METROPOLITAN BANK and TRUST COMPANY vs.

CENTRO DEVELOPMENT CORPORATION,

CHONGKING KEHYENG, MANUEL CO KEHYENG and QUIRINO KEHYENG
G.R. No. 180974, June 13, 2012

PONENTE: Sereno, J.
TOPIC: Negligence

FACTS:
On 20 March 1990, in a special meeting of the board of directors of respondent Centro
Development Corporation (Centro), its president Go Eng Uy was authorized to mortgage its
properties and assets to secure the medium-term loan of ₱84 million of Lucky Two
Corporation and Lucky Two Repacking. This authorization was subsequently approved on
the same day by the stockholders. Thus, on 21 March 1990, respondent Centro, represented
by Go Eng Uy, executed a Mortgage Trust Indenture (MTI) with the Bank of the Philippines
Islands (BPI). To secure these obligations from different creditors, respondent Centro
constituted a continuing mortgage on all or substantially all of its properties and assets
enumerated above unto and in favor of BPI, the trustee. Should respondent Centro or any of
its affiliates fail to pay their obligations when due, the trustee shall cause the foreclosure of
the mortgaged property.
Petitioner contends that the stockholders Resolution No. 005, s. 1994 did not constitute a
new mortgage in favor of petitioner. Instead, the stockholders merely amended the existing
MTI by appointing petitioner as the new trustee for the MTI, which was already existing and
held by BPI. Thus, there was no need to secure a 2/3 vote from the stockholders. Petitioner
posits that the authority to mortgage the properties was granted in 1990, upon the
execution of the first MTI between respondent Centro and BPI.
Petitioner also maintains that the CA erred in interpreting the phrase at which meeting a
quorum was present contained in the Secretarys Certificate dated 18 August 1994. The bank
points out that the phrase indicates that at least a quorum was present, rather than that
only a quorum was present. Thus, the Secretarys Certificate did not in any way limit the
number of those actually present.
Additionally, petitioner argues that Perla Saballe, whose testimony was considered by the
CA, was not a competent witness to interpret the directors Resolution. Allegedly, she was
never present during the meetings of Centro regarding the present issue, and she was not in
a position to answer the questions propounded to her in relation to the requirements of
Section 40 of the Corporation Code.
Moreover, petitioner cites the CA Decision in CA-G.R. SP No. 84447, which upheld the validity
of the foreclosure of the mortgage. It also challenges the CA ruling that the former failed to
exercise due diligence in transacting with respondent Centro. Finally, petitioner insists that
laches attached when respondents failed to question the MTI and the stockholders
Resolution at the earliest possible time.
On the other hand, respondents contend that, based on the Pre-Trial Brief and the Amended
Pre-Trial Order, petitioner admitted that the subject properties were mortgaged under the
MTI of 27 September 1994, and not under that of 21 March 1990. Second, on the issue of
whether the 2/3 voting requirement was met, respondents claim that petitioner cannot
impugn the testimony of its own officer and witness, Perla Saballe, on the interpretation of
the term quorum as referred to in the Secretarys Certificate dated 18 August 1994.
Respondents also allege that petitioner failed to controvert the testimony of Chongking
Kehyeng, a member and vice-chairperson of the board of directors, that he was unaware of
any stockholders meeting ever being held, and that he and the other Kehyengs were not
informed of that meeting. Respondents further insist that petitioner was negligent when it
merely relied on the Secretarys Certificate, instead of exercising due diligence to ensure that
all legal requirements had been complied with under the MTI. On the issue of laches,
respondents contend that it was not raised before the trial court, and is thus improperly
invoked in the present Petition. Nevertheless, they allegedly undertook a number of
measures to question the transactions between petitioner and CENTRO. Moreover, they
argue that the MTI, being null and void, cannot be given effect through laches.

ISSUE:
Whether petitioner was negligent or failed to exercise due diligence.

RULING:
Republic Act No. 8971, or the General Banking Law of 2000, recognizes the vital role of
banks in providing an environment conducive to the sustained development of the national
economy and the fiduciary nature of banking; thus, the law requires banks to have high
standards of integrity and performance. The fiduciary nature of banking requires banks to
assume a degree of diligence higher than that of a good father of a family. In the case at bar,
petitioner itself was negligent in the conduct of its business when it extended unsecured
loans to the debtors. Worse, it was in serious breach of its duty as the trustee of the MTI. It
was not able to protect the interests of the parties and was even instrumental in violating
the terms of the MTI, to the detriment of the parties thereto. Thus, petitioner has only itself
to blame for being left with insufficient recourse against petitioner under the assailed MTI.
 PHILIPPINE NATIONAL BANK vs. CARMELITA S. SANTOS, REYME L.
SANTOS, ANGEL L. SANTOS, NONENG S. DIANCO, ET AL.
G.R. No. 208293, December 10, 2014

PONENTE: Leonen, J.
TOPIC: Negligence

FACTS:
Respondents are children of Angel C. Santos who died on 21 March 1991. Sometime in 1996,
respondents discovered that their father maintained a premium savings account with
Philippine National Bank (PNB), Sta. Elena-Marikina City Branch. As of July 1996, the deposit
amounted to 1,759,082.63. Later respondents would also discover that their father also had
a time deposit of 1,000,000.00 with PNB. Respondents went to PNB to withdraw their
father’s deposit. Lina B. Aguilar, the Branch Manager of PNB-Sta. Elena-Marikina, required
them to submit the following: (1) original or certified true copy of the Death Certificate of
Angel C. Santos; (2) certificate of payment of, or exemption from, estate tax issued by the
Bureau of Internal Revenue (BIR); (3) Deed of Extrajudicial Settlement; and (5) Surety bond
effective for two years and in an amount equal to the balance of the deposit to be
withdrawn.
By April 1998, respondents had already obtained the necessary documents, however, when
they tried to withdraw, Aguilar informed them that the deposit had already “been released
to a certain Bernardito Manimbo (Manimbo) on 01 April 1997.” An amount of 1,882,002.05
was released upon presentation of: (1) an affidavit of self-adjudication purportedly executed
by one of the respondents, Remye L. Santos; (2) a certificate of time deposit dated 14
December 1989 amounting to 1,000,000.00; and (3) the death certificate of Angel C. Santos,
among others. A special power of attorney was purportedly executed by Reyme L. Santos in
favor of Manimbo and a certain Angel P. Santos for purposes of withdrawing and receiving
the proceeds of the certificate of time deposit.
Respondents filed a complaint for the sum of money and damages against PNB before the
Regional Trial Court of Marikina City questioning the release of the deposit amount to
Manibmo who had no authority from them to withdraw their father’s deposit and who failed
to present to PNB all the requirements for such withdrawal. PNB and Aguilar denied that the
deceased had two separate accounts (premium deposit account and time deposit account)
with PNB. They alleged that the deceased’s deposit account was originally a time deposit
account that was subsequently converted in to a premium savings account. Also, they
alleged that Aguilar did not know about Angel C. Santos’s death in 1991 because she only
assumed office in 1996. Manimbo was able to submit an affidavit of self-adjudication,
required surety bond, certificate of payment of estate tax dated 31 March 1997. All
documents appeared to be regular. PNB and Aguilar filed a third-part complain against
Manimbo, Angel P. Santos, and Capital Insurance and Surety Co., Inc.
The trial court found PNB and Aguilar negligent in releasing the deposit to Manimbo as they
failed to notify the depositor about the maturity of the time deposit and the conversion of
the time deposit into a premium savings account. Subsequently, Aguilar filed a motion for
reconsideration which was denied by the RTC.
Upon appeal to the Court of Appeals, Aguilar contended that she merely implemented
PNB’s Legal Department’s directive to release the deposit to Manimbo. PNB, on the other
hand, argued that the release of the deposit to Manimbo was pursuant to existing policy. CA
sustained the trial court’s findings of negligence in both parties. PNB and Aguilar filed their
separate petitions for review before the Supreme Court.

ISSUE:
Whether or not Philippine National Bank and Aguilar was negligent in releasing the deposit
to Benardito Manimbo.

RULING
Yes, PNB and Aguilar were negligent in handling the deposit of Angel C. Santos.

The contractual relationship between banks and their depositors is governed by the Civil
Code provisions on simple loan. Once a person makes a deposit of his money to the bank, he
is considered to have lent the bank a money. The bank becomes his debtor, and he becomes
the creditor of the bank, which is obligated to pay him on demand.

The default standard of diligence in the performance of obligations is “diligence of a good

father of a family.” However, other industries are bound by law to observe higher standards
of diligence because of the nature of their businesses. Banking is impressed with public
interest as it affects the economy and plays a significant role in commerce. The public
reposes its faith and confidence upon banks that is why the Court recognized the fiduciary
nature of banks’ functions, and attached a special standard of diligence for the exercise of
their function––extraordinary diligence.

PNB and Aguilar’s treatment of Angel C. Santos’s account is inconsistent with the high
standard of diligence required of banks. They accepted Manimbo’s representations despite
knowledge of the existence of circumstances that should have raised doubts on such
representations. They did not doubt why no original death certificate could be submitted;
why Reyme L. Santos would execute an affidavit of self-adjudication when he, together with
others, had previously asked for the release of said deposit; and they relied on the certificate
of time deposit and Manimbo’s representation that the passbook was lost when the
passbook had just been previously presented to Aguilar for updating.

Their negligence is not based on their failure to accept respondents’ documents as evidence
of the right to claim the subject deposit. Rather, it is based on their failure to exercise the
diligence required of banks when they accepted the fraudulent representations of
Manimbo.
BJDC CONSTRUCTION, REPRESENTED BY ITS MANAGER/PROPRIETOR JANET S. DELA CRUZ
v. NENA E. LANUZO, CLAUDETTE E. LANUZO, JANET E. LANUZO, JOAN BERNABE E.
LANUZO, AND RYAN JOSE E. LANUZO
G.R. No. 161151, March 24, 2014

PONENTE: Bersamin, J.
TOPIC: Negligence

FACTS:
This case involves a claim for damages arising from the death of a motorcycle rider in a
nighttime accident due to the supposed negligence of a construction company then
undertaking re–blocking work on a national highway. The plaintiffs insisted that the accident
happened because the construction company did not provide adequate lighting on the site,
but the latter countered that the fatal accident was caused by the negligence of the
motorcycle rider himself.
Nena alleged that she was the surviving spouse of the late Balbino who figured in the
accident that transpired at the site of the re–blocking work at about 6:30 p.m. on October
30, 1997; that Balbino’s Honda motorcycle sideswiped the road barricade placed by the
company in the right lane portion of the road, causing him to lose control of his motorcycle
and to crash on the newly cemented road, resulting in his instant death; and that the
company’s failure to place illuminated warning signs on the site of the project, especially
during night time, was the proximate cause of the death of Balbino.
In its answer, BJDC denied Nena’s allegations of negligence, insisting that it had installed
warning signs and lights along the highway and on the barricades of the project; that at the
time of the incident, the lights were working and switched on; that its project was duly
inspected by the Department of Public Works and Highways (DPWH), the Office of the
Mayor of Pili, and the Pili Municipal Police Station; and that it was found to have
satisfactorily taken measures to ensure the safety of motorists.

ISSUE:
Whether or not heirs of Balbino were able to establish by preponderance of evidence the
negligence of BJDC.

HELD:
NO. The party alleging the negligence of the other as the cause of injury has the burden to
establish the allegation with competent evidence. If the action based on negligence is civil in
nature, the proof required is preponderance of evidence.
In civil cases, the burden of proof is on the party who would be defeated if no evidence is
given on either side. The burden of proof is on the plaintiff if the defendant denies the
factual allegations of the complaint in the manner required by the Rules of Court, but it may
rest on the defendant if he admits expressly or impliedly the essential allegations but raises
affirmative defense or defenses, which if proved, will exculpate him from liability.
The Court affirmed the findings of the RTC, and rules that the Lanuzo heirs, the parties
carrying the burden of proof, did not establish by preponderance of evidence that the
negligence on the part of the company was the proximate cause of the fatal accident of
Balbino.
During the trial, the Lanuzo heirs attempted to prove inadequacy of illumination instead of
the total omission of illumination. In contrast, the company credibly refuted the allegation of
inadequate illumination. The Court observes, too, that SPO1 Corporal, a veteran police
officer detailed for more than 17 years at the Pili Police Station, enjoyed the presumption of
regularity in the performance of his official duties. In his report, it was mentioned that “upon
arrival at the scene of the incident it was noted that road sign/barricade installed on the road
has a light.”
 BIGNAY EX-IM PHILIPPINES, INC vs. UNION BANK OF THE PHILIPPINES
G.R. No. 171590, February 12, 2014

PONENTE: Del Castillo, J.

TOPIC: Negligence

FACTS:

In 1988, Rosario filed against Alfonso and Union Bank, Civil Case No. Q-52702 for annulment
of the 1984 mortgage, claiming that Alfonso mortgaged the property without her consent,
and for reconveyance.
In a September 6, 1989 Letter-Proposal, Bignay Ex-Im Philippines, Inc. (Bignay), through its
President, Milagros Ong Siy (Siy), offered to purchase the property.
On December 20, 1989, a Deed of Absolute Sale6 was executed by and between Union Bank
and Bignay whereby the property was conveyed to Bignay for P4 million. The deed of sale
was executed by the parties through Bignay’s Siy and Union Bank’s Senior Vice President
Anthony Robles (Robles). One of the terms of the deed of sale is quoted below:
Section 1. The VENDEE hereby recognizes that the Parcel/s of Land with improvements
thereon is acquired through foreclosure proceedings and agrees to buy the Parcel/s of Land
with improvements thereon in its present state and condition. The VENDOR therefore does
not make any x x x representations or warranty with respect to the Parcel/s of Land but that
it will defend its title to the Parcel/s of Land with improvements thereon against the claims
of any person whomsoever.
On December 12, 1991, a Decision8was rendered in Civil Case No. Q-52702 in favor of Alfonso.
Union Bank appealed the above Decision with the CA. It likewise sought a new trial of the
case, which the trial court denied. The CA appeal was dismissed for failure to file appellant’s
brief; the ensuing Petition for Review with this Court was similarly denied for late filing and
payment of legal fees.

Union Bank next filed with the CA an action to annul the trial court’s December 12, 1991
judgment. In a September 9, 1993 Resolution, however, the CA again dismissed the Petition
for failure to comply with Supreme Court Circular No. 28-91. The bank’s Motion for
Reconsideration was once more denied.
This time, Bignay filed a Petition for annulment of the December 12, 1991 Decision, docketed
as CA-G.R. SP No. 33901. In a July 15, 1994 Decision, the CA dismissed the Petition. Bignay’s
resultant Petition for Certiorari with this Court suffered the same fate.
Meanwhile, as a result of the December 12, 1991 Decision in Civil Case No. Q-52702, Bignay
was evicted from the property; by then, it had demolished the existing structure on the lot
and begun construction of a new building.

ISSUE:
Whether or not Union Bank was grossly negligent in this case.
HELD:
YES. The Court held that the gross negligence of the seller in defending its title to the
property subject matter of the sale – thereby contravening the express undertaking under
the deed of sale to protect its title against the claims of third persons resulting in the buyer’s
eviction from the property, amounts to bad faith, and the buyer is entitled to the remedies
afforded under Article 1555 of the Civil Code.
The record reveals that Union Bank was grossly negligent in the handling and prosecution of
Civil Case No. Q-52702. Its appeal of the December 12, 1991 Decision in said case was
dismissed by the CA for failure to file the required appellant’s brief. Next, the ensuing
Petition for Review on Certiorari filed with this Court was likewise denied due to late filing
and payment of legal fees. Finally, the bank sought the annulment of the December 12, 1991
judgment, yet again, the CA dismissed the petition for its failure to comply with Supreme
Court Circular No. 28-91. As a result, the December 12, 1991 Decision became final and
executory, and Bignay was evicted from the property. Such negligence in the handling of the
case is far from coincidental; it is decidedly glaring, and amounts to bad faith. “Negligence
may be occasionally so gross as to amount to malice [or bad faith].” Indeed, in culpa
contractual or breach of contract, gross negligence of a party amounting to bad faith is a
ground for the recovery of damages by the injured party.
 EASTERN SHIPPING LINES INC. vs. BPI/MS INSURANCE CORP. and
MITSUI SUM TOMO INSURANCE CO. LTD
G.R. No. 193986, 15 January 2014

PONENTE: Perez, J.
TOPIC: Negligence

FACTS:
Through vessels owned by petitioner Eastern Shipping Lines, Inc. there were three
shipments of steel sheets in coil from Japan for delivery in favor of the consignee Calamba
Steel. However, upon arrival at the port of Manila, there were coils observed to be in bad
condition as evidenced by the Turn Over Survey of Bad Order Cargo. The cargo was then
turned over to Asian Terminals, Inc. (ATI) for stevedoring, storage and safekeeping pending
Calamba Steel’s withdrawal of the goods. When ATI delivered the cargo to Calamba Steel,
the latter rejected its damaged portion, on each shipment.
Calamba Steel filed an insurance claim with Mitsui through the latter’s settling agent,
respondent BPI/MS Insurance Corporation (BPI/MS), and the former was paid the sum of
US$30,210.32 for the damage suffered by all three shipments. Correlatively, as insurer and
subrogee of Calamba Steel, Mitsui and BPI/MS filed a Complaint for Damages against
petitioner and ATI. Petitioner prayed to be absolved; that it had no participation whatsoever
in the discharging operations and that petitioner did not have a choice in selecting the
stevedore since ATI is the only arrastre operator mandated to conduct discharging
operations in the South Harbor.
The RTC ruled in favor of Mitsui and BPI/MS. On appeal, the CA affirmed the RTC’s factual
findings that both petitioner and ATI were both negligent in handling the goods pointing to
the affidavit of the Cargo Surveyor.

ISSUE:
Whether or not the carrier is responsible for the damage of certain goods considering it did
not participate in the discharging operations.

HELD:
Yes. In the case at bar, the Supreme Court said that it is settled in maritime law jurisprudence
that cargoes while being unloaded generally remain under the custody of the carrier. As
found by the RTC and affirmed by the CA based on the evidence presented, the goods were
damaged even before they were turned over to ATI. Such damage was even compounded
by the negligent acts of petitioner and ATI which both mishandled the goods during the
discharging operations. Thus, it bears stressing unto petitioner that common carriers, from
the nature of their business and for reasons of public policy, are bound to observe
extraordinary diligence in the vigilance over the goods transported by them.
Subject to certain exceptions enumerated under Article 1734 of the Civil Code, common
carriers are responsible for the loss, destruction, or deterioration of the goods. The
extraordinary responsibility of the common carrier lasts from the time the goods are
unconditionally placed in the possession of, and received by the carrier for transportation
until the same are delivered, actually or constructively, by the carrier to the consignee, or to
the person who has a right to receive them. Owing to this high degree of diligence required
of them, common carriers, as a general rule, are presumed to have been at fault or negligent
if the goods they transported deteriorated or got lost or destroyed. That is, unless they
prove that they exercised extraordinary diligence in transporting the goods. In order to
avoid responsibility for any loss or damage, therefore, they have the burden of proving that
they observed such high level of diligence. In this case, petitioner failed to hurdle such
burden.
 LAND BANK OF THE PHILIPPINES vs. NARCISO L. KHO
G.R. No. 205839, July 7, 2016

PONENTE: Brion, J.
TOPIC: Negligence

FACTS:
Narciso L. Kho (Kho) purchased a manager’s check from Land Bank of the Philippines (LBP)
worth Php 25,000,000.00 paid using the money from his savings account in the same bank.
The check was purchased in order to negotiate a deal with Red Orange. LBP gave Kho the
check and a photocopy of the check. The photocopy was given to Red Orange. The deal
between Kho and Red Orange did not push through. Rudy Medel (representing Red Orange)
went to LBP to negotiate the check, LBP cleared the check and notified Kho of the
transaction. Kho was surprised as the original check was still with him. It turns out that the
check negotiated by Medel with LBP is spurious. Kho tried to recover the Php 25,000,000.00
from LBP, but the latter claims that the former was negligent for giving Medel the
photocopy of the check which was used to make the spurious check and thus they cannot
be held liable for the lost amount.

ISSUE:
Whether or not LBP should pay for the Php 25,000,000.00

HELD:
The genuine check No. 07410 remained in Kho’s possession the entire time and Land Bank
admits that the check it cleared was a fake. When Land Bank’s CCD forwarded the deposited
check to its Araneta branch for inspection, its officers had every opportunity to recognize
the forgery of their signatures or the falsity of the check. Whether by error or neglect, the
bank failed to do so, which led to the withdrawal and eventual loss of the Php
25,000,000.00. This is the proximate cause of the loss. Land Bank breached its duty of
diligence and assumed the risk of incurring a loss on account of a forged or counterfeit
check. Hence, it should suffer the resulting damage.
We cannot agree with the Land Bank and the RTC’s positions that Kho is precluded from
invoking the forgery. A drawer or a depositor of the bank is precluded from asserting the
forgery if the drawee bank can prove his failure to exercise ordinary care and if this
negligence substantially contributed to the forgery or the perpetration of the fraud.

The business of banking is imbued with public interest; it is an industry where the general
public’s trust and confidence in the system is of paramount importance. Consequently,
banks are expected to exert the highest degree of, if not the utmost, diligence. They are
obligated to treat their depositors’ accounts with meticulous care, always keeping in mind
the fiduciary nature of their relationship.
MANILA ELECTRIC COMPANY vs. MATILDE MACABAGDAL RAMOY, BIENVENIDO RAMOY,
ROMANA RAMOY-RAMOS, ROSEMARIE RAMOY, OFELIA DURIAN and CYRENE PANADO
G.R. No. 158911 : March 4, 2008

PONENTE: Austria-Martinez, J.
TOPIC: Negligence

FACTS:
In the year 1987, the National Power Corporation (NPC) filed with the MTC Quezon City a
case for ejectment against several persons allegedly illegally occupying its properties in
Baesa, Quezon City. among the defendants in the ejectment case was Leoncio Ramoy, one
of the plaintiffs in the case at bar. On April 28, 1989 the MTC rendered judgment for
MERALCO to demolish or remove the building and structure they built on the land of the
plaintiff and to vacate the premises. On June 20, 1999 NPC wrote to MERALCO requesting
the immediate disconnection of electric power supply to all residential and commercial
establishments beneath the NPC transmission lines along Baesa, Quezon City.
In a letter dated August 17, 1990 MERALCO requested NPC for a joint survey to determine all
the establishments which are considered under NPC property. In due time, the electric
service connection of the plaintiffs was disconnected. During the ocular inspection ordered
by the Court, it was found out that the residence of the plaintiffs-spouses was indeed
outside the NPC property.

ISSUES:
WON the Court of Appeals gravely erred when it found MERALCO negligent when it
disconnected the subject electric service of respondents.

WON the Court of Appeals gravely erred when it awarded moral and exemplary damages
and attorney’s fees against MERALCO under the circumstances that the latter acted in good
faith in the disconnection of the electric services of the respondents.

RULING:
(1) No. The Court agrees with the CA that under the factual milieu of the present case,
MERALCO failed to exercise the utmost degree of care and diligence required of it, pursuant
to Articles 1170 & 1173 of the Civil Code. It was not enough for MERALCO to merely rely on
the Decision of the MTC without ascertaining whether it had become final and executory.
Verily, only upon finality of the said Decision can it be said with conclusiveness that
respondents have no right or proper interest over the subject property, thus, are not
entitled to the services of MERALCO.

(2) No. MERALCO willfully caused injury to Leoncio Ramoy by withholding from him and
his tenants the supply of electricity to which they were entitled under the Service Contract.
This is contrary to public policy because, MERALCO, being a vital public utility, is expected to
exercise utmost care and diligence i the performance of its obligation. Thus, MERALCO’s
failure to exercise utmost care and diligence in the performance of its obligation to Leoncio
Ramoy is tantamount to bad faith. Leoncio Ramoy testified that he suffered wounded
feelings because of MERALCO’s actions. Furthermore, due to the lack of power supply, the
lessees of his four apartments on subject lot left the premises. Clearly, therefore Leoncio
Ramoy is entitled to moral damages in the amount awarded by the CA. Nevertheless,
Leoncio is the sole person entitled to moral damages as he is the only who testified on the
witness stand of his wounded feelings. Pursuant to Article 2232 of the Civil Code, exemplary
damages cannot be awarded as MERALCO’s acts cannot be considered wanton, fraudulent,
reckless, oppressive or malevolent. Since the Court does not deem it proper to award
exemplary damages in this case then the CA’s award of attorney’s fees should likewise be
deleted, as pursuant to Article 2208 of the Civil Code of which the grounds were not present.

MINDANAO TERMINAL and BROKERAGE vs. PHOENIX ASSURANCE

 GR No. 162467 May 8, 2009

PONENTE: Tinga, J.
TOPIC: Negligence

FACTS:
Del Monte Philippines contracted petitioner Mindanao Terminal and Brokerage Service, Inc,
a stevedoring company, to load and stow a shipment of 146,288 cartons of fresh green
Bananas and 15,202 cartons of fresh pineapples belonging to Del Monte Produce into the
cargo hold of the vessel M/v Mistrau. The vessel was docked at the port of Davao and goods
were to be transported to Incheon, Korea in favour of consignee Taegu Industries. Del
Monte Produce insured the shipment under an “open cargo policy” with private respondent
Phoenix Assurance Company of New York, a non-life insurance company, and private
respondent McGee & Co, the underwriting manager/agent of Phoenix. Upon arrival of M/V
Mistrau in Incheon, it was discovered upon discharge that some of the cargo was in bad
condition. The damage surveyor of Korea, Byeong, surveyed that 16,069 cartons of the
banana shipment and 2,185 cartons of the pineapple shipment were so damaged that they
no longer had commercial value. Del Monte Produce filed a claim under the open cargo
policy. McGee’s Marine Claims evaluated the claim and recommended that payment in the
amount of $210,266.43 be made. Del Monte issued a subrogation receipt to Phoenix and
McGee. Phoenix and McGee instiuted an action for damages against Mindanao Terminal.
RTC ruled that the only participation of Mindanao Terminal was to load the cargoes on
board the vessel and signed the foreman’s report unless they were properly arranged and
tightly secured to withstand voyage across the open seas. It was found that the cargoes
were damages on account of a typhoon which M/V Mistrau had encountered during the
voyage. It was held that Phoenix and McGee had no cause of action against Mindanao
Terminal because the latter, whose services were contracted by Del Monte, a distinct
corporation from Del Monte Produce, had no contract with the assured Del Monte Produce.
CA reversed the RTC’s decision which sustained Phoenix’s and McGee’s argument that the
damage in the cargoes was the result of the improper stowage by Mindanao Terminal. It
imposed on Mindanao Terminal, as the stevedore of the cargo, the duty to exercise
extraordinary diligence in loading and stowing the cargoes. It further held that even with the
absence of a contractual relationship between Mindanao Terminal and Del Monte Produce,
the cause of action of Phoenix and McGee could be based on quasi-delict under Article 2176
of the Civil Code.

ISSUE:
Whether or not Mindanao Terminal was careless and negligent in the loading and stowage
of the cargoes onboard M/V Mistrau making it liable for damages?

Whether Phoenix and McGee has a cause of action against Mindanao Terminal under CC 2176
on quasi-delict?
Whether Mindanao Terminal observed the degree of diligence required by law of a
stevedoring company?

RULING:
The company filed by Phoenix and McGee against Mindanao Terminal states a cause of
action. The present action is based on quasi-delict, arising from the negligent and careless
loading and stowing of the cargoes belonging to Del Monte Produce. Even assuming that
both Phoenix and McGee have only been subrogated in the rights of Del Monte Produce,
who is not a party to the contract of service between Mindanao Terminal and Del Monte,
still the insurance carriers may have a cause of action in light of the Court’s consistent ruling
that the act that breaks the contract may be also a tort. In fine, a liability for tort may arise
even under a contract, where tort is that which breaches the contract. In the present case,
Phoenix and McGee are not suing for damages for injuries arising from the breach of the
contract of service but from the alleged negligent manner by which Mindanao Terminal
handled the cargoes belonging to Del Monte Produce. Despite the absence of contractual
relationship between Del Monte Produce and Mindanao Terminal, the allegation of
negligence on the part of the defendant should be sufficient to establish a cause of action
arising from quasi-delict. Article 1173 of the Civil Code is very clear that if the law or contract
does not state the degree of diligence which is to be observed in the performance of an
obligation then that which is expected of a good father of a family or ordinary diligence shall
be required. Mindanao Terminal, a stevedoring company which was charged with the
loading and stowing the cargoes of Del Monte Produce aboard M/V Mistrau, had acted
merely as a labor provider in the case at bar. There is no specific provision of law that
imposes a higher degree of diligence than ordinary diligence for a stevedoring company or
one who is charged only with the loading and stowing of cargoes. It was neither alleged nor
proven by Phoenix and McGee that Mindanao Terminal was bound by contractual
stipulation to observe a higher degree of diligence than that required of a good father of a
family. We therefore conclude that following Article 1173, Mindanao Terminal was required
to observe ordinary diligence only in loading and stowing the cargoes of Del Monte Produce
aboard M/V Mistrau. Mindanao Terminal, as a stevedore, was only charged with the loading
and stowing of the cargoes from the pier to the ship’s cargo hold; it was never the custodian
of the shipment of Del Monte Produce. The loading and stowing of cargoes would not have
a far reaching public ramification as that of a common carrier and a warehouseman; the
public is adequately protected by our laws on contract and on quasi-delict. The public policy
considerations in legally imposing upon a common carrier or a warehouseman a higher
degree of diligence is not present in a stevedoring outfit which mainly provides labor in
loading and stowing of cargoes for its clients. Phoenix and McGee failed to prove by
preponderance of evidence that Mindanao Terminal had acted negligently. Phoenix and
McGee relied heavily on the deposition of Byeong Yong Ahn and on the survey report of the
damage to the cargoes. Byeong, whose testimony was refreshed by the survey report,
found that the cause of the damage was improper stowage due to the manner the cargoes
were arranged. As admitted by Phoenix and McGee in their Comment before us, the latter is
merely a stevedoring company which was tasked by Del Monte to load and stow the
shipments of fresh banana and pineapple of Del Monte Produce aboard the M/V Mistrau.
How and where it should load and stow a shipment in a vessel is wholly dependent on the
shipper and the officers of the vessel. We are of the opinion that damage occurred aboard
the carrying vessel during sea transit, being caused by ship’s heavy rolling and pitching
under boisterous weather while proceeding from 1600 hrs on 7th October to 0700 hrs on
12th October, 1994 as described in the sea protest. As it is clear that Mindanao Terminal had
duly exercised the required degree of diligence in loading and stowing the cargoes, which is
the ordinary diligence of a good father of a family, the grant of the petition is in order.
 ROBERTO C. SICAM and AGENCIA de R.C. SICAM, INC vs.
LULU V. JORGE and CESAR JORGE
GR NO. 159617, August 8, 2007

PONENTE: Austria-Martinez, J.
TOPIC: Negligence

FACTS:
Lulu Jorge pawned several pieces of jewelry with Agencia de R. C. Sicam located in BF
Homes Parañaque, Metro Manila to secure a loan. On October 19, 1987, two armed men
entered the pawnshop and took away whatever cash and jewelry were found inside the
pawnshop vault. Sicam sent Lulu a letter informing her of the loss of her jewelry due to the
robbery incident in the pawnshop on the same date. Respondent Lulu then wrote back
expressing disbelief, then requested Sicam to prepare the pawned jewelry for withdrawal
on November 6, but Sicam failed to return the jewelry. Lulu, joined by her husband Cesar,
filed a complaint against Sicam with the RTC of Makati seeking indemnification for the loss
of pawned jewelry amounting to P272, 000.00, and attorney’ fees (AF) of P27, 200.00. The
RTC rendered its decision dismissing respondents’ complaint as well as petitioners’
counterclaim. Respondents appealed the RTC Decision to the CA which reversed the RTC,
ordering the appellees to pay appellants the actual value of the lost jewelry and AF.
Petitioners denied, hence the instant petition for review on Certiorari.

ISSUE:
Whether or not the petitioners liable for the loss of the pawned articles in their possession.

HELD:
Yes. The Decision of the CA is AFFIRMED. Article 1174 of the Civil Code provides: Except in
cases expressly specified by the law, or when it is otherwise declared by stipulation, or when
the nature of the obligation requires the assumption of risk, no person shall be responsible
for those events which could not be foreseen or which, though foreseen, were inevitable.
Fortuitous events by definition are extraordinary events not foreseeable or avoidable. It is
therefore, not enough that the event should not have been foreseen or anticipated, but it
must be one impossible to foresee or to avoid. The mere difficulty to foresee the happening
is not impossibility to foresee the same. Petitioners failed to show that they were free from
any negligence to the loss of the pawned jewelry. In order for a fortuitous event to exempt
one from liability, it is necessary that one has committed no negligence or misconduct that
may have occasioned the loss. The very measures which petitioners had allegedly adopted
show that to them the possibility of robbery was not only foreseeable, but actually foreseen
and anticipated.
In connection to Article 1173 of the Civil Code further provides: The fault or negligence of the
obligor consists in the omission of that diligence which is required by the nature of the
obligation and corresponds with the circumstances of the persons, of time and of the place.
When negligence shows bad faith, the provisions of Articles 1171 and 2201, paragraph 2 shall
apply. If the law or contract does not state the diligence which is to be observed in the
performance, that which is expected of a good father of a family shall be required. The
records show that the petitioners failed to exercise reasonable care and caution that an
ordinarily prudent person would have used in the same situation. Sicam’s testimony
revealed that there were no security measures adopted by petitioners in the operation of
the pawnshop. It was also established that there is no sufficient precaution and vigilance
that were adopted by petitioners to protect the pawnshop from the robbery because Sicam
admits that the vault was open at the time of robbery. Hence, Petitioners were guilty of
negligence in the operation of their pawnshop business.
 REYES VS. SISTERS OF MERCY HOSPITAL
G.R No. 130547, October 3, 2000
PONENTE: Mendoza, J.
TOPIC: Medical Malpractice/ Medical Negligence

FACTS:
Petitioner, Leah Alesna Reyes, is the wife of the deceased patient, Jorge Reyes. Five days
before the latter’s death, Jorge has been suffering from recurring fever with chills. The
doctors confirmed through the Widal test that Jorge has typhoid fever. However, he did not
respond to the treatment and died. The cause of his death was “Ventricular Arrythemia
Secondary to Hyperpyrexia and typhoid fever.” Consequently, petitioner filed the instant
case for damages before the Regional Trial Court of Cebu City, which dismissed the case and
was affirmed by the Court of Appeals.
The contention was that Jorge did not die of typhoid fever. Instead, his death was due to the
wrongful administration of chloromycetin. They contended that had respondent doctors
exercised due care and diligence, they would not have recommended and rushed the
performance of the Widal Test, hastily concluded that Jorge was suffering from typhoid
fever, and administered chloromycetin without first conducting sufficient tests on the
patient’s compatibility with said drug.

ISSUE:
Whether or not Sisters of Mercy Hospital is liable for the death of Jorge Reyes.

RULING:
There is no showing that the attending physician in this case deviated from the usual course
of treatment with respect to typhoid fever. Jorge was given antibiotic choloromycetin and
some dose of triglobe after compatibility test was made by the doctor and found that no
adverse reactions manifested which would necessitate replacement of the medicines.
Indeed, the standard contemplated is not what is actually the average merit among all
known practitioners from the best to the worst and from the most to the least experienced,
but the reasonable average merit among the ordinarily good physicians. Here, the doctors
did not depart from the reasonable standard recommended by the experts as they in fact
observed the due care required under the circumstances.
In Medical Negligence cases, it is incumbent upon the plaintiff to establish that the usual
procedure in treating the illness is not followed by the doctor. Failure to prove this, the
doctor is not liable. Physicians are not insurers of the success of every procedure undertaken
and if the procedure was shown to be properly done but did not work, they cannot be
faulted for such result.
 DR. RUBI LI vs. SPOUSES REYNALDO and LINA SOLIMAN,
as parents/heirs of deceased Angelica Soliman
G.R. No. 165279, June 7, 2011

PONENTE: Villarama, Jr.,J.

TOPIC: Medical Malpractice/ Medical Negligence

FACTS:
On July 7, 1993, respondents' 11-year old daughter, Angelica Soliman, underwent a biopsy of
the mass located in her lower extremity at the St. Luke's Medical Center (SLMC). Results
showed that Angelica was suffering from osteosarcoma, osteoblastic type, a high-grade
cancer of the bone which usually afflicts teenage children. Following this diagnosis and as
primary intervention, Angelica's right leg was amputated by Dr. Jaime Tamayo in order to
remove the tumor. As adjuvant treatment to eliminate any remaining cancer cells, and
hence minimize the chances of recurrence and prevent the disease from spreading to other
parts of the patient's body (metastasis), chemotherapy was suggested by Dr. Tamayo. Dr.
Tamayo referred Angelica to another doctor at SLMC, herein petitioner Dr. Rubi Li, a medical
oncologist.
On August 18, 1993, Angelica was admitted to SLMC. However, she died on September 1,
1993, just eleven (11) days after the administration of the first cycle of the chemotherapy
regimen.
On February 21, 1994, respondents filed a damage suit against petitioner, Dr. Leo Marbella,
Mr. Jose Ledesma, a certain Dr. Arriete and SLMC. Respondents charged them with
negligence and disregard of Angelica's safety, health and welfare by their careless
administration of the chemotherapy drugs, their failure to observe the essential precautions
in detecting early the symptoms of fatal blood platelet decrease and stopping early on the
chemotherapy, which bleeding led to hypovolemic shock that caused Angelica's untimely
demise. Further, it was specifically averred that petitioner assured the respondents that
Angelica would recover in view of 95% chance of healing with and when asked regarding the
side effects, petitioner mentioned only slight vomiting, hair loss and weakness.
Respondents thus claimed that they would not have given their consent to chemotherapy
had petitioner not falsely assured them of its side effects. In dismissing the complaint,
the trial court held that petitioner was not liable for damages as she observed the best
known procedures and employed her highest skill and knowledge in the administration of
chemotherapy drugs on Angelica but despite all efforts said patient died.

ISSUE:
Whether or not Dr. Rubi Li is negligent and is liable for damages.

HELD:
NO. There are four essential elements a plaintiff must prove in a malpractice action based
upon the doctrine of informed consent: "(1) the physician had a duty to disclose material
risks; (2) he failed to disclose or inadequately disclosed those risks; (3) as a direct and
proximate result of the failure to disclose, the patient consented to treatment she otherwise
would not have consented to; and (4) plaintiff was injured by the proposed treatment." The
gravamen in an informed consent case requires the plaintiff to "point to significant
undisclosed information relating to the treatment which would have altered her decision to
undergo it.
Examining the evidence on record, the Court held that there was adequate disclosure of
material risks inherent in the chemotherapy procedure performed with the consent of
Angelica's parents. Respondents could not have been unaware in the course of initial
treatment and amputation of Angelica's lower extremity, that her immune system was
already weak on account of the malignant tumor in her knee.On the other hand, it is difficult
to give credence to respondents' claim that petitioner told them of 95% chance of recovery
for their daughter, as it was unlikely for doctors like petitioner who were dealing with grave
conditions such as cancer to have falsely assured patients of chemotherapy's success rate.
Besides, informed consent laws in other countries generally require only a reasonable
explanation of potential harms, so specific disclosures such as statistical data, may not be
legally necessary.

PROFESSIONAL SERVICES, INC. vs. NATIVIDAD AND ENRIQUE AGANA

 G.R. No. 126297, January 31, 2007
&
PROFESSIONAL SERVICES, INC. vs. COURT OF APPEALS
G.R. No. 126297, February 11, 2008

PONENTE: Sandoval-Gutierrez, Jr.,J.

TOPIC: Medical Malpractice/ Medical Negligence

FACTS:
Natividad Agana was rushed to the Medical City General Hospital (Medical City Hospital)
because of difficulty of bowel movement and bloody anal discharge. After a series of
medical examinations, Dr. Miguel Ampil diagnosed her to be suffering from "cancer of the
sigmoid."
Dr. Ampil, assisted by medical staff, performed an anterior resection surgery on Natividad.
He found that the malignancy in her sigmoid area had spread on her left ovary, necessitating
the removal of certain portions of it. Thus, Dr. Ampil obtained the consent of Natividad’s
husband, Enrique Agana, to permit Dr. Juan Fuentes to perform hysterectomy on her.
However, the operation appeared to be flawed, with the attending nurses including in the
Record of Operation that 2 sponges were missing, but closure was nonetheless ordered.
Natividad was released from the hospital. Her hospital and medical bills, including the
doctors’ fees, amounted to P60,000.00. After a couple of days, Natividad complained of
excruciating pain in her anal region. Natividad, accompanied by her husband, went to the
United States to seek further treatment. After four months of consultations and laboratory
examinations, Natividad was told she was free of cancer. Hence, she was advised to return
to the Philippines.
Natividad flew back to the Philippines, still suffering from pains. Two weeks thereafter, her
daughter found a piece of gauze protruding from her vagina. Upon being informed about it,
Dr. Ampil proceeded to her house where he managed to extract by hand a piece of gauze
measuring 1.5 inches in width. He then assured her that the pains would soon vanish.
Dr. Ampil’s assurance did not come true. Instead, the pains intensified, prompting Natividad
to seek treatment at the Polymedic General Hospital. A foul-smelling gauze was detected,
measuring 1.5 inches in width which badly infected her vaginal vault. A rectovaginal fistula
had formed in her reproductive organs which forced stool to excrete through the vagina.
Another surgical operation was needed to remedy the damage. Thus, in October 1984,
Natividad underwent another surgery. Natividad and her husband filed with the RTC, Branch
96, Quezon City a complaint for damages against the Professional Services, Inc. (PSI), owner
of the Medical City Hospital, Dr. Ampil, and Dr. Fuentes for negligence in leaving 2 pieces of
gauze inside Natividad’s body, and malpractice for concealing their acts of negligence.
Enrique Agana also filed with the Professional Regulation Commission (PRC) an
administrative complaint for gross negligence and malpractice against Dr. Ampil and Dr.
Fuentes.
The RTC found PSI, Dr. Ampil and Dr. Fuentes guilty. Pending appeal before the CA, a motion
for partial execution of the RTC decision was granted. The PRC Board of Medicine held that
the prosecution failed to show that Dr. Fuentes was the one who left the 2 pieces of gauze
inside Natividad’s body; and that he concealed such fact from Natividad.

ISSUE:
Will Dr. Ampil, Dr. Fuentes, and PSI be liable for negligence and malpractice?

RULING:
Dr. Ampil is liable for negligence and malpractice. The glaring truth is that all the major
circumstances, taken together, as specified by the Court of Appeals, directly point to Dr.
Ampil as the negligent party. An operation requiring the placing of sponges in the incision is
not complete until the sponges are properly removed, and it is settled that the leaving of
sponges or other foreign substances in the wound after the incision has been closed is at
least prima facie negligence by the operating surgeon. To put it simply, such act is
considered so inconsistent with due care as to raise an inference of negligence. There are
even legions of authorities to the effect that such act is negligence per se. Even if it has been
shown that a surgeon was required by the urgent necessities of the case to leave a sponge
in his patient’s abdomen, because of the dangers attendant upon delay, still, it is his legal
duty to so inform his patient within a reasonable time thereafter by advising her of what he
had been compelled to do. This is in order that she might seek relief from the effects of the
foreign object left in her body as her condition might permit. This is a clear case of medical
malpractice or more appropriately, medical negligence. To successfully pursue this kind of
case, a patient must only prove that a health care provider either failed to do something
which a reasonably prudent health care provider would have done, or that he did something
that a reasonably prudent provider would not have done; and that failure or action caused
injury to the patient. Simply put, the elements are duty, breach, injury and proximate
causation. Dr, Ampil, as the lead surgeon, had the duty to remove all foreign objects, such as
gauzes, from Natividad’s body before closure of the incision. When he failed to do so, it was
his duty to inform Natividad about it. Dr. Ampil breached both duties. Such breach caused
injury to Natividad, necessitating her further examination by American doctors and another
surgery. That Dr. Ampil’s negligence is the proximate cause of Natividad’s injury could be
traced from his act of closing the incision despite the information given by the attending
nurses that two pieces of gauze were still missing. That they were later on extracted from
Natividad’s vagina established the causal link between Dr. Ampil’s negligence and the injury.
And what further aggravated such injury was his deliberate concealment of the missing
gauzes from the knowledge of Natividad and her family.
Dr. Fuentes is not liable for negligence & malpractice. Under the "Captain of the Ship" rule,
the operating surgeon is the person in complete charge of the surgery room and all
personnel connected with the operation. Their duty is to obey his orders.16 As stated
before, Dr. Ampil was the lead surgeon. In other words, he was the "Captain of the Ship."
PSI is liable for the negligence of Dr. Ampil. It is worthy to note that Dr. Ampil and Dr.
Fuentes operated on Natividad with the assistance of the Medical City Hospital’s staff,
composed of resident doctors, nurses, and interns. As such, it is reasonable to conclude that
PSI, as the operator of the hospital, has actual or constructive knowledge of the procedures
carried out, particularly the report of the attending nurses that the two pieces of gauze
were missing. The plaintiffs did plead that the operation was performed at the hospital with
its knowledge, aid, and assistance, and that the negligence of the defendants was the
proximate cause of the patient’s injuries. The Court found that such general allegations of
negligence, along with the evidence produced at the trial of this case, are sufficient to
support the hospital’s liability based on the theory of negligent supervision.
 RAMOS vs. COURT OF APPEALS
G.R. No. 124354. December 29, 1999.

PONENTE: Kapunan, J.
TOPIC: Medical Malpractice/ Medical Negligence

FACTS:
Erlinda Ramos underwent a surgical procedure to remove stone from her gall bladder
(cholecystectomy). They hired Dr. Hosaka, a surgeon, to conduct the surgery at the De Los
Santos Medical Center (DLSMC). Hosaka assured them that he would find a good
anesthesiologist. But the operation did not go as planned, Dr. Hosaka arrived 3 hours late for
the operation, Dra. Gutierrez, the anesthesiologist “botched” the administration of the
anesthesia causing Erlinda to go into a coma and suffer brain damage. The botched
operation was witnessed by Herminda Cruz, sister in law of Erlinda and Dean of College of
Nursing of Capitol Medical Center.
The family of Ramos (petitioners) sued the hospital, the surgeon and the anesthesiologist
for damages. The petitioners showed expert testimony showing that Erlinda's condition was
caused by the anesthesiologist in not exercising reasonable care in “intubating” Erlinda.
Eyewitnesses heard the anesthesiologist saying “Ang hirap ma-intubate nito, mali yata ang
pagkakapasok. O lumalaki ang tiyan”. Diagnostic tests prior to surgery showed that Erlinda
was robust and fit to undergo surgery. The RTC held that the anesthesiologist ommitted to
exercise due care in intubating the patient, the surgeon was remiss in his obligation to
provide a “good anesthesiologist” and for arriving 3 hours late and the hospital is liable for
the negligence of the doctors and for not cancelling the operation after the surgeon failed
to arrive on time. The surgeon, anesthesiologist and the DLSMC were all held jointly and
severally liable for damages to petitioners. The CA reversed the decision of the Trial Court.

ISSUES:
Whether or not the private respondents were negligent and thereby caused the comatose
condition of Ramos.

HELD:
Yes, private respondents were all negligent and are solidarily liable for the damages. Res
ipsa loquitur – a procedural or evidentiary rule which means “the thing or the transaction
speaks for itself.” It is a maxim for the rule that the fact of the occurrence of an injury, taken
with the surrounding circumstances, may permit an inference or raise a presumption of
negligence, or make out a plaintiff’s prima facie case, and present a question of fact for
defendant to meet with an explanation, where ordinarily in a medical malpractice case, the
complaining party must present expert testimony to prove that the attending physician was
negligent.
This doctrine finds application in this case. On the day of the operation, Erlinda Ramos
already surrendered her person to the private respondents who had complete and exclusive
control over her. Apart from the gallstone problem, she was neurologically sound and fit.
Then, after the procedure, she was comatose and brain damaged—res ipsa loquitur!—the
thing speaks for itself!
Negligence – Private respondents were not able to disprove the presumption of negligence
on their part in the care of Erlinda and their negligence was the proximate cause of her
condition. One need not be an anesthesiologist in order to tell whether or not the intubation
was a success. [res ipsa loquitur applies here]. The Supreme Court also found that the
anesthesiologist only saw Erlinda for the first time on the day of the operation which
indicates unfamiliarity with the patient and which is an act of negligence and irresponsibility.
The head surgeon, Dr. Hosaka was also negligent. He failed to exercise the proper authority
as the “captain of the ship” in determining if the anesthesiologist observed the proper
protocols. Also, because he was late, he did not have time to confer with the
anesthesiologist regarding the anesthesia delivery.
The hospital failed to adduce evidence showing that it exercised the diligence of a good
father of the family in hiring and supervision of its doctors (Art. 2180). The hospital was
negligent since they are the one in control of the hiring and firing of their “consultants”.
While these consultants are not employees, hospitals still exert significant controls on the
selection and termination of doctors who work there which is one of the hallmarks of an
employer-employee reationship. Thus, the hospital was allocated a share in the liability.
 NOGALES vs. CAPITOL MEDICAL CENTER
GR No. 142625 December 19, 2006

PONENTE: Carpio, J.
TOPIC: Medical Malpractice/ Medical Negligence

FACTS:
Pregnant with her fourth child, Corazon Nogales, who was then 37 y/o was under the
exclusive prenatal care of Dr. Oscar Estrada beginning on her fourth month of pregnancy or
as early as December 1975. While Corazon was on her last trimester of pregnancy, Dr.
Estrada noted an increase in her blood pressure and development of leg edemas indicating
preeclampsia which is a dangerous complication of pregnancy. Around midnight of May 26,
1976, Corazon started to experience mild labor pains prompting Corazon and Rogelio
Nogales to see Dr. Estrada at his home. After examining Corazon, Dr. Estrada advised her
immediate admission to Capitol Medical Center (CMC). Upon her admission, an internal
examination was conducted upon her by a resident-physician. Based on the doctor’s sheet,
around 3am, Dr. Estrada advised for 10mg valium to be administered immediately by
intramuscular injection, he later ordered the start of intravenous administration of
syntociron admixed with dextrose, 5% in lactated ringer’s solution, at the rate of 8-10 micro-
drops per minute. When asked if he needed the services of anesthesiologist, he refused.
Corazon’s bag of water ruptured spontaneously and her cervix was fully dilated and she
experienced convulsions. Dr. Estrada ordered the injection of 10g of magnesium sulfate but
his assisting Doctor, Dr. Villaflor, only administered 2.5g. She also applied low forceps to
extract Corazon’s baby. In the process, a 10 x 2.5cm piece of cervical tissue was allegedly
torn. The baby came out in an apric, cyanatic weak and injured condition. Consequently the
baby had to be intubated and resuscitated. Corazon had professed vaginal bleeding where a
blood typing was ordered and she was supposed to undergo hysterectomy, however, upon
the arrival of the doctor, she was already pronounced dead due to hemorrhage.

ISSUE:
Whether or not in the conduct of child delivery, the doctors and the respondent hospital is
liable for negligence.

HELD:
Yes. In general, a hospital is not liable for the negligence of an independent contractor-
physician. There is, however an exception to this principle. The hospital may be liable if the
physician is the ostensible agent of the hospital. This exception is also known as the doctrine
of apparent authority.
Under the doctrine of apparent authority a hospital can be held vicariously liable for the
negligent acts of a physician providing care at the hospital, regardless of whether the
physician is an independent contractor, unless the patient knows, or should have known,
that the physician is an independent contractor.
For a hospital to be liable under the doctrine of apparent authority, a plaintiff must show
that 1.) the hospital, or its agent, acted in a manner that would lead a reasonable person to
conclude that the individual who was alleged to be negligent was an employee or agent of
the hospital; 2.) Where the acts of the agent create the appearance of authority, the plaintiff
must also prove that the hospital had knowledge of and acquired in them; and 3.) the
plaintiff acted in reliance upon the conduct of the hospital or its agent, consistent with
ordinary care and prudence.
Borrowed servant doctrine provides that once a surgeon enters the operating room and
takes charge of the acts or omissions of operating room personnel and any negligence
associated with each acts or omissions are imputable to the surgeon, while the assisting
physicians and nurses may be employed by the hospital, or engaged by the patient, they
normally become the temporary servants or agents of the surgeon in charge while the
operation is in progress, and liability may be imposed upon the surgeon for their negligent
acts under the doctrine of respondent superior.
 CANTRE vs. GO
GR No. 160889 April 27, 2007

PONENTE: Quisumbing, J.
TOPIC: Medical Malpractice/ Medical Negligence

FACTS:
Petitioner Dr. Milagros L. Cantre is a specialist in obstetrics and gynecology at the Dr. Jesus
Delgado memorial Hospital. She was the attending physician of respondent Nora Go, who
was admitted at the said hospital on April 19, 1992. At 1:30am of April 20, 1992, Nora gave
birth to her fourth child, a baby boy. However, at around 3:30am Nora suffered profuse
bleeding insider her womb due to some parts of the placenta were not completely expelled
from her womb after delivery consequently, Nora suffered hypovolemic shock, resulting in a
drop in her blood pressure to 40/0. Petitioner said the assisting resident physician
performed various medical procedures to stop the bleeding and to restore Nora and her
baby. Nora remained unconscious until she recovered. While in the recovery room, her
husband, respondent John David Z. Go noticed a fresh gasping wound 2 1/2″ x 3 1/2″ in the
inner portion of her left arm, close to the armpit. He asked the nurses what caused the
injury. He was informed, it was a burn. An investigation was filed by Nora’s husband and
found out from the petitioner that it was caused by the blood pressure cuff, however, this
was contrary to the findings from a medico-legal report which stated that it was indeed a
burn and that a drop light when placed near a skin for about 10mins could cause such burn.
Nora was referred to a plastic surgeon from the hospital and skin grafting was done on her
and scar revision but both still left a mark on Nora’s arm compelling the respondent spouse
to file a complaint for damages against petitioner.

ISSUE:
Whether or not petitioner is liable for the injury referred by Nora.

HELD:
Yes. The Hippocratic oath mandates physicians to give primordial consideration to the well-
being of their patients. If a doctor fails to live up to his precept, he is accountable for his
acts. This is notwithstanding, courts face a unique restraint in adjudicating medical
negligence cases because physicians are not guardians of care and they never set out to
intentionally cause injury to their patients. However, intent is immaterial in negligence cases
because where negligence exist and is proven, it automatically gives the injured a right to
reparation for the damage caused.In cases, involving medical negligence, the doctrine of res
ipsa liquitor allows the mere existence of an injury to justify a presumption of negligence on
the part of the person who controls the instrument causing the injury, provided that the
following requisites concur: The accident is of a kind which ordinarily does not occur in the
absence of someone’s negligence; It is caused by an instrumentality within the exclusive
control of the defendant or defendants; The possibility of contributing conduct which would
make the plaintiff responsible is eliminated. All of these three requisites were present in the
case at bar.
 DR. FERNANDO P. SOLIDUM vs. PEOPLE OF THE PHILIPPINES
G.R. No. 192123 March 10, 2014

PONENTE: Bersamin, J.
TOPIC: Medical Malpractice/ Medical Negligence

FACTS:
Gerald Albert Gercayo (Gerald) was born on June 2, 1992 with an imperforate anus. Two days
after his birth, Gerald underwent colostomy, a surgical procedure to bring one end of the
large intestine out through the abdominal wall, enabling him to excrete through a
colostomy bag attached to the side of his body.
On May 17, 1995, Gerald, then three years old, was admitted at the Ospital ng Maynila for a
pull-through operation. Dr. Leandro Resurreccion headed the surgical team, and was
assisted by Dr. Joselito Luceño, Dr. Donatella Valeña and Dr. Joseph Tibio. The
anesthesiologists included Dr. Marichu Abella, Dr. Arnel Razon and petitioner Dr. Fernando
Solidum (Dr. Solidum). During the operation, Gerald experienced bradycardia, and went into
a coma. His coma lasted for two weeks, but he regained consciousness only after a month.
He could no longer see, hear or move. Agitated by her son’s helpless and unexpected
condition, Ma. Luz Gercayo (Luz) lodged a complaint for reckless imprudence resulting in
serious physical injuries with the City Prosecutor’s Office of Manila against the attending
physicians.
On July 19, 2004, the RTC and CA rendered its judgment finding Dr. Solidum guilty beyond
reasonable doubt of reckless imprudence resulting in serious physical injuries and ordering
her to indemnify, jointly and severally with the Ospital ng Maynila, private complainant Luz
Gercayo, for damages.

ISSUE:
Whether Ospital ng Maynila shall be held jointly and severally liable with Dr. Solidum with
regard to indemnification for damages

RULING:
No. The judgment was flawed in logic and in law. In criminal prosecutions, the civil action for
the recovery of civil liability that is deemed instituted with the criminal action refers only to
that arising from the offense charged. It is puzzling, therefore, how the RTC and the CA
could have adjudged Ospital ng Maynila jointly and severally liable with Dr. Solidum for the
damages despite the obvious fact that Ospital ng Maynila, being an artificial entity, had not
been charged along with Dr. Solidum. The judgment rendered against Ospital ng Maynila
void was the product of grave abuse of discretion amounting to lack of jurisdiction.
The Ospital ng Maynila was not at all a party in the proceedings. Hence, its fundamental right
to be heard was not respected from the outset. The R TC and the CA should have been alert
to this fundamental defect. Verily, no person can be prejudiced by a ruling rendered in an
action or proceeding in which he was not made a party. Such a rule would enforce the
constitutional guarantee of due process of law.
Moreover, Ospital ng Maynila could be held civilly liable only when subsidiary liability would
be properly enforceable pursuant to Article 103 of the Revised Penal Code. But the
subsidiary liability seems far-fetched here. The conditions for subsidiary liability to attach to
Ospital ng Maynila should first be complied with. Firstly, pursuant to Article 103 of the
Revised Penal Code, Ospital ng Maynila must be shown to be a corporation “engaged in any
kind of industry.” The term industry means any department or branch of art, occupation or
business, especially one that employs labor and capital, and is engaged in industry. However,
Ospital ng Maynila, being a public hospital, was not engaged in industry conducted for profit
but purely in charitable and humanitarian work. Secondly, assuming that Ospital ng Maynila
was engaged in industry for profit, Dr. Solidum must be shown to be an employee of Ospital
ng Maynila acting in the discharge of his duties during the operation on Gerald. Yet, he
definitely was not such employee but a consultant of the hospital. And, thirdly, assuming
that civil liability was adjudged against Dr. Solidum as an employee (which did not happen
here), the execution against him was unsatisfied due to him being insolvent.
 NILO B ROSIT vs DAVAO DOCTORS HOSPITAL and DR. ROLANDO GESTUVO
GR No. 210445, December 7, 2015

PONENTE: Velasco, Jr.,J.

TOPIC: Medical Malpractice/ Medical Negligence

FACTS:
Rosit figured in a motorcycle accident where he fractured his jaw. He was referred to Dr.
Gestuvo, a specialist in mandibular injuries, who operated on Rosit. As the operation
required the smallest screws available, Dr. Gestuvo cut the screws on hand to make them
smaller. Dr. Gestuvo knew that there were smaller titanium screws available in Manila, but
did not so inform Rosit supposing that the latter would not be able to afford the same.
Following the procedure, Rosit could not properly open and close his mouth and was
in pain. Xrays showed that his jaw was aligned by the screws used on him touched his molar.
Dr. Gestuvo referred Rosit to Dr. Pangan, a dentist who then opined that another operation
is necessary and that it is to be performed in Cebu. Rosit went to Cebu and underwent the
operation successfully.
On his return to Davao, Rosit demanded the Dr. Gestuvo reimburse him for the cost
of the operation and the expenses incurred in Cebu amounting to P140,000. Dr. Gestuvo
refused to pay. Thus, Rosit filed a civil case for damages. RTC adjudged Dr. Gestuvo
negligent holding that res ipsa loquitur principle applies, thus, expert medical testimony may
be dispensed with because the injury itself provides the proof of negligence. CA reversed
the decision. Hence, this appeal.

ISSUE:
Whether or not CA correctly absolved Dr. Gestuvo from liability.

RULING:
Petition granted. CA erred in absolving Dr. Gestuvo from liability. A medical negligence is a
type of claim to redress a wrong committed by a medical professional, that has caused
bodily harm to or the death of a patient. There are four elements involved in a medical
negligence case, namely: duty, breach, injury, and proximate causation.
To establish medical negligence, the Court has held that an expert testimony is generally
required to define the standard of behaviour by which the court may determine whether the
physician has properly performed the requisite duty toward the patient. But, although
generally, expert medical testimony is relied upon in malpractice suits to prove that a
physician has done a negligent act or that he has deviated from the standard medical
procedure, when the doctrine of res ipsa loquitur is availed by the plaintiff, the need for
expert medical testimony is dispensed with because the injury itself provides the proof of
negligence. The exception may be availed of if the following requisites concur:
1. The accident was of a kind that does not ordinarily occur unless someone is negligent
2. The instrumentality or agency that caused the injury was under the exclusive control
of the person charged
3. The injury suffered must not have been due to any voluntary action or contribution of
the person injured
In this case, the essential requisites for the application of the doctrine of res ipsa loquitur are
present. The first element was sufficiently established when Rosit proved that one of the
screws installed by Dr. Gestuvo struck his molar. An average man of common intelligence
would know that striking a tooth with any foreign object much less a screw would cause
severe pain. Anent the second element, it is sufficient that the operation which resulted in
the screw hitting Rosit’s molar was, indeed, performed by Dr. Gestuvo. Lastly, the third
element, it was not shown that Rosit’s lung disease could have contributed to the pain.
What is clear is that he suffered because one of the screws that Dr. Gestuvo installed hit
Rosit’s molar. Clearly then, the res ipsa loquitur doctrine finds application in the instant case
and no expert testimony is required to establish the negligence of defendant Dr. Gestuvo.
 CARLOS BORROMEO vs. FAMILY CARE HOSPITAL INC.
G.R. No. 191018, January 25, 2016

Ponente: Brion, J.
TOPIC: Medical Malpractice/ Medical Negligence

FACTS:
On July 13, 1999, the Borromeo brought his wife to the Family Care Hospital because she had
been complaining of acute pain at the lower stomach area and fever for two days. She was
admitted at the hospital and placed under the care of Dr. Inso. Dr. Inso suspected that Lilian
might be suffering from acute appendicitis. However, there was insufficient data to rule out
other possible causes and to proceed with an appendectomy. Thus, he ordered Lilian’s
confinement for testing and evaluation. However, the tests were not conclusive enough to
confirm that she had appendicitis. Lilian abruptly developed an acute surgical abdomen. On
July 15, 1999, Dr. Inso decided to conduct an exploratory laparotomy on Lilian because of the
findings on her abdomen and his fear that she might have a ruptured appendix. During the
operation, Dr. Inso confirmed that Lilian was suffering from acute appendicitis. He
proceeded to remove her appendix which was already infected and congested with pus. The
operation was successful. Six hours after Lilian was brought back to her room, Dr. Inso was
informed that her blood pressure was low. After assessing her condition, he ordered the
infusion of more intravenous (IV) fluids which somehow raised her blood pressure.
Subsequently, a nurse informed him that Lilian was becoming restless. Dr. Inso immediately
went to Lilian and saw that she was quite pale. He immediately requested a blood
transfusion. Lilian did not respond to the blood transfusion even after receiving two 500 cc-
units of blood. Eventually, an endotracheal tube connected to an oxygen tank was inserted
into Lilian to ensure her airway was clear and to compensate for the lack of circulating
oxygen in her body from the loss of red blood cells. Nevertheless, her condition continued
to deteriorate. At this point, Dr. Inso suspected that Lilian had Disseminated Intravascular
Coagulation (DIC), a blood disorder characterized by bleeding in many parts of her body
caused by the consumption or the loss of the clotting factors in the blood. However, Dr. Inso
did not have the luxury to conduct further tests because the immediate need was to
resuscitate Lilian. Dr. Inso and the nurses performed CPR on Lilian. Dr. Inso also informed her
family that there may be a need to re-operate on her, but she would have to be put in an
Intensive Care Unit (ICU). Unfortunately, Family Care did not have an ICU because it was only
a secondary hospital and was not required by the Department of Health to have one. Dr.
Inso then personally coordinated with the Muntinlupa Medical Center (MMC) which had an
available bed. Upon reaching the MMC, a medical team was on hand to resuscitate.
Unfortunately, Lilian passed away despite efforts to resuscitate her. According to the
autopsy report, Dr. Reyes concluded that the cause of Lilian’s death was haemorrhage due
to bleeding petechial blood vessels: internal bleeding. He further concluded that the internal
bleeding was caused by the 0.5 x 0.5 cm opening in the repair site. He opined that the
bleeding could have been avoided if the site was repaired with double suturing instead of
the single continuous suture repair that he found. Based on the autopsy, the petitioner filed
a complaint for damages against Family Care and against Dr. Inso for medical negligence.
ISSUE:
Whether or not respondents are guilty of medical negligence (NO)

RULING:
A medical professional has the duty to observe the standard of care and exercise the degree
of skill, knowledge, and training ordinarily expected of other similarly trained medical
professionals acting under the same circumstances. A breach of the accepted standard of
care constitutes negligence or malpractice and renders the defendant liable for the resulting
injury to his patient. The standard is based on the norm observed by other reasonably
competent members of the profession practicing the same field of medicine. Because
medical malpractice cases are often highly technical, expert testimony is usually essential to
establish: (1) the standard of care that the defendant was bound to observe under the
circumstances; (2) that the defendant’s conduct fell below the acceptable standard; and (3)
that the defendant’s failure to observe the industry standard caused injury to his patient.
The expert witness must be a similarly trained and experienced physician. Thus, a
pulmonologist is not qualified to testify as to the standard of care required of an
anesthesiologist and an autopsy expert is not qualified to testify as a specialist in infectious
diseases. Dr. Reyes is not an expert witness who could prove Dr. Inso’s alleged negligence.
His testimony could not have established the standard of care that Dr. Inso was expected to
observe nor assessed Dr. Inso’s failure to observe this standard. His testimony cannot be
relied upon to determine if Dr. Inso committed errors during the operation, the severity of
these errors, their impact on Lilian’s probability of survival, and the existence of other
diseases/condition. The petitioner cannot invoke the doctrine of res ipsa loquitur to shift the
burden of evidence onto the respondent. Res ipsa loquitur, literally, “the thing speaks for
itself;” is a rule of evidence that presumes negligence from the very nature of the accident
itself using common human knowledge or experience. The application of this rule requires:
(1) that the accident was of a kind which does not ordinarily occur unless someone is
negligent; (2) that the instrumentality or agency which caused the injury was under the
exclusive control of the person charged with negligence; and (3) that the injury suffered
must not have been due to any voluntary action or contribution from the injured person. The
concurrence of these elements creates a presumption of negligence that, if unrebutted,
overcomes the plaintiff’s burden of proof. The rule is not applicable in cases such as the
present one where the defendant’s alleged failure to observe due care is not immediately
apparent to a layman. These instances require expert opinion to establish the culpability of
the defendant doctor. It is also not applicable to cases where the actual cause of the injury
had been identified or established. While this Court sympathizes with the petitioner’s loss,
the petitioner failed to present sufficient convincing evidence to establish: (1) the standard
of care expected of the respondent and (2) the fact that Dr. Inso fell short of this expected
standard. Considering further that the respondents established that the cause of Lilian’s
uncontrollable bleeding (and, ultimately, her death) was a medical disorder – Disseminated
Intravascular Coagulation – we find no reversible errors in the CA’s dismissal of the
complaint on appeal.
 MENDOZA vs. CASUMPANG
G.R. No. 197987, March 19, 2012

PONENTE: Abad, J.
TOPIC: Medical Malpractice/ Medical Negligence

Facts:
Josephine Casumpang, who died before the trial could end, was substituted by her
respondent, husband, Adriano and their children Jennifer and John, filed an action for
damages against petitioner Dr. Mendoza in 1993 before the Regional Trial Court of Iloilo City.
Josephine underwent hysterectomy and myomectomy that Dr. Mendoza performed and
after operation, Josephine experienced recurring fever, nausea and vomiting. Three months
after the operation when she noticed something protruding from her genital while taking a
bath and she went to see Dr. Jamandre-Guban since Dr. Mendoza was unavailable. Dr.
Jamandre-Guban extracted a foul smelling, partially expelled rolled gauze from her cervix.
The RTC rendered judgment, finding Dr. Mendoza guilty of neglect and reinstated by the
Court of Appeals, thus, prompted her to file the present petition.

Issue:
Whether or not there was a gross negligence on the part of the petitioner, Dr. Mariter.

Ruling:
Yes, the petitioner is guilty of gross negligence. Gross negligence is a flagrant failure to
exercise the care that a reasonably prudent person would exercise. A surgical operation is
the responsibility of surgeon performing it. He must personally ascertain that the counts of
instruments and materials used before the surgery and prior to the sewing the patient up
has been correctly done. In this kind of jurisprudence, it will provide an example to the
medical profession and to stress the need for constant vigilance in attending to patient’s
health.
 ARRIETA vs. NATIONAL RICE AND CORN CORPORATION
G.R. No. 165279, June 7, 2011

PONENTE: Regala, J.
TOPIC: Circumvention of the Tenor of the Obligation

FACTS :
Mrs. Paz Arrieta participated in public bidding called by NARIC on May 19, 1952 for the supply
of 20,000 metric tons of Burmese rice. Her bid was $ 203.00 per metric ton, it was the lowest
that’s why the contract was awarded to her. On July 1,1952, Arrieta and NARIC entered into
contract. Arrieta was obligated to deliver 20,000 metric ton of Burmese rice at $203.00 per
metric ton to NARIC. In return, NARIC committed itself to pay for the imported rice “ by
means of an irrevocable, confirmed and assignable letter of credit in US currency in favour of
Arrieta and/or supplier in Burma (THIRI SETKYA), immediately.” NARIC took the first step to
open the letter of credit on July 30, 1952 by forwarding to the PNB its application for
commercial letter of credit. Arrieta with the help of a counsel, advised NARIC of the
necessity for the opening of the letter because she tender her supplier in Ragoon, Burma of
5 % of the price of 20,000 tons at $180.70 and if she didn’t comply the 5% will be confiscated
if the required letter of credit is not received by them before August 4, 1952. PNB informed
NARIC that their application of credit letter amounting to $3,614,000.00 was approved with
the condition of 50% marginal cash be paid. NARIC does not meet the condition. The
allocation of Arrieta’s supplier in Ragoon was cancelled and the 5% deposit was forfeited.

ISSUE :
Does NARIC liable for damages?

HELD :
Yes, because the reason of the cancellation of the contract by Arrieta in Ragoon, Burma was
the failure of NARIC to open the letter of credit within a specific period of time. One who
assumes contractual obligation and fails to perform in which he knew and was aware when
he entered in the contract, should be liable for his failure to do what is required by a law.
Under the Art. 1170 of the Civil Code, not only the debtors guilty of fraud, negligence or
default but also a debtor of every, in general, who fails in the performance of his obligation
is bound to indemnify for the losses and damages caused thereby.
 CATHAY PACIFIC vs. VAZQUEZ
G.R. No. 150843; 14 March 2003

PONENTE: Davide, Jr., J.

TOPIC: Circumvention of the Tenor of the Obligation

FACTS:
Sps. Dr. Daniel and Maria Luisa Vazquez, resposdents, together with their maid and two
friends went to Hongkong for pleasure and business. On their return flight, they booked
Cathay Pacific Airways. While boarding, they were advised that there was a seat change
from Business Class to First Class. Dr. Vazquez refused the upgrade for the reason that it
would not look nice for them as hosts to travel First Class and their guests, in the Business
Class; and that they were going to discuss business matter during the flight. Cathay
informed the Vazquezes that the Business Class was fully booked, and that since they are
Marco Polo Club members, they had the priority to be upgraded to first class. Dr. Vazquez
eventually gave in, after being prohibited to take the flight if they would not avail
themselves of the privilege. Upon their return to Manila, the Vazquezes filed a complaint
and demanded to be indemnified for the humiliation and embarrassment caused by Cathay’s
employees.

ISSUES:
Are the Vazquezes obliged to avail the privilege and take the First Class flight?

HELD:
No. A contract of carriage existed between Cathay and the Vazquezes. They voluntarily and
freely gave their consent to an agreement whose object was the transportation of the
Vazquezes from Manila to Hong Kong and back to Manila, with seats in the Business Class
Section of the aircraft, and whose cause or consideration was the fare paid by the
Vazquezes to Cathay. The Vazquezes should have been consulted first whether they wanted
to avail themselves of the privilege or would consent to a change of seat accommodation
before their seat assignments were given to other passengers. It should not have been
imposed on them over their vehement objection. By insisting on the upgrade, Cathay
breached its contract of carriage with the Vazquezes. Art. 1244. The debtor of a thing cannot
compel the creditor to receive a different one, although the latter may be of the same value
as, or more valuable than that which is due. In obligations to do or not to do, an act or
forbearance cannot be substituted by another act or forbearance against the obligee’s will.
 VICTORIAS PLANTERS ASSOCIATION INC., ET AL vs. VICTORIAS MILLING CORP.
G.R. No. L-6648, July 25, 1955

PONENTE: Padilla, J.
TOPIC: Fortuitous Event

FACTS:
Several sugarcane farmers in Negros Occidental entered into a contract with the North
Negros Sugar Co. In. and Victorias Milling Co. Inc. wherein said corporation will construct a
sugar central or mill with the capacity of milling 300 tons of sugar every 24 hours. In the said
contract it is stipulated that the sugar cane planter’s produce will be milled by the said
corporation for the period of 30 years. During the World War II comprising of 4 years and the
post war period comprising of 2 years the petitioners was not able to produce sugarcane
and the sugar central is destroyed. The North Central Sugar Co. Inc. did not reconstruct its
destroyed mill but rather made an arrangement with the planters that their produce will be
milled by Victorias Milling Co. Inc. herein respondent. In view of the 30-year period of the
milling contract the petitioner contended that the contract is deemed terminated. On the
other hand the respondent stated that the contract speaks of “30 years milling period” not
“30 years in time” and in view of the failure of the petitioners to produce sugarcane during
the war and post war they still have 6 years milling period. The trial court ruled in favor of
the petitioners

ISSUE:
Is the occurrence of war (fortuitous event ) relieved the petitioners from their obligation?

HELD:
Yes, considering that war is a force majeure or a fortuitous event, the obligee has no legal
right compel the obligor to perform his obligation. Furthermore it is impossible in this case
for the petitioner to produce crops (Nemo tenetor ad impossibilia) and the fulfillment of
that impossible, if granted will amount to the extension of the contract. Therefore the
judgment appealed is affirmed.
 PHILIPPINE COMMUNICATIONS SATELLITE CORPORATION vs. GLOBE TELECOM, INC.
(formerly Globe Mckay Cable and Radio Corporation)
G.R. No. 147324 May 25, 2004

PONENTE: Tinga, J.
TOPIC: Fortuitous Event

FACTS:
Globe Telecom, Inc., formerly known as Globe McKay Cable and Radio Corporation installed
and configured communication facilities for the exclusive use of the US Defense
Communications Agency (USDCA) in Clark Air Base and Subic Naval Base. Globe Telecom
later contracted the Philippine Communications Satellite Corporation (Philcomsat) for the
provision of the communication facilities. As both companies entered into an Agreement,
Globe obligated itself to operate and provide an IBS Standard B earth station with Cubi Point
for the use of the USDCA. The term of the contract was for 60 months, or five (5) years. In
turn, Globe promised to pay Philcomsat monthly rentals for each leased circuit involved. As
the saga continues, the Philippine Senate passed and adopted Senate Resolution No. 141 and
decided not to ratify the Treaty of Friendship, Cooperation and Security, and its
Supplementary Agreements to extend the term of the use by the US of Subic Naval Base,
among others. In other words, the RP-US Military Bases Agreement was suddenly
terminated.
Because of this event, Globe notified Philcomsat of its intention to discontinue the use of
the earth station effective 08 November 1992 in view of the withdrawal of US military
personnel from Subic Naval Base after the termination of the RP-US Military Bases
Agreement. After the US military forces left Subic Naval Base, Philcomsat sent Globe a letter
in 1993 demanding payment of its outstanding obligations under the Agreement amounting
to US$4,910,136.00 plus interest and attorney’s fees. However, Globe refused to heed
Philcomsat’s demand. On the other hand, the latter with the Regional Trial Court of Makati a
Complaint against Globe, however, Globe filed an Answer to the Complaint, insisting that it
was constrained to end the Agreement due to the termination of the RP-US Military Bases
Agreement and the non-ratification by the Senate of the Treaty of Friendship and
Cooperation, which events constituted force majeure under the Agreement. Globe
explained that the occurrence of said events exempted it from paying rentals for the
remaining period of the Agreement. Four years after, the trial court its decision but both
parties appealed to the Court of Appeals.

ISSUE:
Whether or not the non-ratification by the Senate of the Treaty of Friendship, Cooperation
and Security and its Supplementary Agreements constitutes force majeure which exempts
Globe from complying with its obligations under the Agreement;

HELD:
The appellate court ruled that the non-ratification by the Senate of the Treaty of Friendship,
Cooperation and Security, and its Supplementary Agreements, and the termination by the
Philippine Government of the RP-US Military Bases Agreement effective 31 December 1991 as
stated in the Philippine Government’s Note Verbale to the US Government, are acts,
directions, or requests of the Government of the Philippines which constitute force majeure.
However, the Court of Appeals ruled that although Globe sought to terminate Philcomsat’s
services by 08 November 1992, it is still liable to pay rentals for the December 1992,
amounting to US$92,238.00 plus interest, considering that the US military forces and
personnel completely withdrew from Cubi Point only on 31 December 1992.
No reversible error was committed by the Court of Appeals in issuing the assailed Decision;
hence the petitions are denied. Article 1174, which exempts an obligor from liability on
account of fortuitous events or force majeure, refers not only to events that are
unforeseeable, but also to those which are foreseeable, but inevitable: The Supreme Court
agrees with the Court of Appeals and the trial court that the abovementioned requisites are
present in the instant case. Philcomsat and Globe had no control over the non-renewal of
the term of the RP-US Military Bases Agreement when the same expired in 1991, because the
prerogative to ratify the treaty extending the life thereof belonged to the Senate. Neither
did the parties have control over the subsequent withdrawal of the US military forces and
personnel from Cubi Point in December 1992.
 DIOQUINO vs. LAUREANO
G.R. No. L-25906, May 28, 1970

PONENTE: Fernando, J.
TOPIC: Fortuitous Event

FACTS:
Atty. Dioquino, a practicing lawyer of Masbate, owns the car. Dioquino went to the office of
the MVO, Masbate to have his car registered. Plaintiff met defendant Federico Laureano, a
patrol officer of said MVO office, who was waiting for a jeepney to take him to the office of
the Provincial Commander (P.C.), Masbate. Dioqunio requested defendant to introduce him
to one of the clerks in the MVO offive who could facilitate the registration of his car.
Laureano rode on the car of Dioquino on his way to P.C. Barracks. The car, driven by
Dioquino’s river and with Laureano as the sole passenger, was stoned by some ‘mischievous
boys’ —> windshield was broken. Laureano was only able to catch one of the boys. Boy
admitted to having thrown the stone. The father of the boy was called but no satisfactory
arrangements were made about the damage to the windshield. Laureano refused to file
charges against the boy and his parents believing that the stone-throwing was merely
accidental and that it was due to force majeure. Defendant Laureano also refused to pay the
windshield himself. Plaintiff now holds defendant Federico Laureano accountable for the
loss sustained. Also included in the action filed were the defendant’s wife, Aida Laureano,
and his father, Juanito Laureano. Lower court granted plaintiff’s action for damages but
absolved defendant’s wife and father of any responsibility.

ISSUE :
Whether or not damages could be awarded for the unwarranted inclusion of defendant’s
wife and father in the litigation.

RULING:
NO. Plaintiif included the wife and the father because, according to him, the father was the
administrator of the inheritance of an undivided property to which defendant could lay claim
and the wife for the conjugal partnership would be made to respond for whatever liability
would be adjudicated against the husband. Plaintiff was merely propmted by the desire to
inflict needless and unjustified vexation on them (wife and father). Since plaintiff already
suffered a pecuniary loss which was the result of a fortuitous event (would have not occured
if defendent Laureano had not borrowed his car), court feels that he is not to be penalized
further by his mistaken view of the law in including them in his complaint.
 AUSTRIA vs. COURT OF APPEALS
G.R. No. L-29640, June 10, 1971

PONENTE: Puno, J.
TOPIC: Fortuitous Event

FACTS:
Maria G. Abad received from Guillermo Austria one (1) pendant with diamonds to be sold on
commission basis or to be returned on demand.
Maria Abad while walking home, two men snatched her purse containing jewelry and cash,
and ran away.
Thus, Abad failed to return the jewelry or pay its value notwithstanding demands.
Austria filed an action against Abad and Abad’s husband for recovery of the pendant or of its
value, and damages. Abad raised the defense that the alleged robbery had extinguished
their obligation.

ISSUE:
Whether or not in a contract of agency (consignment of good for sole) it is necessary that
there be prior conviction for robbery before the loss of the article shall exempt the
consignee from liability for such loss.

RULING:
No. To avail of the exemption granted in the law, it is not necessary that the persons
responsible for the occurrence should be found or punished, it would only be sufficient to
establish that the enforceable event, the robbery in this case did take place without any
concurrence fault on the debtor’s part, and this can be done by preponderance of evidence.
A court finding that a robbery has happened would not necessary mean that those accused
in the criminal action should be found guilty of the crime; nor would a ruling that those
actually accused did not commit the robbery be inconsistent with a finding that a robbery
did take place.
No. In 1961, when the robbery in question did take place, for at that time criminality had not
by far reached the levels attained in the present day. The diligence that Abad portrayed
when she went home before she was robbed was not a sign of negligence on her part.
 CO vs COURT OF APPEALS
G.R. No. 100776, October 28, 1993

PONENTE: Narvasa, C.J.

TOPIC: Fortuitous Event

FACTS:
Petitioner Albino Co delivered to the salvaging firm on September 1, 1983 a check drawn
against the Associated Citizens' Bank, postdated November 30, 1983 in the sum of
P361,528.00. 1 The check was deposited on January 3, 1984. It was dishonored two days
later, the tersely-stated reason given by the bank being: "CLOSED ACCOUNT." A criminal
complaint for violation of Batas Pambansa Bilang 22 2 was filed by the salvage company
against Albino Co with the Regional Trial Court of Pasay City. The case eventuated in Co's
conviction of the crime charged. He argued on appeal that at the time of the issuance of the
check on September 1, 1983, some four (4) years prior to the promulgation of the judgment
in Que v. People on September 21, 1987, the delivery of a "rubber" or "bouncing" check as
guarantee for an obligation was not considered a punishable offense, an official
pronouncement made in a Circular of the Ministry of Justice.

ISSUE:
Whether the decision issued by the court be applied retroactively to the prejudice of the
accused.

HELD:
No. Pursuant to Article 8 of the Civil Code "judicial decisions applying or interpreting the
laws or the Constitution shall form a part of the legal system of the Philippines." But while
our decisions form part of the law of the land, they are also subject to Article 4 of the Civil
Code which provides that "laws shall have no retroactive effect unless the contrary is
provided." This is expressed in the familiar legal maxim lex prospicit, non respicit, the law
looks forward not backward. The rationale against retroactivity is easy to perceive. The
retroactive application of a law usually divests rights that have already become vested or
impairs the obligations of contract and hence, is unconstitutional. The weight of authority is
decidedly in favor of the proposition that the Court's decision of September 21, 1987 in Que
v. People, 154 SCRA 160 (1987) 14 that a check issued merely to guarantee the performance
of an obligation is nevertheless covered by B.P. Blg. 22 — should not be given retrospective
effect to the prejudice of the petitioner and other persons situated, who relied on the
official opinion of the Minister of Justice that such a check did not fall within the scope of
B.P. Blg. 22.
 LEA MER INDUSTRIES INC. vs. MALAYAN INSURANCE CO., INC
G.R. No. 161745, September 30, 2005

PONENTE: Panganiban, J.
TOPIC: Fortuitous Event

FACTS:
Ilian Silica Mining entered into a contract of carriage with Lea Mer Industries, Inc., for the
shipment of 900 metric tons of silica sand. Consigned to Vulcan Industrial and Mining
Corporation, the cargo was to be transported from Palawan to Manila. During the voyage,
the vessel (Judy VII) sank, resulting in the loss of the cargo. Malayan Insurance Co., Inc., as
insurer, paid Vulcan the value of the lost cargo. To recover the amount paid and in the
exercise of its right of subrogation, Malayan demanded reimbursement from Lea Mer, which
refused to comply. Consequently, Malayan instituted a Complaint.
Lea Mer claimed that the loss of the cargo was due to the bad weather condition brought
about by Typhoon Trining. Evidence was presented to show that Lea Mer had not been
informed of the incoming typhoon, and that the Philippine Coast Guard had given it
clearance to begin the voyage.

ISSUE:
Whether or not the carrier is liable.

RULING:
Lea Mer presented no evidence that it had attempted to minimize or prevent the loss
before, during or after the alleged fortuitous event. The alleged fortuitous event was not
the sole and proximate cause of the loss. There is a preponderance of evidence that the
barge was not seaworthy when it sailed for Manila. Respondent was able to prove that, in
the hull of the barge, there were holes that might have caused or aggravated the sinking.
Because the presumption of negligence or fault applied to Lea Mer, it was incumbent upon
it to show that there were no holes; or, if there were, that they did not aggravate the
sinking.
The submission of the Philippine Coast Guard’s Certificate of Inspection of Judy VII did not
conclusively prove that the barge was seaworthy. The regularity of the issuance of the
Certificate is disputably presumed. It could be contradicted by competent evidence, which
respondent offered. Moreover, this evidence did not necessarily take into account the actual
condition of the vessel at the time of the commencement of the voyage.
 ROBERTO C. SICAM and AGENCIA de R.C.
SICAM, INC. vs. SPOUSES JORGE
G.R. No. 159617, August 8, 2007

PONENTE: Austria-Martinez, J.
TOPIC: Fortuitous Event

FACTS:
On different dates, Lulu Jorge pawned several pieces of jewelry with Agencia de R. C. Sicam
located in Parañaque to secure a loan. On October 19, 1987, two armed men entered the
pawnshop and took away whatever cash and jewelry were found inside the pawnshop vault.
On the same date, Sicam sent Lulu a letter informing her of the loss of her jewelry due to the
robbery incident in the pawnshop. Respondent Lulu then wroteback expressing disbelief,
then requested Sicam to prepare the pawned jewelry for withdrawal on November 6, but
Sicam failed to return the jewelry. Lulu, joined by her husband Cesar, filed a complaint
against Sicam with the RTC of Makati seeking indemnification for the loss of pawned jewelry
and payment of AD, MD and ED as well as AF. The RTC rendered its Decision dismissing
respondents’ complaint as well as petitioners’ counterclaim. Respondents appealed the RTC
Decision to the CA which reversed the RTC, ordering the appellees to pay appellants the
actual value of the lost jewelry and AF. Petitioners MR denied, hence the instant petition for
review on Certiorari.

ISSUE:
Are the petitioners liable for the loss of the pawned articles in their possession?

RULING:
The Decision of the CA is AFFIRMED. Article 1174 of the Civil Code provides: Art. 1174. Except
in cases expressly specified by the law, or when it is otherwise declared by stipulation, or
when the nature of the obligation requires the assumption of risk, no person shall be
responsible for those events which could not be foreseen or which, though foreseen, were
inevitable.
Fortuitous events by definition are extraordinary events not foreseeable or avoidable. It is
therefore, not enough that the event should not have been foreseen or anticipated, as is
commonly believed but it must be one impossible to foresee or to avoid. The mere difficulty
to foresee the happening is not impossibility to foresee the same. To constitute a fortuitous
event, the following elements must concur: (a) the cause of the unforeseen and unexpected
occurrence or of the failure of the debtor to comply with obligations must be independent
of human will; (b) it must be impossible to foresee the event that constitutes the caso
fortuito or, if it can be foreseen, it must be impossible to avoid; (c) the occurrence must be
such as to render it impossible for the debtor to fulfill obligations in a normal manner; and,
(d) the obligor must be free from any participation in the aggravation of the injury or loss.
The burden of proving that the loss was due to a fortuitous event rests on him who invokes
it. And, in order for a fortuitous event to exempt one from liability, it is necessary that one
has committed no negligence or misconduct that may have occasioned the loss. Sicam had
testified that there was a security guard in their pawnshop at the time of the robbery. He
likewise testified that when he started the pawnshop business in 1983, he thought of
opening a vault with the nearby bank for the purpose of safekeeping the valuables but was
discouraged by the Central Bank since pawned articles should only be stored in a vault inside
the pawnshop. The very measures which petitioners had allegedly adopted show that to
them the possibility of robbery was not only foreseeable, but actually foreseen and
anticipated. Sicam’s testimony, in effect, contradicts petitioners’ defense of fortuitous
event. Moreover, petitioners failed to show that they were free from any negligence by
which the loss of the pawned jewelry may have been occasioned.
 PHILIPPINE REALTY AND HOLDINGS CORP. vs. LEY CONSTRUCTION
AND DEVELOPMENT CORPORATION
G.R. no. 165548, June 13, 2011

PONENTE: Sereno, J.
TOPIC: Fortuitous Event

FACTS:
Sometime between April 1988 and October 1989, the two corporations entered into four
major construction projects, as evidenced by four duly notarized "construction
agreements." These were the four construction projects the parties entered into involving a
Project 1, Project 2, Project 3 (all of which involve the Alexandra buildings) and a Tektite
Building. LCDC committed itself to the construction of the buildings needed by PRHC, which
in turn committed itself to pay the contract price agreed upon. Both parties agreed to enter
into another agreement. Abcede asked LCDC to advance the amount necessary to complete
construction. Its president acceded, on the absolute condition that it be allowed to escalate
the contract price. Abcede replied that he would take this matter up with the board of
directors of PRHC.The board of directors turned down the request for an escalation
agreement. However, On 9 August 1991 Abcede sent a formal letter to LCDC, asking for its
conformity, to the effect that should it infuse P36 million into the project, a contract price
escalation for the same amount would be granted in its favor by PRHC.

ISSUE:
Whether or not there is a fortuitous event in the case at bar.

RULING:
There is a fortuitous event in the case at bar.
Under Article 1174 of the Civil Code, to exempt the obligor from liability for a breach of an
obligation due to an "act of God" or force majeure, the following must concur:
(a) the cause of the breach of the obligation must be independent of the will of the debtor;
(b) the event must be either unforseeable or unavoidable; (c) the event must be such as to
render it impossible for the debtor to fulfill his obligation in a normal manner; and (d) the
debtor must be free from any participation in, or aggravation of the injury to the creditor.
The shortage in supplies and cement may be characterized as force majeure.64 In the
present case, hardware stores did not have enough cement available in their supplies or
stocks at the time of the construction in the 1990s. Likewise, typhoons, power failures and
interruptions of water supply all clearly fall under force majeure. Since LCDC could not
possibly continue constructing the building under the circumstances prevailing, it cannot be
held liable for any delay that resulted from the causes aforementioned.
 JUAN F. NAKPIL & SONS, and JUAN F. NAKPIL vs. THE COURT OF APPEALS, UNITED
CONSTRUCTION COMPANY, INC., JUAN J. CARLOS, andthe PHILIPPINE BAR ASSOCIATION
G.R. No. L-47851, October 3, 1986

PONENTE: Paras, J.
TOPIC: Fortuitous Event

FACTS:
Private respondents – Philippine Bar Association (PBA) – a non-profit organization formed
under the corporation law decided to put up a building in Intramuros, Manila. Hired to plan
the specifications of the building were Juan Nakpil & Sons, while United Construction was
hired to construct it. The proposal was approved by the Board of Directors and signed by the
President, Ramon Ozaeta. The building was completed in 1966. In 1968, there was an
unusually strong earthquake which caused the building heavy damage, which led the
building to tilt forward, leading the tenants to vacate the premises. United Construction
took remedial measures to sustain the building. PBA filed a suit for damages against United
Construction, but United Construction subsequently filed a suit against Nakpil and Sons,
alleging defects in the plans and specifications. Technical Issues in the case were referred to
Mr. Hizon, as a court appointed Commissioner. PBA moved for the demolition of the
building, but was opposed. PBA eventually paid for the demolition after the building
suffered more damages in 1970 due to previous earthquakes. The Commissioner found that
there were deviations in the specifications and plans, as well as defects in the construction
of the building.

ISSUE:
Whether or not an act of God (fortuitous event) exempts from liability parties who would
otherwise be due to negligence.

RULING:
Art. 1174 of the NCC, states that no person shall be responsible for events, which could not
be foreseen. But to be exempt from liability due to an act of God, the following must occur:
1) cause of breach must be independent of the will of the debtor 2) event must be
unforeseeable or unavoidable 3) event must be such that it would render it impossible for
the debtor to fulfill the obligation 4) debtor must be free from any participation or
aggravation of the industry to the creditor. Although the general rule for fortuitous events
stated in Article 1174 of the Civil Code exempts liability when there is an Act of God, thus if in
the concurrence of such event there be fraud, negligence, delay in the performance of the
obligation, the obligor cannot escape liability therefore there can be an action for recovery
of damages. The negligence of the defendant was shown when and proved that there was
an alteration of the plans and specification that had been so stipulated among them.
Therefore, therefore there should be no question that Nakpil and united are liable for
damages because of the collapse of the building. One who negligently creates a dangerous
condition cannot escape liability for the natural and probable consequences thereof,
although the act of a third person, or an act of God for which he is not responsible,
intervenes to precipitate the loss.
 VASQUEZ vs. COURT OF APPEALS
G.R. No. L-42926, September 13, 1985

PONENTE: Azcuna, J.
TOPIC: Fortuitous Event

FACTS:
MV 'Pioneer Cebu' was owned and operated by the defendant and used in the
transportation of goods and passengers in the interisland shipping. It had a passenger
capacity of three hundred twenty-two including the crew. It undertook the said voyage on a
special permit issued by the Collector of Customs inasmuch as, upon inspection, it was found
to be without an emergency electrical power system. The special permit authorized the
vessel to carry only two hundred sixty passengers due to the said deficiency and for lack of
safety devices for 322 passengers. A headcount was made of the passengers on board,
resulting on the tallying of 168 adults and 20 minors, although the passengers manifest only
listed 106 passengers. It has been admitted, however, that the headcount is not reliable.
When the vessel left Manila, its officers were already aware of the typhoon Klaring building
up somewhere in Mindanao. Plaintiffs seek the recovery of damages due to the loss of
Alfonso Vasquez, Filipinas Bagaipo and Mario Marlon Vasquez during said voyage.

ISSUE:
Whether or not the respondent would be exempt from responsibility due to its defense of
fortuitous event.

RULING:
To constitute a caso fortuito that would exempt a person from responsibility, it is necessary
that (1) the event must be independent of the human will; (2) the occurrence must render it
impossible for the debtor to fulfill the obligation in a normal manner; and that (3) the obligor
must be free of participation in, or aggravation of, the injury to the creditor. The event must
have been impossible to foresee, or if it could be foreseen, must have been impossible to
avoid. There must be an entire exclusion of human agency from the cause of injury or loss.
Under the circumstances, while, indeed, the typhoon was an inevitable occurrence, yet,
having been kept posted on the course of the typhoon by weather bulletins at intervals of
six hours, the captain and crew were well aware of the risk they were taking as they hopped
from island to island from Romblon up to Tanguingui. In so doing, they failed to observe that
extraordinary diligence required of them explicitly by law for the safety of the passengers
transported by them with due regard for all circumstances and unnecessarily exposed the
vessel and passengers to the tragic mishap. They failed to overcome that presumption of
fault or negligence that arises in cases of death or injuries to passengers. With regard to the
contention that the total loss of the vessel extinguished its liability pursuant to Article 587 of
the Code of Commerce, it was held that the liability of a shipowner is limited to the value of
the vessel or to the insurance thereon. Despite the total loss of the vessel therefore, its
insurance answers for the damages that a shipowner or agent may be held liable for by
reason of the death of its passengers.
MEGAWORLD GLOBUS ASIA, INC. vs. TANSECO
G.R. No. 181206, October 9, 2009

PONENTE: Carpio-Morales, J.
TOPIC: Fortuitous Events

FACTS
On July 7, 1995, petitioner Megaworld Globus Asia, Inc. (Megaworld) and respondent Mila S.
Tanseco (Tanseco) entered into a Contract to Buy and Sell1 a 224 square-meter (more or
less) condominium unit at a pre-selling project. The purchase price was P16,802,037.32, to be
paid as follows: (1) 30% less the reservation fee of P100,000, or P4,940,611.19, by postdated
check payable on July 14, 1995; (2) P9,241,120.50 through 30 equal monthly installments of
P308,037.35 from August 14, 1995 to January 14, 1998; and (3) the balance of P2,520,305.63
on October 31, 1998, the stipulated delivery date of the unit; provided that if the
construction is completed earlier, Tanseco would pay the balance within seven days from
receipt of a notice of turnover. Tanseco paid all installments due up to January, 1998, leaving
unpaid the balance of P2,520,305.63 pending delivery of the unit. Megaworld, however,
failed to deliver the unit within the stipulated period on October 31, 1998 or April 30, 1999,
the last day of the six-month grace period.
A few days shy of three years later, Megaworld, by notice dated April 23, 2002 (notice of
turnover), informed Tanseco that the unit was ready for inspection preparatory to delivery.
Tanseco replied through counsel, by letter of May 6, 2002, that in view of Megaworld’s
failure to deliver the unit on time, she was demanding the return of P14,281,731.70
representing the total installment payment she had made, with interest at 12% per annum
from April 30, 1999, the expiration of the six-month grace period. Tanseco pointed out that
none of the excepted causes of delay existed.

ISSUE:
Whether or not there was a fortuitous event in the case at bar

RULING:
The Contract to Buy and Sell of the parties contains reciprocal obligations, i.e., to complete
and deliver the condominium unit on October 31, 1998 or six months thereafter on the part
of Megaworld, and to pay the balance of the purchase price at or about the time of delivery
on the part of Tanseco. Compliance by Megaworld with its obligation is determinative of
compliance by Tanseco with her obligation to pay the balance of the purchase price.
Megaworld having failed to comply with its obligation under the contract, it is liable
therefor.
That Megaworld’s sending of a notice of turnover preceded Tanseco’s demand for refund
does not abate her cause. For demand would have been useless, Megaworld admittedly
having failed in its obligation to deliver the unit on the agreed date. Art. 1174. Except in cases
expressly specified by the law, or when it is otherwise declared by stipulation, or when the
nature of the obligation requires the assumption of risk, no person shall be responsible for
those events which could not be foreseen, or which, though foreseen, were inevitable.
The Court cannot generalize the 1997 Asian financial crisis to be unforeseeable and beyond
the control of a business corporation. A real estate enterprise engaged in the pre-selling of
condominium units is concededly a master in projections on commodities and currency
movements, as well as business risks. The fluctuating movement of the Philippine peso in
the foreign exchange market is an everyday occurrence, hence, not an instance of caso
fortuito. Megaworld’s excuse for its delay does not thus lie.
 METRO CONCAST STEEL CORP., SPOUSES JOSE S. DYCHIAO AND TIU
OH YAN, ET. AL. vs. ALLIED BANK CORPORATION
G.R. No. 177921, December 4, 2013

PONENTE: Perlas-Bernabe, J.
TOPIC: Fortuitous Event

FACTS:
On various dates and for different amounts, Metro Concast, a corporation duly organized
and existing under and by virtue of Philippine laws and engaged in the business of
manufacturing steel,5 through its officers, herein individual petitioners, obtained several
loans from Allied Bank. These loan transactions were covered by a promissory note and
separate letters of credit/trust receipts.
They alleged that the economic reverses suffered by the Philippine economy in 1998 as well
as the devaluation of the peso against the US dollar contributed greatly to the downfall of
the steel industry, directly affecting the business of Metro Concast and eventually leading to
its cessation. Petitioners offered the sale of Metro Concast’s remaining assets, consisting of
machineries and equipment, to Allied Bank, which the latter, however, refused. Eventually,
with the alleged conformity of Allied Bank, through Atty. Saw, a Memorandum of
Agreement dated November 8, 2002 (MoA) was drawn between Metro Concast,
represented by petitioner Jose Dychiao, and Peakstar, through Camiling, under which
Peakstar obligated itself to purchase the scrap metal for a total consideration of
₱34,000,000.00
Allied Bank appealed to the CA which, in a Decision32 dated February 12, 2007, reversed and
set aside the ruling of the RTC, ratiocinating that there was "no legal basis in fact and in law
to declare that when Bankwise reneged its guarantee under the [MoA].
Consequently, the CA granted the appeal and directed petitioners to solidarily pay Allied
Bank their corresponding obligations under the aforementioned promissory note and trust
receipts, plus interests, penalty charges and attorney’s fees. Petitioners sought
reconsideration37 which was, however, denied in a Resolution38 dated May 10, 2007.

ISSUE:
Whether or not the loan obligations incurred by the petitioners under the subject
promissory note and various trust receipts have already been extinguished.

RULING:
While it may be argued that Peakstar’s breach of the MoA was unforseen by petitioners, the
same us clearly not "impossible"to foresee or even an event which is independent of human
will." Neither has it been shown that said occurrence rendered it impossible for petitioners
to pay their loan obligations to Allied Bank and thus, negates the former’s force majeure
theory altogether. In any case, as earlier stated, the performance or breach of the MoA
bears no relation to the performance or breach of the subject loan transactions, they being
separate and distinct sources of obligations. The fact of the matter is that petitioners’ loan
obligations to Allied Bank remain subsisting for the basic reason that the former has not
been able to prove that the same had already been paid or, in any way, extinguished. In this
regard, petitioners’ liability, as adjudged by the CA, must perforce stand. Considering,
however, that Allied Bank’s extra-judicial demand on petitioners appears to have been made
only on December 10, 1998, the computation of the applicable interests and penalty charges
should be reckoned only from such date.
 BERNALES vs. NORTHWEST AIRLINES
G.R. No. 182395, October 5, 2013

PONENTE: Brion, J.
TOPIC: Fortuitous Event

FACTS:
Jesus Fernando arrived at the LA Airport via Northwest Airlines Flight No. NW02 to join his family for
Christmas, however upon arrival at the airport it was found out that his documents reflect his return
ticket as August 2001. So he approached a Northwest personnel who was later identified as Linda
Puntawongdaycha, but the latter merely glanced at his ticket without checking its status with
the computer and peremptorily said that the ticket has been used and could not be
considered as valid. He then explained to the personnel that he was about to use the said ticket on
August 20 or 21, 2001 on his way back to Manila from LA but he could not book any seat because
of some ticket restrictions so he, instead, purchased new business class ticket on the said
date. Hence, the ticket remains unused and perfectly valid.
The Immigration Officer brought Jesus Fernando to the interrogation room of the
Immigration and Naturalization Services (INS) where he was asked humiliating questions for
more than two (2) hours. When he was finally cleared by the Immigration Officer, he was granted
only a twelve (12)-day stay in the United States (US), instead of the usual six (6) months.
Northwest airlines employees on the other hand claim that they were “courteous” and “was
very kind enough” to assist them. Meyer verified their bookings and “printed paper tickets”
for them. Unfortunately, when they went back to the boarding gate, the plane had
departed. Northwest offered alternative arrangements for them to be transported to Manila
on the same day on another airline, either through Philippine Airlines or Cathay Pacific
Airways, but they refused. Northwest also offered them free hotel accommodations but
they, again, rejected the offer Northwest then made arrangements for the transportation of
the Fernandos from the airport to their house in LA, and booked the Fernandos on a
Northwest flight that would leave the next day, January 30, 2002.

ISSUE:
Whether or not there was breach of contract of carriage and whether it was done In a
wanton, malevolent or reckless manner amounting to bad faith.

RULING:
Yes.The Fernandos’ cause of action against Northwest stemmed from a breach of contract
of carriage. A contract is a meeting of minds between two persons whereby one agrees to
give something or render some service to another for a consideration. There is no contract
unless the following requisites concur: (1) consent of the contracting parties; (2) an object
certain which is the subject of the contract; and (3) the cause of the obligation which is
established.
SALVADOR ADORABLE and LIGAYA ADORABLE vs. COURT OF APPEALS, HON. JOSE O.
RAMOS, FRANCISCO BARENG and SATURNINO BARENG
G.R. No. 119466, November 25,1999

PONENTE: Mendoza, J.
TOPIC: Accion Pauliana

FACTS:
Private respondent Saturnino Bareng was the registered owner of two parcels of land, one
identified as Lot No. 661-D-5-A, with an area of 20,000 sq. m., covered by TCT No. T-162837,
and the other known as Lot No. 661-E, with an area of 4.0628 hectares, covered by TCT No.
T-60814, both of which are in San Fabian, Echague, Isabela. Petitioners were lessees of a 200
sq.m. portion of Lot No. 661-D-5-A.
On April 29, 1985, Saturnino Bareng and his son, private respondent Francisco Bareng,
obtained a loan from petitioners amounting to twenty-six thousand pesos (P26,000), in
consideration of which they promised to transfer the possession and enjoyment of the fruits
of Lot No. 661-E.
On August 3, 1986, Saturnino sold to his son Francisco 18,500 sq.m. of Lot No. 661-D-5-A. The
conveyance was annotated on the back of TCT No. T-162873. In turn, Francisco sold on
August 27, 1986 to private respondent Jose Ramos 3,000 sq.m. of the lot. The portion of
land being rented to petitioners was included in the portion sold to Jose Ramos. The deeds
of sale evidencing the conveyances were not registered in the office of the register of
deeds.
As the Barengs failed to pay their loan, petitioners complained to Police Captain Rodolfo
Saet of the Integrated National Police (INP) of Echague through whose mediation a
Compromise Agreement was executed between Francisco Bareng and the Adorables
whereby the former acknowledged his indebtedness of P56,385.00 which he promised to
pay on or before July 15, 1987. When the maturity date arrived, however, Francisco Bareng
failed to pay. A demand letter was sent to Francisco Bareng, but he refused to pay.
Petitioners, learning of the sale made by Francisco Bareng to Jose Ramos, then filed a
complaint with the Regional Trial Court, Branch 24, Echague, Isabela for the annulment or
rescission of the sale on the ground that the sale was fraudulently prepared and executed.
During trial, petitioners presented as witness Jose Ramos. On appeal, the Court of Appeals
affirmed the decision of the Regional Trial Court, with modification as to the amount of
Francisco Barengs debt to petitioners.

ISSUE:
Whether or not the Court of Appeals erred in sustaining the lower courts order terminating
petitioner’s presentation of evidence and allowing private respondents to present their
evidence ex parte.

RULING:
No error was committed by the Court of Appeals in affirming the order of the trial court
terminating the presentation of petitioner’s evidence and allowing private respondents to
proceed with theirs because of petitioner’s failure to present further evidence at the
scheduled dates of trial. Petitioners contend that since their counsel holds office in Makati,
the latters failure to appear at the trial in Isabela at the scheduled date of hearing should
have been treated by the court with a sense of fairness.
This is more a plea for compassion rather than explanation based on reason. We cannot find
grave abuse of discretion simply because a court decides to proceed with the trial of a case
rather than postpone the hearing to another day, because of the absence of a party. That
the absence of a party during trial constitutes waiver of his right to present evidence and
cross-examine the opponent’s witnesses is firmly supported by jurisprudence. To constitute
grave abuse of discretion amounting to lack or excess of jurisdiction, the refusal of the court
to postpone the hearing must be characterized by arbitrariness or capriciousness. Here, as
correctly noted by the Court of Appeals, petitioners counsel was duly notified through
registered mail of the scheduled trials. His only excuse for his failure to appear at the
scheduled hearings is that he comes from Makati. This excuse might hold water if counsel
was simply late in arriving in the courtroom. But this was not the case. He did not appear at
all.
 MARIMPERIO COMPANIA NAVIERA, S.A. vs. COURT OF APPEALS
G.R. No. 176008, December 14, 1987

PONENTE: Paras, J.
TOPIC: Accion Pauliana

FACTS:
In 1964 Philippine Traders Corporation and Union Import and Export Corporation entered
into a joint business venture for the purchase of copra from Indonesia for sale in Europe.
James Liu, President and General Manager of the Union took charge of the European market
and the chartering of a vessel to take the copra to Europe. Peter Yap of Philippine on the
other hand, found one P.T. Karkam in Dumai Sumatra who had around 4,000 tons of copra
for sale. Exequiel Toeg of Interocean was commissioned to look for a vessel and he found
the vessel "SS Paxoi" of Marimperio available. Philippine and Union authorized Toeg to
negotiate for its charter but with instructions to keep confidential the fact that they are the
real charterers.
In view of the aforesaid Charter, on March 30, 1965 plaintiff Charterer cabled a firm offer to
P.T. Karkam to buy the 4,000 tons of copra for U.S.$180.00 per ton, the same to be loaded
either in April or May, 1965. The offer was accepted and plaintiffs opened two irrevocable
letters of Credit in favor of P.T. Karkam. On March 29, 1965, the Charterer was notified by
letter by Vlassopulos through Matthews that the vessel "PAXOI" had sailed from Hsinkang
at noontime on March 27, 1965 and that it had left on hire at that time and date under the
Uniform Time-Charter. The Charterer was however twice in default in its payments which
were supposed to have been done in advance. The first 15-day hire comprising the period
from March 27 to April 1-1, 1965 was paid despite follow-ups only on April 6, 1965 and the
second 15-day hire for the period from April 12 to April 27, 1965 was paid also despite follow-
ups only on April 26, 1965. On April 14, 1965 upon representation of Toeg, the Esso Standard
Oil (Hongkong) Company supplied the vessel with 400 tons of bunker oil.
Although the late payments for the charter of the vessel were received and acknowledged
by Vlassopulos without comment or protest, said agent notified Matthews, by telex on April
23, 1965 that the shipowners in accordance with Clause 6 of the Charter Party were
withdrawing the vessel from Charterer's service and holding said Charterer responsible for
unpaid hirings and all legal claims.
On April 29, 1965, the shipowners entered into another charter agreement with another
Charterer, the Nederlansche Stoomvart of Amsterdam, the delivery date of which was
around May 3, 1965 for a trip via Indonesia to Antwep/Hamburg at an increase charter cost.
Meanwhile, the original Charterer again remitted on April 30, 1965, the amount
corresponding to the 3rd 15-day hire of the vessel "PAXOI" but this time the remittance was
refused.
On March 16, 1966, respondent Interocean Shipping Corporation filed a complaint-in-
intervention to collect what it claims to be its loss of income by way of commission and
expenses. In its amended answer to the complaint-in-intervention petitioner, by way of
special defenses alleged that the plaintiff-in-intervention, being the charterer, did not notify
the defendant shipowner, petitioner, herein, about any alleged sub-charter of the vessel "SS
PAXOI" to the plaintiffs; consequently, there is no privity of contract between defendant
and plaintiffs and it follows that plaintiff-in-intervention, as charterer, is responsible for
defendant shipowner for the proper performance of the charter party; that the charter
party provides that any dispute arising from the charter party should be referred to
arbitration in London; that Charterer plaintiff-in-intervention has not complied with this
provision of the charter party; consequently its complaint-in intervention is premature; and
that the charterer violated the contract and the full hiring fee due the shipowner was not
paid in accordance with the terms and conditions of the charter party.

ISSUE:
Whether or not the respondents have the legal capacity to bring the suit for specific
performance against petitioner based on the charter party.

RULING:
According to Article 1311 of the Civil Code, a contract takes effect between the parties who
made it, and also their assigns and heirs, except in cases where the rights and obligations
arising from the contract are not transmissible by their nature, or by stipulation or by
provision of law. Since a contract may be violated only by the parties, thereto as against
each other, in an action upon that contract, the real parties in interest, either as plaintiff or
as defendant, must be parties to said contract. Therefore, a party who has not taken part in
it cannot sue or be sued for performance or for cancellation thereof, unless he shows that
he has a real interest affected thereby.
It is undisputed that the charter party, was entered into between petitioner Marimperio.,
through its duly authorized agent in London, the N & J Vlassopulos Ltd., and the Interocean
Shipping Company of Manila through the latter's duly authorized broker, the Overseas
Steamship Co., Inc., represented by Matthews, Wrightson Burbridge Ltd., for the Charter of
the 'SS PAXOI'. It is also alleged in both the Complaint and the Amended Complaint that the
Interocean Shipping Company sublet the said vessel to respondent Union Import and Export
Corporation which in turn sublet the same to respondent Philippine Traders Corporation.
It is admitted by respondents that the charterer is the Interocean Shipping Company. Even
paragraph 3 of the complaint-in-intervention alleges that respondents were given the use of
the vessel "pursuant to paragraph 20 of the Uniform Time Charter ..." which precisely
provides for the subletting of the vessel by the charterer. Furthermore, Article 652 of the
Code of Commerce provides that the charter party shall contain, among others, the name,
surname, and domicile of the charterer, and if he states that he is acting by commission, that
of the person for whose account he makes the contract. It is obvious from the disclosure
made in the charter party by the authorized broker, the Overseas Steamship Co., Inc., that
the real charterer is the Interocean Shipping Company (which sublet the vessel to Union
Import and Export Corporation which in turn sublet it to Philippine Traders Corporation).
METROBANK, substituted by MERIDIAN (SPV-AMCI) CORPORATION
vs. INTERNATIONAL EXCHANGE BANK
G.R. No. 176008, August 10, 2011

PONENTE: Peralta, J.
TOPIC: Accion Pauliana

FACTS:
Sacramento Steel Corporation (SSC) is a Steel manufacturing and producing corporation.
SSC entered into a Credit Agreement with International Exchange Bank (IEB) and as security
for its loan obligations, the former executed five separate deeds of chattel mortgage.
SSC defaulted in the payment of its obligations, where subsequently, IEB filed a petition for
extrajudicial foreclosure of chattel mortgage.
Meanwhile, while the case were still pending between SSC and IEB, petitioner METROBANK
filed a motion contending that it has legal interest in the properties subject of the litigation
between IEB and SSC because it is a creditor of SSC and that the mortgage contracts
between IEB and SSC were entered into to defraud the latter’s creditors. Metrobank prayed
for the rescission of the chattel mortgages executed by SSC in favor of IEB.

ISSUE:
Whether the chattel mortgages executed by SSC in favor of IEB may be rescinded.

HELD:
In the current jurisprudence, the following successive measures must be taken by a creditor
before he may bring an action for rescission of an allegedly fraudulent contract:
exhaust the properties of the debtor through levying by attachment and execution upon all
the property of the debtor, except such as are exempt by law from execution;
exercise all the rights and actions of the debtor, save those personal to him (accion
subrogatoria); and seek rescission of the contracts executed by the debtor in fraud of their
rights (accion pauliana). It is thus apparent that an action to rescind, or an accion
pauliana, must be of last resort, availed of only after the creditor has exhausted all the
properties of the debtor not exempt from execution or after all other legal remedies have
been exhausted and have been proven futile.
Without availing of the first and second remedies, Metrobank simply undertook the third
measure and filed an action for annulment of the chattel mortgages. Rescission can only be
availed of in the absence of any other legal remedy to obtain reparation for the injury. This
fact is not present in this case. No evidence was presented nor even an allegation was
offered to show that Metrobank had availed of the abovementioned remedies before it
tried to question the validity of the contracts of chattel mortgage between IEB and SSC.

KE HONG CHENG vs. COURT OF APPEALS

G.R. No 144169, March 28, 2001

PONENTE: Kapunan, J.
TOPIC: Accion Pauliana

FACTS:
Petitioner is the owner of Butuan Shipping Line. In one the vessels owned by the petitioner,
Philippine Agricultural Trading Corporation boarded 3,400 bags of copra to be shipped from
Masbate to Dipolog City and which said shipment of copra was insured by PhilAm. While on
board, the ship sank amounting to total loss of the shipments. Because of the loss, the
insurer paid the damages to the consignee. Having subrogated the rights of the consignee,
PhilAm instituted a civil case to recover the money paid to the consignee based on breach of
contract of carriage. While the case was pending, petitioner executed deeds of donations of
parcels of land to his children. The trial court rendered judgment against the petitioner Ke
Hong Cheng in the civil case. After the decision became final, a writ of execution was issued
but it was not served, Therefore an alias writ was applied for which was granted. The sheriff
did not found any property under Butuan Shipping Lines and/or Ke Hong Cheng. In 1997,
PhilAm filed complaint for annulling the deeds of donation made by petitioner to his children
and alleged the donation was to defraud his creditors including PhilAm.

ISSUE:
Whether or not the action to rescind the donation had already prescribed.

RULING:
No. The Court maintained that the four year period began only on January 1997, the time
when it first learned that the judgment award could not be satisfied because the Ke Hong
Cheng had no more properties in his name. Article 1389 of the Civil Code simply provide that
the action to claim rescission must be commenced within four years. When the law is silent
as to when the prescriptive shall commence, general rule must apply that it will commence
when the moment the action accrues. An action for rescission must be the last resort of the
creditors and can only be availed after the creditor had exhausted all the properties. The
herein respondent came to know only in January 1997 about the unlawful conveyances of
the petitioner when together with the sheriff and counsel were to attach the property of
the petitioner and it was then only when they found out it is no longer in the name of the
petitioner. Since the respondent filed accion pauliana on February 1997, a month after the
discovery that petitioner had no property in his name to satisfy the judgment, action for
rescission of subject deeds had not yet prescribed.

ESTATE OF HEMADY vs. LUZON SURETY CO., INC.

100 PHIL 388

PONENTE: Chico-Nazario, J.
TOPIC: Transmissibility of Rights

FACTS:
Luzon Surety Co. filed a claim against the Estate based on 20 different indemnity
agreements, or counter bonds, each subscribed by a distinct principal and by the deceased
K. H. Hemady, a surety solidary guarantor. Luzon Surety Co., prayed for allowance, as a
contingent claim, of the value of the 20 bonds it executed in consideration of the
counterbonds, and asked for judgment for the unpaid premiums and documentary stamps
affixed to the bonds, with 12 % interest thereon. CFI dismissed the claims of Luzon Surety
Co., on failure to state the cause of action.

ISSUE:
What obligations are transmissible upon the death of the decedent? Are contingent claims
chargeable against the estate?

HELD:
The binding effect of contracts upon the heirs of the deceased party is not altered by the
provision in our Rules of Court that money debts of a deceased must be liquidated and paid
from his estate before the residue is distributed among said heirs (Rule 89). The reason is
that whatever payment is made from the estate is ultimately a payment by the heirs and
distributees, since the amount of the paid claim in fact diminishes or reduces the shares that
the heirs would have been entitled to receive.
The contracts of suretyship entered into by Hemady in favor of Luzon Surety Co. not being
rendered intransmissible due to the nature of the undertaking, nor by the stipulations of the
contracts themselves, nor by provision of law, his eventual liability thereunder necessarily
passed upon his death to his heirs. The contracts give rise to contingent claims provable
against his estate under sec. 5, Rule 87.
The solidary guarantor’s liability is not extinguished by his death, and that in such event, the
Luzon Surety Co., had the right to file against the estate a contingent claim for
reimbursement. The contracts of suretyship entered into by K. H. Hemady in favor of Luzon
Surety Co. not being rendered intransmissible due to the nature of the undertaking, nor by
the stipulations of the contracts themselves, nor by provision of law, his eventual liability
thereunder necessarily passed upon his death to his heirs.
 JESUS SAN AGUSTIN V. HON. COURT OF APPEALS AND MAXIMO MENEZ
G.R. No. 121940, December 4, 2001

PONENTE: Carpio-Morales, J.
TOPIC: Transmissibility of Rights

FACTS:
Government Service Insurance System (GSIS) sold to a certain Macaria Vda. de Caiquep a
parcel of residential land evidenced by a Deed of Absolute Sale. The following encumbrance
was annotated at the back of the title, not to sell, convey, lease or sublease, or otherwise
encumber the property. A day after the issuance of TCT Macaria Vda. de Caiquep sold the
subject lot to private respondent, Maximo Menez, Jr., as evidenced by a Deed of Absolute
Sale. Said TCT was lost, but private respondent subsequently obtained a duplicate after
judicial proceedings. Petitioner was not notified. Both RTC and CA ruled in favor of private
respondent.

ISSUE:
Whether or not the petitioner is correct that Deed of Sale between Macaria Vda. de Caiquep
and private respondent is null and void in accordance with Par.7 Art.1409 of the New Civil
Code.

RULING:
No. Petitioner’s contention is less than meritorious. In this case, the GSIS, the proper party,
has not filed any action for the annulment of Deed of Sale between them and Macaria Vda.
de Caiquep, nor for the forfeiture of the lot in question. The contract of sale remains valid
between the parties, unless and until annulled in the proper suit filed by the rightful party,
the GSIS. The said contract of sale is binding upon the heirs of Macaria Vda. de Caiquep,
including petitioner who alleges to be one of her heirs, in line with the rule that heirs are
bound by contracts entered into by their predecessors-in-interest. Since, both were aware of
the existence of the stipulated condition in favor of the original seller, GSIS, yet both
entered into an agreement violating said condition and nullifying its effects, said parties
should be held in estoppel to assail and annul their own deliberate acts.
 PROJECT BUILDERS, INC., GALICANO A. CALAPATIA, JR., AND LEANDRO ENRIQUEZ V. THE
COURT OF APPEALS AND INDUSTRIAL FINANCE CORPORATION
June 19, 2001, G. R. No. 99433

PONENTE: Vitug, J.
TOPIC: Transmissibility of Rights

FACTS:
On August 21, 1975, plaintiff and defendant PBI entered into an agreement whereby it was
agreed that plaintiff would provide a maximum amount of P2,000,000.00 against which said
defendant would discount and assign to plaintiff on a ‘with recourse non-collection basis’ its
(PBI’s) accounts receivable under the contracts to sell specified in said agreement.
Eventually, the same parties entered into an agreement whereby it was agreed that PBI’s
credit line with plaintiff be increased to P5,000,000.00. It was stipulated that the credit line
of P5,000,000.00 granted includes the amount already assigned/discounted.Against the
above-mentioned ‘credit line,’ defendant PBI discounted with plaintiff on different dates
accounts receivables with different maturity dates from different condominium-unit buyers.
The total amount of receivables discounted by defendant PBI is P7,986,815.38 and consists
of twenty accounts. Of such receivables amounting to P7,986,815.38 plaintiff released to
defendant PBI the amount of P4,549,132.72 and the difference of P3,437,682.66 represents
the discounting fee or finance fee.
To secure compliance with the terms and conditions of the agreement defendants executed
a Deed of Real Estate Mortgage in favor of plaintiff. When defendants allegedly defaulted in
the payment of the subject account, plaintiff foreclosed the mortgage and plaintiff was the
highest bidder in the amount of P3,500,000.00. The foreclosed property was redeemed a
year later but after application of the redemption payment, plaintiff claims that there is still
a deficiency in the amount of P1,323,053.08.
A collection suit was then filed by IFC against PBI. However, PBI denied liability alleging that
IFC has no case or right of action because the obligation is fully paid out of the proceeds of
foreclosure sale of its property. Further, it alleged that a proper accounting of the
transaction between the parties will show that it is the IFC who is liable to PBI.
The trial court dismissed the complaint but the Court of Appeals reversed it. It ordered PBI
to pay IFC the deficiency in the amount of P1,237,802.48 and the monetary interests.

ISSUE:
Whether or not said Republic Act No. 5980 should govern the transaction between
petitioners and private respondent which in reality was bilateral, not trilateral, and 244
respondent financing company was not really subrogated in the place of the supposed seller
or assignor.

RULING:
The assignment of the contracts to sell falls within the purview of the Act. The term credit
has been defined to - "(c) x x x mean any loan, mortgage, deed of trust, advance, or
discount; any conditional sales contract, any contract to sell, or sale or contract of sale of
property or service, either for present or future delivery, under which, part or all of the price
is payable subsequent to the making of such sale or contract; any rental-purchase contract;
any option, demand, lien, pledge, or other claim against, or for the delivery of, property or
money, any purchase, or other acquisition of or any credit upon the security of, any
obligation or claim arising out of the foregoing; and any transaction or series of transactions
having a similar purpose or effect.”
An assignment of credit is an act of transferring, either onerously or gratuitously, the right of
an assignor to an assignee who would then be capable of proceeding against the debtor for
enforcement or satisfaction of the credit. The transfer of rights takes place upon perfection
of the contract, and ownership of the right, including all appurtenant accessory rights, is
thereupon acquired by the assignee. The assignment binds the debtor only upon acquiring
knowledge of the assignment but he is entitled, even then, to raise against the assignee the
same defenses he could set up against the assignor. Where the assignment is on account of
pure liberality on the part of the assignor, the rules on donation would likewise be pertinent;
where valuable consideration is involved, the assignment partakes of the nature of a
contract of sale or purchase.
Upon an assignment of a contract to sell, the assignee is effectively subrogated in place of
the assignor and in a position to enforce the contract to sell to the same extent as the
assignor could.
An insistence of petitioners that the subject transaction should be considered a simple loan
since private respondent did not communicate with the debtors, condominium unit buyers,
to collect payment from them, is untenable. In an assignment of credit, the consent of the
debtor is not essential for its perfection, his knowledge thereof or lack of it affecting only
the efficaciousness or inefficaciousness of any payment he might make.
The assignment, it might be pointed out, was "with recourse," and default in the payment of
installments had been duly established when petitioner corporation foreclosed on the
mortgaged parcels of land. The resort to foreclosure of the mortgaged properties did not
preclude private respondent from collecting interest from the assigned Contracts To Sell
from the time of foreclosure to the redemption of the foreclosed property. The imposition
of interest was a mere enforcement or exercise of the right to the ownership of the credit or
receivables which the parties stipulated in the 1976 financing agreement. Thus -"f. That the
Assignor shall comply with all the terms and conditions specified on the said Contracts to
Sell, executed by the assignor and its individual purchaser or customers, and
assigned/discounted to Assignee.”
One of the provisions in the contracts to sell, subject matter of the assignment agreement,
related to the imposition of interest in the event of default by the debtor in the payment of
installments, to wit: "All payments shall be made on or before their respective due dates
without necessity of demand therefor, and failure to make such payments on time shall
entitle the Developer to charge interest at the rate of one percent (1%) per month without
prejudice to the other remedies available to the Developer.” As owner of the account
receivables, private respondent was impressed with the entitlement over such interest
payment.
 UNION BANK OF THE PHILIPPINES vs. EDMUND SANTIBAEZ AND
FLORENCE SANTIBAEZ ARIOLA
G.R. No. 149926, February 23, 2005

PONENTE: Callejo, Sr., J.

TOPIC: Transmissibility of Rights

FACTS:
On May 31, 1980, the First Countryside Credit Corporation (FCCC) and Efraim Santibañez
entered into a loan agreement in the amount of P128,000.00. The amount was intended for
the payment of one (1) unit Ford 6600 Agricultural Tractor. In view thereof, Efraim and his
son, Edmund, executed a promissory note in favor of the FCCC, the principal sum payable in
five equal annual amortizations. On Dec. 1980, FCCC and Efraim entered into another loan
agreement for the payment of another unit of Ford 6600 and one unit of a Rotamotor.
Again, Efraim and Edmund executed a promissory note and a Continuing Guaranty
Agreement for the later loan. In 1981, Efraim died, leaving a holographic will. Testate
proceedings commenced before the RTC of Iloilo City. Edmund was appointed as the special
administrator of the estate. During the pendency of the testate proceedings, the surviving
heirs, Edmund and his sister Florence, executed a Joint Agreement, wherein they agreed to
divide between themselves and take possession of the three (3) tractors: (2) tractors for
Edmund and (1) for Florence. Each of them was to assume the indebtedness of their late
father to FCCC, corresponding to the tractor respectively taken by them. In the meantime, a
Deed of Assignment with Assumption of Liabilities was executed by and between FCCC and
Union Bank, wherein the FCCC assigned all its assets and liabilities to Union Bank.
Demand letters were sent by Union Bank to Edmund, but the latter refused to pay. Thus, on
February 5, 1988, Union Bank filed a Complaint for sum of money against the heirs of Efraim
Santibañez, Edmund and Florence, before the RTC of Makati City. Summonses were issued
against both, but the one intended for Edmund was not served since he was in the United
States and there was no information on his address or the date of his return to the
Philippines. Florence filed her Answer and alleged that the loan documents did not bind her
since she was not a party thereto. Considering that the joint agreement signed by her and
her brother Edmund was not approved by the probate court, it was null and void; hence, she
was not liable to Union Bank under the joint agreement.
Union Bank asserts that the obligation of the deceased had passed to his legitimate heirs
(Edmund and Florence) as provided in Article 774 of the Civil Code; and that the
unconditional signing of the joint agreement estopped Florence, and that she cannot deny
her liability under the said document.
In her comment to the petition, Florence maintains that Union Bank is trying to recover a
sum of money from the deceased Efraim Santibañez; thus the claim should have been filed
with the probate court. She points out that at the time of the execution of the joint
agreement there was already an existing probate proceedings. She asserts that even if the
agreement was voluntarily executed by her and her brother Edmund, it should still have
been subjected to the approval of the court as it may prejudice the estate, the heirs or third
parties.

ISSUES:
1. Whether or not the claim of Union Bank should have been filed with the probate court
before which the testate estate of the late Efraim Santibañez was pending.

2. Whether or not the agreement between Edmund and Florence (which was in effect, a
partition of the estate) was void considering that it had not been approved by the probate
court.

3. Whether or not there can be a valid partition among the heirs before the will is probated.

RULING:
Well-settled is the rule that a probate court has the jurisdiction to determine all the
properties of the deceased, to determine whether they should or should not be included in
the inventory or list of properties to be administered. The said court is primarily concerned
with the administration, liquidation and distribution of the estate.
The filing of a money claim against the decedent’s estate in the probate court is mandatory.
This requirement is for the purpose of protecting the estate of the deceased by informing
the executor or administrator of the claims against it, thus enabling him to examine each
claim and to determine whether it is a proper one which should be allowed. The plain and
obvious design of the rule is the speedy settlement of the affairs of the deceased and the
early delivery of the property to the distributees, legatees, or heirs.
Perusing the records of the case, nothing therein could hold Florence accountable for any
liability incurred by her late father. The documentary evidence presented, particularly the
promissory notes and the continuing guaranty agreement, were executed and signed only
by the late Efraim Santibañez and his son Edmund. As the petitioner failed to file its money
claim with the probate court, at most, it may only go after Edmund as co-maker of the
decedent under the said promissory notes and continuing guaranty.
 WILLIAM ONG GENATO V. BENJAMIN BAYHON, ET. AL.
G.R. No. 171035, August 24, 2009

PONENTE: Puno, C.J.

TOPIC: Transmissibility of Rights

FACTS:
On October 18, 1990, respondents filed an action seeking the declaration of nullity of a
dacion en pago allegedly executed by respondent Benjamin Bayhon in favor of petitioner
William Ong Genato. Respondent Benjamin Bayhon alleged that on July 3, 1989, he obtained
from the petitioner a loan amounting to PhP 1,000,000.00; that to cover the loan, he
executed a Deed of Real Estate Mortgage over the property; that, however, the execution
of the Deed of Real Estate Mortgage was conditioned upon the personal assurance of the
petitioner that the said instrument is only a private memorandum of indebtedness and that
it would neither be notarized nor enforced according to its tenor.
Respondent further alleged that he filed a separate proceeding for the reconstitution of TCT
No. 38052. Petitioner William Ong Genato filed an Answer in Intervention in the said
proceeding and attached a copy of an alleged dacion en pago covering said lot. Respondent
assailed the dacion en pago as a forgery alleging that neither he nor his wife, who had died 3
years earlier, had executed it.
In his Answer, petitioner Genato denied the claim of the respondent regarding the death of
the latter’s wife. He alleged that on the date that the real estate mortgage was to be signed,
respondent introduced to him a woman as his wife. He alleged that the respondent signed
the dacion en pago and that the execution of the instrument was above-board. On
December 20, 1990, petitioner William Ong Genato filed Civil Case No. Q-90-7551, an action
for specific performance Petitioner alleged further that respondent failed to pay the loan
and executed on October 21, 1989 a dacion en pago in favor of the petitioner.

ISSUE:
Whether or not the real estate mortgage and the dacion en pago are valid.

RULING:
The real estate mortgage and the dacion en pago are both void. The court ruled that at the
time the real estate mortgage and the dacion en pago were executed, or on July 3, 1989 and
October 21, 1989, respectively, the wife of respondent Benjamin Bayhon was already dead.
Thus, she could not have participated in the execution of the two documents. The appellate
court struck down both the dacion en pago and the real estate mortgage as being simulated
or fictitious contracts pursuant to Article 1409 of the Civil Code.
The Court held further that while the principal obligation is valid, the death of respondent
Benjamin Bayhon extinguished it. The heirs could not be ordered to pay the debts left by the
deceased. Based on the foregoing, the Court of Appeals dismissed petitioners appeal.
Petitioners motion for reconsideration was denied in a resolution dated January 6, 2006. The
loan in this case was contracted by respondent. He died while the case was pending before
the Court of Appeals. While he may no longer be compelled to pay the loan, the debt
subsists against his estate. No property or portion of the inheritance may be transmitted to
his heirs unless the debt has first been satisfied.
The court noted that the interest has been pegged at 5% per month, or 60% per annum. This
is unconscionable, hence cannot be enforced. In light of this, the rate of interest for this kind
of loan transaction has been fixed in the case of Eastern Shipping Lines v. Court of Appeals,
at 12% per annum, calculated from October 3, 1989, the date of extrajudicial demand.
 ANGEL JOSE WAREHOUSING CO., INC. vs. CHELDA
ENTERPRISES and DAVID SYJUECO,
G.R. No. L-25704, April 24, 1968

PONENTE: Bengzon, J.
TOPIC: Usurious Transactions

FACTS:
Plaintiff corporation filed suit in the Court of First Instance of Manila on May 29, 1964 against
the partnership Chelda Enterprises and David Syjueco, its capitalist partner, for recovery of
alleged unpaid loans in the total amount of P20,880.00, with legal interest from the filing of
the complaint, plus attorney’s fees of P5,000.00. Alleging that post dated checks issued by
defendants to pay said account were dishonored, that defendants’ industrial partner,
Chellaram I. Mohinani, had left the country, and that defendants have removed or disposed
of their property, or are about to do so, with intent to defraud their creditors, preliminary
attachment was also sought.
Answering, defendants averred that they obtained four loans from plaintiff in the total
amount of P26,500.00, of which P5,620.00 had been paid, leaving a balance of P20,880.00;
that plaintiff charged and deducted from the loan usurious interests thereon, at rates of 2%
and 2.5% per month, and, consequently, plaintiff has no cause of action against defendants
and should not be permitted to recover under the law. A counterclaim for P2,000.00
attorney’s fees was interposed.
Since, according to the appellants, a usurious loan is void due to illegality of cause or object,
the rule of pari delicto expressed in Article 1411, supra, applies, so that neither party can
bring action against each other. Said rule, however, appellants add, is modified as to the
borrower, by express provision of the law (Art. 1413, New Civil Code), allowing
the borrower to recover interest paid in excess of the interest allowed by the Usury Law. As
to the lender, no exception is made to the rule; hence, he cannot recover on the contract. So
the New Civil Code provisions must be upheld as against the Usury Law, under which a loan
with usurious interest is not totally void, because of Article 1961 of the New Civil Code, that:
“Usurious contracts shall be governed by the Usury Law and other special laws, so far as
they are not inconsistent with this Code.”
ISSUE:
Whether or not the illegal terms as to payment of interest likewise renders a nullity the legal
terms as to payments of the principal debt.
HELD:
Article 1420 of the New Civil Code provides in this regard: “In case of a divisible contract, if
the illegal terms can be separated from the legal ones, the latter may be enforced.”
In simple loan with stipulation of usurious interest, the prestation of the debtor to pay the
principal debt, which is the cause of the contract (Article 1350, Civil Code), is not illegal. The
illegality lies only as to the prestation to pay the stipulated interest; hence, being separable,
the latter only should be deemed void, since it is the only one that is illegal.
SECURITY BANK AND TRUST COMPANY vs. R.T.C MAKATI BR. 61
MAGTANGGOL EUSEBIO AND LEILA VENTURA
G.R.No. 113926, October 3, 1996

PONENTE: Hermosisima, J.
TOPIC: Usurious Transactions

FACTS:
On April 27, 1983, private respondent Magtanggol Eusebio executed 3 Promissory Notes
from different dates in favor of petitioner Security Bank and Trust Co. (SBTC) in the amounts
of 100,000, 100,000, and 65,000. Respondent bound himself to pay the said amounts in six
(6) monthly installments plus 23% interest per annum.On all the abovementioned promissory
notes, private respondent Leila Ventura had signed as co-maker. Upon maturity there were
still principal balance remaining on the notes. Eusebio refused to pay the balance payable, so
SBTC filed a collection case against him. The RTC rendered a judgment in favor of SBTC,
although the rate of interest imposed by the RTC was 12% p.a. instead of the agreed upon
23% p.a. The court denied the motion filed by SBTC to apply the 23% p.a. instead of the 12%
p.a.

ISSUE:
Did the RTC err in using 12% instead of the 23% as agreed upon by the parties?

RULING:
Yes, the rate of interest was agreed upon by the parties freely. Significantly, respondent did
not question that rate. P.D. No. 1684 and C.B. Circular No. 905 no more than allow
contracting parties to stipulate freely regarding any subsequent adjustment in the interest
rate that shall accrue on a loan or forbearance of money, goods or credits. It is not for
respondent court a quo to change the stipulations in the contract where it is not illegal.
Furthermore, Article 1306 of the New Civil Code provides that contracting parties may
establish such stipulations, clauses, terms and conditions as they may deem convenient,
provided they are not contrary to law, morals, good customs, public order, or public policy.
The 12% shall be applied for obligations arising from loans, or forbearance of money in the
absence of express stipulations
 ASIAN CATHAY FINANCE AND LEASING CORPORATION, vs.
SPOUSES CESARIO GRAVADOR AND NORMA DE VERA AND SPOUSES EMMA
CONCEPCION G. DUMIGPI AND FEDERICO L. DUMIGPI
G.R. No. 186550; 5 July 2010

PONENTE: Nachura, J.
TOPIC: Usurious Transactions

FACTS:
Asian Cathay Finance and Leasing Corporation (ACFLC) extended a loan of P800,000.00 to
respondent Cesario Gravador (Cesario), with respondents Norma de Vera and Emma
Concepcion Dumigpi as his co-makers. The loan was payable in 60 monthly installments of
P24,000.00 each and secured by a real estate mortgage executed by Cesario over his
property. Respondents paid the first installment for November 1999 but failed to pay the
subsequent installments. In February 2000, ACFLC demanded payment of P1,871,480.00
from respondents. Respondents asked for more time to pay but ACFLC denied their request.
Respondents filed a case for annulment of the real estate mortgage and promissory note
before the Regional Trial Court (RTC). Respondents averred that the mortgage did not make
reference to the promissory note and contained a provision on the waiver of the
mortgagor’s right of redemption, which is contrary to law and public policy. Respondents
added that the promissory note did not specify the maturity date of the loan, the interest
rate, and the mode of payment, and illegally imposed liquidated damages.
ACFLC filed a petition for extrajudicial foreclosure of mortgage with the office of the Deputy
Sheriff. The RTC dismissed respondents’ complaint for annulment of mortgage for lack of
cause of action, holding that respondents were well-educated individuals who could not
feign naiveté in the execution of the loan documents. The RTC further held that the alleged
defects in the promissory note and in the deed of real estate mortgage were too
insubstantial to warrant the nullification of the mortgage. It added that a promissory note
was not one of the essential elements of a mortgage, thus, reference to a promissory note
was neither indispensable nor imperative for the validity of the mortgage. Respondents
appealed to the Court of Appeals (CA) which reversed the RTC. The CA held that the amount
of P1,871,480.00 demanded by ACFLC from respondents was unconscionable and excessive.
The CA fixed the interest rate at 12% per annum and reduced the penalty charge to 1% per
month. The
CA also invalidated the waiver of respondents’ right of redemption for reasons of public
policy. When the CA denied ACFLC’s motion for reconsideration, ACFLC brought the case to
the Supreme Court, insisting on the validity of the real estate mortgage and promissory
note. ACFLC argued that right of redemption was a privilege which respondents could waive
as they did in this case. It further argued that respondents’ action for annulment of
mortgage was a collateral attack on its certificate of title.

ISSUE:
Whether or not the interest imposed by ACFLC was unconscionable and excessive.

RULING:
It is true that parties to a loan agreement have a wide latitude to stipulate on any interest
rate in view of Central Bank Circular No. 905, series of 1982, which suspended the Usury Law
ceiling on interest rate effective 1 January 1983. However, interest rates, whenever
unconscionable, may be equitably reduced or even invalidated. In a span of 3 months (from
the payment of the initial installment for November 1999 up to ACFLC’s demand on 1
February 2000), respondents’ principal obligation of P800,000.00 ballooned by more than
P1,000,000.00. ACFLC failed to show any computation on how much interest was imposed
and on the penalties charged. Thus, the amount claimed by ACFLC was unconscionable.
Stipulations authorizing the imposition of iniquitous or unconscionable interest are contrary
to morals, if not against the law. Under Article 1409 of the Civil Code, these contracts are
inexistent and void from the beginning. They cannot be ratified nor the right to set up their
illegality as a defense be waived. The nullity of the stipulation on the usurious interest does
not, however, affect the lender’s right to recover the principal of the loan. Nor would it
affect the terms of the real estate mortgage. The right to foreclose the mortgage remains
with the creditors, and said right can be exercised upon the failure of the debtors to pay the
debt due. The debt due is to be considered without the stipulation of the excessive interest.
A legal interest of 12% per annum will be added in place of the excessive interest formerly
imposed. The nullification by the CA of the interest rate and the penalty charge and the
consequent imposition of an interest rate of 12% and penalty charge of 1% per month cannot,
therefore, be considered a reversible error. The Court cited Spouses Castro vs. Tan, et al.
(G.R. No. 168940; 24 November 2009), where it held that: “The imposition of an
unconscionable rate of interest on a money debt, even if knowingly and voluntarily
assumed, is immoral and unjust. It is tantamount to a repugnant spoliation and an iniquitous
deprivation of property, repulsive to the common sense of man. It has no support in law, in
principles of justice, or in the human conscience nor is there any reason whatsoever which
may justify such imposition as righteous and as one that may be sustained within the sphere
of public or private morals.”
 Solidbank Corporation Vs. Permanent Homes, Incorporated
GR No. 171925, July 23, 2010

PONENTE: Carpio J.
TOPIC: Usurious Transactions

FACTS:
The Respondent, Permanent Homes Inc. is a real estate development company that applied
and was granted an Omnibus Line credit facility in the Solidbank to finance its housing
project known as Buena Vida Town homes in the amount of sixty million pesos. Of the sixty
million available to Permanent Homes, it availed of a total of 41.5 million pesos, covered by
three promissory notes wherein it irrevocably authorized Solidbank to increase or decrease
at any time the interest rate based on the prevailing rates in the local or international capital
markets. The adjustment of the interest rates shall be effective from the date indicated in
the written notice or if no date was indicated the time the notice was sent. If Permanent
Homes disagrees with the interest rate adjustment, they shall prepay all amounts due within
thirty days, from the receipt of the written notice. Otherwise, they shall be considered to
have given their consent to the interest rate adjustment. Contrary to the stipulations
indicated in the promissory note. There was a standing agreement by both parties that any
increase or decrease in the interest rates shall be subject to the mutual agreement of the
parties.
Permanent Homes contends that without their knowledge and consent Solidbank
unilaterally and arbitrarily accelerated the interest rates without any declared basis of such
increases. They aver that they could not protest the actions of the Bank for fear that it
would cut off their credit facility. Solidbank, on the other hand, avers that Permanent Homes
has no cause of action against it, as the aforementioned pertinent provisions of the Omnibus
Credit Line and the promissory notes stipulated and agreed to and duly signed by Permanent
Homes. Thus, in accordance with said provisions, Solidbank was authorized to, upon due
notice, periodically adjust the interest rates on Permanent Homes loan availments during
the monthly interest repricing dates, depending on the changes in prevailing interest rates in
the local and international capital markets.

ISSUE:

Whether or not the interest rate repricing of Solidbank in the course of the loan valid

HELD:

The Supreme Court held that the repricing of the interest rates were VALID. The validity of
the actions of the bank are (1) the parties mutually agreed on said stipulations; (2) repricing
takes effect only upon Solidbank written notice to Permanent of the new interest rate; and
(3) Permanent has the option to prepay its loan if Permanent and Solidbank do not agree on
the new interest rate. The interest rates implemented by Solidbank were consistent with
prevailing rates in the local or international capital markets. In order that obligations arising
from contracts may have the force of law between the parties, there must be a mutuality
between the parties based on their essential equality. A contract containing a condition
which makes its fulfillment dependent exclusively upon the uncontrolled will of one of the
contracting parties is void. There was no showing that either Solidbank or Permanent
coerced each other to enter into the loan agreements. The terms of the Omnibus Line
Agreement and the promissory notes were mutually and freely agreed upon by the parties.
 Villanueva v. Court of Appeals
GR No. 163433, August 22, 2011
PONENTE: Peralta J.
TOPIC: Usurious Transactions

FACTS:
Petitioners applied for separate loans amounting to P100,000.00 and P125,000.00,
which were granted by herein respondent Bank. As security for the loans, petitioners
executed two separate promissory notes the due dates and executed two separate real
estate mortgages over the same parcel of agricultural land. However, petitioners failed to
pay their loans when they became due. As a consequence, respondent Bank filed a petition
for extrajudicial foreclosure of the abovementioned mortgages. Petitioners' obligations
amounted to P287,187.50, plus interests, charges and expenses. The Provincial Sheriff issued
a Notice of Sale of the subject mortgaged property that did not push through, respondent
Bank re-applied for extrajudicial foreclosure of the same mortgage. The Provincial Sheriff
issued a Notice of Sale Re-Application of Foreclosure Case and set the public auction of the
subject property petitioners' mortgage debt was P713,465.35, plus interests, charges and
expenses. Petitioner wrote to the RTC but was denied. Also the CA affirmed the decision of
the RTC.

ISSUE:
Whether or not there is unjust enrichment at the expense of petitioners through the
imposition of exorbitant, unconscionable and usurious interest rates, penalties and other
charges.

HELD:
The Court has recognized a penalty clause as an accessory obligation which the
parties attach to a principal obligation for the purpose of insuring the performance thereof
by imposing on the debtor a special prestation (generally consisting in the payment of a sum
of money) in case the obligation is not fulfilled or is irregularly or inadequately fulfilled. The
enforcement of the penalty can be demanded by the creditor only when the non-
performance is due to the fault or fraud of the debtor. The non-performance gives rise to
the presumption of fault; in order to avoid the payment of the penalty, the debtor has the
burden of proving an excuse the failure of the performance was due to either force majeure
or the acts of the creditor himself. Also the 24% per annum interest rate, provided for in the
subject mortgage contracts for a loan of P225,000.00, may not be considered
unconscionable. Moreover, considering that the mortgage agreement was freely entered
into by both parties, the same is the law between them and they are bound to comply with
the provisions contained therein. Herein petitioners bound themselves to pay the stipulated
penalty charge of 6% per annum of the principal amount of loan as penalty for inexcusable
neglect to pay any amount of the loan when due. Since petitioners failed to present
evidence that their failure to perform their obligation was due to either force majeure or the
acts of respondent Bank or to any justifiable or excusable cause, they are obliged to pay the
penalty charge as agreed upon.
 RGM Industries Inc. v. United Pacific Capital Corporation Inc.
GR No. 194781, June 27, 2012
PONENTE: Reyes, J.
TOPIC: Usurious Transactions

FACTS:
Petitioner, RGM Industries, Inc. loaned thirty million peso short-term credit facility to United
Pacific Capital Corporation, a domestic corporation engaged in the business of lending and
financing.
In 1998, petitioner issued a consolidated promissory note with a stipulated interest of 32%
per annum. RGM failed to render payments of its loan to United Pacific prompting the
respondent to file a complaint for collection of sum of money against the petitioner.
RGM contends that the agreed interest rate was fixed at 15.5% per annum and not the
varying interest rates imposed by the respondent which reached as high as 40% per annum.
RTC and CA ruled in favor of the petitioner.

ISSUE:
Whether the increased interest rates is in violation of the principle of mutuality of contracts.

HELD:
Yes. Stipulated interest rates are illegal if they are unconscionable and courts are allowed to
temper interest rates when necessary. In exercising this vested power to determine what is
iniquitous and unconscionable, the Court must consider the circumstances of each case.
What may be iniquitous and unconscionable in one case, may be just in another. On the basis
of the same precedent, the attorney's fees must likewise be equitably reduced considering
that: (1) the petitioner has already made partial payments; (2) the attorney's fees are not an
integral part of the cost of borrowing but a mere incident of collection; and (3) the
attorney's fees were intended as penal clause to answer for liquidated damages, hence, the
rate of 10% of the unpaid obligation is too onerous. Under the premises, attorney’s fees
equivalent to one percent (1%) of the outstanding balance is reasonable.
 David v Misamis Occidental II Electric Cooperative, Inc.
GR No. 194785, July 11 2012

PONENTE: Mendoza, J.
TOPIC: Usurious Transactions

FACTS:
Virgilio S. David was the owner or proprietor of VSD Electric Sales, a company
engaged in the business of supplying electrical hardware for rural electric cooperatives like
respondent Misamis Occidental II Electric Cooperative, Inc. (MOELCI), MOELCI expressed its
intention to purchase a 10 MVA power transformer from David. Its General Manager, Engr.
Reynaldo Rada went to meet David, David agreed to supply the power transformer
provided they would secure a board resolution because the item would still have to be
imported. The goods were shipped with a sales invoice which stated the agreed interest rate
of 24% per annum. When no payment was made after several months, Medina sent the
demand letter which MOELCI duly received. Engr. Rada. Subsequently, demand letters were
sent to MOELCI demanding the payment of the whole amount plus the balance of previous
purchases of other electrical hardware. Aside from the formal demand letters, David added
that several statements of accounts were regularly sent through the mails by the company
and these were never disputed by MOELCI.
David filed a complaint about specific performance with damages with the RTC. MOECLI
moved for its dismissal on the ground that there was lack of cause of action as there was no
contract of sale, or in the alternative, the said contract was unenforceable under the Statute
of Frauds. The RTC dismissed the complaint. It found that although a contract of sale was
perfected, it was not consummated because David failed to prove that there was indeed a
delivery of the subject item and that MOELCI received it. CA affirmed the ruling of the RTC.

ISSUE:
Whether or not there was a perfected contract of sale

HELD:
David’s petition is GRANTED. CA’s decision is revered and respondent Misamis Occidental II
Electric Cooperative, Inc. is ordered to pay petitioner David the total sum of P5,472,722.27
with interest at the rate of 12% per annum reckoned from the filing of the complaint until
fully paid. MOELCI agreed that the power transformer would be delivered and that the
freight, handling, insurance, customs duties, and incidental expenses shall be shouldered by
it. On the basis of this express agreement, Article 1523 of the Civil Code becomes applicable.
It provides:

“Where, in pursuance of a contract of sale, the seller is authorized or required to send the
goods to the buyer delivery of the goods to a carrier, whether named by the buyer or not,
for the purpose of transmission to the buyer is deemed to be a delivery of the goods to the
buyer, except in the cases provided for in Article 1503, first, second and third paragraphs, or
unless a contrary intent appears.” Thus, the delivery made by David to William Lines, Inc., as
evidenced by the Bill of Lading, was deemed to be a delivery to MOELCI. David was
authorized to send the power transformer to the buyer pursuant to their agreement. When
David sent the item through the carrier, it amounted to a delivery to MOELCI.
 Anchor Savings Bank v. Pinzman Realty and Development Corporation
GR No. 192304, August 13, 2014

PONENTE: Williarama Jr. J.

TOPIC: Usurious Transactions

FACTS:
The private respondents Mañalac obtained a loan from the petitioner in the amount
of P3,000,000 secured by a real estate mortgage over parcels of land. Private respondent
executed a Promissory Note and Disclosure Statement in favor of the petitioner in the total
amount of P3,308,447.74, which amount already included payment for 3 months interest.
The loan document stipulated 3 installments and imposed a monthly 5% late-payment
charge, 25% attorney’s fees, and 25% liquidated damages in case of unpaid installments on
the part of private respondent Mañalac. The proceeds for the loan were released to private
respondent who then issued 3 checks. However, among the 3 checks, only the first one was
cleared for payment. Subsequently, private respondents received a Notice of Extrajudicial
sale for the satisfaction of an obligation. Thereafter, a foreclosure sale was held where the
petitioner emerged as the highest bidder. As private respondent Mañalac failed to redeem
the properties, ownership of the foreclosed properties was eventually consolidated in
petitioner’s name. Private respondent filed a complaint for the Annulment of the
Extrajudicial Foreclosure of Mortgaged Properties, Auction Sale, Certificate of Sale and
Damages against the petitioner before the RTC.
RTC dismissed the complaint and ruled that private respondents did not take any measures
to enjoin the foreclosure sale despite their knowledge of the alleged usurious interest
charges. On appeal, CA revered the RTC decision and held that petitioner erred in unilaterally
imposing an interest rate of 30.33% on the unpaid portion of the loan. The CA held that the
said rate was excessive, iniquitous, unconscionable and blatantly contrary to law and morals.
Further, the CA ruled that the imposition of such unlawful interest rate will nullify the
foreclosure arising therefrom.

ISSUE:
Whether the imposition of usurious interest rates on a loan obligation secured by a real
estate mortgage will result in the invalidity of the subsequent foreclosure sale of the
mortgage.

HELD:
It is jurisprudential axiom that a foreclosure sale arising from a usurious mortgage
cannot be given legal effect. Relevantly, in Heirs of Zoilo Espiritu v. Sps. Landrito, we struck
down a foreclosure sale where the amount declared as mortgage indebtedness involved
excessive, unreasonable, and unconscionable interest charges. In no uncertain terms, we
ruled that a mortgagor cannot be legally compelled to pay for a grossly inflated loan: xx xxx
xx. A judgment ordering a foreclosure sale is conditioned upon a finding on the correct
amount of the unpaid obligations and the failure of the debtor to pay the said amount. xx
xxx xx. Moreover, if the proceeds of the sale together with its reasonable rate of interest
were applied to the obligations, only a small part of its original loans would actually remain
outstanding, but because of the unconscionable interest rate, the larger part correspondent
to said excessive and iniquitous interest. In the case at bar, the unlawful interest charge
which led to the demand for P4,577,269.42 as stated in the Notice if Extrajudicial Sale
resulted in the invalidity of the subsequent foreclosure sale held on June 1, 1999. The private
respondent cannot be obliged to pay an inflated or overstated mortgage indebtedness on
account of excessive interest charges without offending the basic tenets of due process and
equity.
 Mallari v. Prudential Bank
GR No. 197861, June 5, 2013
PONENTE: Peralta, J.
TOPIC: Usurious Transactions

FACTS:
In 1984, Petitioner Florentino Mallari obtained a loan from respondent Prudential
Bank in the amount of P300,000.00. It was subject to an interest rate of 21% per annum and,
in case of default, a penalty of 12% per annum of the total amount due and attorneys fees
equivalent of 15% of the total amount due. This was secured by a Deed of Assignment (DOA)
over petitioner's time deposit account. In 1989, Spouses Florentino and Aurea Mallari
obtained another loan from respondent for P1.7 million, stipulating interest of 23% per
annum with the same penalties in case of default. This was secured by Real Estate Mortgage
(REM). Petitioners defaulted. When computed in 1992, the total debt was P571,218.54 and
P2,991,294.82 for the first and second loans respectively. Respondent tried to extrajudicially
foreclose the mortgage. Petitioners on the other hand tried to nullify the mortgage claiming
that the Bank imposed onerous terms and conditions and that the bank was unilaterally
increasing its charges and interest over and above those stipulated. The Bank claimed that
the basis for its computation was all written in the Promissory Notes.

The RTC ruled in favor of respondent bank. CA affirmed.

ISSUE:
Whether or not an interest rate of 23% per annum and 12% per annum penalty is
unconscionable.

HELD:
The Court has also ruled affirmed in a plethora of cases that stipulated interest rates
of 3% per month and higher are excessive, unconscionable and exorbitant. thus, the 23% per
annum interest rate imposed on petitioners’ loan in this case can by no means be considered
excessive or unconscionable. And neither is the 12% per annum penalty charge
unconscionable as the counrt found in DBP vs. Family Foods (2009) and Ruiz vs. Court of
Appeals (2003).
 Manila Trading And Supply Co. v. Medina
GR No. L-16477, May 31 1961

Ponente: Reyes J.B.L, J.

Topic: Presumption on Interests and Installments

FACTS:
Prior to May 7, 1956, Mariano Medina had certain accounts with Manila Trading &Supply Co.
On January 8, 1957, Manila Trading & Supply Co. filed a complaint against Medina in the
Court of First Instance of Manila, claiming that Medina had failed to meet the installments
due on the note for the months of September, 1956 up to and including January 7, 1957.
Medina averred that the genuine receipts dated January 1957 should raise the presumption
that prior installments were paid.

ISSUE:
Whether or not the Medina was correct in saying that genuine receipts dated January1957
raise the presumption that prior installments were paid.

HELD:
Such receipts did not indicate that they were issued for the installments corresponding to
the month of January, 1957. And even if such recital had been made, the resulting
presumption would only be prima facie. and the evidence before us is clear that the
payments made do not correspond to the installment falling due on the dates of the
genuine receipts.

The find no error in the judgment appealed from, and therefore the same is hereby affirmed.
Costs in both instances against appellant Mariano Medina.
 Marquez v. Elisan Credit Corporation
GR No. 194642, April 06 2015
Ponente: Brion J.
Topic: Presumption on Interests and Installments

FACTS:
Marquez obtained from Elisan Credit Corporation a loan payable in weekly installments and
subject to annual interest with monthly penalties and attorney’s in case of nonpayment. A
chattel mortgage was also executed stipulating that “the motor vehicle shall stand as a
security for all other obligations of every kind already incurred or which hereafter may be
incurred”. The payment of that loan was acknowledged by both parties.
Subsequently, Marquez obtained another loan evidenced by a promissory note with the
same terms and conditions as the first loan. When the second loan matured, there still
remained an unpaid balance. Marquez requested the creditor to pay the unpaid balance by
daily installments until the loan is paid; the creditor agreed. Thus, several months after the
maturity of the loan, Marquez had already paid a total amount which is greater than the
amount of the principal.
Despite such, the creditor filed a complaint for foreclosure of the CM on the ground that
Marquez allegedly failed to pay the principal of the second loan despite demand. It was also
prayed that the unpaid balance plus accrued penalties and interests be paid because,
allegedly, Marquez’ failure to pay upon maturity triggered the imposition of monthly
penalties and attorney’s fees. Marquez, citing Art 1176 and 1235 of the Civil Code, insists that
his daily payments should be deemed to have been credited against the principal, as the
official receipts issued by the creditor were silent with respect to the payment of interest
and penalties.

ISSUE:
Whether or not the creditor waived the payment of the interest

HELD:
The fact that the official receipts did not indicate whether the payments were made for the
principal or the interest does not prove that the creditor waived the interest. There is no
presumption of waiver of interest without any evidence showing that the creditor accepted
the daily instruments as payments for the principal. Notwithstanding the fact it was not
indicated in the receipts whether the payments were applied to the principal or the interest,
such failure should not be taken against the creditor. Under Article 1253 of the Civil Code, if
the debt produces interest, payment of the principal shall not be deemed to have been
made until the interests have been covered. Thus, the creditor in this case has a right to
credit the payments to the interest first.
 Hongkong and Shanghai Banking Corp v. Broqueza
GR No. 178610, November 17, 2010
Ponente: Carpio J.
Topic: Pure Obligation

FACTS:

Petitioners Gerong and Broqueza are employees of Hongkong and Shanghai Banking
Corporation (HSBC). They are also members of respondent Hongkong Shanghai Banking
Corporation, Ltd. Staff Retirement Plan.
In October 1990, petitioner Broqueza obtained a car loan in the amount of Php 175,000.00.
In December 1991, she again applied and was granted an appliance loan in the amount of
Php 24,000.00.
In 1993, a labor dispute arose between HSBC and its employees. Majority of HSBCs
employees were terminated, among whom are petitioners Editha Broqueza and Fe Gerong.

ISSUE:

Whether or not the claim was premature as the loan obligations have not yet matured.

RULING:

The Court affirms the findings of the lower courts that there is no date of payment indicated
in the Promissory Notes. The RTC is correct in ruling that since the Promissory Notes do not
contain a period, HSBCL-SRP has the right to demand immediate payment. Article 1179 of the
Civil Code applies: Every obligation whose performance does not depend upon a future or
uncertain event, or upon a past event unknown to the parties, is demandable at once. The
spouses Broquezas obligation to pay HSBCL-SRP is a pure obligation. The fact that HSBCL-
SRP was content with the prior monthly check-off from Editha Broquezas salary is of no
moment. Once Editha Broqueza defaulted in her monthly payment, HSBCL-SRP made a
demand to enforce e a pure obligation.
 Mila A. Reyes v. Victoria T. Tuparan
GR No. 188064, June 1, 2011
Ponente: Mendoza J.
Topic: Suspensive Condition

FACTS:
Mila A. Reyes (petitioner) filed a complaint for Rescission of Contract with Damages against
Victoria T. Tuparan (respondent) before the RTC. In her Complaint, petitioner alleged,
among others, that she was the registered owner of residential and commercial. Petitioner
mortgaged the subject real properties to the Farmers Savings Bank and Loan Bank, Inc. (FSL
Bank) to secure a loan. Petitioner then decided to sell her real properties so she could
liquidate her bank loan and finance her businesses. As a gesture of friendship, respondent
verbally offered to conditionally buy petitioner's real properties.

The RTC handed down its decision finding that respondent failed to pay in full the total
purchase price of the subject real properties. It stated that the checks and receipts
presented by respondent refer to her payments of the mortgage obligation with FSL Bank.
The RTC also considered the Deed of Conditional Sale of Real Property with Assumption of
Mortgage executed by and among the two parties and FSL Bank a contract to sell, and not a
contract of sale. The CA rendered its decision affirming with modification the RTC Decision.
The CA agreed with the RTC that the contract entered into by the parties is a contract to sell
but ruled that the remedy of rescission could not apply because the respondent's failure to
pay the petitioner the balance of the purchase was not a breach of contract, but merely an
event that prevented the seller (petitioner) from conveying title to the purchaser
(respondent).

ISSUE:
Was the agreement a contract to sell and not a contract of sale?

HELD:
The Court agrees with the ruling of the courts below that the subject Deed of Conditional
Sale with Assumption of Mortgage entered into by and among the two parties and FSL Bank
on November 26, 1990 is a contract to sell and not a contract of sale.The title and ownership
of the subject properties remains with the petitioner until the respondent fully pays the
balance of the purchase price and the assumed mortgage obligation. Thereafter, FSL Bank
shall then issue the corresponding deed of cancellation of mortgage and the petitioner shall
execute the corresponding deed of absolute sale in favor of the respondent. Accordingly,
the petitioner's obligation to sell the subject properties becomes demandable only upon the
happening of the positive suspensive condition, which is the respondent's full payment of
the purchase price. Without respondent's full payment, there can be no breach of contract
to speak of because petitioner has no obligation yet to turn over the title. Respondent's
failure to pay in full the purchase price is not the breach of contract contemplated under
Article 1191 of the New Civil Code but rather just an event that prevents the petitioner from
being bound to convey title to the respondent.
Thus, the Court fully agrees with the CA when it resolved: "Considering, however, that the
Deed of Conditional Sale was not cancelled by Vendor Reyes (petitioner) and that out of the
total purchase price of the subject property in the amount of ?4,200,000.00, the remaining
unpaid balance of Tuparan (respondent) is only ?805,000.00, a substantial amount of the
purchase price has already been paid. It is only right and just to allow Tuparan to pay the said
unpaid balance of the purchase price to Reyes." Granting that a rescission can be permitted
under Article 1191, the Court still cannot allow it for the reason that, considering the
circumstances, there was only a slight or casual breach in the fulfillment of the obligation.
 Heirs of Atienza vs. Espidol
GR No. 180665, August 11, 2010
Ponente: Abad, J.
Topic: Suspensive Condition

FACTS:
This case is about the legal consequences when a buyer in a contract to sell on installment
fails to make the next payments that he promised. 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 instalments. 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.

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.

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.
 The Wellex Group, Inc v. U-land Airlines, Co., Ltd
GR. No. 167519, January 14, 2015
Ponente: Leonen, J
Topic: Suspensive Condition

FACTS: Wellex and U-Land agreed to develop a long-term business relationship through the
creation of joint interest in airline operations and property development projects in the
Philippines. The provisions of the memorandum were agreed to be executed within 40days
from its execution date. The 40-day period lapsed but Wellex and U-Land were notable to
enter into any share purchase agreement although drafts were exchanged between the
two. Despite these transactions, Wellex and U-Land still failed to enter into the share
purchase agreement and the joint development agreement. Thus, U-Land filed a Complaint
praying for rescission of the First Memorandum of Agreement and damages against Wellex
and for the issuance of a Writ of Preliminary Attachment. Under the circumstances, it is clear
that defendant fraudulently violated the provisions of the MOA.” On appeal, the Court of
Appeals affirmed the ruling of the Regional Trial Court. Hence, this petition.

ISSUE: Whether or not respondent U-Land correctly sought the principal relief of rescission
or resolution underArticle1191.

HELD: Yes. The failure of one of the parties to comply with its reciprocal prestation allows
the wronged party to seek the remedy of Article 1191. The wronged party is entitled to
rescission or resolution under Article 1191, and even the payment of damages. It is a principal
action precisely because it is a violation of the original reciprocal prestation. Rescission or
resolution under Article 1191, therefore, is a principal action that is immediately available to
the party at the time that the reciprocal prestation was breached. Thus, respondent U-Land
correctly sought the principal relief of rescission or resolution under Article 1191.
 HERMOSA VS LONGARA
GR No. L-5267, October 27, 1953
Ponente: Labrador J.
Topic: Mixed Obligations

FACTS:
This is an appeal by way of certiorari against a decision of the Court of Appeals,
fourth division, approving certain claims presented by Epifanio M. Longara against the
testate estate of Fernando Hermosa, Sr. The claims are of three kinds, namely, P2,341.41
representing credit advances made to the intestate from 1932 to 1944, P12,924.12 made to
his son Francisco Hermosa, and P3,772 made to his grandson, Fernando Hermosa, Jr. from
1945 to 1947, after the death of the intestate, which occurred in December, 1944. The
claimant presented evidence and the Court of Appeals found, in accordance therewith, that
the intestate had asked for the said credit advances for himself and for the members of his
family "on condition that their payment should be made by Fernando Hermosa, Sr. as soon
as he receive funds derived from the sale of his property in Spain." Claimant had testified
without opposition that the credit advances were to be "payable as soon as Fernando
Hermosa, Sr.'s property in Spain was sold and he receive money derived from the sale." The
Court of Appeals held that payment of the advances did not become due until the
administratrix received the sum of P20,000 from the buyer of the property. Upon
authorization of the probate court in October, 1947, and the same was paid for
subsequently. The Claim was filed on October 2, 1948.

ISSUE:

Does said condition a potestative condition and thusly void and unenforceable?

RULING:

A careful consideration of the condition upon which payment of the sums advanced
was made to depend, "as soon as he (intestate) receive funds derived from the sale of his
property in Spain," discloses the fact that the condition in question does not depend
exclusively upon the will of the debtor, but also upon other circumstances beyond his power
or control. Cirumstances show that the intestate had already decided to sell his house lest
he meant to fool his creditors. But in addition of the sale to him (the intestate-vendor), there
were still other conditions that had no concur to effect the sale, mainly that of the presence
of a buyer, ready, able and willing to purchase the property under the conditions demanded
by the intestate. It is evident, therefore, that the condition of the obligation was not a purely
protestative one, depending exclusively upon the will of the intestate, but a mixed one,
depending partly upon the will of intestate and partly upon chance. The Supreme Court
upheld the ruling of the lower courts.
 Government Service Insurance System v. Court of Appeals
G.R. No. 124208, January 28, 2008
Ponente: Regalado J.
Topic: Impossible Conditions
FACTS:
The annual stockholders meeting (annual meeting) of the Manila Electric Company
(Meralco) was scheduled on 27 May 2008. In connection with the annual meeting, proxies
were required to be submitted on or before 17 May 2008, and the proxy validation was
slated for five days later, or 22 May. In view of the resignation of Camilo Quiason the position
of corporate secretary of Meralco became vacant. On 15 May 2008, the board of directors of
Meralco designated Jose Vitug to act as corporate secretary for the annual meeting.
However, when the proxy validation began on 22 May, the proceedings were presided over
by respondent Anthony Rosete (Rosete), assistant corporate secretary and in-house chief
legal counsel of Meralco. Private respondents nonetheless argue that Rosete was the acting
corporate secretary of Meralco. Petitioner Government Service Insurance System (GSIS), a
major shareholder in Meralco, was distressed over the proxy validation proceedings, and the
resulting certification of proxies in favor of the Meralco management. On 23 May 2008, GSIS
filed a complaint with the Regional Trial Court (RTC) of Pasay City, docketed as R-PSY-08-
05777-C4 seeking the declaration of certain proxies as invalid. Despite the Cease and Desist
Order issued ON May 26, 2006 by the SEC, MERALCO announced the following day through
the OIC Corporate Secretary, Rosete that the annual meeting will push through.

ISSUE:
1) Whether the SEC has jurisdiction over the petition filed by GSIS against private
respondents.
2) Whether the CDO and SCO issued by the SEC are valid.

RULING:

Section 6(g) of Presidential Decree No. 902-A, which states: SEC. 6. In order to effectively
exercise such jurisdiction, the Commission shall possess the following powers: xxx (g) To
pass upon the validity of the issuance and use of proxies and voting trust agreements for
absent stockholders or members; xxx As promulgated then, the provision would confer on
the SEC the power to adjudicate controversies relating not only to proxy solicitation, but
also to proxy validation. Should the proposition hold true up to the present, the position of
GSIS would have merit, especially since Section 6 of Presidential Decree No. 902-A was not
expressly repealed or abrogated by the SRC. Yet a closer reading of the provision indicates
that such power of the SEC then was incidental or ancillary to the exercise of such
jurisdiction. Note that Section 6 is immediately preceded by Section 5, which originally
conferred on the SEC original and exclusive jurisdiction to hear and decide cases involving
controversies in the election or appointments of directors, trustees, officers or managers of
such corporations, partnerships or associations. The cases referred to in Section 5 were
transferred from the jurisdiction of the SEC to the regular courts with the passage of the
SRC, specifically Section 5.2. Thus, the SECs power to pass upon the validity of proxies in
relation to election controversies has effectively been withdrawn, tied as it is to its
abrogated jurisdictional powers. When proxies are solicited in relation to the election of
corporate directors, the resulting controversy, even if it ostensibly raised the violation of the
SEC rules on proxy solicitation, should be properly seen as an election controversy within the
original and exclusive jurisdiction of the trial courts by virtue of Section 5.2 of the SRC in
relation to Section 5(c) of Presidential Decree No. 902-A.
 Taylor v. Uy Tieng Piao, 43 Phil 873
Ponente: Street J.
Topic: Doctrine of Constructive Compliance

FACTS:
Taylor contracted his services to Tan Liuan & Co as superintendent of an oil factory which
the latter contemplated establishing. The contract extended over 2 years and the salary was
P600/month during the first year and P700/month during the second with electric, light and
water for domestic consumption or in lieu thereof, P60/month. At this time, the machinery
for contemplated factory had not been acquired, though ten expellers had been ordered
from the US. It was understood that should the machinery to be installed fail, for any reason,
to arrive in Manila within the period of 6 months, the contract may be cancelled by the party
of the second part at its option, such cancellation not to occur before the expiration of such
6 months. The machinery did not arrive in Manila within the 6 months; the reason does not
appear, but a preponderance of evidence show that the defendants seeing that oil business
no longer promised large returns, either cancelled the order for machinery from choice or
were unable to supply the capital necessary to finance the projects. Defendants
communicated to Taylor that they had decided to rescind the contract. Taylor instituted this
action to recover damages in the amount of P13k, covering salary and perks due and to
become due.

ISSUE:
Whether or not in a contract for the prestation of service, it is lawful for the parties to insert
a provision giving the employer the power to cancel the contract in contingency which may
be dominated by himself.

HELD
One of the consequences of the stipulation was that the employers were left in a
position where they could dominate the contingency, and the result was about the same as
if they had been given an unqualified option to dispense with the services of Taylor at the
end of 6 months. But this circumstance does not make the stipulation illegal. A condition at
once facultative and resolutory may be valid even though the condition is made to depend
upon the will of the obligor. If it were apparent, or could be demonstrated that the
defendants were under positive obligation to cause the machinery to arrive in Manila, they
would of course be liable, in the absence of affirmative proof showing that the non-arrival of
the machinery was due to some cause not having its origin in their own act or will. The
contract, however, expresses no such positive obligation, and its existence cannot be
implied in the face of the stipulation, defining the conditions under which the defendants
can cancel the contract. CFI no error in rejecting Taylor’s claim in so far as damages are
sought for the period subsequent to the expiration of 6 months, but in assessing the
damages due for the six-month period, the trial judge overlooked the item of P60
(commutation of house rent) This amount Taylor is entitled to recover in addition to P300
awarded by CFI.
 Bonrostro v. Sps. Juan and Constacia Luna
G.R. No.172346, July 24, 2013

Ponente: Del Castillo, J.

Topic: Doctrine of Constructive Compliance

FACTS:
Constancia Luna, as buyer, entered into a contract to sell with Bliss Development
Corporation involving a house located in Quezon City. A year after, Luna sold it to Lourdes
Bonrostro under the ff. terms: The stipulated price of P1,250,000.00 shall be paid by the
VENDEE to the VENDOR in the following manner: (a) P200,000.00 upon signing x x x [the]
Contract To Sell,(b) P300,000.00 payable on or before April 30, 1993,(c) P330,000.00
payable on or before July 31, 1993,(d) P417,000.00 payable to the New Capitol Estate, for 15
years at P6,867.12 a month, In the event the VENDEE fails to pay the second installment on
time, the VENDEE will pay starting May 1, 1993 a 2% interest on the P300,000.00 monthly.
Likewise, in the event the VENDEE fails to pay the amount of P630,000.00 on the stipulated
time, this CONTRACT TO SELL shall likewise be deemed cancelled and rescinded and x x x 5%
of the total contract price [of] P1,250,000.00 shall be deemed forfeited in favor of the
VENDOR. Unpaid monthly amortization shall likewise be deducted from the initial down
payment in favor of the VENDOR. After execution of the contract, Bonrostro took
possession of the property. However, except for P200,000.00 down payment, she failed to
pay subsequent amortization. Luna then filed before the RTC a Complaint for Rescission of
Contract and Damages. This is a petition for review on certiorari assailing the decision of CA
affirming with modification the decision of RTC in favor herein respondents.

ISSUE:
Whether or not delay in the payment of installment is a substantial breach of obligation as to
warrant its rescission.

RULING:
In a contract to sell, payment of the price is a positive suspensive condition. Failure of which
is not a breach of contract warranting rescission under Article 1191 of the Civil Code, but
rather just an event that prevents the supposed seller from being bound to convey title to
the supposed buyer. The contract to sell entered by the parties refers to real property on
installment basis, in which Art. 1191 cannot apply since they are governed by the Maceda
Law. However, there being no breach, Bonrostro is still not excused from being made liable
for interest on the installments due from the date of default until fully paid. Tender of
payment, a manifestation by the debtor of a desire to comply with or pay an obligation,
asserted by Bonrostro for the accrual of interest to be suspended is not a valid defense
because for a tender of payment to take effect it must be accompanied by the means of
payment and debtor must take immediate step to make a consignation, the deposit of the
proper amount with a judicial authority, then interest is suspended from the time of such
tender.
 Lim v. Development Bank of the Philippines
G.R. No. 177050, July 1, 2013
Ponente: Del Castillo, J.
Topic: Doctrine of Constructive Compliance

FACTS:

On November 24, 1969, petitioners Carlos, Consolacion, and Carlito, all surnamed Lim,
obtained a loan of P40,000.00 (Lim Account) from respondent Development Bank of the
Philippines (DBP) to finance their cattle raising business. To secure the loans, petitioners
executed a Mortgage in favor of DBP over real properties covered by the following titles
registered in the Registry of Deeds for the Province of South Cotabato: Due to violent
confrontations between government troops and Muslim rebels in Mindanao from 1972 to
1977, petitioners were forced to abandon their cattle ranch. As a result, their business
collapsed and they failed to pay the loan amortizations. On February 21, 1992, Edmundo
received a Notice of Foreclosure scheduled the following day. On September 21, 1992,
Edmundo received another Notice from the Sheriff that the mortgaged properties would be
auctioned on November 22, 1992. Edmundo again paid P30,000.00 as additional interest to
postpone the auction. But despite payment of P30,000.00, the mortgaged properties were
still auctioned with DBP emerging as the highest bidder in the amount of P1,086,867.26. On
September 21, 1993, Edmundo received Notice that the mortgaged properties were
scheduled to be auctioned on that day. On June 8, 1994, the Office of the Clerk of Court and
Ex-Officio Provincial Sheriff of the RTC of General Santos City issued a Notice resetting the
public auction sale of the mortgaged properties on July 11, 1994. Said Notice was published
for three consecutive weeks in a newspaper of general circulation in General Santos City.

ISSUES:

Whether or not the foreclosure sale is void for lack of personal notice.

HELD:
While DBP had a right to foreclose the mortgage, we are constrained to nullify the
foreclosure sale due to the bank's failure to send a notice of foreclosure to petitioners. We
have consistently held that unless the parties stipulate, "personal notice to the mortgagor in
extrajudicial foreclosure proceedings is not necessary" because Section 3 of Act 3135 only
requires the posting of the notice of sale in three public places and the publication of that
notice in a newspaper of general circulation. In this case, the parties stipulated in paragraph
11 of the Mortgage that: All correspondence relative to this mortgage, including demand
letters, summons, subpoenas, or notification of any judicial or extra-judicial action shall be
sent to the Mortgagor at xxx or at the address that may hereafter be given in writing by the
Mortgagor or the Mortgagee. However, no notice of the extrajudicial foreclosure was sent
by DBP to petitioners about the foreclosure sale scheduled on July 11, 1994. The letters
dated January 28, 1994 and March 11, 1994 advising petitioners to immediately pay their
obligation to avoid the impending foreclosure of their mortgaged properties are not the
notices required in paragraph 11 of the Mortgage. The failure of DBP to comply with their
contractual agreement with petitioners, example to send notice, is a breach sufficient to
invalidate the foreclosure sale.
 International Hotel Corporation v. Joaquin
G.R. No. 158361, April 10, 2013
Ponente: Bersamin
Topic: Doctrine of Constructive Compliance

FACTS:
On February 1, 1969, respondent Francisco B. Joaquin, Jr. submitted a proposal to
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). On July 11, 1969, 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. On July 11, 1969, the
stockholders of IHC met and granted Joaquin's request, allowing the payment for both
Joaquin and Rafael Suarez for their services in implementing the proposal. On June 20, 1970,
Joaquin presented to the IHC the results of his negotiations with potential foreign
financiers. Materials Handling Corporation based on the more beneficial terms it had
offered. His recommendation was accepted. 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 the needed loan, IHC informed DBP that it
would submit Weston for DBP's consideration. As a result, DBP cancelled its previous
guaranty through a letter dated December 6, 1971. Due to Joaquin's failure to secure the
needed loan, IHC, canceled the 17,000 shares of stock previously issued to Joaquin and
Suarez as payment for their services. The latter requested a reconsideration of the
cancellation, but their request was rejected.

RTC held IHC liable pursuant to the second paragraph of Article 1284 of the Civil Code, the CA
concurred with the RTC, upholding IHC's liability under Article 1186 of the Civil Code. It ruled
that in the context of Article 1234 of the Civil Code.

ISSUES:

Whether or not Article 1186 and Article 1234 of the Civil Code cannot be the source of IHC's
obligation to pay respondents

RULING:

Article 1186 of the Civil Code reads: Article 1186. The condition shall be deemed fulfilled when
the obligor voluntarily prevents its fulfillment.
This provision refers to the constructive fulfillment of a suspensive condition, whose
application calls for two requisites, namely: (a) the intent of the obligor to prevent the
fulfillment of the condition, and (b) the actual prevention of the fulfillment. Mere intention
of the debtor to prevent the happening of the condition, or to place ineffective obstacles to
its compliance, without actually preventing the fulfillment, is insufficient. Article 1234. If the
obligation has been substantially performed in good faith, the obligor may recover as
though there had been a strict and complete fulfillment, less damages suffered by the
obligee. It is well to note that Article 1234 applies only when an obligor admits breaching the
contract after honestly and faithfully performing all the material elements thereof except
for some technical aspects that cause no serious harm to the obligee. IHC correctly submits
that the provision refers to an omission or deviation that is slight, or technical and
unimportant, and does not affect the real purpose of the contract.
 Anunciacion Vda. De Ouano, et. al., v. The Republic of the Philippines, et. al.
G.R No. 168770, February 9, 2011
Ponente: Perez, J.
Topic: Retroactivity of obligation

FACTS:
In 1949, the National Airport Corporation (NAC), MCIAA’s predecessor agency pursued a
program to expand the Lahug Airport in Cebu City. As an assurance from the government,
there is a promise of reconveyance or repurchase of said property so long as Lahug ceases
its operation or transfer its operation to Mactan – Cebu Airport. The trial court then declared
said properties to be used upon the expansion of said projects and order for just
compensation to the land owners, at the same time directed the latter to transfer certificate
or ownership or title in the name of the plaintiff. At the end of 1991, Lahug Airport
completely ceased its operation while the Mactan-Cebu airport opened to accommodate
incoming and outgoing commercial flights. This then prompted the land owners to demand
for the reconveynace of said properties being expropriated by the trial court under the
power of eminent domain. Hence these two consolidated cases arise. The RTC ruled in favor
of the petitioners Oaunos and against the MCIAA for the reconveynace of their properties
but was appealed by the latter and the earlier decision was reversed, the case went up to
the CA but the CA affirmed the reversed decision of the RTC.

ISSUE:
Whether or not MCIAA should reconvey the lands to petitioners.

HELD:

The notion that the government via expropriation proceedings acquires unrestricted
ownership over or a fee simple title to the covered land is no longer tenable. Expropriated
lands should be differentiated from a piece of land, ownership of which was absolutely
transferred by way of an unconditional purchase and sale contract freely entered by two
parties, one without obligation to buy and the other without the duty to sell. In that case,
the fee simple concept really comes into play. There is really no occasion to apply the “fee
simple concept” if the transfer is conditional. The taking of a private land in expropriation
proceedings is always conditioned on its continued devotion to its public purpose. Once the
purpose is terminated or peremptorily abandoned, then the former owner, if he so desires,
may seek its reversion subject of course to the return at the very least of the just
compensation received. In expropriation, the private owner is deprived of property against
his will. Public use, as an eminent domain concept, has now acquired an expansive meaning
to include any use that is of “usefulness, utility, or advantage, or what is productive of
general benefit of the public.” If the genuine public necessity the very reason or condition as
it were allowing, at the first instance, the expropriation of a private land ceases or
disappears, then there is no more cogent point for the government’s retention of the
expropriated land. The same legal situation should hold if the government devotes the
property to another public use very much different from the original or deviates from the
declared purpose to benefit another private person. It has been said that the direct use by
the state of its power to oblige landowners to renounce their productive possession to
another citizen, who will use it predominantly for that citizen’s own private gain, is offensive
to our laws. Hence, equity and justice demand the reconveyance by MCIAA of the litigated
lands in question to the Ouanos and Inocians. In the same token, justice and fair play also
dictate that the Ouanos and Inocian return to MCIAA what they received as just
compensation for the expropriation of their respective properties plus legal interest to be
computed from default, which in this case should run from the time MCIAA complies with
the reconveyance obligation.
 Quijada v. Court of Appeals
G.R. No. 126444, December 4, 1998
Ponente: Martinez, J.
Topic: Resolutory condition

FACTS:

On April 5, 1956, Trinidad Quijada together with her sisters and brother, executed a
conditional deed of donation of the two-hectare parcel of land subject of the case in favor of
the Municipality of Talacogon, the condition being that the parcel of land shall be used solely
and exclusively as part of the campus of the proposed provincial high school in Talacogon.
On July 29, 1962, Trinidad sold one (1) hectare of the subject parcel of land to respondent.
Subsequently, Trinidad verbally sold the remaining one (1) hectare to respondent without
the benefit of a written deed of sale and evidenced solely by receipts of payment. After the
death of Trinidad, her heirs filed a complaint for forcible entry against respondent, which
complaint was, however, dismissed for failure to prosecute. Petitioners filed this action
against respondents, alleging that their deceased mother never sold, conveyed, transferred
or disposed of the property in question to any person or entity much less to Regalado
Mondejar save the donation made to the Municipality of Talacogon in 1956; that at the time
of the alleged sale to Regalado Mondejar by Trinidad Quijada, the land still belongs to the
Municipality of Talacogon, hence, the supposed sale is null and void. As affirmative and/or
special defense, respondents alleged that plaintiffs’ action is barred by laches or has
prescribed. Judgment was rendered in favor of the petitioner.
On appeal, the CA reversed and set aside the judgment, ruling that the sale made by Trinidad
Quijada to respondent Mondejar was valid as the former retained an inchoate interest on
the lots by virtue of the automatic reversion clause in the deed of donation.

ISSUE:
Whether or not the sale of the subject property made to respondent is void.

HELD:
There is one thing which militates against the claim of petitioners. Sale, being a consensual
contract, is perfected by mere consent, which is manifested the moment there is a meeting
of the minds as to the offer and acceptance thereof on three (3) elements: subject matter,
price and terms of payment of the price. Ownership by the seller on the thing sold at the
time of the perfection of the contract of sale is not an element for its perfection. What the
law requires is that the seller has the right to transfer ownership at the time the thing sold is
delivered. Perfection per se does not transfer ownership which occurs upon the actual or
constructive delivery of the thing sold. A perfected contract of sale cannot be challenged on
the ground of non-ownership on the part of the seller at the time of its perfection; hence,
the sale is still valid. The consummation, however, of the perfected contract is another
matter. It occurs upon the constructive or actual delivery of the subject matter to the buyer
when the seller or her successors-in-interest subsequently acquires ownership thereof. Such
circumstance happened in this case when petitioners who are Trinidad Quijada’s heirs and
successors-in-interest became the owners of the subject property upon the reversion of the
ownership of the land to them. Consequently, ownership is transferred to respondent
Mondejar and those who claim their right from him. Article 1434 of the New Civil Code
supports the ruling that the seller’s “title passes by operation of law to the buyer.” This rule
applies not only when the subject matter of the contract of sale is goods, but also to other
kinds of property, including real property.
Multinational Village Homeowners Association, Inc. v. ARA Security & Surveillance Agency
Inc., G.R. No. 154852, October 21, 2004
Ponente: PANGANIBAN, J.
Topic: Resolutory condition

FACTS:
Ara Security and Surveillance, Inc. was hired by Multinational Village Homeowners
Association, Inc. to provide security services at the Multinational Village. Their agreement
was embodied in a document, entitled Contract of Guards Services. The contract was to take
effect for a period of one year from May 25, 1994 up to May 25, 1995. President of
Multinational, wrote Ara a letter terminating the aforesaid contract effective 1900 hours of
August 31, 1994. Ara replied requesting Multinational to reconsider its position, which fell on
deaf ears. Ara commenced the present suit for injunction with preliminary injunction,
preliminary mandatory injunction and temporary restraining order with damage a temporary
restraining order was issued enjoining Multinational, their agents and all persons acting in
their behalf from enforcing the letter dated August 29, 1994 and replacing the guards with
another agency. Summons having been served properly, Multinational submitted an Answer
together with an opposition to the injunction claiming that it has the right to pre-terminate
the contract under paragraph 5. The Trial Court ruled in favor of Ara. The CA held that
petitioners had breached their Contract when they pre-terminated it on the basis of
paragraph 5 thereof. According to the appellate court, the said provision did not provide for
a pre-termination option, but was "a mere superfluity with no clear meaning."

ISSUES:
Whether or not the lower court erred in ruling that petitioners failed to establish that the
termination of the contract was for legal cause.

HELD:

As correctly held by the CA in the instant case, petitioners failed to produce evidence of the
alleged breach of obligation by respondent. The investigation made by Petitioner Danilo F.
Cuneta cannot stand as competent evidence. The Letter-Complaints presented in court
were... neither identified, nor were their contents affirmed, by their authors. Therefore,
insofar as they purport to prove that the security guards were remiss in their duties, the
Letter-Complaints are hearsay and inadmissible evidence. In Desierto v. Estrada, we held as
follows: "Evidence is called hearsay when its probative force depends, in whole or in part, on
the competency and credibility of some persons other than the witness by whom it is sought
to produce it. There are three reasons for excluding hearsay evidence: (1) absence of cross
examination; (2) absence of demeanor evidence, and (3) absence of the oath. Petitioners
failed to produce evidence of any substantial and fundamental breach that would warrant
the rescission of the Contract.
 UNIVERSITY OF THE PHILIPPINES VS. DELOS ANGELES
L-28602 September 29, 1970

FACTS:
UP and ALUMCO entered into a logging agreement under which the latter was granted
exclusive authority, for a period starting from the date of the agreement to 31 December
1965, extendible for a further period of five (5) years by mutual agreement, to cut, collect
and remove timber from the Land Grant, in consideration of payment to UP of royalties,
forest fees, etc.; that ALUMCO cut and removed timber therefrom but, as of 8 December
1964, it had incurred an unpaid account of P219,362.94, which, despite repeated demands, it
had failed to pay; that after it had received notice that UP would rescind or terminate the
logging agreement, ALUMCO executed an instrument, entitled "Acknowledgment of Debt
and Proposed Manner of Payments," dated 9 December 1964, which was approved by the
president of UP. ALUMCO continued its logging operations, but again incurred an unpaid
account, for the period from 9 December 1964 to 15 July 1965, in the amount of P61,133.74, in
addition to the indebtedness that it had previously acknowledged. That on 19 July 1965,
petitioner UP informed respondent ALUMCO that it had, as of that date, considered as
rescinded and of no further legal effect the logging agreement that they had entered in
1960. That before the issuance of the aforesaid preliminary injunction UP had taken steps to
have another concessionaire take over the logging operation, and the concession was
awarded to Sta. Clara Lumber Company, Inc.

ISSUE:
Whether petitioner U.P. can treat its contract with ALUMCO rescinded, and may
disregard the same before any judicial pronouncement to that effect.

RULING:
Respondent ALUMCO contended, and the lower court, in issuing the injunction order of 25
February 1966. apparently sustained it (although the order expresses no specific findings in
this regard), that it is only after a final court decree declaring the contract rescinded for
violation of its terms that U.P. could disregard ALUMCO's rights under the contract and treat
the agreement as breached and of no force or effect. UP and ALUMCO had expressly
stipulated in the "Acknowledgment of Debt and Proposed Manner of Payments" that, upon
default by the debtor ALUMCO, the creditor (UP) has "the right and the power to consider
the Logging Agreement dated 2 December 1960 as rescinded without the necessity of any
judicial suit." "There is nothing in the law that prohibits the parties from entering into
agreement that violation of the terms of the contract would cause cancellation thereof,
even without court intervention. In other words, it is not always necessary for the injured
party to resort to court for rescission of the contract."
In other words, the party who deems the contract violated may consider it resolved
or rescinded, and act accordingly, without previous court action, but it proceeds at its own
risk. For it is only the final judgment of the corresponding court that will conclusively and
finally settle whether the action taken was or was not correct in law. But the law definitely
does not require that the contracting party who believes itself injured must first file suit and
wait for a judgment before taking extrajudicial steps to protect its interest. Otherwise, the
party injured by the other's breach will have to passively sit and watch its damages
accumulate during the pendency of the suit until the final judgment of rescission is rendered
when the law itself requires that he should exercise due diligence to minimize its own
damages.

Valdez v. Court of Appeals

G.R. No. 140715, September 24, 2004
Ponente: Callejo Sr. J.
Topic: Resolutory condition

FACTS:
A complaint for unlawful detainer filed by petitioners Bonifacio and Venida Valdez against
private respondents Gabriel and Francisca Fabella. Without any color of title whatsoever
occupied the said lot. The Municipal Trial Court (MTC) rendered a decision in favor of the
petitioners, ordering private respondents to vacate the property. The Court of Appeals
reversed and set aside the decision of the RTC. It held that petitioners failed to make a case
for unlawful detainer because they failed to show that they had given the private
respondents the right to occupy the premises.
ISSUE:
Whether or not the allegations of the complaintclearly made out a case for unlawful
detainer.

HELD:
It is the nature of defendant’s entry into the land which determines the cause of action,
whether it is forcible entry or unlawful detainer. If the entry is illegal, then the action which
may be filed against the intruder is forcible entry. If, however, the entry is legal but the
possession thereafter becomes illegal, the case is unlawful detainer. The jurisdictional facts
must appear on the face of the complaint. The evidence revealed that the possession of
defendant was illegal at the inception Clearly, defendant’s entry into the land was effected
clandestinely, without the knowledge of the owners, consequently, it is categorized as
possession by stealth which is forcible entry An examination of the complaint reveals that
key jurisdictional allegations that will support an action for ejectment are lacking.

University of the Philippines v. De Los Angeles

G.R. No. L-28602, September 29, 1970
Ponente: Reyes, J.
Topic: Reciprocal obligations

FACTS:
UP and ALUMCO entered into a logging agreement under which the latter was granted
exclusive authority, for a period starting from the date of the agreement to 31 December
1965, extendible for a further period of five years by mutual agreement, to cut, collect and
remove timber from the Land Grant, in consideration of payment to UP of royalties, forest
fees, etc. That ALUMCO cut and removed timber therefrom but it had incurred an unpaid
account of P219,362.94 despite repeated demands, it had failed to pay. That after it had
received notice that UP would rescind or terminate the logging agreement. ALUMCO
executed an instrument, entitled "Acknowledgment of Debt and Proposed Manner of
Payments" which was approved by the president of UP, which expressly states that, upon
default by the debtor ALUMCO, the creditor (UP) has “the right and the power to consider
the Logging Agreement as rescinded without the necessity of any judicial suit.” ALUMCO
continued its logging operations, but again incurred an unpaid account. Petitioner UP
informed respondent ALUMCO that it had, as of that date considered as rescinded and of no
further legal effect the logging agreement that they had entered in 1960. UP filed a
complaint against ALUMCO for the collection or payment of the herein before stated sums
of money and it prayed for and obtained an order for preliminary attachment and
preliminary injunction restraining ALUMCO from continuing its logging operations in the
Land Grant. Respondent ALUMCO contended that it is only after a final court decree
declaring the contract rescinded for violation of its terms that U.P. could disregard
ALUMCO's rights under the contract and treat the agreement as breached and of no force
or effect.

ISSUE:
Whether or not petitioner U.P. can treat its contract with ALUMCO rescinded and may
disregard the same before any judicial pronouncement to that effect.

HELD:
UP and ALUMCO had expressly stipulated in the "Acknowledgment of Debt and Proposed
Manner of Payments" that, upon default by the debtor ALUMCO, the creditor (UP) has "the
right and the power to consider, the Logging Agreement as rescinded without the necessity
of any judicial suit." In connection with Article 1191 of the Civil Code, the Court stated in
Froilan vs. Pan Oriental Shipping Co that “there is nothing in the law that prohibits the
parties from entering into agreement that violation of the terms of the contract would
cause cancellation thereof, even without court intervention. In other words, it is not always
necessary for the injured party to resort to court for rescission of the contract.” It must be
understood that the act of party in treating a contract as cancelled or resolved on account of
infractions by the other contracting party must be made known to the other and is always
provisional, being ever subject to scrutiny and review by the proper court. If the other party
denies that rescission is justified, it is free to resort to judicial action in its own behalf, and
bring the matter to court. Then, should the court, after due hearing, decide that the
resolution of the contract was not warranted, the responsible party will be sentenced to
damages; in the contrary case, the resolution will be affirmed, and the consequent
indemnity awarded to the party prejudiced.
 SPS. FELIPE AND LETICIA CANNU versus SPS. GIL AND FERNANDINA GALANG AND
NATIONAL HOME MORTGAGE FINANCE CORPORATION
G.R. No. 139523 2005 May 26
Ponente: Chico-Nazario, J
Topic: Reciprocal obligations

FACTS:
Respondents-spouses Gil and Fernandina Galang obtained a loan from Fortune Savings &
Loan Association to purchase a house and lot in the names of respondents-spouses. To
secure 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. Petitioner 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 (the Developer of the property). A Deed of Sale with
Assumption of Mortgage Obligation dated 20 August 1990 was made and entered into by
and between spouses Fernandina and Gil Galang and spouses Leticia and Felipe Cannuover
the house and lot and petitioners immediately took possession and occupied the house and
lot. However, 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. Because the Cannus failed to fully comply with their obligations,
respondent Fernandina Galang, on 21 May 1993, paid P233,957.64 as full payment of her
remaining mortgage loan with NHMFC.
From 1991 until the present, no other payments were made by plaintiffs-appellants to
defendants-appellees spouses Galang. Out of the P250,000.00 purchase price which was
supposed to be paid on the day of the execution of contract in July, 1990 plaintiffs-
appellants have paid, in the span of eight (8) years, from 1990 to present, the amount of
only P75,000.00. Plaintiffs-appellants should have paid the P250,000.00 at the time of the
execution of contract in 1990. Eight (8) years have already lapsed and plaintiffs-appellants
have not yet complied with their obligation.

ISSUE:
Whether or not the action for rescission was subsidiary and that there was a substantial
breach of the obligation.

RULING:
Rescission or, more accurately, resolution, of a party to an obligation under Article 1191 is
predicated on a breach of faith by the other party that violates the reciprocity between
them. Art. 1191 states that 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, with the
payment of damages in either case. He may also seek rescission, even after he has chosen
fulfillment, if the latter should become impossible. The court shall decree the rescission
claimed, unless there be just cause authorizing the fixing of a period.

Rescission will not be permitted for a slight or casual breach of the contract. 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.Thus, the petitioners’ failure to pay the remaining balance of
P45,000.00 is substantial. Even assuming arguendo that only said amount was left out of
the supposed consideration of P250,000.00, or eighteen percent thereof, this percentage is
still substantial. Their failure to fulfill their obligation gave the respondents-spouses Galang
the right to rescission.
 Ong v. Bogñalbal
G.R. No. 149140, September 12, 2006
Ponente: CHICO-NAZARIO, J
Topic: Resolutory Condition

FACTS:
Ernesto Bogñalbal, an architect-contractor, entered into an Owner-Contractor Agreement
with Victoria Ong for the construction of a proposed boutique owned by the latter. The
Agreement stipulates a contract price of P200k and that payments shall be made by
progress billing to be collected every 2 weeks based on value of work accomplishment.
Petitioner refused to pay the 4th Billing Period covering March 4-18, 1995 equivalent to
15.47% of the total job. Respondent contends that her refusal to pay was linked to the
petitioner’s request to rush the flooring which caused damage to the tile color. The
petitioner, on the other hand, contends that her refusal to pay was in relation to an excess
of the value of the work accomplished. The petitioner and the respondent made a
compromise agreement that the petitioner shall pay the respondent the 4th Billing payment
if the flooring is finished by April 24, 1995. When it became apparent that he could not
complete the flooring on or before said date, he abandoned the job. The petitioner’s
continued refusal to pay brought the respondent to file a complaint. The MeTC ruled in favor
of the respondent while the RTC ruled in favor of the petitioner. The CA, on the other hand,
reversed and set aside the RTC decision.

ISSUE:
Whether or not petitioner is entitled to the award of damages?

HELD:
According to Art. 1192 of NCC, when both parties to the contract committed a breach
of the obligation, the second infractor is not liable to damages because it is deemed
compensated by the first infractor’s liability for damages. However, the first infractor is still
liable for damages but the same should be tempered by the courts. Art. 2215(1) does not
conflict with Art 1192. The former provision merely states that the courts can mitigate the
damages equitably. Such provision still contemplates that the one whose liability for
damages may be mitigate is the first infractor. It is petitioner who first violated the contract.
Hence, it is Ong who is liable for damages which may be redued depending on what is
equitable under the circumstances. Art. 1192 presupposes that the contracting parties are on
equal footing with respect to their principal obligations. The respondent was able to finish
88.5% of the original contract and 60% of the flooring while only 73.38% of the contract was
paid. Petitioner must first pay the value of the accomplished work before damages shall be
computed.
 Pryce Corporation v. Philippine Amusement and Gaming Corporation
G.R. No. 157480, May 6, 2005
Ponente: PANGANIBAN, J.
Topic: Resolutory Condition

FACTS:
Sometime in 1992, representatives from Pryce Properties Corporation made representations
with PAGCOR on the possibility of setting up a casino in Pryce Plaza Hotel in CDO. The
parties then executed a Contract of Lease and on December 18, 1992, started to operate.
Prior to the actual formal opening of casino operations, a public rally and barricades were
placed outside the hotel. PAGCOR was constrained to suspend casino operations because of
the rally. Due to incessant demonstrations of the people, PAGCOR had no other alternative
but to pre-terminate the lease agreement. PAGCOR asked PPC to reimbursable rental
deposits and expenses for the permanent improvement of the Hotel. PPC informed PAGCOR
that it was terminating the contract of lease due to PAGCOR’s continuing breach of the
contract and further stated that it was exercising its rights under the contract of lease.

ISSUE:
Whether or not the proper remedy between Pryce and PAGCOR is termination.

HELD:
In legal contemplation, the termination of a contract is not equivalent to its rescission. When
an agreement is terminated, it is deemed valid at inception. Prior to termination, the
contract binds the parties, who are thus obliged to observe its provisions. However, when it
is rescinded, it is deemed inexistent, and the parties are returned to their status quo ante.
Hence, there is mutual restitution of benefits received. The consequences of termination
may be anticipated and provided for by the contract. In contrast, the parties in a case of
termination are not restored to their original situation; neither is the contract treated as if it
never existed. Prior to its termination, the parties are obliged to comply with their
contractual obligations. Only after the contract has been cancelled will they be released
from their obligations. In this case, the actions and pleadings of petitioner show that it never
intended to rescind the Lease Contract from the beginning. This fact was evident when it
first sought to collect the accrued rentals from September to November 1993 because, as
previously stated, it actually demanded the enforcement of the Lease Contract prior to
termination. Any intent to rescind was not shown, thus, the remedy was not rescission, but
termination or cancellation, of the contract.
 G.G. SPORTSWEAR MFG. CORP. v.WORLD CLASS PROPERTIES, INC.
G.R. No. 182720 March 2, 2010
Ponente: Brion, J.
Topic: Resolutory Condition

FACTS:

GG Sportswear offered to purchase the 38th floor penthouse unit and 16 parking slots for 32
cars in World Class's condominium project for the discounted, pre-selling price. After GG
Sportswear paid the reservation fee, the parties, signed a Reservation Agreement that
provides for the schedule of payments, including the stipulated monthly installments on the
down payment and the balance on the purchase price. From May to December 1996, GG
Sportswear timely paid the installments due.In a letter dated January 30, 1997, GG
Sportswear requested the return of the outstanding postdated checks it previously
delivered to World Class because it (GG Sportswear) intended to replace these old checks
with new ones from the corporation’s new bank. World Class acceded, but suggested the
execution of a new Reservation Agreement to reflect the arrangement involving the
replacement checks, with the retention of the other terms and conditions of the old
Agreement.8 GG Sportswear did not object to the execution of a new Reservation
Agreement, but requested that World Class defer the deposit of the replacement checks for
90 days. World Class denied this request, contending that a deferment would delay the
subsequent monthly installment payments. It likewise demanded that GG Sportswear
immediately pay its overdue January 1997 installment to avoid the penalties provided in the
Agreement. GG Sportswear did not sign the second Reservation Agreement. Instead, it sent
a letter to World Class, requesting that its check dated April 24, 1997 be deposited on May
15, 1997 because it was experiencing financial difficulties. When World Class rejected GG
Sportswear’s request, GG Sportswear sent another letter informing World Class that the
second Reservation Agreement was incomplete because it did not expressly provide the
time of completion of the condominium unit. World Class countered that the provisional
Contract to Sell it previously submitted to GG Sportswear expressly provided for the
completion date (December 15, 1998) and insisted that GG Sportswear pay its overdue
account.

ISSUE:
Whether there was no breach on the part of World Class to justify the rescission and refund.

RULING:

GG Sportswear likewise has no legal basis to demand either the rescission of the Agreement
or the refund of payments it made to World Class under the Agreement.Unless the parties
stipulated it, rescission is allowed only when the breach of the contract is substantial and
fundamental to the fulfillment of the obligation. Whether the breach is slight or substantial
is largely determined by the attendant circumstances.GG Sportswear anchors its claim for
rescission on two grounds: (a) its dissatisfaction with the completion date; and (b) the lack
of a Contract to Sell. As to the first ground, World Class makes much of the fact that the
completion date is not indicated in the Agreement, maintaining that this lack of detail
renders the Agreement void on the ground that the intention of the parties cannot be
ascertained. We disagree with this contention.In the first place, GG Sportswear cannot claim
that it did not know the time-frame for the project’s completion when it entered into the
Agreement with World Class. As World Class points out, it is absurd and unbelievable that
Mr. Gidwani, the president of GG Sportswear and an experienced businessman, did not have
an idea of the expected completion date of the condominium project before he bought the
condominium units for P89,624,272.82. Even assuming that GG Sportswear was not aware of
the exact completion date, we note that GG Sportswear signed the Agreement despite the
Agreement’s omission to expressly state a specific completion date. This directly implies that
a specific completion date was not a material consideration for GG Sportswear when it
executed the Agreement. Thus, even if we believe GG Sportswear’s contention that it was
dissatisfied with the completion date subsequently indicated in the provisional Contract to
Sell, we cannot consider this dissatisfaction a breach so substantial as to render the
Agreement rescissible.
 Solar Harvest Incorporated v. Davao Corrugated Carton Corp.
G.R. No. 176686, July 26, 2010
Ponente: NACHURA, J
Topic: Reciprocal obligations

FACTS:
Solar Harvest, Inc., entered into an agreement with Davao Corrugated Carton Corp., for the
purchase of corrugated carton boxes, specifically designed for petitioner’s business of
exporting fresh bananas. Petitioner deposited their full payment but alleged that they did
not receive any boxes from respondent, hence, they wrote a demand letter for
reimbursement. Respondent, meanwhile, stated that the boxes had been completed and
that petitioner failed to pick them up from the former’s warehouse as agreed upon.
Respondent also averred that petitioner even placed an additional order of 24,000 boxes
without any advanced payment from petitioner. Respondent then demanded petitioner to
remove the boxes from the factory and to pay the balance for the additional boxes as well
as for the storage fee.
RTC ruled in favor of respondent. CA affirmed and averred that respondent would not be
liable for breach of contract as petitioner had not yet demanded from it the delivery of the
boxes.

ISSUE:
Whether petitioner’s claim for reimbursement is actually one for rescission of contract under
Article 1191 of the Civil Code.

HELD:

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 right to rescind a contract
arises once the other party defaults in the performance of his obligation. In determining
when default occurs, Art. 1191 should be taken in conjunction with Art. 1169 of the same law,
which provides: Art. 1169. Those obliged to deliver or to do something incur in delay from
the time the obligee judicially or extrajudicially demands from them the fulfillment of their
obligation. However, the demand by the creditor shall not be necessary in order that delay
may exist: When the obligation or the law expressly so declares; or when from the nature
and the circumstances of the obligation it appears that the designation of the time when the
thing is to be delivered or the service is to be rendered was a controlling motive for the
establishment of the contract; or When demand would be useless, as when the obligor has
rendered it beyond his power to perform. Evident from the records was the lack of demand
by petitioner upon respondent to fulfill its obligation to manufacture and deliver the boxes.
Without a previous demand for the fulfillment of the obligation, petitioner would not have a
cause of action for rescission against respondent as the latter would not yet be considered
in breach of its contractual obligation.
 Maceda v. Development Bank of the Philippines
G.R. No. 174979, August 11, 2010
Ponente: PANGANIBAN, J
Topic: Reciprocal obligations

FACTS:
On July 28, 1976, Bonifacio S. Maceda, Jr., herein respondent, obtained a P7.3 million loan
from the Development Bank of the Philippines for the construction of his New Gran Hotel
Project in Tacloban City. Thereafter, on September 29, 1976, respondent entered into a
building construction contract with Moreman Builders Co., Inc. They agreed that the
construction would be finished not later than December 22, 1977. Respondent purchased
various construction materials and equipment in Manila. Moreman, in turn, deposited them
in the warehouse of Wilson and Lily Chan, herein petitioners. The deposit was free of charge.
Unfortunately, Moreman failed to finish the construction of the hotel at the stipulated time.
Hence, on February 1, 1978, respondent filed with the then CFI an action for rescission and
damages against Moreman. On November 28, 1978, the CFI rendered its Decision rescinding
the contract between Moreman and respondent and awarding to the latter P445,000.00 as
actual, moral and liquidated damages; P20,000.00 representing the increase in the
construction materials; and P35,000.00 as attorney’s fees. Moreman interposed an appeal to
the Court of Appeals but the same was dismissed on March 7, 1989 for being dilatory. He
elevated the case to the SC via a petition for review on certiorari. In a Decision dated
February 21, 1990, the Court denied the petition. On April 23, 1990 an Entry of Judgment was
issued.
Meanwhile, during the pendency of the case, respondent ordered petitioners to return to
him the construction materials and equipment which Moreman deposited in their
warehouse. Petitioners, however, told them that Moreman withdrew those construction
materials in 1977. Hence, on December 11, 1985, respondent filed with the RTC an action for
damages with an application for a writ of preliminary attachment against petitioners.

ISSUE:
Whether or not respondent have the right to demand the release of the said materials and
equipment or claim for damages.

RULING:
At the outset, the case should have been dismissed outright by the trial court because of
patent procedural infirmities. Even without such serious procedural flaw, the case should
also be dismissed for utter lack of merit. Under Article 1311 of the Civil Code, contracts are
binding upon the parties (and their assigns and heirs) who execute them. When there is no
privity of contract, there is likewise no obligation or liability to speak about and thus no
cause of action arises. Specifically, in an action against the depositary, the burden is on the
plaintiff to prove the bailment or deposit and the performance of conditions precedent to
the right of action. A depositary is obliged to return the thing to the depositor, or to his heirs
or successors, or to the person who may have been designated in the contract.
The only pieces of evidence respondent presented to prove the contract of deposit were the
delivery receipts. Significantly, they are unsigned and not duly received or authenticated by
Moreman, petitioners or respondent or any of their authorized representatives. Hence,
those delivery receipts have no probative value at all. While our laws grant a person the
remedial right to prosecute or institute a civil action against another for the enforcement or
protection of a right, or the prevention or redress of a wrong, every cause of action ex-
contractu must be founded upon a contract, oral or written, express or implied. Moreover,
respondent also failed to prove that there were construction materials and equipment in
petitioners’ warehouse at the time he made a demand for their return. Considering that
respondent failed to prove (1) the existence of any contract of deposit between him and
petitioners, nor between the latter and Moreman in his favor, and (2) that there were
construction materials in petitioners’ warehouse at the time of respondent’s demand to
return the same, we hold that petitioners have no corresponding obligation or liability to
respondent with respect to those construction materials.
 Heirs Gaite v. The Plaza, Inc.
G.R. No. 177685, January 26, 2011
Ponente: Willarama Jr. J.
Topic: Reciprocal obligations

FACTS:
On July 16, 1980, The Plaza, Inc. (The Plaza), a corporation engaged in the restaurant
business, through its President, Jose C. Reyes, entered into a contract with Rhogen Builders
(Rhogen), represented by Ramon C. Gaite, for the construction of a restaurant building in
Greenbelt, Makati, Metro Manila. On July 28, 1980, The Plaza paid down payment to Gaite
and soon after Rhogen commenced construction of the restaurant building. 2 Months later,
Engineer Angelito Z. Gonzales, the Acting Building Official of the Municipality of Makati,
ordered Gaite to cease and desist from continuing with the construction of the building for
violation of The National Building Code. The Plaza’s Project Manager Architect Roberto
evaluated the Progress Billing and Tayzon stated that actual jobsite assessment showed that
the finished works fall short of Rhogen’s claimed percentage of accomplishment and
Rhogen was entitled to only P32,684.16 and not P260,649.91 being demanded by Rhogen.
On the same day, Gaite notified Reyes that he is suspending all construction works until
Reyes and the Project Manager cooperate to resolve the issue he had raised to address the
problem. Gaite informed The Plaza that he is terminating their contract based on the
Contractor’s Right to Stop Work or Terminate Contracts as provided for in the General
Conditions of the Contract and demanded the payment of P63,058.50 representing the
work that has already been completed by Rhogen. Reyes also informed Gaite that The Plaza
will continue the completion of the structure utilizing the services of a competent
contractor but will charge Rhogen for liquidated damages as stipulated in Article VIII of the
Contract. The Plaza filed a civil case for breach of contract, sum of money and damages
against Gaite and FGU in the Court of First Instance (CFI) of Rizal. The RTC Makati rendered
its decision granting in favor of the Plaza against Gaite. The Court of Appeals affirmed such
decision with modification.

ISSUE:
Whether or not Rhogen had factual or legal basis to terminate the General Construction
Contract.

HELD:
The construction contract between Rhogen and The Plaza provides for reciprocal
obligations whereby the latter’s obligation to pay the contract price or progress billing is
conditioned on the former’s specified performance. Pursuant to its contractual obligation,
The Plaza furnished materials and paid the agreed down payment. Rhogen, having breached
the contractual obligation it had expressly assumed specifically to comply with all laws was
already at fault. Respondent The Plaza, on the other hand, was justified in withholding
payment on Rhogen’s first progress billing. Upon the facts duly established, Rhogen
committed a serious breach of its contract with The Plaza, which justified the latter in
terminating the contract. Article 1170 of the Civil Code provides that those who in the
performance of their obligations are guilty of fraud, negligence or delay and those who in
any manner contravene the tenor thereof are liable for damages.
 REYES v. TUPARAN
G.R. No. 188064; June 1, 2011
Ponente: Carpio, J.
Topic: Reciprocal obligations

FACTS:

In December 1989, respondent leased from petitioner a space on the ground floor of the
RBJ Building for her pawnshop business for a monthly rental of ₱4,000.00. A close
friendship developed between the two which led to the respondent investing thousands of
pesos in petitioner’s financing/lending business from February 7, 1990 to May 27, 1990, with
interest at the rate of 6% a month.
On June 20, 1988, petitioner mortgaged the subject real properties to the Farmers Savings
Bank and Loan Bank, Inc. to secure a loan of ₱2,000,000.00 payable in installments. On
November 15, 1990, petitioner’s outstanding account on the mortgage reached
₱2,278,078.13. Petitioner then decided to sell her real properties for at least ₱6,500,000.00
so she could liquidate her bank loan and finance her businesses. As a gesture of friendship,
respondent verbally offered to conditionally buy petitioner’s real properties for
₱4,200,000.00 payable on installment basis without interest and to assume the bank loan.
On November 26, 1990, the parties and FSL Bank executed the corresponding Deed of
Conditional Sale of Real Properties with Assumption of Mortgage.
Respondent, however, defaulted in the payment of her obligations on their due dates.
Instead of paying the amounts due in lump sum on their respective maturity dates,
respondent paid petitioner in small amounts from time to time. To compensate for her
delayed payments, respondent agreed to pay petitioner an interest of 6% a month.
On September 10, 1992, Mila A. Reyes filed a complaint for Rescission of Contract with
Damages against Victoria T. Tuparan before the RTC.

ISSUE:
Whether or not petitioner has the right to rescind of the Deed of Conditional Sale with
Assumption of Mortgage.

HELD:

The Court agrees with the ruling of the courts below that the subject Deed of Conditional
Sale with Assumption of Mortgage entered into by and among the two parties and FSL Bank
on November 26, 1990 is a contract to sell and not a contract of sale. Based on the
stipulations of the parties,the title and ownership of the subject properties remains with the
petitioner until the respondent fully pays the balance of the purchase price and the assumed
mortgage obligation. Thereafter, FSL Bank shall then issue the corresponding deed of
cancellation of mortgage and the petitioner shall execute the corresponding deed of
absolute sale in favor of the respondent.
 Accordingly, the petitioner’s obligation to sell the subject properties becomes
demandable only upon the happening of the positive suspensive condition, which is the
respondent’s full payment of the purchase price. Without respondent’s full payment, there
can be no breach of contract to speak of because petitioner has no obligation yet to turn
over the title. Respondent’s failure to pay in full the purchase price is not the breach of
contract contemplated under Article 1191 of the New Civil Code but rather just an event that
prevents the petitioner from being bound to convey title to the respondent.
 Lalicon v. National Housing Authority
G.R. No. 185440, July 13, 2011
Ponente: Abad, J.
Topic: Reciprocal obligations

Facts:
This case is about (a) the right of the National Housing Authority to seek annulment of sales
made by housing beneficiaries of lands they bought from it within the prohibited period and
(b) the distinction between actions for rescission instituted under Article 1191 of the Civil
Code and those instituted under Article 1381 of the same code. On 1980 National Housing
Authority (NHA) executed a Deed of Sale with Mortgage over a Quezon City lot... in favor of
the Alfaros. The Quezon City Registry of Deeds issued Transfer Certificate of Title in the
name of the Alfaros. The deed of sale provided, among others, that the Alfaros could sell the
land within five years from the date of its release from mortgage without NHA's prior
written consent. The mortgage and the restriction on sale were annotated on the Alfaros'
title. About nine years later, while the mortgage on the land subsisted, the Alfaros sold the
same to their son, Victor who transferred ownership of the land to his illegitimate
daughters. Victor mortgaged the land to Chua, Subsequently resulting in the cancellation of
his TCT. RTC ruled that, although the Alfaros clearly violated the five-year prohibition, the
NHA could no longer rescind its sale to them since its right to do so had already prescribed.
CA reversed the RTC decision and found the NHA entitled to rescission.

Issues:

Whether or not the CA erred in holding that the Alfaros violated their contract with the NHA.

HELD:
` It has been held that Article 1191 speaks of rescission in reciprocal obligations.
Resolution applies only to reciprocal obligations such that a breach on the part of one party
constitutes an implied resolutory condition which entitles the other party to rescission.
Resolution grants the injured party the option to pursue, as principal actions, either a
rescission or specific performance of the obligation, with payment of damages in either
case. Here, the NHA sought annulment of the Alfaros' sale to Victor because they violated
the five-year restriction against such sale provided in their contract. Thus, the CA correctly
ruled that such violation comes under Article 1191 where the applicable prescriptive period
is... that provided in Article 1144 which is 10 years from the time the right of action accrues.
The NHA's right of action accrued on 1992 when it learned of the Alfaros' forbidden sale of
the property to Victor. Since the NHA filed its action for annulment of the sale on 1998, it did
so well within the 10-year prescriptive period.
 F.F. Cruz & Co., Inc. v. HR Construction Corp.
G.R. No. 187521, March 14, 2012
Ponente: Reyes, J.
Topic: Reciprocal obligations
FACTS:
FFCCI entered into a contract with DPWH for the construction of the Magsaysay Viaduct.
FFCCI, in turn, entered into a Subcontract Agreement with HRCC for the supply of materials,
labor, equipment, tools and supervision for the construction of a portion of the said project.
Pursuant to the Subcontract Agreement, HRCC would submit to FFCCI a monthly progress
billing which the latter would then pay within 30 days from receipt thereof. The parties
agreed that the requests of HRCC for payment should include progress accomplishment of
its completed works as approved by FFCCI. Eventually, FFCCI did not pay the amount stated
in the second and third progress billing, even though HRCC submitted its progress billins
claiming that it had already paid HRCC for the completed works for the period stated
therein. HRCC demanded payment but still was not paid so HRCC halted the construction of
the subcontracted project.

ISSUE:
Whether or not FFCCI’s non-compliance with their contract make HRCC rescission valid.

RULING
HRCC had waived its right to rescind the Subcontract agreement. The determination of the
validity of HRCC’s work stoppage depends on a determination of the following: first,
whether HRCC has the right to extrajudicially rescind the Subcontract Agreement; and
second, whether FFCCI is already barred from disputing the work stoppage of HRCC. HRCC
had waived its right to rescind the Subcontract Agreement. The right of rescission is
statutorily recognized in reciprocal obligations. Article 1191 of the Civil Code pertinently
reads: 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, with the payment of
damages in either case. He may also seek rescission, even after he has chosen fulfillment, if
the latter should become impossible. Contrary to the respective dispositions of the CIAC and
the CA, we find that HRCC had no right to rescind the Subcontract Agreement in the guise of
a work stoppage, the latter having waived such right in its Subcontract Agreement, Hence,
in spite of the existence of dispute or controversy between the parties during the course of
the Subcontract Agreement, HRCC had agreed to continue the performance of its
obligations pursuant to the Subcontract Agreement. In view of the provision of the
Subcontract Agreement quoted above, HRCC is deemed to have effectively waived its right
to effect extrajudicial rescission of its contract with FFCCI.1âwphi1 Accordingly, HRCC, in the
guise of rescinding the Subcontract Agreement, was not justified in implementing a work
stoppage.
 Subic Bay Metropolitan Authority v. Court of Appeals
G.R. No. 192885, July 4, 2012
Ponente: PERALTA, J.
Topic: Reciprocal obligations

FACTS:
On December 1, 1992 and June 8, 1993, petitioner and private respondent entered into two
separate lease agreements whereby the private respondent undertook to help petitioner in
the development and rehabilitation of the Subic Naval Base by taking over abandoned
barracks and constructing hotel and restaurant facilities that will accommodate the needs of
the growing number of businessmen and tourists in the Freeport Zone. The two agreements
were later consolidated into a Lease and Development Agreement. Thus, on August 25,
2005, petitioner issued private respondent a billing statement. This led to a series of
conciliation and clarificatory meetings between the parties. Consequently, the SBMA Board
decided to waive the payment of future service fees and advised private respondent to
lodge its protest for the payment of accumulated service fees to the accounting
department. Private respondent then formally requested for the reconsideration of the
billing for accumulated service fees alleging that the services for which the billing was
supposed to be based were not actually provided by petitioner but by independent
contractors. Petitioner reasoned that it has a clear legal right to impose service fees under
Section 13 (a) (3) of R.A. No. 7227, which does not specifically pertain to garbage collection,
electricity, telephone, and water service alone but to other services such as fire protection,
maintenance of common areas, police protection, and other services of similar nature.

ISSUE:
Whether or not the contract entered into should not include other fees not stipulated by the
parties.

HELD:
The Lease and Development Agreement entered into by petitioner and private
respondent contains a definition of service fees and in that provision, the CA was correct in
ruling that service fees pertain to the proportionate share of the tenant in the costs of the
enumerated services which include the maintenance and operation of facilities which
directly or indirectly benefit or serve the leased property or the tenant, or any of its
subsidiaries, assignees, transferees or operators. Clearly, if the intention is the contrary,
there would have been no need to enumerate what would constitute services covered by
the service fees. Even logic dictates that before anyone is entitled to collect service fees, one
must have actually rendered a service. Based on all of the above disquisitions, it is therefore
clear that the CA did not commit any grave abuse of discretion in affirming the decision of
the RTC. The term grave abuse of discretion is defined as a capricious and whimsical exercise
of judgment as patent and gross as to amount to an evasion of a positive duty or a virtual
refusal to perform a duty enjoined by law, as where the power is exercised in an arbitrary
and despotic manner because of passion or hostility
 Fil-Estate Properties, Inc. v. Ronquillo
G.R. No. 185798, Jan. 13, 2014

Ponente: Perez, J.
Topic: Reciprocal obligations

FACTS:
Petitioner Fil-Estate Properties, Inc. is the owner and developer of the Central Park Place
Tower while co-petitioner Fil-Estate Network, Inc. is its authorized marketing agent.
Respondent Spouses Conrado and Maria Victoria Ronquillo purchased from petitioners an
82-square meter condominium unit for a pre-selling contract price of P5,174,000.00. On 29
August 1997, respondents executed and signed a Reservation Application Agreement
wherein they deposited P200,000.00 as reservation fee. As agreed upon, respondents paid
the full downpayment of P1,552,200.00 and had been paying the P63,363.33 monthly
amortizations until September 1998. Upon learning that construction works had stopped,
respondents likewise stopped paying their monthly amortization. Claiming to have paid a
total of P2,198,949.96 to petitioners, respondents through two (2) successive letters,
demanded a full refund of their payment with interest. When their demands went
unheeded, respondents were constrained to file a Complaint for Refund and Damages
before the Housing and Land Use Regulatory Board (HLURB).

ISSUES:

Whether or not the Asian financial crisis constitute a fortuitous event which would justify
delay by petitioners in the performance of their contractual obligation

HELD:
The Supreme Court held that the Asian financial crisis is not a fortuitous event that would
excuse petitioners from performing their contractual obligation. The Court ruled that “we
cannot generalize that the Asian financial crisis in 1997 was unforeseeable and beyond the
control of a business corporation. It is unfortunate that petitioner apparently met with
considerable difficulty e.g. increase cost of materials and labor, even before the scheduled
commencement of its real estate project as early as 1995. However, a real estate enterprise
engaged in the pre-selling of condominium units is concededly a master in projections on
commodities and currency movements and business risks. The fluctuating movement of the
Philippine peso in the foreign exchange market is an everyday occurrence, and fluctuations
in currency exchange rates happen everyday, thus, not an instance of caso fortuito.”
 Golden Valley Exploration, Inc. v. Pinkian Mining Company
G.R. No. 190080, June 11, 2014
Ponente: PERLAS-BERNABE, J.
Topic: Reciprocal obligations

FACTS:
PMC is the owner of various mining claims in Nueva Vizcaya. In 1987, PMC entered into an
Operating Agreement (OA) with GVEI, granting the latter full exploration, development and
mining for a period of 25 years. Later, PMC extra-judicially rescinded the OA due to alleged
multiple violations of GVEI of not paying its royalties. GVEI through a letter, contested PMC’s
extra-judicial rescission of the OA. PMC no longer responded to GVEI’s letter and instead, it
entered into a Memorandum of Agreement with CVI, whereby it granted the right to
“explore and develop the mining claims for a period of 25 years.”

ISSUE:
Whether or not the rescission is valid.

HELD:
In reciprocal obligations, either party may rescind the contract upon the other’s substantial
breach of the obligation/s he had assumed thereunder. The basis therefor is Article 1191 of
the Civil Code which states as follows: 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. As a general rule, the power to rescind an obligation must be invoked judicially and
cannot be exercised solely on a party’s own judgment that the other has committed a
breach of the obligation. This is so because rescission of a contract will not be permitted for
a slight or casual breach, but only for such substantial and fundamental violations as would
defeat the very object of the parties in making the agreement. As a well-established
exception, however, an injured party need not resort to court action in order to rescind a
contract when the contract itself provides that it may be revoked or cancelled upon
violation of its terms and conditions. As a well-established exception, however, an injured
party need not resort to court action in order to rescind a contract when the contract itself
provides that it may be revoked or cancelled upon violation of its terms and conditions. The
Court therefore affirms PMC’s unilateral rescission of the OA due to GVEI’s non-payment of
royalties considering the parties’ express stipulation in the OA that said agreement may be
cancelled on such ground.
 Swire Realty Development Corporation v. Yu
G.R. No. 207133, March 9, 2015
Ponente: ESGUERRA, J.
Topic: Reciprocal obligations

FACTS:
Jane Yu entered into a contract to sell with Swire Realty Development Corporation
covering one residential condominium unit located at the Palace of Makati, Makati for the
amount of P7,519,371.80 and a parking slot worth P600,000 and paid the complete amount
of the unit and P20,000 for the parking. Petitioner failed to complete and deliver the subject
unit on time. Yu filed a complaint for Rescission of Contract with Damages before the
HLURB which dismissed Yu’s complaint. Ruling that rescission is not permitted for slight or
casual breach of the contract but only for such breaches as are substantial and fundamental
as to defeat the object of the parties in making the agreement. Yu elevated the complaint to
HLURB Board of Commissioners. Reversing the decision of the ENCRFO Petitioner moved
for reconsideration, but denied by the HLURB. Petitioner appealed to the Office of the
President but was denied. After a Motion for Reconsideration, OP overturned its previous
ruling. Yu now sought for reconsideration at the CA, but was denied.

ISSUE:
Whether or not rescission of a contract is proper in herein case

HELD:
The SC ruled in favor of Yu. Citing Article 1191 of the Civil Code basic is the rule that the right
of rescission of a party to an obligation under Art. 1191 is predicated on a breach of faith by
the party who violates the reciprocity between them. The breach contemplated in the said
provision is the obligor’s failure to comply with an existing obligation. When the obligor
cannot comply with what is incumbent upon it, the oblige may seek rescission and, in the
absence of any just cause for the court to determine the period of compliance, the court
shall decree the rescission. In the instant case, the CA found that the completion date of the
unit was November 1998. From an ocular inspection of the HLURB ENCRFO, the unit was still
incomplete. From the foregoing, it is evident that the amenities under the approved plan
have not yet been provided as of May 3, 2002, and that the subject unit has not been
delivered to respondent as of August 28, 2002, which is beyond the period of development
of December 1999. The petitioner has incurred delay in the performance of its obligation
amounting to breach of contract. The delay in the completion of the project as well as the
delay in the delivery of the unit are breaches of statutory and contractual obligations which
entitle Yu to rescind the contract, demand a refund, and payment of damages.
 The Wellex Group, Inc. v. U-Land Airlines, Co., Ltd
G.R. No. 167519, January 14, 2015
Ponente: LEONEN, J.
Topic: Reciprocal obligations

FACTS:
Wellex is a corporation established under Philippine law and it maintains airline
operations in the Philippines.7 It owns shares of stock in several corporations including Air
Philippines International Corporation (APIC), Philippine Estates Corporation (PEC), and
Express Savings Bank (ESB). Wellex alleges that it owns all shares of stock of Air Philippines
Corporation (APC). U-Land Airlines Co. Ltd. (U-Land) “is a corporation duly organized and
existing under the laws of Taiwan, registered to do business in the Philippines.” It is engaged
in the business of air transportation in Taiwan and in other Asian countries. On May 16, 1998,
Wellex and U-Land entered into a Memorandum of Agreement12 (First Memorandum of
Agreement) to expand their respective airline operations in Asia.

ISSUE:
Whether or not the Court of Appeals erred in affirming the Decision of the Regional
Trial Court that granted the rescission of the First Memorandum of Agreement prayed for by
U-Land.

HELD:
The Civil Code provisions on the interpretation of contracts are controlling to this
case, particularly Article 1370, which reads: ART. 1370. If the terms of a contract are clear and
leave no doubt upon the intention of the contracting parties, the literal meaning of its
stipulations shall control. If the words appear to be contrary to the evident intention of the
parties, the latter shall prevail over the former. Section 2 of the First Memorandum of
Agreement clearly provides that the execution of a share purchase agreement containing
mutually agreeable terms and conditions must first be accomplished by the parties before
respondent U-Land purchases any of the shares owned by petitioner Wellex. A perusal of
the stipulation on its face allows for no other interpretation. Based on the records and the
findings of the lower courts, the parties were never able to arrive at a specific period within
which they would bind themselves to enter into an agreement. There being no other period
specified, the parties were no longer under any obligation to negotiate and enter into a
share purchase agreement. Section 9 clearly freed them from this undertaking.
 Lirag Textile Mills, Inc. vs. Court of Appeals
G.R. No. L-30736, April 14, 1975
Ponente: ESGUERRA, J.
Topic: Reciprocal obligations
FACTS:
Petitioners Lirag Textile Mills, Inc. and Felix K. Lirag seek a review by certiorari of the
decision of the respondent Court of Appeals in favor of respondent.
Respondent Court of Appeals affirmed the decision of the lower court, principally its
conclusion that the trial court did not commit any error in its evaluation of the evidence
when it found that it was not true that petitioner Lirag Textile Mills suffered pecuniary loss
and in market opportunities which it used as a justification to terminate the services of
plaintiff Alcantara; that it was not also true that the latter suffered from lack of skill; that,
therefore, there was a violation of the written contract of employment executed by and
between petitioners and private respondent Alcantara; that petitioner Lirag was responsible
for inducing private respondent Alcantara to leave his employment with the Philippine
Chamber of Industries where he was holding a permanent position and to accept
employment with petitioner Lirag Textile Mills; and that appellee Alcantara was correctly
awarded moral damages and attorney's fees.

ISSUE:
The issue is whether or not respondent Court was correct in sentencing the
petitioners to pay respondent back salaries, moral damages and attorney's fees.

HELD:
As could be clearly seen from the stipulation of facts between the parties in 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,” 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, 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.
A "period" has been defined "as a space of time which has an influence on obligation as a
result of a juridical act, and either suspends their demandableness or produces their
extinguishment." Obligations with a period are those whose consequences are subjected in
one way or another to the expiration of said period or term. Article 1193 of the Civil Code
provides that “obligations with a resolutory period take effect at once, but terminate upon
arrival of the day certain. A day certain is understood to be that which must necessarily
come, although it may not be known when.” The Supreme Court has no doubt that the
"indefinite period" of employment expressly agreed upon by and between the parties in this
case is really a resolutory period because the employment is bound to terminate on a future
"day certain" such as the employee's resignation or employer's termination of employment
upon a valid cause or causes, like death of the employee or termination of employer's
corporate existence, although it may not be known when.
Petitioner Lirag Textile Mills, Inc. violated the contract of employment with private
respondent Alcantara when the former terminated his services without a valid cause. The
act was attended with bad faith and deceit because said petitioner made false allegations of
a supposed valid cause.
 SMITH BELL DODWELL vs. CATALINO BORJA
G.R. No. 143008. JUNE 10, 2002

Ponente: PANGANIBAN, J
Topic: Obligation with a period/term

FACTS:
Smith Bell filed a written request with the Bureau of Customs for the attendance of the
latter’s inspection team on vessel M/T King Family which was due to arrive at the port of
Manila on September 24, 1987. In response, Catalino Borja was instructed to board the said
vessel and inspect the vessel. At about 11 o’clock in the morning on September 24, 1987,
while M/T King Family was unloading chemicals unto two (2) barges owned by respondent
ITTC, a sudden explosion occurred setting the vessels afire. Upon hearing the explosion,
Borja, who was at that time inside the cabin preparing reports, ran outside to check what
happened. Again, another explosion was heard. Seeing the fire Borja hurriedly jumped over
board to save himself. However, the water was likewise on fire due mainly to the spilled
chemicals. Despite the tremendous heat, Borja swam his way until he was rescued by the
people living in the squatters’ area and sent to San Juan De Dios Hospital. After weeks of
intensive care at the hospital, Borja was diagnosed to be permanently disabled due to the
incident. Thus, he made demands against Smith Bell and ITTC for the damages caused by the
explosion. However, both denied liabilities and attributed to each other negligence.”

ISSUES:
Whether or not Petitioner is liable for respondents’s injuries?

RULING:
Both the RTC and the CA ruled that the fire and the explosion had originated from
petitioner’s vessel. The attempts of Smith Bell to shift the blame on ITTC were all for naught.
First, the testimony of its alleged eyewitness was stricken off the record for his failure to
appear for cross-examination. Second, the documents offered to prove that the fire
originated from barge ITTC-101 were all denied admission by the court for being, hearsay.
Thus, there is nothing in the record to support petitioner’s contention that the fire and
explosion originated from barge ITTC-101. The three elements of quasi delict are: (a)
damages suffered by the plaintiff, (b) fault or negligence of the defendant, and (c) the
connection of cause and effect between the fault or negligence of the defendant and the
damages inflicted on the plaintiff. All these elements were established in this case. Knowing
fully well that it was carrying dangerous chemicals, petitioner was negligent in not taking all
the necessary precautions in transporting the cargo. As a result of the fire and the explosion
during the unloading of the chemicals from petitioner’s vessel, Respondent Borja suffered
severe injuries. Hence, the owner or the person in possession and control of a vessel and the
vessel are liable for all natural and proximate damage caused to persons and property by
reason of negligent management or navigation.
 Victorias Planters vs. Victorias Milling Co. Inc.
G.R. No. L-6648, July 25, 1955
97 PHIL 318
Ponente: Padilla, J.
Topic: Obligation with a period/term

FACTS:
From 1917 to 1934, the sugar cane planters Manapla and Cadiz, Negros Occidental,
executed identical milling contracts, under which the sugar central "North Negros Sugar Co.
Inc." would mill the sugar produced by the sugar cane planters of the Manapla and Cadiz
districts. The sugar cane planters of Manapla and Cadiz, Negros Occidental had executed a
contract whereby Ossorio was given a period up to December 31, 1916 within which to make
a study of and decide whether he would construct a sugar central or mill with a capacity of
milling 300 tons of sugar cane every 24 hours and setting forth the mutual obligations and
undertakings of such central and the planters and the terms and conditions under which the
sugar cane produced by said planters would be milled in the event of the construction of
such sugar central by Ossorio. Such central was in fact constructed by said Ossorio in
Manapla, Negros Occidental, through the North Negros Sugar Co., Inc., where after the
standard form of milling contracts were executed.The parties cannot stipulate as to the
milling contracts executed by the planters by Victorias, Negros Occidental, other than as
follows: 1) a number of them executed such milling contracts with the North Negros Sugar
Co., Inc.; 2) while a number of them executed milling contracts with the Victorias Milling Co.,
Inc., which was likewise organized by Miguel J. Ossorio and which had constructed another
Central at Victorias, Negros Occidental. Thus, after the war, all the sugar cane produced by
the planters of petitioner associations, in Manapla, Cadiz, as well as in Victorias, who held
milling contracts, were milled in only one central, that of the respondent corporation at
Victorias. Beginning with the year 1948, and in the following years, when the planters-
members of the North Negros Planters Association, Inc. considered that the stipulated 30-
year period of their milling contracts executed in the year 1918 had already expired and
terminated in the crop year 1947-1948, and the planters-members of the Victorias Planters
Association, Inc. likewise considered the stipulated 30-year period of their milling contracts,
as having likewise expired and terminated in the crop year 1948-1949, under the pertinent
provisions of the standard milling contract. Notwithstanding the repeated representations
made by the herein petitioners with the respondent corporation, the herein respondent has
refused and still refuses to accede to the same, contending that under the provisions of the
milling contract.

ISSUE:
Whether or not the trial court erred in rendering its disputed decision, favoring the
petitioner.

HELD :
The fact that the contracts make reference to "first milling" does not make the period
of thirty (30) years one of thirty (30) milling years. The term "first milling" used in the
contracts under consideration was for the purpose of reckoning the thirty-year period
stipulated therein. Even if the thirty-year period provided for in the contracts be construed
as milling years, the deduction or extension of six (6) years would not be justified. At most
on the last year of the thirty-year period stipulated in the contracts the delivery of sugar
cane could be extended up to a time when all the amount of sugar cane raised and
harvested should have been delivered to the appellant's mill as agreed upon. Further, the
parties stipulated that in the event of flood, typhoon, earthquake, or other force majeure,
war, insurrection, civil commotion, organized strike, etc., the contract shall be deemed
suspended during said period, does not mean that the happening of any of those events
stops the running of the period agreed upon. It only relieves the parties from the fulfillment
of their respective obligations during that time — the planters from delivering sugar cane
and the central from milling it. In order that the central, the herein appellant, may be
entitled to demand from the other parties the fulfillment of their part in the contracts, the
latter must have been able to perform it but failed or refused to do so and not when they
were prevented by force majeure such as war. To require the planters to deliver the sugar
cane which they failed to deliver during the four (4) years of the Japanese occupation and
the two (2) years after liberation when the mill was being rebuilt is to demand from the
obligors the fulfillment of an obligation which was impossible of performance at the time it
became due.
 JESPAJO VS Court of Appeals
GR No. 113626 September 27, 2002
Ponente: AUSTRIA-MARTINEZ, J
Topic: Obligation with a period/term

FACTS:

On February 1, 1985, said corporation, represented by its President, Jesus L. Uy,

entered into separate contracts of lease with Tan Te Gutierrez and Co Tong. Pursuant to the
contract, Tan Te occupied room No. 217 of the subject building at a monthly rent of P847.00
while Co Teng occupied the Penthouse at a monthly rent of P910.00. The terms of the
contract among others are the following: “PERIOD OF LEASE- The lease period shall be
effective as of February 1, 1985 and shall continue for an indefinite period provided the
lessee is up-to-date in the payment of his monthly rentals. The LESSEE may, at his option,
terminate this contract any time by giving sixty (60) days prior written notice of termination
to the LESSOR. However, violation of any of the terms and conditions of this contract shall
be a sufficient ground for termination thereof by the LESSOR.” The private respondents
religiously paid the monthly rental fees. On January 2, 1990, the lessor corporation sent a
written notice to the lessees informing them of the formers’ intention to increase the
monthly rentals on the occupied premises to P3,500.00 monthly effective February 1, 1990.
The private respondents refused payment. An ejectment case was filed against them in
court.

ISSUE:
Is the stipulation a potestative period and hence void?

RULING:
The lease contract between petitioner and respondents is with a period subject to a
resolutory condition. The wording of the agreement is unequivocal. The condition imposed
in order that the contract shall remain effective is that the lessee is up-to-date in his monthly
payments. It is undisputed that the lessees Gutierrez and Co Tong religiously paid their rent
at the increasing rate of 20% annually. The agreement between the lessor and the lessees
are therefore still subsisting, with the original terms and conditions agreed upon, when the
petitioner unilaterally increased the rental payment to more than 20% or P3,500.00 a month.

The petitioner is estopped from backing out of their representations in the contract
with respondent, that is, they may not renege on their own acts and representations, to the
prejudice of the respondents who relied on them.
 GONZALES VS JOSE
GR No. 43429 October 24, 1938

Ponente: Imperial, J.
Topic: Obligation with a period/term
FACTS:

The plaintiff Benito Gonzales filed an action to recover from the defendant the total
amount of Php547.95 from two promissory notes dated June 22, 1922 and September 13,
1922. The CFI granted his petition. The defendant now assails that decision claiming that the
complaint was uncertain inasmuch as the notes did not specify when the indebtedness was
incurred or when it was demandable, and that, granting that plaintiff has any cause of
action, the same has prescribed in accordance with law.

ISSUE:

Does plaintiff have a cause of action?

RULING:

Article 1128 of the Civil Code stipulates that if the obligation does not specify a term, but
it is inferred from its nature and circumstances that it was intended to grant the debtor time
for its performance, the period of the term shall be fixed by the Court.

The two promissory notes are governed by Article 1128 because under the terms
thereof, the plaintiff intended to grant the defendant a period within which to pay his debts.
However, the action to ask the court to fix a period has already prescribed. The period of
prescription is ten years, which has already elapsed from the execution of the promissory
notes until the filing of the action on June 1, 1934.
 MALAYAN REALTY VS UY
GR No. 163763 November 10, 2006

Ponente: CARPIO MORALES, J.

Topic: Obligation with a period/term
FACTS:

Malayan Realty, Inc. (Malayan), is the owner of an apartment unit known as 3013
Interior No. 90 (the property), located at Nagtahan Street, Sampaloc, Manila. In 1958,
Malayan entered into a verbal lease contract with Uy Han Yong (Uy) over the property at a
monthly rental of P262.00. The monthly rental was increased yearly starting 1989, and by
2001, the monthly rental was P4,671.6o. On July 17, 2001, Malayan sent Uy a written notice
informing him that the lease contract would no longer be renewed or extended upon its
expiration on August 31, 2001, and asking him to vacate and turn over the possession of the
property within five days from August 31, 2001, or on September 5, 2001. Despite Uy’s
receipt of the notice on June 18, 2001, he refused to vacate the property, prompting
Malayan to file before the Metropolitan Trial Court (MeTC) of Manila a complaint for
ejectment, docketed as Civil Case No. 171256, and was raffled to Branch 3 thereof. The Court
ruled in favor of Uy and granted an extension period of five years.

ISSUE:

Is respondent Uy entitled to a grant of extension by the Court?

RULING:

The 2nd paragraph of Article 1687 provides that in the event that the lessee has
occupied the leased premises for over a year, the courts may fix a longer term for the lease.
The power of the courts to establish a grace period is potestative or discretionary,
depending on the particular circumstances of the case. Thus, a longer term may be granted
where equities come into play, and may be denied where none appears, always with due
deference to the parties’ freedom to contract.

In the present case, respondent has remained in possession of the property from the
time the complaint for ejectment was filed on September 18, 2001 up to the present time.
Effectively, respondent’s lease has been extended for more than five years, which time is,
under the circumstances, deemed sufficient as an extension and for him to find another
place to stay.
 Radiowealth Finance Company v. Del Rosario
G.R. NO. 138739, July 6, 2000
Ponente: REYES, J.
Topic: Obligation with a period/term

FACTS:

Spouses Vicente & Maria Del Rosario jointly & severally executed, signed and delivered in
favor of Radiowealth Finance Company a promissory note for P138,948. Thereafter,
respondents defaulted on the monthly installments. Despite repeated demands, they failed
to pay their obligation. Petitioner filed a complaint for the collection of sum of money
before the RTC. Trial court dismissed the complaint for the evidence presented were merely
hearsay. CA reversed & remanded the case for further proceedings. Petitioner claims that
respondents are liable for the whole amount of their debt and the interest thereon, after
they defaulted on the monthly installments. Respondents counter that the installments
were not yet due and demandable. They theorize that the action for immediate
enforcement of their obligation is premature because its fulfillment is dependent on the sole
will of the debtor. Hence, they consider that the proper court should first fix a period for
payment, pursuant to Articles 1180 and 1197 of the Civil Code.

ISSUE:

Whether or not the installments had already became due and demandable.

HELD:

The act of leaving blank space the due date of the first installment did not necessary mean
that the debtors were allowed to pay as & when they could. If this was the intention of the
parties, they should have so indicated in the promissory note. However, it did not reflect any
such intention. While the specific date on which each installment would be due was left
blank, the note clearly provided that each installment should be payable each month.
Furthermore, it also provided for an acceleration clause and a late payment penalty, both of
which showed the intention of the parties that the installment should be paid at a definite
date. Had they intended that the debtors could pay as & when they could, there would have
been no need for these 2 clauses. The installments had already became due & demandable is
bolstered by the fact that respondents started paying installments on the promissory note.
The obligation of the respondents had matured & they clearly defaulted when their checks
bounced. Per the acceleration clause, the whole debt became due one month after the date
of the note because the check representing their first installment bounced.
 Araneta, Inc. v. Philippine Sugar Estates
G.R. No. L-22558, May 31, 1967

Ponente: REYES, J.
Topic: Obligation with a period/term

FACTS:
Petitioner and Respondent entered into a contract of purchase and sale with mortgage
whereas P sold a big tract of land to R subject to following conditions: 1) that buyer will build
on said land the Sto. Domingo Church and Convent and 2) that seller will construct streets
surrounding the land which shall be named “Sto. Domingo Avenue” respondent finished the
construction of the church will P was unable to finish the construction of the streets
because a third party, occupying the middle part thereof, refuse to vacate the same
R filed a complaint seeking P to comply with the obligation and/or pay damages in case of
failure/refusal RTC and CA decided in favor of respondent and gave petitioner 2 years to
comply with its obligation
ISSUE:
Whether or not the court gravely erred in favoring Respondents.

HELD:
Art. 1197 involves two step processes: 1) the Court must first determine that the obligation
does not fix period (or that the period is made to depend upon the will of the debtor), but
from the nature and the circumstances it can be inferred that a period was intended (Art
1197 1&2) and 2) the Court must proceed to second step and decide what period was
probably contemplated by parties. Even on the assumption that the court should have found
out that no reasonable time or period at all had been fixed, the complaint not having sought
the court should set a period, the court could not proceed to do so unless the complaint is
amended. No basis to support the conclusion that period should be set at two years after
finality of judgment, considering that the land was occupied by squatters. Parties must
comply with legal processes in evicting the squatters. Reasonable time: at the date all the
squatters on affected areas are finally evicted.
 CLARA TAMBUNTING DE LEGARDA, ET AL vs. VICTORIA DESBARATS MIAILHE, substituting
WILLIAM J. B. BURKE
G.R. No. L-3435, April 28, 1951

PONENTE: Bautista Angelo, J.

TOPIC: Alternative Obligations

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 (30 to pay damages in the sum of P1,000.
The gist of defendant's answer, 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.

ISSUE:
Whether or not the defendant could insist on the payment of English currency even if he
could do so without exposing himself to bodily peril under the stipulation just mentioned.

RULING:
Our answer is in the negative. The court correctly held that the consignation was unvailing
and that it did not produced any legal effect because the defendant did not accept it and it was not
in the form of money or legal tender. Article 1170 of the Civil Code provides that payment of debts of
money shall be made in the specie stipulated and, should it not be possible to deliver such specie, in
silver or gold coin legally current; and provides further, that the delivery of promissory notes payable
to order, or drafts or other commercial paper, shall produced the effects of payment only when
realized or when, by the fault of the creditor, the privileges inherent in their negotiable character
have been lost. Under this legal provision the defendant was under a duty to accept the check
because it is known that it does not constitute legal tender, and the consignation having been
refused, it did not produce any legal effect and could not be considered as payment made by the
plaintiff of the repurchase price. 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 can not 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.
 ONG GUAN CAN and THE BANK OF THE PHILIPPINE ISLANDS,Plaintiffs-Appellees, v. THE CENTURY
INSURANCE CO., LTD.,Defendant-Appellant.
G.R. No. L-22738, December 2, 1924
PONENTE: Villamor, J.
TOPIC: Alternative Obligations

FACTS:
On April 19, 1924, the Court of First Instance of Iloilo rendered a judgment in favor of the
plaintiff, sentencing the defendant company to pay him the sum of P45,000, the value of certain
policies of fire insurance, with legal interest thereon from February 28, 1923, until payment, with the
costs. The defendant company appealed from this judgment, and now insists that the same must be
modified and that it must be permitted to rebuild the house burnt, subject to the alignment of the
street where the building was erected, and that the appellant be relieved from the payment of the
sum in which said building was insured.

ISSUE:
Whether or not the reconstruction of the burnt house by the defendants would be a
sufficient indemnity to insure the actual loss suffered.

RULING:
If this clause of the policies is valid, its effect is to make the obligation of the insurance
company an alternative one, that is to say, that it may either pay the insured value of house, or
rebuild it. It must be noted that in alternative obligations, the debtor, the insurance company in this
case, must notify the creditor of his election, stating which of the two prestations he is disposed to
fulfill, in accordance with article 1133 of the Civil Code. The object of this notice is to give the creditor,
that is, the plaintiff in the instant case, 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. In the
instance case, the record shows that the appellant company did not give a formal notice of its
election to rebuild, and while the witnesses, Cedrun and Cacho, speak of the proposed
reconstruction of the house destroyed, yet the plaintiff did not give his assent to the proposition, for
the reason that the new house would be smaller and of materials of lower kind than those employed
in the construction of the house destroyed. Upon this point the trial judge very aptly says in his
decision: "It would be an imposition unequitable, as well as unjust, to compel the plaintiff to accept
the rebuilding of a smaller house than the one burnt, with a lower kind of materials than those of
said house, without offering him an additional indemnity for the difference in size between the two
house, which circumstances were taken into account when the insurance applied for by the plaintiff
was accepted by the defendant.
 ESTANISLAO REYES v. SEBASTIANA MARTINEZ ET AL.
G.R. No. 32226. December 29, 1930

PONENTE: Street, J.
TOPIC: Alternative Obligations

FACTS:
This action was instituted on March 18, 1927, in the Court of First Instance of the Province of
Laguna by Estanislao Reyes against the Martinez heirs upon four several causes of action in which
the plaintiff seeks, first, to recover five parcels of land, containing approximately one thousand
coconut trees, said parcels being fully described in paragraph IX of the complaint, and to obtain a
declaration of ownership in his own favor as against the defendants with respect to said parcels;
secondly, to recover from the defendants the sum of P9,377.50, being the alleged proceeds of some
1,860 coconut trees which, prior to July 31, 1926, had been applied to the benefit of said defendants;
thirdly, to recover from the defendants the sum of P43,000, as the alleged value of the proceeds of
the lands involved in the receivership in the case of Martinez v. Graño, to which the plaintiff
supposes himself to be entitled, but which have gone, so he claims, to the benefit of the defendants
in said receivership; and fourthly, to recover the sum of P10,000 from the defendants as damages
resulting from their improper meddling in the administration of the receivership property. In
connection with this complaint the plaintiff obtained, several months after the litigation was begun,
an attachment against the defendants upon a judgment credit for P8,000 awarded to them in the
case of Martinez v. Graño, with the result that the execution of said money judgment against the
plaintiff has been suspended since the record in said case was returned to the trial court. In reply to
the complaint the defendants filed an answer and cross-complaint in which the defendants sought to
recover damages and interest upon their claim against the plaintiff. Upon hearing the cause, the trial
court absolved the defendants from the complaint and also absolved the plaintiff from the cross-
complaint of the defendants, without express pronouncement as to costs. From this judgment both
parties appealed.

ISSUE:
Whether or not the Estanislao Reyes is entitled for damages.

RULING:
The trial court was correct in holding that the second, third, and fourth causes of action
relate to matters which were either expressly adjudicated against Reyes in the litigation mentioned,
or which were so involved in the controversy that he is concluded as to said matters by the decision
that was made in that case. The matter stated in the first cause of action requires more careful
consideration. The fact that the title to this parcel is in the heirs of Inocente Martinez and it does not
appear that they have transferred said title to Reyes. It results therefore that Reyes now has a claim
for damages against the parties signatory to the contract of March 5, 1921, for the value of the
aforesaid property. Furthermore, we are able to state from the facts revealed in the course of the
litigation that the value of said thousand trees should be about P8,000. We therefore reach the
conclusion that Reyes should either have the land originally set apart for him under clauses 4 and 8
of the contract, or, in case his right thereto should fail, he should not be required to pay the
judgment for P8,000 which was awarded to the Martinez heirs.
 ARCO PULP AND PAPER CO., INC. AND CANDIDA A. SANTOS v. DAN T. LIM,
G.R. No. 206806, June 25, 2014

PONENTE: Leonen, J.
TOPIC: Alternative Obligations

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 P7,220,968.31 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. On the same day, Arco Pulp and Paper and a certain Eric Sy executed a memorandum of
agreement where Arco Pulp and Paper bound themselves to deliver their finished products to
Megapack Container Corporation, owned by Eric Sy, for his account. According to the memorandum,
the raw materials would be supplied by Dan T. Lim, through his company, Quality Paper and Plastic
Products.
Dan T. Lim alleged that when he delivered the raw materials, Arco Pulp and Paper issued a
post-dated check. When he deposited the check on April 18, 2007, it was dishonored for being drawn
against a closed account. Dan T. Lim sent a letter to Arco Pulp and Paper demanding payment of the
amount of 7,220,968.31, but no payment was made to him. Dan T. Lim filed a complaint for collection
of sum of money. The trial court rendered a judgment in favor of Arco Pulp and Paper and dismissed
the complaint. Dan T. Lim appealed the judgment with the Court of Appeals. The Court of Appeals20
rendered a decision reversing and setting aside the judgment ordering Arco Pulp and Paper to jointly
and severally pay Dan T. Lim the amount of P7,220,968.31 with interest at 12% per annum from the
time of demand; P50,000.00 moral damages; P50,000.00 exemplary damages; and P50,000.00
attorney’s fees.

ISSUE:
Whether or not the obligation between the parties was extinguished by novation.

RULING:
The obligation between the parties was an alternative obligation. The rule on
alternative obligations is governed by Article 1199 of the Civil Code, which states: Article
1199. A person alternatively bound by different prestations shall completely perform one of
them. The creditor cannot be compelled to receive part of one and part of the other
undertaking.
“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.
The appellate court, therefore, correctly identified the obligation between the parties as an
alternative obligation, whereby petitioner Arco Pulp and Paper, after receiving the raw
materials from respondent, would either pay him the price of the raw materials or, in the
alternative, deliver to him the finished products of equivalent value. When petitioner Arco
Pulp and Paper tendered a check to respondent in partial payment for the scrap papers, they
exercised their option to pay the price. Respondent’s receipt of the check and his
subsequent act of depositing it constituted his notice of petitioner Arco Pulp and Paper’s
option to pay.
 MARTINA QUIZANA vs. GAUDENCIO REDUGERIO and JOSEFA POSTRADO
G.R. No. L-6220, May 7, 1954

PONENTE: Labrador, J.
TOPIC: Facultative Obligations

FACTS:
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. 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. Judgement having
been rendered by the justice of the peace court of Sta. Cruz, the defendants-appellants
appealed to the Court of First Instance. In that court they reiterated the defenses that they
presented in the justice of the peace court. As early as July 30 counsel for the defendants-
appellants presented an "Urgent Motion for Continuance". On the date of the trial the court
denied the defendants-appellants' motion for continuance, and after hearing the evidence
for the plaintiff, in the absence of the defendants-appellants and their counsel, rendered the
decision appealed from.

ISSUE:
Whether or not the second part of the written obligation, in which the obligors agreed
and promised to deliver a mortgage over the parcel of land described therein, upon their
failure to pay the debt on a date, is valid and binding and effective upon the plaintiff-
appellee, the creditor.

RULING:
Article 1206 of Civil Code of the Philippines, which provides: When only one
prestation has been agreed upon, but the obligor may render another in substitution, the
obligation is called facultative. This is a new provision and is not found in the old Spanish Civil
Code, which was the one in force at the time of the execution of the agreement. 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 notwithstanding the absence of any legal provision
at the time it was entered into government it, as the parties had freely and voluntarily
entered into it, there is no ground or reason why it should not be given effect.
 FELIPE AGONCILLO and MARCELA MARIO vs. CRISANTO JAVIER, FLORENCIO ALANO and
JOSE ALANO
G.R. No. L-12611, August 7, 1918

PONENTE: Fisher, J.
TOPIC: Joint Obligation (mancommunada, pro-rata)

FACTS:
On the 20th day of February, 1904, Anastasio Alano, Jose Alano, and Florencio Alano
executed in favor of the plaintiff, Da. Marcela Mariño, a document. In 1912, Anastasio Alano
died intestate. At the instance of one of his creditors, proceedings upon the administration
of his estate were had in the Court of First Instance of Batangas.

By order dated August 8, 1914, the court appointed an administrator and a committee to
hear claims. It appears that no claims whatever were presented to the committee and the
proceeding was terminated. On April 27, 1916, at the instance of the plaintiff, Da. Marcela
Mariño, and upon the statement, made on her behalf, that she was a creditor of the
deceased and that her claim was secured by mortgage upon real estate belonging to the
said deceased, the court reopened the intestate proceeding, and appointed one Javier to be
administrator of the estate. No request was made for a renewal of the commission of the
committee on claims. The appellants Jose and Florencio Alano objected to the appointment
of Javier, but their objection was overruled by the court.
On March 17, 1916, the plaintiffs filed the complaint in this action against Javier, as
administrator of the estate of Anastasio Alano and against Florencio Alano and Jose Alano
personally. The action is based upon the execution of the document of February 27, 1904,
which is transcribed literally in the complaint.

The defendants answered denying generally the facts alleged in the complaint, and setting
up, as special defenses that (1) any cause of action which plaintiff might have had against
the estate of Anastasio Alano has been barred by failure of the plaintiff to present her claim
to the committee on claims for allowance; (2) that the document upon which plaintiff relies
does not constitute a valid mortgage; and (3) that as to all of the defendants, the action is
barred by the general statute of limitations.

ISSUE:
Whether or not the contract evidenced by that instrument is merely a loan coupled
with an ineffectual attempt to create a mortgage to effect the payment of debt.

RULING:
It is quite clear, therefore, that under the terms of the contract, as we read it, and as
the parties themselves have interpreted it, the liability of the defendants as to the
conveyance of the house and lot is subsidiary and conditional, being dependent upon their
failure to pay the debt in money. It must follow, therefore, that if the action to recover the
debt has prescribed, the action to compel a conveyance of the house and lot is likewise
barred, as the agreement to make such conveyance was not an independent principal
undertaking, but merely a subsidiary alternative pact relating to the method by which the
debt might be paid.

The undertaking to pay the debt, acknowledged by the contract in suit, is indisputably
conjoint (mancomunada). The concurrence of two or more debtors does not in itself create
a solidary liability. That being so, the debt must be regarded as divided into as many equal
parts as there are debtors, each part constituting a debt distinct from the others. (Civil Code,
art. 1138.) The result of this principle is that the extinction of the debt of one of the various
debtors does not necessarily affect the debts of the others.

In his commentaries on article 1138 and 1139 of the Civil Code, Manresa says that one of the
effects of the rule established by the code that the debt is to be regarded as "divided into as
many parts . . . as there are debtors" is that "the interruption of prescription by the claim of
a creditor addressed to a single debtor or by an acknowledgment made by one of the
debtors in favor of one or more of the creditors is not to be understood as prejudicial to or
in favor of the other debtors or creditors."

The same view is taken by the French law writers: The conjoint (pro rata) obligation is
divided by operation of law among the non-solidary co-debtors. It is as though there were
many debts as there are persons bound. Hence it follows that if one of the debtors is
insolvent the loss falls upon the creditor and not upon the other debtors, and that if
prescription is interrupted with respect to one of the debtors, it is not interrupted with
respect to the others.

In the State of Louisiana, whose Civil Code, like ours states that when the acknowledgment
of a debt is made by a joint debtor, such acknowledgment does not interrupt the
prescription with regard to the others. Each is bound for his virile share of the debt; and,
therefore, each is at liberty to act for himself, and the effect of his acts cannot be extended
to the benefit or prejudice of his co-debtors; so true is this that the law has never intended
that a suit brought against one of the several debtors should interrupt prescription with
regard to all, unless they be debtors in solido.

There is no presumption that one conjoint ( pro-rata) debtor is authorized to perform any
act having the effect of stopping the running of the statute of limitations as to the others.
When the act relied upon is performed by some person other than the debtor, the burden
rests upon the plaintiff to show that it was expressly authorized. In this case there is no such
evidence. The statement in the letter of Da. Maria Lontok, to whom the P200 payment was
made, is that it was a payment made on account of " the debt of Anastasio Alano." Da. Maria
Lontok in her testimony does not attempt to say that the payment was made for the
account of any one but Anastasio Alano, from whom she received it. The statement that
Florencio Alano was with Anastasio at the time is not in itself sufficient to constitute proof
that the payment was made for his benefit.

PURITA ALIPIO vs. COURT OF APPEALS and ROMEO G. JARING, represented by his
Attorney-In-Fact RAMON G. JARING
G.R. No. 134100. September 29, 2000

PONENTE: Mendoza, J.
TOPIC: Joint Obligation (mancommunada, pro-rata)

FACTS:
Respondent Romeo Jaring[1] was the lessee of a 14.5 hectare fishpond in Barito,
Mabuco, Hermosa, Bataan. The lease was for a period of five years ending on September 12,
1990.On June 19, 1987, he subleased the fishpond, for the remaining period of his lease, to
the spouses Placido and Purita Alipio and the spouses Bienvenido and Remedios Manuel.
The stipulated amount of rent was P485,600.00, payable in two installments of P300,000.00
and P185,600.00, with the second installment falling due on June 30, 1989. Each of the four
sublessees signed the contract.
The first installment was duly paid, but of the second installment, the sublessees only
satisfied a portion thereof, leaving an unpaid balance of P50,600.00. Despite due demand,
the sublessees failed to comply with their obligation, so that, on October 13, 1989, private
respondent sued the Alipio and Manuel spouses for the collection of the said amount before
the Regional Trial Court, Branch 5, Dinalupihan, Bataan. In the alternative, he prayed for the
rescission of the sublease contract should the defendants fail to pay the balance. Petitioner
Purita Alipio moved to dismiss the case on the ground that her husband, Placido Alipio, had
passed away on December 1, 1988. The trial court denied petitioner's motion on the ground
that since petitioner was herself a party to the sublease contract, she could be
independently impleaded in the suit together with the Manuel spouses and that the death of
her husband merely resulted in his exclusion from the case. The Court of Appeals, likewise
denied the petition.

ISSUE:
Whether or not a creditor can sue the surviving spouse for the collection of a debt
which is owed by the conjugal partnership of gains, or whether such claim must be filed in
proceedings for the settlement of the estate of the decedent.

RULING:
We hold that a creditor cannot sue the surviving spouse of a decedent in an ordinary
proceeding for the collection of a sum of money chargeable against the conjugal partnership
and that the proper remedy is for him to file a claim in the settlement of estate of the
decedent. The trial court ordered petitioner and the Manuel spouses to pay private
respondent the unpaid balance of the agreed rent in the amount of P50,600.00 without
specifying whether the amount is to be paid by them jointly or solidarily. In connection with
this, Art. 1207 of the Civil Code provides:The concurrence of two or more creditors or of two
or more debtors in one and the same obligation does not imply that each one of the former
has a right to demand, or that each one of the latter is bound to render, entire compliance
with the prestations. There is a solidary liability only when the obligation expressly so
estates, or when the law or the nature of the obligation requires solidarity.
Indeed, if from the law or the nature or the wording of the obligation the contrary
does not appear, an obligation is presumed to be only joint, i.e., the debt is divided into as
many equal shares as there are debtors, each debt being considered distinct from one
another.[20]
Private respondent does not cite any provision of law which provides that when there are
two or more lessees, or in this case, sublessees, the latter's obligation to pay the rent is
solidary. To be sure, should the lessees or sublessees refuse to vacate the leased property
after the expiration of the lease period and despite due demands by the lessor, they can be
held jointly and severally liable to pay for the use of the property. The basis of their solidary
liability is not the contract of lease or sublease but the fact that they have become joint
tortfeasors.[21]In the case at bar, there is no allegation that the sublessees refused to vacate
the fishpond after the expiration of the term of the sublease. Indeed, the unpaid balance
sought to be collected by private respondent in his collection suit became due on June 30,
1989, long before the sublease expired on September 12, 1990.
Neither does petitioner contend that it is the nature of lease that when there are
more than two lessees or sublessees their liability is solidary. Clearly, the liability of the
sublessees is merely joint. Since the obligation of the Manuel and Alipio spouses is
chargeable against their respective conjugal partnerships, the unpaid balance of P50,600.00
should be divided into two so that each couple is liable to pay the amount of P25,300.00.
GIL M. CEMBRANO and DOLLFUSS R. GO vs CITY OF BUTUAN, represented by CITY MAYOR
LEONIDES R. THERESA PLAZA, CVC LUMBER Promulgated:INDUSTRIES, INC., MONICO PAG-
ONG and ISIDRO PLAZA,
G.R. No. 163605, September 20, 2006

PONENTE: Callejo, Sr., J

TOPIC: Joint Obligation (mancommunada, pro-rata)

FACTS:
On May 6, 1991, the City of Butuan issued a Purchase Orderfor 757 timber piles to CVC
or Gil Cembrano. Within the 60-day period, CVC was able to make two (2) deliveries of 117
and 57 pieces which respondent accepted and paid for. On November 13, 1991, the 60-day
period for CVC to make deliveries of the timber piles expired. CVC offered to deliver 100
timber piles worth P148,500.00, but respondent refused. a new bidding was held on the
unexecuted portion of the contract. CVC and Cembrano, through Go as counsel, filed a
complaint for breach of contract and damages against respondent. The trial court rendered
judgment in favor of the defendants. However, The CA rendered judgment reversing the
decision of the trial court. The City of Butuan thereafter filed a petition for review but was
denied for failure to observe the 15-day period to appeal. Thus, the CA decision became final
and executory. The defendants paid the said amount with CVC LUMBER INDUSTRIES,
INC/MONICO E. PAG-ONG as payee.
Thereafter, Atty. Go, acting as counsel for CVC and Cembrano, filed a Alternative
Motion for Issuance of a Writ of Execution or Entry of Judgment. The City Legal Officer filed
a Manifestation, also dated November 29, 2002, that it had already paid the P926,845.00 to
CVC, through Pag-Ong, its President. The City of Butuan filed a Petition for Certiorari and
Prohibition with the CA against CVC, Pag-Ong, Plaza and . It insisted that it had already paid
respondent CVC and Cembrano.

ISSUE:
Whether or not the Honorable Court Of Appeals committed serious errors of Law nay
grave abuse of discretion in declaring payment by the city of Butuan to Monico Pag-Ong and
Isidro Plaza, who were not parties to Civil Case No. 3851 and Ca-G.R. Cv No. 55049, is a valid
payment of the judgment debt in Ca-G.R. Cv No. 55049 and in setting aside and declaring null
and void the writ of garnishment issued by the court a auo.

RULING:
Payment made by the debtor to the person of the creditor or to one authorized by
him or by the law to receive it extinguishes the obligation. When payment is made to the
wrong party, however, the obligation is not extinguished as to the creditor who is without
fault or negligence even if the debtor acted in utmost good faith and by mistake as to the
person of the creditor or through error induced by fraud of a third person.
In general, a payment in order to be effective to discharge an obligation, must be
made to the proper person. Thus, payment must be made to the obligee himself or to an
agent having authority, express or implied, to receive the particular payment. Payment
made to one having apparent authority to receive the money will, as a rule, be treated as
though actual
authority had been given for its receipt. Likewise, if payment is made to one who by law is
authorized to act for the creditor, it will work a discharge. The receipt of money due on a
judgment by an officer authorized by law to accept it will, therefore, satisfy the debt.
When there is a concurrence of several creditors or of several debtors or of several
creditors and debtors in one and the same obligation, it is presumed that the obligation is
joint and not solidary. The most fundamental effect of joint divisible obligations is that each
creditor can demand only for the payment of his proportionate share of the credit, while
each debtor can be held liable only for the payment of his proportionate share of the debt.
As a corollary to this rule, the credit or debt shall be presumed, in the absence of any law or
stipulation to the contrary, to be divided into as many shares as there are creditors and
debtors, the credits or debts being considered distinct from one another. It necessarily
follows that a joint creditor cannot act in representation of the others. Neither can a joint
debtor be compelled to answer for the liability of the others. The pertinent rules are
provided in Articles 1207 and 1208 of the Civil Code.
 MARSMAN DRYSDALE LAND, INC. VS PHILIPPINE GEOANALYTICS, INC. AND GOTESCO
PROPERTIES, INC.,
G.R. No. 183374, June 29, 2010

PONENTE: Carpio Morales, J.

TOPIC: Joint Obligation (mancommunada, pro-rata)

FACTS:
On February 12, 1997, Marsman Drysdale Land, Inc. (Marsman Drysdale) and Gotesco
Properties, Inc. (Gotesco) entered into a Joint Venture Agreement (JVA) for the
construction and development of an office building on a land owned by Marsman Drysdale
in Makati City. PGI then billed the joint venture on November 24, 1997 for P284,553.50
representing the cost of partial subsurface soil exploration; and on January 15, 1998 for
P250,800 representing the cost of the completed seismic study. Despite repeated demands
from PGI,[5] the joint venture failed to pay its obligations.
Meanwhile, due to unfavorable economic conditions at the time, the joint venture
was cut short and the planned building project was eventually shelved. PGI subsequently
filed on November 11, 1999 a complaint for collection of sum of money and damages. In its
Answer with Counterclaim and Cross-claim, Marsman Drysdale passed the responsibility of
paying PGI to Gotesco which, under the JVA, was solely liable for the monetary expenses of
the project. Gotesco, on the other hand, countered that PGI has no cause of action against it
as PGI had yet to complete the services enumerated in the contract; and that Marsman
Drysdale failed to clear the property of debris which prevented PGI from completing its
work

ISSUE:
Which between joint venturers Marsman Drysdale and Gotesco bears the liability to
pay PGI its unpaid claims?

RULING:
The Court finds Marsman Drysdale and Gotesco jointly liable to PGI. As the appellate
court held, Articles 1207 and 1208 of the Civil Code, which respectively read:
Art. 1207. The concurrence of two or more creditors or of two or more debtors in one
and the same obligation does not imply that each one of the former has a right to demand,
or that each one of the latter is bound to render, entire compliance with the prestations.
There is a solidary liability only when the obligation expressly so states, or when the law or
nature of the obligation requires solidarity.
Art. 1208. If from the law, or the nature or the wording of the obligations to which
the preceding article refers the contrary does not appear, the credit or debt shall be
presumed to be divided into as many equal shares as there are creditors or debtors, the
credits or debts being considered distinct from one another, subject to the Rules of Court
governing the multiplicity of suits.
The rules presume that the obligation owing to PGI is joint between Marsman
Drysdale and Gotesco. The only time that the JVA may be made to apply in the present
petitions is when the liability of the joint ventures to each other would set in.
SPOUSES RODOLFO BEROT AND LILIA BEROT vs FELIPE C. SIAPNO, Respondent.
G.R. No. 188944, July 9, 2014

PONENTE: Sereno, CJ
TOPIC: Joint Obligation (mancommunada, pro-rata)

FACTS:
On May 23, 2002, Macaria Berot and spouses Rodolfo A. Berot and Lilia P. Berot
obtained a loan from Felipe C. Siapno in the sum of ₱250,000.00, payable within one year
together with interest thereon at the rate of 2% per annum from that date until fully paid. As
security for the loan, Macaria, appellant and Lilia mortgaged to appellee a portion,
consisting of 147 square meters of that parcel of land with an area of 718 square meters.On
June 23, 2003, Macaria died. Because of the mortgagors’ default, appellee filed an action
against them for foreclosure of mortgage and damages. The action was anchored on the
averment that the mortgagors failed and refused to pay the abovementioned sum of
₱250,000.00 plus the stipulated interest of 2% per month despite lapse of one year from May
23, 2002.
In answer, appellant and Lilia alleged that the contested property was the inheritance
of the former from his deceased father, Pedro; that on said property is their family home;
that the mortgage is void as it was constituted over the family home without the consent of
their children, who are the beneficiaries thereof; that their obligation is only joint; and that
the lower court has no jurisdiction over Macaria for the reason that no summons was served
on her as she was already dead.

ISSUE:
Whether or not the nature of the loan obligation contracted by petitioners is joint or
solidary.

RULING:
We rule that it is joint. Under Article 1207 of the Civil Code of the Philippines, the
general rule is that when there is a concurrence of two or more debtors under a single
obligation, the obligation is presumed to be joint:
Art. 1207. The concurrence of two or more creditors or of two or more debtors in one
and the same obligation does not imply that each one of the former has a right to demand,
or that each one of the latter is bound to render, entire compliance with the prestations.
There is a solidary liability only when the obligation expressly so states, or when the law or
the nature of the obligation requires solidarity.
 The law further provides that to consider the obligation as solidary in nature, it must
expressly be stated as such, or the law or the nature of the obligation itself must require
solidarity. In PH Credit Corporation v. Court of Appeals, 25we held that: 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 creditor is entitled to demand only a proportionate
part of the credit from each debtor. The well entrenched rule is that solidary obligations
cannot be inferred lightly. They must be positively and clearly expressed. A liability is solidary
"only when the obligation expressly so states, when the law so provides or when the nature
of the obligation so requires."
In the instant case, the trial court expressly ruled that the nature of petitioners’
obligation to respondent was solidary.26 It scrutinized the real estate mortgage and arrived
at the conclusion that petitioners had bound themselves to secure their loan obligation by
way of a real estate mortgage in the event that they failed to settle it.27But such
pronouncement was not expressly stated in its 30 June 2006 Decision.
 THE IMPERIAL INSURANCE, INC. vs. EMILIA T. DAVID, defendant-appellant.
G.R. No. L-32425 November 21, 1984

PONENTE: Relova, J.
TOPIC: Solidary Obligation (in solidum, solidaria, joint and several)

FACTS:
Felicisimo V. Reyes and his wife, herein appellant, executed two (2) indemnity
agreements in favor of appellee jointly and severally to assure indemnification of the latter
for whatever liability it may incur in connection with its posting the security bonds to lift the
attachments in Civil Case No. Later, they again jointly and severally, executed another
indemnity agreement in favor of appellee to assure indemnification of the latter under a
homestead bond for the sum of P7,500.00 it had executed jointly and severally with them in
favor of the Development Bank of the Philippines. On the same date, Felicisimo V. Reyes and
his wife paid to appellee the sum of P153.33 covering the premium and other expenses for
the homestead bond on the first year. Felicisimo V.Reyes died and Special Proceedings was
commenced. His wife, herein appellant, qualified and took her oath of office as the
administratrix of said intestate estate. Appellee made demands on Emilia T. David to pay the
amounts of P60,000.00 and P40,000.00 under the surety bonds and arrears in premiums
thereon. When appellant David failed to make payments, appellee filed a case for collection
of sums of money under three (3) different causes of action.

ISSUE:
Whether or not the lower court has jurisdiction over plaintiff's causes of action.

RULING:
We find no merit in this appeal. Under the law and well settled jurisprudence, when
the obligation is a solidary one, the creditor may bring his action in toto against any of the
debtors obligated in solidum. Thus, if husband and wife bound themselves jointly and
severally, in case of his death her liability is independent of and separate from her husband s;
she may be sued for the whole debt and it would be error to hold that the claim against her
as well as the claim against her husband should be made in the decedent's estate.
In the case at bar, appellant signed a joint and several obligation with her husband in
favor of herein appellee; as a consequence, the latter may demand from either of them the
whole obligation. As distinguished from a joint obligation where each of the debtor is liable
only for a proportionate part of the debt and the creditor is entitled only to a proportionate
part of the credit, in a solidary obligation the creditor may enforce the entire obligation
against one of the debtors.
 INTERNATIONAL FINANCE CORPORATION VS. IMPERIAL TEXTILE MILLS, Promulgated:
INC.
G.R. No. 160324, November 15, 2005

PONENTE: Panganiban, J.
TOPIC: Solidary Obligation (in solidum, solidaria, joint and several)

FACTS:
On December 17, 1974, International Finance Corporation (IFC) and Philippine
Polyamide Industrial Corporation (PPIC) entered into a loan agreement wherein IFC
extended to PPIC a loan of US$7,000,000.00, payable in sixteen (16) semi-annual
installments of US$437,500.00 each, beginning June 1, 1977 to December 1, 1984, with
interest at the rate of 10% per annum on the principal amount of the loan advanced and
outstanding from time to time. The interest shall be paid in US dollars semi-annually on June
1 and December 1 in each year and interest for any period less than a year shall accrue and be
pro-rated on the basis of a 360-day year of twelve 30-day months.
PPIC paid the installments dues but the other payments were rescheduled as
requested by PPIC. Despite the rescheduling of the installment payments, however, PPIC
defaulted. Hence, on April 1, 1985, IFC served a written notice of default to PPIC demanding
the latter to pay the outstanding principal loan and all its accrued interests. Despite such
notice, PPIC failed to pay the loan and its interests. By virtue of PPICs failure to pay, IFC,
together with DBP, applied for the extrajudicial foreclosure of mortgages on the real estate,
buildings, machinery, equipment plant and all improvements owned by PPIC, located at
Calamba, Laguna, with the regional sheriff of Calamba, Laguna. On July 30, 1985, the deputy
sheriff of Calamba, Laguna issued a notice of extrajudicial sale

ISSUES:
Whether or not there is liability of the respondent under the guarantee agreement.

RULING:
To put emphasis on the nature of that liability, the Contract stated that ITM was a
primary obligor, not a mere surety. Those stipulations meant only one thing: that at bottom,
and to all legal intents and purposes, it was a surety. Indubitably therefore, ITM bound itself
to be solidarily liable with PPIC for the latters obligations under the Loan Agreement with
IFC. ITM thereby brought itself to the level of PPIC and could not be deemed merely
secondarily liable.
Initially, ITM was a stranger to the Loan Agreement between PPIC and IFC. ITMs
liability commenced only when it guaranteed PPICs obligation. It became a surety when it
bound itself solidarily with the principal obligor. If a person binds himself solidarily with the
principal debtor, the provisions of Section 4, Chapter 3, Title I of this Book shall be observed.
In such case the contract shall be called suretyship. The aforementioned provisions refer to
Articles 1207 to 1222 of the Civil Code on Joint and Solidary Obligations. Relevant to this case
is Article 1216, which states:
 The creditor may proceed against any one of the solidary debtors or some or all of
them simultaneously. The demand made against one of them shall not be an obstacle to
those which may subsequently be directed against the others, so long as the debt has not
been fully collected. Pursuant to this provision, petitioner (as creditor) was justified in taking
action directly against respondent.
 PH CREDIT CORPORATION vs. COURT OF APPEALS and CARLOS M. FARRALES,
G.R. No. 109648. November 22, 2001

PONENTE: Panganiban, J.
TOPIC: Solidary Obligation (in solidum, solidaria, joint and several)

FACTS:
PH Credit Corp., filed a case against Pacific Lloyd Corp., Carlos Farrales, Thomas H.
Van Sebille and Federico C. Lim, for [a] sum of money. After service of summons upon the
defendants, they failed to file their answer within the reglementary period, hence they were
declared in default. PH Credit Corp., was then allowed to present its evidence ex-parte. After
the decision has become final and executory, a Writ of Execution was issued. Personal and
real properties of defendant Carlos M. Farrales were levied and sold at public auction
wherein PH Credit Corp. was the highest bidder. On July 27, 1990, a motion for the issuance
of a writ of possession was filed and on October 12, 1990, the same was granted. The writ of
possession itself was issued on October 26, 1990. Said order and writ of possession are now
the subject of this petition. Petitioner claims that she, as a third-party claimant with the
court below, filed an Urgent Motion for Reconsideration and/or to Suspend the Order dated
October 12, 1990, but without acting there[on], respondent Judge issued the writ of
possession on October 26, 1990. She claims that the actuations of respondent Judge was
tainted with grave abuse of discretion.

ISSUE:
What is the basis of private respondent’s liability?

RULING:
Petitioner argues that the CA erred in disregarding the text of the January 31, 1984
Decision of the trial court. In concluding that the obligation was merely joint, the CA was
allegedly mistaken in relying on the failure of the dispositive portion of the Decision to state
that the obligation was solidary. We are not impressed. 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 creditor is entitled to demand only a proportionate part of the credit from
each debtor.
The well-entrenched rule is that solidary obligations cannot be inferred lightly. They
must be positively and clearly expressed. A liability is solidary only when the obligation
expressly so states, when the law so provides or when the nature of the obligation so
requires. Article 1207 of the Civil Code explains the nature of solidary obligations in this wise:
Art. 1207. The concurrence of two or more creditors or of two or more debtors in one and
the same obligation does not imply that each one of the former has a right to demand, or
that each one of the latter is bound to render, entire compliance with the prestations. There
is a solidary liability only when the obligation expressly so states, or when the law or the
nature of the obligation requires solidarity.
 In the dispositive portion of the January 31, 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, as
provided by the Civil Code, which we quote:
Art. 1208. If from the law, or the nature or the wording of the obligations to which
the preceding article refers[,] the contrary does not appear, the credit or debt shall be
presumed to be divided into as many equal shares as there are creditors or debtors x x x.
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. Hence the execution must
conform with that which is ordained or decreed in the dispositive portion of the decision.
ERNESTO V. RONQUILLO vs. HONORABLE COURT OF APPEALS AND ANTONIO P. SOG.R. No.
L-55138, September 28, 1984

PONENTE: Cuevas, J.
TOPIC: Solidary Obligation (in solidum, solidaria, joint and several)

FACTS:
Petitioner Ernesto V. Ronquillo was one of four (4) defendants in Civil Case No. 33958
of the then Court of First Instance of Rizal (now the Regional Trial Court), Branch XV filed by
private respondent Antonio P. So, on July 23, 1979, for the collection of the sum of
P17,498.98 plus attorney's fees and costs. The other defendants were Offshore Catertrade
Inc., Johnny Tan and Pilar Tan. The amount of P117,498.98 sought to be collected represents
the value of the checks issued by said defendants in payment for foodstuffs delivered to and
received by them. The said checks were dishonored by the drawee bank.
On December 26, 1979, herein private respondent (then plaintiff filed a Motion for
Execution on the ground that defendants failed to make the initial payment of P55,000.00
on or before December 24, 1979 as provided in the Decision. Said motion for execution was
opposed by herein petitioner (as one of the defendants) contending that his inability to
make the payment was due to private respondent's own act of making himself scarce and
inaccessible on December 24, 1979. Petitioner then prayed that private respondent be
ordered to accept his payment in the amount of P13,750.00. 2.

ISSUE:
What is the nature of the liability of the defendants (including petitioner), was it
merely joint, or was it several or solidary?

RULING:
In this regard, Article 1207 and 1208 of the Civil Code provides —
Art. 1207. The concurrence of two or more debtors in one and the same obligation does not
imply that each one of the former has a right to demand, or that each one of the latter is
bound to render, entire compliance with the prestation. Then is a solidary liability only when
the obligation expressly so states, or when the law or the nature of the obligation requires
solidarity.
Art. 1208. If from the law,or the nature or the wording of the obligation to which the
preceding article refers the contrary does not appear, the credit or debt shall be presumed
to be divided into as many equal shares as there are creditors and debtors, the credits or
debts being considered distinct from one another, subject to the Rules of Court governing
the multiplicity of quits.
Clearly then, by the express term of the compromise agreement and the decision
based upon it, the defendants obligated themselves to pay their obligation "individually and
jointly". The term "individually" has the same meaning as "collectively", "separately",
"distinctively", respectively or "severally". An agreement to be "individually liable"
undoubtedly creates a several obligation, and a "several obligation is one by which one
individual binds himself to perform the whole obligation. The obligation in the case at bar
being described as "individually and jointly", the same is therefore enforceable against one
of the numerous obligors.
 REPUBLIC GLASS CORPORATION and GERVEL, INC. VS. LAWRENCE C. QUA,
G.R. No. 144413, July 30, 2004

PONENTE: Carpio, J.
TOPIC: Solidary Obligation (in solidum, solidaria, joint and several)

FACTS:
Petitioners Republic Glass Corporation (RGC) and Gervel, Inc. (Gervel) together with
respondent Lawrence C. Qua (Qua) were stockholders of Ladtek, Inc. (Ladtek). Ladtek
obtained loans from Metropolitan Bank and Trust Company (Metrobank) and Private
Development Corporation of the Philippines (PDCP) with RGC, Gervel and Qua as sureties.
Among themselves, RGC, Gervel and Qua executed Agreements for Contribution, Indemnity
and Pledge of Shares of Stocks (Agreements).

The Agreements all state that in case of default in the payment of Ladteks loans, the parties
would reimburse each other the proportionate share of any sum that any might pay to the
creditors. Under the same Agreements, Qua pledged 1,892,360 common shares of stock of
General Milling Corporation (GMC) in favor of RGC and Gervel. The pledged shares of stock
served as security for the payment of any sum which RGC and Gervel may be held liable
under the Agreements. Ladtek defaulted on its loan obligations to Metrobank and PDCP.
Hence, Metrobank filed a collection case against Ladtek, RGC, Gervel and Qua.

ISSUES:
Whether or not payment of the entire obligation is an essential condition for
reimbursement.

RULING:
Payment of the entire obligation by one or some of the solidary debtors results in a
corresponding obligation of the other debtors to reimburse the paying debtor. However, we
agree with RGC and Gervels contention that in this case payment of the entire obligation is
not an essential condition before they can seek reimbursement from Qua. The words of the
Agreements are clear.The Agreements are contracts of indemnity not only against actual
loss but against liability as well.Therefore, whether the solidary debtor has paid the creditor,
the other solidary debtors should indemnify the former once his liability becomes absolute.
However, in this case, the liability of RGC, Gervel and Qua became absolute simultaneously
when Ladtek defaulted in its loan payment. As a result, RGC, Gervel and Qua all became
directly liable at the same time to Metrobank and PDCP. Thus, RGC and Gervel cannot
automatically claim for indemnity from Qua because Qua himself is liable directly to
Metrobank and PDCP.
If we allow RGC and Gervel to collect from Qua his proportionate share, then Qua
would pay much more than his stipulated liability under the Agreements. In addition to the
P3,860,646 claimed by RGC and Gervel, Qua would have to pay his liability of P6.2 million to
Metrobank and more than P1 million to PDCP. Since Qua would surely exceed his
proportionate share, he would then recover from RGC and Gervel the excess payment. This
situation is absurd and circuitous. Contrary to RGC and Gervels claim, payment of any
amount will not automatically result in reimbursement. If a solidary debtor pays the
obligation in part, he can recover reimbursement from the co-debtors only in so far as his
payment exceeded his share in the obligation.[33] This is precisely because if a solidary
debtor pays an amount equal to his proportionate share in the obligation, then he in effect
pays only what is due from 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.
To determine whether RGC and Gervel have a right to reimbursement, it is
indispensable to ascertain the total obligation of the parties. At this point, it becomes
necessary to consider the decision in Collection Case No. 8364 on the parties obligation to
Metrobank. To repeat, Metrobank filed Collection Case No. 8364 against Ladtek, RGC, Gervel
and Qua to collect Ladteks unpaid loan. Since they only made partial payments, RGC and
Gervel should clearly and convincingly show that their payments to Metrobank and PDCP
exceeded their proportionate shares in the obligations before they can seek reimbursement
from Qua. This RGC and Gervel failed to do. RGC and Gervel, in fact, never claimed that their
payments exceeded their shares in the obligations. Consequently, RGC and Gervel cannot
validly seek reimbursement from Qua.
 CONSTRUCTION DEVELOPMENT CORPORATION OF THE PHILIPPINES vs. REBECCA G.
ESTRELLA, RACHEL E. FLETCHER, PHILIPPINE PHOENIX SURETY & INSURANCE INC.,
BATANGAS LAGUNA TAYABAS BUS CO., and WILFREDO DATINGUINOO,
G.R. No. 147791, September 8, 2006

PONENTE: Ynares-Santiago, J.
TOPIC: Solidary Obligation (in solidum, solidaria, joint and several)

FACTS:
On December 29, 1978, respondents Rebecca G. Estrella and her granddaughter,
Rachel E. Fletcher, boarded in San Pablo City, a BLTB bus bound for Pasay City. However,
they never reached their destination because their bus was rammed from behind by a
tractor-truck of CDCP in the South Expressway. The strong impact pushed forward their
seats and pinned their knees to the seats in front of them. They regained consciousness only
when rescuers created a hole in the bus and extricated their legs from under the seats. They
were brought to the Makati Medical Center where the doctors diagnosed their injuries.
Thereafter, respondents filed a Complaint5 for damages against CDCP, BLTB, Espiridion
Payunan, Jr. and Wilfredo Datinguinoo.

ISSUES:
Whether or not or not the court of appeals gravely erred in not holding respondents
bltb and/or its driver Wilfredo Datinguinoo solely liable for the damages sustained by herein
respondents Fletcher and Estrella.

RULING:
The case filed by respondents against petitioner is an action for culpa aquiliana or
quasi-delict under Article 2176 of the Civil Code.13 In this regard, Article 2180 provides that
the obligation imposed by Article 2176 is demandable for the acts or omissions of those
persons for whom one is responsible. Consequently, an action based on quasi-delict may be
instituted against the employer for an employee's act or omission. The liability for the
negligent conduct of the subordinate is direct and primary, but is subject to the defense of
due diligence in the selection and supervision of the employee.14 In the instant case, the trial
court found that petitioner failed to prove that it exercised the diligence of a good father of
a family in the selection and supervision of Payunan, Jr. The trial court and the Court of
Appeals found petitioner solidarily liable with BLTB for the actual damages suffered by
respondents because of the injuries they sustained. It was established that Payunan, Jr. was
driving recklessly because of the skid marks as shown in the sketch of the police
investigator.
In a "joint" obligation, each obligor answers only for a part of the whole liability; in a
"solidary" or "joint and several" obligation, the relationship between the active and the
passive subjects is so close that each of them must comply with or demand the fulfillment of
the whole obligation. In Lafarge Cement v. Continental Cement Corporation, we reiterated
that joint tort feasors are jointly and severally liable for the tort which they commit.
Petitioner's claim that paragraph 2 of the dispositive portion of the trial court's decision is
ambiguous and arbitrary and also entitles respondents to recover twice is without basis. In
the body of the trial court's decision, it was clearly stated that petitioner and its driver
Payunan, Jr., are jointly and solidarily liable for moral damages in the amount of P50,000.00
to respondent Fletcher and P25,000.00 to respondent Estrella.20 Moreover, there could be
no double recovery because the award in paragraph 2 is for moral damages while the award
in paragraph 1 is for actual damages and attorney's fees.
 ASSET BUILDERS CORPORATION VS.STRONGHOLD INSURANCE COMPANY,
INCORPORATED,
G.R. No. 187116, October 18, 2010

PONENTE: Mendoza, J.
TOPIC: Solidary Obligation (in solidum, solidaria, joint and several)

FACTS:
On April 28, 2006, Asset Builders Corporation (ABC) entered into an agreement with
Lucky Star Drilling & Construction Corporation (Lucky Star) as part of the completion of its
project to construct the ACG Commercial Complex on NHA Avenue corner Olalia Street,
Barangay Dela Paz, Antipolo City.[2] As can be gleaned from the Purchase Order,[3] Lucky
Star was to supply labor, materials, tools, and equipment including technical supervision to
drill one (1) exploratory production well on the project site. The total contract price for the
said project was P1,150,000.00.
To guarantee faithful compliance with their agreement, Lucky Star engaged
respondent Stronghold which issued two (2) bonds in favor of petitioner. The first, SURETY
BOND G(16) No. 141558, dated May 9, 2006, covers the sum of P575,000.00[4] or the
required downpayment for the drilling work. The full text of the surety bond.
On May 20, 2006, ABC paid Lucky Star in advance. Lucky Star, thereafter, commenced
the drilling work. By July 18, 2006 Lucky Star managed to accomplish only ten (10) % of the
drilling work. On the same date, petitioner sent a demand letter to Lucky Star for the
immediate completion of the drilling workwith a threat to cancel the agreement and forfeit
the bonds should it still fail to complete said project within the agreed period. ABC sent a
Notice of Rescission of Contract with Demand for Damages to Lucky Star.

ISSUE:
Whether or not respondent insurance company, as surety, can be held liable under its
bonds.

RULING:
In the case at bench, when Lucky Star failed to finish the drilling work within the
agreed time frame despite petitioners demand for completion, it was already in delay. Due
to this default, Lucky Stars liability attached and, as a necessary consequence, respondents
liability under the surety agreement arose. Undeniably, when Lucky Star reneged on its
undertaking with the petitioner and further failed to return the P575,000.00 down payment
that was already advanced to it, respondent, as surety, became solidarily bound with Lucky
Star for the repayment of the said amount to petitioner. The clause, this bond is callable on
demand, strongly speaks of respondents primary and direct responsibility to the petitioner.
Accordingly, after liability has attached to the principal, the obligee or, in this case,
the petitioner, can exercise the right to proceed against Lucky Star or respondent or both.
Article 1216 of the New Civil Code states: The creditor may proceed against any one of the
solidary debtors or some or all of them simultaneously. The demand made against one of
them shall not be an obstacle to those which may subsequently be directed against the
others, so long as the debt has not been fully collected.
Contrary to the trial courts ruling, respondent insurance company was not
automatically released from any liability when petitioner resorted to the rescission of the
principal contract for failure of the other party to perform its undertaking. Precisely, the
liability of the surety arising from the surety contracts comes to life upon the solidary
obligors default. It should be emphasized that petitioner had to choose rescission in order to
prevent further loss that may arise from the delay of the progress of the project.Without a
doubt, Lucky Stars unsatisfactory progress in the drilling work and its failure to complete it
in due time amount to non-performance of its obligation.
In fine, respondent should be answerable to petitioner on account of Lucky Stars
non-performance of its obligation as guaranteed by the performance bond. Article 1217of
the New Civil Code acknowledges the right of reimbursement from a co-debtor (the
principal co-debtor, in case of suretyship) in favor of the one who paid (the surety). Thus,
respondent is entitled to reimbursement from Lucky Star for the amount it may be required
to pay petitioner arising from its bonds.
 PETRON CORPORATION VS. SPOUSES CESAR JOVERO AND ERMA F. CUDILLA, SPOUSES
LONITO TAN AND LUZVILLA SAMSON, AND SPOUSES ROGELIO LIMPOCO AND LUCIA
JOSUE, BEING REPRESENTED BY PIO JOSUE
G.R. No. 151038, January 18, 2012

PONENTE: Sereno, J.
TOPIC: Solidary Obligation (in solidum, solidaria, joint and several)

FACTS:
On 25 April 1984, Rubin Uy entered into a Contract of Lease with Cesar J. Jovero over
a property located at E. Reyes Ave., Estancia, Iloilo for the purpose of operating a gasoline
station for a period of five (5) years. Under the dealership contract, petitioner sold its
products in quantities as ordered by the dealer. In order to comply with its obligation to
deliver the petroleum products to the dealer, petitioner contracted the hauling services of
Jose Villaruz, who did business under the name Gale Freight Services. The parties also
agreed that Villaruz shall save petitioner from any and all claims of third persons arising out
of, but not necessarily limited to, his performance of the terms and conditions of the
contract. Furthermore, Villaruz obligated himself to be answerable to petitioner for damage
to its plant, equipment and facilities, including those of its employees, dealers and
customers, resulting from his negligence and/or lack of diligence.
On 3 January 1991, around ten o’clock in the morning, Ronnie Allanaraiz, an employee
of the gasoline station, ordered from petitioner various petroleum products. Petitioner then
requested the services of Villaruz for the delivery of the products to the gasoline station in
Estancia, Iloilo. He, however, used a tank truck different from the trucks specifically
enumerated in the hauling contract executed with petitioner. During the unloading of the
petroleum from the tank truck into the fill pipe that led to the gasoline station’s
underground tank, for reasons unknown, a fire started in the fill pipe and spread to the
rubber hose connected to the tank truck. Seeing the fire, he got into the truck without
detaching the rubber hose from the fill pipe and drove in reverse, dragging the burning fuel
hose along the way. As a result, a conflagration started and consumed the nearby properties
of herein defendants, spouses Cesar J. Jovero and Erma Cudilla-Jovero, amounting to
P1,500,000; of spouses Leonito Tan and Luzvilla Samson, amounting to P800,000; and of
spouses Rogelio Limpoco and Lucia Josue Limpoco, amounting to P4,112,000. Herein
respondents thereafter filed separate actions for damages against petitioner, Villaruz, Rubin
Uy, and Dortina Uy,

ISSUE:
Whether or not a causal connection exists between Petron’s failure to renew or
extend its dealership contract with Rubin Uy and the fire that inflicted damages on the
buildings surrounding the latter’s gas station.

RULING:
As the employer of Igdanis, Villaruz was impleaded by herein respondents in the
lower court and was found to be solidarily liable with his other co-defendants. Absent an
appeal before this Court assailing the ruling of the lower court and the CA, Villaruz remains
to be solidarily liable with petitioner and co-defendants Rubin Uy and Dortina Uy. Thus,
petitioner may only claim contribution from him in accordance with Article 1217 of the Civil
Code, and not by virtue of its hauling contract, in the event that respondents decide to
proceed against petitioner alone for the satisfaction of judgment. Art. 1217 states: “Payment
made by one of the solidary debtors extinguishes the obligation. If two or more solidary
debtors offer to pay, the creditor may choose which offer to accept.” He who made the
payment may claim from his co-debtors only the share which corresponds to each, with the
interest for the payment already made. If the payment is made before the debt is due, no
interest for the intervening period may be demanded.
The share, meanwhile, of solidary debtors is contained in Art. 1208, to wit:If from the
law, or the nature of the wording of the obligations to which the preceding article refers the
contrary does not appear, the credit of debt shall be presumed to be divided into as many
equal shares as there are creditors or debtors, the credits or debts being considered distinct
from one another, subject to the Rules of Court governing the multiplicity of suits.
To put it simply, based on the ruling of the lower courts, there are four (4) persons
who are liable to pay damages to respondents. The latter may proceed against any one of
the solidary debtors or some or all of them simultaneously, pursuant to Article 1216 of the
Civil Code. These solidary debtors are petitioner Petron, the hauler Villaruz, the operator
Dortina Uy and the dealer Rubin Uy. To determine the liability of each defendant to one
another, the amount of damages shall be divided by four, representing the share of each
defendant. Supposedly, under the hauling contract, petitioner may require Villaruz to
indemnify it for its share. However, because it was not able to maintain the cross-claim filed
against him, it shall be liable for its own share under Article 1208 and can no longer seek
indemnification or subrogation from him under its dismissed cross-claim. Petitioner may not
pursue its cross-claim against Rubin Uy and Dortina Uy, because the cross-claims against
them were also dismissed; moreover, they were all equally liable for the conflagration as
discussed herein.
 PHILIPPINE CHARTER INSURANCE CORPORATION VS. CENTRAL COLLEGES OF THE
PHILIPPINES and DYNAMIC PLANNERS AND CONSTRUCTION CORPORATION,
G.R. Nos. 180631-33, February 22, 2012

PONENTE: Mendoza, J.
TOPIC: Solidary Obligation (in solidum, solidaria, joint and several)

FACTS:
On May 16, 2000, Central Colleges of the Philippines (CCP), an educational institution,
contracted the services of Dynamic Planners and Construction Corporation (DPCC) to be its
general contractor for the construction of its five (5)-storey school building at No. 39 Aurora
Boulevard, Quezon City, with a total contract price of P248,000,000.00. As embodied in a
Contract Agreement,[3] the construction of the entire building would be done in two phases
with each phase valued at P124,000,000.00.
To guarantee the fulfillment of the obligation, DPCC posted three (3) bonds, all
issued by the Philippine Charter Insurance Corporation (PCIC), namely: (1) Surety Bond No.
PCIC-45542, dated June 25, 2003, amounting to P7,031,460.74;[4] (2) Performance Bond No.
PCIC-45541[5] in the amount of P2,929,775.31 which was subsequently increased to
P6,199,999.99 through Bond Endorsement No. E-2003/12527;[6] and (3) Performance Bond
No. PCIC-46172 for P692,890.74. All the bonds were callable on demand and set to expire on
October 30, 2003.
Thus, in a letter dated October 29, 2003 addressed to DPCC and PCIC, CCP informed
them of the breach in the contract and its plan to claim on the construction bonds. On
November 6, 2003, CCP notified DPCC and PCIC that only 51% of the project was completed,
which was way behind the construction schedule, prompting it to declare the occurrence of
default against DPCC. It formally requested PCIC to remit the proceeds of the bonds.

ISSUE:
Whether or not the CA grossly erred in upholding the CIAC award pronouncing
respondent CCP as rightfully and justifiably entitled to terminate the contract agreement.

RULING:
Upon notice of default of obligor DPCC, PCICs liability, as surety, was already
attached. A surety under Article 2047 of the New Civil Code solidarily binds itself with the
principal debtor to assure the fulfillment of the obligation: “Art. 2047. By guaranty a person,
called the guarantor, binds himself to the creditor to fulfill the obligation of the principal
debtor in case the latter should fail to do so.” If a person binds himself solidarily with the
principal debtor, the provisions of Section 4, Chapter 3, Title I of this Book shall be observed.
In such case the contract is called a suretyship.
The case of Asset Builders Corporation v. Stronghold Insurance Company, Inc.[49]
explains how a surety agreement works: “As provided in Article 2047, the surety undertakes
to be bound solidarily with the principal obligor. That undertaking makes a surety
agreement an ancillary contract as it presupposes the existence of a principal contract.
Although the contract of a surety is in essence secondary only to a valid principal obligation,
the surety becomes liable for the debt or duty of another although it possesses no direct or
personal interest over the obligations nor does it receive any benefit therefrom.[50] Let it be
stressed that notwithstanding the fact that the surety contract is secondary to the principal
obligation, the surety assumes liability as a regular party to the undertaking.”
Stronghold Insurance Company, Inc. v. Republic-Asahi Glass Corporation, reiterating
the ruling in Garcia v. Court of Appeals, expounds on the nature of the suretys liability:
“The suretys obligation is not an original and direct one for the performance of his own act,
but merely accessory or collateral to the obligation contracted by the principal.
Nevertheless, although the contract of a surety is in essence secondary only to a valid
principal obligation, his liability to the creditor or promisee of the principal is said to be
direct, primary and absolute; in other words, he is directly and equally bound with the
principal.”
Suretyship, in essence, contains two types of relationship the principal relationship
between the obligee and the obligor, and the accessory surety relationship between the
principal and the surety. In this arrangement, the obligee accepts the suretys solidary
undertaking to pay if the obligor does not pay. Such acceptance, however, does not change
in any material way the obligees relationship with the principal obligor. Neither does it make
the surety an active party to the principal obligee-obligor relationship. Thus, the acceptance
does not give the surety the right to intervene in the principal contract. The suretys role
arises only upon the obligors default, at which time, it can be directly held liable by the
obligee for payment as a solidary obligor.
Having acted as a surety, PCIC is duty bound to perform what it has guaranteed on its
surety and performance bonds, all of which are callable on demand, occasioned by its
principals default.
 OLONGAPO CITY vs. SUBIC WATER AND SEWERAGE CO., INC.
G.R. No. 171626, August 6, 2014

PONENTE: Brion, J.:

TOPIC: Solidary Obligation (in solidum, solidaria, joint and several)

FACTS:
Pursuant to PD 198, petitioner Olongapo City passed Resolution No. 161, which
transferred all itsexisting water facilities and assets under the Olongapo City Public Utilities
Department Waterworks Division, to the jurisdiction and ownership of the Olongapo City
Water District (OCWD). PD 198, as amended, allows local water districts (LWDs)which have
acquired an existing water system of a localgovernment unit (LGU) to enter into a contract
to pay the concerned LGU. In lieu of the LGU’s share in the acquired water utility plant, it
shall be paid by the LWD an amount not exceeding three percent (3%) of the LWD’s gross
receipts from water sales in any year. On October 24, 1990, petitioner filed a complaint for
sum of money and damages against OCWD. Among others, petitioner alleged that OCWD
failed to pay its electricity bills to petitioner and remit its payment under the contract to pay,
pursuant to OCWD’s acquisition of petitioner’s water system.

ISSUE:
Whether or not Subic Water which was not a party in the case could still be subjected
to a writ of execution, since it was identified as OCWD’s co-maker and successor-in-interest
in the compromise agreement.

RULING:
As the rule stands, solidary liability is not presumed. This stems from Art. 1207 of the
Civil Code, which provides: “Art. 1207. x x x There is a solidary liability only when the
obligation expressly so states, or when the law orthe nature of the obligation
requiressolidarity.”In Palmares v. Court of Appeals, the Court did not hesitate to rule that
although a party to a promissory note was onlylabeled as a comaker, his liability was that ofa
surety, since the instrument expressly provided for his joint and several liabilitywith the
principal.
In the present case, the joint and several liability of Subic Water and OCWD was
nowhere clear in the agreement. The agreement simply and plainly stated that petitioner
and OCWD were only requestingSubic Water to be a co-maker, in view of its assumption of
OCWD’s water operations. No evidence was presented to show that such request was ever
approved by Subic Water’s board of directors. Under these circumstances, petitioner cannot
proceed after Subic Water for OCWD’s unpaid obligations. The law explicitly states that
solidary liability is not presumed and must be expressly provided for. Not being a surety,
Subic Water is not an insurer of OCWD’s obligations under the compromise agreement. At
best, Subic Water was merely a guarantor against whom petitioner can claim, provided it
was first shown that: a) petitioner had already proceeded after the properties of OCWD, the
principal debtor; b) and despite this, the obligation under the compromise agreement,
remains to be not fully satisfied.61 But as will be discussed next, Subic Water could not also
be recognized as a guarantor of OCWD’s obligations.
 ESTANISLAO and AFRICA SINAMBAN vs. CHINA BANKING CORPORATION
G.R. No. 193890, March 11, 2015

PONENTE: Reyes, J.
TOPIC: Solidary Obligation (in solidum, solidaria, joint and several)

FACTS:
On February 19, 1990, the spouses Danilo and Magdalena Manalastas (spouses
Manalastas) executed a Real Estate Mortgage (REM)4 in favor of respondent China Banking
Corporation (Chinabank) over two real estate properties covered by Transfer Certificate of
Title Nos. 173532-R and 173533-R, Registry of Deeds of Pampanga, to secure a loan from
Chinabank of ₱700,000.00 intended as working capital in their rice milling business. During
the next few years, they executed several amendments to the mortgage contract
progressively increasing their credit line secured by the aforesaid mortgage. Thus, from
₱700,000.00 in 1990, their loan limit was increased to ₱1,140,000.00 on October 31, 1990,
then to ₱1,300,000.00 on March 4, 1991, and then to2,450,000.00 on March 23, 1994.5 The
spouses Manalastas executed several promissory notes (PNs) in favor of Chinabank. In two
of the PNs, petitioners Estanislao and Africa Sinamban (spouses Sinamban) signed as co-
makers.
On November 18, 1998, Chinabank filed a Complaint6 for sum of money against the
spouses Manalastas and the spouses Sinamban. The complaint alleged that they reneged on
their loan obligations under the PNs which the spouses Manalastas executed in favor of
Chinabank on different dates. All of the three promissory notes carried an acceleration
clause stating that if the borrowers failed to pay any stipulated interest, installment or loan
amortization as they accrued, the notes shall, at the option of Chinabank and without need
of notice, immediately become due and demandable. A penalty clause also provides that an
additional amount shall be paid equivalent to 1/10 of 1% per day of the total amount due from
date of default until fully paid, and the further sum of 10% of the total amount due, inclusive
of interests, charges and penalties, as and for attorney’s fees and costs.

ISSUE:
Whether or not the lower court erred when it reconsidered and set aside its previous
order dated 22 October 1999 relieving defendants-appellants Sps. Sinamban from any
liability arising from the decision dated 30 July 1999.

RULING:
Pursuant to Article 1216 of the Civil Code, as well as Paragraph 5 of the PNs, Chinabank opted
to proceed against the co-debtors simultaneously, as implied in its May 18, 1998 statement
of account when it applied the entire amount of its auction bid to the aggregate amount of
the loan obligations.
Article 1216 of the Civil Code provides that "[t]he creditor may proceed against any
one of the solidary debtors or some or all of them simultaneously. The demand made
against one of them shall not be an obstacle to those which may subsequently be directed
against the others, so long as the debt has not been fully collected." Article 125242 of the
Civil Code does not apply, as urged by the petitioners, because in the said article the
situation contemplated is that of a debtor with several debts due, whereas the reverse is
true, with each solidary debt imputable to several debtors.
The Court finds this factual conclusion of the CA not supported by any evidence or
any previous arrangement.1âwphi1 To the contrary, as clearly shown in its Statement of
Account dated May 18, 1998, Chinabank opted to apply the entire auction proceeds to the
aggregate amount of the three PNs due, ₱5,401,975.00 (before attorney’s fees and auction
expenses). Had it chosen to enforce the debts as ruled by the CA, the Statement of Account
would have shown that the loan due on PN No. OACL 634-95 which is ₱4,691,486.25, should
have been deducted first from the net auction proceeds of ₱4,183,744.63, arriving at a
deficiency of ₱507,741.62on PN No. OACL 634-95 alone; thereby, leaving no remainder of the
proceeds available to partially settle the other two PNs. As it appears, the auction proceeds
are not even sufficient to cover just PN No. OACL 634-95 alone.
But as the Court has noted, by deducting the auction proceeds from the aggregate
amount of the three loans due, Chinabank in effect opted to apply the entire proceeds of
the auction simultaneously to all the three loans. This implies that each PN will assume a pro
rata portion of the resulting deficiency on the total indebtedness as bears upon each PN’s
outstanding balance. Contrary to the spouses Sinamban’s insistence, none of the three PNs
is more onerous than the others to justify applying the proceeds according to Article 1254 of
the Civil Code, in relation to Articles 1252 and 1253.44 Since each loan, represented by each
PN, was obtained under a single credit line extended by Chinabank for the working capital
requirements of the spouses Manalastas’ rice milling business, which credit line was secured
also by a single REM over their properties, then each PN is simultaneously covered by the
same mortgage security, the foreclosure of which will also benefit them proportionately. No
PN enjoys any priority or preference in payment over the others, with the only difference
being that the spouses Sinamban are solidarily liable for the deficiency on two of them.
 NATIVIDAD P. NAZARENO, MAXIMINO P. NAZARENO, JR. vs. COURT OF APPEALS, ESTATE
OF MAXIMINO A. NAZARENO, SR., ROMEO P. NAZARENO and ELIZA NAZARENO
G.R. No. 138842. October 18, 2000

PONENTE: Mendoza, J.
TOPIC: Indivisible Obligation

FACTS:
Maximino Nazareno, Sr. and Aurea Poblete were husband and wife. Aurea died on
April 15, 1970, while Maximino, Sr. died on December 18, 1980. They had five children,
namely, Natividad, Romeo, Jose, Pacifico, and Maximino, Jr. Natividad and Maximino, Jr. are
the petitioners in this case, while the estate of Maximino, Sr., Romeo, and his wife Eliza
Nazareno are the respondents. During their marriage, Maximino Nazareno, Sr. and Aurea
Poblete acquired properties in Quezon City and in the Province of Cavite. It is the ownership
of some of these properties that is in question in this case.
It appears that after the death of Maximino, Sr., Romeo filed an intestate case.
Romeo was appointed administrator of his father’s estate. In the course of the intestate
proceedings, Romeo discovered that his parents had executed several deeds of sale
conveying a number of real properties in favor of his sister, Natividad. One of the deeds
involved six lots in Quezon City which were allegedly sold by Maximino, Sr., with the consent
of Aurea, to Natividad on January 29, 1970 for the total amount of P47,800.00. When Romeo
found out about the sale to Maximino, Jr., he and his wife Eliza locked Maximino, Jr. out of
the house. On August 4, 1983, Maximino, Jr. brought an action for recoveryof possession
and damages with prayer for writs of preliminary injunction and mandatory injunction.

ISSUE:
Whether or not the sale of lot 3 under the deed of absolute sale dated January 29, 1970
in favor of petitioner Natividad p. Nazareno, is valid considering that as per the order of the
lower court dated November 21, 1990. Romeo Nazareno admitted that he did not pay the
consideration stated in the deed of absolute sale dated July 4, 1969 executed by the
deceased spouses in his favor.

RULING:
The Deed of Absolute Sale dated January 29, 1970 is an indivisible contract founded
on an indivisible obligation. As such, it being indivisible, it can not be annulled by only one of
them. And since this suit was filed only by the estate of Maximino A. Nazareno, Sr. without
including the estate of Aurea Poblete, the present suit must fail. The estate of Maximino A.
Nazareno, Sr. cannot cause its annulment while its validity is sustained by the estate of
Aurea Poblete.
An obligation is indivisible when it cannot be validly performed in parts, whatever
may be the nature of the thing which is the object thereof. The indivisibility refers to the
prestation and not to the object thereof. In the present case, the Deed of Sale of January 29,
1970 supposedly conveyed the six lots to Natividad. The obligation is clearly indivisible
because the performance of the contract cannot be done in parts, otherwise the value of
what is transferred is diminished. Petitioners are therefore mistaken in basing the
indivisibility of a contract on the number of obligors.
In any case, if petitioners only point is that the estate of Maximino, Sr. alone cannot
contest the validity of the Deed of Sale because the estate of Aurea has not yet been
settled, the argument would nonetheless be without merit. The validity of the contract can
be questioned by anyone affected by it. A void contract is inexistent from the beginning.
Hence, even if the estate of Maximino, Sr. alone contests the validity of the sale, the
outcome of the suit will bind the estate of Aurea as if no sale took place at all.
 SOCIAL SECURITY SYSTEM vs. MOONWALK DEVELOPMENT & HOUSING CORPORATION,
ROSITA U. ALBERTO, ROSITA U. ALBERTO, JMA HOUSE, INC., MILAGROS SANCHEZ
SANTIAGO, ARTURO SOLITO
G.R. No. 73345. April 7, 1993.

PONENTE: Campos, Jr., J P

TOPIC: Obligation with penal clause

FACTS:
On February 20, 1980, the SSS filed a complaint against Moonwalk alleging that the
former had committed an error in failing to compute the 12% interest due on delayed
payments on the loan of Moonwalk resulting in a chain of errors in the application of
payments made by Moonwalk and, in an unpaid balance on the principal loan agreement in
the amount of P7,053.77 and, also in not reflecting in its statement or account an unpaid
balance on the said penalties for delayed payments in the amount of P7,517,178.21 as of
October 10, 1979. The trial court issued an order dismissing the complaint on the ground that
the obligation was already extinguished by the payment by Moonwalk of its indebtedness to
SSS and by the latter's act of cancelling the real estate mortgages executed in its favor by
defendant Moonwalk. The Motion for Reconsideration filed by SSS with the trial court was
likewise dismissed by the latter.

ISSUE:
Whether or not Moonwalk was in default in the performance of its obligation with
Social Security System.

RULING:
There are only three instances when demand is not necessary to render the obligor in
default. These are the following: (1) When the obligation or the law expressly so declares; (2)
When from the nature and the circumstances of the obligation it appears that the
designation of the time when the thing is to be delivered or the service is to be rendered
was a controlling motive for the establishment of the contract; or (3) When the demand
would be useless, as when the obligor has rendered it beyond his power to perform. This
case does not fall within any of the established exceptions.
Hence, despite the provision in the promissory note that all amortization payments
shall be made every first 5 days of the calendar month until the principal and interest on the
loan or any portion thereof actually released has been fully paid, petitioner is not excused
from making a demand. But mere delinquency in payment does not necessarily mean delay
in the legal concept. To be in default ". . . is different from mere delay in the grammatical
sense, because it involves the beginning of a special condition or status which has its own
peculiar effects or results."
In order that the debtor may be in default it is necessary that the following requisites
be present: (1) that the obligation be demandable and already liquidated; (2) that the debtor
delays performance; and (3) that the creditor requires the performance judicially and
extrajudicially. Default generally begins from the moment the creditor demands the
performance of the obligation.
 ANTONIA A. CABARROGUIS and MAMERTO CABARROGUIS vs. TELESFORO B. VICENTE
G.R. No. L-14304, March 23, 1960

PONENTE: Gutierrez David, J.

TOPIC: Obligation with penal clause

FACTS:
Plaintiff Cabarroguis, a registered nurse and midwife, sustained physical injuries as a
result of an accident when the AC jeepney of which she was a passenger hit another vehicle
at a street corner. To avoid court litigation, defendant Vicente, owner and operator of the
jeepney entered a compromise agreement with the plaintiff, obligating himself to pay 2,500
as actual and compensatory, exemplary and moral damages suffered by plaintiff. Defendant
has paid a total amount of 1,500 leaving a balance of 1,000. It was stipulated in the
agreement that should defendant fail to complete payment within 60 days, he would pay an
additional amount of 200.00 as liquidated damages
As defendant failed to pay, notwithstanding repeated demands, plaintiff brought a
suit in the Municipal Court of Davao and rendered judgment in favor of plaintiff. Defendant
appealed to the Court of First Instance which ordered the defendant to pay the plaintiff the
amount of 1,200 with interest at legal rate from the date of the filing of the complaint until
full payment.

ISSUE:
Whether or not the court err in sentencing the defendant to pay interest from the date
of the filing of the complaint until full payment.

RULING:
As a rule, if the obligation consists in a sum of money, the only damage a creditor may
recover, if the debtor incurs in delay, is the payment of the interest agreed upon or the legal
interest, unless contrary is stipulated (Article 2209). However, the creditor may also claim
other damages. Such as moral or exemplary damages, in addition to interest, the award of
which is left to the discretion of the court.
In obligations with a penal clause, as provided in Article 1226 of the Civil Code, the
penalty shall substitute the indemnity for damages and the payment of interests. The
exceptions to this rule, according to the same article, are: (1) when the contrary is stipulated;
(2) when the debtor refuses to pay the penalty imposed in the obligation, in which case the
creditor is entitled to interest on the amount of the penalty, in accordance with article 2209;
and (3) when the obligor is guilty of fraud in the fulfillment of the obligation.
Applying the law, it is evident that no interest can be awarded on the principal
obligation of defendant, the penalty of 200.00 agreed upon having taken the place of the
payment of such interest and the indemnity for damages. No stipulation to the contrary was
made and while defendant was sued for breach of the compromise agreement, the breach
was not occasioned by fraud.
This case, however, takes a different aspect with respect to the penalty attached to
the principal obligation. It has been held that in obligations for the payment of a sum of
money when a penalty is stipulated for default, both the principal obligation and the penalty
can be demanded by the creditor. Defendant having refused to pay when demand was made
by plaintiff, the latter clearly is entitled to interest on the amount of the penalty. It is well
observe that Article 2210 of the Civil Code provides that in the discretion of the court,
interest may be alleged upon damages awarded for breach of contract. This interest is
recoverable from the time of delay that is to say, from the date of demand, either judicial or
extrajudicial. And if there is no showing as to when demand for payment was made, plaintiff
must be considered to have made such demand only from the filing of the complaint.
 ERMINDA F. FLORENTINO vs. SUPERVALUE, INC.
G.R. No. 172384, September 12, 2007

PONENTE: Chico-Nazario, J.
TOPIC: Obligation with penal clause

FACTS:
Florentino is a lessee of Supervalue which is a set of stores operating in the country.
Florentino is the owner of Empanada royale a food cart business entered into a contract of
lease with Supervalue. The contract was good for 4 months and after the end of the
contract both the lessee and the lessor have the option to either renew or
terminate the contract. Florentino and Supervalue was able to renew the contract
several times that it even lasted for a year. However, Supervalue terminated the
contract with Florentino for the following violations: failure to open on two separate
occassions; closing earlier time; introducing a new variety of empanada without the
approval of Supervalue. The store management then ordered the foreclosure of the
space and along with it were the personal belongings of the petitioner.
Florentino demanded for the return of her personal belongings and of the
security bond that she have given Supervalue. the RTC rendered a Judgment22 in
favor of the petitioner. The Court of Appeals modified the RTC Judgment and found that
the respondent was justified in forfeiting the security deposits and was not liable to
reimburse the petitioner for the value of the improvements introduced in the leased
premises and to pay for attorney’s fees.

ISSUES:
Whether or not Forentino can claim for reimbursement on the improvements
that she have made.
Whether or not Florentino is entitled to claim for the security bond that she have
posted.

RULING:
Florentino is no longer entitled for reimbursement on the improvements that she
have done on her stall: Article1678: If the lessee makes in good faith, useful
improvements which are suitable to the use for which the lease is intended, without altering
the form or substance of the property leased, the lessor upon the termination of the lease
shall pay the lessee one-half of the of the improvements at that time. Should the
lessor refused to reimburse said amount the lessee may remove the improvements, even
though the principal thing may suffer damages thereby. He shall not, however, cause
any more impairment upon the property leased than is necessary." As stated in
Geminiano vs CA: "Being mere lessees, the private respondents knew that their
occupation of thepremises would continue only for the life of the lease. Plainly, they
cannot be considered as possessors nor builders in good faith"
 On the second issue, Florentino is entitled to half of the security deposits
made with Supervalue because it would unconscionable for Florentino to be imposed
such penalty. Obligations with Penal clause: Article 1226: In obligations with penal
clause, the penalty shall substitute the indemnity for damages and the payment of interests
in case of noncompliance, if there is no stipulation to the contrary. Nevertheless, damages
shall be paid if the obligor refuses to pay the penalty or is guilty of fraud in the fulfillment
of the obligation. The penalty may be enforced only when it is demandable in
accordance with the provisions of this code. As a rule the courts are not in the
liberty to ignore the freedoms of the parties to agree on such terms and
conditions. The courts may equitably reduce as stipulated penalty in the contracts in two
instances: 1. If the principal obligation has been partly or irregularly complied with; 2.
If there has been no compliance if the penalty is iniquitous or unconscionable in
accordance with Article 1229: Article 1229: The judge shall equitably reduce the penalty
when the principal obligation has been partly or irregularly complied with by the
debtor. Even if there has been no performance, the penalty may also be reduced by the
courts if it is iniquitous o run conscionable. In the instant case, the forfeiture of the
entire amount of the security deposits in the sum of P192,000.00 was excessive
and unconscionable considering that the gravity of the breaches committed by the
petitioner is not of such degree that the respondent was unduly prejudiced thereby.
It is but equitable therefore to reduce the penalty of the petitioner to 50% of the total
amount of security deposits.
PRISMA CONSTRUCTION & DEVELOPMENT CORPORATION and ROGELIO S. PANTALEON vs.
ARTHUR F. MENCHAVEZ
G.R. No. 160545, March 9, 2010

PONENTE: Brion, J.
TOPIC: Obligation with penal clause

FACTS:
On December 8, 1993, Pantaleon, the President and Chairman of the Board of
PRISMA, obtained a P1,000,000.00 loan from the respondent, with a monthly interest of
P40,000.00 payable for six months, or a total obligation of P1,240,000.00 to be paid within
six (6) months. To secure the payment of the loan, Pantaleon issued a promissory note. As
of January 4, 1997, the petitioners had already paid a total of P1,108,772.00. However, the
respondent found that the petitioners still had an outstanding balance of P1,364,151.00 as of
January 4, 1997, to which it applied a 4% monthly interest. Thus, on August 28, 1997, the
respondent filed a complaint for sum of money with the RTC to enforce the unpaid balance,
plus 4% monthly interest, P30,000.00 in attorney’s fees, P1,000.00 per court appearance and
costs of suit.

ISSUE:
What is the proper interest rate to be awarded?

RULING:
In the present case, the respondent issued a check for P1,000,000.00. In turn,
Pantaleon, in his personal capacity and as authorized by the Board, executed the promissory
note quoted above. Thus, the P1,000,000.00 loan shall be payable within six (6) months, or
from January 8, 1994 up to June 8, 1994. During this period, the loan shall earn an interest of
P40,000.00 per month, for a total obligation of P1,240,000.00 for the six-month period. We
note that this agreed sum can be computed at 4% interest per month, but no such rate of
interest was stipulated in the promissory note; rather a fixed sum equivalent to this rate was
agreed upon.
Article 1956 of the Civil Code specifically mandates that "no interest shall be due
unless it has been expressly stipulated in writing." Under this provision, the payment of
interest in loans or forbearance of money is allowed only if: (1) there was an express
stipulation for the payment of interest; and (2) the agreement for the payment of interest
was reduced in writing. The concurrence of the two conditions is required for the payment
of interest at a stipulated rate. Thus, we held in Tan v. Valdehueza and Ching v. Nicdao that
collection of interest without any stipulation in writing is prohibited by law.
Applying this provision, we find that the interest of P40,000.00 per month
corresponds only to the six (6)-month period of the loan, or from January 8, 1994 to June 8,
1994, as agreed upon by the parties in the promissory note. Thereafter, the interest on the
loan should be at the legal interest rate of 12% per annum, consistent with our ruling in
Eastern Shipping Lines, Inc. v. Court of Appeals:
 When the obligation is breached, and it consists in the payment of a sum of money,
i.e., a loan or forbearance of money, the interest due should be that which may have been
stipulated in writing. Furthermore, the interest due shall itself earn legal interest from the
time it is judicially demanded. In the absence of stipulation, the rate of interest shall be 12%
per annum to be computed from default, i.e., from judicial or extrajudicial demand under
and subject to the provisions of Article 1169 of the Civil Code."
 JOSE MARQUES and MAXILITE TECHNOLOGIES, INC. vs. FAR EAST BANK AND TRUST
COMPANY
G.R. No. 171379, January 10, 2011

PONENTE: Carpio, J.
TOPIC: Obligation with penal clause

FACTS:
Maxilite Technologies, Inc. (Maxilite) is a domestic corporation engaged in the
importation and trading of equipment for energy-efficiency systems. Jose N. Marques
(Marques) is the President and controlling stockholder of Maxilite. Far East Bank and Trust
Co. (FEBTC) is a local bank which handled the financing and related requirements of
Marques and Maxilite. Marques and Maxilite maintained accounts with FEBTC. Accordingly,
FEBTC financed Maxilite’s capital and operational requirements through loans secured with
properties of Marques under the latter’s name.
Far East Bank Insurance Brokers, Inc. (FEBIBI) is a local insurance brokerage
corporation while Makati Insurance Company is a local insurance company. Both companies
are subsidiaries of FEBTC. On 17 June 1993, Maxilite and Marques entered into a trust receipt
transaction with FEBTC, in the sum of US$80,765.00, for the shipment of various high-
technology equipment from the United States, with the merchandise serving as collateral.
The foregoing importation was covered by a trust receipt document signed by Marques on
behalf of Maxilite. Sometime in August 1993, FEBIBI, upon the advice of FEBTC, facilitated
the procurement and processing from Makati Insurance Company of four separate and
independent fire insurance policies over the trust receipted merchandise.
Finding that Maxilite failed to pay the insurance premium in the sum of P8,265.60 for
Insurance Policy No. 1024439 covering the period 24 June 1994 to 24 June 1995, FEBIBI sent
written reminders to FEBTC, dated 19 October 1994, 24 January 1995, and 6 March 1995, to
debit Maxilite’s account. On 24 and 26 October 1994, Maxilite fully settled its trust receipt
account. On 9 March 1995, a fire gutted the Aboitiz Sea Transport Building along M.J.
Cuenco Avenue, Cebu City, where Maxilite’s office and warehouse were located. As a result,
Maxilite suffered losses amounting to at least P2.1 million, which Maxilite claimed against
the fire insurance policy with Makati Insurance Company. Makati Insurance Company denied
the fire loss claim on the ground of non-payment of premium. FEBTC and FEBIBI disclaimed
any responsibility for the denial of the claim.

ISSUE:
Whether or not FEBTC, FEBIBI and Makati Insurance Company are jointly and severally
liable to pay respondents the full coverage of the subject insurance policy?

RULING:
Contrary to Maxilite’s and Marques’ view, FEBTC is solely liable for the payment of the
face value of the insurance policy and the monetary awards stated in the Court of Appeals’
decision. Suffice it to state that FEBTC, FEBIBI, and Makati Insurance Company are
independent and separate juridical entities, even if FEBIBI and Makati Insurance Company
are subsidiaries of FEBTC. Absent any showing of its illegitimate or illegal functions, a
subsidiary’s separate existence shall be respected, and the liability of the parent corporation
as well as the subsidiary shall be confined to those arising in their respective business.
Besides, the records are bereft of any evidence warranting the piercing of corporate veil in
order to treat FEBTC, FEBIBI, and Makati Insurance Company as a single entity. Likewise,
there is no evidence showing FEBIBI’s and Makati Insurance Company’s negligence as
regards the non-payment of the insurance premium.
 PHILIPPINE NATIONAL BANK vs. SPOUSES AGUSTIN and PILAR ROCAMORA,
G.R. No. 164549September 18, 2009

PONENTE: Brion, J.
TOPIC: Obligation with penal clause

FACTS:
Respondent Spouses Rocamora obtained a loan from PhilippineNational Bank (PNB)
secured by deeds of real estate mortgageand of chattel mortgage. Escalation clauses were
indicated inboth promissory note and real estate mortgage deed in case of nonpayment or
nonrenewal on due date. When respondentsdefaulted in their payment, foreclosure
proceedings followed.However, the recovered proceeds were insufficient to cover theentire
loan obligations of respondents, hence a complaint fordeficiency judgment was initiated by
PNB. Spouses Rocamoraclaimed that they were not liable for the deficiency because of
theinvalidity of the escalation clauses and the unreasonable delay of PNB in initiating the
foreclosure proceedings. The Court of Appeals affirmed the trial court’s decision finding
merit inrespondents’ arguments and dismissing PNB’s complaint.

ISSUE:
Whether or not the ballooning of the spouses Rocamoras loan obligation was the
PNBs own doing when it increased the interest rates and failed to immediately foreclose the
mortgage

RULING:
Escalation clauses are valid and do not contravene public policy. These clauses are
common in credit agreements as means of maintaining fiscal stability and retaining the value
of money on long-term contracts. To avoid any resulting one-sided situation that escalation
clauses may bring, we required in Banco Filipino the inclusion in the parties agreement of a
de-escalation clause that would authorize a reduction in the interest rates corresponding to
downward changes made by law or by the Monetary Board.
The validity of escalation clauses notwithstanding, we cautioned that these clauses
do not give creditors the unbridled right to adjust interest rates unilaterally. As we said in
the same Banco Filipino case, any increase in the rate of interest made pursuant to an
escalation clause must be the result of an agreement between the parties. The minds of all
the parties must meet on the proposed modification as this modification affects an
important aspect of the agreement. There can be no contract in the true sense in the
absence of the element of an agreement, i.e., the parties mutual consent. Thus, any change
must be mutually agreed upon, otherwise, the change carries no binding effect. A
stipulation on the validity or compliance with the contract that is left solely to the will of one
of the parties is void; the stipulation goes against the principle of mutuality of contract
under Article 1308 of the Civil Code.As correctly found by the appellate court, even with a de-
escalation clause, no matter how elaborately worded, an unconsented increase in interest
rates is ineffective if it transgresses the principle of mutuality of contracts.
 On the strength of this ruling, PNBs argument that the spouses Rocamoras failure to
contest the increased interest rates that were purportedly reflected in the statements of
account and the demand letters sent by the bank amounted to their implied acceptance of
the increase should likewise fail.
Evidently, PNBs failure to secure the spouses Rocamoras consent to the increased
interest rates prompted the lower courts to declare excessive and illegal the interest rates
imposed. To go around this lower court finding, PNB alleges that the P206,297.47 deficiency
claim was computed using only the original 12% per annum interest rate. We find this
unlikely. Our examination of PNBs own ledgers, included in the records of the case, clearly
indicates that PNB imposed interest rates higher than the agreed 12% per annum rate.[28]
This confirmatory finding, albeit based solely on ledgers found in the records, reinforces the
application in this case of the rule that findings of the RTC, when affirmed by the CA, are
binding upon this Court.

J PLUS ASIA DEVELOPMENT CORPORATION vs. UTILITY ASSURANCE CORPORATION

G.R. No. 199650, June 26, 2013

PONENTE: Villarama, Jr., J.

TOPIC: Obligation with penal clause

FACTS:
 On December 24, 2007, petitioner J Plus Asia Development Corporation represented
by its Chairman, Joo Han Lee, and Martin E. Mabunay, doing business under the name and
style of Seven Shades of Blue Trading and Services, entered into a Construction Agreement3
whereby the latter undertook to build the former's 72-room condominium/hotel (Condotel
Building 25) located at the Fairways & Bluewaters Golf & Resort in Boracay Island, Malay,
Aklan. The project, costing ₱42,000,000.00, was to be completed within one year or 365
days reckoned from the first calendar day after signing of the Notice of Award and Notice to
Proceed and receipt of down payment (20% of contract price). The ₱8,400,000.00 down
payment was fully paid on January 14, 2008.4 Payment of the balance of the contract price
will be based on actual work finished within 15 days from receipt of the monthly progress
billings. Per the agreed work schedule, the completion date of the project was December
2008.5 Mabuhay also submitted the required Performance Bond6 issued by respondent
Utility Assurance Corporation (UTASSCO) in the amount equivalent to 20% down payment or
₱8.4 million.
Mabunay commenced work at the project site on January 7, 2008. Petitioner paid up
to the 7th monthly progress billing sent by Mabunay. As of September 16, 2008, petitioner
had paid the total amount of ₱15,979,472.03 inclusive of the 20% down payment. However,
as of said date, Mabunay had accomplished only 27.5% of the project. On November 19, 2008,
petitioner terminated the contract and sent demand letters to Mabunay and respondent
surety. As its demands went unheeded, petitioner filed a Request for Arbitration10 before
the Construction Industry Arbitration Commission (CIAC). Petitioner prayed that Mabunay
and respondent be ordered to pay the sums of ₱8,980,575.89 as liquidated damages and
₱2,379,441.53 corresponding to the unrecouped down payment or overpayment petitioner
made to Mabunay

ISSUE:
Whether or not the petitioner should not be made to pay interest because its issuance
of the surety bonds was made on the condition that its liability shall in no case exceed the
amount of the said bonds.

RULING:
We are not persuaded. Petitioner’s argument is misplaced. Jurisprudence is clear on
this matter. As early as Tagawa vs. Aldanese and Union Gurantee Co. and reiterated in
Plaridel Surety & Insurance Co., Inc. vs. P.L. Galang Machinery Co., Inc., and more recently, in
Republic vs. Court of Appeals and R & B Surety and Insurance Company, Inc., we have
sustained the principle that if a surety upon demand fails to pay, he can be held liable for
interest, even if in thus paying, its liability becomes more than the principal obligation. The
increased liability is not because of the contract but because of the default and the necessity
of judicial collection.
Petitioner’s liability under the suretyship contract is different from its liability under
the law. There is no question that as a surety, petitioner should not be made to pay more
than its assumed obligation under the surety bonds. However, it is clear from the above-
cited jurisprudence that petitioner’s liability for the payment of interest is not by reason of
the suretyship agreement itself but because of the delay in the payment of its obligation
under the said agreement.
 DARIO NACAR vs. GALLERY FRAMES AND/OR FELIPE BORDEY, JR.
G.R. No. 189871, August 13, 2013

PONENTE: Peralta, J.
TOPIC: Obligation with penal clause

FACTS:
On October 15, 1998, the Labor Arbiter rendered a Decision3 in favor of petitioner
and found that he was dismissed from employment without a valid or just cause. Thus,
petitioner was awarded backwages and separation pay in lieu of reinstatement in the
amount of ₱158,919.92. The dispositive portion of the decision, reads:
With the foregoing, we find and so rule that respondents failed to discharge the
burden of showing that complainant was dismissed from employment for a just or valid
cause. All the more, it is clear from the records that complainant was never afforded due
process before he was terminated. As such, we are perforce constrained to grant
complainant’s prayer for the payments of separation pay in lieu of reinstatement to his
former position, considering the strained relationship between the parties, and his apparent
reluctance to be reinstated.

ISSUE:
Whether or not the recomputation of the backwages to be awarded to petitioner at
this point of the proceedings would substantially vary the decision of the Labor Arbiter as it
violates the rule on immutability of judgments.

RULING:
The Monetary Board, in its Resolution No. 796 dated 16 May 2013, approved the
following revisions governing the rate of interest in the absence of stipulation in loan
contracts, thereby amending Section 2 of Circular No. 905, Series of 1982. Thus, from the
foregoing, in the absence of an express stipulation as to the rate of interest that would
govern the parties, the rate of legal interest for loans or forbearance of any money, goods or
credits and the rate allowed in judgments shall no longer be twelve percent (12%) per annum
- as reflected in the case of Eastern Shipping Lines40 and Subsection X305.1 of the Manual of
Regulations for Banks and Sections 4305Q.1, 4305S.3 and 4303P.1 of the Manual of
Regulations for Non-Bank Financial Institutions, before its amendment by BSP-MB Circular
No. 799 - but will now be six percent (6%) per annum effective July 1, 2013. It should be
noted, nonetheless, that the new rate could only be applied prospectively and not
retroactively. Consequently, the twelve percent (12%) per annum legal interest shall apply
only until June 30, 2013. Come July 1, 2013 the new rate of six percent (6%) per annum shall
be the prevailing rate of interest when applicable.
To recapitulate and for future guidance, the guidelines laid down in the case of
Eastern Shipping Lines42 are accordingly modified to embody BSP-MB Circular No. 799, as
follows:
I. When an obligation, regardless of its source, i.e., law, contracts, quasi-contracts, delicts or
quasi-delicts is breached, the contravenor can be held liable for damages. The provisions
under Title XVIII on "Damages" of the Civil Code govern in determining the measure of
recoverable damages.1âwphi1
II. With regard particularly to an award of interest in the concept of actual and
compensatory damages, the rate of interest, as well as the accrual thereof, is imposed, as
follows:
When the obligation is breached, and it consists in the payment of a sum of money, i.e., a
loan or forbearance of money, the interest due should be that which may have been
stipulated in writing. Furthermore, the interest due shall itself earn legal interest from the
time it is judicially demanded. In the absence of stipulation, the rate of interest shall be 6%
per annum to be computed from default, i.e., from judicial or extrajudicial demand under
and subject to the provisions of Article 1169 of the Civil Code.
When an obligation, not constituting a loan or forbearance of money, is breached, an
interest on the amount of damages awarded may be imposed at the discretion of the court
at the rate of 6% per annum. No interest, however, shall be adjudged on unliquidated claims
or damages, except when or until the demand can be established with reasonable certainty.
Accordingly, where the demand is established with reasonable certainty, the interest shall
begin to run from the time the claim is made judicially or extrajudicially (Art. 1169, Civil
Code), but when such certainty cannot be so reasonably established at the time the demand
is made, the interest shall begin to run only from the date the judgment of the court is made
(at which time the quantification of damages may be deemed to have been reasonably
ascertained). The actual base for the computation of legal interest shall, in any case, be on
the amount finally adjudged.
When the judgment of the court awarding a sum of money becomes final and
executory, the rate of legal interest, whether the case falls under paragraph 1 or paragraph
2, above, shall be 6% per annum from such finality until its satisfaction, this interim period
being deemed to be by then an equivalent to a forbearance of credit.
And, in addition to the above, judgments that have become final and executory prior
to July 1, 2013, shall not be disturbed and shall continue to be implemented applying the rate
of interest fixed therein.
 VIRGINIA VENZON V. RURAL BANK OF BUENAVISTA
GR No. 178031, August 28, 2013

PONENTE: Del Castillo, J.

TOPIC: Obligation with penal clause

FACTS:
This is a Petition for Review on Certiorari questioning the decision resolution of the
Court of Appeals which dismissed the Petition in said case and denying reconsideration
thereof. Virginia Venzon (Venzon) and his spouse obtained a Php 5,000.00 loan from Rural
Bank of Buenavista (Bank) against a mortgage on their house and lot. Not able to settle her
account, the Bank foreclosed the property and sold at auction to the Bank for Php 6,472.76.
Venzon then filed a Petition with the Regional Trial Court of Butuan City to annul the
foreclosure proceedings and the tax declarations issued in the name of the Bank.
The trial court dismissed the case in favor of the Bank. It held that Venzon
erroneously relied on the mandatory requirement on publication that under the Rural Bank
Act, the foreclosure of mortgages covering loans granted by rural banks xxx involving real
properties levied upon by a sheriff shall be exempt from publication where the total amount
of the loan, including interests due and unpaid, does not exceed Php 10,000. Since Venzon’s
outstanding obligation amounted to just over Php 6,000.00 publication was not necessary.
The Court of Appeals also dismissed her petition, this time because her remedy should have
been an appeal under Rule 41 and not under Rule 65 of the Rules of Court since the
resolution of trial court is a FINAL ORDER of DISMISSAL. She moved for reconsideration but
was also denied. Hence this petition.

ISSUE:
Whether or not foreclosure proceedings was legal foreclosure proceedings was legal.

RULING:
The Court finds no error in the CA’s treatment of the Petition for Certiorari. It was
indeed to be treated as a final order. And since Venzon’s outstanding obligation did not
exceed Php 10,000.00 and thus constitutes a dismissal with the character of finality. Hence,
she should have availed of the remedy under Rule 41 and not Rule 65. However, Petitioner is
entitled to a return of Php 6,00.00 she paid to the Bank in 1995. The Bank has no right to
receive the amount. In its Answer with Counterclaims, it is interesting that the Bank did not
deny being the issuer of Official Receipt No. 410848, which amount under the circumstances
it had no right to receive. Here, the Bank failed to refute Venzon’s claim of having paid the
amount of Php 6,000. By making such an ambiguous allegations in its Answer with
Counterclaims, the Bank is deemed to have admitted receiving the amount of Php 6,000.00
from Venzon as evidenced by Official Receipt No. 410848, which amount under the
circumstances it had no right to receive.
 S.C. MEGAWORLD CONSTRUCTION and DEVELOPMENT CORPORATION vs. ENGR. LUIS U.
PARADA
G.R. No. 183804, September 11, 2013

PONENTE: Reyes, J.
TOPIC: Obligation with penal clause

FACTS:
S.C. Megaworld Construction and Development Corporation (Megaworld) bought
electrical lighting materials from Gentile Industries, a sole proprietorship owned by Engineer
Luis U. Parada. Megaworld was unable to pay for the above purchase on due date, but
blamed it on its failure to collect under its sub-contract with the Enviro KleenTechnologies,
Inc. (Enviro Kleen). It was however able to persuade Enviro Kleen to agree to settle its above
purchase, but after paying the respondent P250,000.00 once, Enviro Kleen stopped making
further payments, leaving an outstanding balance of P816,627.00. It also ignored the various
demands of the Parada, who then filed a suit in the RTC, to collect from the petitioner the
said balance, plus damages, costs and expenses. Megaworld denied liability by saying that it
was released from its indebtedness to the Parada due to the novation of their contract,
which. There was allegedly novation when the Parada accepted the partial payment of
Enviro Kleen in its behalf, and thereby acquiesced to the substitution of Enviro Kleen as the
new debtor in Megaworld’s place.

ISSUES:
Whether or not Genlite Industries should have been impleaded as a party-plaintiff.
Whether or not there is novation of the contract.

RULING:
Only natural or juridical persons or entities authorized by law may be parties in a civil
case. A sole proprietorship has no juridical personality separate and distinct from that of its
owner, and need not be impleaded as a party-plaintiff in a civil case. Genlite Industries is
merely the DTI-registered trade name or style of Parada by which he conducted his business.
As such, it does not exist as a separate entity apart from its owner, and therefore it has no
separate juridical personality to sue or be sued. As the sole proprietor of Genlite Industries,
there is no question that the Parada is the real party in interest who stood to be directly
benefited or injured by the judgment in the complaint below. There is then no necessity for
Genlite Industries to be impleaded as a party-plaintiff, since the complaint was already filed
in the name of its proprietor, Engr. Luis U. Parada. To heed the Megaworld’s sophistic
reasoning is to permit a dubious technicality to frustrate the ends of substantial justice.

Novation is a mode of extinguishing an obligation by changing its objects or principal

obligations, by substituting a new debtor in place of the old one, or by subrogating a third
person to the rights of the creditor. It is "the substitution of a new contract, debt, or
obligation for an existing one between the same or different parties." The settled rule is that
novation is never presumed, but must be clearly and unequivocally shown. In order for a
new agreement to supersede the old one, the parties to a contract must expressly agree
that they are abrogating their old contract in favor of a new one. The trial court found that
the respondent never agreed to release the petitioner from its obligation, and this
conclusion was upheld by the CA.
 SECRETARY OF THE DEPARTMENT OF PUBLIC WORKS AND HIGHWAYS and DISTRICT
ENGINEER CELESTINO R. CONTRERAS vs. SPOUSES HERACLEO and RAMONA TECSON
G.R. No. 179334, July 1, 2013

PONENTE: Peralta, J.
TOPIC: Obligation with penal clause

FACTS:
Respondent spouses Heracleo and Ramona Tecson (respondents) are co-owners of a
parcel of land with an area of 7,268 square meters located in San Pablo, Malolos, Bulacan
and covered by Transfer Certificate of Title (TCT) No. T-430064 of the Register of Deeds of
Bulacan. Said parcel of land was among the properties taken by the government sometime
in 1940 without the owners’ consent and without the necessary expropriation proceedings
and used for the construction of the MacArthur Highway.5
In a letter6 dated December 15, 1994, respondents demanded the payment of the fair
market value of the subject parcel of land. Petitioner Celestino R. Contreras (petitioner
Contreras), then District Engineer of the First Bulacan Engineering District of petitioner
Department of Public Works and Highways (DPWH), offered to pay the subject land at the
rate of ₱0.70 per square meter per Resolution of the Provincial Appraisal Committee (PAC)
of Bulacan.7 Unsatisfied with the offer, respondents demanded for the return of their
property or the payment of compensation at the current fair market value.8
As their demand remained unheeded, respondents filed a Complaint9 for recovery of
possession with damages against petitioners, praying that they be restored to the
possession of the subject parcel of land and that they be paid attorney’s fees.10
Respondents claimed that the subject parcel of land was assessed at ₱2,543,800.00.

ISSUE:
Whether or not the valuation would be based on the corresponding value at the time
of the taking or at the time of the filing of the action.

RULING:
In Republic v. Lara, et al.,38 and repeatedly held by the Court in recent cases, thus: x
x x "The value of the property should be fixed as of the date when it was taken and not the
date of the filing of the proceedings." For where property is taken ahead of the filing of the
condemnation proceedings, the value thereof may be enhanced by the public purpose for
which it is taken; the entry by the plaintiff upon the property may have depreciated its value
thereby; or, there may have been a natural increase in the value of the property from the
time it is taken to the time the complaint is filed, due to general economic conditions. The
owner of private property should be compensated only for what he actually loses; it is not
intended that his compensation shall extend beyond his loss or injury. And what he loses is
only the actual value of his property at the time it is taken x x x.
Both the RTC and the CA recognized that the fair market value of the subject
property in 1940 was ₱0.70/sq m.40 Hence, it should, therefore, be used in determining the
amount due respondents instead of the higher value which is ₱1,500.00. While disparity in
the above amounts is obvious and may appear inequitable to respondents as they would be
receiving such outdated valuation after a very long period, it is equally true that they too are
remiss in guarding against the cruel effects of belated claim. The concept of just
compensation does not imply fairness to the property owner alone. Compensation must be
just not only to the property owner, but also to the public which ultimately bears the cost of
expropriation.
Clearly, petitioners had been occupying the subject property for more than fifty years
without the benefit of expropriation proceedings. In taking respondents’ property without
the benefit of expropriation proceedings and without payment of just compensation,
petitioners clearly acted in utter disregard of respondents’ proprietary rights which cannot
be countenanced by the Court.42 For said illegal taking, respondents are entitled to
adequate compensation in the form of actual or compensatory damages which in this case
should be the legal interest of six percent (6%) per annum on the value of the land at the
time of taking in 1940 until full payment.43 This is based on the principle that interest runs as
a matter of law and follows from the right of the landowner to be placed in as good position
as money can accomplish, as of the date of taking.
 METRO CONCAST STEEL CORPORATION v. ALLIED BANK CORPORATION
GR No. 177921, Dec 04, 2013

PONENTE: Perlas-Bernabe, J.
TOPIC: Extinguishment of obligations

FACTS:
On various dates and for different amounts, Metro Concast, a corporation duly
organized and existing under and by virtue of Philippine laws and engaged in the business of
manufacturing steel,[5] through its officers, herein individual petitioners, obtained several
loans from Allied Bank. These loan transactions were covered by a promissory note and
separate letters of credit/trust receipts. Petitioners failed to settle their obligations under
the aforementioned promissory note and trust receipts, hence, Allied Bank, through
counsel, sent them demand letters,[20] all dated December 10, 1998, seeking payment of
the total amount of P51,064,093.62, but to no avail. Thus, Allied Bank was prompted to file a
complaint for collection of sum of money.
In 2002, Peakstar Oil Corporation (Peakstar), represented by one Crisanta Camiling
(Camiling), expressed interest in buying the scrap metal. During the negotiations with
Peakstar, petitioners claimed that Atty. Peter Saw (Atty. Saw), a member of Allied Bank's
legal department, acted as the latter's agent. Eventually, with the alleged conformity of
Allied Bank, through Atty. Saw, a Memorandum of Agreement[25] dated November 8, 2002
(MoA) was drawn between Metro Concast, represented by petitioner Jose Dychiao, and
Peakstar, through Camiling, under which Peakstar obligated itself to purchase the scrap
metal. Unfortunately, Peakstar reneged on all its obligations under the MoA. In this regard,
petitioners asseverated that: (a) their failure to pay their outstanding loan obligations to
Allied Bank must be considered as force majeure; and (b) since Allied Bank was the party
that accepted the terms and conditions of payment proposed by Peakstar, petitioners must
therefore be deemed to have settled their obligations to Allied Bank. aiming that the subject
complaint was falsely and maliciously filed, petitioners prayed for the award of moral
damages.

ISSUE:
Whether or not the loan obligations incurred by the petitioners under the subject
promissory note and various trust receipts have already been extinguished.

RULING:
Anent petitioners' reliance on force majeure, suffice it to state that Peakstar's breach
of its obligations to Metro Concast arising from the MoA cannot be classified as a fortuitous
event under jurisprudential formulation. As discussed in Sicam v. Jorge: “Fortuitous events
by definition are extraordinary events not foreseeable or avoidable. It is therefore, not
enough that the event should not have been foreseen or anticipated, as is commonly
believed but it must be one impossible to foresee or to avoid. The mere difficulty to foresee
the happening is not impossibility to foresee the same.”
To constitute a fortuitous event, the following elements must concur: (a) the cause
of the unforeseen and unexpected occurrence or of the failure of the debtor to comply with
obligations must be independent of human will; (b) it must be impossible to foresee the
event that constitutes the caso fortuito or, if it can be foreseen, it must be impossible to
avoid; (c) the occurrence must be such as to render it impossible for the debtor to fulfill
obligations in a normal manner; and, (d) the obligor must be free from any participation in
the aggravation of the injury or loss.
While it may be argued that Peakstar's breach of the MoA was unforeseen by
petitioners, the same is clearly not "impossible" to foresee or even an event which is
"independent of human will." Neither has it been shown that said occurrence rendered it
impossible for petitioners to pay their loan obligations to Allied Bank and thus, negates the
former's force majeure theory altogether. In any case, as earlier stated, the performance or
breach of the MoA bears no relation to the performance or breach of the subject loan
transactions, they being separate and distinct sources of obligation.
 EUFEMIA and ROMEL ALMEDA v. BATHALA MARKETING INDUSTRIES, INC
G.R. No. 150806, January 28, 2008

PONENTE: Nachura, J.
TOPIC: Payment/Performance
Instruments/evidence of credits
Effect of inflation

FACTS:
In May 1997, Bathala Marketng, renewed its Contract of Lease with Ponciano Almeda.
Under the contract, Ponciano agreed to lease a porton of Almeda Compound for a monthly
rental of P1,107,348.69 for four years. On January 26, 1998, petitioner informed respondent
that its monthly rental be increased by 73% pursuant to the condition No. 7 of the contract
and Article 1250. Respondent refused the demand and insisted that there was no
extraordinary inflation to warrant such application. Respondent refused to pay the VAT and
adjusted rentals as demanded by the petitioners but continually paid the stipulated amount.
RTC ruled in favor of the respondent and declared that plaintiff is not liable for the payment
of VAT and the adjustment rental, there being no extraordinary inflation or devaluation. CA
affirmed the decision deleting the amounts representing 10% VAT and rental adjustment.

ISSUE:
Whether or not the amount of rentals due the petitioners should be adjusted by
reason of extraordinary inflation or devaluation.

RULING:
Essential to contract construction is the ascertainment of the intention of the
contracting parties, and such determination must take into account the contemporaneous
and subsequent acts of the parties. This intention, once ascertained, is deemed an integral
part of the contract. While, indeed, condition No. 7 of the contract speaks of "extraordinary
inflation or devaluation" as compared to Article 1250's "extraordinary inflation or deflation,"
we find that when the parties used the term "devaluation," they really did not intend to
depart from Article 1250 of the Civil Code. Condition No. 7 of the contract should, thus, be
read in harmony with the Civil Code provision.
That this is the intention of the parties is evident from petitioners' letter22 dated
January 26, 1998, where, in demanding rental adjustment ostensibly based on condition No.
7, petitioners made explicit reference to Article 1250 of the Civil Code, even quoting the law
verbatim. Thus, the application of Del Rosario is not warranted. Rather, jurisprudential rules
on the application of Article 1250 should be considered.
Article 1250 of the Civil Code states:
In case an extraordinary inflation or deflation of the currency stipulated should supervene,
the value of the currency at the time of the establishment of the obligation shall be the basis
of payment, unless there is an agreement to the contrary.
 Inflation has been defined as the sharp increase of money or credit, or both, without
a corresponding increase in business transaction. There is inflation when there is an increase
in the volume of money and credit relative to available goods, resulting in a substantial and
continuing rise in the general price level. In a number of cases, this Court had provided a
discourse on what constitutes extraordinary inflation, thus: [E]xtraordinary inflation exists
when there is a decrease or increase in the purchasing power of the Philippine currency
which is unusual or beyond the common fluctuation in the value of said currency, and such
increase or decrease could not have been reasonably foreseen or was manifestly beyond the
contemplation of the parties at the time of the establishment of the obligation.
The factual circumstances obtaining in the present case do not make out a case of
extraordinary inflation or devaluation as would justify the application of Article 1250 of the
Civil Code. We would like to stress that the erosion of the value of the Philippine peso in the
past three or four decades, starting in the mid-sixties, is characteristic of most currencies.
And while the Court may take judicial notice of the decline in the purchasing power of the
Philippine currency in that span of time, such downward trend of the peso cannot be
considered as the extraordinary phenomenon contemplated by Article 1250 of the Civil
Code. Furthermore, absent an official pronouncement or declaration by competent
authorities of the existence of extraordinary inflation during a given period, the effects of
extraordinary inflation are not to be applied.
 INTERNATIONAL HOTEL CORPORATION v. FRANCISCO B. JOAQUIN, JR. and RAFAEL
SUAREZ
G.R. NO. 158361, April 10, 2013

PONENTE: Bersamin, J.
TOPIC: Payment/Performance
Instruments/evidence of credits
Effect of inflation

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 proposal during the special board meeting. Joaquin presented to the IHC
Board of Directors the results of his negotiations with potential foreign financiers.
On December 13, 1971, IHC entered into an agreement with Weston, and
communicated this development to DBP. However, DBP denied the application for guaranty
for failure to comply with the conditions contained. 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
reconsideration of the cancellation, but their request was rejected.
Consequently, Joaquin and Suarez commenced this action for specific performance,
annulment, damages and injunction by a complaint, impleading IHC and the members of its
Board of Directors, namely, Felix Angelo Bautista, Sergio O. Rustia, Ephraim G. Gochangco,
Mario B. Julian, Benjamin J. Bautista, Basilio L. Lirag, Danilo R. Lacerna and Hermenegildo R.
Reyes.15 The complaint alleged 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 P1,000,000.00.

ISSUE:
Whether or not the court of appeals is correct in awarding compensation and even
modifying the payment to herein respondents despite non-fulfillment of their obligation to
herein petitioner.

RULING:
Evidently, IHC only relied on the opinion of its consultant in deciding to transact with
Materials Handling and, later on, with Barnes. In negotiating with Barnes, IHC had no
intention, willful or otherwise, to prevent Joaquin and Suarez from meeting their
undertaking. Such absence of any intention negated the basis for the CA's reliance on Article
1186 of the Civil Code. Nor do we agree with the CA's upholding of IHC's liability by virtue of
Joaquin and Suarez's substantial performance. In so ruling, the CA applied Article 1234 of the
Civil Code, which states:
“Article 1234. If the obligation has been substantially performed in good faith, the
obligor may recover as though there had been a strict and complete fulfillment, less
damages suffered by the obligee.”
It is well to note that Article 1234 applies only when an obligor admits breaching the
contract35 after honestly and faithfully performing all the material elements thereof except
for some technical aspects that cause no serious harm to the obligee.36 IHC correctly
submits that the provision refers to an omission or deviation that is slight, or technical and
unimportant, and does not affect the real purpose of the contract.
 SPOUSES MANIANO B. DELA CRUZ AND LETA L. DELA CRUZ VS ANA MARIE CONCEPCION
GR No. 172825, October 11, 2012

PONENTE: Peralta, J.
TOPIC: Payment/Performance
Instruments/evidence of credits
Effect of inflation

FACTS:
On March 25, 1996, petitioners entered into a Contract to Sell with respondent
involving a house and lot in Antipolo City for a 2 million consideration. Respondent was able
to pay the 2 million total obligation.Before respondent issued the 500,000 replacement
check, she told petitioners that based on the computation of her accountant as of July 6,
1997, her unpaid obligation which includes interests and penalties was only 200,000.
Petitioners agreed with respondent. Despite repeated demands, petitioners failed to collect
the amounts they claimed. Hence, the complaint for sum of money with damages filed with
the RTC of Antipolo Rizal. In her answer with Compulsory counterclaim and during the
presentation of evidence, respondent presented a receipt purportedly indicating payment
of the remaining balance of 200,000 to Losloso who allegedly received the same on behalf
of petitioners.
On March 8, 2014, the RTC rendered a decision in favor of respondent. On appeal, the
CA affirmed the decision with modification by deleting the award of moral damages and
attorney's fees in favor of respondent. Aggrieved, petitioners come before the Court in this
petition for review on certiorari under Rule 45.

ISSUE:
Whether or not it was proper to dismiss the complaint based on the ground that the
defendant fully paid the claims of plaintiff.

RULING:
When the issue is tried without the objection of the parties, it should be treated with
all respects as if it had been raised in the pleadings. On the other hand, when there is an
objection, the evidence may be admitted where its admission will not prejudice him. Thus,
while respondent judicially admitted in her answer that she only paid 2 million and that she
still owed petitioners 200,000, respondent claimed later and in fact, submitted an evidence
to show that she already paid the whole amount of her unpaid obligation. It is noteworthy
what when respondent presented evidence of payment, petitioners did not object thereto.
To be sure, petitioners were given ample opportunity to refute the fact of and present
evidence to prove payment.
VICTORIA MOREO-LENTFER, GUNTER LENTFER and JOHN CRAIGIE YOUNG CROSS vs. HANS
JURGEN WOLFF
G.R. No. 152317. November 10, 2004

PONENTE: Quisumbing, J.
TOPIC: Payment/Performance
Instruments/evidence of credits
Effect of inflation

FACTS:
The petitioners are Gunter Lentfer, a German citizen; his Filipina wife, Victoria Moreo-
Lentfer; and John Craigie Young Cross, an Australian citizen, all residing in Sabang, Puerto
Galera, Oriental Mindoro. Respondent Hans Jurgen Wolff is a German citizen, residing in San
Lorenzo Village, Makati City. Petitioners alleged that with respondent, on March 6, 1992,
they engaged the notarial services of Atty. Rodrigo C. Dimayacyac. The sale of the beach
house and the assignment of the lease right would be in the name of petitioner Victoria
Moreo-Lentfer, but the total consideration of 220,000 Deutschmarks (DM) would be paid by
respondent Hans Jurgen Wolff. A promissory note was executed by said respondent in favor
of petitioner Cross.
According to respondent, however, the Lentfer spouses were his confidants who
held in trust for him, a time deposit account in the amount of DM 200,000at Solid Bank
Corporation. Apprised of his interest to own a house along a beach, the Lentfer couple
urged him to buy petitioner Cross beach house and lease rights in Puerto Galera.
Respondent agreed and through a bank-to-bank transaction, he paid Cross. However, Cross,
Moreo-Lentfer and Atty. Dimayacyac surreptitiously executed a deed of sale whereby the
beach house was made to appear as sold to Moreo-Lentfer for only P100,000. The
assignment of the lease right was likewise made in favor of Moreo-Lentfer. Upon learning of
this, respondent filed a Complaint for annulment of sale and reconveyance of property with
damages and prayer for a writ of attachment.

ISSUE:
Does article 1238 of the new civil code apply in the case at bar?

RULING:
NO. Article 1238 of the New Civil Code is not applicable in this case.
Trying to apply Art. 1238 to the instant case is like forcing a square peg into a round
hole. The absence of intention to be reimbursed, the qualifying circumstance in Art. 1238, is
negated by the facts of this case. Respondents acts contradict any intention to donate the
properties to petitioner Moreo-Lentfer. When respondent learned that the sale of the beach
house and assignment of the lease right were in favor of Victoria Moreo-Lentfer, he
immediately filed a complaint for annulment of the sale and reconveyance of the property
with damages and prayer for a writ of attachment. Respondent Moreo-Lentfer at that time
claimed the beach house, together with the lease right, was donated to her. Noteworthy,
she had changed her theory, to say that it was only the money used in the purchase that was
donated to her. But in any event, respondent actually stayed in the beach house in the
concept of an owner and shouldered the expenses for its maintenance and repair
amounting to P200,000 for the entire period of his stay for ten weeks. Moreover, the
appellate court found that respondent is not related or even close to the Lentfer spouses.
Obviously, respondent had trusted the Lentfer spouses to keep a time deposit account for
him with Solid Bank for the purpose of making the purchase of the cited properties.
Petitioner Moreo-Lentfers claim of either cash or property donation rings hollow. A
donation is a simple act of liberality where a person gives freely of a thing or right in favor of
another, who accepts it.[16] But when a large amount of money is involved, equivalent to
P3,297,800, based on the exchange rate in the year 1992, we are constrained to take the
petitioners claim of liberality of the donor with more than a grain of salt.
Petitioners could not brush aside the fact that a donation must comply with the
mandatory formal requirements set forth by law for its validity. Since the subject of
donation is the purchase money, Art. 748 of the New Civil Code is applicable. Accordingly,
the donation of money equivalent to P3,297,800 as well as its acceptance should have been
in writing. It was not. Hence, the donation is invalid for non-compliance with the formal
requisites prescribed by law.
GIL M. CEMBRANO and DOLLFUSS R. GO vs CITY OF BUTUAN, INC., MONICO PAG-ONG and
ISIDRO PLAZA,
G.R. No. 163605, September 20, 2006

PONENTE: Callejo, Sr., J

TOPIC: Payment/Performance
Instruments/evidence of credits
Effect of inflation

FACTS:
On May 6, 1991, the City of Butuan issued a Purchase Orderfor 757 timber piles to CVC
or Gil Cembrano. Within the 60-day period, CVC was able to make two (2) deliveries of 117
and 57 pieces which respondent accepted and paid for. On November 13, 1991, the 60-day
period for CVC to make deliveries of the timber piles expired. CVC offered to deliver 100
timber piles worth P148,500.00, but respondent refused. a new bidding was held on the
unexecuted portion of the contract. CVC and Cembrano, through Go as counsel, filed a
complaint for breach of contract and damages against respondent. The trial court rendered
judgment in favor of the defendants. However, The CA rendered judgment reversing the
decision of the trial court. The City of Butuan thereafter filed a petition for review but was
denied for failure to observe the 15-day period to appeal. Thus, the CA decision became final
and executory. The defendants paid the said amount with CVC LUMBER INDUSTRIES,
INC/MONICO E. PAG-ONG as payee.
Thereafter, Atty. Go, acting as counsel for CVC and Cembrano, filed a Alternative
Motion for Issuance of a Writ of Execution or Entry of Judgment. The City Legal Officer filed
a Manifestation, also dated November 29, 2002, that it had already paid the P926,845.00 to
CVC, through Pag-Ong, its President. The City of Butuan filed a Petition for Certiorari and
Prohibition with the CA against CVC, Pag-Ong, Plaza and . It insisted that it had already paid
respondent CVC and Cembrano.

ISSUE:
Whether or not The Honorable Court Of Appeals committed serious errors of Law nay
grave abuse of discretion in declaring payment by the city of Butuan to Monico Pag-Ong and
Isidro Plaza, who were not parties, is a valid payment of the judgment debt iand in setting
aside and declaring null and void the writ of garnishment issued by the court a quo.

RULING:
Payment made by the debtor to the person of the creditor or to one authorized by
him or by the law to receive it extinguishes the obligation. When payment is made to the
wrong party, however, the obligation is not extinguished as to the creditor who is without
fault or negligence even if the debtor acted in utmost good faith and by mistake as to the
person of the creditor or through error induced by fraud of a third person.
In general, a payment in order to be effective to discharge an obligation, must be
made to the proper person. Thus, payment must be made to the obligee himself or to an
agent having authority, express or implied, to receive the particular payment. Payment
made to one having apparent authority to receive the money will, as a rule, be treated as
though actual
authority had been given for its receipt. Likewise, if payment is made to one who by law is
authorized to act for the creditor, it will work a discharge. The receipt of money due on a
judgment by an officer authorized by law to accept it will, therefore, satisfy the debt.
When there is a concurrence of several creditors or of several debtors or of several
creditors and debtors in one and the same obligation, it is presumed that the obligation is
joint and not solidary. The most fundamental effect of joint divisible obligations is that each
creditor can demand only for the payment of his proportionate share of the credit, while
each debtor can be held liable only for the payment of his proportionate share of the debt.
As a corollary to this rule, the credit or debt shall be presumed, in the absence of any law or
stipulation to the contrary, to be divided into as many shares as there are creditors and
debtors, the credits or debts being considered distinct from one another. It necessarily
follows that a joint creditor cannot act in representation of the others. Neither can a joint
debtor be compelled to answer for the liability of the others. The pertinent rules are
provided in Articles 1207 and 1208 of the Civil Code.
 REPUBLIC OF THE PHILIPPINES vs. THI THU THUY T. DE GUZMAN
G.R. No. 175021, June 15, 2011

PONENTE: Leonardo-De Castro, J.

TOPIC: Payment/Performance
Instruments/evidence of credits
Effect of inflation

FACTS:
Respondent is the proprietress of Montaguz General Merchandise (MGM), a
contractor accredited by the PNP for the supply of office and construction materials and
equipment, and for the delivery of various services such as printing and rental, repair of
various equipment, and renovation of buildings, facilities, vehicles, tires, and spare parts. On
December 8, 1995, the PNP Engineering Services (PNPES), released a Requisition and Issue
Voucher for the acquisition for the construction of a four-storey condominium building with
roof deck at Camp Crame, Quezon City. Respondent averred that on December 11, 1995,
MGM and petitioner, represented by the PNP, through its chief, executed a Contract of
Agreement. Respondent claimed that after the PNP Chief approved the Contract and
purchase order. The respondent demanding the payment of P2,288,562.60 for the
construction materials MGM procured for the PNP under their December 1995 Contract.
The PNP, through its Officer-in-Charge, replied to respondents counsel, informing her
of the payment made to MGM via Land Bank of the Philippines (LBP) check. On November
26, 1997, respondent, through counsel, responded by reiterating her demand and denying
having ever received the LBP check, personally or through an authorized person.
Respondent filed a Complaint for Sum of Money against the petitioner, represented by the
Chief of the PNP.

ISSUE:
Whether or not the respondent was paid under the December 1995 Contract of
Agreement.

RULING:
The RTC and the Court of Appeals correctly ruled that the petitioners obligation has
not been extinguished. The petitioner’s obligation consists of payment of a sum of money.
In order for petitioner’s payment to be effective in extinguishing its obligation, it must be
made to the proper person. Article 1240 of the Civil Code states:
“Art. 1240. Payment shall be made to the person in whose favor the obligation has
been constituted, or his successor in interest, or any person authorized to receive it.”
In Cembrano v. City of Butuan, this Court elucidated on how payment will effectively
extinguish an obligation, to wit:Payment made by the debtor to the person of the creditor
or to one authorized by him or by the law to receive it extinguishes the obligation. When
payment is made to the wrong party, however, the obligation is not extinguished as to the
creditor who is without fault or negligence even if the debtor acted in utmost good faith and
by mistake as to the person of the creditor or through error induced by fraud of a third
person.
In general, a payment in order to be effective to discharge an obligation, must be
made to the proper person. Thus, payment must be made to the obligee himself or to an
agent having authority, express or implied, to receive the particular payment. Paymen
t made to one having apparent authority to receive the money will, as a rule, be
treated as though actual authority had been given for its receipt. Likewise, if payment is
made to one who by law is authorized to act for the creditor, it will work a discharge. The
receipt of money due on a judgment by an officer authorized by law to accept it will,
therefore, satisfy the debt.
The respondent was able to establish that the LBP check was not received by her or
by her authorized personnel. The PNPs own records show that it was claimed and signed for
by Cruz, who is openly known as being connected to Highland Enterprises, another
contractor. Hence, absent any showing that the respondent agreed to the payment of the
contract price to another person, or that she authorized Cruz to claim the check on her
behalf, the payment, to be effective must be made to her.
 NORBERTO TIBAJIA, JR. and CARMEN TIBAJIA vs. THE HONORABLE COURT OF APPEALS
and EDEN TAN
G.R. No. 100290, June 4, 1993

PONENTE: Padilla, J.
TOPIC: Payment/Performance
Instruments/evidence of credits
Effect of inflation

FACTS:
A suit of collection of sum of money was filed by Eden Tan against the spouses. A writ
of attachment was issued, the Deputy Sheriff filed a return stating that a deposit made by
Tibajia in the amount of P442,750 in another case, had been garnished by him. RTC ruled in
favor of Eden Tan and ordered the spouses to pay her an amount in excess of P3,000,000.
Court of Appeals modified the decision by reducing the amount for damages. Tibajia
Spouses delivered to Sheriff Bolima the total money judgment of P398483.70. Tan refused
to accept the payment and insisted that the garnished funds be withdrawn to satisfy the
judgment obligation.

ISSUE:
Whether or not payment by means of check is considered payment in legal tender.

RULING:
The provisions of law applicable to the case at bar is Article 1249 of the Civil Code
which provides: “The payment of debts in money shall be made in the currency stipulated,
and if it is not possible to deliver such currency, then in the currency which is legal tender in
the Philippines.”
The delivery of promissory notes payable to order, or bills of exchange or other
mercantile documents shall produce the effect of payment only when they have been
cashed, or when through the fault of the creditor they have been impaired. In the meantime,
the action derived from the original obligation shall be held in abeyance.
Petitioners erroneously rely on one of the dissenting opinions in the Philippine
Airlines case6 to support their cause. The dissenting opinion however does not in any way
support the contention that a check is legal tender but, on the contrary, states that "If the
PAL checks in question had not been encashed by Sheriff Reyes, there would be no payment
by PAL and, consequently, no discharge or satisfaction of its judgment obligation."7
Moreover, the circumstances in the Philippine Airlines case are quite different from those in
the case at bar for in that case the checks issued by the judgment debtor were made
payable to the sheriff, Emilio Z. Reyes, who encashed the checks but failed to deliver the
proceeds of said encashment to the judgment creditor.
 In the more recent case of Fortunado vs. Court of Appeals,8 this Court stressed that,
"We are not, by this decision, sanctioning the use of a check for the payment of obligations
over the objection of the creditor."

GERONIMO G. ESGUERRA and CRISTINA G. ESGUERRA vs. THE HON. FELIPE M.

VILLANUEVA, Municipal Judge of Dagupan City, THE PROVINCE SHERIFF OF PANGASINAN,
ISIDRO DE GUZMAN and SEGUNDA DE GUZMAN,
G.R. No. L-23191, December 19, 1967

PONENTE: Concepcion, C.J.

TOPIC: Payment/Performance
Instruments/evidence of credits
Effect of inflation

FACTS:
On July 13, 1961, petitioner Geronimo G. Esguerra and respondent Isidro de Guzman
the latter acting in his own behalf and in that of a corporation (Institute of Electronics) he
then intended to organize, which eventually was not organized, entered into a contract
whereby Esguerra leased to De Guzman a portion of the Esguerra-Gueco building, belonging
to Esguerra and his wife, Cristina Gueco and located at Torres Bugallon Street, Dagupan City,
for a term of ten (10) years, beginning from July 12, 1961, at a monthly rental of P300.00, up
to July 11, 1962, and P 400.00 thereafter, payable in advance within the first 10 days of each
month. Inasmuch as De Guzman had failed to pay the rental from February to August, 1962,
aggregating P1,800.00, in addition to the sum of P300.00, representing the balance of the
purchase price of equipment bought by him from the Esguerras, on August 6, 1962,
respondent's mother, Segunda de Guzman executed, in favor of the Esguerras, a promissory
note for P2,100.00, payable as follows: P1,000.00 not later than August 12, 1962 and the
balance of P1,100.00 not later than August 31, 1962.

ISSUE:
Whether or not the obligation must be "deemed fully complied with," pursuant to
Article 1235 of the Civil Code of the Philippines.

RULING:
The verb "accept," as used in Article 1235, means to take as "satisfactory or
sufficient" or to "give assent to," or to "agree" or "accede" to an incomplete or irregular
performance. The circumstances obtaining in the case at bar clearly show that the Esguerras
had neither acceded or assented to said payment, nor taken the same as satisfactory or
sufficient compliance with the judgment aforementioned.
Indeed, the day immediately following that of the first payment of P800.00, or on
December 13, 1962, the Esguerras asked Judge Villanueva to issue the corresponding writs of
execution in the two (2) cases. Thus, the Esguerras patently manifested their dissatisfaction
with — which necessarily implied an objection or protest to — said partial payment.
Moreover, Judge Villanueva must have so, understood the reaction of the Esguerras to the
same payment, for he was present when it was made, and still he caused the writs to be
issued. What is more, the respondents evidently had the same impression, for, otherwise,
they would not have paid the additional sum of P1,460.00 on January 5, 1963. Then, again,
the insistence of the Esguerras in causing the attached properties of respondents herein to
be disposed of, pursuant to the writs of execution, despite said additional payments, leave
no room for doubt that the former had never regarded the partial payments as satisfactory
compliance with the latter's obligation under said judgment.
After all, the law does not require the protest or objection of the creditor to be made
in a particular manner or at a particular time. So long as the acts of the creditor, at the time
of the incomplete or irregular payment by the debtor, or within a reasonable time
thereafter, evince that the former is not satisfied with or agreeable to said payment or
performance, the obligation shall not be deemed fully extinguished. In the case at bar, the
Esguerras had performed said acts within such time.
 VICENTA P. TOLENTINO and JOSE TOLENTINO vs. COURT OF APPEALS, BANK OF THE
PHILIPPINE ISLANDS, CONSUELO B. DE LA CRUZ, et al.
G.R. Nos. L-50405-06, August 5, 1981

PONENTE: De Castro, J.
TOPIC: Payment/Performance
Instruments/evidence of credits
Effect of inflation

FACTS:
After a homestead lot they had bought and mortgaged were ordered re-sold to the
original owners by the court, Vicenta Tolentino went to BPI with a check for P16,000, trying
to redeem the land. She was told that it was sold a year ago, when the court decision
became final. However, the Tolentinos were told they could still redeem two other lots they
had mortgaged with BPI after paying P75,995.07, the balance of the loan after the de la
Cruzes had paid P16,000 for the homestead lot.
Instead of redeeming the two other lots, Vicenta consigned payment to the court,
giving a crossed PNB check for P91,995.07, for the redemption of the three lots, including
the homestead lot. However, she ordered payment stopped on the check the following day,
upon advice of counsel and to protect her rights, she said. She said this was to prevent BPI
from encashing the check without returning all the foreclosed properties. Then she filed a
redemption case against BPI, imputing bad faith for failing to return all the foreclosed
properties.
The complaint was dismissed. On appeal, one of the issues raised was the mode of
consignation. Art. 1249 says that debts should be paid in the currency stipulated or, if it is not
specified, then in legal tender. Since a check is not legal tender, BPI was not compelled to
accept it.

ISSUE:
Whether or not article 1249 of the new civil code applies in the case at bar.

RULING:
The court ruled that Art. 1249 does not apply in this case because the Tolentino’s
debt was extinguished when the property was foreclosed and sold to satisfy the debt. What
remained was their right to redeem said properties, which is not an obligation but a
privilege. Once they exercise the right to redeem, they would then have an obligation to
pay, but that obligation would be extinguished only when the check is encashed.
Since the formal offer to redeem was made during the period of redemption
prescribed by law, the Tolentinos may redeem the two other properties mortgaged to BPI.
They were not allowed to redeem the homestead lot because the decision of the lower
court was already final and there was no finding of grave abuse of jurisdiction that would
justify a reversal of the decision.
 JOSE BARITUA and EDGAR BITANCOR vs. HONORABLE COURT OF APPEALS, NICOLAS
NACARIO and VICTORIA RONDA NACARIO
G.R. No. 82233, March 22, 1990

PONENTE: Sarmiento, J.
TOPIC: Payment/Performance
Instruments/evidence of credits
Effect of inflation

FACTS:
In the evening of November 7, 1979, the tricycle then being driven by Bienvenido
Nacario along the national highway at Barangay San Cayetano, in Baao, Camarines Sur,
figured in an accident with JB Bus No. 80 driven by petitioner Edgar Bitancor and owned and
operated by petitioner Jose Baritua. As a result of that accident Bienvenido and his
passenger died and the tricycle was damaged. No criminal case arising from the incident was
ever instituted.
Subsequently, on March 27, 1980, as a consequence of the extra-judicial settlement
of the matter negotiated by the petitioners and the bus insurer Bienvenido Nacario's widow,
Alicia Baracena Vda. de Nacario, received P18,500.00. In consideration of the amount she
received, Alicia executed on March 27, 1980 a "Release of Claim" in favor of the petitioners
and PFICI, releasing and forever discharging them from all actions, claims, and demands
arising from the accident which resulted in her husband's death and the damage to the
tricycle which the deceased was then driving.
On November 7, 1979, the private respondents, who are the parents of Bienvenido
Nacario, filed a complaint for damages against the petitioners with the then Court of First
Instance of Camarines Sur. In their complaint, the private respondents alleged that during
the vigil for their deceased son, the petitioners through their representatives promised them
that as extra-judicial settlement. The petitioners, however, reneged on their promise and
instead negotiated and settled their obligations with the long-estranged wife of their late
son.

ISSUE:
Whether or not the respondent appellate court erred in holding that the petitioners
are still liable to pay the private respondents the aggregate amount of P20,505.00 despite
the agreement of extrajudicial settlement between the petitioners and the victim's
compulsory heirs.

RULING:
Obligations are extinguished by various modes among them being by payment.
Article 1231 of the Civil Code of the Philippines provides: “Obligations are extinguished: (1) By
payment or performance; (2) By the loss of the thing due; (3) By the condonation or
remission of the debt; (4) By the confusion or merger of the rights of creditor and debtor;
(5) By compensation; (6) By novation. There is no denying that the petitioners had paid their
obligation petition arising from the accident that occurred on November 7, 1979. The only
question now is whether or not Alicia, the spouse and the one who received the petitioners'
payment, is entitled to it.
Article 1240 of the Civil Code of the Philippines enumerates the persons to whom
payment to extinguish an obligation should be made. “Art 1240. Payment shall be made to
the person in whose favor the obligation has been constituted, or his successor in interest,
or any person authorized to receive it.” Certainly there can be no question that Alicia and
her son with the deceased are the successors in interest referred to in law as the persons
authorized to receive payment.
Neither could the private respondents, as alleged creditors of Bienvenido, seek relief
and compensation from the petitioners. While it may be true that the private respondents
loaned to Bienvenido the purchase price of the damaged tricycle and shouldered the
expenses for his funeral, the said purchase price and expenses are but money claims against
the estate of their deceased son. These money claims are not the liabilities of the petitioners
who, as we have said, had been released by the agreement of the extra-judicial settlement
they concluded with Alicia Baracena Vda. de Nacario, the victim's widow and heir, as well as
the natural guardian of their child, her co-heir. As a matter of fact, she executed a "Release
Of Claim" in favor of the petitioners.
 RUFINA ORATA vs. HON. INTERMEDIATE APPELLATE COURT, HON. ITILIO G. ABAYA, and
GERTRUDES REYES
G.R. No. 7347, May 8, 1990

PONENTE: Paras, J.
TOPIC: Payment/Performance
Instruments/evidence of credits
Effect of inflation

FACTS:
Gertrudes Reyes vda. de dela Cruz (private respondent) is a judicial administratrix of
the property of her late husband Florencio dela Cruz. Since 1961 the year she was appointed
by the Court as administratrix, she personally demanded payment of rental on the lot owned
by her deceased husband Florencio dela Cruz from Rufina Orata, the petitioner, but the
latter refused for the reason that she has already paid her rental to the grandson of
Florencio dela Cruz, Celso Teodoro. Thus, on May 24, 1980 Gertrudes Reyes filed Civil Case
No. 5083 against Rufina Orata for ejectment before the Municipal Court of San Juan, Metro
Manila, for non-payment of rental in the amount of P25.00 a month

ISSUE:
Whether or not the petition for review filed in the Court of Appeals which was
obviously filed beyond the reglementary period, may still be considered in the interest of
substantial justice.

RULING:
The instant petition is impressed with merit. Payment in good faith to any person in
possession of the credit shall release the debtor (Article 1242, Civil Code). Significantly, after
Teodoro's title was cancelled on November 9, 1983, the new title that replaced it was issued
in the name of his grandparent, the deceased Florencio dela Cruz. As a grandson and legal
heir of the registered owner, Teodoro was a co-owner of the property. Payment of the
obligation to him discharged the debtor, but he (Teodoro) should account to the other co-
owners for their share of the credit (Articles 500 and 1214, Civil Code).
Since petitioner has not defaulted in the payment of her rental obligation as lessee of
the property in question, the administratrix thereof has no cause of action for her ejectment
thereof. But thereafter, the petitioner should pay the rentals to the private respondent as
administratrix of the estate of the deceased registered owner, Florencio dela Cruz.
 PHILIPPINE COMMERCIAL INTERNATIONAL BANK VS COURT OF APPEALS, ATLAS
CONSOLIDATED MINING & Promulgated: DEVELOPMENT CORPORATION,
G.R. No. 121989, January 31, 2006

PONENTE: Tinga, J.
TOPIC: Payment/Performance
Instruments/evidence of credits
Effect of inflation

FACTS:
PCIB and, Manila Banking Corporation (MBC) were joint bidders in a foreclosure sale
held on 20 December 1975 of assorted mining machinery and equipment previously
mortgaged to them by the Philippine Iron Mines, Inc. (PIM). Four (4) years later, Atlas
agreed to purchase some of these properties owned jointly at that time by PCIB and MBC.
The sale was evidenced by a Deed of Sale dated 8 February 1979, with the parties agreeing
therein to an initial downpayment of P12,000,000.00 and the balance of P18,000,000.00
payable in six (6) monthly installments. It was also stipulated that the total purchase price
would be finally adjusted to exclude items to be retained by the Bureau of Mines.
The NAMAWU claim stemmed from a labor dispute of the National Labor Relations
Commission (NLRC), where it obtained a favorable judgment against PIM in the amount of
P4,298,307.77. This award was affirmed by the Court. After the judgment became final and
executory, a writ of execution was duly issued. On the following day, PCIB and MBC wrote
Atlas requesting that subsequent installment payments of the balance be made in the
following proportions: PCIB 63.1579% and MBC - 36.8421%. On 18 April 1979, Atlas paid to
NAMAWU the amount of P4,298,307.77. This payment was made in compliance with the writ
of garnishment issued on the same date against Atlas to satisfy the final judgment in favor
of NAMAWU and against PIM. PCIB and MBC filed on 23 April 1979 a petition for certiorari
with this Court, seeking to annul and set aside the order of garnishment and to enjoin Atlas
from complying with it. The Court, dismissed the petition and sustained Atlass.

ISSUE:
Whether or not Atlas should be fully credited for the amount of P4,298,307.77 it had
paid to NAMAWU.

RULING:
Article 1236 of the Civil Code applies in this instance. It provides that whoever pays
for another may demand from the debtor what he has paid, except that if he paid without
the knowledge or against the will of the debtor, he can recover only insofar as the payment
has been beneficial to the debtor. PCIB is the debtor in this case, it having purchased along
with MBC legally garnished properties, while Atlas is the third person who paid the
obligation of the debtor without the latters knowledge and consent. Since Atlas readily paid
NAMAWU without the knowledge and consent of PCIB, Atlas may only recover from PCIB
or, more precisely charge to PCIB, only the amount of payment which has benefited the
latter.
Generally, the third person who paid another’s debt is entitled to recover the full
amount he had paid. The law, however, limits his recovery to the amount by which the
debtor has been benefited, if the debtor has no knowledge of, or has expressed his
opposition to such payment. Where the defenses that could have been set up by the debtor
against the creditor were existing and perfected, a payment by a third person without the
knowledge of the debtor cannot obligate the debtor to such third person to an amount
more than what he could have been compelled by the creditor to pay. Thus, if the debt has
been remitted, paid, compensated or prescribed, a payment by a third person would
constitute a payment of what is not due; his remedy would be against the person who
received the payment under such conditions, and not against the debtor who did not benefit
from the payment.
The trial court correctly ruled that the overpayment amounting to P601,260.00
should be recovered from NAMAWU. The remedy of Atlas in this case would be to proceed,
not against PCIB, but against NAMAWU who was paid in excess, applying the principle that
no person can unjustly enrich himself at the expense of another. Having established that
there has been partial satisfaction of the judgment in the amount of P601,260.00, the
remaining obligation of PCIB in the judgment account stood at P2,334,977.74. Consequently,
this is the only amount which must be credited to Atlas.