Casebook 1

Obligations and
Contracts
Casebook
May 6, 2016
Submitted by:
AYUNGO, Christian
BARNES, John Michael
DE GUZMAN, Jorielle Dave
ROCA, Rafael Louise
TABANDA, Mikael Lorenzo
WALCIEN, Jemson Ivan
DE LA ROSA, Camille
FALLONG, Larraine Brecht
JAVAR, Ofelia
RAMOS, Kimberly
SAGSAGO, Myriam Arisse
SAN JOSE, Fhynn
SEMBRANO, Patricia Mae
Table of Contents
I. General Principles................................................................................................. 1
Art. 1156, Civil Obligations...................................................................................... 1
Ocampo III v. People, 543 S 487...........................................................................1
Art. 1157, Sources of Obligations............................................................................ 3
Art. 1158, Law......................................................................................................... 3
Leung Ben v. O'Brien, 38 P 182............................................................................3
Pelayo v. Lauron, 12 P 453................................................................................... 5
Hotel Nikko v. Reyes, 452 S 532...........................................................................6
St. Mary's Academy v. Carpitanos, 6 February 2002............................................8
Art. 1159, Contracts
..............................................................................................................................
10
Sps. Guanio v. Makati Shangri-la Hotel, 7 February 2011
...........................................................................................................................
10
TSPIC Corp. v. TSPIC Employees Union, 545 S 215
...........................................................................................................................
12
Regino v. Pangasinan College, 18 November 2004
...........................................................................................................................
15
PSBA v. CA, 4 February 1992
...........................................................................................................................
16
Ayala Corp. v. Rosa Diana Realty, 346 S 663
...........................................................................................................................
17
Bricktown Development v. Amor Tierra Development, 239 S 126
...........................................................................................................................
19
Art. 1160 in relation to Arts. 2142-2175, Quasi-Contracts
..............................................................................................................................
21
Locsin v. Mekeni, 9 December 2013
...........................................................................................................................
21
Sarte Flores v. Sps. Lindo, 13 April 2011
...........................................................................................................................
24
Titan-Ikeda Construction v. Primetown Property, 544 S 466
...........................................................................................................................
25
PADCOM v. Ortigas, 9 May 2002
...........................................................................................................................
26
Art. 1161 in relation to Arts. 20, 29-30, 35 in relation to Art. 100 et seq. of the
Revised Penal Code,
Delicts
..............................................................................................................................
29
People v. Nurfrashir Hashim, et al., 13 June 2012
...........................................................................................................................
29
Abellana v. People, 17 August 2011
...........................................................................................................................
31
People v. Malicsi, 543 S 93
...........................................................................................................................
33
People v. Sia, 21 November 2001
...........................................................................................................................
34
People v. Doctolero, 20 August 2001
...........................................................................................................................
35
People v. Abulencia, 22 August 2001
...........................................................................................................................
36
Bermudez v. Melencio-Herrera, 26 February 1988
...........................................................................................................................
37
People v. Relova, 6 March 1987
...........................................................................................................................
39
SLU SOL 1-C Page

i
Manantan v. CA, 29 January 2001
...........................................................................................................................
41
People v. Bayotas, 236 S 239
...........................................................................................................................
43
Art. 1162 in relation to Arts. 2176-2194, Quasi-Delicts
..............................................................................................................................
44
Barredo v. Garcia, 73 P 607
...........................................................................................................................
44
Del Carmen, Jr. v. Geronimo Bacoy, 25 April 2012 re: res ipsa loquitur
...........................................................................................................................
45
Philippine Hawk Corporation v. Lee, 16 February 2010
...........................................................................................................................
47
Dy Teban v. Ching, 543 S 560
...........................................................................................................................
48
Safeguard Security v. Tangco, 511 S 67
...........................................................................................................................
50
Villanueva v. Domingo, 438 S 485
...........................................................................................................................
51
Calalas v. CA, 31 May 2000
...........................................................................................................................
52
Picart v. Smith, 37 P 813 re: last clear chance
...........................................................................................................................
53
II. Nature and Effect of Obligations
55
Art. 1166, To Deliver Accessories and Accessions
..............................................................................................................................
55
Durban Apartments v. Pioneer Insurance, 12 January 2011
...........................................................................................................................
55
Parties to Delivery
..............................................................................................................................
56
Lagon v. Hooven Comalco, 349 S 363
...........................................................................................................................
56
Art. 1167, Positive Personal Obligations
..............................................................................................................................
58
Francisco v. CA, 401 S 594
...........................................................................................................................
58
Tanguiling v. CA, 266 S 78
...........................................................................................................................
60
Art. 1170, Breach of Obligations: Causes and Effects
..............................................................................................................................
61
Periquet v. CA, 238 S 697
...........................................................................................................................
61
Legaspi Oil v. CA, 224 S 213
...........................................................................................................................
63
Art. 1169, 1170, Default (Mora): Meaning
..............................................................................................................................
64
Philippine Charter v. Central Colleges, 22 February 2012
...........................................................................................................................
64
...........................................................................................................................
65
Art. 1169, Legal Delay/Default
..............................................................................................................................
66
Necessity of Demand: Extrajudicial or Judicial
..............................................................................................................................
66
PNB Madecor v. Uy, 363 S 128
...........................................................................................................................
66
When Demand Not Necessary
..............................................................................................................................
67
Barzaga v. CA, 268 S 105
...........................................................................................................................
67
...........................................................................................................................
68
Tayag v. CA, 219 S 480
...........................................................................................................................
69
SLU SOL 1-C Page

ii
...........................................................................................................................
70
Mora Solvendi: Effects
..............................................................................................................................
72
Racquel-Santos v. CA, 7 July 2009
...........................................................................................................................
72
RCBC v. CA, 305 S 449
...........................................................................................................................
74
Mora Accipiendi: Effects
..............................................................................................................................
75
State Investment v. CA, 198 S 392
...........................................................................................................................
75
Compensatio Morae: Effects
..............................................................................................................................
77
BPI Investment v. CA, 377 S 117
...........................................................................................................................
77
Leao v. CA, 369 S 36
...........................................................................................................................
78
Heirs of Bacus v. CA, 371 S 295
...........................................................................................................................
80
Integrated Packing v. CA, 333 S 170
...........................................................................................................................
81
Laforteza v. Machuca, 333 S 643
...........................................................................................................................
83
Art. 1170 in relation to Art. 1171, Fraud (Dolo): Meaning
..............................................................................................................................
85
Regala v. Carin, 6 April 2011
...........................................................................................................................
85
Dolo Incidente: Effects
..............................................................................................................................
86
International Corporate Bank v. Gueco, 351 S 516
...........................................................................................................................
86
Republic v. Court of Tax Appeals, 366 S 489
...........................................................................................................................
87
Malicious Prosecution
..............................................................................................................................
88
Diaz v. Davao Light, 4 April 2007
...........................................................................................................................
88
Yasoa v. De Ramos, 440 S 154
...........................................................................................................................
90
Art. 1170, 1172-1173, Negligence (Culpa): Meaning
..............................................................................................................................
92
Degrees of Diligence: Extraordinary, Ordinary, or Slight
..............................................................................................................................
92
Asian Terminals v. Philam, 24 July 2013
...........................................................................................................................
92
Art. 1173, Negligence as a Question of Fact: Test
..............................................................................................................................
94
Yambao v. Zuiga, 418 S 266
...........................................................................................................................
94
Smith Bell Dodwell v. Borja, 383 S 341
...........................................................................................................................
95
Ilusorio v. CA, 393 S 69
...........................................................................................................................
97
NPC v. CA, 161 S 334
...........................................................................................................................
99
Culpa Contractual
.............................................................................................................................
101
Muaje-Tuazon v. Wenphil, 511 S 521
..........................................................................................................................
101
RCPI v. Verchez, 481 S 384
..........................................................................................................................
103
Victory Liner v. Gammad, 444 S 355
..........................................................................................................................
104
SLU SOL 1-C Page

iii
FGU v. Sarmiento, 386 S 312
..........................................................................................................................
105
LRTA v. Natividad, 397 S 75
..........................................................................................................................
107
Rodzssen v. Far East Bank, 357 S 618
..........................................................................................................................
108
UE v. Jader, 17 February 2000
..........................................................................................................................
109
Bayne Adjusters v. CA, 323 S 231
..........................................................................................................................
110
Culpa Aquiliana
.............................................................................................................................
112
Delsan Transport v. C & A Construction, 1 October 2003
..........................................................................................................................
112
PCIB v. CA, 350 S 446
..........................................................................................................................
114
SMC and Heirs of Ouana v. CA, 4 July 2002
..........................................................................................................................
116
Solidary vs. Independent Liability of Employer and/or Employee
.............................................................................................................................
119
Heirs of Ochoa v. G & S Transport, 9 March 2011
..........................................................................................................................
119
Pacis v. Morales, 25 February 2010
..........................................................................................................................
120
..........................................................................................................................
121
Mercury Drug v. Sps. Huang, 22 June 2007
..........................................................................................................................
122
Mendoza v. Soriano, 8 June 2007
..........................................................................................................................
123
Cerezo v. Tuazon, 426 S 167
..........................................................................................................................
125
Presumption of Fault/Negligence of Employer: Vicarious Liability
.............................................................................................................................
127
Filcar Transports v. Espinas, 20 June 2012
..........................................................................................................................
127
FEB Leasing v. Sps. Baylon, 29 June 2011
..........................................................................................................................
129
Filipinas Synthetic v. De Los Santos, 16 March 2011
..........................................................................................................................
131
Viron v. De los Santos, 345 S 509
..........................................................................................................................
133
Proof of Employer's Fault/Negligence
.............................................................................................................................
134
Mercury Drug v. Baking, 523 S 184 (2007)
..........................................................................................................................
134
..........................................................................................................................
136
Pleyto v. Lomboy, 432 S 329
..........................................................................................................................
137
Proof of Due Diligence
.............................................................................................................................
139
..........................................................................................................................
139
Sykl v. Begasa, 414 S 237
..........................................................................................................................
140
Yambao v. Zuniga, 418 S 266
..........................................................................................................................
141
Quasi-Delictual Liability even in the Existence of a Contract between Parties
.............................................................................................................................
142
Mindanao Terminal v. Phoenix, 587 S 429
..........................................................................................................................
142
YHT Realty v. CA, 451 S 638
..........................................................................................................................
144
SLU SOL 1-C Page

iv
Medical Malpractice/Medical Negligence Cases
.............................................................................................................................
146
Ramos v. CA, 321 S 584 and 380 S 457 " res ipsa loquitur," "captain of the ship"
..........................................................................................................................
146
Reyes v. Sisters of Mercy, 3 October 2000
..........................................................................................................................
148
Dr. Solidum v. People, 10 March 2014
..........................................................................................................................
150
Rosit v. Davao Doctors' Hospital, 7 December 2015
..........................................................................................................................
151
Nogales v. Capitol Medical Center, 511 S 204 on "apparent authority" and
"borrowed servant rule"
152
Professional Services v. Agana, 513 S 478 on "control test"
..........................................................................................................................
154
Professional Services v. CA, 544 S 170 and 2 February 2010 on "corporate
negligence/corporate
responsibility"
..........................................................................................................................
155
Cantre v. Sps. Go, 522 S 547
..........................................................................................................................
157
Dr. Rubi Li v. Sps. Soliman, 7 June 2011 on "informed consent"
..........................................................................................................................
159
Culpa Criminal
.............................................................................................................................
161
People v. Delos Santos, 355 S 415
..........................................................................................................................
161
L.G. Foods v. Agraviador, 503 S 170
..........................................................................................................................
163
Art. 1170, Contravention of the Terms
.............................................................................................................................
165
Magat v. Medialdea, 20 April 1983
..........................................................................................................................
165
Art. 1165, Specific Performance: Necessity
.............................................................................................................................
167
Vda. De Mistica v. Naguiat, 418 S 73
..........................................................................................................................
167
Co v. CA, 17 August 1999
..........................................................................................................................
168
Art. 1191-1192 as compared to Art. 1380-1389, Resolution/Rescission
.............................................................................................................................
169
Nature as Remedy
.............................................................................................................................
169
Heirs of Quirong v. DBP, 3 December 2009
..........................................................................................................................
169
Heirs of Gaite v. The Plaza, 26 January 2011
..........................................................................................................................
171
Solar Harvest Incorporated v. Davao Corrugated, 26 July 2010
..........................................................................................................................
173
Right to Resolve/Rescind: Requisites
.............................................................................................................................
174
Reyes v. Tuparan, 1 June 2011
..........................................................................................................................
174
G.G. Sportswear Mfg. Corp. v. World Class Properties, Inc., 2 March 2010
..........................................................................................................................
177
Movido v. Reyes Pastor, 11 February 2010
..........................................................................................................................
179
Sps. Tongson v. Emergency Pawnshop, 15 January 2010
..........................................................................................................................
181
Sanz Maceda v. DBO, 11 August 2010
..........................................................................................................................
183
..........................................................................................................................
185
SLU SOL 1-C Page
v
Effects
.............................................................................................................................
187
Serrano v. CA, 417 S 415
..........................................................................................................................
187
Gil v. CA, 411 S 18
..........................................................................................................................
188
Reyes v. Lim, 408 S 560
..........................................................................................................................
190
Ong v. Tiu, 1 February 2002
..........................................................................................................................
192
Equatorial Realty v. Mayfair Theater, 370 S 56
..........................................................................................................................
194
Velarde v. CA, 361 S 56
..........................................................................................................................
196
Asuncion v. Evangelista, 13 October 1999
..........................................................................................................................
198
Uy v. CA, 9 September 1999
..........................................................................................................................
200
Damages: Kinds
.............................................................................................................................
201
Tamayo, et al. v. Abad Seora, 15 November 2010 on loss of earning capacity
..........................................................................................................................
201
Tan v. OMC Carriers, 12 January 2011
..........................................................................................................................
203
Victory Liner v. Heirs, 394 S 341
..........................................................................................................................
205
GSIS v. Labung-Deang, 365 S 341
..........................................................................................................................
206
BPI Investment v. D.G. Carreon, 371 S 58
..........................................................................................................................
208
Art. 1177 in relation to Art. 1380-1389, Accion Pauliana
.............................................................................................................................
210
Khe Khong v. CA, 355 S 701
..........................................................................................................................
210
Art. 1174 in relation to Art. 1165, Fortuitous Event/Caso Fortuito
.............................................................................................................................
212
Requisites
.............................................................................................................................
212
Philippine Realty v. Ley Const. and Dev. Corp., 13 June 2011
..........................................................................................................................
212
Megaworld Globus Asia, Inc. v. Tanseco, 9 October 2009
..........................................................................................................................
214
Sicam v. Jorge, 8 August 2007
..........................................................................................................................
216
Huibonhoa v. CA, 14 December 1999
..........................................................................................................................
217
Ace Agro v. CA, 266 S 429
..........................................................................................................................
219
Effects of Fortuitous Event upon Obligation
.............................................................................................................................
221
Dioquino v. Laureano, 33 S 65
..........................................................................................................................
221
Bachelor Express v. CA, 193 S 216
..........................................................................................................................
223
Vasquez v. CA, 138 S 558
..........................................................................................................................
224
Yobido v. CA, 17 October 1997
..........................................................................................................................
225
Juntilla v. Fontanar, 136 S 625
..........................................................................................................................
227
Philamgen Insurance v. MGG Marine, 8 March 2002
..........................................................................................................................
228
Mindex v. Morillo, 12 March 2002
..........................................................................................................................
230
SLU SOL 1-C Page

vi
NAPOCOR v. Phillip Bros., 369 S 629
..........................................................................................................................
232
Art. 1178, Transmissibility of Rights and Obligations
.............................................................................................................................
234
Ong Genato v. Bayhon, et al., 24 August 2009
..........................................................................................................................
234
Union Bank v. Santibaez, 452 S 228
..........................................................................................................................
236
San Agustin v. CA, 371 S 348
..........................................................................................................................
238
Project Builders, Inc. v. CA, 358 S 626
..........................................................................................................................
239
III. Kinds of Obligations
241
Art. 1179, par. 1, Pure Obligations
.............................................................................................................................
241
Hong Kong and Shanghai Bank v. Sps. Broqueza, 17 November 2000
..........................................................................................................................
241
Art. 1179 in relation to Art. 1183, Requisites of Conditional Obligations
.............................................................................................................................
243
DBP v. CA, 262 S 245
..........................................................................................................................
243
Art. 1181, Suspensive Conditions
.............................................................................................................................
245
Tomimbang v. Tomimbang, 4 August 2009
..........................................................................................................................
245
Gonzales v. Heirs, 314 S 585
..........................................................................................................................
246
Insular Life v. Young, 373 S 626
..........................................................................................................................
248
Direct Funders v. Lavia, 373 S 645
..........................................................................................................................
250
Art. 1182, Potestative Suspensive Conditions
.............................................................................................................................
251
..........................................................................................................................
251
Hermosa v. Longara, 93 P 971
..........................................................................................................................
253
Trillana v. Quezon Colleges, 93 P 383
..........................................................................................................................
254
Art. 1184, Positive Suspensive Conditions
.............................................................................................................................
255
Visayan Sawmill v. CA, 219 S 378
..........................................................................................................................
255
..........................................................................................................................
256
Effects of Non-Fulfillment of Suspensive Condition
.............................................................................................................................
257
De Leon v. Ong, 2 February 2010
..........................................................................................................................
257
Heirs of Sandejas v. Lina, 351 S 183
..........................................................................................................................
258
Arts. 1193-1198, Obligations with a Term/Period
.............................................................................................................................
259
CIR v. Primetown, 28 August 2007
..........................................................................................................................
259
NAMARCO v. Tecson, 139 P 584
..........................................................................................................................
260
Distinctions: Condition v. Period/Term
.............................................................................................................................
261
Berg v. Magdalena Estates, 92 P 110
..........................................................................................................................
261
Lirag v. CA, 63 S 375
..........................................................................................................................
263
SLU SOL 1-C Page

vii
Daguhoy v. Ponce, 96 P 15
..........................................................................................................................
265
Victorias Planters v. Victorias Milling, 97 P 318
..........................................................................................................................
266
Art. 1180 in relation to Art. 1197, Potestative Period
.............................................................................................................................
268
Jespajo v. CA, 390 S 27
..........................................................................................................................
268
Borromeo v. CA, 47 S 65
..........................................................................................................................
270
Gonzales v. Jose, 66 P 369
..........................................................................................................................
272
Arts. 1195-1197, Effects
.............................................................................................................................
273
Baluyut v. Poblete, 514 S 370
..........................................................................................................................
273
Malayan Realty v. Uy, 10 November 2006
..........................................................................................................................
275
Kasapian ng Manggagawa ng Coca-Cola v. CA, 487 S 487
..........................................................................................................................
277
Santos v. Santos, 441 S 472
..........................................................................................................................
278
Melotindos v. Tobias, 391 S 299
..........................................................................................................................
280
LL and Co. v. Huang, 378 S 612
..........................................................................................................................
282
Brent School v. Zamora, 5 February 1990
..........................................................................................................................
283
Lim v. People, 21 November 1984
..........................................................................................................................
284
Pacific Banking v. CA, 5 May 1989
..........................................................................................................................
285
Art. 1199, Alternative Obligations: Meaning and Definition
.............................................................................................................................
288
Agoncillo v. Javier, 38 S 424
..........................................................................................................................
288
Ong Guan v. Century, 46 P 592
..........................................................................................................................
290
Arts. 1200, 1202-1203, Right of Choice/Election: Nature and Limitations
.............................................................................................................................
291
Legarda v. Miailhe, 88 P 637
..........................................................................................................................
291
Art. 1201, Effectivity of Choice
.............................................................................................................................
292
Reyes v. Martinez, 55 P 492
..........................................................................................................................
292
Art. 1206, Facultative Obligations
.............................................................................................................................
293
Quizana v. Redugerio, 94 P 922
..........................................................................................................................
293
Art. 1208 in relation to Art. 1207
.............................................................................................................................
294
Marsman v. Philippine Geoanalytics, 29 June 2010
..........................................................................................................................
294
Alipio v. CA, 341 S 441
..........................................................................................................................
296
Effects of Joint Liability
.............................................................................................................................
297
PH Credit Corp. v. CA, 370 S 155
..........................................................................................................................
297
Art. 1207, Solidary Obligations: How Created
.............................................................................................................................
300
CDCP v. Estrella, 501 S 228
..........................................................................................................................
300
SLU SOL 1-C Page

viii
Republic Glass Corp. v. Qua, 30 July 2004
..........................................................................................................................
301
Industrial Management v. NLRC, 331 S 640
..........................................................................................................................
302
Metro Manila Transit v. CA, 21 June 1993
..........................................................................................................................
303
Arts. 1211-1216, Active Solidarity or Mutual Agency: Effects
.............................................................................................................................
305
Inciong v. CA, 257 S 578
..........................................................................................................................
305
Philippine Blooming Mills v. CA, 15 October 2003
..........................................................................................................................
306
Art. 1217-1222, Passive Solidarity or Mutual Guaranty: Effects
.............................................................................................................................
308
Queensland-Tokyo v. George, 8 September 2010
..........................................................................................................................
308
Shrimp Specialist, Inc. v. Fuji-Triumph, 7 December 2009
..........................................................................................................................
309
Asset Builders v. Stronghold, 18 October 2010
..........................................................................................................................
311
Eparwa Security v. Liceo de Cagayan, 508 S 373
..........................................................................................................................
312
Dimayuga v. PCIB, 5 August 1991
..........................................................................................................................
314
Cerna v. CA, 30 March 1993
..........................................................................................................................
316
Art. 1225, Kinds of Indivisibility: Natural, Legal, or Conventional
.............................................................................................................................
317
Nazareno v. CA, 343 S 637
..........................................................................................................................
317
Arts. 1226-1230, Obligations with a Penal Clause
.............................................................................................................................
319
Kinds of Penalties
.............................................................................................................................
319
Alonzo v. San Juan, 451 S 45
..........................................................................................................................
319
David v. CA, 316 S 710
..........................................................................................................................
321
Penalties v. Interest
.............................................................................................................................
323
RP v. Thi Thu Thuy De Guzman, 15 June 2011
..........................................................................................................................
323
Marques v. Far East Bank, 10 January 2011
..........................................................................................................................
325
Prisma Construction v. Menchavez, 9 March 2010
..........................................................................................................................
327
Macalalag v. People, 511 S 400
..........................................................................................................................
330
Tan v. CA, 367 S 571
..........................................................................................................................
332
Eastern Shipping v. CA, 234 S 78
..........................................................................................................................
333
Escalation Clause v. Acceleration Clause
.............................................................................................................................
335
PCI v. Ng Sheung Ngor, 541 S 223
..........................................................................................................................
335
NSBC v. PNB, 435 S 565
..........................................................................................................................
336
Polotan v. CA, 296 S 247
..........................................................................................................................
339
New Sampaguita v. PNB, 435 S 565
..........................................................................................................................
341
Legal Rate: Loans and Forbearances of Money vs. Other Monetary Obligations
.............................................................................................................................
344
SLU SOL 1-C Page

ix
Nacar v. Gallery Frames, 13 August 2013
..........................................................................................................................
344
Estores v. Sps. Supangan, 18 April 2012
..........................................................................................................................
345
Hung v. BPI Card, 20 July 2010
..........................................................................................................................
346
..........................................................................................................................
347
Land Bank v. Ong, 24 November 2010
..........................................................................................................................
349
Art. 1175 in relation to Arts. 1229-1230, Reduction of Conventional Penalties:
Nullity of
Penalties/Usurious Transactions
.............................................................................................................................
351
Mallari v. Prudential, 5 June 2013
..........................................................................................................................
351
RGM Industries v. United Pacific, 27 June 2012
..........................................................................................................................
352
..........................................................................................................................
354
Maceda, Jr. v. DBO / DBP v. Maceda, Jr., 11 August 2010
..........................................................................................................................
356
PNB v. Encina, 544 S 608
..........................................................................................................................
357
Imperial v. Jaucian, 427 S 517
..........................................................................................................................
359
Pabugais v. Sahijwani, 423 S 596
..........................................................................................................................
361
Lo v. CA, 411 S 523 (23 September 2003)
..........................................................................................................................
363
Ligutan v. CA, 12 February 2002
..........................................................................................................................
365
Pascual v. Ramos, 384 S 105
..........................................................................................................................
367
First Metro Investment v. Este de Sol, 369 S 99
..........................................................................................................................
369
Domel Trading v. CA, 315 S 13
..........................................................................................................................
372
Medel v. CA, 299 S 481
..........................................................................................................................
374
Reformina v. Tomol, 139 S 260 (11 October 1985)
..........................................................................................................................
376
IV. Extinguishment of Obligations
378
Art. 1232, Meaning/Effects
.............................................................................................................................
378
Lo v. KJS, 413 S 182
..........................................................................................................................
378
Art. 1233, Requisites
.............................................................................................................................
381
PNB v. CA, 256 S 44
..........................................................................................................................
381
Identity of Prestation
.............................................................................................................................
383
Cathay Pacific v. Vazquez, 399 S 207
..........................................................................................................................
383
Arts. 1249-1250 in relation to R.A. 8183
.............................................................................................................................
385
Citibank v. Sabeniano, 504 S 378
..........................................................................................................................
385
Telengton Bros. v. US Lines, 483 S 458
..........................................................................................................................
386
CF Sharp v. Northwest Airlines, 381 S 314
..........................................................................................................................
387
SLU SOL 1-C Page
x
Padilla v. Paredes, 328 S 434
..........................................................................................................................
388
Tibajia v. CA, 223 S 163
..........................................................................................................................
390
DBP v. CA, 494 S 25
..........................................................................................................................
391
Instruments/Evidences of Credit
.............................................................................................................................
392
Vitarich v. Locsin, 15 November 2010
..........................................................................................................................
392
Metrobank v. Cabilzo, 510 S 259
..........................................................................................................................
394
Art. 1250, Effects of Inflation
.............................................................................................................................
395
Almeda v. Bathala Mktng., 542 S 470
..........................................................................................................................
395
..........................................................................................................................
396
Arts. 1234-1235, Substantial Payment/Performance
.............................................................................................................................
397
Palanca v. Guides, 452 S 461
..........................................................................................................................
397
Art. 1240, Creditor's Right of Payment
.............................................................................................................................
399
PCIB v. CA, 481 S 127
..........................................................................................................................
399
..........................................................................................................................
400
BPI v. CA, 232 S 302
..........................................................................................................................
401
Art. 1236 in relation to Art. 1243 and Art. 1247, Debtor
.............................................................................................................................
403
..........................................................................................................................
403
PCIB v. Franco, 5 March 2014
..........................................................................................................................
405
Audion Electric v. NLRC, 308 S 340
..........................................................................................................................
407
Payment by Third Person
.............................................................................................................................
409
Land Bank of the Philippines v. Ong, 24 November 2010
..........................................................................................................................
409
Art. 1251, Where Payment Must be Made
.............................................................................................................................
411
Binalbagan v. CA, 256 S 44
..........................................................................................................................
411
When Payment Must be Made
.............................................................................................................................
414
Lorenzo Shipping v. BJ Marthel, 443 S 163
..........................................................................................................................
414
Art. 1245, Dacion En Pago/Dation in Payment
.............................................................................................................................
416
Luzon Development Bank v. Enriquez, 12 January 2011
..........................................................................................................................
416
Estanislao v. East-West Banking Corp., 544 S 369
..........................................................................................................................
418
Aquintey v. Tibong, 511 S 414
..........................................................................................................................
419
Art. 1255 (in relation to Act No. 1956 or Insolvency Law), Payment by Cession or
Assignment
.............................................................................................................................
420
Lo v. CA, 411 S 523
..........................................................................................................................
420
Arts 1252-1254 in relation to Art. 1176, Application of Payments
.............................................................................................................................
422
SLU SOL 1-C Page

xi
ASJ Corp. v. Evangelista, 545 S 300
..........................................................................................................................
422
Paculdo v. Regalado, 345 S 134
..........................................................................................................................
423
CBC v. CA, 265 S 327
..........................................................................................................................
425
Mobil v. CA, 272 S 523
..........................................................................................................................
428
Arts. 1256-1261, Tender of Payment and Consignation
.............................................................................................................................
431
Sps. Bonrostro v. Sps. Luna, 24 July 2013
..........................................................................................................................
431
Dalton v. FGR Realty and Development Corp., 19 January 2011
..........................................................................................................................
433
Benos v. Lawilao, 509 S 549
..........................................................................................................................
434
People's Industrial v. CA, 24 October 1997
..........................................................................................................................
435
Eternal Gardens v. CA, 9 December 1997
..........................................................................................................................
437
Rayos v. Reyes, 398 S 24
..........................................................................................................................
439
Art. 1189 [2], Kinds of Loss/Impossibility: Physical, Civil, or Legal
.............................................................................................................................
440
Occena v. CA, 29 October 1976
..........................................................................................................................
440
Ortigas v. Feati Bank, 94 S 533
..........................................................................................................................
441
Art. 1267, Rebus Sic Stantibus
.............................................................................................................................
443
So v. Food Fest Land, Inc. 7 April 2010
..........................................................................................................................
443
Magat v. CA, 337 S 298
..........................................................................................................................
445
PNCC v. CA, 272 S 183
..........................................................................................................................
446
NATELCO v. CA, 230 S 351
..........................................................................................................................
447
Arts. 1270-1274, Condonation/Remission of the Debt
.............................................................................................................................
449
Meaning and Nature
.............................................................................................................................
449
Reyna v. COA, 8 February 2011
..........................................................................................................................
449
Art. 1271, Requisites: Not Inofficious
.............................................................................................................................
451
Trans Pacific v. CA, 235 S 494
..........................................................................................................................
451
Art. 1272, Presumption of Delivery
.............................................................................................................................
453
Dalupan v. Harden, 27 November 1951
..........................................................................................................................
453
Lopez Vito v. Tambunting, 33 P 226
..........................................................................................................................
455
Art. 1275, Confusion or Merger of Rights: Meaning and Definition
.............................................................................................................................
457
Estate of Mota v. Serra, 47 P 464
..........................................................................................................................
457
Yek Tong Lin v. Yusingco, 64 P 1062
..........................................................................................................................
460
Art. 1279, Compensation: Requisites
.............................................................................................................................
461
EGV Realty v. CA, 20 July 1999
..........................................................................................................................
461
SLU SOL 1-C Page

xii
Aerospace Chemical v. CA, 23 September 46
1999 ............................................................................... 3
Apodaca v. NLRC, 172 S 46
442 .............................................................................................................. 5
Art. 1281, Total vs. 46
Partial .................................................................................................................... 6
.
Sps. Chung v. Ulanday Construction, 11 October 46
2010 .................................................................... 6
Arts. 1280 and 1282, Legal Compensation: 46
Requisites ......................................................................... 8
Mondragon v. Sola, Jr., 21 January 46
2013 .......................................................................................... 8
Insular Investment v. Capital One, 25 April 47
2012 ............................................................................. 0
Lao, et al. v. Special Plans, Inc., 29 June 47
2010................................................................................... 2
United Planters Sugar v. CA, 2 April 47
2009 ......................................................................................... 3
Arts. 1287-1288, Legal Compensation: When 47
Prohibited .................................................................... 5
PNB Management v. R & R Metal, 373 S 47
1 ....................................................................................... 5
Silahis v. IAC, 7 December 47
1989 ........................................................................................................ 6
Francia v. CA, 28 June 47
1988 .............................................................................................................. 7
Trinidad v. Acapulco, 494 S 47
179 ........................................................................................................ 9
Art. 1291, Novation: Meaning and Definition; How 48
Effected ............................................................... 0
Heirs of Franco v. Sps. Gonzales, 27 June 48
2012 ................................................................................ 0
Arts. 1297-1298, Objective 48
Novation .................................................................................................... 2
Hernandez-Nievera v. Hernandez, 14 February 48
2011 ....................................................................... 2
St. James College v. Equitable PCI Bank, 9 August 48
2010 ................................................................... 4
2009 ...................................................................................... 5
Art. 1293, Substitution of the Debtor: Expromision (Arts. 1236-1237, 1294) vs.
Delegacion (Arts. 1236-
1237, 48
1295) ..................................................................................................................... 7
......................
Mindanao Savings v. Willkom, 20 October 48
2010 .............................................................................. 7
414 ........................................................................................................... 8
Arts. 1300, 1303-1304, Subrogation to the Rights of the Creditor: Legal vs.
Conventional (Art. 1301)
.............................................................................................................................. 48
................................ 9
2013 ........................................................................................... 9
Loadmasters v. Glodel Brokerage, 10 January 49
2011 ......................................................................... 1
Metrobank v. Rural Bank of Gerona, 5 July 49
2010 ............................................................................. 2
Swagman v. CA, 455 S 49
175 ................................................................................................................ 4
Azolla Farms v. CA, 11 November 49
2004 ............................................................................................ 6
Bautista v. Pilar Development, 312 S 49
611 ......................................................................................... 8
SLU SOL 1-C Page

xiii
Evadel Realty v. Soriano, 357 S 395
..........................................................................................................................
500
Statute of Limitations/Prescriptive Periods (Arts. 1140-1149; Art. 1577, 1542-1543,
1571; Family
Code)
.............................................................................................................................
502
Rosario v. De Guzman, 10 July 2013
..........................................................................................................................
502
Vector Shipping v. American Home, 3 July 2013
..........................................................................................................................
504
Villeza v. German Management, 8 August 2010
..........................................................................................................................
505
Insurance of the Philippine Islands v. Sps. Gregorio, 14 February 2011
..........................................................................................................................
507
Mariano v. Petron, 21 January 2010
..........................................................................................................................
508
Sps. Bernales v. Heirs of Sambaan, 15 January 2010
..........................................................................................................................
509
Art. 1155, Interruption
.............................................................................................................................
511
B & I Realty v. Caspe, 543 S 1
..........................................................................................................................
511
Mesina v. Garcia, 509 S 431
..........................................................................................................................
512
Heirs of Gaudiane v. CA, 11 March 2004
..........................................................................................................................
513
Laureano v. CA, 9 March 2000
..........................................................................................................................
514
Banco Filipino v. CA, 30 May 2000
..........................................................................................................................
515
Vda. De Delgado v. CA, 28 August 2001
..........................................................................................................................
516
Maestrado v. CA, 9 March 2000
..........................................................................................................................
518
Art. 1431, Estoppel: Definition and Meaning
.............................................................................................................................
519
F.A.T. Kee Computer v. Online Networks, 2 February 2011
..........................................................................................................................
519
Tanay Recreation v. Fausto, 455 S 436
..........................................................................................................................
520
Mendoza v. CA
..........................................................................................................................
521
Lim v. Queensland, 373 S 31
..........................................................................................................................
522
Kinds
.............................................................................................................................
524
Placewell v. Camote, 26 June 2006
..........................................................................................................................
524
Heirs of Ragua v. CA, 31 January 2000
..........................................................................................................................
526
Art. 1436, Estoppel by Deed
.............................................................................................................................
528
Metrobank v. CA, 8 June 2000
..........................................................................................................................
528
Sps. Manuel v. CA, 1 February 2001
..........................................................................................................................
529
Estoppel in Pais by Representation/Positive Acts (Arts. 1434-1435; Art. 1437)
.............................................................................................................................
530
Cuenco v. Cuenco, 458 S 496 (13 October 2004)
..........................................................................................................................
530
Laurel v. Desierto, 383 S 493
..........................................................................................................................
532
Hanopol v. SM, 390 S 439
..........................................................................................................................
534
SLU SOL 1-C Page

xiv
Estoppel in Pais by Promise (Promissory Estoppel)
.............................................................................................................................
536
Terminal Facilities v. PPA, 378 S 82
..........................................................................................................................
536
Mendoza v. CA, 25 June 2001
..........................................................................................................................
538
Estoppel in Pais by Silence
.............................................................................................................................
540
..........................................................................................................................
540
Roblett Construction v. CA, 266 S 71
..........................................................................................................................
542
Estoppel by Laches: Prescription vs. Laches
.............................................................................................................................
544
Sime Darby v. Goodyear, 8 June 2011
..........................................................................................................................
544
Far East Bank v. Borja, 25 January 2010
..........................................................................................................................
547
Kings Properties Corporation, Inc. v. Galido, 27 November 2009
..........................................................................................................................
549
..........................................................................................................................
550
..........................................................................................................................
552
Pahamotang v. PNB, 31 March 2005
..........................................................................................................................
554
Shopper's Paradise v. Roque, 13 January 2004
..........................................................................................................................
555
Meatmasters v. Lelis Integrated, 452 S 626
..........................................................................................................................
557
Larena v. Mapili, 7 August 2003
..........................................................................................................................
559
Santos v. Santos, 2 October 2001
..........................................................................................................................
561
Villanueva-Mijares v. CA, 12 April 2000
..........................................................................................................................
563
V. Contracts (Arts. 1305-1317)
565
Art. 1306 (in relation to Art. III, sec. 10 of 1987 Constitution), Autonomy
.............................................................................................................................
565
Garcia v. Villar, 27 June 2012
..........................................................................................................................
565
Sps. Edralin v. Philippine Veterans Bank, 9 March 2011
..........................................................................................................................
566
University Physicians Services v. Marian Clinics, 1 September 2010
..........................................................................................................................
568
Martin, et al. v. DBS Bank Philippines, Inc. et al., 16 June 2010
..........................................................................................................................
570
Heirs of Zabala, et al. v. CA, 6 May 2010
..........................................................................................................................
573
Duncan v. Glaxo, 438 S 343
..........................................................................................................................
575
Star Paper v. Simbol, 487 S 228
..........................................................................................................................
577
Tiu v. Platinum Plans, 28 February 2007 re: non-involvement clause
..........................................................................................................................
579
Avon Cosmetics v. Luna, 511 S 376 re: exclusivity clause
..........................................................................................................................
581
Del Castillo v. Richmond, 45 P 679
..........................................................................................................................
583
Arwood v. DM Consunji, 394 S 11
..........................................................................................................................
584
Sps. Tecklo v. Rural Bank of Pamplona, 18 June 2010 re: dragnet clause
..........................................................................................................................
586
SLU SOL 1-C Page
xv
Banate v. Phil. Countryside, 13 July 2010
..........................................................................................................................
588
..........................................................................................................................
590
Chua Tee Dee v. CA, 429 S 418 (2004)
..........................................................................................................................
592
GQ Garments v. Miranda, 495 S 741 (2006)
..........................................................................................................................
594
Bercero v. Capitol Development, 519 S 484 (2007)
..........................................................................................................................
597
Art. 1159, Art. 1315, Obligatory Force
.............................................................................................................................
601
Hemedes v. CA, 8 October 1999
..........................................................................................................................
601
Right of First Refusal Meaning and Definition
.............................................................................................................................
603
PUP v. Golden Horizon, 15 March 2010
..........................................................................................................................
603
Villegas v. CA, 499 S 276
..........................................................................................................................
605
Equatorial Realty v. Carmelo, 264 S 483
..........................................................................................................................
607
PUP v. CA, 368 S 691
..........................................................................................................................
609
Litonjua v. L & R, 320 S 405
..........................................................................................................................
611
Arts. 1308-1310, 1317, Mutuality
.............................................................................................................................
613
Josefa v. Zhandong, 417 S 269
..........................................................................................................................
613
Equality/Contracts of Adhesion
.............................................................................................................................
614
Saludo v. Security Bank, 13 October 2010
..........................................................................................................................
614
..........................................................................................................................
616
Dio v. Ferdinand Memorial, 509 S 453
..........................................................................................................................
617
PILTEL v. Tecson, 428 S 378
..........................................................................................................................
619
PAL v. CA, 255 S 48
..........................................................................................................................
621
Ermitao v. CA, 306 S 218
..........................................................................................................................
623
Nonbinding as to Third Parties; Exceptions (Arts. 1309-1310); Arbitration, Arts.
2042-2406 of NCC in
relation to R.A. 876 and R.A. 9285
.............................................................................................................................
625
Uniwide v. Titan-Ikeda, 511 S 335
..........................................................................................................................
625
Heirs of Salas v. Laperal, 13 December 1999
..........................................................................................................................
627
Medrano v. CA, 452 S 77
..........................................................................................................................
629
Tan v. Gullas, 393 S 334
..........................................................................................................................
631
Art. 1317, Enforceability
.............................................................................................................................
633
Gozun v. Mercado, 511 S 305
..........................................................................................................................
633
Art. 1311, Privity: Exceptions
.............................................................................................................................
635
Sta. Lucia Realty v. Sps. Buenaventura, 2 October 2009
..........................................................................................................................
635
SLU SOL 1-C Page
xvi
Chan v. Maceda, 402 S 352
..........................................................................................................................
638
Art. 1311, par. 2, Stipulations Pour Autrui
.............................................................................................................................
640
Baluyot v. CA, 22 July 1999
..........................................................................................................................
640
Art. 1312, Contracts Creating Real Rights
.............................................................................................................................
642
Cuyco v. Cuyco, 487 S 693
..........................................................................................................................
642
Art. 1314, Tortious Interference
.............................................................................................................................
644
Go, doing business under the name and style of "ACG Express Liner" v. Cordero,
4 May 2010
..........................................................................................................................
644
Tayag v. CA, 25 March 2004
..........................................................................................................................
648
So v. CA, 21 September 1999
..........................................................................................................................
649
Stages in the Execution of a Contract
.............................................................................................................................
651
International Freeport v. Danzas, 26 January 2011
..........................................................................................................................
651
Rockland v. Mid-Pasig Development, 543 S 596
..........................................................................................................................
654
Consummation/Termination
.............................................................................................................................
656
MMDA v. JANCOM, 375 S 320
..........................................................................................................................
656
VI. Essential Requisites of Contracts
659
Elements: Offer and Acceptance
.............................................................................................................................
659
Korean Air v. Yuson, 16 June 2010
..........................................................................................................................
659
..........................................................................................................................
660
Manila Metal v. PNB, 511 S 444
..........................................................................................................................
662
Montecillo v. Reynes, 385 S 244
..........................................................................................................................
664
Soler v. CA, 358 S 57
..........................................................................................................................
666
Palattao v. CA, 7 May 2002
..........................................................................................................................
668
ABS-CBN v. CA, 21 January 1999
..........................................................................................................................
670
Arts. 1321-1323, 1325, Offer: Requisites
.............................................................................................................................
672
Limson v. CA, 357 S 209
..........................................................................................................................
672
Arts. 1319-1320, Acceptance: Requisites
.............................................................................................................................
674
Villanueva v. PNB, 6 December 2006
..........................................................................................................................
674
Arts. 1327-1329, Vices of Capacity
.............................................................................................................................
676
Insanity/Imbecility/Dementia
.............................................................................................................................
676
Catalan v. Basa, 31 July 2007
..........................................................................................................................
676
Domingo v. CA, 17 October 2001
..........................................................................................................................
678
Heirs of Sevilla v. Sevilla, 30 April 2003
..........................................................................................................................
680
SLU SOL 1-C Page

xvii
Mendezona v. Ozamiz, 6 February 2002
..........................................................................................................................
682
Art. 1330, Vices of Will
.............................................................................................................................
684
Arts. 1331-1334, Mistake/Error
.............................................................................................................................
684
Lim v. CA, 229 S 616
..........................................................................................................................
684
Art. 1337, Undue Influence
.............................................................................................................................
686
Ruiz v. CA, 401 S 594
..........................................................................................................................
686
Arts. 1338-1344, Fraud: Kinds; How Committed
.............................................................................................................................
688
Dela Cruz v. Sison, 451 S 754
..........................................................................................................................
688
Rural Bank of Sta. Maria v. CA, 314 S 255
..........................................................................................................................
690
Arts. 1347-1349, Object/Subject Matter
.............................................................................................................................
692
Art. 1347, Existing vs. Future Things
.............................................................................................................................
692
Carabeo v. Sps. Dingco, 4 April 2011
..........................................................................................................................
692
Art. 1347, Licit
.............................................................................................................................
694
Chavez v. PEA, 415 S 403
..........................................................................................................................
694
Art. 1349, Determinate
.............................................................................................................................
695
..........................................................................................................................
695
Melliza v. City of Iloilo, 23 S 477
..........................................................................................................................
696
Arts. 1350-1355, Cause/Consideration
.............................................................................................................................
698
Existing: Absence of Cause vs. Failure of Cause vs. Inadequacy of Cause
.............................................................................................................................
698
Catindig v. Vda. De Meneses, 2 February 2011
..........................................................................................................................
698
Ordua, et al. v. Fuentebella, 29 June 2010
..........................................................................................................................
700
Brobio Mangahas v. Brobio, 20 October 2010
..........................................................................................................................
701
Golden Apple Realty v. Sierra Grande Realty, 28 July 2010
..........................................................................................................................
703
Askay v. Cosalan, 46 P 179
..........................................................................................................................
705
True/Real: Simulation of Contracts (Arts. 1353, 1355, 1343-1344)
.............................................................................................................................
707
Heirs of Balite v. Lim, 446 S 56
..........................................................................................................................
707
Suntay v. CA, 252 S 430
..........................................................................................................................
709
Art. 1351, Cause vs. Motive
.............................................................................................................................
712
..........................................................................................................................
712
Onerous
.............................................................................................................................
714
Pentacapital v. Makilito Mahinay, 5 July 2010
..........................................................................................................................
714
Remuneratory
.............................................................................................................................
716
SLU SOL 1-C Page

xviii
..........................................................................................................................
716
Catly v. Navarro, et al., 5 May 2010
..........................................................................................................................
718
Gratuitous
.............................................................................................................................
720
Liguez v. CA, 102 P 577
..........................................................................................................................
720
Philbank v. Lui She, 21 S 52
..........................................................................................................................
721
VII. Form of Contracts (Arts. 1356-1358)
723
Arts. 1356-1357, Form for Validity as an Essential Element of Contracts
.............................................................................................................................
723
Londres v. CA, 394 S 133
..........................................................................................................................
723
Art. 1358, Form for Convenience
.............................................................................................................................
725
Sps. Vega v. SSS, 20 September 2010
..........................................................................................................................
725
Balatbat v. CA, 261 S 128
..........................................................................................................................
727
Universal Robina v. Heirs of Teves, 389 S 316
..........................................................................................................................
728
VIII. Reformation of Instruments (Arts. 1359-1369)
730
Arts. 1366-1367, When Prohibited
.............................................................................................................................
730
Sarming v. Dy, 6 June 2002
..........................................................................................................................
730
Cebu v. CA, 407 S 154
..........................................................................................................................
732
IX. Interpretation of Contracts (Arts. 1370-1379)
734
Art. 1370, Literal Interpretation
.............................................................................................................................
734
ADR Shipping v. Gallardo, 389 S 82
..........................................................................................................................
734
Arts. 1371-1379, In Case of Doubt
.............................................................................................................................
736
Movido v. Pastor, 11 February 2010
..........................................................................................................................
736
..........................................................................................................................
738
..........................................................................................................................
740
..........................................................................................................................
741
Cruz v. CA, 456 165
..........................................................................................................................
742
Gonzales v. CA, 354 S 8
..........................................................................................................................
744
Almira v. CA, 399 S 351
..........................................................................................................................
746
Doctrine of "complementary contracts construed together"
.............................................................................................................................
748
Philbank v. Lim, 455 SCRA 714, 721
..........................................................................................................................
748
Rigor v. Consolidated Leasing, 387 S 437
..........................................................................................................................
750
Velasquez v. CA, 30 June 1999
..........................................................................................................................
752
X. Defective Contracts
754
SLU SOL 1-C Page
xix
Rescission vs. Resolution
.............................................................................................................................
754
..........................................................................................................................
754
Arts. 1383-1385, 1389, Nature and Effects: Mutual Restitution
.............................................................................................................................
756
Lee v. Bangkok Bank, 9 February 2011
..........................................................................................................................
756
..........................................................................................................................
758
Siguan v. Lim, 19 November 1999
..........................................................................................................................
760
..........................................................................................................................
761
..........................................................................................................................
762
Art. 1390, Voidable Contracts: Nature/Kinds
.............................................................................................................................
763
..........................................................................................................................
763
Hernandez v. Hernandez, 9 March 2011
..........................................................................................................................
764
Fuentes, et al. v. Roca, 21 April 2010
..........................................................................................................................
766
Arts. 1391, 1401, Annulment: Prescriptive Period
.............................................................................................................................
768
Associated Bank v. Sps. Montano, 16 October 2010
..........................................................................................................................
768
Miailhe v. CA, 354 S 675
..........................................................................................................................
770
First Philippine Holdings v. Trans Middle East, 4 December 2009
..........................................................................................................................
771
Arts. 1398, 1402, Effects
.............................................................................................................................
772
Sanchez v. Mapalad Realty, 541 S 397
..........................................................................................................................
772
Oesmer v. PDC, 514 S 228
..........................................................................................................................
774
Vda. De Ape v. CA, 456 S 193
..........................................................................................................................
775
Francisco v. Herrera, 392 S 317
..........................................................................................................................
776
Braganza v. Villa Abrille, 105 P 456
..........................................................................................................................
777
Katipunan v. Katipunan, 30 January 2002
..........................................................................................................................
778
Jumalon v. CA, 30 January 2002
..........................................................................................................................
780
Art. 1317 in relation to 1403 [1], 1404, Unauthorized Contracts
.............................................................................................................................
781
Cabales, et al. v. CA, 31 August 2007
..........................................................................................................................
781
Necessity of Writing
.............................................................................................................................
782
Vda. De Ouano, et al. v. RP, 9 February 2011
..........................................................................................................................
782
..........................................................................................................................
784
Municipality of Hagonoy v. Hon. Dumdum, 22 March 2010
..........................................................................................................................
785
Shoemaker v. La Tondea, 68 P 24
..........................................................................................................................
787
PNB v. Philippine Vegetable Oil Company, 49 P 897
..........................................................................................................................
788
SLU SOL 1-C Page

xx
Arts. 1405-1406, Parol Evidence Rule
.............................................................................................................................
789
..........................................................................................................................
789
Executory vs. Executed vs. Partially Executory Contracts
.............................................................................................................................
790
..........................................................................................................................
790
Tan v. Villapaz, 475 S 720
..........................................................................................................................
792
Sps. David v. Tiongson, 25 August 1999
..........................................................................................................................
793
Cordial v. Miranda, 14 December 2000
..........................................................................................................................
794
..........................................................................................................................
795
Remedies
.............................................................................................................................
796
Rosencor v. Inquing, 354 S 119
..........................................................................................................................
796
Firme v. Buka, 414 S 190
..........................................................................................................................
797
Arts. 1409, 1422, Void Contract vs. Inexistent Contract
.............................................................................................................................
799
Querubin v. COMELEC, 8 December 2015
..........................................................................................................................
799
Golden Apple v. Sierra Grande, 28 July 2010
..........................................................................................................................
802
Heirs of M. Doronio v. Heirs of F. Doronio, 541 S 479
..........................................................................................................................
804
..........................................................................................................................
805
Heirs of Liwagon v. Heirs of Liwagon, 26 November 2014
..........................................................................................................................
807
Campos v. Pastrana, 8 December 2009
..........................................................................................................................
809
Gurrea v. Suplico, 488 S 332
..........................................................................................................................
811
Frenzel v. Catito, 406 S 55
..........................................................................................................................
812
La Bugal-B'laan v. Ramos, 1 December 2004
..........................................................................................................................
813
Agan v. PIATCO, 21 January 2004
..........................................................................................................................
815
Jaworski v. PAGCOR, 14 January 2004
..........................................................................................................................
818
Art. 1421, Who May Bring Action for Declaration of Nullity
.............................................................................................................................
819
..........................................................................................................................
819
Pineda v. CA, 376 S 222
..........................................................................................................................
821
Cruz v. Bancom, 379 S 490
..........................................................................................................................
822
Cuaton v. Salud, 27 January 2004
..........................................................................................................................
824
Arts. 1411-1412, In Case of In Pari Delicto
.............................................................................................................................
826
Hadja Fatima v. Hadji Abubacar, 2 August 2010
..........................................................................................................................
826
Arts. 1411-1412, Arts. 1413-1419, In Case One Party is Innocent/Disadvantaged
.............................................................................................................................
827
Infotech v. COMELEC, 13 January 2004
..........................................................................................................................
827
SLU SOL 1-C Page

xxi
..........................................................................................................................
830
..........................................................................................................................
832
..........................................................................................................................
833
Vigilar v. Aquino, 18 January 2011
..........................................................................................................................
835
EPG Construction v. Vigilar, 354 S 566
..........................................................................................................................
837
Gochan v. Young, 354 S 207
..........................................................................................................................
839
..........................................................................................................................
841
Mendezona v. Ozamiz, 376 S 482
..........................................................................................................................
843
XI. Natural Obligations (Arts. 1423-1430)
845
Arts. 1424-1430, Kinds
.............................................................................................................................
845
Manzanilla v. CA, 15 March 1990
..........................................................................................................................
845
Rural Bank of Paranaque v. Remolado, 18 March 1985
..........................................................................................................................
847
XII. Trusts (Arts. 1440-1457)
848
Meaning, Nature of Legal Relationship
.............................................................................................................................
848
Cojuangco v. Republic, 12 April 2011
..........................................................................................................................
848
Ringor v. Ringor, 436 S 484 (13 August 2004)
..........................................................................................................................
853
Salvador v. CA, 313 P 369 (1995)
..........................................................................................................................
855
Art. 1441, Kinds: Express Trust vs. Implied Trust
.............................................................................................................................
857
Huang v. CA, 236 S 420
..........................................................................................................................
857
Vda. de Esconde v. CA, 253 S 66
..........................................................................................................................
859
Tala Realty v. Banco Filipino, 392 S 506
..........................................................................................................................
863
Art. 1444, Express Trust: How Established
.............................................................................................................................
867
Medina v. CA, 196 P 205 (1981)
..........................................................................................................................
867
Art. 1443, Express Trust: How Proven
.............................................................................................................................
870
Filipinas Port v. Go, 16 March 2007
..........................................................................................................................
870
Arts. 1447-1457, Implied Trust
.............................................................................................................................
872
Resulting Trust vs. Constructive Trust
.............................................................................................................................
872
Mendizabel v. Apao, 20 February 2006
..........................................................................................................................
872
Vda. De Gualberto v. Go, 21 July 2005
..........................................................................................................................
874
Heirs of Yap v. CA, 371 P 523 (1999)
..........................................................................................................................
875
Prescriptive Periods of Action to Enforce Implied Trusts in Actions to Quiet Title
.............................................................................................................................
876
Heirs of Kionisala v. Heirs of Dacut, 378 S 206
..........................................................................................................................
876
SLU SOL 1-C Page
xxii
Ramos v. Ramos, 61 S 284
..........................................................................................................................
878
Intestate Estate of Ty v. CA, 356 S 661
..........................................................................................................................
880
Vda. De Reterto v. Barz, 372 S 712
..........................................................................................................................
882
Chiao Liong Tan v. CA, 228 S 75
..........................................................................................................................
884
O'laco v. Co Cho Chit, 220 S 656
..........................................................................................................................
885
SLU SOL 1-C Page
xxiii
I. General Principles
Art. 1156, Civil Obligations
Ocampo III v. People, 543 S 487
MARIANO UN OCAMPO III, petitioner,

vs.
PEOPLE OF THE PHILIPPINES, respondent.
G.R. Nos. 156547-51 February 4, 2008
ANDRES S. FLORES, petitioner,

vs.
G.R. Nos. 156384-85 February 4, 2008
Facts: During the incumbency of Pres. Corazon Aquino, Tarlac was chosen as one of
the 4 provinces that would serve as a test case on decentralization of local government
administration. The DBM released National Aid for Local Government Units (NALGU)
funds of P100M to Tarlac.
Gov. Mariano Ocampo III loaned out P56.6M to the Lingkod Tarlac Foundation, Inc.
(LTFI) for the implementation of various livelihood projects. The loan was made
pursuant to a MOA entered into by the Province, represented by Gov. Ocampo, and
LTFI, represented by Andres Flores.
Gov. Ocampo, who was at the same time President-Chairman of the Board of Trustees
of the LTFI, released P8.86M for the importation of Juki embroidery machines, which
actually cost P7.7M, leaving a balance of P1.2M. Far from returning the amount, Gov.
Ocampo, in connivance with Flores and William Uy, misappropriated it. Gov. Ocampo
also caused the withdrawal by Flores from the PNB LTFI account the sum of P58K. The
Sandiganbayan found Gov. Ocampo and Flores guilty of malversation of public funds.
Issue: Whether or not Gov. Ocampo and Flores are guilty of malversation of public
funds.
Ruling: The funds released by the Province of Tarlac, including the money allegedly
malversed, were in the nature of a loan to LTFI.
The NALGU funds shed their public character when they were lent to LTFI as it acquired
ownership of the funds with an obligation to repay the Province of Tarlac. The
relationship between the Province of Tarlac and the LTFI is that of a creditor and debtor.
SLU SOL 1-C Page
1
Malversation may be committed by appropriating public funds or property; by taking or
misappropriating the same; by consenting, or through abandonment or negligence, by
permitting any other person to take such public funds or property; or by being otherwise
guilty of the misappropriation or malversation of such funds or property.
There can be no malversation of public funds by Gov. Ocampo in the instant cases
since the loan transferred ownership and custody of the funds, which included the sum
of money allegedly malversed, to LTFI for which Ocampo could no longer be held
accountable.
Flores, as the executive director of LTFI, cannot also be held liable for malversation of
public funds in a contract of loan which transferred ownership of the funds to LTFI
making them private in character.
The decision and resolution of the Sandiganbayan were set aside. Gov. Ocampo and
Flores were acquitted.
SLU SOL 1-C Page
2
Art. 1157, Sources of Obligations
Art. 1158, Law

Leung Ben v. O'Brien, 38 P 182
LEUNG BEN, plaintiff,

vs.
P. J. O'BRIEN, JAMES A. OSTRAND and GEO R. HARVEY, judges of First Instance
of city of Manila, defendants.
G.R. No. L-13602 April 6, 1918
Facts: An action was instituted in the Court of First Instance of the city of Manila by P.
J. OBrien to recover the sum of P15,000 alleged to have been lost by Leung Ben to P.J.
OBrien in a series of gambling, banking and percentage games conducted during the
two or three months prior to the institution of the suit. OBrien also asked for an
attachment against the property of Leung Ben on the ground that the latter was about to
depart from the Philippines with intent to defraud his creditors. This attachment was
issued, and acting under that authority, the sheriff attached the sum of P15,000 which
had been deposited by OBrien with the International Banking Corporation. Leung Bien
filed a motion to quash the attachment, which was dismissed by the court. Hence, this
application for a writ of certiorari, the purpose of which was to quash an attachment
issued from the Court of First Instance of the City of Manila.
Issue: Whether or not the statutory obligation to restore money won at gaming an
obligation arising from contract, express or implied.
Ruling: Yes. Upon general principles, recognized both in the civil and common law,
money lost in gaming and voluntarily paid by the loser to the winner cannot, in the
absence of statute, be recovered in a civil action. But Act No. 1757 of the Philippine
Commission, which defines and penalizes several forms of gambling, contains
numerous provisions recognizing the right to recover money lost in gambling or in
playing certain games. The original complaint filed in the Court of First Instance was not
clear as to the particular section of Act No. 1757 under which the action was brought,
but was alleged that the money was lost at gambling, banking, and percentage game in
which the defendant was a banker. It must therefore be assumed that the action was
based upon the right of recovery given in section 7 of said Act, which declared that an
action may be brought against the banker by any person losing money at a banking or
percentage game. It was observed that according to the Civil Code obligations are
supposed to be derived either from (1) the law, (2) contracts and quasi-contracts, (3)
illicit acts and omission, or (4) acts in which some sort of blame or negligence is
present. This enumeration of sources of obligations and the obligation imposed by law
are different types. The obligations which in the Code are indicated as quasi-contracts,
as well as those arising ex lege, are in the common la system, merged into the category
of obligations imposed by law, and all are denominated implied contracts. In the case
SLU SOL 1-C Page
3
under consideration, the duty of OBrien to refund the money which he won from the
Leung Ben at gaming was a duty imposed by statute. It therefore arose ex lege.
Furthermore, it was a duty to return a certain sum which had passed from OBrien to
Leung Ben. By all the criteria which the common law supplies, this a duty in the nature
of debt and is properly classified as an implied contract. It was well- settled by the
English authorities that money lost in gambling or by lottery, if recoverable at all, can be
recovered by the loser in an action of indebitatus assumpsit for money had and
received. This meant that in the common law the duty to return money won in this way
was an implied contract, or quasi-contract. The phase in question should be interpreted
in such a way as to include all obligations, whether arising from consent or ex lege,
because that was equivalent to eliminating all distinction between the first and the fifth
paragraphs by practically striking out the first two lines of paragraph one. The
Legislature had deliberately established this distinction, and while we may be unable to
see any reason why it should have been made, it was our duty to apply and interpret the
law, and we were not authorized under the guise of interpretation to virtually repeal part
of the statute. Nor can it be said that the relations between the parties litigant constitute
a quasi-contract. In the first place, quasi- contracts are lawful and purely voluntary acts
by which the authors thereof become obligated in favor of a third person. . . . The act
which gave rise to the obligation ex lege relied upon by Leung Ben in the court below is
illicit an unlawful gambling game. In the second place, the first paragraph of section 412
of the Code of Civil Procedure does not authorize an attachment in actions arising out of
quasi contracts, but only in actions arising out of contract, express or implied.
SLU SOL 1-C Page
4
Pelayo v. Lauron, 12 P 453
ARTURO PELAYO, plaintiff-appellant,

vs.
MARCELO LAURON, et al., defendants-appellees.
G.R. No. L-4089 January 12, 1909
Facts: Mauricio Lauron and Juanita Abella sought the medical services of Dr. Pelayo to
attend to the need of their daughter-in-law about to give birth. Pelayo, in the process,
was compelled to obtain the advice of another physician due to the difficulty of the
medical procedure to be done and was prompted to utilize forceps for the childs safe
delivery. Consequently, Dr. Pelayo demanded a medical bill of 500 Philippine pesos
from the spouses in exchange for the services he performed but they refused and made
the assertion that they should not be the ones to pay but instead it should be their
daughter-in-laws husband. Nevertheless, Dr. Pelayo contended that since the spouses
were the ones who sought for his help, then they should be the one liable for paying the
medical bill.
Issue: Whether or not the spouses are to be held liable for the payment of the medical
bill of their daughter-in-law.
Ruling: No. Under the Civil Code of the Philippines, it is the obligation of the husband to
provide support for his wife. Thus, Dr. Pelayo should seek payment for the expenses
incurred during the delivery of the spouses' daughter-in-law from the latters husband
and not from the spouses. The father and mother-in-law are considered strangers with
regard to the obligation of giving support under the law. Therefore, Dr. Pelayo does not
have any action against the spouses and that they are free from any liability arising from
the medical services rendered by Dr. Pelayo.
SLU SOL 1-C Page
5
Hotel Nikko v. Reyes, 452 S 532
NIKKO HOTEL MANILA GARDEN AND RUBY LIM, petitioner,

vs.
ROBERTO REYES A.K.A. AMAY BISAYA, respondent.
G.R. No. 154259 February 28, 2005
Facts: In the evening of October 13, 1994, while drinking coffee at the lobby of Hotel
Nikko, respondent was invited by a friend, Dr. Filart to join her in a party in celebration of
the birthday of the hotels manager. During the party and when respondent was lined-up
at the buffet table, he was stopped by Ruby Lim, the Executive Secretary of the hotel,
and asked to leave the party. Shocked and embarrassed, he tried to explain that he was
invited by Dr. Filart, who was herself a guest. Not long after, a Makati policeman
approached him and escorted him out of her party. Ms. Lim admitted having asked
respondent to leave the party but not under the ignominious circumstances painted by
Mr. Reyes, that she did the act politely and discreetly. Mindful of the wish of the
celebrant to keep the party intimate and exclusive, she spoke to the respondent herself
when she saw him by the buffet table with no other guests in the immediate vicinity. She
asked him to leave the party after he finished eating. After she had turned to leave, the
latter screamed and made a big scene. Dr. Filart testified that she did not want the
celebrant to think that she invited Mr. Reyes to the party. Respondent filed an action for
actual, moral and/or exemplary damages and attorneys fees. The lower court
dismissed the complaint. On appeal, the Court of Appeals reversed the ruling of the trial
court, consequently imposing upon Hotel Nikko moral and exemplary damages and
attorneys fees. On motion for reconsideration, the Court of Appeals affirmed its
decision.
Issues:
1. Whether or not Ms. Ruby Lim is liable under Articles 19 and 21 of the Civil Code in
asking Mr. Reyes to leave the party as he was not invited by the celebrant thereof.
2. Whether or not Hotel Nikko, as the employer of Ms. Lim, be solidarily liable with her.
Ruling: The Court found more credible the lower courts findings of facts. There was no
proof of motive on the part of Ms. Lim to humiliate Mr. Reyes and to expose him to
ridicule and shame. Mr. Reyes' version of the story was unsupported, failing to present
any witness to back his story. Ms. Lim, not having abused her right to ask Mr. Reyes to
leave the party to which he was not invited, cannot be made liable for damages under
Articles 19 and 21 of the Civil Code. Necessarily, neither can her employer, Hotel Nikko,
be held liable as its liability springs from that of its employees. When a right is exercised
in a manner which does not conform with the norms enshrined in Article 19 and results
in damage to another, a legal wrong is thereby committed for which the wrongdoer must
be responsible. Article 21 states that any person who wilfully causes loss or injury to
another in a manner that is contrary to morals, good customs or public policy shall
compensate the latter for the damage. Without proof of any ill-motive on her part, Ms.
Lims act cannot amount to abusive conduct. The maxim Volenti Non Fit Injuria (self-
SLU SOL 1-C Page
6
inflicted injury) was upheld by the Court, that is, to which a person assents is not
esteemed in law as injury, that consent to injury precludes the recovery of damages by
one who has knowingly and voluntarily exposed himself to danger.
SLU SOL 1-C Page
7
St. Mary's Academy v. Carpitanos, 6 February 2002
ST. MARY'S ACADEMY, petitioner,

vs.
WILLIAM CARPITANOS and LUCIA S. CARPITANOS, GUADA DANIEL, JAMES
DANIEL II, JAMES DANIEL, SR., and VIVENCIO VILLANUEVA, respondents.
G.R. No. 143363 February 6, 2002
Facts: The defendant-appellant, St. Marys Academy of Dipolog City, conducted an

enrollment drive for the school year 1995-1996 from February 13 to 20, 1995. Sherwin
Carpitanos, a student of St. Marys Academy, was part of the campaigning group.
Sherwin, along with other high school students were riding in a Mitsubishi jeep owned
by defendant Vivencio Villanueva on their way to Larayan Elementary School, Larayan,
Dapitan City. The jeep was driven by James Daniel II then 15 years old and a student of
the same school. Allegedly, the latter drove the jeep in a reckless manner and as a
result the jeep turned turtle. Sherwin Carpitanos died as a result of the injuries he
sustained from the accident.
The trial court ordered the defendants, St. Marys Academy principally liable and the
parents of James Daniel as subsidiarily liable for damages.
The Court of Appeals affirmed the decision of the trial court. The Court of Appeals held
petitioner St. Marys Academy liable for the death of Sherwin Carpitanos under Articles
218 and 219 of the Family Code, pointing out that petitioner was negligent in allowing a
minor to drive and in not having a teacher accompany the minor students in the jeep.
Issue: Whether or not the appellant, St. Marys Academy, is principally liable for
damages for the death of Sherwin.
Ruling: Article 219 of the Family Code states that if a person under custody is a minor,
those exercising special parental authority are principally and solidarily liable for
damages caused by the acts or omissions of the unemancipated minor while under their
supervision, instruction, or custody.
The Court held that for the school to be liable there must be a finding that the act or
omission considered as negligent was the proximate cause of the injury caused
because of negligence, must have causal connection to the accident.
Respondents Daniel spouses and Villanueva admitted that the immediate cause of the
accident was not the negligence of petitioner or the reckless driving of James Daniel II,
but the detachment of the steering wheel guide of the jeep.
Hence, liability for the accident, whether caused by the negligence of the minor driver or
mechanical detachment of the steering wheel guide of the jeep, must be pinned on the
minors parents primarily. The negligence of petitioner St. Marys Academy was only a
SLU SOL 1-C Page

8
remote cause of the accident. Between the remote cause and the injury, there
intervened the negligence of the minors parents or the detachment of the steering
wheel guide of the jeep. Considering that the negligence of the minor driver or the
detachment of the steering wheel guide of the jeep owned by respondent Villanueva
was an event over which petitioner St. Marys Academy had no control, and which was
the proximate cause of the accident, petitioner may not be held liable for the death
resulting from such accident.
SLU SOL 1-C Page
9
Art. 1159, Contracts
Sps. Guanio v. Makati Shangri-la Hotel, 7 February 2011
SPOUSES LUIGI M. GUANIO and ANNA HERNANDEZ-GUANIO, petitioners,

vs.
MAKATI SHANGRI-LA HOTEL and RESORT, INC., also doing business under the
name of SHANGRI-LA HOTEL MANILA, respondent.
G.R. No. 190601 February 7, 2011
Facts: Petitioner spouses, Luigi M. Guanio and Anna Hernandez-Guanio, booked

respondent Makati Shangri-La Hotel for their wedding reception. Scheduled food
tastings were made prior to the event. The parties eventually agreed on a final price at
P1,150 per person. On July 27, 2001, the parties finalized and forged their contract.
Petitioners claim that during the reception, respondents representatives, Catering
Director Bea Marquez and Sales Manager Tessa Alvarez, did not show up despite their
assurance that they would; their guests complained of the delay in the service of the
dinner; certain items listed in the published menu were unavailable; the hotels waiters
were rude and unapologetic when confronted about the delay; and despite Alvarezs
promise that there would be no charge for the extension of the reception beyond 12:00
midnight, they were billed and paid P8,000 per hour for the three-hour extension of the
event up to 4:00 A.M. the next day. Petitioners further claim that they brought wine and
liquor in accordance with their open bar arrangement, but these were not served to the
guests who were forced to pay for their drinks. Petitioners thus sent a letter-complaint to
the Makati Shangri-la Hotel and Resort, Inc. and received an apologetic reply from
Krister Svensson, the hotels Executive Assistant Manager in charge of Food and
Beverage. They nevertheless filed a complaint for breach of contract and damages
before the RTC of Makati City.
Issue: Whether or not Makati Shangri-La committed a breach of contract and as a

result a source of civil liability to pay damages.
Ruling: Yes. The Supreme Court held that the respondent should pay the petitioners
nominal damages. What applies in the present case is Article 1170 of the Civil Code
which reads: Those who in the performance of their obligations are guilty of fraud,
negligence or delay, and those who in any manner contravene the tenor thereof, are
liable for damages. In culpa contractual, the mere proof of the existence of the contract
and the failure of its compliance justify, prima facie, a corresponding right of relief. The
law, recognizing the obligatory force of contracts, will not permit a party to be set free
from liability for any kind of misperformance of the contractual undertaking or a
contravention of the tenor thereof. A breach upon the contract confers upon the injured
party a valid cause for recovering that which may have been lost or suffered. The effect
of every infraction is to create a new duty, that is, to make recompense to the one who
has been injured by the failure of another to observe his contractual obligation unless he
SLU SOL 1-C Page
10
can show extenuating circumstances, like proof of his exercise of due diligence or of the
attendance of fortuitous event, to excuse him from his ensuing liability.
SLU SOL 1-C Page
11
TSPIC CORPORATION, petitioner,

vs.
TSPIC EMPLOYEES UNION (FFW), representing MARIA FE FLORES, FE
CAPISTRANO, AMY DURIAS, CLAIRE EVELYN VELEZ, JANICE OLAGUIR, JERICO
ALIPIT, GLEN BATULA, SER JOHN HERNANDEZ, RACHEL NOVILLAS, NIMFA
ANILAO, ROSE SUBARDIAGA, VALERIE CARBON, OLIVIA EDROSO, MARICRIS
DONAIRE, ANALYN AZARCON, ROSALIE RAMIREZ, JULIETA ROSETE, JANICE
NEBRE, NIA ANDRADE, CATHERINE YABA, DIOMEDISA ERNI, MARIO
SALMORIN, LOIDA COMULLO, MARIE ANN DELOS SANTOS, JUANITA YANA, and
SUZETTE DULAY, respondents.
G.R. No. 163419 February 13, 2008
Facts: TSPIC is engaged in the business of designing, manufacturing, and marketing

integrated circuits to serve the communication, automotive, data processing, and
aerospace industries. TSPIC Employees Union is the registered bargaining agent of the
rank-and-file employees of TSPIC.
In 1999, TSPIC and the Union entered into a Collective Bargaining Agreement (CBA) for
the years 2000 to 2004. The CBA included a provision on yearly salary increases
starting January 2000 until January 2002.
In January, 2000, all the regular rank-and-file employees of TSPIC received a 10%
increase in their salary. Accordingly, the 9 respondents (first group) who were already
regular employees received the said increase.
The CBA also provided that employees who acquire regular employment status within
the year but after the effectivity of a particular salary increase shall receive a
proportionate part of the increase upon attainment of their regular status.
The Regional Tripartite Wage and Productivity Board of NCR raised the daily minimum
wage from P223.50 to P250 effective November 1, 2000 (Wage Order No. 8).
Conformably, the wages of 17 probationary employees (second group) were increased

to P250.00 effective November 1, 2000.
On various dates during the last quarter of 2000, the 17 employees attained regular
employment and received 25% of 10% of their salaries.
In January 2001, TSPIC implemented the new wage rates as mandated by the CBA. As
a result, the 9 employees (first group), who were senior to the recently regularized
employees, received less wages.
SLU SOL 1-C Page
12
A few weeks after the salary increase for 2001 became effective, TSPICs Human
Resources Department notified 24 employees that due to an error in the automated
payroll system, they were overpaid and the overpayment would be deducted from their
salaries in a staggered basis, starting February 2001. TSPIC explained that the
correction of the erroneous computation was based on the crediting provision of the
CBA.
The Union asserted that there was no error and the deduction of the alleged
overpayment from employees constituted diminution of pay.
TSPIC and the Union agreed to undergo voluntary arbitration. In September 2001,
Arbitrator Jimenez held that the unilateral deduction made by TSPIC violated Art. 100 of
the Labor Code.
TSPIC filed before the CA a petition for review. The CA dismissed the petition and
affirmed in toto the decision of the voluntary arbitrator.
Issue: Whether or not TSPICs decision to deduct the alleged overpayment from the
salaries of the affected members of the Union constituted diminution of benefits in
violation of the Labor Code.
Ruling: A CBA refers to the negotiated contract between a legitimate labor organization
and the employer concerning wages, hours of work, and all other terms and conditions
of employment in a bargaining unit. The CBA is the law between the parties and they
are obliged to comply with its provisions.
TSPIC granted the salary increases under the condition that any wage order that may
be subsequently issued shall be credited against the previously granted increase. As
long as an employee is qualified to receive the 12% increase in salary, the employee
shall be granted the increase; and as long as an employee is granted the 12% increase,
the amount shall be credited against any wage order issued after WO No. 7.
Respondents have received their regularization increases under Art. X, Sec. 2 of the
CBA and the yearly increase for the year 2001. They should not then be allowed to
avoid the crediting provision which is an accompanying condition.
Respondents attained regular employment status before January 1, 2001. WO No. 8,

increasing the minimum wage, was issued after WO No. 7. Thus, respondents rightfully
received the 12% salary increase for the year 2001 granted in the CBA; and
consequently, TSPIC rightfully credited that 12% increase against the increase granted
by WO No. 8.
With these computations, the crediting provision of the CBA is put in effect, and the
wage distortion between the first and second group of employees is cured. The first
group of employees who attained regular employment status before the implementation
of WO No. 8 is entitled to receive, starting January 1, 2001, a daily wage rate within the
SLU SOL 1-C Page
13
range of P264.67 to P275.85, depending on their wage rate before the implementation
of WO No. 8. The second group that attained regular employment status after the
implementation of WO No. 8 is entitled to receive a daily wage rate of P260.50 starting
January 1, 2001.
The SC agreed with TSPIC maintaining that charging the overpayments made to the 16
respondents through staggered deductions from their salaries did not constitute
diminution of benefits.
Diminution of benefits is the unilateral withdrawal by the employer of benefits already

enjoyed by the employees. There is diminution of benefits when it is shown that: (1) the
grant or benefit is founded on a policy or has ripened into a practice over a long period;
(2) the practice is consistent and deliberate; (3) the practice is not due to error in the
construction or application of a doubtful or difficult question of law; and (4) the
diminution or discontinuance is done unilaterally by the employer.
As correctly pointed out by TSPIC, the overpayment of its employees was a result of an
error. This error was immediately rectified by TSPIC upon its discovery. An erroneously
granted benefit may be withdrawn without violating the prohibition against non-
diminution of benefits.
Here, no vested right accrued to the respondents when TSPIC corrected its error by
crediting the salary increase for the year 2001 against the salary increase granted under
WO No. 8, all in accordance with the CBA.
Hence, any amount given to the employees in excess of what they were entitled to may
be legally deducted by TSPIC from the employees salaries. It was also compassionate
and fair that TSPIC deducted the overpayment in installments over a period of 12
months starting from the date of the initial deduction to lessen the burden on the
overpaid employees.
The decision of the Labor Arbitrator and the CA decision were affirmed with
modification.
SLU SOL 1-C Page
14
Regino v. Pangasinan College, 18 November 2004
KHRISTINE REA M. REGINO, petitioner,

vs.
PANGASINAN COLLEGES OF SCIENCE AND TECHNOLOGY, respondent.
G.R. No. 156109 November 18, 2004
Facts: Petitioner Khristine Rea M. Regino was a first year computer science student at
Respondent Pangasinan Colleges of Science and Technology (PCST). Reared in a poor
family, Regino went to college mainly through the financial support of her relatives.
During the second semester of school year 2001-2002, she enrolled in logic and
statistics subjects under Respondents Rachelle A. Gamurot and Elissa Baladad,
respectively, as teachers. Thus, a fund raising project pertaining to a dance party was
organized by PCST, requiring all its students to purchase two tickets in consideration as
a prerequisite for the final exam. Regino, an underprivileged, failed to purchase the
tickets because of her status as well as that project was against her religious belief,
thus, she was not allowed to take the final examination by her two professors.
Issue: Whether or not the refusal of the University to allow Regino to take the final
examination is valid.
Ruling: The foregoing allegations show two causes of action; first, breach of contract;
and second, liability for tort. Barring any violation of the rules on the part of the students,
an institution of higher learning has a contractual obligation to afford its students a fair
opportunity to complete the course they seek to pursue. The fee, however, was not part
of the school-student contract entered into at the start of the school year. Hence, it could
not be unilaterally imposed to the prejudice of the enrollees. Such contract is by no
means an ordinary one. In Non, we stressed that the school-student contract is imbued
with public interest, considering the high priority given by the Constitution to education
and the grant to the State of supervisory and regulatory powers over all educational
institutions. The Supreme Court declared that the act of PCST was not valid, though, it
can impose its administrative policies, necessarily, the amount of tickets or payment
shall be included or expressed in the student handbooks given to every student before
the start of the regular classes of the semester. In this case, the fund raising project was
not included in the activities to be undertaken by the university during the semester. The
petitioner is entitled for damages due to her traumatic experience on the acts of the
university causing her to stop studying sand later transfer to another school.
SLU SOL 1-C Page

15
PSBA v. CA, 4 February 1992
PHILIPPINE SCHOOL OF BUSINESS ADMINISTRATION, JUAN D. LIM, BENJAMIN

P. PAULINO, ANTONIO M. MAGTALAS, COL. PEDRO SACRO and LT. M. SORIANO,
petitioners,
vs.
COURT OF APPEALS, HON. REGINA ORDOEZ-BENITEZ, in her capacity as
Presiding Judge of Branch 47, Regional Trial Court, Manila, SEGUNDA R.
BAUTISTA and ARSENIA D. BAUTISTA, respondents.
G.R. No. 84698 February 4, 1992
Facts: Carlitos Bautista, a third-year commerce student of PSBA, was stabbed to death
while on the second-floor premises of the school. The assailants were not members of
the schools academic community but were elements from outside the school. The
parents of Carlitos filed a civil action against the school authorities, alleging them
negligent, reckless and with failure to take security precautions, means and methods
before, during and after the attack on the victim. The appellate court found in their favor,
primarily anchoring its decision on the law of quasi-delicts. Hence, the petition.
Issue: Whether or not the application of the law on quasi-delict is proper when there is
a pre-existing contract.
Ruling: No. When an academic institution accepts students for enrollment, there is
established a contract between them, resulting in bilateral obligations which both parties
are bound to comply with. Moreover, there is that built-in obligation to provide students
with an atmosphere that promotes or assists in attaining its primary undertaking of
imparting knowledge. The school must ensure that adequate steps are taken to
maintain peace and order within the campus premises and to prevent the breakdown
thereof.
Because the circumstances of the present case evince a contractual relation between
PSBA and Carlitos, the rules on quasi-delict do not really govern. However, the mere
fact that a person is bound to another by contract does not relieve him from extra-
contractual liability to such person. When such a contractual relation exists the obligor
may break the contract under such conditions that the same act which constitutes a
breach of the contract would have constituted the source of an extra-contractual
obligation had no contract existed between the parties. Art. 21 of the Civil Code comes
to mind, so that should the act which breaches a contract be done in bad faith and
violative of Art. 21, then there is a cause to view the act as constituting a quasi-delict.
In the present case, there is no finding that the contract between the school and Carlitos
had been breached thru the formers negligence in providing proper security measures.
SLU SOL 1-C Page
16
Ayala Corp. v. Rosa Diana Realty, 346 S 663
AYALA CORPORATION, petitioner,

vs.
ROSA-DIANA REALTY AND DEVELOPMENT CORPORATION, respondent.
G.R. No. 134284 December 1, 2000
Facts: In April 1976, Ayala Corp. entered into a transaction with Manuel Sy and Sy Ka
Kieng where former sold a lot in Salcedo Village in Makati. The deed of sale had some
encumbrances contained in the Special Conditions of Sale (SCS) and Deed of
Restrictions (DR), which should be followed by the vendees. The stipulations in the SCS
are:
1) a building proposal must be submitted to Ayala which must be in accordance
with the DR;
2) the construction of the building must be completed on or before 1979; and
3) that there will be no resale of the lot.
The DR specified the limits in height and floor area of the building to be constructed.
However, Sy and Kieng, failed to build a building but nonetheless with the permission of
Ayala, the vendees sold the said lot to the respondent, Rosa Diana Realty. Respondent
Company agreed to abode by the SCS and the DR stipulations. Prior to the
construction, Rosa Diana submitted a building plan to Ayala complying with the DR but
it also passed a different building plan to the building administrator of Makati, which did
not comply with the stipulations in the DR. While the building, The Peak, was being
constructed, Ayala filed a case praying that: 1) Rosa Diana, be compelled to comply
with the DR and build the building in accordance with the building plan submitted to
Ayala; or 2) on the alternative, the rescission of the deed of sale.
The trial court ruled in favor of the respondent and thus, Rosa Diana was able to
complete the construction of The Peak. Undeterred, Ayala filed before the Register of
Deeds (RD) of Makati a cause of annotation lis pendens. RD refused to grant Ayala
such registration for in the lower court; the case is of personal action for a specific
performance and/or rescission. However, the Land Registration Authority (LRA)
reversed RDs ruling. The appellate court upheld the RDs ruling stating that the case
before the trial court is a personal action for the cause of action arises from the alleged
violation of the DR. The trial court sustained the respondents point saying that Ayala
was guilty of abandonment and/or estoppels due to its failure to enforce the terms of the
DR and SCS against Sy and Kieng. Ayala discriminately chose which obligor would be
made to follow certain conditions, which is not fair and legal. On appeal, the CA affirmed
the lower courts ruling. Hence, this petition.
Issue: Whether or not Rosa Diana committed a breach of contract.
Ruling: Yes. The Supreme Court ruled that Rosa Diana committed a breach of contract
by submitting a building plan to Ayala complying with the DR and submitting a different
SLU SOL 1-C Page
17
building plan to the building administrator of Makati, which did not comply with the
stipulations in the DR.
Contractual obligations between parties have the force of law between them and absent
any allegation that the same are contrary to law, morals, good customs, public order or
public policy, they must complied with in good faith.
Thus, the assailed decision of the Court of Appeals is reversed and set aside.
SLU SOL 1-C Page
18
Bricktown Development v. Amor Tierra Development, 239 S 126
BRICKTOWN DEVELOPMENT CORP. (its new corporate name MULTINATIONAL

REALTY DEVELOPMENT CORPORATION) and MARIANO Z. VERALDE, petitioners,
vs.
AMOR TIERRA DEVELOPMENT CORPORATION and the HON. COURT OF
APPEALS, respondents.
G.R. No. 112182 December 12, 1994
Facts: On 31 March 1981, petitioner Bricktown Development Corporation executed two

contracts to sell in favor of petitioner Tierra Corp. covering a total of 96 residential lots
situated at the Multinational Village Subdivision, La Huerta, Paraaque, Metro Manila.
The total price of P21,639,875.00 was stipulated to be paid by private respondent in
such amount and maturity dates, as follows; P2,200,000.00 on March 31, 1981, P3,
209, 965.75 on 30 June 1981, P4, 729, 906.25 on 31 December 1981, and the balance
of P11, 500,000.00 to be paid by means of an assumption by private respondent of
petitioners corporations mortgage liability to the Philippine Saving Bank or,
alternatively, to be made payable in cash. On even date 31 March 1981, the parties
executed a supplemental agreement providing that private respondent would
additionally pay to petitioner the amount of P55, 364.68 or 21% interest on the balance
of downpayment for the period from 31 March to 30 June 1981 and of P390, 367.37
representing interest paid by petitioner corporation to the Philippine Savings Bank in
updating the bank loan for the period from 1 February to 31 March 1981.
On 12 October 1981, Petitioner Corporation sent notice of cancellation of contract to

private respondent on account of the latters continued failure to pay the installment due
30 June 1981 and interest on the unpaid balance of the stipulated initial payment.
On 26 September 1983, private respondent demanded the refund of its various

payment to petitioner amounting to P2, 445, 497.71. However, petitioner did not heed
the demand, so private respondent filed an action with the court a quo.
The lower court ruled in favor of private respondent and it was affirmed in toto by the
appellate court.
Issue: Whether or not the contracts to sell were validly rescinded or cancelled by
Petitioner Corporation.
Ruling: The contracts to sell were validly rescinded by Petitioner Corporation. In fine,
while we must conclude that petitioner corporation still acted within its legal right to
declare the contracts to sell rescinded or cancelled, considering, nevertheless, the
peculiar circumstances found to be extant by the trial court, confirmed by the Court of
Appeals, it would be unconscionable to likewise sanction the forfeiture by petitioner
corporation of payments made to it by private respondent. Indeed, the Court has
intimated that the relationship between parties in any contract must always be
SLU SOL 1-C Page
19
characterized and punctuated by good faith and fair dealing. Judging from what the
court below have said, petitioners did fall well behind that standard. The Court does not
find it equitable to adjudge any interest payment by petitioners on the amount to be thus
refunded computed from judicial demand, for indeed, private respondent should not be
allowed to totally free itself from its own breach.
SLU SOL 1-C Page
20
Art. 1160 in relation to Arts. 2142-2175, Quasi-Contracts
Locsin v. Mekeni, 9 December 2013
ANTONIO LOCSIN, II, petitioner,

vs.
MEKENI FOOD CORPORATION, respondent.
G.R. No. 192105 December 9, 2013
Facts: Mekeni Food Corporation hired Antonio as Regional Sales Manager to oversee
the companys NCR and South Luzon operations. Aside from the compensation and
benefit package, Mekeni also offered Antonio a car plan where one half of the cost of
the vehicle is to be shouldered by the company and one -half to be deducted from
Antonios salary. When Antonio started work, the company furnished him with a used
Honda Civic sedan valued at P280,000.00. He resigned effective February 25, 2006. By
then, he had already paid P112,500.00. He offered to purchase the car by paying the
outstanding balance thereof, but he and company cannot agree on the amount. Hence,
he returned the car to the company. Despite several follow ups regarding his unpaid
salaries, commissions and benefits as well as the offer to purchase the car, the
company refused to entertain them. According to the company, the car plan pertains
only to employees who have rendered at least 5 years service. For this reason, Antonio
should pay the amount of P116, 000.00 as balance of the purchase price of the car.
Antonio thus filed a case against Mekeni before the National Labor Relations
Commission for the payment of his unpaid salaries, benefits and commissions, as well
as refund of his monthly salary deductions made as a result of the car-plan. The Labor
Arbiter ruled in favour of Antonio, but ordered the company to turn over the vehicle upon
payment of the amount of P100,435,84, which Antonio appealed to the NLRC. The latter
reversed the LA ruling, ordering the company to refund the amount paid by him under
the car plan, as well as the companys equivalent share in the car plan. On petition for
certiorari to the Court of Appeals, the CA reversed the NLRC ruling, holding that
payments made by Antonio should be treated as rentals. It deleted the award of refund
of Antonios share in the car plan, as well as the award to him of the companys share.
Issue: Whether or not petitioner is entitled to a refund of all the amounts applied to the
cost of the service vehicle under the car plan.
Ruling: When the conclusions of the CA are grounded entirely on speculation, surmises
and conjectures, or when the inferences made by it are manifestly mistaken or absurd,
its findings are subject to review by this Court. From the evidence on record, it is seen
that the Mekeni car plan offered to petitioner was subject to no other term or condition
than that Mekeni shall cover one-half of its value, and petitioner shall in turn pay the
other half through deductions from his monthly salary. Mekeni has not shown, by
documentary evidence or otherwise, that there are other terms and conditions
governing its car plan agreement with petitioner. There is no evidence to suggest that if
SLU SOL 1-C Page

21
petitioner failed to completely cover one-half of the cost of the vehicle, then all the
deductions from his salary going to the cost of the vehicle will be treated as rentals for
his use thereof while working with Mekeni, and shall not be refunded. Indeed, there is
no such stipulation or arrangement between them. It was made clear in the above
pronouncement that installments made on the car plan may be treated as rentals only
when there is an express stipulation in the car plan agreement to such effect. It was
therefore patent error for the appellate court to assume that, even in the absence of
express stipulation, petitioners payments on the car plan may be considered as rentals
which need not be returned. Indeed, the Court cannot allow that payments made on the
car plan should be forfeited by Mekeni and treated simply as rentals for petitioners use
of the company service vehicle. Nor may they be retained by it as purported loan
payments, as it would have this Court believe. In the first place, there is precisely no
stipulation to such effect in their agreement.
Secondly, it may not be said that the car plan arrangement between the parties was a
benefit that the petitioner enjoyed; on the contrary, it was an absolute necessity in
Mekenis business operations, which benefited it to the fullest extent: without the service
vehicle, petitioner would have been unable to rapidly cover the vast sales territory
assigned to him, and sales or marketing of Mekenis products could not have been
booked or made fast enough to move Mekenis inventory. Any benefit or privilege
enjoyed by petitioner from using the service vehicle was merely incidental and
insignificant, because for the most part the vehicle was under Mekenis control and
supervision. In the absence of specific terms and conditions governing the car plan
arrangement between the petitioner and Mekeni, a quasi-contractual relation was
created between them. Consequently, Mekeni may not enrich itself by charging
petitioner for the use of its vehicle which is otherwise absolutely necessary to the full
and effective promotion of its business. It may not, under the claim that petitioners
payments constitute rents for the use of the company vehicle, refuse to refund what
petitioner had paid, for the reasons that the car plan did not carry such a condition; the
subject vehicle is an old car that is substantially, if not fully, depreciated; the car plan
arrangement benefited Mekeni for the most part; and any personal benefit obtained by
petitioner from using the vehicle was merely incidental.
Conversely, petitioner cannot recover the monetary value of Mekenis counterpart

contribution to the cost of the vehicle; that is not property or money that belongs to him,
nor was it intended to be given to him in lieu of the car plan. In other words, Mekenis
share of the vehicles cost was not part of petitioners compensation package. To start
with, the vehicle is an asset that belonged to Mekeni. Just as Mekeni is unjustly
enriched by failing to refund petitioners payments, so should petitioner not be awarded
the value of Mekenis counterpart contribution to the car plan, as this would unjustly
enrich him at Mekenis expense.
There is unjust enrichment when a person unjustly retains a benefit to the loss of
another, or when a person retains money or property of another against the
fundamental principles of justice, equity and good conscience. The principle of unjust
SLU SOL 1-C Page
22
enrichment requires two conditions: (1) that a person is benefited without a valid basis
or justification, and (2) that such benefit is derived at the expense of another.
SLU SOL 1-C Page
23
Sarte Flores v. Sps. Lindo, 13 April 2011
ARTURO SARTE FLORES, petitioner,

vs.
SPOUSES ENRICO LINDO, JR. AND EDNA LINDO, respondents.
G.R. No. 183984 April 13, 2011
Facts: On October 31, 1995, respondent wife Edna obtained a loan from petitioner
amounting to P400,000 payable on December 1, 1995 with 3% interest and 3%
surcharge in case of late payment. To secure the loan, a Deed of Real Estate Mortgage
covering a property in the name of Edna and her husband Enrico. Edna signed a
promissory note and the Deed for herself and for Enrico as his attorney-in-fact. Edna
issued 3 checks as partial payments but were dishonored for insufficiency of funds,
prompting petitioner to file a complaint for foreclosure of mortgage with damages
against respondents. RTC ruled that petitioner was not entitled to judicial foreclosure of
the mortgage because the deed was executed by Edna without the consent and
authority of her husband. The deed was executed on October while the SPA executed
by Enrico was only on November that same year. However, petitioner was not precluded
from recovering the loan from Edna as he could file a personal action against her.
Issue: Whether or not the promissory note and the Real Estate Mortgage executed by
Edna without the consent of her husband is valid.
Ruling: Under Article 124 of the Family Code paragraph 2, the transaction shall be
construed as a continuing offer on the part of the consenting spouse and the third
person, and may be perfected as a binding contract upon the acceptance by the other
spouse. The execution of the SPA is the acceptance by the other spouse that perfected
the continuing offer as a binding contract.
The liability of Edna on the principal contract of the loan subsists notwithstanding the
illegality of the mortgage. Where the mortgage is not valid, the principal obligation which
it guarantees is not rendered null and void. The obligation matures and becomes
demandable in accordance with the stipulation pertaining to it. In case of nullity, the
mortgage deed remains as proof of a personal obligation of the debtor and the amount
due to the creditor may be enforced in an ordinary action.
SLU SOL 1-C Page

24
TITAN-IKEDA CONSTRUCTION & DEVELOPMENT CORPORATION, petitioner,

vs.
PRIMETOWN PROPERTY GROUP, INC., respondent.
G.R No. 158768 February 12, 2008
Facts: The respondent Primetown Property Corporation entered into contract with the
petitioner Titan-Ikeda Construction Corporation for the structural works of a 32-storey
prime tower. After the construction of the tower, respondent again awarded to the
petitioner the amount of P 130,000,000.00 for the towers architectural design and
structure. However, in 1994, the respondent entered into a contract of sale of the tower
in favor of the petitioner in a manner called full-swapping. Since the respondent had
allegedly constructed almost one third of the project as well as selling some units to
third persons unknown to the petitioner. Integrated Inc. took over the project, thus the
petitioner is demanding for the return of its advanced payment in the amount of P2,
000,000.00 as well as the keys of the unit.
Issue: Whether or not the petitioner is entitled to damages.
Ruling: No, because in a contract necessarily that there is a meeting of the minds of
the parties in which this will be the binding law upon them. Thus, in a reciprocal
obligation, both parties are obliged to perform their obligation simultaneously and in
good faith. In this case, petitioner, Titan-Ikeda cannot recover damages because it was
found out there was no solutio indebiti or mistake in payment in this case since the latter
is just entitled to the actual services it rendered to the respondent and thus it is ordered
to return the condominium units to the respondent.
SLU SOL 1-C Page
25
PADCOM v. Ortigas, 9 May 2002
PADCOM CONDOMINIUM CORPORATION, petitioner,

vs.
ORTIGAS CENTER ASSOCIATION, INC., respondent.
G.R. No. 146807 May 9, 2002
Facts: Padcom Condominium Corporation (PADCOM) owns and manages the Padilla
Office Condominium Building (PADCOM Building) located at Emerald Avenue, Ortigas
Center, Pasig City. The land on which the building stands was originally acquired from
the Ortigas & Company, Limited Partnership (OCLP), by Tierra Development
Corporation (TDC) under a Deed of Sale dated 4 September 1974. Among the terms
and conditions in the deed of sale was the requirement that the transferee and its
successor-in-interest must become members of an association for realty owners and
long-term lessees in the area later known as the Ortigas Center. Subsequently, the said
lot, together with improvements thereon, was conveyed by TDC in favor of PADCOM in
a Deed of Transfer dated 25 February 1975. In 1982, Ortigas Center Association, Inc.
was organized to advance the interests and promote the general welfare of the real
estate owners and long-term lessees of lots in the Ortigas Center. It sought the
collection of membership dues in the amount of P2,724.40 per month from PADCOM.
The corporate books showed that PADCOM owed the Association P639,961.47,
representing membership dues, interests and penalty charges from April 1983 to June
1993.
The letters exchanged between the parties through the years showed repeated
demands for payment, requests for extensions of payment, and even a settlement
scheme proposed by PADCOM in September 1990. In view of PADCOMs failure and
refusal to pay its arrears in monthly dues, including interests and penalties thereon, the
Association filed a complaint for collection of sum of money before the Regional Trial
Court of Pasig City, Branch 264 (Civil Case No. 63801). The Association averred that
purchasers of lands within the Ortigas Center complex from OCLP are obligated under
their contracts of sale to become members of the Association, and that this obligation
was allegedly passed on to PADCOM when it bought the lot from TDC, its predecessor-
in-interest. In its answer, PADCOM contended that it is a non-stock, non-profit
association, and for it to become a special member of the Association, it should first
apply for and be accepted for membership by the latters Board of Directors; that no
automatic membership was apparently contemplated in the Associations By-laws.
PADCOM added that it could not be compelled to become a member without violating
its right to freedom of association; and that since it was not a member of the
Association, it was not liable for membership dues, interests and penalties.
On 1 September 1997, the trial court rendered a decision dismissing the complaint. The
Association appealed the case to the Court of Appeals (CA-GR CV 60099). In its
decision of 30 June 2000, the Court of Appeals reversed and set aside the trial courts
decision, and entered a new one ordering PADCOM to pay the Association (1)
SLU SOL 1-C Page
26
P639,961.47 as and for membership dues in arrears inclusive of earned interests and
penalties; and (2) P25,000.00 as and for attorneys fees; with costs against PADCOM;
on the ground that PADCOM automatically became a member of the Association when
the land was sold to TDC; and that the intent to pass the obligation to prospective
transferees was evident from the annotation of the same clause at the back of the
Transfer Certificate of Title covering the lot. The appellate court held that despite
disavowal of membership, PADCOMs membership in the Association was evident from
these facts: (1) PADCOM was included in the Associations list of bona fide members as
of 30 March 1995; (2) Narciso Padilla, PADCOMs President, was one of the
Associations incorporators; and (3) having received the demands for payment,
PADCOM not only acknowledged them, but asked for and was granted repeated
extensions, and even proposed a scheme for the settlement of its obligation. PADCOM
filed the petition for review.
Issue: Whether or not PADCOM can be compelled to join the association pursuant to
the provision on automatic membership appearing as a condition in the Deed of Sale of
4 September 1974 and the annotation thereof on Transfer Certificate of Title 457308.
Ruling: When the land in question was bought by PADCOMs predecessor-in-interest,

TDC, from OCLP, the sale bound TDC to comply with panragraph (G) of the covenants,
conditions and restrictions of the Deed of Sale. It was agreed by the parties that dues
shall be collected from an automatic member and such fees or assessments shall be a
lien on the property. The stipulation was likewise annotated at the back of Transfer
Certificate of Title 457308 issued to TDC. When the latter sold the lot to PADCOM on 25
February 1975, the Deed of Transfer expressly stated that for and in consideration of
the foregoing premises, the DEVELOPER, by these presents, cedes, transfers and
conveys unto the CORPORATION the above-described parcel of land evidenced by
Transfer Certificate of Title 457308, as well as the Common and Limited Common Areas
of the Condominium project mentioned and described in the Master Deed with
Declaration of Restrictions, free from all liens and encumbrances, except those already
annotated at the back of said Transfer Certificate of Title 457308. As the provision on
automatic membership was annotated in the Certificate of Title and made a condition in
the Deed of Transfer in favor of PADCOM; consequently, PADCOM is bound by and
must comply with the covenant. Moreover, Article 1311 of the Civil Code provides that
contracts take effect between the parties, their assigns and heirs. Since PADCOM is the
successor-in-interest of TDC, it follows that the stipulation on automatic membership
with the Association is also binding on the former. Further, as lot owner, PADCOM is a
regular member of the Association. No application for membership is necessary. If at all,
acceptance by the Board of Directors is a ministerial function considering that PADCOM
is deemed to be a regular member upon the acquisition of the lot pursuant to the
automatic membership clause annotated in the Certificate of Title of the property and
the Deed of Transfer. Furthermore, the automatic membership clause is not a violation
of its freedom of association. PADCOM was never forced to join the association. It could
have avoided such membership by not buying the land from TDC. Nobody forced it to
buy the land when it bought the building with the annotation of the condition or lien on
the Certificate of Title thereof and accepted the Deed. PADCOM voluntarily agreed to
SLU SOL 1-C Page

27
be bound by and respect the condition, and thus to join the Association. Lastly, under
the principle of estoppel, from the facts or circumstances it enumerated in the appellate
courts decision, PADCOM is barred from disclaiming membership in the Association.
SLU SOL 1-C Page
28
Art. 1161 in relation to Arts. 20, 29-30, 35 in relation to Art.
100 et seq. of the Revised Penal Code, Delicts
People v. Nurfrashir Hashim, et al., 13 June 2012
THE PEOPLE OF THE PHILIPPINES, plaintiff-appellee,

vs.
NURFRASIR HASHIM y SARABAN a.k.a "FRANZ/FRANS," MAKDUL JAMAD y
BUKIN (AL) a.k.a. "MACKY," a certain "TAS," and a certain "JUN," accused,
BERNADETTE PANSACALA a.k.a. "Neneng Awid," accused-appellant.
G.R. No. 194255 June 13, 2012
Facts: The accused was charged as having been engaged in the recruitment and
deployment of workers without having previously obtained from the POEA a license or
authority to do so. They promised employment abroad particularly in Brunei and
Malaysia, thus causing and prompting the persons of BBB and AAA to apply which
employment however did not materialize because in truth and in fact, the promised
employment is non-existent, in flagrant violation of the above-mentioned law and
causing damage and prejudice to said complainants. Instead of getting decent jobs,
they were forced to become sex workers to earn money and became prostitutes. The
lower court found the accused guilty of illegal recruitment defined under Section 6 and
penalized under Section 7(b) of Republic Act No. 8042 otherwise known as the Migrant
Workers and Overseas Filipinos Act of 1995, as principals by direct participation,
committed by a syndicate, against BBB and AAA, and SENTENCES each of said
accused to suffer the penalty of life imprisonment and to pay a fine of P1,000,000.00
each; to pay each of the above victims P50,000.00 as moral damages; P300,000.00 as
exemplary damages, and to pay the costs. The Court of Appeals affirmed with
modification that the amount of exemplary damages in favor of the victims (private
complainants) to be reduced to P25,000.00 each.
Issue: Whether or not the award of damages was proper.
Ruling: No. The Supreme Court modified the ruling of the Court of Appeals. It held that
Congress passed R.A. 9208 or the Anti-Trafficking in Persons Act. Such law was
approved on 26 May 2003. Ironically, only a few days after, victims found themselves in
a situation that the law had sought to prevent. In Lalli, the Supreme Court increased the
amount of moral and exemplary damages from P50,000 to P500,000 and from P50,000
to P100,000, respectively, having convicted the accused therein of the crime of
trafficking in persons.
The payment of P500,000 as moral damages and P100,000 as exemplary damages for
the crime of Trafficking in Persons as a Prostitute finds basis in Article 2219 of the Civil
Code, which states:
SLU SOL 1-C Page
29
Art. 2219. Moral damages may be recovered in the following and analogous
cases: (1) A criminal offense resulting in physical injuries; (2) Quasi-delicts
causing physical injuries; (3) Seduction, abduction, rape, or other lascivious acts.
The criminal case of Trafficking in Persons as a Prostitute is an analogous case to the

crimes of seduction, abduction, rape, or other lascivious acts. In fact, it is worse. To be
trafficked as a prostitute without ones consent and to be sexually violated four to five
times a day by different strangers is horrendous and atrocious. There is no doubt that
Lolita experienced physical suffering, mental anguish, fright, serious anxiety,
besmirched reputation, wounded feelings, moral shock, and social humiliation when she
was trafficked as a prostitute in Malaysia. Since the crime of Trafficking in Persons was
aggravated, being committed by a syndicate, the award of exemplary damages is
likewise justified. The Supreme Court found no legal impediment to increasing the
award of moral and exemplary damages in the case at bar. Neither is there any logical
reason why we should differentiate between the victims herein and those in that case,
when the circumstances are frighteningly similar. To do so would be to say that we
discriminate one from the other, when all of these women have been the victims of
unscrupulous people who capitalized on the poverty of others. While it is true that
accused-appellant was not tried and convicted of the crime of trafficking in persons, this
Court based its award of damages on the Civil Code, and not on the Anti-Trafficking in
Persons Act, as clearly explained in Lalli. Hence the Decision of the Court of Appeals in
is affirmed with modifications. Accused-appellant Bernadette Pansacala a.k.a. Neneng
Awid is ordered to pay AAA and BBB the sum of P500,000 each as moral damages and
P100,000 each as exemplary damages and to pay the costs.
SLU SOL 1-C Page
30
Abellana v. People, 17 August 2011
FELIXBERTO ABELLANA, petitioner,

vs.
G.R. No. 174654 August 17, 2011
Facts: In 1985, petitioner Felixberto A. Abellana extended a loan to private respondents

spouses Diaga and Saapia Alonto (spouses Alonto), secured by a Deed of Real Estate
Mortgage over Lot Nos. 6471 and 6472 located in Cebu City. Subsequently, or in 1987,
petitioner prepared a Deed of Absolute Sale conveying said lots to him. The Deed of
Absolute Sale was signed by spouses Alonto in Manila. However, it was notarized in
Cebu City allegedly without the spouses Alonto appearing before the notary public.
Thereafter, petitioner caused the transfer of the titles to his name and sold the lots to
third persons. On August 12, 1999, respondent spouses filed a complaint charging
petitioner with Estafa through Falsification of Public Document. The RTC found that
petitioner did not intend to defraud the spouses Alonto and that petitioner can only be
held guilty of Falsification of a Public Document by a private individual under Article
172(1) in relation to Article 171(2) of the Revised Penal Code and not Estafa through
falsification of public document as charged in the Information. Petitioner, upon appeal,
raised the issue of whether an accused who was acquitted of the crime charged may
nevertheless be convicted of another crime or offense not specifically charged and
alleged and which is not necessarily included in the crime or offense charged. The CA
held that petitioner who was charged with and arraigned for estafa through falsification
of public document under Article 171(1) of the RPC could not be convicted of
Falsification of Public Document by a Private Individual under Article 172(1) in relation
to Article 171(2). Thus, the CA opined that the conviction of the petitioner for an offense
not alleged in the Information or one not necessarily included in the offense charged
violated his constitutional right to be informed of the nature and cause of the accusation
against him. Nonetheless, the CA affirmed the trial court's finding with respect to
petitioner's civil liability.
Issue: Whether or not petitioner could still be held civilly liable notwithstanding his
acquittal.
Ruling: No. It is an established rule in criminal procedure that a judgment of acquittal

shall state whether the evidence of the prosecution absolutely failed to prove the guilt of
the accused or merely failed to prove his guilt beyond reasonable doubt. The "extinction
of the penal action does not carry with it the extinction of civil liability unless the
extinction proceeds from a declaration in a final judgment that the fact from which the
civil liability might arise did not exist." Civil liability arises when one, by reason of his
own act or omission, done intentionally or negligently, causes damage to another.
Hence, for petitioner to be civilly liable to spouses Alonto, it must be proven that the acts
he committed had caused damage to the spouses. Based on the records of the case,
we find that the acts allegedly committed by the petitioner did not cause any damage to
SLU SOL 1-C Page
31
spouses Alonto. Even assuming that the spouses Alonto did not personally appear
before the notary public for the notarization of the Deed of Absolute Sale, the same
does not necessarily nullify or render void ab initio the parties' transaction. Such non-
appearance is not sufficient to overcome the presumption of the truthfulness of the
statements contained in the deed. And since the defective notarization does not ipso
facto invalidate the Deed of Absolute Sale, the transfer of said properties from spouses
Alonto to petitioner remains valid. Hence, when on the basis of said Deed of Absolute
Sale, petitioner caused the cancellation of spouses Alonto's title and the issuance of
new ones under his name, and thereafter sold the same to third persons, no damage
resulted to the spouses Alonto.
SLU SOL 1-C Page
32
People v. Malicsi, 543 S 93
PEOPLE OF THE PHILIPPINES, appellee,

vs.
EDWIN MALICSI, appellant.
G.R. No. 175833 January 29, 2008
Facts: The appellant was accused for the crime of rape against his niece. The incident
was repeated thrice by the appellant. The appellant contended that he and the victim
were sweethearts but the trial court did not give weight to that theory.
The trial court found appellant guilty of the crime of four counts of qualified rape and
was sentenced to suffer the penalty of death for each count of rape, to pay P300,000.00
as civil indemnity (P75,000.00 for each count), and P200,000.00 as moral damages
(P50,000.00 for each count). The CA however modified the findings of the RTC
declaring that appellant is guilty of four counts of simple rape and to suffer the penalty of
reclusion perpetua.
Issue: Whether or not the award of damages was properly made.
Ruling: No, because the Supreme Court declared that the crime committed was four
count of simple rape only and not qualified rape because the special aggravating
circumstances of minority and relationship must be alleged in the information but the
prosecution failed to do so. Since it is not included, four counts of simple rape should be
undertaken. The penalty imposed then should be reclusion perpetua. The appellate
court also correctly affirmed the award by the trial court of P200,000.00 for moral
damages. Moral damages are automatically granted to rape victim. However, the award
of civil indemnity is reduced to P200,000.00 in the amount of P50,000.00 for each count
of simple rape is automatically granted.
SLU SOL 1-C Page
33
People v. Sia, 21 November 2001
PEOPLE OF THE PHILIPPINES, plaintiff-appellee,

vs.
ROSAURO SIA y DICHOSO, JOHNNY BALALIO y DEZA, JIMMY PONCE y TOL and
JOHN DOE @ PEDRO MUOZ (at large), accused-appellants.
G.R. No. 137457 November 21, 2001
Facts: Christian Bermudez was beaten to death and the taxicab he was driving was
taken by the assailants. His lifeless body, wrapped in a carton box, was recovered
several days later in a fishpond in Meycauayan, Bulacan. The respondents were found
guilty of murder as well as for violating the Anti-Carnapping Law in two separate
information. The lower court held Ponce and Balalio guilty of the crime charged but Sia
was not, due to his escape before the rendition of the judgment and convicted them with
the death penalty together with moral damages.
Issue: Whether or not the crime committed by the respondents resulted to a civil liability
to pay for damages.
Ruling: Yes. The Supreme Court affirmed the decision of the trial court finding accused-
appellant guilty beyond reasonable doubt of violation of Republic Act No. 6539 (The
Anti-Carnapping Law) and are sentenced to suffer the penalty of reclusion perpetua;
and are ordered, jointly and severally, to pay the heirs of the victim Christian Bermudez
the sum of P50,000.00 as civil indemnity, the sum of P50,000.00 as moral damages,
and the sum of P2,996,867.20 representing lost earnings.
SLU SOL 1-C Page
34
People v. Doctolero, 20 August 2001

vs.
CARLOS DOCTOLERO, SR., accused-appellant.
G.R. No. 131866 August 20, 2001
Facts: In November 1996, as Vicente Ganongan, Jr. and his friends were going home
after drinking, Carlos Garcia told them to stop, pointing a gun at them. A commotion
then ensued between the 2 groups. Doctolero, who witnessed the event, intervened by
firing his gun at one of Ganongan's friends but missed. When Ganongan turned around
to run, Doctolero fired at and hit him twice. Ganongan's friends rushed him to SLU-HSH
where he expired.
Upon arraignment, Doctolero entered a plea of not guilty. The RTC convicted him of
murder after appreciating the aggravating circumstance of treachery. He was sentenced
to suffer the penalty of reclusion perpetua and was ordered to indemnify the heirs of
Ganongan the amounts of P50K as civil indemnity, P228K as actual damages, and
P300K as moral damages.
Doctolero professed his innocence and sought an acquittal on the ground that the
prosecution failed to prove his guilt beyond reasonable doubt. He maintained that it was
Garcia who fired the fatal shots.
Ruling: Absent clear and convincing proof of treachery, Doctolero can only be
convicted of homicide.
Under Art. 249 of the RPC, homicide is punishable by reclusion temporal. When there
are neither aggravating nor mitigating circumstances, the penalty shall be imposed in its
medium period. Applying the Indeterminate Sentence Law and there being no modifying
circumstance, the minimum of the imposable penalty shall be taken from the penalty
next lower in degree, or more specifically prision mayor. Accordingly, Doctolero shall
suffer the indeterminate penalty of 8 years and 1 day of prision mayor as minimum to 14
years, 8 months and 1 day of reclusion temporal as maximum.
With respect to the damages, the SC reduced the award to P112K representing funeral
th
expenses which were duly proven and covered by receipts. Expenses relating to the 9
th st
day, 40 day, and 1 year anniversaries cannot be considered in the award of actual
damages as these were incurred after a considerable lapse of time from the burial of the
victim. The award of moral damages was reduced to P50K in accordance with existing
jurisprudence. The P50K civil indemnity was maintained.
SLU SOL 1-C Page

35
People v. Abulencia, 22 August 2001

vs.
ROLLY ABULENCIA Y COYOS, defendant-appellant.
G.R. No. 138403 August 22, 2001
Facts: Reynaldo Garcia, Jr. met the appellant in the morning of that fateful day of
August4, 1998 and later, both engaged in a drinking spree; that they slept in Garcias
house. The appellant left the house at about 5:30 oclock in the afternoon to buy dilis in
the nearby store located 40meters away, the victim tagging along; that the appellant and
Rebelyn never returned. In the evening of the same day, the appellant surrendered to
Mayor Sevilleja, reporting that he was with the victim when the latter allegedly fell from
the bridge. The autopsy conducted on her cadaver shows that she was sexually abused
and, thereafter, brutally killed. After the trial on the merits, the court a quo rendered its
decision dated March 16, 1999, convicting accused Rolly Abulencia of the crime as
charged and to suffer the penalty of death, to be implemented in the manner provided
for bylaw. Ordering the accused to indemnify the heirs of Rebelyn Garcia, the sum of
P75,000.00 damages, and another sum of P20,000.00 for exemplary damages plus
P6,425.00 as actual damages.
Issues:
1. Whether or not the court a quos award of civil liability is reasonable based on the
circumstances of the crime.
2. Whether or not circumstantial evidence is sufficient to warrant a conviction.
Ruling: With regard to the civil indemnity, the trial court awarded onlyP75,000.00.
Current jurisprudence has fixed at P100,000.00 the civil indemnity in cases of rape with
homicide, which is fully justified and properly commensurate with the seriousness of that
special complex crime.
As regards to the sufficiency of circumstantial evidence to warrant conviction, the Court

held that the absence of direct evidence, however, does not preclude the conviction of a
person accused of the complex crime of rape with homicide. Circumstantial evidence
can be as potent as direct evidence to sustain a conviction provided that there is a
concurrence of all the requisites prescribed in Section 5, Rule 133 of the Revised Rules
on Evidence. Thus, the appealed decision convicting Rolly Abulencia of the crime of
rape with homicide and sentencing him to suffer the penalty of death, is affirmed with
modification insofar as the civil aspect is concerned. Appellant is thus ordered to pay the
heirs of Rebelyn Garcia P100,000.00 as civil indemnity; P50,000.00 as moral damages;
P25,000.00 as exemplary damages; andP6,425.00 as actual damages.
SLU SOL 1-C Page
36
Bermudez v. Melencio-Herrera, 26 February 1988
REYNALDO BERMUDEZ, SR. and ADONITA YABUT BERMUDEZ, petitioners-

appellants,
vs.
HON. JUDGE A. MELENCIO-HERRERA, DOMINGO PONTINO y TACORDA and
CORDOVA NG SUN KWAN, respondents-appellees.
G.R. No. L-32055 February 26, 1988
Facts: A cargo truck, driven by Domingo Pontino and owned by Cordova Ng Sun Kwan,
bumped a jeep on which Rogelio, a 6-year old son of plaintiffs-appellants, was riding.
The boy sustained injuries which caused his death. As a result, Criminal Case No.
92944 for Homicide through Reckless Imprudence was filed against Domingo Pontino.
Plaintiffs-appellants filed on July 27, 1969 in the said criminal case A Reservation to
File Separate Civil Action.
On July 28, 1969, the plaintiffs-appellants filed a civil case for damages against
Domingo Pontino y Tacorda and Cordova Ng Sun Kwan. Finding that the plaintiffs
instituted the action on the assumption that defendant Pontinos negligence in the
accident of May 10, 1969 constituted aquasi-delict, the trial court stated that plaintiffs
had already elected to treat the accident as a crime by reserving in the criminal case
their right to file a separate civil action. That being so, the trial court decided to order the
dismissal of the complaint against defendant Cordova Ng Sun Kwan and to suspend the
hearing of the case against Domingo Pontino until after the criminal case for Homicide
Through Reckless Imprudence is finally terminated.
Issue: Whether or not the present action is based on quasi-delict under the Civil Code
and therefore could proceed independently of the criminal case for homicide thru
reckless imprudence.
Ruling: In cases of negligence, the injured party or his heirs has the choice between an
action to enforce the civil liability arising from crime under Article 100 of the Revised
Penal Code and an action for quasi-delict under Article 2176-2194 of the Civil Code. If a
party chooses the latter, he may hold the employer solidarily liable for the negligent act
of his employee, subject to the employers defense of exercise of the diligence of a
good father of the family.
In the case at bar, the action filed by appellant was an action for damages based on
quasi-delict. The fact that appellants reserved their right in the criminal case to file an
independent civil action did not preclude them from choosing to file a civil action for
quasi-delict. The appellant precisely made a reservation to file an independent civil
action. In fact, even without such a reservation, the Court allowed the injured party in
the criminal case which resulted in the acquittal of the accused to recover damages
based on quasi-delict. It does not follow that a person who is not criminally liable is also
free from civil liability. While the guilt of the accused in a criminal prosecution must be
SLU SOL 1-C Page
37
established beyond reasonable doubt, only a preponderance of evidence is required in
a civil action for damages (Article 29, Civil Code). The judgment of acquittal
extinguishes the civil liability of the accused only when it includes a declaration that the
facts from which the civil liability might arise did not exist.
SLU SOL 1-C Page
38
People v. Relova, 6 March 1987
PEOPLE OF THE PHILIPPINES, petitioner,

vs.
THE HONORABLE BENJAMIN RELOVA, in his capacity as Presiding Judge of the
Court of First Instance of Batangas, Second Branch, and MANUEL OPULENCIA,
respondents.
G.R. No. L-45129 March 6, 1987
Facts: On 1 February 1975, members of the Batangas City Police together with
personnel of the Batangas Electric Light System, equipped with a search warrant issued
by a city judge of Batangas City, searched and examined the premises of the Opulencia
Carpena Ice Plant and Cold Storage owned and operated by the private respondent
Manuel Opulencia. The police discovered that electric wiring, devices and contraptions
had been installed, without the necessary authority from the city government, and
architecturally concealed inside the walls of the building owned by the private
respondent. These electric devices and contraptions were, in the allegation of the
petitioner designed purposely to lower or decrease the readings of electric current
consumption in the electric meter of the said electric plant. During the subsequent
investigation, Manuel Opulencia admitted in a written statement that he had caused the
installation of the electrical devices in order to lower or decrease the readings of his
electric meter. On 24 November 1975, an Assistant City Fiscal of Batangas City filed
before the City Court of Batangas City an information against Manuel Opulencia for
violation of Ordinance No. 1, Series of 1974, Batangas City. A violation of this ordinance
was, under its terms, punishable by a fine ranging from Five Pesos (P5.00) to Fifty
Pesos (P50.00) or imprisonment, which shall not exceed thirty (30) days, or both, at the
discretion of the court.
The accused Manuel Opulencia pleaded not guilty. On 2 February 1976, he filed a
motion to dismiss the information upon the grounds that the crime there charged had
already prescribed and that the civil indemnity there sought to be recovered was beyond
the jurisdiction of the Batangas City Court to award which was dismissed by the judge.
Fourteen (14) days later, on 20 April 1976, the Acting City Fiscal of Batangas City filed
before the Court of First Instance of Batangas, Branch II, another information against
Manuel Opulencia, this time for theft of electric power under Article 308 in relation to
Article 309, paragraph (1), of the Revised Penal Code. Before he could be arraigned
thereon, Manuel Opulencia filed a Motion to Quash, dated 5 May 1 976, alleging that he
had been previously acquitted of the offense charged in the second information and that
the filing thereof was violative of his constitutional right against double jeopardy. By
Order dated 16 August 1976, the respondent Judge granted the accuseds Motion to
Quash and ordered the case dismissed.
Issue: Whether or not Manuel Opulencia can be tried for violation of the Revised Penal
Code after acquittal from the violation of an ordinance due to prescription which were
based from the same act and whether or not he may still be held liable civilly.
SLU SOL 1-C Page
39
Ruling: The Supreme Court held that the accused was placed in double jeopardy,
hence, could not be tried in the criminal case. However, the civil liability aspects of this
case are another matter. Because no reservation of the right to file a separate civil
action was made by the Batangas City electric light system, the civil action for recovery
of civil liability arising from the offense charged was impliedly instituted with the criminal
action both before the City Court of Batangas City and the Court of First Instance of
Batangas. The extinction of criminal liability whether by prescription or by the bar of
double jeopardy does not carry with it the extinction of civil liability arising from the
offense charged. In the present case, accused Manuel Opulencia freely admitted during
the police investigation having stolen electric current through the installation and use of
unauthorized electrical connections or devices. While the accused pleaded not guilty
before the City Court of Batangas City, he did not deny having appropriated electric
power. However, there is no evidence in the record as to the amount or value of the
electric power appropriated by Manuel Opulencia, the criminal informations having been
dismissed both by the City Court and by the Court of First Instance (from which
dismissals the Batangas City electric light system could not have appealed) before trial
could begin. Accordingly, the related civil action which has not been waived expressly or
impliedly, should be remanded to the Court of First Instance of Batangas City for
reception of evidence on the amount or value of the electric power appropriated and
converted by Manuel Opulencia and rendition of judgment conformably with such
evidence.
SLU SOL 1-C Page

40
Manantan v. CA, 29 January 2001
GEORGE MANANTAN, petitioner,

vs.
THE COURT OF APPEALS, SPOUSES MARCELINO NICOLAS and MARIA
NICOLAS, respondents.
G.R. No. 107125 January 29, 2001
Facts: On June 1, 1983, the Provincial Fiscal of Isabela filed an information charging
petitioner Manantan with reckless imprudence resulting to homicide, allegedly
committed on or about the 25th day of September 1982, in the municipality of Santiago,
Isabela. The said accused being then the driver and person-in-charge of an automobile
bearing Plate No. NGA-816 willfully and unlawfully drove and operated the same while
along the Daang Maharlika of the said municipality, in a negligent manner causing the
automobile to sideswipe a passenger jeepney, thereby causing the said automobile to
turn turtle twice resulting to the death Ruben Nicolas passenger of the said automobile.
In its decision dated June 30, 1988, promulgated on August 4, 1988, the trial court
decided the criminal case in favor of Manantan. Subsequently, the private respondent
spouses Nicolas filed their notice of appeal on the civil aspect of the trial courts
judgment. The Nicolas spouses prayed that the decision appealed from be modified and
that the appellee be ordered to pay indemnity and damages. On its decision, the Court
of Appeals decided in favor of the private respondents. In finding petitioner civil liability,
the court a quo noted that at the time the accident occurred, Manantan was in a state of
intoxication, due to his having consume all in all a total amount of at least twelve bottles
of beer between 9 a.m. to 11 p.m. The petitioner moved for reconsideration but the
appellate court denied the motion.
Issue: Whether or not the acquittal of the accused also extinguished his civil liability.
Ruling: No. Our law recognizes two kinds of acquittal, with different effects on the civil
liability of the accused. First is an acquittal on the ground that the accused is not the
author of the act or omission complained of as a felony. This instance closes the door to
civil liability, for a person who has been found not to be the perpetrator of any act or
omission cannot and can never be held liable for such act or omission. There being no
delict, civil liability ex delicto is out of the question, and the civil action, if any, which will
be instituted must be based on ground other than the delict complained of. The second
instance is an acquittal based on reasonable doubt on the guilt of the accused. In this
case, even if the guilt of the accused has not been satisfactorily established, he is not
exempt from civil liability which may be proved by preponderance of evidence only. In
the case at bar, the accuseds acquittal is based on reasonable doubt. The decision of
the trial court did not state in clear and equivocal terms that petitioner was not recklessly
imprudent or negligent. Hence, impliedly, the trial court acquitted him on reasonable
doubt. Since civil liability is not extinguished in criminal cases if the accused acquittal is
based on reasonable doubt, the decision of the Court of Appeals finding that the
defendant is civilly liable for his negligent and reckless act of driving his car which was
SLU SOL 1-C Page
41
the proximate cause of the vehicular accident, and sentenced him to indemnify plaintiff-
appellants in the amount of P74,400.00 for the death of Ruben Nicolas.
SLU SOL 1-C Page
42
People v. Bayotas, 236 S 239

vs.
ROGELIO BAYOTAS y CORDOVA, accused-appellant.
G.R. No. 102007 September 2, 1994
Facts: Rogelio Bayotas was charged with rape and eventually convicted thereof on
June 19, 1991. Pending appeal for his conviction, Bayotas died on February 4, 1994 at
the National Bilibid Hospital due to cardiorespiratory arrest secondary to hipato
carcinoma gastric malingering. Consequently the Supreme Court dismissed the criminal
aspect of the appeal. It however, required the Solicitor General to file its comment with
regard to Bayotas' civil liability arising from his commission of the offense charged. In
his comment the Solicitor General expressed his view that the death of accused did not
extinguish his civil liability as a result of his commission of the offense charged. Counsel
of the accused appellant opposed the view arguing that the death of the accused while
the judgment of conviction is pending appeal extinguishes both his criminal and civil
liability.
Issue: Whether or not the death of the accused pending appeal of his conviction
extinguishes his civil liability.
Ruling: The court ruled that Article 89 of the RPC states that criminal liability is totally
extinguished by the death of the convict, as to the personal penalties; and as to the
pecuniary penalties liability therefore is extinguished only when the death of the
offender occurs before final judgment. It should be stressed that the extinction of civil
liability follows the extinction of the criminal liability under Art. 38, only when the civil
liability arises from the criminal act as its only basis. Stated differently, where the civil
liability does not exist independently of the criminal responsibility, the extinction of the
latter by death, ipso facto extinguishes the former, provided that the death supervenes
before final judgment. In pursuing recovery of civil liability arising from crime, the final
determination of the criminal liability is a condition precedent to the prosecution of the
civil action, such that when the criminal action is extinguished by the demise of
accused-appellant pending appeal thereof, said civil action cannot survive. The claim for
civil liability springs out of and is dependent upon facts, which if true, would constitute a
crime. Such civil liability is an inevitable consequence of the criminal liability and is to be
declared and enforced in the criminal proceeding. If the private offended party, upon
extinction of the civil liability ex delicto desires to recover damages from the same act or
omission complained of, he must file a separate civil action, this time predicated not on
the felony previously charged but on other sources of obligation. The source of
obligation upon which the action is premised determines against whom the same shall
be enforced. If the same act or omission complained of, also arises from quasi delict or
may, by provisions of law, result in an injury to person or property, the separate civil
action must be filed against the executor or administrator of the estate of the accused.
SLU SOL 1-C Page
43
Art. 1162 in relation to Arts. 2176-2194, Quasi-Delicts
Barredo v. Garcia, 73 P 607
FAUSTO BARREDO, petitioner,

vs.
SEVERINO GARCIA, respondent.
G.R. No. L-48006 July 8, 1942
Facts: At about 1:30 AM on May 3, 1936, Fontanillas taxi collided with a kalesa
thereby killing the 16 year old Faustino Garcia. Faustinos parents filed a criminal suit
against Fontanilla and reserved their right to file a separate civil suit. Fontanilla was
eventually convicted. After the criminal suit, Garcia filed a civil suit against Barredo the
owner of the taxi (employer of Fontanilla). The suit was based on Article 1903 of the
Civil Code (negligence of employers in the selection of their employees). Barredo
assailed the suit arguing that his liability is only subsidiary and that the separate civil suit
should have been filed against Fontanilla primarily and not him.
Issue: Whether or not Barredo is just subsidiarily liable.
Ruling: No. He is primarily liable under Article 1903 which is a separate civil action
against negligent employers. Garcia is well within his rights in suing Barredo. He
reserved his right to file a separate civil action and this is more expeditious because by
the time of the SC judgment Fontanilla is already serving his sentence and has no
property. It was also proven that Barredo is negligent in hiring his employees because it
was shown that Fontanilla had had multiple traffic infractions already before he hired
him something he failed to overcome during hearing. Had Garcia not reserved his
right to file a separate civil action, Barredo would have only been subsidiarily liable.
Further, Barredo is not being sued for damages arising from a criminal act (his drivers
negligence) but rather for his own negligence in selecting his employee.
SLU SOL 1-C Page
44
Del Carmen, Jr. v. Geronimo Bacoy, 25 April 2012 re: res ipsa loquitur
OSCAR DEL CARMEN, JR., petitioner,

vs.
GERONIMO BACOY, Guardian and representing the children, namely: MARY
MARJORIE B. MONSALUD, ERIC B. MONSALUD, METZIE ANN B. MONSALUD,
KAREEN B. MONSALUD, LEONARDO B. MONSALUD, JR., and CRISTINA B.
MONSALUD, respondents.
G.R. No. 173870 April 25, 2012
Facts: At the dawn on New Years Day of 1993, Emilia Bacoy Monsalud, along with her
spouse Leonardo Monsalud, Sr. and their daughter Glenda Monsalud, were on their
way home from a Christmas party they attended in Poblacion, Sominot, Zamboanga Del
Sur. Upon reaching Purok Paglaom in Sominot, they were run over by a Fuso
passenger jeep bearing plate number UV-PEK-600 that was being driven by Allan
Maglasang. The jeep was registered in the name of petitioner Oscar del Carmen, Jr.
(Oscar Jr.) and used as a public utility vehicle plying the Molave, Zamboanga del Sur to
Sominot, Zamboanga del Sur and vice versa route. A criminal case was filed against
Allan before the Regional Trial Court of Molave, Zamboanga del Sur, Branch 23. In a
Decision dated March 13, 1997, said court declared Allan guilty beyond reasonable
doubt of the crime charged. During the pendency of said criminal case, Emilias father,
Geronimo Bacoy (Geronimo), in behalf of the six minor children of the Monsaluds, filed
a civil case, an independent civil action for damages based on culpa aquiliana. Aside
from Allan, also impleaded therein were his alleged employers, namely, the spouses
Oscar del Carmen, Sr. (Oscar Sr.) and Norma del Carmen (Spouses del Carmen) and
the registered owner of the jeep, their son Oscar Jr. Geronimo prayed for the
reimbursement of funeral and burial expenses, as well as the award of attorneys fees,
moral and exemplary damages resulting from the death of the three victims, and loss of
net income earnings of Emilia who was employed as a public school teacher at the time
of her death. The RTC exculpated the spouses del Carmen from civil liability for
insufficiency of evidence. However, their son Oscar Jr. was held civilly liable in a
subsidiary capacity. The RTC anchored its ruling primarily on the principle of res ipsa
loquitur, i.e., that a presumption of negligence on the part of a defendant may be
inferred if the thing that caused an injury is shown to be under his management and that
in the ordinary course of things, the accident would not have happened had there been
an exercise of care. The CA adjudged Oscar Jr. liable to the heirs of the victims based
on the principle that the registered owner of a vehicle is directly and primarily
responsible for the injuries or death of third parties caused by the operation of such
vehicle.
Issue: Whether or not the doctrine of res ipsa loquitor is present in this case.
Ruling: The court ruled that under the doctrine of res ipsa loquitur, "where the thing that
caused the injury complained of is shown to be under the management of the defendant
or his servants; and the accident, in the ordinary course of things, would not happen if
SLU SOL 1-C Page
45
those who had management or control used proper care, it affords reasonable evidence
in the absence of a sufficient, reasonable and logical explanation by defendant that
the accident arose from or was caused by the defendants want of care. The requisites
of the doctrine of res ipsa loquitur are as follows: 1) the accident is of a kind which does
not ordinarily occur unless someone is negligent; 2) the cause of the injury was under
the exclusive control of the person in charge and 3) the injury suffered must not have
been due to any voluntary action or contribution on the part of the person injured.
The above requisites are all present in this case. First, no person just walking along the
road would suddenly be sideswiped and run over by an on-rushing vehicle unless the
one in charge of the said vehicle had been negligent. Second, the jeep which caused
the injury was under the exclusive control of Oscar Jr. as its owner. When Oscar Jr.
entrusted the ignition key to Rodrigo, he had the power to instruct him with regard to the
specific restrictions of the jeeps use, including who or who may not drive it. As he is
aware that the jeep may run without the ignition key, he also has the responsibility to
park it safely and securely and to instruct his driver Rodrigo to observe the same
precaution. Lastly, there was no showing that the death of the victims was due to any
voluntary action or contribution on their part. The aforementioned requisites having
been met, there now arises a presumption of negligence against Oscar Jr. which he
could have overcome by evidence that he exercised due care and diligence in
preventing strangers from using his jeep. Unfortunately, he failed to do so.
SLU SOL 1-C Page
46
PHILIPPINE HAWK CORPORATION, petitioner,

vs.
VIVIAN TAN LEE, respondent.
G.R. No. 166869 February 16, 2010
Facts: Respondent filed a case for Damages based on quasi delict arising from
vehicular accident between motorcycle and bus of Phil Hawk. Husband died,
respondent sustained injuries. Before answer, an amended complaint was filed, adding
additional damages and reliefs. RTC ruled in favour of respondent. The Court of
Appeals added to the relief granted by the lower court. Phil Hawk filed Rule 45 Petition
before the Supreme Court, saying that respondent did not appeal to the ruling of the
RTC and it was error on part of CA to grant damages.
Ruling: Yes. There is no error in awarding additional reliefs. The petitioner is liable for
damages because as provided for under the Civil Code, whenever an employees
negligence causes damage or injury to another, there arises a presumption that the
employer failed to exercise the due diligence of a good father of the family in the
selection or supervision of its employees. To avoid liability for a quasi-delict committed
by his employee, an employer must overcome the presumption by presenting
convincing proof that he exercised the care and diligence of a good father of a family in
the selection and supervision of his employee. The findings of the trial court and Court
of Appeals were upheld that petitioner is liable because the diligence of a good father of
a family requirement in the selection and supervision of its bus driver is not properly
exercised.
SLU SOL 1-C Page
47
Dy Teban v. Ching, 543 S 560
DY TEBAN TRADING, INC., petitioner,

vs.
JOSE CHING AND/OR LIBERTY FOREST, INC. and CRESILITO M. LIMBAGA,
respondents.
G.R. No. 161803 February 4, 2008
Facts: Rogelio Ortiz, on July 4, 1995, at around 4:45 a.m, was driving a Nissan van
owned by petitioner Dy Teban Trading, Inc. along the National Highway with helper
Romeo Catamora. They were roaming around nearby barangays and municipalities
delivering commercial ice. On the opposite lane towards the van, a Joana Paula
passenger bus was cruising. There was a parked prime mover with a trailer in between
the two vehicles owned by private respondent Liberty Forest, Inc. a tire blowout was
suffered by the prime mover with trailer. It was not then equipped with triangular,
collapsible reflectorized plates, the early warning device required under Letter of
Instruction No. 229. In its place, Limbaga placed a banana trunk with leaves on the front
and the rear portion of the prime mover to warn incoming motorists as a substitute. The
incoming passenger bus swerved to the right, onto the lane of the approaching Nissan
van to avoid hitting the parked prime mover occupying its lane. Ortiz saw two bright and
glaring headlights and the approaching passenger bus. He pumped his break slowly,
swerved to the left to avoid the upcoming bus but the van hit the front of the stationary
prime mover. The passenger bus hit the rear of the prime mover. Ortiz and Catamora
only suffered minor injuries. However, the Nissan van became inoperable as a result of
the incident. As a result, the petitioner who is the owner of the Nissan van filed a
complaint for damages against the prime mover owner, private respondents and driver
with the RTC in Butuan City. Not impleaded in the complaint as defendant is the Joana
Paula passenger bus. The RTC rendered a decision in favor of petitioner Dy Teban
Trading, Inc. on August 7, 2001. Such decision was reversed by the Court of Appeals.
Issue: Whether or not the Jose Ching and/or Prime Mover is liable for the damages
suffered by the Nissan van.
Ruling: Yes. Article 2176 of the Civil Code provides that whoever by act or omission
causes damage to another, there being fault or negligence, is obliged to pay for the
damage done. Such fault or negligence, if there is no pre-existing contractual relation
between the parties, is called a quasi-delict. To sustain a claim based on quasi-delict,
the following requisites must concur: (a) damage suffered by plaintiff; (b) fault or
negligence of defendant; and (c) connection of cause and effect between the fault or
negligence of defendant and the damage incurred by plaintiff. The Supreme Court ruled
that Limbaga was utterly negligent in parking the prime mover askew on the right side of
the national highway. It is common sense that the skewed parking of the prime mover
on the national road posed a serious risk to oncoming motorists. It was incumbent upon
Limbaga to take some measures to prevent that risk, or at least minimize it. He did not
immediately inform his employer, private respondent Liberty Forest, Inc., that the prime
SLU SOL 1-C Page

48
mover suffered two tire blowouts and that he could not have them fixed because he had
only one spare tire. Instead of calling for help, Limbaga took it upon himself to simply
place banana leaves on the front and rear of the prime mover to serve as warning to
oncoming motorists. Worse, Limbaga slept on the prime mover instead of standing
guard beside the vehicle. Also found negligent was private respondent Liberty Forest,
Inc. in ensuring that the prime mover was in proper condition as well as in supervising
Limbaga.
SLU SOL 1-C Page
49
SAFEGUARD SECURITY, petitioner,

vs.
EVANGELINE TANGCO, respondent.
G.R No. 165732 December 14, 2006
Facts: The victim Evangeline Tangco was depositor of Ecology Bank. She was also a
licensed fire arm holder, thus during the incident, she was entering the bank to renew
her time deposit and along with her was her firearm. Suddenly, the security guard of the
bank, upon knowing that the victim carries a firearm, the security guard shot the victim
causing the latters instant death. The heirs of the victim filed a criminal case against
security guard and an action against Safeguard Security for failure to observe diligence
of a goof father implied upon the act of its agent.
Issue: Whether Safeguard Security can be held liable for the acts of its agent.
Ruling: Yes. The law presumes that any injury committed either by fault or omission of
an employee reflects the negligence of the employer. In quasi-delicts cases, in order to
overcome this presumption, the employer must prove that there was no negligence on
his part in the supervision of his employees. It was declared that in the selection of
employees and agents, employers are required to examine them as to their
qualifications, experience and service records. Thus, due diligence on the supervision
and operation of employees includes the formulation of suitable rules and regulations
for the guidance of employees and the issuance of proper instructions intended for the
protection of the public and persons with whom the employer has relations through his
employees. Thus, in this case, Safeguard Security committed negligence in identifying
the qualifications and ability of its agents.
SLU SOL 1-C Page
50
Villanueva v. Domingo, 438 S 485
NOSTRADAMUS VILLANUEVA, petitioner,

vs.
PRISCILLA R. DOMINGO and LEANDRO LUIS R. DOMINGO, respondents.
G.R. No. 144274 September 20, 2004
Facts: A collision occurred between a green Mitsubishi lancer owned by Ocfemia

against a silver Mitsubishi lancer driven by Leandro Domingo and owned by petitioner
Priscilla Domingo. The incident caused the car of Domingo bumped another two parked
vehicles. A charged was filed against Ocfemia and the owner Villanueva. Villanueva
claimed that he must not be held liable for the incident because he is no longer the
owner of the car and that it was already swapped to another car. However, the trial court
ordered the petitioner to pay the damages incurred by the silver Mitsubishi lancer car.
Issue: Whether or not Villanueva is liable for the mishap.
Ruling: Under the Motor Vehicle law, it was declared that the registered owner of any
vehicle is primary land directly liable for any injury it incurs while it is being operated.
Thus, even the petitioner claimed that he was no longer the present owner of the car,
still the registry was under his name, thus it is presumed that he still possesses the car
and that the damages caused by the car be charge against him being the registered
owner. The primary function of Motor vehicle registration is to identify the owner so that
if any accident happens, or that any damage or injury is caused by the vehicle,
responsibility therefore can be fixed on a definite individual, the registered owner.
SLU SOL 1-C Page

51
Calalas v. CA, 31 May 2000
VICENTE CALALAS, petitioner,

vs.
COURT OF APPEALS, ELIZA JUJEURCHE SUNGA and FRANCISCO SALVA,
respondents.
G.R. No. 122039 May 31, 2000
Facts: Private respondent Eliza Jujeurche G. Sunga took a passenger jeepney owned
and operated by petitioner Vicente Calalas. As the jeepney was already full, Calalas
gave Sunga a stool at the back of the door at the rear end of the vehicle. Along the way,
the jeepney stopped to let a passenger off. Sunga stepped down to give way when an
Isuzu truck owned by Francisco Salva and driven by Iglecerio Verena bumped the
jeepney. As a result, Sunga was injured. Sunga filed a complaint against Calalas for
violation of contract of carriage. Calalas filed a third party complaint against Salva. The
trial court held Salva liable and absolved Calalas, taking cognisance of another civil
case for quasi-delict wherein Salva and Verena were held liable to Calalas. The Court of
Appeals reversed the decision and found Calalas liable to Sunga for violation of contract
of carriage.
Issues:
1. Whether or not Salva and his driver Verena are liable for quasi-delict for the damage
caused to petitioner's jeepney.
2. Whether or not petitioner is liable on his contract of carriage.
Ruling: Yes. The first, quasi-delict, also known as culpa aquiliana or culpa extra
contractual, has as its source the negligence of the tortfeasor. The second, breach of
contract or culpa contractual, is premised upon the negligence in the performance of a
contractual obligation. Consequently, in quasi-delict, the negligence or fault should be
clearly established because it is the basis of the action, whereas in breach of contract,
the action can be prosecuted merely by proving the existence of the contract and the
fact that the obligor, in this case the common carrier, failed to transport his passenger
safely to his destination. In case of death or injuries to passengers, Art. 1756 of the Civil
Code provides that common carriers are presumed to have been at fault or to have
acted negligently unless they prove that they observed extraordinary diligence as
defined in Arts. 1733 and 1755 of the Code. This provision necessarily shifts to the
common carrier the burden of proof. It is immaterial that the proximate cause of the
collision between the jeepney and the truck was the negligence of the truck driver. The
doctrine of proximate cause is applicable only in actions for quasi-delict, not in actions
involving breach of contract. The doctrine is a device for imputing liability to a person
where there is no relation between him and another party. In such a case, the obligation
is created by law itself. But, where there is a pre-existing contractual relation between
the parties, it is the parties themselves who create the obligation, and the function of the
law is merely to regulate the relation thus created.
SLU SOL 1-C Page
52
Picart v. Smith, 37 P 813 re: last clear chance
AMADO PICART, plaintiff-appellant,

vs.
FRANK SMITH, JR., defendant-appellee.
G.R. No. L-12219 March 15, 1918
Facts: In December 1912, Picart was riding on his horse over a bridge while Smith
approached from the opposite direction in an automobile. As Smith continued on, he
blew his horn as it appeared to him that Picart was not observing the rule of the road.
Picart saw the automobile and heard the warning signals. However, he pulled the horse
closely up against the railing on the right side of the bridge instead of going to the left.
As the automobile approached, Smith guided it toward his left, that being the proper
side of the road for the machine. Instead of veering to the right while yet some distance
away or slowing down, Smith continued to approach directly toward the horse without
diminution of speed. The automobile passed in such close proximity to the animal that it
became frightened and turned its body across the bridge with its head toward the
railing. It was struck on its left hind leg and the limb was broken. The horse fell and its
rider was thrown off with some violence. As a result of its injuries, the horse died. Picart
received contusions which caused temporary unconsciousness and required medical
attention for several days.
Issue: Whether or not Smith was guilty of negligence giving rise to a civil obligation to
repair the damage done.
Ruling: The SC ruled that Smith was liable.
The existence of negligence in a given case is not determined by reference to the

personal judgment of the actor in the situation before him. The law considers what
would be reckless, blameworthy, or negligent in the man of ordinary intelligence and
prudence and determines liability by that.
Applying this to the conduct of Smith, negligence is clearly established. A prudent man,
placed in his position would have recognized that the course which he was pursuing
was fraught with risk and would therefore have foreseen harm to the horse and the rider
as reasonable consequence of that course.
Picart himself was not free from fault for he was guilty of antecedent negligence in
planting himself on the wrong side of the road. But the negligence of Smith succeeded
the negligence of Picart by an appreciable interval. Under these circumstances, the law
is that the person who has the last fair chance to avoid the impending harm and fails to
do so is chargeable with the consequences without reference to the prior negligence of
the other party.
SLU SOL 1-C Page
53
While contributory negligence on the part of the person injured does not constitute a bar
to recovery, it could be received in evidence to reduce the damages which would
otherwise have been assessed wholly against the other party.
The SC ordered Smith to pay Picart P200 with costs of other instances. The award was
estimated to include the value of the horse, medical expenses of Picart, the loss or
damage occasioned to articles of his apparel, and lawful interest on the whole to the
date of this recovery.
SLU SOL 1-C Page
54
II. Nature and Effect of Obligations
Art. 1166, To Deliver Accessories and Accessions
Durban Apartments v. Pioneer Insurance, 12 January 2011
DURBAN APARTMENTS CORPORATION, petitioner,

vs.
PIONEER INSURANCE AND SURETY CORPORATION, respondent.
G.R. No. 179419 January 12, 2011
Facts: On April 30, 2002, See arrived and checked in at the City Garden Hotel before
midnight, and its parking attendant, Justimbaste got the key to said Vitara from See to
park it. On May 1,2002, at about 1:00 am, See received a phone call where the Hotel
Chief Security Officer informed him that his Vitara was carnapped while it was parked
unattended at the parking area of Equitable PCI Bank. See went to see the Security
Officer, thereafter reported the incident to the Operations Division of the Makati City
Police Anti-Carnapping Unit, and a flash alarm was issued. The police investigated
Hotel Security Officer, Ernesto T. Horlador, Jr. and Justimbaste. See gave his
Sinumpaang Salaysay to the police investigator, and filed a Complaint Sheet with the
PNP Traffic Management Group in Camp Crame. It paid the P1,163,250.00 money
claim of See and mortgagee ABN AMRO Savings Bank,Inc. as indemnity for the loss of
the Vitara.
Issue: Whether or not Durban Apartments is liable for damages.
Ruling: Yes. The Vitara was lost due to the negligence of Durban Apartments and
Justimbaste because it was discovered during the investigation that this was the second
time that a similar incident of carnapping happened in the valet parking service and no
necessary precautions were taken to prevent its repetition. Durban Apartments was
wanting in due diligence in the selection and supervision of its employees particularly
defendant Justimbaste. Both failed and refused to pay its valid, just, and lawful claim
despite written demands.
Plainly, from the facts found by the lower courts, the insured See deposited his vehicle
for safekeeping with petitioner, through the latters employee, Justimbaste. In turn,
Justimbaste issued a claim stub to See. Thus, the contract of deposit was perfected
from Sees delivery, when he handed over to Justimbaste the keys to his vehicle, which
Justimbaste received with the obligation of safely keeping and returning it. Ultimately,
petitioner is liable for the loss of Sees vehicle.
SLU SOL 1-C Page
55
Parties to Delivery
JOSE V. LAGON, petitioner,

vs.
HOOVEN COMALCO INDUSTRIES, INC., respondent.
G.R. No. 135657 January 17, 2001
Facts: Petitioner Jose V. Lagon is a businessman and owner of a commercial building

in Tacurong, Sultan Kudarat. Respondent HOOVEN on the other is a domestic
corporation known to be the biggest manufacturer and installer of aluminum materials in
the country with branch office at E. Quirino Avenue, Davao City. Sometime in April 1981
Lagon and HOOVEN entered into two (2) contracts, both denominated Proposal,
whereby for a total consideration of P104,870.00 HOOVEN agreed to sell and install
various aluminum materials in Lagons commercial building in Tacurong, Sultan
Kudarat. Upon execution of the contracts, Lagon paid HOOVEN P48,000.00 in
advance.
Lagon, in his answer, denied liability and averred that HOOVEN was the party guilty of
breach of contract by failing to deliver and install some of the materials specified in the
proposals; that as a consequence he was compelled to procure the undelivered
materials from other sources; that as regards the materials duly delivered and installed
by HOOVEN, they were fully paid. He counterclaimed for actual, moral, exemplary,
temperate and nominal damages, as well as for attorneys fees and expenses of
litigation.
Issue: Whether or not all the materials specified in the contracts had been delivered
and installed by respondent in petitioners commercial building in Tacurong, Sultan
Kudarat.
Ruling: Firstly, the quantity of materials and the amounts sated in the delivery receipts
do not tally with those in the invoices covering them, notwithstanding that, according to
HOOVEN OIC Alberto Villanueva, the invoices were based merely on the delivery
receipts. Secondly, the total value of the materials as reflected in all the invoices is
P117,329.0 while under the delivery receipts it is only P112, 870.50, or a difference of
P4,458.00.
Even more strange is the fact that HOOVEN instituted the present action for collection
of sum of money against Lagon only on 24 February 1987, or more than five (5) years
after the supposed completion of the project. Indeed, it is contrary to common
experience that a creditor would take its own sweet time in collecting its credit, more so
in this case when the amount involved is not miniscule but substantial.
SLU SOL 1-C Page
56
All the delivery receipts did not appear to have been signed by petitioner or his duly
authorized representative acknowledging receipt of the materials listed therein. A closer
examination of the receipts clearly showed that the deliveries were made to a certain
Jose Rubin, claimed to be petitioners driver, Armando Lagon, and a certain
bookkeeper. Unfortunately for HOOVEN, the identities of these persons were never
been established, and there is no way of determining now whether they were indeed
authorized representatives of petitioner.
SLU SOL 1-C Page
57
Art. 1167, Positive Personal Obligations
Francisco v. CA, 401 S 594
SPOUSES LORENZO G. FRANCISCO and LORENZA D. FRANCISCO, petitioners,

vs.
HONORABLE COURT OF APPEALS, and BIENVENIDO C. MERCADO, respondents.
G.R. No. 118749 April 25, 2003
Facts: On 3 February 1984, the spouses Lorenzo and Lorenza Francisco and Engineer
Bienvenido C. Mercado entered into a Contract of Development for the development
into a subdivision of several parcels of land in Pampanga. Respondent committed to
complete the construction within 27 months. Respondent also advanced P200,000.00
for the initial expenses of the development work. In return, respondent would receive
50% of the total gross sales of the subdivision lots and other income of the subdivision.
Respondent also enjoyed the exclusive and irrevocable authority to manage, control
and supervise the sales of the lots within the subdivision. On 5 August 1986, respondent
secured from the Human Settlements Regulatory Commission (HSRC) an extension of
time to finish the subdivision development until 30 July 1987. On 8 August 1986,
petitioners instructed respondent to stop selling subdivision lots and collecting payments
from lot buyers. On 20 January 1987, petitioners granted respondent an authority to
resume the sale of subdivision lots and the collection of payments subject to the
following conditions: (1) all collections shall be deposited in a joint account with China
Banking Corporation, San Fernando, Pampanga branch; (2) withdrawals shall be limited
to 50% of the total collections or to respondents share, which can only be used for
development expenses, and any withdrawal shall be subject to the approval of
petitioners; (3) only Franda Village Subdivision receipts, duly countersigned by
petitioners, shall be used; (4) collections shall be subject to a weekly or monthly audit;
and (5) any violation of these conditions shall result in the automatic cancellation of the
authority. Respondent filed an action to rescind the contract on the ground that
conditional authority issued by petitioners violated the contract. Petitioners countered
that respondent breached the Contract by failing to finish the subdivision within the 27
months agreed upon, and therefore respondent was in delay. Petitioners also alleged
that respondent sold one subdivision lot to two different buyers. The trial court ruled that
the petitioners breached the contract by: (1) hiring Rosales to do development work on
the subdivision within the 27-month period exclusively granted to respondent; (2)
interfering with the latters development work; and (3) stopping respondent from
managing the sale of lots and collection of payments. Because petitioners were the first
to breach the Contract and even interfered with the development work, the trial court
declared that respondent did not incur delay even if he completed only 28% of the
development work. Further, the HSRC extended the contract up to July 1987. Since the
Contract had not expired at the time respondent filed the action for rescission,
petitioners' defense that respondent did not finish the development work on time was
without basis. The Court of Appeals affirmed the decision.
SLU SOL 1-C Page
58
Issue: Whether or not the respondent incurred delay in not finishing the work in the
stipulated time.
Ruling: The Supreme Court finds no merit in petitioners claim that respondent incurred
delay in the performance of his obligation under the contract. At that time, the law
authorized HSRC to grant extensions of time for completion of subdivision projects. The
law provides that delay may exist when the obligor fails to fulfill his obligation within the
time expressly stipulated. In this case, the HSRC extended the period for respondent to
finish the development work until 30 July 1987. Respondent did not incur delay since
the period granted him to fulfill his obligation had not expired at the time respondent
filed the action for rescission on 27 February 1987.
Moreover petitioners hampered and interfered with respondents development work.

Petitioners also stopped respondent from selling lots and collecting payments from lot
buyers, which was the primary source of development funds. In effect, petitioners
rendered respondent incapable, or at least made it difficult for him, to develop the
subdivision within the allotted period. In reciprocal obligations, neither party incurs in
delay if the other does not comply or is not ready to comply with what is incumbent upon
him. It is only when one of the parties fulfills his obligation that delay by the other
begins.
Respondents failure to submit the monthly report cannot serve as sufficient basis for
the cancellation of the Contract. The cancellation of a contract will not be permitted for a
slight or casual breach. Only a substantial and fundamental breach, which defeats the
very object of the parties in making the contract, will justify a cancellation. In the instant
case, the development work continued for more than two years despite the lack of a
monthly report.
SLU SOL 1-C Page
59
JACINTO TANGUILIG doing business under the name and style J.M.T.
ENGINEERING AND GENERAL MERCHANDISING, petitioner,
vs.
COURT OF APPEALS and VICENTE HERCE JR., respondents.
G.R. No. 117190 January 2, 1997
Facts: Petitioner Jacinto M. Tanguilig doing business under the name and style J. M. T.
Engineering and General Merchandising entered into a construction contract with
respondent Vicente Herce, Jr. for the construction windmill system for him in the amount
of P 60,000. Respondent paid petitioner a down payment of P30,000.00 and an
installment payment of P15,000.00, leaving a balance of P15,000.00 in view of the said
agreement. Thereafter, petitioner filed a complaint due to the refusal and failure of
respondent to pay the balance. Respondent denied the claim, saying that he had
already paid the alleged unpaid amount to the San Pedro General Merchandising Inc.
(SPGMI) which constructed the deep well to which the windmill system was to be
connected. According to respondent, since the deep well formed part of the system, the
payment he tendered to SPGMI should be credited to his account by petitioner.
Moreover, assuming that he owed petitioner a balance of P15,000.00, this should be
offset by the defects in the windmill system which caused the structure to collapse after
a strong wind hit their place. Petitioner denied that the construction of a deep well was
included in the agreement to build the windmill system, for the contract price of
P60,000.00 was solely for the windmill assembly and its installation, exclusive of other
incidental materials needed for the project. He also disowned any obligation to repair or
reconstruct the system and insisted that he delivered it in good and working condition to
respondent who accepted the same without protest. Besides, its collapse was
attributable to a typhoon, a force majeure, which relieved him of any liability. Also, he
argues that private respondent was already in default in the payment of his outstanding
balance of P15,000.00 and hence should bear his own loss.
Issue: Whether or not demand was necessary in the repair of the windmill system.
Ruling: No. In reciprocal obligations, neither party incurs in delay if the other does not
comply or is not ready to comply in a proper manner with what is incumbent upon him.
When the windmill failed to function properly it became incumbent upon petitioner to
institute the proper repairs in accordance with the guaranty stated in the contract. Thus,
respondent cannot be said to have incurred in delay; instead, it is petitioner who should
bear the expenses for the reconstruction of the windmill. Article 1167 of the Civil Code is
explicit on this point that if a person obliged to do something fails to do it, the same shall
be executed at his cost.
SLU SOL 1-C Page
60
Art. 1170, Breach of Obligations: Causes and Effects
DR. FERNANDO PERIQUET, JR., petitioner,

vs.
HONORABLE FOURTH CIVIL CASES DIVISION OF THE INTERMEDIATE
APPELLATE COURT and the HEIRS OF THE LATE FELIX R. FRANCISCO,
respondents.
G.R. No. L-69996 December 5, 1994
Facts: Spouses Fernando Periquet and Petra Francisco were left childless so they took
in a son out of wedlock of Maria, Petras sister. The boy was given the name Fernando
Periquet Jr., though he was not legally adopted. On March 20, 1966, Fernando Periquet
died. He left a will wherein he named his wife Petra as his universal heir. Accordingly,
Petra instituted a Special Proceeding for probate of her deceased spouses will.
Unfortunately, Petra died after only four months and eighteen days later. Prior to her
untimely death, she asked her lawyer to prepare her last will and testament. Petra left
her estate to petitioner and provided for certain legacies to her brother, sister and
children of her deceased siblings. However, she died before she could sign it. On
August 3,1966, Felix Francisco executed a document of Assignment of Hereditary
Rights in favor of Periquet Jr. other intestate heirs also executed a Deed of assignment
of Hereditary Rights except Florentino Zaragoza and Alberta Zaragoza-Morgan. On
December 13, 1969, petitioner entered into a compromise agreement with the
Zaragozas and Periquets. The trial court approved the compromise agreement. Also, an
order for adjudication and transfer of the residue of the estate to petitioner was issued.
On May 16, 1970, Felix Francisco filed an action to annul the Assignment of Hereditary
Rights he executed in favor of petitioner. The action for annulment was based on gross
misrepresentation and fraud, grave abuse of confidence, mistake and undue influence
and lack of cause and/or consideration in the execution of the challenged Deed of
Assignment. The trial court declared the Assignment of Hereditary Rights executed by
Francisco in favor of Periquet Jr. valid and binding. On appeal, the then Intermediate
Appellate Court annulled and rescinded the Assignment of Hereditary Rights. A motion
for reconsideration was denied for lack of merit.
Issues:
1. Whether or not the CA erred in disregarding and ignoring the trial courts strong and
substantial findings of fact that no fraud, deception, gross misrepresentation or undue
influence attended the execution and signing of the Deed of Assignment of Hereditary
Rights.
2. Whether or not the Intermediate Appellate Court erred in disregarding the trial courts
strong and substantial findings of fact that no fraud, deception, gross misrepresentation
or undue influence attended the execution and signing of the deed of Assignment.
3. Whether or not the Intermediate Appellate Court erred in disturbing and setting aside
the Compromise Agreement.
SLU SOL 1-C Page

61
Ruling: Anent the 1st issue, yes. No fraud was employed by herein petitioner. Felix
Francisco could not be considered to have been deceived into signing the subject deed
of assignment. The kind of fraud that will vitiate a contract refers to those insidious
words or machinations resorted to by one of the contracting parties to induce the other
to enter into a contract which without them he would not have agreed to. It must have a
determining influence on the consent of the victim. The will of the victim, in effect, is
maliciously vitiated by means of a false appearance of reality. In the case at bench,
manifestations of fraud are non-existent. Resultantly, the Assignment of Hereditary
Rights executed by Felix Francisco in favor of herein petitioner is valid and effective.
Furthermore, the allegations of fraud, deception, gross misrepresentation, or undue
influence were not established by full, clear and convincing evidence. The finding of the
trial court as to its existence or non-existence is final and cannot be reviewed save only
when the finding id clearly shown to be erroneous.
SLU SOL 1-C Page

62
Legaspi Oil v. CA, 224 S 213
LEGASPI OIL CO., INC., petitioner,

vs.
THE COURT OF APPEALS and BERNARD OSERAOS, respondents.
G.R. No. 96505 July 1, 1993
Facts: Bernard Oseraos, private respondent herein, entered into several transactions
with Legaspi Oil, Inc. for the sale of copra to the latter. The price of the copra varied
depending on the prevailing market price where the contract is entered into.
Thereafter, appellants agent Jose Llover entered into a contract for the sale of 100 tons
of copra at P8,200 per 100 kilos with delivery terms of 20 days effective March 8, 1976.
46,334 kilos of copra was sold to appellant, leaving behind a balance of 53,666 kilos.
Legaspi Oil purchased the remaining 53,666 kilos from the open market at the
prevailing price of P168.00 per 100 kilos, after failure to deliver the remaining balance of
53, 666 kilos of copra despite demand and warning. Thus, a net loss of P46,152.76
chargeable against the appellant.
Petitioner filed a complaint against Oseraos for breach of contract and for damages.
The trial court ruled in favor of Legaspi Oil and ordered private respondent liable for
damages and litigation costs. However, on appeal, the court reversed the lower courts
decision. Thus, this petition.
Issue: Whether or not private there was fraud and bad faith employed by respondent
Oseraos in deliberately breaching the contract of sale entered into by the parties.
Ruling: Yes. Private respondent is guilty of fraud in the performance of his obligation
under the sales of contract.
In this case, private respondent elected to ignore the same the demand of Legaspi Oil.
In fact, in a letter dated October 6, 1976, petitioner made a final demand with a warning
that, should private respondent fail to complete delivery of the balance of 53,666
kilograms of copra, petitioner would purchase the balance at the open market and
charge the price differential to private respondent. Still private respondent failed to fulfill
his contractual obligation to deliver the remaining 53,666 kilograms of copra. Fraud
maybe defined as the voluntary executing of wrongful act and a willful omission,
knowing and intending the effects which naturally and necessary arise from such act or
omission; the fraud referred to in the Article 1170 of the Civil Code is the deliberate and
intentional evasion of the normal fulfillment of obligation.
SLU SOL 1-C Page
63
Art. 1169, 1170, Default (Mora): Meaning
Philippine Charter v. Central Colleges, 22 February 2012
PHILIPPINE CHARTER INSURANCE CORP., petitioner,

vs.
CENTRAL COLLEGES OF THE PHILIPPINES and DYNAMIC PLANNERS AND
CONSTRUCTION CORPORATION, respondent.
G.R. Nos. 180631-33 February 22, 2012
Facts: On May 16, 2000, Central Colleges of the Philippines (CCP), an educational
institution, contracted the services of Dynamic Planners and Construction Corporation
(DPCC) to be its general contractor for the construction of its five (5)-storey school
building at No. 39 Aurora Boulevard, Quezon City, with a total contract price
ofP248,000,000.00. As embodied in a Contract Agreement, the construction of the
entire building would be done in two phases with each phase valued at
P124,000,000.00. To guarantee the fulfilment of the obligation, DPCC posted three (3)
bonds, all issued by the Philippine Charter Insurance Corporation (PCIC), namely: (1)
Surety Bond No. PCIC-45542, dated June 25, 2003, amounting to P7,031,460.74, (2)
Performance Bond No. PCIC-45541 in the amount of P2,929,775.31 which was
subsequently increased to P6,199,999.99 through Bond Endorsement No. E-
2003/12527; and (3) Performance Bond No. PCIC-46172 for P692,890.74. All the bonds
were callable on demand and set to expire on October 30, 2003. The Phase 1 of the
project was completed without issue. Thereafter, CCP paid DPCC P14,880,000.00 or
12% of the agreed price of P124,000,000.00 with a check dated March 14, 2002 as
down payment for the Phase 2 of the project.
Issue: Whether or not the CA grossly erred in upholding the CIAC award pronouncing
respondent CCP as rightfully and justifiably entitled to terminate the contract agreement.
Ruling: The civil law concept of delay or default commences from the time the obligor
demands, judicially or extrajudicially, the fulfilment of the obligation from the obligee. In
legal parlance, demand is the assertion of a legal or procedural right. Hence, DPCC
incurred delay from the time CCP called its attention that it had breached the contract
and extrajudicially demanded the fulfilment of its commitment against the bonds. It is the
obligors culpable delay, not merely the time element, which gives the obligee the right
to seek the performance of the obligation. As such, CCPs cause of action accrued from
the time that DPCC became in culpable delay as contemplated in the surety and
performance bonds. In fact, Surety Bond PCIC-45542, Performance Bond PCIC-45541
and PCIC-46172 each specified how claims should be made against it.
SLU SOL 1-C Page
64
TITAN-IKEDA CONSTRUCTION & DEVELOPMENT CORPORATION, petitioner,

vs.
G.R. No. 158768 February 12, 2008
Facts: Respondent Primetown Property Corporation entered into construction contract

with petitioner Titan-Ikeda Construction Corporation for the structural works the
structural works of its 32-storey Makati Prime Tower (MPT). Upon the completion of
MPTs structural works, respondent awarded the P130,000,000 contract for the towers
architectural works (project) to petitioner.
In 1994, respondent executed a deed of sale covering 114 condominium units and 20
parking slots of the MPT collectively valued by the parties at P112,416,716.88 in favor of
petitioner pursuant to the full-swapping payment provision of the supplemental
agreement. Respondent had allegedly constructed almost one third of the project and
sold some units to third persons unknown to the petitioner. Meanwhile, Integrated Inc.
took over the project, thus, the petitioner is demanding for the return of its advanced
payment in the amount of P2, 000,000.00 as well as the keys of the unit.
Issue: Whether or not there was legal delay in the performance of petitioner in the
performance of its obligation.
Ruling: There was none. Respondent never made any judicial or extrajudicial demand
in order to place petitioner in default. It never sent petitioner a written demand asking it
to accelerate work on the project and reduce, if not eliminate, slippage. If delay had truly
been the reason why respondent took over the project, it would have sent a written
demand as required by the construction contract.
SLU SOL 1-C Page
65
Art. 1169, Legal Delay/Default
Necessity of Demand: Extrajudicial or Judicial

PNB Madecor v. Uy, 363 S 128
PNB MADECOR, petitioner,

vs.
GERARDO C. UY, respondent.
G.R. No. 129598 August 15, 2001
Facts: Guillermo Uy assigned to respondent Gerardo Uy his receivables due from

Pantranco North Express Inc. (PNEI) amounting to P4,660,558.00. Gerardo Uy filed
with the RTC a collection suit seeking to collect from PNEI the amount of P
8,397,440.00. He alleged that PNEI was guilty of fraud in contracting the obligation sued
upon. A writ was issued commanding the sheriff to attach the properties of the
defendant in such amount as to cover Gerardo Uys demand. Also, he prayed for an
order directing that levy be made upon all goods, credits, deposits, and other personal
properties of PNEI under the control of PNB Madecor, to the extent of his demand. PNB
Madecor opposed. PNB Madecor is obligated to pay the amount stated in a promissory
note upon receipt of a notice to pay from PNEI. If petitioner fails to pay after such notice,
the obligation will earn an interest of 18 percent per annum. Respondent alleges that
PNEI had already demanded payment.
Issue: Whether or not extra-judicial or judicial demand was made in this case.
Ruling: Petitioners obligation to PNEI appears to be payable on demand. Petitioner is

obligated to pay the amount stated in the promissory note upon receipt of a notice to
pay from PNEI. If petitioner fails to pay after such notice, the obligation will earn an
interest of 18 percent per annum. Respondent alleges that PNEI had already demanded
payment. However, the Supreme Court agreed with petitioner that this letter was not
one demanding payment, but one that merely informed petitioner of (1) the conveyance
of a certain portion of its obligation to PNEI per adacion en pago arrangement between
PNEI and PNB, and (2) the unpaid balance of its obligation after deducting the amount
conveyed to PNB. The import of this letter is not that PNEI was demanding payment,
but that PNEI was advising petitioner to settle the matter of implementing the earlier
arrangement with PNB. Apart from the aforecited letter, no other demand letter appears
on record, nor has any of the parties adverted to another demand letter.
Since petitioners obligation to PNEI is payable on demand, and there being no demand
made, it follows that the obligation is not yet due.
SLU SOL 1-C Page
66
When Demand Not Necessary
Barzaga v. CA, 268 S 105
IGNACIO BARZAGA, petitioner,

vs.
COURT OF APPEALS and ANGELITO ALVIAR, respondent.
G.R. No. 115129 February 12, 1997
Facts: Petitioner Ignacio Barzaga bought from the hardware store of respondent
Angelito Alviar construction materials for the niche of his wife scheduled for internment
on December 24, 1990. He paid for the materials purchased but the circumstances of
delivery with the specific date (December 22), time (8 A.M.), and place (Memorial
Cemetery, Dasmarinas) were not indicated in the invoice receipts but were verbally
acknowledged by the store attendant. Respondent was not able to deliver the materials
on the specified date and time which resulted to the delay in the construction of the
niche and consequently to the delay in the internment of petitioners wife. The delay
caused the inability of the petitioner to accede to the dying wishes of his wife that she
be buried on the 24th of the month. She was buried 2 and days later, after Christmas.
Issue: Whether or not the respondent is liable for damages due to his non-performance
of his obligation to deliver the materials on the specified date and time.
Ruling: Yes, private respondent is liable for damages. Respondents contention in the
appellate court that he did not incur delay in the performance of his obligation to deliver
the thing sold to petitioner since the time of delivery was not indicated in the invoice
receipt covering the sale could not be sustained in view of the positive verbal
commitment of the respondents employee. It was no longer necessary to indicate the
time of delivery. Respondent was negligent and incurred delay in the performance of his
contractual obligations. Respondent had no right to manipulate petitioners timetable
and substitute it with his own. Therefore, he is liable for moral damage for causing
further anguish and pain, and suffering to the family of petitioner especially during
Christmas day, and for exemplary damages for not performing his obligation under the
business contract.
SLU SOL 1-C Page
67
JACINTO TANGUILIG doing business under the name and style J.M.T.
ENGINEERING AND GENERAL MERCHANDISING, petitioner,
vs.
COURT OF APPEALS and VICENTE HERCE JR., respondents.
G.R. No. 117190 January 2, 1997
Facts: In April 1987, petitioner Jacinto Tanguilig, (J.M.T. Engineering and General
Merchandising), proposed to respondent Vicente Herce, Jr. to construct a windmill
system for him. After some negotiations, they agreed on the construction of the windmill
for a consideration of P60,000.00 with a one-year guaranty from the date of completion
and acceptance by Herce, Jr. of the project. Pursuant to the agreement, Herce, Jr. paid
Tanguilig a down payment of P30,000.00 and an installment payment of P15,000.00,
leaving a balance of P15,000.00. On March 14, 1988, due to the refusal and failure of
respondent to pay the balance, petitioner filed a complaint to the collect the amount. In
his Answer before the trial court, Herce, Jr. denied the claim saying that he had already
paid the amount to San Pedro General Merchandising, Inc. which the windmill was to be
connected. Since the deep well formed part of the system, the payment Herce, Jr.
tendered to SPGMI should be credited his account by Tanguilig. Respondent also
averred that assuming he owed petitioner a balance of P15,000.00, this should be offset
by the defects in the windmill which caused the structure to collapse after a strong wind
hit their place.
Tanguilig denied that the construction of a deep well was included in the agreement to
build the windmill system, for the contract price of P60,000.00 was solely for the
windmill assembly and its installation, exclusive of other incidental materials needed for
the project. Tanguilig also disowned any obligation to repair or reconstruct the system
and insisted that he delivered it in good and working condition to respondent who
accepted the same without protest. He also contended that the collapse was attributable
to a typhoon, a force majeure, which relieved him of any liability.
Issue: Whether or not the petitioner is under obligation to reconstruct the windmill after
it collapsed.
Ruling: The Supreme Court held that when the windmill failed to function properly, it
becomes incumbent upon the petitioner to institute the proper repairs in accordance
with the guaranty stated in the contract. Hence, respondent cannot be said to have
incurred in delay; instead it is the petitioner who should bear the expenses for the
reconstruction of the windmill. Thus, the Supreme Court ruled that respondent Herce, Jr.
should pay petitioner Tanguilig the balance of P15,000.00 and likewise ordered
petitioner Tanguilig to reconstruct subject defective windmill system, in accordance with
the one-year guaranty.
SLU SOL 1-C Page
68
Tayag v. CA, 219 S 480
JOSEFINA TAYAG, RICARDO GALICIA, TERESITA GALICIA, EVELYN GALICIA,

JUAN GALICIA, JR. and RODRIGO GALICIA, petitioners,
vs.
COURT OF APPEALS and ALBRIGIDO LEYVA, respondents.
G.R. No. 96053 March 3, 1993
Facts: On May 28, 1975, a deed of conveyance was executed by Juan Galicia, Sr. and
Celerina Labuguin in favor of Albrigido Leyva involving the undivided one-half portion of
a piece of land situated in Nueva Ecija for the sum of P50,000.00 under certain terms.
Leyva, however was only able to pay parts of the obligation. Regardless, petitioners still
allowed Leyva to make payments even after the grace period for payment made in the
contract and while litigation of such case. With regard to the obligation payable to the
Philippine Veterans bank by the vendee, as they deemed that it was not paid in full,
such obligation they completed by adding extra amount to fulfill such obligation. This
was fatal in their case as it is Leyvas argument that they constructively fulfilled the
obligation which is rightfully due to him. Petitioners claim that they are only obligees with
regard to the contract, so the principle of constructive fulfillment cannot be invoked
against them. Petitioners, being both creditor and debtor to private respondent, in
accepting piecemeal payment even after the grace period, are barred to take action
through estoppel.
Issue: Whether or not there was constructive fulfillment on the part of the petitioners
that shall make rise the obligation to deliver to Leyva the deed of sale.
Ruling: Yes. In a contract of purchase, both parties are mutually obligors and also
obligees, and any of the contracting parties may, upon non-fulfillment by the other privy
of his part of the prestation, rescind the contract or seek fulfillment (Article 1191, Civil
Code). In short, it is puerile for petitioners to say that they are the only obligees under
the contract since they are also bound as obligors to respect the stipulation in permitting
private respondent to assume the loan with the Philippine Veterans Bank which
petitioners impeded when they paid the balance of said loan. As vendors, they are
supposed to execute the final deed of sale upon full payment of the balance as
determined hereafter.
SLU SOL 1-C Page
69
DR. FERNANDO PERIQUET, JR., petitioner,

vs.
HONORABLE FOURTH CIVIL CASES DIVISION OF THE INTERMEDIATE
APPELLATE COURT and the HEIRS OF THE LATE FELIX R. FRANCISCO,
respondents.
G.R. No. L-69996 December 5, 1994
Facts: Sps. Fernando Periquet and Petra Francisco were left childless after the death
of their only child. They took in a son out of wedlock of Marta Reyes, Petra's sister.
Though not legally adopted, the boy was given the name Fernando Periquet, Jr. and
was reared to manhood by the spouses.
In March 1966, Fernando died. He left a will wherein he named Petra as his universal
heir. Accordingly, Petra instituted a special proceeding for probate. Unfortunately, Petra
died 4 months later. Prior to her untimely death, she asked her lawyer to prepare her
last will and testament. Petra left her estate to Fernando Jr. and provided for certain
legacies to her brother, sister, and children of her deceased siblings. However, she died
before she could sign it.
In August 1966, Felix Francisco executed a document of assignment of hereditary rights

in favor of Fernando Jr. Other intestate heirs also executed a deed of assignment of
hereditary rights.
In December 1969, Fernando Jr. entered into a compromise agreement with the
Zaragozas and the Periquets. The trial court approved this. Also, an order for
adjudication and transfer of the residue of the estate to Fernando Jr. was issued.
In May 1970, Felix filed an action to annul the assignment of hereditary rights he
executed in favor of Fernando Jr. The action was based on gross misrepresentation and
fraud, grave abuse of confidence, mistake and undue influence, and lack of cause
and/or consideration in the execution of the challenged deed.
The trial court declared the assignment of hereditary rights valid and binding. On
appeal, the IAC annulled and rescinded the assignment of hereditary rights. A motion for
reconsideration was denied for lack of merit.
Issue: Whether or not fraud, deception, gross misrepresentation, or undue influence

attended the execution and signing of the deed of assignment of hereditary rights.
Ruling: No fraud was employed by Fernando Jr. Felix could not be considered to have
been deceived into signing the subject deed of assignment.
SLU SOL 1-C Page
70
The kind of fraud that will vitiate a contract refers to those insidious words or
machinations resorted to by one of the contracting parties to induce the other to enter
into a contract which, without them, he would not have agreed to. It must have a
determining influence on the consent of the victim. The will of the victim, in effect, is
maliciously vitiated by means of a false appearance of reality. In the present case,
manifestations of fraud were non-existent. Resultantly, the assignment of hereditary
rights executed by Felix in favor of Fernando Jr. was valid and effective.
Furthermore, the allegations of fraud, deception, gross misrepresentation, or undue

influence were not established by full, clear, and convincing evidence.
The petition was granted, and the decision of the IAC was reversed and set aside.
SLU SOL 1-C Page
71
Mora Solvendi: Effects
ARMAND O. RAQUEL-SANTOS and ANNALISSA MALLARI, petitioners,

vs.
COURT OF APPEALS and FINVEST SECURITIES CO., INC., respondents.
G.R. No. 174986 July 7, 2009
Facts: Finvest, a stock brokerage corporation duly organized under Philippine laws
incurred liabilities to Philippine Stock Exchange (PSE) representing fines and penalties
for non-payment of its clearing house obligations. Also, Finvest was not meeting its
obligations to its clients. Thus, PSE indefinitely suspended Finvest from trading. The
Securities and Exchange Commission (SEC) also suspended its license as broker.
PSE demanded from Finvest the payment of its obligations in the amount of
P4,267,339.99 and to its clients within 15 days. Upon failure of Finvest to settle its
obligations, PSE sought authority from the SEC to take over the operations of Finvest.
Finvests total obligation to PSE was pegged at P5,990,839.99. Finvest promised to

settle all obligations to its clients and to PSE subject to verification of the amount due,
but Finvest requested a deadline of July 31, 1999. PSE granted Finvests request, with
the warning that, should Finvest fail to meet the deadline, PSE might exercise its right to
sell Finvests membership seat and use the proceeds thereof to settle its obligations to
the PSE, its member-brokers and its clients.
PSE inquired from Finvest if it had already settled all duly acknowledged claims of its
clients and its liabilities to PSE. PSE also demanded that Finvest settle its liabilities to it
not later than March 31, 1999. Finvest responded by proposing that the amount of
assessed penalties, charges and fines be reduced to 10%, that is, P354,042.17; and
that full payment of the clients claims be deferred to June 30, 1999.
PSE wrote Finvest and informed that it would only issue a written clearance after
Finvest had settled its obligations to PSE and paid all acknowledged liabilities to various
clients. PSE again sent a demand letter to Finvest, reminding the latter of the March 31,
1999 deadline.
Issue: Whether or not PSE had the right to sell at public auction Finvests pledge seat
pursuant to Article 2112 since it is in default.
Ruling: No. Article 2112 of the Civil Code also gives the pledgee the same right to sell
the thing pledged in case the pledgors obligation is not satisfied in due time. Under the
law on contracts, mora solvendi or debtors default is defined as a delay in the fulfilment
of an obligation, by reason of a cause imputable to the debtor. There are three
requisites necessary for a finding of default. First, the obligation is demandable and
SLU SOL 1-C Page
72
liquidated; second, the debtor delays performance; and third, the creditor judicially or
extra judicially requires the debtors performance.
The findings of fact of both the trial court and the CA are fully supported by the records.
They plainly show that the parties were negotiating to determine the exact amount of
Finvests obligations to PSE, during which period PSE repeatedly moved the deadlines
it imposed for Finvest to pay the fines, penalties and charges, apparently to allow for
more time to thresh out the details of the computation of said penalties. In the middle of
those talks, PSE unceremoniously took steps to sell the pledged seat at public auction,
without allowing the negotiations to come to a conclusion. This sudden decision of PSE
deprived Finvest a sporting chance to settle its accountabilities before forfeiting its seat
in the stock exchange. Without that seat, Finvest will lose its standing to trade and do
business in the stock exchange. A debt is liquidated when the amount is known or is
determinable by inspection of the terms and conditions of relevant documents. Under
the attendant circumstances, it cannot be said that Finvests debt is liquidated. At the
time PSE left the negotiating table, the exact amount of Finvests fines, penalties and
charges was still in dispute and as yet undetermined. Consequently, Finvest cannot be
deemed to have incurred in delay in the payment of its obligations to PSE. It cannot be
made to pay an obligation the amount of which was not fully explained to it. The public
sale of the pledged seat would, thus, be premature.
SLU SOL 1-C Page
73
RCBC v. CA, 305 S 449
RIZAL COMMERCIAL BANKING CORPORATION, petitioner,

vs.
COURT OF APPEALS and FELIPE LUSTRE, respondents.
G.R. No. 133107 March 25, 1999
Facts: Private respondent Atty. Felipe Lustre purchased a Toyota Corolla from Toyota
Shaw, Inc. He made a down payment of P164,620.00. He issued 24 postdated checks
amounting to P14,976.00 each in order to pay the remaining balance of the purchase.
To secure the balance, private respondent executed a promissory note and a contract of
chattel mortgage over the vehicle in favor of Toyota Shaw, Inc. which provided for an
acceleration clause. It was stipulated that should the mortgagor default in the payment
of any installment, the whole amount remaining unpaid shall become due. In addition,
the mortgagor shall be liable for 25% of the principal due as liquidated damages.
The checks were encashed and debited by RCBC from private respondents account,
except for RCBC Check No. 279805 representing the payment for August 10, 1991,
which was unsigned. Previously, the amount represented by RCBC Check No. 279805
was debited from private respondents account but was later recalled and re-credited to
him. Because of the recall, the last two checks, dated February 10, 1993 and March 10,
1993, were no longer presented for payment. This was purportedly in conformity with
petitioner banks procedure that once a clients account was forwarded to its account
representative, all remaining checks outstanding as of the date the account was
forwarded were no longer presented for payment.
On the theory that respondent defaulted in his payments, the check representing the
payment for August 10, 1991 being unsigned, petitioner, in a letter dated January 21,
1993, demanded from private respondent the payment of the balance of the debt,
including liquidated damages. The latter refused.
Issue: Whether or not the private respondents refusal to pay the balance of the debt
constitute delay on his part.
Ruling: No. Article 1170 of the Civil Code states that those who, in the performance of
their obligations, are guilty of delay are liable for damages. The delay in the
performance of the obligation, however, must be either malicious or negligent. Thus,
assuming that private respondent was guilty of delay in the payment of the value of the
unsigned check, private respondent cannot be held liable for damages. There is no
imputation, much less evidence, that private respondent acted with malice or negligence
in failing to sign the check. The omission was mere inadvertence on the part of private
respondent.
SLU SOL 1-C Page
74
Mora Accipiendi: Effects
State Investment v. CA, 198 S 392
STATE INVESTMENT HOUSE, INC., petitioner,

vs.
THE HONORABLE COURT OF APPEALS, HON. JUDGE PERLITA J. TRIA TIRONA,
Presiding Judge of the Regional Trial Court of Quezon City, Branch CII and SPS.
RAFAEL and REFUGIO AQUINO, respondents.
G.R. No. 90676 June 19, 1991
Facts: Respondent spouses Rafael and Refugio Aquino, in order to secure a loan of
P120, 000.00, pledged certain shares of stock to petitioner State Investment. Prior to
the execution of the pledge, respondent-spouses together with spouses Jose and
Marcelina Aquino signed an agreement with petitioner State for the latters purchase of
receivables amounting to P375,000.00.
When their first loan matured, respondent spouses paid the same with their own funds
and from the proceeds of another loan which they obtained as well from petitioner State
Investment. The new loan was secured by the same pledge agreement executed in
relation to their first loan. When the former feel due, State demanded payment.
Respondent spouses expressed willingness to pay and at the same time requested that
their shares of stock pledged be released upon payment. Petitioner State did not grant
their request on the ground that the loan which it had extended to the spouses Jose and
Marcelina had remained unpaid.
Respondent spouses received a Notice of Notarial Sale stating that upon request of
State Investment and by virtue of the pledge agreement, their shares of stock pledged
to State will be sold at a public auction. Thus, respondents filed a case before the lower
court alleging that the intended foreclosure sale was illegal. They claimed that at time
the obligation under the second loan became due, they are able and willing to pay the
same, but petitioner prevented the satisfaction of the obligation and insisted that
respondents pay even the loan account of Jose and Marcelina Aquino which had not
been secured by the pledge.
Issue: Whether or not State Investment incurred mora in preventing respondent

spouses to fulfill their obligation.
Ruling: The regular or monetary interest continued to accrue under the terms of the
relevant promissory note until actual payment is effected. The payment of regular
interest constitutes the price or cost of the use of money and thus, until the principal
sum due is returned to the creditor, regular interest continues to accrue since the debtor
continues to use such principal amount. The relevant rule is set out in Article 1256 of the
Civil Code which provides as follows: Art. 1256. If the creditor to whom tender of
SLU SOL 1-C Page
75
payment has been made refuses without just cause to accept it, the debtor shall be
released from responsibility by the consignation of the thing or sum due.
SLU SOL 1-C Page
76
Compensatio Morae: Effects
BPI Investment v. CA, 377 S 117
BPI INVESTMENT CORPORATION, petitioner,

vs.
HON. COURT OF APPEALS and ALS MANAGEMENT & DEVELOPMENT
CORPORATION, respondents.
G.R. No. 133632 February 15, 2002
Facts: Frank Roa obtained a loan at an interest rate of 16 1/4% per annum from Ayala
Investment and Development Corporation (AIDC), predecessor of petitioner BPIIC for
the construction of a house on his lot. Said house and lot were mortgaged to AIDC to
secure the loan. Sometime in 1980, Roa sold the house and lot to private respondents
ALS and Antonio Litonjua. They paid P350,000 in cash and assumed the P500,000
balance of Roas indebtedness with AIDC. The latter, however, was not willing to extend
the old interest rate to private respondents and proposed to grant them a new loan of
P500,000 to be applied to Roas debt and secured by the same property, at an interest
rate of 20% per annum. In June 1984, BPIIC instituted foreclosure proceedings against
private respondents on the ground that they failed to pay the mortgage indebtedness.
Private respondents on the other hand alleged that they were not in arrears in their
payment, but in fact made an overpayment as of June 30, 1984.
Issue: Whether or not petitioner may be held liable for moral and exemplary damages.
Ruling: Petitioner claims that it should not be held liable for moral and exemplary
damages for it did not act maliciously when it initiated the foreclosure proceedings. It
merely exercised its right under the mortgage contract because private respondents
were irregular in their monthly amortization. Private respondents counter that BPIIC was
guilty of bad faith and should be liable for said damages because it insisted on the
payment of amortization on the loan even before it was released. Further, it did not
make the corresponding deduction in the monthly amortization to conform to the actual
amount of loan released, and it immediately initiated foreclosure proceedings when
private respondents failed to make timely payment. But as admitted by private
respondents themselves, they were irregular in their payment of monthly amortization.
Thus, we can not properly declare BPIIC in bad faith. Consequently, we should rule out
the award of moral and exemplary damages. However, in our view, BPIIC was negligent
in relying merely on the entries found in the deed of mortgage, without checking and
correspondingly adjusting its records on the amount actually released to private
respondents and the date when it was released. Such negligence resulted in damage to
private respondents, for which an award of nominal damages should be given in
recognition of their rights which were violated by BPIIC. For this purpose, the amount of
P25,000 is sufficient. Lastly, we sustain the award of P50,000 in favor of private
respondents as attorneys fees since they were compelled to litigate.
SLU SOL 1-C Page
77
CARMELITA LEAO, assisted by her husband GREGORIO CUACHON, petitioner,

vs.
COURT OF APPEALS and HERMOGENES FERNANDO, respondents.
G.R. No. 129018 November 15, 2001
Facts: Hermogenes Fernando, as vendor and Carmelita Leao, as vendee executed a

contract to sell involving a piece of land. In the contract, Leao bound herself to pay
Fernando P10,775.00 at the signing of the contract with the balance of P96,975.00 to
be paid within a period of TEN (10) years at a monthly amortization of P1,747.30. The
contract also provided for a grace period of one month within which to make payments,
together with the one corresponding to the month of grace. Should the month of grace
expire without the installments for both months having been satisfied, an interest of 18%
per annum will be charged on the unpaid installments.
Issues:
1. Whether or not the transaction was an absolute and not a conditional sale.
2. Whether or not there was proper cancellation of the contract to sell.
3. Whether or not there was delay on the petitioners part in the payment of the monthly
amortization.
Ruling:
1. No, the transaction was not an absolute sale; rather, it was a conditional sale. The
very intention of the parties was to reserve the ownership of the land in the seller
(Fernando) until the buyer has paid the total purchase price. First, the contract to sell
makes the sale, cession and conveyance subject to conditions set forth on the
contract. Second, what was transferred was possession and not ownership. Finally, the
land is covered by the Torrens title, the act of registration of the deed of sale was the
operative act that could transfer ownership over the lot. No deed could be registered in
the case at bar since as stipulated in the contract, such deed shall be executed upon
completion of payment by Leao. In a contract to sell real property on installments, full
payment of the purchase price is a positive suspensive condition and the failure of the
payment is not a breach but rather shall be an event that will prevent the obligation of
the seller to convey the title from acquiring any obligatory force. The transfer of
ownership and title would occur after full payment of the price. In the case at bar, Leao
did not pay the installments after April 1, 1989, which prevented the obligation of
Fernando to convey the property. It brought into effect the cancellation provision of the
contract. Article 1592 of the Civil Code is inapplicable in the case at bar. But the
provisions of RA 6552 (The Realty Installment Buyer Protection Act) governs the case at
bar which recognizes the right of the seller to cancel the contract upon non-payment of
an installment by the buyer.
2. No, there was no proper cancellation of the contract to sell. Leao did not pay the
installments after April 1, 1989, which prevented the obligation of Fernando to convey
SLU SOL 1-C Page
78
the property. It brought into effect the cancellation provision of the contract.
Nevertheless, what is controlling is not Article 1592 of the Civil Code but the provisions
of RA 6552 (The Realty Installment Buyer Protection Act) which recognizes not only the
right of the seller to cancel the contract upon non-payment off an installment by the
buyer but also rights of the buyer in case of cancellation. Although the ejectment case
operated as the notice of cancellation required under the provisions of RA 6552,
petitioner was not given the cash surrender value of the payments that she made;
hence, there was no actual cancellation of the contract. Consequently, petitioner Leao
may still reinstate the contract by updating the account during the grace period and
before actual cancellation.
3. Yes, there was delay on the petitioners part to pay the monthly amortizations. Article
1169 of the Civil Code provides that in reciprocal obligations, neither party incurs in
delay if the other does not comply or is not ready to comply in a proper manner with
what is incumbent upon him. From the moment one of the parties fulfills his obligation,
delay by the other begins.
Since respondent Fernando performed his part of the obligation by allowing Leao to
have possession over the property and the latter not having paid the monthly
amortization in accordance with the terms of the contract, the petitioner incurred delay
and therefore is liable for damages.
SLU SOL 1-C Page
79
Heirs of Bacus v. CA, 371 S 295
HEIRS OF LUIS BACUS, namely: CLARA RESMA BACUS, ROQUE R. BACUS, SR.,
SATURNINO R. BACUS, PRISCILA VDA. DE CABANERO, CARMELITA B. SUQUIB,
BERNARDITA B. CARDENAS, RAUL R. BACUS, MEDARDO R. BACUS, ANSELMA
B. ALBAN, RICARDO R. BACUS, FELICISIMA B. JUDICO, and DOMINICIANA B.
TANGAL, petitioners,
vs.
HON. COURT OF APPEALS and SPOUSES FAUSTINO DURAY and VICTORIANA
DURAY, respondents.
G.R. No. 127695 December 3, 2001
Facts: Luis Bacus leased to Faustino Duray a parcel of agricultural land with total land
area of 3,002 of square meters. The lease contract was for six years ending in 1990.
Said lease contract contained an option to buy clause. Under the said option, the lessee
had the exclusive and irrevocable right to buy 2,000 square meters five years from a
year after the effectivity of the contract, at P200 per square meter. That rate shall be
proportionately adjusted depending on the peso rate against the US dollar, which at the
time of the execution of the contract was P14.00.
Luis Bacus died on 1989. Thereafter, Duray informed the heirs of Bacus that they are
willing and ready to purchase the property under the option to buy clause. The heirs
however refused to sell the same. Said refusal to sell prompted Duray to file a complaint
for specific performance against the heirs of Bacus. He showed that he is ready and
able to meet his obligations under the contract with Bacus.
Issue: Whether or not the heirs of Luis Bacus can be compelled to sell the portion of the
lot under the option to buy clause.
Ruling: Yes. Obligations under an option to buy are reciprocal obligations. The
performance of one obligation is conditioned on the simultaneous fulfillment of the other
obligation. In other words, in an option to buy, the payment of the purchase price by the
creditor is contingent upon the execution and delivery of the deed of sale by the debtor.
When the Durays exercised their option to buy the property their obligation was to
advise the Bacus of their decision and readiness to pay the price, they were not yet
obliged to make the payment. Only upon the Bacuses actual execution and delivery of
the deed of sale were they required to pay.
The Durays did not incur in delay when they did not yet deliver the payment nor make a
consignation before the expiration of the contract. In reciprocal obligations, neither party
incurs in delay if the other party does not comply or is not ready to comply in a proper
manner with what is incumbent upon him. Only from the moment one of the parties
fulfills his obligation, does delay by the other begin.
SLU SOL 1-C Page
80
Integrated Packing v. CA, 333 S 170
INTEGRATED PACKAGING CORPORATION, petitioner,

vs.
COURT OF APPEALS, respondent.
G.R. No. 115117 June 8, 2000
Facts: Petitioner and private respondent executed an order agreement whereby private
respondent bound itself to deliver to petitioner 3,450 reams of printing papers under
specified schedule of delivery. As of July 30, 1979, private respondent had delivered to
petitioner 1,097 reams of printing paper out of the total 3,450 reams stated in the
agreement. Petitioner alleged it wrote private respondent to immediately deliver the
balance because further delay would greatly prejudice petitioner. From June 5, 1980
and until July 23, 1981, private respondent delivered again to petitioner various
quantities of printing paper amounting to P766,101.70. However, petitioner encountered
difficulties paying private respondent said amount. Accordingly, private respondent
made a formal demand upon petitioner to settle the outstanding account. Private
respondent filed a collection suit against petitioner for the sum of P766,101.70,
representing the unpaid purchase price of printing paper bought by petitioner on credit.
In its answer, petitioner denied the material allegations of the complaint. It alleged that
private respondent was able to deliver only 1,097 reams of printing paper which was
short of 2,875 reams, in total disregard of their agreement; that private respondent failed
to deliver the balance of the printing paper despite demand therefor, hence, petitioner
suffered actual damages and failed to realize expected profits.
Issues:
1. Whether or not private respondent violated the order agreement.
2. Whether or not private respondent is liable for petitioners breach of contract with
Philacor.
Ruling: Anent the 1st issue, no. The transaction between the parties is a contract of
sale whereby Fil-Anchor obligates itself to deliver printing paper to Integrated which, in
turn, binds itself to pay a sum of money. Both parties conceded that the order
agreement gives rise to reciprocal obligations such that the obligation of one is
dependent upon the obligation of the other. Reciprocal obligations are to be performed
simultaneously, so that the performance of one is conditioned upon the simultaneous
fulfillment of the other. Fil-Anchor undertakes to deliver printing paper of various
quantities subject to petitioners corresponding obligation to pay, on a maximum 90-day
credit, for the materials. Petitioner Integrated did not fulfill its side of the contract as its
last payment in August 1981 could only cover materials covered by delivery invoices
dated September and October of 1980. Consequently, Fil-Anchors suspension of its
deliveries to petitioner whenever the latter failed to pay on time is legally justified. Fil-
Anchor has the right to cease making further delivery; hence, it did not violate the order
agreement. On the contrary, it was Integrated which breached the agreement as it failed
to pay on time the materials delivered by private respondent.
SLU SOL 1-C Page
81
Anent the 2nd issue, no. Fil-Anchor cannot be held liable under the contracts entered
into by petitioner with Philacor because it is not a party to said agreements. It is also not
a contract pour autriu. The contracts could not affect third persons like private
respondent because of the basic civil law principle of relativity of contracts which
provides that contracts can only bind the parties who entered into it, and it cannot favor
or prejudice a third person, even if he is aware of such contract and has acted with
knowledge thereof.
SLU SOL 1-C Page

82
Laforteza v. Machuca, 333 S 643
ROBERTO Z. LAFORTEZA, GONZALO Z. LAFORTEZA, MICHAEL Z. LAFORTEZA,

DENNIS Z. LAFORTEZA, and LEA Z. LAFORTEZA, petitioners,
vs.
ALONZO MACHUCA, respondent.
G.R. No. 137552 June 16, 2000
Facts: Through the exercise of the authority of Special Power Of Attorney, the heirs of
the late Francisco Q. Laforteza entered into a Memorandum of Agreement (Contract to
Sell) with the plaintiff over a property for the sum of P 630,000.00. Significantly, the
fourth paragraph of the said Memorandum of Agreement dated contained a provision as
follows: XXX Upon issuance by the proper Court of the new title, the buyer-lessee shall
be notified in writing and said buyer-lessee shall have thirty (30) days to produce the
balance of P600,000.00 which shall be paid to the seller-lessors upon the execution of
the Extrajudicial Settlement with sale. Plaintiff paid the earnest money of P30,000.00,
plus rentals for the subject property. Defendant heirs, through their counsel wrote a
letter to the plaintiff furnishing the latter a copy of the reconstituted title to the subject
property, advising him that he had thirty (30) days to produce the balance of
P600,000.00 under the Memorandum of Agreement which plaintiff received on the same
date. Plaintiff requested for an extension of the 30-day deadline within which to produce
the balance of P600,000.00. Defendant Roberto Z. Laforteza, assisted by his counsel,
signed his conformity to the plaintiffs letter request. The extension, however, does not
appear to have been approved by Gonzalo Z. Laforteza, the second attorney-in-fact as
his conformity does not appear to have been secured. Thereafter, plaintiff informed the
defendant heirs, through defendant Roberto Z. Laforteza, that he already had the
balance of P600,000.00. However, the defendants, refused to accept the balance.
Defendant Roberto Z. Laforteza had told him that the subject property was no longer for
sale .On November 20, defendants informed plaintiff that they were canceling the
Memorandum of Agreement (Contract to Sell) in view of the plaintiffs failure to comply
with his contractual obligations. Plaintiff reiterated his request to tender payment of the
balance of P600,000.00. Defendants, however, insisted on the rescission of the
Memorandum of Agreement.
Issue: Whether or not rescission will prosper in this case.
Ruling: No. There was a perfected agreement between the petitioners and the
respondent whereby the petitioners obligated themselves to transfer the ownership of
and deliver the house and lot and the respondent to pay the price amounting to
P600,000.00. Even assuming for the sake of argument that the petitioners were ready
to comply with their obligation, the court find that rescission of the contract will still not
prosper. The rescission of a sale of an immovable property is specifically governed by
Article 1592 of the New Civil Code, which reads: In the sale of immovable property,
even though it may have been stipulated that upon failure to pay the price at the time
agreed upon the rescission of the contract shall of right take place, the vendee may pay,
SLU SOL 1-C Page
83
even after the expiration of the period, as long as no demand for rescission of the
contract has been made upon him either judicially or by a notarial act. After the demand,
the court may not grant him a new term. It is not disputed that the petitioners did not
make a judicial or notarial demand for rescission.
SLU SOL 1-C Page
84
Art. 1170 in relation to Art. 1171, Fraud (Dolo): Meaning
Regala v. Carin, 6 April 2011
RODOLFO N. REGALA, petitioner,

vs.
FEDERICO P. CARIN, respondent.
G.R. No. 188715 April 6, 2011
Facts: Petitioner and respondent are adjacent neighbors. The former decided to
renovate his one-story residence by constructing a second floor. He under the guise of
merely building an extension to his residence, approached respondent for permission to
bore a hole through a perimeter wall shared by both their respective properties, to which
respondent verbally consented on condition that petitioner would clean the area affected
by the work. In the course of the construction of the second floor, respondent and his
wife Marietta suffered from the dust and dirt, which fell on their property. Petitioner failed
to address the problem to respondents satisfaction.
Issue: Whether or not petitioner is guilty of fraud and bad faith.
Ruling: No. Based on a Transfer Certificate of Title (TCT) and Tax Declarations, it was
found out that the perimeter wall was within the confines of petitioners property.
Petitioner was able to secure the consent of the neighbors (including respondent) prior
to the start of the renovation. Before the construction began, he undertook measures to
prevent debris from falling into respondents property. Malice or bad faith implies a
conscious and intentional design to do a wrongful act for a dishonest purpose or moral
obliquity. It is different from the negative idea of negligence in that malice or bad faith
contemplates a state of mind affirmatively operating with furtive design or ill will. While
the Court harbors no doubt that the incidents which gave rise to this dispute have
brought anxiety and anguish to respondent, it is unconvinced that the damage inflicted
upon respondents property was malicious or willful.
SLU SOL 1-C Page
85
Dolo Incidente: Effects
International Corporate Bank v. Gueco, 351 S 516
THE INTERNATIONAL CORPORATE BANK (now UNION BANK OF THE

PHILIPPINES), petitioner,
vs.
SPS. FRANCIS S. GUECO and MA. LUZ E. GUECO, respondents.
G.R. No. 141968 February 12, 2001
Facts: The Gueco Spouses obtained a loan from petitioner International Corporate
Bank (now Union Bank of the Philippines) to purchase a car. In consideration thereof,
the Spouses executed promissory notes which were payable in monthly installments
and chattel mortgage over the car to serve as security for the notes. The Spouses
defaulted in payment of installments. After some negotiations and computation, the
amount of car loan was lowered. Finally, Dr. Gueco delivered a manager's check in the
amount of reduced car loan but the car was not released because of his refusal to sign
the Joint Motion to Dismiss. Petitioner, however, insisted that the joint motion to dismiss
is standard operating procedure in their bank to effect a compromise and to preclude
future filing of claims, counterclaims or suits for damages.
Issue: Whether or not there was fraud in the part of herein petitioner.
Ruling: Fraud has been defined as the deliberate intention to cause damage or
prejudice. It is the voluntary execution of a wrongful act, or a willful omission, knowing
and intending the effects which naturally and necessarily arise from such act or
omission. We fail to see how the act of the petitioner bank in requiring the respondent to
sign the joint motion to dismiss could constitute as fraud. True, petitioner may have
been remiss in informing Dr. Gueco that the signing of a joint motion to dismiss is a
standard operating procedure of petitioner bank. However, this cannot in anyway have
prejudiced Dr. Gueco. The motion to dismiss was in fact also for the benefit of Dr.
Gueco, as the case filed by petitioner against it before the lower court would be
dismissed with prejudice. The whole point of the parties entering into the compromise
agreement was in order that Dr. Gueco would pay his outstanding account and in return
petitioner would return the car and drop the case for money and replevin before the
Metropolitan Trial Court. Petitioner's act of requiring Dr. Gueco to sign the joint motion to
dismiss cannot be said to be a deliberate attempt on the part of petitioner to renege on
the compromise agreement of the parties. It should, likewise, be noted that in cases of
breach of contract, moral damages may only be awarded when the breach was
attended by fraud or bad faith. The law presumes good faith. Dr. Gueco failed to present
an iota of evidence to overcome this presumption. Necessarily, the claim for exemplary
damages must fail. In no way, may the conduct of petitioner be characterized as
wanton, fraudulent, reckless, oppressive or malevolent.
SLU SOL 1-C Page
86
Republic v. Court of Tax Appeals, 366 S 489
REPUBLIC OF THE PHILIPPINES, represented by the COMMISSIONER OF

CUSTOMS, petitioner,
vs.
THE COURT OF TAX APPEALS and AGFHA, INCORPORATED, respondents.
G.R. No. 139050 October 2, 2001
Facts: On 12 December 1992, a shipment of bales of textile gray cloth arrived at the
Manila International Container Port (MICP). There has been a mistake in the name of
the consignee provided in the shipment's Inward Foreign Manifest. Forthwith, the
shipping agent, FIL-JAPAN, requested for an amendment of the Inward Foreign
Manifest so as to correct the name of the consignee from that of GQ GARMENTS, Inc.,
to that of AGFHA, Inc. Subsequently, FIL-JAPAN forwarded to AGFHA, Inc., the
amended Inward Foreign Manifest which the latter, in turn, submitted to the MICP Law
Division. The MICP indorsed the document to the Customs Intelligence Investigation
Services (CIIS). The CIIS placed the subject shipment under Hold Order on the ground
that GQ GARMENTS, Inc., could not be located in its given address and was thus
suspected to be a fictitious firm. Forfeiture proceedings under Section 2530(f) and (l) (3-
5) of the Tariff and Customs Code were initiated.
Issue: Whether or not AGFHA, Inc. committed fraud in the importation of bales of cloth.
Ruling: The requisites for the forfeiture of goods under the Tariff and Customs Code
are: (a) the wrongful making by the owner, importer, exporter or consignee of any
declaration or affidavit, or the wrongful making or delivery by the same person of any
invoice, letter or paper - all touching on the importation or exportation of merchandise;
(b) the falsity of such declaration, affidavit, invoice, letter or paper; and (c) an intention
on the part of the importer/consignee to evade the payment of the duties due.
Petitioner asserts that all of these requisites are present in this case. It contends that it
did not presume fraud, rather the events positively point to the existence of fraud. On
the other hand, AGFHA, Inc. maintains that there has only been an inadvertent error
and not an intentional wrongful declaration by the shipper to evade payment of any tax
due.
Fraud must be proved to justify forfeiture. It must be actual, amounting to intentional

wrong-doing with the clear purpose of avoiding the tax. Mere negligence is not
equivalent to the fraud contemplated by law. What is here involved is an honest
mistake, not even directly attributable to private respondent, which will not deprive the
government of its right to collect the proper tax. The Collector of Customs, Court of Tax
Appeals and the Court of Appeals are unanimous in concluding that no fraud has been
committed by AGFHA, Inc. in the importation of the bales of cloth. Therefore, the
forfeiture cannot be justified.
SLU SOL 1-C Page
87
Malicious Prosecution
Diaz v. Davao Light, 4 April 2007
ANTONIO DIAZ, petitioner,

vs.
DAVAO LIGHT AND POWER CO., INC., MANUEL M. ORIG and ELISEO R.
BRAGANZA, JR., respondents.
G.R. No. 160959 April 3, 2007
Facts: Davao Light and Power Co., Inc. (DLPC) sent a Notice of Disconnection to Diaz
and Co., Inc. informing it that, as of June 13, 1983, the hotels unpaid electric
consumption bill amounted to P190,111.02. It also warned that if the amount was not
paid, DLPC would be impelled to discontinue its service. Since Diaz and Co., Inc.
ignored the letter, Meter No. 36510 was disconnected on July 29, 1983. DLPC then filed
a complaint for collection before. Meanwhile, in 1984, the National Food Authority (NFA)
leased a portion of the ground floor of the Imperial Hotel Building from Diaz and Co., Inc
and also applied for electricity service with DLPC. The Kadiwa Center IV closed, and
NFA vacated the building and DLPC was informed that the light and power connection
of NFA would be left behind and transferred to Diaz. Diaz informed respondent Manuel
Orig that he had leased the untenanted portions of the Dona Segunda Building from
Diaz and Co., Inc., and requested that a new electrical connection for the building in his
name be installed, separate from the one assigned to him by NFA. DLPC denied the
request. Diaz and Co., Inc. informed that it had assumed the electrical bills of
NFA/KADIWA and requested that the monthly bills/statements be sent to it. In the end,
plaintiff asks for damages for defendants alleged malicious prosecution of a criminal
case of theft of electricity against him, for plaintiffs filing of a charge of violation of P.D.
401 as amended after dismissal of the theft case, the filing of a damage suit against him
before the RTC of Cebu City which was dismissed and the filing of another damage suit
before the same Cebu RTC which is still pending. Damages are also being sought for
defendants removal of Electric Meter.
Issue: Whether or not there was malicious prosecution in this case.
Ruling: There was none. Malicious prosecution has been defined as an action for
damages brought by or against whom a criminal prosecution, civil suit or other legal
proceeding has been instituted maliciously and without probable cause, after the
termination of such prosecution, suit, or other proceeding in favor of the defendant
therein. Although respondent DLPC initiated before the prosecutor's office Inv. Sheet
No. 593 July/1988 for theft of electricity, and I.S. No. 92-4590 for Violation of P.D. 401,
as amended by B.P. Blg. 876, no information was ever filed in court. The cases were
eventually dropped or dismissed before they could be filed in court. Ultimately, both
actions could not end in an acquittal. Second. It cannot be concluded that respondent
DLPC acted without probable cause when it instituted the actions. The events which led
to the filing of the complaints are undisputed, and respondent DLPC cannot be faulted
SLU SOL 1-C Page
88
for filing them. In the early case of Buchanan v. Esteban, this Court had already
stressed that "one cannot be held liable in damages for maliciously instituting a
prosecution where he acted with probable cause."
SLU SOL 1-C Page
89
Yasoa v. De Ramos, 440 S 154
MS. VIOLETA YASOA, personally and as heir of deceased sister defendant

PELAGIA YASOA and as attorneyinfact of her brothers ALEJANDRO and
EUSTAQUIO, both YASOA and sisters: TERESITA YASOA BALLESTERO and
ERLINDA YASOA TUGADI, and mother AUREA VDA. DE YASOA, petitioners, vs.
RODENCIO and JOVENCIO, both surnamed DE RAMOS, respondents.
G.R. No. 156339 October 6, 2004
Facts: Aurea Yasoa and her son Saturnino went to the house of Jovencio de Ramos to
ask for financial assistance in paying their loans to PNB, otherwise their residential
house and lot would be foreclosed. Inasmuch as Aurea was his aunt, Jovencio acceded
to the request. They agreed that, upon payment by Jovencio of the loan to PNB, half of
Yasoas' subject property would be sold to him.
Jovencio paid Aureas bank loan. As agreed upon, Aurea executed a deed of absolute
sale in favor of Jovencio over half of the lot consisting of 123 sq. m. Thereafter, the lot
was surveyed, and separate titles were issued by the Register of Deeds in the names of
Aurea and Jovencio.
Twenty-two years later, Aurea filed an estafa complaint against brothers Jovencio and
Rodencio de Ramos on the ground that she was deceived by them when she asked for
their assistance in 1971 concerning her mortgaged property. In her complaint, Aurea
alleged that Rodencio asked her to sign a blank paper on the pretext that it would be
used in the redemption of the mortgaged property.
In February 1994, the assistant provincial prosecutor dismissed the criminal complaint
for lack of evidence. On account of this dismissal, Jovencio and Rodencio filed a
complaint for damages on the ground of malicious prosecution. They alleged that the
filing of the estafa complaint against them was done with malice and caused irreparable
injury to their reputation, as Aurea knew full well that she had already sold half of the
property to Jovencio.
Issue: Whether or not the filing of the criminal complaint for estafa against brothers de
Ramos constituted malicious prosecution.
Ruling: To constitute malicious prosecution, there must be proof that the prosecution
was prompted by a sinister design to vex or humiliate a person, and that it was initiated
deliberately by the defendant knowing that his charges were false and groundless.
Concededly, the mere act of submitting a case to the authorities for prosecution does
not make one liable for malicious prosecution.
In this case, the records show that the sale of the property was evidenced by a deed of
sale duly notarized and registered with the local Register of Deeds. Separate titles were
SLU SOL 1-C Page
90
issued in the names of Yasoa and Jovencio. Since 1973, Jovencio had been paying
the realty taxes of the portion registered in his name. In 1974, Aurea even requested
Jovencio to use his portion as bond for the temporary release of her son who was
charged with malicious mischief. Also, when Aurea borrowed money from banks, only
her portion was mortgaged. All these pieces of evidence indicate that Aurea had long
acknowledged Jovencios ownership of half of the property.
Furthermore, it was only in 1993 when the estafa complaint was filed. If the Yasoas
had honestly believed that they still owned the entire property, it would not have taken
them 22 years to question Jovencios ownership of half of the property.
Malicious prosecution, both in criminal and civil cases, requires the elements of (1)
malice and (2) absence of probable cause. These 2 elements were present in the
present controversy.
The decision declaring the Yasoas liable for malicious prosecution was affirmed in toto.
SLU SOL 1-C Page

91
Art. 1170, 1172-1173, Negligence (Culpa): Meaning
Degrees of Diligence: Extraordinary, Ordinary, or Slight

ASIAN TERMINALS, INC, plaintiff,

vs.
PHILAM INSURANCE CO., INC. respondent.
G.R. No. 181163 July 24, 2013
Facts: On April 15, 1995, Nichimen Corporation shipped to Universal Motors

Corporation (Universal Motors) 219 packages containing 120 units of brand new Nissan
Pickup Truck Double Cab 42 model, without engine, tires and batteries, on board the
vessel S/S Calayan Iris from Japan to Manila. It was found that the package was in
bad order. Thereafter, the cargoes were stored for temporary safekeeping inside CFS
Warehouse in Pier No. 5. Upon the request of Universal Motors, a bad order survey was
conducted on the cargoes and it was found that one Frame Axle Sub without LWR was
deeply dented on the buffle plate while six Frame Assembly with Bush were deformed
and misaligned. Owing to the extent of the damage to said cargoes, Universal Motors
declared them a total loss.
On August 4, 1995, Universal Motors filed a formal claim for damages in the amount of
P643,963.84 against Westwind, ATI and R.F. Revilla Customs Brokerage, Inc. When
Universal Motors demands remained unheeded, it sought reparation from and was
compensated in the sum of P633,957.15 by Philam. Accordingly, Universal Motors
issued a Subrogation Receipt dated November 15, 1995 in favor of Philam.
The court a quo ruled that there was sufficient evidence to establish the respective
participation of Westwind and ATI in the discharge of and consequent damage to the
shipment. It found that the subject cargoes were compressed while being hoisted using
a cable that was too short and taut.
The trial court observed that while the staff of ATI undertook the physical unloading of
the cargoes from the carrying vessel, Westwinds duty officer exercised full supervision
and control throughout the process. It held Westwind vicariously liable for failing to
prove that it exercised extraordinary diligence in the supervision of the ATI stevedores
who unloaded the cargoes from the vessel. However, the court absolved R.F. Revilla
Customs Brokerage, Inc. from liability in light of its finding that the cargoes had been
damaged before delivery to the consignee.
CA affirmed with modification the ruling of the RTC.
Issue: Whether or not the Westwind and ATI are jointly and severally liable to indemnify
universal motors for the two damage cargos.
SLU SOL 1-C Page
92
Ruling: Petitioner Philams action finds support in Article 2207 of the Civil Code which
provides that if the plaintiffs property has been insured, and he has received indemnity
from the insurance company for the injury or loss arising out of the wrong or breach of
contract complained of, the insurance company shall be subrogated to the rights of the
insured against the wrongdoer or the person who has violated the contract. In Malayan
Insurance Co., Inc. vs. Alberto, the Court explained the effect of payment by the insurer
of the insurance claim in this wise: We have held that payment by the insurer to the
insured operates as an equitable assignment to the insurer of all the remedies that the
insured may have against the third party whose negligence or wrongful act caused the
loss. The right of subrogation is not dependent upon, nor does it grow out of, any privity
of contract. It accrues simply upon payment by the insurance company of the insurance
claim. The doctrine of subrogation has its roots in equity. It is designed to promote and
accomplish justice; and is the mode that equity adopts to compel the ultimate payment
of a debt by one who, in justice, equity, and good conscience, ought to pay.
SLU SOL 1-C Page

93
Art. 1173, Negligence as a Question of Fact: Test
Yambao v. Zuiga, 418 S 266
CECILIA YAMBAO, petitioner,

vs.
MELCHORITA C. ZUIGA, LEOVIGILDO C. ZUIGA, REGINALDO C. ZUIGA, AND
THE MINORS, HERMINIGILDO C. ZUIGA, JR., AND LOVELY EMILY C. ZUIGA
both represented by their legal guardian, the aforenamed MELCHORITA C. ZUIGA,
respondents.
G.R. No. 146173 December 11, 2003
Facts: A bus owned by Yambao was plying along EDSA when it hit pedestrian
Herminigildo Zuiga. He was eventually rushed to the hospital, but he later succumbed
to the injuries he sustained.
Zuiga's heirs filed for claims for damages from Yambao because of her alleged
negligence in supervising her bus driver, who violated traffic rules and regulations and
driving recklessly to the danger of the public. However, Yambao claims that it was the
victim who bumped her bus because he was being chased by an unidentified woman.
Also, she further claims that she exercised due diligence of a good father in both
supervising and selecting her bus driver. In fact, she required them to submit copies of
their drivers licenses and NBI and barangay clearances.
Issue: Whether or not Yambao should be held liable for the death caused by her bus
driver.
Ruling: Yes, she failed to completely rebut the presumption of negligence on her part.
When an employee caused damage or injury in the performance of their duties, it is juris
tantum presumption that the employer is negligent in either the supervision or selection
employees. As such, in order to avoid becoming solidarily liable for the damage caused
by the employee, the employer must convincingly and adequately prove that he
exercised due diligence.
However, Yambao failed to do so. She failed to at least present certified true copies of
the drivers license and NBI and barangay clearance of the guilty bus driver. Bare
allegations, unsubstantiated by evidence, are not equivalent to proof. Moreover, she
eventually admitted that she only required the submission of the said documents on the
day the accident happened. Likewise, she failed to prove that she exercised due
diligence in the supervision of her employees. She did not provide evidence that would
show that her drivers underwent the necessary training or seminars in preventing
accident or enhancing their traffic skills and efficiency.
SLU SOL 1-C Page
94
Smith Bell Dodwell v. Borja, 383 S 341
SMITH BELL DODWELL SHIPPING AGENCY CORPORATION, petitioner,

vs.
CATALINO BORJA and INTERNATIONAL TO WAGE AND TRANSPORT
G.R. No. 143008 June 10, 2002
Facts: It appears that on September 23, 1987, Smith Bell [herein petitioner] filed a
written request with the Bureau of Customs for the attendance of the latters inspection
team on vessel M/T King Family which was due to arrive at the port of Manila on
September 24, 1987.
Said vessel contained 750 metric tons of alkyl benzene and methyl methacrylate
monomer.
On the same day, Supervising Customs Inspector Manuel Nalgan instructed

Respondent Catalino Borja to board said vessel and perform his duties as inspector
upon the vessels arrival until its departure. At that time, Borja was a customs inspector
of the Bureau of Customs receiving a salary of P31,188.25 per annum.
At about 11 o'clock in the morning on September 24, 1987, while M/T King Family was
unloading chemicals unto two barges owned by ITTC, a sudden explosion occurred
setting the vessels afire. Upon hearing the explosion, Borja, who was at that time inside
the cabin preparing reports, ran outside to check what happened. Again, another
explosion was heard.
Seeing the fire and fearing for his life, Borja hurriedly jumped over board to save
himself. However, the water was likewise on fire due mainly to the spilled chemicals.
Despite the tremendous heat, Borja swam his way for one (1) hour until he was rescued
by the people living in the squatters' area and sent to San Juan De Dios Hospital.
After weeks of intensive care at the hospital, his attending physician diagnosed Borja to
be permanently disabled due to the incident. Borja made demands against Smith Bell
and ITTC for the damages caused by the explosion. However, both denied liabilities and
attributed to each other negligence.
The trial court (RTC) ruled in favor of Respondent Borja and held petitioner liable for
damages and loss of income.
Affirming the trial court, the CA rejected the plea of petitioner that it be exonerated from
liability for Respondent Borja's injuries. Contrary to the claim of petitioner that no
physical evidence was shown to prove that the explosion had originated from its vessel,
the CA held that the fire had originated from M/T King Family. This conclusion was
amply supported by the testimonies of Borja and Eulogio Laurente (the eyewitness of
SLU SOL 1-C Page

95
International Towage and Transport Corporation or ITTC) as well as by the investigation
conducted by the Special Board of Marine Inquiry and affirmed by the secretary of the
Department of National Defense. On the other hand, the RTC, which the CA sustained,
had not given probative value to the evidence of petitioner, whose sole eyewitness had
not shown up for cross-examination.
Hence, this petition.
Issue: Whether or not Smith Bell is liable for the injuries.
Ruling: Yes, because Smith Bell failed to rebut the accusations against it. Smith Bell
failed to sufficiently rebut the evidences presented against them. Also, the findings of
the RTC and CA point to the liability of Smith Bell through the commission of a quasi-
delict.
The three elements of quasi delict are: (a) damages suffered by the plaintiff, (b) fault or
negligence of the defendant, and (c) the connection of cause and effect between the
fault or negligence of the defendant and the damages inflicted on the plaintiff. All these
elements were established in this case. Knowing full well that it was carrying dangerous
chemicals, petitioner was negligent in not taking all the necessary precautions in
transporting the cargo. Hence, the owner or the person in possession and control of a
vessel and the vessel are liable for all natural and proximate damage caused to persons
and property by reason of negligent management or navigation.
SLU SOL 1-C Page
96
Ilusorio v. CA, 393 S 69
RAMON K. ILUSORIO, petitioner,

vs.
HON. COURT OF APPEALS, and THE MANILA BANKING CORPORATION,
respondents.
G.R. No. 139130 November 27, 2002
Facts: Ramon Ilusorio is a prominent businessman, was the Managing Director of

Multinational Investment Bancorporation and the Chairman and/or President of several
other corporations he was a depositor in good standing of respondent bank, the Manila
Banking Corporation. As he was then running about 20 corporations, and was going out
of the country a number of times, petitioner entrusted to his secretary, Katherine
Eugenio, his credit cards and checkbook with blank checks. Eugenio was able to
encash and deposit to her personal account about seventeen checks drawn against the
respondent bank. Petitioner did not bother to check his statement of account until a
business partner apprised him that he saw Eugenio use his credit cards. Petitioner
immediately fired his secretary and filed a criminal case against her for estafa thru
falsification. Respondent bank also lodged a complaint for estafa thru falsification
against Eugenio on the basis of petitioners statement that his signatures in the checks
were forged. Petitioner then requested the respondent bank to credit back and restore
to its account the value of the checks which were wrongfully encashed but the
respondent bank refused. Thus, petitioner filed the instant case. In addition, Manila
Bank also sought the expertise of the National Bureau Investigation in determining the
genuineness of the signatures appearing on the checks.
However, in a letter, the NBI informed the trial court that they could not conduct the
desired examination since the standard specimens were not sufficient for purposes of
rendering a definitive opinion. The NBI then suggested that petitioner be asked to
submit seven or more additional standard signatures; however, the petitioner failed to
comply with this request. After evaluating the evidence on both sides, the trial court
dismissed the case for lack of sufficient basis. On appeal, the Court of Appeals affirmed
the decision of the trial court.
Issue: Whether or not the respondent bank was negligent in not determining the
genuineness of the signatures of the petitioner on the checks.
Ruling: The Supreme Court held that it was the petitioner, not the bank, who was
negligent. Negligence is the omission to do something which a reasonable man, guided
by those considerations which ordinarily regulate the conduct of human affairs, would
do, or the doing of something which a prudent and reasonable man would do. In the
present case, it appears that petitioner accorded his secretary unusual degree of trust
and unrestricted access to his credit cards, passbooks, check books, bank statements,
including custody and possession of cancelled checks and reconciliation of accounts.
SLU SOL 1-C Page
97
Petitioners failure to examine his bank statements appears as the proximate cause of
his own damage. Petitioner failed to examine his bank statements not because he was
prevented by some cause in not doing so, but because he did not pay sufficient
attention to the matter. In view of Article 2179 of the New Civil Code, when the plaintiffs
own negligence was the immediate and proximate cause of his injury, no recovery could
be had for damages. Hence, the petition is dismissed.
SLU SOL 1-C Page
98
NPC v. CA, 161 S 334
NATIONAL POWER CORPORATION, petitioner,

vs.
HONORABLE COURT OF APPEALS and ENGINEERING CONSTRUCTION, INC.,
respondents.
G.R. No. L-47481 May 16, 1988
ENGINEERING CONSTRUCTION, INC., petitioner,

vs.
COURT OF APPEALS and NATIONAL POWER CORPORATION, respondents.
G.R. No. L-47379 May 16, 1988
Facts: On August 4, 1964, plaintiff Engineering Construction, Inc., being a successful

bidder, executed a contract in Manila with National Waterworks and Sewerage Authority
(NAWASA), whereby the former undertook to furnish all tools, labor, equipment, and
materials (not furnished by Owner), and to construct the proposed 2nd Ipo-Bicti Tunnel,
Intake and Outlet Structures, and Appurtenant Structures, and Appurtenant Features, at
Norzagaray, Bulacan, and to complete said works within eight hundred (800) calendar
days from the date the Constructor receives the formal notice to proceed. The record
shows that on November 4, 1967, typhoon Welming hit Central Luzon, passing trough
the defendants Angat Hydro-electric Project and Dam at Ipo, Norzagaray, Bulacan.
Strong winds struck the project area, and heavy rains intermittently fell. Due to the
heavy downpour, the water in the reservoir of the Angat Dam was rising perilously at the
rate of sixty (60) centimeters per hour. To prevent an overflow of water from the dam,
since the water level had reached the danger height of 212 meters above sea level, the
defendant corporation caused the opening of the spillway gates . The appellate court
sustained the findings of the trial court that the evidence preponderantly established the
fact that due to the negligent manner with which the spillway gates of the Angat Dam
were opened, an extraordinary large volume of water rushed out of the gates, and hit
the installations and construction works of ECI at the Ipo Site with terrific impact as a
result of which the latters stockpile of materials and supplies, camp facilities and
permanent structures and accessories were either washed away, lost or destroyed.
Issue: Whether or not NAPOCOR is exempt from liability because the loss or
deterioration of ECI's facilities was due to fortuitous event.
Ruling: It is clear from the CA'S ruling that the petitioner NPC was undoubtedly
negligent because it opened the spillway gates of the Angat Dam only at the height of
typhoon Welming when it knew very well that it was safer to have opened the same
gradually and earlier, as it was also undeniable that NPC knew of the coming typhoon at
least four days before it actually struck. And even though the typhoon was an act of God
or what we may call force majeure, NPC cannot escape liability because its negligence
SLU SOL 1-C Page
99
was the proximate cause of the loss and damage. Petitions dismissed. Decision
affirmed.
SLU SOL 1-C Page
100
Culpa Contractual
Muaje-Tuazon v. Wenphil, 511 S 521
ANABELLE MUAJE-TUAZON and ALMER R. ABING, petitioners,

vs.
WENPHIL CORPORATION, ELIZABETH P. ORBITA, and THE COURT OF APPEALS,
respondents.
G.R. No. 162447 December 27, 2006
Facts: Petitioners Annabelle M. Tuazon and Almer R. Abing worked as branch

managers of the Wendys food chains. In Wendys Biggie Size It! Crew Challenge
promotion contest, branches managed by petitioners won first and second places,
respectively. Because of its success, respondent had a second run of the contest from
April 26 to July 4, 1999. The Meycauayan branch won again. The MCU Caloocan
branch failed to make it among the winners. Before the announcement of the third round
winners, management received reports that as early as the first round of the contest, the
Meycauayan, MCU Caloocan, Tandang Sora and Fairview branches cheated. An
internal investigation ensued. Petitioners were summoned to the main office regarding
the reported anomaly. Petitioners denied that there was cheating. Immediately
thereafter, petitioners were notified, in writing, of hearings and of their immediate
suspension. Thereafter, petitioners were dismissed.
Issue: Whether or not the respondent was guilty of illegal suspension and dismissal in
the case at bench.
Ruling: There is no denying that petitioners were managerial employees. They

executed management policies, they had the power to hire personnel and assign them
tasks; and discipline the employees in their branch. They recommended actions on
employees to the head office. Article 212 (m) of the Labor Code defines a managerial
employee as one who is vested with powers or prerogatives to lay down and execute
management policies and/or hire, transfer, suspend, lay-off, recall, discharge, assign or
discipline employees. Consequently, as managerial employees, in the case of
petitioners, the mere existence of grounds for the loss of trust and confidence justify
their dismissal. As long as the employer has a reasonable ground to believe that the
managerial employee concerned is responsible for the purported misconduct, or the
nature of his participation renders him unworthy of the trust and confidence demanded
by his position, the managerial employee can be dismissed. In the present case, the
tape receipts presented by respondents showed that there were anomalies committed
in the branches managed by the petitioners. On the principle of respondent superior or
command responsibility alone, petitioners may be held liable for negligence in the
performance of their managerial duties, unless petitioners can positively show that they
were not involved. Their position requires a high degree of responsibility that
necessarily includes unearthing of fraudulent and irregular activities. Their bare,
unsubstantiated and uncorroborated denial of any participation in the cheating does not
SLU SOL 1-C Page
101
prove their innocence nor disprove their alleged guilt. Additionally, some employees
declared in their affidavits that the cheating was actually the idea of the petitioners.
SLU SOL 1-C Page
102
RCPI v. Verchez, 481 S 384
RADIO COMMUNICATIONS OF THE PHILIPPINES, INC. (RCPI), petitioner,

vs.
ALFONSO VERCHEZ, GRACE VERCHEZ-INFANTE, MARDONIO INFANTE,
ZENAIDA VERCHEZ-CATIBOG, AND FORTUNATO CATIBOG, respondents.
G.R. No. 164349 January 31, 2006
Facts: Editha Hebron Verchez (Editha) was confined in the hospital due to an ailment.
Her daughter Grace immediately went to the Sorsogon Branch of RCPI whose services
she engaged to send a telegram to her sister Zenaida. As three days after RCPI was
engaged to send the telegram to Zenaida no response was received from her, Grace
sent a letter to Zenaida, this time thru JRS Delivery Service, reprimanding her for not
sending any financial aid. Immediately after she received Graces letter, Zenaida, along
with her husband left for Sorsogon. On her arrival at Sorsogon, she disclaimed having
received any telegram. The telegram was finally delivered to Zenaida 25 days later. On
inquiry from RCPI why it took that long to deliver it, RCPI claimed that delivery was not
immediately effected due to the occurrence of circumstances which were beyond the
control and foresight of RCPI.
Issue: Whether or not RCPI is negligent in the performance of its obligation.
Ruling: Article 1170 of the Civil Code provides: Those who in the performance of their
obligations are guilty of fraud, negligence, or delay, and those who in any manner
contravene the tenor thereof, are liable for damages. In culpa contractual, the mere
proof of the existence of the contract and the failure of its compliance justify, prima
facie, a corresponding right of relief. The law, recognizing the obligatory force of
contracts, will not permit a party to be set free from liability for any kind of
misperformance of the contractual undertaking or a contravention of the tenor thereof.
Considering the public utility of RCPIs business and its contractual obligation to
transmit messages, it should exercise due diligence to ascertain that messages are
delivered to the persons at the given address and should provide a system whereby in
cases of undelivered messages the sender is given notice of non-delivery. Messages
sent by cable or wireless means are usually more important and urgent than those
which can wait for the mail. RCPI argues, however, against the presence of urgency in
the delivery of the telegram, as well as the basis for the award of moral damages.
RCPIs arguments fail. For it is its breach of contract upon which its liability is, it bears
repeating, anchored. Since RCPI breached its contract, the presumption is that it was at
fault or negligent. It, however, failed to rebut this presumption. For breach of contract
then, RCPI is liable to Grace for damages. RCPIs liability as an employer could of
course be avoided if it could prove that it observed the diligence of a good father of a
family to prevent damage.
SLU SOL 1-C Page
103
Victory Liner v. Gammad, 444 S 355
VICTORY LINER, INC., petitioner,

vs.
ROSALITO GAMMAD, APRIL ROSSAN P. GAMMAD, ROI ROZANO P. GAMMAD
and DIANA FRANCES P. GAMMAD, respondents.
G.R. No. 159636 November 25, 2004
Facts: Marie Grace Pagulayan-Gammad was on board an air-conditioned Victory Liner

bus bound for Tuguegarao, Cagayan from Manila. At about 3:00 a.m., the bus while
running at a high speed fell on a ravine which resulted in the death of Marie Grace and
physical injuries to other passengers. On May 14, 1996, respondent heirs of the
deceased filed a complaint for damages arising from culpa contractual against
petitioner. in its answer, the petitioner claimed that the incident was purely accidental
and that it has always exercised extraordinary diligence in its 50 years of operation.
Issue: Whether or not petitioner should be held liable for breach of contract of carriage.
Ruling: Petitioner was correctly found liable for breach of contract of carriage. A
common carrier is bound to carry its passengers safely as far as human care and
foresight can provide, using the utmost diligence of very cautious persons, with due
regard to all the circumstances. In a contract of carriage, it is presumed that the
common carrier was at fault or was negligent when a passenger dies or is injured.
Unless the presumption is rebutted, the court need not even make an express finding of
fault or negligence on the part of the common carrier. This statutory presumption may
only be overcome by evidence that the carrier exercised extraordinary diligence. in the
instant case, there is no evidence to rebut the statutory presumption that the proximate
cause of Marie Graces death was the negligence of petitioner. Hence, the courts below
correctly ruled that petitioner was guilty of breach of contract of carriage.
SLU SOL 1-C Page
104
FGU v. Sarmiento, 386 S 312
FGU INSURANCE CORPORATION, petitioner,

vs.
G.P. SARMIENTO TRUCKING CORPORATION and LAMBERT M. EROLES,
respondents.
G.R. No. 141910 August 6, 2002
Facts: G.P. Sarmiento Trucking Corporation (GPS) undertook to deliver on June 18,
1994, 30 units of Condura S.D. white refrigerators aboard its Isuzu truck driven by
Lambert Eroles, to the Central Luzon Appliances in Dagupan City. While traversing the
North Diversion Road along McArthur highway in Barangay Anupol, Bamban, Tarlac, it
collided with an unidentified truck, causing it to fall into a deep canal, resulting in
damage to the cargoes.
FGU, an insurer of the shipment, paid the value of the covered cargoes (P204,450.00)
to Concepcion Industries, Inc.,. Being subrogee of CIIs rights & interests, FGU, in turn,
sought reimbursement from GPS. Since GPS failed to heed the claim, FGU filed a
complaint for damages & breach of contract of carriage against GPS and Eroles with
the RTC. In its answer, respondents asserted that GPS was only the exclusive hauler of
CII since 1988, and it was not so engaged in business as a common carrier.
Respondents further claimed that the cause of damage was purely accidental.
GPS filed a motion to dismiss the complaint by way of demurrer to evidence on the
ground that petitioner had failed to prove that it was a common carrier.
The RTC granted the motion to dismiss on April 30, 1996. It subsequently dismissed the
complaint holding that GPS was not a common carrier defined under the law & existing
jurisprudence. The subsequent motion for reconsideration having been denied, FGU
interposed an appeal to the CA. The CA rejected the FGUs appeal & ruled in favor of
GPS. It also denied petitioners motion for reconsideration.
Issues:
1. Whether or not GPS may be considered a common carrier as defined under the law
& existing jurisprudence.
2. Whether or not GPS, either as a common carrier or a private carrier, may be
presumed to have been negligent when the goods it undertook to transport safely were
subsequently damaged while in its protective custody & possession.
Ruling:
1. The SC finds the conclusion of the RTC and the CA to be amply justified. GPS, being
an exclusive contractor & hauler of Concepcion Industries, Inc., rendering/offering its
services to no other individual or entity, cannot be considered a common carrier.
Common carriers are persons, corporations, firms or associations engaged in the
business of carrying or transporting passengers or goods or both, by land, water, or air,
SLU SOL 1-C Page
105
for hire or compensation, offering their services to the public, whether to the public in
general or to a limited clientele in particular, but never on an exclusive basis. The true
test of a common carrier is the carriage of passengers/goods, providing space for those
who opt to avail themselves of its transportation service for a fee. Given accepted
standards, GPS scarcely falls within the term common carrier.
2. GPS cannot escape from liability. In culpa contractual, the mere proof of the
existence of the contract & the failure of its compliance justify, prima facie, a
corresponding right of relief. The law will not permit a party to be set free from liability
for any kind of misperformance of the contractual undertaking or a contravention of the
tenor thereof. A breach upon the contract confers upon the injured party a valid cause
for recovering that which may have been lost/suffered. The remedy serves to preserve
the interests of the promisee that may include his:
a. Expectation interest interest in having the benefit of his bargain by being put
in as good a position as he would have been in had the contract been performed;
b. Reliance interest interest in being reimbursed for loss caused by reliance on
the contract by being put in as good a position as he would have been in had the
contract not been made;
c. Restitution interest interest in having restored to him any benefit that he has
conferred on the other party.
Agreements can accomplish little unless they are made the basis for action. The effect
of every infraction is to create a new duty, or to make recompense to the one who has
been injured by the failure of another to observe his contractual obligation unless he can
show extenuating circumstances, like proof of his exercise of due diligence (normally
that of the diligence of a good father of a family or, exceptionally by stipulation or by law
such as in the case of common carriers, that of extraordinary diligence) or of the
attendance of fortuitous event, to excuse him from his ensuing liability.
A default on, or failure of compliance with, the obligation gives rise to a presumption of
lack of care & corresponding liability on the part of the contractual obligor the burden
being on him to establish otherwise. GPS has failed to do so.
Eroles, on the other hand, may not be ordered to pay petitioner without concrete proof
of his negligence/fault. The driver, not being a party to the contract of carriage between
petitioners principal and defendant, may not be held liable under the agreement. A
contract can only bind the parties who have entered into it or their successors who have
assumed their personality/juridical position. Consonantly with the axiom res inter alios
acta aliis neque nocet prodest, such contract can neither favor nor prejudice a third
person. Petitioners civil action against the driver can only be based on culpa aquiliana,
which would require the claimant for damages to prove the defendants negligence/fault.
SLU SOL 1-C Page
106
LRTA v. Natividad, 397 S 75
LIGHT RAIL TRANSIT AUTHORITY, petitioner,

vs.
NICANOR NAVIDAD, respondent.
G.R. No. 145804 February 6, 2003
Facts: On 14 October 1993, in the evening, Nicanor Navidad, then drunk, entered the
EDSA LRT station. While Navidad was standing on the platform near the LRT tracks,
Junelito Escartin, the security guard assigned to the area approached Navidad. A
misunderstanding or an altercation between the two apparently ensued that led to a fist
fight.No evidence, however, was adduced to indicate how the fight started or who,
between the two, delivered the first blow or how Navidad later fell on the LRT tracks.At
the exact moment that Navidad fell, an LRT train, operated by petitioner Rodolfo
Roman, was coming in. Navidad was struck by the moving train, and he was killed
instantaneously. The widow of Nicanor, along with her children, filed a complaint for
damages against Junelito Escartin, Rodolfo Roman, the LRTA, the Metro Transit
Organization, Inc. (Metro Transit), and Prudent for the death of her husband.LRTA and
Roman filed a counterclaim against Navidad and a cross-claim against Escartin and
Prudent.Prudent, in its answer, denied liability and averred that it had exercised due
diligence in the selection and supervision of its security guards.
Issue: Who, if any, is liable for damages in relation to the death of Navidad.
Ruling: The foundation of LRTAs liability is the contract of carriage and its obligation to
indemnify the victim arises from the breach of that contract by reason of its failure to
exercise the high diligence required of the common carrier. In the discharge of its
commitment to ensure the safety of passengers, a carrier may choose to hire its own
employees or avail itself of the services of an outsider or an independent firm to
undertake the task. In either case, the common carrier is not relieved of its
responsibilities under the contract of carriage. Regrettably for LRTA, as well as perhaps
the surviving spouse and heirs of the late Nicanor Navidad, this Court is concluded by
the factual finding of the Court of Appeals that there is nothing to link Prudent to the
death of Navidad, for the reason that the negligence of its employee, Escartin, has not
been duly proven. There being, similarly, no showing that petitioner Rodolfo Roman
himself is guilty of any culpable act or omission, he must also be absolved from liability.
SLU SOL 1-C Page
107
Rodzssen v. Far East Bank, 357 S 618
RODZSSEN SUPPLY CO. INC., petitioner,

vs.
FAR EAST BANK & TRUST CO., respondent.
G.R. No. 109087 May 9, 2001
Facts: Petitioner opened with respondent a domestic letter of credit (LOC) in favor of
Ekman and Company, Inc. (Ekman) for the purchase of five hydraulic loaders. The first
three hydraulic loaders were received by the petitioner before the expiry of LOC and
respondent paid Ekman. The remaining two hydraulic loaders were received by the
petitioner after the expiry of LOC/contract but respondent still paid Ekman. Petitioner
refused to pay respondent. Respondent filed a case. Petitioner answered by way of
affirmative defense that respondent had no cause of action being allegedly in bad faith
and breach of contract. The trial court and Court of Appeals ruled in favor of respondent
to recover from the cost of two hydraulic loaders.
Issue: Whether or not the respondent is entitled of reimbursement from petitioner for its
payment out of mutual negligence.
Ruling: Yes. Petitioner should pay respondent bank the amount the latter expended for
the equipment belatedly delivered by Ekman and voluntarily received and kept by
petitioner. Respondent banks right to seek recovery from petitioner is anchored, not
upon the inefficacious Letter of Credit, but on Article 2142 of the Civil Code which states
that certain lawful, voluntary and unilateral acts give rise to the juridical relation of quasi-
contract to the end that no one shall be unjustly enriched or benefited at the expense of
another. When both parties to a transaction are mutually negligent in the performance of
their obligations, the fault of one cancels the negligence of the other and, as in this
case, their rights and obligations may be determined equitably under the law prescribing
unjust enrichment.
SLU SOL 1-C Page
108
UE v. Jader, 17 February 2000
UNIVERSITY OF THE EAST, petitioner,

vs.
ROMEO A. JADER, respondent.
G.R. No. 132344 February 17, 2000
Facts: In 1987, Romeo Jader was a graduating law student at the University of the
East. He failed to take the regular examination in Practice Court 1 for which he was
given an incomplete grade (INC). He enrolled for the second semester as a fourth year
student, and filed an application for the removal of the incomplete grade which was
approved by the Dean. In the meantime, the faculty members and the Dean met to
deliberate who among the fourth year students should be allowed to graduate. Jaders
name appeared on the tentative list, he also attended the investiture ceremonies and
later he gave blowout celebrations. He thereafter prepared himself for the bar
examination and took review classes. However, he was not able to take the 1988 bar
examinations because his academic requirements were not complete because it
appears that his INC rating was not removed. Consequently, he sued UE for damages
alleging that he suffered moral shock, besmirched reputation, wounded feelings, and
sleepless nights, when he was not able to take the 1988 bar examinations arising from
the UEs negligence. He prayed for an award of moral damages, unrealized income,
attorneys fees and cost of suit.
Issue: Whether or not an educational institution can be held liable for damages for
misleading a student into believing that the latter had satisfied all the requirements for
graduation when such is not the case.
Ruling: Yes. The Supreme Court held that UE is liable for damages. It is the contractual
obligation of the school to timely inform and furnish sufficient notice and information to
each and every student as to where he or she had already complied with the entire
requirement for the conferment of a degree or whether they should be included among
those who will graduate. The school cannot be said to have acted in good faith.
Absence of good faith must be sufficiently established for a successful prosecution by
the aggrieved party in suit for abuse of right under Article 19 of the Civil Code.
SLU SOL 1-C Page
109
Bayne Adjusters v. CA, 323 S 231
BAYNE ADJUSTERS AND SURVEYORS, INC., petitioner,

vs.
COURT OF APPEALS and INSURANCE COMPANY OF NORTH AMERICA,
respondents.
G.R. No. 116332 January 25, 2000
Facts: Colgate Palmolive imported alkyl benzene from Japan valued at $256K. It was
insured with Insurance Company of North America. Bayne Adjusters and Surveyors was
contracted by Colgate Palmolive to supervise the proper handling and discharge of the
cargo from the chemical tanker to the receiving barge until the cargo was pumped into
the Colgate Palmolive's shore tank.
When the cargo arrived, the pumping operation commenced. However, it was
interrupted for several times due to mechanical problems with the pump. When the
pump broke down once again, the Bayne Adjusters' surveyor left the premises without
leaving any instruction with the barge foremen what to do in event that the pump
becomes operational again. He did not seal the valves to the tank to avoid unsupervised
pumping of the cargo.
Colgate Palmolive asked Bayne Adjusters to send a surveyor to conduct tank sounding.
Thus, it sent Amado Fontillas, a cargo surveyor, not a liquid bulk surveyor. It was agreed
that operation would resume the following day. Fontillas tried to inform the bargemen
and the surveyor about the resumption, but he could not find them so he left the
premises. When the bargemen arrived in the early evening, they found that the valves
of the tank were open and resumed the pumping operation in the absence of any
instruction from the surveyor to the contrary. An undetermined amount of alkyl benzene
was lost due to overflow. Colgate Palmolive filed a claim with the insurance company,
which agreed to pay P85K.
Consequently, the insurance company instituted an action for collection of money as

subrogee of Colgate Palmolive after failure to extrajudicially settle the matter with Bayne
Adjusters. Both trial and appellate courts found Bayne Adjusters' failure to comply with
the standard operating procedure for handling liquid bulk cargo as the proximate cause
of the loss.
Issue: Whether or not Bayne Adjusters is liable for the loss incurred by Colgate
Palmolive.
Ruling: Bayne Adjusters is liable due to its failure to exercise due diligence as required
by the circumstances, which in this case was governed by the Surveyor's Standard
Operating Procedure in Handling Liquid Bulk Survey when pumping operation is
suspended. The standard procedure in marine survey has a binding effect.
SLU SOL 1-C Page
110
Under the standard procedure, the surveyor is required to seal all cargo compartment
manhole covers and the barge and manifold covers to avoid unsupervised discharge of
the liquid cargo and to avert loss or contamination thereof. In the instant case, the
recurring pump breakdown should have warned the surveyor of the need to exercise
extreme caution and closer supervision to safeguard the proper discharge of the cargo.
Instead, he left the pump site without leaving any instruction or directive with the barge
pump operators. Bayne Adjusters' failure to closely supervise the discharge of the cargo
in accordance with accepted guidelines is the proximate cause of the loss.
Bayne Adjusters is negligent in the performance of its duty as a marine superintendent

surveyor under the Standard Operating Procedure in handling liquid cargo and is liable
for damages for the loss of the cargo.
SLU SOL 1-C Page
111
Culpa Aquiliana
Delsan Transport v. C & A Construction, 1 October 2003
DELSAN TRANSPORT LINES, INC., petitioner,

vs.
C & A CONSTRUCTION, INC., respondent.
G.R. No. 156034 October 1, 2003
Facts: Respondent C & A Construction, Inc. was engaged by the National Housing
Authority (NHA) to construct a deflector wall at the Vitas Reclamation Area in Vitas,
Tondo, Manila. The project was completed in 1994 but it was not formally turned over to
NHA. On October 9, 1994, M/V Delsan Express, a ship owned and operated by
petitioner Delsan Transport Lines, Inc., anchored at the Navotas Fish Port for the
purpose of installing a cargo pump and clearing the cargo oil tank. At around 12:00
midnight of October 20, 1994, Captain Demetrio T. Jusep of M/V Delsan Express
received a report from his radio head operator in Japan that a typhoon was going to hit
Manila in about eight (8) hours. At approximately 8:35 in the morning of October 21,
1994, Capt. Jusep tried to seek shelter at the North Harbor but could not enter the area
because it was already congested. At 10:00 a.m., Capt. Jusep decided to drop anchor
at the vicinity of Vitas mouth, 4 miles away from a Napocor power barge. At that time,
the waves were already reaching 8 to 10 feet high. Capt. Jusep ordered his crew to go
full ahead to counter the wind which was dragging the ship towards the Napocor power
barge. To avoid collision, Capt. Jusep ordered a full stop of the vessel. He succeeded in
avoiding the power barge, but when the engine was re-started and the ship was
maneuvered full astern, it hit the deflector wall constructed by respondent. The trial
court ruled that petitioner was not guilty of negligence because it had taken all the
necessary precautions to avoid the accident. Applying the emergency rule, it absolved
petitioner of liability because the latter had no opportunity to adequately weigh the best
solution to a threatening situation. It further held that even if the maneuver chosen by
petitioner was a wrong move, it cannot be held liable as the cause of the damage
sustained by respondent was typhoon Katring, which is an act of God. On appeal to the
Court of Appeals, the decision of the trial court was reversed and set aside. It found
Capt. Jusep guilty of negligence in deciding to transfer the vessel to the North Harbor
only at 8:35 a.m. of October 21, 1994 and thus held petitioner liable for damages.
Issue: Whether or not petitioner is solidarily liable under Article 2180 of the Civil Code
for the quasi-delict committed by Capt. Jusep.
Ruling: The Court of Appeals was correct in holding that Capt. Jusep was negligent in
deciding to transfer the vessel only at 8:35 in the morning of October 21, 1994. As early
as 12:00 midnight of October 20, 1994, he received a report from his radio head
operator in Japan that a typhoon was going to hit Manila after 8 hours. This,
notwithstanding, he did nothing, until 8:35 in the morning of October 21, 1994, when he
decided to seek shelter at the North Harbor, which unfortunately was already
SLU SOL 1-C Page
112
congested. The finding of negligence cannot be rebutted upon proof that the ship could
not have sought refuge at the North Harbor even if the transfer was done earlier. It is not
the speculative success or failure of a decision that determines the existence of
negligence in the present case, but the failure to take immediate and appropriate action
under the circumstances. Capt. Jusep, despite knowledge that the typhoon was to hit
Manila in 8 hours, complacently waited for the lapse of more than 8 hours thinking that
the typhoon might change direction. He cannot claim that he waited for the sun to rise
instead of moving the vessel at midnight immediately after receiving the report because
of the difficulty of traveling at night. The hour of 8:35 a.m. is way past sunrise.
Furthermore, he did not transfer as soon as the sun rose because, according to him, it
was not very cloudy and there was no weather disturbance yet.
When he ignored the weather report notwithstanding reasonable foresight of harm,

Capt. Jusep showed an inexcusable lack of care and caution which an ordinary prudent
person would have observed in the same situation. Had he moved the vessel earlier, he
could have had greater chances of finding a space at the North Harbor considering that
the Navotas Port where they docked was very near North Harbor. Even if the latter was
already congested, he would still have time to seek refuge in other ports.
SLU SOL 1-C Page
113
PCIB v. CA, 350 S 446
PHILIPPINE COMMERCIAL INTERNATIONAL BANK (formerly INSULAR BANK OF

ASIA AND AMERICA), petitioner,
vs.
COURT OF APPEALS and FORD PHILIPPINES, INC. and CITIBANK, N.A.,
respondents.
G.R. No. 121413 January 29, 2001
Facts: Ford Philippines filed actions to recover from the drawee bank Citibank and
collecting bank PCIB the value of several checks payable to the Commissioner of
Internal Revenue which were embezzled allegedly by an organized syndicate. What
prompted this action was the drawing of a check by Ford, which it deposited to PCIB as
payment and was debited from their Citibank account. It later on found out that the
payment was not received by the Commissioner. Meanwhile, according to the NBI
report, one of the checks issued by petitioner was withdrawn from PCIB for alleged
mistake in the amount to be paid. This was replaced with managers check by PCIB,
which were allegedly stolen by the syndicate and deposited in their own account. The
trial court decided in favor of Ford.
Issue: Whether or not PCIB and Citibank are liable for the tortuous acts of their
employees.
Ruling: Yes, but also Ford for its contributory negligence.
Citibank is liable because as per its agreement with Ford, the payees checks are only
supposed to be deposited with the CIRs account which is with Metrobank, yet Citibank
when PCIB indorsed the said checks, Citibank cleared them without verifying with Ford.
PCIB has no hands in the embezzlement but since it was its employees that mainly
facilitated the fraud, it is likewise liable under the above stated principle. PCIBs and
Citibanks liabilities are fixed on a 50-50 basis, hence they must equally shoulder the
paying of the checks amounts to Ford with interest.
As a general rule, banking corporations are liable for the wrongful or tortuous acts and
declarations of their officers or agents within the course and scope of their employment.
A bank will be held liable for the negligence of its officers or agents when acting within
the course and scope of their employment. It may be liable for the tortuous acts of its
officers even as regards that species of tort of which malice is an essential element.
But since Ford is also negligent, as when it failed to diligently check its books of
accounts which could have avoided further loss, the interest rate upon which the two
banks are to pay is lowered from 12% to 6% per annum. Fords negligence is only
contributory because it was not the proximate cause of the embezzlement. Further, it
SLU SOL 1-C Page
114
was shown that Riveras act of depositing the checks with PCIB was not confirmed by
the Board of Directors of Ford.
SLU SOL 1-C Page
115
SMC and Heirs of Ouana v. CA, 4 July 2002
SAN MIGUEL CORPORATION and HEIRS OF OUANO, petitioner,

vs.
THE COURT OF APPEALS, respondents.
G.R. No. 141716 July 4, 2002
Facts: San Miguel Corporation entered into a Time Charter Party Agreement with Julius
Ouano, doing business under the name and style J. Ouano Marine Services. Under the
terms of the agreement, SMC chartered the M/V Doa Roberta owned by Julius Ouano
for a period of two years, from June 1, 1989 to May 31, 1991, for the purpose of
transporting SMCs beverage products from its Mandaue City plant to various points in
Visayas and Mindanao. Pertinent portions of the Time Charter Party Agreement state:
On November 11, 1990, during the term of the charter, SMC issued sailing orders to the
Master of the MN Doa Roberta, Captain Sabiniano Inguito, instructing him.
In accordance with the sailing orders, Captain Inguito obtained the necessary sailing
clearance from the Philippine Coast Guard. Loading of the cargo on the M/V Doa
Roberta was completed at 8:30 p.m. of November 11, 1990. However, the vessel did not
leave Mandaue City until 6:00 a.m. of the following day, November 12, 1990.
Meanwhile, at 4:00 a.m. of November 12, 1990, typhoon Ruping was spotted 570
kilometers east-southeast of Borongan, Samar, moving west-northwest at 22 kilometers
per hour in the general direction of Eastern Visayas. The typhoon had maximum
sustained winds of 240 kilometers per hour near the center with gustiness of up to 280
kilometers per hour.
At 7:00 a.m., November 12, 1990, one hour after the M/V Doa Roberta departed from
Mandaue City and while it was abeam Cawit Island off Cebu, SMC Radio Operator
Rogelio P. Moreno contacted Captain Inguito through the radio and advised him to take
shelter. Captain Inguito replied that they will proceed since the typhoon was far away
from them, and that the winds were in their favor.
At 2:00 p.m., while the vessel was two kilometers abeam Boljoon Point, Moreno again
communicated with Captain Inguito and advised him to take shelter. The captain
responded that they can manage. Hearing this, Moreno immediately tried to get in touch
with Rico Ouano to tell him that Captain Inguito did not heed their advice. However,
Rico Ouano was out of his office, so Moreno left the message with the secretary.
Moreno again contacted Captain Inguito at 4:00 p.m. of November 12, 1990. By then
the vessel was already 9.5 miles southeast of Balicasag Island heading towards
Sulauan Point. The sky was cloudy with southwesterly winds and the sea was choppy.
Moreno reiterated the advice and pointed out that it will be difficult to take shelter after
SLU SOL 1-C Page
116
passing Balicasag Island because they were approaching an open sea. Still, the captain
refused to heed his advice.
At 8:00 p.m., the vessel was 38 miles southeast of Balicasag Island. West-southwest
winds were prevailing. At 10:00 p.m., the M/V Doa Roberta was 25 miles approaching
Sulauan Point. Moments later, power went out in Moreno's office and resumed at 11:40
p.m. He immediately made a series of calls to the M/V Doa Roberta but he failed to get
in touch with anyone in the vessel.
At 1:15 a.m., November 13, 1990, Captain Inguito called Moreno over the radio and
requested him to contact Rico Ouano, son of Julius Ouano, because they needed a
helicopter to rescue them. The vessel was about 20 miles west of Sulauan Point.
Upon being told by SMCs radio operator, Rico Ouano turned on his radio and read the
distress signal from Captain Ingiuto. When he talked to the captain, the latter requested
for a helicopter to rescue them. Rico Ouano talked to the Chief Engineer who informed
him that they can no longer stop the water from coming into the vessel because the
crew members were feeling dizzy from the petroleum fumes.
At 2:30 a.m. of November 13, 1990, the M/V Doa Roberta sank. Out of the 25 officers
and crew on board the vessel, only five survived, namely, Fernando Bucod, Rafael
Macairan, Chenito Sugabo, Ramil Pabayo and Gilbert Gonzaga.
On November 24, 1990, ship owner Julius Ouano, in lieu of the captain who perished in
the sea tragedy, filed a Marine Protest.
The heirs of the deceased captain and crew, as well as the survivors, of the ill-fated M/V
Doa Roberta filed a complaint for tort against San Miguel Corporation and Julius Ouano.
Issue: Whether or not Ouano should answer for the loss of lives and damages suffered
by the heirs of the officers and crew members who perished on board the M/V Doa
Roberta, except Captain Sabiniano Inguito.
Ruling: We agree with the Court of Appeals that Ouano is vicariously liable for the
negligent acts of his employee, Captain Inguito. Under Articles 2176 and 2180 of the
Civil Code, owners and managers are responsible for damages caused by the
negligence of a servant or an employee, the master or employer is presumed to be
negligent either in the selection or in the supervision of that employee. This presumption
may be overcome only by satisfactorily showing that the employer exercised the care
and the diligence of a good father of a family in the selection and the supervision of its
employee.
Ouano miserably failed to overcome the presumption of his negligence. He failed to

present proof that he exercised the due diligence of a bonus paterfamilias in the
selection and supervision of the captain of the M/V Doa Roberta. Hence, he is
SLU SOL 1-C Page
117
vicariously liable for the loss of lives and property occasioned by the lack of care and
negligence of his employee.
However, we cannot sustain the appellate courts finding that SMC was likewise liable
for the losses. The contention that it was the issuance of the sailing order by SMC which
was the proximate cause of the sinking is untenable. The fact that there was an
approaching typhoon is of no moment. It appears that on one previous occasion, SMC
issued a sailing order to the captain of the M/V Doa Roberta, but the vessel cancelled
its voyage due to typhoon. Likewise, it appears from the records that SMC issued the
sailing order on November 11, 1990, before typhoon Ruping was first spotted at 4:00
a.m. of November 12, 1990.
Consequently, Ouano should answer for the loss of lives and damages suffered by the
heirs of the officers and crew members who perished on board the M/V Doa Roberta,
except Captain Sabiniano Inguito. The award of damages granted by the Court of
Appeals is affirmed only against Ouano, who should also indemnify SMC for the cost of
the lost cargo, in the total amount of P10,278,542.40.
SLU SOL 1-C Page
118
Solidary vs. Independent Liability of Employer and/or Employee
Heirs of Ochoa v. G & S Transport, 9 March 2011
HEIRS OF JOSE MARCIAL K. OCHOA namely: RUBY B. OCHOA, MICAELA B.

OCHOA and JOMAR B. OCHOA, petitioners,
vs.
G & S TRANSPORT CORPORATION, respondent.
G.R. No. 170071 March 9, 2011
Facts: On the night of March 10, 1995, Jose Marcial K. Ochoa died while on board an
Avis taxicab owned and operated by G & S Transport Corporation, a common carrier.
The death certificate issued by the Office of the Civil Registrar of Quezon City cited the
cause of his death as vehicular accident it was found that the death of Jose Marcial
Ochoa was caused by negligence on the part of the taxicab driver employed by G & S
Transport Corporation, Bibiano Padilla. However, the taxicab driver, Bibiano Padilla, was
acquitted of the crime of reckless imprudence resulting in homicide. Regardless, the
petitioners alleged that respondent, as a common carrier, was under legal obligation to
observe and exercise extraordinary diligence in transporting its passengers to their
destination safely and securely. The contract was entered the moment Ochoa entered
the vehicle owned by the respondent. The failure of the respondent, as evidenced by
the death of Ochoa, led the petitioners to aver that they, the respondents, are liable for
having breached the contract of common carriage. The heirs thus prayed for G & S to
pay them actual damages, moral damages, exemplary damages, and attorneys fees
and expenses of litigation.
Issue: Whether or not the petitioner may proceed with the civil action given that there
was already an acquittal in the related criminal case.
Ruling: The Supreme Court declared the ruling of Cancio, Jr., v. Isip, which stated that
in the instant case, it must be stressed that the action filed by petitioner is an
independent civil action, which remains separate and distinct from any criminal
prosecution based on the same act. Not being deemed instituted in the criminal action
based on culpa criminal, a ruling on the culpability of the offender will have no bearing
on said independent civil action based on an entirely different cause of action, i.e., culpa
contractual. Considering Article 31 of the Civil Code, the petitioners claim for damages
is valid considering that the civil action, being based on an obligation, proceeded
independently of the criminal proceedings and regardless of the result of the latter.
Thus, the respondent is liable to pay the petitioners for damages because by not
transporting Jose Marcial Ochoa safely to his destination the former breached its
contract with the passenger.
SLU SOL 1-C Page
119
Pacis v. Morales, 25 February 2010
ALFREDO P. PACIS and CLEOPATRA D. PACIS, petitioners,

vs.
JEROME JOVANNE MORALES, respondent.
G.R. No. 169467 February 25, 2010
Facts: On January 17, 1995, Alfredo Pacis and Cleopatra Pacis filed before trial court a
civil case for damages against respondent Jerome Jovanne Morales. Petitioners are the
parents of Alfred Dennis Pacis, Jr., a 17- year old student who died in a shooting
incident in the Top Gun Firearms and Ammunitions Store in Baguio City. Respondent is
the owner of the gun store. The bullet which killed Alfred Dennis Pacis, Jr. was fired
from a gun brought in by a customer of the gun store for repair. The gun was left by
Morales in a drawer of a table located inside the gun store. Defendant Morales was in
Manila at the time. Sales agents Matibagand Herbolario were the ones left to look after
the gun store. It appears that Matibag and Herbolario, later brought out the gun from the
drawer and placed it on top of the table. Attracted by the sight of the gun, the young
Pacis got hold of the same. Matibag asked Pacis to return the gun. The latter followed
and handed the gun to Matibag. It went off, the bullet hitting the young Pacis in the
head. A criminal case for Homicide was filed against Matibag, but was however,
acquitted of the charge against him because of the exempting circumstance of accident
under Art 12, Par. 4 of the Revised Penal Code. Petitioners opted to file an independent
civil action against respondent whom they alleged was Matibags employer. Petitioners
based their claim for damages under Articles 2176 and 2180 of the Civil Code.
Issue: Whether or not Morales, as the employer, is subsidiarily liable.
Ruling: The court held that respondent did not exercise the degree of care and
diligence required of a good father of a family, much less the degree of care required of
someone dealing with dangerous weapons. For the subsidiary liability of the employer
under Article 103 of the Revised Penal Code, the liability of the employer or any person
for that matter, under Article 2176 of the Civil Code is primary and direct, based on a
persons own negligence. As a gun store owner, respondent is presumed to be
knowledgeable about firearms safety and should have known never to keep a loaded
weapon in his store to avoid unreasonable risk of harm or injury to others. For failing to
insure that the gun was not loaded, respondent himself was negligent. Furthermore, it
was not shown in this case whether respondent had a License to Repair which
authorizes him to repair defective firearms to restore its original composition or enhance
or upgrade firearms.
SLU SOL 1-C Page
120
PHILIPPINE HAWK CORPORATION, petitioner,

vs.
VIVIAN TAN LEE, respondent.
G.R. No. 166869 February 16, 2010
Facts: Respondent filed a case for Damages based on quasi delict arising from
vehicular accident between motorcycle and bus of Phil Hawk. Husband died,
respondent sustained injuries. Before answer, an amended complaint was filed, adding
additional damages and reliefs. RTC ruled in favor of respondent. The Court of Appeals
added to the relief granted by the lower court. Phil Hawk filed Rule 45 Petition before
the Supreme Court, saying that respondent did not appeal to the ruling of the RTC and
it was error on part of CA to grant damages.
Ruling: Yes. There is no error in awarding additional reliefs. The petitioner is liable for
damages because as provided for under the Civil Code, whenever an employees
negligence causes damage or injury to another, there arises a presumption that the
employer failed to exercise the due diligence of a good father of the family in the
selection or supervision of its employees. To avoid liability for a quasi-delict committed
by his employee, an employer must overcome the presumption by presenting
convincing proof that he exercised the care and diligence of a good father of a family in
the selection and supervision of his employee. The findings of the trial court and Court
of Appeals were upheld that petitioner is liable because the diligence of a good father of
a family requirement in the selection and supervision of its bus driver is not properly
exercised.
SLU SOL 1-C Page
121
Mercury Drug v. Sps. Huang, 22 June 2007
MERCURY DRUG CORPORATION, petitioner,

vs.
SPOUSES RICHARD HUANG and CARMEN HUANG, respondents.
G.R. No. 172122 June 22, 2007
Facts: Petitioner Mercury Drug is the registered owner of a six-wheeler 1990 Mitsubishi
Truck. It has in its employ petitioner Rolando Del Rosario as driver. Respondent
spouses Richard and Carmen Huang are the parents of respondent Stephen Huang
and own the red 1991 Toyota Corolla. These two vehicles figured in a road accident. At
the time of the accident, petitioner Del Rosario only had a Traffic Violation Receipt. A
drivers license had been confiscated because he had been previously apprehended for
reckless driving. Respondent Stephen Huang sustained massive injuries to his spinal
cord, head, face and lung. He is paralyzed for life from his chest down and requires
continuous medical and rehabilitation treatment. Respondents fault petitioner Del
Rosario for committing gross negligence and reckless imprudence while driving, and
petitioner Mercury Drug for failing to exercise the diligence of a good father of a family in
the selection and supervision of its driver. The trial court found Mercury Drug and Del
Rosario jointly and severally liable to pay respondents. The Court of Appeals affirmed
the said decision.
Issue: Whether or not petitioner Mercury Drug is liable for the negligence of its
employee.
Ruling: Article 2176 and 2180 of the Civil Code provide: Whoever by act or omission
causes damage to another, there being fault or negligence, is obliged to pay for the
damages done. Such fault or negligence, if there is no pre-existing contractual
relationship between the parties, is called a quasi-delict and is governed by the
provisions of this Chapter. The obligation imposed by article 2176 is demandable not
only for ones own acts or omissions, but also for those of persons for whom one is
responsible. The liability of the employer under Article 2180 is direct and immediate. It is
not conditioned on a prior recourse against the negligent employee, or a prior showing
of insolvency of such employee. It is also joint and solidary with the employee. To be
relieved f the liability, petitioner should show that it exercised the diligence of a good
father of a family, both in the selection of the employee and in the supervision of the
performance of his duties. In this case, the petitioner Mercury Drug does not provide for
back-up driver for long trips. As the time of the accident, Del Rosario has been driving
for more than thirteen hours, without any alternate. Moreover, Del Rosario took the
driving test and psychological exam for the position of Delivery Man and not as Truck
Man. With this, petitioner Mercury Drug is liable jointly and severally liable to pay the
respondents.
SLU SOL 1-C Page
122
Mendoza v. Soriano, 8 June 2007
FLORDELIZA MENDOZA, petitioner,

vs.
MUTYA SORIANO and Minor JULIE ANN SORIANO duly represented by her
natural mother and guardian ad litem MUTYA SORIANO, respondents.
G.R. No. 175473 January 31, 2011
Facts: At around 1:00 a.m., July 14, 1997, Sonny Soriano, while crossing
Commonwealth Avenue near Luzon Avenue in Quezon City, was hit by a speeding
Tamaraw FX driven by Lomer Macasasa. Soriano was thrown five meters away, while
the vehicle only stopped some 25 meters from the point of impact. Gerard Villaspin, one
of Sorianos companions, asked Macasasa to bring Soriano to the hospital, but after
checking out the scene of the incident, Macasasa returned to the FX, only to flee. A
school bus brought Soriano to East Avenue Medical Center where he later died.
Subsequently, the Quezon City Prosecutor recommended the filing of a criminal case
for reckless imprudence resulting to homicide against Macasasa. On August 20, 1997,
respondents Mutya Soriano and Julie Ann Soriano, Sorianos wife and daughter,
respectively, filed a complaint for damages against Macasasa and petitioner Flordeliza
Mendoza, the registered owner of the vehicle. The complaint was docketed as Civil
Case No. C-18038 in the Regional Trial Court of Caloocan City, Branch 121.
Respondents prayed that Macasasa and petitioner be ordered to pay them: P200,000
moral damages; P500,000 for lost income; P22,250 for funeral services; P45,000 for
burial lot;P15,150 for interment and lapida; P8,066 for hospitalization, other medical and
transportation expenses; P28,540 for food and drinks during the wake; P50,000
exemplary damages;P60,000 indemnity for Sorianos death; and P25,000 for attorneys
fees plus P500 per court appearance.
In her answer, petitioner Mendoza maintained that she was not liable since as owner of
the vehicle, she had exercised the diligence of a good father of a family over her
employee, Macasasa. RTC dismissed the case but was reversed by CA.
Issue: Whether or not the RTC has jurisdiction on the case and if the damages
awarded have lawful basis.
Ruling: Actions for damages based on quasi-delicts, as in this case, are primarily and
effectively actions for the recovery of a sum of money for the damages for tortious acts. The
records show that Macasasa violated two traffic rules under the Land Transportation and
Traffic Code. First, he failed to maintain a safe speed to avoid endangering lives. Both the
trial and the appellate courts found Macasasa overspeeding. The records show also that
Soriano was thrown five meters away after he was hit. Moreover, the vehicle stopped only
some 25 meters from the point of impact. Both circumstances support the conclusion that
the FX vehicle driven by Macasasa was overspeeding. Second, Macasasa, the vehicle
driver, did not aid Soriano, the accident victim, in violation of Section 55, Article V of the
Land Transportation and Traffic Code.
SLU SOL 1-C Page
123
While Macasasa at first agreed to bring Soriano to the hospital, he fled the scene in a
hurry. Contrary to petitioners claim, there is no showing of any factual basis that
Macasasa fled for fear of the peoples wrath. What remains undisputed is that he did not
report the accident to a police officer, nor did he summon a doctor. Under Article 2185 of
the Civil Code, a person driving a motor vehicle is presumed negligent if at the time of
the mishap, he was violating traffic regulations. While respondents could recover
damages from Macasasa in a criminal case and petitioner could become subsidiarily
liable, still petitioner, as owner and employer, is directly and separately civilly liable for
her failure to exercise due diligence in supervising Macasasa. We must emphasize that
this damage suit is for the quasi-delict of petitioner, as owner and employer, and not for
the delict of Macasasa, as driver and employee. Under Article 2180 of the Civil Code,
employers are liable for the damages caused by their employees acting within the
scope of their assigned tasks. The liability arises due to the presumed negligence of the
employers in supervising their employees unless they prove that they observed all the
diligence of a good father of a family to prevent the damage. In this case, we hold
petitioner primarily and solidarily liable for the damages caused by Macasasa.
Respondents could recover directly from petitioner since petitioner failed to prove that
she exercised the diligence of a good father of a family in supervising Macasasa.
Indeed, it is unfortunate that petitioner harbored the notion that the Regional Trial Court
did not have jurisdiction over the case and opted not to present her evidence on this
point. The Court of Appeals did not err in ruling that Soriano was guilty of contributory
negligence for not using the pedestrian overpass while crossing Commonwealth
Avenue. We even note that the respondents now admit this point, and concede that the
appellate court had properly reduced by 20% the amount of damages it awarded.
SLU SOL 1-C Page
124
Cerezo v. Tuazon, 426 S 167
HERMANA R. CEREZO, petitioner,

vs.
DAVID TUAZON, respondent.
G.R. No. 141538 March 23, 2004
Facts: Noontime, June 26, 1993, a Country Bus Lines passenger bus collided with a
tricycle in Pampanga. The driver of the tricycle Tuazon filed a complaint for damages
against Mrs. Cerezo, the owner of the bus lines, her husband, Atty. Cerezo, and bus
driver Foronda. According to the facts alleged in the complaint, Tuazon was driving on
the proper lane. There was a "Slow Down" sign, which Foronda ignored. After the
complaint was filed, alias summons was served upon the person of Atty. Cerezo, the
Tarlac Provincial Prosecutor. In their reply, Mrs. Cerezo contended that the trial court did
not acquire jurisdiction because there was no service of summons on Foronda.
Moreover, Tuazon failed to reserve his right to institute a separate civil action for
damages in the criminal action.
Issue: Whether or not Mrs. Cerezo is liable for damages.
Ruling: Mrs. Cerezo's contention is wrong. Tuazon's case is not based on criminal law
but on quasi-delict under the Civil Code. The same negligent act may produce civil
liability arising from a delict under Art. 103, RPC, or may give rise to an action for quasi-
delict under Art. 2180, C.C. An aggrieved party may choose between the two remedies.
An action based on quasi-delict may proceed independently from the criminal action.
There is, however, a distinction between civil liability arising from a delict and civil
liability arising from a quasi-delict. The choices of remedy whether to sue for a delict or
a quasi-delict, affects the procedural and jurisdictional issues of the action. Tuazon's
action is based on quasi-delict under Art. 2180: Employer's liability. Foronda is not an
indispensable party, contrary to Mrs. Cerezo's contention. An indispensable party is one
whose interest is affected by the court's action in the litigation, and without whom no
final resolution of the case is possible. However, Mrs. Cerezo's liability as an employer
in action for quasi-delict is not only solidary, it is also primary and direct. The
responsibility of two or more persons who are liable for a quasi-delict is solidary. Where
there is a solidary liability on the part of the debtors, as in this case, each debtor is liable
for the entire obligation. Hence, each debtor is liable to pay for the entire obligation in
full. There is no merger or renunciation of rights, but only mutual representation. Where
the obligation of the parties is solidary, either of the parties is indispensable, and the
other is not even a necessary party because complete relief is available from either.
Therefore, jurisdiction over Foronda is not even necessary as Tuazon may collect from
Mrs. Cerezo alone.
Moreover, an employer's liability based on a quasi-delict is primary and direct, while the
employer's liability based on a delict is merely subsidiary. The words primary and
direct, as contrasted with subsidiary, refer to the remedy provided by law for enforcing
SLU SOL 1-C Page
125
the obligation rather than to the character and limits of the obligation. Although liability
under Art. 2180 originates from the negligent act of the employee, the aggrieved party
may sue the employer directly. When an employee causes damage, the law presumes
that the employer has himself committed an act of negligence in not preventing or
avoiding the damage. This is the fault that the law condemns. While the employer is
civilly liable in a subsidiary capacity for the employee's criminal negligence, the
employer is also civilly liable directly and separate for his own civil negligence in failing
to exercise due diligence in selecting and supervising his employee. The idea that the
employer's liability is wholly subsidiary is wrong.
The action can be brought directly against the person responsible (for another) without
including the author of the act. The action against the principal is accessory in the sense
that it implies the existence of a prejudicial act committed by the employee, but is not
subsidiary in the sense that it cannot be instituted till after the judgment against he
author of the act or at least, that it is subsidiary to the principal action; action for
responsibility (of the employer) is in itself a principal action.
In contrast, an action based on a delict seeks to enforce the subsidiary liability of the
employer for the criminal negligence of the employee as provided in Art. 103, RPC. To
hold the employer liable in a subsidiary capacity under a delict, the aggrieved party
must initiate a criminal action where the employee's delict and corresponding primary
liability are established. If the present action proceeds from a delict, then the trial court's
jurisdiction over Foronda is necessary.
However, the action filed by Tuazon was based on a quasi-delict, which is separate and
independent from an action based on a delict. Hence, there was no need to reserve the
filing of a separate civil action. The purpose of allowing the filing of an independent
action based on quasi-delict against the employer is to facilitate the remedy for civil
wrongs.
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126
Presumption of Fault/Negligence of Employer: Vicarious
Liability
Filcar Transports v. Espinas, 20 June 2012
FILCAR TRANSPORT SERVICES, petitioner,

vs.
JOSE A. ESPINAS, respondent.
G.R. No. 174156 June 20, 2012
Facts: Jose was driving his car along Leon Guinto St. in Manila, near President Qurino
Ave. He stopped at the intersection 1 because of the red light, and proceeded when the
green light went on. However, in the middle of the street, he was hit by a vehicle coming
from the direction of Quirino Ave, and going to Roxas Blvd., the latter vehicle however
did not stop, and instead, run away from the scene of the accident. Jose, however, was
able to take a good look at the plate number of the fleeing vehicle, and after verification
with the Land Transportation Office, was able to a certain that it is registered in the
name of the company, Filcar. After several demand letters to the company for
reimbursement of expenses incurred by him for the repair of the vehicle went unheeded,
Jose filed a case for damages against the company. In its defense, the company argued
that it cannot be held liable for damages incurred by Jose because, while the car is
indeed registered in the name of the company, it is issued in the name of the Corporate
Secretary of the corporation, and at the time of the accident, was driven by Timoteo, the
Corporate Secretarys personal driver, hence there is no employer-employee relation
between it and the personal driver as to make it liable under Article 2176 in relation to
Article 2180 of the New Civil Code.
Issue: Whether or not the registered owner of the vehicle may be liable for damages
caused by its driver, even if the latter is not an employee of the registered owner.
Ruling: Yes. According to the Supreme Court, it is liable for damages, for the following
reasons:
1. We cannot agree. It is well settled that in case of motor vehicle mishaps, the
registered owner of the motor vehicle is considered as the employer of the tortfeasor-
driver, and is made primarily liable for the tort committed by the latter under Article 2176,
in relation with Article 2180, of the Civil Code. In Equitable Leasing Corporation v.
Suyom, we ruled that in so far as third persons are concerned, the registered owner of
the motor vehicle is the employer of the negligent driver, and the actual employer is
considered merely as an agent of such owner.
2. Thus, whether the driver of the motor vehicle, Floresca, is an employee of Filcar is
irrelevant in arriving at the conclusion that Filcar is primarily and directly liable for the
damages sustained by Espinas. While Republic Act No. 4136 or the Land
Transportation and Traffic Code does not contain any provision on the liability of
registered owners in case of motor vehicle mishaps, Article 2176, in relation with Article
SLU SOL 1-C Page
127
2180, of the Civil Code imposes an obligation upon Filcar, as registered owner, to
answer for the damages caused to Espinas' car. This interpretation is consistent with
the strong public policy of maintaining road safety, thereby reinforcing the aim of the
State to promote the responsible operation of motor vehicles by its citizens. This does
not mean, however, that Filcar is left without any recourse against the actual employer
of the driver and the driver himself. Under the civil law principle of unjust enrichment,
the registered owner of the motor vehicle has a right to be indemnified by the actual
employer of the driver of the amount that he may be required to pay as damages for the
injury caused to another. The set-up may be inconvenient for the registered owner of
the motor vehicle, but the inconvenience cannot outweigh the more important public
policy being advanced by the law in this case which is the protection of innocent
persons who may be victims of reckless drivers and irresponsible motor vehicle owners.
SLU SOL 1-C Page
128
FEB Leasing v. Sps. Baylon, 29 June 2011
FEB LEASING AND FINANCE CORPORATION (now BPI LEASING

CORPORATION), petitioner,
vs.
SPOUSES SERGIO P. BAYLON and MARITESS VILLENA-BAYLON, BG HAULER,
INC., and MANUEL Y. ESTILLOSO, respondents.
G.R. No. 181398 June 29, 2011
Facts: An oil tanker registered in the name of BPI leasing and leased and operated by
big hauler and driven by Estilloso hit a pedestrian. RTC held all 3 jointly liable. CA
affirmed but deleted attorneys fees for being speculative. BPI leasing contended that it
is not liable because it was not actually operating the oil tanker.
Issues:
1. Whether or not BPI leasings contention is valid.
2. Whether or not the Court of Appeals is correct in deleting the attorneys fees.
Ruling: BPI leasing, being the registered owner, is liable under the law on compulsory
vehicle registration and jurisprudence. The policy behind the rule is to enable the victim
to find redress by the expedient recourse of identifying the registered vehicle owner in
the records of the land transportation office.
In accordance with the law on compulsory motor vehicle registration, this Court has
consistently ruled that, with respect to the public and third persons, the registered owner
of a motor vehicle is directly and primarily responsible for the consequences of its
operation regardless of who the actual vehicle owner might be. Well-settled is the rule
that the registered owner of the vehicle is liable for quasi-delicts resulting from its use.
Thus, even if the vehicle has already been sold, leased, or transferred to another
person at the time the vehicle figured in an accident, the registered vehicle owner would
still be liable for damages caused by the accident.
The sale, transfer or lease of the vehicle, which is not registered with the Land
Transportation Office, will not bind third persons aggrieved in an accident involving the
vehicle. The compulsory motor vehicle registration underscores the importance of
registering the vehicle in the name of the actual owner.
The policy behind the rule is to enable the victim to find redress by the expedient
recourse of identifying the registered vehicle owner in the records of the Land
Transportation Office. The registered owner can be reimbursed by the actual owner,
lessee or transferee who is known to him. Unlike the registered owner, the innocent
victim is not privy to the lease, sale, transfer or encumbrance of the vehicle. Hence, the
victim should not be prejudiced by the failure to register such transaction or
encumbrance.
SLU SOL 1-C Page
129
The Court of Appeals was correct in deleting attorneys fees for being speculative.
attorneys fees must be proven. the rule is not to grant attorneys fees for the reason
that ne o premium should be placed on the right to litigate.
As a final point, we agree with the Court of Appeals that the award of attorneys fees by
the RTC must be deleted for lack of basis. The RTC failed to justify the award of
P50,000 attorneys fees to respondent spouses Baylon. The award of attorneys fees
must have some factual, legal and equitable bases and cannot be left to speculations
and conjectures. Consistent with prevailing jurisprudence, attorneys fees as part of
damages are awarded only in the instances enumerated in Article 2208 of the Civil
Code. Thus, the award of attorneys fees is the exception rather than the rule. Attorneys
fees are not awarded every time a party prevails in a suit because of the policy that no
premium should be placed on the right to litigate.
SLU SOL 1-C Page
130
Filipinas Synthetic v. De Los Santos, 16 March 2011
FILIPINAS SYNTHETIC FIBER CORPORATION, petitioner,

vs.
WILFREDO DE LOS SANTOS, BENITO JOSE DE LOS SANTOS, MARIA ELENA DE
LOS SANTOS and CARMINA VDA. DE LOS SANTOS, respondents.
G.R. No. 152033 March 16, 2011
Facts: On September 20, 1984, around 11:30 p.m., while travelling along Katipunan
Road (White Plains), the Galant Sigma containing respondents collided with the shuttle
bus owned by petitioner and driven by Alfredo S. Mejia (Mejia), an employee of
petitioner. The Galant Sigma was dragged about 12 meters from the point of impact,
across the White Plains Road landing near the perimeter fence of Camp Aguinaldo,
where the Galant Sigma burst into flames and burned to death beyond recognition all
four occupants of the car. The families of the respondents filed criminal and civil
charges against Mejia and the petitioner company. The criminal case was decided in
favor of Mejia. The civil charges, on the other hand, were decided in favor of
respondents, with the corresponding awards for actual, compensatory, and moral
damages, and attorneys fees. The CA affirmed.
Issues:
1. Whether or not petitioner employee was negligent in causing the accident.
2. Whether or not petitioner company exercised the diligence of a good father of a
family in exercising supervision over its employees.
Ruling: Yes. Under the New Civil Code, unless there is proof to the contrary, it is
presumed that a person driving a motor vehicle has been negligent if at the time of the
mishap, he was violating any traffic regulation. The CA decision proves petitioners
negligence. It reads: "From those evidence, borne out by the records, there was proof
more than preponderant to conclude that Mejia was traveling at an unlawful speed,
hence, the negligent driver. We, therefore, cannot find any error on the part of the trial
court in concluding that he (Mejia) was driving more than his claim of 70 kilometers per
hour. Section 35 of RA 4136 states that the maximum allowable speed for trucks and
buses must not exceed 50 kilometers per hour. We are, therefore, unpersuaded by the
defendants-appellants claim that it was the driver of the Galant Sigma who was
negligent by not observing Sections 42(d) and 43(c) of RA 4136-A." Second issue:
Under Article 2180 of the New Civil Code, when an injury is caused by the negligence of
the employee, there instantly arises a presumption of law that there was negligence on
the part of the master or employer either in the selection of the servant or employee, or
in supervision over him after selection or both. The liability of the employer under Article
2180 is direct and immediate; it is not conditioned upon prior recourse against the
negligent employee and a prior showing of the insolvency of such employee. Petitioner
asserts that it had numerous documents in support of its claim that it had exercised the
proper diligence in both the selection and supervision of its employees, among them
documents showing Mejia's proficiency and physical examinations, his NBI clearances,
SLU SOL 1-C Page
131
as well as testimony from the Employee Staff Head of petitioner that employees were
given daily operational briefings. Nevertheless, the RTC and the CA were correct in
finding those pieces of evidence presented by the petitioner insufficient.
SLU SOL 1-C Page
132
VIRON TRANSPORTATION CO., INC., petitioner,

vs.
ALBERTO DELOS SANTOS y NATIVIDAD and RUDY SAMIDAN, respondents.
G.R. No. 138296 November 22, 2000
Facts: According to Viron Transportation, on August 16, 1993, a bus it owned driven by
Wilfredo Villanueva was en route to Manila. It was following a cargo truck registered to
Rudy Samidan and operated by Alberto delos Santos. The truck swerved to the right
shoulder of the road and, while about to be overtaken by the bus, again swerved to the
left to occupy its lane. A collision occurred causing the 2 vehicles substantial damages.
On the other hand, according to delos Santos and Samidan, the Viron bus tried to
overtake the cargo truck. Delos Santos swerved to the right shoulder of the highway, but
as soon as he occupied the right lane, the cargo truck was hit by the Viron bus as the
bus swerved to his lane to avoid an incoming bus on its opposite direction.
Both the trial court and the CA ruled in favor of delos Santos and Samidan and ordered
Viron Transportation to pay damages.
Issue: Whether or not Viron Transportation is liable for the fault or negligence of its
employee Villanueva.
Ruling: As employer of the bus driver, Viron Transportation is, under Art. 2180 of the
Civil Code, directly and primary liable for the resulting damages. The presumption that it
is negligent flows from the negligence of its employee. That presumption, however, is
only juris tantum, not juris et de jure. Its only possible defense is that it exercised all the
diligence of a good father of a family to prevent the damage.
When the employee causes damage due to his own negligence while performing his
own duties, there arises the juris tantum presumption that the employer is negligent,
rebuttable only by proof of observance of the diligence of a good father of a family.
SLU SOL 1-C Page
133
Proof of Employer's Fault/Negligence
Mercury Drug v. Baking, 523 S 184 (2007)
MERCURY DRUG CORPORATION, petitioner,

vs.
SEBASTIAN M. BAKING, respondent.
G.R. No. 156037 May 28, 2007
Facts: Sebastian Baking, respondent, went to the clinic of Dr. Cesar Sy for a medical
check-up. Dr. Sy gave respondent two medical prescriptions Diomicron for his blood
sugar and Benalize tablets for his triglyceride. Respondent then proceeded to petitioner
Mercury Drug Corporation (Alabang Branch) to buy the prescribed medicines. However,
the saleslady misread the prescription Diamicron as a prescription for Dormicum.
Unaware that what was given to him was the wrong medicine, respondent took one pill
of Dormicum on three consecutive days. On the third day he took the medicine, and he
figured in a vehicular accident. The car he was driving collided with the car of one Jose
Peralta. Respondent fell asleep while driving he could not remember anything about the
collision nor felt its impact. Suspecting that the tablet he took may have bearing on his
physical and mental state at the time of the collision, respondent returned to Dr. Sy.
Upon being shown the medicine, Dr. Sy was shocked to find that what was sold to him
was Dormicum, instead of the prescribed Diamicron. The RTC and CA rendered their
decision in favor of respondent.
Issues:
1. Whether or not petitioner was negligent.
2. Whether or not such negligence was the proximate cause of respondents accident.
Ruling: Article 2176 states that whoever by act or omission causes damage to another,
there being fault or negligence, is obliged to pay for the damages done. Such fault or
negligence, if there is no pre-existing contractual relationship between the parties, is
called a quasi-delict. Obviously, petitioners employee was grossly negligent in selling
respondent Dormicum, instead of the prescribed Diamicron. Considering that a fatal
mistake could be a matter of life and death for a buying patient, the employee should
have been very cautious in dispensing medicines. Petitioner contends that the
proximate cause of the accident was respondents negligence in driving. The court
disagrees. The accident could have not occurred had petitioners employee been
careful in reading the prescription. Article 2180 in complementing the preceding article
states that the obligation imposed by articles 2176 is demandable not only for ones own
acts or omissions, but also for those of persons for whom one is responsible It is thus
clear that the employer of a negligent employee is liable for the damages caused by the
latter. When an injury is caused by the negligence of an employee, there instantly arises
a presumption of the law that there has been negligence on the part of the employer
either in the selection of the employee or the supervision over him, after such selection.
The presumption, however, may be rebutted by a clear showing on the part of the
SLU SOL 1-C Page
134
employer that he has exercised the care and diligence of a good father of a family in the
selection and supervision of his employee. In this case, petitioner failed to prove such
exercised of due diligence of a good father of a family in the selection and supervision
of employee, thus making the petitioner solidarily liable for the damages.
SLU SOL 1-C Page
135
SAFEGUARD SECURITY AGENCY, INC., and ADMER PAJARILLO, petitioners,

vs.
LAURO TANGCO, VAL TANGCO, VERN LARRY TANGCO, VAN LAURO TANGCO,
VON LARRIE TANGCO, VIEN LARI TANGCO and VIVIEN LAURIZ TANGCO,
respondents.
G.R. No. 165732 December 14, 2006
Facts: The victim Evangeline Tangco was depositor of Ecology Bank. She was also a
licensed-fire arm holder, thus during the incident, she was entering the bank to renew
her time deposit and along with her was her firearm. Suddenly, the security guard of the
bank, upon knowing that the victim carries a firearm, the security guard shot the victim
causing the latters instant death. The heirs of the victim filed a criminal case against
security guard and an action against Safeguard Security for failure to observe diligence
of a goof father implied upon the act of its agent.
The RTC found respondents to be entitled to damages. It rejected Pajarillo's claim that
he merely acted in self-defense. The RTC also found Safeguard as employer of Pajarillo
to be jointly and severally liable with Pajarillo. It ruled that while it may be conceded that
Safeguard had perhaps exercised care in the selection of its employees, particularly of
Pajarillo, there was no sufficient evidence to show that Safeguard exercised the
diligence of a good father of a family in the supervision of its employee.
Issue: Whether or not Safeguard Security can be held liable for the acts of its agent.
Ruling: Yes. The law presumes that any injury committed either by fault or omission of
an employee reflects the negligence of the employer. In quasi-delicts cases, in order to
overcome this presumption, the employer must prove that there was no negligence on
his part in the supervision of his employees. It was declared that in the selection of
employees and agents, employers are required to examine them as to their
qualifications, experience and service records. Thus, due diligence on the supervision
and operation of employees includes the formulation of suitable rules and regulations
for the guidance of employees and the issuance of proper instructions intended for the
protection of the public and persons with whom the employer has relations through his
employees. Thus, in this case, Safeguard Security committed negligence in identifying
the qualifications and ability of its agents.
SLU SOL 1-C Page
136
Pleyto v. Lomboy, 432 S 329
ERNESTO PLEYTO and PHILIPPINE RABBIT BUS LINES, INC., petitioners,

vs.
MARIA D. LOMBOY and CARMELA LOMBOY, respondents.
G.R. No. 148737 June 16, 2004
Facts: At approximately 11:30 a.m. of May 16, 1995, PRBL Bus No. 1539, with Plate
No. CVD 556, driven by petitioner Pleyto, was traveling along MacArthur Highway in
Gerona, Tarlac bound for Vigan, Ilocos Sur. It was drizzling that morning and the
macadam road was wet. Right in front of the bus, headed north, was the tricycle with
Plate No. CX 7844, owned and driven by one Rodolfo Esguerra.
According to Rolly Orpilla, a witness and one of the bus passengers, Pleyto tried to
overtake Esguerras tricycle but hit it instead. Pleyto then swerved into the left opposite
lane. Coming down the lane, some fifty meters away, was a southbound Mitsubishi
Lancer car, with Plate No. PRS 941, driven by Arnulfo Asuncion. The car was headed
for Manila with some passengers. Seated beside Arnulfo was his brother-in-law, Ricardo
Lomboy, while in the back seat were Ricardos 18-year old daughter Carmela and her
friend, one Rhino Daba. PRBL Bus No. 1539 smashed head-on the car, killing Arnulfo
and Ricardo instantly. Carmela and Rhino suffered injuries, but only Carmela required
hospitalization.
Issue: Whether or not Pleyto was negligent.
Ruling: The negligence and fault of appellant driver is manifest. He overtook the tricycle
despite the oncoming car only fifty (50) meters away from him. The speed of the bus,
the drizzle that made the road slippery, and the proximity of the car coming from the
opposite direction were duly established by the evidence.
Indeed, petitioner Pleyto violated traffic rules and regulations when he overtook the
tricycle despite the presence of an oncoming car in the other lane. Article 2185 of the
Civil Code lays down the presumption that a person driving a motor vehicle has been
negligent if at the time of the mishap, he was violating any traffic regulation. As found by
both the Court of Appeals and the trial court, petitioners failed to present any convincing
proof rebutting such presumption.
A driver abandoning his proper lane for the purpose of overtaking another vehicle in an
ordinary situation has the duty to see to it that the road is clear and not to proceed if he
cannot do so in safety. When a motor vehicle is approaching or rounding a curve, there
is special necessity for keeping to the right side of the road and the driver does not have
the right to drive on the left hand side relying upon having time to turn to the right if a car
approaching from the opposite direction comes into view.
SLU SOL 1-C Page
137
The Court of Appeals found PRBL liable for Pleyto's negligence pursuant to Article 2180
in relation to Article 2176 of the Civil Code. Under Article 2180, when an injury is caused
by the negligence of a servant or an employee, the master or employer is presumed to
be negligent either in the selection or in the supervision of that employee. This
presumption may be overcome only by satisfactorily showing that the employer
exercised the care and the diligence of a good father of a family in the selection and the
supervision of its employee.
In fine, when the employee causes damage due to his own negligence while performing
his own duties, there arises the juris tantum presumption that the employer is negligent,
Thus, in the selection of prospective employees, employers are required to examine
them as to their qualifications, experience and service records. With respect to the
supervision of employees, employers must formulate standard operating procedures,
monitor their implementation and impose disciplinary measures for breaches thereof.
These facts must be shown by concrete proof, including documentary evidence.
SLU SOL 1-C Page
138
Proof of Due Diligence
VIRON TRANSPORTATION CO., INC., petitioner,

vs.
ALBERTO DELOS SANTOS y NATIVIDAD and RUDY SAMIDAN, respondents.
G.R. No. 138296 November 22, 2000
Facts: Defendant Alberto delos Santos was the driver of defendant Rudy Samidan of
the latters vehicle, a Forward Cargo Truck. At about 12:30 in the afternoon, he was
driving said truck along the National Highway within the vicinity of Gerona, Tarlac. The
Viron Bus, driven by Wilfredo Villanueva, tried to overtake his truck, and he swerved to
the right shoulder of the highway, but as soon as he occupied the right lane of the road,
the cargo truck which he was driving was hit by the Viron bus on its left front side, as the
bus swerved to his lane to avoid an incoming bus on its opposite direction. With the
driver of another truck dealing likewise in vegetables, Dulnuan, the two of them and the
driver of the Viron bus proceeded to report the incident to the Police Station.
Both the RTC and the CA rendered its decision in favor of the private respondents.
Issue: Whether or not the employer is liable to the negligence of his employee.
Ruling: As employers of the bus driver, the petitioner is, under Article 2180 of the Civil
Code, directly and primarily liable for the resulting damages. The presumption that they
are negligent flows from the negligence of their employee. That presumption, however,
is only jusristantum, not juris et de jure. Their only possible defense is that they
exercised all the diligence of a good father of a family to prevent the damage.
In fine, when the employee causes damage due to his own negligence while performing
his own duties, there arises the juris tantum presumption that the employer is negligent,
Petitioner, through its witnesses, failed to rebut such legal presumption of negligence in
the selection and supervision of employees, thus, petitioner as the employer is
responsible for damages, the basis of the liability being the relationship of pater familias
or on the employers own negligence. Hence, with the allegations and subsequent proof
of negligence against the bus driver of petitioner, petitioner (employer) is liable for
damages.
SLU SOL 1-C Page
139
Sykl v. Begasa, 414 S 237
ERNESTO SYKI, petitioner,

vs.
SALVADOR BEGASA, respondent.
G.R. No. 149149 October 23, 2003
Facts: On June 22, 1992, around 11:20 a.m., near the corner of Araneta and
Magsaysay Streets, Bacolod City, respondent Salvador Begasa and his three
companions flagged down a passenger jeepney driven by Joaquin Espina and owned
by Aurora Pisuena. While respondent was boarding the passenger jeepney (his right
foot already inside while his left foot still on the boarding step of the passenger
jeepney), a truck driven by Elizalde Sablayan and owned by petitioner Ernesto Syki
bumped the rear end of the passenger jeepney. Respondent fell and fractured his left
thigh bone (femur).Respondent filed a complaint for damages for breach of common
carriers contractual obligations and quasi-delict against Aurora Pisuena, the owner of
the passenger jeepney;, herein petitioner Ernesto Syki, the owner of the truck;, and
Elizalde Sablayan, the driver of the truck. After hearing, the trial court dismissed the
complaint against Aurora Pisuena, the owner and operator of the passenger jeepney,
but ordered petitioner Ernesto Syki and his truck driver, Elizalde Sablayan, to pay
respondent Salvador Begasa, jointly and severally.
Issue: Whether or not petitioner is liable for the act of his employee.
Ruling: Article 2180 of the Civil Code states that employers shall be liable for the
damages caused by their employees and household helpers acting within the scope of
their assigned tasks, even though the former are not engaged in any business or
industry. When an injury is caused by the negligence of an employee, a legal
presumption instantly arises that the employer was negligent, either or both, in the
selection and/or supervision of his said employee duties. The said presumption may be
rebutted only by a clear showing on the part of the employer that he had exercised the
diligence of a good father of a family in the selection and supervision of his employee. In
the selection of prospective employees, employers are required to examine them as to
their qualifications, experience, and service records and that employers should
formulate standard operating procedures, monitor their implementation, and impose
disciplinary measures. To establish these factors in a trial involving the issue of
vicarious liability, employers must submit concrete proof, including documentary
evidence. Petitioners attempt to prove its deligentissimi patris familias in the selection
and supervision of employees through oral evidence failed as it was unable to buttress
the same with any other evidence, object or documentary. The unsubstantiated and self-
serving testimonies of petitioner and his mechanic were, without doubt, insufficient to
overcome the legal presumption that petitioner was negligent in the selection and
supervision of his driver and thus liable for the damages.
SLU SOL 1-C Page
140
Yambao v. Zuniga, 418 S 266
CECILIA YAMBAO, petitioner,

vs.
MELCHORITA C. ZUIGA, LEOVIGILDO C. ZUIGA, REGINALDO C. ZUIGA, AND
THE MINORS, HERMINIGILDO C. ZUIGA, JR., AND LOVELY EMILY C. ZUIGA -
both represented by their legal guardian, the aforenamed MELCHORITA C.
ZUIGA, respondents.
G.R. No. 146173 December 11, 2003
Facts: A bus owned by Yambao was plying along EDSA when it hit pedestrian
Herminigildo Zuniga. He was eventually rushed to the hospital, but he later succumbed
to the injuries he sustained. Zunigas heirs filed for claims for damages from Yambao
because of her alleged negligence in supervising her bus driver, who violated traffic
rules and regulations and driving recklessly to the danger of the public. However,
Yambao claims that it was the victim who bumped her bus because he was being
chased by an unidentified woman. Also, she further claims that she exercised due
diligence of a good father in both supervising and selecting her bus driver. In fact, she
required them to submit copies of their drivers licenses and NBI and barangay
clearances.
Issue: Whether or not Yambao should be held liable for the death caused by her bus
driver.
Ruling: Yes. She failed to completely rebut the presumption of negligence on her part.
When an employee caused damage or injury in the performance of their duties, it is juris
tantum presumption that the employer is negligent in either the supervision or selection
employees. As such, in order to avoid becoming solidarily liable for the damage caused
by the employee, the employer must convincingly and adequately prove that he
exercised due diligence.
However, Yambao proved to do so. She failed to at least present certified true copies of
the drivers license and NBI and barangay clearance of the guilty bus driver. Bare
allegations, unsubstantiated by evidence, are not equivalent to proof. Moreover, she
eventually admitted that she only required the submission of the said documents on the
day the accident happened. Likewise, she failed to prove that she exercised due
diligence in the supervision of her employees. She did not provide evidence that would
show that her drivers underwent the necessary training or seminars in preventing
accident or enhancing their traffic skills and efficiency.
SLU SOL 1-C Page
141
Quasi-Delictual Liability even in the Existence of a Contract
between Parties
Mindanao Terminal v. Phoenix, 587 S 429
MINDANAO TERMINAL AND BROKERAGE SERVICE, INC., petitioner,

vs.
PHOENIX ASSURANCE VELASCO, JR., COMPANY OF NEW YORK/LEONARDO DE
CASTRO,** and MCGEE & CO., INC., BRION, JJ., respondent.
G.R. No. 162467 May 8, 2009
Facts: Del Monte Philippines, Inc. contracted petitioner Mindanao Terminal, a

stevedoring company, to load and stow a shipment of fresh green Philippine bananas
and fresh pineapples belonging to Del Monte Fresh Produce into the cargo hold of the
vessel M/V Mistrau. The vessel was docked at the port of Davao City and the goods
were to be transported to the port of Inchon, Korea in favor of consignee Taegu
Industries, Inc. Del Monte Produce insured the shipment under an open cargo policy
with private respondent Phoenix Assurance Company of New York, and private
respondent McGee & Co. Inc. The vessel arrived at the port of Inchon, Korea. It was
then discovered upon discharge that some of the cargo was in bad condition. The
Marine Cargo Damage Surveyor of Incok, through its representative Byeong Yong Ahn,
surveyed the extent of the damage of the shipment.
Issues:
1. Whether or not the respondent has a cause of action against petitioner on quasi-
delict.
2. Whether or not petitioner was careless and negligent in the loading and stowage of
the cargoes and is liable for damages.
Ruling: Article 1173 of the Civil Code is very clear that if the law or contract does not
state the degree of diligence which is to be observed in the performance of an obligation
then that which is expected of a good father of a family or ordinary diligence shall be
required. The court held that the only participation of Mindanao Terminal was to load the
cargoes on board the M/V Mistrau under the direction and supervision of the ships
officers, who would not have accepted the cargoes on board the vessel and signed the
foremans report unless they were properly arranged and tightly secured to withstand
voyage across the open seas. Accordingly, Mindanao Terminal cannot be held liable for
whatever happened to the cargoes after it had loaded and stowed them. Moreover,
citing the survey report, it was found by the RTC that the cargoes were damaged on
account of a typhoon which M/V Mistrau had encountered during the voyage. It was
further held that Phoenix and McGee had no cause of action against Mindanao Terminal
because the latter, whose services were contracted by Del Monte, had no contract with
the assured Del Monte Produce. It further held that even with the absence of a
contractual relationship between Mindanao Terminal and Del Monte Produce, the cause
of action of Phoenix and McGee could be based on quasi-delict under Article 2176 of
the Civil Code. The insurance carriers may have a cause of action in light of the
SLU SOL 1-C Page
142
Courts consistent ruling that the act that breaks the contract may be also a tort. In fine,
a liability for tort may arise even under a contract, where tort is that which breaches the
contract. In the present case, Phoenix and McGee are not suing for damages for
injuries arising from the breach of the contract of service but from the alleged negligent
manner by which Mindanao Terminal handled the cargoes belonging to Del Monte
Produce.
SLU SOL 1-C Page
143
YHT Realty v. CA, 451 S 638
YHT REALTY CORPORATION, ERLINDA LAINEZ and ANICIA PAYAM, petitioners,

vs.
THE COURT OF APPEALS and MAURICE MCLOUGHLIN, respondents.
G.R. No. 126780 February 17, 2005
Facts: Respondent McLoughlin would stay at Tropicana Hotel every time he is here in
the Philippines and would rent a safety deposit box. The safety deposit box could only
be opened through the use of 2 keys, one of which is given to the registered guest, and
the other remaining in the possession of the management of the hotel. McLoughlin
allegedly placed the following in his safety deposit box 2 envelopes containing US
Dollars, one envelope containing Australian Dollars, Letters, credit cards, bankbooks
and a checkbook. When he went abroad, a few dollars were missing and the jewelry he
bought was likewise missing. Eventually, he confronted Lainez and Paiyam who
admitted that Tan opened the safety deposit box with the key assigned to him.
McLoughlin went up to his room where Tan was staying and confronted her. Tan
admitted that she had stolen McLouglins key and was able to open the safety deposit
box with the assistance of Lopez, Paiyam and Lainez. Lopez also told McLoughlin that
Tan stole the key assigned to McLouglin while the latter was asleep. McLoughlin
insisted that it must be the hotel who must assume responsibility for the loss he
suffered. Lopez refused to accept responsibility relying on the conditions for renting the
safety deposit box entitled Undertaking For the Use of Safety Deposit Box.
Issue: Whether or not the hotels undertaking is valid?
Ruling: No. Article 2003 was incorporated in the New Civil Code as an expression of
public policy precisely to apply to situations such as that presented in this case. The
hotel business like the common carriers business is imbued with public interest.
Catering to the public, hotelkeepers are bound to provide not only lodging for hotel
guests and security to their persons and belongings. The twin duty constitutes the
essence of the business. The law in turn does not allow such duty to the public to be
negated or diluted by any contrary stipulation in so-called undertakings that ordinarily
appear in prepared forms imposed by hotel keepers on guests for their signature.
In an early case (De Los Santos v. Tan Khey), CA ruled that to hold hotelkeepers or
innkeeper liable for the effects of their guests, it is not necessary that they be actually
delivered to the innkeepers or their employees. It is enough that such effects are within
the hotel or inn. With greater reason should the liability of the hotelkeeper be enforced
when the missing items are taken without the guests knowledge and consent from a
safety deposit box provided by the hotel itself, as in this case.
Paragraphs (2) and (4) of the undertaking manifestly contravene Article 2003, CC for
they allow Tropicana to be released from liability arising from any loss in the contents
and/or use of the safety deposit box for any cause whatsoever. Evidently, the
SLU SOL 1-C Page
144
undertaking was intended to bar any claim against Tropicana for any loss of the
contents of the safety deposit box whether or not negligence was incurred by Tropicana
or its employees.
SLU SOL 1-C Page
145
Medical Malpractice/Medical Negligence Cases
Ramos v. CA, 321 S 584 and 380 S 457 " res ipsa loquitur," "captain of the
ship"
ROGELIO E. RAMOS and ERLINDA RAMOS, in their own behalf and as natural
guardians of the minors, ROMMEL RAMOS, ROY RODERICK RAMOS and RON
RAYMOND RAMOS, petitioners,
vs.
COURT OF APPEALS, DELOS SANTOS MEDICAL CENTER, DR. ORLINO HOSAKA
and DRA. PERFECTA GUTIERREZ, respondents.
G.R. No. 124354 December 29, 1999
Facts: Erlinda Ramos underwent a surgical procedure to remove stone from her gall
bladder (cholecystectomy). They hired Dr. Hosaka, a surgeon, to conduct the surgery at
the De Los Santos Medical Center (DLSMC). Hosaka assured them that he would find a
good anesthesiologist. But the operation did not go as planned, Dr. Hosaka arrived 3
hours late for the operation, Dra. Gutierrez, the anesthesiologist botched the
administration of the anesthesia causing Erlinda to go into a coma and suffer brain
damage. Herminda Cruz, sister in law of Erlinda and Dean of College of Nursing of
Capitol Medical Center, witnessed the botched operation. The family of Ramos
(petitioners) sued the hospital, the surgeon and the anesthesiologist for damages. The
petitioners showed expert testimony showing that Erlinda's condition was caused by the
anesthesiologist in not exercising reasonable care in intubating Erlinda. Eyewitnesses
heard the anesthesiologist saying Ang hirap ma-intubate nito, mali yata ang
pagkakapasok. O lumalaki ang tiyan. Diagnostic tests prior to surgery showed that
Erlinda was robust and fit to undergo surgery.
The RTC held that the anesthesiologist omitted to exercise due care in intubating the
patient, the surgeon was remiss in his obligation to provide a good anesthesiologist
and for arriving 3 hours late and the hospital is liable for the negligence of the doctors
and for not cancelling the operation after the surgeon failed to arrive on time. The
surgeon, anesthesiologist and the DLSMC were all held jointly and severally liable for
damages to petitioners. The CA reversed the decision of the Trial Court.
Issue: Whether or not the private respondents were negligent and thereby caused the
comatose condition of Ramos.
Ruling: Yes, private respondents were all negligent and are solidarily liable for the
damages.
Res ipsa loquitur a procedural or evidentiary rule which means the thing or the
transaction speaks for itself. It is a maxim for the rule that the fact of the occurrence of
an injury, taken with the surrounding circumstances, may permit an inference or raise a
presumption of negligence, or make out a plaintiffs prima facie case, and present a
question of fact for defendant to meet with an explanation, where ordinarily in a medical
SLU SOL 1-C Page
146
malpractice case, the complaining party must present expert testimony to prove that the
attending physician was negligent.
This doctrine finds application in this case. On the day of the operation, Erlinda Ramos
already surrendered her person to the private respondents who had complete and
exclusive control over her. Apart from the gallstone problem, she was neurologically
sound and fit. Then, after the procedure, she was comatose and brain damagedres
ipsa loquitur! the thing speaks for itself.
Negligence Private respondents were not able to disprove the presumption of

negligence on their part in the care of Erlinda and their negligence was the proximate
cause of her condition. One need not be an anesthesiologist in order to tell whether or
not the intubation was a success. [Res ipsa loquitur applies here]. The Supreme Court
also found that the anesthesiologist only saw Erlinda for the first time on the day of the
operation which indicates unfamiliarity with the patient and which is an act of negligence
and irresponsibility.
The head surgeon, Dr. Hosaka was also negligent. He failed to exercise the proper
authority as the captain of the ship in determining if the anesthesiologist observed the
proper protocols. Also, because he was late, he did not have time to confer with the
anesthesiologist regarding the anesthesia delivery.
The hospital failed to adduce evidence showing that it exercised the diligence of a good
father of the family in hiring and supervision of its doctors (Art. 2180). The hospital was
negligent since they are the one in control of the hiring and firing of their consultants.
While these consultants are not employees, hospitals still exert significant controls on
the selection and termination of doctors who work there which is one of the hallmarks of
an employer-employee relationship. Thus, the hospital was allocated a share in the
liability.
Damages temperate damages can and should be awarded on top of actual or

compensatory damages in instances where the injury is chronic and continuing.
SLU SOL 1-C Page
147
Reyes v. Sisters of Mercy, 3 October 2000
LEAH ALESNA REYES, petitioner,

vs.
SISTERS OF MERCY, respondent.
G.R. No. 130547 October 3, 2000
Facts: Jorge Reyes had been suffering from a recurring fever with chills. He was taken
to the Mercy Community Clinic. He was attended to by Dr. Marlyn Rico, who gave
physical examination and took his medical history.
Typhoid fever was then prevalent in the locality, as the clinic had been getting from 15 to
20 cases of typhoid per month. Suspecting typhoid fever, Dr. Rico ordered a Widal Test
to be performed on Jorge. Results of the test from which Dr. Rico concluded that Jorge
was positive for typhoid fever. As her shift was only up to 5:00 p.m., Dr. Rico indorsed
Jorge to respondent Dr. Marvie Blanes. Dr. Marvie Blanes attended to Jorge. Like Dr.
Rico, her impression was typhoid fever. She ordered that a compatibility test with the
antibiotic chloromycetin be done on Jorge.
As she did not observe any adverse reaction,she ordered the first five hundred
milligrams and second dose at about three hours later.At around 1:00 a.m., Dr. Blanes
was called as Jorges temperature rose to 41C. Dr. Blanes put him under oxygenand
administered hydrocortisone but his convulsions returned. Dr. Blanes re-applied the
emergency measures and valium was administered. Jorge, however, did not respond to
the treatment and slipped into cyanosis. At around 2:00 a.m., Jorge died. The cause of
his death was Ventricular Arrythemia Secondary to Hyperpyrexia and typhoid fever.
Issue: Whether or not defendants were negligent and are liable to damages.
Ruling: Petitioners action is for medical malpractice. This is a particular form of

negligence which consists in the failure of a physician or surgeon to apply to his practice
of medicine that degree of care and skill which is ordinarily employed by the profession.
There is no doubt that a physician-patient relationship existed between respondent
doctors and Jorge Reyes. Although generally, expert medical testimony is relied upon in
malpractice suits to prove that a physician has done a negligent act or that he has
deviated from the standard medical procedure, when the doctrine of res ipsa loquitor is
availed by the plaintiff, the need for expert medical testimony is dispensed. Resort to res
ipsa loquitor is allowed because there is no other way, under usual and ordinary
conditions, by which the patient can obtain redress for injury suffered by him.
Petitioners contend that all requisites for the application of res ipsa loquitur were
present. While it is true that the patient died just a few hours after professional medical
assistance was rendered, there is really nothing unusual or extraordinary about his
death. Dr. Marlyn Rico did not depart from the reasonable standard recommended by
the experts. Though the Widal test is not conclusive, it remains a standard diagnostic
SLU SOL 1-C Page
148
test for typhoid fever and were sufficient to give upon any doctor of reasonable skill the
impression that Jorge Reyes had typhoid fever. That chloromycetin was likewise a
proper prescription is best established by medical authority.
SLU SOL 1-C Page
149
Dr. Solidum v. People, 10 March 2014
DR. FERNANDO P. SOLIDUM, petitioner,

vs.
G.R. No. 192123 March 10, 2014
Facts: Gerald Albert Gercayo (Gerald) was born on June 2, 1992 with an imperforate
anus. Two days after his birth, Gerald underwent colostomy, a surgical procedure to
bring one end of the large intestine out through the abdominal wall, enabling him to
excrete through a colostomy bag attached to his side.
On May 17, 1995, Gerald, then three years old, was admitted at the Ospital ng Maynila
for a pull-through operation. Dr. Leandro Resurreccion headed the surgical team, and
was assisted by Dr. Joselito Luceo, Dr. Donatella Valea and Dr. Joseph Tibio. The
anesthesiologists included Dr. Marichu Abella, Dr. Arnel Razon and petitioner Dr.
Fernando Solidum (Dr. Solidum).During the operation, Gerald experienced bradycardia,
and went into a coma. His coma lasted for two weeks, but he regained consciousness
only after a month. He could no longer see, hear or move.
Issue: Whether or not petitioner was negligent and is liable to damages.
Ruling: In the case at bar, a 3 year old male who underwent a pull-thru operation was
administered with general anesthesia. The patient, at the time of operation, had
bradycardia. The anesthesiologists, sensing vago-vagal reflex, administered atropine
but despite the administration, cardiac arrest ensued. As the records show, prompt
resuscitative measures were administered and that oxygen was continuously being
administered throughout, unfortunately, patient suffered permanent irreversible brain
damage.
The fact that the injury rarely occurs does not in itself prove that the injury was probably
caused by someone's negligence. The evidence presented is insufficient to establish
the first element necessary for application of res ipsa loquitur doctrine. The acute
closing of the patients air passage and his resultant asphyxiation took place over a very
short period of time. Under these circumstances it would not be reasonable to infer that
the physician was negligent. There was no palpably negligent act. The common
experience of mankind does not suggest that death would not be expected without
negligence. And there is no expert medical testimony to create an inference to that
negligence. There was really no firm and competent showing how the injury to Gerard
had been caused. That meant that the manner of administration of the anesthesia by Dr.
Solidum was not necessarily the cause of the hypoxia that caused the bradycardia
experienced by Gerard.
SLU SOL 1-C Page
150
Rosit v. Davao Doctors' Hospital, 7 December 2015
NILO B. ROSIT, petitioner,

vs.
DAVAO DOCTORS HOSPITAL and DR. ROLANDO G. GESTUVO, respondents.
G.R. No. 210445 December 7, 2015
Facts: On January 15, 1999, Rosit figured in a motorcycle accident. The X-ray soon
taken the next day at the Davao Doctors Hospital (DDH) showed that he fractured his
jaw. Rosit was then referred to Dr. Gestuvo, a specialist in mandibular injuries, who, on
January 19, 1999, operated on Rosit. During the operation, Dr. Gestuvo used a metal
plate fastened to the jaw with metal screws to immobilize the mandible. As the operation
required the smallest screws available, Dr. Gestuvo cut the screws on hand to make
them smaller. Dr. Gestuvo knew that there were smaller titanium screws available in
Manila, but did not so inform Rosit supposing that the latter would not be able to afford
the same. Following the procedure, Rosit could not properly open and close his mouth
and was in pain. X-rays done on Rosit two (2) days after the operation showed that the
fracture in his jaw was aligned but the screws used on him touched his molar. Given the
X-ray results, Dr. Gestuvo referred Rosit to a dentist. The dentist who checked Rosit, Dr.
Pangan, opined that another operation is necessary and that it is to be performed in
Cebu. Alleging that the dentist told him that the operation conducted on his mandible
was improperly done, Rosit went back to Dr. Gestuvo to demand a loan to defray the
cost of the additional operation as well as the expenses of the trip to Cebu. Dr. Gestuvo
gave Rosit P4,500. Rosit went to Cebu on February 19, 1999, still suffering from pain
and could hardly open his mouth. In Cebu, Dr. Pangan removed the plate and screws
thus installed by Dr. Gestuvo and replaced them with smaller titanium plate and screws.
Dr. Pangan also extracted Rosit's molar that was hit with a screw and some bone
fragments. Three days after the operation, Rosit was able to eat and speak well and
could open and close his mouth normally. On his return to Davao, Rosit demanded that
Dr. Gestuvo reimburse him for the cost of the operation and the expenses he incurred in
Cebu amounting to Pl40,000, as well as for the P50,000 that Rosit would have to spend
for the removal of the plate and screws that Dr. Pangan installed. Dr. Gestuvo refused to
pay.
Issue: Whether or not Dr. Gestuvos actions were negligent and violated the right of
Rosit to informed consent warranting damages.
Ruling: Dr. Gestuvo's actions are clearly negligent. Likewise, Dr. Gestuvo acted in bad
faith or in a wanton, fraudulent, reckless, oppressive manner when he was in breach of
the doctrine of informed consent. Dr. Gestuvo had the duty to fully explain to Rosit the
risks of using large screws for the operation. More importantly, he concealed the correct
medical procedure of using the smaller titanium screws mainly because of his
erroneous belief that Rosit cannot afford to buy the expensive titanium screws. Such
concealment is clearly a valid basis for an award of exemplary damages.
SLU SOL 1-C Page
151
Nogales v. Capitol Medical Center, 511 S 204 on "apparent authority" and
"borrowed servant rule"
ROGELIO P. NOGALES, for himself and on behalf of the minors, ROGER

ANTHONY, ANGELICA, NANCY, and MICHAEL CHRISTOPHER, all surnamed
NOGALES, petitioners,
vs.
CAPITOL MEDICAL CENTER, DR. OSCAR ESTRADA, DR. ELY VILLAFLOR, DR.
ROSA UY, DR. JOEL ENRIQUEZ, DR. PERPETUA LACSON, DR. NOE ESPINOLA,
and NURSE J. DUMLAO, respondents.
G.R. No. 142625 December 19, 2006
Facts: Corazon Nogales was under the exclusive prenatal care of Dr. Estrada. On her
last trimester, Corazon developed preeclampsia.
Around midnight of May 25, 1976, Corazon started to experience mild labor pains. Dr.
Estrada advised her immediate admission to the CMC.
Corazon was admitted after the staff nurse noted the written admission request of Dr.
Estrada. Rogelio executed and signed the "Consent on Admission and Agreement" and
"Admission Agreement."
Dr. Estrada, assisted by Dr. Villaflor, applied low forceps to extract the baby. In the
process, a 1.0 x 2.5 cm piece of cervical tissue was torn. The baby came out in an
apneic, cyanotic, weak, and injured condition. Corazon was bleeding profusely and
died.
In May 1980, petitioners filed a complaint for damages with the RTC. After more than 11
years, the trial court found Dr. Estrada solely liable for damages and was ordered to pay
actual damages of P105K, moral damages of P700K, attorney's fees of P100K, and the
costs of suit. The CA affirmed this decision.
Meanwhile, petitioners filed a manifestation raising the liability of CMC for the
negligence of Dr. Estrada.
Issue: Whether or not CMC is vicariously liable for the negligence of Dr. Estrada.
Ruling: Dr. Estrada was not an employee of CMC but an independent contractor. CMC
merely allowed him to use its facilities when Corazon was about to give birth.
In general, a hospital is not liable for the negligence of an independent contractor-

physician. There is, however, an exception to this principle. The hospital may be liable if
the physician is the "ostensible" agent of the hospital. This exception is also known as
the "doctrine of apparent authority." Under the doctrine of apparent authority a hospital
can be held vicariously liable for the negligent acts of a physician providing care at the
SLU SOL 1-C Page
152
hospital, regardless of whether the physician is an independent contractor, unless the
patient knows, or should have known, that the physician is an independent contractor.
The doctrine of apparent authority essentially involves two factors to determine the
liability of an independent-contractor physician.
The first factor focuses on the hospital's manifestations and is sometimes described as
an inquiry whether the hospital acted in a manner which would lead a reasonable
person to conclude that the individual who was alleged to be negligent was an
employee or agent of the hospital. In the instant case, CMC impliedly held out Dr.
Estrada as a member of its medical staff. Through its acts, CMC clothed Dr. Estrada
with apparent authority thereby leading the Sps. Nogales to believe that Dr. Estrada was
an employee or agent of CMC.
The second factor focuses on the patient's reliance. It is sometimes characterized as an

inquiry on whether the plaintiff acted in reliance upon the conduct of the hospital or its
agent, consistent with ordinary care and prudence. Dr. Estrada's relationship with CMC
played a significant role in the Sps. Nogales' decision in accepting Dr. Estrada's
services as the OB-GYN for Corazon's delivery.
The SC found CMC vicariously liable for the negligence of Dr. Estrada and ordered it to
pay P105K as actual damages and P700K as moral damages.
SLU SOL 1-C Page
153
Professional Services v. Agana, 513 S 478 on "control test"
PROFESSIONAL SERVICES, INC., petitioner,

vs.
NATIVIDAD and ENRIQUE AGANA, respondents.
G.R. No. 126297 January 31, 2007
Facts: Natividad Agana was rushed to the Medical City General Hospital because of
difficulty of bowel movement and bloody anal discharge. Dr Miguel Ampil diagnosed her
to be suffering from cancer of sigmoid. Dr. Fuentes together with medical staff of
Medical City performed hysterectomy on Natividad, after which Dr. Ampil completed the
operation and closed the incision. However, in the record of operation, attending nurses
entered remarks: sponge count lacking 2, announce to surgeon search (sic) done but to
no avail continue for closure. After a couple of days, Natividad complained of
excruciating pain, consulted with Dr. Ampil and Dr. Fuentes about it but they told her the
pain was natural consequence of surgery. Natividad then went to US to seek treatment
and was told she was free of cancer. She flew back to Philippines still suffering from
pains. Two weeks after, her daughter found a piece of gauze protruding from her vagina
to which Dr. Ampil managed to remove by hand. The pain intensified prompting
Natividad to seek treatment at Polymedic General Hospital. While confined, Dr.
Gutierrez detected the presence of another foul smelling gauze in her vagina creating
recto-vaginal fistula. Thus, she underwent another surgery.
Issue: Whether or not petitioner is liable for the negligence of respondent doctors.
Ruling: The court held that for purposes of apportioning responsibility in medical
negligence cases, an employer employee relationship in effect exist between
hospitals and their attending and visiting physicians. Thus, hospitals have the right to
hire, fire and exercise control over their attending and visiting consultant staff, fulfilling
the important hallmarks of an employer employee relationship. Also, PSIs liability is
anchored upon the doctrine of apparent authority and the doctrine of corporate
negligence. In the case at bar, PSI publicly displays in its lobby the names and
specializations of the physicians associated or accredited by it. Indeed, PSIs act is
tantamount to holding out to the public that Medical City Hospital, through its accredited
physicians, offers quality health care services. The hospital created the impression that
they were its agents authorized to perform medical or surgical services for its patients.
As operator, owner and manager of Medical City Hospital, PSI did not perform the
necessary supervision nor exercise diligent efforts in the supervision of Dr. Ampil and
Dr. Fuentes and its nursing staff, resident doctors and medical interns who assisted Dr.
Ampil and Dr. Fuentes in the performance of their duties. Thus PSI is directly liable for
such breach of duty.
SLU SOL 1-C Page
154
Professional Services v. CA, 544 S 170 and 2 February 2010 on "corporate
negligence/corporate responsibility"
PROFESSIONAL SERVICES, INC., petitioner,

vs.
THE COURT OF APPEALS and NATIVIDAD and ENRIQUE AGANA, respondents.
G.R. No. 126297 February 2, 2010
Facts: Professional Services, Inc (PSI), together with Dr. Miguel Ampil (Dr. Ampil) and
Dr. Juan Fuentes (Dr. Fuentes), was impleaded by Enrique Agana and Natividad Agana
(later substituted by her heirs), in a complaint for damages filed in the Regional Trial
Court (RTC) of Quezon City, Branch 96, for the injuries suffered by Natividad when Dr.
Ampil and Dr. Fuentes neglected to remove from her body two gauzes which were used
in the surgery they performed on her on April 11, 1984 at the Medical City General
Hospital. PSI was impleaded as owner, operator and manager of the hospital. The Court
premised the direct liability of PSI to the Aganas on the following facts and law:
First, there existed between PSI and Dr. Ampil an employer-employee relationship as
contemplated in the December 29, 1999 decision in Ramos v. Court of Appeals that for
purposes of allocating responsibility in medical negligence cases, an employer-
employee relationship exists between hospitals and their consultants.
Second, by accrediting Dr. Ampil and advertising his qualifications, PSI created the
public impression that he was its agent.
Finally, as owner and operator of Medical City General Hospital, PSI was bound by its
duty to provide comprehensive medical services to Natividad Agana, to exercise
reasonable care to protect her from harm, to oversee or supervise all persons who
practiced medicine within its walls, and to take active steps in fixing any form of
negligence committed within its premises. PSI committed a serious breach of its
corporate duty when it failed to conduct an immediate investigation into the reported
missing gauzes.
Issue: Whether or not PSI is liable to the Aganas under the principle of respondeat
superior.
Ruling: No. The Court holds that PSI is liable to the Aganas, not under the principle of
respondeat superior for lack of evidence of an employment relationship with Dr. Ampil
but under the principle of ostensible agency for the negligence of Dr. Ampil and, pro hac
vice, under the principle of corporate negligence for its failure to perform its duties as a
hospital.
As it happened, PSI took no heed of the record of operation and consequently did not
initiate a review of what transpired during Natividads operation. Rather, it shirked its
responsibility and passed it on to others to Dr. Ampil whom it expected to inform
SLU SOL 1-C Page
155
Natividad, and to Natividad herself to complain before it took any meaningful step. By its
inaction, therefore, PSI failed its own standard of hospital care. It committed corporate
negligence.
It should be borne in mind that the corporate negligence ascribed to PSI is different from
the medical negligence attributed to Dr. Ampil. The duties of the hospital are distinct
from those of the doctor-consultant practicing within its premises in relation to the
patient; hence, the failure of PSI to fulfill its duties as a hospital corporation gave rise to
a direct liability to the Aganas distinct from that of Dr. Ampil.
SLU SOL 1-C Page
156
Cantre v. Sps. Go, 522 S 547
DR. MILAGROS L. CANTRE, petitioner,

vs.
SPS. JOHN DAVID Z. GO and NORA S. GO, respondents.
G.R. No. 160889 April 27, 2007
Facts: Nora Go gave birth to her 4th child. Two hours later, she suffered profuse
bleeding inside her womb due to some placenta parts which were not completely
expelled after delivery. She then suffered hypovolemic shock, so her BP dropped to
40/0. Dr. Milagros Cantre, an Ob-Gyn specialist and Nora's attending physician,
together with an assisting resident physician, performed various medical procedures to
stop the bleeding and to restore Nora's BP. While Dr. Cantre was massaging Nora's
uterus for it to contract and stop bleeding, she ordered a droplight to warm Nora and her
baby. At that time, she was unconscious.
While in the recovery room, Nora's husband John David noticed a fresh gaping wound
(2-1/2 x 3-1/2 in) in the inner portion of her left arm near the armpit. When he asked the
nurses about the cause of the injury, he was informed that it was due to a burn. John
David filed a request for investigation. Dr. Cantre said that what caused the injury was
the blood pressure cuff. John David brought Nora to the NBI for a physical examination.
The medico-legal said that the injury appeared to be a burn and that a droplight, when
placed near the skin for about 10 minutes, could cause such burn. He dismissed the
likelihood that the wound was caused by a blood pressure cuff since the scar was not
around the arm, but just on one side of the arm. Nora's injury was referred to a plastic
surgeon for skin grafting. However, her arm would never be the same--the surgery left
an unsightly scar, her movements are restricted, and the injured arm aches at the
slightest touch.
Sps. Go filed a complaint for damages against Dr. Cantre, the medical director, and the
hospital. In the RTC, parties have rested their respective cases, but the court admitted
additional exhibits [consist mostly of medical records produced by the hospital during
trial pursuant to a subpoena duces tecum] offered by Sps. Go, which were not testified
to by any witness. RTC ruled in favor of the spouses. CA affirmed RTC with modification
(complaint dismissed with respect to the medical director and the hospital; only moral
damages awarded).
Issue: Whether or not Dr. Cantre is liable for the injury suffered by Nora Go.
Ruling: Yes. In medical negligence cases, the doctrine of res ipsa loquitur allows the
mere existence of an injury to justify a presumption of negligence on the part of the
person who controls the instrument causing the injury, provided that the following
requisites concur:
1. Accident is of a kind which ordinarily does not occur absent someone's
negligence.
SLU SOL 1-C Page
157
Wound not an ordinary occurrence in the act of delivering a baby; could not
have happened unless negligence set in somewhere.
2. Caused by an instrumentality within defendant's exclusive control.
It doesn't matter whether or not the injury was caused by the droplight or by the
blood pressure cuff, since both are within the exclusive control of the physician in
charge [Dr. Cantre] under the captain of the ship doctrine [surgeon in charge of
an operation is held liable for his assistants' negligence during the time when
they are under the surgeon's control].
3. Possibility of contributing conduct which would make plaintiff responsible is
eliminated.
Wound could only be caused by something external to and outside the control
of Nora since she was unconscious while in hypervolemic shock.
SLU SOL 1-C Page
158
Dr. Rubi Li v. Sps. Soliman, 7 June 2011 on "informed consent"
DR. RUBI LI, petitioner,

vs.
SPOUSES REYNALDO and LINA SOLIMAN, as parents/heirs of deceased Angelica
Soliman, respondents.
G.R. No. 165279 June 7, 2011
Facts: Results showed that Angelica, the 11-year-old daughter of herein respondents,
was suffering from osteosarcoma, osteoblastic type, a high-grade (highly malignant)
cancer of the bone which usually afflicts teenage children. As adjuvant treatment to
eliminate any remaining cancer cells, and hence minimize the chances of recurrence
and prevent the disease from spreading to other parts of the patients body
(metastasis), chemotherapy was suggested by Dr. Tamayo. Dr. Tamayo referred
Angelica to another doctor at SLMC, herein petitioner Dr. Rubi Li, a medical oncologist.
On August 18, 1993, Angelica was admitted to SLMC. However, she died on September
1, 1993, just eleven (11) days after the (intravenous) administration of the first cycle of
the chemotherapy regimen. On February 21, 1994, respondents filed a damage suit
against petitioner, Dr. Leo Marbella, Mr. Jose Ledesma, a certain Dr. Arriete and SLMC.
Respondents charged them with negligence and disregard of
Angelicas safety, health and welfare by their careless administration of the
chemotherapy drugs, their failure to observe the essential precautions in detecting early
the symptoms of fatal blood platelet decrease and stopping early on the chemotherapy,
which bleeding led to hypovolemic shock that caused Angelicas untimely demise.
Further, it was specifically averred that petitioner assured the respondents that Angelica
would recover in view of 95% chance of healing with chemotherapy (Magiging normal
na ang anak nyo basta ma-chemo. 95% ang healing) and when asked regarding the
side effects, petitioner mentioned only slight vomiting, hair loss and weakness
(Magsusuka ng kaunti. Malulugas ang buhok. Manghihina). Respondents thus claimed
that they would not have given their consent to chemotherapy had petitioner not falsely
assured them of its side effects.
Issue: Whether or not the petitioner can be held liable for failure to fully disclose serious
side effects to the parents of the child patient who died while undergoing chemotherapy,
despite the absence of finding that petitioner was negligent in administering the said
treatment.
Ruling: The doctrine of informed consent within the context of physician-patient

relationships goes far back into English common law. As early as 1767, doctors were
charged with the tort of battery (i.e., an unauthorized physical contact with a patient) if
they had not gained the consent of their patients prior to performing a surgery or
procedure.
SLU SOL 1-C Page
159
There are four essential elements a plaintiff must prove in a malpractice action based
upon the doctrine of informed consent: (1) the physician had a duty to disclose material
risks; (2) he failed to disclose or inadequately disclosed those risks; (3) as a direct and
proximate result of the failure to disclose, the patient consented to treatment she
otherwise would not have consented to; and (4) plaintiff was injured by the proposed
treatment. The gravamen in an informed consent case requires the plaintiff to point to
significant undisclosed information relating to the treatment which would have altered
her decision to undergo it.
Examining the evidence on record, we hold that there was adequate disclosure of
material risks inherent in the chemotherapy procedure performed with the consent of
Angelicas parents. Respondents could not have been unaware in the course of initial
treatment and amputation of Angelicas lower extremity, that her immune system was
already weak on account of the malignant tumor in her knee. When petitioner informed
the respondents beforehand of the side effects of chemotherapy which includes lowered
counts of white and red blood cells, decrease in blood platelets, possible kidney or heart
damage and skin darkening, there is reasonable expectation on the part of the doctor
that the respondents understood very well that the severity of these side effects will not
be the same for all patients undergoing the procedure.
SLU SOL 1-C Page
160
Culpa Criminal
People v. Delos Santos, 355 S 415

vs.
GLENN DE LOS SANTOS, accused-appellant.
G.R. No. 131588 March 27, 2001
Facts: As part of the Special Counter Insurgency Operation Unit Training held at Camp
Damilag, Manolo Fortich, Bukidnon, several members of the Philippine National Police
were undergoing an endurance run on October 5, 1995 which started at 2:20 am. The
PNP trainees were divided into three columns and were wearing black t-shirts, black
short pants, and green and black combat shoes. There were two rear guards assigned
to each rear column. Their duty was to jog backwards facing the oncoming vehicles and
give hand signals for other vehicles. From Alae to Maitum Highway, Puerto, Cagayan de
Oro City, about 20 vehicles passed them, all of which slowed down and took the left
portion of the road when signaled to do so. While they were negotiating Maitum
Highway, they saw an Isuzu Elf truck coming at high speed towards them. The vehicle
lights were in the high beam. At a distance of 100 meters, the rear security guards
started waving their hands for the vehicle to take the other side of the road, but the
vehicle just kept its speed, apparently ignoring their signals and coming closer and
closer to them. The rear guards told their co-trainees to retract. The guards jumped in
different directions. They saw their co-trainees being hit by the said vehicle, falling like
dominoes one after the other. Some were thrown, and others were overrun by the
vehicle. The driver, Glenn de los Santos did not reduce his speed even after hitting the
first and second columns. After arraignment and trial, the court convicted accused-
appellant guilty of complex crime of multiple murder, multiple frustrated murder and
multiple attempted murder, with the use of motor vehicle as the qualifying circumstance.
Issue: Whether or not the incident was a product of a malicious intent on the part of
accused-appellant.
Ruling: The Supreme Court held that the incident, tragic though it was in the light of the
number of persons killed and seriously injured, was an accident than of a malicious
intent on Glenns part. Glenn showed an inexcusable lack of precaution. Since the place
of the incident was foggy and dark, he should have observed due care in accordance
with the conduct of a reasonably prudent man, such as by slackening his speed,
applying his brakes, or turning to the left side even if it would mean entering the
opposite lane. Wherefore, the Supreme Court convicted Glenn de Los Santos of one
complex crime of reckless imprudence resulting in multiple homicide with serious
physical injuries and less serious physical injuries and sentenced him to suffer an
indeterminate penalty of four years of prision correccional, as minimum, to 10 years of
prision mayor, as maximum; and 10 counts of reckless imprudence resulting in slight
physical injuries and sentenced for each count, to the penalty of 2 months of arresto
SLU SOL 1-C Page
161
mayor. The awards of death indemnity for each group of heirs of trainees are reduced to
P50,000, and the awards in favor of other victims are deleted.
SLU SOL 1-C Page
162
L.G. Foods v. Agraviador, 503 S 170
L.G. FOODS CORPORATION and VICTORINO GABOR, Vice-President and General

Manager, petitioners,
vs.
HON. PHILADELFA B. PAGAPONG-AGRAVIADOR, in her capacity as Presiding
Judge of Regional Trial Court, Branch 43, Bacolod City, and SPS. FLORENTINO
and THERESA VALLEJERA, respondents.
G.R. No. 158995 September 26, 2006
Facts: Charles Vallereja, a 7-year old son of the spouses Florentino Vallejera and
Theresa Vallejera, was hit by a Ford Fiera van owned by the petitioners and driven at
the time by their employee, Vincent Norman Yeneza. Charles died as a result of the
accident. In time, Information for Reckless Imprudence Resulting to Homicide was filed
against the driver. Unfortunately, before the trial could be concluded, the accused driver
committed suicide, evidently bothered by conscience and remorse. On account thereof,
the MTCC dismissed the criminal case. Then after, the spouses Vallejera filed a
complaint or damages against the petitioners as employers of the deceased driver,
basically alleging that as such employers, they failed to exercise due diligence in the
selection and supervision of their employees. The defendant petitioners filed a Motion to
Dismiss, principally arguing that the complaint is basically a "claim for subsidiary liability
against an employer" under the provision of Article 10 of the Revised Penal Code.
Prescinding therefrom, they contend that there must first be a judgment of conviction
against their driver as a condition sine qua non to hold them liable.
Issue: Whether or not the spouses Vallejeras' cause of action is derived from quasi
delict.
Ruling: The civil case is a negligence suit brought under Art. 2176 of the Civil Code, to
recover damages primarily from LG Foods as employer responsible for its negligent
driver. In this case, the complaint alleged that the death of the couples minor son was
caused by the negligent act of the driver; and that LG Foods was civilly liable for the
negligence of their driver for failing to exercise the necessary diligence required of a
good father of the family in the selection and supervision of its employees. Based on the
allegations of the complaint, LG Foods is not being made to account for subsidiary
liability under Art. 103 of the RPC. Had the spouses elected to sue LG Foods based on
Art. 103 of the RPC, they would have alleged the guilt of the driver beyond reasonable
doubt. Since there was no conviction in the criminal case against the driver, precisely
because death intervened prior to the termination of the criminal proceedings, the
spouses recourse was, therefore, to sue the petitioners for their direct and primary
liability based on quasi-delict.
Although the complaint did not explicitly state that the claim for damages was based on
quasi-delict, the allegations of the complaint clearly imply that quasi-delict was the
choice of remedy. This remedy under Article 2180 of the Civil Code is not conditioned
SLU SOL 1-C Page
163
upon prior recourse against the negligent employee and a prior showing of insolvency of
such employee. The liability of the employer is direct or immediate.
SLU SOL 1-C Page
164
Art. 1170, Contravention of the Terms
Magat v. Medialdea, 20 April 1983
VICTORINO D. MAGAT, petitioner,

vs.
HON. LEO D. MEDIALDEA AND SANTIAGO A. GUERRERO, respondents.
G.R. No. L-37120 April 20, 1983
Facts: Sometime in September 1972, the defendant entered into a contract with the
U.S. Navy Exchange, Subic Bay, Philippines, for the operation of a fleet of taxicabs,
each taxicab to be provided with the necessary taximeter and a radio transceiver for
receiving and sending of messages from mobile taxicab to fixed base stations within the
Naval Base at Subic Bay, Philippines. Since herein petitioner is known of his good
reputation as a businessman, the defendant, through his agent, entered into a contract
with the former. In said contract, the defendant must open a letter of credit in favor of
the petitioner, since the latter would also engage a foreign company for such taximeter.
Defendant and his agent have repeatedly assured plaintiff herein of the defendant's
financial capabilities to pay for the goods ordered by him and in fact he accomplished
the necessary application for a letter of credit with his banker, but he subsequently
instructed his banker not to give due course to his application for a letter of credit and
that for reasons only known to the defendant, he fails and refuses to open the
necessary letter of credit to cover payment of the goods ordered by him. After some
time, herein defendant failed to comply with his obligation, and several demands were
made by petitioner so as to reinforce such contract, and even communicated if
defendant would like to rescind contract, but said defendant did not reply to such
demands. The defendant even used as a defense that the petitioner was delayed in
delivering the taximeters when the former was apprehended by U.S. Navy Exchange for
not complying with their agreement. As a consequence, petitioner filed a case against
the defendant but respondent judge dismissed such petition in a minute order for lack of
cause of action.
Issue: Whether or not petitioner has a cause of action against the defendant for the
latters contravention of the terms of contract.
Ruling: Article 1170 of the Civil Code provides: Those who in the performance of their
obligation are guilty of fraud, negligence, or delay, and those who in any manner
contravene the tenor thereof are liable for damages. The phrase "in any manner
contravene the tenor" of the obligation includes any ilicit act or omission which impairs
the strict and faithful fulfillment of the obligation and every kind of defective
performance. The damages which the obligor is liable for includes not only the value of
the loss suffered by the obligee [dao emergente] but also the profits which the latter
failed to obtain [lucro cesante]. If the obligor acted in good faith, he shall be liable for
those damages that are the natural and probable consequences of the breach of the
obligation and which the parties have foreseen or could have reasonably foreseen at
SLU SOL 1-C Page
165
the time the obligation was constituted; and in case of fraud, bad faith, malice or wanton
attitude, he shall be liable for all damages which may be reasonably attributed to the
non-performance of the obligation. The same is true with respect to moral and
exemplary damages. The applicable legal provisions on the matter, Articles 2220 and
2232 of the Civil Code, allow the award of such damages in breaches of contract where
the defendant acted in bad faith. To our mind, the complaint sufficiently alleges bad faith
on the part of the defendant. In fine, the Supreme Court held that on the basis of the
facts alleged in the complaint, the court could render a valid judgment in accordance
with the prayer thereof.
SLU SOL 1-C Page
166
Art. 1165, Specific Performance: Necessity
FIDELA DEL CASTILLO Vda. DE MISTICA, petitioner,

vs.
SPOUSES BERNARDINO NAGUIAT and MARIA PAULINA GERONA-NAGUIAT,
respondents.
G.R. No. 137909 December 11, 2003
Facts: Eulalio Mistica is the owner of a parcel of land located at Malhacan,

Meycauayan, Bulacan. A portion thereof was leased to respondent Bernardino Naguiat
sometime in 1970. Thereafter both parties entered into an agreement for the transfer of
ownership of said property. Pursuant to said agreement, Naguiat gave a downpayment
of P2,000.00. He made another partial payment of P1,000.00 on 7 February 1980. He
failed to make any payments thereafter. On 4 December 1991, petitioner filed a
complaint for rescission alleging that the failure and refusal of respondents to pay the
balance of the purchase price constitutes a violation of the contract which entitles her to
rescind the same. Petitioner argued as his defense that the agreement between them
which involves the sale of the subject property is a potestative obligation. As a
potestative obligation, the schedule of payment belongs to the will of the debtor.
Issue: Whether or not the agreement between the parties is a potestative obligation.
Ruling: The transaction between Eulalio Mistica and respondents, as evidenced by the
Kasulatan, was clearly a Contract of Sale. A deed of sale is considered absolute in
nature when there is neither a stipulation in the deed that title to the property sold is
reserved to the seller until the full payment of the price; nor a stipulation giving the
vendor the right to unilaterally resolve the contract the moment the buyer fails to pay
within a fixed period. In the present case, the failure of respondents to pay the balance
of the purchase price within ten years from the execution of the Deed did not amount to
a substantial breach. Instead, she argues that the period cannot be extended beyond
ten years, because to do so would convert the buyers obligation to a purely potestative
obligation that would annul the contract under Article 1182 of the Civil Code. This
contention is likewise untenable. The Code prohibits purely potestative, suspensive,
conditional obligations that depend on the whims of the debtor, because such
obligations are usually not meant to be fulfilled.[14] Indeed, to allow the fulfillment of
conditions to depend exclusively on the debtors will would be to sanction illusory
obligations. First, nowhere is it stated in the Deed that payment of the purchase price is
dependent upon whether respondents want to pay it or not. Second, the fact that they
already made partial payment thereof only shows that the parties intended to be bound
by the Kasulatan.
SLU SOL 1-C Page
167
Co v. CA, 17 August 1999
SPS. HENRY CO AND ELIZABETH CO AND MELODY CO, petitioners,

vs.
COURT OF APPEALS AND MRS. ADORACION CUSTODIO, represented by her
Attorney-in-fact, TRINIDAD KALAGAYAN, respondents.
G.R. No. 112330 August 17, 1999
Facts: Plaintiff entered into verbal contract with the defendant for her purchase of the
latters house and lot located at 316 Beata St. New Alabang Village, in consideration of
the sum $100,000. One week thereafter, and shortly before she left for the US, plaintiff
paid to the defendants the amounts of $1,000 and $40,000 as earnest money, in order
that the same may be reserved for her purchase, said earnest money to be deducted
from the total price. The purchase price of $100,000 is payable in two payments,
$40,000 on December 4, 1984 and the balance of $60,000 on January 5, 1985. On
January 25, 1985, although the period of payment had already expired, plaintiff paid to
the defendant Melody Co in the US, the sum of $30,000, as partial payment of the
purchase price. Defendants counsel, Atty. Leopoldo Cotaco, wrote a letter to the plaintiff
dated March 15, 1985, demanding that she pay the balance of $70,000 and not
receiving any response thereto, said lawyer wrote another letter to plaintiff dated August
8, 1986, informing her that she has lost her option to purchase the property subject of
this case and offered to sell her another property.
Issue: Whether or not the CA erred in ordering the COS to return the $30,000 paid by
Custodio pursuant to the option granted to her over the Beata property.
Ruling: The COS main argument is that Custodio lost her option over the Beata
property and her failure to exercise said option resulted in the forfeiture of any amounts
paid by her pursuant to the August letter. An option is a contract granting a privilege to
buy or sell within an agreed time and at a determined price. However, the March 15,
1985 letter sent by the COS through their lawyer to the Custodio reveals that the parties
entered into perfected contract of sale and not an option contract. In the case at bar, the
property involved has not been delivered to the appellee. She has not therefore
anything to return to the appellants. The price received by the appellants has to be
returned to the appellant as aptly ruled by the lower court, for such is a consequence of
rescission, which is to restore the parties in their former situations.
SLU SOL 1-C Page
168
Art. 1191-1192 as compared to Art. 1380-1389,
Resolution/Rescission
Nature as Remedy
HEIRS OF SOFIA QUIRONG, petitioner,

vs.
DEVELOPMENT BANK OF THE PHILIPPINES, respondent.
G.R. No. 17344 December 3, 2009
Facts: When the late Emilio Dalope died, he left a 589-square meter untitled lot in Sta.
Barbara, Pangasinan, to his wife, Felisa Dalope (Felisa) and their nine children, one of
whom was Rosa Dalope-Funcion. To enable Rosa and her husband Antonio Funcion
(the Funcions) get a loan from respondent Development Bank of the Philippines (DBP),
Felisa sold the whole lot to the Funcions. With the deed of sale in their favor and the tax
declaration transferred in their names, the Funcions mortgaged the lot with the DBP. On
February 12, 1979, after the Funcions failed to pay their loan, the DBP foreclosed the
mortgage on the lot and consolidated ownership in its name on June 17, 1981. Four
years later or on September 20, 1983 the DBP conditionally sold the lot to Sofia Quirong
for the price of P78,000.00. In their contract of sale, Sofia Quirong waived any warranty
against eviction. The contract provided that the DBP did not guarantee possession of
the property and that it would not be liable for any lien or encumbrance on the same.
Quirong gave a down payment of P14,000.00. Two months after that sale or on
November 28, 1983 Felisa and her eight children (collectively, the Dalopes) filed an
action for partition and declaration of nullity of documents with damages against the
DBP and the Funcions before the Regional Trial Court (RTC) of Dagupan City.
Issue: Whether or not the heirs of Quirong were entitled to the rescission of the DBPs
sale of the subject lot to the late Sofia Quirong as a consequence of her heirs having
been evicted from it.
Ruling: Actually, the cause of action of the Quirong heirs stems from their having been
ousted by final judgment from the ownership of the lot that the DBP sold to Sofia
Quirong, their predecessor, in violation of the warranty against eviction that comes with
every sale of property or thing. Article 1548 of the Civil Code provides: Article 1548:
Eviction shall take place whenever by a final judgment based on a right prior to the sale
or an act imputable to the vendor, the vendee is deprived of the whole or of a part of
thing purchased. With the loss of 80% of the subject lot to the Dalopes by reason of the
judgment of the RTC in Civil Case D-7159, the Quirong heirs had the right to file an
action for rescission against the DBP pursuant to the provision of Article 1556 of the
Civil Code which provides: Article 1556: Should the vendee lose, by reason of the
eviction, a part of the thing sold of such importance, in relation to the whole, that he
would not have bought it without said part, he may demand the rescission of the
contract; but with the obligation to return the thing without other encumbrances than
SLU SOL 1-C Page
169
those which it had when he acquired it. And that action for rescission, which is based on
a subsequent economic loss suffered by the buyer, was precisely the action that the
Quirong heirs took against the DBP. Consequently, it prescribed as Article 1389
provides in four years from the time the action accrued. Since it accrued on January 28,
1993 when the decision in Civil Case D-7159 became final and executory and ousted
the heirs from a substantial portion of the lot, the latter had only until January 28, 1997
within which to file their action for rescission. Given that they filed their action on June
10, 1998, they did so beyond the four-year period.
SLU SOL 1-C Page
170
HEIRS OF RAMON C. GAITE, CYNTHIA GOROSTIZA GAITE and RHOGEN

BUILDERS, petitioners,
vs.
THE PLAZA, INC. and FGU INSURANCE CORPORATION, respondents.
G.R. No. 177685 January 26, 2011
Facts: On July 16, 1980, The Plaza, Inc., through its President, Jose C. Reyes, entered
into a contract with Rhogen Builders, represented by Ramon C. Gaite, for the
construction of a restaurant building in Greenbelt, Makati for the price of P7,600,000.00.
On July 18, 1980, to secure Rhogens compliance with its obligation, Gaite and FGU
Insurance Corporation (FGU) executed a surety bond in favor of The Plaza. Thereafter,
Rhogen commenced construction of the restaurant building.
September 10, 1980, Engineer Angelito Z. Gonzales, ordered Gaite to cease and desist
from continuing with the construction of the building for violation of Sections 301 and
302 of the National Building Code (P.D. 1096) and its implementing rules and
regulations. On October 7, 1980, Gaite wrote Reyes, regarding his actions/observations
on the stoppage order issued. On the permit for temporary structure, Gaite said the
plans were being readied for submission to the Engineering Department of the
Municipality of Makati and the application was being resent to Reyes for his appropriate
action. Gaite thus thought that Reyes would handle the matter by himself.
In his reply-letter Reyes asserted that The Plaza is not the one to initiate a solution to
the situation arising from non-performance of its own contractual undertakings, and that
The Plaza has its rights and remedies to protect its interest.
Issue: Whether or not petitioner is liable for damages.
Ruling: Petitioners assailed the order for the return of down payment, asserting that the
principle of quantum meruit demands that Rhogen as contractor be paid for the work
already accomplished. Under the principle of quantum meruit, a contractor is allowed to
recover the reasonable value of the thing or services rendered despite the lack of a
written contract, in order to avoid unjust enrichment. In the case at bar, Rhogen failed to
finish even a substantial portion of the works due to the stoppage order issued just two
months from the start of construction. Despite the down payment received from The
Plaza, Rhogen, was able to complete a meager percentage much lower than that
claimed. Moreover, Rhogen was found to have executed the works not in accordance
with the approved plans or failed to seek prior approval of the Municipal Engineer.
Article 1167 of the Civil Code is explicit on this point that if a person obliged to do
something fails to do it, the same shall be executed at his cost.
The court held that Rhogen committed a serious breach of its contract with The Plaza,
which justified the latter in terminating the contract. Petitioners are thus liable for
SLU SOL 1-C Page
171
damages for having breached their contract with respondent The Plaza. Article 1170 of
the Civil Code provides that those who in the performance of their obligations are guilty
of fraud, negligence or delay and those who in any manner contravene the tenor thereof
are liable for damages.
SLU SOL 1-C Page
172
Solar Harvest Incorporated v. Davao Corrugated, 26 July 2010
SOLAR HARVEST, INC., petitioner,

vs.
DAVAO CORRUGATED CARTON CORPORATION, respondent.
G.R. No. 176868 July 26, 2010
Facts: Petitioners entered into an agreement with the respondent for the purchase of
corrugated carton boxes specifically designed for petitioner's business of exporting fresh
bananas. The agreement was not reduced into writing. Petitioner deposited in
respondent's US Dollar Savings Account as full payment for the ordered boxes. Despite
such payment, petitioner did not receive any boxes from respondent. Petitioner wrote a
demand letter for reimbursement of the amount paid. Respondent replied that the boxes
had been completed as early as April 3, 1998 and that petitioner failed to pick them up
from the former's warehouse 30 days from completion, as agreed upon. Petitioner filed
a Complaint for sum of money and damages against respondent. The Complaint
averred that the parties agreed that the boxes will be delivered within 30 days from
payment but respondent failed to manufacture and deliver the boxes within such time.
Issue: Whether or not the petitioner would have a cause of action for rescission against
the respondent.
Ruling: No, the petitioner would not have a cause of action for rescission against the
respondent. The Supreme Court ruled that 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
default for each obligation must be determined by the rules given in the first paragraph
of the present article, that is, the other party would incur in delay only from the moment
the other party demands fulfillment of the former's 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. The Complaint only alleged that petitioner
made a "follow-up" upon respondent, which, however, would not qualify as a demand
for the fulfillment of the obligation. Without a previous demand for the fulfillment of the
obligation, petitioner would not have a cause of action for rescission against respondent
as the latter would not yet be considered in breach of its contractual obligation.
SLU SOL 1-C Page
173
Right to Resolve/Rescind: Requisites
Reyes v. Tuparan, 1 June 2011
MILA A. REYES, petitioner,

vs.
VICTORIA T. TUPARAN, respondent.
G.R. No. 188064 June 1, 2011
Facts: Reyes was the registered owner of a 1,274-sq. m. lot on which she put up a 3-
storey commercial building known as RBJ Building and a residential apartment building.
Since 1990, she had been operating a drugstore and cosmetics store on the ground
floor of RBJ Building where she also had been residing, while the other areas of the
buildings were.
In December 1989, Tuparan leased from Reyes a space on the ground floor of the RBJ
Building.
On June 20, 1988, Reyes mortgaged the subject real properties to the Farmers Savings
Bank and Loan Bank, Inc. (FSL Bank) to secure a loan of 2M. Reyes decided to sell
her real properties for at least 6.5M to liquidate her bank loan and finance her
businesses. As a gesture of friendship, Tuparan verbally offered to conditionally buy the
real properties for 4.2M and to assume the bank loan. Tuparan offered the following
conditions/concessions:
1. The conditional sale will be cancelled if Reyes finds a buyer who will pay 6.5M
within the next 3 months;
2. Reyes would not pay rent for the duration of the installment payments;
3. There will be a lease for 15 years in favor Reyes at a monthly rental of 8K after
Tuparan has paid in full;
4. Tuparan will renew and pay the fire insurance policies on the 2 subject buildings
following the expiration of the existing fire insurance policy.
On November 26, 1990, the parties and FSL Bank executed a deed of conditional sale
of real properties with assumption of mortgage.
Tuparan paid to FSL Bank Reyes' mortgage obligation of 2.2M, which formed part of
the purchase price of the subject property. Tuparan paid directly to Reyes 722K
representing the additional payment for the purchase of the subject property. Out of the
total price of 4.2M, Tuparan was able to pay 3M leaving a balance of 1.2M payable
in 3 installments. Tuparan paid the first and second installments of 200K each. She,
however, failed to pay the last installment of 800K. Nevertheless, on August 31, 1992,
Tuparan offered to pay the amount of 751K which was rejected by Reyes for the
reason that the actual balance was 805K.
SLU SOL 1-C Page
174
Since December 1990, Tuparan had taken possession of the subject real properties and
had been collecting monthly rental income from the tenants without sharing it with
Reyes.
On March 19, 1992, the residential building was gutted by fire. Tuparan neglected to
renew the fire insurance policy on the subject buildings.
On February 22, 2006, the RTC found that Tuparan had a balance of 805K. The RTC
also considered the deed of conditional sale of real property with assumption of
mortgage a contract to sell and not a contract of sale. It gave Tuparan a chance to pay
the balance within a given period of time.
The CA affirmed with modification the RTC decision. The CA ruled that the remedy of
rescission could not apply because Tuparan's failure to pay the balance was not a
breach of contract, but merely an event that prevented the Reyes from conveying title to
Tuparan. Since Tuparan had already paid a substantial amount of the purchase price, it
was but right and just to allow her to pay the unpaid balance of the purchase price plus
interest.
Reyes filed a petition before the SC praying for the reversal and setting aside of the CA
decision.
Issue: Whether or not there was no legal basis for the rescission of the deed of
conditional sale with assumption of mortgage.
Ruling: The SC agreed that the subject deed of conditional sale with assumption of
mortgage was a contract to sell and not a contract of sale.
The title and ownership of the subject properties remains with Reyes until Tuparan fully
pays the balance of the purchase price and the assumed mortgage obligation.
Thereafter, FSL Bank shall then issue the corresponding deed of cancellation of
mortgage and Reyes shall execute the corresponding deed of absolute sale in favor of
Tuparan.
Accordingly, Reyes' obligation to sell the subject properties becomes demandable only
upon the happening of the positive suspensive condition, which is Tuparan's full
payment of the purchase price. Without Tuparan's full payment, there can be no breach
of contract to speak of because Reyes has no obligation yet to turn over the title.
Tuparan's failure to pay in full the purchase price is not the breach of contract
contemplated under Art. 1191 of the New Civil Code but rather just an event that
prevents Reyes from being bound to convey title to Tuparan.
The essential elements of a contract of sale are:

a) Consent or meeting of the minds, that is consent to transfer ownership in exchange
for the price;
b) Determinate subject matter; and
SLU SOL 1-C Page
175
c) Price certain in money or its equivalent.
A contract to sell may not be considered as a contract of sale because the first essential
element is lacking. In a contract to sell, the prospective seller explicitly reserves the
transfer of title to the prospective buyer, meaning, the prospective seller does not as yet
agree or consent to transfer ownership of the property subject of the contract to sell until
the happening of an event, which is the full payment of the purchase price.
Unless the parties stipulated it, rescission is allowed only when the breach of the
contract is substantial and fundamental to the fulfillment of the obligation. Whether the
breach is slight or substantial is largely determined by the attendant circumstances.
Considering, that the deed of conditional sale was not cancelled by Reyes and that the
remaining unpaid balance of Tuparan is only 805K, a substantial amount of the
purchase price has already been paid. It is only right and just to allow Tuparan to pay
the said unpaid balance of the purchase price to Reyes.
SLU SOL 1-C Page
176
G.G. Sportswear Mfg. Corp. v. World Class Properties, Inc., 2 March 2010
G.G. SPORTSWEAR MFG. CORP., petitioner,

vs.
WORLD CLASS PROPERTIES, INC., respondent.
G.R. No. 182720 March 2, 2010
Facts: GG Sportswear offered to purchase the 38th floor penthouse unit and 16 parking
slots for 32 cars in World Class's condominium project for the discounted, pre-selling
price. After GG Sportswear paid the reservation fee, the parties, signed a Reservation
Agreement that provides for the schedule of payments, including the stipulated monthly
installments on the down payment and the balance on the purchase price. From May to
December 1996, GG Sportswear timely paid the installments due. In a letter dated
January 30, 1997, GG Sportswear requested the return of the outstanding postdated
checks it previously delivered to World Class because it (GG Sportswear) intended to
replace these old checks with new ones from the corporations new bank. World Class
acceded, but suggested the execution of a new Reservation Agreement to reflect the
arrangement involving the replacement checks, with the retention of the other terms and
conditions of the old Agreement.8 GG Sportswear did not object to the execution of a
new Reservation Agreement, but requested that World Class defer the deposit of the
replacement checks for 90 days. World Class denied this request, contending that a
deferment would delay the subsequent monthly installment payments. It likewise
demanded that GG Sportswear immediately pay its overdue January 1997 installment
to avoid the penalties provided in the Agreement. GG Sportswear did not sign the
second Reservation Agreement. Instead, it sent a letter to World Class, requesting that
its check dated April 24, 1997 be deposited on May 15, 1997 because it was
experiencing financial difficulties. When World Class rejected GG Sportswears request,
GG Sportswear sent another letter informing World Class that the second Reservation
Agreement was incomplete because it did not expressly provide the time of completion
of the condominium unit. World Class countered that the provisional Contract to Sell it
previously submitted to GG Sportswear expressly provided for the completion date
(December 15, 1998) and insisted that GG Sportswear pay its overdue account.
Issue: Whether or not there was no breach on the part of World Class to justify the
rescission and refund.
Ruling: GG Sportswear likewise has no legal basis to demand either the rescission of
the Agreement or the refund of payments it made to World Class under the Agreement.
Unless the parties stipulated it, rescission is allowed only when the breach of the
contract is substantial and fundamental to the fulfillment of the obligation. Whether the
breach is slight or substantial is largely determined by the attendant circumstances.GG
Sportswear anchors its claim for rescission on two grounds: (a) its dissatisfaction with
the completion date; and (b) the lack of a Contract to Sell. As to the first ground, World
Class makes much of the fact that the completion date is not indicated in the
Agreement, maintaining that this lack of detail renders the Agreement void on the
SLU SOL 1-C Page
177
ground that the intention of the parties cannot be ascertained. We disagree with this
contention. In the first place, GG Sportswear cannot claim that it did not know the time-
frame for the projects completion when it entered into the Agreement with World Class.
As World Class points out, it is absurd and unbelievable that Mr. Gidwani, the president
of GG Sportswear and an experienced businessman, did not have an idea of the
expected completion date of the condominium project before he bought the
condominium units for P89,624,272.82. Even assuming that GG Sportswear was not
aware of the exact completion date, we note that GG Sportswear signed the Agreement
despite the Agreements omission to expressly state a specific completion date. This
directly implies that a specific completion date was not a material consideration for GG
Sportswear when it executed the Agreement. Thus, even if we believe GG Sportswears
contention that it was dissatisfied with the completion date subsequently indicated in the
provisional Contract to Sell, we cannot consider this dissatisfaction a breach so
substantial as to render the Agreement rescissible.
SLU SOL 1-C Page
178
Movido v. Reyes Pastor, 11 February 2010
VALENTIN MOVIDO, substituted by MARGINITO MOVIDO, petitioner,

vs.
LUIS REYES PASTOR, respondent.
G.R. No. 172279 February 11, 2010
Facts: Respondent Luis Reyes Pastor filed a complaint for specific performance in the
RTC of Imus, Cavite, praying that petitioner Valentin Movido be compelled to cause the
survey of a parcel of land subject of their contract to sell. In his complaint, respondent
alleged that he and petitioner executed a kasunduan sa bilihan ng lupa where the latter
agreed to sell a parcel of land located in Paliparan, Dasmarias, Cavite. Respondent
further alleged that another kasunduan was later executed supplementing the
kasunduan sa bilihan ng lupa. It provided that, if a Napocor power line traversed the
subject lot, the purchase price would be lowered. Lastly, respondent alleged that he
already paid petitioner P5 million out of the original purchase price of P8.4 million stated
in the kasunduan sa bilihan ng lupa. He was willing and ready to pay the balance of the
purchase price but due to petitioner's refusal to have the property surveyed despite
incessant demands, his unpaid balance could not be determined with certainty.
However, as respondent was not sure whether a Napocor power line traversed the
property, they then executed the kasunduan. After respondent personally inspected the
property, a final agreementthe kasunduan sa bilihan ng lupa was executed. The final
agreement also listed a schedule of payments of the purchase price and included a
penalty clause in case of default. The RTC ruled in favor of petitioner and held that the
kasunduan preceded the kasunduan sa bilihan ng lupa. The CA reversed the RTC and
held that the kasunduan sa bilihan ng lupa was the first document executed by the
parties, not the kasunduan. Movido's motion for reconsideration did not have its desired
result, hence, this petition.
Issue: Whether or not the failure of respondent to pay the 7th and 8th installments of
the purchase price gave petitioner the right to rescind the contract.
Ruling: No. Rescission is only allowed when the breach is so substantial and
fundamental as to defeat the object of the parties in entering into the contract. We find
no such substantial or material breach.
It is true that respondent failed to pay the 7th and 8th installments of the purchase price.
However, considering the circumstances of the instant case, particularly the provisions
of the kasunduan, respondent cannot be deemed to have committed a serious breach.
In the first place, respondent was not in default as petitioner never made a demand for
payment.
Moreover, the kasunduan sa bilihan ng lupa and the kasunduan should both be given
effect rather than be declared conflicting, if there is a way of reconciling them. Petitioner
and respondent would not have entered into either of the agreements if they did not
SLU SOL 1-C Page
179
intend to be bound or governed by them. Indeed, taken together, the two agreements
actually constitute a single contract pertaining to the sale of a land to respondent by
petitioner. Their stipulations must therefore be interpreted together, attributing to the
doubtful ones that sense that may result from all of them taken jointly. Their proper
construction must be one that gives effect to all.
SLU SOL 1-C Page
180
Sps. Tongson v. Emergency Pawnshop, 15 January 2010
SPOUSES CARMEN S. TONGSON and JOSE C. TONGSON substituted by his

children namely: JOSE TONGSON, JR., RAUL TONGSON, TITA TONGSON,
GLORIA TONGSON ALMA TONGSON, petitioners,
vs.
EMERGENCY PAWNSHOP BULA, INC. and DANILO R. NAPALA, respondents.
G.R. No. 167874 January 15, 2010
Facts: In May 1992, Napala offered to purchase from the spouses Tongson their 364-
square meter parcel of land, situated in Davao City and covered by TCT #143020.
Finding the offer acceptable, the spouses executed with Napala a Memorandum of
Agreement dated May 8, 1992.
On December 2, 1992, respondent prepared a Deed of Absolute Sale indicating the

consideration as only P400,000. To conform with the consideration stated in the Deed of
Absolute Sale, the parties executed another Memorandum of Agreement, which
replaced the first MOA, showing that the selling price of the land was only P400,000.
Upon signing the Deed of Absolute Sale, Napala paid P200,000 in cash to the spouses
and issued a postdated PNB check for the remaining amount of P2,800,000. Thereafter,
TCT#143020 was cancelled and TCT#T-186128 was issued in the name of Emergency
Pawnshop Bula,Inc. When presented for payment, the PNB check was dishonored for
the reason Drawn Against Insufficient Funds. Despite the spouses repeated demands
to either pay the full value of the check or to return the subject parcel of land, Napala
failed to do either. Spouses filed a complaint for annulment of contract and damages
with a prayer for the issuance of a temporary restraining order and writ of preliminary
injunction.
Issue: Whether or not the contract of sale can be annulled based on the fraud
employed by Napala.
Ruling: Yes. The court ordered the rescission of the contract of sale between the
spouses Tongson and Emergency Pawnshop Bula,Inc. Under Art 1338 of the Civil code,
there is fraud when, through insidious words or machinations of one of the contracting
parties, the other is induced to enter into a contract which, without them, he would not
have agreed to. In order that fraud may vitiate consent, it must be the causal (dolo
causante), not merely the incidental (dolo incidente), inducement to the making of the
contract.
We find no causal fraud in this case to justify the annulment of the contract of sale
between the parties because even before Napala issued the check, the parties had
already consented and agreed to the sale transaction. However, while no causal fraud
attended the execution of the sales contract, there is fraud in its general sense, which
involves a false representation of a fact, when Napala inveigled the Spouses Tongson
SLU SOL 1-C Page
181
to accept the postdated PNB check on the representation that the check would be
sufficiently funded at its maturity. In other words, the fraud surfaced when Napala issued
a worthless check to the Spouses Tongson, which is definitely not during the negotiation
and perfection stages of the sale but rather, the fraud existed in the consummation
stage of the sale when the parties are in the process of performing their respective
obligations under the perfected contract of sale.
SLU SOL 1-C Page
182
Sanz Maceda v. DBO, 11 August 2010
BONIFACIO SANZ MACEDA, JR., petitioner,

vs.
G.R. No. 174979 August 11, 2010
Facts: It appears that on July 28, 1976 plaintiff Bonifacio Maceda, Jr. (Maceda)
obtained a loan from the defendant DBP in the amount of P7.3 million to finance the
expansion of the Old Gran Hotel in Leyte. Upon approval of said loan, plaintiff Maceda
executed a promissory note and a mortgage of real estate. Project cost of the New Gran
Hotel wasP10.5M. DBP fixed a debt-equity ratio of 70%-30%, corresponding to DBP
and Macedas respective infusion in the hotel project. Macedas equity infusion was
P2.93M, or 30% of P10.5M. The DBP Governor at that time, Recio Garcia, in-charge of
loans for hotels, allegedly imposed the condition that DBP would choose the building
contractor, namely, Moreman Builders Co. (Moreman). The contractor would directly
receive the loan releases from DBP, after verification by DBP of the construction
progress. The period of loanavailment was 360 days from date of initial release of the
loan. Similarly, suppliers of equipment and furnishings for the hotel were also to be paid
directly by DBP. The construction deadline was set for December 22, 1977.
Maceda filed a complaint for Rescission of the building contract with Damages against
the contractor Moreman, before the then Manila Court of First Instance Branch 39,
which was docketed as Civil Case No. 113498. In its decision dated November 28,
1978, the CFI rescinded the building contract, suspended the period of availment,
allowedMaceda to himself take over construction, and directed DBP to release to
Maceda the sum of P1.003M, which had previously been approved for release in
January 1978. The DBP was further ordered to give plaintiff Maceda such other
amounts still pending release. Moreman filed an appeal which was subsequently
dismissed in 1990 by the Supreme Court. Entry of judgment on this case was issued on
April 23, 1990.
In the meantime, Maceda also instituted the case a quo for Specific Performance with
Damages against defendant DBP before the Makati RTC in 1984. The Manila CFIs
November 28, 1978 Decision and the factual findings therein contained became part of
the evidence submitted before the Makati RTC as Exh. D. In essence, Macedas
complaint before the Makati
RTC alleged that DBP conspired with the contractor, Moreman, by approving
anomalous loan releases to the latter despite exaggerated charges and valuation made
by said contractor on the hotel project. In effect, it was alleged that despite only a 15%
accomplishment which should have cost only P700,000.00, the contractor, thru the
active connivance of the DBP, was able to rake in a total of P3,174,358.38 or 60% of the
cost of the projected hotel building. When plaintiff Maceda himself tried to resume the
completion and construction of the hotel project, after the building contract with
SLU SOL 1-C Page
183
Moreman was already rescinded by the CFI Manila, defendant allegedly blocked efforts
of the plaintiff by delaying the release of funds from his loan with the DBP and imposing
onerous conditions which made it difficult for plaintiff to pursue the construction of the
New Gran Hotel. It was further alleged that due to such delays on the part of the DBP,
the period of availment of the loan expired without the plaintiffs [sic] having availed of
the total approved amount of their loan. The construction of the hotel was never
finished. Worse, due to interests and penalties, the obligation of the plaintiff has
ballooned toP11,817,365.90 as of January 31, 1984, not to mention the amount of
P810,702.68 supposedly representing interests and charges for the period of February
1, 1978 to October 1979. Finally, DBP allegedly threatened to foreclose the mortgaged
properties of the plaintiff.
Issue: Whether or not the damages awarded in favor of Maceda are unreasonable and
excessive.
Ruling: The trial court also awarded the following amounts: P700,000 as moral
damages; P150,000 as exemplary damages; P500,000 as temperate damages; and
P100,000 as attorneys fees. We find these amounts appropriate under the
circumstances, and not unconscionable or exorbitant.
SLU SOL 1-C Page
184
ARMAND O. RAQUEL-SANTOS and ANNALISSA MALLARI, petitioners,

vs.
COURT OF APPEALS and FINVEST SECURITIES CO., INC., respondents.
G.R. No. 174986 July 7, 2009
PHILIPPINE STOCK EXCHANGE, INC., petitioner,

vs.
FINVEST SECURITIES CO., INC., respondent.
G.R. No. 175071
FINVEST SECURITIES CO., INC., petitioner,

vs.
TRANS-PHIL MARINE ENT., INC. and ROLAND H. GARCIA, respondents.
G.R. No. 181415
Facts: Finvest is a stock brokerage corporation duly organized under Philippine laws
and is a member of the PSE with one membership seat pledged to the latter. Armand O.
Raquel-Santos (Raquel-Santos) was Finvests President and nominee to the PSE from
February 20, 1990 to July 16, 1998. Annalissa Mallari (Mallari) was Finvests
Administrative Officer until December 31, 1998. In the course of its trading operations,
Finvest incurred liabilities to PSE representing fines and penalties for non-payment of its
clearing house obligations. PSE also received reports that Finvest was not meeting its
obligations to its clients. Consequently, PSE indefinitely suspended Finvest from
trading. The Securities and Exchange Commission (SEC) also suspended its license as
broker. On June 17, 1998, PSE demanded from Finvest the payment of its obligations to
the PSE in the amount ofP4,267,339.99 and to its (Finvests) clients within 15 days.
PSE also ordered Finvest to replace its nominee, Raquel-Santos. As of August 11,
1998, Finvests total obligation to PSE, representing penalties, charges and fines for
violations of pertinent rules, was pegged at P5,990,839.99. Finvest promised to settle all
obligations to its clients and to PSE subject to verification of the amount due, but
Finvest requested a deadline of July 31, 1999. PSE granted Finvests request, with the
warning that, should Finvest fail to meet the deadline, PSE might exercise its right to
sell Finvests membership seat and use the proceeds thereof to settle its obligations to
the PSE, its member-brokers and its clients. On February 3, 1999, PSE inquired from
Finvest if it had already settled all duly acknowledged claims of its clients and its
liabilities to PSE. PSE also demanded that Finvest settle its liabilities to it not later than
March 31, 1999. PSE points out that it has made several demands on Finvest for the
payment of its obligations and the amount due has been computed after consultation
with Finvests representative, Mr. Ernesto Lee. Considering, therefore, that Finvest
already acknowledged and ascertained its obligations with PSE and yet it defaulted in
the payment thereof, PSE had the right to sell at public auction Finvests pledged seat
SLU SOL 1-C Page
185
pursuant to the Pledge Agreement and in accordance with Article 2112 of the Civil
Code.
Issue: Whether or not Finvest incurred delay in its obligations.
Ruling: No. Under the law on contracts, mora solvendi or debtors default is defined as
a delay in the fulfillment of an obligation, by reason of a cause imputable to the debtor.
There are three requisites necessary for a finding of default. First, the obligation is
demandable and liquidated; second, the debtor delays performance; and third, the
creditor judicially or extrajudicially requires the debtors performance. In the present
petition, PSE insists that Finvests liability for fines, penalties and charges has been
established, determined and substantiated, hence, liquidated. However, both trial court
and CA have ruled otherwise. The findings of fact of both the trial court and the CA are
fully supported by the records and that they plainly show that the parties were
negotiating to determine the exact amount of Finvests obligations to PSE, during which
period PSE repeatedly moved the deadlines it imposed for Finvest to pay the fines,
penalties and charges, apparently to allow for more time to thresh out the details of the
computation of said penalties. A debt is liquidated when the amount is known or is
determinable by inspection of the terms and conditions of relevant documents. Under
the attendant circumstances, it cannot be said that Finvests debt is liquidated. At the
time PSE left the negotiating table, the exact amount of Finvests fines, penalties and
charges was still in dispute and as yet undetermined. Consequently, Finvest cannot be
deemed to have incurred in delay in the payment of its bligations to PSE. It cannot be
made to pay an obligation the amount of which was not fully explained to it. The public
sale of the pledged seat would, thus, be premature.
SLU SOL 1-C Page
186
Effects
Serrano v. CA, 417 S 415
SPOUSES ARTURO AND NICETA SERRANO, petitioners,

vs.
COURT OF APPEALS AND HEIRS OF EMILIO S. GELI, respondents.
G.R. No. 133883 December 10, 2003
Facts: The Spouses Serrano were the owners of a parcel of land as well as the house
constructed thereon located at Road 4, Project 6, Diliman, Quezon City and a parcel of
land located in Caloocan City. The couple mortgaged the said properties in favor of the
Government Service Insurance System (GSIS) as security for a loan of P50,000. By
June 1969, the couple was able to pay only the amount of P18,000. On June 23, 1969,
the Spouses Serrano, as vendors, and Spouses Emilio and Evelyn Geli, as vendees,
executed a deed of absolute sale with partial assumption of mortgage over the parcel of
land covered by TCT No. 80384 and the house thereon for the price of P70,000. The
Spouses Geli paid the amount of P38,000 in partial payment of the property, the
balance of P32,000 to be paid by them to the GSIS for the account of the Spouses
Serrano. The Spouses Geli thereafter took possession of the property. In the meantime,
Evelyn Geli died intestate and was survived by her husband Emilio Geli and their
children. However, Emilio Geli and his children failed to settle the amount of P32,000 to
the GSIS.
Issue: Whether or not petitioners are obliged to refund to the respondents.
Ruling: Generally, the rule is that to rescind a contract is not merely to terminate it, but
to abrogate and undo it from the beginning; that is, not merely to release the parties
from further obligations to each other in respect to the subject of the contract, but to
annul the contract and restore the parties to the relative positions which they would
have occupied if no such contract had ever been made. Rescission necessarily involves
a repudiation of the contract and a refusal of the moving party to be further bound by it.
With the rescission of the deed of sale, etc., the rights of Emilio Geli under the said
deed to redeem the property had been extinguished. The petitioners cannot even be
compelled to subrogate the respondents to their rights under the real estate mortgage
over the property which the petitioners executed in favor of the GSIS since the payment
of the P67,701.84 redemption price was made without the knowledge of the petitioners.
The respondents, however, are entitled to be reimbursed by the petitioners to the extent
that the latter were benefited.
SLU SOL 1-C Page
187
Gil v. CA, 411 S 18
PERLA PALMA GIL, VICENTE HIZON, JR., and ANGEL PALMA GIL, petitioners,
vs.
HON. COURT OF APPEALS, HEIRS OF EMILIO MATULAC, CONSTANCIO
MAGLANA, AGAPITO PACETES & The REGISTER OF DEEDS OF DAVAO CITY,
respondents.
G.R. No. 127206 September 12, 2003
Facts: Concepcion Palma Gil, and her sister, Nieves Palma Gil, married to Angel
Villarica, were the co-owners of a parcel of commercial land with an area of 829 square
meters, identified as Lot No. 59-C, covered by Transfer Certificate of Title (TCT) No. 432
located in Davao City. The spouses Angel and Nieves Villarica had constructed a two-
storey commercial building on the property. On October 13, 1953, Concepcion filed a
complaint against her sister Nieves with the then Court of First Instance of Davao City,
docketed as Civil Case No. 1160 for specific performance, to compel the defendant to
cede and deliver to her an undivided portion of the said property with an area of 256.2
square meters. After due proceedings, the court rendered judgment on April 7, 1954 in
favor of Concepcion, ordering the defendant to deliver to the plaintiff an undivided
portion of the said property with an area of 256.2 square meters. Nieves appealed to the
Court of Appeals which affirmed the assailed decision. In due course, the decision
became final and executory. On motion of the plaintiff (Concepcion), the court issued a
writ of execution. Nieves, however, refused to execute the requisite deed in favor of her
sister. On April 27, 1956, the court issued an order authorizing ex-officio Sheriff Eriberto
Unson to execute the requisite deed of transfer to the plaintiff over an undivided portion
of the property with a total area of 256.2 square meters. Instead of doing so, the sheriff
had the property subdivided into four lots namely, Lot 59-C-1, with an area of 218
square meters; Lot 59-C-2, with an area of 38 square meters; Lot 59-C-3, with an area
of 14 square meters; and Lot 59-C-4, with an area of 560 square meters, all covered by
a subdivision plan. The sheriff thereafter executed a Deed of Transfer to Concepcion
over Lot 59-C-1 and Lot 59-C-2 with a total area of 256.2 square meters.
Issue: Whether or not Pacetes, Maglana and Matulac are jointly and solidarily liable.
Ruling: The petitioners, as successors-in-interest of the vendor, are not the injured
parties entitled to a rescission of the deed of absolute sale. It was Concepcion's heirs,
including the petitioners, who were obliged to deliver to the vendee a certificate of title
over the property under the latters name, free from all liens and encumbrances within
120 days from the execution of the deed of absolute sale on October 24, 1956, but had
failed to comply with the obligation. The consignation by the vendee of the purchase
price of the property is sufficient to defeat the right of the petitioners to demand for a
rescission of the said deed of absolute sale.[45] It bears stressing that when the vendee
consigned part of the purchase price with the Court and secured title over the property
in her name, the heirs of Concepcion, including the petitioners, had not yet sent any
notarial demand for the rescission of the deed of absolute sale to the vendee, or filed
SLU SOL 1-C Page
188
any action for the rescission of the said deed with the appropriate court. Although the
vendee consigned with the Court only the amount of P11,983.00, P2,017.00 short of the
purchase price of P14,000.00, it cannot be claimed that Concepcion was an unpaid
seller because under the deed of sale, she was still obligated to transfer the property in
the name of the vendee, which she failed to do so.
SLU SOL 1-C Page
189
Reyes v. Lim, 408 S 560
DAVID REYES (Substituted by Victoria R. Fabella), petitioner,

vs.
JOSE LIM, CHUY CHENG KENG and HARRISON LUMBER, INC., respondents.
G.R. No. 134241 August 11, 2003
Facts: Petitioner David Reyes filed a complaint for annulment of contract and damages
against respondents. The complaint alleged that Reyes as seller and Lim as buyer
entered into a contract to sell a parcel of land located along F.B. Harrison Street, Pasay
City with a monthly rental of P35,000. The complaint claimed that Reyes had informed
Harrison Lumber to vacate the Property before the end of January 1995. Reyes also
informed Keng and Harrison Lumber that if they failed to vacate by 8 March 1995, he
would hold them liable for the penalty of P400, 000 a month as provided in the Contract
to Sell. It was also alleged that Lim connived with Harrison Lumber not to vacate the
Property until the P400, 000 monthly penalty would have accumulated and equaled the
unpaid purchase price of P18, 000,000. Keng and Harrison Lumber denied that they
connived with Lim to defraud Reyes, and that Reyes approved their request for an
extension of time to vacate the Property due to their difficulty in finding a new location
for their business. Harrison Lumber claimed that it had already started transferring some
of its merchandise to its new business location in Malabon. Lim filed his Answer stating
that he was ready and willing to pay the balance of the purchase price. Lim requested a
meeting with Reyes through the latters daughter on the signing of the Deed of Absolute
Sale and the payment of the balance but Reyes kept postponing their meeting. Reyes
offered to return the P10 million down payment to Lim because Reyes was having
problems in removing the lessee from the Property. Lim rejected Reyes offer and
proceeded to verify the status of Reyes title to the Property. Lim learned that Reyes had
already sold the Property to Line One Foods Corporation Lim denied conniving with
Keng and Harrison Lumber to defraud Reyes. Reyes filed a Motion for Leave to File
Amended Complaint due to supervening facts. These included the filing by Lim of a
complaint for estafa against Reyes as well as an action for specific performance and
nullification of sale and title plus damages before another trial court. The trial court
granted the motion. In his Amended Answer Lim prayed for the cancellation of the
Contract to Sell and for the issuance of a writ of preliminary attachment against Reyes.
The trial court denied the prayer for a writ of preliminary attachment. Lim requested in
open court that Reyes be ordered to deposit the P10 million down payment with the
cashier of the Regional Trial Court of Paraaque. The trial court granted this motion.
Reyes filed a Motion to Set Aside the Order on the ground the Order practically granted
the reliefs Lim prayed for in his Amended Answer. The trial court denied Reyes motion.
The trial court denied Reyes Motion for Reconsideration. In the same order, the trial
court directed Reyes to deposit the P10 million down payment with the Clerk of Court.
Reyes filed a Petition for Certiorari with the Court of Appeals and prayed that the orders
of the trial court be set aside for having been issued with grave abuse of discretion
amounting to lack of jurisdiction. But the Court of Appeals dismissed the petition for lack
of merit.
SLU SOL 1-C Page
190
Hence, this petition for review.
Issue: Whether or not the equity jurisdiction is an applicable law on the matter.
Ruling: The instant case, the Supreme Court held that if this was a case where there is
hiatus in the law and in the Rules of Court. If this case was left alone, the hiatus will
result in unjust enrichment to Reyes at the expense of Lim. Here the court exercised
equity jurisdiction. The purpose of the exercise of equity jurisdiction in this case is to
prevent unjust enrichment and to ensure restitution so that substantial justice may be
attained in cases where the prescribed or customary forms of ordinary law are
inadequate. The Supreme Court also state that rescission is possible only when the
person demanding rescission can return whatever he may be obliged to restore. A court
of equity will not rescind a contract unless there is restitution, that is, the parties are
restored to the status quo ante. In this case, it was just, equitable and proper for the trial
court to order the deposit of the P10 million down payment. The decision of the Court of
Appeals was affirmed.
SLU SOL 1-C Page

191
Ong v. Tiu, 1 February 2002
ONG YONG, JUANITA TAN ONG, WILSON T. ONG, ANNA L. ONG, WILLIAM T.
ONG, WILLIE T. ONG, And JULIE ONG ALONZO, petitioners,
vs.
DAVID S. TIU, CELY Y. TIU, MOLY YU GAW, BELEN SEE YU, D. TERENCE Y. TIU,
JOHN YU, LOURDES C. TIU, INTRALAND RESOURCES DEVELOPMENT CORP.,
MASAGANA TELAMART, INC., REGISTER OF DEEDS OF PASAY CITY, And the
SECURITIES AND EXCHANGE COMMISSION, respondents.
G.R. No. 144476 February 1, 2002
Facts: 1994: construction of the Masagana Citimall in Pasay City was threatened with
stoppage, when its owner, the First Landlink Asia Development Corporation (FLADC),
owned by the Tius, became heavily indebted to the Philippine National Bank (PNB) for
P190M. To save the 2 lots where the mall was being built from foreclosure, the Tius
invited Ong Yong, Juanita Tan Ong, Wilson T. Ong, Anna L. Ong, William T. Ong and
Julia Ong Alonzo (the Ongs), to invest in FLADC.
Pre-Subscription Agreement: Ongs and the Tius agreed to maintain equal shareholdings
in FLADC. Ongs: subscribe to 1,000,000 shares. Tius: subscribe to an additional
549,800 shares in addition to their already existing subscription of 450,200 shares. Tius:
nominate the Vice-President and the Treasurer plus 5 directors. Ongs nominate the
President, the Secretary and 6 directors (including the chairman) to the board of
directors of FLADC and right to manage and operate the mall. Tius: contribute to
FLADC a 4-storey building P20M (for 200K shares)and 2 parcels of land P30M (for
300K shares) and P49.8M (for 49,800 shares). Ongs: paid P190M to settle the
mortgage indebtedness of FLADC to PNB (P100M in cash for their subscription to 1M
shares). February 23, 1996: Tius rescinded the Pre-Subscription Agreement. February
27, 1996: Tius filed at the Securities and Exchange Commission (SEC) seeking
confirmation of their rescission of the Pre-Subscription Agreement.
SEC: confirmed recission of Tius. Ongs filed reconsideration that their P70M was not a
premium on capital stock but an advance loan. SEC en banc: affirmed it was a premium
on capital stock.
CA: Ongs and the Tius were in pari delicto (which would not have legally entitled them
to rescission) but, "for practical considerations," that is, their inability to work together, it
was best to separate the two groups by rescinding the Pre-Subscription Agreement,
returning the original investment of the Ongs and awarding practically everything else to
the Tius.
Issue: Whether or not specific performance and not rescission is the remedy.
Ruling: Yes. Ongs granted. Did not justify the rescission of the contract providing
appropriate offices for David S. Tiu and Cely Y. Tiu as Vice-President and Treasurer,
SLU SOL 1-C Page
192
respectively, had no bearing on their obligations under the Pre-Subscription Agreement
since the obligation pertained to FLADC itself failure of the Ongs to credit shares of
stock in favor of the Tius for their property contributions also pertained to the corporation
and not to the Ongs the principal objective of both parties in entering into the Pre-
Subscription Agreement in 1994 was to raise the P190 million law requires that the
breach of contract should be so "substantial or fundamental" as to defeat the primary
objective of the parties in making the agreement since the cash and other contributions
now sought to be returned already belong to FLADC, an innocent third party, said
remedy may no longer be availed of under the law. Any contract for the acquisition of
unissued stock in an existing corporation or a corporation still to be formed shall be
deemed a subscription within the meaning of this Title, notwithstanding the fact that the
parties refer to it as a purchase or some other contract allows the distribution of
corporate capital only in three instances: (1) amendment of the Articles of Incorporation
to reduce the authorized capital stock, (2) purchase of redeemable shares by the
corporation, regardless of the existence of unrestricted retained earnings and (3)
dissolution and eventual liquidation of the corporation. They want this Court to make a
corporate decision for FLADC. The Ongs' shortcomings were far from serious and
certainly less than substantial; they were in fact remediable and correctable under the
law. It would be totally against all rules of justice, fairness and equity to deprive the
Ongs of their interests on petty and tenuous grounds.
SLU SOL 1-C Page
193
EQUATORIAL REALTY DEVELOPMENT, INC. & CARMELO & BAUERMANN, INC.,

petitioners,
vs.
MAYFAIR THEATER, INC., respondent.
G.R. No. 106063 November 21, 1996
Facts: Carmelo & Bauermann, Inc. used to own a parcel of land, together with two two-
storey buildings constructed thereon. On June 1, 1967, Carmelo entered into a lease
with Mayfair Theater, Inc. for a period of 20 years. The lease covered a portion of the
second floor and mezzanine. Two years later, Mayfair entered into a second lease with
Carmelo for the lease of another property, a part of the second floor and two spaces on
the ground floor. The lease was also for a period of twenty years. Both leases contained
a provision granting Mayfair a right of first refusal to purchase the said properties.
However, on July 30, 1978, within the 20-year-lease term, the subject properties were
sold by Carmelo to Equatorial Realty Development, Inc. for the sum of P11.3M without
their first being offered to Mayfair. As a result, Mayfair filed a complaint for specific
performance and damages. After trial, the court ruled in favor of Equatorial. On appeal,
the Court of Appeals reversed and set aside the judgment of the lower court. On
November 21, 1996, the Supreme Court denied Equatorials petition for review and
declared the contract between Carmelo and Equatorial rescinded. The decision became
final and executory. On September 18, 1997, Equatorial filed an action for the collection
of sum of money against Mayfair claiming payment of rentals or reasonable
compensation for the defendants use of the premises after its lease contracts had
expired. The lower court debunked the claim of the petitioner for unpaid rentals, holding
that the rescission of the Deed of Absolute Sale in the mother case did not confer on
Equatorial any vested or residual proprietary rights, even in expectancy.
Issue: Whether or not Equatorial may collect rentals or reasonable compensation for
Mayfairs use of subject premises after its lease contracts had expired.
Ruling: The court ruled that equatorial did not obtain right of ownership over the
property when it entered into the Deed of Absolute Sale. Ownership of the property is
acquired by buyer only upon the delivery of the thing to him. There is delivery if the thing
sold is placed in the control and possession of the vendee. While the execution of a
public instrument of sale is recognized by law as the equivalent of delivery of the thing
sold, such constructive or symbolic delivery, being only presumptive, is deemed
negated by the failure of the vendee to take actual possession of the property sold.
Since Mayfair was in actual possession of the property by virtue of the lease contract
with Carmelo, there was no consummation of the sale, and therefore, Equatorial did not
get ownership right (real right). Further, the Deed of Absolute Sale entered into by
Carmelo and Equatorial was a violation of the right of first refusal granted by Carmelo to
Mayfair. The execution of the deed of absolute sale as a form of constructive delivery is
a legal fiction. It holds true only if there is no legal impediment that may prevent the
SLU SOL 1-C Page
194
passing of the property from the vendor to the vendee. The right of first refusal by
Mayfair was such legal impediment. Therefore, there was no transfer of ownership from
Camelot to Equatorial. As a result, no rental can be collected by equatorial from Mayfair.
SLU SOL 1-C Page
195
Velarde v. CA, 361 S 56
SPOUSES MARIANO Z. VELARDE and AVELINA D. VELARDE, petitioners,

vs.
COURT OF APPEALS, DAVID A. RAYMUNDO and GEORGE RAYMUNDO,
respondents.
G.R. No. 108346 July 11, 2001
Facts: On August 8, 1986, a Deed of Sale with Assumption of Mortgage was executed
by defendant David Raymundo, as vendor, in favor of plaintiffs Avelina and Mariano
Velarde (herein petitioners) over a house and lot located at Kamias St., Dasmarias
Village, Makati.
Among the terms and conditions of the said contract was the assumption of the
payment of the mortgage obligations on the said property in the amount of Php 1, 800,
000 in favor of the Bank of the Philippine Islands, Makati, Metro Manila. In this
connection, the parties agreed that plaintiffs were to apply an assumption of mortgage
before the said bank and while pending on BPIs approval of the application, plaintiffs
were to continue paying the monthly interests of the loan secured by a real estate
mortgage.
Pursuant to the said agreements, plaintiffs paid BPI the monthly interest for three (3)
months until the Bank disapproved their Application for Assumption of Mortgage on
December 15, 1986. This prompted plaintiffs not to make any further payment.
On January 5, 1985, defendants, thru counsel, wrote plaintiffs informing them that their
non-payment to the mortgage bank constituted non-performance of their obligation.
In response, counsel for plaintiffs wrote defendants informing them the willingness of
plaintiffs to pay the balance only with three (3) conditions specified therein.
On January 8, 1987, defendants sent plaintiffs a notarial notice of

cancellation/rescission of the intended sale due to the latters failure to comply with the
terms and conditions of the agreed contract.
Consequently, petitioners filed a complaint against respondents for specific

performance, nullity of cancellation, writ for possession and damages. The RTC of
Makati, Branch 149, thru then judge Yares-Santiago, dismissed the complaint. A
Motion for Reconsideration was, however, granted by the same court thru another
judge.
On appeal, the Court of Appeals reinstated the decision of Yares-Santiago.
Issue: Whether or not the rescission is proper.

SLU SOL 1-C Page
196
Ruling: The court ruled that the right of rescission of a party to an obligation under
Article 1191 of the Civil Code is predicated on breach by the other party who violates
the reciprocity between them. The breach contemplated in the said provision is the
obligors failure to comply with an existing obligation. When the obligor cannot comply
with what is incumbent upon it, the obligee may seek rescission and, in the absence of
any just cause for the court to determine the period of compliance, the court shall
decree the rescission.
In the present case, private respondents validly exercised their right to rescind the
contract, because of the failure of petitioners to comply with their obligation to pay the
balance of the purchase price. Indubitably, the latter violated the very essence of
reciprocity in the contract of sale, a violation that consequently gave rise to private
respondents' right to rescind the same in accordance with law.
True, petitioners expressed their willingness to pay the balance of the purchase price
one month after it became due; however, this was not equivalent to actual payment as
would constitute a faithful compliance of their reciprocal obligation.
In the instant case, the breach committed did not merely consist of a slight delay in
payment or an irregularity; such breach would not normally defeat the intention of the
parties to the contract. Here, petitioners not only failed to pay the P1.8 million balance,
but they also imposed upon private respondents new obligations as preconditions to the
performance of their own obligation. In effect, the qualified offer to pay was a
repudiation of an existing obligation, which was legally due and demandable under the
contract of sale.
SLU SOL 1-C Page
197
Asuncion v. Evangelista, 13 October 1999
ALEXANDER G. ASUNCION, petitioner,

vs.
EDUARDO B. EVANGELISTA and COURT OF APPEALS, respondents.
G.R. No. 133491 October 13, 1999
Facts: Private respondent Evangelista was the majority stockholder of the Embassy
Farm, Inc., with 90% of the shares in his name. In 1980, 1981, and 1982, private
respondent obtained three personal loans in three different banks to provide himself
working capital to run the farm and sustain its operations. His debt exposure totaled
P3,056, 625.78. By June 24, 1984, private respondents aggregate debt had ballooned
to almost P6,000,000 in overdue principal payments, interests, penalties and other
financial charges. On August 2, 1984, petitioner Asuncion and private respondent
executed a Memorandum of Agreement. Among the terms and conditions contained in
the agreement was the stipulation that petitioner has purchased private respondents
landholdings and shares of stock in Embassy Farms, Inc. for the price equivalent to
private respondents total outstanding loans which petitioner shall assume. For his part,
private respondent was obligated to execute, sign and deliver any and all documents
necessary for the transfer and conveyance of several parcels of land he owned and to
cede, transfer and convey in a manner absolute and irrevocable any and all of his
shares of stocks in the said corporation. As of August, 1985, the total amount paid by
petitioner to private respondent was P3,194,941.88. However, the landholdings over the
subject parcels of land and the shares of stock in the corporation remained is still in the
name of private respondent. Petitioner demanded for the performance of obligation but
private respondent resisted.
Issue: Whether or not rescission is a valid legal recourse in the case at bar.
Ruling: The court ruled that Article 1191 of the Civil Code governs the situation where
there is non-compliance by one party in case of reciprocal obligations. The Supreme
Court found that private respondent failed to perform his substantial obligations under
the MOA. Hence, petitioner sought the rescission of the agreement and ceased infusing
capital into the piggery business of private respondent. He later justified his refusal to
execute any deed of sale and deliver the certificates of stock by accusing petitioner of
having failed to assume his debts. The Court holds that the respondents insistence that
petitioner execute a formal assumption of mortgage independent and separate from his
own execution of a deed of cases is legally untenable, considering that a recorded real
estate mortgage is a lien inseparable from the property mortgaged and until discharged,
it follows the property. In fine, that the MOA entered into by petitioner and private
respondent should indeed be rescinded. The respondent appellate court erred in
assessing damages against petitioner for his refusal to fully pay private respondents
overdue loans. Such refusal was justified, considering that private respondent was the
first to refuse to deliver to petitioner the lands and certificates of stock that were the
consideration for the almost P6M in debt that petitioner was to assume and pay. The
SLU SOL 1-C Page
198
instant petition was granted. Decisions of the lower and appellate courts were reversed
and set aside. The MOA entered into by the parties is declared rescinded.
SLU SOL 1-C Page
199
WILLIAM UY and RODEL ROXAS, petitioners,

vs.
COURT OF APPEALS, HON. ROBERT BALAO and NATIONAL HOUSING
AUTHORITY, respondents.
G.R. No. 120465 September 9, 1999
Facts: William Uy and Rodel Roxas were agents authorized to sell 8 parcels of land. By
virtue of such authority, they offered to sell the lands to the National Housing Authority
(NHA) to be developed as a housing project.
In February 1989, NHA approved the acquisition of the parcels at P23.9M. The parties
executed a series of deeds of absolute sale covering the subject lands. Of the 8 parcels
of lands, however, only 5 were paid for by the NHA because of the report it received
from the Land Geosciences Bureau that the remaining area is located at an active
landslide area and not suitable for development into a housing project.
NHA cancelled the sale over the remaining 3 parcels of land. Uy and Roxas filed a
complaint for damages. The RTC rendered the cancellation of contract to be justified but
nonetheless awarded P1.3M as damages in favor of Uy and Roxas. Upon their appeal,
the CA entered a new decision dismissing the complaint and so no reason for the award
of damages.
Issue: Whether or not there was legal basis for NHA to "rescind" the sale of the 3
parcels of land.
Ruling: The cancellation was not a rescission under Art. 1191. Rather, the cancellation
was based on the negation of the cause arising from the realization that the lands were
not suitable for housing.
Cause is the essential reason which moves the contracting parties to enter into it. It
should be distinguished from motive, which is the particular reason of a contracting
party which does not affect the other party. In this case, NHA would not have entered
into the contract were the lands not suitable for housing. In other words, the quality of
the land was an implied condition for the NHA to enter into the contract. On the part of
the NHA, the motive was the cause for its being a party to the sale.
The SC held that NHA was justified in canceling the contract. The realization of the
mistake as regards the quality of the land resulted in the negation of the motive/cause
thus rendering the contract inexistent.
SLU SOL 1-C Page
200
Damages: Kinds
Tamayo, et al. v. Abad Seora, 15 November 2010 on loss of earning
capacity
CONSTANCIA G. TAMAYO, JOCELYN G. TAMAYO, and ARAMIS G. TAMAYO,

collectively known as HEIRS OF CIRILO TAMAYO, petitioners,
vs.
ROSALIA ABAD SEORA, ROAN ABAD SEORA, and JANETE ABAD SEORA,
respondents.
G.R. No. 176946 November 15, 2010
Facts: On September 28, 1995, Antonieto M. Seora (Seora), then 43 years old and a
police chief inspector of the Philippine National Police, was riding a motorcycle and
crossing the intersection when a tricycle allegedly bumped his motorcycle from behind.
As a result, the motorcycle was pushed into the path of an Isuzu Elf Van (delivery van),
which was cruising along Sucat Road and heading towards South Superhighway. The
delivery van ran over Seora, while his motorcycle was thrown a few meters away. He
was pronounced dead on arrival. The tricycle was driven by Leovino F. Amparo
(Amparo), who testified that it was the delivery van that bumped Seoras motorcycle.
The delivery van, on the other hand, was driven by Elmer O. Polloso (Polloso) and
registered in the name of Cirilo Tamayo (Cirilo). Constancia, testified on his husbands
behalf and claimed that, as employer, her husband exercised the due diligence of a
good father of a family in the selection, hiring, and supervision of his employees,
including driver Polloso. Cirilo would tell their drivers not to drive fast and not to be too
strict with customers. One of Cirilos employees, Nora Pascual (Pascual) further testified
that Polloso was a careful driver who drove the truck slowly and followed traffic rules.
She also said that Cirilo called for a meeting before the delivery trucks left and told his
drivers to be careful in their driving and to be courteous to their customers. Leovino F.
Amparo, Elmer O. Polloso and Cirilo Tamayo are found liable jointly and severally to
plaintiffs and the court ordered them to indemnify the victim heirs.
Issue: Whether or not lost of earning capacity of the victim should be included as part of
civil indemnification.
Ruling: Yes. The court ruled that the award of damages for loss of earning capacity is
concerned with the determination of losses or damages sustained by respondents, as
dependents and intestate heirs of the deceased. This consists not of the full amount of
his earnings, but of the support which they received or would have received from him
had he not died as a consequence of the negligent act. Thus, the amount recoverable is
not the loss of the victims entire earnings, but rather the loss of that portion of the
earnings which the beneficiary would have received. The victims heirs presented in
evidence Seoras pay slip from the PNP, showing him to have had a gross monthly
salary of P12,754.00. Meanwhile, the victims net income was correctly pegged at 50%
of his gross income in the absence of proof as regards the victims living expenses.
SLU SOL 1-C Page
201
Deceaseds net earning capacity should be computed in this method. The formula is:
Net earning capacity = life expectancy x gross annual income less living expenses with
life expectancy computed as 3/4 2/3 x (80 - age of deceased) and living expenses fixed
at half of the victims gross income.
Thus, Seoras net earning capacity was computed to be P1,887,847.00.

SLU SOL 1-C Page
202
Tan v. OMC Carriers, 12 January 2011
LETICIA TAN, MYRNA MEDINA, MARILOU SPOONER, ROSALINDA TAN, and

MARY JANE TAN, MARY LYN TAN, CELEDONIO TAN, JR., MARY JOY TAN, and
MARK ALLAN TAN, represented herein by their mother, LETICIA TAN, petitioners,
vs.
OMC CARRIERS, INC. and BONIFACIO ARAMBALA, respondents.
G.R. No. 190521 January 12, 2011
Facts: On September 27, 1996, the petitioners filed a complaint for damages with the
RTC against OMC and Bonifacio Arambala. The complaint states that on November 24,
1995, at around 6:15 a.m., Arambala was driving a truck with a trailer owned by OMC,
along Meralco Road, Sucat, Muntinlupa City. When Arambala noticed that the truck had
suddenly lost its brakes, he told his companion to jump out. Soon thereafter, he also
jumped out and abandoned the truck. Driverless, the truck rammed into the house and
tailoring shop owned by petitioner Leticia Tan and her husband Celedonio Tan, instantly
killing Celedonio who was standing at the doorway of the house at the time. The
petitioners alleged that the collision occurred due to OMCs gross negligence in not
properly maintaining the truck, and to Arambalas recklessness when he abandoned the
moving truck. Thus, they claimed that the respondents should be held jointly and
severally liable for the actual damages that they suffered, which include the damage to
their properties, the funeral expenses they incurred for Celedonio Tans burial, as well
as the loss of his earning capacity. The petitioners also asked for moral and exemplary
damages, and attorneys fees. The respondents denied any liability for the collision,
essentially claiming that the damage to the petitioners was caused by a fortuitous event,
since the truck skidded due to the slippery condition of the road caused by spilled motor
oil.
Issue: Whether or not damages can be justly awarded in this case.
Ruling: Yes. As both the RTC and the CA found that the respondents gross negligence
led to the death of Celedonio Tan, as well as to the destruction of the petitioners home
and tailoring shop, we see no reason to disturb this factual finding. We, thus,
concentrate on the sole issue of what damages the petitioners are entitled to.
Respondents OMC Carriers, Inc. and Bonifacio Arambala are ordered to jointly and
severally pay the petitioners the following:
(1) P50,000.00 as indemnity for the death of Celedonio Tan;
(2) P72,295.00 as actual damages for funeral expenses;
(3) P200,000.00 as temperate damages for the damage done to petitioner
Leticias house, tailoring shop, household appliances and shop equipment;
(4) P300,000.00 as damages for the loss of Celedonio Tans earning capacity;
(5) P500,000.00 as moral damages;
(6) P200,000.00 as exemplary damages; and
(7) 10% of the total amount as attorneys fees; and costs of suit.
SLU SOL 1-C Page
203
In addition, the total amount adjudged shall earn interest at the rate of 6% per annum
from May 14, 2003, and at the rate of 12% per annum, from the finality of this
Resolution on the balance and interest due, until fully paid.
Death of person would automatically entitle heirs of decedent actual damages. The
funeral expense also is fully proven. The temperate damages are also awarded
because actual cost of damages on properties and the exact earning capacity of the
decedent cannot be determined. Exemplary damages also was awarded base on the
nature of offense to avoid repetition. Attorneys fee is also proper in this case.
Accordingly, legal interest at the rate of 6% per annum on the amounts awarded starts
to run from May 14, 2003, when the trial court rendered judgment. From the time this
judgment becomes final and executory, the interest rate shall be 12% per annum on the
judgment amount and the interest earned up to that date, until the judgment is wholly
satisfied.
SLU SOL 1-C Page
204
Victory Liner v. Heirs, 394 S 341
VICTORY LINER, INC., petitioner,

vs.
HEIRS OF ANDRES MALECDAN, respondents.
G. R. No. 154278 December 27, 2002
Facts: Andres, a 75 year old farmer, was crossing the national highway. As he was
crossing, a bus of Victory Liner, driven by Ricardo C. Joson, Jr., hit him and the carabao
he was riding on which caused Andres death. The heirs of Andres brought a suit for
damages in the RTC which held that the driver is guilty of gross negligence in the
operation of his vehicle and Victory Liner, Inc. also guilty of gross negligence in the
selection and supervision of Joson, Jr. In which the CA affirmed.
Issue: Whether or not Victory Liner has exercised diligence of a good father of a family
in selecting and supervising its employees for them not to be liable for the act
committed by Joson.
Ruling: Victory Liner was not able to prove that they exercised diligence of a good
father in selecting and supervising its employees. Although it has shown that they
require certain requirements before they hire, they were not able to prove that Joson
has more than 9 years of experience in driving. They were also not able to prove that
Joson has attended any of the said seminars they required and the records of the speed
meters, tickets and of the field inspectors were not shown which shows that Victory
Liner was negligent in supervising Joson. Hence, Victory liner is vicariously liable under
Art. 2180 of the CC.
SLU SOL 1-C Page
205
GSIS v. Labung-Deang, 365 S 341
GOVERNMENT SERVICE INSURANCE SYSTEM, petitioner,

vs.
SPOUSES GONZALO and MATILDE LABUNG-DEANG, respondents.
G.R. No. 135644 September 17, 2001
Facts: Sometime in December 1969, the spouses Deang obtained a housing loan from
the GSIS in the amount of eight thousand five hundred pesos (Php 8,500.00). Under the
agreement, the loan, which was secured by a real estate mortgage constituted over the
spouses property, was to mature on December 23, 1979. As required by the mortgage
deed, the spouses Deang deposited the owners duplicate copy of the title with the
GSIS.
On January 19, 1979, eleven (11) months before the maturity of the loan, the spouses
Deang settled their debt with the GSIS and requested for the release of the owners
duplicate copy of the title since they intended to secure a loan from a private lender and
use the land covered by it as collateral security for the loan of fifty thousand pesos (Php
50,000.00) which they applied for with one Milagros Runes. They would use the
proceeds of the loan applied for the renovation of the spouses residential house and for
business. However, personnel of the GSIS were not able to release the owners
duplicate of the title as it could not be found despite diligent search.
On July 6, 1979, the spouses Deang filed with the Court of First Instance, Angeles City
a complaint against GSIS for damages, claiming that as result of the delay in releasing
the duplicate copy of the owners title, they were unable to secure a loan from Milagros
Runes, the proceeds of which could have been used in defraying the estimated cost of
the renovation of their residential house and which could have been invested in some
profitable business undertaking.
The trial court rendered decision in favor of the spouses Labung-Deang. The Court of
Appeals also affirmed the decision of the lower court thus the petition.
Issue: Whether or not GSIS is liable for damages.
Ruling: The court ruled that under the facts, there was a pre-existing contract between
the parties. GSIS and the spouses Deang had a loan agreement secured by a real
estate mortgage. The duty to return the owners duplicate copy of title arose as soon as
the mortgage was released.
Negligence is obvious as the owners duplicate copy could not be returned to the
owners. Thus, GSIS is liable for damages.
SLU SOL 1-C Page
206
First, in a breach of contract, moral damages are not awarded if the defendant is not
shown to have acted fraudulently or with malice or bad faith. The fact that the
complainant suffered economic hardship or worries and mental anxiety is not enough.
Second, actual damages cannot be awarded as there is no factual basis for such
award. Actual damages to be compensable must be proven by clear evidence. A court
cannot rely on speculation, conjecture or guess work as to the fact and amount of
damages, but must depend on actual proof.
On the other hand, it is also apparent that the spouses Deang suffered financial
damage because of the loss of the owners duplicate copy of the title. Temperate
damages may be granted on the amount of P20, 000.00 as a reasonable amount
considering that GSIS spent for the reconstitution of the owners duplicate copy of the
title.
The petition was denied.

SLU SOL 1-C Page
207
BPI Investment v. D.G. Carreon, 371 S 58
BPI INVESTMENT CORPORATION, petitioner,

vs.
D.G. CARREON COMMERCIAL CORPORATION, DANIEL G. CARREON, AURORA
J. CARREON, AND JOSEFA M. JECIEL, respondents.
G.R. No. 126524 November 29, 2001
Facts: Petitioner BPI Investment Corp. (BPI), formerly known as Ayala Investment and
Development Corp, was engaged in money market operations. Respondent D. G.
Commercial Corp. was a client of petitioner. The individual respondents, spouses Daniel
and Aurora Carreon and Josefa Jaceil also placed with BPI their personal money in
money market placements. On April 21, 1982, petitioner wrote respondents Daniel
Carreon, demanding the return of an alleged overpayment amounting to P410, 937.09.
The respondents, however, asserted that there was no overpayment and asked for time
to go over the documents and papers. Upon the request of petitioners, the spouses
Daniel and Aurora Carreon sent to BPI a proposed memorandum of agreement dated
May 7, 1982. The agreement provided that respondent company, in the spirit of
goodwill, agreed to temporarily reimburse BPI the amount of P410, 937.09 while the
said controversy (transactions of the placement) would be checked within the period of
five years. On May 10, 1982, petitioners without responding to the memorandum and
proposal of the respondent company filed with the Court of First Instance of Rizal, a
complaint for recovery of a sum of money against respondent D. G. Carreon with
preliminary attachment. On May 14, 1982, the trial court Issued an order of attachment
and posting a bond in the amount of P200, 000. However, on October 8, 1982, the trial
court lifted the writ of attachment. Petitioner moved for reconsideration but was denied.
Issue: Whether or not respondents are entitled to damages as awarded by the

respondent court.
Ruling: The Court finds petitioners not guilty of gross negligence. Exemplary damages,
therefore, cannot be awarded to respondents. Petitioner BPI did not act in wanton,
fraudulent, reckless, oppressive, or malevolent manner when it asked for preliminary
attachment. It was just exercising a legal option. The sheriff of the issuing court did the
execution and the attachment. Hence, BPI is not to be blamed for the excessive and
wrongful attachment. As to the filing of the appellate court that the filing of the case was
aggravated and eventually caused the death of two of the respondents, the Court
agrees with the petitioner that such correlation is bereft of basis and is farfetched. The
award of moral damages and attorneys fees is also not in keeping with existing
jurisprudence. Moral damages may be awarded in a breach of contract when the
defendant acted in bad faith, or was guilty of gross negligence amounting to bad faith,
or in wanton disregard of his contractual obligation. Finally, with the elimination of award
of moral damages, so must the award of attorneys fees be deleted. There is no doubt,
however, that the damages sustained by respondents were due to petitioners fault or
negligence, short of gross negligence. Temperate or moderate damages may be
SLU SOL 1-C Page

208
recovered when the court finds that some pecuniary loss has been suffered but its
amount cannot, from the nature of the case, be proved with certainty. The Court deems
it prudent to award reasonable temperate damage to respondents under the
circumstances.
SLU SOL 1-C Page
209
Art. 1177 in relation to Art. 1380-1389, Accion Pauliana
KHE HONG CHENG, alias FELIX KHE, SANDRA JOY KHE and RAY STEVEN KHE,
petitioners,
vs.
COURT OF APPEALS, HON. TEOFILO GUADIZ, RTC 147, MAKATI CITY and
PHILAM INSURANCE CO., INC., respondents.
G.R. No. 144169 March 28, 2001
Facts: Petitioner Khe Hong Cheng, alias Felix Khe, is the owner of Butuan Shipping
Lines. It appears that on or about October 4, 1985, the Philippine Agricultural Trading
Corporation shipped on board the vessel M/V PRINCE ERIC, owned by petitioner Khe
Hong Cheng, 3,400 bags of copra at Masbate, Masbate, for delivery to Dipolog City,
Zamboanga del Norte. The said shipment of copra was covered by a marine insurance
policy issued by American Home Insurance Company (respondent Philam's assured).
M/V PRINCE ERlC, however, sank somewhere between Negros Island and
Northeastern Mindanao, resulting in the total loss of the shipment. Because of the loss,
the insurer, American Home, paid the amount of P354,000.00 to the consignee.
American Home instituted Civil Case No. 13357 in the RTC of Makati, to recover the
money paid to the consignee, based on breach of contract of carriage. While the case
was still pending, petitioner Khe Hong Cheng executed deeds of donations of parcels of
land in favor of his children. The trial court rendered judgment against petitioner Khe
Hong Cheng.
Issue: Whether or not the prescriptive period to file for an action for rescission of the
subject deeds of donation had prescribed.
Ruling: An accion pauliana thus presupposes the following: 1) A judgment; 2) the

issuance by the trial court of a writ of execution for the satisfaction of the judgment, and
3) the failure of the sheriff to enforce and satisfy the judgment of the court. It requires
that the creditor has exhausted the property of the debtor: The date of the decision of
the trial court is immaterial. What is important is that the credit of the plaintiff antedates
that of the fraudulent alienation by the debtor of his property. After all, the decision of the
trial court against the debtor will retroact to the time when the debtor became indebted
to the creditor. Respondent Philam only learned about the unlawful conveyances made
by petitioner Khe Hong Cheng in January 1997 when its counsel accompanied the
sheriff to Butuan City to attach the properties of petitioner Khe Hong Cheng. There they
found that he no longer had any properties in his name. It was only then that respondent
Philam's action for rescission of the deeds of donation accrued because then it could be
said that respondent Philam had exhausted all legal means to satisfy the trial court's
judgment in its favor. Since respondent Philam filed its complaint for accion pauliana
against petitioners on February 25, 1997, barely a month from its discovery that
petitioner Khe Hong Cheng had no other property to satisfy the judgment
SLU SOL 1-C Page
210
award against him, its action for rescission of the subject deeds clearly had not yet
prescribed.
SLU SOL 1-C Page
211
Art. 1174 in relation to Art. 1165, Fortuitous Event/Caso
Fortuito
Requisites
Philippine Realty v. Ley Const. and Dev. Corp., 13 June 2011
PHILIPPINE REALTY AND HOLDINGS CORPORATION, petitioner,

vs.
LEY CONSTRUCTION AND DEVELOPMENT CORPORATION, respondent.
G.R. No. 165548 June 13, 2011
LEY CONSTRUCTION AND DEVELOPMENT CORPORATION, petitioner,

vs.
PHILIPPINE REALTY AND HOLDINGS CORPORATION, respondent.
G.R. No. 167879
Facts: Ley Construction and Development Corporation (LCDC) was the project
contractor for the construction of several buildings for Philippine Realty & Holdings
Corporation (PRHC), the project owner. Engineer Dennis Abcede (Abcede) was the
project construction manager of PRHC, while Joselito Santos (Santos) was its general
manager and vice-president for operations. Sometime between April 1988 and October
1989, the two corporations entered into four major construction projects, as evidenced
by four duly notarized construction agreements. LCDC committed itself to the
construction of the buildings needed by PRHC, which in turn committed itself to pay the
contract price agreed upon. These were the four construction projects the parties
entered into involving a Project 1, Project 2, Project 3 (all of which involve the Alexandra
buildings) and a Tektite Building. Both parties agreed that their foremost objective
should be to ensure that the Tektite Building project would be completed. To achieve this
goal, they entered into another agreement. Abcede asked LCDC to advance the amount
necessary to complete construction. Its president acceded, on the absolute condition
that it be allowed to escalate the contract price. It wanted PRHC to allow the escalation
and to disregard the prohibition contained in Article VII of the agreements. Abcede
replied that he would take this matter up with the board of directors of PRHC. The board
of directors turned down the request for an escalation agreement. Neither PRHC nor
Abcede gave notice to LCDC of the alleged denial of the proposal. However, on 9
August 1991 Abcede sent a formal letter to LCDC, asking for its conformity, to the effect
that should it infuse P36 million into the project, a contract price escalation for the same
amount would be granted in its favor by PRHC. In a letter dated 18 January 1993,
LCDC, through counsel, demanded payment of the agreed escalation price of P 36
million. In its reply on 16 February 1993, PRHC suddenly denied any liability for the
escalation price. In the same letter, it claimed that LCDC had incurred 111 days of delay
in the construction of the Tektite Building and demanded that the latter pay P
39,326,817.15 as liquidated damages. This claim was set forth in PRHCs earlier 7
December 1992 letter.
SLU SOL 1-C Page
212
Issue: Whether or not LCDC was delayed in the performance of its obligation to
construct the buildings for PRHC and, corollary thereto, whether or not the latter is
entitled to liquidated damages for this supposed delay in the construction of the Tektite
Building and Projects 1 and 2.
Ruling: There is no question that LCDC was not able to fully construct the Tektite
Building and Projects 1, 2, and 3 on time. It reasons that it should not be made liable for
liquidated damages, because its rightful and reasonable requests for time extension
were denied by PRHC. It is important to note that PRHC does not question the veracity
of the factual representations of LCDC to justify the latters requests for extension of
time. It insists, however, that in any event LCDC agreed to the limits of the time
extensions it granted.
SLU SOL 1-C Page

213
Megaworld Globus Asia, Inc. v. Tanseco, 9 October 2009
MEGAWORLD GLOBUS ASIA, INC., petitioner,

vs.
MILA S. TANSECO, respondent.
G.R. No. 181206 October 9, 2009
Facts: On July 7, 1995, petitioner Megaworld Globus Asia, Inc. (Megaworld) and
respondent Mila S. Tanseco (Tanseco) entered into a Contract to Buy and Sell, a 224
square-meter (more or less) condominium unit at a pre-selling project, The Salcedo
Park, located along Senator Gil Puyat Avenue, Makati City. The purchase price was
P16,802,037.32, to be paid as follows: (1) 30% less the reservation fee of P100,000, or
P4,940,611.19, by postdated check payable on July 14, 1995; (2) P9,241,120.50
through 30 equal monthly installments of P308,037.35 from August 14, 1995 to January
14, 1998; and (3) the balance of P2,520,305.63 on October 31, 1998, the stipulated
delivery date of the unit;provided that if the construction is completed earlier, Tanseco
would pay the balance within seven days from receipt of a notice of turnover. Tanseco
paid all installments due up to January, 1998, leaving unpaid the balance of
P2,520,305.63 pending delivery of the unit. Megaworld, however, failed to deliver the
unit within the stipulated period on October 31, 1998 or April 30, 1999, the last day of
the six-month grace period.
A few days shy of three years later, Megaworld, by notice dated April 23, 2002 (notice of
turnover), informed Tanseco that the unit was ready for inspection preparatory to
delivery. Tanseco replied through counsel, by letter of May 6, 2002, that in view of
Megaworlds failure to deliver the unit on time, she was demanding the return of
P14,281,731.70 representing the total installment payment she had made, with interest
at 12% per annum from April 30, 1999, the expiration of the six-month grace period.
Tanseco pointed out that none of the excepted causes of delay existed.
Her demand having been unheeded, Tanseco filed on June 5, 2002 with the Housing
and Land Use Regulatory Boards (HLURB) Expanded National Capital Region Field
Office a complaint against Megaworld for rescission of contract, refund of payment, and
damages.
In its Answer, Megaworld attributed the delay to the 1997 Asian financial crisis which
was beyond its control; and argued that default had not set in, Tanseco not having made
any judicial or extrajudicial demand for delivery before receipt of the notice of turnover.
Issue: Whether or not refund of payment and award of damages are necessary.
Ruling: It held that under Article 1169 of the Civil Code, no judicial or extrajudicial
demand is needed to put the obligor in default if the contract, as in the herein parties
contract, states the date when the obligation should be performed; that time was of the
SLU SOL 1-C Page

214
essence because Tanseco relied on Megaworlds promise of timely delivery when she
agreed to part with her money; that the delay should be reckoned from October 31,
1998, there being no force majeure to warrant the application of the April 30, 1999
alternative date; and that specific performance could not be ordered in lieu of rescission
as the right to choose the remedy belongs to the aggrieved party.
The Court cannot generalize the 1997 Asian financial crisis to be unforeseeable and
beyond the control of a business corporation. A real estate enterprise engaged in the
pre-selling of condominium units is concededly a master in projections on commodities
and currency movements, as well as business risks. The fluctuating movement of the
Philippine peso in the foreign exchange market is an everyday occurrence, hence, not
an instance of caso fortuito. Megaworld's excuse for its delay does not thus lie. As for
Megaworld's argument that Tanseco's claim is considered barred by laches on account
of her belated demand, it does not lie too. Laches is a creation of equity and its
application is controlled by equitable considerations. It bears noting that Tanseco
religiously paid all the installments due up to January, 1998, whereas Megaworld
reneged on its obligation to deliver within the stipulated period. A circumspect weighing
of equitable considerations thus tilts the scale of justice in favor of Tanseco.
SLU SOL 1-C Page
215
Sicam v. Jorge, 8 August 2007
ROBERTO C. SICAM and AGENCIA de R.C. SICAM, INC., petitioners,

vs.
LULU V. JORGE and CESAR JORGE, respondents.
G.R. No. 159617 August 8, 2007
Facts: Lulu Jorge pawned several pieces of jewelry with Agencia de R.C. Sicam to
secure a loan in the amount of P59,500.00. It was alleged that two armed men entered
the pawnshop and took away whatever cash and jewelry found inside the pawnshop
vault. It was reported to the police. She sued for damages but Sicam interposed the
defense of fortuitous event, alleging that there was robbery. The SC brushed aside the
contention and said:
Robbery per se, just like carnapping, is not a fortuitous event. It does not foreclose the
possibility of negligence on his part.
Issue: Whether or not robbery is considered as fortuitous event.
Ruling: It is not a defense for a repaid shop of motor vehicles to escape liability simply
because the damage or loss of a thing lawfully placed in its possession was due to
carnapping. Carnapping per se cannot be considered as a fortuitous event. The fact that
a thing was unlawfully and forcefully taken from anothers rightful possession, as in
cases of carnapping, does not automatically give rise to a fortuitous event. To be
considered as such, carnapping entails more than the mere forceful taking of anothers
property. It must be proved and established that the event was an act of God or was
done solely by third parties and that neither the claimant nor the person alleged to be
negligent has any participation. In accordance with the Rules of Evidence, the burden of
proving that the loss was due to a fortuitous event rests on him who invokes it, which in
this case is the private respondent. However, other than the police report of the alleged
carnapping incident, no other evidence was presented by private respondent tithe effect
that the incident was not due to its fault. A police report of an alleged crime, to which
only private respondent is privy, does not suffice to establish the carnapping. Neither
does it prove that there was no fault on the party of private respondent notwithstanding
the parties agreement at the pre-trial that the car was carnapped. Carnapping does not
foreclose the possibility of fault or negligence on the part of private respondent. (Co. v.
CA, 353 Phil. 305, 1998)
It was held that to be relieved from civil liability of returning the pendant under Article
1174 of the Civil Code, it would only be sufficient that the unforeseen event, the robbery
took place without any concurrent fault on the debtors part, and this can be done by
preponderance of evidence; that o be free from liability for reason of fortuitous event,
the debtor must, in addition to the case itself, be free from any concurrent or
contributory fault or negligence.
SLU SOL 1-C Page
216
Huibonhoa v. CA, 14 December 1999
FLORENCIA T. HUIBONHOA, petitioner,

vs.
COURT OF APPEALS, SPOUSES RUFINA G. LIM and ANTHONY LIM, LORETA
GOJOCCO CHUA AND SPOUSES SEVERINO and PRISCILLA GOJOCCO,
respondents.
December 14, 1999 G.R. No. 95897
Facts: On June 8, 1983, Florencia T. Huibonhoa entered into a memorandum of

agreement with siblings Rufina Gojocco Lim, Severino Gojocco and Loreta Gojocco
Chua stipulating that Florencia T. Huibonhoa would lease from them (Gojoccos) three
(3) adjacent commercial lots at Ilaya Street, Binondo, Manila, described as lot nos. 26-
A, 26-B and 26-C, covered by Transfer Certificates of Title Nos. 76098, 80728 and
155450, all in their (Gojoccos') names. On June 30, 1983, pursuant to the said
memorandum of agreement, the parties inked a contract of lease of the same three lots
for a period of fifteen (15) years commencing on July 1, 1983 and renewable upon
agreement of the parties. Subject contract was to enable the lessee, Florencia T.
Huibonhoa, to construct a "four-storey reinforced concrete building with concrete roof
deck, according to plans and specifications approved by the City Engineer's Office."The
parties agreed that the lessee could let/sublease the building and/or its spaces to
interested parties under such terms and conditions as the lessee would determine and
that all amounts collected as rents or income from the property would belong exclusively
to the lessee. The lessee undertook to complete construction of the building "within
eight (8) months from the date of the execution of the contract of lease."The parties also
agreed that upon the termination of the lease, the ownership and title to the building
thus constructed on the said lots would automatically transfer to the lessor, even without
any implementing document therefor. Real estate taxes on the land would be borne by
the lessor while that on the building, by the lessee, but the latter was authorized to
advance the money needed to meet the lessors' obligations such as the payment of real
estate taxes on their lots. The lessors would deduct from the monthly rental due all such
advances made by the lessee. The construction of the building was not met on the date
agreed upon due to the assassination of the then Senator Benigno Aquino Jr. It was
claimed that increase in the value of the materials was a fortuitous event, which the
lower courts did not consider as such.
Issue: Whether or not the assassination of Senator Benigno Aquino Jr., which caused
inflation, was a fortuitous event.
Ruling: The Supreme Court found no merit in petitioners submission that the
assassination of the late Senator Benigno Aquino, Jr. was a fortuitous event that
justified a modification of the terms of the lease contract. A fortuitous event is that which
could not be foreseen, or which even if foreseen, was inevitable. To exempt the obligor
from liability for a breach of an obligation due to an "act of God", the following requisites
must concur: (a) the cause of the breach of the obligation must be independent of the
SLU SOL 1-C Page
217
will of the debtor; (b) the event must be either unforeseeable or unavoidable; (c) the
event must be such as to render it impossible for the debtor to fulfill his obligation in a
normal manner; and (d) the debtor must be free from any participation in, or aggravation
of the injury to the creditor. In the case under scrutiny, the assassination of Senator
Aquino may indeed be considered a fortuitous event. However, the said incident per se
could not have caused the delay in the construction of the building. What might have
caused the delay was the resulting escalation of prices of commodities including
construction materials. Be that as it may, there is no merit in Huibonhoa's argument that
the inflation borne by the Filipinos in 1983 justified the delayed accrual of monthly
rental, the reduction of its amount and the extension of the lease by three (3) years.
Inflation is the sharp increase of money or credit or both without a corresponding
increase in business transaction. There is inflation when there is an increase in the
volume of money and credit relative to available goods resulting in a substantial and
continuing rise in the general price level. While it is of judicial notice that there has been
a decline in the purchasing power of the Philippine peso, this downward fall of the
currency cannot be considered unforeseeable considering that since the 1970's we
have been experiencing inflation. It is simply a universal trend that has not spared our
country. Conformably, this Court upheld the petitioner's view in Occena v. Jabson that
even a worldwide increase in prices does not constitute a sufficient cause of action for
modification of an instrument. It is only when an extraordinary inflation supervenes that
the law affords the parties a relief in contractual obligations. In Filipino Pipe and
Foundry Corporation v. NAWASA, the Court explained extraordinary inflation
thus:"Extraordinary inflation exists when 'there is a decrease or increase in the
purchasing power of the Philippine currency which is unusual or beyond the common
fluctuation in the value of said currency, and such decrease or increase could not have
been reasonably foreseen or was manifestly beyond the contemplation of the parties at
the time of the establishment of the obligation. No decrease in the peso value of such
magnitude having occurred, Huibonhoa has no valid ground to ask this Court to
intervene and modify the lease agreement to suit her purpose. As it is, Huibonhoa even
failed to prove by evidence, documentary or testimonial, that there was an extraordinary
inflation from July 1983 to February 1984. Although she repeatedly alleged that the cost
of constructing the building doubled from P6 million to P12 million, she failed to show by
how much, for instance, the price index of goods and services had risen during that
intervening period. An extraordinary inflation cannot be assumed. Hence, for Huibonhoa
to claim exemption from liability by reason of fortuitous event under Art. 1174 of the Civil
Code, she must prove that inflation was the sole and proximate cause of the loss or
destruction of the or, in this case, of the delay in the construction of the building. Having
failed to do so, Huibonhoa's contention is untenable. Pathetically, if indeed a fortuitous
event deterred the timely fulfillment of Huibonhoa's obligation under the lease contract,
she chose the wrong remedy in filing the case for reformation of the contract. Instead,
she should have availed of the remedy of recission of contract in order that the court
could release her from performing her obligation under Arts. 1266 and 1267 of the Civil
Code, so that the parties could be restored to their status prior to the execution of the
lease contract.
SLU SOL 1-C Page

218
Ace Agro v. CA, 266 S 429
ACE-AGRO DEVELOPMENT CORPORATION, petitioner,

vs.
COURT OF APPEALS and COSMOS BOTTLING CORPORATION, respondents.
G.R. No. 119729 January 21, 1997
Facts: Petitioner Ace-Agro Development Corporation and private respondent Cosmos

Bottling Corporation entered into a service contract covering the period from January 1,
1990 to December 31, 1990. According to the agreement, the former shall clean soft
drink bottles and repair wooden shells for private respondent. The service contract was
suspended on account of a fire on April 25, 1990 which destroyed the area where
petitioner did its work.
Respondent terminated the service contract due to the fire. Petitioner sent several
letters for reconsideration, which the respondent willingly considered through its letters
dated August 29, 1990 and November 7, 1990 directing petitioner to resume its work.
Petitioner, however, refused to continue its work on two reasons. First, the August 29
letter did not allow them to resume their work on respondents premises which will be
quite costly for them. Second, petitioner requested for an extension of two (2) months
for their contract on account of the fire which the respondent did not heed into.
Issue:
1. Whether or not force majeure or fortuitous event is present in the case.
2. Whether or not the respondent was justified in unilaterally terminating the contract
due to a fortuitous event.
3. Whether or not the fortuitous event allows the extension of a contract.
Ruling:
Yes. Pursuant to Article 1174 of the Civil Code, except in cases expressly specified by
law, or when it is otherwise declared by stipulation, or when the nature of the obligation
requires the assumption of risk, no person shall be responsible for those events which
could not be foreseen, or which though foreseen, were inevitable. The requisites for an
event to be considered a fortuitous event are as follows: First, the cause of breach must
be independent of the will of the obligor. Second, the event must be unforeseeable or
inevitable. Third, the event must be such as to render it impossible for the debtor to fulfill
his obligation in a normal manner. And fourth, the debtor must be free from any
participation in, or aggravation of, the injury to the creditor. In this case, all the
mentioned requisites are present.
No. The fortuitous event that happened in this case could not warrant a termination of
the service contract; but rather, it only temporarily suspends the performance of the
obligation. The unilateral termination therefore shifted on petitioners part when it
unreasonably refused to continue its services.
SLU SOL 1-C Page
219
No. Fortuitous events do not automatically warrant an extension for the period of a
contract, especially that this case is one which has a resolutory condition. The fact is
that the contract was subject to a resolutory period which relieved the parties of their
respective obligations but did not stop the running of the period of their contract.
SLU SOL 1-C Page
220
Effects of Fortuitous Event upon Obligation
Dioquino v. Laureano, 33 S 65
PEDRO D. DIOQUINO, plaintiff-appellee,

vs.
FEDERICO LAUREANO, AIDA DE LAUREANO and JUANITO LAUREANO,
defendants-appellants.
G.R. No. L-25906 May 28, 1970
Facts: Attorney Pedro Dioquino is the owner of a car. He went to the office of the MVO,
Masbate, to register the same where he met the defendant Federico Laureano, a patrol
officer of said MVO office. Dioquino requested Laureano to introduce him to one of the
clerks in the MVO Office, who could facilitate the registration of his car and the request
was attended to. Laureano rode on the car of Atty. Dioquino on his way to the P.C.
Barracks at Masbate. While about to reach their destination, the car driven by plaintiff's
driver and with Laureano as the sole passenger was stoned by some 'mischievous
boys,' and its windshield was broken. Laureano chased the boys and he was able to
catch one of them. The plaintiff and Laureano with the boy returned to the P.C. barracks
and the father of the boy was called, but no satisfactory arrangements were made about
the damage to the windshield. It was likewise noted in the decision now on appeal: "The
defendant Federico Laureano refused to file any charges against the boy and his
parents because he thought that the stone-throwing was merely accidental and that it
was due to force majeure. So he did not want to take any action and after delaying the
settlement, after perhaps consulting a lawyer, the defendant Federico Laureano refused
to pay the windshield himself and challenged that the case be brought to court for
judicial adjudication. There is no question that the plaintiff tried to convince the
defendant Federico Laureano just to pay the value of the windshield and he even came
to the extent of asking the wife to convince her husband to settle the matter amicably
but the defendant Federico Laureano refused to make any settlement, clinging [to] the
belief that he could not be held liable because a minor child threw a stone accidentally
on the windshield and therefore, the same was due to force majeure."
Issue: Whether or not Federico Laureano is liable for the payment of the windshield of
Atty Dioquino.
Ruling: No. The law being what it is, such a belief on the part of defendant Federico
Laureano was justified. The express language of Art. 1174 of the present Civil Code
which is a restatement of Art. 1105 of the Old Civil Code, except for the addition of the
nature of an obligation requiring the assumption of risk, compels such a conclusion. It
reads thus: "Except in cases expressly specified by the law, or when it is otherwise
declared by stipulation, or when the nature of the obligation requires the assumption of
risk, no person shall be responsible for those events which could not be, foreseen, or
which, though foreseen were inevitable." If it could be shown that such indeed was the
SLU SOL 1-C Page
221
case, liability is ruled out. There is no requirement of "diligence beyond what human
care and foresight can provide."
SLU SOL 1-C Page
222
Bachelor Express v. CA, 193 S 216
BACHELOR EXPRESS, INCORPORATED, and CRESENCIO RIVERA, petitioners,

vs.
THE HONORABLE COURT OF APPEALS (Sixth Division), RICARDO BETER,
SERGIA BETER, TEOFILO RAUTRAUT and ZOETERA RAUTRAUT, respondents.
G.R. No. 85691 July 31, 1990
Facts: A bus owned by Bachelor Express and driven by Rivera had a passenger who
stabbed a PC soldier. This caused commotion and panic that resulted in the death of
Ornominio Beter and Narcisa Rautraut. The assailant alighted from the bus and was
killed by the police.
Thereafter, the parents/heirs of Beter and Rautraut filed a complaint for sum of money
against Bachelor Express, its owner Samson Yasay, and the driver Rivera.
The trial court dismissed the complaint. Upon appeal, the CA found the appellees jointly
and solidarily liable to pay the heirs of Beter P75K in loss of earnings and support,
moral damages, straight death indemnity, and attorney's fees; and the heirs of Rautraut
P45K for straight death indemnity, moral damages, and attorney's fees.
Issues:
1. Whether or not the running amuck of the assailant passenger was within the context
of force majeure.
2. Whether or not Bachelor Express observed extraordinary diligence to safeguard the
lives of its passengers.
Ruling: The running amuck of the passenger was the proximate cause of the incident
as it triggered a commotion and panic such that the passengers started running to the
sole exit shoving each other, resulting in the falling off the bus by Beter and Rautraut
causing fatal injuries. The sudden act of the passenger who stabbed another passenger
in the bus is within the context of force majeure. However, in order that a common
carrier may be absolved from liability in case of force majeure, it is not enough that the
accident was caused by force majeure. The common carrier must still prove that it was
not negligent in causing the injuries resulting from such accident.
Bachelor Express failed to overcome the presumption of fault and negligence found in
the law governing common carriers. The bus driver did not immediately stop the bus at
the height of the commotion; the bus was speeding from a full stop; the victims fell from
the bus door when it was opened or gave way while the bus was still running; the
conductor panicked and blew his whistle after people had already fallen off the bus; and
the bus was not properly equipped with doors in accordance with law. The decision of
the CA was affirmed.
SLU SOL 1-C Page
223
Vasquez v. CA, 138 S 558
PEDRO VASQUEZ, petitioner,

vs.
G.R. L-42926 September 18, 1985
Facts: A vessel sailed from Manila to Cebu despite the knowledge by the captain and
officers that typhoon Klaring was building up somewhere in Mindanao. When it passed
Tanguigui Island, the weather suddenly changed and the vessel struck a reef, sustained
leaks and eventually sunk. The ship sunk with the children of the petitioners who sued
for damages before the CFI of Manila, which was granted. Respondents defense of
force majeure to extinguish its liability were not entertained. On appeal, the judgment
was reversed.
Issue: Whether or not the defense of force majeure is tenable.
Ruling: No. A fortuitous event is constituted by the following: 1) The event must be
independent of the human will; 2) the occurrence must render it impossible for the
debtor to fulfill the obligation in a normal manner; and 3) the obligor must be free of
participation in the aggravation of the injury suffered by the obligee or if it could be
foreseen, it must have been impossible to avoid. There must be an entire exclusion of
human agency from the cause of the injury or loss. Such is not the case at bar. The
vessel still proceeded even though the captain already knew that they were within the
typhoon zone and despite the fact that they were kept posted about the weather
conditions. They failed to exercise that extraordinary diligence required from them,
explicitly mandated by the law, for the safety of the passengers.
SLU SOL 1-C Page
224
Yobido v. CA, 17 October 1997
ALBERTA YOBIDO and CRESENCIO YOBIDO, petitioners,

vs.
COURT OF APPEALS, LENY TUMBOY, ARDEE TUMBOY and JASMIN TUMBOY,
respondents.
G.R. No. 113003 October 17, 1997
Facts: On April 26, 1988, spouses Tito and Leny Tumboy and their minor children
named Ardee and Jasmin, bearded at Mangagoy, Surigao del Sur, a Yobido Liner bus
bound for Davao City. Along Picop Road in Km. 17, Sta. Maria, Agusan del Sur, the left
front tire of the bus exploded. The bus fell into a ravine around three (3) feet from the
road and struck a tree. The incident resulted in the death of 28-year-old Tito Tumboy
and physical injuries to other passengers.
On November 21, 1988, a complaint for breach of contract of carriage, damages and
attorney's fees was filed by Leny and her children against Alberta Yobido, the owner of
the bus, and Cresencio Yobido, its driver, before the Regional Trial Court of Davao City.
When the defendants therein filed their answer to the complaint, they raised the
affirmative defense of caso fortuito. They also filed a third-party complaint against
Philippine Phoenix Surety and Insurance, Inc. This third-party defendant filed an answer
with compulsory counterclaim. At the pre-trial conference, the parties agreed to a
stipulation of facts. On August 29, 1991, the lower court rendered a decision dismissing
the action for lack of merit. On the issue of whether or not the tire blowout was a caso
fortuito, it found that "the falling off the bus to the cliff was a result of no other outside
factor than the tire blow-out." The plaintiffs appealed to the CA reversing decision of the
lower court. Hence, they pray that this Court review the facts of the case.
Issue: Whether or not the trial court erred in their findings that the tire blowout was a
caso fortuito.
Ruling: Yes. Under the circumstances of this case, the explosion of the new tire may
not be considered a fortuitous event. There are human factors involved in the situation.
The fact that the tire was new did not imply that it was entirely free from manufacturing
defects or that it was properly mounted on the vehicle. Neither may the fact that the tire
bought and used in the vehicle is of a brand name noted for quality, resulting in the
conclusion that it could not explode within five days' use. Be that as it may, it is settled
that an accident caused either by defects in the automobile or through the negligence of
its driver is not a caso fortuito that would exempt the carrier from liability for damages.
Moreover, a common carrier may not be absolved from liability in case of force majeure
or fortuitous event alone. The common carrier must still prove that it was not negligent
in causing the death or injury resulting from an accident. This Court has had occasion to
state:
SLU SOL 1-C Page
225
While it may be true that the tire that blew-up was still good because the grooves
of the tire were still visible, this fact alone does not make the explosion of the tire
a fortuitous event. No evidence was presented to show that the accident was due
to adverse road conditions or that precautions were taken by the jeepney driver
to compensate for any conditions liable to cause accidents. The sudden blowing-
up, therefore, could have been caused by too much air pressure injected into the
tire coupled by the fact that the jeepney was overloaded and speeding at the time
of the accident.
SLU SOL 1-C Page
226
Juntilla v. Fontanar, 136 S 625
ROBERTO JUNTILLA, petitioner,

vs.
CLEMENTE FONTANAR, FERNANDO BANZON and BERFOL CAMORO,
respondents.
G.R. No. L-45637 May 31, 1985
Facts: Herein plaintiff was a passenger of the public utility jeepney on course from
Danao City to Cebu City. The jeepney was driven by driven by defendant Berfol Camoro
and registered under the franchise of Clemente Fontanar. When the jeepney reached
Mandaue City, the right rear tire exploded causing the vehicle to turn turtle. In the
process, the plaintiff who was sitting at the front seat was thrown out of the vehicle.
Plaintiff suffered a lacerated wound on his right palm aside from the injuries he suffered
on his left arm, right thigh, and on his back.
Plaintiff filed a case for breach of contract with damages before the City Court of Cebu
City. Defendants, in their answer, alleged that the tire blow out was beyond their control,
taking into account that the tire that exploded was newly bought and was only slightly
used at the time it blew up.
Issue: Whether or not the tire blow-out is a fortuitous event.
Ruling: No. In the case at bar, the cause of the unforeseen and unexpected occurrence
was not independent of the human will. The accident was caused either through the
negligence of the driver or because of mechanical defects in the tire. Common carriers
should teach drivers not to overload their vehicles, not to exceed safe and legal speed
limits, and to know the correct measures to take when a tire blows up thus insuring the
safety of passengers at all times.
SLU SOL 1-C Page
227
Philamgen Insurance v. MGG Marine, 8 March 2002
THE PHILIPPINE AMERICAN GENERAL INSURANCE CO., INC., petitioner,

vs.
MGG MARINE SERVICES, INC. and DOROTEO GAERLAN, respondents.
G.R. No. 135645 March 8, 2002
Facts: On March 1, 1987, San Miguel Corporation insured several beer bottle cases
with an aggregate value of P5,836,222.80 with petitioner Philippine American General
Insurance Company. The cargo were loaded on board the M/V Peatheray Patrick-G to
be transported from Mandaue City to Bislig, Surigao del Sur.
After having been cleared by the Coast Guard Station in Cebu the previous day, the
vessel left the port of Mandaue City for Bislig, Surigaodel Sur on March 2, 1987. The
weather was calm when the vessel started its voyage.
The following day, March 3, 1987, M/V Peatheray Patrick-G listed and subsequently
sunk off Cawit Point, Cortes, Surigao del Sur. As a consequence thereof, the cargo
belonging to San Miguel Corporation was lost. Subsequently, San Miguel Corporation
claimed the amount of its loss from petitioner.
The Court of Appeals observed respondents from any liability because the cargo was
lost due to a fortuitous event; strong winds and huge waves caused the vessel to sink.
Issue: Whether or not the loss of the cargo was due to the occurrence of a natural
disaster, and if so, whether or not such natural disaster was the sole and proximate
cause of the loss or whether or not private respondents were partly to blame for failing
to exercise due diligence to prevent the loss of the cargo.
Ruling: Common carriers, from the nature of their business and for reasons of public
policy, are mandated to observe extraordinary diligence in the vigilance over the goods
and for the safety of the passengers transported by them. Owing to this high degree of
diligence required of them, common carriers, as a general rule, are presumed to have
been at fault or negligent if the goods transported by them are lost, destroyed or if the
same deteriorated.
The parties do not dispute that on the day the M/V Peatheray Patrick-G sunk, said
vessel encountered strong winds and huge waves ranging from six to ten feet in height.
The vessel listed at the port side and eventually sunk at Cawit Point, Cortes, Surigao
del Sur.
In the case at bar, it was adequately shown that before the M/V Peatheray Patrick-G left
the port of Mandaue City, the Captain confirmed with the Coast Guard that the weather
condition would permit the safe travel of the vessel to Bislig, Surigao del Sur. Thus, he
could not be expected to have foreseen the unfavorable weather condition that awaited
SLU SOL 1-C Page

228
the vessel in Cortes, Surigao del Sur. It was the presence of the strong winds and
enormous waves which caused the vessel to list, keel over, and consequently lose the
cargo contained therein. The appellate court likewise found that there was no
negligence on the part of the crew of the M/V Peatheray Patrick-G. Since the presence
of strong winds and enormous waves at Cortes, Surigao del Sur on March 3, 1987 was
shown to be the proximate and only cause of the sinking of the M/V Peatheray Patrick-
G and the loss of the cargo belonging to San Miguel Corporation, private respondents
cannot be held liable for the said loss.
SLU SOL 1-C Page
229
Mindex v. Morillo, 12 March 2002
MINDEX RESOURCES DEVELOPMENT, petitioner,

vs.
EPHRAIM MORILLO, respondent.
G.R. No. 138123 March 12, 2002
Facts: On February 1991, a verbal agreement was entered into between Ephraim
Morillo and Mindex Resources Corporation for the lease of the former's 6x6 10-wheeler
cargo truck for use in Mindexs mining operations in Oriental Mindoro at a stipulated
rental of P300.00 per hour for a minimum of 8 hours a day or a total of P2,400.00 daily.
Mindex was paying its rentals until April 10, 1991. On April 11, unidentified persons
burned the truck while it was parked unattended at San Teodoro, Oriental Mindoro due
to mechanical trouble. Upon learning the burning incident, Morillo offered to sell the
truck to Mindex but the latter refused. Instead, it replaced the vehicles burned tires and
had it towed to a shop for repair and overhauling. On April 15, 1991, Morillo sent a letter
to Mindex proposing that he will entrust the said vehicle in the amount of P275,000.00
that is its cost price without charging for the encumbrance of P76,800.00. Mindex
responded by a hand written letter expressing their reservations on the above demands
due to their tight financial situation. However, he made counter offers which state that
they will pay the rental of the 6x6 truck in the amount of P76,000.00, repair and
overhaul the truck on their own expenses and return it to Morillo on good running
condition after repair. April 18, Morillo replied that he will relinquish to Mindex the
damaged truck; that he is amenable to receive the rental in the amount of P76, 000.00;
and that Mindex will pay P50,000.00 monthly until the balance of P275,000.00 is fully
paid. Except for his acceptance of the proffered P76,000.00 unpaid rentals. Morillos
stand has not been changed as he merely lowered the first payment on the
P275,000.00 valuation of the truck from P150,000.00 to P50,000.00. The parties had
since remain intransigent and so on August, Morillo pulled out the truck from the repair
shop of Mindex and had it repaired elsewhere for which he spent the amount of
P132,750.00. The RTC found petitioner responsible fro the destruction of loss of the
leased 6x6 truck and ordered it to pay respondent P76,000.00 as balance of the unpaid
rental for the 6x6 truck with interest of 12%, P132,750.00 representing the cost of repair
and overhaul of the truck with interest of 12% until fully paid; and P20,000.00 as
attorneys fees. The appellate court sustained RTCs finding. The CA found petitioner
was not without fault for the loss and destruction of the truck and thus liable therefore.
However, it modified the 12% interest on the P76,000.00 rentals and P132,750.00 repair
cost to 6% per annum form June 22, 1994 to the date of finality of the said decision. It
affirmed the award of attorneys fees.
Issue: Whether or not the CA is correct in finding the petitioner liable due to negligence
and cannot be exonerated due to the defense of fortuitous event.
Ruling: Yes. As stated by the Court of Appeals, the burning of the subject truck was
impossible to foresee, but not impossible to avoid. Mindex could have prevented the
SLU SOL 1-C Page

230
incident by immediately towing the truck to a motor shop for repair. In this case,
petitioner was found negligent and thus liable for the loss or destruction of the leased
truck. Article 1174 of the Civil Code states that no person shall be responsible for a
fortuitous event that could not be foreseen or, though foreseen, was inevitable. In other
words, there must be an exclusion of human intervention form the cause of injury on
loss. In this case, the petitioner is contributory negligent to the incident.
SLU SOL 1-C Page
231
NAPOCOR v. Phillip Bros., 369 S 629
NATIONAL POWER CORPORATION, petitioner,

vs.
PHILIPP BROTHERS OCEANIC, INC., respondent.
G.R. No. 126204 November 20, 2001
Facts: On May 14, 1987, the National Power Corporation (NAPOCOR) issued
invitations to bid for the supply and delivery of 120,000 metric tons of imported coal for
its Batangas Coal-Fired Thermal Power Plant in Calaca, Batangas. The Philipp Brothers
Oceanic, Inc. (PHIBRO) prequalified and was allowed to participate as one of the
bidders. After the public bidding was conducted, PHIBRO's bid was accepted.
NAPOCOR's acceptance was conveyed in a letter dated July 8, 1987, which was
received by PHIBRO on July 15, 1987. PHIBRO sent word to NAPOCOR that industrial
disputes might soon plague Australia, the shipment's point of origin, which could
seriously hamper PHIBRO's ability to supply the needed coal. In order to hasten the
transfer of coal, PHIBRO proposed to NAPOCOR that they equally share the burden of
a "strike-free" clause. NAPOCOR refused. PHIBRO received from NAPOCOR a
confirmed and workable letter of credit. Instead of delivering the coal on or before the
thirtieth day after receipt of the Letter of Credit, as agreed upon by the parties in the July
contract, PHIBRO effected its first shipment only on November 17, 1987. NAPOCOR
once more advertised for the delivery of coal to its Calaca thermal plant. PHIBRO
participated anew in this subsequent bidding. On November 24, 1987, NAPOCOR
disapproved PHIBRO's application for pre-qualification to bid for not meeting the
minimum requirements. Upon further inquiry, PHIBRO found that the real reason for the
disapproval was its purported failure to satisfy NAPOCOR's demand for damages due
to the delay in the delivery of the first coal shipment. This prompted PHIBRO to file an
action for damages with application for injunction against NAPOCOR. PHIBRO alleged
that NAPOCOR's act of disqualifying it in the October 1987 bidding and in all
subsequent biddings was tainted with malice and bad faith.
Issue: Whether or not an obligor who is unable to fulfill his obligation because of a
fortuitous event or force majeure cannot be held liable for damages for non-
performance.
Ruling: It is worthy to note that PHIBRO and NAPOCOR explicitly agreed in Section
XVII of the "Bidding Terms and Specifications" that "neither seller (PHIBRO) nor buyer
(NAPOCOR) shall be liable for any delay in or failure of the performance of its
obligations, other than the payment of money due, if any such delay or failure is due to
force majeure." Specifically, they defined force majeure as "any disabling cause beyond
the control of and without fault or negligence of the party, which causes may include but
are not restricted to Acts of God or of the public enemy; acts of the Government in either
its sovereign or contractual capacity; governmental restrictions; strikes, fires, floods,
wars, typhoons, storms, epidemics and quarantine restrictions."
SLU SOL 1-C Page
232
The law is clear and so is the contract between NAPOCOR and PHIBRO. Therefore, we
have no reason to rule otherwise.
SLU SOL 1-C Page
233
Art. 1178, Transmissibility of Rights and Obligations
Ong Genato v. Bayhon, et al., 24 August 2009
WILLIAM ONG GENATO, petitioner,

vs.
BENJAMIN BAYHON, MELANIE BAYHON, BENJAMIN BAYHON, JR., BRENDA
BAYHON, ALINA BAYHON-CAMPOS, IRENE BAYHON-TOLOSA, and the minor
GINO BAYHON, as represented herein by his natural mother as guardian-ad-litem,
JESUSITA M. BAYHON, respondents.
G.R. 171035 August 24, 2009
Facts: On October 18, 1990, respondents Benjamin M. Bayhon, Melanie Bayhon,

Benjamin Bayhon Jr., Brenda Bayhon, Alina Bayhon-Campos, Irene Bayhon-Tolosa and
the minor Gino Bayhon, as represented by his mother Jesusita M. Bayhon, filed an
action before the RTC, Quezon City, Branch 76, docketed as Civil Case No. Q-90-7012.
In their Complaint, respondents sought the declaration of nullity of a dacion en pago
allegedly executed by respondent Benjamin Bayhon in favor of petitioner William Ong
Genato. Respondent Benjamin Bayhon alleged that on July 3, 1989, he obtained from
the petitioner a loan amounting to PhP 1,000,000.00; that to cover the loan, he
executed a Deed of Real Estate Mortgage over the property covered by Transfer
Certificate of Title (TCT) No. 38052; that, however, the execution of the Deed of Real
Estate Mortgage was conditioned upon the personal assurance of the petitioner that the
said instrument is only a private memorandum of indebtedness and that it would neither
be notarized nor enforced according to its tenor. Respondent further alleged that he filed
a separate proceeding for the reconstitution of TCT No. 38052 before the RTC, Quezon
City, Branch 87. Petitioner William Ong Genato filed an Answer in Intervention in the
said proceeding and attached a copy of an alleged dacion en pago covering said lot.
Respondent assailed the dacion en pago as a forgery alleging that neither he nor his
wife, who had died 3 years earlier, had executed it. In his Answer, petitioner Genato
denied the claim of the respondent regarding the death of the latters wife. He alleged
that on the date that the real estate mortgage was to be signed, respondent introduced
to him a woman as his wife. He alleged that the respondent signed the dacion en pago
and that the execution of the instrument was above-board.
Issue: Whether or not the subject dacion en pago is a simulated or fictitious contract
and hence, void.
Ruling: Yes. The evidence shows that at the time it was allegedly signed by the wife of
the respondent, his wife was already dead. This finding of fact cannot be reversed. As a
general rule, obligations derived from a contract are transmissible, as Article 1311, par.1
of the Civil Code provides. The loan in this case was contracted by respondent. He died
while the case was pending before the Court of Appeals. While he may no longer be
compelled to pay the loan, the debt subsists against his estate. No property or portion of
the inheritance may be transmitted to his heirs unless the debt has first been satisfied.
SLU SOL 1-C Page
234
Notably, throughout the appellate stage of this case, the estate has been amply
represented by the heirs of the deceased, who are also his co-parties in Civil Case No.
Q-90-7012. Pursuant to this provision, petitioners remedy lies in filing a claim against
the estate of the deceased respondent.
SLU SOL 1-C Page
235
Union Bank v. Santibaez, 452 S 228
UNION BANK OF THE PHILIPPINES, petitioner,

vs.
EDMUND SANTIBAEZ and FLORENCE SANTIBAEZ ARIOLA, respondents.
G.R. No. 149926 February 23, 2005
Facts: On May 31, 1980, First Country Credit Corporation (FCCC) and Efraim M.
Santibanez entered into a loan agreement in the amount of P128,000 which was
intended for the payment of the purchase price of 1 unit of a tractor. In view of this,
Efraim and his son, Edmund executed a promissory note in favor of FCCC. On Dec. 13,
1980, FCCC and Efraim entered into another similar loan agreement which was
intended to pay the balance of the purchase price of another unit of a tractor. And again,
father and son executed a promissory note for the said amount in favor of FCCC.
However, sometime in Feb 1981, Efraim died, leaving a holographic will and
subsequently testate proceedings were commenced before the RTC of Iloilo with
Edmund being appointed as the special administrator of the estate of the decedent.
During the pendency of the testate proceedings, Edmund and his sister, Florence
Santibanez Ariola, executed a joint agreement on July 22, 1981 wherein they agreed to
divide between themselves and take possession of the 3 tractors; 2 for Edmund and 1
for Florence, each of them to assume indebtedness of their late father to FCCC. On
August 20, 1981 a deed of assignment with assumption of liabilities was executed by
and between FCCC and Union Savings and Mortgage Bank, wherein FCCC as the
assignor, assigned all its assets and liabilities to Union Savings and Mortgage Bank. Not
long after, demand letter for the settlement of the account were sent by Union Bank to
Edmund but the latter refused to pay. Thus Union Bank filed a complaint for sum of
money against the Edmund and Florence before the RTC of Makati. However the case
was dismissed. The lower court said that the claim should have been filed with the
probate court were the testate estate of Efraim was pending. Furthermore, the
agreement was void considering that the probate court did not approve the agreement
and no valid partition until after the will has been probated. Also, the list of assets and
liabilities of Union Bank did not clearly refer to the decedents account. Also, it was
contended that the obligation of the deceased had passed to his legitimate children and
heirs already, in this case Edmund and Efraim. CA affirmed RTC decision. Hence this
appeal.
Issues:
1. Whether or not the partition in the Agreement executed by the heirs is valid.
2. Whether or not the heirs assumption of the indebtedness of the deceased is valid.
3. Whether or not the Union Bank can hold the heirs liable on the obligation of the
deceased.
Ruling: No, there can be no valid partition among the heirs until after the will has been
probated by the probate court. This is specially because when the joint agreement
executed by Edmund and Florence partitioning the tractors among themselves were
SLU SOL 1-C Page
236
executed, there was already a pending proceeding for the probate of their late fathers
holographic will covering the said tractors. Thus the probate court had already acquired
jurisdiction over the said tractors which they cant be divested of. Any extrajudicial
agreement needs court approval.
No, the assumption of the indebtedness of the decedent by Edmund and Florence is not
binding. Such assumption was conditioned upon the agreement above. Hence, when
the agreement of partition between Edmund and Florence was invalidated, then the
assumption of the indebtedness cannot be given and force and effect. Also, the court
should have filed it money claim against the decedents estate in the probate court.
Furthermore, it cannot go after Florence for she took no part in the documents related to
the tractors, specifically the promissory notes and the continuing guaranty agreement;
they should have gone after Edmund being a co-signatory to the promissory notes and
guaranty.
No, Union Bank cannot hold the heirs liable on the obligation of the deceased because
it had not sufficiently shown that it is the successor-in-interest of the Union Savings and
Mortgage Bank to which the FCCC assigned its assets and liabilities. Furthermore, the
documentary evidence clearly reflects that the parties in the deed of assignment with
assumption of liabilities were the FCCC, and the Union Savings and Mortgage Bank,
with the conformity of Bancom Philippine Holdings, Inc. Nowhere can the participation
therein of Union Bank as a party can be found. As a result, Union Bank has no
personality to file the complaint and therefore cannot hold the heirs liable for the
obligation of the deceased.
SLU SOL 1-C Page
237
San Agustin v. CA, 371 S 348
JESUS SAN AGUSTIN, petitioner,

vs.
HON. COURT OF APPEALS and MAXIMO MENEZ, JR., respondents.
G.R. No. 121940 December 4, 2001
Facts: Government Service Insurance System (GSIS) sold to a certain Macaria Vda.
De Caiquep a parcel of residential land evidenced by a Deed of Absolute Sale. The
following encumbrance was annotated at the back of the title, not to sell, convey, lease
or sublease, or otherwise encumber the property. A day after the issuance of TCT
Macaria Vda. de Caiquep sold the subject lot to private respondent, Maximo Menez, Jr.,
as evidenced by a Deed of Absolute Sale. Said TCT was lost, but private respondent
subsequently obtained a duplicate after judicial proceedings. Petitioner was not notified.
Both RTC and CA ruled in favor of private respondent.
Issue: Whether or not the petitioner is correct that the deed of sale between Macaria
Vda. de Caiquep and private respondent is null and void in accordance with Par. 7, Art.
1409 of the New Civil Code.
Ruling: No. Petitioners contention is less than meritorious. In this case, the GSIS, the
proper party, has not filed any action for the annulment of Deed of Sale between them
and Macaria Vda. de Caiquep, nor for the forfeiture of the lot in question. The contract
of sale remains valid between the parties, unless and until annulled in the proper suit
filed by the rightful party, the GSIS. The said contract of sale is binding upon the heirs of
Macaria Vda. de Caiquep, including petitioner who alleges to be one of her heirs, in line
with the rule that heirs are bound by contracts entered into by their predecessors-in-
interest. Since, both were aware of the existence of the stipulated condition in favor of
the original seller, GSIS, yet both entered into an agreement violating said condition and
nullifying its effects, said parties should be held in estoppel to assail and annul their own
deliberate acts.
SLU SOL 1-C Page
238
Project Builders, Inc. v. CA, 358 S 626
PROJECT BUILDERS, INC., GALICANO A. CALAPATIA, JR., and LEANDRO

ENRIQUEZ, petitioners,
vs.
THE COURT OF APPEALS and INDUSTRIAL FINANCE CORPORATION,
respondents.
G.R. No. 99433 June 19, 2001
Facts: On August 21, 1975, plaintiff and defendant PBI entered into an agreement
whereby it was agreed that plaintiff would provide a maximum amount of P2,000,000.00
against which said defendant would discount and assign to plaintiff on a with recourse
non-collection basis its (PBIs) accounts receivable under the contracts to sell specified
in said agreement. Eventually, the same parties entered into an agreement whereby it
was agreed that PBIs credit line with plaintiff be increased to P5,000,000.00. It was
stipulated that the credit line of P5,000,000.00 granted includes the amount already
assigned/discounted. Against the above-mentioned credit line, defendant PBI
discounted with plaintiff on different dates accounts receivables with different maturity
dates from different condominium-unit buyers. The total amount of receivables
discounted by defendant PBI is P7,986,815.38 and consists of twenty accounts. Of such
receivables amounting to P7,986,815.38 plaintiff released to defendant PBI the amount
of P4,549,132.72 and the difference of P3,437,682.66 represents the discounting fee or
finance fee. To secure compliance with the terms and conditions of the agreement
defendants executed a Deed of Real Estate Mortgage in favor of plaintiff. When
defendants allegedly defaulted in the payment of the subject account, plaintiff
foreclosed the mortgage and plaintiff was the highest bidder in the amount of
P3,500,000.00. The foreclosed property was redeemed a year later but after application
of the redemption payment, plaintiff claims that there is still a deficiency in the amount of
P1,323,053.08. A collection suit was then filed by IFC against PBI. However, PBI denied
liability alleging that IFC has no case or right of action because the obligation is fully
paid out of the proceeds of foreclosure sale of its property. Further, it alleged that a
proper accounting of the transaction between the parties will show that it is the IFC who
is liable to PBI.The trial court dismissed the complaint but the Court of Appeals reversed
it.It ordered PBI to pay IFC the deficiency in the amount of P1,237,802.48 and the
monetary interests.
Issue: Whether or not said Republic Act No. 5980 should govern the transaction
between petitioners and private respondent which in reality was bilateral, not trilateral,
and respondent financing company was not really subrogated in the place of the
supposed seller or assignor.
Ruling: The assignment of the contracts to sell falls within the purview of the Act. The
term credit has been defined to - "(c) x xx mean any loan, mortgage, deed of trust,
advance, or discount; any conditional sales contract, any contract to sell, or sale or
contract of sale of property or service, either for present or future delivery, under which,
SLU SOL 1-C Page

239
part or all of the price is payable subsequent to the making of such sale or contract; any
rental-purchase contract; any option, demand, lien, pledge, or other claim against, or for
the delivery of, property or money, any purchase, or other acquisition of or any credit
upon the security of, any obligation or claim arising out of the foregoing; and any
transaction or series of transactions having a similar purpose or effect. An assignment
of credit is an act of transferring, either onerously or gratuitously, the right of an assignor
to an assignee who would then be capable of proceeding against the debtor for
enforcement or satisfaction of the credit. The transfer of rights takes place upon
perfection of the contract, and ownership of the right, including all appurtenant
accessory rights, is thereupon acquired by the assignee. The assignment binds the
debtor only upon acquiring knowledge of the assignment but he is entitled, even then, to
raise against the assignee the same defenses he could set up against the assignor.
Where the assignment is on account of pure liberality on the part of the assignor, the
rules on donation would likewise be pertinent; where valuable consideration is involved,
the assignment partakes of the nature of a contract of sale or purchase. Upon an
assignment of a contract to sell, the assignee is effectively subrogated in place of the
assignor and in a position to enforce the contract to sell to the same extent as the
assignor could.
An insistence of petitioners that the subject transaction should be considered a simple

loan since private respondent did not communicate with the debtors, condominium unit
buyers, to collect payment from them, is untenable. In an assignment of credit, the
consent of the debtor is not essential for its perfection, his knowledge thereof or lack of
it affecting only the efficaciousness or inefficaciousness of any payment he might make.
The assignment, it might be pointed out, was "with recourse," and default in the
payment of installments had been duly established when petitioner corporation
foreclosed on the mortgaged parcels of land. The resort to foreclosure of the mortgaged
properties did not preclude private respondent from collecting interest from the assigned
Contracts To Sell from the time of foreclosure to the redemption of the foreclosed
property. The imposition of interest was a mere enforcement or exercise of the right to
the ownership of the credit or receivables which the parties stipulated in the 1976
financing agreement. That the Assignor shall comply with all the terms and conditions
specified on the said Contracts to Sell, executed by the assignor and its individual
purchaser or customers, and assigned/discounted to Assignee. One of the provisions in
the contracts to sell, subject matter of the assignment agreement, related to the
imposition of interest in the event of default by the debtor in the payment of installments,
to wit:"All payments shall be made on or before their respective due dates without
necessity of demand therefor, and failure to make such payments on time shall entitle
the Developer to charge interest at the rate of one percent (1%) per month without
prejudice to the other remedies available to the Developer. As owner of the account
receivables, private respondent was impressed with the entitlement over such interest
payment.
SLU SOL 1-C Page
240
III. Kinds of Obligations
Art. 1179, par. 1, Pure Obligations
Hong Kong and Shanghai Bank v. Sps. Broqueza, 17 November 2000
HONGKONG AND SHANGHAI BANKING CORP., LTD. STAFF RETIREMENT PLAN,

Retirement Trust Fund, Inc. petitioner,
vs.
SPOUSES BIENVENIDO AND EDITHA BROQUEZA, respondents.
G.R. No. 178610 November 17, 2010
Facts: Petitioners Gerong and [Editha] Broqueza (defendants below) are employees of
Hongkong and Shanghai Banking Corporation (HSBC). They are also members of
respondent Hongkong Shanghai Banking Corporation, Ltd. Staff Retirement Plan
(HSBCL-SRP, plaintiff below). The HSBCL-SRP is a retirement plan established by
HSBC through its Board of Trustees for the benefit of the employees.
On October 1, 1990, petitioner [Editha] Broqueza obtained a car loan in the amount of
Php175,000.00. On December 12, 1991, she again applied and was granted an
appliance loan in the amount of Php24,000.00. On the other hand, petitioner Gerong
applied and was granted an emergency loan in the amount of Php35,780.00 on June 2,
1993. These loans are paid through automatic salary deduction.
Meanwhile [in 1993], a labor dispute arose between HSBC and its employees. Majority
of HSBCs employees were terminated, among whom are petitioners Editha Broqueza
and Fe Gerong. The employees then filed an illegal dismissal case before the National
Labor Relations Commission (NLRC) against HSBC. The legality or illegality of such
termination is now pending before this appellate Court in CA G.R. CV No. 56797,
entitled Hongkong Shanghai Banking Corp. Employees Union, et al. vs. National Labor
Relations Commission, et al. Because of their dismissal, petitioners were not able to
pay the monthly amortizations of their respective loans. Thus, respondent HSBCL-SRP
considered the accounts of petitioners delinquent. Demands to pay the respective
obligations were made upon petitioners, but they failed to pay.
HSBCL-SRP, acting through its Board of Trustees and represented by Alejandro L.

Custodio, filed Civil Case No. 52400 against the spouses Broqueza on 31 July 1996. On
19 September 1996, HSBCL-SRP filed Civil Case No. 52911 against Gerong. Both suits
were civil actions for recovery and collection of sums of money.
Issue: Whether or not the Court of Appeals has departed from the accepted and usual
course of judicial proceedings in reversing the decision of the Regional Trial Court and
the Metropolitan Trial Court.
SLU SOL 1-C Page
241
Ruling: Yes. Article 1179 of the Civil Code applies. The spouses Broquezas obligation
to pay HSBCL-SRP is a pure obligation. The fact that HSBCL-SRP was content with the
prior monthly check-off from Editha Broquezas salary is of no moment. Once Editha
Broqueza defaulted in her monthly payment, HSBCL-SRP made a demand to enforce a
pure obligation.
In their Answer, the spouses Broqueza admitted that prior to Editha Broquezas
dismissal from HSBC in December 1993, she "religiously paid the loan amortizations,
which HSBC collected through payroll check-off."16A definite amount is paid to HSBCL-
SRP on a specific date. Editha Broqueza authorized HSBCL-SRP to make deductions
from her payroll until her loans are fully paid. Editha Broqueza, however, defaulted in
her monthly loan payment due to her dismissal. Despite the spouses Broquezas
protestations, the payroll deduction is merely a convenient mode of payment and not
the sole source of payment for the loans. HSBCL-SRP never agreed that the loans will
be paid only through salary deductions. Neither did HSBCL-SRP agree that if Editha
Broqueza ceases to be an employee of HSBC, her obligation to pay the loans will be
suspended. HSBCL-SRP can immediately demand payment of the loans at anytime
because the obligation to pay has no period. Moreover, the spouses Broqueza have
already incurred in default in paying the monthly installments.
SLU SOL 1-C Page
242
Art. 1179 in relation to Art. 1183, Requisites of Conditional
Obligations
DBP v. CA, 262 S 245
DEVELOPMENT BANK OF THE PHILIPPINES, petitioner,

vs.
COURT OF APPEALS, Sps. NORMY D. CARPIO and CARMEN ORQUISA; Sps.
ROLANDO D. CARPIO and RAFAELA VILLANUEVA; Sps. ELISEO D. CARPIO and
ANUNCIACION del ROSARIO; LUZ C. REYES, MARIO C. REYES, JULIET REYES-
RUBIN, respondents.
G.R. No. 118180 September 20, 1996
Facts: Private respondents were the original owner of a parcel of agricultural land
situated in Barrio Capucao, Ozamis City, with an area of 113,695 square meters, more
or less. On 30 May 1977, Private respondents mortgaged said land to petitioner. When
private respondents defaulted on their obligation, petitioner foreclosed the mortgage on
the land and emerged as sole bidder in the ensuing auction sale. On 6 April 1984,
petitioner and private respondents entered into a Deed of Conditional Sale wherein
petitioner agreed to reconvey the foreclosed property to private respondents. On 6 April
1990, upon completing the payment of the full repurchase price, private respondents
demanded from petitioner the execution of a Deed of Conveyance in their favor.
Petitioner then informed private respondents that the prestation to execute and deliver a
deed of conveyance in their favor had become legally impossible in view of Sec. 6 of
Rep. Act 6657 (the Comprehensive Agrarian Reform Law or CARL) approved 10 June
1988, and Sec. 1 of E.O. 407 issued 10 June 1990. Aggrieved, private respondents filed
a complaint for specific performance with damages against petitioner.
Issue: Whether or not Sec. 6 of the CARL (Rep. Act 6657) had rendered legally
impossible compliance by petitioner with its obligation to execute a deed of conveyance
of the subject land in favor of private respondents.
Ruling: No. The Supreme Court ruled that neither Sec. 6 of Rep. Act 6657 nor Sec. 1 of
E.O. 407 was intended to impair the obligation of contract petitioner. In conditional
obligations, the acquisition of rights, as well as the extinguishment or loss of those
already acquired, shall depend upon the happening of the event which constitutes the
condition. The deed of conditional sale between petitioner and private respondents was
executed on 6 April 1984. Private respondents had religiously paid the agreed
installments on the property until they completed payment on 6 April 1990. Petitioner, in
fact, allowed private respondents to fulfill the condition of effecting full payment, and
invoked Section 6 of Rep. Act 6657 only after private respondents, having fully paid the
repurchase price, demanded the execution of a Deed of Sale in their favor. It will be
noted that Rep. Act 6657 was enacted on 10 June 1988. The CARL (Rep. Act 6657)
was not intended to take away property without due process of law. Nor is it intended to
impair the obligation of contracts. In the same manner must E.O. 407 be regarded. It
was enacted two (2) months after private respondents had legally fulfilled the condition
SLU SOL 1-C Page
243
in the contract of conditional sale by the payment of all installment on their due dates.
These laws cannot have retroactive effect unless there is an express provision in them
to that effect.
SLU SOL 1-C Page
244
Art. 1181, Suspensive Conditions
MARIA SOLEDAD TOMIMBANG, petitioner,

vs.
ATTY. JOSE TOMIMBANG, respondent.
G.R. No. 165116 August 4, 2009
Facts: Soledad Tomimbang and Atty. Jose Tomimbang are siblings. Their parents
donated to Soledad an 8-door apartment. To finance renovations on Unit H, Jose
offered to extend a credit line on the condition that Soledad shall start paying the loan
upon the completion of the renovation.
Renovations on Units B to G were completed. While work has just started on Unit A, an
altercation broke out between them. A meeting was held, and they entered into a new
agreement whereby Soledad was to start making monthly payments. Soledad did and
paid a total of P93.5K.
When another quarrel occurred, Soledad left and could not be found. Renovations on
Unit A were discontinued. She also stopped making monthly payments.
Jose filed a complaint demanding payment of P3.9M plus 12% interest per annum from
date of default. The RTC ruled in his favor. The CA affirmed in toto the RTC judgment.
Hence, the petition to the SC.
Soledad contended that the loan was not yet due and demandable because the
suspensive condition the completion of the renovation - has not yet been fulfilled.
Issue: Whether or not Soledad's obligation was due and demandable.
Ruling: Under the novated agreement, Soledad's obligation was already due and
demandable.
The evidence on record clearly showed that, after renovation of 7/8 apartment units was
completed, they agreed that Soledad shall start making monthly payments even if
renovation on Unit A was still pending. Indeed, Soledad began to make monthly
payments.
Evidently, by virtue of the subsequent agreement, the parties mutually dispensed with
the condition that Soledad shall only begin paying after the completion of all
renovations. In effect, there was a modificatory or partial novation of her obligation.
The petition was affirmed.

SLU SOL 1-C Page
245
Gonzales v. Heirs, 314 S 585
FELIX L. GONZALES, petitioner,

vs.
THE HEIRS OF THOMAS and PAULA CRUZ, respondents.
G.R. No. 131784 September 19, 1999
Facts: On December 1, 1983, Paula Cruz together with the plaintiffs heirs of Thomas
and Paula Cruz, entered into a Contract of Lease/Purchase with the defendant, Felix L.
Gonzales, the sole proprietor and manager of Felgon Farms, of a half-portion of a
'parcel of land containing an area of 12 hectares, more or less, and an accretion of 2
hectares, more or less, situated in Rodriguez Town, Province of Rizal.
The defendant Gonzales paid the P2,500.00 per hectare or P15,000.00 annual rental on
the half-portion of the property in accordance with the second provision of the Contract
of Lease/Purchase and thereafter took possession of the property, installing thereon the
defendant Jesus Sambrano as his caretaker. However, Gonzales did not exercise his
option to purchase the property immediately after the expiration of the one-year lease
on November 30, 1984. He remained in possession of the property without paying the
purchase price provided for in the Contract of Lease/Purchase and without paying any
further rentals thereon.
A letter was sent by one of the plaintiffs-heirs Ricardo Cruz to the defendant Gonzales
informing him of the lessors' decision to rescind the Contract of Lease/Purchase due to
a breach thereof committed by the defendant. The letter also served as a demand on
the defendant to vacate the premises within 10 days from receipt of said letter. The
defendant Gonzales refused to vacate the property and continued possession thereof.
Alleging breach of the provisions of the Contract of Lease/Purchase, the plaintiffs filed a
complaint for recovery of possession of the property - subject of the contract with
damages, both moral and compensatory and attorney's fees and litigation expenses.
Issue: Whether or not the trial court gravely erred in holding that plaintiffs-appellants
could not validly rescind and terminate the lease/purchase contract and thereafter to
take possession of the land in question and eject therefrom defendants-appellees.
Ruling: The basic rule in the interpretation of contracts that if some stipulation therein
should admit of several meanings, it shall be understood as bearing that import most
adequate to render it effectual. Considering the antecedents of the ownership of the
disputed lot, it appears that petitioner's interpretation renders clause nine most effectual.
The record shows that at the time the contract was executed, the land in question was
still registered in the name of Bernardina Calixto and Severo Cruz, respondents'
predecessors-in-interest. There is no showing whether respondents were the only heirs
of Severo Cruz or whether the other half of the land in the name of Bernardina Calixto
was adjudicated to them by any means. In fact, they admit that extrajudicial proceedings
SLU SOL 1-C Page
246
were still ongoing. Hence, when the Contract of Lease/Purchase was executed, there
was no assurance that the respondents were indeed the owners of the specific portion
of the lot that petitioner wanted to buy, and if so, in what concept and to what extent.
Thus, the clear intent of the ninth paragraph was for respondents to obtain a separate
and distinct TCT in their names. This was necessary to enable them to show their
ownership of the stipulated portion of the land and their concomitant right to dispose of
it. Absent any title in their names, they could not have sold the disputed parcel of land.
SLU SOL 1-C Page
247
Insular Life v. Young, 373 S 626
INSULAR LIFE ASSURANCE COMPANY, LTD., INSULAR SAVINGS BANK and

JACINTO D. JIMENEZ, petitioners,
vs.
ROBERT YOUNG, GABRIEL LA'O II, ARTHUR TAN, LOPE JUBAN, JR., MARIA
LOURDES ONGPIN, ANTONIO ONGPIN, ELSIE DIZON, YOLANDA BAYER, CECILIA
VIRAY, MANUEL VIRAY and JOSE VITO BORROMEO, respondents.
G.R. No. 140964 January 16, 2002
Facts: Respondent Robert Young obtained a short term loan of P170,000,000.00 from
interbank to finance the purchase 45% equity in Insular Savings Bank. He did this under
the assumption that Araneta would purchase 99.82% of the banks outstanding capital
stock and consolidate all shares in Youngs name. However, Araneta backed and
Young was left with a massive debt. Young entered into a Memorandum of Agreement
where Insular Life and its Pension Fund whereby Insular Life would purchase shares of
stock if Young would abide by certain conditions: one of them being to infuse additional
capital of P50,000,000.00 into the Bank. It was discovered that Young was pilfering
funds from the bank through check kiting operations and he tendered his resignation.
He also defaulted on his obligations. His shares of stock were purchased by Insular Life
in a public auction. The shares were then consolidated in its name. On January 7, 1992,
Young filed a case for annulment of notarial sale, specific performance and damages.
Issue: Whether or not the respondent court erred in declaring the MOA dated October
9, 1991 valid and enforceable between the parties despite respondent Young's failure to
comply with the terms and conditions thereof.
Ruling: Yes. The MOA is merely a contract to sell since the parties therein specifically
undertook to enter into a contract of sale if the stipulated conditions are met and the
representation and warranties given by Young prove to be true. The obligation of
petitioner Insular Life to purchase, as well as the concomitant obligation of Young to
convey to it the shares, are subject to the fulfillment of the conditions contained in the
MOA. Once the conditions, representation and warranties are satisfied, then it is
incumbent upon the parties to perform their respective obligations under the contract.
Conversely, in the event that these conditions are not met or complied with, no
obligation on the part of either party arises. This is in accord with Article 1181 of the Civil
Code which provides that "(i)n conditional obligations, the acquisition of rights, as well
as the extinguishment or loss of those already acquired, shall depend upon the
happening of the event which constitutes the condition." And when the obligation
assumed by a party to a contract is expressly subjected to a condition, the obligation
cannot be enforced against him unless the condition is complied with.
Significantly, respondents do not dispute petitioners assertion that Young committed

fraud, misrepresented the warranties and failed to comply with his obligations under the
MOA. Accordingly, no right in favor of Young's arose and no obligation on the part of
SLU SOL 1-C Page
248
Insular Life was created. It must be emphasized that the MOA did not convey title of the
shares to Insular Life. If ever there was delivery of the said shares to Insular Life, it was
because they were pledged by Young to Insular Life under the Credit Agreement.
SLU SOL 1-C Page
249
Direct Funders v. Lavia, 373 S 645
DIRECT FUNDERS HOLDINGS CORPORATION, petitioner,

vs.
JUDGE CELSO D. LAVIA, PRESIDING JUDGE OF RTC-Pasig City, Branch 71 and
KAMBIAK Y. CHAN, JR., respondents.
G.R. No. 141851 January 16, 2002
Facts: The petitioners assail the decision of the CA affirming the decision of the RTC in
issuing a writ of mandatory preliminary injunction despite the orders of a co-equal court
in deciding that the property in question was in the lawful possession of the petitioner.
The respondent Judge, presiding Regional Trial Court of Pasig, Branch 71, issued the
questioned orders to restore possession to private respondent Chan, alleging an
obviously grave abuse of discretion, tantamount to lack of jurisdiction. During the
hearing for the issuance of temporary restraining order, it was made clear to the
respondent Judge that the property in question was occupied by the petitioner by virtue
of a writ of possession issued by the Regional Trial Court of Pasig. Despite of such
order by another court, respondent judge issued a resolution stating that the owner of
the subject property is private respondent Chan.
Issue: Whether or not petitioner and respondent Kambiak Y. Chan, Jr. has a better right
to the possession of the subject property.
Ruling: The conditional sale agreement was the only document that the respondent
presented during the summary hearing of the application for a temporary restraining
order before the Regional Trial Court, Branch 71, Pasig City. The conditional sale
agreement is officious and ineffectual. First, it was not consummated. Second, it was
not registered and duly annotated on the Transfer Certificate of Title (No. 12357)
covering the subject property. Third, it was executed about eight (8) years after the
execution of the real estate mortgage over the subject property.
To emphasize, the mortgagee (United Savings Bank) did not give its consent to the
change of debtor. It is a fundamental axiom in the law on contracts that a person not a
party to an agreement cannot be affected thereby. Worse, not only was the conditional
sale agreement executed without the consent of the mortgagee-creditor, United Savings
Bank, the same was also a material breach of the stipulations of the real estate
mortgage over the subject property.
The petitioner as opposed to Kambiyak Chan bears a TCT, deeds of assignment,

certificates of sale in its favor showing that it has a better right to possession of the
disputed land.
SLU SOL 1-C Page
250
Art. 1182, Potestative Suspensive Conditions
FIDELA DEL CASTILLO Vda. DE MISTICA, petitioner,

vs.
SPOUSES BERNARDINO NAGUIAT and MARIA PAULINA GERONA-NAGUIAT,
respondents.
G.R. No. 137909 December 11, 2003
Facts: Eulalio Mistica, predecessor-in-interest of herein petitioner, is the owner of a

parcel of land, and a portion thereof was leased to Bernardino sometime in 1970. On
April 5, 1979, Eulalio Mistica entered into a contract to sell with Bernardino over a
portion of the aforementioned lot containing an area of 200 square meters. This
agreement was reduced to writing in a Kasulatan. Pursuant to said agreement,
Bernardino gave a downpayment of P2,000.00 and another partial payment of
P1,000.00 on February 7, 1980. However, he failed to make any payments thereafter.
Eulalio Mistica died sometime in October 1986.
On December 4, 1991, petitioner filed a complaint for rescission alleging that the failure
and refusal of respondents to pay the balance of the purchase price constitutes a
violation of the contract which entitles her to rescind the same; that respondents have
been in possession of the subject portion and they should be ordered to vacate and
surrender possession of the same to petitioner; that the reasonable amount of rental for
the subject land is P200.00 a month; that on account of the unjustified actuations of
respondents, petitioner has been constrained to litigate where she incurred expenses
for attorneys fees and litigation expenses.
Issue: Whether or not there is a potestative suspensive condition in the Kasulatan.
Ruling: The failure of respondents to pay the balance of the purchase price within ten
years from the execution of the Deed did not amount to a substantial breach. It was
stipulated that payment could be made even after ten years from the execution of the
Contract, provided the vendee paid 12 percent interest.
Moreover, it is undisputed that during the ten-year period, petitioner and her deceased
husband never made any demand for the balance of the purchase price. Petitioner even
refused the payment tendered by respondents during her husbands funeral, thus
showing that she was not exactly blameless for the lapse of the ten-year period. Had
she accepted the tender, payment would have been made well within the agreed period.
If petitioner would like to impress upon the Court that the parties intended otherwise,
she has to show competent proof to support her contention. Instead, she argues that
the period cannot be extended beyond ten years, because to do so would convert the
SLU SOL 1-C Page
251
buyers obligation to a purely potestative obligation that would annul the contract under
Article 1182 of the Civil Code.
The Code prohibits purely potestative, suspensive, conditional obligations that depend
on the whims of the debtor, because such obligations are usually not meant to be
fulfilled. Indeed, to allow the fulfillment of conditions to depend exclusively on the
debtors will would be to sanction illusory obligations. The Kasulatan does not allow
such thing. First, nowhere is it stated in the Deed that payment of the purchase price is
dependent upon whether respondents want to pay it or not. Second, the fact that they
already made partial payment thereof only shows that the parties intended to be bound
by the Kasulatan.
Affirmed with the modification that the payment for the extra 58-square meter lot
included in respondents title is deleted.
SLU SOL 1-C Page
252
Hermosa v. Longara, 93 P 971
LUZ HERMOSA, as administratrix of the Intestate Estate of Fernando Hermosa,

Sr., and FERNANDO HERMOSA, JR., petitioners,
vs.
EPIFANIO M. LONGARA, respondent.
G.R. No. L-5267 October 27, 1953
Facts: Intestate Fernando Hermosa, Sr. asked for three (3) credit advances from
respondent Epifanio M. Longara. Two (2) of said credit advances were made during his
lifetime and in his favor and in his son while the last credit was made after his death and
in favor of his grandson. Evidences show that said credits were asked by the intestate
on condition that their payment should be made by him, as soon as he receives funds
derived from the sale of his property in Spain. After the intestates death and upon
authorization of the probate court, the administration of the intestates property, his wife,
sold the property and the same was paid for subsequently. As a consequence,
respondent filed an action for the payment of the aforesaid credits which was upheld by
the lower court and by the Court of Appeals. However, the same was contested by
herein petitioners, heirs of the intestate, on the ground that the obligation contracted by
the intestate was subject to a condition exclusively dependent upon the will of the
debtor condicion potestiva and therefore null and void, in accordance with article 1115 of
the Old Civil Code.
Issue: Whether or not the condition made in the obligation is a purely suspensive
condition dependent or potestative upon the exclusive will of the debtor.
Ruling: No, the condition of the obligation was that the payment was to be made as
soon as he (obligor) receives funds from the sale of his property in Spain. The will to sell
on the part of the debtor (intestate) was present in fact or presumed legally to exist
although the price and other condition thereof were still within his discretion and final
approval. But in addition to this acceptability of the sale to him (obligor), there were still
other conditions that had to concur to effect the sale, mainly that of the presence of a
buyer, ready, able and willing to purchase the property under the condition demanded
by the vendor.
SLU SOL 1-C Page
253
Trillana v. Quezon Colleges, 93 P 383
NAZARIO TRILLANA, administrator-appellee,

vs.
QUEZON COLLEGE, INC., claimant-appellant.
G.R. No. L-5003 June 27, 1953
Facts: On June 1, 1948, Damasa Crisostomo applied for 200 shares of stock worth
PhP100.00 each at Quezon Colleges, Inc. Within her letter of application, she
stipulated, You will find (Babayaran kong lahat pagkatapos na ako ay makapag-pahuli
ng isda) pesos as my initial payment and the balance payable in accordance with law
and the rules and regulations of the Quezon College. Damasa died on October 26,
1948. Since no payment was rendered on the subscription made in the foregoing letter,
Quezon College presented a claim of PhP20,000.00 on her intestate proceedings. The
petitioner administrator of the estate then contests the validity of said proceedings.
Issue: Whether or not the condition laid down by Damasa Crisostomo is valid.
Ruling: There is nothing in the record to show that the Quezon College, Inc. accepted
the term of payment suggested by Damasa Crisostomo, or that if there was any
acceptance the same came to her knowledge during her lifetime. As the application of
Damasa Crisostomo is obviously at variance with the terms evidenced in the form letter
issued by the Quezon College, Inc., there was absolute necessity on the part of the
College to express its agreement to Damasas offer in order to bind the latter.
Conversely, said acceptance was essential, because it would be unfair to immediately
obligate the Quezon College, Inc. under Damasas promise to pay the price of the
subscription after she had caused fish to be caught. Thus, it cannot be said that the
letter ripened into a contract.
Indeed, the need for express acceptance on the part of the Quezon College, Inc.
becomes the more imperative, in view of the proposal of Damasa Crisostomo to pay the
value of the subscription after she has harvested fish, a condition obviously dependent
upon her sole will and, therefore, facultative in nature, rendering the obligation void.
Under the Civil Code it is provided that if the fulfillment of the condition should depend
upon the exclusive will of the debtor, the conditional obligation shall be void.
SLU SOL 1-C Page
254
Art. 1184, Positive Suspensive Conditions
Visayan Sawmill v. CA, 219 S 378
VISAYAN SAWMILL COMPANY, INC., and ANG TAY, petitioners,

vs.
THE HONORABLE COURT OF APPEALS and RJH TRADING, represented by
RAMON J. HIBIONADA, proprietor, respondents.
G.R. No. 83851 March 3, 1993
Facts: On May 1, 1983, herein plaintiff-appellee and defendants appellants entered into
a sale involving scrap iron, subject to the condition that plaintiff-appellee will open a
letter of credit in the amount of P250,00.00 in favor of defendant-appellant corporation
on or before May 15, 1983. On May 24, 1983, plaintiff-appellee informed defendants-
appellants by telegram that the letter of credit was opened May 12, 1983 at the BPI
main office in Ayala, but that transmittal was delayed. On May 26, 1983, defendants-
appellants received a letter advice from the Dumaguete City Branch of BPI dated May
26, 1983, that a domestic letter of credit had been opened in favor of Visayan Sawmill
Company. On July 19, 1983 plaintiffs then demanded that defendants comply with the
deed of sale. On July 20, 1983 defendant corporation informed plaintiffs lawyer that it is
unwilling to continue with the sale due to plaintiffs failure to comply with the essential
preconditions of the contract. Private respondent prayed for judgment ordering the
petitioner corporation to comply with the contract by delivering to him the scrap iron
subject thereof.
Issue: Whether or not the private respondents non-compliance with essential

precondition justified the cancellation of the contract.
Ruling: The Supreme Court held that the nature of the transaction between the
petitioner company and the private respondent is a mere contract to sell, and not a
contract of sale. The petitioner companys obligation is subject to a positive suspensive
condition, which is the private respondents opening, making or indorsing of an
irrevocable and unconditional letter of credit. The failure of the private respondent to
comply with the positive suspensive condition cannot even be considered a breach but
simply an event that prevented the obligation of Petitioner Company to convey title from
acquiring binding force. Hence, the petition is granted and the assailed decision is
reversed.
SLU SOL 1-C Page
255
CARMELITA LEAO, assisted by her husband GREGORIO CUACHON, petitioner,

vs.
COURT OF APPEALS and HERMOGENES FERNANDO, respondents.
G.R. No. 129018 November 15, 2001
Facts: Hermogenes Fernando, as vendor and Carmelita Leano, as vendee executed a

contract to sell involving a piece of land. In the contract, Leano bond herself to pay
Fernando the sum of P107,750 as the total purchase price. P10,775 shall be paid at the
signing of the contract; P96,975 shall be paid within 10 yrs. at a monthly amortization of
P1,747.30 to begin from Dec. 7, 1985 with interest of 18% per annum; 18% per annum
shall be charged if the month of grace period expires w/out the installments; should the
90 days elapse from the expiration of the grace period, Respondent was authorized to
declare the contract cancelled & to dispose of the land. Carmelita Leano made several
payments in lump sum. Thereafter she constructed a house (P800K). Last payment she
made was on April 1989.
Trial Court rendered decision in an ejectment case filed by Fernando. Leano filed with
the RTC for specific performance with preliminary injunction and assailing that for being
violative of her right to due process being contrary to R.A 6552 regarding protection to
buyers of lots on installments. According to Trial Court, transaction was an absolute
sale, making Leano the owner upon actual & constructive delivery thereof. Fernando
divested of ownership & cannot recover the same unless rescinded under Art. 1592
Issue: Whether or not the transaction was an absolute sale or conditional sale.
Ruling: It was a conditional sale because the intention of the parties was to reserve the
ownership of the land in the seller until the buyer has paid the total purchase price.
Consideration:
(a) Contract was subject to condition.
(b) What was transferred was the possession & not ownership.
(c) It was covered by Torrens title. Act of Registration was the operative act that could
transfer ownership.
What was transferred was the possession of the property, not ownership. In a contract
to sell real property on installments, the full payment of the purchase price is a positive
suspensive condition, the failure of which is not considered a breach, casual or serious,
but simply an event that prevented the obligation of the vendor to convey title from
acquiring any obligatory force. The transfer of ownership and title would occur after full
payment of the price. No proper cancellation as Leano was not given the cash
surrender value. She may still reinstate the contract by updating the account during
grace period & before actual cancellation.
SLU SOL 1-C Page
256
Effects of Non-Fulfillment of Suspensive Condition
De Leon v. Ong, 2 February 2010
RAYMUNDO S. DE LEON, petitioner,

vs.
BENITA T. ONG, respondent.
G.R. No. 170405 February 2, 2010
Facts: On March 10, 1993, Raymundo S. De Leon (petitioner) sold 3 parcels of land to
Benita T. Ong (respondent). The said properties were mortgaged to a financial
institution; Real Savings & Loan Association Inc. (RSLAI). The parties then executed a
notarized deed of absolute sale with assumption of mortgage. As indicated in the deed
of mortgage, the parties stipulated that the petitioner (De Leon) shall execute a deed of
assumption of mortgage in favor of Ong (respondent) after full payment of the
P415,000. They also agreed that the respondent (Ong) shall assume the mortgage. The
respondent then subsequently gave petitioner P415,000 as partial payment. On the
other hand, De Leon handed the keys to Ong and De Leon wrote a letter to inform
RSLAI that Ong will assume the mortgage. Thereafter, the respondent took repairs and
made improvements in the properties. Subsequently, respondent learned that the same
properties were sold to a certain viloria after March 10, 1993 and changed the locks,
rendering the keys given to her useless. Respondent proceeded to RSLAI but she was
informed that the mortgage has been fully paid and that the titles have been given to the
said person. Respondent then filed a complaint for specific performance and declaration
of nullity of the second sale and damages.
The petitioner contended that respondent does not have a cause of action against him
because the sale was subject to a condition, which requires the approval of RSLAI of
the mortgage. Petitioner reiterated that they only entered into a contract to sell. The
RTC dismissed the case. On appeal, the CA upheld the sale to respondent and nullified
the sale to Viloria. Petitioner moved for reconsideration to the SC.
Issue: Whether or not the parties entered into a contract of sale or a contract to sell.
Ruling: In a contract of sale, the seller conveys ownership of the property to the buyer
upon the perfection of the contract. The non-payment of the price is a negative
resolutory condition. Contract to sell is subject to a positive suspensive condition. The
buyer does not acquire ownership of the property until he fully pays the purchase price.
In the present case, the deed executed by the parties did not show that the owner
intends to reserve ownership of the properties. The terms and conditions affected only
the manner of payment and not the immediate transfer of ownership. It was clear that
the owner intended a sale because he unqualifiedly delivered and transferred ownership
of the properties to the respondent.
SLU SOL 1-C Page
257
Heirs of Sandejas v. Lina, 351 S 183
HEIRS OF SANDEJAS, petitioner,

vs.
ALEX A. LINA, respondent.
G.R. No. 141634 February 5, 2001
Facts: Eliodoro Sendejas, Sr., served as administrator of the estate of Remedios R.

Sandejas. Eliodoro, in his capacity as seller, bound and obligated himself,
administrators, and assigns, to sell forever and absolutely and in their entirety parcels of
lands which formed part of the estate of the late Remedios to one Mr. Alex A. Lina for
the consideration of P1 Million. Eliodoro died and Mr. Alex Lina served as temporary
administrator of the estate until he was replaced by the heir of Eliodoro, Sixto Sandejas.
Mr. Lina filed an Omnibus motion to approve the deed of conditional sale executed
between Plaintiff-in-Intervention Alex A. Lina and Eliodoro Sandejas, Sr. on June 7,
1982. The administrator Sixto filed a motion to dismiss.
Issue: Whether or not Eliodoro P. Sandejas Sr. is legally obligated to convey title to the
property referred to in the subject document which was found to be in the nature of a
contract to sell - where the suspensive condition set forth therein, was not complied
with.
Ruling: Petitioners argue that the CA erred in ordering the conveyance of the disputed
3/5 of the parcels of land, despite the non-fulfillment of the suspensive condition -- court
approval of the sale. They assert that because this condition had not been satisfied,
their obligation to deliver the disputed parcels of land was converted into a money claim.
Petitioners admit that the agreement between the deceased Eliodoro Sandejas Sr. and
respondent was a contract to sell, in which case the payment of the purchase price is a
positive suspensive condition. The vendor's obligation to convey the title does not
become effective in case of failure to pay. On the other hand, the agreement between
Eliodoro Sr. and respondent is subject to a suspensive condition -- the procurement of a
court approval, not full payment. There was no reservation of ownership in the
agreement. Petitioners were supposed to deed the disputed lots over to respondent.
They could do this upon the court's approval, even before full payment. Hence, their
contract was a conditional sale, rather than a contract to sell. When a contract is subject
to a suspensive condition, its birth or effectivity can take place only if and when the
condition happens or is fulfilled. Thus, the intestate court's grant of the Motion for
Approval of the sale filed by respondent resulted in petitioners' obligation to execute the
Deed of Sale of the disputed lots in his favor. The condition having been satisfied, the
contract was perfected. Henceforth, the parties were bound to fulfill what they had
expressly agreed upon.
SLU SOL 1-C Page
258
Arts. 1193-1198, Obligations with a Term/Period
CIR v. Primetown, 28 August 2007
COMMISSIONER OF INTERNAL REVENUE and ARTURO V. PARCERO in his

official capacity as Revenue District Officer of Revenue District No. 049 (Makati),
petitioners,
vs.
G.R. No. 162155 August 28, 2007
Facts: On March 11, 1999, Gilbert Yap, vice chair of respondent Primetown Property
Group, Inc., applied for the refund or credit of income tax respondent paid in 1997.
According to Yap, because respondent suffered losses, it was not liable for income
taxes. Nevertheless, respondent paid its quarterly corporate income tax and remitted
creditable withholding tax from real estate sales to the BIR in the total amount of
P26,318,398.32. Therefore, respondent was entitled to tax refund or tax credit. On May
13, 1999, revenue officer Elizabeth Y. Santos required respondent to submit additional
documents to support its claim. Respondent complied but its claim was not acted upon.
Thus, on April 14, 2000, it filed a petition for review in the Court of Tax Appeals (CTA).
On December 15, 2000, the CTA dismissed the petition as it was filed beyond the two-
year prescriptive period for filing a judicial claim for tax refund or tax credit.
Respondents now assail that decision for dismissal of the CTA.
Issue: Whether or not the period for the filing of the action has expired.
Ruling: Both Article 13 of the Civil Code and Section 31, Chapter VIII, Book I of the
Administrative Code of 1987 deal with the same subject matter the computation of
legal periods. Under the Civil Code, a year is equivalent to 365 days whether it be a
regular year or a leap year. Under the Administrative Code of 1987, however, a year is
composed of 12 calendar months. Needless to state, under the Administrative Code of
1987, the number of days is irrelevant. There obviously exists a manifest incompatibility
in the manner of computing legal periods under the Civil Code and the Administrative
Code of 1987. For this reason, we hold that Section 31, Chapter VIII, Book I of the
Administrative Code of 1987, being the more recent law, governs the computation of
legal periods. Lex posteriori derogat priori. Following this formula, respondents petition
(filed on April 14, 2000) was filed on the last day of the 24th calendar month from the
day respondent filed its final adjusted return. Hence, it was filed within the reglementary
period.
SLU SOL 1-C Page
259
NAMARCO v. Tecson, 139 P 584
NATIONAL MARKETING CORPORATION, plaintiff-appellant,

vs.
MIGUEL D. TECSON, ET AL., defendants,
MIGUEL D. TECSON, defendant-appellee,
THE INSURANCE COMMISSIONER, petitioner.
G.R. No. L-29131 August 27, 1969
Facts: On November 14, 1955, in the civil case entitled "Price Stabilization Corporation
vs. Miguel D. Tecson and Alto Surety and Insurance Co., Inc.," the CFI ordered Tecson
and Alto Surety to pay jointly and severally PRATRA and for Tecson to indemnify Alto
Surety.
A copy of the decision was served upon Tecson and Alto Surety on November 21, 1955.
On December 21, 1965, the National Marketing Corporation, as successor to all the
properties, assets, rights, and choses in action of the Price Stabilization Corporation,
filed a complaint against Tecson and Alto Surety for the revival of the judgment. Tecson
moved to dismiss upon the ground of lack of jurisdiction and prescription of action. The
CFI indeed dismissed the complaint for having prescribed.
The National Marketing Corp. appealed to the CA, which certified the case to the SC.
Issue: Whether or not the action for the revival of a judgment was barred by the statute
of limitations.
Ruling:
Pursuant to Art. 1144(3) of the Civil Code, an action upon a judgment "must be brought
within 10 years from the time the right of action accrues," which, in the language of Art.
1152 "commences from the time the judgment sought to be revived has become final."
This took place on December 21, 1955. The issue is thus confined to the date on which
10 years from December 21, 1955 expired.
Pursuant to Art. 7 of the Civil Code, whenever months are referred to in the law, it shall
be understood that the months are of 30 days, not the "natural" or "solar" or "calendar"
months, unless they are designated by name. This concept was later modified by Sec.
13 of the Revised Administrative Code, pursuant to which, a month shall be understood
to refer to a calendar month. In the language of the SC in People vs. Del Rosario, with
the approval of the Civil Code of the Philippines (RA 386), it shall be understood that
years are of 365 days.
The order appealed from was affirmed.

SLU SOL 1-C Page
260
Distinctions: Condition v. Period/Term
Berg v. Magdalena Estates, 92 P 110
ERNEST BERG, plaintiff,

vs.
MAGDALENA ESTATE INC., defendant.
G.R. No. L-3784 October 17, 1952
Facts: The complaint avers that plaintiff and defendant are co-owners of said property,
the former being the owner of one-third interest and the latter of the remaining two-
thirds. The division is asked because plaintiff and defendant are unable to agree upon
the management of the property and upon the partition thereof.
Defendant answered setting up a special defense and counterclaim. As a special

defense, defendant claims that on September 22, 1943, it sold to plaintiff one-third of
the property in litigation subject to the express condition that should either vendor or
vendee decide to sell his undivided share, the party selling would grant to the other
party first an irrevocable option to purchase the same at the sellers price. It avers that
in January 1946, plaintiff fixed the sum of P200,000 as the price of said share and
offered to sell it to defendant, which offer was accepted and for the payment of said
price plaintiff gave defendant a period of time which, including the extensions granted
would expire on May 31, 1947. Defendant claims that in spite of its acceptance of the
offer, plaintiff refused to accept the payment of the price, and for this refusal defendant
suffered damages in the amount of P100,000. For these reasons, defendant asks for
specific performance.
Issue: Whether or not the obligation is one subject to a term.
Ruling: No, the obligation is rather subject to a condition. Under Article 1125 of the old
Civil Code, obligations with a term, for the fulfilment of which a day certain has been
fixed, shall be demandable only when the day arrives. A day certain is understood to be
that which must necessarily arrive, even though it is not known when. In order that an
obligation may be with a term, it is, therefore, necessary that it should arrive, sooner or
later; otherwise, if its arrival is uncertain, the obligation is conditional. Viewing in this
light the clause on which defendant relies for the enforcement of its right to buy the
property, it would seem that it is not a term, but a condition.
Considering the first alternative, that is, until defendant shall have obtained a loan from
the National City Bank of New York, it is clear that the granting of such loan is not
definite and cannot be held to come within the terms day certain. And if it is considered
that the period given was until such time as defendant could raise money from other
sources, then it is also to be indefinite and contingent, and so it is also a condition and
not a term within the meaning of the law. In any event, it is apparent that the fulfillment
of the condition contained in this second alternative is made to depend upon
SLU SOL 1-C Page
261
defendants exclusive will, and viewed in this light, the plaintiffs obligation to sell did not
arise, for, under article 1115 of the old Civil Code, when the fulfillment of the condition
depends upon the exclusive will of the debtor the conditional obligation shall be void.
SLU SOL 1-C Page
262
Lirag v. CA, 63 S 375
LIRAG TEXTILE MILLS, INC. and FELIX K. LIRAG, petitioners,

vs.
COURT OF APPEALS and CRISTAN ALCANTARA, respondents.
G.R. No. L-30736 April 14, 1975
Facts: On May 11, 1960 and for some time prior and subsequent thereto, defendant
Felix Lirag was a member of the Board of Directors of the Philippine Chamber of
Industries; and for about two months, more or less, prior to May 11, 1960, plaintiff
Cristina Alcantara worked in a temporary capacity with defendant Lirag Textile Mills, Inc.
During this same period of time, defendant Felix Lirag was a director and Chairman of
the Board of Directors of defendant Lirag Textile Mills, Inc.
On May 9, 1960, defendant Lirag Textile Mills, Inc. wrote a letter to plaintiff (Alcantara)
advising him that, effective May 11, 1960, his temporary designation as Technical
Assistant to the Administrative Officer was made permanent and as Assistant to the
Administrative Officer of the Lirag Textile Mills, Inc. Plaintiff's tenure of employment, per
defendant Lirag Textile Mills, Inc.'s above letter of May 9, 1960 was to be 'for an
indefinite period, unless sooner terminated by reason of voluntary resignation or by
virtue of a valid cause or causes.
On March 4, 1960, per letter of defendant Lirag Textile Mills, Inc. of that date, signed by
its Executive Vice President and General Manager, plaintiff was advised that effective
November 15, 1960 he (Alcantara) was promoted to the position of Assistant
Administrative Officer. Subsequently, on July 22, 1961, defendant Lirag Textile Mills, Inc.
wrote plaintiff (Alcantara) a letter advising him that because the company 'has suffered
some serious reverses, both in terms of pecuniary loss and in market opportunities,' the
company was terminating his services and effecting his separation from defendant
corporation effective at the close of working hours of August 22, 1961. Because of this,
plaintiff Alcantara filed a complaint before the Regional Trial Court against defendant
Lirag Textile Mills Inc. for illegal dismissal as in accordance with the employment
contract between herein then plaintiff and then defendant. Respondent Court of Appeals
affirmed the decision of the lower court.
Issue: Whether or not there has been a violation of the written contract for a period of
employment between petitioner and private respondent.
Ruling: Yes. It is clear that petitioner Lirag Textile Mills, Inc. violated the contract of
employment with private respondent Alcantara when the former terminated his services
without a valid cause. The act was attended with bad faith and deceit because said
petitioner made false allegations of a supposed valid cause knowing them to be false,
thus making itself liable for payment of actual, moral and exemplary damages, plus
attorneys fees to private respondent Alcantara. Petitioner Lirag Textile Mills, Inc. cannot
with impunity be allowed the absolute and unilateral power to terminate without valid
SLU SOL 1-C Page
263
cause a contract of employment with a definite period it voluntarily entered into merely
on the basis of its whim or caprice and under the false pretense of financial distress. To
countenance its wrongful act would be to place its employees in the disadvantageous
position of not being able to protect themselves from the arbitrary, oppressive and
wrongful acts of an economically powerful employer. The laudable ends of social justice
would not be served in that manner, especially in the era of a compassionate society.
SLU SOL 1-C Page
264
Daguhoy v. Ponce, 96 P 15
DAGUHOY ENTERPRISES, INC., petitioner,

vs.
RITA L. PONCE, with whom is joined her husband, DOMINGO PONCE,
respondents.
G.R. No. L-6515 October 18, 1954
Facts: In the year 1950, defendant-appellant Domingo Ponce was Chairman and
Manager and his son Buhay M. Ponce was Secretary-Treasurer, of the plaintiff
corporation Daguhoy Enterprises, Inc. on June 24th of said year Rita L. Ponce, wife of
Domingo, executed in favor of plaintiff corporation a deed of mortgage over a parcel of
land including the improvements thereon, situated in Manila, to secure the payment of a
loan of P5,000 granted to her by said corporation, payable within six years with interest
at 12 per cent per annum. On March 10, 1951, Rita L. Ponce with the consent of her
husband Domingo executed another mortgage deed amending the first one, whereby
the loan was increased from P5,000 to P6,190, the terms and conditions of the
mortgage remaining the same. Rita and Domingo presented the two mortgage deeds
for registration in the office of the register of deeds, but the said register after going over
the papers noted defects and deficiencies and advised Rita and Domingo to cure the
defects and furnish the necessary data. Instead of complying with the suggestion and
requirements, the two withdrew the two mortgage deeds and then mortgaged the same
parcel of land in favor of the Rehabilitation Finance Corporation (RFC) to secure a loan.
Issue: Whether or not the debtor lost the benefit of the period because of the condition.
Ruling: Although the original loan of P5,000.00 including the increase of P1,190 was
payable within six years from June 1950, and so did not become due and payable until
1956, the trial court held that under article 1198 of the new Civil Code, the debtor lost
the benefit of the period by reason of her failure to give the security in the form of the
two deeds of mortgage and register them, including the defendants' act in withdrawing
said two deeds from the office of the register of deeds and then mortgaging the same
property in favor of the RFC; and so the obligation became pure and without any
condition and consequently, the loan became due and immediately demandable. On
this, we agree with the trial court.
SLU SOL 1-C Page
265
Victorias Planters v. Victorias Milling, 97 P 318
VICTORIAS PLANTERS ASSOCIATION, INC., NORTH NEGROS PLANTERS

ASSOCIATION, INC., FERNANDO GONZAGA, JOSE GASTON and CESAR L.
LOPEZ, on their own behalf and on behalf of other sugar cane planters in
Manapla, Cadiz and Victorias Districts, petitioners-appellees,
vs.
VICTORIAS MILLING CO., INC., respondent-appellant.
G.R. No. L-6648 July 25, 1955
Facts: From 1917 to 1934, the sugar cane planters Manapla and Cadiz, Negros
Occidental, executed identical milling contracts, under which the sugar central "North
Negros Sugar Co. Inc." would mill the sugar produced by the sugar cane planters of the
Manapla and Cadiz districts.
The sugar cane planters of Manapla and Cadiz, Negros Occidental had executed with
Miguel J. Ossorio, a contract whereby Ossorio was given a period up to December 31,
1916 within which to make a study of and decide whether he would construct a sugar
central or mill with a capacity of milling 300 tons of sugar cane every 24 hours and
setting forth the mutual obligations and undertakings of such central and the planters
and the terms and conditions under which the sugar cane produced by said planters
would be milled in the event of the construction of such sugar central by Ossorio. Such
central was in fact constructed by said Ossorio in Manapla, Negros Occidental, through
the North Negros Sugar Co., Inc., where after the standard form of milling contracts
were executed.
The parties cannot stipulate as to the milling contracts executed by the planters by
Victorias, Negros Occidental, other than as follows: 1) a number of them executed such
milling contracts with the North Negros Sugar Co., Inc.; 2) while a number of them
executed milling contracts with the Victorias Milling Co., Inc., which was likewise
organized by Miguel J. Ossorio and which had constructed another Central at Victorias,
Negros Occidental. The North Negros Sugar Co., Inc. had its first milling during the
1918-1919 crop years, and the Victorias Milling Co., had its first milling during the 1921-
1922 crop year. Subsequent millings took place every successive crop year thereafter,
except the 6-year period, comprising 4 years of the last World War II and 2 years of
post-war reconstruction of respondent's central at Victorias, Negros Occidental.
After the liberation, the North Negros Sugar Co., Inc. did not reconstruct its destroyed
central at Manapla, Negros Occidental, and in 1946, it advised the North Negros
Planters Association, Inc. that it had made arrangements with the respondent Victorias
Milling Co., Inc. for said respondent corporation to mill the sugar cane produced by the
planters of Manapla and Cadiz holding milling contracts with it. Thus, after the war, all
the sugar cane produced by the planters of petitioner associations, in Manapla, Cadiz,
as well as in Victorias, who held milling contracts, were milled in only one central, that of
the respondent corporation at Victorias. Beginning with the year 1948, and in the
SLU SOL 1-C Page
266
following years, when the planters-members of the North Negros Planters Association,
Inc. considered that the stipulated 30-year period of their milling contracts executed in
the year 1918 had already expired and terminated in the crop year 1947-1948, and the
planters-members of the Victorias Planters Association, Inc. likewise considered the
stipulated 30-year period of their milling contracts, as having likewise expired and
terminated in the crop year 1948-1949, under the pertinent provisions of the standard
milling contract. Notwithstanding the repeated representations made by the herein
petitioners with the respondent corporation, the herein respondent has refused and still
refuses to accede to the same, contending that under the provisions of the milling
contract.
Issue: Whether or not the trial court erred in rendering its disputed decision, favoring
the petitioner.
Ruling: No. Fortuitous event relieves the obligor from fulfilling a contractual obligation.
The fact that the contracts make reference to "first milling" does not make the period of
thirty (30) years one of thirty (30) milling years. The term "first milling" used in the
contracts under consideration was for the purpose of reckoning the thirty-year period
stipulated therein. Even if the thirty-year period provided for in the contracts be
construed as milling years, the deduction or extension of six (6) years would not be
justified. At most on the last year of the thirty-year period stipulated in the contracts the
delivery of sugar cane could be extended up to a time when all the amount of sugar
cane raised and harvested should have been delivered to the appellant's mill as agreed
upon.
SLU SOL 1-C Page
267
Art. 1180 in relation to Art. 1197, Potestative Period
Jespajo v. CA, 390 S 27
JESPAJO REALTY CORPORATION, petitioner,

vs.
HON. COURT OF APPEALS, TAN TE GUTIERREZ and CO TONG, respondents.
G.R. No. 113626 September 27, 2002
Facts: The subject of this controversy is an apartment building owned by Jespajo

Realty Corporation. Said corporation, represented by its President, Jesus L. Uy, entered
into separate contracts of lease with Tan Te Gutierrez and Co Tong. The lease period
shall be effective as of February 1, 1985 and shall continue for an indefinite period
provided the lessee is up-to-date in the payment of his monthly rentals. The lessee may,
at his option, terminate this contract any time by giving sixty (60) days prior written
notice of termination to the lessor. However, violation of any of the terms and conditions
of this contract shall be a sufficient ground for termination thereof by the lessor. For the
duration of the contract, the lessee agrees to an automatic 20% yearly increase in the
monthly rentals. On January 2, 1990, the lessor corporation sent a written notice to the
lessees informing them of the former's intention to increase the monthly rentals on the
occupied premises to P3,500.00 monthly effective February 1, 1990. The lessees
through its counsel in a letter dated March 10, 1990 manifested their opposition alleging
that the same is in contravention of the terms of the contract of lease as agreed upon.
Due to the opposition and the failure of the lessees to pay the increased monthly rentals
in the amount of P3,500.00, the lessor through its counsel in a letter dated April 10,
1990 demanded that the lessees vacate the premises and pay the amount of P7,000.00
corresponding to the months of February and March, 1990. The lessees exerted effort
to pay the rentals due for the months of February and March 1990 at the monthly rate
stipulated in the contract but was refused by the lessor so that on May 2, 1990, they
instituted before the Metropolitan Trial Court of Manila, Branch 16 a case for
consignation. The trial judge in the consignation case issued an order allowing the
plaintiffs therein to deposit with the City Treasurer of Manila the amount of P33,480.28
for Co Tong and the amount of P32,710.32 for Tan Te Gutierrez representing their
respective rentals for thirteen (13) months from February, 1990 to January, 1991. More
than six (6) months from the filing of the case for consignation, the lessor instituted an
ejectment suit against the lessees before the Metropolitan Trial Court of Manila Branch
20. The court in its decision dismissed the ejectment suit for lack of merit. Regional Trial
Court is constrained to reverse the appealed decision and ordered another judgment to
be entered in favor of appellant. This was, however, reversed by the Court of Appeals.
Issue: Whether or not the subject contract of lease did not provide for a definite period;
hence it falls under the ambit of Art. 1687 of the NCC, making the agreement effective
on a month-to-month basis since rental payments are made monthly.
SLU SOL 1-C Page
268
Ruling: No. The Court held that Art. 1687 finds no application in the case at bar. The
lease contract between petitioner and respondents is with a period subject to a
resolutory condition. Art. 1687 provides that if the period for the lease has not been
fixed, it is understood to be from year to year, if the rent agreed upon is annual; from
month to month, if it is monthly; from week to week, if the rent is weekly; and from day
to day, if the rent is to be paid daily. However, even though a monthly rent is paid, and
no period for the lease has been set, the courts may fix a longer term for the lease after
the lessee has occupied the premises for over one year.
If the rent is weekly, the courts may likewise determine a longer period after the lessee
has been in possession for over six months. In case of daily rent, the courts may also fix
a longer period after the lessee has stayed in the place for over one month. The
wording of the agreement is unequivocal: The lease period shall continue for an
indefinite period provided the lessee is up-to-date in the payment of his monthly rentals.
The condition imposed in order that the contract shall remain effective is that the lessee
is up-to-date in his monthly payments. It is undisputed that the lessees Gutierrez and
Co Tong religiously paid their rent at the increasing rate of 20% annually. The
agreement between the lessor and the lessees are therefore still subsisting, with the
original terms and conditions agreed upon, when the petitioner unilaterally increased the
rental payment to more than 20% or P3,500.00 a month.
SLU SOL 1-C Page
269
Borromeo v. CA, 47 S 65
PILAR N. BORROMEO, MARIA B. PUTONG, FEDERICO V. BORROMEO, JOSE

BORROMEO, CONSUELO B. MORALES and CANUTO V. BORROMEO, JR.,
petitioners,
vs.
COURT OF APPEALS and JOSE A. VILLAMOR, (Deceased) Substituted by FELISA
VILLAMOR, ROSARIO V. LIAO LAMCO, MANUEL VILLAMOR, AMPARO V.
COTTON, MIGUEL VILLAMOR and CARMENCITA VILLAMOR, respondents.
G.R. No. L-22962 September 28, 1972
Facts: Before the year 1933, defendant [Jose A. Villamor] was a distributor of lumber
belonging to Mr. Miller who was the agent of the Insular Lumber Company in Cebu City.
Defendant being a friend and former classmate of plaintiff [Canuto O. Borromeo] used
to borrow from the latter certain amounts from time to time. On one occasion with some
pressing obligation to settle with Mr. Miller, defendant borrowed from plaintiff a large
sum of money for which he mortgaged his land and house in Cebu City.
Mr. Miller filed civil action against the defendant and attached his properties including
those mortgaged to plaintiff, inasmuch as the deed of mortgage in favor of plaintiff could
not be registered because not properly drawn up. Plaintiff then pressed the defendant
for settlement of his obligation, but defendant instead offered to execute a document
promising to pay his indebtedness even after the lapse of ten years.
Liquidation was made and defendant was found to be indebted to plaintiff in the sum of
P7,220.00, for which defendant signed a promissory note therefor on November 29,
1933 with interest at the rate of 12% per annum, agreeing to pay 'as soon as I have
money'. The note further stipulates that defendant 'hereby relinquish, renounce, or
otherwise waive my rights to the prescriptions established by our Code of Civil
Procedure for the collection or recovery of the above sum of P7,220.00at any time
even after the lapse of ten years from the date of this instrument'. After the execution of
the document, plaintiff limited himself to verbally requesting defendant to settle his
indebtedness from time to time. Plaintiff did not file any complaint against the defendant
within ten years from the execution of the document as there was no property registered
in defendant's name, who furthermore assured him that he could collect even after the
lapse of ten years. After the last war, plaintiff made various oral demands, but
defendants failed to settle his account, hence the present complaint for collection.
Issue: Whether or not the period stipulated in the contract is valid.
Ruling: What emerges in the light of all the principles set forth above is that the first ten
years after November 29, 1933 should not be counted in determining when the action of
creditor, now represented by petitioners, could be filed. From the joint record on appeal,
it is undoubted that the complaint was filed on January 7, 1953. If the first ten-year
period was to be excluded, the creditor had until November 29, 1953 to start judicial
SLU SOL 1-C Page
270
proceedings. After deducting the first ten-year period which expired on November 29,
1943, there was the additional period of still another ten years.
SLU SOL 1-C Page
271
Gonzales v. Jose, 66 P 369
BENITO GONZALEZ, plaintiff-appellee,

vs.
FLORENTINO DE JOSE, defendant-appellant.
G.R. No. 43429 October 24, 1938
Facts: Defendant Florentino de Jose executed two (2) promissory notes on June 22,
1922 and September 13, 1922 in favor of plaintiff Benito Gonzales. The two (2)
promissory notes were both worded as follows: I promise to pay Mr. Benito Gonzalez
the sum of P (amount) as soon as possible. Defendant appealed from the decision of
the Court of First Instance of Manila ordering him to pay the plaintiff the sum of P547.95
within thirty (30) days from the date of notification of said decision, plus the costs. The
defendant interposed the defense of prescription because the action was not filed by the
plaintiff within the prescriptive period prescribed by law.
Issue: Whether or not the action has already prescribed.
Ruling: No. The words as soon as possible in the promissory notes denote that such is
an obligation subject to a potestative condition. Article 1128 of the Civil Code provides: If
the obligation does not specify a term, but it is to be inferred from its nature and
circumstances that it was intended to grant the debtor time for its performance, the
period of the term shall be fixed by the court. The action to ask the court to fix the period
has already prescribed in accordance with section 43 (1) of the Code of Civil Procedure.
This period of prescription is ten (10) years, which has already elapsed from the
execution of the promissory notes until the filing of the action on June 1, 1934. The
action which should be brought in accordance with Article 1128 is different from the
action for the recovery of the amount of the notes, although the effects of both are the
same, being, like other civil actions, subject to the rules of prescription.
SLU SOL 1-C Page
272
Arts. 1195-1197, Effects
Baluyut v. Poblete, 514 S 370
GUILLERMINA BALUYUT, petitioner,

vs.
EULOGIO POBLETE, SALUD POBLETE and THE HON. COURT OF APPEALS,
respondents.
G.R. No. 144435 February 6, 2007
Facts: On July 20, 1981, herein petitioner, Guillermina Baluyut (Baluyut), loaned from
the spouses Eulogio and Salud Poblete the sum of P850,000.00. As evidence of her
indebtedness, Baluyut signed, on even date, a promissory note for the amount
borrowed. Under the promissory note, the loan shall mature in one month. To secure the
payment of her obligation, she conveyed to the Poblete spouses, by way of a real estate
mortgage contract, a house and lot she owns, covered by Transfer Certificate of Title
(TCT) No. 137129 and located in Barrio Mapuntod, then Municipality of Mandaluyong,
Province of Rizal. Upon maturity of the loan, Baluyut failed to pay her indebtedness.
The Poblete spouses subsequently decided to extrajudicially foreclose the real estate
mortgage. On August 27, 1982, the mortgaged property was sold on auction by the
Provincial Sheriff of Rizal to the Poblete spouses who were the highest bidders, as
evidenced by a Certificate of Sale issued pursuant thereto. Baluyut failed to redeem the
subject property within the period required by law prompting Eulogio Poblete to execute
an Affidavit of Consolidation of Title. Subsequently, TCT No. 43445 was issued in the
name of Eulogio and the heirs of Salud, who in the meantime, died. However, Baluyut
remained in possession of the subject property and refused to vacate the same. Hence,
Eulogio and the heirs of Salud filed a Petition for the issuance of a writ of possession
with the RTC of Pasig. The case was docketed as Case No. R-3457. Subsequently, the
trial court issued an order granting the writ of possession. However, before Eulogio and
the heirs of Salud could take possession of the property, Baluyut filed an action for
annulment of mortgage, extrajudicial foreclosure and sale of the subject property, as
well as cancellation of the title issued in the name of Eulogio and the heirs of Salud,
plus damages. The case was docketed as Civil Case No. 52268 and was subsequently
consolidated with Case No. R-3457. In the meantime, Eulogio died and was substituted
by his heirs. After trial on the merits, the trial court issued a
Decision on September 13, 1995 dismissing Baluyuts complaint. Aggrieved by the trial
courts Decision, herein petitioner filed an appeal with the CA.
Issue: Whether or not the Honorable Court of Appeals gravely erred when it granted a
writ of possession to the herein respondents even though the decision and the
resolution are both palpably infirm in holding that (1) no prior demand to pay is
necessary for a loan to mature when there is conflict between the date of maturity of the
loan (2) the sheriff who conducted the foreclosure proceedings should be presumed to
have regularly performed his duty in conducting the foreclosure proceedings (3) the
Petitioner-Appellant failed to invoke her right to be sent an Assessment Notice by the
SLU SOL 1-C Page
273
highest bidder 30 days before the expiration of the right of legal redemption during the
trial and on appeal.
Ruling: The issue regarding the date of maturity of the loan is factual and settled is the
rule that only questions of law may be raised in a petition for review on certiorari under
Rule 45 of the Rules of Court, as the Supreme Court is not a trier of facts. It is settled
that an issue not raised during trial could not be raised for the first time on appeal.
When the terms of an agreement are reduced to writing, it is deemed to contain all the
terms agreed upon.
As to the second assigned error, the prevailing jurisprudence is that foreclosure

proceedings have in their favor the presumption of regularity and the burden of
evidence to rebut the same is on the petitioner. Moreover, the fact that the records of
the foreclosure proceedings involving the subject property could not be found does not
necessarily mean that the legal requirements of posting and publication had not been
complied with.
With regards to the third issue, the mortgagor or redemptioners are not required to be
furnished by the purchaser an Assessment Notice or Notice of Redemption prior to the
expiration of the period of redemption.
SLU SOL 1-C Page
274
Malayan Realty v. Uy, 10 November 2006
MALAYAN REALTY, INC. represented by ALBERTO C. DY., petitioner,

vs.
UY HAN YONG, respondent.
G.R. No. 163763 November 10, 2006
Facts: Malayan Realty Inc., entered into a verbal lease contract with Uy Han Yong over
an apartment unit located in Manila. After several years, Malayan sent Uy a written
notice informing him that the lease contract would no longer be renewed or extended.
Despite Uys receipt of the notice, he refused to vacate the property, prompting Malayan
to file before the Metropolitan Trial Court (MeTC) of Manila a complaint for ejectment.
MeTC held that Uy could not be ejected on the ground of termination of the contract.
The MeTC dismissed Malayans complaint. Malayan appealed to the Regional Trial
Court (RTC) which set aside the judgment of the MeTC. On the basis of Article 1687 of
the New Civil Code, the RTC extended the lease contract for a period of five years.
Malayan asserts that an extension of the period of a lease may be sought by thetenant
before, and not after the termination of the lease; and that Uy had sufficient time to
request for extension, given that the notice of termination of the lease was served upon
him more than 30 days before its effectivity, but that Uy did not so request even after the
complaint was filed in court. Malayan thus maintains that no equitable reason justifies
Uys continued possession of the property for more than four years from the time the
complaint for ejectment was filed.
The Court of Appeals (CA) modified the RTC decision by shortening the extension of
the lease contract to one year from the finality of the decision.
Issue: Whether or not CA erred in granting a one-year extension of the lease reckoned
from the finality of the decision.
Ruling: Under Article 1687 of the New Civil Code if the period of a lease contract has
not been specified by the parties, it is understood to be from month to month, if the rent
agreed upon is monthly. The lease contract thus expires at the end of each month,
unless prior thereto, the extension of said term has been sought by appropriate action
and judgment is eventually rendered therein granting the relief.
In the case at bar, the lease period was not agreed upon by the parties. Rental was paid
monthly, and Uy Han Yong has been occupying the premises since 1958. As earlier
stated, a written notice was served upon respondent on January 17, 2001 terminating
the lease effective August 31, 2001. As Uy han Yong was notified of the expiration of the
lease, effectively his right to stay in the premises had come to an end on August 31,
2001.
SLU SOL 1-C Page
275
The 2nd paragraph of Article 1687 provides, however, that in the event that the lessee
has occupied the leased premises for over a year, the courts may fix a longer term for
the lease.
The power of the courts to establish a grace period is potestative or discretionary,

depending on the particular circumstances of the case. Thus, a longer term may be
granted where equities come into play, and may be denied where none appears, always
with due deference to the parties' freedom to contract.
In the present case, Uy has remained in possession of the property from the time the
complaint for ejectment was filed on September 18, 2001 up to the present time.
Effectively, Uys lease has been extended for more than five years, which time is, under
the circumstances, deemed sufficient as an extension and for him to find another place
to stay.
SLU SOL 1-C Page
276
Kasapian ng Manggagawa ng Coca-Cola v. CA, 487 S 487
KASAPIAN NG MANGGAGAWA NG COCA-COLA, petitioner,

vs.
G.R. No. 132344 February 17, 2000
Facts: On June 1998, a Collective Bargaining Agreement which was in effect between
petitioner union and private respondent company expired. With the intervention of the
NCMB Administrator, on December 26, 1998, both parties executed and signed a MOA
providing for salary increases and other economic and non-economic benefits. As part
of the MOA, 61 employees were regularized. Consequently, petitioner demanded the
payment and benefits of the newly regularized employees retroactive to December 1,
1998. Petitioner then demanded renegotiation of the CBA which private respondent
refused. On December 9, 1999, despite the pendency of petitioners complaint before
the NLRC, private respondent closed its Manila and Antipolo plants resulting in the
termination of employment of 646 employees. The affected employees were considered
on paid leave from December 9, 1999 to February 29, 2009 and were paid their
corresponding salaries. The Petitioners amended their complaint to include union
busting, illegal dismissal, etc.
Issue: Whether or not closing the Antipolo plant was valid.
Ruling: Under Article 280 of the Labor Code, all those who have been with the
company for one year by said date must automatically be considered regular employees
by operation of law. The 61 employees all qualify as regular employees by this
provision. The characterization of the employees services as no longer necessary or
sustainable, and therefore properly terminable, is an exercise of business judgment on
the part of the employer. The wisdom or soundness of such characterizing or decision is
not subject to discretionary review on the part of the Labor Arbiter nor of the NLRC so
long, of course, as violation of law or merely arbitrary and malicious action is not shown.
As found by the NLRC, the private respondents decision to close the plant was a result
of a study conducted which established that the most prudent course of action for the
private respondent was to stop operations in said plants and transfer production to other
more modern and technologically advanced plants of private respondent.
SLU SOL 1-C Page
277
Santos v. Santos, 441 S 472
ZENAIDA M. SANTOS, petitioner,

vs.
CALIXTO SANTOS, ALBERTO SANTOS, ROSA SANTOS-CARREON and ANTONIO
SANTOS, respondents.
G.R. No. 133895 October 2, 2001
Facts: Petitioner Zenaida M. Santos is the widow of Salvador Santos, a brother of

private respondents Calixto, Alberto, Antonio, all surnamed Santos and Rosa Santos-
Carreon. The spouses Jesus and Rosalia were the parents of the respondents and the
husband of the petitioner. The spouses owned a parcel of registered land with a four-
door apartment administered by Rosalia who rented them out.
On January 19, 1959, the spouses executed a deed of sale of the properties in favor of
their children Salvador and Rosa. Rosa in turn sold her share to Salvador on November
20, 1973, which resulted in the issuance of new TCT. Despite the transfer of the
property to Salvador, Rosalia continued to lease and receive rentals from the apartment
units. On January 9, 1985, Salvador died, followed by Rosalia who died the following
month. Shortly after, petitioner Zenaida, claiming to be Salvadors heir, demanded the
rent from Antonio Hombrebueno, a tenant of Rosalia. When the latter refused to pay,
Zenaida filed an ejectment suit against him with the Metropolitan Trial Court of Manila,
which eventually decided in Zenaidas favor.
On January 5, 1989, private respondent instituted an action for reconveyance of

property with preliminary injunction against petitioner in the Regional Trial Court of
Manila, where they alleged that the two deeds of sale were simulated for lack of
consideration. The petitioner on the other hand denied the material allegations in the
complaint and that she further alleged that the respondents right to reconveyance was
already barred by prescription and laches considering the fact that from the date of sale
from Rosa to Salvador up to his death, more or less twelve (12) years had lapsed, and
from his death up to the filing of the case for reconveyance, four (4) years has elapsed.
In other words, it took respondents about sixteen (16) years to file the case. Moreover,
petitioner argues that an action to annul a contract for lack of consideration prescribes
in ten (10) years and even assuming that the cause of action has not prescribed,
respondents are guilty of laches for their inaction for a long period of time.
The trial court decided in favor of private respondents in as much as the deeds of sale
were fictitious, the action to assail the same does not prescribe.
Upon appeal, the Court of Appeals affirmed the trial courts decision. It held that the
subject deeds of sale did not confer upon Salvador the ownership over the subject
property, because even after the sale, the original vendors remained in dominion,
control, and possession thereof.
SLU SOL 1-C Page

278
Issue: Whether or not the cause of action of the respondents had prescribed and/or
barred by laches.
Ruling: The cause of action by the respondents had not prescribed nor is it barred by
laches. First, the right to file an action for the reconveyance of the subject property to
the estate of Rosalia has not prescribed since deeds of sale were simulated and
fictitious. The complaint amounts to a declaration of nullity of a void contract, which is
imprescriptible. Hence, respondents cause of action has not prescribed.
Second, neither is their action barred by laches. The elements of laches are: 1) conduct
on the part of the defendant, or of one under whom he claims, giving rise to the situation
of which the complainant seeks a remedy; 2) delay in asserting the complainants rights,
the complainant having knowledge or notice of the defendants conduct as having been
afforded an opportunity to institute a suit; 3) lack of knowledge or notice on the part of
the defendant that the complainant would assert the right in which he bases his suit;
and 4) injury or prejudice to the defendant in the event relief is accorded to the
complainant, or the suit is not held barred. These elements must all be proved
positively. The lapse of four (4) years is not an unreasonable delay sufficient to bar
respondents action. Moreover, the fourth (4th) element is lacking in this case. The
concept of laches is not concerned with the lapse of time but only with the effect of
unreasonable lapse. The alleged sixteen (16) years of respondents inaction has no
adverse effect on the petitioner to make respondents guilty of laches.
SLU SOL 1-C Page
279
Melotindos v. Tobias, 391 S 299
MANUEL D. MELOTINDOS, petitioner,

vs.
MELECIO TOBIAS, represented by JOSEFINA PINEDA, respondent.
G.R. No. 146658 October 28, 2002
Facts: Eighty-seven-year old petitioner, Atty. Manuel D. Melotindos, was the lessee of
the ground floor of a house in Malate, Manila. He had been renting the place since 1983
on a month-to-month basis from its owner, respondent Melecio Tobias, who was then
residing in Canada. Sometime in the last quarter of 1995, owing to his sickly mother
who needed constant medical attention and filial care, respondent demanded from
petitioner either to pay an increased rate of monthly rentals or else to vacate the place
so he and his mother could use the house during her regular medical check-up in
Manila.
For two (2) years nothing came out of the demand to vacate, hence, in 1997 respondent
insisted upon raising the rental fee once again. On 1 June 1998, respondent asked
petitioner to restore the premises to him for some essential repairs of its dilapidated
structure. This time he did not offer petitioner anymore the option to pay higher rentals.
The renovation of the house was commenced but had to stop midway because
petitioner refused to vacate the portion he was occupying and worse he neglected to
pay for the lease for four (4) months from May to August 1998. Hence for the second
time, or on 19 October 1998, respondent demanded the payment of the rental arrears
as well as the restoration of the house to him.
On 3 February 1999, since petitioner was insisting on keeping possession of the house
but did not pay the rental for January 1999, although he had settled the arrears of four
(4) months, respondent was compelled to file a complaint for ejectment. The MeTC of
Manila decided the ejectment complaint in favor of respondent and ordered petitioner to
vacate the leased premises and to pay rental arrears in the amount of P60,000.00 as of
December 1998 and P6,000.00 for every month thereafter until he finally restored
possession thereof to respondent plus attorneys fees of P15,000.00 and the costs of
suit.
The RTC of Manila upheld in toto the MeTC Decision and denied the subsequent
motion for reconsideration for failure to set the date of hearing thereof not later than ten
(10) days from its filing. Petitioners recourse to the Court of Appeals by petition for
review was also unsuccessful since the assailed Decision was affirmed in its entirety as
the ensuing motion for reconsideration thereof was denied for late filling, i.e., the motion
was filed only on 30 October 2000 beyond the fifteen (15) day period from his receipt
of the CA Decision on 9 October 2000 as shown by the registry return receipt.
Issue: Whether or not the lower courts erred in their rulings.

SLU SOL 1-C Page
280
Ruling: It is not only the evidence on record but petitioners pleadings themselves that
confirm his default in paying the rental fees for more than three (3) months in 1999 and
1998 prior to the filing of the ejectment complaint. There is also sufficient basis for the
courts a quo to conclude that respondent desperately needed the property in good faith
for his own family and for the repair and renovation of the house standing thereon.
These facts represent legal grounds to eject a tenant.
SLU SOL 1-C Page
281
LL and Co. v. Huang, 378 S 612
LL AND COMPANY DEVELOPMENT AND AGRO-INDUSTRIAL CORPORATION,

petitioner,
vs.
HUANG CHAO CHUN AND YANG TUNG FA, respondents.
G.R. No. 142378 March 7, 2002
Facts: LL and Co. alleged that Huang Chao Chun and Yang Tung Fa violated their
amended lease contract when they did not pay the monthly rentals. It also alleged that
the amended lease contract expired on September 15, 1996 but Huang Chao Chun and
Yang Tung Fa refused to surrender possession and pay the rental arrearages despite
repeated demands. LL and Co. filed an unlawful detainer against them.
Huang Chao Chun and Yang Tung Fa were joined by the Tsai Chun International
Resources in their answer wherein they alleged that the actual lessee was the
corporation. The MTC dismissed the case ruling that the lessees could extend the
contract entered into by the parties unilaterally for another 5 years for reasons of justice
and equity. This was affirmed by the RTC and by the CA.
Issue: Whether or not the court could still extend the term of the lease after its
expiration.
Ruling: In general, the power of the courts to fix a longer term for a lease is
discretionary, to be exercised only in accordance with the particular circumstances of a
case. Thus, courts are not bound to extend the lease.
Art. 1673 provides that the lessor may judicially eject the lessee upon the expiration of
"the period agreed upon or that which is fixed for the duration of the leases." Where no
period has been fixed by the parties, the courts, pursuant to Art. 1687, have the
potestative authority to set a longer period of lease.
In the present case, the contract of lease provided for a fixed period of 5 years.
Because the lease period was for a determinate time, it ceased on the day fixed without
need of a demand. Here, the 5-year period expired on September 15, 1996, whereas
the complaint for ejectment was filed on October 6, 1996. Because there was no longer
any lease that could be extended, the MeTC made a new contract for the parties, a
power it did not have.
Furthermore, the extension of a lease contract must be made before the term of the
agreement expires, not after. Because the lease contract ended on September 15,
1996, Huang Chao Chun and Yang Tung Fa can be ejected from the premises.
SLU SOL 1-C Page
282
Brent School v. Zamora, 5 February 1990
BRENT SCHOOL, INC. and REV. GABRIEL DIMACHE, petitioners,

vs.
RONALDO ZAMORA and DOROTEO R. ALEGRE, respondents.
G.R. No. L-48494 February 5, 1990
Facts: The root of the controversy at bar is an employment contract in virtue of which
Doroteo R. Alegre as engaged as athletic director by Brent School, Inc. at a yearly
compensation of P20,000. The contract fixed a specific term for its existence, five (5)
years, i.e., from July 18, 1971, the date of execution of the agreement, to July 17, 1976.
Subsequent subsidiary agreements dated March 15, 1973, August 28, 1973, and
September 14, 1974 reiterated the same terms and conditions, including the expiry
date, as those contained in the original contract. Some three (3) months before the
expiration of the stipulated period, or more precisely on April 20, 1976, Alegre was given
a copy of the report filed by Brent School with the Department of Labor advising of the
termination of his services effective on July 16, 1976. Alegre objected to this termination
of his employment contending that since his services were necessary and desirable in
the usual business of his employer, and his employment had lasted for five (5) years, he
had acquired the status of a regular employee and could not be removed except for
valid cause.
Issue: Whether or not Alegre's contention is tenable.
Ruling: No. The provisions of the Labor Code recognize the existence and legality of
term employments. The case at bar is one which involves term employment. Therefore,
Alegres employment was terminated upon the expiration of his last contract with Brent
School on July 16, 1976 without the necessity of any notice. The advance written advice
given the Department of Labor with copy to said petitioner was a mere reminder of the
impending expiration of his contract, not a letter of termination, nor an application for
clearance to terminate which needed the approval of the Department of Labor to make
the termination of his services effective. In any case, such clearance should properly
have been given, not denied.
SLU SOL 1-C Page
283
Lim v. People, 21 November 1984
LOURDES VALERIO LIM, petitioner,

vs.
G.R. No. L-34338 November 21, 1984
Facts: On January 10, 1966, Lim (Appellant) went to the house of Maria Ayroso and
proposed to sell Ayroso's tobacco. Ayroso agreed to the proposition of the appellant to
sell her tobacco consisting of 615 kilos at P1.30 a kilo. The appellant was to receive the
overprice for which she could sell the tobacco. Of the total value of P799.50, the
appellant had paid to Ayroso only P240.00, and this was paid on three different times.
Demands for the payment of the balance of the value of the tobacco were made upon
the appellant by Ayroso, and particularly by her sister, Salud Bantug. Salud Bantug
further testified that she had gone to the house of the appellant several times, but the
appellant often eluded her; and that the 'camarin' of the appellant was empty. Although
the appellant denied that demands for payment were made upon her, it is a fact that on
October 19, 1966, she wrote a letter to Salud Bantug stating that she could not pay in
full the amount of P799.50 because it is also hard to demand payment from her suki in
the market of Cabanatuan. Pursuant to this letter, the appellant sent a money order for
P100.00 on October 24, 1967, and another for P50.00 on March 8, 1967; and she paid
P90.00 on April 18, 1967 or a total of P240.00. As no further amount was paid, the
complainant filed a complaint against the appellant for estafa.
Issue: Whether or not the Article 1197 of the Civil Code can be applied in this case.
Ruling: No. It is clear in the agreement that the proceeds of the sale of the tobacco
should be turned over to the complainant as soon as the same was sold, or, that the
obligation was immediately demandable as soon as the tobacco was disposed of.
Hence, Article 1197 of the New Civil Code, which provides that the courts may fix the
duration of the obligation if it does not fix a period, does not apply. Anent the argument
that petitioner was not an agent because the agreement does not say that she would be
paid the commission if the goods were sold, the fact that appellant received the tobacco
to be sold at P1.30 per kilo and the proceeds to be given to complainant as soon as it
was sold, strongly negates transfer of ownership of the goods to the petitioner. The
agreement constituted her as an agent with the obligation to return the tobacco if the
same was not sold.
SLU SOL 1-C Page
284
Pacific Banking v. CA, 5 May 1989
PACIFIC BANKING CORPORATION and CHESTER G. BABST, petitioners,

vs.
THE COURT OF APPEALS, JOSEPH C. HART and ELEANOR HART, respondents.
G.R. No. L-45656 May 5, 1989
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
Lingayen which had great potential for the cultivation of fish and salt making. They
organized Insular Farms Inc., applied for and, after eleven months, 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
pursuant to which: a) of 1,000 shares out-standing, Clarkin was issued 500 shares in his
and his wife's name, one share to J. Lapid, Clarkin's secretary, and nine shares in the
name of the Harts were indorsed in blank and held by Clarkin so that he had 510 shares
as against the Harts' 490; b) 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.
This loan was effected and the money released without any security except for the
Continuing Guaranty executed on July 18, 1956, of John Clarkin, who owned seven and
half percent of the capital stock of the bank, and his wife Helen.
Unfortunately, the business floundered and while attempts were made to take in other
partners, these proved unsuccessful. Nevertheless, petitioner Pacific Banking
Corporation and its then Executive Vice President, petitioner Chester Babst, did not
demand payment for the initial July 1957 installment nor of the entire obligation, but
instead opted for more collateral in addition to the guaranty of Clarkin.
As the business further deteriorated and the situation became desperate, Hart agreed to
Clarkin's proposal that all Insular Farms shares of stocks be pledged to petitioner bank
SLU SOL 1-C Page
285
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, on March 3,1958, Pacific Farms Inc, was organized to engage
in the same business as Insular Farms Inc. The next day, or on March 4, 1958, Pacific
Banking Corporation, through petitioner Chester Babst wrote Insular Farms Inc. giving
the latter 48 hours to pay its entire obligation.
On March 7, 1958, Hart received notice that the pledged shares of stocks of Insular
Farms Inc. would be sold at public auction on March 10, 1958 at 8:00 A.M. to satisfy
Insular Farms' 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 ice plant.
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.
Issue: Whether or not the Court of Appeals committed a grave error 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 petitioners
had granted them orally an indefinite extension of time to pay the loan.
Ruling: The principle relied upon in that case was the dead man's statute. The Court
stated that the reason for not believing the purported agreement for extension of time to
pay the note was that there was no sufficient proof of the purported agreement
because:
SLU SOL 1-C Page

286
Here we have only the defendant's statement as to the purported agreement for
an indefinite period of grace, with one now dead. Such proof falls far short of
satisfying the rules of evidence. (Phil. Engineering v. Green, 48 Phil. p. 468)
In the case at bar, the parties to the purported agreement, Hart and Babst, were still
alive, and both testified in the trial court regarding the purported extension. Their
testimonies are in fact, quoted in the decision of the respondent Court of Appeals (pp.
49-54, Rollo).
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. (8 C.J. 425)
In case the period of extension is not precise, the provisions of Article 1197 of the Civil
Code should apply. In this case, there was an agreement to extend the payment of the
loan, including the first installment thereon which was due on or before July 1957. As
the Court of Appeals stated:
...and here, this court is rather well convinced that Hart had been given the
assurance by the conduct of Babst, Executive Vice President of Pacific Bank,
that payment would not as yet be pressed, and under 1197 New Civil Code, the
meaning must be that there having been intended a period to pay modifying the
fixed period in original promissory note, really, the cause of action of Pacific Bank
would have been to ask the Courts for the fixing of the term; (pp. 59-60, Rollo)
SLU SOL 1-C Page
287
Art. 1199, Alternative Obligations: Meaning and Definition
Agoncillo v. Javier, 38 S 424
FELIPE AGONCILLO, and his wife, MARCELA MARIO, plaintiff-appellees,

vs.
CRISANTO JAVIER, administrator of the estate of the late Anastasio Alano.
FLORENCIO ALANO and JOSE ALANO, defendants-appellants.
G.R. No. L-12611 August 7, 1918
Facts: On February 27 1904, AnastasioAlano, JloseAlano and Florencio Alano

executed in favor of the plaintiff, Dra. Marcela Marino a document stipulating that the
Alanos as testamentary heirs of deceased Rev. Anastacio Cruz, would pay the sum of
P2,730.50 within one (1) year with interest of 12 percent per annum representing the
amount of debt incurred by Cruz. Moreover, the agreement provided that the Alanos are
to convey the house and lot bequeathed to them by Cruz in the event of failure to pay
the debt in money at its maturity.
No part of interest or principal due has been paid except the sum of P200 paid in 1908
by AnastacioAlano. In 1912, Anastasio died intestate. On August 8, 1914, CFI of
Batangas appointed Crisanto Javier as administrator of Anastasios estate. On March
17, 1916, the plaintiffs filed the complaint against Florencio, Jose and Crisanto praying
that unless defendants pay the debt for the recovery of which the action was brought,
they be required to convey to plaintiffs the house and lot described in the agreement,
that the property be appraised and if its value is found to be less than the amount of the
debt, with accrued interest at the stipulation rate, judgment be rendered in favor of the
plaintiffs for the balance.
Issue: Whether or not the agreement that the defendant-appellant, at the maturity of the
debt, will pay the sum of the money lent by the appellees or will transfer the rights to the
ownership and possession of the house and lot bequeathed to the former by the testator
in favor of the appellees, is valid.
Ruling: Yes, this stipulation is valid because it is simply an alternative obligation, which
is expressly allowed by law. The agreement to convey the house and lot on an
appraised value in the event of failure to pay the debt in money at its maturity is valid. It
is simply an undertaking that if debt is not paid in money, it will be paid in another way.
The agreement is not open to the objection that the agreement is pactocomisorio. It is
not an attempt to permit the creditor to declare the forfeiture of the security upon the
failure of the debtor to pay at its maturity. It is simply provided that if the debt is not paid
in money, it shall be paid by the transfer of the property at a valuation. Such an
agreement unrecorded, creates no right in rem, but as between the parties, it is
perfectly valid and specific performance by its terms may be enforced unless prevented
by the creation of superior rights in favor of third persons.
SLU SOL 1-C Page
288
The contract is not susceptible of the interpretation that the title to the house and lot in
question was to be transferred to the creditor ipso facto upon the mere failure of the
debtors to pay the debt at its maturity. The obligations assumed by the debtors were in
the alternative, and they had the right to elect which they would perform. The conduct of
parties shows that it was not their understanding that the right to discharge the
obligation by the payment of the money was lost to the debtors by their failure to pay the
debt at its maturity. The plaintiff accepted the payment from Anastacio in 1908, several
years after the debt matured.
It is quite clear therefore that under the terms of the contract, and the parties
themselves have interpreted it, the liability of the defendant as to the conveyance of the
house and lot is subsidiary and conditional, being dependent upon their failure to pay
the debt in money. It must follow therefore that if the action to recover the debt was
prescribed, the action to compel a conveyance of the house and lot is likewise barred,
as the agreement to make such conveyance was not an independent principal
undertaking, but merely a subsidiary alternative pact relating to the method by which the
debt must be paid.
SLU SOL 1-C Page
289
Ong Guan v. Century, 46 P 592
ONG GUAN CAN and THE BANK OF THE PHILIPPINE ISLANDS, plaintiffs-appellees,
vs.
THE CENTURY INSURANCE CO., LTD., defendant-appellant.
G.R. No. L-22738 December 2, 1924
Facts: A building of plaintiff Ong Guan Cuan was insured with defendant Century
Insurance Company (Century) against fire for P30,000 as well as the merchandise
therein for P15,000. On February 28 1923, the building and the merchandise were
burned while the policies issued were in force. Under the conditions of the policies, the
defendant may at its option reinstate or replace the destroyed property instead of paying
for the amount of the loss and that it is not bound to reinstate exactly or completely the
damaged property. Century proposed reconstruction of the house destroyed but plaintiff
denied that the new house which will be constructed would be smaller and of materials
of lower kind than those employed in the construction of the house which was
destroyed. Plaintiff filed a complaint compelling defendant to pay the sum of P45,000,
the value of the insurance of the building and the merchandise. On April 19, 1924, the
CFI of Iloilo City rendered judgment in favor of the plaintiff. Hence the defendant
appealed from the judgment and prayed that it be permitted to rebuild the house as
provided in the conditions of the insurance policies.
Issue: Whether or not defendant Century may be allowed to rebuild the house as its
option instead of payment of the insured value as stipulated in the insurance policies.
Ruling: No. The conditions in the insurance policies that the parties entered into
allowed Century to either pay the insured value of the house, or rebuild it making the
obligation of the company an alternative one. In alternative obligations, the debtor,
Century, must notify the creditor of his election stating which of the two prestations it is
disposed to fulfill. The objective is to give the creditor opportunity to give consent or
deny the election of the debtor. Only after said notice shall election take legal effect
when consented by the creditor (Article 120 Civil Code) or if impugned by the latter
when declared proper by a competent court. In the instant case, appellant company did
not give formal notice of its election to rebuild the house and the proposed
reconstruction of the house was rejected by the creditor. In alternative obligations, the
value of the prestations must be equivalent or similar in value to each other. The
proposed rebuilding of the house by the insurance company would be of lesser value
than the other prestation. The petitioner would build a smaller house and of materials of
lower kind than those employed in the construction of the burned house. The other
prestation is payment of the amount of P45,000 corresponding to the value of the
burned building (P30, 000) and the value of the merchandise burned (P15,000).
Therefore, the only recourse of the insurer is to pay the stipulated value of the insurance
policy.
SLU SOL 1-C Page

290
Arts. 1200, 1202-1203, Right of Choice/Election: Nature and
Limitations
Legarda v. Miailhe, 88 P 637
CLARA TAMBUNTING DE LEGARDA, ET AL., plaintiffs-appellants,

vs.
VICTORIA DESBARATS MIAILHE, substituting WILLIAM J. B. BURKE, defendant-
appellee.
G.R. No. L-3435 April 28, 1951
Facts: On June 3, 1944, plaintiffs filed a complaint against the original defendant
William J. B. Burke, alleging defendant's unjustified refusal to accept payment in
discharge of a mortgage indebtedness in his favor, and praying that the latter be
ordered (1) to receive the sum of P75,920.83 deposited by plaintiff Clara Tambunting de
Legarda, the mortgagor, on the same date with the clerk of this court in payment of the
mortgage indebtedness of said plaintiff to defendant herein, (2) to execute the
corresponding deed of release of mortgage, and (30 to pay damages in the sum of
P1,000. The court then decided in favor of plaintiff Legarda. After the war and the
subsequent defeat of the Japanese occupants, defendant filed a case in court claiming
the plaintiff Clara de Legarda violated her agreement with defendant, by forcing to
deposit worthless Japanese military notes when they originally agreed that the interest
was to be condoned until after the occupation and that payment was rendered either in
Philippine or English currency. Defendant was later substituted upon death by his heir
Miailhe and the Courts judges in defendants favor. Plaintiff now assails said decision.
Issue: Whether or not the tender of payment made by plaintiff is valid.
Ruling: The option to demand payment of the indebtedness has to be exercised upon
maturity of the obligation, which is February 17, 1943. On this date, the only currency
available is the Philippine currency, or the Japanese Military notes, because all other
currencies, including the English, were outlawed by a proclamation issued by the
Japanese Imperial Commander on January 3, 1942. This means that the right of
election ceased to exist on that date because it had become legally impossible. And this
is so because in alternative obligations there is no right to choose undertakings that are
impossible or illegal. In other words, the obligation on the part of the debtor to pay the
mortgage indebtedness has since then ceased to be alternative. It appears, therefore,
that the tender of payment made by the plaintiff in Japanese Military notes was a valid
tender because it was the only currency permissible at the time, and the same was
made in accordance with the agreement because payment in Japanese Military notes
during the occupation is tantamount to payment in the Philippine currency.
SLU SOL 1-C Page
291
Art. 1201, Effectivity of Choice
Reyes v. Martinez, 55 P 492
ESTANISLAO REYES, plaintiff-appellant,

vs.
SEBASTIANA MARTINEZ, ET AL., defendants-appellants.
G.R. No. 32226 December 29, 1930
Facts: Estanislao Reyes filed an action before the Court of First Instance of Laguna
against the Martinez heirs upon four several causes of action in which the plaintiff seeks
to recover five parcels of land, containing proximately one thousand coconut trees, and
to obtain a declaration of ownership in his favor as against the defendants with respect
to said parcels; to recover from the defendants the sum of P9,377.50, being the alleged
proceeds of some coconut trees; to recover from the defendants the sum of P43,000, as
alleged value of the proceeds of the lands involved in the receivership in the case of
Martinez vs. Grano, to which the plaintiff supposes himself to be entitled, but which
have gone, so he claims, to the benefit of the defendants in said receivership and lastly,
to recover the sum of the P10,000 from the defendants as damages resulting from their
improper meddling in the administration of the receivership property. The plaintiff has
been laboring along for several years in an unsuccessful legal battle with the
defendants, springing from his claim to be the owner of the property involved in the
receivership. This cause of action is founded upon the contract and the claim put forth
by the plaintiff is to have the five parcels adjudge to him in lieu of another parcel
formerly supposed to contain one thousand trees between him and certain of the
Martinez heirs. By this contract, Reyes was to be given the parcel described in clause 8,
but in a proviso to said clause, the parties contracting with Reyes agreed to assure to
him certain other land containing an equivalent number of trees in case he should so
elect. The litigation shows that the plaintiff elected to take and hold the parcel described
in clause 8, and his right thereto has all along been recognized in the dispositions made
by the court with respect to said land. Thus, Reyes must be taken to have elected to
take that particular parcel and he is now estopped from asserting a contrary election to
take the five parcels of land described in his complaint. However, the title of the parcel is
in the heirs of Inocente Martinez and it does not appear that they have transferred said
title to Reyes.
Issue: Whether or not Reyes is entitled to the damages against the partys signatory to
the contract of March 5, 1921 for the value of the said property.
Ruling: Yes. The claim of the defendants to the interest of P8,000 from July 31, 1926
cannot be conceded as the judgment itself bears interest at the lawful rate from the date
the same was rendered. The Martinez heirs are ordered to procure the sufficient deed
conveying to appellant Estanislao Reyes the parcels of land mentioned in paragraph 8
of the contract. The judgment against Reyes in favor of the Martinez heirs is enjoined.
SLU SOL 1-C Page
292
Art. 1206, Facultative Obligations
Quizana v. Redugerio, 94 P 922
MARTINA QUIZANA, plaintiff-appellee,

vs.
GAUDENCIO REDUGERIO and JOSEFA POSTRADO, defendants-appellants.
G.R. No. L-6220 May 7, 1954
Facts: This is an appeal to the Court from a decision rendered by the Court of the First
Instance of Marinduque, wherein the defendant Gaudencio Redugerio was to pay the
plaintiff Martina Quizana the sum of P550 with the interest from the time of the filing of
the complaint and from an order of the same court denying a motion of the defendant
for the reconsideration of the judgment on the ground that they were deprived of their
day in court. There were actionable documents attached to the complaint signed by the
defendant-appellant spouses Redugerio and Pastrado on October 4, 1948 and
containing the provision that Quizana is to be paid on January 1949 and in case of
failure, they will mortgage the coconut plantation in Sta. Cruz, Marinduque. The
defendants admitted that they offered the transfer of possession but was eventually
refused by the petitioner. So eventually, the defendants appealed in the CFI which set
the hearing on August 16, 1951. However, the counsel for defendants presented an
urgent motion for continuance for the date of hearing coincides with his appearance in
two (2) criminal cases previously set for trial before hearing on the aforesaid date. The
motion was not acted upon until the day of the trial. The CFI denied the motion for
continuance, and in the absence of defendants, rendered its questioned decision.
Issue: Whether or not the trial court was correct in ignoring the 2nd part of the written
obligation and solely basing its decision on the last part of the 1st part; i.e., that
payment should have been made on January 21, 1949.
Ruling: Yes, the acceptance of plaintiff of the written obligation without objection and
protest and the fact that he kept and based his action therein, are concrete and positive
proof that he agreed and consented to all the terms, including the paragraph on the
constitution of the mortgage. Article 1206 provides: When only one prestation has been
agreed upon but the obligation may render substitution, the obligation is facultative
obligation. The defendant-appellant shall present a duly executed deed of mortgage
over the property in the written obligation, with a period of payment to be agreed upon
by the parties with the approval of the court.
SLU SOL 1-C Page
293
Art. 1208 in relation to Art. 1207
Marsman v. Philippine Geoanalytics, 29 June 2010
MARSMAN DRYSDALE LAND, INC., petitioner,

vs.
PHILIPPINE GEOANALYTICS, INC. AND GOTESCO PROPERTIES, INC.,
respondents.
G.R. No. 183374 June 29, 2010
Facts: Marsman Drysdale, Inc. (Marsman) and Gotesco Properties, Inc. (Gotesco)
entered into a joint venture agreement for the construction and development of an office
building on a land owned by Marsman. They agreed on a 50-50 ratio on the proceeds of
the project, but did not agree on how losses would be divided. The joint venture
engaged the services of Philippine Geoanalytics, Inc. (PGI) to provide subsurface soil
exploration, seismic study and geotechnical engineering. PGI completed its seismic
study but failed to complete its subsurface soil exploration because the area where
drilling was to be made had not been cleared. The building project was subsequently
shelved due to unfavorable economic conditions. PGI billed the joint venture for work
done, but was not paid despite its repeated demands. PGI, thus, filed a collection case
against Marsman and Gotesco. Marsman passed the obligation to Gotesco because
under the joint venture agreement, Gotesco was solely liable for the monetary expenses
of the project, and Marsmans participation was limited to the land. Gotesco, on the
other hand, asserted that PGI had no cause of action against it as PGI had yet to
complete the services in its contract, and it was Marsmans failure to clear the property
of debris, which prevented PGI from completing its work.
Issue: Who between Marsman and Gotesco was liable to pay PGI its unpaid claims.
Ruling: Marsman and Gotesco are jointly liable to PGI. PGI was never a party to the
joint venture agreement. While the joint venture agreement clearly spelled out the
capital contributions of Marsman (land) and Gotesco (cash) and the funding
mechanism, it cannot be used to defeat the lawful claim of PGI against the two joint
venturerspartners. PGIs contract clearly listed the joint venturers Marsman and
Gotesco as the beneficial owner of the project, and all billing invoices indicated the
consortium as the client. When there are two or more debtors, the obligation is
presumed to be joint unless the law or the obligation expressly states that the liability is
solidary, or unless the nature of the obligation requires solidary liability (Articles 1207
and 1208, Civil Code). In this case, since solidary liability was not required by law, or the
contract, or by the nature of the obligation, the obligation to PGI was presumed to be
joint between Marsman and Gotesco. A joint venture being a form of partnership, it is to
be governed by the laws on partnership. Under the laws on partnership, particularly
Article 1797 of the Civil Code, the losses and profits shall be distributed in accordance
with the agreement; if only the share of each partner in the profits has been agreed
upon, the share of each in the losses shall be in the same proportion. In the joint
SLU SOL 1-C Page
294
venture agreement, Marsman and Gotesco agreed on a 50-50 ratio on the proceeds of
the project, but did not provide for the splitting of losses. Applying Article 1797, the same
ratio applies in splitting the obligation-loss of the joint venture to PGI.
SLU SOL 1-C Page
295
Alipio v. CA, 341 S 441
PURITA ALIPIO, petitioner,

vs.
COURT OF APPEALS and ROMEO G. JARING, represented by his Attorney-In-
Fact RAMON G. JARING, respondents.
G.R. No. 134100 September 29, 2000
Facts: Respondent Romeo Jaring was the lessee of a 14.5 hectares fishpond in Barilto,
Bataan. The lease was for a period of five (5) years ending September 12, 1990. On
June 19, he subleased the fishpond for the remaining period of his lease to the spouses
Placido and Purita Alipio and the spouses Bienvenido and Remedons Manuel. The
stipulated amount of the rent was P 485,600.00 payable in two (2) installments of
P300,00.00 and P185,600 with second installment falling due on June 30, 1989. Each
of the four sublease parties signed the contract. The first installment was duly paid, but
the second installment the sub lessees only satisfied a portion thereof, leaving an
unpaid of P50,600.00. Despite due demand, the lessees failed to comply with their
obligation so that on October 13,1989 private respondent sued Alipio and Manuel
spouses for the collection of the said amount before the RTC, and in the alternative, he
prayed for the rescission of the sublease contract should the defendant failed to pay the
balance.Petitioner Purita moved to dismiss the case on the ground that her husband
had passed away on December 1988. She based her action on Rule 3 Section 31 of
1964 Rules of Court.
Issue: Whether or not a creditor can sue the surviving spouses for the collection of debt
which is owned by the conjugal partnership of gains, and not in a proceeding for the
settlement of the estate of the decedent.
Ruling: No, creditor cannot sue the surviving spouse of a decedent in an ordinary
proceeding for the collection of the sum of money chargeable against the conjugal
partnership and that the proper remedy is for him to file a claim in the settlement of the
estate of the decedent. Article 161(1) states that: All debts and obligation contracted by
the husband for the benefits of the conjugal partnership, and those contracted by the
wife, also for the same purpose, in the cases where she may legally bind the
partnership. When petitioners husband died, their conjugal partnership was
automatically dissolved and debts chargeable against it are to be paid in the settlement
of estate proceeding in accordance with Rule 73 Section 2: When marriage dissolved by
death of the husband or wife, the community property shall be inventoried, administered
and liquidated, and the debts thereof paid in the testate or intestate proceeding of the
deceased spouse. If both spouses have died, the conjugal partnership shall be
liquidated in the testate or intestate proceeding of either.
SLU SOL 1-C Page
296
Effects of Joint Liability
PH Credit Corp. v. CA, 370 S 155
PH CREDIT CORPORATION, petitioner,

vs.
COURT OF APPEALS and CARLOS M. FARRALES, respondents.
G.R. No. 109648 November 22, 2001
Facts:
I. CA-G.R. SP NO. 23324
PH Credit Corp. filed a case against Pacific Lloyd Corp., Carlos Farrales, Thomas H.
Van Sebille and Federico C. Lim, for sum of money. After service of summons upon the
defendants, they failed to file their answer within the reglementary period, hence they
were declared in default. Judgment is rendered in favor of plaintiff PH Credit
Corporation.
After the aforesaid decision has become final and executory, a Writ of Execution was
issued and consequently implemented by the assigned Deputy Sheriff. Personal and
real properties of defendant Carlos M. Farrales were levied and sold at public auction
wherein PH Credit Corp. was the highest bidder. Motion for the issuance of a writ of
possession was filed and the same was granted. Petitioner claims that she, as a third-
party claimant with the court below, filed an Urgent Motion for Reconsideration and/or to
Suspend the Order dated October 12, 1990, but without acting thereon, respondent
Judge issued the writ of possession on October 26, 1990. She claims that the
actuations of respondent Judge were tainted with grave abuse of discretion.
Respondent Judge issued an order considering the assailed Order as well as the writ of
possession as of no force and effect thus the issue here has become moot and
academic.
II. CA-G.R. SP NO. 25714

Petitioner claims that the respondent Judges Order dated January 31, 1991 was tainted
with grave abuse of discretion based on the following grounds:
1. Respondent Judge refused to consider as waived private respondents
objection that his obligation in the January 31, 1984 decision was merely
joint and not solidary with the defendants therein. According to petitioner,
private respondent assailed the levy on execution twice in 1984 and once
in 1985 but not once did the latter even mention therein that his obligation
was joint for failure of the dispositive portion of the decision to indicate that
it was solidary. Thus, private respondent must be deemed to have waived
that objection, petitioner concludes.
2. The redemption period after the auction sale of the properties had already
lapsed that the purchaser therein became the absolute owner thereof.
Thus, respondent Judge allegedly abused his discretion in setting aside
the auction sale after the redemption period had expired.
SLU SOL 1-C Page
297
3. Respondent Judge erred in applying the presumption of a joint obligation
in the face of the conclusion of fact and law contained in the decision
showing that the obligation is solidary.
The Court of Appeals affirmed the trial courts ruling declaring null and void (a) the
auction sale of Respondent Ferrales real property and (b) the Writ of Possession
issued in consequence thereof. It held that, pursuant to the January 31, 1984 Decision
of the trial court, the liability of Farrales was merely joint and not solidary. Consequently,
there was no legal basis for levying and selling Farrales real and personal properties in
order to satisfy the whole obligation.
Issue: Whether or not the Court of Appeals erred when it disregarded the body of the
decision and concluded that the obligation was merely a joint obligation due to the
failure of the dispositive portion of the decision dated 31 January 1984 to state that the
obligation was joint and solidary.
Ruling: No. A solidary obligation is one in which each of the debtors is liable for the
entire obligation, and each of the creditors is entitled to demand the satisfaction of the
whole obligation from any or all of the debtors. On the other hand, a joint obligation is
one in which each debtors is liable only for a proportionate part of the debt, and the
creditor is entitled to demand only a proportionate part of the credit from each debtor.
The well-entrenched rule is that solidary obligations cannot be inferred lightly. They
must be positively and clearly expressed. A liability is solidary only when the obligation
expressly so states, when the law so provides or when the nature of the obligation so
requires.
In the dispositive portion of the January 31, 1984 Decision of the trial court, the word
solidary neither appears nor can it be inferred therefrom. The fallo merely stated that the
following respondents were liable: Pacific Lloyd Corporation, Thomas H. Van Sebille,
Carlos M. Farrales and Federico C. Lim. Under the circumstances, the liability is joint,
as provided by the Civil Code, which we quote: Art. 1208. If from the law, or the nature
or the wording of the obligations to which the preceding article refers, the contrary does
not appear, the credit or debt shall be presumed to be divided into as many equal
shares as there are creditors or debtors. Hence the execution must conform with that
which is ordained or decreed in the dispositive portion of the decision.
Petitioner maintains that the Court of Appeals improperly and incorrectly disregarded
the body of the trial courts Decision, which clearly stated as follows: To support the
Promissory Note, a Continuing Suretyship Agreement was executed by the defendants,
Federico C. Lim, Carlos M. Farrales and Thomas H. Van Sebille, in favor of the plaintiff
corporation, to the effect that if Pacific Lloyd Corporation cannot pay the amount loaned
by plaintiff to said corporation, then Federico C. Lim, Carlos M. Farrales and Thomas H.
Van Sebille will hold themselves jointly and severally together with defendant Pacific
Lloyd Corporation to answer for the payment of said obligation.
SLU SOL 1-C Page
298
The only exception when the body of a decision prevails over the fallo is when the
inevitable conclusion from the former is that there was a glaring error in the latter, in
which case the body of the decision will prevail. In this instance, there was no clear
declaration in the body of the January 31, 1984 Decision to warrant a conclusion that
there was an error in the fallo. Nowhere in the former can we find a definite declaration
of the trial court that, indeed, respondents liability was solidary. If petitioner had
doubted this point, it should have filed a motion for reconsideration before the finality of
the Decision of the trial court.
SLU SOL 1-C Page
299
Art. 1207, Solidary Obligations: How Created
CDCP v. Estrella, 501 S 228
CONSTRUCTION DEVELOPMENT CORPORATION OF THE PHILIPPINES, petitioner,

vs.
REBECCA G. ESTRELLA, RACHEL E. FLETCHER, PHILIPPINE PHOENIX SURETY
& INSURANCE INC., BATANGAS LAGUNA TAYABAS BUS CO., and WILFREDO
DATINGUINOO, respondents.
G.R. No. 147791 September 8, 2006
Facts: On December 29, 1978, respondents Rebecca G. Estrella and her

granddaughter, Rachel E. Fletcher, boarded in San Pablo City, a BLTB bus bound for
Pasay City. However, they never reached their destination because their bus was
rammed from behind by a tractor-truck of CDCP in the South Expressway. The strong
impact pushed forward their seats and pinned their knees to the seats in front of them.
They regained consciousness only when rescuers created a hole in the bus and
extricated their legs from under the seats. They suffered physical injuries as a result.
Thereafter, respondents filed a Complaint for damages against CDCP, BLTB, Espiridion
Payunan, Jr. and Wilfredo Datinguinoo before the Regional Trial Court of Manila,
Branch 13.
Issue: Whether the accused are jointly or solidarily liable.
Ruling: The case filed by respondents against petitioner is an action for culpa aquiliana
or quasi-delict under Article 2176 of the Civil Code. The liability for the negligent conduct
of the subordinate is direct and primary, but is subject to the defense of due diligence in
the selection and supervision of the employee. In the instant case, the trial court found
that petitioner failed to prove that it exercised the diligence of a good father of a family in
the selection and supervision of Payunan, Jr. It is well-settled in Fabre, Jr. v. Court of
Appeals, that the owner of the other vehicle which collided with a common carrier is
solidarily liable to the injured passenger of the same. The petition was thusly denied.
SLU SOL 1-C Page

300
Republic Glass Corp. v. Qua, 30 July 2004
REPUBLIC GLASS CORPORATION and GERVEL, INC, petitioners,

vs.
LAWRENCE C. QUA, respondent.
G.R. No. 144413 July 30, 2004
Facts: The parties were stockholders of Ladtek, Inc. Ladtek obtained loans from
Metrobank and PDCP with the parties as sureties. Among themselves, they executed
agreements for contribution, indemnity, and pledge of shares of stocks, stating that in
case of default in the payment of loans, the parties would reimburse each other the
proportionate share of any sum that any might pay to creditors.
Ladtek defaulted on its loan obligations. Hence, Metrobank filed a collection case.
During the pendency of the case, RGC and Gervel paid Metrobank. The bank executed
a waiver and quitclaim in favor of the 2. Upon Quas refusal to reimburse, RGC and
Gervel foreclosed the pledged shares of stocks owned by Qua at a public auction.
Qua filed a complaint for injunction and damages. The RTC ordered RGC and Gervel to
return the foreclosed shares of stock to Qua. This was set aside on their motion for
reconsideration. On appeal, the CA set aside the RTC decision and held that there was
an implied novation of the agreement and that the payment did not extinguish the entire
obligation and did not benefit Qua.
Issue: Whether or not payment of the entire obligation is an essential condition for
reimbursement.
Ruling: Payment of any amount will not automatically result in reimbursement. If a

solidary debtor pays the obligation in part, he can recover reimbursement from the co-
debtors only in so far as his payment exceeded his share in the obligation. This is
because, if a solidary debtor pays an amount equal to his proportionate share in the
obligation, then he in effect pays only what is due from him. If the debtor pays less than
his share in the obligation, he cannot demand reimbursement because his payment is
less than his actual debt.
RGC and Gervel made partial payment to PDCP. The release from solidary liability that
PDCP executed in RGC and Gervels favor stated that their payment served as "full
payment of their corresponding proportionate share" in Ladteks foreign currency loan.
Since they only made partial payments, RGC and Gervel should clearly and
convincingly show that their payments to Metrobank and PDCP exceeded their
proportionate shares in the obligations before they can seek reimbursement from Qua.
This RGC and Gervel failed to do. RGC and Gervel never claimed that their payments
exceeded their shares in the obligations. Consequently, RGC and Gervel cannot validly
seek reimbursement from Qua.
SLU SOL 1-C Page
301
Industrial Management v. NLRC, 331 S 640
INDUSTRIAL MANAGEMENT INTERNATIONAL DEVELOPMENT CORP. (INIMACO),

petitioner,
vs.
NATIONAL LABOR RELATIONS COMMISSION, (Fourth Division) Cebu City, and
ENRIQUE SULIT, SOCORRO MAHINAY, ESMERALDO PEGARIDO, TITA
BACUSMO, GINO NIERE, VIRGINIA BACUS, ROBERTO NEMENZO, DARIO GO,
and ROBERTO ALEGARBES, respondents.
G.R. No. 101723 May 11, 2000
Facts: On September 1984, private respondent Enrique Sulit, Socorro Mahinay,

Esmeraldo Pegarido, Tita Bacusmo, Gino Niere, Virginia Bacus, Roberto Nemenzo,
Dariogo, and Roberto Alegarbes filed a complaint with the Department of Labor and
Employment in Cebu City against Filipinas Carbon Mining Corporation, Gerardo Sicat,
Antonio Gonzales, Chiu Chin Gin, Lo Kuan Chin, and petitioner Industrial Management
Development Corporation (INIMACO), for payment of separation pay and unpaid
wages. Hence the petition for certiorari issued by the National Labor Relations
Commission on the alleged ground that it committed grave abuse of discretion
amounting to lack of jurisdiction in upholding the Alias Writ of Execution issued by the
Labor Arbiter which deviated from the dispositive portion of the Decision dated March
10, 1987, thereby holding that the liability of the six respondents in a case adjudicated
by the NLRC is solidary despite the absence of the word solidary in the dispositive
portion of the Decision, when their liability should merely be joint.
Issue: Whether petitioner's liability is solidary or not.
Ruling: In the dispositive portion of the Labor Arbiter, the word "solidary" does not
appear. The said fallo expressly states the following respondents therein as liable,
namely: Filipinas Carbon and Mining Corporation, Gerardo Sicat, Antonio Gonzales,
Industrial Management Development Corporation (petitioner INIMACO), Chiu Chin Gin,
and Lo Kuan Chin. Nor can it be inferred therefrom that the liability of the six
respondents is solidary, thus their liability should merely be joint. Granting that the Labor
Arbiter has committed a mistake in failing to indicate in the dispositive portion that the
liability of respondents therein is solidary, the correction -- which is substantial none of
the parties in the case before the Labor Arbiter appealed the Decision dated March 10,
1987, hence the same became final and executory. It was, therefore, removed from the
jurisdiction of the Labor Arbiter or the NLRC to further alter or amend it. Thus, the
proceedings held for the purpose of amending or altering the dispositive portion of the
said decision are null and void for lack of jurisdiction. Also, the Alias Writ of Execution is
null and void because it varied the tenor of the judgment in that it sought to enforce the
final judgment against "Antonio Gonzales/Industrial Management Development Corp.
(INIMACO) and/or Filipinas Carbon and Mining Corp. and Gerardo Sicat," which makes
the liability solidary.
SLU SOL 1-C Page
302
Metro Manila Transit v. CA, 21 June 1993
METRO MANILA TRANSIT CORPORATION, petitioner,

vs.
THE COURT OF APPEALS AND NENITA CUSTODIA, respondents.
G.R. No. 104408 June 21, 1993
Facts: At about six o'clock in the morning of August 28, 1979, plaintiff-appellant Nenita
Custodio boarded as a paying passenger a public utility jeepney with plate No. D7 305
PUJ Pilipinas 1979, then driven by defendant Agudo Calebag and owned by his co-
defendant Victorino Lamayo, bound for her work at Dynetics Incorporated located in
Bicutan, Taguig, Metro Manila, where she then worked as a machine operator earning
P16.25 a day. While the passenger jeepney was travelling at (a) fast clip along DBP
Avenue, Bicutan, Taguig, Metro Manila another fast moving vehicle, a Metro Manila
Transit Corp. (MMTC, for short) bus bearing plate no. 3Z 307 PUB (Philippines) "79
driven by defendant Godofredo C. Leonardo was negotiating Honeydew Road, Bicutan,
Taguig, Metro Manila bound for its terminal at Bicutan. As both vehicles approached the
intersection of DBP Avenue and Honeydew Road they failed to slow down and slacken
their speed; neither did they blow their horns to warn approaching vehicles. As a
consequence, a collision between them occurred, the passenger jeepney ramming the
left side portion of the MMTC bus. The collision impact caused plaintiff-appellant Nenita
Custodio to hit the front windshield of the passenger jeepney and (she) was thrown out
therefrom, falling onto the pavement unconscious with serious physical injuries. She
was brought to the Medical City Hospital where she regained consciousness only after
one (1) week. Thereat, she was confined for twenty-four (24) days, and as a
consequence, she was unable to work for three and one half months (31/2). A complaint
for damages was filed by herein private respondent, who being then a minor was
assisted by her parents, against all of therein named defendants following their refusal
to pay the expenses incurred by the former as a result of the collision.
Issue: Whether or not Lamayo, the owner of the jeepney and employer of driver
Calebag, who failed to exercise due diligence in the selection and supervision of
employees should be held solidarily liable for damages caused to the MMTC bus
through the fault and negligence of its employees.
Ruling: Yes. With the allegation and subsequent proof of negligence against the
defendant driver and of an employer-employee relation between him and his co-
defendant MMTC in this instance, the case in undoubtedly based on a quasi-delict
under Article 2180. In order that the defense of due diligence in the selection and
supervision of employees may be deemed sufficient and plausible, it is not enough to
emptily invoke the existence of said company guidelines and policies on hiring and
supervision. As the negligence of the employee gives rise to the presumption of
negligence on the part of the employer, the latter has the burden of proving that it has
been diligent not only in the selection of employees but also in the actual supervision of
their work. The mere allegation of the existence of hiring procedures and supervisory
SLU SOL 1-C Page
303
policies, without anything more, is decidedly not sufficient to overcome such
presumption.
SLU SOL 1-C Page
304
Arts. 1211-1216, Active Solidarity or Mutual Agency: Effects
Inciong v. CA, 257 S 578
BALDOMERO INCIONG, JR., petitioner,

vs.
COURT OF APPEALS and PHILIPPINE BANK OF COMMUNICATIONS, respondents.
G.R. No. 96405 June 26, 1996
Facts: In February 1983, Rene Naybe took out a loan from Philippine Bank of
Communications (PBC) in the amount of P50k. For that he executed a promissory note
in the same amount. Naybe was able to convince Baldomero Inciong, Jr. and Gregorio
Pantanosas to co-sign with him as co-makers. The promissory note went due and it was
left unpaid. PBC demanded payment from the three but still no payment was made.
PBC then sue the three but PBC later released Pantanosas from its obligations. Naybe
left for Saudi Arabia hence cant be issued summons and the complaint against him was
subsequently dropped. Inciong was left to face the suit. He argued that that since the
complaint against Naybe was dropped, and that Pantanosas was released from his
obligations, he too should have been released.
Issue: Whether or not Inciong should be held liable.
Ruling: Yes. Inciong is considering himself as a guarantor in the promissory note. And
he was basing his argument based on Article 2080 of the Civil Code which provides that
guarantors are released from their obligations if the creditors shall release their debtors.
It is to be noted however that Inciong did not sign the promissory note as a guarantor.
He signed it as a solidary co-maker.
A guarantor who binds himself in solidum with the principal debtor does not become a
solidary co-debtor to all intents and purposes. There is a difference between a solidary
co-debtor and a fiador in solidum (surety). The latter, outside of the liability he assumes
to pay the debt before the property of the principal debtor has been exhausted, retains
all the other rights, actions and benefits which pertain to him by reason of the fiansa;
while a solidary co-debtor has no other rights than those bestowed upon him.
Because the promissory note involved in this case expressly states that the three
signatories therein are jointly and severally liable, any one, some or all of them may be
proceeded against for the entire obligation. The choice is left to the solidary creditor
(PBC) to determine against whom he will enforce collection. Consequently, the
dismissal of the case against Pontanosas may not be deemed as having discharged
Inciong from liability as well. As regards Naybe, suffice it to say that the court never
acquired jurisdiction over him. Inciong, therefore, may only have recourse against his
co-makers, as provided by law.
SLU SOL 1-C Page
305
Philippine Blooming Mills v. CA, 15 October 2003
PHILIPPINE BLOOMING MILLS EMPLOYMENT ORGANIZATION, NICANOR

TOLENTINO, FLORENCIO, PADRIGANO RUFINO, ROXAS MARIANO DE LEON,
ASENCION PACIENTE, BONIFACIO VACUNA, BENJAMIN PAGCU and RODULFO
MUNSOD, petitioners,
vs.
PHILIPPINE BLOOMING MILLS CO., INC. and COURT OF INDUSTRIAL
RELATIONS, respondents.
G.R. No. L-31195 June 5, 1973
Facts: Ching was the Senior Vice President of PBM. In his personal capacity and not as
a corporate officer, Ching signed a Deed of Suretyship dated 21 July 1977 withTraders
Royal Bank. On 24 March and 6 August 1980, TRB granted PBM letters of credit on
application of Ching in his capacity as Senior Vice President of PBM. Under the trust
receipts, PBM had the right to sell the merchandise for cash with the obligation to turn
over the entire proceeds of the sale to TRB as payment of PBMs indebtedness.
On 27 April 1981, PBM obtained a P3,500,000 trust loan from TRB. Ching signed as co-
maker in the notarized Promissory Note evidencing this trust loan. PBM later defaulted
in its payment of credit to TRB and on its P3,500,000 trust loan.On 1 April 1982, PBM
and Ching filed a petition for suspension of payments with the Securities and Exchange
Commission .The petition sought to suspend payment of PBMs obligations and prayed
that the SEC allow PBM to continue its normal business operations free from the
interference of its creditors. One of the listed creditors of PBM was TRB. On 13 May
1983, ten months after the SEC placed PBM under rehabilitation receivership, TRB filed
with the trial court a complaint for collection against PBM and Ching.
Issue: Whether or not Ching is liable for obligations PBM contracted after execution of
the Deed of Suretyship.
Ruling: Ching is liable for credit obligations contracted by PBM against TRB before and
after the execution of the 21 July 1977 Deed of Suretyship. This is evident from the
tenor of the deed itself, referring to amounts PBM may now be indebted or may
hereafter become indebted to TRB. The law expressly allows a suretyship for future
debts. Article 2053 of the Civil Code provides: A guaranty may also be given as security
for future debts, the amount of which is not yet known; there can be no claim against the
guarantor until the debt is liquidated.
Ching would like the Court to rule that his liability is limited, at most, to the amount
stated in PBMs rehabilitation plan. In claiming this reduced liability, Ching invokes
Article 1222 of the Civil Code. In granting the loan to PBM, TRB required Chings surety
precisely to insure full recovery of the loan in case PBM becomes insolvent or fails to
pay in full. This was the very purpose of the surety. Thus, Ching cannot use PBMs
failure to pay in full as justification for his own reduced liability to TRB. As surety, Ching
SLU SOL 1-C Page
306
agreed to pay in full PBMs loan in case PBM fails to pay in full for any reason, including
its insolvency.
TRB, as creditor, has the right under the surety to proceed against Ching for the entire
amount of PBMs loan under Article 1216 which reads: The creditor may proceed
against any one of the solidary debtors or some or all of them simultaneously.
SLU SOL 1-C Page
307
Art. 1217-1222, Passive Solidarity or Mutual Guaranty: Effects
Queensland-Tokyo v. George, 8 September 2010
QUEENSLAND-TOKYO COMMODITIES, INC., ROMEO Y. LAU, and CHARLIE

COLLADO, petitioners,
vs.
THOMAS GEORGE, respondent.
G.R. No. 172727 September 8, 2010
Facts: QTCI is a duly licensed broker engaged in the trading of commodity futures. In
1995, Guillermo Mendoza, Jr. and Oniler Lontoc of QTCI met with respondent Thomas
George, encouraging the latter to invest with QTCI. On July 7, 1995, respondent finally
invested with QTCI. On the same day, Collado, in behalf of QTCI, and respondent
signed the Customers Agreement. Forming part of the agreement was the Special
Power of Attorney executed by respondent, appointing Mendoza as his attorney-in-fact
with full authority to trade and manage his account. On June 20, 1996, the Securities
and Exchange Commission issued a Cease-and-Desist Order against QTCI. Alarmed
by the issuance of the CDO, respondent demanded from QTCI the return of his
investment, but it was not heeded. He then sought legal assistance, and discovered that
Mendoza and Lontoc were not licensed commodity futures salesmen. On February 4,
1998, respondent filed a complaint for Recovery of Investment with Damages with the
SEC against QTCI, Lau, and Collado, and against the unlicensed salesmen, Mendoza
and Lontoc.
Issue: Whether or not QTCI can be held jointly and severally liable.
Ruling: The evidence on record established that petitioners indeed permitted an

unlicensed trader and salesman, like Mendoza, to handle respondents account. On the
other hand, the record is bereft of proof that respondent had knowledge that the person
handling his account was not a licensed trader. Under Article 1412, respondent can,
therefore, recover the amount he had given under the contract. Petitioners Collado and
Lau next fault the CA in making them solidarily liable for the payment of respondents
claim. In holding Lau and Collado jointly and severally liable with QTCI, the SEC
Hearing Officer explained in this wise: Article 1216 which reads: The creditor may
proceed against any one of the solidary debtors or some or all of them simultaneously. It
is therefore safe to conclude that although Lau may not have participated nor been
aware of the unlawful acts, he is however deemed to have been grossly negligent in
directing the affairs of QTCI.
SLU SOL 1-C Page
308
Shrimp Specialist, Inc. v. Fuji-Triumph, 7 December 2009
SHRIMP SPECIALISTS, INC., petitioner,

vs.
FUJI-TRIUMPH AGRI-INDUSTRIAL CORPORATION, respondent.
G.R. No. 168756 December 7, 2009
Facts: Shrimp Specialists and Fuji entered into a Distributorship Agreement, under
which Fuji agreed to supply prawn feeds on credit basis to Shrimp Specialists. The
prawn feeds would be used in prawn farms under Shrimp Specialists technical
supervision and management. In 1987, Shrimp Specialists began purchasing prawn
feeds from Fuji and paid for them in the regular course of business. From 3 June 1989
to 24 July 1989, Fuji delivered prawn feeds, and Shrimp Specialists issued 9 postdated
checks as payment. Shrimp Specialists alleges that it issued a stop-payment order for
the checks because it discovered that earlier deliveries were contaminated with
aflatoxin. Shrimp Specialists claims that it verbally informed Fuji about the
contamination and Fuji promised to send stocks of better quality. Shrimp Specialists
states that it continued to purchase prawn feeds from Fuji, but the stocks were still
contaminated with aflatoxin. Fuji denies that the feeds were contaminated. Fuji asserts
that Shrimp Specialists requested to put on hold the deposit of the checks due to
insufficient funds. Fuji adds that when the checks were presented for payment, the
drawee bank dishonored all the checks due to a stop-payment order. In January 1990,
Ervin Lim, Fujis Vice-President and owner, and Edward Lim, Shrimp Specialists
Finance Officer, met in Ozamiz City to discuss the unpaid deliveries. After the meeting,
both agreed that Shrimp Specialists would issue another set of checks to cover the
ones issued earlier. This agreement was reduced into writing and signed by both parties
on behalf of their corporations. Fuji states that it accepted the checks in good faith and
believed that the account would finally be paid since Edward Lim assured Ervin Lim of
the payment. However, upon presentment of the replacement checks, these were again
dishonored due to another stop-payment order issued by Shrimp Specialists. Fuji filed a
civil complaint for sum of money against Shrimp Specialists and Eugene Lim. The RTC
of Quezon City rendered a decision finding Shrimp Specialists and Eugene Lim
solidarily liable which the CA affirmed.
Issue: Whether or not the CA erred in interpreting the provision "to inform in advance in
case the same checks cannot be deposited for failure to replace the defective feeds."
Ruling: It is a rule that a statement is not competent as an admission where it does not,
under a reasonable construction, appear to admit or acknowledge the fact which is
sought to be proved by it. An admission or declaration to be competent must have been
expressed in definite, certain and unequivocal language. As correctly ruled by the CA,
the statement "to inform in advance in case the same checks cannot be deposited for
failure to replace the defective feeds" is not expressed in definite, certain and
unequivocal language that Fuji admitted to delivering defective feeds. The CA also ruled
that to be an admission of any breach of warranty, the evidence must be clear and
SLU SOL 1-C Page
309
convincing. The CA pointed out that the inspection and discovery of the alleged
defective feeds were made as early as March 1989 while the feeds subject of this case
were delivered to Shrimp Specialists only from 3 June to 24 July 1989.
SLU SOL 1-C Page
310
Asset Builders v. Stronghold, 18 October 2010
ASSET BUILDERS CORPORATION, petitioner,

vs.
STRONGHOLD INSURANCE COMPANY, INCORPORATED, respondent.
G.R. No. 187116 October 18, 2010
Facts: On April 28, 2006, Asset Builders Corporation entered into an agreement with
Lucky Star Drilling & Construction Corporation as part of the completion of its project to
construct the ACG Commercial Complex. Based from the Purchase Order, Lucky Star
was to supply labor, materials, tools, and equipment including technical supervision to
drill one exploratory production well on the project site. To guarantee faithful compliance
with their agreement, Lucky Star engaged respondent Stronghold which issued two
bonds in favor of petitioner. The first, SURETY BOND G(16) No. 141558, dated May 9,
2006, covers the sum of P575,000.00. On May 20, 2006, ABC paid Lucky Star
P575,000.00, representing 50% of the contract price. Lucky Star, thereafter,
commenced the drilling work. By July 18, 2006, just a few days before the agreed
completion date of 60 calendar days, Lucky Star managed to accomplish only ten (10)
% of the drilling work. On August 3, 2006, ABC sent a Notice of Rescission of Contract
with Demand for Damages to Lucky Star.
Issue: Whether or not respondent, as surety, can be held liable under its bonds.
Ruling: Respondent, along with its principal, Lucky Star, bound itself to the petitioner
when it executed in its favor surety and performance bonds. The contents of the said
contracts clearly establish that the parties entered into a surety agreement. As provided
in Article 2047, the surety undertakes to be bound solidarily with the principal obligor.
That undertaking makes a surety agreement an ancillary contract as it presupposes the
existence of a principal contract. In the case at bench, when Lucky Star failed to finish
the drilling work within the agreed time frame despite petitioners demand for
completion, it was already in delay. Due to this default, Lucky Stars liability attached
and, as a necessary consequence, respondents liability under the surety agreement
arose. Undeniably, when Lucky Star reneged on its undertaking with the petitioner and
further failed to return the P575, 000.00downpayment that was already advanced to it,
respondent, as surety, became solidarily bound with Lucky Star for the repayment of the
said amount to petitioner. The clause, this bond is callable on demand, strongly
speaks of respondents primary and direct responsibility to the petitioner. Accordingly,
after liability has attached to the principal, the petitioner can exercise the right to
proceed against Lucky Star or respondent or both. Article 1216 of the New Civil Code
states: The creditor may proceed against any one of the solidary debtors or some or all
of them simultaneously. The demand made against one of them which may
subsequently be directed against the others, so long as the debt has not been fully
collected. Respondent should be answerable to petitioner on account of Lucky Stars
non-performance of its obligation as guaranteed by the performance bond.
SLU SOL 1-C Page
311
Eparwa Security v. Liceo de Cagayan, 508 S 373
EPARWA SECURITY AND JANITORIAL SERVICES, INC., petitioner,

vs.
LICEO DE CAGAYAN UNIVERSITY, respondent.
G.R. No. 150402 November 28, 2006
Facts: On 1 December 1997, Eparwa and LDCU, entered into a Contract for Security
Services. LDCU agreed to pay Eparwa P5, 000.00 per guard a month payable within
fifteen days after Eparwa presents its service invoice. Eparwa shall furnish LDCU a
monthly copy of SSS contribution of guards and monthly payroll of each guard assigned
at LDCUs premises on a monthly basis. On 21 December 1998, 11 security guards
whom Eparwa assigned to LDCU from 1 December 1997 to 30 November 1998 filed a
complaint before the National Labor Relations Commissions, the complaint was filed
against both Eparwa and LDCU for underpayment of salary, legal holiday pay, 13th
month pay, rest day, service incentive leave, night shift differential, overtime pay, and
payment for attorneys fees.LDCU made a cross-claim and prayed that Eparwa should
reimburse LDCU for any payment to the security guards.
Issue: Whether or not LDCU alone is ultimately liable to the security guards for the
wage differentials and premium for holiday and rest day pay.
Ruling: Under Articles 106, 107 and 109 of the Labor Code read: Art. 106. Contractor or
subcontractor. Whenever an employer enters into a contract with another person for the
performance of the formers work, the employees of the contractor and of the latters
subcontractor, if any, shall be paid in accordance with the provisions of this Code. In the
event that the contractor or subcontractor fails to pay the wages of his employees in
accordance with this Code, the employer shall be jointly and severally liable with his
contractor or subcontractor to such employees to the extent of the work performed
under the contract, in the same manner and extent that he is liable to employees
directly employed by him.
For the security guards, the actual source of the payment of their wage differentials and
premium for holiday and rest day work does not matter as long as they are paid. This is
the import of Eparwa and LDCUs solidary liability. Creditors, such as the security
guards, may collect from anyone of the solidary debtors. Solidary liability does not mean
that, as between themselves, two solidary debtors are liable for only half of the
payment. LDCUs ultimate liability comes into play because of the expiration of the
Contract for Security Services. There is no privity of contract between the security
guards and LDCU, but LDCUs liability to the security guards remains because of
Articles 106, 107 and 109 of the Labor Code. Eparwa is already precluded from asking
LDCU for an adjustment in the contract price because of the expiration of the contract,
but Eparwas liability to the security guards remains because of their employer-
employee relationship. In lieu of an adjustment in the contract price, Eparwa may claim
reimbursement from LDCU for any payment it may make to the security guards.
SLU SOL 1-C Page
312
However, LDCU cannot claim any reimbursement from Eparwa for any payment it may
make to the security guards.
SLU SOL 1-C Page
313
Dimayuga v. PCIB, 5 August 1991
CARLOS DIMAYUGA, petitioner,

vs.
PHILIPPINE COMMERCIAL & INDUSTRIAL BANK and COURT OF APPEALS,
respondents.
G.R. No. L-42542 August 5, 1991
Facts: On February 6, 1962, petitioner borrowed from the plaintiff-respondent, sum of

the ten thousand (P10,000.00) pesos as evidenced by a promissory note executed and
signed by Pedro Tanjuatco and Carlos Dimayuga. The indebtedness was to be paid on
May 7, 1962 with interest at the rate of 10 percent (10%) per annum in case of the non-
payment at maturity as evidenced by and in accordance with the terms and conditions
of the promissory note executed jointly and severally by defendants.
In the aforementioned promissory note, Carlos Dimayuga bound himself to pay jointly
and severally with Pedro Tanjuatco interest at the rate 10% per annum on the said
amount of P10,000.00 until fully paid. Moreover, both undertook to jointly and severally
authorize the respondent Philippine Commercial and Industrial Bank, as its option to
apply to the payment of this note any and all funds, securities or other real or personal
property of value which hands (sic) on deposit or otherwise belonging to anyone or all of
us. Upon the default of the promisors to pay, a complaint was filed on July 11,1969 by
the PCIB for some money.
Defendant Carlos Dimayuga, however, had remitted to the plaintiff-respondent the

amount totaling P4,000.00 by way of partial payments made from August 1, 1969 to
May 7, 1970 as evidenced by corresponding receipts thereto. These payments were
nevertheless applied to past interest, charges and partly on the principal. On May 28,
1974, the trial court rendered a decision holding defendants jointly and severally liable
to pay the plaintiff the sum of P9,139.60 with interest at 10% per annum until fully paid
plus P913.96 as attorneys fees. On July 11, 1974, petitioner filed a motion alleging that
since Pedro Tanjuatco died on December 23, 1973, the money claim of the respondents
should be dismissed and prosecuted against the estate of the late Pedro Tanjuacto. On
June 22, 1974, the trial court denied the motion for lack of merit. Not satisfied, the
petitioner appealed to the respondent court. The Court of Appeals dismissed the appeal.
Hence, this petition.
Issue: Whether or not the position of the petitioner that Pedro Tanjuatco, having died on
December 23, 1973, the money claim of PCIB should be dismissed and prosecuted
against the estate of the late Tanjuatco.
Ruling: From the evidence presented, there can be no dispute that Carlos Dimayuga
bound himself jointly and severally with Pedro C. Tanjuatco, now deceased, to pay the
obligation with PCIB in the amount of P10,000 plus 10% interest per annum. In addition,
as above stated, in case of non-payment, they undertook among others to jointly and
SLU SOL 1-C Page
314
severally authorize respondent bank, as its option to apply to the payment of this note,
any and all funds, securities, real or personal properties, etc. belonging to anyone or all
of them. Otherwise stated, the promissory note in question provides in unmistakable
language that the obligation of petitioner Dimayuga is joint and several with Pedro C.
Tanjuatco.
It is well and settled under the law and jurisprudence that when the obligation is solidary
the creditor may bring his action in toto against the debtors obligated in solidum. As
expressly allowed by Article 1216 of the Civil Code, the creditor may proceed against
any one of the solidary debtors or some or all of them simultaneously. Hence, there is
nothing improper in the creditors filing of an action against surviving solidary debtors
alone, instead of instituting a proceeding for the settlement of the estate of the
deceased debtor wherein his claim could be filed. The notice is undoubtedly left to the
solidary creditor to determine against whom he will enforce collection. Thus, the appeal
interposed by the petitioner-appellant is dismissed for lack of merit and decision of the
Court of First is affirmed in toto.
SLU SOL 1-C Page
315
Cerna v. CA, 30 March 1993
MANOLO P. CERNA, petitioner,

vs.
G.R. No. L-48359 March 30, 1993
Facts: On or about October 16, 1972, Celerino Delgado and Conrad Leviste entered
into a loan agreement which was evidenced by a promissory note. On the same date,
Delgado executed a chattel mortgage 2 over a Willy's jeep owned by him. And acting as
the attorney-in-fact of herein petitioner, Manolo P. Cerna, he also mortgage a "Taunus'
car owned by the latter. The period lapsed without Delgado paying the loan. This
prompted Leviste to a file a collection suit against Delgado and petitioner as solidary
debtors. Petitioner claimed that the claim should be filed in the proceedings for the
settlement of Delgado's estate as the action did not survive Delgado's death. Moreover,
he also stated that since Leviste already opted to collect on the note, he could no longer
foreclose the mortgage.
Issue: Whether or not petitioner can be held solidary liable.
Ruling: Granting, however, that petitioner was obligated under the mortgage contract to
answer for Delgado's indebtedness, under the circumstances, petitioner could not be
held liable because the complaint was for recovery of a sum of money, and not for the
foreclosure of the security. We agree with petitioner that the filing of collection suit
barred the foreclosure of the mortgage. Hence, Leviste, having chosen to file the
collection suit, could not now run after petitioner for the satisfaction of the debt. This is
even more true in this case because of the death of the principal debtor, Delgado.
Leviste was pursuing a money claim against a deceased person. It appears in this case
that the second motion was filed to circumvent the effects of the finality of the decision
of the Court of Appeals in Ca-G.R. No. 03088. Petitioner intended the second motion
and the subsequent proceedings as remedies for his lapsed appeal. It delayed the
proceedings in this case and unduly burdened the courts. Petitioner should have
allowed the trial of the case to go on where his defences could still be presented and
heard.
SLU SOL 1-C Page
316
Art. 1225, Kinds of Indivisibility: Natural, Legal, or
Conventional
Nazareno v. CA, 343 S 637
NATIVIDAD P. NAZARENO, MAXIMINO P. NAZARENO, R., petitioners,

Vs.
COURT OF APPEALS, ESTATE OF MAXIMINO A. NAZARENO, SR., ROMEO P.
NAZARENO and ELIZA NAZARENO, respondents.
G.R. No. 13884 October 18, 2000
Facts: Maximino Nazareno, Sr. and Aurea Poblete were husband and wife. Aurea died
on April 15, 1970, while Maximino, Sr. died on December 18, 1980. They had five
children, namely, Natividad, Romeo, Jose, Pacifico, and Maximino, Jr. Natividad and
Maximino, Jr. are the petitioners in this case, while the estate of Maximino, Sr., Romeo,
and his wife Eliza Nazareno are the respondents.
During their marriage, Maximino Nazareno, Sr. and Aurea Poblete acquired properties
in Quezon City and in the Province of Cavite. Upon the reorganization of the courts in
1983, the case was transferred to the RTC of Naic, Cavite. Romeo was appointed
administrator of his fathers estate.
In the course of the intestate proceedings, Romeo discovered that his parents had
executed several deeds of sale conveying a number of real properties in favor of his
sister, Natividad. One of the deeds involved six lots in Quezon City which were allegedly
sold by Maximino, Sr., with the consent of Aurea, to Natividad on January 29, 1970 for
the total amount of P47,800.00. By the virtue of these deeds, TCTs were issued to
Natividad for lots 3-B, 3, 10, 11,13, and 14. Unknown to Romeo, Natividad sold Lot 3-B
which had been occupied by Romeo, his wife Eliza and Maximino Jr. since 1969, to
Maximino Jr. on July 31, 1982. When Romeo found out about the sale to Maximino, Jr.,
he and his wife Eliza locked Maximino, Jr. out of the house.
On August 4, 1983, Maximino, Jr. brought an action for recovery of possession and
damages with prayer for writs of preliminary injunction and mandatory injunction with
the RTC of Quezon City. On December 12, 1986, the trial court ruled in favor of
Maximino, Jr. In CA-G.R. CV No. 12932, the CA affirmed the decision of the trial court.
On June 15, 1988, Romeo in turn filed, on behalf of the estate of Maximino, Sr., the
present case for annulment of sale with damages against Natividad and Maximino, Jr.
The case was filed in the RTC of Quezon City. Romeo sought the declaration of nullity
of the sale made on January 29, 1970 to Natividad and that made on July 31, 1982 to
Maximino, Jr. on the ground that both sales were void for lack of consideration. Romeo
presented the Deed of Partition and Distribution executed by Maximino Sr. and Aurea in
1962 and duly signed by all their children, except Jose, who was then abroad. However,
this deed was not carried out.
SLU SOL 1-C Page
317
On March 1, 1990, Natividad and Maximino, Jr. filed a third-party complaint against the
spouses Romeo and Eliza. They alleged that Lot 3, which was included in the Deed of
Absolute Sale of January 29, 1970 to Natividad, had been surreptitiously appropriated
by Romeo by securing for himself a new title in his name. They alleged that Lot 3 is
being leased by the spouses Romeo and Eliza to third persons. In the trial court, it
rendered a decision declaring the nullity of the Deed of Sale dated January 29, 1970
except as to lots 3, 3-b, 13 and 14 which had passed on to third persons. On motion for
reconsideration, the trial court modified its decision. On appeal to the Court of Appelas,
the decision of the trial court was modified in the sense that the titles to Lot 3 (in the
name of Romeo Nazareno) and Lot 3-B ( in the name of Maximino Nazareno, Jr.), as
well as to Lots 10 and 11 were cancelled and ordered restored to the estate of
Maximino, Sr.
Issue: Whether or not the the Deed of Absolute Sale on January 29, 1970 is an
indivisible contract founded on an indivisible obligation
Ruling: An obligation is indivisible when it cannot be validly performed in parts,

whatever may be the nature of the thing which is the object thereof. The indivisibility
refers to the prestation and not to the object thereof. In the present case, the Deed of
Sale of January 29, 1970 supposedly conveyed the six lots to Natividad. The obligation
is clearly indivisible because the performance of the contract cannot be done in parts;
otherwise the value of what is transferred is diminished. Petitioners are therefore
mistaken in basing the indivisibility of a contract on the number of obligors. The decision
of the Court of Appeals is affirmed.
SLU SOL 1-C Page
318
Arts. 1226-1230, Obligations with a Penal Clause
Kinds of Penalties
Alonzo v. San Juan, 451 S 45
AURELIO P. ALONZO and TERESITA A. SISON, petitioners,

vs.
JAIME AND PERLITA SAN JUAN, respondents.
G.R. No. 137549 February 11, 2005
Facts: Petitioners Alonzo and Sison alleged that they are the registered owners of a
parcel of land located at Lot 3, Block 11, M. Agoncillo St., Novaliches, Quezon City,
evidenced by TCT No. 152153. At around June 1996, petitioners discovered that a
portion on the left side of the parcel of land was occupied by the respondents San Juan,
without their knowledge or consent. A demand letter was sent to the respondents
requiring them to vacate the said premises, but they refused to comply. Petitioners then
filed a complaint against the respondents. During the pendency of the case, the parties
agreed to enter into a Compromise Agreement which the trial court approved in a
judgment by compromise dated May 7, 1997. In the Compromise Agreement, it was
expressly stipulated that should any two of the installments of the purchase price be not
paid by the respondents, the said agreement shall be considered null and void. Alleging
that the respondents failed to abide by the provisions of the Compromise Agreement by
their failure to pay the amounts due thereon, petitioners then filed an Amended Motion
for Execution. Petitioners alleged that the respondents failed to pay the installments for
July 31, 1997 and August 31, 1997 on their due dates, thus the Compromise Agreement
submitted by the parties became null and void. With this, the trial court found no reason
to direct the issuance of the writ of execution and denied the petitioners' Amended
Motion for Execution. Petitioners filed their motion for reconsideration to which the
respondents opposed. The trial court likewise denied the petitioners' motion for
reconsideration.
Issue: Whether or not the petitioners have a right to enforce the provision on
Compromise Agreement by asking for the issuance of a writ of execution because of the
failure of the respondents to pay.
Ruling: The Supreme Court held that the items 11 and 12 of the Compromise
Agreement provided, in clear terms, that in case of failure to pay on the part of the
respondents, they shall vacate and surrender possession of the land that they are
occupying and the petitioners shall be entitled to obtain immediately from the trial court
the corresponding writ of execution for the ejectment of the respondents. This provision
must be upheld, because the Agreement supplanted the complaint itself. When the
parties entered into a Compromise Agreement, the original action for recovery of
possession was set aside and the action was changed to a monetary obligation. Once
approved judicially, the Compromise Agreement cannot and must not be disturbed
SLU SOL 1-C Page
319
except for vices of consent or forgery. For failure of the respondents to abide by the
judicial compromise, petitioners are vested with the absolute right under the law and the
agreement to enforce it by asking for the issuance of the writ of execution. Doctrinally, a
Compromise Agreement is immediately final and executory. Petitioners' course of
action, asking for the issuance of a writ of execution was in accordance with the very
stipulation in the agreement that the lower court could not change. Hence, the petition is
granted.
SLU SOL 1-C Page
320
David v. CA, 316 S 710
JESUS T. DAVID, petitioner,

vs.
THE COURT OF APPEALS, HON. EDGARDO P. CRUZ, MELCHOR P. PEA, and
VALENTIN AFABLE, JR., respondents.
G.R. No. 115821 October 13, 1999
Facts: In a civil case, the RTC issued a writ of attachment over real properties of
Valentin Afable. The judge ordered Afable to pay Jesus David P67K plus interest until
fully paid. However, the judge issued an order amending his decision, so that the legal
rate of interest should be computed from January 4, 1966 instead of from July 24, 1974.
Afable appealed to the CA and then to the SC. In both instances, the decision of the
lower court was affirmed. The record of the case was remanded to the court presided by
Judge Edgardo Cruz for the final execution.
Judge Cruz issued an alias writ of execution by virtue of which Sheriff Melchor Pea
conducted a public auction. Sheriff Pea informed David that the total amount of the
judgment was P271K. The amount included a computation of simple interest. David,
however, claimed that the judgment award should be P3M because the amount due
ought to be based on compounded interest.
Although the auctioned properties were sold to David, Sheriff Pea did not issue the
certificate of sale because there was an excess in the bid price of P2.9M, which David
failed to pay despite notice. This excess was computed by the Sheriff on the basis of
David's bid price of P3M minus P271K computed in the judgment award.
David filed a motion praying that Judge Cruz issue an order directing Sheriff Pea to
prepare and execute a certificate of sale. His reason was that compound interest, which
is allowed by Art. 2212 of the Civil Code, should apply in this case. Judge Cruz denied
the motion. David elevated the orders to the CA. However, the CA dismissed the
petition.
Issue: Whether what should be paid was simple interest only or compounded interest.
Ruling: Art. 2212 contemplates the presence of stipulated or conventional interest

which has accrued when demand was judicially made. In cases where no interest had
been stipulated by the parties, no accrued conventional interest could further earn
interest upon judicial demand. When the judgment sought to be executed ordered the
payment of simple "legal interest" only and said nothing about payment of compound
interest, but the respondent judge orders payment of compound interest, then he goes
beyond the confines of a judgment which had become final.
SLU SOL 1-C Page
321
In the instant case, the CA made the finding that no interest was stipulated by the
parties. Thus, the decision of the CA was affirmed.
SLU SOL 1-C Page
322
Penalties v. Interest
REPUBLIC OF THE PHILIPPINES, represented by the Chief of the Philippine

National Police, petitioner,
vs.
THI THU THUY T. DE GUZMAN, respondent.
G.R. No. 175021 June 15, 2011
Facts: Respondent is the proprietress of Montaguz General Merchandise (MGM), a

contractor accredited by the PNP for the supply of office and construction materials and
equipment, and for the delivery of various services such as printing and rental, repair of
various equipment, and renovation of buildings, facilities, vehicles, tires, and spare
parts. On December 8, 1995, the PNP Engineering Services (PNPES), released a
Requisition and Issue Voucher for the acquisition of various building materials
amounting to Two Million Two Hundred Eighty-Eight Thousand Five Hundred Sixty-Two
Pesos and Sixty Centavos (P2,288,562.60) for the construction of a four-storey
condominium building with roof deck at Camp Crame, Quezon City. Respondent
averred that on December 11, 1995, MGM and petitioner, represented by the PNP,
through its chief, executed a Contract of Agreement (the Contract) wherein MGM, for
the price of P2,288,562.60, undertook to procure and deliver to the PNP the
construction materials itemized in the purchase order attached to the Contract.
Respondent claimed that after the PNP Chief approved the Contract and purchase
order, MGM, on March 1, 1996, proceeded with the delivery of the construction
materials, as evidenced by Delivery Receipt Nos. 151-153, Sales Invoice Nos. 038 and
041, and the Report of Public Property Purchase issued by the PNPs Receiving and
Accounting Officers to their Internal Auditor Chief. Respondent asseverated that
following the PNPs inspection of the delivered materials on March 4, 1996, the PNP
issued two Disbursement Vouchers; one in the amount of P2,226,147.26 in favor of
MGM, and the other, in the amount of P62,415.34, representing the three percent (3%)
withholding tax, in favor of the Bureau of Internal Revenue (BIR).
Issue: Whether or not the Court of Appeals committed a serious error in law by affirming
the decision of the trial court.
Ruling: Since the obligation herein is for the payment of a sum of money, the legal
interest rate to be imposed, under Article 2209 of the Civil Code is six percent (6%) per
annum: Art. 2209. If the obligation consists in the payment of a sum of money, and the
debtor incurs in delay, the indemnity for damages, there being no stipulation to the
contrary, shall be the payment of the interest agreed upon, and in the absence of
stipulation, the legal interest, which is six per cent per annum. Following the guidelines
above, the legal interest of 6% per annum is to be imposed from November 16, 1997,
the date of the last demand, and 12% in lieu of 6% from the date this decision becomes
final until fully paid. Petitioners allegations of sham dealings involving our own
SLU SOL 1-C Page
323
government agencies are potentially disturbing and alarming. If Cruzs testimony were
true, this should be a lesson to the PNP not to dabble in spurious transactions.
Obviously, if it can afford to give a 2% commission to other contractors for the mere use
of their business names, then the petitioner is disbursing more money than it normally
would in a legitimate transaction. It is recommended that the proper agency investigate
this matter and hold the involved personnel accountable to avoid any similar occurrence
in the future.
SLU SOL 1-C Page
324
JOSE MARQUES and MAXILITE TECHNOLOGIES, INC.,

petitioners, vs.
FAR EAST BANK AND TRUST COMPANY, FAR EAST BANK INSURANCE
BROKERS, INC., and MAKATI INSURANCE COMPANY, respondents.
G.R. No. 171379 January 10, 2011
Facts: On 17 June 1993, Maxilite and Marques entered into a trust receipt transaction
with FEBTC, in the sum of US$80,765.00, for the shipment of various high-technology
equipment from the United States, with the merchandise serving as collateral. The
foregoing importation was covered by a trust receipt document signed by Marques on
behalf of Maxilite. Sometime in August 1993, FEBIBI, upon the advice of FEBTC,
facilitated the procurement and processing from Makati Insurance Company of four
separate and independent fire insurance policies over the trust receipted merchandise.
On 9 March 1995, a fire gutted the Aboitiz Sea Transport Building along M.J. Cuenco
Avenue, Cebu City, where Maxilites office and warehouse were located. As a result,
Maxilite suffered losses amounting to at least P2.1 million, which Maxilite claimed
against the fire insurance policy with Makati Insurance Company. Makati Insurance
Company denied the fire loss claim on the ground of non-payment of premium. FEBTC
and FEBIBI disclaimed any responsibility for the denial of the claim. Maxilite and
Marques sued FEBTC, FEBIBI, and Makati Insurance Company. Maxilite prayed for (1)
actual damages totaling P2.3 million representing full insurance coverage and business
opportunity losses, (2) moral damages, and (3) exemplary damages. On the other hand,
Marques sought paymentof actual, moral and exemplary damages, attorneys fees, and
litigation expenses. Maxilite and Marques also sought the issuance of a preliminary
injunction or a temporary restraining to enjoin FEBTC from (1) imposing penalties on
their obligations; (2) foreclosing the real estate mortage securing their straight loan
accounts; and (3) initiating actions to collect their obligations.
Issue: Whether or not the Court of Appeals erred in reducing (1) the interest rate from
12% to 6% per annum to be imposed on respondents' liabilities and (2) the award of
moral and exemplary damages.
Ruling: The Court agrees with the Court of Appeals in reducing the interest rate from
12% to 6% as the obligation to pay does not arise from a loan or forbearance of money.
In Eastern Shipping Lines, Inc. v. Court of Appeals, the Court laid down the following
guidelines for the application of the proper interest rates:
1. When an obligation, regardless of its source, i.e., law, contracts, quasi-contracts,

delicts or quasi-delicts is breached, the contravenor can be held liable for damages. The
provisions under Title XVIII on Damages of the Civil Code govern in determining the
measure of recoverable damages.
SLU SOL 1-C Page
325
2. With regard particularly to an award of interest in the concept of actual and
compensatory damages, the rate of interest, as well as the accrual thereof, is imposed,
as follows:
a. When the obligation is breached, and it consists in the payment of a sum of
money, i.e., a loan or forbearance of money, the interest due should be that
which may have been stipulated in writing. Furthermore, the interest due shall
itself earn legal interest from the time it is judicially demanded. In the absence of
stipulation, the rate of interest shall be 12% per annum to be computed from
default, i.e., from judicial or extrajudicial demand under and subject to the
provisions of Article 1169 of the Civil Code.
b. When an obligation, not constituting a loan or forbearance of money, is

breached, an interest on the amount of damages awarded may be imposed at
the discretion of the court at the rate of 6% per annum. No interest, however,
shall be adjudged on unliquidated claims or damages except when or until the
demand can be established with reasonable certainty. Accordingly, where the
demand is established with reasonable certainty, the interest shall begin to run
from the time the claim is made judicially or extrajudicially (Art. 1169, Civil Code)
but when such certainty cannot be so reasonably established at the time the
demand is made, the interest shall begin to run only from the date the judgment
of the court is made (at which time the quantification of damages may be
deemed to have been reasonably ascertained). The actual base for the
computation of legal interest shall, in any case, be the amount finally adjudged.
c. When the judgment of the court awarding a sum of money becomes final and
executory, the rate of legal interest, whether the case falls under paragraph 1 or
paragraph 2, above, shall be 12% per annum from such finality until its
satisfaction, this interim period being deemed to be by then an equivalent to
forbearance of credit.
SLU SOL 1-C Page
326
PRISMA CONSTRUCTION & DEVELOPMENT CORPORATION and ROGELIO S.

PANTALEON, petitioners,
vs.
ARTHUR F. MENCHAVEZ, respondent.
G.R. No. 160545 March 9, 2010
Facts: On December 8, 1993, Pantaleon, President and Chairman of the Board of

PRISMA, obtained a P1M loan from the respondent, with monthly interest of P40,000.00
payable for 6 months, or a total obligation of P1,240,000.00 payable within 6 mos. To
secure the payment of the loan, Pantaleon issued a promissory. Pantaleon signed the
promissory note in his personal capacity and as duly authorized by the Board of
Directors of PRISMA. The petitioners failed to completely pay the loan within the 6-
month period.
As of January 4, 1997, respondent found that the petitioners still had an outstanding
balance of P1,364,151.00, to which respondent applied a 4% monthly interest.
On August 28, 1997, respondent filed a complaint for sum of money to enforce the
unpaid balance, plus 4% monthly interest. In their Answer, the petitioners admitted the
loan of P1,240,000.00, but denied the stipulation on the 4% monthly interest, arguing
that the interest was not provided in the promissory note. Pantaleon also denied that he
made himself personally liable and that he made representations that the loan would be
repaid within six (6) months.
RTC found that the respondent issued a check for P1M in favor of the petitioners for a
loan that would earn an interest of 4% or P40,000.00 per month, or a total of
P240,000.00 for a 6-month period. RTC ordered the petitioners to jointly and severally
pay the respondent the amount of P3,526,117.00 plus 4% per month interest from
February 11, 1999 until fully paid.
Petitioners appealed to CA insisting that there was no express stipulation on the 4%

monthly interest. CA favored respondent but noted that the interest of 4% per month, or
48% per annum, was unreasonable and should be reduced to 12% per annum. MR
denied hence this petition.
Issue: Whether or not the parties agreed to the 4% monthly interest on the loan. If so,
does the rate of interest apply to the 6-month payment period only or until full payment
of the loan?
Ruling: Petition is meritorious. Interest due should be stipulated in writing; otherwise,

12% per annum.
SLU SOL 1-C Page
327
Obligations arising from contracts have the force of law between the contracting parties
and should be complied with in good faith. When the terms of a contract are clear and
leave no doubt as to the intention of the contracting parties, the literal meaning of its
stipulations governs. Courts have no authority to alter the contract by construction or to
make a new contract for the parties; a courts duty is confined to the interpretation of the
contract the parties made for themselves without regard to its wisdom or folly, as the
court cannot supply material stipulations or read into the contract words the contract
does not contain. It is only when the contract is vague and ambiguous that courts are
permitted to resort to the interpretation of its terms to determine the parties intent.
In the present case, the respondent issued a check for P1M. In turn, Pantaleon, in his
personal capacity and as authorized by the Board, executed the promissory note. Thus,
the P1M loan shall be payable within 6 months. The loan shall earn an interest of
P40,000.00 per month, for a total obligation of P1,240,000.00 for the six-month period.
We note that this agreed sum can be computed at 4% interest per month, but no such
rate of interest was stipulated in the promissory note; rather a fixed sum equivalent to
this rate was agreed upon.
Article 1956 of the Civil Code specifically mandates that no interest shall be due unless
it has been expressly stipulated in writing. The payment of interest in loans or
forbearance of money is allowed only if: (1) there was an express stipulation for the
payment of interest; and (2) the agreement for the payment of interest was reduced in
writing. The concurrence of the two conditions is required for the payment of interest at
a stipulated rate. The collection of interest without any stipulation in writing is prohibited
by law.
The interest of P40,000.00 per month corresponds only to the six-month period of the
loan, or from January 8, 1994 to June 8, 1994, as agreed upon by the parties in the
promissory note. Thereafter, the interest on the loan should be at the legal interest rate
of 12% per annum.
When the obligation is breached, and it consists in the payment of a sum of money, i.e.,
a loan or forbearance of money, the interest due should be that which may have been
stipulated in writing. Furthermore, the interest due shall itself earn legal interest from the
time it is judicially demanded. In the absence of stipulation, the rate of interest shall be
12% per annum to be computed from default, i.e., from judicial or extrajudicial demand
under and subject to the provisions of Article 1169 of the Civil Code.
The facts show that the parties agreed to the payment of a specific sum of money of
P40,000.00 per month for six months, not to a 4% rate of interest payable within a 6-
month period.
No issue on the excessiveness of the stipulated amount of P40,000.00 per month was
ever put in issue by the petitioners; they only assailed the application of a 4% interest
rate, since it was not agreed upon.
SLU SOL 1-C Page
328
It is a familiar doctrine in obligations and contracts that the parties are bound by the
stipulations, clauses, terms and conditions they have agreed to, which is the law
between them, the only limitation being that these stipulations, clauses, terms and
conditions are not contrary to law, morals, public order or public policy. The payment of
the specific sum of money of P40,000.00 per month was voluntarily agreed upon by the
petitioners and the respondent. There is nothing from the records and, in fact, there is
no allegation showing that petitioners were victims of fraud when they entered into the
agreement with the respondent.
Therefore, as agreed by the parties, the loan of P1M shall earn P40,000.00 per month
for a period of 6 months, for a total principal and interest amount of P1,240,000.00.
Thereafter, interest at the rate of 12% per annum shall apply. The amounts already paid
by the petitioners during the pendency of the suit, amounting toP1,228,772.00 as of
February 12, 1999, should be deducted from the total amount due, computed as
indicated above. We remand the case to the trial court for the actual computation of the
total amount due.
SLU SOL 1-C Page
329
Macalalag v. People, 511 S 400
THERESA MACALALAG, petitioner,

vs.
G.R. No. 164358 December 20, 2006
Facts: On two separate occasions, particularly on 30 July 1995 and 16 October 1995,
petitioner Theresa Macalalag obtained loans from Grace Estrella (Estrella), each in the
amount of P100,000.00, each bearing an interest of 10% per month. Macalalag
consistently paid the interests. Finding the interest rates so burdensome, Macalalag
requested Estrella for a reduction of the same to which the latter agreed. On 16 April
1996 and 1 May 1996, Macalalag executed Acknowledgment/Affirmation Receipts
promising to pay Estrella the face value of the loans in the total amount of P200,000.00
within two months from the date of its execution plus 6% interest per month for each
loan. Under the two Acknowledgment/Affirmation Receipts, she further obligated herself
to pay for the two (2) loans the total sum of P100,000.00 as liquidated damages and
attorney's fees in the total sum of P40,000.00 as stipulated by the parties the moment
she breaches the terms and conditions thereof.
As security for the payment of the aforesaid loans, Macalalag issued two Philippine
National Bank (PNB) Checks on 30 June 1996, each in the amount of P100,000.00, in
favor of Estrella. However, the said checks were dishonored for the reason that the
account against which the same was drawn was already closed. Estrella sent a notice
of dishonor and demand to make good the said checks to Macalalag, but the latter
failed to do so. Hence, Estrella filed two criminal complaints for Violation of Batas
Pambansa Blg. 22 before the Municipal Trial Court in Cities (MTCC) of Bacolod City.The
MTCC found the accused Theresa Macalalag guilty beyond reasonable doubt of the
crime charged and is likewise ordered to pay as civil indemnity the total amount of
P200,000.00 with interest at the legal rate from the time of the filing of the informations
until the amount is fully paid; less whatever amount was thus far paid and validly
deducted from the principal sum originally claimed. On appealed, the Court of Appeals,
affirmed the RTC and the MTCC decisions with modification to the effect that accused
was convicted only of one (1) count of Violation of Batas Pambansa Blg. 22.
Issue: Whether or not petitioner's payments over and above the value of the said
checks would free her from criminal liability.
Ruling: The Court argued that, Even if we agree with petitioner Macalalag that the
interests on her loans should not be imputed to the face value of the checks she issued,
petitioner Macalalag is still liable for Violation of Batas Pambansa Blg. 22. Petitioner
Macalalag herself declares that before the institution of the two cases against her, she
has made a total payment of P156,000.00. Applying this amount to the first check (No.
C-889835), what will be left is P56,000.00, an amount insufficient to cover her obligation
with respect to the second check. As stated above, when Estrella presented the checks
SLU SOL 1-C Page
330
for payment, the same were dishonored on the ground that they were drawn against a
closed account. Despite notice of dishonor, petitioner Macalalag failed to pay the full
face value of the second check issued.
Only a full payment of the face value of the second check at the time of its presentment
or during the five-day grace period15 could have exonerated her from criminal liability. A
contrary interpretation would defeat the purpose of Batas Pambansa Blg. 22, that of
safeguarding the interest of the banking system and the legitimate public checking
account user,16 as the drawer could very well have himself exonerated by the mere
expediency of paying a minimal fraction of the face value of the check. Hence, the
Petition is denied.
SLU SOL 1-C Page
331
Tan v. CA, 367 S 571
ANTONIO TAN, petitioner,

vs.
COURT OF APPEALS and the CULTURAL CENTER OF THE PHILIPPINES,
respondents.
G.R. No. 116285 October 19, 2001
Facts: On May 14, 1978, petitioner Antonio Tan obtained two loans in the total amount
of four million pesos from respondent Cultural Center of the Philippines (CCP),
evidenced by 2 promissory notes with maturity dates on May 14, 1979 and July 6, 1979,
respectively. Petitioner defaulted but later he had the loans restructured by respondent
CCP. Petitioner accordingly executed a promissory note on August 31, 1979 in the
amount of P3,411,421.32 payable in five (5) installments. Petitioner however, failed to
pay any of the supposed installments and again offered another mode of paying
restructured loan which respondent CCP refused to consent. On May 30, 1984,
respondent wrote petitioner demanding the full payment, within ten (10) days, from
receipt of the letter, of the latters restructured loan which as of April 30, 1984 amounted
to P6,088,735. On August 29, 1984, respondent CCP filed with the RTC of Manila a
complaint for a collection of a sum of money. Eventually, petitioner was ordered to pay
said amount, with 25% thereof as attorneys fees and P500, 000.00 as exemplary
damages. On appeal, the Court of Appeals, reduced the attorneys fees to 5% of the
principal amount to be collected from petitioner and deleted the exemplary damages.
Still unsatisfied with the decision, petitioner seeks for the deletion of the attorneys fees
and the reduction of the penalties.
Issue: Whether or not interests and penalties may be both awarded.
Ruling: Article 1226 of the New Civil Code provides that in obligations with a penal
clause, the penalty shall substitute the indemnity for damages and the payment of
interests in case of non-compliance, if there is no stipulation to the contrary.
Nevertheless, damages shall be paid if the obligor refuses to pay the penalty or is guilty
of fraud in the fulfillment of the obligation. The penalty may be enforced only when it is
demandable in accordance with the provisions. In the case at bar, the promissory note
expressly provides for the imposition of both interest and penalties in case of default on
the part of the petitioner in the payment of the subject restructured loan. Since the said
stipulation has the force of law between the parties and does not appear to be
inequitable or unjust, it must be respected.
SLU SOL 1-C Page
332
Eastern Shipping v. CA, 234 S 78
EASTERN SHIPPING LINES, INC., petitioner,

vs.
HON. COURT OF APPEALS AND MERCANTILE INSURANCE COMPANY, INC.,
respondents.
G.R. No. 97412 July 12, 1994
Facts: On December 4, 1981, two fiber drums of riboflavin were shipped from
Yokohama, Japan for delivery vessel "SS EASTERN COMET" owned by defendant
Eastern Shipping Lines under Bill of Lading No. YMA-8. The shipment was insured
under plaintiff's Marine Insurance Policy No. 81/01177 for P36,382,466.38. Upon arrival
of the shipment in Manila on December 12, 1981, it was discharged unto the custody of
defendant Metro Port Service, Inc. The latter excepted to one drum, said to be in bad
order, which damage was unknown to plaintiff. On January 7, 1982 defendant Allied
Brokerage Corporation received the shipment from defendant Metro Port Service, Inc.,
one drum opened and without seal. On January 8 and 14, 1982, defendant Allied
Brokerage Corporation made deliveries of the shipment to the consignee's warehouse.
The latter excepted to one drum which contained spillages, while the rest of the
contents was adulterated/fake. Plaintiff contended that due to the losses/damage
sustained by said drum, the consignee suffered losses totaling P19,032.95, due to the
fault and negligence of defendants. Claims were presented against defendants who
failed and refused to pay the same. As a consequence of the losses sustained, plaintiff
was compelled to pay the consignee P19,032.95 under the aforestated marine
insurance policy, so that it became subrogated to all the rights of action of said
consignee against defendants.
Issue: Whether or not the payment of legal interest on an award for loss or damage is
to be computed from the time the complaint is filed or from the date of the decision
appealed from is rendered; whether or not the applicable rate of interest is twelve
percent or six percent.
Ruling: When an obligation, regardless of its source, i.e., law, contracts, quasi-
contracts, delicts or quasi-delicts is breached, the contravenor can be held liable for
damages. The provisions under Title XVIII on "Damages" of the Civil Code govern in
determining the measure of recoverable damages. With regard particularly to an award
of interest in the concept of actual and compensatory damages, the rate of interest, as
well as the accrual thereof, is imposed, as follows:
1. When the obligation is breached, and it consists in the payment of a sum of

money, i.e., a loan or forbearance of money, the interest due should be that
which may have been stipulated in writing. Furthermore, the interest due shall
itself earn legal interest from the time it is judicially demanded. In the absence of
stipulation, the rate of interest shall be 12% per annum to be computed from
SLU SOL 1-C Page
333
default, i.e., from judicial or extrajudicial demand under and subject to the
provisions of Article 1169 of the Civil Code.
2. When an obligation, not constituting a loan or forbearance of money, is

breached, an interest on the amount of damages awarded may be imposed at
the discretion of the court at the rate of 6% per annum. No interest, however,
shall be adjudged on unliquidated claims or damages except when or until the
demand can be established with reasonable certainty. Accordingly, where the
demand is established with reasonable certainty, the interest shall begin to run
from the time the claim is made judicially or extrajudicially (Art. 1169, Civil Code)
but when such certainty cannot be so reasonably established at the time the
demand is made, the interest shall begin to run only from the date the judgment
of the court is made (at which time the quantification of damages may be
deemed to have been reasonably ascertained). The actual base for the
computation of legal interest shall, in any case, be on the amount finally
adjudged.
3. When the judgment of the court awarding a sum of money becomes final and
paragraph 2, above, shall be 12% per annum from such finality until its
satisfaction, this interim period being deemed to be by then an equivalent to a
forbearance of credit.
SLU SOL 1-C Page
334
Escalation Clause v. Acceleration Clause
EQUITABLE PCI BANK, INC., represented by PAULINO L. YUSI, complainant,

vs.
ANTONIO A. BELLONES and GENEROSO B. REGALADO, both Sheriffs IV,
Branches 9 and 16, respectively, Regional Trial Court, Cebu City, respondents.
A.M. No. P-05-1973 March 18, 2005
Facts: Complainant EPCIB is the defendant in Civil Case No. CEB-26983 before the
Regional Trial Court (RTC), Branch 16, Cebu City, entitled, Ng Sheung Ngor, doing
business under the name and style Ken Marketing, Ken Appliance Division, Inc. and
Benjamin Go, Plaintiffs, vs. Equitable PCI Bank, Aimee Yu and Ben Apas, Defendants
for Annulment and/or Reformation of Documents and Contracts. Respondents Antonio
A. Bellones and Generoso B. Regalado are the sheriffs in Branches 9 and 16,
respectively, of the RTC of Cebu City. For garnishing accounts maintained by Equitable
PCI Bank, Inc. (EPCIB) at Citibank, N.A., and Hongkong and Shanghai Bank
Corporation (HSBC), allegedly in violation of Section 9(b) of Rule 39 of the Rules of
Court, a complaint for grave abuse of authority was filed by Atty. Paulino L. Yusi against
Sheriffs Antonio A. Bellones and Generoso B. Regalado. There was an offer of other
real property by petitioner.
Issue: Whether or not respondents violated the Rules of Court.
Ruling: By serving notices of garnishment on Citibank, N.A., HSBC and PNB, Sheriff
Regalado violated EPCIBs right to choose which property may be levied upon to be
sold at auction for the satisfaction of the judgment debt. Thus, it is clear that when
EPCIB offered its real properties, it exercised its option because it cannot immediately
pay the full amount stated in the writ of execution and all lawful fees in cash, certified
bank check or any other mode of payment acceptable to the judgment obligee. In the
case at bar, EPCIB cannot immediately pay by way of Managers Check so it exercised
its option to choose and offered its real properties. With the exercise of the option,
Sheriff Regalado should have ceased serving notices of garnishment and discontinued
their implementation. This is not true in the instant case. Sheriff Regalado was adamant
in his posture even if real properties have been offered which were sufficient to satisfy
the judgment debt.
SLU SOL 1-C Page
335
NSBC v. PNB, 435 S 565
NEW SAMPAGUITA BUILDERS CONSTRUCTION, INC. (NSBCI) and Spouses

EDUARDO R. DEE and ARCELITA M. DEE, petitioners,
vs.
PHILIPPINE NATIONAL BANK, respondent.
G.R. No. 148753 July 30, 2004
Facts: On February 11, 1989, Board Resolution No. 05, Series of 1989 was approved
by Petitioner NSBCI authorizing the company to apply for or secure a commercial loan
with the PNB in an aggregate amount of P8.0M, under such terms agreed by the Bank
and the NSBCI, using or mortgaging the real estate properties registered in the name of
its President and Chairman of the Board Petitioner Eduardo R. Dee as collateral; and
authorizing petitioner-spouses to secure the loan and to sign any and all documents
which may be required by Respondent PNB, and that petitioner-spouses shall act as
sureties or co-obligors who shall be jointly and severally liable with Petitioner NSBCI for
the payment of any [and all] obligations. On August 15, 1989, Resolution No. 77 was
approved by granting the request of Respondent PNB thru its Board NSBCI for an P8
Million loan broken down into a revolving credit line of P7.7M and an unadvised line of
P0.3M for additional operating and working capital to mobilize its various construction
projects.
The loan of Petitioner NSBCI was secured by a first mortgage on the following: a) three
(3) parcels of residential land located at Mangaldan, Pangasinan; b) six (6) parcels of
residential land situated at San Fabian, Pangasinan; and c) a residential lot and
improvements thereon located at Mangaldan. The loan was further secured by the joint
and several signatures of Petitioners Eduardo Dee and Arcelita Marquez Dee, who
signed as accommodationmortgagors since all the collaterals were owned by them and
registered in their names. Moreover Petitioner NSBCI executed three promissory notes.
In addition, petitioner corporation also signed the Credit Agreement dated August 31,
1989 relating to the revolving credit line of P7.7 Million and the Credit Agreement dated
September 5, 1989 to support the unadvised line of P300,000.00.
On August 31, 1989, petitioner-spouses executed a Joint and Solidary Agreement

(JSA) in favor of Respondent PNB unconditionally and irrevocably binding themselves
to be jointly and severally liable with the borrower for the payment of all sums due and
payable to the Bank under the Credit Document. Later on, Petitioner NSBCI failed to
comply with its obligations under the promissory notes.
On June 18, 1991, Petitioner Eduardo R. Dee on behalf of Petitioner NSBCI sent a
letter to the Branch Manager of the PNB Dagupan Branch requesting for a 90-day
extension for the payment of interests and restructuring of its loan for another term.
Subsequently, NSBCI tendered payment to Respondent PNB of three (3) checks
aggregating P1,000,000.00. In a meeting held on August 12, 1991, Respondent PNBs
representative, Mr. Rolly Cruzabra, was informed by [Petitioner] Eduardo Dee of his
SLU SOL 1-C Page
336
intention to remit to Respondent PNB postdated checks covering interests, penalties
and part of the loan principals of his due account.
On August 22, 1991, Respondent banks Crispin Carcamo wrote Petitioner Eduardo
Dee, informing him that Petitioner NSBCIs proposal was acceptable, provided the total
payment should be P4,128,968.29 that would cover the amount of P1,019,231.33 as
principal, P3,056,058.03 as interests and penalties, and P53,678.93 for insurance, with
the issuance of post-dated checks to be dated not later than November 29, 1991.
On September 6, 1991, Petitioner Eduardo Dee wrote the PNB Branch Manager
reiterating his proposals for the settlement of Petitioner NSBCIs past due loan account
amounting to P7,019,231.33. Petitioner Eduardo Dee later tendered four (4) post-dated
Interbank checks aggregating P1,111,306.67 in favor of Respondent PNB Upon
presentment, however, check nos. 03500087 and 03500088 dated September 29 and
October 29, 1991 were dishonored by the drawee bank and returned due to a stop
payment order from petitioners.
On November 12, 1991, PNBs Mr. Carcamo wrote Petitioner Eduardo Dee informing
him that unless the dishonored checks were made good, said PNB branch shall recall
its recommendation to the Head Office for the restructuring of the loan account and
refer the matter to its legal counsel for legal action. Petitioners did not heed
respondents warning and as a result, the PNB Dagupan Branch sent demand letters to
Petitioner NSBCI at its office address at 1611 ERDC Building, E. Rodriguez Sr. Avenue,
Quezon City, asking it to settle its past due loan account. Petitioners nevertheless failed
to pay their loan obligations within the time frame given them and as a result,
Respondent PNB filed with the Provincial Sheriff of Pangasinan at Lingayen a Petition
for Sale The sheriff foreclosed the real estate mortgage and sold at public auction the
mortgaged properties of petitioner-spouses, with Respondent PNB being declared the
highest bidder for the amount of P10,334,000.00. Copies of the Sheriffs Certificate of
Sale were sent by registered mail to petitioner corporations address petitioner-spouses
address. On April 6, 1992, the PNB Dagupan Branch Manager sent a letter to
petitioners at their address informing them that the properties securing their loan
account had been sold at public auction, that the Sheriffs Certificate of Sale had been
registered with the Registry of Deeds of Pangasinan and that a period of one (1) year
therefrom was granted to them within which to redeem their properties. Petitioners failed
to redeem their properties within the one-year redemption period and so Respondent
PNB executed a Deed of Absolute Sale consolidating title to the properties in its name.
Respondent PNB informed Petitioner NSBCI that the proceeds of the sale conducted on
February 26, 1992 were not sufficient to cover its total claim amounting to
P12,506,476.43 and thus demanded from the latter the deficiency of P2,172,476.43
plus interest and other charges until the amount was fully paid. Petitioners refused to
pay the above deficiency claim which compelled Respondent PNB to institute the
instant Complaint for the collection of its deficiency claim.
Issue: Whether or not the escalation clause is valid and whether or not it is violative of
the principle of mutuality of contracts.
SLU SOL 1-C Page
337
Ruling: In each drawdown, the Promissory Notes specified the interest rate to be
charged: 19.5 percent in the first, and 21.5 percent in the second and again in the third.
However, a uniform clause therein permitted respondent to increase the rate within the
limits allowed by law at any time depending on whatever policy it may adopt in the
future, without even giving prior notice to petitioners. The Court holds that petitioners'
accessory duty to pay interest did not give respondent unrestrained freedom to charge
any rate other than that which was agreed upon. No interest shall be due, unless
expressly stipulated in writing. It would be the zenith of farcicality to specify and agree
upon rates that could be subsequently upgraded at whim by only one party to the
agreement. The unilateral determination and imposition of increased rates is violative of
the principle of mutuality of contracts ordained in Article 1308 of the Civil Code. One-
sided impositions do not have the force of law between the parties, because such
impositions are not based on the parties essential equality. Although escalation clauses
are valid in maintaining fiscal stability and retaining the value of money on long-term
contracts, giving respondent an unbridled right to adjust the interest independently and
upwardly would completely take away from petitioners the right to assent to an
important modification in their agreement and would also negate the element of
mutuality in their contracts. The clause cited earlier made the fulfillment of the contracts
dependent exclusively upon the uncontrolled will of respondent and was therefore void.
Besides, the pro forma promissory notes have the character of a contract dadhsion,
where the parties do not bargain on equal footing, the weaker partys the debtors
participation being reduced to the alternative to take it or leave it.
SLU SOL 1-C Page

338
Polotan v. CA, 296 S 247
RODELO G. POLOTAN, SR., petitioner,

vs.
HON. COURT OF APPEALS (Eleventh Division), REGIONAL TRIAL COURT IN
MAKATI CITY (Branch 132), and SECURITY DINERS INTERNATIONAL
G.R. No. 119379 September 25, 1998
Facts: Private respondent Security Diners International Corporation (Diners Club), a

credit card company, extends credit accommodations to its cardholders for the purchase
of goods and other services from the member establishments. Said goods and services
are reimbursed later on by cardholders upon proper billing. Petitioner Rodelo G.
Polotan, Sr. applied form contained terms and conditions governing the use and
availment of the Diners Club card, among which is for the cardholder to pay all charges
made through the use of the said card within the period indicated in the statement of
account and any remaining unpaid balance to earn 3% interest per annum plus prime
rate of Security Bank & Trust Company. Notably, in the application from submitted by
petitioner, Ofriciano Canlas obligated himself to pay jointly and severally with petitioner
the latters obligation to private respondent.
Upon acceptance of his application, petitioner was issued Diners Club card No. 3651-
212766-3005. As of May 8, 1987, petitioner incurred credit charges plus appropriate
interest and service charges in the aggregate amount of P33,819.84 which had become
due and demandable. Demands for payment made against petitioner proved futile.
Hence, private respondent filed a Complaint for Collection of Sum of Money against
petitioner before the lower court.
Issue: Whether or not petitioner is liable for payment of credit charges plus interest and
service charges.
Ruling: A contract of adhesion is one in which one of the contracting parties imposes a
ready-made form of contract which the other party may accept or reject, but cannot
modify. One party prepares the stipulation in the contract, while the other party ,merely
affixes his signature or his adhesion thereto, giving no room for negotiation and
depriving the latter of the opportunity to bargain on equal footing. Nevertheless, these
types of contracts have been declared as binding as ordinary contracts, the reason
being that the party who adheres to the contract is free to reject it entirely.
In this case, petitioner, in effect claims that the subject contract is one-sided in that the
contract allows for the escalation of interests, but does not provide for a downward
adjustment of the same in violation of Central Bank Circular 905. Admittedly, the second
paragraph of the questioned provision which provides that "The Cardholder hereby
authorizes Security Diners to correspondingly increase the rate of such interest in the
event of changes in prevailing market rates" is an escalation clause. However, it cannot
SLU SOL 1-C Page
339
be said to be dependent solely on the will of the private respondent as it is also
dependent on the prevailing market rates.
Escalation clauses are not basically wrong or legally objectionable as long as they are
not solely potestative but based on the reasonable and valid grounds. Obviously, the
fluctuation in the market rates is beyond the control of private respondent.
SLU SOL 1-C Page
340
New Sampaguita v. PNB, 435 S 565
NEW SAMPAGUITA BUILDERS CONSTRUCTION, INC. (NSBCI), petitioner,

vs.
PHILIPPINE NATIONAL BANK, respondent.
G.R. No. 148753 July 30, 2004
Facts: On February 11, 1989, Board Resolution No. 05, Series of 1989 was approved
by Petitioner NSBCI authorizing the company to apply for or secure a commercial loan
with the PNB in an aggregate amount of P8.0M, under such terms agreed by the Bank
and the NSBCI, using or mortgaging the real estate properties registered in the name of
its President and Chairman of the Board Petitioner Eduardo R. Dee as collateral; and
authorizing petitioner spouses to secure the loan and to sign any and all documents
which may be required by Respondent PNB, and that petitioner-spouses shall act as
sureties or co-obligors who shall be jointly and severally liable with Petitioner NSBCI for
the payment of any [and all] obligations. On August 15, 1989, Resolution No. 77 was
approved by granting the request of Respondent PNB thru its Board NSBCI for an P8
Million loan broken down into a revolving credit line of P7.7M and an unadvised line of
P0.3M for additional operating and working capital to mobilize its various construction
projects. The loan of Petitioner NSBCI was secured by a first mortgage on the following:
a) three (3) parcels of residential land located at Mangaldan, Pangasinan; b) six (6)
parcels of residential land situated at San Fabian, Pangasinan; and c) a residential lot
and improvements thereon located at Mangaldan. The loan was further secured by the
joint and several signatures of Petitioners Eduardo Dee and Arcelita Marquez Dee, who
signed as accommodation mortgagors since all the collaterals were owned by them and
registered in their names. Moreover Petitioner NSBCI executed three promissory notes.
In addition, petitioner corporation also signed the Credit Agreement dated August 31,
1989 relating to the revolving credit line of P7.7 Million and the Credit Agreement dated
September 5, 1989 to support the unadvised line of P300,000.00. On August 31, 1989,
petitioner-spouses executed a Joint and Solidary Agreement (JSA) in favor of
Respondent PNB unconditionally and irrevocably binding themselves to be jointly and
severally liable with the borrower for the payment of all sums due and payable to the
Bank under the Credit Document. Later on, Petitioner NSBCI failed to comply with its
obligations under the promissory notes. On June 18, 1991, Petitioner Eduardo R. Dee
on behalf of Petitioner NSBCI sent a letter to the Branch Manager of the PNB Dagupan
Branch requesting for a 90-day extension for the payment of interests and restructuring
of its loan for another term. Subsequently, NSBCI tendered payment to Respondent
PNB of three (3) checks aggregating P1,000,000.00. In a meeting held on August 12,
1991, Respondent PNBs representative, Mr. Rolly Cruzabra, was informed by
[Petitioner] Eduardo Dee of his intention to remit to Respondent PNB postdated checks
covering interests, penalties and part of the loan principals of his due account. On
August 22, 1991, Respondent banks Crispin Carcamo wrote Petitioner Eduardo Dee,
informing him that Petitioner NSBCIs proposal was acceptable, provided the total
payment should be P4,128,968.29 that would cover the amount of P1,019,231.33 as
principal, P3,056,058.03 as interests and penalties, and P53,678.93 for insurance, with
SLU SOL 1-C Page

341
the issuance of post-dated checks to be dated not later than November 29, 1991. On
September 6, 1991, Petitioner Eduardo Dee wrote the PNB Branch Manager reiterating
his proposals for the settlement of Petitioner NSBCIs past due loan account amounting
to P7,019,231.33. Petitioner Eduardo Dee later tendered four (4) post-dated Interbank
checks aggregating P1,111,306.67 in favor of Respondent PNB Upon presentment,
however, check nos. 03500087 and 03500088 dated September 29 and October 29,
1991 were dishonored by the drawee bank and returned due to a stop payment order
from petitioners. On November 12, 1991, PNBs Mr. Carcamo wrote Petitioner Eduardo
Dee informing him that unless the dishonored checks were made good, said PNB
branch shall recall its recommendation to the Head Office for the restructuring of the
loan account and refer the matter to its legal counsel for legal action. Petitioners did not
heed respondents warning and as a result, the PNB Dagupan Branch sent demand
letters to Petitioner NSBCI at its office address at 1611 ERDC Building, E. Rodriguez Sr.
Avenue, Quezon City, asking it to settle its past due loan account. Petitioners
nevertheless failed to pay their loan obligations within the time frame given them and as
a result, Respondent PNB filed with the Provincial Sheriff of Pangasinan at Lingayen a
Petition for Sale. The sheriff foreclosed the real estate mortgage and sold at public
auction the mortgaged properties of petitioner-spouses, with Respondent PNB being
declared the highest bidder for the amount of P10,334,000.00. Copies of the Sheriffs
Certificate of Sale were sent by registered mail to petitioner corporations address
petitioner-spouses' address. On April 6, 1992, the PNB Dagupan Branch Manager sent
a letter to petitioners at their address informing them that the properties securing their
loan account had been sold at public auction, that the Sheriffs Certificate of Sale had
been registered with the Registry of Deeds of Pangasinan and that a period of one (1)
year therefrom was granted to them within which to redeem their properties. Petitioners
failed to redeem their properties within the one-year redemption period and so
Respondent PNB executed a Deed of Absolute Sale consolidating title to the properties
in its name. Respondent PNB informed Petitioner NSBCI that the proceeds of the sale
conducted on February 26, 1992 were not sufficient to cover its total claim amounting to
P12,506,476.43 and thus demanded from the latter the deficiency of P2,172,476.43
plus interest and other charges until the amount was fully paid. Petitioners refused to
pay the above deficiency claim which compelled Respondent PNB to institute the
instant Complaint for the collection of its deficiency claim.
Issue: Whether or not the escalation clause is valid and whether or not it is violative of
the principle of mutuality of contracts.
Ruling: In each drawdown, the Promissory Notes specified the interest rate to be
charged: 19.5 percent in the first, and 21.5 percent in the second and again in the third.
However, a uniform clause therein permitted respondent to increase the rate within the
limits allowed by law at any time depending on whatever policy it may adopt in the
future without even giving prior notice to petitioners. The Court holds that petitioners'
accessory duty to pay interest did not give respondent unrestrained freedom to charge
any rate other than that which was agreed upon. No interest shall be due, unless
expressly stipulated in writing. It would be the zenith of farcicality to specify and agree
upon rates that could be subsequently upgraded at whim by only one party to the
SLU SOL 1-C Page
342
agreement. The unilateral determination and imposition of increased rates is violative of
the principle of mutuality of contracts ordained in Article 1308 of the Civil Code. One-
sided impositions do not have the force of law between the parties, because such
impositions are not based on the parties' essential equality. Although escalation clauses
are valid in maintaining fiscal stability and retaining the value of money on long-term
contracts, giving respondent an unbridled right to adjust the interest independently and
upwardly would completely take away from petitioners the right to assent to an
important modification in their agreement and would also negate the element of
mutuality in their contracts. The clause cited earlier made the fulfillment of the contracts
dependent exclusively upon the uncontrolled will of respondent and was therefore
void.
Besides, the pro forma promissory notes have the character of a contract dadhsion,
where the parties do not bargain on equal footing, the weaker partys the debtors
participation being reduced to the alternative to take it or leave it.
SLU SOL 1-C Page
343
Legal Rate: Loans and Forbearances of Money vs. Other
Monetary Obligations
Nacar v. Gallery Frames, 13 August 2013
DARIO NACAR, petitioner,

vs.
GALLERY FRAMES and/or FELIPE BORDEY, JR., respondents.
G.R. No. 189871 August 13, 2013
Facts: Dario Nacar filed a labor case against Gallery Frames and its owner Felipe
Bordey, Jr. Nacar alleged that he was dismissed without cause by Gallery Frames on
January 24, 1997. On October 15, 1998, the Labor Arbiter (LA) found Gallery Frames
guilty of illegal dismissal hence the Arbiter awarded Nacar P158,919.92 in damages
consisting of backwages and separation pay. Gallery Frames appealed all the way to
the Supreme Court (SC). The Supreme Court affirmed the decision of the Labor Arbiter
and the decision became final on May 27, 2002.
After the finality of the SC decision, Nacar filed a motion before the LA for
recomputation as he alleged that his backwages should be computed from the time of
his illegal dismissal (January 24, 1997) until the finality of the SC decision (May 27,
2002) with interest. The LA denied the motion as he ruled that the reckoning point of the
computation should only be from the time Nacar was illegally dismissed (January 24,
1997) until the decision of the LA (October 15, 1998). The LA reasoned that the said
date should be the reckoning point because Nacar did not appeal hence as to him, that
decision became final and executory.
Issue: Whether or not the Labor Arbiter is correct.
Ruling: No. By the nature of illegal dismissal case, the reliefs continue to add up until
full satisfaction, as expressed under Article 279 of the Labor Code. The recomputation
of the consequences of illegal dismissal upon execution of the decision does not
constitute an alteration or amendment of the final decision being implemented. The
illegal dismissal ruling stands; only the computation of monetary consequences of this
dismissal is affected, and is not a violation to the principle of immutability of final
judgements. That the amount respondents shall now pay has greatly increased is a
consequence that it cannot avoid as it is the risk that it ran when it continued to seek
recourses against the Labor Arbiters decision. Article 279 provides for the
consequences of illegal dismissal in no uncertain terms, qualified only by jurisprudence
in its interpretation of when separation pay in lieu of reinstatement is allowed. When that
happens, the finality of the illegal dismissal decision becomes the reckoning point
instead of the reinstatement that the law decrees. In allowing separation pay, the final
decision effectively declares that the employment relationship ended so that separation
pay and backwages are to be computed up to that point.
SLU SOL 1-C Page
344
Estores v. Sps. Supangan, 18 April 2012
HERMOJINA ESTORES, petitioner,

vs.
SPOUSES ARTURO and LAURA SUPANGAN, respondents.
G.R. No. 175139 April 18, 2012
Facts: On October 3, 1993, petitioner Hermojina Estores and respondent-spouses

Arturo and Laura Supangan entered into a Conditional Deed of Sale whereby petitioner
offered to sell, and respondent-spouses offered to buy, a parcel of land covered by
Transfer Certificate of Title No. TCT No. 98720 located at Naic, Cavite for the sum of
P4.7 million. After almost seven years from the time of the execution of the contract and
notwithstanding payment of P3.5 million on the part of respondent-spouses, petitioner
still failed to comply with her obligation. Hence, in a letter dated September 27, 2000,
respondent-spouses demanded the return of the amount of P3.5 million within 15 days
from receipt of the letter. In reply, petitioner acknowledged receipt of the P3.5 million
and promised to return the same within 120 days. Respondent-spouses were amenable
to the proposal provided an interest of 12% compounded annually shall be imposed on
the P3.5 million. When petitioner still failed to return the amount despite demand,
respondent-spouses were constrained to file a Complaint for sum of money before the
Regional Trial Court (RTC) of Malabon against herein petitioner as well as Roberto U.
Arias who allegedly acted as petitioners agent.
Issue: Whether or not interests should be paid on the P3.5 million.
Ruling: The contract involved in this case is admittedly not a loan but a Conditional
Deed of Sale. However, the contract provides that the seller (petitioner) must return the
payment made by the buyer (respondent-spouses) if the conditions are not fulfilled.
There is no question that they have in fact, not been fulfilled as the seller (petitioner)
has admitted this. Petitioners unwarranted withholding of the money which rightfully
pertains to respondent spouses amounts to forbearance of money which can be
considered as an involuntary loan. Thus, the applicable rate of interest is 12% per
annum.
SLU SOL 1-C Page
345
Hung v. BPI Card, 20 July 2010
BENNY Y. HUNG, petitioner,

vs.
BPI CARD FINANCE CORP., respondent.
G.R. No. 182398 July 20, 2010
Facts: Guess? Footwear and BPI Express Card Corporation entered into 2 merchant
agreements whereby Guess? agreed to honor BPI Express Credit Cards in the
purchase of its goods and services. Benny Hung signed as owner and manager and
then as president of Guess?, which he also referred to as B & R Sportswear
Enterprises.
BPI mistakenly credited P3.4M to Guess?. When informed of the overpayments, Hung
transferred P964K from the bank account of B & R Sportswear Enterprises to BPIs
account as partial payment. Guess? failed to pay the balance of P2.5M.
BPI filed a collection suit before the RTC naming as defendant B & R Sportswear
Distributor, Inc. It was B & R Footwear Distributors, Inc. that filed an answer, appeared,
and participated in the trial.
The RTC ordered B & R Sportswear Distributor, Inc. to pay BPI. During the execution, it
was discovered that B & R Sportswear Distributor, Inc. is a non-existing entity.
Consequently, BPI filed a motion to pierce the corporate veil of B & R Footwear
Distributors, Inc. to hold its stockholders and officers personally liable. The RTC ruled
that Hung is liable since he signed the merchant agreements in his personal capacity.
The CA affirmed the order and dismissed Hung's appeal.
Issue: Whether or not Hung can be held liable for the satisfaction of the RTCs decision
against B & R Sportswear Distributor, Inc.
Ruling: Hung has represented in his dealings with BPI that Guess? or B & R Footwear
Distributors, Inc. is also B & R Sportswear Enterprises. He is the proper defendant
because B & R Sportswear Enterprises has no juridical personality apart from him.
Accordingly, the SC found him liable to BPI as he signed the second merchant
agreement in his personal capacity.
Since the present case involves an obligation not arising from a loan or forbearance of
money, the applicable interest rate is 6% per annum. The legal interest rate of 6% shall
be computed from the date the letter of demand was presumably received by Hung. The
rate of 12% per annum shall be charged on the total amount outstanding, from the time
the judgment becomes final and executory until its satisfaction.
SLU SOL 1-C Page
346
JOSE MARQUES and MAXILITE TECHNOLOGIES, INC., petitioner,

vs.
FAR EAST BANK and TRUST COMPANY, et al., respondents.
G.R. No. 171379 January 10, 2011
Facts: On 17 June 1993, Maxilite and Marques entered into a trust receipt transaction
with FEBTC, in the sum of US$80,765.00, for the shipment of various high-technology
equipment from the United States, with the merchandise serving as collateral. The
foregoing importation was covered by a trust receipt document signed by Marques on
behalf of Maxilite. Sometime in August 1993, FEBIBI, upon the advice of FEBTC,
facilitated the procurement and processing from Makati Insurance Company of four
separate and independent fire insurance policies over the trust receipted merchandise.
On 9 March 1995, a fire gutted the Aboitiz Sea Transport Building along M.J. Cuenco
Avenue, Cebu City, where Maxilites office and warehouse were located. As a result,
Maxilite suffered losses amounting to at least P2.1million, which Maxilite claimed
against the fire insurance policy with Makati Insurance Company. Makati Insurance
Company denied the fire loss claim on the ground of non-payment of premium. FEBTC
and FEBIBI disclaimed any responsibility for the denial of the claim. Maxilite and
Marques sued FEBTC, FEBIBI, and Makati Insurance Company. Maxilite prayed for (1)
actual damages totaling P2.3 million representing full insurance coverage and business
opportunity losses, (2) moral damages, and (3) exemplary damages.19 On the other
hand, Marques sought payment of actual, moral and exemplary damages, attorneys
fees, and litigation expenses. Maxilite and Marques also sought the issuance of a
preliminary injunction or a temporary restraining to enjoin FEBTC from (1) imposing
penalties on their obligations; (2) foreclosing the real estate mortgage securing their
straight loan accounts; and (3) initiating actions to collect their obligations.
Issue: Whether or not the Court of Appeals erred in reducing (1) the interest rate from
12% to 6% per annum to be imposed on respondents' liabilities; and (2) the award of
moral and exemplary damages.
Ruling: The Court agrees with the CA in reducing the interest rate from 12% to 6% as
the obligation to pay does not arise from a loan or forbearance of money. In Eastern
Shipping Lines, Inc. v. Court of Appeals, the Court laid down the following guidelines for
the application of the proper interest rates:
1. When an obligation, regardless of its source, i.e., law, contracts, quasi-contracts,

delicts or quasi-delicts is breached, the contravenor can be held liable for damages. The
provisions under Title XVIII on Damages of the Civil Code govern in determining the
measure of recoverable damages.
SLU SOL 1-C Page
347
2. With regard particularly to an award of interest in the concept of actual and
compensatory damages, the rate of interest, as well as the accrual thereof, is imposed,
as follows:
a. When the obligation is breached, and it consists in the payment of a sum of money,
i.e., a loan or forbearance of money, the interest due should be that which may have
been stipulated in writing.
Furthermore, the interest due shall itself earn legal interest from the time it is judicially
demanded. In the absence of stipulation, the rate of interest shall be 12% per annum to
be computed from default, i.e., from judicial or extrajudicial demand under and subject
to the provisions of Article 1169 of the Civil Code.
b. When an obligation, not constituting a loan or forbearance of money, is breached, an

interest on the amount of damages awarded may be imposed at the discretion of the
court at the rate of 6% per annum. No interest, however, shall be adjudged on
unliquidated claims or damages except when or until the demand can be established
with reasonable certainty. Accordingly, where the demand is established with
reasonable certainty, the interest shall begin to run from the time the claim is made
judicially or extrajudicially (Art. 1169, Civil Code) but when such certainty cannot be so
reasonably established at the time the demand is made, the interest shall begin to run
only from the date the judgment of the court is made (at which time the quantification of
damages may be deemed to have been reasonably ascertained). The actual base for
the computation of legal interest shall, in any case, be the amount finally adjudged.
c. When the judgment of the court awarding a sum of money becomes final and
paragraph 2, above, shall be 12% per annum from such finality until its satisfaction, this
interim period being deemed to be by then an equivalent to forbearance of credit.
SLU SOL 1-C Page
348
Land Bank v. Ong, 24 November 2010
LAND BANK OF THE PHILIPPINES, petitioner,

vs.
ALFREDO ONG, respondent.
G.R. No. 190755 November 24, 2010
Facts: On March 18, 1996, spouses Johnson and Evangeline Sy secured a loan from
Land Bank Legazpi City in the amount of PhP 16 million. The loan was secured by three
(3) residential lots, five (5) cargo trucks, and a warehouse. Under the loan agreement,
PhP 6 million of the loan would be short-term and would mature on February 28, 1997,
while the balance of PhP 10 million would be payable in seven (7) years. The Spouses
Sy could no longer pay their loan which resulted to the sale of three (3) of their
mortgaged parcels of land for PhP 150,000 to Angelina Gloria Ong, Evangelines
mother, under a Deed of Sale with Assumption of Mortgage. Evangelines father,
petitioner Alfredo Ong, later went to Land Bank to inform them about the sale and
assumption of mortgage. Land Bank Banch Head told Alfredo that there was nothing
wrong with agreement with the Spouses Sy and provided him requirements for the
assumption of mortgage. Alfredo later found out that his application for assumption of
mortgage was not approved by Land Bank. On December 12, 1997, Alfredo initiated an
action for recovery of sum of money with damages against Land Bank, as Alfredos
payment was not returned by Land Bank. Alfredo said that Land Banks foreclosure
without informing him of the denial of his assumption of the mortgage was done in bad
faith and that he was made to believed that P750,000 would cause Land Bank to
approve his assumption to the mortgage. He also claimed incurring expenses for
attorneys fees of PhP 150,000, filing fee of PhP 15,000, and PhP 250,000 in moral
damages. This prompted Alfredo to file a case with RTC against Land Bank. On its
decision to the case, RTC held that the contract approving the assumption of mortgage
was not perfected as a result of the credit investigation conducted on Alfredo where he
was disapproved.. As such, it ruled that it would be incorrect to consider Alfredo a third
person with no interest in the fulfillment of the obligation under Article 1236 of the Civil
Code. Although Land Bank was not bound by the Deed between Alfredo and the
Spouses Sy, the appellate court found that Alfredo and Land Banks active preparations
for Alfredos assumption of mortgage essentially novated the agreement.
Issue: Whether or not the Court of Appeals erred in holding that Art. 1236 of the Civil
Code does not apply and in finding that there is novation.
Ruling: The Supreme Court affirmed with modification to the appealed decision that
recourse against Land Bank. Land Bank contends that Art. 1236 of the Civil Code backs
their claim that Alfredo should have sought recourse against the Spouses Sy instead of
Land Bank. The court agreed with Land Bank on the point mentioned as to the first part
of paragraph 1 of Art. 1236. However, Alfredo made a conditional payment so that the
properties subject of the Deed of Sale with Assumption of Mortgage which Land Bank
required from him would be approved. Thus, he made payment not as a debtor but as a
SLU SOL 1-C Page
349
prospective mortgagor. Furthermore, the contract between Alfredo and Land Bank was
not perfected nor consummated because of the adverse disapproval of the proposed
assumption. The Supreme Court did not agree with the Court of Appeals that there was
novation in the contract between the parties because not all elements of novation were
present. The court further stresses that the instant case would not have been litigated
had Land Bank been more circumspect in dealing with Alfredo. The bank chose to
accept payment from Alfredo even before a credit investigation was underway and also
failed to informed him of the disapproval. The court found that there was negligence to a
certain degree on the part of Land Bank in handling the transaction with Alfredo. A bank
as a business entity should observe a higher standard of diligence when dealing with
the public which Land Bank neglect to observe in this case.
SLU SOL 1-C Page
350
Art. 1175 in relation to Arts. 1229-1230, Reduction of
Conventional Penalties: Nullity of Penalties/Usurious
Transactions
Mallari v. Prudential, 5 June 2013
SPOUSES FLORENTINO T. MALLARI and AUREA V. MALLARI, petitioners,

vs.
PRUDENTIAL BANK (now BANK OF THE PHILIPPINE ISLANDS), respondent.
G.R. No. 197861 June 5, 2013
Facts: In 1984, Petitioner Florentino Mallari obtained a loan from respondent Prudential
Bank in the amount of P300,000.00. It was subject to an interest rate of 21% per annum
and, in case of default, a penalty of 12% per annum of the total amount due and
attorneys fees equivalent of 15% of the total amount due. This was secured by a Deed
of Assignment (DOA) over petitioner's time deposit account. In 1989, Spouses
Florentino and Aurea Mallari obtained another loan from respondent for P1.7 million,
stipulating interest of 23% per annum with the same penalties in case of default. This
was secured by Real Estate Mortgage (REM).
Petitioners defaulted. When computed in 1992, the total debt was P571,218.54 and
P2,991,294.82 for the first and second loans respectively.
Respondent tried to extrajudicially foreclose the mortgage. Petitioners on the other hand
tried to nullify the mortgage claiming that the Bank imposed onerous terms and
conditions and that the bank was unilaterally increasing its charges and interest over
and above those stipulated. The Bank claimed that the basis for its computation was all
written in the Promissory Notes.
The RTC ruled in favor of respondent bank. CA affirmed.
Issue: Whether or not an interest rate of 23% per annum and 12% per annum penalty is
unconscionable.
Ruling: No. The Court has also ruled affirmed in a plethora of cases that stipulated
interest rates of 3% per month and higher are excessive, unconscionable and
exorbitant. Thus, the 23% per annum interest rate imposed on petitioners loan in this
case can by no means be considered excessive or unconscionable. And neither is the
12% per annum penalty charge unconscionable as the court found in DBP vs. Family
Foods (2009) and Ruiz vs. Court of Appeals (2003).
SLU SOL 1-C Page
351
RGM Industries v. United Pacific, 27 June 2012
RGM INDUSTRIES, INC., petitioner,

vs.
UNITED PACIFIC CAPITAL CORPORATION, respondent.
G.R. No. 194781 June 27, 2012
Facts: The respondent is a domestic corporation engaged in the business of lending

and financing. On March 3, 1997, it granted a thirty million peso short-term credit facility
in favor of the petitioner. The loan amount was sourced from individual funders on the
basis of a direct-match facility for which a series of promissory notes were issued by the
petitioner for the payment of the loan.
The petitioner failed to satisfy the said promissory notes as they fell due and the loan
had to be assumed in full by the respondent which thereby stepped into the shoes of the
individual funders.
On April 4, 1998, the petitioner issued in favor of the respondent a consolidated

promissory note in the principal amount of P27,852,075.98 for a term of fourteen (14)
days and maturing on April 28, 1998. The stipulated interest on the consolidated
promissory note was 32% per annum. In case of default, a penalty charge was imposed
in an amount equivalent to 8% per month of the outstanding amount due and unpaid
computed from the date of default.
The petitioner failed to satisfy the consolidated promissory note, the principal balance of
which as of April 28, 1998 was P27,668,167.87.
The respondent thus sent demand letters to the petitioner but the latter failed to pay and
instead asked for restructuring of the loan. The respondent declined the request and on
October 5, 1999, filed the herein complaint for collection of sum of money against the
petitioner.
The RTC ruled in favor of the respondent holding that RGM Industries should pay
respondent the amount of P27,668.167.87 representing the outstanding principal
obligation plus interest at the rate of 32% per annum and penalty charges at the rate of
8% per month from date of default on the consolidated promissory note until fully paid,
and an amount equivalent to 25% of the amount due as and for attorney's fees, and to
pay the costs of suit.
The CA affirmed the RTC's judgment but modified the interest rates and penalty
charges imposed. The CA held that the interest rates levied by the respondent were
excessive and unconscionable hence, must be reduced to 12% per annum. The CA
likewise lowered the penalty charges to 2% per month considering that the
P7,504,522.27 paid by the petitioner was already applied thereto and the nature of the
SLU SOL 1-C Page
352
contract between the parties was a short-term credit facility. The attorney's fees were
reduced from 25% to 10% of the outstanding obligation.
Issue: Whether or not the CA erred in reducing the interest rates and penalty charges to
12% per annum and 2% per month, respectively.
Ruling: The Supreme Court affirmed the interest rate decreed by the CA. Stipulated
interest rates are illegal if they are unconscionable and courts are allowed to temper
interest rates when necessary. However, the SC further reduced the penalty charges at
2% per month to 1% per month or 12% per annum in view of the following factors: (1)
respondent has already received P7,504,522.27 in penalty charges, and (2) the loan
extended to respondent was a short-term credit facility.
SLU SOL 1-C Page
353
PRISMA CONSTRUCTION & DEVELOPMENT CORPORATION and ROGELIO S.

PANTALEON, petitioners,
vs.
ARTHUR F. MENCHAVEZ, respondent.
G.R. No. 160545 March 9, 2010
Facts: On December 8, 1993, Pantaleon, the President and Chairman of the Board of
PRISMA, obtained a P1,000,000.00 loan from the respondent, with a monthly interest of
P40,000.00 payable for six months, or a total obligation of P1,240,000.00 to be paid
within six (6) months. The stipulation is that Prisma will pay P40,000.00 monthly from
January to June 1994. Panteleon issued a promissory note to secure the payment of
the loan. Pantaleon signed the promissory note in his personal capacity, and as duly
authorized by the Board of Directors of PRISMA. The petitioners failed to completely
pay the loan within the stipulated six (6)-month period. As of January 4, 1997, the
petitioners had already paid a total of P1,108,772.00. However, the respondent found
that the petitioners still had an outstanding balance of P1,364,151.00 as of January 4,
1997, to which it applied a 4% monthly interest. Thus, on August 28, 1997, the
respondent filed a complaint for sum of money with the RTC to enforce the unpaid
balance, plus 4% monthly interest, P30,000.00 in attorneys fees, P1,000.00 per court
appearance and costs of suit On October 27, 2007, the RTC rendered a Decision
finding that the respondent issued a check for P1,000,000.00 in favor of the petitioners
for a loan that would earn an interest of 4% or P40,000.00 per month, or a total of
P240,000.00 for a 6-month period. It noted that the petitioners made several payments
amounting to P1,228,772.00, but they were still indebted to the respondent for
P3,526,117.00 as of February 11, 1999 after considering the 4% monthly interest. the
CA modified the RTC Decision by imposing a 12% per annum interest, computed from
the filing of the complaint until finality of judgment, and thereafter, 12% from finality until
fully paid.
Issue: Whether or not the parties agreed to the 4% monthly interest on the loan. If so,
does the rate of interest apply to the 6-month payment period only or until full payment
of the loan?
Ruling: The Supreme Court ruled that in the present case, the respondent issued a
check for P1,000,000.00. It is a familiar doctrine in obligations and contracts that the
parties are bound by the stipulations, clauses, terms and conditions they have agreed
to, which is the law between them, the only limitation being that these stipulations,
clauses, terms and conditions are not contrary to law, morals, public order or public
policy. The payment of the specific sum of money of P40,000.00 per month was
voluntarily agreed upon by the petitioners and the respondent. There is nothing from the
records and, in fact, there is no allegation showing that petitioners were victims of fraud
when they entered into the agreement with the respondent. Therefore, as stipulated by
the parties, the loan of P1,000,000.00 shall earn P40,000.00 per month for a period of
SLU SOL 1-C Page
354
six (6) months, or from December 8, 1993 to June 8, 1994, for a total principal and
interest amount of P1,240,000.00. Thereafter, interest at the rate of 12% per annum
shall apply. The amounts already paid by the petitioners during the pendency of the suit,
amounting to P1,228,772.00 as of February 12, 1999, should be deducted from the total
amount due, computed as indicated above. We remand the case to the trial court for the
actual computation of the total amount due.
SLU SOL 1-C Page
355
Maceda, Jr. v. DBO / DBP v. Maceda, Jr., 11 August 2010
BONIFACIO SANZ MACEDA, JR., petitioner,

vs.
G.R. No. 174979 August 11, 2010
Facts: On July 28, 1976 plaintiff Bonifacio Maceda, Jr. (Maceda) obtained a loan from
the defendant DBP in the amount of P7.3 million to finance the expansion of the Old
Gran Hotel in Leyte. Upon approval of said loan, plaintiff Maceda executed a promissory
note and a mortgage of real estate. Project cost of the New Gran Hotel was P10.5M.
DBP fixed a debt-equity ratio of 70%-30%, corresponding to DBP and Macedas
respective infusion in the hotel project. Macedas equity infusion was P2.93M, or 30% of
P10.5M. The DBP Governor at that time, Recio Garcia, in-charge of loans for hotels,
allegedly imposed the condition that DBP would choose the building contractor, namely,
Moreman Builders Co. (Moreman). The contractor would directly receive the loan
releases from DBP, after verification by DBP of the construction progress. The period of
loan availment was 360 days from date of initial release of the loan. Similarly, suppliers
of equipment and furnishings for the hotel were also to be paid directly by DBP. The
construction deadline was set for December 22, 1977. Maceda filed a complaint for
Rescission of the building contract with Damages against the contractor Moreman,
before the then Manila Court of First Instance Branch 39, which was docketed as Civil
Case No. 113498. In its decision dated November 28, 1978, the CFI rescinded the
building contract, suspended the period of availment, allowed Maceda to himself take
over construction, and directed DBP to release to Maceda the sum of P1.003M, which
had previously been approved for release in January 1978. The DBP was further
ordered to give plaintiff Maceda such other amounts still pending release. Moreman
filed an appeal which was subsequently dismissed in 1990 by the Supreme Court.
Issue: Whether or not the damages awarded in favor of Maceda are unreasonable and
excessive
Ruling: The trial court also awarded the following amounts: P700,000 as moral
damages; P150,000 as exemplary damages; P500,000 as temperate damages; and
P100,000 as attorneys fees. We find these amounts appropriate under the
circumstances, and not unconscionable or exorbitant. In accordance with our ruling in
Sta. Lucia Realty and Development v. Spouses Buenaventura, the applicable interest
rate on the P6,153,398.05 to be paid by DBP to Maceda is 6% per annum, to be
reckoned from the time of the filing of the complaint on 15 October 1984, because the
case at bar involves a breach of obligation and not a loan or forbearance of money.
SLU SOL 1-C Page
356
PNB v. Encina, 544 S 608
PHILIPPINE NATIONAL BANK, petitioner,

vs.
SPOUSES WILFREDO and ESTELA ENCINA, respondent.
G.R. No. 174055 February 12, 2008
Facts: On September 6, 1996, plaintiffs-appellants obtained an additional P200,000.00

loan with defendant-appellee PNB as additional capital for palay production, embodied
in a credit agreement and a promissory note, secured by the same parcels of land. The
loan obligations of plaintiffs-appellants ENCINA were fully paid on February 4, 1997.
Another loan in the amount of P400,000.00 as capital for a common carrier business
was obtained by plaintiffs-appellants ENCINA with defendant-appellee PNB, secured by
a promissory note and a time loan commercial credit agreement, likewise secured by
the parcels of land. PNB subsequently granted a P1,250,000.00 all-purpose credit
facility to plaintiffs-appellants ENCINA to be used by plaintiffs-appellants ENCINA
exclusively for their metal craft business. Plaintiffs-appellants ENCINA availed of the
amount of P1,050,000.00 of the credit facility, evidenced by a promissory note dated
February 13, 1998 secured by the same parcels of land as well. Plaintiffs-appellants
ENCINA later on availed of the remaining P200,000.00 credit facility, secured by a
promissory note dated May 22, 1998. On the maturity date of the P1,250,000.00 loan
obligation, plaintiffs-appellants ENCINA failed to pay, prompting defendant-appellee
PNB to demand the same from plaintiffs-appellants Encina, in letters dated January 5,
1999, January 21, 1999, March 5, 1999, April 16, 1999, and May 27, 1999. Demands
from defendant-appellee PNB were left unheeded, prompting PNB to file a petition for
sale of the mortgaged properties with defendant-appellee Ex-Officio Sheriff of the
Regional Trial Court of San Jose, Occidental Mindoro on September 20, 1999. The RTC
dismissed the complaint. Such dismissal was reversed by the Court of Appeals
principally on its finding that there was no definite agreement as to the interest rate to
be imposed on the loan. Therefore, the loan cannot be said to have matured so as to
justify the extrajudicial foreclosure of the mortgaged properties.
Issue: Whether or not the promissory note and the mortgage was valid and whether the
interest rates are void.
Ruling: The Supreme Court ruled that Encina freely and voluntarily agreed to the
provisions in regard to repayment of the principal when they affixed their signatures
thereto. Thus, the said mortgage contract binds them because Article 1159 of the New
Civil Code provides that obligations arising from contracts have the force of law
between the contracting parties. Since the promissory notes and the real estate
mortgage are valid and only the unilaterally imposed interest rates are wholly void,
plaintiffs-appellants Encina have still to be directed to pay defendant-appellee PNB the
principal amount of the loan which remains valid with interest at the legal rate of 12%
per annum from the date the loan was granted up to full payment, less payments
already made, within ninety (90) days from the finality of the decision, otherwise, the
SLU SOL 1-C Page
357
defendant-appellee PNB shall be entitled to foreclose the mortgaged property and sell
the same at public auction to satisfy the loan.
SLU SOL 1-C Page
358
Imperial v. Jaucian, 427 S 517
RESTITUTA M. IMPERIAL, petitioner,

vs.
ALEX A. JAUCIAN, respondent.
G.R. No. 149004 April 14, 2004
Facts: Petitioner obtained six (6) separate loans amounting to P 320,000.00 from the
respondent. In the written agreement, they agreed upon the 16% interest per month
plus penalty charge of 5% per month and the 25% attorneys fee, failure to pay the said
loans on the stipulated date.
Petitioner executed six (6) separate promissory notes and issued several checks as
guarantee for payment. When the said loans become overdue and unpaid, especially
when the petitioners checks issued were dishonored, respondent made repeated oral
and written demands for payment.
The petitioner was able to pay only P 116,540.00 as found by the RTC. Although she
alleged that she had already paid the amount of P 441,780.00 and the excess of P
121,780.00 is more than the interest that could be legally charged, the Court affirms the
findings of RTC that petitioner is still indebted to the respondent.
Issue: Whether or not the stipulated interest of 16% per month, 5% per month for
penalty charge and 25% attorneys fee are usurious.
Ruling: Yes. The rate must be equitably reduced for being iniquitous, unconscionable
and exorbitant. While the Usury Law ceiling on interest rates was lifted by C.B. Circular
No. 905, nothing in the said circular grants lenders carte blanche authority to raise
interest rates to levels which will either enslave their borrowers or lead to a
hemorrhaging of their assets.
When the agreed rate is iniquitous or unconscionable, it considered contrary to morals,

if not against the law. Such stipulation is void. Since the stipulation is void, it is as if
there was no express contract thereon. Hence, courts may reduce the interest rate as
reason and equity demand.
The interest rate of 16% per month was reduced to 1.167% per month or 14% per
annum and the penalty charge of 5% per month was also reduced to 1.167% per month
or 14% per annum.
The attorneys fees here are in the nature of liquidated damages and the stipulation
therefor is aptly called a penal clause. So long as the stipulation does not contravene
the law, morals, public order or public policy, it is binding upon the obligor.
Nevertheless, in the case at bar, petitioners failure to comply fully with her obligation
was not motivated by ill will or malice. The partial payments she made were
SLU SOL 1-C Page

359
manifestations of her good faith. Hence the attorneys fees were reduced to 10% of the
total due and payable.
SLU SOL 1-C Page
360
TEDDY G. PABUGAIS, petitioner,

vs.
DAVE P. SAHIJWANI, respondent.
G.R. No. 156846 February 23, 2004
Facts: Pursuant to an Agreement And Undertaking on December 3, 1993, petitioner

Teddy G. Pabugais, in consideration of the amount of P15,487,500.00, agreed to sell to
respondent Dave P. Sahijwani a lot containing 1,239 square meters located at
Jacaranda Street, North Forbes Park, Makati, Metro Manila. Respondent paid petitioner
the amount of P600,000.00 as option/reservation fee and the balance of
P14,887,500.00 to be paid within 60 days from the execution of the contract,
simultaneous with delivery of the owners duplicate Transfer Certificate of Title in
respondents name with Deed of Absolute Sale; the Certificate of Non-Tax Delinquency
on real estate taxes and Clearance on Payment of Association Dues. The parties further
agreed that failure on the part of respondent to pay the balance of the purchase price
entitles petitioner to forfeit the P600,000.00 option/reservation fee; while non-delivery by
the latter of the necessary documents obliges him to return to respondent the said
option/reservation fee with interest at 18% per annum.
Petitioner failed to deliver the required documents. In compliance with their agreement,
he returned to respondent the latters P600,000.00 option/reservation fee by way of Far
East & Trust Company Check, which was, however, dishonored.
Petitioner claimed that he twice tendered to respondent, through his counsel, the
amount of P672,900.00 (representing the P600,000.00 option/reservation fee plus 18%
interest per annum computed from December 3, 1993 to August 3, 1994) in the form of
Far East Bank & Trust Company Managers Check No. 088498, dated August 3, 1994,
but said counsel refused to accept the same. On August 11, 1994, petitioner wrote a
letter to respondent saying that he is consigning the amount of tendered with the
Regional Trial Court of Makati City. On August 15, 1994, petitioner filed a complaint for
consignation.
Respondents counsel, on the other hand, admitted that his office received petitioners
letter dated August 5, 1994, but claimed that no check was appended thereto. He
averred that there was no valid tender of payment because no check was tendered and
the computation of the amount to be tendered was insufficient, because petitioner
verbally promised to pay 3% monthly interest and 25% attorneys fees as penalty for
default, in addition to the interest of 18% per annum on the P600,000.00
option/reservation fee.
On November 29, 1996, the trial court rendered a decision declaring the consignation
invalid for failure to prove that petitioner tendered payment to respondent and that the
latter refused to receive the same. Petitioner appealed the decision to the Court of
SLU SOL 1-C Page
361
Appeals, Petitioners motion to withdraw the amount consigned was denied by the Court
of Appeals and the decision of the trial court was affirmed.
On a motion for reconsideration, the Court of Appeals declared the consignation as valid
in an Amended Decision dated January 16, 2003. It held that the validity of the
consignation had the effect of extinguishing petitioners obligation to return the
option/reservation fee to respondent. Hence, petitioner can no longer withdraw the
same.
Unfazed, petitioner filed the instant petition for review contending that he can withdraw
the amount of deposited with the trial court as a matter of right because at the time he
moved for the withdrawal thereof, the Court of Appeals has yet to rule on the
consignations validity and the respondent had not yet accepted the same.
Issue: Whether or not assigning the amount of P672,900.00 to Atty. De Guzman is

prohibited.
Ruling: The amount consigned with the trial court can no longer be withdrawn by
petitioner because respondents prayer in his answer that the amount of consigned be
awarded to him is equivalent to an acceptance of the consignation, which has the effect
of extinguishing petitioners obligation.
Moreover, petitioner failed to manifest his intention to comply with the Agreement And
Undertaking by delivering the necessary documents and the lot subject of the sale to
respondent in exchange for the amount deposited. Withdrawal of the money consigned
would enrich petitioner and unjustly prejudice respondent.
The withdrawal of the amount deposited in order to pay attorneys fees to petitioners
counsel, Atty. De Guzman, Jr., violates Article 1491 of the Civil Code which forbids
lawyers from acquiring by assignment, property and rights which are the object of any
litigation in which they may take part by virtue of their profession. Furthermore, Rule 10
of the Canons of Professional Ethics provides that the lawyer should not purchase any
interest in the subject matter of the litigation which he is conducting. The assailed
transaction falls within the prohibition because the Deed assigning the amount of
P672,900.00 to Atty. De Guzman, Jr., as part of his attorneys fees was executed during
the pendency of this case with the Court of Appeals. In his Motion to Intervene, Atty. De
Guzman, Jr., not only asserted ownership over said amount, but likewise prayed that
the same be released to him. That petitioner knowingly and voluntarily assigned the
subject amount to his counsel did not remove their agreement within the ambit of the
prohibitory provisions. To grant the withdrawal would be to sanction a void contract.
Wherefore, in view of all the foregoing, the instant petition for review is denied.
SLU SOL 1-C Page
362
Lo v. CA, 411 S 523 (23 September 2003)
ANTONIO LO, petitioner,

vs.
THE HON. COURT OF APPEALS AND NATIONAL ONIONS GROWERS
COOPERATIVE MARKETING ASSOCIATION, INC., respondents.
G.R. No. 141434 September 23, 2003
Facts: At the core of the present controversy are two parcels of land measuring a total
of 2,147 square meters, with an office building constructed thereon. Petitioner acquired
the subject parcels of land in an auction sale on November 9, 1995 for P20,170,000
from the Land Bank of the Philippines (Land Bank).Private respondent National Onion
Growers Cooperative Marketing Association, Inc., an agricultural cooperative, was the
occupant of the disputed parcels of land under a subsisting contract of lease with Land
Bank. The lease was valid until December 31, 1995. Upon the expiration of the lease
contract, petitioner demanded that private respondent vacate the leased premises and
surrender its possession to him. Private respondent refused on the ground that it was,
at the time, contesting petitioners acquisition of the parcels of land in question in an
action for annulment of sale, redemption and damages. Petitioner filed an action for
ejectment before the MTC. He asked, inter alia, for the imposition of the contractually
stipulated penalty of P5,000 per day of delay in surrendering the possession of the
property to him. On September 3, 1996, the trial court decided the case in favor of
petitioner. On appeal to the RTC, the MTC decision was affirmed in toto. The CA
rendered its assailed decision affirming the decision of the trial court, with the
modification that the penalty imposed upon private respondent for the delay in turning
over the leased property to petitioner was reduced from P 5,000 to P 1000 per day.
Issue: Whether or not the Court of Appeals erred in reducing the penalty awarded by
the trial court, the same having been stipulated by the parties.
Ruling: No. Generally, courts are not at liberty to ignore the freedom of the parties to
agree on such terms and conditions as they see fit as long as they are not contrary to
law, morals, good customs, public order or public policy. Nevertheless, courts may
equitably reduce a stipulated penalty in the contract if it is iniquitous or unconscionable,
or if the principal obligation has been partly or irregularly complied with. This power of
the courts is explicitly sanctioned by Article 1229 of the Civil Code which provides:
Article 1229. The judge shall equitably reduce the penalty when the principal obligation
has been partly or irregularly complied with by the debtor. Even if there has been no
performance, the penalty may also be reduced by the courts if it is iniquitous or
unconscionable. The question of whether a penalty is reasonable or iniquitous is
addressed to the sound discretion of the court and depends on several factors,
including, but not limited to, the following: the type, extent and purpose of the penalty,
the nature of the obligation, the mode of breach and its consequences, the supervening
realities, the standing and relationship of the parties. In this case, the stipulated penalty
SLU SOL 1-C Page
363
was reduced by the appellate court for being unconscionable and iniquitous. Petition
denied; CA decision affirmed.
SLU SOL 1-C Page
364
Ligutan v. CA, 12 February 2002
TOLOMEO LIGUTAN and LEONIDAS DE LA LLANA, petitioners,

vs.
HON. COURT OF APPEALS & SECURITY BANK & TRUS COMPANY, respondents.
G.R. No. 138677 February 12, 2002
Facts: Tolomeo Ligutan and Leonidas dela Llana obtained on 11 May 1981 a loan in the
amount of P120,000.00 from respondent Security Bank and Trust Company. Petitioners
executed a promissory note binding themselves, 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.
In addition, petitioners agreed to pay 10% of the total amount due by way of attorneys
fees if the matter were indorsed to a lawyer for collection or if a suit were instituted to
enforce payment. The obligation matured on 8 September 1981; the bank, however,
granted an extension but only up until 29 December 1981.Despite several demands
from the bank, petitioners failed to settle the debt which, as of 20 May 1982, amounted
to P114,416.10. On 30 September 1982, the bank sent a final demand letter to
petitioners informing them that they had five days within which to make full payment.
Since petitioners still defaulted on their obligation, the bank filed on 3 November 1982,
with the Regional Trial Court of Makati, Branch 143, a complaint for recovery of the due
amount.
Issue: Whether or not the penalty in the obligation is iniquitous and unconscionable.
Ruling: The obligor would then be bound to pay the stipulated indemnity without the
necessary proof on the existence and on the measure of damages caused by the
breach. Although a court may not at liberty ignore the freedom of the parties to agree on
such terms and conditions as they see fit that contravene neither law nor morals, good
customs, public order or public policy, a stipulated penalty, nevertheless, may be
equitably reduced by the courts if it is iniquitous or unconscionable or if the principal
obligation has been partly or irregularly complied with.
The question of whether a penalty is reasonable or iniquitous can be partly subjective

and partly objective. Its resolution would depend on such factors as, but not necessarily
confined to, the type, extent and purpose of the penalty, the nature of the obligation, the
mode of breach and its consequences, the supervening realities, the standing and
relationship of the parties, and the like, the application of which, by and large, is
addressed to the sound discretion of the court. In just an example, the Court has
tempered the penalty charges after taking into account the debtors pitiful situation and
its offer to settle the entire obligation with the creditor bank. The stipulated penalty might
likewise be reduced when a partial or irregular performance is made by the debtor. The
stipulated penalty might even be deleted such as when there has been substantial
performance in good faith by the obligor, when the penalty clause itself suffers from fatal
infirmity, or when exceptional circumstances so exist as to warrant it.
SLU SOL 1-C Page
365
The Court of Appeals, exercising its good judgment in the instant case, has reduced the
penalty interest from 5% a month to 3% a month which petitioner still disputes. Given
the circumstances, not to mention the repeated acts of breach by petitioners of their
contractual obligation, the Court sees no cogent ground to modify the ruling of the
appellate court. Anent the stipulated interest of 15.189% per annum, petitioners, for the
first time, question its reasonableness and prays that the Court reduce the amount. This
contention is a fresh issue that has not been raised and ventilated before the courts
below. In any event, the interest stipulation, on its face, does not appear as being that
excessive. 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. What may
justify a court in not allowing the creditor to impose full surcharges and penalties,
despite an express stipulation therefore in a valid agreement, may not equally justify the
non-payment or reduction of interest.
SLU SOL 1-C Page

366
SPOUSES SILVESTRE and CELIA PASCUAL, petitioners,

vs.
RODRIGO V. RAMOS, respondent.
G.R. No. 144712 July 4, 2002
Facts: Rodrigo Ramos, herein respondent alleged that on June 3, 1987 the spouses
Silvestre and Celia Pascual, herein petitioners executed in his favor a Deed of Absolute
Sale with Right to repurchase over two parcels of land and improvements thereon,
located in Bulacan for PHP 150,000.00. The Pascuals did not exercise their right to
repurchase within the stipulated one year period, thus, the respondent prayed that the
ownership or title over the subject lands and improvements thereon be consolidated in
his favor. The Pascuals admitted the signing of the deed but claimed that what the
parties have agreed upon was a real estate mortgage and that there was no limiting
period as when to repurchase and that they have even overpaid Ramos. The Pascuals
then prayed that Ramos be ordered to execute a Deed of Cancellation, Release of the
Deed of Absolute Sale with Right to Repurchase or a Deed of Real Estate Mortgage
and to pay damages. The parties having presented their own evidences, the trial court
found out that the transaction between the parties was actually a loan in the amount of
PHP 150,000.00, the payment of which is secured by a mortgage of the property. It was
also found out that the Pascuals had made payment in the total sum of PHP 344,000.00
and that with interest at 7% per annum, overpaying the loan by PHP 141,500.00. The
trial court then rendered decision in favor of the defendants. Ramos moved for the
reconsideration of the decision averring that what was stipulated in the Sinumpaang
Salaysay was 7% per month as interest. Making the necessary computations, there was
PHP 793,000.00 still due from the Pascuals. With this, the trial court then issued an
Order modifying its earlier decision; however, the trial court declared the interest too
onerous, reducing the interest rate to 5%. The Pascuals then were rendered to pay PHP
511,000.00 to Ramos. The Pascuals filed a motion for reconsideration but was later on
denied, thus, they reasonably appealed to the Court of Appeals. In its decision, the CA
affirmed in toto the trial courts Order. With the denial of their motion for reconsideration,
the Pascuals filed a petition to the Supreme Court.
Issue: Whether or not the Pascuals are liable for 5% interest per month.
Ruling: The Supreme Court held that the Pascuals are liable for the interest. It must be
stressed that the Pascuals never raised as a defense or basis for their counterclaim the
nullity of the stipulated interest. The Pascuals should accept not only the favorable
aspect of the trial courts declaration that the document is actually an equitable
mortgage but also the necessary consequence of such declaration, that is, that interest
on the loan as stipulated by the parties in that same document should be paid. It is a
basic principle in civil law that parties are bound by the stipulations in the contracts
voluntarily entered into by them. The interest rate of 7% per month was voluntarily
agreed upon by Ramos and the Pascuals. With the suspension of the Usury Law and
SLU SOL 1-C Page
367
the removal of interest ceiling, the parties are free to stipulate the interest to be imposed
on loans. Absent any evidence of fraud, undue influence, or any vice of consent
exercised by Ramos on the Pascuals, the interest agreed upon is binding upon them.
SLU SOL 1-C Page
368
First Metro Investment v. Este de Sol, 369 S 99
FIRST METRO INVESTMENT CORPORATION, petitioner,

vs.
ESTE DEL SOL MOUNTAIN RESERVE, INC., VALENTIN S. DAEZ, JR., MANUEL Q.
*
SALIENTES, MA. ROCIO A. DE VEGA, ALEXANDER G. ASUNCION, ALBERTO M.
LADORES, VICENTE M. DE VERA, JR., and FELIPE B. SESE, respondents.
G.R. No. 141811 November 15, 2001
Facts: Petitioner FMIC granted respondent Este del Sol a loan of Seven Million Three
Hundred Eighty-Five Thousand Five Hundred Pesos (P7,385,500.00) to finance the
construction and development of the Este del Sol Mountain Reserve, a sports/resort
complex project. Under the terms of the Loan Agreement, the proceeds of the loan were
to be released on staggered basis. Interest on the loan was pegged at sixteen (16%)
percent per annum based on the diminishing balance. The loan was payable in thirty-six
(36) equal and consecutive monthly amortizations to commence at the beginning of the
thirteenth month from the date of the first release in accordance with the Schedule of
Amortization. In case of default, an acceleration clause was, among others, provided
and the amount due was made subject to a twenty (20%) percent one-time penalty on
the amount due and such amount shall bear interest at the highest rate permitted by law
from the date of default until full payment thereof plus liquidated damages at the rate of
two (2%) percent per month compounded quarterly on the unpaid balance and accrued
interests together with all the penalties, fees, expenses or charges thereon until the
unpaid balance is fully paid, plus attorneys fees equivalent to twenty-five (25%) percent
of the sum sought to be recovered, which in no case shall be less than Twenty
Thousand Pesos (P20,000.00) if the services of a lawyer were hired. In accordance with
the terms of the Loan Agreement, respondent Este del Sol executed several documents
as security for payment, among them, (a) a Real Estate Mortgage and (b) individual
Continuing Suretyship agreements by co-respondents Valentin S. Daez, Jr., et al.
Respondent Este del Sol also executed, as provided for by the Loan Agreement, an
Underwriting Agreement whereby petitioner FMIC shall underwrite on a best-efforts
basis the public offering of 120,000 common shares of respondent Este del Sols capital
stock for a one-time underwriting fee of P200,000.00. The Underwriting Agreement also
provided that for supervising the public offering of the shares, respondent Este del Sol
shall pay petitioner FMIC an annual supervision fee of 200,000.00 per annum for a
period of four consecutive years. The Underwriting Agreement also stipulated for the
payment by respondent Este del Sol to petitioner FMIC a consultancy fee of
P332,500.00 per annum for a period of four consecutive years. Simultaneous with the
execution of and in accordance with the terms of the Underwriting Agreement, a
Consultancy Agreement was also executed on January 31, 1978 whereby respondent
Este del Sol engaged the services of petitioner FMIC for a fee as consultant to render
general consultancy services. Since respondent Este del Sol failed to meet the
schedule of repayment in accordance with a revised Schedule of Amortization, it
appeared to have incurred a total obligation of P12,679,630.98 per the petitioners
Statement of Account dated June 23, 1980. Accordingly, petitioner FMIC caused the
SLU SOL 1-C Page

369
extrajudicial foreclosure of the real estate mortgage on June 23, 1980. At the public
auction, petitioner FMIC was the highest bidder of the mortgaged properties for
P9,000,000.00. Failing to secure from the individual respondents, the payment of the
alleged deficiency balance, petitioner instituted the instant collection suit to collect the
alleged deficiency balance of P6,863,297.73 plus interest thereon at 21% percent per
annum from June 24, 1980 until fully paid, and 25% percent thereof as and for
attorneys fees and costs. The trial court rendered its decision in favor of petitioner
FMIC. CA reversed the challenged decision of the trial court.
Issue: Whether or not the appellate court erred in reversing the decision of the trial
court as regards to the payment of penalties.
Ruling: No. First, Central Bank Circular No. 905 did not repeal nor in any way amend
the Usury Law but simply suspended the latters effectivity. Thus, retroactive application
of a Central Bank Circular cannot, and should not, be presumed. Second, several facts
and circumstances taken altogether show that the Underwriting and Consultancy
Agreements were simply cloaks or devices to cover an illegal scheme employed by
petitioner FMIC to conceal and collect excessively usurious interest. The Underwriting
and Consultancy Agreements which were executed and delivered contemporaneously
with the Loan Agreement on January 31, 1978 were exacted by petitioner FMIC as
essential conditions for the grant of the loan. An apparently lawful loan is usurious when
it is intended that additional compensation for the loan be disguised by an ostensibly
unrelated contract providing for payment by the borrower for the lenders services which
are of little value or which are not in fact to be rendered, such as in the instant case. In
this connection, Article 1957 of the New Civil Code clearly provides that: Art. 1957.
Contracts and stipulations, under any cloak or device whatever, intended to circumvent
the laws against usury shall be void. The borrower may recover in accordance with the
laws on usury. In usurious loans, the entire obligation does not become void because of
an agreement for usurious interest; the unpaid principal debt still stands and remains
valid but the stipulation as to the usurious interest is void, consequently, the debt is to
be considered without stipulation as to the interest. Thus, the Court agrees with the
factual findings and conclusion of the appellate court, wherein it held that the stipulated
penalties, liquidated damages and attorneys fees, excessive, iniquitous and
unconscionable. Accordingly, the 20% penalty on the amount due and 10% of the
proceeds of the foreclosure sale as attorneys fees would suffice to compensate the
appellee, especially so because there is no clear showing that the appellee hired the
services of counsel to effect the foreclosure; it engaged counsel only when it was
seeking the recovery of the alleged deficiency. Attorneys fees as provided in penal
clauses are in the nature of liquidated damages. So long as such stipulation does not
contravene any law, morals, or public order, it is binding upon the parties. Nonetheless,
courts are empowered to reduce the amount of attorneys fees if the same is iniquitous
or unconscionable. Articles 1229 and 2227 of the New Civil Code provide that: Art.
1229. The judge shall equitably reduce the penalty when the principal obligation has
been partly or irregularly complied with by the debtor. Even if there has been no
unconscionable. Art. 2227. Liquidated damages, whether intended as an indemnity or a
SLU SOL 1-C Page
370
penalty, shall be equitably reduced if they are iniquitous or unconscionable. In the case
at bar, the amount of Three Million One Hundred Eighty-Eight Thousand Six Hundred
Thirty Pesos and Seventy-Five Centavos (P3,188,630.75) for the stipulated attorneys
fees equivalent to twenty-five (25%) percent of the alleged amount due, as of the date
of the auction sale on June 23, 1980, is manifestly exorbitant and unconscionable.
Accordingly, we agree with the appellate court that a reduction of the attorneys fees to
ten (10%) percent is appropriate and reasonable under the facts and circumstances of
this case.
SLU SOL 1-C Page
371
Domel Trading v. CA, 315 S 13
DOMEL TRADING CORPORATION, petitioner,

vs.
HONORABLE COURT OF APPEALS and NDC-NACIDA RAW MATERIALS,
G.R. No. 84813 September 22, 1999
Facts: NNRMC ordered from petitioner Domel Trading Corporation (DOMEL) 22,000
bundles of buri midribs . On June 4, 1981, private respondent again ordered 300,000
pieces of rattan poles .The specifications and provisions of both transactions, which
served as their agreement, were printed in two separate purchase orders. In
accordance with their agreement, NNRMC, on July 9, 1981, opened a letter of credit
with Philippine National Bank (PNB) in favor of DOMEL in the amount of P1,997,000.00
to cover its order for 206,943 pieces of rattan poles. On July 13, 1981, NNRMC opened
another letter of credit in favor of DOMEL in the amount of P1,236,000.00 to cover the
price of 93,057 pieces of rattan poles and 22,000 bundles of buri midribs.
DOMEL failed to deliver the buri midribs and rattan poles within the stipulated period.
Thus, DOMEL and NNRMC agreed to restructure the latters purchase orders in a
Memorandum of Agreement. Under the agreement, NNRMC extended the expiry date
of its two letters of credit to November 5, 1981. It also reduced the quantity of the rattan
poles from 300,000 to only 100,000 pieces while the quantity of buri midribs remained at
22,000 bundles. Further, DOMEL undertook to deliver the goods on or before October
31, 1981.
However, no deliveries were again made on the said date. Consequently, demands
were made by NNRMC on January 19, 1982 for the payment of damages, which
demands were ignored by DOMEL. Hence, NNRMC filed a complaint for damages
before the RTC.
Issue: Whether or not the decision of the Court of Appeals which modified the decision
of the lower court granting private respondents prayer for damages was correct.
Ruling: SC agreed in the reduction of the amount of liquidated damages to only

P150,000.00. The amount of P2,000.00 as penalty for every day of delay is excessive
and unconscionable. Article 1229 of the Civil Code states, thus: 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. Article 2227 of the
Civil Code likewise states, thus: Liquidated damages, whether intended as an indemnity
or a penalty, shall be equitably reduced if they are iniquitous or unconscionable.
In determining whether a penalty clause is iniquitous and unconscionable, a court may

very well take into account the actual damages sustained by a creditor who was
SLU SOL 1-C Page
372
compelled to sue the defaulting debtor, which actual damages would include the interest
and penalties the creditor may have had to pay on its own from its funding source.
In this case, NNRMC was only able to prove that it incurred the amounts of P5,995.83
as opening charges on the two Letters of Credit and an additional P1,911.85 as
amendment charges on the same Letters of Credit. Other than that, NNRMC failed to
prove it had suffered actual damages resulting from the non-delivery of the specified
buri midribs and rattan poles. In fact, what it allegedly suffered are what it calls
Foregone Interest Income and Foregone Profit from the two Letters of Credit. Such
could not be considered as actual damages.
SLU SOL 1-C Page
373
Medel v. CA, 299 S 481
LETICIA Y. MEDEL, DR. RAFAEL MEDEL and SERVANDO FRANCO, petitioners,

vs.
COURT OF APPEALS, SPOUSES VERONICA R. GONZALES and DANILO G.
GONZALES, JR. doing lending business under the trade name and style
"GONZALES CREDIT ENTERPRISES", respondents.
G.R. No. 131622 November 27, 1998
Facts: On June 3, 1981, private respondent NDC-NACIDA Raw Materials Corporation

(NNRMC) ordered from petitioner Domel Trading Corporation (DOMEL) 22,000 bundles
of buri midribs at P16.00 per bundle to be delivered within 30 working days from the
date of the opening of a letter of credit. On June 4, 1981, private respondent again
ordered 300,000 pieces of rattan poles at P9.65 per piece for a total price of
P2,895,000.00, also to be delivered within 60 days from the date of the opening of a
letter of credit. The specifications and provisions of both transactions, which served as
their agreement, were printed in two separate purchase orders. In accordance with their
agreement, NNRMC, on July 9, 1981, opened a letter of credit with Philippine National
Bank (PNB) in favor of DOMEL in the amount of P1,997,000.00 to cover its order for
206,943 pieces of rattan poles. On July 13, 1981, NNRMC opened another letter of
credit in favor of DOMEL in the amount of P1,236,000.00 to cover the price of 93,057
pieces of rattan poles and 22,000 bundles of buri midribs. In violation of their
agreement, DOMEL failed to deliver the buri midribs and rattan poles within the
stipulated period. Thus, on September 23, 1981, DOMEL and NNRMC agreed to
restructure the latters purchase orders in a Memorandum of Agreement. Under the
agreement, NNRMC extended the expiry date of its two letters of credit to November 5,
1981. It also reduced the quantity of the rattan poles from 300,000 to only 100,000
pieces while the quantity of buri midribs remained at 22,000 bundles. Further, DOMEL
undertook to deliver the goods on or before October 31, 1981. However, no deliveries
were again made on the said date. Consequently, demands were made by NNRMC on
January 19, 1982 for the payment of damages, which demands were ignored by
DOMEL. Hence, NNRMC filed a complaint for damages before the Regional Trial Court
of Pasig. After trial, judgment was rendered in favor of plaintiff and against defendant.
Both DOMEL and NNRMC assail the above-quoted decision in separate petitions which
have been consolidated before this Court. Based on the pleadings submitted by the
parties, this Court has resolved to give due course to the petition and decides the same.
DOMEL submits it has not breached its contractual obligation to NNRMC inasmuch as it
was the fault of the latter for not inspecting and examining the rattan poles as well as
the buri midribs already shipped by the suppliers and stored in the formers warehouse.
In short, DOMEL claims that NNRMC must first inspect the ordered items before
delivery could be made.
Issue: Whether or not the decision of the Court of Appeals in CA-G.R. CV No. 08952
which modified the decision of the lower court granting private respondents prayer for
damages, was correct.
SLU SOL 1-C Page

374
Ruling: While the Supreme Court did not agree with the Court of Appeals that the
failure of NNRMC to conduct the inspection mitigated DOMELs liability for liquidated
damages, nevertheless, it agreed in the reduction of the amount of liquidated damages
to only P150,000.00. The amount of P2,000.00 as penalty for every day of delay is
excessive and unconscionable. Article 1229 of the Civil Code states, thus: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. Article
2227 of the Civil Code likewise states, thus: Liquidated damages, whether intended as
an indemnity or a penalty, shall be equitably reduced if they are iniquitous or
unconscionable.
In determining whether a penalty clause is iniquitous and unconscionable, a court may

very well take into account the actual damages sustained by a creditor who was
compelled to sue the defaulting debtor, which actual damages would include the interest
and penalties the creditor may have had to pay on its own from its funding source. In
this case, NNRMC was only able to prove that it incurred the amounts of P5,995.83 as
opening charges on the two Letters of Credit and an additional P1,911.85 as
amendment charges on the same Letters of Credit. Other than that, NNRMC failed to
prove it had suffered actual damages resulting from the nondelivery of the specified buri
midribs and rattan poles. In fact, what it allegedly suffered are what it calls Foregone
Interest Income and Foregone Profit from the two Letters of Credit. Such could not be
considered as actual damages.
SLU SOL 1-C Page

375
Reformina v. Tomol, 139 S 260 (11 October 1985)
PACITA F. REFORMINA and HEIRS OF FRANCISCO REFORMINA, petitioners,

vs.
THE HONORABLE VALERIANO P. TOMOL, JR., as Judge of the Court of First
Instance, Branch XI, CEBU CITY, SHELL REFINING COMPANY (PHILS.), INC., and
MICHAEL, INCORPORATED, respondents.
G.R. No. L-59096 October 11, 1985
Facts: This is a Petition for Review on certiorari of the Resolution of CFI-Cebu Judge
Tomol for an action for Recovery of Damages for injury to Person and Loss of Property.
On June 7, 1972, judgment was rendered by the Court of First instance of Cebu in Civil
Case No. R-11279, the dispositive portion of which reads
WHEREFORE, judgment is hereby rendered in favor of the plaintiffs and third
party defendants and against the defendants and third party plaintiffs as follows:
Ordering defendants and third party plaintiffs Shell and Michael, Incorporated to
pay jointly and severally the following persons: (g) Plaintiffs Pacita and Francisco
Reformina the sum of P131,084.00 which is the value of the boat F B Pacita III
together with its accessories, fishing gear and equipment minus P80,000.00
which is the value of the insurance recovered and the amount of P10,000.00 a
month as the estimated monthly loss suffered by them as a result of the fire of
May 6, 1969 up to the time they are actually paid or already the total sum of
P370,000.00 as of June 4, 1972 with legal interest from the filing of the complaint
until paid and to pay attorney's fees of P5,000.00 with costs against defendants
and third party plaintiffs.
On appeal to the then Court of Appeals, the trial court's judgment was modified to reads
as follows WHEREFORE. the judgment appealed from is modified such that
defendants-appellants Shell Refining Co. (Phils.), Inc. and Michael, Incorporated are
hereby ordered to pay... The two (2) defendants- appellants are also directed to pay
P100,000.00 with legal interests from the filing of the complaint until paid as
compensatory and moral damages and P41,000.00 compensation for the value of the
lost boat with legal interest from the filing of the complaint until fully paid to Pacita F.
Reformina and the heirs of Francisco Reformina. The liability of the two defendants for
an the awards is solidary.
Petitioners' motion for the reconsideration of the questioned Resolution having been
denied, they now come before Us through the instant petition praying for the setting
aside of the said Resolution and for a declaration that the judgment in their favor should
bear legal interest at the rate of twelve (12%) percent per annum pursuant to Central
Bank Circular No. 416 dated July 29, 1974.
Issue: Whether or not legal interest meant 6% as provided for under Article 2209 of the
Civil Code.
SLU SOL 1-C Page
376
Ruling: Article 2209 of the Civil Code is applicable in case at bar. It must be noted that
the decision herein sought to be executed is one rendered in an Action for Damages for
injury to persons and loss of property and does not involve any loan, much less
forbearances of any money, goods or credits. As correctly argued by the private
respondents, the law applicable to the said case is Article 2209 of the New Civil Code
which reads Art. 2209. If the obligation consists in the payment of a sum of money,
and the debtor incurs in delay, the indemnity for damages, there being no stipulation to
the contrary, shall be the payment of interest agreed upon, and in the absence of
stipulation, the legal interest which is six percent per annum.
The above provision remains untouched despite the grant of authority to the Central
Bank by Act No. 2655, as amended. To make Central Bank Circular No. 416 applicable
to any case other than those specifically provided for by the Usury Law will make the
same of doubtful constitutionality since the Monetary Board will be exercising legislative
functions which was beyond the intendment of P.D. No. 116.
Central Bank Circular No. 416 which provides By virtue of the authority granted to it
under Section 1 of Act 2655, as amended, otherwise known as the "Usury Law" the
Monetary Board in its Resolution No. 1622 dated July 29, 1974, has prescribed that the
rate of interest for the loan or forbearance of any money, goods, or credits and the rate
allowed in judgments, in the absence of express contract as to such rate of interest,
shall be twelve (12%) per cent per annum. This Circular shall take effect immediately.
The judgments spoken of and referred to are Judgments in litigations involving loans or
forbearance of any 'money, goods or credits. Any other kind of monetary judgment
which has nothing to do with, nor involving loans or forbearance of any money, goods or
credits does not fall within the coverage of the said law for it is not within the ambit of
the authority granted to the Central Bank.
SLU SOL 1-C Page

377
IV. Extinguishment of Obligations
Art. 1232, Meaning/Effects
Lo v. KJS, 413 S 182
SONNY LO, petitioner,

vs.
KJS ECO-FORMWORK SYSTEM PHIL., INC., respondent.
G.R. No. 149420 October 8, 2003
Facts: Respondent KJS ECO-FORMWORK System Phil., Inc. is a corporation engaged

in the sale of steel scaffoldings, while petitioner Sonny L. Lo, doing business under the
name and style Sans Enterprises, is a building contractor. On February 22, 1990,
petitioner ordered scaffolding equipments from respondent worth P540,425.80. He paid
a downpayment in the amount of P150,000.00. The balance was made payable in ten
monthly installments.
Respondent delivered the scaffoldings to petitioner. Petitioner was able to pay the first
two monthly installments. His business, however, encountered financial difficulties and
he was unable to settle his obligation to respondent despite oral and written demands
made against him.
On October 11, 1990, petitioner and respondent executed a Deed of Assignment,

whereby petitioner assigned to respondent his receivables in the amount of
P335,462.14 from Jomero Realty Corporation.
However, when respondent tried to collect the said credit from Jomero Realty
Corporation, the latter refused to honor the Deed of Assignment because it claimed that
petitioner was also indebted to it. On November 26, 1990, respondent sent a letter to
petitioner demanding payment of his obligation, but petitioner refused to pay claiming
that his obligation had been extinguished when they executed the Deed of Assignment.
Consequently, on January 10, 1991, respondent filed an action for recovery of a sum of
money against the petitioner before the Regional Trial Court of Makati, Branch 147,
which was docketed as Civil Case No. 91-074. During the trial, petitioner argued that his
obligation was extinguished with the execution of the Deed of Assignment of credit.
Respondent, for its part, presented the testimony of its employee, Almeda Baaga, who
testified that Jomero Realty refused to honor the assignment of credit because it
claimed that petitioner had an outstanding indebtedness to it.
On August 25, 1994, the trial court rendered a decision dismissing the complaint on the
ground that the assignment of credit extinguished the obligation. Respondent appealed
the decision to the Court of Appeals. On April 19, 2001, the appellate court rendered a
decision reversing the appealed Decision and enters judgment ordering defendant-
SLU SOL 1-C Page
378
appellee Sonny Lo to pay the plaintiff-appellant KJS ECO-FORMWORK SYSTEM
PHILIPPINES, INC. Three Hundred Thirty Five Thousand Four Hundred Sixty-Two and
14/100 (P335,462.14) with legal interest of 6% per annum from January 10, 1991 (filing
of the Complaint) until fully paid and attorneys fees equivalent to 10% of the amount
due and costs of the suit.
In finding that the Deed of Assignment did not extinguish the obligation of the petitioner
to the respondent, the Court of Appeals held that (1) petitioner failed to comply with his
warranty under the Deed; (2) the object of the Deed did not exist at the time of the
transaction, rendering it void pursuant to Article 1409 of the Civil Code; and (3)
petitioner violated the terms of the Deed of Assignment when he failed to execute and
do all acts and deeds as shall be necessary to effectually enable the respondent to
recover the collectibles.
Petitioner filed a motion for reconsideration of the said decision, which was denied by
the Court of Appeals. Hence, this petition for review.
Issue: Whether or not the Court Of Appeals erred in holding that the deed of
assignment did not extinguish petitioners obligation on the wrong notion that petitioner
failed to comply with his warranty thereunder.
Ruling: The petition is without merit.
An assignment of credit is an agreement by virtue of which the owner of a credit, known

as the assignor, by a legal cause, such as sale, dacion en pago, exchange or donation
assignee, who acquires the power to enforce it to the same extent as the assignor could
enforce it against the debtor.
Corollary thereto, in dacion en pago, as a special mode of payment, the debtor offers
another thing to the creditor who accepts it as equivalent of payment of an outstanding
debt. In order that there be a valid dation in payment, the following are the requisites:
(1) There must be the performance of the prestation in lieu of payment (animo solvendi)
which may consist in the delivery of a corporeal thing or a real right or a credit against
the third person; (2) There must be some difference between the prestation due and
that which is given in substitution (aliud pro alio); (3) There must be an agreement
between the creditor and debtor that the obligation is immediately extinguished by
reason of the performance of a prestation different from that due. The undertaking really
partakes in one sense of the nature of sale, that is, the creditor is really buying the thing
or property of the debtor, payment for which is to be charged against the debtors debt.
As such, the vendor in good faith shall be responsible, for the existence and legality of
the credit at the time of the sale but not for the solvency of the debtor, in specified
circumstances.
Hence, it may well be that the assignment of credit, which is in the nature of a sale of
personal property, produced the effects of a dation in payment which may extinguish the
obligation. However, as in any other contract of sale, the vendor or assignor is bound by
SLU SOL 1-C Page
379
certain warranties. More specifically, the first paragraph of Article 1628 of the Civil Code
provides:
The vendor in good faith shall be responsible for the existence and legality of the credit
at the time of the sale, unless it should have been sold as doubtful; but not for the
solvency of the debtor, unless it has been so expressly stipulated or unless the
insolvency was prior to the sale and of common knowledge.
From the above provision, petitioner, as vendor or assignor, is bound to warrant the
existence and legality of the credit at the time of the sale or assignment. When Jomero
claimed that it was no longer indebted to petitioner since the latter also had an unpaid
obligation to it, it essentially meant that its obligation to petitioner has been extinguished
by compensation. In other words, respondent alleged the non-existence of the credit
and asserted its claim to petitioners warranty under the assignment. Therefore, it
behooved on petitioner to make good its warranty and paid the obligation.
Furthermore, the Court found that petitioner breached his obligation under the Deed of
Assignment, to wit:
And the ASSIGNOR further agrees and stipulates as aforesaid that the said
ASSIGNOR, his heirs, executors, administrators, or assigns, shall and will at times
hereafter, at the request of said ASSIGNEE, its successors or assigns, at his cost and
expense, execute and do all such further acts and deeds as shall be reasonably
necessary to effectually enable said ASSIGNEE to recover whatever collectibles said
ASSIGNOR has in accordance with the true intent and meaning of these presents.
The decision of the Court of Appeals was affirmed with modification that upon finality of
the Decision, the rate of legal interest shall be 12% per annum, inasmuch as the
obligation shall thereafter become equivalent to a forbearance of credit. The award of
attorneys fees is deleted for lack of evidentiary basis.
SLU SOL 1-C Page
380
Art. 1233, Requisites
PNB v. CA, 256 S 44
PHILIPPINE NATIONAL BANK, petitioner,

vs.
COURT OF APPEALS and LORETO TAN, respondents.
G.R. No. 108630 April 2, 1996
Facts: Private respondent Loreto Tan is the owner of a parcel of land in Bacolod City.
Expropriation proceedings were instituted by the government against private respondent
Tan and other property owners before a trial court in Negros Occidental. Tan filed a
motion requesting issuance of an order for the release to him of the expropriation price
of P32,480.00. The trial court required petitioner PNB-Bacolod Branch to release to Tan
the amount of P32,480.00 deposited with it by the government. Through its Assistant
Branch Manager Juan Tagamolila, PNB issued a manager's check for P32,480.00 and
delivered the same to one Sonia Gonzaga without Tan's knowledge, consent or
authority. Sonia Gonzaga deposited it in her account with Far East Bank and Trust Co.
(FEBTC) and later on withdrew the said amount. Private respondent Tan subsequently
demanded payment in the amount of P32,480.00 from petitioner, but the same was
refused on the ground that petitioner had already paid and delivered the amount to
Sonia Gonzaga on the strength of a Special Power of Attorney (SPA) allegedly executed
in her favor by Tan. When he failed to recover the amount from PNB, private respondent
filed a motion with the court to require PNB to pay the same to him. Petitioner filed an
opposition contending that Sonia Gonzaga presented to it a copy of the May 22, 1978
order and a special power of attorney by virtue of which petitioner delivered the check to
her. The petitioner was directed by the court to produce the said special power of
attorney thereat. However, petitioner failed to do so. The court decided that there was
need for the matter to be ventilated in a separate civil action and thus private
respondent filed a complaint with the Regional Trial Court in Bacolod City against
petitioner and Juan Tagamolila, PNB's Assistant Branch Manager, to recover the said
amount. In its defense, petitioner contended that private respondent had duly authorized
Sonia Gonzaga to act as his agent. Tagamolila, in his answer, stated that Sonia
Gonzaga presented a Special Power of Attorney to him but borrowed it later with the
promise to return it, claiming that she needed it to encash the check. The petitioner
likewise filed a third-party complaint against the spouses Nilo and Sonia Gonzaga
praying that they be ordered to pay private respondent the amount of P32,480.00.
However, for failure of petitioner to have the summons served on the Gonzagas despite
opportunities given to it, the third-party complaint was dismissed. The trial court
rendered judgment ordering petitioner and Tagamolila to pay private respondent jointly
and severally the amount of P32,480.00 with legal interest, damages and attorney's
fees. Both petitioner and Tagamolila appealed the case to the Court of Appeals.
However, the appellate court dismissed Tagamolila's appeal for failure to pay the docket
fee within the reglementary period. The appellate court subsequently affirmed the trial
courts decision.
SLU SOL 1-C Page
381
Issue: Whether or not payment was made to Loreto Tan.
Ruling: There is no question that no payment had ever been made to private
respondent as the check was never delivered to him. When the court ordered petitioner
to pay private respondent the amount of P32,480.00, it had the obligation to deliver the
same to him. Under Art. 1233 of the Civil Code, a debt shall not be understood to have
been paid unless the thing or service in which the obligation consists has been
completely delivered or rendered, as the case may be. The burden of proof of such
payment lies with the debtor. In the instant case, neither the SPA nor the check issued
by petitioner was ever presented in court. The testimonies of petitioner's own witnesses
regarding the check were conflicting. Tagamolila testified that the check was issued to
the order of "Sonia Gonzaga as attorney-in-fact of Loreto Tan," while Elvira Tibon,
assistant cashier of PNB, stated that the check was issued to the order of "Loreto Tan."
Furthermore, contrary to petitioner's contention that all that is needed to be proved is

the existence of the SPA, it is also necessary for evidence to be presented regarding
the nature and extent of the alleged powers and authority granted to Sonia Gonzaga;
more specifically, to determine whether the document indeed authorized her to receive
payment intended for private respondent. Considering that the contents of the SPA are
also in issue here, the best evidence rule applies. Hence, only the original document,
which has not been presented at all, is the best evidence of the fact as to whether or not
private respondent indeed authorized Sonia Gonzaga to receive the check from
petitioner. In the absence of such document, petitioner's arguments regarding due
payment must fail. Decision affirmed with the modification that the award by the trial
court of P5,000.00 as attorney's fees is reinstated.
SLU SOL 1-C Page

382
Identity of Prestation
Cathay Pacific v. Vazquez, 399 S 207
CATHAY PACIFIC AIRWAYS, LTD., petitioner,

vs.
SPOUSES DANIEL VAZQUEZ and MARIA LUISA MADRIGAL VAZQUEZ,
respondents.
G.R. No. 150843 March 14, 2003
Facts: Respondents-spouses Dr. Daniel Earnshaw Vazquez and Maria Luisa Madrigal
Vazquez together with two friends went to Hong Kong for business and pleasure. On
their return flight to Manila, they were booked on Cathay Pacifics flight CX-905. Upon
boarding, Dr. Vazquez was informed by ground attendant Clara Chiu that they were
being upgraded to first class from business class because Business Class was fully
booked. Dr. Vazquez refused the upgrade, explaining that it would not look good for
them as hosts to travel in First Class while their guests remained in the Business Class
Section. Moreover, they were going to discuss business matters during the flight. He
also told Ms. Chiu that she could have other passengers transferred to the First Class
Section instead of them. Ms. Chiu informed them that since they were Marco Polo Club
members they had the priority to be upgraded to First Class. Dr. Vazquez continued to
refuse, so Ms. Chiu told them that if they would not avail of the privilege, they would not
be allowed to take the flight. Eventually, Dr. Vazquez gave in and proceeded to the First
Class Cabin.
Issues:
1. Whether or not by upgrading the seating accommodations of the Vazquezes from
Business Class to First Class, Cathay Pacific Airways breached its contract of carriage
with the Vazquezes.
2. Whether or not the Vazquezes are entitled to damages.
Ruling: In previous cases, the breach of contract of carriage consisted in either the
bumping off of a passenger with confirmed reservation or the downgrading of a
passengers seat accommodation from one class to a lower class. In this case, what
happened was the reverse. The Vazquezes knew that as members of the Marco Polo
Club, they had priority for upgrading of their seat accommodation at no extra cost when
an opportunity arises. But, just like other privileges, such priority could be waived. The
Vazquezes should have been consulted first whether they wanted to avail of the
privilege or consent to a change of seat accommodation before their seat assignments
were given to other passengers. The Vazquezes had every right to decline the upgrade
and insist on the Business Class accommodation they had booked for. They clearly
waived their priority or preference when they asked that other passengers be given the
upgrade. It should not have been imposed on them over their vehement objection. By
insisting on the upgrade, Cathay Pacific breached its contract of carriage with the
Vazquezes. The Court, however, is not convinced that the upgrading or the breach of
SLU SOL 1-C Page
383
contract was attended by fraud or bad faith. Bad faith and fraud are allegations of fact
that demand clear and convincing proof. The court is not persuaded by the Vazquezes
argument that the overbooking of the Business Class Section constituted bad faith on
the part of Cathay Pacific Airways. Section 3 of the Economic Regulation No. 7 of The
Civil Aeronautics Board, as amended, provides that an overbooking that does not
exceed ten percent (10%) is not considered deliberate and therefore does not amount
to bad faith. The Court of Appeals awarded each of the Vazquezes moral damages in
the amount of P250,000. In this case, it was ruled that the breach of contract of carriage
was not attended by fraud or bad faith. The Court of Appeals' award of moral damages
has, therefore, no leg to stand on. The most that can be adjudged in favor of the
Vazquezes for Cathays breach of contract is an award for nominal damages Under
Article 2221 of the New Civil Code.
SLU SOL 1-C Page
384
Arts. 1249-1250 in relation to R.A. 8183
Citibank v. Sabeniano, 504 S 378
CITIBANK, N.A. (Formerly First National City Bank) and INVESTORS FINANCE
CORPORATION, doing business under the name and style of FNCB Finance,
petitioners,
vs.
MODESTA R. SABENIANO, respondent.
G.R. No. 156132 October 16, 2006
Facts: Petitioner Citibank is a banking corporation duly authorized under the laws of the
USA to do commercial banking activities n the Philippines. Sabeniano was a client of
both Petitioners Citibank and FNCB Finance. Respondent filed a complaint against
petitioners claiming to have substantial deposits, the proceeds of which were
supposedly deposited automatically and directly to respondents account with the
petitioner Citibank and that allegedly petitioner refused to despite repeated demands.
Petitioner alleged that respondent obtained several loans from the former and in default,
Citibank exercised its right to set-off respondents outstanding loans with her deposits
and money. RTC declared the act illegal, null and void and ordered the petitioner to
refund the amount plus interest, ordering Sabeniano, on the other hand to pay Citibank
her indebtedness. CA affirmed the decision entirely in favor of the respondent.
Issue: Whether or not petitioner may exercise its right to set-off respondents loans with
her deposits and money in Citibank-Geneva.
Ruling: Petition is partly granted with modification.
1. Citibank is ordered to return to respondent the principal amount of P318,897.34 and

P203,150.00 plus 14.5% per annum.
2. The remittance of US $149,632.99 from respondents Citibank-Geneva account is
declared illegal, null and void, thus Citibank is ordered to refund said amount in
Philippine currency or its equivalent using exchange rate at the time of payment.
3. Citibank to pay respondent moral damages of P300,000, exemplary damages for
P250,000, attorneys fees of P200,000.
4. Respondent to pay petitioner the balance of her outstanding loans of P1,069,847.40
inclusive off interest.
SLU SOL 1-C Page
385
Telengton Bros. v. US Lines, 483 S 458
TELENGTON BROTHERS & SONS, INC., petitioner,

vs.
UNITED STATES LINES, INC. and the COURT OF APPEALS, respondents.
G.R. No. 132284 February 28, 2006
Facts: On June 22, 1981, United States Lines, a foreign company which is engaged in
overseas shipping, filed a suit against Telengton Brothers and Sons, a domestic
corporation. In the case, United States Lines is seeking payment of demurrage charges
plus interest and damages. As stipulated, a consignee who fails to deliver their
containerized cargo within the 10 day free period is liable to pay demurrage charges.
Petitioner is alleged to have incurred P94,000 which it refused to pay despite repeated
demands. Petitioner disclaims liability alleging that it has never entered into a contract
nor signed an agreement to be bound by it. RTC ruled that petitioner is liable to
respondent and all be computed as of the date of payment which the Court of Appeals
affirmed the decision.
Issue: Whether or not the re-computation of the judgment award in accordance with
Article 1250 of the Civil Code is proper.
Ruling: The Supreme Court found the trial courts decision as affirmed by the Court of
Appeals, erroneous. The Court holds that there has been an extraordinary inflation
within the meaning of Article 1250 of the Civil Code. There is no reason for ordering the
payment of an obligation in an amount different from what has been agreed upon
because of the purported supervening event of an extraordinary inflation. The assailed
decision is affirmed with modification that the order for re-computation as of the date of
payment in accordance with the provisions of Article 1250 of New Civil Code is deleted.
SLU SOL 1-C Page
386
CF Sharp v. Northwest Airlines, 381 S 314
C.F. SHARP & CO., INC., petitioner,

vs.
NORTHWEST AIRLINES, INC., respondent.
G.R. No. 133498 April 18, 2002
Facts: On May 9, 1974, respondent, through its Japan Branch, entered an International
Passenger Sales Agency Agreement with petitioner, authorizing the latter to sell its air
transport tickets. Petitioner, however, failed to remit the proceeds of the ticket sales, for
which reason the respondent filed a collection suit against petitioner before the Tokyo
District Court. The said court ordered petitioner to pay respondent including damages
for the delay. Unable to execute the decision in Japan, respondent filed a case to
enforce said judgment with the regional trial court of Manila, which dismissed the case.
This was affirmed by the Court of Appeals, and was subsequently partly affirmed by the
Supreme Court. CF Sharp was then ordered to pay Northwest so that the RTC issued a
writ of execution of decision ruling that Sharp is to pay Northwest the sum of 83,158,195
yen at the exchange rate prevailing on the date of the foreign judgment plus 6% per
annum until fully paid, 6% damages and 6% interest. An appeal, the Court of Appeals
reduced the interest and it ruled that the basis of the conversion of petitioners liability in
its peso equivalent should be the prevailing rate at the time of payment and not the rate
on the date of the foreign judgment.
Issue: Whether or not the basis for the payment of the amount due is the value of the
currency at the time of the establishment of the obligation.
Ruling: No, the rule that the value of currency at the time of the establishment of the
obligation shall be the basis of payment finds application only when there is an official
pronouncement or declaration of the existence of an extraordinary inflation or deflation.
Hence, petitioners contention that Article 1250 of the Civil Code which provides that in
case of an extra ordinary inflation or deflation of the currency stipulated should
supervene, the value of the currency at the time of establishment of the obligation shall
be the basis of payment, unless there is an agreement to the contrary.
In addition, under RA 529, stipulations on the satisfaction of obligations in foreign

currency are void. Payments of monetary obligations, subject to certain exceptions,
shall be discharged in the currency, which is the legal tender of the Philippines. But
since the law doesnt provide for the rate of exchange for the payment of foreign
currency obligations incurred after its enactment, jurisprudence held that the exchange
rate should be the prevailing rate at time of payment. This law has been amended,
allowing payments for obligations to be made in currency other than Philippine currency
but then again, it failed to state what the exchange rate that should be used. This being
the case the jurisprudence regarding the use of the exchange rate at time of payment
shall be used.
SLU SOL 1-C Page
387
Padilla v. Paredes, 328 S 434
ALBERT R. PADILLA, petitioner,

vs.
SPOUSES PAREDES AND THE HONORABLE COURT OF APPEALS, respondents.
G.R. No. 124874 March 17, 2000
Facts: On October 20, 1988, petitioner Albert R. Padilla and private respondents
Floresco and Adelina Paredes entered into a contract to sell involving a parcel of land in
San Juan, La Union. At that time, the land was untitled although private respondents
were paying taxes thereon. Under the contract, petitioner undertook to secure title to the
property in private respondents' names. Of the P312,840.00 purchase price, petitioner
was to pay a down payment of P50,000.00 upon signing of the contract, and the
balance was to be paid within ten days from the issuance of a court order directing
issuance of a decree of registration for the property. On December 27, 1989, the court
ordered the issuance of a decree of land registration for the subject property. The
property was titled in the name of private respondent Adelina Paredes. Private
respondents then demanded payment of the balance of the purchase price. Petitioner
then made several payments to private respondents, some even before the court issued
an order for the issuance of a decree of registration and they also offered to pay the
land through a check. Still, petitioner failed to pay the full purchase price even after the
expiration of the period set. In a letter dated February 14, 1990, private respondents,
through counsel, demanded payment of the remaining balance, with interest and
attorney's fees, within five days from receipt of the letter. Otherwise, private respondents
stated they would consider the contract rescinded. On February 28, 1990, petitioner
made a payment of P100,000.00 to private respondents, still insufficient to cover the full
purchase price. Shortly thereafter, in a letter dated April 17, 1990 private respondents
offered to sell to petitioner one-half of the property for all the payments the latter had
made, instead of rescinding the contract. If petitioner did not agree with the proposal,
private respondents said they would take steps to enforce the automatic rescission of
the contract. Petitioner did not accept private respondents' proposal. Instead, in a letter
dated May 2, 1990, he offered to pay the balance in full for the entire property, plus
interest and attorney's fees. Private respondents refused the offer. On May 14, 1990,
petitioner instituted an action for specific performance against private respondents,
alleging that he had already substantially complied with his obligation under the contract
to sell. He also averred that he had already spent P190,000.00 in obtaining title to the
property, subdividing it, and improving its right-of-way. The lower court decided in favor
of the petitioners stating that the breach committed was only casual and slight but the
Court of Appeals reversed the ruling and favored respondents' rescission of the contract
to sell.
Issue: Whether or not the payment made by petitioner is one which is contemplated on
the contract.
SLU SOL 1-C Page
388
Ruling: Petitioners offer to pay is clearly not the payment contemplated in the contract.
While he might have tendered payment through a check, this is not considered payment
until the check is encashed. Besides, a mere tender of payment is not sufficient.
Consignation is essential to extinguish petitioner's obligation to pay the purchase price.
The Supreme Court also affirmed the decision of the Court of Appeals where the
respondents have the right to rescind the contract on the ground that there is failure on
the part of the petitioners to pay the balance within ten days upon the conveyance of the
Court of the Title of Land to respondents. Thus, private respondents are under no
obligation, and may not be compelled, to convey title to petitioner and receive the full
purchase price.
SLU SOL 1-C Page
389
Tibajia v. CA, 223 S 163
NORBERTO TIBAJIA, JR. and CARMEN TIBAJIA, petitioners,

vs.
THE HONORABLE COURT OF APPEALS and EDEN TAN, respondents.
G.R. No. 100290 June 4, 1993
Facts: A suit of collection of sum of money was filed by Eden Tan against the spouses.
A writ of attachment was issued, the Deputy Sheriff filed a return stating that a deposit
made by Tibajia in the amount of P442,750 in another case, had been garnished by
him. RTC ruled in favor of Eden Tan and ordered the spouses to pay her an amount in
excess of P3,000,000. Court of Appeals modified the decision by reducing the amount
for damages. Tibajia Spouses delivered to Sheriff Bolima the total money judgment of
P398483.70. Tan refused to accept the payment and insisted that the garnished funds
be withdrawn to satisfy the judgment obligation.
Issue: Whether or not payment by means of check is considered payment in legal

tender.
Ruling: The ruling applies the statutory provisions which lay down the rule that a check,
whether a managers check or ordinary check, is not legal tender and an offer of a
check in payment of a debt is not a valid tender of payment, and the creditor may validly
refuse payment by check. The decision of the Court of Appeals is affirmed.
SLU SOL 1-C Page
390
DBP v. CA, 494 S 25
DEVELOPMENT BANK OF THE PHILIPPINES and PRIVATIZATION AND

MANAGEMENT OFFICE (formerly ASSET PRIVATIZATION TRUST), petitioners,
vs.
HON. COURT OF APPEALS, PHILIPPINE UNITED FOUNDRY AND MACHINERY
CORP. and PHILIPPINE IRON MANUFACTURING CO., INC., respondents.
G.R. No. 138703 June 30, 2006
Facts: Sometime in March 1968, the Development Bank of the Philippines granted to
respondents Philippine United Foundry and Machineries Corporation and Philippine Iron
Manufacturing Company, Inc. an industrial loan in the amount of P2,500,000 consisting
of P500,000 in cash and P2,000,000 in DBP Progress Bonds. Subsequently, DBP
granted to respondents another loan in the form of a five-year revolving guarantee
amounting to P1,700,000 which was reflected in a mortgage contract. The outstanding
accounts of respondents with DBP were restructured in view of their failure to pay. Thus,
the outstanding principal balance of the loans and advances were consolidated into a
single account. Notwithstanding the restructuring, respondents were still unable to
comply with the terms and conditions of the new promissory notes. As a result,
respondents requested DBP to refinance the matured obligation. DBP initiated
foreclosure proceedings. Before DBP could proceed with the foreclosure proceedings,
respondents instituted the present suit for injunction. Respondents cause of action
arose from their claim that DBP was collecting from them an unconscionable obligation
of P62,954,473.68 out of a mere P6,200,000 loan. After trial, the court rendered a
decision in favor of respondents. The Court of Appeals affirmed the decision.
Issue: Whether or not the condition of interest in the contracts are unconscionable.
Ruling: The second set of promissory notes executed by respondents must govern the
contractual relation of the parties for they unequivocally express the terms and
conditions of the parties loan agreement, which are binding and conclusive between
them. A mortgage is a mere accessory contract and its validity would depend on the
validity of the loan secured by it. Hence, the consideration of the mortgage contract is
the same as that of the principal contract from which it receives life, and without which it
cannot exist as an independent contract. The debtor cannot escape the consequences
of the mortgage contract once the validity of the loan is upheld. As correctly pointed out
by PMO, the original loans alluded to by respondents had been refinanced and
restructured in order to extend their maturity dates. Refinancing is an exchange of an
old debt for a new debt, as by negotiating a different interest rate or term or by repaying
the existing loan with money acquired from a new loan. Restructuring, as applied to a
debt, implies not only a postponement of the maturity but also a modification of the
essential terms of the debt in order to make the account of the debtor current.
Accordingly, respondents are barred from claiming the contrary without transgressing
the principle of estoppel and mutuality of contracts.
SLU SOL 1-C Page
391
Instruments/Evidences of Credit
Vitarich v. Locsin, 15 November 2010
VITARICH CORPORATION, petitioner,

vs.
CHONA LOSIN, respondent.
G.R. No. 181560 November 15, 2010
Facts: Chona Losin was in the fastfood and catering services business. Since 1993,
Vitarich-Davao had been her supplier of poultry meat. In 1995, her account was
transferred to Vitarich-General Santos City.
In July to Nov. 1996, Losins orders of meat products allegedly amounted to P921K.
Losins poultry meat needs were serviced by Rodrigo Directo and Allan Rosa, both
salesmen and authorized collectors of Vitarich, and Arnold Baybay, a supervisor.
Directos services were terminated by Vitarich without Losins knowledge. Rosa and
Baybay resigned. None of them turned over pertinent invoices covering Losins account.
In Feb. 1997, demand letters were sent to Losin covering her alleged unpaid account of
P921K. She checked her records and discovered that she had an overpayment to
Vitarich of P500K. She informed Vitarich that checks were issued and collected by
Directo. It appears that Losin issued 3 checks amounting to P288K which were
dishonored.
Vitarich filed a complaint for sum of money against Losin, Directo, Rosa, and Baybay
before the RTC. The RTC ordered Losin to pay Vitarich. Losin appealed to the CA,
which set aside the RTC judgment.
Issue: Whether or not Losin is liable to Vitarich.
Ruling: Losin was clearly liable to Vitarich.
Both Vitarich and Losin failed to make a proper recording and documentation of their
transactions making it difficult to reconcile the evidence presented by the parties to
establish their respective claims.
As a general rule, one who pleads payment has the burden of proving it. The burden
rests on the debtor to prove payment, rather than on the creditor to prove non-payment.
In this case, the burden of proof is on Losin because she alleges an affirmative defense
of payment.
Losin failed to present a single official receipt to prove payment. A receipt is the best
evidence of the fact of payment. All she presented were copies of the list of checks
SLU SOL 1-C Page
392
allegedly issued to Vitarich through Directo, a statement of payments made to Vitarich,
and copies of the pertinent history of her checking account with RCBC. At best, these
may only serve as documentary records of her business dealings with Vitarich to keep
track of the payments made but are not enough to prove payment.
Art. 1249 of the Civil Code provides: The delivery of promissory notes payable to order,
or bills of exchange or other mercantile documents shall produce the effect of payment
only when they have been cashed, or when through the fault of the creditor they have
been impaired.
In the present case, no cash payment was proved. It was neither confirmed that the
checks issued by Losin were actually encashed by Vitarich. The SC cannot consider
that payment, much less overpayment, made by Losin.
Thus, Losin is liable to pay Vitarich P222K. The RTC decision was reinstated subject to
modifications.
SLU SOL 1-C Page
393
METROPOLITAN BANK AND TRUST COMPANY, petitioners,

vs.
RENATO D. CABILZO, respondent.
G.R. No. 154469 December 6, 2006
Facts: Respondent Cabilzo was one of the Metrobank's clients who maintained a
current account. On November 12, 199, Cabilzo issued a Metrobank check payable to
cash in the amount of P1,000 and was paid to a certain Mr. Marquez. The check was
presented to Westmont Bank or payment and in turn indorsed to Metrobank for
appropriate clearing. It was discovered that the amount withdrawn wa P91,000, thus,
the check was altered. Cabilzo re-credit the amount of P91,000 to his account but
Metrobank refused to comply despite demands. RTC ordered Metrobank to pay the sum
of P90,000 to Cabilzo. Court of Appeals affirmed the decision with modification.
Issue: Whether or not Metrobank, as drawee bank, is liable for the alternations on the
subject check bearing the authentic signature of the drawer thereof.
Ruling: The degree of diligence in the exercise of his tasks and the performance of his
duties have been faithfully complied with by Cabilzo. It is obvious that Metrobank was
remiss in the duty and violated that fiduciary relationship with its clients as it appeared
that there are material alterations on the check that are visible to the naked eye but the
bank failed to detect such. Petition is denied. Court of Appeals decision is affirmed with
modification that exemplary damages in the amount of P50,000 be awarded.
SLU SOL 1-C Page
394
Art. 1250, Effects of Inflation
Almeda v. Bathala Mktng., 542 S 470
EUFEMIA ALMEDA and ROMEL ALMEDA, petitioners,

vs.
BATHALA MARKETING INDUSTRIES, INC., respondent.
G.R. No. 150806 January 28, 2008
Facts: Sometime in May 1997, respondent Bathala Marketing Industries, Inc., as

lessee, represented by its president Ramon H. Garcia, renewed its Contract of Lease
with Ponciano L. Almeda (Ponciano), as lessor, husband of petitioner Eufemia and
father of petitioner Romel Almeda. Under the said contract, Ponciano agreed to lease a
portion of the Almeda Compound, located at 2208 Pasong Tamo Street, Makati City,
consisting of 7,348.25 square meters, for a monthly rental of P1,107,348.69, for a term
of four (4) years from May 1, 1997 unless sooner terminated as provided in the contract.
Stipulated in the contract: In case an extraordinary inflation or devaluation of Philippine
Currency should supervene, the value of Philippine peso at the time of the
establishment of the obligation shall be the basis of payment.During the effectivity of the
contract, Ponciano died. Thereafter, respondent dealt with petitioners. On January 26,
1998, respondent received another letter from petitioners informing the former that its
monthly rental should be increased by 73% pursuant to condition No. 7 of the contract
and Article 1250 of the Civil Code. Respondent opposed petitioners demand and
insisted that there was no extraordinary inflation to warrant the application of Article
1250 in light of the pronouncement of this Court in various cases.
The RTC ruled in favor of respondent and against petitioners. Petitioners elevated the
aforesaid case to the Court of Appeals which affirmed with modification the RTC
decision. Hence, this petition.
Issue: Whether or not Article 1250 of the New Civil Code is applicable to the case at
bar.
Ruling: No. The factual circumstances obtaining in the present case do not make out a
case of extraordinary inflation or devaluation as would justify the application of Article
1250 of the Civil Code. The erosion of the value of the Philippine peso in the past three
or four decades, starting in the mid-sixties, is characteristic of most currencies. And
while the Court may take judicial notice of the decline in the purchasing power of the
Philippine currency in that span of time, such downward trend of the peso cannot be
considered as the extraordinary phenomenon contemplated by Article 1250 of the Civil
Code. Furthermore, absent an official pronouncement or declaration by competent
authorities of the existence of extraordinary inflation during a given period, the effects of
extraordinary inflation are not to be applied.
SLU SOL 1-C Page
395
EQUITABLE PCI BANK, AIMEE YU and BEJAN LIONEL APAS, petitioners,

vs.
SANDOVAL-GUTIERREZ, CORONA, NG SHEUNG NGOR doing business under the
name and style KEN MARKETING, KEN APPLIANCE DIVISION, INC. and
BENJAMIN E. GO, respondents.
G.R. No. 171545 December 19, 2007
Facts: On October 7, 2001, respondents Ngor and Go filed an action for amendment
and/or reformation of documents and contracts against Equitable and its employees.
They claimed that they were induced by the bank to avail of its peso and dollar credit
facilities by offering low interests so they accepted and signed Equitables proposal.
They alleged that they were unaware that the documents contained escalation clauses
granting Equitable authority to increase interest without their consent. These were
rebutted by the bank. RTC ordered the use of the 1996 dollar exchange rate in
computing respondents dollar-denominated loans. CA granted the Banks application
for injunction but the properties were sold to public auction.
Issue: Whether or not there was an extraordinary deflation.
Ruling: Extraordinary inflation exists when there is an unusual decrease in the

purchasing power of currency and such decrease could not be reasonably foreseen or
was beyond the contemplation of the parties at the time of the obligation. Deflation is an
inverse situation.
Despite the devaluation of the peso, BSP never declared a situation of extraordinary
inflation. Respondents should pay their dollar denominated loans at the exchange rate
fixed by the BSP on the date of maturity.
Decision of lower courts are reversed and set aside.

SLU SOL 1-C Page
396
Arts. 1234-1235, Substantial Payment/Performance
Palanca v. Guides, 452 S 461
SIMPLICIO A. PALANCA, petitioner,

vs.
ULYSSIS GUIDES joined by her husband LORENZO GUIDES, respondent.
G.R. No. 146365 February 28, 2005
Facts: On August 23, 1983, Simplicio Palanca executed a Contract to Sell a parcel of
land on installment with a certain Josefa Jopson for P11, 250.00. Jopson paid the
petitioner in the amount of P1, 650 as her down payment, leaving a balance of P9,
600.00. Sometime in December 1983, Jopson assigned and transferred all her rights
and interests over the property in question in favor of the respondent Ulyssis Guides. In
the deed of transfer, respondent undertook to assume the balance of Jopsons account
and to pay the same in accordance with the terms and conditions of the Contract to Sell.
After reimbursing Jopson P1,650.00, respondent acquired possession of the lot and
paid petitioner the stipulated amortizations which were in turn acknowledged by
petitioner through receipts issued in the name of respondent. Believing that she had
fully paid the purchase price of the lot, respondent verified the status of the lot with the
Register of Deeds, only to find out that title thereto was not in the name of the petitioner
as it was covered by Transfer Certificate of Title No. 105742 issued on 26 September
1978 in the name of a certain Carissa T. de Leon. Respondent went to petitioners office
to secure the title to the lot, but petitioner informed her that she could not as she still
had unpaid accounts. Thereafter, respondent, through a lawyer, sent a letter to
petitioner demanding compliance with his obligation and the release of the title in her
name. As petitioner did not heed her demands, respondent, joined by her husband, filed
a Complaint for specific performance with damages. Petitioner sought the dismissal of
the complaint on the ground of respondents alleged failure to comply with the
mandatory requirement of Presidential Decree (P.D.) No. 1508. Respondent alleged that
she paid petitioner P14,880.00, which not only fully settled her obligation to him, but in
fact overpaid it by P3,620.00. In addition, she claimed that petitioner charged her
devaluation charges and illegal interest. At the pre-trial in 1989, both parties admitted
that Jopson assigned her rights over the property in favor of respondent and respondent
paid petitioner the subsequent monthly amortizations on installments. Petitioner likewise
acknowledged the payments made by respondent as stated in the statement of
accounts initiated by its manager, Oscar Rivera. On November 1996, the trial court
rendered its decision ordering the petitioner to execute in favor of the respondent a
Deed of Sale. The petitioner appealed to the Court of Appeals; however, it affirmed the
decision of the lower court.
Issue: Whether or not the petitioner has a right to claim for unpaid charges as stipulated
in the contract from the private respondent.
SLU SOL 1-C Page
397
Ruling: The Supreme Court held that primarily preventing petitioner from recovering the
amounts claimed from respondent is the effective waiver of these charges. Assuming
that said charges are due, petitioner waived the same when he accepted respondents
payments without qualification, without any specific demand for the individual charges
he now seeks to recover. The same goes true for the alleged forfeiture of the down
payment made by Jopson. From its own Statements of Accounts and Payments Made,
petitioner credited to respondents account the P1,650.00 down payment paid by
Jopson at the commencement of the contract. There is no indication that he informed
respondent of the alleged forfeiture, much more demanded the payment again of the
amount previously paid by Jopson. Art. 1235 of the Civil Code which provides that
When the obligee accepts the performance, knowing its incompleteness or irregularity,
and without expressing any protest or objection, the obligation is deemed fully complied
with, is in point. Thus, when petitioner accepted respondents installment payments
despite the alleged charges incurred by the latter, and without any showing that he
protested the irregularity of such payment, nor demanded the payment of the alleged
charges, respondents liability, if any for said charges, is deemed fully satisfied. The
petition is denied.
SLU SOL 1-C Page
398
Art. 1240, Creditor's Right of Payment
PCIB v. CA, 481 S 127
PHILIPPINE COMMERCIAL INTERNATIONAL BANK, petitioner,

vs.
COURT OF APPEALS, ATLAS CONSOLIDATED MINING & DEVELOPMENT
G.R. No. 121989 January 31, 2006
Facts: PCIB and MBC were joint bidders in a foreclosure sale held of assorted mining
machinery and equipment previously mortgaged to them by Philippine Iron Mines. Atlas
agreed to purchase some of these properties and the sale was evidenced by a Deed of
Sale with a down payment of P12,000,000 and the balance of P18,000,000 payable in 6
monthly installments. In compliance with the contract, Atlas issued Hong Kong and
shanghai Bank check amounting to P12,000,000. Atlas paid to NAMAWU the amount of
P4,298,307.77 in compliance with the writ of garnishment issued against Atlas to satisfy
the judgment in favor of NAMAWU. Atlas alleged that there was overpayment, hence
the suit against PCIB to obtain reimbursement. PCIB contended that Atlas still owed
P908,398.75 because NAMAWU had been partially paid in the amount of P601,260.00.
RTC ruled against Atlas to pay P908,398.75 to PCIB. CA reversed the decision.
Issue: Whether or not Atlas had complied with its obligation to PCIB.
Ruling: While the original amount sought to be garnished was P4,298,307,77, the
partial payment of P601,260 naturally reduced it to P3,697,047.77 Atlas overpaid
NAMAWU, thus the remedy if Atlas would be to proceed against NAAWU nut not
against PCIB in relation to article 1236 of the Civil Code The petition is partly
granted.CA decision is reversed and set aside and in lieu thereof Atlas is ordered to pay
PCIB the sum of P146,058.96, with the legal interest commencing from the time of first
demand on August 22, 1985.
SLU SOL 1-C Page
399
JOSE V. LAGON, petitioner,

vs.
HOOVEN COMALCO INDUSTRIES, INC., respondent.
G.R. No. 135657 January 17, 2001
Facts: Petitioner Jose V. Lagon is a businessman and owner of a commercial building

in Tacurong, Sultan Kudarat. Respondent HOOVEN on the other is a domestic
corporation known to be the biggest manufacturer and installer of aluminum materials in
the country with branch office at E. Quirino Avenue, Davao City. Sometime in April 1981
Lagon and HOOVEN entered into two (2) contracts, both denominated Proposal,
whereby for a total consideration of P104,870.00 HOOVEN agreed to sell and install
various aluminum materials in Lagons commercial building in Tacurong, Sultan
Kudarat. Upon execution of the contracts, Lagon paid HOOVEN P48,000.00 in
advance. Lagon, in his answer, denied liability and averred that HOOVEN was the party
guilty of breach of contract by failing to deliver and install some of the materials
specified in the proposals; that as a consequence he was compelled to procure the
undelivered materials from other sources; that as regards the materials duly delivered
and installed by HOOVEN, they were fully paid. He counterclaimed for actual, moral,
exemplary, temperate and nominal damages, as well as for attorneys fees and
expenses of litigation.
Issue: Whether or not all the materials specified in the contracts had been delivered
and installed by respondent in petitioners commercial building in Tacurong, Sultan
Kudarat.
Ruling: Firstly, the quantity of materials and the amounts sated in the delivery receipts
do not tally with those in the invoices covering them, notwithstanding that, according to
HOOVEN OIC Alberto Villanueva, the invoices were based merely on the delivery
receipts. Secondly, the total value of the materials as reflected in all the invoices is
P117,329.00 while under the delivery receipts it is only P112,870.50, or a difference of
P4,458.00 Even more strange is the fact that HOOVEN instituted the present action for
collection of sum of money against Lagon only on 24 February 1987, or more than five
(5) years after the supposed completion of the project. Indeed, it is contrary to common
experience that a creditor would take its own sweet time in collecting its credit, more so
in this case when the amount involved is not miniscule but substantial. All the delivery
receipts did not appear to have been signed by petitioner or his duly authorized
representative acknowledging receipt of the materials listed therein. A closer
examination of the receipts clearly showed that the deliveries were made to a certain
Jose Rubin, claimed to be petitioners driver, Armando Lagon, and a certain
bookkeeper. Unfortunately for HOOVEN, the identities of these persons were never
been established, and there is no way of determining now whether they were indeed
authorized representatives of petitioner.
SLU SOL 1-C Page
400
BPI v. CA, 232 S 302
BANK OF THE PHILIPPINE ISLANDS (successor-in- interest of COMMERCIAL

AND TRUST CO.), petitioner,
vs.
HON. COURT OF APPEALS, EASTERN PLYWOOD CORP. and BENIGNO D. LIM,
respondents.
G.R. No. 104612 May 10, 1994
Facts: Private respondents Eastern Plywood Corporation and Benigno Lim as officer of
the corporation, had an AND/OR joint account with Commercial Bank and Trust Co
(CBTC), the predecessor-in-interest of petitioner Bank of the Philippine Islands. Lim
withdraw funds from such account and used it to open a joint checking account (an AND
account) with Mariano Velasco. When Velasco died in 1977, said joint checking account
had P662,522.87. By virtue of an Indemnity Undertaking executed by Lim and as
President and General Manager of Eastern withdrew one half of this amount and
deposited it to one of the accounts of Eastern with CBTC. Eastern obtained a loan of
P73,000.00 from CBTC which was not secured. However, Eastern and CBTC executed
a Holdout Agreement providing that the loan was secured by the Holdout of the C/A No.
2310-001-42 referring to the joint checking account of Velasco and Lim. Meanwhile, a
judicial settlement of the estate of Velasco ordered the withdrawal of the balance of the
account of Velasco and Lim. Asserting that the Holdout Agreement provides for the
security of the loan obtained by Eastern and that it is the duty of CBTC to debit the
account of respondents to set off the amount of P73,000 covered by the promissory
note, BPI filed the instant petition for recovery. Private respondents Eastern and Lim,
however, assert that the amount deposited in the joint account of Velasco and Lim came
from Eastern and therefore rightfully belong to Eastern and/or Lim. Since the Holdout
Agreement covers the loan of P73,000, then petitioner can only hold that amount
against the joint checking account and must return the rest.
Issues:
1. Whether or not BPI can demand the payment of the loan despite the existence of the
Holdout Agreement.
2. Whether or not BPI is still liable to the private respondents on the account subject of
the withdrawal by the heirs of Velasco.
Ruling: Yes, for both issues. Regarding the first, the Holdout Agreement conferred on
CBTC the power, not the duty, to set off the loan from the account subject of the
Agreement. When BPI demanded payment of the loan from Eastern, it exercised its
right to collect payment based on the promissory note, and disregarded its option under
the Holdout Agreement. Therefore, its demand was in the correct order. Regarding the
second issue, BPI was the debtor and Eastern was the creditor with respect to the joint
checking account. Therefore, BPI was obliged to return the amount of the said account
only to the creditor. When it allowed the withdrawal of the balance of the account by the
heirs of Velasco, it made the payment to the wrong party. The law provides that
SLU SOL 1-C Page
401
payment made by the debtor to the wrong party does not extinguish its obligation to the
creditor who is without fault or negligence. Therefore, BPI was still liable to the true
creditor, Eastern.
SLU SOL 1-C Page
402
Art. 1236 in relation to Art. 1243 and Art. 1247, Debtor
REPUBLIC OF THE PHILIPPINES, represented by the CHIEF OF THE PHILIPPINE

NATIONAL POLICE, petitioner,
vs.
THI THU THUY T. DE GUZMAN, respondent.
G.R. No. 175021 June 15, 2011
Facts: On December 8, 1995, the PNP Engineering Services (PNPES), released a

Requisition and Issue Voucher for the acquisition of various building materials
amounting to Two Million Two Hundred Eighty-Eight Thousand Five Hundred Sixty-Two
Pesos and Sixty Centavos (P2,288,562.60) for the construction of a four-storey
condominium building with roof deck at Camp Crame, Quezon City. On November 5,
1997, the respondent, through counsel, sent a letter dated October 20, 1997 to the PNP,
demanding the payment of P2,288,562.60 for the construction materials MGM procured
for the PNP under their December 1995 Contract. On November 17, 1997, the PNP,
through its Officer-in-Charge, replied to respondents counsel, informing her of the
payment made to MGM via Land Bank of the Philippines (LBP) Check No. 0000530631,
as evidenced by Receipt No. 001, issued by the respondent to the PNP on April 23,
1996. On November 26, 1997, respondent, through counsel, responded by reiterating
her demand and denying having ever received the LBP check, personally or through an
authorized person. She also claimed that Receipt No. 001, a copy of which was
attached to the PNPs November 17, 1997 letter, could not support the PNPs claim of
payment as the aforesaid receipt belonged to Montaguz Builders, her other company,
which was also doing business with the PNP, and not to MGM, with which the contract
was made.
Issue: Whether or not the petitioner was able to discharge its contractual obligation with
the respondent.
Ruling: No, the petitioner did not discharge its contractual obligations to the herein
respondent. Petitioners admissions and declarations, made in various stages of the
proceedings are express admissions, which cannot be overcome by allegations of
respondents implied admissions. Moreover, petitioner cannot controvert its own
admissions and it is stopped from denying that it had a contract with MGM, which MGM
duly complied with. The Court of Appeals held that while the PNPs own Warrant
Register disclosed that the payment due to MGM was received by Cruz, on behalf of
Highland Enterprises, the PNPs contract was clearly with MGM, and not with Highland
Enterprises. Thus, in order to extinguish its obligation, the petitioner should have
directed its payment to MGM unless MGM authorized a third person to accept payment
on its behalf.
SLU SOL 1-C Page
403
Wherefore, the petition was denied and the decision of the Court of Appeals was
affirmed with the modification.
SLU SOL 1-C Page
404
PCIB v. Franco, 5 March 2014
PHILIPPINE COMMERCIAL INTERNATIONAL BANK (now BDO UNIBANK, INC.),

petitioner,
vs.
ARTURO P. FRANCO, substituted by his heirs, namely: MAURICIA P. FRANCO,
FLORIBEL P. FRANCO, AND ALEXANDER P. FRANCO, respondents.
G.R. No. 180069 March 5, 2014
Facts: Respondent who was 51 years old then decided to save up for his retirement
and to invest his hard earned money. He chose to deposit his savings with defendant
bank primarily because of the latter's representation that by making such investment, he
was actually providing for his future since his investment would be commingled, pooled
and automatically rolled-over for better investment return and which will provide for his
needs upon retirement, without need for him to take any further action. Respondent
secured from the bank several Trust Indenture Certificates.
Sometime in 1995, plaintiff discovered that one of his children had leukemia and in the
ensuing hospitalization and treatment, plaintiff spent a lot of money; that because his
funds were already exhausted, plaintiff then turned to his Trust Indenture Certificates
and started inquiring as to how he could liquidate the trust. In the beginning, defendant
bank constantly asked for time to look for his records and promised to have an answer
before July 15, 1998. On June 22 however, plaintiff received a letter from defendants
counsel denying plaintiffs request for payment by stating that due to the conversion of
all outstanding PCI Bank trust indenture accounts into common trust certificates, all
such PCI Bank trust indenture certificates have been rendered null and void. Defendant
also argues that the present action had already prescribed.
Plaintiff now prays for the payment of the amounts under the Trust Indenture
Certificates, plus interest, moral and exemplary damages and attorney's fees.
Issue: Whether or not plaintiff is entitled the relief he seeks.
Ruling: Yes. One who pleads payment has the burden of proving it.
Petitioner Bank failed to adduce any documentary evidence to establish the alleged fact
that the four TICs were already paid or cancelled, or that respondent's participation
therein was already withdrawn. With all these findings, the CA concluded that the claim
of respondent is not yet barred by prescription, since the maturity dates of the four TICs
did not terminate the express trust created between the parties.
Jurisprudence abounds that, in civil cases, one who pleads payment has the burden of
proving it. Even where the plaintiff must allege non-payment, the general rule is that the
burden rests on the defendant to prove payment, rather than on the plaintiff to prove
non-payment. When the creditor is in possession of the document of credit, he need not
SLU SOL 1-C Page
405
prove non-payment for it is presumed. The creditor's possession of the evidence of debt
is proof that the debt has not been discharged by payment.
In this case, respondents possession of the original copies of the subject TICs strongly
supports his claim that petitioner Banks obligation to return the principal plus interest of
the money placement has not been extinguished. The TICs in the hands of respondent
is a proof of indebtedness and a prima facie evidence that they have not been paid.
Petitioner Bank could have easily presented documentary evidence to dispute the claim,
but it did not. In its omission, it may be reasonably deduced that no evidence to that
effect really exist. Worse, the testimonies of petitioner Banks own witnesses, reinforce,
rather than belie, respondent's allegations of non-payment.
SLU SOL 1-C Page
406
Audion Electric v. NLRC, 308 S 340
AUDION ELECTRIC CO., INC., petitioner,

vs.
NATIONAL LABOR RELATIONS COMMISSION AND NICOLAS MADOLID,
respondents.
G.R. No. 106648 June 17, 1999
Facts: From the position paper and affidavit corroborated by oral testimony, it appears
that complainant was employed by respondent Audion Electric Company on June 30,
1976 as fabricator and continuously rendered service assigned in different offices or
projects as helper electrician, stockman and timekeeper. He has rendered thirteen (13)
years of continuous, loyal and dedicated service with a clean record. On August 3,
complainant was surprised to receive a letter informing him that he will be considered
terminated after the turnover of materials, including respondents tools and equipment
not later than August 15, 1989. Complainant claims that he was dismissed without
justifiable cause and due process and that his dismissal was done in bad faith which
renders the dismissal illegal. For this reason, he claims that he is entitled to
reinstatement with full back wages. He also claims that he is entitled to moral and
exemplary damages. He includes payment of his overtime pay, project allowance,
minimum wage increase adjustment, proportionate 13th month pay and attorneys fees.
Issues:
1. Whether or not the respondent NLRC committed grave abuse of discretion amounting
to lack or excess of jurisdiction when it ruled that private respondent was a regular
employee and not a project employee.
2. Whether or not petitioner was denied due process when all the money claims of
private respondent, i.e. overtime pay, project allowances, salary differential,
proportionate 13th month pay, moral and exemplary damages as well as attorneys
fees, were granted.
Ruling: Respondents assigning complainant to its various projects did not make
complainant a project worker. As found by the Labor Arbiter, it appears that complainant
was employed by respondent as fabricator and or projects as helper electrician,
stockman and timekeeper. Simply put, complainant was a regular non-project worker.
Private respondent clearly specified in his affidavit the specific dates in which he was
not paid overtime pay, that is, from the period March 16, 1989 to April 3, 1989
amounting to P765.63, project allowance from April 16, 1989 to July 31, 1989 in the total
amount of P255.00, wage adjustment for the period from August 1, 1989 to August 14,
1989 in the amount of P256.50 and the proportionate 13th month pay for the period
covering January to May 1988, November-December 1988, and from January to August
1989. This same affidavit was confirmed by private respondent in one of the scheduled
hearings where he moved that he be allowed to present his evidence ex-parte for failure
of petitioner or any of his representative to appear thereat. On the other hand, petitioner
submitted its unverified Comment to private respondents complaint stating that he had
SLU SOL 1-C Page

407
already satisfied the unpaid wages and 13th month pay claimed by private respondent,
but this was not considered by the Labor Arbiter for being unverified. Petitioner failed to
rebut the claims of private respondent. It failed to show proof by means of payroll or
other evidence to disprove the claim of private respondent. Petitioner was given the
opportunity to cross-examine private respondent yet petitioner forfeited such chance
when it did not attend the hearing, and failed to rebut the claims of private respondent.
However, the award of moral and exemplary damages must be deleted for being devoid
of legal basis. Moral and exemplary damages are recoverable only where the dismissal
of an employee was attended by bad faith or fraud, or constituted an act oppressive to
labor, or was done in a manner contrary to morals, good customs or public policy. The
person claiming moral damages must prove the existence of bad faith by clear and
convincing evidence for the law always presumes good faith. It is not enough that one
merely suffered sleepless nights, mental anguish, serious anxiety as the result of the
actuations of the other party. Invariably, such action must be shown to have been
willfully done in bad faith or with ill-motive, and bad faith or ill motive under the law
cannot be presumed but must be established with clear and convincing evidence.
Private respondent predicated his claim for such damages on his own allegations of
sleepless nights and mental anguish, without establishing bad faith, fraud or ill motive
as legal basis therefor. Private respondent not being entitled to award of moral
damages, an award of exemplary damages is likewise baseless. Where the award of
moral and exemplary damages is eliminated, so must the award for attorneys fees be
deleted. Private respondent has not shown that he is entitled thereto pursuant to Art.
2208 of the Civil Code.
SLU SOL 1-C Page
408
Payment by Third Person
Land Bank of the Philippines v. Ong, 24 November 2010
LAND BANK OF THE PHILIPPINES, petitioner,

vs.
ALFREDO ONG, respondent.
G.R. No. 190755 November 24, 2010
Facts: Spouses Johnson and Evangeline Sy secured a loan from Land Bank Legazpi
City in the amount of Php 16 million. The loan was secured by three (3) residential lots,
five (5) cargo trucks, and a warehouse. Under the loan agreement, Php 6 million of the
loan would be short-term and would mature on February 28, 1997, while the balance of
Php 10 million would be payable in seven (7) years. The Notice of Loan Approval dated
February 22, 1996 contained an acceleration clause wherein any default in payment of
amortizations or other charges would accelerate the maturity of the loan. Subsequently,
however, the Spouses Sy found they could no longer pay their loan. They sold three (3)
of their mortgaged parcels of land for Php 150,000 to Angelina Gloria Ong, Evangelines
mother, under a Deed of Sale with Assumption of Mortgage.
Evangelines father, petitioner Alfredo Ong, later went to Land Bank to inform them
about the sale and assumption of mortgage. Land Bank Branch Head told Alfredo that
there was nothing wrong with agreement with the Spouses Sy and provided him
requirements for the assumption of mortgage. Alfredo later found out that his application
for assumption of mortgage was not approved by Land Bank. On December 12, 1997,
Alfredo initiated an action for recovery of sum of money with damages against Land
Bank, as Alfredos payment was not returned by Land Bank. Alfredo said that Land
Banks foreclosure without informing him of the denial of his assumption of the
mortgage was done in bad faith and that he was made to believed that P750,000 would
cause Land Bank to approve his assumption to the mortgage.
He also claimed incurring expenses for attorneys fees of Php 150,000, filing fee of Php
15,000, and Php 250,000 in moral damages.
This prompted Alfredo to file a case with RTC against Land Bank. On its decision to the
case, RTC held that the contract approving the assumption of mortgage was not
perfected as a result of the credit investigation conducted on Alfredo where he was
disapproved. As such, it ruled that it would be incorrect to consider Alfredo a third
person with no interest in the fulfilment of the obligation under Article1236 of the Civil
Code. Although Land Bank was not bound by the Deed between Alfredo and the
Spouses Sy, the appellate court found that Alfredo and Land Banks active preparations
for Alfredos assumption of mortgage essentially novated the agreement.
Issues:
SLU SOL 1-C Page
409
1. Whether or not the Court of Appeals erred in holding that Art. 1236 of the Civil Code
does not apply and in finding that there is novation.
2. Whether or not the Court of Appeals misconstrued the evidence and the law when it
affirmed the trial court decisions ordering Land Bank to pay Ong the amount of
Php750,000.00 with interest at 12% annum.
Ruling: The Supreme Court affirmed with modification to the appealed decision that
recourse against Land Bank. Land Bank contends that Art.1236 of the Civil Code backs
their claim that Alfredo should have sought recourse against the Spouses Sy instead of
Land Bank. The court agreed with Land Bank on the point mentioned as to the first part
of paragraph 1 of Art. 1236. However, Alfredo made a conditional payment so that the
properties subject of the Deed of Sale with Assumption of Mortgage which Land Bank
required from him would be approved. Thus, he made payment not as a debtor but as a
prospective mortgagor. Furthermore, the contract between Alfredo and Land Bank was
not perfected nor consummated because of the adverse disapproval of the proposed
assumption.
The Supreme Court did not agree with the Court of Appeals that there was novation in
the contract between the parties because not all elements of novation were present.
The court further stresses that the instant case would not have been litigated had Land
Bank been more circumspect in dealing with Alfredo. The bank chose to accept
payment from Alfredo even before a credit investigation was underway and also failed to
informed him of the disapproval. The court found that there was negligence to a certain
degree on the part of Land Bank in handling the transaction with Alfredo. A bank as a
business entity should observe a higher standard of diligence when dealing with the
public which Land Bank neglect to observe in this case. The petitioners appeal was
denied by the Supreme Court and the decision of the Court of Appeals was affirmed
with modification in that the amount of Php 750,000 will earn interest at 6% per annum
and the total aggregate monetary awards will in turn earn 12% per annum rom the
finality of this Decision until fully paid.
SLU SOL 1-C Page
410
Art. 1251, Where Payment Must be Made
Binalbagan v. CA, 256 S 44
BINALBAGAN TECH. INC., and HERMILO J. NAVA, petitioners,

vs.
THE COURT OF APPEALS, MAGDALENA L. PUENTEVELLA, ANGELINA P.
ECHAUS, ROMULO L. PUENTEVELLA, RENATO L. PUENTEVELLA, NOLI L.
PUENTEVELLA and NELIA LOURDES P. JACINTO, respondents.
G.R. No. 100594 March 10, 1993
Facts: On May 11, 1967, private respondents, through Angelina P. Echaus, in her
capacity as Judicial Administrator of the intestate estate of Luis B. Puentevella,
executed a Contract to Sell and a Deed of Sale of forty-two subdivision lots within the
Phib-Khik Subdivision of the Puentevella family, conveying and transferring said lots to
petitioner Binalbagan Tech., Inc. (hereinafter referred to as Binalbagan). In turn
Binalbagan, through its president, petitioner Hermilo J. Nava (hereinafter referred to as
Nava), executed an Acknowledgment of Debt with Mortgage Agreement, mortgaging
said lots in favor of the estate of Puentevella. Upon the transfer to Binalbagan of titles to
the 42 subdivision lots, said petitioner took possession of the lots and the building and
improvements thereon. Binalbagan started operating a school on the property from
1967 when the titles and possession of the lots were transferred to it. It appears that
there was a pending case, Civil Case No. 7435 of Regional Trial Court stationed at
Himamaylan, Negros Occidental. In this pending case the intestate estate of the late
Luis B. Puentevella, thru Judicial Administratrix, Angelina L. Puentevella sold said
aforementioned lots to Raul Javellana with the condition that the vendee-promisee
would not transfer his rights to said lots without the express consent of Puentevella and
that in case of the cancellation of the contract by reason of the violation of any of the
terms thereof, all payments therefor made and all improvements introduced on the
property shall pertain to the promissor and shall be considered as rentals for the use
and occupation thereof. Javellana having failed to pay the installments for a period of
five years, Civil Case No. 7435 was filed by defendant Puentevella against Raul
Javellana and the Southern Negros Colleges which was impleaded as a party
defendant it being in actual possession thereof, for the rescission of their contract to sell
and the recovery of possession of the lots and buildings with damages. Accordingly,
after trial, judgment was rendered in favor of Puentevella. Came December 29, 1965
when 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, thus
Puentevella was constrained to assert physical possession of the premises to
counteract the fictitious and unenforceable claim of herein plaintiffs. Upon the filing of
the instant case for injunction and damages on January 3, 1966, an exparte writ of
preliminary injunction was issued by the Honorable Presiding Judge Carlos Abiera,
which order, however, was elevated to the Honorable Court of Appeals which issued a
writ of preliminary injunction ordering Judge Carlos Abiera or any other person or
persons in his behalf to refrain from further enforcing the injunction issued by him in this
SLU SOL 1-C Page
411
case and from further issuing any other writs or prohibitions which would in any manner
affect the enforcement of the judgment rendered in Civil Case 7435, pending the finality
of the decision of the Honorable Court of Appeals in the latter case. Thus, defendant
Puentevella was restored to the possession of the lots and buildings subject of this
case. However, plaintiffs filed a petition for review with the Supreme Court which issued
a restraining order against the sale of the properties claimed by the spouses-plaintiffs.
When the Supreme Court dissolved the aforesaid injunction issued by the Court of
Appeals, 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. In the meantime, the defendants
in Civil Case No. 293 with the Court of Appeals interposed an appeal. On October 30,
1978, the Court of Appeals rendered judgment, reversing the appealed decision in Civil
Case No. 293. On April 29, 1981, judgment was entered in CA-G.R. No. 42211, and the
record of the case was remanded to the court of origin on December 22, 1981.
Consequently, in 1982 the judgment in Civil Case No. 7435 was finally executed and
enforced, and petitioner was restored to the possession of the subdivision lots on May
31, 1982. It will be noted that petitioner was not in possession of the lots from 1974 to
May 31, 1982. After petitioner Binalbagan was again placed in possession of the
subdivision lots, private respondent Angelina Echaus demanded payment from
petitioner Binalbagan for the subdivision lots, enclosing in the letter of demand a
statement of account as of September 1982 showing a total amount due of
P367,509.93, representing the price of the land and accrued interest as of that date. As
petitioner Binalbagan failed to effect payment, private respondent Angelina P. Echaus
filed on October 8, 1982 Civil Case No. 1354 of the Regional Trial Court of the Sixth
Judicial Region stationed in Himamaylan, Negros Occidental against petitioners for
recovery of title and damages. Private respondent Angelina P. Echaus filed an amended
complaint by including her mother, brothers, and sisters as co-plaintiffs, which was
admitted by the trial court on March 18, 1983.
Issue: Whether or not the petition is with merit.
Ruling: No. A party to a contract cannot demand performance of the other party's
obligations unless he is in a position to comply with his own obligations. Similarly, the
right to rescind a contract can be demanded only if a party thereto is ready, willing and
able to comply with his own obligations there under (Art. 1191, Civil Code). In a contract
of sale, the vendor is bound to transfer the ownership of and deliver, as well as warrant,
the thing which is the object of the sale (Art. 1495, Civil Code); he warrants that the
buyer shall, from the time ownership is passed, have and enjoy the legal and peaceful
possession of the thing. As afore-stated, petitioner was evicted from the subject
subdivision lots in 1974 by virtue of a court order in Civil Case No. 293 and reinstated to
the possession thereof only in 1982. During the period, therefore, from 1974 to 1982,
seller private respondent Angelina Echaus' warranty against eviction given to buyer
petitioner was breached though, admittedly, through no fault of her own. It follows that
during that period, 1974 to 1982, private respondent Echaus was not in a legal position
to demand compliance of the prestation of petitioner to pay the price of said subdivision
lots. In short, her right to demand payment was suspended during that period, 1974-
SLU SOL 1-C Page

412
1982. The prescriptive period within which to institute an action upon a written contract
is ten years (Art. 1144, Civil Code). The cause of action of private respondent Echaus is
based on the deed of sale afore-mentioned. The deed of sale whereby private
respondent Echaus transferred ownership of the subdivision lots was executed on May
11, 1967. She filed Civil Case No. 1354 for recovery of title and damages only on
October 8, 1982. From May 11, 1967 to October 8, 1982, more than fifteen (15) years
elapsed. Seemingly, the 10-year prescriptive period had expired before she brought her
action to recover title. However, the period 1974 to 1982 should be deducted in
computing the prescriptive period for the reason that, as above discussed, from 1974 to
1982, private respondent Echaus was not in a legal position to initiate action against
petitioner since as afore-stated, through no fault of hers, her warranty against eviction
was breached. In the case of it was held that a court order deferring action on the
execution of judgment suspended the running of the 5-year period for execution of a
judgment. Here the execution of the judgment in Civil Case No. 7435 was stopped by
the writ of preliminary injunction issued in Civil Case No. 293. It was only when Civil
Case No. 293 was dismissed that the writ of execution in Civil Case No. 7435 could be
implemented and petitioner Binalbagan restored to the possession of the subject lots.
Deducting eight years (1974 to 1982) from the period 1967 to 1982, only seven years
elapsed. Consequently, Civil Case No. 1354 was filed within the 10-year prescriptive
period. Working against petitioner's position too is the principle against unjust
enrichment, which would certainly be the result if petitioner were allowed to own the 42
lots without full payment thereof.
SLU SOL 1-C Page
413
When Payment Must be Made
Lorenzo Shipping v. BJ Marthel, 443 S 163
LORENZO SHIPPING CORP., petitioner,

vs.
BJ MARTHEL INTERNATIONAL, INC., respondent.
G.R. No. 145483 November 19, 2004
Facts: BJ Marthel supplied Lorenzo Shipping with spare parts for its marine engines. In
1989, Lorenzo Shipping asked for a quotation for various machine parts. BJ Marthel's
formal quotation provided that delivery shall be within 2 months after receipt of firm
order wherein 25% shall be paid as down payment upon delivery with the balance
payable in 5 bimonthly equal installments not to exceed 90 days.
On Nov. 2, 1989, Lorenzo Shipping issued a purchase order for 1 set of cylinder liner.
Instead of paying the 25% down payment, Lorenzo Shipping issued 10 postdated
checks that were supposed to represent the full payment. Subsequently, it issued a
second purchase order for another cylinder liner on Jan. 15, 1990. Like the first
purchase order, the second one did not state the date of the delivery.
One of Lorenzo Shipping's checks was dishonored due to insufficiency of funds. BJ

Marthel returned the remaining 9 checks. On April 20, 1990, the 2 cylinder liners were
delivered at Lorenzo Shipping's warehouse.
BJ Marthel sent a demand letter for Lorenzo Shipping to pay. Instead of heeding the
demand, Lorenzo Shipping offered to pay only P150K since the cylinder liners were
delivered late and to pay the balance from the proceeds of its sale of the cylinder liners.
BJ Marthel filed an action for sum of money and damages before the RTC. Lorenzo
Shipping alleged that time was of the essence in the delivery and that the delivery was
late. The RTC dismissed the action and held BJ Marthel bound to the quotation
particularly with respect to the terms of payment and delivery. It also declared that BJ
Marthel had agreed to the cancellation of the contract when it returned the postdated
checks.
BJ Marthel filed an appeal with the CA, which reversed and set aside the decision of the
RTC. The CA brushed aside Lorenzo Shipping's claim that time was of the essence in
the contract of sale. The CA also held that BJ Marthel could not have incurred delay as
no demand was made.
Issues:
1. Whether or not BJ Marthel incurred delay in performing its obligation under the
contract of sale.
2. Whether or not the contract was validly rescinded by Lorenzo Shipping.
SLU SOL 1-C Page
414
Ruling: In determining whether time is of the essence, the ultimate criterion is the
actual or apparent intention of the parties. Before time may be so regarded by a court,
there must be a sufficient manifestation either in the contract itself or the surrounding
circumstances of that intention.
While the quotation by BJ Marthel stated that the cylinder liners were to be delivered
within 2 months from receipt of the firm order and that the 25% down payment was due
upon the cylinder liners' delivery, the purchase orders by Lorenzo Shipping omitted
these items. The first purchase order made no mention of the due dates of delivery and
of the payment of 25% down payment. The second purchase order did not indicate the
date of delivery.
In Smith, Bell & Co., Ltd. v. Matti, "when the time of delivery is not fixed or is stated in
general and indefinite terms, time is not of the essence of the contract." In such cases,
the delivery must be made within a reasonable time.
In the subject contracts, the failure of Lorenzo Shipping to notify BJ Marthel of the date
when the cylinder liners were to be used was fatal to its claim that time was of the
essence. The earliest maturity date of the checks was Jan. 18, 1990. As delivery of the
checks could produce the effect of payment only when they have been cashed, BJ
Marthel's obligation to deliver the first cylinder liner could not have arisen as early as
Jan. 2, 1990 since Lorenzo Shipping had yet to fully pay the first cylinder liner. The
delivery of the cylinder liners was made within a reasonable period of time. There
having been no failure on the part of BJ Marthel to perform its obligation, the power to
rescind the contract was unavailing to Lorenzo Shipping. By accepting the cylinder
liners, Lorenzo Shipping waived the claimed delay in the delivery.
The decision of the CA was affirmed.
SLU SOL 1-C Page

415
Art. 1245, Dacion En Pago/Dation in Payment
Luzon Development Bank v. Enriquez, 12 January 2011
LUZON DEVELOPMENT BANK, petitioner,

vs.
ANGELES CATHERINE ENRIQUEZ, respondent.
G.R. No. 168646 January 12, 2011
Facts: On July 3, 1995, De Leon (owner of Delta) and his spouse obtained a P4 million
loan from the BANK for the express purpose of developing Delta Homes. To secure the
loan, the spouses De Leon executed in favor of the BANK a real estate mortgage
(REM) on several of their properties,9 including Lot 4. Subsequently, this REM was
amended10 by increasing the amount of the secured loan from P4 million to P8 million.
Both the REM and the amendment were annotated on TCT No. T-637183.11 Sometime
in 1997, DELTA executed a Contract to Sell with respondent Angeles Catherine
Enriquez (Enriquez)14 over the house and lot in Lot 4 with the condition that upon full
payment of the total consideration the Owner shall execute a final deed of sale in favor
of the Vendee/s.
When DELTA defaulted on its loan obligation, the BANK, instead of foreclosing the
REM, agreed to a dation in payment or a dacion en pago. Enriquez filed a complaint
against DELTA and the BANK before Office of the HLURB19 alleging that DELTA
violated the terms of its License to Sell. The HLURB Arbiter Atty. Raymundo A. Foronda
upheld the validity of the purchase price, but ordered DELTA to accept payment of the
balance of P108,013.36 from Enriquez, and (upon such payment) to deliver to Enriquez
the title to the house and lot free from liens and encumbrances. DELTA appealed the
arbiter's Decision to the HLURB Board of Commissioners.
The Commission ordered [Enriquez] to pay [DELTA] the amount due from the time she
suspended payment up to filing of the complaint with 12% interest thereon per annum;
thereafter the provisions of the Contract to Sell shall apply until full payment is made.
The OP adopted by reference the findings of fact and conclusions of law of the HLURB
Decisions, which it affirmed in toto. The CA ruled against the validity of the dacion en
pago executed in favor of the BANK on the ground that DELTA had earlier relinquished
its ownership over Lot 4 in favor of Enriquez via the Contract to Sell.
Issue: Whether the dacion en pago extinguished the loan obligation, such that DELTA
has no more obligations to the BANK.
Ruling: The violation of Section 18 renders the mortgage executed by DELTA void
therefore the 8 million loans are unsecured. Since the Contract to sell did not transfer
ownership of Lot 4 to Enriquez, said ownership remained with DELTA. DELTA could
then validly transfer such ownership (as it did) to another person (the BANK). However,
the transferee BANK is bound by the Contract to Sell and has to respect Enriquez's
SLU SOL 1-C Page
416
rights thereunder. BANK is also not entitled to payment of the equivalent value of the lot
4 from DELTA when this court ruled in favor of ENRIQUEZ over lot 4. Like in all
contracts, the intention of the parties to the dation in payment is paramount and
controlling. The contractual intention determines whether the property subject of the
dation will be considered as the full equivalent of the debt and will therefore serve as full
satisfaction for the debt. "The dation in payment extinguishes the obligation to the extent
of the value of the thing delivered, either as agreed upon by the parties or as may be
proved, unless the parties by agreement, express or implied, or by their silence,
consider the thing as equivalent to the obligation, in which case the obligation is totally
extinguished."
SLU SOL 1-C Page
417
SPS. RAFAEL P. ESTANISLAO AND ZENAIDA ESTANISLAO, petitioners,

vs.
EAST WEST BANKING CORPORATION, respondent.
G.R. No. 178537 February 11, 2008
Facts: On July 24,1997, petitioner obtained a loan for the respondent in the amount of
P3,925,000 evidenced by a promissory note and secured by two deeds of chattel
mortgage covering two dump trucks and a bulldozer . Petitioner defaulted entire
obligation became due and demandable. A deed of assignment was drafted by the
respondent on October 6, 2000 and March 8, 2001 respectively. Petitioners completed
the delivery of heavy equipment mentioned in the deed of assignment to respondent
which accepted the same without protest or objection. Respondent manifested to admit
an amended complaint for the seizure and delivery of two more heavy equipment which
are covered under the second deed of the chattel mortgage. RTC ruled that the deed of
assignment and the petitioners delivery of the heavy equipment effectively extinguished
the petitioners obligation and respondent as stopped. CA reversed the decision
ordering the petitioner the outstanding debt of P4,275,919.69 plus interests.
Issue: Whether or not the Deed of Assignment operated to extinguish petitioners debt
to the respondent such that the replevin suit could no longer prosper.
Ruling: The deed of assignment was a perfected agreement which extinguished

petitioners total outstanding obligation to the respondent. The nature of the assignment
was a dacion en pago whereby property is alienated to the creditor in the satisfaction of
a debt in money. Since the agreement was consummated by the delivery of the last unit
of heavy equipment under the deed, petitioners are deemed to have been released from
all their obligations from the respondents.
SLU SOL 1-C Page
418
AGRIFINA AQUINTEY, petitioner,

vs.
SPOUSES FELICIDAD AND RICO TIBONG, respondents.
G.R. No. 166704 December 20, 2006
Facts: On May 6, 1999, petitioner Aquintey filed before RTC Baguio, a complaint for
sum of money and damages against respondents. Agrifina alleged that Felicidad
secured loans from her on several occasions at monthly interest rates of 6% to 7%.
Despite demands, spouses Tibong failed to pay their outstanding loans of P773,000,00
exclusive of interests. However, spouses Tiong alleged that they had executed deeds of
assignment in favor of Agrifina amounting to P546,459 and that their debtors had
executed promissory notes in favor of Agrifina. Spouses insisted that by virtue of these
documents, Agrifina became the new collector of their debts. Agrifina was able to collect
the total amount of P301,000 from Felicdads debtors. She tried to collect the balance of
Felicidad and when the latter reneged on her promise, Agrifina filed a complaint in the
office of the barangay for the collection of P773,000.00. There was no settlement. RTC
favored Agrifina. Court of Appeals affirmed the decision with modification ordering
defendant to pay the balance of total indebtedness in the amount of P51,341,00 plus
6% per month.
Issue: Whether or not the deeds of assignment in favor of petitioner has the effect of
payment of the original obligation that would partially extinguish the same.
Ruling: Substitution of the person of the debtor may be affected by delegacion.

Meaning, the debtor offers, the creditor accepts a third person who consents to the
substitution and assumes the obligation. It is necessary that the old debtor be released
from the obligation and the third person or new debtor takes his place in the relation.
Without such release, there is no novation. Court of Appeals correctly found that the
respondents obligation to pay the balance of their account with petitioner was
extinguished pro tanto by the deeds of credit. CA decision is affirmed with the
modification that the principal amount of the respondents is P33,841.
SLU SOL 1-C Page
419
Art. 1255 (in relation to Act No. 1956 or Insolvency Law),
Payment by Cession or Assignment
Lo v. CA, 411 S 523
RAFAEL A. LO, petitioner,

vs.
COURT OF APPEALS and GREGORIO LUGUIBIS, respondents.
G.R. No. 128667 December 17, 1999
Facts: At the core of the present controversy are two parcels of land measuring a total
of 2,147 square meters, with an office building constructed thereon. Petitioner acquired
the subject parcels of land in an auction sale on November 9, 1995 for P20,170,000
from the Land Bank of the Philippines (Land Bank). Private respondent National Onion
Growers Cooperative Marketing Association, Inc., an agricultural cooperative, was the
occupant of the disputed parcels of land under a subsisting contract of lease with Land
Bank. The lease was valid until December 31, 1995. Upon the expiration of the lease
contract, petitioner demanded that private respondent vacate the leased premises and
surrender its possession to him. Private respondent refused on the ground that it was,
at the time, contesting petitioners acquisition of the parcels of land in question in an
action for annulment of sale, redemption and damages. Petitioner filed an action for
ejectment before the MTC. He asked, inter alia, for the imposition of the contractually
stipulated penalty of P5,000 per day of delay in surrendering the possession of the
property to him. On September 3, 1996, the trial court decided the case in favor of
petitioner. On appeal to the RTC, the MTC decision was affirmed in toto. The CA
rendered its assailed decision affirming the decision of the trial court, with the
modification that the penalty imposed upon private respondent for the delay in turning
over the leased property to petitioner was reduced from P 5,000 to P 1000 per day.
Issue: Whether or not the Court of Appeals erred in reducing the penalty awarded by
the trial court, the same having been stipulated by the parties.
Ruling: No. Generally, courts are not at liberty to ignore the freedom of the parties to
agree on such terms and conditions as they see fit as long as they are not contrary to
law, morals, good customs, public order or public policy. Nevertheless, courts may
equitably reduce a stipulated penalty in the contract if it is iniquitous or unconscionable,
or if the principal obligation has been partly or irregularly complied with. This power of
the courts is explicitly sanctioned by Article 1229 of the Civil Code which provides:
Article 1229. The judge shall equitably reduce the penalty when the principal obligation
has been partly or irregularly complied with by the debtor. Even if there has been no
unconscionable. The question of whether a penalty is reasonable or iniquitous is
addressed to the sound discretion of the court and depends on several factors,
including, but not limited to, the following: the type, extent and purpose of the penalty,
the nature of the obligation, the mode of breach and its consequences, the supervening
SLU SOL 1-C Page
420
realities, the standing and relationship of the parties. In this case, the stipulated penalty
was reduced by the appellate court for being unconscionable and iniquitous. Petition
denied; CA decision affirmed.
SLU SOL 1-C Page
421
Arts 1252-1254 in relation to Art. 1176, Application of
Payments
ASJ Corp. v. Evangelista, 545 S 300
ASJ CORPORATION and ANTONIO SAN JUAN, petitioners,

vs.
SPS. EFREN & MAURA EVANGELISTA, respondents.
G.R. No. 158086 February 14, 2008
Facts: Respondents are engaged in the large-scale business of buying broiler eggs,
hatching and selling them and egg by-products. For incubation and hatchings,
respondents availed of the hatching services of ASJ Corp. They agreed o service fees
of 80 centavos per egg. Service fees were paid upon release. Fro consecutive times the
respondents failed to pay the fee until such time that ASJ retained the chicks
demanding full payment from the respondent. ASJ received P15,000 for partial payment
but the chicks were still not released. RTC ruling, which was affirmed by the Court of
Appeals holding that ASJ Corp and Antonio San Juan be solidarily liable to the
respondents.
Issue: Whether or not petitioners retention of the chicks and by-products, on account of
respondents failure to pay the corresponding fees unjustified.
Ruling: Respondents' offer to partially satisfy their accounts is not enough to extinguish
their obligation. Respondents cannot substitute or apply as their payment the value of
the chicks and by-products they expect to derive because it is necessary that all the
debts be paid for the same kind. The petition is partly granted. The Court of Appeals
decision is modified.
SLU SOL 1-C Page
422
Paculdo v. Regalado, 345 S 134
NEREO J. PACULDO, petitioner,

vs.
BONIFACIO C. REGALADO, respondent.
G.R. No. 123855 November 20, 2000
Facts: On December 27, 1990, petitioner Nereo Paculdo and respondent Bonifacio
Regalado entered into a contract of lease over a parcel of land with a wet market
building, located at Fairview Park, Quezon City. The contract was for twenty five (25)
years, commencing on January 1, 1991 and ending on December 27, 2015. For the first
five (5) years of the contract beginning December 27, 1990, Nereo would pay a monthly
rental of P450,000, payable within the first five (5) days of each month with a 2%
penalty for every month of late payment. Aside from the above lease, petitioner leased
eleven (11) other property from the respondent, ten (10) of which were located within
the Fairview compound, while the eleventh was located along Quirino Highway Quezon
City. Petitioner also purchased from respondent eight (8) units of heavy equipment and
vehicles in the aggregate amount of Php 1, 020,000. On account of petitioners failure to
pay P361, 895.55 in rental for the month of May, 1992, and the monthly rental of P450,
000.00 for the months of June and July 1992, the respondent sent two demand letters
to petitioner demanding payment of the back rentals, and if no payment was made
within fifteen (15) days from the receipt of the letter, it would cause the cancellation of
the lease contract. Without the knowledge of petitioner, on August 3, 1992, respondent
mortgaged the land subject of the lease contract, including the improvements which
petitioner introduced into the land amounting to P35, 000,000.00, to Monte de Piedad
Savings Bank, as a security for a loan. On August 12, 1992, and the subsequent dates
thereafter, respondent refused to accept petitioners daily rental payments.
Subsequently, petitioner filed an action for injunction and damages seeking to enjoin
respondents from disturbing his possession of the property subject of the lease contract.
On the same day, respondent also filed a complaint for ejectment against petitioner. The
lower court rendered a decision in favor of the respondent, which was affirmed in toto by
the Court of Appeals.
Issue: Whether or not the petitioner was truly in arrears in the payment of rentals on the
subject property at the time of the filing of the complaint for ejectment.
Ruling: No, the petitioner was not in arrears in the payment of rentals on the subject
property at the time of the filing of the complaint for ejectment. As found by the lower
court there was a letter sent by respondent to herein petitioner, dated November 19,
1991, which states that petitioners security deposit for the Quirino lot, be applied as
partial payment for his account under the subject lot as well as to the real estate taxes
on the Quirino lot. Petitioner interposed no objection, as evidenced by his signature
signifying his conformity thereto. Meanwhile, in an earlier letter, dated July 15, 1991,
respondent informed petitioner that the payment was to be applied not only to
petitioners accounts under the subject land and the Quirino lot but also to heavy
SLU SOL 1-C Page
423
equipment bought by the latter from respondent. Unlike in the November letter, the July
letter did not contain the signature of petitioner. Petitioner submits that his silence is not
consent but is in fact a rejection. As provided in Article 1252 of the Civil Code, the right
to specify which among his various obligations to the same creditor is to be satisfied first
rest with the debtor. In the case at bar, at the time petitioner made the payment, he
made it clear to respondent that they were to be applied to his rental obligations on the
Fairview wet market property. Though he entered into various contracts and obligations
with respondent, all the payments made, about P11,000,000.00 were to be applied to
rental and security deposit on the Fairview wet market property. However, respondent
applied a big portion of the amount paid by petitioner to the satisfaction of an obligation
which was not yet due and demandable- the payment of the eight heavy equipments.
Under the law, if the debtor did not declare at the time he made the payment to which of
his debts with the creditor the payment is to be applied, the law provided the guideline;
i.e. no payment is to be applied to a debt which is not yet due and the payment has to
be applied first to the debt which is most onerous to the debtor. The lease over the
Fairview wet market is the most onerous to the petitioner in the case at bar.
Consequently, the petition is granted.
SLU SOL 1-C Page
424
CBC v. CA, 265 S 327
CHINA BANKING CORPORATION, ATTYS. REYNALDO M. CABUSORA and

RENATO C. TAGUIAM, petitioners,
vs.
COURT OF APPEALS, HON. PEDRO T. SANTIAGO, SPS. SO CHING and CRISTINA
SO, and NATIVE WEST INTERNATIONAL TRADING CORP., respondents.
G.R. No. 121158 December 5, 1996
Facts: China Banking Corporation (China Bank) extended several loans to Native West
International Trading Corporation (Native West) and to So Ching, Native West's
president. Native West in turn executed promissory notes in favor of China Bank. So
Ching, with the marital consent of his wife, Cristina So, additionally executed two
mortgages over their properties, viz., a real estate mortgage executed on July 27, 1989
covering a parcel of land situated in Cubao, Quezon City, under TCT No. 277797, and
another executed on August 10, 1989 covering a parcel of land located in Mandaluyong,
under TCT No. 5363. The promissory notes matured and despite due demands by
China Bank neither private respondents Native West nor So Ching paid. Pursuant to a
provision embodied in the two mortgage contracts, China Bank filed petitions for the
extra-judicial foreclosure of the mortgaged properties before Notary Public Atty. Renato
E. Taguiam for TCT No. 277797, and Notary Public Atty. Reynaldo M. Cabusora for TCT
No. 5363, copies of which were given to the spouses So Ching and Cristina So. After
due notice and publication, the notaries public scheduled the foreclosure sale of the
spouses' real estate properties on April 13, 1993. Eight days before the foreclosure sale,
however, private respondents filed a complaint with the Regional Trial Court for
accounting with damages and with temporary restraining order against petitioners
alleging several grounds, including Violation of Article 1308 of the Civil Code. On April 7,
1993, the trial court issued a temporary restraining order to enjoin the foreclosure sale.
Petitioners moved for reconsideration, but it was denied in an Order dated September
23, 1993. To annul the trial court's Orders of April 28, 1993 and September 23, 1993,
petitioners elevated the case through certiorari and prohibition before public respondent
Court of Appeals. In a decision dated January 17, 1995, respondent Court of Appeals
held that Administrative Circular No. 3 is the governing rule in extra-judicial foreclosure
of mortgage, which circular petitioners however failed to follow, and with respect to the
publication of the notice of the auction sale, the provisions of P.D. No. 1079 is the
applicable statute, which decree petitioners similarly failed to obey. Respondent Court of
Appeals did not pass upon the other issues and confined its additional lengthy
discussion on the validity of the trial court's issuance of the preliminary injunction,
finding the same neither capricious nor whimsical exercise of judgment that could
amount to grave abuse of discretion. The Court of Appeals accordingly dismissed the
petition, as well as petitioners' subsequent motion for reconsideration. Hence, the
instant petition under Rule 45 of the Rules of Court reiterating the grounds raised before
respondent court.
Issue: Whether or not there was a correct application of payment in this case.
SLU SOL 1-C Page
425
Ruling: An important task in contract interpretation is the ascertainment of the intention
of the contracting parties which is accomplished by looking at the words they used to
project that intention in their contract, i.e., all the words, not just a particular word or two,
and words in context, not words standing alone. Indeed, Article 1374 of the Civil Code,
states the various stipulations of a contract shall be interpreted together, attributing to
the doubtful ones that sense which may result from all of them taken jointly." Applying
the rule, we find that the parties intent is to constitute the real estate properties as
continuing securities liable for future obligations beyond the amounts of P6.5 million and
P3.5 million respectively stipulated in the July 27, 1989 and August 10, 1989 mortgage
contracts. Thus, while the "whereas" clause initially provides that "the mortgagee has
granted, and may from time to time hereafter grant to the mortgagors credit facilities not
exceeding six million five hundred thousand pesos only (P6,500,000.00)" yet in the
same clause it provides that "the mortgagee had required the mortgagor(s) to give
collateral security for the payment of any and all obligations heretofore
contracted/incurred and which may thereafter be contracted/incurred by the
mortgagor(s) and/or debtor(s), or any one of them, in favor of the mortgagee" which
qualifies the initial part and shows that the collaterals or real estate properties serve as
securities for future obligations. The first paragraph which ends with the clause, "the
idea being to make this deed a comprehensive and all embracing security that it is"
supports this qualification. Similarly, the second paragraph provides that "the mortgagee
may take further advances and all sums whatsoever advanced by the mortgagee shall
be secured by this mortgagee." And although it was stated that "[t]he said credit shall
extend to any account which shall, within the said limit of P6,500,000.00 exclusive of
interest", this part of the second sentence is again qualified by its succeeding portion
which provides that "this mortgage shall stand as security for all indebtedness of the
mortgagor(s) and/or debtor(s), or any one of them, at any and all times outstanding."
Again, under the third paragraph, it is provided that "the mortgagee may from time to
time grant the mortgagor(s)/debtor(s) credit facilities exceeding the amount secured by
this mortgage." The fourth paragraph, in addition, states that "all such withdrawals, and
payments, whether evidenced by promissory notes or otherwise, shall be secured by
this mortgage" which manifestly shows that the parties principally intended to constitute
the real estate properties as continuing securities for additional advancements which
the mortgagee may, upon application, extend. It is well settled that mortgages given to
secure future advancements or loans are valid and legal contracts, and that the
amounts named as consideration in said contracts do not limit the amount for which the
mortgage may stand as security if from the four corners of the instrument the intent to
secure future and other indebtedness can be gathered. The allegations stated are a
clear admission that they were unable to settle to the fullest their obligation. Foreclosure
is valid where the debtors, as in this case, are in default in the payment of their
obligation. The essence of a contract of mortgage indebtedness is that a property has
been identified or set apart from the mass of the property of the debtor-mortgagor as
security for the payment of money or the fulfillment of an obligation to answer the
amount of indebtedness, in case of default of payment. It is a settled rule that in a real
estate mortgage when the obligation is not paid when due, the mortgagee has the right
to foreclose the mortgage and to have the property seized and sold in view of applying
SLU SOL 1-C Page

426
the proceeds to the payment of the obligation. In fact, aside from the mortgage
contracts, the promissory notes executed to evidence the loans also authorize the
mortgagee to foreclose on the mortgages. Thus, China Banking Corporation was
authorized to sell at public or private sales such securities or things of value for the
purpose of applying their proceeds to such payments. And while private respondents
aver that they have already paid ten million pesos, an allegation which has still to be
settled before the trial court, the same cannot be utilized as a shield to enjoin the
foreclosure sale. A mortgage given to secure advancements, is a continuing security
and is not discharged by repayment of the amount named in the mortgage, until the full
amount of the advancements are paid.
SLU SOL 1-C Page
427
Mobil v. CA, 272 S 523
MOBIL OIL PHILIPPINES, INC., and CALTEX (PHILS.), INC., petitioners,

vs.
HON. COURT OF APPEALS and CONTINENTAL CEMENT CORPORATION,
respondents.
G.R. No. 103052 May 23, 1997
Facts: The petition for review on certiorari in the case at bar seeks the reversal of the
decision of the Court of Appeals, affirming that 2 of the Regional Trial Court (RTC),
Branch 101, of Quezon City, which found herein petitioners Mobil Oil Philippines, Inc.,
and Caltex Philippines, Inc., jointly and severally liable to private respondent Continental
Cement Corporation in the amount of eight million pesos (P8,000,000.00) for actual
damages, plus ten percent (10%) thereof by way of attorneys fees, for having delivered
water-contaminated bunker fuel oil to the serious prejudice and damage of the cement
firm.
Sometime in May 1982, petitioner Mobil Oil Philippines, Inc. (MOPI), a firm engaged in
the marketing of petroleum products to industrial users, entered into a supply
agreement with private respondent Continental Cement Corporation (CCC), a cement
producer, under which the former would supply the latters industrial fuel oil (IFO) or
bunker fuel oil (BFO) requirements. MOPI extended to CCC an unsecured credit line of
P2,000,000.00 against which CCCs purchases of oil could initially be charged.
MOPI had a hauling contract with Century Freight Services (CFS) whereby CFS
undertook the delivery of Mobil products to designated consignees of MOPI. During the
period starting from 12 July to 07 October 1982, MOPI made a total of sixty-seven
deliveries of BFO, each delivery consisting of 20,000 liters, to CCCs cement factory in
Norzagaray, Bulacan. On 08 October 1982, CCC discovered that what should have
been MOPIs 20,000 BFO delivery to CCCs Norzagaray plant, through CFSs lorry
truck, was, in fact, pure water. CCC at once informed MOPI of this anomaly and of its
intention to meanwhile hold in abeyance all payments due to MOPI on its previous
deliveries until such time as the parties would have ascertained that those deliveries
were not themselves adulterated. CCC suggested that MOPIs storage tank in the
Norzagaray plant be likewise investigated for possible contamination.
Alleging in the complaint it ultimately filed with the RTC that its factory equipment broke
down from 19 to 22 September 1982 due to the utilization of the water-contaminated
BFO supplied by MOPI; that on 23 September 1982, its plant operations had to be
stopped completely; and that it was able to resume operations only after essential
repairs had been undertaken on 02 October 1982; CCC sought to recover
consequential damages from MOPI. In answer, MOPI averred that CCC had accepted
each delivery of BFO in accordance with the procedure for testing and acceptance of
BFO deliveries; that it was only on 08 October 1982 that CCC brought to its attention
the alleged anomalous delivery of 20,000 liters of BFO under invoice No. 47587 through
SLU SOL 1-C Page
428
Mariano Riveras lorry truck; that when the delivery was being inspected by CCCs
representatives, the truck driver and helper fled; that Rivera acknowledged full liability
for such delivery; that Rivera promised to pay the amount of P42,730.00 for the 20,000
liters of BFO delivered; and that MOPI agreed to the water draining activity solely for the
purpose of maintaining good business relations with CCC but not to admit any liability
therefore. In its compulsory counterclaim, MOPI claimed that CCC had an outstanding
obligation to it, as of 30 November 1982, in the amount of P1,096,238.51, and that as a
consequence of the frivolous and malicious suit: which besmirched MOPIs
reputation, it suffered moral damages of not less than P10,000,000.00, exemplary
damages of the same amount, and the incurrence of attorneys fees.
Issues:
1. Whether or not Petitioner Mobil is stopped from claiming that no Mobil BFO remained
unused by Continental on 22 October 1982; and that the deliveries of BFO made by
Mobil to Continental before 8 October 1982 were not contaminated with water.
2. Whether or not Petitioners can be held liable for the contaminated BFO delivered on
8 October 1982 on the ground that Country Freight Service, as carrier-hauler, was an
agent of Mobil.
Ruling: The claim that the Court of Appeals conveniently made an inference that the
subject Continental storage tank contained Mobil BFO deliveries only because Mobil
and Continental agreed to jointly examine the same, and that the appellate court had so
misapprehended the facts, is unacceptable. The factual finding that deliveries previous
to 08 October 1982 were adulterated BFO was supported by the 22 October 1982 joint
undertaking. This document, witnessed and signed by representatives of both MOPUI
and CCC, clearly showed that a detailed verification of water contained on all BFO
delivered by MOBIL OIL PHILS., INC., except those that have already been used in
cement operation by CCC,: was undertaken. Implicit from this statement was that there
still was at the time an availability of BFO in the storage tank designated by CCC for
past Mobil deliveries. The same could be said of the second water draining process,
evidence by the second joint undertaking. Although done without the participation of
MOPI, the latter, nonetheless, was notified of the counting thrice, the last of which had
indicated that failure on MOPIs part to send a representative would be tantamount to a
waiver of its right to participate therein.
The appellate court may not thus be faulted for holding that petitioners and barred from
questioning the results of water draining processes conducted on the MOPI tank in the
CCC plant site, in the same manner that MOPI may not belatedly question the testing
procedure theretofore adopted. MOPI cannot be allowed to turn its back to its own acts
(or inactions) to the prejudice of CCC, which, in good faith, relied upon MOPIs conduct.
CFS was the contractor of MOPI, not CCC, and the contracted price of the BFO that
CCC paid to MOPI included hauling charges. The presumption laid down under Article
1523 of the Civil Code that delivery to the carrier should be deemed to be delivery to the
buyer would have no application where, such as in this case, the sale itself specifically
called for delivery by the seller to the buyer at the latters place of business.
SLU SOL 1-C Page
429
Wherefore, the herein questioned decision of the Court of Appeals is affirmed in toto.
SLU SOL 1-C Page

430
Arts. 1256-1261, Tender of Payment and Consignation
Sps. Bonrostro v. Sps. Luna, 24 July 2013
SPOUSES NAMEAL and LOURDES BONROSTRO, petitioners,

vs.
SPOUSES JUAN and CONSTANCIA LUNA, respondents.
G.R. No. 172346 July 24, 2013
Facts: In 1992, respondent Constancia Luna (Constancia), as buyer, entered into a

Contract to Sell with Bliss Development Corporation (Bliss) involving a house and lot
identified as Lot 19, Block 26 of New Capitol Estates in Diliman, Quezon City. Barely a
year after, Constancia, this time as the seller, entered into another Contract to Sell with
petitioner Lourdes Bonrostro (Lourdes) concerning the same property under the
following terms and conditions:
1. The stipulated price of P1,250,000.00 shall be paid by the VENDEE to the
VENDOR in the following manner: (a) P200,000.00 upon signing x x x the
Contract To Sell, (b) P300,000.00 payable on or before April 30, 1993,
(c) P330,000.00 payable on or before July 31, 1993, (d) P417,000.00 payable to
the New Capitol Estate, for 15 years at P6,867.12 a month,
2. x x x In the event the VENDEE fails to pay the second installment on time, the
VENDEE will pay starting May 1, 1993 a 2% interest on the P300,000.00
monthly. Likewise, in the event the VENDEE fails to pay the amount of
P630,000.00 on the stipulated time, this CONTRACT TO SELL shall likewise be
deemed cancelled and rescinded and x x x 5% of the total contract price of
P1,250,000.00 shall be deemed forfeited in favor of the VENDOR. Unpaid
monthly amortization shall likewise be deducted from the initial down payment in
favor of the VENDOR.
Immediately after the execution of the said second contract, the spouses Bonrostro took
possession of the property. However, except for the P200,000.00 down payment,
Lourdes failed to pay any of the stipulated subsequent amortization payments. On
January 11, 1994, Constancia and her husband, respondent Juan Luna (spouses Luna),
filed before the RTC a Complaint for Rescission of Contract and Damages against the
spouses Bonrostro praying for the rescission of the contract, delivery of possession of
the subject property, payment by the latter of their unpaid obligation, and awards of
actual, moral and exemplary damages, litigation expenses and attorneys fees.
Issue: Whether or not the CA correctly modified the RTC Decision with respect to
interests.
Ruling: The petition lacks merit. The spouses Bonrostros reliance on the RTCs factual
finding that Lourdes was willing and ready to pay on November 24, 1993 is misplaced.
Under Article 2209 of the Civil Code, "if the obligation consists in the payment of a sum
SLU SOL 1-C Page

431
of money, and the debtor incurs in delay, the indemnity for damages, there being no
stipulation to the contrary, shall be the payment of the interest agreed upon, and in the
absence of stipulation, the legal interest." There being no stipulation on interest in case
of delay in the payment of amortization, the CA thus correctly imposed interest at the
legal rate which is now 12% per annum. Wherefore, the petition for review on certiorari
is denied.
SLU SOL 1-C Page
432
Dalton v. FGR Realty and Development Corp., 19 January 2011
SOLEDAD DALTON, petitioner,

vs.
FGR FEALTY AND DEVELOPMENT CORP., respondent.
G.R. No. 172577 January 19, 2011
Facts: Flora R. Dayrit (Dayrit) owned a 1,811-square meter parcel of land located at the
corner of Rama Avenue and Velez Street in Cebu City. Petitioner Soledad Dalton
(Dalton), Clemente Sasam, Romulo Villalonga, Miguela Villarente, Aniceta Fuentes,
Perla Pormento, Bonifacio Cabajar, Carmencita Yuson, Angel Ponce, Pedro Regudo,
Pedro Quebedo, Mary Cabanlit, Marciana Encabo and Dolores Lim (Sasam, et al.)
leased portions of the property. In June 1985, Dayrit sold the property to respondent
FGR Realty and Development Corporation (FGR). In August 1985, Dayrit and FGR
stopped accepting rental payments because they wanted to terminate the lease
agreements with Dalton and Sasam, et al.In a complaint dated 11 September 1985,
Dalton and Sasam, et al. consigned the rental payments with the RTC. They failed to
notify Dayrit and FGR about the consignation. In motions dated 27 March 1987, 10
November 1987, 8 July 1988, and 28 November 1994, Dayrit and FGR withdrew the
rental payments. In their motions, Dayrit and FGR reserved the right to question the
validity of the consignation.Dayrit, FGR and Sasam, et al. entered into compromise
agreements dated 25 March 1997 and 20 June 1997. In the compromise agreements,
they agreed to abandon all claims against each other. Dalton did not enter into a
compromise agreement with Dayrit and FGR.
Issue: Whether or not the Court of Appeals erred in ruling that the consignation was
void.
Ruling: First, in withdrawing the amounts consigned, Dayrit and FGR expressly
reserved the right to question the validity of the consignation. Second, compliance with
the requisites of a valid consignation is mandatory. Failure to comply strictly with any of
the requisites will render the consignation void. Substantial compliance is not enough.
The giving of notice to the persons interested in the performance of the obligation is
mandatory. Failure to notify the persons interested in the performance of the obligation
will render the consignation void.
SLU SOL 1-C Page
433
Benos v. Lawilao, 509 S 549
SPS. JAIME BENOS and MARINA BENOS, petitioners,

vs.
SPS. GREGORIO LAWILAO and JANICE GAIL LAWILAO, respondents.
G.R. No. 172259 December 5, 2006
Facts: On February 11, 1999, petitioner-spouses Benos and respondent Lawilao

executed a Pacto de Retro Sale where Benos sold their lot and the building erected
thereon for P300,000, one-half of which to be paid in cash to the Benos and the other
half to be paid to the bank to pay off the loans of the Benos which was secured by the
same lot and building. Under the contract, Benos could redeem the property within 18
months from the date of execution by returning the contract price, otherwise, the sale
would become irrevocable. After paying the P150,000, Lawilao took possession of the
property, restructured it twicw, eventually the loan become due and demandable. On
August 14, 2000, a son of Benos and Lawilao paid the bankl but the bank refused.
Lawilao filed for consignation against the bank and deposited the amount of
P159,000.00. RTC declared Lawilao of the ownership of the subject property, which was
affirmed by the Court of Appeals.
Issue: Whether or not the contract of Pacto de Retro Sale may be rescinded by the
petitioner.
Ruling: In the instant case, records show that Lawilao filed the petition for consignation
against the bank in Civil Case without notifying the Benos. Hence, Lawilao failed to
prove their offer to pay the balance, even before the filing of the consignation case.
Lawilao never notified the Benos. Thus, as far as the Benos are concerned, there was
no full and complete payment of the contract price which gives them the right to rescind.
Petition is granted. Court of Appeals decision is reversed and set aside, that the Pacto
de Retro Sale is rescinded and petitioner are ordered to return the amount of P150,000
to respondents.
SLU SOL 1-C Page
434
People's Industrial v. CA, 24 October 1997
PEOPLE'S INDUSTRIAL AND COMMERCIAL CORPORATION, petitioner,

vs.
COURT OF APPEALS and MAR-ICK INVESTMENT CORPORATION, respondents.
G.R. No. 112733 October 24, 1997
Facts: Private respondent Mar-ick Investment Corporation is the exclusive and

registered owner of Mar-ick Subdivision in Barrio Buli, Cainta, Rizal. On May 29, 1961,
private respondent entered into six agreements with petitioner People's Industrial and
Commercial Corporation sell to petitioner six subdivision lots. Five of the agreements,
involving similarly stipulate that the petitioner agreed to pay private respondent for each
lot, the amount of P7,333.20 with a down payment of P480.00. The balance of
P6,853.20 shall be payable in 120 equal monthly installments of P57.11 every 30th of
the month, for a period of ten years. With respect to Lot No. 8, the parties agreed to the
purchase price of P7,730.00 with a down payment of P506.00 and equal monthly
installments of P60.20. After ten years, however, petitioner still had not fully paid for the
six lots; it had paid only the down payment and eight installments, even after private
respondent had given petitioner a grace period of four months to pay the arrears. As of
May 1, 1980, the total amount due to private respondent under the contract was
P214,418.00. In his letter of March 30, 1980 to Mr. Tomas Siatianum, who signed the
agreements for petitioner, private respondent's counsel protested petitioner's
encroachment upon a portion of its subdivision. It added that petitioner had failed to
abide by its promise to remove the encroachment, or to purchase the lots involved "at
the current price or pay the rentals on the basis of the total area occupied, all within a
short period of time." It also demanded the removal of the illegal constructions on the
property that had prejudiced the subdivision and its neighbors. After a series of
negotiations between the parties, they agreed to enter into a new contract to sell 8
involving seven lots. The contract stipulates that the previous contracts involving the
same lots "have been cancelled due to the failure of the purchaser to pay the stipulated
installments." It states further that the new contract was entered into "to avoid litigation,
considering that the purchaser has already made use of the premises since 1981 to the
present without paying the stipulated installments." The parties agreed that the contract
price would be P423,250.00 with a down payment of P42,325.00 payable upon the
signing of the contract and the balance of P380,925.00 payable in forty-eight equal
monthly amortization payments of P7,935.94. The new contract bears the date of
October 11, 1983 but neither of the parties signed it. Thereafter, Tomas Siatianum
issued the checks in the total amount of P37,642.72 to private respondent. Private
respondent received but did not encash those checks. Instead, filed in the trial court
was a complaint for accion publiciana de posesion against petitioner and Tomas
Siatianum, as president and majority stockholder of petitioner. The lower court rendered
a decision finding that the original agreements of the parties were validly cancelled in
accordance with provision No. 9 of each agreement. The parties did not enter into a
new they did not sign the draft contract. Receipt by private respondent of the five
checks could not amount to perfection of the contract because private respondent never
SLU SOL 1-C Page
435
encashed and benefited from those checks, they represented the deposit under the new
contract because petitioner failed to prove that those were monthly installments that
private respondent refused to accept. Thus, the fact that the parties tried to negotiate a
new Contract indicated that they considered the first contract as "already cancelled."
This decision was affirmed by the Court of Appeals.
Issue: Whether or not there was a tender of payment and consignation in the case.
Ruling: The parties' failure to agree on a fundamental provision of the contract was
aggravated by petitioner's failure to deposit the installments agreed upon. Neither did it
attempt to make a consignation of the installments. As held in the Adelfa Properties
case: "The mere sending of a letter by the vendee expressing the intention to pay,
without the accompanying payment, is not considered a valid tender of payment.
Besides, a mere tender of payment is not sufficient to compel private respondents to
deliver the property and execute the deed of absolute sale. It is consignation which is
essential in order to extinguish petitioner's obligation to pay the balance of the purchase
price. The rule is different in case of an option contract or in legal redemption or in a
sale with right to repurchase, wherein consignation is not necessary because these
cases involve an exercise of a right or privilege (to buy, redeem or repurchase) rather
than the discharge of an obligation, hence tender of payment would be sufficient to
preserve the right or privilege. This is because the provisions on consignation are not
applicable when there is no obligation to pay. A contract to sell, as in the case before us,
involves the performance of an obligation, not merely the exercise of a privilege or a
right. Consequently, performance or payment may be effected not by tender of payment
alone but by both tender and consignation." In the case, petitioner did not lift a finger
towards the performance of the contract other than the tender of down payment. There
is no record that it even bothered to tender payment of the installments or to amend the
contract to reflect the true intention of the parties as regards the number of lots to be
sold. Indeed, by petitioner's inaction, private respondent may not be judicially enjoined
to validate a contract that the former appeared to have taken for granted. As in the
earlier agreements, petitioner ignored opportunities to resuscitate a contract to sell that
were rendered moribund and inoperative by its inaction. Petition denied. Decision
affirmed.
SLU SOL 1-C Page
436
Eternal Gardens v. CA, 9 December 1997
ETERNAL GARDENS MEMORIAL PARK CORPORATION, petitioner,

vs.
COURT OF APPEALS and NORTH PHILIPPINE UNION MISSION OF THE SEVENTH
DAY ADVENTIST, respondents.
G.R. No. 124554 December 9, 1997
Facts: EGMPC and NPUM entered into a land development agreement. Under the
agreement, EGMPC was to develop a parcel of land owned by NPUM into a memorial
park subdivided into lots. The parties further agreed that EGMPC had the obligation to
remit monthly to NPUM 40% of its net gross collection from the development of a
memorial park on property owned by NPUM. It also provided for the designation of a
bank to act as the depository/trustee for all funds collected by EGMPC.
Later, 2 claimants of the parcel of land surfaced, Maysilo Estate and the heirs of Vicente
Singson Encarnacion. EGMPC filed an action for interpleader against Maysilo Estate
and NPUM. The Singson heirs in turn filed an action for quieting of title against EGMPC
and NPUM.
From these 2 cases, several proceedings ensued. From the interpleader action,
EGMPC assailed the appellate court's resolution requiring Eternal Gardens to deposit
whatever amounts are due from it under the land development agreement with a
reputable bank to be designated by the respondent court.
The trial court dismissed the cases. The appellate court affirmed insofar as it dismissed
the claims of the intervenors. The titles of NPUM to the subject parcel of land were
declared valid. The trial court's decision in favor of the Singson heirs was reversed and
set aside. The CA proceeded with the disposition of the case and required the parties to
appear at a scheduled hearing to determine the remaining accrued rights and liabilities
of the parties.
The accounting of the parties' obligations was referred to the court's accountant to
whom the documents were to be submitted. NPUM prepared and submitted a summary
of sales and total amounts due. However, EGMPC did not submit any document. Thus,
the appellate court declared that EGMPC has waived its right to present the records and
documents necessarily for accounting.
The court's accountant submitted her report to which the appellate court required the
parties to comment on. EGMPC took exception to the appellate court's having
considered it to have waived its right to present documents. Considering EGMPC's
arguments, the court set a hearing where NPUM would present its documents
according to the Rules of Court and giving EGMPC the opportunity to object thereto.
SLU SOL 1-C Page
437
Issue: Whether or not EGMPC is liable for interest because there was still the
unresolved issue of ownership over the property subject of the land development
agreement.
Ruling: The SC held that the argument is without merit.
EGMPC, under the agreement, had the obligation to remit monthly to NPUM 40% of its
net gross collection from the development of a memorial park on property owned by
NPUM. It also provided for the designation of a bank to act as the depository/trustee for
all funds collected by EGMPC. There was no obstacle, legal or otherwise, to the
compliance by EGMPC of this provision in the contract, even on the affectation that it
did not know to whom payment was to be made. Even disregarding the agreement,
EGMPC cannot suspend payment on the pretext that it did not know who among the
subject property's claimants the rightful owner was. It had a remedy under the New Civil
Code to give in consignation the amounts due as these fell due.
Consignation produces the effect of payment. The rationale for consignation is to avoid
the performance of an obligation becoming more onerous to the debtor by reason of
causes not imputable to him. For its failure to consign the amounts due, EGMPCs
obligation to NPUM necessarily became more onerous as it became liable for interest
on the amounts it failed to remit. Thus, the CA correctly held EGMPC liable for interest
at 12%. The withholding of the amounts due under the agreement was tantamount to a
forbearance of money.
SLU SOL 1-C Page
438
Rayos v. Reyes, 398 S 24
SPS.TEOFILO and SIMEONA RAYOS, petitioners,

vs.
DONATO REYES, et al., respondents.
G.R. No. 150913 February 20, 2003
Facts: Three parcels were formerly owned by the spouses Francisco and Asuncion
Tazal who on 1 September 1957 sold them for P724.00 to respondents predecessor-in-
interest, one Mamerto Reyes, with right to repurchase within two (2) years from date
thereof by paying to the vendee the purchase price and all expenses incident to their
reconveyance. After the sale the vendee a retro took physical possession of the
properties and paid the taxes thereon. The otherwise inconsequential sale became
controversial when two (2) of the three (3) parcels were again sold on 24 December
1958 by Francisco Tazal for P420.00 in favor of petitioners predecessor-in-interest Blas
Rayos without first availing of his right to repurchase the properties.
Issue: Whether or not there was a valid consignation and tender of payment made in
the instant case.
Ruling: In order that consignation may be effective the debtor must show that (a) there
was a debt due; (b) the consignation of the obligation had been made because the
creditor to whom a valid tender of payment was made refused to accept it; (c) previous
notice of the consignation had been given to the person interested in the performance of
the obligation; (d) the amount due was placed at the disposal of the court; and, (e) after
the consignation had been made the person interested was notified thereof.
In the instant case, petitioners failed, first, to offer a valid and unconditional tender of
payment; second, to notify respondents of the intention to deposit the amount with the
court; and third, to show the acceptance by the creditor of the amount deposited as full
settlement of the obligation, or in the alternative, a declaration by the court of the validity
of the consignation.
The failure of petitioners to comply with any of these requirements rendered the
consignation ineffective. Consignation and tender of payment must not be encumbered
by conditions if they are to produce the intended result of fulfilling the obligation. In the
instant case, the tender of payment of P724.00 was conditional and void as it was
predicated upon the argument of Francisco Tazal that he was paying a debt which he
could do at any time allegedly because the 1 September 1957 transaction was a
contract of equitable mortgage and not a deed of sale with right to repurchase.
SLU SOL 1-C Page
439
Art. 1189 [2], Kinds of Loss/Impossibility: Physical, Civil, or
Legal
Occena v. CA, 29 October 1976
JESUS V. OCCENA and EFIGENIA C. OCCENA, petitioners,

vs.
HON. RAMON V. JABSON, Presiding Judge of the Court Of First Instance of Rizal,
Branch XXVI; COURT OF APPEALS and TROPICAL HOMES, INC., respondents.
G.R. No. L-44349 October 29, 1976
Facts: On February 25, 1975 private respondent Tropical Homes, Inc. filed a complaint
for modification of the terms and conditions of its subdivision contract with petitioners
(landowners of a 55,330 square meter parcel of land in Davao City). Under the
subdivision contract, respondent "guaranteed (petitioners as landowners) as the latter's
fixed and sole share and participation an amount equivalent to forty (40%) percent of all
cash receipts from the sale of the subdivision lots".
Respondent pray of the Rizal court of first instance that "after due trial, this Honorable
Court render judgment modifying the terms and conditions of the contract ... by fixing
the proper shares that should pertain to the herein parties out of the gross proceeds
from the sales of subdivided lots of subjects subdivision".
Petitioners moved to dismiss the complaint principally for lack of cause of action, and
upon denial thereof and of reconsideration by the lower court elevated the matter on
certiorari to respondent Court of Appeals.
Respondent court in its questioned resolution of June 28, 1976 set aside the preliminary
injunction previously issued by it and dismissed petition. Hence, the petition at bar.
Issue: Whether or not the worldwide increase in prices cited by respondent constitute a
sufficient cause of action for modification of the subdivision contract.
Ruling: No. The Civil Code authorizes the release of an obligor when the service has
become so difficult as to be manifestly beyond the contemplation of the parties but does
not authorize the courts to modify or revise the subdivision contract between the parties
or fix a different sharing ratio from that contractually stipulated with the force of law
between the parties. Private respondent's complaint for modification of the contract
manifestly has no basis in law and must therefore be dismissed for failure to state a
cause of action.
SLU SOL 1-C Page
440
Ortigas v. Feati Bank, 94 S 533
ORTIGAS & CO., LIMITED PARTNERSHIP, petitioner,

vs.
FEATI BANK AND TRUST CO., respondents.
G.R. No. L-24670 December 14, 1979
Facts: Ortigas & Co., Limited Partnership engaged in real estate business developing
and selling lots to the public particularly Highway Hills subdivision along EDSA. On
March 4, 1952 Augusto Padilla y Angeles and Natividad Angeles entered into separate
agreements of sale on installments over Lots 5 and 6 Block 31, Highway Hill. That on
July 19, 1962 Augusto and Natividad transferred their rights and interests in favor of
Emma Chavez. The Transfer contained the following restrictions and stipulations: For
residential purposes only, All buildings and improvements (except fences) should use
strong building material, have modern sanitary installations connected to the public
sewer or own septic tank and shall not be more than 2 meters from the boundary lines,
Resolution 27 Feb 4, 1960 reclassified the western part of EDSA (Shaw boulevard
to Pasig River) as a commercial and industrial zone. Such restrictions were annotated
on the TCTs. On July 23, 1962 - Feati bank bought Lot 5 from Emma Chavez while lot 6
was purchased by Republic Flour Mills. That on May 5, 1963 Feati Bank began laying
foundation and construction of a building for banking purposes on lots 5 and 6. Ortigas
& Co. Demanded that they comply with the annotated restrictions. Feati Bank refused
arguing that it was following the zoning regulations. Ortigas & Co. filed a case in the
lower courts which held that Resolution No. 27 was a valid exercise of police power of
the municipality hence the zoning is binding and takes precedence over the annotations
in the TCTs because private interest should bow down to general interest and welfare.
On March 2, 1965 motion for reconsideration by Ortigas & Co. which was denied on
March 26, 1965. That on April 2, 1965 Ortigas filed notice of appeal which was given
due course on April 14, 1965 hence this case.
Issue: Whether or not Resolution No. 27 can nullify or supersede contractual

obligations by Feati Bank and Trust Co.
Ruling: Yes, it can nullify contractual obligations by Feati with Ortigas & Co. The validity
of the resolution was never assailed in the lower courts and can therefore not be raised
for the first time on appeal. The rule against flip flopping issues and arguments prevents
deception in courts. Ortigas & Co. also did not dispute the factual findings of the lower
court on the validity of the resolution. Assuming arguendo it was properly raised the
resolution is still valid. RA 2264 (Local Autonomy Act) Sec 3 empowers municipalities to
adopt zoning and subdivision ordinances or regulations for the municipality. The
resolution is regulatory measure! RA 2264 Sec 12 any fair and reasonable doubt as to
the existence of the power should be interpreted in favor of the local government and it
shall be presumed to exist this gives more power to LGUs to promote general welfare,
economic conditions, social welfare and material progress in their locality. The non-
SLU SOL 1-C Page
441
impairment clause of contracts is not absolute since it must be reconciled with the
legitimate exercise of police power.
SLU SOL 1-C Page
442
Art. 1267, Rebus Sic Stantibus
So v. Food Fest Land, Inc. 7 April 2010
DANIEL T. SO, petitioner,

vs.
FOOD FEST LAND, INC. respondent.
G.R. No. 183628 April 7, 2010
Facts: Food Fest Land Inc. (Food Fest) entered into a September 14, 1999 Contract of
Lease1 with Daniel T. So (So) over a commercial space in San Antonio Village, Makati
City for a period of three years (1999-2002) on which Food Fest intended to operate a
Kentucky Fried Chicken carry out branch.
Before forging the lease contract, the parties entered into a preliminary agreement
dated July 1, 1999, the pertinent portion of which states that the lease shall not become
binding upon us unless and until the government agencies concerned shall authorize,
permit or license us to open and maintain our business at the proposed Lease
Premises.
While Food Fest was able to secure the necessary licenses and permits for the year
1999, it failed to commence business operations. For the year 2000, Food Fests
application for renewal of barangay business clearance was "held in abeyance until
further study of [its] kitchen facilities."
As the barangay business clearance is a prerequisite to the processing of other permits,

licenses and authority by the city government, Food Fest was unable to operate.
Fearing further business losses, Food Fest, by its claim, communicated its intent to
terminate the lease contract to So who, however, did not accede and instead offered to
help Food Fest secure authorization from the barangay.
On April 26, 2001, So filed a complaint for ejectment and damages against Food Fest
before the Metropolitan Trial Court (MeTC) of Makati City.
The MeTC, by Decision of July 4, 2005,7 rendered judgment in favor of So.The

Regional Trial Court (RTC), by Decision of November 30, 2006,9 reversed the MeTC
Decision.
Court of Appeals however, declared that Food Fests obligation to pay rent was not
extinguished upon its failure to secure permits to operate.
Issue: Whether or not the Principle of rebus sic stantibus is applicable to the instant
case.
SLU SOL 1-C Page
443
Ruling: No. As for Food Fests invocation of the principle of rebus sic stantibus as
enunciated in Article 1267 of the Civil Code to render the lease contract functus officio,
and consequently release it from responsibility to pay rentals, the Court is not
persuaded.
This article, which enunciates the doctrine of unforeseen events, is not, however, an
absolute application of the principle of rebus sic stantibus, which would endanger the
security of contractual relations. The parties to the contract must be presumed to have
assumed the risks of unfavorable developments. It is, therefore, only in absolutely
exceptional changes of circumstances that equity demands assistance for the debtor.
Food Fest was able to secure the permits, licenses and authority to operate when the
lease contract was executed. Its failure to renew these permits, licenses and authority
for the succeeding year, does not, however, suffice to declare the lease functus officio,
nor can it be construed as an unforeseen event to warrant the application of Article
1267.
SLU SOL 1-C Page
444
Magat v. CA, 337 S 298
VICTORINO MAGAT, JR. substituted by heirs, OLIVIA D. MAGAT, and minors MA.
DULCE MAGAT, MA. MAGNOLIA MAGAT, RONALD MAGAT and DENNIS MAGAT,
petitioners,
vs.
COURT OF APPEALS and SANTIAGO A. GUERRERO, respondents.
G.R. No. 124221 August 4, 2000
Facts: Private respondent Santiago A. Guerrero (hereinafter referred to as "Guerrero")

was President and Chairman of "Guerrero Transport Services", a single proprietorship.
Sometime in 1972, Guerrero Transport Services won a bid for the operation of a fleet of
taxicabs within the Subic Naval Base, in Olongapo. As highest bidder, Guerrero was to
"provide radio-controlled taxi service within the U. S. Naval Base, Subic Bay, utilizing as
demand requires... 160 operational taxis consisting of four wheel, four-door, four
passenger, radio controlled, meter controlled, sedans, not more than one year. On
September 22, 1972, with the advent of martial law, President Ferdinand E. Marcos
issued Letter of Instruction No. 1. SEIZURE AND CONTROL OF ALL PRIVATELY
OWNED NEWSPAPERS, MAGAZINES, RADIO AND TELEVISION FACILITIES AND
ALL OTHER MEDIA OF COMMUNICATION.
Issue: Whether or not the contract between Victorino and Guerrero for the purchase of
radio transceivers was void.
Ruling: The contract was not void ab initio. Nowhere in the LOI and Admin. Circular is
there an express ban on the importation of transceivers. The LOI and Administrative
Circular did not render "radios and transceivers" illegal per se. The Administrative
Circular merely ordered the Radio Control Office to suspend the "acceptance and
processing .... of applications... for permits to possess, own, transfer, purchase and sell
radio transmitters and transceivers..." Therefore, possession and importation of the
radio transmitters and transceivers was legal provided one had the necessary license
for it. Transceivers were not prohibited but merely regulated goods. The LOI and
Administrative Circular did not render the transceivers outside the commerce of man.
They were valid objects of the contract.
SLU SOL 1-C Page
445
PNCC v. CA, 272 S 183
PHILIPPINE NATIONAL CONSTRUCTION CORPORATION, petitioner,

vs.
COURT OF APPEALS, MA. TERESA S. RAYMUNDO-ABARRA, JOSE S.
RAYMUNDO, ANTONIO S. RAYMUNDO, RENE S. RAYMUNDO, and AMADOR S.
RAYMUNDO, respondents.
G.R. No. 116896 May 5, 1997
Facts: On 7 January 1986, petitioner obtained from the Ministry of Human Settlements
a Temporary Use Permit 2 for the proposed rock crushing project. The permit was to be
valid for two years unless sooner revoked by the Ministry. On 16 January 1986, private
respondents wrote petitioner requesting payment of the first annual rental in the amount
of P240,000 which was due and payable upon the execution of the contract. They also
assured the latter that they had already stopped considering the proposals of other
aggregates plants to lease the property because of the existing contract with petitioner.
In its reply-letter, petitioner argued that under paragraph 1 of the lease contract,
payment of rental would commence on the date of the issuance of an industrial
clearance by the Ministry of Human Settlements, and not from the date of signing of the
contract. It then expressed its intention to terminate the contract, as it had decided to
cancel or discontinue with the rock crushing project "due to financial, as well as
technical, difficulties." Private respondents refused to accede to petitioner's request for
the pretermination of the lease contract. They insisted on the performance of petitioner's
obligation and reiterated their demand for the payment of the first annual rental.
Issue: Whether or not the provisions of Article 1266 and the principle of rebus sic
stantibus is applicable in the case at bar.
Ruling: Article 1266 of the Civil Code, which reads: "The debtor in obligations to do
shall also be released when the prestation becomes legally or physically impossible
without the fault of the obligor." Petitioner cannot, however, successfully take refuge in
the said article, since it is applicable only to obligations "to do," and not to obligations "to
give." An obligation "to do" includes all kinds of work or service; while an obligation "to
give" is a prestation which consists in the delivery of a movable or an immovable thing
in order to create a real right, or for the use of the recipient, or for its simple possession,
or in order to return it to its owner. The obligation to pay rentals or deliver the thing in a
contract of lease falls within the prestation "to give"; hence, it is not covered within the
scope of Article 1266. At any rate, the unforeseen event and causes mentioned by
petitioner are not the legal or physical impossibilities contemplated in the said article.
Besides, petitioner failed to state specifically the circumstances brought about by "the
abrupt change in the political climate in the country" except the alleged prevailing
uncertainties in government policies on infrastructure projects. The principle of rebus sic
stantibus neither fits in with the facts of the case. 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.
SLU SOL 1-C Page
446
NATELCO v. CA, 230 S 351
NAGA TELEPHONE CO., INC. (NATELCO) AND LUCIANO M. MAGGAY, petitioners,

vs.
THE COURT OF APPEALS AND CAMARINES SUR II ELECTRIC COOPERATIVE,
INC. (CASURECO II), respondents.
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 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. On
November 1, 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 (10)
telephone connections for the use by private respondent. After the contract had been
enforced for over ten (10) years, private respondent filed with the Regional Trial Court
against petitioners for reformation of the contract with damages, on the ground that it is
too one-sided in favor of petitioners; that it is not in conformity with the guidelines of the
National Electrification Administration (NEA); that after eleven (11) years of petitioners'
use of the posts, the telephone cables strung by them thereon have become much
heavier with the increase in the volume of their subscribers; that a post now costs as
much as P2,630.00; so that justice and equity demand that the contract be reformed to
abolish the inequities thereon. As second cause of action, private respondent alleged
that starting with the year 1981, petitioners have used 319 posts outside Naga City,
without any contract with it; that at the rate of P10.00 per post, petitioners should pay
private respondent for the use thereof the total amount of P267,960.00 from 1981 up to
the filing of its complaint; and that petitioners had refused to pay private respondent said
amount despite demands. And as third cause of action, private respondent complained
about the poor servicing by petitioners. The trial court ruled, as regards private
respondents first cause of action, that the contract should be reformed by ordering
petitioners to pay private respondent compensation for the use of their posts in Naga
City, while private respondent should also be ordered to pay the monthly bills for the use
of the telephones also in Naga City. And taking into consideration the guidelines of the
NEA on the rental of posts by telephone companies and the increase in the costs of
such posts, the trial court opined that a monthly rental of P10.00 for each post of private
respondent used by petitioners is reasonable, which rental it should pay from the filing
of the complaint in this case on January 2, 1989. And in like manner, private respondent
should pay petitioners from the same date its monthly bills for the use and transfers of
its telephones in Naga City at the same rate that the public are paying. On private
respondent's second cause of action, the trial court found that the contract does not
mention anything about the use by petitioners of private respondent's posts outside
Naga City. Therefore, the trial court held that for reason of equity, the contract should be
reformed by including therein the provision that for the use of private respondent's posts
outside Naga City, petitioners should pay a monthly rental of P10.00 per post, the
SLU SOL 1-C Page

447
payment to start on the date this case was filed, or on January 2, 1989, and private
respondent should also pay petitioners the monthly dues on its telephone connections
located outside Naga City beginning January, 1989. And with respect to private
respondent's third cause of action, the trial court found the claim not sufficiently proved.
The Court of Appeals affirmed the decision of the trial court, but based on different
grounds to wit: (1) that Article 1267 of the New Civil Code is applicable and (2) that the
contract was subject to a potestative condition which rendered said condition void.
Issue: Whether or not the principle of Rebus Sic Stantibus is applicable in the case at
bar.
Ruling: No. Article 1267 speaks of "service" which has become so difficult. Taking into
consideration the rationale behind this provision, the term "service" should be
understood as referring to the "performance" of the obligation.
In the present case, the obligation of private respondent consists in allowing petitioners
to use its posts in Naga City, which is the service contemplated in said article.
Furthermore, a bare reading of this article reveals that it is not a requirement thereunder
that the contract be for future service with future unusual change. According to Senator
Arturo M. Tolentino, Article 1267 states in our law the doctrine of unforseen events. This
is said to be 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. The
allegations in private respondent's complaint and the evidence it has presented
sufficiently made out a cause of action under Article 1267. The Court, therefore, release
the parties from their correlative obligations under the contract. However, the disposition
of the present controversy does not end here. The Court has to take into account the
possible consequences of merely releasing the parties therefrom: petitioners will
remove the telephone wires/cables in the posts of private respondent, resulting in
disruption of their essential service to the public; while private respondent, in
consonance with the contract will return all the telephone units to petitioners, causing
prejudice to its business. The Court shall not allow such eventuality. Rather, the Court
requires, as ordered by the trial court: 1) petitioners to pay private respondent for the
use of its posts in Naga City and in the towns of Milaor, Canaman, Magarao and Pili,
Camarines Sur and in other places where petitioners use private respondent's posts,
the sum of ten (P10.00) pesos per post, per month, beginning January, 1989; and
2)private respondent to pay petitioner the monthly dues of all its telephones at the same
rate being paid by the public beginning January, 1989. The peculiar circumstances of
the present case, as distinguished further from the Occea case, necessitates exercise
of a equity jurisdiction. By way of emphasis, the Court reiterates the rationalization of
respondent court that: "In affirming said ruling, we are not making a new contract for the
parties herein, but we find it necessary to do so in order not to disrupt the basic and
essential services being rendered by both parties herein to the public and to avoid
unjust enrichment by appellant at the expense of plaintiff."
SLU SOL 1-C Page

448
Arts. 1270-1274, Condonation/Remission of the Debt
Meaning and Nature

Reyna v. COA, 8 February 2011
RUBEN REYNA and LLOYD SORIA, petitioners,

vs.
COMMISSION ON AUDIT, respondent.
G.R. No. 167219 February 8, 2011
Facts: The Land Bank of the Philippines (Land Bank) was engaged in a cattle-financing
program wherein loans were granted to various cooperatives. Pursuant thereto, Land
Bank's Ipil, Zamboanga del Sur Branch (Ipil Branch) went into a massive information
campaign offering the program to cooperatives. Cooperatives who wish to avail of a
loan under the program must fill up a Credit Facility Proposal (CFP) which will be
reviewed by the Ipil Branch. The Ipil Branch approved the applications of four
cooperatives. One of the conditions stipulated in the CFP is that prior to the release of
the loan, a Memorandum of Agreement (MOA) between the supplier of the cattle,
Remad Livestock Corporation (REMAD), and the cooperative, shall have been signed.
As alleged by petitioners, the terms of the CFP allowed for pre-payments or
advancement of the payments prior to the delivery of the cattle by the supplier REMAD
but such was not stipulated in the contracts.
Three checks were issued by the Ipil Branch to REMAD to serve as advanced payment
for the cattle. REMAD, however, failed to supply the cattle on the dates agreed upon. In
post audit, the Land Bank Auditor disallowed the amount of P3,115,000.00 under CSB
No. 95-005 dated December 27, 1996 and Notices of Disallowance Nos. 96-014 to 96-
019 in view of the non-delivery of the cattle. Also made as the basis of the disallowance
was the fact that advanced payment was made in violation of bank policies and COA
rules and regulations. Petitioners were made liable for the amount.
Issue: Whether or not the writing off of a loan is considered as condonation.
Ruling: This Court rules that writing-off a loan does not equate to a condonation or
release of a debt by the creditor. As an accounting strategy, the use of write-off is a task
that can help a company maintain a more accurate inventory of the worth of its current
assets. In general banking practice, the write-off method is used when an account is
determined to be uncollectible and an uncollectible expense is recorded in the books of
account. If in the future, the debt appears to be collectible, as when the debtor becomes
solvent, then the books will be adjusted to reflect the amount to be collected as an
asset. In turn, income will be credited by the same amount of increase in the accounts
receivable. Write-off is not one of the legal grounds for extinguishing an obligation under
the Civil Code. It is not a compromise of liability. Neither is it a condonation, since in
condonation gratuity on the part of the obligee and acceptance by the obligor are
SLU SOL 1-C Page
449
required. In making the write-off, only the creditor takes action by removing the
uncollectible account from its books even without the approval or participation of the
debtor.
SLU SOL 1-C Page
450
Art. 1271, Requisites: Not Inofficious
Trans Pacific v. CA, 235 S 494
TRANS-PACIFIC INDUSTRIAL SUPPLIES, INC., petitioner,

vs.
The COURT OF APPEALS and ASSOCIATED BANK, respondents.
G.R. No. 109172 August 19, 1994
Facts: Sometime in 1979, petitioner applied for was granted several financial
accommodations amounting to P1,300,000.00 by respondent Associated Bank. The
loans were evidence and secured by four (4) promissory notes, a real estate mortgage
covering three parcels of land and a chattel mortgage over petitioners stock and
inventories. Unable to settle its obligation in full, petitioner requested for, and was
granted by respondent bank, a restructuring of the remaining indebtedness which the
amounted to P1,057,500.00, as all the previous payments made were applied to
penalties and interests.
The mortgaged parcels of land were substituted by another mortgage covering two
other parcels of land and a chattel mortgage on petitioners stock inventory. The
released parcels of land were then sold and the proceeds amounting to P1,386,614.20,
according to petitioner, were turned over to the bank and applied to Trans-Pacifics
returned loan. Subsequently, respondent bank returned the duplicate original copies of
the three promissory notes to Trans-Pacific with the word PAID stamped thereon.
Despite the return of the notes, or on December 12, 1985, Associated Bank demanded
from Trans-Pacific payment of the amount P492,100.00 representing accrued interest
on PB No. TL-9077-82. According to the bank, the promissory notes were erroneously
released.
Issue: Whether or not petitioner has indeed paid in full its obligation to respondent
bank.
Ruling: Art.1271. The delivery of private document evidencing a credit, made

voluntarily by the creditor to the debtor, implies the renunciation of the action which the
former had against the latter.
The surrender and return to plaintiffs of the promissory notes evidencing the
consolidated obligation as restricted, procedures a legal presumption that Associated
had thereby renounced its actionable claim against plaintiffs (Art. 1271, NCC). The
presumption is fortified by a showing that said promissory notes all bear the stamp
PAID and has not been otherwise overcome. Upon a clear perception that
Associateds record keeping has been less than exemplary. . . . a proffer of bank copies
of the promissory notes without the PAID stamps thereon does not impress the Court
as sufficient to overcome presumed remission of the obligation vis--vis the return of
said promissory notes. Indeed, applicable law is supportive of a finding that in interest
SLU SOL 1-C Page
451
bearing obligations-as is the case here, payment of principal (sic) shall not be deemed
to have been made until interests have been covered (Art. 1253, NCC). Conversely,
competent showing that the principal has been paid, militates against postured
entitlement to unpaid interests.
SLU SOL 1-C Page
452
Art. 1272, Presumption of Delivery
Dalupan v. Harden, 27 November 1951
FRANCISCO DALUPAN, petitioner,

vs.
FRED M. HARDEN, respondent.
G.R. No. L-3975 November 27, 1951
Facts: The case is an appeal taken from an order of the First Instance of Manila dated
May 19, 1950, setting aside the writs of execution and garnishment issued to the sheriff
of Manila commanding him to levy on two (2) checks, one for P9,028.50, and another
for P24,546.00, payable to Fred M. Harden which were then in possession of the
receiver appointed in case involving the liquidation of the conjugal partnership of the
spouses Fred M. Harden and Esperanza P. de Harden. On August 26, 1948, plaintiff
filed an action against the defendant for the collection of P113,837.17, with interest
thereon from the filing of the complaint, which represents fifty (50) per cent of the
reduction plaintiff was able to secure from the Collector of Internal Revenue in the
amount of unpaid taxes claimed to be due from the defendant. Defendant
acknowledged this claim and prayed that judgment be rendered accordingly. The
receiver in the liquidation of case No. R-59634 and the wife of the defendant,
Esperanza P. de Harden, filed an answer in intervention claiming that the amount
sought by the plaintiff was exorbitant and prayed that it be reduced to 10 per cent of the
rebate. By reason of the acquiescence of the defendant to the claim on one hand, and
the opposition of the receiver and of the wife on the other, an amicable settlement was
concluded by the plaintiff and the intervenor whereby it was agreed that the sum of
P22,767.43 be paid to the plaintiff from the funds under the control of the receiver "and
the balance of P91,069.74 shall be charged exclusively against the defendant Fred M.
Harden from whatever share he may still have in the conjugal partnership between him
and Esperanza P. de Harden after the final liquidation and partition thereof, without
pronouncement as to costs and interests."The court rendered judgment in accordance
with this stipulation. Almost one year thereafter, plaintiff filed a motion for the issuance
of a writ of execution to satisfy the balance of P91, 069.74, which was favorably acted
upon. At that time the receiver had in his possession two (2) checks payable to Fred M.
Harden amounting to P33,574.50, representing part of the proceeds of the sale of two
(2) lots belonging to the conjugal partnership which was ordered by the court upon the
joint petition of the spouses in order that they may have funds with which to defray their
living and other similar expenses. One-half of the proceeds was given to Mrs. Harden.
The sheriff attempted to garnish these two (2) checks acting upon the writ of execution
secured by the plaintiff, but the receivership court quashed the writ, stating however in
the order that it will be without prejudice to the right of Francisco Dalupan to attach
the money of the defendant Fred M. Harden, after the same has been delivered to the
latter. When said checks were delivered to the latter.
Issue: Whether or not the proffer made by the plaintiff to the defendant is binding.
SLU SOL 1-C Page
453
Ruling: Yes, the proffer made by the plaintiff to the defendant to the effect that in the
event you lose your case with your wife, Mrs. Esperanza P. de Harden, and that after
adjudication of the conjugal property what is left with you will not be sufficient for your
livelihood, I shall be pleased to write off as bad debt the balance of your account in the
sum of P42, 069.74. This proffer was contained in a letter sent by the plaintiff to the
defendant on March 23, 1949, which was accepted expressly by Fred M. Harden.
Harden regarded this proffer as a binding obligation and acted accordingly, and for
plaintiff to say now that proffer is but a mere gesture of generosity or an act of Christian
charity without any binding legal effect is unfair to say at least. This is an added
circumstance, which confirms the Courts view that the understanding between the
plaintiff and the defendant is really to defer payment of the balance of the claim until
after the final liquidation of the conjugal partnership.
SLU SOL 1-C Page

454
Lopez Vito v. Tambunting, 33 P 226
LEONIDES LOPEZ LISO, plaintiff-appellee,

vs.
MANUEL TAMBUNTING, defendant-appellant.
G.R. No. 9806 January 19, 1916
Facts: These proceedings were brought to recover from the defendant the sum of
P2,000, amount of the fees, which, according to the complaint, are owing for
professional medical services rendered by the plaintiff to a daughter of the defendant
from March 10 to July 15, 1913, which fees the defendant refused to pay,
notwithstanding the demands therefor made upon him by the plaintiff. The defendant
denied the allegations of the complaint, and furthermore alleged that the obligation
which the plaintiff endeavoured to compel him to fulfil was already extinguished.
The Court of First Instance of Manila, after hearing the evidence introduced by both
parties, rendered judgment on December 17, 1913, ordering the defendant to pay to the
plaintiff the sum of P700, without express finding as to costs. The defendant, after
entering a motion for a new trial, which was denied, appealed from said judgment and
forwarded to this court the proper bill of exceptions.
Issue: Whether or not the obligation alleged in the complaint has already been
extinguished.
Ruling: No, the Supreme Court ruled that the obligation has not been extinguished. The
receipt signed by the plaintiff, for P700, the amount of his fees he endeavoured to
collect from the defendant after he had finished rendering the services in question was
in the latter's possession, and this fact was alleged by him as proof that he had already
paid said fees to the plaintiff. The court, after hearing the testimony, reached the
conclusion that, notwithstanding that the defendant was in possession of the receipt, the
said P700 had not been paid to the plaintiff.
Number 8 of section 334 of the Code of Civil Procedure provides as a legal presumption
"that an obligation delivered up to the debtor has been paid." Article 1188 of the Civil
Code also provides that the voluntary surrender by a creditor to his debtor, of a private
instrument proving a credit, implies the renunciation of the right of action against the
debtor; and article 1189 prescribes that whenever the private instrument which
evidences the debt is in the possession of the debtor, it will be presumed that the
creditor delivered it of his own free will, unless the contrary is proven.
But the legal presumption established by the foregoing provisions of law cannot stand if
sufficient proof is adduced against it. In the case at bar the trial court correctly held that
there was sufficient evidence to the contrary, in view of the preponderance thereof in
favor of the plaintiff and of the circumstances connected with the defendant's
possession of said receipt. Furthermore, in order that such a presumption may be taken
SLU SOL 1-C Page
455
into account, it is necessary, as stated in the laws cited, that the evidence of the
obligation be delivered up to the debtor and that the delivery of the instrument proving
the credit be made voluntarily by the creditor to the debtor. In the present case, it cannot
be said that these circumstances concurred, inasmuch as when the plaintiff sent the
receipt to the defendant for the purpose of collecting his fee, it was not his intention that
that document should remain in the possession of the defendant if the latter did not
forthwith pay the amount specified therein.
By reason of the foregoing, the Court affirmed the judgment appealed from, with the
costs of this instance against the appellant.
SLU SOL 1-C Page
456
Art. 1275, Confusion or Merger of Rights: Meaning and
Definition
Estate of Mota v. Serra, 47 P 464
ESTATE OF THE DECEASED LAZARO MOTA, ET AL., plaintiffs-appellants,

vs.
VENANCIO CONCEPCION, ET AL., defendants.
SALVADOR SERRA, intervenor-appellee.
G.R. No. L-34581 March 31, 1932
Facts: On February 1, 1919, plaintiffs and defendant entered into a contract of

partnership, for the construction and exploitation of a railroad line from the "San Isidro"
and "Palma" centrals to the place known as "Nandong." The original capital stipulated
was P150, 000. It was covenanted that the parties should pay this amount in equal parts
and the plaintiffs were entrusted with the administration of the partnership. The agreed
capital of P150,000, however, did not prove sufficient, as the expenses up to May 15,
1920, had reached the amount of P226,092.92, presented by the administrator and
O.K.'d by the defendant. January 29, 1920, the defendant entered into a contract of sale
with Venancio Concepcion, Phil. C. Whitaker, and Eusebio R. de Luzuriaga, whereby he
sold to the latter the estate and central known as "Palma" with its running business, as
well as all the improvements, machineries and buildings, real and personal properties,
rights, choices in action and interests, including the sugar plantation of the harvest year
of 1920 to 1921, covering all the property of the vendor. This contract was executed
before a notary public of Iloilo. Before the delivery to the purchasers of the hacienda
thus sold, Eusebio R. de Luzuriaga renounced all his rights under the contract of
January 29, 1920, in favor of Messrs. Venancio Concepcion and Phil. C. Whitaker. This
gave rise to the fact that on July 17, 1920, Venancio Concepcion and Phil. C. Whitaker
and the herein defendant executed before Mr. Antonio Sanz, a notary public in and for
the City of Manila, another deed of absolute sale of the said "Palma" Estate for the
amount of P1,695,961.90, of which the vendor received at the time of executing the
deed the amount of P945,861.90, and the balance was payable by installments in the
form and manner stipulated in the contract. The purchasers guaranteed the unpaid
balance of the purchase price by a first and special mortgage in favor of the vendor
upon the hacienda and the central with all the improvements, buildings, machineries,
and appurtenances then existing on the said hacienda. Afterwards, on January 8, 1921,
Venancio Concepcion and Phil. C. Whitaker bought from the plaintiffs the one-half of the
railroad line pertaining to the latter, executing therefore the document. The price of this
sale was P237,722.15, excluding any amount which the defendant might be owing to
the plaintiffs. Of the purchase price, Venancio Concepcion and Phil. C. Whitaker paid
the sum of P47,544.43 only. In the Deed, the plaintiffs and Concepcion and Whitaker
agreed, among other things, that the partnership "Palma" and "San Isidro," formed by
the agreement of February 1, 1919, between Serra, Lazaro Mota, now deceased, and
Juan J. Vidaurrazaga for himself and in behalf of his brother, Felix and
DionisioVidaurrazaga, should be dissolved upon the execution of this contract, and that
the said partnership agreement should be totally cancelled and of no force and effect
SLU SOL 1-C Page
457
whatever. Since the defendant Salvador Serra failed to pay one-half of the amount
expended by the plaintiffs upon the construction of the railroad line, that is,
P113,046.46, as well as Phil. C. Whitaker and Venancio Concepcion, the plaintiffs
instituted the present action praying: 1) that the deed of February 1, 1919, be declared
valid and binding; 2) that after the execution of the said document the defendant
improved economically so as to be able to pay the plaintiffs the amount owed, but that
he refused to pay either in part or in whole the said amount notwithstanding the several
demands made on him for the purpose; and 3) that the defendant be sentenced to pay
plaintiffs the aforesaid sum of P113, 046.46, with the stipulated interest at 10 per cent
per annum beginning June 4, 1920, until full payment thereof, with the costs of the
present action. Defendant set up three special defenses: 1) the novation of the contract
by the substitution of the debtor with the conformity of the creditors; 2) the confusion of
the rights of the creditor and debtor; and 3) the extinguishment of the contract.
The court a quo in its decision held that there was a novation of the contract by the
substitution of the debtor, and therefore absolved the defendant from the complaint with
costs against the plaintiffs. With regard to the prayer that the said contract be declared
valid and binding, the court held that there was no way of reviving the contract which the
parties themselves in interest had spontaneously and voluntarily extinguished.
Issues:
1. Whether or not there was a novation of the contract by the substitution of the debtor
with the consent of the creditor, as required by Article 1205 of the Civil Code.
2. Whether or not there was a merger of rights of debtor and creditor under Article 1192
of the Civil Code.
Ruling:
1. No, there was no novation of the contract. It should be noted that in order to give
novation its legal effect, the law requires that the creditor should consent to the
substitution of a new debtor. This consent must be given expressly for the reason that,
since novation extinguishes the personality of the first debtor who is to be substituted by
new one, it implies on the part of the creditor a waiver of the right that he had before the
novation which waiver must be express under the principle that renuntiatio non
praesumitur, recognized by the law in declaring that a waiver of right may not be
performed unless the will to waive is indisputably shown by him who holds the right. The
fact that Phil. C. Whitaker and Venancio Concepcion were willing to assume the
defendant's obligation to the plaintiffs is of no avail, if the latter have not expressly
consented to the substitution of the first debtor. As has been said, in all contracts of
novation consisting in the change of the debtor, the consent of the creditor is
indispensable, pursuant to Article 1205 of the Civil Code which reads as follows:
Novation which consists in the substitution of a new debtor in the place of the original
one may be made without the knowledge of the latter, but not without the consent of the
creditor.
2. NO, there was no merger of Rights. Another defense urged by the defendant is the
merger of the rights of debtor and creditor, whereby under Article 1192 of the Civil
SLU SOL 1-C Page
458
Code, the obligation, the fulfillment of which is demanded in the complaint, became
extinguished. It is maintained in appellee's brief that the debt of the defendant was
transferred to Phil. C. Whitaker and Venancio Concepcion by the document. These in
turn acquired the credit of the plaintiffs by virtue of the debt; thus, the rights of the
debtor and creditor were merged in one person. The argument would at first seem to be
incontrovertible, but if we bear in mind that the rights and titles which the plaintiffs sold
to Phil. C. Whitaker and Venancio Concepcion refer only to one-half of the railroad line
in question, it will be seen that the credit which they had against the defendant for the
amount of one-half of the cost of construction of the said line was not included in the
sale. That the plaintiffs sold their rights and titles over one-half of the line. The
purchasers, Phil. C. Whitaker and Venancio Concepcion, to secure the payment of the
price, executed a mortgage in favor of the plaintiffs on the same rights and titles that
they had bought and also upon what they had purchased from Mr. Salvador Serra. In
other words, Phil. C. Whitaker and Venancio Concepcion mortgaged unto the plaintiffs
what they had bought from the plaintiffs and also what they had bought from Salvador
Serra. If Messrs. Phil. C. Whitaker and Venancio Concepcion had purchased something
from Mr. Salvador Serra, the herein defendant, regarding the railroad line, it was
undoubtedly the one-half thereof pertaining to Mr. Salvador Serra. This clearly shows
that the rights and titles transferred by the plaintiffs to Phil. C. Whitaker and Venancio
Concepcion were only those they had over the other half of the railroad line. Therefore,
as already stated, since there was no novation of the contract between the plaintiffs and
the defendant, as regards the obligation of the latter to pay the former one-half of the
cost of the construction of the said railroad line, and since the plaintiffs did not include in
the sale, the credit that they had against the defendant, the allegation that the obligation
of the defendant became extinguished by the merger of the rights of creditor and debtor
by the purchase of Messrs. Phil. C. Whitaker and Venancio Concepcion is wholly
untenable.
SLU SOL 1-C Page
459
Yek Tong Lin v. Yusingco, 64 P 1062
THE YEK TONG FIRE and MARINE INSURANCE CO., LTD., plaintiff-appellant,
vs.
PELAGIO YUSINGCO, ET AL., defendants.
VICENTE MADRIGAL, appellant.
G.R. No. L-43608 July 20, 1937
Facts: Pelagio Yusingco, owner of the steamship Yusingco, executed a power of

attorney in favor of Yu Seguioc to administer, lease, mortgage, and sell his properties.
Yu Seguioc mortgaged to Yek Tong Lin Fire & Marine Insurance Co., Ltd. the steamship
Yusingco.
A year later, the steamship Yusingco needed some repairs which were made by the
Earnshaw Docks & Honolulu Iron Works upon petition of A. Yusingco Hermanos, co-
owner of Pelagio. The repairs were made upon the guaranty of Vicente Madrigal at P8K.
When neither Hermanos nor Pelagio could pay, Madrigal had to make payment. When
Madrigal discovered that he was not to be reimbursed, he brought an action against his
Pelagio and Hermanos to compel them to reimburse him. The CFI ordered them to pay
Madrigal P3K.
Upon failure of the Yusingcos to pay Madrigal, a writ of execution was issued in order to
sell the steamship Yusingco at public auction. The ship was purchased by Yek Tong Lin
having made the highest bid of P12K. The sheriff turned over P10K to Madrigal.
Issue: Whether or not there was merger of rights.
Ruling: After the steamship Yusingco had been sold, the only right left to Yek Tong Lin
was to collect its mortgage credit from the purchaser. But it cannot take such steps
because it was the purchaser, and it was so with full knowledge that it had a mortgage
credit on the vessel. Obligations are extinguished by the merger of the rights of the
creditor and debtor.
The SC ordered Madrigal to turn over to Yek Tong Lin the money paid to him by the
sheriff from the proceeds of the sale of the steamship Yusingco.
SLU SOL 1-C Page

460
Art. 1279, Compensation: Requisites
EGV Realty v. CA, 20 July 1999
E.G.V. REALTY DEVELOPMENT CORPORATION and CRISTINA CONDOMINIUM

CORPORATION, petitioners,
vs.
COURT OF APPEALS and UNISPHERE INTERNATIONAL, INC., respondents.
G.R. No. 120236 July 20, 1999
Facts: Petitioner E.G.V. Realty Development Corporation is the owner/developer of a

seven-storey condominium building known as Cristina Condominium. Cristina
Condominium Corporation holds title to all common areas of Cristina Condominium and
is in charge of managing, maintaining and administering the condominiums common
areas and providing for the buildings security.
Respondent Unisphere International, Inc. (hereinafter referred to as Unisphere) is the

owner/occupant of Unit 301 of said condominium. On November 28, 1981, respondent
Unispheres Unit 301 was allegedly robbed of various items valued at P6,165.00. The
incident was reported to petitioner CCC. On July 25, 1982, another robbery allegedly
occurred at Unit 301 where the items carted away were valued at P6,130.00, bringing
the total value of items lost to P12,295.00. This incident was likewise reported to
petitioner CCC.
On October 5, 1982, respondent Unisphere demanded compensation and

reimbursement from petitioner CCC for the losses incurred as a result of the robbery.
On January 28, 1987, petitioners E.G.V. Realty and CCC jointly filed a petition with the
Securities and Exchange Commission (SEC) for the collection of the unpaid monthly
dues in the amount of P13,142.67 against respondent Unisphere.
Issue: Whether or not set-off or compensation has taken place in the instant case.
Ruling: Compensation or offset under the New Civil Code takes place only when two
persons or entities in their own rights, are creditors and debtors of each other. (Art.
1278). A distinction must be made between a debt and a mere claim. A debt is an
amount actually ascertained. It is a claim which has been formally passed upon by the
courts or quasi-judicial bodies to which it can in law be submitted and has been
declared to be a debt.
A claim, on the other hand, is a debt in embryo. It is mere evidence of a debt and must
pass thru the process prescribed by law before it develops into what is properly called a
debt. Absent, however, any such categorical admission by an obligor or final
adjudication, no compensation or off-set can take place. Unless admitted by a debtor
himself, the conclusion that he is in truth indebted to another cannot be definitely and
finally pronounced, no matter how convinced he may be from the examination of the
SLU SOL 1-C Page
461
pertinent records of the validity of that conclusion the indebtedness must be one that is
admitted by the alleged debtor or pronounced by final judgment of a competent court or
in this case by the Commission. There can be no doubt that Unisphere is indebted to
the Corporation for its unpaid monthly dues in the amount of P13,142.67. This is
admitted.
SLU SOL 1-C Page
462
Aerospace Chemical v. CA, 23 September 1999
AEROSPACE CHEMICAL INDUSTRIES, INC., petitioner,

vs.
COURT OF APPEALS, PHILIPPINE PHOSPHATE FERTILIZER, CORP., respondents.
G.R. No. 108129 September 23, 1999
Facts: On June 27, 1986, petitioner Aerospace Industries, Inc. (Aerospace) purchased
five hundred (500) metric tons of sulfuric acid from private respondent Philippine
Phosphate Fertilizer Corporation (Philphos). Initially set beginning July 1986, the
agreement provided that the buyer shall pay its purchases in equivalent Philippine
currency value, five days prior to the shipment date. Petitioner as buyer committed to
secure the means of transport to pick-up the purchases from private respondent's
loadports. Per agreement, one hundred metric tons (100 MT) of sulfuric acid should be
taken from Basay, Negros Oriental storage tank, while the remaining four hundred
metric tons (400 MT) should be retrieved from Sangi, Cebu. On December 18, 1986,
M/T Sultan Kayumanggi docked at Sangi, Cebu, but withdrew only 157.51 MT of sulfuric
acid. Again, the vessel tilted. Further loading was aborted. Two survey reports
conducted by the Societe Generale de Surveillance (SGS) Far East Limited, dated
December 17, 1986 and January 2, 1987, attested to these occurrences. Later, on a
date not specified in the record, M/T Sultan Kayumanggi sank with a total of 227.51 MT
of sulfuric acid on board. Petitioner chartered another vessel, M/T Don Victor, with a
capacity of approximately 500 MT.6. On January 26 and March 20, 1987, Melecio
Hernandez, acting for the petitioner, addressed letters to private respondent, concerning
additional orders of sulfuric acid to replace its sunken purchases.
Issue: Whether or not expenses for the storage and preservation of the purchased
fungible goods, namely sulfuric acid, should be on seller's account pursuant to Article
Ruling: No. Petitioner tries to exempt itself from paying rental expenses and other
damages by arguing that expenses for the preservation of fungible goods must be
assumed by the seller. Rental expenses of storing sulfuric acid should be at private
respondent's account until ownership is transferred, according to petitioner. However,
the general rule that before delivery, the risk of loss is borne by the seller who is still the
owner, is not applicable in this case because petitioner had incurred delay in the
performance of its obligation. Article 1504 of the Civil Code clearly states: "Unless
otherwise agreed, the goods remain at the seller's risk until the ownership therein is
transferred to the buyer, but when the ownership therein is transferred to the buyer the
goods are at the buyer's risk whether actual delivery has been made or not, except that:
(2) Where actual delivery has been delayed through the fault of either the buyer or seller
the goods are at the risk of the party at fault."
The defendant [herein private respondent] was not remiss in reminding the plaintiff that
it would have to bear the said expenses for failure to lift the commodity for an
SLU SOL 1-C Page
463
unreasonable length of time. But even assuming that the plaintiff did not consent to be
so bound, the provisions of Civil Code come in to make it liable for the damages sought
by the defendant.
SLU SOL 1-C Page
464
Apodaca v. NLRC, 172 S 442
ERNESTO M. APODACA, petitioner,

vs.
NATIONAL LABOR RELATIONS COMMISSION, JOSE M. MIRASOL and INTRANS
PHILS., INC., respondents.
G.R. No. 80039 April 18, 1989
Facts: Petitioner was employed in respondent corporation. Respondent Jose M. Mirasol

persuaded petitioner to subscribe to 1,500 shares of respondent corporation at P100.00
per share or a total of P150,000.00. He made an initial payment of P37,500.00.
Petitioner was appointed President and General Manager of the respondent
corporation. However, he resigned. Petitioner instituted with the NLRC a complaint
against private respondents for the payment of his unpaid wages, his cost of living
allowance, the balance of his gasoline and representation expenses and his bonus
compensation. Private respondents admitted that there is due to petitioner the amount
of P17,060.07 but this was applied to the unpaid balance of his subscription in the
amount of P95,439.93. Petitioner questioned the set-off alleging that there was no call
or notice for the payment of the unpaid subscription and that, accordingly, the alleged
obligation is not enforceable. The labor arbiter ruled in favor of the petitioner. Then,
NLRC held that a stockholder who fails to pay his unpaid subscription on call becomes
a debtor of the corporation and that the set-off of said obligation against the wages and
others due to petitioner is not contrary to law, morals and public policy.
Issue: Whether or not the corporation can validly offset the unpaid shared in lieu of the
wages.
Ruling: No. The unpaid subscriptions are not due and payable until a call is made by
the corporation for payment. Private respondents have not presented a resolution of the
board of directors of respondent corporation calling for the payment of the unpaid
subscriptions. It does not even appear that a notice of such call has been sent to
petitioner by the respondent corporation. No doubt such set-off was without lawful basis,
if not premature. As there was no notice or call for the payment of unpaid subscriptions,
the same is not yet due and payable. Lastly, the NLRC has no jurisdiction to determine
such intra-corporate dispute between the stockholder and the corporation as in the
matter of unpaid subscriptions. This controversy is within the exclusive jurisdiction of the
Securities and Exchange Commission.
SLU SOL 1-C Page
465
Art. 1281, Total vs. Partial
Sps. Chung v. Ulanday Construction, 11 October 2010
SPOUSES VICTORIANO CHUNG and DEBBIE CHUNG, petitioners,

vs.
ULANDAY CONSTRUCTION, INC., respondent.
G.R. No. 156038 October 11, 2010
Facts: In 1985, the petitioners contracted with respondent Ulanday Construction, Inc. to
construct, within a 150-day period, the concrete structural shell of the formers two-
storey residential house in Urdaneta Village, Makati City at the contract price of
P3,291,142.00.
The Contract provided that: (a) the respondent shall supply all the necessary materials
and labor indispensable for the completion of the project; (b) the petitioners shall pay
down payment, with the balance to be paid in progress payments based on actual work
completed; (c) the Construction Manager or Architect shall check the respondents
request for progress payment (d) the petitioners shall pay the respondents within 7 days
from receipt of the
Construction Managers or Architects certificate; (e) the respondent cannot change or

alter the plans, specifications, and works without the petitioners prior written approval;
(f) a penalty shall be imposed for each day of delay in completion (g) the respondent
shall correct at its expense, defects appearing during the 12-month warranty period
after the petitioners issuance of final acceptance of work.
Subsequently, the parties agreed to exclude from the contract the roofing and flushing
work, reducing the contract price. The petitioners paid the downpayment with the
balance to be paid based on the progress billings. Actual construction started prior to
the issuance of the permit. The respondent notified the petitioners that the delay in the
payment of progress billings delays the accomplishment of the contract work and made
similar follow-up letters. Subsequently, the respondent demanded full payment for
progress billings and change orders. However, the petitioners denied liability, asserting
that the respondent violated the contract provisions by, among others, failing to finish
the contract within the 150-day stipulated period, failing to comply with the provisions on
change orders, and overstating its billings.
Issue: Whether or not the non-objection to the other change orders effected by the
respondent cannot give rise to estoppel in pais that would render the petitioners liable
for the payment of all change orders?
Ruling: In contractual relations, the law allows the parties leeway and considers their
agreement as the law between them. Contract stipulations that are not contrary to law,
morals, good customs, public order or public policy shall be binding and should be
SLU SOL 1-C Page
466
complied with in good faith. No party is permitted to change his mind or disavow and go
back upon his own acts, or to proceed contrary thereto, to the prejudice of the other
party. In the present case, we find that both parties failed to comply strictly with their
contractual stipulations on the progress billings and change orders that caused the
delays in the completion of the project. Estoppel in pais, or equitable estoppel, arises
when one, by his acts, representations or admissions or by his silence when he ought to
speak out, intentionally or through culpable negligence, induces another to believe
certain facts to exist and the other rightfully relies and acts on such beliefs so that he
will be prejudiced if the former is permitted to deny the existence of such facts. The real
office of the equitable norm of estoppel is limited to supplying deficiency in the law, but it
should not supplant positive law.
In this case, the requirement for the petitioners written consent to any change or
alteration in the specifications, plans and works is explicit in Article 1724 of the Civil
Code and is deemed written in the contract between the parties.
The contract also expressly provides that a mere act of tolerance does not constitute
approval. Thus, the petitioners did not, by accepting and paying for Change Orders, do
away with the contractual term on change orders nor with the application of Article 1724.
SLU SOL 1-C Page

467
Arts. 1280 and 1282, Legal Compensation: Requisites
Mondragon v. Sola, Jr., 21 January 2013
MONDRAGON PERSONAL SALES, INC., petitioner,

vs.
VICTORIANO S. SOLA, JR., respondent.
G.R. No. 174882 January 21, 2013
Facts: Mondragon Personal Sales, Inc, a company engaged in the business of selling
different consumer products through a network of sales representatives, entered into a
Contract of Services with Victoriano Sola, Jr. (Sola) for three years. In the contract, the
Sola shall provide facilities for a service fee. In accordance therewith, goods were
delivered by Sola to Mondragons bodega. Previously, Solas wife incurred obligation
with Mondragon arising from her Franchise Distributorship Agreement with the latter.
Sola wrote a letter to Mondragon's VP Finance wherein he acknowledged and
confirmed his wife's indebtedness in the amount of P1,973,154.73, and, together with
his wife, bound himself to pay on installment basis the said debt. Consequently, the
Mondragon withheld payment of the service fees and applied the partial payments to
the wifes debt. Sola eventually suspended the operation of his bodega where
Mondragons products were stored and customers were being dealt with. Sola filed with
the Regional Trial Court (RTC) a complaint for accounting and rescission alleging that
Mondragon withheld portions of his service fees covering the months from October
1994 to January 1995 and his whole service fees for the succeeding months of
February to April 1995, with a total amount of P222,202.84. The trial court ruled in favor
of Mondragon and said that none of the grounds to rescind a contract existed and there
was no showing that fraud was employed when it entered into a contract with Sola. The
Court of Appeals (CA) on the other hand granted the appeal and ordered the Contract of
Services be rescinded for the reason that Mondragon breached the contract by
withholding the service fees lawfully due Sola. It also ruled that the latter did not assume
his wifes obligation as he did not substitute himself in her shoes.
Issue: Whether or not the Court of Appeals erred in granting the appeal and ordered the
Contract of Services to be rescinded for the reason that Mondragon breached the
contract by withholding the service fees lawfully due Sola.
Ruling: Legal compensation: 1. Compensation is a mode of extinguishing to the

concurrent amount the obligations of persons who in their own right and as principals
are reciprocally debtors and creditors of each other. Legal compensation takes place by
operation of law when all the requisites are present, as opposed to conventional
compensation which takes place when the parties agree to compensate their mutual
obligations even in the absence of some requisites. 2. Legal Compensation requires the
concurrence of the following conditions: (a) That each one of the obligors be bound
principally, and that he be at the same time a principal creditor of the other (b) That both
debts consist in a sum of money, or if the things due are consumable, they be of the
SLU SOL 1-C Page
468
same kind, and also of the same quality if the latter has been stated (c) That the two
debts be due (d) That they be liquidated and demandable (e) That over neither of them
there be any retention or controversy, commenced by third persons and communicated
in due time to the debtor. 3. In this case, Mondragon and Sola are both principal
obligors and creditors of each other. Sola Jr. acknowledged and bound himself to pay
Mondragon the amount that his wife owes to the latter. This amount was already due,
while the service fees owing to him become due every month. Thus, Solas debts and
the service fees are liquidated and demandable debts. 4. As legal compensation took
place, there is no basis to ask for rescission since Sola Jr. was the first to breach their
contract for padlocking the bodega.
SLU SOL 1-C Page
469
Insular Investment v. Capital One, 25 April 2012
INSULAR INVESTMENT AND TRUST CORPORATION, petitioner,

vs.
CAPITAL ONE EQUITIES CORP. (now known as CAPITAL ONE HOLDINGS CORP.)
and PLANTERS DEVELOPMENT BANK, respondents.
G.R. No. 183308 April 25, 2012
Facts: Insular Investment and Trust Corporation (IITC) and Capital One Equities Corp.
(COEC) and Planters Development Bank (PDB) have been regularly engaged in
trading, sale and purchase of Philippine Treasury bills. On various dates, IITC had
purchased from COEC. IITC purchased from COEC treasury bills worth P 260, 683,
392.51 and was able to deliver only 121,050,000. On May 2, 1994, COEC purchased
from IITC P 186,790,000 worth of treasury bills.PDC issued confirmation on the sale in
favor of IITC. On May 10, 1994, COEC demanded a letter from IITC the physical
delivery of the securities last May 2, 1994. Then, on its May 18, 1994 letter to PDB, IITC
requested, on behalf of COEC, the delivery of IITC treasury bills, which had been fully
paid. On May 30, 1994, COEC protested the tenor of IITCs letter to PDB and took
exception to IITCs assertion that it merely acted as a facilitator with regard to the sale
of the treasury bills. IITC sent COEC a letter dated June 3, 1994, demanding that COEC
deliver to it (IITC) the P139,833,392.00 worth of treasury bills or return the full purchase
price. In either case, it also demanded that COEC (1) pay IITC the amount of
P1,729,069.50 representing business opportunity lost due to the non-delivery of the
treasury bills, and (2) deliver treasury bills worth P121,050,000 with the same maturity
dates originally purchased by IITC. COEC sent a letter-reply dated June 9, 1994 to IITC
in which it acknowledged its obligation to deliver the treasury bills worth
P139,833,392.00 which it sold to IITC and formally demanded the delivery of the
treasury bills worthP186,774,739.49 which it purchased from IITC.COEC also
demanded the payment of lost profits in the amount ofP3,253,250.00. Considering that
COEC and IITC both have claims against each other for the delivery of treasury bills,
COEC proposed that a legal set-off be effected, which would result in IITC owing COEC
the difference of P46,941,446.49. In its June 13, 1994 letter to COEC, IITC rejected the
suggestion for a legal setting-off of obligations, alleging that it merely acted as a
facilitator between PDB and COEC. Despite repeated demands, however, PDB failed to
deliver the balance of P136,790,000.00 worth of treasury bills which IITC purchased
from PDB allegedly for COEC. COEC was likewise unable to deliver the remaining IITC
T-Bills amounting to P119,633,392.00. Neither PDB nor COEC returned the purchase
price for the duly paid treasury bills. Thus COEC filed a complaint with the RTC which
found that COEC still has obligations to pay IITC P119,633,392.00 worth of treasury
bills. However, since IITC and COEC were both debtors and creditors of each other, the
RTC off-set their debts, resulting in a difference of P 17,056,608.00 in favor of COEC.
As to PDBs liability, it ruled that PDB had the obligation to pay P136,790,000.00 to
IITC. Thus, the trial court ordered (a) IITC to pay COEC P17,056,608.00 with interest at
the rate of 6% from June 10, 1994 until full payment and(b) PDB to pay IITC
P136,790,000.00 with interest at the rate of 6% from March 21, 1995 until full payment.
SLU SOL 1-C Page

470
The aggrieved parties appealed with the CA and affirmed the decision of the RTC and
absolved PDB from any liability because PDB was not involved with any of the
transactions.
Issues:
1. Whether or not COEC can set-off its obligation to IITC as against the latters
obligation to it.
2. Whether or not IITC acts as a conduit between COEC and PDB.
Ruling:
1. Yes, the Supreme Court ruled that the set-off compensation is allowed. As against
the contention of IITC, COEC had proven that IITC is a principal on its sale of the
treasury bills thus holding them liable for paying such. Therefore, both IITC and COEC
are principal creditors of the other over debts which consist of consumable things or a
sum of money, the RTC correctly ruled that COEC may validly set-off its claims for
undelivered treasury bills against that of IITCs claims. The court ruled the applicable
provisions of law are Articles 1278, 1279 and 1290 of the Civil Code of the Philippines.
In Article 1278 states that compensation shall take place when two persons, in their own
right, are creditors and debtors of each other. Also, in Article 1290, states that when all
the requisites mentioned in Article 1279 are present, compensation takes effect by
operation of law, and extinguishes both debts to the concurrent amount, even though
the creditors and debtors are not aware of the compensation. The requisites of a valid
compensation are present in the cases of the debts between IITC and COEC. As stated
in Article 1279 of the Civil Code of the Philippines, such requisites are (1)That each one
of the obligors be bound principally, and that he be at the same time a principal creditor
of the other; (2) That both debts consist in a sum of money, or if the things due are
consumable, they be of the same kind, and also of the same quality if the latter has
been stated;(3) That the two debts be due; (4) That they be liquidated and demandable;
and (5) That over neither of them there be any retention or controversy, commenced by
third persons and communicated in due time to the debtor. Therefore, both shall be
allowed to set-off their obligations with each other.
2. No, IITC did not act as a conduit in the transactions between IITC and PDB because
IITC acted as principal purchaser from PDB and principal seller to COEC, and not
simply as a conduit between PDB and COEC. Thus, the petition was partly granted, the
CAs decision was set aside and reinstate the modified decision of the RTC ruling in
favor of COEC. Also, PDB was also was found liable.
SLU SOL 1-C Page
471
Lao, et al. v. Special Plans, Inc., 29 June 2010
SELWYN F. LAO AND EDGAR MANANSALA, petitioners,

vs.
SPECIAL PLANS INC., respondent.
G.R. No. 164791 June 29, 2010
Facts: Petitioners Selwyn F. Lao and Edgar Manansala, together with Benjamin Jim,
entered into a Contract of Lease with respondent Special Plans, Inc. (SPI) for the period
January 16, 1993 to January 15, 1995 over SPIs building at No. 354 Quezon Avenue,
Quezon City. Petitioners intended to use the premises for their karaoke and restaurant
business known as "Saporro Restaurant". Upon expiration of the lease contract, it was
renewed for a period of eight months at a rental rate of P23,000.00 per month. On June
3, 1996, SPI sent a Demand Letter to the petitioners asking for full payment of rentals in
arrears. Receiving no payment, SPI filed on July 23, 1996 a Complaint for sum of
money with the Metropolitan Trial Court (MeTC) of Quezon City, claiming that Jim and
petitioners have accumulated unpaid rentals of P118,000.00 covering the period March
16, 1996 to August 16, 1996. Petitioners filed their Verified Answer faulting SPI for
making them believe that it owns the leased property. They likewise asserted that SPI
did not deliver the leased premises in a condition fit for petitioners intended use. Thus,
petitioners claimed that they were constrained to incur expenses for necessary repairs
as well as expenses for the repair of structural defects, which SPI failed and refused to
reimburse.
Issue: Whether or not the cost of repairs incurred by petitioners should be

compensated against the unpaid rentals.
Ruling: The petitioners attempted to prove that they spent for the repair of the roofing,
ceiling and flooring, as well as for waterproofing. However, they failed to appreciate that,
as per their lease contract, only structural repairs are for the account of the lessor,
herein respondent SPI. In which case, they overlooked the need to establish that
aforesaid repairs are structural in nature, in the context of their earlier agreement. It
would have been an altogether different matter if the lessor was informed of the said
structural repairs and he implicitly or expressly consented and agreed to take
responsibility for the said expenses. Such want of evidence on this respect is fatal to
this appeal. Consequently, their claim remains unliquidated and, legal compensation is
inapplicable.
SLU SOL 1-C Page
472
United Planters Sugar v. CA, 2 April 2009
UNITED PLANTERS SUGAR MILLING CO., INC. (UPSUMCO), petitioner,

vs.
THE HONORABLE COURT OF APPEALS, PHILIPPINE NATIONAL BANK (PNB) and
ASSET PRIVATIZATION TRUST (APT), AS TRUSTEE OF THE REPUBLIC OF THE
PHILIPPINES, respondents.
G.R. No. 126890 March 9, 2010
Facts: In 1974, petitioner, obtained "takeoff loans" from respondent PNB to finance the
construction of a sugar milling plant. The takeoff loans were secured by a real estate
mortgage over two parcels of land where the milling plant stood and chattel mortgages
over certain machineries and equipment. From 1984 to 1987, petitioner contracted
another set of loans, They were likewise secured by pledge contracts whereby
petitioner assigned to respondent PNB all its sugar produce for the latter to sell and
apply the proceeds to satisfy the indebtedness arising from the loans. Later, respondent
APT and petitioner agreed to an "uncontested" or "friendly foreclosure" of the
mortgaged assets, in exchange for petitioners waiver of its right of redemption. On July
28, 1987, respondent PNB and respondent APT filed a Petition for Extrajudicial
Foreclosure Sale with the Ex-Officio Regional Sheriff of Dumaguete City, seeking to
foreclose on the real estate and chattel mortgages which were executed to secure the
takeoff loans. On 27 February 1987, through a Deed of Transfer, PNB assigned to the
Government its "rights" titles and interests over UPSUMCO, among several other
assets. The Deed of Transfer acknowledged that said assignment was being
undertaken "in compliance with Presidential Proclamation No. 50." The Government
subsequently transferred these "rights" titles and interests" over UPSUMCO to
respondent Asset and Privatization Trust (APT).
Issue: Whether or not there was legal compensation.
Ruling: The right of respondent PNB to set-off payments from UPSUMCO arose from
conventional compensation rather than legal compensation, even if all the requisites for
legal compensation were present between those two parties. The determinative factor is
the mutual agreement between PNB and UPSUMCO to set-off payments. Even without
an express agreement stipulating compensation, PNB and UPSUMCO would have
been entitled to set-off of payments, as the legal requisites for compensation under
Article 1279 were present. As soon as PNB assigned its credit to APT, the mutual
creditor-debtor relation between PNB and UPSUMCO ceased to exist. However, PNB
and UPSUMCO had agreed to a conventional compensation, a relationship which does
not require the presence of all the requisites under Article 1279. And PNB too had
assigned all its rights as creditor to APT, including its rights under conventional
compensation. The absence of the mutual creditor-debtor relation between the new
creditor APT and UPSUMCO cannot negate the conventional compensation.
Accordingly, APT, as the assignee of credit of PNB, had the right to set-off the
SLU SOL 1-C Page
473
outstanding obligations of UPSUMCO on the basis of conventional compensation
before the condonation took effect on 3 September 1987.
SLU SOL 1-C Page
474
Arts. 1287-1288, Legal Compensation: When Prohibited
PNB Management v. R & R Metal, 373 S 1
PNB MANAGEMENT and DEVELOPMENT CORP. (PNB MADECOR), petitioner,

vs.
R&R METAL CASTING and FABRICATING, INC., respondent.
G.R. No. 132245 January 2, 2002
Facts: It appears that on November 19, 1993, respondent R&R Casting and
Fabricating, Inc. (R&R) obtained a judgment in its favor against Pantranco North
Express, Inc. (PNEI). PNEI was ordered to pay respondent P213, 050.00 plus interest
as actual damages. P50, 000.00 as exemplary damages, 25 percent of the total amount
payable as attorneys fees, and the costs of suit. However, the writ of execution was
returned unsatisfied since the sheriff did not find any property of PNEI recorded at the
Registries of Deeds of the different cities of Metro Manila. Neither did the sheriff receive
a reply to the notice of garnishment he sent to PNB-Escolta. On March 27, 1995,
respondent filed with the trial court motion for the issuance of subpoenae duces tecum
and ad testificandum requiring petitioner PNB Management and Development Corp.
(PNB MADECOR) to produce and testify on certain documents pertaining to
transactions between petitioner and PNEI from 1981 to 1995.
Issue: Whether or not legal compensation occurred in the instant case.
Ruling: Legal compensation could not have occurred because of the absence of one
requisite in this case: that both debts must be due and demandable. Petitioners
obligation to PNEI appears to be payable on demand, following the above observation
made by the CA and the assertion made by the petitioner. Petitioner is obligated to pay
the amount stated in the promissory note upon receipt of a notice pay from PNEI. If
petitioner fails to pay after such notice, the obligation will earn an interest of 18 percent
per annum.
Since petitioners obligation to PNEI is payable on demand, and there being no demand
made, it follows that the obligation is not yet due. Therefore, this obligation may not be
subject to compensation for lack of a requisite under law. Without compensation having
taken place, petitioner remains obligated to PNEI to the extent stated in the promissory
note. This obligation may undoubtedly be garnished in favor of respondent to satisfy
PNEIs judgment debt.
SLU SOL 1-C Page
475
Silahis v. IAC, 7 December 1989
SILAHIS MARKETING CORPORATION, petitioner,

vs.
INTERMEDIATE APPELLATE COURT, respondent.
G. R. No. L-74027 December 7, 1989
Facts: Gregorio de Leon doing business under the name and style of Mark Industrial
Sales sold and delivered to Silahis Marketing Corporation various items of merchandise
covered by several invoices in the aggregate amount of P 22,213.75 payable within
thirty (30) days from date of the covering invoices. Allegedly due to Silahis' failure to pay
its account upon maturity despite repeated demands, de Leon filed before the then
Court of First Instance of Manila a complaint for the collection of the said accounts
including accrued interest thereon in the amount of P 661.03 and attorney's fees of P
5,000.00 plus costs of litigation.
Issue: Whether or not respondent is liable to petitioner for commission which the former
consummated with Dole Philippines.
Ruling: When all the requisites mentioned in Art. 1279 of the Civil Code are present,
compensation takes effect by operation of law, even without the consent or knowledge
of the creditors and debtors. Article 1279 requires, among others, that in order that legal
compensation shall take place, "the two debts be due" and "they be liquidated and
demandable." Compensation is not proper where the claim of the person asserting the
set-off against the other is not clear nor liquidated; compensation cannot extend to
unliquidated, disputed claim existing from breach of contract. Undoubtedly, petitioner
admits the validity of its outstanding accounts with private respondent in the amount of
P 22,213.75 as contained in its answer. But whether private respondent is liable to pay
the petitioner a 20% margin or commission on the subject sale to Dole Philippines, Inc.
is vigorously disputed. This circumstance prevents legal compensation from taking
place. The Court held that there is no evidence on record from which it can be inferred
that there was any agreement between the petitioner and private respondent prohibiting
the latter from selling directly to Dole Philippines, Incorporated. Definitely, it cannot be
asserted that the debit memo was a contract binding between the parties considering
that the same was not signed by private respondent nor was there any mention therein
of any commitment by the latter to pay any commission to the former. Indeed, such
document can be taken as self-serving with no probative value absent a showing or at
the very least an inference, that the party sought to be bound assented to its contents or
showed conformity thereto.
SLU SOL 1-C Page
476
Francia v. CA, 28 June 1988
ENGRACIO FRANCIA, petitioner,

vs.
INTERMEDIATE APPELLATE COURT and HO FERNANDEZ, respondents.
G.R. No. L-67649 June 28, 1988
Facts: Engracio Francia is the registered owner of a residential lot and a two-story
house built upon it situated at Barrio San Isidro, now District of Sta. Clara, Pasay City,
Metro Manila. On October 15, 1977, a 125 square meter portion of Francia's property
was expropriated by the Republic of the Philippines for the sum of P4,116.00
representing the estimated amount equivalent to the assessed value of the aforesaid
portion. Since 1963 up to 1977 inclusive, Francia failed to pay his real estate taxes.
Thus, on December 5, 1977, his property was sold at public auction by the City
Treasurer of Pasay City in order to satisfy a tax delinquency of P2,400.00. Ho
Fernandez was the highest bidder for the property. Francia was not present during the
auction sale since he was in Iligan City. On March 3, 1979, Francia received a notice of
hearing and the issuance in his name of a new certificate of title. Upon verification
through his lawyer, Francia discovered that a Final Bill of Sale had been issued in favor
of Ho Fernandez by the City Treasurer on December 11, 1978. The auction sale and the
final bill of sale were both annotated at the back of TCT No. 4739 (37795) by the
Register of Deeds.
Issue: Whether or not Francias tax delinquency has been extinguished by legal
compensation.
Ruling: There is no legal basis for the contention. By legal compensation, obligations of
persons, who in their own right are reciprocally debtors and creditors of each other, are
extinguished. The circumstances of the case do not satisfy the requirements provided
by Article 1279 (1) that each one of the obligors be bound principally and that he be at
the same time a principal creditor of the other; (2) that the two debts be due.
The court ruled that there can be no off-setting of taxes against the claims that the
taxpayer may have against the government. A person cannot refuse to pay a tax on the
ground that the government owes him an amount equal to or greater than the tax being
collected. The collection of a tax cannot await the results of a lawsuit against the
government. In addition, a taxpayer cannot refuse to pay his tax when called upon by
the collector because he has a claim against the governmental body not included in the
tax levy.
The tax was due to the city government while the expropriation was effected by the
national government. Moreover, the amount of P4,116.00 paid by the national
government for the 125 square meter portion of his lot was deposited with the Philippine
National Bank long before the sale at public auction of his remaining property. It would
SLU SOL 1-C Page
477
have been an easy matter to withdraw P2,400.00 from the deposit so that he could pay
the tax obligation thus aborting the sale at public auction.
Petitioner had one year within which to redeem his property although, he claimed that
he pocketed the notice of the auction sale without reading it. Petitioner, therefore, was
notified about the auction sale. It was negligence on his part when he ignored such
notice. By his very own admission that he received the notice, his now coming to court
assailing the validity of the auction sale loses its force. As a general rule, gross
inadequacy of price is immaterial when the law gives the owner the right to redeem as
when a sale is made at public auction, upon the theory that the lesser the price, the
easier it is for the owner to effect redemption.
SLU SOL 1-C Page
478
Trinidad v. Acapulco, 494 S 179
HERMENEGILDO M. TRINIDAD, petitioner,

vs.
ESTRELLA ACAPULCO, respondent.
G.R. No. 147477 June 27, 2006
Facts: On May 6, 1991, respondent Estrella Acapulco filed a Complaint before the RTC
seeking the nullification of a sale she made in favor of petitioner Hermenegildo M.
Trinidad. She alleged: Sometime in February 1991, a certain Primitivo Caete
requested her to sell a Mercedes Benz for P580,000.00. Caete also said that if
respondent herself will buy the car, Caete was willing to sell it for P500,000.00.
Petitioner borrowed the car from respondent for two days but instead of returning the
car as promised, petitioner told respondent to buy the car from Caete for P500,000.00
and that petitioner would pay respondent after petitioner returns from Davao. Following
petitioners instructions, respondent requested Caete to execute a deed of sale
covering the car in respondents favor for P500,000.00 for which respondent issued
three checks in favor of Caete. Respondent thereafter executed a deed of sale in favor
of petitioner even though petitioner did not pay her any consideration for the sale. When
petitioner returned from Davao, he refused to pay respondent the amount of
P500,000.00 saying that said amount would just be deducted from whatever
outstanding obligation respondent had with petitioner. Due to petitioners failure to pay
respondent, the checks that respondent issued in favor of Caete bounced, thus
criminal charges were filed against her.
Issue: Whether or not there is valid dacion en pago.
Ruling: Compensation takes effect by operation of law even without the consent or
knowledge of the parties concerned when all the requisites mentioned in Article 1279 of
the Civil Code. While the proceedings in the RTC focused on ascertaining the presence
of the elements of dacion en pago, it was likewise proven that petitioner owed
respondent the amount of P500,000.00 while respondent owed petitioner P566,000.00;
that both debts are due, liquidated and demandable, and; that neither of the debts or
obligations are subject of a controversy commenced by a third person. By operation of
law, the P500,000.00 which petitioner owed respondent is off-set against the
P566,000.00 owed by respondent to petitioner, leaving a balance of P66,000.00, which
respondent should pay with 12% interest per annum from date of judicial or extrajudicial
deed. Since there was no extrajudicial deed in this case, the interest shall be resolved
from the date petitioner filed its Supplemental Motion for Reconsideration invoking for
the first time legal compensation, that is, May 20, 1992. The court held that the
P500,000.00 which Hermenegildo M. Trinidad owed Estrella Acapulco is offset against
the P566,000.00 which Acapulco owed Trinidad. Acapulco is ordered to pay Trinidad the
amount of P66,000.00 plus interest at 12% per annum from May 20, 1992 until full
payment.
SLU SOL 1-C Page
479
Art. 1291, Novation: Meaning and Definition; How Effected
Heirs of Franco v. Sps. Gonzales, 27 June 2012
HEIRS OF SERVANDO FRANCO, petitioners,

vs.
SPOUSES VERONICA AND DANILO GONZALES, respondents.
G.R. No. 159709 June 27, 2012
Facts: On Nov. 7, 1985, Servando Franco and Leticia Medel obtained a loan from
Veronica Gonzales. Franco and Medel executed a promissory note to evidence the
loan. On Nov. 19, 1985, they obtained another loan. On maturity of the 2 promissory
notes, they failed to pay. On June 11, 1986, they executed another loan secured by a
REM over a property belonging to Leticia Yaptinchay, who issued a SPA in favor of
Medel. Like the previous loans, Franco and Medel failed to pay on maturity. On July 23,
1986, Franco and Medel consolidated all unpaid loans totaling P440K and sought
another loan. On maturity, they failed to pay the indebtedness of P500K plus interests
and penalties.
Sps. Gonzales filed with the RTC a complaint for collection of the full amount of the loan
including interests and other charges. The lower court ruled that, although the Usury
Law had been repealed, the interest charged by Sps. Gonzales was unconscionable.
Hence, it applied the provision of the Civil Code that the "legal rate of interest for loan or
forbearance of money, goods, or credit is 12% per annum." The CA reversed the
decision of the RTC.
Upon finality of the decision, Sps. Gonzales moved for execution. Franco opposed,
claiming that their agreement, which was allegedly embodied in a receipt dated Feb. 5,
1992 whereby he made an initial payment of P400K and promised to pay the balance of
P375K on Feb. 29, 1992, superseded the July 23, 1986 promissory note.
Issue: Whether or not there was a novation of the Aug. 23, 1986 promissory note when
Veronica Gonzales issued the Feb. 5, 1992 receipt.
Ruling: Novation did not transpire because no irreconcilable incompatibility existed

between the promissory note and the receipt. The receipt did not create a new
obligation incompatible with the old one under the promissory note. Instead, Sps.
Gonzales only recognized the original obligation by stating in the receipt that the P400K
was partial payment of the loan and by referring to the promissory note subject of the
case in imposing the interest. Advertence to the interest stipulated in the promissory
note indicated that the contract still subsisted, not replaced and extinguished.
Worth noting is that Franco's liability was joint and solidary with his co-debtors. In a
solidary obligation, the creditor may proceed against any one of the solidary debtors or
some or all of them simultaneously. The choice to determine against whom the
SLU SOL 1-C Page
480
collection is enforced belongs to the creditor until the obligation is fully satisfied. Thus,
the obligation was being enforced against Franco, who, in order to escape liability,
should have presented evidence to prove that his obligation had already been cancelled
by the new obligation or that another debtor had assumed his place. In case of change
in the person of the debtor, the substitution must be clear and express and made with
the consent of the creditor. Yet, these circumstances did not obtain, proving that Franco
remained a solidary debtor against whom the entire or part of the obligation might be
enforced.
Lastly, the extension of the maturity date did not constitute a novation of the previous
agreement.
SLU SOL 1-C Page
481
Arts. 1297-1298, Objective Novation
Hernandez-Nievera v. Hernandez, 14 February 2011
CAROLINA HERNANDEZ-NIEVERRA, et al., petitioners,

vs.
WILFREDO HERNANDEZ, et al., respondents.
G.R. No. 171165 February 14, 2011
Facts: Project Movers Realty & Development Corporation (PMRDC), is a duly

organized domestic corporation engaged in real estate development. On November 13,
1997, PMRDC entered into a Memorandum of Agreement whereby it was given the
option to buy pieces of land owned by petitioners Carolina Hernandez-Nievera,
Margarita H. Malvar and Demetrio P. Hernandez, Jr., under authority of a Special Power
of Attorney to Sell or Mortgage. In the aggregate, the realty measured 4,580,451 square
meters and was segregated by agreement into Area I and Area II. On March 23, 1998, it
entered with LBP and Demetrio the latter purportedly acting under authority of the same
special power of attorney as in the MOA into a Deed of Assignment and Conveyance.
Although PMRDC delivered to petitioners certain checks representing the money, the
same however allegedly bounced. Hence, on January 8, 1999, petitioners demanded
the return of the corresponding TCTs.
Issue: Whether or not the novation of MOA is valid.
Ruling: Petitioners cause stems from the failure of PMRDC to restore to petitioners the
possession of the TCTs of the lands within Area II upon its failure to exercise the option
to purchase within the 12-month period stipulated in the MOA. Respondents maintain,
that said obligation, has altogether been expressly obliterated by the terms of the DAC
whereby petitioners, through Demetrio as attorney-in-fact, have agreed to novate the
terms of the MOA by extinguishing the core obligations of PMRDC on the payment of
option money.
But petitioners stand against the validity of the DAC on the ground that the signature of
Demetrio therein was spurious. Respondents are quick to reason that a request is
unnecessary because Demetrio has been legally enabled by his special power to give
such consent and accordingly execute the DAC, effect a novation of the MOA, and
extinguish the stipulated obligations of PMRDC therein, or at least that he could assent
to the implementation of the MOA provisions in the way that transpired.
Thus, it becomes clear that Demetrios special power of attorney to sell is sufficient to
enable him to make a binding commitment under the DAC in behalf of Carolina and
Margarita. In particular, it does include the authority to extinguish PMRDCs obligation
under the MOA to deliver option money and agree to a more flexible term by agreeing
instead to receive shares of stock in lieu thereof and in consideration of the assignment
and conveyance of the properties to the Asset Pool. Indeed, the terms of his special
SLU SOL 1-C Page
482
power of attorney allow much leeway to accommodate not only the terms of the MOA
but also those of the subsequent agreement in the DAC which, in this case, necessarily
and consequently has resulted in a novation of PMRDCs integral obligations.
SLU SOL 1-C Page
483
St. James College v. Equitable PCI Bank, 9 August 2010
ST. JAMES COLLEGE OF PARAAQUE; JAIME T. TORRES, represented by his

legal representative, JAMES KENLEY M. TORRES; and MYRNA M. TORRES,
petitioners,
vs.
EQUITABLE PCI BANK, respondent.
G.R. No. 179441 August 9, 2010
Facts: Petitioners-spouses Jaime and Myrna Torres owned and operated St. James
College of Paraaque. In 1995, the Philippine Commercial and International Bank
(PCIB) granted the Torres spouses and/or St. James College a credit line facility of up to
PhP 25,000,000. This accommodation or any of its extension or renewal was secured
by a real estate mortgage over a parcel of land situated in Paraaque. As petitioners
had defaulted in the payment of the loan, their total unpaid loan obligation, as of
September 2001, stood at PhP 18,300,000.In a bid to settle its loan availment,
petitioners first proposed to EPCIB that they be allowed to pay their account in equal
quarterly installments for five years. EPCIB informed petitioners that it is denying their
request for the reinstatement of their credit line, but proposed a restructuring package
with a soft payment scheme for the outstanding loan balance of PhP 18,300,000.
Petitioner Jaime Torres chose and agreed to the second option, by affixing his signature
at the bottom portion of EPCIBs letter.
Issue: Whether or not there was a novation of the contract and whether the required
grounds for the issuance of preliminary injunction are present.
Ruling: It has often been said that the minds that agree to contract can agree to novate.
And the agreement or consent to novate may well be inferred from the acts of a creditor,
since volition may as well be expressed by deeds as by words. In the instant case,
however, the acts of EPCIB before, simultaneously to, and after its acceptance of
payments from petitioners argue against the idea of its having acceded or acquiesced to
petitioners request for a change of the terms of payments of the secured loan. Thus, a
novation through an alleged implied consent by EPCIB, as proffered and argued by
petitioners, cannot be given imprimatur by the Court. The Court held that the petitioners
have not shown a right in esse to be protected. Indeed, the Rules requires that the
applicants right must be clear or unmistakable. An injunction will not issue to protect a
right not in esse and which may never arise, or to restrain an act which does not give
rise to a cause of action. An application for a preliminary injunction is a mere adjunct to
the main action. In all then, the preliminary evidence presented by petitioners and the
allegations in their complaint did not clearly make out any entitlement to the injunctive
relief prayed for. Trial courts are reminded to see to it that applications for preliminary
injunction clearly allege facts and circumstances showing the existence of the
requisites. An application for injunctive relief is construed strictly against the pleader.
SLU SOL 1-C Page
484
MARIA SOLEDAD TOMIMBANG, petitioner,

vs.
ATTY. JOSE TOMIMBANG, respondent.
G.R. No. 165116 August 4, 2009
Facts: Petitioner and respondent are siblings. Their parents donated to petitioner an
eight- door apartment, with the condition that during the parents lifetime, they shall
retain control over the property and petitioner shall be the administrator thereof.
Petitioner failed to obtain a loan from PAG-IBIG Fund, hence, respondent offered to
extend a credit line to petitioner on the following conditions: (1) petitioner shall keep a
record of all the advances; (2) petitioner shall start paying the loan upon the completion
of the renovation; (3) upon completion of the renovation, a loan and mortgage
agreement based on the amount of the advances made shall be executed by petitioner
and respondent; and (4) the loan agreement shall contain comfortable terms and
conditions which petitioner could have obtained from PAG-IBIG. However, respondent
and petitioner entered into a new agreement whereby petitioner was to start making
monthly payments on her loan. Upon respondents demand, petitioner turned over to
respondent all the records of the cash advances for the renovations. Petitioner however
discontinued the renovations and her whereabouts could not be located. Respondent
filed a complaint demanding the former to pay the loan plus interest. The trial court and
the Court of Appeals rendered judgment in favor of the plaintiff.
Issue: Whether or not petitioners obligation is due and demandable. Whether or not
there was a novation of the original terms of the loan agreement.
Ruling: The Court finds that the obligation was already due and demandable. The
evidence on record clearly shows that after renovation of seven out of the eight
apartment units had been completed, petitioner and respondent agreed that the former
shall already start making monthly payments on the loan even if renovation on the last
unit was still pending. She agreed and complied with respondents demand for her to
begin paying her loan, since she believed this was in accordance with her commitment
to pay whenever she was able. By her very own admission and partial performance of
her obligation, there can be no other conclusion that petitioners obligation is already
due and demandable.
Evidently, by virtue of the subsequent agreement, the parties mutually dispensed with
the condition that petitioner shall only begin paying after the completion of all
renovations. There was, in effect, a partial novation, of petitioners obligation. As can be
gleaned from the foregoing, the aforementioned four essential elements and the
requirement that there be total incompatibility between the old and new obligation, apply
only to extinctive novation. In partial novation, only the terms and conditions of the
obligation are altered, thus, the main obligation is not changed and it remains in force.
Her partial performance of her obligation is unmistakable proof that indeed the original
SLU SOL 1-C Page
485
agreement between her and respondent had been novated by the deletion of the
condition that payments shall be made only after completion of renovations.
SLU SOL 1-C Page
486
Art. 1293, Substitution of the Debtor: Expromision (Arts. 1236-
1237, 1294) vs. Delegacion (Arts. 1236-1237, 1295)
Mindanao Savings v. Willkom, 20 October 2010
MINDANAO SAVINGS AND LOAN ASSOCIATION, INC., represented by its

Liquidator, THE PHILIPPINE DEPOSIT INSURANCE CORPORATION, petitioner,
vs.
EDWARD WILLKOM; GILDA GO; REMEDIOS UY; MALAYO BANTUAS, in his
capacity as the Deputy Sheriff of Regional Trial Court, Branch 3, Iligan City; and
the REGISTER OF DEEDS of Cagayan de Oro City, respondent.
G.R. No. 178618 October 11, 2010
Facts: This is a petition for review on certiorari under Rule 45 of the Rules of Court filed
by Mindanao Savings and Loan Association, Inc. (MSLAI), represented by its liquidator,
Philippine Deposit Insurance Corporation (PDIC), against respondents Edward R.
Willkom (Willkom); Gilda Go (Go); Remedios Uy (Uy); Malayo Bantuas (sheriff
Bantuas), in his capacity as sheriff of the Regional Trial Court (RTC), Branch 3 of Iligan
City; and the Register of Deeds of Cagayan de Oro City. MSLAI seeks the reversal and
setting aside of the Court of Appeals (CA) Decision dated March 21, 2007 and
Resolution dated June 1, 2007 in CA-G.R. CV No. 58337.
Issue: Whether or not the Court of Appeals, Cagayan de Oro committed grave and
reversible error when it refused to recognize the merger between FISLAI and DSLAI
with DSLAI as the surviving corporation.
Ruling: The merger, however, does not become effective upon the mere agreement of
the constituent corporations. Since a merger or consolidation involves fundamental
changes in the corporation, as well as in the rights of stockholders and creditors, there
must be an express provision of law authorizing them.
Clearly, the merger shall only be effective upon the issuance of a certificate of merger
by the SEC, subject to its prior determination that the merger is not inconsistent with the
Corporation Code or existing laws. Where a party to the merger is a special corporation
governed by its own charter, the Code particularly mandates that a favorable
recommendation of the appropriate government agency should first be obtained.
SLU SOL 1-C Page
487

vs.
G.R. No. 166704 December 20, 2006
Facts: On May 6, 1999, petitioner Agrifina Aquintey filed before the RTC of Baguio City,
a complaint for sum of money and damages against the respondents, spouses Felicidad
and Rico Tibong. Agrifina alleged that Felicidad had secured loans from her on several
occasions, at monthly interest rates of 6% to 7%. Despite demands, the spouses Tibong
failed to pay their outstanding loan, amounting to P773,000.00 exclusive of interests. In
their Answer with Counterclaim, spouses Tibong admitted that they had secured loans
from Agrifina. The proceeds of the loan were then re-lent to other borrowers at higher
interest rates. They, likewise, alleged that they had executed deeds of assignment in
favor of Agrifina, and that their debtors had executed promissory notes in Agrifinas
favor. According to the spouses Tibong, this resulted in a novation of the original
obligation to Agrifina. They insisted that by virtue of these documents, Agrifina became
the new collector of their debtors; and the obligation to pay the balance of their loans
had been extinguished.
Issue: Whether or not there is valid novation in the instant case.
Ruling: Novation which consists in substituting a new debtor in the place of the original
one may be made even without the knowledge or against the will of the latter but not
without the consent of the creditor. Substitution of the person of the debtor may be
effected by delegacion, meaning, the debtor offers, and the creditor, accepts a third
person who consents to the substitution and assumes the obligation. Thus, the consent
of those three persons is necessary. In this kind of novation, it is not enough to extend
the juridical relation to a third person; it is necessary that the old debtor be released
from the obligation, and the third person or new debtor take his place in the relation.
Without such release, there is no novation; the third person who has assumed the
obligation of the debtor merely becomes a co-debtor or a surety. If there is no
agreement as to solidarity, the first and the new debtor are considered obligated jointly.
In the case at bar, the court found that respondents' obligation to pay the balance of
their account with petitioner was extinguished, pro tanto, by the deeds of assignment of
credit executed by respondent Felicidad in favor of petitioner. As gleaned from the
deeds executed by respondent Felicidad relative to the accounts of her other debtors,
petitioner was authorized to collect the amounts of P6,000.00 from Cabang, and
P63,600.00 from Cirilo. They obliged themselves to pay petitioner. Respondent
Felicidad, likewise, unequivocally declared that Cabang and Cirilo no longer had any
obligation to her.
SLU SOL 1-C Page
488
Arts. 1300, 1303-1304, Subrogation to the Rights of the
Creditor: Legal vs. Conventional (Art. 1301)
ASIAN TERMINALS, INC., petitioner,

vs.
PHILAM INSURANCE CO., INC. (now Chartis Philippines Insurance, Inc.),
respondent.
G.R. No. 181163 July 24, 2013
Facts: On April 15, 1995, Nichimen Corporation shipped to Universal Motors

Corporation 219 packages containing 120 units of brand new Nissan Pickup Truck
Double Cab 4x2 model, without engine, tires and batteries, on board the vessel S/S
Calayan Iris from Japan to Manila. The shipment, which had a declared value of
US$81,368 or P29,400,000, was insured with Philam against all risks under the marine
Policy no. 708-8006717-4. The carrying vessel arrived at the port of manila on April 20,
1995, and when the shipment was unloaded by the staff of ATI, it was found that the
package marked as 03-245-42K/1 was in bad order. The Turn Over Survey of bad order
cargoes dated April 21, 1995 identified two packages, labeled 03-245-42K/1 and
03/237/7CK/2, as being dented and broken. Thereafter, the cargoes were stored for
temporary safekeeping inside CFS Warehouse in Pier No. 5. On May 11, 1995, the
shipment was withdrawn by R.F. Revilla Customs Brokerage, Inc., the authorized broker
of Universal Motors, and delivered to the latters warehouse in Mandaluyong City. Upon
the request of Universal Motors, a bad order survey was conducted on the cargoes and
it was found that one Frame Axle Sub without LWR was deeply dented on the buffle
plate while six Frame Assembly with Bush were deformed and misaligned. Owing to the
extent of the damage to said cargoes, Universal Motors declared them a total loss. On
August 4, 1995, Universal Motors filed a formal claim for damages in the amount of
P643,963.84 against Westwind, ATI and R.F. Revilla Customs Brokerage, Inc. When
Universal Motors demands remained unheeded, it sought reparation from and was
compensated in the sum of P633,957.15 by Philam. Accordingly, Universal Motors
issued a Subrogation Receipt dated November 15, 1995 in favor of Philam. On January
18, 1996, Philam, as subrogee of Universal Motors, filed a Complaint for damages
against Westwind, ATI and R.F. Revilla Customs Brokerage, Inc. before the Regional
Trial Court of Makati City. The trial court rendered judgment in favour of Philam which
ruling was affirmed by the Court of Appeals modifying the amount to be paid by
Westwind and ATI.
Issue: Whether or not Philam may claim against Westwind and ATI as a subrogee.
Ruling: The Court holds that petitioner Philam has adequately established the basis of
its claim against petitioners ATI and Westwind. Philam, as insurer, was subrogated to
the rights of the consignee, Universal Motors Corporation, pursuant to the Subrogation
receipt executed by the latter in favor of the former. The right of subrogation accrues
SLU SOL 1-C Page

489
simply upon payment by the insurance company of the insurance claim. Petitioner
Philams action finds support in Article 2207 of the Civil Code which provides that if the
plaintiffs property has been insured, and he has received indemnity from the insurance
company for the injury or loss arising out of the wrong or breach of contract complained
of, the insurance company shall be subrogated to the rights of the insured against the
wrongdoer or the person who has violated the contract. In Malayan Insurance Co., Inc.
vs. Alberto, the Court explained the effect of payment by the insurer of the insurance
claim in this wise: We have held that payment by the insurer to the insured operates as
an equitable assignment to the insurer of all the remedies that the insured may have
against the third party whose negligence or wrongful act caused the loss. The right of
subrogation is not dependent upon, nor does it grow out of, any privity of contract. It
accrues simply upon payment by the insurance company of the insurance claim. The
doctrine of subrogation has its roots in equity. It is designed to promote and accomplish
justice; and is the mode that equity adopts to compel the ultimate payment of a debt by
one who, in justice, equity, and good conscience, ought to pay.
SLU SOL 1-C Page
490
Loadmasters v. Glodel Brokerage, 10 January 2011
LOADMASTERS CUSTOMS SERVICES, INC., petitioner,

vs.
GLODEL BROKERAGE CORPORATION AND R&B INSURANCE CORPORATION,
respondent.
G.R. No. 179446 January 10, 2011
Facts: Columbia engaged the services of Glodel for the release and withdrawal of the
cargoes from the pier and the subsequent delivery to its warehouses/plants. Glodel, in
turn, engaged the services of Loadmasters for the use of its delivery trucks to transport
the cargoes to Columbias warehouses/plants in Bulacan and Valenzuela City. The
goods were loaded on board twelve (12) trucks owned by Loadmasters, driven by its
employed drivers and accompanied by its employed truck helpers. Six (6) truckloads of
copper cathodes were to be delivered to Balagtas, Bulacan, while the other six (6)
truckloads were destined for Lawang Bato, Valenzuela City. The cargoes in six
truckloads for Lawang Bato were duly delivered in Columbias warehouses there. Of the
six (6) trucks en route to Balagtas, Bulacan, however, only five (5) reached the
destination. One (1) truck, loaded with 11 bundles or 232 pieces of copper cathodes,
failed to deliver its cargo. Later on, the said truck, an Isuzu with Plate No. NSD-117, was
recovered but without the copper cathodes. Because of this incident, Columbia filed with
R&B Insurance a claim for insurance indemnity in the amount of P1,903,335.39. After
the requisite investigation and adjustment, R&B Insurance paid Columbia the amount of
P1,896,789.62 as insurance indemnity.
Issue: Whether or not petitioner Loadmasters be held liable to Respondent Glodel in

spite of the fact that the latter respondent Glodel did not file a cross-claim against it
(Loadmasters).
Ruling: Subrogation is the substitution of one person in the place of another with
reference to a lawful claim or right, so that he who is substituted succeeds to the rights
of the other in relation to a debt or claim, including its remedies or securities. Doubtless,
R&B Insurance is subrogated to the rights of the insured to the extent of the amount it
paid the consignee under the marine insurance, as provided under Article 2207 of the
Civil Code, which reads: ART. 2207. If the plaintiffs property has been insured, and he
has received indemnity from the insurance company for the injury or loss arising out of
the wrong or breach of contract complained of, the insurance company shall be
subrogated to the rights of the insured against the wrong-doer or the person who has
violated the contract. If the amount paid by the insurance company does not fully cover
the injury or loss, the aggrieved party shall be entitled to recover the deficiency from the
person causing the loss or injury. As subrogee of the rights and interest of the
consignee, R&B Insurance has the right to seek reimbursement from either
Loadmasters or Glodel or both for breach of contract and/or tort.
SLU SOL 1-C Page
491
Metrobank v. Rural Bank of Gerona, 5 July 2010
METROPOLITAN BANK AND TRUST COMPANY, petitioner,

vs.
RURAL BANK OF GERONA, INC., respondent.
G.R. No. 159097 July 5, 2013
Facts: RBG is a rural banking corporation organized under Philippine laws and located
in Gerona, Tarlac. In the 1970s, the Central Bank and the RBG entered into an
agreement providing that RBG shall facilitate the loan applications of farmers-borrowers
under the Central Bank-International Bank for Reconstruction and Developments
(IBRDs) 4th Rural Credit Project. The agreement required RBG to open a separate
bank account where the IBRD loan proceeds shall be deposited. The RBG accordingly
opened a special savings account with Metrobanks Tarlac Branch. As the depository
bank of RBG, Metrobank was designated to receive the credit advice released by the
Central Bank representing the proceeds of the IBRD loan of the farmers-borrowers;
Metrobank, in turn, credited the proceeds to RBGs special savings account for the
latters release to the farmers-borrowers.
On September 27, 1978, the Central Bank released a credit advice in Metrobanks favor
and accordingly credited Metrobanks demand deposit account in the amount of
P178,652.00, for the account of RBG. The amount, which was credited to RBGs special
savings account represented the approved loan application of farmer-borrower
Dominador de Jesus. RBG withdrew the P178,652.00 from its account.
On the same date, the Central Bank approved the loan application of another
farmerborrower, Basilio Panopio, for P189,052.00, and credited the amount to
Metrobanks demand deposit account. Metrobank, in turn, credited RBGs special
savings account. Metrobank claims that the RBG also withdrew the entire credited
amount from its account.
On October 3, 1978, the Central Bank approved Ponciano Lagmans loan application for
P220,000.00. As with the two other IBRD loans, the amount was credited to
Metrobanks demand deposit account, which amount Metrobank later credited in favor
of RBGs special savings account. Of the P220,000.00, RBG only withdrew P75,375.00.
On November 3, 1978, more than a month after RBG had made the above withdrawals
from its account with Metrobank, the Central Bank issued debit advices, reversing all
the approved IBRD loans. The Central Bank implemented the reversal by debiting from
Metrobanks demand deposit account the amount corresponding to all three IBRD
loans.
Upon receipt of the November 3, 1978 debit advices, Metrobank, in turn, debited the
following amounts from RBGs special savings account: P189,052.00,P115,000.00, and
P8,000.41. Metrobank, however, claimed that these amounts were insufficient to cover
all the credit advices that were reversed by the Central Bank. It demanded payment
SLU SOL 1-C Page
492
from RBG which could make partial payments. As of October 17, 1979, Metrobank
claimed that RBG had an outstanding balance ofP334,220.00.
Issue: Whether or not Central Bank should be impleaded.
Ruling: Under this situation, impleading the Central Bank as a party is completely
unnecessary. We note that the CA erroneously believed that the Central Banks
presence is necessary in order to shed light on the matter of reversals made by it
concerning the loan applications of the end users and to have a complete determination
or settlement of the claim. In so far as Metrobank is concerned, however, the Central
Banks presence and the reasons for its reversals of the IBRD loans are immaterial after
subrogation has taken place; Metrobanks interest is simply to collect the amounts it
paid the Central Bank. Whatever cause of action RBG may have against the Central
Bank for the unexplained reversals and any undue deductions is for RBG to ventilate as
a third-party claim; if it has not done so at this point, then the matter should be dealt with
in a separate case that should not in any way further delay the disposition of the present
case that had been pending before the courts since 1980.
SLU SOL 1-C Page
493
Swagman v. CA, 455 S 175
SWAGMAN HOTELS AND TRAVEL, INC., petitioners,

vs.
HON. COURT OF APPEALS, and NEAL B. CHRISTIAN, respondents.
G.R. No. 161135 April 8, 2005
Facts: Swagman Hotel, Inc., through its representatives, obtained from Neal a loan
which is payable after 3 years and with interest per annum payable every 3 months.
After a year, Swagman suffered business reverses prompting it to renegotiate the terms
of the loan with Neal. It was agreed that Neal waives the payment of interests and that
the principal loan shall be paid every month instead of quarterly. After the renegotiation,
the cash vouchers or receipts acknowledged by the parties state that the payments
therein represent Capital Investment and Capital Repayment.
Barely 2 years after however, Neal sent a letter informing the corporation that he is
terminating the loans and demanding that the total amount of the loan and unpaid
interests be paid. Subsequently, Neal filed a complaint for sum of money and damages.
Swagman answered that the complaint is dismissible for lack of cause of action since
the loan is not yet due and demandable and that there was novation in the contract. But
the RTC held in favor of Neal, rationating that although there was no cause of action at
the filing of the complaint, the debt has already matured during the days the hearings
were held, thus making it due as of date.
Issues:
1. Whether or not a complaint that lacks a cause of action at the time it was filed be
cured by the accrual of a cause of action during the pendency of the case.
2. Whether or not there was novation in the terms of the promissory notes.
Ruling:
1. No. Jurisprudence states that unless the plaintiff has a valid and subsisting cause of
action at the time his action is commenced, the defect cannot be cured or remedied by
the acquisition or accrual of one while the action is pending, and a supplemental
complaint or an amendment setting up such after-accrued cause of action is not
permissible. (Surigao Mines vs Harris, 1935)
2. Yes. Under Article 1253 of the Civil Code, it is presumed that if the debt produces
interest, payments were applied first to the interest before the principal. But in this case,
the receipts describing the payments as capital repayment show that obligation to pay
the interest was no longer subsisting. The receipts prove that the payments were for the
principal loans and that Neal waived the interests. There was therefore a novation of the
terms of the loan.
The resulting novation in this case was of the modificatory type, not the extinctive type,
since the obligation to pay a sum of money remains in force. Thus, since Swagman did
SLU SOL 1-C Page
494
not renege on its obligation to pay the monthly installments conformably with their new
agreement and even continued paying during the pendency of the case, Neal had no
cause of action to file the complaint. It is only upon debtors default in the payment of
the monthly amortizations that a cause of action would arise and give the creditor a right
to maintain an action against the petitioner.
SLU SOL 1-C Page
495
Azolla Farms v. CA, 11 November 2004
AZOLLA FARMS and FRANCISCO R. YUSECO, petitioners,

vs.
COURT OF APPEALS and SAVINGS BANK OF MANILA, respondents.
G.R. No. 138085 November 11, 2004
Facts: Petitioner Francis R. Yuseco, Jr., is the Chairman, President and Chief
Operating Officer of petitioner Azolla Farms International Philippines. In 1982, Azolla
Farms undertook to participate in the National Azolla Production Program wherein it will
purchase all the Azolla produced by the Azolla beneficiaries in the amount not
exceeding the peso value of all the inputs provided to them. The project also involves
the then Ministry of Agriculture, the Kilusang Kabuhayan at Kaunlaran, and the Kiwanis.
To finance its participation, petitioners applied for a loan with Credit Manila, Inc., which
the latter endorsed to its sister company, respondent Savings Bank of Manila (Savings
Bank). The Board of Directors of Azolla Farms, meanwhile, passed a board resolution
on August 31, 1982, authorizing Yuseco to borrow from Savings Bank in an amount not
exceeding P2,200,000.00. The loan having been approved, Yuseco executed a
promissory note on September 13, 1982, promising to pay Savings Bank the sum of
P1,400,000.00 on or before September 13, 1983. the Azolla Farms project collapsed.
Blaming Savings Bank, petitioners Yuseco and Azolla Farms filed on October 3, 1983
with the Regional Trial Court of Manila (Branch 25), a complaint for damages. In
essence, their complaint alleges that Savings Bank unjustifiably refused to promptly
release the remaining P300,000.00 which impaired the timetable of the project and
inevitably affected the viability of the project resulting in its collapse, and resulted in their
failure to pay off the loan.Thus, petitioners pray for P1,000,000.00 as actual damages,
among others.
Issue: Whether the trial court erred in admitting petitioners' amended complaint.
Ruling: Sec. 5. Amendment to conform to or authorize presentation of evidence .

When issues not raised by the pleadings are tried by express or implied consent of the
parties, they shall be treated in all respects, as if they had been raised in the pleadings.
Such amendment of the pleadings as may be necessary to cause them to conform to
the evidence and to raise these issues may be made upon motion of any party at any
time, even after judgment; but failure so to amend does not affect the result of the trial
of these issues. If evidence is objected to at the trial on the ground that it is not within
the issues made by the pleadings, the court may allow the pleadings to be amended
and shall do so freely when the presentation of the merits of the action will be
subserved thereby and the objecting party fails to satisfy the court that the admission of
such evidence would prejudice him in maintaining his action or defense upon the merits.
As can be gleaned from the records, it was petitioners belief that respondents evidence
justified the amendment of their complaint. The trial court agreed thereto and admitted
the amended complaint. On this score, it should be noted that courts are given the
SLU SOL 1-C Page
496
discretion to allow amendments of pleadings to conform to the evidence presented
during the trial.
SLU SOL 1-C Page
497
Bautista v. Pilar Development, 312 S 611
SPOUSES FLORANTE and LAARNI BAUTISTA, petitioners,

vs.
PILAR DEVELOPMENT CORPORATION, respondent.
G.R. No. 135046 August 17, 1999
Facts: To partially obtain the purchase of a house and lot in Pilar Village, Las Pias,
Metro Manila, spouses Bautista obtained a loan of P 100, 180.00 from Apex Mortgage &
Loan Corporation (Apex). Consequently, they executed a promissory note on December
22, 1978, obligating themselves to pay the principal amount with interest rate of 12%
and service charge of 3% for a period of 240 months, or twenty (20) years, from date, in
monthly instalments of P 1, 378.83. Late payments were to be charged a penalty of 1
% of the amount due, and authorizing Apex to increase the rate of interest and/or
service charges without notice to them in the event that a law, PD or any Central Bank
regulation should be enacted increasing the lawful rate of interest and service charges
on the loan.
The spouses failed to pay several instalments; hence, they executed a second
promissory note in favor of Apex on September 20, 1982. the note amounted to P 142,
326.43 at an interest rate of 21%/ annum with no provision for service charge but with
penalty charge of 1 % for late payments. Payment was to be made for a period of 196
months or 16.33 years in monthly instalments of P 2,576.68, inclusive of principal and
tax and authorizing Apex to increase the rate of interest and/or service charges on
the event that any law or Central Bank regulation shall be passed increasing or
decreasing the same.
On November 1983, petitioners failed to pay instalments again. Apex assigned the
second promissory note to respondent Pilar Development Corporation without notice to
the petitioners on June 6, 1984.
Consequently, as successor- in-interest of Apex, respondent instituted a case for

collection against the spouses for the amount of P 140, 515.11 representing the unpaid
balance of the principal debt from November 23, 1983 including the interest at the rate
of 21% under the second promissory note, and 25% and 36% per annum in accordance
with a Central Bank Circular.
Petitioner spouses contended that the terms of the second promissory notes increasing
the interest rate to 21% and the escalation clause authorizing Apex to increase interest
rates pursuant to any law or Central Bank regulation are null and void in the absence of
a de-escalation clause in the same note.
Issue: Whether or not the interest rate must be pegged at 12% under the first
promissory note and not at 21% as pegged in the second promissory note.
SLU SOL 1-C Page
498
Ruling: The Supreme Court held that the interest rate should be pegged at 21% as
pegged in the second promissory note since the first promissory note was cancelled by
the express terms of the second promissory note. The first note was novated. The
elements of novation are clearly present in the instant case that: first, the first
promissory note was a valid and subsisting contract when petitioner spouses and Apex
executed a second promissory note. Second, the second promissory note absorbed the
unpaid principal and interest of P 142, 326.43 in the first note which amount became the
principal therein, payable at a higher rate interest of 21%/ annum. Thus, the terms of the
second promissory note provided for a higher principal, a higher interest rate, and a
higher monthly amortization, all to be paid within a shorter period of 16.33 years. These
changes are substantial and constitute the principal conditions of the obligations. Both
parties voluntarily accepted the terms of the second note; and they unequivocally
stipulated to extinguish the first one.
Hence, there was animus novandi.

SLU SOL 1-C Page
499
Evadel Realty v. Soriano, 357 S 395
EVADEL REALTY and DEVELOPMENT CORPORATION, petitioners,

vs.
SPOUSES ANTERO AND VIRGINIA SORIANO, respondents.
G.R. No. 144291 April 20, 2001
Facts: On April 12, 1996, the spouses Antero and Virginia Soriano entered into a
Contract to Sell with Evadel Realty over a parcel of land which is a part of a huge tract
of land. The parcel of land consists of 28,958 sq. m. In their contract, Evadel obliged
itself to deliver the amount of P 28,958,000.00, which represents the first installment,
during the signing of the agreement. The second and last installment shall be delivered
simultaneously with the delivery of the Torrens Title by spouses Soriano. Upon payment
of the first installment, Evadel introduced improvements thereon and fenced off the
property with concrete walls. Later the spouses discovered that the area fenced off
exceeded the areas subject of the contract to sell. The spouses sent demand letters to
petitioner Evadel to vacate the encroached area, however the latter refused. A
complaint for accion reinvindicatoria was then filed by spouses Soriano. In its answer,
Evadel admitted the encroachment but claimed that it was a builder in good faith since it
relied on the boundaries pointed out by representatives of respondent. It also argued
that there was novation of contract due to the encroachment made by the national road
on the property subject of the contract by 1,647 sq.m.
Issue: Whether or not there was novation of contract.
Ruling: The contract to sell between petitioner and respondent spouses, the
genuineness and due execution thereof was admitted by petitioner, clearly delineated
the metes and bounds of the lot subject thereof. Attached to the said contract was a
graphic illustration of the lot purchased by petitioner including a technical description
thereof. Finally, petitioners claim that there was a novation of contract because there
was a "second" agreement between the parties due to the encroachment made by the
national road on the property subject of the contract by 1,647 square meters, is
unavailing. Novation, one of the modes of extinguishing an obligation, requires the
concurrence of the following: (1) there is a valid previous obligation; (2) the parties
concerned agree to a new contract; (3) the old contract is extinguished; and (4) there is
valid new contract. Novation may be express or implied. In order that another that
substitutes the same may extinguish an obligation, it is imperative that it be so declared
in unequivocal terms (express novation) or that the old and the new obligations be on
every point incompatible with each other (implied novation). In the instant case, there
was no express novation because the "second" agreement was not even put in writing.
Neither was there implied novation since it was not shown that the two agreements
were materially and substantially incompatible with each other. The second agreement
between the parties, as alleged by Evadel, was never put into writing so that there can
be no express novation. Moreover, there can be no implied novation because it was not
shown that the alleged second agreement is incompatible in every point with the first
SLU SOL 1-C Page
500
agreement on the Contract to Sell. Furthermore, the spouses Soriano were not shown
to have agreed with the second contract on agreement so that the second requisite of
novation, which is, the agreement between the parties concerned to a new contract, is
absent.
SLU SOL 1-C Page
501
Statute of Limitations/Prescriptive Periods (Arts. 1140-1149;
Art. 1577, 1542-1543, 1571; Family Code)
Rosario v. De Guzman, 10 July 2013
FRANCISCO L. ROSARIO, JR., petitioner,

vs.
LELLANI DE GUZMAN, ARLEEN DE GUZMAN, PHILIP RYAN DE GUZMAN, and
ROSELLA DE GUZMAN-BAUTISTA, respondents.
G.R. No. 191247 July 10, 2013
Facts: In Aug. 1990, Sps. Pedro and Rosita de Guzman engaged the legal services of
Atty. Francisco Rosario, Jr. as defense counsel in the complaint filed against them by
Loreta Chong for annulment of contract and recovery of possession with damages
involving a parcel of land. Atty. Rosario's legal services commenced from the RTC and
ended up in the SC. Sps. de Guzman won the case at all levels. While the case was
pending before the SC, Sps. de Guzman died in a vehicular accident. Thereafter, they
were substituted by their children, namely: Rosella, Lellani, Arleen, and Philip Ryan.
On Sept. 8, 2009, Atty. Francisco filed a motion to determine attorneys fees before the
RTC. He alleged that he had a verbal agreement with the deceased spouses that he
would get 25% of the market value of the subject land if the complaint filed against them
by Chong would be dismissed. Despite the fact that he had successfully represented
them, respondents refused his written demand for payment of the contracted attorneys
fees. Atty. Francisco insisted that he was entitled to 25% of the value of the subject land
on the basis of quantum meruit.
The RTC denied Atty. Francisco's motion on the ground that it was filed out of time. The
RTC stated that, considering that the motion was filed too late, it had already lost
jurisdiction over the case because a final decision could not be amended or corrected
except for clerical errors or mistakes. There would be a variance of the judgment
rendered if his claim for attorneys fees would still be included.
Issue: Whether or not the period of action to recover attorneys fees has prescribed.
Ruling: There are 2 concepts of attorneys fees ordinary and extraordinary. In its
ordinary sense, it is the reasonable compensation paid to a lawyer by his client for legal
services rendered. In its extraordinary concept, it is awarded by the court to the
successful litigant to be paid by the losing party as indemnity for damages. Although
both concepts are similar in some respects, they differ from each other.
The attorneys fee which a court may award to a winning litigant is an item of damages.
It differs from that which a client pays his counsel for his professional services. The
award that the court may grant to a successful party by way of attorneys fee is an
indemnity for damages sustained by him in prosecuting or defending through counsel
SLU SOL 1-C Page
502
his cause in court. It may be decreed in favor of the party, not his lawyer, in any of the
instances authorized by law.
On the other hand, the attorneys fee which a client pays his counsel refers to the
compensation for his services. The losing party against whom damages by way of
attorneys fees may be assessed is not bound by, nor is his liability dependent upon, the
fee arrangement of the prevailing party with his lawyer. The amount stipulated in such
fee arrangement may, however, be taken into account by the court in fixing the amount
of counsel fees as an element of damages.
The fact that the practice of law is not a business and the attorney plays a vital role in
the administration of justice underscores the need to secure him his honorarium lawfully
earned as a means to preserve the decorum and respectability of the legal profession. A
lawyer is as much entitled to judicial protection against injustice, imposition, or fraud on
the part of his client as the client against abuse on the part of his counsel. The duty of
the court is not alone to see that a lawyer acts in a proper and lawful manner. It is also
its duty to see that a lawyer is paid his just fees. With his capital consisting of his brains
and with his skill acquired at tremendous cost not only in money but in expenditure of
time and energy, he is entitled to the protection of any judicial tribunal against any
attempt on the part of his client to escape payment of his just compensation. It would be
ironic if, after putting forth the best in him to secure justice for his client, he himself
would not get his due.
The SC, however, was resistant in granting Atty. Francisco's prayer for an award of 25%
attorney's fees based on the value of the property subject of litigation because he failed
to clearly substantiate the details of his oral agreement with Sps. de Guzman. A fair and
reasonable amount of attorney's fees should be 15% of the market value of the
property.
SLU SOL 1-C Page
503
Vector Shipping v. American Home, 3 July 2013
VECTOR SHIPPING CORPORATION and FRANCISCO SORIANO, petitioners,

vs.
AMERICAN HOME COMPANY and SULPICIO LINES, INC., respondents.
G.R. No. 159213 July 3, 2013
Facts: Vector was the operator of the motor tanker M/T Vector, while Soriano was the
registered owner of the M/T Vector. Respondent is a domestic insurance corporation.
On September 30, 1987, Caltex entered into a contract of Affreightment with Vector for
the transport of Caltexs petroleum cargo through the M/T Vector. Caltex insured the
petroleum cargo with respondent for P7,455,421.08 under Marine Open Policy. In the
evening of December 20, 1987, the M/T Vector and the M/V Doa Paz, the latter a
vessel owned and operated by Sulpicio Lines, Inc., collided and led to the sinking of
both vessels. The entire petroleum cargo of Caltex on board the M/T Vector perished.
Respondent indemnified Caltex for the loss of the petroleum cargo in the full amount of
P7,455,421.08 and filed a complaint against Vector, Soriano, and Sulpicio Lines, Inc. to
recover the full amount of P7,455,421.08 it paid to Caltex.
RTC dismissed the case on the ground that the action is upon a quasi-delict and as
such must be commenced within four 4 years from the day they may be brought. The
tort complained of in this case occurred on 20 December 1987.
Issue: Whether or not the action by the respondent is already barred by prescription.
Ruling: Respondents action had not yet prescribed. The argument of Vector and
Soriano would have substance and merit had Civil Case No. 18735 and this case
involved the same parties and litigated the same rights and obligations. But the two
actions were separate from and independent of each other. Civil Case No. 18735 was
instituted by Sulpicio Lines, Inc. to recover damages for the loss of its M/V Doa Paz. In
contrast, this action was brought by respondent to recover from Vector and Soriano
whatever it had paid to Caltex under its marine insurance policy on the basis of its right
of subrogation. With the clear variance between the two actions, the failure to set up the
cross-claim against them in Civil Case No. 18735 is no reason to bar this action.
SLU SOL 1-C Page
504
Villeza v. German Management, 8 August 2010
ERNESTO VILLEZA, petitioner,

vs.
GERMAN MANAGEMENT AND SERVICES, INC., DOMINGO RENE JOSE, PIO
DIOKNO, SESINANDO FAJARDO, BAYANI OLIPINO, ROLANDO ROMILO and
JOHN DOES, respondents.
G.R. No. 182937 August 8, 2010
Facts: This petition sprouted from an earlier Supreme Court ruling in German
Management v. Court of Appeals, G.R. Nos. 72616-76217, September 14, 1989, which
has already become final and executory. The decision, however, remains unenforced
due to the prevailing partys own inaction. On May 27, 1991, the petitioner filed a Motion
for Issuance of Writ of Execution with the MeTC. Three years later, as there was no
further movement, the said court issued an order dated January 9, 1995 denying
petitioners pending Motion for Issuance of Writ of Execution for lack of interest. As the
sheriff was implementing the writ, an Opposition with Motion to Quash Writ of Execution
was filed by German Management and Services, Inc. On June 3, 1999, an order was
handed down granting the motion to quash the writ of execution issued. On October 3,
2000, Villeza filed with the MeTC a Complaint for Revival of Judgment of the Decision of
the Supreme Court dated September 14, 1989. Respondent German Management
moved to dismiss the complaint. It alleged that it had been more than 10 years from the
time the right of action accrued, that is, from October 5, 1989, the date of the finality of
the Court's decision to October 3, 2000, the date of the filing of the complaint for its
revival. It further argued that, pursuant to Section 6, Rule 39 of the Rules of Court in
relation to Article 1144 of the Civil Code, the complaint is now barred by the statute of
limitations. On March 29, 2001, the MeTC granted the motion to dismiss. Aggrieved,
petitioner Villeza appealed the decision to the Regional Trial Court (RTC) which affirmed
in toto the MeTC order of dismissal in its April 24, 2004 Decision. Petitioner Villeza
elevated the case to the Court of Appeals (CA) arguing that the 10-year prescriptive
period was tolled by the suspension granted him by the MeTC of Antipolo pursuant to
his request to hold in abeyance the issuance of the writ of execution. The Ca affirmed in
toto the decision of the trial court.
Issue: Whether or not petitioner's contention is meritorious.
Ruling: An action for revival of judgment is governed by Article 1144 (3), Article 1152 of
the Civil Code and Section 6, Rule 39 of the Rules of Court. Thus, Art. 1144. The
following actions must be brought within ten years from the time the right of action
accrues: (3)Upon a judgment Article 1152 of the Civil Code states: Art. 1152. The period
for prescription of actions to demand the fulfillment of obligations declared by a
judgment commences from the time the judgment became final. The rules are clear.
Once a judgment becomes final and executory, the prevailing party can have it
executed as a matter of right by mere motion within five years from the date of entry of
judgment. If the prevailing party fails to have the decision enforced by a motion after the
SLU SOL 1-C Page
505
lapse of five years, the said judgment is reduced to a right of action which must be
enforced by the institution of a complaint in a regular court within ten years from the
time the judgment becomes final.
SLU SOL 1-C Page
506
Insurance of the Philippine Islands v. Sps. Gregorio, 14 February 2011
INSURANCE OF THE PHILIPPINE ISLANDS CORPORATION, petitioner,

vs.
SPOUSES VIDAL S. GREGORIO and JULITA GREGORIO, respondents.
G.R. No. 174104 February 14, 2011
Facts: Spouses Vidal Gregorio and Julita Gregorio obtained loans from the Insurance of
the Philippine Islands Corporation. By way of security for the said loan, respondents
executed Real Estate Mortgage. Respondents failed to pay their loans, as a result of
which the mortgaged properties were extrajudicially foreclosed.
Petitioner filed a Complaint for damages against respondents alleging that in 1995,
when it was in the process of gathering documents for the purpose of filing an
application for the registration and confirmation of its title over the foreclosed properties,
it discovered that the said lots were already registered in the names of third persons
and transfer certificates of title (TCT) were issued to them.
The RTC of Morong, Rizal, ruled in favor of petitioner, while the CA rendered a Decision
reversing and setting aside the decision of the RTC and dismissing the complaint of
petitioner. It ruled that petitioner's action for damages is barred by prescription and
laches.
Issue: Whether or not petitioner's right of action prescribed four years after the subject
properties were registered with the Register of Deeds of Morong, Rizal and TCTs were
subsequently issued in the names of third persons.
Ruling: The petition is meritorious. The Court finds no error in the ruling of the CA that
petitioner's cause of action accrued at the time it discovered the alleged fraud
committed by respondents. It is at this point that the four-year prescriptive period should
be counted. However, the Court does not agree with the CA in its ruling that the
discovery of the fraud should be reckoned from the time of registration of the titles
covering the subject properties. The reckoning period for prescription of petitioner's
action should be from the time of actual discovery of the fraud.
Neither may the principle of laches apply in the present case. The essence of laches or
stale demands is the failure or neglect for an unreasonable and unexplained length of
time to do that which, by exercising due diligence, could or should have been done
earlier, thus, giving rise to a presumption that the party entitled to assert it either has
abandoned or declined to assert it. It is not concerned with mere lapse of time; the fact
of delay, standing alone, being insufficient to constitute laches.
Petition is denied. The decision of CA is affirmed.

SLU SOL 1-C Page
507
Mariano v. Petron, 21 January 2010
ROMEO D. MARIANO, petitioner,

vs.
PETRON CORPORATION, respondent.
G.R. No. 169438 January 21, 2010
Facts: On 5 November 1968, Pacita V. Aure, Nicomedes Aure Bundac, and Zeny
Abundo (Aure Group), owners of a 2,064 square meter parcel of land in Tagaytay City
(Property), leased the Property to ESSO Standard Eastern, Inc., (ESSO Eastern), a
foreign corporation doing business in the country through its subsidiary ESSO Standard
Philippines, Inc. (ESSO Philippines). The lease period is 90 years and the rent is
payable monthly for the first 10 years, and annually for the remaining period. The lease
contract (Contract) contained an assignment veto clause barring the parties from
assigning the lease without prior consent of the other. Excluded from the prohibition
were certain corporations to whom ESSO Eastern may unilaterally assign its leasehold
right.
On 23 December 1977, ESSO Eastern sold ESSO Philippines to the Philippine National
Oil Corporation (PNOC). Apparently, the Aure Group was not informed of the sale.
ESSO Philippines, whose corporate name was successively changed to Petrophil
Corporation then to Petron Corporation (Petron), took possession of the Property.
On 18 November 1993, petitioner Romeo D. Mariano (petitioner) bought the Property

from the Aure Group and obtained title to the Property issued in his name bearing an
annotation of ESSO Easterns lease.
On 17 December 1998, petitioner sent to Petron a notice to vacate the Property.

Petitioner informed Petron that Presidential Decree No. 471 (PD 471), dated 24 May
1974, reduced the Contracts duration from 90 to 25 years, ending on 13 November
1993. Despite receiving the notice to vacate on 21 December 1998, Petron remained on
the Property.
Issue: Whether or not the Contract subsists between petitioner and Petron.
Ruling: Petitioners waiver of Petrons contractual breach was compounded by his long
inaction to seek judicial redress. Petitioner filed his complaint nearly 22 years after
PNOC acquired the leasehold rights to the Property and almost six years after petitioner
bought the Property from the Aure Group. The more than two decades lapse puts this
case well within the territory of the 10 year prescriptive bar to suits based upon a written
contract under Article 1144 (1) of the Civil Code.
SLU SOL 1-C Page
508
SPOUSES PATRICIO and MYRNA BERNALES, petitioners,

vs.
HEIRS OF JULIAN SAMBAAN, namely: EMMA S. FELICILDA, ANITA S. SAMBAAN,
VIOLETA S. DADSANAN, ABSALON S. SAMBAAN, AGUSTINE S. SAMBAAN,
EDITHA S. MANGUIRAN, GRACE S. NITCHA, CLODUALDO S. SAMBAAN, GINA S.
SAMBAAN and FE S. YAP, respondents.
G.R. No. 163271 January 15, 2010
Facts: Spouses Julian and Guillerma Sambaan were the registered owner of a property
located in Bulua, Cagayan de oro City. The respondents and the petitioner Myrna
Bernales are the children of Julian and Guillerma. Myrna, who is the eldest of the
siblings, is the present owner and possessor of the property in question. Julian died in
an ambush in 1975. Before he died, he requested that the property in question be
redeemed from Myrna and her husband Patricio Bernales. Thus, in 1982 one of Julians
siblings offered to redeem the property but the petitioners refused because they were
allegedly using the property as tethering place for their cattle. In January 1991,
respondents received an information that the subject property was already transferred
to Myrna Bernales. The Deed of Absolute Sale dated December 7, 1970 bore the forged
signatures of their parents, Julian and Guillerma. On April 1993, the respondents,
together with their mother Guillerma, filed a complaint for Annulment of Deed of
Absolute Sale and cancellation of TCT No. T-14204 alleging that their parents
signatures were forged. The trial court rendered a decision on August 2, 2001 cancelling
the TCT and ordering another title to be issued in the name of the late Julian Sambaan.
Petitioners went to the CA and appealed the decision. The CA affirmed the decision of
the lower court. A motion for reconsideration of the decision was, likewise, denied in
2004. Hence, this petition for certiorari.
Issue: Whether or not the Deed of Absolute Sale is authentic as to prove the ownership
of the petitioners over the subject property.
Ruling: It is a question of fact rather than of law. Well-settled is the rule that the
Supreme Court is not a trier of facts. Factual findings of the lower courts are entitled to
great weight and respect on appeal, and in fact accorded finality when supported by
substantial evidence on the record. Substantial evidence is more than a mere scintilla of
evidence. It is that amount of relevant evidence that a reasonable mind might accept as
adequate to support a conclusion, even if other minds, equally reasonable, might
conceivably opine otherwise. But to erase any doubt on the correctness of the assailed
ruling, we have carefully perused the records and, nonetheless, arrived at the same
conclusion. We find that there is substantial evidence on record to support the Court of
Appeals and trial courts conclusion that the signatures of Julian and Guillerma in the
Deed of Absolute Sale were forged. Conclusions and findings of fact by the trial court
are entitled to great weight on appeal and should not be disturbed unless for strong and
cogent reasons because the trial court is in a better position to examine real evidence,
SLU SOL 1-C Page
509
as well as to observe the demeanor of the witnesses while testifying in the case. The
fact that the CA adopted the findings of fact of the trial court makes the same binding
upon this court. Thus, we hold that with the presentation of the forged deed, even if
accompanied by the owners duplicate certificate of title, the registered owner did not
thereby lose his title, and neither does the assignee in the forged deed acquire any right
or title to the said property.
SLU SOL 1-C Page
510
Art. 1155, Interruption
B & I Realty v. Caspe, 543 S 1
B & I REALTY CO., INC., petitioner,

vs.
TEODORO CASPE and PURIFICACION AGUILAR CASPE, respondents.
G.R. No. 146972 January 29, 2008
Facts: Consorcia L. Venegas was the owner of a parcel of land located in Barrio
Bagong-Ilog in Pasig, Rizal and covered by TCT No. 247434. She delivered said title to,
and executed a simulated deed of sale in favor of, Datuin for purposes of obtaining a
loan with the RCBC. Datuin claimed that he had connections with the management of
RCBC and offered his assistance to Venegas in obtaining a loan from the bank. He
issued a receipt to the Venegases, acknowledging that the lot was to be used as a
collateral for bank financing and that the deed of sale was executed only as a device to
obtain the loan. However, Datuin prepared a deed of absolute sale and, through forgery,
made it appear that the spouses Venegas executed the document in his favor. Venegas
learned of Datuin's fraudulent scheme when she sold the lot to herein respondents for
P160,000 in a deed of conditional sale. She, along with her husband, instituted a
complaint against Datuin in the then Court of First Instance CFI of Rizal, Branch 11,
docketed as Civil Case No. 188893, for recovery of property and nullification of TCT No.
377734, with damages. However, when the case was called for pre-trial, the Venegases'
counsel failed to appear and the complaint was eventually dismissed without prejudice.
Issue: Whether or not filing of Civil Case No. 36852 by the Venegases had the effect of
interrupting the prescriptive period for the filing of the complaint for judicial foreclosure
of mortgage.
Ruling: We agree with the CA's ruling that Civil Case No. 36852 did not have the effect
of interrupting the prescription of the action for foreclosure of mortgage as it was not an
action for foreclosure but one for annulment of title and nullification of the deed of
mortgage and the deed of sale. It was not at all the action contemplated in Article 1155
of the Civil Code which explicitly provides that the prescription of an action is interrupted
only when the action itself is filed in court. Petitioner could have protected its right over
the property by filing a cross-claim for judicial foreclosure of mortgage against
respondents in Civil Case No. 36852. The filing of a cross-claim would have been
proper there. All the issues pertaining to the mortgage validity of the mortgage and the
propriety of foreclosure would have been passed upon concurrently and not on a
piecemeal basis. This should be the case as the issue of foreclosure of the subject
mortgage was connected with, or dependent on, the subject of annulment of mortgage
in Civil Case No. 36852. The actuations clearly manifested that petitioner knew its rights
under the law but chose to sleep on the same.
SLU SOL 1-C Page

511
MELANIE M. MESINA, DANILO M. MESINA, and SIMEON M. MESINA, petitioners,

vs.
GLORIA C. GARCIA, respondent.
G.R. No. 168035 November 30, 2006
Facts: Atty. Honorio Valisno Garcia and Felicisima Mesina, during their lifetime, entered
into a Contract to Sell over a lot consisting of 235 square meters, situated at Diversion
Road, Sangitan, Cabanatuan City, covered and embraced by TCT No. T-31643 in the
name of Felicisima Mesina which title was eventually cancelled and TCT No. T-78881
was issued in the name of herein petitioners. The Contract to Sell provides that the cost
of the lot is P70.00 per square meter for a total amount of P16,450.00; payable within a
period not to exceed 7 years at an interest rate of 12% per annum, in successive
monthly installments of P260.85 per month, starting May 1977. Thereafter, the
succeeding monthly installments are to be paid within the first week of every month, at
the residence of the vendor at Quezon City, with all unpaid monthly installments earning
an interest of 1% per month. Instituting this case at bar, respondent asserts that despite
the full payment made on 7 February 1984 for the consideration of the subject lot,
petitioners refused to issue the necessary Deed of Sale to effect the transfer of the
property to her.
Issue: Whether or not respondents cause of action had already prescribed.
Ruling: Article 1155 of the Civil Code is explicit that the prescriptive period is
interrupted when an action has been filed in court; when there is a written extrajudicial
demand made by the creditors; and when there is any written acknowledgment of the
debt by the debtor. The records reveal that starting 19 April 1986 until 2 January 1997
respondent continuously demanded from the petitioners the execution of the said Deed
of Absolute Sale but the latter conjured many reasons and excuses not to execute the
same. Respondent even filed a Complaint before the Housing and Land Use Regulatory
Board way back in June, 1986, to enforce her rights and to compel the mother of herein
petitioners, who was still alive at that time, to execute the necessary Deed of Absolute
Sale for the transfer of title in her name. On 2 January 1997, respondent, through her
counsel, sent a final demand letter to the petitioners for the execution of the Deed of
Absolute Sale, but still to no avail. Consequently, because of utter frustration of the
respondent, she finally lodged a formal Complaint for Specific Performance with
Damages before the trial court on 20 January 1997. Hence, from the series of written
extrajudicial demands made by respondent to have the execution of the Deed of
Absolute Sale in her favor, the prescriptive period of 10 years has been interrupted.
Therefore, it cannot be said that the cause of action of the respondent has already been
prescribed.
SLU SOL 1-C Page
512
Heirs of Gaudiane v. CA, 11 March 2004
HEIRS OF JUANA GAUDIANE, petitioners,

vs.
COURT OF APPEALS and THE HEIRS OF FELIX GAUDIANE, respondents.
G.R. No. 119879 March 11, 2004
Facts: The lot in controversy is Lot 4389 located at Dumaguete City and covered by
Original Certificate of Title No. 2986-A (OCT 2986-A) in the names of co-owners Felix
and Juana Gaudiane. Felix died in 1943 while his sister Juana died in 1939. Herein
respondents are the descendants of Felix while petitioners are the descendants of
Juana. On November 4, 1927, Felix executed a document entitled Escritura de Compra-
Venta (Escritura, for brevity) whereby he sold to his sister Juana his one-half share in
Lot No. 4156 covered by Transfer Certificate of Title No. 3317-A. Petitioners
predecessors-in-interest, Geronimo and Ines Iso (the Isos), believed that the sale by
Felix to their mother Juana in 1927 included not only Lot 4156 but also Lot 4389. In
1974, they filed a pleading in the trial court seeking to direct the Register of Deeds of
Dumaguete City to cancel OCT 2986-A covering Lot 4389 and to issue a new title in
favor of the Isos. This was later withdrawn after respondents predecessors-in-interest,
Procopio Gaudiane and Segundo Gaudiane, opposed it on the ground that the Isos
falsified their copy of the Escritura by erasing Lot 4156 and intercalating in its place Lot
4389.
Issue: Whether or not the court gravely erred in not giving due course to the claim of
petitioners and legal effect of prescription and laches adverted by defendants-appellants
in their answer and affirmative defenses proven during the hearing by documentary and
testimonial evidence.
Ruling: As a general rule, ownership over titled property cannot be lost through
prescription.[12] Petitioners, however, invoke our ruling in Tambot vs. Court of
Appeals[13] which held that titled property may be acquired through prescription by a
person who possessed the same for 36 years without any objection from the registered
owner who was obviously guilty of laches. Petitioners claim is already rendered moot
by our ruling barring petitioners from raising the defense of exclusive ownership due to
res judicata. Even assuming arguendo that petitioners are not so barred, their
contention is erroneous. As explained earlier, only Lot No. 4156 was sold. It was
through this misrepresentation that appellees predecessor-in-interest succeeded in
withholding possession of appellees share in Lot No. 4389. Appellees cannot, by their
own fraudulent act, benefit therefrom by alleging prescription and laches.
SLU SOL 1-C Page
513
Laureano v. CA, 9 March 2000
MENANDRO B. LAUREANO, petitioner,

vs.
COURT OF APPEALS AND SINGAPORE AIRLINES LIMITED, respondents.
G.R. No. 114776 February 2, 2000
Facts: In 1978, the Singapore Airlines Limited (SAL) hired Menandro Laureano as a
pilot. In 1982 however, SAL was hit by recession and so it had to lay off some
employees. Laureano was one of them. Laureano asked for reconsideration but it was
not granted. Aggrieved, Laureano filed a labor case for illegal dismissal against SAL.
But in 1987, he withdrew the labor case and instead filed a civil case for damages due
to illegal termination of contract against SAL. Laureano filed the case here in the
Philippines. SAL moved for the dismissal of the case on the ground of lack of
jurisdiction. The motion was denied. On trial, SAL alleged that the termination of
Laureano is valid pursuant to Singaporean law. The trial court ruled in favor of
Laureano. SAL appealed the case raising the issue of lack of jurisdiction, non-
applicability of Philippine laws, and estoppel, among others. The Court of Appeals
reversed the trial court.
Issue: Whether or not Singaporean Law is applicable to this case.
Ruling: No. The specific Singaporean Law which holds valid the dismissal of Laureano
is not proved in court. As such, the trial court cannot make a determination if the
termination is indeed valid under Singaporean Law. Philippine courts do not take judicial
notice of the laws of Singapore. SAL has the burden of proof. SAL failed to prove such
law hence Philippine law shall apply. However, the case must be dismissed on the
ground of estoppel. Under our laws, all money claims arising from employer-employee
relationships must be filed within three years from the time the cause of action accrued.
Laureanos cause of action accrued in 1982 when he was terminated but he only filed
the money claim in 1987 or more than three years from 1982. Hence he is already
barred by prescription.
SLU SOL 1-C Page
514
Banco Filipino v. CA, 30 May 2000
BANCO FILIPINO, petitioner,

vs.
G.R. No. 155181 April 15, 2005
Facts: Elsa Arcilla and her husband, Calvin Arcilla secured on three occasions, loans
from the Banco Filipino Savings and Mortgage bank in the amount of Php.107,946.00
as evidenced by the Promissory Note executed by the spouses in favor of the said
bank. To secure payment of said loans, the spouses executed Real Estate Mortgages
in favor of the appellants (Banco Filipino) over their parcels of land. The appellee
spouses failed to pay their monthly amortization to appellant. On September 2, 1985 the
appellees filed a complaint for Annulment of the Loan Contracts, Foreclosure Sale
with Prohibitory and Injunction which was granted by the RTC. Petitioners appealed to
the Court of Appeals, but the CA affirmed the decision of the RTC.
Issue: Whether or not the CA erred when it held that the cause of action of the private
respondents accrued on October 30, 1978 and the filing of their complaint for annulment
of their contracts in 1085 was not yet barred by the prescription.
Ruling: The court held that the petition is unmeritorious. Petitioners claim that the
action of the private respondents have prescribed is bereft of merit. Under Article 1150
of the Civil Code, the time for prescription of all kinds of action where there is no special
provision which ordains otherwise shall be counted from the day they may be brought.
Thus the period of prescription of any cause of action is reckoned only from the date of
the cause of action accrued. The period should not be made to retroact to the date of
the execution of the contract, but from the date they received the statement of account
showing the increased rate of interest, for it was only from the moment that they
discovered the petitioners unilateral increase thereof.
SLU SOL 1-C Page
515
Vda. De Delgado v. CA, 28 August 2001
MARIA ALVAREZ VDA. DE DELGADO, CATALINA C. DELGADO, NATIVIDAD D.

CLUTARIO, ANTONIA DELGADO, FLORINTINO DELGADO, PACIENCIA D.
CAZORLA, GLORIA D. SOTIANGCO, JOSE DELGADO, JR., MARLENE D.
SENNER, JOEL DELGADO, MARISSA DELGADO, JESUS DELGADO, JANICE
DELGADO, VICTORINO DELGADO, and JUAN DELGADO, petitioners,
vs.
HON. COURT OF APPEALS and REPUBLIC OF THE PHILIPPINES, respondents.
G.R. No. 125728 August 28, 2001
Facts: Carlos Delgado was the absolute owner of a parcel of land with an area of
692,549 square meter situated in the Municipality of Catarman Samar. Carlos Delgado
granted and conveyed by way of donation with quitclaim all rights, title, interest claim
and demand over a portion of land with an area of 165,000 square meter in favor of the
Commonwealth of the Philippines. The acceptance was then made to President Quezon
in his capacity as Commander-in-Chief. The Deed of Donation was executed with a
condition that the said land will be used for the formation of the National Defense of the
Philippines. The said parcel of land then covered by the Torrens System of the
Philippines and was registered in the name of Commonwealth of the Philippines for a
period of 40 years. The land was registered under TCT 0-2539-160 in favor of the
Commonwealth however without any annotation.
Upon declaration of independence, the Commonwealth was replaced by Republic of the

Philippines which took over the subject land and turned over to Civil Aeronautics
Administration, later named Bureau of Air Transportation Office. The said agency utilizes
the said land a domestic airport.
Jose Delgado filed a petition for reconveyance for a violation of the condition. The RTC
ruled in favor of the plaintiff Delgado. But the CA reversed the said decision because of
prescription. The petitioner filed only before 24 years of discovery which the law only
requires 10 years of filing.
Issue: Whether or not the petitioners action for reconveyance is already barred by
prescription.
Ruling: The Supreme Court denied the petition and affirmed the decision of the Court of
Appeals because the time of filing has been prescribed. Under Article 1144 of the Civil
Code on Prescription based on written contracts, the filing of action for reconveyance is
within 10 years from the time the condition in the Deed of Donation was violated. The
petitioner herein filed only 24 years in the first action and 43 years in the second filing of
the 2nd action.
The action for reconveyance on the alleged excess of 33, 607 square meter mistakenly
included in the title was also prescribed Article 1456 of the Civil Code states, if property
SLU SOL 1-C Page
516
is acquired through mistake or fraud, the person obtaining it is, by force of law,
considered a trustee of an implied trust for the benefits of the person from whom the
property comes, if within 10 years such action for reconveyance has not been executed.
SLU SOL 1-C Page
517
Maestrado v. CA, 9 March 2000
JOSEFA CH. MAESTRADO, as substituted by her daughter LOURDES

MAESTRADO-LAVIA and CARMEN CH. ABAYA, petitioners,
vs.
THE HONORABLE COURT OF APPEALS, Ninth Division and JESUS C. ROA, JR.,
RAMON P. CHAVES and NATIVIDAD S. SANTOS, respondents.
G.R. No. 133345 March 9, 2000
Facts: These consolidated cases involve Lot No. 5872 and the rights of the contending
parties thereto. The lot has an area of 57.601 sq.m. and is registered in the name of the
deceased spouses Ramon and Rosario Chaves. The spouses died intestate in 1943
and 1944, respectively. They were survived by six heirs. To settle the estate of said
spouse, Angel Chaves, one of the heirs, initiated intestate proceedings and was
appointed administrator of said estates in the process. An inventory of the estates was
made and thereafter, the heirs agreed on a project partition. The court approved the
partition but a copy of said decision was missing. Nonetheless, the estate was divided
among the heirs. Subsequently, in 1956, the partition case effected and the respective
shares of the heirs were delivered to them. Significantly, Lot No.5872 was not included
in a number of documents. Parties offered different explanations as to the omission of
said lot in the documents. Petitioners maintain the existence of an oral partition
agreement entered into by all heirs after the death of their parents. To set things right,
petitioners then prepared a quitclaim to confirm the alleged oral agreement.
Respondents dispute voluntariness of their consent to the quitclaims. Six years after the
execution of the quitclaims, respondents discovered that indeed subject lot was still a
common property in the name of the deceased spouses. Eventually, an action for
Quieting of Title was filed by petitioners on December 22, 1983. The trial court
considered Lot No. 5872 as still a common property and therefore must be divided into
six parts, there being six heirs. Petitioners appealed to the Court of Appeals which
sustained the decision of the trial court.
Issue: Whether or not the action for quieting of title had already prescribed.
Ruling: The Supreme Court ruled that an action for quieting of title is imprescriptible
especially if the plaintiff is in possession of the property being litigated. One who is in
actual possession of a land, claiming to be the owner thereof may wait until his
possession is disturbed or his title is attacked before making steps to vindicate his right
because his undisturbed possession gives him a continuing right to seek the aid of the
courts to ascertain the nature of the adverse claim and its effect on his title. Moreover,
the Court held that laches is inapplicable in this case. This is because, as mentioned
earlier, petitioners' possession of the subject lot has rendered their right to bring an
action for quieting of title imprescriptible.
SLU SOL 1-C Page
518
Art. 1431, Estoppel: Definition and Meaning
F.A.T. Kee Computer v. Online Networks, 2 February 2011
F.A.T. KEE COMPUTER SYSTEMS, INC., petitioner,

vs.
ONLINE NETWORKS INTERNATIONAL, INC., respondent.
G.R. No. 171238 February 2, 2011
Facts: Petitioner F.A.T. Kee Computer Systems, Inc. (FAT KEE) is a domestic
corporation engaged in the business of selling computer equipment and conducting
maintenance services for the units it sold. ONLINE is also a domestic corporation
principally engaged in the business of selling computer units, parts and software.
ONLINE sold computer printers to FAT KEE. However, FAT KEE failed to pay its
obligations to ONLINE without any valid reason. ONLINE filed a Complaint for Sum of
Money against FAT KEE. During the trial FAT KEE insisted that the conversion rate they
agreed upon was P34:US$1 and not P40 as insisted by ONLINE. The RTC dismissed
the complaint of ONLINE for the latters failure to establish its claim. The appellate court
reversed and set aside the Decision of the RTC. The CA ruled that even granting that
FAT KEE was of the impression that P34:$1 was the applicable rate for its obligation,
ONLINE cannot be put in estoppel as this was immediately rectified by
ONLINE.
Issue: Whether or not ONLINE is estopped as to the conversion rate used.
Ruling: The petition is partly meritorious. One who claims the benefit of an estoppel on
the ground that he has been misled by the representations of another must not have
been misled through his own want of reasonable care and circumspection. A lack of
diligence by a party claiming an estoppel is generally fatal. Thus, after participating in
the meeting on January 15, 1998, submitting its own proposals and further negotiating
for the lowering of the exchange rate, FAT KEE cannot anymore insist that it was
completely under the impression that the applicable exchange rate was P34:US$1.
SLU SOL 1-C Page
519
Tanay Recreation v. Fausto, 455 S 436
TANAY RECREATION CENTER AND DEVELOPMENT CORP., petitioner,

vs.
CATALINA FAUSTO, et al., respondents.
G.R. No. 140182 April 12, 2005
Facts: Petitioner Tanay Recreation Center and Development Corp. (TRCDC) is the
lessee of a 3,090-square meter property owned by Catalina Matienzo Fausto, under a
Contract of Lease. On this property stands the Tanay Coliseum Cockpit operated by
petitioner. The lease contract provided for a 20-year term, subject to renewal within sixty
days prior to its expiration. The contract also provided that should Fausto decide to sell
the property, petitioner shall have the priority right to purchase the same. On June 17,
1991, petitioner wrote Fausto informing her of its intention to renew the lease. However,
it was Faustos daughter, respondent Anunciacion F. Pacunayen, who replied, asking
that petitioner remove the improvements built thereon, as she is now the absolute
owner of the property. It appears that Fausto had earlier sold the property to Pacunayen
and title has already been transferred in her name. Petitioner filed an Amended
Complaint for Annulment of Deed of Sale, Specific Performance with Damages, and
Injunction In her Answer, respondent claimed that petitioner is estopped from assailing
the validity of the deed of sale as the latter acknowledged her ownership when it merely
asked for a renewal of the lease. According to respondent, when they met to discuss the
matter, petitioner did not demand for the exercise of its option to purchase the property,
and it even asked for grace period to vacate the premises.
Issue: Whether or not the contention in this case refers to petitioners priority right to
purchase, also referred to as the right of first refusal.
Ruling: Petitioners right of first refusal is an integral and indivisible part of the contract
of lease and is inseparable from the whole contract. The consideration for the lease
includes the consideration for the right of first refusal and is built into the reciprocal
obligations of the parties. It was erroneous for the CA to rule that the right of first refusal
does not apply when the property is sold to Faustos relative. When the terms of an
agreement have been reduced to writing, it is considered as containing all the terms
agreed upon. As such, there can be, between the parties and their successors in
interest, no evidence of such terms other than the contents of the written agreement,
except when it fails to express the true intent and agreement of the parties.
Thus, under the terms of petitioners right of first refusal, Fausto has the legal duty to
petitioner not to sell the property to anybody, even her relatives, at any price until after
she has made an offer to sell to petitioner at a certain price and said offer was rejected
by petitioner.
SLU SOL 1-C Page
520
Mendoza v. CA
DANILO D. MENDOZA, also doing business under the name and style of
ATLANTIC EXCHAGE PHILIPPINES, petitioner,
vs.
COURT OF APPEALS, PHILIPPINE NATIONAL BANK, FERNANDO MARAMAG JR.,
RICARDO G. DECEPIDA, and BAYANI A. BAUTISTA, respondent.
G.R. No. 116710 June 25, 2001
Facts: Respondent was granted by respondent Philippine National Bank (PNB) credit
line and Letter of Credit/Trust Receipt (LC/TR) line. As security for the credit
accommodations and for those which may thereinafter be granted, petitioner mortgaged
to respondent PNB some of his properties. Petitioner later requested for loan
restructuring and issued promissory notes, which he failed to comply. Respondent PNB
extra-judicially foreclosed the real and chattel mortgages, and the mortgaged properties
were sold at public auction to respondent PNB, as highest bidder. Petitioner filed a case
in the RTC contending that foreclosure is illegal invoking promissory estoppel, and
secured favorable judgment. The decision of RTC was reversed by the Court of
Appeals.
Issue: Whether or not the foreclosure of petitioners real estate and chattel mortgages
were legal and valid as opposed to promissory estoppel.
Ruling: Yes. First, there was no promissory estoppel as the promise (of respondent
bank) must be plain and unambiguous and sufficiently specific. Second, there was no
meeting of the minds leading to another contract, hence loan was not restructured.
Third, promissory notes petitioner issued were valid. Fourth, stipulation in the mortgage,
extending its scope and effect to after-acquired property is valid and binding after the
correct and valid process of extra-judicial foreclosure. Finally, record showed that
petitioner did not even attempt to tender any redemption price during the one-year
redemption period.
SLU SOL 1-C Page
521
Lim v. Queensland, 373 S 31
JEFFERSON LIM, petitioner,

vs.
QUEENSLAND TOKYO COMMODITIES, INC., respondent.
G.R. No. 136031 January 4, 2002
Facts: Private respondent Queensland Tokyo Commodities, Incorporated (Queensland,

for brevity) is a duly licensed broker engaged in the trading of commodities futures with
full membership and with a floor trading right at the Manila Futures Exchange, Inc.
Sometime in 1992, Benjamin Shia, a market analyst and trader of Queensland, was
introduced to petitioner Jefferson Lim by Marissa Bontia, one of his employees.
Marissa's father was a former employee of Lim's father.
Shia suggested that Lim invest in the Foreign Exchange Market, trading U.S. dollar
against the Japanese yen, British pound, Deutsche Mark and Swiss Franc.
Before investing, Lim requested Shia for proof that the foreign exchange was really
lucrative. They conducted mock tradings without money involved. As the mock trading
showed profitability, Lim decided to invest with a marginal deposit of US$5,000 in
manager's check. The marginal deposit represented the advance capital for his future
tradings. It was made to apply to any authorized future transactions, and answered for
any trading account against which the deposit was made, for any loss of whatever
nature, and for all obligations, which the investor would incur with the broker.
Because respondent Queensland dealt in pesos only, it had to convert US$5,000 in

manager's check to pesos, amounting to P125,000 since the exchange rate at that time
was P25 to US$1.00. To accommodate petitioners, request to trade right away, it
advanced the P125,000 from its own funds while waiting for the managers check to
clear. Thereafter, a deposit notice in the amount of P125,000 was issued to
Queensland, marked as Exhibit E. This was sent to Lim who received it as indicated by
his signature marked as Exhibit E-1.
Respondent asked Shia to talk to petitioner for a settlement of his account but petitioner
refused to talk with Shia. Shia made follow-ups for more than a week beginning October
27, 1992. Because petitioner disregarded this request, respondent was compelled to
engage the services of a lawyer, who sent a demand letter to petitioner. This letter went
unheeded. Thus, respondent filed a complaint against petitioner, docketed as Civil Case
No. CEB-13737, for collection of a sum of money.
Issue: Whether or not the appellate court erred in holding that petitioner is estopped
from questioning the validity of the Customers Agreement that he signed.
SLU SOL 1-C Page
522
Ruling: The essential elements of estoppel are: (1) conduct of a party amounting to
false representation or concealment of material facts or at least calculated to convey the
impression that the facts are otherwise than, and inconsistent with, those which the
party subsequently attempts to assert; (2) intent, or at least expectation, that this
conduct shall be acted upon by, or at least influence, the other party; and (3)
knowledge, actual or constructive, of the real facts. Here, it is uncontested that
petitioner had in fact signed the Customers Agreement in the morning of October 22,
1992, knowing full well the nature of the contract he was entering into. The Customers
Agreement was duly notarized and as a public document it is evidence of the fact, which
gave rise to its execution and of the date of the latter. Next, petitioner paid his
investment deposit to respondent in the form of a manager's check in the amount of
US$5,000 as evidenced by PCI Bank Managers Check No. 69007, dated October 22,
1992. All these are indicia that petitioner treated the Customers Agreement as a valid
and binding contract.
Moreover, we agree that, on petitioners part, there was misrepresentation of facts. He

replaced the managers check with an unendorsed traveler's check, instead of cash,
while assuring Shia that respondent Queensland could sign the endorsee portion
thereof. As it turned out, Citibank informed respondent that only the original purchaser
(i.e. the petitioner) could sign said check. When the check was returned to petitioner for
his signature, he refused to sign. Then, as petitioner himself admitted in his
Memorandum, he used the traveler's check for his travel expenses.
SLU SOL 1-C Page
523
Kinds
Placewell v. Camote, 26 June 2006
PLACEWELL INTERNATIONAL SERVICES CORPORATION, petitioner,

vs.
IRENEO B. CAMOTE, respondent.
G.R. No. 169973 June 26, 2006
Facts: Petitioner Placewell International Services Corporation (PISC) deployed

respondent Ireneo B. Camote to work as building carpenter for SAAD Trading and
Contracting Co. (SAAD) at the Kingdom of Saudi Arabia (KSA) for a contract duration of
two years, with a corresponding salary of US$370.00 per month. At the job site,
respondent was allegedly found incompetent by his foreign employer; thus the latter
decided to terminate his services. However, respondent pleaded for his retention and
consented to accept a lower salary of SR 800.00 per month. Thus, SAAD retained
respondent until his return to the Philippines two years after.
On November 27, 2001, respondent filed a sworn Complaint for monetary claims
against petitioner alleging that when he arrived at the job site, he and his fellow Filipino
workers were required to sign another employment contract written in Arabic under the
constraints of losing their jobs if they refused; that for the entire duration of the new
contract, he received only SR 590.00 per month; that he was not given his overtime pay
despite rendering nine hours of work everyday; that he and his co-workers sought
assistance from the Philippine Embassy but they did not succeed in pursuing their
cause of action because of difficulties in communication.
Issue: Whether or not there is estoppel by laches.
Ruling: R.A. No. 8042 explicitly prohibits the substitution or alteration to the prejudice of
the worker, of employment contracts already approved and verified by the Department
of Labor and Employment (DOLE) from the time of actual signing thereof by the parties
up to and including the period of the expiration of the same without the approval of the
DOLE. The subsequently executed side agreement of an overseas contract worker with
her foreign employer which reduced her salary below the amount approved by the
POEA is void because it is against our existing laws, morals and public policy. The said
side agreement cannot supersede her standard employment contract approved by the
POEA.
Petitioners contention that respondent is guilty of laches is without basis. Laches has
been defined as the failure of or neglect for an unreasonable and unexplained length of
time to do that which by exercising due diligence, could or should have been done
earlier, or to assert a right within reasonable time, warranting a presumption that the
party entitled thereto has either abandoned it or declined to assert it. Thus, the doctrine
of laches presumes that the party guilty of negligence had the opportunity to do what
SLU SOL 1-C Page
524
should have been done, but failed to do so. Conversely, if the said party did not have
the occasion to assert the right, then, he cannot be adjudged guilty of laches. Laches is
not concerned with the mere lapse of time; rather, the party must have been afforded an
opportunity to pursue his claim in order that the delay may sufficiently constitute laches.
In the instant case, respondent filed his claim within the three-year prescriptive period
for the filing of money claims set forth in Article 291 of the Labor Code from the time the
cause of action accrued. Thus, we find that the doctrine of laches finds no application in
this case.
SLU SOL 1-C Page
525
Heirs of Ragua v. CA, 31 January 2000
HEIRS OF EULALIO RAGUA, namely, DOMINGO, MARCIANA, MIGUEL,

FRANCISCO, VALERIANA, JUANA, and REMEDIOS, all surnamed RAGUA;
DANILO and CARLOS, both surnamed LARA, petitioners,
vs.
COURT OF APPEALS, REPUBLIC OF THE PHILIPPINES, NATIONAL HOUSING
AUTHORITY, PHILIPPINE AMERICAN LIFE INSURANCE CO., INC., J.M. TUASON &
CO., INC. and HEIRS OF D. TUASON, INC., respondents.
G.R. Nos. 88521-22 January 31, 2000
MARINO T. REGALADO and ELISA C. DUFOURT, petitioners,

vs.
REGIONAL TRIAL COURT, QUEZON CITY, (Branch 88) presided by Hon. Tirso D.C.
Velasco (formerly Court of First Instance, Quezon City, Branch 18, then presided
by Hon. Ernani Cruz Pao), and HONORABLE COURT OF APPEALS (Special
Ninth Division composed of the HONORABLE ASSOCIATE JUSTICES
LUIS A. JAVELLANA, REGINA G. ORDONEZ-BENITEZ, AND LUIS L. VICTOR),
respondents.
G.R. No. 89366-67 January 31, 2000
Facts: These consolidated cases involve a prime lot consisting of 4,399,322 square
meters, known as the Diliman Estate, situated in Quezon City. On this 439 hectares of
prime land now stand the following: the Quezon City Hall, Philippine Science High
School, Quezon Memorial Circle, Visayas Avenue, Ninoy Aquino Parks and Wildlife,
portions of UP Village and East Triangle, the entire Project 6 and Vasha Village,
Veterans Memorial Hospital and golf course, Department of Agriculture, Department of
Environment and Natural Resources, Sugar Regulatory Administration, Philippine
Tobacco Administration, Land Registration Authority, Philcoa Building, Bureau of
Telecommunications, Agricultural Training Institute building, Pagasa Village, San
Francisco School, Quezon City Hospital, portions of Project 7, Mindanao Avenue
subdivision, part of BagoBantay resettlement project, SM City North EDSA, part of Phil-
Am Life Homes compound and four-fifths of North Triangle. This large estate was the
subject of a petition for judicial reconstitution originally filed by Eulalio Ragua in 1964,
which gave rise to protracted legal battles between the affected parties, lasting more
than thirty-five (35) years.
Issue: Whether or not estoppel by laches exists on the part of petitioner.
Ruling: Petitioners filed the petition for reconstitution of OCT 632 nineteen (19) years
after the title was allegedly lost or destroyed. We thus consider petitioners guilty of
laches.
SLU SOL 1-C Page
526
Laches is negligence or omission to assert a right within a reasonable time, warranting
the presumption that the party entitled to assert it either has abandoned or declined to
assert it.
SLU SOL 1-C Page
527
Art. 1436, Estoppel by Deed
Metrobank v. CA, 8 June 2000
METROPOLITAN BANK & TRUST COMPANY, petitioner,

vs.
COURT OF APPEALS and G.T.P. DEVELOPMENT CORPORATION, respondents.
G.R. No. 122899 June 8, 2000
Facts: Mr. Chia offered the subject property for sale to private respondent G.T.P.
Development Corporation (hereafter, GTP), with assumption of the mortgage
indebtedness in favor of petitioner METROBANK secured by the subject property.
Pending negotiations for the proposed sale, Atty. Bernardo Atienza, acting in behalf of
respondent GTP, went to METROBANK to inquire on Mr. Chia's remaining balance on
the real estate mortgage. METROBANK obliged with a statement of account of Mr. Chia
amounting to about P115,000.00 as of August ,1980. The deed of sale and the
memorandum of agreement between Mr. Chia and respondent GTP were eventually
executed and signed. Atty. Atienza went to METROBANK Quiapo Branch and paid one
hundred sixteen thousand four hundred sixteen pesos and seventy-one centavos
(P116,416.71) for which METROBANK issued an official receipt acknowledging
payment. This notwithstanding, petitioner METROBANK refused to release the real
estate mortgage on the subject property despite repeated requests from Atty. Atienza,
thus prompting respondent GTP to file an action for specific performance against
petitioner METROBANK and Mr. Chia.
Issue: Whether or not the CA erred in reversing the decision of the lower court.
Ruling: The Court found no compelling reasons to disturb the assailed decision. All
things studiedly viewed in proper perspective, the Court are of the opinion, and so rule,
that whatever debts or loans mortgagor Chia contracted with Metrobank after
September 4, 1980, without the conformity of plaintiff-appellee, could not be adjudged
as part of the mortgage debt the latter so assumed. We are persuaded that the contrary
ruling on this point in Our October 24, 1994 decision would be unfair and unjust to
plaintiff-appellee because, before buying subject property and assuming the mortgage
debt thereon, the latter inquired from Metrobank about the exact amount of the
mortgage debt involved. Petitioner METROBANK is estopped from refusing the
discharge of the real estate mortgage on the claim that the subject property still secures
"other unliquidated past due loans."
SLU SOL 1-C Page
528
Sps. Manuel v. CA, 1 February 2001
SPOUSES MANUEL and SALVACION DEL CAMPO, petitioners,

vs.
HON. COURT OF APPEALS and HEIRS OF JOSE REGALADO, SR., respondents.
GR. No. 108228 February 1, 2001
Facts: Salome, Consorcia, Alfredo, Maria, Rosalia, Jose, Quirico and Julita, all
surnamed Bornales, were the original co-owners of the lot in question. On July 14,
1940, Salome sold part of her 4/16 share to Soledad Daynolo. Thereafter, Soledad
Daynolo immediately took possession of the land described above and built a house
thereon. A few years later, Soledad and her husband, Simplicio Distajo, mortgaged the
subject portion of the lot as security for a debt to Jose Regalado, Sr. This transaction
was evidenced by a Deed of Mortgage. On April 14, 1948, three of the eight co-owners
of Lot 162, specifically, Salome, Consorcia and Alfredo, sold 24,993 square meters of
said lot to Jose Regalado, Sr. On May 4, 1951, Simplicio Distajo, heir of Soledad
Daynolo who had since died, paid the mortgage debt and redeemed the mortgaged
portion of Lot 162 from Jose Regalado, Sr. The latter, in turn, executed a Deed of
Discharge of Mortgage in favor of Soledads heirs, namely: Simplicio Distajo, Rafael
Distajo and Teresita Distajo-Regalado. On same date, the said heirs sold the redeemed
portion of Lot 162 for P1,500.00 to herein petitioners, the spouses Manuel Del Campo
and Salvacion Quiachon.
Issue: Whether or not the sale of the subject portion constitutes a sale of a concrete or
definite portion of land owned in common does not absolutely deprive herein petitioners
of any right or title thereto.
Ruling: There can be no doubt that the transaction entered into by Salome and
Soledad could be legally recognized in its entirety since the object of the sale did not
even exceed the ideal shares held by the former in the co-ownership. As a matter of
fact, the deed of sale executed between the parties expressly stipulated that the portion
of Lot 162 sold to Soledad would be taken from Salomes 4/16 undivided interest in said
lot, which the latter could validly transfer in whole or in part even without the consent of
the other co-owners. Salomes right to sell part of her undivided interest in the co-owned
property is absolute in accordance with the well-settled doctrine that a co-owner has full
ownership of his pro-indiviso share and has the right to alienate, assign or mortgage it,
and substitute another person in its enjoyment.
SLU SOL 1-C Page
529
Estoppel in Pais by Representation/Positive Acts (Arts. 1434-
1435; Art. 1437)
Cuenco v. Cuenco, 458 S 496 (13 October 2004)
MIGUEL CUENCO, Substituted by MARIETTA C. CUYEGKENG, petitioner,

vs.
CONCEPCION CUENCO Vda. DE MANGUERRA, respondent.
G.R. No. 149844 October 13, 2004
Facts: On September 19, 1970, the [respondent] filed the initiatory complaint herein for
specific performance against her uncle [Petitioner] Miguel Cuenco which averred, inter
alia that her father, the late Don Mariano Jesus Cuenco (who became Senator) and said
[petitioner] formed the Cuenco and Cuenco Law Offices; that on or around August 4,
1931, the Cuenco and Cuenco Law Offices served as lawyers in two (2) cases entitled
Valeriano Solon versus Zoilo Solon (Civil Case 9037) and Valeriano Solon versus
Apolonia Solon (Civil Case 9040) involving a dispute among relatives over ownership of
lot 903 of the Banilad Estate which is near the Cebu Provincial Capitol; that records of
said cases indicate the name of the [petitioner] alone as counsel of record, but in truth
and in fact, the real lawyer behind the success of said cases was the influential Don
Mariano Jesus Cuenco; that after winning said cases, the awardees of Lot 903
subdivided said lot into three (3) parts as follows: Lot 903-A: 5,000 [square meters]:
Mariano Cuencos attorneys fees; Lot 903-B: 5,000 [square meters]: Miguel Cuencos
attorneys fees; Lot 903-C: 54,000 [square meters]: Solons retention.
That at the time of distribution of said three (3) lots in Cebu, Mariano Jesus Cuenco was
actively practicing law in Manila, and so he entrusted his share (Lot 903-A) to his
brother law partner (the [petitioner]); that on September 10, 1938, the [petitioner] was
able to obtain in his own name a title for Lot 903-A (Transfer Certificate of Title [TCT]
RT-6999 [T-21108]); that he was under the obligation to hold the title in trust for his
brother Marianos children by first marriage; that sometime in 1947, the Cuenco family
was anticipating Marianos second marriage, and so on February 1, 1947, they
partitioned Lot 903-A into six (6) sub-lots (Lots 903-A-1 to 903-A-6) to correspond to the
six (6) children of Marianos first marriage (Teresita, Manuel, Lourdes, Carmen,
Consuelo, and Concepcion); that the [petitioner] did not object nor oppose the partition
plan; that on June 4, 1947, the [petitioner] executed four (4) deeds of donation in favor
of Marianos four (4) children: Teresita, Manuel, Lourdes, and Carmen, pursuant to the
partition plan (per notary documents 183, 184, 185, 186, Book III, Series 1947 of Cebu
City Notary Public Candido Vasquez); that on June 24, 1947, the [petitioner] executed
the fifth deed of donation in favor of Marianos fifth child Consuelo (per notary
document 214, Book III, Series 1947 of Cebu City Notary Public Candido Vasquez)
(Exhibits 2 to 5); that said five (5) deeds of donation left out Marianos sixth child
Concepcion who later became the [respondent] in this case; that in 1949, [respondent]
occupied and fenced a portion of Lot 903-A-6 for taxation purposes (Exhibit F, Exhibit
6); that she also paid the taxes thereon (Exhibit G); that her father died on February
SLU SOL 1-C Page
530
25, 1964 with a Last Will and Testament; that the pertinent portion of her fathers Last
Will and Testament bequeaths the lot.
Issue: Whether or not the Court of Appeals erred in not finding that even where implied
trust is admitted to exist the respondents action for relief is barred by laches and
prescription.
Ruling: Petitioner claims that respondents action is already barred by laches.
The Court is not persuaded. Laches is negligence or omission to assert a right within a
reasonable time, warranting a presumption that the party entitled to it has either
abandoned or declined to assert it. In the present case, respondent has persistently
asserted her right to Lot 903-A-6 against petitioner.
Concepcion was in possession as owner of the property from 1949 to 1969. When
Miguel took steps to have it separately titled in his name, despite the fact that she had
the owners duplicate copy of TCT No. RT-6999 -- the title covering the entire Lot 903-A
-- she had her adverse claim annotated on the title in 1967. When petitioner ousted her
from her possession of the lot by tearing down her wire fence in 1969, she commenced
the present action on September 19, 1970, to protect and assert her rights to the
property. We find that she cannot be held guilty of laches, as she did not sleep on her
rights.
SLU SOL 1-C Page
531
Laurel v. Desierto, 383 S 493
SALVADOR H. LAUREL, petitioner,

vs.
HON. ANIANO A. DESIERTO, in his capacity as Ombudsman, respondent.
G.R. No. 145368 April 12, 2002
Facts: Petitioner Salvador H. Laurel moves for a reconsideration of this Courts decision
declaring him, as Chair of the National Centennial Commission (NCC), a public officer.
Petitioner also prays that the case be referred to the Court En Banc.
Issue: Whether or not Laurel is a public officer as Chair of the NCC.
Ruling: Assuming, as petitioner proposes, that the designation of other members to the
NCC runs counter to the Constitution, it does not make petitioner, as NCC Chair, less a
public officer. Such serious constitutional repercussions do not reduce the force of the
rationale behind this Courts decision. Second, petitioner invokes estoppel. He claims
that the official acts of the President, the Senate President, the Speaker of the House of
Representatives, and the Supreme Court, in designating Cabinet members, Senators,
Congressmen and Justices to the NCC, led him to believe that the NCC is not a public
office. The contention has no merit. In estoppel, the party representing material facts
must have the intention that the other party would act upon the representation. It is
preposterous to suppose that the President, the Senate President, the Speaker and the
Supreme Court, by the designation of such officials to the NCC, intended to mislead
petitioner just so he would accept the position of NCC Chair. Estoppel must be
unequivocal and intentional. Moreover, petitioner himself admits that the principle of
estoppel does not operate against the Government in the exercise of its sovereign
powers. Third, as ground for the referral of the case to the Court En Banc, petitioner
submits that our decision in this case modified or reversed doctrines rendered by this
Court, which can only be done by the Court En Banc. It is argued that by designating
three of its then incumbent members to the NCC, the Court took the position that the
NCC was not a public office. The argument is a bit of a stretch. Section 4 (3), Article VIII
of the Constitution provides that no doctrine or principle of law laid down by the court in
a decision rendered en banc or in division may be modified or reversed except by the
court sitting en banc. In designating three of its incumbent members to the NCC, the
Court did not render a decision, in the context of said constitutional provision, which
contemplates an actual case. Much less did the Court, by such designation, articulate
any doctrine or principle of law. Invoking the same provision, petitioner asserts that the
decision in this case reversed or modified Macalino vs. Sandiganbayan, holding that the
Assistant Manager of the Treasury Division and the Head of the Loans Administration &
Insurance Section of the Philippine National Construction Corporation (PNCC) is not a
public officer under Republic Act No. 3019. This contention also has no merit. The
rationale for the ruling in Macalinois that the PNCC has no original charter as it was
incorporated under the general law on corporations. However, as we pointed out in our
decision, a conclusion that EXPOCORP is a government-owned or controlled
SLU SOL 1-C Page
532
corporation would not alter the outcome of this case because petitioners position and
functions as Chief Executive Officer of EXPOCORP are by virtue of his being Chairman
of the NCC. The other issues raised by petitioner are mere reiterations of his earlier
arguments. The Court, however, remains unswayed thereby.
SLU SOL 1-C Page
533
Hanopol v. SM, 390 S 439
SPOUSES MANUEL R. HANOPOL and BEATRIZ T. HANOPOL, petitioners,

vs.
SHOEMART INCORPORATED, Represented by Executive Vice President,
SENEN T. MENDIOLA, respondent.
G.R. No. 137774 October 4, 2002
SPOUSES MANUEL R. HANOPOL and BEATRIA T. HANOPOL, petitioners,

vs.
HON. COURT OF APPEALS and SHOEMART, INC., Represented by SENEN T.
MENDIOLA, respondents.
G.R. No. 148185 October 4, 2002]
Facts: Shoemart, Inc. is a corporation duly organized and existing under the laws of the
Philippines engaged in the operation of department stores. On December 4, 1985,
Shoemart, through its Executive Vice-President, Senen T. Mendiola, and spouses
Manuel R. Hanopol and Beatriz T. Hanopol executed a Contract of Purchase on Credit.
Under the terms of the contract, Shoemart extended credit accommodations, in the
amount of Three Hundred Thousand Pesos (P300,000.00), for purchases on credit
made by holders of SM Credit Card issued by spouses Hanopol for one year, renewable
yearly thereafter. Spouses Hanopol were given a five percent (5%) discount on all
purchases made by their cardholders, deductible from the semi-monthly payments to be
made to Shoemart by spouses Hanopol. For failure of spouses Hanopol to pay the
principal amount of One Hundred Twenty-Four Thousand Five Hundred Seventy-One
Pesos and Eighty-Nine Centavos (P124,571.89) as of October 6, 1987, Shoemart
instituted extrajudicial foreclosure proceedings against the mortgaged properties.
Spouses Hanopol alleged that Shoemart breached the contract when the latter failed to
furnish the former with the requisite documents by which the formers liability shall be
determined, namely: charge invoices, purchase booklets and purchase journal, as
provided in their contract; that without the requisite documents, spouses Hanopol had
no way of knowing that, in fact, they had already paid, even overpaid, whatever they
owed to Shoemart; that despite said breach, Shoemart even had the audacity to apply
for extrajudicial foreclosure with the Sheriff.
Issue: Whether or not Shoemart acted with manifest bad faith in pursuing with the
foreclosure and auction sale of the property of spouses Hanopol, and, accordingly,
should be held liable for damages.
Ruling: All the three (3) elements for litis pendentia as a ground for dismissal of an
action are present, namely: (a) identity of parties, or at least such parties who represent
the same interest in both actions; (b) identity of rights asserted and relief prayed for, the
relief being founded on the same facts; and (c) the identity, with respect to the two (2)
preceding particulars in the two (2) cases, in such that any judgment that may be
SLU SOL 1-C Page
534
rendered in the pending case, regardless of which party is successful, would amount to
res judicata in the other. In the case at bench, the parties are the same; the relief sought
in the case before the Court of Appeals and the trial court are the same, that is, to
permanently enjoin the foreclosure of the real estate mortgage executed by spouses
Hanopol in favor of Shoemart; and, both are premised on the same facts. The judgment
of the Court of Appeals would constitute a bar to the suit before the trial court.
SLU SOL 1-C Page
535
Estoppel in Pais by Promise (Promissory Estoppel)
Terminal Facilities v. PPA, 378 S 82
TERMINAL FACILITIES AND SERVICES CORPORATION, petitioner,

vs.
PHILIPPINE PORTS AUTHORITY and PORT MANAGER, and PORT DISTRICT
OFFICER OF DAVAO CITY, respondents.
G.R. No. 135639 February 27, 2002
Facts: TEFASCO is a domestic corporation organized and existing under the laws of
the Philippines with principal place of business at Barrio Ilang, Davao City. It is engaged
in the business of providing port and terminal facilities as well as arrastre, stevedoring
and other port-related services at its own private port at Barrio Ilang. Sometime in 1975
TEFASCO submitted to PPA a proposal for the construction of a specialized terminal
complex with port facilities and a provision for port services in Davao City. To ease the
acute congestion in the government ports at Sasa and Sta. Ana, Davao City, PPA
welcomed the proposal and organized an inter-agency committee to study the plan. The
committee recommended approval. On April 21, 1976 the PPA Board of Directors
passed Resolution No. 7 accepting and approving TEFASCO's project proposal. Long
after TEFASCO broke round with massive infrastructure work, the PPA Board curiously
passed on October 1, 1976 Resolution No. 50 under which TEFASCO, without asking
for one, was compelled to submit an application for construction permit. Without the
consent of TEFASCO, the application imposed additional significant conditions. The
series of PPA impositions did not stop there. Two (2) years after the completion of the
port facilities and the commencement of TEFASCO's port operations, or on June 10,
1978, PPA again issued to TEFASCO another permit, under which more onerous
conditions were foisted on TEFASCO's port operations. In the purported permit
appeared for the first time the contentious provisions for ten percent (10%) government
share out of arrastre and stevedoring gross income and one hundred percent (100%)
wharfage and berthing charges. On February 10, 1984 TEFASCO and PPA executed a
Memorandum of Agreement (MOA) providing among others for (a) acknowledgment of
TEFASCO's arrears in government share at P3,807,563.75 payable monthly, with
default penalized by automatic withdrawal of its commercial private port permit and
permit to operate cargo handling services; (b) reduction of government share from ten
percent (10%) to six percent (6%) on all cargo handling and related revenue (or arrastre
and stevedoring gross income); (c) opening of its pier facilities to all commercial and
third-party cargoes and vessels for a period coterminous with its foreshore lease
contract with the National Government; and, (d) tenure of five (5) years extendible by
five (5) more years for TEFASCO's permit to operate cargo handling in its private port
facilities. In return PPA promised to issue the necessary permits for TEFASCO's port
activities. TEFASCO complied with the MOA and paid the accrued and current
government share. On August 30, 1988 TEFASCO sued PPA and PPA Port Manager,
and Port Officer in Davao City for refund of government share it had paid and for
damages as a result of alleged illegal exaction from its clients of one hundred percent
SLU SOL 1-C Page

536
(100%) berthing and wharfage fees. The complaint also sought to nullify the February
10, 1984 MOA and all other PPA issuances modifying the terms and conditions of the
April 21, 1976 Resolution No. 7 above-mentioned. PPA appealed the decision of the trial
court to the Court of Appeals. The appellate court in its original decision recognized the
validity of the impositions and reversed in toto the decision of the trial court. TEFASCO
moved for reconsideration which the Court of Appeals found partly meritorious. Thus the
Court of Appeals in its Amended Decision partially affirmed the RTC decision only in the
sense that PPA was directed to pay TEFASCO (1) the amounts of P15,810,032.07
representing fifty percent (50%) wharfage fees and P3,961,964.06 representing thirty
percent (30%) berthing fees which TEFASCO could have earned as private port usage
fee from 1977 to 1991. The Court of Appeals held that the one hundred percent (100%)
berthing and wharfage fees were unenforceable because they had not been approved
by the President under P.D. No. 857, and discriminatory since much lower rates were
charged in other private ports as shown by PPA issuances effective 1995 to 1997. Both
PPA and TEFASCO were unsatisfied with this disposition hence these petitions.
Issue: Whether or not the collection by PPA of one hundred percent (100%) wharfage
fees and berthing charges; (c) the propriety of the award of fifty percent (50%) wharfage
fees and thirty percent (30%) berthing charges as actual damages in favor of TEFASCO
for the period from 1977 to 1991 is valid.
Ruling: The imposition by PPA of ten percent (10%), later reduced to six percent (6%),
government share out of arrastre and stevedoring gross income of TEFASCO is void.
This exaction was never mentioned in the contract, much less is it a binding prestation,
between TEFASCO and PPA. What was clearly stated in the terms and conditions
appended to PPA Resolution No. 7 was for TEFASCO to pay and/or secure from the
proper authorities "all fees and/or permits pertinent to the construction and operation of
the proposed project." The government share demanded and collected from the gross
income of TEFASCO from its arrastre and stevedoring activities in TEFASCO's wholly
owned port is certainly not a fee or in any event a proper condition in a regulatory
permit. Rather it is an onerous "contractual stipulation" which finds no root or basis or
reference even in the contract aforementioned.
SLU SOL 1-C Page

537
Mendoza v. CA, 25 June 2001
DANILO D. MENDOZA, also doing business under the name and style of
ATLANTIC EXCHANGE PHILIPPINES, petitioner,
vs.
COURT OF APPEALS, PHILIPPINE NATIONAL BANK, FERNANDO MARAMAG,
JR., RICARDO G. DECEPIDA and BAYANI A. BAUTISTA, respondents.
G.R. No. 116710 June 25, 2001
Facts: Danilo Mendoza is engaged in the domestic and international trading of raw
materials and chemicals. Sometime in 1978, he was granted by PNB a P500K-credit
line and a P1M-letter of credit/trust receipt line. As security, Mendoza mortgaged the
following: 3 parcels of land with improvements, his house and lot, and several pieces of
machinery and equipment in his coco-chemical plant.
Mendoza made use of his LC/TR line to purchase raw materials from foreign importers.
He signed a total of 11 documents denominated as "Application and Agreement for
Commercial Letter of Credit" on various dates, which uniformly contained the clause
"Interest shall be at the rate of 9% per annum from the date(s) of the draft(s) to the
date(s) of arrival of payment therefor in New York. The Bank, however, reserves the
right to raise the interest charges at any time depending on whatever policy it may
follow in the future."
Issue: Whether or not PNB promised to be bound by the proposal of Mendoza for a 5-
year restructuring of his overdue loan.
Ruling: Nowhere in the letters was there a categorical statement that PNB had
approved Mendoza's proposed 5-year restructuring plan. It is stretching the imagination
to construe them as evidence that his proposed 5-year restructuring plan has been
approved by PNB, which is admittedly a banking corporation. Only an absolute and
unqualified acceptance of a definite offer manifests the consent necessary to perfect a
contract.
It is clear that the doctrine of promissory estoppel presupposes the existence of a

promise on the part of one against whom estoppel is claimed. The promise must be
plain and unambiguous and sufficiently specific so that the Judiciary can understand the
obligation assumed and enforce the promise according to its terms. For Mendoza to
claim that PNB is estopped to deny the 5-year restructuring plan, he must first prove
that PNB had promised to approve the plan in exchange for the submission of the
proposal. As no such promise was proven, the doctrine does not apply to the instant
case.
A cause of action for promissory estoppel does not lie where an alleged oral promise
was conditional, so that reliance upon it was not reasonable. It does not operate to
create liability where it does not otherwise exist. Besides, it could be gleaned from the
SLU SOL 1-C Page
538
record that Mendoza is an astute businessman who took care to reduce in writing his
business proposals to PNB. It is unthinkable that the same person would commit the
careless mistake of leaving his subject 2 promissory notes in blank in the hands of other
persons.
SLU SOL 1-C Page
539
Estoppel in Pais by Silence
JOSE MARQUES, petitioner,

vs.
FAR EAST BANK, respondent.
G.R. No. 171419 January 10, 2011
Facts: Far East Bank and Trust Co. (FEBTC) financed capital and operational
requirements of Maxilite Technologies, Inc. with Jose N. Marquesas the President. Far
East Bank Insurance Brokers, Inc. (FEBIBI), a local insurance brokerage corporation
and Makati Insurance Company, a local insurance company, are subsidiaries of
FEBTC.On 17 June 1993, Maxilite and Marques entered into a trust receipt transaction
with FEBTC, for the shipment of various high-technology equipment from the United
States. Finding that Maxilite failed to pay the insurance premium FEBIBI sent written
reminders to FEBTC, to debit Maxilites account. On 9 March 1995, a fire gutted the
Aboitiz Sea Transport Building, where Maxilites office and warehouse were located. As
a result, Maxilite suffered losses amounting to at least P2.1 million, which Maxilite
claimed against the fire insurance policy with Makati Insurance Company. Makati
Insurance Company denied the fire loss claim on the ground of non-payment of
premium. FEBTC and FEBIBI disclaimed any responsibility for the denial of the claim.
Issue: Whether or not FEBTC, FEBIBI and Makati Insurance Company are jointly and
severally liable to pay respondents the legal compensation.
Ruling: Essentially, Maxilite and Marques invoke estoppel under Article 1431 of the Civil
Code in claiming against FEBTC, FEBIBI, and Makati Insurance Company the face
value of the insurance policy.
In their complaint, Maxilite and Marques alleged they were led to believe and they in
fact believed that the settlement of Maxilites trust receipt account included the payment
of the insurance premium. FEBTC failed to debit and instead disregarded the written
reminder from FEBIBI to debit Maxilites account. FEBTCs conduct clearly constitutes
negligence in handling Maxilites and Marques' accounts. As a consequence, FEBTC
must be held liable for damages pursuant to Article 2176 of the Civil Code. Indisputably,
had the insurance premium been paid, through the automatic debit arrangement with
FEBTC, Maxilites fire loss claim would have been approved.
Hence, Maxilite suffered damage to the extent of the face value of the insurance policy
or the sum of P2.1 million. Suffice it to state that FEBTC, FEBIBI, and Makati Insurance
Company are independent and separate juridical entities, even if FEBIBI and Makati
Insurance Company are subsidiaries of FEBTC. Maxilite and Marques failed to establish
the essential elements of legal compensation. Only Far East Bank and Trust Company,
SLU SOL 1-C Page
540
and not Far East Bank Insurance Brokers, Inc. or Makati Insurance Company, is
ordered to pay the face value of the subject insurance policy and the monetary awards.
SLU SOL 1-C Page
541
Roblett Construction v. CA, 266 S 71
ROBLETT INDUSTRIAL CONSTRUCTION CORPORATION, petitioner,

vs.
COURT OF APPEALS and CONTRACTORS EQUIPMENT CORPORATION,
respondents.
G.R. No. 116682 January 2, 1997
Facts: On 19 December 1985 RICC through its Assistant Vice President for Finance
Candelario S. Aller Jr. entered into an Agreement with CEC. As an off-setting
arrangement respondent received from petitioner construction materials worth
P115,000.00.A day before the execution of their Agreement, RICC paid CEC
P10,000.00 in postdated checks which when deposited were dishonored. As a
consequence the latter debited the amount to petitioner's account of P227,909.38 thus
increasing its balance to P237,909.38. On 24 July 1986 Mariano R. Manaligod Jr.,
General Manager of CEC, sent a letter of demand to petitioner through its Vice
President for Finance regarding the latter's overdue account of P237,909.38 and sought
settlement thereof on or before 31 July 1986. In reply, petitioner requested for thirty (30)
days to have enough time to look for funds to substantially settle its account. Traversing
the allegations of respondent, Candelario S. Aller Jr. declared that he signed the
Agreement with the real intention of having proof of payment. In fact Baltazar Banlot,
Vice President for Finance of petitioner, claimed that after deliberation and audit it
appeared that petitioner overpaid respondent by P12,000.00 on the basis of the latter's
Equipment Daily Time Reports for 2 May to 14 June 1985 which reflected a total
obligation of only P103,000.00. He claimed however that the Agreement was not
approved by the Board and that he did not authorize Aller Jr. to sign thereon.
Issue: Whether or not the contract between parties is valid and enforceable.
Ruling: Quite obviously, having limited itself to that particular issue to the exclusion of
any other, petitioner can no longer be permitted to assail the finding of the trial court on
the validity of the Agreement. Taking into account the construction materials worth
P115,000.00 received by respondent from petitioner an overpayment of P12,000.00
more or less results. In the absence of any showing that the trial court failed to
appreciate facts and circumstances of weight and substance that would have altered its
conclusion, no compelling reason exists for this Court to impinge upon matters more
appropriately within its province.
Estoppel in pais arises when one, by his acts, representations or admissions, or by his
own silence when he ought to speak out, intentionally or through culpable negligence,
induces another to believe certain facts to exist and such other rightfully relies and acts
on such belief, so that he will be prejudiced if the former is permitted to deny the
existence of such facts. This doctrine obtains in the present case. A statement of
account for P376,350.18 covering the period above mentioned was received from
respondent by petitioner with nary a protest from the latter. Neither did petitioner
SLU SOL 1-C Page
542
controvert the demand letter concerning the overdue account of P237,909.38; on the
contrary, it asked for ample time to source funds to substantially settle the account.
SLU SOL 1-C Page
543
Estoppel by Laches: Prescription vs. Laches
Sime Darby v. Goodyear, 8 June 2011
SIME DARBY PILIPINAS, INC., petitioner,

vs.
GOODYEAR PHILIPPINES, INC. and MACGRAPHICS CARRANZ INTERNATIONAL
G.R. No. 182148 June 8, 2011
Facts: Macgraphics owned several billboards across Metro Manila and other
surrounding municipalities, one of which was a 35 x 70 neon billboard located at the
Magallanes Interchange in Makati City. The Magallanes billboard was leased by Mac
graphics to Sime Darby in April 1994 at a monthly rental of P120,000.00. The lease had
a term of four years and was set to expire on March 30, 1998. Upon signing of the
contract, Sime Darby paid Mac graphics a total of P1.2 million representing the ten-
month deposit which the latter would apply to the last ten months of the lease.
Thereafter, Mac graphics configured the Magallanes billboard to feature Sime Darby's
name and logo.
On April 22, 1996, Sime Darby executed a Memorandum of Agreement (MOA) with
Goodyear, whereby it agreed to sell its tire manufacturing plants and other assets to the
latter for a total of P1.5 billion.
Just a day after, on April 23, 1996, Goodyear improved its offer to buy the assets of
Sime Darby from P1.5 billion to P1.65 billion. The increase of the purchase price was
made in consideration, among others, of the assignment by Sime Darby of the
receivables in connection with its billboard advertising in Makati City and Pulilan,
Bulacan.
On May 9, 1996, Sime Darby and Goodyear executed a deed entitled "Deed of
Assignment in connection with Microwave Communication Facility and in connection
with Billboard Advertising in Makati City and Pulilan, Bulacan"(Deed of Assignment),
through which Sime Darby assigned, among others, its leasehold rights and deposits
made to Mac graphics pursuant to its lease contract over the Magallanes billboard.
Sime Darby then notified Mac graphics of the assignment of the Magallanes billboard in
favor of Goodyear through a letter-notice dated May 3, 1996.
After submitting a new design for the Magallanes billboard to feature its name and logo,
Goodyear requested that Mac graphics submit its proposed quotation for the production
costs of the new design. In a letter dated June 21, 1996, Macgraphics informed
Goodyear that the monthly rental of the Magallanes billboard is P250,000.00 and
explained that the increase in rental was in consideration of the provisions and technical
aspects of the submitted design.
SLU SOL 1-C Page
544
Goodyear replied on July 8, 1996 stating that due to budget constraints, it could not
accept Mac graphics offer to integrate the cost of changing the design to the monthly
rental. Goodyear stated that it intended to honor the P120,000.00 monthly rental rate
given by Mac graphics to Sime Darby. It then requested that Mac graphics send its
quotation for the simple background repainting and re-lettering of the neon tubing for the
Magallanes billboard.
Macgraphics then sent a letter to Sime Darby, dated July 11, 1996, informing the latter
that it could not give its consent to the assignment of lease to Goodyear. Mac graphics
explained that the transfer of Sime Darby's leasehold rights to Goodyear would
necessitate drastic changes to the design and the structure of the neon display of the
Magallanes billboard and would entail the commitment of manpower and resources that
it did not foresee at the inception of the lease.
Attaching a copy of this letter to a correspondence dated July 15, 1996, Mac graphics
advised Goodyear that any advertising service it intended to get from them would have
to wait until after the expiration or valid pre-termination of the lease then existing with
Sime Darby.
On September 23, 1996, due to Mac graphics refusal to honor the Deed of Assignment,
Goodyear sent Sime Darby a letter, via facsimile, demanding partial rescission of the
Deed of Assignment and the refund of P1,239,000.00, the pro-rata value of Sime
Darby's leasehold rights over the Magallanes billboard.
As Sime Darby refused to accede to Goodyears demand for partial rescission, the
latter commenced Civil Case No. 97-561 with the RTC. In its complaint, Goodyear
alleged that Sime Darby [1] was unable to deliver the object of the Deed of Assignment
and [2] was in breach of its warranty under Title VII, Section B, paragraph 2 of the MOA,
stating that "no consent of any third party with whom Sime Darby has a contractual
relationship is required in connection with the execution and delivery of the MOA, or the
consummation of the transactions contemplated therein."
Including Macgraphics as an alternative defendant, Goodyear argued that should the

court find the partial rescission of the Deed of Assignment not proper, it must be
declared to have succeeded in the rights and interest of Sime Darby in the contract of
lease and Mac graphics be ordered to pay it the amount of P1,239,000.00.
Issue: Whether or not partial rescission of the Deed of Assignment is proper.
Ruling: No. The petition of Sime Darby remains bereft of any merit. Article 1649 of the
New Civil Code provides:
Art. 1649. The lessee cannot assign the lease without the consent of the lessor,
unless there is a stipulation to the contrary.
SLU SOL 1-C Page

545
In an assignment of a lease, there is a novation by the substitution of the person of one
of the parties the lessee. The personality of the lessee, who dissociates from the lease,
disappears. Thereafter, a new juridical relation arises between the two persons who
remain the lessor and the assignee who is converted into the new lessee. The objective
of the law in prohibiting the assignment of the lease without the lessors consent is to
protect the owner or lessor of the leased property. Broadly, a novation may either be
extinctive or modificatory. It is extinctive when an old obligation is terminated by the
creation of a new obligation that takes the place of the former; it is merely modificatory
when the old obligation subsists to the extent it remains compatible with the amendatory
agreement. An extinctive novation results either by changing the object or principal
conditions (objective or real), or by substituting the person of the debtor or subrogating
a third person in the rights of the creditor (subjective or personal). Under this mode,
novation would have dual functions one to extinguish an existing obligation, the other to
substitute a new one in its place. This requires a conflux of four essential requisites: (1)
a previous valid obligation; (2) an agreement of all parties concerned to a new contract;
(3) the extinguishment of the old obligation; and (4) the birth of a valid new obligation.
While there is no dispute that the first requisite is present, the Court, after careful
consideration of the facts and the evidence on record, finds that the other requirements
of a valid novation are lacking. A review of the lease contract between Sime Darby and
Mac graphics discloses no stipulation that Sime Darby could assign the lease without
the consent of Macgraphics.
Moreover, contrary to the assertions of Sime Darby, the records are bereft of any
evidence that clearly shows that Mac graphics consented to the assignment of the
lease. As aptly found by the RTC and the CA, Mac graphics was never part of the
negotiations between Sime Darby and Goodyear. Neither did it give its conformity to the
assignment after the execution of the Deed of Assignment.
The consent of the lessor to an assignment of lease may indeed be given expressly or
impliedly. It need not be given simultaneously with that of the lessee and of the
assignee. Neither is it required to be in any specific or particular form. It must, however,
be clearly given. In this case, it cannot be said that Mac graphics gave its implied
consent to the assignment of lease.
Petition denied.
SLU SOL 1-C Page
546
Far East Bank v. Borja, 25 January 2010
FAR EAST BANK AND TRUST COMPANY (NOW BANK OF THE PHILIPPINE
ISLANDS) AND ROLANDO BORJA, DEPUTY SHERIFF, petitioners,
vs.
SPS. ERNESTO AND LEONOR C. CAYETANO, respondents.
G.R. No. 179909 January 25, 2010
Facts: Respondent Leonor C. Cayetano (Cayetano) executed a special power of

attorney in favor of her daughter Teresita C. Tabing (Tabing) authorizing her to contract
a loan from petitioner in an amount not more than three hundred thousand pesos
(P300,000.00) and to mortgage her two (2) lots located in Barangay Carolina, Naga City
with Transfer Certificate of Title Nos. 12304 and 11621. For the approval of the loan,
Cayetano also executed an affidavit of non-tenancy. Petitioner loaned Tabing one
hundred thousand pesos (P100,000.00) secured by two (2) promissory notes and a real
estate mortgage over Cayetanos two (2) properties.
The mortgage document was signed by Tabing and her husband as mortgagors in their
individual capacities, without stating that Tabing was executing the mortgage contract
for and in behalf of the owner (Cayetano). Petitioner foreclosed the mortgage for failure
of the respondents and the spouses Tabing to pay the loan. A notice of public auction
sale, to be conducted on September 18, 1991, was sent to respondents. The latters
lawyer responded with a letter to petitioner requesting that the public auction be
postponed. Respondents letter went unheeded and the public auction was held as
scheduled wherein the subject properties were sold to petitioner for one hundred sixty
thousand pesos (P160,000.00).
Subsequently, petitioner consolidated its title and obtained new titles in its name after
the redemption period lapsed without respondents taking any action. More than five (5)
years later, Tabing, on behalf of Cayetano, sent a letter dated September 10, 1996 to
petitioner expressing the intent to repurchase the properties for two hundred fifty
thousand pesos (P250,000.00) with proposed terms of payment. Petitioner refused the
offer stating that the minimum asking price for the properties was five hundred thousand
pesos (P500,000.00) and it was not amenable to the proposed terms of payment.
Petitioner nevertheless gave respondents the chance to buy back the properties by
joining a bidding to be set in some future date. However, respondents filed on
December 18, 1996 a complaint for annulment of mortgage and extrajudicial foreclosure
of the properties with damages in the RTC of Naga City. Respondents sought
nullification of the real estate mortgage and extrajudicial foreclosure sale, as well as the
cancellation of petitioners title over the properties.
Issue: Whether or not the principal is bound by the real estate mortgage executed by
the authorized agent in her own name without indicating the principal.
SLU SOL 1-C Page
547
Ruling: Notwithstanding the nullity of the real estate mortgage executed by Tabing and
her husband, we find that the equity principle of laches is applicable in the instant case.
Laches is negligence or omission to assert a right within a reasonable time, warranting
a presumption that the party entitled to assert it either has abandoned it or declined to
assert it.
Its essential elements are: (1) conduct on the part of the defendant, or of one under
whom he claims, giving rise to the situation complained of; (2) delay in asserting
complainants right after he had knowledge of the defendants conduct and after he has
an opportunity to sue; (3) lack of knowledge or notice on the part of the defendant that
the complainant would assert the right on which he bases his suit; and (4) injury or
prejudice to the defendant in the event relief is accorded to the complainant.
There is no absolute rule on what constitutes laches. It is a creation of equity and

applied not really to penalize neglect or sleeping upon ones rights but rather to avoid
recognizing a right when to do so would result in a clearly inequitable situation. The
question of laches, we said, is addressed to the sound discretion of the court and each
case must be decided according to its particular circumstances.
Verily, in a number of cases, it had been held that laches, the essence of which is the
neglect to assert a right over a long period of time, may prevent recovery of a titled
property.
SLU SOL 1-C Page
548
Kings Properties Corporation, Inc. v. Galido, 27 November 2009
KINGS PROPERTIES CORPORATION, petitioner,

vs.
CANUTO A. GALIDO, respondent.
G.R. No. 170023 November 27, 2009
Facts: Kings Properties Corporation (petitioner) filed this Petition for Review on
Certiorari assailing the Court of Appeals Decision dated 20 December 2004 in CA-G.R.
CV No. 68828 as well as the Resolution dated 10 October 2005 denying the Motion for
Reconsideration. In the assailed decision, the Court of Appeals reversed the Regional
Trial Courts Decision dated 4 July 2000. This case involves an action for cancellation of
certificates of title, registration of deed of sale and issuance of certificates of title filed by
Canuto A. Galido (respondent) before Branch 71 of the Regional Trial Court of Antipolo
City (trial court).
Issue: Whether or not the adverse claim of respondent over the Antipolo property
should be barred by laches.
Ruling: The essence of laches is the failure or neglect, for an unreasonable and
unexplained length of time, to do that which, through due diligence, could have been
done earlier, thus giving rise to a presumption that the party entitled to assert it had
either abandoned or declined to assert it. Respondent discovered in 1991 that a new
owners copy of OCT No. 535 was issued to the Eniceo heirs. Respondent filed a
criminal case against the Eniceo heirs for false testimony. When respondent learned
that the Eniceo heirs were planning to sell the Antipolo property, respondent caused the
annotation of an adverse claim. On 16 January 1996, when respondent learned that
OCT No. 535 was cancelled and new TCTs were issued respondent filed a civil
complaint with the trial court against the Eniceo heirs and petitioner. Respondents
actions negate petitioners argument that respondent is guilty of laches.
SLU SOL 1-C Page
549
METROPOLITAN BANK AND TRUST COMPANY, petitioners,

vs.
RENATO D. CABILZO, respondent.
G.R. No. 154469 December 6, 2006
Facts: On 12 November 1994, Cabilzo issued a Metrobank Check No. 985988, payable
to CASH and postdated on 24 November 1994 in the amount of One Thousand Pesos
(P1,000.00). The check was drawn against Cabilzos Account with Metrobank Pasong
Tamo Branch under Current Account No. 618044873-3 and was paid by Cabilzo to a
certain Mr. Marquez, as his sales commission. Subsequently, the check was presented
to Westmont Bank for payment. Westmont Bank, in turn, indorsed the check to
Metrobank for appropriate clearing. After the entries thereon were examined, including
the availability of funds and the authenticity of the signature of the drawer, Metrobank
cleared the check for encashment in accordance with the Philippine Clearing House
Corporation (PCHC) Rules. On 16 November 1994, Cabilzos representative was at
Metrobank Pasong Tamo Branch to make some transaction when he was asked by
bank personnel if Cabilzo had issued a check in the amount of P91, 000.00 to which the
former replied in the negative. On the afternoon of the same date, Cabilzo himself called
Metrobank to reiterate that he did not issue a check in the amount of P91, 000.00 and
requested that the questioned check be returned to him for verification, to which
Metrobank complied. Upon receipt of the check, Cabilzo discovered that Metrobank
Check No. 985988 which he issued on 12 November 1994 in the amount of P1, 000.00
was altered to P91, 000.00 and the date 24 November 1994 was changed to 14
November 1994. Hence, Cabilzo demanded that Metrobank re-credit the amount of
P91, 000.00 to his account. Metrobank, however, refused reasoning that it has to refer
the matter first to its Legal Division for appropriate action. Repeated verbal demands
followed but Metrobank still failed to re-credit the amount of P91, 000.00 to Cabilzos
account On 30 June 1995, Cabilzo, thru counsel, finally sent a letter-demand to
Metrobank for the payment of P90, 000.00, after deducting the original value of the
check in the amount of P1, 000.00. Such written demand notwithstanding, Metrobank
still failed or refused to comply with its obligation. Consequently, Cabilzo instituted a civil
action for damages against Metrobank before the RTC of Manila, Branch 13. In his
Complaint docketed as Civil Case No. 95-75651, Renato D. Cabilzo v. Metropolitan
Bank and Trust Company, Cabilzo prayed that in addition to his claim for
reimbursement, actual and moral damages plus costs of the suit be awarded in his
favor.
Issue: Whether or not equitable estoppel can be appreciated in favor of petitioner.
Ruling: The degree of diligence required of a reasonable man in the exercise of his
tasks and the performance of his duties has been faithfully complied with by Cabilzo. In
fact, he was wary enough that he filled with asterisks the spaces between and after the
amounts, not only those stated in words, but also those in numerical figures, in order to
SLU SOL 1-C Page
550
prevent any fraudulent insertion, but unfortunately, the check was still successfully
altered, indorsed by the collecting bank, and cleared by the drawee bank, and encashed
by the perpetrator of the fraud, to the damage and prejudice of Cabilzo. Metrobank
cannot lightly impute that Cabilzo was negligent and is therefore prevented from
asserting his rights under the doctrine of equitable estoppel when the facts on record
are bare of evidence to support such conclusion. The doctrine of equitable estoppel
states that when one of the two innocent persons, each guiltless of any intentional or
moral wrong, must suffer a loss, it must be borne by the one whose erroneous conduct,
either by omission or commission, was the cause of injury. Metrobanks reliance on this
dictum is misplaced. For one, Metrobanks representation that it is an innocent party is
flimsy and evidently, misleading. At the same time, Metrobank cannot asseverate that
Cabilzo was negligent and this negligence was the proximate cause of the loss in the
absence of even a scintilla proof to buttress such claim.
SLU SOL 1-C Page
551
MELANIE M. MESINA, DANILO M. MESINA, and SIMEON M. MESINA, petitioners,

vs.
GLORIA C. GARCIA, respondent.
G.R. No. 168035 November 30, 2006
Facts: Atty. Honorio Valisno Garcia and Felicisima Mesina, during their lifetime, or on
26 April 1977, to be exact entered into a Contract to Sell over a lot consisting of 235
square meters, situated at Diversion Road, Sangitan, Cabanatuan City, covered and
embraced by TCT No. T-31643 in the name of Felicisima Mesina which title was
eventually cancelled and TCT No. T-78881 was issued in the name of herein petitioners.
Atty. Honorio Valisno Garcia is the deceased husband of [herein respondent Gloria C.
Garcia] while the late Felicisima Mesina is the mother of Danilo, Simeon, and Melanie,
all surnamed Mesina. The Contract to sell provides that the cost of the lot is P70.00 per
square meter for a total amount of P16, 450.00; payable within a period not to exceed
seven (7) years at an interest rate of 12% per annum, in successive monthly
installments of P260.85 per month, starting May 1977. Thereafter, the succeeding
monthly installments are to be paid within the first week of every month, at the
residence of the vendor at Quezon City, with all unpaid monthly installments earning an
interest of one percent (1%) per month. The Contract also stipulated, among others,
that: Should the spouses Garcia fail to pay five (5) successive monthly installments,
Felicisima Mesina shall have a right to rescind the Contract to Sell. All paid installments
to be recomputed as rental for usage of lot shall be at the rate of P100.00 a month and
that Felicisima Mesina shall have the further option to return the downpayment plus
whatever balance spouses Garcia paid, thereby rescinding the Contract to Sell. Upon
rescission of the Contract to sell, spouses Garcia agree to remove all the improvements
built on the lot within three (3) months from rescission of this contract, spouses Garcia
shouldering all expenses of said removal. Instituting this case at bar, respondent asserts
that despite the full payment made on February 7, 1984 for the consideration of the
subject lot, petitioners refused to issue the necessary Deed of Sale to effect the transfer
of the property to her.
Issue: Whether or not petitioners are in estoppel.
Ruling: With respect to the issue on estoppel, this Court, upon reviewing the records of
the case at bar, finds no reason to overturn the findings of the appellate court that,
indeed, petitioners are estopped from avowing that they never had knowledge as to the
acceptance of the delayed payments made by the respondent, and that they never
induced respondent to believe that she had validly effected full payment. Evidence on
record show that petitioners can no longer deny having accepted the late payments
made by the respondent because in a letter dated April 10, 1986 sent to petitioner
Simeon Mesina by Engineer Danilo Angeles, who is the husband of petitioners
authorized collection agent Angelina Angeles, he told petitioner Simeon Mesina that the
title and the Deed of Sale were both ready for their signature, and respondent was
SLU SOL 1-C Page
552
willing and ready to pay for the excess area. Hence, if petitioners did not accept the late
payments of the respondent, and if they did not consider such as full payment of the
purchase price on the subject property as they claimed it to be, the title as well as the
Deed of Sale could not have been prepared for their signature. In the same way,
respondent could not have sent a demand letter to ask for the execution of those
documents had they not been induced to believe that the late payments were validly
accepted and that the purchase price had already been paid in full. There were
statements, which were made under oath, which made it crystal clear that the late
payments were accepted by the petitioners, and that the payments corresponded to the
purchase value of the subject property; therefore, petitioners cannot deny the fact that
the full payment of the purchase value of the lot in question had in fact been made by
the respondent.
SLU SOL 1-C Page
553
Pahamotang v. PNB, 31 March 2005
JOSEPHINE PAHAMOTANG and ELEANOR PAHAMOTANG-BASA, petitioners,

vs.
THE PHILIPPINE NATIONAL BANK (PNB) and the HEIRS OF ARTURO ARGUNA,
respondents.
G.R. No. 156403 March 31, 2005
Facts: On July 1, 1972, Melitona Pahamotang died. She was survived by her husband
Agustin Pahamotang, and their eight (8) children, namely: Ana, Genoveva, Isabelita,
Corazon, Susana, Concepcion and herein petitioners Josephine and Eleonor, all
surnamed Pahamotang. On September 15, 1972, Agustin filed with the then Court of
First Instance of Davao City a petition for issuance of letters administration over the
estate of his deceased wife. The petition, docketed as Special Case No. 1792, was
raffled to Branch VI of said court, hereinafter referred to as the intestate court. In his
petition, Agustin identified petitioners Josephine and Eleonor as among the heirs of his
deceased spouse. It appears that Agustin was appointed petitioners' judicial guardian in
an earlier case - Special Civil Case No. 1785 also of the CFI of Davao City, Branch VI.
On December 7, 1972, the intestate court issued an order granting Agustins petition.
The late Agustin then executed several mortgages and later sale of the properties with
the PNB and Arguna respectively. The heirs later questioned the validity of the
transactions prejudicial to them. The trial court declared the real estate mortgage and
the sale void but both were valid with respect to the other parties. The decision was
reversed by the Court of Appeals; to the appellate court, petitioners committed a fatal
error of mounting a collateral attack on the foregoing orders instead of initiating a direct
action to annul them.
Issue: Whether or not the Court of Appeals erred in reversing the decision of the trial
court.
Ruling: In the present case, the appellate court erred in appreciating laches against
petitioners. The element of delay in questioning the subject orders of the intestate court
is sorely lacking. Petitioners were totally unaware of the plan of Agustin to mortgage and
sell the estate properties. There is no indication that mortgagor PNB and vendee
Arguna had notified petitioners of the contracts they had executed with Agustin.
Although petitioners finally obtained knowledge of the subject petitions filed by their
father, and eventually challenged the July 18, 1973, October 19, 1974, February 25,
1980 and January 7, 1981 orders of the intestate court, it is not clear from the
challenged decision of the appellate court when they (petitioners) actually learned of the
existence of said orders of the intestate court. Absent any indication of the point in time
when petitioners acquired knowledge of those orders, their alleged delay in impugning
the validity thereof certainly cannot be established. And the Court of Appeals cannot
simply impute laches against them.
SLU SOL 1-C Page
554
Shopper's Paradise v. Roque, 13 January 2004
SHOPPERS PARADISE REALTY & DEVELOPMENT CORPORATION, petitioner,

vs.
EFREN P. ROQUE, respondent.
G.R. No. 148775 January 13, 2004
Facts: Petitioner Shoppers Paradise Realty & Development Corporation, represented

by its president, Veredigno Atienza, entered into a twenty-five year lease with Dr. Felipe
C. Roque, now deceased, over a parcel of land in the name of Roque. Petitioner issued
to Dr. Roque a check for P250,000.00 by way of reservation payment. Simultaneously,
petitioner and Dr. Roque likewise entered into a memorandum of agreement for the
construction, development and operation of a commercial building complex on the
property. Conformably with the agreement, petitioner issued a check for another
P250,000 downpayment to Dr. Roque. The contract of lease and the memorandum of
agreement, both notarized, were never notarized because of the untimely demise of
Roque. Roques death constrained petitioner to deal with respondent Efren P. Roque,
one of the surviving children of the late Dr. Roque, but the negotiations broke down due
to some disagreements. In a letter, respondent advised petitioner to desist from any
attempt to enforce the aforementioned contract of lease and memorandum of
agreement. On 15 February 1995, respondent filed a case for annulment of the
contract of lease and the memorandum of agreement, with a prayer for the issuance of
a preliminary injunction before the RTC alleging that he had long been the absolute
owner of the subject property by virtue of a deed of donation inter vivos executed in his
favor by his parents, Dr. Felipe Roque and Elisa Roque, and that the late Dr. Felipe
Roque had no authority to enter into the assailed agreements with petitioner. The
donation was made in a public instrument duly acknowledged by the donor-spouses
before a notary public and duly accepted on the same day by respondent before the
notary public in the same instrument of donation. The title to the property, however,
remained in the name of Dr. Felipe C. Roque, and it was only transferred to and in the
name of respondent sixteen years later.
Respondent, while he resided in the United States of America, delegated to his father
the mere administration of the property. Respondent came to know of the assailed
contracts with petitioner only after retiring to the Philippines upon the death of his father.
The trial court dismissed the complaint of respondent. On appeal, the CA reversed the
decision of the trial court and held to be invalid the Contract of Lease and Memorandum
of Agreement.
Issue: Whether or not there was valid donation to respondent.
Ruling: Yes. The existence, albeit unregistered, of the donation in favor of respondent is
undisputed. The trial court and the appellate court have not erred in holding that the
non-registration of a deed of donation does not affect its validity. As being itself a mode
SLU SOL 1-C Page
555
of acquiring ownership, donation results in an effective transfer of title over the property
from the donor to the donee. In donations of immovable property, the law requires for its
validity that it should be contained in a public document, specifying therein the property
donated and the value of the charges which the donee must satisfy. The Civil Code
provides, however, that titles of ownership, or other rights over immovable property,
which are not duly inscribed or annotated in the Registry of Property (now Registry of
Land Titles and Deeds) shall not prejudice third persons. It is enough, between the
parties to a donation of an immovable property, that the donation be made in a public
document but, in order to bind third persons, the donation must be registered in the
registry of Property (Registry of Land Titles and Deeds).
SLU SOL 1-C Page
556
Meatmasters v. Lelis Integrated, 452 S 626
MEATMASTERS INTERNATIONAL CORPORATION, petitioner,

vs.
LELIS INTERGRATED DEVELOPMENT CORPORATION, respondent.
G.R. No. 163022 February 28, 2005
Facts: On November 11, 1993, petitioner Meatmasters International Corporation

engaged the services of respondent Lelis Integrated Development Corporation to
undertake the construction of a slaughterhouse and meat cutting and packing plant. The
Construction Agreement provided that the construction of petitioners slaughterhouse
should be completed by March 10, 1994. Respondent failed to finish the construction of
the said facility within the stipulated period, hence, petitioner filed a complaint for
rescission of contract and damages on August 9, 1996 before the Regional Trial Court.
On November 23, 1998, the trial court rendered decision RESCINDING the
Construction Agreement between plaintiff Meatmaster Intl. Corp. and defendant Lelis
Integrated Dev't. Corp. with both parties shouldering their own respective damage. A
copy of the decision was received by the respondent on December 9, 1998. A motion for
reconsideration was filed by respondent on December 22, 1998, but the same was
denied. A copy of the resolution denying the motion for reconsideration was received on
March 25, 1999. Respondent filed its notice of appeal on March 29, 1999. Initially, the
trial court dismissed the appeal for failure of the respondent to pay the requisite docket
fees within the reglementary period. Upon motion by the respondent however, the trial
court reconsidered and gave due course to the notice of appeal because respondent
paid the docket fees. In a motion to dismiss filed before the appellate court, the
petitioner alleged that respondents appeal suffers from jurisdictional infirmity because
of late payment of docket fees. CA set aside the decision of the trial court and directed
petitioner to pay respondent the amount of P1,863,081.53. Petitioners motion for
reconsideration was denied Hence, the instant petition.
Issue: Whether or not the Court of Appeals erred in entertaining the appeal of
respondent despite the finality of the trial courts decision.
Ruling: It is well-established that the payment of docket fees within the prescribed
period is mandatory for the perfection of an appeal. This is so because a court acquires
jurisdiction over the subject matter of the action only upon the payment of the correct
amount of docket fees regardless of the actual date of filing of the case in court. The
payment of the full amount of the docket fee is a sine qua non requirement for the
perfection of an appeal. The court acquires jurisdiction over the case only upon the
payment of the prescribed docket fees. In the case at bar, the respondent seasonably
filed the notice of appeal but it paid the docket fees one (1) month after the lapse of the
appeal period. As admitted by the respondent, the last day for filing the notice of appeal
was on March 29, 1999, but it paid the docket fees only on April 30, 1999 because of
oversight. Obviously, at the time the said docket fees were paid, the decision appealed
from has long attained finality and no longer appealable. Respondents contention that
SLU SOL 1-C Page
557
the petitioner is now estopped from raising the issue of late payment of the docket fee
because of his failure to assail promptly the trial courts order approving the notice of
appeal and accepting the appeal fee, is untenable. Estoppel by laches arises from the
negligence or omission to assert a right within a reasonable time, warranting a
presumption that the party entitled to assert it either has abandoned or declined to
assert it. In the case at bar, petitioner raised at the first instance the non-payment of the
docket fee in its motion for reconsideration before the trial court. Petitioner reiterated its
objection in the motion to dismiss before the appellate court and finally, in the instant
petition. Plainly, petitioner cannot be faulted for being remiss in asserting its rights
considering that it vigorously registered a persistent and consistent objection to the
Court of Appeals assumption of jurisdiction at all stages of the proceedings.
SLU SOL 1-C Page
558
Larena v. Mapili, 7 August 2003
AQUILA LARENA joined by her husband, CANDIDO MERCADERA, petitioners,

vs.
FRUCTUOSA MAPILI, JOSE MAPILI and ROSELA VENELES, respondents.
G.R. No. 146341 August 7, 2003
Facts: Hipolito Mapili during his lifetime owned a parcel of unregistered land declared
for taxation purposes in his name. The property had descended by succession from
Hipolito to his only son Magno and on to the latters own widow and children. These
heirs, the herein respondents, took possession of the property up to the outbreak of
World War II when they evacuated to the hinterlands. On the other hand, petitioner
Aquilina Larena took possession of the property in the1970s alleging that she had
purchased it from her aunt (Filomena Larena) on February 17, 1968. Filomena Larena
in turn claimed to have bought it from Hipolito on October 28, 1949, as evidence by the
Affidavit of Transfer of Real Property executed on the same date.
The Regional Trial Court, however, declared the said affidavit as spurious because
Hipolito was already dead when the alleged transfer was made to Filomena Larena. On
appeal, the Court of Appeals declared that respondents had never lost their right to the
land in question as they were the heirs to whom the property had descended upon the
death of the original claimant and possessor.
Issue: Whether or not Filomena Larena acquired the subject property by means of sale,
prescription, and/or laches.
Ruling: Filomena did not acquire said property by means of sale, prescription and/or
laches. First, the tax declarations are not a conclusive evidence of ownership, but a
proof that the holder has a claim of title over the property. It is good indicia of
possession in the concept of owner. It may strengthen Aquilinas bona fide claim of
acquisition of ownership. However, petitioners failed to present the evidence needed to
tack the date of possession on the property in question. Second, acquisitive prescription
is a mode of acquiring ownership by a possessor through the requisite lapse of time.
Since the claims of purchase were unsubstantiated, petitionersacts of possessory
character have been merely tolerated by the owner. Hence, it did not constitute
possession. Moreover, there is lack of just title on the part of Aquilina and therefore,
ordinary acquisitive prescription of ten (10) years as provided under Article 1134 of the
Civil Code cannot be applied.
Under Article 1137 of the Civil Code, the lapse of time required for extra-ordinary
acquisitive prescription is thirty (30) years, and records show that the lapse of time was
only twenty-seven (27) yearsa period that was short of three (3) years, when the
complaint was filed. Finally, laches is a failure or neglect for an unreasonable and
unexplained length of time to do that which could or should have been done earlier
SLU SOL 1-C Page
559
through the exercise of due diligence. The filing by respondents of the complaint in 1977
completely negates the decision that the latter were negligent in asserting their claim.
SLU SOL 1-C Page
560
Santos v. Santos, 2 October 2001
ZENAIDA M. SANTOS, petitioner,

vs.
CALIXTO SANTOS, ALBERTO SANTOS, ROSA SANTOS-CARREON and ANTONIO
SANTOS, respondents.
G.R. No. 133895 October 2, 2001
Facts: Petitioner Zenaida M. Santos is the widow of Salvador Santos, a brother of

private respondents Calixto, Alberto, Antonio, all surnamed Santos and Rosa Santos-
Carreon. The spouses Jesus and Rosalia were the parents of the respondents and the
husband of the petitioner. The spouses owned a parcel of registered land with a four-
door apartment administered by Rosalia who rented them out. On January 19, 1959, the
spouses executed a deed of sale of the properties in favor of their children Salvador and
Rosa. Rosa in turn sold her share to Salvador on November 20, 1973, which resulted in
the issuance of new TCT. Despite the transfer of the property to Salvador, Rosalia
continued to lease and receive rentals from the apartment units. On January 9, 1985,
Salvador died, followed by Rosalia who died the following month. Shortly after,
petitioner Zenaida, claiming to be Salvadors heir, demanded the rent from Antonio
Hombrebueno, a tenant of Rosalia. When the latter refused to pay, Zenaida filed an
ejectment suit against him with the Metropolitan Trial Court of Manila, which eventually
decided in Zenaidas favor. On January 5, 1989, private respondent instituted an action
for reconveyance of property with preliminary injunction against petitioner in the
Regional Trial Court of Manila, where they alleged that the two deeds of sale were
simulated for lack of consideration. The petitioner on the other hand denied the material
allegations in the complaint and that she further alleged that the respondents' right to
reconveyance was already barred by prescription and laches considering the fact that
from the date of sale from Rosa to Salvador up to his death, more or less twelve (12)
years had lapsed, and from his death up to the filing of the case for reconveyance, four
(4) years has elapsed. In other words, it took respondents about sixteen (16) years to
file the case. Moreover, petitioner argues that an action to annul a contract for lack of
consideration prescribes in ten (10) years and even assuming that the cause of action
has not prescribed, respondents are guilty of laches for their inaction for a long period of
time. The trial court decided in favor of private respondents in as much as the deeds of
sale were fictitious, the action to assail the same does not prescribe. Upon appeal, the
Court of Appeals affirmed the trial courts decision. It held that the subject deeds of sale
did not confer upon Salvador the ownership over the subject property, because even
after the sale, the original vendors remained in dominion, control, and possession
thereof.
Issue: Whether or not the cause of action of the respondents had prescribed and/or
barred by laches.
Ruling: The cause of action by the respondents had not prescribed nor is it barred by
laches. First, the right to file an action for the reconveyance of the subject property to
SLU SOL 1-C Page

561
the estate of Rosalia has not prescribed since deeds of sale were simulated and
fictitious. The complaint amounts to a declaration of nullity of a void contract, which is
imprescriptible. Hence, respondents' cause of action has not prescribed. Second,
neither is their action barred by laches. The elements of laches are: 1) conduct on the
part of the defendant, or of one under whom he claims, giving rise to the situation of
which the complainant seeks a remedy; 2) delay in asserting the complainants rights,
the complainant having knowledge or notice of the defendants conduct as having been
afforded an opportunity to institute a suit; 3) lack of knowledge or notice on the part of
the defendant that the complainant would assert the right in which he bases his suit;
and 4) injury or prejudice to the defendant in the event relief is accorded to the
complainant, or the suit is not held barred. These elements must all be proved
positively. The lapse of four (4) years is not an unreasonable delay sufficient to bar
respondents action. Moreover, the fourth (4th) element is lacking in this case. The
concept of laches is not concerned with the lapse of time but only with the effect of
unreasonable lapse. The alleged sixteen (16) years of respondents' inaction has no
adverse effect on the petitioner to make respondents guilty of laches.
SLU SOL 1-C Page
562
JOSEFINA VILLANUEVA-MIJARES, WALDETRUDES VILLANUEVA-NOLASCO,

GODOFREDO VILLANUEVA, EDUARDO VILLANUEVA, GERMELINA VILLANUEVA-
FULGENCIO, MILAGROS VILLANUEVA-ARQUISOLA, and CONCEPCION
MACAHILAS VDA. DE VILLANUEVA, petitioners,
vs.
THE COURT OF APPEALS, PROCERFINA VILLANUEVA, PROSPERIDAD
VILLANUEVA, RAMON VILLANUEVA, ROSA VILLANUEVA, VIRGINIA
NEPOMUCENO, PAULA NEPOMUCENO, TARCELA NEPOMUCENO, MERCEDES
VILLANUEVA, ADELAIDA VILLANUEVA, APARICION VILLANUEVA, JOSEFINA
VILLANUEVA, BETTY VILLANUEVA, BOBBY VILLANUEVA, MERLINDA
VILLANUEVA, MORBINA VILLANUEVA, FLORITA VILLANUEVA, DIONISION
VILLANUEVA, and EDITHA VILLANUEVA, respondents.
G.R. No. 108921 April 12, 2000
Facts: Felipe Villanueva left a 15,336-square-meter parcel of land in Kalibo to his 8

children: Simplicio, Benito, Leon, Nicolasa, Eustaqio, Camila, Fausta, and Pedro. In
1952, Pedro declared under his name 1/6 portion of the property (1,905 sq. m.). He held
the remaining properties in trust for his co-heirs who demanded the subdivision of the
property but to no avail. After Leons death in 1972, private respondents discovered that
the shares of Simplicio, Nicolasa, Fausta, and Maria Baltazar had been purchased by
Leon through a deed of sale dated Aug. 25, 1946 but registered only in 1971. In July
1970, Leon also sold and partitioned the property in favor of petitioners, his children,
who thereafter secured separate and independent titles over their respective pro
indiviso shares.
Private respondents filed an action for partition with annulment of documents and/or
reconveyance and damages against petitioners. They contended that Leon fraudulently
obtained the sale in his favor through machinations and false pretenses. The RTC
declared that private respondents' action had been barred by res judicata and that
petitioners are the legal owners of the property in question in accordance with the
individual titles issued to them.
Issue: Whether or not the action by the private respondents to recover the property in
question is barred by laches.
Ruling: At the time of the signing of the deed of sale of Aug. 26, 1948, private
respondents Procerfina, Prosperedad, Ramon, and Rosa were minors. They could not
be faulted for their failure to file a case to recover their inheritance from their uncle
Leon, since up to the age of majority, they believed and considered Leon their co-heir
administrator. It was only in 1975, not in 1948, that they became aware of the actionable
betrayal by their uncle. Upon learning of their uncles actions, they filed for recovery.
Hence, the doctrine of stale demands cannot be applied here. They did not sleep on
their rights. Furthermore, when Felipe died, an implied trust was created by operation of
SLU SOL 1-C Page
563
law between Felipes children and Leon as far as the 1/6 share of Felipe. Leons
fraudulent titling of Felipe's 1/6 share was a betrayal of that implied trust.
SLU SOL 1-C Page
564
V. Contracts (Arts. 1305-1317)
Art. 1306 (in relation to Art. III, sec. 10 of 1987 Constitution),
Autonomy
Garcia v. Villar, 27 June 2012
PABLO P. GARCIA, petitioner,

vs.
YOLANDA VALDEZ VILLAR, respondent.
G.R. No. 158891 June 27, 2012
Facts: On July 6, 1993, Galas, with her daughter, Ophelia G. Pingol mortgaged the
subject property to Yolanda Valdez Villar (Villar) as security for a loan in the amount of
Two Million Two Hundred Thousand Pesos (P2,200,000.00).
Galas, again mortgaged the same subject property to Pablo P. Garcia (Garcia) to
secure her loan of One Million Eight Hundred Thousand Pesos (P1,800,000.00).
Garcia filed a Petition for Mandamus with Damages against Villar before the RTC,
Branch 92 of Quezon City. Garcia subsequently amended his petition to a Complaint for
Foreclosure of Real Estate Mortgage with Damages. Garcia alleged that when Villar
purchased the subject property, she acted in bad faith and with malice as she knowingly
and willfully disregarded the provisions on laws on judicial and extrajudicial foreclosure
of mortgaged property. Garcia further claimed that when Villar purchased the subject
property, Galas was relieved of her contractual obligation and the characters of creditor
and debtor were merged in the person of Villar.
Therefore, Garcia argued, he, as the second mortgagee, was subrogated to Villars
original status as first mortgagee, which is the creditor with the right to foreclose. Garcia
further asserted that he had demanded payment from Villar, whose refusal compelled
him to incur expenses in filing an action in court.
Issue: Whether or not the sale of the subject property to Villar was valid.
Ruling: Villars purchase of the subject property did not violate the prohibition on
pactum commissorium. The power of attorney provision above did not provide that the
ownership over the subject property would automatically pass to Villar upon Galass
failure to pay the loan on time. What it granted was the mere appointment of Villar as
attorney-in-fact, with authority to sell or otherwise dispose of the subject property, and to
apply the proceeds to the payment of the loan.
SLU SOL 1-C Page
565
Sps. Edralin v. Philippine Veterans Bank, 9 March 2011
SPOUSES FERNANDO and ANGELINA EDRALIN, petitioners,

vs.
PHILIPPINE VETERANS BANK, respondent.
G.R. No. 168523 March 9, 2011
Facts: Veterans Bank granted petitioner spouses Fernando and Angelina executed a
Real Estate Mortgage in favor of the latter over a real property as a security of a loan in
the amount of P270,000.00. In due course, the foreclosure sale was held and sold the
mortgaged property at public auction. Veterans Bank emerged as the highest bidder at
the said foreclosure sale and was issued the corresponding Certificate of Sale.
Upon the Edralins failure to redeem the property during the one-year period provided
under Act No. 3135, Veterans Bank acquired absolute ownership of the subject
property. The Edralins failed to vacate and surrender possession of the subject property
to Veterans Bank. Thus Veterans Bank filed an Ex-Parte Petition for the issuance of a
Writ of possession before the Regional Trial Court but was dismissed. Veterans Bank
again filed an Ex-Parte Petition for Issuance of Writ of Possession before the RTC. The
Edralins moved to dismiss the petition on the ground that the dismissal RTCs former
decision constituted res judicata.
The trial court denied the motion to dismiss explaining that the ground of failure to
present evidence is not a determination of the merits of the case hence does not
constitute res judicata on the petition for issuance of a writ of possession. Nevertheless,
the trial court found no merit in the Veterans Banks application and dismissed the
same. Upon appeal, The appellate court ruled in favor of Veterans Bank.
Issue: Whether or not the failure of petitioners to question the validity of the foreclosure
proceedings or the auction sale resulted in the ripening of the consolidation of
ownership.
Ruling: No. Pactum commissorium is a stipulation empowering the creditor to

appropriate the thing given as guaranty for the fulfilment of the obligation in the event
the obligor fails to live up to his undertakings, without further formality, such as
foreclosure proceedings, and a public sale. The elements of pactum commissorium,
which enable the mortgagee to acquire ownership of the mortgaged property without the
need of any foreclosure proceedings, are: (1) there should be a property mortgaged by
way of security for the payment of the principal obligation, and (2) there should be a
stipulation for automatic appropriation by the creditor of the thing mortgaged in case of
non-payment of the principal obligation within the stipulated period.
The second element is missing to characterize the Deed of Sale as a form of pactum
commissorium. Veterans Bank did not, upon the petitioners default, automatically
acquire or appropriate the mortgaged property for itself. On the contrary, the Veterans
SLU SOL 1-C Page
566
Bank resorted to extrajudicial foreclosure and was issued a Certificate of Sale by the
sheriff as proof of its purchase of the subject property during the foreclosure sale. That
Veterans Bank went through all the stages of extrajudicial foreclosure indicates that
there was no pactum commissorium.
SLU SOL 1-C Page
567
University Physicians Services v. Marian Clinics, 1 September 2010
UNIVERSITY PHYSICIANS SERVICES, INCORPORATED, petitioner,

vs.
MARIAN CLINICS, INC. and DR. LOURDES MABANTA, respondents.
G.R. No. 152303 September 1, 2010
Facts: Marian Clinics, Inc. and University Physicians Services, Incorporated entered
into a Lease Agreement whereby the former leased to the latter the Marian General
Hospital and four schools for a period of ten years. The land, buildings, facilities, fixtures
and equipment appurtenant thereto, including the Soledad Building, were included in
the lease, for which a monthly rental of P70,000 was agreed upon. Later, UPSI filed a
complaint for specific performance against MCI and prayed for the delivery of the
Certificates of Occupancy of the buildings leased, for the correction of the defects in the
electrical installations thereon, and damages. UPsi sent a letter to MCI, informing it of
the filing of the complaint and the suspension of payment of the monthly rentals until the
resolution of the case. On November 7, 1975, MCI sent a demand letter to UPSI for the
payment of the rent.
Thereafter, MCI and Dr. Lourdes F. Mabanta filed a Complaint for Unlawful Detainer
against UPSI which was later on dismissed the on the finding that (1) UPSIs
suspension of rental payments was justified; and (2) there was no ground to cause the
rescission of the lease and warrant the ejectment of UPSI.
During the pendency of these cases, MCI ceded to the Development Bank of the
Philippines some of the leased buildings, including certain facilities, furniture, fixtures
and equipment found therein, in full settlement of MCIs debt to DBP. The Deed of
Cession of Properties in Payment of Debt (Dacion en Pago) contained an annex which
listed the properties ceded to DBP. Upon the execution of the dacion en pago, UPSI
paid P60,000 of the monthly rental to DBP as the new owner of the properties subject of
the dacion en pago.
The RTC of Manila affirmed the City Court Decision dismissing MCIs unlawful detainer
case. The intermediate appellate court rendered its Decision reversing the rulings of the
lower courts. According to the CA, the absence of the certificates of occupancy for two
of the leased buildings, being a matter between the owner of the building and the city
government, did not impair the peaceful and adequate enjoyment by UPSI of the
premises and the alleged defective electrical installations on the premises leased is no
justification for the refusal to pay rentals, as, under Article 1663 of the Civil Code, the
lessee may have said installations properly reinstalled at the expense of the lessor.
Hence, the petition.
Issue: Whether or not the order for the replacement of the subject properties had been
rendered moot by dacion en pago, by a deed of conditional sale, and by payment in full
satisfaction of the judgment credit.
SLU SOL 1-C Page
568
Ruling: Yes. On UPSIs argument that the order for the replacement of the subject
properties had been rendered moot by dacion en pago, by a deed of conditional sale,
and by payment in full satisfaction of the judgment credit in Civil Case No. 529778, we
rule that the same may also be and are best threshed out in hearings to be conducted
by the execution court. Indeed, there is a need for the execution court to (1) identify the
mass of properties actually leased to UPSI; (2) identify and exclude the properties
transferred to DBP under the dacion en pago and to UPSI under the conditional deed of
sale; and (3) identify and exclude properties which UPSI already returned, replaced or
paid the value of in Civil Case No. 529778. UPSI can be made responsible for only the
remaining leased assets which have not been previously returned or replaced, if there
are any. As these matters are factual in nature and it is elementary that this Court is not
a trier of facts, remand of the case to the execution court would be in order.
SLU SOL 1-C Page

569
Martin, et al. v. DBS Bank Philippines, Inc. et al., 16 June 2010
FELICIDAD T. MARTIN, MELISSA M. ISIDRO, GRACE M. DAVID, CAROLINE M.

GARCIA, VICTORIA M. ROLDAN, and BENJAMIN T. MARTIN, JR., petitioners,
vs.
DBS BANK PHILIPPINES, INC. (Formerly known as Bank of Southeast Asia) now
merged with and into BPI FAMILY BANK, respondent.
G.R. No. 174632 June 16, 2010
Facts: Felicidad T. Martin, Melissa M. Isidro, Grace M. David, Caroline M. Garcia,

Victoria M. Roldan, and Benjamin T. Martin, Jr., as lessors, entered into a lease contract
with the DBS Bank Philippines, Inc., covering a commercial warehouse and lots that
DBS was to use for office, warehouse, and parking yard for repossessed vehicles. The
lease was for five years, from March 1, 1997 to March 1, 2002, at a monthly rent of
P300,000.00 for the first year, P330,000.00 for the second year, P363,000.00 for the
third year, P399,300.00 for the fourth year, and P439,230.00 for the final year, all net of
withholding taxes. DBS paid a deposit of P1,200,000.00 and advance rentals of
P600,000.00. On May 25 and August 13, 1997 heavy rains flooded the leased property
and submerged into water the DBS offices there along with its 326 repossessed
vehicles. As a result, on February 11, 1998 DBS wrote the Martins demanding that they
take appropriate steps to make the leased premises suitable as a parking yard for its
vehicles. DBS suggested the improvement of the drainage system or the raising of the
propertys ground level. In response, the Martins filled the propertys grounds with soil
and rocks. But DBS lamented that the property remained unsuitable for its use since the
Martins did not level the grounds. Worse, portions of the perimeter fence collapsed
because of the excessive amount of soil and rock that were haphazardly dumped on it.
In June 1998, DBS vacated the property but continued paying the monthly rents. On
September 11, 1998, however, it made a final demand on the Martins to restore the
leased premises to tenantable condition on or before September 30, 1998, otherwise, it
would rescind the lease contract. On September 24, 1998 the Martins contracted the
services of Altitude Systems & Technologies Co. for the reconstruction of the perimeter
fence on the property. On October 13, 1998 DBS demanded the rescission of the lease
contract and the return of its deposit. At that point, DBS had already paid the monthly
rents from March 1997 to September 1998. The Martins refused, however, to comply
with DBS demand. On July 7, 1999 DBS filed a complaint against the Martins for
rescission of the contract of lease with damages before the Regional Trial Court of
Makati City, Branch 141, in Civil Case 99-1266. Claiming that the leased premises had
become untenantable, DBS demanded rescission of the lease contract as well as the
return of its deposit of P1,200,000.00.
The Makati City RTC rendered a decision, dismissing the complaint against the Martins.
The trial court found that, although the floods submerged DBS vehicles, the leased
premises remained tenantable and undamaged. Moreover, the Martins had begun the
repairs that DBS requested but were not given sufficient time to complete the same. It
SLU SOL 1-C Page
570
held that DBS unjustifiably abandoned the leased premises and breached the lease
contract. Thus, the trial court ordered its deposit of P1,200,000.00 deducted from the
unpaid rents due the Martins and ordered DBS to pay them the remaining
P15,198,360.00 in unpaid rents.
On appeal to the Court of Appeals, the court rendered judgment reversing and setting
aside the RTC decision. The CA found that floods rendered the leased premises
untenantable and that the RTC should have ordered the rescission of the lease contract
especially since the contract provided for such remedy. The CA ordered the Martins to
apply the deposit of P1,200,000.00 to the rents due up to July 7, 1999 when DBS filed
the complaint and exercised its option to rescind the lease. The CA ordered the Martins
to return the remaining balance of the deposit to DBS. With the denial of their separate
motions for reconsideration DBS and the Martins filed their respective petitions for
review before this Court in G.R. 174632 and 174804. The Court eventually consolidated
the two cases.
Issue: Whether or not the CA erred in holding that DBS is entitled to the rescission of
the lease contract only from July 7, 1999 when it filed its action for rescission, entitling
the Martins to collect rents until that time.
Ruling: Unless the terms of a contract are against the law, morals, good customs, and
public policy, such contract is law between the parties and its terms bind them. In
Felsan Realty & Development Corporation v. Commonwealth of Australia, the Court
regarded as valid and binding a provision in the lease contract that allowed the lessee
to pre-terminate the same when fire damaged the leased building, rendering it
uninhabitable or unsuitable for living. Here, paragraph VIII of the lease contract between
DBS and the Martins permitted rescission by either party should the leased property
become untenantable because of natural causes. Thus In case of damage to the leased
premises or any portion thereof by reason of fault or negligence attributable to the
lessee, its agents, employees, customers, or guests, the lessee shall be responsible for
undertaking such repair or reconstruction. In case of damage due to fire, earthquake,
lightning, typhoon, flood, or other natural causes, without fault or negligence attributable
to the lessee, its agents, employees, customers or guests, the lessor shall be
responsible for undertaking such repair or reconstruction. In the latter case, if the leased
premises become untenantable, either party may demand for the rescission of this
contract and in such case, the deposit referred to in paragraph III shall be returned to
the lessee immediately. The Martins claim that DBS cannot invoke the above since they
undertook the repair and reconstruction of the leased premises, incurring P1.6 million in
expenses. The Martins point out that the option to rescind was available only if they
failed to do the repair work and reconstruction.
But, under their agreement, the remedy of rescission would become unavailable to DBS
only if the Martins, as lessors, made the required repair and reconstruction after the
damages by natural cause occurred, which meant putting the premises after the floods
in such condition as would enable DBS to resume its use of the same for the purposes
contemplated in the agreement, namely, as office, warehouse, and parking space for
SLU SOL 1-C Page
571
DBS repossessed vehicles. Here, it is undisputed that the floods of May 25 and August
13, 1997 submerged the DBS offices and its 326 repossessed vehicles. The floods
rendered the place unsuitable for its intended uses. And, while the Martins did some
repairs, they did not restore the place to meet DBS needs. The photographs16 taken of
the place show that the Martins filled the grounds with soil and rocks to raise the
elevation but did not level and compact the same so they could accommodate the
repossessed vehicles. Moreover, the heaviness of the filling materials caused portions
of the perimeter walls to collapse or lean dangerously. Indeed, the Office of the City
Engineer advised DBS that unless those walls were immediately demolished or
rehabilitated, they would endanger passersby.
Undeniably, the DBS suffered considerable damages when flood waters deluged its
offices and 326 repossessed vehicles. Notably, DBS vacated the leased premises in
June of 1998, without rescinding the lease agreement, evidently to allow for unhindered
repair of the grounds. In fact, DBS continued to pay the monthly rents until September
1998, showing how DBS leaned back to enable the Martins to finish the repair and
rehabilitation of the place. 19 The Martins provided basis for rescission by DBS when
they failed to do so.
Hence the Court denied the petition and affirmed with modifications the April 26, 2006
decision of the Court of Appeals in CA-G.R. CV 76210 in that Felicidad T. Martin,
Melissa M. Isidro, Grace M. David, Caroline M. Garcia, Victoria M. Roldan, and
Benjamin T. Martin, Jr. are ORDERED to return the full deposit of P1,200,000.00 to DBS
Bank Philippines, Inc. (formerly known as Bank of Southeast Asia, now merged with and
into BPI Family Bank) with interest of 12% per annum to be computed from the finality
of this decision until the amount is fully paid.
SLU SOL 1-C Page
572
Heirs of Zabala, et al. v. CA, 6 May 2010
HEIRS OF ALFREDO ZABALA, represented by MENEGILDA ZABALA, ROLANDO

ZABALA, MANUEL ZABALA, MARILYN ZABALA, and ADELINA ZABALA,
petitioners,
vs.
HON. COURT OF APPEALS, VICENTE T. MANUEL AND/OR HEIRS OF VICENTE T.
MANUEL, respondents.
G.R. No. 189602 May 6, 2010
Facts: On April 1, 2002, respondent Vicente T. Manuel filed a Complaint for ejectment
with damages against Alfredo Zabala before the Municipal Trial Court in Cities of
Balanga, Bataan. Respondent alleged that he was in actual and peaceful possession of
a fishpond (Lot No. 1483) located in Ibayo, Balanga City. On October 15, 2001, Zabala
allegedly entered the fishpond without authority, and dumped soil into the fishpond
without an Environment Compliance Certificate. Zabala continued such action until the
time of the filing of the Complaint, killing the crabs and the bangus that respondent was
raising in the fishpond. Thus, respondent asked that Zabala be restrained from touching
and destroying the fishpond; that Zabala be ejected therefrom permanently; and for
actual and moral damages and attorneys fees. Zabala promptly moved for the
dismissal of the Complaint for non-compliance with the requirement under the Local
Government Code to bring the matter first to barangay conciliation before filing an
action in court. Respondent subsequently filed a Motion for Judgment on the ground of
petitioners failure to file a responsive pleading or answer. The MTCC, in an Order dated
May 27, 2003, granted Zabalas motion and dismissed the Complaint, holding that
respondent indeed violated the requirement of barangay conciliation. Respondent then
appealed the ruling to the Balanga, Bataan Regional Trial Court. In a decision dated
March 30, 2004,[5] the RTC reversed the MTCCs May 27, 2003 Order and rendered
judgment directing Zabala, his heirs or subalterns to immediately vacate Lot No. 1483
and restore respondent to his peaceful possession thereof. The RTC also directed
Zabala to pay respondent actual damages, moral damages, and attorneys fees. The
RTC found that Zabala did not, in fact, file an answer to the Complaint. Zabala then filed
a Petition for Review before the Court of Appeal. The CA promulgated a Decision
upholding the RTCs reversal of the MTCCs Order. The CA held that, based on the
allegations in the Complaint, the requirement for prior conciliation proceedings under
the Local Government Code was inapplicable to the suit before the MTCC, the action
being one for ejectment and damages, with application for a writ of preliminary
injunction, even without the use of those actual terms in the Complaint. However, the
CA granted Zabalas prayer for the deletion of the awards for actual and moral
damages, and for attorneys fees. Zabala filed a Motion for Reconsideration, which the
CA denied. Zabalas heirs filed this Verified Petition for Certiorari. They prayed for the
annulment of the CAs December 19, 2008 Decision and August 26, 2009 Resolution,
and for the reinstatement of the MTCCs May 27, 2003 Order. In the alternative, they
prayed that the Court remand the records to the MTCC, so that they could file their
Answer, and that due proceedings be undertaken before judgment. In a Resolution
SLU SOL 1-C Page
573
dated November 18, 2009, respondents were required to file their Comment on the
Petition. Subsequently a Compromise Agreement was entered into by the parties.
Issue: Whether or not the case must prosper and continue considering the present
circumstances.
Ruling: No. The Court ruled that Under Article 2028 of the Civil Code, a compromise
agreement is a contract whereby the parties, by making reciprocal concessions, avoid
litigation or put an end to one already commenced. Compromise is a form of amicable
settlement that is not only allowed, but also encouraged in civil cases. Contracting
parties may establish such stipulations, clauses, terms, and conditions as they deem
convenient, provided that these are not contrary to law, morals, good customs, public
order, or public policy. Thus, finding the above Compromise Agreement to have been
validly executed and not contrary to law, morals, good customs, public order, or public
policy, we approve the same. Thus the Compromise Agreement was and judgment is
hereby rendered in accordance therewith. By virtue of such approval, this case was
deemed terminated.
SLU SOL 1-C Page
574
Duncan v. Glaxo, 438 S 343
DUNCAN ASSOCIATION OF DETAILMAN-PTGWO and PEDRO A. TECSON,

petitioners,
vs.
GLAXO WELLCOME PHILIPPINES, INC., respondent.
G.R. No. 162994 September 17, 2004
Facts: Petitioner Pedro A. Tecson (Tecson) was hired by respondent Glaxo Wellcome
Philippines, Inc. (Glaxo) as medical representative on October 24, 1995, after Tecson
had undergone training and orientation. Thereafter, Tecson signed a contract of
employment which stipulates, among others, that he agrees to study and abide by
existing company rules; to disclose to management any existing or future relationship by
consanguinity or affinity with co-employees or employees of competing drug companies
and should management find that such relationship poses a possible conflict of interest,
to resign from the company. The Employee Code of Conduct of Glaxo similarly provides
that an employee is expected to inform management of any existing or future
relationship by consanguinity or affinity with co-employees or employees of competing
drug companies. If management perceives a conflict of interest or a potential conflict
between such relationship and the employees employment with the company, the
management and the employee will explore the possibility of a transfer to another
department in a non-counterchecking position or preparation for employment outside
the company after six months. Tecson was initially assigned to market Glaxos products
in the Camarines-Sur, Camarines-Norte sales area. Subsequently, Tecson entered into
a romantic relationship with Bettsy, an employee of Astra Pharmaceuticals (Astra), a
competitor of Glaxo. Bettsy was Astras Branch Coordinator in Albay. She supervised
the district managers and medical representatives of her company and prepared
marketing strategies for Astra in that area. Even before they got married, Tecson
received several reminders from his District Manager regarding the conflict of interest
which his relationship with Bettsy might engender. Still, Tec son married Bettsy in
September 1998. Tecson was later reassigned at Butuan-Surigao-Agusan area to
prevent conflict of interest but he refused and argued that he was constructively
dismissed.
Issue: Whether or not Glaxos policy against its employees marrying employees from
competitor companies is valid.
Ruling: Glaxo has a right to guard its trade secrets, manufacturing formulas, marketing
strategies and other confidential programs and information from competitors, especially
so that it and Astra are rival companies in the highly competitive pharmaceutical
industry. The prohibition against personal or marital relationships with employees of
competitor companies upon Glaxos employees is reasonable under the circumstances
because relationships of that nature might compromise the interests of the company. In
laying down the assailed company policy, Glaxo only aims to protect its interests against
the possibility that a competitor company will gain access to its secrets and
SLU SOL 1-C Page
575
procedures. That Glaxo possesses the right to protect its economic interests cannot be
denied. No less than the Constitution recognizes the right of enterprises to adopt and
enforce such a policy to protect its right to reasonable returns on investments and to
expansion and growth. Indeed, while our laws endeavor to give life to the constitutional
policy on social justice and the protection of labor, it does not mean that every labor
dispute will be decided in favor of the workers. The law also recognizes that
management has rights which are also entitled to respect and enforcement in the
interest of fair play. In this case, there were notices and advises given to the petitioner
regarding his romantic relationship to his marriage regarding the conflict of interest.
Hence, the petition was denied.
SLU SOL 1-C Page
576
Star Paper v. Simbol, 487 S 228
STAR PAPER CORPORATION, JOSEPHINE ONGSITCO & SEBASTIAN CHUA,

petitioners,
vs.
RONALDO D. SIMBOL, WILFREDA N. COMIA & LORNA E. ESTRELLA,
respondents.
G.R. No. 164774 April 12, 2006
Facts: Petitioner was the employer of the respondents. Under the policy of Star Paper
the employees are: 1. New applicants will not be allowed to be hired if in case he/she
has a relative, up to the 3rd degree of relationship, already employed by the company.
2. In case of two of our employees (singles, one male and another female) developed a
friendly relationship during the course of their employment and then decided to get
married, one of them should resign to preserve the policy stated above. Respondents
Comia and Simbol both got married to their fellow employees. Estrella on the other
hand had a relationship with a co-employee resulting to her pregnancy on the belief that
such was separated. The respondents allege that they were forced to resign as a result
of the implementation of the said assailed company policy. The Labor Arbiter and the
NLRC ruled in favor of petitioner. The decision was appealed to the Court of Appeals
which reversed the decision.
Issue: Whether or not the prohibition to marry in the contract of employment is valid.
Ruling: It is significant to note that in the case at bar, respondents were hired after they
were found fit for the job, but were asked to resign when they married a co-employee.
Petitioners failed to show how the marriage of Simbol, then a Sheeting Machine
Operator, to Alma Dayrit, then an employee of the Repacking Section, could be
detrimental to its business operations. Neither did petitioners explain how this detriment
will happen in the case of Wilfreda Comia, then a Production Helper in the Selecting
Department, who married Howard Comia, then a helper in the cutter-machine. The
policy is premised on the mere fear that employees married to each other will be less
efficient. If we uphold the questioned rule without valid justification, the employer can
create policies based on an unproven presumption of a perceived danger at the
expense of an employees right to security of tenure. Petitioners contend that their
policy will apply only when one employee marries a co-employee, but they are free to
marry persons other than co-employees. The questioned policy may not facially violate
Article 136 of the Labor Code but it creates a disproportionate effect and under the
disparate impact theory, the only way it could pass judicial scrutiny is a showing that it is
reasonable despite the discriminatory, albeit disproportionate, effect. The failure of
petitioners to prove a legitimate business concern in imposing the questioned policy
cannot prejudice the employees right to be free from arbitrary discrimination based
upon stereotypes of married persons working together in one company. Lastly, the
absence of a statute expressly prohibiting marital discrimination in our jurisdiction
cannot benefit the petitioners. The protection given to labor in our jurisdiction is vast and
SLU SOL 1-C Page
577
extensive that we cannot prudently draw inferences from the legislatures silence that
married persons are not protected under our Constitution and declare valid a policy
based on a prejudice or stereotype. Thus, for failure of petitioners to present undisputed
proof of a reasonable business necessity, we rule that the questioned policy is an invalid
exercise of management prerogative. Corollary, the issue as to whether respondents
Simbol and Comia resigned voluntarily has become moot and academic. In the case of
Estrella, the petitioner failed to adduce proof to justify her dismissal. Hence, the Court
ruled that it was illegal. Petition was denied.
SLU SOL 1-C Page
578
Tiu v. Platinum Plans, 28 February 2007 re: non-involvement clause
DAISY B. TIU, petitioner

vs.
PLATINUM PLANS PHIL., INC., respondent.
G.R. No. 163512 February 28, 2007
Facts: Respondent Platinum Plans, re-hired petitioner as Senior Assistant Vice

President and Territorial Operations Head in charge of its Hongkong and Asean
operations. The parties executed a contract of employment valid for five years Petitioner
stopped reporting for work and became the Vice-President for Sales of Professional
Pension Plans, Inc., a corporation also engaged in the same industry respondent then
sued petitioner for damages alleging that petitioners employment with Professional
Pension Plans, Inc. violated the non-involvement clause in her contract of employment.
In upholding the validity of the non-involvement clause, the trial court ruled that a
contract in restraint of trade is valid provided that there is a limitation upon either time or
place. On appeal, the Court of Appeals affirmed the trial courts ruling. It reasoned that
petitioner entered into the contract on her own will and volition. Thus, she bound herself
to fulfill not only what was expressly stipulated in the contract, but also all its
consequences that were not against good faith, usage, and law. The appellate court
also ruled that the stipulation prohibiting non-employment for two years was valid and
enforceable considering the nature of respondents business. Petitioner moved for
reconsideration but was denied. Hence, the petition.
Issue: Whether or not the non-involvement clause under the contract is valid.
Ruling: Yes. A non-involvement clause is not necessarily void for being in restraint of
trade as long as there are reasonable limitations as to time, trade, and place. In this
case, the non-involvement clause has a time limit: two years from the time petitioners
employment with respondent ends. It is also limited as to trade, since it only prohibits
petitioner from engaging in any pre-need business akin to respondents.
More significantly, since petitioner was the Senior Assistant Vice-President and
Territorial Operations Head in charge of respondents Hongkong and Asean operations,
she had been privy to confidential and highly sensitive marketing strategies of
respondents business. To allow her to engage in a rival business soon after she leaves
would make respondents trade secrets vulnerable especially in a highly competitive
marketing environment. In sum, we find the non-involvement clause not contrary to
public welfare and not greater than is necessary to afford a fair and reasonable
protection to respondent.
In any event, Article 1306 of the Civil Code provides that parties to a contract may
establish such stipulations, clauses, terms and conditions as they may deem
convenient, provided they are not contrary to law, morals, good customs, public order,
or public policy.
SLU SOL 1-C Page
579
Article 11591 of the same Code also provides that obligations arising from contracts
have the force of law between the contracting parties and should be complied with in
good faith. Courts cannot stipulate for the parties nor amend their agreement where the
same does not contravene law, morals, good customs, public order or public policy, for
to do so would be to alter the real intent of the parties, and would run contrary to the
function of the courts to give force and effect thereto. Not being contrary to public policy,
the non-involvement clause, which petitioner and respondent freely agreed upon, has
the force of law between them, and thus, should be complied with in good faith.
SLU SOL 1-C Page

580
Avon Cosmetics v. Luna, 511 S 376 re: exclusivity clause
AVON COSMETICS, INCORPORATED and JOSE MARIE FRANCO, petitioners,

vs.
LETICIA H. LUNA, respondent.
G.R. No. 153674 December 20, 2006
Facts: Sometime in 1978, Avon Cosmetics, Inc. (Avon), herein petitioner, acquired and
took over the management and operations of Beautifont, Inc. Nonetheless, respondent
Luna continued working for said successor company. Aside from her work as a
supervisor, respondent Luna also acted as a make-up artist of petitioner Avons
Theatrical Promotions Group, for which she received a per diem for each theatrical
performance. Therafter, petitioner Avon and respondent Luna entered into an
agreement, entitled Supervisors Agreement and by virtue of the execution of the
aforequoted Supervisors Agreement, respondent Luna became part of the independent
sales force of petitioner Avon.
Sometime, respondent Luna became a Group Franchise Director of Sandre Philippines,

Inc. concurrently with being a Group Supervisor of petitioner Avon and began selling
and/or promoting Sandre products to other Avon employees and friends., A lawyer of
the firm opined that the Supervisors Agreement was contrary to law and public policy
after she rendered a legal opinion as to the consequence of the Supervisors
Agreement. Wanting to share the legal opinion she obtained from her legal counsel,
respondent Luna wrote a letter to her colleagues and attached mimeographed copies of
the opinion and then circulated them.
Thereafter, Petitioner Avon, through its President and General Manager, Jose Mari
Franco, notified respondent Luna of the termination or cancellation of her Supervisors
Agreement with petitioner Avon. Aggrieved, respondent Luna filed a complaint for
damages and the RTC rendered judgment in favor of respondent Luna, which was
assailed by the Court of appeals upon appeal. Hence, the petition.
Issue: Whether or not the Supervisors Agreement is valid and not against public policy.
Ruling: Yes. Plainly put, public policy is that principle of the law which holds that no
subject or citizen can lawfully do that which has a tendency to be injurious to the public
or against the public good. As applied to contracts, in the absence of express legislation
or constitutional prohibition, a court, in order to declare a contract void as against public
policy, must find that the contract as to the consideration or thing to be done, has a
tendency to injure the public, is against the public good, or contravenes some
established interests of society, or is inconsistent with sound policy and good morals, or
tends clearly to undermine the security of individual rights, whether of personal liability
or of private property.
From another perspective, the main objection to exclusive dealing is its tendency to
foreclose existing competitors or new entrants from competition in the covered portion
SLU SOL 1-C Page
581
of the relevant market during the term of the agreement. Only those arrangements
whose probable effect is to foreclose competition in a substantial share of the line of
commerce affected can be considered as void for being against public policy. The
foreclosure effect, if any, depends on the market share involved. The relevant market for
this purpose includes the full range of selling opportunities reasonably open to rivals,
namely, all the product and geographic sales they may readily compete for, using easily
convertible plants and marketing organizations. Applying the preceding principles to the
case at bar, there is nothing invalid or contrary to public policy either in the objectives
sought to be attained by paragraph 5, the exclusivity clause, in prohibiting respondent
Luna, and all other Avon supervisors, from selling products other than those
manufactured by petitioner Avon.
SLU SOL 1-C Page
582
Del Castillo v. Richmond, 45 P 679
ALFONSO DEL CASTILLO, plaintiff-appellant,

vs.
SHANNON RICHMOND, defendant-appellee.
G.R. No. L-21127 February 9, 1924
Facts: Del Castillo and Richmond entered into a contract of services which was
reduced into writng and signed by the parties. Among the stipulations was, Alfonso del
Castillo also agrees not to open, nor own nor have any interest directly or indirectly in
any other drugstore either in his own name or in the name of another; nor have any
connection with or be employed by any other drugstore situated within a radius of our
miles from the district of Legaspi, municipality and Province of Albay, while the said
Shannon Richmond or his heirs may own or have open a drugstore, or have an interest
in any other one within the limits of the districts of Legaspi, Albay, and Daraga of the
municipality of Albay, Province of Albay.
Issue: Whether or not the trial court erred in upholding such policy of the employer.
Ruling: The court ruled that considering the nature of the business in which the
defendant is engaged, in relation with the limitation placed upon the plaintiff both as to
time and place, we are of the opinion, and so decide, that such limitation is legal and
reasonable and not contrary to public policy. Of course in establishing whether the
contract is a reasonable or unreasonable one, the nature of the business must also be
considered. What would be a reasonable restriction as to time and place upon the
manufacture of railway locomotive engines might be a very unreasonable restriction
when imposed upon the employment of a day laborer.
SLU SOL 1-C Page
583
Arwood v. DM Consunji, 394 S 11
ARWOOD INDUSTRIES, INC., petitioner,

vs.
D.M. CONSUNJI, INC., respondent.
G.R. No. 142277 December 11, 2002
Facts: Petitioner and respondent, as owner and contractor, respectively, entered into a
Civil, Structural and Architectural Works Agreement dated February 6, 1989 for the
construction of petitioner's condominium The contract price for the condominium project
aggregated P20,800,000.00.
Despite the completion of the condominium project, the amount of P962,434.78

remained unpaid by petitioner. Repeated demands by respondent for petitioner to pay
went unheeded. Thus, on August 13, 1993, respondent filed its complaint for the
recovery of the balance of the contract price and for damages against petitioner. After
trial, the court resolved to grant the relief prayed for by respondent.
Petitioner appealed to the Court of Appeals, particularly opposing the finding of the trial
court with regard to the imposition of the monetary interest of 2% per month on the
adjudicated amount. The Court of Appeals upheld the trial court despite. Respondent
court found basis in Article 6.03 of the Agreement concerning the imposition of the 2%
interest, which reads:
"Payment shall be made by the owner to the contractor within fifteen (15)
calendar days after receipt of the construction manager's certificate. in the event
owner delays the payments (i.e. beyond the stipulated time) to the contractor of
monthly progress billings, the contractor shall have the option to either suspend
the works on the project until such payments have been remitted by the owner or
continue the work but the owner shall be required to pay the interest at a rate of
two (2%) percent per month or the fraction thereof in days of the amount due for
payment by the owner. the same interest shall be added to the billing of the
following month.
Issue: Whether or not the imposition of 2% monthly interest is proper.
Ruling: Petitioner's stance hardly deserves the Court's attention.
The Agreement or the contract between the parties is the formal expression of the
parties' rights, duties and obligations. It is the best evidence of the intention of the
parties. Thus, "when the terms of an agreement have been reduced to writing, it is
considered as containing all the terms agreed upon and there can be, between the
parties and their successors in interest, no evidence of such terms other than the
contents of the written agreement."
SLU SOL 1-C Page
584
Since the Agreement stands as the law between the parties, this Court cannot ignore
the existence of such provision providing for a penalty for every months delay. Facta
legem facunt inter partes. Neither can petitioner impugn the Agreement to which it
willingly gave its consent. From the moment petitioner gave its consent, it was bound
not only to fulfil what was expressly stipulated in the Agreement but also all the
consequences which, according to their nature, may be in keeping with good faith,
usage and law. Petitioners attempt to mitigate its liability to respondent should thus fail.
SLU SOL 1-C Page
585
Sps. Tecklo v. Rural Bank of Pamplona, 18 June 2010 re: dragnet clause
SPOUSES BENEDICT and MARICEL DY TECKLO, petitioners,

vs.
RURAL BANK OF PAMPLONA, INC. represented by its President/Manager, JUAN
LAS, respondent.
G.R. No. 171201 June 18, 2010
Facts: Spouses Roberto and Maria Antonette Co obtained from respondent Rural Bank
of Pamplona, Inc. a P100,000.00 loan due in three months which was secured by a real
estate mortgage. One of the stipulations in the mortgage contract was that the
mortgaged property would also answer for the future loans of the mortgagor. Pursuant
to this provision, spouses Co obtained on 4 March 1994 a second loan from respondent
bank in the amount of P150,000.00 due in three months. Petitioners, spouses Benedict
and Maricel Dy Tecklo, meanwhile instituted an action for collection of sum of money
against spouses Co. When the two loans remained unpaid after becoming due and
demandable, respondent bank instituted extrajudicial foreclosure proceedings.
Petitioners then exercised the right of redemption as successors-in-interest of the
judgment debtor. Stepping into the shoes of spouses Co, petitioners tendered the
amount of P155,769.50, based on the computation made by the Office of the Provincial
Sheriff. Respondent bank objected to the non-inclusion of the second loan. It also
claimed that the applicable interest rate should be the rate fixed in the mortgage, which
was 24% per annum plus 3% service charge per annum and 18% penalty per annum.
However, the Provincial Sheriff insisted that the interest rate should only be 12% per
annum. Respondent bank then sought annulment of the redemption, injunction, and
damages in the Regional Trial Court and the latter held that the second loan, not having
been annotated on the TCT of the mortgaged property, could not bind third persons
such as petitioners.
Issue: Whether or not the redemption amount includes the second loan in the amount
of P150,000.00.
Ruling: No. For its failure to include the second loan in its application for extrajudicial
foreclosure as well as in its bid at the public auction sale, respondent bank is deemed to
have waived its lien on the mortgaged property with respect to the second loan. Of
course, respondent bank may still collect the unpaid second loan, and the interest
thereon, in an ordinary collection suit before the right to collect prescribes. After the
foreclosure of the mortgaged property, the mortgage is extinguished and the purchaser
at auction sale acquires the property free from such mortgage. Any deficiency amount
after foreclosure cannot constitute a continuing lien on the foreclosed property, but must
be collected by the mortgagee-creditor in an ordinary action for collection. In this case,
the second loan from the same mortgage deed is in the nature of a deficiency amount
after foreclosure. In order to effect redemption, the judgment debtor or his successor-in-
interest need only pay the purchaser at the public auction sale the redemption amount
composed of (1) the price which the purchaser at the public auction sale paid for the
SLU SOL 1-C Page

586
property and (2) the amount of any assessment or taxes which the purchaser may have
paid on the property after the purchase, plus the applicable interest. Respondent banks
demand that the second loan be added to the actual amount paid for the property at the
public auction sale finds no basis in law or jurisprudence.
SLU SOL 1-C Page
587
Banate v. Phil. Countryside, 13 July 2010
VIOLETA TUDTUD BANATE, MARY MELGRID M. CORTEL, BONIFACIO CORTEL,

ROSENDO MAGLASANG, and PATROCINIA MONILAR, petitioners,
vs.
PHILIPPINE COUNTRYSIDE RURAL BANK (LILOAN, CEBU), INC. and TEOFILO
SOON, JR., respondents.
G.R. No. 163825 July 13, 2010
Facts: Sps. Rosendo Maglasang and Patrocinia Monilar obtained a P1.07M loan
evidenced by a promissory note. They executed a REM over a property owned by Sps.
Mary Melgrid and Bonifacio Cortel consisting of a lot including the house constructed
thereon. Aside from the said loan, Sps. Maglasang obtained 2 other loans, which were
also evidenced and secured by promissory notes and mortgages on their other
properties.
Before the subject loan became due, Sps. Maglasang asked PCRB's permission to sell
and release the subject properties since the 2 other loans were sufficiently secured by
the other mortgages. The bank's manager verbally agreed but required first the full
payment of the subject loan. Both spouses then sold the properties to Violeta Banate for
P1.75M. The amount obtained was used to pay PCRB. However, the owner's duplicate
certificate of title given to Banate carried the mortgage lien in favor of PCRB, prompting
the petitioners to request a deed of release of mortgage. Since PCRB refused the
request, the petitioners instituted an action for specific performance before the RTC.
PCRB countered the petitioners' allegations by invoking the cross-collateral stipulation

in the mortgage deed, which states that the full payment of the 3 loans was necessary
before any of the mortgages could be released.
The RTC considered the petitioners entitled to a deed of release of mortgage pursuant
to the verbal agreement between the petitioners and the bank manager since it was a
novation of the original mortgage contract. On appeal, the CA reversed the RTC
decision on the ground that the verbal agreement cannot amend the cross-collateral
stipulation of the mortgage contract. The CA did not consider as material the release of
the owner's duplicate copy of the title since it was done merely to allow the annotation of
the sale. The petitioners then filed the present appeal by certiorari.
Issue: Whether or not the purported agreement between the petitioners and the bank
manager novated the mortgage contract over the subject properties and is thus binding
upon PCRB.
Ruling: The SC held that for an extinctive novation to occur, the following requisites
should be present: (1) a previous valid obligation; (2) an agreement of all parties
concerned to a new contract; (3) the extinguishment of the old obligation; and (4) the
birth of a valid new obligation.
SLU SOL 1-C Page
588
The second requisite is lacking in this case. Novation presupposes not only the
extinguishment or modification of an existing obligation but, more importantly, the
creation of a valid new obligation. For the consequent creation of a new contractual
obligation, consent of both parties is required.
Even if it was assumed that the purported agreement has been sufficiently established,
since it is not binding on the bank for lack of authority of PCRBs branch manager, then
the prayer for restitution of the amount paid would have no legal basis. The bank
manager's lack of authority did not affect the validity of the payment made since the
dispute was merely on the effect of the payment on the security given. Banate cannot
recover accrues since PCRB never dealt with her. As to the borrowers-mortgagers, they
merely paid what was owed.
The SC denied the petition for lack of merit and affirmed the decision of the CA.
SLU SOL 1-C Page

589
SPOUSES SILVESTRE and CELIA PASCUAL, petitioners,

vs.
RODRIGO V. RAMOS, respondent.
G.R. No. 144712 July 4, 2002
Facts: Ramos alleged that on 3 June 1987, for and in consideration of P150,000, the
Spouses Pascual executed in his favor a Deed of Absolute Sale with Right to
Repurchase over two parcels of land and the improvements thereon located in
Bambang, Bulacan, Bulacan. The Pascuals did not exercise their right to repurchase
the property within the stipulated one-year period; hence, Ramos prayed that the title or
ownership over the subject parcels of land and improvements thereon be consolidated
in his favor.
In their Answer, the Pascuals admitted having signed the Deed of Absolute Sale with
Right to Repurchase for a consideration of P150, 000 but averred that what the parties
had actually agreed upon and entered into was a real estate mortgage. They further
alleged that there was no agreement limiting the period within which to exercise the
right to repurchase and that they had even overpaid Ramos.
The trial court found that the transaction between the parties was actually a loan in the
amount of P150,000, the payment of which was secured by a mortgage of the property.
It also found that the Pascuals had made payments in the total sum of P344,000, and
that with interest at 7% per annum, they had overpaid the loan by P141,500.
Accordingly, in its Decision of 15 March 1995 the trial court ruled in favor of the
defendants.
Issue: Whether or not the contract entered into is a contract of loan.
Ruling: The court ruled that the Pascuals are actually raising as issue the validity of the
stipulated interest rate. Their own evidence clearly shows that they have agreed on, and
have in fact paid interest at, the rate of 7% per month. The Pascuals should accept not
only the favorable aspect of the courts declaration that the document is actually an
equitable mortgage but also the necessary consequence of such declaration, that is,
that interest on the loan as stipulated by the parties in that same document should be
paid.
It is a basic principle in civil law that parties are bound by the stipulations in the
contracts voluntarily entered into by them. Parties are free to stipulate terms and
conditions which they deem convenient provided they are not contrary to law, morals,
good customs, public order, or public policy. The interest rate of 7% per month was
voluntarily agreed upon by Ramos and the Pascuals. There is nothing from the records
and, in fact, there is no allegation showing that petitioners were victims of fraud when
they entered into the agreement with Ramos. Neither is there a showing that in their
SLU SOL 1-C Page
590
contractual relations with Ramos, the Pascuals were at a disadvantage on account of
their moral dependence, ignorance, mental weakness, tender age or other handicap,
which would entitle them to the vigilant protection of the courts as mandated by Article
SLU SOL 1-C Page
591
Chua Tee Dee v. CA, 429 S 418 (2004)
CHUA TEE DEE, doing business under the name and style of PIONEER
ENTERPRISES, petitioner,
vs.
COURT OF APPEALS and J.C. AGRICOM DEVELOPMENT CORPORATION, INC.,
respondents.
G.R. No. 135721 May 27, 2004
Facts: J.C. Agricom Development Corporation, Inc. (Agricom), is the owner of a rubber
plantation located at Davao City. Agricom planned to lease the plantation. Chua Tee
Dee, married to Amado Dee, is a businesswoman doing business under the name of
Pioneer Enterprises (Pioneer). Manuel G. Alba, the president of Agricom, had a
business meeting in Davao City with Amado Dee where they discussed the possibility of
leasing the rubber plantation to Chua Tee Dee/Pioneer.
A contract of lease was entered into by Agricom, represented by Alba, and Chua Tee
Dee doing business under the name and style Pioneer. Lillian Carriedo, a stockholder of
Agricom, also signed the contract. Thereafter, Alba informed the employees of the
rubber plantation of the impending termination of their employment due to the
companys contract of lease with Chua Tee Dee. The employees were told that they
would be given separation pay. On June 3, 1985, Amado Dee delivered the amount of
Php 270,000.00 to the Spouses Alba as deposit for the lease. In the meantime, Agricom
sent letters to the said employees, confirming the termination of their employment and
informing of their separation pay. The severed employees filed a complaint for illegal
dismissal and unfair labor practice against Agricom, Amado Dee and Pioneer. The labor
arbiter rendered his decision holding that the termination of the complainants
employment was illegal, but the complaint for unfair labor practice was dismissed for
lack of merit. On May 24, 1990, the counsel of the Carriedo heirs, the stockholders-
owners of Agricom, sent a telegraphic note to Amado Dee demanding payment of long
overdue rentals. Pioneer sent a letter to Agricom complaining of facts and events which
disrupted its operations in the plantation. Pioneer claimed that it was dragged into labor
disputes not of its own making and complained of being pestered by some individuals
who claimed portions of the plantation as their own property. Some of them went to its
office and even presented tax declarations to prove their claims. Agricom informed
Pioneer that, after due investigation, it concluded that the latters complaints were
unfounded. It also demanded the payment of back rentals for June, July and August
1990.
As Pioneer was unable to pay its monthly rentals, Agricom filed, on September 4, 1990,
a civil action for sum of money, damages and attorneys fees against Chua Tee Dee. In
her Answer, Chua Tee Dee asserted that Agricom had no cause of action against her.
She claimed that it was Agricom which failed to comply with the terms and conditions of
the contract of lease when it failed to settle the labor dispute with its former employees,
and that Agricom failed to maintain her in the quiet and peaceful possession and
SLU SOL 1-C Page
592
enjoyment of the leased premises during the effectivity of the lease contract. The RTC
rendered judgment dismissing the complaint and declaring the lease contract
terminated for failure of Agricom to implement the terms thereof. Agricom then filed a
Motion for Reconsideration, which was granted by the RTC. Judgment was rendered
ordering Chua Tee Dee to pay to Agricom several amounts due as back rentals,
including the first 3 years of the lease. The CA affirmed the order of the lower court, with
modification as to the award of attorneys fees. Hence, this petition filed by Chua Tee
Dee.
Issue: Whether or not Agricom fail to maintain Chua Tee Dee in a quiet and peaceful
enjoyment of the leased premises
Ruling: The Supreme Court held that Agricom did not deprived Chua Tee Dee of the
quiet and peaceful enjoyment of the leased premises. As lessor, Agricom had the duty
to maintain Chua Tee Dee in the peaceful and adequate enjoyment of the leased
premises. Such duty was made as part of the contract of lease entered into by the
parties. Even if it had not been so, the lessor is still duty-bound under Art.1654of the
Civil Code. The duty to maintain the lessee in the peaceful and adequate enjoyment of
the lease for the duration of the contract mentioned in No. 3 of the article is merely a
warranty that the lessee shall not be disturbed in his legal, and not physical,
possession. In the case at bar, Chua Tee Dee claims that several people presented tax
declarations to her and claimed some portions of the leased premises. However, no
case was filed by any of the said claimants against her or her lessor during the time she
occupied the premises.
Patently, then, Chua Tee Dee had not been disturbed in her legal possession of the
property in derogation of Article 1654 of the New Civil Code. It was after the labor case
has been resolved that appellant started to fail to pay her rentals, strongly indicating that
the labor case has not dampened her peaceful and adequate possession of the leased
premises. The NLRC case did not deter the continuance of the possession and
occupation of the leased premises. In sum, then, the petitioner failed to prove that the
private respondent breached any of the provisions of the contract of lease.
SLU SOL 1-C Page
593
GQ Garments v. Miranda, 495 S 741 (2006)
G.Q. GARMENTS, INC., petitioner,

vs.
ANGEL MIRANDA, FLORENDA MIRANDA and EXECUTIVE MACHINERIES and
EQUIPMENT CORPORATION, respondents.
G.R. No. 161722 July 20, 2006
Facts: Angel Miranda is the registered owner of a 9,646 square meters parcel of land
located at Niog, Bacoor, Cavite (Property). The property was a verbal contract leased
with his son Angelito Miranda who established the Executive Machineries and
Equipment Corporation (EMECO). The lease was on a month-to-month basis for a
consideration of Php 8,000.00 per month. EMECO constructed its factory on the
property and paid the said rentals. However, when Angelito died, EMECO failed to pay
the rentals but still continued possessing the leased premises. On 1989, the factory of
EMECO was totally razed by fire. Angel demanded the payment of accrued rentals
amounting to Php 280,000.00 as of May 1991 and also informed that the oral contract of
lease would be terminated effective June 30, 1991. After sending another demand letter,
EMECO vacated the leased premised but the accrued rentals remained unpaid.
Sometime in November 1991, Florenda, Angelitos wife, arrived at the office of petitioner
and offered to sublease the property to Wilson Kho, the Officer-in Charge of GQ
garments. After visiting the property, Kho agreed to rent the area upon the condition that
its true and registered owner would personally sign the lease contract in his presence.
However, Florenda failed to present Angel for said purpose, Kho turned down her
proposal. Later, Kho was able to locate Angel and offered in behalf of petitioner, to lease
the property, as to which Angel agreed.
On December of that year, Davy John Barlin, the executive president representing the
corporation and Angel executed a contract of lease. The lease was for a period of 15
years for a monthly rental of Php 30,000.00. Petitioner paid Php 90,000.00 representing
two months deposit and advance rental for one month. As lessee, it was authorized to
introduce improvements, structures, and buildings on the property as it may deem
necessary and for the purpose for which it was leased.
Consequently, petitioner secured the necessary documents and permits. The

construction of a building and factory in the leased premises commenced. However, on
January 27, 1992, Florenda, together with several armed men who identified
themselves as policemen, forcibly evicted petitioner from the leased premises, claiming
that she was the owner and that the place was already covered by another existing
contract of lease. During the encounter, Florenda and her men took some equipment,
machinery and other properties belonging to petitioner, thereby causing loss and
damage to said properties. In the meantime, Angel secured a copy of the alleged
contract of leased with EMECO. He filed a complaint for declaration of nullity of the
contract before the Regional Trial Court because his signature was forged praying for
judgment to be rendered in his favour.
SLU SOL 1-C Page
594
Meanwhile, petitioner sought the help of the Philippine National Police (PNP). General
Gerardo N. Flores, Deputy Director General and Chief Directorial Staff, issued a
Memorandum to Superintendent Wenceslao A. Soberano, Provincial Director of the
Cavite PNP Provincial Command, ordering the latter to prevent his men from interfering
with the pending civil case. As a result, petitioner regained possession over the leased
premises. However, Florenda and her group went back to the place and ousted the
guards and other personnel manning the corporations office, and even removed their
equipment, and ransacked anew their raw materials, electric wire and other valuables
inside.
On April 20, 1992, petitioner instituted an action for damages and recovery of
possession of the property before the RTC of Cavite City, Branch 17, with Angel,
EMECO and Florenda, as alternative defendants. Angel was impleaded since he has
the obligation to keep and maintain the plaintiff in peaceful possession of the leased
premises. On June 25, 1992, Angel and petitioner, as plaintiffs, filed a separate
complaint for ejectment against Florenda before the Municipal Trial Court (MTC) of
Bacoor, Cavite. After due proceedings, the court rendered judgment on July 2, 1993,
ordering the eviction of Florenda and all those claiming the property in her behalf. The
decision was appealed to the RTC. However, for failure to pay a supersedeas bond, the
decision was executed and Florenda was evicted from the property.
On November 26, 1993, the RTC rendered judgment dismissing the complaint against
all the alternative defendants without prejudice. It declared that plaintiff was entitled to
damages, but it had to dismiss the complaint because of the pendency of other civil
cases. However, the RTC resolved to deny the motion of petitioner prompting it to
appeal to the Court of Appeals. Angel Miranda also appealed the decision. Meantime,
on September 22, 1994, the RTC rendered judgment in favor of Angel and declared the
contract of lease purportedly executed by him and EMECO void. On October 29, 2002,
the CA rendered judgment reversing the decision of the RTC. Accordingly, the judgment
appealed was reversed and set aside dismissing the complaint with prejudice against
Angel and ordering Florenda to pay damages and attorneys fees.
The appellate court absolved Angel of any liability due to the absence of evidence
showing that he had participated, directly or indirectly, in the looting of GQ Garments
properties and in forcibly ejecting the latter from the premises in question. According to
the CA anchored on Article 1653 and 1654 of the New Civil Code, the evidence on
record clearly showed that Florenda disturbed only the physical possession of the
leased premises, and not legal possession. Thus, the complaint with respect to Angel
Miranda should be dismissed with prejudice for lack of cause of action. On cross-
examination, Angel admitted that he received Php 360,000.00 from petitioner. In
addition, the plaintiff asserts that the actual damages sustained when its equipment and
machineries were destroyed are valued at Php 10,000,000.00. With all of this, petitioner
filed the instant petition for review on certiorari.
SLU SOL 1-C Page

595
Issue: Whether or not the respondents are liable to petitioner for the amount of Php
10,000,000.00 by way of actual damages.
Ruling: With regard to the claim for actual damages of Php 10,000,000.00, the
Supreme Court agreed with the ruling of the appellate court that petitioners claim for
actual damages was not properly substantiated by evidence. The alleged loss of
articles, machinery and equipment in the total sum of Php 9,960,000.00 was not proven
by clear and convincing evidence. Other than the bare testimony of Mr. Wilson Kho and
the witnesses he presented, there was no poof as to the existence of these items prior
to the taking over of Florenda over the property in question. To be entitled to an award
of actual damages, it is necessary to prove the precise amount of the loss with a
reasonable degree of certainty, premised upon competent proof and on the best
evidence obtainable by the injured party to justify such award. The award of actual
damages cannot be simply based on the mere allegation of a witness without any
tangible claim, such as receipts or other documentary proofs to support such claim.
Failing to satisfy the court that petitioner certainly suffered actual damages, its claim
must now fail.
No other proof was adduced to establish the value or price of the equipment,
machineries and valuables taken by respondent Florenda Miranda, as well as the
damage to petitioners building. The bare claim of Kho that the petitioner sustained
actual damages in the amount of Php 10,000,000.00 is utterly insufficient on which to
anchor a judgment for actual damages in the amount of Php 10,000,000.00; it is
speculative and merely a surmise.
With Florenda Mirandas admission of trespassing, she is clearly liable for damages to
the equipment, machineries and building of petitioner. We agree with the ruling of the
CA that respondent Angel Miranda is not liable for damages caused to petitioners
property. In case of noncompliance with the obligations stated in article 1654 of the
NCC, the lessee may ask for the rescission of the lease contract and indemnification for
damages or only the latter, allowing the contract to remain in force. It turned out that
respondent Florenda Miranda attempted to hoodwink petitioner and forged respondent
Angel Mirandas signature on the contract of lease she showed to petitioner. It appears
that respondent Florenda Miranda tried to coerce the petitioner into executing a contract
of lease with EMECO over the property, only to be rebuffed by the petitioner.
It bears stressing that respondent Angel Miranda was not content in adopting a mere
passive stance in the face of respondent Florenda Mirandas act of trespass. He and the
petitioner filed a case for forcible entry against Florenda Miranda; he also succeeded in
having the RTC, declare the contract of lease which respondent Florenda Miranda
showed petitioner as null and void, with the courts ruling that his signature on the
contract was a forgery. The petition is denied.
SLU SOL 1-C Page
596
Bercero v. Capitol Development, 519 S 484 (2007)
PEDRO T. BERCERO, petitioner,

vs.
CAPITOL DEVELOPMENT CORPORATION, respondent.
G.R. No. 154765 March 29, 2007
Facts: On January 31, 1983, Capitol Development Corporation leased its commercial
building and lot located at 1194 EDSA, Quezon City to R.C. Nicolas Merchandising,
Inc., (R.C. Nicolas) for a 10-year period or until January 31, 1993 with the option for the
latter to make additional improvements in the property to suit its business and to
sublease portions thereof to third parties. R.C. Nicolas converted the space into a
bowling and billiards center and subleased separate portions thereof to Midland
Commercial Corporation, Jerry Yu, Romeo Tolentino, Julio Acuin, Nicanor Bas, and
Pedro T. Bercero (petitioner). Petitioners sublease contract with R.C. Nicolas was for a
three-year period or until August 16, 1988.
Meanwhile, for failure to pay rent, respondent filed an ejectment case against R.C.
Nicolas before the Metropolitan Trial Court, Branch 41, Quezon City (MeTC-Branch 41),
docketed as Civil Case No. 52933. Respondent also impleaded the sub-lessees of R.C.
Nicolas as parties-defendants.
During the pendency of Civil Case No. 52933, several sub-lessees including petitioner,
entered into a compromise settlement with respondent. In the compromise settlement,
the sub-lessees recognized respondent as the lawful and absolute owner of the
property and that the contract between respondent and R.C. Nicolas had been lawfully
terminated because of the latters non-payment of rent; and that the sub-lessees
voluntarily surrendered possession of the premises to respondent; that the sub-lessees
directly executed lease contracts with respondent considering the termination of
leasehold rights of R.C. Nicolas.
Petitioner entered into a lease contract with respondent for a three-year period, from
August 16, 1988 to August 31, 1991.
On October 21, 1988, respondent and petitioner, as well as several other sub-lessees of
R.C. Nicolas, filed a Joint Manifestation and Motion in Civil Case No. 52933,
manifesting to the MeTC-Branch 41 that they entered into a compromise settlement and
moved that the names of the sub-lessees as parties-defendants be dropped and
excluded.
On November 14, 1988, R.C. Nicolas filed a complaint for ejectment and collection of
unpaid rentals against petitioner before the Metropolitan Trial Court, Branch 39, Quezon
City (MeTC-Branch 39), docketed as Civil Case No. 0668. On April 18, 1989, MeTC-
Branch 39 rendered a Decision in favor of R.C. Nicolas and ordered the eviction of
petitioner from the leased premises.
SLU SOL 1-C Page
597
Dissatisfied, petitioner filed an appeal before the Regional Trial Court, Branch 78,
Quezon City (RTC-Branch 78). R.C. Nicolas filed a Motion for Execution Pending
Appeal which was opposed by petitioner.
In an Order dated October 4, 1990, RTC-Branch 78 directed the issuance of a writ of

execution pending appeal since petitioner failed to file a supersedeas bond and
periodically deposit the rentals due during the pendency of the appeal. Accordingly, on
October 22, 1990 a writ of execution was issued. Sometime in November 1990,
petitioner was evicted from the leased premises.
Petitioner assailed the Order dated October 4, 1990 in a petition for certiorari with the
CA, docketed as CA-G.R. SP No. 23275, but the petition was denied due course and
dismissed by the CA in a Decision dated December 28, 1990.
On September 3, 1991, respondent filed a Manifestation in Civil Case No. 52933 urging
MeTC-Branch 41 to order R.C. Nicolas to desist from harassing respondent and
petitioner, and to confirm respondents right of possession to the premises in the light of
the ejectment case filed by R.C. Nicolas against petitioner.
Two months later, or on November 13, 1991, MeTC-Branch 41 rendered a Decision in

Civil Case No. 52933 in favor of respondent and ordered R.C. Nicolas to pay its unpaid
rentals from September 1986 until October 1988.
Meanwhile, since his eviction in November 1990, petitioner made repeated demands on
respondent for the restoration of his possession of the commercial space leased to him
to no avail. Thus, on March 24, 1992, petitioner filed a complaint for sum of money with
attachment and mandatory injunction with damages against the respondent before the
RTC-Branch 88, docketed as Civil Case No. Q-92-11732. On May 27, 1996, RTC-
Branch 88 rendered its Decision in favor of petitioner. The CA rendered its Decision
setting aside the Decision of RTC.
Issue: Whether or not the CA is correct.
Ruling: Under Article 1654 (3) of the New Civil Code, to wit: Art. 1654. The lessor is
obliged:
(3) To maintain the lessee in the peaceful and adequate enjoyment of the lease for the
entire duration of the contract. It is the duty of the lessor to place the lessee in the legal
possession of the premises and to maintain the peaceful possession thereof during the
entire term of the lease. To fully appreciate the importance of this provision, the
comment of Manresa on said article is worth mentioning:
The lessor must see that the enjoyment is not interrupted or disturbed, either by others
acts or by his own. By his own acts, because, being the person principally obligated by
the contract, he would openly violate it if, in going back on his agreement, he should
attempt to render ineffective in practice the right in the thing he had granted to the
SLU SOL 1-C Page

598
lessee; and by others acts, because he must guarantee the right he created, for he is
obligated to give warranty in the manner we have set forth in our commentary on article
1553, and, in this sense, it is incumbent upon him to protect the lessee in the latters
peaceful enjoyment.
The obligation of the lessor arises only when acts, termed as legal trespass
(perturbacion de derecho), disturb, dispute, object to, or place difficulties in the way of
the lessees peaceful enjoyment of the premises that in some manner or other cast
doubt upon the right of the lessor by virtue of which the lessor himself executed the
lease, in which case the lessor is obligated to answer for said act of trespass. The
lessee has the right to be respected in his possession and should he be disturbed
therein, he shall be restored to said possession by the means established by the law or
by the Rules of Court. Possession is not protection against a right but against the
exercise of a right by ones own authority.
Petitioner claims that respondent as lessor was obliged to restore his possession
following his eviction from the premises. The Court disagrees.
Void are all contracts in which the cause or object does not exist at the time of the
transaction. In the present case, the lease contract between petitioner and respondent
is void for having an inexistent cause - respondent did not have the right to lease the
property to petitioner considering that its lease contract with R.C. Nicolas was still valid
and subsisting, albeit pending litigation. Having granted to R.C. Nicolas the right to use
and enjoy its property from 1983 to 1993, respondent could not grant that same right to
petitioner in 1988. When petitioner entered into a lease contract with respondent, the
latter was still obliged to maintain R.C. Nicolass peaceful and adequate possession and
enjoyment of its lease for the 10-year duration of the contract.
Respondents unilateral rescission of its lease contract with R.C. Nicolas, without
waiting for the final outcome of the ejectment case it filed against the latter, is unlawful.
A lease is a reciprocal contract and its continuance, effectivity or fulfillment cannot be
made to depend exclusively upon the free and uncontrolled choice of just one party to a
lease contract. Thus, the lease contract entered into between petitioner and respondent,
during the pendency of the lease contract with R.C. Nicolas, is void.
There is no merit to petitioners claim of good faith in dealing with respondent. Good
faith is ordinarily used to describe that state of mind denoting "honesty of intention, and
freedom from knowledge of circumstances which ought to put the holder upon inquiry;
an honest intention to abstain from taking any unconscientious advantage of another,
even through technicalities of law, together with absence of all information, notice, or
benefit or belief of facts which render the transaction unconscientious." Being privy to
the pendency of the ejectment case involving the leasehold rights of R.C. Nicolas since
he was impleaded as a party-defendant in said ejectment case, petitioner cannot feign
innocence of the existence thereof. Petitioner was fully aware that R.C. Nicolas had a
lease contract with respondent which was subject of a pending litigation.
SLU SOL 1-C Page
599
It is well-settled that parties to a void agreement cannot expect the aid of the law; the
courts leave them as they are, because they are deemed in pari delicto or "in equal
fault".
SLU SOL 1-C Page
600
Art. 1159, Art. 1315, Obligatory Force
Hemedes v. CA, 8 October 1999
MAXIMA HEMEDES, petitioner,

vs.
THE HONORABLE COURT OF APPEALS, DOMINIUM REALTY AND
CONSTRUCTION CORPORATION, ENRIQUE D. HEMEDES, and R & B INSURANCE
G.R. No. 108472 October 8, 1999
Facts: The instant controversy involves a question of ownership over an unregistered

parcel of land. It was originally owned by the late Jose Hemedes, father of Maxima
Hemedes and Enrique D. Hemedes. On March 22, 1947 Jose Hemedes executed a
document entitled Donation Inter Vivos With Resolutory Conditions whereby he
conveyed ownership over the subject land, together with all its improvements, in favor of
his third wife, Justa Kausapin. Maxima Hemedes, through her counsel, filed an
application for registration and confirmation of title over the subject unregistered land.
Subsequently, an Original Certificate of Title (OCT) was issued in the name of Maxima
Hemedes married to Raul Rodriguez by the Registry of Deeds of Laguna on June 8,
1962, with the annotation that Justa Kausapin shall have the usufructuary rights over
the parcel of land herein described during her lifetime or widowhood. On February 28,
1979, Enrique D. Hemedes sold the property to Dominium Realty and Construction
Corporation (Dominium). On April 10, 1981, Justa Kausapin executed an affidavit
affirming the conveyance of the subject property in favor of Enrique D. Hemedes as
embodied in the Kasunduan dated May 27, 1971, and at the same time denying the
conveyance made to Maxima Hemedes. On August 27, 1981, Dominium and Enrique D.
Hemedes filed a complaint for the annulment of the TCT issued in favor of R & b
Insurance and/or the reconveyance to Dominium of the subject property. Specifically,
the complaint alleged that Dominium was the absolute owner of the subject property by
virtue of the February 28, 1979 deed of sale executed by Enrique D. Hemedes, who in
turn obtained ownership of the land from Justa Kausapin, as evidenced by the
Kasunduan dated May 27, 1971. The Plaintiffs asserted that Justa Kausapin never
transferred the land to Maxima Hemedes and that Enrique D. Hemedes had no
knowledge of the registration proceedings initiated by Maxima Hemedes. The trial court
rendered judgment in favor of plaintiffs Dominium and Enrique D. Hemedes. Both R & B
Insurance and Maxima Hemedes appealed from the trial courts decision. The Court of
Appeals affirmed the assailed decision in toto. Hence, this petition.
Issue: Which of the two conveyances by Justa Kausapin, the first in favor of Maxima
Hemedes and the second in favor of Enrique D. Hemedes, effectively transferred
ownership over the subject land.
Ruling: Public respondents finding that the Deed of Conveyance of Unregistered Real
Property By Reversion executed by Justa Kausapin in favor of Maxima Hemedes is
SLU SOL 1-C Page
601
spurious and not supported by the factual findings in this case. It is grounded upon the
mere denial of the same by Justa Kausapin. A party to a contract cannot just evade
compliance with his contractual obligations by the simple expedient of denying the
execution of such contract. If, after a perfect and binding contract has been executed
between the parties, it occurs to one of them to allege some defect therein as a reason
for annulling it, the alleged defect must be conclusively proven, since the validity and
fulfillment of contracts cannot be left to the will of one of the contracting parties. In
upholding the deed of conveyance in favor of Maxima Hemedes, the Court must
concomitantly rule that Enrique D. Hemedes and his transferee, Dominium, did not
acquire any rights over the subject property.
Justa Kausapin sought to transfer to her stepson exactly what she had earlier
transferred to Maxima Hemedes the ownership of the subject property pursuant to the
first condition stipulated in the deed of donation executed by her husband. Thus, the
donation in favor of Enrique D. Hemedes is null and void for the purported object thereof
did not exist at the time of the transfer, having already been transferred to his sister.
Similarly, the sale of the subject property by Enrique D. Hemedes to Dominium is also a
nullity for the latter cannot acquire more rights than its predecessor-in-interest and is
definitely not an innocent purchaser for value since Enrique D. Hemedes did not present
any certificate of title upon which it relied. The Court upheld petitioner R & B Insurances
assertion of ownership over the property in dispute, as evidenced by TCT No. 41985,
subject to the usufructuary rights of Justa Kausapin, which encumbrance has been
properly annotated upon the said certificate of title.
SLU SOL 1-C Page
602
Right of First Refusal Meaning and Definition
PUP v. Golden Horizon, 15 March 2010
POLYTECHNIC UNIVERSITY OF THE PHILIPPINES, petitioner,

vs.
GOLDEN HORIZON REALTY CORPORATION, respondent.
G.R. No. 183612 March 15, 2010
Facts: National Development Company (NDC) had in its disposal a 10 hectare property,
commonly called as NDC Compound, located along Pureza St., Sta. Mesa, Manila.
September 7, 1977: NDC entered into a Contract of Lease with Golden Horizon Realty
Corporation (GHRC) over a portion of the NDC Compound for a period of ten years,
renewable for another ten years with mutual consent of the parties. May 4, 1978: a
second Contract of Lease was executed between NDC and GHRC. In addition, GHRC
as lessee was granted the option to purchase the area leased, the price to be
negotiated and determined at the time the option to purchase is exercised. Sometime
after September 1988, GHRC discovered that NDC had decided to secretly dispose the
property to a third party. In the meantime, then President Corazon C. Aquino issued
Memorandum Order No. 214 dated January 6, 1989, ordering the transfer of the whole
NDC Compound to the National Government, which in turn would convey the said
property in favor of PUP at acquisition cost. The order of conveyance of the 10.31-
hectare property would automatically result in the cancellation of NDCs total obligation
in favor of the National Government in the amount of P57,193,201.64. PUP demanded
that GHRC vacate the premises, insisting that the latters lease contract had already
expired. Its demand letter unheeded by GHRC, PUP filed an ejectment case. GHRC
argued that Memorandum Order No. 214 is a nullity. RTC rendered its decision
upholding the right of first refusal granted to GHRC under its lease contract with NDC
and ordering PUP to reconvey the said portion of the property in favor of GHRC. CA
affirmed the RTC ruling.
Issue: Whether or not the right of refusal is applicable.
Ruling: An option is a contract by which the owner of the property agrees with another
person that the latter shall have the right to buy the formers property at a fixed price
within a certain time. It is a condition offered or contract by which the owner stipulates
with another that the latter shall have the right to buy the property at a fixed price within
a certain time, or under, or in compliance with certain terms and conditions; or which
gives to the owner of the property the right to sell or demand a sale. It binds the party,
who has given the option, not to enter into the principal contract with any other person
during the period designated, and, within that period, to enter into such contract with the
one to whom the option was granted, if the latter should decide to use the option.
Upon the other hand, a right of first refusal is a contractual grant, not of the sale of a
property, but of the first priority to buy the property in the event the owner sells the
SLU SOL 1-C Page
603
same. As distinguished from an option contract, in a right of first refusal, while the object
might be made determinate, the exercise of the right of first refusal would be dependent
not only on the owners eventual intention to enter into a binding juridical relation with
another but also on terms, including the price, that are yet to be firmed up.
As the option to purchase clause in the second lease contract has no definite period
within which the leased premises will be offered for sale to respondent lessee and the
price is made subject to negotiation and determined only at the time the option to buy is
exercised, it is obviously a mere right of refusal, usually inserted in lease contracts to
give the lessee the first crack to buy the property in case the lessor decides to sell the
same.
When a lease contract contains a right of first refusal, the lessor has the legal duty to
the lessee not to sell the leased property to anyone at any price until after the lessor has
made an offer to sell the property to the lessee and the lessee has failed to accept it.
Only after the lessee has failed to exercise his right of first priority could the lessor sell
the property to other buyers under the same terms and conditions offered to the lessee,
or under terms and conditions more favorable to the lessor.
RTC and CA ruling affirmed with modification: the price to be paid by respondent
Golden Horizon Realty Corporation for the leased portion of the NDC Compound under
Lease Contract Nos. C-33-77 and C-12-78 is hereby increased to P1,500.00 per square
meter.
SLU SOL 1-C Page
604
Villegas v. CA, 499 S 276
AGRIPINO VILLEGAS, ATANACIO VILLEGAS (deceased), substituted by his wife

SOLEDAD OCAMPO VILLEGAS, ROSA N. SANCHEZ, and CORAZON SANCHEZ,
petitioners,
vs.
THE COURT OF APPEALS, VICENTE M. REYES, JULITA R. MAYLAD, LORENZO M.
REYES, LYDIA R. FELICIANO represented by Attorney-in-Fact VICTORIA F.
HARPST, RUPERTA A. REYES, ESTRELLITA CRISOSTOMO, YOLANDA R. CHIU,
VIRGILIO A. REYES, CARLITO A. REYES, PACITA R. BAUTISTA, and SPOUSES
LITA SY and SY BON SU, respondents.
G.R. No. 111495 August 18, 2006
Facts: Before September 6, 1973, Lot B-3-A, with an area of 4 hectares was registered
under TCT No. 68641 in the names of Ciriaco D. Andres and Henson Caigas. This land
was also declared for real estate taxation under Tax Declaration No. C2-4442. On
September 6, 1973, Andres and Caigas, with the consent of their respective spouses,
Anita Barrientos and Consolacion Tobias, sold the land to Fortune Tobacco Corporation
for P60,000.00. Simultaneously, they executed a joint affidavit declaring that they had
no tenants on said lot. On the same date, the sale was registered in the Office of the
Register of Deeds of Isabela. TCT No. 68641 was cancelled and TCT No. T-68737 was
issued in Fortunes name. On August 6, 1976, Andres and Caigas executed a Deed of
Reconveyance of the same lot in favor of Filomena Domingo, the mother of Joselito
Villegas, defendant in the case before the trial court. Although no title was mentioned in
this deed, Domingo succeeded in registering this document in the Office of the Register
of Deeds on August 6, 1976, causing the latter to issue TCT No. T-91864 in her name. It
appears in this title that the same was a transfer from TCT No. T-68641. On April 13,
1981, Domingo declared the lot for real estate taxation under Tax Declaration No. 10-
5633. On December 4, 1976, the Office of the Register of Deeds of Isabela was burned
together with all titles in the office. On December 17, 1976, the original of TCT No. T-
91864 was administratively reconstituted by the Register of Deeds. On June 2, 1979, a
Deed of Absolute Sale of a portion of 20,000 square meters of Lot B-3-A was executed
by Filomena Domingo in favor of Villegas for a consideration of P1,000.00. This
document was registered on June 3, 1981 and as a result TCT No. T-131807 was
issued by the Register of Deeds toVillegas. On the same date, the technical description
of Lot B-3-A-2 was registered and TCT No. T-131808 was issued in the name of
Domingo. On January 22, 1993, this document was registered and TCT No. 154962
was issued to the defendant, Joselito Villegas.
On April 10, 1991, the trial court upon a petition filed by Fortune ordered the
reconstitution of the original of TCT No. T-68737. After trial on the merits, the trial court
rendered its assailed decision in favor of Fortune Tobacco, declaring it to be entitled to
the property. Petitioners thus appealed this decision to the Court of Appeals, which
affirmed the trial courts decision.
SLU SOL 1-C Page
605
Issue: Whether or not the Court of Appeals was correct in affirming the trial courts
decision.
Ruling: Even if Fortune had validly acquired the subject property, it would still be barred
from asserting title because of laches. The failure or neglect, for an unreasonable length
of time to do that which by exercising due diligence could or should have been done
earlier constitutes laches. It is negligence or omission to assert a right within a
reasonable time, warranting a presumption that the part entitled to assert it has either
abandoned it or declined to assert it. While it is by express provision of law that no title
to registered land in derogation of that of the registered owner shall be acquired by
prescription or adverse possession, it is likewise an enshrined rule that even a
registered owner may be barred from recovering possession of property by virtue of
laches.
Hence, petition was granted and the Decision of the Court of Appeals was reversed.
SLU SOL 1-C Page
606
Equatorial Realty v. Carmelo, 264 S 483
EQUATORIAL REALTY DEVELOPMENT, INC. & CARMELO & BAUERMANN, INC,

petitioners,
vs.
MAYFAIR THEATER, INC, respondent.
G.R. No. 106063 November 21, 1996
Facts: Carmelo owned a parcel of land, together with two 2-storey buildings
constructed thereon. On June 1, 1967 Carmelo entered into a contract of lease with
Mayfair for the latters lease of a portion of Carmelos property. Two years later, on
March 31, 1969, Mayfair entered into a second contract of lease with Carmelo for the
lease of another portion of Carmelos property. Both contracts of lease provide
identically worded paragraph 8, which reads: That if the LESSOR should desire to sell
the leased premises, the LESSEE shall be given 30-days exclusive option to purchase
the same. In the event, however, that the leased premises is sold to someone other
than the LESSEE, the LESSOR is bound and obligated, as it hereby binds and
obligates itself, to stipulate in the Deed of Sale thereof that the purchaser shall
recognize this lease and be bound by all the terms and conditions thereof. Mr. Henry
Pascal of Carmelo informed Mr. Henry Yang, President of Mayfair, through a telephone
conversation that Carmelo was desirous of selling the entire Claro M. Recto property.
Mr. Pascal told Mr. Yang that a certain Jose Araneta was offering to buy the whole
property for US Dollars 1,200,000, and Mr. Pascal asked Mr. Yang if the latter was
willing to buy the property for Six to Seven Million Pesos. Under your companys two
lease contracts with our client, it is uniformly provided: That if the LESSOR should
desire to sell the leased premises the LESSEE shall be given 30 days exclusive option
to purchase the same. In the event, however, that the leased premises is sold to
someone other than the LESSEE, the LESSOR is bound and obligated, as it here binds
and obligates itself, to stipulate in the Deed of Sale thereof that the purchaser shall
recognize this lease and be bound by all the terms and conditions hereof. Carmelo did
not reply to this letter. On September 18, 1974, Mayfair sent another letter to Carmelo
purporting to express interest in acquiring not only the leased premises but the entire
building and other improvements if the price is reasonable. However, both Carmelo and
Equatorial questioned the authenticity of the second letter. Four years later, on July 30,
1978, Carmelo sold its entire C.M. Recto Avenue land and building, which included the
leased premises housing the Maxim and Miramar theatres, to Equatorial by virtue of
a Deed of Absolute Sale, for the total sum of P11,300,000.00. In September 1978,
Mayfair instituted the action a quo for specific performance and annulment of the sale of
the leased premises to Equatorial. It dismissed the complaint with costs against the
plaintiff. The Court of Appeals reversed the decision of the trial court.
Issue: Whether or not the decision of the Court of Appeals was correct.
Ruling: The Court agrees with the Court of Appeals that the aforecited contractual
stipulation provides for a right of first refusal in favor of Mayfair. It is not an option clause
SLU SOL 1-C Page
607
or an option contract. It is a contract of a right of first refusal. As early as 1916, in the
case of Beaumont vs. Prieto, unequivocal was our characterization of an option contract
as one necessarily involving the choice granted to another for a distinct and separate
consideration as to whether or not to purchase a determinate thing at a predetermined
fixed price. Further, what Carmelo and Mayfair agreed to, by executing the two lease
contracts, was that Mayfair will have the right of first refusal in the event Carmelo sells
the leased premises. It is undisputed that Carmelo did recognize this right of Mayfair, for
it informed the latter of its intention to sell the said property in 1974. There was an
exchange of letters evidencing the offer and counter-offers made by both parties.
Carmelo, however, did not pursue the exercise to its logical end. While it initially
recognized Mayfairs right of first refusal, Carmelo violated such right when without
affording its negotiations with Mayfair the full process to ripen to at least an interface of
a definite offer and a possible corresponding acceptance within the 30-day exclusive
option time granted Mayfair, Carmelo abandoned negotiations, kept a low profile for
some time, and then sold, without prior notice to Mayfair, the entire Claro M. Recto
property to Equatorial. Since Equatorial is a buyer in bad faith, this finding renders the
sale to it of the property in question rescissible. We agree with respondent Appellate
Court that the records bear out the fact that Equatorial was aware of the lease contracts
because its lawyers had, prior to the sale, studied the said contracts. As such,
Equatorial cannot tenably claim to be a purchaser in good faith, and, therefore,
rescission lies. Hence, the petition was denied.
SLU SOL 1-C Page
608
PUP v. CA, 368 S 691
POLYTECHNIC UNIVERSITY OF THE PHILIPPINES, petitioner,

vs.
COURT OF APPEALS and FIRESTONE CERAMICS, INC., respondents.
G.R. No. 143513 November 14, 2001
Facts: In the early sixties, petitioner National Development Corporation (NDC), had in
its disposal a ten-hectare property located along Pureza St., Sta. Mesa, Manila. The
estate was popularly known as the NDC compound and covered by Transfer
Certificates of Title Nos. 92885, 110301 and 145470. Private respondent Firestone
Ceramics Inc. manifested its desire to lease a portion of the property for its ceramic
manufacturing business. NDC and FIRESTONE entered into a contract of lease
denominated as Contract No. C-30-65 covering a portion of the property measured at
2.90118 hectares for use as a manufacturing plant for a term of ten years, renewable for
another ten years under the same terms and conditions. In consequence of the
agreement, FIRESTONE constructed on the leased premises several warehouses and
other improvements needed for the fabrication of ceramic products. Three and a half
years later, FIRESTONE entered into a second contract of lease with NDC over the
latter's four-unit pre-fabricated reparation steel warehouse stored in Daliao, Davao.
FIRESTONE agreed to ship the warehouse to Manila for eventual assembly within the
NDC compound. The second contract, denominated as Contract No. C-26-68, was for
similar use as a ceramic manufacturing plant and was agreed expressly to be "co-
extensive with the lease of LESSEE with LESSOR on the 2.60 hectare-lot. The parties
signed a similar contract concerning a six-unit pre-fabricated steel warehouse which, as
agreed upon by the parties, would expire on 2 December 1978. Prior to the expiration of
the aforementioned contract, FIRESTONE wrote NDC requesting for an extension of
their lease agreement. Consequently, the Board of Directors of NDC adopted the
Resolution extending the term of the lease, subject to several conditions among which
was that in the event NDC "with the approval of higher authorities, decide to dispose
and sell these properties including the lot, priority should be given to the LESSEE". In
pursuance of the resolution, the parties entered into a new agreement for a ten-year
lease of the property, renewable for another ten years, expressly granting FIRESTONE
the first option to purchase the leased premises in the event that it decided "to dispose
and sell these properties including the lot.
The parties' lessor-lessee relationship went smoothly until early 1988 when
FIRESTONE, cognizant of the impending expiration of their lease agreement with NDC,
informed the latter through several letters and telephone calls that it was renewing its
lease over the property. While its letter of 17 March 1988 was answered by Antonio A.
Henson, General Manager of NDC, who promised immediate action on the matter, the
rest of its communications remained unacknowledged. FIRESTONE's predicament
worsened when rumors of NDC's supposed plans to dispose of the subject property in
favor of petitioner Polytechnic University of the Philippines came to its knowledge.
Forthwith, FIRESTONE served notice on NDC conveying its desire to purchase the
SLU SOL 1-C Page
609
property in the exercise of its contractual right of first refusal. Apprehensive that its
interest in the property would be disregarded, FIRESTONE instituted an action for
specific performance to compel NDC to sell the leased property in its favor. Following
the denial of its petition, FIRESTONE amended its complaint to include PUP and
Executive Secretary CatalinoMacaraeg, Jr., as party-defendants, and sought the
annulment of Memorandum Order No. 214.
After trial, judgment was rendered declaring the contracts of lease executed between
FIRESTONE and NDC covering the 2.60-hectare property and the warehouses
constructed thereon valid and existing until 2 June 1999. The Court of Appeals affirmed
the decision of the trial court ordering the sale of the property in favor of FIRESTONE.
Issue: Whether or not the Court of Appeals decided a question of substance in a way
definitely not in accord with law or jurisprudence.
Ruling: The courts a quo did not hypothesize, much less conjure, the sale of the
disputed property by NDC in favor of petitioner PUP. Aside from the fact that the
intention of NDC and PUP to enter into a contract of sale was clearly expressed in the
Memorandum Order No. 214, a close perusal of the circumstances of this case
strengthens the theory that the conveyance of the property from NDC to PUP was one
of absolute sale, for a valuable consideration, and not a mere paper transfer as argued
by petitioners.
A contract of sale, as defined in the Civil Code, is a contract where one of the parties
obligates himself to transfer the ownership of and to deliver a determinate thing to the
other or others who shall pay therefore a sum certain in money or its equivalent. It is
therefore a general requisite for the existence of a valid and enforceable contract of sale
that it be mutually obligatory, i.e., there should be a concurrence of the promise of the
vendor to sell a determinate thing and the promise of the vendee to receive and pay for
the property so delivered and transferred. The Civil Code provision is, in effect, a "catch-
all" provision which effectively brings within its grasp a whole gamut of transfers
whereby ownership of a thing is ceded for a consideration.
Contrary to what petitioners PUP and NDC propose, there is not just one party involved
in the questioned transaction. Petitioners NDC and PUP have their respective charters
and therefore each possesses a separate and distinct individual personality.
Hence, the petition was denied.

SLU SOL 1-C Page
610
Litonjua v. L & R, 320 S 405
SPS. REYNALDO K. LITONJUA and ERLINDA P. LITONJUA and PHIL. WHITE

HOUSE AUTO SUPPLY, INC., petitioners,
vs.
L & R CORPORATION, VICENTE COLOYAN in his capacity as Acting Registrar of
the Register of Deeds of Quezon City thru Deputy Sheriff ROBERTO R. GARCIA,
respondents.
G.R. No. 130722 December 9, 1999
Facts: Spouses Litonjua obtained from L&R Corporation loans in the aggregate sum of
P400,000.00; P200,000.00 of which was obtained on August 6, 1974 and the remaining
P200,000.00 obtained on March 27, 1978. The loans were secured by a mortgage
constituted by the spouses upon their two parcels of land and the improvements
thereon. The mortgage was duly registered with the Register of Deeds. Spouses
Litonjua sold to Philippine White House Auto Supply, Inc. (PWHAS) the parcels of land
they had previously mortgaged to L & R Corporation for the sum of P430,000.00.
Meanwhile, with the spouses Litonjua having defaulted in the payment of their loans, L
& R Corporation initiated extrajudicial foreclosure proceedings. The mortgaged
properties were sold at public auction to L & R Corporation as the only bidder for the
amount of P221,624.58. The Deputy Sheriff informed L & R Corporation of the payment
by PWHAS of the full redemption price and advised it that it can claim the payment
upon surrender of its owners duplicate certificates of title. The spouses Litonjua
presented for registration the Certificate of Redemption issued in their favor to the
Register of Deeds of Quezon City. The Certificate also informed L & R Corporation of
the fact of redemption and directed the latter to surrender the owners duplicate
certificates of title within five days. On April 22, 1981, L & R Corporation wrote a letter to
the Sheriff, copy furnished to the Register of Deeds, stating: (1) that the sale of the
mortgaged properties to PWHAS was without its consent, in contravention of
paragraphs 8 and 9 of their Deed of Real Estate Mortgage; and (2) that it was not the
spouses Litonjua, but PWHAS, who was seeking to redeem the foreclosed properties,
when under Articles 1236 and 1237 of the New Civil Code, the latter had no legal
personality or capacity to redeem the same. On the other hand, the spouses Litonjua
asked the Register of Deeds to annotate their Certificate of Redemption as an adverse
claim on the titles of the subject properties on account of the refusal of L & R
Corporation to surrender the owners duplicate copies of the titles to the subject
properties. With the refusal of the Register of Deeds to annotate their Certificate of
Redemption, the Litonjua spouses filed a Petition on July 17, 1981 against L & R
Corporation for the surrender of the owners duplicate of Transfer Certificates of Title
No. 197232 and 197233 before the then CFI. While the said case was pending, L & R
Corporation executed an Affidavit of Consolidation of Ownership. The Register of Deeds
cancelled Transfer Certificates of Title No. 197232 and 197233 and in lieu thereof,
issued Transfer Certificates of Title No. 280054 and 28055 in favor of L & R Corporation,
free of any lien or encumbrance. A complaint for Quieting of Title,
SLU SOL 1-C Page
611
Annulment of Title and Damages with preliminary injunction was filed by the spouses
Litonjua and PWHAS against herein respondents before the then CFI.
Issue: Whether or not the Court of Appeals erred in its decision.
Ruling: In the case at bar, PWHAS cannot claim ignorance of the right of first refusal
granted to L & R Corporation over the subject properties since the Deed of Real Estate
Mortgage containing such a provision was duly registered with the Register of Deeds.
As such, PWHAS is presumed to have been notified thereof by registration, which
equates to notice to the whole world. Thus, the Decision appealed from was affirmed
with modifications.
SLU SOL 1-C Page
612
Arts. 1308-1310, 1317, Mutuality
Josefa v. Zhandong, 417 S 269
VICENTE JOSEFA, petitioner,

vs.
ZHANDONG TRADING CORPORATION, respondent.
G.R. No. 150903 December 8, 2003
Facts: Zhandong Trading Corporation delivered to Vicente Josefa, who was introduced
to it as a client by Antonio Tan, 313 crates of boards valued at P4.6M payable within 60
days from delivery. Instead of paying, Josefa remitted his payments to Tan, who in turn
delivered various checks to Zhandong, who accepted them upon Tan's assurance that
the checks came from Josefa.
When a number of the checks bounced, Tan issued his own checks and those of his
mother's, but Tan later stopped payments. Zhandong demanded payment from Tan and
Josefa but was ignored. Hence, it filed the instant complaint.
In his answer, Josefa averred that he had already paid all his obligations to Zhandong
through Tan. Furthermore, he claimed he is not privy to the agreements between Tan
and Zhandong. Hence, in case his payments were not remitted to Zhandong, it was not
his fault and that Zhandong should bear the consequences.
Issue: Whether or not Josefa is liable for payment of the boards to Zhandong when he
did not negotiate the transaction with it but rather through Tan as intermediary.
Ruling: The transaction was negotiated between Tan and Josefa, who only received the
goods delivered by Zhandong. Josefa was not privy to the arrangement between Tan
and Zhandong. Josefa has fully paid for the goods to Tan with whom he had arranged
the transaction.
Contracts take effect only between the parties, their successors in interest, heirs, and
assigns. When there is no privity of contract, there is likewise no obligation or liability.
Thus, no cause of action arises. Josefa, being not privy to the transaction between Tan
and Zhandong, should not be made liable for the failure of Tan to deliver the payment to
Zhandong.
Therefore, Zhandong should recover the payment from Tan.

SLU SOL 1-C Page
613
Equality/Contracts of Adhesion
Saludo v. Security Bank, 13 October 2010
ANICETO SALUDO, JR., petitioner,

vs.
SECURITY BANK COMMISSION, respondent.
G.R. No. 184041 October 13, 2010
Facts: On 30 May 1996, Booklight was extended an omnibus line credit facility by SBC
in the amount of P10,000,000.00. Said loan was covered by a Credit Agreement and a
Continuing Suretyship with petitioner as surety, both documents dated 1 August 1996,
to secure full payment and performance of the obligations arising from the credit
accommodation. On 16 June 2000, SBC filed against Booklight and herein petitioner an
action for collection of sum of money with the RTC. Booklight initially filed a motion to
dismiss, which was later on denied for lack of merit. In his Answer, Booklight asserted
that the amount demanded by SBC was not based on the omnibus credit line facility of
30 May 1996, but rather on the amendment of the credit facilities on 15 October 1996
increasing the loan line from P8,000,000.00 to P10,000,000.00. Booklight denied
executing the promissory notes. It also claimed that it was not in default as in fact, it
paid the sum of P1,599,126.11 on 30 September 1999 as a prelude to restructuring its
loan for which it earnestly negotiated for a mutually acceptable agreement until 5 July
2000, without knowing that SBC had already filed the collection case. On 7 March 2005,
Booklight was declared in default. Consequently, SBC presented its evidence ex-parte.
The case against petitioner, however, proceeded and the latter was able to present
evidence on his behalf. After trial, the RTC ruled that petitioner is jointly and solidarily
liable with Booklight under the Continuing Suretyship Agreement.
Issue: Whether or not petitioner should be held solidarily liable for the second credit
facility extended to Booklight.
Ruling: Yes. There is no doubt that Booklight was extended two (2) credit facilities,
each with a one-year term, by SBC. Booklight availed of these two (2) credit lines. While
Booklight was able to comply with its obligation under the first credit line, it defaulted in
the payment of the loan obligation amounting to P9,652,725.00 under the second credit
line. There is likewise no dispute that the first credit line facility, with a term from 30 June
1996 to 30 June 1997, was covered by a Continuing Suretyship with petitioner acting as
the surety. The dispute is on the coverage by the Continuing Suretyship of the loan
contracted under the second credit facility. The two loan facilities availed by Booklight
under the credit agreement are the Omnibus Line amounting to P10,000,000.00 granted
to Booklight in 1996 and the other one is the Loan Line of the same amount in 1997.
Petitioner however seeks to muddle the issue by insisting that these two availments
were two separate principal contracts, conveniently ignoring the fact that it is the credit
agreement which constitutes the principal contract signed by
SLU SOL 1-C Page
614
Booklight in order to avail of SBCs credit facilities. The two credit facilities are but loans
made available to Booklight pursuant to the credit agreement.
SLU SOL 1-C Page
615
EQUITABLE PCI BANK, INC., represented by PAULINO L. YUSI, complainant,

vs.
ANTONIO A. BELLONES and GENEROSO B. REGALADO, both Sheriffs IV,
Branches 9 and 16, respectively, Regional Trial Court, Cebu City, respondents.
A.M. No. P-05-1973 March 18, 2005
Facts: On October 7, 2001, respondents Ngor and Go filed an action for amendment
and/or reformation of documents and contracts against Equitable and its employees.
They claimed that they were induced by the bank to avail of its peso and dollar credit
facilities by offering low interests so they accepted and signed Equitables proposal.
They alleged that they were unaware that the documents contained escalation clauses
granting equitable authority to increase interest without their consent. These were
rebutted by the bank. RTC ordered the use of the 1996 dollar exchange rate in
computing respondents dollar-denominated loans. CA granted the Banks application
for injunction but the properties were sold to public auction.
Issue: Whether or not there was an extraordinary deflation.
Ruling: Extraordinary inflation exists when there is an unusual decrease in the

purchasing power of currency and such decrease could not be reasonably foreseen or
was beyond the contemplation of the parties at the time of the obligation. Deflation is an
inverse situation.
Despite the devaluation of the peso, BSP never declared a situation of extraordinary
inflation. Respondents should pay their dollar denominated loans at the exchange rate
fixed by the BSP on the date of maturity.
Decision of lower courts are reversed and set aside.

SLU SOL 1-C Page
616
Dio v. Ferdinand Memorial, 509 S 453
TERESITA DIO, petitioner,

vs.
ST. FERDINAND MEMORIAL PARK, INC. and MILDRED F. TANTOCO, respondents.
G.R. No. 169578 November 30, 2006
Facts: On December 11, 1973, Teresita Dio agreed to buy, on installment basis, a
memorial lot from the St. Ferdinand Memorial Park, Inc. (SFMPI) in Lucena City. The
36-square-meter memorial lot is particularly described as Block 2, Section F, Lot 15.
The purchase was evidenced by a Pre-Need Purchase Agreement dated December 11,
1973 and denominated as Contract No. 384. She obliged herself to abide by all such
rules and regulations governing the SFMPI dated May 25, 1972.
SFMPI issued a Deed of Sale and Certificate of Perpetual Care dated April 1, 1974
denominated as Contract No. 284. The ownership of Dio over the property was made
subject to the rules and regulations of SFMPI, as well as the government, including all
amendments, additions and modifications that may later be adopted.
Meanwhile, the mortal remains of Dios husband and father were interred in the lot at her
own expense, without the knowledge and intervention of SFMPI. She engaged the
services of a private contractor for the fabrication of niches and improvements on her
lot. In August 1974, the remains of Dios daughter were likewise interred in the niche
constructed on the lot, again without the knowledge and intervention of SFMPI.
In 1986, Dio decided to build a mausoleum on the lot. In September that year, she
caused the preparation of a design-plan for the construction of a mausoleum and the
bidding out of the project.
In the early part of October 1986, Dio informed SFMPI, through its president and
controlling stockholder, Mildred F. Tantoco, that she was planning to build a mausoleum
on her lot and sought the approval thereof. Dio even showed to Tantoco the plans and
project specifications accomplished by her private contractor at an estimated cost of
P60,000.00. The plans and specifications were approved, but Tantoco insisted that the
mausoleum be built by it or its agents at a minimum cost of P100,000.00 as provided in
Rule 69 of the Rules and Regulations the SFMPI issued on May 25, 1972. The total
amount excluded certain specific designs in the approved plan which if included would
cost Dio much more. In a letter dated October 13, 1986, Dio, through counsel,
demanded that she be allowed to construct the mausoleum within 10 days, otherwise,
she would be impelled to file the necessary action/s against SFMPI and Tantoco.
On October 17, 1986, SFMPI wrote Dio informing her that under Rule 69 of SFMPI
Rules and Regulations, she was prohibited from engaging an outside contractor for the
construction of buildings, improvements and memorials. A lot owner was only allowed to
submit a preferred design as long as it is in accordance with park standards.
SLU SOL 1-C Page
617
On December 23, 1986, Dio filed a Complaint for Injunction with Damages against
SFMPI and Tantoco before the RTC of Lucena City. She averred that she was not
aware of Rule 69 of the SFMPI Rules and Regulations; the amount of P100,000.00 as
construction cost of the mausoleum was unconscionable and oppressive. She prayed
that, after trial, judgment be rendered in her favor, granting a final injunction perpetually
restraining defendants from enforcing the invalid Rule 69 of SFMPIs Rules for Memorial
Work in the Mausoleum of the Park or from refusing or preventing the construction of
any improvement upon her property in the park. The court issued a cease and desist
order against defendants.
Issue: Whether or not petitioner had knowledge of Rule 69 of SFMPI Rules and
Regulations for memorial works in the mausoleum areas of the park when the Pre-Need
Purchase Agreement and the Deed of Sale was executed.
Ruling: The validity or enforceability of the impugned contracts will have to be

determined by the peculiar circumstances obtaining in each case and the situation of
the parties concerned. Indeed, Article 24 of the New Civil Code provides that [in] all
contractual, property or other relations, when one of the parties is at a disadvantage on
account of his moral dependence, ignorance, indigence, mental weakness, tender age,
or other handicap, the courts must be vigilant for his protection. In this case, however,
there is no reason for the Court to apply the rule on stringent treatment towards
contracts of adhesion. To reiterate, not only is petitioner educated, she is likewise a
well-known and experienced businesswoman; thus, she cannot claim to be the weaker
or disadvantaged party in the subject contracts so as to call for a strict interpretation
against respondents. Moreover, she executed the Pre-Need Purchase Agreement and
Deed of Sale without any complaint or protest. She assailed Rule 69 of the Rules and
Regulations of respondent SFMPI only when respondents rejected her request to cause
the construction of the mausoleum.
SLU SOL 1-C Page

618
PILTEL v. Tecson, 428 S 378
PILIPINO TELEPHONE CORPORATION, petitioner,

vs.
DELFINO TECSON, respondent.
G. R. No. 156966 May 7, 2004
Facts: On various dates in 1996, Delfino C. Tecson applied for 6 cellular phone
subscriptions with petitioner Pilipino Telephone Corporation (PILTEL), a company
engaged in the telecommunications business, which applications were each approved
and covered, respectively, by six mobiline service agreements. On 05 April 2001,
respondent filed with the Regional Trial Court a complaint against petitioner for a Sum of
Money and Damages. Petitioner moved for the dismissal of the complaint on the ground
of improper venue, citing a common provision in the mobiline service agreements to the
effect that - Venue of all suits arising from this Agreement or any other suit directly or
indirectly arising from the relationship between PILTEL and subscriber shall be in the
proper courts of Makati, Metro Manila. Subscriber hereby expressly waives any other
venues. The Regional Trial Court of Iligan City, Lanaodel
Norte, denied petitioners motion to dismiss and required it to file an answer within 15
days from receipt thereof.
Petitioner filed a petition for certiorari before the Court of Appeals. The Court of Appeals
saw no merit in the petition and affirmed the assailed orders of the trial court.
Issue: Whether or not the Court of Appeals erred in affirming the orders of the trial
court.
Ruling: The contract herein involved is a contract of adhesion. But such an agreement
is not per se inefficacious. The rule instead is that, should there be ambiguities in a
contract of adhesion, such ambiguities are to be construed against the party that
prepared it. If, however, the stipulations are not obscure, but are clear and leave no
doubt on the intention of the parties, the literal meaning of its stipulations must be held
controlling. A contract of adhesion is just as binding as ordinary contracts. It is true that
this Court has, on occasion, struck down such contracts as being assailable when the
weaker party is left with no choice by the dominant bargaining party and is thus
completely deprived of an opportunity to bargain effectively. Nevertheless, contracts of
adhesion are not prohibited even as the courts remain careful in scrutinizing the factual
circumstances underlying each case to determine the respective claims of contending
parties on their efficacy. In the case at bar, respondent secured 6 subscription contracts
for cellular phones on various dates. It would be difficult to assume that, during each of
those times, respondent had no sufficient opportunity to read and go over the terms and
conditions embodied in the agreements. Respondent continued, in fact, to acquire in the
pursuit of his business subsequent subscriptions and remained a subscriber of
petitioner for quite sometime.
SLU SOL 1-C Page
619
Hence, the petition was granted by the Court and the decision of the Court of Appeals is
reversed and set aside. The Civil Case pending before the Regional Trial Court of Iligan
City, Branch 4, was dismissed without prejudice to the filing of an appropriate complaint
by respondent against petitioner with the court of proper venue.
SLU SOL 1-C Page
620
PAL v. CA, 255 S 48
PHILIPPINE AIRLINES, INC., petitioner,

vs.
COURT OF APPEALS and GILDA C. MEJIA, respondents.
G.R. No. 119706 March 14, 1996
Facts: On January 27, 1990, plaintiff Gilda C. Mejia shipped thru defendant, Philippine
Airlines, one (1) unit microwave oven under PAL Air Waybill No. 0-79-1013008-3, with a
gross weight of 33 kilograms from San Francisco, U.S.A. to Manila, Philippines. Upon
arrival, however, of said article in Manila, Philippines, plaintiff discovered that its front
glass door was broken and the damage rendered it unserviceable. Demands both oral
and written were made by plaintiff against the defendant for the reimbursement of the
value of the damaged microwave oven, and transportation charges paid by plaintiff to
defendant company. But these demands fell on deaf ears. This is because, according to
petitioner, was filed out of time under paragraph 12, a (1) of the Air Waybill which
provides: "(a) the person entitled to delivery must make a complaint to the carrier in
writing in case: (1) of visible damage to the goods, immediately after discovery of the
damage and at the latest within 14 days from the receipt of the goods. On September
25, 1990, Gilda C. Mejia filed an action for damages against the petitioner in the lower
court. The latter rendered a decision rendering PAL liable to pay, actual, moral and
exemplary damages as well as attorneys fees. On appeal, the Court of Appeals
similarly ruled in favor of private respondent by affirming in full the trial court's judgment,
with costs against petitioner.
Issue: Whether or not the respondent court erred in affirming the conclusions of the trial
court that since the air waybill is a contract of adhesion, its provisions should be strictly
construed against herein petitioner.
Ruling: The trial court relied on the ruling in the case of Fieldmen's Insurance Co., Inc.
vs. Vda. De Songco, et al. in finding that the provisions of the air waybill should be
strictly construed against petitioner. More particularly, the court below stated its findings
thus: In this case, it is seriously doubted whether plaintiff had read the printed conditions
at the back of the Air Waybill, or even if she had, if she was given a chance to negotiate
on the conditions for loading her microwave oven. Instead she was advised by
defendant's employee at San Francisco, U.S.A., that there is no need to declare the
value of her oven since it is not brand new. Further, plaintiff testified that she
immediately submitted a formal claim for P30,000.00 with defendant. But their claim
was referred from one employee to another then told to come back the next day, and
the next day, until she was referred to a certain Atty. Paco. When they got tired and
frustrated of coming without a settlement of their claim in sight, they consulted a lawyer
who demanded from defendant on August 13, 1990. Respondent appellate court
approved said findings of the trial court in this manner: We cannot agree with
defendant-appellant's above contention. Under our jurisprudence, the Air Waybill is a
contract of adhesion considering that all the provisions thereof are prepared and drafted
SLU SOL 1-C Page
621
only by the carrier. The only participation left of the other party is to affix his signature
thereto. In the earlier case of Angeles v. Calasanz, the Supreme Court ruled that the
terms of a contract of adhesion must be interpreted against the party who drafted the
same.
SLU SOL 1-C Page
622
Ermitao v. CA, 306 S 218
SPOUSES LUIS M. ERMITAO and MANUELITA C. ERMITAO, petitioners,

vs.
THE COURT OF APPEALS AND BPI EXPRESS CARD CORP., respondents.
G.R. No. 127246 April 21, 1999
Facts: Petitioner Luis Ermitao applied for a credit card from private respondent BPI
Express Card Corp. (BECC) on October 8, 1986 with his wife, Manuelita, as extension
card holder. The spouses were given credit limit of P10, 000.00. They often exceeded
this credit limit without protest from BCC. On August 9, 1989, Manuelitas bag was
snatched from her as she was shopping at the greenbelt mall in Makati, Metro Manila.
Among the items inside the bag was her BECC credit card. That same night she
informed, by telephone, BECC of the loss. The call was received by BECC offices
through a certain Gina Banzon. This was followed by a letter dated August 30, 1989.
She also surrendered Luis credit card and requested for replacement cards. In her
letter, Manuelita stated that she shall not be responsible for any and all charges incurred
[through the use of the lost card] after August 29, 1989. However, when Luis received
his monthly billing statement from BECC dated September 20,1989, the charges
included amounts for purchases were made, one amounting to P2,350.05 and the other,
P607.50. Manuelita received a billing statement dated October 20,1989 which required
her to immediately pay the total amount of P3,197.70 covering the same (unauthorized)
purchases. Manuelita wrote again BECC disclaiming responsibility for those charges,
which were made after she had served BECC with notice of loss of her card. However,
BECC, in a letter dated July 13, 1990, pointed to Luis the following stipulation in their
contract: In his reply dated July 18, 1990, Luis stressed that the contract BECC was
referring to was a contract of adhesion and warned that if BECC insisted on charging
him and his wife for the unauthorized purchases, they will sue BECC continued to bill
the spouses for said purchases. The trial court only opined that the only purpose for the
suspension of the spouses credit privileges was to compel them to pay for the
unauthorized purchases. The trial court ruled that the latter portion of the condition in
the parties contract, which states the liability for purchases made after a card is lost or
stolen shall be for the account of the cardholder until after notice of the lost or theft has
been given to BECC and after the latter has informed its member establishments, is
void for being contrary to public policy and for being dependent upon the sole will of the
debtor.
Issue: Whether or not the Court of Appeals gravely erred in relying on the case of Serra
v. Court of Appeals because unlike that case, petitioners have no chance at all to
contest the stipulations appearing in the credit card application that was drafted entirely
by private respondent, thus, a clear contract of adhesion.
Ruling: At the outset, we note that the contract between the parties in this case is
indeed a contract of adhesion, so-called because its terms are prepared by only one
party while the other party merely affixes his signature signifying his adhesion thereto.
SLU SOL 1-C Page
623
Such contracts are not void in themselves. They are as binding as ordinary contracts.
Parties who enter in to such contracts are free to reject the stipulations entirely. In this
case, the cardholder, Manuelita, has complied with what was required of her under the
contract with BECC, She immediately notified BECC of loss of her card on the same
day it was lost and, the following day, she sent a written notice of the loss to BECC.
Clearly, what happened in this case was that BECC failed to notify promptly the
establishment in which the unauthorized purchases were made with the use of
Manuelitas lost card. Thus, Manuelita was being liable for those purchases, even if
there is no showing that Manuelita herself had signed for said purchases, and after
notice by her concerning her cards loss was already given to BECC.
SLU SOL 1-C Page
624
Nonbinding as to Third Parties; Exceptions (Arts. 1309-1310);
Arbitration, Arts. 2042-2406 of NCC in relation to R.A. 876 and
R.A. 9285
Uniwide v. Titan-Ikeda, 511 S 335
UNIWIDE SALES REALTY AND RESOURCES CORPORATION, petitioner,

vs.
TITAN-IKEDA CONSTRUCTION AND DEVELOPMENT CORPORATION, respondent.
G.R. No. 126619 December 20, 2006
Facts: PROJECT 1. The first agreement was a written Construction Contract entered
into by Titan and Uniwide sometime in May 1991 whereby Titan undertook to construct
Uniwides Warehouse Club and Administration Building in Libis, Quezon City for a fee of
P120,936,591.50, payable in monthly progress billings to be certified to by Uniwides
representative. The parties stipulated that the building shall be completed not later than
30 November 1991. As found by the CIAC, the building was eventually finished on 15
February 1992 and turned over to Uniwide. PROJECT 2.Sometime in July 1992, Titan
and Uniwide entered into the second agreement whereby the former agreed to
construct an additional floor and to renovate the latters warehouse located at the EDSA
Central Market Area in Mandaluyong City. There was no written contract executed
between the parties for this project. Construction was allegedly to be on the basis of
drawings and specifications provided by Uniwides structural engineers. The parties
proceeded on the basis of a cost estimate of P21,301,075.77 inclusive of Titans 20%
mark-up. Titan conceded in its complaint to having received P15,000,000.00 of this
amount. This project was completed in the latter part of October 1992 and turned over
to Uniwide. PROJECT 3.The parties executed the third agreement in May 1992. In a
written Construction Contract, Titan undertook to construct the Uniwide Sales
Department Store Building in Kalookan City for the price of P118,000,000.00 payable in
progress billings to be certified to by Uniwides representative. It was stipulated that the
project shall be completed not later than 28 February 1993. The project was completed
and turned over to Uniwide in June 1993. Uniwide asserted in its petition that: (a) it
overpaid Titan for unauthorized additional works in Project 1 and Project 3; (b) it is not
liable to pay the Value-Added Tax for Project 1; (c) it is entitled to liquidated damages for
the delay incurred in constructing Project 1 and Project 3; and (d) it should not have
been found liable for deficiencies in the defectively constructed Project 2.
Issue: Whether or not the decision rendered is correct.
Ruling: On Project 1 Libis: Uniwide is absolved of any liability for the claims made by
[Titan] on this Project. Project 2 Edsa Central: Uniwide is absolved of any liability for
VAT payment on this project, the same being for the account of Titan. On the other
hand, Titan is absolved of any liability on the counterclaim for defective construction of
this project. Uniwide is held liable for the unpaid balance in the amount of
P6,301,075.77 which is ordered to be paid to the Titan with 12% interest per annum
commencing from 19 December 1992 until the date of payment. On Project 3
SLU SOL 1-C Page
625
Kalookan: Uniwide is held liable for the unpaid balance in the amount of P5,158,364.63
which is ordered to be paid to Titan with 12% interest per annum commencing from 08
September 1993 until the date of payment. Uniwide is held liable to pay in full the VAT
on this project, in such amount as may be computed by the Bureau of Internal Revenue
to be paid directly thereto. The BIR is hereby notified that Uniwide Sales Realty and
Resources Corporation has assumed responsibility and is held liable for VAT payment
on this project. This accordingly exempts Claimant Titan-Ikeda Construction and
Development Corporation from this obligation.
SLU SOL 1-C Page
626
Heirs of Salas v. Laperal, 13 December 1999
HEIRS OF AUGUSTO L. SALAS, JR., petitioners,

vs.
LAPERAL REALTY CORPORATION, ROCKWAY REAL ESTATE CORPORATION,
SOUTH RIDGE VILLAGE, INC., MAHARAMI DEVELOPMENT CORPORATION,
Spouses THELMA D. ABRAJANO and GREGORIO ABRAJANO, OSCAR DACILLO,
Spouses VIRGINIA D. LAVA and RODEL LAVA, EDUARDO A. VACUNA, FLORANTE
DE LA CRUZ, JESUS VICENTE B. CAPELLAN, and the REGISTER OF DEEDS FOR
LIPA CITY, respondents.
G.R. No. 135362 December 13, 1999
Facts: Augusto Salas, Jr. was the registered owner of a vast tract of land in Lipa City,
Batangas. He entered into an Owner-Contractor Agreement with Respondent Laperal
Realty Corporation to render and provide complete (horizontal) construction services on
his land. Said agreement contains an arbitration clause, to wit:
ARTICLE VI. ARBITRATION.

All cases of dispute between CONTRACTOR and OWNERS representative shall be
referred to the committee represented by:
1. One representative of the OWNER;
2. One representative of the CONTRACTOR;
3. One representative acceptable to both OWNER and CONTRACTOR.
Salas, Jr. then executed a Special Power of Attorney in favor of Respondent Laperal
Realty to exercise general control, supervision and management of the sale of his land,
for cash or on installment basis. By virtue thereof, Respondent Laperal Realty
subdivided said land and sold portions thereof to Respondents Rockway Real Estate
Corporation and South Ridge Village, Inc. in 1990; to Respondent spouses Abrajano
and Lava and Oscar Dacillo in 1991; and to Respondents Eduardo Vacuna, Florante de
la Cruz and Jesus Vicente Capalan in 1996 (Respondent Lot Buyers hereinafter).
Back in 1989, Salas, Jr. left his home in the morning for a business trip to Nueva Ecija.
He, however, never returned on that unfaithful morning. Seven years later or in 1996,
his wife, Teresita Diaz-Salas filed with the RTC of Makati City a verified Petition for the
Declaration of Presumptive Death, which Petition was granted.
In 1998, Petitioners, as heirs of Salas, Jr. filed in the RTC of Lipa City a Complaint for
Declaration of Nullity of Sale, Reconveyance, Cancellation of Contract, Accounting and
Damages against Respondents.
Respondent Laperal Realty filed a Motion to Dismiss on the ground that Petitioners
failed to submit their grievance to arbitration as required under Article VI of the Owner-
Contractor Agreement. Respondent spouses Abrajano and Lava and Respondent
SLU SOL 1-C Page
627
Dacillo filed a Joint Answer with Counterclaim and Crossclaim praying for dismissal of
Petitioners Complaint for the same reason.
The RTC then issued the herein assailed Order dismissing Petitioners Complaint for
non-compliance with the foregoing arbitration clause.
Hence, the present Petition for Review on Certiorari under Rule 45.
Issue: Whether or not the arbitration clause under Article VI of the Owner-Contractor
Agreement is binding upon the Respondent Lot Buyers.
Ruling: No. Respondent Lot Buyers are neither parties to the Agreement nor the latters
assigns or heirs. Consequently, the right to arbitrate as provided in Article VI of the
Agreement was never vested in Respondent Lot Buyers.
Respondent Laperal Realty, on the other hand, as a contracting party to the Agreement,
has the right to compel Petitioners to first arbitrate before seeking judicial relief.
However, to split the proceedings into arbitration for Respondent Laperal Realty and
trial for the Respondent Lot Buyers, or to hold trial in abeyance pending arbitration
between Petitioners and Respondent Laperal Realty, would in effect result in multiplicity
of suits, duplicitous procedure and unnecessary delay. On the other hand, it would be in
the interest of justice if the trial court hears the complaint against all herein
Respondents and adjudicates Petitioners rights as against theirs in a single and
complete proceeding.
Petition is granted. The assailed Order of RTC of Lipa City is nullified and set aside.
SLU SOL 1-C Page
628
Medrano v. CA, 452 S 77
BIENVENIDO R. MEDRANO and IBAAN RURAL BANK, petitioners,

vs.
COURT OF APPEALS, PACITA G. BORBON, JOSEFINA E. ANTONIO and ESTELA
A. FLOR, respondents.
G.R. No. 150678 February 18, 2005
Facts: Bienvenido Medrano was the Vice-Chairman of Ibaan Rural Bank. He asked Flor
(a cousin), to look for a buyer of a foreclosed asset of the bank (17-hectare mango
plantation with 720 trees priced at P2.2M). Dominador Lee, a Makati businessman was
a client of respondent Pacita Borbon, a licensed real estate broker. Borbon relayed to
her business associates and friends that she had a ready buyer for a mango orchard.
Flor then advised her that her cousin-in-law owned a mango plantation which was up for
sale. She told Flor to confer with Medrano and to give them a written authority to
negotiate the sale of the property. Medrano issued the Letter of Authority to Borbon and
Antonio to negotiate with any prospective buyer for the sale of the mango plantation. He
promised Borbon to pay a commission of 5% of the total purchase price to be agreed
upon by the buyer and seller. Lee held an ocular inspection. Lee informed Antonio that
he already purchased the property and had made a down payment ofP1M. The
remaining balance of P1.2M was to be paid upon the approval of the incorporation
papers of the corporation he was organizing by the SEC. According to Antonio, Lee
asked her if they had already received their commission. She answered "no," and Lee
expressed surprise over this. Since the sale of the property was consummated, the
respondents asked from the petitioners their commission, or 5% of the purchase price.
The petitioners refused to pay and offered a measly sum of P5,000 each. Hence, the
present action.
Issue: Whether or not the plaintiffs are entitled to any commission for the sale of the
subject property.
Ruling: Yes. The respondents are indeed the procuring cause of the sale. If not for the
respondents, Lee would not have known about the mango plantation being sold by the
petitioners. The sale was consummated. The bank had profited from such transaction. It
would certainly be iniquitous if the respondents would not be rewarded their commission
pursuant to the letter of authority.
Procuring cause - the proximate cause. The term "procuring cause," in describing a
brokers activity, refers to a cause originating a series of events which, without break in
their continuity, result in accomplishment of prime objective of the employment of the
broker producing a purchaser ready, willing and able to buy real estate on the owners
terms. The evidence on record shows that the respondents were instrumental in the
sale of the property to Lee. Without their intervention, no sale could have been
consummated. They were the ones who set the sale of the subject land in motion. While
the letter-authority issued in favor of the respondents was non-exclusive, no
SLU SOL 1-C Page
629
evidence was adduced to show that there were other persons, aside from the
respondents, who informed Lee about the property for sale. When there is a close,
proximate and causal connection between the brokers efforts and the principals sale of
his property, the broker is entitled to a commission. In the absence of fraud, irregularity
or illegality in its execution, such letter-authority serves as a contract, and is considered
as the law between the parties. The clear intention is to reward the respondents for
procuring a buyer for the property.
SLU SOL 1-C Page
630
Tan v. Gullas, 393 S 334
MANUEL B. TAN, et. al., petitioner,

vs.
EDUARDO R. GULLAS and NORMA S. GULLAS, respondents.
G.R. No. 143978 December 3, 2002
Facts: Spouses Eduardo R. Gullas and Norma S. Gullas, were the registered owners of
a parcel of land measuring 104,114 sq. m., with Transfer Certificate of Title No. 31465.
On June 29, 1992, they executed a special power of attorney authorizing petitioners
Manuel B. Tan, a licensed real estate broker, and his associates Gregg M. Tecson and
Alexander Saldaa, to negotiate for the sale of the land at P550.00 per square meter, at
a commission of 3% of the gross price. The power of attorney was non-exclusive and
effective for one month from June 29, 1992. On the same date, petitioner Tan contacted
Engineer Ledesma, construction manager of the Sisters of Mary of Banneaux, Inc.
(hereafter, Sisters of Mary), a religious organization interested in acquiring a property.
On 1, 1992, petitioner Tan visited the property with Engineer Ledesma. Thereafter, the
two men accompanied Sisters Michaela Kim and Azucena Gaviola, representing the
Sisters of Mary, who had seen and inspected the land, found the same suitable for their
purpose and expressed their desire to buy it. However, they requested that the selling
price be reduced to P530.00 per square meter instead of P550.00 per square meter.
Private respondent Eduardo Gullas referred the prospective buyers to his wife. In their
answer, private respondents countered that, contrary to petitioners' claim, they were not
the efficient procuring cause in bringing about the consummation of the sale because
another broker, Roberto Pacana, introduced the property to the Sisters of Mary ahead of
the petitioners. Private respondents maintained that when petitioners introduced the
buyers to private respondent Eduardo Gullas, the former were already decided in
buying the property through Pacana, who had been paid his commission. Private
respondent Eduardo Gullas admitted that petitioners were in his office on July 3, 1992,
but only to ask for the reimbursement of their cellular phone expenses. After trial, the
lower court rendered judgment in favor of petitioners. Eduardo and Norma Gullas were
ordered to pay jointly and severally plaintiffs Manuel Tan, Gregg Tecson and Alexander
Saldaa the sum of P624,684.00 as brokers fee with legal interest at the rate of 6% per
annum from the date of filing of the complaint; and the sum of P50,000.00 as attorneys
fees and costs of litigation. The Court of Appeals reversed and set aside the lower
courts decision and rendered another judgment dismissing the complaint.
Issue: Whether or not the Court of Appeals erred in dismissing the complaint.
Ruling: It is readily apparent that private respondents are trying to evade payment of
the commission which rightfully belongs to petitioners as brokers with respect to the
sale. There was no dispute as to the role that petitioners played in the transaction. At
the very least, petitioners set the sale in motion. They were not able to participate in its
consummation only because they were prevented from doing so by the acts of the
private respondents. In the case of Alfred Hahn v. Court of Appeals and Bayerische
SLU SOL 1-C Page
631
Motoren Werke Aktiengesellschaft (BMW) the SC ruled that, An agent receives a
commission upon the successful conclusion of a sale. On the other hand, a broker
earns his pay merely by bringing the buyer and the seller together, even if no sale is
eventually made. Clearly, therefore, petitioners, as brokers, should be entitled to the
commission whether or not the sale of the property subject matter of the contract was
concluded through their efforts.
SLU SOL 1-C Page
632
Art. 1317, Enforceability
Gozun v. Mercado, 511 S 305
JESUS M. GOZUN, petitioner,

vs.
JOSE TEOFILO T. MERCADO a.k.a. DON PEPITO MERCADO, respondent.
G.R. No. 167812 December 19, 2006
Facts: In the local elections of 1995, respondent vied for the gubernatorial post in
Pampanga. Upon respondents request, petitioner, owner of JMG Publishing House, a
printing shop, submitted to respondent draft samples and price quotation of campaign
materials.
By petitioners claim, respondents wife had told him that respondent already approved
his price quotation and that he could start printing the campaign materials, hence, he
did print campaign materials. Given the urgency and limited time to do the job order,
petitioner availed of the services and facilities of Metro Angeles Printing and of St.
Joseph Printing Press, owned by his daughter Jennifer Gozun and mother Epifania
Macalino Gozun, respectively.
Petitioner delivered the campaign materials to respondents headquarters. On March

31, 1995, respondents sister-in-law, Lilian Soriano obtained from petitioner cash
advance of P253,000 allegedly for the allowances of poll watchers who were attending
a seminar and for other related expenses. Lilian acknowledged on petitioners 1995
diary receipt of the amount.
Petitioner later sent respondent a Statement of Account in the total amount of

P2,177,906 itemized as follows: P640,310 for JMG Publishing House; P837,696 for
Metro Angeles Printing; P446,900 for St. Joseph Printing Press; and P253,000, the cash
advance obtained by Lilian. Respondents wife partially paid P1,000,000 to petitioner
who issued a receipt therefor. Despite repeated demands and respondents promise to
pay, respondent failed to settle the balance of his account to petitioner.
Petitioner thus filed with the RTC a complaint against respondent to collect the
remaining amount of P1,177,906 plus inflationary adjustment and attorneys fees. The
trial court rendered judgment in favor of the petitioner. The CA however, reversed the
trial courts decision and dismissed the complaint for lack of cause of action.
Issue: Whether or not the Court of Appeals erred in reversing the trial court's decision.
Ruling: Petitioner is the real party in interest in this case. The trial courts findings on
the matter were affirmed by the appellate court. It erred, however, in not declaring
petitioner as a real party in interest insofar as recovery of the cost of campaign
SLU SOL 1-C Page
633
materials made by petitioners mother and sister are concerned, upon the wrong notion
that they should have been, but were not, impleaded as plaintiffs.
SLU SOL 1-C Page
634
Art. 1311, Privity: Exceptions
Sta. Lucia Realty v. Sps. Buenaventura, 2 October 2009
STA. LUCIA REALTY & DEVELOPMENT, INC., petitioner,

vs.
SPOUSES FRANCISCO & EMELIA BUENAVENTURA, as represented by RICARDO
SEGISMUNDO, respondents.
G.R. No. 177113 October 2, 2009
Facts: Respondent-spouses Francisco Segismundo and Emilia Buenaventura,

represented by Ricardo Segismundo, filed before the Housing and Land Use Regulatory
Board (HLRUB) a Complaint against petitioner Sta. Lucia Realty & Development, Inc.
for Specific Performance, Damages and Attorneys Fees. Respondents alleged that they
bought a lot known as Lot 3, Block 4, Phase II at Greenwood Executive Village, Cainta,
Rizal from Loida Gonzales Alfonso; that the said lot is part of a subdivision project
owned and being developed by petitioner; that in the course of the construction of their
house, respondents discovered that their lot had been subdivided and occupied by
Marilou Panlaque and Ma. Veronica Banez; and that like respondents, the two
occupants were also issued a construction permit by petitioner. Respondents thus
demanded from petitioner the rightful possession of their lot; but to no avail. In its
Answer, petitioner averred that respondents had no cause of action against it because it
has no transaction record regarding Lot 3, Block 4, Phase II; that the said lot actually
belonged to ACL Development Corporation, its joint-venture partner; that it was RCD
Realty Corporation which caused the subdivision of the lot and constructed separate
residential buildings thereon; that RCD Realty Corporations lot was actually Lot 3,
Block 4, Phase II-A; and that respondents, in bad faith and in a retaliatory manner,
erected their own house on Lot 4 which belonged to a different owner. Petitioner
suggested that to remedy the situation, respondents, RCD Realty Corporation, and the
real owner of Lot 4, should agree to a three-way exchange of their respective properties
as it has been verified that the areas of their lots are the same. On September 1, 1997,
petitioner filed a third-party complaint against ACL Development Corporation and RCD
Realty Corporation. Petitioner prayed that in the event that it be adjudged liable for any
of the claims of respondents, ACL Development Corporation and RCD Realty
Corporation should be held jointly and severally liable for said claims or an amount
equivalent thereto. ACL Development Corporation alleged that petitioner was
responsible for the issuance of all construction permits on the subdivision project;
hence, it was the one that caused the confusion among all parties. On the other hand,
RCD Realty Corporation alleged that it was a builder in good faith. On June 16, 1998,
the HLURBs Arbiter for the National Capital Region Field Office issued a Decision
directing respondent Sta. Lucia Realty and Development Corporation, Inc. to cause to
be vacated complainants lot denominated as Lot No. 3, Block No. 4, Phase II,
Greenwood Executive Village, Cainta, Rizal; and In the alternative, the aforesaid
respondent is ordered to reimburse the complainant the current market value of the
subdivision lot which shall in no case be less than P4,500.00 per square meter, the
SLU SOL 1-C Page

635
prevailing price in the area. On June 24, 1999, the HLURB Board of Commissioners
affirmed the Decision of the HLURB Arbiter with modification that the market value of
the subject lot, stated in paragraph 2 of the dispositive portion, be reduced from
P4,500.00 to P3,200.00 per square meter, plus 12% interest per annum from the time of
the filing of the complaint. On July 18, 2003, the Office of the President issued a
Decision affirming the June 24, 1999 Decision of the HLURB Board of Commissioners.
Subsequently, it issued a Resolution dated November 28, 2003 denying petitioners
Motion for Reconsideration. On December 21, 2006, the Court of Appeals affirmed the
Decision of the Office of the President. The appellate court found that it was petitioner
who caused the confusion in the identity of the lots by its issuance of a construction
permit to RCD Realty Corporation; that petitioner was remiss and negligent in complying
with its obligations towards its buyers, their heirs, assignees, and/or successors-in-
interest when it failed to deliver the property described in respondents title.
Issue: Whether or not the CA erred in affirming that the petitioner is liable in a complaint
for specific performance.
Ruling: The Supreme Court held that the petition was without merit. Article 1311 of the
New Civil Code states that, contracts take effect only between the parties, their assigns
and heirs, except in case where the rights and obligations arising from the contract are
not transmissible by their nature, or by stipulation or by provision of law. In this case, the
rights and obligations between petitioner and Alfonso are transmissible. There was no
mention of a contractual stipulation or provision of law that makes the rights and
obligations under the original sales contract for Lot 3, Block 4, Phase II intransmissible.
Hence, Alfonso can transfer her ownership over the said lot to respondents and
petitioner is bound to honor its corresponding obligations to the transferee or new lot
owner in its subdivision project. Having transferred all rights and obligations over Lot 3,
Block 4, Phase II to respondents, Alfonso could no longer be considered as an
indispensable party. Contrary to petitioners claim, Alfonso no longer has an interest on
the subject matter or the present controversy, having already sold her rights and
interests on Lot 3, Block 4, Phase II to herein respondents. We agree with the appellate
courts finding that petitioner was remiss and negligent in the performance of its
obligations towards its buyers, their heirs, assignees, and/or successors-in-interest; and
that it was petitioners negligence which caused the confusion on the identity of the lot,
which likewise resulted to the erroneous construction done by RCD Realty Corporation.
Petitioner cannot pass the blame to RCD Realty Corporation because it is undisputed
that it issued a construction permit for Lot 3, Block 4, Phase II the property of
respondents. For its gross negligence which resulted to the erroneous construction on
Lot 3, Block 4, Phase II and caused respondents undue damage and prejudice,
petitioner is rightfully adjudged by the HLURB Arbiter liable for P100,000.00 moral
damages, P50,0000.00 exemplary damages, and P50,000.00 attorneys fees. We agree
with the ruling of the HLURB Arbiter that it will be more equitable and practicable to
rescind the obligation of petitioner to deliver possession of Lot 3, Block 4, Phase II to
respondents; and in exchange, pay the value of the lot by way of reimbursement in
accordance with the price modification stated by the HLURB Board of Commissioners.
Moreover, this ruling comes within the purview of respondents final prayer for other
SLU SOL 1-C Page
636
reliefs, just or equitable under the premises and they are evidently in accord with such
outcome as they did not appeal the case or insist on claiming back their lot. However,
we find that the applicable interest rate for the amount to be reimbursed to respondents
is 6% per annum, reckoned from the time of the filing of the complaint, because the
case at bar involves a breach of obligation and not a loan or forbearance of money.
SLU SOL 1-C Page
637
Chan v. Maceda, 402 S 352
JOSEPH CHAN, WILSON CHAN and LILY CHAN, petitioners,

vs.
BONIFACIO S. MACEDA, JR., * respondent.
G.R. No. 142591 April 30, 2003
Facts: Bonifacio Maceda, Jr. obtained a P7.3M loan from the Development Bank of the
Philippines for the construction of his hotel project. Thereafter, Maceda entered into a
building construction contract with Moreman Builders Co., Inc.
Maceda purchased various construction materials and equipment. Moreman, in turn,

deposited them in the warehouse of Wilson and Lily Chan. The deposit was free of
charge. Unfortunately, Moreman failed to finish the construction of the hotel at the
stipulated time. Hence, Maceda filed with the CFI an action for rescission and damages
against Moreman.
The CFI rescinded the contract between Moreman and Maceda. It awarded Maceda
P445K as damages, P20K representing the increase in construction materials, and
P35K as attorneys fees. Moreman interposed an appeal, which the CA dismissed. It
elevated the case to the SC via a petition for review on certiorari. The SC denied the
petition.
Meanwhile, during the pendency of the case, Maceda ordered Wilson and Lily Chan to
return to him the construction materials and equipment. However, they told him that
Moreman had withdrawn those construction materials. Hence, Maceda filed with the
RTC an action for damages with an application for a writ of preliminary attachment
against the Chans.
Issue: Whether or not Maceda has the right to demand the release of the said materials
and equipment or claim for damages.
Ruling: Under Art. 1311 of the Civil Code, contracts are binding upon the parties and
their assigns and heirs who execute them. When there is no privity of contract, there is
likewise no obligation or liability to speak about and, thus, no cause of action arises.
Specifically, in an action against the depositary, the burden is on the plaintiff to prove the
bailment or deposit and the performance of conditions precedent to the right of action. A
depositary is obliged to return the thing to the depositor, or to his heirs or successors, or
to the person who may have been designated in the contract.
In the present case, the record is bereft of any contract of deposit, oral or written,
between the Chans and Maceda. If at all, it was only between the Chans and Moreman.
Granting arguendo that there was indeed a contract of deposit between the Chans and
Moreman, it is still incumbent upon Maceda to prove its existence and that it was
SLU SOL 1-C Page
638
executed in his favor. However, Maceda miserably failed to do so. The only pieces of
evidence he presented to prove the contract of deposit were the delivery receipts.
Significantly, they are unsigned and not duly received or authenticated by Moreman, the
Chans, Maceda himself, or any of their authorized representatives. Hence, those
delivery receipts have no probative value at all. Moreover, Maceda failed to prove that
there were construction materials and equipment in the Chans' warehouse at the time
he made a demand for their return.
The SC held that the Chans have no corresponding obligation or liability to Maceda with
respect to those construction materials.
SLU SOL 1-C Page
639
Art. 1311, par. 2, Stipulations Pour Autrui
Baluyot v. CA, 22 July 1999
TIMOTEO BALUYOT, et al., petitioner,

vs.
COURT OF APPEALS, et. al., respondent.
G.R. No. 122947 July 22, 1999
Facts: Petitioners are residents of Barangay Cruz-na-Ligas. Diliman, Quezon City. The
Cruz-na-Ligas Homesite Association, Inc. is a non-stock corporation of which petitioners
and other residents of Barangay Cruz-na-Ligas are members. Petitioners filed a
complaint for specific performance and damages against private respondent University
of the Philippines before the RTC of Quezon City.
After several negotiations with the residents, the area was increased to 15.8 hectares,
however, defendant UP backed out from the arrangement to donate directly to the
plaintiff Association for the benefit of the qualified residents and high-handedly resumed
to negotiate the donation thru the defendant Quezon City Government under the terms
disadvantageous or contrary to the rights of the bona fide residents of the Barrio.
Defendant UP took exception to the aforesaid Order lifting the Order of Injunction and
insisted on the dismissal of the case; that plaintiff manifested its willingness to the
dismissal of the case, provided, that the area to be donated thru the defendant Quezon
City government be subdivided into lots to be given to the qualified residents together
with the certificate of titles, without cost.
UP failed to deliver the certificate of title covering the property to be donated thus the
defendant Quezon City Government was not able to register the ownership so that the
defendant Quezon City Government can legally and fully comply with their obligations
under the said deed of donation.
Issue: Whether or not defendant UP could execute another deed of donation in favor of
third person.
Ruling: The Court found all the elements of a cause of action contained in the amended
complaint of petitioners. While, admittedly, petitioners were not parties to the deed of
donation, they anchor their right to seek its enforcement upon their allegation that they
are intended beneficiaries of the donation to the Quezon City government.
Art. 1311 of the Civil Code provides: If a contract should contain some stipulation in
favor of a third person, he may demand its fulfillment provided he communicated his
acceptance to the obligor before its revocation. A mere incidental benefit or interest of a
person is not sufficient. The contracting parties must have clearly and deliberately
conferred a favor upon a third person. Under this provision of the Civil Code, the
following requisites must be present in order to have a stipulation pour autrui:(1) there
SLU SOL 1-C Page
640
must be a stipulation in favor of a third person; (2) the stipulation must be a part, not the
whole of the contract;(3) the contracting parties must have clearly and deliberately
conferred a favor upon a third person, not a mere incidental benefit or interest; (4) the
third person must have communicated his acceptance to the obligor before its
revocation; and (5) neither of the contracting parties bears the legal representation or
authorization of the third party.
SLU SOL 1-C Page
641
Art. 1312, Contracts Creating Real Rights
Cuyco v. Cuyco, 487 S 693
SPOUSES ADELINA S. CUYCO and FELICIANO U. CUYCO, petitioners,

vs.
SPOUSES RENATO CUYCO and FILIPINA CUYCO, respondents.
G.R. No. 168736 April 19, 2006
Facts: Petitioners, spouses Adelina and Feliciano Cuyco, obtained a loan in the amount
of P1,500,000.00 from respondents, spouses Renato and Filipina Cuyco, payable within
one year at 18% interest per annum, and secured by a Real Estate Mortgage over a
parcel of land with improvements thereon situated in Cubao, Quezon City covered by
TCT No. RT-43723 (188321).
Subsequently, petitioners obtained additional loans from the respondents in the

aggregate amount of P1,250,000.00, broken down as follows: (1) P150,000.00 on May
30, 1992; (2) P150,000.00 on July 1, 1992; (3) P500,000.00 on September 5, 1992; (4)
P200,000.00 on October 29, 1992; and (5) P250,000.00 on January 13, 1993.
Petitioners made payments amounting to P291,700.00, but failed to settle their
outstanding loan obligations. Thus, on September 10, 1997, respondents filed a
complaint for foreclosure of mortgage with the RTC of Quezon City. They alleged that
petitioners loans were secured by the real estate mortgage; that as of August 31, 1997,
their indebtedness amounted to P6,967,241.14, inclusive of the 18% interest
compounded monthly; and that petitioners refusal to settle the same entitles the
respondents to foreclose the real estate mortgage. On January 27, 1999, the RTC
rendered judgment in favor of the respondents. Petitioners appealed to the CA. On
November 5, 2003, the CA partially granted the petition and modified the RTC decision
insofar as the amount of the loan obligations secured by the real estate mortgage.
Hence, the instant petition for review.
Issue: Whether or not petitioners must pay respondents legal interest of 12% per
annum on the stipulated interest of 18% per annum, computed from the filing of the
complaint until full paid.
Ruling: While a contract is the law between the parties, it is also settled that an existing
law enters into and forms part of a valid contract without the need for the parties
expressly making reference to it.
In the case at bar, the evidence shows that petitioners obtained several loans from the
respondent, some of which was held by the CA were secured by real estate mortgage
and earned an interest of 18% per annum. Applying the rules in the computation of
interest, the principal amount of loans subject of the real estate mortgage must earn the
stipulated interest of 18% per annum, which interest, as long as unpaid, also earns legal
SLU SOL 1-C Page
642
interest of 12% per annum, computed from the date of the filing of the complaint on
September 10, 1997 until finality of the Courts Decision. Such interest is not due to
stipulation but due to the mandate of the law as embodied in Article 2212 of the Civil
Code. From such date of finality, the total amount due shall earn interest of 12% per
annum until satisfied.
As a general rule, a mortgage liability is usually limited to the amount mentioned in the
contract. However, the amounts named as consideration in a contract of mortgage do
not limit the amount for which the mortgage may stand as security if from the four
corners of the instrument the intent to secure future and other indebtedness can be
gathered. This stipulation is valid and binding between the parties and is known in
American Jurisprudence as the "blanket mortgage clause," also known as a "dragnet
clause."
A "dragnet clause" operates as a convenience and accommodation to the borrowers as

it makes available additional funds without their having to execute additional security
documents, thereby saving time, travel, loan closing costs, costs of extra legal services,
recording fees, etc.
In order to constitute a legal mortgage, it must be executed in a public document,

besides being recorded. A provision in a private document, although denominating the
agreement as one of mortgage, cannot be considered as it is not susceptible of
inscription in the property registry. A mortgage in legal form is not constituted by a
private document, even if such mortgage be accompanied with delivery of possession of
the mortgage property. A mortgage constituted by means of a private document
obviously does not comply with such legal requirements.
What the parties could have done in order to bind the realty for the additional loans was
to execute a new real estate mortgage or to amend the old mortgage conformably with
the form prescribed by the law. Failing to do so, the realty cannot be bound by such
additional loans, which may be recovered by the respondents in an ordinary action for
collection of sums of money.
SLU SOL 1-C Page
643
Art. 1314, Tortious Interference
Go, doing business under the name and style of "ACG Express Liner" v.
Cordero, 4 May 2010
ALLAN C. GO, doing business under the name and style ACG Express Liner,
petitioner,
vs.
MORTIMER F. CORDERO, respondents.
G.R. No. 164703 May 4, 2010
Facts: Sometime in 1996, Mortimer F. Cordero, Vice-President of Pamana Marketing

Corporation (Pamana), ventured into the business of marketing inter-island passenger
vessels. After contacting various overseas fast ferry manufacturers from all over the
world, he came to meet Tony Robinson, an Australian national based in Brisbane,
Australia, who is the Managing Director of Aluminium Fast Ferries Australia (AFFA).
Between June and August 1997, Robinson signed documents appointing Cordero as
the exclusive distributor of AFFA catamaran and other fast ferry vessels in the
Philippines. As such exclusive distributor, Cordero offered for sale to prospective buyers
the 25-meter Aluminium Passenger catamaran known as the SEACAT 25.
After negotiations with Felipe Landicho and Vincent Tecson, lawyers of Allan C. Go who
is the owner/operator of ACG Express Liner of Cebu City, a single proprietorship,
Cordero was able to close a deal for the purchase of two (2) SEACAT 25 as evidenced
by the Memorandum of Agreement dated August 7, 1997. Accordingly, the parties
executed Shipbuilding Contract No. 7825 for one (1) high-speed catamaran (SEACAT
25) for the price of US$1,465,512.00. Per agreement between Robinson and Cordero,
the latter shall receive commissions totaling US$328,742.00, or 22.43% of the purchase
price, from the sale of each vessel.
Cordero made two (2) trips to the AFFA Shipyard in Brisbane, Australia, and on one (1)
occasion even accompanied Go and his family and Landicho, to monitor the progress of
the building of the vessel. He shouldered all the expenses for airfare, food, hotel
accommodations, transportation and entertainment during these trips. He also spent for
long distance telephone calls to communicate regularly with Robinson, Go, Tecson and
Landicho.
However, Cordero later discovered that Go was dealing directly with Robinson when he
was informed by Dennis Padua of Wartsila Philippines that Go was canvassing for a
second catamaran engine from their company which provided the ship engine for the
first SEACAT 25. Cordero immediately flew to Brisbane to clarify matters with Robinson,
only to find out that Go and Landicho were already there in Brisbane negotiating for the
sale of the second SEACAT 25. Despite repeated follow-up calls, no explanation was
given by Robinson, Go, Landicho and Tecson who even made Cordero believe there
would be no further sale between AFFA and ACG Express Liner.
SLU SOL 1-C Page
644
In a handwritten letter dated June 24, 1998, Cordero informed Go that such act of
dealing directly with Robinson violated his exclusive distributorship and demanded that
they respect the same, without prejudice to legal action against him and Robinson
should they fail to heed the same.
On August 21, 1998, Cordero instituted Civil Case No. 98-35332 seeking to hold
Robinson, Go, Tecson and Landicho liable jointly and solidarily for conniving and
conspiring together in violating his exclusive distributorship in bad faith and wanton
disregard of his rights, thus depriving him of his due commissions (balance of unpaid
commission from the sale of the first vessel in the amount of US$31,522.01 and unpaid
commission for the sale of the second vessel in the amount of US$328,742.00) and
causing him actual, moral and exemplary damages, including P800,000.00 representing
expenses for airplane travel to Australia, telecommunications bills and entertainment, on
account of AFFAs untimely cancellation of the exclusive distributorship agreement.
Cordero also prayed for the award of moral and exemplary damages, as well as
attorneys fees and litigation expenses.
Issue: Whether or not the respondents may be held liable for damages to Cordero for
his unpaid commissions and termination of his exclusive distributorship appointment by
the principal, AFFA.
Ruling: Article 1314 of the Civil Code provides: Any third person who induces another to
violate his contract shall be liable for damages to the other contracting party.
The elements of tort interference are: (1) existence of a valid contract; (2) knowledge on
the part of the third person of the existence of a contract; and (3) interference of the
third person is without legal justification.
The presence of the first and second elements is not disputed. Through the letters
issued by Robinson attesting that Cordero is the exclusive distributor of AFFA in the
Philippines, respondents were clearly aware of the contract between Cordero and AFFA
represented by Robinson. In fact, evidence on record showed that respondents initially
dealt with and recognized Cordero as such exclusive dealer of AFFA high-speed
catamaran vessels in the Philippines. In that capacity as exclusive distributor, petitioner
Go entered into the Memorandum of Agreement and Shipbuilding Contract No. 7825
with Cordero in behalf of AFFA.
The act of Go, Landicho and Tecson in inducing Robinson and AFFA to enter into
another contract directly with ACG Express Liner to obtain a lower price for the second
vessel resulted in AFFAs breach of its contractual obligation to pay in full the
commission due to Cordero and unceremonious termination of Cordero's appointment
as exclusive distributor. The attendant circumstances, however, demonstrated that
respondents transgressed the bounds of permissible financial interest to benefit
themselves at the expense of Cordero. Respondents furtively went directly to Robinson
after Cordero had worked hard to close the deal for them to purchase from AFFA two
SLU SOL 1-C Page

645
(2) SEACAT 25, closely monitored the progress of building the first vessel sold,
attended to their concerns and spent no measly sum for the trip to Australia with Go,
Landicho and Go's family members. But what is appalling is the fact that even as Go,
Landicho and Tecson secretly negotiated with Robinson for the purchase of a second
vessel, Landicho and Tecson continued to demand and receive from Cordero their
commission or cut from Cordero's earned commission from the sale of the first
SEACAT 25.
Thus, the trial and appellate courts correctly ruled that the actuations of Go, Robinson,
Tecson and Landicho were without legal justification and intended solely to prejudice
Cordero.
The existence of malice, ill will or bad faith is a factual matter. As a rule, findings of fact
of the trial court, when affirmed by the appellate court, are conclusive on this Court. We
see no compelling reason to reverse the findings of the RTC and the CA that
respondents acted in bad faith and in utter disregard of the rights of Cordero under the
exclusive distributorship agreement.
The failure of Robinson, Go, Tecson and Landico to act with fairness, honesty and
good faith in securing better terms for the purchase of high-speed catamarans from
AFFA, to the prejudice of Cordero as the duly appointed exclusive distributor, is further
proscribed by Article 19 of the Civil Code that every person must, in the exercise of his
rights and in the performance of his duties, act with justice, give everyone his due, and
observe honesty and good faith.
Petitioner Go's argument that he, Landicho and Tecson cannot be held liable solidarily
with Robinson for actual, moral and exemplary damages, as well as attorneys fees
awarded to Cordero since no law or contract provided for solidary obligation in these
cases, is equally bereft of merit. Conformably with Article 2194 of the Civil Code, the
responsibility of two or more persons who are liable for the quasi-delict is solidary.
The rule is that the defendant found guilty of interference with contractual relations
cannot be held liable for more than the amount for which the party who was inducted to
break the contract can be held liable. Respondents Go, Landicho and Tecson were
therefore correctly held liable for the balance of petitioner Cordero's commission from
the sale of the first SEACAT 25, in the amount of US$31,522.09 or its peso equivalent,
which AFFA/Robinson did not pay in violation of the exclusive distributorship
agreement, with interest at the rate of 6% per annum from June 24, 1998 until the
same is fully paid.
Respondents having acted in bad faith, moral damages may be recovered under Article
2219 of the Civil Code. On the other hand, the requirements of an award of exemplary
damages are: (1) they may be imposed by way of example in addition to compensatory
damages, and only after the claimants right to them has been established; (2) that they
cannot be recovered as a matter of right, their determination depending upon the
amount of compensatory damages that may be awarded to the claimant; and (3) the
SLU SOL 1-C Page
646
act must be accompanied by bad faith or done in a wanton, fraudulent, oppressive or
malevolent manner. The award of exemplary damages is thus in order. However, we
find the sums awarded by the trial court as moral and exemplary damages as reduced
by the CA, still excessive under the circumstances.
We believe that the amounts of P300,000.00 and P200,000.00 as moral and exemplary
damages, respectively, would be sufficient and reasonable. Because exemplary
damages are awarded, attorney's fees may also be awarded in consonance with Article
2208. We affirm the appellate court's award of attorneys fees in the amount of
P50,000.00.
SLU SOL 1-C Page
647
Tayag v. CA, 25 March 2004
JOSEFINA TAYAG, RICARDO GALICIA, TERESITA GALICIA, EVELYN GALICIA,

JUAN GALICIA, JR. and RODRIGO GALICIA, petitioners,
vs.
COURT OF APPEALS and ALBRIGIDO LEYVA, respondents.
G.R. No. 96053 March 3, 1993
Facts: Petitioners are the heirs of Juan Galicia, Sr. who are seeking to rescind the deed
of conveyance executed by Galicia, Sr. together with Celerina Labuguin, in favor of
Albrigido Leyva, respondent involving the undivided one-half portion of a piece of land
situated at Poblacion, Guimba, Nueva Ecija. They contend that respondent is in breach
of the conditions of the deed. Contained in the deed were stipulations regarding the
payment and settlement of the purchase price of the land. The respondent however did
not strictly comply this with. Despite the posterior payments however, petitioners
accepted them. Respondent, on the contention that he fulfilled his obligation to pay filed
this case for specific performance by the petitioners.
The court of origin which tried the suit for specific performance on account of the herein
petitioners reluctance to abide by the covenant, ruled in favor of the vendee while
respondent court practically agreed with the trial court except as to the amount to be
paid to petitioners and the refund to private respondent are concerned.
Issue: Whether or not petitioners prayer for the rescission of the deed can prosper.
Ruling: The Supreme Court affirmed the decision of the lower courts.
The suggestion of petitioners that the covenant must be cancelled in the light of private
respondents so-called breach seems to overlook petitioners demeanor who, instead of
immediately filing the case precisely to rescind the instrument because of non-
compliance, allowed private respondent to effect numerous payments posterior to the
grace periods provided in the contract. This apathy of petitioners, who even permitted
private respondent to take the initiative in filing the suit for specific performance against
them, is akin to waiver of abandonment of the right to rescind.
SLU SOL 1-C Page
648
So v. CA, 21 September 1999
SO PING BUN, petitioner,

vs.
COURT OF APPEALS, TEK HUA ENTERPRISES CORP. and MANUEL C. TIONG,
respondents.
G.R. No. 120554 September 21, 1999
Facts: In 1963, Tek Hua Trading Co., through its managing partner, So Pek Giok,
entered into lease agreements with lessor Dee C. Chuan and Sons Inc (DCCSI).
Subjects of four (4) lease contracts were premises located at Nos. 930, 930- Int., 924-B
and 924-C, Soler Street, Binondo, Manila. Tek Hua used the areas to store its textiles.
The contracts each had a one year term. They provided that should the lessee continue
to occupy the premises after the term, the lease shall be on a month to month basis.
When the contracts expired, the parties did not renew the contracts, but Tek Hua
continued to occupy the premises in 1976 Tek Hua Trading Corp. was dissolved. Later,
the original members of Tek Hua Trading Co., including Manuel C.Tiong, formed Tek
Hua Enterprising Corp., herein respondent corporation. So Pek Giok, managing partner
of Tek Hua Trading, died in 1986. So Pek Gioks grandson, petitioner So Ping Bun,
occupied the warehouse for his own textile business, Trendsetter Marketing. On August
1, 1989, lessor DCCSI sent letters addressed to Tek Hua enterprises, informing the
latter of the 25% increase in rent effective September 1, 1989. The rent increase was
later on reduced to 20% effective January 1, 1990, upon other lessees' demand. Again
on December 1, 1990, the lessor implemented a 30% rent increase. Enclosed in these
letters were new lease contracts for signing. DCCSI warned that failure of the lessee to
accomplish the contracts shall be deemed as lack of interest on the lessees part, and
agreement to the termination of the lese. Private respondents did not answer any of
these letters. Still, the lease contracts were not rescinded. On March 1, 1991, private
respondent Tiong sent a letter to petitioner asking Mr. So Ping Bun to vacate the
premise because he used a warehouse. Petitioner refused to vacate. On March 4,
1992, petitioner requested formal contracts of lease with DCCSI in favor Trendsetter
Marketing. So Ping Bun claimed that after the death of his grandfather, So Pek Giok, he
had been occupying the premises for his textile business and religiously paid rent.
DCCSI acceded to petitioners request. The lease contracts in favor of Trendsetter were
executed.
Issue: Whether the appellate court erred in affirming the trial courts decision finding So
Ping Bun guilty of tortuous interference of contact.
Ruling: In the instant case, it is clear that petitioner So Ping Bun prevailed upon DCCSI
to lease the warehouse to his enterprise at the expense of respondent corporation.
Though petitioner took interest in the property of respondent corporation and benefited
from it, nothing on record imputes deliberate wrongful motives or malice on him. A duty
which the law of torts is concerned with is respect for the property of others, and cause
of action ex delicto may be predicated upon an unlawful interference by one person of
SLU SOL 1-C Page
649
the enjoyment by the other of his private property. This may pertain to a situation where
a third person induces a party to renege on or violate his undertaking under a contract.
In the case before us, petitioners Trendsetter Marketing asked DCCSI to execute lease
contracts in its favor, and as a result petitioner deprived respondent corporation of the
latters property right. Clearly, and as correctly viewed by the appellate court, the three
elements of tort interference above mentioned are present in the instant case.
Authorities debate on whether interference may be justified where the defendant acts
for the sole purpose of furthering his own financial or economic interest. One view is
that, as a general rule, justification for interfering with the business relations of another
exist where the actors motive is to benefit himself. Such justification does not exist
where his sole motive is to cause harm to the other. Added to this, some authorities
believe that it is not necessary that the interferers interest outweigh that of the party
whose rights are invaded, and that an individual acts under an economic interest that is
substantial, not merely de minimis for he acts in self-protection. Moreover, justification
for protecting ones financial position should not be made to depend on a comparison of
his economic interest in the subject matter with that of others. It is sufficient if the
impetus of his conduct lies in a proper business interest rather than in wrongful motives.
As early as Gilchrist vs. Cuddy we held that where there was no malice in the
interference of a contract, and the impulse behind ones conduct lies in a proper
business interest rather than in wrongful motives, a party cannot be a malicious
interferer. Where the alleged interferer is financially interested and such interest
motivates his conduct it cannot be said that he is an officious or malicious intermeddler.
SLU SOL 1-C Page
650
Stages in the Execution of a Contract
International Freeport v. Danzas, 26 January 2011
INTERNATIONAL FREEPORT TRADERS, INC., petitioner,

vs.
DANZAS INTERCONTINENTAL, INC., respondent.
G.R. No. 181833 January 26, 2011
Facts: International Freeport Traders, Inc. (IFTI) ordered a shipment of Toblerone

chocolates and assorted confectioneries from Jacobs Suchard Tobler Ltd. of
Switzerland through its Philippine agent, Colombo Merchants Phils., Inc., under the
delivery term "F.O.B. ExWorks." To ship the goods, Jacobs dealt with Danmar Lines of
Switzerland which issued to Jacobs negotiable house bills of lading signed by its agent,
Danzas Intercontinental, Inc.
The bills of lading stated that the terms were "F.O.B." and "freight payable at
destination," with Jacobs as the shipper, China Banking Corporation as the consignee,
and IFTI as the party to be notified of the shipment. The shipment was to be delivered at
the Clark Special Economic Zone with Manila as the port of discharge. The goods were
also covered by Letters of Credit MK-97/0467 and MK-97/0468 under a "freight collect"
arrangement. Since Danmar did not have its own vessel, it contracted Orient Overseas
Container Line (OOCL) to ship the goods from Switzerland. OOCL issued a non-
negotiable master bill of lading, stating that the freight was prepaid with Danmar as the
shipper and Danzas as the consignee and party to be notified. The shipment was to be
delivered at Angeles City in Pampanga. Danmar paid OOCL an arbitrary fee of
US$425.00 to process the release of the goods from the port and ship the same to
Clark in Angeles City. The fee was to cover brokerage, trucking, wharfage, arrastre, and
processing expenses.
The goods were loaded on board the OOCL vessel on April 20, 1997 and arrived at the
port of Manila on May 14, 1997. Upon learning from Danmar that the goods had been
shipped, Danzas immediately informed IFTI of its arrival. IFTI prepared the import
permit needed for the clearing and release of the goods from the Bureau of Customs
and advised Danzas on May 20, 1997 to pick up the document. Danzas got the import
permit on May 26, 1997. At the same time, it asked IFTI to surrender the original bills of
lading to secure the release of the goods, and submit a bank guarantee inasmuch as
the shipment was consigned to China Banking Corporation to assure Danzas that it will
be compensated for freight and other charges. But IFTI did not provide Danzas a bank
guarantee, claiming that letters of credit already covered the shipment. IFTI insisted that
Danzas should already endorse the import permit and bills of lading to OOCL since the
latter had been paid an arbitrary fee. But Danzas did not do this. Because IFTI did not
provide Danzas with the original bills of lading and the bank guarantee, the latter
withheld the processing of the release of the goods. Danzas reiterated to IFTI that it
could secure the release of the goods only if IFTI submitted a bank guarantee.
SLU SOL 1-C Page
651
Ultimately, IFTI yielded to the request and applied for a bank guarantee which was
approved on May 23, 1997. It claimed to have advised Danzas on even date of its
availability for pick up but Danzas secured it only on June 6, 1997.
On January 2, 2002, [3] the MeTC rendered a decision in favor of Danzas and ordered
IFTI to pay (1) P181,809.45 plus legal interest to be computed from March 26, 1998
until fully paid; (2) P25,000.00 as attorney's fees; and (3) the costs of suit. On appeal,
however, the Regional Trial Court (RTC) of Paraaque City, Branch 274, dismissed the
complaint. Danzas elevated the case to the Court of Appeals (CA) which reversed the
RTC decision. The CA ruled that IFTI's fax letters dated June 10, 1997 showed the
parties engaged in negotiation stage. When IFTI heeded Danzas' request for a bank
guarantee, its action brought about a perfected contract of lease of service. The bank
guarantee, procured by IFTI, contained all the requisites of a perfected contract. The
cause of the contract was the release of the goods from the port and its delivery at
Clark; the consideration was the compensation for the release and delivery of the goods
to IFTI.
Issues:
1. Whether or not a contract of lease of service exists between IFTI and Danzas.
2. Whether or not IFTI is liable to Danzas for the costs of the delay in the release of the
goods from the port.
Ruling: The facts show the existence of several contracts: one between IFTI and
Jacobs, another between Jacobs and Danmar, and still another between Danmar and
OOCL. IFTI bought chocolates and confectioneries from Jacobs; Jacobs got Danmar to
deliver the goods to its destination; Danmar got OOCL to carry the goods for it by ship
to Manila.
For this purpose, Danmar paid OOCL an arbitrary fee to process the release of the
goods from the port of Manila and deliver the same to Clark. In all these transactions,
Danzas acted as an agent of Danmar who signed the house bills of lading in favor of
Jacobs. What is clear to the Court is that, by acceding to all the documentary
requirements that Danzas imposed on it, IFTI voluntarily accepted its services. The
bank guarantee IFTI gave Danzas assured the latter that it would eventually be paid all
freight and other charges arising from the release and delivery of the goods to it. Every
contract has the elements of consent of the contracting parties; object certain which is
the subject matter of the contract; and cause of the obligation which is established. A
contract is perfected by mere consent, which is manifested by the meeting of the offer
and the acceptance upon the thing and the cause which are to constitute the contract.
There is no dispute that under arbitrary shipments, imported goods are allowed to stay,
free of charge, in the port for three working days, and in the storage for five to six
calendar days. Beyond this period, storage fees, electric charges, and the demurrage
are due.
SLU SOL 1-C Page

652
Since the goods arrived at the Port of Manila on May 14, 1997, they could remain there
until May 20, 1997 free of charge. The fact that IFTI had the import permit ready by May
20, 1997 was immaterial since it had not yet given the bank guarantee required of it.
The Court is not convinced that IFTI had the bank guarantee ready as early as May 23,
1997 for, if that were the case, surely it did not make sense for it not to hand over such
document to Danzas when the latter claimed the import permit on May 26, 1997. Since
the delay in the processing of the release of the goods was due to IFTI's fault, the CA
rightly adjudged it liable for electric charges, demurrage, and storage fees of
P122,191.75 from May 20, 1997 to June 13, 1999. Hence the Court denied the petition
and affirmed the decision dated October 25, 2007 of the Court of Appeals in CA-G.R.
SP 79597.
SLU SOL 1-C Page
653
ROCKLAND CONSTRUCTION COMPANY, INC., petitioner,

vs.
MID-PASIG LAND DEVELOPMENT CORPORATION, respondent.
G.R. No. 164587 February 04, 2008
Facts: Rockland Construction Company, Inc. in a letter dated March 1, 2000, offered to
lease from Mid-Pasig Land Development Corporation the latters 3.1-hectare property in
Pasig City. This property is covered by Transfer Certificate of Title Nos. 469702 and
337158 under the control of the Presidential Commission on Good Government. Upon
instruction of Mid-Pasig to address the offer to the PCGG, Rockland wrote the PCGG
on April 15, 2000. The letter, addressed to PCGG Chairman Magdangal Elma, included
Rockland's proposed terms and conditions for the lease. This letter was also received
by Mid-Pasig on April 18, 2000, but Mid-Pasig made no response. Again, in another
letter dated June 8, 2000 addressed to the Chairman of Mid-Pasig, Mr. Ronaldo
Salonga, Rockland sent a Metropolitan Bank and Trust Company Check No.
2930050168 for P1 million as a sign of its good faith and readiness to enter into the
lease agreement under the certain terms and conditions stipulated in the letter. Mid-
Pasig received this letter on July 28, 2000. In a subsequent follow-up letter dated
February 2, 2001, Rockland then said that it presumed that Mid-Pasig had accepted its
offer because the P1 million check it issued had been credited to Mid-Pasigs account
on December 5, 2000. Mid-Pasig, however, denied it accepted Rocklands offer and
claimed that no check was attached to the said letter. It also vehemently denied
receiving the P1 million check, much less depositing it in its account. In its letter dated
February 6, 2001, Mid-Pasig replied to Rockland that it was only upon receipt of the
latters February 2 letter that the former came to know where the check came from and
what it was for. Nevertheless, it categorically informed Rockland that it could not
entertain the latters lease application. Mid-Pasig reiterated its refusal of Rocklands
offer in a letter dated February 13, 2001. Rockland then filed an action for specific
performance. Rockland sought to compel Mid-Pasig to execute in Rocklands favor, a
contract of lease over a 3.1-hectare portion of Mid-Pasigs property in Pasig City.
Issues:
1. Whether or not there a perfected contract of lease?
2. Whether or not estoppel in pais had set in.
Ruling:
1. A close review of the events in this case, in the light of the parties evidence, shows
that there was no perfected contract of lease between the parties. Mid-Pasig was not
aware that Rockland deposited the P1 million check in its account. It only learned of
Rocklands check when it received Rocklands February 2, 2001 letter. Mid-Pasig, upon
investigation, also learned that the check was deposited at the Philippine National Bank
San Juan Branch, instead of PNB Ortigas Branch where Mid-Pasig maintains its
account. Immediately, Mid-Pasig wrote Rockland on February 6, 2001 rejecting the
SLU SOL 1-C Page
654
offer, and proposed that Rockland apply the P1 million to its other existing lease
instead. These circumstances clearly show that there was no concurrence of
Rocklands offer and Mid-Pasigs acceptance.
2. Mid-Pasig is also not in estoppel in pais. The doctrine of estoppel is based on the
grounds of public policy, fair dealing, good faith and justice, and its purpose is to forbid
one to speak against his own act, representations, or commitments to the injury of one
to whom they were directed and who reasonably relied thereon. Since estoppel is based
on equity and justice, it is essential that before a person can be barred from asserting a
fact contrary to his act or conduct, it must be shown that such act or conduct has been
intended and would unjustly cause harm to those who are misled if the principle were
not applied against him.
SLU SOL 1-C Page
655
Consummation/Termination
MMDA v. JANCOM, 375 S 320
METROPOLITAN MANILA DEVELOPMENT AUTHORITY, petitioner,

vs.
JANCOM ENVIRONMENTAL CORPORATION and JANCOM
INTERNATIONAL DEVELOPMENT PROJECTS PTY. LIMITED OF AUSTRALIA,
respondents.
G.R. No. 147465 January 30, 2002
Facts: After bidding for a waste management project with the MMDA, Jancom won a
contract for the MMDAs San Mateo waste management project. A BOT contract for the
waste to energy project was signed on Dec 19, 1997, between Jancom and the
Philippine Government, represented by the Presidential Task Force on Solid Waste
Management through DENR Secretary Victor Ramos, CORD-NCR chair Dionisio dela
Serna, and MMDA chair Prospero Oreta.
The contract, however, was never signed by President Ramos as it was too close to the
end of his term. He endorsed it to President Estrada, but Estrada refused to sign it, for
two reasons: the passage of RA 8749, or the Clean Air Act of 1999 and the clamor of
San Mateo residents for the closure of the dumpsite.
When the MMDA published another call for proposals for solid waste management
projects for Metro Manila, Jancom filed a petition with the Pasig RTC asking the court to
declare as void the resolution of the Greater Metropolitan Manila Solid Waste
Management Committee disregarding the BOT contract with Jancom, and the call for
bids for a new waste management contract.
On May 29, 2000, the lower court decided in favor of Jancom. Instead of appealing, the
MMDA filed with the Court of Appeals a petition for certiorari and a TRO. When the CA
dismissed the petition, the MMDA went to the Supreme Court, arguing that the contract
with Jancom was not binding because it was not signed by the President, the conditions
precedent to the contract were not complied with, and there was no valid notice of
award.
The Supreme Court ruled that MMDA should have filed a motion for appeal instead of
for certiorari, because a certiorari would only apply in cases where there was grave
abuse of jurisdiction, something which the petition did not allege. Correction may be
obtained only by an appeal from the final decision. Since the decision was not appeal,
the Court said it has become final and gone beyond the reach of any court to modify in
any substantive aspect.
Though saying it was unnecessary to discuss the substantive issues, the court took it up
just the same, if only to put the petitioners mind to rest.
SLU SOL 1-C Page
656
The contract with Jancom is valid: citing Article 1305, 1315 and 1319 of the Civil Code.
In asserting that there was no valid and binding contract, MMDA can only allege that
there was no valid notice of award; the contract does not bear the signature of the
President; the conditions precedent specified in the contract were not complied with.
But the Court said that the lack of notice was the governments fault; though the
President did not sign, his alter-ego did; and anyway his signature was only necessary
for the effectivity of the contract, not its perfection; and that the two-month period within
which Jancom should comply with the conditions had not yet started to run because the
contract had not yet taken effect, precisely because of the absence of the Presidents
signature.
Issue: Whether or not a valid contract is existing between herein petitioner and
respondent.
Ruling: Under Article 1305 of the Civil Code, a contract is a meeting of minds between
two persons whereby one binds himself, with respect to the other, to give something or
to render some service. A contract undergoes three distinct stages: preparation or
negotiation, its perfection, and finally, its consummation. Negotiation begins from the
time the prospective contracting parties manifest their interest in the contract and ends
at the moment of agreement of the parties. The perfection or birth of the contract takes
place when the parties agree upon the essential elements of the contract. The last
stage is the consummation of the contract wherein the parties fulfill or perform the terms
agreed upon in the contract, culminating in the extinguishment thereof. Article 1315 of
the Civil Code, provides that a contract is perfected by mere consent. Consent, on the
other hand, is manifested by the meeting of the offer and the acceptance upon the thing
and the cause which are to constitute the contract. In the case at bar, the signing and
execution of the contract by the parties clearly show that, as between the parties, there
was a concurrence of offer and acceptance with respect to the material details of the
contract, thereby giving rise to the perfection of the contract. The execution and signing
of the contract is not disputed by the parties. As the Court of Appeals aptly held:
Contrary to petitioners insistence that there was no perfected contract, the meeting of
the offer and acceptance upon the thing and the cause, which are to constitute the
contract (Arts. 1315 and 1319, New Civil Code), is borne out by the records.
Admittedly, when petitioners accepted private respondents bid proposal (offer), there
was, in effect, a meeting of the minds upon the object (waste management project) and
the cause (BOT scheme). Hence, the perfection of the contract. In City of Cebu vs.
Heirs of Candido Rubi, the Supreme Court held that the effect of an unqualified
acceptance of the offer or proposal of the bidder is to perfect a contract, upon notice of
the award to the bidder. In fact, in asserting that there is no valid and binding contract
between the parties, MMDA can only allege that there was no valid notice of award; that
the contract does not bear the signature of the President of the Philippines; and that the
conditions precedent specified in the contract were not complied with.
SLU SOL 1-C Page

657
In asserting that the notice of award to JANCOM is not a proper notice of award, MMDA
points to the Implementing Rules and Regulations of Republic Act No. 6957, otherwise
known as the BOT Law, which require that is prior to the notice of award, an Investment
Coordinating Committee clearance must first be obtained; and ii) the notice of award
indicate the time within which the awardee shall submit the prescribed performance
security, proof of commitment of equity contributions and indications of financing
resources.
Admittedly, the notice of award has not complied with these requirements. However, the
defect was cured by the subsequent execution of the contract entered into and signed
by authorized representatives of the parties; hence, it may not be gainsaid that there is
a perfected contract existing between the parties giving to them certain rights and
obligations (conditions precedents) in accordance with the terms and conditions thereof.
We borrow the words of the Court of Appeals:
Petitioners belabor the point that there was no valid notice of award as to
constitute acceptance of private respondents offer. They maintain that former
MMDA Chairman Oretas letter to JANCOM EC dated February 27, 1997 cannot
be considered as a valid notice of award as it does not comply with the rules
implementing Rep. Act No. 6957, as amended. The argument is untenable.
SLU SOL 1-C Page

658
VI. Essential Requisites of Contracts
Elements: Offer and Acceptance
Korean Air v. Yuson, 16 June 2010
KOREAN AIR CO., LTD. and SUK KYOO KIM, petitioners,

vs.
ADELINA A.S. YUSON, respondent.
G.R. No. 170369 June 16, 2010
Facts: In July 1975, Korean Air Co., Ltd. (Korean Air) hired Yuson as reservations
agent. Korean Air had an International Passenger Manual (IPM), which contained,
among others, travel benefit to its employees. Yuson availed of the travel benefit under
the CBA during her stay in the company. In order to cut costs, Korean Air offered its
employees an early retirement program (ERP). Suk informed Yuson that she was
excluded from the ERP because she was retiring on 8 January 2002. Yuson claimed
that Korean Air was bound by the perfected contract and accused the company of
harassment and discrimination. Yuson filed with the arbitration branch of the NLRC a
complaint against Korean Air and Suk for payment of benefit under the ERP, moral
damages, exemplary damages, and attorneys fees.
Issue: Whether or not the offer is certain.
Ruling: No. Offer is a unilateral proposition made by one party to another for the
celebration of a contract. For an offer to be certain, a contract must come into existence
by the mere acceptance of the offeree without any further act on the offerors part. The
offer must be definite, complete and intentional. In the present case, the offer is not
certain: (1) the 21 August 2001 memorandum clearly states that, MNLSM Management,
on its discretion, is hereby offering the said early retirement program to its staff; (2)
applications for the ERP were forwarded to the head office for approval, and further acts
on the offerors part were necessary before the contract could come into existence; and
(3) the 21 August 2001 memorandum clearly states Korean Airs intention, which was, to
prevent further losses. Korean Air could not have intended to ministerially approve all
applications for the ERP.
SLU SOL 1-C Page
659
ROCKLAND CONSTRUCTION COMPANY INC., petitioner,

vs.
MID-PASIG LAND DEVELOPMENT CORPORATION, respondent.
G.R. No. 164587 February 04, 2008
Facts: Rockland Construction Company, Inc. in a letter dated March 1, 2000, offered to
lease from Mid-Pasig Land Development Corporation the latters 3.1-hectare property in
Pasig City. This property is covered by Transfer Certificate of Title Nos. 469702 and
337158 under the control of the Presidential Commission on Good Government. Upon
instruction of Mid-Pasig to address the offer to the PCGG, Rockland wrote the PCGG
on April 15, 2000. The letter, addressed to PCGG Chairman Magdangal Elma, included
Rockland proposed terms and conditions for the lease. This letter was also received by
Mid-Pasig on April 18, 2000, but Mid-Pasig made no response. Again, in another letter
dated June 8, 2000 addressed to the Chairman of Mid-Pasig, Mr. Ronaldo Salonga,
Rockland sent a Metropolitan Bank and Trust Company Check No. 2930050168 for P1
million as a sign of its good faith and readiness to enter into the lease agreement under
the certain terms and conditions stipulated in the letter. Mid-Pasig received this letter on
July 28, 2000. In a subsequent follow-up letter dated February 2, 2001, Rockland then
said that it presumed that Mid-Pasig had accepted its offer because the P1 million
check it issued had been credited to Mid-Pasigs account on December 5, 2000. Mid-
Pasig, however, denied it accepted Rocklands offer and claimed that no check was
attached to the said letter. It also vehemently denied receiving the P1 million check,
much less depositing it in its account. In its letter dated February 6, 2001, Mid-Pasig
replied to Rockland that it was only upon receipt of the latters February 2 letter that the
former came to know where the check came from and what it was for. Nevertheless, it
categorically informed Rockland that it could not entertain the latters lease application.
Mid-Pasig reiterated its refusal of Rocklands offer in a letter dated February 13, 2001.
Rockland then filed an action for specific performance. Rockland sought to compel
MidPasig to execute in Rocklands favor, a contract of lease over a 3.1-hectare portion
of MidPasigs property in Pasig City.
Issues:
1. Was there a perfected contract of lease?
2. Had estoppel in pais set in?
Ruling:
1. A close review of the events in this case, in the light of the parties' evidence, shows
that there was no perfected contract of lease between the parties. Mid-Pasig was not
aware that Rockland deposited the P1 million check in its account. It only learned of
Rocklands check when it received Rocklands February 2, 2001 letter. Mid-Pasig, upon
investigation, also learned that the check was deposited at the Philippine National Bank
San Juan Branch, instead of PNB Ortigas Branch where Mid-Pasig maintains its
account. Immediately, Mid-Pasig wrote Rockland on February 6, 2001 rejecting the
SLU SOL 1-C Page
660
offer, and proposed that Rockland apply the P1 million to its other existing lease
instead. These circumstances clearly show that there was no concurrence of
Rocklands offer and Mid-Pasigs acceptance.
2. Mid-Pasig is also not in estoppel in pais. The doctrine of estoppel is based on the
grounds of public policy, fair dealing, good faith and justice, and its purpose is to forbid
one to speak against his own act, representations, or commitments to the injury of one
to whom they were directed and who reasonably relied thereon. Since estoppel is based
on equity and justice, it is essential that before a person can be barred from asserting a
fact contrary to his act or conduct, it must be shown that such act or conduct has been
intended and would unjustly cause harm to those who are misled if the principle were
not applied against him.
SLU SOL 1-C Page
661
Manila Metal v. PNB, 511 S 444
MANILA METAL CONTAINER CORPORATION, petitioner,

REYNALDO C. TOLENTINO, intervenor,
vs.
PHILIPPINE NATIONAL BANK, respondent,
DMCI-PROJECT DEVELOPERS, INC., intervenor.
G.R. No. 166862 December 20, 2006
Facts: Petitioner was the owner of 8,015 square meters of parcel of land located in
Mandaluyong City, Metro Manila. To secure a P900,000.00 loan it had obtained from
respondent Philippine National Bank, petitioner executed a real estate mortgage over
the lot. Respondent PNB later granted petitioner a new credit accommodation. On
August 5, 1982, respondent PNB filed a petition for extrajudicial foreclosure of the real
estate mortgage and sought to have the property sold at public auction. After due notice
and publication, the property was sold at public action where respondent PNB was
declared the winning bidder. Petitioner sent a letter to PNB, requesting it to be granted
an extension of time to redeem/repurchase the property. Some PNB personnel informed
that as a matter of policy, the bank does not accept partial redemption. Since petitioner
failed to redeem the property, the Register of Deeds cancelled TCT No. 32098 and
issued a new title in favor of PNB.
Meanwhile, the Special Asset Management Department (SAMD) had prepared a

statement of account of petitioners obligation. It also recommended the management of
PNB to allow petitioner to repurchase the property for P1,574,560.oo. PNB rejected the
offer and recommendation of SAMD. It instead suggested to petitioner to purchase the
property for P2,660,000.00, in its minimum market value. Petitioner declared that it had
already agreed to SAMDs offer to purchase for P1,574,560.47 and deposited a
P725,000.00.
Issue: Whether or not petitioner and respondent PNB had entered into a perfected
contract for petitioner to repurchase the property for respondent.
Ruling: The SC affirmed the ruling of the appellate court that there was no perfected
contact of sale between the parties.
A contract is meeting of minds between two persons whereby one binds himself, with
respect to the other, to give something or to render some service. Under 1818 of the
Civil Code, there is no contract unless the following requisites concur:
1. Consent of the contracting parties;
2. Objection certain which is the subject matter of the contract;
3. Cause of the obligation which is established.
Contract is perfected by mere consent which is manifested by the meeting of the offer
and the acceptance upon the thing and causes which are to constitute the contract.
SLU SOL 1-C Page
662
Once perfected, the bind between other contracting parties and the obligations arising
therefrom have the form of law between the parties and should be complied in good
faith. The absence of any essential element will negate the existence of a perfected
contract of sale.
The court ruled in Boston Bank of the Philippines v. Manalo: A definite agreement as to
the price is an essential element of a binding agreement to sell personal or real property
because it seriously affects the rights and obligations of the parties. Price is an essential
element in the formation of a binding and enforceable contract of sale. The fixing of the
price can never be left to the decision of one of the contracting parties. But a price fixed
by one of the contracting parties, if accepted by the other, gives rise to a perfected sale.
In the case at bar, the parties to the contract is between Manila Metal Container
Corporation and Philippine National Bank and not to Special Asset Management
Department. Since the price offered by PNB was not accepted, there is no contract.
Hence, it cannot serve as a binding juridical relation between the parties.
SLU SOL 1-C Page
663
Montecillo v. Reynes, 385 S 244
RIDO MONTECILLO, petitioner,

vs.
IGNACIA REYNES and SPOUSES REDEMPTOR and ELISA ABUCAY, respondents.
G.R. No. 138018 July 26, 2002
Facts: Respondents Ignacia Reynes and spouses Abucay filed on June 20, 1984 a
complaint for Declaration of Nullity and Quieting of Title against petitioner Rico
Montecillo. Reynes asserted that she is the owner of a lot situated in Mabolo, Cebu City.
In 1981 Reynes sold 185 square meters of the Mabolo Lot to the Abucay Spouses who
built a residential house on the lot they bought. Reynes alleged further that on March 1,
1984, she signed a Deed of Sale of the Mabolo Lot in favor of Montecillo. Reynes, being
illiterate signed by affixing her thumbmark on the document. Montecillo promised to
pay the agreed Php47,000.00 purchase price within one month from the signing of the
Deed of Sale. Reynes further alleged that Montecillo failed to pay the purchase price
after the lapse of the one-month period, prompting Reynes to demand from Montecillo
the return of the Deed of Sale. Since Montecillo refused to return the Deed of Sale,
Reynes executed a document unilaterally revoking the sale and gave a copy of the
document to Montecillo. Subsequently, on May 23, 1984 Reynes signed a Deed of Sale
transferring to the Abucay Spouses the entire Mabolo Lot, at the same time confirming
the previous sale in 1981 of a 185 square meter portion of the lot. Reynes and the
Abucay Spouses alleged that on June 18, 1984 they received information that the
Register of Deeds of Cebu City issued Certificate of Title No. 90805 in the name of
Montecillo for the Mabolo Lot. Reynes and the Abucay Spouses argued that for lack for
consideration there was no meeting of the minds between Reynes and Montecillo.
Thus, the trial court should declare null and void ab initio Monticellos Deed of sale, and
order the cancellation of certificates of title No. 90805 in the name of Montecillo. In his
Answer, Montecillo a bank executive with a BS Commerce degree, claimed he was a
buyer in good faith and had actually paid the Php47,000.00 consideration stated on his
Deed of Sale. Montecillo however admitted he still owned Reynes a balance of
Php10,000.00. He also alleged that he paid Php50,000.00 for the release of the chattel
mortgage which he argued constituted a lien on the Mabolo Lot. He further alleged that
he paid for the real property tax as well as the capital gains tax on the sale of the
Mabolo Lot. In their reply, Reynes and the Abucay Spouses contended that Montecillo
did not have authority to discharge the chattel mortgage especially after Reynes
revoked Montecillos Deed of Sale and gave the mortgagee a copy of the document of
revocation. Reynes and the Abucay Spouses claimed that Montecillo secured the
release of the chattel mortgage through machination. They further asserted that
Montecillo took advantage of the real property taxes paid by the Abucay Spouses and
surreptitiously caused the transfer of the title to the Mabolo Lot in his name. During pre-
trial Montecillo claimed that the consideration for the sale of the Mabolo Lot was the
amount he paid to Cebu Iced and Cold Storage Corporation for the mortgage debt of
Bienvenido Jayag. Montecillo argued that the release of the mortgage was necessary
since the mortgage constituted a lien on the Mabolo Lot. Reynes, however stated that
SLU SOL 1-C Page
664
she had nothing to do with Jayags mortgage debt except that the house mortgaged by
Jayag stood on a portion of the Mabolo Lot. Reynes further stated that the payment by
Montecillo to release the mortgage on Jayags house is a matter between Montecillo
andJayag. The mortgage on the house being a chattel mortgage could not be
interpreted in any way as an encumbrance on the Mabolo Lot. Reynes further claimed
that the mortgage debt had long prescribed since the Php47,000.00 mortgage debt was
due for payment on January 30,1967.
Issue: Whether or not there was a valid consent in the case at bar to have a valid
contract.
Ruling: One of the three essential requisites of a valid contract is consent of the parties
on the object and cause of the contract. In a contract of sale, the parties must agree not
only on the price, but also on the manner of payment of the price. An agreement on the
price but a disagreement on the manner of its payment will not result in consent, thus
preventing the existence of a valid contract for a lack of consent. This lack of consent is
separate and distinct for lack of consideration where the contract states that the price
has been paid when in fact it has never been paid. Reynes expected Montecillo to pay
him directly the P47, 000.00 purchase price within one month after the signing of the
Deed of Sale. On the other hand, Montecillo thought that his agreement with Reynes
required him to pay the P47, 000.00-purchase price to Cebu Ice Storage to settle
Jayags mortgage debt. Montecillo also acknowledged a balance of P10, 000.00 in favor
of Reynes although this amount is not stated in Montecillos Deed of Sale. Thus, there
was no consent or meeting of the minds, between Reynes and Montecillo on the
manner of payment. This prevented the existence of a valid contract because of lack of
consent. In summary, Montecillos Deed of Sale is null and void ab initio not only for lack
of consideration, but also for lack of consent. The cancellation of TCT No. 90805 in the
name of Montecillo is in order as there was no valid contract transferring ownership of
the Mabolo Lot from Reynes to Montecillo.
SLU SOL 1-C Page
665
Soler v. CA, 358 S 57
JASMIN SOLER, petitioner,

vs.
COURT OF APPEALS, COMMERCIAL BANK OF MANILA, and NIDA LOPEZ,
respondents.
G.R. No. 123892 May 21, 2001
Facts: Jasmin Soler is a professional interior designer. Her friend asked her to talk to
Nida Lopez, manager of COMBANK Ermita Branch, for they were planning to renovate
the branch offices. Soler was hesitant to accept the job because of her many
commitments and also because Lopez was asking that the designs be submitted by
Dec. 1986, which was such a short notice.
Lopez insisted, however, because she really wanted Soler to do the design. Soler
acceded to the request. Lopez assured her that she would be compensated for her
services. Soler even told Lopez that her professional fee was P10K to which Lopez
acceded.
During the Nov. 1986 meeting, there were discussions as to what was to be renovated.
Lopez again assured Soler that the bank would pay her fees. After a few days, Soler
requested for the blueprint of the building so that the proper design, plans, and
specifications could be given to Lopez in time for the board meeting in Dec. 1986.
Soler asked her draftsman to go to the jobsite to make the proper measurements using
the blueprint. She also did her research on the designs and individual drawings of what
the bank wanted. She hired an engineer to make the electrical layout and architects to
do the drafting. Soler paid their professional fees. She also contacted the suppliers of
the wallpaper and the sash makers for their quotation.
Came Dec. 1986, the layout and the design were submitted to Lopez. She even told
soler that she liked the designs. Subsequently, Soler repeatedly demanded payment for
her services, which Lopez just ignored.
In Feb. 1987, by chance, Soler and Lopez saw each other at a concert. Soler inquired
about the payment for her services. Lopez curtly replied that she was not entitled to it
because her designs did not conform to the bank's policy of having a standard design,
and that there was no agreement between her and the bank.
Soler, through her lawyers, demanded payment for her professional fees, which Lopez
ignored. The lawyers wrote Lopez once again demanding the return of the blueprint
copies Soler submitted, which Lopez refused to return.
SLU SOL 1-C Page

666
Soler then filed a complaint against COMBANK and Lopez for collection of professional
fees and damages. The trial court rendered judgment in favor of Soler. On appeal, the
CA reversed the decision. Hence, this petition.
Issue: Whether or not there was a contract between Soler and COMBANK in the
absence of the element of consent.
Ruling: A contract is a meeting of the minds between two persons whereby one binds
himself to give something or to render some service to another for consideration.
In the present case, there was a perfected oral contract. When Lopez and Soler met
and discussed the details of the work, the first stage of the contract commenced. When
they agreed to the payment of P10K as professional fees of Soler and that she should
give the designs before the Dec. 1986 board meeting, the second stage of the contract
proceeded. When finally, Soler gave the designs to Lopez, the contract was
consummated.
Soler believed that once she submitted the designs, she would be paid her professional
fees. Lopez assured her that she would be paid. It is a familiar doctrine that if a
corporation knowingly permits one of its officers, or any other agent, to act within the
scope of an apparent authority, it holds him out to the public as possessing the power to
do those acts. Thus, the corporation will, as against anyone who has in good faith dealt
with it through such agent, be estopped from denying the agent's authority.
Also, Soler may be paid on the basis of quantum meruit. The designs Soler submitted to
Lopez were not returned. Lopez used such designs for presentation to the board of the
bank. Thus, the designs were in fact useful to Lopez for she did not appear to the board
without any designs at the time of the deadline set by the board.
The CA decision reversed and set aside.

SLU SOL 1-C Page
667
Palattao v. CA, 7 May 2002
YOLANDA PALATTAO, petitioner,

vs.
G.R. No. 131726 May 7, 2002
Facts: Petitioner Yolanda Palattao interred into a lease contract whereby she leased to
private respondent a house and registered in the name of petitioner. The duration of the
lease contract was for three years, commencing from January 1, 1991, to December 31,
1993, renewable at the option of the parties. The agreed monthly rental was P7,500.00
for the first year; P 8,000.00 for the second year: and P8,500.l00 for the third year. The
contract gave respondent lessee the first option to purchase the leased property. During
the last year of the contract, the parties began negotiations for the sale of the leased
premises to private respondent. In a letter dated April 2, 1993, petitioner offered to sell
to private respondents 413.28 square meters of the leased lot at P 7,800.00 per square
meter, or for the total amount of P3,223,548.00. private respondents replied on April 15,
1993 wherein he informed petitioner that he shall definitely exercise his option to buy
the leased property.
Petitioner stressed that failure to pay the down payment on the stipulated period will
enable petitioner to freely sell her property to others. Petitioner likewise notified private
respondent, that she is no longer renewing the lease agreement upon its expiration on
December 31, 1993. Private respondent did not accept the terms proposed by
petitioner. Neither were there any documents of sale nor payment by private respondent
of the required down payment. Private respondent wrote a letter to petitioner on
November 29, 1993 manifesting his intention to exercise his option to renew their lease
contract for another three years, starting January 1, 1994 to December 31, 1996. This
was rejected by petitioner, reiterating that she was no longer renewing the lease.
Petitioner demanded that private respondent vacate the premises, but the latter refused.
Issue: Whether or not there was a valid consent.
Ruling: There was no valid consent in the case at bar.
Contracts that are consensual in nature, like a contract of sale, are perfected upon mere
meeting of the minds. Once there is concurrence between the offer and the acceptance
upon the subject matter, consideration, and terns of payment, a contract is produced.
The offer must be certain. To convert the offer into a contract, the acceptance must be
absolute and must not qualify the terms of the offer; it must be plain, unequivocal,
unconditional, and without variance of any sort from the proposal. Letters reveal that
private respondent did not give his consent to buy only 413.28 square meters of the
leased lot, as he desired to purchase the whole 490 square-meter- leased premises
which, however, was not what was exactly proposed in petitioners offer. Clearly,
SLU SOL 1-C Page
668
therefore, private respondents acceptance of petitioners offer was not absolute, and
will consequently not generate consent that would perfect a contract.
SLU SOL 1-C Page
669
ABS-CBN v. CA, 21 January 1999
ABS-CBN BROADCASTING CORPORATION, petitioner,

vs.
HONORABLE COURT OF APPEALS, REPUBLIC BROADCASTING CORP, VIVA
PRODUCTION, INC., and VICENTE DEL ROSARIO, respondents.
G.R. No. 128690 January 21, 1999
Facts: In 1992, ABS-CBN Broadcasting Corporation, through its vice president Charo
Santos-Concio, requested Viva Production, Inc. to allow ABS-CBN to air at least 14
films produced by Viva. Pursuant to this request, a meeting was held between Vivas
representative (Vicente Del Rosario) and ABS-CBNs Eugenio Lopez (General
Manager) and Santos-Concio was held on April 2, 1992. During the meeting Del
Rosario proposed a film package which will allow ABS-CBN to air 104 Viva films for P60
million. Later, Santos-Concio, in a letter to Del Rosario, proposed a counterproposal of
53 films (including the 14 films initially requested) for P35 million. Del Rosario presented
the counter offer to Vivas Board of Directors but the Board rejected the counter offer.
Several negotiations were subsequently made but on April 29, 1992, Viva made an
agreement with Republic Broadcasting Corporation (referred to as RBS or GMA 7)
which gave exclusive rights to RBS to air 104 Viva films including the 14 films initially
requested by ABS-CBN.
ABS-CBN now filed a complaint for specific performance against Viva as it alleged that
there is already a perfected contract between Viva and ABS-CBN in the April 2, 1992
meeting. Lopez testified that Del Rosario agreed to the counterproposal and he (Lopez)
even put the agreement in a napkin which was signed and given to Del Rosario. ABS-
CBN also filed an injunction against RBS to enjoin the latter from airing the films. The
injunction was granted. RBS now filed a countersuit with a prayer for moral damages as
it claimed that its reputation was debased when they failed to air the shows that they
promised to their viewers. RBS relied on the ruling in People vs Manero and Mambulao
Lumber vs PNB which states that a corporation may recover moral damages if it has a
good reputation that is debased, resulting in social humiliation. The trial court ruled in
favor of Viva and RBS. The Court of Appeals affirmed the trial court.
Issue: Whether or not there exists a perfected contract between ABS-CBN and VIVA.
Ruling: No. There is no proof that a contract was perfected in the said meeting. Lopez
testimony about the contract being written in a napkin is not corroborated because the
napkin was never produced in court. Further, there is no meeting of the minds because
Del Rosarios offer was of 104 films for P60 million was not accepted. And that the
alleged counter-offer made by Lopez on the same day was not also accepted because
theres no proof of such. The counter offer can only be deemed to have been made
days after the April 2 meeting when Santos-Concio sent a letter to Del Rosario
containing the counter-offer. Regardless, there was no showing that Del Rosario
SLU SOL 1-C Page
670
accepted. But even if he did accept, such acceptance will not bloom into a perfected
contract because Del Rosario has no authority to do so.
As a rule, corporate powers, such as the power; to enter into contracts; are exercised by
the Board of Directors. But this power may be delegated to a corporate committee, a
corporate officer or corporate manager. Such a delegation must be clear and specific. In
the case at bar, there was no such delegation to Del Rosario. The fact that he has to
present the counteroffer to the Board of Directors of Viva is proof that the contract must
be accepted first by the Vivas Board. Hence, even if Del Rosario accepted the counter-
offer, it did not result to a contract because it will not bind Viva sans authorization.
SLU SOL 1-C Page
671
Arts. 1321-1323, 1325, Offer: Requisites
Limson v. CA, 357 S 209
LOURDES ONG LIMSON, petitioner,

vs.
COURT OF APPEALS, SPOUSES LORENZO DE VERA and ASUNCION SANTOS-
DE VERA, TOMAS CUENCA, JR., and SUNVAR REALTY DEVELOPMENT
G.R. No. 135929 April 20, 2001
Facts: Petitioner Lourdes Ong Limson, in her 14 May 1979 complaint filed before the
trial court, alleged that in July 1978 respondent spouses Lorenzo de Vera and Asuncion
Santos-de Vera, through their agent Marcosa Sanchez, offered to sell to petitioner a
parcel of land consisting of 48,260 square meters, more or less, situated in Barrio San
Dionisio, Paraaque, Metro Manila; that respondent spouses informed her that they were
the owners of the subject property; that on 31 July 1978 she agreed to buy the property
at the price of P34.00 per square meter and gave the sum of P20,000.00 to respondent
spouses as "earnest money;" that respondent spouses signed a receipt therefor and
gave her a 10-day option period to purchase the property; that respondent Lorenzo de
Vera then informed her that the subject property was mortgaged to Emilio Ramos and
Isidro Ramos; that respondent Lorenzo de Vera asked her to pay the balance of the
purchase price to enable him and his wife to settle their obligation with the Ramoses.
Petitioner also averred that she agreed to meet respondent spouses and the Ramoses
on 5 August 1978 at the Office of the Registry of Deeds of Makati, Metro Manila, to
consummate the transaction but due to the failure of respondent Asuncion Santos-de
Vera and the Ramoses to appear, no transaction was formalized. In a second meeting
scheduled on 11 August 1978 she claimed that she was willing and ready to pay the
balance of the purchase price but the transaction again did not materialize as
respondent spouses failed to pay the back taxes of subject property. Subsequently, on
23 August 1978 petitioner allegedly gave respondent Lorenzo de Vera three (3) checks
in the total amount of P36,170.00 for the settlement of the back taxes of the property
and for the payment of the quitclaims of the three (3) tenants of subject land. The
amount was purportedly considered part of the purchase price and respondent Lorenzo
de Vera signed the receipts therefor.
Issue: Whether or not the requisites of offer were all met.
Ruling: An option, as used in the law of sales, is a continuing offer or contract by which
the owner stipulates with another that the latter shall have the right to buy the property
at a fixed price within a time certain, or under, or in compliance with, certain terms and
conditions, or which gives to the owner of the property the right to sell or demand a sale.
It is also sometimes called an "unaccepted offer." An option is not of itself a purchase,
but merely secures the privilege to buy. It is not a sale of property but a sale of the right
SLU SOL 1-C Page
672
to purchase. It is simply a contract by which the owner of property agrees with another
person that he shall have the right to buy his property at a fixed price within a certain
time. He does not sell his land; he does not then agree to sell it; but he does sell
something, i.e., the right or privilege to buy at the election or option of the other party. Its
distinguishing characteristic is that it imposes no binding obligation on the person
holding the option, aside from the consideration for the offer. Until acceptance, it is not,
properly speaking, a contract, and does not vest, transfer, or agree to transfer, any title
to, or any interest or right in the subject matter, but is merely a contract by which the
owner of the property gives the optionee the right or privilege of accepting the offer and
.
buying the property on certain terms
On the other hand, a contract, like a contract to sell, involves the meeting of minds
between two persons whereby one binds himself, with respect to the other, to give
something or to render some service. Contracts, in general, are perfected by mere
consent, which is manifested by the meeting of the offer and the acceptance upon the
thing and the cause which are to constitute the contract. The offer must be certain and
the acceptance absolute.
In the interpretation of contracts, the ascertainment of the intention of the contracting

parties is to be discharged by looking to the words they used to project that intention in
their contract, all the words, not just a particular word or two, and words in context, not
words standing alone. The above Receipt readily shows that respondent spouses and
petitioner only entered into a contract of option; a contract by which respondent spouses
agreed with petitioner that the latter shall have the right to buy the formers property at a
fixed price of P34.00 per square meter within ten (10) days from 31 July 1978.
Respondent spouses did not sell their property; they did not also agree to sell it; but
they sold something, i.e., the privilege to buy at the election or option of petitioner. The
agreement imposed no binding obligation on petitioner, aside from the consideration for
the offer.
There was no contract to sell between petitioner and respondent spouses to speak of.
Verily, the telegram could not operate to stop them from claiming that there was such
contract between them and petitioner. Neither could it mean that respondent spouses
extended the option period. The telegram only showed that respondent spouses were
willing to give petitioner a chance to buy subject property even if it was no longer
exclusive.
In the instant case, the Court recognizes the rights of all the parties and finds no
violation or invasion of the rights of respondents by petitioner. Petitioner, in filing her
complaint, only seeks relief, in good faith, for what she believes she was entitled to and
should not be made to suffer therefor. Neither should exemplary damages be awarded
to respondents as they are imposed only by way of example or correction for the public
good and only in addition to the moral, temperate, liquidated or compensatory damages.
No such kinds of damages were awarded by the Court of Appeals, only nominal, which
was not justified in this case.
SLU SOL 1-C Page
673
Arts. 1319-1320, Acceptance: Requisites
Villanueva v. PNB, 6 December 2006
IN RE ADMINISTRATION OF THE ESTATE OF PASCUAL VILLANUEVA. MAURICIA

G. DE VILLANUEVA, petitioner,
vs.
PHILIPPINE NATIONAL BANK, defendant-appellant.
Facts: For the administration of the estate of her deceased husband, Pascual
Villanueva, the widow Mauricia G. Villanueva, on December 19, 1949, petitioned the
Court of First Instance of Agusan, for letters of Administration (Sp. Proc. No. 67). The
petition was set for hearing and Notice thereof was published on February 25, March 4,
and 11, 1950, in the Manila Daily Bulletin. At the hearing, other heirs while agreeing to
the placing of estate under administration, opposed the appointment the widow. The
name of Atty. Teodulo R. Ricaforte, suggested and all the parties agreed. After the
taking the required oath, Atty. Ricaforte entered upon the performance of his duties.
Under date of November 9, 1950 the Clerk of the Agusan CFI, issued a Notice to
Creditors.
The appellant PNB, on November 14, 1958, more than four (4) Years after the
opposition of the claim presented by the administrator, filed a pleading captioned
"Petition for an Extension of time within which to File the Claim of Philippine National
Bank", alleging, among others, that Sec. 2, Rule 87 of the Rules, allows the filing of
claims even if the period stated in the notice to creditors elapsed, upon cause shown
and on such terms as equitable; that its failure to present the claiming with the period
stated in the notice, was its lack of knowledge of administration proceedings, for while
said maintains a branch office in Agusan, the employees did not come to know of the
proceedings, the notice has been published in the Morning Times, a newspaper very
limited circulation.
Issue: Whether or not the action in question is already barred.
Ruling: The claim was filed outside of the period provided for in the Order of the lower
court, within which to present claims against the estate. The period fixed in the notice
lapsed on November 16, 1951 and the claim was filed on July 20, 1953 or about 1 year
and 8 months late. This notwithstanding, appellant contends that it did not know of such
administration proceedings, not even its employees in the Branch Office in Butuan City,
Agusan. It is to be noted that the petition for Letters of Administration and the Notice to
Creditors were duly published in the Manila Daily Bulletin and in the Morning Times,
respectively, which was a full compliance with the requirements of the Rules. Moreover,
the supposed lack of knowledge of the proceedings on the part of appellant and its
employees had been belied by uncontested and eloquent evidence, consisting of a
deposit of an amount of money by the administrator of the estate in said Bank (Agusan
SLU SOL 1-C Page
674
Agency). The deposit was made on December 1, 1951, inspite of which the appellant
Bank only filed its claim on July 20, 1953. It is quite true that the Courts can extend the
period within which to present claims against the estate, even after the period limited
has elapsed; but such extension should be granted under special circumstances. The
lower did not find any justifiable reason to give the extension and for one thing, there
was no period to extend, the same had elapsed.
SLU SOL 1-C Page
675
Arts. 1327-1329, Vices of Capacity
Insanity/Imbecility/Dementia
Catalan v. Basa, 31 July 2007
CORAZON CATALAN, LIBRADA CATALAN-LIM, EULOGIO CATALAN, MILA

CATALAN-MILAN, ZENAIDA CATALAN, ALEX CATALAN, DAISY CATALAN,
FLORIDA CATALAN and GEMMA CATALAN, Heirs of the late FELICIANO
CATALAN, petitioners,
vs.
JOSE BASA, MANUEL BASA, LAURETA BASA, DELIA BASA, JESUS BASA and
ROSALINDA BASA, Heirs of the late MERCEDES CATALAN, respondents.
G.R. No. 159567 July 31, 2007
Facts: On October 20, 1948, FELICIANO CATALAN Feliciano was discharged from
active military service. The Board of Medical Officers of the Department of Veteran
Affairs found that he was unfit to render military service due to his schizophrenic
reaction, catatonic type, which incapacitates him because of flattening of mood and
affect, preoccupation with worries, withdrawal, and sparse and pointless speech. On
September 28, 1949, Feliciano married Corazon Cerezo. On June 16, 1951, a
document was executed, titled Absolute Deed of Donation, wherein Feliciano allegedly
donated to his sister MERCEDES CATALAN one-half of the real property. On
December 11, 1953, Peoples Bank and Trust Company filed a Special Proceedings
before the Court of First Instance to declare Feliciano incompetent. On December 22,
1953, the trial court issued its Order for Adjudication of Incompetency for Appointing
Guardian for the Estate and Fixing Allowance of Feliciano. The following day, the trial
court appointed Peoples Bank and Trust Company as Felicianos guardian. On
November 22, 1978, Feliciano and Corazon Cerezo donated Lots 1 and 3 of their
property, registered under Original Certificate of Title (OCT) No. 18920, to their son
Eulogio Catalan. Mercedes sold the property in issue in favor of her children Delia and
Jesus Basa. The Deed of Absolute Sale was registered with the Register of Deeds and
a Tax Declaration was issued in the name of respondents.Feliciano and Corazon
Cerezo donated Lot 2 of the aforementioned property registered under OCT No. 18920
to their children Alex Catalan, Librada Catalan and Zenaida Catalan. On February 14,
1983, Feliciano and Corazon Cerezo donated Lot 4 (Plan Psu-215956) of the same
OCT No. 18920 to Eulogio and Florida Catalan. BPI, acting as Felicianos guardian,
filed a case for Declaration of Nullity of Documents, Recovery of Possession and
Ownership, as well as damages against the herein respondents. BPI alleged that the
Deed of Absolute Donation to Mercedes was void ab initio, as Feliciano never donated
the property to Mercedes. In addition, BPI averred that even if Feliciano had truly
intended to give the property to her, the donation would still be void, as he was not of
sound mind and was therefore incapable of giving valid consent. Thus, it claimed that if
the Deed of Absolute Donation was void ab initio, the subsequent Deed of Absolute
Sale to Delia and Jesus Basa should likewise be nullified, for Mercedes Catalan had no
SLU SOL 1-C Page
676
right to sell the property to anyone. BPI raised doubts about the authenticity of the deed
of sale, saying that its registration long after the death of Mercedes Catalan indicated
fraud. Thus, BPI sought remuneration for incurred damages and litigation expenses. On
August 14, 1997, Feliciano passed away. The original complaint was amended to
substitute his heirs in lieu of BPI as complainants in Civil Case No. 17666.The trial court
found that the evidence presented by the complainants was insufficient to overcome the
presumption that Feliciano was sane and competent at the time he executed the deed
of donation in favor of Mercedes Catalan. Thus, the court declared, the presumption of
sanity or competency not having been duly impugned, the presumption of due execution
of the donation in question must be upheld. The Court of Appeals upheld the trial courts
decision.
Issue: Whether or not said decision of the lower courts is correct.
Ruling: Petitioners questioned Felicianos capacity at the time he donated the property,
yet did not see fit to question his mental competence when he entered into a contract of
marriage with Corazon Cerezo or when he executed deeds of donation of his other
properties in their favor. The presumption that Feliciano remained competent to execute
contracts, despite his illness, is bolstered by the existence of these other contracts.
Competency and freedom from undue influence, shown to have existed in the other acts
done or contracts executed, are presumed to continue until the contrary is shown.
Needless to state, since the donation was valid, Mercedes had the right to sell the
property to whomever she chose. Not a shred of evidence has been presented to prove
the claim that Mercedes' sale of the property to her children was tainted with fraud or
falsehood. It is of little bearing that the Deed of Sale was registered only after the death
of Mercedes. What is material is that the sale of the property to Delia and Jesus Basa
was legal and binding at the time of its execution. Thus, the property in question
belongs to Delia and Jesus Basa. The petitioners raised the issue of prescription and
laches for the first time on appeal before this Court. It is sufficient for this Court to note
that even if the present appeal had prospered, the Deed of Donation was still a
voidable, not a void, contract. As such, it remained binding as it was not annulled in a
proper action in court within four years.
SLU SOL 1-C Page
677
Domingo v. CA, 17 October 2001
EUGENIO DOMINGO, CRISPIN MANGABAT and SAMUEL CAPALUNGAN,

petitioners,
vs.
HON. COURT OF APPEALS, FELIPE C. RIGONAN and CONCEPCION R. RIGONAN,
respondents.
G.R. No. 127540 October 17, 2001
Facts: Paulina Rigonan owned three parcels of land including the house and
warehouse on one parcel. She allegedly sold them to private respondents, the spouses
Felipe and Concepcion Rigonan, who claim to be her relatives. In 1966, petitioners who
claim to be her closest surviving relatives, allegedly took possession of the properties by
means of stealth, force and intimidation, and refused to vacate the same. According to
defendants, the alleged deed of absolute sale was void for being spurious as well as
lacking consideration. They said that Paulina Rigonan did not sell her properties to
anyone. As her nearest surviving kin within the fifth degree of consanguinity, they
inherited the three lots and the permanent improvements thereon when Paulina died.
They said they had been in possession of the contested properties for more than 10
years.
Issues:
1. Whether or not the consideration in Deed of Sale can be used to impugn the validity
of the Contract of Sale.
2. Whether or not the alleged Deed of Sale executed by Paulina Rigonan in favor of the
private respondents is valid.
Ruling:
1. Consideration is the why of a contract, the essential reason which moves the
contracting parties to enter into the contract. The Court had seen no apparent and
compelling reason for her to sell the subject 9 parcels of land with a house and
warehouse at a meager price of P850 only. On record, there is unrebutted testimony
that Paulina as landowner was financially well off. She loaned money to several people.
Undisputably, the P850.00 consideration for the nine (9) parcels of land including the
house and bodega is grossly and shockingly inadequate, and the sale is null and void
ab initio.
2. The Court ruled in the negative. Private respondents presented only a carbon copy of
this deed. When the Register of Deeds was subpoenaed to produce the deed, no
original typewritten deed but only a carbon copy was presented to the trial court. None
of the witnesses directly testified to prove positively and convincingly Paulinas
execution of the original deed of sale. The carbon copy did not bear her signature, but
only her alleged thumbprint. Juan Franco testified during the direct examination that he
was an instrumental witness to the deed. However, when cross-examined and shown a
SLU SOL 1-C Page
678
copy of the subject deed, he retracted and said that said deed of sale was not the
document he signed as witness.
SLU SOL 1-C Page
679
Heirs of Sevilla v. Sevilla, 30 April 2003
HEIRS OF WILLIAM SEVILLA, NAMELY: WILFREDO SEVILLA, WILSON SEVILLA,

WILMA SEVILLA, WILLINGTON SEVILLA, AND WILLIAM SEVILLA, JR., HEIRS OF
MARIA SEVILLA, NAMELY: AMADOR SEVILLA, JENO CORTES, VICTOR CORTES,
MARICEL CORTES, ALELEI* CORTES AND ANJEI** CORTES, petitioners,
vs.
LEOPOLDO SEVILLA, PETER SEVILLA, AND LUZVILLA SEVILLA, respondents.
G.R. No. 150179 April 30, 2003
Facts: The undisputed facts reveal that on December 10, 1973, Filomena Almirol de
Sevilla died intestate leaving 8 children, namely: William, Peter, Leopoldo, Felipe, Rosa,
Maria, Luzvilla, and Jimmy, all surnamed Sevilla. William, Jimmy and Maria are now
deceased and are survived by their respective spouses and children. Filomena Almirol
de Sevilla left several properties. During the lifetime of Felisa and Honorata Almirol, they
lived in the house of Filomena Almirol de Sevilla, together with their nephew, respondent
Leopoldo Sevilla and his family. Leopoldo attended to the needs of his mother,
Filomena, and his two aunts, Honorata and Felisa. Felisa died on July 6, 1988. Previous
thereto, on November 25, 1985, she executed a last will and testament devising her 1/2
share in Lot No. 653 to the spouses Leopoldo Sevilla and Belen Leyson On August 8,
1986, Felisa executed another document denominated as Donation Inter Vivos ceding
to Leopoldo Sevilla her 1/2 undivided share in Lot No. 653, which was accepted by
Leopoldo in the same document. On September 3, 1986, Felisa Almirol and Peter
Sevilla, in his own behalf and in behalf of the heirs of Filomena Almirol de Sevilla,
executed a Deed of Extra-judicial Partition, identifying and adjudicating the 1/3 share of
Honorata Almirol to the heirs of Filomena Almirol de Sevilla and to Felisa Almirol.
Thereafter, respondents Leopoldo, Peter and Luzvilla Sevilla obtained the cancellation
of Transfer Certificate of Title No. (T-6671)-1448, over Lot No. 653, and the issuance of
the corresponding titles to Felisa Almirol and the heirs of Filomena Almirol de Sevilla.
However, the requested titles for Lot Nos. 653-A and 653-B, were left unsigned by the
Register of Deeds of Dipolog City, pending submission by Peter Sevilla of a Special
Power of Attorney authorizing him to represent the other heirs of Filomena Almirol de
Sevilla On June 21, 1990, Felipe Sevilla, Rosa Sevilla, and the heirs of William, Jimmy
and Maria, all surnamed Sevilla, filed the instant case against respondents Leopoldo
Sevilla, Peter Sevilla and Luzvilla Sevilla, for annulment of the Deed of Donation and
the Deed of Extrajudicial Partition, Accounting, Damages, with prayer for Receivership
and for Partition of the properties of the late Filomena Almirol de Sevilla.[14] They
alleged that the Deed of Donation is tainted with fraud because Felisa Almirol, who was
then 81 years of age, was seriously ill and of unsound mind at the time of the execution
thereof; and that the Deed of Extra-judicial Partition is void because it was executed
without their knowledge and consent.
Issue: Whether or not Felisa Almirol Sevilla had the legal capacity and was of sound
mind when the deed of donation was executed.
SLU SOL 1-C Page
680
Ruling: There is fraud when, through the insidious words or machinations of one of the
contracting parties, the other is induced to enter into a contract which, without them, he
would not have agreed to. There is undue influence when a person takes improper
advantage of his power over the will of another, depriving the latter of a reasonable
freedom of choice. The following circumstances shall be considered: the confidential,
family, spiritual and other relations between the parties, or the fact that the person
alleged to have been unduly influenced was suffering from mental weakness, or was
ignorant or in financial distress. Clearly, therefore, the courts below did not err in
sustaining the validity of the deed of donation.
In the case at bar, at the time Felisa executed the deed of extra-judicial partition dividing
the share of her deceased sister Honarata between her and the heirs of Filomena
Almirol de Sevilla, she was no longer the owner of the 1/2 undivided portion of Lot No.
653, having previously donated the same to respondent Leopoldo Sevilla who accepted
the donation in the same deed. A donation inter vivos, as in the instant case, is
immediately operative and final. As a mode of acquiring ownership, it results in an
effective transfer of title over the property from the donor to the donee and the donation
is perfected from the moment the donor knows of the acceptance by the donee. And
once a donation is accepted, the donee becomes the absolute owner of the property
donated. Evidently, Felisa did not possess the capacity to give consent to or execute the
deed of partition inasmuch as she was neither the owner nor the authorized
representative of respondent Leopoldo to whom she previously transmitted ownership
of her undivided share in Lot No. 653. Considering that she had no legal capacity to
give consent to the deed of partition, it follows that there is no consent given to the
execution of the deed, and therefore, there is no contract to speak of. As such, the deed
of partition is void ab initio, hence, not susceptible of ratification. Nevertheless, the
nullity of the deed of extra-judicial partition will not affect the validity of the donation inter
vivos ceding to respondent Leopoldo Sevilla the 1/2 undivided share of Felisa Almirol in
Lot No. 653. Said lot should therefore be divided as follows: 1/2 shall go to respondent
Leopoldo Sevilla by virtue of the deed of donation, while the other half shall be divided
equally among the heirs of Filomena Almirol de Sevilla including Leopoldo Sevilla,
following the rules on intestate succession.
SLU SOL 1-C Page
681
Mendezona v. Ozamiz, 6 February 2002
MARIO J. MENDEZONA and TERESITA M. MENDEZONA, LUIS J. MENDEZONA

and MARICAR L. MENDEZONA and TERESITA ADAD VDA. DE MENDEZONA,
petitioners,
vs.
JULIO H. OZAMIZ, ROBERTO J. MONTALVAN, JOSE MA. OZAMIZ, CARMEN H.
OZAMIZ, PAZ O. MONTALVAN, MA. TERESA O.F. ZARRAGA, CARLOS O.
FORTICH, JOSE LUIS O. ROS, PAULITA O. RODRIGUEZ, and LOURDES O. LON,
respondents.
G.R. No. 143370 February 6, 2002
Facts: A suit was instituted on September 25, 1991 by the petitioner spouses Mario J.
Mendezona and Teresita M. Mendezona as initial plaintiff and in the amended complaint
filed on October 7, 1991, herein co-petitioner spouses Luis J. Mendezona joined as co-
plaintiff. In their compliant, the petitioners as plaintiff therein alleged that petitioner
spouses Mario J. Mendezona and Teresita M. Mendezona petitioner spouses Luis J.
Mendezona and Maricar Mendezona own a parcel of land each in Lahug, Cebu city with
similar areas 3462, 3466 and 3468 square meters covered and described in TCT Nos
116834, 116835 and 116836. The petitioners ultimately traced their titles of ownership
over their respective properties from a deed of Absolute Sale executed in their favor by
Carmen Ozamiz and in consideration of P 1,040,000. It appears than on January 15,
1991, the respondents instituted the petition for guardianship with RTC Oroquieta, City
alleging that Carmen Ozamiz had become disoriented and could not recognize most of
her friends and could no longer take care of her properties by reason pf weak mind and
absentmindedness. As guardians Roberto J. Montalvan and Julio H. Ozamiz filed on
August 6, 1991 with the guardianship court their Inventories and Accounts including the
10,369 square meters Lahug property. Said Lahug property covered by deed of
Absolute Sale dated April 28, 1989 executed by Carmen Ozamiz in favor of petitioners.
In their Answer, respondents opposed the claim of ownership of the Lahug property and
alleged that the titles issued to the petitioners are defective and illegal and the
ownership of said properties was acquired in bad faith and without value inasmuch as
the consideration for the sale is grossly inadequate and unconscionable. Respondents
further alleged that on April 28, 1989 Carmen Ozamiz was already ailing and not in full
possession of her mental faculties; and that her properties having been placed in
administration, she was in effect incapacitated to contract with petitioners. On
September 23, 1992, the Trial court rendered decision in favor of petitioners. On appeal
the Court of Appeal reversed its decision and ruled that the Absolute Sale dated April
28, 1989 was a simulated contract since the petitioners failed to prove that the
consideration was actually paid.
Issue: Whether or not the court erred in ruling that the Deed of Absolute Sale dated
April 28, 1989 was a simulated contract.
SLU SOL 1-C Page
682
Ruling: The Supreme Court ruled that the contact was not simulated. Contrary to the
erroneous conclusions of the appellate court, a simulated contract cannot be inferred
from the mere non production of checks. It was not the burden of the petitioner to prove
so. It is significant that the deed of Absolute Sale dated April 28, 1989 is a notarized
document duly acknowledged before a notary public. As such, it is in favor of
presumption of regularity and it carries the evidentiary weight conferred upon it with
respect to its due execution. Moreover, A person is not incapacitated to contact merely
because of advanced years or by reason of physical infirmities. Only when such age or
infirmity impair her mental faculties to such extent as to prevent her from properly,
intelligently, and fairly protecting her property rights is considered incapacitated.
SLU SOL 1-C Page
683
Art. 1330, Vices of Will
Arts. 1331-1334, Mistake/Error

Lim v. CA, 229 S 616
MARIANO T. LIM, JAIME T. LIM, JOSE T. LIM, JOVITA T. LIM, ANACORITA T. LIM,
ANTONIETTA T. LIM, RUBEN T. LIM, BENJAMIN T. LIM, ET AL., petitioners,
vs.
COURT OF APPEALS, LORENZO O. TAN and HERMOGENES O. TAN, respondents.
G.R. No. L-55201 February 3, 1994
Facts: The case involves the partition of the properties of the deceased spouse Tan
Quico and Josefa Oraa. Both died intestate. They left some ninety-six hectares of land.
The late spouses were survived by four (4) children: Cresencia, Lorenzo, Hermogenes
and Elias. Elias died without issue. Cresencia died also. She was survived by her
husband, Lim Chay Sing, 4 and children, Mariano, Jaime, Jose Jovita, Anacoreta,
Antonietta, Ruben, Benjamin and Rogelio. The late Cresencia and Lorenzo had
contrasting educational background. Cresencia only reached the second grade of
elementary school. She could not read or write in English. On the other hand, Lorenzo
is a lawyer and a CPA. Petitioners, heirs of Cresencia, alleged that since the demise of
the spouses Tan Quico and Josefa Oraa, respondent Lorenzo had administered the
subject properties. They claimed that before her death, Cresencia had demanded their
partition from Lorenzo. After Cresencia's death, they likewise clamored for their partition.
Their efforts proved fruitless. They failed Civil Case. Respondent Lorenzo and
Hermogenes adamant stance against partition is based on various contentions.
Principally, they urge: (1) that the properties had already been partitioned, albeit, orally;
and (2) during her lifetime, the late Cresencia had sold and conveyed all her interests in
said properties to respondent Lorenzo. They cited as evidence the "Deed of
Confirmation of Extra Judicial Settlement of the Estate of Tan Quico and Josefa Oraa
and a receipt of payment.
Issue: Whether or not the Deed of Confirmation of Extra Judicial Settlement of the
estate of Tan Quico and Josefa Oraa is valid.
Ruling: The Supreme Court held that the respondent court, reversing the trial court,
held that the evidence failed to establish that the late Crescencia as a result of fraud,
mistake or undue influence signed it. We hold this ruling erroneous. In calibrating the
credibility of the witnesses on this issue, we take our mandate from Article 1332 of the
Civil Code which provides: "When one of the parties is unable to read, or if the contract
is in language not understood by him, and mistake or fraud is alleged, the person
enforcing the contract must show that the terms thereof have been fully explained to the
former." this substantive law came into being due to the finding of the Code Commission
that there is still a fairly large number of illiterates in this country, and documents are
usually drawn up in English or Spanish. It is also in accord with our state policy of
SLU SOL 1-C Page
684
promoting social justice. It also supplements Article 24 of the Civil Code, which calls on
court to be vigilant in the protection of the rights of those who are disadvantaged in life.
In the petition at bench, the questioned Deed is written in English, a language not
understood by the late Crescencia, an illiterate. The respondent Lorenzo, a lawyer and
CPA, prepared it. For reasons difficult to divine, respondent Lorenzo did not cause the
notarization of the deed.
SLU SOL 1-C Page
685
Art. 1337, Undue Influence
Ruiz v. CA, 401 S 594
CORAZON RUIZ, petitioner,

vs.
G.R. No. 146942 April 22, 2003
Facts: Petitioner Corazon Ruiz is engaged in the business of buying and selling jewelry.
She obtained loans from private respondent Consuelo Torres on different occasions and
in different amounts. Prior to their maturity, the loans were consolidated under 1
promissory note dated March 22, 1995. The consolidated loan of P750, 000.00 was
secured by a real estate mortgage on a lot in Quezon City, covered by Transfer of
Certificate of Title No. RT-96686, and registered in the name of petitioner. The mortgage
was signed by petitioner for herself and as attorney-in-fact of her husband Rogelio. It
was executed on 20 March 1995, or 2 days before the execution of the subject
promissory note. Thereafter, petitioner obtained 3 more loans from private respondent,
under the following promissory notes: 1) promissory note dated 21 April 1995, in the
amount of P100,000.00; 2) promissory note dated 23 May !995 in the amount of
P100,000.00, and 3) promissory note dated 21 December 1995, in the amount of
P100,000.00.These combined loans of P300,000.00 were secured by P571,000.00
worth of jewelry pledged by petitioner to private respondent. From April 1995 to March
1996, petitioner paid the stipulated 3% monthly interest on the P750,000.00 loan,
amounting to P270,000. After March 1996, petitioner was unable to make interest
payments as she had difficulties collecting from her clients in her jewelry business.
Because ofpetitioners failure to pay the principal loan of P750,000.00, as well as the
interest payment for April 1996, private respondent demanded payment not only of the
P750,000.00 loan but also of the P300,000.00 loan. When petitioner failed to pay,
private respondent sought the extrajudicial foreclosure of the aforementioned real estate
mortgage.
Issue: Whether or not there is undue influence in the signing of the promissory note,
which determines if foreclosure proceedings could proceed.
Ruling: The promissory note in question did not contain any fine print provision which
could have escaped the attention of the petitioner. Petitioner had all the time to go over
and study the stipulations embodied in the promissory note. Aside from the March 22,
1995 promissory note for P750,000.00, three other promissory notes of different dates
and amounts were executed by petitioner in favor of private respondent. These
promissory notes contain similar terms and conditions, with a little variance in the terms
of interests and surcharges. The fact that petitioner and private respondent had entered
into not only one but several loan transactions shows that petitioner was not in any way
compelled to accept the terms allegedly imposed by private respondent. Moreover,
petitioner, in her complaint dated October 7, 1996 filed with the trial court, never claimed
SLU SOL 1-C Page
686
that she was forced to sign the subject note. Therefore, the foreclosure proceedings
may now proceed.
SLU SOL 1-C Page
687
Arts. 1338-1344, Fraud: Kinds; How Committed
Dela Cruz v. Sison, 451 S 754
EPIFANIA DELA CRUZ, substituted by LAUREANA V. ALBERTO, petitioner,

vs.
SPS. EDUARDO C. SISON and EUFEMIA S. SISON, respondents.
G.R. No. 163770 February 17, 2005
Facts: Initially, the complainant in this case was Epifania S. Dela Cruz (Epifania), but
she died on November 1, 1996, while the case was pending in the Court of Appeals.
Upon her demise, she was substituted by her niece, Laureana V. Alberto.
Epifania claimed that sometime in 1992, she discovered that her rice land in Salomague
Sur, Bugallon, Pangasinan, has been transferred and registered in the name of her
nephew, Eduardo C. Sison, without her knowledge and consent, purportedly on the
strength of a Deed of Sale she executed on November 24, 1989.
Epifania thus filed a complaint before the Regional Trial Court of Lingayen, Pangasinan,
to declare the deed of sale null and void. She alleged that Eduardo tricked her into
signing the Deed of Sale, by inserting the deed among the documents she signed
pertaining to the transfer of her residential land, house and camarin, in favor of
Demetrio, her foster child and the brother of Eduardo.
Respondents, spouses Eduardo and Eufemia Sison (Spouses Sison), denied that they
employed fraud or trickery in the execution of the Deed of Sale. They claimed that they
purchased the property from Epifania for P20,000.00. They averred that Epifania could
not have been deceived into signing the Deed of Absolute Sale because it was duly
notarized before Notary Public Maximo V. Cuesta, Jr.; and they have complied with all
requisites for its registration, as evidenced by the Investigation Report by the
Department of Agrarian Reform (DAR), Affidavit of Seller/Transferor, Affidavit of
Buyer/Transferee, Certification issued by the Provincial Agrarian Reform Officer
(PARO), Letter for the Secretary of Agrarian Reform, Certificate Authorizing Payment of
Capital Gains Tax, and the payment of the registration fees. Some of these documents
even bore the signature of Epifania, proof that she agreed to the transfer of the property.
Issues:
1. Whether the deed of absolute sale is valid.
2. Whether fraud attended the execution of a contract.
Ruling: On the issue of whether fraud attended the execution of a contract is factual in
nature. Normally, this Court is bound by the appellate courts findings, unless they are
contrary to those of the trial court, in which case we may wade into the factual dispute to
settle it with finality. After a careful perusal of the records, we sustain the Court of
SLU SOL 1-C Page

688
Appeals' ruling that the Deed of Absolute Sale dated November 24, 1989 is valid. There
being no evidence adduced to support her bare allegations, thus, Epifania failed to
satisfactorily establish her inability to read and understand the English language.
Although Epifania was 79 years old at the time of the execution of the assailed contract,
her age did not impair her mental faculties as to prevent her from properly and
intelligently protecting her rights. Even at 83 years, she exhibited mental astuteness
when she testified in court. It is, therefore, inconceivable for her to sign the assailed
documents without ascertaining their contents, especially if, as she alleges, she did not
direct Eduardo to prepare the same.
A comparison of the deed of sale in favor of Demetrio and the deed of sale in favor
Eduardo, draws out the conclusion that there was no trickery employed. One can readily
see that the first deed of sale is in all significant respects different from the second deed
of sale. A casual perusal, even by someone as old as Epifania, would enable one to
easily spot the differences. Epifania could not have failed to miss them.
Indeed, if the intention was to deceive, both deeds of sale should have been mirror
images as to mislead Epifania into thinking that she was signing what appeared to be
the same document.
In addition, the questioned deed of sale was duly notarized. It is a settled rule that one
who denies the due execution of a deed where ones signature appears has the burden
of proving that, contrary to the recital in the jurat, one never appeared before the notary
public and acknowledged the deed to be a voluntary act. Epifania never claimed her
signatures as forgeries.
In fact, Epifania never questioned the deed of sale in favor of Demetrio, accepting it as
a valid and binding document. It is only with respect to the deed of sale in favor of
Eduardo that she denies knowledge of affixing her signature. Unfortunately, for both
parties, the notary public, Atty. Maximo V. Cuesta, Jr. before whom they appeared, died
prior to the filing of the case.
SLU SOL 1-C Page
689
Rural Bank of Sta. Maria v. CA, 314 S 255
RURAL BANK OF STA. MARIA, PANGASINAN, petitioner,

vs.
THE HONORABLE COURT OF APPEALS, ROSARIO R. RAYANDAYAN, CARMEN R.
ARCEO, respondents.
G.R. No. 110672 September 14, 1999
Facts: A parcel of land is registered in the name of Manuel Behis, married to Cristina
Behis. Said land originally was part of a bigger tract of land owned by Behis, father of
Manuel Behis. And upon the latter's death, his children, namely: Saro Behis, Marcelo
Behis, Manuel Behis, Lucia Behis, Clara Behis and Arana Behis, in an extrajudicial
settlement with Simultaneous Sale of Inheritance, agreed to sell the land to Manuel
Behis, married to Cristina Behis but which subsequently was explained as only an
arrangement adopted by them to facilitate transactions over the land in a Confirmation
of Rights of Co-Ownership over real Property, showing that the Behis brothers and
sisters, including Manuel Behis, are still co-owners thereof. Manuel Behis mortgaged
said land in favor of the Bank in a Real Estate Mortgage as security for loans obtained,
covered by six promissory notes and trust receipts under the Supervised Credit
Program and annotated at the back of the title. The mortgage, the promissory notes and
trust receipts bear the signatures of both Manuel Behis and Cristina Behis.
Unfortunately, thereafter, Manuel Behis was delinquent in paying his debts. Manuel
Behis sold the land to the plaintiffs in a Deed of Absolute Sale with Assumption of
Mortgage which bears the signature of his wife Cristina Behis. Manuel Behis took it
upon himself to secure the signature of his wife and came back with it. On the same
date, plaintiffs and Manuel Behis simultaneously executed another Agreement whereby
plaintiffs are indebted to Manuel Behis for the sum of P2,400,000.00 payable in
installments with P10,000.00 paid upon signing and in case of default in the
installments, Manuel Behis shall have legal recourse to the portions of the land
equivalent to the unpaid balance of the amounts in installments. Plaintiffs did not
present to the Register of Deeds said two contracts and ask that the title in the name of
Manuel Behis be cancelled and a new one issued in their name which normally a buyer
does. Neither did plaintiffs annotate at the back of the title the aforesaid two contracts.
Nor did they immediately go to the Bank and present said two contracts. Thus, the title
to the land remained in the name of Manuel Behis. The plaintiffs were unable to
complete their full payment to Manuel Behis of the sale of the land as it is nowhere near
P2,400,000.00. Meantime, the loan in the name of Manuel Behis with the Bank secured
by the Real Estate Mortgage on the land continued to accumulate being delinquent.
Issue: Whether or not the Memorandum is voidable on the ground of fraud.
Ruling: The Supreme Court held that the kind of fraud that will vitiate a contract refers
to those insidious words or machinations resorted to by one of the contracting parties to
induce the other to enter into a contract which without them he would not have agreed
to. Simply stated, the fraud must be the determining cause of the contract, or must have
SLU SOL 1-C Page

690
caused the consent to be given. It is believed that the non-disclosure to the bank of the
purchase price of the sale of the land between private respondents and Manuel Behis
cannot be the "fraud" contemplated by Article 1338 of the Civil Code. From the sole
reason submitted by the petitioner bank that it was kept in the dark as to the financial
capacity of private respondents, we cannot see how the omission or concealment of the
real purchase price could have induced the bank into giving its consent to the
agreement; or that the bank would not have otherwise given its consent had it known of
the real purchase price. Secondly, pursuant to Article 1339 of the Civil Code, silence or
concealment, by itself, does not constitute fraud, unless there is a special duty to
disclose certain facts, or unless according to good faith and the usages of commerce
the communication should be made. Verily, private respondents Rayandayan and
Arceo had no duty, and therefore did not act in bad faith, in failing to disclose the real
consideration of the sale between them and Manuel Behis.
SLU SOL 1-C Page
691
Arts. 1347-1349, Object/Subject Matter
Art. 1347, Existing vs. Future Things

DOMINGO CARABEO, petitioner,

vs.
SPOUSES NORBERTO and SUSAN DINGCO, respondents.
G.R. No. 190823 April 4, 2011
Facts: In July 1990, Domingo Carabeo entered into a "Kasunduan sa Bilihan ng

Karapatan sa Lupa" with Sps. Norberto and Susan Dingco. Carabeo agreed to sell his
rights over a 648-sq. m. parcel of unregistered land for P38K.
Sps. Dingco tendered their initial payment of P10K upon signing of the contract, the
remaining balance to be paid in Sept. 1990.
When they were about to hand in the balance, Carabeo requested them to keep it first
as he was yet to settle an ongoing squabble over the land. Nevertheless, Sps. Dingco
gave small sums of money which totaled P9100.
Despite the alleged problem over the land, they insisted on Carabeo's acceptance of the
remaining balance of P18,900 but he remained firm in his refusal.
In 1994, when Sps. Dingco learned that the alleged problem had been settled and that
Carabeo had caused its registration in his name, they offered to pay the balance but he
declined. Sps. Dingco filed a complaint for specific performance before the RTC.
Carabeo countered that the sale was void for lack of object certain, the kasunduan not
having specified the metes and bounds of the land.
After the case was submitted for decision, Carabeo passed away.
The RTC ruled in favor of Sps. Dingco. Carabeo's counsel filed a notice of appeal. The
CA affirmed the trial court. The present petition was filed by Antonio, Carabeo's son.
Issue: Whether or not the element of an object certain is present in the subject contract.
Ruling: That the kasunduan did not specify the technical boundaries of the property did
not render the sale a nullity. The requirement that a sale must have for its object a
determinate thing is satisfied as long as, at the time the contract is entered into, the
object of the sale is capable of being made determinate without the necessity of a new
or further agreement between the parties.
SLU SOL 1-C Page
692
The question as to whether an action survives or not after the petitioner dies depends
on the nature of the action and the damage sued for. In the present case, Sps. Dingco
are pursuing a property right arising from the kasunduan, whereas Carabeo is invoking
nullity of the kasunduan to protect his proprietary interest. Since the action involves
property rights, it survives.
In another vein, the death of a client immediately divests the counsel of authority. Thus,
in filing a notice of appeal, Carabeo's counsel of record had no personality to act on
behalf of the already deceased client who had not been substituted as a party after his
death.
The petition was denied.

SLU SOL 1-C Page
693
Art. 1347, Licit
Chavez v. PEA, 415 S 403
FRANCISCO I. CHAVEZ, petitioner,

vs.
PUBLIC ESTATES AUTHORITY and COASTAL BAY DEVELOPMENT
G.R. No. 133250 July 9, 2002
Facts: The Senate Blue Ribbon Committee and Committee on Accountability of Public
Officers conducted public hearings to determine the actual market value of the public
lands along Roxas Boulevard under controversy. The investigation found out that the
sale of such was lands grossly undervalued based on official documents submitted by
the proper government agencies during the investigations. It was found out that the
Public Estates Authority, under the Joint Venture Agreement, sold it to Amari Coastal
Bay Development Corporation 157.84 hectares of reclaimed public lands totaling to P
1.89 B or P 1,200 per square meter. However during the investigation process, the BIR
pitted the value at P 7,800 per square meter, while the Municipal Assessor of
Paraaque at P 6,000 per square meter and by the Commission on Audit (COA) at
P21,333 per square meter. Based on the official appraisal of the COA, the actual loss
on the part of the government is a gargantuan value of P 31.78 B. However, PEA
justified the purchase price based from the various appraisals of private real estate
corporations, amounting from P 500 1,000 per square meter. Further, it was also
found out that there were various offers from different private entities to buy the
reclaimed public land at a rate higher than the offer of Amari, but still, PEA finalized the
JVA with Amari. During the process of investigation, Amari did not hide the fact that they
agreed to pay huge commissions and bonuses to various persons for professional
efforts and services in successfully negotiating and securing for Amari the JVA. The
amount constituting the commissions and bonuses totaled to a huge P 1.76 B; an
indicia of great bribery.
Issue: Whether or not the sale of public lands between PEA and Amari is constitutional.
Ruling: The Court found that the sale is unconstitutional, because what was sold or
alienated are lands of the public domain. Taking the fact the sold parcel of land is
submerged land is inalienable. As unequivocally stated in Article XII, Section 2 of the
Constitution, all lands of the public domain, waters, minerals, coals, petroleum, forces
which are potential energies, fisheries, forests or timber, wildlife, flora and fauna, and
other natural resources, with the exception of agricultural lands, are inalienable.
Submerged lands fall within the scope of such provision. Ergo, the submerged lands,
being inalienable and outside the commerce of man, could not be the subject of the
commercial transactions specified in the Amended JVA. Hence, the contract between
Amari and the PEA is void.
SLU SOL 1-C Page
694
Art. 1349, Determinate
DOMINGO CARABEO, petitioner,

vs.
SPOUSES NORBERTO and SUSAN DINGCO, respondents.
G.R. No. 190823 April 4, 2011
Facts: On July 10, 1990, Domingo Carabeo (petitioner) entered into a contract
denominated as Kasunduan sa Bilihan ng Karapatan sa Lupa (kasunduan) with
Spouses Norberto and Susan Dingco (respondents) whereby petitioner agreed to sell
his rights over a 648 square meter parcel of unregistered land situated in Purok III,
Tugatog, Orani, Bataan to respondents for P38,000.
Upon the signing of the contract, the respondents paid an initial amount of P10,000 and
the remaining balance would be paid on September 1990. However, when the
respondents were about to pay the balance, the petitioner refused to accept the amount
due to an on-going dispute over the land. Nevertheless, the respondents occasionally
gave the petitioner small sums of money which totaled P9,100. These amounts were
allegedly given due to the request of the petitioner.
Despite the respondents insistence of paying the remaining balance of P19,800, the
petitioner remained firm in his refusal. He reasoned that he would register the land first.
However, when the dispute was finally settled and the registration of the land was
made, the petitioner still declined to accept the payment. Thus, forcing the respondents
to file a complaint before the Katarungan Pambarangay. Nevertheless, the parties were
not able to reach a settlement. Hence, the filing of a complaint for specific performance
before the RTC.
In the petitioners answer in the complaint, he alleged that the sale was void for lack of
object certain. The kasunduan not having specified the metes and bounds of the land.
In addition to that, he alleged that assuming that the validity of the kasunduan is upheld,
the respondent failed to comply with their reciprocal obligation in paying the balance of
the P28,000 on September 1900. Thus, forcing him to accept the installment payments.
After the case was submitted for decision, the petitioner passed away. However, the
records do not show that petitioners counsel informed the lower court of his death and
that proper substitution was effected. The RTC ruled in favor of the respondents
ordering them to sell their rights over the land and to pay the costs of suit. The CA
affirmed the decision of the lower court.
Issue: Whether or not there is a valid contract despite the absence of spousal consent.
SLU SOL 1-C Page
695
Ruling: The issue as to whether or not there is a valid contract despite the absence of
spousal consent was raised only on appeal, hence, will not be considered, in the
present case, in the interest of fair play, justice and due process. Even though the
kasunduan did not specify the technical boundaries of the property, it does not render
the sale a nullity. The requirement that a sale must have for its object a determinate
thing is satisfied as long as, at the time the contract is entered into, the object of the
sale is capable of being made determinate without the necessity of a new or further
agreement between the parties.
Thus, in the present case, the respondents are pursuing a property right arising from the
kasunduan, whereas petitioner is invoking nullity of the kasunduan to protect his
proprietary interest. Since the action involves property rights, it survives. Assuming
arguendo, however, that the kasunduan is deemed void, there is a corollary obligation of
petitioner to return the money paid by respondents.
It bears noting that trial on the merits was already concluded before petitioner died.
Since the trial court was not informed of petitioners death, it may not be faulted for
proceeding to render judgment without ordering his substitution. Its judgment is thus
valid and binding upon petitioners legal representatives or successors-in-interest,
insofar as his interest in the property subject of the action is concerned.
Melliza v. City of Iloilo, 23 S 477
PIO SIAN MELLIZA, petitioner,

vs.
CITY OF ILOILO, UNIVERSITY OF THE PHILIPPINES and THE COURT APPEALS,
respondents.
G.R. No. L-24732 April 30, 1968
Facts: Melliza owned Lot 1214, 9,000 sq. meter of which she donated to the
Municipality of Iloilo for the use of the site of the Municipal Hall. However, the donation
was revoked because it was inadequate to meet the requirements of the Arellano
Plan. Lot 1214 was later divided into 4 lots. Melliza then sold Lots C and D to the
Municipality; Lot B was not mentioned in the sale. However, the contract stipulated that
the area to be sold to the Municipality would include such areas needed for the
construction of the City Hall according the Arellano Plan. She then sold the remaining
portions of the lots to Villanueva, who then sold the same to Pio. The sale was for such
lots not included in the sale to the Municipality of Iloilo. The City of Iloilo, assuming that
Lot B has been sold in its favor pursuant to the Arellano Plan, then donated Lot B to UP.
Pio objected and sought to recover the lots stating that Lot B was not included in the
initial sale made by Melliza to the Municipality and that the subject matter of sale should
be a determinate thing.
Issue: Whether or not there was a determinate/determinable subject matter.

SLU SOL 1-C Page
696
Ruling: Yes. The requirement for the subject matter to be determinate is satisfied in this
case. Simple reference to the Arellano Plan would indicate that it could determine
what portions of the contiguous land (lot B) were needed for the construction of the City
Hall. There was no need for a further agreement to establish the lots covered by the
sale; thus, the sale is valid. Besides, the portions of Lot B covered by the sale were
practically at the heart of the City Hall site.
SLU SOL 1-C Page
697
Arts. 1350-1355, Cause/Consideration
Existing: Absence of Cause vs. Failure of Cause vs. Inadequacy

of Cause
Catindig v. Vda. De Meneses, 2 February 2011
MANUEL CATINDIG, represented by his legal representative EMILIANO CATINDIG-

RODRIGO, petitioner,
vs.
AURORA IRENE VDA. DE MENESES, respondent.
G.R. No. 165851 February 2, 2011
Facts: Respondent Aurora Irene C. Vda. De Meneses is the surviving spouse of the
registered owner of the Masusuwi Fishpond. In her capacity as administratrix of her
husband's estate, filed a Complaint for Recovery of Possession, Sum of Money and
Damages against petitioners Manuel Catindig and Silvino Roxas, Sr. before the
Regional Trial Court of Malolos, Bulacan, to recover possession over the Masusuwi
Fishpond.
Respondent alleged that in September 1975, petitioner Catindig, the first cousin of her
husband, deprived her of the possession over the Masusuwi Fishpond, through fraud,
undue influence and intimidation. Since then, petitioner Catindig unlawfully leased the
property to petitioner Roxas.
Catindig maintained that he bought the Masusuwi Fishpond from respondent and her
children in January 1978, as evidenced by a Deed of Absolute Sale. Catindig further
argued that even assuming that respondent was indeed divested of her possession of
the Masusuwi Fishpond by fraud, her cause of action had already prescribed
considering the lapse of about 20 years
Petitioner Roxas, on the other hand, asserted in his own Answer that respondent has no
cause of action against him, because Catindig is the lawful owner of the Masusuwi
Fishpond, to whom he had paid his rentals.
The RTC ruled in favor of respondent. It found that the Deed of Absolute Sale executed
between respondent and petitioner Catindig was simulated and fictitious, and therefore,
did not convey title over the Masusuwi Fishpond to petitioner Catindig.
The trial court found that the Deed of Absolute Sale executed between respondent and
petitioner Catindig was simulated and fictitious, and therefore, did not convey title over
the Masusuwi Fishpond to petitioner Catindig
Issue: Whether or not the Deed of Sale was genuine or simulated.

SLU SOL 1-C Page
698
Ruling: The issue on the genuineness of the deed of sale is essentially a question of
fact. Factual findings of the trial court, affirmed by the CA, are final and conclusive and
may not be reviewed on appeal. Since it was well established that the Deed of Sale is
simulated and, therefore void, petitioners claim that respondent's cause of action is one
for annulment of contract, which already prescribed, is unavailing, because only
voidable contracts may be annulled.
Against the registered owners and the holder of an unregistered deed of sale, it is the
former who has a better right to possess. The certificate of title serves as evidence of an
indefeasible and incontrovertible title to the property in favor of the person whose name
appears therein. In this case, even if the Deed of Sale is valid, it would still not help
petitioner. The subject property is covered by TCT No. T-1749, registered in the name of
respondent's husband. Meanwhile, the Deed of Sale is not only unregistered, it is
undated and unnotarized.
SLU SOL 1-C Page
699
ANTHONY ORDUA, DENNIS ORDUA, and ANTONITA ORDUA, petitioners,

vs.
EDUARDO J. FUENTEBELLA, MARCOS S. CID, BENJAMIN F. CID, BERNARD G.
BANTA, and ARMANDO GABRIEL, JR., respondents.
G.R. No. 176841 June 29, 2010
Facts: Antonita Ordua purchased a residential lot from Gabriel Sr. payable in
installments but no deed of sale was executed. The installments were paid to Gabriel
Sr. and later to Gabriel Jr. after the death of the former. Improvements were thereafter
introduced by petitioner and the latter even paid its real property tax since 1979.
Unknown to Ordua, the property has been subject to further alienations until the same
was ceded to respondent, Fuentebilla, Jr. Ordua, after being demanded by Fuentebilla
to vacate the disputed land, then filed a Complaint for Annulment of Sale, Title,
Reconveyance with Damages with a prayer to acquire ownership over the subject lot
upon payment of their remaining balance. The Regional Trial Court dismissed the
petition because the verbal sale between Gabriel Sr. and Ordua was unenforceable
under the Statute of Frauds. This was later affirmed by the Court of Appeals.
Issue: Whether or not the sale of the subject lot by Gabriel Sr. to Antonita is
unenforceable under the Statute of Frauds.
Ruling: No. It is a well-settled rule that the Statute of Frauds as expressed in Article
1403, par. (2), of the Civil Code is applicable only to purely executory contracts and not
to contracts which have already been executed either totally or partially. Here, the
verbal contract of sale has been partially executed through the partial payments made
by Ordua duly received by both Gabriel Jr. and his father. The purpose of the Statute
of Fraud is prevention fraud and perjury in the enforcement of obligations depending for
their evidence on the unassisted memory of witnesses, by requiring some contracts and
transactions to be evidenced by a writing signed by the party to be charged. Since there
is already ratification of the verbal contract through the acceptance of benefits through
the partial payments, it is thus withdrawn from the purview of the Statute of Frauds.
SLU SOL 1-C Page
700
CARMELA BROBIO MANGAHAS, petitioner,

vs.
EUFROCINA A. BROBIO, respondent.
G.R. No. 183852 October 20, 2010
Facts: Pacifico died and left 3 parcels of land. He was survived by his wife, Eufrocina, 4
legit and 3 illegit children. Carmela is one of the illegitimate children. The heirs executed
a Deed of Extrajudicial Settlement of Estate with Waiver. In the Deed, Carmela and the
other children, in consideration of their love and affection for Eufrocina and the sum of
P150k waived their shares over the land in favor of Eufrocina. According to Carmela,
Eufrocina promised to give her an additional amount for her share in her fathers estate.
After the signing of the Deed, Carmela demanded from Eufrocina the promised
additional amount, but Eufrocina refused to pay. Later, Eufrocina needed an original
copy of the Deed for submission to the BIR. She didnt have a copy anymore so she
asked Carmela to countersign a copy of the Deed. Carmela refused, demanding that
Eufrocina first give her the additional amount that she promised. Carmela asked for
P1M, but Eufrocina begged her to lower the amount. Carmela agreed to lower it to
P600k. Because Eufrocina did not have the money at that time, Eufrocina executed a
promissory note. Upon maturity of the PN, Eufrocina failed and refused to pay despite
several demands so Carmela filed a complaint with the RTC. Eufrocina alleged that she
was practically held "hostage" by the demand of Carmela because at that time,
Eufrocina was so much pressured to submit the documents to the BIR. She (Eufrocina)
also claimed that the circumstances in the execution of the promissory note were
obviously attended by involuntariness and the same was issued without consideration at
all or for illegal consideration. The RTC ruled in favor of Carmela. The CA reversed the
RTC decision because there was a complete absence of consideration in the execution
of the promissory note, which made it inexistent and without any legal force and effect.
The court noted that "financial assistance" was not the real reason why Eufrocina
executed the promissory note, but only to secure Carmelas signature. The CA held that
the waiver of Carmelas share in the properties may not be considered as the
consideration of the promissory note, considering that Carmela signed the Deed way
back in 2002 and she had already received the consideration of P150k for signing the
same. The CA also found that intimidation attended the signing of the promissory note.
Eufrocina needed the Deed countersigned by Carmela in order to comply with a BIR
requirement so Eufrocina was forced to sign the promissory note to assure Carmela that
the money promised to her would be paid.
Issues:
1. Whether or not the CA erred in the appreciation of the facts of this case when it found
that intimidation attended the execution of the promissory note subject of this case.
2. Whether or not the CA erred when it found that the promissory note was without
consideration.
SLU SOL 1-C Page

701
Ruling: Yes. Eufrocina insists that she was "forced" into signing the promissory note
because Carmela would not sign the document required by the BIR. Being forced into a
situation does not amount to vitiated consent where it is not shown that the party is
deprived of free will and choice. There is undue influence when a person takes improper
advantage of his power over the will of another, depriving the latter of a reasonable
freedom of choice. For undue influence to be present, the influence exerted must have
so overpowered the mind of a contracting party as to destroy his free agency, making
him express the will of another rather than his own. Eufrocina may have desperately
needed petitioners signature on the Deed, but there is no showing that she was
deprived of free agency when she signed the promissory note. Section 24 of the NIL
provides that A contract is presumed to be supported by cause or consideration. The
presumption that a contract has sufficient consideration cannot be overthrown by a
mere assertion that it has no consideration.
To overcome the presumption, the alleged lack of consideration must be shown by

preponderance of evidence. The burden to prove lack of consideration rests upon
whoever alleges it, which, in the present case, is Eufrocina. Eufrocina failed to prove
that the promissory note was not supported by any consideration. From her testimony
and her assertions in the pleadings, it is clear that the promissory note was issued for a
cause or consideration, which, at the very least, was Carmelas signature on the
document. It may very well be argued that if such was the consideration, it was
inadequate. Nonetheless, even if the consideration is inadequate, the contract would
not be invalidated, unless there has been fraud, mistake, or undue influence. As
previously stated, none of these grounds had been proven present in this case.
SLU SOL 1-C Page
702
Golden Apple Realty v. Sierra Grande Realty, 28 July 2010
GOLDEN APPLE REALTY, petitioner,

vs.
SIERRA GRANDE REALTY, respondent.
G.R. No. 119857 July 28, 2010
Facts: This is a petition for review on certiorari under Rule 45 of the Rules of Court
seeking to nullify and set aside the Decision of the Court of Appeals (CA) dated January
23, 1995 and the Resolution dated March 28, 1995 in CA-G.R. CV No. 40961.
Issue: Whether or not the CA gravely erred.
Ruling: The petition is unmeritorious. We declare the contracts invalid. We find that
there were badges of fraud showing that the contracts were simulated and fraudulent.
First, one of the vendees, Rosvibon, was incorporated only on July 8, 1985 (Exhibit 17-
A). Thus, at the time the Contract to Sell was executed, Rosvibon Realty Corporation
had no legal personality to purchase the property. Second, the deeds of absolute sale
were executed irregularly. The notarial acknowledgment did not indicate the residence
certificates of the vendees which were in fact obtained subsequent to the date of
notarization. This is an anomaly which shows that the deeds of sale were ante-dated to
beat the resolution revoking the vendor's authority to sell. Third, there was no sufficient
consideration paid for the property involved and, worse, was attended with fraudulent
conflict of interest because the vendor, Bernardino Villanueva, was a stockholder of the
buyer corporations. This then refutes the whole discussion of petitioners as to the
misuse or misappreciation of the applicable laws by the CA in arriving at its judgment.
Again, an examination of the CAs Decision shows that the phrase did not refer to any
particular provision of a law, hence, the general and ordinary meaning of the phrase
prevails. In the same manner, this Court, in numerous cases[36] concerning various
subjects, has used the same phrase in its rulings referring to the said phrase's general
and ordinary meaning. It bears to stress, however, that the CA did not pass upon the
corporate personality of Rosvibon nor did it declare the same corporation's franchise
invalid. Thus, there is no need for a quo warranto proceeding as claimed by petitioners.
The CA merely made the finding which is undisputed by the petitioners that Rosbivon
had no legal personality at the time of the execution of the Contract to Sell. According to
the CA, because of Rosbivon's lack of personality at the time of the execution of the
Contract to Sell, its presence as a party to the same transaction is taken as another
indication that fraud was indeed attendant. This is one of the situations included, and
comprising the phrase badges of fraud. The CA then had a basis in concluding the
defect in the notarial requirement of the transaction. The pertinent provisions of the
Notarial Law[39] applicable at that time provides: Sec. 251. Requirement as to notation
of payment of cedula tax Every contract, deed, or other document acknowledged
before a notary public shall have certified thereon that the parties thereto have
presented their proper cedula certificates or are exempt from the cedula tax, and these
shall be entered by the notary public as a part of such certification, the number, the
SLU SOL 1-C Page
703
place of issues, and date of each cedula certificate as aforesaid. Another issue raised
by petitioners is that the CA erred in voiding the contracts on the ground of insufficiency
of consideration or price, because the claim of inadequacy of price must be proven and
that the respondents belatedly questioned the contracts' validity. They further claim that
the consideration was substantial and adequate.
It must be noted that the property in question, subject of the Contract to Sell for the sum
of P441,032.00, is a land with a contained area of, more or less, One Thousand Nine
Hundred and One (1,901) sq. m. with a two-storey residential building located in Pasay
City. In claiming that the said price of the property is not inadequate, petitioners stated
that the payment of Elmer Tan to pre-terminate Hayari's obligation amounting to Three
Million One Hundred Thirty-Four Thousand Nine Hundred Twenty-One Pesos
(P3,134,921.00) as part of the consideration paid for the property should be included.
However, as correctly argued by respondent Sierra Grande, the amortizations paid by
Elmer Tan to Manphil was for a loan incurred by Hayari and not by respondent Sierra
Grande; thus, any payment of the amortizations on the loan of Hayari cannot be
considered as part of the consideration for the sale of the land owned by respondent
Sierra Grande. It is then safe to declare that respondent Sierra Grande did not benefit
from the loan or from its pre-termination. Moreover, the records are bereft of any
evidence to support the claim of petitioners that the sum of money paid by Elmer Tan,
on behalf of Hayari, was part of the consideration for the same property. What only
appears is that the only consideration paid for the sale of the Roberts property was the
sum contained in the Contract to Sell, which was P441,032.00 which, considering the
size[40] and location[41] of the property, is inadequate. What prompted Elmer Tan to
pay the total amount of P3,134,921.00 cannot be gleaned from the records, except that
it was for the loan incurred by Hayari, which is an independent juridical entity, separate
and distinct from Sierra Grande. Hence, the CA did not commit any error in declaring
that there was an insufficiency of consideration or price as the same is shown on the
very face of the Contract to Sell. Anent the contention of petitioners that inadequacy of
price does not invalidate a contract, the said rule is not without an exception. As
provided in the Civil Code: Art. 1355. Except in cases specified by law, lesion or
inadequacy of cause shall not invalidate a contract, unless there has been fraud,
mistake or undue influence. The CA was clear as to its main reason for invalidating the
contracts in question there was fraud. The inadequacy of price was merely one of the
circumstances upon which the CA was able to find the existence of fraud and not the
main cause for the invalidation of the subject contracts. All the other sub-issues raised
by petitioners are rendered inconsequential by the above disquisitions of this Court.
SLU SOL 1-C Page
704
Askay v. Cosalan, 46 P 179
ASKAY, plaintiff-appellant,
vs.
FERNANDO A. COSALAN, defendant-appellee.
G.R. No. 21943 September 15, 1924
Facts: The plaintiff in this case is Askay, an illiterate Igorot between 70 and 80 years of
age, residing in the municipal district of Tublay, Province of Benguet, who at various
times has been the owner of mining property. The defendant is Fernando A. Cosalan,
the nephew by marriage of Askay, and municipal president of Tublay, who likewise has
been interested along with his uncle in mining enterprises About 1907, Askay obtained
title to the Pet Kel Mineral Claim located in Tublay, Benguet. On November 23, 1914, if
we are to accept defendant's Exhibit 1, Askay sold this claim to Cosalan. Nine years
later, in 1923, Askay instituted action in the Court of First Instance of Benguet to have
the sale of the Pet Kel Mineral Claim declared null, to secure possession of the mineral
claim, and to obtain damages from the defendant in the amount of P10,500. Following
the presentation of various pleadings including the answer of the defendant, and
following trial before Judge of First Instance Harvey, judgment was rendered dismissing
the complaint and absolving the defendant from the same, with costs against the
plaintiff. On being informed of the judgment of the trial court, plaintiff attacked it on two
grounds: The first, jurisdictional, and the second, formal. Both motions were denied and
an appeal was perfected.
Issue: Whether or not the plaintiff has established his cause of action by a
preponderance of the evidence.
Ruling: Plaintiff contends that the sale of the Pet Kel Mineral Claim was accomplished
through fraud and deceit on the part of the defendant. Plaintiff may be right but in our
judgment he has failed to establish his claim. Fraud must be both alleged and proved.
One fact exists in plaintiffs favor, and this is the age and ignorance of the plaintiff who
could be easily by the defendant, a man of greater intelligence. Another fact is the
inadequacy of the consideration for the transfer which, according to the conveyance,
consisted of P1 and other valuable consideration, and which, according to the oral
testimony, in reality consisted of P107 in cash, a bill-fold, one sheep, one cow, and two
carabaos. Gross inadequacy naturally suggest fraud is some evidence thereof, so that it
may be sufficient to show it when taken in connection with other circumstances, such as
ignorance or the fact that one of the parties has an advantage over the other. But the
fact that the bargain was a hard one, coupled with mere inadequacy of price when both
parties are in a position to form an independent judgment concerning the transaction, is
not a sufficient ground for the cancellation of a contract.
Against the plaintiff and in favor of the defendant, the Court had the document itself
executed in the presence of witnesses and before a notary public and filed with the
mining recorder. The notary public, Nicanor Sison, and one of the attesting witnesses,
SLU SOL 1-C Page
705
Apolonio Ramos, testified to the effect that in the presence of the plaintiff and the
defendant and of the notary public and the subscribing witnesses, the deed of sale was
interpreted to the plaintiff and that thereupon he placed his thumb mark on the
document. Two finger print experts, Dr. Charles S. Banks and A. Simkus, have declared
in depositions that the thumb mark on exhibit is that of Askay. No less than four other
witnesses testified that at various times Askay had admitted to them that he had sold
the Pet Kel Mine to Fernando A. Cosalan.
Having in mind of these circumstances, how can the plaintiff expect the courts to nullify
the deed of sale on mere suspicion? Having waited nine years from the date when the
deed was executed, nine years from the time Fernando A. Cosalan started developing
the mine, nine years from the time Askay himself had been deprived of the possession
of the mine, and nine years permitting of a third party to obtain a contract of lease from
Cosalan, how can the court overlook plaintiff's silent acquiescence in the legal rights of
the defendant? On the facts of record, the trial judge could have done nothing less than
dismiss the action.
SLU SOL 1-C Page
706
True/Real: Simulation of Contracts (Arts. 1353, 1355, 1343-
1344)
HEIRS OF THE LATE SPOUSES AURELIO AND ESPERANZA BALITE; Namely,

ANTONIO T. BALITE, FLOR T. BALITE-ZAMAR, VISITACION T. BALITE-
DIFUNTORUM, PEDRO T. BALITE, PABLO T. BALITE, GASPAR T. BALITE,
CRISTETA T. BALITE and AURELIO T. BALITE JR., All Represented by GASPAR T.
BALITE, petitioners,
vs.
RODRIGO N. LIM, respondent.
G.R. No. 152168 December 10, 2004
Facts: The spouses Aurelio and Esperanza Balite were the owners of a parcel of land.
When the spouses died intestate, and their children, the petitioners, inherited the
subject property and became co-owners thereof, with Esperanza inheriting an undivided
share of 9,751 square meters. Esperanza became ill and in need of money for her
hospital expenses. She, through her daughter, Cristeta, offered to sell to Rodrigo Lim,
her undivided share for the price of P1M. Esperanza and Rodrigo agreed that, under the
"Deed of Absolute Sale", to be executed by Esperanza over the property, it will be made
to appear that the purchase price of the property would be P150K, although the actual
price was P1,000,000.00. Esperanza executed a "Deed of Absolute Sale" in favor of Lim
over a portion of the property, with an area of 10,000 square meters, for the price of
P150K. They also executed a "Joint Affidavit" under which they declared that the real
price of the property was P1,000,000, payable to Esperanza, by installments.
The other children learned of the sale, and, they wrote a letter to the Register of Deeds,
saying that they were not informed of the sale nor did they give their consent thereto.
Issue: Whether or not there is undervaluation of consideration or the contract is valid.
Ruling: The Supreme Court held that Article 1345 of the Civil Code provides that the
simulation of a contract may either be absolute or relative. In absolute simulation, there
is a colorable contract but without any substance, because the parties have no intention
to be bound by it. An absolutely simulated contract is void, and the parties may recover
from each other what they may have given under the "contract." On the other hand, if
the parties state a false cause in the contract to conceal their real agreement, such a
contract is relatively simulated. Here, the parties real agreement binds them. In the
present case, the parties intended to be bound by the Contract, even if it did not reflect
the actual purchase price of the property. That the parties intended the agreement to
produce legal effect is revealed by the letter of Esperanza Balite to respondent dated
October 23, 199610 and petitioners admission that there was a partial payment of
P320,000 made on the basis of the Deed of Absolute Sale. There was an intention to
transfer the ownership of over 10,000 square meters of the property. Clear from the
SLU SOL 1-C Page
707
letter is the fact that the objections of her children prompted Esperanza to unilaterally
withdraw from the transaction.
SLU SOL 1-C Page
708
RAFAEL G. SUNTAY, substituted by his heirs, namely: ROSARIO, RAFAEL, JR.,

APOLINARIO, RAYMUND, MARIA VICTORIA, MARIA ROSARIO and MARIA
LOURDES, all surnamed SUNTAY, petitioners,
vs.
THE HON. COURT OF APPEALS and FEDERICO C. SUNTAY, respondents.
G.R. No. 114950 December 19, 1995
Facts: Federico Suntay is the owner of a parcel of land and a rice mill, warehouse, and
other improvements situated in the said land. A rice miller, Federico, in a letter applied
as a miller-contractor of the National Rice and Corn Corporation (NARIC). He informed
the NARIC that he had a daily rice mill output of 400 cavans of palay and warehouse
storage capacity of 150,000 cavans of palay. His application, although prepared by his
nephew-lawyer, Rafael Suntay, was disapproved, because at that time he was tied up
with several unpaid loans. For purposes of circumvention, he had thought of allowing
Rafael to make the application for him. Rafael prepared an absolute deed of sale
whereby Federico, for and in consideration of P20,000.00 conveyed to Rafael said
parcel of land with all its existing structures. Said deed was notarized as Document No.
57 and recorded on Page 13 of Book 1, Series of 1962, of the Notarial Register of Atty.
Herminio V. Flores. Less than three months after this conveyance, a counter sale was
prepared and signed by Rafael who also caused its delivery to Federico. Through this
counter conveyance, the same parcel of land with all its existing structures was sold by
Rafael back to Federico for the same consideration of P20,000.00. Although on its face,
this second deed appears to have been notarized as Document No. 56 and recorded on
Page 15 of Book 1, Series of 1962, of the notarial register of Atty. Herminio V. Flores, an
examination thereof will show that, recorded as Document No. 56 on Page 13, is not the
said deed of sale but a certain "real estate mortgage on a parcel of land with TCT No.
16157 to secure a loan of P3,500.00 in favor of the Hagonoy Rural Bank." Nowhere on
page 13 of the same notarial register could be found any entry pertaining to Rafael's
deed of sale. Testifying on this irregularity, Atty. Flores admitted that he failed to submit
to the Clerk of Court a copy of the second deed. Neither was he able to enter the same
in his notarial register. Even Federico himself alleged in his Complaint that, when Rafael
delivered the second deed to him, it was neither dated nor notarized. Upon the
execution and registration of the first deed, Certificate of Title No. 0-2015 in the name of
Federico was cancelled and in lieu thereof, TCT No. T-36714 was issued in the name of
Rafael. Even after the execution of the deed, Federico remained in possession of the
property sold in concept of owner. Significantly, notwithstanding the fact that Rafael
became the titled owner of said land and rice mill, he never made any attempt to take
possession thereof at any time, while Federico continued to exercise rights of absolute
ownership over the property. In a letter, dated August 14, 1969, Federico, through his
new counsel, Agrava&Agrava, requested that Rafael deliver his copy of TCT No. T-
36714 so that Federico could have the counter deed of sale in his favor registered in his
name. The request having been obviously turned down, Agrava&Agrava filed a petition
with the Court of First Instance of Bulacan asking Rafael to surrender his owner's
SLU SOL 1-C Page
709
duplicate certificate of TCT No. T-36714. In opposition thereto, Rafael chronicled the
discrepancy in the notarization of the second deed of sale upon which said petition was
premised and ultimately concluded that said deed was a counterfeit or "at least not a
public document which is sufficient to transfer real rights according to law." On
September 8, 1969, Agrava&Agrava filed a motion to withdraw said petition, and, on
September 13, 1969, the Court granted the same. On July 8, 1970, Federico filed a
complaint for reconveyance and damages against Rafael. In his answer, Rafael scoffed
at the attack against the validity and genuineness of the sale to him of Federico's land
and rice mill. Rafael insisted that said property was "absolutely sold and conveyed for a
consideration of P20,000.00, Philippine currency, and for other valuable consideration".
While the trial court upheld the validity and genuineness of the deed of sale executed by
Federico in favor of Rafael, which deed is referred to above as Exhibit A, it ruled that the
counter-deed, referred to as Exhibit B, executed by Rafael in favor of Federico, was
simulated and without consideration, hence, null and void ab initio. Moreover, while the
trial court adjudged Rafael as the owner of the property in dispute, it did not go to the
extent of ordering Federico to pay back rentals for the use of the property as the court
made the evidential finding that Rafael simply allowed his uncle to have continuous
possession of the property because of their understanding that Federico would
subsequently repurchase the same. From the aforecited decision of the trial court, both
Federico and Rafael appealed. The Court of Appeals rendered judgment affirming the
trial court's decision, with a modification that Federico was ordered to surrender the
possession of the disputed property to Rafael. Counsel of Federico filed a motion for
reconsideration of the aforecited decision. While the motion was pending resolution,
Atty. Ricardo M. Fojas entered his appearance in behalf of the heirs of Rafael who had
passed away on November 23, 1988. Atty. Fojas prayed that said heirs be substituted
as defendants-appellants in the case. The prayer for substitution was duly noted by the
court in a resolution dated April 6, 1993. Thereafter, Atty. Fojas filed in behalf of the heirs
an opposition to the motion for reconsideration. The parties to the case were heard on
oral argument on October 12, 1993. On December 15, 1993, the Court of Appeals
reversed itself and rendered an amended judgment.
Issue: Whether or not the deed of sale executed by Federico in favor of Rafael is
simulated and fictitious and, hence, null and void.
Ruling: In the aggregate, the evidence on record demonstrate a combination of

circumstances from which may be reasonably inferred certain badges of simulation that
attach themselves to the deed of sale in question. The complete absence of an attempt
on the part of the buyer to assert his rights of ownership over the land and rice mill in
question is the most protuberant index of simulation. The deed of sale executed by
Federico in favor of his now deceased nephew, Rafael, is absolutely simulated and
fictitious and, hence, null and void, said parties having entered into a sale transaction to
which they did not intend to be legally bound. As no property was validly conveyed
under the deed, the second deed of sale executed by the late Rafael in favor of his
uncle, should be considered ineffective and unavailing. The allegation of Rafael that the
lapse of seven years before Federico sought the issuance of a new title in his name
necessarily makes Federico's claim stale and unenforceable does not hold water.
SLU SOL 1-C Page

710
Federico's title was not in the hands of a stranger or mere acquaintance; it was in the
possession of his nephew who, being his lawyer, had served him faithfully for many
years. Federico had been all the while in possession of the land covered by his title and
so there was no pressing reason for Federico to have a title in his name issued. Even
when the relationship between the late Rafael and Federico deteriorated, and eventually
ended, it is not at all strange for Federico to have been complacent and unconcerned
about the status of his title over the disputed property since he has been possessing the
same actually, openly, and adversely, to the exclusion of Rafael. It was only when
Federico needed the title in order to obtain a collaterized loan that Federico began to
attend to the task of obtaining a title in his name over the subject land and rice mill.
SLU SOL 1-C Page
711
Art. 1351, Cause vs. Motive
WILLIAM UY and RODEL ROXAS, petitioners,

vs.
COURT OF APPEALS, HON. ROBERT BALAO and NATIONAL HOUSING
AUTHORITY, respondents.
G.R. No. 120465 September 9, 1999
Facts: Petitioners William Uy and Rodel Roxas are agents authorized to sell eight (8)
parcels of land by the owners thereof. By virtue of such authority, petitioners offered to
sell the lands, located in Tuba, Tadiangan, Benguet to respondent National Housing
Authority (NHA) to be utilized and developed as a housing project.
On February 14, 1989, NHA approved the acquisition of the said parcels of land with an
area of 31.8231 hectares at the cost of P23.867 million, pursuant to which the parties
executed a series of Deeds of Absolute Sale covering the subject lands. Of the eight
parcels of lands, however, only five were paid for by the NHA because of the report it
received from the Land Geosciences Bureau of the Department of Environment and
Natural Resources that the remaining area is located at an active landslide area and
therefore, not suitable for development into a housing project. NHA eventually cancelled
the sale over the remaining three (3) parcels of land.
On March 9, 1992, petitioners filed a complaint for damages. After trial, the RTC of
Quezon City rendered the cancellation of contract to be justified and awarded P1.255
million as damages in favor of petitioners.
Upon appeal by petitioners, the Court of Appeals reversed the decision and entered a
new one dismissing the complaint including the award of damages.
The motion for reconsideration having been denied, petitioners seek relief from this
court contending, inter alia, that the CA erred in declaring that NHA had any legal basis
to rescind the subject sale.
Issue: Whether or not a partys entry into a contract affects the validity of the contract.
Ruling: As a general rule, a partys motives for entering into a contract do not affect the
contract. However, when the motive predetermines the cause, the motive may be
regarded as the cause. As held in Liguez v. CA, it is well to note, however, that Manresa
himself, while maintaining the distinction and upholding the inoperativeness of the
motives of the parties to determine the validity of the contract, expressly excepts from
the rule those contracts that are conditioned upon the attainment of the motives of either
party. The same view is held by the Supreme Court of Spain, in its decisions of
SLU SOL 1-C Page
712
February 4, 1941 and December 4, 1946, holding that the motive may be regarded as
cause when it predetermines the purpose of the contract.
SLU SOL 1-C Page
713
Onerous
Pentacapital v. Makilito Mahinay, 5 July 2010
PENTACAPITAL INVESTMENT CORPORATION, petitioner,

vs.
MAKILITO B. MAHINAY, respondent.
G.R. No. 171736 July 5, 2010
Facts: Petitioner filed a complaint for a sum of money against respondent Makilito
Mahinay based on two separate loans obtained by the latter, amounting to
P1,520,000.00 and P416,800.00, or a total amount of P1,936,800.00. These loans were
evidenced by two promissory notes dated February 23, 1996. Despite repeated
demands, respondent failed to pay the loans, hence, the complaint. Respondent
explained that he was the counsel of Ciudad Real Development Inc. (CRDI). In 1994,
Pentacapital Realty Corporation offered to buy parcels of land known as the Molino
Properties. As the Molino Properties were the subject of a pending case, Pentacapital
Realty paid only the down payment amounting to P12,000,000.00. CRDI allegedly
instructed Pentacapital Realty to pay the formers creditors, including respondent who
thus received a check worth P1,715,156.90. It was further agreed that the balance
would be payable upon the submission of an Entry of Judgment showing that the case
had been decided in favor of CRDI.
Issue: Whether or not admission of respondents supplemental compulsory

counterclaim is proper and is barred by res judicata, and whether or not petitioner is
guilty of forum-shopping.
Ruling: It is obvious that the alleged obligation of petitioner already existed and was
known to respondent at the time of the filing of his answer with counterclaim. He should
have demanded payment of his commission and share in the proceeds of the sale in
that Answer with Compulsory Counterclaim, but he did not. He is, therefore, proscribed
from incorporating the same and making such demand via a supplemental pleading.
The promissory notes clearly stated that respondent promised to pay petitioner
P1,520,000.00 and P416,800.00, plus interests and penalty charges, a year after their
execution. Nowhere in the notes was it stated that they were subject to a condition. As
correctly observed by petitioner, respondent is not only a lawyer but a law professor as
well. This militates against respondents claim that there was indeed such an
agreement. Thus, the promissory notes should be accepted as they appear on their
face. It is well-settled that when material facts or questions in issue in a former action
were conclusively settled by a judgment rendered therein, such facts or questions
constitute res judicata and may not again be litigated in a subsequent action between
the same parties or their privies regardless of the form of the latter. The first case
originated from an interlocutory order of the RTC, while the second case is an appeal
from the decision of the court on the merits of the case. There is, therefore, no forum-
SLU SOL 1-C Page
714
shopping for the simple reason that the petition and the appeal involve two different and
distinct issues.
SLU SOL 1-C Page
715
Remuneratory
HEIRS OF RAMON C. GAITE, CYNTHIA GOROSTIZA GAITE and RHOGEN

BUILDERS, petitioners,
vs.
THE PLAZA, INC. and FGU INSURANCE CORPORATION, respondents.
G.R. No. 177685 January 26, 2011
Facts: The Plaza, Inc., through its President Jose Reyes, entered into a contract with
Rhogen Builders, represented by Ramon Gaite, for the construction of a restaurant
building for the price of P7.6M.
To secure Rhogen's compliance with its obligation, Gaite and FGU Insurance
Corporation executed a surety bond in favor of The Plaza. Thereafter, Rhogen
commenced construction of the restaurant building.
Engr. Angelito Gonzales ordered Gaite to cease and desist from continuing with the
construction of the building for violation of Secs. 301 and 302 of the National Building
Code and its IRR. Gaite wrote Reyes regarding his actions/observations on the
stoppage order issued.
On the permit for temporary structure, Gaite said the plans were being readied for
submission to the Engineering Department of the Municipality of Makati and the
application was being resent to Reyes for his appropriate action. Gaite thus thought that
Reyes would handle the matter by himself. In his reply, Reyes asserted that The Plaza
is not the one to initiate a solution to the situation arising from non-performance of its
own contractual undertakings, and that The Plaza has its rights and remedies to protect
its interest.
Issue: Whether or not Gaite and Rhogen are liable for damages.
Ruling: Under the principle of quantum meruit, a contractor is allowed to recover the
reasonable value of the thing or services rendered despite the lack of a written contract,
in order to avoid unjust enrichment.
In the present case, Rhogen failed to finish even a substantial portion of the works due
to the stoppage order issued just 2 months from the start of construction. Despite the
down payment received from The Plaza, Rhogen was able to complete a meager
percentage much lower than that claimed. Moreover, Rhogen was found to have
executed the works not in accordance with the approved plans or failed to seek prior
approval of the municipal engineer.
SLU SOL 1-C Page
716
Art. 1167 of the Civil Code is explicit on this point that if a person obliged to do
something fails to do it, the same shall be executed at his cost. The SC held that
Rhogen committed a serious breach of its contract with The Plaza, which justified the
latter in terminating the contract.
Petitioners are thus liable for damages for having breached their contract with The
Plaza. Art. 1170 of the Civil Code provides that those who, in the performance of their
obligations are guilty of fraud, negligence, or delay and those who in any manner
contravene the tenor thereof, are liable for damages.
SLU SOL 1-C Page
717
Catly v. Navarro, et al., 5 May 2010
HICOBLINO M. CATLY substituted by his wife, LOURDES A. CATLY, petitioner,

vs.
WILLIAM NAVARRO, et al., respondents.
G.R. No. 167239 May 5, 2010
Facts: Respondents Navarro, et al. filed a Complaint dated September 6, 1993 against
Las Pias Ventures, Inc., now substituted by herein respondent Ayala Land, Inc., for
annulment of TCT No. T-5332 and recovery of possession with damages represented
by petitioner. Respondents alleged that they owned and occupied 32 hectares of land
which were registered in the name of their predecessors-in-interest in 1920, as
evidenced by tax declarations; that after conducting a relocation survey, a portion of
their land was included in a parcel of land covered by TCT No. T-5332, registered in the
name of Las Pias Ventures, Inc. On May 14, 1997, petitioner filed a Manifestation and
Motion alleging that he was not consulted when therein heirs signed the MOA with ALI;
that his Contract for Legal and Other Valuable Services, wherein respondents engaged
his services as counsel, be noted on record; that should there be an amicable
settlement of the case, his attorneys fees should be awarded in full as stipulated in the
contract to fully compensate his efforts in representing herein respondents and therein
heirs; and that the trial court issued an order confirming his right to collect his attorneys
fees to the exclusion of the other agents and financiers.
Issue: Whether or not the award of P30,000,000.00 as petitioners total attorneys fees
would be appropriate.
Ruling: What petitioner sought in his earlier pleadings was the execution and
implementation of the July 22, 1997 Separate Judgment which declared that in view of
the terms and conditions agreed upon by the parties under the Amendatory Agreement
dated May 27, 1997, respondent ALI is directed to immediately release the sum of
P20,000,000.00 in favor of the petitioner as his attorneys fees.
The Court held that the Trial Courts Decision justifying the reduction of attorneys fees
would be downright unfair, especially since the settlement price was not entirely
allocated to his clients. The trial court should have taken the principle of quantum meruit
with regard to engagement of petitioner as respondents' counsel, the concept of
compromise agreement entered into by the parties.
The amicable settlement was paid not only to the 8 respondents, but also to 66 other
individuals (who had no written contract with petitioner, but was assisted by the
petitioner in the execution of the MOA and the Joint Motion for Judgment Based on
Compromise). Petitioner actively represented respondents and that for and in
consideration of the legal services rendered by petitioner, contribute 25% of the total
area recovered from Las Pias Ventures, Inc. or its equivalent in cash upon successful
termination of court litigation; and that all litigation expenses shall be on the account of
SLU SOL 1-C Page
718
the petitioners law firm.The court held the amount of reasonable attorneys fees, on
quantum meruit basis, that petitioner Hicoblino M. Catly, now deceased and substituted
by his wife, Lourdes A. Catly, would be entitled to.
SLU SOL 1-C Page
719
Gratuitous
CONCHITA LIGUEZ, petitioner,

vs.
THE HONORABLE COURT OF APPEALS, MARIA NGO VDA. DE LOPEZ, ET AL.,
respondents.
G.R. No. L-11240 December 18, 1957
Facts: The case began upon complaint filed by petitioner-appellant against the widow
and heirs of the late Salvador P. Lopez to recover a parcel of 51.84 hectares of land,
situated in barrio Bogac-Linot, of the municipality of Mati, Province of Davao. Plaintiff
averred to be its legal owner, pursuant to a deed of donation of said land, executed in
her favor by the late owner, Salvador P. Lopez, on 18 May 1943. The defense
interposed was that the donation was null and void for having an illicit causa or
consideration, which was the plaintiff's entering into marital relations with Salvador P.
Lopez, a married man; and that the property had been adjudicated to the appellees as
heirs of Lopez by the court of First Instance, since 1949.
Issue: Whether or not the Deed of Donation is valid and enforceable.
Ruling: Article 1412 states that if the act in which the unlawful or forbidden cause does
not constitute a criminal offense, and when only one of the contracting parties is at fault,
he cannot recover, what he has given by reason of the contract, or ask for fulfilment of
what has been promised him. The other, who is not at fault, may demand the return of
what he has given without any obligation to comply with his promise. The prima facie
donation inter vivos and its acceptance by the donees having been proved by means of
a public instrument, and the donor having been duly notified of said acceptance, the
contract is perfect and obligatory and it is perfectly in order to demand its fulfilment,
unless an exception is proved which is based on some legal reason opportunely alleged
by the donor or her heirs. So long as the donation in question has not been judicially
proved and declared to be null, inefficacious, or irregular, the land donated is of the
absolute ownership of the donees and consequently, does not form a part of the
property of the estate of the deceased Martina Lopez; wherefore the action instituted
demanding compliance with the contract, the delivery by the deforciant of the land
donated, or that it be, prohibited to disturb the right of the donees, should not be
considered as incidental to the probate proceedings aforementioned. In view of the
foregoing, the decisions appealed from are reversed and set aside, and the appellant
Conchita Liguez declared entitled to so much of the donated property as may be found,
upon proper liquidation, not to prejudice the share of the widow Maria Ngo in the
conjugal partnership with Salvador P. Lopez or the legitimes of the forced heirs of the
latter.
SLU SOL 1-C Page
720
PHILIPPINE BANKING CORPORATION, petitioner,

vs.
LUI SHE, respondent.
Facts: Justina Santos executed on a contract of lease in favor of Wong, covering the
portion then already leased to him and another portion fronting Florentino Torres Street.
The lease was for 50 years, although the lessee was given the right to withdraw at any
time from the agreement.
On December 21 she executed another contract giving Wong the option to buy the
leased premises for P120,000, payable within ten years at a monthly installment of
P1,000. The option, written in Tagalog, imposed on him the obligation to pay for the food
of the dogs and the salaries of the maids in her household, the charge not to exceed
P1,800 a month. The option was conditioned on his obtaining Philippine citizenship, a
petition for which was then pending in the Court of First Instance of Rizal.
It appears, however, that this application for naturalization was withdrawn when it was
discovered that he was not a resident of Rizal. On October 28, 1958 she filed a petition
to adopt him and his children on the erroneous belief that adoption would confer on
them Philippine citizenship. The error was discovered and the proceedings were
abandoned.
In two wills executed on August 24 and 29, 1959, she bade her legatees to respect the
contracts she had entered into with Wong, but in a codicil of a later date (November 4,
1959) she appears to have a change of heart. Claiming that the various contracts were
made by her because of machinations and inducements practiced by him, she now
directed her executor to secure the annulment of the contracts.
Issue: Whether or not the contracts involving Wong were valid.
Ruling: No, the contracts show nothing that is necessarily illegal, but considered
collectively, they reveal an insidious pattern to subvert by indirection what the
Constitution directly prohibits. To be sure, a lease to an alien for a reasonable period is
valid. So is an option giving an alien the right to buy real property on condition that he is
granted Philippine citizenship.
But if an alien is given not only a lease of, but also an option to buy, a piece of land, by
virtue of which the Filipino owner cannot sell or otherwise dispose of his property, this to
last for 50 years, then it becomes clear that the arrangement is a virtual transfer of
ownership whereby the owner divests himself in stages not only of the right to enjoy the
land but also of the right to dispose of it rights the sum total of which make up
SLU SOL 1-C Page
721
ownership. If this can be done, then the Constitutional ban against alien landholding in
the Philippines is indeed in grave peril.
Even if the contract appears to be valid, if the provisions are against a constitutional
prohibition, the same should be considered null and void.
SLU SOL 1-C Page
722
VII. Form of Contracts (Arts. 1356-1358)
Arts. 1356-1357, Form for Validity as an Essential Element of
Contracts
Londres v. CA, 394 S 133
SONIA F. LONDRES, ARMANDO V. FUENTES, CHI-CHITA FUENTES QUINTIA,

ROBERTO V. FUENTES, LEOPOLDO V. FUENTES, OSCAR V. FUENTES and
MARILOU FUENTES ESPLANA petitioners,
vs.
THE COURT OF APPEALS, THE DEPARTMENT OF PUBLIC WORKS AND
HIGHWAYS, THE DEPARTMENT OF TRANSPORTATION AND COMMUNICATIONS,
ELENA ALOVERA SANTOS and CONSOLACION ALIVIO ALOVERA, respondents.
G.R. No. 136427 December 17, 2002
Facts: The present case stemmed from a battle of ownership over Lots 1320 and 1333
both located in Barrio Baybay, Roxas City, Capiz. Paulina Arcenas originally owned
these two parcels of land passed to her daughter, Filomena VidaI. The surviving
children of Filomena, now claim ownership over Lots 1320 and 1333. On the other
hand, private respondents Consolacion Alivio Alovera and Elena Alovera Santos anchor
their right of ownership on the Absolute Sale executed by Filomena on April 24, 1959.
On March 30, 1989, petitioners filed a complaint for the declaration of nullity of contract,
damages and just compensation. Petitioners sought to nullify the Absolute Sale and to
recover just compensation from public respondents Department of Public Works and
Highways and Department of Transportation and Communication.
Issue: Whether or not the Deed of Absolute Sale was valid and enforceable.
Ruling: A contract of sale is perfected at the moment there is a meeting of the minds
upon the thing which is the object of the contract and upon the price. Being consensual,
a contract of sale has the force of law between the contracting parties and they are
expected to abide in good faith with their respective contractual commitments. Article
1358 of the Civil Code, which requires certain contracts to be embodied in a public
instrument, is only for convenience, and registration of the instrument is needed only to
adversely affect third parties. Formal requirements are, therefore, for the purpose of
binding or informing third parties. Non-compliance with formal requirements does not
adversely affect the validity of the contract or the contractual rights and obligations of
the parties. It must be pointed out that when private respondents and Filomena
executed the sale in 1959, they based the description of the two lots on the tax
declarations of Filomena. Early tax declarations are, more often than not, based on
approximation or estimation rather than on computation. This is understandably so
because of the absence then of technical knowledge in the accurate measurement of
lands. What really defines a piece of land is not the area mentioned in its description,
but the boundaries therein laid down, as enclosing the land and indicating its limits. In
this case, the boundaries of the two lots are sufficiently designated in the Absolute Sale,
SLU SOL 1-C Page
723
leaving no room to doubt the identity of the objects of the sale. Applying Article 1370 of
the Civil Code, the Court of Appeals agreed with the trial court that there could be no
room for interpretation as to the intention of the parties on the objects of their contract.
Thus, the Deed of Absolute Sale was valid and binding, therefore enforceable.
SLU SOL 1-C Page
724
Art. 1358, Form for Convenience
Sps. Vega v. SSS, 20 September 2010
SPS. ANTONIO & LETICIA VEGA, petitioner,

vs.
SOCIAL SECURITY SYSTEM (SSS) & PILAR DEVELOPMENT CORPORATION,
respondents.
G.R. No. 181672 September 20, 2010
Facts: Magdalena V. Reyes owned a piece of titled land in Pilar Village, Las Pias City.
On August 17, 1979 she got a housing loan from respondent Social Security System
(SSS) for which she mortgaged her land. In late 1979, she asked the petitioner spouses
to assume the loan and buy her house and lot. Vegas agreed for Reyes to execute in
their favor a deed of assignment of real property with assumption of mortgage. The
Vegas then took possession of the house in January 1981. Reyes left the country and
gave her sister, Julieta Reyes Ofilada, a special power of attorney to convey ownership
of the property. Sometime between 1983 and 1984, Ofilada finally executed the deed
promised. Ofilada kept the original and gave the Vegas two copies. Unfortunately, a
storm in 1984 resulted in a flood that destroyed the copy left with them. In 1992, the
Vegas learned that Reyes did not update the amortizations so the Vegas updated the
amortization themselves and paid P115,738.48 to the SSS, through Antonio Vegas
personal check. On April 16, 1993 respondent Pilar Development Corporation (PDC)
filed an action for sum of money against Reyes. PDC claimed that Reyes borrowed from
Apex Mortgage and Loans Corporation. Apex then assigned Reyes credit to the PDC
hence, the suit for recovery of debt. Unable to pay, on January 5, 1994 the RTC issued
a writ of execution against Reyes and its Sheriff levied on the property in Pilar Village.
Issue: Whether or not the Vegas presented adequate proof of Reyes sale of the subject
property to them.
Ruling: The court ruled that the Vegas were unable to prove that Reyes assigned the
subject property to them, given that they failed to present the deed of assignment in
their favor upon a claim that they lost it. But the rule requiring the presentation of the
original of that deed of assignment is not absolute. Secondary evidence of the contents
of the original can be adduced, when the original has been lost without bad faith on the
part of the party offering it. Here, not only did the Vegas prove the loss of the deed of
assignment in their favor and what the same contained, they offered strong
corroboration of the fact of Reyes sale of the property to them. They took possession of
the house and lot after they bought it. Indeed, they lived on it and held it in the concept
of an owner for 13 years before PDC came into the picture. They also paid all the
amortizations to the SSS with Antonio Vegas personal check, even those that Reyes
promised to settle but did not. And when the SSS wanted to foreclose the property, the
Vegas sent a managers check to it for the balance of the loan. Neither Reyes nor any
SLU SOL 1-C Page
725
of her relatives came forward to claim the property. The Vegas amply proved the sale to
them. Therefore, the sale was valid and binding.
SLU SOL 1-C Page
726
Balatbat v. CA, 261 S 128
PIO BALATBAT, petitioner,

vs.
COURT OF APPEALS and DOMINGO PASION, respondents.
G.R. No. L-36378 January 27, 1992
Facts: Petitioner is the agricultural lessee of a parcel of land located at Santiago, Sta.
Ana, Pampanga which is owned by Daniel Garcia. The latter sold the land to private
respondent Domingo Pasion and had declared for taxation purposes under Tax
Declaration No. 126. Sometime after the sale, Domingo Pasion, on a claim that he will
personally cultivate the land, filed on 15 June 1970 with the Court of Agrarian Relations,
a complaint to eject petitioner alleging therein that he had notified petitioner of his
intention to personally cultivate the landholding, but despite the lapse of one (1)
agricultural year from receipt of the notice thereof, petitioner refused to vacate the land.
Issue: Whether or not respondents personal cultivation is no longer a ground to

dispossess an agricultural lessee of his landholding.
Ruling: Presidential Decree No. 27 provides: In all cases, the landowner may retain an
area of not more than seven hectares if such landowner is cultivating such area or will
now cultivate it. The redistribution of land, restructuring of property ownership,
democratization of political power, and implementation of social justice do not require
that a landowner should be deprived of everything he owns and that even small parcels
as in these two cases now before us may not be worked by the owner himself. The evil
sought to be remedied by agrarian reform is the ancient anachronism where one person
owns the land while another works on it. The evil is not present in cases of personal
cultivation by the owner. Taking over by the landowner is subject to strict requirements.
In addition to proof of ownership and the required notices to the tenant, the bona-fide
intention to cultivate must be proved to the satisfaction of the court. And as earlier
stated, the tenant is protected in case the owner fails to cultivate the land within one
year or to work the land himself for three years. The seven hectares retention under
P.D. No. 27 is applicable only to landowners who do not own other agricultural lands
containing an aggregate of more than seven hectares or lands used for residential,
commercial, industrial, or other urban purposes where they derive adequate income to
support themselves and their families.
SLU SOL 1-C Page
727
Universal Robina v. Heirs of Teves, 389 S 316
UNIVERSAL ROBINA SUGAR MILLING CORPORATION, petitioner,

vs.
HEIRS OF ANGEL TEVES, respondents.
G. R. No. 128574 September 18, 2002
Facts: Andres Abanto (deceased) owned two parcels of land situated in Campuyo,
Manjuyod, Negros Oriental. One lot is registered in his name, the other lot is
unregistered. On October 19, 1974, Andres Abanto's heirs executed an Extrajudicial
Settlement of the Estate of the Deceased Andres Abanto and Simultaneous Sale.
Abanto's heirs adjudicated unto themselves the two lots and sold the (a) unregistered lot
of 193,789 square meters to the United Planters Sugar Milling Company, Inc.
(UPSUMCO), and (b) the registered lot covered by TCT No. H-37 to Angel M. Teves.
Out of respect for his uncle Ignacio Montenegro, Teves verbally allowed UPSUMCO to
use the lot covered by TCT No. H-37 for pier and loading facilities, free of charge,
subjectto the condition that UPSUMCO shall shoulder the payment of real property
taxes and that its occupation shall be co-terminus with its corporate existence. Years
later, UPSUMCOs properties were acquired by the Philippine National Bank, transferred
to the Asset Privatization Trust then, sold the same to Universal Robina Sugar Milling
Corporation (URSUMCO). Upon learning of URSUMCO's acquisition of his lot, Teves
formally asked the corporation to turn over to him possession thereof or the
corresponding rentals.
Issue: Whether or not respondents have established a cause of action against

petitioner.
Ruling: Petitioner URSUMCO contends that respondents have no cause of action

because the Extrajudicial Settlement of the Estate of the Deceased Andres Abanto and
Simultaneous Sale is merely a promise to sell and not an absolute deed of sale, hence,
did not transfer ownership of the disputed lot to Angel Teves. Furthermore, the
transaction, being unregistered, does not bind third parties. In a contract of sale, title to
the property passes to the vendee upon delivery of the thing sold; while in a contract to
sell, ownership is, by agreement, reserved in the vendor and is not to pass to the
vendee until full payment of the purchase price. In the case at bar, the subject contract,
duly notarized, provides: Extrajudicial Settlement of the Estate of the Deceased Andres
Abanto and Simultaneous Sale and a certified true copy of TCT No. H-37 covering the
disputed lot. It is clear from the said instrument that the amount of P115,000.00 refers to
the price for the two lots as a whole. That the contract of sale was not registered does
not affect its validity. Being consensual in nature, it is binding between the parties, the
Abanto heirs and Teves. Article 1358 of the New Civil Code, which requires the
embodiment of certain contracts in a public instrument, is only for convenience, and the
registration of the instrument would merely affect third persons. Formalities intended for
greater efficacy or convenience or to bind third persons, if not done, would not
adversely affect the validity or enforceability of the contract between the contracting
SLU SOL 1-C Page
728
parties themselves. Thus, by virtue of the valid sale, Angel Teves stepped into the shoes
of the heirs of Andres Abanto and acquired all their rights to the property.
SLU SOL 1-C Page
729
VIII. Reformation of Instruments (Arts. 1359-1369)
Arts. 1366-1367, When Prohibited
Sarming v. Dy, 6 June 2002
RITA SARMING, RUFINO SARMING, MANUEL SARMING, LEONORA VDA. DE

LOY, ERLINDA DARMING, NICANDRA SARMING, MANSUETA SARMING,
ARTURO CORSAME, FELY CORSAME, FEDERICO CORSAME, ISABELITA
CORSAME, NORMA CORSAME, CESAR CORSAME, RUDY CORSAME, ROBERTA
CORSAME, ARTEMIO CORSAME, ELPIDIO CORSAME, ENRIQUITA CORSAME,
and GUADALUPE CORSAME TAN, petitioners,
vs.
CRESENCIO DY, LUDIVINA DY-CHAN, TRINIDAD FLORES, LUISA FLORES,
SATURNINA ORGANISTA, REMEDIOS ORGANISTA, OFELIA ORGANISTA, LYDIA
ORGANISTA, ZOSIMO ORGANISTA, DOMISIANO FLORES, FLORITA FLORES,
EDUARDO FLORES, BENIGNA FLORES, ANGELINA FLORES, MARCIAL FLORES,
and MARIO FLORES, respondents.
G.R. No. 133643 June 6, 2002
Facts: Petitioners are the successors-in-interest of original defendant Silveria Flores,

while respondents Cresencio Dy and Ludivina Dy-Chan are the successors-in-interest
of the original plaintiff Alejandra Delfino, the buyer of one of the lots subject of this case.
They were joined in this petition by the successors-in-interest of Isabel, Juan, Hilario,
Ruperto, Tomasa, and Luisa and Trinidad themselves, all surnamed Flores, who were
also the original plaintiffs in the lower court. They are the descendants of Venancio and
Jose, the brothers of the original defendant Silveria Flores.
A controversy arose regarding the sale of Lot 4163, which was half-owned by the
original defendant, Silveria Flores, although it was solely registered under her name.
Silverias brother, Jose, originally owned the other half. On January 1956, the heirs of
Jose entered into a contract with plaintiff Alejandra Delfino, for the sale of their one-half
share of Lot 4163 after offering the same to their co-owner, Silveria, who declined for
lack of money. Silveria did not object to the sale of said portion to Alejandra. Atty.
Deogracias Pinili, Alejandras lawyer then prepared the document of sale. In the
preparation of the document however, OCT no. 4918-A, covering Lot 5734, and not the
correct title covering Lot 4163 was the one delivered to Pinili. Unaware of the mistake
committed, Alejandra immediately took possession of Lot 4163 and introduced
improvements on the said lot. Two years later, when Alejandra Delfino purchased the
adjoinin portion of the lot she had been occupying, she discovered that what was
designated in the deed, Lot 5734, was the wrong lot. Thus, Alejandra and the vendors
filed for the feformation of the Deed of Sale.
Issue: Whether or not reformation is proper in this case.

SLU SOL 1-C Page
730
Ruling: Yes. Reformation is that remedy in equity by means of which a written
instrument is made or construed so as to express or inform to the real intention of the
parties.
An action for reformation of instrument under this provision of law may prosper only
upon the concurrence of the following requisites: (1) there must have been a meeting of
the minds of the parties to the contract; (2) the instrument does not express the true
intention of the parties; and (3) the failure of the instrument to express the true intention
of the parties is due to mistake, fraud, inequitable conduct or accident.
All of these requisites are present in this case. There was a meeting of the minds
between the parties to the contract but the deed did not express the true intention ot the
parties due to the designation of the lot subject of the deed. There is no dispute as to
the intention of the parties to sell the land to Alejandra Delfino but there was a mistake
as to the designation of the lot intended to be sold as stated in the Settlement of Estate
and Sale.
SLU SOL 1-C Page

731
Cebu v. CA, 407 S 154
CEBU INTERNATIONAL FINANCE CORPORATION, petitioner,

vs.
G.R. No. 123031 October 12, 1999
Facts: Cebu International Finance Corporation (CIFC), a quasi-banking institution, is

engaged in money market operations. On April 25, 1991, private respondent, Vicente
Alegre, invested with CIFC, five hundred thousand (P500,000.00) pesos, in cash.
Petitioner issued a promissory note to mature on May 27, 1991. On May 27, 1991, CIFC
issued BPI Check No. 513397 in favor of the private respondent as proceeds of his
matured investment plus interest. The CHECK was drawn from petitioner's current
account number 0011-0803-59, maintained with the Bank of the Philippine Islands
(BPI), main branch at Makati City. On June 17, 1991, private respondent's wife
deposited the CHECK with Rizal Commercial Banking Corp. (RCBC), in Puerto
Princesa, Palawan. BPI dishonored the CHECK with the annotation, that the Check (is)
Subject of an Investigation. BPI took custody of the CHECK pending an investigation of
several counterfeit checks drawn against CIFCs aforestated checking account. BPI
used the check to trace the perpetrators of the forgery. Immediately, private respondent
notified CIFC of the dishonored CHECK and demanded, on several occasions, that he
be paid in cash. CIFC refused the request, and instead instructed private respondent to
wait for its ongoing bank reconciliation with BPI. Thereafter, private respondent, through
counsel, made a formal demand for the payment of his money market placement. In
turn, CIFC promised to replace the CHECK but required an impossible condition that
the original must first be surrendered.
Issue: Whether or not the payment of negotiable instrument is a valid tender of

payment.
Ruling: In the case at bar, the money market transaction between the petitioner and the
private respondent is in the nature of a loan. The private respondent accepted the
CHECK, instead of requiring payment in money. Yet, when he presented it to RCBC for
encashment, as early as June 17, 1991, the same was dishonored by non-acceptance.
These facts were testified to by BPIs manager. Under these circumstances, and after
the notice of dishonor, the holder has an immediate right of recourse against the drawer,
and consequently could immediately file an action for the recovery of the value of the
check. In a loan transaction, the obligation to pay a sum certain in money may be paid
in money, which is the legal tender or, by the use of a check. A check is not a legal
tender, and therefore cannot constitute valid tender of payment. Since a negotiable
instrument is only a substitute for money and not money, the delivery of such an
instrument does not, by itself, operate as payment. A check, whether a manager's check
or ordinary check, is not legal tender, and an offer of a check in payment of a debt is not
a valid tender of payment and may be refused receipt by the obligee or creditor. Mere
delivery of checks does not discharge the obligation under a judgment. The obligation is
SLU SOL 1-C Page
732
not extinguished and remains suspended until the payment by commercial document is
actually realized as stated under Article 1249 of the Civil Code.
SLU SOL 1-C Page
733
IX. Interpretation of Contracts (Arts. 1370-1379)
Art. 1370, Literal Interpretation
ADR Shipping v. Gallardo, 389 S 82
ADR SHIPPING SERVICES, INC.,

petitioner, vs.
MARCELINO GALLARDO and THE HONORABLE COURT OF APPEALS,
respondents.
G.R. No. 134873 September 17, 2002
Facts: Petitioner ADR Shipping Services, Inc. entered into a contract with private
respondent Gallardo for the use of the formers vessel MV Pacific Breeze to transport
logs to Taiwan. The logs were the subject of a sales agreement between private
respondent as seller being a timber concessionaire and log dealer, and Stywood
Philippines, as buyer. Private respondent paid an advance charter fee of P242,000
representing ten percent of the agreed charter fee. Under the charter agreement, the
boat should be ready to load by February 5, 1988.
The boat failed to arrive on time, prompting private respondent to notify petitioner of its
cancellation of the charter contract and the withdrawal of the advance payment
deposited to the account of ADR shipping. ADR Shipping refused to return the advance
payment to Gallardo claiming that the agreement on the date of February 5, 1988 was
just the reference commencing date and the true loading date was February 16, 1988.
This prompted the latter to file a case for sum of money and damages. The Regional
Trial Court ordered ADR Shipping to pay Gallardo the advance payment with 6 percent
interest per annum and attorneys fees. The decision of the trial court was affirmed by
the Court of Appeals. Hence, this petition.
Issue: Whether or not private respondent is entitled to the refund of the advance
payment representing his deposit for the charter of the ship provided by petitioner.
Ruling: Private respondent is entitled to the refund of the advance payment it made to
petitioner.
There was ambiguity in the interpretation of the contract provisions as to the date of the
loading of the ship. Ambiguities in a contract are interpreted strictly, albeit not
unreasonably, against the drafter thereof when justified in light of the operative facts and
surrounding circumstances. In this case, ambiguity must be construed strictly against
ADR which drafted and caused the inclusion of the ambiguous provisions.
The charter agreement explicitly states that February 5, 1988 is the intended date when
the ship is expected ready to load while February 16, 1988 is merely the cancelling
date. Considering that the subject contract contains the foregoing express provisions,
SLU SOL 1-C Page
734
the parties have no other recourse but to apply the literal meaning of the stipulations.
The cardinal rule is that when the terms of the contract are clear, leaving no doubt as to
the intention of the parties, the literal meaning of its stipulations is controlling.
Pursuant to the provision of Art 1191 of the Civil Code, the power to rescind obligations
is implied in reciprocal ones in case one of the obligors should not comply with what is
incumbent upon him, and the injured party may rescind the obligation, with payment of
damages. In this case the private respondent is entitled to the return of his down
payment, subject to a legal interest of 6 percent per annum, and to the payment of
damages.
SLU SOL 1-C Page
735
Arts. 1371-1379, In Case of Doubt
Movido v. Pastor, 11 February 2010
VALENTIN MOVIDO, substituted by MARGINITO MOVIDO, petitioner,

vs.
LUIS REYES PASTOR, respondent.
G.R. No. 172279 February 11, 2010
Facts: Respondent Luis Reyes Pastor filed a complaint for specific performance in the
Regional Trial Court (RTC) of Imus, Cavite, praying that petitioner Valentin Movido be
compelled to cause the survey of a parcel of land subject of their contract to sell. In his
complaint, respondent alleged that he and petitioner executed a kasunduan sa bilihan
ng lupa where the latter agreed to sell a parcel of land located in Paliparan,
Dasmarias, Cavite with an area of some 21,000 sq. m. out of the 22,731 sq. m.
covered by Transfer Certificate of Title (TCT) No. 362995 at P400/sq. m. Respondent
further alleged that another kasunduan was later executed supplementing the
kasunduan sa bilihan ng lupa. It provided that, if a Napocor power line traversed the
subject lot, the purchase price would be lowered to P200/sq. m. beyond the distance of
15 meters on both sides from the center of the power line while the portion within a
distance of 15 meters on both sides from the center of the power line would not be paid.
Respondent likewise claimed that petitioner undertook to cause the survey of the
property in order to determine the portion affected by the Napocor power line. Lastly,
respondent alleged that he already paid petitioner P5 million out of the original purchase
price of P8.4 million stated in the kasunduan sa bilihan ng lupa. He was willing and
ready to pay the balance of the purchase price but due to petitioners refusal to have the
property surveyed despite incessant demands, his unpaid balance could not be
determined with certainty.
Issue: Whether or not the petitioners contention that it was the kasunduan, not the
kasunduan sa bilihan ng lupa, which was first executed by the parties is correct.
Ruling: The issue of which of the two contracts was first executed by the parties is
immaterial to the resolution of this case. In the first place, both contracts were executed
and notarized on the same day, December 6, 1993. More importantly, both contracts,
even independent of the time of their execution but, taken together, clearly spell out in
full the respective rights and obligations of the parties. Indeed, a reading of the
kasunduan sa bilihan ng lupa and the kasunduan would readily reveal that payment of
the purchase price does not depend on the survey of the property. In other words, the
purchase price should be paid whether or not the property is surveyed. The survey of
the property is important only insofar as the right of respondent to the reduction of the
purchase price is concerned. On the other hand, the survey of the property to determine
the metes and bounds of the 1,731 sq. m. portion that is excluded from the contract as
well as the portions covered by the kasunduan which will be subject to reduction of the
purchase price, is also not conditioned on the payment of any installment. Petitioner
SLU SOL 1-C Page
736
simply has to do it. In fact, under the kasunduan sa bilihan ng lupa, the survey should
be done before the date of the last installment. Hence, the survey could have been
done any time after the execution of the agreement.
SLU SOL 1-C Page
737
TSPIC CORPORATION, petitioner,

vs.
TSPIC EMPLOYEES UNION (FFW), representing MARIA FE FLORES, FE
CAPISTRANO, AMY DURIAS, CLAIRE EVELYN VELEZ, JANICE OLAGUIR, JERICO
ALIPIT, GLEN BATULA, SER JOHN HERNANDEZ, RACHEL NOVILLAS, NIMFA
ANILAO, ROSE SUBARDIAGA, VALERIE CARBON, OLIVIA EDROSO, MARICRIS
DONAIRE, ANALYN AZARCON, ROSALIE RAMIREZ, JULIETA ROSETE, JANICE
NEBRE, NIA ANDRADE, CATHERINE YABA, DIOMEDISA ERNI, MARIO
SALMORIN, LOIDA COMULLO, MARIE ANN DELOS SANTOS, JUANITA YANA, and
SUZETTE DULAY, respondents.
G.R. No. 163419 February 13, 2008
Facts: TSPIC Employees Union is the registered bargaining agent of the rank-and-file
employees of TSPIC.
In 1999, TSPIC and the Union entered into a Collective Bargaining Agreement (CBA) for
the years 2000 to 2004. The CBA included a provision on yearly salary increases
starting January 2000 until January 2002.
In January, 2000, all the regular rank-and-file employees of TSPIC received a 10%
increase in their salary. Accordingly, the 9 respondents (first group) who were already
regular employees received the said increase.
The CBA also provided that employees who acquire regular employment status within
the year but after the effectivity of a particular salary increase shall receive a
proportionate part of the increase upon attainment of their regular status.
The Regional Tripartite Wage and Productivity Board of NCR raised the daily minimum
wage from P223.50 to P250 effective November 1, 2000 (Wage Order No. 8).
Conformably, the wages of 17 probationary employees (second group) were increased

to P250.00 effective November 1, 2000.
On various dates during the last quarter of 2000, the 17 employees attained regular
employment and received 25% of 10% of their salaries.
In January 2001, TSPIC implemented the new wage rates as mandated by the CBA. As
a result, the 9 employees (first group), who were senior to the recently regularized
employees, received less wages.
A few weeks after the salary increase for 2001 became effective, TSPICs Human
Resources Department notified 24 employees that, due to an error in the automated
payroll system, they were overpaid and the overpayment would be deducted from their
SLU SOL 1-C Page
738
salaries in a staggered basis, starting February 2001. TSPIC explained that the
correction of the erroneous computation was based on the crediting provision of the
CBA.
The Union asserted that there was no error and the deduction of the alleged
overpayment from employees constituted diminution of pay.
TSPIC and the Union agreed to undergo voluntary arbitration. In September 2001,
Arbitrator Jimenez held that the unilateral deduction made by TSPIC violated Art. 100 of
the Labor Code.
TSPIC filed before the CA a petition for review. The CA dismissed the petition and
affirmed in toto the decision of the voluntary arbitrator.
Issue: Whether or not the increase granted by WO No. 8 should be credited to the
increase granted under the CBA.
Ruling: A Collective Bargaining Agreement is the law between the parties. If the terms
of a contract, as in a CBA, are clear and leave no doubt upon the intention of the
contracting parties, the literal meaning of their stipulations shall control. However,
sometimes, though the provisions of the CBA seem clear and unambiguous, the parties
sometimes arrive at conflicting interpretations.
As a general rule, in the interpretation of a contract, the intention of the parties is to be

pursued. An instrument must be interpreted according to the intention of the parties.
Considering that the parties have unequivocally agreed to substitute the benefits
granted under the CBA with those granted under wage orders, the agreement must
prevail and be given full effect.
SLU SOL 1-C Page
739
SPOUSES RAFAEL and ZENAIDA ESTANISLAO, petitioners,

vs.
EAST WEST BANKING CORPORATION, respondent.
G.R. No. 178537 February 11, 2008
Facts: Spouses Rafael and Zenaida Estanislao obtained a loan from East West
Banking Corporation evidenced by a promissory note and secured by two deeds of
chattel mortgage of two dump trucks and a bulldozer for the first and bulldozer and a
wheel loader for the other. Spouses defaulted in the amortizations and the entire
obligation became due and demandable. The bank filed a suit for replevin with damages
but subsequently, the bank moved for suspension of the proceedings on account of an
earnest attempt to arrive at an amicable settlement of the case. Both parties executed a
Deed of Assignment, drafted by the bank, where it provides that the two dump trucks
and the bulldozer shall be transferred, assigned and conveyed for the full payment of
the debt. But the bank, for an unknown reason failed to sign on the deed, but it
accepted the three heavy vehicles freely and voluntarily upon delivery made by the
petitioner. After some time, the bank file a petition in court praying for the deliver of the
other heavy vehicles mortgaged in the second chattel mortgage. The regional trial court
dismissed the complaint for lack of merit but it was reversed and set aside by the court
of appeals.
Issue: Whether or not the Deed of Assignment, unsigned by private respondent,

extinguishes the whole and full obligation of the petitioner.
Ruling: The deed of assignment was a perfected agreement which extinguished

petitioners total outstanding obligation to the respondent. The deed explicitly provides
that the assignor (petitioners), in full payment of its obligation, shall deliver the three
units of heavy equipment to the assignee (respondent), which accepts the assignment
in full payment of the above-mentioned debt. This could only mean that should
petitioners complete the delivery of the three units of heavy equipment covered by the
deed, respondents credit would have been satisfied in full, and petitioners aggregate
indebtedness would then be considered to have been paid in full as well. The nature of
the assignment was a dation in payment, whereby property is alienated to the creditor in
satisfaction of a debt in money. Such transaction is governed by the law on sales. Even
if we were to consider the agreement as a compromise agreement, there was no need
for respondents signature on the same, because with the delivery of the heavy
equipment which the latter accepted, the agreement was consummated. Respondents
approval may be inferred from its unqualified acceptance of the heavy equipment.
SLU SOL 1-C Page
740

vs.
G.R. No. 166704 December 20, 2006
Facts: Agrifina Aquintey filed a complaint for sum of money and damages against the
respondents, spouses Felicidad and Rico Tibong. Agrifina alleged that Felicidad had
secured loans from her on several occasions, at monthly interest rates. Despite
demands, the spouses Tibong failed to pay their outstanding loan exclusive of interests.
Spouses Tibong admitted that they had secured loans from Agrifina. The proceeds of
the loan were then re-lent to other borrowers at higher interest rates. They, likewise,
alleged that they had executed deeds of assignment in favor of Agrifina, and that their
debtors had executed promissory notes in Agrifina's favor. According to the spouses
Tibong, this resulted in a novation of the original obligation to Agrifina. They insisted that
by virtue of these documents, Agrifina became the new collector of their debtors; and
the obligation to pay the balance of their loans had been extinguished.
Issue: Whether or not consent is necessary in novation.
Ruling: Novation which consists in substituting a new debtor (delegado) in the place of
the original one (delegante) may be made even without the knowledge or against the
will of the latter but not without the consent of the creditor. Substitution of the person of
the debtor may be effected by delegacion, meaning, the debtor offers, and the creditor
(delegatario), accepts a third person who consents to the substitution and assumes the
obligation. Thus, the consent of those three persons is necessary. In this kind of
novation, it is not enough to extend the juridical relation to a third person; it is necessary
that the old debtor be released from the obligation, and the third person or new debtor
takes his place in the relation. Without such release, there is no novation; the third
person who has assumed the obligation of the debtor merely becomes a co-debtor or a
surety. If there is no agreement as to solidarity, the first and the new debtor are
considered obligated jointly. Therefore, the Court agrees with the appellate courts
decision that respondents' obligation to pay the balance of their account with petitioner
was extinguished, pro tanto, by the deeds of assignment of credit executed by
respondent Felicidad in favor of petitioner.
SLU SOL 1-C Page
741
Cruz v. CA, 456 165
DR. NINEVETCH CRUZ, petitioner,

vs.
COURT OF APPEALS and LYDIA UMALI, respondents.
G.R. No. 122445 November 18, 1997
Facts: Lydia Umali was examined by Dr. Cruz who found a myoma [benign tumor] in
her uterus, and scheduled her for a hysterectomy operation [removal of uterus] on 23
Mar 1991. Rowena Umali de Ocampo accompanied her mother to the hospital a day
before the operation, and they spent the night there. Rowena noticed that the clinic was
untidy, so she tried to persuade her mother not to proceed with the operation. The
following day, Rowena asked Dr. Cruz if the operation could be postponed, but Lydia
told her daughter that Dr. Cruz said that the operation must go on as scheduled.
While Lydias relatives were waiting, Dr. Ercillo (anesthesiologist) told them to buy
tagamet ampules, and Rowenas sister went out to buy some. An hour later, Dr. Ercillo
asked them to buy blood for Lydia, so they did. A few hours later, the operation was
finished, but later, Dr. Cruz asked the family to buy additional blood, but there was no
more type A blood available in the blood bank. A person arrived to donate blood which
was later transfused to Lydia. Rowena noticed that her mother was gasping for breath
apparently, the oxygen supply had run out, so the family went out to buy oxygen. Later
in the evening, she went into shock and her blood pressure dropped. She was then
transferred to another hospital so she could be connected to a respirator and further
examined. However, this transfer was without the consent of the relatives, who only
found out about it when an ambulance came to take Lydia to the other hospital.
In the new hospital, she was re-operated upon by Dr. Cruz and Dr. Ercillo because
blood was oozing out from her incision. They summoned Dr. Angeles, Ob-Gyne head of
the new hospital, but when he arrived, Lydia was already in shock and possibly dead
(BP: 0/0). Dr. Angeles told Drs. Cruz and Ercillo that there was nothing he could do.
Lydia died while Dr. Cruz was closing her abdominal wall. Immediate cause of death is
shock; disseminated intravascular coagulation (DIC) as antecedent cause.
Dr. Cruz and Dr. Ercillo were charged with reckless imprudence and negligence
resulting in homicide of Lydia Umali. The Municipal Trial Court in Cities (MTCC) found
Dr. Ercillo not guilty for insufficiency of evidence against her, but held Dr. Cruz
responsible for Umalis death. RTC and CA affirmed MTCC.
Issue: Whether or not the circumstances are sufficient to sustain a judgment of

conviction against Dr. Cruz for reckless imprudence resulting in homicide.
Ruling: No. Dr. Cruz is acquitted, but she is still civilly liable.
The elements of reckless imprudence are: 1) the offender does or fails to do an act, 2)
Doing or failure to do act is voluntary, 3) without malice, 4) material damage results from
SLU SOL 1-C Page
742
reckless imprudence and 5) there is inexcusable lack of precaution, taking into
consideration offenders employment, degree of intelligence, physical condition, other
circumstances re: persons, time, place.
When the physicians qualifications are admitted, there is an inevitable presumption that
in proper cases, he takes the necessary precaution and employs the best of his
knowledge and skill in attending to his clients, unless the contrary is sufficiently
established by expert testimony.
While it may be true that the circumstances pointed out by the lower courts constitute
reckless imprudence, this conclusion is still best arrived not through the educated
surmises nor conjectures of laymen, including judges, but by the unquestionable
knowledge of expert witnesses. The deference of courts to the expert opinion of
qualified physicians stems from the realization that the latter possess unusual technical
skills which laymen are incapable of intelligently evaluating.
Plaintiff has the burden to establish this, and for a reasonable conclusion of negligence,
there must be proof of breach of duty on the part of the surgeon, as well as a causal
connection of such breach and the resulting death of patient. Negligence cannot create
a right of action unless it is the proximate cause of the injury complained of (Chan
Lugay v. St. Lukes Hospital, Inc.). In this case, no cogent proof exists that the
circumstances caused Lydias death, so the 4th element of reckless imprudence is
missing.
The testimonies of the doctors presented by the prosecution establish

hemorrhage/hemorrhagic shock as the cause of death, which may be caused by several
different factors. Autopsy did not reveal any untied cut blood vessel, nor was there a tie
of a cut blood vessel that became loose. The findings of the doctors do not preclude the
probability that a clotting defect (DIC) caused the hemorrhage and consequently,
Lydias death.
The Court has no recourse but to rely on the expert testimonies that substantiate Dr.
Cruz allegation that the cause of Lydias death was DIC, which cannot be attributed to
Dr. Cruz fault or negligence. This probability was unrebutted during trial.
SLU SOL 1-C Page
743
Gonzales v. CA, 354 S 8
RIZALINA GABRIEL GONZALES, petitioner,

vs.
HONORABLE COURT OF APPEALS and LUTGARDA SANTIAGO, respondents.
G.R. No. L-37453 May 25, 1979
Facts: Private respondents, Mr. and Mrs. Gabriel Caballero, are the registered owners
of two parcels of land situated in Cubao, Quezon City described in Transfer Certificate
of Title No. 247309 (Lot 1) and TCT No. 247310 (Lot 2). The spouses residence stood
in Lot 2.
Sometime in 1979, they obtained a loan from the Cavite Development Bank in the
amount of P225,000.00. The two lots were mortgaged to secure their loan. The loan
matured in 1984. To pay the loan they offered Lot 1 for sale. The offer was advertised in
the Bulletin Today. However, offers to purchase from prospective buyers did not
materialize.
On October 24, 1985, a certain Mrs. Lagrimas approached the spouses offering to
broker the sale to an interested buyer. Initially, the spouses told the broker that they
were selling only to direct buyers. Nonetheless, Mrs. Lagrimas brought to the spouses
her buyer, herein petitioner
Napoleon H. Gonzales, who turned out to be Mrs. Lagrimas relative.
Petitioner offered to buy the vacant lot for P470,000.00. Initially, respondents refused to
reduce their asking price. Petitioner bargained for a lower price with the suggestion that
on paper the price will be markedly lower so the spouses would pay lower capital gains
tax. Petitioner assured the spouses this could be done since he had connections with
the Bureau of Internal Revenue. The spouses agreed to sell at P470.000.00. Petitioners
paid the bank P375,000.00, to be deducted from the purchase price. After the mortgage
was cancelled and upon release of the two titles, Gonzales asked for the deeds of sale
of the two lots and delivery of the titles to him. Defendants signed the deed of sale
covering only Lot 1 but refused to deliver its title until petitioner paid the remaining
balance of P70,000.00
This prompted petitioner to file a complaint for specific performance and damages.
Issue: Whether or not the sale involved only Lot 1 and not both Lots.
Ruling: Principally, the issue here is whether the contract of sale between the parties
involved Lot 1 and 2 as claimed by petitioner or only Lot 1 as private respondents
contend. In a case where we have to judge conflicting claims on the intent of the parties,
as in this instance, judicial determination of the parties intention is mandated.
SLU SOL 1-C Page
744
Contemporaneous and subsequent acts of the parties material to the case are to be
considered.
Petitioner admits he himself caused the preparation of the deed of sale presented
before the lower court. Yet he could not explain why I referred only to the sale of Lot 1
and not to the two lots, if the intention of the parties was really to cover the sale of two
lots. As the courts a quo observed, even if it were true that two lots were mortgaged and
were about to be foreclosed, the ads private respondents placed in the Bulletin Today
offered only Lot 1 and was strong indication that they did not intend to sell Lot 2. The
501 sq.m. lot was offered for P1,150.00 per sq. m. It alone would have fetched
P576,150.00. The loan still to be paid the bank was only P375,000.00 which was what
petitioner actually paid the bank. As the trial court observed, it was incomprehensible
why the spouses would part with two lots, one with a 2-storey house, and both situated
at a prime commercial district for less than the price of one lot. Contrary to what
petitioner would make us believe, the sale of Lot 1 valued at P576,150.00 for
P470,000.00, with petitioner assuming the bank loan of P375,000.00 as well as
payment of the capital gains tax, appears more plausible.
SLU SOL 1-C Page
745
Almira v. CA, 399 S 351
JUANA ALMIRA, RENATO GARCIA, ROGELIO GARCIA, RODOLFO GARCIA,

ROSITA GARCIA, RHODORA GARCIA, ROSALINDA GARCIA, ROLANDO GARCIA
and RAFAEL GARCIA Represented in this suit by EDGARDO ALVAREZ, petitioners,
vs.
COURT OF APPEALS AND FEDERICO BRIONES, respondents.
G.R. No. 115966 March 20, 2003
Facts: Petitioners are the wife and the children of the late Julio Garcia who inherited
from his mother, Ma. Alibudbud, a portion of a 90,655 square meter property
denominated as lot 1642 of the Sta. Rosa Estate in Brgy. Caingin Sta. Rosa Laguna.
The lot was co-owned and registered in the names of three persons with the following
shares: Vicente de Guzman (1/2), Enrique Hemedes (1/4) and Francisco Alibudbud, the
father of Ma. Alibudbud (1/4). Although there was no separate title in the name of Julio
Garcia, there were tax declaration in his name to the intent of his grandfathers share
covering the area of 21460 square meter. On July 5, 1984, petitioner as heirs of Julio
Garcia, and respondent Federico Brines entered a Kasunduan ng Pagbibilihan
(Kasunduan for Brevity) over the 21460 square meter portion for the sum of
P150.000.00. Respondent paid P65, 000.00 upon execution of the contract while the
balance of P85, 000.00 was made payable within six (6) months from the date of the
execution of the instrument. The time of the execution of the kasunduan, petitioners
allegedly informed respondent that TCT No. RT-1076 was in the possession of their
cousin, Conchila Alibudbud, who having bought Vicente de Guzmans shares, owned
the bigger portion of lot 1642. This standing notwithstanding, respondent willingly
entered into the Kasunduan provided that the full payment of the purchase price will be
made upon delivery to him of the title. Respondent took possession of the property
subject of the Kasunduan and made various payments to petitioners amounting to
P58,500.00. However upon failure of petitioner to deliver to him a separate title to the
property in the name of Julio Garcia he refused to make further payments, prompting
petitioner to file a civil action before the RTC for a rescission of the Kasunduan, return
by respondent to petitioner of the possession of the subject parcel of land, and payment
by respondent of damages in favor of petitioners.
Issue: Whether or not the petitioner may rescind the Kasunduan pursuant to Article
1191 of the Civil Code for the failure of respondent to give full payment of the balance of
the purchase price.
Ruling: The right of the parties is governed by the terms and the nature of the contract
they entered. Hence, although the nature of the Kasunduan was never places in dispute
by both parties, it is necessary to ascertain whether the Kasunduan is a contract to sell
or a contract of Sale. Although both parties have consistency referred to the Kasunduan
as a contract to Sell, a careful reading of the provision of the Kasunduan reveals that it
is a contract of Sale. A deed of sale is absolute in nature in the absence of any
SLU SOL 1-C Page

746
stipulation reserving title to the vendor until full payment of the purchase price. The
delivery of a separation title in the name of Julio Garcia was a condition imposed on
respondents obligation to pay the balance of the purchase price. It was not a condition
imposed in the perfection of the contract of Sale. The rescission will not prosper since
the power to rescind is only given to the injured party. The injured party is the party who
has faithfully fulfilled his obligation. In the case at bar, the petitioners were not ready,
willing and able to comply with their obligation to deliver a separate title in the name of
Julio Garcia to respondent therefore, they are not in a position to ask for rescission.
Failure to comply with a condition imposed on the performance of an obligation gives
the other party the option either to refuse to proceed with the sale or to waive the
condition under Art 1545 of the civil code. Hence it is the respondent who has the
option.
SLU SOL 1-C Page
747
Doctrine of "complementary contracts construed together"
Philbank v. Lim, 455 SCRA 714, 721
PHILIPPINE BANK OF, COMMUNICATIONS, petitioners,

vs.
ELENA LIM, RAMON CALDERON, and TRI-ORO INTERNATIONAL TRADING &
MANUFACTURING CORPORATION, respondents.
G.R. No. 158138 April 12, 2005
Facts: On September 3, 1999, the Philippine Bank of Communications (hereinafter

petitioner) filed a complaint against [Respondents Elena Lim, Ramon Calderon and Tri-
Oro International Trading & Manufacturing Corporation (Tri-Oro for brevity) with the
Regional Trial Court of Manila for the collection of a deficiency amounting to
P4,014,297.23 exclusive of interest. Petitioner alleged therein that [respondents]
obtained a loan from it and executed a continuing surety agreement dated November
16, 1995 in favor of [petitioner] for all loans, credits, etc., that were extended or may be
extended in the future to respondents. Petitioner granted a renewal of said loan upon
respondents request, the most recent being on January 21, 1998 as evidenced by
Promissory Note Renewal BD-Variable No. 8298021001 in the amount of
P3,000,000.00. It was expressly stipulated therein that the venue for any legal action
that may arise out of said promissory note shall be Makati City, to the exclusion of all
other courts. Respondents allegedly failed to pay said obligation upon maturity. Thus,
petitioner foreclosed the real estate mortgage executed by respondents valued at
P1,081,600.00 leaving a deficiency balance of P4,014,297.23 as of August 31, 1999.
Respondents moved to dismiss the complaint on the ground of improper venue,
invoking the stipulation contained in the last paragraph of the promissory note with
respect to the restrictive/exclusive venue. The trial court denied said motion
asseverating that [petitioner] ha[d] separate causes of action arising from the
promissory note and the continuing surety agreement. Thus, under Rule 4, Section 2, of
the 1997 Rules of Civil Procedure, as amended, venue was properly laid in Manila. The
trial court supported its order with cases where venue was held to be merely
permissive. A motion for reconsideration of said order was likewise denied.
Issue: Whether or not the Honorable Court of Appeals had decided the issue of venue
in a way not in accord with law and applicable decisions of this Honorable Court and
had thereby departed from the accepted and usual course of judicial proceedings, as to
call for this Honorable Supreme Courts power of supervision and appellate review.
Ruling: Petitioners final plea for liberality in applying the rules on venue must be
rejected. As earlier discussed, the PN was a contract of adhesion. Ambiguities therein
are to be construed against the party that prepared the contract. On the same principle,
petitioner can no longer disavow the stipulation on venue, considering that it drafted the
Surety Agreement. Besides, this alleged technicality caused no miscarriage of
substantial justice, as petitioner may re-file the case. The inconveniences brought about
SLU SOL 1-C Page
748
by its failure to observe the rules on venue sprang from its own acts. Hence, it cannot
blame the courts or anyone else for the resulting delay in the adjudication of the merits
of its cause.
SLU SOL 1-C Page
749
Rigor v. Consolidated Leasing, 387 S 437
SPOUSES EFREN N. RIGOR and ZOSIMA D. RIGOR owners of CHIARA

CONSTRUCTION, petitioner,
vs.
CONSOLIDATED ORIX LEASING and FINANCE CORPORATION, respondent.
G.R. No. 136423 August 20, 2002
Facts: Petitioners obtained a loan from private respondent Consolidated Orix Leasing
and Finance Corporation in the amount of P1,630,320.00. Petitioners executed a
promissory note on July 31, 1996 promising to pay the loan in 24 equal monthly
installments of P67,930.00 every fifth day of the month commencing on September 5,
1996. The promissory note also provides that default in paying any installment renders
the entire unpaid amount due and payable. To secure payment of the loan, petitioners
executed in favor of private respondent a deed of chattel mortgage over two dump
trucks. Petitioners failed to pay several installments despite demand from private
respondent. On January 5, 1998, private respondent sought to foreclose the chattel
mortgage by filing a complaint for Replevin with Damages against petitioners before the
Regional Trial Court of Dagupan City. After service of summons, petitioners moved to
dismiss the complaint on the ground of improper venue based on a provision in the
promissory note which states that all legal actions arising out of this note or in
connection with the chattels subject hereof shall only be brought in or submitted to the
proper court in Makati City, Philippines. Private respondent opposed the motion to
dismiss and argued that venue was properly laid in Dagupan City where it has a branch
office based on a provision in the deed of chattel mortgage which states that, x x x in
case of litigation arising out of the transaction that gave rise to this contract, complete
jurisdiction is given the proper court of the city of Makati or any proper court within the
province of Rizal, or any court in the city, or province where the holder/mortgagee has a
branch office, waiving for this purpose any proper venue. After a further exchange of
pleadings, the Dagupan trial court denied petitioners motion to dismiss Not satisfied
with the orders, petitioners filed a petition for certiorari before the Court of Appeals
imputing grave abuse of discretion by the Dagupan trial court in denying the motion to
dismiss which was denied.
Issue: Whether or not venue was properly laid under the provisions of the chattel
mortgage contract in the light of Article 1374 of the Civil Code.
Ruling: Yes. Art. 1374 provides that the various stipulations of a contract shall be
interpreted together, attributing to the doubtful ones that sense which may result from all
of them taken jointly. Applying the doctrine to the instant case, we cannot sustain
petitioners contentions. The promissory note and the deed of chattel mortgage must be
construed together. Private respondent explained that its older standard promissory
notes confined venue in Makati City where it had its main office. After it opened a
branch office in Dagupan City, private respondent made corrections in the deed of
chattel mortgage, but due to oversight, failed to make the corresponding corrections in
SLU SOL 1-C Page
750
the promissory notes. Petitioners affixed their signatures in both contracts. The
presumption is applied that a person takes ordinary care of his concerns. It is presumed
that petitioners did not sign the deed of chattel mortgage without informing themselves
of its contents. As aptly stated in a case, they being of age and businessmen of
experience, it must be presumed that they acted with due care and have signed the
documents in question with full knowledge of their import and the obligation they were
assuming thereby. In any event, petitioners did not contest the deed of chattel mortgage
under Section 8, Rule 8 of the Revised Rules of Civil Procedure.
As held in Velasquez, this omission effectively eliminated any defense relating to the
authenticity and due execution of the deed, e.g. that the document was spurious,
counterfeit, or of different import on its face as the one executed by the parties; or that
the signatures appearing thereon were forgeries; or that the signatures were
unauthorized. Clearly, the Court of Appeals did not err in ruling that venue was properly
laid in Dagupan City as provided in the deed of chattel mortgage. The Court holds that
private respondent is not barred from filing its case against petitioners in Dagupan City
where private respondent has a branch office as provided for in the deed of chattel
mortgage. Petition denied.
SLU SOL 1-C Page
751
Velasquez v. CA, 30 June 1999
ODOLFO P. VELASQUEZ, petitioner,

vs.
COURT OF APPEALS, and PHILIPPINE COMMERCIAL INTERNATIONAL BANK,
INC., respondents.
G.R. No. 124049 June 30, 1999
Facts: The case arose from a complaint for a sum of money with preliminary
attachment filed with the Regional Trial Court of Makati City by private respondent
Philippine Commercial International Bank (PCIB) against petitioner Rodolfo P.
Velasquez together with Mariano N. Canilao Jr., Inigo A. Nebrida, Cesar R. Dean and
Artemio L. Raymundo. Sometime in December 1994 the Pick-up Fresh Farms, Inc.
(PUFFI), of which petitioner Velasquez was an officer and stockholder, filed an
application for a loan of P7,500,000.00 with PCIB under the government's Guarantee
Fund for Small and Medium Enterprises (GFSME). On 16 April 1985 the parties
executed the corresponding loan agreement. As security for the loan, promissory notes
numbered TL 121231 and TL 121258 for the amounts of P4,000,000.00 and
P3,500,000.00, respectively, were signed by Inigo A. Nebrida and Mariano N. Canilao,
Jr. as officers of and for both PUFFI and Aircon and Refrigeration Industries, Inc. (ARII).
A chattel mortgage was also executed by ARII over its equipment and machineries in
favor of PCIB. Petitioner along with Nebrida and Canilao, Jr. also executed deeds of
suretyship in favor of PCIB. Separate deeds of suretyship were further executed by
Cesar R. Dean and Artemio L. Raymundo. When PUFFI defaulted in the payment of its
obligations PCIB foreclosed the chattel mortgage. The proceeds of the sale amounted
to P678,000.00. Thus, PCIB filed an action to recover the remaining balance of the
entire obligation including interests, penalties and other charges. Exemplary damages
and attorneys fees of 25% of the total amount due were also sought. On 9 October
1989 a writ of preliminary attachment was granted by the trial court. On 20 June 1990
the trial court rendered a summary judgment in favor of PCIB holding petitioner and
Canilao solidarily liable to pay P7,227,624.48 plus annual interest of 17%, and
P700,000.00 as attorneys fees and the costs of suit. The case was dismissed without
prejudice with regard to the other defendants as they were not properly served with
summons. On appeal, the Court of Appeals on 28 September 1995 affirmed in toto the
RTC judgment. Petitioners motion for reconsideration was thereafter denied. Hence this
petition.
Issue: Whether or not the appellate court committed reversible error in sustaining or
affirming the summary judgment despite the existence of genuine triable issues of facts
and in refusing to set aside the default order against petitioner.
Ruling: The more appropriate doctrine in this case is that of the complementary
contracts construed together doctrine. The surety bond must be read in its entirety and
together with the contract between the NPC and the contractors. The provisions must
be construed together to arrive at their true meaning. Certain stipulations cannot be
SLU SOL 1-C Page

752
segregated and then made to control. That the complementary contracts construed
together doctrine applies in this case finds support in the principle that the surety
contract is merely an accessory contract and must be interpreted with its principal
contract, which in this case was the loan agreement. This doctrine closely adheres to
the spirit of Art. 1374 of the Civil Code which states that Art. 1374. The various
stipulations of a contract shall be interpreted together, attributing to the doubtful ones
that sense which may result from all of them taken jointly. Applying the complementary
contracts construed together doctrine leaves no doubt that it was the intention of the
parties that petitioner would be personally liable in the deed of suretyship because the
loan agreement, among others, provided to further secure the obligations of the
BORROWER to the LENDER, Messrs. Nebrida, Raymundo, Canilao, Dean and
Velasquez and Aircon and Refrigeration Ind. Inc. shall each execute a suretyship
agreement in favor of the LENDER in form and substance acceptable to the LENDER.
SLU SOL 1-C Page
753
X. Defective Contracts
Rescission vs. Resolution
HEIRS OF SOFIA QUIRONG, Represented by ROMEO P. QUIRONG, petitioners,

vs.
G.R. No. 173441 December 3, 2009
Facts: The late Emillo Daloppe left a parcel of land to his wife Felisa and nine children.
To enable one of the children (Rosa Dalope-Funcion) to get a loan from the
Development Bank of the Philippines (DBP), Felisa sold the parcel of land to Funcions.
The Funcions failed to pay the loan. DBP subsequently foreclosed the mortgage and
made a conditional sale of the land to Sofia Quirong for PhP78,000. In their contract of
sale, Sofia Quirong waived any warranty against eviction. The contract provided that the
DBP did not guarantee possession of the property and that it would not be liable for any
lien or encumbrance on the same. Quirong gave a down payment of P14,000.00.
Two months after the conditional sale to Quirong, Felisa and her eight other children
subsequently filed an action for partition and declaration of nullity of documents with
damages against DBP and the Funcions before the Regional Trial Court (RTC) of
Dagupan City. Notwithstanding the suit, the DBP executed a deed of absolute sale of
the subject lot in Sofia Quirongs favor. The deed of sale carried substantially the same
waiver of warranty against eviction and of any adverse lien or encumbrance.
Sofia Quirong having since died, her heirs filed an answer in intervention in which they
asked the RTC to award the lot to them and, should it instead be given to the Dalopes,
to allow the Quirong heirs to recover the lots value from the DBP. Because the heirs
failed to file a formal offer of evidence, the trial court did not rule on the merits of their
claim to the lot and, alternatively, to relief from DBP.
The RTC rendered a decision, declaring DBPs sale to Sofia Quirong valid only with
respect to the shares of Felisa and Rosa Funcion in the property. It declared Felisas
sale to the Funcions, the latters mortgage to the DBP, and the latters sale to Sofia
Quirong void insofar as they prejudiced the shares of the eight other children of Emilio
and Felisa who were each entitled to a tenth share in the subject lot.
The Quirong heirs then filed an action against DBP before the RTC of Dagupan City for
rescission of the contract of sale between Sofia Quirong, their predecessor, and the
DBP and praying for the reimbursement of the price of P78,000.00 that she paid the
bank plus damages. The heirs alleged that they were entitled to the rescission of the
sale because the decision in Civil Case D-7159 stripped them of nearly the whole of the
lot that Sofia Quirong, their predecessor, bought from DBP. DBP filed a motion to
SLU SOL 1-C Page
754
dismiss the action on ground of prescription and res judicata but the RTC denied their
motion.
Issue: Whether or not the heirs of Quirong were entitled to the rescission of the DBPs
sale of the subject lot to the late Sofia Quirong as a consequence of her heirs having
been evicted.
Ruling: The remedy of rescission is not confined to the rescissible contracts

enumerated under Article 1381. Article 1191 of the Civil Code gives the injured party in
reciprocal obligations, such as what contracts are about, the option to choose between
fulfillment and rescission. Arturo M. Tolentino, a well-known authority in civil law, is
quick to note, however, that the equivalent of Article 1191 in the old code actually uses
the term resolution rather than the present rescission. The calibrated meanings of
these terms are distinct.
Rescission is a subsidiary action based on injury to the plaintiffs economic interests

as described in Articles 1380 and 1381. Resolution, the action referred to in Article
1191, on the other hand, is based on the defendants breach of faith, a violation of the
reciprocity between the parties. As an action based on the binding force of a written
contract, therefore, rescission (resolution) under Article 1191 prescribes in 10 years. Ten
years is the period of prescription of actions based on a written contract under Article
1144.
SLU SOL 1-C Page
755
Arts. 1383-1385, 1389, Nature and Effects: Mutual Restitution
Lee v. Bangkok Bank, 9 February 2011
THELMA LEE, et al., petitioner,

vs.
BANGKOK BANK PUBLIC COMPANY, respondent.
G.R. No. 173349 February 09, 2011
Facts: Midas Diversified Export Corporation (MDEC) and Manila Home Textile, Inc.
(MHI) entered into two separate Credit Line Agreements (CLAs) with Respondent
Bangkok Bank Public Company, Limited (Bangkok Bank) on November 29, 1995 and
April 17, 1996, respectively. MDEC and MHI are owned and controlled by the Lee
family: Thelma U. Lee, Maybelle L. Lim, Daniel U. Lee and Samuel U. Lee (Samuel).
Both corporations have interlocking directors and management led by the Lee family;
and engaged in the manufacturing and export of garments, ladies' bags and apparel.
On July 25, 1996, MDEC was likewise granted a loan facility by Asiatrust Development
Bank, Inc. (Asiatrust). This facility had an available credit line of forty million pesos (PhP
40,000,000) for letters of credit, advances on bills and export packing; and a separate
credit line of two million dollars (USD 2,000,000) for bills purchase. In the meantime, in
May 1997, Samuel bought several parcels of land in Cupang, Antipolo, and later
entered into a joint venture with Louisville Realty and Development Corporation to
develop the properties into a residential subdivision, called Louisville Subdivision. These
properties in Cupang, Antipolo are the subject properties in the instant case (Antipolo
properties) and are covered by Transfer Certificate of Title. MDEC and MHI initially had
made payments with their CLAs until they defaulted and incurred aggregate obligations
to Bangkok Bank in the amount of USD 1,998,554.60 for MDEC and USD 800,000 for
MHI. Similarly, the Lee corporations defaulted in their obligations with other creditors On
February 16, 1998, MDEC, MHI, and three other corporations owned by the Lee family
filed before the Securities and Exchange Commission (SEC) a Consolidated Petition for
the Declaration of a State of Suspension of Payments and for Appointment of a
Management Committee/Rehabilitation Receiver. On February 20, 1998, the SEC
issued a Suspension Order enjoining the Lee corporations from disposing of their
property in any manner except in the ordinary course of business, and from making any
payments outside the legitimate expenses of their business during the pendency of the
petition. July 20, 1999, Bangkok Bank filed the instant case before the RTC. The RTC
dismissed the case. However, the CA granted the appeal, and reversed and set aside
the RTC decision. Hence, this petition.
Issue: Whether or not Bangkok Bank can maintain an action to rescind the REM on the
subject Antipolo properties despite its failure to exhaust all legal remedies to satisfy its
claim.
Ruling: The Supreme Court ruled that under Sec. 5.2 of RA 8799, the SEC's original
and exclusive jurisdiction over all cases enumerated under Sec. 5 of PD 902-A was
SLU SOL 1-C Page
756
transferred to the appropriate RTC. RA 8799, Sec. 5.2, however, expressly stated as an
exception, that the "the Commission shall retain jurisdiction over pending suspension of
payment/rehabilitation cases filed as of 30 June 2000 until finally disposed."Accordingly,
the Consolidated Petition for the Declaration of a State of Suspension of Payments and
for Appointment of a Management Committee/Rehabilitation Receiver filed on February
16, 1998 by MDEC, MHI and three other corporations owned by the Lee family,
remained under the jurisdiction of the SEC until finally disposed of pursuant to the last
sentence of Sec. 5.2 of RA 8799. The SEC's jurisdiction is evident from the statutorily
vested power of jurisdiction, supervision and control by the SEC over all corporations,
partnerships or associations, which are grantees of primary franchise, license or permit
issued by the government to operate in the Philippines, and its then original and
exclusive jurisdiction over petitions for suspension of payments of said entities. Secs. 3
and 5 of PD 902-A pertinently provides:
Sec. 3. The Commission shall have absolute jurisdiction, supervision and control over
all corporations, partnerships or associations, who are the grantees of primary franchise
and/or a license or permit issued by the government to operate in the Philippines; and in
the exercise of its authority, it shall have the power to enlist the aid and support of any
and all enforcement agencies of the government, civil or military.
Sec. 5. In addition to the regulatory and adjudicative functions of the Securities and
Exchange Commission over corporations, partnerships and other forms of associations
registered with it as expressly granted under existing laws and decrees, it shall have
original and exclusive jurisdiction to hear and decide cases involving: (d) Petitions of
corporations, partnerships or associations to be declared in the state of suspension of
payments in cases where the corporation, partnership or association possesses
sufficient property to cover all its debts but foresees the impossibility of meeting them
when they respectively fall due or in cases where the corporation, partnership or
association has no sufficient assets to cover its liabilities, but is under the management
of a Rehabilitation Receiver or Management Committee created pursuant to this
Decree.
In sum, the Supreme Court granted the petition.

SLU SOL 1-C Page
757
EQUATORIAL REALTY DEVELOPMENT, INC., petitioner,

vs.
MAYFAIR THEATER, INC., respondent.
G.R. No. 136221 June 25, 2001
Facts: Carmelo & Bauermann, Inc. used to own a parcel of land, together with two two-
storey buildings constructed thereon. On June 1, 1967, Carmelo entered into a lease
with Mayfair Theater, Inc. for a period of 20 years. The lease covered a portion of the
second floor and mezzanine. Two years later, Mayfair entered into a second lease with
Carmelo for the lease of another property, a part of the second floor and two spaces on
the ground floor. The lease was also for a period of twenty years. Both leases contained
a provision granting Mayfair a right of first refusal to purchase the said properties.
However, on July 30, 1978, within the 20-year-lease term, the subject properties were
sold by Carmelo to Equatorial Realty Development, Inc. for the sum of P11.3M without
their first being offered to Mayfair.
As a result, Mayfair filed a complaint for specific performance and damages. After trial,
the court ruled in favor of Equatorial. On appeal, the Court of Appeals reversed and set
aside the judgment of the lower court. On November 21, 1996, the Supreme Court
denied Equatorials petition for review and declared the contract between Carmelo and
Equatorial rescinded. The decision became final and executory.
On September 18, 1997, Equatorial filed an action for the collection of sum of money
against Mayfair claiming payment of rentals or reasonable compensation for the
defendants use of the premises after its lease contracts had expired. The lower court
debunked the claim of the petitioner for unpaid rentals, holding that the rescission of the
Deed of Absolute Sale in the mother case did not confer on Equatorial any vested or
residual proprietary rights, even in expectancy.
Issue: Whether or not Equatorial may collect rentals or reasonable compensation for
Mayfairs use of subject premises after its lease contracts had expired.
Ruling: No. Rent is a civil fruit that belongs to the owner of the property producing it by
right of accession. Consequently and ordinarily, the rentals that fell due from the time of
the perfection of the sale to petitioner until its rescission by final judgment should belong
to the owner of the property during that period.
Petitioner never took actual control and possession of the property sold, in view of the
respondents timely objection to the sale and continued actual possession of the
property. The objection took the form of a court action impugning the sale that was
rescinded by a judgment rendered by the Court in the mother case. It has been held
that the execution of a contract of sale as a form of constructive delivery is a legal
fiction. It holds true only when there is no impediment that may prevent the passing of
SLU SOL 1-C Page
758
the property from the hands of the vendor into those of the vendee. When there is such
impediment, fiction yields to reality; the delivery has not been effected. Hence,
respondents opposition to the transfer of property by way of sale to Equatorial was a
legally sufficient impediment that effectively prevented the passing of the property into
the latters hands.
Article 1386 of the Civil Code provides rescission, which creates the obligation to return
the things, which were the object of the contract, together with their fruits, and the price
with its interest, but also the rentals paid, if any, had to be returned by the buyer.
SLU SOL 1-C Page
759
Siguan v. Lim, 19 November 1999
MARIA ANTONIA SIGUAN, petitioner,

vs.
ROSA LIM, LINDE LIM, INGRID LIM and NEIL LIM, respondents.
G.R. No. 134685 November 19, 1999
Facts: A criminal case was filed against LIM with RTC-Cebu city for issuing 2 bouncing
checks in the amounts of P300,000 and P241,668, respectively to Siguan. Meanwhile,
on 2 July 1991, a Deed of Donation conveying the following parcels of land and
purportedly executed by LIM on 10 August 1989 in favor of her children, Linde, Ingrid
and Neil, was registered with the Office of the Register of Deeds of Cebu City. New
transfer certificates of title were thereafter issued in the names of the donees. On 23
June 1993, petitioner filed an accion pauliana against LIM and her children before RTC-
Cebu City to rescind the questioned Deed of Donation and to declare as null and void
the new transfer certificates of title issued for the lots covered by the questioned Deed.
Petitioner claimed therein that sometime in July 1991, LIM, through a Deed of Donation,
fraudulently transferred all her real property to her children in bad faith and in fraud of
creditors, including her; that LIM conspired and confederated with her children in
antedating the questioned Deed of Donation, to petitioner's and other creditors'
prejudice; and that LIM, at the time of the fraudulent conveyance, left no sufficient
properties to pay her obligations. As regards the questioned Deed of Donation, LIM
maintained that it was not antedated but was made in good faith at a time when she had
sufficient property. Finally, she alleged that the Deed of Donation was registered only on
2 July 1991 because she was seriously ill.
Issue: Whether or not the Deed of Donation executed by Rosa Lim in favor of her
children be rescinded for being in fraud of petitioner Maria Antonia Siguan.
Ruling: Even assuming arguendo that petitioner became a creditor of LIM prior to the
celebration of the contract of donation, still her action for rescission would not fare well
because the third requisite was not met. Under Article 1381 of the Civil Code, contracts
entered into in fraud of creditors may be rescinded only when the creditors cannot in
any manner collect the claims due them. Also, Article 1383 of the same Code provides
that the action for rescission is but a subsidiary remedy which cannot be instituted
except when the party suffering damage has no other legal means to obtain reparation
for the same. The term "subsidiary remedy" has been defined as "the exhaustion of all
remedies by the prejudiced creditor to collect claims due him before rescission is
resorted to." It is, therefore, "essential that the party asking for rescission prove that he
has exhausted all other legal means to obtain satisfaction of his claim. Petitioner neither
alleged nor proved that she did so. On this score, her action for the rescission of the
questioned deed is not maintainable even if the fraud charged actually did exist.
SLU SOL 1-C Page
760
KHE HONG CHENG, alias FELIX KHE, SANDRA JOY KHE and RAY STEVEN KHE,
petitioners,
vs.
COURT OF APPEALS, HON. TEOFILO GUADIZ, RTC 147, MAKATI CITY and
PHILAM INSURANCE CO., INC., respondents.
G.R. No. 144169 March 28, 2001
Facts: Khe Hong Cheng is the owner of Butuan Shipping Lines. On Oct. 4 1985, Phil.
Agricultural Trading Corp shipped onboard a vessel owned by Khe Hong Cheng, 3400
bags of copra from Masbate to Zamboanga. The said shipment of copra was covered
by a marine insurance American Home Insurance (Philam). However, somewhere in
Negros, the ship sank resulting to total loss of the shipment. Because of the loss,
American Home Insurance paid the amount of 354,000 to the consignee Phil Agri. Later,
American Home, having been subrogated into the rights of the consignee, filed in the
RTC of Makati an action for recovery of money against Khe Hong Cheng. Pending the
case, or on Dec. 20,1989, Khe Hong Cheng executed a deed of donations of parcels of
land in favor of his children Sandra Joy and Ray Stevens (pang artista ug ngalan) and
new TCTs were issued in their names. On Dec. 29. 1993, the trial court rendered a
favorable judgment to Philam and ordered Cheng to pay the amount of 354k
representing the amount paid by Philam to Phil Agrl. After the decision became final, a
writ of execution was issued and despite earnest efforts of the sheriff he could not find
any property under the name of Butuan Shipping Lines or Cheng. Jan. 17, 1997-Sheriff
with Philams counsel went to Butuan and thereon discovered that Cheng had no more
property left and that he had conveyed the subject properties to his children. Feb. 25,
1997- Philam filed for a rescission of the deeds of donation and for the nullification of
the tcts in the name of petitioners kids. Petitioner contend that Philams action already
prescribed and that the registration of the TCTs . On December 1989 in the name of his
children constituted a constructive notice to Philam and that the action of the latter was
filed only on February 1997, way beyond 4 years.
Issue: Whether or not the action for rescission has prescribed.
Ruling: As Art. 1389 provides, an action of rescission must be commenced w/in 4

years. Since the provision is silent as to when the prescriptive period shall commence,
Art. 1150 is instructive: Art. 1150. The time for prescription for all kinds of actions, when
there is no special provision which ordains otherwise, shall be counted from the day
they may be brought. This Court enunciated the principle that it is the legal possibility of
bringing the action which determines the starting point for the computation of the
prescriptive period for the action. action to rescind or an accion pauliana must be of last
resort, availed of only after all other legal remedies have been exhausted and have
been proven futile.
SLU SOL 1-C Page
761
RAFAEL G. SUNTAY, substituted by his heirs, namely: ROSARIO, RAFAEL, JR.,

APOLINARIO, RAYMUND, MARIA VICTORIA, MARIA ROSARIO and MARIA
LOURDES, all surnamed SUNTAY, petitioner,
vs.
THE HON. COURT OF APPEALS and FEDERICO C. SUNTAY, respondents.
G.R. No. 114950 December 19, 1995
Facts: Federico Suntay was the registered owner of a parcel of land in dispute. He
applied as a miller contractor of the National Rice and Corn Corporation (NARIC) but
the same was disapproved by NARIC because he was tied up with several unpaid
loans. For purposes of circumvention, he asked his nephew-lawyer, Rafael to prepare
an absolute deed of sale of the said land in dispute in consideration of Php 20,000.00 in
favor of Rafael. Less than 3 months after his conveyance, the same parcel of land was
sold back to Federico for the same consideration. However on the second sale there
was irregularity because it appears that said land was not sold but was mortgaged in
favor of the Hagonoy Rural Bank. Moreover, after the execution of the deed, Federico
remained in possession of the property sold. Federico requested Rafael to deliver his
copy of TCT no. T-36714 so that Federico could have the counter deed of sale in his
favor registered on his name but Rafael refuses. Federico filed a complaint for
reconveyance and damages against Rafael. The trial court rendered its decision that
Rafael is the owner of the property in dispute but not to the extent of ordering Federico
to pay back rentals for the use of the property. The CA rendered its decision in favor of
Federico.
Issue: Whether or not said second deed of absolute sale is null and void.
Ruling: The cumulative effect of the evidence on record as chronicled aforesaid

identified badges of simulation proving that the sale by Federico to his deceased
nephew of his land and rice mill, was not intended to have any legal effect between
them. Though the notarization of the deed of sale in question vests in its favor the
presumption of regularity, it is not the intention nor the function of the notary public to
validate and make binding an instrument never, in the first place, intended to have any
binding legal effect upon the parties thereto. The intention of the parties still and always
is the primary consideration in determining the true nature of a contract. The SC hold
that the deed of sale executed by Federico in favor of his now deceased nephew,
Rafael, is absolutely simulated and fictitious and, hence, null and void, said parties
having entered into a sale transaction to which they did not intend to be legally bound.
As no property was validly conveyed under the deed, the second deed of sale executed
by the late Rafael in favor of his uncle, should be considered ineffective and unavailing.
SLU SOL 1-C Page
762
Art. 1390, Voidable Contracts: Nature/Kinds
CARMELA BROBIO MANGAHAS, petitioner,

vs.
EUFROCINA A. BROBIO, respondent.
G.R. No. 183852 October 20, 2010
Facts: ABC needed from XYZ an original copy of a deed of extrajudicial settlement.
XYZ told ABC that he will sign only if ABC will give him the additional money he
promised as his share in the estate in the amount of P1,000,000.00. XYZ bargained
until the reduced amount of P600,000.00 was agreed. Since XYZ has no money at that
time, he executed a promissory note. When the due date came, XYZ refused to pay.
ABC sued. The defense of XYZ was there was no consent since he was just forced to
sign the promissory note and there was no consideration. RTC ruled in favor of ABC.
Court of Appeals reversed the RTC decision on the ground that there was indeed no
consent and consideration in the execution of the promissory note.
Issue: Whether or not the promissory note is void for lack of consent and consideration.
Ruling: When XYZ signed the promissory note, there was consent and consideration.
The Supreme Court ruled that contracts are voidable where consent thereto is given
through mistake, violence, intimidation, undue influence, or fraud. In determining
whether consent is vitiated by any of these circumstances, courts are given a wide
latitude in weighing the facts or circumstances in a given case and in deciding in favor
of what they believe actually occurred, considering the age, physical infirmity,
intelligence, relationship, and conduct of the parties at the time of the execution of the
contract and subsequent thereto, irrespective of whether the contract is in a public or
private writing. It is alleged that mistake, violence, fraud, or intimidation attended the
execution of the promissory note. Still, respondent insists that she was "forced" into
signing the promissory note because petitioner would not sign the document required by
the BIR. The fact that respondent may have felt compelled, under the circumstances, to
execute the promissory note will not negate the voluntariness of the act. As rightly
observed by the trial court, the execution of the promissory note in the amount of
P600,000.00 was, in fact, the product of a negotiation between the parties. Respondent
herself testified that she bargained with petitioner to lower the amount. The remedy
suggested by the CA is not the proper one under the circumstances. An action for
partition implies that the property is still owned in common. Considering that the heirs
had already executed a deed of extrajudicial settlement and waived their shares in favor
of respondent, the properties are no longer under a state of co-ownership; there is
nothing more to be partitioned, as ownership had already been merged in one person.
SLU SOL 1-C Page
763
Hernandez v. Hernandez, 9 March 2011
CORNELIA M. HERNANDEZ, SUBSTITUTED BY LOURDES H. CASTILLO, petitioner,

vs.
CECILIO F. HERNANDEZ, respondent.
G.R. No. 158576 March 9, 2011
Facts: On 11 November 1993, the owners of the Hernandez property, which includes
petitioner Cornelia Hernandez, executed a letter indicating: (1) respondent Cecilio
Hernandez as the representative of the owners of the land; and (2) the compensation
he gets in doing such job. Such property was subject of an expropriation case for a
DPWH project. During the course of the expropriation proceedings, an Order was
issued by the RTC, Cecilio was appointed as one of the commissioners in the
expropriation case. On 18 October 1996, Cornelia, and her other co-owners who were
also signatories of the 11 November 1993 letter, executed an irrevocable Special Power
of Attorney (SPA) appointing Cecilio Hernandez as their "true and lawful attorney" with
respect to the expropriation of the subject property. There was no mention of the
compensation scheme for Cecilio, the attorney-in-fact.
The just compensation for the condemned properties was fixed subsequently, with
Cornelias share amounting to P7,321,500.00the amount apro-indiviso owner is to
receive. At this point, Cecilios SPA was revoked by Cornelia. On 7 February 2000,
however, Cornelia received from Cecilio a check amounting to P1,123,000.00. The
check was accompanied by a Receipt and Quit claim document in favor of Cecilio. In
essence it states that: (1) the amount received will be the share of Cornelia in the just
compensation paid by the government in the expropriated property; (2) in consideration
of the payment, it will release and forever discharge Cecilio from any action, damages,
claims or demands; and (3) Cornelia will not institute any action and will not pursue her
complaint or opposition to the release to Cecilio or his heirs or assigns.
In a Letter dated 22 June 2000after she learned of her true share in the expropriation
proceedings Cornelia demanded the accounting of the proceeds. The letter was left
unanswered. She then decided to have the courts settle the issue. A Complaint for the
Annulment of Quitclaim and Recovery of Sum of Money and Damages was filed before
the RTC. Cecilio was declared in default, but this was reversed by the CA.
Issue: Whether or not the CA erred in holding the validity of the receipt and quitclaim
document.
Ruling: The petition is granted. A contract where consent is given through mistake,
violence, intimidation, undue influence, or fraud is voidable. In determining whether
consent is vitiated by any of the circumstances mentioned, courts are given a wide
latitude in weighing the facts or circumstances in a given case and in deciding in their
favor what they believe to have actually occurred, considering the age, physical
SLU SOL 1-C Page

764
infirmity, intelligence, relationship, and the conduct of the parties at the time of the
making of the contract and subsequent thereto. Here, the service contract of 11
November 1993 (appointing Cecilio as representative), as well as the quitclaim and
receipt, are voidable the first due to mistake, the second due to fraud.
First, the service contract gave Cecilio compensation based on "1998 skyrocketing"
prices that essentially will give Cecilio 83.07% of the just compensation due Cornelia as
the co-owner of the land. No evidence on record would show that Cornelia agreed, by
way of the 11 November 1993 letter, to give Cecilio 83.07% of the proceeds of the sale
of her land. Second, quitclaims are also contracts and can be voided if there was fraud
or intimidation that leads to lack of consent. The facts show that a simple accounting of
the proceeds of the just compensation will be enough to satisfy the curiosity of Cornelia.
However, Cecilio did not disclose the truth and instead of coming up with the request of
his aunt, he made a contract intended to bar Cornelia from recovering any further sum
of money from the sale of her property.
Moreover, when Cecilio accepted the position as commissioner, he created a barrier

that prevented his performance of his duties under the SPA. Cecilio could not have
been a hearing officer and a defendant at the same time. Indeed, Cecilio foisted fraud
on both the Court and the Hernandez when, after his appointment as commissioner, he
accepted the appointment by the Hernandez to "represent" and "sue for" them.
The decision of the CA is reversed and set aside.

SLU SOL 1-C Page
765
Fuentes, et al. v. Roca, 21 April 2010
MANUEL O. FUENTES and LETICIA L. FUENTES, petitioners,

vs.
CONRADO G. ROCA, ANNABELLE R. JOSON, ROSE MARIE R. CRISTOBAL and
PILAR MALCAMPO, respondents.
G.R. No. 178902 April 21, 2010
Facts: On October 11, 1982, Sabrina Taroza sold to her own son Tarciano T. Roca her
titled of 358 sq.m lot located at Canelar, Zamboanga under a deed of absolute sale. Six
years later, Tarciano T. Roca offered to the spouses Fuentes the same title of land
bought to her mother with stipulations that Fuentes should pay a downpayment of
60,000.00 pesos for the transfer of lot to them and within 6 months Tarciano would have
to vacate the lot of structures, occupants and secure the consent of his estranged wife.
Upon compliance, Fuentes spouses must have to pay Tarciano the amount of
140,000.00 pesos.
On January 11, 1989 a document of absolute sale as issued to the Fuentes. One year
after, Tarciano T. Roca died, which was followed by his wife 9 months after. The children
of Roca filed for an action of annulment of sale and reconveyance of the land against
the Fuentes on the ground that Tarciano's wife didn't gave her consent upon her
husband and that fraud and forgery. Spouses Fuentes denied such allegations and
claims that the forgery case is personal to Rosario the wife of Tarciano and she alone
could claim it besides the 4-year prescriptive period for nullifying the sale on the ground
of fraud had already elapsed. The RTC ruled in favor of the Fuentes, however, the Court
of Appeals reversed the decision of the RTC.
Issue: Whether or not Rosario's signature was forged.
Ruling: Yes, the Supreme Court agrees with CA's observation that Rosario's signature
strokes on the affidavit appears heavy, deliberate and forced. Her specimen signature
on the other hand are consistent of a lighter stroke and more fluid. The way the letter
"R" and "S" were written is also remarkably different. The variance is obvious even to
the untrained eye. For the second issue, the SC held its decision based on Art. 173
which provides that in order that the wife may bring an action for annulment of sale on
the ground of lack of spousal consent during the marriage within 10 years from the
transaction. Consequently, the action that the Rocas, her heirs, brought in 1997 fell
within ten years of the January 11, 1989 sale. Therefore it did not yet prescribe. Even if
the claim of the spouses for prescription was based on fraud and forgery and that the
prescriptive period to be applied is 4 years, the answer is still No, because the sale was
void from the beginning and thus the land remained the property of Tarciano and
Rosario despite that sale. When the two died, they passed on the ownership to their
heirs, namely the Rocas, and as lawful owners they had the right to exclude any person
from its enjoyment and disposal (Art 429 of the Civil Code). In fairness to the Fuentes,
the SC held that they should be entitled among other things, to be recovered from the
SLU SOL 1-C Page
766
Tarciano's heirs the amount of 200,000.00php with legal interest until fully paid
chargeable against his estate. They are also to be entitled to a reimbursement with the
improvements they introduced with a right of retention until reimbursement is made (Art.
448).
SLU SOL 1-C Page
767
Arts. 1391, 1401, Annulment: Prescriptive Period
Associated Bank v. Sps. Montano, 16 October 2010
ASSOCIATED BANK, petitioner,

vs.
SPOUSES JUSTINIANO S. MONTANO, SR., AND LIGAYA MONTANO and TRES
CRUCES AGRO-INDUSTRIAL CORPORATION, respondents.
G.R. No. 166383 October 16, 2009
Facts: In 1964, the Spouse Montano owned 3 parcels of land situated in Tanza, Cavite
which was utilized as an integrated farm and a stud farm used for raising horses.
Respondent Monatano went on self exile in USA to avoid the harassment of Pres.
Marcos during the Martial Law regime, upon which they transferred said properties to
Tres Cruces Agro- Industrial Corporation (TCAIC) in exchange for shares of stocks in
the company with a 98% control over TCAIC. After a year, the TCAIC sold the properties
to International Country Club Incorporation (ICCI) for 6,000,000.09 php, thus the title of
properties were now transferred to the ICCI. The ICCI then mortgaged the parcels of
land to the Citizens bank and Trust corporation now Associated Bank for an amount of
2,000,000.00 php. The mortgage became mature but remained unpaid thereby
prompting the Associated Bank to forclosed the mortgaged and put in in a public
auction. Associated Bank as the highest bidder then buy the property with an amount of
5,7000,000.00 php. Meanwhile, the Montano returned to the country and after
discovering the transfer of the properties the Montano immediately took physical
possession of the same and began cultivating it. They also filed for a petition of
reconveyance and pray for the declaration of nullity upon transfer of CTC. On the other
hand, the associated bank filed its Motion for Preliminary Hearing on the affirmative
defense and motion to dismiss for the complaint stated no cause of action, and that the
case was already barred by the statute of limitations.
Issues:
1. Whether or not motion to dismiss is on its propriety.
2. Whether or not the complaint for reconveyanace should be dismissed.
Ruling: As to the first issue, yes, the motion to dismiss was on its propriety. The SC
held that the rule is based on practicality, as when the issues involved in a particular
case can be disposed of in a preliminary hearing and if there is no motion to dismiss
was filed then the pleading ground as affirmative defenses can be heard in a preliminary
hearing as that of the motion to dismiss. Respondent on the other hand fails to oppose
the motion to dismiss despite having been given the opportunity to do so, any right to
contest the same was already waived by them. As to the second issue, it is true that the
action for reconveyance of property resulting from fraud may be barred by the statute of
limitations which requires that the action shall be filed within 4 years from discovery of
fraud, but be it noted that the basis of reconveyance by the respondent is threat, duress
and intimidation. As provided in Art. 1391 of the civil code an action for annulment for it
SLU SOL 1-C Page
768
shall be brought within four years, thus when Marcos ouster from power on February
21, 1986 and since the respondents filed its complaint for reconveynace on September
15, 1989 the four years prescriptive period was not prescribed. The SC denied for the
dismissal of reconveyance and remitted the case to the RTC for trial with cost against
the petitioner.
SLU SOL 1-C Page
769
Miailhe v. CA, 354 S 675
WILLIAM ALAIN MIAILHE, petitioner,

vs.
COURT OF APPEALS and REPUBLIC OF THE PHILIPPINES, respondents.
G.R. No. 108991 March 20, 2001
Facts: Petitioner, William Alain Miailhe, on his own behalf and on behalf of Victoria
Desbarats-Miailhe, Monique Miailhe-Sichere and Elaine Miailhe-Lencquesaing filed a
Complaint for Annulment of Sale, Reconveyance and Damages against the Republic of
the Philippines and defendant Development Bank of the Philippines. The petitioner
alleged that DBP forged, threatened and intimidated petitioner to sell the property to
DBP for the grossly low price. The RTC and CA rendered their decision in favor of DBP
and that the action is already prescribed.
Issue: Whether or not extrajudicial demands did not interrupt prescription.
Ruling: In the present case, there is as yet no obligation in existence. Respondent has
no obligation to reconvey the subject lots because of the existing Contract of Sale.
Although allegedly voidable, it is binding unless annulled by a proper action in court.12
Not being a determinate conduct that can be extrajudically demanded, it cannot be
considered as an obligation either. Since Article 1390 of the Civil Code states that
voidable "contracts are binding, unless they are annulled by a proper action in court," it
is clear that the defendants were not obligated to accede to any extrajudicial demand to
annul the Contract of Sale.
SLU SOL 1-C Page
770
First Philippine Holdings v. Trans Middle East, 4 December 2009
FIRST PHILIPPINE HOLDINGS, petitioner,

vs.
TRANS MIDDLE EAST, respondent.
G.R. No. 179505 December 4, 2009
Facts: FHPC, formerly known as Meralco Securities Corporation incorporated on 30

June 1961 by Filipino Entrepreneurs led by Eugenio Lopez Sr. sold its 6,299,179.00 php
shares of common stock in Philippine Commercial International Bank (PCIB), now
Equitable PCIB to TMEE. Such shares according to the FHPC were obtained by the
TMEE through fraud, acts contrary to Law, Morals, Good Customs and Public Policy
and such acquisition is voidable, void or unenforceable. FHPC filed then its motion for
leave to intervene and admit complaint in intervention and was granted by the court. On
the other hand, TMEE filed its motion to dismiss the complaint-in-intervention by the
FHPC on the ground that the action of FHPC has already prescribed under Article 1391
of the Civil Code. Since the action was filed only on 28 December 1988 and the sale
was 24 May 1984 the action was already 7 months late from the date of prescription.
Issue: Whether or not the sale of property is void and the prescriptive period had
elapsed.
Ruling: No, the SC found that the sale is not void for a suit for the annulment of
voidable contract on account of fraud shall be filed within four years from the discovery
of the same, here, from the time the questioned sale transaction on May 24, 1984 took
place, FHPC didn't deny that it had actual knowledge of the same. Simply, petitioner
was fully aware of the sale of the PCIB shares to TMEE and despite full knowledge
petitioners did not question the said sale from its inception and sometime thereafter. it
was only four years and seven months had elapsed following the knowledge or
discovery of the alleged fraudulent sale that the petitioner assailed the same, by then it
was too late for the petitioners to beset same transaction, since the prescriptive period
had already come into play. The SC therefore denied the instant petition and affirmed
the resolution of the SB with cost against the petitioner.
SLU SOL 1-C Page
771
Arts. 1398, 1402, Effects
Sanchez v. Mapalad Realty, 541 S 397
MANUEL LUIS SANCHEZ, petitioner,

vs.
MAPALAD REALTY CORPORATION, respondent.
G.R. No. 148516 December 27, 2007
Facts: Respondent Mapalad was the registered owner of 4 parcels of land located
along Roxas Boulevard, Baclaran, Paranaque. On March 21, 1986, shortly after EDSA
revolution, Jose Campos executed an affidavit admitting that Mapaladd was one of the
companies held in trust for former President Marcos.
Campos turned over, all assets, properties, records and documents pertaining to
Mapalad to the new administration led by President Corazon Aquino. PCSS issued writs
of sequestration for Mapalad and all its properties. Rolando Josef, appointed Vice
President/Treasurer and GM of Mapalad, discovered for that there was 4 TCTs missing.
Josef inquired about it and discovered Felicito Manalili, Mapalads former director and
general manager took them. On November 16, 1992, Nordelak Development
Corporation filed a notice of adverse claim over the subject properties based on deed of
sale purportedly executed by Miguel Magsaysay in his capacity as President and board
chairman of Mapalad. A. Magsaysay Inc., a corporation controlled by Miguel
Magsaysay, acquired ownership of all the shares of stock of Mapalad however was
terminated after selling all his shares to Novo Properties on December 3, 1982.
Mapalad commenced the present action for annulment of deed of sale and
reconveyance of title with damages against Nordelak. During the pendency of the case,
Nordelak sold the subject property to a certain Manuel Luis Sanchez, now petitioner.
Issue: Whether or not there is a valid sale between Mapalad and Nordelak.
Ruling: A contract is defined as a juridical convention manifested in legal forms, by

virtue of which one or more persons bind themselves in favour of another, to give, to do
or not to do. The essential requisites of a valid contract of sale are (a) consent of the
contracting parties, (b) object certain, and (c) cause of obligation. Consent may be given
only by a person with legal capacity to give consent. In the case of juridical person such
as corporation like Mapalad, consent may only be granted through its officers who have
been duly authorized by its board of directors.
In the present case, consent was purportedly given by Miguel Magsaysay, the person
who signed for and in behalf of Mapalad in the deed of absolute sale. However, during
the trial, he admitted to be no longer connected with Mapalad because he already
divested all his interests in said corporation as early as 1982. Even assuming, for the
SLU SOL 1-C Page
772
sake of argument, the signatures were genuine, it would still be voidable for lack of
authority resulting in his capacity to give consent on the part of Mapalad.
SLU SOL 1-C Page
773
Oesmer v. PDC, 514 S 228
RIZALINO, substituted by his heirs, JOSEFINA, ROLANDO and FERNANDO,

ERNESTO, LEONORA, BIBIANO, JR., LIBRADO and ENRIQUETA, all surnamed
OESMER, petitioners,
vs.
PARAISO DEVELOPMENT CORPORATION, respondent.
G.R. No. 157493 February 5, 2007
Facts: Petitioners (Rizalino, Ernesto, Leonora, Bibiano, Jr., Librado, and Enriquita, all
surnamed Oesmer, together with Adolfo Oesmer and Jesus Oesmer, are brothers and
sisters, and the co-owners of undivided shares of two parcel of land. Respondent
Paraiso Development Corporation bought from petitioners their respective share of the
lot except the Adolfo and Jesus share. After the said meeting, a Contract to Sell was
created between the parties, on which the petitioners affirming their signatures in the
said contract.
Then the petitioners withdrew from the said contract and ask for the rescission to which
they allege that they never sign the contract, the agent has no authority from the
petitioners, that said petitioner was illiterate to sign the contract, etc.
Issue: Whether or not there was a perfected contract between petitioners and
respondents.
Ruling: It is well-settled that contracts are perfected by mere consent, upon the
acceptance by the offeree of the offer made by the offeror. From that moment, the
parties are bound not only to the fulfillment of what has been expressly stipulated but
also to all the consequences which, according to their nature, may be in keeping with
good faith, usage and law. To produce a contract, the acceptance must not qualify the
terms of the offer. However, the acceptance may be express or implied. For a contract
to arise, the acceptance must be made known to the offeror. Accordingly, the
acceptance can be withdrawn or revoked before it is made known to the offeror.
In the case at bar, the contract to sell was perfected when the petitioners consented to
the sale to the respondent of their shares in the subject parcels of land by affixing their
signatures on the said contract. Such signatures show their acceptance of what has
been stipulated in the contract to sell and such acceptance was made known to
respondent corporation when the duplicate copy of the contract to sell was returned to
the latter bearing petitioners' signatures.
SLU SOL 1-C Page
774
Vda. De Ape v. CA, 456 S 193
PERPETUA VDA. DE APE, petitioner,

vs.
THE HONORABLE COURT OF APPEALS and GENOROSA CAWIT VDA. DE
LUMAYNO, respondents.
G.R. No. 133638 April 15, 2005
Facts: Generosa Cawit de Lumayno (private respondent herein), joined by her

husband, Braulio, instituted a case for "Specific Performance of a Deed of Sale with
Damages" against Fortunato and his wife Perpetua (petitioner herein). She supposedly
demanded that Fortunato execute the corresponding deed of sale and to receive the
balance of the consideration. However, Fortunato unjustifiably refused to heed her
demands. Private respondent, therefore, prayed that Fortunato be ordered to execute
and deliver to her "a sufficient and registrable deed of sale involving his one-eleventh
(1/11) share or participation in Lot No. 2319 of the Escalante Cadastre. Private
respondent testified that Fortunato went to her store at the time when their lease
contract was about to expire. He allegedly demanded the rental payment for his land but
as she was no longer interested in renewing their lease agreement, they agreed instead
to enter into a contract of sale which Fortunato acceded to provided private respondent
bought his portion of Lot No. 2319 for P5,000.00. Thereafter, she asked her son-in-law
Flores to prepare the aforementioned receipt.
Issue: Whether or not the receipt signed by Fortunato proves the existence of a
contract of sale between him and private respondent.
Ruling: Under Article 1332 of the Civil Code which provides that "[w]hen one of the
parties is unable to read, or if the contract is in a language not understood by him, and
mistake or fraud is alleged, the person enforcing the contract must show that the terms
thereof have been fully explained to the former." As can be gleaned from Flores's
testimony, while he was very much aware of Fortunato's inability to read and write in the
English language, he did not bother to fully explain to the latter the substance of the
receipt (Exhibit "G"). He even dismissed the idea of asking somebody else to assist
Fortunato considering that a measly sum of thirty pesos was involved. Evidently, it did
not occur to Flores that the document he himself prepared pertains to the transfer
altogether of Fortunato's property to his mother-in-law. It is precisely in situations such
as this when the wisdom of Article 1332 of the Civil Code readily becomes apparent
which is "to protect a party to a contract disadvantaged by illiteracy, ignorance, mental
weakness or some other handicap.
SLU SOL 1-C Page
775
JULIAN FRANCISCO (Substituted by his Heirs, namely: CARLOS ALTEA

FRANCISCO; the heirs of late ARCADIO FRANCISCO, namely: CONCHITA
SALANGSANG-FRANCISCO (surviving spouse), and his children namely:
TEODULO S. FRANCISCO, EMILIANO S. FRANCISCO, MARIA THERESA S.
FRANCISCO, PAULINA S. FRANCISCO, THOMAS S. FRANCISCO; PEDRO ALTEA
FRANCISCO; CARINA FRANCISCO-ALCANTARA; EFREN ALTEA FRANCISCO;
DOMINGA LEA FRANCISCO-REGONDON; BENEDICTO ALTEA FRANCISCO and
ANTONIO ALTEA FRANCISCO), petitioner,
vs.
PASTOR HERRERA, respondent.
G.R. No. 139982 November 21, 2002
Facts: Petitioner bought 2 parcels of land from Eligio Herrera Sr. the children of Eligio,
Sr. contended that the contract price for the two parcels of land was grossly inadequate
so they tried to negotiate with petitioner. However petitioner refused.
The children of Herrera filed a complaint for annulment of sale. The RTC rendered its
decision in favor of the children that CA affirmed the decision of RTC.
Issue: Whether or not said contract is void.
Ruling: In the present case, it was established that the vendor Eligio, Sr. entered into
an agreement with petitioner, but that the formers capacity to consent was vitiated by
senile dementia. Hence, we must rule that the assailed contracts are not void or
inexistent per se; rather, these are contracts that are valid and binding unless annulled
through a proper action filed in court seasonably.
An annullable contract may be rendered perfectly valid by ratification, which can be

express or implied. Implied ratification may take the form of accepting and retaining the
benefits of a contract. As found by the trial court and the Court of Appeals, upon
learning of the sale, respondent negotiated for the increase of the purchase price while
receiving the installment payments. It was only when respondent failed to convince
petitioner to increase the price that the former instituted the complaint for reconveyance
of the properties. Clearly, respondent was agreeable to the contracts, only he wanted to
get more. Further, there is no showing that respondent returned the payments or made
an offer to do so. This bolsters the view that indeed there was ratification. One cannot
negotiate for an increase in the price in one breath and in the same breath contend that
the contract of sale is void.
SLU SOL 1-C Page
776
Braganza v. Villa Abrille, 105 P 456
ROSARIO L. DE BRAGANZA, et al.,

petitioners, vs.
FERNANDO F. DE VILLA ABRILLE, respondent.
G.R. No. L-12471 April 13, 1959
Facts: Rosario Braganza and her sons loaned from De Villa Abrille P70,000 in
Japanese war notes and in consideration thereof, promised in writing to pay him P10,00
+ 2% per annum in legal currency of the Philippines 2 years after the cessation of the
war. Because they have no paid, Abrille is sued them in March 1949. The Manila court
of first instance and CA held the family solidarily liable to pay according to the contract
they signed. The family petitioned to review the decision of the CA whereby they were
ordered to solidarily pay De Villa Abrille P10,000 + 2% interest, praying for consideration
of the minority of the Braganza sons when they signed the contract.
Issue: Whether or not the boys, who were 16 and 18 respectively, are to be bound by
the contract of loan they have signed.
Ruling: The SC found that Rosario will still be liable to pay her share in the contract
because they minority of her sons does not release her from liability. She is ordered to
pay 1/3 of P10,000 + 2% interest. However, with her sons, the SC reversed the decision
of the CA which found them similarly liable due to their failure to disclose their minority.
The SC sustained previous sources in Jurisprudence in order to hold the infant liable,
the fraud must be actual and not constructive. It has been held that his mere silence
when making a contract as to his age does not constitute a fraud which can be made
the basis of an action of deceit. The boys, though not bound by the provisions of the
contract, are still liable to pay the actual amount they have profited from the loan. Art.
1340 states that even if the written contract is unenforceable because of their non-age,
they shall make restitution to the extent that they may have profited by the money
received. In this case, 2/3 of P70,00, which is P46,666.66, which when converted to
Philippine money is equivalent to P1,166.67.
SLU SOL 1-C Page
777
Katipunan v. Katipunan, 30 January 2002
MIGUEL KATIPUNAN, INOCENCIO VALDEZ, EDGARDO BALGUMA and

LEOPOLDO BALGUMA, JR., petitioners,
vs.
BRAULIO KATIPUNAN, JR., respondent.
G.R. No. 132415 January 30, 2002
Facts: Braulio is the owner of a lot and a 5-door apartment constructed thereon
occupied by lessees. In Dec. 1985, Braulio, assisted by his brother Miguel, entered into
a deed of absolute sale with their other brothers, co-petitioners, represented by their
father, Atty. Balguma, involving the subject property. Consequently, Braulio's title to the
property was cancelled. In lieu thereof, a new TCT was issued in favor of petitioners.
Thereafter, Braulio filed with the RTC a complaint for annulment of the deed of absolute
sale on the ground that petitioners, with evident bad faith, conspired with one another in
taking advantage of his ignorance, he being only a third grader, and through insidious
words and machinations, they made him sign a document purportedly a contract of
employment, which turned out to be a deed of absolute sale.
The lower court dismissed the complaint holding that Braulio failed to prove his causes
of action. The said decision was, however, reversed by the CA.
Issue: Whether or not the subject contract is void ab initio or voidable on the ground
that one of the parties is incapable of giving consent or where consent is vitiated by
mistake, fraud, or intimidation.
Ruling: A contract of sale is born from the moment there is meeting of minds upon the
thing which is the object of the contract and upon the price. This meeting of minds
speaks of the intent of the parties in entering into the contract respecting the subject
matter and the consideration thereof. Thus, the elements of a contract of sale are
consent, object, and price in money or its equivalent.
Under Art. 1330 of the Civil Code, consent may be vitiated by any of the following: 1.)
mistake, 2.) violence, 3.) intimidation, 4.) undue influence, and 5.) fraud. The presence
of any of these vices renders the contract voidable. A contract where one of the parties
is incapable of giving consent or where the consent is vitiated by mistake, fraud, or
intimidation is not void ab initio but only voidable and is binding upon the parties unless
annulled by proper court action. The effect of annulment is to restore the parties to the
status quo ante insofar as legally and equitably possible. As an exception, however, to
the principle of mutual restitution, Art. 1399 provides that, when the defect of the
contract consists in the incapacity of one of the parties, the incapacitated person is not
obliged to make restitution, except when he has been benefited by the things or price
received by him.
SLU SOL 1-C Page
778
Since the deed of absolute sale between Braulio and the Balguma brothers is voidable,
then the restitution of the property and its fruits to Braulio is just and proper. Therefore,
the petitioners were ordered to turn over to Braulio the rentals they received for the
apartment.
SLU SOL 1-C Page
779
Jumalon v. CA, 30 January 2002
NILO R. JUMALON, petitioner,

vs.
G.R. No. 127767 January 30, 2002
Facts: On July 16, 1991, petitioner and complainant entered into a Conditional Sales
Agreement whereby the latter purchased from the former a house and lot. On July 24,
1991, petitioner executed in favor of complainant a Deed of Absolute Sale. Title was
transferred to complainant on July 29, 1991. Thereafter, complainant learned from
neighboring residents that the presence of high-tension wires in the subdivision where
the house and lot is located generate tremendous static electricity and produce electric
sparks whenever it rains. Upon complainants inquiries to the Meralco and HLURB, he
found out that the subject house and lot was built within the 30-meter right of way of
Meralco wherein high tension wires carrying 115, 000 volts are located which posed
serious risks on the property and its occupants. Consequently, sometime in November
1992, complainant filed a case for declaration of nullity or annulment of sale of real
property before the RTC. The lower court dismissed the case. Thereafter, complainant
filed before the HLURB a complaint before the HLURB seeking the rescission of the
Conditional Sales Agreement and the Absolute Deed of Sale on the ground of fraud.
HLURB rendered decision in favor of complainant which was upheld by the Court of
Appeals, hence this petition.
Issue: Whether or not there was fraud on the part of petitioner as to warrant the
rescission of the Conditional Sales Agreement and of the Absolute Deed of Sale.
Ruling: The Supreme Court found the petition without merit for it involved questions of
fact which is not reviewable unless it is within the ambit of exceptions. Nonetheless, SC
agrees with the Court of Appeals that respondent de Leon was entitled to annul the
sale. There was fraud in the sale of the subject house. It is not safely habitable. It is built
in a subdivision area where there is an existing 30-meter right of way of the Manila
Electric Company (Meralco) with high-tension wires over the property, posing a danger
to life and property. The construction of houses underneath the high tension wires is
prohibited as hazardous to life and property because the line carries 115,000 volts of
electricity, generates tremendous static electricity and produces electric sparks
whenever it rained.
SLU SOL 1-C Page
780
Art. 1317 in relation to 1403 [1], 1404, Unauthorized Contracts
Cabales, et al. v. CA, 31 August 2007
NELSON CABALES and RITO CABALES, petitioners,

vs.
COURT OF APPEALS, JESUS FELIANO and ANUNCIACION FELIANO,
respondents.
G.R. No. 162421 August 31, 2007
Facts: Saturnina and her children Bonifacio, Albino, Francisco, Leonara, Alberto and
petitioner Rito inherited a parcel of land. They sold such property to Dr. Cayetano
Corrompido with a right to repurchase within 8 years. Alberto secured a note from Dr.
Corrompido in the amount of Php 300.00. Alberto died leaving a wife and son, petitioner
Nelson. Within the 8-year redemption period, Bonifacio and Albino tendered their
payment to Dr. Corrompido. But Dr. Corrompido only released the document of sale with
pacto de retro after Saturnina paid the share of her deceased son, Alberto, plus the
note. Saturnina and her children executed an affidavit to the effect that petitioner Nelson
would only receive the amount of Php 176.34 from respondents-spouses when he
reaches the age if 21 considering that Saturnina paid Dr. Corrompido Php 966.66 for the
obligation of petitioner Nelsons late father Alberto.
Issue: Whether or not the sale entered into is valid and binding.
Ruling: The legal guardian only has the plenary power of administration of the minors
property. It does not include the power to alienation which needs judicial authority. Thus
when Saturnina, as legal guardian of petitioner Rito, sold the latters pro indiviso share
in subject land, she did not have the legal authority to do so. The contract of sale as to
the pro indiviso share of Petitioner Rito was unenforceable. However when he
acknowledged receipt of the proceeds of the sale on July24, 1986, petitioner Rito
effectively ratified it. This act of ratification rendered the sale valid and binding as to him.
SLU SOL 1-C Page
781
Necessity of Writing
ANUNCIACION VDA. DE OUANO, MARIO P. OUANO, LETICIA OUANO ARNAIZ,

and CIELO OUANO MARTINEZ, petitioners,
vs.
THE REPUBLIC OF THEPHILIPPINES, THE MACTAN-CEBU INTERNATIONAL
AIRPORT AUTHORITY, and THE REGISTER OF DEEDS FOR THE CITY OF CEBU,
respondents.
G.R. No. 168770 February 9, 2011
MACTAN-CEBUINTERNATIONAL AIRPORT AUTHORITY (MCIAA), petitioner,

vs.
RICARDO L. INOCIAN, in his personal capacity and as Attorney-in-Fact of
OLYMPIA E. ESTEVES, EMILIA E. BACALLA, RESTITUTA E. MONTANA, and RAUL
L. INOCIAN; and ALETHA SUICO MAGAT, in her personal capacity and as
Attorney-in-Fact of PHILIP M. SUICO, DORIS S. DELA CRUZ, JAMES M. SUICO,
EDWARD M. SUICO, ROSELYN SUICO-LAWSIN, REX M. SUICO, KHARLA SUICO-
GUTIERREZ, ALBERT CHIONGBIAN, and JOHNNY CHAN, respondents.
G.R. No. 168812
Facts: In 1949, the National Airport Corporation (NAC), MCIAAs predecessor agency,
pursued a program to expand the Lahug Airport in Cebu. NAC met and negotiated with
the owners of the properties situated around the airport of the Banilad Estate. As the
landowners would later claim, the government negotiating team, assured them that they
could repurchase their respective lands should the Lahug Airport expansion project not
push through or once the Lahug Airport closes or its operations transferred to Mactan -
Cebu Airport. Some of the landowners accepted the assurance and executed deeds of
sale with a right of repurchase. Others, however, including the owners of the
aforementioned lots, refused to sell because the purchase price offered was viewed as
way below market, forcing the hand of the Republic, represented by the then Civil
Aeronautics Administration (CAA), as successor agency of the NAC, to file a complaint
for the expropriation.The CFI rendered judgment for the Republic declaring the
expropriation of Lots included in the Lahug Airport, Cebu City, justified in and in lawful
exercise of the right of eminent domain. After the payment of the foregoing financial
obligation to the landowners, directing the latter to deliver to the plaintiff the
corresponding TCT; and upon the presentation of the said titles, ordering the RoD to
cancel the same and to issue new TCTs in the name of the plaintiff. In view of the
adverted buy-back assurance, the owners no longer appealed the decision of the trial
court. Following the finality of the judgment of condemnation, certificates of title for the
covered parcels of land were issued in the name of the Republic which, were
subsequently transferred to MCIAA.
SLU SOL 1-C Page
782
At the end of 1991, or soon after the transfer of the lots, Lahug Airport completely
ceased operations, Mactan Airport having opened to accommodate incoming and
outgoing commercial flights. On the ground, the expropriated lots were never utilized for
the purpose they were taken. This development prompted the former lot owners to
formally demand from the government that they be allowed to exercise their promised
right to repurchase.
In G.R. No. 168812 (MCIAA Petition), Inocian and four others (all children of Isabel
Limbaga who originally owned 6 of the lots expropriated); and Aletha Suico Magat and 7
others, successors-in-interest of Santiago Suico, the original owner of 2 of the
condemned lots (collectively, the Inocians), filed before the RTC in Cebu City a
complaint for reconveyance of real properties and damages against MCIAA. Albert
Chiongbian (Chiongbian), alleging to be the owner of one of the lots, but which the
Inocians were now claiming, moved and was later allowed to intervene. MCIAA admitted
that the purpose of the expropriation was for the expansion of the old Lahug Airport; that
the Lahug Airport was not expanded; that the old Lahug Airport was closed sometime in
June 1992;and that some properties were reconveyed by the MCIAA because the p
revious owners were able to secure express waivers or riders wherein the government
agreed to return the properties should the expansion of the Lahug Airport not
materialize.
Issue: Whether or not the claim of the Ouanos is meritorious.
Ruling: The Republic and MCIAAs petition in G.R. No. 168812 is bereft of merit, while
the Ouano petition in G.R. No. 168770 is meritorious.Providing added support to the
Ouanos and the Inocians right to repurchase is what in Heirs of Moreno was referred to
as constructive trust, one that is akin to the implied trust expressed in Art. 1454 of the
Civil Code, the purpose of which is to prevent unjust enrichment. In the case at bench,
the Ouanos and the Inocians parted with their respective lots in favor of the MCIAA, the
latter obliging itself to use the realties for the expansion of Lahug Airport; failing to keep
its end of the bargain, MCIAA can be compelled by the former landowners to reconvey
the parcels of land to them, otherwise, they would be denied the use of their properties
upon a state of affairs that was not conceived nor contemplated when the expropriation
was authorized. In effect, the government merely held the properties condemned in trust
until the proposed public use or purpose for which the lots were condemned was
actually consummated by the government. Since the government failed to perform the
obligation that is the basis of the transfer of the property, then the lot owners Ouanos
and Inocians can demand the reconveyance of their old properties after the payment of
the condemnation price. Constructive trusts are fictions of equity that courts use as
devices to remedy any situation in which the holder of the legal title, MCIAA in this case,
may not, in good conscience, retain the beneficial interest. We add, however, as in
Heirs of Moreno, that the party seeking the aid of equitythe landowners in this
instance, in establishing the trustmust himself do equity in a manner as the court may
deem just and reasonable.
SLU SOL 1-C Page
783
ANTHONY ORDUA, DENNIS ORDUA, and ANTONITA ORDUA, petitioners,

vs.
EDUARDO J. FUENTEBELLA, MARCOS S. CID, BENJAMIN F. CID, BERNARD G.
BANTA, and ARMANDO GABRIEL, JR., respondents.
G.R. No. 176841 June 29, 2010
Facts: Antonita Ordua purchased a residential lot from Gabriel Sr. payable in in
stallments but no deed of sale was executed. The installments were paid to Gabriel Sr.
and later to Gabriel Jr. after the death of the former. Improvements were thereafter
introduced by petitioner and the latter even paid its real property tax since 1979.
Unknown to Ordua, the property has been subject to further alienations until the same
was ceded to respondent, Fuentebella, Jr. Ordua, after being demanded by Fuentebilla
to vacate the disputed land, then filed a Complaint for Annulment of Sale, Title,
Reconveyance with Damages with a prayer to acquire ownership over the subject lot
upon payment of their remaining balance. The Regional Trial Court dismissed the
petition because the verbal sale between Gabriel Sr. and Ordua was unenforceable
under the Statute of Frauds. This was later affirmed by the Court of Appeals.
Issue: Whether or not the sale of the subject lot by Gabriel Sr. to Antonita is
unenforceable under the Statute of Frauds.
Ruling: No. It is a well-settled rule that the Statute of Frauds as expressed in Article
1403, par. (2), of the Civil Code is applicable only to purely executory contracts and not
to contracts which have already been executed either totally or partially. Here, the
verbal contract of sale has been partially executed through the partial payments made
by Ordua duly received by both Gabriel Jr. and his father. The purpose of the Statute
of Fraud is prevention fraud and perjury in the enforcement of obligations depending for
their evidence on the unassisted memory of witnesses, by requiring some contracts and
transactions to be evidenced by a writing signed by the party to be charged. Since there
is already ratification of the verbal contract through the acceptance of benefits through
the partial payments, it is thus withdrawn from the purview of the Statute of Frauds.
SLU SOL 1-C Page
784
THE MUNICIPALITY OF HAGONOY, BULACAN, represented by the HON. FELIX V.

OPLE, Municipal Mayor, and FELIX V. OPLE, in his personal capacity, petitioners,
vs.
HON. SIMEON P. DUMDUM, JR., in his capacity as the Presiding Judge of the
REGIONAL TRIAL COURT, BRANCH 7, CEBU CITY; HON. CLERK OF COURT &
EX-OFFICIO SHERIFF of the REGIONAL TRIAL COURT of CEBU CITY; HON.
CLERK OF COURT & EX-OFFICIO SHERIFF of the REGIONAL TRIAL COURT of
BULACAN and his DEPUTIES; and EMILY ROSE GO KO LIM CHAO, doing
business under the name and style KD SURPLUS, respondents.
G.R. No. 168289 March 22, 2010
Facts: Respondent, doing business as KD Surplus was contacted by petitioner Ople.

Respondent had entered into an agreement with petitioner municipality through Ople for
the delivery of motor vehicles, which supposedly were needed to carry out certain
developmental undertakings in the municipality. However, despite having made several
deliveries, Ople allegedly did not heed respondents claim for payment. Petitioners filed
a Motion to Dismiss claiming that the action was unenforceable under the statute of
frauds. Petitioners also filed a Motion to Dissolve and/or Discharge the Writ of
Preliminary Attachment Already Issued, invoking among others, immunity of the state
from suit.
Issue: Whether or not, as a municipal corporation, the Municipality of Hagonoy is

immune from suit, and that its properties are by law exempt from execution and
garnishment.
Ruling: The general rule spelled out in Section 3, Article XVI of the Constitution is that
the state and its political subdivisions may not be sued without their consent. Otherwise
put, they are open to suit but only when they consent to it. Consent is implied when the
government enters into a business contract, as it then descends to the level of the other
contracting party; or it may be embodied in a general or special law such as that found
in Book I, Title I, Chapter 2, Section 22 of the Local Government Code of 1991, which
vests local government units with certain corporate powers one of them is the power to
sue and be sued. Be that as it may, a difference lies between suability and liability. As
held in City of Caloocan v. Allarde, where the suability of the state is conceded and by
which liability is ascertained judicially, the state is at liberty to determine for itself
whether to satisfy the judgment or not. Execution may not issue upon such judgment,
because statutes waiving non-suability do not authorize the seizure of property to satisfy
judgments recovered from the action. These statutes only convey an implication that the
legislature will recognize such judgment as final and make provisions for its full
satisfaction. Thus, where consent to be sued is given by general or special law, the
implication thereof is limited only to the resultant verdict on the action before execution
of the judgment. The functions and public services rendered by the State cannot be
allowed to be paralyzed or disrupted by the diversion of public funds from their
SLU SOL 1-C Page
785
legitimate and specific objects. The writ of attachment in this case would only prove to
be useless and unnecessary under the premises, since the property of the municipality
may not, in the event that respondents claim is validated, be subjected to writs of
execution and garnishment unless, of course, there has been a corresponding
appropriation provided by law.
SLU SOL 1-C Page
786
Shoemaker v. La Tondea, 68 P 24
HARRY IVES SHOEMAKER, plaintiff-appellant,

vs.
LA TONDEA, INC., defendant-appellee.
G.R. No. L-45667 May 9, 1939
Facts: Defendant company La Tondena, Inc. entered into a written contract of lease of
services with plaintiff Harry Ives Shoemaker for a period of 5 years, with a
compensation consisting of 8% of the net earnings of defendant. That during each year
that the contract was in force, plaintiff would receive monthly during the period of the
contract of the sum of Php 1,500.00 or Php 18,000.00 per annum as minimum
compensation if 8% of the net earnings of the aforementioned alleged business would
not reach the amount. The defendant company alleged that there were changes in the
contract in which both the parties agreed upon. Plaintiff filed a complaint against
defendant company. The defendant interposed a demurrer based on the ground that the
facts therein alleged do not constitute a cause of action, since it is not averred that the
alleged mutual agreement modifying the contract of lease of services, has been put in
writing, whereas it states that its terms and conditions may only be modified upon the
written consent of both parties.
Issue: Whether or not the court a quo erred in sustaining the demurrer interposed by
the defendant company to the second amended complaint filed by plaintiff, on the
ground that the facts alleged therein do not constitute a cause of action.
Ruling: When in an oral contract which by its terms, is not to be performed within 1 year
from the execution thereof, one of the contracting parties has complied within the year
with the obligations imposed on him said contract, the other party cannot avoid the
fulfillment of what is incumbent on him under the same contract by invoking the statute
of frauds because the latter aims to prevent and not to protect fraud.
SLU SOL 1-C Page
787
PNB v. Philippine Vegetable Oil Company, 49 P 897
THE PHILIPPINE NATIONAL BANK, plaintiff-appellee,

vs.
THE PHILIPPINE VEGETABLE OIL CO., INC., defendant-appellee.
G.R. No. L-25400 January 14, 1927
Facts: This appeal involves the legal right of the PNB to obtain a judgement against
Vegetable Oil Co., Inc., for Php 15,812,454 and to foreclose a mortgage on the property
of the PVOC for Php 17,000,000.00 and the legal right of the Phil C. Whitaker as
intervenor to obtain a judgement declaring the mortgage which the PNB seeks to
foreclose to be without force and effect, requiring an accounting from the PNB of the
sales of the property and assets of the Vegetable Co. and ordering the PVOC and the
PNB to pay him the sum of Php 4,424,418.37 In 1920, the Vegetable Oil Company,
found itself in financial straits. It was in debt to the extent of approximately Php
30,000,000.00. The PNB was the largest creditor. The VOC owed the bank Php
17,000,000.00. The PNB was secured principally by a real and chattel mortgage in favor
of the bank on its vessels Tankerville and H.S. Everett to guarantee the payment of
sums not exceed Php 4,000,000.00.
Issue: Whether or not the plaintiff had failed to comply with the contract, that it was
alleged to have celebrated with the defendant and the intervenor, that it would furnish
funds to the defendant so that it could continue operating its factory.
Ruling: In the present instance, it is found that the Board of Directors of the PNB had
not consented to an agreement for practically unlimited backing of the V corporation and
had not ratified any promise to that effect made by its general manager. All the
evidence, documentary and oral, pertinent to the issue considered and found to disclose
no binding promise, tacit, or express made by the PNB to continue indefinitely the
operation of the corporation. Accordingly, intervenor Whitaker is not entitled to recover
damages from the bank.
SLU SOL 1-C Page
788
Arts. 1405-1406, Parol Evidence Rule
ANUNCIACION VDA. DE OUANO, MARIO P. OUANO, LETICIA OUANO ARNAIZ,

and CIELO OUANO MARTINEZ, petitioners,
vs.
THE REPUBLIC OF THEPHILIPPINES, THE MACTAN-CEBU INTERNATIONAL
AIRPORT AUTHORITY, and THE REGISTER OF DEEDS FOR THE CITY OF CEBU,
respondents.
G.R. No. 168770 February 9, 2011
Facts: In 1949, the National Airport Corporation (NAC), MCIAAs predecessor agency,
pursued a program to expand the Lahug Airport in Cebu City. Through its team of
negotiators, NAC met and negotiated with the owners of the properties situated around
the airport. During the negotiation the government assured them of their right to
repurchase if the project does not push through or once Lahug Airport closes or its
operations transferred to Mactan-Cebu Airport (MCIAA). Expropriation proceedings was
conducted, and the court issued to grant the same, such judgment became final.
However, at the end of 1991, or soon after the transfer of the aforesaid lots to MCIAA,
Lahug Airport completely ceased operations, Mactan Airport having opened to
accommodate incoming and outgoing commercial flights. On the ground, the
expropriated lots were never utilized for the purpose they were taken as no expansion
of Lahug Airport was undertaken. This development prompted the former lot owners to
formally demand from the government that they be allowed to exercise their promised
right to repurchase. The demands went unheeded. Civil suits followed. After trial, the
RTC granted the civil suits in favor of the land owners and directed the MCIAA to
reconvey the lots to the owners.
Issue: Whether or not the testimonial evidence of the petitioners proving the promises,
assurances and representations by the airport officials and lawyers are inadmissible
under the Statute of Frauds.
Ruling: MCIAAs invocation of the Statute of Frauds is misplaced primarily because the
statute applies only to executory and not to completed, executed, or partially
consummated contracts. Carbonnel v. Poncio, et al., quoting Chief Justice Moran,
explains the rationale behind this rule, thusly: "The reason is simple. In executory
contracts there is a wide field for fraud because unless they may be in writing there is
no palpable evidence of the intention of the contracting parties. The statute has been
precisely been enacted to prevent fraud." x xx However, if a contract has been totally or
partially performed, the exclusion of parol evidence would promote fraud or bad faith, for
it would enable the defendant to keep the benefits already derived by him from the
transaction in litigation, and at the same time, evade the obligations, responsibilities or
liabilities assumed or contracted by him thereby.
SLU SOL 1-C Page
789
Executory vs. Executed vs. Partially Executory Contracts
THE MUNICIPALITY OF HAGONOY, BULACAN, represented by the HON. FELIX V.

OPLE, Municipal Mayor, and FELIX V. OPLE, in his personal capacity, petitioners,
vs.
HON. SIMEON P. DUMDUM, JR., in his capacity as the Presiding Judge of the
REGIONAL TRIAL COURT, BRANCH 7, CEBU CITY; HON. CLERK OF COURT &
EX-OFFICIO SHERIFF of the REGIONAL TRIAL COURT of CEBU CITY; HON.
CLERK OF COURT & EX-OFFICIO SHERIFF of the REGIONAL TRIAL COURT of
BULACAN and his DEPUTIES; and EMILY ROSE GO KO LIM CHAO, doing
business under the name and style KD SURPLUS, respondents.
G.R. No. 168289 March 22, 2010
Facts: Private respondent, Emily Rose Go Ko Lim Chao, who is engaged in buy and
sell business of surplus business, equipment machineries, spare parts and related
supplies filed a complaint for collection of sum of money, including damages against the
petitioners, Municipality of Hagonoy, Bulacan and its ormer chief executive, Mayor Felix
V. Ople in his official and personal capacity. The private respondent claimed that
because of Oples earnest representation that funds had already been allowed for the
project, she agreed to deliver from her personal principal business in Cebu City twenty-
one motor vehicles whose valued totaled to 5,820,000.00 php but the petitioners here
instead filed a motion to dismiss on the ground that the claim on which the action had
been brought was unenforceable under the statute of frauds, pointing out that there was
no written contract or document that would evince the supposed agreement they
entered into with the respondent. The petitioners also filed for Motion to Dissolve and /or
Discharge the Writ of Preliminary Attachment already issued by the court invoking
immunity of the State from suit, unenforceability of contract, and failure to substantiate
the allegation of fraud. But the trial court denied all the petitions of the petitioners; hence
the petitioners brought this case to CA believing that the trial court committed grave
abuse of discretion upon issuing two orders.
Issues:
1. Whether or not complaint is unenforceable under the Statutes of Fraud.
2. Whether or not there is valid reason to deny petitioners motion to dismiss the Writ of
Preliminary Attachment.
Ruling: The SC held that the Statute of frauds is descriptive of statutes that require
certain classes of contracts to be in writing, and that to do deprive the parties of the right
to contract with respect to the matters therein involved, but merely regulate the
formalities of the contract necessary to render its enforceability. In other words, the
Statute of fraud only lays down the method by which the enumerated contracts maybe
proved. It does not also declare any contract invalid because they are not reduced into
writing inasmuch as, by law, contracts are obligatory in whatever form they may have
SLU SOL 1-C Page
790
been entered into provided that all their essential requisites for validity are present.
Thus the claim of the respondent is well-substantiated.
For the second issue, the Sc held that the Writ of Preliminary Attachment should be
dismissed because it writ of attachment in this case would only prove to be useless and
unnecessary under the premises since the property of the Municipality may not, in the
event that the respondents claim is validated unless there has been a valid
appropriation provided by law.
The petition is hereby granted in part, but affirmed the decision of CA in CA-G.R. No.
81888 is affirmed as it was held by the Regional Trial Court.
SLU SOL 1-C Page
791
Tan v. Villapaz, 475 S 720
SPOUSES ANTONIO and LOLITA TAN, petitioners,

vs.
CARMELITO VILLAPAZ, respondent.
G.R. No. 160892 November 22, 2005
Facts: Respondent Carmelito Villapaz issued a Philippine Bank of Communications

(PBCom) crossed check in the amount of P250,000.00, payable to the order of
petitioner Tony Tan. The Malita, Davao del Sur Police issued an invitation-request to
petitioner Antonio Tan inviting him to appear before the Deputy Chief of Police Office on
June 27, 1994 at 9:00 oclock in the morning in connection with the request of [herein
respondent] Carmelito Villapaz, for conference of vital importance. The invitation-
request was received by petitioner Antonio Tan on June 22, 1994 but on the advice of
his lawyer, he did not show up at the Malita, Davao del Sur Police Office. Respondent
filed a Complaint for sum of money against petitioners-spouses, alleging that, , his
issuance of the February 6, 1992 PBCom crossed check which loan was to be settled
interest-free in six (6) months; on the maturity date of the loan or on August 6, 1992,
petitioner Antonio Tan failed to settle the same, and despite repeated demands,
petitioners never did. Petitioners alleged that they never received from respondent any
demand for payment, be it verbal or written, respecting the alleged loan; since the
alleged loan was one with a period payable in six months, it should have been
expressly stipulated upon in writing by the parties but it was not.
Issue: Whether or not the Court of Appeals erred in concluding that the transaction in
dispute was a contract of loan and not a mere matter of check encashment as found by
the trial court.
Ruling: At all events, a check, the entries of which are no doubt in writing, could prove a
loan transaction. That petitioner Antonio Tan had, on February 6, 1992, an outstanding
balance of more than P950,000.00 in his account at PBCom Monteverde branch where
he was later to deposit respondents check did not rule out petitioners securing a loan.
It is pure naivete to believe that if a businessman has such an outstanding balance in
his bank account, he would have no need to borrow a lesser amount. In fine, as
petitioners side of the case is incredible as it is inconsistent with the principles by which
men similarly situated are governed, whereas respondents claim that the proceeds of
the check, which were admittedly received by petitioners, represented a loan extended
to petitioner Antonio Tan is credible, the preponderance of evidence inclines on
respondent.
SLU SOL 1-C Page
792
Sps. David v. Tiongson, 25 August 1999
SPOUSES VENANCIO DAVID and PATRICIA MIRANDA DAVID and FLORENCIA

VENTURA VDA. DE BASCO, petitioners,
vs.
ALEJANDRO and GUADALUPE TIONGSON, respondents.
G.R. No. 108169 August 25, 1999
Facts: Three sets of plaintiffs, namely spouses Ventura, spouses David and Vda. De
Basco, filed a complaint for specific performance with damages, against private
respondents spouses Tiongson, alleging that the latter sold to them lots located in
Pampanga.
The parties expressly agreed that in case of payment has been fully paid respondents
would execute an individual deed of absolute sale in plaintiff's favor.
The respondents demanded the execution of a deed of sale and issuance of certificate
of title but the respondents refused to issue the same.
The trial court rendered its decision in favor of the respondents. However the CA ruled
that contract of sale was not been perfected between spouses David and/or Vda. De
Basco and respondents. As with regard to the spouses Ventura, the CA affirmed the
RTC.
Issue: Whether or not contract of sale has not been perfected between petitioners and
respondents.
Ruling: The SC ruled that there was a perfected contact. However, the statute of frauds
is inapplicable. The rule is settled that the statute of frauds applies only to executor and
not to completed, executed or partially executed contract. In the case of spouses David,
the payment made rendered the sales contract beyond the ambit of the stature of
frauds.
The CA erred in concluding that there was no perfected contract of sale. However, in
view of the stipulation of the parties that the deed of sale and corresponding certificate
of title would be issued after full payment, then, they ad entered into a contract to sell
and not a contract of sale.
SLU SOL 1-C Page
793
Cordial v. Miranda, 14 December 2000
GENARO CORDIAL, petitioner,

vs.
DAVID MIRANDA, respondent.
G.R. No. 135495 December 14, 2000
Facts: David Miranda, a businessman from Angeles City, was engaged in rattan
business. Gener Buelva was the supplier of David but the former met an accident and
died. Genero Cordial and Miranda met through Buelva's widow, Cecilla. They agreed
that Cordial will be his supplier of rattan poles. Cordial shipped rattan poles as to the
agreed number of pieces and sizes however Miranda refused to pay the cost of the
rattan poles delivered. Miranda alleged that there exist no privity of contract between
Miranda and Cordial. Cordial filed a complaint against Miranda. The RTC rendered its
decision in favor of the petitioner. The CA reversed the decision of the RTC.
Issue: Whether or not Statute of Frauds applies in this case.
Ruling: The CA and respondent Miranda stress the absence of a written memorandum
of the alleged contract between the parties. Respondent implicitly argues that the
alleged contract is unenforceable under the Statute of Frauds. However, the statute of
frauds applies only to executor and not to completed, executed, or partially executed
contracts. Thus, were one party has performed ones obligation, oral evidence will be
admitted to prove the agreement. In the present case, it has already been established
that petitioner had delivered the rattan poles to respondent. The contract was partially
executed. The Statute of Frauds does not apply.
SLU SOL 1-C Page
794
JOSEFINA VILLANUEVA-MIJARES, WALDETRUDES VILLANUEVA-NOLASCO,

GODOFREDO VILLANUEVA, EDUARDO VILLANUEVA, GERMELINA VILLANUEVA-
FULGENCIO, MILAGROS VILLANUEVA-ARQUISOLA, and CONCEPCION
MACAHILAS VDA. DE VILLANUEVA, petitioners,
vs.
THE COURT OF APPEALS, PROCERFINA VILLANUEVA, PROSPERIDAD
VILLANUEVA, RAMON VILLANUEVA, ROSA VILLANUEVA, VIRGINIA
NEPOMUCENO, PAULA NEPOMUCENO, TARCELA NEPOMUCENO, MERCEDES
VILLANUEVA, ADELAIDA VILLANUEVA, APARICION VILLANUEVA, JOSEFINA
VILLANUEVA, BETTY VILLANUEVA, BOBBY VILLANUEVA, MERLINDA
VILLANUEVA, MORBINA VILLANUEVA, FLORITA VILLANUEVA, DIONISION
VILLANUEVA, and EDITHA VILLANUEVA, respondents.
G.R. No. 108921 April 12, 2000
Facts: During his lifetime, Felipe Villanueva owned a parcel of land in Kalibo, Capiz.
Upon his death, ownership of the land was passed onto his children. Pedro, one of the
children, got his share. The remaining undivided portion of the land was held in trust by
Leon. His co-heirs made several seasonable and lawful demands upon him to subdivide
and partition the property, but no subdivision took place.
After the death of Leon, private respondents discovered that the shares of four of the
heirs of Felipe were purchased by Leon as evidenced by a deed of sale.
Issue: Whether or not the deed of sale was unenforceable against the private
respondents for being an unauthorized contract.
Ruling: The nullity of the unenforceable contract is of a permanent nature and it will
exist as long the unenforceable contract is not duly ratified. The mere lapse of time
cannot give efficacy to such a contract. The defect is such that it cannot be cured except
by the subsequent ratification of the unenforceable contract by the person in whose
name the contract was executed.
In the instant case, there is no showing of any express or implied ratification of the
assailed deed of sale by the private respondents Procerfina, Ramon, Prosperidad, and
Rosa. Thus, the deed of sale must remain unenforceable as to them.
SLU SOL 1-C Page
795
Remedies
Rosencor v. Inquing, 354 S 119
ROSENCOR DEVELOPMENT CORPORATION and RENE JOAQUIN, petitioner,

vs.
PATERNO INQUING, et al., respondent.
G.R. No. 140479 March 8, 2000
Facts: Plaintiffs and plaintiffs-intervenors averred that they are the lessees since 1971
of a two-story residential apartment and owned by spouses Faustino and Cresencia
Tiangco. The lease was not covered by any contract. The lessees were renting the
premises then for Php 150.00 a month and were allegedly verbally granted by the
lessors the pre-emptive right to purchase the property if ever they decide to sell the
same. Upon the death of the spouses Tiangco, the management of the property was
adjudicated to their heirs who were represented by Eufrocina de Leon. The lessees
received a letter from de Leon advising them that the heirs of the late spouses have
already sold the property to Resencor. The lessees filed an action before the RTC
praying for the following: a) rescission of the Deed of Absolute Sale between de Leon
and Rocencor, b) the defendants Rosencor/Rene Joaquin be ordered to reconvey the
property to de Leon, c) de Leon be ordered to reimburse the plaintiffs for the repair of
the property or apply the said amount as part of the purchase of the property. The RTC
dismissed the complaint while the Ca reversed the decision of the RTC.
Issue: Whether or not a right of first refusal is indeed covered by the provisions of the
NCC on the Statute of Frauds.
Ruling: A right of first refusal is not among those listed as unenforceable under the
statute of frauds. Furthermore, the application of Article 1403, par. 2(e) of the NCC,
presupposes the existence of a perfected, albeit unwritten, contract of sale. A right of
first refusal, such as the one involved in the instant case, is not by any means a
perfected contract of sale of real property. At best, it is a contractual grant, not of the
sale of the real property involved but of the right of first refusal over the property sought
to be sold. It is thus evident that the statute of frauds does not contemplate cases
involving a right of right of first refusal. As such, a right of first refusal need not be
written to be enforceable and may be proven by oral evidence.
SLU SOL 1-C Page
796
Firme v. Buka, 414 S 190
SPOUSES CONSTANTE FIRME AND AZUCENA E. FIRME, petitioners,

vs.
BUKAL ENTERPRISES AND DEVELOPMENT CORPORATION, respondent.
G.R. No. 146608 October 23, 2003
Facts: Spouses Constante and Azucena Firme are the registered owners of a parcel of
land located on Dahlia Avenue, Fairview Park, Quezon City. Renato de Castro, the vice
president of Bukal Enterprises and Development Corporation authorized his friend,
Teodoro Aviles, a broker, to negotiate with the Spouses Firme for the purchase of the
Property. On 28 March 1995, Bukal Enterprises filed a complaint for specific
performance and damages with the trial court, alleging that the Spouses Firme reneged
on their agreement to sell the Property. The complaint asked the trial court to order the
Spouses Firme to execute the deed of sale and to deliver the title to the Property to
Bukal Enterprises upon payment of the agreed purchase price. On 7 August 1998, the
trial court rendered judgment against Bukal Enterprises, dismissing the case and
ordering Bukal Enterprises to pay the Spouses Constante and Azucena Firme (1) the
sum of P335,964.90 as and by way of actual and compensatory damages; (2) the sum
of P500,000.00 as and by way of moral damages; (3) the sum of P100,000.00 as and
by way of attorneys fees; and (4) the costs of the suit.
The trial court held there was no perfected contract of sale as Bukal Enterprises failed
to establish that the Spouses Firme gave their consent to the sale of the Property; and
that Aviles had no valid authority to bind Bukal Enterprises in the sale transaction. Bukal
Enterprises appealed to the Court of Appeals, which reversed and set aside the
decision of the trial court. The appellate court ordered the Spouses Firme to execute the
Deed of Absolute Sale transferring the ownership of the subject property to Bukal
Enterprises immediately upon receipt of the purchase price of P3,224,000.00 and to
perform all such acts necessary and proper to effect the transfer of the property covered
by TCT 264243 to Bulak Enterprises; and directed Bukal Enterprises to deliver the
payment of the purchase price of the property within 60 days from the finality of the
judgment. The Court of Appeals held that the lack of a board resolution authorizing
Aviles to act on behalf of Bukal Enterprises in the purchase of the Property was cured
by ratification; inasmuch as Bukal Enterprises ratified the purchase when it filed the
complaint for the enforcement of the sale. The spouses Firme filed the petition for
review on certiorari before the Supreme Court.
Issue: Whether there was a perfected contract between the Spouses Firme and Bukal
Enterprises, the latter allegedly being represented by Aviles.
Ruling: There was no consent on the part of the Spouses Firme. Consent is an
essential element for the existence of a contract, and where it is wanting, the contract is
non-existent. The essence of consent is the conformity of the parties on the terms of the
contract, the acceptance by one of the offer made by the other. The Spouses Firme
SLU SOL 1-C Page
797
flatly rejected the offer of Aviles to buy the Property on behalf of Bukal Enterprises.
There was therefore no concurrence of the offer and the acceptance on the subject
matter, consideration and terms of payment as would result in a perfected contract of
sale. Further, there was no approval from the Board of Directors of Bukal Enterprises as
would finalize any transaction with the Spouses Firme. Aviles did not have the proper
authority to negotiate for Bukal Enterprises.
Under Sections 23 and 36 of the Corporation Code, the power to purchase real property
is vested in the board of directors or trustees. While a corporation may appoint agents
to negotiate for the purchase of real property needed by the corporation, the final say
will have to be with the board, whose approval will finalize the transaction. A corporation
can only exercise its powers and transact its business through its board of directors and
through its officers and agents when authorized by a board resolution or its by-laws.
Aviles, who negotiated the purchase of the Property, is neither an officer of Bukal
Enterprises nor a member of the Board of Directors of Bukal Enterprises. There is no
Board Resolution authorizing Aviles to negotiate and purchase the Property for Bukal
Enterprises. There is also no evidence to prove that Bukal Enterprises approved
whatever transaction Aviles made with the Spouses Firme. In fact, the president of
Bukal Enterprises did not sign any of the deeds of sale presented to the Spouses Firme.
Even De Castro admitted that he had never met the Spouses Firme. Considering all
these circumstances, it is highly improbable for Aviles to finalize any contract of sale
with the Spouses Firme. Furthermore, the Court notes that in the Complaint filed by
Bukal Enterprises with the trial court, Aviles signed the verification and certification of
non-forum shopping. The verification and certification of non-forum shopping was not
accompanied by proof that Bukal Enterprises authorized Aviles to file the complaint on
behalf of Bukal Enterprises. The power of a corporation to sue and be sued is exercised
by the board of directors. The physical acts of the corporation, like the signing of
documents, can be performed only by natural persons duly authorized for the purpose
by corporate by-laws or by a specific act of the board of directors. The purpose of
verification is to secure an assurance that the allegations in the pleading are true and
correct and that it is filed in good faith. True, this requirement is procedural and not
jurisdictional. However, the trial court should have ordered the correction of the
complaint since Aviles was neither an officer of Bukal Enterprises nor authorized by its
Board of Directors to act on behalf of Bukal Enterprises.
SLU SOL 1-C Page
798
Arts. 1409, 1422, Void Contract vs. Inexistent Contract
Querubin v. COMELEC, 8 December 2015
LEO Y. QUERUBIN, MARIA CORAZON M. AKOL, AND AUGUSTO C. LAGMAN,

petitioners,
vs.
COMMISSION ON ELECTIONS EN BANC, represented by chairperson J. ANDRES
D. BAUTISTA, and joint venture of SMARTMATIC-TIM CORPORATION, total
information management corporation, SMARTMATIC INTERNATIONAL HOLDING
B.V. and JARLTECH international corporation, represented by partner with
biggest equity share, smartmatic-tim corporation, its general manager ALASTAIR
JOSEPH JAMES WELLS, Smartmatic Chairman LORD MALLOCH-BROWN,
Smartmatic-Asia Pacific President CESAR FLORES, and any or all persons acting
for and on behalf of the joint venture, respondents.
G.R. No. 218787 December 08, 2015
Facts: On October 27, 2014, the COMELEC en banc, through its Resolution No. 14-
0715, released the bidding documents for the "Two-Stage Competitive Bidding for the
Lease of Election Management System (EMS) and Precinct-Based Optical Mark Reader
(OMR) or Optical Scan (OP-SCAN) System." Specified in the published Invitation to Bid
are the details for the lease with option to purchase, through competitive public bidding,
of twenty-three thousand (23,000) new units of precinct-based OMRs or OP-SCAN
Systems, with a total Approved Budget for Contract of P2,503,518,000, to be used in
the 2016 National and Local Elections. The COMELEC Bids and Awards Committee
(BAC) set the deadline for the submission by interested parties of their eligibility
requirements and initial technical proposal on December 4, 2014.
The joint venture of Smartmatic-TIM Corporation (SMTC), Smartmatic International

Holding B.V., and Jarltech International Corporation (collectively referred to as
"Smartmatic JV") responded to the call and submitted bid for the project on the
scheduled date. Indra Sistemas, S.A. (Indra) and MIRU Systems Co. Ltd. likewise
signified their interest in the project, but only Indra, aside from Smartmatic JV, submitted
its bid.
During the opening of the bids, Smartmatic JV, in a sworn certification, informed the
BAC that one of its partner corporations, SMTC, has a pending application with the
Securities and Exchange Commission (SEC) to amend its Articles of Incorporation
(AOI), attaching therein all pending documents.The amendments adopted as early as
November 12, 2014 were approved by the SEC on December 10, 2014. On even date,
Smartmatic JV and Indra participated in the end-to-end testing of their initial technical
proposals for the procurement project before the BAC.
Upon evaluation of the submittals, the BAC, through its Resolution No. 1 dated
December 15, 2014, declared Smartmatic JV and Indra eligible to participate in the
SLU SOL 1-C Page
799
second stage of the bidding process. The BAC then issued a Notice requiring them to
submit their Final Revised Technical Tenders and Price proposals on February 25, 2015,
to which the eligible participants complied. Finding that the joint venture satisfied the
requirements in the published Invitation to Bid, Smartmatic JV, on March 26, 2015, was
declared to have tendered a complete and responsive Overall Summary of the Financial
Proposal. Meanwhile, Indra was disqualified for submitting a non-responsive bid.
Subsequently, for purposes of post-qualification evaluation, the BAC required

Smartmatic JV to submit additional documents and a prototype sample of its OMR. The
prototype was subjected to testing to gauge its compliance with the requirements
outlined in the project's Terms of Reference (TOR).
After the conduct of post-qualification, the BAC, through Resolution No. 9 dated May 5,
2015, disqualified Smartmatic JV on two grounds, viz: 1) Failure to submit valid AOI;
and 2) The demo unit failed to meet the technical requirement that the system shall be
capable of writing all data/files, audit log, statistics and ballot images simultaneously in
at least two (2) data storages.
Issue: Whether or not the contract is void.
Ruling: No. While it is true that SMTC's AOI made specific mention of the automation of
the 2010 National and Local Elections as its primary purpose, it is erroneous to interpret
this as meaning that the corporation's authority to transact business will cease
thereafter. Indeed, the contractual relation between SMTC and the COMELEC has been
the subject of prior controversies that have reached the Court, and We have on these
occasions held that even beyond the 2010 election schedule, the parties remain to have
subsisting rights and obligations relative to the products and services supplied by SMTC
to the COMELEC for the conduct of the 2010 polls.
The Term of this Contract begins from the date of effectivity until the release of the
Performance Security without prejudice to the surviving provisions of this Contract,
including the warranty provision as prescribed in Article 8.3 and the period of the option
to purchase.
Based on Our ruling in Capalla, the cessation of SMTC's business cannot be assumed
just because the May 10, 2010 polls have already concluded. For clearly, SMTC's
purposethe "automation of the 2010 national and local elections"is not limited to the
conduct of the election proper, but extends further to the fulfillment of SMTC's
contractual obligations that spring forth from the AES Contract during the lifetime of the
agreement (i.e. until the release of the performance security), and even thereafter
insofar as the surviving provisions of the contract are concerned. In other words,
regardless of whether or not SMTC's performance security has already been released,
establishing even just one surviving provision of the AES Contract would be sufficient to
prove that SMTC has not yet completed its purpose under its AOI, toppling petitioners'
argument like a house of cards.
SLU SOL 1-C Page

800
In the case at bar, notwithstanding the specific mention of the 2010 National and Local
Elections in SMTC's primary purpose, it is not, as earlier discussed, precluded from
entering into contracts over succeeding ones. Here, SMTC cannot be deemed to be
overstepping its limits by participating in the bidding for the 23,000 new optical mark
readers for the 2016 polls since upgrading the machines that the company supplied the
COMELEC for the automation of the 2010 elections and offering them for subsequent
elections is but a logical consequence of SMTC's course of business, and should,
therefore, be considered included in, if not incidental to, its corporate purpose. A
restricted interpretation of its purpose would mean limiting SMTC's activity to that of
waiting for the expiration of its warranties in 2020. How then can the company be
expected to subsist and sustain itself until then if it cannot engage in any other project,
even in those similar to what the company already performed?
In the final analysis, we see no defect in the AOI that needed to be cured before SMTC
could have participated in the bidding as a partner in Smartmatic JV, the automation of
the 2016 National and Local Elections being a logical inclusion of SMTC's corporate
purpose.
SLU SOL 1-C Page

801
Golden Apple v. Sierra Grande, 28 July 2010
GOLDEN APPLE REALTY AND DEVELOPMENT CORPORATION AND ROSVIBON

REALTY CORPORATION, petitioners,
vs.
SIERRA GRANDE REALTY CORPORATION, MANPHIL INVESTMENT
CORPORATION, RENAN V. SANTOS AND PATRICIO MAMARIL, respondents.
G.R. No. 119857 July 28, 2010
Facts: On December 1, 1981, Hayari Trading Corporation (Hayari), through a Loan

Agreement, borrowed from Manphil Investment Corporation (Manphil) the amount of
Two Million Five Hundred Thousand Pesos (P2,500,000.00) for the benefit of Filipinas
Textile Mills, Inc. (Filtex).
On the same date, Hayari President Yu Han Yat, Jr., his wife Terry Villanueva Yu and
the latter's uncle, Bernardino Villanueva, executed an Assumption of Joint and Solidary
Liability for and in consideration of the loan granted to Hayari, assuming joint and
solidary liability with Hayari for the due and punctual payment of all and/or any
amortizations on the loan, as well as all amounts payable to Manphil, in connection
therewith and for the strict performance and fulfillment of the obligation of Hayari.
In connection therewith, Valiant Realty and Development Corporation, represented by

its General Manager Bernardino Villanueva, and Sierra Grande Realty Corporation
(Sierra Grande), represented by Terry Villanueva Yu, executed a Third Party Real
Estate Mortgage in favor of Manphil over a parcel of land, otherwise known as the
Roberts property.
Filtex also constituted a real estate mortgage over certain parcels of land that it owned
and also constituted a chattel mortgage over the machinery of Hayari in order to secure
payment of the loan.
Thereafter, Bernardino Villanueva suggested that the Roberts property be subdivided to

make it easier for Sierra Grande to sell the same. On June 22, 1985, as suggested, the
Board of Directors of Sierra Grande, composed of brothers and sisters Robert
Villanueva, Daniel Villanueva, Terry Villanueva Yu, Susan Villanueva and Eden
Villanueva, passed a resolution authorizing General Manager Bernardino Villanueva,
brother of their deceased father, to hire a geodetic engineer and cause the subdivision
plan to be approved by the Land Registration Commission, and to sell the subdivided
lots after approval of the subdivision plan, if found to be necessary and for which the
corporation may need to carry its purpose.
Issue: Whether or not one of the vendee corporations is not yet in existence at the time
the Contract to Sell was executed cannot be directly questioned by any party to a suit
as the existence of a corporation may only be attacked by the Government through the
Solicitor General in a quo warranto proceeding called for the purpose and not by a
SLU SOL 1-C Page
802
collateral attack whereby the corporate existence is questioned in some incidental
proceedings not provided by law for the express purpose of attacking the corporate
existence.
Ruling: No. It bears to stress, however, that the CA did not pass upon the corporate
personality of Rosvibon nor did it declare the same corporation's franchise invalid. Thus,
there is no need for a quo warranto proceeding as claimed by petitioners. The CA
merely made the finding which is undisputed by the petitioners that Rosbivon had no
legal personality at the time of the execution of the Contract to Sell. According to the
CA, because of Rosbivon's lack of personality at the time of the execution of the
Contract to Sell, its presence as a party to the same transaction is taken as another
indication that fraud was indeed attendant. This is one of the situations included, and
comprising the phrase badges of fraud.
As to the contention of petitioners that the CA erred in invalidating the contracts on the
ground of notarial infirmity and concluding that they were ante-dated, this Court finds
the said argument devoid of any merit.
Petitioners claim that, since the representative of the corporation appeared before the
Notary Public, the acknowledgment was complied with, even if they admitted that the
representatives of the corporations which executed the Deeds of Absolute Sale did not
present their residence certificates nor indicate the number, date and place of issue of
the same residence certificates in the acknowledgment. As shown in the records and in
the testimony of the Notary.
SLU SOL 1-C Page
803
Heirs of M. Doronio v. Heirs of F. Doronio, 541 S 479
THE HEIRS OF MARCELINO DORONIO, NAMELY: REGINA AND FLORA, BOTH

SURNAMED DORONIO, petitioners,
vs.
HEIRS OF FORTUNATO DORONIO, NAMELY: TRINIDAD ROSALINA DORONIO-
BALMES, MODING DORONIO, FLORENTINA DORONIO, AND ANICETA
ALCANTARA-MANALO, respondents.
G.R. No. 169454 December 27, 2007
Facts: Petitioners are the heirs of Maralino Doronio, while respondents are the heirs of
Fortunato Doronio. The property in dispute is one of a private deed of donation propter
nuptias who was executed by Spouses Simeon Doronio and Cornelia Gante in favor of
Maralino Doronio and his wife Veronica Pico. The heirs of Fortuanto Doronio contended
that only the half of the property was actually incorporated in the deed of donation
because it stated that Fortunato is the owner of the adjacent property. Eager to obtain
the entire property, the heirs of Marcelino filed a petition For the Registration of a
Private Deed of Donation. The RTC granted the petition. The heirs of Fortunato filed a
pleading in the form of petition. In the petition, they prayed that an order be issued
declaring null and void the registration of the private deed of donation. The RTC ruled in
favor of the heirs of Marcelino. The CA reversed the decision of RTC.
Issue: Whether or not the donation propter nuptias is valid.
Ruling: Article 633 of the OCC provides that gifts of real property, in order to be valid,
must appear in a public document. It is settled that a donation of real estate propter
nuptias is void unless made by public instrument. In the instant case, the donation
propter nuptias did not become valid. Neither did it create any right because it was not
made in a public instrument. Hence, it conveyed no title to the land in question to
petitioners predecessors.
SLU SOL 1-C Page
804
SPOUSES PATRICIO and MYRNA BERNALES, petitioners,

vs.
HEIRS OF JULIAN SAMBAAN, namely: EMMA S. FELICILDA, ANITA S. SAMBAAN,
VIOLETA S. DADSANAN, ABSALON S. SAMBAAN, AGUSTINE S. SAMBAAN,
EDITHA S. MANGUIRAN, GRACE S. NITCHA, CLODUALDO S. SAMBAAN, GINA S.
SAMBAAN and FE S. YAP, respondents.
G.R. No. 163271 January 15, 2010
Facts: Julian Sambaan (Julian) married to Guillerma Saarenas-Sambaan (Guillerma),

was the registered owner of a property located at Bulua, Cagayan de Oro City. The lot
was covered by Transfer Certificate of Title (TCT) No. T-14202 issued on March 8,
1972. The respondents herein and the petitioner Myrna Bernales (Myrna) are the
children of Julian and Guillerma. Myrna, who is the eldest of the siblings, is the present
owner and possessor of the property in question.
Sometime in 1975, Julian was ambushed at Merayon, Talakad, Bukidnon, and was
hospitalized due to a gunshot wound. On April 11, 1975, Julian allegedly requested his
children to gather so that he could make his last two wishes. Julians first wish was for
the children to redeem the subject property which was mortgaged to Myrna and her
husband Patricio Bernales (Patricio), while his second wish was for his remains not to
be brought to the house of Myrna at Nazareth, Cagayan de Oro City.
Thus, in 1982, respondent Absalon Sambaan (Absalon), one of Julians children, offered
to redeem the property but the petitioners refused because they were allegedly using
the property as tethering place for their cattle. In January 1991, respondents received
information that the property covered by TCT No. T-14202 was already transferred to
petitioners name. Whereupon, they secured a copy of the Deed of
Absolute Sale dated December 7, 1970 which bore the signatures of their parents and
had it examined by the National Bureau of Investigation (NBI). The result of the
examination revealed that the signatures of their parents, Julian and Guillerma, were
forged.
Issue: Whether or not prescription did not bar respondents action to recover ownership
of the subject property.
Ruling: No. Citing Article 1454 of the Civil Code, petitioners assert that since the
respondents admit that there was a mortgage transaction between Julian and herein
petitioners involving the subject property there is no dispute that an implied trust was
created by operation of law. In which case, respondents right to reconveyance had
already prescribed when they filed the annulment case on April 3, 1992, or more than
10 years after petitioners repudiated such implied trust. The supposed vendor's
signature having been proved to be a forgery, the instrument is totally void or inexistent
as "absolutely simulated or fictitious" under Article 1409 of the Civil Code. According to
SLU SOL 1-C Page
805
Article 1410, "the action or defense for the declaration of the inexistence of a contract
does not prescribe. The inexistence of a contract is permanent and incurable which
cannot be cured either by ratification or by prescription.
SLU SOL 1-C Page
806
Heirs of Liwagon v. Heirs of Liwagon, 26 November 2014
HEIRS OF ANGEL LIWAGON, petitioner,

vs.
HEIRS OF DEMETRIO LIWAGON, respondent.
G.R. No. 193117 November 26, 2014
Facts: Petitioners and respondents in the case at bar are all children and grandchildren
of the late spouses Angel and Francisca Liwagon. On June 4, 1957, Angel was
provisionally awarded the following parcel of land through the Board of Liquidators of
the Y. Furukawa Plantation. One of Angels sons named Demetrio, together with his wife
Regina, stayed with the former and administered the property in litigation. The
defendants who are all Demetrios children helped with the cultivation and took care
of the familys copra-making business. Eventually, Angel applied to the Y. Furukawa
Tarragona Plantation for final acquisition of the land by sale. A deed of conveyance was
thus executed in Angels favor. As he grew older, Angel stayed with his children, one
after the other. He became sickly in 1976, while staying with one of his daughters in
Misamis Occidental, until the time of his death in 1978. Upon their fathers demise, the
[petitioners] demanded of their brother Demetrio for the partition of the subject
landholding. Demetrio pleaded to defer the partition for economic reasons, to which the
[petitioners] acquiesced by permitting the spouses Demetrio and Regina, and their
children, to continuously occupy the land in litigation. When Demetrio died, followed
shortly by Regina, [petitioner] Josefina signified her demand for partition to one of
Demetrios sons named Rodrigo. Rodrigo ignored the demand, however, contending
that they now owned the property as inheritance from their parents, who had earlier
lawfully acquired the land by purchase from their grandfather, as evidenced by a Deed
of Sale dated 24 July 1972. As heirs of Angel and Francisca, the [petitioners] presently
brought the instant case for annulment of the sale, partition, accounting and damages
against the defendants-heirs of Spouses Demetrio and Regina.
Issue: Whether or not the purported deed of sale is void and the present action is
barred by prescription.
Ruling: Both the trial and appellate courts correctly ruled in favor of the due execution
of the subject Deed of Sale, which was duly acknowledged and recorded by Atty.
Alfredo Abayon in his notarial registry. It is a rule in our jurisdiction that the act of
notarization by a notary public converts a private document into a public document,
making it admissible in evidence without further proof of its authenticity. By law, a
notarial document is entitled to full faith and credit upon its face. It enjoys the
presumption of regularity and is a prima facie evidence of the facts stated therein
which may only be overcome by evidence that is clear, convincing and more than
merely preponderant. Without such evidence, the presumption must be upheld.
Petitioners failed to overcome this presumption. In the case at bar, a single fact fatal to
the cause of petitioners is clear: that aside from the sole testimony of petitioner Josefina
that the signature appearing in the assailed Deed of Sale is not that of her father, no
SLU SOL 1-C Page
807
clear, positive and convincing evidence was shown to corroborate such claim. The trial
court correctly appreciated the testimony of Josefina in its ruling.
SLU SOL 1-C Page
808
Campos v. Pastrana, 8 December 2009
JESUS CAMPOS AND ROSEMARIE CAMPOS-BAUTISTA, petitioners,

vs.
NENITA BUENVENIDA PASTRANA, ROGER BUENVENIDA, SONIA BUENVENIDA,
TEDDY BUENVENIDA, VICTOR BUENVENIDA, HARRY BUENVENIDA, MILDRED
BUENVENIDA. MANOLITO BUENVENIDA AND DAISY BUENVENIDA,
REPRESENTED BY THEIR ATTORNEY-IN-FACT, CARLITO BUENVENIDA,
respondents.
G.R. No. 175994 September 29, 2010
Facts: The first case arose from the refusal of Carlito Campos (Carlito), the father of
herein petitioners, to surrender the possession of a fishpond he leased from
respondents mother, Salvacion Buenvenida, despite the expiration of their contract of
lease in 1980. Alleging that he was an agricultural lessee, Carlito filed an agrarian case
docketed as CAR Case No. 1196 (Agrarian Case) against his lessor. After trial, the
Regional Trial Court of Roxas City, Branch 14, found that Carlito was not an agricultural
tenant. He then appealed to the CA and subsequently to this Court, but was
unsuccessful. While the appeal in the Agrarian Case was pending before the CA, herein
respondents filed the second case, Civil Case No. V-5417, against Carlito for Recovery
of Possession and Damages with Preliminary Mandatory Injunction (Possession Case)
involving the same fishpond subject of the earlier agrarian case. On November 27,
1990, the Regional Trial Court of Roxas City, Branch 16, rendered a Decision finding
Carlito to have retained possession of the fishpond notwithstanding the expiration of the
contract of lease and ordering him to pay rentals, the value of the produce and
damages to the herein respondents. The Decision became final and executory and a
Writ of Execution was issued on February 7, 1995. Subsequently, on September 19,
1995, an Alias Writ of Execution was also issued. Both were returned unsatisfied as per
Sheriffs Return of Service dated November 14, 1995.
Issue: Whether or not the issuance of transfer certificates of title to petitioners did not
vest upon them ownership of the properties.
Ruling: No. The fact that petitioners were able to secure titles in their names did not
operate to vest upon them ownership over the subject properties. That act has never
been recognized as a mode of acquiring ownership. The Torrens system does not
create or vest title. It only confirms and records title already existing and vested. It does
not protect a usurper from the true owner. It cannot be a shield for the commission of
fraud. In the instant case, petitioner Rosemarie Campos supposedly bought the
residential properties in 1985 but did not have the assailed Deed of Absolute Sale
registered with the proper Registry of Deeds for more than five years, or until a month
before the promulgation of the judgment in the Possession Case. Hence, we affirm the
finding of the CA that the purported deed was antedated. Moreover, her failure to take
exclusive possession of the property allegedly sold, or, alternatively, to collect rentals is
contrary to the principle of ownership and a clear badge of simulation. On these
SLU SOL 1-C Page
809
grounds, we cannot hold that Rosemarie Campos was an innocent buyer for value.
Likewise, petitioner Jesus Campos supposedly bought the rice land from his parents in
1988 but did not have the assailed Deed of Absolute Sale registered with the proper
Registry of Deeds for more than two years, or until two months before the promulgation
of the judgment in the Possession Case. Thus, we likewise affirm the finding of the CA
that the purported deed was antedated. In addition, on cross, he confirmed that he had
knowledge of the prior pending cases when he supposedly purchased his parents rice
land.
SLU SOL 1-C Page
810
Gurrea v. Suplico, 488 S 332
NATIVIDAD ARIAGA VDA. DE GURREA, CARLOS GURREA, JULIETA GURREA,

TERESA GURREA-RODRIGUEZ, RICARDO GURREA, Jr., MA. VICTORIA GURREA-
CANDEL, and RAMONA GURREA-MONTINOLA, petitioners,
vs.
ENRIQUE SUPLICO, respondent.
G.R. No. 144320 April 26, 2006
Facts: The petition arose from a complaint for annulment of title with prayer preliminary
injunction filed with the court of First Instance by Rosalina Gurrea in her capacity as
attorney-in-fact of the heirs of Ricardo Gurrea. The complaint was filed against Atty.
Enrique Suplico. Atty. Suplico alleged that the property was for the payment of his
services rendered to the late Ricardo Gurrea which they offered to him as payment.
Issue: Whether or not petitioners are entitled to the cancellation of respondent

attorneys title over the subject property and the reconveyance thereof to the herein
petitioners or to the estate of the Late Ricardo.
Ruling: Having been established that the subject property was still the object of
litigation at the time the subject deed of Transfer Rights and Interest was executed, the
assignment of rights and interest over the subject property in favor of respondent is null
and void for being violative of the provisions of Article 1491 of the Civil Code which
expressly prohibits lawyers from acquiring property or rights which may be the object of
any litigation in which they may take part by virtue of their profession. It follows that
respondents title over the subject property should be cancelled and the property
reconveyed to the estate of Ricardo, the same to be distributed to the latters heirs. This
is without prejudice, however, to respondents right to claim attorneys fees from the
estate of Ricardo, it being undisputed legal services for the latter.
SLU SOL 1-C Page
811
Frenzel v. Catito, 406 S 55
ALFRED FRITZ FRENZEL, petitioner,

vs.
EDERLINA P. CATITO, respondent.
G.R. No. 143958 July 11, 2003
Facts: Alfred Frenzel and Ederlina Catito had an amorous relationship which started in
Kings Cross, a night spot in Sydney. During their relationship Alfred bought properties
in the Philippines in the name of Ederlina. Their relationship started to deteriorate when
the husband of Ederlina threatened Ederlina that he would file a bigamy case against
her for having an illicit affair with Alfred, who was also married. Alfred filed a complaint
against Ederlina for specific performance, declaration of real and personal properties,
sum of money and damages.
Issue: Whether or not acquisition of a parcel of land is valid.
Ruling: The sales of three parcels of land in favor of the petitioner who is a foreigner is
illegal per se. The transactions are void ab initio because they were entered into in
violation of the Constitution. Thus, to allow the petitioner to recover the properties or the
money used in the purchase of the parcels of land would be subversive of public policy.
An action for recovery of what has been paid without just cause has been designated as
an accion in rem verso. This provision does not apply if, as in this case, the action is
proscribed by the Constitution or by the application of the pari delicto doctrine. 68 It may
be unfair and unjust to bar the petitioner from filing an accion in rem verso over the
subject properties, or from recovering the money he paid for the said properties, but, as
Lord Mansfield stated in the early case of Holman vs. Johnson: "The objection that a
contract is immoral or illegal as between the plaintiff and the defendant, sounds at all
times very ill in the mouth of the defendant. It is not for his sake, however, that the
objection is ever allowed; but it is founded in general principles of policy, which the
defendant has the advantage of, contrary to the real justice, as between him and the
plaintiff."
SLU SOL 1-C Page
812
La Bugal-B'laan v. Ramos, 1 December 2004
LA BUGAL-BLAAN TRIBAL ASSOCIATION, INC. et.al., petitioners,

vs.
VICTOR O. RAMOS, SECRETARY, DEPARTMENT OF ENVIRONMENT AND
NATURAL RESOURCES (DENR), HORACIO RAMOS, DIRECTOR, MINES AND
GEOSCIENCES BUREAU (MGB-DENR), RUBEN TORRES, EXECUTIVE
SECRETARY, and WMC (PHILIPPINES), INC., respondents.
G.R. No. 127882 December 1, 2004
Facts: Petitioners challenged constitutionality of Republic Act No. 7942 (The Philippine
Mining Act of 1995) and its Implementing Rules and Regulations and the Financial and
Technical Assistance Agreement dated March 30, 1995, executed by the government
with Western Mining Corporation (Philippines), Inc. On January 27, 2004, the Supreme
Court en banc promulgated its decision declaring the unconstitutionality of certain
provisions of RA 7942 as well as of the entire FTAA executed between the government
and WMCP, mainly on the finding that FTAAs are service contracts prohibited by the
1987 Constitution. Subsequently, respondents filed separate Motions for
Reconsideration.
In a Resolution dated March 9, 2004, the Supreme Court required petitioners to

comment. The case was set for Oral Argument on June 29, 2004. After hearing the
opposing sides, the Court required the parties to submit their respective memoranda in
amplification of their arguments. On the same day, the Court noted inter alia, the
Manifestation and Motion for Intervention filed by the Office of the Solicitor General on
behalf of public respondents. The OSG said that it was not interposing any objection to
the Motion for Intervention filed by the Chamber of Mines of the Philippines, Inc. and
was in fact joining and adopting the latters Motion for Reconsideration. Memoranda
were accordingly filed by the intervenor as well as by petitioners, public respondents,
and private respondent, dwelling at length on three issues, namely, (1) mootness of the
case by the sale of WMC shares in WMCP to Sagittarius which 60% its equity is owned
by Filipinos and by the subsequent transfer and registration of the FTAA from WMCP to
Sagittarius; (2) constitutionality of the assailed provisions of the Mining Law, its
Implementing Rules and Regulations and the WMCP FTAA; and, (3) proper
interpretation of the phrase agreements involving either technical of financial assistance
contained in paragraph 4 of Section 2 of Article XII of the Constitution.
Among the assailed provisions of the Mining Law were Section 80 and the colatilla in
Section 84, as well as Section 112. The petitioners alleged that these sections limit the
States share in a mineral production-sharing agreement to just the excise tax on the
mineral product and the WMCP FTAA contains a provision which grants the contractor
unbridled and automatic authority to convert the FTAA into MPSA (mineral production-
sharing agreements. However, the Court ruled that these were not argued upon by the
parties in their respective pleadings. Also, the Court stated that these particular
SLU SOL 1-C Page
813
provisions do not come within issues that were defined and delineated by during the
Oral Argument, particularly the third issue, which pertained exclusively to FTAAs.
Later, WMCP submitted its Reply Memorandum, while the OSG, in compliance to the
order of the Supreme Court, filed a Compliance submitting copies of more FTAAs
entered into by the government.
Issue: Whether or not it is a void contract.
Ruling: Section 7.9 of the WMCP FTAA has effectively given away the State's share
without anything in exchange. Moreover, it constitutes unjust enrichment on the part of
the local and foreign stockholders in WMCP, because by the mere act of divestment, the
local and foreign stockholders get a windfall, as their share in the net mining revenues
of WMCP is automatically increased, without having to pay anything for it. Being grossly
disadvantageous to government and detrimental to the Filipino people, as well as
violative of public policy, Section 7.9 must therefore be stricken off as invalid.
Section 7.8(e) of the WMCP FTAA likewise is invalid, since by allowing the sums spent
by government for the benefit of the contractor to be deductible from the State's share in
net mining revenues, it results in benefiting the contractor twice over. This constitutes
unjust enrichment on the part of the contractor, at the expense of government. For being
grossly disadvantageous and prejudicial to government and contrary to public policy,
Section 7.8(e) must also be declared without effect. It may likewise be stricken off
without affecting the rest of the FTAA.
SLU SOL 1-C Page
814
Agan v. PIATCO, 21 January 2004
DEMOSTHENES P. AGAN, et.al., petitioners,

vs.
PHILIPPINE INTERNATIONAL AIR TERMINALS CO., et al., respondents.
G.R. No. 155001 January 21, 2004
Facts: On October 5, 1994, Asias Emerging Dragon Corp. (AEDC) submitted an

unsolicited proposal to the Philippine Government through the Department of
Transportation and Communication (DOTC) and Manila International Airport Authority
(MIAA) for the construction and development of the NAIA IPT III under a build-operate-
and-transfer arrangement pursuant to R.A. No. 6957, as amended by R.A. No. 7718
(BOT Law). In accordance with the BOT Law and its Implementing Rules and
Regulations (Implementing Rules), the DOTC/MIAA invited the public for submission of
competitive and comparative proposals to the unsolicited proposal of AEDC. On
September 20, 1996 a consortium composed of the Peoples Air Cargo and
Warehousing Co., Inc. (Paircargo), Phil. Air and Grounds Services, Inc. (PAGS) and
Security Bank Corp. (Security Bank) (collectively, Paircargo Consortium), submitted
their competitive proposal to the Prequalification Bids and Awards Committee (PBAC).
After finding that the Paircargo Consortium submitted a bid superior to the unsolicited
proposal of AEDC and after failure by AEDC to match the said bid, the DOTC issued the
notice of award for the NAIA IPT III project to the Paircargo Consortium, which later
organized into herein respondent PIATCO. Hence, on July 12, 1997, the Government,
through then DOTC Secretary Arturo T. Enrile, and PIATCO, through its President,
Henry T. Go, signed the Concession Agreement for the Build Operate-and-Transfer
Arrangement of the Ninoy Aquino International Airport Passenger Terminal III (1997
Concession Agreement). On November 26, 1998, the 1997 Concession Agreement was
superseded by the Amended and Restated Concession Agreement (ARCA) containing
certain revisions and modifications from the original contract. A series of supplemental
agreements was also entered into by the Government and PIATCO. The First
Supplement was signed on August 27, 1999, the Second Supplement on September 4,
2000, and the Third Supplement on June 22, 2001 (collectively, Supplements) (the 1997
Concession Agreement, ARCA and the Supplements collectively referred to as the
PIATCO Contracts). On September 17, 2002, various petitions were filed before this
Court to annul the 1997 Concession Agreement, the ARCA and the Supplements and to
prohibit the public respondents DOTC and MIAA from implementing them.
Issue: Whether or not that petitioners lack legal personality to file the cases at bar as
they are not real parties in interest who are bound principally or subsidiarily to the
PIATCO Contracts.
Ruling: The determination of whether a person may institute an action or become a

party to a suit brings to fore the concepts of real party in interest, capacity to sue and
standing to sue. To the legally discerning, these three concepts are different although
commonly directed towards ensuring that only certain parties can maintain an action. As
SLU SOL 1-C Page
815
defined in the Rules of Court, a real party in interest is the party who stands to be
benefited or injured by the judgment in the suit or the party entitled to the avails of the
suit. Capacity to sue deals with a situation where a person who may have a cause of
action is disqualified from bringing a suit under applicable law or is incompetent to bring
a suit or is under some legal disability that would prevent him from maintaining an action
unless represented by a guardian ad litem. Legal standing is relevant in the realm of
public law. In certain instances, courts have allowed private parties to institute actions
challenging the validity of governmental action for violation of private rights or
constitutional principles. In these cases, courts apply the doctrine of legal standing by
determining whether the party has a direct and personal interest in the controversy and
whether such party has sustained or is in imminent danger of sustaining an injury as a
result of the act complained of, a standard which is distinct from the concept of real
party in interest. Measured by this yardstick, the application of the doctrine on legal
standing necessarily involves a preliminary consideration of the merits of the case and
is not purely a procedural issue. Considering the nature of the controversy and the
issues raised in the cases at bar, this Court affirms its ruling that the petitioners have the
requisite legal standing. The petitioners in G.R. Nos. 155001 and 155661 are
employees of service providers operating at the existing international airports and
employees of MIAA while petitioners-intervenors are service providers with existing
contracts with MIAA and they will all sustain direct injury upon the implementation of the
PIATCO Contracts. The 1997 Concession Agreement and the ARCA both provide that
upon the commencement of operations at the NAIA IPT III, NAIA Passenger Terminals I
and II will cease to be used as international passenger terminals. Further, the ARCA
provides: For the purpose of an orderly transition, MIAA shall not renew any expired
concession agreement relative to any service or operation currently being undertaken at
the Ninoy Aquino International Airport Passenger Terminal I, or extend any concession
agreement which may expire subsequent hereto, except to the extent that the
continuation of the existing services and operations shall lapse on or before the In-
Service Date. Beyond iota of doubt, the implementation of the PIATCO Contracts, which
the petitioners and petitioners-intervenors denounce as unconstitutional and illegal,
would deprive them of their sources of livelihood. Under settled jurisprudence, one's
employment, profession, trade, or calling is a property right and is protected from
wrongful interference. It is also self-evident that the petitioning service providers stand
in imminent danger of losing legitimate business investments in the event the PIATCO
Contracts are upheld. Over and above all these, constitutional and other legal issues
with far-reaching economic and social implications are embedded in the cases at bar,
hence, this Court liberally granted legal standing to the petitioning members of the
House of Representatives First, at stake is the build operate-andtransfer contract of
the countrys premier international airport with a projected capacity of 10 million
passengers a year. Second, the huge amount of investment to complete the project is
estimated to be P13,000,000,000.00. Third, the primary issues posed in the cases at
bar demand a discussion and interpretation of the Constitution, the BOT Law and its
implementing rules which have not been passed upon by this Court in previous cases.
They can chart the future inflow of investment under the BOT Law. The Court notes the
bid of new parties to participate in the cases at bar as respondents-intervenors, namely,
(1) the PIATCO Employees and (2) NMTAI (collectively, the New Respondents-
SLU SOL 1-C Page

816
Intervenors). After the Courts Decision, the New Respondents-Intervenors filed
separate Motions for Reconsideration-In-Intervention alleging prejudice and direct injury.
PIATCO employees claim that they have a direct and personal interest in the
controversy, since they stand to lose their jobs should the governments contract with
PIATCO be declared null and void. NMTAI, on the other hand, represents itself as a
corporation composed of responsible tax-paying Filipino citizens with the objective of
protecting and sustaining the rights of its members to civil liberties, decent livelihood,
opportunities for social advancement, and to a good, conscientious and honest
government. The Rules of Court govern the time of filing a Motion to Intervene. Section
2, Rule 19 provides that a Motion to Intervene should be filed before rendition of
judgment. The New Respondents-Intervenors filed their separate motions after a
decision has been promulgated in the present cases. They have not offered any worthy
explanation to justify their late intervention. Consequently, their Motions for
Reconsideration-In-Intervention are denied for the rules cannot be relaxed to await
litigants who sleep on their rights. In any event, a side glance at these late motions will
show that they hoist no novel arguments.
SLU SOL 1-C Page
817
Jaworski v. PAGCOR, 14 January 2004
SENATOR ROBERT S. JAWORSKI, petitioner,

vs.
PHILIPPINE AMUSEMENT AND GAMING CORPORATION and SPORTS AND
GAMES ENTERTAINMENT CORPORATION, respondents.
G.R. No. 144463 January 14, 2004
Facts: PAGCOR's Board of Directors approved an instrument denominated as "Grant of

Authority and Agreement for the Operation of Sports Betting and Internet Gaming." This
granted Sports and Games and Entertainment Corporation (SAGE) the authority to
operate and maintain a sports betting station in PAGCOR's casino locations, and
internet gaming facilities to service local and international bettors provided that, to the
satisfaction of PAGCOR, appropriate safeguards and procedures are established to
ensure the integrity and fairness of the games
Sen. Jaworski, in his capacity as member of the Senate and Chairman of the Senate
Committee on Games, Amusement and Sports, filed the instant petition, praying that the
grant of authority by PAGCOR in favor of SAGE be nullified.
Issue: Whether not PAGCOR's legislative franchise includes the right to vest another
entity to operate internet gambling.
Ruling: PAGCOR has acted beyond the limits of its authority when it passed on or
shared its franchise to SAGE.
In the present case, the grant of authority gives SAGE the privilege to actively
participate, partake, and share PAGCORs franchise to operate a gambling activity. The
grant of franchise is a special privilege that constitutes a right and a duty to be
performed by the grantee. The grantee must not perform its activities arbitrarily and
whimsically but must abide by the limits set by its franchise and strictly adhere to its
terms and conditionalities.
While PAGCOR is allowed under its charter to enter into operators and/or management
contracts, it is not allowed under the same charter to relinquish or share its franchise,
much less grant a veritable franchise to another entity such as SAGE. SAGE has to
obtain a separate legislative franchise and not "ride on" PAGCORs franchise if it were
to legally operate on-line Internet gambling.
The "Grant of Authority and Agreement to Operate Sports Betting and Internet Gaming"
executed by PAGCOR in favor of SAGE was declared null and void.
SLU SOL 1-C Page
818
Art. 1421, Who May Bring Action for Declaration of Nullity
HEIRS OF LATE SPOUSES AURELIO and ESPERANZA BALITE, petitioner,

vs.
RODRIGO N. LIM, respondent.
G.R. No. 152168 December 10, 2004
Facts: The spouses Aurelio and Esperanza Balite were the owners of a parcel of land at
Catarman, Northern Samar. When Aurelio died intestate, his wife Esperanza and their
children inherited the subject property and became co-owners thereof. Esperanza,
through her daughter, Cristeta, offered to sell to Rodrigo Lim, her undivided share for
the price of P1,000,000.00. Esperaza and Rodrigo agreed that under the Deed of
Absolute Sale, it will be made to appear that the purchase price of the property would
be P150,000.00 although the actual price agreed upon by them for the property was
P1,000,000.00. On April 16, 1996, Esperanza executed a Deed of Absolute Sale in
favor of Rodrigo. They also executed on the same day a Joint Affidavit under which they
declared that the real price of the property was P1,000,000.00 payable to Esperanza by
installments. Only Esperanza and two of her children Antonio and Cristeta knew about
the said transaction. When the rest of the children knew of the sale, they wrote to the
Register of Deeds saying that their mother did not inform them of the sale of a portion of
the said property nor did they give consent thereto. Petitioners filed a complaint against
Rodrigo with the Regional Trial Court for the annulment of sale, quieting of title,
injunction and damages. RTC ruled that the sale by Esperanza of the property was
valid. The Court of Appeals affirmed the trial courts ruling that the lack of consent of the
co-owners did not nullify the sale.
Issue: Whether or not the Deed of Absolute Sale is null and void on the ground that it is
falsified; it has an unlawful cause; and it is contrary to law and/or public policy.
Ruling: No. The contract is an example of a simulated contract. Article 1345 of the Civil
Code provides that the simulation of a contract may either be absolute or relative. In
absolute simulation, there is a colorable contract but without any substance, because
the parties have no intention to be bound by it. An absolutely simulated contract is void,
and the parties may recover from each other what they may have given under the
contract. On the other hand, if the parties state a false cause is relatively simulated.
Here, the parties real agreement binds them. In the present case, the parties intended
to be bound by the Contract, even if it did not reflect the actual purchase price of the
property. The letter of Esperanza to respondent and petitioners admission that there
was partial payment made on the basis of the Absolute Sale reveals that the parties
intended the agreement to produce legal effect.
SLU SOL 1-C Page
819
Since the Deed of Absolute Sale was merely relatively simulated, it remains valid and
enforceable. All the essential requisites prescribed by law for the validity and perfection
of contracts are present.
SLU SOL 1-C Page
820
Pineda v. CA, 376 S 222
ALEJANDRIA PINEDA and SPOUSES ADEODATO DUQUE, JR., and EVANGELINE

MARY JANE DUQUE, petitioners,
vs.
COURT OF APPEALS and SPOUSES NELSON BAEZ and MERCEDES BAEZ,
respondents.
G.R. No. 127094 February 6, 2002
Facts: The appellees and the petitioner, Pineda, executed an Agreement to Exchange
Real Properties. The appellees exchanging their property at White Plains with that of
the Pinedas located in California. At the time of the execution of the agreement, the
White Plains property was mortgaged with the GSIS, while the California property also
had a mortgaged obligation. As stated in the exchange agreement, Pineda paid the
appellees the total amount of $12, 000. Pineda and the spouses Duque executed an
agreement to sell over the white plains property, whereby Pineda sold the property in
the amount of P1.6M. Pineda paid the mortgage of the White Plains property and
requested the appellees for a written authority for the release of the title from GSIS. The
appellees gave Pineda the authority with the understanding that Pineda will deliver the
title to the appellees. Upon their return to the Philippines, the appellees discovered that
the spouses Duque were occupying the White Plains property and a fictitious deed of
sale in the name of Pineda. In a civil case filed by the appellees, the trial court declared
them as the absolute owners of the property located in White Plains.
Issue: Whether or not there was a valid contract of sale between Pineda and the
Duques.
Ruling: No. Pinedas sale of the property to the Duques was not authorized by the real
owners of the land -- the Baezes. The Civil Code provides that in a sale of a parcel of
land or any interest therein made through an agent, a special power of attorney is
essential. This authority must be in writing; otherwise the sale shall be void. In his
testimony, Mr. Duque confirmed that at the time he purchased the property from Pineda,
the latter had no special power of attorney to sell the property. A special power of
attorney is necessary to enter into any contract by which the ownership of an
immovable is transmitted or acquired for a valuable consideration. Without an authority
in writing, Pineda could not validly sell the property in question to the Duques. Hence,
any sale in favor of the Duques is void.
SLU SOL 1-C Page
821
Cruz v. Bancom, 379 S 490
EDILBERTO CRUZ and SIMPLICIO CRUZ, petitioners,

vs.
BANCOM FINANCE CORPORATION (NOW UNION BANK OF THE PHILIPPINES),
respondent.
G.R. No. 147788 March 19, 2002
Facts: The petitioners are the registered owners of an agricultural land. Candelaria
Sanchez introduced the petitioner to Norma Sulit who offered to buy the petitioners lot.
The asking price for the property is P700,000 but Norma only has P25,000 which the
petitioner accepted as an earnest money with agreement that the title will be transferred
in the name of Norma after she pays the remaining balance. Norma failed to pay the
balance but negotiated to transfer the title in her name which the petitioner refused.
However, through Candelaria Sanchez the title was transferred to Norma upon the
execution of a deed of sale made by the petitioner in favor of Sanchez who obtained a
bank loan using the petitioners land as collateral. She then executed on the same day
another deed of sale in favor of Norma. Both deed of sales reflect the amount of only
P150,000.00. Using the deed of sale Norma was able to register the property in her
name. Norma obtained a loan from Bancom while mortgaging the land title. Meanwhile,
a special agreement was entered into by petitioner and Norma. When Norma failed to
pay the remaining balance stipulated in their special agreement, the petitioner filed a
complaint for the reconveyance of the land. Bancom claimed priority as mortgagee in
good faith. Norma defaulted payment with the bank and the property was foreclosed
and auctioned with Bancom as the highest bidder.
Trial Court decision: The trial court held that the contract of sale between petitioner and
Candelaria was absolutely simulated thereby producing no legal effect. Bancom was not
a mortgagee in good faith cannot claim priority rights over the property.
Court of Appeals: Reversed the RTC decision holding the deed of sale as valid and
binding and not simulated. The mortgage contract between Norma and Bancom is
likewise valid and Bancom has a priority rights over the property. It also ruled that the
petitioner intended to be bound by the sale and mortgage since they did not seek to
annul the same but instead executed a special agreement to enforce payment of the
remaining balance.
Issue: Whether or not the respondent is an innocent mortgagee in good faith.
Ruling: As a general rule, if the terms of the contract are clear and unambiguous its
stipulations shall control but when its words contravene with the intention of the parties,
the intention shall prevail over the words of the contract. Simulation of contract takes
place when the parties do not want the express words of the contract to have its legal
effect. It may be absolute or relative. When parties do not intend to be bound at all it is
absolute simulated contract and considered void. When the parties conceal their true
SLU SOL 1-C Page
822
agreement, it is a relative simulated contract and binds the parties when it does not
prejudice third persons and is not contrary to law, morals, good custom, public order,
and public policy. It was shown that although a deed of absolute sale was executed in
the amount of P150,000 no consideration was involved as no exchange of money took
place between them. Norma and Candelaria also did not assert their right to ownership
over the property. It was clear that the deed of sale was simulated in order to facilitate
the bank loan to be secured by Candelaria using the property as collateral. The fact that
Norma obtained registration of the property in her name does not entitle her to
ownership since the simulated deed of sale produced no legal effect. A simulated
contract is not a recognized mode of transferring ownership.
With the contention of Bancom that it is a mortgagee in good faith, the court ruled
otherwise pointing out that it is a mortgagee-bank thus is expected to exercise greater
care and prudence when dealing with registered lands. Failure to observe due diligence
was shown with judicial notice that the bank did not conduct an ocular inspection on the
property and did not send a representative to investigate the ownership of the land,
these being a standard procedure before approving loans. It is also aware of the
adverse claim because of the notice of lis pendens annotated to the title. Because it
was established that the two deeds of sale were simulated thus null and void, it does
not convey any right that may ripen into a valid title. The mortgage was also null and
void because Norma was not the owner of the property. The property cannot be validly
foreclosed by the respondent. The court declares the petitioner to remain as the valid
owner of the property.
SLU SOL 1-C Page
823
Cuaton v. Salud, 27 January 2004
MANSUETO CUATON, petitioner,

vs.
REBECCA SALUD and COURT OF APPEALS (Special Fourteenth Division),
respondents.
G.R. No. 158382 January 27, 2004
Facts: On January 5, 1993, respondent Rebecca Salud, joined by her husband

Rolando Salud, instituted a suit for foreclosure of real estate mortgage with damages
against petitioner Mansueto Cuaton and his mother, Conchita Cuaton, with the trial
court. The trial court rendered a decision declaring the mortgage constituted on October
31, 1991 as void, because it was executed by Mansueto Cuaton in favor of Rebecca
Salud without expressly stating that he was merely acting as a representative of
Conchita Cuaton, in whose name the mortgaged lot was titled. The court ordered
petitioner to pay Rebecca Salud, inter alia, the loan secured by the mortgage in the
amount of P1,000,000 plus a total P610,000.00 representing interests of 10% and 8%
per month for the period February 1992 to August 1992.
Both parties filed their respective notices of appeal.
The Court of Appeals affirmed the judgment of the trial court. Petitioner filed a motion for
partial reconsideration of the trial courts decision with respect to the award of interest in
the amount of P610,000.00, arguing that the same was iniquitous and exorbitant. This
was denied by the Court of Appeals.
Issue: Whether or not the excessive interest rates cannot be considered as an issue
presented for the first time on appeal.
Ruling: The contention regarding the excessive interest rates cannot be considered as
an issue presented for the first time on appeal. The records show that petitioner raised
the validity of the 10% monthly interest in his answer filed with the trial court. To deprive
him of his right to assail the imposition of excessive interests would be to sacrifice
justice to technicality. Furthermore, an appellate court is clothed with ample authority to
review rulings even if they are not assigned as errors. This is especially so if the court
finds that their consideration is necessary in arriving at a just decision of the case before
it. The Court has consistently held that an unassigned error closely related to an error
properly assigned, or upon which a determination of the question raised by the error
properly assigned is dependent, will be considered by the appellate court
notwithstanding the failure to assign it as an error. Since respondents pointed out the
matter of interest in their Appellants Brief before the Court of Appeals, the fairness of
the imposition thereof was opened to further evaluation. The Court therefore is
empowered to review the same. Petition granted. Decision modified. The interest rates
of 10% and 8% per month imposed by the trial court is reduced to 12% per annum,
computed from the date of the execution of the loan on October 31, 1991 until finality of
SLU SOL 1-C Page
824
this decision. After the judgment becomes final and executory until the obligation is
satisfied, the amount due shall further earn interest at 12% per year.
SLU SOL 1-C Page
825
Arts. 1411-1412, In Case of In Pari Delicto
Hadja Fatima v. Hadji Abubacar, 2 August 2010
HADJA FATIMA GAGUIL MAGOYAG, joined by her husband, HADJI HASAN

MADLAWI MAGOYAG, petitioners,
vs.
HADJI ABUBACAR MARUHOM, respondent.
G.R. No. 179743 August 2, 2010
Facts: Respondent Hadji Abubakar Marahum sold to Petitioner Hadji Fatima Magoyag a
certain two-storey market stall located in the public market of Marawi City. The sale was
evidenced by a Deed of Assignment which also stated that although there was a sale,
possession will remain with the seller Hadji Maruhom and that he will pay a monthly
rental. However, after several years Hadji Maruhom suddenly stopped paying rentals.
Petitioner demanded payment but respondent failed to fulfill his promise and refused to
vacate the premises. On August 22, 1994 petitioner filed a complaint for recovery of
possession and damages with the RTC of Marawi City.
Issue: Whether or not the Deed of Assignment prove the existence of a sale.
Ruling: The Deed of Assignment is a clear indication that the transaction was really of a
sale and not of a loan with an equitable mortgage. The language in the document is
crystal clear, unambiguous and needs no further interpretation. However, the validity of
the sale lies not with the interpretation of the contract. The sale was ultimately declared
as invalid because the respondent, Hadji Maruhom is not the owner of the property.
Records show that it is the city of Marawi who owned the property and as a mere
grantee, he was expressly prohibited from selling, donating or otherwise alienating the
said property without the consent of the city government. Violation of the condition shall
automatically render the sale, null and void. One cannot give what one does not have
Nemo dat qoud non habet.
SLU SOL 1-C Page
826
Arts. 1411-1412, Arts. 1413-1419, In Case One Party is
Innocent/Disadvantaged
Infotech v. COMELEC, 13 January 2004
INFORMATION TECHNOLOGY FOUNDATION OF THE PHILIPPINES, MA.

CORAZON M. AKOL, MIGUEL UY, EDUARDO H. LOPEZ, AUGUSTO C. LAGMAN,
REX C. DRILON, MIGUEL HILADO, LEY SALCEDO, and MANUEL ALCUAZ JR.,
petitioners,
vs.
COMMISSION ON ELECTIONS; COMELEC CHAIRMAN BENJAMIN ABALOS SR.;
COMELEC BIDDING and AWARD COMMITTEE CHAIRMAN EDUARDO D. MEJOS
and MEMBERS GIDEON DE GUZMAN, JOSE F. BALBUENA, LAMBERTO P.
LLAMAS, and BARTOLOME SINOCRUZ JR.; MEGA PACIFIC eSOLUTIONS, INC.;
and MEGA PACIFIC CONSORTIUM, respondents.
G.R. No. 159139 January 13, 2004
Facts: On June 7, 1995, Congress passed Republic Act 8046, which authorized
COMELEC to conduct a nationwide demonstration of a computerized election system
and allowed the poll body to pilot-test the system in the March 1996 elections in the
Autonomous Region in Muslim Mindanao (ARMM). On December 22, 1997, Congress
enacted Republic Act 8436 authorizing COMELEC to use an automated election system
(AES) for the process of voting, counting votes and canvassing/consolidating the results
of the national and local elections. It also mandated the poll body to acquire automated
counting machines (ACMs), computer equipment, devices and materials; and to adopt
new electoral forms and printing materials. Initially intending to implement the
automation during the May 11, 1998 presidential elections, COMELEC eventually
decided against full national implementation and limited the automation to the ARMM.
However, due to the failure of the machines to read correctly some automated ballots in
one town, the poll body later ordered their manual count for the entire Province of Sulu.
In the May 2001 elections, the counting and canvassing of votes for both national and
local positions were also done manually, as no additional ACMs had been acquired for
that electoral exercise allegedly because of time constraints. On October 29, 2002,
COMELEC adopted in its Resolution 02-0170 a modernization program for the 2004
elections. It resolved to conduct biddings for the three phases of its Automated Election
System; namely, Phase I - Voter Registration and Validation System; Phase II -
Automated Counting and Canvassing System; and Phase III - Electronic Transmission.
On January 24, 2003, President Macapagal-Arroyo issued EO No. 172, which allocated
the sum of P2.5 billion to fund the AES for the May 10, 2004 elections. Upon the request
of COMELEC, she authorized the release of an additional P500 million. On January 28,
2003, the Commission issued an Invitation to Apply for Eligibility and to Bid. On
February 17, 2003, the poll body released the Request for Proposal (RFP) to procure
the election automation machines. The Bids and Awards Committee (BAC) of
COMELEC convened a pre-bid conference on February 18, 2003 and gave prospective
bidders until March 10, 2003 to submit their respective bids. Among others, the RFP
SLU SOL 1-C Page
827
provided that bids from manufacturers, suppliers and/or distributors forming themselves
into a joint venture may be entertained, provided that the Philippine ownership thereof
shall be at least 60 percent. Joint venture is defined in the RFP as a group of two or
more manufacturers, suppliers and/or distributors that intend to be jointly and severally
responsible or liable for a particular contract. Basically, the public bidding was to be
conducted under a two-envelope/two stage system. The bidders first envelope or the
Eligibility Envelope should establish the bidders eligibility to bid and its qualifications to
perform the acts if accepted. On the other hand, the second envelope would be the Bid
Envelope itself. Out of the 57 bidders, the BAC found MPC and the Total Information
Management Corporation eligible. For technical evaluation, they were referred to the
BACs Technical Working Group and the Department of Science and Technology. In its
Report on the Evaluation of the Technical Proposals on Phase II, DOST said that both
MPC and TIMC had obtained a number of failed marks in the technical evaluation.
Notwithstanding these failures, COMELEC en banc, on April 15, 2003, promulgated
Resolution No. 6074 awarding the project to MPC. The Commission publicized this
Resolution and the award of the project to MPC on May 16, 2003.
On May 29, 2003, five individuals and entities wrote a letter to COMELEC Chairman
Benjamin Abalos Sr. They protested the award of the Contract to Respondent MPC due
to glaring irregularities in the manner in which the bidding process had been conducted.
Citing therein the noncompliance with eligibility as well as technical and procedural
requirements (many of which have been discussed at length in the Petition), they
sought a re-bidding. However, the COMELEC chairman speaking through Atty. Jaime
Paz, his head executive assistant rejected the protest and declared that the award
would stand up to the strictest scrutiny. Hence, the present Petition.
Issue: Whether or not the COMELEC, the agency vested with the exclusive
constitutional mandate to oversee elections, gravely abused its discretion when, in the
exercise of its administrative functions, it awarded to MPC the contract for the second
phase of the comprehensive Automated Election System.
Ruling: Yes. There is grave abuse of discretion (1) when an act is done contrary to the
Constitution, the law or jurisprudence; or (2) when it is executed whimsically,
capriciously or arbitrarily out of malice, ill will or personal bias. In the present case, the
Commission on Elections approved the assailed Resolution and awarded the subject
Contract not only in clear violation of law and jurisprudence, but also in reckless
disregard of its own bidding rules and procedure. For the automation of the counting
and canvassing of the ballots in the 2004 elections, COMELEC awarded the Contract to
Mega Pacific Consortium an entity that had not participated in the bidding. Despite this
grant, the poll body signed the actual automation Contract with Mega Pacific Solutions,
Inc., a company that joined the bidding but had not met the eligibility requirements.
COMELEC awarded this billion-peso undertaking with inexplicable haste, without
adequately checking and observing mandatory financial, technical and legal
requirements. It also accepted the preferred computer hardware and software even if, at
the time of the award, they had undeniably failed to pass eight critical requirements
designed to safeguard the integrity of elections, especially the following three items: (a)
SLU SOL 1-C Page
828
They failed to achieve the accuracy rating criteria of 99.9995 percent set-up by the
COMELEC itself, (b) They were not able to detect previously downloaded results at
various canvassing or consolidation levels and to prevent these from being inputted
again and (c) They were unable to print the statutorily required audit trails of the
count/canvass at different levels without any loss of data Because of the foregoing
violations of law and the glaring grave abuse of discretion committed by Comelec, the
Court declared null and void the assailed Resolution and the subject Contract. The
illegal, imprudent and hasty actions of the Commission have not only desecrated legal
and jurisprudential norms, but have also cast serious doubts upon the poll bodys ability
and capacity to conduct automated elections. Truly, the pith and soul of democracy
credible, orderly, and peaceful elections has been put in jeopardy by the illegal and
gravely abusive acts of COMELEC. The letter-protest is sufficient compliance with the
requirement to exhaust administrative remedies particularly because it hews closely to
the procedure outlined in Section 55 of RA 9184. And even without that May 29, 2003
letter-protest, the Court still holds that petitioners need not exhaust administrative
remedies in the light of Paat v. Court of Appeals. Paat enumerates the instances when
the rule on exhaustion of administrative remedies may be disregarded, as follows: (1)
when there is a violation of due process, (2) when the issue involved is purely a legal
question, (3) when the administrative action is patently illegal amounting to lack or
excess of jurisdiction, (4) when there is estoppel on the part of the administrative
agency concerned, (5) when there is irreparable injury, (6) when the respondent is a
department secretary whose acts as an alter ego of the President bears the implied and
assumed approval of the latter, (7) when to require exhaustion of administrative
remedies would be unreasonable, (8) when it would amount to a nullification of a claim,
(9) when the subject matter is a private land in land case proceedings, (10) when the
rule does not provide a plain, speedy and adequate remedy, and (11) when there are
circumstances indicating the urgency of judicial intervention. The present controversy
precisely falls within the exceptions listed as Nos. (7) when to require exhaustion of
administrative remedies would be unreasonable; (10) when the rule does not provide a
plain, speedy and adequate remedy, and (11) when there are circumstances indicating
the urgency of judicial intervention. COMELEC itself made the exhaustion of
administrative remedies legally impossible or, at the very least, unreasonable.
SLU SOL 1-C Page
829
TEDDY G. PABUGAIS, petitioner,

vs.
DAVE P. SAHIJWANI, respondent.
G.R. No. 156846 February 23, 2004
Facts: Pursuant to an Agreement And Undertaking on December 3, 1993, petitioner

Teddy G. Pabugais, in consideration of the amount of P15,487,500.00, agreed to sell to
respondent Dave P. Sahijwani a lot containing 1,239 square meters located at
Jacaranda Street, North Forbes Park, Makati, Metro Manila. Respondent paid petitioner
the amount of P600,000.00 as option/reservation fee and the balance of
P14,887,500.00 to be paid within 60 days from the execution of the contract,
simultaneous with delivery of the owners duplicate Transfer Certificate of Title in
respondents name the Deed of Absolute Sale; the Certificate of Non-Tax Delinquency
on real estate taxes and Clearance on Payment of Association Dues. The parties further
agreed that failure on the part of respondent to pay the balance of the purchase price
entitles petitioner to forfeit the P600,000.00 option/reservation fee; while non-delivery by
the latter of the necessary documents obliges him to return to respondent the said
option/reservation fee with interest at 18% per annum. Petitioner failed to deliver the
required documents. In compliance with their agreement, he returned to respondent the
latters P600,000.00 option/reservation fee by way of Far East Bank & Trust Company
Check, which was, however, dishonored. Petitioner claimed that he twice tendered to
respondent, through his counsel, the amount of P672,900.00 (representing the
P600,000.00 option/reservation fee plus 18% interest per annum computed from
December 3, 1993 to August 3, 1994) in the form of Far East Bank & Trust Company
Managers Check No. 088498, dated August 3, 1994, but said counsel refused to accept
the same. On August 11, 1994, petitioner wrote a letter to respondent saying that he is
consigning the amount tendered with the Regional Trial Court of Makati City.
On August 15, 1994, petitioner filed a complaint for consignation. Respondents
counsel, on the other hand, admitted that his office received petitioners letter dated
August 5, 1994, but claimed that no check was appended thereto. He averred that there
was no valid tender of payment because no check was tendered and the computation of
the amount to be tendered was insufficient, because petitioner verbally promised to pay
3% monthly interest and 25% attorneys fees as penalty for default, in addition to the
interest of 18% per annum on the P600,000.00 option/reservation fee. On November
29, 1996, the trial court rendered a decision declaring the consignation invalid for failure
to prove that petitioner tendered payment to respondent and that the latter refused to
receive the same. Petitioner appealed the decision to the Court of Appeals. Petitioners
motion to withdraw the amount consigned was denied by the Court of Appeals and the
decision of the trial court was affirmed. On a motion for reconsideration, the Court of
Appeals declared the consignation as valid in an Amended Decision dated January 16,
2003. It held that the validity of the consignation had the effect of extinguishing
petitioners obligation to return the option/reservation fee to respondent. Hence,
petitioner can no longer withdraw the same. Unfazed, petitioner filed the instant petition
SLU SOL 1-C Page

830
for review contending that he can withdraw the amount deposited with the trial court as
a matter of right because at the time he moved for the withdrawal thereof, the Court of
Appeals has yet to rule on the consignations validity and the respondent had not yet
accepted the same.
Issue: Whether or not assigning the amount of P672, 900.00 to Atty. De Guzman is
prohibited.
Ruling: The amount consigned with the trial court can no longer be withdrawn by
petitioner because respondents prayer in his answer that the amount consigned be
awarded to him is equivalent to an acceptance of the consignation, which has the effect
of extinguishing petitioners obligation. Moreover, petitioner failed to manifest his
intention to comply with the Agreement And Undertaking by delivering the necessary
documents and the lot subject of the sale to respondent in exchange for the amount
deposited. Withdrawal of the money consigned would enrich petitioner and unjustly
prejudice respondent. The withdrawal of the amount deposited in order to pay attorneys
fees to petitioners counsel, Atty. De Guzman, Jr., violates Article 1491 of the Civil Code
which forbids lawyers from acquiring by assignment, property and rights which are the
object of any litigation in which they may take part by virtue of their profession.
Furthermore, Rule 10 of the Canons of Professional Ethics provides that the lawyer
should not purchase any interest in the subject matter of the litigation which he is
conducting. The assailed transaction falls within the prohibition because the Deed
assigning the amount of P672,900.00 to Atty. De Guzman, Jr., as part of his attorneys
fees was executed during the pendency of this case with the Court of Appeals. In his
Motion to Intervene, Atty. De Guzman, Jr., not only asserted ownership over said
amount, but likewise prayed that the same be released to him. That petitioner knowingly
and voluntarily assigned the subject amount to his counsel did not remove their
agreement within the ambit of the prohibitory provisions. To grant the withdrawal would
be to sanction a void contract. Wherefore, in view of all the foregoing, the instant
petition for review is denied.
SLU SOL 1-C Page
831
CONCHITA LIGUEZ, petitioner,

vs.
THE HONORABLE COURT OF APPEALS, MARIA NGO VDA. DE LOPEZ, ET AL.,
respondents.
G.R. No. L-11240 December 18, 1957
Facts: Petitioner filed a complaint for the recovery of parcel of land against the widow
and heirs of Salvador Lopez. Petitioner averred that he is the owner of the
aforementioned parcel of land pursuant to a Deed of Donation executed in her favor by
the late owner, Salvador Lopez. The defense interposed that the donation was null and
void for having illicit cause or consideration which was the petitioners entering into a
marital relations with Salvador, a married man, and that the property had been
adjudicated to the appellees as heirs of Salvador Lopez by the Court of First Instance.
Meanwhile, the Court of Appeals found that the Deed of Donation was prepared by a
Justice of Peace and was ratified and signed when petitioner Liquez was still a minor,
16 years of age. It was the ascertainment of the Court of Appeals that the donated land
belonged to the conjugal partnership of Salvador and his wife and that the Deed of
Donation was never recorded. Hence, the Court of Appeals held that the Deed of
Donation was inoperative and null and void because the donation was tainted with
illegal cause or consideration.
Issue: Whether or not the Deed of Donation is void for having illicit cause or
consideration.
Ruling: No. Under Article 1279 of the Civil Code of 1989, which was the governing law
during the execution of the Deed of Donation, the liberality of the donor is deemed cover
only in those contracts that are pure beneficence. In these contracts, the idea of self-
interest is totally absent in the part of the transferee. Here, the facts as found
demonstrated that in making the donation, Salvador Lopez was not moved exclusively
by the desire to benefit the petitioner but also to secure her cohabiting with him.
Petitioner seeks to differentiate between the liberality of Lopez as cause and his desire
as a motive. However, motive may be regarded as cause when it predetermined the
purpose of the contract. The Court of Appeals rejected the claim of petitioner on the
ground on the rule on pari delicto embodied in Article 1912 of the Civil Code. However,
this rule cannot be applied in the case because it cannot be said that both parties had
equal guilt where petitioner was a mere minor when the donation was made and that it
was not shown that she was fully aware of the terms of the said donation.
SLU SOL 1-C Page
832
PHILIPPINE BANKING CORPORATION, representing the estate of JUSTINA

SANTOS Y CANON FAUSTINO, deceased, plaintiff-appellant,
vs.
LUI SHE in her own behalf and as administratrix of the intestate estate of Wong
Heng, deceased, defendant-appellant.
Facts: Justina who inherited parcels of land in Manila executed a contract of lease in
favor of Wong, covering a portion already leased to him and another portion of the
property. The lease was for 50 years, although the lease was given the right to withdraw
at any time from the agreement with a stipulated monthly rental.
She executed another contract giving Wong the option to buy the leased premises for
P120,000.00 payable within 10 years at monthly installment of P1,000.00. The option
was conditioned on his obtaining Philippine citizenship, which was then pending. His
application for naturalization was withdrawn when it was discovered that he was a
resident of Rizal.
She executed two another contracts one extending the term of 99 years and the term
fixing the term of the option of 50 years. In the two wills, she bade her legatees to
respect the contract she had entered into with Wong, but it appears to have a change of
heart in a codicil. Claiming that the various contracts were made because of her
machinations and inducements practiced by him, she now directed her executor to
secure the annulment of the contracts.
The complaint alleged that Wong obtained the contracts through fraud. Wong denied
having taken advantage of her trust in order to secure the execution of the contracts on
question. He insisted that the various contracts were freely and voluntarily entered into
by the parties.
The lower court declared all the contracts null and void with the exception of the first,
which is the contract lease.
Issue: Whether or not the contracts entered into by the parties are void.
Ruling: The contract is void. The Court held the lease and the rest of the contracts
were obtained with the consent of Justina freely given and voluntarily, hence the claim
that the consent was vitiated due to fraud or machination is bereft of merit. However the
contracts are not necessarily valid because of the Constitution provides that aliens are
not allowed to own lands in the Philippines. The illicit purpose then becomes the illegal
cause, rendering the contracts void.
SLU SOL 1-C Page
833
It does not follow from what has been said that because the parties are in pari delicto
they will be left where they are, without relief. For one thing, the original parties who
were guilty of whom it would be unjust to impute their guilt. For another thing, Article
1416 of the Civil Code provides an exception to the pari de licto, that when the
agreement is not illegal per se but is merely prohibited, and the prohibition of the law is
designed for the protection of the plaintiff, he may recover what he has paid or
delivered.
SLU SOL 1-C Page
834
Vigilar v. Aquino, 18 January 2011
GREGORIO R. VIGILAR, SECRETARY OF THE DEPARTMENT OF PUBLIC WORKS

AND HIGHWAYS (DPWH), DPWH UNDERSECRETARIES TEODORO E.
ENCARNACION AND EDMUNDO E. ENCARNACION AND EDMUNDO V. MIR,
DPWH ASSISTANT SECRETARY JOEL L. ALTEA, DPWH REGIONAL DIRECTOR
VICENTE B. LOPEZ, DPWH DISTRICT ENGINEER ANGELITO M. TWAO, FELIX A.
DESIERTO OF THE TECHNICAL WORKING GROUP VALIDATION AND AUDITING
TEAM, AND LEONARDO ALVARO, ROMEO N. SUPAN, VICTORINO C. SANTOS OF
THE DPWH PAMPANGA 2ND ENGINEERING DISTRICT, petitioners,
vs.
ARNULFO D. AQUINO, respondent.
G.R. No. 180388 January 18, 2011
Facts: On 19 June 1992, petitioner Angelito M. Twao, then Officer-in-Charge (OIC)-

District Engineer of the Department of Public Works and Highways (DPWH) 2nd
Engineering District of Pampanga sent an Invitation to Bid to respondent Arnulfo D.
Aquino, the owner of A.D. Aquino Construction and Supplies. The bidding was for the
construction of a dike by bulldozing a part of the Porac River at Barangay Ascomo-
Pulungmasle, Guagua, Pampanga.Subsequently, on 7 July 1992, the project was
awarded to respondent, and a "Contract of Agreement" was thereafter executed
between him and concerned petitioners for the amount of PhP1,873,790.69, to cover
the project cost. By 9 July 1992, the project was duly completed by respondent, who
was then issued a Certificate of Project Completion dated 16 July 1992. Respondent
Aquino, however, claimed that PhP1,262,696.20 was still due him, but petitioners
refused to pay the amount. He thus filed a Complaint for the collection of sum of money
with damages before the Regional Trial Court of Guagua, Pampanga. Petitioners avers
that the complaint was a suit against the state; that respondent failed to exhaust
administrative remedies; and that the "Contract of Agreement" covering the project was
void for violating Presidential Decree No. 1445, absent the proper appropriation and the
Certificate of Availability of Funds. On 28 November 2003, the lower court ruled in favor
of respondent. On appeal, the CA reversed and set aside the decision of the lower court
,disposing that the "CONTRACT AGREEMENT" entered into between the plaintiff-
appellees construction company, which he represented, and the government, through
the Department of Public Works and Highway (DPWH) Pampanga 2nd Engineering
District, is declared null and void ab initio.
Issue: Whether or not the contract agreement is valid, thus making respondent liable.
Ruling: Yes. Specifically, C.V. Canchela & Associates is similar to the case at bar, in
that the contracts involved in both cases failed to comply with the relevant provisions of
Presidential Decree No. 1445 and the Revised Administrative Code of 1987.
Nevertheless, "the illegality of the subject Agreements proceeds, it bears emphasis,
from an express declaration or prohibition by law, not from any intrinsic illegality. As
such, the Agreements are not illegal per se, and the party claiming there under may
SLU SOL 1-C Page
835
recover what had been paid or delivered. The government project involved in this case,
the construction of a dike, was completed way back on 9 July 1992. For almost two
decades, the public and the government benefitted from the work done by respondent.
Petitioners cannot escape the obligation to compensate respondent for services
rendered and work done by invoking the states immunity from suit. This Court has long
established that the doctrine of governmental immunity from suit cannot serve as an
instrument for perpetrating an injustice to a citizen. Justice and equity sternly demand
that the State's cloak of invincibility against suit be shred in this particular instance, and
that petitioners-contractors be duly compensated on the basis of quantum meruit
for construction done on the public works housing project.
SLU SOL 1-C Page
836
EPG Construction v. Vigilar, 354 S 566
EPG CONSTRUCTION CO., CIPER ELECTRICAL & ENGINEERING, SEPTA

CONSTRUCTION CO., PHIL. PLUMBING CO., HOME CONSTRUCTION INC.,
WORLD BUILDERS CO., GLASS WORLD INC., PERFORMANCE BUILDERS DEVT.
CO., DE LEON-ARANETA CONST. CO., J.D. MACAPAGAL CONST. CO., All
represented by their Atty. IN FACT, MARCELO D, FORONDA, petitioners,
vs.
HON. GREGORIO R. VIGILAR, In His Capacity as Secretary of Public Works and
Highways, respondent.
G.R. No. 131544 March 16, 2001
Facts: In 1983, the Ministry of Human Settlement entered into a Memorandum of

Agreement (MOA) with the Ministry of Public Works and Highways, where the latter
undertook to develop a housing project by the ministry and on the site construct thereon
145 housing units.
By virtue of the MOA, the Ministry of Public Works and Highways forged individual
contracts with herein petitioners EPG Construction Co., Ciper Electrical and
Engineering, Septa Construction Co., Phil. Plumbing Co., Home Construction Inc.,
World Builders Inc., Glass World Inc., Performance Builders Development Co. and De
Leon Araneta Construction Co., for the construction of the housing units. Under the
contracts, the scope of construction and funding therefor covered only around 2/3 of
each housing unit. After complying with the terms of said contracts, and by reason of
the verbal request and assurance of then DPWH Undersecretary Aber Canlas that
additional funds would be available and forthcoming, petitioners agreed to undertake
and perform additional constructions for the completion of the housing units, despite the
absence of appropriations and written contracts to cover subsequent expenses for the
additional constructions.
Petitioners received payment for what was originally stipulated. However, petitioners
demanded payment for the unpaid balance of P5,918,315.63 constituting payment for
the additional constructions which petitioners argued formed an implied contract. They
claimed that payment should be based on the principle of quantum meruit. DPWH
Secretary Gregorio Vigilar denied the subject money claims prompting herein petitioners
to file before the Regional Trial Court of Quezon City, Branch 226, a Petition for
Mandamus praying for payment.
Issue: Whether or not petitioners are entitled to payment.
Ruling: Although the Court agreed with respondents postulation that the implied
contracts, which covered the additional constructions, are void, in view of violation of
applicable laws, auditing rules and lack of legal requirements, it nonetheless find the
instant petition laden with merit and uphold, in the interest of substantial justice,
SLU SOL 1-C Page
837
petitioners-contractors right to be compensated for the "additional constructions" on the
public works housing project, applying the principle of quantum meruit.
To begin with, petitioners-contractors assented and agreed to undertake additional

constructions for the completion of the housing units, believing in good faith and in the
interest of the government and, in effect, the public in general, that appropriations to
cover the additional constructions and completion of the public works housing project
would be available and forthcoming. On this particular score, the records reveal that the
verbal request and assurance of then DPWH Undersecretary Canlas led petitioners-
contractors to undertake the completion of the government housing project, despite the
absence of covering appropriations, written contracts, and certification of availability of
funds, as mandated by law and pertinent auditing rules and issuances.
To put it differently, the implied contracts, declared void in this case, covered only the
completion and final phase of construction of the housing units, which structures,
concededly, already existed, albeit not yet finished in their entirety at the time the
implied contracts were entered into between the government and the contractors.
SLU SOL 1-C Page
838
Gochan v. Young, 354 S 207
VIRGINIA O. GOCHAN, FELIX Y. GOCHAN III, MAE GOCHAN EFANN, LOUISE Y.

GOCHAN, ESTEBAN Y. GOCHAN JR., DOMINIC Y.GOCHAN, FELIX 0. GOCHAN III,
MERCEDES R. GOCHAN, ALFREDO R. GOCHAN, ANGELINA R. GOCHAN-
HERNAEZ, MARIA MERCED R. GOCHAN, CRISPO R. GOCHAN JR., MARION R.
GOCHAN, MACTAN REALTY DEVELOPMENT CORPORATION and FELIX GOCHAN
& SONS REALTY CORPORATION, petitioner,
vs.
RICHARD G. YOUNG, DAVID G. YOUNG, JANE G. YOUNG-LLABAN, JOHN D.
YOUNG JR., MARY G. YOUNG-HSU and ALEXANDER THOMAS G. YOUNG as
heirs of Alice Gochan; the INTESTATE ESTATE OF JOHN D. YOUNG SR.; and
CECILIA GOCHAN-UY and MIGUEL C. UY, for themselves and on behalf and for
the benefit of FELIX GOCHAN & SONS REALTY CORPORATION, respondents.
G.R. No. 131889 March 12, 2001
Facts: Felix Gochan Sr.s daughter, Alice, mother of [herein respondents], inherited 50
shares of stock in Gochan Realty from the former. Alice died in 1955, leaving the 50
shares to her husband, John Young, Sr. When their all their children reached the age of
majority, John, Sr. requested Gochan Realty to partition the shares of his late wife by
issuing the shares of stock to [herein respondents] and cancelling it in his name.
Respondent corporation refused. On 1990, John, Sr. died, leaving the shares to the
[respondents]. On February 8, 1994, [respondents] Cecilia Gochan Uy and Miguel Uy
filed a complaint with the SEC for issuance of shares of stock to he rightful owners,
nullification of shares of stock, reconveyance of property impressed with rust,
accounting, removal of officers and directors and damages against petitioners.
Petitioners then assert that respondents were not the real parties in interest and had no
capacity to sue, and respondents causes of action had already been barred by the
Statute of limitations.
Issue: Whether or not respondents have legal standing to push through with their
complaint.
Ruling: On November 21, 1979, respondents Felix Gochan & Sons Realty Corporation
did not have unrestricted earnings in its books to cover the purchase price of the 208
shares of stock it was then buying from complainant Cecilia Gochan Uy, thereby
rendering said purchase null and void ab initio for being violative of the trust fund
doctrine and contrary to law, morals, good customs, public order, and public policy.
Thus, Cecilia remains a stockholder of the corporation in view of the nullity of the
Contract of Sale. Necessarily, petitioners contention that the action has prescribed
cannot be sustained. Prescription cannot be invoked as a ground if the contract is
alleged to be void ab initio. It is axiomatic that the action or defense for the declaration
of nullity of a contract does not prescribe. In Section 2 of Rule 87, while permitting an
executor or administrator to represent or to bring suits on behalf of the deceased, do not
prohibit the heirs from representing the deceased. The heirs can thusly represent Young
SLU SOL 1-C Page
839
in the present case. Given the circumstances, the claim of petitioners was then
dismissed and the case remanded to the RTC for trial.
SLU SOL 1-C Page
840
JULIAN FRANCISCO (Substituted by his Heirs, namely: CARLOS ALTEA

FRANCISCO; the heirs of late ARCADIO FRANCISCO, namely: CONCHITA
SALANGSANG-FRANCISCO (surviving spouse), and his children namely:
TEODULO S. FRANCISCO, EMILIANO S. FRANCISCO, MARIA THERESA S.
FRANCISCO, PAULINA S. FRANCISCO, THOMAS S. FRANCISCO; PEDRO ALTEA
FRANCISCO; CARINA FRANCISCO-ALCANTARA; EFREN ALTEA FRANCISCO;
DOMINGA LEA FRANCISCO-REGONDON; BENEDICTO ALTEA FRANCISCO and
ANTONIO ALTEA FRANCISCO), petitioner,
vs.
PASTOR HERRERA, respondent.
G.R. No. 139982 November 21, 2002
Facts: Eligio Herrera, Sr., the father of Pastor, was the owner of 2 parcels of land
located in Cainta, Rizal.
In Jan. 1991, Julian Francisco bought from Eligio the first parcel for P1M. In March
1991, he bought the second parcel for P750K.
Contending that the contract price for the 2 parcels of land was grossly inadequate, the
children of Eligio tried to negotiate with Julian to increase the purchase price. When he
refused, Pastor then filed a complaint for annulment of sale with the RTC.
In his complaint, Pastor claimed ownership over the second parcel allegedly by virtue of
a sale in his favor since 1973. He likewise claimed that the first parcel was subject to
the co-ownership of the surviving heirs of Francisca, the wife of Eligio, considering that
she died intestate in April 1990, before the alleged sale to Julian. Pastor also alleged
that the sale of the 2 lots was null and void on the ground that, at the time of sale, Eligio
was already incapacitated to give consent to a contract because he was afflicted with
senile dementia.
In his answer, Julian alleged that Pastor had effectively ratified both contracts of sale by
receiving the consideration offered in each transaction.
The RTC declared the deeds of sale as null and void. The CA affirmed the RTC
decision.
Issue: Whether the assailed contracts of sale are void or merely voidable.
Ruling: An annullable contract may be rendered perfectly valid by ratification, which

can be express or implied. Implied ratification may take the form of accepting and
retaining the benefits of a contract. This is what happened in this case.
SLU SOL 1-C Page
841
Pastor's contention that he merely received payments on behalf of his father merely to
avoid their misuse and that he did not intend to concur with the contracts is
unconvincing. If he was not agreeable with the contracts, he could have prevented
Julian from delivering the payments, or if this was impossible, he could have
immediately instituted the action for reconveyance and have the payments consigned
with the court. None of these happened.
Upon learning of the sale, Pastor negotiated for the increase of the purchase price while
receiving the installment payments. It was only when Pastor failed to convince Julian to
increase the price that the former instituted the complaint for reconveyance of the
properties. Clearly, Pastor was agreeable to the contracts, only he wanted to get more.
Further, there is no showing that Pastor returned the payments or made an offer to do
so.
The CA decision was reversed.

SLU SOL 1-C Page
842
Mendezona v. Ozamiz, 376 S 482
MARIO J. MENDEZONA, et al., petitioner,

vs.
JULIO H. OZAMIZ, et al., respondent.
G.R. No. 143370 February 6, 2002
Facts: Carmen Ozamiz executed a notarized Deed of Absolute Sale in favor of the
petitioners in consideration of the sum of One Million Forty Thousand Pesos
(P1,040,000.00).The petitioners initiated the suit to remove a cloud on their said
respective titles caused by the inscription thereon of a notice of lis pendens, which
came about as a result of an incident in a Special Proceeding of the RTC.
Montalvan was designated as guardian over the person of Carmen Ozamiz while
petitioner Mendezona, respondents Roberto J. Montalvan and Julio H. Ozamiz were
designated as joint guardians over the properties of the said ward.
The respondents opposed the petitioners' claim of ownership of the Lahug property and
alleged that the titles issued in the petitioners names are defective and illegal, and the
ownership of the said property was acquired in bad faith and without value inasmuch as
the consideration for the sale is grossly inadequate and unconscionable. RTC ruled in
favor of petitioners. The appellate court reversed the factual findings of the trial court
and ruled that the Deed of Absolute Sale dated April 28, 1989 was a simulated contract
since the petitioners failed to prove that the consideration was actually paid, and,
furthermore, that at the time of the execution of the contract the mental faculties of
Carmen Ozamiz were already seriously impaired. Thus, the appellate court declared
that the Deed of Absolute Sale of April 28, 1989 is null and void. It ordered the
cancellation of the certificates of title issued in the petitioners names and directed the
issuance of new certificates of title in favor of Carmen Ozamiz or her estate. The motion
for reconsideration was denied.
Issue: Whether or not the CA erred in ruling that the Deed of Absolute Sale dated on
April 28, 1989 was a Simulated Contract.
Ruling: Yes. Simulation is defined as "the declaration of a fictitious will, deliberately

made by agreement of the parties, in order to produce, for the purposes of deception,
the appearances of a juridical act which does not exist or is different from what that
which was really executed." The requisites of simulation are: (a) an outward declaration
of will different from the will of the parties; (b) the false appearance must have been
intended by mutual agreement; and (c) the purpose is to deceive third persons. None of
these were clearly shown to exist in the case at bar.
It is significant to note that the Deed of Absolute Sale dated April 28, 1989 is a notarized
document duly acknowledged before a notary public. As such, it has in its favor the
presumption of regularity, and it carries the evidentiary weight conferred upon it with
SLU SOL 1-C Page
843
respect to its due execution. It is admissible in evidence without further proof of its
authenticity and is entitled to full faith and credit upon its face. Payment is not merely
presumed from the fact that the notarized Deed of Absolute Sale dated April 28, 1989
has gone through the regular procedure as evidenced by the transfer certificates of title
issued in petitioners' names by the Register of Deeds.
Considering that Carmen Ozamiz acknowledged, on the face of the notarized deed, that
she received the consideration at One Million Forty Thousand Pesos (P1,040,000.00),
the appellate court should not have placed too much emphasis on the checks, the
presentation of which is not really necessary. The respondents utterly failed to show
adequate proof that at the time of the sale on April 28, 1989 Carmen Ozamiz had
allegedly lost control of her mental faculties. A person is presumed to be of sound mind
at any particular time and the condition is presumed to continue to exist, in the absence
of proof to the contrary. Competency and freedom from undue influence, shown to have
existed in the other acts done or contracts executed, are presumed to continue until the
contrary is shown.
SLU SOL 1-C Page
844
XI. Natural Obligations (Arts. 1423-1430)
Arts. 1424-1430, Kinds
Manzanilla v. CA, 15 March 1990
SPOUSES CELEDONIO MANZANILLA and DOLORES FUERTE, and INES CARPIO,

petitioners,
vs.
HON. COURT OF APPEALS and JUSTINA CAMPO, respondents.
G.R. No. L-75342 March 15, 1990
Facts: Spouses Manzanilla sold on installment an undivided one-half portion of their

residential house and lot. At the time of the sale, the said property was mortgaged to the
Government Service Insurance System (GSIS), which fact was known to the vendees,
spouses Magdaleno and Justina Campo. The Campo spouses took possession of the
premises upon payment of the first installment. Some payments were made to
petitioners while some were made directly to GSIS. The GSIS filed its application to
foreclose the mortgage on the property for failure of the Manzanilla spouses to pay their
monthly amortizations. The property was sold at public auction where GSIS was the
highest bidder. Two months before the expiration of the period to redeem, the
Manzanilla spouses executed a Deed of Absolute Sale of the undivided one half portion
of their property in favor of the Campo spouses. Upon the expiration of the period to
redeem without the Manzanilla spouses exercising their right of redemption, title to the
property was consolidated in favor of the GSIS and a new title issued in its name. The
Manzanilla spouses succeeded in re-acquiring the property from the GSIS. An Absolute
Deed of Sale was executed by GSIS in favor of the Manzanilla spouses and a new
certificate of title was issued to them. The Manzanilla spouses mortgaged the property
to the Bian Rural Bank. Petitioner Ines Carpio purchased the property from the
Manzanilla spouses and agreed to assume the mortgage in favor of Bian Rural Bank.
Private respondent Justina Campo registered her adverse claim over the said portion of
land with the Register of Deeds of Quezon City. On the other hand, petitioner Ines
Carpio filed an ejectment case against private respondent Justina. Private respondent
Justina Campo filed a case for quieting of title against the Manzanilla spouses and Ines
Carpio praying for the issuance to her of a certificate of title over the undivided one-half
portion of the property in question.
Issue: Whether or not petitioners Manzanillas are under any legal duty to reconvey the
undivided one-half portion of the property to private respondent Justina Campo.
Ruling: There was no mistake or fraud on the part of petitioners when the subject
property was re-acquired from the GSIS. Private respondent's right over the one-half
portion was obliterated when absolute ownership and title passed on to the GSIS after
the foreclosure sale. The property as held by GSIS had a clean title. The property that
was passed on to petitioners retained that quality of title. As regards the rights of private
SLU SOL 1-C Page
845
respondent Ines Carpio, she is a buyer in good faith and for value. There was no
showing that at the time of the sale to her of the subject property, she knew of any lien
on the property except the mortgage in favor of the Bian Rural Bank. No other lien was
annotated on the certificate of title. She is also not required by law to go beyond what
appears on the face of the title. When there is nothing on the certificate of title to
indicate any cloud or vice in the ownership of the property or any encumbrances
thereon, the purchaser is not to explore further than what the Torrens Title upon its face
indicates in quest for any hidden defect or inchoate right thereof.
SLU SOL 1-C Page
846
Rural Bank of Paranaque v. Remolado, 18 March 1985
RURAL BANK OF PARANAQUE, INC., petitioner,

vs.
ISIDRA REMOLADO and COURT OF APPEALS, respondents.
G.R. No. L-62051 March 18, 1985
Facts: Isidra Remolado, a resident of Rizal, owned a lot with a bungalow which was
leased to Beatriz Cabagnot. The said lot is located at Molave St., United Paranaque,
Rizal. In 1966 she mortgaged the lot to the Rural Bank of Paranaque as security for a
loan of P15,000. She paid the loan. On April 17, 1971 she again mortgaged it to the
bank. She failed to pay the loan amounting to P18,000. The bank foreclosed the
mortgage on July 21, 1972 and bought the lot at the foreclosure sale at P22,192.70.
The lot had a one year period of redemption which was to expire on August 21, 1973.
On August 8, 1973 the bank advised her that she has up to August 23 to redeem the
property with the price amounting to P 25,491.96. No redemption was made. The bank
consolidated its ownership of the property and was issued the title of the land on
September 5. However, on September 24 the bank, again, extended the deadline to
October 31, without specifying the repurchase price. On October 26, Remolado and her
daughter promised to pay the bank P33,000 on October 31. She failed to meet the
deadline and only paid the bank on November 5. The amount was returned to her the
following day for the assistant manager did not intend to receive the money for the bank
was no longer willing to allow the repurchase. On that day, November 6, she filed an
action to compel the bank to return the property to her for P25,491.96 plus interest and
other charges and pay P35,000 as damages. The repurchase price was not consigned.
A notice of lis pendens was registered. On November 15, the bank sold the property to
Pilar Aysip for P50,000, along with the new title issued to Aysip with an annotation of lis
pendens. The trial court ordered the bank to return the property to Remolado upon
payment of P25,491.96 plus interest and other bank charges and P15,000 for damages.
The Appellate Court affirmed the judgment.
Issue: Whether or not the property may be returned to Remolado even though there
was no binding agreement for its repurchase.
Ruling: No. The Appellate Court's judgment is reversed and set aside. The complaint
and counterclaim are dismissed and the notice of lis pendens is cancelled. There was
no binding agreement for its repurchase. Remolado had no cause of action because
she did not repurchase the property on or before October 31, 1971. As a rule, equity
follows the law. There may be a natural obligation (Art. 1423), but if there is no
enforceable legal duty, the action must fail although the disadvantaged party deserves
commiseration or sympathy. The bank acted within its legal rights when it refused to
give Remolado any extension to repurchase after October 31, 1973.
SLU SOL 1-C Page
847
XII. Trusts (Arts. 1440-1457)
Meaning, Nature of Legal Relationship
Cojuangco v. Republic, 12 April 2011
REPUBLIC OF THE PHILIPPINES, petitioner,

vs.
SANDIGANBAYAN (FIRST DIVISION), EDUARDO M. COJUANGCO, JR.,
AGRICULTURAL CONSULTANCY SERVICES, INC., ARCHIPELAGO REALTY
CORP., BALETE RANCH, INC., BLACK STALLION RANCH, INC., CHRISTENSEN
PLANTATION COMPANY, DISCOVERY REALTY CORP., DREAM PASTURES, INC.,
ECHO RANCH, INC., FAR EAST RANCH, INC., FILSOV SHIPPING COMPANY, INC.,
FIRST UNITED TRANSPORT, INC., HABAGAT REALTY DEVELOPMENT, INC.,
KALAWAKAN RESORTS, INC., KAUNLARAN AGRICULTURAL CORP., LABAYUG
AIR TERMINALS, INC., LANDAIR INTERNATIONAL MARKETING CORP., LHL
CATTLE CORP., LUCENA OIL FACTORY, INC., MEADOW LARK PLANTATIONS,
INC., METROPLEX COMMODITIES, INC., MISTY MOUNTAIN AGRICULTURAL
CORP., NORTHEAST CONTRACT TRADERS, INC., NORTHERN CARRIERS CORP.,
OCEANSIDE MARITIME ENTERPRISES, INC., ORO VERDE SERVICES, INC.,
PASTORAL FARMS, INC., PCY OIL MANUFACTURING CORP., PHILIPPINE
TECHNOLOGIES, INC., PRIMAVERA FARMS, INC., PUNONG-BAYAN HOUSING
DEVELOPMENT CORP., PURA ELECTRIC COMPANY, INC., RADIO AUDIENCE
DEVELOPERS INTEGRATED ORGANIZATION, INC., RADYO PILIPINO CORP.,
RANCHO GRANDE, INC., REDDEE DEVELOPERS, INC., SAN ESTEBAN
DEVELOPMENT CORP., SILVER LEAF PLANTATIONS, INC., SOUTHERN SERVICE
TRADERS, INC., SOUTHERN STAR CATTLE CORP., SPADE ONE RESORTS
CORP., UNEXPLORED LAND DEVELOPERS, INC., VERDANT PLANTATIONS, INC.,
VESTA AGRICULTURAL CORP. AND WINGS RESORTS CORP., respondents.
G.R. No. 166859 April 12, 2011

vs.
SANDIGANBAYAN (FIRST DIVISION), EDUARDO M. COJUANGCO, JR., MEADOW
LARK PLANTATIONS, INC., SILVER LEAF PLANTATIONS, INC., PRIMAVERA
FARMS, INC., PASTORAL FARMS, INC., BLACK STALLION RANCH, INC., MISTY
MOUNTAINS AGRICULTURAL CORP., ARCHIPELAGO REALTY CORP.,
AGRICULTURAL CONSULTANCY SERVICES, INC., SOUTHERN STAR CATTLE
CORP., LHL CATTLE CORP., RANCHO GRANDE, INC., DREAM PASTURES, INC.,
FAR EAST RANCH, INC., ECHO RANCH, INC., LAND AIR INTERNATIONAL
MARKETING CORP., REDDEE DEVELOPERS, INC., PCY OIL MANUFACTURING
CORP., LUCENA OIL FACTORY, INC., METROPLEX COMMODITIES, INC., VESTA
AGRICULTURAL CORP., VERDANT PLANTATIONS, INC., KAUNLARAN
AGRICULTURAL CORP., ECJ & SONS AGRICULTURAL ENTERPRISES, INC.,
RADYO PILIPINO CORP., DISCOVERY REALTY CORP., FIRST UNITED
SLU SOL 1-C Page
848
TRANSPORT, INC., RADIO AUDIENCE DEVELOPERS INTEGRATED
ORGANIZATION, INC., ARCHIPELAGO FINANCE AND LEASING CORP., SAN
ESTEBAN DEVELOPMENT CORP., CHRISTENSEN PLANTATION COMPANY,
NORTHERN CARRIERS CORP., VENTURE SECURITIES, INC., BALETE RANCH,
INC., ORO VERDE SERVICES, INC., and KALAWAKAN RESORTS, INC.,
respondents.
G.R. No. 169203

vs.
EDUARDO M. COJUANGCO, JR., FERDINAND E. MARCOS, IMELDA R. MARCOS,
EDGARDO J. ANGARA,* JOSE C. CONCEPCION, AVELINO V. CRUZ, EDUARDO
U. ESCUETA, PARAJA G. HAYUDINI, JUAN PONCE ENRILE, TEODORO D.
REGALA, DANILO URSUA, ROGELIO A. VINLUAN, AGRICULTURAL
CONSULTANCY SERVICES, INC., ANGLO VENTURES, INC., ARCHIPELAGO
REALTY CORP., AP HOLDINGS, INC., ARC INVESTMENT, INC., ASC
INVESTMENT, INC., AUTONOMOUS DEVELOPMENT CORP., BALETE RANCH,
INC., BLACK STALLION RANCH, INC., CAGAYAN DE ORO OIL COMPANY, INC.,
CHRISTENSEN PLANTATION COMPANY, COCOA INVESTORS, INC., DAVAO
AGRICULTURAL AVIATION, INC., DISCOVERY REALTY CORP., DREAM
PASTURES, INC., ECHO RANCH, INC., ECJ & SONS AGRI. ENT., INC., FAR EAST
RANCH, INC., FILSOV SHIPPING COMPANY, INC., FIRST MERIDIAN
DEVELOPMENT, INC., FIRST UNITED TRANSPORT, INC., GRANEXPORT
MANUFACTURING CORP., HABAGAT REALTY DEVELOPMENT, INC., HYCO
AGRICULTURAL, INC., ILIGAN COCONUT INDUSTRIES, INC., KALAWAKAN
RESORTS, INC., KAUNLARAN AGRICULTURAL CORP., LABAYOG AIR
TERMINALS, INC., LANDAIR INTERNATIONAL MARKETING CORP., LEGASPI OIL
COMPANY, LHL CATTLE CORP., LUCENA OIL FACTORY, INC., MEADOW LARK
PLANTATIONS, INC., METROPLEX COMMODITIES, INC., MISTY MOUNTAIN
AGRICULTURAL CORP., NORTHEAST CONTRACT TRADERS, INC., NORTHERN
CARRIERS CORP., OCEANSIDE MARITIME ENTERPRISES, INC., ORO VERDE
SERVICES, INC., PASTORAL FARMS, INC., PCY OIL MANUFACTURING CORP.,
PHILIPPINE RADIO CORP., INC., PHILIPPINE TECHNOLOGIES, INC., PRIMAVERA
FARMS, INC., PUNONG-BAYAN HOUSING DEVELOPMENT CORP., PURA
ELECTRIC COMPANY, INC., RADIO AUDIENCE DEVELOPERS INTEGRATED
ORGANIZATION, INC., RADYO PILIPINO CORP., RANCHO GRANDE, INC., RANDY
ALLIED VENTURES, INC., REDDEE DEVELOPERS, INC., ROCKSTEEL
RESOURCES, INC., ROXAS SHARES, INC., SAN ESTEBAN DEVELOPMENT
CORP., SAN MIGUEL CORPORATION OFFICERS, INC., SAN PABLO
MANUFACTURING CORP., SOUTHERN LUZON OIL MILLS, INC., SILVER LEAF
PLANTATIONS, INC., SORIANO SHARES, INC., SOUTHERN SERVICE TRADERS,
INC., SOUTHERN STAR CATTLE CORP., SPADE 1 RESORTS CORP., TAGUM
AGRICULTURAL DEVELOPMENT CORP., TEDEUM RESOURCES, INC.,
THILAGRO EDIBLE OIL MILLS, INC., TODA HOLDINGS, INC., UNEXPLORED LAND
DEVELOPERS, INC., VALHALLA PROPERTIES, INC., VENTURES SECURITIES,
SLU SOL 1-C Page
849
INC., VERDANT PLANTATIONS, INC., VESTA AGRICULTURAL CORP. and WINGS
RESORTS CORP., respondents.
JOVITO R. SALONGA, WIGBERTO E. TAADA, OSCAR F. SANTOS, VIRGILIO M.
DAVID, ROMEO C. ROYANDAYAN for himself and for SURIGAO DEL SUR
FEDERATION OF AGRICULTURAL COOPERATIVES (SUFAC), MORO FARMERS
ASSOCIATION OF ZAMBOANGA DEL SUR (MOFAZS) and COCONUT FARMERS
OF SOUTHERN LEYTE COOPERATIVE (COFA-SL); PHILIPPINE RURAL
RECONSTRUCTION MOVEMENT (PRRM), represented by CONRADO S.
NAVARRO; COCONUT INDUSTRY REFORM MOVEMENT, INC. (COIR) represented
by JOSE MARIE T. FAUSTINO; VICENTE FABE for himself and for PAMBANSANG
KILUSAN NG MGA SAMAHAN NG MAGSASAKA (PAKISAMA); NONITO
CLEMENTE for himself and for the NAGKAKAISANG UGNAYAN NG MGA
MALILIIT NA MAGSASAKA AT MANGGAGAWA SA NIYUGAN (NIUGAN); DIONELO
M. SUANTE, SR. for himself and for KALIPUNAN NG MALILIIT NA MAGNINIYOG
NG PILIPINAS (KAMMPIL), INC., petitioners-intervenors.
G.R. No. 180702
Facts: A complaint was filed against the defendants Eduardo Cojuangco Jr., the
ACCRA lawyers, Danilo Ursua and 71 corporations by the Presidential Commission on
Good Government (PCGG) referred here as Republic of the Philippines with regard to a
block of San Miguel Corporation (SMC) stock which were allegedly bought through the
CIIF Holding Companies and funded by the coconut levy fund passing through the
Unicom Oil Mills and directly from UCPB. The coconut levy funds were considered as
government funds since this came from contributions from the coconut farmers with the
purpose of improving and stabilizing the coconut farming industry, however these were
said to be privatized under presidential directives of then Pres. Marcos. Defendant
Cojuangco Jr., being close with the Marcoses is said to have taken undue advantage of
his association, influence and connection, embarked upon different devices and
schemes including the use of the ACCRA Lawyers as nominee shareholders and the
defendant corporations as fronts to unjustly enrich themselves at the expense of the
Filipino people when he misused the coconut levy fund, amounting to $150 million, to
purchase 33 million shares of the SMC through the holding companies. Hence with the
allegations mentioned and with different cases and issues which remain unresolved, the
block of shares representing 20% of the outstanding capital stock of SMC remained
sequestered by the government.
During the pre-trial brief, the Sandiganbayan sought clarification from the parties,
particularly the Republic, on their respective positions, but at the end it found the
clarifications "inadequately" enlightening. To resolve various pending motions and
pleadings, Sandiganbayan lifted and declared the Writs of Sequestration null and void.
Despite the lifting of the writs of sequestration, since the Republic continues to hold a
claim on the shares which is yet to be resolved, it is hereby ordered that the following
shall be annotated in the relevant corporate books of San Miguel Corporation:
SLU SOL 1-C Page

850
(1) any sale, pledge, mortgage or other disposition of any of the shares of the
Defendants Eduardo Cojuangco, et al. shall be subject to the outcome of this case;
(2) the Republic through the PCGG shall be given twenty (20) days written
notice by Defendants Eduardo Cojuangco, et al. prior to any sale, pledge, mortgage or
other disposition of the shares;
(3) in the event of sale, mortgage or other disposition of the shares, by the
Defendants Cojuangco, et al., the consideration therefore, whether in cash or in kind,
shall be placed in escrow with Land Bank of the Philippines, subject to disposition only
upon further orders of this Court; and
(4) any cash dividends that are declared on the shares shall be placed in escrow
with the Land Bank of the Philippines, subject to disposition only upon further orders of
this Court. If in case stock dividends are declared, the conditions on the sale, pledge,
mortgage and other disposition of any of the shares as above-mentioned in conditions
1, 2 and 3, shall likewise apply.
Sandiganbayan denied both Motion for Reconsideration and Motion for Modification but
eventually reduced its resolution deleting the last 2 provisions. Cojuangco, et al. filed a
Motion for Authority to Sell San Miguel Corporation (SMC) shares, praying for leave to
allow the sale of SMC shares and Sandiganbayan granted the motion. Cojuangco, et al.
later rendered a complete accounting of the proceeds from the sale of the Cojuangco
block of shares of SMC stock, informing that a total amount of P 4,786,107,428.34 had
been paid to the UCPB as loan repayment.
Issue: Whether or not Sandiganbayan has committed grave abuse of discretion.
Ruling: Among the WOS issued, only one writ WOS 87-0218 complied with PCGG
Rules and Regulations requirement that the issuance be made by at least two
Commissioners. However, even if Writ of Sequestration No. 87-0218 complied with the
requirement that the same be issued by at least two Commissioners, the records fail to
show that it was issued with factual basis or with factual foundation. It is the absence of
a prima facie basis for the issuance of a writ of sequestration and not the lack of
authority of two (2) Commissioners which renders the said writ void ab initio. Thus,
being the case, Writ of Sequestration No. 87-0218 must be automatically lifted.
Consequently, the writs of sequestration nos. 86-0062, 86-0069, 86-0085, 86-0095, 86-
0096, 86-0097 and 86-0098 must be lifted for not having complied with the pertinent
provisions of the PCGG Rules and Regulations, all of which were issued by only one
Commissioner.
Nor did the Sandiganbayan gravely abuse its discretion in reducing from four to only two
the conditions imposed for the lifting of the WOS. The Sandiganbayan thereby acted
with the best of intentions, being all too aware that the claim of the Republic to the
sequestered assets and properties might be prejudiced or harmed pendente lite unless
the protective conditions were annotated in the corporate books of SMC. Moreover, the
SLU SOL 1-C Page
851
issue became academic following the Sandiganbayans promulgation of its decision
dismissing the Republic's Amended Complaint, which thereby removed the stated
reason - "the Republic continues to hold a claim on the shares which is yet to be
resolved" - underlying the need for the annotation of the conditions (whether four or
two).
SLU SOL 1-C Page
852
Ringor v. Ringor, 436 S 484 (13 August 2004)
PROSPERO RINGOR, SATURNINO RINGOR, ANDRES RINGOR, substituted by

SHAKUNTALA DEBIE, CLARO ALEJO, GERONIMA and SANDIE LOUR, all
surnamed RINGOR, RAYMUNDA RINGOR, LUISA R. RIMANDO, EMILIANA R. TIU
and HEIRS OF JOSE M. RINGOR, INC., petitioners,
vs.
CONCORDIA, FELIPA, EMETERIA, all surnamed RINGOR, MARCELINA RINGOR,
in behalf of her deceased father, AGAPITO RINGOR, AVELINA, CRESENCIA, and
FELIMON, all surnamed ALMASEN, in behalf of their deceased mother, ESPIRITA
RINGOR, and TEOFILO M. ABALOS, in behalf of his deceased mother, GENOVEVA
RINGOR, respondents.
G.R. No. 147863 August 13, 2004
Facts: Jacobo applied for the registration of his lands under the Torrens system. He
filed three land registration cases alone, with his son Juan, or his grandson Jose,
applying jointly with him. Jose died on April 30, 1971. Respondents demanded from
Joses children, herein petitioners, the partition and delivery of their share in the estate
left by Jacobo and under Joses administration. The petitioners refused and attempts at
amicable settlement failed. On March 27, 1973, respondents filed a Complaint for
partition and reconveyance with damages, docketed as Civil Case No. D-3037. An
Amended Complaint was admitted by the lower court in its Order of August 6, 1973.
Issue: Whether or not there was a valid express trust established by Jacobo Ringor.
Ruling: Express trusts, sometimes referred to as direct trusts, are intentionally created
by the direct and positive acts of the settlor or the trustor by some writing, deed, or
will, or oral declaration. It is created not necessarily by some written words, but by the
direct and positive acts of the parties. No particular words are required, it being
sufficient that a trust was clearly intended. Unless required by a statutory provision,
such as the Statute of Frauds, a writing is not a requisite for the creation of a trust. Such
a statute providing that no instruments concerning lands shall be created or
declared unless by written instruments signed by the party creating the trust, or by his
attorney, is not to be construed as precluding a creation of a trust by oral agreement,
but merely as rendering such a trust unenforceable. Contrary to the claim of petitioners,
oral testimony is allowed to prove that a trust exists. It is not error for the court to rely on
parol evidence, - - i.e., the oral testimonies of witnesses Emeteria Ringor, Julio Monsis
and Teofilo Abalos - - which the appellate court also relied on to arrive at the conclusion
that an express trust exists. What is crucial is the intention to create a trust. While
oftentimes the intention is manifested by the trustor in express or explicit language,
such intention may be manifested by inference from what the trustor has said or done,
from the nature of the transaction, or from the circumstances surrounding the creation of
the purported trust. However, an inference of the intention to create a trust, made from
language, conduct or circumstances, must be made with reasonable certainty. It cannot
rest on vague, uncertain or indefinite declarations. An inference of intention to create a
trust,
SLU SOL 1-C Page
853
predicated only on circumstances, can be made only where they admit of no other
interpretation. In the present case, credible witnesses testified that (1) the lands subject
of Expedientes 241 and 4449 were made and transferred in the name of Jose merely
for convenience since Juan predeceased Jacobo; (2) despite the Compraventas,
transferring all the lands in Joses name, Jacobo continued to perform all the acts of
ownership including possession, use and administration of the lands; (3) Jacobo did not
want to partition the lands because he was still using them; (4) when Jacobo died, Jose
took over the administration of the lands and conscientiously and unfailingly gave his
siblings their share in the produce of the lands, in recognition of their share as co-
owners; and (5) Jose did not repudiate the claim of his siblings and only explained upon
their expression of the desire for partitioning, that it was not going to be an easy task.
SLU SOL 1-C Page
854
Salvador v. CA, 313 P 369 (1995)
REMEDIOS G. SALVADOR and GRACIA G. SALVADOR, petitioners,

vs.
COURT OF APPEALS, ALBERTO and ELPIA YABO, FRANCISCA YABO, et al.,
respondents.
G.R. No. 109910 April 5, 1995
Facts: Assailed in this petition is the legal determination made by the Court of Appeals
on the issues of which portion of Lot No. 6080 and Lot No. 6180 formed part of the
conjugal assets of the spouses Pastor Makibalo and Maria Yabo, and of whether or not
the rights of Pastor's co-heirs in the estate of Maria Yabo were extinguished through
prescription or laches.
Issue: Whether or not prescription and laches can be applied against the co-heirs of
Pastor Makibalo.
Ruling: What needs to be addressed first is whether or not Pastor Makibalo has
acquired by prescription the shares of his other co-heirs or co-owners. Prescription as a
mode of acquiring ownership requires a continuous, open, peaceful, public, and adverse
possession for a period of time fixed by law. This Court has held that the possession of
a co-owner is like that of a trustee and shall not be regarded as adverse to the other co-
owners but in fact as beneficial to all of them. Acts which may be considered adverse to
strangers may not be considered adverse insofar as co-owners are concerned. A mere
silent possession by a co-owner, his receipt of rents, fruits or profits from the property,
the erection of buildings and fences and the planting of trees thereon, and the payment
of land taxes, cannot serve as proof of exclusive ownership, if it is not borne out by clear
and convincing evidence that he exercised acts of possession which unequivocably
constituted an ouster or deprivation of the rights of the other co-owners. Thus, in order
that a co-owner's possession may be deemed adverse to the cestuique trust or the
other co-owners, the following elements must concur: (1) that he has performed
unequivocal acts of repudiation amounting to an ouster of the cestuique trust or the
other co-owners; (2) that such positive acts of repudiation have been made known to
the cestuique trust or the other co-owners; and (3) that the evidence thereon must be
clear and convincing. In Pangan vs. Court of Appeals, this Court had occasion to lay
down specific acts which are considered as acts of repudiation: Filing by a trustee of an
action in court against the trustor to quiet title to property, or for recovery of ownership
thereof, held in possession by the former, may constitute an act of repudiation of the
trust reposed on him by the latter. The issuance of the certificate of title would constitute
an open and clear repudiation of any trust, and the lapse of more than 20 years, open
and adverse possession as owner would certainly suffice to vest title by prescription. An
action for the reconveyance of land based on implied or constructive trust prescribes
within 10 years. And it is from the date of the issuance of such title that the effective
assertion of adverse title for purposes of the statute of limitation is counted. The
prescriptive period may only be counted from the time petitioners repudiated the trust
SLU SOL 1-C Page

855
relation in 1955 upon the filing of the complaint for recovery of possession against
private respondents so that the counterclaim of the private respondents contained in
their amended answer wherein they asserted absolute ownership of the disputed realty
by reason of the continuous and adverse possession of the same is well within the l0-
year prescriptive period. There is clear repudiation of a trust when one who is an
apparent administrator of property causes the cancellation of the title thereto in the
name of the apparent beneficiaries and gets a new certificate of title in his own name. It
is only when the defendants, alleged co-owners of the property in question, executed a
deed of partition and on the strength thereof obtained the cancellation of the title in the
name of their predecessor and the issuance of a new one wherein they appear as the
new owners of a definite area each, thereby in effect denying or repudiating the
ownership of one of the plaintiffs over his alleged share in the entire lot, that the statute
of limitations started to run for the purposes of the action instituted by the latter seeking
a declaration of the existence of the co-ownership and of their rights thereunder.
The records do not show that Pastor Makibalo adjudicated to himself the whole estate
of his wife by means of an affidavit filed with the Office of the Register of Deeds as
allowed under Section 1 Rule 74 of the Rules of Court, or that he caused the issuance
of a certificate of title in his name or the cancellation of the tax declaration in Alipio's
name and the issuance of a new one in his own name. The only act which may be
deemed as a repudiation by Pastor of the co-ownership over the lots is his filing on 28
April 1976 of an action to quiet title (Civil Case No. 5000). The period of prescription
started to run only from this repudiation. However, this was tolled when his co-heirs, the
private respondents herein, instituted on 8 October 1976 an action for partition (Civil
Case No. 5174) of the lots. Hence, the adverse possession by Pastor being for only
about six months would not vest in him exclusive ownership of his wife's estate, and
absent acquisitive prescription of ownership, laches and prescription of the action for
partition will not lie in favor of Pastor.
SLU SOL 1-C Page
856
Art. 1441, Kinds: Express Trust vs. Implied Trust
Huang v. CA, 236 S 420
SPOUSES RICARDO AND MILAGROS HUANG, petitioners,

vs.
COURT OF APPELAS, JUDGE, PEDRO N. LAGGUI, Presiding Judge, RTC, Makati,
Br. 60, and SPOUSES DOLORES AND ANICETO SANDOVAL, respondents.
G.R. No. 108525 September 13, 1994
Facts: Private respondents Dolores and Aniceto Sandoval wanted to buy two lots in
Dasmarinas Village, Makati but was allowed to buy only one lot per policy of the
subdivision owner. Private respondents bought Lot 21 and registered it in their name.
Respondents also bought Lot 20 but the deed of sale was in the name of petitioner
Ricardo Huang and registered in his name. Respondents constructed a house on Lot 21
while petitioners were allowed by respondents to build a house on Lot 20. Petitioners
were also allowed to mortgage the Lot 20 to the SSS to secure a loan. Respondents
actually financed the construction of the house, the swimming pool, and the fence
surrounding the properties on the understanding that the petitioners would merely hold
title in trust for the respondents beneficial interest. Petitioner Huangs leased the
property to Deltron Corporation for its official quarters without the permission of the
respondents. But later, the lessees prohibited the use of the swimming pool by the
respondents, and the Huangs began challenging the respondents ownership of the
property. Thus, respondents filed a complaint before the trial court for the nullification of
the deed of sale to the petitioners and the quieting of title of Lot 20. The trial court found
that the respondents were the real owners of the Lot 20 and therefore ordered the
petitioners to vacate the property and to remit to the respondents the rentals earned
from Lot 20. The Court of Appeals affirmed the lower courts decision. Hence, the instant
recourse.
Issue: Whether or not petitioners can claim ownership of the property registered in their
name but for which was paid by the respondents.
Ruling: No. Respondent Sandoval provided the money for the purchase of Lot 20 but
the corresponding deed of sale and transfer certificate of title were placed in the name
of petitioner Huang. Through this transaction, a resulting trust was created. Petitioner
became the trustee of Lot 20 and its improvements for the benefit of respondent as
owner. Article 1448 of the New Civil Code provides that there is an implied trust when
property is sold and the legal estate is granted to one party but the price is paid by
another for the purpose of having the beneficial interest for the property. A resulting trust
arises because of the presumption the he who pays for a thing intends a beneficial
therein for himself. Given these provisions of law, petitioner was only a trustee of the
property in question for the benefit of the respondent who is the real owner. Therefore,
petitioner cannot claim ownership of the property even when it was registered in his
SLU SOL 1-C Page
857
name. Thus, petition is denied. The decision of the trial court as sustained by the Court
of Appeals is affirmed, with costs against petitioners.
SLU SOL 1-C Page
858
Vda. de Esconde v. CA, 253 S 66
CATALINA BUAN VDA. DE ESCONDE, CONSTANCIA ESCONDE VDA. DE

PERALTA, ELENITA ESCONDE and BENJAMIN E SCONDE, petitioners,
vs.
HONORABLE COURT OF APPEALS and PEDRO ESCONDE, respondents.
G.R. No. 103635 February 1, 1996
Facts: Petitioners Constancia, Benjamin and Elenita, and private respondent Pedro, are
the children of the late Eulogio Esconde and petitioner Catalina Buan. Eulogio Esconde
was one of the children and heirs of Andres Esconde. Andres is the brother of
Estanislao Esconde, the original owner of the disputed lot who died without issue on
April 1942. Survived by his only brother, Andres, Estanislao left an estate consisting of
four (4) parcels of land in Samal, Bataan. Eulogio died in April, 1944 survived by
petitioners and private respondent. At that time, Lazara and Ciriaca, Eulogio's sisters,
had already died without having partitioned the estate of the late Estanislao Esconde.
On December 5, 1946, the heirs of Lazara, Ciriaca and Eulogio executed a deed of
extrajudicial partition, with the heirs of Lazara identified therein as the Party of the First
Part, that of Ciriaca, the Party of the Second Part and that of Eulogio, the Party of the
Third Part. Since the children of Eulogio, with the exception of Constancia, were then all
minors, they were represented by their mother and judicial guardian, petitioner Catalina
Buanvda. De Esconde who renounced and waived her usufructuary rights over the
parcels of land in favor of her children in the same deed. The deed bears the
thumbmark of Catalina Buan and the signature of Constancia Esconde, as well as the
approval and signature of Judge Basilio Bautista.
Pursuant to the same deed, transfer certificates of title were issued to the new owners
of the properties. Transfer Certificate of Title No. 394 for Lot No. 1700 was issued on
February 11, 1947 in the name of private respondent but Catalina kept it in her
possession until she delivered it to him in 1949 when private respondent got married.
Meanwhile, Benjamin constructed the family home on Lot No. 1698-B which is adjacent
to Lot No. 1700. A portion of the house occupied an area of twenty (20) square meters,
more or less, of Lot No. 1700. Benjamin also built a concrete fence and a common gate
enclosing the two (2) lots, as well as an artesian well within Lot No. 1700.
Sometime in December, 1982, Benjamin discovered that Lot No. 1700 was registered in
the name of his brother, private respondent. Believing that the lot was co-owned by all
the children of Eulogio Esconde, Benjamin demanded his share of the lot from private
respondent. However, private respondent asserted exclusive ownership thereof
pursuant to the deed of extrajudicial partition and, in 1985 constructed a "buho" fence to
segregate Lot No. 1700 from Lot No. 1698-B. Hence, on June 29, 1987, petitioners
herein filed a complaint before the Regional Trial Court of Bataan against private
respondent for the annulment of TCT No. 394. They further prayed that private
SLU SOL 1-C Page
859
respondent be directed to enter into a partition agreement with them, and for damages
(Civil Case No. 5552).
In its decision of July 31, 1989, the lower court dismissed the complaint and the
counterclaims. It found that the deed of extrajudicial partition was an unenforceable
contract as far as Lot No. 1700 was concerned because petitioner Catalina Buanvda.
De Esconde, as mother and judicial guardian of her children, exceeded her authority as
such in "donating" the lot to private respondent or waiving the rights thereto of Benjamin
and Elenita in favor of private respondent. Because of the unenforceability of the deed,
a trust relationship was created with private respondent as trustee and Benjamin and
Elenita as beneficiaries However, the lower court ruled that the action had been barred
by both prescription and laches. Lot No. 1700 having been registered in the name of
private respondent on February 11, 1947, the action to annul such title prescribed within
ten (10) years on February 11, 1957 or more than thirty (30) years before the action was
filed on June 29, 1987. Thus, even if Art. 1963 of the old Civil Code providing for a 30-
year prescriptive period for real actions over immovable properties were to be applied,
still, the action would have prescribed on February 11, 1977.
Hence, petitioners elevated the case to the Court of Appeals which affirmed the lower
court's decision. The appellate court held that the deed of extrajudicial partition
established "an implied trust arising from the mistake of the judicial guardian in favoring
one heir by giving him a bigger share in the hereditary property." It stressed that "an
action for reconveyance based on implied or constructive trust" prescribes in ten (10)
years "counted from the registration of the property in the sole name of the co-heir."
Issue: Whether or not the action was already barred with laches and prescription.
Ruling: Trust is the legal relationship between one person having an equitable
ownership in property and another person owning the legal title to such property, the
equitable ownership of the former entitling him to the performance of certain duties and
the exercise of certain powers by the latter. Trusts are either express or implied. An
express trust is created by the direct and positive acts of the parties, by some writing or
deed or will or by words evidencing an intention to create a trust. No particular words
are required for the creation of an express trust, it being sufficient that a trust is clearly
intended.
On the other hand, implied trusts are those which, without being expressed, are
deducible from the nature of the transaction as matters of intent or which are
superinduced on the transaction by operation of law as matters of equity, independently
of the particular intention of the parties. In turn, implied trusts are either resulting or
constructive trusts. These two are differentiated from each other as follows:
Resulting trusts are based on the equitable doctrine that valuable consideration and not
legal title determines the equitable title or interest and are presumed always to have
been contemplated by the parties. They arise from the nature or circumstances of the
consideration involved in a transaction whereby one person thereby becomes invested
SLU SOL 1-C Page
860
with legal title but is obligated in equity to hold his legal title for the benefit of another.
On the other hand, constructive trusts are created by the construction of equity in order
to satisfy the demands of justice and prevent unjust enrichment. They arise contrary to
intention against one who, by fraud, duress or abuse of confidence, obtains or holds the
legal right to property which he ought not, in equity and good conscience, to hold.
While the deed of extrajudicial partition and the registration of Lot No. 1700 occurred in
1947 when the Code of Civil Procedure or Act No. 190 was yet in force, the Supreme
Court held that the trial court correctly applied Article 1456.
A deeper analysis of Article 1456 reveals that it is not a trust in the technical sense for in
a typical trust, confidence is reposed in one person who is named a trustee for the
benefit of another who is called the cestuique trust, respecting property which is held by
the trustee for the benefit of the cestuique trust. A constructive trust, unlike an express
trust, does not emanate from, or generate a fiduciary relation. While in an express trust,
a beneficiary and a trustee are linked by confidential or fiduciary relations, in a
constructive trust, there is neither a promise nor any fiduciary relation to speak of and
the so-called trustee neither accepts any trust nor intends holding the property for the
beneficiary.
In the case at bench, petitioner Catalina Buanvda. de Esconde, as mother and legal
guardian of her children, appears to have favored her elder son, private respondent, in
allowing that he be given Lot No. 1700 in its entirety in the extrajudicial partition of the
Esconde estate to the prejudice of her other children. Although it does not appear on
record whether Catalina intentionally granted private respondent that privileged
bestowal, the fact is that, said lot was registered in private respondent's name. After
TCT No. 394 was handed to him by his mother, private respondent exercised exclusive
rights of ownership therein to the extent of even mortgaging the lot when he needed
money.
If, as petitioners insist, a mistake was committed in allotting Lot No. 1700 to private
respondent, then a trust relationship was created between them and private respondent.
However, private respondent never considered himself a trustee. If he allowed his
brother Benjamin to construct or make improvements thereon, it appears to have been
out of tolerance to a brother. Consequently, if indeed, by mistake, private respondent
was given the entirety of Lot No. 1700, the trust relationship between him and
petitioners was a constructive, not resulting, implied trust. Petitioners, therefore,
correctly questioned private respondent's exercise of absolute ownership over the
property. Unfortunately, however, petitioners assailed it long after their right to do so had
prescribed.
The rule that a trustee cannot acquire by prescription ownership over property entrusted
to him until and unless he repudiates the trust, applies to express trusts and resulting
implied trusts. However, in constructive implied trusts, prescription may supervene even
if the trustee does not repudiate the relationship. Necessarily, repudiation of the said
trust is not a condition precedent to the running of the prescriptive period.
SLU SOL 1-C Page
861
Since the action for the annulment of private respondent's title to Lot No. 1700 accrued
during the effectivity of Act No. 190, Section 40 of Chapter III thereof applies. It
provides: Sec. 40. Period of prescription as to real estate. An action for recovery of title
to, or possession of, real property, or an interest therein, can only be brought within ten
years after the cause of such action accrues.
Thus, in Heirs of Jose Olviga v. Court of Appeals, the Court ruled that the ten-year
prescriptive period for an action for reconveyance of real property based on implied or
constructive trust which is counted from the date of registration of the property, applies
when the plaintiff is not in possession of the contested property. In this case, private
respondent, not petitioners who instituted the action, is in actual possession of Lot No.
1700. Having filed their action only on June 29, 1987, petitioners' action has been
barred by prescription. Not only that. Laches has also circumscribed the action for,
whether the implied trust is constructive or resulting, this doctrine applies. 23 As regards
constructive implied trusts, the Court held in Diaz, et al. v. Gorricho and Aguado that:
in constructive trusts (that are imposed by law), there is neither promise nor
fiduciary relation; the so-called trustee does not recognize any trust and has no
intent to hold for the beneficiary; therefore, the latter is not justified in delaying
action to recover his property. It is his fault if he delays; hence, he may be
estopped by his own laches.
It is tragic that a land dispute has once again driven a wedge between brothers.
However, credit must be given to petitioner Benjamin Esconde for resorting to all means
possible in arriving at a settlement between him and his brother in accordance with
Article 222 of the Civil Code. Verbally and in two letters, he demanded that private
respondent give him and his sisters their share in Lot No. 1700. He even reported the
matter to the barangay authorities for which three conferences were held. Unfortunately,
his efforts proved fruitless. Even the action he brought before the court was filed too
late. On the other hand, private respondent should not be unjustly enriched by the
improvements introduced by his brother on Lot No. 1700 which he himself had
tolerated. He is obliged by law to indemnify his brother, petitioner Benjamin Esconde, for
whatever expenses the latter had incurred.
SLU SOL 1-C Page

862
Tala Realty v. Banco Filipino, 392 S 506
TALA REALTY SERVICES CORPORATION, petitioner,

vs.
BANCO FILIPINO SAVINGS AND MORTGAGE BANK, respondent.
G.R. No. 137533 November 22, 2002
Facts: Petitioner Tala Realty Services Corporation alleges that it is the absolute owner
of nine parcels of land and their improvements by virtue of separate Deeds of Absolute
Sale executed between Tala and the respondent Banco Filipino Savings and Mortgage
Bank on August 25. 1981. The Bulacan property is the subject matter of the case.
Thereafter, Tala and the Bank entered into separate lease contracts over the nine
properties. The contracts had the same form and terms. except for the description of the
property and the amount of the monthly rentals. The contracts provided for twenty-year
lease periods renewable for another twenty years at the option of the Bank. The
monthly rental for the Bulacan property was P9,800.00.
Later that same day, the parties revised the nine lease contracts. The terms of the lease
were shortened to eleven years renewable for a period of nine years "at the option of
the lessee under terms and conditions mutually agreeable to both parties", but the
monthly rental for the Bulacan property remained P9,800.00.
Almost eleven years after the execution of the nine lease contracts. Tala's director,
Elizabeth H. Palma, wrote to the Bank reminding the latter that the contracts were about
to expire on August 31, 1992, and that the Bank had earlier signified its interest to
renew the lease contracts. Meantime, Tala would lease the properties to the Bank on a
month-to-month basis until the agreement was finalized. On January 20, 1993, the Bank
requested Tala to send its representative to the Bank's office to negotiate the renewal of
the lease. Tala's director, Elizabeth Palma, negotiated the renewal and submitted a
proposal for increased rental. Tala reiterated the increased rental which was agreed
upon in the previous negotiation. Thus, the new monthly rental rate for the Bulacan
property was P31,800.00.
However, for several months from the time of negotiation, the Bank failed to take action
on Tala's proposed terms for the renewal of the lease contract. Tala also informed the
Bank that since it had been ten months since the expiration of the lease contracts in
August 1992 and the Bank had not taken any definite action to renew the contracts
despite being furnished copies of the same in December 1992. Tata declared itself free
to "lease, dispose, sell and/or in any way alienate the bank branch sites subject of the
lease agreement." However, the Bank clarified that it is the one which had the option to
renew the lease and that it had communicated to Tale it was exercising its option to do
so.
From the time the lease contract over the Bulacan property expired in August 1992 until
March 1994, the Bank continued to occupy the subject Bulacan property. It paid Tala
SLU SOL 1-C Page
863
monthly rentals at the old rate of P9,800.00 from September 1, 1992 until March 1994,
but refused to pay the P22,000.00 difference between the old monthly rate and the new
rate of P31,800.00. Beginning April 1994 until the filing of the Bank did not pay any rent
at all. Nor did it pay the goodwill money and deposit Tala required for the renewal of the
lease.
On April 14, 1994, Tala wrote to the Bank demanding payment of the latter's outstanding
obligations over the Bulacan property, consisting of unpaid rental adjustment, deposit,
and goodwill money. It also informed the Bank that at the end of the month, the month-
to-month lease would no longer be renewed, thus, it should vacate the premises by that
time, otherwise, petitioner would resort to legal action. Still, the Bank refused to pay its
outstanding obligations, prompting Tala's lawyer to demand the latter to vacate the
premises and to pay its outstanding obligation within five days from receipt of the letter,
otherwise a legal action would be filed against it. The Bank still did not comply with
Tala's demands, the latter filed complaints for ejectment and for unlawful detainer.
The Bank's liquidator, on the other hand asserts that the amended 11-year lease
contracts of August 25, 1981 provided for the payment of security deposits and not
advance rentals so that said payment could not be used to cover unpaid rentals during
the period that the Bank was closed and under receivership and liquidation. According
to Tails lawyer, the only time that said security deposits may be applied to unpaid rents
is when the rentals for the last year of the lease contracts were not paid, but the lease
contracts were still due to expire in 1992. The Bank therefore, could not apply the
security deposits to the payment of rentals and thus had to pay its accrued rentals.
The MTC ruled in favor of the Bank. Based from the evidences, defendant has a better
right of possession over the subject property on the basis of a Contract of Lease. It
cannot be said that the defendant failed to comply with the terms and conditions of the
said Contract of Lease because payment was made to the plaintiff on December 18,
1981 P487,500.00 as advance rentals, to be applied to the rentals due from the
eleventh through the twentieth years of the lease or from 1992 through the year 2001.
Thus, the RTC dismissed petitioner's appeal of the decision of the MTC for lack of merit.
On appeal to the Court of Appeals, the decision of the RTC of Malolos was affirmed.
Issue: Whether or not the implied trust created under the obligation was valid.
Ruling: Tala's right to lease the property to the Bank proceeds from its (Tala's) claim of
ownership of the property based on a contract of sale executed between it and the Bank
on August 25. 1981. The Bank, however, disputes Tale's ownership "in fee simple" as
stated in its 20-year lease contract with Tala as it (the Bank) alleges that there is an
implied trust relationship between the Bank as trustor and beneficiary and Tala as
trustee. Pursuant to this implied trust, the Bank in April 1994 demanded Tala to perform
its obligation as trustee and return the disputed property to the Bank as trustor and
beneficiary. The Bank is of the view, therefore, that since it had already sought
SLU SOL 1-C Page

864
enforcement of the implied trust and reconveyance of the subject property, the Bank
had the right to its possession and Tala did not have a right to eject it from the property.
The Bank alleged that the sale and twenty-year lease of the disputed property were part
of a larger implied trust "warehousing agreement." Concomitant with the Coin's factual
finding that the 20-year contract governs the relations between the parties, the court
finds the Bank's allegation of circumstances surrounding its execution worthy of
credence: the Bank and Tala entered into contracts of sale and lease back of the
disputed property and created an implied trust "warehousing agreement" for the
reconveyance of the property. However, the implied trust is inexistent and void for being
contrary to law.
The Bank claims to be both the trustor and beneficiary while Tala is the trustee. It
alleges the existence of an implied trust between it and Tala, relics on Articles 1448 and
1453 of the New Civil Code. However, an implied trust could not have been formed
between the Bank and Tala as the Court has held that "where the purchase is made in
violation of an existing statute and in evasion of its express provision, no trust can result
in favor of the party who is guilty of the fraud."
The Bank cannot use the defense of nor seek enforcement of its alleged implied trust
with Tala since its purpose was contrary to law. As admitted by the Bank, it
"warehoused" its branch site holdings to Tala to enable it to pursue its expansion
program and purchase new branch sites including its main branch in Makati. and at the
same time avoid the real property holdings limit under Sections 25(a) and 34 of the
General Banking Act which it had already reached. The Bank stated in its Memorandum
that "the (n)ew branch sites which the Respondent (Bank) will be disqualified from
buying, by reason of the aforecited limitations under existing banking laws and
regulations, will be acquired for it by the Petitioner (Tala) which will forthwith lease them
to the Respondent (Bank). The Bank also admitted that the agreement that the branch
sites will be returned to the bank anytime at its pleasure at the same transfer price- was
differently stated in the lease contracts as a "first preference to buy" because the Bank
was apprehensive that the agreement to return property. "if spelled out as-is in the
documents, might provide basis for the Central Bank to question the sale and
simultaneous lease back of the branch sites as simulated and accordingly, derail the
expansion program of the Respondent"
Clearly, the Bank was well aware of the limitations on its real estate holdings under the
General Banking Act and that its -warehousing agreement" with Tala was a scheme to
circumvent the limitation. Thus, the Bank opted not to put the agreement in writing and
call a spade a spade, but instead phrased its right to reconveyance of the subject
property at any time as a "first preference to buy' at the "same transfer price. This
arrangement which the Bank claims to be an implied trust is contrary to law. Thus, while
the sale and lease of the subject property genuine and binding upon the parties, the
implied trust cannot be enforced even assuming the parties intended to create it. The
Bank cannot thus demand reconveyance of the property based on its alleged implied
trust relationship with Tala.
SLU SOL 1-C Page
865
Wherefore, the petition is dismissed.
SLU SOL 1-C Page

866
Art. 1444, Express Trust: How Established
Medina v. CA, 196 P 205 (1981)
THE HEIRS OF PEDRO MEDINA, represented by MARGARITA MEDINA, petitioners,

vs.
THE HON. COURT OF APPEALS, * RESTITUTA ZURBITO VDA. DE MEDINA and
ANDRES NAVARRO, JR., respondents.
G.R. No. L-26107 November 27, 1981
Facts: On March 6, 1957, herein petitioners filed the complaint in the trial court seeking
to recover from herein respondents a parcel of land situated in the sitio of Oac,
municipality of Milagros, province of Masbate, containing an area of 321.1156 hectares
and praying that respondents be ordered to deliver to them possession and ownership
thereof with accounting, damages and costs and litigation expenses.
Among others, the complaint alleged that petitioner Margarita Medina as plaintiff
inherited with her sister Ana Medina the said parcel of land from their father Pedro
Medina; that upon their father's death, she and her sister Ana Medina being then minors
were placed under the care and custody of the spouses Sotero Medina and Restituta
Zurbito, as guardians of their persons and property; that the land in dispute was placed
under the management of Sotero Medina as administrator thereof, and upon Sotero's
death under the management of his widow, Restituta Zurbito; that she later discovered
that the land in question was surreptitiously declared for taxation purposes in the name
of Andres Navarro, Jr., grandson of Restituta Zurbito; that said respondents as
defendants had without color of title denied petitioners' ownership and instead had
claimed ownership thereof since the year 1948 and exercised acts of possession and
ownership thereon to the exclusion of petitioners; that petitioners had demanded that
respondents vacate the premises and deliver possession and ownership thereof, but the
latter failed and refused to do so; that respondent Andres Navarro, Jr. had excavated
soil from the land in question and sold the same to the Provincial Government of
Masbate without the knowledge and consent of petitioners and appropriated the
proceeds thereof to his personal benefit to the damage and prejudice of the plaintiff; and
that respondent Restituta Zurbito Vda. de Medina never rendered an accounting of the
income of the property in question in spite of their repeated demands and instead
appropriated all the income therefrom to her personal use and benefit.
Respondents as defendants alleged on the other hand that petitioner Margarita and her
deceased sister Ana were but illegitimate children of Pedro Medina and for that reason
did not enjoy the status of recognized natural children, such that when Pedro died
intestate, Francisco Medina, Pedro's father who was still living, succeeded to his
properties; that upon the death of Francisco, his children succeeded to his properties
and the land in dispute was adjudicated to Gregorio, Sotero, and Narciso Medina; that
in a deed of extrajudicial partition the land was later adjudicated solely to Narciso
Medina; that Narciso Medina having become sole and exclusive owner of the land in
SLU SOL 1-C Page
867
question by virtue of said partition sold the same to Restituta and her husband Sotero
Medina on June 29, 1924, as evidenced by a deed of sale; that from that day,
respondents had actually possessed the land in question in the concept of owners,
publicly, openly and continuously and adversely against the whole world so that
whatever right, interest, title or participation petitioners had or might have had in the
property had been lost by extinctive prescription and by virtue of the 33 years of
exclusive actual possession in the concept of owner of the spouses Sotero and
Restituta Medina who had thereby acquired title thereto by acquisitive prescription, even
granting arguendo that petitioners had some title, right or interest over the land.
After trial, judgment was rendered declaring petitioner Margarita Medina with her co-
heirs as the lawful owners of the land in question; ordering respondents to deliver unto
them the "Titulo Real No. 349581" and to restore to them the actual possession thereof;
and ordering respondents to pay them certain amounts representing the produce of the
land and attorneys' fees and costs of litigation. Upon appeal, respondent Court of
Appeals reversed the trial court's decision and sustaining respondents' defenses of
prescription of action and acquisitive prescription, ordered the dismissal of the
complaint. Petitioners twice moved in vain to reconsider the appellate court's adverse
decision. Hence, this petition for review, which we find to be without merit.
Issue: Whether or not petitioners' action for recovery thereof has been barred by
prescription.
Ruling: As provided by our Civil Code, "Trusts are either express or implied. Express
trusts are created by the intention of the trusts are of the parties. Implied trusts come
into being by operation of law." (Art. 1441) "No express trusts concerning an immovable
or any interest therein may be proven by parol evidence." (Art. 1443) "An implied trust
may be proven by oral evidence." (Art. 1457). Applied to the case at bar, if an express
trust had been constituted upon the occupancy of the property by respondents in favor
of the petitioners, prescription of action would not lie, the basis of the rule being that the
possession of the trustee is not adverse to the beneficiary. But if there were merely a
constructive or implied trust, the action to recover may be barred by prescription of
action or by acquisitive prescription by virtue of respondents' continuous and adverse
possession of the property in the concept of owner-buyer for thirty-three years. The
appellate court correctly held that the facts and evidence of record do not support
petitioners' claim of the creation of an express trust and imprescriptibility of their claim,
ruling squarely that "the facts do not warrant the conclusion that an express trust was
created over the land in dispute. Although no particular words are required for the
creation of an express trust, a clear intention to create a trust must be shown (Article
1444, Civil Code of the Philippines); and the proof of fiduciary relationship must be clear
and convincing.
Express trusts are those intentionally created by the direct and positive act of the
trustor, by some writing, deed or win, or oral declaration (54 Am. Jur. 33-34). The
creation of an express trust must be manifested with reasonable certainty and cannot
be inferred from loose and vague declarations or from ambiguous circumstances
SLU SOL 1-C Page
868
susceptible of other interpretations (54 Am. Jur. 48-49). Nowhere in the record is there
any evidence, and the plaintiffs do not even raise the pretention, that the original owner
of the property Pedro Medina, father of plaintiff Margarita Medina, appointed,
designated or constituted Sotero Medina (the husband of defendant Restituta Zurbito
Medina) as the trustee of the land in dispute. Plaintiffs' contention that there was an
express trust must, therefore, fail."
SLU SOL 1-C Page
869
Art. 1443, Express Trust: How Proven
Filipinas Port v. Go, 16 March 2007
FILIPINAS PORT SERVICES, INC., et al., petitioners,

vs.
VICTORIANO S. GO, et al., respondents.
G.R. No. 161886 March 16, 2007
Facts: Eliodoro C. Cruz, Filports president from 1968-1991, wrote a letter to the
corporations BOD questioning the creation and election of the following positions with a
monthly remuneration of P13,050.00 each. Cruz requested the board to take necessary
action to recover from those elected to the aforementioned positions the salaries they
have received. In June 4, 1993, Cruz, purportedly in representation of Filport and its
stockholders, among which is herein co-petitioner Minterbro, filed with the SEC a
derivative suit against Filport's BOD for acts of mismanagement detrimental to the
interest of the corporation and its shareholders at large. Cruz prayed that the BOD be
made to pay Filport, jointly and severally, the sums of money variedly representing the
damages incurred as a result of the creation of the offices/positions complained of and
the aggregate amount of the questioned increased salaries. RTC: BOD have the power
to create positions not in the by-laws and can increase salaries. But Edgar C. Trinidad
under the third and fourth causes of action to restore to the corporation the total amount
of salaries he received as assistant vice president for corporate planning; and likewise
ordering Fortunato V. de Castro and Arsenio Lopez Chua under the fourth cause of
action to restore to the corporation the salaries they each received as special assistants
respectively to the president and board chairman. In case of insolvency of any or all of
them, the members of the board who created their positions are subsidiarily liable.
Issues:
1. Whether or not there was mismanagement.
2. Whether or not there is a proper derivative suit.
Ruling:
1. No. Section 35 of the Corporation Code, the creation of an executive committee (as
powerful as the BOD) must be provided for in the bylaws of the corporation.
Notwithstanding the silence of Filports bylaws on the matter, we cannot rule that the
creation of the executive committee by the board of directors is illegal or unlawful. One
reason is the absence of a showing as to the true nature and functions of executive
committee. But even assuming there was mismanagement resulting to corporate
damages and/or business losses, respondents may not be held liable in the absence of
a showing of bad faith in doing the acts complained of. Determination of the necessity
for additional offices and/or positions in a corporation is a management prerogative
which courts are not wont to review in the absence of any proof that such prerogative
was exercised in bad faith or with malice.
SLU SOL 1-C Page
870
2. Yes. Besides, the requisites before a derivative suit can be filed by a stockholder are:
a) the party bringing suit should be a shareholder as of the time of the act or transaction
complained of, the number of his shares not being material; b) he has tried to exhaust
intra-corporate remedies, i.e., has made a demand on the board of directors for the
appropriate relief but the latter has failed or refused to heed his plea; and c) the cause
of action actually devolves on the corporation, the wrongdoing or harm having been, or
being caused to the corporation and not to the particular stockholder bringing the suit, a
wrong against the stockholders of the corporation generally.
SLU SOL 1-C Page
871
Arts. 1447-1457, Implied Trust
Resulting Trust vs. Constructive Trust

Mendizabel v. Apao, 20 February 2006
NESTOR MENDIZABEL, ELIZABETH MENDIZABEL, IGNACIO MENDIZABEL, and

ADELINA VILLAMOR, petitioners,
vs.
FERNANDO APAO and TEOPISTA PARIDELA-APAO, respondents.
G.R. No. 143185 February 20, 2006
Facts: On 21 March 1955, Fernando Apao purchased from spouses Alejandroa nd

Teofila Magbanua a parcel of land situated in Malangas, Zamboanga del Sur. The
vendors executed a deed of sale which stated inter alia that they could purchase back
the property within six months, failing which, the sale would become absolute. The
vendors failed to repurchase the property. Fernando thus took possession of the same.
After the survey of the land, the Survey Party of the Bureau of Lands surveyed the
same area. This latter survey resulted in a subdivision of the land into two separate and
distinct lots identified as Lot Nos. 407 and 1080. Fernando learned that Ignacio
Mendizabel had filed prior to the Bureau of Lands survey a homestead application over
Lot No. 1080. Fernando became the claimant-protestant in Ignacios application. On 11
May 1962, the Bureau of Lands Regional Office in Zamboanga City rendered a decision
awarding Lot No. 1080 to Ignacio.
Issue: Whether or not implied trust exists in this case.
Ruling: Petitioners claim that while respondents complaint alleged fraud or mistake, it
did not state with particularity the circumstances constituting fraud or mistake.
Respondents clearly asserted that they were the true and actual possessors of the
property purchased from spouses Alejandro and Teofila Magbanua on 21 March 1955
as evidenced by a deed of sale pacto de retro and they were fraudulently deprived of
ownership of the property when petitioners obtained homestead patents and certificates
of title in their names. These allegations certainly measure up to the requisite statement
of facts to constitute an action for reconveyance based on an implied trust. Indubitably,
the act of petitioners in misrepresenting that they were in actual possession and
occupation of the property, obtaining patents and original certificates of title in their
names, created an implied trust in favor of the actual possessors of the property. Article
1456 of the Civil Code provides: If property is acquired through mistake or fraud, the
person obtaining it is, by force of law, considered a trustee of an implied trust for the
benefit of the person from whom the property comes. If the registration of the land is
fraudulent, the person in whose name the land is registered holds it as a mere trustee,
and the real owner is entitled to file an action for reconveyance of the property. The
essence of an action for reconveyance is that the free patent and certificate of title are
respected as incontrovertible. What is sought is the transfer of the property, in this case
SLU SOL 1-C Page
872
its title, which has been wrongfully or erroneously registered in another persons name,
to its rightful owner or to one with a better right. The Court has ruled that the 10-year
prescriptive period applies only when the person enforcing the trust is not in possession
of the property. If a person claiming to be its owner is in actual possession of the
property, the right to seek reconveyance, which in effect seeks to quiet title to the
property, does not prescribe. The reason is that the one who is in actual possession of
the land claiming to be its owner may wait until his possession is disturbed or his title is
attacked before taking steps to vindicate his right.
SLU SOL 1-C Page
873
Vda. De Gualberto v. Go, 21 July 2005
CONSUELO N. VDA. DE GUALBERTO, FE GUALBERTO-CHAVEZ, AMADOR

GUALBERTO, CESAR GUALBERTO, RODOLFO GUALBERTO, LUZVIMINDA
GUALBERTO MIRANA, and VIRGINIA GUALBERTO, petitioners,
vs.
FRANCISCO H. GO, RAYMUNDO J. GO, MIRIAM J. GO, MIRIAM G. SON, VICENTE
J. GO, BELEN GO, and ROSA JAVIER GO, respondents.
G.R. No. 139843 July 21, 2005
Facts: Petitioners are the heirs of Generoso Gualberto, the former registered owner of a
parcel of land situated in Siniloan, Laguna. Sometime in 1965, the subject parcel of land
was sold by Generoso and his wife Natividad to respondents' father, Go Kiang. In April
1973, Natividad executed an affidavit attesting to the fact that the parcel of land had
truly been sold by her and her husband to the Sps Go.
In Dec. 1973, in a case for unlawful detainer filed against petitioners, they alleged that
the plaintiff therein was not a real party in interest and therefore has no legal capacity
and cause of action to sue them.
Issue: Whether or not an action for reconveyance of property based on nullity of title
prescribes.
Ruling: An action for reconveyance of registered land based on implied trust prescribes
in 10 years, the point of reference being the date of registration of the deed or the date
of the issuance of the certificate of title over the property.
The SC has ruled that the 10-year prescriptive period applies only when the person
enforcing the trust, either implied or expressed, is not in possession of the property. If a
person claiming to be its owner is in actual possession of the property, the right to seek
reconveyance does not prescribe. The reason is that the one who is in actual
possession of the land claiming to be its owner may wait until his possession is
disturbed or his title is attacked before taking steps to vindicate his right. His
undisturbed possession gives him a continuing right to seek the aid of a court of equity
to ascertain and determine the nature of the adverse claim of a third party and its effect
on his own title, which right can be claimed only by one who is in possession.
In the present case, petitioners remained in actual possession of the property after their
father's sale to Go Kiang and up to the lifting of their complaint in this case. The SC's
actual conclusion is that respondents had actual possession of the subject property ever
since. Thus, the action for reconveyance in the instant case is not in the nature of an
action for quieting of title and is not imprescriptible.
SLU SOL 1-C Page
874
Heirs of Yap v. CA, 371 P 523 (1999)
HEIRS OF LORENZO YAP, petitioner,

vs.
COURT OF APPEALS, et al., respondents.
G.R. No. 133047 August 17, 1999
Facts: Ramon Yap purchased a parcel of land situated at 123 Batanes Street, Galas,
Quezon City, covered by Transfer Certificate of Title No. 82001/T-414, from the spouses
Carlos and Josefina Nery. The lot was thereupon registered in the name of Ramon Yap
under Transfer Certificate of Title No. 102132. In 1967, Ramon Yap constructed a two
storey 3-door apartment building for the use of the Yap family. One-fifth (1/5) of the cost
of the construction was defrayed by Ramon Yap while the rest was shouldered by Chua
Mia, the mother of Lorenzo, Benjamin and Ramon. Upon its completion, the
improvement was declared for real estate tax purposes in the name of Lorenzo Yap in
deference to the wishes of the old woman. On 18 March 1992, Ramon Yap sold the land
and his share of the 3-door apartment to his brother, his herein co-respondent Benjamin
Yap pursuant to a Deed of Sale. The controversy started when herein petitioners, by a
letter of 08 June 1992, advised respondents of the formers claim of ownership over the
property and demanded that respondents execute the proper deed necessary to
transfer the title to them.
Issue: Whether or not there was implied trust in this case.
Ruling: One basic distinction between an implied trust and an express trust is that while
the former may be established by parol evidence, the latter cannot. Even then, in order
to establish an implied trust in real property by parol evidence, the proof should be as
fully convincing as if the acts giving rise to the trust obligation are proven by an
authentic document and cannot be established upon vague and inconclusive proof.
Unfortunately for petitioners, the issues they submit in the case at bar boil down to the
appreciation of the evidence presented. The Court of Appeals, sustaining the court a
quo, has found the evidence submitted by petitioners to be utterly wanting, consisting
mainly of the self-serving testimony of Sally Yap. She herself admitted that the business
establishment of her husband Lorenzo was razed by fire in 1964 that would somehow
place to doubt the claim that he indeed had the means to purchase the subject land
about two years later from the Nery spouses. Upon the other hand, Ramon Yap was by
then an accountant with apparent means to buy the property himself. At all events,
deserve utmost regard when not devoid of evidentiary support. No cogent reason had
been shown by petitioners for the Court to now hold otherwise. A trust or a provision in
the terms of a trust would be invalid if the enforcement of the trust or provision is against
the law even though its performance does not involve the commission of a criminal or
tortuous act. It likewise must follow that what the parties are not allowed to do expressly
is one that they also may not do impliedly as, for instance, in the guise of a resulting
trust.
SLU SOL 1-C Page
875
Prescriptive Periods of Action to Enforce Implied Trusts in
Actions to Quiet Title
Heirs of Kionisala v. Heirs of Dacut, 378 S 206
HEIRS OF AMBROCIO KIONISALA, namely, ANA, ISABEL, GRACE, JOVEN and

CARMELO, all surnamed KIONISALA, petitioners,
vs.
HEIRS OF HONORIO DACUT, namely: VISAMINDA D. OREVILLO, VIOLETA
DACUT, JOSEPHINE DACUT and ELIZABETH DACUT, respondents.
G.R. No. 147379 February 27, 2002
Facts: On 19 December 1995 private respondents filed a complaint for declaration of

nullity of titles, reconveyance and damages against petitioners. This complaint involved
two (2) parcels of land known as Lot No. 1017 and Lot No. 1015 with areas of 117,744
square meters and 69,974 square meters respectively, located in Pongol, Libona,
Bukidnon. On 7 September 1990 Lot No. 1017 was granted a free patent to petitioners
Heirs of Ambrocio Kionisala under Free Patent No. 603393, and on 13 November 1991
Lot 1015 was bestowed upon Isabel Kionisala, one of the impleaded heirs of Ambrocio
Kionisala under Free Patent No. 101311-91-904. Thereafter, on 19 November 1990 Lot
1017 was registered under the Torrens system and was issued Original Certificate of
Title No. P-19819 in petitioners name, while on 5 December 1991 Lot No. 1015 was
registered in the name of Isabel Kionisala under Original Certificate of Title No. P-
20229.In support of their causes of action for declaration of nullity of titles and
reconveyance, private respondents claimed absolute ownership of Lot 1015 and 1017
even prior to the issuance of the corresponding free patents and certificates of title.
Issue: Whether or not the cause of action has prescribed in this case.
Ruling: The test of the sufficiency of the facts to constitute a cause of action is whether
admitting the facts alleged the court could render a valid judgment upon the same in
accordance with the prayer of the complaint. The complaint does not allege an action
for reversion but that it sufficiently states either a cause of action for declaration of
nullity of free patents and certificates of title or alternatively a cause of action for
reconveyance of these two pieces of realty. The court rule that neither the action for
declaration of nullity of free patents and certificates of title nor the action for
reconveyance based on an implied trust of the same lots has prescribed. That a free
patent issued over private land is null and void, and produces no legal effects
whatsoever. Quos nullum est, nullum producit effectum. Moreover, private respondents
claim of open, public, peaceful, continuous and adverse possession of the two (2)
parcels of land and its illegal inclusion in the free patents of petitioners and in their
original certificates of title, also amounts to an action for quieting of title which is
imprescriptible. The action for reconveyance based on implied trust, on the other hand,
prescribes only after ten (10) years from 1990 and 1991 when the free patents and the
certificates of title were registered. Obviously the action had not prescribed when private
SLU SOL 1-C Page
876
respondents filed their complaint against petitioners on 19 December 1995. At any rate,
the action for reconveyance in the case at bar is also significantly deemed to be an
action to quiet title for purposes of determining the prescriptive period on account of
private respondents allegations of actual possession of the disputed lots. In such a
case, the cause of action is truly imprescriptible.
SLU SOL 1-C Page
877
Ramos v. Ramos, 61 S 284
EMILIANO B. RAMOS, et al., plaintiffs-appellants,

vs.
GREGORIA T. RAMOS, et al., defendants-appellants.
G.R. No. L-19872 December 3, 1974
Facts: Spouses Martin Ramos and Candida Tanate died on October 4, 1906 and
October 26, 1880, respectively. They were survived by their 3 children. Moreover, Martin
was survived by his 7 natural children. In December 1906, a special proceeding for the
settlement of the intestate estate of said spouses was conducted. Rafael Ramos, a
brother of Martin, administered the estate for more than 6 years. Eventually, a partition
project was submitted which was signed by the 3 legitimate children and 2 of the 7
natural children. A certain Timoteo Zayco signed in representation of the other 5 natural
children who were minors. The partition was sworn to before a justice of peace.
The conjugal hereditary estate was appraised at P74,984.93, consisting of 18 parcels of

land, some head of cattle and the advances to the legitimate children. One-half thereof
represented the estate of Martin. 1/3 thereof was the free portion or P12,497.98. The
shares of the 7 natural children were to be taken from that 1/3 free portion. Indeed, the
partition was made in accordance with the Old Civil code. Thereafter, Judge Richard
Campbell approved the partition project. The court declared that the proceeding will be
considered closed and the record should be archived as soon as proof was submitted
that each heir had received the portion adjudicated to him.
On February 3, 1914, Judge Nepumoceno asked the administrator to submit a report

showing that the shares of the heirs had been delivered to them as required by the
previous decision. Nevertheless, the manifestation was not in strict conformity with the
terms of the judges order and with the partition project itself. 8 lots of the Himamaylan
Cadastre were registered in equal shares in the names of Gregoria (widow of Jose
Ramos) and her daughter, when in fact the administrator was supposed to pay the cash
adjudications to each of them as enshrined in the partition project. Plaintiffs were then
constrained to bring the suit before the court seeking for the reconveyance in their favor
their corresponding participations in said parcels of land in accordance with Article 840
of the old Civil Code. Note that 1/6 of the subject lots represents the 1/3 free portion of
martins shares which will eventually redound to the shares of his 7 legally
acknowledged natural children. The petitioners action was predicated on the theory that
their shares were merely held in trust by defendants. Nonetheless, no Deed of Trust
was alleged and proven. Ultimately, the lower court dismissed the complaint on the
grounds of res judicata, prescription and laches.
Issue: Whether or not the plaintiffs' action was barred by prescription, laches and res
judicata to the effect that they were denied of their right to share in their fathers estate.
SLU SOL 1-C Page
878
Ruling: Yes, there was inexcusable delay thereby making the plaintiffs action
unquestionably barred by prescription and laches and also by res judicata. Inextricably
interwoven with the questions of prescription and res judicata is the question on the
existence of a trust. It is noteworthy that the main thrust of plaintiffs action is the alleged
holding of their shares in trust by defendants. Emanating from such, the Supreme Court
elucidated on the nature of trusts and the availability of prescription and laches to bar
the action for reconveyance of property allegedly held in trust. It is said that trust is the
right, enforceable solely in equity to the beneficial enjoyment of property, the legal title
to which is vested in another. It may either be express or implied. The latter ids further
subdivided into resulting and constructive trusts. Applying it now to the case at bar, the
plaintiffs did not prove any express trust. Neither did they specify the kind of implied
trust contemplated in their action. Therefore, its enforcement maybe barred by laches
and prescription whether they contemplate a resulting or a constructive trust.
SLU SOL 1-C Page
879
Intestate Estate of Ty v. CA, 356 S 661
THE INTESTATE ESTATE OF ALEXANDER T. TY, represented by the

Administratrix, SYLVIA S. TY, petitioner,
vs.
COURT OF APPEALS, HON. ILDEFONSO E.GASCON, and ALEJANDRO B. TY,
respondents.
G.R. No. 114672 April 19, 2001
SYLVIA S. TY, in her capacity as Administratrix of the Intestate Estate of

Alexander T. Ty, petitioner,
vs.
COURT OF APPEALS and ALEJANDRO B. TY, respondents.
G.R. No. 112872 April 19, 2001
Facts: Petitioner Sylvia S. Ty was married to Alexander T. Ty, son of private respondent
Alejandro B. Ty. Alexander died of leukemia on May 19, 1988 and was survived by his
wife, petitioner Sylvia, and only child, Krizia Katrina. On November 4, 1992, petitioner
filed a motion for leave to sell or mortgage estate property in order to generate funds for
the payment of deficiency estate taxes. Private respondent Alejandro Ty then filed two
complaints for the recovery of the above-mentioned property, praying for the declaration
for nullity of the deed of absolute sale of the shares of stock executed by private
respondent in favor of the deceased Alexander, and Civil Case, praying for the recovery
of the pieces of property that were placed in the name of deceased Alexander.
Issue: Whether or not there was an express trust between deceased and respondent.
Ruling: Petitioner contends that private respondent is attempting to enforce an

unenforceable express trust over the disputed real property. Petitioner is in error when
she contends that an express trust was created by private respondent when he
transferred the property to his son. In the cases at hand, private respondent contends
that the pieces of property were transferred in the name of the deceased Alexander for
the purpose of taking care of the property for him and his siblings. Such transfer having
been effected without cause of consideration, a resulting trust was created.
A resulting trust arises in favor of one who pays the purchase money of an estate and
places the title in the name of another, because of the presumption that he who pays for
a thing intends a beneficial interest therein for himself. The trust is said to result in law
from the acts of the parties. Such a trust is implied in fact, which may be proven by oral
evidence under Article 1457 of the Civil Code, and it matters not whether property is real
or personal.
SLU SOL 1-C Page

880
Petitioners' assertion that private respondents action is barred by the statute of
limitations is erroneous. The statue of limitations cannot apply in this case. Resulting
trusts generally do not prescribe, except when the trustee repudiates the trust. Further,
an action to reconvey will not prescribe so long as the property stands in the name of
the trustee. To allow prescription would be to permit a trustee to acquire title against his
principal and the true owner.
SLU SOL 1-C Page
881
Vda. De Reterto v. Barz, 372 S 712
CATALINA VDA. DE RETUERTO AS SURVIVING WIDOW OF THE LATE PANFILO

RETUERTO; LORETO RETUERTO, REPRESENTED BY HIS SURVIVING HEIRS
NAMELY: ROMEO RETUERTO; ANTONIA RETUERTO, NARCISA RETUERTO,
CORAZON RETUERTO, AND PATROCINIA RETUERTO; GAUDENCIO,
FRANCISCA, CRUZ, FRANCISCO, EFIGENIA AND GUILLERMO, ALL SURNAMED
RETUERTO; AND SPOUSES JOSE AND ROSA GESALEM, petitioners,
vs.
ANGELO P. BARZ AND MERLINDA BARZ, respondents.
G.R. No. 148180 December 19, 2001
Facts: When Sps Esteban Perez and Lorenza Sanchez dies intestate, their rights over
the property were inherited by their daughter, Juana Perez, married to Numeriano Barz,
who then declared the properly, for taxation purposes, under her name but with an area
of only 13,160 square meters, more or less. On April 16, 1929, Juana Perez, widow
Barz, executed a deed confirming her execution of a Deed of Absolute Sale in favor of
Panfilo Retuerto, married to Catalina Ceniza, over a portion of the Hacienda de
Mandaue. However, on April 26, 1935, Panfilo Retuerto purchased the aforementioned
parcel of land, this time, from the Archbishop of Cebu. In the meantime, the San Carlos
Seminary in Cebu filed a Petition with the Regional Trial Court for the Issuance of titles
over several parcels of land in Hacienda de Mandaue, including Lot No 896-A, earlier
purchased by Panfilo Retuerto from Juana Perez and from Archbishop of Cebu. No
decree was issued because Second World War ensued in the Pacific. However, Panfilo
Retuerto failed to secure the appropriate decree after the war.
Issue: Whether or not the cause of action has prescribed in this case.
Ruling: Constructive trusts are created in equity to prevent unjust enrichment, arising
against one who, by fraud, duress or abuse of confidence, obtains or holds the legal
right to property which he ought not, in equity and good conscience, to hold. Petitioners
failed to substantiate their allegation that their predecessor-in-interest had acquired any
legal right to the property subject of the present controversy. Nor had they adduced any
evidence to show that the certificate of title of Pedro Barz was obtained through fraud.
Even assuming arguendo that Pedro Barz acquired title to the property through mistake
or fraud, petitioners are nonetheless barred from filing their claim of ownership. An
action for reconveyance based on an implied or constructive trust prescribes within ten
years from the time of its creation or upon the alleged fraudulent registration of the
property. Since registration of real property is considered a constructive notice to all
persons, then the ten-year prescriptive period is reckoned from the time of such
registering, filing or entering. Thus, petitioners should have filed an action for
reconveyance within ten years from the issuance of OCT No. 521 in November 16,
1968. This, they failed to do so. No action for reconveyance has been filed by herein
petitioners. They interposed their claim of ownership for the first time in their Answer
and by way of Affirmative Defenses to the complaint for quieting of title filed by herein
SLU SOL 1-C Page
882
respondents in 1989. This cannot be allowed. Under Section 48 of PD 1529, a
certificate of title cannot be subject to collateral attack; it cannot be altered, modified or
cancelled except in a direct proceeding. The issue of the validity of title, whether or not it
was fraudulently issued, can only be raised in an action expressly instituted for that
purpose.
SLU SOL 1-C Page
883
Chiao Liong Tan v. CA, 228 S 75
CHIAO LIONG TAN, petitioner,

vs.
THE HONORABLE COURT OF APPEALS, HON MANUEL T. MURO, Presiding
Judge, RTC of Manila, Branch 54 and TAN BAN YONG, respondents.
G.R. No. 106251 November 19, 1993
Facts: Chiao Long Tan claims to be the owner of a 1976 Isuzu Elf van. As owner
thereof, petitioner says he has been in possession, enjoyment, and utilization of the van
until his older brother, Tan Ban Yong, unlawfully took it away from him. Petitioner relies
on the fact that the van is registered under his name; that he sent his brother to pay for
the van and the receipt was issued in his name because his money that was used to
pay for the vehicle; that he allowed his brother to use the vehicle because the latter was
working for the company and that his brother refused to return the vehicle and
appropriated the same for himself.
Issue: Whether or not there was an implied trust in this case.
Ruling: It is true that a certificate of registration of a motor vehicle in ones name

creates a strong presumption of ownership. The person in whose favor it has been
issued, is virtually the owner thereof unless proven otherwise. Such presumption is
rebuttable by competent proof. It was undeniable that an implied trust was created when
the certificate of registration of the vehicle was placed in the petitioners name although
the price thereof was paid by private respondent. A trust, which drives its strength form
the confidence one reposes on another especially between brothers, does not lose that
character simply because of what appears is a legal document. Hence, petition is
denied.
SLU SOL 1-C Page
884
O'laco v. Co Cho Chit, 220 S 656
EMILIA O'LACO and HUCO LUNA, petitioners,

vs.
VALENTIN CO CHO CHIT, O LAY KIA and COURT OF APPEALS, respondents.
G.R. No. 58010 March 31, 1993
Facts: Private respondent spouses Valentin Co Cho Chit and OLay Kia learned from
the newspaper that OLaco sold the Oroquieta property to the Roman Catholic
archbishop for P230,000. Respondent spouses sued petitioner to recover the purchase
price asserting that petitioners knows that they were the real vendees and the legal title
thereto was merely placed in her name. They contend that OLaco breached the trust
when she sold the land. While petitioner assert that she merely left the certificate of title
covering the property with the private respondent for safekeeping.
Issue: Whether or not the trust between parties has prescribed.
Ruling: Unlike express trusts concerning immovables or any interest therein which
cannot be proved by parol evidence, implied trusts may be established by oral
evidence. However, in order to establish an implied trust in real property by parol
evidence, the proof should be as fully convincing as if the acts giving rise to the trust
obligation were proven by an authentic document. It cannot be established upon vague
and inconclusive proof. After a thorough review of the evidence on record, the court held
that a resulting trust was indeed intended by the parties under Art. 1448 of the New Civil
Code. As stipulated by the parties, the document of sale, the owner's duplicate copy of
the certificate of title, insurance policies, receipt of initial premium of insurance coverage
and real estate tax receipts were all in the possession of respondent-spouses which
they offered in evidence. As emphatically asserted by respondent O Lay Kia, the reason
why these documents of ownership remained with her is that the land in question
belonged to her. Indeed, there can be no persuasive rationalization for the possession
of these documents of ownership by respondent-spouses for seventeen (17) years after
the Oroquieta property was purchased in 1943 than that of precluding its possible sale,
alienation or conveyance by Emilia O'Laco, absent any machination or fraud. This
continued possession of the documents, together with other corroborating evidence
spread on record, strongly suggests that Emilia O'Laco merely held the Oroquieta
property in trust for respondent-spouses. As differentiated from constructive trusts,
where the settled rule is that prescription may supervene, in resulting trust, the rule of
imprescriptibility may apply for as long as the trustee has not repudiated the trust.
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MARIANO UN OCAMPO III, petitioner,

G.R. Nos. 156547-51 February 4, 2008

ANDRES S. FLORES, petitioner,

G.R. Nos. 156384-85 February 4, 2008

Art. 1158, Law

LEUNG BEN, plaintiff,

G.R. No. L-13602 April 6, 1918

ARTURO PELAYO, plaintiff-appellant,

G.R. No. L-4089 January 12, 1909

NIKKO HOTEL MANILA GARDEN AND RUBY LIM, petitioner,

G.R. No. 154259 February 28, 2005

ST. MARY'S ACADEMY, petitioner,

G.R. No. 143363 February 6, 2002

Facts: The defendant-appellant, St. Marys Academy of Dipolog City, conducted an

SLU SOL 1-C Page

SPOUSES LUIGI M. GUANIO and ANNA HERNANDEZ-GUANIO, petitioners,

G.R. No. 190601 February 7, 2011

Facts: Petitioner spouses, Luigi M. Guanio and Anna Hernandez-Guanio, booked

Issue: Whether or not Makati Shangri-La committed a breach of contract and as a

TSPIC CORPORATION, petitioner,

G.R. No. 163419 February 13, 2008

Facts: TSPIC is engaged in the business of designing, manufacturing, and marketing

Conformably, the wages of 17 probationary employees (second group) were increased

Respondents attained regular employment status before January 1, 2001. WO No. 8,

Diminution of benefits is the unilateral withdrawal by the employer of benefits already

KHRISTINE REA M. REGINO, petitioner,

G.R. No. 156109 November 18, 2004

SLU SOL 1-C Page

PHILIPPINE SCHOOL OF BUSINESS ADMINISTRATION, JUAN D. LIM, BENJAMIN

G.R. No. 84698 February 4, 1992

AYALA CORPORATION, petitioner,

G.R. No. 134284 December 1, 2000

Issue: Whether or not Rosa Diana committed a breach of contract.

BRICKTOWN DEVELOPMENT CORP. (its new corporate name MULTINATIONAL

G.R. No. 112182 December 12, 1994

Facts: On 31 March 1981, petitioner Bricktown Development Corporation executed two

On 12 October 1981, Petitioner Corporation sent notice of cancellation of contract to

On 26 September 1983, private respondent demanded the refund of its various

ANTONIO LOCSIN, II, petitioner,

G.R. No. 192105 December 9, 2013

SLU SOL 1-C Page

Conversely, petitioner cannot recover the monetary value of Mekenis counterpart

ARTURO SARTE FLORES, petitioner,

G.R. No. 183984 April 13, 2011

SLU SOL 1-C Page

TITAN-IKEDA CONSTRUCTION & DEVELOPMENT CORPORATION, petitioner,