obligation. Adelina R.
Timbang, attorney-in-fact of respondents-
spouses, per instruction of respondent
Fernandina Galang, made constant follow-ups
after the last payment made on 28 November
1991, but petitioners did not pay. Sometime in
March 1993, due to the fact that full payment
amortizations with the NHMFC have not been
with petitioner Leticia Cannu that she will
Assumption of Mortgage. 4. The subsidiary
character of the action for rescission applies
the Civil Code. The contract involved in the
case before us is not one of those mentioned
therein. The provision that applies in the case
at bar is Article 1191.As a consequence of the
the Deed of Sale with Assumption of
the parties to surrender whatever they may
have received from the other. The parties
should be restored to their original situation.
UP VS DELOS ANGELES
FACTS: UP was given a land grant which shall be
developed to obtain additional income for its
support. UP and ALUMCO entered into a logging
agreement where ALUMCO was granted the
exclusive authority for an extendible period of 5
years (by mutual agreement), to cut and remove
timber from the land grant in consideration of
royalties and fees to be paid to UP. ALUMCO
incurred an unpaid amount of P219,363. UP
received a letter that UP would rescind or
terminate their logging agreement. They executed
an instrument “Acknowledgement of Debt &
Proposed Manner of Payment” which the UP
President approved. ALUMCO agreed to give
their creditor (UP) the right to consider the
logging agreement as rescinded without
necessity of any judicial suit and creditor will be
entitled to P50,000 for liquidated damages.
ALUMCO continued logging but still incurred
unpaid accounts. UP then informed them that as
of that date, they considered rescinded the
agreement and of no further legal effect. UP then
filed for collection of the unpaid accounts and the
trial court gave them preliminary injunction to
prevent ALUMCO from continuing their logging.
Through a public bidding, the concession was
awarded to Sta. Clara Lumber Company and a
new agreement was entered into between them
and UP. ALUMCO tried to enjoin the bidding but
the contract was already concluded and Sta.
Clara started its operation. Upon motion by
ALUMCO, UP was declared in contempt of court
for violating the writ of injunction against them.
ALUMCO’s contentions are the following: a. It
blamed its former general manager for their
failure to pay their account. b. Logs cut were
rotten; thus, they were unable to sell them. c.
UP’s unilateral rescission was invalid without a
court order.
the assailed decision. In due course, the decision
ISSUE: Whether or not UP can validly rescind its
agreement with ALUMCO even without court
order.
the requisite deed in favor of her sister. The court
HELD: Yes. UP can unilaterally rescind the
agreement. UP and ALUMCO expressly
stipulated in their “Acknowledgement of Debt”
that upon default of payment, creditor UP has the
right and power to rescind their Logging
Agreement without the necessity of a judicial suit.
There is nothing in the law that prohibits the
parties from entering into agreements that
violation of terms of the contract would cause its
cancellation even without court intervention. Act
of a party in treating a contract as cancelled on
account of any infraction by the other party must
be made known to the other and is always
provisional, being subject to scrutiny and review
by the proper court. If the other party deems the
rescission unjustified, he free to resort to judicial
action. The court shall, after due hearing, decide
if the rescission was proper, in which case it will
be affirmed and if not proper, the responsible
party will be liable for damages. A party who
deems the contract violated may consider it
rescinded and act accordingly, even without
court action but it proceeds at its own risk. Only
the final judgment of the court will conclusively
settle whether the action taken was proper or not.
But the law does not prohibit the parties from
exercising due diligence to minimize their own
damages. UP was able to show a prima facie
case of breach of contract and default in
payment by ALUMCO. Excuses by ALUMCO are
not proper for them to suspend their payments.
Thus, the Supreme Court lifted the injunction.
GIL VS GARCIA

FACTS: Concepcion Gil, and her sister, Nieves
Gil, married to Angel Villarica, were the co-
owners of a parcel of commercial land, covered
by Transfer Certificate of Title, in Davao City. The
spouses Angel and Nieves Villarica had
constructed a two-storey commercial building on
the property. On October 13, 1953, Concepcion
filed a complaint against her sister Nieves with
the then Court of First Instance of Davao City,
docketed as for specific performance, to compel
the defendant to cede and deliver to her an
undivided portion of the said property. Nieves
appealed to the Court of Appeals which affirmed
became final and executory. On motion of the
plaintiff (Concepcion), the court issued a writ of
execution. Nieves, however, refused to execute
issued an order authorizing ex-officio sheriff to
execute the requisite deed of transfer to the
plaintiff over an undivided portion of the property
with a total area of 256.2 square meters. Instead
of doing so, the sheriff had the property
subdivided into four lots. The sheriff thereafter
executed a Deed of Transfer to Concepcion.
Concepcion executed a deed of absolute sale
over Lot 59-C-1 in favor of Iluminada Pacetes.
ISSUE: Whether or not the contract may be
rescinded?
HELD: No. The right of rescission of a party to an
obligation under Article 1191 of the New Civil
Code is predicated on a breach of faith by the
other party that violates the reciprocity between
them. That the deed of absolute sale executed by
Concepcion Gil in favor of Iluminada Pacetes is
an executory contract and not an executed
contract is a settled matter. In a perfected
contract of sale of realty, the right to rescind the
said contract depends upon the fulfillment or
11
non-fulfillment of the prescribed condition. We
ruled that the condition pertains in reality to the
compliance by one party of an undertaking the
fulfillment of which would give rise to the
demandability of the reciprocal obligation
pertaining to the other party. The reciprocal
obligation envisaged would normally be, in the
case of the vendee, the payment by the vendee
of the agreed purchase price and in the case of
the vendor, the fulfillment of certain express
warranties. The vendee is entitled to retain the
purchase price or a part of the purchase price of
realty if the vendor fails to perform any essential
obligation of the contract. Such right is premised
on the general principles of reciprocal
obligations. The petitioners, as successors-in-
interest of the vendor, are not the injured parties
entitled to a rescission of the deed of absolute
sale. It was Concepcions heirs, including the
petitioners, who were obliged to deliver to the
vendee a certificate of title over the property
under the latters name, free from all liens and
encumbrances within 120 days from the
execution of the deed of absolute sale on
October 24, 1956, but had failed to comply with
the obligation. The consignation by the vendee of
the purchase price of the property is sufficient to
defeat the right of the petitioners to demand for a
rescission of the said deed of absolute sale.
with respect to shipment.
VISAYAN SAWMILL COMPANY VS CA
Consequently, the obligation of petitioner to sell
FACTS: On May 1, 1983, herein plaintiff-appellee
and defendants appellants entered into a sale
involving scrap iron, subject to the condition that
plaintiff appellee will open a letter of credit in the
amount of P250,00.00 in favor of defendant-
appellant corporation on or before May 15, 1983.
On May 24, 1983, plaintiff-appellee informed
defendans-appellants by telegram that the letter
of credit was opened May 12, 1983 at the BPI
main office in Ayala, but that transmittal was
delayed. On May 26, 1983, defendants-
appellants received a letter advice from the
Dumaguete City Branch of BPI dated May 26,
1983, that a domestic letter of credit had been
opened in favor of Visayan Sawmill Company.
There is no dispute that the sum of P3,000.00
On July 19, 1983 plaintiffs then demanded that
defendants comply with the deed of sale. On July
20, 1983 defendant corporation informed
plaintiff’s lawyer that it is unwilling to continue
with the sale due to plaintiff’s failure to comply
with the essential preconditions of the contract.
1 9 7 9 . C o n c e r n i n g p r i v a t e re s p o n d e n t ' s
12
Private respondent prayed for judgment ordering
the petitioner corporation to comply with the
contract by delivering to him the scrap iron
subject thereof.
ISSUE: Whether or not the petitioner violated the
terms and conditions of the contract.
HELD: The petitioner corporation’s obligation to
sell is unequivocally subject to a positive
suspensive condition. The failure of the private
respondent to comply with the positive
suspensive condition cannot even be considered
a breach – casual or serious – but simply an
event that prevented the obligation of petitioner
corporation to convey title from acquiring binding
force.
The letter of credit in favor of petitioner was
indisputably not in accordance with the
stipulation in the contract signed by the parties
on at three counts: (1) it was not opened, made
or indorsed by the private respondent, but by a
corporation which is not a party to the contract;
(2) it was not opened with the bank agreed upon
and; (3) it is not irrevocable and unconditional, for
it is without recourse, it is set to expire on a
specific date and it stipulates certain conditions
did not arise. Therefore it cannot be compelled by
specific performance to comply with its
prestation.
TAYA G v s . C O U RT O F A P P E A L S a n d
ALBRIGIDO LEYVA
FACTS: The deed of conveyance executed on
May 28, 1975 by Juan Galicia, Sr., prior to his
demise in 1979, and Celerina Labuguin, in favor
of Albrigido Leyva involving the undivided one-
half portion of a piece of land situated at
Poblacion, Guimba, Nueva Ecija for the sum of
P50,000.00 under the following terms.
listed as first installment was received by Juan
Galicia, Sr. According to petitioners, of the
P10,000.00 to be paid within ten days from
execution of the instrument, only P9,707.00 was
tendered to, and received by, them on numerous
occasions from May 29, 1975, up to November 3,
assumption of the vendors' obligation to the
Philippine Veterans Bank, the vendee paid only
the sum of P6,926.41 while the difference the
indebtedness came from Celerina Labuguin.
said lots to petitioner Binalbagan Tech., Inc.,
Petitioners are of the impression that the decision
a p p e a l e d f ro m , w h i c h a g re e d w i t h t h e
conclusions of the trial court, is vulnerable to
attack via the recourse before us on the principal
supposition that the full consideration of the
agreement to sell was not paid by private
respondent and, therefore, the contract must be
rescinded.
property from 1967 when the titles and
ISSUE: whether the conditions of the instrument
were performed by herein private respondent as
vendee
the time when the property was transferred with
HELD: Yes! Considering that the heirs of Juan
Galicia, Sr. accommodated private respondent by
accepting the latter's delayed payments not only
beyond the grace periods but also during the
pendency of the case for specific performance.
paragraph 2 of plaintiffs' complaint, thru Judicial
Indeed, the right to rescind is not absolute and
will not be granted where there has been
substantial compliance by partial payments. By
and large, petitioners' actuation is susceptible of
but one construction — that they are now
estopped from reneging from their commitment
on account of acceptance of benefits arising from
overdue accounts of private respondent.
on the property shall pertain to the promissor and
The suggestion of petitioners that the covenant
must be cancelled in the light of private
respondent's so-called breach seems to overlook
petitioners' demeanor who, instead of
immediately filing the case precisely to rescind
the instrument because of non-compliance,
allowed private respondent to effect numerous
payments posterior to the grace periods provided
in the contract. This apathy of petitioners who
even permitted private respondent to take the
initiative in filing the suit for specific performance
against them, is akin to waiver or abandonment
of the right to rescind normally conferred by
Article 1191 of the Civil Code.
pending case, petitioner Binalbagan was again
BINALBAGAN TECH INC VS CA
FACTS: On May 11, 1967, private respondents,
through Angelina P. Echaus, in her capacity as
Judicial Administrator of the intestate estate of
Luis B. Puentevella, executed a Contract to Sell
and a Deed of Sale of forty-two subdivision lots
within the Phib-Khik Subdivision of the
Puentebella family, conveying and transferring
through its president, Hermilio J. Nava executed
an Acknowledgment of Debt with Mortgage
Agreement, mortgaging said lots in favor of the
estate of Puentebella. Upon the transfer to
Binalbagan of titles to the 42 subdivision lots,
said petitioner took possession of the lots and
the building and improvements thereon.
Binalbagan started operating a school on the
possession of the lots were transferred to it.
On the other hand, a pending case was found at
Binalbagan, the facts are follows:
The intestate estate of the late Luis B.
Puentebella as registered owner of several
subdivision lots, specifically mentioned in
Administratrix, Angelina L. Puentevella sold said
aforementioned lots to Raul Javellana with the
condition that the vendee-promisee would not
transfer his rights to said lots without the express
consent of Puentevella and that in case of the
cancellation of the contract by reason of the
violation of any of the terms thereof, all payments
therefor made and all improvements introduced
shall be considered as rentals for the use and
occupation thereof.
Javellana having failed to pay the installments for
a period of five years, Civil Case No. 7435 was
filed by defendant Puentevella against Raul
Javellana and the Southern Negros Colleges
which was impleaded as a party defendant it
being in actual possession thereof, for the
rescission of their contract to sell and the
recovery of possession of the lots and buildings
with damages.
Thereafter, rendering the final judgment of the
placed in possession of the subdivision lots,
private respondent Angelina Echaus demanded
payment from petitioner Binalbagan for the
subdivision lots, enclosing in the letter of demand
a statement of account as of September 1982
showing a total amount due of P367,509.93,
representing the price of the land and accrued
13
interest as of that date. As petitioner Binalbagan
failed to effect payment, private respondent
Angelina P. Echaus filed a case against
petitioners for recovery of title and damages. The
petitioner contends that the 10-year prescriptive
period had already expired before the respondent
brought her action to recover the title.
8, 1982. From May 11, 1967 to October 8, 1982,
ISSUE: Whether or not the petitioners’ contention
is valid.
before she brought her action to recover title.
HELD: NO. A party to a contract cannot demand
performance of the other party's obligations
unless he is in a position to comply with his own
obligations. Similarly, the right to rescind a
contract can be demanded only if a party thereto
is ready, willing and able to comply with his own
obligations thereunder (Art. 1191, Civil Code).In a
contract of sale, the vendor is bound to transfer
the ownership of and deliver, as well as warrant,
the thing which is the object of the sale (Art.
1495, Civil Code); he warrants that the buyer
shall, from the time ownership is passed, have
and enjoy the legal and peaceful possession of
the thing —
only when Civil Case No. 293 was dismissed that
ARTICLE 1547. In a contract of sale, unless a
contrary intention appears, there is:
be implemented and petitioner Binalbagan
(1) An implied warranty on the part of the seller
that he has a right to sell the thing at the time
when the ownership is to pass, and that the
buyer shall from that time have and enjoy the
legal and peaceful possession of the thing.
Consequently, Civil Case No. 1354 was filed
xxx xxx xxx
within the 10-year prescriptive period. Working
As afore-stated, petitioner was evicted from the
subject subdivision lots in 1974 by virtue of a
court order in Civil Case No. 293(herein referred
as the pending case) and reinstated to the
possession thereof only in 1982. During the
period, therefore, from 1974 to 1982, seller
private respondent Angelina Echaus' warranty
against eviction given to buyer petitioner was
breached though, admittedly, through no fault of
her own. It follows that during that period, 1974
to 1982, private respondent Echaus was not in a
legal position to demand compliance of the
prestation of petitioner to pay the price of said
subdivision lots. In short, her right to demand
payment was suspended during that period,
1974-1982.
engineer, was designated as the representative of
The prescriptive period within which to institute
an action upon a written contract is ten years
(Art. 1144, Civil Code). The cause of action of
14
private respondent Echaus is based on the deed
of sale aforementioned. The deed of sale
whereby private respondent Echaus transferred
ownership of the subdivision lots was executed
on May 11, 1967. She only filed for recovery of
title and damages against Balbagan on October
more than fifteen (15) years elapsed. Seemingly,
the 10-year prescriptive period had expired
However, the period 1974 to 1982 should be
deducted in computing the prescriptive period for
the reason that, as above discussed, from 1974
to 1982, private respondent Echaus was not in a
legal position to initiate action against petitioner
since as aforestated, through no fault of hers, her
warranty against eviction was breached. In the
case of Daniel vs. Garlitos, (95 Phil. 387 [1954]), it
was held that a court order deferring action on
the execution of judgment suspended the running
of the 5-year period for execution of a judgment.
Here the execution of the judgment in Civil Case
No. 7435 was stopped by the writ of preliminary
injunction issued in Civil Case No. 293. It was
the writ of execution in Civil Case Na. 7435 could
restored to the possession of the subject lots.
Deducting eight years (1974 to 1982) from the
period 1967 to 1982, only seven years elapsed.
against petitioner's position too is the principle
against unjust enrichment which would certainly
be the result if petitioner is allowed to own the 42
lots without full payment thereof.
DEIPARINE VS CA
FACTS: The spouses Cesario and Teresita
Carungay entered into an agreement with Ernesto
Deiparine, Jr. on August 13, 19B2, for the
construction of a three-story dormitory in Cebu
C i t y. 1 T h e C a r u n g a y s a g r e e d t o p a y
P970,000.00, inclusive of contractor's fee, and
Deiparine bound himself to erect the building "in
strict accordance to (sic) plans and
specifications." Nicanor Trinidad, Jr., a civil
the Carungay spouses, with powers of inspection
and coordination with the contractor. Deiparine
started the construction on September 1,
1982.On November 6, 1982, Trinidad sent him a
document entitled General Conditions and
Specifications which prescribed 3,000 pounds
per square inch as the minimum acceptable
compressive strength of the building. In the
course of the construction, Trinidad reported to
Cesario Carungay that Deiparine had been
deviating from the plans and specifications, thus
impairing the strength and safety of the building.
Carungay ordered Deiparine to first secure
approval from him before pouring cement. Order
was ignored. Carungay then sent another
memorandum with complaints but this was also
ignored. After several conferences, the parties
agreed to conduct cylinder tests to ascertain if
the structure thus far built complied with safety
standards. Deiparine and Carungay agreed on
core testing. Deiparaine even promised that if the
tests should show a total failure of if the failure
exceed 10%, he would shoulder all expenses.
The core testing was conducted by Geo-Testing
International, a Manila-based firm, on twenty-four
core samples. On the basis of 3,000 psi, all the
samples failed; on the basis of 2,500 psi, only
three samples passed; and on the basis of 2,000
psi, nineteen samples failed. 6 This meant that
the building was structurally defective. Spouses
Carungay filed complaint with the RTC Cebu for
the rescission of the construction contract and
fordamages.
be subject to rescission. Article 1385 deals with
TC decision:(1) Construction agreement
rescinded(2) Condemning Deiparine to have
forfeited his expenses in the construction (P244,
253.70)(3) Ordering Deiparine to reimburse to the
spouses Carungay the costs of core testing (P15,
104.33)(4) Ordering Deiparine to demolish and
remove all the existing structures and restore the
premises to their former condition before
construction began(5) Ordering Deiparine to pay
attorney’s fees and costs of suit (P10,000)CA
affirmed TC decision in toto
with the payment of damages in either case. He
ISSUE: Whether the contract may be validly
rescinded under Article 1191 of the CC.
HELD: YES. Petitioner challenges the application
of Article 1191 of the CC in rescinding the
construction agreement. His position is that the
applicable rules are Articles 1385 and 1725 of
the CC. Article 1385: Rescission creates the
obligation to return the things which were the
object of the contract, together with their fruits,
and the price with its interest; consequently, it
can be carried out only when he who demands
rescission can return whatever he may be obliged
to restore. Article 1725: In a contract for a piece
of work, the owner may withdraw at will from the
construction of the work, although it may have
been commenced, indemnifying the contractor
for all the latter's expenses, work, and the
usefulness which the owner may obtain
therefrom, and damages.
The right of rescission is used in two different
contexts in the Civil Code.
(1) Under the law on contracts – RESCISSIBLE
CONTRACTS enumerated in Article 1381
• Those which are entered into by guardians
whenever the wards who they represent suffer
lesion by more than one-fourth of the value of the
things which are the object thereof;
• Those agreed upon in representation of
absentees, if the latter suffer the lesion stated in
the preceding number:
• Those undertaken in fraud of creditors when the
later cannot in any other manner collect the
claims due them:
• Those which refer to things under litigation if
they have been entered into by the defendants
without the knowledge and approval of the
litigants or of competent judicial authority;
• All other contracts specially declared by law to
the rescission of the contracts under Article 1381,
which do not include the construction agreement
in question.
(2) Under the law on obligations – RIGHT OF
RESCISSION as granted in Article 1191 Art. 1191
–
The power to rescind obligations is implied in
reciprocal ones, in case one of the obligors
should not comply with what is incumbent upon
him. The injured party may choose between the
fulfillment and the rescission of the obligation,
may also seek rescission, even after he has
chosen fulfillment, if the latter should become
impossible. The court shall decree the rescission
claimed, unless there be just cause authorizing
the fixing of a period. This is understood to be
without prejudice to the rights of third persons
who have acquired the thing, in accordance with
articles 1385 and 1388 and the Mortgage Law.
Trial Court correctly applied Art 1191 which deals
with reciprocal obligations.
15
PRUDENCE REALTY AND DEVELOPMENT CO
VS CA
influence, or falsity of documents is subject to the
FACTS: On July 29, 1979, Paulina Gonzales
Habana sold three parcels of land covering an
area of 10.36 has. to Prudence Realty and
Development Corporation for P2,279,398.00. On
September 2, 1980, the Corporation filed an
action for the rescission of the contract. On
September 21, 1982, the then Court of First
Instance of Manila rendered judgment in
accordance with a compromise agreement
reached by the parties and approved by the
court. On February 19, 1990, Habana instituted
an action with the Regional Trial Court of
Calamba for the declaration of nullity of the
compromise agreement. She alleged that the
agreement was void because it contained in its
paragraph 8 (c) a potestative suspensive
condition dependent on the will of the debtor
Corporation. June 7, 1990, Habana amended her
complaint to allege three alternative causes of
action, to wit, invalidity of the compromise
agreement, as in the original complaint; failure of
the defendant to pay the balance of the purchase
price; and the need for the court to fix the period
for the payment of the balance of the purchase
price.
1992 in its Civil Case No. 92-61345 which denied
ISSUE: whether Habana may seek rescission of
the compromise agreement HELD: No.
injunction to enjoin the Department of Public
Habana seeks the rescission of the compromise
agreement under Art. 1191 of the Civil Code. *
However, this provision applies only to reciprocal
obligations in general and not to obligations
arising from a judicial compromise, as we have
consistently held in a long line of decisions.
Moreover, the rule is that a judgment rendered in
accordance with a compromise agreement is
immediately executory as there is no appeal from
such judgment.

A judgment based on a compromise is generally
not appealable. The reason for the rule is that
when both parties enter into an agreement to end
a pending litigation and request that a decision
be rendered approving said agreement, it is only
natural to presume that such action constitutes
an implicit, as undeniable as an express, waiver
of the right to appeal against said decision. The
nullification of a compromise judgment is
governed by the following provisions of the Civil
Code: Art. 2038. A compromise in which there is
16
mistake, fraud, violence, intimidation, due
provisions of Art. 1330 of this code.
When the terms of a compromise judgment are
violated, the remedy of the aggrieved party is to
move for its execution, not its invalidation. In fact,
the court has inherent powers to prevent its
decision from becoming a dead letter and may
hold the judgment debtor in contempt if it finds
the refusal to be malicious and systematic. It may
even place the property under receivership under
Rule 39, Sec. 43, of the Rules of Court.
GENARO REYES CONSTRUCTION, INC. VS
COURT OF APPEALS J
FACTS: Herein petitioners Genaro G. Reyes
Construction, Inc. (or GGRCI) and Universal
Dockyard Ltd. (or UDL) seek the nullification of
the decision dated October 20, 1992 and the
resolution dated January 20, 1993 of the Eighth
Division of the Court of Appeals in CA-G.R. SP
No. 28632. The said decision and resolution
affirmed the two orders issued by the Regional
Trial Court of the National Capital Judicial Region
(Branch 15) dated June 22, 1992 and August 5,
herein petitioners' application for a temporary
restraining order and a writ of preliminary
Works and Highways (DPWH) and then DPWH
Secretary Jose P. de Jesus, and others therein
impleaded from enforcing and implementing the
notice of pre-termination of petitioners' contract
for the implementation of Lower Agusan
Development Project, Stage I, Phase 1, Butuan
City, or any part thereof, to any person; and
prohibiting said defendants from bidding said
project or any part thereof, or awarding it to any
person.
ISSUE: Whether or not the acts of the
respondents can be restraint by the government?
HELD: If the unjust and unlawful acts of
re s p o n d e n t s a re n o t s t r u c k d o w n a n d
respondents are not restrained, the Government
stands to lose from Three Hundred Fifty Million
(P350 Million) Pesos additional expenditures.
Under Presidential Decree No. 1870 when the
project is rebidded or awarded through
negotiated contract, compensation is at "current
valuation price" (Sec. 1, P.D. 1870). Considering
the increase in prices of labor and materials, it is
a certainty that any new bidder would ask for
prices much higher than the already high prices
which the losing bidders offered in the March 1,
1991 bidding. Tremendous loss of taxpayers'
money thus is inevitable. This Court cannot,
therefore, close its eyes to the resultant evil which
will be inflicted not only upon petitioners, but also
on the Filipino people and the dissipation of
taxpayers' money arising from the unjust
termination of petitioners' contract and the
rebidding to or renegotiation with other parties of
the project. Public interest and the stakes of the
Government dictate the issuance of the writs of
injunction and prohibition restraining respondents
from enforcing the order terminating petitioners'
contract for the construction of the flood control
facilities and land improvement works of the
Lower Agusan Development Project, Stage I,
Phase 1. In fine, not only was the slippage within
legally tolerable limits but the cause of the
slippage are attributable to respondent DPWH
officials. The inflexible stance of respondents
towards the compromise offers of petitioners,
even before this Court ordered them to explore
such a possibility, but especially after we asked
them to do so, convinces the Court all the more
that there are rregularities which respondents are
sweeping under the rug. The record also shows
that even after the stop-work order was given
and while petitioners were trying to have it
reconsidered, they continued working full force
on the project thus minimizing or eliminating the
slippage which caused the disputed problems.
DIESEL CONSTRUCTION CO INC VS UPSI
AREOLA VS COURT OF APPEALS 
 Topic: Article 1191
FACTS: Santos Areola, a lawyer from Dagupan
City, availed of a Personal Accident Insurance
Policy from Prudential, but seven months after
the issuance of the policy, On June 29, 1985,
Prudential unilaterally cancelled the policy
because company records revealed that Areola
failed to pay his premiums.
liquidated damages in the amount equivalent to
A few days later, however, Prudential found out
that Areola actually paid the premiums and that
the branch manager, Teofilo Malapit, failed to
remit them. Thus, Prudential offered to reinstate
the policy and even proposed to extend its
lifetime to December 17, 1985.
 sought. At one time or another, Diesel requested
Areola filed a suit for breach of contract and
damages against Prudential. Obtained from
Baguio branch of Prudential, for one year (Nov
1984-Nov 1985), premium of 1470 but total
monthly was 1609.5 (doc stamp 110.25, 2%
premium tax of 29.4). The policy states that the
Statement of Account is not a receipt and an
official receipt will be given after payment but if
payment is done through a representative, payor
will be given a provisional receipt. Areola was
given provisional receipt but Malapit just failed to
remit and therefore Areola received no official
receipt. Areola sent demand letters for immediate
reinstatement, bank apologized but did not
immediately reinstate, so he filed the case. The
insurance agent was Carlito Ang.
ISSUES: 1) WON Prudential is liable for damages
for unilaterally cancelling the policy 2) WON
Prudential's reinstatement of the policy absolved
it from damages
HELD: The Court held that the Branch Manager
was agent of corporation and the receipt of
payment was well within his authority. Therefore,
his receipt of the premiums was, in effect, receipt
by the corporation itself. Thus, Areola fulfilled his
obligations under the contract i.e. the payment of
premiums. The cancellation, therefore, was
unwarranted and injurious to Areola; that it was
perpetrated by the Branch Manager is not
material, a corporation can only act through its
individual employees. It must therefore bear the
negligence of the Branch manager in
misappropriating the premiums.
FACTS:
PROPERTY HOLDINGS March 24, 2008
Diesel, as Contractor, and UPSI, as Owner,
entered into a Construction Agreement for the
construction of the UPSI Building 3 Meditel/
Condotel Project. Of particular relevance to this
case is the section obliging the contractor, in
case of unjustifiable delay, to pay the owner
one-fifth (1/5) of one (1) percent of the total
Project cost for each calendar day of delay.
In the course of the Project implementation,
change orders were effected and extensions
for extension owing to the following causes or
delaying factors: (1) manual hauling of materials
from the 14th to 16th floors; (2) delayed supply of
17
marble; (3) various change orders; and (4) delay in Hence, as correctly held by the CIAC, UPSI, no
the installation of shower assembly.
less, effectively moved the completion date,
through the various change orders, to April 7,
But UPSI disapproved the desired extensions, 2000.

thus putting Diesel in a state of default for a given

contract work. UPSI withheld Diesels 10% Moreover, as evidenced by UPSIs Progress
retention money and refused to pay the unpaid Report No. 19 for the period ending March 22,
balance of the contract price.
2000, Diesels scope of work, as of that date, was
already 97.56% complete. Such level of work
It is upon the foregoing factual backdrop that accomplishment would, by any rational norm, be
Diesel filed a complaint before the CIAC, praying considered as substantial to warrant full payment
that UPSI be compelled to pay the unpaid of the contract amount, less actual damages
balance of the contract price.
suffered by UPSI. Article 1234 of the Civil Code
says as much, If the obligation had been
ISSUE: Whether or not Diesel is in delay
 substantially performed in good faith, the obligor
may recover as though there had been a strict
HELD: The provisions in the Agreement on and complete fulfillment, less damages suffered
excusable delays read:
by the obligee.

2.3 Excusable delays: The Contractor shall inform

the owner in a timely manner, of any delay The fact that the laborers of Diesel were still at
caused by the following:
the work site as of March 22, 2000 is a reflection
2.3.a Acts of God, such as storm, floods or of its honest intention to keep its part of the
earthquakes.
 bargain and complete the Project. Thus, when
2.3.b Civil disturbance, such as riots, revolutions, Diesel attempted to turn over the premises to
insurrection.
 UPSI, claiming it had completed the Project on
2.3.c Any government acts, decrees, general March 15, 2000, Diesel could no longer be
orders or regulations limiting the performance of considered to be in delay.

the work.

137
In all, Diesel cannot be considered as in delay
2.3.d Wars (declared or not).
and, hence, is not amenable under the
2.3.e Any delays initiated by the Owner or his Agreement for liquidated damages.

personnel which are clearly outside the control of

the Contractor.
S P S VA L E N Z U E L A V S K A L AYA A N
2.3.1 Delays caused by the foregoing shall be DEVELOPMENT AND INDUSTRIAL
excusable. A new schedule or adjustments in
contract time shall be negotiated with the Owner.
FACTS: Respondent owns a parcel of land where
the petitioners were illegally occupying.
As time is of the essence of this agreement, all Petitioners negotiated with respondent the
other delays shall not be excusable.
purchase of the portion of the land they were
occupying. Respondent agreed. A contract was
The CA completely failed to factor in the change stipulated, wherein the petitioners agreed to pay
orders of UPSI to Diesel the directives effectively by installment. It was likewise stipulated that the
extending the Project completion time at the ownership shall vest only upon full payment of
behest of UPSI as it was initiated by UPSI’s the total purchase price. After half of the
personnel which is clearly outside the control of purchase price was paid, petitioner failed to pay
the Contractor
t h e a g re e d u p o n m o n t h l y i n s t a l l m e n t s .
Respondents demand to petitioner to pay remain
The CIAC found that the change orders were unheeded, which gives rise to respondent filing a
actually implemented on the following dates:
complaint for rescission of contract and damages
CO No. 1 February 9 to March 3, 2000 CO No. 3 against the petitioner. A favorable decision to the
February 24 to March 10, 2000 CO No. 4 March respondent was rendered by the trial court, which
16 to April 7, 2000
was affirmed by the Court of Appeals.
Questioning this decision, petitioner maintains
that they should have been entitled to get atleast

18
one half of the subject property, because
payment equivalent to its value has been made to
and received by Respondent. Petitioners posits
that the RTC should have applied Article 1234 of
the Civil Code to the present case, considering
property did not arise. Thus, Kalayaan may validly
cancel the contract to sell its land to petitioner,
not because it had the power to rescind the
contract, but because their obligation thereunder
did not arise.

that it has been factually established that they

were able to pay one-half of the total obligation in
good faith.

ISSUE: Whether or not rescission of the contract

is a remedy

HELD: NO. DECISION IS MODIFIED TO THE

EXTENT THAT THE CONTRACT BETWEEN
PARTIES IS CANCELLED AND ATTORNEY’S
FEES REDUCED. RESPONDENT TO REFUND
THE AMOUNT PAID BY THE PETITIONERS.

The nature and characteristics of a contract to

sell is determinative of the propriety of the
remedy of rescission and the award of attorney’s
fees. Under a contract to sell, the seller retains
title to the thing to be sold until the purchaser
fully pays the agreed purchase price. The full
payment is a positive suspensive condition, the
non-fulfillment of which is not a breach of
contract, but merely an event that prevents the
seller from conveying title to the purchaser. The
non-payment of the purchase price renders the
contract to sell ineffective and without force and
effect. Since the obligation of respondent did not
arise because of the failure of petitioners to fully
pay the purchase price, Article 1191of the Civil
Code would have no application. The non-
fulfillment by the respondent of his obligation to
pay, which is a suspensive condition to the
obligation of the petitioners to sell and deliver the
title to the property, rendered the contract to sell
ineffective and without force and effect. The
parties stand as if the conditional obligation had
never existed. Article 1191 of the New Civil Code
will not apply because it presupposes an
obligation already extant. There can be no
rescission of an obligation that is still non-
existing, the suspensive

condition not having happened. The parties’

contract to sell explicitly provides that Kalayaan
"shall execute and deliver the corresponding
deed of absolute sale over" the subject property
to the petitioners "upon full payment of the total
purchase price." Since petitioners failed to fully
pay the purchase price for the entire property,
Kalayaan’s obligation to convey title to the

19
OBLIGATIONS WITH A PERIOD
SARMIENTO VS JAVELLANA
FACTS: On August 28, 1911, Defendant Glicerio
Javellana loaned the plaintiffs Filomena
Sarmiento and her husband Eusebio Villa Senor
the sum of P1,500 with interest at the rate of 25
per cent per annum for the term of one year. To
guarantee this loan, the plaintiffs pledged a large
medal with a diamond in the center and
surrounded with ten diamonds, a pair of
diamonds earrings, a small comb with twenty-
diamonds, and two diamond rings, which the
contracting parties appraised at P4,000. The
plaintiff allege that at the maturity of this loan,
August 31, 1912, the plaintiff Eusebio Villa Senor,
being unable to pay the loan, obtained from the
defendant an extension, with the condition that
the loan was to continue, drawing interest at the
rate of 25 per cent per annum, so long as the
security given was sufficient to cover the capital
and the accrued interest. In the month of August,
1919, the plaintiff Villasenor, went to the house of
the defendant and offered to pay the loan and
redeem the jewels, taking with him, for this
purpose, the sum of P11,000, but the defendant
then informed them that the time for the
redemption had already elapsed. The plaintiffs
renewed their offer to redeem the jewelry by
paying the loan, but met with the same reply. The
plaintiffs now bring this action to compel the
defendant to return the jewels pledged, or their
value, upon the payment by them of the sum they
owe the defendant, with the interest thereon.
ISSUE: Whether or not the courts may fix the
ISSUE: Whether or not the defendant is bound to
return the jewels or their value to plaintiffs, and
the plaintiffs have the right to demand the same
upon the payment by them of the rate of 25 per
cent per annum from August 28, 1911.
HELD: YES. Whenever a term for the
performance of an obligation is fixed, it is
presumed to have been established for the
benefit of the creditor as well as that of the
debtor, unless from its tenor or from other
circumstances it should appear that the term was
established for the benefit of one or the other
only. In this case it does not appear, either from
any circumstance, or from the tenor of the
contract, that the term of one year allowed the
plaintiffs to pay the debt was established in their
favor only. Hence it must be presumed to have
20
been established for the benefit of the defendant
also. And it must be so, for this is a case of a
loan, with interest, wherein the term benefits the
plaintiffs by the use of the money, as well as the
defendant by the interest. This being so, the
plaintiffs had no right to pay the loan before the
lapse of one year, without the consent of the
defendant, because such a payment in advance
would have deprived the latter of the benefit of
the stipulated interest. It follows from this that
appellant is in error when he contends that the
plaintiffs could have paid the loan and recovered
the thing pledged from the date of the execution
of the contract and, therefore, his theory that the
action of the plaintiffs to recover the thing
pledged accrued from the date of the execution
of the contract is not tenable.
SEOANE VS FRANCO
FACTS: This is an appeal from a judgment of the
Court of First Instance of Zamboanga in favor of
the plaintiff, holding that the right of action upon
the mortgage debt which was the basis of the
claim presented against the plaintiff's estate had
prescribed. The mortgage in question was
executed on the 13th of October, 1884, to secure
the payment of the sum of P4,876.01, the
mortgagor agreeing to pay the sum "little by
little." The claim appears to have been presented
to the plaintiff's intestate on the 8th of August,
1911. Nothing has been paid either of principal or
of interest.
period.

HELD: Yes. This case clearly falls within the
provision of Art. 1197 of the New Civil Code,
which reads as follows: .
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.
The obligation in question seems to leave the
duration of the period for the payment thereof to
the will of the debtor. It appears also that it was
the intention of the instrument to give the debtor
time within which to pay the obligation. In such
cases this court has held, on several occasions,
that the obligation is not due and payable until an
action has been commenced by the mortgagee
against the mortgagor for the purpose of having
the court fix the date on and after which the
instrument shall be payable and the date of
maturity is fixed in pursuance thereof. It is clear
that the instrument sued upon in the case at bar
is one which leaves the period of payment at the
will of the mortgagor. Such being the case, an
action should have been brought for the purpose
of having the court set a date on which the
instrument should become due and payable.
Until such action was prosecuted no suit could
be brought for the recovery of the amount named
in the instrument. It is, therefore, clear that this
action is premature. The instrument has been
sued upon before it is due. The action must
accordingly be dismissed.
and to pay the costs. On 21 January 1957 the
BENITO ORIT VS. BALDROGAN COMPANY,
LTD
 defendant has appealed.
FACTS: On 22 November 1955 the plaintiff
brought an action in the Court of First Instance of
Camarines Norte to collect from the defendant
the sum of P5.000, the balance of an account
due to export logs purchased by the latter from
the former, P1,500 as attorney's fee, P3,000 as
moral damages, P2,000 as exemplary damages
and costs, and to obtain any other just and
equitable relief (civil No. 750). On 7 January 1956
the defendant filed an answer. On 25 September
1956 the parties, assisted by their respective
counsel, entered into a stipulation of facts and
submitted it to Court. THe terms of the stipulation
are:
time for the appellant to pay the appellee. As they
That the defendant admits in open court its
obligation to the plaintiff in the amount of FIVE
THOUSAND PESOS (P5,000.00) Philippine
Currency, plus interest thereon from December 8,
1955 and costs;
judgment. The judgment rendered by the Court
That the parties mutually agreed to submit to the
Court a fixed date when the defendant should
pay the plaintiff the above obligations, the
submission of which date is hereby mutually
agreed to be up to not later than November
6,1956;
That for failure of the parties to submit to the
Court the agreed date of payment on November
6, 1956, they mutually agreed that the Court shall
have the full power to fix a reasonable time when
the defendant should pay, and a judgment
therefor shall issue based upon this stipulation of
facts.
The parties failed to submit to the Court the date
when the defendant had to pay its debt to the
plaintiff. On 6 November 1956 the plaintiff filed an
ex-parte motion praying that judgment be
rendered upon the stipulation of facts and that
the Court fix the time in which the defendant
should pay the sum due to the plaintiff. On 28
November 1956 the Court rendered judgment as
prayed for ordering defendant to pay the plaintiff
within thirty days from receipt of notice of
judgment the sum of P5,000 with legal interest
thereon from 8 December 1955 until fully paid
Court denied the defendant's motion for
reconsideration dated 12 January 1957. The
ISSUE: May the courts set or fix the period of the
obligation.
HELD: The appellant admits that it owes the
appellee the sum of P5,000. Under the second
paragraph of the stipulation of facts, they agreed
to set a date for the appellant to pay the
appellee, they agreed to set a date for the
appellant to pay the appellee, to be submitted to
the Court not later that 6 November 1956 and
under the third paragraph of the same stipulation,
should they fail to set a date for payment on 6
November 1956, the Court may set a reasonable
paid to set a date for payment and submit it to
the Court on motion on the appellee, the Court
rendered judgment upon the stipulation of facts
and ordered the appellant to pay the appellee
within thirty days from receipt of notice of
was but in pursuance of the compromise
agreement embodied in the stipulation of facts
entered freely and voluntarily by the parties with
the assistance of their respective counsel. The
appellant cannot now claim and complain that
the period fixed by the Court is unreasonable.
21
Citing article 1196 of the new Civil Code in
support of its appeal, which provides that:
checks.
Wherever in an obligation a period is designated,
it is presumed to have been established for the
benefit of both the creditor and the debtor, unless
from the tenor of the same or other
circumstances it should appear that the period
has been established in favor of one or of the
other;
P200 a month. On the other hand, the
the appellant claims that the period of thirty days
fixed by the Court rebounded to the benefit only
of the creditor, the appellee, and not mutually to
the creditor and the debtor. In its brief, the
appellant prays that it be granted at least a year
within which to pay the appellee.
clause did not mean automatic renewal for there
The article cited by the appellant cannot be
applied to the case at bar where the parties
entered into a compromise agreement ending a
controversy and authorizing the Court to fix a
reasonable time within which the appellant
should pay its debt to the appellee, if they fail to
agree upon a date for payment and submit it to
the Court. It applies where the parties to a
contract themselves have fixed a period.
HELD: No. The literal meaning of the stipulations
The appeal interposed by the appellant is
manifestly to delay but not to evade payment of
its debt. Nothing has been agreed upon by the
parties in their stipulation on that contingency.
Hence the collection or recovery of the sums of
P1,800 as attorney's fee, P3,000 as moral
damages and P2,000 as exemplary damages
sought by the appellee in its motion dated 6 May
1957 filed in this Court cannot be granted.
principally considered.
BUCE VS CA
 In this jurisdiction, a fine delineation exists
FACTS: Buce leased respondents’ 56 sq. meter
land in Pandacan, Manila. The contract was for
fifteen years "subject to renewal for another ten
(10) years, under the same terms and
conditions." Buce constructed a building and
paid the required monthly rentals of P200. The
rentals gradually increased by the respondents
reaching P400 in 1985 and in July and August
1991, Buce paid P1,000.00 as monthly rent.
contemplates the cessation of the old contract,
In December 1991, Respondents’ counsel wrote
Buce informing her that effective January 1992,
the rent will be P1,576.58 pursuant to the Rent
Control Law. Buce continued to issue checks for
P400 only P400 as monthly rental but
22
respondents refused to accept the tendered
Buce filed a complaint for specific performance
with prayer for consignation and prayed that the
respondents be ordered to accept her payments
and for them to respect the contract which was
renewable for another ten years at the rate of
respondents countered that Buce had already
paid the monthly rent of P1,000 for July and
August 1991; that they were justified in refusing
to accept the payment for the rental payments
should already be P1,576.58 a month pursuant to
the Rent Control Law; and that the renewal
must be a mutual agreement between the parties.
Respondents’ counsel wrote Buce reminding her
that the contract has expired and demaning
payment of rentals in arrears amounting to
P33,000.00.
ISSUE: Whether or not the renewal of the lease
contract was automatic.
shall control if the terms of the contract are clear
and leave no doubt upon the intention of the
contracting parties. However, if the terms of the
agreement are ambiguous resort is made to
contract interpretation which is the determination
of the meaning attached to written or spoken
words that make the contract. Also, to ascertain
the true intention of the parties, their actions,
subsequent or contemporaneous, must be
between renewal of the contract and extension of
its period. Generally, the renewal of a contract
connotes the death of the old contract and the
birth or emergence of a new one. A clause in a
lease providing for an extension operates of its
own force to create an additional term, but a
clause providing for a renewal merely creates an
obligation to execute a new lease contract for the
additional term. As renewal of the contract
then it is necessary that a new one be executed
between the parties.
There is nothing in the stipulations in the contract
and the parties’ actuation that shows that the
parties intended an automatic renewal or
extension of the term of the contract. The fact
that the lessee was allowed to introduce
improvements on the property is not indicative of
the intention of the lessors to automatically
extend the contract. Considering the original 15-
year duration of the contract, structures would
have necessarily been constructed, added, or
built on the property, which in its previous state
was an idle 56-square meter lot in the heart of
Manila.
renewal and also in view of the P24M worth of
On the applicability of Fernandez v. Court of
Appeals to the case at bar. The factual scenario
in that case with regard to the renewal option is
slightly off-tangent to the case under
consideration because the intention of the parties
therein for future mutual agreement was clearly
discernible in their contract. [I]n a reciprocal
contract like a lease, the period must be deemed
to have been agreed upon for the benefit of both
parties, absent language showing that the term
was deliberately set for the benefit of the lessee
or lessor alone. Thus, pursuant to the Fernandez
ruling and Article 1196 of the Civil Code, the
period of the lease contract is deemed to have
been set for the benefit of both parties. Renewal
of the contract may be had only upon their
mutual agreement or at the will of both of them.
3. The LESSEES shall have the option to
Since the private respondents were not amenable
to a renewal, they cannot be compelled to
execute a new contract when the old contract
terminated on 1 June 1994. It is the owner-
lessors prerogative to terminate the lease at its
expiration. The continuance, effectivity and
fulfillment of a contract of lease cannot be made
to depend exclusively upon the free and
uncontrolled choice of the lessee between
continuing the payment of the rentals or not,
completely depriving the owner of any say in the
matter.
Lease;
LL AND COMPANY VS HUANG CHAO CHUN
FACTS: The parties entered into an amended
lease contract sometimes in August 1991.
Petitioner alleged that respondents Huang Chao
Chun and Yang Tung Fa violated their amended
lease contract over a 1,112 sq. m. lot it owns (Lot
No.1-A-1) when they did not pay the monthly
rentals in the amount of P4, 322,900.00. It also
alleged that the amended lease contract expired
on Sept. 16, 1996 but respondents refused to
surrender possession plus the improvements
made thereon and pay the rental arrearages
despite repeated demands.
Respondents contend that their failure to pay the
monthly rentals on the property was due to
petitioners fault when it attempted to increase the
amount of rent in violation of their contract and
they are entitled to a renewal of their contract in
view of the provision providing for automatic
improvements they introduced on the leased
premises.
Terms and Conditions:
1. x x x It is expressly agreed and understood
that the payment of the rental herein stipulated
shall be made without the necessity of express
demand and without delay on any ground
whatsoever.
2. The term of this lease is FIVE (5) YEARS from
the effectivity of said lease, and with the option to
renew, specifically shall commence from
September 15, 1991 and shall expire on
September 16, 1996, and maybe adjusted
depending upon the ejectment of tenants.
reconstruct and/or renovate the improvement
found thereon at the expense of the LESSEES,
and whatever improvement introduced therein by
the LESSEES in the premises the ownership of it
shall become the property of the LESSOR
without extra compensation of the same.
4. Upon signing of this Contract of Lease, the
LESSEES shall make a one (1) year deposit to be
paid unto the LESSOR as follows:
50% percent upon signing of this Contract of
50% percent as payment in full of the one (1) year
deposit. Payment of which shall be made unto
the LESSOR on the day of the effectivity date of
the Contract of Lease, said deposit shall be
refundable 30 days prior to the termination of the
same.
5. The monthly rental is subject to increase, said
increase shall be based upon the imposition of
Real Estate Tax for every two (2) years upon
presentation of the increased real estate tax to
23
the Le[ssees], but said increase shall not be less
than 25% percent.
contract for the parties; its duty is confined to the
The MTC ruled that the contract entered into by
the parties may be extended by the lessees for
reasons of justice and equity, citing as its legal
bases the case of Legarda Koh v. Ongsi[a]co (36
Phil. [185]) and Cruz v. Alberto (39 Phil. 991). It
also ruled that the corporations failure to pay the
monthly rentals as they fell due was justified by
the fact that petitioner refused to honor the basis
of the rental increase as stated in their Lease
Agreement
lease for the parties,[18] even on the basis of
ISSUE: Whether or not the court could still
extend the term of the lease after its expiration. Is
the lease a proper ground in a case of unlawful
detainer?
ejected from the premises.
HELD: No. The MTC had no power to extend the
lease period because the Contract had already
expired.
upon the benefit of both parties. Pursuant to the
In general, the power of the courts to fix a longer
term for a lease is discretionary. Such power is to
be exercised only in accordance with the
particular circumstances of a case: a longer term
to be granted where equities demanding
extension come into play; to be denied where
none appear -- always with due deference to the
parties freedom to contract. Thus, courts are not
bound to extend the lease.
paying the rentals, the lessor cannot be
Where no period has been fixed by the parties,
the courts, pursuant to Article 1687, have the
potestative authority to set a longer period of
lease.
In the case before us, the Contract of Lease
provided for a fixed period of five (5) years --
specifically from September 16, 1991 to
September 15, 1996. Because the lease period
was for a determinate time, it ceased, by express
provision of Article 1669 of the Civil Code, on the
day fixed, without need of a demand. Here, the
five-year period expired on September 15, 1996,
whereas the Complaint for ejectment was filed on
October 6, 1996. Because there was no longer
any lease that could be extended, the MTC, in
effect, made a new contract for the parties, a
power it did not have
T-103141, situated at Banay-banay, Lipa City;
In Bacolod-Murcia v. Banco Nacional Filipino, the
court ruled, “it is not the province of the court to
24
alter a contract by construction or to make a new
interpretation of the one which they have made
for themselves, without regard to its wisdom or
folly, as the court cannot supply material
stipulations or read into contract words which it
does not contain.”
The extension of a lease contract must be made
before the term of the agreement expires, not
after. Upon the lapse of the stipulated period,
courts cannot belatedly extend or make a new
equity. Because the Lease Contract ended on
September 15, 1996, without the parties reaching
any agreement for renewal, respondents can be
In a reciprocal contract like a lease, the period of
the lease must be deemed to have been agreed
cases of Fernandez, Dalisay and Article 1196 of
the Civil Code, the period of the lease contract is
deemed to have been set for the benefit of both
parties. Its renewal may be authorized only upon
their mutual agreement or at their joint will. Its
continuance, effectivity or fulfillment cannot be
made to depend exclusively upon the free and
uncontrolled choice of just one party. While the
lessee has the option to continue or to stop
completely deprived of any say on the matter.
Absent any contrary stipulation in a reciprocal
contract, the period of lease is deemed to be for
the benefit of both parties.
MACASAET VS MACASAET



FACTS: Petitioners Ismael and Teresita Macasaet
and Respondents Vicente and Rosario Macasaet
are first-degree relatives. Ismael is the son of
respondents, and Teresita is his wife.
On December 10, 1997, the parents filed with the
Municipal Trial Court in Cities (MTCC) of Lipa City
an ejectment suit against the children.
Respondents alleged that they were the owners
of two (2) parcels of land covered by Transfer
Certificate of Title (TCT) Nos. T-78521 and
that by way of a verbal lease agreement, Ismael
and Teresita occupied these lots in March 1992
and used them as their residence and the situs of
their construction business; and that despite
repeated demands, petitioners failed to pay the
agreed rental of P500 per week.
Ismael and Teresita denied the existence of any
verbal lease agreement. They claimed that
respondents had invited them to construct their
residence and business on the subject lots in
order that they could all live near one other,
employ Marivic (the sister of Ismael), and help in
resolving the problems of the family. They added
that it was the policy of respondents to allot the
land they owned as an advance grant of
inheritance in favor of their children. Thus, they
contended that the lot covered by TCT No.
T-103141 had been allotted to Ismael as advance
inheritance. On the other hand, the lot covered by
TCT No. T-78521 was allegedly given to
petitioners as payment for construction materials
used in the renovation of respondents house. The
CA sustained the finding of the two lower courts
that Ismael and Teresita had been occupying the
subject lots only by the tolerance of Vicente and
Rosario/ Thus, possession of the subject lots by
petitioners became illegal upon their receipt of
respondents letter to vacate it.
When persistent conflict and animosity overtook
ISSUE:Whether or not possession of the subject
lots by petitioners became illegal upon their
receipt of respondents letter to vacate it
cause for continued possession of the lots. Their
HELD: Yes.That Ismael and Teresita had a right to
occupy the lots is therefore clear. The issue is the
duration of possession. In the absence of a
stipulation on this point, Article 1197 of the Civil
Code allows the courts to fix the duration or the
period.
and solidarity -- ceased to exist between them.
Article 1197. 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.
VICTOR C. ABAD, CENON C. ABAD, JR., AND
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.
payment, the parties agreed that: (1) an earnest
Article 1197, however, applies to a situation in
which the parties intended a period. Such
qualification cannot be inferred from the facts of
the present case.
To repeat, when Vicente and Rosario invited their
children to use the lots, they did so out of
parental love and a desire for solidarity expected
from Filipino parents. No period was intended by
the parties. Their mere failure to fix the duration
of their agreement does not necessarily justify or
authorize the courts to do so.
Based on respondents reasons for gratuitously
allowing petitioners to use the lots, it can be
safely concluded that the agreement subsisted as
long as the parents and the children mutually
benefited from the arrangement. Effectively, there
is a resolutory condition in such an agreement.
Thus, when a change in the condition existing
between the parties occurs -- like a change of
ownership, necessity, death of either party or
unresolved conflict or animosity -- the agreement
may be deemed terminated.Having been based
on parental love, the agreement would end upon
the dissipation of the affection.
the love and solidarity between the parents and
the children, the purpose of the agreement
ceased. Thus, petitioners no longer had any
right to use the properties became untenable. It
ceased upon their receipt of the notice to vacate.
And because they refused to heed the demand,
ejectment was the proper remedy against them.
Their possession, which was originally lawful,
became unlawful when the reason therefor -- love
ENRIQUE C. ABAD, JOSEPH C. ABAD, MA.
SABINA C. ABAD, ADELAIDA C. ABAD,
CECILIA C. ABAD, VICTORIA C. ABAD,
J U A N I TA C . A B A D , v s . G O L D L O O P
PROPERTIES, INC.
FACTS: On August 29, 1997, respondent
Goldloop Properties Inc., through its President,
Emmanuel R. Zapanta, entered into a Deed of
Conditional Sale3 with petitioners for the sale of
parcels of land they own. For the terms of
money in the amount of P1,000,000 is to be given
by the respondent; (2) first payment of
PHP6,765,660.00 shall be paid by the respondent
25
to the petitioner on August 17, 1997; and (3) The
remaining balance of PHP27,049,640.00 shall be
paid on or before 31 December 1997 and upon
the fulfillment of the following conditions: (a) The
balance of the total contract price shall be paid
by the respondent to the petitioner after
verification of the total land area through a site
relocation survey, to be confirmed by the parties;
and (b) The remaining balance of the total
contract price shall be adjusted, based on the
total land area verified through a site relocation
survey, as per confirmation made by both parties.
return the first payment of the respondent in the
Paragraph 8 of the Deed provided that in the
event that the respondent cannot comply with his
obligation to pay the remaining balance, he shall
forward a formal request for an extension of the
contract, which must not to exceed 30 days (on
or before January 28, 1998), one week before
December 31, 1997. The grant of extension was
said to be afforded on a one-time basis only and
no subsequent extensions will be granted. And in
the event that the respondent fails to comply with
his part of the obligation within the specified
extension period, the earnest money of
PHP1,000,000.00 shall be forfeited in favor of the
SELLER but the first payment check of
PHP6,765,660.00 shall be returned to the BUYER
without any additional charges to the SELLER.
second part of the disputed provision, which
The earnest money was paid by the respondent
on June 30, 1997. In his second letter dated
October 8, 1998, Zapanta informed petitioner
Enrique C. Abad that the negotiations with the
banks had failed due to "the continuing economic
downturn" and consequently, the transaction
would not be consummated. He then requested
that the first payment be returned within five
days, in accordance with paragraph 8 of the
deed.8 Respondent reiterated its demand to
petitioners in a Letter dated November 5, 1998,
however, the petitioners refused to return the
amount. Respondent then filed a Complaint10 for
Collection with Prayer for Writ of Attachment
against petitioners.. On June 10, 2002, the RTC
ruled in favor of respondent.The CA dismissed
the appeal and affirmed in toto the ruling of the
trial court.
different sense. Courts cannot make for the
Petitioners argued inter alia that respondent failed
to satisfy the three suspensive "conditions" under
the disputed provision. Thus, they are not obliged
to return the first payment (and respondent’s
correlative right to demand the performance of
the obligation) never arose. Even assuming that
26
the CA was correct in its holding, the obligation
should nevertheless be deemed one with a
period. Petitioners claim that even if no period
was indicated in the contract it does not follow
that no such period was intended; "such an
obligation was with an indefinite period, or the
parties simply forgot to state in their contract the
definite period for the return of said payment
check."
ISSUE: WON the obligation of the petitioner to
amount of PHP6,765,660.00 is one with a period,
and that the Court should fix a period within
which they should comply with the obligation.
HELD: NO. In the first place, there is no occasion
to apply the first paragraph of Article 119722
since there is no showing that the parties had
intended such a period. Paragraph 8 of the
contract is clear and unambiguous. As the trial
and appellate courts ruled, unlike
theP1,000,000.00 earnest money which would be
forfeited in favor of petitioners in case of
respondent’s failure to deliver the balance of the
total consideration, the first payment would be
returned to respondent. This obligation to return
the first payment can be gleaned from the
states: "but the first payment check of SIX
M I L L I O N S E V E N H U N D R E D S I X T Y- F I V E
THOUSAND SIX HUNDRED SIXTY PESOS
(PHP6,765,660.00) shall be returned to the
BUYER without any additional charges to the
SELLER."
The rule is that where the language of a contract
is plain and unambiguous, its meaning should be
determined without reference to extrinsic facts or
aids. The intention of the parties must be
gathered from that language, and from that
language alone. Stated differently, where the
language of a written contract is clear and
unambiguous, the contract must be taken to
mean that which, on its face, it purports to mean,
unless some good reason can be assigned to
show that the words should be understood in a
parties better or more equitable agreements than
they themselves have been satisfied to make, or
rewrite contracts because they operate harshly or
inequitably as to one of the parties, or alter them
for the benefit of one party and to the detriment
of the other, or by construction, relieve one of the
parties from the terms which he voluntarily
consented to, or impose on him those which he
did not.
PEOPLE’S BANK AND TRUST CO AND
ATLANTIC GULF AND PACIFIC CO VS
DAHICAN LUMBER
FACTS: Atlantic Gulf & Pacific Company of
Manila, a West Virginia corporation licensed to do
business in the Philippines ( ATLANTIC) — sold
and assigned all its rights in the Dahican Lumber
concession to Dahican Lumber Company
( DALCO) — for the total sum of $500,000.00, of
which only the amount of $50,000.00 was paid.
the BANK, commenced foreclosure proceedings
●   DALCO obtained various loans from
the People's Bank & Trust Company (BANK). As
security for the payment, DALCO executed a
deed of mortgage covering five parcels of land
situated in the province of Camarines Norte
together with all the buildings and other
improvements existing thereon and all the
personal properties of the mortgagor located in
its place of business in the municipalities of
Mambulao and Capalonga, Camarines Norte. On
the same date, DALCO executed a second
mortgage on the same properties in favor of
ATLANTIC to secure payment of the unpaid
balance of the sale price of the lumber
concession amounting to the sum of
$450,000.00. 
 thereby lost the benefit to the period.
●   Upon DALCO's and DAMCO's failure
to pay the fifth promissory note upon its maturity,
the BANK gave them up to April 1, 1953 to pay
the overdue promissory note. 
 and as the guaranty was plainly inadequate since
●   After July 13, 1950 - the date of
execution of the mortgages mentioned, DALCO
purchased various machineries, equipment,
spare parts and supplies in addition to, or in
replacement of some of those already owned and
used by it on the date aforesaid. Pursuant to the
provision of the mortgage deeds quoted
theretofore regarding "after acquired properties,"
the BANK requested DALCO to submit complete
lists of said properties but the latter failed to do
so. In connection with these purchases, there
appeared in the books of DALCO as due to
Connell Bros. Company (Philippines) - a domestic
corporation who was acting as the general
purchasing agent of DALCO -the sum of
P452,860.55 and to DAMCO, the sum of
P2,151,678.34. 

●   On December 16, 1952, the
corresponding agreements of rescission of sale
were executed between DALCO & DAMCO and
CONNELL. 

●  On January 13, 1953, the BANK, in its
own behalf and that of ATLANTIC, demanded
that said agreements be cancelled but CONNELL
and DAMCO refused to do so. 

●  On February 12, 1953, ATLANTIC and
in the Court of First Instance of Camarines Norte
against DALCO and DAMCO. 

155 

The defendants claim that the action to foreclose
the mortgages filed on February 12, 1953 was
premature because the promissory note sued
upon did not fall due until April 1 of the same
year.
ISSUE: WON the action to foreclose the
mortgages is premature?


HELD: NO. That Dahican Lumber Co., was
insolvent as of the date of the filing of the
complaint, it should follow that the debtor
x x x unless he gives a guaranty or security for
the debt . . . (Art. 1198, New Civil Code);
the claim of plaintiffs reached in the aggregate,
P1,200,000 excluding interest while the
aggregate price of the "after-acquired" chattels
claimed by Connell under the rescission
contracts was P1,614,675.94, and the Court
understanding that when the law permits the
debtor to enjoy the benefits of the period
notwithstanding that he is insolvent by his giving
a guaranty for the debt, that must mean a new
and efficient guaranty, must concede that the
causes of action for collection of the notes were
not premature.
JOSE CORPUS VS HON. FEDERICO
ALIKPALA, AS PRESIDING JUDGE OF
BRANCH XXII, CFI OF MANILA AND ACME
MANUFACTURING CORP, INC
27
FACTS: In a suit for foreclosure of a real estate
mortgage, filed by Jose Corpus against ACME
Manufacturing Corp., judgment was rendered
upon a compromise, which stipulated inter alia
that the parties mutually agreed that the unpaid
balance of the purchase price of the “Maria
Dolores Bldg” now “Nestor De Castro Bldg”,
including two lots on which said bldg was
erected, was P100,000.00; that the defendant will
pay such balance at any time between the period
from the signing of the agreement until December
15, 1965, subject to the further condition that the
payment would be with interest at the rate of 1%
per month; and failure of defendant to pay the
plaintiff of any such amounts would entitle the
latter to the issuance of a writ of execution of the
entire balance, including interests. Defendant
ACME issued two checks to Corpus, who
accepted such, but later on it was found that the
first check was duly cashed while the second
was dishonored for insufficiency of funds.
Corpus, invoking defendant’s failure to pay on the
specified time moved for the execution for the
entire balance. Defendant ACME opposed such
motion on the ground that, in issuing checks after
the said postdated check, it failed to detect,
through oversight and mathematical error in
computation,that its funds in the bank will run
short to cover the amount needed.
Republic Act 1787, amending Republic Act 1052,
ISSUE: Whether or not petitioner can move for
the execution against ACME for failure to pay on
the specified time
compensation from the date of termination of his
HELD: Yes. As per the compromise agreement,
the advance payment of the interest was plainly
the main consideration for the creditor's assent to
delay payment of the balance of the purchase
price (P100,000.00) up to December 15, 1965,
despite previous default of the defendant-
appellant. On that basis, the dishonor of the
check representing the advance interest resulted
in the forfeiture of the period given to pay the
principal, as prescribed by Article 1198,
paragraph 4 of the Civil Code. Article 1191, is
inapplicable, since in asking for execution, the
appellee was not seeking the resolution of the
compromise but its enforcement. The appellee's
acceptance of the check had suspended his
action to enforce the payment of the balance of
the principal; but it was not a true payment until
the value of the check was realized (Art. 1249,
Civil Code). Since the check was dishonored, the
appellant automatically became in default and
28
lost the right to the period for paying the principal
of P100,000.00.
LIRAG TEXTILE INC VS CA
FACTS: Cristan Alcantara worked in a temporary
capacity with Lirag Textile Mills, Inc. On May 9,
1960, Lirag Textile Mills, Inc. wrote a letter to
Alcantara advising him that, effective May 11,
1960, his temporary designation as Technical
Assistant to the Administrative Officer was made
permanent, receiving a salary of P400.00 and
allowance of P100.00 per month. Alcantara's
tenure of employment, per Lirag Textile Mills,
Inc.'s above letter was to be 'for an indefinite
period, unless sooner terminated by reason of
voluntary resignation or by virtue of a valid cause
or causes. However, on July 22, 1961, Lirag
Textile Mills, Inc. wrote him a letter advising him
that because the company 'has suffered some
serious reverses, both in terms of pecuniary loss
and in market opportunities,' the company was
terminating his services and effecting his
separation from defendant corporation effective
at the close of working hours of August 22, 1961.
Petitioner contends that an employer's liability for
terminating without just cause the employment of
an employee is governed by the provisions of
where an employee, upon whom no such notice
was served in case of termination of employment
without just cause shall be entitled to
employment in an amount equivalent to his
salaries or wages corresponding to the required
period of notice and not back salaries from the
time of dismissal up to final judgment for the
dismissal without cause of respondent Alcantara
as employee of the petitioner Lirag Textile Mills,
Inc as the Appellate Court served.
ISSUE: Whether or not termination of Alcantara
by petitioner is invalid subject to liabilities
HELD: Yes. The fatal defect of petitioner's
argument is that the above quoted provision of
the law does not and cannot apply to an
employer-employee relationship with an express
contract for a period of employment. As could be
clearly seen from the stipulation of facts between
the parties in Civil Case No. 6884 and as a fact
recognized by both the trial court and the
respondent Appellate Court, the contract of
employment was for an indefinite period as it
shall continue without ending, subject to a
resolutory period, unless sooner terminated by
reason of voluntary resignation or by virtue of a
valid cause or causes (the resolutory period).
There is an indefinite period of time for
employment agreed upon by and between
petitioners and the private respondent, subject
only to the resolutory period agreed upon which
may end the indeterminate period of
employment, namely — voluntary resignation on
the part of private respondent Alcantara or
termination of employment at the option of
petitioner Lirag Textile Mills, but for a "valid cause
or causes". It necessarily follows that if the
petitioner-employer Lirag Textile Mills terminates
the employment without a "valid cause or
causes", as it admittedly did, it committed a
breach of the contract of employment executed
by and between the parties. The measure of an
employer's liability provided for in Republic Act
1052, as amended by R. A. 1787, is solely
intended for contracts of employment without a
stipulated period. It cannot possibly apply as a
limitation to an employer's liability in cases where
the employer commits a breach of contract by
violating an indefinite period of employment
expressly agreed upon through his wrongful act
of terminating said employment without any valid
cause or causes, which act may even amount to
bad faith on the employer's part and may be
subject to Art. 1170 of the Civil Code.
years has already been allowed petitioner to avail
CENTRAL PHILIPPINE UNIVERSITY v COURT
OF APPEALS
the obligation when such procedure would be a
FACTS: Sometime in 1939, the late Don Ramon
Lopez, Sr., who was then a member of the Board
of Trustees of the Central Philippine University,
executed a deed of donation in favor of the latter
of a parcel of land, with the condition that, it is for
the establishment and use of a medical college
with all its buildings as part of the curriculum.
That the said college shall not sell, transfer or
convey to any third party nor in any way
encumber said land. The private respondents
who are the heirs of Don Ramon Lopez, Sr., filed
an action for annulment of donation,
reconveyance and damages against CPU alleging
that since 1939 up to the time the action was
filed, the latter had not complied with the
conditions of the donation.
the entire property, less what was defined as the
ISSUE: W/NOT the private respondent heirs may
reconvey the donated property made by the late
Don Ramon Lopez., Sr. against Central Philippine
University.
HELD: YES. Where Don Ramon Lopez donated
the subject parcel of land to petitioner but
imposed an obligation upon the latter to establish
a medical college thereon, the donation must be
for an onerous consideration. Under Art. 1181, on
conditional obligations, the acquisition of rights
as well as the extinguishment or loss of those
already acquired, shall depend upon the
happening of the event which constitutes the
condition. If there was no fulfillment or
compliance with the condition, such as in the
case at bar for the non-establishment of the
medical college, the donation may now be
revoked and all rights which the donee may have
acquired under it shall be deemed lost and
extinguished. When the obligation does not fix a
period but from its nature and circumstances it
can be inferred that a period was intended, the
general rule provided in Art. 1197 applies, which
provides that the courts may fix the duration
thereof because the fulfillment of the obligation
itself cannot be demanded until after the court
has fixed the period for compliance therewith and
such period has arrived. This general rule,
however cannot be applied considering the
different set of circumstances existing in the
instant case. More than a reasonable period of 50
of the opportunity to comply with the condition.
But unfortunately, it failed to do so. Hence, there
is no more need to fix the duration of a term of
mere technicality and formality and would serve
no purpose than to delay or lead to an
unnecessary and expensive multiplication of
suits.
DR DANIEL VASQUEZ VS AYALA CORP
FACTS: On April 23, 1981, spouses Daniel
Vasquez and Ma. Luisa M. Vasquez (hereafter,
Vasquez spouses) entered into a Memorandum of
Agreement (MOA) with Ayala Corporation
(hereafter, AYALA) with AYALA buying from the
Vazquez spouses, all of the latter’s shares of
stock in Conduit Development, Inc. (hereafter,
Conduit). Under the MOA, Ayala was to develop
Retained Area consisting of 18,736 square
meters. This Retained Area was to be retained by
the Vazquez spouses. The area to be developed
29
by Ayala was called the Remaining Area. In this
Remaining Area were 4 lots adjacent to the
Retained Area and Ayala agreed to offer these
lots for sale to the Vazquez spouses at the
prevailing price at the time of purchase. The
relevant provisions of the MOA on this point are:
subject lots, petitioners should have petitioned
5.7. The BUYER hereby commits that it will
develop the Remaining Property into a first class
residential subdivision of the same class as its
New Alabang Subdivision, and that it intends to
complete the first phase under its amended
development plan within three (3) years from the
date of this Agreement. x x x.
be said to have delayed performance of the
After the execution of the MOA, Ayala caused the
suspension of work on Village 1 of the Don
Vicente Project. Ayala then received a letter from
one Maximo Del Rosario of Lancer General
Builder Corporation informing Ayala that he was
claiming the amount of P1,509,558.80 as the
subcontractor of G.P. Construction. Taking the
position that Ayala was obligated to sell the 4 lots
adjacent to the Retained Area within 3 years from
the date of the MOA, the Vasquez spouses sent
several reminder letters of the approaching so-
called deadline. However, no demand after April
23, 1984, was ever made by the Vasquez
spouses for Ayala to sell the 4 lots. On the
contrary, one of the letters signed by their
a u t h o r i z e d a g e n t , E n g r. E d u a rd o Tu r l a ,
categorically stated that they expected
development of Phase 1 to be completed by
February 19, 1990, three years from the
settlement of the legal problems with the
previous contractor.
defendant in his letter of September 14, 1953
By early 1990 Ayala finished the development of
the vicinity of the 4 lots to be offered for sale. The
four lots were then offered to be sold to the
Vasquez spouses at the prevailing price in 1990.
This was rejected by the Vasquez spouses who
wanted to pay at 1984 prices.
placed in the name of plaintiff only 24% of the
ISSUE: Whether or not Ayala Corporation was
not obliged to develop the Remaining Property
within three (3) years from the execution of the
MOA;
said letter Annex A, that "Temporarily, I had to
HELD: Yes. Under Article 1193 of the Civil Code,
obligations for whose fulfillment a day certain has
been fixed shall be demandable only when that
day comes. However, no such day certain was
fixed in the MOA. Petitioners, therefore, cannot
demand performance after the three (3) year
30
period fixed by the MOA for the development of
the first phase of the property since this is not the
same period contemplated for the development
of the subject lots. Since the MOA does not
specify a period for the development of the
the court to fix the period in accordance with
Article 1197of the Civil Code. As no such action
was filed by petitioners, their complaint for
specific performance was premature, the
obligation not being demandable at that point.
Accordingly, Ayala Corporation cannot likewise
obligation.
Even assuming that the MOA imposes an
obligation on Ayala Corporation to develop the
subject lots within three (3) years from date
thereof, Ayala Corporation could still not be held
to have been in delay since no demand was
made by petitioners for the performance of its
obligation.
PAUL SCHENKER v. WILLIAM F. GEMPERLE
FACTS: The amended complaint, in a nutshell,
avers that sometime in the summer of 1953, at
Zurich, Switzerland, plaintiff Paul Schenker and
defendant William F. Gemperle agreed to organize
a Philippine Corporation, later named as "The
Philippine Swiss Trading Co., Inc.", and to divide
the capital stock equally between themselves
and/or their associates. This verbal agreement
was acknowledged and confirmed in writing by
Defendant caused articles of incorporation to be
drafted and sent to plaintiff at Zurich. In a
moment of indiscretion and mistaken trust,
according to him, the plaintiff signed and remitted
to the defendant at Manila, the said articles which
total subscription and the balance of 76% being
in the name of defendant and his relatives.
Explaining the discrepancy between the articles
and their verbal covenant, the defendant stated in
place in my name 75% of the shares because
there is a local law which provides that when one
intends to make contracts with the government,
75% of the subscribed capital has to be Filipino
as otherwise the Flag Law will be applied." In the
same letter, however, defendant assured the
plaintiff that he would give the latter "exactly the
same shareholding as I have."
the plaintiff "prays . . . such other and further
The plaintiff paid to the defendant the sum of
P7,000.00 for his subscription. In view of the
consistent refusals of the defendant to live up to
their agreement, notwithstanding repeated
demands, the plaintiff filed the present complaint,
praying that defendant be condemned.
OF RUFINO DULAY,SR.
ISSUES: 1) Whether or not the obligation in
question is pure. 2) Whether or not there is a
cause of action as to the obligation without a
period.
square meters. On August 3, 1981, they executed
HELD: 1) No. There is no gainsaying the fact that
the obligation in question, is pure, because "its
performance does not depend upon a future or
uncertain event or upon a past event unknown to
the parties" and as such, "is demandable at
once" (Art. 1179 New Civil Code). It was so
understood and treated by the defendant-
appellee himself. The immediate payment by the
plaintiff-appellant of his subscriptions, after the
organization of the corporation, can only mean
that the obligation should be immediately fulfilled,
giving the defendant only such time as might
reasonably be necessary for its actual fulfilment.
The contract was to organize the corporation and
to divide equally, after its organization, its capital
stock.
recognizing the right of the donors to redeem the
2) No. The ultimate facts to be alleged in a
complaint to properly and adequately plead the
right of action granted by Article 1197 of the Civil
Code, which relates to the fixing by the court of
the duration of the period, are: (1) facts showing
that a contract was entered into, imposing on one
of the parties an obligation or obligations in favor
of the other; and (2) facts showing that the
performance of the obligation was left to the will
of the obligor or clearly showing or from which an
inference may reasonably be drawn, that a period
was intended by the parties.
that is, the construction of a building to house the
What determines the nature and character of an
action is not the prayer but the essential basic
allegations of fact set forth in the pertinent
pleading. A judgment may grant the relief to
which a party in whose favor it is entered is
entitled, even if the party has not demanded such
relief in his pleadings.
The usual prayer in a complaint which states that
relief as the Court may appear just and
equitable," is broad and comprehensive enough
to justify the extension of a remedy different from
or together with the specific remedy sought.
THE SECRETARY OF EDUCATION vs. HEIRS
FACTS: Spouses Rufino Dulay, Sr. and Ignacia
Vicente owned of a parcel of land located in
Rizal, Santiago, Isabela, with an area of 29,002
a deed of donation over a 10,000-square-meter
portion of the said property to the Department of
Education, Culture and Sports (DECS) and a TCT
was issued represented by Laurencio C. Ramel,
the Superintendent of Schools of Isabela, subject
to the condition of it being used for school
purposes. However, the property was not used
for school purposes and remained idle, and in
1988, the DECS constructed a the Rizal National
High School building 2 kilometers away from the
donated land.
After 13 years of none use, the Dulays requested
for the said property to be returned in August of
1994. They were issued Resolution No. 39 by the
Barangay Council of Rizal, Santiago City,
subject property and resolved that the donated
land was no longer needed. However, when
Rufino Dulay Sr. passed away in Decmebr of that
same year, his heir who requested the approval of
a resolution allowing them, his heirs, to redeem
the donated property, said request was denied by
reason of them not being a party to the deed of
donation.
The heirs alleged that since there was a condition
in the deed of donation for the DECS, as donee,
utilize the subject property for school purposes,
Rizal National High School and the DECS did not
fulfill the condition and so the land remained idle
up to the present. The DECS interposed claiming
that the donated land was being used as a
technology and home economics laboratory, as
well as other contentions which were opposed by
the heirs.
The Court ruled in favor of the Dulay’s and the
donation was revoked for the reason that the
31
DECS failed to comply with the condition in the purposes specified in the deed of donation and
donation, to use the property for school there was no actual use of the property. Hence,
purposes; that the donation was onerous said property shall revert back to the respondents
considering that the donee was burdened with and the petition is denied.

the obligation to utilize the land for school

purposes; and that a deed of donation is
considered a written contract and is governed by
Article 1144 of the New Civil Code, which
provides for a 10-year prescriptive period from
the time the cause of action accrues which the
DECS failed to comply with.

Hence this petition for review on certiotrari.

ISSUES: Whether or not the donee failed to

comply with the condition imposed in the deed of
donation. 


Whether or not the right to seek revocation of

d o n a t i o n h a d n o t y e t p re s c r i b e d w h e n
respondents filed their complaint. 


HELD: The contention of the petitioners that they

fulfilled the condition has no merit. Although the
condition in the deed of donation did not
specifically limit the use for school purposes to
exclusively mean the construction of a school
building, there was still no evidence to prove that
said land was used for other school purposes
such as a technology and home economics
laboratory. In fact, upon the trial court’s
inspection, said land was barren. Thus,
petitioners failed to comply with the condition
imposed by the deed of donation.

As to the second issue, the court ruled 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. Indeed, from the nature and
circumstances of the condition of the subject
donation, it can be inferred that a period was
contemplated by the donors. The donors could
not have intended their property to remain idle for
a very long period of time when, in fact, they
specifically obliged the defendant-appellants to
utilize the land donated for school purposes and
thus put it in good use.” And that in previous
cases, “the expiration of a reasonable
opportunity for the donee to fulfill what has been
charged upon it by the donor.”

In the case at bar, it had been 16 years since the

execution of the deed of donation and the Court
ruled that DECS failed to use the property for the

32
ALTERNATIVE AND FACULTATIVE
OBLIGATIONS
AGONCILLO VS JAVIER
FACTS: In 1897, one Anastasio Cruz incurred a
P2,730.50 loan from Marcela Mariño, wife of
Felipe Agoncillo. Cruz however died. Later, in
February 1904, the heirs of Cruz, namely: Jose
Alano, Anastasio Alano (for his children), and
Florencio Alano executed a document whereby
they promised to pay Marcela the said debt. The
debt is scheduled to mature on February 27,
1905. In 1908, Anastasio Alano paid P200.00
pesos to Marcela. The payment was received as
“payment made on the account of the debt o
Anastacio Alano”. Apparently, other than the
P200.00 payment from Anastasio Alano, no other
payment was received from the Alanos. In 1912,
Anastasio Alano died. Crisanto Javier was named
as the administrator of Anastasio Alano’s estate.
In March 1916, Agoncillo and Marcela filed a civil
case against the Javier as administrator of
Anastasio Alano’s estate. Florencio and Jose
were impleaded. In the main, Javier et al invoked
the defense of prescription; that Agoncillo’s claim
is barred by the statute of limitations; that
Agoncillo has ten years from the date of maturity
(February 1905) to collect hence his collection
effort in 1916 is already way beyond the
prescriptive period. Agoncillo averred that the
payment of P200.00 by Anastasio Alano in 1908
has tolled the running of the prescriptive period
hence his civil action in 1916 is still within the 10
year prescriptive period.
ordering the defendant company to pay P45,000
ISSUE: Whether or not Agoncillo’s claim is barred
by the statute of limitations.
house was inequitable and unjust for the said
HELD: Yes. One mode of extinguishing an
obligation is by prescription. It cannot be said
that the payment made by Anastasio Alano in
1908 suspended the running of the period of
prescription. For one, it is doubtful that he was
ever personally liable to the document executed
in February 1904 because he signed the same on
behalf of his children (Leonina, Anastacio,
Leocadio) – who were not made parties to this
case. At any rate, assuming arguendo that the it
did toll the running of the statute of limitations, it
only suspended it as regards to him alone and it
did not bind his brothers (Jose and Florencio).
This is because there was no showing that
Anastasio Alano made the P200.00 payment with
the authority of Florencio and Jose or for the
benefit of the two. Further, the payment was
received by Marcela as “payment made on the
account of the debt o Anastacio Alano”.
ONG GUAN CAN VS CENTURY INSURANCE CO
FACTS: The house, along with the goods and
merchandise therein, owned by plaintiff was
insured against fire by defendant insurance
company for the amount of P45,000 (P30,000-
house and P15,000-goods). While the insurance
agreement was in force, the house was burnt on
February 28, 1923. Under clause 14 of the
conditions of the policies:
“[t]he Company may at its option reinstate or
replace the property damaged or destroyed, or
any part thereof, instead of paying the amount of
the loss of damages, or may join with any other
Company or insurers in so doing but the
Company shall not be bound to reinstate exactly
or completely, but only as circumstances permit
and in reasonable sufficient manner, and in no
case shall the Company be bound to expend
more in reinstatement that it would have cost to
reinstate such property as it was at the time of
the occurrence of such loss or damage, nor more
than the sum insured by the Company thereon.”
The plaintiff sought the payment of insurance
money, whilst defendant preferred to rebuild the
structure. The Court of First Instance of Iloilo
rendered a judgment in favor of the plaintiff,
with legal interest from February 28, 1923 until
payment. It held that the election of rebuilding the
house is of lesser quality (smaller and made out
of materials of lower kind) than that of the
original, there being no additional indemnity for
the difference in size.
ISSUE: Whether or not defendant may rebuild the
building instead of paying the insured amount
HELD: No, the Supreme Court affirmed the
decision of the lower court and ordered the
payment of insurance money. It added that the
choice of rebuilding the house is unjust also
because it does not compensate for the insured
value of the merchandise contained in the house
destroyed.
33
Additionally, the Court noted that under Article
1133 of the (old) Civil Code, there must be a
notice of choice to the creditor to allow the
creditor to either accept or impugn the election
made. The Court noted that the plaintiff did not
give his assent to the proposition of rebuilding
the house precisely because it would be smaller
than the original.
largely on the credibility of witnesses unless
CLARA TAMBUNTING DE LEGARDA ET AL VS
VICTORIA DESPERATS MIALHE


FACTS: On June 3, 1944, plaintiffs filed a
complaint against the original defendant William
J. B. Burke, alleging defendant's unjustified
refusal to accept payment in discharge of a
mortgage indebtedness in his favor, and praying
that the latter be ordered (1) to receive the sum of
P75,920.83 deposited by plaintiff Clara
Tambunting de Legarda, the mortgagor, on the
same date with the clerk of this court in payment
of the mortgage indebtedness of said plaintiff to
defendant herein, (2) to execute the
corresponding deed of release of mortgage, and
(3) to pay damages in the sum of P1,000. The gist
of defendant's answer dated the 19th of July,
1944, is that plaintiffs have no cause of action for
the reason that at the instance of plaintiff Clara
Tambunting de Legarda an agreement was had
on May 26, 1944, whereunder defendant
condoned the interests due and to become due
on the mortgage indebtedness till the termination
of the war, in consideration of the undertaking of
said plaintiff with the consent of her husband
Vicente L. Legarda, the other plaintiff to pay her
obligation to defendant upon such termination of
the war; and that the war then had not yet
terminated. Decision was rendered ordering
defendant to accept the sum of P75,920.83
deposited by plaintiff Clara Tambunting de
Legarda in the office of the clerk of court; to
execute forthwith a deed of release of mortgage
covering the property in question; to pay plaintiff
the sum of P120.40 representing the cost of the
certification of the check deposited in the court
and consignation, together with the clerk's
commission for the deposit of the money in court
and the costs of the suit. Defendant, on or about
January 14, 1945, presented a motion to set
aside the foregoing decision and for a new trial.
Before this court could act on this motion,
liberation came.
containing the following pertinent provisions:
34
ISSUE: Whether said agreement was in the sense
that the defendant condoned the interests’ then
due and consignation relieved her of obligation to
the defendant.
HELD: The Court ruled that as a rule, the
determination of a question of fact depends
some documentary evidence is available, which
clearly substantiates the issue and whose
genuineness and probative value is not disputed.
In this case, most of the evidence presented is
testimonial, with only some corroborating letters,
and on the basis of this evidence the
preponderance in the Court’s opinion militates in
favor of the defendant. The Court stated that,
even if the claim of the plaintiff that Clara
Tambunting de Legarda did not enter into any
agreement with the defendant William J. B. Burke
regarding payment of her obligation, subject to
condonation of interest, after the termination of
the war, is correct, and even if the tender of
payment by Clara Tambunting of her obligation
was made in Philippine currency in pursuance of
the mortgage contract, yet the consignation
made in Court cannot have any legal effect for
the simple reason that it was made by means of a
certified check, which is not a legal tender within
the meaning of the law. It is obvious; therefore,
that such consignation did not have the effect of
relieving her from her obligation to the defendant.
MARTINA QUIZANA VS GAUDENCIO
REDUGERIO
FACTS: This is an appeal to this Court from a
decision rendered by the Court of First Instance
of Marinduque, wherein the defendants-
appellants are ordered to pay the plaintiff-
appellee the sum of P550, with interest from the
time of the filing of the complaint although they
have already offered to pledge the land specified
in the agreement and transfer possession thereof
to the plaintiff-appellee, but that the latter refused
said offer.
The action was originally instituted in the justice
of the peace court of Sta. Cruz, Marinduque, and
the same is based on an actionable document
attached to the complaint, signed by the
defendants-appellants on October 4, 1948, and
“Na alang-alang sa aming mahigpit na
pangangailangan ay kaming magasawa ay
lumapit kay Ginang Martina Quizana, balo, at
naninirahan sa Hupi, Sta. Cruz, Marinduque, at
kami ay umutang sa kanya ng halagang Limang
Daan at Limang Pung Piso (P550.00), Salaping
umiiral dito sa Filipinas na aming tinanggap na
husto at walang kulang sa kanya sa condicion na
ang halagang aming inutang ay ibabalik o
babayaran namin sa kanya sa katapusan ng
buwan ng Enero, taong 1949.
Pinagkasunduan din naming magasawa sa
sakaling hindi kami makabayad sa taning na
panahon ay aming ipifrenda o isasangla sa kanya
ang isa naming palagay na niogan sa lugar nang
Cororocho, barrio ng Balogo, municipio ng Santa
Cruz, lalawigang Marinduque, Kapuluang
Filipinas at ito ay nalilibot ng mga kahanganang
sumusunod:
notwithstanding the absence of any legal
Sa Norte, Da
provision at the time it was entered into, as the
lmacio Constantino; sa este, Catalina Reforma;
sa sur, Dionisio Ariola; at sa Oeste, Reodoro
Ricamora, no natatala sa gobierno sa ilalim ng
Declaracion No. ______ na nasa pangalan ko,
Josefa Postrado.”
The defendants-appellants admit the execution of
the document, but claim, as special defense, that
since the 31st of January, 1949, they offered to
pledge the land specified in the agreement and
transfer possession thereof to the plaintiff-
appellee, but that the latter refused said offer. The
trial court evidently ignored the second part of
defendants-appellants' written obligation, and
enforced only its last first part, which fixed
payment on January 31, 1949 and ordered
defendants- appellants the payment of P550.00
notwithstanding their offer to pledge the land
specified in the document. The plaintiff-appellee,
for his part, claims that this part of the written
obligation is not binding upon him for the reason
that he did not sign the agreement, and that even
if it were so, the defendants-appellants did not
execute the document as agreed upon, but,
according to their answer, demanded the plaintiff-
appellee to do so.
of 1,487,766.68 as partial payment, with the
ISSUE: Whether the second part of the written
obligation, in which the obligors agreed and
promised to deliver a mortgage over the parcel of
land, upon their failure to pay the debt on said
date, is valid and binding and effective upon the
plaintiff-appellee, the creditor.
certain Eric Sy executed a memorandum of
HELD: Yes. The second part of the written
obligation, in which the obligors agreed and
promised to deliver a mortgage over the parcel of
land, upon their failure to pay the debt on said
date, is valid and binding and effective upon the
plaintiff-appellee, the creditor. The court held that
the second part of the obligation in question is
what is known in law as a facultative obligation,
defined in article 1206 of Civil Code of the
Philippines, which provides:
“ART. 1206. When only one prestation has been
agreed upon, but the obligor may render another
in substitution, the obligation is called
facultative.”
There is nothing in the agreement which would
argue against its enforcement. It is not contrary to
law or public morals or public policy, and
parties had freely and voluntarily entered into it,
there is no ground or reason why it should not be
given effect. It is a new right which should be
declared effective at once.
ARCO PULP AND PAPER CO. INC. vs. DAN
LIM
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
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
35
agreement where Arco Pulp and Paper bound
themselves to deliver their finished products to
Megapack Container Corporation, owned by Eric
S y, f o r h i s a c c o u n t . A c c o rd i n g t o t h e
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:
and Paper, as the debtor, had the option to either
Per meeting held at ARCO, April 18, 2007, it has
According to the factual findings of the trial court
and the appellate court, the original contract
between the parties was for respondent to deliver
scrap papers worth P7,220,968.31 to petitioner
Arco Pulp and Paper. The payment for this
delivery became petitioner Arco Pulp and Paper’s
obligation. By agreement, petitioner Arco Pulp
(1) pay the price or(2) deliver the finished
products of equivalent value to respondent.

been mutually agreed between Mrs. Candida A.

Santos and Mr. Eric Sy that ARCO will deliver 600 The appellate court, therefore, correctly identified
tons Test Liner 150/175 GSM, full width 76 inches the obligation between the parties as an
at the price of P18.50 per kg. to Megapack alternative obligation, whereby petitioner Arco
Container for Mr. Eric Sy’s account.
Pulp and Paper, after receiving the raw materials
from respondent, would either pay him the price
It has been agreed further that the Local OCC of the raw materials or, in the alternative, deliver
materials to be used for the production of the to him the finished products of equivalent value.

above Test Liners will be supplied by Quality

Paper & Plastic Products Ent., total of 600 Metric When petitioner Arco Pulp and Paper tendered a
Tons at P6.50 per kg. (price subject to change check to respondent in partial payment for the
per advance notice). Quantity of Local OCC scrap papers, they exercised their option to pay
delivery will be based on the quantity of Test the price. Respondent’s receipt of the check and
Liner delivered to Megapack Container Corp. his subsequent act of depositing it constituted
based on the above production schedule.
his notice of petitioner Arco Pulp and Paper’s
option to pay.

On May 5, 2007, Dan T.Lim sent a letter to Arco

Pulp and Paper demanding payment of the This choice was also shown by the terms of the
amount of 7,220,968.31, but no payment was memorandum of agreement, which was executed
made to him.
on the same day. The memorandum declared in
clear terms that the delivery of petitioner Arco
ISSUE: Whether or not the obligation between Pulp and Paper’s finished products would be to a
the parties was an alternative obligation?
third person, thereby extinguishing the option to
deliver the finished products of equivalent value
HELD: The Supreme Court ruled in the to respondent.

affirmative. In an alternative obligation, there is

more than one object, and the fulfillment of one is
sufficient, determined by the choice of the debtor
who generally has the right of election. The right
of election is extinguished when the party who
may exercise that option categorically and
unequivocally makes his or her choice known.

The choice of the debtor must also be

communicated to the creditor who must receive
notice of it since: The object of this notice is to
give the creditor opportunity to express his
consent, or to impugn the election made by the
debtor, and only after said notice shall the
election take legal effect when consented by the
creditor, or if impugned by the latter, when
declared proper by a competent court.

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JOINT AND SOLIDARY OBLIGATIONS
REPUBLIC GLASS CORP VS QUA
FACTS: Republic Glass, Gervel and Qua were
shareholders of Ladtek. Ladtek obtained loans
from Metrobank and Private Dev’t Corp of the
Phils (PDCP). They entered into agreement that in
case of default in payment of Ladtek loans, the
parties will reimburse each other the
proportionate shares of any sum that any might
pay to creditors. Ladtek defaulted on its
obligation to Metrobank and PDCP. Republic
Glass Corp and Gervel Corp payed Metrobank
7M (not full payment of the amount due).
Republic Glass and Gervel demanded to Qua
reimbursement of the total amount that RGC and
GC paid to Metrobank. Qua refused to pay. Qua
filed a complaint for injunction with damages with
application for TRO
parties, under Clause 2 (c) of the SPA, allegedly
ISSUES: W/N payment of the entire obligation is
an essential condition for reimbursement? 
 P117,020,846.84. This amount was to be
W/N there was novation of agreements as held
by CA (that there was implied novation) 
 payment to APT, the petitioner in the pending
HELD: Contrary to RGC and GC’s claim,
payment of any amount will not automatically
result in reimbursement. If a solidary debtor pays
t h e o b l i g a t i o n i n p a r t , h e c a n re c o v e r
reimbursement from the co-debtors only in so far
his payment exceeded his share in the obligation.
This is precisely because if solidary debtor pays
an amount equal to his proportionate share in the
obligation, then he in effects pay only what is due
to him. If the debtor pays less than his share in
the obligation, he cannot demand reimbursement
because his payment is less than his actual debt. 
 prayed, among others, that petitioners be
Since they only made partial payments, RGC and
GC should clearly and convincingly show that
their payments to Metro bank and PDCP
exceeded their proportionate shares in the
obligations before they can seek reimbursement
from Qua. RGC and GC failed to do this, thus
they cannot seek reimbursement from Qua 
 which was filed earlier before the International
There was no novation of the agreements. The
parties did not constitute new obligations to
substitute the agreements. The terms and
conditions of the agreement remains the same.
Novation extinguishes obligation by 1) changing
the object or principal conditions; 2) substituting
the person of the debtor and 3) subrogating a
46
third person in the rights of the creditor 

L A FA R G E C E M E N T P H I L S I N C V S
CONTINENTAL CEMENT CORP

FACTS: Through the Letter of Intent (LOI)
executed by both parties on August 11, 1998,
Petitioner Lafarge Cement Philippines, Inc.
(Lafarge) -- on behalf of its affiliates and other
qualified entities, including Petitioner Luzon
Continental Land Corporation (LCLC) -- agreed to
purchase the cement business of Respondent
Continental Cement Corporation (CCC). On
October 21, 1998, both parties entered into a
Sale and Purchase Agreement (SPA). At the time
of the foregoing transactions, petitioners were
well aware that CCC had a case pending with the
Supreme Court. In anticipation of the liability that
the High Tribunal might adjudge against CCC, the
agreed to retain from the purchase price a portion
of the contract price in the amount of
deposited in an interest-bearing account in the
First National City Bank of New York (Citibank) for
case. However, petitioners allegedly refused to
apply the sum to the payment to APT, despite the
subsequent finality of the Decision in the pending
case in favor of the latter and the repeated
instructions of Respondent CCC. Fearful that
nonpayment to APT would result in the
foreclosure, not just of its properties covered by
the SPA with Lafarge but of several other
properties as well, CCC filed before the Regional
Trial Court of Quezon City on June 20, 2000, a
Complaint with Application for Preliminary
Attachment against petitioners. The Complaint
directed to pay the APT Retained Amount
referred to in Clause 2 (c) of the SPA. Petitioners
moved to dismiss the Complaint on the ground
that it violated the prohibition on forum-shopping.
Respondent CCC filed another action with the
same claim which involved the same parties and
Chamber of Commerce. The Trial Court denied
the Motion to Dismiss. Petitioners elevated the
matter before the Court of Appeals. To avoid
being in default and without prejudice to the
outcome of their appeal, petitioners prayed -- by
way of compulsory counterclaims against
Respondent CCC, its majority stockholder and
president Gregory T. Lim, and its corporate
secretary Anthony A. Mariano -- for the sums of
(a) P2,700,000 each as actual damages, (b)
P100,000,000 each as exemplary damages, (c)
P100,000,000 each as moral damages, and (d)
P5,000,000 each as attorneys fees plus costs of
suit.
subsequent action by the creditor against the
Petitioners alleged that CCC, through Lim and
Mariano, had filed the baseless Complaint and
procured the Writ of Attachment in bad faith.
Petitioners prayed that both Lim and Mariano be
held jointly and solidarily liable with Respondent
CCC. On behalf of Lim and Mariano who had yet
to file any responsive pleading, CCC moved to
dismiss petitioners compulsory counterclaims on
grounds that essentially constituted the very
issues for resolution in the instant Petition.
Moreover, using the compelling test of
RTC ruled that the counterclaims of the
petitioners against Lim and Mariano were not
compulsory, that the ruling in Sapugay was not
applicable and that the petitioner’s answer with
counterclaims violated the procedural rules on
joinder of actions.
counterclaim for damages is compulsory, it must
ISSUES: 1. Whether or not the petitioner’s
counterclaims were not compulsory.
 the main action but in a different proceeding, it
2. Whether or not the petitioner’s answer with
counterclaims violated the procedural rules on
if filed subsequently, it would meet the same fate
joinder of actions.
on the ground of res judicata.
HELD: 1. No, petitioner’s counterclaims were
compulsory. The allegations show that petitioners
counterclaims for damages were the result of
respondents (Lim and Mariano) act of filing the
Complaint and securing the Writ of Attachment in
bad faith. Tiu Po v. Bautista involved the issue of
whether the counterclaim that sought moral,
actual and exemplary damages and attorneys
fees against respondents on account of their
malicious and unfounded complaint was
compulsory. In that case, we held as follows:
Procedure, which we quote:
Petitioners counterclaim for damages fulfills the
necessary requisites of a compulsory
counterclaim. They are damages claimed to have
been suffered by petitioners as a consequence of
the action filed against them. They have to be
pleaded in the same action; otherwise, petitioners
would be precluded by the judgment from
invoking the same in an independent action. The
pronouncement in Papa vs. Banaag (17 SCRA
1081) (1966) is in point:
persons in whom or against whom any right to
Compensatory, moral and exemplary damages,
allegedly suffered by the creditor in consequence
of the debtors action, are also compulsory
counterclaim barred by the dismissal of the
debtors action. They cannot be claimed in a
debtor.
Aside from the fact that petitioners counterclaim
for damages cannot be the subject of an
independent action, it is the same evidence that
sustains petitioners counterclaim that will refute
private respondents own claim for damages. This
is an additional factor that characterizes
petitioners counterclaim as compulsory.
compulsoriness, we find that, clearly, the
recovery of petitioners counterclaims is
contingent upon the case filed by respondents;
thus, conducting separate trials thereon will result
in a substantial duplication of the time and effort
of the court and the parties. Since the
be set up in the same action; otherwise, it would
be barred forever. If it is filed concurrently with
would be abated on the ground of litis pendentia;
2. No, procedural rules on joinder of actions were
not violated. Respondent CCC contends that
petitioners counterclaims violated the rule on
joinder of causes of action. It argues that while
the original Complaint was a suit for specific
performance based on a contract, the
counterclaim for damages was based on the
tortuous acts of respondents. In its Motion to
Dismiss, CCC cites Section 5 of Rule 2 and
Section 6 of Rule 3 of the Rules of Civil
Section 5. Joinder of causes of action. A party
may in one pleading assert, in the alternative or
otherwise, as many causes of action as he may
have against an opposing party, subject to the
following conditions:
(a) The party joining the causes of action shall
comply with the rules on joinder of parties; x x x
Section 6. Permissive joinder of parties. All
relief in respect to or arising out of the same
47
transaction or series of transactions is alleged to
exist whether jointly, severally, or in the
alternative, may, except as otherwise provided in
these Rules, join as plaintiffs or be joined as
defendants in one complaint, where any question
of law or fact common to all such plaintiffs or to
all such defendants may arise in the action; but
the court may make such orders as may be just
to prevent any plaintiff or defendant from being
embarrassed or put to expense in connection
with any proceedings in which he may have no
interest.
interest thereon, he then filed a case against
The foregoing procedural rules are founded on
practicality and convenience. They are meant to
discourage duplicity and multiplicity of suits. This
objective is negated by insisting -- as the court a
quo has done -- that the compulsory
counterclaim for damages be dismissed, only to
have it possibly re-filed in a separate proceeding.
More important, as we have stated earlier,
Respondents Lim and Mariano are real parties in
interest to the compulsory counterclaim; it is
imperative that they be joined therein. Section 7
of Rule 3 provides:
respondent Court of Appeals. Petitioner similarly
Compulsory joinder of indispensable parties.
Parties in interest without whom no final
determination can be had of an action shall be
joined either as plaintiffs or defendants.
corporate entities. Petitioner asks us to pierce
Moreover, in joining Lim and Mariano in the
compulsory counterclaim, petitioners are being
consistent with the solidary nature of the liability
alleged therein.
Board of Directors of all three (3) companies.
SESBRENO VS CA
FACTS: Raul Sesbreño made a money market
placement with the Philippine Underwriters
Finance Corporation ("Philfinance"). The
placement, with a term of thirty-two (32) days,
would mature on 13 March 1981. In turn,
Philfinance issued documents which included
posted checks, a Certificate of Confirmation of
Sale with a Delta Motor Corporation Promissory
Note (DMC PN), and a Delivery Receipt indicating
that the DMC PN was in custodianship of
Pilipinas Bank.
The DMC PN had a face value of P2.3m with
Philfinance as "payee" and Delta as "maker" and
that on face of the PN was stamed "NON
NEGOTIABLE".
mortgage over a Willy’s jeep owned by him. And
48
The checks were dishonored for having
insufficient funds. This prompted the petitioner to
hand a demand letter over to Pilipinas Bank
asking for the physical delivery of the promissory
note. Pilipinas did not deliver the Note to
petitioner. Petitioner also made a written demand
upon Delta for the partial satisfaction of DMC PN.
Delta denied any liability as the promissory note
was not intended to be negotiated.
As petitioner failed to collect his investment and
Delta and Pilipinas. He contends that Phil finance
and private respondents Delta and Pilipinas
should be treated as one corporate entity alleging
that all three companies have a common Director.
ISSUE: Whether or not Delta and Pilipinas can be
held liable for the liability of Philfinance to
petitioner.
RULING: No. In the first place, as already noted,
jurisdiction over the person of Philfinance was
never acquired either by the trial court or by the
did not seek to implead Philfinance in the Petition
before us. Secondly, it is not disputed that
Philfinance and private respondents Delta and
Pilipinas have been organized as separate
their separate corporate entities, but has been
able only to cite the presence of a common
Director — Mr. Ricardo Silverio, Sr., sitting on the
Petitioner has neither alleged nor proved that one
or another of the three (3) concededly related
companies used the other two (2) as mere alter
egos or that the corporate affairs of the other two
(2) were administered and managed for the
benefit of one. There is simply not enough
evidence of record to justify disregarding the
separate corporate personalities of delta and
Pilipinas and to hold them liable for any assumed
or undetermined liability of Philfinance to
petitioner.
CERNA VS CA
FACTS: Felerino Delgado (Delgado) and Conrad
Leviste (Leviste) entered into a loan agreement
which was evidenced by a promissory note. On
the same date, Delgado executed a chattel
acting as the attorney-in-fact, Manolo P. Cerna,
he also mortgage a “Taunus’ car owned by the
latter. The period lapsed without Delgado paying
the loan. This prompted Leviste to a file a
collection suit against Delgado and Cerna as
solidary debtors. Cerna filed a Motion to Dismiss
on the ground of lack of cause of action against
Cerna and the death of Delgado. Anent the latter,
Cerna claimed that the claim should be filed in
the proceedings for the settlement of Delgado’s
estate as the action did not survive Delgado’s
death. Moreover, he also stated that since Leviste
already opted to collect on the note, he could no
longer foreclose the mortgage.
the loan matured, petitioner and the Azarraga
ISSUE: 1.) Whether or not a third party, who is
not a debtor under the note but mortgaged his
property to secure the payment of the loan of
another is solidarily liable with the principal
debtor? 2.) Whether or not a mortgagee who
opted to collect may still foreclose the mortgage?
solidary liability under the promissory note,
HELD: 1.) A chattel mortgage may be “an
accessory contract” to a contract of loan, but
that fact alone does not make a third-party
mortgagor solidarily bound with the principal
debtor in fulfilling the principal obligation that is,
to pay the loan. The signatory to the principal
contract loan remains to be primarily bound. It is
only upon the default of the latter that the creditor
may have been recourse on the mortgagors by
foreclosing the mortgaged properties in lieu of an
action for the recovery of the amount of the loan.
And the liability of the third-party mortgagors
extends only to the property mortgaged.
loan, is such undertaking of the former deemed
2.) Should there be any deficiency, the creditors
has recourse on the principal debtor. The Special
Power of Attorney did not make petitioner a
mortgagor. All it did was to authorized Delgado to
mortgage certain properties belonging to
petitioner. Hence, Leviste, having chosen to file
the collection suit, could not now run after
petitioner for the satisfaction of the debt. This is
even more true in this case because of the death
of the principal debtor, Delgado. Leviste was
pursuing a money claim against a deceased
person. There is also no legal provision nor
jurisprudence in our jurisdiction which makes a
third person who secures the fulfillment of
another’s obligation by mortgaging his own
property to be solidarily bound with the principal
obligor.
same obligation as that of his principal, and the
ESTRELLA PALMARES VS CA
FACTS: Pursuant to a promissory note dated
March 13, 1990, private respondent M.B. Lending
Corporation extended a loan to the spouses
Osmeña and Merlyn Azarraga, together with
petitioner Estrella Palmares, in the amount of
P30,000.00 payable on or before May 12, 1990,
with compounded interest at the rate of 6% per
annum to be computed every 30 days from the
date thereof. On four occasions after the
execution of the promissory note and even after
spouses were able to pay a total of P16,300.00,
thereby leaving a balance of P13,700.00. No
payments were made after the last payment on
September 26, 1991.
Consequently, on the basis of petitioner's
respondent-corporation filed a complaint against
petitioner Palmares, excluding the principal
debtors due to insolvency of the latter.
ISSUE: Whether or not the respondent
corporation can directly compelled and sued
Palmares to pay the liabilities under the loan
contract?
HELD: YES. Where a party signs a promissory
note as a co-maker and binds herself to be jointly
and severally liable with the principal debtor in
case the latter defaults in the payment of the
to be that of a surety as an insurer of the debt.
The petitioner's undertaking as co-maker
immediately follows the terms and conditions
stipulated between respondent-corporation, as
creditor, and the principal obligors. A surety is
usually bound with his principal by the same
instrument, executed at the same time and upon
the same consideration; he is an original debtor,
and his liability is immediate and direct. Thus, it
has been held that where a written agreement on
the same sheet of paper with and immediately
following the principal contract between the
buyer and seller is executed simultaneously
therewith, providing that the signers of the
agreement agreed to the terms of the principal
contract, the signers were "sureties" jointly liable
with the buyer. A surety usually enters into the
signatures of both usually appear upon the same
instrument, and the same consideration usually
49
supports the obligation for both the principal and
the surety. The underlying principle therefor is
that a suretyship is a direct contract to pay the
debt of another. A surety is liable as much as his
principal is liable, and absolutely liable as soon as
default is made, without any demand upon the
principal whatsoever or any notice of default. As
an original promisor and debtor from the
beginning, he is held ordinarily to know every
default of his principal.
national taxes (except import taxes and duties),
A creditor's right to proceed against the surety
exists independently of his right to proceed
against the principal. Under Article 1216 of the
Civil Code, the creditor may proceed against any
one of the solidary debtors or some or all of them
simultaneously. The rule, therefore, is that if the
obligation is joint and several, the creditor has the
right to proceed even against the surety alone.
Since, generally, it is not necessary for the
creditor to proceed against a principal in order to
hold the surety liable, where, by the terms of the
contract, the obligation of the surety is the same
that of the principal, then soon as the principal is
in default, the surety is likewise in default, and
may be sued immediately and before any
proceedings are had against the principal.
consumer items tax and duty-free.
The neglect of the creditor to sue the principal at
the time the debt falls due does not discharge the
surety, even if such delay continues until the
principal becomes insolvent. And, in the absence
of proof of resultant injury, a surety is not
discharged by the creditor's mere statement that
the creditor will not look to the surety, or that he
need not trouble himself. The consequences of
the delay, such as the subsequent insolvency of
the principal, or the fact that the remedies against
the principal may be lost by lapse of time, are
immaterial.
The court a quo also explained that the intention
TIU VS CA
 SSEZ to the "secured area" and not to include
FACTS: On March 13, 1992, Congress, with the
approval of the President, passed into law RA
7227. This was for the conversion of former
military bases into industrial and commercial
uses. Subic was one of these areas. It was made
into a special economic zone.
ISSUE: Whether the provisions of Executive
In the zone, there were no exchange controls.
Such were liberalized. There was also tax
incentives and duty free importation policies
under this law.
equal protection clause.
50
On June 10, 1993, then President Fidel V. Ramos
issued Executive Order No. 97 (EO 97), clarifying
the application of the tax and duty incentives. It
said that On Import Taxes and Duties. — Tax and
duty-free importations shall apply only to raw
materials, capital goods and equipment brought
in by business enterprises into the SSEZ
On All Other Taxes. — In lieu of all local and
all business enterprises in the SSEZ shall be
required to pay the tax specified in Section 12(c)
of R.A. No. 7227.
Nine days after, on June 19, 1993, the President
issued Executive Order No. 97-A (EO 97-A),
specifying the area within which the tax-and-
duty-free privilege was operative.
Section 1.1. The Secured Area consisting of the
presently fenced-in former Subic Naval Base
shall be the only completely tax and duty-free
area in the SSEFPZ. Business enterprises and
individuals (Filipinos and foreigners) residing
within the Secured Area are free to import raw
materials, capital goods, equipment, and
Petitioners challenged the constitutionality of EO
97-A for allegedly being violative of their right to
equal protection of the laws. This was due to the
limitation of tax incentives to Subic and not to the
entire area of Olongapo. The case was referred to
the Court of Appeals. The appellate court
concluded that such being the case, petitioners
could not claim that EO 97-A is unconstitutional,
while at the same time maintaining the validity of
RA 7227.
of Congress was to confine the coverage of the
the "entire Olongapo City and other areas
mentioned in Section 12 of the law.
Hence, this was a petition for review under Rule
45 of the Rules of Court.
Order No. 97-A confining the application of R.A.
7227 within the secured area and excluding the
residents of the zone outside of the secured area
is discriminatory or not owing to a violation of the
HELD: No. Citing Section 12 of RA 7227,
petitioners contend that the SSEZ encompasses
(1) the City of Olongapo, (2) the Municipality of
Subic in Zambales, and (3) the area formerly
occupied by the Subic Naval Base. However,
they claimed that the E.O. narrowed the
application to the naval base only.
laws. As long as there are actual and material
OSG- The E.O. Was a valid classification. Court-
The fundamental right of equal protection of the
laws is not absolute, but is subject to reasonable
classification. If the groupings are characterized
by substantial distinctions that make real
differences, one class may be treated and
re g u l a t e d d i ff e re n t l y f ro m a n o t h e r. T h e
classification must also be germane to the
purpose of the law and must apply to all those
belonging to the same class.
The classification of the law also applies equally
Inchong v Hernandez- Equal protection does not
demand absolute equality among residents; it
merely requires that all persons shall be treated
alike, under like circumstances and conditions
both as to privileges conferred and liabilities
enforced.
Classification, to be valid, must (1) rest on
substantial distinctions, (2) be germane to the
purpose of the law, (3) not be limited to existing
conditions only, and (4) apply equally to all
members of the same class.
venture and establish a corporation, under the
RA 7227 aims primarily to accelerate the
conversion of military reservations into productive
uses. This was really limited to the military bases
as the law's intent provides. Moreover, the law
tasked the BCDA to specifically develop the
areas the bases occupied.
Vice- President of the Corporation for Finance,
Among such enticements are: (1) a separate
customs territory within the zone, (2) tax-and-
duty-free importations, (3) restructured income
tax rates on business enterprises within the zone,
(4) no foreign exchange control, (5) liberalized
regulations on banking and finance, and (6) the
grant of resident status to certain investors and of
working visas to certain foreign executives and
workers. The target of the law was the big
investor who can pour in capital.
deeds, the Corporation stopped its operations.
Even more important, at this time the business
activities outside the "secured area" are not likely
to have any impact in achieving the purpose of
the law, which is to turn the former military base
to productive use for the benefit of the Philippine
economy. Hence, there was no reasonable basis
to extend the tax incentives in RA 7227.
It is well-settled that the equal-protection
guarantee does not require territorial uniformity of
differences between territories, there is no
violation of the constitutional clause.
Besides, the businessmen outside the zone can
always channel their capital into it. RA 7227, the
objective is to establish a “self-sustaining,
industrial, commercial, financial and investment
center”. There will really be differences between it
and the outside zone of Olongapo.
to the residents and businesses in the zone. They
are similarly treated to contribute to the end goal
of the law.
SOLIDBANK CORP VS MINDANAO
FERROALLOY CORP
FACTS: Maria Cristina Chemical Industries
(MCCI) and three (3) Korean corporations,
namely, the Ssangyong Corporation, the Pohang
Iron and Steel Company and the Dongil
Industries Company, Ltd., decided to forge a joint
name of the Mindanao Ferroalloy Corporation
(Corporation for brevity) with principal offices in
Iligan City. Ricardo P. Guevara was the President
and Chairman of the Board of Directors of the
Corporation. Jong-Won Hong, the General
Manager of Ssangyong Corporation, was the
Marketing and Administration. So was Teresita R.
Cu. On November 26, 1990, the Board of
Directors of the Corporation approved a
Resolution authorizing its President and
Chairman of the Board of Directors or Teresita R.
Cu, acting together with Jong-Won Hong, to
secure an omnibus line in the aggregate amount
of P30,000,000.00 from the Solidbank x x x.
However, shortly after the execution of the said
The Corporation failed to pay its loan availments
from the Bank inclusive of accrued interest. On
February 11, 1992, the Bank sent a letter to the
Corporation demanding payment of its loan
availments inclusive of interests due. The
51
Corporation failed to comply with the demand of
the Bank. On November 23, 1992, the Bank sent
another letter to the [Corporation] demanding
payment of its account which, by November 23,
1992, had amounted to P7,283,913.33. The
Corporation again failed to comply with the
demand of the Bank.
the above documents as comakers, but as
On January 6, 1993, the Bank filed a complaint
against the Corporation with the Regional Trial
Court of Makati City, entitled and docketed as
Solidbank Corporation vs. Mindanao Ferroalloy
Corporation, Sps. Jong-Won Hong and the Sps.
Teresita R. Cu, Civil Case No. 93-038 for Sum of
Money with a plea for the issuance of a writ of
preliminary attachment.
Respondent Guevara was authorized to represent
Dismissing the complaint against the individual
[respondents], the Court a quo found and
declared that [petitioner] failed to adduce a
morsel of evidence to prove the personal liability
of the said [respondents] for the claims of
[petitioner] and that the latter impleaded the
[respondents], in its complaint and amended
complaint, solely to put more pressure on the
Defendant Corporation to pay its obligations to
[petitioner].
on that provided for Co-maker.
Petitioner] x x x interposed an appeal, from the
Decision of the Court a quo and posed, for x x x
resolution, the issue of whether or not the
individual [respondents], are jointly and severally
liable to [petitioner] for the loan availments of the
[respondent] Corporation, inclusive of accrued
interests and penalties.
Basic is the principle that a corporation is vested
Petitioner argues that the individual respondents
were jointly or solidarily liable with Minfaco, either
because their participation in the loan contract
and the loan documents made them comakers;
or because they committed fraud and deception,
which justifies the piercing of the corporate veil.
behalf of the corporation, within the scope of
ISSUE: Whether the individual respondents are
liable, either jointly or solidarily, with the
Mindanao Ferroalloy Corporation?
are properly attributed to the corporation.
HELD: No.
Moreover, it is axiomatic that solidary liability
Affirming the RTC, the appellate court ruled that
the individual respondents were not solidarily
liable with the Mindanao Ferroalloy Corporation,
because they had acted merely as officers of the
corporation, which was the real party in interest.
Respondent Guevara was not even a signatory to
52
the Promissory Note, the Trust Receipt
Agreement, the Deed of Assignment or the
Quedan; he was merely authorized to represent
Minfaco to negotiate with and secure the loans
from the bank. On the other hand, the CA noted
that Respondents Cu and Hong had not signed
signatories in their representative capacities as
officers of Minfaco.
The first contention hinges on certain factual
determinations made by the trial and the
appellate courts. These tribunals found that,
although he had not signed any document in
connection with the subject transaction,
Minfaco in negotiating for a P30 million loan from
petitioner. As to Cu and Hong, it was determined,
among others, that their signatures on the loan
documents other than the Deed of Assignment
were not prefaced with the word by, and that
there were no other signatures to indicate who
had signed for and on behalf of Minfaco, the
principal borrower. In the Promissory Note, they
signed above the printed name of the corporation
-- on the space provided for Maker/Borrower, not
Petitioner has not shown any exceptional
circumstance that sanctions the disregard of
these findings of fact, which are thus deemed
final and conclusive upon this Court and may not
be reviewed on appeal.
by law with a personality separate and distinct
from that of each person composing or
representing it. Equally fundamental is the
general rule that corporate officers cannot be
held personally liable for the consequences of
their acts, for as long as these are for and on
their authority and in good faith. The separate
corporate personality is a shield against the
personal liability of corporate officers, whose acts
cannot be lightly inferred. Under Article 1207 of
the Civil Code, there is a solidary liability only
when the obligation expressly so states, or when
the law or the nature of the obligation requires
solidarity. Since solidary liability is not clearly
expressed in the Promissory Note and is not
required by law or the nature of the obligation in
this case, no conclusion of solidary liability can
be made.
default to PPIC demanding the latter to pay the
Furthermore, nothing supports the alleged joint
liability of the individual petitioners because, as
correctly pointed out by the two lower courts, the
evidence shows that there is only one debtor: the
corporation. In a joint obligation, there must be at
least two debtors, each of whom is liable only for
a proportionate part of the debt; and the creditor
is entitled only to a proportionate part of the
credit.
demanded ITM and Grandtex, as guarantors of
Moreover, it is rather late in the day to raise the
alleged joint liability, as this matter has not been
pleaded before the trial and the appellate courts.
Before the lower courts, petitioner anchored its
claim solely on the alleged joint and several (or
solidary) liability of the individual respondents.
Petitioner must be reminded that an issue cannot
be raised for the first time on appeal, but
seasonably in the proceedings before the trial
court.
the Court of Appeals reversed the decision of the
So too, the Promissory Note in question is a
negotiable instrument. Under Section 19 of the
N e g o t i a b l e I n s t r u m e n t s L a w, a g e n t s o r
representatives may sign for the principal. Their
authority may be established, as in other cases of
agency. Section 20 of the law provides that a
person signing for and on behalf of a [disclosed]
principal or in a representative capacity x x x is
not liable on the instrument if he was duly
authorized.
INTERNATIONAL FINANCE CORPORATION VS
IMPERIAL TEXTILE MILLS
FACTS: Petitioner Inter national Finance
Corporation (IFC) and respondent Philippine
Polyamide Industrial Corporation (PPIC) entered
into a loan agreement wherein IFC extended to
PPIC a loan payable in 16 semi-annual
installments with interest at the rate of 10% per
annum on the principal amount of the loan
advanced and outstanding from time to time. A
guarantee agreement was executed with Imperial
Te x t i l e M i l l s , I n c . ( I T M ) , G r a n d Te x t i l e
Manufacturing Corporation (Grandtex) and IFC as
parties. ITM and Grandtex agreed to guarantee
PPIC’s obligations under the loan agreement.
There was a reschedule of payments as
requested by PPIC. Despite the rescheduling of
the installment payments, however, PPIC
defaulted. Hence, IFC served a written notice of
outstanding principal loan and all its accrued
interests. Despite such notice, PPIC failed to pay
the loan and its interests. IFC, together with DBP,
applied for the extrajudicial foreclosure of
mortgages on the real estate, buildings,
m a c h i n e r y, e q u i p m e n t p l a n t a n d a l l
improvements owned by PPIC.IFC and DBP were
the only bidders during the auction sale. PPIC
failed to pay the remaining balance, thus, IFC
PPIC, to pay the outstanding balance. However,
despite the demand made by IFC, the
o u t s t a n d i n g b a l a n c e re m a i n e d u n p a i d .
Consequently, IFC filed a complaint against PPIC
and ITM for the payment of the outstanding
balance plus interests and attorney’s fees. The
trial court held PPIC liable for the payment of the
outstanding loan plus interests and attorney’s
fees. However, the trial court relieved ITM of its
obligation as guarantor. On appeal of the case,
trial court. The CA, however, held that ITM’s
liability as a guarantor would arise only if and
when PPIC could not pay. Since PPIC’s inability
to comply with its obligation was not sufficiently
established, ITM could not immediately be made
to assume the liability.
ISSUE: Whether or not ITM is a surety, and thus
solidarily liable with PPIC for the payment of the
loan.
HELD: ITM is a surety, and thus solidarily liable
with PPIC for the payment of the loan. AsArticle
2047 provides, a suretyship is created when a
guarantor binds itself solidarily with the principal
obligor. While referring to ITM as a guarantor, the
agreement specifically stated thatthe corporation
was “jointly and severally” liable. It further stated
that ITM was a primaryobligor, not a mere surety.
ITM thereby brought itself to the level of PPIC
and could not bedeemed merely secondarily
liable. Those words emphasize the nature of their
liability, which thelaw characterizes as a
suretyship. Therefore, ITM bound itself to be
solidarily liable with PPICfor the latter’s
obligations under the loan agreement with IFC.
53
PEOPLE OF THE PHILIPPINES VS TAMPUS
FACTS: The offended party, ABC, is the daughter
of appellant, Montesclaros, and was 13 years old
at the time of the incident. Montesclaros worked
as a waitress in a beer house. At the time of the
commission of the crime, Ida and ABC were
renting a room in a house owned by Tampus who
was a barangay tanod. On April, 1995, ABC
testified that she was in the house with
Montesclaros and Tampus who were both
drinking beer. They forced her to drink beer and
after consuming 3 and a half glasses of beer, she
became intoxicated and very sleepy. While ABC
was lying on the floor of their room, she
overheard Tampus requesting her mother,
Montesclaros that she be allowed to have sexual
intercourse with her.
civil liability.
Montesclaros agreed and instructed Tampus to
leave as soon as he was finished. Montesclaros
then went to work leaving Tampus alone with
ABC. ABC fell asleep and when she woke up, she
noticed that the garter of her panties was loose
and rolled down to her knees. She suffered pain
all over her body noticed that her panties and
short pants were stained with blood which was
coming from her vagina. When her mother arrived
home from work the following morning, she kept
on crying but appellant ignored her. ABC testified
that on April 4, 1995 around 1:00 a.m., she was
left alone in the room since her mother was at
work at the beer house. Tampus went inside their
room and threatened to kill her if she would
report the previous sexual assault to anyone.
After consummating the sexual act, he left the
house. When ABC told appellant Ida about the
incident, the latter again ignored her.
the case was pending in the Court of Appeals, his
ABC filed two Complaints. She accused Tampus
of taking advantage of her by having carnal
knowledge of her, against her will, while she was
intoxicated and sleeping on April, 1995 at 4:30
p.m. She declared in her Complaint that this was
done in conspiracy with accused Ida who gave
permission to Tampus to rape her. The trial court
convicted Tampus of two counts of rape and
found Montesclaros guilty as an accomplice.
P66,666.67. However, since Tampus civil liability
ISSUE: WON Ida Montesclaros, being guilty as
an accomplice in the rape of ABC, is solidarily
liable for civil indemnity?
the principal. Tampus obligation to pay
54
HELD: The Court held that in the case at bar, the
trial court ruled that the accomplice is solidarily
liable with the principal for the entire amount of
the civil indemnity of P50,000.00. This is an
erroneous apportionment of the civil indemnity.
First, because it does not take into account the
difference in the nature and degree of
participation between the principal, Tampus,
versus the accomplice, Ida. Idas previous acts of
cooperation include her acts of forcing ABC to
drink beer and permitting Tampus to have sexual
intercourse with her daughter. But even without
these acts, Tampus could have still raped ABC. It
was Tampus, the principal by direct participation,
who should have the greater liability, not only in
terms of criminal liability, but also with respect to
Second, Article 110 of the Revised Penal Code
states that the apportionment should provide for
a quota amount for every class for which
members of such class are solidarily liable within
their respective class, and they are only
subsidiarily liable for the share of the other
classes. The Revised Penal Code does not
provide for solidary liability among the different
classes, as was held by the trial court in the case
at bar.
Thus, taking into consideration the difference in
participation of the principal and accomplice, the
principal, Tampus, should be liable for two-thirds
(2/3) of the total amount of the civil indemnity and
moral damages and appellant Ida should be
ordered to pay one-third (1/3) of the amount.
However, since the principal, Tampus, died while
liability for civil indemnity ex delicto is
extinguished by reason of his death before the
final judgment. His share in the civil indemnity
and damages cannot be passed over to the
accomplice, Ida, because Tampus share of the
civil liability has been extinguished. And even if
Tampus were alive upon the promulgation of this
decision, Ida would only have been subsidiarily
liable for his share of the civil indemnity of
ex delicto is extinguished, Ida’s subsidiary liability
with respect to this amount is also eliminated,
following the principle that the accessory follows
P66,666.67 his quota of the civil indemnity is the
principal obligation, for which Ida is only
subsidiarily liable. Upon the extinguishment of the benefit of PCCr. On the other hand, if a labor-only
principal obligation, there is no longer any contractor is not solidarily liable with the
accessory obligation which could attach to it; employer, the latter being directly liable, then the
thus, the subsidiary liability of Ida is also releases, waivers and quitclaims in favor of
extinguished.
MBMSI will not extinguish the liability of PCCr.

BENIGNO VIGILLA VS PHILIPPINE COLLEGE A Labor-only Contractor is Solidarily Liable with

OF CRIMINOLOGY the Employer

FACTS: PCCr is a non-stock educational
institution, while the petitioners were janitors,
releases, waivers and quitclaims executed by
janitresses and supervisor in the Maintenance
Department of PCCr.
benefit of PCCr pursuant to Article 1217 of the
The petitioners, however, were made to
understand, upon application with respondent
school, that they were under MBMSI, a
The NLRC and the CA correctly ruled that the
petitioners in favor of MBMSI redounded to the
New Civil Code. The reason is that MBMSI is
solidarily liable with the respondents for the valid
claims of petitioners pursuant to Article 109 of
the Labor Code.

corporation engaged in providing janitorial

services to clients. Atty. Seril is also the President
and General Manager of MBMSI.
basis of the solidary liability of the principal with
PCCr discovered that the Certificate of
Incorporation of MBMSI had been revoked as of
July 2, 2003. On March 16, 2009, PCCr, through
its President, respondent Gregory Alan F. Bautista
(Bautista), citing the revocation, terminated the
school’s relationship with MBMSI, resulting in the
dismissal of the employees or maintenance
As correctly pointed out by the respondents, the
those engaged in labor-only contracting is the
last paragraph of Article 106 of the Labor Code,
which in part provides: "In such cases labor-only
contracting, the person or intermediary shall be
considered merely as an agent of the employer
who shall be responsible to the workers in the
same manner and extent as if the latter were
directly employed by him."

personnel under MBMSI, except Alfonso Bongot

(Bongot) who was retired.
Considering that MBMSI, as the labor-only
c o n t r a c t o r, i s s o l i d a r i l y l i a b l e w i t h t h e
The dismissed employees, filed their respective respondents, as the principal employer, then the
complaints for illegal dismissal, reinstatement, NLRC and the CA correctly held that the
back wages, separation pay, underpayment of respondents’ solidary liability was already
salaries, overtime pay, holiday pay, service expunged by virtue of the releases, waivers and
incentive leave, and 13th month pay against quitclaims executed by each of the petitioners in
MBMSI, Atty. Seril, PCCr, and Bautista.
favor of MBMSI pursuant to Article 1217 of the
Civil Code which provides that "payment made
In their complaints, they alleged that it was the by one of the solidary debtors extinguishes the
school, not MBMSI, which was their real obligation."

employer because (a) MBMSI’s certification had

been revoked; (b) PCCr had direct control over This Court has constantly applied the Civil Code
MBMSI’s operations; (c) there was no contract provisions on solidary liability, specifically Articles
between MBMSI and PCCr; and (d) the selection 1217 and 1222, to labor cases. In Varorient
and hiring of employees were undertaken by Shipping Co., Inc. v. NLRC, this Court held: The
PCCr.
POEA Rules holds her, as a corporate officer,
solidarily liable with the local licensed manning
ISSUE: Whether or not there is solidary liability agency. Her liability is inseparable from those of
between the labor-only contractor and the Varorient and Lagoa. If anyone of them is held
employer
liable then all of them would be liable for the
same obligation. Each of the solidary debtors,
HELD: If a labor-only contractor is solidarily liable insofar as the creditor/s is/are concerned, is the
with the employer, then the releases, waivers and debtor of the entire amount; it is only with respect
quitclaims in favor of MBMSI will redound to the to his co-debtors that he/she is liable to the

55
extent of his/her share in the obligation. Such
being the case, the Civil Code allows each
solidary debtor, in actions filed by the creditor/s,
to avail himself of all defenses which are derived
from the nature of the obligation and of those
which are personal to him, or pertaining to his
share [citing Section 1222 of the Civil Code]. He
may also avail of those defenses personally
belonging to his co-debtors, but only to the
extent of their share in the debt. Thus, Varorient
may set up all the defenses pertaining to Colarina
and Lagoa; whereas Colarina and Lagoa are
liable only to the extent to which Varorient may
be found liable by the court.
proportionate part of the credit from each
PH CREDIT CORPORATION VS. COURT OF
APPEALS
be positively and clearly expressed.A liability is
FACTS: PH Credit Corporation filed a case
against Pacific Lloyd Corporation, Carlos
Farrales, Thomas Sebille and Federico Lim for a
sum of money. After failing to answer, they were
declared in default and a decision (1984) was
rendered in favor of PH Credit Corporation. When
the decision became final and executory, a Writ
of Execution was issued on the real and personal
properties of Farrales and two public auctions
took place (one for his personal properties and
another for his real properties). A few years later,
a motion for the issuance of a writ of possession
was filed and was granted. The writ and the order
is the subject of this petition. The petitioner
claims that as a third party claimant, she filed an
urgent motion for reconsideration and/or to
suspend the order. However, the judge failed to
act on her motion and granted the assailed order
and writ, which was subsequently ordered of no
force and effect in a latter order. The petitioner
claims that that the respondent Judge’s order
was tainted with grave abuse of discretion when
it refused to consider as waived private
respondent’s objection that his obligation in the
decision was merely joint and not solidary with
the defendants and when the judge applied the
presumption of a joint obligation in the face of the
conclusion of fact and law contained in the
decision showing that the obligation is solidary.
The order declaring the writ and the order null
and void was affirmed by the Court of Appeals,
which also decided that the liability of Farrales
was merely joint since there was no legal basis
for the levying of his property to satisfy the whole
obligation.
56
ISSUE: Whether Farrales’ obligation was joint or
solidary
HELD: It is joint.


A solidary obligation is one in which each of the
debtors is liable for the entire obligation, and
each of the creditors is entitled to demand the
satisfaction of the whole obligation from any or all
of the debtors. On the other hand, a joint
obligation is one in which each debtors is liable
only for a proportionate part of the debt, and the
c re d i t o r i s e n t i t l e d t o d e m a n d o n l y a
debtor.The well-entrenched rule is that solidary
obligations cannot be inferred lightly. They must
solidary only when the obligation expressly so
states, when the law so provides or when the
nature of the obligation so requires. In the
dispositive portion of the 1984 Decision of the
trial court, the word solidary neither appears nor
can it be inferred therefrom. The fallo merely
stated that the following respondents were liable:
Pacific Lloyd Corporation, Thomas H. Van Sebille,
Carlos M. Farrales and Federico C. Lim. Under
the circumstances, the liability is joint. We should
stress that respondents obligation is based on
the judgment rendered by the trial court. The
dispositive portion or the fallo is its decisive
resolution and is thus the subject of execution.
The other parts of the decision may be resorted
to in order to determine the ratio decidendi for
the disposition.
Where there is a conflict between the dispositive
part and the opinion of the court contained in the
text or body of the decision, the former must
prevail over the latter on the theory that the
dispositive portion is the final order, while the
opinion is merely a statement ordering nothing.
Being made to pay for an obligation in its entirety
when ones liability is merely for a portion is a
sufficient ground to contest an execution sale. It
would be the height of inequity if we allow
judgment obligors to shoulder entire monetary
judgments when their legal liabilities are limited
only to their proportionate shares in the entire
obligation.
LILIBETH SUNGA-CHAN VS CA
fees ought to be solidary in nature, they having
resisted in bad faith a legitimate claim and thus
FACTS: In 1977, respondent Lamberto Chua and compelled Chua to litigate.

Jacinto Sunga formed a partnership to engage in

the marketing of liquefied petroleum gas. For
convenience, the business, pursued under the
name, Shellite Gas Appliance Center (Shellite),
was registered as a sole proprietorship in the
name of Jacinto, albeit the partnership
arrangement called for equal sharing of the net
profit. After Jacinto's death in 1989, his widow,
petitioner Cecilia Sunga, and married daughter,
petitioner Lilibeth Sunga-Chan, continued with
the business without Chua's consent. Chua's
subsequent repeated demands for accounting
and winding up went unheeded, prompting him
to file on June 22, 1992 a Complaint for Winding
Up of a Partnership Affairs, Accounting, Appraisal
and Recovery of Shares and Damages with Writ
of Preliminary Attachment.

ISSUE: Whether Lilibeth Sunga-Chan and her

husband, Norberto Chan are jointly or solidary
liable for any and all claims of Chua.

HELD: Under the circumstances surrounding the

case, the Court holds that the obligation of
petitioners is solidary for several reasons. For
one, the complaint of Chua for winding up of
partnership affairs, accounting, appraisal, and
recovery of shares and damages is clearly a suit
to enforce a solidary or joint and several
obligation on the part of petitioners. As it were,
the continuance of the business and
management of Shellite by petitioners against the
will of Chua gave rise to a solidary obligation, the
acts complained of not being severable in nature.
Indeed, it is well-nigh impossible to draw the line
between when the liability of one petitioner ends
and the liability of the other starts. In this kind of
situation, the law itself imposes solidary
obligation.

For the other, the duty of petitioners to remit to

Chua his half interest and share of the total
partnership assets proceeds from petitioners'
indivisible obligation to render an accounting and
inventory of such assets. The need for the
imposition of a solidary liability becomes all the
more pronounced considering the impossibility of
quantifying how much of the partnership assets
or profits was misappropriated by each petitioner.

And for a third, petitioners' obligation for the

payment of damages and attorney's and litigation

57