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PURE OBLIGATIONS 1) Seone v. Franco, 24 Phil 309 24 PHIL 309 FACTS: This is an appeal from a judgment of the Court of First Instance of Zamboanga in favor of the plaintiff, holding that the right of action upon the mortgage debt which was the basis of the claim presented against the plaintiffs estate had already prescribed. The mortgage in question, which is to secure the payment of the sum of P4,876.01, the debtor agreeing to pay the sum little by little. After 27 years, nothing has been paid either of the principal or of the interest. The obligation seems to leave the duration of the period for the payment thereof to the will of the debtor. It appears also that it was the intention of the instrument to give the debtor time within which to pay the obligation. ISSUE: Whether or not the creditor may demand immediate performance of the obligation, given that there is no date stipulated by the parties as to when it should become due and payable. HELD: In such cases this court has held, on several occasions, that the obligation is not due and payable until an action has been commenced by the mortgagee against the mortgagor for the purpose of having the court fix the date on and after which the instrument shall be payable and the date of maturity is fixed in pursuance thereof. Such being the case, as action should have been brought for the purpose of having the court set a date on which the instrument should become due and payable. Until such action was prosecuted no suit could be instrument. It is, therefore, clear that this action is premature. The instrument has been sued upon before it is due. The action must accordingly be dismissed. Ordinarily when an action of this sort is dismissed the plaintiff may at once begin his action for the purpose of fixing a date upon which the instrument shall become due. From the

undisputed facts in this case and from the facts and conditions that very probably cannot be charged hereafter, it is our present opinion that such action is itself prescribed. The judgment was affirmed, with cost against the appellant.

2) Parks v. Province of Tarlac 49 Phil 142 Pure Obligations G.R. Nos. L-24190 July 13, 1926

Facts: On October 18, 1910, Private defendants, owners of parcel of land, donates it perpetually to the municipality of Tarlac, Province of Tarlac, under certain conditions specified in the public document. The parcel of land was later registered to the name of the doness, the municipality of Tarlac. Private defendants then sold this parcel of land to plaintiff on January 21, 1921. The municipality then conveyed the property to the Province of Tarlac. Plaintiff filed an action to recover property since conditions for the donation of the parcel of land was not met by the defendant municipality. Issues: Whether or not, plaintiff has the right of action to claim the parcel of land sold by private defendant despite the fact that the parcel of land have been previously donated to defendant municipality. Held: Plaintiff has no more right to action to claim the parcel of land. The parcel of land was already donated by private defendant to defendant municipality before the said sale took place. The private defendant can no longer sell what is not already theirs. Moreover, there is no revocation of the donation since there is no consent from the donee or there is no judicial decree.

Another point is that the revocation of donation has already prescribed. The period of class of action is ten years. The action for revocation of the donation for this cause to arose on April 19, 1911, that is six months after the ratification of the instrument of donation of October 18, 1910. The complaint in this action was presented July 5, 1924, more than ten years after his cause accrued.

CONDITIONAL OBLIGATIONS 3) Javier v. CA, March 15, 1990

FACTS: Leonardo Tiro is a holder of an ordinary timber license issued by the Bureau of Forestry covering 2,535 hectares in the town of Medina, Misamis Oriental. On February 15, 1966, he executed a Deed of Assignment in favour of Jose and Estrella Javier, stating that he will assign, transfer and convey unto the spouses his shares of stock in the Timberwealth Corporation in consideration of P120, 000: P20, 000 of which will be paid by the spouses upon signing of the contract and the balance shall be paid P10, 000 every shipment of export logs actually produced from Timberwealths concession. At the time the said agreement was executed, private respondent had a pending application, dated October 21, 1965, for an additional forest concession covering an area of 2,000 hectares southwest of the adjoining area of the concession subject to the deed of assignment. Hence, another agreement was entered into by the parties on February 28, 1966, stating that respondent shall transfer, cede and convey whatever rights he may acquire to Timberwealth over the forest concession then pending application in consideration of a sum of P30, 000 to be paid by the Javier spouses, as both directors and stockholders of Timberwealth, which amount of money shall form part of their paid up capital stock in said corporation, subject to the approval of the Board of Directors of the same. On November 18, 1966, the Acting Director of Forestry wrote the private respondent that his concession was renewed up to May 12, 1967 but since the land

consisted of only 2,535 hectares, Tiro was given up to May 12 to form a cooperative, partnership or corporation with other adjoining licensees so as to have a total land area of not less than 20,000 hectares of contiguous and compact territory and an annual cut of not less than 25,000 cubic meters, otherwise his license will not be renewed, in pursuance of a presidential directive issued on May 13, 1966.

Petitioners, acting as timber license holders, entered into a Forest Consolidation Agreement on April 10, 1967 with other timber license holders like Vicente de Lara, Jr., Salustiano Oca and Sanggaya Logging Company. Under that agreement, they all agreed to pool together their resources and merge their respective forest concessions into one working unit. This consolidation was approved on May 10, 1967. The working unit was subsequently incorporated as the North Mindanao Timber Corporation, with the petitioners and other signatories of the aforesaid Forest Consolidation Agreement as incorporators. On July 16, 1968, private respondent filed a suit against the petitioner spouses for failure to pay the balance due under the two deeds of agreement, demanding them to pay the amount of P83, 138.15 with interest at 6% per annum from April 10, 1967 until full payment, plus P12, 000 for attorneys fees and costs. On September 23, 1968, the petitioners interposed, along with its admittance of executing of the contracts, a special defense of nullity thereof since private respondent failed to comply with his contractual obligations and, further, that the conditions for the enforceability of the obligations of the parties failed to materialize. As counterclaim, petitioners sought the return of P55, 586 which private respondent had received from them pursuant to an alleged management agreement, plus attorneys fees and costs. On October 7, 1968, Tiro stated that what were transferred to the defendants were his rights and interest in a logging concession described in the deed of assignment; that the shares of stocks referred to in the complaint are terms used therein merely to designate or identify those rights and interests in said logging concession. The defendants actually made use of or enjoyed not the shares of stocks but the logging concession itself; that since the proposed Timberwealth was

owned solely by the defendants, the personalities of the former and the latter are one and the same; and that the counterclaim of petitioners in the amount of P55, 586.39 is part of the sum of P69, 661.85 paid by the latter to the former in partial satisfaction of the latters claim. Respondents claim was dismissed and he was ordered to pay P33, 161.85 with legal interest at 6% per annum from the filing of the answer until complete payment.

Ten years later, on the 28th of March, petitioners filed a motion in the Court of Appeals for extension of time to file a motion for reconsideration, for the reason that they had to change counsel. They were given 15 days to file said motion for reconsideration, provided that the subject motion was filed on time. On April 11, 1978, petitioners filed their motion for reconsideration with CA but it was denied for the petitioners merely tried to refute the rationale of the Court in deciding to reverse the appealed judgment. ISSUE: Whether the deed of assignment dated February 15, 1966 and the agreement of February 28, 1966 are null and void, the former for total absence of consideration and the latter for non-fulfillment of the conditions stated therein. RULING: The true cause or consideration of said deed was the transfer of the forest concession of private respondent to petitioners for P120, 000. This finding is supported by the following considerations: (1) both parties, at the time of the execution of the deed of assignment knew that Timberwealth Corporation stated therein was non-existent; (2) in their subsequent agreement, private respondent conveyed to petitioners his inchoate right over a forest concession covering an additional area for his existing forest concession, which area he had applied for, and his application was then pending in the Bureau of Forestry for approval; (3) petitioners, after the execution of the deed of assignment, assumed the operation of the logging concessions of private respondent; (4) the statement of advances to respondent prepared by petitioners stated: P55, 186.39 advances to L.A. Tiro be applied to succeeding shipments. Based on the agreement, we pay P10, 000 every

after (sic) shipment. We had only 2 shipments; and (5) petitioners entered into a Forest Consolidation Agreement with other holders of forest concessions on the strength of the questioned deed of assignment. The aforesaid contemporaneous and subsequent acts of petitioners and private respondent reveal that the cause stated in the questioned deed of assignment is false. It is settled that the previous and simultaneous and subsequent acts of the parties are properly cognizable indicia of their true intention. Where the parties to a contract have given it a practical construction by their conduct as by acts in partial performance, such construction may be considered by the court in construing the contract, determining its meaning and ascertaining the mutual intention of the parties at the time of the contracting. The parties practical construction of their contract has been characterized as a clue or index to, or as evidence of, their intention or meaning and as an important, significant, convincing, persuasive or influential factor in determining the proper construction of the agreement. The deed of assignment of February 15, 1966 is a relatively simulated contract which states a false cause or consideration, or one where the parties conceal their true agreement. A contract with a false consideration is not null and void per se. Under Article 1436 of the Civil Code, a relatively simulated contract, when it does not prejudice a third person and is not intended for any purpose contrary to law, morals, good customs, public order or public policy binds the parties to their real agreement. Petitioners are liable to respondent for the sale and transfer in their favour of the latters forest concessions. P20, 000 of the P120, 000 to be paid to Tiro was already paid upon signing of the contract and the balance was to be paid at P10, 000 per shipment of logs from the concession. Since petitioners forest concessions were consolidated with other license holders under the Forest Consolidation Agreement, then the unpaid balance of P49, 338.15 became due and demandable. As to the nullity of the February 28, 1966 agreement, the petitioners cannot be held liable thereon. The efficacy of said deed of assignment is subject to the condition that the application of private respondent for an additional area for forest concession be approved by the Bureau of Forestry. Since Tiro did not obtain that approval, said deeds produced no effect. When a contract is subject to a suspensive

condition, its effectivity can take place only if and when the event which constitutes the condition happens or is fulfilled. If the suspensive condition does not take place, the parties would stand as if the conditional obligation had never existed.

The said agreement is a bilateral contract which gave rise to reciprocal obligations, meaning the obligation of private respondent to transfer his rights in the forest concession over the additional area and for the petitioners to pay P30, 000. The demandability of the obligation of one party depends upon the fulfillment of the obligation of the other. In this case, the failure of Leonardo Tiro to comply with his obligation negates his right to demand performance from petitioners. Delivery and payment in a contract of sale are so interrelated and intertwined with each other that without delivery of the goods there is no corresponding obligation to pay. Under par. 2, Art. 1461, the efficacy of the sale of a mere hope or expectancy is deemed subject to the condition that the thing will come into existence. Since Tiro never acquired any right over the additional concession to be approved by the Bureau, the agreement executed therefor, which had for its object the transfer of said right to petitioners, never became effective or enforceable. Decision of the Court of Appeals is modified, in which the agreement dated February 28, 1966 is declared without force and effect and the amount of P30, 000 is hereby ordered to be deducted from the sum awarded by respondent court to Leonardo Tiro.

4) Naga Telephone Co. Inc. et al v. CA, February 24, 1994 (Art. 1182) G.R. No. 107112 February 24, 1994 FACTS: Petitioner Naga Telephone Co., Inc. (NATELCO) is a telephone company rendering local as well as long distance telephone service in Naga City while private respondent Camarines Sur II Electric Cooperative, Inc. (CASURECO II) is

a private corporation established for the purpose of operating an electric power service in the same city. In 1977, the parties entered into a contract for the use by petitioners in the operation of its telephone service the electric light posts of private respondent in Naga City. In consideration therefor, petitioners agreed to install, free of charge, ten telephone connections for the use by private respondent. After the contract had been enforced for over ten years, private respondent filed in 1989 against petitioners for reformation of the contract with damages, on the ground that it is too one-sided in favor of NATELCO; that it is not in conformity with the guidelines of the National Electrification Administration (NEA) which direct that the reasonable compensation for the use of the posts is P10.00 per post, per month; that the telephone cables strung by them have become much heavier. As second cause of action, private respondent alleged that starting with the year 1981, petitioners have used 319 posts in the towns outside Naga City, without any contract with it. And as to the third cause of action, private respondent complained about the poor servicing by petitioners of the ten telephone units. NATELCO, on the other hand, averred that the first cause of action should be dismissed because it does not state a cause of action for reformation of contract and it is barred by prescription for having been filed more than ten years after the execution of the contract. As to the second cause of action, petitioners claimed that private respondent had asked for telephone lines in areas outside Naga City for which its posts were used by them. And with respect to the third cause of action, petitioners claimed that their telephone service had been categorized as "very high" and of "superior quality." ISSUE: Whether or not the continued enforcement of the contract between NATELCO and CASURECO II is disadvantageous to the latter and too one-sided in favor of the former; Whether or not the ruling that the prescription of the action for reformation of the contract commenced from the time it became disadvantageous to CASURECO II;

Whether or not the contract was subject to a potestative condition in favor of the petitioners HELD: While the contract appeared to be fair to both parties when it was entered into by them, it became too inequitous or disadvantageous to CASURECO and too onesided in favor of NATELCO. Petitioners assert that Article 1267 of the New Civil Code is not applicable because the contract does not involve the rendition of service or a personal prestation and it is not for future service with future unusual change. However, Article 1267 speaks of "service" which should be understood as referring to the "performance" of the obligation. In the present case, the obligation of CASURECO consists in allowing NATELCO to use its posts in Naga City, which is the service contemplated in said article. Article 1267 states the doctrine of unforeseen events. It is based on the discredited theory of rebus sic stantibus in public international law; under this theory, the parties stipulate in the light of certain prevailing conditions, and once these conditions cease to exist the contract also ceases to exist. Considering practical needs and the demands of equity and good faith, the disappearance of the basis of a contract gives rise to a right to relief in favor of the party prejudiced. On the issue of prescription of private respondent's action for reformation of contract, what is reformed in the reformation of contracts is not the contract itself, but the instrument embodying the contract. It follows that whether the contract is disadvantageous or not is irrelevant to reformation and therefore, cannot be an element in the determination of the period for prescription of the action to reform. Article 1144 of the New Civil Code provides that an action upon a written contract must be brought within ten years from the time the right of action accrues. Clearly, the ten year period is to be reckoned from the time the right of action accrues which is not necessarily the date of execution of the contract. As correctly ruled by respondent court, private respondent's right of action arose "sometime during the latter part of 1982 or in 1983 when according to Atty. Luis General, Jr., he was asked by CASURECO IIs Board of Directors to study said contract as it already appeared disadvantageous to private respondent. Private respondent's cause of action to ask for reformation of said contract should thus be considered to have

arisen only in 1982 or 1983, and from 1982 to January 2, 1989 when the complaint in this case was filed, therefore, ten years had not yet elapsed." Regarding the last issue, the prestations of either party are not purely potestative because petitioner's permission for free use of telephones is not made to depend purely on their will, neither is private respondent's permission for free use of its posts dependent purely on its will. A potestative condition is a condition, the fulfillment of which depends upon the sole will of the debtor, in which case, the conditional obligation is void. Based on this definition, respondent court's finding that the provision in the contract which states that That the term or period of this contract shall be as long as the party of the first part (petitioner) has need for the electric light posts of the party of the second part (private respondent) is a potestative condition, is correct. However, it must have overlooked the other conditions in the same provision, particularly, it being understood that this contract shall terminate when for any reason whatsoever, the party of the second part (private respondent) is forced to stop, abandoned its operation as a public service and it becomes necessary to remove the electric light post which are casual conditions since they depend on chance, hazard, or the will of a third person. In sum, the contract is subject to mixed conditions, that is, they depend partly on the will of the debtor and partly on chance, hazard or the will of a third person, which do not invalidate the aforementioned provision.

POTESTATIVE CONDITION 5) Taylor v. Uy Tieng Piao & 43 Phil 83 GR # L-16109 Justice Street


On December 12, 1918, Taylor contracted his services to Tan Liuan and Co. as superintendent of an oil factory to be established in the city. The contract was supposed to span over two years from the execution of the contract and the salary was said to be 600php per month during the first year and 700php per month during the second year with an additional 60php per month for residence and utilities. Additionally, the contract stipulated that if, for any reason, the machinery for the factory, fail to arrive in the city of Manila within a period of six months, the contract may be cancelled by Tan Liuan and Co. It was additionally stated that such cancellation were not to occur before the expiration of the six months. The machinery never arrived in the city of Manila within the six months after the signing of the contract. It would appear before the courts that Tan Liuan and Co. found the oil business to no longer see large returns and cancelled the order of the machinery. Taylor then instituted an action to recover the amount of 13,000php as damages for the unfulfilled contract. The lower court found Tan Liuan and Co. liable not liable for the period subsequent to the expiration of the first six months. However, the sum of 300php was awarded to Taylor as damage for breach of contract. ISSUE: Whether or not the Tan Liuan and Co. may be held liable for damages for the breach of contract. HELD: Yes. The Supreme Court held that the lower court did not err in their rejection damages sought by Taylor for the period subsequent to the expiration of the first six months. However, it was seen that the trial judge failed to consider the 60php specified in the contract for residence and utilities, which Taylor is clearly entitled to recover, in addition to the 300php awarded in the lower court. The Supreme Court ordered Tan Liuan and Co. to pay Taylor the sum of 360php instead of 300php with interest and costs. 6) SEBTC v. CA & Ferrer (11 Oct. 1995) SECURITY BANK & TRUST COMPANY and ROSITO C. MANHIT, petitioners, vs. COURT OF APPEALS and YSMAEL C. FERRER, respondents.

G.R. No. 117009 October 11, 1995

Facts: Petitioners Security Bank and Trust Company (SBTC) and Rosito C. Manhit contracted with respondent Ysmael C. Ferrer to construct the building of SBTC in Davao City for the price of P1,760,000.00. In the contract, the building must be finished within 200 working days which the respondent was able to comply with. But there was a drastic increase in expenses which cost P300,000 more than the original price agreed upon. These additional expenses were made known to the petitioner through their Vice President Fely Sebastian and Supervising Architect Rudy de la Rama. Respondent made this demands for payment of the increased cost as soon as possible. Furthermore the demands were supported by receipts, invoices, payrolls and other documents proving the additional expenses. SBTC affirmed Ferrers claim and was recommended to settle an additional P200,000 only. Nevertheless, instead of paying the recommended additional amount, denied ever authorizing payment of any amount beyond the original contract price. Ferrer then filed a complaint for breach of contract with damages. The trial court ruled in favor for Ferrer and on appeal the Court of Appeals affirmed the trial courts decision. In the present petition for review, Petitioner SBTC contends that the stipulated contract price will not automatically make petitioners liable to pay for such increased cost, as any payment above the stipulated contract price has been made subject to the condition that the "appropriate adjustment" will be made "upon mutual agreement of both parties". It is contended that since there was no mutual agreement between the parties, petitioners' obligation to pay amounts above the original contract price never materialized. Issue: Whether or not, SBTC should pay the entire amount of additional cost to respondent. Held: The decision of the Court of Appeals is affirmed. Under the Civil Code, Art 22. states that Every person who through an act of performance by another, or any other means, acquires or comes into possession of something at the expense of the latter without just or legal ground, shall return the same to him. Thus, to allow petitioner bank to acquire the constructed building at a price far below its actual

construction cost would undoubtedly constitute unjust enrichment for the bank to the prejudice of private respondent. Such unjust enrichment is not allowed by law. Lastly, Under Article 1182 of the Civil Code, a conditional obligation shall be void if its fulfillment depends upon the sole will of the debtor. In the present case, the mutual agreement, the absence of which petitioner bank relies upon to support its non-liability for the increased construction cost, is in effect a condition dependent on petitioner bank's sole will, since private respondent would naturally and logically give consent to such an agreement which would allow him recovery of the increased cost.

7) Catungal et al v. Rodriguez (23 March 2011)

Facts: Before the Court is a Petition for Review on Certiorari, assailing the following issuances of the Court of Appeals in CA-G.R. CV No. 40627 consolidated with CA-G.R. SP No. 27565: (a) the August 8, 2000 Decision, [1] which affirmed the Decision [2] dated May 30, 1992 of the Regional Trial Court (RTC), Branch 27 of Lapu-Lapu City, Cebu in Civil Case No. 2365- reconsideration of August 8, 2000 Decision. Agapita Catungal owns a specific parcel of land in Cebu City. This said property is allegedly the paraphernal property of Agapita. With her husbands consent both spouses entered into contract to sell the same piece of land to the respondent Rodriguez. The contract subsequently was upgraded into a Deed of Sale between both of the parties. With negotiations for the sale, the spouses Catungal asked for the advancement amounting to P5,000,000 for personal reasons. Respondent then refused to pay the advancement stating that this was not part of their agreement. Furthermore, he claims that the spouses were planning on selling the same property to interested third parties. With a letter signed by Atty. Jose Catungal, respondents were then given an ultimatum whether or not they will buy the said property, and was warned that should they fail to pay the advancement they will rescind the

contract and will pursue other interested buyers instead because they needed the down payment of P5, 000,000. The respondent contended that the rescission of the deed of sale is unjustified stating that they have no right to rescind. Issue: Whether or not the provisions of the Contract of Deed of Sale constitutes a positive condition.

Held: A provision in a Conditional Deed of Sale stating that the vendee shall pay the balance of the purchase price when he has successfully negotiated and secured a road right of way is not a condition on the perfection of the contract nor on the validity of the entire contract or its compliance as contemplated by Article 1308 of the Civil Code such condition is not purely potestative such a condition is likewise dependent on chance as there is no guarantee that the vendee and the third-party landowners would commit an agreement regarding the road right of way, a type mixed condition expressly allowed under Article1182 of the Civil Code. Where the so-called potestative condition is imposed not on the birth of the obligation but on its fulfillment, only the condition is avoided, leaving unaffected the obligation itself.

CASUAL CONDITION 8) Cruz v. Gasilian (Impossible Conditions)

Facts: On September 5, 1941, Santos Ilagan, administrator,one of the children and heir of Eulalio Ilagan Bisig executed an absolute deed of sale over two parcels of land for P18,000 in favor of Severo Cruz and his wife. On September 18, Santos Ilagan

submitted the deed of absolute sale to the court and likewise set the same date as conveyance of approval of the deed. The other children, and heirs of Eulalio Ilagan Bisig gave their approval and conformity to the said deed and signed on the administrator's motion. The motion was set for hearing on September 22, but the motion was not acted upon. On December 18, 1943, the heirs of the deceased, except the administrator, filed a written opposition to the sale. On June 30, 1944, Judge Quintin Paredes, Jr., sustained the opposition and held that the sale was inproper since the sale was primarily intended for the payment of the mortgage debt, and thus the property should be sold to the mortgagee. The opposition stated that, the price fixed in the motion is not reasonable under the present condition and that the two parcels of land command a better and higher price. By reason of sale, and relying on good faith of these heirs, the vendees, Sps. Cruz, agreed to the cancellation of the mortgage and stopped collecting interest. To disallow estoppel against the appelles in the face of the lse circumstances would be to allow them to profit by their own wrong and inconsistency at the expense of the innocent parties. Thus, this case is an appeal from an order of the Court of First Instance of Nueva Ecija in an intestate proceeding disapproving the sale of two parcels of land by the administrator to the present appellant and her husband, since deceased. Issue: Whether or not the sale of the two parcels of land to Sps. Cruz was valid and proper given the grounds of opposition of the heirs of Eulalio Ilagan Bisig, except the administrator. Held: At the case at bar, the court seemed to believe that the sale was conditional. It should be noted that the disapproval, was caused by the heirs themselves, and that, had no objection been offered by them there would been little likelihood of the approval being withheld. The point is that a party to a contract may not be

excused from performing his promise by the non-occurence of an event which he himself prevented. Wherefore, the order appealed from is reversed and the court below shall enter a new order approving the sale and ordering the delivery of the lands in question to the vendees or the successors in interest, with costs against the appellees.

9) Song Fo & Co. v. Hawaiian Phil. Co. 33 SCRA 1 (Art. 1191) Simple breach does not justify resolution G.R. No. 23769 (September 16, 1925)

FACTS Hawaiian-Philippine Co. got into a contract with Song Fo & Co. where it would deliver molasses to the latter. Hawaiian-Philippine Co. was able to deliver 55,006 gallons of molasses before the breach of contract. SFC filed a complaint for breach of contract against Hawaiian-Philippine Co. and asked P70,369.50. HawaiianPhilippine Co. answered that there was a delay in the payment from Song Fo & Co. and that Hawaiian-Philippine Co. has the right to rescind the contract due to that and claims it as a special defense. The judgment of the trial court condemned Hawaiian-Philippine Co. to pay Song Fo & Co. a total of P35,317.93, with legal interest from the date of the presentation of the complaint, and with costs.

ISSUE (1) Did Hawaiian-Philippine Co. agree to sell 400,000 gallons of molasses or 300,000 gallons of molasses? (2) Had Hawaiian-Philippine Co. the right to rescind the contract of sale made with Song Fo & Co.?

(3) On the basis first, of a contract for 300,000 gallons of molasses, and second, of a contract imprudently breached by Hawaiian-Philippine Co., what is the measure of damages?

HELD (1) Only 300,000 gallons of molasses was agreed to by Hawaiian-Philippine Co. as seen in the documents presented in court. The language used with reference to the additional 100,000 gallons was not a definite promise. (2) With reference to the second question, doubt has risen as to when Song Fo & Co. was supposed to make the payments for the delivery of molasses as shown in the documents presented by the parties. The Supreme Court said that Hawaiian-Philippine Co. does not have the right to rescind the contract. It should be noted that the time of payment stipulated for in the contract should be treated as of the presence of the contract. There was only a slight breach of contract when the payment was delayed for 20 days after which Hawaiian-Philippine Co. accepted the payment of the overdue accounts and continued with the contract, waiving its right to rescind the contract. The delay in the payment of Song Fo & Co. was not such a violation for the contract.

(3) With regard to the third question, the first cause of action of Song Fo & Co. is based on the greater expense to which it was put in being compelled to secure molasses from other sources to which Supreme Court ruled that P3,000 should be paid by Hawaiian-Philippine Co. with legal interest from October 2, 1923 until payment. The second cause of action was based on the lost profits on account of the breach of contract. Supreme Court said that Song Fo & Co. is not entitled to recover anything under the second cause of action because the testimony of Mr. Song Heng will follow the same line of thought as that of the trial court which in unsustainable and there was no means for the court to find out what items make up the P14,000 of alleged lost profits.

10) Filoil Refinery Corp. v. Mendoza, June 15, 1987 (1191, Simple breach) G.R. No. L-55526 (June 15, 1987)

FACTS In a complaint filed by herein private respondents, the lower court rendered on May 14, 1976, a decision rescinding the contract of lease over a 750 square meters lot situated in Cebu City covered by TCT No. 30712 entered into between Filoil Refinery Corporation and private respondents Jesus P. Garcia and Severina B. Garcia and ordering the petitioner to vacate the leased premises. It appears that the petitioners violated the terms and conditions of the lease agreement in the sense that the signatory Filoil Refinery Corporation subleased it to Filoil Marketing and subsequently to petitioner Petrophil Corporation and that herein petitioners were delayed several times in the payment of the monthly rentals. Private respondents filed a Motion for Execution pending appeal which was opposed by petitioners in their Motion for Reconsideration. Said Motion for Reconsideration was denied by the lower court prompting petitioners to file a Petition for certiorari and Review with the Court of Appeals. On September 29, 1980, the Court of Appeals rendered its decision denying the petition for certiorari and review to annul and set aside the order of the lower court granting the Motion for Execution pending appeal. Private respondents filed a motion to dismiss the appeal of petitioners in the original complaint on the ground of alleged abandonment by reason of the failure of the petitioners to amend their record on appeal. On September 24, 1979, the lower court dismissed the appeal because it is believed the Court of Appeals will not be in a position to know why the case was decided on summary judgment, what exhibits have been admitted in evidence and why Filoil Marketing Corporation had been ordered impleaded.

Petitioners filed their Motion for Reconsideration which was denied by the lower court Hence, the present petition for certiorari and mandamus. Petitioners' contentions of the alleged failure however, it is a fact that petitioners filed their record on appeal well within the reglementary period and that the lower court never issued an order declaring the Record on Appeal incomplete or defective nor an order ordering petitioners to complete or correct the same. In addition, that had the lower court approved outright the record on appeal, or had it required petitioners to amend the same and petitioners complied, constraining it to give its approval thereto, it would have lost its jurisdiction to order execution of the decision pending appeal. Petitioners cited the ruling handed by Us in the case of De Leon vs. De Los Santos: To invoke the rule that once an appeal has been perfected, the trial court loses jurisdiction over the case and cannot generally act anymore on any matter raised therein. It was more for these reasons that petitioners felt there was no need to follow up or to inquire about the approval of their record on appeal rather than an act of abandonment of their appeal as theorized by private respondents. ISSUE: 1. Whether or not rescinding the contract of lease between petitioners and respondents is valid 2. Whether or not petitioners breach the simple contract

HELD: WHEREFORE premises considered the petition is hereby DISMISSED, with the petitioners ordered to VACATE the premises. 1. The contract of lease sought to be rescinded expired or terminated last September 16, 1982 or almost 5 years ago by its own terms as provided for in the Lease Contract. An examination of the lease contract reveals that there is no express prohibition against the assignment of the leasehold right. Under the law, when there is no express prohibition, the lessee may sublet the thing leased and all

rights acquired by virtue of an obligation are transmissible, if there has been no stipulation to the contrary. 2. Petitioners admit that on a few occasions, they were late in paying the rentals which were due within the first 15 days of each month but their delay was only for a few days. Such breaches were not as substantial and fundamental as to defeat the object of the parties in making the agreement because the law is not concerned with such trifles.

11) Legarda Hermaos v. Saldaa, January 28, 1974 (1191) 2 lots bought, 1 lot paid. Recession only applies to 1 not 2) GR No L 26578 ( January 28, 1974)

FACTS Saldana had entered into two written contracts with Legarda, a subdivision owner, whereby Legarda agreed to sell to him two of his lots for 1,500 per lot, payable over a span of 10 years on 120 monthly instalments with 10% interest per annum. Saldana paid for eight consecutive years but did not make any further down payments due to Legardas failure to make the necessary improvement on the said lot which was promised by their representative, the said Mr. Cenon. Saldana already paid a total of Php 3,582.06. The statement of account shows that Saldana paid Php 1,682.28 of the principal and Php1,889.78 for the interest. It did not distinguish which of the two said lots was paid. Petitioner, then, rescinded the contract based on the stipulation of the contract that payments made by respondent shall be considered as rentals and any improvements made shall be forfeited in favour of the petitioner. The lower court ruled sustaining petitioners cancellation of contract. So respondent appealed and judgement was reversed in favour of the responded ordering petitioners to deliver to plaintiff one of the two lots at the choice of the defendant and execute the deed of conveyance. Hence this petition ISSUE

Was the cancellation of the sale of contract valid? HELD No, even though it was stipulated that failure to complete the payment would result to the cancellation of the contract, it was still not valid. As clearly shown in the statement of account, Saldana was able to pay one of the two said lots. Under Article 1234 of the New Civil Code, if the obligation has been substantially performed in good faith, the obligor may recover as though there had been a strict and complete fulfilment, less damages suffered by the obligee. Hence, under the authority of Article 1234 of the New Civil Code, Saladana is entitled to one of the two lots of his choice and the interest paid shall be forfeited in favour of the petitioners.

12) Solar Harvest, Inc. v. Davao Corrugated Cartoon Corp., 26 July 2010 (Art. 1191) G.R. No. 176868

FACTS In 1998, Solar Harvest, Inc. (SHI), entered into an agreement with Davao Corrugated Carton Corporation (DCCC) for the purchase of corrugated carton boxes. This agreement was not reduced into writing. To start the production, SHI deposited US$40,150.00 in DCCCs US Dollar Savings Account with Westmont Bank, as full payment for the ordered boxes. However, SHI did not receive any boxes from DCCC. SHI wrote a demand letter for reimbursement but DCCC replied that the boxes had been completed in April and that SHI failed to pick them up from the formers warehouse 30 days from completion, as agreed upon. DCCC mentioned that SHI even placed an additional order of 24,000 boxes, out of which, 14,000 had been manufactured without any advanced payment from SHI. DCCC then demanded SHI to remove the boxes from the factory and to pay the balance of US$15,400 for the additional boxes and P132,000 as storage fee.

SHI filed a Complaint for sum of money and damages against DCCC. The Complaint averred that the parties agreed that the boxes will be delivered within 30 days from payment but respondent failed to deliver the boxes within such time. The RTC ruled that DCCC did not commit any breach of faith that would justify rescission of the contract and the consequent reimbursement of the amount paid by SHI. The RTC said that DCCC was able to produce the ordered boxes but SHI failed to obtain possession thereof because its ship did not arrive. SHI filed a notice of appeal with the CA but it was denied for lack of merit because SHI failed to discharge its burden of proving what it claimed to be the parties agreement with respect to the delivery of the boxes and also, that even assuming that the agreement was for respondent to deliver the boxes, DCCC would not be liable for breach of contract as petitioner had not yet demanded from it the delivery of the boxes. Petition moved for reconsideration but it was denied. ISSUE Whether or not DAVAO CORRUGATED CARTON CORPORATION committed any breach of contract. HELD No. In reciprocal obligations, as in a contract of sale, the general rule is that the fulfillment of the parties respective obligations should be simultaneous. Hence, no demand is generally necessary because, once a party fulfills his obligation and the other party does not fulfill his, the latter automatically incurs in delay. But when different dates for performance of the obligations are fixed, the, the other party would incur in delay only from the moment the other party demands fulfillment of the formers obligation. Thus, even in reciprocal obligations, if the period for the fulfillment of the obligation is fixed, demand upon the obligee is still necessary before the obligor can be considered in default and before a cause of action for rescission will accrue. SHIs witness also testified that they made a follow-up of the boxes, but not a demand. SHI failed to establish a cause of action for rescission. Petition is dismissed.

13) Lorenzo Shipping Corp. v. BJ Marhel International, Inc., Nov. 19, 2004

(Time is of the essence Demand not necessary 1169)

Facts: Petitioner Lorenzo Shipping Corporation is a domestic corporation engaged in coastwise shipping. It used to own the cargo vessel M/V Dadiangas Express. Upon the other hand, respondent BJ Marthel International, Inc. is a business entity engaged in trading, marketing, and selling of various industrial commodities. It is also an importer and distributor of different brands of engines and spare parts. From 1987 up to the institution of this case, respondent supplied petitioner with spare parts for the latters marine engines. Sometime in 1989, petitioner asked respondent for a quotation for various machine parts. Acceding to this request, respondent furnished petitioner with a formal quotation It was stipulated in the contract that DELIVERY is within 2 months after receipt of firm order. The TERMS is 25% upon delivery, balance payable in 5 bi-monthly equal and Installment[s] not to exceed 90 days. Petitioner thereafter issued to respondent Purchase Order. For the procurement of one set of cylinder liner, valued at P477,000, to be used for M/V Dadiangas Express. Instead of paying the 25% down payment for the first cylinder liner, petitioner issued in favor of respondent ten postdated checks to be drawn against the former's account with Allied Banking Corporation. The checks were supposed to represent the full payment of the aforementioned cylinder liner. Subsequently, petitioner issued Purchase Order dated 15 January 1990, for yet another unit of cylinder liner. This purchase order stated the term of payment to be "25% upon delivery, balance payable in 5 bi-monthly equal installment[s]. On 26 January 1990, respondent deposited petitioner's check that was postdated 18 January 1990, however, the same was dishonored by the drawee bank due to insufficiency of funds. The remaining nine postdated checks were eventually returned by respondent to petitioner. However, the parties presented disparate accounts of what happened to the check which was previously dishonored. Petitioner claimed that it replaced said check with a good one, the proceeds of which were applied to its other obligation to

respondent. For its part, respondent insisted that it returned said postdated check to petitioner. On 20 April 1990, Pajarillo delivered the two cylinder liners at petitioner's warehouse in North Harbor, Manila. The sales invoices evidencing the delivery of the cylinder liners both contain the notation "subject to verification" under which the signature of Eric Go, petitioner's warehouseman, appeared. Due to the failure of the parties to settle the matter, respondent filed an action for sum of money and damages before the Regional Trial Court (RTC) of Makati City. In its complaint, respondent (plaintiff below) alleged that despite its repeated oral and written demands, petitioner obstinately refused to settle its obligations. Respondent prayed that petitioner be ordered to pay for the value of the cylinder liners plus accrued interest of P111,300 as of May 1991 and additional interest of 14% per annum to be reckoned from June 1991 until the full payment of the principal; attorney's fees; costs of suits; exemplary damages; actual damages; and compensatory damages. In an Order dated 25 July 1991, the court a quo granted respondent's prayer for the issuance of a preliminary attachment. On 09 August 1991, petitioner filed an Urgent Ex-Parte Motion to Discharge Writ of Attachment attaching thereto a counter-bond as required by the Rules of Court. On even date, the trial court issued an Order lifting the levy on petitioner's properties and the garnishment of its bank accounts. Petitioner afterwards filed its Answer alleging therein that time was of the essence in the delivery of the cylinder liners and that the delivery on 20 April 1990 of said items was late as respondent committed to deliver said items "within two (2) months after receipt of firm order" from petitioner. Petitioner likewise sought counterclaims for moral damages, exemplary damages, attorney's fees plus appearance fees, and expenses of litigation. Subsequently, respondent filed a Second Amended Complaint with Preliminary Attachment dated 25 October 1991. The amendment introduced dealt solely with the number of postdated checks issued by petitioner as full payment for the first cylinder liner it ordered from respondent. Whereas in the first amended complaint, only nine postdated checks were involved.

Issue: Whether or not respondent incurred delay in performing its obligation under the contract of sale and Whether or not said contract was validly rescinded by petitioner.

Held: There is no showing that petitioner notified respondent of its intention to rescind the contract of sale between them. Quite the contrary, respondents act of proceeding with the opening of an irrevocable letter of credit on 23 February 1990 belies petitioners claim that it notified respondent of the cancellation of the contract of sale. Truly, no prudent businessman would pursue such action knowing that the contract of sale, for which the letter of credit was opened, was already rescinded by the other party.

WHEREFORE, premises considered, the instant Petition for Review on Certiorari is DENIED.

14) Pacific Banking Corp. v. CA, May 5, 1989 (Art.1169) Facts: On October 21,1963, Fire Policy No. F-3770 (Exhibit "A"), an open policy, was issued to the Paramount Shirt Manufacturing Co. (hereinafter referred to as the insured, for brevity), by which private respondent Oriental Assurance Corporation bound itself to indemnify the insured for any loss or damage, not exceeding P61,000.00, caused by fire to its property consisting of stocks, materials and supplies usual to a shirt factory, including furniture, fixtures, machinery and equipment while contained in the ground, second and third floors of the building situated at number 256 Jaboneros St., San Nicolas, Manila, for a period of one year commencing from that date to October 21, 1964. The insured was at the time of the issuance of the policy and is up to this time, a debtor of petitioner in the amount of not less than Eight Hundred Thousand Pesos

(P800,000.00) and the goods described in the policy were held in trust by the insured for the petitioner under thrust receipts Said policy was duly endorsed to petitioner as mortgagee/ trustor of the properties insured, with the knowledge and consent of private respondent to the effect that "loss if any under this policy is payable to the Pacific Banking Corporation". On January 4, 1964, while the aforesaid policy was in full force and effect, a fire broke out on the subject premises destroying the goods contained in its ground and second floors On January 24, 1964, counsel for the petitioner sent a letter of demand to private respondent for indemnity due to the loss of property by fire under the endorsement of said policy On January 28, 1964, private respondent informed counsel for the petitioner that it was not yet ready to accede to the latter's demand as the former is awaiting the final report of the insurance adjuster, H.H. Bayne Adjustment Company On March 25, 1964, the said insurance adjuster notified counsel for the petitioner that the insured under the policy had not filed any claim with it, nor submitted proof of loss which is a clear violation of Policy Condition No.11, and for which reason, determination of the liability of private respondent could not be had On April 24, 1964, petitioner's counsel replied to aforesaid letter asking the insurance adjuster to verify from the records of the Bureau of Customs the entries of merchandise taken into the customs bonded warehouse razed by fire as a reliable proof of loss ). For failure of the insurance company to pay the loss as demanded, petitioner (plaintiff therein) on April 28, 1 964, filed in the court a quo an action for a sum of money against the private respondent, Oriental Assurance Corporation, in the principal sum of P61,000.00 issued in favor of Paramount Shirt Manufacturing Co. Issue: Whether or not the CAs decision in reversing the trial courts judgment to order the respondent liable Held: It is but fair and just that where the insured who is primarily entitled to receive the proceeds of the policy has by its fraud and/or misrepresentation,

forfeited said right, with more reason petitioner which is merely claiming as indorsee of said insured, cannot be entitled to such proceeds. Petitioner further stressed that fraud which was not pleaded as a defense in private respondent's answer or motion to dismiss, should be deemed to have been waived. It will be noted that the fact of fraud was tried by express or at least implied consent of the parties. Petitioner did not only object to the introduction of evidence but on the contrary, presented the very evidence that proved its existence. It appearing that insured has violated or failed to perform the conditions under No. 3 and 11 of the contract, and such violation or want of performance has not been waived by the insurer, the insured cannot recover, much less the herein petitioner. Courts are not permitted to make contracts for the parties; the function and duty of the courts is simply to enforce and carry out the contracts actually made Finally, the established rule in this jurisdiction that findings of fact of the Court of Appeals when supported by substantial evidence, are not reviewable on appeal by certiorari, deserves reiteration. Said findings of the appellate court are final and cannot be disturbed by the Supreme Court except in certain cases. PREMISES CONSIDERED, the petition is DISMISSED for lack of merit, and the decision appealed from is AFFIRMED. No costs. 15) Sps. Felipe & Leticia Conner v. Sps. Gil & Fernandina Galang (May 25, 2005) G.R. No. 139523 May 26, 2005

FACTS: In order to buy a house and lot with an area of 150 square meters in Pulanglupa, Las Pinas City, Gil and Fernandina Galang (herein respondents) loaned from Fortune Savings and Loan Association (FSLA) the amount of Php 173,800.00. In order to pay it, they mortgaged the property in favour of the Fortune Savings and Loan Association and the National Home Mortgage Finance Corporation (NHMFC) bought the lot from FSLA. Leticia Cannu, one of the

petitioners in this case, agreed to purchase the mortgaged property for Php 120,000.00 and to assume the balance of the mortgage obligations with the NHMFC and the developer of the property. Several payments were made and there was a remaining balance of Php 45,000.00. A deed of sale & assumption of mortgage was executed between the Galang and Cannu spouses and the petitioners immediately took possession and occupied the house and lot. Although there have been requests by Adelina Timbang (the attorney-in-fact) and Fernandina Galang for the payment of the balance, else the Cannu spouses would be forced to vacate the property, the Cannus refused to do so. On May 21, 1993, Fernandina Galang paid Php 233, 957.64 as the full payment of the remaining balance in the mortgage loan with the NHMFC. The Cannus opposed the release of Transfer Certificate Title Number T-8505 in favour of the Galangs insisting that the subject property had already been sold to them. A Complaint for Specific Performance and Damages was filed praying that the Cannu spouses be declared as owners of the house and lot involved subject to reimbursements of the amount made by the Galang spouses in preterminating the mortgage loan with NHMFC. ISSUES: Whether or not the petitioners breach of obligation was substantial; whether or not there was no substantial compliance with the obligation to pay the monthly amortization with the NHMFC; whether or not the action for rescission was subsidiary HELD: The failure of the Cannus to pay the Php 45,000.00 is a substantial breach of obligation. Under Article 1191 of the Civil Code of the Philippines, the resolution of a party to pay an obligation is founded on a breach of faith by the other party which violates the reciprocal obligation. The petitioners had ample amount of time to pay the amount, but despite the demands to pay such, they did not comply with their obligation. Rescission may only occur on breaches which are substantial in order to defeat the object of the parties in making the agreement. Furthermore, Felipe and Leticia Cannu committed another breach in obligation on the Deed of Sale with Assumption of Mortgage. The mortgage obligation with the NHMFC was not formally assumed on account of the Cannus failure to submit the requirements in order to be considered as successors-in-interest of the involved house and lot in Pulanglupa. Article 1191, not Article 1381, is the applicable provision in the case at bar since it is a retaliatory provision in a sense that the action is not substantive and because it is the duty of the court to require the parties

involved to surrender whatever they may have received from the other in the resolution of the Deed of Sale with Assumption of Mortgage. It is unjust that a party is bound to fulfil his part of the obligation when the other does not do his part.

16) Binalbagan Tech, Inc. v. CA, March 10, 1993 (1191)

FACTS: On May 11, 1967, private respondents, through Angelina P. Echaus, the Judicial Administrator of the intestate estate of Luis B. Puentevella, executed a Contract to Sell and a Deed of Sale of forty-two (42) subdivision lots of the Puentebella family, and transferred the lots to petitioner Binalbagan Tech., Inc. The President of Binalbagan, Petitioner Nava, executed an Acknowledgment of Debt with Mortgage Agreement, and mortgaged the lots in favour of the estate of Puentebella. Upon the transfer, Balbagan took possession of the lots, including its building and improvement, and operated a school on the property. However, there was a pending civil case stationed beforehand. The intestate estate of the late Luis Puentevella, who is the owner of subdivision lots, was sold to Raul Javelllana, through Angelina Puentavella, with the condition that the vendee-promisee would not transfer his rights to said lots without the express consent of Puentevella. If there would be cancellation of the contract by reason of violtion of the terms, the payments made and improvements on the property shall pertain to the promissor and shall be considered as rentals for the use and occupation thereof. Javellana failed to pay the instalments for his five years of occupation. Puentevella filed an action against Javellana and Southern Negros Colleges (SNC) which was a party defendant it being in possession thereof, for rescinding the contract to sell and recovering the possession of lots and buildings, including the damages. After trial, judgment was rendered in favour of Puentevella The deputy sheriffs served the writ of execution on the SNC and delivered possession of involved

properties to defendant Pentevellas representative, Manuel Gentapan. Books and school equipment, supplies, library, apparatus, etc. were also delivered as depositary to satisfy the monetary portion of the judgment. The plaintiffs in the instant case on appeal filed their Third-Party Claim based on an alleged Deed of Sale executed in their favor by spouses Jose and Lolita Lopez. Puentevella thus Puentevella was prohibited to assert physical possession of premises to counteract the fictitious claim of herein plaintiffs. After an instant case for injunction and damages was filed, an exp-parte writ of preliminary injunction was issued by Judge Abiera and which lead to another issuance of a writ of preliminary injunction by CA. The final order enjoined Judge Abiera or any other persons or persons in his behalf to refrain from further enforcing the injunction, pending the finality of the decision of the CA in the latter case. Thus, possession of Puentevella was restored. Nevertheless, the plaintiffs filed a petition for review with the SC which issued a restraining order against the sale of the properties claimed by the spouses-plaintiffs. When the SC dissolved the CAs injunction, possession of the building and other property was taken from petitioner Binalbagan and given to the third-party claimants, the de la Cruz spouses. Petitioner Binalbagan transferred its school to another location. Later on, he was restored to the possession of the subdivision lots. Petitioner was not in possession of the lots from 1974 to 1982. Thus, private respondent Angelina Echaus demanded payment from Binalbagan for the subdivision lots, a total amount due of P367,509.93, for the price of the land and accrued interest. Binalbagan failed to pay. Thus, Echaus filed an action for recovery of title and damages through Civil Case 1345. The trial court dismissed the complaint. The decision was appealed to CA which reversed the decision and set aside and ordered Binabalgan Tech. Inc, to execute a deed of conveyance or any other instrument, transferring and returning unto the appellants the ownership and titles of the subdivision lines. Thus, this petition for review on certiorari wherein petitioners averred that CA erred in its decision.

ISSUE: WON private respondents' cause of action in Civil Case No. 1354 is barred by prescription.

HELD: The prescriptive period within which to institute an action upon a written contract is ten years. The cause of action of private respondent Echaus is based on the deed of sale executed on May 11, 1967, as ownership of the subdivision lots was transferred to petitioner. She filed Civil Case No. 1354 for recovery of title and damages only on October 8, 1982. From 1967 to 1982, more than 15 years elapsed. However, the period 1974 to 1982 should be deducted in computing the prescriptive period for the reason that from 1974 to 1982, private respondent Echaus was not in a legal position to initiate action against petitioner since as aforestated, through no fault of hers, her warranty against eviction was breached. Deducting eight years from the period, only seven years elapsed. Consequently, the civil case was filed within the 10-year prescriptive period.

Specifically, the period of prescription was interrupted. From 1974 up to 1982, the appellants themselves could not have restored unto the appellees the possession of the subdivision lots precisely due to a preliminary injunction. The appellants could not have prospered in any suit to compel performance or payment from the appellees-buyers, because the appellants themselves were in no position to perform their own corresponding obligation to deliver to and maintain said buyers in possession of the lots subject matter of the sale. A party to a contract cannot demand performance of the other party's obligations unless he is in a position to comply with his own obligations. Similarly, the right to rescind a contract can be demanded only if a party thereto is ready, willing and able to comply with his own obligations thereunder. In a contract of sale, the vendor is bound to transfer the ownership of and deliver, as well as warrant, the thing which is the object of the sale; he warrants that the buyer shall, from the time ownership is passed, have and enjoy the legal and peaceful possession of the thing.

17) Vicelet & Vicelen Lalicon v. NHA, 13 July 2011 GR No. 185440

FACTS: In 1980 National Housing Authority (NHA) executed a Deed of Sale with Mortgage over a Quezon City lot in favor of the spouses Alfaro. In due time, the Quezon City Registry of Deeds issued a title in the name of the Alfaros. The deed of sale provided, among others, that the Alfaros could sell the land within 5 years from the date of its release from mortgage even without NHAs prior written consent. The mortgage and the restriction on sale were annotated on the Alfaros title. About nine years later or on November 30, 1990 while the mortgage on the land subsisted, the Alfaros sold the same to their son, Victor Alfaro, who had taken in a common-law wife, Cecilia, with whom he had two daughters, petitioners Vicelet and Vicelen Lalicon. Cecilia, who had the means, had a house built on the property and paid for the amortizations. After full payment of the loan the NHA released the mortgage. Six days later Victor transferred ownership of the land to his illegitimate daughters. About four and a half years after the release of the mortgage, Victor registered the November 30, 1990 sale of the land in his favor, resulting in the cancellation of his parents title. The register of deeds issued a title in Victors name. 2 months later Victor mortgaged the land to Chua, Sy, Ong, and See. Subsequently, in 1997 Victor sold the property to Chua, one of the mortgagees, resulting in the cancellation of his title and the issuance of title in Chuas name. A year later the NHA instituted a case before the Quezon City RTC for the annulment of the NHAs 1980 sale of the land to the Alfaros, the latters 1990 sale of the land to their son Victor, and the subsequent sale of the same to Chua, made in violation of NHA rules and regulations. 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, applying Article 1389 of the New Civil Code. CA reversed the RTC decision and found the NHA entitled to rescission.

ISSUES: 1. Whether or not the Alfaros violated their contract with the NHA; 2. Whether or not the NHAs right to rescind has prescribed; and HELD: On the first issue, the contract between the NHA and the Alfaros forbade the latter from selling the land within five years from the date of the release of the mortgage in their favor. But the Alfaros sold the property to Victor on November 30, 1990 even before the NHA could release the mortgage in their favor on March 21, 1991. Clearly, the Alfaros violated the five-year restriction, thus entitling the NHA to rescind the contract. On the 2nd issue, petitioners claim that under Article 1389 of the Civil Code the action to claim rescission must be commenced within four years from the time of the commission of the cause for it. But an action for rescission can proceed from either Article 1191 or Article 1381. It has been held that Article 1191 speaks of rescission in reciprocal obligations within the context of Article 1124 of the Old Civil Code which uses the term resolution. 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. Rescission under Article 1381, on the other hand, was taken from Article 1291 of the Old Civil Code, which is a subsidiary action, not based on a partys breach of obligation. The four-year prescriptive period provided in Article 1389 applies to rescissions under Article 1381. 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 NHAs right of action accrued on February 18, 1992 when it learned of the Alfaros forbidden sale of the property to Victor. Since the NHA filed its action for annulment of sale on April 10, 1998, it did so well within the 10-year prescriptive period.

18) Ayala Life Insurance v. Ray Burton Devt, 23 January 2006

Facts: The petitioners Victorias Planters Association, Inc. and North Negros Planters Association, Inc. are non-stock corporations and are composed of sugar cane planters having been established as the representative entities of the numerous sugar cane planters in the districts of Victorias, Manapla and Cadiz. The sugar cane productions were milled by the respondent corporation. Petitioners are the ones in charge of taking up with the respondent corporation problems which may come up. At various dates, the sugarcane planters executed identical milling contracts setting forth the terms and conditions which the sugar central North Negros Sugar Co. Inc. would mill the sugar produced by the sugar cane planters. Because of the Japanese occupation, the North Negros Sugar Co., Inc. did not reconstruct its destroyed central and it had made arrangements with the respondent Victorias Milling Co., Inc. for said respondent corporation to mill the sugarcane produced by the planters of Manapla and Cadiz holding milling contracts with it. When the planters-members of the North Negros Planters Association, Inc. considered that the stipulated 30-year period of their milling contracts had already expired and terminated and the planters-members of the Victorias Planters Association, Inc. likewise considered the stipulated30-year period of their milling contracts as having likewise expired and terminated. Respondent has refused to accept the fact that the 30-year period has expired. They contend that the 30 years stipulated in the contracts referred to 30 years of milling not 30 years in time. They contend that as there was no milling during 4 years of the recent war and 2 years of reconstruction, 6 years of service still has to be rendered by petitioners. Issue: Whether or not respondent is correct. Held: The trial court rendered judgment, which the Supreme Court affirmed.Wherefore, the Court renders judgment in favor of the petitioners and against the respondent and declares that the milling contracts executed between the sugar cane planters of Victorias,Manapla and Cadiz, Negros Occidental, and the respondent corporation

or its predecessors-in-interest, the North Negros Sugar Co., Inc., expired and terminated upon the lapse of the therein stipulated 30-year period, and that respondent corporation is not entitled to claim any extension. The reason the planters failed to deliver the sugar cane wasthe war or a fortuitious event. The appellant ceased to run its mill dueto the same cause.Fortuitious event relieves the obligor from fulfilling acontractual obligation. The fact that the contracts make reference to"first milling" does not make the period of thirty years one of thirtymilling years.The seventh paragraph of Annex "C", not found in the earlier contracts (Annexes "A", "B", and "B-1"), quoted by the appellant in itsbrief, where 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 duringsaid period, does not mean that the happening of any of those eventsstops the running of the period agreed upon. It only relieves theparties from the fulfillment of their respective obligations during thattime.To require the planters to deliver the sugar cane which theyfailed to deliver during the four years of the Japanese occupation andthe two years after liberation when the mill was being rebuilt is todemand from the obligors the fulfillment of an obligation which wasimpossible of performance at the time it became due.

19) Victorias Planters v. VMC, 97 Phil 318 (Effect of an agreement that in case fortuitous event contract to be suspended) GR No. 163075, January 23, 2006

FACTS: On December 22, 1995, Ayala Inc. and Ray Burton Corp. entered into a contract denominated as a Contract to Sell, with a Side Agreement of even date. In these contracts, petitioner agreed to sell to respondent a parcel of land situated at Muntinlupa City. The purchase price of the land is payable as follows: On contract date: 26%, inclusive of option money Not later than 1-6-96: 4%

In consecutive quarterly installments for a period of 5 years: 70% Respondent paid thirty (30%) down payment and the quarterly amortization. However in 1998, respondent notified petitioner in writing that it will no longer continue to pay due to the adverse effects of the economic crisis to its business. Respondent then asked for the immediate cancellation of the contract and for a refund of its previous payments as provided in the contract. Petitioner refused to cancel the contract to sell. Instead, it filed with the RTC Makati City, a complaint for specific performance against respondent, demanding from the latter the payment of the remaining unpaid quarterly installments inclusive of interest and penalties. Respondent, in its answer, denied any further obligation to petitioner, asserting that it (respondent) notified the latter of its inability to pay the remaining installments. Respondent invoked the provisions of paragraphs 3 and 3.1 of the contract to sell providing for the refund to it of the amounts paid, less interest and the sum of 25% of all sums paid as liquidated damages. The trial court rendered a Decision in favor of Ayala and holding that respondent transgressed the law in obvious bad faith. It ordered the defendant ordered to pay Ayala the unpaid balance, interest agreed upon, and penalties. Defendant is further ordered to pay plaintiff for attorneys fees and the costs of suit. Upon full payment of the aforementioned amounts by defendant, plaintiff shall, as it is hereby ordered, execute the appropriate deed of absolute sale conveying and transferring full title and ownership of the parcel of land subject of the sale to and in favor of defendant. On appeal, the CA rendered a Decision reversing the trial courts Decision. Hence, the instant petition for review on certiorari. ISSUE: 1. WON respondents non-payment of the balance of the purchase price gave rise to a cause of action on the part of petitioner to demand full payment of the purchase price; and 2. WON Ayala should refund respondent the amount the latter paid under the contract to sell.

HELD: The petition is denied. The CA decision is affirmed. At the outset, it is significant to note that petitioner does not dispute that its December 22, 1995 transaction with respondent is a contract to sell. Also, the questioned agreement clearly indicates that it is a contract to sell, not a contract of sale. Paragraph 4 of the contract provides: 4. TITLE AND OWNERSHIP OF THE PROPERTY. The title to the property shall transfer to the PURCHASER upon payment of the balance of the Purchase Price and all expenses, penalties and other costs which shall be due and payable hereunder or which may have accrued thereto. Thereupon, the SELLER shall execute a Deed of Absolute Sale in favor of the PURCHASER conveying all the SELLERS rights, title and interest in and to the Property to the PURCHASER 1. NO. Considering that the parties transaction is a contract to sell, can petitioner, as seller, demand specific performance from respondent, as buyer? Blacks Law Dictionary defined specific performance as (t)he remedy of requiring exact performance of a contract in the specific form in which it was made, or according to the precise terms agreed upon. The actual accomplishment of a contract by a party bound to fulfill it. Evidently, before the remedy of specific performance may be availed of, there must be a breach of the contract. Under a contract to sell, the title of the thing to be sold is retained by the seller until the purchaser makes full payment of the agreed purchase price. The nonfulfillment by the respondent of his obligation to pay, which is a suspensive condition to the obligation of the petitioners to sell and deliver the title to the property, rendered the contract to sell ineffective and without force and effect; failure of which is not really a breach, serious or otherwise, but an event that prevents the obligation of the petitioners to convey title from arising, in accordance with Article 1184 of the Civil Code . The parties stand as if the conditional obligation had never existed. Article 1191 of the New Civil Code will not apply because it presupposes an obligation already extant. There can be no rescission of an obligation that is still non-existing, the

suspensive condition not having happened Thus, a cause of action for specific performance does not arise. Here, the provisions of the contract to sell categorical ly indicate that respondents default in the payment of the purchase price is considered merely as an event, the happening of which gives rise to the respective obligations of the parties mentioned therein, thus: 3. EVENT OF DEFAULT. The following event shall constitute an Event of Default under this contract: the PURCHASER fails to pay any installment on the balance, for any reason not attributable to the SELLER, on the date it is due, provided, however, that the SELLER shall have the right to charge the PURCHASER a late penalty interest on the said unpaid interest at the rate of 2% per month computed from the date the amount became due and payable until full payment thereof. 3.1. If the Event of Default shall have occurred, then at any time thereafter, if any such event shall then be continuing for a period of six (6) months, the SELLER shall have the right to cancel this Contract without need of court declaration to that effect by giving the PURCHASER a written notice of cancellation sent to the address of the PURCHASER as specified herein by registered mail or personal delivery. Thereafter, the SELLER shall return to the PURCHASER the aggregate amount that the SELLER shall have received as of the cancellation of this Contract, less: (i) penalties accrued as of the date of such cancellation, (ii) an amount equivalent to twenty five percent (25%) of the total amount paid as liquidated damages, and (iii) any unpaid charges and dues on the Property. Any amount to be refunded to the PURCHASER shall be collected by the PURCHASER at the office of the SELLER. Upon notice to the PURCHASER of such cancellation, the SELLER shall be free to dispose of the Property covered hereby as if this Contract had not been executed. Notice to the PURCHASER sent by registered mail or by personal delivery to its address stated in this Contract shall be considered as sufficient compliance with all requirements of notice for purposes of this Contract.14 Therefore, in the event of respondents default in payment, petitioner, under the above provisions of the contract, has the right to retain an amount equivalent to

25% of the total payments. As stated by the CA, petitioner having been informed in writing by respondent of its intention not to proceed with the contract prior to incurring delay in payment of succeeding installments, the provisions in the contract relative to penalties and interest find no application. 2. YES. The CA is correct that with respect to the award of interest, petitioner is liable to pay interest of 12% per annum upon the net refundable amount due from the time respondent made the extrajudicial demand upon it to refund payment under the Contract to Sell, pursuant to our ruling in Eastern Shipping Lines, Inc. v. Court of Appeals.

20) Ponce de Leon v. Sujuco (31 October 1951) G.R. No. L-3316 October 31, 1951

FACTS: The appellee, Philippine National Bank, was the owner of two (2) parcels of land in Negros Occidental. The Bank executed a contract to sell the said properties to the plaintiff, Jose Ponce de Leon, the total price of P26,300. Ponce de Leon obtained a loan from Santiago Syjuco, Inc., in the amount of P200,000 in Japanese Military Notes, payable within one year from May 5, 1948. It was also provided in said promissory note that the promisor (Ponce de Leon) could not pay, and the payee (Syjuco) could not demand, the payment of said note except within the aforementioned period. To secure the payment of said obligation, Ponce de Leon mortgaged in favor of Syjuco the parcels of land which he agreed to purchase from the Bank. Ponce de Leon paid the Bank of the balance of the purchase price amounting to P23,670 in Japanese Military notes and, on the same date, the Bank executed the deed of absolute sale for the parcels of land. The deed of sale executed by the Bank in favor of Ponce de Leon and the deed of mortgage executed by Ponce de Leon in favor of Syjuco were registered in the Office of the Register of Deeds of Negros Occidental and, as a consequence of such registration, Transfer Certificate of Title Nos. 17175 and 17176 in the name of the Bank were cancelled and Transfer Certificate of Title No. 398 (P.R.) and No. 399 (P.R.), respectively, were issued in the name of Ponce de Leon. The mortgage in favor of

Syjuco was annotated on the back of said certificates. Ponce de Leon obtained another loan from Syjuco for the amount of P16,000 in Japanese note with the same tenor as the first loan. Ponce de Leon tendered to Syjuco not only the amount of his debt but also with interests. Syjuco refused to accept the payment tendered by Ponce de Leon. In view of Syjucos refusal, Ponce de Leon deposited the amount of his debt with the Clerk of Court and consigned with it filed a complaint. ISSUE: Whether or not the consignation made by the plaintiff valid in the light of the law and the stipulations agreed upon in the two promissory notes signed by the plaintiff? RULING: The Supreme Court ruled in the negative. In order that cogsignation may be effective, the debtor must first comply with certain requirements prescribed by law. The debtor must show (1) that there was a debt due; (2) that the consignation of the obligation had been made bacause the creditor to whom tender of payment was made refused to accept it, or because he was absent for incapacitated, or because several persons claimed to be entitled to receive the amount due (Art. 1176, Civil Code); (3) that previous notice of the consignation have been given to the person interested in the performance of the obligation (Art. 1177, Civil Code); (4) that the amount due was placed at the disposal of the court (Art 1178, Civil Code); and (5) that after the consignation had been made the person interested was notified thereof (Art. 1178, Civil Code). In the instant case, while it is admitted a debt existed, that the consignation was made because of the refusal of the creditor to accept it, and the filing of the complaint to compel its acceptance on the part of the creditor can be considered sufficient notice of the consignation to the creditor, nevertheless, it appears that at least two of the above requirements have not been complied with. Thus, it appears that plaintiff, before making the consignation with the clerk of the court, failed to give previous notice thereof to the person interested in the performance of the obligation. It also appears that the obligation was not yet due and demandable when the money was consigned, because, as already stated, by the very express provisions of the document evidencing the same, the obligation was to be paid within one year after May 5, 1948, and the consignation was made before this period matured. The failure of these two requirements is enough ground to render the consignation ineffective. And it cannot be contended that plaintiff is justified in accelerating the payment of the obligation because he was willing to pay the interests due up to the date of its maturity, because, under the law, in a

monetary obligation contracted with a period, the presumption is that the same is deemed constituted in favor of both the creditor and the debtor unless from its tenor or from other circumstances it appears that the period has been established for the benefit of either one of them (Art. 1127, Civil Code). Here no such exception or circumstance exists.

21) Pacific Banking Corp. v. CA, May 5, 1989 (Art.1197 judicial period)

Facts. On April 15, 1955, herein private respondents Joseph and Eleanor Hart discovered an area consisting of 480 hectares of tidewater land in Tambac Gulf of. They organized Insular Farms Inc., obtained a lease from the Department of Agriculture for a period of 25 years, renewable for another 25 years. Subsequently Joseph Hart approached businessman John Clarkin, then President of Pepsi-Cola Bottling Co. in Manila, for financial assistance. On July 15, 1956, Joseph Hart and Clarkin signed a Memorandum of Agreement dividing a total of 1000 shares, 510 were issued to Clarkin and 490 were issued to the Harts. Hart was appointed President and General Manager as a result of which he resigned as Acting Manager of the First National City Bank at the Port Area, giving up salary of P 1,125.00 a month and related fringe benefits. Due to financial difficulties, Insular Farms Inc. borrowed P 250,000.00 from Pacific Banking Corporation sometime in July of 1956. On July 31, 1956 Insular Farms Inc. executed a Promissory Note of P 250,000.00 to the bank payable in five equal annual installments, the first installment payable on or before July 1957. Said note provided that upon default in the payment of any installment when due, all other installments shall become due and payable. Eventually the company floundered but nevertheless petitioner pacific banking corporation did not demanded the said obligation but rather opted for more collateral in addition to the guaranty of Clarkin.

Hart and clarkin agreed that all shares of stocks be pledged to petitioner bank in lieu of additional collateral and to insure an extension of the period to pay the July 1957 installment. Said pledge was executed on February 19, 1958. Less than a month later they were given 48 hours to pay said obligation by the petitioner. On march 7 1958 all the shares of the insular farm were putted into auction to satisfy the obligation. On March 8, 1958, the private respondents commenced the case below by filing a complaint for reconveyance and damages with prayer for writ of preliminary injunction before the Court of First Instance of Manila docketed as Civil Case No. 35524. On the same date the Court granted the prayer for a writ of pre- preliminary injunction.

However, on March 19, 1958, the trial court, acting on the urgent petitions for dissolution of preliminary injunction filed by petitioners PBC and Babst on March 11 and March 14,1958, respectively, lifted the writ of preliminary injunction.

The next day, or on March 20, 1958 respondents Hart received a notice from PBC signed by Babst that the shares of stocks of Insular Farms will be sold at public auction on March 21,1958 at 8:00 A.M.

In the morning of March 21, 1958, PBC through its lawyer notary public sold the 1,000 shares of stocks of Insular Farms to Pacific Farms for P 285,126.99. The latter then sold its shares of stocks to its own stockholders, who constituted themselves as stockholders of Insular Farms and then resold back to Pacific Farms Inc. all of Insular Farms assets except for a certificate of public convenience to operate an iceplant. On September 28, 1959 Joseph Hart filed another case for I recovery of sum of money comprising his investments and earnings against Insular Farms, Inc. before the Court of First Instance of Manila, docketed as Civil Case No. 41557. Lower court decision in favor of the plaintiff and against defendant Insular Farms, Inc., sentencing the latter to pay the former the sum of P 25,333.30, representing unpaid salaries to plaintiff Joseph C. Hart; the further sum of P 86,366.91 representing

loans made by plaintiffs to Insular Farms, Inc. and attorney's fees equivalent to 10% of the amount due plaintiffs. This is a petition for review of the decision of the Court of Appeals in CA-G.R. Nos. 52573 and 52574 directing petitioners to pay to respondent Hart ONE HUNDRED THOUSAND (P 100,000.00) PESOS with legal interest from February 19, 1958 until fully paid, plus FIFTEEN THOUSAND (P 15,000.00) PESOS attorneys fees, but subject to the right of reimbursement of petitioner Pacific Banking Corporation (PBC) from petitioner Babst, whatever amounts PBC should pay on account of the judgment.

Issue: WON the sale by Pacific Banking Corporation of the shares of stock of plaintiffs to the Pacific Farms on March 21, 1958 is void on the ground that when said shares were pledged to the bank it was done to cause an indefinite extension of time to pay their obligation.

Held: First, petitioners allege that the Court of Appeals erred in deviating from the principle and rule of stare decisis by not applying in favor of petitioners the ruling in the case of Philippine Engineering v. Green (48 Phil. 466) that "an agreement to extend the time of payment in order to be valid must be for a definite time" which was relied upon by the trial court in overruling the private respondents' claim that the petitioners had granted them orally an indefinite extension of time to pay the loan. We also note, that the rule which states that there can be no valid extension of time by oral agreement unless the extension is for a definite time, is not absolute but admits of qualifications and exceptions.The general rule is that an agreement to extend the time of payment, in order to be valid, must be for a definite time, although it seems that no precise date be fixed, it being sufficient that the time can be readily determined. It was established that there was an agreement to extend indefinitely the payment of the installment of P50,000.00 in July 1957 as provided in the promissory note. Consequently, Pacific Banking Corporation was precluded from enforcing the

payment of the said installment of July 1957, before the expiration of the indefinite period of extension, which period had to be fixed by the court as provided in Art. 1197 of the Civil Code (10 CJS p. 7611, citing Drake vs. Pueblo Nat. Bank, 96 P. 999, 44 Colo. 49). Even the pledge which modified the fixed period in the original promissory note, did not provide for dates of payment of installments, nor of any fixed date of maturity of the whole amount of indebtedness. Accordingly, the date of maturity of the indebtedness should be as may be determined by the proper court under Art. 1197 of the Civil Code. Hence, the disputed foreclosure and the subsequent sale were premature. The Court of Appeals applied Article 2180 of the Civil Code, under which, "employers shall be liable for the damages caused by their employees ... acting within the scope of their assigned tasks." Chester G. Babst, as admitted, was Executive Vice-President of Pacific Banking Corporation and "acted only upon direction by the Board of Directors of the Pacific Banking Corporation." (p. 127, Rollo) The appellate court also applied Article 2181 of the same Code which provides that "whoever pays for the damages caused by his dependents or employees may recover from the latter what he has paid or delivered in satisfaction of the claim." (Art. 2181, Civil Code)

22) Vda. De Ungson v. Lopez, March 10, 1954 (1197)

23) Sps. Edrada v. Sps. Ramos, 31 August 2005 (1197) G.R. No. 154413


Respondent spouses Ramos are the owners of two (2) fishing vessels, the Lady Lalaine and the Lady Theresa. On 1 April 1996, respondents and petitioners executed an untitled handwritten document which acknowledged that: (1.) the stated fishing vessels respondent are now in the possession and received in good running and serviceable order by petitioner Edrada and (2.) the agreed price for the vessel is P900,000.00. (3.) documents pertaining to the sale and agreement of payments between me and the owner of the vessel to follow Upon the signing of the document, petitioners delivered to respondents four (4) postdated checks in various amounts for a total of P140,000.00. The first 3 checks were honored while the fourth check for P100,000.00 was dishonored because of a stop payment order. On 3 June 1996, respondents filed an action against petitioners for specific performance with damages before the RTC, praying that petitioners be obliged to execute the necessary deed of sale of the two fishing vessels and to pay the balance of the purchase price. Respondents alleged that petitioners contracted to buy the two fishing vessels for the agreed purchase price which according to them evinced a contract to buy. However, despite delivery of said vessels and repeated oral demands, petitioners failed to pay the balance, so respondents further averred. However, according to petitioners, respondents allowed them to manage or administer the fishing vessels as a business on the understanding that should they find the business profitable, the vessels would be sold to them for; but petitioners decided to call it quits after spending a hefty sum for the rep air and maintenance of the vessels which were already in dilapidated condition. The RTC rendered a decision which rendered in favor of the herein respondents Ramos spouses, while herein petitioners were ordered to pay the amount P860,000.00

The petitioners appealed to the CA which was denied, hence raised the issue to the SC. Petitioners raised the nature of the subject document as the primary legal issue. They contend that there was no perfected contract of sale as distinguished from a contract to sell. They likewise posed as sub-issues the purpose for which the

checks were issued, whether replacement of the crew was an act of ownership or administration, whether petitioners failed to protest the dilapidated condition of the vessels, and whether the instances when the vessels went out to sea proved that the vessels were not seaworthy. It is also alleged in the petition that the true agreement as between the parties was that of a loan.

ISSUE: Whether or not the agreement between petitioners and respondents was a valid contract of sale

HELD: The Supreme Court held that both the RTC and the CA gravely misapprehended the nature of the said document, and a re-evaluation of the document is in order. Both contending parties offer vastly differing accounts as to the true nature of the agreement. The Court disagreed with the RTC and the CA that the document is a perfected contract of sale. A contract of sale is defined as an agreement whereby one of the contracting parties obligates himself to transfer the ownership of and to deliver a determinate thing, and the other to pay therefore a price certain in money or its equivalent. It must evince the consent on the part of the seller to transfer and deliver and on the part of the buyer to pay. An examination of the document reveals that there is no perfected contract of sale. The agreement may confirm the receipt by respondents of the two vessels and their purchase price. However, there is no equivocal agreement to transfer ownership of the vessel, but a mere commitment that documents pertaining to the s ale and agreement of payments[are] to follow. Evidently, the document or documents which would formalize the transfer of ownership and contain the terms of payment of the purchase price, or the period when such would become due and demandable, have yet to be executed. But no such document was executed and no such terms were stipulated upon.

Before a valid and binding contract of sale can exist, the manner of payment of the purchase price must first be established, as such stands as essential to the validity

of the sale. After all, such agreement on the terms of payment is integral to the element of a price certain, such that a disagreement on the manner of payment is tantamount to a failure to agree on the price.

Assuming arguendo that the document evinces a perfected contract of sale, the absence of definite terms of payment therein would preclude its enforcement by the respondents through the instant Complaint. A requisite for the judicial enforcement of an obligation is that the same is due and demandable. The absence of a stipulated period by which the purchase price should be paid indicates that at the time of the filing of the complaint, the obligation to pay was not yet due and demandable.

During cross-examination, Ramos claimed that the supposed balance shall be paid on 30 June 1996. But how do respondents explain why the Complaint was filed on 3 June 1996? The filing of the Complaint was evidently premature, as no cause of action had accrued yet.

A contract to sell is defined as a bilateral contract whereby the prospective seller, while expressly reserving the ownership of the subject property despite delivery thereof to the prospective buyer, binds himself to sell the said property exclusively to the prospective buyer upon fulfillment of the condition agreed upon, that is, full payment of the purchase price.

A contract is perfected when there is concurrence of the wills of the contracting parties with respect to the object and the cause of the contract. In this case, the agreement merely acknowledges that a purchase price had been agreed on by the parties. The agreement in question does not create any obligatory force either for the transfer of title of the vessels, or the rendition of payments as part of the purchase price. At most, this agreement bares only their intention to enter into either a contract to sell or a contract of sale. Considering that the documents create

no obligation to execute or even pursue a contract of sale, but only manifest an intention to eventually contract one, we find no rights breached or violated that would warrant any of the reliefs sought in the Complaint.

The assailed Decision and Resolution of the Court of Appeals are REVERSED and SET ASIDE. The case before the Regional Trial Court is ordered DISMISSED.

ALTERNATIVE OBLIGATION JOINT & SOLIDARY 24) Cembrano et al v. City of Butuan, September 20, 2006 (Presumption of solidary liability) G.R. No. 163605 September 20, 2006

FACTS: CVC Lumber Industries, Inc. (CVC) was a timber concession licensee while Gil Cembrano (Cembrano) was CVCs Marketing Manager. CVC, through Cembrano, participated in a bidding for the supply of piles and poles which were to be used for the construction of the new City Hall of Butuan City (City). The contract was awarded to CVC, under which it was to deliver to Butuan, 757 timber piles amounting to P1,124,145.00 within 60 days from receipt of the order. In 1991, the City of Butuan issued a Purchase Order for the timber piles to CVC or Gil Cembrano. To partly finance the purchase of the merchandise, petitioner Cembrano, along with Gener Cembrano, secured a loan from the DBP and executed a real estate mortgage over his property. Within the 60-day period, CVC was able to make 2 deliveries of 174 pieces which the Mayor of Butuan accepted and paid for. Months later, Cembrano received corresponding payment evidenced by the disbursement vouchers issued by the City in favor of CVC. It appears on the face of the vouchers that the payee is CVC or Gil Cembrano.

When the 60-day period to make deliveries of the timber piles expired, CVC offered to deliver 100 timber piles, but respondent refused. Thereafter, CVC, through Cembrano, requested for an extension, until December to complete the delivery of timber piles but was again denied by the City Engineer. He then recommended that a new bidding be held on the unexecuted portion of the contract. The re-bidding was held with the approval of former City Mayor but without notice to CVC.

CVC and Cembrano filed a complaint for breach of contract and damages against City and Cembrano alleged therein that he was the Marketing Supervisor and an agent of CVC; that he secured a loan from the DBP and executed a real estate mortgage over his uncle Dollfuss Gos (Go) property as collateral to partly finance the purchase of the timber poles/piles. Meanwhile, during a meeting of the CVC Board of Directors, Monico Pag-Ong (Pag-Ong) was elected President and Isidro Plaza (Plaza) as Corporate Secretary. RTC ruled dismissed the case stating that the contract had already been terminated for failure of CVC and Cembrano to complete deliveries on the original period. Since the request for extension by the plaintiff was denied, the Butuan City was no longer obliged to accept any delivery as said acceptance can be considered a waiver or abandonment of the right to rescind. CA reversed RTCs decisions ordering Butuan City to pay its liability and affirming the report made by the City Legal Officer, and CVCs entitlement to damages. In 2002, Cembrano executed a Deed of Assignment covering of the monetary award of the CA in favor of Go, his uncle. Months later, City signed a check with CVC LUMBER INDUSTRIES, INC/MONICO E. PAG-ONG as payee. The check was received by Pag-Ong for CVC. Thereafter, Atty. Go, acting as counsel for CVC and Cembrano, filed a filed a separate case to enforce execution of payment but were told that the City had already remitted the amount. The CA ruled that either respondent Cembrano or Pag-Ong could receive the award of P926,845.00 for respondent CVC, reversing the RTCs decision. Moreover, the City of Butuan acted in good faith in delivering the check to the Pag-Ong, hence, the City was released of its obligation.

Go and Cembrano filed a Motion for Reconsideration alleging that the transaction was between Cembrano and the City of Butuan, Pag-Ong had no participation or involvement therein whatsoever. Cembrano maintained that it was he who funded the purchase and delivery of the timber poles and piles to the City of Butuan, since he secured a loan from the DBP, the amount CVC used to finance the purchase of timber poles and piles.

For its part, the respondent City of Butuan avers that it complied with the decision when it remitted the full amount of P926,845.00 to respondent CVC. It further maintains that it acted on its honest belief that respondent Pag-Ong, as CVC president, was authorized to receive payment in behalf of said corporation. For their part, respondents Pag-Ong and Plaza aver that as president of CVC and chief executive officer, Pag-ong was authorized to receive the amount of P926,845.00 from respondent Butuan City. ISSUES: Whether or not the remittance of the P926,845.00 made by City to CVC, through Pag-Ong, released it from its obligation HELD: The SC held that the respondent City, as judgment debtor, is burdened to prove that its obligation under the CA decision has been discharged by payment, which under Article 1240 of the Civil Code, is a mode of extinguishing an obligation. Article 1240 of the Civil Code provides that 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 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. 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. Hence, City of Butuan is directed to pay the plaintiffs the total sum of P926,845.00 plus legal interest of 6% since petitioner

Cembrano did not receive any centavo out of the P926,845.00 remitted to respondent CVC, the obligation to remit one-half of the amount to petitioner Cembrano was not extinguished. Since respondent CVC was entitled to only P490,605.955 but received P926,845.00, there was an overpayment of P490,605.955 made by respondent City. Thus, respondent CVC is obliged to return the amount of P490,605.955 to respondent City. Since petitioner Cembrano had already assigned P490,609.955 to petitioner Go, the latter likewise had the right to receive the P490,609.955 from DBP. Petitioner Cembrano should thus be made to return the amount of P490,609.955 he received from the DBP to respondent City.

25) Republic Glass Corp. v. Qua, July 30, 2004 (Right to be reimbursed of the paying solidary debtor) 26) E. Zobel v. CA, 352 Phil 618 27) International Finance Corp. v. Imperial Textile Mills, Inc. (Nov.15, 2005)

Facts: On Dec. 17, 1974, Philippine Polyamide Industrial Corporation (PPIC) made a loan agreement with International Finance Corporation (IFC) in the amount of $7,000,000.00 payable in 16 semi-annual installments beginning June 1, 1977 to Dec. 1, 1984 with an interest rate of 10% per annum. On the same date, a Guarantee Agreement was executed with Imperial Textile Mills, Inc.(ITM), Grand Textile Manufacturing Corp (Grandtex) and IFC as parties thereto. ITM and Grandtex agreed to guarantee PPICs obligations under the loan agreement. PPIC paid the first 3 installments and asked for a rescheduling of the next installments but despite the reschedule, PPIC defaulted. On April 1, 1985, IFC served a written notice of default to PPIC demanding the latter to pay the outstanding principal and all the accrued interests. Despite the notice, PPIC failed to pay. IFC then applied for the extrajudicial foreclosure of mortgages on the real estate, properties, etc. owned by PPIC located at Calamba, Laguna. The sheriff then issued a notice of

extrajudicial sale and IFC and DBP were the only bidders. IFCs bid was P99, 269,100 which was equivalent to $5,250,000. The outstanding loan however amounted to $8,083,967 thus leaving a balance of $2,833,967. PPIC failed to pay the remaining balance. Consequently, IFC demanded ITM and Grandtex, as guarantors of PPIC, to pay the outstanding balance but no payment was made. On May 20, 1988, IFC filed a complaint against PPIC and ITM for the payment of the outstanding balance plus interests and attorneys fees. The trial court held PPIC liable for the payment of the outstanding loan plus interest but the trial court relieved ITM of its obligation as guarantor, dismissing IFCs complaint against ITM. The CA reversed the decision of the trial court in so far as the latter exonerated ITM from any obligation to IFC. According to the CA, ITM bound itself under the Guarantee Agreement to pay PPICs obligation upon default. ITMs liability as guarantor would arise only if and when PPIC could not pay and since PPICs inability to comply with the obligation is not sufficiently establi shed, ITM could not be made to assume the liability. CA denied reconsideration, hence the petition. Issue: WON ITM is a surety, and thus solidarily liable with PPIC for the payment of the loan. Held: While referring to ITM as a guarantor, the Agreement specifically stated that the corporation was jointly and severally liable. To put emphasis on the nature of that liability, the Contract further 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. 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. ITMs liability commenced only when it guaranteed PPICs obligation. It became a surety when it bound itself solidarily with the principal obligor. Thus, Art. 2047 applies, by guaranty, a person, called the guarantor binds himself to the creditor to fulfill the obligation of the principal in case the latter should fail to do and Art. 1216, the creditor may proceed

against any one of the solidary debtors. Contracts have the force of law between the parties who are free to stipulate any matter not contrary to law, morals, etc. so the Court cannot give a different meaning to the plain language of the Guarantee Agreement. Wherefore, the petition was granted and the assailed decision and resolution

28) Heirs of George Poe v. Malayan Insurance, April 7, 2009

29) Pimentel v. Gutierrez, 14 Phil 49

FACTS: This is an action for purpose of recovering a sum of P3,000 with interest at 10 per cent per annum from March 20, 1901 in the CFI of Romblon. This is based on a contract which the plaintiff alleged that was executed and delivered by the defendants on March 20, 1901. On August 23, 1905, Eugenio Gutierrez, for himself and as a representative of defendants Leon Montaa and Feliciano Moreno, filed an amended answer admitting the execution and delivery of the original contract for 3,000 pesos and alleged that a part of said amount had been paid. On December 1, 1904, he and the plaintiff had entered into a new contract. Through this, the defendants were to pay the balance of said contract by paying P30 per month until the full amount of said contract should be paid. In this new contract, he alleged that the plaintiff had agreed to forego the collection of the interest agreed upon in the original contract. The defendant admitted that there is still a balance of P2,634.44. He prayed that the said action might be dismissed with costs against the plaintiff. On December 30, 1905, the plaintiff replied to the amended answer of the defendant wherein he denied that he had executed or had consented to the execution of the said new contract but he admitted that he agreed to suspend the interest and that the defendant had paid in money and effect of the sum of P785.36 and that the same had been applied to the payment of interest on the original contract.

On December 1, 1905, the defendant presented a motion asking that the said amended complaint be struck from the files because it was not a proper reply to the answer of the defendant. This motion was denied. The defendant presented a demurrer to the said amended complaint, upon the ground that the complaint did not allege the period within which defendants were to pay the sum of the original contract of P3,000 pesos. This was also denied by the court. On February 1906, the defendant asked that the deposition of one Eduardo Montiel, who was then a prisoner in Bilibid, be taken. This motion was denied. The lower court rendered a judgment in favor of the plaintiff for the sum of P, 366.38. The court found that the defendant had paid the sum of P747.03 at different times, which was applied upon the payment of interest. From this judgement the defendant appealed wherein he raised 12 assignments of errors. (Only no. 4 and 8 is related to OBLICON) ISSUE: Whether or not the court erred in sentencing the defendant Eugenio Gutierrez alone to pay the total amount of the debt, and dismissing the case, on account of lack of evidence, with respect to the other defendants, Feliciano Moreno and Leon Montana. Whether or not the court erred in admitting as evidence the document which appears as Exhibit B, first sheet, offered by the plaintiff in order to establish the fact that the latter received from the defendant Gutierrez only P747.03 on account of interest.

RULING: The court committed an error in rendering a judgment against the defendant Eugenio Gutierrez alone, for the full amount of the debt. The defendants were only liable for their proportionate share of the obligation, citing articles 1137 and 1138 of the Civil Code. By virtue of these provisions, where two or more persons sign a contract, in order that each shall be responsible for the full amount of the obligation, express words to that effect must be used. If two persons sign a contract

under the provisions of the Civil Code, and no words are used to make each liable for the full amount, each is only liable for a proportionate amount of the contract. The lower court committed no error in applying the payment to the liquidation of interest due. The question between the two parties with reference to the sum of P747.03 is whether it was a part payment of the principal or a payment on the interest due. The plaintiff claims that it was a payment of the interest due and the defendant did not agree. It is a rule well established that when a debtor makes payment to his creditor, in a case where the creditor holds two or more accounts against him, the creditor may apply the payment to whichever of the indebtednesses he pleases, in the absence of an express statement on the part of the debtor that the payment should be applied to one or another of the different claims. There being no proof, therefore, of request on the part of the defendant that the sum should be applied upon the payment of the principal, the plaintiff had a right to apply it to the payment of the interest then due.

30) Stronghold Insurance Co. , Inc v. Republic Asahi Glass Corp., 22 June 2006

FACTS Republic-Asahi Glass Corporation entered into a contract with Santos, proprietor of JDS Construction (JDS), for the construction of roadways and a drainage system in Republic-Asahi's compound in Pasig City. Respondent was to pay JDS P5.3m and that such construction was supposed to be completed within a period of 240 days. To guarantee the performance of its undertakings, JDS executed jointly with Stronghold Insurance Co., Inc. (SICI) a performance bond of P795, 000. Due to the alarmingly slow pace of the construction, Republic-Asahi extra judicially rescinded the contract. Such rescission, according to Article XV of the contract shall not be construed as a waiver of respondent's right to recover damages from JDS and the latter's sureties. Respondent then filed a complaint against JDS and SICI. It sought payment of additional expenses incurred by the respondent, but demands were allegedly went

unheeded. According to Deputy Sheriff, Santos died the previous year and JDS Construction was no longer at its address and its whereabouts were unknown. SICI filed its answer, alleging that the respondent's money claims have been extinguished by the death of Santos. Even if this were not the case, SICI had been released from its liability because there was no liquidation, hence, there was no ascertainment of the corresponding liabilities of Santos and SICI under the bond. The lower court issued an order dismissing the complaint of respondent against JDS and SICI, on the ground that the claim against JDS did not survive the death of its sole proprietor, Jose D. Santos, Jr. Thus this petition. ISSUE: Whether or not petitioner's liability under the performance bond was automatically extinguished by the death of Santos, the principal. HELD: As a general rule, the death of either the creditor or the debtor does not extinguish the obligation. Obligations are transmissible to the heirs, except when the transmission is prevented by the law, the stipulations of the parties, or the nature of the obligation. Only obligations that are personal 10 or are identified with the persons themselves are extinguished by death. Rules of Court expressly allow the prosecution of money claims arising from a contract against the estate of a deceased debtor. Evidently, those claims are not actually extinguished. What is extinguished is only the obligee's action or suit filed before the court, which is not then acting as a probate court. In the case at bar, whatever obligations Santos had under his contracts with respondent were not intransmissible. Hence, his death did not result in the extinguishment of those obligations or liabilities, which merely passed on to his estate. Death is not a defense that he or his estate can set up to wipe out the obligations under the performance bond. Consequently, petitioner as surety cannot use his death to escape its monetary obligation under its performance bond. As a surety, petitioner is solidarily liable with Santos in accordance with the Art 2047 Civil Code. Under the law and jurisprudence, respondent may sue, separately or

together, the principal debtor and the petitioner herein, in view of the solidary nature of their liability.

31) Garcia v. CA, 191 SCRA 439

FACTS: Western Minolco Corporation (WMC) obtained from the Philippine Investments Systems Organization (PISO) two loans for P2.5M and P1M for which it issued promissory notes payable on May 30, 1977. On the same date, Antonio Garcia and Ernest Kahn executed a surety agreement binding themselves jointly and severally for the payment of the loan of P2.5M on due date. Upon failure of WMC to pay after repeated demands, ultimatum was made on Garcia pursuant to the surety agreement. Garcia also failed to pay. Hence Lasal Development Corporation (to which the credit had been assigned earlier by PISO) sued Garcia for recovery of the debt. Garcia moved to dismiss the petition. After considering the arguments and evidences of the parties, the trial court granted the motion and dismissed the complaint. The Court of Appeals, however reversed and remanded the records of the case for trial on the merits. Thus this case. ISSUE: 1. WON the complaint has no cause of action 2. The principal obligation had been novated HELD: 1. There is a cause of action. Suretyship is a contractual relation resulting from an agreement whereby one person, the surety, engages to be answerable for the debt, default or miscarriage of another, known as the principal. The surety's obligation is not an original and direct one for the performance of his own act, but merely accessory to the obligation contracted by the principal. Nevertheless, although the contract of a surety is in essence secondary, his liability to the creditor of the principal is said to be direct, primary and absolute. The surety therefore becomes liable for the debt or duty of another although he possesses no direct or personal interest over the obligations nor does he receive any benefit therefrom.

2. Concerning the issue of novation, although the provisions of the memorandum of agreement entered into by WMC and its creditors, it was signed only by the chairman of the board of directors of WMC and does not carry the signature of others. Hence, it has no binding force on such creditors. The petitioner cites other transactions between the parties with the effect of novating the said contracts and consequently extinguished the surety. Among these are the extension of the original period of payment and the compounding of the interest. EXTENSION OF THE ORIGINAL PERIOD OF PAYMENT : The petitioner invokes Article 2079 of the Civil Code, which provides that An extension granted to the debtor by the creditor without the consent of the guarantor extinguishes the guaranty. However, in the surety contract, the petitioner not only consented to an extension in the payment of the obligation but even waived his right to be notified of such extension, he cannot now claim that he has been released from his undertaking. COMPOUNDING OF THE INTEREST. The change in the interest was merely a collateral agreement between the creditor bank and the principal debtor that did not affect the surety. Thus, the liability of the surety remains only up to the original uncompounded interest. As a general rule no form of words or writing is necessary to give effect to a novation. Nevertheless, since the parties involved here are corporations, it must first be proved that the contracts were executed validly. Novation of contract cannot be presumed. In order that an obligation may be extinguished by another which substitutes the same, it is essential that it be so declared in unequivocal terms. In every novation there are four essential requisites. (1) A previous valid obligation; (2) the agreement of all the parties to the new contract; (3) the extinguishment of the old contract; and (4) validity of the new one. Thus, the petition is DENIED

32) PNB v. Independent Planters (Article 1216)

Facts: PNB appealed from the order of the Court of First Instance of Manila which dismissed PNBs complaint against several solidary debtors for the collection of a

sum of money on the ground that one of the defendants died during the pendency of the case and therefore the complaint, being a money claim based on contract, should prosecuted in the testate or intestate proceeding for the settlement of the estate of the deceased defendant. PNB assailed the order of the dismissal and invoked Art. 1216 of the Civil Code. Issue: Whether in an action for collection of a sum of money based on contract against all solidary debtors, the death of the defendant deprives the court of jurisdiction to proceed with the case against the surviving defendants Ruling: It is settled that Article 1216 grants the creditor the substantive right to seek satisfaction of his credit from one, some or all of his solidary debtors, as he deems fit or convenient for the protection of his interests; and if, after instituting a collection suit based on contract against some or all of them and, during its pendency, one of the defendants dies, the court retains jurisdiction to continue the proceedings and decide the case in respect of the surviving defendants. As held in PNB vs. Asuncion, speaking thru Mr. Justice Makasiar: "It is crystal clear that Article 1216 of the New Civil Code is the applicable provision in this matter. Said provision gives the creditor the right to `proceed against anyone of the solidary debtors or some or all of them simultaneously.' The choice is undoubtedly left to the solidary creditor to determine against whom he win enforce collection. In case of the death of one of the solidary debtors, he (the creditor) may, if he so chooses, proceed against the surviving solidary debtors without necessity of filing a claim in the estate of the deceased debtors. It is not mandatory for him to have the case dismissed against the surviving debtors and file its claim in the estate of the deceased solidary debtor . . . The appealed order of dismissal of the court a quo is set aside in respect of the surviving defendants; and the case is remanded to the corresponding Regional Trial Court for further proceedings.

PENAL CLAUSE 33) General Insurance & Surety Corp. v. Republic (31 January 1963)

34) Land Bank of the Philippines v. David 35) Compagnie Franco Indochinoise v. Deutsched (29 Phil 474) 36) Filinvest Land, Inc. v. CA, Pep Corp., 20 Sept. 2005 37) Laureano v. Kilayco 38) Pamintuan v. CA, 94 Phil 556 39) SSS v. Moonwalk Dev. & Housing Corp., 221 SCRA 119 40) Lo v. CA, 376 SCRA 560 41) Ligutan v. CA, 12 Feb. 2002

Facts: On 11 May 1981, Petitioners Tolomeo obtained a loan in the amount of P120,000.00 from respondent Security Bank and Trust Company. Petitioners executed a promissory note binding them, jointly and severally, to pay the sum borrowed with an interest of 15.189% per annum upon maturity and to pay a penalty of 5% every month on the outstanding principal and interest in case of default. Also, petitioners agreed to pay 10% of the total amount due by way of attorney's fees if the matter were indorsed to a lawyer for collection or if a suit were instituted to enforce payment. However, petitioners failed to pay respondent despite the latter several demands. Respondent bank sent a final demand letter to petitioners informing them that they had five days within which to make full payment. Petitioner then still failed to settle their obligation hence respondent filed a case for the recovery of sum of money in the RTC. RTC held in favour of respondent and against petitioner. On appeal, petitioners prayed for the reduction of the 5% stipulated penalty for being unconscionable. In addition, Petitioners contended that the execution of the real estate mortgage had the effect of novating the contract between them and the bank.

Issue: 1. WON a penalty is reasonable or iniquitous. 2. WON the execution of the real estate mortgage had the effect of novating the contract Ruling: 1. A penalty clause, expressly recognized by law, 10 is an accessory undertaking to assume greater liability on the part of an obligor in case of breach of an obligation. The essence or rationale for the payment of interest, quite often referred to as cost of money, is not exactly the same as that of a surcharge or a penalty. A penalty stipulation is not necessarily preclusive of interest, if there is an agreement to that effect, the two being distinct concepts which may separately be demanded 2. The real estate mortgage contract does not contain any express stipulation by the parties intending it to supersede the existing loan agreement between the petitioners and the bank. An obligation to pay a sum of money is not extinctively novated by a new instrument which merely changes the terms of payment or adding compatible covenants or where the old contract is merely supplemented by the new one.

42) Commercial Credit Corp. of Cagayan de Oro v. CA, 2 January 1989

Facts: Sometime in 1978 Cagayan de Oro Coliseum, Inc. (herein private respondent) executed a promissory note of P329, 852.54 payable in 36 monthly installments secured by a real estate mortgage in favor of Commercial Credit Corporation of Cagayan de Oro (herein petitioner). Upon the default of payment by the private respondent, petitioner proceeded with the extrajudicial foreclosure of the real estate mortgage in September, 1979. Subsequently 5 minority stockholders of private respondent instituted a Special Civil Action before the CFI of Misamis

Oriental questioning whether or not respondent may execute real estate mortgage without their consent. In due course, a compromise agreement was entered into the parties concerned praying that the Court may render judgement in accordance with the said agreement, stating: (1) there was a ratification and approval of the said loan and real estate mortgage, issue of the special civil action becomes moot and academic; (2) that the Cagayan de Oro Coliseum, Inc. through its Board of Directors and represented by its President admits its total outstanding obligation to Commercial Credit Corporation of Cagayan de Oro in the amount of P249,263.23 including P10,000 attorney's fees; (3) that there was agreement to pay above obligation plus interest on diminishing balance at 16% per annum; (4) that the respondent will pay the said obligation in monthly installments of P11,000; (5) that failure of the respondent to do so will automatically be ordered to pay in full, where overdue and unpaid installments shall incur a penalty charge of 3% and another 5% for the outstanding balance plus attorney's fees; (6) that petitioner agrees to withdraw its application of the extrajudicial foreclosure of the real estate mortgage; and (7) that the parties waive in favor of each other all forms of damages arising out, connected with and/or as a result of this action. Private respondent failed to pay several installments amounting to P70,152.65, petitioner then filed an ex-parte motion for issuance of a writ of execution which was granted by the Court whereby a notice was issued subsequently. Private respondent then filed for a motion of reconsideration which was not granted, the same then filed for a special civil action in the CA to annul the said compromise-judgement alleging that the trial court acted in serious violation of the law and/or in grave abuse of discretion. The CA denies and dismisses the petition but changes the compromise judgment whereby overdue and unpaid installments shall have .5% penalty charge per month and a 2% on the outstanding balance. After several motion of reconsiderations filed by both parties, the CA grants the petition in the sense that the said court reiterates its modification in the compromise judgement and that the sale (writ of execution, notice of sale, public auction sale and certificate of sale) of the real estate mortgage are declared null and void. Petition for certiorari was filed wherein the petitioner argues that CA committed grave abuse of discretion when the compromise judgement was

modified, wrongly applied Art 1229 of the Civil Code, and committed changes even though upholding the legality of such compromise judgment. Issue: Whether or not CA may modify the compromise judgment founded by the same courts to be lawful? Held: No. Final and executory judgment cannot be modified or amended. A compromise judgment should not be disturbed except for vices in consent or forgery. Article 1229 of the Civil Code which provides, The Judge shall equitably reduce the penalty when the principal obligation has been partly or irregularly complied with by the debtor. Even if there has been no performance, the penalty may also be reduced by the courts if it is iniquitous or unconscionable. The foregoing provision of the law applies only to obligations or contract, subject of a litigation, the condition being that the same has been partly or irregularly complied with by the debtor. The provision also applies even if there has been no performance, as long as the penalty is iniquituous or unconscionable. It cannot apply to a final and executory judgment. When the parties entered into the said compromise agreement and submitted the same for the approval of the trial court, its terms and conditions must be the primordial consideration why the parties voluntarily entered into the same. The trial court approved it because it is lawful, and is not against public policy or morals. Hence upon upholding the validity of the said compromise agreement, the CA has no authority to reduce the penalty and attorney's fees therein stipulated which is the law between the parties and is res judicata. WHEREFORE, the petition is GRANTED. The decision of the respondent Court of Appeals are hereby SET ASIDE and another judgment is hereby rendered affirming in toto the compromise judgment of the trial court with costs against private respondent.

43) Insular Bank of Asia and America v. Sps. Salazar, 159 SCRA 111

Facts: On November 22, 1978, Spouses Salazar obtained a Loan from Insular Bank of Asia (IBAA) in the amount of P42,050.00 payable on or befor December 12,1980. The terms agreed upon between the parties are: Spouses Salazar are jointly and severally liable to pay the amount with interest at 19% per annum, with the express authority to increase without notice the rate of interest up to the maximum allowed by law and subject further to penalty charges or liquidated damages upon default equivalent to 2% per month on any amount due and unpaid; and in the event the account was referred to an attorney for collection, the Spouses Salazar were also bound to pay 25% of any amount due as attorney's fees plus expenses of litigation and costs. In accordance with the said agreement, IBAA increased the rate of interest to 21%. The promissory note made by Spouses Salazar in favor of IBAA matured but they failed to pay on the agreed date. It was only after several demands that the spouses were able to make a partial payment of P68,676.75. IBAA then filed a complaint with the RTC alleging that Spouses Salazar were indebted to IBAA in the amount of P87,647.19. RTC rendered a decision ordering Spouses Salazar to pay P11,253.25 with interest thereon at the rate of 19% per annum from the filing of the complaint on September 12, 1984 until fully paid, P1,000.00 as attorney's fees and to pay the costs. Issue: Whether or not RTC erred in not awarding interest on the loan at 21% per annum. Ruling: No.The SC held that the interest rate may not be increased by the IBAA in the instant case. It is the rule that escalation clauses are valid stipulations in commercial contracts to maintain fiscal stability and to retain the value of money in long term contracts. However, the enforceability of such stipulations are subject to certain conditions. The Escalation Clause is a valid provision in the loan agreement provided that (1) the increased rate imposed or charged by petitioner does not exceed the ceiling fixed by law or the Monetary Board; (2) the increase is made effective not

earlier than the effectivity of the law or regulation authorizing such an increase and (3) the remaining maturities of the loans are more than 730 days as of the effectivity or the law or regulation authorizing such an increase. The loan was obtained on November 21, 1978 and was payable on or before November 12, 1980. Central Bank Circular No. 705, authorizing the increase from 19% to 21% was issued on December 1, 1979. Obviously, as of this date, December 1, 1979, the remaining maturity of the loan was less than 730 days. Hence, wothout merit. In sum, SC modified the decision of the lower court. Spouses Salazar were ordered to pay the sum of P38,915.18 with interest thereon at the rate of Twelve Percent (12%) per annum from the filing of the complaint until fully paid.

44) Garcia v. CA, 167 SCRA 815

Facts: In August 1981, Chemark was granted by respondent bank (SECURITY BANK & TRUST COMPANY) a credit line of P4.0 million which was increased in February 1982 to P20.0million. Export loan line from P2.0 million to P15.00 million; Import LC/TR-from P2.0 million to P5.0 million. The terms and conditions of this P20 million credit are stated in the Credit Line Agreement dated February 8, 1982. On this same day, February 8, 1982 the petitioners (Antonio Garcia, Dynetics, INC., and Matrix Management Corporation) executed separate, but with similar terms, indemnity agreements whereby they bound themselves jointly and severally with Chemark to pay respondent bank upon demand and without excussion of whatever amount Chemark may be indebted to said bank by virtue of said credit line accommodation including the substitution, renewals, extensions, increases and other amendments thereof; and that upon default of Chemark, proper demands to pay were made on the petitioners to comply with their obligations. The obligations were not paid by Chemark when they became due. Hence, the respondent bank demanded from the petitioners under the indemnity agreements the payment of the outstanding obligations of Chemark. Undoubtedly, the obligations of the petitioners to the

respondents are clearly defined in the pleadings, admissions and the unrebutted affidavit of Ms. Charis Marquez, Senior Assistant Manager, corporate banking group, SBTC who handles the Chemark account. The lower court rendered a decision and petitioner's complaint was dismissed and they were ordered to pay the respondent bank under the indemnity agreements.The petitioners then filed an appeal with the Court of Appeals: The appellate court sustained the decision. Both petitions were dismissed with costs against the petitioners. A motion for reconsideration thereto was denied. Hence this petition. Nevertheless, the petitioners insist that their complaint for declaratory relief tenders genuine issues. Their first defense: that the principal obligation has not yet matured because SBTC,agreed to allow Chemark a grace period within which to recover its liquidity and pay the debt.It was alleged that In the aftermath of the assassination of Senator Benigno S. Aquino, Jr. the Philippine economy was plunged into a deep crisis. None of the parties to a contract expected nor did they intend that the terms and conditions they agreed upon would operate under extreme adverse economic conditions. Because of the recent economic developments here and abroad, the failure of one of the stockholders of Chemark to comply with its commitments and Chemark's inability to collect substantial receivables from its marketing representatives in the United States, Chemark started to suffer liquidity problems. As a consequence, it was unable to pay its creditors, among whom is the defendant. Their second defense is that SBTC and the petitioners did not intend to use petitioners' Indemnity Agreements as collateral security for Chemark's loans and that SBTC extended the loan solely on Chemark's viability as a business enterprise. When the defendant finally extended the loan to Chemark, it did so not because of the aforesaid instruments (referring to the Indemnity Agreements) previously executed by the (petitioners) which, in the meantime, were no longer valid and effective and intended by the parties as collateral security for future Chemark loans, but because of defendant's assessment of the viability of Chemark's business operations and interest income expected to be generated from the loans to Chemark.

ISSUE: Whether or not the appellate court committed reversible error when it sustained the trial court's judgment?

HELD: NO. The issue tendered in the first defense is "sham and fictitious" in the light of the terms of the indemnity agreements. Thus, under the indemnity agreements, the petitioners bound themselves jointly and severally with Chemark in favor of the respondent bank for the payment, upon demand and without benefit of excussion, of whatever amount or amounts Chemark may be indebted to the respondent bank under and by virtue of the credit accommodations. The economic conditions of the country are immaterial to the issue on the liability of the petitioners under their indemnity agreements. The issue raised in the second defense, on whether or not the indemnity agreements were intended as collaterals for future Chemark loans is likewise sham and fictitious. Under the indemnity agreements, the petitioners bound themselves to pay whatever amount Chemark may be indebted to the bank "under and by virtue of aforesaid credit accommodation(s) including the substitutions, renewals, extensions, increases, amendments, conversions and revivals of the aforesaid credit accommodation(s).